Latest / Earn Your Leisure / "Big Short" Inspiration Steve Eisman on 2008 vs. Today: Are We Heading for Another Financial Crisis?

Transcript

"Big Short" Inspiration Steve Eisman on 2008 vs. Today: Are We Heading for Another Financial Crisis? · Earn Your Leisure

• 0:01
  Speaker 1: This episode is brought to you by P and C Bank.
• 0:04
  Speaker 1: A lot of people think podcasts about work are boring,
• 0:07
  Speaker 1: and sure they definitely can be, but understanding a professionals
• 0:10
  Speaker 1: routine shows us how they achieve their success little by little,
• 0:14
  Speaker 1: day after day. It's like banking with P and C Bank.
• 0:18
  Speaker 1: It might seem boring to safe plan and make calculated
• 0:21
  Speaker 1: decisions with your bank, but keeping your money boring is
• 0:24
  Speaker 1: what helps you live or more happily fulfilled life. P
• 0:28
  Speaker 1: and C Bank Brilliantly Boring since eighteen sixty five. Brilliantly
• 0:32
  Speaker 1: Boring since eighteen sixty five is a service mark of
• 0:35
  Speaker 1: the PNC Financial Service Group, Inc. P and C Bank
• 0:39
  Speaker 1: National Association Member FDIC erness What's Up? You ever walk
• 0:45
  Speaker 1: into a small business and everything just works like the
• 0:49
  Speaker 1: checkout is fast, the receipts are digital, tipping is a breeze,
• 0:53
  Speaker 1: and you're out the door before the line even builds.
• 0:55
  Speaker 1: Odds are they're using Square? We love supporting business that
• 1:00
  Speaker 1: run on Square because it just feels seamless. Whether it's
• 1:03
  Speaker 1: a local coffee shop, a vendor at a pop up market,
• 1:06
  Speaker 1: or even one of our merch partners. Square makes it
• 1:09
  Speaker 1: easy for them to take payments, manage inventory, and run
• 1:12
  Speaker 1: their business with confidence, all from one simple system. If
• 1:16
  Speaker 1: you're a business owner or even just thinking about launching
• 1:19
  Speaker 1: something soon, Square is hands down one of the best
• 1:22
  Speaker 1: tools out there to help you start, run and grow.
• 1:25
  Speaker 1: It's not just about payments, it's about giving you time
• 1:29
  Speaker 1: back so you can focus on what matters most ready.
• 1:32
  Speaker 1: To see how Square can transform your business, visit Square
• 1:35
  Speaker 1: dot com backslash go backslash eyl to learn more that
• 1:40
  Speaker 1: Square dot com backslash, go backslash eyl, don't wait, don't hesitate.
• 1:45
  Speaker 1: Let's Square handle the back end so you can keep
• 1:48
  Speaker 1: pushing your vision forward.
• 1:51
  Speaker 2: Being that you predicted the big short right in two
• 1:54
  Speaker 2: thousand and eight, you kind of forecasted that do you
• 1:57
  Speaker 2: see parallels in today's economy? I know that there's something
• 2:02
  Speaker 2: that a lot of people are nervous about, as far
• 2:04
  Speaker 2: as a recession is one thing, but perhaps even something
• 2:08
  Speaker 2: bigger than that. That's what some people are actually, you know, predicting.
• 2:13
  Speaker 2: Do you see parallels? And are you bearish now the
• 2:17
  Speaker 2: same way you were bearished? Then?
• 2:20
  Speaker 3: Do I see some parallels? Sure? I see some parallels.
• 2:23
  Speaker 3: Am I as barish as I was then? Not even close,
• 2:27
  Speaker 3: I mean, not even the same universe. So let me
• 2:32
  Speaker 3: just a little elaborate a little bit about that. Do
• 2:35
  Speaker 3: I think that there could be a global trade war? Sure,
• 2:41
  Speaker 3: it's possible. It's also possible so there won't be a
• 2:43
  Speaker 3: global trade war. Do I think that a trade war
• 2:46
  Speaker 3: would cause a recession? Absolutely? I think a trade war
• 2:49
  Speaker 3: would cause a recession. Do I think a recession that
• 2:53
  Speaker 3: could happen because of the trade war would be a
• 2:57
  Speaker 3: financial calamity on the same order as great financial crisis
• 3:01
  Speaker 3: of two thousand and eight? Not even close, not even
• 3:05
  Speaker 3: in the same universe. You know what happened in two
• 3:10
  Speaker 3: thousand and eight. I mean, if you could boil down
• 3:13
  Speaker 3: the financial crisis of two thousand and eight into a paragraph,
• 3:17
  Speaker 3: it would be great financial crisis happened for four reasons.
• 3:21
  Speaker 3: Large financial institutions had way too much leverage. A big
• 3:26
  Speaker 3: acid class subprime mortgages blew up. Those same large financial
• 3:34
  Speaker 3: institutions owned a lot of subprime mortgages and derivatives. In particular,
• 3:41
  Speaker 3: credit to fault swaps, which is a very technical financial instrument,
• 3:47
  Speaker 3: tied the balance sheets of large financial institutions all over
• 3:51
  Speaker 3: the globe into a spiderweb that was so complicated. Nobody
• 3:55
  Speaker 3: knew where it began and where it ended. That's the
• 3:57
  Speaker 3: cause of it. The reason why that was such a
• 4:01
  Speaker 3: caamity is. Look, if General Motors, God forbid, went bankrupt,
• 4:09
  Speaker 3: let's just say, and the government didn't bail it out
• 4:12
  Speaker 3: and it was liquidated, that would obviously be terrible for
• 4:15
  Speaker 3: General Motors. It would be terrible for all the employees
• 4:18
  Speaker 3: who got laid off, and all the companies that supply
• 4:24
  Speaker 3: stuff to General Motors. Maybe some of them would go bankrupt.
• 4:27
  Speaker 3: They would certainly have problems. Maybe that would cause a
• 4:29
  Speaker 3: recession in the United States possible, but that's all that
• 4:33
  Speaker 3: would happen. But if you can't get your money out
• 4:36
  Speaker 3: of the bank, if the financial if the large financial
• 4:38
  Speaker 3: institutions go down, Planet Earth burns, that's the end. So
• 4:46
  Speaker 3: where are we today? You know, post dot frank the
• 4:50
  Speaker 3: leverage of large banks is literally less than half of
• 4:53
  Speaker 3: what it was. It's probably almost two thirds less. That's enormous.
• 5:00
  Speaker 3: So for example, City Group, which used to be levered
• 5:03
  Speaker 3: officially thirty five to one, but if he added up
• 5:05
  Speaker 3: all the stuff that didn't officially show up on its
• 5:08
  Speaker 3: balance sheet but they were responsible for, it was forty
• 5:11
  Speaker 3: to one. Today it's twelve to one. Yeah, it's like
• 5:14
  Speaker 3: the distance between Mercury and Pluto. You know, to blow
• 5:17
  Speaker 3: up a bank that's levered forty to one, if I
• 5:22
  Speaker 3: could use an analogy, it takes a pebble. Blow up
• 5:25
  Speaker 3: a bank that's leverage twelve to one, takes a meteor.
• 5:28
  Speaker 3: So do I think that, you know, whatever President Trump
• 5:32
  Speaker 3: is doing could potentially cause a global recession? Sure as possible.
• 5:37
  Speaker 3: Do I think that would cause a financial crisis that
• 5:40
  Speaker 3: would cause the banks to go down? Not at all?
• 5:45
  Speaker 1: Looking at the state of the economy now right, did
• 5:49
  Speaker 1: we look at global trade? Didn't need to be changed? Yes,
• 5:52
  Speaker 1: didn't need to be blown up. I mean, there's plenty
• 5:56
  Speaker 1: of skeptics on that. I wonder when as you look
• 5:58
  Speaker 1: at it, what do you think would have been the
• 6:00
  Speaker 1: most effective way to get some some of these trade
• 6:04
  Speaker 1: solutions from country to country or from a global standpoint?
• 6:12
  Speaker 3: This may be a little bit controversial. I don't completely
• 6:14
  Speaker 3: disagree with what President Trump has done in terms of
• 6:19
  Speaker 3: imposing towers to get the ball rolling, because I think
• 6:22
  Speaker 3: if you went to any country and said, look, we
• 6:24
  Speaker 3: don't like the terms of trade, let's talk, they'd laugh
• 6:27
  Speaker 3: at you. They'd say go away. So the only way
• 6:30
  Speaker 3: you're going to get people to change in terms of
• 6:32
  Speaker 3: trade is to put a bazuka to their heads. What
• 6:34
  Speaker 3: I don't like is the chaos there we're in and
• 6:39
  Speaker 3: we're out, We're out that we're in, We're here's our
• 6:41
  Speaker 3: towers and then there's our towers. We're taking it away,
• 6:44
  Speaker 3: we're putting it back. That that causes too much. That's
• 6:49
  Speaker 3: that's that's not my that's not my strategy. You know,
• 6:51
  Speaker 3: by President Trump loves loves chaos, but everybody, most people
• 6:56
  Speaker 3: in the world don't. So that's where I would disagree.
• 7:01
  Speaker 2: If you were building or a bit short portfolio today,
• 7:03
  Speaker 2: what's the one trade that looks almost inevitable to you
• 7:06
  Speaker 2: that will pan out over the next four or five years.
• 7:10
  Speaker 3: I have no trade that I think would pan out
• 7:13
  Speaker 3: within the next year. Okay, what about four to five?
• 7:17
  Speaker 3: Four to five. I still think that most of the
• 7:20
  Speaker 3: technology trades that people have, you know, whether it's Nvidia
• 7:24
  Speaker 3: or Microsoft, any of the well known, will will be
• 7:28
  Speaker 3: great because I think we are still in the very
• 7:31
  Speaker 3: very early innings of AI. Very early innings were like
• 7:35
  Speaker 3: inning one. Yeah, so you know, between now and inning nine,
• 7:40
  Speaker 3: it's going to be a bit of an adventure, but
• 7:42
  Speaker 3: I think if you stick it out, you'll make a
• 7:43
  Speaker 3: lot of money. What's going to happen within the next
• 7:45
  Speaker 3: six months because of all the trade negotiations, I wouldn't
• 7:48
  Speaker 3: have a clue, and I just would say you need
• 7:52
  Speaker 3: to keep your risk lower. You wouldn't try to be
• 7:56
  Speaker 3: I would not try and be a hero right now.
• 7:58
  Speaker 3: I don't think you know what would argue that the
• 8:02
  Speaker 3: markets come down a lot, so valuations are better, and well,
• 8:07
  Speaker 3: of course the market's lower, the evaluations look better. That's
• 8:09
  Speaker 3: the tutology. The problem is that if you go into
• 8:11
  Speaker 3: a global recession, all the arnings astments are going to
• 8:14
  Speaker 3: come lower, so then it doesn't look so cheap. On
• 8:16
  Speaker 3: the other hand, if most of the countries settle with
• 8:20
  Speaker 3: the United States and then everything is fine, it will
• 8:23
  Speaker 3: have been a great time to buy. But I can't
• 8:25
  Speaker 3: handicap that.
• 8:27
  Speaker 2: How much risks are you keeping on the table?
• 8:29
  Speaker 3: If I may follow up in my own personal portfolio,
• 8:32
  Speaker 3: I have about fifteen percent cash right now, okay, which
• 8:36
  Speaker 3: is a lot for me. Are you going on very
• 8:39
  Speaker 3: long term? What I have done is I've gone through
• 8:43
  Speaker 3: my personal portfolio and any stocks where I said, do
• 8:47
  Speaker 3: I really love this? Why do I really own this?
• 8:53
  Speaker 3: Is there any thesis? Creep? Get rid of it. That
• 8:57
  Speaker 3: was the first thing I did, and I took a
• 8:59
  Speaker 3: lot of things just lower and but like I said,
• 9:04
  Speaker 3: on long term, the problem was with like let's say,
• 9:06
  Speaker 3: liquidating your potfolio. If you wanted to go to an extreme,
• 9:09
  Speaker 3: is you got to pay over thirty five percent capital
• 9:11
  Speaker 3: gains taxes? So you know, do I think the market's
• 9:15
  Speaker 3: going to go down thirty five percent? I mean it could.
• 9:18
  Speaker 3: I mean if we have a global recession. It's not impossible,
• 9:22
  Speaker 3: but it's a lot. So I'd rather just trim some
• 9:26
  Speaker 3: risk and just sit on the sidelines and sit and
• 9:29
  Speaker 3: wait until let's go and look if things get better.
• 9:31
  Speaker 3: If you miss the first five percent move, So what
• 9:35
  Speaker 3: you know, if things if all the trade stuff gets
• 9:38
  Speaker 3: settled one way or another, you know, it'll be a
• 9:42
  Speaker 3: bull market again for years. So cares if you missed
• 9:45
  Speaker 3: the first week?
• 9:46
  Speaker 2: Yeah, the dollar is I think I hit a three
• 9:49
  Speaker 2: year low. Is that something that's concerned too?
• 9:52
  Speaker 3: You you know, let's let's do the doomsday scenario. That's
• 10:00
  Speaker 3: some people like to paint. So the doomsday scenario would
• 10:03
  Speaker 3: be like the US deficit is too big. People are
• 10:10
  Speaker 3: not going to see US bonds as the safety vehicles
• 10:14
  Speaker 3: that they once were, so they're going to sell the
• 10:16
  Speaker 3: US bonds, and that, of course causes a dollar to
• 10:18
  Speaker 3: go down, and something else will replace the dollar as
• 10:22
  Speaker 3: a reserve currency, and there goes the United States is
• 10:26
  Speaker 3: a great empire, and it's armageddon and cats and dogs
• 10:29
  Speaker 3: are lying together, and you know, whatever else happens in
• 10:33
  Speaker 3: rmbage depending upon your religion. But I think what people don't.
• 10:41
  Speaker 3: And by the way, that thesis has only been around
• 10:44
  Speaker 3: for forty years. So I remember in the nineties Pete Peterson,
• 10:48
  Speaker 3: who had been one of the founders I think of KKR,
• 10:52
  Speaker 3: was talking about how the deficits way too big and
• 10:55
  Speaker 3: it's a disaster and God help us, etc. And I
• 10:57
  Speaker 3: was in the nineties, and here we are twenty twenty five.
• 11:00
  Speaker 3: We're all still pretty healthy. See what what I think
• 11:03
  Speaker 3: people miss? And by the way, I can't talk with
• 11:08
  Speaker 3: what happens short term to the dollar. What happens short
• 11:10
  Speaker 3: term for people training in bonds is not something that
• 11:13
  Speaker 3: particularly interests me. So the fact that the dollar has
• 11:16
  Speaker 3: sold off, as I think, got a lot more to
• 11:18
  Speaker 3: do with you know, hedge funds, repositioning, de risking, you know,
• 11:23
  Speaker 3: looking looking for save havens. But long term, what I
• 11:28
  Speaker 3: think most people don't recognize that the financial the financial
• 11:31
  Speaker 3: system of planet Earth runs on treasuries. Banks, for example,
• 11:37
  Speaker 3: lend to one another overnight and what's called the repo market,
• 11:41
  Speaker 3: and the repo market is only trillions, and it's all
• 11:47
  Speaker 3: at overnight treasures. So to make an argument that the
• 11:55
  Speaker 3: dollar is going to lose its reserve status, I think
• 11:58
  Speaker 3: you have to make an argument that is going to
• 11:59
  Speaker 3: be some sort of substitute for treasuries, especially short term treasuries,
• 12:05
  Speaker 3: and right now there's no substitute for short term treasuries.
• 12:08
  Speaker 3: I mean, banks are not going to park their money
• 12:10
  Speaker 3: in Chinese bonds. They're not going to there's no eural
• 12:14
  Speaker 3: bond of any real significance. There's no alternative. So as
• 12:17
  Speaker 3: long as there's no alternative, it's not something I particularly
• 12:21
  Speaker 3: worry about all that much, even though people like to
• 12:24
  Speaker 3: talk about it on CNBC and you know, paint doom
• 12:27
  Speaker 3: and Gloom was listen, I predicted doom and gloom once.
• 12:32
  Speaker 3: Once was enough. I'm not interested in predicting doom and
• 12:35
  Speaker 3: gloom again, unless I really, really seriously thought it was possible.
• 12:38
  Speaker 4: An illegal alien from Guatemala charged with raping a child
• 12:42
  Speaker 4: in Massachusetts. An MS thirteen gang member from El Salvador
• 12:46
  Speaker 4: accused of murdering a Texas man of Venezuelan charged with
• 12:50
  Speaker 4: filming and selling child pornography in Michigan. These are just
• 12:54
  Speaker 4: some of the heinous migrant criminals caught because of President
• 12:58
  Speaker 4: Donald J. Trump's leadership. I'm Christy Noman, the United States
• 13:02
  Speaker 4: Secretary of Homeland Security. Under President Trump, attempted illegal border
• 13:06
  Speaker 4: crossings are at the lowest levels ever recorded, and over
• 13:10
  Speaker 4: one hundred thousand illegal aliens have been arrested. If you
• 13:13
  Speaker 4: are here illegally, your next you will be fine nearly
• 13:17
  Speaker 4: one thousand dollars a day, imprisoned and deported. You will
• 13:21
  Speaker 4: never return. But if you register using our CBP home
• 13:25
  Speaker 4: app and leave now, you could be allowed to return legally.
• 13:29
  Speaker 4: Do what's right, leave now. Under President Trump, America's laws,
• 13:34
  Speaker 4: border and families will be protected.
• 13:36
  Speaker 3: Sponsored by the United States Department of Homeland Security,