Steve Eisman on the Three Big Macro Stories of Our Time

26:09Sure, absolutely. And so a company like NextEra, which will build, let's say, a solar field, gets a tax credit to do it. Yes. So that does help. But then there's the lines and the wires. And so there's all these questions about regulations and there's the question about money, et cetera. Who's paying for basically the – I mean, you mentioned generation on the solar field side. Who's paying for the lines that will connect all these solar fields? Oh, the utilities are doing that. Okay. So if you look at the end of every year when all the utilities report their fourth quarter, at least most of them, they put out their three-year CapEx budget projections.

26:54So they only comes out once a year. So we just went through that period. So of the 20 companies that are very good Neuberger-Berman utility analyst covers, the average increase in the three-year CapEx budget is 20%. Over the last year? Over the last year? In other words, the three-year combined forward is 20 % higher than last year's three-year budget. It's basically 20 % because you're adding one more year or something like that. That's a lot of money. And it's been going up and up and up and up and up every single year because utilities keep spending money to improve their grids. What's the investment opportunity there, though?

27:36Do you buy the actual utilities or do you buy the sort of like periphery things that benefit from it? I think you can buy some of the utilities. You know, unfortunately, utilities are very interest rate sensitive stocks. So in a day like today, probably, I'm guessing, because rates are up, utilities will go down. The market opens in two minutes. So we'll test the thesis. But I think some of the utilities that are more on the greenish side are an interesting opportunity. So you've been looking at the infrastructure space for two years now, as you mentioned. What was a surprising thing you learned or how does this particular industry vary from other areas that you have looked at previously?

28:19I think the big change is that if you take all the 80 companies, most of them are what would traditionally be considered very cyclical companies. Very traditional cyclical companies with no good secular story other than how's the economy doing. And for the first time since I can remember, this whole group now has a real secular story. Not that they're not cyclical. They are cyclical. But they have secular tailwinds that they've never really had before. And those tailwinds are going to last quite a long time. That's the change. The XLU ETF has opened down a little bit. It's down about a tenth of a percent.

29:02There you go. You can count that. One for me. Yeah, count that as a W. So sticking on this theme of the grid and electrification. Oh, actually, you mentioned, oh, now it's up. It's up. So I'm taking it away. Okay. Now it's flat. Now it's done. Well, you know what they say about our business, peacock today, feather duster tomorrow. That's a good one. No, this is the question I want to ask. Those three-year projections that the utilities are coming up with, and you sort of talk about this shift from cyclical industries to secular, how did those three-year projections compare to, say, five years ago, and no one was talking about AI and no one was talking about the I wish I brought my chart.

29:44I don't have my chart. But my guess is that the three-year CapEx budget today versus five years ago is probably 50 % higher, at least. Yeah, this is something that Jigar Shah, who Tracy mentioned, has talked about, which is that basically for the first time in forever, actual, there's growth in end demand, which there basically wasn't before. Correct. Wait, can I ask something slightly off topic, but I think is of interest? So we recently had the sentencing of Sam Bankman Freed. And he was the subject of a Michael Lewis book, as were you, in a very different capacity. Have you heard from Michael Lewis at all?

30:27Do you keep in touch with him? We haven't spoken in a couple of years now. Did you follow the SPF trial? Very marginally. I don't have really an opinion about it. Did you read the book? I did not read the book. Okay. This is a very interesting line of question. That was a good line of questioning, Tracy. I tried. It had the potential. It had the potential to go somewhere. Unfortunately, it's not going anywhere. Unfortunately, the guest shot it down. Yeah. All right. So I hear all this stuff about excitement about data centers. And as far as I can tell, like part of the play is investing in, I guess, data center REITs, something like that.

31:01Well, there are only two. Yeah. Right. Right. Or you invest in like HVAC and the companies that do the cooling around them. Yeah. So how do you actually play that thesis? That's what I don't get. Well, I mean, like I said, you can't own everything. So I mean, I'm not going to talk about whether I have a position in these. You know, Vertiv is the sort of the pure play to sell cooling stuff into data centers. The stock has gone stratospheric. You know, the multiple's really high. So you're playing, there's a lot of risk in that. Not that the fundamentals are bad. Equinix and digital realty are a more steady-eddy kind of play.

31:39What you're dealing with is that the whole AI story is coming, and so the demand is going to go up, but you're still dealing with CapEx budgets having come down in tech. So the growth is still not great or as good as people would hope, but it's coming. So that's the yin and yang of the data centers. And there are only two of them. One of the things that we've seen with data centers, and I think it was a few weeks ago, there were some headlines about Microsoft wanting to have on-site nuclear power generation. And we've talked a little bit on this show about the hope, the promise of small modular reactors, which haven't really taken off, but maybe that could be a solution for some of these huge CapEx data.

32:27Have you looked at nuclear at all? I haven't looked at nuclear. The regulatory situation there is just so complicated. You know, the one, I think it was a Constellation Energy is the utility that's done incredibly well because it has nuclear. But it's not creating, as far as I know, more nuclear plants. It's just that the value of its existing nuclear plants have gone up a lot. That is a nice looking stock. On the other hand, New Scale, whose ticker is literally SMR, standing for small modular reactors, that stock has not done so well. although it did get a pop, I guess, on that Microsoft headline.

33:02It is interesting. One of the things that's sort of emerging from this conversation is, even though we're talking about new technologies and things like that, a lot of the benefits seem to be accruing to the biggest players in the market. So like the big companies. I don't think this time last year, anyone would have expected Microsoft to emerge as a leader in AI. And yet that's exactly what's happened. Is that what people should be focused on? Like who's going to dominate these CapEx heavy tech plays? It's going to be the guys with the money and the like existing connections. I mean, there are two parts to this.

33:37There's no question at this point, the dominant players are the big boys and they're going to be spending the money. And then, you know, there'll be interesting smaller companies that create apps. And we have no idea who those are at this point. None. One day they'll show up on your phone. Something I'm curious about with the data center REITs is that they're REITs. I mean, I know they talk about the AI opportunity and the demand for compute that's going to theoretically keep exploding for years. But on the other hand, like they're not Google. They're not Amazon with AWS. They're not NVIDIA. Is there a risk that like they just can't compete with the sort of like specialized, more tech forward companies that are at the very cutting edge of this?

34:23I mean, you know, the hyperscalers want to build their own data centers. But, you know, in Equinix, for example, services, everybody who's not a hyperscaler. So they will do really well when all the apps that are going to be created get created and people need to put their stuff in the cloud and they'll do it through Equinix. So really, digital realty is more of a hyperscaler.

35:01Running a business is hard enough, so why make it harder with a dozen different apps that don't talk to each other? One for sales, another for inventory, a separate one for accounting. Before you know it, you are drowning in software instead of growing your business. This is where Odoo comes in. Odoo is the only business software you'll ever need. It's an all-in-one, fully integrated platform that handles everything. CRM, accounting, inventory, e-commerce, HR, and more. No more app overload. No more juggling logins. Just one seamless system that makes work easier. And the best part? Odoo replaces multiple expensive platforms for a fraction of the cost.

35:40It's built to grow with your business, whether you are just starting out or already scaling up. Plus, it's easy to use, customizable, and designed to streamline every process. so you can focus on what really matters, running your business. Thousands of businesses have made the switch, so why not you? Try Odoo for free at odoo.com. That's O-D-O-O dot com. Hey, Ryan Reynolds here for Mint Mobile. You know, one of the perks about having four kids that you know about is actually getting a direct line to the big man up north. And this year, he wants you to know the best gift that you can give someone is the gift of Mint Mobile's unlimited wireless for$15 a month.

36:19Now you don't even need to wrap it. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three month plan equivalent to$15 per month required. New customer offer for first three months only. Speed slow after 35 gigabytes if network's busy. Taxes and fees extra. See mintmobile.com. Can you say more about Oracle? For a long time, I sort of thought of, they always seem to be straddling in my mind where it's like, and I don't know that much about the company, but they always seem to be sort of on the cusp of like, are they in the category of the hyperscalers? Are they sort of a legacy software database business that, you know...

36:54Well, they're a legacy software database business that's moving to the cloud. Yes. They're an AI play. You know, the problem with the stock has been that every couple of quarters, they have a really bad quarter and they say, sorry. As long as they apologize. But in this most recent quarter, they seem to have, at least for now, gotten their act together. And what's working for them? You know, the demand because of AI or moving stuff into the cloud to move their database into the cloud seems to be increasing. Their problem, they say, is they haven't been able to buy enough chips to satisfy the demand.

37:27You know, when you think about that, that's probably a better problem to have than the alternative. And they seem to be getting their act together. So, you know, they finally announced a good quarter and people got excited about it, which is why the stock finally did well. That's a more recent purchase of ours. Have you tried any of the AI chatbots yet? Not yet. ChatGPT. I'm too old. You're too old. You know you can make comic books on some of them. Yes, I knew that. You can make a comic book on it at Chat. Joe, I didn't realize Steve's a big comic book fan. Yeah, so what's the comic book play?

38:02There's no comic book investing plan that I know of. The comic book is a small business. But you're really into comic books. Totally. I own one of the largest digital comic book collections in the world. What does it mean to own digital? Yeah, is that like NFTs? What is that? No, it's not an NFT. So think of it this way. Instead of buying a physical book, you now read your book on your Kindle. So comic books became the same thing. There was an app called Comixology where you would buy your comic on Comixology and you'd read it on your iPad. And Amazon bought it. And so my comic book collection is now in my Kindle.

38:38So the size of my comic book collection, I'm very proud to say as of this morning was 10 ,863 comics, of which I have read every single one. For real? For real. Why? I've been doing this since 2012. You know, I imagine, like, I don't know. I mean, what's the attraction? What's the attraction of spending so much of your time here in life? I like to read. Okay. I read a lot of books. Do you read non-comic books? I read a tremendous number of books books. Okay. Nonfiction and fiction. Okay. And I have always enjoyed reading comics. And the comics have actually gotten very, very sophisticated in terms of literature.

39:19And I enjoy reading them. What's your favorite? Oh, that's easy. The greatest comic book ever written is Sandman. Oh. By Neil Gaiman. Yeah. I used to have a Sandman-themed tarot card deck for some reason, even though I never read the comics. The first season on Netflix was actually quite good. What's it about? I don't know anything about comics. Sandman is the god of dreams. My son is into Spider-Man, so I'm trying to bond with him by getting him... I could write a dissertation on Spider-Man. Oh, really? Literally. What would you say? I actually have a literary... What would you say? I have a literary theory of Spider-Man.

39:51Good. Tell me this. I need some stuff to bond with my son over this. Well, you should get your son to read the newer Spider-Man, who's called Miles Morales. Oh, yeah. He loves Miles. He loves Miles. So my literary theory on Spider-Man is that Peter Parker is actually Jewish. I like this. Metaphorically. This is good. Keep going. So here's why. So first of all, the guy who created him, Stan Lee, is Jewish or was Jewish. Now, who is Peter Parker? So Peter Parker is raised by his elderly, kindly aunt, who looks like your Jewish grandmother. He marries the girl next door who's the gorgeous non-Jewish girl.

40:35So everybody like Jewish boys fantasy. see and and and he and he's consumed by he's a science geek nerd and he's consumed by a sense of guilt and social responsibility so who's who is that that's that jewish kid okay this is that's my literary theory i've had it for a very long time do you think uh superman is jewish definitely not oh really absolutely not although he was created by jewish guys yeah because i thought he was Jewish because some of the other names of his like relatives and I don't again I'm not a big comic person but like they have sort of I thought they sounded sort of nah not at all you're way off okay I'm um desperately trying to think of some sort of finance or markets related comic some way to bring this into the actual nature of the conversation we could just talk about comic books well the only thing you could bring it up to is is I have no opinion on Disney Okay.

41:27But I could tell you what I think is wrong with the Marvel comic book movies. Tell us. Oh, yeah, yeah. Because Disney owns Marvel now, right? Disney owns Marvel. And that's been a big source of their profitability. So I think the problem with Marvel is that they've lost their story. And there are two parts to this. So part one was they had a great story. It was a very complicated story where the villain only got revealed years after they started the whole process. It was multiple stories with tangents. But in the end, it all wove its way back into the last two movies. And then it was over. And they have not been able to find a new story.

42:03And they've been basically floundering because they don't have one. And the other major problem, which is even more serious than the first, is that there's a concept in comics called the Trinity. So in DC, it's Superman, Batman, and Wonder Woman. That's the core. And in Marvel, it's Captain America, Thor, and Iron Man. And at the end of the last Marvel comic, Iron Man's dead. Captain America's over 90 years old. And unfortunately, since then, Thor's been made into a comedic joke. So you've lost your trinity. So even if you had a story, nobody, I don't, who's going to care? Because people care about those three characters more than anything else, and they're gone.

42:42That's my thesis. They could just start the whole thing over. Well, you could reboot, but you have to get new, you have to start fresh. I don't know if they're willing to do that yet. This is such a refreshing, interesting take. Like, we could just talk about this because I do know, like, as someone who I kind of like going to the movies. But unlike you, I was never a big comic book reader during that sort of Marvel era of movies when it just seemed like the only movies that were in the theaters were just these endless superhero movies. I just like totally tuned out. And so I, for one. Oh, I was there religiously.

43:14Yeah, but I, for one, was kind of... I am relieved and sort of excited at the idea of Hollywood going post-superhero and maybe making movies again, like Oppenheimer with normal people. By the way, Dune Part 2 was very good. I've been meaning to... I haven't seen it yet. No spoilers, please. I haven't seen it yet either. But I don't know. I, for one, am excited about a sort of post-superhero era for Hollywood. That's fine. I'm just talking about the problem with Marvel is... Yeah. But it's connected, right? The biggest issue was back to Disney. Right, but it's connected, right? So it's like these stories have just gotten tired for people because there's nowhere to go for them.

43:51Well, you need a new story, and they haven't found one. So if I go back, and I'll show you how into this I am. Loki season three was terrible. The Marvel's movie, which has recently, was awful. Guardians of the Galaxy. Why? Like what made it awful? Because they all look awful to me. It was just stupid. The story was dumb. It wasn't interesting. And they tried to make it too much of a... They have a tendency to try and make their movies too funny. And it doesn't translate very well anymore. And then the Guardians of the Galaxy Part 3 was so boring, I almost walked out three times. That one disturbed me because there's a lot of animal cruelty in that one.

44:30And it was just kind of sad to watch. There was a lot of animal cruelty to it. They tried to make it relevant. Yeah. It was just a bad story. Yeah. Has the market for comic books changed in the sense that, so everyone knows if you have a really successful comic book nowadays, you can get a franchise attached to it, a film franchise. Does anyone come up with characters based on the idea of what will play well on screen? Overall, it feels like you don't actually get that many new characters in new comic books. There aren't that many new comics. There really aren't. Seems a shame. It seems like it would solve the story problem if we were actually coming up with new stories.

45:08well, there's new stories and then there's new characters. There's always new stories. But the problem with Marvel is they don't have a story. They just don't have a story. I didn't realize that. I didn't know anything about this. I just sort of assumed that every superhero thing was just sort of this endless story that could go on forever with endless permutations. But when you're making movies, what they had was this, they had all these different origin stories. But then at the end of the day, all the movies were going towards this one central story, which was the last two movies, and then it was over.

45:43So now you've got to start again, and they haven't been able to find how to start again. Here's my desperate attempt to bring us back to our core content. If you could come up with a comic, finance, investing, markets, economics crossover, what would it be? Oh, boy. I don't know. I don't know. No, that's... Super portfolio manager. No, no, no. I used to joke when I was a hedge fund manager on Halloween, I'd take my kids around just as me, and they'd say, who are you? I'd say, I'm a hedge fund manager. I'm the scariest person. That's low effort. Should we go back to some of your big themes? Sure, why not?

46:25Okay. This was more fun, though. I mean, actually, this has been a true light bulb moment, because all I knew is that people weren't really watching the Marvel movies the way they were three or four years ago. Oh, there's a reason. And now for the first time, it took - I just want you to know that one of my favorite characters has always been Thor. And the last movie was so bad, I was offended. Really? Yes. It's like, how dare you do that to my character? Interesting. God, I really don't know exactly where to take this. But let's just maybe go back to some of the infrastructure questions. It sounds to me like, and maybe this is a sort of investing philosophy question, and you mentioned the sort of the sell-side analyst arbitrage with that one company that got listed here.

47:12You mentioned the fact that even if there's a change in administration, that doesn't necessarily change the underlying stories. It sounds to me like from a philosophical perspective, your view is there are big long-term trends and don't presume they're all priced in immediately. Even if we can all agree that there's 10 years of growing electricity demand. There's 10 years of demand for greater cooling solutions or whatever it is or more cement or more copper or whatever. I'm not a great believer in it's all priced in. Yeah, that's sort of what I – I don't subscribe to that shtick. Yeah, that's sort of what I wanted to get you on.

47:47How do you think about that question? Because I have like - The way I think about it - I have journalist brains. So I assumed if I know about it, it's already priced in. I mean, when people say it's all priced in, my question to them is always, how do you know? Did you get all of planet Earth into group therapy and ask everybody, is it priced in? How would you know that? Look, this is a story. It's a story that's going to last a long time. And as long as it keeps going, people are going to want to own it. I mean, it gets back to what I said before. In good times, people, traffic, and stories. And as long as the story is there, they'll buy the stock.

48:20I mean, if you go back to, you know, the internet bubble, what killed the internet bubble? It wasn't valuation. It wasn't that it was all priced in. What killed it was that the U.S. entered into a recession and these companies' fundamentals fell apart. That's what killed it. It wasn't that they were very expensive. Well, obviously they were in retrospect. So this, you know, this infrastructure story, I think, is just going to go on for a very, very long time. And as long as that's the case, people want to own some of these stocks. All right, Steve, it was so good talking to you again. We talked about infrastructure, AI, crypto, and of course, comic books.

48:58Slightly unexpected, but a lot of fun. Thank you so much for coming back on All Pods. Thank you.

49:14Joe, that was really fun. I did not expect us to spend 20 minutes talking about comic books, but I enjoyed it. No, I'm really excited. Tonight, like I said, I'm going to go home and tell my son that, like him, Peter Parker is Jewish. And see if that—I mean, like I said, I got to bond with my son over his Spider-Man affinity. So that'll be a line that I wrote. You got to develop a literary theory of Spider-Man, just like Steve. That's what you need to do. No, there was a lot of interesting stuff in there. I thought the point about stories, so, you know, in good times, people are into stories. And then what really tends to knock those theses are when the bad times start.

49:49And that's when things start crumbling. So far, you know, again, it is now April of 2024. We do not seem to be on the immediate cusp of a recession. So you can see why people continue to get excited about these stories. The other thing I thought was interesting was the idea that like, OK, well, a lot of the infrastructure programs have been started under the Biden administration. But there are aspects and themes that emanated from the Trump administration. So things like the subsidies for solar panels and the fact that we're not importing as many Chinese solar power panels as we used to. And that would be expected to continue.

50:28So, yeah, that was interesting. Totally. In general, I liked his point at the very end about his belief that things aren't just priced in immediately. And as long as things are good, people will ride the story. I mean, look, so a year ago, by a year ago, so April 2023, it was unambiguously understood that NVIDIA was a key player in AI, right? Everyone had used Chad GPT by that point. Everyone knew it was trained on NVIDIA chips. Everyone was like, oh, this is crazy. And in that time, NVIDIA is up over fourfold. And I don't think there's like some new information that about NVIDIA or AI that's come out.

51:09It's basically like, oh, just this story is very good. And maybe some of the numbers and the degree to which other companies have piled in or wanted to buy chips is true. But to his point, this idea that it's all priced in the moment we're aware of the situation is probably a good thing to internalize. Yes. And I always think life would be so boring if you went around just assuming that everything was priced in immediately, right? Like, what are we even doing here if we really believe that? Yeah. Why do we have a investment industry at all if everything? I kind of still believe that. I refuse to believe it.

51:43Well, you would be a better investor than I would. No, I wouldn't. Okay. Shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at CarmenArmin, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks. Thank you to our producer, Moses Andam. For more Odd Lots content, go to bloomberg.com slash oddlots, where we have transcripts, blog, and a newsletter. and you can chat about all of these topics in the Discord 24-7 with fellow listeners, discord.gg slash oddlots.

52:21And if you enjoy Oddlots, if you like it when we talk to Steve Eisman about comic books, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is connect your Bloomberg account with Apple Podcasts. Thanks for listening. Thank you.

53:13This podcast is brought to you by FedEx, the new power move. Hey, you know those people in your office who are always pulling old school corporate power moves? Like the guy who weaponizes eye contact. He's confident. He's engaged. He's often creepy. It's an old school power move. But this alpha dog laser gaze won't keep your supply chain moving across borders. The real power move? Having a smart platform that keeps up with the changing trade landscape. That's why smart businesses partner with FedEx and use the power of digital intelligence to navigate around supply chain issues before they happen.

53:54Set your sights on something that will actually improve your business. FedEx, the new power move. Enterprise leaders are revolutionizing their marketing operations with AWS AI. This proven technology turns resource-intensive advertising processes into intelligent, autonomous systems that deliver real-time optimization on a global scale. Amazon's own transformation journey shows the true power of enterprise AI innovation. And now, your organization can tap into the same technology that drives Amazon's advertising success. AWS AI, where advertising meets intelligence. Discover the Amazon ad story at aws.com slash ai slash our dash story.