You may not know who Steve Eisman is - but you should:
“Steven Eisman (born July 8, 1962) is an American businessman and investor known for having shorted collateralized debt obligations (CDOs), thereby profiting from the collapse of the U.S. housing bubble in 2007–2008.”
Translation: He saw the 2008 implosion coming. Far enough in advance to make a little bit of money on it. (Approximately $800 million - for a current approximate net worth of $1.5 billion).
If you saw the excellent 2015 flick about the 2008 collapse - The Big Short? Eisman was renamed Mark Baum - and dramatized by Steve Carrell.
I further admire Eisman for an additional reason. Were I worth $1.5 billion? I’d own an island in Bali - and you’d never again hear from or see me.
Eisman is still fully engaged. Including hosting his “The Real Eisman Playbook” channel on YouTube. Where he and his guests expound upon a variety of things market and economics.
I watch. And my impression is: To say Eisman is bearish on the current US economy - is to woefully understate his perspective.
Given his past - I would think giving him a present listen would be the wise thing to do.
On Saturday, Eisman posted his interview with Lakshmi Ganapathi from Unicus Research. She too is a little bearish on all things US.
What follows are excerpts from said interview - interposed with my additional facts, figures and analyses….
Eisman: “If you deduct the (Artificial Intelligence) AI expenditures (investments)…the US economy is not even growing really 50 basis points (0.5%). So clearly there have to be pockets of weakness.”
Ganapathi: “Consumers are broke. The monthly budget math no longer works.”
Well that sounds very much like the federal government. Whose budget math hasn’t worked in decades.
Speaking of The Feds and their myriad idiocies…:
Ganapathi: “During Covid,…around $800 billion or more (in government ‘stimulus’) went to the consumers….”
“(T)he ‘stimulus’ money just completely hid the weakness in the consumer sector….Student loan (delinquencies) weren’t being reported to the credit rating agencies….I think at some point credit card delinquencies weren’t being reported….”
“(Thanks to the ‘stimulus’ money) all these subprime consumers became prime. (The cash influx - and the pause on credit agency reporting - raised their credit scores to) 702, 750, 800….”
Eisman: “Because they got a (‘stimulus’) check that made them look richer than they actually were.”
Ganapathi: “Yes. At that time (during Covid), when (consumers - with Covid money) bought auto (and home mortgage) loans - when they spent more money on the credit card? All the banks bundled those loans and put them in the Assets-Backed Securities (ABS) market (as investment products)….
“(But) the credit score prime was an illusion. So the prime credit scores that are sitting on the ABS are technically subprime.”
Well that doesn’t sound at all like the 2000s global financial collapse.
Ganapathi: “There is an 84-month (average) term loan for autos. With an (average) interest rate of 22 or 23%.”
How very credit card of them (22.25% average interest rate). But US consumers are only carrying $1.21 trillion in credit card debt - and $676.2 billion in car debt. So no need at all to worry.
Ganapathi: “‘Hidden inflation’ is what is dragging the consumer….Auto service. Insurance. Property taxes. Health insurance. Car insurance. These have skyrocketed since Covid….The policy shifts are dragging the negative items back on the credit files.”
Speaking of properties: US consumers are carrying $20.83 trillion in mortgage debt. With an average 6.37% interest rate on a 30-year note (the most common of mortgages).
So let’s do some rough math on the annual interest Americans are paying - just on homes, cars and credit cards.
And because I believe the children are our future? Let’s throw in student loan debt ($1.81 trillion - at an average interest rate of 6.53%).
Homes: $1.33 trillion in annual interest payments. Credit cars: $270 billion. Cars: $152 billion. Student loans: $118.2 billion.
Americans owe $22.84 trillion - just on homes, cars, credit cards and student loans. And are paying thereon $1.58 trillion per annum in interest.
The federal government owes almost $38 trillion. Yet is paying a third less per annum in interest ($1 trillion).
That seems fair.
Oh: And the federal government nationalized student loans as a part of the titanic idiocy that is Obamacare. Which explains this nugget…:
Eisman: “If you file for bankruptcy? Your student loan stays with you. So the government can garnish your wages at any time when you’re not paying back your student loan.”
Because of course.
If all of this is starting to sound like the entire system is rigged against you? That’s only because it is.
Here’s even more good news…:
Ganapathi: “(90-day-plus) credit card delinquencies….have doubled since 2021….
“(And) consumers are saying ‘We can’t pay the auto loan. So take my car.’
“Banks (who don’t want that many cars on their books) are saying ‘We don’t want your car….(We’ll) modify your loan,’ adjust it as current - and kick the can down the road.”
Very much like DC - the kings and queens of kicking the can down the road.
Even more good news…:
Ganapathi: “At the end of the day, consumers are tapped out….69% of US consumers are living paycheck to paycheck….25% of (those) consumers are putting their groceries in Buy Now Pay Later (BNPL - or layaway).
Eisman: “They’re buying their food with (BNPL) - which means they have basically 2-3 months to pay it back.”
Ganapathi: “BNPL carried consumers (during Covid) - and is still carrying consumers even today.”
Wait a second - did you get all of that?
Americans are taking 2-3 months to pay back…what? A week’s worth of groceries? Two weeks?
And then they go grocery shopping again - while still owing for the last shopping trip.
And then they go grocery shopping again - owing for the last two shopping trips.
And then….
Does this sound like a healthy economy to you?
This is light years worse even than living paycheck-to-paycheck.
This is Americans compiling sky-high debt for the very essentials of existence - food. And being forced to repeatedly kick the can further and further down the road.
Which raises another BNPL question: What are the interest rates BNPL companies charge?
They can be excellent - if you never, ever delay or miss a payment. But this is America 2025 - where people are delaying and missing all sorts of payments all the time.
And at that point? Their BNPLs get really ugly - really quickly…:
“BNPL allows you to receive your purchases now, pay over time, and -- as long as you never miss a payment -- pay $0 interest. You want to be careful about making all payments on time, because missing even one could lead to fees and an interest rate as high as 36%. If you still can’t pay, you could even face loan default.”
So US consumers have yet another hyper-interest-inflated debt to throw on the pile. Atop their hyper-interest-inflated mortgages, credit cards, cars, student loans,….
Because the American economy is so strong.
And things are so good for Americans.