Michael Burry Says This Is The Top — Is It?

If anything goes wrong for OpenAI and Anthropic, both of whom are losing billions of dollars, then the whole thing unwinds. >> Los losing billions is is a euphemism. If only they were just losing billions. >> Billions, right? Right. Losing a lot more than that. So, I mean, the question to me is how likely is that if? And at the very least, I would expect the likelihood of that if to be priced in to some extent. But when I see the S&P trading at record highs, >> no, the market markets don't work that way. The market's going to kind of have to get hit head over the head by a 2x4 because it's been a bull market for so long and everybody just buys every dip. >> 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. >> Welcome to Prof Markets. I'm Edson. 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 Deis 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. 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 Bur. 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 Palanteer 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. Steve, thank you for joining us on Profit Markets. >> Glad to be back. >> You are one of the other guys who called the 2008 crash. One of the other guys in that movie. >> Yeah. Well, 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? >> I mean, I could I could construct the bare case for you or, you know, we'll talk about it, but you know, right now, number one, the US economy is very strong. you know, all the banks reported midmon in July and the credit statistics were as benign as they possibly could be. So, there's no credit issues in in the US 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 Proctor and Gamble who has no revenue growth. You know, that's not what's driving the economy right now. You know, things are are fine. that there's no 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. I 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 we if if you and I were sitting here a year ago, it would all be rahrh. I mean, there they wouldn't there wouldn't even be you'd be hardressed 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 Gary has a lot to say, and it's all 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. You know, you have Ed Zitron as well. What I would say is the issue is, you know, if you compare this to '08. >> Yeah. >> So, Michael and I both had the same thesis, which was underwriting, mortgage underwriting standards have deteriorated dramatically. And then what was good about the thesis was every single month securization data came out showing credit quality of hundreds upon and billions upon billions of mortgages. And so you could see you could actually see the deterioration every single month. You had a you had a data set that was incredibly robust that came out every single month and said to you, you're right. that that so so you had this reinforcement, >> you know, if you're going to construct a negative AI story. Well, you don't have a securization database. It's going to help you. So, what what's your what's what's the negative stories? So, let me tell you what I think is potentially the negative story, >> but it's not here yet. >> Yeah. >> 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 that's a big change. Now, that doesn't mean that the that you know these companies are on the verge of anything bad. It just means that the dynamics of their business has have really shifted. They'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 um doesn't seem to have any moes around it because you know people switch from models to models and that and now you have the open the openend models from China which are much cheaper and people seem to be switching to and so maybe they'll be a price war. Maybe not. Where I think the the in the armor potentially is. I read this report that basically said something like 70% of Amazon and Google's and and Microsoft's open AI capex businesses are from open AI and anthropic. >> Yes. So if now here 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 uh fewer chips would be bought. I mean, you could figure out the rest. But until that happens, you know, these companies are keep spending money like it's water. So, you know, Nvidia is going to report on I think August 26. I mean, it has to have a good quarter. How could how could it not have a good quarter when Amazon is spending $225 billion this year on capex? So, until we see real weakness, I think out of open AI and anthropic, I'm not on Bur's side. 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 I think it's a fair thing to say that Microsoft is investing money in open AI and the money is coming back to them in the form of their AI revenue which literally is most of their entire AI business. >> Yes, >> you brought up a important point. You know 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. lo losing billions is is a euphemism. If only they were just losing billions. >> Billions, right? Right. Losing a lot more than that. So, I mean, the question to me is how likely is that if uh 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 in to some extent. But when I see the S&P trading, market markets don't work that way. I mean, you know, the the the news is still the economy is still good. If there is a price war, the market's going to kind of have to have have it hit head over the head by a 2x4 because this it's been a bull market for so long and everybody just buys every dip. >> 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 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 like they've been spending money and it's the same story. So assuming that anthropic and open AI do get into trouble, the the operative question, the real question is when? How long is it going to take? And and I don't think anybody I 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, >> right? 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. >> You know, 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 and and then we could have an answer. >> Take a survey. >> But but uh otherwise, you know, I don't know. I have I I absolutely I just don't know. I mean, you 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 and a.5% that was that could be a demarcation line. And it it hasn't, you know, if if if the market's going to get a correction because of rates, I think the 10ear's got to go probably above five. 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 then climbed back up. >> Which part of their numbers were you most concerned about the spending? >> Two two sets. So, one was um 28% revenue growth, which is fine. 55% expense growth. >> Yeah. And then 785 million in free cash flow. >> Yeah. >> Which is basically nothing. You know, a company like you like I was describing before that used to throw off cash like it was water now has no free cash flow. 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 6 million 6 billion um in the quarter up from like 4 billion maybe 3 months ago. I I could be off but not by that much. But but what's starting to happen is all 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 weight on them for years. >> Yeah. If you had to think about how this will play out over the next several months or so. I mean Bowie 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 again it's not like subprime where we had the securization data where he and I both had the securization 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 he I don't think he has any data that he could point to. I mean look like like I said bank credit quality was great. Employment data is very strong. You know what 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? >> Again, I need a price war. I need a price war in in the LLM world. >> Until we have that, it keeps going up. 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 Eman. Steve, we always appreciate your perspective. Thank you so much. >> It was pleasure to see you again. >> We'll be right back. And if you're enjoying the show, be sure to subscribe to the Prof Markets YouTube channel at the link below. Support for the show comes from Vanguard. To all the financial advisers listening, let's talk bonds for a minute. Capturing value in fixed income is not easy. Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. Vanguard's bond lineup is built around institutional quality. And institutional quality isn't just a tagline. It's a commitment to delivering the kind of investment solutions that your clients deserve. That means access to more than 80 bond funds actively managed by a global team of over 200 sector specialists, analysts, and traders. While some firms like to spotlight a single star portfolio manager, Vanguard takes a different approach. They believe the strongest active strategies come from collaboration with ideas shared across the entire investment team. 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At the same time, the Trump administration has injected fresh uncertainty into global trade. 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 US imports. On Monday, 25 states sued to block them, arguing the administration is using section 301 to replace the EA 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 chain. So, who better to speak to than Ryan Peterson, CEO and founder of Flexport. Ryan, thank you so much for joining us. 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 uh 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? Well, I I think your summary is pretty good. It's it's it is confusing because it's on again, off again. There's been um the the Iran war especially is just like really difficult to understand. and we'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 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 the section 301 tariffs came out. Um because well they're going to go they are going to go and get challenged as you mentioned. There's states su and there's a lot of other lawsuits as well. Um the section 301 tariffs have a longer track record of surviving these lawsuits and there's a bit more process behind them. IPO is kind of like of really blanket authority that the 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 uh this or that country the sector it's been a lot more detail a lot more thoughtfulness let's call it um so they're they're more likely to stand I thought AIPA was always a little bit most people thought it was on pretty shaky ground so that's a bit on the tariff side of things it's it's a whirlwind if you're if you're out there as an importer exporter trying to deal with all this >> 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 >> yeah I mean it it is about the uncertainty and it's about the the rapid changes as well as high rates now uh and I'd probably like separate those the 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 um >> and they remain pretty high on China but um so there's the high rates piece but they're much lower now even these section 301 were either like 10% or 12 a.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. Um 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 uh 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. So very little planning time and the way that manifested itself was just like a lot of mistakes were made um 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 the you know they they got the refund because the Supreme Court and those have started to flow out of the 166 billion of refund that's owed from the AIPA tariff 122 billion are in process right now. Um, 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 are heavily delayed in part because it was so difficult to comply that if you filed wrong, you're not Yes, you'll get a refund, but you have to go through this whole legal process to first correct your entry uh and then you can get a refund. So, people are definitely dealing with the repercussions of like not having their data organized, not having filed correctly. I think it's one place um you know plug for my own company where we've as being a technology company and having databases for managing this it's given us a real leg up in helping companies get it right. Well this is what I was going to ask you about is the tariff refund process. I mean we we know from uh US customs and their reporting which they had to give over to the courts because of all of the lawsuits is that apparently the administration has issued hundred billion dollars in tariff refunds since the Supreme Court ruling. But to your point, this is one of the things that you guys specialize in. You actually have a tariff refund calculator to help people figure out how to pay the tariffs or get the tariff money back um and and actually recover those refunds. I mean, where are we in the refund process? It sounds like it's a little bit of a show, but maybe that's too aggressive. >> Well, I I would give the government some credit here. I actually thought they've done a pretty good job. They built this system called CAPE uh which is a sort of an attachment or a module on top of the primary technology system of the of customs of customs border protection and they shipped it in just about I two months or so two or three months that it took them to build it which in the scheme of government building technology is like quite a feat actually if you go back and see the government technology system for customs it's called ACE automated commercial environment and it was like this 10 to 15 year debug a to deliver the piece of software. So for them adding a module that's as high stakes and complex as like refunding you know 100 billion 166 billion um in just a few months is to my view as a technology is like pretty is pretty good. I I'm kind of impressed um where the problems are coming about are actually less because of customs. It was actually because of shortcuts that the broker the customs brokerage and the importing community these businesses took too many shortcuts. So, like when you're filing, especially where you see the pain right now where people are not getting refunds cuz you said there's 100 billion. I haven't seen that stat, but yeah, that sounds about right. The the 122 have been filed for and then there's 44 or so 42 billion more somewhere around there that are um not yet eligible. They're there going to be a later um process for those types of refunds. But so there's still 20 billion that have been filed for and have not been refunded. And what those are is a lot of that is steel and aluminum where people made a mistake. So there's these steel and aluminum duties that were unique in the US customs landscape. Historically, you would only need to know of three things to know how much customs duty you owed. It was the value of the goods, what country of origin are they from, uh and their HS code, the classification of this of the code. If you had those three things, you spit out a duty. You know how much you're owed. Now, with the um steel and aluminum duties that Trump put in last year, you now have to know of that. It's not enough to know the classification of the goods. You got to know of this object, what percent of the value is steel and aluminum. And then you need to know the country of smelt. Where was that steel and aluminum made? Or cast or smelt depending on how it was made. So, companies didn't have that data. And if they did, they were not very good at like breaking it out in a way that could be stored and can be audited. And so a lot of them kind of faked it. What they would do is say, well, okay, it's 25% and there's this field when you're it's pretty technical, so forgive me, forgive me uh audience out there if I bore you on this, but there's a field where you transmit the duty amount that's owed. And a lot of people just put the number in there and sent it to the government. And they might have got it right in terms of the duty amount owed, but they were supposed to break out the percent aluminum. And you only pay So the steel and aluminum duties, you're only supposed to pay that higher duty amount on the valuation on the percent of the goods that's made of steel and aluminum. But these people fat, they didn't even fat finger it. They were just shortcutting it. So now when you go to get a refund, you can't get a refund on that entry until you go back and clean up the process. And so it's just like a good example of like honestly this stuff's not hard. If you have a good database in place and you understand the rules, you can do it. But it's a new field. It took a lot of the customs brokerage community still hasn't been able to add this database field to their software system. So it's it's kind of you're seeing the pain of an industry that just hasn't embraced technology. It's just fascinating though to hear all of the complications and yeah, I guess all of the details technically are boring, but what it tells me is that we have invented so much such a incredible network of complexity and I don't see what we've even done it for. I mean, this isn't to collect tariffs. This is to give tariffs back. This is to undo all of the complexity that was originally put in place in the first place. Yeah, I think that's actually a really good point is that in some level there's this compliance burden that is as high as the tariff burden, you know, and right the the the government has this idea that um the that what they would like I I think the direction you're going to go the direction things seem to be going in the US but also in Europe and other areas is they the governments want way more data about what's crossing borders. They want to know in that seal and aluminum example where are these sub what is it made of? not just the overall classification of the products, but like what percent of that product is steel and aluminum? Where is that from? And you're going to get to a point where what they want is they want to know that for every item. What is this thing made of? Where is each of those subcomponents coming from? And and modern supply chains are incredibly interlin, complex, global structures. So like keeping up with all of that for a company is really hard because you buy something. >> You buy an object and you put it a component, you put it in your product, but that component has subcomponents that come from different countries. You don't know where. And now, you know, tracing this back to tier one, tier two, tier three suppliers. And I I mentioned it's not just the United States. I mean, these regulations are increasing. Europe now requires when you import wood, you have to be able to show the GPS coordinates of where the tree was grown. Uh, so they can for anti-deforestation. I mean, I think that's a noble cause, but you now need to be able to show where was the tree grown. And then you need a receipt from the trucker to show that this um truck did in fact pick the goods up at that forest and bring it to this sawmill. And they want to see that leg monitored. And so that's the trend of where things are going and importers and exporters need to get ahead of this with good database technology to track it all and you want that database to beworked so that other people can contribute and add to it etc. So I think I mean from a flexport standpoint it's like positioning our we feel like we've made the right bets technology-wise to help people manage this. But it is a bit of a as a kind of a free market guy, it's a I could see the burden that this puts on companies and there comes a point when you're like government like >> just maybe you should just charge me a couple percent more tariff and not make me do all that stuff. Like what is it you're trying to achieve and it's not obvious. We're >> just getting in our own way with ever more complexity and no real purpose. It seems like from my perspective. I'm gonna have to let you go in a moment, but before I do, I just need to get your views on what's going on in the straight of Formoose. uh is it closed? Is it open? If so, how open? What do we actually know? >> Yeah, on the container shipping side of things, it's it's pretty much you can call it closed. There's like one or two transits a day and it was at at peak it was almost 100. So, it's it's really not like very very little container shipping is happening there. Um the tankers also way way down although there are more tankers transiting than container ships. I guess more valuable to those economies. It's it's kind of a from a and my my world is container shipping, but in the container shipping world, it's sort of a backwater, although Jeb Ali is the ninth largest container port in the world. That's in Dubai. Um or it was before before this war. It's basically that way because it's a trans shipment hub. Like lots of ships bring containers there to be you think of a hub for in a hubspoke network. Um and th that that traffic is all moved elsewhere. They're doing the route those trans shipments elsewhere lot in India. Um and of course they're all routing around Africa. The Red Sea has been closed since really since dis December of 2023. The almost all container ships are routing around the southern tip of Africa rather than going the Red Sea because of the Houthis um which are an Iran linked kind of proxy group. So yeah, I mean there's no end in sight to this. I think hopefully there's a peace deal, but even that I'm not sure that it gives enough reassurance because we've had these fits and starts, we've had peace deals, and then the next day you've had um ships get attacked. So, I don't know that that's going to calm the insurance markets. It's costing about 10 to 15% of the value of the ship just to insure it for one voyage through. Uh and you think about that, it basically turns your, you know, it's it it's hard. I don't even know how they underwrote that policy to be honest because how do you know what's the odds of a ship getting hit? Is it 10% or not? I mean, it's a pretty catastrophic um event obviously and it's not just the ship that gets lost. All that cargo, you might you might have a $200 million ship with a billion dollars of the merchandise on it that can go under. Ryan Peterson is the CEO and founder of Flexport. Ryan, always appreciate your time. >> Yeah. Hey, great to see you again, Ed. We'll be right back. And if you're enjoying the show, be sure to subscribe to the Prof Markets YouTube channel at the link below. Support for the show comes from BCX, the public ticker for private tech. For generations, American companies have moved the world forward through their ingenuity and determination. And for generations, everyday Americans could be a part of that journey through perhaps the greatest innovation of all, the US stock market. It didn't matter whether you were a factory worker in Detroit or a farmer in Omaha. Anyone can own a piece of the great American companies. But now that's changed. Today, our most innovative companies are staying private rather than going public. The result is that everyday Americans are excluded from investing and getting left further behind while a select few reap all the benefits. Until now. Introducing VCX, the public ticker for private tech now available wherever you buy stocks. 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UBS estimates that 30% of Google's cloud revenue came from just open AI and anthropic. And if we were to convert that to AI specific revenue, well then the number would be roughly 75% as well. In other words, if open AI and anthropic didn't exist, then big tech wouldn't have an AI business at all. And the reason that is bad is because big tech has literally bet the farm on one thing and one thing only and that is AI. Now you might tell me who cares because open AI and anthropic do exist so everything's fine. To which I would respond yes they do for now because keep in mind open AI lost $21 billion last year. And as for anthropic we don't know but our estimates put that number at roughly 11 billion. In other words, the only way these companies stay alive is if they continue to be subsidized by someone else. And who is that someone else right now? Answer: big tech. The more you dig in to the economics of AI, the more you realize that it is a house of cards. And that doesn't mean that it is going to collapse, but it does mean that in order to not collapse, nothing can go wrong. Thanks for watching Profy Markets from Profy Media. If you like this episode, subscribe to our YouTube channel and tune in tomorrow for our conversation with the one and only Professor Aswer.