Escaping the Drift with John Gafford
From the Big Short to Tariffs: Steve Eisman on Trade Wars and Globalization
Tue, 8 Apr 2025
Wall Street legend Steve Eisman, famously depicted by Steve Carell in "The Big Short," joins us for a thought-provoking discussion on the shifting tides of the global economy. With his unique perspective on tariffs and trade wars, Steve dubs these issues a "theological problem," challenging the age-old teachings of free trade. We reflect on the historical impacts of NAFTA and China's WTO entry, contemplating their mixed blessings on GDP growth and job creation. This episode aims to cut through the noise, offering you a seat at the table for an expert analysis of today's complex economic landscape. Our conversation explores the stark realities facing the American manufacturing sector amid globalization and trade policies. Together, Steve and I recount firsthand experiences from economically ravaged regions, discussing the potential impact of President Trump's tariffs. We consider the ripple effects on countries like China, Mexico, and Canada, pondering whether they can negotiate favorable trade deals. As companies like Apple and Nike adjust to new trade realities, we delve into how these policies might reshape supply chains and create unexpected opportunities. Turning our attention to investments and future market conditions, we dissect the feasibility of rekindling U.S. manufacturing through tax incentives and organized labor's role. From emotional to rational decision-making, Steve sheds light on market dynamics and the potential for a full-blown trade war. We also explore the real estate market's current challenges, influenced by mortgage rate fluctuations, and the transformative role of AI in manufacturing and finance. As we wrap up, we reflect on the importance of interpreting information in a rapidly changing world, sharing insights from institutions like Wharton and Harvard on the art of data interpretation for market success. CHAPTERS (00:00) - Economic Trends (05:40) - Impact of Trade Policies on Manufacturing (12:47) - Implications of Trade War on Investments (18:56) - Real Estate Market Discussion and Insights (32:24) - Investors, AI, and Information Interpretation 💬 Did you enjoy this podcast episode? Tell us all about it in the comment section below! ☑️ If you liked this video, consider subscribing to Escaping The Drift with John Gafford ************* 💯 About John Gafford: After appearing on NBC's "The Apprentice", John relocated to the Las Vegas Valley and founded several successful companies in the real estate space. ➡️ The Gafford Group at Simply Vegas, top 1% of all REALTORS nationwide in terms of production. Simply Vegas, a 500 agent brokerage with billions in annual sales Clear Title, a 7-figure full-service title and escrow company. ➡️ Streamline Home Loans - An independent mortgage bank with more than 100 loan officers. The Simply Group, A national expansion vehicle partnering with large brokers across the country to vertically integrate their real estate brokerages. ************* ✅ Follow John Gafford on social media: Instagram ▶️ / thejohngafford Facebook ▶️ / gafford2 🎧 Stream The Escaping The Drift Podcast with John Gafford Episode here: Listen On Spotify: https://open.spotify.com/show/7cWN80gtZ4m4wl3DqQoJmK?si=2d60fd72329d44a9 Listen On Apple: https://podcasts.apple.com/us/podcast/escaping-the-drift-with-john-gafford/id1582927283 ************* #escapingthedrift #steveeisman #wallstreet #globaleconomy #tariffs #tradewars #freetrade #nafta #china #wto #gdpgrowth #jobcreation #americanmanufacturing #presidenttrump #supplychains #apple #nike #taxincentives #organizedlabor #rationaldecisionmaking #marketdynamics #tradewar #realestatemarket #mortgagerates #ai #datainterpretation #wharton #harvard
Chapter 1: Who is Steve Eisman and why is he featured in this episode?
And we wanted to kind of, I'm sick of scrolling through social media and seeing all of these pocket economists that, you know, class of Wednesday that know exactly what's going on in the world because they happen to vote one way or another. And I decided to maybe bring you some good information today. So what I did was I went out and we scored a Wall Street legend. I mean, this is a guy.
who saw it coming when nobody else did. You may know him as the real life inspiration for Steve Carell's character in The Big Short, and he famously bet against Wall Street in the 2008 housing crash and won massive. But he's more than that. He's a brutally honest guy in finance that calls it like he is, whether it's good or bad. And today we're going to talk about the good and bad of terrorists.
Ladies and gentlemen, welcome to the show. This is Steve Eisman. Steve, how are you?
Pretty good.
A little poor, but a little poor today. Well, well, thanks so much for taking time out of your day. And I'm sure you've been busy commenting on all that's happening in the world today. And I do want to talk later a little bit about your experience with the big short, but obviously let's talk about the news of the day starting out. So let's jump right into it.
What is your perspective on what's going on and where we're going to land?
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Chapter 2: What are Steve Eisman's views on tariffs and trade wars?
I think. use a term that probably no one has applied to this what we have is a theological problem and what i mean by that is everybody like you like me in the markets um went to college and we all at least took econ 101 and econ 101 they taught you that free trade is good tariffs are bad trade wars are terrible and the thing about economics is It's very persuasive because there's a lot of math.
There are a lot of graphs. There are a lot of tables. And all that math, tables and graphs can't be wrong because they have all that math, graphs and tables. And, you know, everybody walks out of, you know, when you walked out of Econ 101, you thought, you know, I really learned something. So we have been living in a world of economics now for a long time.
And I think part of the problem is you have to go back to the 90s. In the 90s, President Clinton sold NAFTA and China entering the WTO with two arguments. And those arguments were, this will increase GDP and it will create a lot of jobs.
he was 100 right about the former and he was terribly wrong about the latter you know if you have i after the movie i i got a great speaking gig and i've made speeches all over this country and you know let's say i go to university in the middle of indiana or something you you drive from the airport through towns that have been obliterated literally obliterated i mean half a main street is closed no new home has been built in a generation and
You have to remember the GDP is just an aggregate number, but it doesn't tell you that maybe half the country has suffered terribly from what happened. So I think what President Trump is trying to do, and I have to say great sympathy for this, is he's trying to right a wrong. Because after the 90s, we allowed our manufacturing base to go overseas. Okay. but we didn't retrain our people.
We left them, we said, it's your problem, you go deal.
Go learn to code. Go learn to code, I think was the- Go learn to code at age 50. Yeah, there you go.
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Chapter 3: How do trade policies impact American manufacturing and jobs?
So I think what he's trying to do is two things. He's trying to level the trading playing field because we are the only ones who seem to play fair. We've had very low tariffs, very low barriers. Everybody else has tariffs and barriers. And he's also trying to bring a lot of jobs back to the United States. And, you know, you could think about President Trump, whatever you want.
Some people like him, some people hate him. But one thing that I find admirable, regardless of whether you agree with his policies or not, he's one of the few politicians in our lifetimes who actually does what he says he's going to do. And nobody believed this tariff stuff because it's so against what everybody learned in college. They didn't take it seriously.
He's just fulfilling his campaign promise. Now, The people who voted for President Trump, his biggest followers, are not big investors in the market. They're the ones who live in these towns. So I think there's a reset about what's happening, and it's extremely jarring because he's not playing by the playbook that everybody learned in college. That's part of it.
What I think is also clear is that this is going to take time. And thankfully... and I really mean this thankfully, the United States is in the best position in the world to deal with this.
I know that a lot of naysayers say, well, why wouldn't he not negotiate before? Oh, that's ridiculous. Well, I think the best quote I saw was a Kissinger quote who said, you negotiate once the tanks are rolling. Exactly.
The tyrants are the tanks.
Yeah, you have to show power. You have to show power prior to anything happening. So you knew he was going to flex a little bit and get this done. Now, I think that of a lot of the people that are making the most noise, who is the most susceptible to fall first in this show of power for the United States? Which countries do you think get in line the fastest?
Ah, okay. So let me quote some statistics. Okay, perfect. The internet is a great thing for research, as we know.
Depends on who's talking.
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Chapter 4: What countries are most affected by U.S. trade policies and tariffs?
Everybody would come to the United States cap in hand and say, okay, listen, all the stuff that we've been doing, jiggering the trade in our favor, game's up. Let's try and negotiate as good a deal as we can. That says everybody's rational. Now, everybody's not necessarily rational. Politicians want to get reelected.
They might be afraid that if they cut any deal with President Trump, they're not going to get reelected. So I can't handicap that. I can only say that if they're rational, deals will be worked out. I do know, because I have a very good friend who runs a hotel in D.C., that the hotels apparently in D.C. are filled with ambassadors from all over the world asking to negotiate. Let's talk.
So I thought that was pretty nice information that I got this weekend. But I don't know how it's going to play out. My guess is most countries will cut a deal. It may take a few months to cut those deals, but most countries will cut those deals. China may not cut a deal. China may say, you know, this is just a form of war and we'll deal. That I can't handicap at all.
I think of all of them out there, the Chinese are probably the hardest to predict what they will do. Of everybody, I would say. Completely. I think Mexico and Canada have to just resolve this as quickly as possible because they're going to feel it quickly and miserably.
Like I said, 25% of your GDP is exports to the United States. You're not exactly holding a lot of cards.
You can't swallow that. My next question is, today I guess it was Apple and Nike announced they're already starting to increase prices based on the tariffs. So is there any way their supply chains are already being interrupted based on inventory on hands to do this? Or do you see these major corporations never wasting a good crisis to try and increase profits? What do you see happening there?
Oh, I think they're probably increasing their prices because they have to because these tariffs are very punitive for them.
Do you think it's happened this quick, though? Do you think it's happened this quick? That I don't know.
I can't answer that question. I don't have enough information to know that one way or the other. I think Nike and Apple are going to have… Look, you can't rejigger your supply chain from Vietnam and China to the United States overnight. It doesn't work that way. You know, factories, unfortunately, can't be built overnight. That's just not how it happens.
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Chapter 5: How are major corporations like Apple and Nike responding to tariffs?
let me ask you this one of the seemingly like you said the towns that were decimated uh by nafta by the auto you know industry moving to mexico all of these things happening how how feasible do you see how feasible do you think it is for the united states to really move mass manufacturing back to the states how feasible is that that's a great question i think it's feasible it's going to take time i think one of the things that will i'm guessing will help
is right now in Congress, they're hornswoggling about taxes. And I think one of the things that will be proposed is if you build a factory in the United States, and I think it'll be backdated to the beginning of the year. So if you build a factory in the United States, you get 100% write-off. That's pretty wild.
Yeah, it is. It is. But don't you think that some of the reason that manufacturing left in the first place was organized labor in this country just put such a chokehold on manufacturing, making the cost of labor so expensive that it forced this? Or was it really just about corporate bottom line?
Some combination of both, but unions are much weaker at this point.
Do you think they're going to have to make concessions to get manufacturing back?
I think companies will probably choose states that don't have strong unions is my guess. So if I had to take a guess, you know, which states do I think are going to benefit the most? You'll see them in the south and the Midwest outside of union strongholds. That's just a guess.
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Chapter 6: Is it feasible to bring manufacturing back to the U.S. and what are the challenges?
I know. It's just, it's so funny to think that all of this kind of comes down to a handful of people acting rationally as they should.
That's part of the problem with economics is when you peel it back, you realize that one of the major assumptions about economics is that people act rationally. And one thing I know from watching my screens every single day on terms of stocks is the last thing people do on most days is act rationally. They act emotionally. Yeah.
What do you think the best case scenario is for timeline for this to somewhat get resolved? And the worst case scenario is? What would you say?
The best case scenario, I think, is two to three months. Two to three months. Yeah. That's pretty quick.
What do you think about it? That is quick. Yeah, that's fast.
And the worst case scenario is a full-blown trade war.
How far, so if it goes two to three months, do you think your average American is going to experience pain? Will we have time to experience pain there? Or will it just kind of resolve before we got to massive interruptions in supply chain?
I don't know. That's above my pay grade, Ben.
You're the smartest guy in the room. That is way above my pay grade. You know what? In your defense, that's how you maintain the reputation as one of the smartest guys in the room is you don't talk about things you don't necessarily know. I actually was. I don't know. I don't know. All right. Well, as a sharp investor, right.
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Chapter 7: What investment strategies does Steve Eisman recommend amid trade tensions?
As someone that invests, obviously you're a wall street legend is somebody that is a sharp investor. How are you looking to take this situation and make it a positive for investors?
So what I would say to people right now is this is not the time to be a hero. You know, first of all, any, the, any analysis, analysis, On my own podcast, The Eisen Playbook, I had my old partners on last week, which we just posted. And we were talking about, if we were all still together running our hedge fund, what would we do? And I think we all concluded that we would not press shorts.
We would just take the book down on both sides. We would just de-risk and we'd sit and wait. And the reason is that when In normal times, there are a lot of different variables that move markets and move stocks. And right now, that whole world is out the window. There's one variable that matters, and his name is President Donald Trump. And that means volatility.
So what I would say to people is, if you're literally having a conniption fit every single day and you can't sleep, and Lord knows you need to sleep,
sell some things in your portfolio you know sell positions that are not your favorite positions you know maybe even on your some of your favorite positions sell a little you'll feel better yeah and and wait just wait you don't have to you don't have to be there for the first uptick if if things get resolved because if things get resolved it'll be upticked for a very long time
You know, the downside risk here from a – I mean, I think the risk of a trade war is less than 50%. How much less than 50%? I don't know yet. But that's not infinitesimal. So if there's a full-blown trade war, the market would go considerably lower. I can't handicap for you right now.
If everybody settles except for China, would we still consider that a trade war?
No, I would not consider that a trade war.
You'd conclude that China becomes an outlier to the problem?
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Chapter 8: How are trade wars influencing the real estate market and mortgage rates?
let's get back to the retail investors here because obviously when traditionally speaking when when the market falls like this the money runs to bonds which then drop the yields on bonds and for what i do obviously real estate we're so intimately tied to that 10-year treasury bond uh which fell under four percent but then bounced yesterday back over four percent which i thought was really strange um what's your thought there
I actually didn't understand that move other than people were trying to buy stocks and so they were selling bonds. Otherwise, it made no sense to me. I would suspect if things stay hairy for a while, yields will go back down.
Okay. Because obviously for what we want to do, and this is where your kind of crossover of knowledge becomes so interesting to me, how do you think this affects the real estate market? Where are we going from here?
Well, if we're talking about residential real estate, as we all know, the residential real estate market is locked right now. And it's locked because of COVID. And the reason why it's locked because of COVID is that everybody with a pulse refinanced their mortgage 3%. And today, if you take out a mortgage... I mean, what's the latest rate? Six, six and a half?
No. Well, that's the thing. With the bond yield going down on Friday, we got to six and a half. But as soon as it came back, we bounced back up to six, seven, five.
Okay. So call it six, seven, five. Yeah. So one thing I learned very early in school is that six, seven, five is more than three. Three. Yeah. In fact, it's more than twice as much. And mathematically, that's a problem. My guess is mortgage rates would have to go below six to get the residential market unlocking.
My magic number for that is five, five. I think when it hits five, five, there's an onslaught of pent up demand for people that needed to do something that wouldn't, you know, you're not going to swallow seven from three, but you'll swallow five, five, especially if the pain in your current living situation is great enough. You'll, you'll swallow that and make them.
I mean, if your kids are climbing the walls and they've got no place to sleep, you're going to, you're going to not to five, five.
So, With this going on, if you had to look back at the housing market now, is this a bet you would make for it or against it going into the spring, which is traditionally our busiest time?
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