The Shutdown Ends, Burry’s New AI Warning & Disney Stumbles | The Weekly Wrap

Episode Overview

• Host Steve Eisman provides a personal health update, sharing his recent cancer diagnosis and ongoing treatment.
• The episode covers key market trends, including the record-high delinquency rate for subprime auto loans and the market's reaction to the end of the US government shutdown.
• Eisman analyzes Michael Burry's short position on AI stocks, explaining Burry's thesis that large tech companies are artificially inflating earnings through changes in their depreciation schedules.
• The wrap-up includes a review of recent earnings reports and performance for several companies, including Disney, CoreWeave, Cisco, and Paramount.

Key Concepts

• Subprime Auto Loan Delinquencies: The share of subprime borrowers at least 60 days delinquent on their auto loans has reached 6.65%, the highest level since 1994, signaling stress on lower-end US consumers.
• Michael Burry's AI Short Thesis: Burry argues that hyperscalers (like Meta, Google, Microsoft) are inflating their earnings by extending the useful life of their network computing equipment on their books, which reduces annual depreciation expenses and boosts profits without any change in actual cash flow.
• Government Shutdown Resolution: The end of the government shutdown initially caused a market rally, but nervousness about AI and the broader economy has since tempered investor enthusiasm.
• Company Earnings Analysis: The episode examines the performance of several key companies:
  • Disney: Reported mixed results with a lack of overall growth.
  • CoreWeave: Showed strong Q3 results and revenue backlog growth, but a minor project delay and guidance reduction led to a significant stock drop, highlighting the high expectations for AI-related companies.
  • Cisco: Benefiting from AI demand, but its legacy businesses are still weighing on its overall growth rate compared to competitors like Arista.
• Personal Health Update: Steve Eisman shares that he was diagnosed with breast cancer in June and is currently undergoing chemotherapy, which is affecting his appearance.

Quotes

• At 00:15 - "That's the highest level going back to 1994." - Discussing the alarming rise in the delinquency rate for subprime auto loans.
• At 01:25 - "Right now, I'm in the middle of chemotherapy. Hence, the thinning hair." - The host, Steve Eisman, provides a personal update on his health and the reason for his changing appearance.
• At 14:14 - "Here is an example of where institutional investors have access to information that retail investors generally do not." - Explaining how he identifies trends like the M&A boom by using professional-grade data sources like Dealogic to track announced deal volumes.

Takeaways

• Be cautious with high-valuation growth stocks, as even minor disappointments or guidance reductions can lead to severe stock price corrections, as seen with CoreWeave.
• When analyzing companies, look beyond headline earnings and scrutinize accounting changes, such as adjustments to depreciation schedules, which can be used to artificially boost profits.
• Monitor consumer credit health indicators, like auto loan delinquency rates, as they can serve as an early warning sign of broader economic stress and potential downturns.