The banks kicked off earnings season.

I'm going to share some thoughts on a

bunch of the large banks that reported

because they provide great insight into

the state of the current credit cycle.

IBM was down 25% on this news on

Tuesday, its worst day ever, and it took

the entire software sector down [music]

with it. Netflix reported Netflix has

lost its mojo. In the past, I have said

[music] as the banks go, so goes the

economy. Probably not this time. I'm

starting to think that [music] the

entire future of the US economy hinges

on the success or failure of AI. The

potential issues in AI and in private

credit will determine whether and when

there will be a recession.

[music]

[music]

Hi, this is Steve Eisman and this is

another episode of the weekly rap. This

is for the week ending Friday, July

17th, 2026, but recorded Thursday night,

July 16th, 2026. Before we get to the

rap, I would like to remind everyone

about our move to Substack and explain

the value ad. Substack is an exciting

community of like-minded investors and

creators, and the conversations are

incredibly dynamic. The Substack

ecosystem is well established with a

large variety of podcasters that I

interact with regularly. As a free

Substack subscriber, you will receive

emails sent directly to you every time

we release a new premium episode and a

sneak peek preview of both the video and

newsletter. You'll also have access to

our notes and restacks. The link to join

for free is in the description. Let me

quickly flag what is on our premium

Substack subscription. On Wednesday,

July 15th, we released an interview with

Boris Peaker, the biotechnology analyst

at Jones Trading, we had an incredibly

extensive discussion about the entire

biotech landscape and future drug

innovation. I think the biggest impact

AI could do is reduce the probability of

failure of a clinical study,

particularly a large clinical study,

that would be extremely helpful, right?

>> It was an amazing tour to force where we

explored the vast world of biotech. I

learned a ton. Next week on Wednesday,

July 22nd, we will release an interview

with recurring guest Ken Sahausski, the

payments analyst at Autonomous, we

discuss how AI and Agentic AI are

changing the entire payments landscape.

The link for premium is in the

description. And now for the wrap. On

this week's wrap, we will have one, the

war in Iran, of course, some more news

about Circle and Stable coins. PayPal

might be for sale. IBM reported a

disastrous recorder. It actually

pre-announced with terrible implications

for the software sector. Elevants,

United Healthcare, GE, Aerospace, and

Netflix also reported. Banks reported

giving a broad view of the economy and

one mailbag. And here we go. In war

news, the situation is escalating. The

US and Iran are trading strikes and

there is a dispute as to whether the

strait is open, but it's pretty clear

now that the straight is not open. All

prices climbed above $80 and the 10-year

climbed to almost 4.6. 6%. Last week,

there were two major pieces of news with

respect to Circle. As a reminder, Circle

is the stable coin company that went

public in June of 2025. Circle creates

stable coins, a financial product that

is trying to make inroads into the

traditional payment systems. Circle is

the second largest creator of stable

coins. Tether is the largest. On

Tuesday, June 30th, there was some very

negative news. Circle was down 17.5%

that day because a consortium of

companies including Stripe, Visa,

Mastercard, Coinbase, and Black Rockck

unveiled their own stable coin and

stable coin ecosystem. The second piece

of news came out last Friday, 3 days

later. Circle announced that it had

received regulatory approval to become a

trust bank. And on this news, the stock

was up 5%. To understand its importance,

you need to understand how Circle makes

money. A Circle customer buys $1 worth

of Circle stable coin called USDC.

Circle gives the customer a stable coin,

a USDC worth $1, that the customer can

then use to pay for stuff to preserve

the value of the stable coin. Circle

takes the dollar and buys short-term US

treasuries, a security whose value does

not, I repeat, does not fluctuate.

Circle earns the interest on the

treasuries. And that is Circle's sole

source of revenue today. One caveat,

Circle doesn't actually physically buy

the treasuries. It puts it in a money

market fund run by Black Rockck. And

Black Rockck manages the money market

fund and charges Circle 18 basis points.

So Circle makes the interest on the

treasuries less the 18 basis points. The

bank charter means that Circle can run

its own money market fund and save the

18 basis points. Now, don't get me

wrong, the bank charter is certainly a

positive for Circle, but between the two

pieces of news, the competition from the

Visa Mastercard Consortium is more

important. The importance of having Visa

and Mastercard as part of the consortium

cannot be overstated. Creating a stable

coin is just not that complicated.

Breaking into the payment system is

complicated, and having Visa and

Mastercard as part of the consortium is

crucial. Circle went public on June 5th,

2025 at $31 per share with a peak just

below 270 on June 23rd, 2025. It's only

about 2 weeks later. Circle is now

trading around 63. The payment space

remains a very difficult space. My view

now about Circle is that the big

companies like Visa and Mastercard are

paying attention to the stable coin

space. Circle is just too small to

compete with these giants. It has a nice

franchise, but needs to team up with

bigger players. If I was running Circle,

I'd be looking to sell the company. And

speaking of selling the company, PayPal

may have finally put its shareholders

out of their misery. The stock reached a

peak of 300 in the late summer of 2021.

Tuesday night, the stock was $47.37.

Wednesday morning, there were

unconfirmed reports, still unconfirmed,

that PayPal was selling to Stripe and

Advent for $60.50,

which would put the stock at roughly

where it was at the end of last year. At

6050, PayPal is being valued at 11 times

the 2026 EP estimate. I think other

payment companies need to follow. The

space has become too difficult as

companies keep entering each other's

space. For a deeper dive on the payment

space, take a look at our episode on

January 26, 2026 with Ken Sahowski, the

payments reanalyst at Autonomous

Research. Now, before we get to the

bangs, we got a whole bunch of companies

to cover. I want to first focus on IBM,

which pre-announced pre-announced a

terrible quarter on Tuesday. Now, until

now, investors have been worried about

the long-term and negative implications

of AI on the software sector, the

so-called SAS apocalypse. I love saying

that. IBM's results show that there are

now short-term implications as well. IBM

pre-announced EPS of 293 versus 280 last

year, but a miss versus expectations of

$3 and a penny. Worse revenue of 17.2

billion, missed expectations of 17.9

billion. So quite a miss. It is, I must

emphasize, unusual for a company of

IBM's size to miss both EPS and revenue

guidance. only one quarter out. Things

must have changed rapidly this quarter.

And what were those changes? Two of

IBM's major businesses are its software

and infrastructure businesses. The

infrastructure business provides

hardware, software, and services to

critical enterprise workloads. So, it

too is partially a software business.

So, why the miss? The problem is the

dramatic increase in prices for chips

and other tech equipment because of AI

demand. IBM management stated and I

quote, "In the last few weeks of June,

we saw clients shift their quarterly

capex spend towards servers, storage,

and memory purchases to secure supply

constrained infrastructure ahead of

expected price increases."

So now there is a long-term SAS

apocalypse and a short-term SAS

apocalypse. I like saying that sentence.

IBM was down 25% on this news on

Tuesday, its worst day ever, and it took

the entire software sector down with it.

Another side to the same coin was the

results at Ericson, which develops

network equipment and software. The

stock was down double digits on Tuesday

on its earnings report. Ericson reported

a 7% decline in earnings and revenue

fell 6%. And it provided weak guidance

because of component cost inflation. So

Ericson is suffering from higher

semiconductor and tech equipment costs.

And still another side to the same coin

were the positive results at ASML which

produces semiconductor equipment

specifically machines for the production

of chips through lithography. ASML is

clearly a beneficiary of the AI boom. It

reported a strong quarter. It beat on

EPS and revenue and it raised guidance

and the stock was up in health

insurance. Elevance and United Health

reported the group has done very well

this year as companies have been able to

raise prices enough to finally overcome

higher health care costs. However, still

a tough environment. Elevants reported

on Wednesday EPS of 745, down 16% versus

last year, but higher than the 618

estimate. The stock was down on the

print for two reasons. The company

raised guidance but by less than the

second quarter beat and perhaps more

importantly total membership dropped by

1% as the increase in prices negatively

impact membership. On the other hand,

the very next day, United Healthcare

reported and the market really liked the

results. Company beat expectations and

raised guidance. It's all in the

pricing. Revenue is flat, but UNH and

the industry in the process of raising

prices and that is improving margins.

Moving on, GE Aerospace is riding a

positive cycle in aerospace and it also

reported while the results were great,

the stock was down on the print. Why?

First, the results. The company reported

earnings per share of 202 versus a $166

last year and versus the estimate of

$186. Revenue was 12.63

billion, up a nice 24% and almost 1

billion higher than the estimate. So far

so good. company raised guidance to 765

to 785 versus prior guidance of 710 to

740 and versus expectations of 756. That

sounds good, too. But the stock was down

around 4% because investors clearly

wanted the company to raise guidance by

more. On such stuff, stocks move. And

finally, before we get to the banks,

Netflix reported Thursday night. Netflix

reported EPS and revenue in line with

expectations. EPS was up 11% which is

nice but not like the go- go days.

Moreover, in the press release, the

company said it would cut back on the

frequency of its what we watched reports

which provide a picture of engagement.

In the future, Netflix said that it will

publish this report only annually in the

first quarter of each year. The market

did not like the fact that the results

only met expectations and it also did

not like the virtual elimination of the

what we watched report and the stock was

down 8% after hours and is down 20% this

year. Netflix has lost its mojo. And now

for the banks. The banks kicked off

earnings season. I'm going to share some

thoughts on a bunch of the large banks

that reported and then show you how to

think about valuation given the results.

Before I do that, I want to focus on how

the large bank results are of particular

importance because they provide great

insight into the state of the current

credit cycle. The four large banks, JP

Morgan, City, Wells, and Bank of America

have large and broad-based lending

businesses. On the consumer side, they

provide credit cards, auto loans, and

sell for other types of consumer loans.

On the commercial side, they make

commercial real estate and corporate

loans, and other types of commercial

loans as well. They don't do everything,

but they are big enough and broad enough

to provide a real window into the health

of the US economy. By analyzing the

credit results of these four banks, we

can get a closer understanding of

whether the problems in the private

credit sector are broadening into a

large credit cycle for the overall

economy. Now, there is growing fear that

credit losses will start to mount for

the first time since the great financial

crisis. And we've had 17 years of

amazingly benign credit quality, and

investors are wondering if the good

times are going to be over. Yes, private

credit is exposed to software and

software is getting hit by AI, but are

there signs of broad credit problems

emerging in the actual data? When the

major banks report, they provide reams

of data. JP Morgan's quarterly earnings

release supplement is 29 pages long and

is filled with information on every

page. That is typical of how the banks

report. To see trends in credit quality,

the best place to look is to examine

consumer and commercial nonacrrewing

loans. A non-acrrewing loan is a loan

that is seriously delinquent, usually 90

plus days. A bank no longer reports

interest income from these loans and

reserves for future losses. I am putting

on the screen consumer and commercial

non-acrrewing loan data for JP Morgan,

Wells Fargo, Croup, Bank of America for

2Q25, 1Q26, and 2Q26. These four banks

combined provide a large window into

credit quality trends. If there was a

serious trend of deteriorating credit,

we would see increases in nonacrrewing

consumer or commercial loans or both on

a year-over-year basis and a quarterly

sequential basis. We certainly saw large

increases in consumer non-accrual loans

leading up to the GFC. We are not seeing

that now at all. I want to emphasize

that at all. The credit data is benign

in both consumer and commercial. For

those of you who are just audio

listeners, I'll just focus on JP Morgan

and Bank of America. For JP Morgan,

total non-acrrewing loans were 9.4

billion in 2Q26. They were down 5%

year-over-year and down 2% versus 1Q 26.

The numbers at Bank of America were also

very benign. 2Q26 total non-accruals

were 5.8 billion, down 4% year-over-year

and flat with 1Q26. Conclusion the

credit trends reported by the large

banks are very benign. Maybe a credit

cycle will emerge but we are not seeing

it in the banks. That is an important

data point. The banks have the broadest

credit exposures. So their results are a

concurrent indicator. And this brings me

my to my conclusion about the state of

the US economy. Since the GFC

commentators have tried to predict the

next crisis. This is they say that it

isn't. Perhaps the most important story

of the past 17 years is how powerful and

resilient the US economy has become.

Yes, there are problems in private

credit with respect to overexposure to

software. And perhaps these software

issues are harbingers of an approaching

credit cycle. Yet, the banks have shown

once again that credit quality in the US

is okay. Until that changes, the US

economy will be fine. Fine, yes, but we

do have a K-shaped economy. So, it's not

fine for everyone. I just don't see a

recession though on the horizon as long

as bank credit quality is benign. The

problems that may emerge in the US

economy rests not with the banks. They

rest elsewhere. Whether AI will succeed

or fail, whether private credit will

show more problems, that is where

problems could occur. In my view, the

banks this time are not leading

indicators. In the past, I have said as

the banks go, so goes the economy.

Probably not this time. The banks are

extremely well capitalized and their

credit quality is benign. The potential

issues in AI and in private credit will

determine whether and when there will be

a recession. It would be much easier to

predict the future if the banks were the

leading indicator because the data the

banks produce are voluminous and

transparent while private credit is much

more opaque making future economic

weakness much trickier to see. Frankly,

I'm starting to think that the entire

future of the US economy hinges on the

success or failure of AI. That's why I

talk about it so much. As for the

financial results of the banks this

quarter, they once again posted powerful

results largely because of extremely

strong investment banking and trading.

The banks are partial beneficiaries of

the AI boom as companies with AI

financing needs are going to Wall Street

for help. These results produce record

levels of returns. Here's a brief

synopsis. JP Morgan EPS was 614 versus

496, 24% growth. Revenue was also a big

beat and was up 15% versus last year.

The return on tangible common equity was

a very strong 23%. Bank of America also

reported a great quarter of $1.21 21

versus 89 36% growth and versus the

consensus of A12. Revenue was up 15% on

better trading investment banking and it

had nice operating leverage. Return on

tangible common equity was a strong

16.5%. Wells Fargo Wells Fargo has a

history of occasionally disappointing

like last quarter but not this time.

Wells results beat. EPS was $2 versus

$160 25% growth. Again, the strong

results were largely from trading and

investment banking. Wells's return on

tangible common equity has been stuck at

14 to 15% for many quarters. This

quarter elevated the ROCE to 17.7%.

Impressive. City also had a good quarter

for similar reasons. The company

reported EPS of 315 versus 212. 48%

growth. Company posted strong results in

services, trading, and investment

banking. And the return on tangible

common equity was 13%. The same as the

first quarter of this year and versus 8%

in the second quarter of last year.

Right now we are in a golden age for

investment banking. Trading volumes are

high. AI is creating massive financing

needs. The IPO market isn't bad and M&A

is very strong. That's why the most

powerful results this quarter came from

Goldman Sachs and Morgan Stanley.

Goldman Sachs reported a great quarter.

It reported EPS of 2098 versus 1091.

92% growth. Wow. Again, the results were

supported by powerful training and

investment banking. And the return on

tangible common equity was a powerful 25

1.5%. Like Goldman, Morgan Stanley

produced powerful numbers, too. Revenue

was at record levels and up 27% versus

last year. EPS was up 62% and the return

on tangible common equity was a

best-in-class 26.6%.

As to how to value the banks, the

easiest and most consistent way is to

look at the return on tangible common

equity. The higher that percentage, the

higher the price to tangible common

equity. That's why Goldman, JP Morgan,

and Morgan Stanley are valued at 3 to

four times tangible book. Their return

on tangible common equities exceed 20%.

At the same time, Wells Fargo, Bank of

America, and City are at 1.3 to 2.1

times tangible book as their ROCEEs are

13 to 18%. Our one mailbag is a followup

from last week. Last week I answered a

premium subscribers question as to what

I read. I provided a list of books,

mostly history books, but I also

mentioned that I read graphic novels and

comic books partially because I find

them somewhat oddly precient and they

also tell great stories. I did not

provide any titles, so of course several

viewers asked for titles of graphic

novels. This could be an endless

discussion. My digital comic book

collection exceeds 11,000 comics. If I

listed every comic I like, we'd be here

all day and all night. So, I'll just

name my top 21. Number one, Sandman by

Neil Gaiman. Maybe the greatest comic

book ever written. The Netflix series

was pretty good, too. It's about the god

of dreams. Two, Lucifer by Mike Carry. A

Sandman spin-off. And yes, that Lucifer.

Lucifer quits being the devil and ends

up living in Los Angeles. This comic is

one of the deepest theological stories I

have ever encountered. Number three,

Fables by Bill Willingham. Snow White,

Sleeping Beauty, and Prince Charming

have been living in Greenwich Village

for hundreds of years. A great story.

Number four, Hellblazer. Varied authors.

Some authors were better than others,

but the character Constantine is complex

and amazing. Number five, Swamp Thing.

One of the most underrated comics ever,

but one of my favorites. Alan Moore

changed the entire story. Number six,

The Dark Knight Returns by Frank Miller,

published in 1986. This story changed

comics forever. It made comics darker

and much more serious. Number seven,

Batman Year 1 by Frank Miller. And

number eight, Daredevil Born Again, also

by Frank Miller. Number nine, Watchmen

by Alan Moore, an iconic comic. Number

10, Lazarus by Greg Rucker. This comic

is ongoing and has been going on for

more than a decade, but it's the best

dystopian story in comics. The entire

world is ruled by a few rich families.

11. Nemesis by Mark Malar. Just a great

story. Wolverine, Old Man Logan, an

alternative history comic. 13. Welcome

to Tranquility by Gail Simone.

Superheroes living in suburbia. This is

an amusing story. Number 14. Flashoint

by Jeff John's. What happens when the

Flash changes history? The results are

not good. 15. The Boys by G. Enus. The

original story of a world where

superheroes are bad. Up is down and down

is up. 16. Starman by James Robinson.

Robinson takes a B-level superhero and

elevates him. 17. The Golden Age by

James Robinson. What if Hitler had

survived? 18. Avengers Disassembled by

Brian Michael Bendis. What happens when

a superhero goes completely insane? 19.

House of M. also by Brian Michael

Bendis, the sequel to Avengers:

Disassembled. 20. Powers by Brian

Michael Bendis. What happens when a

superhero loses his powers and becomes a

cop? And finally, 21. Alias by Brian

Michael Bendis. This comic introduces

the character Jessica Jones to the

Marvel universe. It's a story of an

emotionally damaged superhero who

becomes a private detective. And in

honor of the new movie, The Odyssey,

coming out this Friday, I have a book

recommendation. There are many novels

that explore aspects of the Iliad and

the Odyssey, and I've read several. For

me, the best one is a trilogy written by

David Gmel. The first book is called

Lord of the Silver Bow. It's a complete

reimagining of the Trojan War story, and

it's fantastic. This last Monday, July

13th, we released on our free service an

interview with Torston Sllock, chief

economist of Apollo, and we discussed a

broad range of topics, but focused a lot

on the impact of AI on the overall US

economy. So, check it out. And this

coming Monday, July 20th, we will

release an interview with Ben Kellow,

the sustainable energy and mobility

analyst at Baird. We discuss how the

buildout of AI data centers has upended

the entire sustainable energy landscape,

creating a hyperrowth story. The best

way to support the Real Eizen playbook

is to subscribe to Substack and to

YouTube. Subscriptions are free and we

appreciate your support. And that's the

wrap.

This podcast is forformational purposes

only and does [music] not constitute

investment advice. The hosts 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 adviser before making any

investment decisions. [music]