"Big Short" Legend Danny Moses on Dimon, Private Credit, Prediction Markets

0:00They told us to expect change. They warned us about the transition. But honestly, they forgot the best part. This is the chapter where we finally focus on us. LifeMD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, LifeMD helps you feel your best for the best years of your life. LifeMD, it's just getting good. Visit LifeMD.com slash goodlife. The thing about AI for business, it may not automatically fit the way your business works.

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1:14Danny Moses:But when somebody wonders, what's the next steps? AI helps you finish the rest. Bolts are tight. Now your plans are fine. Run a smoother business when you're all aligned. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. We should note, Jamie Dimon, that interview with Lisa Bromowitz covering a lot of ground. Some headlines include that right now the U.S. economy is doing fine. But at the same time, this came, you know, before he made some comments about AI, he said, there's more exuberance than there should be.

2:00He did. He did. He did also know when it comes to private credit, he said not in the systemic area, yet that we are late in the credit cycle in general. So that reminds us of some recent reporting by our own Bloomberg team. It was about money manager Danny Moses. You know, the Danny Moses immortalized in the big short, who made some comments, probably lives with you forever. He's here. He's here. He's here. He's here. He made some comments. last week during panel at the iConnections Global Alts Conference. It was in Miami Beach, Florida. What he said was that private credit and private equity firms push into retail products reminds him of the years preceding the subprime mortgage crisis.

2:35So we are kind of hearing a chorus akin to reminding us all about the GFC and what happened then. Danny Moses is founder of Moses Ventures. He joins us right now here in studio, along with Bloomberg News equities reporter Alexandra Seminova. Danny also host of the weekly podcast On the Tape and co-authors of Substack, What Are We Doing? Contrarians at the Gate with his fellow Big Short partners. So delighted to have you here with us. How are you? Great to be here. Who knew what I would say one thing in Miami, and then I'm sitting here four days later. So it's always great to follow the king, Jamie Dimon.

3:06So great. Let's go. Well, anything the king said that you thought was kind of interesting, because he did talk about private credit, which is something that's definitely on your radar. He sounded much more positive than I thought he would. He's optimistic. He's down at a Leverage Finance Conference, so I think he probably needs to be. I think you focus on the right things. You can't predict when we're going to have a downturn, but what might cause it. I'm in the camp that actually the stock market has added such a wealth effect to the economy that it actually could be the stock market selling off that actually slows the economy.

3:32So they're all kind of intermixed here. And the stuff we can talk about, what I said down there about private credit, how I think it rhymes with previous cycles, but every cycle is different. So let's go there and talk a little bit about how it rhymes with previous cycles. Where does it rhyme specifically and what concerns you? So the whole thing about this cycle is that it's not systemic. We don't have the risk. The banks aren't there. So we don't have to worry about depositors being at risk. The similarities are that the banks are lending to the private equity and private capital firms, right?

3:58That's going on. They did the same thing to the mortgage companies in 2004, 2005, and 2006 leading up to the crisis. What did they do? They provided warehouse lines to New Century or credit home lenders countrywide. So they went out, produced the mortgages. What did Wall Street do? They bought those mortgages, packaged them, and sent them out to CDOs, and everyone bought them. Great old cycle, right? Same cycle, the same institutions that are now buying all this credit. And so as soon as Wall Street sees credit turn a little bit, what they'll do is the credit lines that they're now providing into that sector, they'll tweak it a little bit.

4:27They'll pull some back. Then what happens? You get left. The reason these mortgage companies went out of business was because they couldn't sell it anymore and it got stuck on their balance sheet. Chair got pulled. So then the real marks start happening when liquidity starts to dry up and it exposes the leverage. So whenever liquidity dries up in any asset class, it exposes leverage and no good asset goes unlevered. is basically how it goes. It's been incredible, Danny, to see that stocks haven't been toppled by anything that has happened this year. We have so much geopolitical risk. We have AI concerns, private credit.

4:56What is going to be the headwind that actually sends us into a correction or worse? I think it's employment, unemployment. So earnings have been strong enough, I think, to carry the market. I think we've had a broadening out within the market, which has been healthy into other sectors other than tech, which is great. But I think you're starting to see trends, potentially, in employment. Now, this memo that came out last week that I'm sure you guys were talking about, this Trini memo about what AI could look like in 2020, the apocalypse, so to speak. There's some truth to it. And you have to imagine what can happen.

5:24So you get all the benefits of being efficient as a company. And your margins improve, so you get that now. But we saw already from Block what was said, firing 40 % of their staff. One note literally took pages, it felt like, out of the memo and said, this is what we think we can do now and be more efficient. So those are white-collar jobs. And so that's in the economy. Well, to be fair, I think we're all trying to figure out, is that a Jack Dorsey figuring out the future of that company, right, in terms of management and whether or not that is an indicator of what's to come? And there are a lot of people who say that's, you know, not something that it's, you know, reduction in force that's sort of camouflaged as an AI.

6:00Like, this is bloating. We're going to be speaking about this a little later. I mean, he's certainly overhired probably because of this pandemic. But what he said was irrefutable in terms of why he believes there'll be more efficiency and that he doesn't need humans to do all the jobs that they were doing. I want to go back, though, to over leverage, because I always think about who's exposed ultimately. Like, what happens when the tide rolls out? And I'm just curious how you see potentially a crisis akin to the GFC happening because of private credit. So I think in terms of it fueling the economy and economic growth, companies being able to access credit is great for employment.

6:36It's great for companies. But maybe they otherwise wouldn't have gotten it. Or maybe the leverage is too high. Or maybe the covenants are too light that allow these companies to keep borrowing, modifying loans. As soon as the money stopped coming in or slowed down, I should say, on the institutional side, what did we see? We saw private credit get offered on the retail channels. Well, some of these banks and brokers are incented to get it onto those channels. And that's my point. when retail investors get the opportunity all of a sudden to buy something. Right. You know, caveat emptor. Listen, we talk about this a lot.

7:06Yeah, this is what we just talked about with Mike Contopolis. I mean, the idea that it's a signal of something that the market becomes more available, or what he said is it becomes more democratized. So in your view, not a good idea for the everyday investor to have access to these products? If I were a retail investor right now looking to get myself exposure, I would be buying Blackstone, KKR, and Apollo. I'd be buying the parent companies, the large PE firms that have permanent capital, that have a huge fee income stream. That's how I would expose myself. And guess what? I can buy it and sell it in the same day.

7:38You wouldn't be putting private credit... I wouldn't be. Private credit funds in your 401k. If I had a retail broker that called me and offered me that, I don't think he'd be my retail broker anymore. Buying those names are liquid. As you know, like we cover these firms, you can sell and buy easily. But come on in, Alex, because I know you're listening. Yeah, we're talking about retail investors. And I actually wanted to ask you, Danny, one new segment of finance that they're actually foraying into is prediction markets with kind of the excess cash that they have to spend. What do you think that will look like later this year as prediction markets continue to grow?

8:14Well, they're regulated by the CFTC. They've taken extreme amount of market share from the traditional online sports books that we've seen. But it's really interesting because I actually use them as a way to follow the news. Not that you guys don't provide all the news that I need here, but you want to know what's going on in the election in Brazil. And you know that you want to either buy or sell Brazilian equities as a result. Watch those. Watch what's happening there. So you don't have to trade those markets, but you need to watch it. It's really interesting. One pops up, you're like, I never even thought of that.

8:41I mean, I've seen like Goldman Sachs, JP Morgan, a lot of big institutional firms citing prediction markets in their research notes really often now. Right. And they're partnering in the media. they want to get it out the more I get it. And listen, it's growing. It's a sector that's evolving. But, you know, sorry. Well, no, go ahead. No, no, finish. No, it's all about regulation. We talked about during the elections, right? Go ahead. No, it's where the regulator lies. It's not at the state level. It's at the federal level. So that use case, I think, to a lot of people makes a lot of sense. But the question, and this is a real question that is available on some prediction markets, will Jesus return in 2026, yes or no, doesn't necessarily carry the same weight, I think, with someone like you.

9:14That's a sign of something. Yeah, well, you know, I think there's an entertainment value. But I want to say, like, let me give an example of something that I just talked about on my show the other day, which is, will the U.S. debt exceed$50 trillion by the end of 2028? Even the CBO, which is nonpartisan, has literally$44 trillion. I'm negative on U.S. debt. That's a whole other topic we can go into some other time. But if it hits$50 trillion, to your point, I say you take no. You trade no on that. Because if it's yes, we have a lot bigger issues. What, did we have another pandemic, another financial crisis?

9:45We bailed out private credit in the tune of$3 to$4 trillion. How did we get to 50 trillion? So when I see stuff like that, and it's trading at 50 cents. So it's trading at a 50 % chance right now. I watch stuff like that to tell me. And if it starts to move, then I start to dig deeper. What am I missing? You watch it, but you don't participate in it. Oh, I participate in it. Okay, how do you participate? I trade on Cal sheet. I mean, I trade these markets. Will the S &P close below 7 ,800? I trade, yes. It will trade below 7 ,800 at the end of the year. Will gold outperform Bitcoin? Right. Yes, I believe it will.

10:15And it's interesting to see how they trade. Will the Fed cut? You know, CME Fed Fund Futures will match up directly what you will see on CalShe. But I don't want to set up an account and trade Fed Fund Futures. But I can just trade yes or no, the 4 % chance that they're going to cut in March maybe. How much do you allocate to a platform like that? Not a ton, but enough that it's entertaining. So I do my NFL there now. I'm going to do my Masters there during the golf tournament. So use it all. I want to ask you, you said bail out of private credit. Do you think we get to that point? Well, I would.

10:48You said it. Yes. No, if we got to that point. So let me ask you a question. Oh, if we got to it. If we got to that point. Jamie Dimon just mentioned that, you know, things are OK. My issue is that things are OK because the Fed keeps bailing us out. There's a moral hazard. And I believe it's in the back of people's minds that actually believe, you know what, if private credit goes, the Fed's going to have no choice but to bail it out. And they're probably right. It will have an impact on everything, impact on the banking system. It won't bring it down. So I'm half kidding, but I'm not. So what did the TALF go?

11:14Again, a whole nother segment. But post-financial crisis, the TARP, the TALF, the PPIP, we ran out of acronyms. Right. So we're going to we're going to come up with another one. It could be a vehicle. The government subsidizes a period of time. What did they do during COVID? They bought the HYG. But people forget pre-COVID, we were already going through an economic downturn. And it's kind of resurrected companies otherwise shouldn't have been saved. So if President Trump brings in a new Fed chair who is more comfortable with cutting rates, does this just fuel the problem or make it even bigger?

11:46You hope worse will maintain some form of independence. Do you think he will? I hope he does. I don't know. Because if he doesn't. Yes. Well, then you're starting to see what will creep in. Yields will start to move higher on the longer end, anticipating that whatever they do to move short-term rates will fuel long-term rates potentially higher. And you start to ignore inflation. You cannot ignore right now that inflation has stopped going down. And it's taking back up. Is it just for a period of time? We don't know yet. But with oil now moving higher, it seems so it's something really to think about, the Fed's ability to cut rates from here.

12:16Danny, Lisa asked Jamie Dimon this question. I thought it was a great one. Are you worried more about inflation or about an economic downturn? He kind of said both go to that. I'm not that concerned about inflation. I'm worried about the question you just asked, if the Fed starts cutting in the face of inflation. what that would look like. I think the economy's fine, but I think that we've got to watch employment really carefully, and I think that's what everyone's spooked by this AI memo that kind of came out. We're already seeing signs of that, of white-collar jobs getting lost. Yeah. They told us to expect change.

12:48They warned us about the transition. But honestly, they forgot the best part. This is the chapter where we finally focus on us. LifeMD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, LifeMD helps you feel your best for the best years of your life. LifeMD, it's just getting good. Visit LifeMD.com slash goodlife.

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15:05Check out their full 24-hour selection at 4imprint.com. 4imprint, for certain. We're speaking with Danny Moses, the founder of Moses Ventures, financial computer, and a host of a new weekly series, The Danny Moses Show on Scripps News. He joins us here in the Bloomberg Businessweek studio. Let's go back to what you were saying about AI and the economic effects of that and what that is on the labor market and dig into the Citrini report a little bit, because you did mention there are parts of it that that rang true and other parts not necessarily. The Jack and we'll use the Jack Dorsey block news as sort of a jumping off point.

15:39Those are white collar jobs. The message was received and has been received. Is that something you see other companies doing over the next 18 months? Reduction in force of 40 percent and more. The same way no one was allowed to say tariffs a couple of, you know, a year ago on their calls, like, don't blame tariffs. They're not going to say it. But why wouldn't you as a company? You're a publicly traded company. You have shareholders. Your job is for margin expansion and to produce earnings. If you see the opportunity to do it, it's not a non-for-profit. You're going to do it. And so there's no question that these tools, if you believe the AI secular trade is real, which obviously it is, it's kind of an impact.

16:13and you're pro-NVIDIA and you're pro all the stuff, then you have to believe there's an end-user case for it, both in the consumer and company-wise. And so that's the case. By definition, you'll be more efficient. I think my takeaway would be we always, the U.S. consumer finds a way to make jobs around it. It could be something that helps guide that technology. So there's always going to be movement in that. And we've seen massive changes occur, the dot-com in 2000, right? We've heard there'll be no more Wall Street jobs in 2008. eight after that after that it's over right finds a way to reinvent itself so i do think i just think it's a think piece to think about okay but there's not a ceo competent one that's not already thinking how do i be more that's even jamie said it that they use it now he didn't want to say they're firing people but i mean everybody's using it and everyone is telling us that if you're not using it you're falling behind and i we are planning a bloomberg i not me but our team a bloomberg Invest event that comes tomorrow.

17:10And there's a big AI thing that you and I are both involved in. And it's interesting. I've had some conversations about, you know, people say, what you should do right now is talk to a 25-year-old. They get how you can use these tools. And the idea is that there will be a dislocation, whether it's five years or seven years or maybe a little bit longer between maybe an older workforce who's not going to embrace these tools and then a younger workforce who will and that will create free them up from some kind of tedious tasks but create new opportunities do you not buy that argument at all that that's ultimately where we end and it's going to be uncomfortable perhaps because education's maybe going to have to shift around a little bit and teach things that people maybe lose you know or would learn on entry jobs that they're not going to so there's a shift so you're lawyers you have accountants and now you're going to have ai tutors so there you go there's a whole new industry that could happen no but and you know in all seriousness No, but there are huge positives to it in terms of making every company more efficient, making U.S.

18:06consumers more efficient. So that comes with more productivity for everybody. So maybe there's an offset there. I think, again, back to this memo, we haven't spent a lot of time on it. People that are saying yes, yay, or nay on it, you've got to read it. Because, again, it's a long read. I mean, it's a 30-minute. What is everybody missing? Just that it's a think piece, and it's logic. You can't refute that that could happen. And it will happen in pieces. And like I said, yes, Dorsey example maybe is just a one-off or whatever it might be. But I do think you talk to any CEO. They're not going to tell you that necessarily.

18:36But, you know, so somebody's spending CapEx for a reason. Somebody's plowing money into these privates for a reason. Somebody believes you wouldn't be doing that unless you thought there was an economic benefit. Well, it's a zero-sum game to a degree. So you don't just increase productivity and everybody wins. I think there's winners and losers here. So it was amazing, Danny. Just a couple of weeks ago, we saw entire sectors being sold off in tandem, just being dumped because some AI startup said that it was going to replace jobs. Have you ever seen anything like that in past crises? And if that happens again, how do traders navigate that?

19:08Well, I mean, so that's software companies, SaaS companies that always thought that was the best model ever. Yeah, I saw it. Your bank's going to close down, so go get your money out and line up around the block, right? So what did that take? It was the FDIC to come in and say, no, we're okay. TARP, the banks are going to be fine. So yes, you see that panic happen. You saw stocks. You saw Bear Stearns go. You saw Lehman go. Things actually did happen. That even shocked us to a degree. So yes, you will always have whatever the kind of sector trade of the time is. And you will always get an overreaction.

19:37And it creates opportunity potential to buy. Well, did you trade on any of that? Which? On the software stuff? Yeah. No. I'm too negative. No, I'm kidding. No. But there are names. There's always one-offs. And I think I will end with this. We're focused on AI and all these sectors. There's so much going on outside of just the technology trades you guys talk about. And all of a sudden, everybody's energy playbook's out in the last week or so. Like, oh, wow, these stocks are cheap. If oil were to even stay at 65, these stocks are, and it's 3 % of the S &P, 4 % of the S &P. Right. Could be seven.

20:08So I just think there's always opportunity to move around. And there's certain sectors which will not get AI'd away. And so as a Wall Street participant, I think you need to focus. We want to go back to risks. But what do you think, what do you find most interesting in the marketplace today? Gold and, you know, things that no one was, now everyone's on gold. And you're still on gold? Yeah, yeah. Still on gold. Long the gold miners. I think it's uptrade. When do you stop that trade? Listen, it's a$35 trillion asset now. No one talks about the size of it, but it's really big. But geopolitics just reared its head again.

20:40Debasement. Inflation. It works in a lot of different ways. And it's really a play that central banks are incompetent to a degree. And they're going to do whatever they need to do. So if you think the way out of this, potentially, I just mentioned, is the end game of this bailing out private credit at some point? I don't know. But gold kind of prices all that in. But to your point, these stocks move. The gold miners are up 100%, whatever they are. Of course, you have to take some off the table. So what about spot gold at 5 ,300? I like it. But I play it through PHYS, which is a physical. But yes, there's ways to express it.

21:09But I kind of watch the flows, watch what's going on. And you've got to be smart with it. So I'm not giving advice here. Retail also big participants in metals markets right now. Yeah, metals, silver specifically, I think. Every metals market's a little bit different. I think the commodity trade is here to stay. I really do. We're all pulling out our old jewelry. Exactly right. I'm not joking. You can't even get on 47th Street. There's a line out the door. I'm not joking. Having said that, back to risks, whether it's private credit, whether it's geopolitics, what do you see as, especially as we continue to see a president who seems to kind of do what he wants around the globe in terms of either taking out leaders, for lack of a better word.

21:49So how do you factor in geopolitics? because I'm kind of shocked at the trade today. I expected something much worse, and it was much worse overseas, but maybe that makes sense. Alex and I were just talking about that before we came in, and I think a lot of this was priced in. So what did we see at the end of last week? Oil started to move higher, but not to the mid-70s, but West Texas moved up to, call it 68. Then you had treasury yields lower, and it was kind of odd. Treasury yields were moving lower in the face of higher inflation prints. You're like, well, is the economy slowing? What's happening?