The AI Trade, Rising Rates, and Why the Market Is Still Standing | The Real Eisman Playbook Ep 73

**Steve Eisman** (0:05)
Hey, this is Steve Eisman. Welcome to another episode of The Real Eisman Playbook. So, lots been going on in this world this year. It's been war, AI, private credit, private equity, you name it. It's happened this year already. The market's up nicely, but it's been very, very volatile. And I have two guests today to help me sort of plow through all this stuff. Jason Trennert, who is the founder of Strategas, and Chris Verrone, who is the market strategist at Strategas. These guys don't cover a particular sector. They kind of cover the entire market. They have a nice overview. And we're going to talk about where things stand. And then afterwards, I'll come back for some lessons learned.
Hi, it's Steve Eisman. Welcome to another episode of The Real Eisman Playbook. It's the beginning of August.
This year has been, the only word I could say, is tumultuous. So much has gone on, war, AI, private credit, private equity, situational awareness hedge fund blowing up. If I thought for another 10 seconds, I'm sure I could come up with another 15 things. So I thought it'd be a great idea to kind of take a step back and talk it over with two old friends, Chris Verrone, market strategist of Strategas, and Jason Trennert, founder of Strategas. Guys, thank you for coming.

**Chris Verrone** (1:30)
It's great to be here, Steve. Thanks for having us.

**Steve Eisman** (1:32)
So like I said, boring year. Nothing much going on. But Jason, let's start with you.
Let's each take just a couple of minutes, try and put things in perspective, and then we'll try and dig deep.

**Jason Trennert** (1:45)
Well, listen, I think it largely comes down to a couple. As far as markets are concerned, I think there's a gathering storm a bit, which is the war tariffs, which people forgot about, but are back. You have the war and the oil prices, then you have this debate over hyperscalers and whether they're spending too much or too little on capex.
And so those are the... and the Fed, of course, which is the other big... Warsh is really the big issue. So, all those things together...
So, in some ways, it looks like it's hard for the market to make forward progress. By the same token, what's driven the market so far this year, just in the last... Chris and I were talking about this on the way over here, in the last 72 hours, people are saying it's a boulevard of green lights for the hyperscalers now because it doesn't look like demand for AI is slowing anytime soon. I'm personally nervous because the market is so concentrated.

**Steve Eisman** (2:43)
When you say the market is very concentrated, flesh that out just a little bit.

**Jason Trennert** (2:47)
Yeah. If you look at the top 10, I'm getting the number slightly wrong. If you look at the top 10 holdings of the S&P 500, I think that's 39 percent. If you look at the tech sector, I think it's 36 percent.
If you add in tech adjacent companies... Like an Amazon. Like an Amazon that are not specifically in the tech sector, you're up over 50 percent. Then you see something like situational awareness. That happened with the VIX below 20, and a modest increase in interest rates, 15-20 basis point increase in long-term interest rates. You say, how can that happen? How can somebody lose that much money in what seems to be a very quiet market?

**Steve Eisman** (3:31)
I'm going to answer that because I've actually written about this. Give me an example of something like very extreme. Imagine it's 1900, and you're very bullish on autos taking over the world. You buy every auto and auto parts company that's public, and you short every buggy whip company that's public. Now, given what we know about history, obviously that trade is going to be correct. But if you're four times levered, and let's imagine there's a bad auto accident, and all of a sudden people say, that's a terrible thing. Maybe this auto thing isn't going to work. The problem is, you're long X and you're short Y, but it's the same thing.
If the trade reverses on you, and you're four times levered, as South Park said in the classic Margaritaville episode, and it's gone.

**Jason Trennert** (4:29)
Listen, and it reminds me of long term capital a bit, of course. Sure. The names of these, Don Rismiller is in our office was saying, the names of these famous hedge funds that have gone under, like long term capital, situational awareness, they're a little preachy.

**Steve Eisman** (4:45)
Yes, in terms of their name.

**Jason Trennert** (4:48)