Michael Burry Says This Is The Top — Is It?

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2:00Steve Eisman:Welcome to Prof G Markets. I'm Ed Elson. It is August 6th. Let's check in on yesterday's market vitals. The major indices were mixed after a series of highs. More on that in a second. Brent crude was relatively stable. Treasury yields were flat. And finally, Google shares fell nearly 4 % on news that DeepMind's chief scientist is leaving and its CEO, Demis Hassabis is stepping aside. Okay, what's happening? The S &P 500 just hit another record. The fresh intraday high yesterday followed Tuesday's performance, in which the index rose nearly 2 % to its first record close since June. The Nasdaq also gained nearly 3 % that day, and the Dow crossed 54 ,000 for the first time.

2:46Steve Eisman:Across the markets, it seems as though investors have shaken off the AI anxieties that have defined much of the past month. But someone isn't buying it, and that is Michael Burry. In a note on Tuesday, the investor who called the 2008 crash said he's sticking with his bets against NVIDIA and Micron and Tesla and Palantir and the semiconductor index. He said, quote, I continue to believe it is possible we are near a major top, adding that we could see, quote, a 1987 type fall. Now investors are left wondering who's right. the bears or the bulls. Here to discuss, we're speaking with Steve Eisman, the legendary big short investor and host of The Real Eisman Playbook.

3:29Steve Eisman:Steve, thank you for joining us on Prof G Markets. You are one of the other guys who called the 2008 crash, one of the other guys in that movie. It'll be on our tombstones. There's no question about it. Exactly. I mean, what do you make of this market right now? Because I thought we were all worried about AI, worried about the debt, worried about the reliance on a handful of AI labs, but we're sitting at record highs. So what is the market actually telling us right now? Number one, the U.S. economy is very strong. You know, all the banks reported mid-month in July, and the credit statistics were as benign as they possibly could be.

4:11So there's no credit issues in in the U.S. economy overall. It's a strong M &A cycle. The IPO calendar is not bad. And there's no question there's still a K-shaped economy. But, you know, if you look at the numbers of Visa and MasterCard, the overall payment volumes are quite robust. Where you do see things like the K-shaped economy would be like in a company like Procter & Gamble, who has no revenue growth. But, you know, that's not what's driving the economy. Right now, you know, things are fine. There's no one, you know, despite all the hysteria about AI is going to destroy every single job on planet Earth, the employment numbers are still very, very strong.

4:54I think that's why the market keeps going higher, because things are just okay. Now, I do think that the AI story has gotten a lot more complicated. You know, if you and I were sitting here a year ago, you'd be hard-pressed to find anyone who had anything negative to say. You know, maybe someone like Gary Marcus, who has been on my show. He's probably been on your show as well. I love Gary. You know, Gary has a lot to say, and it's all great. But Gary was like the lone, you know, July of last year, Gary Marcus was like the only person on planet Earth who had anything negative to say about AI. Now you have Ed Zitron as well.

5:37But if you compare this to 08, so Michael and I both had the same thesis, which was mortgage underwriting standards have deteriorated dramatically. And then what was good about the thesis was every single month, securitization data came out showing credit quality of billions upon billions of mortgages. And so you could see, you could actually see the deterioration every single month. You had a data set that was incredibly robust that came out every single month and said to you, you're right. So you had this reinforcement. You know, if you're going to construct a negative AI story, well, you don't have a securitization database that's going to help you.

6:30So what's the negative stories? So let me tell you what I think is potentially the negative story, but it's not here yet. So what's made the AI story more complicated is the following. Number one, there's no question that the business is much more capital intensive than anybody possibly could have imagined. So, you know, companies like Microsoft and Google and Amazon, you know, companies who once threw off cash like it was water have negative cash flow. Yeah. So that's a big change. Now, that doesn't mean that, you know, these companies are on the verge of anything bad. It just means that the dynamics of their business have really shifted.

7:18They're investing massively. Whether they'll get great returns, we don't know yet. But that's one big change. And I think the other major change is that the LLM agentic AI business, which is really anthropic and open AI and really just a few other people, doesn't seem to have any moats around it. Because, you know, people switch from models to models. And now you have the open-end models from China, which are much cheaper, and people seem to be switching to. And so maybe there'll be a price war, maybe not. Where I think the chink in the armor potentially is, I read this report that basically said something like 70 % of Amazon and Google's and Microsoft's AI CapEx businesses are from OpenAI and Anthropic.

8:22so if i hear this this this is what i'm looking for if a massive price war broke out because of the chinese models and open ai and anthropic got in big trouble that would unwind a lot of the of the ai trade because then open ai and anthropic would not be able to spend as much, which would mean that fewer chips would be bought. I mean, you could figure out the rest. But until that happens, you know, these companies keep spending money like it's water. So, you know, NVIDIA is going to report on, I think, August 26th. I mean, it has to have a good quarter. How could it not have a good quarter when Amazon is spending$225 billion this year on CapEx?

9:13so until we see real weakness i think out of open ai and anthropic i'm not on burry's side

9:21Steve Eisman:well this is very interesting because as you mentioned we're seeing more numbers on the reliance on open ai and anthropic at least among the big tech companies just today bloomberg reporting uh in their own analysis that 70 of microsoft's ai revenue is coming from open ai a company which, of course, Microsoft had invested in. So I think it's a fair thing to say that Microsoft is investing money in OpenAI and the money is coming back to them in the form of their AI revenue, which literally is most of their entire AI business. You brought up an important point. If we see a price war come into play, if anything goes wrong for OpenAI and anthropic, both of whom are losing billions of dollars, then the whole thing unwinds.

10:13Losing billions is a euphemism. If only they were just losing billions.

10:19Steve Eisman:Right. Losing a lot more than that. So, I mean, the question to me is, how likely is that if? To me, it's quite likely at this point. To me, it seems as though the signs are going in that direction. And at the very least, I would expect the likelihood of that if to be priced into some extent. But when I see the S &P trading at record highs... Markets don't work that way. Okay. I mean, you know, the news is still, the economy is still good. If there is a price war, the market's going to have to have it hit over the head by a two by four, because it's been a bull market for so long, everybody just buys every dip.

10:56Steve Eisman:In other words, it's purely reactive at this moment versus proactive and predicting what might happen. It's not going to be proactive at all. You know, Michael is trying to anticipate god bless he's got more guts at this point than me because i i just think it's for me it's premature i'm waiting if it does happen and i mean i mean you think it's very likely and and i wouldn't necessarily disagree but it could be a year from now so that's the thing i mean i mean if it's a if it's two months from now that's one thing if it's a year from now then all these companies are going to be spending money like they've been spending money, and it's the same story.

11:39So assuming that Anthropic and OpenAI do get into trouble, the operative question, the real question is, when? How long is it going to take? And I don't think anybody, I certainly don't have an answer to that question, and I don't think anybody else has an answer to that question at this point.

11:56Steve Eisman:To what extent do you think that other investors on Wall Street, to what extent do you think the market is asking the question? Agree with you that no one has an answer. I don't have an answer. You don't have an answer. But you and I seem to be asking that question at the very least, which is instilling a little bit of a sense of hesitancy or at least anxiety around the whole ecosystem. Do you think that people are asking the question or is it the numbers are just too exciting? No one cares. I wish I could answer that question. It'd be nice if we could all get all the investors a room and do a little group therapy.

12:28and then we could have an answer. Take a survey. But otherwise, you know, I don't know. I just don't know. I mean, one thing that I'm even a little surprised about is the fact I thought that when the 10-year climbed above 4.5%, that could be a demarcation line. And if the market's going to get a correction because of rates, I think the 10-year's got to go probably above 5%. So it's definitely a bull market. you know things get shaken off i mean i'm surprised by the fact that i thought meta's numbers last week were hellacious just awful and the stock has you know went down for one day and

13:10Steve Eisman:climbed back up which part of their numbers were you most concerned about the spending two sets so one was um 28 revenue growth which is fine 55 expense growth and then 785 million in free cash flow yeah which is basically nothing you know a company like i like i was describing before that used to throw off cash like it was water now has no free cash none and and the other thing you know when you dig into the numbers which was interesting is the depreciation of the chips is starting to hurt i think it was something like six billion in the quarter up from like$4 billion, maybe three months ago.

14:01I could be off, but not that much. But what's starting to happen is all that CapEx, which went on the balance sheet, is now starting to roll through the income statement. And that's going to be a wait on them for years.

14:15Steve Eisman:If you had to think about how this will play out over the next several months or so, I mean, Bury is saying this is the top. or he's saying it's possible that this is the top i don't i don't know how he could say that i mean i mean you could say it but i don't i don't really know how you could say it i mean there's no it's again it's not like subprime where we had the securitization data where he and i both had the same securitization data there's no he doesn't have a data point that you and i don't have so if he had some evidence that that there was a price war breaking out on between anthropic and open ai and the chinese models i'd say okay you know he's that that's that's a very important data point and he's got a point but otherwise i just think he's you know with all due respect to him i think he's just putting a finger in the air and saying okay let's give it a shot and maybe he'll be right but but i don't think he has any data that he could point to i mean look like i said bank credit quality was great employment data is very strong you know what data point can you point to right now that would say this is it what would you want to see if you were to call a top in that regard what would you be needing to see you hinted at it with some of The pricing data, yeah.

15:37Again, I need a price war. I need a price war in the LOM world. And until we have that, it keeps going up.

15:44Steve Eisman:Until we have that, things will continue to, I think, go on kind of the way they have. All right. Steve Eisman, host of The Real Eisman Playbook. Steve, we always appreciate your perspective. Thank you so much. It was a pleasure to see you again.

16:02Steve Eisman:After the break, an update on tariffs and Iran. And for even more markets insights, you can subscribe to my weekly newsletter, Simply Put, at simplyput.profgmedia.com.

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19:29Steve Eisman:We're back with Prof G Markets. Between the war with Iran and new tariffs, global supply chains are facing major upheaval. Yesterday, Iran and Oman agreed to a new route for ships transiting the Strait of Hormuz and are closing in on a deal. But Iran says it won't open the Strait until the US lifts its blockade. Over the weekend, President Trump pulled back from, quote, the biggest attack since World War II in order to give diplomacy another try. He warned that the latest negotiations are, quote, the last chance to end the war. At the same time, the Trump administration has injected fresh uncertainty into global trade.

20:06Steve Eisman:At the end of July, Trump invoked Section 301 of the Trade Act of 1974 to impose sweeping new tariffs on 60 economies covering 99 % of U.S. imports. On Monday, 25 states sued to block them, arguing the administration is using Section 301 to replace the IEEPA tariffs. Of course, those are the tariffs that the Supreme Court struck down earlier this year. So we wanted to get a better understanding as to what is actually going on here and how everything is affecting global supply chains. So who better to speak to than Ryan Peterson, CEO and founder of Flexport. Ryan, thank you so much for joining us.

20:45Steve Eisman:It's been a while since we last chatted. I just want to make sure everyone understands your expertise. you run a logistics firm. You have a really good insight into how supply chains are moving around the world when it comes to freight. And of course, this is what is largely being affected by tariffs and by the war in Iran. And both are on again, off again. I can't get an understanding as to what is actually happening. What is happening? What do you read? I think your summary is pretty good. It is confusing because it's on and again, off again. The Iran war especially is just really difficult to understand.

21:19We've had so many different peace deals and last chances already that it's hard to really get a sense for like how that's going to play out. My predictive powers on that are not that great. On the tariffs piece, also we have quite a bit of uncertainty, although I would argue a little bit more than we had before these Section 301 tariffs came out. Because, well, they are going to go and get challenged, as you mentioned, the state's too, and there's a lot other lawsuits as well. The Section 301 tariffs have a longer track record of surviving these lawsuits. There's a bit more process behind them.

21:55IEPO is kind of like a really blanket authority as the president interpreted it, where he could just wake up on the wrong side of the bed and somebody pissed him off and just like throw a tariff at a country. And Section 301 requires a lot more process and they've gone through that process. They've created these, the Commerce Department, excuse me, has done these studies to say this or that country, the sector. It's been a lot more detail, a lot more thoughtfulness, let's call it. So they're more likely to stand. I thought IEPA was always a little bit, most people thought it was on pretty shaky ground.

22:29So that's a bit on the serif side of things. It's a whirlwind if you're out there as an importer or exporter trying to deal with all this.

22:36Steve Eisman:Yeah. How does it affect freight and logistics? If you have a tariff regime and you don't really know what's going to happen the next day and then say it does happen, like, does that mean that suddenly you're paying those tariffs? Is there a lag time? To what extent does the confusion of all of this actually impact the movement of goods around the globe? It is about the uncertainty and it's about the rapid changes as well as high rates. Now, I'd probably like separate those. Last year we had both, right? Like high, really high at some point tariff rates. I forget. It was like 145 % on China for like a few weeks.

23:16They remain pretty high on China. So there's the high rates piece, but they're much lower now. Even these Section 301 were either like 10 % or 12.5%, depending on the country. And that's kind of a manageable rate is what importers are saying. Like if it stays there and it's stable and predictable, then they're pretty good. Last year, you had both. You had both high rates and a lot of unpredictability. So in 2025, there were 52, no, 53 changes to the tariff code in 52 weeks throughout the year. So it was like complete chaos. Some of these things were implemented with no notice. In fact, this one was done with almost no notice because section 122 ended on July 24th at midnight, and this one kicked in at 12.01 a.m., and they announced it just a few hours before that.

24:07So very little planning time. And the way that manifested itself was just like a lot of mistakes were made, that companies filed the wrong, paid the wrong amount, filed the wrong duty amount. Then when it comes to getting refunds, have like struggled to get their, you know, they got the refund because the Supreme Court, and those have started to flow So out of the$166 billion of refund that's owed from the IEPA tariff,$122 billion are in process right now. I don't actually have the figure from the government about what's been paid, but there's a lot in that$122 bucket that aren't getting paid out or heavily delayed.