Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. Isn't all so, Joe.
Speaker 1: This is a very special live recording.
Speaker 2: I'm really excited about this one. Always enjoy live recordings.
Speaker 2: We talked to our guest recently a few months ago,
Speaker 2: and a lot has happened since then, So.
Speaker 1: All right, let's just jump Yeah, you've given it away, Steve,
Speaker 1: but we're going to be speaking with Steve Eisman. He is,
Speaker 1: of course, a senior portfolio manager over at Newburger Berman.
Speaker 1: So thank you so much for coming back on the show.
Speaker 3: Steve. Oh, thank you very much.
Speaker 1: So let's see, the last time we spoke to you,
Speaker 1: you seemed okay about the banks, and.
Speaker 3: I don't know if I would say, okay.
Speaker 1: Okay, Well all right, let's talk about what happened since then.
Speaker 1: What what did we just see in the financial system?
Speaker 3: So if I could sum it up in like a sentence,
Speaker 3: because it's always pretty good to try and sumon up
Speaker 3: in a sentence, I'd say, we're not having a banking crisis.
Speaker 3: We're having a crisis of certain banks. That's like a
Speaker 3: really good frickin line. So pay attention. So I mean
Speaker 3: the saying goes that generals always fight the last war.
Speaker 3: The last war was credit quality and capital, which that
Speaker 3: problem was solved. The problem with Silicon Valley was that
Speaker 3: the correlation between all their depositors was essentially one. In
Speaker 3: other words, they were all the same. It would be
Speaker 3: as if, you know, you had one depositors with one
Speaker 3: hundred and fifty billion dollars in the bank. And what
Speaker 3: happened was Silicon Valley had a very simple business model.
Speaker 3: They just took in deposits from VC and they bought months.
Speaker 3: That was it. They made very few loans and gave
Speaker 3: great service, and so when rates were at the bottom,
Speaker 3: they brought long term bonds at subterranean rates. The Fed
Speaker 3: starts raising rates. Who knew, and all of a sudden
Speaker 3: they have massive mark to market losses in their portfolio,
Speaker 3: which if they had, which essentially wiped out their equity.
Speaker 3: But that's not enough because you could always hold the
Speaker 3: bonds to maturity unless you got to sell the bonds.
Speaker 3: So if you remember last year, the stocks that were
Speaker 3: down the most were the companies that had high revenue
Speaker 3: growth and negative earnings. They were down anywhere from seventy
Speaker 3: five to ninety percent. That characteristic is the same thing
Speaker 3: as venture capital companies. So venture capital couldn't raise any
Speaker 3: more money. The venture capital companies had to pull their
Speaker 3: deposits out of the bank. Eventually, Silicon Valley rate out
Speaker 3: of liquidity, they sold their bonds, and the rest is history.
Speaker 3: You know, thank you Peter Thiel for closing a panic
Speaker 3: and the next morning they were done. That was essentially
Speaker 3: the story. So after that, everybody, you know, basically started
Speaker 3: running every single bank that had the same characteristics as
Speaker 3: Silicon Valley signature which went that same weekend. First Republic
Speaker 3: pack West Western Alliance. Obviously, First Republic is gone. You know,
Speaker 3: probably this part of this crisis is largely over. There's
Speaker 3: a problem with the earnings of the banks, but I
Speaker 3: don't think it's unlikely. I think at this point that
Speaker 3: anybody else is going to go under.
Speaker 2: Well, you mentioned and you know, the generals always fight
Speaker 2: the last war, and so people weren't paying very close
Speaker 2: attention to depositor correlation, it would seem the supervisors apparently not.
Speaker 2: And then of course, you know, people were not concerned.
Speaker 2: They're like, oh, credit risk is solved, and then maybe
Speaker 2: they weren't so aware of the rate risk.
Speaker 3: The problem was they don't read the research. If they
Speaker 3: read the research that's out there, they would have known
Speaker 3: the losses to the to the dollar. But it's in
Speaker 3: my experience that regulators don't read Wall Street research and
Speaker 3: they try and find it out on their own. It's
Speaker 3: a lot easier just to read the research, trust me.
Speaker 2: So from your perspective, though it was out like there.
Speaker 3: Are, there's no questions, There's absolutely no question, no reason.
Speaker 3: There's absolutely no question that the investment community knew what
Speaker 3: the losses were on Silicon Valley's portfolio to the dollar.
Speaker 1: Huh, Well, can I ask you? I mean, let's say
Speaker 1: we have a FED meeting coming up, obviously, and you
Speaker 1: know there's a lot of debate over whether they're going
Speaker 1: to pause or hike again. But if they hike again,
Speaker 1: how problematic would that be for the banking system?
Speaker 2: Now?
Speaker 3: Well, I mean, what's what happened during the pandemic was
Speaker 3: that was the banks were flooded with liquidity, and so
Speaker 3: what's happening now is people are but you know, what
Speaker 3: were you going to do earn twenty five basis points
Speaker 3: and money market funds and sort of pointless? So now
Speaker 3: I don't know if any of you notice, but you know,
Speaker 3: if you want to buy a three month treasure, you
Speaker 3: make five point four percent. That's not bad. So people
Speaker 3: are taking their money out of the bank and putting
Speaker 3: it to money market fund So what's happening is the
Speaker 3: regional banks are really pulling in their horns in terms
Speaker 3: of lending. You know, do I think that if the
Speaker 3: FED keeps raising rates that will accelerate. Maybe, but a
Speaker 3: lot of it's happened already.
Speaker 2: Just to stick on the banking system for another minute,
Speaker 2: you know, like obviously there's another cliche that's out there,
Speaker 2: like the FED keeps raising until something breaks, and then
Speaker 2: when SVB happened, like, well, there was the break that happened,
Speaker 2: except it turned out that wasn't the end of the
Speaker 2: hiking cycle like it would have been. That would have
Speaker 2: been like, you know, if you're writing history, you could
Speaker 2: have imagined a version where SVB is the end of.
Speaker 3: The hiking cycle. It broke not big enough. It just
Speaker 3: wasn't big not big enough, you know, as I always
Speaker 3: I said long time ago, when JP Morgan goes down,
Speaker 3: Planet Earth burns, when when Silicon Valley goes down, it's
Speaker 3: a match, you know, like a match.
Speaker 1: You know, well, okay, one one more ba.
Speaker 3: More than a match, maybe a match book.
Speaker 1: One of those like automatic rider things. One more banking question,
Speaker 1: but you mentioned might have.
Speaker 3: One more banking question, okay.
Speaker 1: Full disclosure. Uh you mentioned profitability. There are financial is
Speaker 1: a good bye in an environment where maybe they have
Speaker 1: to compete for deposits a little more and rates are
Speaker 1: going up and NIM is getting net interest margins are
Speaker 1: getting compressed.
Speaker 3: I mean, there's always a trade.
Speaker 4: You know.
Speaker 3: The banks are very very cheap on a price to book.
Speaker 3: They're very very cheap on earnings. You know, the problem
Speaker 3: is that because of the money leaving the banks into
Speaker 3: money market funds, it's more likely than not an estimates
Speaker 3: are too high, you know, longer term, you know, if big,
Speaker 3: if we go into recession, we'll have a credit cycle.
Speaker 3: And I mean the joke in amongst the people you
Speaker 3: know that what I call the financial services mafia is
Speaker 3: the banks have collapsed and we haven't even had a
Speaker 3: credit cycle yet. So you know, if you want to
Speaker 3: financial services mafia, can it tell you?
Speaker 2: Okay, but there is there.
Speaker 3: Is, but they they are known, Okay, I know almost
Speaker 3: all of them. Okay, now these are the people who
Speaker 3: traffic in largely you know, the financials for twenty years. Okay,
Speaker 3: and you know it's not like we go on vacation together,
Speaker 3: but we know each other. In fact, we don't go
Speaker 3: on vacation together.
Speaker 2: Okay. Well, just you know when after as IVB collapped.
Speaker 2: One other element of this was like do we really
Speaker 2: need so many banks in this country? And the people
Speaker 2: look up North and Canada and they're like, they only
Speaker 2: have like six or seven banks here and we have
Speaker 2: I don't know, fifteen thousand or something like that.
Speaker 3: More like five thousand.
Speaker 2: More like five thousand are we gonna have? You know,
Speaker 2: in ten years, will we be done with a thousands?
Speaker 2: Like how much consult? No? Really, no way.
Speaker 3: First of all, the regulators will not allow JP Morgan
Speaker 3: buying First Republic is one off. The regulators do not
Speaker 3: want the large banks to get any bigger through M
Speaker 3: and A. You know, could there be mergers between regional banks, sure,
Speaker 3: but to go down to from five thousand to a thousand,
Speaker 3: I mean that's a lot of work. You know, it
Speaker 3: is choose your poison. In Canada, the banks are safer
Speaker 3: because they're oligopolies, but they can charge much higher fees
Speaker 3: for their customers. Here there's a lot more competition, but
Speaker 3: because there's a lot more and because there's a lot
Speaker 3: more competition, prices are lower. But then you have problems
Speaker 3: with credit and just stability.
Speaker 1: Sorry, you just reminded me of one more banking question.
Speaker 1: So apologies in advance. But you're an expert in moral
Speaker 1: hazard basically based off of yours.
Speaker 3: I don't know if it's an expert you.
Speaker 1: Have experience with moral hazard. What do you think about
Speaker 1: deposit insurance in the aftermath of SVB. I mean, the
Speaker 1: depositor has got a full bailout. There's now discussion about, well,
Speaker 1: why not just have universal deposit insurance? What would that mean?
Speaker 3: Well, if it had been up to me, and believe me,
Speaker 3: it was not to me, and nobody called me over
Speaker 3: that weekend. But if it had been up to me,
Speaker 3: I would have let Silicon Valley fail and then I
Speaker 3: would have guaranteed all the deposits and that would have
Speaker 3: solved your moral has its problem. I mean, it's not
Speaker 3: like they guaranteed Silicon Valley and they guaranteed all the
Speaker 3: deposits and people didn't pull their deposits out of these banks.
Speaker 3: So you would have been in the same situation, but
Speaker 3: you would have solved your moral hazard problem. I actually
Speaker 3: don't know technically if the regulators even have the authority
Speaker 3: to raise the deposit in churns level unless it's an emergency.
Speaker 2: I think it would require some sort of act of Congress.
Speaker 2: But regardless of good luck with that, right Senka said,
Speaker 2: whether it's even doable, right, there is this question that
Speaker 2: a lot of people felt after SVB and they saw
Speaker 2: all these depositors immediately made a whole at one hundred
Speaker 2: cents on the dollar. Why is banking like a private
Speaker 2: for profit enterprise as a thing if there's sort of
Speaker 2: like key aspect of age.
Speaker 3: I mean, the problem is when whatever these things happen,
Speaker 3: it seems like the regulators adopt the attitude that if
Speaker 3: we don't do this, we're going to have the system's
Speaker 3: going to burn. You know what, system's not going to burn.
Speaker 3: You know, in two thousand and eight that was true,
Speaker 3: you know, with Silicon Valley really wasn't true, but for
Speaker 3: some reason the regulators felt it was true, and that's
Speaker 3: why they acted the way they did. I don't think,
Speaker 3: you know, for what it's worth that I think that
Speaker 3: deposit insurance is going to be guaranteeing everything within after
Speaker 3: the first twelve months.
Speaker 1: Was there anything in the recent banking drama that reminded
Speaker 1: you of two thousand and eight or was it just
Speaker 1: completely different?
Speaker 3: Totally different? You know, the problem with what you're hearing about.
Speaker 3: You're hearing about the regulators raising capital requirements by you know,
Speaker 3: ten percent, twenty percent. That's useless because this wasn't a
Speaker 3: capital problem. This was a liquidity problem. And by the way,
Speaker 3: no matter how much liquidity you might have, you don't
Speaker 3: have enough does a run on the bank. So this
Speaker 3: is more of a I think, an examination issue rather
Speaker 3: than a liquidity issue and a capital issue.
Speaker 2: By examination, you mean the examiners of.
Speaker 3: San Francisco examiners should have been all over Silicon Valley,
Speaker 3: you know what. I think what the press said was
Speaker 3: that they went in and they suggested nicely that Silicon
Speaker 3: Valley start looking into its issues. You know, a regulator
Speaker 3: should not be asking nicely, they should be telling meanly.
Speaker 3: But for some reason that wasn't done.
Speaker 1: Well, what responsibility do you think tech has in this
Speaker 1: whole saga, because I mean, the last time we spoke
Speaker 1: to you, we were talking about the stunning continued resilience
Speaker 1: of a lot of tech growth stocks, and it feels
Speaker 1: like that wave of money is alive and well, but
Speaker 1: kind of more flighty than it used to be. And
Speaker 1: in this instance, it basically infected the financial system.
Speaker 3: I'm not following you. What do you mean infected the financials?
Speaker 1: Well, it got into the banking system as tech and
Speaker 1: vcs kind of pulled their money away from SVB.
Speaker 3: I mean that's true. I mean part of the issue
Speaker 3: is that it's so easy to move money today electronically.
Speaker 3: I think it was a very big mistake by the
Speaker 3: regulators to allow basically every Vingle VC fund and every
Speaker 3: single VC company to bank with one bank. That was
Speaker 3: you know, reminds me a little bit of the sub
Speaker 3: You know, people used to say in terms of subprime
Speaker 3: mortgages that you got diversification. And so the affair was
Speaker 3: a low correlation. It turned out it was a correlation
Speaker 3: of one. This was more obvious that it was a
Speaker 3: correlation of.
Speaker 2: One in the UH, in the finance industry mafia. Was
Speaker 2: this something? Is this something that comes up and people
Speaker 2: aware of this or was this like, oh what where
Speaker 2: did this?
Speaker 3: Now they were aware of it? They were aware of that,
Speaker 3: they were aware of signature First Republic. I mean, it's
Speaker 3: just math in.
Speaker 1: Terms of risks in the financial system. Now do you
Speaker 1: think think like there's a strong case that we should
Speaker 1: be looking more at deposit concentration. And also maybe I
Speaker 1: don't even know how you would measure this or enforce it,
Speaker 1: but like social media risk, the idea that people all
Speaker 1: start talking about, like, oh, Credit Swiss is in trouble,
Speaker 1: SVB is in trouble. First republics in trouble.
Speaker 3: Well you know what Credit Swiss was in trouble. SVB
Speaker 3: was in trouble. First Republic was in trouble.
Speaker 1: Well, this is why it would be hard to enforce,
Speaker 1: you know.
Speaker 3: No, but they were actually in trouble. It didn't matter
Speaker 3: what was being said on social media. So I don't
Speaker 3: put a lot of stock.
Speaker 2: In that, Okay, I keep saying, like last banking question,
Speaker 2: but how much did the experience of you know, two
Speaker 2: thousand and eight, two thousand and nine, the regular the
Speaker 2: reforms DoD Frank, et cetera. Put the regulators in a
Speaker 2: position like had something like SVB happened in a different era,
Speaker 2: would it have been worse? How much did the sort
Speaker 2: of post crisis changes make it such that you can
Speaker 2: have a pretty substantial regional bank fail without much spillover.
Speaker 3: I think the regulators learned was that you have to
Speaker 3: be fast. So the fact that they guaranteed deposits over
Speaker 3: a weekend and seize two banks was very important. So
Speaker 3: they did learn that lesson, But they weren't looking for liquidity,
Speaker 3: you know, duration problems.
Speaker 1: Should we talk markets wider markets? Yeah, you know what
Speaker 1: I'm we should just throw out some single stocks and
Speaker 1: just have you Yeah, but why don't we start started
Speaker 1: in video because I think that's like the.
Speaker 3: Figure not going to do buy sold. That's fine because
Speaker 3: my firm would shoot.
Speaker 2: Word association, word association.
Speaker 3: Yes, and I mean literally shoot men. Okay, this tomorrow morning.
Speaker 3: So what do I think of Nvidia? I mean, let
Speaker 3: me let me tell you what I think. Well, the
Speaker 3: whole chat gpt AI situation. So, I mean, as everybody knows,
Speaker 3: the market's been very narrow this year. If you take
Speaker 3: out the eight big tech stocks, the market is maybe
Speaker 3: a one or two percent, you know, in terms of
Speaker 3: what's happened so far. You know, Vidio is selling a
Speaker 3: lot of chips because everybody wants to get into the act,
Speaker 3: so they're sort of stocking chips. But what we don't
Speaker 3: have yet is really too many apps. And so I
Speaker 3: love the story that was in the papers about the
Speaker 3: lawyer who had a case he had to write a
Speaker 3: brief and so he asked chat GPT to write the
Speaker 3: brief and all the citations didn't exist. That guy's going
Speaker 3: to be disbarred. Okay, thank you, chat GPT. So the
Speaker 3: apps aren't there yet. So right now, you know, this
Speaker 3: story is just just in a few data centers. You know,
Speaker 3: at some point in the next six months or so,
Speaker 3: it'll probably get rolled out into all the data centers
Speaker 3: in the country. But so the beneficiaries are the people
Speaker 3: who sell the hardware, the chips, send everything connected to
Speaker 3: the chips, the obvious companies that have the data, and
Speaker 3: then after that we really don't know, you know, does
Speaker 3: this benefit into it or not benefit into it. Does
Speaker 3: this help eccenture or hurt Accenture. It's unknown, and we
Speaker 3: don't know yet who's going to be creating good apps
Speaker 3: that's going to do very well. So right now the
Speaker 3: story is very narrow in terms of investing.
Speaker 2: But the market seems to I believe the market seems
Speaker 2: to be of the view that the incumbent those eight companies, however,
Speaker 2: many of there are Meta Alphabet and Video Microsoft, that
Speaker 2: they are going to accrue the big financial gains from
Speaker 2: AI in general will somehow accrue to them. And do
Speaker 2: you think, like how confident would you say? Like, is
Speaker 2: the market right? Is the market overly confident in the.
Speaker 3: I mean, who you know, I'm not a fortune teller,
Speaker 3: although some people think I was a fortune teller, but
Speaker 3: I mean that's the obvious case. I don't have any
Speaker 3: reason not to believe that, you know. But we'll see
Speaker 3: in a year or two years, what's going to happen.
Speaker 3: This is, this is this is not going to happen overnight.
Speaker 1: Well, how should investors think about you know, there have
Speaker 1: been many instances at this point of people coming out
Speaker 1: with revolutionary technology of one sort or another, often packaged
Speaker 1: under a very exciting name like Generative AI. How should
Speaker 1: investors think about that?
Speaker 3: Like, We're got to give you an example of a
Speaker 3: group that used to be hot and it is not
Speaker 3: the payment space h Okay, PayPal, Square, et cetera, et cetera.
Speaker 3: So so, by the way, I've done payments for a
Speaker 3: very long time, and I will tell you that every
Speaker 3: five years, somebody comes in and says, I got this
Speaker 3: thing that's going to completely disintermediate Visa and MasterCard. I
Speaker 3: swear to every five years like clockwork, and two years
Speaker 3: later they come back and they say no. So other
Speaker 3: than Visa MasterCard, who has long term staying power and payments,
Speaker 3: is never obvious. But the space used to be really
Speaker 3: really hot, especially the companies that you know, again big
Speaker 3: revenue growth, negative earnings, and but what's happened over the
Speaker 3: last several years is so much capital has gone into
Speaker 3: this space that they're basically killing each other and it's
Speaker 3: not hot anymore and people are exiting. Is that going
Speaker 3: to happen to chat GPT? Less likely because you've got
Speaker 3: real bohemoths that are going to be spending a lot
Speaker 3: of money. But you know, around the app part, we'll
Speaker 3: see what happens.
Speaker 2: But it seemed there's a good chance that maybe outside
Speaker 2: the behemoths, a lot of money will be spent from
Speaker 2: companies that just kill each other and drive each other
Speaker 2: into the ground. Reason So obviously, you know when you
Speaker 2: see a company like in video uh trading at over
Speaker 2: thirty x revenue.
Speaker 3: It's actually not trading at thirty x revenue. It's trading
Speaker 3: you know after the the most recent uh you know,
Speaker 3: the stock one of twenty six percent, but the earnings doubled.
Speaker 3: I think, you know, the pe got cut in half.
Speaker 3: So I don't remember where the pe is right now,
Speaker 3: but it's not insane anymore. It's actually lower than it
Speaker 3: was before they reported.
Speaker 2: So when you see that, like obviously and it seems
Speaker 2: sort of lazy, and people like dot Com this is Cisco,
Speaker 2: this is loose you know, Sun Microsystems, just these like
Speaker 2: completely unreal when you when you look at these numbers,
Speaker 2: like they don't look like unreal. They don't look like
Speaker 2: some of those numbers from those.
Speaker 3: Well, I'm gonna look at videos the pure play. Yeah,
Speaker 3: then there's a MD We'll see how well that their
Speaker 3: new chip is going to do. You know, how much
Speaker 3: is this going to add to the earnings of Microsoft
Speaker 3: and Google and Meta. Well, it's not gonna be as
Speaker 3: much as in video obviously, you know, but how much
Speaker 3: it accelerates the growth rate. I mean, we're really not
Speaker 3: going to know this for a couple of years because,
Speaker 3: like I said, it's gonna take time to really develop
Speaker 3: something that's not going to have somebody write a brief
Speaker 3: where all the citations are wrong. I go back to
Speaker 3: this over and over again. It's stunning to me, Tracy,
Speaker 3: I would not read the site. I used to be
Speaker 3: a lawyer. That a lawyer would submit a brief where
Speaker 3: he does not read the citations and the brief is astonishing.
Speaker 1: I think there's someone actually suing chat gpt for defamation
Speaker 1: now because of some of the stuff it spat out
Speaker 1: from that incident.
Speaker 2: Tracy has seen many of my attempts to use chat
Speaker 2: gpt for work, and so is well aware of a
Speaker 2: let's just say it's not it's not mission critic, it's
Speaker 2: not mission ready, it's not.
Speaker 1: Ready for prime time. I do think it's very sweet
Speaker 1: that Joe is always very very polite to chat gpt
Speaker 1: just in case the robots, you know, eventually take over
Speaker 1: the earth hedging your butts.
Speaker 2: That's true, I would say, please and thank you.
Speaker 1: Well, that's good life advice. Okay, Well, just on the
Speaker 1: broader market. I mean, the last time we had you
Speaker 1: on the podcast, you were talking about a new paradigm
Speaker 1: for markets, and you are very care careful to emphasize
Speaker 1: that this doesn't happen in a straight line. You know,
Speaker 1: there are fits and starts. People hold on to the
Speaker 1: old way of thinking, you know, for as long as
Speaker 1: they can. Sometimes, when you look at what's happening with
Speaker 1: some of the tech and growth stocks right now, does
Speaker 1: that support the thesis is this the last gasp of growth?
Speaker 3: I mean, for example, let's go back to the high
Speaker 3: revenue growth, negative earnings companies. So they're up a lot
Speaker 3: this year on a percentage basis, But when you go
Speaker 3: from two hundred to ten and you're at fourteen, yeah,
Speaker 3: it's up forty percent. But so what you know, the
Speaker 3: large cap mega companies I think are investible for a
Speaker 3: very long time, but after that it's unclear. And I think,
Speaker 3: I mean, if anybody gave me their money today, for example,
Speaker 3: I wouldn't be so overweight tech. I'd be much more diversified.
Speaker 3: I'd have some god forbid bonds. You know, there's plenty
Speaker 3: of other stories other than tech, such as I mean,
Speaker 3: for example, has anybody ever noticed that the electrical grid
Speaker 3: in the United States is pathetic? You've noticed, you know.
Speaker 3: I don't know if everybody said, there's this new rule
Speaker 3: that came out from the governor that says every single
Speaker 3: new building in New York State has to have an
Speaker 3: electric oven. Well, if we could snap our fingers and
Speaker 3: just do that, there'd be a blackout immediately. So you know,
Speaker 3: there are companies that are involved with the electrical grid.
Speaker 3: There's reshoring, there's greenification, although you know the solar companies
Speaker 3: sell it insane multiples, but there are other ways to
Speaker 3: play it. And the other concept that I think is
Speaker 3: going to come back is what i'd call risk adjustice returns.
Speaker 3: You know, risk adjustice returns have been out of favor
Speaker 3: because everybody just wants to invest in tech. I think
Speaker 3: the world's going to be, you know, with if rates
Speaker 3: stay high. I think that's going to That is going
Speaker 3: to happen because I think Vulgan, I think Vulkar it's
Speaker 3: Fredian slip. I think that Powell is petrified of doing
Speaker 3: what Vulgar did, would would stop raising rates, cut them
Speaker 3: a little bit. Inflation soars and he has to go to
Speaker 3: seventeen percent.
Speaker 2: So many different directly, Actually, what do you mean when
Speaker 2: you talk about risk adjusted returns coming into vote?
Speaker 4: What do that mean?
Speaker 3: Specific? Risk aggestion returns means how much return are you're
Speaker 3: generating given every unit of risk. There's mathematical ways to
Speaker 3: figure I thought all investors, I thought that you're kidding.
Speaker 3: People haven't focused on that. In the last ten years,
Speaker 3: you could have been paid to take as much risk
Speaker 3: as possible. So that concept, which was in voked for
Speaker 3: a very long time, has been people have just stopped
Speaker 3: paying attention to it.
Speaker 1: But it sounds a lot like value investing, right, No,
Speaker 1: keep predicting value.
Speaker 3: Not value investing. It's you know how much volatility is
Speaker 3: in your portfolio? How diversified are you don't want to
Speaker 3: be too diversified? You know what's the beta versus alf
Speaker 3: in your portfolio? That those are the concepts that I
Speaker 3: think you're going to start to come back. You know,
Speaker 3: I had just as an example. You know, my partners
Speaker 3: and I, you know, we run separately manage accounts. Everybody's
Speaker 3: got a different profile. So I'll just give you one
Speaker 3: extreme example. I got a cold call from a woman
Speaker 3: who you know, saved about a million dollars by killing
Speaker 3: herself basically, and she gave money I won't say the
Speaker 3: name of the very large bank to manage her money,
Speaker 3: and they obliterated her. I never saw a portfolio like this.
Speaker 3: Every single security she had had a loss. So she
Speaker 3: comes to me basically with PTSD, and I promised her
Speaker 3: I would hold her hand. And so I've only invested
Speaker 3: a few, you know, and a few stocks, and otherwise
Speaker 3: I put her in bonds and treasuries, and I figure
Speaker 3: after about a year, maybe she'll have the emotional ability
Speaker 3: to invest in stocks. So look, I think you really had.
Speaker 3: What's also going to come back is catering to everybody's
Speaker 3: individual risk profile as opposed to just putting fifty percent
Speaker 3: of your money in tech.
Speaker 2: As we're since we're talking about paradigm shifts, and you know,
Speaker 2: you mentioned powells fear of you know, having to go
Speaker 2: into the teams to fight inflation. I'm curious, like we
Speaker 2: have the market does seem to be like go through
Speaker 2: these phases of like, oh no, this is as far
Speaker 2: as gonna go. So we're gonna go to three and
Speaker 2: a half percent, So we gonna go to four. Okay,
Speaker 2: we stopped SVB. That must have been the top. Oh no,
Speaker 2: we're going to like pause in gin. But it looks
Speaker 2: like we're gonna hike in July. Does this process, in
Speaker 2: your view, have further to go in terms of.
Speaker 3: People have lived with low rates for so long that
Speaker 3: it is unimaginable to them that the Fed's going to
Speaker 3: keep rates high. They just can't imagine it, you know
Speaker 3: that They were like, oh, the FED will cut rates
Speaker 3: in the second half of this year. That was never
Speaker 3: my position, but that obviously was the position of the market,
Speaker 3: and that now seems to be going away. So but
Speaker 3: like I said, you know, people I like to say,
Speaker 3: you don't think about your paradigm. You inhabit it. And
Speaker 3: one of the paradigms is that we're all entitled to
Speaker 3: live in a zero rate world. That's gone. Just everybody
Speaker 3: hasn't woken up to that.
Speaker 1: Well, just on this note, can you talk a little
Speaker 1: bit about what's going on in consumer discretionary because those
Speaker 1: stocks have been doing really well, and yet there is
Speaker 1: this or there seems to be this big question mark
Speaker 1: over the strength of the American consumer. So if you
Speaker 1: look at the surveys, I mean, a lot of people
Speaker 1: seem to think we're basically back in the depths of
Speaker 1: two thousand and eight. Oh, definitely are if you look
Speaker 1: at the hard data. The spending continues. So how are you.
Speaker 3: I've heard from some companies, you know, very large banks
Speaker 3: that really have the best data that consumer spending has
Speaker 3: really slowed in the last couple of months. The consumer
Speaker 3: is still relatively healthy because everybody's employed. So you know,
Speaker 3: you're not going to see like a real deterioration and
Speaker 3: consumer credit or anything like that until people start losing
Speaker 3: their jobs. You know, is that going to happen. I
Speaker 3: don't know. I think it's probably more likely than not.
Speaker 3: But until we start to see unemployment go up, you're
Speaker 3: not going to see a problem with the credit. That
Speaker 3: doesn't mean the consumer is not going to pull in
Speaker 3: their horn. I mean you're starting to see that in
Speaker 3: a lot of different retail companies. I mean, I think
Speaker 3: everybody's saw a dollar general how much that went down
Speaker 3: because spending was you know, spending at the lower end
Speaker 3: is slowing. You know, people are starting to trade down.
Speaker 3: So it's happening behind the scenes, but it's a little
Speaker 3: glacial because everybody is employed.
Speaker 2: On this theme of sectors that stay buoyant because people
Speaker 2: have jobs. Housing, big surprise over the last year, home
Speaker 2: builders continuing to.
Speaker 3: Do very well.
Speaker 2: Maybe they're a little bit off their highs, home prices
Speaker 2: not far off their highs, only modestly. I know, we
Speaker 2: talked about this in March, but it seems like home
Speaker 2: prices are back on the rise again, Like is there
Speaker 2: they are?
Speaker 3: It's actually very I mean, I mean the first to men,
Speaker 3: I was wrong about this. You heard it here. First
Speaker 3: surprised that the home builders have done so well with
Speaker 3: rates so high, but you know, there is a shortage
Speaker 3: of housing. I do think that existing home sales are
Speaker 3: still fairly low because with everybody employed, and if you
Speaker 3: have a three percent mortgage, it's hard to sell your
Speaker 3: house and buy something else if you want to trade
Speaker 3: up and get a seven percent mortgage. But the home
Speaker 3: builders have been very good at, you know, cutting of
Speaker 3: some of their prices, in their costs, incentivizing people through
Speaker 3: their internal mortgage companies. I'm actually very impressed by what
Speaker 3: they've done.
Speaker 1: We talked a little bit about residential real estate the
Speaker 1: last time we had you on. We didn't get to
Speaker 1: commercial real estate. I don't think and I'm kind of
Speaker 1: I'm jumping the gun remembered, I'm jumping the gun a
Speaker 1: little bit because we have had some audience questions on
Speaker 1: this topic. But how are you thinking about CI risks
Speaker 1: at the moment?
Speaker 3: Well, I mean, there's a lot of different categories of
Speaker 3: cre Well, let's talk about cap rates first. First of all,
Speaker 3: leave aside fundamentals. You bought something when rates were nothing,
Speaker 3: and you paid a three percent debt and your cap
Speaker 3: rate was let's say three or four percent, and now
Speaker 3: if you wanted to borrow, you're going to pay seven
Speaker 3: or eight. The value of your real estate went down. Period.
Speaker 3: The area that is the most problematic is obviously office,
Speaker 3: the areas that are probably the worst of San Francisco
Speaker 3: in New York. I'll just give you a shocking statistic.
Speaker 3: I've looked at it the other day. I was stunned.
Speaker 3: Do you know what the market cap of Vernado is?
Speaker 3: Two billion?
Speaker 2: You should let me get us. I was going to
Speaker 2: say three billion.
Speaker 3: But two maybe it's kind of maybe it's two point two.
Speaker 3: That's unbelievable when you think about it. So you know,
Speaker 3: the market has really repriced the public entities, but the
Speaker 3: private entities really having marked down their portfolio there because
Speaker 3: nothing is trading. There's about one hundred and seventy five
Speaker 3: billion of office debt coming do this year and about
Speaker 3: one hundred and fifty billion of office debt coming to
Speaker 3: do next year. If you took out a loan let's
Speaker 3: say three four years ago to buy something, and the
Speaker 3: LTV was sixty percent. Today it's probably one hundred. So
Speaker 3: I mean the issue is the refinancing, and I think
Speaker 3: it's going to be tough.
Speaker 1: So you mentioned the isn't trading. Is this one of
Speaker 1: those situations where maybe illiquidity can be your friend if
Speaker 1: you don't they.
Speaker 5: Don't have to market down because you know you don't
Speaker 5: have to sell anything, right, Well, the problem for you
Speaker 5: is that when your debt comes doe, then you got
Speaker 5: a problem.
Speaker 3: Until then you could, as we like to say, extend
Speaker 3: and pretend.
Speaker 2: At some point, could there be a do you think
Speaker 2: about a point where you can bid on the public
Speaker 2: equity or public aspect of Siria? I mean three billion?
Speaker 2: It does seem like, oh, you were talking about like
Speaker 2: the end of sort of like New.
Speaker 3: York work as I haven't done enough work on this, okay,
Speaker 3: but people that have say it's very problematic because I mean,
Speaker 3: I'm sure some of you have seen, you know, Blackstone
Speaker 3: and Brookville. I mean, these are not small companies have
Speaker 3: given back the keys for some of their pretty good
Speaker 3: buildings because you know they know that debt's going to
Speaker 3: come do in a few years. They know what the
Speaker 3: cash flow is going to be, and they can't support
Speaker 3: the cash flow, so they're giving the keys back. So
Speaker 3: if Blackstone and Brookfield are giving back buildings, you know,
Speaker 3: how's everybody else going to be? Now there are what
Speaker 3: i'd call triple A properties in New York City. I
Speaker 3: don't know San Francisco as well, like you know one Vanderbilt,
Speaker 3: but after that, you know, after a couple of abilities
Speaker 3: that are like that, I think the rest are problematic.
Speaker 1: Since you mentioned interest rate costs, it feels like people
Speaker 1: have been predicting. I think we touched on this earlier
Speaker 1: as well. But people have been predicting a turn in
Speaker 1: the credit cycle for years now and it has yet
Speaker 1: to happen. We've seen maybe some idiosyncratic bankruptcies, but nothing
Speaker 1: sort of on mass or systemic. What would be the
Speaker 1: catalyst for that actually happening?
Speaker 3: And how like, I actually don't think there is going
Speaker 3: to be. I think there will be. I mean, look,
Speaker 3: if we go into some kind of recession, I think
Speaker 3: there will be a normalization of consumer credit. I don't
Speaker 3: think the consumer is over levered. There's really no subprime
Speaker 3: mortgage lending in the United States at all. There's very
Speaker 3: little subprime credit card lending. There's some subprime order lending.
Speaker 3: But whatever problems happening is not going to be I
Speaker 3: think in the consumer area, like I said, there'll be normalization.
Speaker 3: You know, loan loss provisions in the banks will go up.
Speaker 3: It's not a calamity. You know what's going to happen
Speaker 3: in high yield office, et cetera. But those problems will
Speaker 3: be you know, for example, the office will be concentrated
Speaker 3: in cnbs and in certain regional banks, so it's going
Speaker 3: to be more concentrated as opposed to systemic issues.
Speaker 2: I have a career question or maybe a career advice question.
Speaker 2: Very knowledgeable on banks, obviously real estate, knowing specific buildings,
Speaker 2: thinking about understanding payments, et cetera. How should we How
Speaker 2: do you like allocate your time? Because it's you know,
Speaker 2: I don't know this stuff.
Speaker 3: What do I do all day?
Speaker 2: Is how do you allocate your time?
Speaker 3: To have the morning? I have a cup of coffee,
Speaker 3: you put black iceed. We're on the same I get
Speaker 3: into the office, I start to read all my emails.
Speaker 3: You know, I log into Blumberg thank you, and you
Speaker 3: know there are companies are coming to Newburger, I go
Speaker 3: to the meetings, I do some research on individual companies.
Speaker 3: Trading day ends, you know, there might be some more
Speaker 3: to do when I go home. That's that's my day.
Speaker 1: What piques your interests though, Like, how do you make
Speaker 1: decisions about whether or not to get really into a
Speaker 1: sector or a company?
Speaker 3: Look, it depends. I mean, I mean, I'll just give
Speaker 3: you one stock, which hopefully Newburger won't shoot me tomorrow about.
Speaker 3: So we've owned a company for a while called Quanta.
Speaker 3: We have it in most of our portfolios. So Quanta
Speaker 3: is a company. You know, utilities don't do anything. You know,
Speaker 3: somebody has to build the utility, someone has to manage
Speaker 3: the wires, somebody has to bury the wires. So you know, Quanta,
Speaker 3: prior to all this grid stuff, used to sell it
Speaker 3: ten to eleven twelve times earnings. But because all the
Speaker 3: stuff of evolving infrastructure, the opportunities for the company have
Speaker 3: been enormous, So the stock has been revalued. How often
Speaker 3: does that happen? Not that often. But you know, when
Speaker 3: you have the potential to do something like that, you
Speaker 3: go all in. But it requires a lot of work.
Speaker 2: But this was something that as you saw infrastructure coming,
Speaker 2: and because you were familiar.
Speaker 3: I'll give you an example of what we saw. So,
Speaker 3: you know, the utility in California, I think it's PCG.
Speaker 3: You know, there's a strict liability rule in California that
Speaker 3: basically says if PCG causes a fire and is only
Speaker 3: partially responsible, they're completely responsible. So the old CEOs of
Speaker 3: PCG weren't too good. The new CEO is superb, and
Speaker 3: so she's embarked on this plan to basically bury all
Speaker 3: the wires of the company. Think about what that means.
Speaker 3: This is not Rhode Island, this is California. That's a
Speaker 3: lot of wires. You know who's doing that quant them?
Speaker 3: So you know that's gonna take years to do. But
Speaker 3: so stuff like that is, you know, the infrastructure stuff
Speaker 3: in the United States is pretty pathetic.
Speaker 5: Now.
Speaker 3: I remember years ago, maybe like twelve years ago, I
Speaker 3: had a conference in Hong Kong. It's like, fly in
Speaker 3: the airport's completely new. You could literally eat off the floor.
Speaker 3: You get into a car, you get onto a highway,
Speaker 3: it looks like the highway was just built yesterday. You
Speaker 3: go over a bridge, you go did they just finish
Speaker 3: this yesterday? And then you know, you go to this
Speaker 3: wonderful hotel, and then you come back to the United States.
Speaker 3: You can go to JFK and you're embarrassed, like this
Speaker 3: is the United States of America a lot, like it's unbelievable.
Speaker 3: Then you get on, you get on the Van Wick
Speaker 3: and the Grand Cential Parkway and it's I mean, it's
Speaker 3: just unbelievable. By the way, have you noticed that when
Speaker 3: you're driving to JFK where the Grand Central meets the
Speaker 3: Van Wick, there's this construction there. You know how long
Speaker 3: that construction has been going on? Twelve years? Like twelve years.
Speaker 3: I could have done it myself faster, Like what's going
Speaker 3: on with that?
Speaker 2: Like Guardia isn't even connected to.
Speaker 3: A subway way. Yeah, but that's better than the Van Wick.
Speaker 1: It is true. I went to the Seychelles recently, and
Speaker 1: I will say, like a tropical island in the middle
Speaker 1: of the Indian Ocean has better roads than coming back
Speaker 1: from the airport from JFK and fewer potholes, which is
Speaker 1: rather amazing. We could listen to Steve Rant about US
Speaker 1: infrastructure for a while provide insightful commentary on US infrastructure
Speaker 1: for a few more minutes. But we do have a
Speaker 1: lot of audience questions.
Speaker 2: Shall we take some Yeah.
Speaker 1: All right from Tim Lintern asking what is the trigger
Speaker 1: for higher unemployment?
Speaker 3: The problem with making a big case for higher unemployment
Speaker 3: is if it is a shortage of labor. This is
Speaker 3: a little bit of the revenge of the middle class.
Speaker 3: So you know, the two thousand and eight crisis destroyed
Speaker 3: the lower middle class. In the middle class here the
Speaker 3: layoffs in tech at Wall Street, the middle class is
Speaker 3: actually doing quite well. I mean, what would cause a
Speaker 3: real uptick and unemployment. Look, if the Fed keeps raising
Speaker 3: rates and the economy really starts to slow down, there'll
Speaker 3: be some layoffs. Do I think they're going to be
Speaker 3: very high? I don't because the labor sortags are still
Speaker 3: so important. People may want to warehouse their employees.
Speaker 2: Here's a question, since you mentioned your knowledge of the
Speaker 2: payments industry Casey twelve twenty one, as what about Apple,
Speaker 2: you know, in terms of a company with just incredible
Speaker 2: like mote in some way, right, there's always talking there
Speaker 2: coming a bank or Carridge or whatever. Could they make
Speaker 2: further inroads in payments and become an entity that takes
Speaker 2: share or profits from someone else.
Speaker 3: I mean they certainly could. I mean, it's so easy
Speaker 3: to pay stuff with Apple. Yeah, so I do think
Speaker 3: Apple's already making inroads. You know how much farther they
Speaker 3: want to go. I don't know. You know, there's the
Speaker 3: Apple credit card that's run by Goldman Sachs. I don't
Speaker 3: think Apple's ever going to really make a bigger road
Speaker 3: in the credit card business, the payments business probably.
Speaker 1: Another question from ABE one asks what are your thoughts
Speaker 1: on private credit? Will direct lending replace commercial bank lending
Speaker 1: long term?
Speaker 3: Well that's an excellent question, you know, given let's assume
Speaker 3: the regulators do raise the capital requirements for all the banks,
Speaker 3: it's going to force the banks really to at least
Speaker 3: that the regionals to really narrow some of their lending,
Speaker 3: because they're only going to want to make loans where
Speaker 3: the risk weight is low. And I know that the
Speaker 3: private credit lenders are literally salivating over this happening, because
Speaker 3: you know, Dodd Frank under Trullo, who was the vice
Speaker 3: chair of Financial Supervision, not only did he lower their
Speaker 3: leverage by like he cut it basically in half, but
Speaker 3: he narrowed the scope of what lending they could do,
Speaker 3: and that really opened up for the private credit lenders, right,
Speaker 3: you know, assuming that happens again, the private credit lenders
Speaker 3: will have even more room to play.
Speaker 2: Another question, the reshoring boom. People talk about restoring friends shoring.
Speaker 2: You know, as you talk about this new paradigm, partly
Speaker 2: may be kicked off by a lot of the public
Speaker 2: investment being made for IRA and Chips, et cetera. How
Speaker 2: are you think about that? What is like what do
Speaker 2: you see a sort of maybe the medium term of
Speaker 2: some of these trends and different ways it could shake out.
Speaker 3: Well, I think general reshowing is going to take time. Yeah,
Speaker 3: you know, factories aren't built overnight. I still think that's
Speaker 3: probably a reluctance by companies to bring all of their
Speaker 3: shoring back to the United States because they're so used
Speaker 3: to cheap labor. But I do think, you know, part
Speaker 3: of the story, given all the legislation that's come back,
Speaker 3: is something of a reindustrialization of America. How long that's
Speaker 3: going to take, I don't know. I think that, like
Speaker 3: I said before, the biggest story is going to be
Speaker 3: the grid. The grid is is absolutely crucial. I mean,
Speaker 3: the estimates of improving the grid in the United States
Speaker 3: are and everybody's got a different estimate. But it's like
Speaker 3: twollion three hundred billion fire. I mean, it's unbelievable numbers.
Speaker 3: That's going to think it going to be the biggest theme.
Speaker 1: Actually, I'm going to ask my own question based on
Speaker 1: that answer. But why do you think the US seems to,
Speaker 1: at least in recent years, be quite bad at infrastructure?
Speaker 3: Oh, we haven't spent money on it in generations?
Speaker 1: I have.
Speaker 3: I noticed. You know, when was the last time. Let
Speaker 3: me put you this way, in the New York metropolitan area,
Speaker 3: every highway, every every parkway, every bridge, every park was
Speaker 3: built by Robert Moses. You should all read the book
Speaker 3: by Robert Carr or Robert Moses superb. That's the thirties, forties, fifties,
Speaker 3: and early sixties. That was the last time the United
Speaker 3: States really spent a ton of money on infrastructure. Our
Speaker 3: infrastructure is just very, very old.
Speaker 1: But what I mean, I guess my question, why why
Speaker 1: can you issue all this?
Speaker 3: I'm not president of the United States. Go ask the
Speaker 3: last several presidents why ay didn't spend money on this?
Speaker 3: But they didn't.
Speaker 1: Well, current and former presidents of the United States have
Speaker 1: an open invitation for all.
Speaker 2: Thoughts absolutely well. Speaking of infrastructure, I don't know if
Speaker 2: you have a view on this. It's not particular commodities.
Speaker 2: People talk about copper.
Speaker 3: I have no opinion, no opinion. There are enough ways
Speaker 3: for me to lose money without going into commodities.
Speaker 2: Okay, here's another question you as consumer restart of student loan,
Speaker 2: is that something on your radar or is that not
Speaker 2: big enough dealing with He's rolling it for people who
Speaker 2: are listening.
Speaker 3: I mean, I will just tell you know. It's putting
Speaker 3: out my lawyer hat. Supreme Court is probably going to
Speaker 3: rule that what the Biden administration did is not kosher.
Speaker 3: But I actually think that the people are suing literally
Speaker 3: have no standing to sue. But given the composition of
Speaker 3: this court, they're basically not going to care. So I
Speaker 3: think the case is going to go against the Biden
Speaker 3: administration even though it shouldn't. The court just throw it out,
Speaker 3: but they won't.
Speaker 1: A question from Nathan Tankas he asks it's an interesting one.
Speaker 1: Is there an index which you would prefer that more
Speaker 1: properly weights tech relative to the S and P.
Speaker 3: No comment?
Speaker 2: All right. I have another question that was put in
Speaker 2: there from Nathan. It was regarding SVB. You said, the
Speaker 2: weight that they ought to have dealt with it is
Speaker 2: let the UH, let the bank fail, and then guarantee
Speaker 2: let the bank fail. But how does that solve moral
Speaker 2: hazard because they never wants.
Speaker 3: Because everybody would know that if the next bank, you know,
Speaker 3: eventually we'll take away the deposit insurance and if your
Speaker 3: bank fails, we won't guarantee you. Maybe we put guarantee.
Speaker 2: So basically the guarantee you gotta be diversified.
Speaker 3: I mean, I'll give you an example. Okay, So I
Speaker 3: have a friend who runs a VC company and the
Speaker 3: Thursday of Silicon Valley in the afternoon, he freaks out.
Speaker 3: He goes online and he pulls all his money, and
Speaker 3: then he wakes up Friday morning and his money's still
Speaker 3: in the bank. So he runs to the branch. He's
Speaker 3: fiftieth in line.
Speaker 2: I didn't know that people got in line.
Speaker 3: I know they got in line. There are fifty alpha
Speaker 3: males with tens of millions of dollars in the bank.
Speaker 3: I used to be an alpha male. I'm not. I'm
Speaker 3: a beta, and don't ask how I got there. And
Speaker 3: they're all waiting in line, and a woman comes out
Speaker 3: who's probably like a teller, I mean literally, and she
Speaker 3: comes out and she says, I know you're all here
Speaker 3: to get your money, but unfortunately the bank has just
Speaker 3: been seized by the federal government and we can't give
Speaker 3: any money anybody. So the first guy in line starts
Speaker 3: screaming and he says, I'll clean it up. He goes,
Speaker 3: I want my f and fifty f and freaking million dollars,
Speaker 3: and she says she says, sir, I just lost my job,
Speaker 3: and he starts screaming, I want my fifty f and
Speaker 3: freaking f million dollars. And that guy could have learned
Speaker 3: a lesson about diversification, because if he had, he wouldn't
Speaker 3: have been there.
Speaker 1: The teller needs to give the It's a Wonderful life
Speaker 1: speech and say, yes, it's porfolio.
Speaker 3: You shouldn't say that because most of the people in
Speaker 3: this audience don't ever saw the movie.
Speaker 1: So it's okay, Resistance people have seen it's in the GPT.
Speaker 3: I have.
Speaker 1: Well, well, I mean we can keep going, but one
Speaker 1: more question.
Speaker 3: Keep going? I got nothing to do, all right.
Speaker 1: So you know people are asking for free portfolio advice
Speaker 1: at this point, but which if.
Speaker 3: You want portfolio advice, I'll give you my card, you
Speaker 3: can come invest with me.
Speaker 1: Which sector slash stocks are at most risk for a
Speaker 1: short squeeze in the next twelve months. That's from Georgina.
Speaker 3: No comment, no comment, All right, my friend would just
Speaker 3: kill me.
Speaker 2: Here's a question. I think it actually ties back to
Speaker 2: a bunch of someone asks your thoughts on American exceptionalism,
Speaker 2: and I think it sort of ties to this. No,
Speaker 2: it ties to like, can we actually setting aside the money, like,
Speaker 2: because there is a lot of money, like build it.
Speaker 2: We know that there's money going into factories or structures booming.
Speaker 2: But then there's a question of like, okay, we're going
Speaker 2: to do a good job of it, and with a
Speaker 2: lot of this green spending, with a lot of this reshot, like,
Speaker 2: are you confident that with the money there that like
Speaker 2: it'll actually turn into something productive or is it, like
Speaker 2: I mean, it.
Speaker 3: Will be The issue Really the issue really is at
Speaker 3: this point that to actually do something with the federal
Speaker 3: government money takes a long time. Yeah. Now, whether they
Speaker 3: can shorten the time, that's very important, But it's more
Speaker 3: of a time issue, i think at this point than
Speaker 3: a competence issue.
Speaker 2: Well on the grid thing, which it sounds like is
Speaker 2: sort of two questions, Like you said, it's like the
Speaker 2: big thing, how many years? And then there's more need
Speaker 2: to happen on the sort of regulatory side, because this
Speaker 2: came up with in the recent dead saling negotiations permitting,
Speaker 2: like can you actually like put up the wires, et cetera.
Speaker 2: Like are you watching for more action on the regulatory
Speaker 2: side for this thesis to really play out?
Speaker 3: I mean, I am, I mean the problem is that
Speaker 3: and I don't say this pejoratively at all, but you know,
Speaker 3: people have who have a very environmental bet bent, bet bent.
Speaker 3: I don't want any non solo to be built, you know, so,
Speaker 3: but the problem is that, you know, to get from
Speaker 3: here to there, you're going to need a bridge, so
Speaker 3: they fight any permitting, you know. But the problem is
Speaker 3: you can't wave a magic wand and electrify every single
Speaker 3: car in the United States. So that's a real problem.
Speaker 3: I don't know how to solve that other than you know,
Speaker 3: this administration has to really push through you know, shorter permitting.
Speaker 1: I know, we can keep going, but maybe we should
Speaker 1: leave it there and encourage the.
Speaker 3: Audience members do not ask a question about crypto.
Speaker 2: Come on, you know, it's funny. So there there No,
Speaker 2: that's great, that's great. Someone put a question in there
Speaker 2: about cryptos, like really, okay, but please what is the
Speaker 2: give us a take?
Speaker 3: Okay? So so as I like to say, not that
Speaker 3: I feel that strongly about it. So there are two
Speaker 3: issues about crypto. Is it actually a currency? And number two,
Speaker 3: what's it good for? So personally I have my doubts
Speaker 3: that it's even a currency, But let's push that aside.
Speaker 3: What's it good for? So one thing we know for
Speaker 3: certain what it's good for is money laundering. That we
Speaker 3: know for certain. Is it good for anything else other
Speaker 3: than money laundering? So at this point it is certainly
Speaker 3: not good for transactions in the real world because the
Speaker 3: cost of it is just way too high. Now, the
Speaker 3: people who argue that one day, you know, one day
Speaker 3: it'll be cheap enough to do, I have my doubts
Speaker 3: because do you know how much money goes over the
Speaker 3: rails of Visa MasterCard per year? It's like two trillion.
Speaker 3: You know how much Visa MasterCard charge per transaction ten
Speaker 3: basis points. So I think, assuming that you know these
Speaker 3: coins have are really exist in terms of the real world,
Speaker 3: it's going to take a very very long time for
Speaker 3: them to be enough volume for them to be cost efficient.
Speaker 3: Until then, it's mostly going to be about money laundering,
Speaker 3: So what else is it good for? So people keep
Speaker 3: coming up with new theories, so obviously it's not good
Speaker 3: for transactions. So then the thesis was that it's a
Speaker 3: way to hedge against the debasement of fear currency. So
Speaker 3: the problem with that thesis was and still is that
Speaker 3: if that's the case, then bitcoin should go up while
Speaker 3: everybody's freaking out about the stock market and freaking out
Speaker 3: about inflation, and Nasdaq is down and people are freaking
Speaker 3: out about the stock market, and that's how bitcoin acts.
Speaker 3: It goes up. The car I actually calculated is the
Speaker 3: correlation over the last several years of boitcoin and naasaka
Speaker 3: is anywhere from forty to sixty five percent, depending upon
Speaker 3: what time period you're talking about, So that thesis can't
Speaker 3: be true. So bitcoin in that sense is just another
Speaker 3: warm form of speculation. The latest thesis that I heard,
Speaker 3: because you know, people don't give up, is it's a
Speaker 3: form of what's the word store of value. I knew
Speaker 3: it would come to me event I was having a
Speaker 3: data retrieval problem a store of value. I heard that
Speaker 3: this from a bunch of people. It's a great store
Speaker 3: of value. And my response to that is.
Speaker 1: Right, this was the anti bank thing, right, And I
Speaker 1: go about that.
Speaker 3: Really, is it really a store of value? How could
Speaker 3: it be a store of value when it goes up
Speaker 3: and down like a yo yo every single year. You know,
Speaker 3: currencies don't do that. You know, people who trade currents,
Speaker 3: you know, a ten percent move in a currency like
Speaker 3: the dollar any year is extraordinary. So people who trade currency,
Speaker 3: the only way you can make money, generally is to
Speaker 3: lever yourself enormously. You can't have a currency that's a
Speaker 3: store of value that goes from twenty thousand to fifty
Speaker 3: thousand to twenty thousand to twenty five thousand. You know,
Speaker 3: in between, you're going to the bathroom and coming back.
Speaker 3: So I don't understand, honestly, somebody should tell me, because
Speaker 3: I just don't understand the social utility of bitcoin again,
Speaker 3: other than money wandering. For that, it's excellent.
Speaker 1: I'm guessing more about to get swarmed by at least
Speaker 1: a few cryptobias.
Speaker 3: Yeah, now, come on, we'll have a nice fistfight. It's okay, great, all.
Speaker 1: Right, Well on that happy note.
Speaker 2: Just leave it there, all right, very much thought.
Speaker 3: Well.
Speaker 1: That was our live episode with Steve Eisman, recorded as
Speaker 1: part of the Bloomberg invest Conference. I'm Tracy Alloway. You
Speaker 1: can follow me on Twitter at Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me on Twitter
Speaker 2: at the Stalwart. Follow our guest Steve Eisman on Twitter.
Speaker 2: I didn't even realize he had been on there. He's
Speaker 2: at Eisman Stephen. Follow our producers Carmen Rodriguez at Carmen
Speaker 2: Arman and dash Ol Bennett at dashbot. And check out
Speaker 2: all of our podcasts at Bloomberg under the handle at podcasts.
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Speaker 4: Thanks for listening in behead