The Big Short Partners Reunite: Rates, AI, Gold and Two Stock Picks | The Real Eisman Playbook Ep 75

The Real Eisman Playbook

Steve Eisman reunites with former Big Short partners Vincent Daniel and Porter Collins for an in-depth discussion on current macroeconomic r

Key takeaways

• Scott Bessent's Treasury buybacks are seen as desperate attempts to suppress yields amid unsustainable debt levels and inflation.
• Gold is positioned as a long-term hedge against dollar devaluation and fiscal irresponsibility, with central banks increasingly favoring it over treasuries.

Main topics

• Scott Bessent's Treasury buyback program
• Gold as a macro hedge

Notable quotes

"You either got to raise taxes a lot, which... That's not going to happen. Not with this administration. So print." – Porter Collins

Conclusion

The conversation underscores a growing consensus among seasoned investors: the U.S. fiscal and monetary

Transcript preview

Speaker 1 (0:04) Hey, it's Steve Eisman, and welcome to another episode of The Real Eisman Playbook. So when this podcast got started April of last year, one of the first guests were my former partners, Vincent Daniel, Porter Collins, and Danny Moses. We had this really great conversation. And since last April, I mean, to say that the world has changed, it sounds stupid. It's just so incredible how much things have changed. And, you know, sometimes it's a good idea not to interview someone, but to sit down with some old friends and kind of hash things out. So that's what we're going to do today. Porter, Vincent, welcome back. Good to be here. Thanks for having us. So let's start. I mean, where could we start? We could start with anything. Let's start with Scott Besant. We'll do like a lightning round. Like, Porter, what do you think about what the hell is going on with Scott Besant and the Treasury Department buying? buying long-term treasuries. This Speaker 2 (1:01) is our old sandbox, right? This is the Fed. This is monetary policy. This is the treasury. I think they're screwed. Speaker 2 (1:10) You know, they're at a point where they have to try these extraordinary measures because they're out of things to do. And they're trying to keep a lid on yields, but inflation is a problem. It's still high. And, you know, Warsh is doing his little dance, but they can't do anything. And at this point, you know, I see it as interest expense plus entitlements is $100 billion. call it 10 % of tax receipts. There's nothing you can do. You can't cut interest Speaker 1 (1:42) unless Speaker 2 (1:43) you... Speaker 1 (1:43) Well, you certainly can't cut interest. Speaker 2 (1:45) You can, Speaker 1 (1:46) in theory, cut entitlements, but no one is even talking about it. We've been talking Speaker 2 (1:50) about this for how long, Steve? And they haven't done anything. A Speaker 1 (1:53) long Speaker 2 (1:53) time. Yeah. A long time. And so I don't know what you do. You either got to raise taxes a lot, which... That's not going to happen. Not with this administration. So Speaker 1 (2:01) what are you going to do? Speaker 2 (2:01) Print. Speaker 1 (2:02) Right. And Speaker 2 (2:02) so, you know, you can see why... I think I've had as much conviction in this precious metals trade as I've had in anything in Speaker 1 (2:12) a long, long time. So explain to viewers who are not familiar with precious metals, what is the relationship between, on the one hand, what you're talking about, interest rates, and on the other hand, precious metals? Speaker 1 (2:27) It's not intuitively obvious to most people that they're connected. So, explain it to people. Why do you think owning precious metals is the result of everything you just talked about with respect to interest rates? Speaker 2 (2:39) Well, it goes back, you know, you got to take a little history lesson. But in terms of central banks used to own assets, right? When you own debt, you're owning a liability, right? U.S. government bonds, I know it's an asset, but it's someone else's liability, right? And so gold is an asset. And that's why you've seen central banks all around the world, including China, buy more and more of it, right? And so I think you've crossed or close to crossing, depends on the gold price, obviously, as between gold and treasuries, which is bigger as a percent of central banks' balance sheets. So you're talking mostly about gold? Gold, yes. Gold. And, you know, gold's nothing. It's just an asset. But it's an asset. It doesn't have any debt. It just sits there. Right? And so it's a rock. It's a rock. And it's formed in outer space. But it's a rock. And it basically, everything else is crashing against it. Right? And so that's the sort of thesis. It just stays there. Everything else goes down. Right? So its value in dollars goes up because the dollar goes down. And that's been the history. And if you look at the chart of it, the dollar, U.S. dollar has gone down and down a lot in the last 100 years. And I think that trend continues and probably, you know, accelerates at Speaker 1 (4:00) this point because they're out of arrows. So you like gold as kind of a result of all this stuff? Speaker 2 (4:04) Yeah. I can't tell you what it's going to do today, tomorrow. But like I think— Who could? Yeah, but I think, you know, if I look back in five years, I think it's going to be a lot higher. Ben, thoughts? Speaker 3 (4:15) If you put yourself in the shoes of Besson, I like doing this, like, what would I do? Speaker 1 (4:19) You Speaker 3 (4:19) love doing that. I do. And I would say, well, what would Speaker 1 (4:22) I do? Well, the first thing I would do is I would go up to— Well, by the way, before you say what you would do, you're in Besson's shoes. Yeah. Articulate the problem from his perspective. Okay. What's the problem? So the Speaker 3 (4:35) problem is, is that right now— I have, as Porter said, expenses that are higher than receipts. Right. That's one of the issues. To the point where 40 trillion times an interest rate is a big number and it's really eating into all the other things the government can do. And going higher. So you need rates lower. Right. So that's the problem. My primary agenda, my issue is to get rates lower because that's the problem. And it helps the economy. Of course. And of course it helps the economy. So the first thing I would do is go up to my boss, which is President Trump, and say, respectfully, Mr. President. Can you end this war? Because if you can end the war, maybe we could get oil down from, say, 86 to 60. Inflation expectations will come crashing down. Rates will come crashing down. And so that gives us time. And the president just said no. Well, the president just said, for some reason, I can't. Right. I think he's trying to be fair, but it's not working. OK. So then what do you do? Right. Then you say, well. Then we need to cut entitlements. No. Then we need to raise taxes. No. Like these are all no's. So then you start with theatricality and deception by playing twist games that the three of us, when we were in the office together and if we saw something like this, we would start laughing at each other and like, what's four billion going to do? Well, he said at least four billion, which means it's infinite. He's trying to have his groggy moment. So I think he is going to keep trying. to get rates down because that's what he needs to do over the next six months to nine months. He has to. Why Speaker 1 (6:17) do you say six to nine months? Speaker 3 (6:19) Because I just, I think they need time for... Speaker 3 (6:26) inflation expectations to come down. And you're trying to make a bet that somehow, someway, economic growth will slow a little bit, not a lot, to a point where inflation can come down, to the point where rates can't. But this is all a bet that they're trying to make. And in the interim, I think they're playing a lot of games to try and pull forward lower rates by signaling to the market, this is what we're going to do. I'm going to get what I want. You better follow my lead so rates can come down. All right. Speaker 2 (7:00) And the war was just a massive strategic error from, you know, a interest rate and debt perspective. I think he thought that would be over in, you know, two weeks. He did. And that's a bad miss. Speaker 1 (7:16) Okay. All right. I'm going to voice my opinion. Okay. Go for it. Here it comes. So you know I'm not nearly as hung up on the deficit as you guys. As you know, I have this whole comedy routine where I go, people like you are part of the oy, the deficit crowd. Oh, Speaker 2 (7:30) we know. Speaker 1 (7:30) You know. We know. We've only been talking about this for the last 25 years. Speaker 1 (7:36) I don't think, despite how bad it is, that it's like imminent doom and destruction at this point. I don't think we're close. But we're moving in that direction. I mean, Speaker 2 (7:49) the question is define doom and destruction. The fact that rates are going Speaker 1 (7:53) to go 50 basis points higher at the end of the day is not the worst thing. It's not, to me, the worst thing in the world. I think the mistake that... that Besant made is basically putting a line in the sand. Now he has to defend it. Yes. This is what Drucker Miller said. By the way, did you read about the scandal about Drucker Miller? No. He wrote it on AI. Oh, yeah, that AI. And he admitted to it. I admitted to it. That's why it's not a scandal. My response to him is... You could have just written it yourself. It's not that complicated. You know, why would you do that? It's lazy. He Speaker 2 (8:27) said he's an econ major, not an English major. You Speaker 1 (8:29) could still write a stupid editorial. It's five paragraphs long. It's not that complicated. It was 100 Speaker 2 (8:35) % Speaker 1 (8:35) written by him. It was crazy. 100%. Yeah. Every word. Every word. So. Speaker 1 (8:41) I think it's a bad sign. I think that doing it is actually the sign of weakness. The problem is not the sign of weakness. It's doing it that's Speaker 3 (8:49) the Speaker 1 (8:49) sign of weakness. So Speaker 3 (8:50) you're coming our way. Speaker 1 (8:50) I'm a little more nervous than I've been. And let's leave it Speaker 3 (8:53) at that. So Speaker 1 (8:54) what we would contend always was that... Speaker 3 (8:58) When you woke up in the morning and you turned on CNBC and you saw rates benign, NVIDIA up, Apple up, that made everyone come and said, nothing's wrong here. Speaker 3 (9:15) So underneath the surface, the amount of work that they're doing to make sure that everyone wakes up in the morning and sees calm, I think is incredible. And this is the first time that people are starting to see what we see. It was just so out in the open that it couldn't be hidden anymore. Right. Right. And saying, like, to me, it's like he's been doing this for about five years. Well, the 10 years, 15 years. Speaker 1 (9:40) Well, the Fed has. The Fed has. The Fed has. Correct. The irony here is that Warsh comes in and says, I don't want to do this anymore. Because he's in a box. Right. And Besson says, I'm going to replace you. I have Speaker 3 (9:50) a Speaker 1 (9:50) theory for that. OK. Oh, please share. So the theory is that— Let me just explain because I don't know if you understand. So the Fed over—since basically 2010 has done quantitative easing multiple times where the Fed goes out and buys treasuries with the idea of— of bringing interest rates down. That's supposed to jumpstart the economy. It never helped the economy, but it did help the stock market go up. So Warsh, as new head of the Fed, has basically said, I don't want to play that game anymore. I don't want to do quantitative easing. And what's more, I don't want to talk about it. And so he's stepped aside. Hold Speaker 2 (10:29) on, hold on. They're still doing QE every day. They just don't call it Q. They're printing money every day. Yes, they're printing money every day. It's called reserve management. They're not actually going out. They changed the name. They changed the name. Speaker 1 (10:39) But in theory, he has stepped aside. Now Besson comes in and says, I'm Speaker 3 (10:43) going Speaker 1 (10:43) to do it. Speaker 3 (10:44) So go ahead. You Speaker 1 (10:45) wash Speaker 3 (10:45) your theory off. Speaker 1 (10:45) So first Speaker 3 (10:45) off, they're playing a great good cop, bad cop, right? I think. The majority of the market has been conditioned to look at the Fed as dovish or hawkish. And that's their signal. Right. So when he's hawkish. Warsh. Warsh. The market can cool off. Maybe slow down. Maybe market will go down. Maybe rates will go down. That's the biggest thing. Right. Whereas Besson is wide open. And no one really knows. Because no one has Speaker 1 (11:13) focused on him before. No one knows really what the treasury is doing. What's Speaker 3 (11:17) this twist thing? Speaker 2 (11:19) It's not just the treasury that's wide open. The entire fiscal, you know, we're running $2 trillion deficits or whatever. That's the real cost of all of this. 6%, 6 % to 7 % budget deficits. The only Speaker 1 (11:34) way that the government is ever going to do anything about this. is if we get close to the edge, for sure. It's not just entitlement, it's defense. I mean, it's the whole budget. So how are you going to get the federal government to, you don't even necessarily have to cut the budget, but you could, let's say, slow the growth rate by half. Let's say that's what you could do. But they're not going to do it unless things get really bad. Doge Speaker 3 (12:03) lasted a month. Doge, yes, a month. A month. Speaker 2 (12:07) And what they Speaker 1 (12:09) cut was nothing. Correct. Speaker 2 (12:11) So it has to get better. There was supposed to be all this fraud, and there probably Speaker 1 (12:15) was, but it's nothing. But that's nothing compared to what's actually being spent legitimately. Correct. Speaker 2 (12:20) On Social Speaker 1 (12:21) Security, on Medicare, Medicaid. You can't say that what's being spent on Medicare is illegitimate. It's just a lot of money. Correct. Probably a lot of fraud, too. I'm sure it is. But it's a lot of money. It's a lot of money. But it's a