Title: Private Credit's Clock is Ticking w/ Glenn Schorr & Ken Worthington | The Real Eisman Playbook Ep 72 Show: The Real Eisman Playbook — Ep 72 (interview episode) Guests: Glenn Schorr (Evercore ISI — big banks, brokers, traditional & alternative asset managers, trust banks) and Ken Worthington (JP Morgan — brokers, asset managers, exchanges, crypto: Coinbase, Bullish, Circle) — host: Steve Eisman Date: RECORDED Thursday 2026-07-30 (stated at 00:05: "This episode is being recorded on Thursday, July 30th"); PUBLISHED 2026-08-10 (publishDate 2026-08-10T09:00:24-07:00). The archive folder uses the PUBLISH date, so every number in the conversation ("today," "this quarter," "last night") is as of Jul 30, eleven days before release. URL: https://youtu.be/ekn2WneOEBA Length: 51:06 Note: Remove-only cleanup per skill Step 1 — the [laughter] / [snorts] / [music] audio artifacts and the ">>" speaker-change tics were deleted, along with pure fillers ("um", "uh", interjected "you know" / "I mean" / "sort of" / "like") and stutters/false starts; no words were changed, added, reordered or paraphrased. The three mid-roll ad reads (LongAngle 17:59-19:00, Wharton Online/Wall Street Prep FP&A 19:00-20:26, Shopify 35:45-37:05) are KEPT IN PLACE verbatim so the cue timing stays true to the video, but they carry no analysis on the per-video page. This is a three-speaker conversation and the auto-captions carry no speaker labels, so attribution to Eisman / Schorr / Worthington is made on the analysis page, not here. Auto-transcript garbles are LEFT INTACT in this raw file and corrected only in the analysis pages (e.g. "a gentic AI" / "genetic AI" → agentic AI, "Cal Shi"/"Koshi" → Kalshi, "SAS" → SaaS, "Shortcan" → "Schorr and Ken", "written remittance" → remittance). Every (mm:ss) cue preserved exactly where it was.
00:05 Hey, it's Steve Eisman. Welcome to another episode of the Real Eisman Playbook. This episode is being recorded on Thursday, July 30th. Last night, Microsoft reported great numbers and the stock was up 10% plus. Meta reported hilarious numbers. They had negative earnings growth, 28% revenue growth, 55% expense growth.
00:29 Numbers were just bad. Guidance was bad and the stock's down 10%. Today, Thursday, the market has had a big rally because of the Microsoft results. But on the negative side, a very large hedge fund running 20 billion, run by a former employee of OpenAI, apparently was incredibly levered, lost a ton, and was liquidated today.
00:51 The news is fast and furious, and we're going to explore some of that with my two guests, recurring guest Glenn Schorr, who covers the investment banks, asset managers, and alternative asset managers, and new guest Ken Worthington, who covers the brokers. He also covers the alternative asset managers, and he covers the brokerage firms that are dedicated to Bitcoin like Bullish and Coinbase. He also covers Circle.
01:21 I think we're going to have a great conversation, and afterwards I'll be back with some lessons learned. Hi, this is Steve Eisman, and welcome to another episode of the Real Eisman Playbook. It's July 30th. There's been a lot of news, which probably we're going to get into. Microsoft reported last night. Meta reported last night.
01:42 One's up 15%, one's down 10%. The market's soaring. A hedge fund was liquidated. There's a lot going on. And so today, to help me unpack it, is recurring guest Glenn Schorr of Evercore. How are you? Great to see you. And a new guest, Ken Worthington. And so people who don't know, Ken and I worked together at Oppenheimer in the '90s.
02:04 Welcome, Ken. Thank you, Steve. Nice to see you, Glenn. Nice to see you, too. So, since you're the newbie, why don't you tell our viewers, first of all, what do you cover? I'm a research analyst at JP Morgan on the sell side. I cover brokers, asset managers, exchanges, and crypto. When you say crypto, what does that mean? So, crypto being Coinbase, bullish, so equities that are focused on the crypto asset class.
02:29 Have all your companies reported yet, or most? No. No. The minority. Minority has reported. Probably 15, 20% through. Okay. Glenn, who are you? I too am a sell side equity analyst. We all know each other pretty well. So, we'll sound similar. No doubt.
02:49 No doubt. I cover some of the same stuff Ken covers and some different stuff. Everything that you used to cover. So, I cover big banks, big brokers, the traditional asset managers, the trust banks, and the alternative asset managers. And to answer the question you asked, Ken, what percent? I'd say a larger percentage, but we both still have a bunch of asset managers still left to report.
03:08 So, maybe 75 to 80% of my coverage is reported as of now. So, Ken, Yeah, number one, when you're talking to clients, what are their concerns about the stocks that you cover? Yeah. As sort of a general overstatement, and have you learned anything this earnings season that's important? Yeah.
03:28 So, I would say the topics de jour for us, a lot in the alternative asset managers. The topics there are M&A and the outlook for middle market M&A. Private credit, what's happening in private credit. And then the outlook for selling alternative asset management product to wealth management clients. Those are really the three drivers.
03:49 So, a lot of questions around that. With regard to the retail brokers, I think the question really is about the outlook for cash. The retail brokers make a lot of money on the free float of customer cash. Guaranteed, a lot of people don't understand that. Can you just explain the mechanics of that because it's very important for these companies? Yeah.
04:11 So, in one's brokerage account, one will have some degree of stocks, maybe a little bit of fixed income, ETFs, and then whatever is not invested is in cash. And the cash is swept often into a money market fund or a bank, and the broker will make a spread on that cash or fees on that cash, and it's really the lucrative part of the business.
04:37 It's the minority lucrative part of the business. It's the most lucrative part. I think that's fair. Because brokers can do a lot of stuff with that cash. Okay. Basically, they take the cash and they make some interest on it. Yep. And the money is made, I'd say, on lazy cash.
04:53 Cash that's not necessarily optimized. So, the topic de jour is, "Hey, if we have AI and you've got a gentic AI, and a gentic AI makes that cash more efficient or optimizes the yield on cash, that may be better for the end customers, but it may come at a cost of the profitability of the brokers themselves." Let me just see if I get this straight.
05:16 So, I have a brokerage firm. I have a brokerage account. Yep. And let's say I have $100,000 in cash. Yep. If I'm lazy and I just have the $100,000 in cash, the brokerage firm, whoever it is, takes my cash, buys, let's say, short-term Treasuries, and makes that interest rate. But, if I'm not lazy and I buy with that $100,000 and put it into an actual money market fund, I earn the interest.
05:46 Yep. The brokerage company makes a fee, but that fee is going to be a lot less than the interest they would make it on on the lazy cash. Fair? Fair. There's a relationship between the two. Odds are if you're making more as the investor, the brokerage firm is making less on fees and spread and vice versa.
06:07 So, lazy cash is better for the retail brokers, more active cash you're managing that cash is going to be better for you. And the question becomes what is AI or genetic AI potentially do for the efficiency of that cash? Can that make your yield? Can it anticipate your credit card bills? Can it anticipate your mortgage bills and your spending habits and optimize cash so the day that you need the cash it's available for you to spend or invest? And when you don't need it, It's in money market fund.
06:38 it's in some higher yielding product that's best for you. So, Thoughts? We have many. So, and this is great because we a very This is a very important topic. It's so important we might do a round two of this podcast just on this topic. So, our coverage we have similar coverage wealth management land.
06:58 And then also I cover all the banks. Right. And this is a very interesting topic for the banks as well because let's be very clear, all these financial institutions do a bunch of different services for you. They do make a lot of money on the cash. Banks, you put money in a checking account, they lend it out, they keep the spread.
07:17 Same thing, there's some lazy cash. Remember there are 4 trillion dollars sitting in checking accounts, bank accounts in the United States earning zero. And then there's a whole 'nother couple of trillion earning on a little bit. So, at first glance you could isolate the money that they make on the cash and say that's all their profitability.
07:37 And in some cases it is. Except, let's be very clear, you don't just go to a great bank like JP Morgan just to park your cash. There's a lot of branches, you get convenience, you get safety, you get cybersecurity that goes with it, you get investments, you get research, you get all kinds of things.
07:59 So, certain business models are set up to be able to defend and make money other ways if cash gets more efficient the way Ken just described. And some models are less so. Which models are more flexible? Which models do you think are less flexible? I'm going to go with flexible side, and I think Ken's very well suited to cover the maybe less flexible, but we'll tag team back and forth.
08:22 I like big important banks that do a lot of different services that you have many products with, that you have a big relationship with, that's been your primary checking account for the last 30 years, that you direct deposit into, and you would rather pluck your eyebrows out than actually switch bank accounts. Okay.
08:40 So, even if the cash gets more efficient and you have an agentic solution that helps you surf, they might be able to have other ways to charge you fees and have you move assets to them and consolidate. So, I like the big banks. I like Morgan Stanley as that same key financial advisor to their wealthy clients that do a lot of things for their clients, including trust and estate planning and tax planning, such that the cash is not the only thing that has you there.
09:12 Ken? Yeah. So, I think the retail brokers make an awful lot of money on this. Can you just name the names of the companies that we're talking about here potentially? Yeah. So, Charles Schwab, Right. LPL are two big ones that generate a lot of profits on customer cash.
09:32 They have a lot of other services as well. They have, I'd say, a compelling offering for clients. And my view and we like Charles Schwab a lot. We're recommending with a buy. Even if cash is optimized there's always the opportunity for clients to click a button and optimize cash themselves. Firms like Schwab don't have to necessarily open up to agents and allow them to maximize the optimization of that cash.
10:03 So, we think they'll actually be okay, but it's an active debate. How fast will agentic AI permeate financial services companies? Will regulators actually allow this? So, now if you really optimize cash and you have Ally Bank move interest rates by five basis points, do you see a big sucking sound out of 100 other financial institutions to get that five basis points and then you have runs on the banks.
10:32 The regulators probably aren't going to allow this sort of cash flexibility because the financial system isn't designed around that level of optimization. It's not designed for people to be swapping checking accounts from bank to bank is what you're saying. Over two basis points. Right? And so, there will be an evolution, but again, it's the debate on how quickly this optimization happens, what are the safeguards in place for the financial system? Will Schwab or LPL or others actually allow third-party agents
11:08 to come in? Will Schwab and LPL have their own agents that optimize cash and make it a service that they charge for? So, my problem with Schwab and we were at Oppenheimer together, we covered it together. So, that's a long time ago, but what doesn't hit me right is that this is a great company whose most of its revenue is from the idea that its customers aren't maximizing their own benefits.
11:38 Yeah. That's the business model. The business model is dependent upon basically the customer being lazy. And it just bothers me. I'm just going to throw it out there. I just think that that's not an equilibrium long-term. But it's been an equilibrium for forever, but it just strikes me as not right. Yeah.
11:59 So, the way I would frame it is Schwab has to make money from their business somehow. Correct. There are things that are very important to their clients. They don't charge for commissions anymore. And they give away a lot of services for free. So, they give away a lot for free. They have very good service in many places.
12:17 It's not 100% ideal in terms of the optimization of their customer experience. It could be better. But if they get 90% of it right or 95% of it right, is that enough to be better than the competition? Is the way I think about it. Okay. Another interesting thing would be if you polled all the customers, would they tell you they're unhappy? I think that they I don't think the customers know.
12:46 Correct. That's the problem. They don't know. The other part I'd say is in 2021 and before for many years interest rates were nothing and it didn't matter where you had your money. You got paid nothing wherever you had your money. Right. When rates went up 500 basis points in '22, there was a bunch of movement for the people that were and their advisors that were very aware and moved money.
13:09 You could simply just take your money from a checking or brokerage account, buy treasuries, buy money market, and poof, the net interest income disappears and there's nothing the company can do about it. It's the customer's cash. Right. There will always be working capital at the bottom of any account. Yeah, that up across a lot of scale and they make a lot of money on that, but I'm not sure everybody's itching to maximize every penny.
13:32 I'm not sure everybody's ready to sanction the bots and the agents to go play with their money. Right. Some will, some won't. Yeah, and the bots, it's interesting. This will change over time. But AI is not correct a lot of the time. So, some of the studies that were done internally at my firm suggests that the agents are wrong the majority of the time.
13:56 Wrong about what? When managing money. You got to elaborate. How are they wrong? About what? So, they will tell investors what they want to hear based on the prompts that are given, not necessarily what is the optimal way to manage a portfolio, for example. Okay. So, now that will change over time, but my view is the machines are going to have to be right not just the majority of the time, not even the vast majority of the time, but it's got to be like 99.
14:32 99% for people who have money to turn over the management of their money to machines. You don't want your money being sent to Zimbabwe. Right. Probably because of the an agent sent it. Well, because it sorry. Yeah, because it made a mistake. A mistake. So, it's unclear how long it will take for the machines to get really good.
14:54 They're definitely not there now. So, Okay. Got it. Not a threat immediately. Let's switch gears and talk about what I think is the most First of all, you guys overlap here. And this is the topic. I write about this like every week, at least, which is private equity, private credit.
15:15 I know you write about it every week. I'm sure you write about it every week. Where are we? The tidal wave of news flow that culminated in March and April and redemption requests, it's not quite as bad as that. It's not market moving to the same degree each time a redemption request come out, but make no mistake about it.
15:39 The demand for direct lending products in the wealth channel, you can almost not see the line. The inflows, the gross sales inflows into the funds are infinitesimal. Okay. So, that's a big change. Correct. So, money coming in is dried up. Nobody wants right now to buy that product. In terms of raising their hand for redemptions and saying give me my money back, it's still definitely there and it's still in most places, not all, over the 5% per quarter limit.
16:07 And so, you're starting to see an easing. You're not seeing the same It's the same people asking for their money. There's not as many new people asking for money. It's mostly because the underlying investments that everybody has such anxiety about, including software, they're still cash flowing. They still have margins. They still have growth.
16:27 And we're just predicting their demise someday. But right now, the funds are still in No, I've got a date certain. No, I don't, obviously. So, it's an interesting quagmire. It's still there. It's not driving everything. It is keeping people away from certain of those products and keeping the stocks that we cover in limited demand.
16:49 Okay, so that's private credit. Correct. How's the health of private equity? That's mixed because in the last 4 years, the public markets have doubled. You would think that'd be pretty amazing for private equity. You would think. Yeah. And I would say you're seeing a diverse set of results from different companies that Ken and I cover.
17:15 The performance for the first time in a very long time, probably since '08 or '09, has underperformed the public markets. It's hard to keep up with the Mag 7 these days. Or the big what you talk about a lot is the one trade. Everything's one trade. Like, yeah. AI. So, it's all AI for these companies, too, and I think the private equity returns are not as good as the public returns.
17:40 Their monetizations or what they are able to sell, not everybody is able to sell what they have in their portfolio, even though their LPs want them to and have guns to their head saying, "Give me some money back." When you talk to the companies about this, what do they say? Here's a rule I've learned over 40 years in this business.
17:59 When someone shows you a private deal, the first question isn't, "Is this a good deal?" It's "Who's getting paid to show it to me?" Usually, the answer tells you everything. That's why I'm partnering with Longangle. It's a private vetted community of 9,000 high-net-worth investors, founders, executives, professionals.
18:16 Most of them still building, and the whole thing runs on one rule. Nobody is selling anything. Verified members, strict no solicitation, no membership fees. What you get are the conversations you can't have anywhere else. How people actually handled an exit, what they did with equity compensation, how they're really allocated, actual portfolios, actual numbers.
18:38 And when a private deal crosses someone's desk, members run due diligence together instead of taking a sales decks word for it. 9,000 investors with over $100 billion in combined net worth comparing notes, that's the edge. Membership is by application, and they verify everyone. That's what keeps the room honest. If you've built something and you're navigating what's coming after, apply at longangle.com/eisman.
19:00 It takes a few minutes and costs nothing. That's Longangle, l o n g a n g l e dot com slash eisman. Every FP&A professional knows that you can build the most accurate model in the world, but you still have to be able to defend it. Maybe it's the CFO questioning your growth assumptions. Maybe it's a department head who doesn't like what the budget says.
19:22 Either way, the model doesn't speak for itself. You do. That's the gap the FP&A Certificate Program from Wharton Online and Wall Street Prep is built to close. Building the numbers and knowing how to defend them. Over 8 weeks, you'll learn from Wharton faculty, work through real case studies with FP&A professionals and practitioners, and build your confidence working with AI tools specific to your role.
19:47 The course is online and self-paced, but when you get stuck on something, you're not alone. You have live office hours with faculty and chances to collaborate in real time with your cohort. In 8 weeks, you'll earn your FP&A certificate from a top business school, plus get lifetime access to program materials and a network of 5,000 plus finance professionals.
20:06 You'll even have a chance to celebrate in person with your cohort and instructors in New York City. Get the skills of a top MBA program and the network to back it up in just a few weeks, not 2 years. Use code EISMAN for $300 off enrollment. Closes October 5th. Earn your FP&A certificate from Wharton Online plus Wall Street Prep in 8 weeks.
20:26 Use code EISMAN to save $300 on tuition. Well, let's go with one example today. Ken and I both cover KKR. They had record monetizations today. They're like, I saw that. I don't know what you guys are talking about, but our monetizations are fine. We put record monetizations, and they talk about how they've grow their business and manage their portfolios over time.
20:49 And if you didn't know any about the news flow in the past year and just look at the year results, you'd be like, "Wow, those are pretty good results." So, there are examples of people that are getting that done, and there will be others this quarter that put up results and have very limited monetizations.
21:06 And despite better IPO market, better M&A market, and record highs in the equity markets, they can't sell some of the stuff they own. There's two ways to split this. So, you've looked at this from an asset class perspective. A different way to look at it is from a distribution perspective.
21:24 And the majority of these products have been distributed to institutions. And the institutional part of this business, which is the majority of the assets, continues to do reasonably well. It's a more steady business. The wealth part, the retail part, is the much smaller part of the business, where it was viewed Unless you're Blue Owl.
21:45 Unless you're Blue Owl. So, But for the industry, the retail on the wealth side was tiny, is tiny, but the growth outlook looked to be spectacular. Okay? And so, what we've seen is the growth algorithm on that retail side, which was supposed to be spectacular, has shifted.
22:08 Three years ago, the growth was really in private real estate. Interest rates started to rise. Private real estate fell out of favor from the retail customer. That money went Instead of going to real estate, private real estate started going into private credit. And private credit was growing like a weed. The returns were outstanding.
22:26 You're getting private equity returns with much lower risk. That's dried up. That's essentially zero right now. In terms of flows. In terms of wealth flows. The fickle retail wealth investor who had been putting so much money in is now not putting money in, and they're selectively taking money out. So, now you're seeing a pivot.
22:47 You're seeing a pivot from private real estate to private credit. Now you're starting to see private equity products proliferate, private infrastructure proliferate, but we're not in the point where you're seeing perfect substitution, that the dollars that would have gone into credit are now going into these other asset classes.
23:07 There's a little bit of contagion that has started and we think you're going to convert to substitution sooner rather than later, but we just haven't seen that full substitution just yet. I'll agree to all of that. Yeah. The one more thing I want to add on to your question on private equity specifically is let's face it, there was a flow of funds in 2020 and 2021 where markets were really high.
23:33 A lot of money was going into these products. They were getting great performance. They wanted more, institutions and retail. A lot of money comes into private equity. They put it to work what turns out to be at pretty high multiples with zero interest rates. Right. They bought a bunch of assets. Not every one of them were great purchases.
23:50 And here we are 5 years, 6 years later and it would be the time when you would be selling. And you can't. Some can, like today KKR, and some are selling less and it makes people question how good of an asset is it or did you just pay too much and you have to wait several more years for earnings to grow into that valuation that makes it a decent sale.
24:12 But that's what's driving the news flow on. So, my opinion on private credit is we are a year away from finding out what we're going to really need to find out because you've got companies whose valuation given what's happened in the public SAS apocalypse. And by the way, I love to say the word SAS apocalypse. I say it all the time.
24:37 You take ServiceNow. ServiceNow is down over 50% from its peak. So, any software company owned by private equity has to be down something like 50% from more or less where it was bought because that's what the public markets have done. So, the big issue is going to be starting in 2027, but it's bigger in 2028.
25:00 These loans are going to get refinanced. What's going to happen? Or is private equity going to say, "Hey, we're not going to put any more money in?" Or are they going to hand over the keys? Are they going to put more money in? I don't know. But until then, you could say whatever you want because the refinancings are not going to take place till sometime next year.
25:18 Yep. I think again, the house view that we've had is that as long as middle market companies are doing generally well, as long as we're not in a recession, that credit quality can revert back to a can deteriorate back to the mean. But we're not going to get the widespread significant default outside of say software and SaaS Oh, I agree with that.
25:50 across the broader portfolio. So, then you have to look at the individual managers and the individual portfolios. much software they have. So, let me ask you a question. Yeah. Let's name names cuz you cover these stocks. Which of these you too, which of these companies are overexposed to software and who's underexposed? Cuz it's an important question.
26:13 So, the part of private credit that we're really talking about is direct lending. Right. Right, direct lending is probably half little over half of private credit. So, we're looking at that. You've got private credit managers that have a focus on technology. So, Blue Owl, I think is the one that is often mentioned because they've got technology-focused direct lending products.
26:40 Okay. So, they've got big exposure and their stock has suffered because this is well known. Now, you speak to most of the other managers who will say, "Hey, we've got software, but we like our exposure. Our exposure is fine." Yeah, right. So, there's probably a problem somewhere, but it's not with our firm.
27:02 I'm going to challenge that. Yep. I'll give them the statement that the companies that they own are doing okay. I don't think it matters. Even if it's take a software company. It needs to get refinanced, let's say at the end of 2027. And it's doing okay. It's cash flowing, etc., etc.
27:25 But given what's happened to public software companies, just the valuation of this company and not that the company is at fault. It's just that the valuation of the company is half. So, now you're going to get refinanced and the bank says, "Love the fact that this company is cash flowing.
27:46 Put up some more money because the valuation's half." That's where like I said, I'm not even going to challenge that their companies are not doing well. So, I've had this very conversation with a bunch of the managers and Shortcan has too. Along the way including today.
28:05 Okay. And I've talked to friends that are more on the restructuring side of the world that are involved in these conversations. There is the full gamut. There's a few keys that have been handed over. Right. Meaning, when the lender says, "I'm not rolling your financing at these terms.
28:27 I want the equity sponsor to put in more money." The equity sponsor in the extreme case, there's been very few of these, but in the extreme case might did gave the keys back. might say, "No, thanks. You can have it. We're not putting any more equity at this company." Right. And then the lenders take over and then try to do a work out and recovery.
28:46 There's been very few of those yet. And there's also been very few sure, no problem. I'll take out the checkbook and I'll put equity in. We're in a bit of a stalemate. But, as you said, the clock's ticking. If there's 270 billion of software maturities held by financial sponsors that have maturities in 2028 and 29, it's somewhere in the next two quarters, three quarters where they'd normal course of business be refinancing.
29:13 So, the dance that's happening as we speak is the lender says, I'd like you put in equity. Manager says, I don't want to put in equity. Lender's like, not sure that we're going to roll and that's going to force your hand if you don't have financing. However, this industry is amazing. There's been a lot of money being raised by opportunistic credit funds and if Blue Owl or KKR or whoever else doesn't want to roll the financing to that company, somebody will take it over. Somebody else might that might be
29:44 in the business to either take it over or put in a lever layer of credit with more favorable position, scratch back better terms, don't let them do LMEs, don't let them do certain EBITDA adjustments, do it at a 300 200 basis point higher yield. There's a lot of stuff that's going to happen if you're correct that the companies are worth half.
30:06 They'll happen at worse terms. It'll eventually bring markdowns that you haven't seen yet. Yes. But, that's there's It's a lot to happen between now and And any of you have friends out there that are restructuring lawyers and or bankers you're not going to see them for a few years.
30:23 Yeah. And by the way, returns in these funds have come down substantially. Right. You were generating mid-teens plus returns in some of these direct lending products and now we're high single digits, mid single digits, and this year the returns are looking weaker, right? So, you're seeing this flow through the valuations already.
30:47 Gradually. Gradually. That's exactly it's gradual. Okay. We're going to switch gears again. Ken, we're going to talk about a group that we have never spoken about on this show. Hey, pressure's on. Big pressure, which are the brokerage firms that you cover that are crypto-oriented. Okay. So, why don't you name them? Okay.
31:06 Kind of give since this is new to my viewers, what do these guys do? And tell us what you think about them and let's have a little dialogue. Okay. So, Coinbase is probably the best known crypto exchange. They call them exchanges, but they act as an exchange, they act as a broker, they're prime broker, they're a market maker.
31:27 It's really vertically integrated. So, in traditional finance, those would be done by different firms. In crypto, the activity is done by one firm, generally one firm. So, Coinbase is probably the best known in the US. They're the biggest in the US, they're publicly traded. You have Circle, which is operating stable coin, which is USDC. We can dig more into that.
31:47 Absolutely. a more institutional-focused firm called Bullish. Bullish is basically a brokerage firm for institutions want to trade crypto. Exactly. As opposed to retail. Correct. Got it. Correct. So, those are the big three.
32:03 You can add Robinhood to that as well. They have part of their businesses in there. They're mostly options and equities. They've got a crypto business as well. Okay. So, what do you think about Let me give you my thesis, okay? And then you can respond however you like. I remember during COVID, I was traveling back and forth on Long Island to the city.
32:23 So, I was listening to podcasts all the time. And one of the podcasts I listened to was a crypto podcast. And the person who I can't remember his name, he had been the macro strategist at one of the big banks. And so, he loved crypto. He says, "My thesis as to why to own crypto is that it's a hedge against fiat currency, the debasement of fiat currency.
32:44 " Because so much money's been printed, blah, blah, blah. You want to own something that's a hedge against the demise of the dollar or the yen or the euro. And I thought, "That's I remember listening to it the first time thinking, 'That sounds pretty reasonable.' My issue is that crypto trades inversely to its own thesis.
33:05 To that thesis. thesis. And I've never heard a different thesis. So, maybe you have one, but let me just explain. So, if that thesis is correct, let's assume that it is. What that would mean is that on days like today, where the markets are going up like crazy, interest rates are coming down, everybody's feeling good, crypto should be down.
33:28 And on days where everybody's upset, and they're worried about war, and interest rates are going up, and Nasdaq's getting crushed, crypto should be down. And the fact is that it trades opposite to that. So, I've never heard maybe I'd love to hear what I'd love if you have a thesis, I'm dying to hear it, because I have never heard a thesis other than this fiat currency hedge as to why you'd want to own crypto.
33:51 Okay. So, I approach this differently. I view the cryptocurrency ecosystem as an asset class. And blockchain is a technology. And there's a relationship between the tokens and the technology. And it goes to the permissionless validation of the blockchain and the ledger.
34:15 And the token and the technologies go hand-in-hand. Long conversation, different discussion. So, my belief is the technology is actually pretty good. The blockchain technology that underlying the asset class. I'd give you that. So, and as the blockchain grows in terms of use cases and proliferates, we're going to see more blockchains, more tokens, and those tokens are going to be traded just like equities and fixed income.
34:49 Wow, the use case for this particular token makes sense. We think it's going to grow. We think there's going to be more usage on it. When there's more usage on the underlying blockchain, we expect that there will be more tokens to trade, the value of the tokens will go up, there's supply and demand because if you're using the blockchain, you're likely executing in the underlying token of the blockchain.
35:15 So, there's the proliferation of the asset class. And if the asset class proliferates, we need venues where we can actually trade the underlying tokens. So, my belief is over time that the technology is good, the blockchains will proliferate, the tokens will proliferate along with the blockchains, and a market will form. What's that got to do with Bitcoin? So, Bitcoin is I grant you everything you just said.
35:45 Yep. Everything. What's that got to do with Bitcoin? What do I need Bitcoin? Starting something new isn't just hard, it's terrifying. So much work goes into this thing that you're not entirely sure it will work out, and it can be hard to make that leap of faith. Trust me, I know.
36:01 But now, I know that I was right in believing in myself and launching my podcast business, despite all the fears and hesitations. It also helps when you have a partner like Shopify on your side to help. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the US from household names to brands just getting started.
36:22 Accelerate your efficiency whether you're uploading new products or trying to improve existing ones, Shopify is packed with helpful AI tools that write product descriptions, page headlines, and even enhance your product photography. Best yet, Shopify is your commerce expert with world-class expertise in everything from managing inventory to international shipping to processing returns and beyond.
36:43 And did I mention that iconic purple Shop Pay button that's used by millions of businesses around the world? It's why Shopify has the best converting checkout on the planet. It also helps boost conversions, meaning less carts going abandoned and more sales for you. It's time to turn those what ifs into with Shopify today.
37:05 Sign up for your $1 per month trial today at shopify.com/eisman. Go to shopify.com/eisman. That's shopify.com/eisman. So, Bitcoin is different, right? Because Bitcoin, I'll say, is a single-use case technology. And the single-use case is a store of value. And if you're using it as a store of value, it's worth what someone else is willing to pay for it.
37:32 That to me is less interesting because we aren't building on Bitcoin the same way we're building on Ethereum and Solana. So, the use case argument that I'm making applies to a reasonable part of the crypto ecosystem. It doesn't necessarily apply to meme coins, things that are fads. It actually doesn't apply to Bitcoin as well.
37:58 The risk I see to the ecosystem right now is it's very concentrated. What do you mean it's concentrated? There is an awful lot of value in a small number of tokens. Ah, okay. So, for example, half the market's Bitcoin. Right. Right? If I believe in the use case element of the crypto ecosystem, I don't have a lot of conviction in Bitcoin.
38:24 I have more conviction in these other chains. Because they have more uses. And I think there's going to be more chains. All right? So Coinbase has launched a chain. Circle has launched a chain which will underlie stable coins. So again, you're seeing the proliferation. In my opinion, you're seeing the market develop. And over time, the market pivots away from things like Bitcoin.
38:49 Now maybe Bitcoin is going to continue to be a great store value. And it will grow and people will use it as a substitute for gold. Maybe they won't. But my thesis is really on the use cases, the working chains, and the growth of that. And if we see that thesis play out, over time we transition from this concentration in Bitcoin to other stuff.
39:13 And if you have other stuff, the more tokens that you have, the more you'll trade them against each other. I like this versus this. There's a correlation between these and those. And you develop a market. Well, I like his whole thought process because it's actually coherent.
39:30 Yes, very much. I have my moments. And notice how much it's evolved, right? As opposed to a replacement currency. It's a digital currency is interesting in non tier one countries that have hyperinflation and things like that. I get that. The interesting thing that didn't get too much attention that happened this quarter is the big banks rolled out a partnership to have interoperability on their own tokens.
40:04 So each of the big banks might have their own token or their own digitized tokenized deposits, tokenized money markets. And how the banks compete with stable coin is an interesting thing. It comes so So before we get to stablecoin, just a little pet thesis about Bitcoin, which I explored with a guest many months ago, which is that the reason why Bitcoin's been so weak is that all the young people who used to trade Bitcoin are on Cal Shi.
40:36 Yeah. And they just don't care anymore. And so it's just not hot. So my guest said something like Bitcoin is for boomers. And I thought that was that was a good put down. I thought that was kind of cute. Let's turn to stablecoins. So there's only one company that really is public, Circle.
40:55 I'm curious what you think because I think Circle should sell. That's and let me tell you why. Right now Circle's business is all in Bitcoin and stuff like that. But then what they're trying to do is really break into the payment system. That's the golden goose. And the problem is, when Netflix got started, all the entertainment companies acted like idiots and let them grow like crazy and all of a sudden they all woke up one day and they said, "Oh my god, we lost our business to Netflix."
41:25 Visa and Mastercard are not dumb. They of all the companies that you cover, I cover and the whole financial services world, they're among the smartest. I can't imagine that Visa and Mastercard are going to let some new company like Circle conquer the world with stablecoins.
41:48 I just can't believe it. And there was an announcement a couple of weeks ago where Visa and Mastercard with another consortium created their own stablecoin. So I think Circle needs to sell to somebody who's got bigger pockets. And that's what I think. What do you think? Yeah.
42:07 So I would say that I think that for Circle to really grow into what it wants to grow into, it really needs to have stable coins be a part of the payment system. Right. So, I believe in that thesis longer term. I think more near term, they can build a business and continue to grow the network and the market cap of USDC by going after other businesses.
42:37 So, we mentioned dollarization and how people in foreign countries don't trust their currencies, having a digital dollar that they can use in their wallet to pay for things and to store value, that makes sense. That's largely dominated by Tether. But USDC and Circle has a presence there as well.
42:58 Cross-border makes sense, right? Being able to move money any wallet around the world very cheaply. So, the written remittance business is a very big business for the US banks. This is a cheaper way of moving money around the world. The other thing we're starting to see more of is in the trading world, back to financial services, we're seeing more 24/7 trading.
43:22 Right. Okay? The problem is the back office of the financial world can't really keep up with that 24/7. So, what you end up seeing is, "Hey, if I've got a digital dollar that can move 24/7 as well, that can become the settlement layer of these 24/7 transactions." So, as you see proliferating and of trading on weekends, etc.
43:49 , maybe instead of in physical dollars, we'll do it in stable coins or some form of digital dollar. Doesn't have to be stable coins, but stable coins is one of the options. So, we see use cases. What I think there's objections to in the current Visa and MasterCard world, and I am not a payments person, so I will not go too deep.
44:11 But there's objections over the high level of interchange fees. There's a lot of services that are provided by the existing incumbents that maybe the world doesn't necessarily want to pay for. And by using stablecoins you're unbundling the payment, to some extent to some you all that.
44:40 I just think breaking into the payment system is brutal. Yeah. Just think of it this way. Visa connects billions of consumers with hundreds of millions of businesses. It's hard to recreate that. Very hard. So, God bless Circle if they can, but I just think it's going to be very difficult.
45:02 So, in the crypto ecosystem, you really need a wallet. If I've got a wallet and you've got a wallet, we can transact. Right? So, the technology is there, the wallets are there. You're seeing firms like Coinbase join up with firms like Shopify to do payments via stablecoin. So, I'll say we're in this grand experimentation phase right now.
45:30 It's very early. My impression is Visa and MasterCard are some of the best companies, best managed companies in the world, and they are definitely They're not asleep. They're not asleep. They're very active in crypto technology. But there's experimentation and Circle is going for it. Okay.
45:52 As an avid listener to the Realignment Playbook, which I am, I've heard you say this before. I agree with you that they should be on hyper-alert that the big payments providers just had that announcement with 140 other financial institutions. And then what I mentioned about the banks playing with each other and having interoperability of their digital currencies and tokenized funds.
46:17 That just sounds like a super competitive world in Ken's big experiment. Okay. Let's finish up with you. The big banks reported. What's the takeaway? My lord, those were some good numbers. Actually stunning. Stunning? Because Let's go down the very quick checklist.
46:43 Investment banking Great. great. Up 38%. Trading even better, up 47%, right? asset and wealth management, 7% organic growth and markets at all-time highs. So everything going there. I would say the only thing Expenses very much under check, great positive operating leverage, huge margin improvement, huge ROEs on high capital bases. Right. Excess capital.
47:11 So all those great, the core actual lend take deposits, lend money, keep the difference. I would say that's more mixed, just okay. It always is. Yeah, it's fair. But there seems to be some real competition on the deposit side. Oh, really? Okay. Cost of funds is going up. going up for banks.
47:29 But in the grand scheme of things, this is almost as good as it gets, right? Right? So these are great returns. All you have to really worry about right now is the second half this seasonality impacts things. Trading is historically down 17% second half from the first half. Banking, every day is is your one big AI trade happening or not happening.
47:51 So everything's tied to that. The answer to that question is tell me what day it is and I'll give you a yes or a no. Yesterday it was today yes. Yeah, which by the way sounds like trading's going to keep outperforming because it Well, trading must be very strong today. When I have a nice Steve Eisman-like common sense rule.
48:13 When everybody agrees on something, trading's not going to be so good. And when we don't agree trading's going to be pretty good. And so between the macro backdrop, this administration's activity bringing what we took rate cuts out of the curve, now we think maybe hikes. Now we have some geopolitical issues, this constant debate on software and the AI trade.
48:38 It is a very active environment. And these companies investors are making money. There's a higher margin balances, right? Trading this quarter equity for example, equity revenues are up like 68%. The volume was up like 9 or 10%. Margin balances, the money on borrow was up 50, 50. And that's very profitable business. So Yes. Okay.
49:00 Guys thank you. That was great. We'll do this again in a quarter or two. Awesome. Good. Nice seeing you, Steve. Nice seeing you, Glenn. You too. And we're back. So we spent a lot of time on the whole private credit, private equity world. There was a lot of give and take. I think Glenn and Ken are more positive on the sector than I am.
49:22 I have my doubts. We explored that the time it takes for monetization has generally lengthened enormously in the private equity world, but not everywhere because KKR reported and they had very large monetizations. In terms of private credit we all agreed that the software situation in private credit is only going to reach fruition sometime early next year as these companies are forced to refinance and since the valuations of these companies are much lower, it's going to be a very, very interesting negotiation process.
50:00 Ken talked about the coin bases of the world. He seems to think that the use cases are going to expand as more and more tokens are created, but didn't think he had a great thesis as to why anybody would want to own Bitcoin. And then we ended up with Glenn talking about how incredibly strong the results of the investment banks are.
50:21 Everything is just humming, which in some ways worries me because when everything is humming, it's always possibility that tomorrow that's not going to hum. But for now, everything is really great in the investment banks and the earnings estimates have all gone higher. I think you have learned a lot from listening to these two analysts and we'll see you soon.
50:43 This podcast is for informational purposes only and does not constitute investment advice. The host and guests may hold positions in stocks discussed. Opinions expressed are their own and not recommendations. Please do your own due diligence and consult a licensed financial advisor before making any investment decisions.