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Michael Burry Speaks | Michael Lewis — Transcript

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0:00[music]
0:06Pushkin.
0:13>> I'm Lydia Dean Cot.
0:14>> I'm Michael Lewis.
0:15>> And surprise, we're here for a extra
0:18episode of the Big Short [music]
0:19Companion Series.
0:21>> One we weren't expecting. That's right.
0:23>> Yeah. Because we got the hedge fund
0:24manager, Michael Bur, to be on the
0:27podcast. We didn't really get him to be
0:29on the podcast. It's funny what
0:30happened.
0:30>> Well, first we should say who Michael
0:32Barry is.
0:32>> Michael Barry is is one of the three
0:35main characters in both the book and the
0:36movie of the Big Short. And he was a
0:38really important character to me.
0:40>> And in the movie he's played by
0:41Christian Bale.
0:42>> And in the movie he's played by
0:43Christian Bale.
0:44>> He doesn't do interviews and we've asked
0:46him to be on the podcast earlier and he
0:48said no. So yeah. So what happened?
0:49>> First he said, you know, I'd like to
0:50help and then he said I don't I wouldn't
0:52like to help. And then what happened was
0:54his trading activity got released to the
0:57public, which it does. He has to file a
0:5913F form with the SEC saying what his
1:01positions are. And as though it's not a
1:03perfect picture of what he's doing, it
1:05did say that he had put on big short
1:06positions against uh Palanteer and
1:08Nvidia. So he was betting against the AI
1:11bubble. All he did was file what his
1:13positions were. He didn't go on, he
1:14doesn't do media. He doesn't do
1:16interviews. And it exploded like it was
1:19on Twitter, on CNBC. People were both
1:22attacking him and praising him and his
1:25reasoning for not coming on the podcast
1:26was he wanted to lay low [laughter]
1:28>> and he and he was trending on Twitter
1:30for 48 hours. So it's like what's the
1:32point? Like he can't lay low.
1:34>> Yeah.
1:35>> And as he tells us he says like this
1:36only happens to me. But I was really
1:38glad to have him on because I felt like
1:39we were missing somebody.
1:41>> Yeah. No, same. And also because people
1:42were asking like I was getting messages
1:44being like are you guys going to have
1:45Michael Bur? There's something also nice
1:47about subjects who don't just who aren't
1:48um promiscuous, who just who don't just
1:51talk to everybody
1:52>> because it makes you feel special or
1:53>> it makes you feel special. Makes it
1:55makes the audience feel special. So, and
1:56the reader feels special. It's like
1:58nobody else has this story.
2:00>> And one thing I wanted you to explain is
2:02he was one of the first people, one of
2:04the early people, right, to bet on the
2:06subprime mortgage crisis. And when he
2:09was trying to do it, there weren't any
2:11financial instruments to do that, right?
2:13you had to it was it was how to do it in
2:15a way where if the madness just kept
2:18going and going, you weren't going to be
2:20bankrupt quickly. So, you could have
2:21done things like bet against mortgage
2:24companies in the stock market, you could
2:26have shorted their stock, but you know
2:28that that's a it's a bet that's hard to
2:31hold for a long time. And so, you have
2:33to your timing has to be exquisite. Um
2:36what he did was basically invent or have
2:40Wall Street firms invent for him the
2:43credit default swap on subprime mortgage
2:45bonds which is essentially an insurance
2:46policy on bonds backed by subprime
2:49loans. So if the loans go bad and the
2:52bonds go bad, you get paid off on this
2:55insurance policy. Think of it like I get
2:57to buy insurance on your house and if it
3:00fire insurance and if it burns down I
3:02get paid. So there's something a little
3:04goofy about it. I mean there it used to
3:06be and o very oddly it used to be that I
3:10could go buy life insurance on you and
3:13if you died I got paid a bunch of money.
3:15This obviously creates a very bad
3:17incentive murder. Murder.
3:18>> Yes. Yes. Exactly. Uh but but you can do
3:21this in the financial markets. You can
3:23buy insurance policies on other people's
3:25bonds and if it if they the bonds go
3:28bad, you get paid. You couldn't, when
3:30Michael Barry started to think about
3:32this situation, you couldn't buy an
3:34insurance policy on a subprime mortgage
3:36bond. So, he had to go help Wall Street
3:40create it for him. And then all the
3:42other characters in the story are then
3:45using that thing he creates to make the
3:47same bet.
3:48>> Um, is there anything else you wanted to
3:50say related to Michael Barry? I would
3:53say the one other thing that's
3:55interesting about him is that he so let
3:58me into his life. He just doesn't really
4:01do that usually. It it created a uh an
4:05intimacy. Like I just really got to know
4:07him and really enjoyed like just hearing
4:10what he had to say. Like I just learned
4:12stuff from him. Even when he doesn't
4:14make money on what everybody's making,
4:15it's really interesting to hear what
4:16he's thinking and just like have that as
4:18part of the furniture in your mind.
4:22Michael Lewis's conversation with
4:23Michael Barry is coming up. It really is
4:26[music] a very fun listen.
4:30I still remember you handing me your
4:32emails and like you had like thousands
4:35of p you you had communicated with the
4:37world your whole trading life for years
4:40through email. And so it was a real time
4:42account of your thoughts of Wall
4:44Street's response to your thoughts of
4:46the how the market moved. It was
4:48unbelievably valuable. It was so
4:51different from like everybody
4:52reminiscing. Do you remember that?
4:54>> I remember that. And those emails, I
4:56think, were the main reason I didn't get
4:59sued by my investors because uh if I had
5:04been a skilled orator or a somebody who
5:08loved giving conference calls, I would
5:10have done conference calls with my
5:11investors and then maybe they wouldn't
5:14have been recorded and but here I had
5:16emails with everybody on everything and
5:19so it was very clear where we stood with
5:22everybody. You were like for me,
5:26you know, people came to the right
5:27answer in different ways and you came to
5:30the right answer in such a satisfying
5:31way because not only did you see that
5:33the irresponsibilities in the subprime
5:36mortgage market, but you actually had a
5:39theory about the timing of it when it
5:41was all going to come unraveled. And the
5:43problem with these positions like with
5:45oh there's a lot of insanity in X or Y
5:47is that yeah, you can be right, but you
5:49can be wrong for long enough that the
5:51market just takes you out of your
5:52positions.
5:52>> I think that's right. This this is why
5:54this is the big short. There's the once
5:56in a century uh opportunity to actually
6:00say I know when this is going to happen,
6:02>> right?
6:02>> You know, I've compared this to the the
6:041990s bubble and the reality is there
6:08was no telling when that would end.
6:10>> Right?
6:10>> In most situations like this, you
6:14there's no good way to time it and
6:17shorting it is just a a high-risisk
6:19endeavor. what we're going to get to
6:21today, but I wanted to revisit The Big
6:23Short just a little bit. And I'm curious
6:25what effect it had on your life. I mean,
6:27there was the trade, there was the book,
6:29and then there was the movie. You did
6:31let Christian Bale come and hang with
6:33you for a day, but you you were
6:35remarkably chill about the whole thing,
6:37and I don't think I've ever felt like
6:39I've really recapped with you, like what
6:41effect this thing had on you, if any. I
6:45think
6:48I didn't know. I
6:50You're right. I mean, I'm on the autism
6:52spectrum, so I'm pretty good in my own
6:55head and I'm pretty good at blocking out
6:59stuff. And so, even this movie, I saw it
7:03at the premiere. I haven't watched it
7:04since. The book, I read it when it came
7:07out, and I haven't read it since.
7:09>> That's how I felt about it.
7:10>> Uh, we just I just move on and so kind
7:14of took it as it came. I went to the
7:16premiere because my whole my family
7:17wanted to go to the premiere [laughter]
7:19and I you know as you know I I don't do
7:22interviews because I I don't feel I'm
7:24good at this and so I you know I haven't
7:27done one I think since uh like I haven't
7:29talked to anybody since I think the 60
7:31minutes interview
7:32>> about the big short about this in an
7:34interview format and now it's the 10th
7:37anniversary of the film 15th anniversary
7:39of the book and yeah I can't believe
7:42it's been that long but you know I just
7:44kind of go on and and and do my thing
7:46and it doesn't really affect me too
7:48much. Do you didn't feel it put you in
7:49the position of Oracle that all of a
7:54sudden people are expecting you to
7:58predict the next thing. It was as we
8:02mentioned it is a very unique
8:04circumstance. It was a once in a century
8:06type trade. People say one in you know
8:09once in a century flood once in a
8:11century this once but and it's not
8:12really true. what happens every 10
8:14years. But but this was is that
8:17opportunity was very unique and I've
8:21basically told everybody I can know ever
8:25since that that that's not going to
8:26happen again anytime soon. What made it
8:28unique? Well, I was basically permitted
8:32to buy insurance on these bonds that
8:35were incredibly illquid and I was
8:38permitted to basically buy insurance and
8:42then trade and profit off them without
8:47actually having the insured item. And it
8:51this was not expensive. Nobody thought
8:53this could happen,
8:54>> right? I had put on a lot of my position
8:56by late 2005 and I got a call from
8:59Goldman Sachs saying, "What are you
9:02doing? You're the only person who know
9:04you're not a mortgage fund. You're not
9:06hedging. You're doing something
9:07different." It's not something that
9:10people were generally aware of and I
9:12was. And so I could kind of walk in and
9:16and basically
9:18uh pull the caper off
9:20>> there. There are three things I want to
9:21talk about at the back end of the big of
9:23your story in the big short and then I
9:25want to move on to the present. But the
9:27first is
9:28you have this terrific win. Your
9:30investors make a lot of money and you
9:33end up closing your fund. Can you remind
9:36me why you closed your fund?
9:39My investors were generally mad at me
9:42and they were generally mad at me even
9:44when things went well. And I didn't feel
9:48at the time I had goodwill with anybody.
9:50I didn't There was only one investor. I
9:53shouldn't say his name, but um love him.
9:56He is the only guy that invested with me
10:00late. Um that last year and a half or
10:02so, nobody came to me. Nobody nobody
10:05wanted to invest with me.
10:07>> And even when we made the money, it was
10:10we don't want to go through that again.
10:11Did Did anybody ever call after the
10:14book, after the movie, after they got
10:16their money back and and a lot more? Did
10:18anybody ever call you to apologize?
10:21>> No. No. No. No.
10:22>> It's kind of an amazing
10:24>> I didn't I didn't expect it.
10:25>> I know you didn't expect it, but the
10:27sort of like at some point when there
10:29was cooling off and they looked at they
10:31looked at their winnings, I would have
10:33thought someone would have called and
10:34said, you know, sorry I got so angry at
10:36you for doing this trade.
10:39>> No, nobody did. Okay. No, I didn't
10:41expect it. It was It's Wall Street.
10:43>> When did you reopen?
10:45>> 2013.
10:46>> And since then, how have you done?
10:50>> Done. All right. I think uh it's all
10:53been the same since. So, I remember when
10:55I opened again, I didn't want investors
10:58I didn't know.
10:59>> Yeah.
11:00>> I didn't want to be above the SEC
11:01threshold for registering for as an
11:03investment advisor. I wanted to keep it
11:05small. So, I just went to people I knew
11:09and some of my own money and we created
11:12a fund. It was probably a situation
11:14where if I wanted to, I could have
11:15raised billions, but that wasn't my
11:17intention. Well,
11:18>> you didn't want to relive the experience
11:20you'd already had.
11:21>> I didn't want to deal with Wall Street.
11:22I didn't want to deal with those kinds
11:24of investors. I knew who my good
11:25investors were from the prior time and
11:27those were the only people I wanted to
11:28deal with,
11:28>> right? And so it was a it's just was a
11:32small operation and I kept trying to
11:33keep it small and uh I didn't really
11:36market it. I didn't market it at all
11:37other than just that first group. And
11:40what happens with that is that some of
11:42those people that were with me in 2000
11:45individual doctors or whatever they get
11:47old they actually pass away. Ultimately
11:50it just became a something there was a
11:53natural attrition in the pool and so it
11:55kept us small.
11:56>> I have not paid that close attention.
11:58All I see is every now and then there's
11:59some explosion on Twitter about you and
12:02and it's wrong. [laughter]
12:03Every they they they they're all wrong.
12:10We're going to take a quick break and
12:11when we return I asked Michael Bur about
12:13why he placed bets recently against two
12:16large tech stocks, Palunteer and Nvidia.
12:26So let's talk about this. Explain to me.
12:29You have this very small operation with
12:31just a handful of investors. What are
12:33the filing requirements? What do you
12:35have to hand in so that people can see
12:36what you're doing? They get to see US
12:40securities traded in the US that are
12:43stocks. They get to see stocks and they
12:46get an incredibly bastardized version of
12:48what of of options.
12:50>> Okay. And how is it b how is it
12:51bastardized?
12:53>> Because say I buy 50,000
12:57put options on Palunteer and that's
13:0150,000 times a 100 and so I'm short
13:05strike 50 way out of the money. It's
13:07like a it's $200 stock now I str but I
13:10think it's worth 30 or less. So I I buy
13:13them way out of the money two years out.
13:16You're betting that Pontto is going to
13:17drop by a lot.
13:18>> A lot in two years,
13:20>> but over a long period of time,
13:22>> right? And the press,
13:24I'm I'm working out and I see on CNBC, I
13:27have a billion dollar short position
13:29against Palunteer, it's $10 million.
13:32>> I saw this, too. I couldn't believe it.
13:34>> So, what they do is they take the
13:37underlying shares under those options
13:40contracts and they they multiply it out
13:42by the current stock price. So we're so
13:45I have a I have a actually it was less
13:48than $2 option and it was being priced
13:52as if I own the $200. So it was two
13:54orders of magnitude off,
13:56>> right?
13:56>> And that happens also with index. So so
13:59I would take hedges on my portfolio and
14:01people would say, "Oh my gosh, he's
14:03shorting a billion and a half of the S&P
14:05500 or he's shorting and there would be
14:07these explosions and and it's just
14:10wrong. It's notional." What's
14:11interesting is that they don't do this
14:13for anybody else.
14:15So maybe you should give more
14:16interviews. [laughter]
14:18I asked you what effect the big short
14:21had on your your life. This is an effect
14:23the big short had on your life and
14:25compliance and my compliance since the
14:28financial crisis everything changed and
14:30compliance we have a compliance officer
14:31inside the firm and he just keeps saying
14:34don't talk to anybody don't talk to
14:35anybody don't respond to me don't
14:37respond to anybody and so I think since
14:39the movie came out and this really
14:41started happening there was a
14:44frustration building in me to want to
14:48say something
14:50>> and I couldn't
14:52And so when COVID came about, I had some
14:55strong feelings on that. So I went on
14:56Twitter, but I was only allowed to talk
14:59about things that weren't stocks. And so
15:02that's fine. I mean, but I had to talk
15:04about social things. And I got in
15:07trouble with that [laughter] because
15:08everybody gets in trouble with that.
15:11>> So So I got off Twitter.
15:14>> But you got back on.
15:15>> I got back on recently because um we
15:18dregistered. I don't run that pool of
15:20money anymore. I'm just going to run my
15:22own money.
15:22>> Got you. So, it's your just your money
15:24now. So,
15:24>> mostly. Yeah.
15:25>> Why did you decide to do that?
15:28>> I think that we're in a bad situation in
15:31the stock market. I think the stock
15:32market could be in for a number of bad
15:34years. And I think it could be a longer
15:38bare market more akin to 2000.
15:42But the structure of industries changed.
15:45Back then it was hedge funds, mutual
15:48funds, uh, separate accounts businesses,
15:50but there were people running pools of
15:53money and and thinking about stocks and
15:55investing in stocks. And so I felt I
15:58didn't know I was on the autism
16:00spectrum. I felt though that I had an
16:02edge there. I could I'm kind of sit
16:04outside of all these human psyches and
16:06like and figure things out and it worked
16:08well.
16:09Today it's all passive money and it's a
16:13lot. over 50% passive money. There's
16:15>> index index funds.
16:17>> Less than 10% of money some say is
16:20actively managed by managers who
16:21actually thinking about the stocks and
16:23in any kind of way that's long-term. And
16:27so the problem is in the United States
16:31I think when the market goes down it's
16:33not like in 2000 where there was this
16:36other bunch of stocks that were being
16:38ignored and they'll come up even if the
16:40NASDAQ crashes. Now I think the whole
16:41thing is just going to come down.
16:43and you it would be very hard to be in a
16:46long stocks in the United States and
16:47protect yourself. And so that's why I
16:51decided to get out of it
16:52>> because the fund had to be long in some
16:54way.
16:55>> Well, I didn't want to go through that
16:56with investors again.
16:58>> I see.
16:59>> And and
17:00>> that makes sense.
17:00>> Of course, I closed the fund and I got I
17:03put on all the positions for myself
17:04right away. The same position.
17:05>> So, you're still in the position. So, I
17:07want to talk about this position. I
17:08found it again. I was watching it from a
17:10distance. But what? Tell me what I
17:12missed. Someone CNBC or whoever gets a
17:15hold of your 13F. On this 13F, it says
17:18Palanteer position is especially big. It
17:20looks big, but it looks big because
17:22they're the put options. They're way way
17:24out of the money. They're they were
17:25struck at 50. So, okay, you had to
17:29release this information about your
17:31fund. You weren't advertising it to the
17:33world in any unusual way. You weren't
17:36going out and talking trash about
17:37Palunteer. You just this position gets
17:39released,
17:40>> right? And then the next thing I do I
17:41see Alex Karp who runs Palunteer
17:45like going after you for owning puts on
17:48his stock. And I don't think I I mean
17:50during the financial crisis you will
17:52remember that the head of uh of Morgan
17:55Stanley uh at the time John Max he
17:58blamed short sellers for what was
17:59happening to him and and they banned
18:01short selling of the stocks very I think
18:03briefly right
18:04>> but it's always a really bad sign when
18:07people start going after the short
18:08sellers. It's like
18:09>> in the United States
18:10>> in the United States. And I I was
18:13thinking, "Oh my god, I just wouldn't
18:14want to be in your shoes." Like, you
18:16didn't you just you just made a trade,
18:18but he's provoked me. I want to
18:20understand your trade. It's a bet that
18:23Palunteer goes way way down.
18:25>> Way way down in two years. What do you
18:27understand about their business that the
18:28market doesn't?
18:30>> Huh. So my belief is that this is a
18:34company that had a a a set of
18:36applications that were very expensive to
18:40install because you had to hire their
18:42consultants like after you bought the
18:44software just to install it and learn
18:46it, right? And Palanteer had this
18:48reputation in government. Government
18:51contracts is a nasty business. And I
18:53think they've figured out how to do it
18:54and and get some contracts.
18:56>> How how much of their revenue is
18:58government contracts?
18:59>> It's fallen off a lot. It was it was
19:01almost it was a majority and now it's
19:04like more even okay
19:06>> because it during this do the AI
19:08buildout um they've basically marketed
19:10themselves to corporations well
19:12corporations have come to them seues of
19:15every public corporation have board
19:18members CEOs who feel under the gun to
19:22AI something [laughter]
19:24>> and so there's this scramble and now
19:27they're not the only they keep saying
19:29they're the only ones But IBM has does
19:32basically the same thing.
19:34>> Their business is actually bigger than
19:35Palunteers and they are not really all
19:39government. Government contracts are not
19:41generally that profitable. And so, you
19:44know, IBM's got a a really good business
19:47inside it, but it doesn't get the credit
19:49for a Palunteer valuation on that
19:51business, even though it it is growing
19:53fast, too. It's growing about as fast as
19:55Palanteer or was. And so, let me put it
20:00this way. There are, I think, five
20:03billionaires that came out of Palunteer
20:05because they own Palunteer stock. And
20:08the revenue was 4 billion or le
20:12basically four billion. So, the
20:14billionaires torevenue ratio was greater
20:16than one. And I'd never seen that
20:17before.
20:19>> Was that what attracted your attention
20:20in the first place?
20:21>> Well, it that was a that's a cute little
20:24thing. [laughter]
20:26>> I was like, wow. there's how do they get
20:28five billionaires out of that group? Um
20:31and so at a a company that has four
20:33billion revenue and actually uh
20:36stockbased compensation basically would
20:38almost all their income. They have to
20:40pay their people who are doing all this
20:41consulting so much in stock that they
20:44just use stockbased compensation. And
20:46then what they do is they buy that back
20:49and the company would like you to just
20:51give them credit for and what Wall
20:54Street generally does is they take the
20:56earnings per share and then they add
20:57back the stockbased compensation because
20:59it's non-cash
21:00and they add it back to the earnings and
21:03I think actually the way GAP accounts
21:06for stockbased compensation is skews low
21:09versus what it actually costs. the real
21:11cost. You can look at the how much our
21:13company's buying back to offset that
21:16dilution and you can just take that
21:18amount and deduct it from cash flow. And
21:20and so if you do that with Palunteer,
21:22historically they don't make anything.
21:24So I basically looked at the company and
21:27said you're you're worth this much and
21:29you're really don't make anything if
21:30it's tiny little bit of revenue and you
21:33have all these billionaires.
21:35You had an argument back in 2008 for
21:37when the subprime mortgage bond market
21:40was going to start to unravel, when
21:42people are going to start to default. Do
21:44you have a timing argument for now with
21:46with Palunteer? Well, I think this is
21:49the this is the AI the AI consulting
21:52thing. So, Palunteer and Nvidia are the
21:54two luckiest companies on the planet.
21:57Neither produced a product for AI.
22:00>> No, I know.
22:00>> But they're the two poster children for
22:02AI.
22:03>> Yes. Nvidia was a good computer graphics
22:05chip company.
22:06>> Nvidia was a computer graphics chip. I
22:08actually knew the CFO. Um we talked in
22:112015 or 16. I went long the stock and I
22:14and I can said, "Hey, you're doing a
22:16great job. I love how you're buying back
22:17stock. Her kids was uh on my kids'
22:20basketball team. I think uh I bought the
22:23stock like a year or two later. The
22:24stock was up to like it went from 20 to
22:2690 at the time, which is like 40 cents
22:28now. After the splits, Nvidia was lucky.
22:31They got lucky once with the crypto
22:35mining because crypto mining needed GPU.
22:38GPUs were the they weren't custom for G
22:40for crypto mining. They were just the
22:42thing that was there that could be used.
22:44And then AI came along and it's the same
22:46deal. About a year and a half ago,
22:50a year and a half to two years ago,
22:51Palanteer was not an AI company.
22:53Basically, when chat GPD came out, they
22:55basically put an AI cover on their
22:57applications that were that they were
22:59selling and then selling all this
23:00consulting on and they call it AI, but
23:04that's what every company is doing now.
23:07>> But is there a timing argument for AI
23:09then?
23:09>> Yeah. So, this gets to what does this
23:13bubble look like? This bubble looks an
23:16awful lot like the dot bubble, which is
23:18not really a.com bubble. It was a data
23:20transmission bubble. It was a huge
23:23buildout of fiber and a huge uh fiber
23:26needed routers and routers needed fiber
23:28and and it just blew up. So the market
23:33peak was in March 10th of 2000. Cisco
23:37grew 55% that year revenues in 2000 and
23:41it grew 17% in 2001
23:44because the investment continued. it
23:48actually peaked for about a year after
23:52the top in the market.
23:55And so what you can do is you can look
23:57at uh net investment which is capital
24:00expenditures less depreciation. All
24:02right.
24:02>> Over time, and you can put it against
24:04GDP to kind of a nominal GDP to to
24:08compare it across eras. And you get
24:12these nice mounds of of investment
24:16mania. And what you see in every prior
24:20one was the the relevant stock market
24:22peak was before you were even halfway
24:26done with the the capital expenditure.
24:28uh in the majority cases the capital
24:31expenditure hadn't even peaked yet. And
24:34so right now we're we're ramping up for
24:37capital expenditure and and and what's
24:39happened is um we've gotten into this
24:41part of a phase where if you announce a
24:44dollar of capex on AI, your market cap
24:48will go up $3 for every dollar you add.
24:50Oracle, we saw that with Oracle,
24:52>> giant company was up 40%. Like
24:55incredible. Larry Ellison was briefly
24:57the richest man
24:59>> because they announced this massive
25:01multiundred billions of of dollars of
25:03basically spending that they would have
25:05to well they announced uh bookings but
25:08they would have to spend. They're still
25:10building it out.
25:11>> Where are we then?
25:13>> I can't say because it hasn't happened
25:16fully yet. We are at levels of prior
25:19peaks. We're at the level of the shale
25:21revolution relative to GDP. We're at the
25:23level near the level the.com where the
25:25when the.com the stock the NASDAQ
25:27peaked.
25:27>> So you felt two year two-year puts were
25:30enough?
25:30>> I thought two years would be enough.
25:32Yes. I think two years would be enough.
25:35I think you know if you're going to buy
25:37something now buy healthc care stocks
25:38they're really out of favor. If you own
25:41something that has been gone up a lot
25:44you've done really really well in it.
25:46It's on a it's shooting straight up and
25:48and you know it's think it's kind of
25:51overvalued. You should I think that's a
25:54something you should sell. I want to ask
25:56you one weird question more question
25:58about the stock market and that is you
26:00own Berkshire Hathaway and Birkshire
26:02Hathaway just announced that we just was
26:04revealed that it bought a big chunk of
26:05Google stock. Did that disappoint you or
26:08do you see how they're thinking?
26:09>> We don't know that that is Buffett that
26:11bought it.
26:12>> One,
26:12>> right? two, Google is the value
26:15investor's favorite in that group. It's
26:18the one that
26:20>> everybody said, well, it's cheaper than
26:21all the others. It's got it's a relative
26:23value and it is Google,
26:26but I know that since I got chat GPT and
26:30Claude, I don't use Google,
26:32>> right? And Google search, the magic
26:34thing about Google search was how little
26:36it cost.
26:37>> Yeah.
26:38>> Because most requests were not
26:40monetizable. So for the 85% of of
26:44searches they get that are not nobody's
26:46going to buy even looking to buy
26:48anything or think it's not product
26:50related. It's it's history. You know uh
26:53what did Columbus really do? You know
26:56it's not monetizable and so they better
26:59not lose a lot of money on that. AI
27:02changes that AI is expensive. I run
27:06queries regularly that I know cost tens
27:08of dollars just for my inquiry inquiry.
27:11one one inquiry, Google had had those
27:13searches down to infinitismal fractions
27:16of a cent. So that business is the
27:18golden goose and it's really basically
27:22all their cash flow. So the other thing
27:24about LLMs is that look back to the dot
27:29boom that was an amazing
27:30telecommunications revolution. If you
27:32were alive in the 80s and then you were
27:33alive in the 2000, it's nothing the
27:35same. It's it changed everybody's life
27:39in a dramatic way. And still AOL just
27:43disconnected its last [laughter] dial up
27:46just like a year ago this year earlier
27:48this year. I mean the penetration was
27:52very slow in the United States. It was
27:54pretty lightning fast in places like in
27:56Singapore, Soul these one city countries
27:58type thing or dense urban areas but it
28:01was it was a long time by the financial
28:04crisis but even after the financial
28:05crisis there was a lot of people in the
28:07United States who were not online or
28:10were on D you know were in not really
28:12doing it. So back then as that
28:16connectivity came up there was a lot of
28:18things people wanted to sell. People
28:19wanted to sell goods online. They wanted
28:21Amazon grew on that. They wanted to
28:23socialize online. They wanted to do
28:25these things. With LLMs,
28:28most people are getting what they want
28:29out of them right [laughter] now on the
28:31on the free level. And they're massively
28:33penetrated, right?
28:34>> What more are they going to do for the
28:38average person? Not that much. The money
28:40is going to be in the in the developer
28:42space, and there's a lot of money in
28:43that space. But this idea that I mean a
28:48very small percentage of people want to
28:50pay for their LM and they won't ever
28:52have to because they're gonna be so this
28:54is going to be commoditized.
28:56So I think you're getting a sense of how
28:59Michael Barry's mind works. When we come
29:01back from the break I finally find out
29:04why he decided to talk to me for the big
29:06short.
29:11All right. So, I'm going to let you go
29:12in a minute, but there are a couple of
29:13other things I want to ask you about
29:14because I just want to pick your brain
29:15on them. What triggers a debt crisis in
29:18this country? Like, do you pay are you
29:20paying much attention to our
29:21government's finances? And h how do you
29:23feel about them and where do you think
29:25it's headed? So, predicting this stuff
29:28is the problem. I I always kind of put
29:31it in terms of, you know, waiting for
29:34Castro to die. It's not a strategy. The
29:38people live a long time. countries are
29:40very powerful and they can do a lot. The
29:42United States is the reserve has the
29:44reserve currency. Obviously, Trump is
29:48bullying around the world right now. So,
29:49they're the United States is still a
29:51very primary country and um betting that
29:55they can't find a way
29:59is
30:00not something I'd want to do anytime
30:02soon. I do think it's ridiculous. I
30:07mean, we have what, four and a half
30:08trillion in taxes from individuals. We
30:10have about 400 billion from
30:12corporations. I mean, you could double
30:14the taxes on corporations, that's 400
30:16billion. What does that do for you? We
30:18have a trillion dollars in interest
30:19payments on our debt every year. So um
30:23you know when you get that trillion that
30:25interest expense is getting up there and
30:28then you have all the entitlements
30:31we we do not have the social uh cushion
30:35that a lot of other developed countries
30:37have.
30:39But we can't really afford [laughter]
30:41doing much more than we're doing.
30:42>> So you think the debt's just going to
30:44keep growing and growing and growing,
30:45but you wouldn't want to bet when it
30:46breaks? No, you you can't because it's
30:49the United States.
30:51>> How you feel about Fed independence? Do
30:52you care?
30:54>> Um, I think I have a different I have a
30:57kind of a sick view on this that I think
31:01that Trump when Trump starts running the
31:03Fed, it might become the end of the Fed
31:05because if he's running the Fed, then
31:06everybody's going to hate it, not just
31:08me. [laughter]
31:09So, um, we'll see. I think the Fed is uh
31:14has done a lot of damage over the last
31:16hundred years or since its inception in
31:181914 and I feel we don't need the Fed.
31:23We don't need it unless the Fed is going
31:25to say look like why are they going to
31:27drop rates? There's no reason to drop
31:29rates now. Inflation's starting to come
31:31up a little bit. The economy is muddling
31:33along but our neutral rate is not 1% or
31:380% or where Trump wants it. Our neutral
31:41rate is probably around 4% or it's
31:43probably around where we are now. And
31:46think about when you drop rates, you
31:49kill all the savers, all the fixed
31:52income people. They suffered for so
31:53long. They're actually finally getting a
31:55rhythm to their lives again. None of
31:57this is costless. And you think you're
31:59going to just drop rates. Be careful
32:01what you wish for. You might drop rates
32:02and because of the debt situation that,
32:05you know, the curve can steepen.
32:06>> Did you just say we you want to get rid
32:08of the Fed?
32:09>> Yeah. I I think the Fed doesn't do
32:12anything very helpful. I think it's the
32:15easiest job in the world. What do you
32:16replace it with?
32:18>> I think the US Treasury could have a
32:20department that just makes these
32:22decisions. I mean, the Fed already is
32:24monetizing Treasury debt, whatever. I
32:26mean, they're they're almost the same
32:28department already. your institutional
32:30pessimism does it lead you to like I
32:33don't know Bitcoin or gold or one of
32:36these refuges that people
32:38>> I think that Bitcoin at 100,000 is the
32:41most ridiculous thing that sane people
32:44are sitting on TV talking about Bitcoin
32:47they're just casually it's 100,000 it's
32:50down now it's 98,000
32:53it's not worth anything [laughter]
32:58Everybody's accepted it. It's the tulip
33:01bulb of our time. It's worse than a
33:03tulip bulb because this has enabled so
33:05much criminal activity to go deep under.
33:09So where do you hide with your Do you
33:11have gold? I have I've had gold since
33:142005.
33:15>> I'm gonna let you go. But the last
33:17question I have, did you I I never asked
33:18you this question. You let me into your
33:21kitchen in a really um uh you made
33:24yourself very vulnerable and you let me
33:27tell your story. Do you regret it when
33:30you showed up? I knew you from Liars
33:33Poker and I didn't know what you were
33:37going to write about me because you're I
33:40you're a great author. So, I knew you
33:41from I knew you from Moneyball and Blind
33:43Side, but when you deal with Wall
33:46Street, you tend to be very fairly
33:48critical. And so, I'm a big hedge
33:51manager just shorted your house. So,
33:53[laughter]
33:54you're you approached me. Actually, I
33:57got a call from a friend. You talked I
33:59think one of my friends in New York and
34:01he called me and he said, "I just talked
34:03with Michael Lewis. Congratulations.
34:04You're going to be one of the heroes in
34:06his new book." And that was when I
34:07really realized, oh, this is going to go
34:09okay. So, in a way, I was giving you all
34:12that stuff defensively. [laughter]
34:15I didn't want you having a I wanted to
34:17make sure you had everything um full
34:20disclosure because I I thought I was I
34:22didn't do anything wrong and I wanted
34:24you to know that.
34:25>> Yeah. You know, and and your appeal to
34:27me was you were and are a fantastic
34:31teacher, like a really good explainer of
34:34your own thoughts, and your own thoughts
34:35can sometimes be peculiar, like just
34:37different than what other people are
34:38thinking. and you don't mind holding
34:40them, you know, you you don't mind
34:41having views that just would embarrass
34:44people who were less sure of themselves
34:46to articulate.
34:47>> Well, being on the spectrum, I'll just
34:49move back into my own head and uh
34:52[laughter] move along. So, [gasps]
34:54>> it was great seeing you. I'm sorry
34:56you're not out here more. And if you
34:57were out here, I wish you just let me
34:59know because I'm I am down in your old
35:01neck of the woods some and it would be
35:03fun to go grab dinner.
35:04>> We're still out there a lot. So, I'll
35:06I'll look forward to seeing you. All
35:07right. Miss you.
35:08>> Yeah, miss you too. Thank you, Michael.
35:16[music]
35:19>> Against the rules. The Big Short
35:20Companion is hosted by Michael Lewis.
35:23It's produced by me, Ludy Jean Cot, and
35:25Catherine Girardo. Our editor is Julia
35:29Barton. Our theme was composed by Nick
35:31Bertell, and our engineer is Hansdale
35:34Shei. Special thanks to Nicole Optenbos,
35:38Jasmine Fino, [music]
35:40Pamela Lawrence, and the rest of the
35:42Pushkin Audiobooks team. Against the
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