Steve Eisman Talks US Election, Fed Policy and Crypto

Steve Eisman Talks US Election, Fed Policy and Crypto

Stocks deliver in their best three day rally since November. Steve Eisman of Neuberger Berman saying he’s long oriented on the US market, focusing on companies like Apple that are positioning for the second wave of A.I.. And he has a tough to say about US politics, which is rare these days. Steve is with us around a table steak of monitor here. Good morning. I’m going to ask you that first question. Who wins? So caveat first. Okay. I’m not speaking for Neuberger Berman. I’m speaking just for myself. Don’t want to get into trouble. And what I’m about to say is just pure political analysis. And the analogy I’ll draw is to the financial crisis. You know, in August of 2007, the subprime paper market collapsed. And at that point, when you look back on it, the financial crisis was baked. Everything else was completely inevitable. So I think that it is completely inevitable at this point that Donald Trump will win every single swing state and will get elected. And the reason I think this wave will unfold is part one of this story is that the protesters and all the universities are becoming the face of the Democratic Party. But that’s not 100% at this point. But what’s going to solidify it is an August to the Democratic convention, which is in Chicago. Ironically, you’ll see all these protesters again, and a lot of them will be screaming and yelling things like not just at Israel, but death to America, because they can’t help themselves. And the country will be appalled and that’ll be it. It’ll be over. Let’s say you’re right, crystal ball dead on. Next question is, what do I do with that information and when do I put the trades on and what are the trades? How do you sort of I would say you do largely nothing, because I don’t think that whether Trump wins or Biden wins has any real impact on the economy at all. You know, there’ll be things that people will will want to trade, which I’m not going to talk about because I haven’t put on those rates, because it’s too real, because it’s too early. But they’ll be things to do. But that’ll just be short term trades. That’s something that’s the current champion. That’s what I’m interested in. And you said it’s too early. When is the right time to really think about expressing these as trade? Oh, I think when In August. When at the convention, when this one when I said happens, happens, everybody will realize that that’s the case. So you said that it doesn’t really matter who gets elected. Yes, that’s fascinating to me because some people are saying that Donald Trump would put on pretty significant tariffs, particularly to China, and that this would increase inflation sort of de facto in the United States. I see you rolling your eyes. You can respond in a second. And then at the same time, you’re going to have, you know, the tax cuts reinstated, cats and dogs, They’ll be lying together and it’ll be end of the world and doom, gloom and whatever, you know, lying together. I don’t know if he’s relevant, depending on your view, but what do you make of this? Why do you discount this? I mean, do I think that Donald Trump would increase tariffs to China? Sure. Do I think that would have a massive inflationary impact on the United States? I think that’s ridiculous. So, you know, on the margin, would it impact, you know, for example, I’ll give you a company, First Solar, so first solar cells, solar panels to utilities. Now there are already massive tariffs that are helping them. Now, could trump increase the tariffs or make them longer so that stock would do better? Could be. But, you know, the price of t shirts going to go up and the price of food going to go up. No, I mean, you have to remember that the United States is of all the developed world, the United States is the most insular economy of any of the developed world. So the fact that tariffs will go on in China, big deal. But one thing you recently spoke about was infrastructure spending. And now you like all of those trades. Yeah. What happens to all of that if Trump becomes elected? Because all that is attached to the Biden administration? Well, true. But don’t forget that the the solar tariffs were put on by Trump originally. Most more than 50% of all the government spending is actually going to red states. So I don’t think he’s going to want to mess with his own voters. Could there be tinkering at the edges? Sure. Is there enough votes in the United States Senate to repeal the act and the IRS Act and they’re not even close. So, you know, rhetoric you’ll hear lots of rhetoric about repealing the IRA or changing the IRA. And, you know, stocks will move on that. But at the end of the day, nothing will happen. So spending will continue. Yes, tax cuts will get extended. Yes, tariffs in the margin will be there. Yeah. This to me raises questions that a lot of people have talked about, which is the deficit not going away at the time where you’re going to have to see some of the issuance numbers really start to pick up. You’re seem to discount that, too. You don’t think that’s 100% okay, Not an issue. Okay. So you don’t think the deficits, it’s not in the short to the. I tell you why I look, I’m not an economist. I can only say this, that the people who have been complaining about the deficit and I like to call them the oii the deficit people. Okay. Because that’s what it sounds, because that’s where they sound like have literally have been literally been saying, oh, the deficit. Of 40 years. 40 years. Now, look, in my business, being too early is the equivalent of being wrong. But what in my business, when you’re too early, you’re a year too early. You’re two years too early. You’re not 40 years too early when you’re 40 years too early. You probably should just shut up and keep your mouth shut. But but I would say this, that the sign that the oil, the deficit group will be right is when rates actually go up. A lot. Until then, everybody should just keep quiet. But how do you know when that’s going to happen? Well, you’ll see it. I will be on the show and you’ll say, wow, long term rates went up 50 basis points in one day and that one. And then we’ll see. So naturally be right after 40, 50 years. Until then, it’s not relevant. Well, but this to me is a real question because people increasingly are focused on this in the market. People who actually can determine what those rates are can send those rates to up 50 basis points in treasuries. Well, there are rates going up. There was a time we were talking, so, you know, doing nothing. So you think are you basically saying that you are long, long term rates because you think that all of this discussion about all the deficit is still way too early and all these people are going to become a meme now? Yeah, I hope so. I just we just made it up. Well, that’s who gets really good. So answer the question. I lost the train of thought. Well, I’m just saying, you know, if you know, at what point do you say, okay, if we think that the discussion of the deficit is overblown, go into long treasuries by then, because all the people who are worried about that are going to be proven wrong. I mean, look, I’m not really a bond person. I’m more of a stock jockey. So what caused the market to go down in 2022? The Fed raised rates 500 basis points. I don’t think the Fed’s going to be raising rates. Do I think the Fed’s going to cut rates? Maybe. I actually do think it doesn’t really matter because even if they cut, they’re only cutting a little bit. They’re not certainly not cutting 500 basis points. You know, people like to talk about it on Fed Day as if, you know, Moses came down from Sinai with the tablets. And let’s examine whether the Ten Commandments are on there because we’ll look at whether there was oh, there was a comma removed. But so significant. Let’s buy the S&P. You know, it was a bow tie. And he sits right there. He said, oh, wow, what does that mean? So so then how do you also. You know what? It’s not relevant. Okay. So you don’t necessarily see the potential rate cutting cycle is particularly relevant to your stock picking. At the same time, we’ve seen there is no aggressive rate cycle coming of cutting. That would matter if the Fed is going to cut rates once, twice to tinker at the edges, we can lift 5%. It’s sort of the message we can get. We seem to be living just fine with it right now. Yeah, the economy is fine, which is I think it surprised everybody. It raises an important question. I was listening to the podcast you did with Tracy and Joe was fantastic, by the way, and if you haven’t listened to it at home, you should do outlets lots. And you talked about Good Times is for storytelling, bad times, it’s for the focus on a balance sheet. Is this a good time or a bad? It is definitely a good time. A good time. And I’ll just repeat what I said on that show because I like it, is that there are three great themes of our time. There’s I there’s everything having to do with infrastructure and there’s crypto. And I believe in the first two. I don’t believe in the third one, not the third. Look, the crypto is there’s two questions with respect to crypto is is it a currency? And if it’s a currency, should you own it? So let’s skip the first part. But that’s like that’s like, you know, is it a currency is like having a discussion about how many angels dance on the head of a pin. You know, there’s no structure to it. So, okay, so if it’s a currency, why should you own it? So let’s ask the people who own crypto, why do they own and they all say the same thing. They say fiat currency or the deficit people, because it’s definitely going to be a meme. We’re trying to my first meme, not yours. And it’s so it’s a hedge against the demise of fiat currency. You know, cats and dogs one day will lie together. You’ll be in a cave, but at least you’ll have your crypto. It’s like digital gold. That’s that’s the thesis. So, okay, let’s let’s take them at their word. So if that’s the thesis, then on days where everybody’s worried about inflation, they’re worried about the deficit and Nasdaq is down 300 points and interest rates are up, crypto should be up. And on days where everybody’s feeling great and videos are up and Nasdaq is up and rates are down and nobody cares about inflation. Crypto should be down. And does it act that way? It does not. It acts exactly the opposite of its own thesis. It’s correlation to Nasdaq is like 75%. So to me it’s just another way for people to speculate on speculating. So what do I do that there’s no data point of research that says that it’s right or that it’s wrong. So at this point you don’t like crypto, that whatever I never have about not shorted. I don’t shorted because there’s nothing to show. How do you get an edge at a time where everyone loves a guy and where everyone’s scouring for the place? Just fancy one example of a stock that I think eventually it will become a great way I play, which I mean, the whole thing about getting an edge I think is overrated because most people have all the facts. It’s a question of how you interpret the facts. I mean, people think that I had some sort of unbelievable edge about the subprime mortgage sector. I had the same facts everybody else had. I just looked at them differently. So. You know, right now everybody’s focused on video and AMD and datacenters, but one day and that day is not too far from now. There will be a lot of A.I. apps that you and I will use, and we’re not going to use them at a datacenter in the cloud. We’re going to want to use them on our phone because that we wanted at the head end right here. So at that point, there’s going to be, I think, an entire new cell cycle of phones, laptops that are going to need to be upgraded to be able to do all this stuff that eventually we will want to do, such as Apple. So you’re buying Apple aggressively? Well, we’ve owned it for a long time and now we continue to own it now. But it’s not it’s not actionable at this second, because there hasn’t been an app. What app? I don’t know. When it shows up, I’ll let you know. But until then. But at that point, the phone I have the new phone. That phone is not going to be it’s probably not going to be capable to do some of the apps that you’re going to want to do. It appears that’s the direction of travel. I know you’ve talked about this in the past. I’d love to hear it again. The electricity grid. Yes. The demand on electricity in this country, given where policy is, if he’s where it’s going, how great is it going to be? We’re in a position to supply it. So the utility budget, CapEx budgets go up every single year. They update them. They do like a three year forward look. And the that comes out, you know, January when they report and the utility budgets, three budgets are up 20%. That’s an enormous, enormous sum. They’re going to gulp even more because the Nvidia AMD chips are use a lot more electricity than the CPUs do. So there’s even more pressure on the grid. So the cycle of, you know, improving the grid, building, you know, green type of utility structures, whether it’s wind and solar or just upgrading, what you have is going to go on for a very, very long time. I just mentioned one stock that I’ve talked about before. You know, I mean, what are utilities? Do They send you electricity and they send you a bill, But when they actually have to do something, they hire somebody to do it. So when you hear that utility A is increasing it’s increasing its CapEx budget, it is building a solar or whatever or a gas, whatever. Nine times out of ten, they hire a company called Quanta, which is the largest utility related engineering company in the country. We’ve done it for a long time. But what I would say, the amusing thing is I’m on the quarterly call every quarter and every quarter. The CEO looks happier. And you think I could look happier because he was so happy last quarter. But I’m here today because he has so much business, he can’t do it all. That’s the winner. Is there a loser? Is there a short for you, an active show? I’m not talking about shorts. No. I mean, I do a little shorting for myself, but that’s it. Could you think of a theme, though, associated with that, where there could be a group of companies that would lose in that way? Well, I would say just as an Uber theme about companies that I probably would not invest in. Okay. Ah, you know that the stocks that did really well call it 2018, 19, 2021 were the very high revenue growth, negative earnings companies kind of like venture public venture capital companies. Those got destroyed in 2022, down literally 75 to 90%. You know, they’ve come back. But, you know, when you’re down 75 to 90% and then you go up 50%, it doesn’t look so good on a chart. I would just avoid those companies until it becomes very clear that they actually have real business models where they can actually make money. In just a moment, we’ll catch up with our analyst at Bloomberg Intelligence on the Walt Disney Company. That stock is down by about 5% this morning. Can we squeeze in a question on Marvel? Yes, we can. But you have some expertise. I do. This conversation could go a whole lot longer than maybe it could go for hours. What do you think is this background size? I’m going to brag a little bit. I, I own one of the largest digital comic book collections on planet Earth. It’s 11,000 comics on my iPad. Wow. And I’ve read all 11,000. So I could write a dissertation on Doctor Strange. That would go for 200 pages. But back to my read it. Yes, you probably would. It be very interesting. Maybe this should make it into. So the problem with Marvel movies to me is that. They had a great story and it ended. And Iron Man is dead. Captain America is 90 and Thor is. And this really upsets me. And I really I’m serious about this. They made Thor into a comedic comedic buffoon, and that was always one of my favorite comics. So Thor, being a comedic buffoon, I find extremely upsetting. This is Hemsworth. Yes. And there’s no story anymore. They they they they don’t they had a story where they had all these different, different tangents, but it all wove down into one eventual story, and then it was over. And they have been unable to find a news story. And the problem is that the three gay characters are gone. So if they had a story, who would want to go watch this? I would just say with the violence, just as an example, the last Guardians of the Galaxy movie was unwatchable.

Neuberger Berman Senior Portfolio Manager Steve Eisman, best known for his “Big Short” bet against subprime mortgages, discusses the potential economic impact of the 2024 US presidential election, Federal Reserve monetary policy and his view on cryptocurrencies and AI during an interview on Bloomberg Television.
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