Steve Eisman’s Market Calls: Middle East Conflict & a Trade War 6/17/25

0:00Bring in show music please. Hi, I'm CNBC producer Katie Kramer. Today on Squawk Pod. President Trump makes an abrupt departure from the G7 in Canada, citing the strikes between Israel and Iran as top priority. They should have done the deal. I told them, do the deal. And Steve Eisman, the big short investor who famously bet against the housing market before the financial crisis, he warns against the worst case scenarios. People have been making those kind of predictions for 40 years. Why haven't they ever come even close to true? But defends his right to make prognostications. Sometimes I'm too early.

0:38And in our business, if you're one or two years too early, it's a conclusion of being wrong. But the world can only end once. You just don't want to be late for that. Then former FDA Commissioner Dr. Scott Gottlieb on the future of the agency he used to run and the costs of cutting health funding. A lot of the cuts that they've made, they're going to have to figure out a way to either spend the money on the grants that it was allocated towards or find other ways to spend it. And so I think you could see a bolus in NIH spending towards the later half of this year. Plus, reported drama between OpenAI and Microsoft and a crypto billionaire headed to U.S.

1:11markets. It's Tuesday, June 17th. Squawk Pod begins right now. Stand Becky by in three, two, one. Good morning, everybody. Welcome to Squawk Box right here on CNBC. We're live from the Nasdaq market site in Times Square. I'm Becky Quick along with Joe Kernan. Andrew is off today.

2:00President Trump, as we said, arrived back in Washington just a short time ago. The conflict between Israel and Iran prompted him to leave a meeting of G7 leaders in Canada a day early. In comments made aboard Air Force One on the way back to the U.S., Trump said he was looking for something better than a ceasefire between Israel and Iran. He said, in his words, not too much in the mood to negotiate with Iran. The president is looking for a complete give up by the country. On True Social, shortly after landing, he said he has not reached out to Iran for peace talks and that if the country wants to talk, it knows how to reach him.

2:42This follows a post on True Social that got a lot of attention last night. The president wrote, Iran should have signed the deal. I told him to sign. What a shame and a waste of human life. simply stated, Iran cannot have a nuclear weapon. I said it over and over again. Everyone should immediately evacuate Tehran. I don't understand. Is this more pushing and pressure to try and get Iran to the table? Or is this basically signaling exactly what you're going to do ahead of time, which seems incredibly bizarre. If you actually have plans to do something. Bordeaux's not in Tehran. That's the question.

3:23Macron said, OK, he's going back to continue on peace talks. And he said, no, I'm not. Macron doesn't know what he's talking about. There are supposedly Iran has reached out through many different channels, which is probably not surprising, given that given that they don't have maybe a lot of options at this point. I think the president realizes, and the United States wasn't directly involved, obviously, but it's clear that what Israel has been able to accomplish in the early part of this conflict. So I think President Trump thinks that he and Israel are in a position to really finally squeeze some actual concessions that would have to be verifiable.

4:08if unless if that's not going to be clear, I think, to Israel and President Trump, I think you could be looking at further escalation. That's the case. Why tell anybody? Because I think I mean, in a perfect world, wouldn't the best thing be for.

4:28Special forces to take out Fordow and not sure, but you lose the element of surprise if you are basically messaging that that's what's coming. Well, I don't know what you're saying. To Iran, they're just saying, look, this is, it looks at this point like whatever Iran talks about conceding concessions, he says it's not going to be enough. He wants more than just a ceasefire. And, you know, the way Iran has negotiated in the past, I'd be very. They have not been very forthright. It has to be a total give up. This is exactly what the IAEA just said. Can they do a total give up? I don't know if they're if they're capable of a total give up of nuclear.

5:09Yeah, I don't know. President Trump and Britain's prime minister, Keir Starmer, signing an agreement to formally lower some tariffs on imports to the U.S. from the U.K. This was announced on the sidelines of the G7 summit in Canada. It does affirm quotas on British cars and gets rid of tariffs on the U.K. aerospace sector. It doesn't resolve, though, issues surrounding steel and aluminum. And the agreement is short of a formal trade deal. Instead, it implements some of the general terms of the agreement that we heard about, in principle, that was announced between the two countries back in May.

5:48In other trade news, President Trump says that he doesn't think the European Union is offering a fair trade deal, at least not yet. He made that comment overnight on Air Force One. Additionally, Pakistan saying that it held high-level tariff talks yesterday with Commerce Secretary Howard Lutnick and that both sides are resolved to finalize a trade deal, they say, at the earliest. Similar comments from Thailand overnight. The country's finance minister saying that trade teams began trade negotiations virtually yesterday. He said that after the talks, Thailand will adjust its proposal and submit it officially within this week.

6:25Some potential trouble for the Microsoft OpenAI partnership. In a new report, the Wall Street Journal details difficult negotiations between the two parties on OpenAI's push to convert to a for-profit company. The journal says that things have gotten so tense that OpenAI executives have considered accusing Microsoft of anti-competitive behavior. It's called the nuclear option on this, the thing that would probably blow up the relationship for forever. Another issue concerns Microsoft's access to OpenAI's technology. The report says that OpenAI doesn't want Microsoft to have access to the intellectual property of a coding company that it's buying called Windsurf.

7:05Of course, Microsoft has been a great long-term partner of OpenAI's. It's been one of the most closely watched and best looked at relationships, but things have gotten quite a bit more tense in recent years. There are questions about how much Microsoft will own in this new company if it is converted to for profit. But Microsoft has to sign off in order for it to do that. And this sign off has to come before the end of the year in order for OpenAI to keep something like 20 billion dollars of the money that it's raised from outside. Now, there was a joint statement from OpenAI and Microsoft provided to CNBC that says we have a long term productive partnership that has delivered amazing AI tools for everyone.

7:46Talks are ongoing and we are optimistic that we will continue to build together for years to come. Crypto billionaire Justin Sun is taking his Tron Group public in the U.S. via a reverse merger with a small Nasdaq listed toy company called SRM Entertainment. Currently makes toys and souvenirs for theme parks like Smurfs water bottles. As of yesterday, that company had a market cap of just$25 million. It's going to change its name to Tron. Justin Sun has been named an advisor and it has signed an agreement for a$100 million investment to be used to acquire Tron's TRX digital tokens. Sun made news last month when he attended a gala dinner with President Trump for the largest holders of Trump's meme coin.

8:36In 2023, Sun was accused by the SEC of manipulating the market for the TRX tokens. In February, the SEC asked a court to pause that lawsuit as part of a broader rollback of crypto enforcement under the Trump administration. Cheese will be next. Still to come, investor Steve Eisman, why the Wall Street Watcher is optimistic about the state of conflict in the Middle East. If Iran had gotten nuclear weapons, that would have meant that Turkey would have wanted nuclear weapons. Saudi Arabia would have wanted nuclear weapons. The entire region would have armed, and that would have been a disaster. Eisman's market predictions and more when Squawk Pod returns.

9:21This is Squawk Pod. Stand by Joe. Here's Mike. You're watching Squawk Box on CNBC. I'm Joe Kernel along with Becky Quick. Joining us right now is Steve Eisman. He is the host of the Real Eisman Playbook podcast. He's also former senior portfolio manager at Neuberger Berman. And Steve, we always love having you in. Thank you for having me again. Thanks for coming in to talk today. We just teased that you are not worried at this point about the Fed. You're not really focused on the deficit at this point. What are you focused on? Two things. Tariffs and the potential for a trade war, I think, is really the only risk to the market right now.

9:58It's completely binary, and I really have no way of handicapping it. And then, you know, what's going on in Iran right now, I think, is actually potentially extremely positive for both markets and the globe. OK, talk about the positivity on Iran, because most people look at that and think, oh, my gosh, potential for a wider war. What does that mean? So I play it out as if nothing had happened. You know, Iran, as we all know, was very close to getting a nuclear weapon. And unfortunately, Iran is run by a government. And the only way you could call it is a death cult. And so if Iran had gotten nuclear weapons, that would have meant that Turkey would have won nuclear weapons.

10:39Saudi Arabia would have wanted nuclear weapons. The entire region would have armed, and that would have been a disaster. So getting rid of a death cult anywhere on planet Earth, I think, is a very positive thing, especially when that death cult is close to getting nuclear weapons. Was the market kind of factoring that in before, or this is a known or known that the market was ignoring? I think the market was just not focused on it, and now it's focused on it, but I think potentially it's unbelievably positive. Okay. Tariffs and trade, how do you figure that? Because we were just talking GDP estimates with Steve Leisman.

11:11Economists that CNBC surveyed think that it's going to hurt the GDP for the remaining quarters of this year. But they do think it kind of shrugs it off next year and the economy is back and growing at a normalized pace. Well, I think that's very true if there's no trade war. OK. That's why I say the situation is very binary. So, look, if we reach deals with all these countries and there's no trade war, I'm very positive in the U.S. economy long term and I would be very positive on the markets. But if there's a trade war, chances are we go into a global recession. And, you know, it reminds me a little bit about all the books I've read in life about World War I.

11:50Nobody wanted World War I. And yet, because of all the reciprocal treaties that existed between countries, they somehow ended up there. I don't think anybody wants a trade war, but it's certainly possible. And again, I have no way of handicapping it at all. Would it be with China or would it be with everybody? I think it could be with everybody, potentially. I mean, China is the one that gets the most press. But what I find somewhat a little bit more interesting is Europe. You know, one thing I've learned from some of my guests on my podcast is that the EU has authority over tariffs. And they already made an offer to the United States to reduce tariffs to zero.

12:29And President Trump told them to take a hike. because he's more interested in everything else. And it's the everything else that's more complicated. The non-tariff barrier. The regulations, the VAT. And each country apparently in Europe has, not legally, but an effective veto about any issue they care deeply about. So if we were to, let's say, try and negotiate to get more agricultural products into Europe, France would probably say no. And then it's just no. So I don't know how to handle it. negotiating with Europe is like trying to hurt cats, given the way they're structured. So it just has the potential to be a much bigger problem.

13:10It can be. Like I said, nobody wants a trade war, but we could still end up there anyway. I mean, the negotiations of trade are incredibly complicated with incredible special interests involved. It's complex. It takes time. Anything could happen. I just don't know how to handicap it at all. It's not a risk that's quantifiable. If it were settled favorably, would it even be better than it was if we hadn't done anything before? Maybe. I mean, potentially things would, you know, a lot of businesses would come back to the United States. And we have been, a lot of the things that Europe does, I mean, it holds them back.

13:48It holds the world back. A lot of, I mean, they don't, you know, there's no innovation. No, look, I have great sympathy with respect to what President Trump is trying to achieve. Right, but you can't handicap what it does for markets. I can't handicap the outcome. It's impossible. You know, Steve, the reason we like talking to you so much is because of some of the legendary calls you've made in the past. You saw the housing crisis coming before most people and you found a way to kind of bet against housing and profit greatly from that. There are a lot of people who are talking these days about the potential for huge change, the potential for seismic moves, whether that be in the U.S.

14:24Treasury market and buyers disappearing, whether that be the collapse of the U.S. dollar as our, you know, the reserve currency. Do you put faith into any of those talk? Let's do a thought experiment. Let's go back, let's say, 2005. And Pete Peterson comes on this show. I don't know who was the host back then. It was us. It was you? Okay, there you go. 2005, it was the two of us. At least us. And he comes on and he says that the deficit's horrendous. It's going to crowd out investing in the United States. interest rates are going to go higher, the dollar is going to lose its reserve currency. And your next guess is me.

15:05And a younger, less gray-haired, more arrogant Steve Eisman. And I come on and I say, I love the deficit. With the reserve currency of the world, we could have more deficit. We're not going to lose our reserve status. Interest rates are going to go lower. There's going to be no crowding out. And 20 years from now, the U.S. economy is going to be more dynamic than it's ever been in our lifetimes. And the reaction would be, that Pete Peterson, what a sage, and that Steve Eisenman, what a schmuck. And who was right? You were right. I would have been right. So I think the question people just don't have.

15:38So tell us now what you see. Is that same story going for 20 years? The question people don't ever really ask is, people have been making those kind of predictions for 40 years. Why haven't they ever come even close to true? And if you notice, the 10-year has been in the same range for the last two to three years. So why hasn't it come true? And I think the answer is that we are more than just the reserve currency of the world. The entire financial system of planet Earth functions on treasuries from from overnight repos to sovereign wealth funds parking their money. And there is no alternative.

16:17and until the if there was an alternative yeah i would i would say we have to deal with the deficit now because then we have the potential for losing our reserve currency but there is no alternative and until there is an alternative i mean i think we should deal with the deficit but i don't panic about the deficit because nothing's going to change and 20 years from now you would make that you would say that we'll still be in that same if there is no if 20 years from now, there's no alternative to U.S. treasuries. We'd be having, we will literally be having the same discussion word for word. David Walker, I think, was in charge.

16:50Yeah, he was. And I remember off camera, I used to give him grief as the deficit would go up every year and say, you know, with you there, it's just getting worse, worse. You suck at this. And I say the same thing to Arthur Brooks, who is supposedly in charge of happiness for all of us. And he's been doing that for five years. And look what's happened to this country and bringing us all together. It's like, Arthur, you're making it worse. You're bad at your job. You're bad at your job. But I think a lot of this is like Malthus. The deficit clock is here like half a block away. Remember Malthus?

17:20I mean, how many? David Malthus was wrong about everything. The people who argue, make these Armageddon claims about the deficit have been making these claims for 40 years. Now, one criticism of me sometimes that I lodge against myself as an investor has been sometimes I'm too early. And in our business, if you're one or two years too early, it's equivalent of being wrong. But I'm not 40 years too early. If you're making an argument for 40 years and it's been wrong the whole time, you probably should take a step back and ask yourself, why am I wrong? But the world can only end once. You just don't want to be late for that.

17:54I agree. I'm just saying that as long as as long as as long as as long as as long as our cash in uses as long as treasuries remain the financial system of the world, there's no reach to panic. We should deal with the issue. But having the Armageddon claim just is silly at this point. Maybe the panic is the only thing that works in Washington, though. You can't get anybody to do it on anything. Well, I've been making that argument for 40 years. It hasn't worked. Steve, I hope you come back soon, because I wanted to ask you about three or four other things. We're out of time right now. But come back.

18:24I like these thought experiments. I like going down this path. And thank you for reminding us what you said 20 years ago. What was it if by when the missiles are flying? Because if they really do come, the trades won't go through. The trades won't settle.

18:43Next on Squawk Pod, former FDA Commissioner Dr. Scott Gottlieb on the recent cuts to health and science funding. And where does he think innovation goes from here under the watch of a new political appointee at the FDA? If a Senate director starts getting involved in these regulatory decisions in sort of an arbitrary way that's unpredictable, is it creates unpredictability in the development space. And people don't know where to allocate capital. They don't know what the agency's decision making process is going to be.

19:17Welcome back. You're listening to Squawk Pod from CNBC today with Joe Kernan and Becky Quick. All right, welcome back, everybody. The Trump administration has cut health research funding to$2.8 billion in May. That's down 28 percent from April. That's according to data from the Treasury Department. Joining us right now to discuss the implications is former FDA commissioner, Dr. Scott Gottlieb. It's at 28 billion. It's at 28. It's 2.8, not 28. He's a board member with Pfizer and Illumina, also a CNBC contributor. Dr. Gottlieb, thanks for being here today. First of all, describe what happened. Why was the funding cut and where was it impacted?

19:55Well, there's a proposed cut in the president's budget for 2026. It's quite substantial, I think, on the order of 17 billion dollars. But for this year, the NIH is very far behind their spending goals. And so they're about two point three billion dollars right now behind where they would normally be if they were spending the budget that was allocated for 2025. And this is going to set up a difficult situation towards the end of the year. either NIH is going to have to spend that money, which means they're going to have to shovel out a lot of money to fund grants towards the back half of the year, or they're going to set up a showdown with the courts about impounding that money.

20:27I think a lot of people in the administration, especially the Office of Management and Budget, have wanted to test the president's authority to impound funds. This relates back to a statute in 1974, the Impoundment Act, also a Supreme Court case in 1975, where Nixon tried to impound funds that were earmarked for the EPA. I think there's a lot of people in the administration who believe that the president has authority to impound funds. They're going to probably try to do that at some point and test the legality of both that statute and the ability for the president to exercise discretion in how money gets spent.

20:57I don't think that they're going to use NIH as a test case for that, though. They're probably going to find some more absurd form of government spending and impound that money and then go to court to test the president's authority. I also don't think they're going to do it right now when they're working with appropriators to try to pass the reconciliation bill. But at some point this year, I would expect them to do that, not with NIH money, would be my guess. And that means they're going to have to spend that$2.3 billion and whatever else they're holding on to right now towards the back half of the year.

21:24So I don't think there's going to be actually NIH cuts this year. I think there's probably going to be some haphazard spending towards the back half of the year. So what does that mean in terms of the research that's being done right now? How does that impact what's actually happening on the ground? Well, look, you're seeing cuts to research. Some are political decisions that the administration is making to cut certain institutions or cut certain funding. We saw a court case in Boston yesterday where a judge said that they couldn't cut grants from the NIH that were earmarked towards so-called DEI programs, that it was too overtly political and discriminatory.

21:59So that court case is going to have to wind through. But I think the reality is that a lot of the cuts that they've made or the money that they've held back, the grants that they've canceled, they're going to have to figure out a way to either spend the money on the grants that it was allocated towards or find other ways to spend it. And so I think you could see a bolus in NIH spending towards the later half of this year. I think a lot of people are anticipating that all that money will be sort of sequestered or impounded. I don't think they're going to have the authority to do that. They may ultimately get the authority to do that by going through the courts.

22:28But I don't think NIH is going to be a test case. And so what I would expect is a lot of that money to get spent, probably not on the way it was originally programmed, but spent nonetheless. Scott, let me ask you about where things are on some of this cutting edge research that's taking place. Yesterday, we got this news from Sarepta that a second patient had died of liver failure after a gene editing medicine had been given to this patient. There was a lot of concern around this because the FDA kind of gave the fast-track approval to this. It's for a drug that helps with Duchenne's muscular dystrophy.

23:07That's a disease that kills boys and young men usually by the time they're in their 20s. So a lot of questions about this. It was kind of fast-tracked by Dr. Peter Marks at the FDA over some objections of the staff. He's a new leader at the FDA who's going to be watching over some of these very issues. But for anybody who's thinking, OK, we're making a ton of progress with gene therapy. There's a lot of potential for this. That news in conjunction with the changes at the FDA have people wondering if this is going to put a freeze on what's happening there. What are your thoughts? Yeah, look, I don't think it's going to put a freeze on what the agency is doing.

23:46I think I've heard that Vinay Prasad, the new head of CBER, who is a political appointee in that position, which is unusual in and of itself to see someone politically appointed to those roles as opposed to someone who rises up through the ranks of the career staff. He's expressed interest in some of these past approvals. I've heard he's also been taking a look at some of the pending CAR-T approvals. I think what happens if a Senate director starts getting involved in these regulatory decisions in sort of an arbitrary way that's unpredictable, is it creates unpredictability in the development space.