- Steve Eisman, senior portfolio manager at Neuberger Berman, believes that banks are currently uninvestable due to decreasing net interest margins, tepid loan growth, and raised capital requirements.
- TransUnion's statement about collapsed loan volume on the consumer side indicates that the tightening of banks and higher rates have affected borrowing ability.
- The consumer is still spending, but not on big-ticket items that require borrowing.
- Eisman believes that the Fed is trying to anticipate rather than react, but Powell seems confused by the different data points.
- Eisman advises waiting to see what the data says before making any decisions.
- Eisman does not think the Fed will lower rates unless there is a very bad recession.
- Eisman does not recommend buying banks, as returns are expected to go down due to increased capital requirements.
- Eisman is uncertain about whether a recession will occur in the next year and believes the fiscal stimulus is helping to keep the economy strong.
- Eisman expresses concern about the state of universities and his decision to remove his family's name from a scholarship at the University of Pennsylvania due to his disagreement with the president and chairman of the board of trustees.
- Eisman criticizes the protesters who call for "free Palestine from the river to the sea," stating that it is a form of pure hatred towards Jews.

Steve Eisman, Neuberger Berman senior portfolio manager, joins 'Squawk Box' to discuss latest market trends, earnings season, consumer strength, the Fed's inflation fight, and more. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi 

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He's senior portfolio manager at Neuberger Berman.

And I always hesitate to put words in your mouth, so I'm not going to do that.

A matter of record, you said, no, no, no, no on the banks.

And what I interpreted that to mean was that credit conditions were tightening, even though the Fed hadn't made any moves recently.

And we saw the 10-year move up above 5% in the absence of any Fed hikes, which is sort of the market doing some of the work for the Fed.

I mean I've said many times the banks right now are uninvestable and it's 3 reasons.

Loan growth is tepid at best because they're losing deposits.

And the regulators have raised capital requirements again, and that's not even hit returns, and they won't hit returns till sometime next year or the year afterwards.

And we haven't even had a credit cycle yet.

Does this all indicate to you that it's only a matter of time until something else breaks, like 6 months ago or whenever that was?

I mean, look, if I knew what would break, I'd tell you.

Does J-PAL think it's possible something is?

I thought the most interesting part of this earnings season was comparing Visa to TransUnion.

Because Visa showed the consumer is still spending, and it didn't beat volume.

So the consumer, in terms of his or her spending is fine but TransUnion came on and basically said that loan volume on the consumer side has collapsed.

That you know the bank tightening, the higher rates have caused those causing loan volume really to go down a lot.

The fact that TransUnion was down 25% in 1 day is literally shocking that a company like that could be down that much.

But that hasn't hit the economy yet I mean the yin and yang is that the consumer is still healthy but they can't spend money on big ticket items because they can't borrow so they're spending it maybe out maybe that's why Starbucks was so good they're spending it on a more expensive cup of coffee

What I'm hearing and it's sort of a nuance that I wasn't considering if loan growth slows it's not necessarily because demand is slowing with people who want loans it could be that deposits have fled so the banks

are the banks are tightening and also you're not you're not buying a house at an 8% mortgage

the part of the the part of the economy that I think is the most worrisome right now is anything that's a large ticket that the consumer needs to borrow to buy so house auto solar panel etc Everything else seems to be doing OK on the consumer side.

When we try to, we've also heard, had some discussions today about coincident versus leading indicators versus the rear view mirror that the Fed uses.

Do you think the Fed is trying to look ahead now and finally trying to anticipate rather than

But I listened to Powell's press conference and I think he's just as confused by all the different data points as everybody else.

Maybe that's why he wants to pause, because he doesn't know what to do.

The 25 basis points from here is not meaningful.

year from now that he's going to be lowering rates.

I don't actually think we're going to unless we have a very bad recession.

I don't think we're going to see the Fed lower rates.

I think Peb Powell is still petrified of what happened to Volcker in the early 80s.

So those folks are saying buy bonds right now, right?

Buy 10 years, because rates are going to come down.

I think that's way too early to make that kind of prediction.

You think he's terrified of what happened to Volcker when he lowered rates.

When he lowered rates and inflation resurged.

That would be the that would be the worst possible outcome that could happen to the country and for Powell's reputation.

I think he lives in more fear of that than a recession.

Couldn't you start buying banks now and buy them if they go lower?

You know, 1 thing I've learned in my career over the years is that buying something just because it's cheap is a value trap and shorting something because it's very expensive is a death wish.

So yes the banks are cheap by any metric.

What's the way they say the opposite of love is not hate it's indifference.

Right now people are completely indifferent to banks.

Now maybe that's a good sign to buy them if you have a very very long term time horizon but the thing that bothers me the most is that returns are going to go down just because of the increase in capital requirements so what's your rush?

Is there anything to you that indicates we either avoid a recession or go into a recession in the next year?

I mean right now I'm still surprised by how strong the economy is given how much rates have gone up so I'm not willing to make any bet that we're going to go into a recession.

He, I had a sort of an awakening when he said we have we're spending a lot of money fiscally in the economy as long as we're doing that the economy is not gonna slow is that that's

gonna be right that's part of it I mean you know the fiscal stimulus from all the infrastructure stuff that I've spoken at has even hit.

It's not going to happen until next year.

Steve, before you go, I want to pivot the conversation 1 second just because I know you're a major benefactor to the University of Pennsylvania.

I wouldn't say major, but I've benefactored.

a significant benefactor to the University of Pennsylvania.

And I believe you've gotten involved in this sort of larger debate about what's happening in universities right now.

Well, I mean, your interview with Mark Rowan woke me up a bit.

And my history with the University of Pennsylvania is pretty deep.

So a lot of members of my family have been there.

I've gone back to the university many times to speak.

After, a couple of days after the interview, I called my contact person at the university, and I said, you know, we have a small scholarship that we Created about a dozen years ago, and I called my contact and I said I wanted our names removed from it immediately I do not want my family's name associated with the University of Pennsylvania ever

You know she understood And she has gotten a lot of calls like that.

Is there anything they could do to change her mind?

Yeah, you could fire the president and the chairman of the board of trustees immediately.

I believe they're having a board meeting today.

Well, I doubt they're going to do anything.

But that's the only thing that would even move me at all.

Well I mean this is something that's played out again and again and Larry Summers pointed to a letter that came from the Association of University Heads in Israel today with a long letter that they have that's out just talking about how there should be no moral equivalency when you're looking at a nation defending itself versus terrorist attacks that come through.

You know, 1 of the things that the protesters are saying, And 1 of the things I really sincerely believe is that when people tell you who they are, you should believe them.

And the protesters, their slogan is, free Palestine from the river to the sea.

The river is the Jordan River, and the sea is the Mediterranean.

And free Palestine from the river to the sea means get rid of all the Jews.

You know that the Nazis had a different way of saying it.

What we have in the protestors right now is dressed up in the clothing of progressivism is pure hatred of Jews.

My view is any student who holds up a sign that says free Palestine from the river of the sea should be expelled.

That's not free speech that's calling for


Speaker 0: Joining us now, Steve Eisman. He's senior portfolio manager at Neuberger Berman. And I always hesitate to put words in your mouth, so I'm not going to do that. But let me just say this last time. A matter of record, you said, no, no, no, no on the banks.

Do not invest in the banks. And what I interpreted that to mean was that credit conditions were tightening, even though the Fed hadn't made any moves recently. And we saw the 10-year move up above 5% in the absence of any Fed hikes, which is sort of the market doing some of the work for the Fed. Is that true?

Speaker 1: Kind of. I mean I've said many times the banks right now are uninvestable and it's 3 reasons. They're more than losing deposits.

Speaker 0: OK

Speaker 1: so net interest margins are going down. Loan growth is tepid at best because they're losing deposits. And the regulators have raised capital requirements again, and that's not even hit returns, and they won't hit returns till sometime next year or the year afterwards. And we haven't even had a credit cycle yet.

Speaker 0: Does this all indicate to you that it's only a matter of time until something else breaks, like 6 months ago or whenever that was? Is that on the horizon?

Speaker 1: I mean, look, if I knew what would break, I'd tell you.

Speaker 0: Does J-PAL think it's possible something is?

Speaker 1: I'm sure he thinks it's possible. Let me just change gears for a second. I thought the most interesting part of this earnings season was comparing Visa to TransUnion. Because Visa showed the consumer is still spending, and it didn't beat volume. It didn't miss volume.

It was exactly in line. So the consumer, in terms of his or her spending is fine but TransUnion came on and basically said that loan volume on the consumer side has collapsed. That you know the bank tightening, the higher rates have caused those causing loan volume really to go down a lot. The fact that TransUnion was down 25% in 1 day is literally shocking that a company like that could be down that much. But that hasn't hit the economy yet I mean the yin and yang is that the consumer is still healthy but they can't spend money on big ticket items because they can't borrow so they're spending it maybe out maybe that's why Starbucks was so good they're spending it on a more expensive cup of coffee

Speaker 0: What I'm hearing and it's sort of a nuance that I wasn't considering if loan growth slows it's not necessarily because demand is slowing with people who want loans it could be that deposits have fled so the banks

Speaker 1: are the banks are tightening and also you're not you're not buying a house at an 8% mortgage

Speaker 0: so in that case it is because yes

Speaker 1: the part of the the part of the economy that I think is the most worrisome right now is anything that's a large ticket that the consumer needs to borrow to buy so house auto solar panel etc Everything else seems to be doing OK on the consumer side.

Speaker 0: When we try to, we've also heard, had some discussions today about coincident versus leading indicators versus the rear view mirror that the Fed uses. Do you think the Fed is trying to look ahead now and finally trying to anticipate rather than

Speaker 1: react? Yes, I do. But I listened to Powell's press conference and I think he's just as confused by all the different data points as everybody else. Maybe that's why he wants to pause, because he doesn't know what to do.

Speaker 0: Will there be another hike?

Speaker 1: I have no idea.

Speaker 2: What would you do?

Speaker 1: I'd wait. See what the data says. You've already raised rates so much. The 25 basis points from here is not meaningful. It's more of a messaging.

So wait till you are expecting a

Speaker 2: year from now that he's going to be lowering rates.

Speaker 1: No I don't. I don't actually think we're going to unless we have a very bad recession. I don't think we're going to see the Fed lower rates. I think Peb Powell is still petrified of what happened to Volcker in the early 80s.

Speaker 2: So those folks are saying buy bonds right now, right? Buy 10 years, because rates are going to come down. You don't think that's the case?

Speaker 1: I think that's way too early to make that kind of prediction. I wouldn't be doing that.

Speaker 3: You think he's terrified of what happened to Volcker when he lowered rates.

Speaker 1: When he lowered rates and inflation resurged. That would be the that would be the worst possible outcome that could happen to the country and for Powell's reputation. I think he lives in more fear of that than a recession.

Speaker 0: Couldn't you start buying banks now and buy them if they go lower? I mean, they've come down a lot, right? Still don't touch them.

Speaker 1: You know, 1 thing I've learned in my career over the years is that buying something just because it's cheap is a value trap and shorting something because it's very expensive is a death wish. So yes the banks are cheap by any metric. So what you know the opposite. What's the way they say the opposite of love is not hate it's indifference. Right now people are completely indifferent to banks.

Now maybe that's a good sign to buy them if you have a very very long term time horizon but the thing that bothers me the most is that returns are going to go down just because of the increase in capital requirements so what's your rush?

Speaker 0: Is there anything to you that indicates we either avoid a recession or go into a recession in the next year?

Speaker 1: I mean right now I'm still surprised by how strong the economy is given how much rates have gone up so I'm not willing to make any bet that we're going to go into a recession.

Speaker 0: Kaplan's on later isn't he? Kaplan, former Dallas.

Speaker 1: I know him personally. Yeah.

Speaker 0: He, I had a sort of an awakening when he said we have we're spending a lot of money fiscally in the economy as long as we're doing that the economy is not gonna slow is that that's

Speaker 1: gonna be right that's part of it I mean you know the fiscal stimulus from all the infrastructure stuff that I've spoken at has even hit. Yeah, that's a good speculation. It's not going to happen until next year.

Speaker 2: Steve, before you go, I want to pivot the conversation 1 second just because I know you're a major benefactor to the University of Pennsylvania.

Speaker 1: I wouldn't say major, but I've benefactored. You were

Speaker 2: a significant benefactor to the University of Pennsylvania. And I believe you've gotten involved in this sort of larger debate about what's happening in universities right now.

Speaker 1: Yes.

Speaker 2: What's going on?

Speaker 1: Well, I mean, your interview with Mark Rowan woke me up a bit. And my history with the University of Pennsylvania is pretty deep. I went there. My wife went there. We met there.

My sister went there. My brother-in-law went there. And they met there. So a lot of members of my family have been there. I've gone back to the university many times to speak.

After, a couple of days after the interview, I called my contact person at the university, and I said, you know, we have a small scholarship that we Created about a dozen years ago, and I called my contact and I said I wanted our names removed from it immediately I do not want my family's name associated with the University of Pennsylvania ever

Speaker 3: What was the response?

Speaker 1: She was very nice. You know she understood And she has gotten a lot of calls like that. And she said she would take care of it.

Speaker 3: Is there anything they could do to change her mind?

Speaker 1: Yeah, you could fire the president and the chairman of the board of trustees immediately.

Speaker 2: I believe they're having a board meeting today.

Speaker 1: Well, I doubt they're going to do anything. But that's the only thing that would even move me at all.

Speaker 2: Go ahead.

Speaker 3: Well I mean this is something that's played out again and again and Larry Summers pointed to a letter that came from the Association of University Heads in Israel today with a long letter that they have that's out just talking about how there should be no moral equivalency when you're looking at a nation defending itself versus terrorist attacks that come through.

Speaker 1: Let me just say 1 thing. You know, 1 of the things that the protesters are saying, And 1 of the things I really sincerely believe is that when people tell you who they are, you should believe them. And the protesters, their slogan is, free Palestine from the river to the sea. The river is the Jordan River, and the sea is the Mediterranean. And free Palestine from the river to the sea means get rid of all the Jews.

You know that the Nazis had a different way of saying it. It was Judenrein, no Jews. What we have in the protestors right now is dressed up in the clothing of progressivism is pure hatred of Jews. My view is any student who holds up a sign that says free Palestine from the river of the sea should be expelled. That's not free speech that's calling for

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Steve Eisman: Fed chair Powell is 'just as confused' by all the data points as everybody else