Lemonade Stand - Steve Eisman from The Big Short | Ep. 031 Lemonade Stand 🍋

Episode Date: October 1, 2025

On this week's show... Aiden has his Gen Z portfolio reviewed, DougDoug invests in Tech, and Atrioc gets told to calm down. Steve Eisman's Channel: https://www.youtube.com/@UCzQ2FFVe7m8yIgzXMZtlSjg We launched a Patreon! - https://www.patreon.com/lemonadestand for bonus episodes, discord access, a book club, and many more ways to interact with the show! Episode: 031 Recorded on: September 29th, 2025 Clips Channel: https://www.youtube.com/channel/UCurXaZAZPKtl8EgH1ymuZgg Follow us TikTok - https://www.tiktok.com/@thelemonadecast Instagram - https://www.instagram.com/thelemonadecast/ Twitter - https://x.com/LemonadeCast The C-suite Aiden - https://x.com/aidencalvin Atrioc - https://x.com/Atrioc DougDoug - https://x.com/DougDougFood Edited by Aedish - https://x.com/aedishedits Produced by Perry - https://x.com/perry_jh New takes on Business, Tech, and Politics. Squeezed fresh every Wednesday. #lemonadestand #dougdoug #atrioc #aiden Learn more about your ad choices. Visit podcastchoices.com/adchoices

Aiden, what do you think the chances are that I don't make too many big short references this episode? There's zero. Zero, Aiden. Zero. Steve Isman, welcome to the pod. Thank you. Welcome to the lemonade stand.

So happy to have you. Steve Isman. I'm glad you went for the high five. That was in sick. Wow. The real life Mark Baum from the big short is here. He runs his own YouTube channel covering investment. Called the real Isman.

The real Isman Playbook, which you need to follow to stay ahead of this environment. And he's here on our show. Welcome to Lemonade Stinn. Very happy to be here. Thanks so much. I also would like to just point out that you walked into the studio, asked what these are, then immediately just cracked one open and drank it. I like so.

You were bolder than me. I haven't even drank one of these. I have no idea what they are. This is my first. They're pretty good. I believe this is actually Lemon, so cheers, cheers. I also like that he has better Mike discipline than me after doing this for him. Yes.

You can do it for like five years. This is crazy. This is too long. Well, so Steve, there's a lot we want to chat with you about. I'd love to get your expertise and thoughts on the current state of the market on how people are thinking about investments, on just all the craziness that's going on. As well as hearing, of course, the story of the 2008 financial crisis and how impactful you were in that. And then this experience around having a book, the big short, and then the movie written about, I would argue you in many ways. Like, you're sort of the core thematic tie through a lot of it.

So to start this off, movie, you're in a movie. We're really curious. So there are many, many iconic experiences in the big short, one of which was you at the securitization conference, basically in the context of cumulative losses, holding up a zero during a conference, shouting over the guy talking and being the only person. It was me and my absolutely most obnoxious. So, so bad. So I'll set you this.

So in the movie, the way it's described. It's like a big meeting of everybody. And that's actually not what happened. There were a few meetings like that, none of which we attended. What we wanted to do was meet as many people and companies as possible to find out what the hell's going on. So one of the meetings that I went to was a meeting with a subprime mortgage company called Option 1. And Option 1 back then was owned by H&R Block. It was a fully owned division of H&R Block.

So we go to this meeting, it's me, and Danny Moses is sitting to my left. And the guy starts pontificating about how great subprime mortgages are and how low the losses are going to be. And I just lost my shit. I will honestly say I was borderline insane back then because I was so angry about what was actually happening. So when he starts talking about how cumulatively, historically, subprime mortgage securitization pools would have cumulative losses over the entire lifespan of the pool of, let's say, 7%. So he says we think our losses will only be up 5 to 7%. In which point, I literally lost my mind.

And I did the zero thing. And so what happened was, as I do, he wasn't even asking questions. I just interrupted it. There were 150 people in the room. And like I said, I was borderline insane. So I hold up my hand. Danny literally almost crawls under the chair. And then literally as I go zero, my phone rings.

And it was my wife. And I always answered my wife's phone. So I literally got up and I walked out and started talking to my wife. And that's what happened. Literally what happened. That's funny. So you made a video recently going over some of the scenes from the movie. And at the end of it, you say that,

you used to say, what was wrong about the movie? You used to say, well, they made me too angry. I'm not that angry. And I was. But then, so when the movie came out, you know, people would always ask me, what do you think about the portrayal of Steve? Well, and first I would say, I only met the guy once. We met for breakfast at this diner near my home.

And then I took him to see my family. And I meant one or two more times afterwards, but I literally only had that really like an extended one hour conversation with him. then the movie comes down. Everybody says, what do you think about the portrayal? And I say the same thing to everybody, which is, first of all,

I think it was a great movie. I thought, I was very thankful in the way he portrayed me in the sense that the distance between portraying me as a good guy and an asshole is a very short role.

Oh, sure. Very small. And we were petrified that my wife and I, I would be portrayed it not as a good guy. Right. So I was very thankful for that. But I said,

I don't think that's quite that angry. And that was, the movie came out, let's say, January 2015. So in 2010, when President Obama had created this Financial Crisis Commission, financial crisis commission came and interviewed me for like two hours. And now I'm in the book, the financial crisis book, but I never heard from them again. And then in April of 2015, it's only a few months after the movie came out, the Crisis Commission did a data dump. They literally put out

every single piece of paper that they had. And one of the pieces of paper that they put out was a transcript of my interview, which I hadn't thought about in five years. So if anybody wants to look at it,

just type in Steve Eisman Financial Crisis Commission and it'll pop up. I did do this after I saw your thing. I can't think of the exact quotes at the top of my head, but it was you saying like, these guys are all schmucks.

You were saying that all the financial data is gobbledygook. Like they pull it from Europe and it's two X in America and it doesn't make any sense. And yeah, it was just you just laying into everyone involved in the process. I was insane. And after I read it, I said, no, Correll was right. I was angry.

I'm reading this. I'm like this could be from the script. This sounds like how if Correll portrayed it. So I kind of hung on to that same part of the interview. I was thinking about that a lot after. I think a big theme of the movie is your anger or you're discussed with the system that has been developed and the lies that people seem to be telling themselves in order to keep it going. And I was wondering if any of that, do you feel like that anger or that

frustration with the system has dissipated over time? Like, have significant changes that helped produce the crisis at the time? Oh, absolutely. Been made? Massive. Absolutely, massive. People don't appreciate how much has changed. What are some of them? So I'm going to teach you. Yeah, yeah. I'd like to take something maybe, maybe hopeful. A positive. Yeah. Because I think as we look down the tunnel of where we're at right now, I think a lot of people are pretty pessimistic. And I want to look back at that crisis and see, like, what action was taken in the wake of that you actually think is valuable. So, so Dodd-Frank got passed at the end of 2010.

And as part of Dodd-Frank, a new position was created in the Fed called Vice Chair of Financial Supervision, which is a fancy word for a chief bank regulator of the United States. Think about this for a minute. prior to that, there was no chief bank regulator in the United States. It was like an alphabet soup of regulators. It got played off one another. Yeah. And so that changed. And President Obama never actually appointed anyone officially to the position.

So as I like to joke, one day, as Powell was going to the bathroom with Fed governor, Daniel Terullo, he turns to Dan and says, why don't you do it? and Dan says, okay, unless you think that, it's funny. I told that joke to Daniel Torolla years later,

and his response was, that's basically how it happened, except for the bathroom part. So Daniel Tarullo becomes effectively vice chair of financial supervision. And he should be like, he's like,

there's like, there's a hall of fame of bank, of great bank regulators. Okay. He's in it. He's the only, one who's in it. Okay. Okay. One guy. He's the best. He's the Michael Jordan. He's the and so what he did

through the, you know, the annual stress test that you read about is he made the banks completely de-lever. So just to give you an idea of how much. So prior to the crisis, city group was was officially levered. If he just did simple math, 33 to 1. Now, if you add in all the off-bush, balance sheet, gobbledygook, that eventually they had to bring back on balance sheet. It was probably 40 to 1. When he was done, it was 10 to 1. Now, that's just, you know, numbers to you guys. But I could tell you, in my world, that's like the distance from Mercury to Pluto.

So at 10 to 1, you don't have to worry about Citigroup going down. And even within that 10 to 1, he made them cut off the tails of risk. So I am very confident saying the banking system in the United States today is safe. Can I ask a stupid question? I want to make sure you can ask an intelligent question. Okay. So when you say levered 40 to 1, do you mean $40 outstanding in terms of loans? Assets.

You know, total. Very simple. Yeah. Just take the balance sheet. The most simplistic way. Take the total assets of the bank and divide it by the common equity. That's 40 to 1. Okay.

Got it. That's it. And then another layman question, 10 to 1 still feels like a lot of leverage. Oh, it's very, it's so low. hasn't been, city group wasn't levered 10 to 1 in my lifetime. That's how much lower it became. So why is that such a substantial difference from, let's say, 40 or 30 down to 10 to 1

in terms of like overall financial stability? The way I would analyze it is if you do some math, okay, bank 101. If you get this formula, you get banking. Okay. Nice. Okay. The formula is return. on equity equals return on assets times leverage.

So what does a bank do? It basically sells you access to its balance sheet for a price, which is generally a loan. So let's take an extreme example. Let's say a bank has $100 billion in assets. Most of it are loans. And it has only $1 billion in equity. So it's lever it 100 to $1. For bank analysts, the real determination of how profitably,

you are is the return on assets because that's all the money you're lending out. The leverage is just math, how much equity you have to have against those assets. So the first question you ask is, what's the return on assets of a bank? So Citigroup, which is underperformed for years, has a return on assets of less than 1%. JP Morgan, which is a great bank, has a return on assets as something like 1.5, 1.6% of assets. So probably 1.7. So if you're level at 100 to 1 and you're, let's keep it very simple, let's say your return on assets is 1%, which would be okay today, but not great.

Okay. Lower end. Your return on equity is 100%. Returned equity equals return on assets times leverage. Okay. So the first lesson here is that banks have a built-in. incentive to ever increase their leverage because the CEO is basically compensated on return on equity.

Right. So the more, the less equity you have and the more leverage you have, the higher you return on equity. So here's the crisis in a nutshell. So if you're live at 100 to 1, now these banks will have it 100 to 1, but they will have at 40. Let's keep it 100 to 1. The two big differences in terms of banks, business model, is that the model only works with

leverage and the cost of goods sold. which is losses is unknown to point of sale. Meaning when you make a whole bunch of loans to people, you're just guessing what the losses are going to be. We only know one thing. You're going to be wrong. The only question is in which direction. So if you have a bank that's 100 times levered

and has a 1% R-OA, it's a return equity is 100%. But suppose you made a whole bunch of subprime loans. And now instead of a 1% return on assets, you have a negative 1% return on assets. Now your return equity is negative 100%. Meaning you just wiped out your equity. So the lesson is if you're really, really, really, really levered,

it doesn't take that much losses to blow you up. To wipe it all out. But if you're levered 10, 15 to 1, it takes a lot more losses. That's the lesson. You can stomach more non-performing loans. Of course, because you have more equity. That makes sense. And was that, how was that?

enforce. So you list that as like a major change of how banks or let's say less prone to these crashes that to fight them out. It was enforced through the annual stress test. Okay. So that's a long complicated story. Sure, sure, yeah. But the jest of it basically was it over a couple of years, he basically crammed their leverage down. Gotcha. He would, basically what the stress test does is it's like an exam. And it says, here's an economic scenario. Your capital is here. in this scenario, you're going to lose some capital. You're going to go to here. You have to be above a certain level under this stress scenario.

So therefore, you have to have more equity than you originally thought you needed. And he forced all the banks to deliver. And this is something that's still happening to this day. It's still happening to this day. But now, because the leverage went down so much, they're allowing the leverage to take up a little bit. Not much. A little bit.

Is there any, are there any significant changes besides, that position coming into place and that type of like check or enforcement or is that the main thing that you consider? The annual stress test, as people like to say, is like the binding constraint on banks. That's it.

Because no matter what you do, you have to be able to get through that test each year. You have to pass that test every year. It's not optional. Yeah, but didn't like Silicon Valley Bank pass that? Oh, you want to bring up a soap topic. I mean, there's banks that pass that test and then turns out they were.

Well, in the regulator's defense, and believe me, these people are not in the whole fame. Silicon Valley, in terms of its sides, was below a certain threshold. I see. So they weren't. And so some of the tougher tests that applied to Citibank and Bank of America did not apply to, so for example, the big banks have major, not just capital requirements. They also have major liquidity requirements, meaning you have to have to have have a certain enormous amount of money, basically in short-term treasuries. So those rules didn't apply to Silicon Valley. It's not like the bigger banks were such geniuses.

Bank of America made a very bad bet, too. But they couldn't make as big a bet as Silicon Valley because they had to have much more short-term equity. Right. They had rules that were more. Okay. That makes all sense. Wait, do you have any more questions about actually 2008?

Yeah. Yeah, I want to make sure we get those. Well, I felt like in, you know, not just in the movie, but also in the follow-up explanations that I've seen from yourself, there's sort of a, there's a timeline to your realization of how consequential what you were discovering was going to be. And I was wondering at what, at what stage did you realize that this was going to have far-reaching consequences beyond just the U.S. housing market? Like, oh, this is going to be something that collapses the economy of Iceland or, you know, collapses the economy of Greece. Like, it had, I think a lot of the movie spends time talking about the U.S. housing market is going to crash, but not that the global financial system is going to collapse. So there's 07 and there's 08. So the subprime sort of story is really an 07 story?

It wasn't. I mean, we sort of knew, but we kept finding things that we didn't even know existed. Like, I remember I got a call from a hedge fund guy that I was friendly with. And he says to me, you know what a sieve is? So a sieve is a special investment vehicle. It turned out that was like a big deal. And I said, I don't know, but I'm going to find out. And it turned out that these were these vehicles where banks would put all this crap into

and it would be technically off balance sheet. But what we realized was that, it was that if their stuff ever went bad, they couldn't allow the investors to eat the loss. So the banks would take it back on balance sheets. That's how when I said Citigroup was levered 33 to 1, but an actual reality was level 40 to 1. That's because all this other crap was out there. So it took a while to really figure.

It had so many tentacles. We were discovering new ones all the time. So you're kind of realizing that this can have much farther reaching consequences than you initially, because you keep finding. So I knew the system was basically at risk by the end of 07. Yeah. Well, the intellectual mistake that I made in 08 was that, and this is me and all my partners. If you ask any of my partners, I'd say the same thing. The mistake that we made as a group was we walked into.

to White thinking, this is really bad. It just is really, I mean, it's frightening. I can't sleep at night. Surely the government must know what we know, because it's just so bad. It's so bad. And we didn't understand until it was too late.

It was like till the fall that they didn't know. They really didn't know. They were that behind. There was this wonderful moment in 08 where I never forget this, Bernanke, and this is like in the late spring where I started to realize, like, we are, fucked, which is Bernanke made a speech, and then shortly after Secretary of the Treasury

Paulson made a speech. They both said the same thing. I remember sitting in the office and comes across the tape. They both said the same one. The subprime crisis is contained. Yeah. And I remember turning to Danny Moses and I said, it's contained their rights. Containt the planet Earth. That's like, and that's when I into like, like, I was thinking, you must really not understand what's going on because you wouldn't say that if you really understood. It's like the Bush mission accomplished speech in 2003.

He's like, guys, we did it. It's over. So, okay, but when you're listening to Powell now, you don't have similar, you're not, you feel good about this. This all feels fine. Everything he's saying about... You know, the whole thing with Trump and the Fed,

that's what you're asking? No, I'm talking about in general, but he talks about the health of the economy. He talks about how, unemployment rate is relatively low and stable. I think the economy is okay. Okay. I mean,

there's a little bit of a dichotomy in that you've got, plug my podcast for a second. Real husband playbook. On the Realizement Playbook on YouTube. On the Realizement Playbook, which is fantastic. A interview just dropped today. Okay.

It's an interview with Dan Ives. So Dan Ives is the like tech analyst at, Wedbush. A more bullish person, I thought I was bullish. Sure. A more bullish person could not exist on my life. Yeah, he's in the whole table.

He's tall-eague. Okay. I mean, he's all tech. Yeah. And you listen to Dan Ives and you're like, you buy everything. And he's mostly been right. So in defense of him. Sure.

But there's another side to the economy, which is, I don't know if you've noticed, but the subprime auto market seems to have imploded. Oh, we're going to talk about it. But so I, the consumer is okay. I don't think the consumer is the most healthy. It's every. he or she has ever been, certainly not dying from subprime loans. But the economy is a bit of a dichotomy.

I mean, I still think, you know, assuming there's no trade war with China will be okay. Okay. That's a fair take. That is a big assumption I would love to come back to later. Yeah, yeah, yeah. Back and away. Because I think you had a similar question, but I wanted to ask this. This is like a human question of, so 2007, 2006, this is this period leading up to the

crash, you are making these enormous bets against the housing market and you are required to pay premiums every month. And that is expensive. And I'm certainly people around you. Like even your own father, you mentioned off pod is like questioning the choice. What was the human element of being the, the black sheep in that situation like? Like, how did you have? Unbelievable amount of anxiety. Yeah. Tremendous. I mean, I had, I was on any medication. But I would say that one thing that I would do, I just had a lot of anxiety. I mean, it was very nerve-wracking where, you know, people would come to our office and tell us we were crazy.

Yeah. All the time, right? All the time. But I used to, I had this little office and I had a, I had like a television in my office. And so almost every day at lunch, I'd go into my office and I'd watch an episode of Deep Deep Space Nine, which was my favorite Star Trek series. And that helped. got to say.

I really did. That's pretty healthy compared to like drinking and the officer. Great anxiety medication as far as they could go. It's an SSRI in many ways. Waits.

Are you secretly a nerd? Are you part of this? Or you can... Oh, you have no idea. No idea. We had a fourth comest here. Uh, yeah. Anything else from 2008?

I think that's, uh, that's kind of it from that. That section, yeah. Because I want to jump in something. I want to pitch something to you, Steve. And it's, I'm going to disagree with you on the state of the economy. And I want to hear your thoughts. Okay.

I want to, I want to pitch you a bigger short. And my assistant here is going to pull up a little display. Okay. I'm getting nervous. This is the bigger shorts. Okay. Django blocks. Got it.

Okay. You smell that? Smell that? Opportunity? No. Idiot. Content. We're going to make some content. Okay.

Okay. Bring on my slides, Perry, if you could. So this, this is, this is all deposits at U.S. banks. Okay. You'll notice after COVID with all the stimulus, there's a surge of new money in U.S. banks that they have to do something with. Some of them do the quote unquote safe option and they put it all into U.S. Treasury's long term like Silicon Valley Bank.

That didn't turn out so well. Didn't turn out so well. They collapsed. Okay, we will try to withdraw. They can't sell the long-term treasuries. They don't, they can't, they have a liquidity challenge. The stock goes to zero. It's a collapse.

They have to be bailed out or at least fall by someone else. But other banks decide all this new money is prime for lending. They have to lend. Yes. They'll lend more than ever. They might have to relax their lending standards in things like auto loans, credit card loans, uh, business loan or home equity loans, He locks and then business loans in CRE, commercial real estate.

Okay. So they're not nice chart you got there. Very professional. Very well put together. Yeah. So they're they're extending their loans above and beyond what they were doing before. Yep. Okay.

All true. Here's, and this, this Jenga Block Tower here represents all of these different loans. This is credit cards and auto and CRE. This is like the loan book of a. major U.S. Bank. Okay. And again, this tracks for Wells Fargo, Bank of America, J.P. Moore, all the big ones. Yes.

I'm waiting for get to get to the point. I'm sure you'll have an answer, but I just want to explain. So those are non-performing loans. Non-performing loans. So around, you know, 23Q1, the number of loans that are non-performing, aka people not paying them back in default starts to rise. Starts to rise very, very quickly. And then right around 2-4Q2, it levels off.

And people say it's okay. Okay? The losses are contained. They're contained, they might say. I heard that. They're contained. And this is true. Again, this chart is the same at all these major banks for all these major classes.

Credit card, auto. No question about it. Okay. So what I noticed, sorry, well, actually, you know what, this data comes from Bill Moreland at Bankreg data and I want to say it's his work, okay? Why am I on the presentation? You're in the presentation because. Nice sunglasses, by the way. Why do you have an IKEA shirt?

They don't sell merchandise. That's me in Taiwan in like 2016. Oh. So as these default rates start to rise, the banks are going to the people that took out these loans and they're saying, hey, if you can't pay your $10,000 monthly payment for, let's say, a commercial real estate building,

we're going to modify that payment. And you can pay $6,000. Otherwise call, extend and pretend. Extend and pretend. So they start to be doing this extend and pretend strategy for not only CRE, but for auto and credit and a lot of things. So this is harder to do that for credit and auto because you have security.

They're securitized and the securitization documents are restrictive on what you can do. I'm 100% sure you're correct and then I don't know. Look ahead. Keep going. So this is for, We'll focus on CRE. Counterpoint, it says that on the graph right there.

So I don't know, Steve. This graph is not made up by Doug. This is non-performing loans modified. So this is how they track that they have done this. Yes. All right, right. And all true. Yeah, okay.

I'm still waiting for the punchline. Okay, where's the punchline? So around the time that you see that number go flat is when they are actually modifying loans. Yes. Yes. To hide the rising default. Yes, they are.

Okay? So you can see here. They track very closely. So the default rate should be rising, but instead they are giving people more and more modified loans. But at least we can track that. If you're an analyst for a bank and you're looking at their stock, you can see, hey, non-owner-occupied modified is growing.

So at least we know what's going on. Is your arguing that CRE is going to sink the economy? No, but the combination of CRE credit auto and all of these might be bigger than people think. Okay. So as delinquency rises, modification also rises. But then in July 2025, a new rule came out that is making it even harder to track. Now, this was pressured by the banks on the regulators to... Well, wait.

Banks are pressuring regulators. I never heard that. I never heard that. I don't know if this sounds familiar. This is when your story says to follow on. Okay. Okay. The institutions now only report loans as modified if...

For the first 12 months, they are paying modified. So I have a perfect chart here. This is an impression. Oh, no. So in other words, if you modify for the next 12 months, you classify it as modify and then it goes back to non-mive. So for example, Aden goes in in January.

He makes his $6,000 lower payment. He does it in February. He does it all around the year. And then by December, even though he is not back to paying the original $10,000, it is now classified as a performing loan again. It goes back on the books as three. I'm with you.

I got one. caveat. Okay. Which is the big loan growth in the United States over the last 10 years has not happened in the banks. Okay. It's happened outside the banks. I agree with you, but some of these entities that are outside of the banks seem to be tied back into the banks. Like, the banks lend to them. Yeah. But they, but they don't make the loans that those guys make. But if those guys fail and the banks lend to them. Yeah, it's a problem. So here is from 2009. This is TDR, which I believe is troubled debt restructuring. Right.

This is where, this is basically modified loans. Right. And in 2009, if a bank had zero percent modified loans, they failed at basically an 8% rate in 2009. However, if they had above 5% trouble debt restructuring, if they were doing a lot of loan modifications, they were addicted to it. Right. They failed at nearly a 42%, nearly a half the banks.

That's higher. We're failing if they did a lot. They got addicted to loan modification. I'm so glad I'm on a show where guys know math. This is their three-year disappearing. I'm so waiting for the punchline. We're getting there, okay? So if banks above 5% trouble debt restructuring failed at nearly half in 2009,

and nowadays, you look at all the major banks for all of their major loan portfolios, credit auto CRE, and they're approaching eight or nine percent TDR. They're modifying their loans at really. high rates. That's just CRE. This is just CRE, but I have the, I mean, I don't have got 14 graphs. But these graphs, I promise you, they track for Wells Fargo, Bank of America, J.B. Morgan.

There's a, okay. Okay. Calm down. More people can tell me that. More people can tell me that. First of all. Steve, okay. Okay.

The guys who I talk to. Okay. The bank guys. Sure. Believe me, they pour all over. We pour over all this stuff. quarter. Okay.

You know, when, when these banks report, the amount of disclosure is astonishing. It's not like it's hidden. Like, you go through J.P. Morgan's deck, you know what's going on. Okay. It might take you a couple of hours to go through J.P. Morgan's deck, but, but you know what's going on. I mean, first of all, they're much better capitalized than they were. They have much higher reserve levels than they did.

So I actually don't worry so much about what you're talking about. What I worry more about is what I don't know, which is that most of the loan, all this is you're saying are true. If that was coupled with massive loan growth at the same time, then I'd really be worried. Because those numbers would actually be understated, meaning when you, it takes time for losses to show up. Yeah. So if the number is like you're worried, it's 7%. But let's say you're talking about a bank that's growing its loan book by 20% per year. It's really not 7% because the denominator is growing so rapidly.

So what you would do to really understand is you would take the same numerator, but you wouldn't divide it by the current size of the loan book. You might divide it by the size of the loan book a year ago. You follow? Yeah. Because that would really tell you because the losses that are, happening now are not from the loans that you just made in the last year. Sure. But there hasn't been very little loan growth in the banks in 10 years. I think that's fair. I guess I'm just worried.

What I would be if I would get. Yeah. Yeah. If I could. Yeah. I would try and understand what, what, what's been happening in Blackstone and Apollo and all those places. That's where the big loan growth has been. Okay. And the problem is that they all do it privately, so we don't know. So the guys that I talk to and really respect, who coming financial services for long as I have, that's what we worry about. We worry about the big growth is in private equity, private lending,

and we don't know what the hell's going on there. There's no stress test there. There's nothing. Okay. It's a black box. Okay. So if tomorrow it blows up, someone's going to say, told you so. Right. But the problem, the difference between now versus what I

did back then was securitization's report data every month. Literally, every single credit statistic and a securitization is reported every single month. So when you were looking at subprime loans in 2007, every month in the middle of the month of the data come out, you'd just look and say, it's still bad. Yeah.

There's nothing like that in the private side. All you have is anecdotes. So my feeling is the difference between what happened back then versus now is because subprime was so big. It got to be like 500, 600 billion subprime mortgage loans per year. It was 20% of the housing market. And the underwriting was so bad. You got bad. You had losses before the economy got bad. The normal cause and effect is you have an economy, starts to go into recession, people start to lose jobs, and then you get bad credit quality. And then the fact cuts rates, we go into a recession, eventually we come out of it.

What was different about the subprime crisis of 2007 and eight was bad credit created the recession, as opposed to the recession creating bad credit. That makes sense. I don't, as far as I can tell, whatever you're talking about here or whatever is happening in the private world is not going to cause the recession whenever that recession will be. What I think will happen is there'll be a recession one day. and then we'll find out who did bad crap. But it's not going to what you're arguing,

you're making an argument that basically all this stuff is going to create a recession. And I don't think that's true. I think that's a fair pushback. But I am just saying that it's, you know, from the outside, it's a little spooky to see that this number is rising. But we will after, again, second quarter of this year,

that number could be rising still and we will not know about it because of the way this fairs know. And I understand what you say. I don't think it's going to cause a recession. Okay. Now, if we have a trade war with China, we're going to have a recession, and then all this stuff will unwind. Yes.

But again, your example, you just mentioned about things unwinding before we have another recession, you know, tricolor and first brand groups. Yes, tricolor. They both are failing after. Well, tricolor might be just a fraud. Yeah, well, yeah. And a complete fraud. But are they the only one? Is it contained to just tricolor or people?

No, no. I mean, you had, I know if you saw CarMax had terrible numbers last week. Carvana has great numbers somehow every time. What does? Carvana. Every time. Every time somehow. I don't know.

I don't know how it's done. But I know a bunch of people who are a lot older today because they were short Carvana. Dude, I've lost a little bit. I'm stupid. But CarMax tells you that the consumers got issues. Okay. That's all I agree. Yeah.

Okay. I agree. The consumer has issues. Maybe stepping away from the idea that this is all heading towards or going to cause a recession, just the mechanics of what he was explaining. Because when you brought this up the first time, my initial reaction to the pressure on the regulators to basically relabel the loans after like a year of the reduced payments,

but the reduced payments get to continue after the fact. My first reaction is, why is that allowed? Why is that okay? Well, you got to have a rule. but yeah i mean but the rule doesn't make any sense the rule isn't doing anything of value anymore if you allow it to like go listen compared to what used to exist yeah yeah that's like nothing yeah i mean i understand what you're saying it's not a great rule yeah but compared to what i was used to i yeah it's like uh it's like a cookie but i was watching cartoons in the

i understand this is great though hearing that our perspective, we just need to broaden it to be apocry. You're worried about this is terrible. This is terrible. I'm telling you what used to get wins. It's not even the same universe. Well, you mentioned, you mentioned a lot of the lending growing in private businesses, like, or private equity. Right. What is, I mean, I hate to, I hate to be a pessimist about that. But what do you think is kind of the worst diversion of what you could imagine going on versus... Oh, the worst.

I'll give you the worst. I'll give you the scenario that someone would argue is horrendous. I don't know if it is or it isn't. Yeah. So years ago, Apollo bought an insurance company, a life insurance company. And there are people who argue that what Apollo has done is take a boring life insurance company that takes its premiums and invests in boring stuff and they've loaded it up with private equity and others crap.

Yeah. And that one day, the whole life insurance sector will blow up. Now, I don't think that's probably true. Okay. But that's one version of what some arguments people like. And then this, regardless of the extent of how bad it is, what may or may not be going on behind closed doors. You think all of that comes to light

in like whatever crisis unfolds in the future. Whatever is. There's a recession. What does Warren Buffett say? When the tide goes out, you find out who's naked. He said that, not me. And it's true. It always happens like that.

I'm just wondering if there's, it's like a nudist pool. It just feels like a lot of these things are more naked than they seem. Well, we'll find out. So I want to ask that. Yeah. That's fine.

Swap into a pencil. So it seems like your view on at least the loans that Brandon is concerned about is more that might have a lot of consequence after a recession happens rather than being the cause of it. But that a China trade war might be a certain cause of it. So I'm curious what you think about that. We've just been reading multiple books about the relationship with China, obviously following everything going on there. What is your take on America and China's relationship and the consequences? I just can't handicap it at all. Honestly, I mean, on the one hand, what we have over them is they are still incredibly export-driven.

I don't know if you know this. The United States of all developed countries is the least export-driven economy of all. Our exports as a percentage of GDP is around 10%. Yeah. We used to be super high, right? No, that's, it's consistent. And that's the lowest in the lowest? That's the lowest of any developed country in the world.

So if you look at Germany, it's 40%. If you look at most European countries, 30%. Mexico is 30. Canada is 30. China officially is 20, which bullshit, because they ship all this stuff to Vietnam that comes to us. It's probably like 30. That's why Europe caved. Right.

Because when you're negotiating with someone whose exports is 10%, and your exports are 30%, you know what they call that? Problem. So that's why Europe caved. So what we have on China is they export a hell of a lot more to us and we export to them. What they have on us is they got all the rare earth metals. Right. And I just don't know how to handicap it.

I mean, you listen to Secretary Besson and it's like we're on the verge of a deal at any time. But then I read other things that say China is going to demand that we abandon Taiwan completely. So I don't know. I don't know how to, I just can't handicap this one. Why do you feel like that would be so consequential versus anything else that might disrupt the economy? Look, I think we could live with a lot of, without a lot of other countries, but we can't live without China. Okay. What about, so my, my thought.

I mean, we could live without China, but we'd have a recession. Okay. I mean, yeah, we'd purchase every, yeah, that's, they're extricably intertwined, I think, at this point. As an example, I run a portion of the business that I run is dependent. on clothes in manufacturing that we get from China. There's a bunch of Chinese factories that we work with

to operate that business and if we couldn't get the products period from there, we'd have to change everything about it. Right. Yeah. And yeah, the book we just read is about all the process knowledge

that has been developed by China over decades and how that just doesn't exist. In America, you can't just hire the people if you haven't trained that generation of workers over the last two decades. We've exported all of that.

They have an entire ecosystem that would take us 10 years to recreate here. What I don't understand is even if we did throw up trade barriers and tariffs on Chinese goods and did a full-on trade war, I don't understand how they can't just ship it to Vietnam or Indonesia or Mexico. We're not idiots. We track it.

Okay. Well, honestly. But by the way, Trump put 30, 40% tariffs on that. I did see on those type of products already. Yeah. That I was going to ask, I feel like that's a point actually that isn't brought up very often when we talk about that or when I hear other people talk about it, the fact that we track the manipulation of tariffs like that. Do you know how that happens?

That I don't know. Like how are, yeah. That I don't know. Well, the same. You has governed a something. Yeah. So in the same vein, I'm curious for you as somebody who's incredibly deep in the financial world and presumably everybody in your world is trying to understand how all these tariffs are going to impact everything. As a layman, this year has felt incredibly termutulous in terms of tariffs, trade war

just the uncertainty around everything. Yeah. You found it and that's just for my I'm sure at you're and it's very, it's very soon.

I was like really kind of boring this year. I was hoping the same thing would happen to say, no, it's fine. Something exciting to finally have.

It's smooth on my end. It's smooth. So it's, I think, hard for the average person to understand what the hell's going on. What do people

in your world think about what is happening? I mean, I'm sure it's broad range, but I think, you go back to early April when he announced Liberation Day, people literally freaked out. They just freaked out. And I thought a lot about like, why did they freak out?

I mean, the market, you know, was down huge from the, I think the S&P was down like 16 to 18 percent from where it had been at its peak. NASDAQ was down like 30 or 25 percent. And nothing could happen yet. He just made a speech. And so I was thinking with myself, like, why have people reacted so, like, panicked so quickly? I came with a theory. So I'm going to share it with you. Okay.

Okay. And the theory is, I mean, people who are in the market are basically educated people. They all went to college at least. And they all took Econ 101. And economics is a very, very persuasive class. when you take it. It's got graphs. It's got tables.

It's got net. It's got a PowerPoint. It's got people who won the Nobel Prize or wrote your textbook. And it's just very convincing. And one of the things that is taught to you in Econ 101 is that tariffs are bad. And, you know, terms of trade and what's the call, you know, if you make bread and he makes guns, everybody's richer. That type.

I forget what they called it. And everybody who went to college took that class, and everybody believes it. And then the president of the United States, the president of the United States comes out and makes a speech and says, I don't agree.

Everybody is like saying, what do you mean you don't agree? We all took Econ 101. And that was so jarring to people that they freaked out. They absolutely freaked out. And then what happened was, as time went on,

it was like, well, when's the bad, Where's the bad stuff? Like the companies reported earnings were okay. And then they started to negotiate and they got some good deals. And the tariffs will be higher, but the world didn't end. And things seem to be okay. That's kind of where we are.

So there's no credence in your mind that there's been a bit of extended pretend going on. Companies delaying, raising prices because of tariffs. There's some of that going on. There's some of it going on. Because Powell was talking about this way. If there was no AI revolution. and meta, Google, Amazon, Oracle now, and blah, blah, blah,

are spending $400 billion a year building data centers? If that didn't exist, we'd have another story. Okay. So that that is driving a lot of what's going on. In a good way? Well, I think so far. I prefer just a one-word answer with no depth here.

Just tech is good. Tech is good. Tech is good. Ask Dan Ives. Yeah. Oh, that was, yes. Even I as an AI lover was a bit like, come on, man. She has some Kool-Aid going on here.

Well, they are spending the money. Oh, yeah. The difference, by the way, the difference between the dot-com bubble versus now is, and I don't even know if you guys were in diapers in the dot-com. We want to ask. But in the dot-com bubble, you had companies nobody ever heard of who had just gone public. Right. who some of them had real businesses like Amazon at that point.

Many had no businesses. They just had like a deck. Right. And they were spending all this money building out the internet. And they spent like lunatics. And it was too quick too soon. And we had a tech recession. The difference between and then a lot of those companies were bankrupt.

The difference between now and then is Google spending $100 billion a year. These are real companies. is. And they're spending it, they're not borrowing. They're spending it out of cash flow. So it's real. Now, the question is they're spending all this money. Are they going to be, what are the returns going to be on this investment? And is it going to be enough? And I don't know the answer to it. It's too early to know. Yeah, that's the big question, Mark. I mean, a parallel I'd like to ask you about is there was a lot of vendor financing in 2001. Yes, there was. You know, Cisco would loan someone money to buy Cisco's things.

And we're seeing yesterday or two days ago, Nvidia gives $100 billion to Open AI. Who's getting $100 billion to Cisco, to Oracle, I mean, who's giving $100 billion to Nvidia. Yeah, that bothers me. Okay. All right. Yeah.

I don't like when things start to get vendor financing. It feels very insular. It feels a little GE. I don't know. I mean, I know GE. That was a big part of the business. They did a lot of that. Okay.

Interesting. But since you are a little bit more positive, on the economy than, at least me personally. And you and me. I'm a negative Nancy here. We want to hear your portfolio review on our Gen Z young man here who has put all his money in some unique assets. Wow.

And we want to hear what you think about that. This is a surprise. See, this is a graph so that you know it's good. It's good. It has a graph. It's very professional. No, it's only going up. Bye.

Okay. So we've actually each brought a portfolio to review with you. Okay. Because there's this amazing YouTube channel for those or not. We're called the Steve Eisenman playbook. The Realizedman. The Realizedon Playbook. I was talking about a different channel.

The Real Isman Playbook. The Real Isman Playbook. Which again, genuinely fantastic. And we figure actually, ironically, I listened to an episode the other day where you said that you do not have a step-by-step guide to investing. And here's why you think about it in this broader way. Now, what I said, they do not have. the Steve Eisman method for valuing all companies across sectors.

There's actually a very important point. Okay. So, you know, when you read a financial textbook, they'll give you all these different methodologies that have a value company. PE, price to book, EVD, EBITDA, they go through the whole list. But they don't like advocate anything. And what I've learned over the years, and the reason why I don't have like one method is that there are 11 sectors of the S&P.

It's actually a very important lesson for you viewers to pay attention to it. So there are 11 sectors of the S&P, and there are sub-sectors within those sectors. And every sector and every sub-sector has a mafia. And what I mean by the mafia is the people who sell-side analysts, by-site analysts, PMs, like the experts in the area. Now, the reason why I know this was because I was like Chairman of the border, the financial services mafia for a long time.

Okay. And what the mafia does over time is determine two things. What are the data points that are important to track to invest in the sector? And how do you value companies in the sector? And it's different for each sector. I see. So, you know, for banks, it's price a tangible book. For some other sector, it might be PE.

For REITs, it's AFF, AFO is. Each sector is different. And what is it? AFFO has adjusted funds from operations. It's like a version of EBITDA. So they all have their own jargon. But they all have different metrics. So, you know, in tech, it could be PE or EVD-EBEDA or sometimes it's discounted cash flow.

It depends on the subsector. The point being, if you're going to invest in a sector, whatever sector it is, when I invest in the sector, I accept the terms of debate. I don't go in and say they're valuing the sector on EV to EBITDA. I disagree. It's a pointless debate. Now, you don't have to play. You could say, I don't like this sector because I think it's too rich because I don't accept the way they value the companies.

And that's fine. But if you're going to play, you have to accept the terms of debate. Then you do your fundamental work and whether you like the company or not. But you have to accept how each sector values its companies. I think it's a very important lesson. Yeah, that's very interesting. And I would like to see how you would, oh, sorry. Okay, so I want to preface this before we get into it.

And I want to touch on how you seem relatively optimistic about the economy overall, at least in the U.S. And I want to push back or at least hear your answer about for young people, people especially right now. Like if you're in your 20s, you're coming out of college, youth unemployment is really high. Your track to getting a, you know, a salary high enough that you could save up for something like a house, start a family. Not great.

All of these things feel pretty bad right now. They might push you towards certain investment markets as a Gen Z young man that you feel a little nihilistic and you want to kind of all in on certain things. And I just want your insight into how the average person and the difficulty in finding jobs right now and the jobs data that has continued to come out, how that matches up with your perspective on the economy in an open spot. Because I think it's very much like a two-part economy. There's tech and all the stuff that's happening, which is very exciting and tremendous amount of money being spent. And then there's what you're talking about, which is very true.

Most people can't afford to buy a house. When you say that, though, when you say tech, because that is a sector where some of, you know, especially younger people I know have found themselves laid off, unable to get jobs, because the sector has changed so dramatically. There is all this investment in AI, but a lot of these positions that had formed at these companies over the last 10, 15 years have disappeared. People can't get jobs. in the tech space right now.

True. And does that struggle? What is the difference between that struggle and the success of tech or the hope of tech that you're talking about? Now you're asking a hard question. I don't have a good answer for you. I mean, I just know the money being spent on tech is real.

It's having some real negative, real negative implications for people. So the overall economy is not as good as it could be if all those people had jobs. but unemployment is still pretty low. Yeah. So I just don't have a good answer for you. What would be kind of a big red or green flag in,

because your opinion here seems pretty middle of the low. If I started to see unemployment, if what you're saying starts to cause massive layoffs and unemployment starts to go up, that's a different ballgame. Okay. But we just fired the head of the BLS, so maybe we won't get as accurate data as we want.

It's possible. All right. Well, as a young man myself, who's just trying to, I'm trying to make my financial dreams come true, and I want you to just take a look at... Us three, we're old souls, millennials, you know?

Yes, we're all old souls, all right. And our Gen Z. What are you got? The Gen Z portfolio. Okay. So the 11 most expensive Pokemon cards. How do you feel about...

So I recently decided I think I should buy or start getting at least shares in some of these cards. Any thoughts on this? On Pokemon? Yeah, Pokemon cards. Collectibles. It's exploded in recent years.

Collectibles. It's not my jazz. What would the Pokemon Mafia say about such a thing? I don't know what they would say. I don't even know what the Pokemon Mafia is. Well, I'll have you know this market in the last five years, thanks to maybe Logan Paul. Yeah, sure. You know, YouTubers.

Has really taken off. So you don't think it's worth it to pay $420,000 for a little piece of card. I have no opinion. Okay. Safe answer. Okay, but what about this? Not a no. Not a no.

Not a no. So I've been sports gambling a lot. I watch every weekend. Avin NFL fan get into the NBA when it comes around. MLB playoffs. Really anything I could bet on though. Like if, you know, what close, you know, the tennis player is going to come out in the finals of Wimbledon. You can bet on it now.

How do you feel about me putting about 20% of my earnings into this? I don't feel good about it. No, no, no, no, no. I don't think you understand. I'm dollar-cost averaging into it. I don't feel good about it. Is it because of the sports? You prefer hockey. No, no, no, no. Do you think I should actually know something about me? I never gamble. Never. Ever. I don't, I don't go to Vegas. I don't do sports betting of any con. You went to Vegas in the movie. Went to Vegas in the movie. I didn't, but I didn't roll dice. I, I don't gamble. I never have.

You missed the extended cut where Steve Carrell spends about an hour at the Black You know, that didn't happen. That was the one inaccuracy. Someone said your big bet in 2007 was a gamble. Is that, are you a gambler? That was not, I didn't think of it as a gamble. I thought, look, I did fun, real fundamental research. And I thought I would.

And I researched the teams. I have no opinion on that. Okay. No opinion. Bitcoin. Well, more crypto broadly, you know, you got Bitcoin. And that one's, that one's the biggest, I would say. Like, I'm putting the largest.

into that, but I'm putting stuff into maybe like 5% of my earnings into like sheeb. Sheep? Sheep. Sheep? What's sheeb? Sheeb? It's like it's a coin, but it's not a real coin. It has a dog on it. But it's not Doge. It's a different dog. I don't have any opinion on she. I mean, one of our good friends invested a thousand into, Trump. I own a little bit of Bitcoin. I thought he was going to say he owns a little bit of sheep. I do own a little bit of Bitcoin. But that's it. I'm curious. An actual question about this. Do you have any, You own a little bit of Bitcoin.

What's your personal, what's your personal view on the, the merit of Bitcoin specifically, like the good and the bad? Because it's become something in the last like 15 years. Like, Bitcoin, for me, I'm going to sit down now, started out as something where you used it to buy drugs

on the internet. That's what it was used for. Right. And now it's worth over $100,000 of Bitcoin, and it's a gigantic piece of value that institutions make decisions about now. Huge transformation. So I'm curious what your perspective is.

So my issue with Bitcoin is not Bitcoin per se. So my issue with Bitcoin and why I only own a little bit is like if you sit down with the bitcoins, the philosophers of Bitcoin. And you say to them, give me a thesis. Like why should I, why do you own Bitcoin? And they all basically say the same thing, which is that fee your currency, which is government currency has been debased. So much has been printed. There are deficits, et cetera, et cetera. And then they'll say, but you can't, like, short the dollar because all currencies

trade relative to one another. So the dollar trades relative to the euro, the dollar trades relative to the yen. So, but they've all been debased. So just shorting one versus the other is a shell game, they say. So therefore, by Bitcoin. as a hedge against the further debasement of fee or currency. That's the thesis that I've heard a million different ways. Don't agree. But with them. No, I'm just saying that's the thesis.

Yeah, yeah. So my problem, so I saw my response to that is, okay, I'll grant you that. For the sake of argument, I accept your argument. Here's my problem with it. If that is the argument, then on days where Nvidia is down huge and interest rates are up huge and everybody's petrified that the world's going to end because Trump just announced Liberation Day, Bitcoin should be up. And on days where Nvidia is up 5%, an Oracle announces that the backlog's up 455% and Oracle's up 10%, and Oracle's up 10%. everybody's and NASDAQ is up huge, Bitcoin should be down.

But it's the opposite. But it's the opposite. So I don't know what to do about that. But I don't know what to do about that. I don't know what. So therefore, I own Bitcoin because every other schmach owns Bitcoin. I think I'll be one of them. But my problem is I own an asset that acts contrary to its own thesis.

I don't know what to do it. I just don't know what to make of that. That's why I don't know more Bitcoin I'm in line with that I'm in line with that I'm in line with that I feel very validated Yeah

Well you have 20% your money and money What else you got there big guy? What else? What else? I'm scared of this one This is Now this is unironically something This is actually something

He has in his portfolio The next two He put his real money Guns No not even guns Yes I'm an arms dealer No not even guns These are digital

skins that go on video game guns. So when you're playing a video game, you might have a more brightly colored gun than your friend. Yeah. Because you bought this skin. But here's the key. You can trade.

On your video. On the screen, on the screen, how much money did you spend on this knife or this knife? Your knife. That knife was about $14,000. $14,000. It doesn't exist.

Oh, did you not realize that? It's not real. No, no, I'll have you know, a friend of mine bought me a real life replica of it for about $20 that he gave to me. So it's like I kind of... Can we flip the page? I have no opinion.

Okay, that's a... Now it's Dugs. Oh, wait, I forgot about my last. Oh, yeah, yeah. There's one more. You know, our lives are so... They're so digital these days. And I figured, why not get ahead?

I'm a little late to the real estate train as a young Gen Z man and I thought to myself, I can get ahead of the real estate trend on the web. Oh no. So I bought this NFT apartment.

This is an NFT, a picture of an apartment. And a picture of an apartment that I can have at all times. It's mine. You bought this for real. And I bought this for real. How much does it cost her? About $900.

Wow. You spent $900? I did. I did. It's cheap. What's it? Cheap? Cheap.

It's like, think about it. It's like your parents or like your grandparents buying a home in the 40s or 50s. Oh, but they lived in it. And it's going to skyrocket.

Tell him. No. He's losing all his money. I'll live in it in the metaverse. Okay. All right. Let's continue. Let's get to a real portfolio

from Doug here. This is his portfolio. This is what I would call the tech portfolio. Okay. So I try to diversify a lot of different things. I try to cover many different areas, specifically just AI,

Mag 7, that's it. Just the Mag 7. And so I, Steve, often feel like you did. So I will confess that of the Mag 7, I own every single one of them. Except for Tesla. Ah, interesting. Okay.

Man, dude. I agree. So what I would like to ask here. By the way, I just want to say to think about just from a perspective of people who do real fundamental work and how difficult it can be to short stocks. So peak earnings of Tesla were in 2022.

The company earned, I think, like $450. And this year, I think they're going to earn a buck 50. So the earnings are down from 2002 through 2025, 60%. The market cap. And the stock is slightly higher. So I was just thinking, imagine, you know, you're an analyst at a big hedge fund. Yeah. And you go to your PM and you go to your PM.

I got this great thesis. There's this company. It's called Tesla. I know you've heard of it. And my thesis is that from 2020, the earnings are going to go straight down every year until we get to 2025 where the earnings will be 60% lower than 2020. And I think in 2020, they'll be lower still. What do you think? Let's short the piss out of it.

And you're 100% right fundamentally. And it's a cult, so it doesn't work. You go crazy. So why doesn't it work? We did a whole episode where he sort of analyzed and debated Tesla. Because it's a cult. A cult can't justify a trillion dollar valuation. It's a cult.

I think what people really sincerely believe, and this was Dan Ives on my show, the Realized and Playbook. Realize a Playbook. His thesis is that Tesla is going to do very well with Robo Taxis and AI and robots and it's all to go to Mars by the way. And it's all going to be great. And that's why you got to own Tesla. And don't continue from that.

We're going to clip that. And you know what? Number one, you could be right. And number two, there's no argument against it. Like you're arguing against something that will happen in the future and people believe in it. No, no, the argument is what you just said. The earnings are down 60%. That's the argument. And it didn't work. Yeah, but as an individual, you don't be part of that crowd. You can be like, I don't want to

keep owning this declining car sales company. Okay, this actually, this is crazy. This actually loops into a question I had about the crisis and the movie that, perfectly, there's a part of the movie where, and you bring this up, the frustration of dealing with a company, a bank like Goldman, who refuses to adjust the price of the swaps in a way that reflects the market because they set the price, right? Correct. And this feels similar

and that all the underlying data that you're looking at is bad. It indicates that Tesla shares should be going down the volume. But Tesla doesn't set the price. But in that case, Tesla doesn't set the price, right? At least the market is setting the price in this position.

But coming back to the movie for a second and the actual crisis that happened, you were talking about how you still don't know to this day why Goldman or these other banks weren't lowering the prices. And I was wondering if... Oh, I know they weren't lowering the prices. They weren't lowering the prices because they owned the stuff on their own balance sheets.

And they don't want to mark it down. Okay, that's what they say in the movie as well. I was wondering, what part is confusing or not confirmed still then that you were explaining? What happened? The confusing part to me was not that some firms didn't mark down their books. That I understood. What I didn't understand was there were two different types of securitizations back then.

One was called cash in and one was called cash out. And don't ask me what those things are because I used to know and I don't remember. But one was better than the other. Yeah. And we were short both. Okay. Okay. And so what happened was I got a call from, and generally Goldman's prices were honest.

Merrill Lynch didn't lower prices. We didn't deal with them. And I got a call from my golden salesman, who was a lovely guy. And he said, we got to have a conference call with you. I said, okay, so we set up a conference call, and it's me and all my guys are in the room.

And it's him. And then it's like his boss, and then his boss is like, this is serious. Oh, everyone who bought it. That's a big deal. And I don't remember whether it was the cash in or the cash out,

whichever one was was worse. So let's say like on the last day that we got prices for this stuff, the average price was like 70. And we had shorter the stuff at par. So we're already 30 points in profit. So he comes on the phone and he says, we checked our models and we realized that the methodology we've been using to price your bonds has been wrong. And so we have to reprice all your bonds of the, this type. And so, okay, so the last price was 70. What's the price? He goes 80. At a time when you expect the price to be going down. Every day. Yes. Okay. This is like late spring.

Very. So then I said, okay, well, so the price is 80. I says, give me a two way. Meaning the price is 80. But if the, if the price is 80, I'll short more at 80 all day long. Yeah. All day long. Give me, give me. give me, give me. But of course, there's a bid in the mask. So, like, it was 80, 60 was the bid. So they'd only let you short it at 60. So something that he says just repriced me from 70 to 80,

if I want a short more, I'd have to short it at 60. But they're only marketing at 80. Right. That's what's the day. I don't understand what happened. Is it illegal? Is that what they're doing? Why is it illegal?

They set the price. There's no screen. Well, then why would they ever even have to? I don't understand what happens. It's a mystery to me what happened. It's so funny because I brought this up hoping to get a clarification. Because in the video, you say, like, I don't really know what happened. I don't know what happened.

This day. That's wild. It feels so incentivized to lie at all time. Yeah. To you. But still it's better than 2008. So real quick, one more in tech. So we hit Tesla, which is, I think, valuable.

And actually, in the Realizement Playbook, which I was watching, you spoke with both a VC friend and then the one this morning. Yes. Basically how, you know, most of the stock growth right now in at least the S&P 500 is coming from these tech stocks and from AI where you're saying, 100%. Right. And the money being spent is at least coming from cash flow. They're not in debt to do this.

Right. But it's all hinging on AI generating enormous value. And I think what is a very plausible scenario, I don't think this is real, obviously. We all agree. For two years, we have. been just like you trying to convince everybody that AI is perfect. And we're going insane. I'm just kind of curious how likely even let's say it's the tech bubble in 2000, but on a smaller scale that at some point the next couple AI models come out that iterative leap isn't

as exciting as people realize. They're starting to realize, wait, this really doesn't work for customer service yet. And the entire SMP loses all of those gains. Look, if it, if there's an announcement in, I mean, If you listen to, you know, Nvidia, it's definitely not this year and it's not next year. But let's say in 2007, you know, meta comes out and says, we're cutting our CAPEX budget in half. Lights out. The market's going down 20%. Just poof.

Gone. Do you feel as long as the CAPEX, as long as they continue to put the money there? Now, you know, Saudi Arabia is now spending money in UAE. There's not like the second derivative of people who were spending all this money, building data systems all over planet Earth. but if there if there if there I mean it could be in a sense a redo of the bubble

in that you know Henry Blott by the way Henry Blas I used to work at Oppenheimer when I was on the sales side and in 1998 Henry Blodgett was at Oppenheimer he was in the office across the hall for me and he got on the he would get on the sales floor

every single day and he said that's going to conquer the world and dynastic levels of wealth are going to be created And he was 100% correct. Right. But at first, the returns weren't there. And that's all we had a tech recession. So you could have a situation where there's the timeline that people are hoping to have real returns on this stuff doesn't really materialize and people pulled back. And then eventually it does happen.

It's on the other end of a. That could happen. I mean, Zuckerberg was on a podcast a few days ago saying he's willing to, he would rather lose a few hundred billion dollars to be early. and then be too late. But he expects it to be like three years. If it's not... That the returns will be there in three years? Yeah, well, he's saying...

But if it's eight, if it's eight, seven, you know. Yeah, then the $100 billion dollars. I mean, you know, right now, for example, when you go on Google and you do a search, you get two responses. You get your old search response and you get the AI response. I mean, the AI response is better.

It's not the, it's not the Albert Einstein. So, you know, we need more proof that's going to be real returns that are coming. But it's early, you know, so you can say whatever you want. But it's hard to sit out, you know, as an investor. I'm not sitting out. No, yeah, I'm just talking to our audience. Like if a lot of them are invested in the same thing as Doug here where this stuff has been working.

Right. When it dips, they buy it because it's going to work. It's been working. And so you don't have a word of caution for them than that? You think it's. Not yet. Okay. Okay.

Not yet. Not yet. Because even the, you know, even somebody like myself who puts a lot to the SMP thinking, well, let me diversify. I don't want to go all in on tech. In reality, I am investing into the tech growth. The problem is like, what would you diversify into? Proctrine Gamble? Well, that brings you mind.

That's great question. That leads to the other millennial. Let me go to the third portfolio here. The doomsday portfolio. The doomsday portfolio. Okay, go ahead. My portfolio, it consists of one asset. It's gold.

Just gold. Just gold. Let me give me my thesis. It's going to sound so different from what you said earlier. Well, there went gold. Dooms day. Gold. The U.S. currency is a fiat currency that's getting overprinted, but you can't short the dollar because you'll buy gold.

And that's worked. As a the, it's worked for this year. It's worked pretty well. So I'll give you the counter, not that gold hasn't worked. Sure. It has. Congratulations. But I'll just give you the counter argument to the doomsday thesis.

Sure. So the people who have the doomsday thesis have been making this the same argument for 40 years. Yes. Okay. That's a long time to make an argument that doesn't work. Call me crazy. This is our year. But this is our year.

You're 41. But, you know, the argument is basically too many deficits. It's too big. Too much printing of currency. It's been debased by gold. Okay. Now, buy gold has worked because people accept that argument. Sure.

But what most people never ask themselves is, okay so why hasn't the doomsday scenario happened? Very fair question. It's a fair question. Like if you're making an argument for 40 years and it hasn't happened, but all the data that you said it was going to cause the doomsday happened, and yet it hasn't happened, the obvious question you should ask yourself is why hasn't it happened?

So I'm going to answer your question. I always say I'm not 40. I can't even do it that long. I know that people have been guns and bullets and beans in their bunker. and but yeah. I've been pushed a little more in this direction lately and the thing that made me

kind of come over the edge on it was a book that we recently read by Ray Dalio called How Countries Go Broke. Ray Dalio is thinking cats and dogs are going to lie down together any moment. Any moment's going to happen. He's been making that argument

only for 20 years. But okay, to give, I don't agree with this guy on everything, but to give credit to his argument, I think it's indicative of something that does take get a long amount of time and we're at a stage where our country and so many other countries are so.

So my push back. Yeah. Why hasn't it happened? So this is what people don't, but most people don't understand anything about how the financial system of the world works. It's just like it's very esoteric. I mean, I do. It's what I do for a living.

So the reason why the dollar is still the reserve currency of the world is not just that we're the biggest economy of the world. It's that the entire financial system of planet Earth functions on treasuries. So, for example, banks all over the world lend to one another overnight in what's called the repo market. This is like a multi-trillion dollar market. It all functions on treasuries, short-term treasuries. If you're a sovereign wealth fund, you know, you're in Norway and you need to park, I don't know, $500 billion for five years, you're going to buy five-year U.S. Treasuries because there's no alternative. There is no alternative currently to treasuries.

And as long as there is no alternative to treasuries, we will remain the reserve currency of the world. And so all the deficit problems that people are worried about, I think, are academic. Now, if an alternative ever shows up, like, People think Bitcoin is going to be it, or maybe it's China bonds or something I don't even know. And there's a real alternative to treasuries, then all the arguments about the deficit and the debasement of the dollar are much more important. But until then, I think it's academic. To even slightly push back, I would just say there's an argument.

You could push back hard. I think what you're saying makes total sense. And I definitely don't want to be flash forward 40 years and I'm making the same argument. And I don't want to do that. But I want to say, I think there's a. credible case to say that there it is that gold is is starting no currency can fill it in i totally understand that it's the where the cleanest dirty shirt no one can go to the rmb or the euro or the yen however country like china country like russia country all these countries have started to on net

their central banks are owning more gold and less treasuries their percentage of treasuries they're their held flat or down right and i think the idea would be you would trade with another country and then settle the difference in gold whatever we're going to go back to the gold standard I don't know. I don't know. Maybe not. But that's what the direction of travel might be. I don't think that's right.

Okay. All right. I mean, put this way. The price of the risk that you're talking about is the 10-year treasury yield. If it was like a real problem and people were serious. But this way, don't tell me what you're saying. Tell me what you're doing. Okay.

Okay. If don't tell me that you're pan. about the deficit. Put your money where your mouth is. Sell your 10-year treasuries and drive the yield up to 6-7%. You know to be a bond vigilante? Yeah. Then I take you seriously.

Otherwise, you're just pontificating. Yeah. I mean, where's the 10-year treasury yield now? 4.1. You know, it's not done anything in three years. Sure. So the alarm bells of this actually happening are just not going on. They're not going off.

Yeah. So as we've done a lot of research into the U.S. deficit, You just addressed this, and I wanted to ask you about it, and you're saying it's academic. I'm just wondering, how do you can, I mean, is there a point at which, you know, we're 36 trillion in debt now and whatever? A trillion goes to interest every year in our budget. At some point, even if we continue to stay as the reserve currency, does that become a problem? Sure. I mean, but I don't know where that is.

I mean, I don't know. Right. And you don't want to waste your life trying to guess it. I don't want to be Peterson. Who's Peterson? Pete Peterson was the guy who started this argument 40 years ago. He's dead.

And you're alive. That's one to zero. That's a win. Yeah. You touched on something a little bit before this. Like that these, the financial industry on the whole is difficult to understand.

It's difficult to engage and understand with the system that we all still participate or are part of in some way. Right. Do you have, are there any misconception or that are so pervasive that bother you that you wish you could have everybody understand

like any any big points of financial literacy that if you could just snap your fingers and everybody could just know you would want to do everybody could know that lesson I gave you guys about how banks work mm-hmm they'd feel a lot more comfortable about banks right now I mean the funny thing about bank let you ever see the movie I mean of course I've seen this movie It's a wonderful life with Jimmy Stewart, the Christmas movie. So that scene where he's running a building and loan, which is a prototype of savings of loans. It's like a little bank that makes home loans.

Okay. And there's a run on the bank. That's what you see in that scene. Everybody shows up and they want their money. The point about that scene, which people don't understand, we want banks to be levered. Here's why. Back to that formula of return on equity equals return on assets times leverage.

So let's say the average, a 1% return on assets is not bad for a bank. Because they have a lot of assets. Because, no, because that return, just trust me, it's not bad. It's not great, it's not bad. So if you're levered 10 times, you get a 10% return on equity. That's not terrible. So let's say the regulators come in and say, that's too much. we don't want banks to be levered more than three to one.

Now what happens is you still have the same 1% return on assets, but your leverage is only 3 to 1. Your return equity is 3%. Well, that's inadequate. So the only way for a bank then to make a lot more money to generate sufficient return is to charge a hell of a lot more in interest. I see. You follow?

Yeah. So the point is, we want banks to be levered because by generating, let's say, a 1% return on assets and they're lending, let's say it's six or seven percent, which, let's just say, for sake of argument is fine, they generate an adequate return. If we don't allow them to be levered like that, all of a sudden, what they're going to charge an interest is so much higher so they can generate adequate. So the formula about banks is really, it has to be a levered business model because if it's not levered enough, it's become prohibited for the entire economy. So the message is you want banks to be levered, but you don't want them to be too levered because it's dangerous.

It's like little, little bear's porridge. What's just right? No, that I've never, yeah, I've never. Yeah, I've never thought about that. Like if you cap it too low, the access to the access to lending for everybody, whether it'd be business or personal. On a home loan, they have to charge double, triple

to generate an adequate return, but who could afford it? Right. And you feel like... And they know it can buy cars, no one can build houses. I mean, the point about banks is what do they do? They recycle money,

which are your deposits. That's the leverage. They take your money that you put in the bank and they lend it out. Yeah. We want them to do that. that. Yeah.

What we don't want is for them to have too much leverage that if they have lost, if they make mistakes and then the losses are too high, they blow up or too concentrated in one. Or too concentrated in one area. Yeah. Yeah. Yeah, makes sense. Absolutely.

Makes sense. I'm curious, part of why I've enjoyed this conversation so much is. You actually learned something. Well, one. And two, it seems like with a lot of what you've discussed, one, you're just very willing to say, I don't know what's going to happen there. But in part, you know, like the 40-day doomsday, scenario. It seems, please correct me if this is wrong, that you're not as worried about what

might happen with, you know, the AI company's 20 years from now. And it's more like, this is the current analysis of the market. Is that roughly a fair way of how you approach the market? Are you thinking much about those like 20 years in the future? It's too far for me. Okay. People who think that that far, you can say whatever you want. Yeah, no one can verify. What's so to say. I'm happy to go out a year. Okay. Okay. Well, on that final note then, I want to ask, You know, for our audience, again, a lot of them are younger men, interested in finance, interested in business. Probably check out the Realizement Playbook.

But what are, what are some areas of the market that you are looking at or investing in? What's something in your eyes on lately that? I'll give you one. Yeah, okay. This is a little weird. Yeah. Okay. Well, not weird than Pokemon cards or TSGO guns.

That's not weird. Trying to pull them from the NFT apartments. And this is new for me. Okay. I only have one very small investment in it. Marijuana. Marijuana. Now, normally, I wouldn't touch these stocks.

But President Trump is making noise that he's going to do something here. There's a thing today on truth social where on his, on his, what if you call it, where he posts his stuff on truth social, he put out a video basically lauding the and praising the effects of weed for elder Americans. I swear to God. An entire video. And the problem with the weed business has been that the regulations all over the place. You can't get banking.

And this is the second time he's done this in the last month. So I'm starting to think maybe El Presente is going to do something like significant in weed. And maybe we should own some weed stocks. Right. Oh, like federal legalization. or something? I don't know. Watch the video.

It's shocking. It's really shocking. Do you chief that loud? Not me, man. I do not participate. But you're saying we should all go and buy an ounce of weed. I would sort of physical weed.

The only thing I would tell you is going back to the weed standard. Go on truth social. Watch this video, make your own decisions. Okay, I got to ask on that. Because Trump is so, I don't know if you've noticed,

a bit tremutulous. You're changing the word. It's tumultuous. I've gone through three. It's evolved. It's evolved like the fucking Pokemon guy. It's tumultuous. So he's got these tremors.

And it feels like every time he said, every week, it feels like often what he was saying the prior week changes. Right. So with something like this, how do you choose to put money behind something that the current administration? I put a very small percentage. I'd take like a 1% position. Okay. And I'm hoping for the best. But are you like a, at this point in your life, are you a dollar cost average in the S&P kind of better?

I don't do that kind of thing. I buy stocks. Okay. And I'm pretty fully invested. And this is like a new thing for me, this marijuana thing. He doesn't dollar cost average in a draft king. The draft kings, you're not doing parlayes on basketball. You can win big.

You can win so much bigger. You certainly can. Steve, thank you so much for coming on the show. You're very welcome. This is fantastic. It was a lot of fun. I want to reiterate it unironically. The Realizement Playbook on YouTube is fantastic.

I have been enjoying it so much deep dives with really interesting experts. And Steve does a weekly recap of your thoughts of what's going on. It is fantastic. And so I really recommend checking it out. And just to close, this is from what we were talking about before, this is your new main endeavor. Like you started in April. This is what I'm doing full time. Yeah.

That's awesome. That's awesome. And you have such an insane list of connections and guests that you've been pulling in to talk to. And so yeah. And also, I think you mentioned you might bring us on for one of the Fridays. I would love to have you guys on it for a Friday. We're saying that on the courting because you can't take it back. I'm not taking it back.

Now you realize our knowledge face. He's got one edit note. He's like, I don't want you guys on it anymore. You've got to cut that. No, no. It would be a lot of fun. I think so, too. Thank you.

Thank you. Thank you.