Steve Eisman on the 'Paradigm Shift' Happening in Markets Right Now

To me, it feels like kind of a massive flip flop from Doom and Gloom two, where it kind of felt like everyone was talking about the world was actually ending and suddenly, you know, fast forward to just the beginning of three, and everyone's talking about a soft landing, maybe the recession is averted. Markets are up quite remarkably,

including things that got absolutely crushed last year. So some of the big stocks Bitcoin, I mean, some of the Chinese companies like real estate and consumer tech companies, all of those are surging, right, So like there's this hope right that we let's just go back to or let's just go back to one, like let's just hang on. And it's sort of this thing because you know, when I think of when I think of it was sort of like the ultimate speculative froth low interest rate environment.

And as as everyone's tired of hearing me say, like on this podcast, like you know, I, you know, I first got interested in markets at the end of there it comes, folks. But I remember like those periods where it's like, you know, you have like you look at the NAS deck and two thousand and one or two thousand and you have like these fifty rallies. It's like we're back. I don't know, we're back. It's over. And that process of like I guess a bubble deflating is

like a long process. People are slow to give it up. Well, that's exactly it, and it sort of happens in fits and starts. And I'm glad you meant shined the keywords there, which are bubble and you know, speculation, speculative interest, because today we are going to be talking to someone who is kind of an expert in exactly that and particularly one period of speculative financial history. We are going to

be speaking with Steve Eisman. He has a portfolio manager at New Burger Berman, and he famously bet against subprime mortgages before the two thousand eight financial crisis. Of course, you might recognize him from the movie The Big Short. He was played by Steve Carrell. So really the perfect guest to talk about markets right now. Perfect, let's do it, all right, Steve, thank you so much for joining us,

Thanks for having me. So where should we start. Maybe give us just your top line opinions on where markets are right now. Um, there's gonna be a long intro. Okay, that's fine. People are gonna look. So I remember back in college, one of the most influential books I read was a book by Thomas cune Cole, The Structure of Scientific Revolutions. He invented the modern meaning of the word paradigm, and the point of the book was that science paradigms

change over time. Sometimes those paradigms changed violently, and sometimes those paradigms change over time because people don't give up their paradigms easily. And I think we're going through a period possibly like that again. So you know, markets have long periods of paradigms where there are certain groups that are leaders. So in the nineties, for example, it was largely i'd call it large conglomerates like ge was what

people made money in and wanted to invest in. And it lasted about eight years until there was a small period of the dot com bubble, and obviously that ended and there was a recession, and after that, really through two thousand and seven, the new paradigm and just to take a step back, when you know what market paradigm shift, it's unusual that the old leaders become the new leaders. There's a shift, and there's there's a new leadership group.

And you know, one of the most important leadership groups, i'd call it, from two thousand and two through the end of two thousand and seven were financials, you know, largely invests in banks, very large banks, where the opinion of the market was the people who ran these firms were basically geniuses until they weren't. And you know, we had a violent period in two thousand and eight and

two thousand and nine where those stocks got crushed. Almost all of them would have gone bankrupt unless the government bailed them out, which it did. But you know, financial stocks that did well in the two thousand's did literally nothing until probably two thousand and twenty, So call it a dozen years where the old leadership group evaporated and it was replaced by new leadership group, and that leadership

group was tech and growth stocks. And I think the reason for that is that the FED cut rates essentially to zero and kept them there and so you were essentially paid to take risk. And as we all know, there's a discounting mechanism of stocks where you know, you plot out the earnings and the lower the discount rate,

the more the stock is worth. So the groups that the group that did best were growth tech stocks, and within growth tech stocks, the group that did the best were the high growth no earning stocks, and that left that basically lasted until last year. And if you look, you know it was a bad market last year. But the stocks that did the worst were the growth tech stocks.

And within the growth test tech stocks, the stocks that did the worst were the high growth no earning stocks, down generally anywhere from seventy to you know, it's a crushing percentage, but like I said, you know, people don't give up paradigms easily. And so so far this year, the stocks have that have done best were the same

socks that did the worst. And you know, if you go back to two thousand and nine through early two thousand and ten, financial stocks had their last hurrah, you know, Goldman Morgan Stanley had said it did very very well until you know, Dodd Frank was passed and they had to deliver, so they had kind of had a last hurror. And maybe this is the last hurrah right now for growth stocks. Possibly, And I think it'll all depend pretty

much on the FED. You know, Powell has said that he's going to keep raising rates and the important sentences and he'll leave them there. If he leaves them there, I think we'll have a paradigm shift. If he cuts it again, we'll go back to what we were, which is growth stocks. I mean, I think he's going to leave him there and then we'll have a paradigm shift. But it's unknowable at this point, you know. Like I said, paradigm shift can be very violent. They take time. I

think we're in the middle of that right now. And like I said, it's unusual when you shift to new paradigm that the old leaders become the new leaders. What the new leaders will be assuming this happens at this point, I don't really know, you know, Joe, I'm looking at the Bubble portfolio, which was created by another all thoughts guest Paul McNamara and basically has a lot of the stocks that Steve was just talking about up so far this year. Tracy was created by Paul and me. Oh,

I'm sorry, I co I co created. I'm so sorry. Port By the way, some of those stocks are up. It's pretty it's astonishing now they're up fifty from very low levels. You know. Take I'm not picking on them. Take a stock like a firm which is a buy now,

pay later company, really a financial company. I think it's up sixty sent this year, but it's up sixty percent this year after being down basically, so I think it closed last year around eight and it's it's fifty, but it used to be I don't remember a hundred, two hundred, whatever it was. Yeah. Another one of these ones that I've been watching is an open Door, which got below a dollar at the end of December. Now so like more than a double, but that was like a twelve dollar.

That was a spack, I mean, so it's incredible beat down. And then this sort of about what is that process? You know, you talk about this sort of like the giving up the dreams and the process by which people aren't sure it's it over? Is it not over? We don't want to change the paradigm, just in the sort of like how do you talk a little bit more about like how that happens? What that how that process works? Well, it takes time, you know. I would recommend everybody read

this Thomas qun book. It was published the year I was born nineteen sixty two, which is I guess revelatory for me. But but what he describes is, like I said, people don't give up their paradigms easily. When when Einstein created his theory of relativity, for example, this is in the book, is out like everybody said, Oh we've been waiting for Einstein. Thank god, now we can get rid of Newton. You know, people, it took several years for people to realize that that was a better theory. I

think something like that happens in markets. You know. Paradigms in essence are so deeply ingrained in people's brains they can't even imagine at times that there could be anything else. And so, like I said, since paradigms, people don't give up their paradigms easily. The only thing that gets people to give them up is time. Now, the financial stocks that was quick because they utterly collapsed. But that's unusual. It's not like it's not like in the nineties the

conglomerates collapse. They didn't collapse. Their earnings growth slowed, and you know, people expected the earnings growth to re accelerate and it didn't. So, you know, take Ge. You know, Ge was a star for almost all the nine d s and then when Emil took over just before nine eleven, it's deteriorated. You know, one of probably one of the best trades in the world would have been owning Amazon and shorting g Right. You know, it's funny, Tracy, I

actually went I mentioned open Door. I got it kind of wrong. I said it was at twelve and it was a thirty five dollar stock that went to a dollar. So I was sort of understating the scale of the collapse. But more importantly, let's talk about open Doors. Let's get right into it. So open Door had a business model where they would buy homes, fix them up, and try to sell them quickly. Now, when you think about it, that business model only works if housing prices are going up.

If housing prices are going down, it's a disaster. Um. So I never thought it was a real business model. It was a timing model. And I think the reason why the stock got crushed last year is because, I mean, housing hasn't collapsed in the United States, but it's kind of locked and housing prices have gone down, so it's hard to sell and be you're selling for less, and that's why Open Doors down so much. But you know

what it came out. It was another one of these speculative going to conquer the world stocks until it wasn't. I definitely want to talk more to you about housing and real estate in a second, but just on the

paradigm shift. You know, when I think about the paradigm of the past couple of years, you mentioned low interest rates and that helping to boost valuations, but I also think about momentum and people just identifying the thing that they think other people are going to buy and then pouring into that and so having a lot of valuations driven by flows. Can you talk about that behavior in the market. I call this what I call it this the Amazon disease. I'm not saying Amazon is a bad company.

It's a great company. What I mean by the Amazon diseases, you know, and when Amazon came public, there was a lot of skepticism that this work. And Amazon has basically conquered the world, and so people are always looking for the next Amazon. And you know that they're looking for the next Amazon when they just when they write when when the cell side writes a research report and the first sentences the TAM is huge, which means the total

available market is huge. Well, you know, take open door again. Housing is huge. I mean, there's no question that housing is huge. But that doesn't mean people's business models are going to conquer housing. But people are constantly you know, again, when rates or zero, you're paid to speculate. So you look at open door and you say, well, the housing market in the United States is I don't know, a

trillion to whatever, it is a trillion to trillion. If open Door only gets one cent of that market, the stock is huge. And as long as revenue growth is strong, people are willing to make that bet. When revenue growth starts to slow, they they get they don't think about the TAM anymore. They start to think about the business model. So you know, in two thousand and ten through tooth beginning of two thousand and twenty two, if you were a company that had no earnings that strong revenue growth,

people dream the dream. When the revenue grow slows, people stopped dreaming the dream. Or combination of that with higher rates and the discounting mechanism takes down the stock. You know, even companies that did well last you went down because of the discounting mechanism. So let's say we are at this paradigm shift and we don't know what it's gonna be. We don't know what it's gonna look like, but something that's not speculative tech will be the new leadership, presumably

for a while. As an investor, like, do you feel like you can wait and sort of see what it is and like let the market kind of decide, or do you feel like an impulse to try to anticipate today what that thing. I think you anticipate a little bit, you know. So, for example, I think one of the themes for the next several year is what I would call the ressoring of the industrial world back into the

United States. So, you know, for the last call it thirty years, companies have essentially sent their supply lines out to the inside the United States because labor in the United States is expensive and labor in China and Vietnam is cheap, and that worked for a very long time, and it was very deflationary. And COVID proved one thing. Yes, that supply chain is less expensive, but it's also very brittle.

And because of what happened during COVID, people are companies are bringing back the supply chain, at least partially back to the United States. So, you know, stocks that haven't done anything in twenty years, let's say, might start to do well, like b HP, iron ore, etcetera. That's one theme that I think will last a long time. Greenisfication I think will last a long time. Although some of those stocks have no earnings and high revenue growth, I never quite know what to make of them. But there

are other ways to play the same theme. You know, their companies I won't mention any names, but their companies that are that are well, let's call them normal, that are helping rebuild the infrastructure of the United States and the electrification of the United States, etcetera. So those are

things you could start to look at. So that's actually something that we've spoken quite a lot about on all lots of this idea of a sort of shift from I guess ephemerate tech software to the reality of actual things. This might be a slightly weird question, but do you think investors are well positioned or well informed to grasp that shift, because I imagine there must be a fundamental difference between looking at a tech company versus say, I

don't know, in an oil major or something like that. Oh, I don't think people are prepared yet. You know, they've owned tech stocks for so long. You know, they look at revenue growth, they look at e v D. But uh, you know, one of the things that I find astonishing, for example, about tech stocks is they don't include stock based compensation and earnings, which I just find a little weird. And because I would always ask, do you deduct stock

based competence? Stock based come from your taxes? And the ends to that is always yeah, So in that sense it's real, but when the report earnings, they pretend it's not real. But the market doesn't seem to care. But I think it's going to take time, you know, like I, like I always talked about before some of these very speculative stocks are up this year, it's going to take time for people to start to do I think research on other stuff. I know you weren't investing yet at

this point. But you know, as a student of market history, was there the same process like with the like earlier tech bubbles, like in the sixties, with the aerospace stocks and some of those other waves. I mean, I was in great school, and that's what I'm saying. No, I figured out. But I although the two of you, I don't think we're alive back then. Um. You know, I think if you look at economic history, probably it's true.

I haven't really looked at that much. But you know, in the in the late seventies, the group that people wanted to own work whil stocks. Oil stocks haven't done well for god knows how many years until basically the last two Now let's talk about old stocks for a second. You know, pipeline stocks, oil stocks. You know, why did they do so poorly? This is not a paradigm shift. This is a shareholder's revolt issue. So you know, if you look back, call it two thousand and ten through

maybe two thousand eighteen or so. And this is where I would say incentives trump ethics every time. So the people who ran these companies where it was the midstream pipelines or the drillers the c e O s of those companies were all compensated essentially on volume, so it didn't matter whether the oil prices with thirty or they're all prices were eighty. They kept growing their production and in most cases they basically never made money whether oil

prices with thirty or prices were eighty. And at some poll point, probably around two thousand and sixteen, when the group got crushed, I think that the shareholders literally revolted and they went to these managements and said enough and you have to change your compensation to R O E, etcetera.

And the stocks have done pretty well since that, especially in the last two years, because the way they operate now is they basically planned their business models for oil prices as something like fifty to sixty, and if oil prices are above they return the money to shareholders, which is one of the reasons why despite the fact that all prices were so high last year, those same companies did not increase their production that much. Now, some people

accused the Biden administration of this. I don't think it has anything to do with the Biden administration. Has to do with the change and incentive structure for these companies. Incentives trumping ethics is such a good line and I'm definitely going to steal it from you at some point, Steve, you can play giarize. You don't even a the quotemak. Thank you. I think I appreciate that, um I have a full license on that line. You know, given your background, I think we would be remissed to not talk a

little bit about financial risk and financial stability. And this is something that has come up over the past year with the FED raising interest rates so rapidly, and yet we haven't actually seen a significant break Is the system fixed? Is it just not going to come that big breakage that you know some people have been anticipating for a while. Well, I can't say that they won't be breakage any anywhere

that I mean, there always could be breakage. What I would say definitively is that there will not be breakage in the US financial system, especially in the banks. We can owe that to one person, which is Daniel Tarullo, who was the first Vice Chairman in charge of Financial Supervision at the FED, which was a position that was created only from Dodd Frank and he was given the job. Although it's funny he was never actually officially appointed to the job, because you know, it makes it. He'd have

to testify in front of the Senate. It would have been difficult, but he he was essentially given the job anyway, and he really took the banks. He was very harsh what he did to them. The banks objected to literally kicking and screaming, but today they probably all thank him. There are two things that he did. He reduced leverage in the banks enormously, and even within that leverage, he

made them cut off the tails of risk. So, just to give you an example, City Group before the crisis, if you included all the off balance sheets stuff that eventually came back on balance sheet, it was probably levered anywhere from thirty five to forty to one, and by the time he was on it was lever tent to one. Now, for listeners, that may not mean that much. You know,

forty to ten, you know, those are just numbers. But the way I would describe it is, when you're levered forty to one, to destroy the bank, you need a pebble, but when the bank is levered ten to one, you need a meteor. So now we could have worst credit in the United States, Although that really hasn't happened yet, So under those circumstances, the banks would earn less. But I would say other than a couple of banks, not one bank in the United States will lose money. M hm.

I seem to remember, weren't you one of the few people that read all of Dodd Frank from like front to back. I think it was two thousand pages? Or well, that's not true, that's a myth. Okay, So you're talking about finding controls stability, but you know, we also touched on real estate earlier, and again, you know, you you sort of characterized the housing market it's kind of in

a freeze. Maybe it's already stabilized a little bit, but with rage having shot up so much, I mean, like, how are you thinking about like housing and where it's going to go? And can like, can it stabilize with such a repricing of mortgages in a short period of time? Um?

I mean sure it can reprice, it takes time. I did a small calculation when mortgage rates got to seven, which was if you calculated the monthly payment of someone who bought a home with a three percent mortgage versus someone who wants to buy the same home at the same price with the same mortgage at seven percent. For that person to have the same monthly payment as the person with a three percent mortgage, the price of the

house has to go down from now. As long as people are employed, they're not going to sell their home down. They'll just live in their home. So housing prices have come down some, but it's still the case I think that the housing market is locked. Let's say you want to you have a small home. You got a couple of kids now, so you want to sell your house and you want to buy a larger house. You can't. You're stuck, so you're buy bunk beds. But well, it's

nothing wrong with that. But not only is housing locked. You know, building suppliers have you know, less ability to sell their products because housing is not turning over. So that would be a short area. But I'm not going to give you any names. So this is actually something that I've been thinking about a little bit, which is house prices are sort of being supported by a liquidity at the moment right And I don't think they's supported

by a liquidity. I think they're being supported by employment. You know, Like I said, if if you're you have a three percent mortgage, so your monthly payment is very very low. You have a job, you don't have to sell your house. You're just not going to sell it down a lot, so you just sit there and hope that eventually people will get used to a seven percent mortgage and you can sell your home. But that can

take a long time. That's fair. What I was going to ask about is recent events that we've seen with the Real Estate Investment Trust. And we're recording this on February first, Blackstone just announced that it hit a monthly redemption limit. Is there going to be what was the number? Did they say, okay, that was in line with people's expectations. I think it's not a great number. And they have gates, so I forget what the number is, but you can't

withdraw five billion in a month. It's probably I don't know, five millions something like that maybe, so you know, they have gates. But this is kind of where I was going with a liquidity point, right. I mean, you know, let'st's talk about the black drown you know, private read. So I'm not being critical to Blackstone, but when when you think about the structure of that read, it has what i'd call an asset liability mismatch, meaning you're investing

in real estate. Those investments could be good, but they're a liquid so it's not like you can sell a building overnight, but your your liabilities, meaning your investors, can withdraw money every single month, so if the withdrawals get too bad, you can have to sell some of your real estate. Now, Blackstone has a very good reputation, so

it might be fine. But I think what happened last year with that it's called the be read, is that about of the Breads investors were from Asia, and those Asian investors got from some investment banks enormous leverage to invest, and given what the markets did last year, they got margin calls and they to, you know, withdraw money from Blackstone to pay off their margin calls. Now, how much more that's going to take place in the next several months,

I have no idea. So we talked about how investors leave the old paradigm kicking and screaming, But I'm thinking also about scars from the past. And I feel like people listening to here like there's some liquid fund and there's some margin call, and there's this real people ganking their money out and they're like, they reached for the two thou seven playbook in their minds and the two eight.

To what degree do you think memories of that crisis are still informing how investors think about and try to assess the market today. Oh, I think two thousand and two thousand eight for some investors is like PTSD. Look, financials are implicated. There aren't a lot of people on planet Earth who really understand how much the financial structure

of the United States and Europe has really changed. So they see they see the markets go down, and they say to themselves, oh, my god, something bad is going to happen. Now, something bad could happen. You know, we could have a recession. But my feeling is will have an old fashioned run of the mill recession. We're not going to have some enormous, you know, meltdown crisis where the system is completely at risk, which is what happened in a way before you forget I mean you use

the pebble versus meteor analogy. Can you just explain, like, what is it about the nature of US banks? Now there you say they cannot lose money, Well, you're level at forty two one. You know what happened in the

financial crisis. One of the things that's very important, and getting back to my line which I've donated to you, incentives trump ethics every time, is there there's a concept called risk weighted assets where the system, you know, the regulatory system, tried to merge the concept of leverage with risk and so every asset on the balance sheet got a risk weight, and so when regulators and companies calculated leverage, it wasn't assets divided by equity, it was risk weighted

assets divided by equity. So if you look at Europe, for example, where you know the banks are much more uniform, from two thousand and seven, I'm sorry, from through two thousand and seven, absolute leverage in the banks in Europe went up three times, but on a risk weighted asset basis, they were flat. So a lot of the executives who ran these companies, when they looked at their balance sheet, they said, oh, our leverage is the same when an actuality was much higher and they had a lot of

risk on their balance sheets. They had a lot of subprime assets of various kinds, which all blew up in their face. And so because they were levered so much, they essentially died. The only reason why they survived because they were bailed out. So today, not only is the absolute leverage lower, like I said, City has come from

thirty five to forty times too went to ten. Maybe today it's twelve, but the type of risk that they take, generally speaking, is far far lower because the regulators who essentially live in these banks are not allowing them to take enormous types of risk in their loan books. So look, the system, like I said, is probably safe for the first time in my lifetime in that sense, But I don't think a lot of people really understand that that's

the case. You know, you mentioned investors getting PTSD from two thousand and eight, and it's sort of informing and affecting their subsequent behavior. And I don't think you got PTSD because you made a lot of money out of it, but it was a defining moment of your career. How did you yourself move past that particular era? And what I mean by that is there are people out there who made a lot of money in two thousand and eight who subsequently every year had been issuing warnings about

how the entire market is going to fall apart. The financial system is going to collapse. How did you move past that? Great question? A lot of therapy? Uh no, no, I I where I got past it was well, I actually got friendly with Daniel Torulo, so I watched what he did very very closely, and you know, I realized that what he'd accomplished was actually astonishing, and so the system,

you know, was fine. What what I didn't anticipate until years later was that because the FED cut rates, you were paid to take so much risk, you could do what you wanted to do was buy companies with no earnings. That was much harder to make that shift. But I didn't think that the financial system was going to go down again. Yeah, it really is extraordinary, Like how I mean you see it's still you know, like what was

it credit sweets a few months ago? Like people are just not able to get past this sort of like yeah, great financial I wasn't going to name any names job, nobody was just like people were like it was in the headlines and stuff, and you know, people just like

reach for those old analogies. So just looking back at your career, you know, you're very long and illustrious career, But what was your flattering Yeah, what was your most shocking moment, Like what surprised you the most, Whether it was a company that you know failed or maybe succeeded, or the particular behavior by someone or an entity. Well, what surprised me the most was what happened in O eight. I thought that surely the regulators knew what I knew.

How could they not because they had much more information than I did. And it became very very clear as OH eight went on that they didn't really understand what was going on until it was too late. And I remember Bernanke made a speech he said something like subprime mortgage risk is confined. And I turned to one of my colleagues and I said, yeah, it's confined. Alright, it's confined the planet Earth. That's funny. By the way, pay attention.

I'm laughing internally. So you know, when you read um, I figured the book by but it was a book that was a very early book about the financial crisis. And there was a scene where it was the weekend when Lehman went down, and there was a scene described in the book where as Lehman is going down, they

know what's going down. Someone walks into the room. I mean, I'm just paraphrasing and basically says a I G is also in trouble, and I'm thinking this is a shock to you a lot, Like don't you read the research? I mean, I couldn't believe it. But that was the most shocking thing in my career. I could not believe that the regulators and the government really had no idea

what was going on. Can you talk a little bit more about Like, Okay, to make any real money in the market, there must be some sustained periods where you have a different view than the overall mark. I don't think that's necessarily true, you know, oh six oh seven, oh eight, I had a very different view. Yeah. Is that hard? Oh my god, it's ridiculously hard. The whole world is telling you that you're an idiot, and then

sometimes you think you're an idiot. So that's hard. Well, because like I mean, I've you know, I've been thinking about that to like a lot of people, for example, and I don't I don't want to like actually dive into this specific they went a lot of people for example of like had to deal with this in the last year related to cryptocurrencies, where like everyone's calling them an idiot for like not really getting it and then

maybe they're right. But that process of like being called an idiot, maybe underperforming or missing some market move for years and being told like you fool, don't you see what's happening, it seems like psychologically you mentioned therapy earlier, Steve, this is where if I had a therapist, I would talk about abuse from bitcoiners. Well, let's let's talk about big quarter can mean getting back to do you have

to be different? You know, from two thousand and ten through two thousand and twenty, if you objected to high growth stocks with no earnings and you will short them, you'd basically be dead. So that can last a long time even though you have a different opinion. You do not have to have pretty good time to deal with that. But let's talk about bitcoin. That's a great fun topic.

So I remember during COVID, you know, I was out on Long Island in the north for basically living there, and I would come back to the city every Tuesday to visit my mother, and so I would drive to the city. There would be no traffic and it would take me about two hours. So I listened to podcasts. What else are you gonna do? I even listened to this podcast every now and and but one of the group of podcasts that I listened to were the so called experts on bitcoin. And there are always two questions

that I had. Number one, why is bitcoin a currency? And number two, Okay, it's a currency, but how should it trade now? On every single podcast, they completely skipped over the why is it a currency issue? That was like that was just a given, and that's not given to me. We can get back to that, but it

was a given. The second part of the story about how should bitcoin act, they all had the same opinion, which was fear currency, which is government issued currency, has been terribly debased because of all the deficits that all these countries have issued. But it's very hard to short fear currency because they all trade relative to one another. So if you short the dollar, your problem is that in in a basketball team where everybody's five four, the

dollar is five eleven. So it's hard to short the dollar because it's it's taller than the other currencies. Even though quote unquote has been debased. So therefore you should buy bitcoin as a hedge against the debasement of all currencies. Okay, so let's accept that theory for a second. If that's the case, then bitco point should go up when people are nervous and rates are going up, and Bitcoin should go down when rates are going down. Every everybody feels good.

And the problem was it actually did the opposite. It would go up with everything else speculative, and it would go down with everything else speculative. So what was the point. So you know, Bitcoin is up a lot this year because it's up a lot with everything else speculative. Now, you can't have a currency that moves every six months. That's not a currency, that's a speculation. And the thing I don't understand about bitcoin is what problem is it solving?

You know, is there a problem with currency? I mean, the last time you went to the store and you you pulled out a twenty dollar bill, you paid with your credit card, did the store owners say, oh, no, I don't take dollars. I mean, it's not even an issue. And by the way, the currency markets are the most liquid markets in the world. You know, I like to say, how long does it take to buy dollar? Euro? Done? A billion dollars done? That's how quickly it is. So

I don't understand what bitcoin solves. And I don't understand the purpose of owning it other than it's another form of speculation. So I just don't get it. So you mentioned speculation and COVID, and I mean this was something that played into a lot of the cryptocurrency boom, this idea that you know, people are stuck at home their board, maybe they got some extra money thanks to the US government,

and they're using it to trade. When you look at consumers now, and I know at various points in time you've had positions in subprime auto lending and some consumer facing things like that, But how would you characterize the US consumer because this is also something that comes up as people talk about a potential recession in So let's just say that over the last several years, credit quality on the consumer side in the United States, the delinquencies

and losses got so low they were they've been lower than any time and basically in history. So do I think there's going to be a normalization of delinquencies and losses. I mean, I think that Jamie Diamond said that on the most recent conference goal of JP Morgan, But you really haven't seen it yet. So some are still in pretty good shape, you know, as long as everybody's got a job. People will pay off their debts, So it's really a question of unemployment. If unemployment goes up, you'll

see an increase in delinquencies and losses. But it's not going to be a calamity. It's just going to be what i'd call a normalization. So what are you sort of looking for next? I mean, you you mentioned that at the beginning of the conversation, like there's still some ambiguity, is like, oh, it's the FED you know later and that you're gonna start cutting. Well, this revive the growth stocks.

What are the other signs that you would look for, either like yes, the paradigm shift is here and happening, and or this is the this is the sector that really is going to define the next decade, and do these things like is it reasonable to say they kind of go by decades, Like if a new paradigm emerges, that is there like a ten years as well. There's no reason to say they go by decades. It just

happens to be historically true that they do. Um why that's so, I don't know, but it just happens to be the case, you know, And unfortunately, over the last couple of years. The only thing that's mattered in the markets is one variable, what's Powell going to do and how much is he gonna do. There's been very little what I call dispersion within sectors. So you know, one group, you know, let's call it tech stocks goes up, they all go up, and this is because of ETFs. Oil

stocks go up, they all go up. There's no, there's no, there's not much of dispersion within groups, and that's because everybody's so focused on rates. I think the key moment will be, you know, the obviously the FED at some point will stop. When that is, I don't know. The The operative question at that point is will the Fed keep rates there or will they cut? The market is completely convinced that they will cut, despite the fact that Powell says that every press conference that we're going to

leave it there. So either you take him at his word or you don't, and we won't know until that happens. You mentioned E t F changing the nature of how stocks trade and the sectoral internal sectoral correlations. Is that here for good? Oh? Definitely. I mean, I'll give you an example. There are lots of different E t F s or algorithms. I'll give you two stocks, and I'm not being critical of them, but I'm just gonna give

an example of it. So you have a firm which we discuss, which is buy now, pay later, which is call it a quasi financial payment stock. And then there's another stock which I'm very familiar with called Trupanion, which is a company that does animal health insurance insurance. I think I might have I think maybe at one point I had had it too. I had it with them for a little while. I have I have two dogs, so for a while I used to have four, and

so we used Trupanion for a while. Now, when you think about it, what does a firm have to do with Trupanion. Nothing. I mean one's an animal health insurance and ones in buy now, pay later. So the two stocks literally have no overlap in their businesses. They have nothing to do with one another. They're in different sectors, etcetera. The only thing they have in common is that they

were high revenue growth, negative earnings companies. And I think if you would watch the markets on a daily basis, the correlation between the two is very high because it's got to be in some kind of et F an algorithm, which all right, it's but like I said, they have nothing to do with one another, but they trade together because there somebody's got some algorithm or et F where they're both in there E t f s and benchmarks

turned the market into a giant blob. Steve, final question for you, what one piece of advice would you give investors and perhaps financial journalists as they go through this paradigm shift. That's a tough question. I actually don't know the answer to that. I guess skepticism. You know, you should always be skeptical about what management say. You should do your own whole work. That's all I would say. I don't have what I call it leaving question that

everybody should ask. All right, Steve Eisman, wonderful having you on a blots Thank you so much for coming on. Thank you for having me. Thanks Steve. That's great, So Joe, I enjoyed that conversation so much. It was sort of wonderful to relive some of the drama of financial crisis.

But I did think the point about this idea that I think in two everyone thought the FED raising interest rates was such a big break in the market, and so there's a sense of whiplash as we kind of enter three, where we start to see some of the things that had the most excesses of recover. It's confusing to everyone. But Steve's point about how you know, this isn't a sort of one direction process, and you can get these stops and starts in a paradigm shift. I

think that was interesting. Yeah, no, it really is, like people give up the dream. It takes a long time, you know, even like myself and I have never been like some like Czech cheerleader. I don't think anyone accused me of even in myself when I think about markets, like, wait,

can like can you make money in other industries? Could there be a period in time in which these high, fast growing Silicon Valley companies aren't the darlings of markets, like even you know, like I never like wanted the cooler in the first place, but I still like it's hard to like, you know, turn my head in a different direction. Well, and also there's so much additional artifice like built on top of the tech industry at this point in time, Like there's so much media and things,

like people talk about it so much. I just can't imagine such you know another industry, like I don't know, some boring conglomerate that like pulls things out of the ground something like that, having the same excitement attached to it. I know, like are people like and even if like we do have another like let's say we have like a decade of oil and commodity booms, like we're gonna have like people on Twitter like doing big threads about just like to work at you know, Pioneer, it's like

to work I just like don't see it. It's hard for getting excited about total market size right just steep Town anyway, total markets as of every car owner in the entire world. Yeah, so much goes. I've also just I thought, you know, the part about how much safe for the financial systems and coming from what I would

say is a very credible source on that top. Yeah, it is something that we have been hearing repeatedly on the podcast, and every time I hear it, I do have that knee jerk two thousand eight PTSD reaction thinking, oh gosh, we're going to jinx it, but hopefully we should get Dan Tarulo. Yeah, yeah, I had the same thought. Let's do it all right? Should we leave it there? Let's leave it there. This has been another episode of

the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Wisnal. You can follow me on Twitter at the Stalwork, follow our producers Carmen Rodriguez at Carmen Armand and Dash Bennett at dash Bot, and check out all of our podcasts at Bloomberg onto the handle at podcasts, and for more odd Lots content, go to bloomberg dot com slash odd Lots,

where we post transcripts. Tracy and I write a blog, and we have a weekly newsletter that comes out every Friday. Go there and sign thanks for listening.