“Markets have long periods of paradigms where certain groups are leaders,” the hedge funder told Bloomberg in an episode of the Odd Lots podcast Monday. “Sometimes those paradigms change violently, and sometimes those paradigms change over time, because people don’t give up their paradigms easily. And I think we’re going through a period, possibly, like that again.” Eisman pointed to Thomas Kuhn’s 1962 book, The Structure of Scientific Revolutions, as evidence that markets may be undergoing a gradual, yet volatile paradigm shift.

“When Einstein created his theory of relativity, for example…It’s not like everybody said, ‘Oh, we’ve been waiting for Einstein, thank God, now we can get rid of Newton.’ It took several years for people to realize that that was a better theory. I think something like that happens in markets,” he said. “Paradigms are so deeply ingrained in people’s brains they can’t even imagine, at times, that there could be anything else.”

After years of soaring tech stocks and cryptocurrencies, George Ball, chairman of Sanders Morris Harris, a Houston-based investment firm, told Fortune in December that he also expects a paradigm shift in markets this year as investors take a more conservative approach.

“I think you occasionally get a turning of the investment and economic age, and we’re at one of those now after over a decade of near-zero interest rates,” he said. “Periods of euphoria need to be followed by periods of abstinence.”

The old and the new

With the Federal Reserve holding interest rates near zero for so many years after the Great Financial Crisis and during the COVID-19 pandemic, tech and growth stocks outperformed the overall market. 

Low borrowing costs allowed these firms to readily invest in revenue growth, and a lack of viable alternatives to equities due to low rates meant investors “were essentially paid to take risk” and invest in them, Eisman said. On top of that, many investors were suffering from “Amazon disease,” according to the hedge funder. By this he meant that the success of tech giants like Amazon—some of which were unprofitable for years before their stocks soared—led to an era of speculative investing in growth-oriented stocks over the past decade.

“From 2010 through the beginning of 2022, if you were a company that had no earnings but strong revenue growth, people dreamed the dream,” Eisman said, arguing that investors were always looking for the next Amazon, and often ignoring fundamentals in the process. But now, with rates rising, Eisman said he believes revenue growth at many of these firms is now slowing, and a new era is coming for investors.

He described how former stock market leaders were overtaken during past market paradigm shifts like the one happening now, noting that the financial stocks which outperformed before 2008, “literally did nothing until 2020.”

“Call it a dozen years where the old leadership group evaporated,” he said. 

The hedge funder went on to argue that the rise of growth and tech stocks that were market leaders to start the year is an example of how “people don’t give up paradigms easily.” The tech-heavy Nasdaq is up more than 13% year to date, and Cathie Wood’s ARK Innovation ETF—which focuses on tech and growth stocks and became a bellwether for the sector during the pandemic—is up more than 37%. Eisman warned this could be the “last hurrah” for these stocks, but added that it depends on the Federal Reserve.

“[Federal Reserve Chair Jerome] Powell has said that he’s going to keep raising rates, and the important sentence is, ‘and he’ll leave them there.’ If he leaves them there, I think we’ll have a paradigm shift. If he cuts again, we’ll go back to where we were,” he explained. “I think he’s going to leave them there and we’ll have a paradigm shift, but it’s unknowable at this point.”

This isn’t 2008…

While Michael Burry, another hedge funder made famous by the success of The Big Short, has argued that stocks are in the “greatest speculative bubble of all time” since 2021 and predicted the “mother of all crashes,” Eisman doesn’t believe history is repeating itself. Improved regulation in the financial system has created a much safer system, he argues.

“I think 2000 and 2008 for some investors is like PTSD,” he said. “There aren’t a lot of people on Planet Earth who really understand how much the financial structure of the United States and Europe has really changed. So they see the markets go down and they say to themselves, ‘Oh, my God, something bad is going to happen.’”

And while Burry has warned that an “extended multiyear recession” is likely on the way, Eisman said he’s expecting something much more mild. 

“Something bad could happen, you know, we could have a recession,” he said. “But my feeling is we’ll have an old-fashioned run-of-the-mill recession. We’re not going to have some enormous meltdown crisis where the system is completely at risk, which is what happened in ‘08.”