WEBVTT - Steve Eisman Talks AI, Interest Rates

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's check in with our next guest here, Steve Iiceman,

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<v Speaker 2>senior portfolio manager at newburg Or Berman. All right, I'm

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<v Speaker 2>looking at I guess Steve, you're on the Odd Lots

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<v Speaker 2>podcast recently and you said that you are bullish on

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<v Speaker 2>stocks that gain from artificial intelligence power needs. What does

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<v Speaker 2>that mean?

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<v Speaker 1>Well, good question, thank you.

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<v Speaker 2>I'm front running Alex because Alex is our energy.

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<v Speaker 1>The current the current GPUs use about three times more

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<v Speaker 1>electricity than your typical CPU. So the grid in the

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<v Speaker 1>United States has been under pressure now for years. You know,

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<v Speaker 1>utilities keep increasing their CAPBAX budgets, and now you've put

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<v Speaker 1>an entire new pressure on the on the grid. So

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<v Speaker 1>whatever money is being spent on the grid is going

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<v Speaker 1>to keep going up, probably for the next ten years.

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<v Speaker 1>So just to give you just one stock for example,

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<v Speaker 1>you know, when utilities announce that they're increasing their CAPEX budgets,

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<v Speaker 1>utilities don't actually do anything. You know. What they do

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<v Speaker 1>is they send you electricity and send you a build.

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<v Speaker 1>But in terms of construction, that's sun by a company

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<v Speaker 1>called Quanta, which is the largest engineering construction company for utilities.

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<v Speaker 1>So The only thing I would tell you is that

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<v Speaker 1>every time the CEO gets on the quarterly conference call,

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<v Speaker 1>he just looks happier.

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<v Speaker 3>That's fair. Yes, if you demand's going to.

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<v Speaker 1>Grow up by it has no to do with himself.

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<v Speaker 1>He can't satisfy all of the demands. So that's just

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<v Speaker 1>just one example. But there are other companies that benefit

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<v Speaker 1>as well. But that I look, I think there are

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<v Speaker 1>three major themes of our time, AI, infrastructure, and crypto,

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<v Speaker 1>and I believe in the first two and I don't

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<v Speaker 1>believe in the third.

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<v Speaker 4>So just for framing here, I mean, you really made

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<v Speaker 4>your name through the housing crisis and betting against housing

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<v Speaker 4>debt back in two thousand and eight. You're portrayed in

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<v Speaker 4>the Big short film by Steve Carell.

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<v Speaker 1>Had to bring that up, but okay.

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<v Speaker 3>I did, But just just to give context.

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<v Speaker 4>If our viewers or listeners don't know, like you have

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<v Speaker 4>a history of betting, having contrarian bets that pay off

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<v Speaker 4>big time. Yes, what would be that contrarian bet out

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<v Speaker 4>of the three things you just said, what's that big

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<v Speaker 4>contrarian bet.

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<v Speaker 1>I don't have a contrarian bet here. I mean I

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<v Speaker 1>don't like crypto.

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<v Speaker 3>I like in crypto feels contrarian.

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<v Speaker 1>Well, it's contrarian, and that says that I don't believe

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<v Speaker 1>in it. I think the whole thesis behind it is wrong.

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<v Speaker 1>But you know, shortening a cult when there's no when

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<v Speaker 1>there's no data to prove that it's wrong, because a

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<v Speaker 1>death wish, you know, So what do I mean by that?

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<v Speaker 1>So when you when I bet again subprime mortgages. Every

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<v Speaker 1>month securitizations produce data. They give every single credit quality

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<v Speaker 1>data possible, so every month you could check it.

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<v Speaker 3>You could look at it.

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<v Speaker 1>Every month you looked at the fact and that and

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<v Speaker 1>that fact. Credit quality was the major determinant of the

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<v Speaker 1>value of subprime mortgage paper. So you had a data

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<v Speaker 1>point every month, a massive data dump. Crypto trades on ether.

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<v Speaker 1>You know, what is a trade The thesis that crypto

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<v Speaker 1>of crypto is that it's a hedge against fear currency,

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<v Speaker 1>so it's like digital gold. But it doesn't trade like that.

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<v Speaker 1>It trades in perfect correlation with NASDAC, so it trades

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<v Speaker 1>against its own thesis. So what data point is there

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<v Speaker 1>to show that crypto is wrong? I mean, if the

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<v Speaker 1>deficit came down, it's not relevant because that's not how

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<v Speaker 1>it trades anyway, so there's nothing to do. What's your

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<v Speaker 1>macro call here?

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<v Speaker 2>I mean, there's a lot of folks in the marketplace saying,

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<v Speaker 2>you know, this Federal Reserve is going to cut rates

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<v Speaker 2>in twenty twenty four, maybe not as many times as

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<v Speaker 2>we originally thought, maybe not as much as we originally thought,

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<v Speaker 2>but that this economy is in good shape, but still

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<v Speaker 2>there might be some rate cuts here. Is that kind

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<v Speaker 2>of the backdrop that's for you? Or how do you

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<v Speaker 2>think about it?

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<v Speaker 1>I mean, the way I think about it is that

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<v Speaker 1>Powell is a dove. He has always been a dove.

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<v Speaker 1>Raising rates was completely against his nature. He's wants to

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<v Speaker 1>cut rates because he always wants to cut rates. The

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<v Speaker 1>data is not completely in his favor. So maybe they

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<v Speaker 1>cut once. Do I think they should cut it at all?

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<v Speaker 1>I would personally I would wait, but trust me, nobody

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<v Speaker 1>consults me.

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<v Speaker 3>No one consults us either. It's very stair.

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<v Speaker 1>So I think they'll probably cut once. It's my guess.

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<v Speaker 4>So does that affect so the thesis that you have,

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<v Speaker 4>like at the infrastructure, the power demand and AI and

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<v Speaker 4>AI in.

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<v Speaker 3>General, does what the Fed does? It's irrelevant, irrelevant. Does

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<v Speaker 3>it change.

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<v Speaker 4>How you play those themes or of timing.

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<v Speaker 1>Okay, I mean this is how what I think credit

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<v Speaker 1>quality in the United States is fine other than office

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<v Speaker 1>real estate, and office real estate is not big enough

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<v Speaker 1>to sink the economy. It's a problem. It's a regional problem.

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<v Speaker 1>It's a regional bank problem. It's some investors problem. If

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<v Speaker 1>consumer is not over levered, the housing market is not

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<v Speaker 1>in fuego, there's a shortage of housing. So all the

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<v Speaker 1>and the and the financial system of the United States

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<v Speaker 1>has never been this healthy in anyone's lifetime period. So

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<v Speaker 1>all the things that existed prior to two thousand and

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<v Speaker 1>eight don't exist today. You have a very dynamic economy

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<v Speaker 1>with some very very powerful themes. The FED cutting or

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<v Speaker 1>not cutting rate makes headlines for a couple of days,

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<v Speaker 1>But when you think about it, if the FED cuts

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<v Speaker 1>rates once or twice or no no times, I mean

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<v Speaker 1>the end of the day, who cares. It's it's it's

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<v Speaker 1>the minimis it's not I mean the FED raising rates

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<v Speaker 1>five hundred bases points. Yep, that got that got everybody's attention.

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<v Speaker 1>The FED cutting rates twenty five basis points or fifty

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<v Speaker 1>basis points and then stopping like like everybody get a life, right,

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<v Speaker 1>all right?

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<v Speaker 2>In terms of getting a life on AI, a lot

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<v Speaker 2>of well, I'll just speak for myself. I'm trying to

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<v Speaker 2>figure out how much of this AI stuff and I'm

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<v Speaker 2>putting in air quotes here for our listeners. Is incremental

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<v Speaker 2>all tech spending or is it just taking some money

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<v Speaker 2>from IT or other tech budgets and putting it to

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<v Speaker 2>it depends on.

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<v Speaker 1>Which subsector you're talking. Okay, So if you're talking about

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<v Speaker 1>the semiconductor sector, where it's in video or a m D,

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<v Speaker 1>it's it's massively incremental. You know. If you're talking about

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<v Speaker 1>overall tech spending at this point, not clear. What's what

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<v Speaker 1>is pretty clear is that companies like some of the

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<v Speaker 1>IT consulting companies have no revenue growth because it's taking

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<v Speaker 1>Peter to PayPal, so and software unclear. So it's it's

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<v Speaker 1>only very clear in hardware.

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<v Speaker 4>Let's overlay the presidential election with these thesis thesis. Thesis

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<v Speaker 4>is plural and okay, it's important. I took Latin from the.

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<v Speaker 1>CS, but this is a THESSCS.

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<v Speaker 4>Okay, So what is your prediction for the election and

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<v Speaker 4>how does that impact Because a lot of what you're

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<v Speaker 4>talking about is driven by fiscal policy.

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<v Speaker 1>Okay, so let's backtrack for a second. So, first of all,

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<v Speaker 1>caveat whatever I'm about to say. I am not speaking

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<v Speaker 1>for New Burger Bartment. I'm speaking just for myself because

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<v Speaker 1>I don't want to get into trouble. So it's May seventh.

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<v Speaker 1>We're how many months? Five months? Six months from the election?

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<v Speaker 1>Very far, and as far as I'm concerned, the election

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<v Speaker 1>is baked. It's done, which is and Trump's gonna win,

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<v Speaker 1>and I think he'll win every single swing state, and

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<v Speaker 1>this is how it's going to play. So at this point,

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<v Speaker 1>the protesters and what I'm about to say has nothing

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<v Speaker 1>to do with who I'm going to vote for, what

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<v Speaker 1>my predilections are. This is just pure analysis. The protesters

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<v Speaker 1>on the college campuses have rapidly become the face of

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<v Speaker 1>the Democratic Party, not completely, but that will be solidified

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<v Speaker 1>because I am one hundred percent sure that in August

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<v Speaker 1>at the Democratic Convention in Chicago, Irony, when you think

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<v Speaker 1>about nineteen sixty eight, they will all be protesting there

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<v Speaker 1>and they'll be screaming and yelling, and they'll be screaming

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<v Speaker 1>and yelling a lot of things that are anti American

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<v Speaker 1>and the country is going to be appolled, and at

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<v Speaker 1>that point it'll be very very clear that Trump will win.

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<v Speaker 1>But as far as I'm concerned, it just reminds me

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<v Speaker 1>a little bit of August two thousand and seven. If

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<v Speaker 1>you look back at the financial crisis, the crisis took

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<v Speaker 1>place in the fall of eight, but in August of seven,

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<v Speaker 1>starprime paper had collapsed. The crisis was baked in August

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<v Speaker 1>of seven. The rest was just an inevitable play. So

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<v Speaker 1>I kind of feel about like that about the presidential

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<v Speaker 1>lecture right now. It's baked, but the only people who

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<v Speaker 1>don't know the voters.

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<v Speaker 2>All right, We'll see how that plays out. In the

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<v Speaker 2>Mark by Steve Iisman, Thank you so much for joining.

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<v Speaker 2>Steve Heisman is a senior portfolio manager at Newburger Berman.

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<v Speaker 2>Joining us live here in our Bloomberg Interactive Brokers studio