The Compound and Friends - How OpenAI Could Cause a US Recession With Steve Eisman

Episode Date: October 16, 2026

On episode 264 of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and Michael Batnick are joined by Steve Eisman to discuss in front of a live audience of University of Miami students: why AI labs are asking to be regulated, the end of tokenmaxxing and the rise of cheap open-weight models, whether any AI company has a moat, CoreWeave's debt and whether AI funding is about to break, why this is not 2008, how OpenAI and Anthropic became systemically important, Nvidia's customer concentration, the chip selloff and the rush to call the next Big Short, the AI price war bear case and Oracle's OpenAI backlog, hot inflation and what the bond market revealed about the AI trade, the Anthropic IPO, the worst housing market since the financial crisis, and what it was really like to be right in 2008. This episode is sponsored by VanEck and Janus Henderson Investors. To learn more about RAAX, visit https://www.vaneck.com/RAAXCompound. Visit https://www.janushenderson.com/ for more information. Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ VanEck Disclosure: Investing involves substantial risk and high volatility, including possible loss of principal. Call 1-800-826-2333 or visit vaneck.com to read and consider the prospectus, containing the investment objective, risks, and fees of the fund, carefully before investing. #stockmarket #investing #finance Learn more about your ad choices. Visit megaphone.fm/adchoices

What's an LLM? It's just a fancy word. It's a fancy word retrieval system. It predicts the next word in the chain. And it's great. I'm not saying it's, but that's not thinking. Yeah, why is it going to kill us? Well, it has to be sentient.

It's not sentient. It doesn't think. Right. It just retrieves words. Or it creates software, which is another form of words. So my thesis as to why they've done this is that Dari Amori and Sam Walman right now are petrified. They are petrified because token maxing is done. So for those of you don't know, token maxing was basically people who run software and enterprises were ordered by their company.

to use AI 24-7. Right. To hell with the cost. And then cost, the price went up, and Uber went through its entire AI budget in three months. Right. So now... Is that this year or last year? I can't remember.

It's just... It was in the spring. So token maxing is done. You've got open weight models that are a tenth the price. They're not as good as the models, but, you know, you don't need. and Mercedes-Benz for every road trip. So they're losing market share. There's pretty good evidence that a price war is starting.

And they're petrified. And so they created this, the world's going to end unless you regulate us. Because they think if they get regulated, they can manipulate the regulation. Or they could stop the open weight models from taking too much share. They can manipulate the regulation to keep the Chinese open-weight models. models out and so they can have a duopoly. And the basic problem with the entire AI enterprise is that there is that there are no moats. None.

Right. Absolutely none. One model is good one day and then people switch to the next. It's not like Google. You know, you want, everybody was on Google forever. You know, whatever, you didn't even, you were on Google forever so much. The concept of not being on Google, you couldn't even think that. Today, you use Claude.

Claude one day. You don't like that. You go to Gemini. You don't like, use that for a while. You go to chat GPT. There's no, there are no moats. People are spending a trillion dollars in the year? Are you surprised by that, how easy it is for people to switch from one to another?

I'm not surprised or surprise. It is what it is. Right. Okay. Because I always thought the one that would win was, was the one that remembers the most. It doesn't remember. Or the one that could recall the most about you? Every time you use it.

But they're all like that. They could all do that. They all do that. Which one? What's your favorite LLM for the work that you did? I don't have, for my purposes, it's just research. They're all fine. They're all.

Okay. You don't have one that year. So we standardized on Claude Enterprise for the firm. And what ends up happening is like everything I used to do in chat GPT, now I just do it in Claude because we're paying for it anyway. Right. And you just get used to it. I sort of think the enterprise LLM is a sneaky way to build a moat because you get all the workers of the Fortune 500 accustomed to using it.

And then why would they go use another? Well, they'll use another if it's a lot cheaper. If an open weight model can do more or less the same thing for one-tenth of price, they'll use the open-weight model. Okay. That's the point. It's not that they won't use Claude. It's just I think that cord's going to have to cut its price. I'm already hearing that it is cutting its price.

Okay. So then the founders of these AI labs are coming out and they're saying, please regulate us. I mean, they did a skit on Saturday Night Live. So it's now like in the mainstream that this is a thing. Right. And you're saying like, yeah, because they don't want any competition. And so once you're big enough, you basically write the rules. The statement that the statement that some of these guys have made that LLMs are going to destroy planet Earth is a lie. Yeah, plain and simple. It's just a lie. Okay.

Let's start the show. I like it. Let's go. We ready? We're going to start in? All right. This podcast is brought to you by Van Eck. Look, we're in an era of rising debt, de-globalization, and a massive physical build-out to power the AI economy.

No, you look, that means more demand for energy, raw materials, and infrastructure. Historically, that's been a really strong backdrop for real assets. And Van Ack has a really strong backdrop for real assets. an ETF for that. It's called RACS, the VANEC real assets ETF. It's actively managed and shifts exposure across gold, energy, infrastructure, and natural resources based on what the macro environment is actually doing, not just what it's done in the past. RACS is your one-stop shop for real assets. Head over to vannack.com

slash R-A-A-X compound to learn more. That's vanek.com slash R-A-A-A-X. Compound. Today's show is also brought you by Janice Henderson. At Janice Henderson investors, we believe working together is the way to work better. Like combining your portfolio plans and our in-depth strategy, your valued assets and our valuable insights, your mission and our vision. Always working in perfect harmony to find the right investment opportunities.

Janice Henderson investors investing in a brighter future together. Visit Janice Henderson.com. Thank you, John. All right, guys, welcome to the compound. friends, we are one of the best podcasts in the country. We're so happy to be able to tell you that our guest today also runs one of the best investing podcasts. I was listening to you yesterday, and it occurred to me now that some of your episodes are premium. I might have to, I think I have to pay for it. All right. By the way, it's called the Real Eisman Playbook, just so we get that out there.

The real, well, I mean, it seems like you don't need much help. The numbers that you're doing on YouTube were huge. They're nice. Are you shocked by the success of the show so soon after launching? It's a big show. Completely shocked. Okay. But it's, I mean, it's cool.

Yeah, it's really cool. All right, guys, Steve is an investor and the host of the Real Eisman Playbook, a weekly podcast he launched in 2025. Steve has gained fame for betting against the subprime mortgage market ahead of the 2008 financial crisis while running front point partners, a trade that was chronicled in Michael Lewis's The Big Short. He later founded Emerson Inmerist Partners in 2012

and joined Newberger Berman in 2014 as a managing director and portfolio manager. Live audience, Miami, U. Round of applause for Steve Eisenman. They love you already. They love you already. I like it.

University of Miami is a really nice school. Yeah. And has a pool in the middle of school, which is kind of nice. I know. So that's why my son, my son looked around the campus. Your son is no fool. No fool.

You know, when I remember visiting my daughter, University of Miami. Yeah. And so what a wonderful time she had, both educationally and just being there. I said to my wife Valerie, because Valerie and my both went to Penn. I said, we're idiots. Yeah. Like, like, we went to the school in the middle of Philadelphia where we froze our butts off. We could have been in Miami.

What did she study at Miami? My wife. No, no, no. My daughter's got in art history. Art history. Yeah. Okay. All right. I want to ask you the question that I think is the only question that matters right now for the market. And we, you know, we've had you, we've had this plan to have you on for a while, so we didn't time it.

But it's almost perfect timing. Is the funding mechanism for AI products going to break or not? We had this event in the market yesterday with CoreWeave. So for people that don't know, Corweave is one of these things that's called the NeoCloud, and it's basically a data center not owned. They run data centers. Right.

Not owned by a hyperscaleor. It doesn't have the cash flows coming from advertising like Alphabet, for example. Right. The debt has shot up to, I think it's a 15% yield right now. The stock prices, I'm going to say in a 60%

drawdown? It's bad. It's bad. All right. So what you're looking at here are spreads and yields blowing out on, on Corweave, just sort of like as a, as emblematic of all of these companies that need to sell debt in order to fund these projects, projects that you can't half build and then just leave them. Like, you've got to. Well, well, you could, but you'd be bankrupt. You could, but it would be a bad idea. I'd love to, as somebody that, on a first hand basis, was in the midst of the great financial crisis and you'd seen it coming, you had bet on it, I guess you bet, you bet everything on it at one point. To me, this doesn't look like that, but I'd love to get your take on like the discourse around what's happening with bond yields and whether or not

these projects can go forward. Well, look, if you want to draw parallels to the great financial crisis, there's a big difference, which is, I mean, let's just hypothetical. say general motors goes bankrupt. So what happens? So people get laid off. All the suppliers to General Motors, some of them go bankrupt. A lot of people lose their jobs. Almost certainly there's a recession in that part of the country.

Maybe if there's contagion, there's a recession on the rest of the country. And that's what happens. When J.P. Morgan goes down, planet Earth burns. Right. That's the end. If you can't, it's the end. Yeah. So the reason why the,

why the government had to bail everybody out was you couldn't have a situation where people can't get their money out of the bank. Right. So this is more like the General Motors story. Okay. I mean, it's a very big story. What if you can't get your trips out of the data center?

Then what? Well, that's bad for you. Yeah. You know, but it's not the end of the world. I mean, I mean, we obviously will go more into the air. I story, but if, if, just for example, Open AI went bankrupt tomorrow, and I'm not making that prediction, but let's just say that it did, I think the U.S. economy would go into a recession

immediately. You do. I do. Yeah. It's not the same thing as a great financial crisis. The banks are fine. How do they become so systemically important? This is a non-public company.

I know in the private market, the valuation is a trillion, a trillion and a half, whatever it is. how did they become so systemically important in three years to the point where they could send the entire U.S. economy into a recession. They went out and made, they and Anthropic both went out and made commitments to basically everybody who would take their pen. Right.

And so, you know, if you want to think about, the problem with the AI store, I mean, I'll give you the short version of it. The problem with the AI story is a concentration problem. Which is, you started Nvidia. Okay. Top of the chain. So, invidia grew revenue this most recent quarter by over 100%.

That's an astonishing statement. The largest company on planet Earth grew revenue by over 100% is all inspiring. But in the 10-Q, there's a sentence that says that 70% of Nvidia's accounts receivable, which is a proxy for revenue, is from, Five customers. Why is that bad? You don't want such concentration? What happens if one of those customers goes down?

You just lost a whole bunch of your business. Yeah, of course. No, I'm sort of asking you a dumb question. I'm just curious. I gave you an example. In the 90s, when I was at Oppenheimer, we had a software analyst. She was very talented.

And I remember having a conversation with her where she said that Oppenheimer wanted to bring public a software company that had rapid, rapid growth, but it only had two customers. And she said no. And the reason why she said no is if one of those customers goes away, that's the end of the company. So, Nvidia is five customers is basically everybody. Now, those are probably the hyperscalers.

Which themselves have hundreds of millions of customers. Yes. But if you go to the hyperscalers, 70% of their AI revenue is from Anthropic and Open AI. Right. And then if that number is something like 25 to 30% of their total cloud revenue. Right. So. And then Oracle is much worse because half of Oracle's backlog is just Open AI.

Right. So the whole- These are the commitments. The whole chain. Open AI says to Oracle, we're going to utilize your cloud. We're going to utilize the compute. Go build it. That you're making available.

And by the way, we need 10 times more. go build all these data centers. So all this building is really because anthropic, open AI, have gone crazy. So we learned a few things yesterday. Number one, we had another hot inflation print. Yep. And we had one this morning.

And we had one this morning. And yet, interesting, we'll talk about later, rates are down a lot, which tells you where the pressure is coming from. Because people are scared. Tells you where the pressure is coming from. But yesterday felt like a moment. Corweave's debt through the roof.

Right. They're now spending $640 million just to service the debt, which is extremely problematic, given their cash flow situation. we had $2.1 trillion come out of the socks over the past seven days. Did yesterday feel like the bubble popping? Or is this another moment to buy?

That we're going to look back on and say, you're stupid sons of bitches. Everybody is so eager. Before you answer, take a look at this is $2.1 trillion lost in the socks over seven days. And you can see how extreme that is on the screen right there. Like that does not happen in a normal market. Do you think that people are too eager to, and at this point, there's a sea of people, so it's too many, but to become the next Steve Weissman, to be the hero for calling the next big short. I feel like, you know, I got to tell you, it's a bit of a disease.

Yeah. Because I said this on CNBC once. I'll say it again, because it's such a good line that I really like it, which was, it was a day when Ray Dalio, I respect greatly, was basically predicting the end of the world because of the deficit. Was this 2015? He hit it to 2015 and he's doing it again. It's still 1937. So I was on the 5 o'clock show and Melissa Lee asked me what I thought. And I said, you know what the problem with all these people are they don't want to be me.

And I have news for them. The role of Steve Eisenman is taken. Yeah. And it's funny. But the point is that people want to be known as the person who predicted the next calamity. They want the glory. They want that glory. You know what? I had that glory. I don't need it again.

Right. So I don't know if this is the, I honestly don't know. I don't think, I don't think that core weave is important enough to sync the AI story. I think anthropic and open AI are important enough. Now, the one interesting, a couple of data points that were interesting about them is last week, OpenAI came out and said that their annualized revenue at the end of September was 50, billion. A month ago, they said 70. What happened to 20? Where'd the 20 go? Disappeared. But by the way, I had no idea. That's not apples to apples. And I have absolutely no idea what annualized

revenue means. Nobody does. And then today there was a report in the F.T. about Anthropic that said that it's revenue. I'll be off by the little bit. I got the numbers. It's a six, jump 50%. 43% to 16. 16.16. $0.8 billion for the coin. So it jumped 43% in three months, but that's down from a growth rate in the second quarter of 140%. Well, that's not sustainable, of course.

Well, yeah, but the point is, I think the end of token maxing is starting to have an impact. So they were making more money as a result of token maxing than they reasonably could have made on an ongoing basis. Yes.

Once companies looked at their budgets and said, we obviously can't spend at this rate on AI as great as the technology is. So one interesting riffle is that with rates where they are, the supply of financing for new data centers is obviously going to be harder to come by, absolutely harder to justify. The demand side of it, though, even though it might be changing a little bit with the open-weight mile, there are still construed supply constraints all over the place. So if the supply gets limited and the demand continues to increase, that can make for an interesting down-average of pocketplace. It could. I mean, part of the problem right now is that there's a lot of pushback on data.

centers all over the country. It's hard to, very hard to quantify it. What's less popular? I was about to make a bad tasteful joke. Maybe the Dodgers. Yeah, yeah, fine. Yeah. But, you know, there's so much pushback that all this, you know, the build out of data

centers seems to be it's going to slow by a lot. Which would be bullish for people that sell compute? Less, less data centers. I know if it would be bullish because it would mean you're going to buy less compute because you can't build the data center. If you can't build the data center, you've got no place to put your compute. But what compute

exists becomes more in demand? That's probably the case. Okay. So I actually wanted to ask you about that because I think that's part of the story. I don't think the demand changes for AI. I think like this group in front of us, they've just spent a couple of days.

I agree. It's the price. It's the price of the AI that matters. So like this idea, So this group in front of us has just spent two days going into all the investment banks on Wall Street. Every one of them is going to have a substantially larger budget for AI and AI-related projects and AI-related hiring in 27 than they had in 26 and they had in 25. Like that part of it at the enterprise level is not going to change. The other thing that probably won't change is consumer demand,

which I think is mostly chat GPT. And Muse. Now Muse on the agentic side. And, you know, Gemini, every Google search is now an AI de facto. So that's not going away either. Nobody that's using this technology is going to say, you know what, I don't really need this, or I haven't made this a part of my life. And I'm just going to go back to the way I was doing things in 2022.

Like, I don't think any of that's really going to happen. So the price of the bonds, the difficulty in selling. debt is not going to really change the demand side. I think what changes is who gets to build the capacity to serve that demand. And arguably, if the core waves and the nebiases of the world are not able to sell debt and supply as much compute as they want to, the ball just goes back into the court of the hypers. And Amazon, alphabet, Microsoft, they're in an even stronger position than they were

in a year ago when maybe debt was cheaper or there was a bigger appetite for bonds. What do you think about that idea from an investing standpoint? The hyperscaler's position just strengthens. I agree that the hyperscaler position has strengthened. What I'm most focused on is this business is so concentrated from anthropic and open AI that if there's a price war, none of that matters. The whole thing will correct. Now, if three, four years from now that happens,

it probably won't matter because there'll be a lot of other companies to take the, to take the compute. But right now, it's so concentrated that you better hope that those two companies do well. It seems that the pricing is based on usage now, more so than the last 15 years, the way enterprise software was sold was SaaS. You pay us per head. So such and such company has 1,000 employees. Salesforce is going to take $80 per employee.

and that's the SaaS contract. Now it's migrated more toward a pay-what-you-use model. That feels more sustainable to me than the way we thought they were going to sell these services. Well, it's also a lot more expensive. Yes, but I think that companies have more control over those, or maybe it's not that way. Well, I think it's more expensive,

and so companies are going to be more cost-conscious and they're going to get their employees to use the cheaper models much more. which is going to put pressure on Anthropic and Open AI to cut price. Okay. That's your bare case. Okay. And you think that's something that we're witnessing the beginning of? I think it's potentially that we're seeing the beginning of it.

Okay. What's the transmission mechanism by which open AI has a problem? Things happen. And then we're in an economic recession, like economy-wide recession. So let's imagine that there's a full bone price war. Okay. Okay, let's assume it. Okay, I don't know if it's going to happen, but let's just say that it does.

Anthropics revenue growth turns negative. Nobody's going to fund them. They got to cut back on their commitments. Oracle goes right down the toilet because half of Oracle's backlog is just from OpenAI. By the way, it's stock price is trading like... Like it's in the toilet. Yes, exactly. So just for those of you don't know,

last year, like around the third quarter, before Oracle reported, the stock was 230. And then they reported and they showed that their backlog had gone to like 300 or 400, I think 400 billion. It was up 300 billion in three months. And everybody went nuts. And the stock went from 230 to 330 like, you remember this? Like in two days.

Like I never saw a stock go up 100 points like that. One of the biggest stocks in the market. Huge. In two days. And then I don't. know who came out. It might have been Gil Luria from Davidson put out a report to say that the entire $300 billion was just OpenAI. And everybody just freaked out. Yeah, that was the top. And then the stock went from 330 to 230 and now it's at 130. Because people don't trust.

They don't trust it. You can't rely on a company that loses money. Your entire future, you've hinge your future on a company that bleeds cash like a lunatic. This has been a very interesting couple of days in the stock market. I agree. So, as I said, yesterday, a hot inflation print, and it really felt like people were like, oh, shit, like this is, it's not getting it. It was hot. It was bad.

And this morning it was hotter. It's not getting better. We saw producer prices today. Yesterday was consumer. Today was the producer prices. Also not good. Yesterday you had the memory stocks, which were the bell of the ball, killed. Fun fact, Western.

digital. It's in a 54% drawdown. 54%. And Steve, it's still up 100% year-to-date. Right. Just to show you how crazy the wrong was. I've never heard of that. A stock getting cut in half and still being up double year-to-date. It's unbelievable. So you had yields spike immediately yesterday. By the way, the person who bought it at the peak, that sentence doesn't help them. Yeah. Doesn't help that it still is 100%. No. You had yield spike and Anthropic, obviously it's not a publicly listed stock,

but there is this blockchain-based company called Hyperliquid that does a lot of volume. Over the last 24 hours, Anthropics traded $17.6 million worth of stock. And this thing, it's a market, and it works pretty well. It worked very well for the SpaceX IP. So this is Anthropic trading. So this is Anthropic on Hyperliquid. I see. So Anthropic was doing bad yesterday, obviously.

And then the numbers came out after the bell of what their revenue was. It puked. Semmys puked in the after hours. People are freaking out. Last night, Twitter was black. Like jet black people are freaking out. And this morning... I wasn't freaking out.

You were very calm. I saw it. This morning, very interestingly, I think, entropic is up five and a half percent. Yields are coming way down. And the stocks that are ripping today are the biggest pieces of shit in the market. Like, Lenore is, I think, the best performing stock is a piece of housing. So anything. even remotely rates related.

And it's so funny how the dynamic, like the narrative of the market changes like that. Last week, it was the fund, who gets about the interest rates? I guess it can't contract with scoffers. Right. I guess it can't touch this. And then all of the sort of the market says, freak out. And ironically, that's the top. And it's so funny how that works in the stock market.

We end the top of interest rates. And you need, I guess we need a bad news for the stock market at the bottom. Because it's just one day. Anthropics ripping off the lows. S&P and the equal weight are ripping off the lows. It is the best game of the planet. Are you surprised for how quickly weights came down? I'm actually quite surprised.

I mean, the inflation numbers were very bad. I guess there's such panic. People were just buying treasuries. But here's what we learned. Here's what we learned. The question or the debate over the last couple of months, and I love what you said last time about the deficit worries being a lot of virtue signaling, and I agree.

It was a question. I said that? When did I say that? Well, with us. Oh, last time. That's a good line. He went out of a rat. That was very popular.

It's a hard ball of yarn to untangle with the market. It's like, why is it because of this or that? We don't always know. But some days we find out what's driving the trade. And yesterday we found out, is it the fiscal irresponsibility of our governments around the world? Is it like who, no, it's AI. It was AI driving the trade because the moment we saw a hint of weakness or softness in that trade, the tenure went from 5-4 down to 5-1 like that.

Yeah. So it's all AI. So we didn't all of a sudden get more comfortable in fiscal with it. I don't think so. No. What happened was people said, okay, I guess all the bond selling to fuel the AI trade is going to slow down because the investor. So buy treasuries. So, right.

So treasuries got some breathing room and came in. Right. All right. This is interesting. So over the last year, the CEO of core, we've chart 5A, please, Daniel. The CEO of core, we have been selling. a ton of stock. In his defense,

so we've got a chart showing the price, the sales, and where he's sold in the dollar. It's $682 million with the stock. In his defense, he's not like waking up one day and saying, I don't like the stock anymore.

This is all... He just sells all the time. This is all the time. This is all planned in advance. And again, I'm sure a lot of this is to pay the taxes for some of the stocks.

It is granted. Nevertheless, nevertheless, you would think at some point with a company that is under such scrutiny that he would say to his shareholders, all right, I'm actually going to pull the... I'm not selling.

This doesn't make sense anymore. I believe in the company. He has not done that. And yesterday, I don't know if adding insult to injury is the right word, but Steve, I'd be curious to hear your take on this. The Financial Times wrote a story. Corweave targets, quote,

unlimited insurance money to fund the AI buildout because that is a big part of the story. Could you imagine posing like that and say, this is the time that I think I should make my pitch from my insurance contracts. So, Jay, and Mark Rolto should sell the LA Dodgers back to his own insurance company, for which he bought it. Right. And use those proceeds to invest in for a week.

Wow. That would, that would be a collision of two potential scandals into one big story. Oh, you got a big enough. Well, let's compound this. Steve, this is part of the areas of the market that people, to the extent that people want to call the next big short, this is an area where people are planting their flag. I totally agree. I mean, life insurance is dangerous. Just let's come back to Mark Wolterke.

I just did a podcast about it. He bought the LA Dodgers. He bought the Los Angeles Lakers. He bought a bunch of other sports teams. And he didn't disclose it. Right. He just bought them because you want to be. Listen, I.

I'd like to be that I like all the LA Dodgers too. But I like the money. So he had the insurance company lend money to another entity, which then, which you also owns. Right. But it obscures the fact that he is going to use that money to personally take control. And it'll work out. Yeah, it didn't work out. The price.

The price won. The price won. And the Lakers. The Lakers, he, $2 billion, quick money. He did. So I don't know if he said this or they said it. I saw the words. I think Matt Levine wrote about this.

somebody referred to this as a to the instead of there is a crime it's victimless at this point it is because the value of good the value what he won't know the counterpoint would be wait a minute you're not supposed to do well of course it's illegal but if if if uh grandma knew that she was investing in a contract she would not have bought that contract exactly and you wouldn't have gotten the money at 3% you would have to pay 12% so by the way this fun fact So Mark Walter's insurance companies are based in Delaware. And there is a Delaware insurance regulator. So question, what do you think the current Delaware insurance regulator did before he was an insurance regular?

What was his job? Yeah, what was his job? But what did you do for a living? Take your guess. Was it something in finance? No. Oh, I'd be a guest.

So you're a podcaster. He was a sheriff. Oh, that makes perfect sense. Yeah. And he's the... And he's the insurance rate. Okay. That makes perfect sense.

So the guy... Look, I have nothing against sheriff, Scott Guss. You know, they... No, shirts. They protect us. But it says no worth people. Insurance. So, all right, so here's the question.

A lot of people writing on substack are drawing these connections between insurance companies that are now investing in AI data centers. I guess the question to you, is how risky is that for the people that hold insurance policies and are these people that are writing about this going to be proven correct that there's more systemic risk for regular people who are not speculators. They're literally holding policies. Is this an area that people? All right. You're not particularly worried about it.

I'm not worried about it. Is it my answer? Yeah. All right. Steve, there's two more things that we want to do with you before we wrap up. I want to ask you about something that you mentioned, the political backlash, not just over the building of data centers, but just broadly speaking. I listened to a recent episode you did with someone who actually spoke at the UN

about the risks of AI. And I feel like this has now gotten to a point where we have sort of a four-point plan from the White House about how, how AI will be regulated. And what it sort of sounded like was it's every man for himself, but there'll be a commission.

The commission will be made up of people that work in the AI industry. And basically the guidance is like you have the liability if something you invent goes crazy and causes damage. And my perspective is, yeah, I like that. But liability for who?

liability for the investors in one of these companies to write a check or liability that somebody created something really harmful and they're an executive and they personally will have to face the consequences. I guess I'd love to know what your opinion is of the current state of that sort of regulation is going to work. What should it be if you have an alternate suggestion? So I think that if you run an AI company and your AI company goes out and hack somebody or does something bad, your company is liable. It's just liable. Now, the more interesting question is I'm the CEO of that company and I knew this was going to happen and I didn't care and it happened anyway. Will anybody actually go after me?

What happened in 2008? That was my next statement. Well, nothing happened to anyone personally. Nothing happened to any executive, even though they committed the worst fraud in human history. So I had a podcast where I was interviewing a fellow podcaster, and she does a lot of stuff on corporate fraud. And so we were talking about fraud and like, you know, that CEO should be held accountable. And she says, she's like pleading. She says, Steve, what can be done?

And I said, nothing. Nothing because nothing will be done. Right. Unfortunately. Well, by now, certainly not. If nobody went to jail for 2008, they ain't going to jail for hacking. Okay. So is the current state of regulation really going to stop anything?

Or I'm very cynical. I think we have to have a crisis. And then in the aftermath, maybe there'll be some rules. That's 100% the way I think that. That's how it always goes, right? That's how it always is. What do you think about the government taking stakes, picking winners? You must love that.

I think that would be awful. You don't like the idea of the government taking stakes in any of the AI labs or projects? No, because then everybody would assume that they'd be too big to fail and they'd get bailed out. I don't want the government involved. Okay. Do you think that the way the hyperscalers are currently set up, that they, we look at the stocks now, we look at Amazon, alphabet, with the exception of Apple and Tesla, of the top seven companies,

we call them the Mac 7 on Wall Street, of the top seven companies, they're all pretty much in this business, including now Meta, who has built data centers for their own use, but they could turn them outward and have other people rent, compute from them if they wanted to.

Do you think that over the next five to ten years, we will see these companies become $10 trillion? Or are we pretty much budding up against, like, what the natural limit on their size is? I don't think there's a natural limit on their size. Okay. But, I mean, to me, the intellectual question is, does this sort of play out like the

internet where, you know, when I was at Oppenheimer, Henry Blodgett was literally across the hall from me because he was at Oppenheimer. Right. And he got out on the sales floor and he said that dynastic levels of wealth are about to be created and the internet's going to conquer the world. And he was 100% correct. He just wasn't correct about the first generation of internet companies. Right.

It was the second generation of internet companies that used the rails that were created by the first generation to go on to glory. Maybe something like that happens here. So like AOL, Netscape, Yahoo, Excite. None of those companies ended up, Matt, the only first gen I can think of is Amazon. It was Amazon. I'm not saying that this is better. worse. It's just, it's different in the sense that back then there were so many companies coming public that had no business

doing so. That's fair. And now we have two companies that are everything. Yes, that is fair. Do you think Anthropic will come public this year? They better. Okay. I agree. Because I think I think they actually need to go public right now

because the whole token maxing is going to make their numbers start to look really bad. Like they have to strike while the iron is still hot. They need to. My conspiracy theory is an anthropic needs to go public before they report third quarter. Okay. Why do you think OpenAI doesn't seem to be in as much of a rush?

I would guess that they're in similar. I would think they would be. I don't understand it. Okay. Do you think the IPO... Other than they're just not doing nearly as well. You think the IPO will be well received? Anthropic?

Let me frame it this way. SpaceX is the largest IPO we've ever seen. There was a lot of pessimism on Twitter where pessimism usually lives. All of the predictions about it would screw up the index funds. It would take

money away from all these other stocks so that they could support the size of it. Like all of the things that we are, the insider selling would crush the shareholders. It would open at 135 and collapse to 50 once insiders were unlocked and able to

sell. There were so many reasons why people said this is going to be a disaster either for the stock itself or for everyone and none of that happened. It opened up, it fell, then it went up again, then it fell back,

but it's acting like a normal stock, a normal technology stock. You think something like Anthropic, which will be roughly the same size, will be similarly received and just will gradually get, will quickly get used to it being in existence? I have no idea.

Okay. All let me ask you a question. When they come up on, Buy it? Would you be a buyer? No way. No way. Let me ask a question that you might answer.

Okay. I'm taking a shot. Go ahead. All right. So earnings have grown 30% this year. Investors are saying don't think it's sustainable. The forward PE what we're willing to pay has come down dramatically. Does that make you, does that make you bullish, bearish?

Do you not care? What do you think about that dynamic? I am not valuation sensitive in that way. All right, but what's market telling you? The market is pure narrative. It is pure narrative. And there is only one narrative that matters right now, and that's AI. So you tell me what happens to the AI narrative, and I'll tell you what happens to the stock market.

Period. All that matters. So I think that's true. And you know, a lot of people say, like, the stock market is not the economy. I think right now it kind of is. Like, I think we're talking about companies that aren't even public yet, having the ability to cause a recession. So the companies that are public,

I really think all of the performance in the market is coming from some derivative of the AI trade. And now the bond market, we learned, as Michael said, we learned yesterday how important to prevailing yields, the ability to sell debt. I really think this is one of those situations where the economy did become the stock market. And it may not last forever,

but right in this month. And I think it's more true than ever. If that's the case, how important is it that this market remain near highs or not have some sort of calamitous event? It almost feels like the feedback. I don't think of it that way. Again, I go back to my original point. I mean, if you look at the S&P, 40% is tech, at Google, Amazon, blah, blah, blah, you get the 50% at the investment banks and Giver Nova and Quanta and Eaton. and Rockwell, and you're 65% of the S&P.

Yeah, the industrials are... It's all one trade. It's AI, period, and a discussion. Okay. So, so long as the demand holds up, and somebody is willing to finance the build... It's fine. All right.

It's fine. Another area that I, you know something about, the housing market. Okay. Okay. This is the worst housing environment since the GFC. No question. It's obviously not nearly the same thing,

is bad. And I find it unbelievable that a third of the economy can be depression level. And nobody cares. Nobody cares. Things are good because of AI, right? Thank God. Thank God for AI for the stock market and the economy's purpose for right now. 2022 was a very weird year for the homebuilders because they were on fire and home building stock should not be on fire in a housing freeze. The thing that happened was everybody that owns a house, is stuck. Nobody could sell it because rates are too high. There's no buyers. There's no sellers. What do you have? Amazing. New housing. And Lenar and all of the others, Pulte and KB, they feasted. They were given concessions. Like, it was a, it was a frenzy, a free-for-all.

And that dynamic is over. I think people are getting used to the fact that, okay, I guess this is just like what interest rates are. This is just what a mortgage is now. And slowly but surely, they are starting to come to market, and the housing stocks are getting destroyed. Lenar, I think, I mean, it's straight down every single day. Now, monster bounce today, good, hopefully at last. But what do you think about the housing market? I mean, let me take a step back. So the housing market's locked because of rates.

Housing has probably never been more affordable. in our lifetimes. So it's not just... I mean, unaffordable. Unaffordable. Sorry, it has not been this unaffordable, maybe, like, ever. Relative to incomes and the cost to borrow. Exactly.

It's a disaster. It's not just mortgage rates. That's part of the problem. It's that the cost to ensure your home has exploded. The cost of pay utilities has exploded. The cost of your taxes has exploded. The down payment. prices haven't come down.

No, they haven't come down. One estimate I got was that if you roll in all of the monthly cost to buy a house today versus, let's say, five years ago, it's 50% higher. Yeah, I'd believe that. As a homeowner, I would believe that. I think housing prices are going to come down. That's how this ends? Yes, that's how this ends. They're already starting to come down.

They come down because the economy falls, or they come down because you build more? You've got boomers dying, and so that supply is going to come online. And you've got foreclosures are actually going up for the first time in a long time, and they're up quite a lot. So that supply is going to come online.

But there's still so much demand. There's 70 million people around my age. Not all of them need a house, but a lot of them do. They can't afford it. They can't afford it unless the price goes down. If the price came down, they could afford it. So I think housing prices are going to go down.

You think that, like, that'll be the net result is they will come. But it just feels so gradual. The way that you get there, lower housing prices. Yeah, it takes time. It takes years. Can that weirdly stimulate the economy? A falling thousand market? It's too slow.

And you don't think rates alone could do this. Or rates falling if they... Well, rates falling would help. We got a long way to go from here. But I think, you know, the problem that I outline, which, you know, the insurance costs, the utility cost, the tax. tax costs, they've become really prohibitive. Yeah.

Really prohibitive. So to close out, you said everyone's trying to be the next Steve Eisman. So you obviously became very... I don't want to be the next devisement. You already did that. So there is a cottage industry and people predicting crises. Yes. Not necessarily betting on them with money.

Repetition. But almost more like reputation. Like they'll write a really negative research note or or substack post or they'll spend every waking hour on Twitter retweeting bad news. I feel that ultimately, if and when something bad does happen, we're going to find somebody who said all the right things before it happened. And that person, fairly or unfairly, they will be looked at as,

this is the man or the woman who saw it coming. But there's hundreds of them. There's so many. But there's so many of them. Do you think that that will be the outcome in the wake of some crisis? Like, we'll find the person who quote unquote got it right. Or is this thing that you were able to do probably not replicable in the next crisis because of how loud? He made out of money.

He wasn't just tweeting. That's the difference. Yeah. I think that's obviously right. But like what do you think when you see all these people out there in a race to say the most negative thing possible to sort of become associated with whatever happens? dux? I mean, you should be happy that you're wrong. Yeah.

That's what I want to say. Well, I'm happy that they're wrong and that they've been wrong. Look, eventually one day there'll be a correction. What that is, I don't know. Is it to be careful what you wish for? Like, what's it awesome being you in the aftermath of this? It wasn't so awesome. It was, let me tell you, it was a lot of aggravation and tremendous anxiety.

People were probably really mad at you. They were, they, a lot. You fucking ruined the world. And it was your fault. and was a lot of anxiety. You got people saying it was your fault. And I don't want to go through it again. Now, like I said, whatever it does happen,

it's not going to be a great financial crisis. You were talking about institutions levered 40 to one. It's not like that anymore. But could we have a bad recession if AI really falls apart? You bet. But it's on the same order of magnitude.

Well, I think that's a good place to end. I think that makes people who are reading all this stuff and all this commentary and all this opinion, not that you're the final authority, but I think it's helpful perspective from someone who has seen much worse and doesn't think that this has to necessarily resolve

in that way. And I really appreciate you saying it, and thank you so much for being here on the show. Thank you. Steve Eisenman, ladies and gentlemen, I thought we'd end by having everyone individually talk you about their resume. That would be great.

All right. Guys, on behalf of the compound and friends, I want to thank you for coming and being our impromptu live studio audience. I hope you had fun. Thank you so much for being here. And Steve, Michael, and I wish you all the best as you graduate, you, Miami, and launch into your future careers. So give yourselves a round of applause. Thank you, guys.

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