The Compound and Friends - The Next Big Short is the Trade War

Episode Date: June 13, 2025

On episode 196 of The Compound and Friends, ⁠⁠⁠Michael Batnick⁠⁠⁠ and ⁠⁠⁠Downtown Josh Brown⁠⁠⁠ are joined by Steve Eisman to discuss: behind-the-scenes on The Big Short, what's going on with the trade war, what looks good in financials, the labor market, what's going on at Apple, and much more! This episode is sponsored by VanEck. Learn more about the VanEck Uranium and Nuclear Energy ETF at: https://vaneck.com/NLRJosh 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/ Learn more about your ad choices. Visit megaphone.fm/adchoices

So Josh, Steve is also in on Mobland, so get involved. I am two episodes deep and I stopped. I don't know why. Get back. No, I will. I love Tom Hardy. Admittedly the first two, but like... Well, if you like Tom Hardy, you got to see Peaky Blinders. Of course. Come on. Come on. Of course. Peaky Blinders, he's insane.

I'm going to tell you a deep cut. Tom Hardy, I think it's on... Is it on Netflix now? Havoc? I watched it. I don't think that was that good. It's the weirdest thing I've ever seen. So strange. But the cast is so out of control good. Yes. They have Forrest Whitaker.

They have... Yeah, but it's like they went to waste. Who else is it? Forrest Whitaker is excellent on the show on MGM Plus called Godfather of Horror. I watched the whole thing. Which is great. I'm obsessed. And a lot of that's like true stories.

Muppet Johnson was a real person historical figure I can gangster no yes the the guy that dies the beginning of American gangster is bumpy Johnson yeah right but also in havoc is a Timothy Olyphant was probably one of the best TV actors justified justified oh the unbelievable the thing they use him in like 10 scenes. He should have been in every scene. He's a great actor. I have to watch Justified.

Justified is superb. Can I get some juice? All right, hold on. I have like pings going off here. Steve, this is gonna be awesome. We are so thrilled to have you. And this is gonna be such a treat. I've been excited about this for two weeks now.

Only two. Yeah, I was just saying, that's not that, that's kind of underwhelming. I can only think in increments of a week or two these days. So, all right, what are you asking for? Do you ask for a Father's Day gift or? I never ask for any gifts. Do you get Father's Day gifts?

Basically not. Do you? You don't anymore? No. Are you kids in their 20s or 30s? They're getting, one of my daughters is getting married Do you get Father's Day gifts? Basically not. Do you? You don't anymore? No. Are you kids in their 20s or 30s? They're getting, one of my daughters is getting married in less than a month. Alright.

So I have a 19 year old and a 16 year old. Okay. I'm way past you. The 16 year old will give me a hug. You have Tzars. Yeah. That's all you have. Yeah.

I want to ask for something I feel like. Why? What do you need? I don't know. We just did my kids. I just got new golf clubs. What else could I want out ask for something I feel like. Why? What do you need? I don't know, we just did my kids. I just got new golf clubs, what else could I want out of life? We just did my kid's 16th birthday. Like, that's my wife's boyfriend, the little boy.

The boy. Oh yeah. Of course. Big time. He got AirPods Max, like the big headphones. He got a workout bench. He got the adjustable dumbbell, like the adjustable weight dumbbells. He got all workout bench. He got the adjustable dumbbell, like the adjustable weight dumbbells.

He got all these gift cards. And I'm happy to do that. From my son's last birthday, I bought him a sword. Stop. That he actually uses. What does he use it for? So my son, you gotta hit this crazy. So my son used to be like a power lifter.

Okay. He built like a brick shithouse. Yeah. And then he got into Brazilian Jiu-Jitsu. And then he moved on from Brazilian Jiu-Jitsu called long sword competitions. So he's a samurai. So he, long sword competitions are,

they use swords that are facsimiles of swords that were used in Europe in the early 1600s. And he's completely padded. And basically, they whacked the shit out of each other. Come on. And I have videos. My son, he could kill you. I mean he is so fast in this thing. I'll show you later. I'm serious. So there are 10,000 people who compete on planet Earth in this thing.

Okay. And my son is ranked 250. Come on. Wow. He's unbelievable. So it's global. It's Europe and the US. So it's a lot of like British and Japanese because... No Japanese. It's like continental Europe, Germany, Scandinavia, France,

and the US. But they're not in like costume. No, they're in basically, they look like the way fencers are dressed. Yeah, okay. Have you ever seen role models? Yeah. So what is he, a swordsman? Wait. So it's called long sword competitions. Okay. So what does he do to train for this? It's like he's got other people. He works out all the time.

He swords, what don't you get? But with all this padding and stuff, when he's fighting, he's sweating like crazy. Because it's huge padding. Now what do you do after that, fighting dragons? Like what's the next level? David you know what we should do is we should send you back in time to Eastern Europe. You could help the Jewish people because they could use some defense. Yeah absolutely. He'd be helpful. We could use them. I don't know if one swordsman would have been enough. It could hurt. I don't know how far back in time you want to send them. That's all right that's interesting.

And you have how many kids do you have? Three. Three okay and they're all grown. They're all grown. So I'm two years away from like both my kids being in college. Right. I really don't know what I'm gonna do with myself. Oh there's lots of things to do. I'm sure but I haven't hit it hit upon it yet. Oh my golf game has improved enormously. Yeah that's probably right. My tennis game has gotten better. I still play squash. I'm probably gonna, I'll probably be golfing and tennis too. Do you golf in New York or just Florida? Both.

Where, in Westchester? We have a house that we rent in East Marion, all the way out of Long Island. All right, you have the same accent as me. Are you from Long Island? No, bite your tongue. Okay, Queens? I told them we're from America.

He didn't like that. I'm from the Upper East Side of Manhattan. I'm very high class. You grew up Upper East Side? Yes. Okay. We're from the Lower East Side of the South Shore. I can tell. I lived Upper East Side for a while. I've always lived Upper East Side. I lived in Rupert Towers. Okay. That was Avenue. Yeah. So that was the arts decade. I lived like, oh, basically until the crisis. And then I had no money. And we were having kids and it was like, we gotta get out of here. We're in a one bedroom. And so where'd you move to? Back to Long Island, Long Island, of course,

where in Long Island. So we moved back to the town we grew up at. My wife is my high school sweetheart. So we moved back to the town we grew up in. My wife is my high school sweetheart. So we moved back to the town we grew up in and the added bonus was her parents still live there. So they had bedrooms set up for the kids. It was one of the smartest decisions I ever made. So what town? In Merrick. Merrick, oh you're also in Merrick.

Merrick! Oh, we're both from the same town. Merrick, Merrick, Merrick. We're almost five, we're in between. Which one of the stops, what are the stops on Long Island Railroad from New Merrick? I'll help you. We're in between five towns and Massapiqua.

Massapiqua, Massapiqua Park. Babylon, Amityville. Babylon. Ron Conkoma. It actually goes, it actually goes. Lynnbrook. Wait, what? It goes to Lynnbrook, Vauxhall Center, Baldwin, Freeport,

Mesquite, no Merrick. Merrick, Wanto, Seaford. No, Belmore, Belmore, you missed Belmore. Belmore, Wanto, Mesquite, Mesquite Park, Seaford. So my parents had a house in Atlantic Beach, so I grew up there in the summers. I love Atlantic, we're Catalina members. Oh, are you really?

So I'm there, yeah. There you go. If it's nice out, I'm probably there. I will be there on Saturday. I met my wife on the boardwalk in Atlantic Beach. Me too. Sunny Atlantic There we go. See we're not so different you and I. I think we're very different I wouldn't go there All right, start the show. Very exciting

Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. This episode is sponsored by VanEck. There is a huge wave of demand currently and on the horizon from hyperscalers for data center power. Many have already looked to nuclear as a solution in the short to intermediate term. The VanEck uranium and nuclear ETF, ticker symbol NLR, gives investors

comprehensive exposure including utilities, uranium miners, and service providers. Renewed policy support from the US, France, Japan, and China, among others, is coming. Increased demand is coming as well. Find out more at VanEck.com slash NLR Josh. That's VanEck.com slash NLR Josh. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

All right, ladies and gentlemen, welcome to episode 196 of the best financial podcast on the planet. You are now rocking with Michael Batnick, myself, Downtown Josh Brown, first time listeners. We apologize in advance. Longtime listeners, we love you. Thank you for being here. We have an extremely special first time guest. I've been excited about this, as I said, for a fortnight. Steve Iseman is an investor and financial analyst, best known for his bet against the US housing market prior to the 2008 financial crisis, a story chronicled in Michael Lewis's The Big Short. He was portrayed by Steve Carell in the film adaptation, and Steve has held senior roles at Oppenheimer & Co., Front Point Partners,

and he currently hosts his very own podcast called The Real Eisman Playbook. Steve Eisman, welcome to the show. Thank you. Good to be here. All right. Uh, I want to give you some credit for something that I don't know if other people say to you. Being known for getting the financial crisis right, there's like a list of 10 people that we all know the names.

Most of them persisted in their bearishness or doubled down on it. Some of them to this day, they're waiting for the next 2008 every time you hear them open their mouths. You are one of the few people to have made the turn. You sort of like came to prominence as a result of this incredible call that you made. And not just call, but actually money behind it. And that's amazing. But you also transcended that group of people because you didn't become a perma bear forever Constantly denying the obviously incredible comeback we've had over the last 15 years So I wanted to give you credit for that to other people give you credit for that not too frequently Okay

but it's like a notable thing right because the easiest thing to have done was to lean into the Character the persona, and like, all right, here's going to be the next crisis. Here's going to be the next crisis. And we saw a lot of those guys do that. I don't look at it that way. I mean, 2007 for me was fun because I was short all this subprime paper. I couldn't stand what Wall Street was doing to planet Earth.

And so it was a zero sum bet. If I was making money, the other side was losing money. So I was making money off of Wall Street was doing to planet Earth. And so it was a zero sum bet. If I was making money, the other side was losing money. So I was making money off of Wall Street. That was fun. Yeah. 2008. I don't think it was fun for anybody. I sort of viewed it as, going to go back to my Jewish day school roots. It's kind of like Noah and the ark. Okay. So Noah builds the ark, his family's inside, but people outside are screaming and dying. Yeah.

I don't think Noah's happy in the ark. I mean, he's happy he's alive and his family's alive, but he's not happy that the planet Earth's getting wiped out. Did it get worse than you initially had thought it would? I don't think it got worse than I thought it was going to get. What I was shocked by in 2008 was this was where I made actually made an intellectual error. I thought and my partners and I all thought that surely the people who the United States

government and the Fed know what we know. Okay. Because and if they know what we know they're getting prepared to bail out the system any second. Right. And it turned out that they didn't know. Yeah. They had no idea. When did you first realize that? I probably realized that sometime in the summer of 2008. Okay.

You know, I think they took over Fannie Mae around that time. Yeah. Or maybe that was 07, I can't remember. When you say they didn't know, who specifically? Fed, Treasury, Office of Supervision. I'll give you an example of how it's very clear that they didn't know. If you read Andrew Sorkin's book. Too Big to Read?

That's a short book for me. Literally. I think I read Too Big to... What was it called? Too Big to Fail. They're probably right about two hours. It's a good book. It's a good book. It is a good book. But he has a scene in there where it's just after Lehman.

So that's September already. That's September. So it's not like September 14th, September 15th, and they're all having a big meeting and somebody walks into the room and says, oh my God, AIG is in trouble. And it's like, really? Really?

Yeah, this is a surprise to you? Like, don't you read the research? And it was obviously I didn't read the research. I had no clue. So I wanted to, I wanted to just kind of agree, agree with you, like that they had no clue. There's an apocryphal story where there's only one Bloomberg terminal in the entire Federal Reserve at that time. That's possible. It seems inconceivable now. Right. But yeah, that was what that that was what it was. Jim Cramer knew what was going on. He was shouting on TV. The bloggers all seemed to, the econ bloggers all seemed to know what was going on. My partner Barry Ritholtz being one of the people writing

about the coming housing crash. But like these are not people in a position of power. I mean, I remember there was an amusing moment where I remember we were sitting in our offices, TV was on and back to back, both Bernanke and Paulson came on and said, the subprime crisis is contained. And I remember I turned to Danny Moses, I said, yeah, it's contained all right. It's contained the planet earth.

Yeah. Yeah. Oh, contained it was that the new version of contained was the inflation crisis where it was transitory. Right. It's like the same- That was the original.

That was the original. Contained to Planet Earth is amazing. I want to read something. So Steve Carell famously portrayed you and I thought this was sort of interesting. This is what he said about meeting you He's very clearly he's clearly a very intelligent guy Somewhat brash outspoken but honest when he walks in there's no pretense It's not like he's hiding anything about himself or trying to be anything other than what he is I didn't have to like sift through layers of effect to get to who he was

there was something very true about him as a person. And I guess you met him, he met your kids, like you hung out with him for a day or two. We met once. Okay. All right. I met him at three guys, the diner. Oh, I remember. Back then, we were on.

Madison Avenue? Madison Avenue, like 88th Street. Yep. And he wore a baseball hat, pulled it over his eyes so nobody would recognize it. Okay, we had Breakfast for like an hour we talked and then walked him over to our apartment He met my wife and kids and that was the last time I ever had a long conversation with Steve You had to correct him on a very pivotal scene in the movie. Oh, yes. Okay, so This is him

When they go to the convention in Vegas and he, meaning the character he's playing, you, finds out how corrupt the CDO market is. I was playing this one part a little brooding and Steve said, oh, I'd be much happier at this point than you are. At this point, I was joyful because we had these guys on the ropes and this was just going to be fun for me. So that's like... Well, that's not where I corrected him.

I actually, my contribution to the movie literally can be confined to one word. Okay. And the word, no. Okay. Not even close. Not even close. Not even close.

All right. And the word is, there's a scene pretty much near the beginning of the movie where Steve Carell is walking, he's walking on Houston Street, and he's talking to his wife, my wife, Marisa Tomei. It never gets old, by the way. By the way, my wife looks like Marisa, you could say my wife looks like she's Marisa Tomei's sister. They look a lot alike. All right, very well done. I don't know where you're going with that. I had to get that out there.

So he's walking on the streets of New York and he's talking to her and he's talking, he's talking and he's about to hang up and he hails a cab. So they have a cab pull up on house and street. And as he's about to climb into the cab, they have this guy who's an extra, like try to brush past him to steal the cab. And the way it was originally filmed,

Steve Carell turns to the guy, confronts him and says, hey, that's my cab, asshole. Yeah. Cut. So we were invited to watch the scene. So it's me, my wife Valerie, my three kids. My kids were much younger than me. It must have been surreal.

It was surreal. Yeah. And so Steve Carell walks over to Adam McKay, who is the director and author of the script, and they're watching the scene on a little camera. Yeah. And I turn to my wife and I go, I got to say something. And she says, don't say anything. And I go, no, she says, I got to say something. She says, I'm begging you not to say anything. I said, no, I'm going to say something.

And I walk over and I say to them, hey, guys, if it were me, I'd have said schmuck. And schmucks in the movie. And that's my only contribution. Well, that's a big contribution to the whole movie. They didn't even give me a credit. It's very New York, putts were to work too. Schmuck is perfect. Do you think he did a good job? So funny you should ask that, you know,

when the movie came out, people who know me really well, who I grew up with said, God, he really got you so well. And my feeling originally was, yeah, incredible portrayal, it's an incredible movie. And I don't think I was quite that angry. So the movie came out in beginning of 2015. And in April of 2015, the Financial Crisis Commission, which was a commission that President Obama created,

did like a data dump. Whatever any piece of paper they had, they made it public. And one of the pieces of paper was the interview that they did with me in 2010. You testified before Congress. It wasn't, I did not testify before Congress. This was a meeting that was at Frontpoint where they came in, they had a stenographer,

and they interviewed me about what my thoughts, lasted like two hours. And this was like a transcript of the interview. So I hadn't thought about this in five years. If you type Steve Eisbren, financial crisis commission, it would pop up. And so I read this for the first time when I was finished reading, I go, no, he was right. I was that angry. You were was right. I was that angry.

I was that angry. You were that angry. And you didn't realize it at the time until you reread the shit that was going on. Yes. What I said, what I was like. I was raving during that interview. I think it was, I mean, it was a valid thing

to be raving about. We're still living with some of the consequences. From, it's 15 years later, and for some people, things were never the same ever again. Which part made you so angry, particularly? I mean, when I was on the sell side at Oppenheimer, one of the industries that I covered was actually the original subprime mortgage industry. So I knew this industry cold, and over the years, I figured out some of the terrible

shenanigans that they were doing to make loans, and how bad the loans eventually became. Yeah, destined to fail. And worse than that. And the fact that Wall Street was involved, egging these guys on and buying all their paper, it just disgusted me. So worse than that, what do you mean? How is it worse? Well, the original loan, the loan that was made back then was a teaser.

That would be a teaser for two to three years. A very low rate to start with. Back then it was incredibly low, it was 3%. Yeah. And then you would get adjusted basically to nine. Right. Like overnight. And after two or three years, whatever the document said, boom.

Nine. I'm saying it didn't ratchet. Did not ratchet. Right. And the industry, as I like to say back then, underwrote the loan to the teaser rate. Right. Which means that they knew you could only pay three. You couldn't pay nine. Right. So the obvious question was why would you write a 30-year loan where the customer

is only going to be able to pay for the first three years? And the answer was actually very simple in that, you know, if you took out a subprime mortgage loan, you got charged, you got charged three to five points with a privilege. When you refinanced, you got charged the same three to five points. Again. So after three years, you'd get a phone call saying, Hey, you got, want to refinance? Of course you'd want to refinance because you don't want to pay 9%.

So you got charged another three to five points, which got rolled into the loan. So nobody's principal ever got paid down. It was like being you know a rat and a maze you can't get out of this thing And then it's I'll be gone you'll be gone. So whoever owns the loan today You bet right to bed right, you know you got a problem So but everybody, you know everybody in the chain from the originators to Wall Street. They all got paid on volume Yeah, so, you know, it's one of my lines is that incentives trump ethics almost every time. Last thing on the movie. You didn't pause on that.

That's a really good line. Say it again. Incentives trump ethics almost every time. Yeah. So there's a similar version of that from that that I learned from reading Charlie Munger. And that's basically my life philosophy. Show me how people are getting paid and I'll tell you why they're doing what they're doing. Or vice versa.

Same thing. Yeah, I 100% agree with that, and I think if you're armed with that, going into any meeting, going into any encounter with anyone in the business world, or even outside of the business world, if you just start with that rubric as like your frame of like, what is this about,

it almost solves every question that might come up subsequently. So I very much agree with that last thing on the movie I want to ask you when you found out it was Steve Carell playing you were you like wait also Brad Pitt's in this movie okay so sometime in like 2014 I think I got a phone call from Michael Lewis to say, hey, Brad Pitt's company bought the movie rights. They had a script. You assumed he was.

Nobody liked it. But this guy, Adam McKay, I never heard of him at that time, just rewrote the script and everybody loves it. So he's gonna direct and then making the movie. I'm like, okay, okay, Michael, sure. Nice talking to you. Right. Because it's been years.

Yeah. So then sure enough, Adam McKay calls me. And the conversation, he says that we're making the movie. And he said, there's a real possibility that Brad Pitt's gonna play you. Oh my gosh. And I said to him, this is a direct call, I said, Brad Pitt, Brad Pitt.

I mean, come on, the only thing Brad Pitt and I have in common is we both have really good hair. That's it. So then it turned out Brad Pitt, for scheduling reasons, couldn on, the only thing Brad Pitt and I have in common is we both have really good hair. That's it. So then it turned out Brad Pitt, for scheduling reasons, couldn't play the role, so Steve Carell. So it was like a come down, actually. So he really was gonna play the Mark Baum character. Virtually, it was gonna be Brad Pitt was gonna play me.

That's incredible. That's amazing. Why did they change the name of the character for the movie? That's a long personal story. We don't have to get into that. Anyway, before we get to the thing, I want to ask you, what was the period like for you as an investor from say, I don't know,

09 to 13 or whatever, as we were eventually coming out and the QE and the QE2 and all that sort of stuff, what was that like for you personally? Were people like dying to send you money? No, they were not dying to send me money. Really? It's a very weird thing. First of all, at the end of 08, so I had a great year in 07, I had a decent year in 08,

and at the end of 08 I lost one third of my assets. Why? The reason why I lost one third of my assets was that everybody else gated. Oh, so they couldn't get it from you. They had to get it from me. I forgot about that. So they took one third, and I never recovered from that. They were, so they were, how mad were you?

I was so pissed off. It was like, I just made you people a fortune. You reward me by those guys who gated you. You're going to stick with them? How come you think that didn't happen to like Paulson and Pellegrini and those guys? I just know we got, I lost a third of my assets overnight. Right, because in other words,

the other funds that they were in had all this real estate schlock and- And they were gated. They couldn't get out. But as we were recovering, did you see the recovery turning? Did you say the worst was behind us? How did you invest in the 2009 to 13 period? You know, we got pretty bullish. We got long a whole bunch of stuff. The problem was that we were still mostly a financials only fund and the last great year for financials was 2010. I think it was 2009. After 2009 the industry has basically done nothing except go sideways for the next 15 years. Oh that was your focus because you were a financials analyst prior.

Right, so we were, it was the Frontpoint Financial Services Fund and the Frontpoint Financial Horizons Fund. So I wasn't buying Apple. Right, right, got it. Even though we wanted to, but that was not our mandate. Yeah, and the truth is financial stocks did not recover with the market. They came off the bottom.

They came off the bottom, they had a grade 09, and that was the end. That was it. That was the end. And the problem that they had was after Dodd-Frank got passed, so Daniel Turullo became the vice chair of financial supervision, which is a fancy term for chief bank regulator of the United States. He is the first chief bank regulator of the United States in the history of the United

States. Think about how insane that is. Yeah. And so he went to town. He forced the industry to massively delever and to de-risk. So just to give you an idea between when he stepped in, let's say, beginning of 2011 and when he left April 2016, Citigroup's leverage went from 35 to 1 to 10. Now I don't care how good you are. When your leverage as a financial company goes from

35 to 1 to 10, your return on equity is going down. Also they couldn't merge with each other. They couldn't do anything. Couldn't do anything. So why would you own Citi or Morgan Stanley or Goldman when you could own Apple? And they had a double dip crash because in 2010, 2011, the European thing was wrecking financial stocks in the United States. I remember Bank of America printed eight bucks a share at some point.

I think some of the Warren Buffett stuff happened in 2010 and 2011. After the crisis, some of those convertibles that he did because those stocks were pancaked again. So it's a tough area of focus, I guess, for a long time coming out of the crisis. Years. Yeah. All right. Let's talk about another tough area of focus.

We wanted to start out with your opinion on one of the bigger stories of the spring. The deficit is back in focus. There was a really... No, it's not. Okay. It's not. That's the premise. It's out of nonsense. You could shoot it down. It's out of Okay. It's not. That's the premise. It's not a nonsense.

You could shoot it down. It's not a nonsense. Tell me why. Take a look at a chart at the 10-year Treasury Yield. It's been in the same range for the last two years. 30-year broke above 5% for the first time in almost 20 years. Big deal. Okay.

Who cares? All right. I'd like to hear that. Look, let's do a thought experiment. Okay. Let's go back in time. Let's say it's 1999 and we're going to have two back to back guests on CNBC, which we all know and love. Yeah.

Pete Peterson. Yeah. And Steve Isenberg. Okay. A much younger version. Okay. And Pete Peterson gets on and says, Oye the Deficit. He's the original king of the O, the deficit, the Blackstone co

founder, he was a founder, he was a founder of KK, co founder of KKR, KKR. Okay. And all the deficit, it's so terrible. It's growing, it's going to get worse. It's going to, it's going to crowd out investment in the private sector. The dollar is going to lose its lose its reserve status. Interest rates are going to go up because people are gonna not want our bonds, cats and dogs are gonna lie down together, it's the end of the world. And that's his interview. And then Steve Eisenman comes on,

much younger, brasher version. You could almost say Brad Pitt-esque. Right, well, my hair had no gray back then. And Steve Eisenman says, I completely disagree with Pete Peterson, I love the deficit, I want more of the deficit. Because we are the reserve currency of the world, and the entire financial system runs on treasuries.

We can afford to have a much bigger deficit. And this business about crowding out is nonsense. There's going to be no crowding out. Interest rates are going to go down. And the US economy in 20 years from now will be the most dynamic it's ever been probably in our history and that's my speech and then leave that aside and and Pete and everybody thinks Pete Peterson oh he's the man because he's the sage and Steve I's this idiot who was right you're I had been right still right and and the way I think about the deficit is,

the deficit is Wall Street's version of virtue signaling. People get on TV and they're like, they try to one up each other. I am against the deficit. And then the next guy says, oh, he's not against the deficit. I'm so much more against the deficit than he is. I hate it most. I hate it more than him.

He's nobody. And nobody ever asks the question, given all the agita around the deficit, why have none of these predictions ever even come close to happening? And I think what they all miss is that the entire, like I said, hinted at before, the entire financial system of planet Earth runs on Treasuries. You've got a multi-trillion dollar repo market where banks lend to each other overnight. What's the currency? Treasuries. You're a sovereign wealth fund in Norway and you need to park your money in some medium term notes. What are you buying?

You ain't buying Chinese bonds. You're buying treasuries. So the only way people should really start to worry about the dollar losing its reserve status or our interest rates going up because of the deficit is if there's an alternative to treasuries. Until there's an alternative to Treasuries, this is all just purchase. It's all purchase.

There is, there is. What's that? Stablecoins. Uh-huh. We learned that last week. We'll talk about that. We learned that last week. Yeah, because with Circle.

Yeah. Well, so is there no limit then? Why not? I don't know if there's no limit. So why not propose a 10% annual budget deficit? It's not that I think that having such a big deficit is a great thing. I just don't sit there and worry about it all that much.

What about the dollar being down 11% year to date concerning or normalization or? Whatever. Whatever. Okay. It's refreshing. Almost nobody will say that. No, nobody will. And you really think that... Like I said, everybody wants to be virtuous. But you really don't think there's...

I'm not interested in being so virtuous. You don't think there's legitimate concern? You really think it's all just. I think it's all nonsense. Let me come out against the deficit so people look at me as responsible. All the things being equal, would it be a good thing to cut the growth rate of the deficit over time?

Sure. Right. That's a very, very long-term problem. When people get on TV and start, you know, complaining about the deficit and saying, well, all the time, I just laugh. I think it's ridiculous. So when you when people say the last time we had a surplus was 2001, you say who cares? Who cares? Right. So what? Yeah. 2001, let me ask you a question. Is the US economy more dynamic today? A little bit. Than 2001? A little bit.

I'd say just a touch. Can I make my, can I give you my insight as limited as it is on deficits? It's your show. Okay, if you just look at a chart of deficits versus stock market bubbles, you realize very quickly, there have only been two times in history where we were in budget surplus

They both came as a consequence of massive stock market bubbles, which led to tons of tax receipts in the follow-on years So 2001 2002 that's people paying their taxes from the dot-com bubble And then in the late 60s when we had you know, 50 50 Yeah, the run-up like the run-up of the stock market nifty 50 kind of peaks in the late 60s when we had, you know. Nifty 50. Yeah, the run up, like the run up of the stock market, Nifty 50 kind of peaks in the early 70s, I guess. We had this little moment there where we had a budget surplus. Other than that, you're never in surplus.

So if you want to have, if you actually want to tackle the deficit, maybe you need more stock market bubbles. I don't know. Why do you think the average person gets mad about this? Gets mad about what? Like. Forget about it. They confuse it with household finances. When you say the average person, who's the average person? I'm not talking about the star fund manager I'm talking about just the average citizen who is hemming and hawing about our day. I think Josh is right They misunderstand the financial implications. I think it were a household that were oh you would never spend more than you take in We're not a household. It's folksy politicians, they're like,

you wouldn't run your household finances like that, we're not a f***ing household. Yeah, households can't print their own money. By the way, for the record, we're with you. We are not the type of people that spend any second thinking about the deficit for the most part. I mean, I just find it funny at this point. I mean, put it this way, you know,

one criticism of me as an investor, if it would be that I can at times be too early. And as we all know in our business, if you're too early, during that time you're wrong. Remember the Simpson-Bowles deficit, that was about the deficit, right? Those two guys were doing a national tour. I don't remember. But I'd have been 40 years too early.

This debate about the deficit going on for 40, when you make a prediction for 30 to 40 years and you've been wrong for 30 to 40 years, you know, you just be a little quiet about it. I believe in you. So you're not worried that it's 1937? That's ridiculous. Well, wait a minute.

Wait a minute. One thing that's true is we haven't run a deficit like this outside of a recession. So. Okay. That's a factual statement. So what, so in other words, God forbid we have one, which is very possible. I'm not going to say probable, but possible.

The fiscal policy response to that may be constrained by the fact that we're going into a recession with record deficit. Why would it be constrained? Well because there is, I would say most people would say, you should not make this worse. That's why you might be constrained. Oh, you mean not make the deficit worse? No, make the economy worse. By spending money?

Make the fiscal situation overall worse. Listen, I'm not saying that's true. They said that in 1937 and they cut the deficit back then and we went back into a depression. That was a good decision. There's this nonsensical narrative that foreign holders are going to or are already dumping our bonds. John, chart on please.

Look, so the Wall Street Journal just did a great piece on this and they show foreign holders has gone sideways, not down, not collapsing, not anything like that since 2020, it's going sideways. Okay. I'm saying, yeah, where are they going? Where are they going? They're not going to China.

Not to the Euro. Can we go back a couple of charts? One of the things that we have been just pointing out casually about this topic is that we are the holders of the debt and it's kind of an asset for, if you're the holder of this debt, there's two sides to it and it's an asset. The wealth management space, we're loaded with treasuries. Everybody's got treasuries. Like it's, somebody's getting paid as a result of this and it is in some way contributing to the economy. So

it's not a situation where China owns a hundred percent of the debt. Josh made the case a couple years ago that higher rates are actually stimulative because of all the cash coming in. People did not like that. People did not like that. Hearing that rich people are spending more money coming in. People did not like that. People did not like that. Hearing that rich people are spending more money. Jeff Gunnlock did not like that. Yeah, Jeff. The higher rates has hurt the housing market.

The housing market, but people that own a lot of treasuries, I would argue you've got a wealth effect. They got a stock market wealth effect and then they got a cash wealth effect. Like, holy shit, my bank account is literally spewing money When was the last time you saw that and risk-free assets? It's been 18 years ish put this size of debt held by the public up Nothing to see here

It's a dollar number yeah, yeah, so no it's a hundred percent of GDP Japan is a 240. Yeah, so who's got lower rates, right? Okay. All right I think is it there's a lot more complicated than sure of course Armageddon happen is generally it is generally a waste of time It's mental masturbation. I think well, let's waste time on one more They get me on well, yeah I get they put me on CNBC all the time because I'm the only person who comes on and says I'm not worried about this. This is the federal deficit as a percentage of GDP. Okay.

Nothing to see here. Okay. No, I'm glad you're clearing, I'm glad you're clearing this up for us. It's just a number, you know. Like I said, when has the US economy ever been more dynamic in our lifetimes? Never. Here's China. Just this is the other thing that they scare people with. That we're in hock to China and they're going to dump all their treasuries. And where are they going to go? Nowhere. Their FX reserves demand that they hold treasuries.

They might hold less. Sean, do we have that? Maybe they'll buy stable coins. Six and seven. So this is the very gradual decline of China holdings of US Treasury securities. And the next one is their recent selling. Okay, we could live with it. Let's do... Can we talk about the labor market?

It's your show. Okay. Do you have thoughts on the labor market? Because we got a continuing claims number that is now starting to take off. I mean, I don't think so much about the labor market. I think much more about, you know, what President Trump is doing about tariffs, where there'll be a trade war.

Okay. That's, that is the only thing that's important right now. That's the thing that will impact this. If there's, if there's no trade war, we'll be growing for years. Yeah. And if there is a trade war, we'll be growing for years. And if there is a trade war, there'll be a global recession and it's binary and I don't know how to handicap that. So weekly claims for unemployment benefits are now at their highest level since November, 2021.

Okay. Let's put this up really quickly. The blue line is continuing claims, which is breaking out. The green is a little bit elevated. That's initial claims looking like probably a breakout. I think the salient point here is it has never been harder to get rehired once getting laid off, as it is right now in the post pandemic period.

I don't know. You don't feel as though anything has materially, and I don't know how much of this is tariffs, how much is AI, to be honest, but it's harder to get re-hired. I don't think it's AI at this point at all. Not yet. Not yet, it's way too early. So where are you with the tariff situation? Yeah, there's a great show on Amazon called Reacher.

I love that show. And Reacher has this line where he says, in any investigation, the details matter. And that has this line where he says in any investigation the details matter. Yeah. And that equally applies to trade negotiations. The details really matter. Okay. You know, on the one hand, the US has a big advantage over everybody in that of all developed countries, we have the lowest percentage of GDP coming from exports. It's only 11%. Everybody else in the developed world, including China, is 30 plus. They have to sell to others. And they need to sell to us.

Yeah. So, I'll come to Europe in a second. So we have a big advantage over China, but China has controls all those rare earth metals. That's their card. I don't know how to handicap that. I really don't. Well, I think we fixed that part. I don't think we fixed anything. The sons and daughters of the Chinese Communist Party can go to Harvard and we get the rare earths.

That's what they just said. And that's what we were before all these negotiations. That's not what President Trump wants. So like I said, they just started negotiating. All they agreed to this week is to continue negotiating. Yes, it was a landmark. Got to start somewhere. It was a landmark agreement.

Keep talking. Landmark agreement. Let's keep talking. Okay, keep talking. And so I have no idea how to handicap US versus China. It was a landmark agreement. Keep talking. Landmark agreement. Let's keep talking. Okay, keep talking. And so I have no idea how to handicap US versus China. I think US versus Europe in some ways is more complicated than US versus China because the EU commission has authority over tariffs.

And they actually offered before April 2nd to cut all tariffs to zero. And President Trump told him to go take a hike because that's not the issue. The issue is everything else. Protectionism, VAT, all these regulations, et cetera, et cetera. And what I've learned is that each country in Europe over issues that they care deeply about has an effective veto. So let's say we wanted to get more agricultural products into France.

France says no, that's the end of the conversation. So negotiating with Europe's like herding cats. So I don't know how that's gonna go. I just think these negotiations are much more complicated than people wanna believe. We'll see, maybe it'll all come out okay. So in other words, in each of these countries in the EU, so the EU, so Ursula Van Leiden or whatever can say whatever she wants, but then Germany really cares about its auto industry.

The Italians really care about, I would assume, agricultural products and cars. And if they say no, it's no. Right. So then you have a deal with the EU, but at the country level it doesn't matter. There's no deal with the EU if you get vetoes from all these countries. You know what I learned during this whole thing that I thought was crazy?

In Canada, the provinces tariff each other. Did you know that? I didn't know that. It's insane. Like if you're trying to sell something from Nova Scotia in Vancouver, there are tariffs. Oh, I had no idea. And so one of the politicians said,

like how do we fight back against the United States? Well, one answer might be to stop fighting amongst each other. Yeah, good luck. Steve, are you surprised, like given that there is still uncertainty with tariffs that the S&P is just less than 2% from all time highs? It seems to be not perturbed at all.

I'm surprised and yet not surprised. I mean, it's been my experience that, you know, when something new happens, the street will price in the ultimate result immediately. And that's what happened by April 8th. And look, the US economy is incredibly resilient. The economy wasn't going to roll over unless there actually is a trade war. So all these companies reported results were okay. And a lot of people pulled guidance, but okay, who cares? And so then, Marcus not going to go down on this as an actual trade war.

15% of S&P companies pulled guidance, which was way less than I would have expected. I would have expected way more. And it turns out that companies just kind of bluffed their way through April and May. Didn't say much. Right. But look, it's having an impact. I mean, I know we had data that showed that imports from China are down 35%.

Orders were down 65%. You know, that's going to start impacting things probably when the back to school starts. This is Donald Trump yesterday. Our deal with China is done. Subject to final approval with President Xi and me. Full magnets and any necessary rare earths will be supplied upfront by China. Likewise, we will provide China what was agreed to, including Chinese students using our colleges and universities.

Parentheses, which has always been good with me exclamation point and end parentheses. We are getting a total of 55 percent tariffs. China is getting 10 percent. Relationship is excellent. Thank you for your attention to this matter. That's the president. So he thinks it's done. I mean don't is we go which is that we have 55 percent tariffs if they want to if they want to actually have a real deal to get tariffs below that. Okay, did you read the op-ed in the Wall Street Journal? I generally don't read the op-eds in the Wall Street Journal. Okay, tell me what they said. For good reason. They said Trump has no strategy and basically China had more leverage than we did. I think that's an overstatement. Yeah. You

think this is gonna continue for months and months and quarters and quarters? I think it's gonna continue easily through the summer is the uncertainty linger or it's really now just about the actual cost of goods I you know what I don't know I can't make that kind of prediction So this is good timing Torsten Slocke had a deck about China and this surprised me he has a chart showing the share of Chinese exports to the US EU and Japan and versus Japan excuse me so US I'm sorry US versus EU and Japan and the share of exports are going down to the US EU and Japan versus the rest of the world so China is less reliant on us buying their shit versus the rest of the world which surprised me. That is

surprising. You know that's an overstatement, because some of that stuff is shipping stuff to Vietnam and Cambodia, which then comes to us. So officially, the percentage of Chinese GDP from exports is 19%. But my guess is if you add in all the other stuff that they ship outside the country that eventually ends up here, it's probably 30.

So here's the results of the first earnings season during the trade war. Put the chart up for us, John. It has not been a trade war yet. Okay. The opening salvo. Trade info. This is the earnings surprises. The MAC 7 literally off the charts.

But the S&P 500 overall, a lot of earnings surprise, but then when you actually go to the S&P 493, the surprises are actually calming down relative to what they were, the upside surprises. Dubravko Lekos put out just a rundown of the earnings season. I'll share this with you. An earnings surprise of 7.6% versus only 4% for the prior four quarters. So this is a pretty good season for upside surprises. Earnings per share for Q1 revised higher up to 12% on forward guidance.

So this is the part that I think is important. 57% of companies reiterated, 25% raised their guidance, probably all software companies, and 15% cut guidance. The share of companies cutting guidance in Q1 was actually the lowest in five years. That's shocking. Only 1% of companies withdrew guidance completely. I was totally shocked by that data.

I won't second guess it, I'll assume it's true. It doesn't matter. It doesn't. Why? Because if there's a trade war, we'll have a recession. If there's no trade war, we'll be fine. So you were back to where we started. So if you knew the outcome... It's not binary. There's no degrees of trade. So if you knew the outcome, you would nail the trade. I mean, look, I'm long only. I'm not fully invested, but I'm pretty invested.

I think long term you can own stocks and we'll be fine regardless. But am I pounding the table? I'm not pounding the table. I don't know how to handicap this. It's not, it's not, look. Nobody does, right? You know what? Read books on World War I.

Nobody wanted World War I. There was not a single country in Europe that said, yo, we gotta go to war. But because of all the reciprocal treaties that they had, they eventually sort of fell into it. Yeah. And then it was a disaster. So that's something like that could happen here. Is that the biggest risk?

That's the only risk. It's the only risk. That's what I think right now. What else do you, I mean, besides the usual geopolitics shit. Well, the other stuff people talk about is a deficit, which we get back to that. I don't worry about that. And the trade war, but I don't worry about the deficit, I worry about the trade war. You know what's the good news? We're only up 2% on the year on the S&P 500, but

with blistering earnings growth, at least in Q1, the bears would say it's pull forward and wait till you see Q2 and maybe they'll be right. I don't think it was pull forward. Okay, so if it's not, then we should be up a lot more. But if there's a trade war, we won't be. He's not gonna do it though. How do you know? It doesn't matter. Things like this can get out of your control.

That's why I brought up the World War I analogy. Nobody wants a trade war, but if China plays hardball and Europe plays hardball, we could end up there. Even if it's mutual destruction for everyone's local economy. What was World War I? Yeah, all right, so that's the big rest. You could end up there. Even if it's mutual destruction for everyone's global economy. What was World War I? Yeah.

All right, so that's the big rest. Read The Guns of August by Barbara Tuchman. It's an old classic. I actually did read that. Of course you did. You're almost educated. Almost, of course. I read Through a Distant Mirror.

Through a Distant Mirror. And then I said, what else has she read? That's exactly my experience. I actually just reread it. Okay. Jim Chane has told me about that book, Through a Distant Mirror, actually. And then I said what else has she written? That's exactly my experience. I actually just reread it. Okay. Jim Chaynos told me about that book, Through a Distant Mirror, actually. Yeah, it was a good book.

All right. Do you know what sneakflation is? Sneakflation? Sneakflation. It's a new one on me. Can I give you something else to worry about? Yeah, please, God. I'm really upset.

This might be your next big short. This is Bank of America Today. Yesterday's May CPI report was remarkably benign. The effects of tariffs were evident in a few components like household furnishing, whatever, no big deal. But there's another way the tariff impact on inflation could play out. We call it sneakflation. The idea is that instead of raising prices immediately, firms might sneak in larger than

usual annual price increases next year to account for the tariffs and these price hikes might be spread across a variety of products rather than just the ones that are affected by tariffs. Meaning, all right, we can't go all the way on the price hike for this because everyone's going to know. Let's raise prices on other shit and kind of balance out the scales. So in other words, if there's a trade war and there are high tariffs, it's a problem. We're back to the original question.

Okay. You're just reframing the question, but it's the same question. All right. Apple. That's a problem. Okay. I agree with you, but I don't know the extent to which I'm a shareholder. So I'm going to brag about my podcast a little bit. Please do. So I interviewed, I read a lot.

So I'm going to brag about my podcast a little bit. Please do. So I interviewed, I read a lot. So I read this book recently by the guy, his name is Patrick McGee. He was, or he still is technically, the Apple reporter for the FT. And he just published a book, and it's called Apple in China. And I interviewed him on my podcast a couple of weeks ago.

And the book is great. I'd recommend everybody read it. Where do people find your podcast? What's it called? It's called The Real Eisenman Playbook. Thank you for asking. You're welcome. And basically what he said,

there was never a moment where there was like a meeting at Apple where somebody had a deck and they had this whole meeting and they all sat down and they said, oh, we should manufacture in China. That's not how it happened. It evolved over time and gradually their independent contractors moved to China. And then they woke up one day around 2010 and 11,

they realized, wow, we're doing everything in China. Apple manufactures almost 100% of its products in China. When they say they manufacture in India, it's nonsense. Everything is built in China, and then some stuff is shipped to India and they reassemble it. So Apple is in China. So forget about Apple losing share in China,

we could talk about that, but the biggest problem is Apple's completely beholden to China. If Foxconn, like they can't, right, that. Right. If something bad happens between the US and China, the first casualty is Apple. Yeah. And it reacted that way, the stock did, during the trade war talk.

Yeah, it should. It's the second worst performer of the Mag-7 after Tesla, year to date. Arguably, it should be. Like everyone would agree. It's a pretty acute thing to have to thread that needle. They need to sell a lot of product in China and they make all of their products in China.

And by the way, the Chinese are making better phones than them now. Yeah. It's one thing he pointed out. He said that Huawei now makes a, what did he call it? A triple folding phone. Yeah, I've seen it.

And so you unfold it and then you unfold it again and it's as big as an iPad. Yeah. And Apple is not coming out with just a folding phone until 2026. Yeah, instead they created this thing that makes the icons on your phone look like they're liquid glass. That was Apple's big revelation.

That was that big. At WWDC. That's nice. Why is the stock selling at 35 times earnings? Can you, for the life of you, figure out why? I'm not sure why. Because I own it. Okay, but like, seriously,

what is the investor class seeing that the- I think people see this as like the global staple. Yeah, I just know, consumer staple. It used to be procter and Gamble. You don't want to own Procter and Gamble. You want to own something that you can rely on. I mean, look, we all use iPhones. The service business keeps growing.

If they ever get the AI thing working, it'll be better. But I think it's fair to say that they've really not innovated much. Berkshire Hathaway sold, I think, two fair to say that they have they've really not innovated much. Berkshire Hathaway sold I think two thirds of their stake and looks like they're going even lower. Oh I didn't know that. Yeah almost at the top. People don't talk about Warren Buffett pulling off like a greatest trade ever but I think this qualifies. It was a pretty good one.

He bought at the bottom sold at the top is pretty damn good. Yeah. Do you think that Tim Cook has what it takes to get through this trade war, China, US stuff? It's not up to him. You know, there's sometimes when you play chess, you have no moves. Right. They're 100% in China. Their entire ecosystem, manufacturing ecosystem, which is brilliant, is in China. It would take five to 10 years to build an ecosystem

someplace else, whether that's the US or India, I don't care, that's how long it would take. Until then, they're stuck. They have no ability to maneuver between the US and China. They're completely beholden to that. It's just negotiations. Apple only makes one product in the United States of note. In Houston, they make the Mac Pro, not the Mac Book.

And in the book, they described how they were having such troubles building the Mac Pro in Houston that they had to bring guys from Foxconn into Houston to help them build it. Okay, so you think this is problematic for the market or just for Apple shareholders? I think it's problematic for Apple shareholders. Okay, but it doesn't go beyond that. It's an Apple specific story. It's a very Apple specific story. How do you think it ends?

Tell me how the trade war goes. I'll tell you how it ends. So it's that binary. It's that binary. Okay, can we talk about banks? We could talk about anything you want. Sure, show. I'm long JP Morgan. Okay. Very very very long long term shareholder. Long Berkshire Hathaway, not a bank, but used to have big stakes in all the banks. I don't really follow the others very closely. Most people don't. Okay.

And it's not because I don't think there's opportunity. I just feel like if I own JP Morgan, why do I need to own Citi or US Bank? You don't. You don't, right? You don't. Okay. Why, right? You don't. Okay, why are these stocks doing so well? Why are financial services sector doing so well this year? And are you overall like, are you bullish?

I mean, I have two theories about financials right now. I mean, on the large cap side, you know, if there's no trade war, you got a president who has a very deregulatory bent. So therefore the IPO market should come back. The M&A market will come back and own Goldman, own JP Morgan, own Morgan Stanley. That's how you play that.

Okay. And that's it. If you want to own something in payments, own Visa or MasterCard. You still like those names. Yeah, and ignore the others. Ignore everything else. Just ignore everything else. Okay. But I think there's a potential for a regional bank story which is this. Nobody's bullish on this. Nobody. Okay. And I don't own any

at this point because a lot needs to happen but I think there's a potential story here which is that there hasn't been an M&A wave of banks in the United States literally since the 90s A lot needs to happen, but I think there's a potential story here, which is that there hasn't been an M&A wave of banks in the United States literally since the 90s. And it's been very much discouraged post Dodd-Frank. So you've had very, very little M&A. But I actually think as a country, we need one. And the reason why I say that is, here's an interesting statistic. In 2007, JP Morgan's share of deposits in the United States was 7%.

Today it's close to 14%. Right. Now, there are a couple of reasons for that. Number one is the cost of regulation is very, very high, and they can bear that more easily. But number two, which is probably even more important, is the cost of technology has exploded, and you need to be really big so you can pay for it. So if we do nothing and we keep the current policies and there's no M&A wave, what's going to happen is JP Morgan,

Wells Fargo, and a handful of others will continue to take market share. The other regional banks are going to wither on the vine, and what you'll have less is a couple of very, very large banks and some community banks. Why is that bad? Because I would like more. I don't want to be Canada, where it's a cartel. It's basically a cartel.

And so therefore, those banks get to charge a lot more to customers. They run the government. In fact, they run their own regulation. Effectively. So I want to show you. Let me just finish. So what I think needs to happen is you need to have companies like Comerica and USBankCorp and we can drop whatever list you want, merge.

Because otherwise they're not going to have enough money to compete. They can't compete. So I want to show you, Troy, that doesn't quite counter what you're saying, but I thought it was interesting. It surprised me. Again, from Torsten Slock, you could comment on this. Small banks account for about 30% of total deposits in the banking sector and the share has been rising since the crisis.

That's actually a really small bank. But I think if you put up like the mid cap banks, it'd be down. Okay. So regionals as opposed to thrifts. There's like a thousand. There are no thrifts anymore. There's community banks. Yeah.

The community banks like a thousand of those tickers. They're all like in the Russell 2000. They have no market cap, no analyst coverage. Yeah. They'd see it really seems futile and now you have these neo banks. So today we had an IPO go up 80% or something. Chime's target demographic is the sub $100,000 income person. I'm not sure why people are so bullish on this.

They're going to charge people interchange fees. That's their business model. But that's a hot stock. Then you've got the Venmos and PayPal and all of the shopping cart payment systems. My view, you want to stay away from everything in payments except Visa MasterCard. Everybody's eating each other's lunch. They're all going after each other's space, block, toast, Apple Pay is in there. Shopify, ShopPay. To be able to make, it's so complicated that to be able to make a decision as to whether you'd want to buy block or toast, you literally need to be able to write a dissertation.

It's just that complicated or you could just say I'll own Visa and MasterCard. I own toast. And yeah, okay. The bulk case is inertia. You get to a certain critical amass of restaurants. These people don't rip out payment systems. That's possible. Yeah.

But you know, Visa and MasterCard keep growing because I mean, the joke I always have about Visa and MasterCard is we keep talking about stable coins is since they went public in 2001, I'd say every three to four years, a bunch of companies go public and they come in and they say, we are going to disenfranchise Visa and MasterCard. Yeah. Every time. Never happens. I've been to this meeting a thousand times.

I don't care. Name the company. I've been to that meeting. It's like the big term around the billionaires. And then like two years later, they come back and they go, not going to happen. We're working with them. Yeah. So, you know, stable coin is the latest in that. to that meeting. And then like two years later, they come back and they go, not gonna happen, we're working with them. So you know, stable coin is the latest in that.

There's a role for stable coin, but I just don't believe you're gonna be able to disenfranchise fees on this card. Can we do like a mini financials lightning round? Well, yeah, this is actually a good segue to this. So one of the areas that, I don't wanna say people call it the next big short, that's a bit absurd, but an area that is getting attention is private credit.

So chart 19, John, please. Again, from Torson Slocke, he shows lending to corporates is flat for both small and large banks to which I would say, well, yes, private credit. You have any thoughts on that space? Because that is getting a hell of a lot of attention, especially from wealth managers. I mean, I don't have a strong feeling about it only because I have no data. So when I was short subprime paper, I subscribed to the Moody's database, and every month in the middle of the month over a two-day period, there was a massive data dump.

Every securitization reported all its credit statistics. So you could see, is it getting worse? Is it getting better? And every month it got worse, so I feel better. Here, I know the theory. What is the theory? The theory is that too many lenders lack standards, unregulated, it's going to blow up. There's an element to that syndication idea here. What's happening is that the risk is being born by now

wealth management average millionaires who are being put into these funds. They are now taking the risk that banks aren't allowed to take and that the fund sponsors don't need to take. Could that blow up? Possible, but I don't have to take. Could that blow up? Possible. But I don't have any data to have an opinion. You know what's so funny?

This whole growth of private credit is one of the most obvious direct consequences of Dodd-Frank. That's right. We did that. We decided anyone but. We didn't want our banks to have that much risk. Anyone but our banks should be lending money.

Well, that's what you get. So I want to ask you about what do you think of Goldman and Morgan Stanley these days? Specifically, Goldman retrenched completely from this mainstream consumer push that they were making during the pandemic. They got away from the credit card with Apple, shut down a lot of the online banking stuff that they wanted to do.

The stock price recovered incredibly well. The guy running it seems like he's back on top. David Solomon appears to be back on top. What do you think of Goldman's place in this new world, Morgan Stanley's place? These stocks have done really well off of the lows. I mean, Goldman is back in terms of its business model back to where it was before it started this whole process. So, if I just think of it as a vehicle, you want to play trading volume, M&A, IPOs, you buy Goldman. I think Morgan Stanley has a more durable business model, Yeah, you buy Goldman. I think Morgan Stanley has a more durable business model, much more diversified, has higher ROE. Yeah.

You know, if you look at Goldman, despite the power of the earnings, the ROE is not very high. Yeah. It's like 12% or something like that. I don't think I could be wrong. I just don't think the ROE is that high. Morgan Stanley is just considerably, JP Morgan 17-18%. Yeah. are always at higher Morgan's Hill is considerably JP Morgan 17 18%. Yeah, so you know, I think I think of Goldman is more of a trading vehicle to you want to play those themes. But I don't think of it as a long term investment. Wells Fargo just got out of the doghouse. Yeah, so you know what? No, no, it's a

great Yiddish word. Basically, you were ex communicated from the community. Yeah, so they had a growth limit put on them, right? They had a growth limit. They were capped. I didn't know you could do that to a bank. They had an asset cap put on them. They were not allowed to grow their balance sheet by a single dollar. Yeah.

So that was penance for the fake account scandal, which is already hard to believe it's 10 years ago or five years ago. Wow. Or five years ago. By the way, one of the greatest things I ever saw ever was when during the scandal, John Stumpf was the chairman of Wells Fargo at the time, testified in front of the Senate. And Elizabeth Warren, oh my God, she obliterated him and he had to resign afterwards. Yeah. Well, back to what you said originally about incentives. That's the case study. Here's a situation where we're going to pay people

to create accounts. How many accounts get opened? Right. Well, what the f*** you think is going to happen? There's going to be a lot of accounts open. All right. So you like the stock? You're constructive on it?

I think so. It's not bad bank. The guy running it. Charlie Sharpe. He's a former JP Diamond acolyte. Former JP Morgan and then he also has had a visa for a while. Okay. So you're bullish or you're not sure? You know what?

I don't know. Steve, any opinion on Ally? Speaking of subprime, they service a lot of the subprime auto bars who had been having a tough time lately. Stock seems to be like, you know, sort of a no man's land, but any opinion there? I don't think anybody really cares about stocks like that anymore. I really don't. Other than specialists, hedge fund specialists, I don't think people care. Maybe you own it, but I'm sorry.

Now I don't. Circle is the seventh largest IPO since 1980. Okay. I didn't know that. I had to double check it. This was a very big deal last week for some reason. I don't quite understand why everyone's so excited about it. I do understand this part of it. There is a need for foreign investors who don't want to be in the dollar system but like the stability of the value of the dollar. And this is the product for them.

The other aspect of this is, okay. The other aspect of this is circle is the house stable coin inside of Coinbase, which is the biggest brokerage slash exchange. Okay. The biggest stable coin is Tether. Um, yes, not at Coinbase, but yes, overall. But the problem with Tether is that Tether I I think, is based like in El Salvador or something. Yeah. And so- As most great institutions are. Oh, exactly. Right. And so, you know, what's supposed to happen when you buy a stable coin is you buy

a stable coin from whoever you're buying it from, and they take that money and they put it in, let's say, overnight treasuries, dollar for dollar, so it's worth a dollar. So with respect to Circle, they're based in the US, they're regulated here, their custody banks can be trusted. So I believe that Circle dollar is a dollar. Would I stake my life on Tether doing the right thing all the time or maybe take in a little- Well, they won't tell people.

They won't tell anybody. So how would I know? So that's part of the problem with stable coins right now. So that could be something that- so their balance sheet could be as innocuous as like commercial paper and maybe longer dated treasuries or who the hell knows? Or it could be investing in Russian rubles for all I know. So that's the popularity of Circle is that the alternative is so much worse. But the issue is how big can stablecoin become in the payment system. And here's where, I actually had a podcast with this about someone who's kind of an expert

in this. We had a real give and take about it. What I said to him was, look, let's start with just the consumer. You know, the old days, if you wanted to pay somebody with Venmo, that person needed to have Venmo. But today, because of Visa Plus, I have Venmo, you have Cash Plus, don't matter. You can pay. So that's seamless.

And then Visa has something called Visa Direct. So if one company's paying another company, you're already using the Visa Rails. They're all over the freaking planet Earth. So you wanna pay somebody, use Visa Direct, bada bing, boom. So do I think that it's likely that Stablecoin is gonna disenfranchise Visa and MasterCard?

Like will that be used for traditional finance payments? Payments, I doubt it. But what my guest pointed out, Raoul Jindal of Autonomous, was that this could be a big business for remittances. You want to send your money from here to India, cross border. You don't need to use Wells Fargo. You could use staple coins. I could see that.

So we're going to disrupt Western Union. Sure. OK. That's a big business. That's a big business. Circle's market cap is the third-sized coin base right out of the gate. Well, what?

So but I guess. They have earnings. Circle. They have earnings, but it's like it's a money market fund. In other words, how much could you possibly make, even if you get a trillion dollars in Circle. 4%. 4% on a, I guess, yeah.

That's a high fee. No, I'm saying that they don't pay interest. They don't pay interest. So what's their business model? They're keeping on interest. 4% on interest. I guess, yeah. That's a high fee. No, I'm saying that they don't pay interest. They don't pay interest. So what's their business model? That's not interest. Well, yeah, but you're also paying them in, if you're buying a circle stablecoin, you're paying them in circles in some crypto. No, you're forgoing the interest.

Oh, you're forgoing the interest. That's what you're doing. Yeah, it's not for me. And you're doing that so that you don't have to take a taxable gain in crypto. No, you're forgoing the interest. Oh, you're forgoing the interest. That's what you're doing. And you're doing that so that you don't have to take a taxable gain in crypto. Okay. So it's a little bit of tax arbitrage, little bit of international.

This is not tax advice. I don't know if that's true, Josh. So they're a money market fund. Yeah, do not take this as tax advice. All right, but you're not overly skeptical or negative about it. You're just not in there I just have question about how big is this really gonna get yeah, okay?

What do you think about the comeback of IPOs overall? I sort of feel like this is really hopeful people are like into IPOs again Core weave was a great deal if there's a trade war That'll go that'll stop it overnight, okay? It seemed like a good sign though It's not bad that people want to take risk again in new companies. You know, it sucks. I don't all-time higher abouts My internet's not loading very well NASDAQ. Yeah, I saw stock. I sold it That's what I want to all of the exchanges They generally buy them when when things get tough and the volatility is very high its trading volumes go up a lot

Yeah, CME had a really good first half because they thrive on volatility and trading. Alright, so your overall big picture idea is things will be okay if there's no trade war. Right. There's a trade war, forget everything because all of a sudden there's just way too much uncertainty and we'll see another fallback. There's more than uncertainty. I think there'd be the recession. Damage, recession. Yeah. because all of a sudden there's just way too much uncertainty and we'll see another fallback. There's more than uncertainty. I think there'd be the recession. Damage. Recession.

Yeah. Okay. If you had the, so to sum up, if you had the handicap, if you had a put a probability on either case, what do you think, where do you think you're at? I don't even try and handicap it. You wouldn't even? I just, I don't even know how to... You think it's 50-50 though? I don't know. I don't know. Okay. I-50 though? I don't know. I don't know.

Okay, I don't either. Did you have fun on the show today? Yeah, it was fun. We were so thrilled to have you and thank you so much for taking all our questions and even the ones that were meaningless. There are never any meaningless questions. We wanted to get your take. I don't know how you end your podcast. We always end our podcast asking people

what they're most looking forward to. And it could be anything, professional, personal, whatever's on your mind. What are you looking forward to? The thing I'm most looking forward to is that my daughter is getting, one of my daughters is getting married next month. Good answer.

Good for you. You like the guy? I do. All right, awesome. The wedding will be in New York? If I didn't like the guy, I wouldn't be looking forward to a wedding. Well, sometimes we have a choice, sometimes we don't. That's great news.

And it's in New York? Yes, it is. Okay. And they're going to live here? They're going to stay local? All my kids are local. Is that the first of your kids to get married? That is the first.

Okay. You got others on the runway? Not on the runway. Not? Okay. All right. This is great, man Congratulations. That's awesome I'm going down to Florida I'm looking forward to this weekend. I'm gonna go set up my daughter's sophomore college apartment. She's at you Miami Why would what the daughter who's getting married went to you to my see Miami? Is that right? Yeah, okay

So, you know, there's no housing for sophomore girls. There's no sorority houses. Right. So, we got to set them up in an apartment building. It's Manhattan prices, basically. Yes. It's the most insane thing I've ever heard. I can't believe all these other kids' parents are just going along with this. But I guess what are you going to do? Right. So.

It's a great school. But I'm looking forward to helping out and doing dad stuff this weekend. Michael, what are you looking forward to? I'm looking forward to my last meal at Pig and Cow on the Lower East Side. They're closing up shop, which is disappointing. But. You ever been there?

Pig and Cow? No. They have an Upper West Side location and a Piggyback in the Midtown. No, it's all closing. No, no, no, no, no. Are you 100% sure about this? 100,000% sure.

Oh, all right. On the Lower East Side. And I am looking forward to the new Superman movie. That's going to be sick. I think it looks good. He's an incredible filmmaker, James Gunn. Yeah. And they gave him the keys.

Well, he's had errors too, you know, like I would say the third Guardians of the Galaxy movie that he did. You didn't like it? I almost walked out five times. I thought it was so boring I could die. You didn't like how they finished it. Listen, you don't understand something about me. I'm like you. I'm actually entitled to my opinion on this subject.

Fair. Because I own one of the largest digital comic book collections on planet Earth. Oh no, I have a comic book collection. It's not digital. What's digital? What does that mean? I read it on my iPad. Oh, dude. It's like your Kindle. Your Kindle books. The company is owned by Amazon.

I have boxes of comic books. How many comics do you think you have? Thousands. I have my digital comic book collection as of yesterday. Digital? 11,300 comics. But these are NFTs. They're not NFTs.

It's like reading a book. It's like having on your iPad your book that you can read at your library at any time. But mine are in plastic with cardboard backing. I'm one of the world leading experts on comic books. So when I give you an opinion about a comic book movie, I'm entitled to that. Fantastic Four, gonna be dog shit? I don't know. Why can't they crack that code? I don't know.

Because it wasn't a good comic book. It wasn't a bad comic book. No, but it's just not great. It's not great. The ones that are good comic books are good movies. But I would say that the problem with all the Marvel movies is they don't have a story. Well now they're doing this time hopping and people hate it. The Red Hulk was horrendous.

Awful. Oh my god. And I'm actually not a big fan of the multiverse as a story. Everyone hates it. What's the best, aside from Endgame and Infinity War, what's the best comic book movie you think? Iron Man. Any era. The best comic book show ever is The Boys. Oh I like that. I agree with that. What's your favorite movie? Comic book movie. My favorite comic book movie. Or Batman Begins. Dark Knight. I like the... Maybe the Dark Knight trilogy. That's probably the right answer. Oh, that's probably the right answer.

So do you think that DC is going to go on this crazy run now? I don't know. I hope so. Okay. Because they have the right guy. They probably have the right guy. The problem is it's at Warner Brothers and that's in disarray. But dude, comic book movies, it's not hot anymore. It's enough. They got to try. They got to make it hot again. We'll see. We'll see how the superman movie goes. see. All right. Steve, thank you so much for doing this. I'm going to tell people to go to the real

eyes been playbook on your podcast feed of choice. Make sure you're subscribing to that. Do you use social media or not? Really? We do. What do you, so what are your handles? Let's tell people where they can follow you. I think it's at the real eyes and playbook. Oh, after realizing, okay. All right. Are you tweeting or a little bit a little here and there? Okay. Let's tell people where they can follow you. I think it's at the Real Iseman Playbook. Oh, at the Real Iseman Playbook. Yeah, I think so. All right, are you tweeting or? A little bit. A little here and there?

Yeah. Ladies and gentlemen. We're starting to build that. Steve Iseman. Great job this week. John, Duncan, Nicole, Rob, Chart Kid Matt, Sean, Daniel, Travis, everybody who contributes to the channel. We appreciate you.

The audience, please leave us a rating and review and we'll talk to you soon. Thank you. Good night.