GOLD Is Not A Signal, Tush Push For Intel | Thomas Hayes
Summary
Market Dynamics: The podcast discusses a significant shift in financial markets with gold and silver breaking out to all-time highs, while the S&P 500 and the dollar retreat, and bond yields drop.
Fed Policy Impact: Jerome Powell's acknowledgment of dual mandates and labor market cracks, along with potential tariff changes, are influencing market movements, with discussions on possible "jumbo" rate cuts depending on upcoming economic data.
Investment Opportunities: Tom Hayes suggests focusing on undervalued sectors like small caps and international equities, rather than precious metals, for potential high returns.
Company Focus: Intel is highlighted as a potential investment opportunity due to its strategic positioning in advanced chip manufacturing, supported by government backing, contrasting with Nvidia's current market saturation.
Housing Market Outlook: The potential for rate cuts could stimulate the housing market through mechanisms like option ARMs and HELOCs, unlocking significant home equity and driving economic growth.
National Security and Investment: The U.S. government's involvement in Intel is framed as a national security measure to ensure domestic chip production, with potential long-term benefits for investors.
Economic Indicators: The podcast anticipates a mixed economic outlook with potential short-term inflation bumps, a higher unemployment rate, and a lower dollar over the longer term.
Market Predictions: By the end of the year, the S&P 500 is expected to be incrementally higher, with potential volatility in the coming months, while the 10-year yield may see a decrease.
Transcript
We are witnessing a dramatic shift in the financial markets as we speak. Gold, silver are breaking out. Gold is trading at an all-time high. But we have to figure out like what changed in the macro landscape that now the precious metals are moving. The S&P 500 is retreating. The dollar is retreating ever so slightly, but it is having an impact and bond yields are dropping as well. So, what has changed? Was it just a speech by Jerome Powell and Jackson Hall or is there more to it? And I've invited a fantastic guest to discuss. His name is Tom Hayes. He's the chairman of Great Hill Capital, also the the publisher, the editor, the host of a fantastic podcast called Hedge Fund Tips. Go check it out on YouTube as well. We'll link to it below. And we'll try to make sense of what is going on in the markets. Are we looking at a traumatic shift in the markets or is this just a blip on the radar screen and maybe just something more micro? Maybe it's just the precious metals. Maybe I'm too focused. Maybe I'm too much in my own bubble. So, I'm curious what Tom has to say about that. Before I switch over to my guest, hit that like and subscribe button. It helps us out tremendously and we much much appreciate it. Did I mention it's free? A must have. So, thanks so much for doing that. Now, everybody else, oh, Tom, thank you so much for joining us. It's good to see you. I hope you had a great summer. >> Uh, thanks for having me, Kai. Uh, yeah, we did have a great summer and uh, super happy to be here with you. >> Yeah, really looking forward to catching up. A lot has happened. It feels like in the last 10 days. It seems like the floodgates have opened. A I'm super busy on work on work work-wise, but also the markets are reacting, responding. I don't think it's just the end of the summer. I think there's more to it. What is your like assessment of the economy and the financial markets right now, Tom? >> Well, I think uh you know, you referenced gold and silver. We don't spend a lot of time on that. were equity managers. But I will say that Powell's acknowledgment of his dual mandate and the kind of cracks in the labor market and the recognition of those and not being so uh systematically focused exclusively on 2% inflation was was very very positive. And then I think a little bit of what you may be seeing today was the after f Friday headline about the tariffs may be voted illegal. Uh President Trump loves has has spent his career in court. He will litigate this to the end. He will appeal it until the cows come home and the tariffs will ultimately go through. Um, I think if I had to have a view on metals, I'd be less sanguin than the market is right now. Uh, I'd be more inclined to be focused on the, uh, unmagnificent 493, some of the left for dead parts of equity markets like small cap, some opportunities in in international. I think that's where you're going to see doubles and triples and quadruples. I think uh, uh, to expect that in gold and silver from these levels is a is a bit ambitious. No, it it it is. I don't see $9,000 in gold, for example, next week. Um, and we'll get maybe to some sectors that are still undervalued in your opinion here in a second, but we do have to stay uh on on the macro side for a second cuz president or Fed Governor Chris Waller also brought up jumbo cuts uh last week. It was uh yes, >> it was it was mentioned. >> Curious like a what is your interpretation of a jumbo cut? Is it 50 basis points? Is it 100 basis points? and uh why it seems like the market is reacting to it. >> Well, we are going to know if we're getting a jumbo cut on Friday because that's when we get the jobs report for August. That's what everyone's focused on. If that comes in a lot weaker and with considering the revisions that we've gotten in recent reports, uh it's not out of the question that that could come in weaker. Uh then 50 basis points is on the table. I think Trump has got Powell surrounded at this point. Powell has made the proactive shift. So he's not going to get caught sideways. Uh he's done on his own valition to shift shift that talk. But when you look at Waller, when you look at Bowman, they're going to push through Mirram before the SE September meeting. And Lisa Cook, I mean, you know, the one thing that she's been missing in all of her thou dost protest has been uh I'm innocent. She's been saying you have no right to fire me. You're a bad man for firing me. But she's not said that I'm uh innocent. So if she's out then, you know, right now we're at the most dissenters in three decades. You add that to the fold uh and effectively, you know, a a a larger than 25 basis point cut could be a reality, but the data definitely has to support it. The data has supported a 25 basis points uh sequence for for many many months when you consider how restrictive the Fed is in terms of uh being you know 150 basis points over the rate of inflation. Uh they're they're going to move. The question is how much? My bet would be 2 to 325 bips cuts before the end of the year. More likely two. But if that employment date is weak on Friday, everything's on the table. >> Yeah. No, and that's that's exactly what everybody's looking for, I guess, but some sectors and and maybe coming back to gold, and we don't have to be this doesn't have to be a gold discussion, but it's often that gold predicts stuff that's supposed to happen in the future, and now gold is rallying, hitting 3500. Maybe it is pricing in a two rate cut already. Maybe it's pricing in negative data based on what you just said, like all the revisions um that we've seen for like May, June as well. Um, why isn't the S&P 500 rallying if it expects or if the if gold expects 500 or 50 basis points or a jumbo cut? >> I haven't found gold to be a useful predictor of anything other than people's interest in buying gold. But, uh, leaving that aside, I would say uh, copper is probably a better economic indicator than gold, although it's been less reliable in recent recent years. I think the number one predictor of uh, of expectations is um, is earnings. You know, earnings are the name of the game. You know, markets don't go up by accident. Over time, they're a short-term voting machine based on emotions and headlines and expectations. In the long term, they're a weighing machine based on fundamentals. And the fact of the matter is, uh, what we're seeing is kind of a divergence that people haven't quite dialed into yet. And that divergence is the Magnificent 7 that everyone is still crowded into. Uh slowly a little bit of air coming out. uh has had aggressively decelerating earnings growth rates from 30 plus percent to 33% a year ago to this quarter will be the first quarter where in aggregate the mag 7 earned somewhere between you know uh high single digits to low double digits call it 9 to 13% earnings growth uh for this quarter while the unmagnificent 493 the left for dead stocks that people haven't been paying as much attention to uh is now accelerating from negative earnings growth last year to four five 6% and by a year from now when MAG7's at 10% unmagnificent 7 will be at 493. Why is that important? Because you're paying 33 times still for declining earnings growth whereas you could pay you know 16 17 times for accelerating earnings growth. And that's your arbitrage. If you want to make a lot of money in a reasonable amount of time over the next one, two, three years, uh, skate to where the puck is going, not looking in the rearview mirror to where the puck has already been. >> Yeah. No, it's uh, it's interesting like you've been talking about Nvidia and Nvidia put out solid earnings, although data center demand seemed to be down. I'm not an expert on Nvidia by any means, but uh it seems like growth is slowing a little bit, although three to four trillion dollars in uh investments into AI and chip. Doesn't sound like it's nothing, right? How's that going to be split up? Let's discuss that. Like what are the prospects of others because I want to talk about Intel with you as well. Um how's the three to four trillion dollars being split up here? Look the this was the first quarter sequential negative growth in data center GPU okay the compute part of data center GPU compute that everyone the AI dream is built upon was actually negative sequentially the category was positive sequentially because it was masked by ne networking which no one cares about it's not you it's not a useful indic indicator as for the you know anticipating uh the AI perspectively I would say uh that doesn't make Nvidia a bad company it doesn't make uh make it a a bad situation what it what what Nvidia suffers from is the same thing that AMD ARM holdings all the rest of them Broadcom uh uh they are designers that rely on the kindness of strangers for their business to exist and the kindness of strangers is singular, not plural. It's right now it's called Taiwan Semiconductor. And you'll see the revenue growth on a sequential basis quarterly going back, you know, a dozen quarters has been about $4 billion revenue growth per quarter. That's not because the demand stopped at 4 billion growth. It's because the supply stopped. Taiwan Semiconductor has limited Nvidia's allocation to four billion of growth. So the law of large numbers dictates when the denominator gets larger uh and you have the same revenue growth on the top line your revenue growth declines considerably and that's exactly what happened down from you know 300 400% revenue growth to on track for 50%. Which you know any other business would say this is the greatest thing that's ever happened to us but um when you're on that downward trajectory that's a problem. So the dark horse in the AI game that no one's talking about is Intel and Intel. Uh the better Intel does, the better the government deal with the Intel does uh the better it is for Nvidia, ARM Holdings, AMD because their growth is limited by capacity, the ability to supply to meet the overwhelming demand that they have. and that 18A node in uh Arizona that that uh that is going to be completed that they're going to be able to produce advanced chips on and interestingly enough right as the US government was funding with the 9 billion plus the two billion grant all of the sudden Masayoshi's son of SoftBank comes in and he says oh I want to put in two billion dollars also because I believe Intel can play a major role in manufacturing advanced chips. So, you know, here you've got one that's trading at liquidation value. If they if they liquidated Intel today and did nothing more, you'd get 22 23 bucks a share. And if uh half of what they say is going to work, you wind up with 80, 100 or more per share. If they completely destroy the fab business, like I don't know the build, you know, I can't imagine how they could do it now with the government back stop, but let's just say that business goes away and they just focus on the legacy business. It's probably worth 40 45 bucks. So you know downside protected uns upside unlimited you got the biggest winner running the turnaround in Lip Bhutan he came into Cadence Design Systems his last company when the stock was down 86% familiar situation as it relates to Intel and over the next 14 years he turned the thing around and if you had put a million dollars in Cadence uh design systems when he became CEO 14 years later you had $68 million. So 68 bagger. This guy is no joke. He's a miracle worker and he's going to do great things at Intel. Not a 68 bagger, but if you get a three, four, five bagger in a reasonable amount of time, uh it's something that you're not going to see per se in an Nvidia which is trading at, you know, four four and a half trillion dollars. So what are we going to have a five bagger and it's going to be 80% of the US economy? Like you know, grow up. Like let let's do a little bit of math. Pull out the crayons. I could explain this. You know, if our glo if our economy is 30 trill, you know, 25 trillion, how much can Nibidia be? And my sixth grader will be like, probably not a whole lot more. Maybe double, Dad. Maybe every 50 cents out of every dollar we're going to spend is on Nvidia. But I doubt it, Dad. We have to like eat and food and clothes and shelter and all that stuff. But people don't think like that. They chase the shiny objects until the until the momentum runs out and, you know, the trap door opens and they say, "What happened?" you know, they missed by 1% and the stock is down 50 and people can't understand why. >> Yeah. Well, have you seen the prices of the latest GPUs, the 50 series? It's insane. So, it is it feels like half the economy if you have to spend half your household budget on a graphics card. >> Um, but real quick on the topic of Intel, maybe there's a lesson to be learned here. Like what where did Intel go wrong? Like there they were a powerhouse just a couple years ago or maybe four years ago. Like I remember trying to buy uh parts for a computer that I've been building and Intel was everywhere. They had the greatest gaming chip. Where did they took take the wrong turn here? >> Yeah. It's the normal entropy. You know, they got big, fat, and happy. And they spent times in committee meetings and they had all this middle management that passes paper back and forth to justify their existence versus innovating uh staying competitive, staying hungry. It's uh complacency set in and they got the the others their competitors ate their lunch. So um the beauty is with Lit Bhutan that culture has been gutted. Uh he's been firing so many people and taking the fat out of the middle and uh focused on you know writing tickets actually doing business actually innovating actually staying competitive actually being hungry and um you know it starts from the top. It was there was a cancer at the top. it's been uh extricated and now we've got a winner at the helm with unbelievable blue skies. Uh and now they got the backs stop. The existential risk is off the table with the implicit backs stop of the US government and it is a national security decision and it was the right decision. I'm not saying that uh Donald Trump should take equity stakes in Loheed Martin. They're doing just fine. They don't need government money. But Intel did need that vote of confidence. uh the money is helpful to ensure that these nodes get completed and the advanced chip production can start in the United States. And once that happens, you know, if you're a chip designer and you want to diversify your risk from Taiwan Semi, you're going to start putting chips into Intel. If you want an ear in Washington, you're probably going to start putting your orders through Intel. As long as Intel can deliver the quality, which they will, uh um it's it's going to be off to the races because no one's even close. They're they're at the 10 yard line and they almost got, you know, stopped right before the end zone. Instead, they got a little tailwind from the government to push them over the end zone. They're going to spike the football and people are going to say, "What happened?" And you're going to have five, six, seven bagger in Intel and uh you know, Nvidia is not going to go up nearly as much from these levels. Not because it's not a great business, not because there's unbelievable demand, not because there's not going to be robots. There are all those great things are going to happen. The question is how much of that is already priced into one stock versus the other stock. And as you know, Kai, you know, Amazon.com was making bold promises in 2000. And uh all of the things that they promised came true and a lot more. The problem was people were already paying for those things to come through 15 years later, which did come true at the prices they were paying in 2000. So what did they have to endure over the next two years even as the fundamentals of the business continue to improve? A 90% draw down. And and I'm not calling for that at all on any of these mag seven stocks. I think they'll be fine. I just think they're going to do less well in the next couple of years than they have done in the last couple of years. uh that doesn't mean they won't do well less well. I'll bet the fundamentals continue to improve. The question is did the price get ahead of itself and are there better ways better uh returns for your dollar uh looking elsewhere uh before people start to look in those pockets that that uh exist great opportunity. >> Yeah, absolutely. No, it makes total sense. And you brought the the or the meme of a tush push uh to to my to my mind. So uh just pushing That is >> Oh, you don't? Okay. It's a football analogy. Like Philadelphia Eagles are famous for it where they place a couple players behind the quarterback and push him into the end zone. >> Love it cuz they got stopped short and uh now the quarterback's being pushed in, but uh they're using his tushi to push him in. So that's why it's a tush push. So no, really interesting uh analogies here, but uh I I understand where you're coming from on Intel. Um maybe just one last like really short followup. um is just the the topic of nationalization and the government really stepping in. We've seen it in other sectors, MP materials getting grants at least or or also direct investments from the government. What what is your take on it? Like what what what is your opinion, your two cents on uh government stepping in? >> Look, it's a national security issue. I mean, if if uh if in the event China took over Taiwan, which is not going to happen anytime soon, but if it did, uh Nvidia's out of business, AMD is out of business, armholding's out of business, all the designers are out of business, they design everything, they produce nothing, and um and we're toast. And then China has all the chips they can put into weaponry, they can put into whatever they want, out compete us all day long. So, if we're not doing this, so this is like, you know, I'm not calling it I'm not saying we're at war, but if that were to happen, we're toast. So, uh, you know, if you look back to World War II, if you are were a factory owner and you were producing furniture or, you know, kitchen tables or cars or whatever, yeah, you know what? You retrofitted your factories and you started producing weapons, okay? Because we needed them for the war. So, this is not like, uh, we're going to pick winners and losers. This is like we have no choice. Intel's the one at the 10 yard line. Let's give them the tush push as you said. Push them across the end zone through the through the center there. Get get them up the middle and uh and get it done. And and that's that's what we're talking about here. This is not like should we, shouldn't we, there's there's not a choice here. I mean, unless the government's going to start from scratch, they got it's going to take them four or five years to do what where Intel is today ready to go. They've made all the investment. I mean, look, Gellzinger, he's no lip boutan, but I will say he's probably not as bad as advertised. He was they let him do what he did. He was near the finish line. The board the the price got of the stock went down because the sell side couldn't wait five more minutes. So, he got kicked to the curb. So, it is what it is. Uh, you know, out of every negative comes a positive. The positive is Lip Bhutan is is a proven huge winner. Gellzinger, you know, was uh was a mentee of Andy Grove. So, he he knew his stuff, but um you know, Intel's now set up for for great things. And it's not again, it's not the government picking winners and losers. It's the government having no choice. And it is national security. And it is something they need to be involved in. And and we as taxpayers, if we're going to give Intel something 11 billion dollars, why do we get nothing? Why do we get, you know, because because we didn't because the government didn't plan ahead. They should get 11 billion of our dollars and we get nothing. No, the go we as the taxpayers are now going to get a five bagger. It's going to reduce our deficits. And again, this is opinion, not advice. Maybe we don't get a five bagger. Maybe we get a two bagger. Maybe we get a 10 bagger. I have no idea. But I think the upside is much greater than anyone is uh considering at the moment. >> Perfect. No, Tom, appreciate that point of view here. And uh I just found my YouTube title, the tush push for Intel. >> Yes, I love it. I love it. >> Fantastic. Um but let's zoom back out again. Let's come back to the the Fed cuts because there's another topic I want to discuss with you is the housing market in general as big US economic impact or factor in the US economy. Um, I I feel like there's a false sense of hope a little bit in the housing market and I'm curious what your take on that is because the second we talk about a Fed rate cut, everybody talks about cheaper mortgage rates and maybe making housing affordable again. Do you agree with that statement? Like what is your take on the housing market right now, Tom? >> Uh, unequivocally. You know, there's this whole narrative, oh, we cut rates last year and mortgage rates went up, therefore the Fed fund rate has nothing to do with it. That's complete nonsense because what you're what you're going to see happen is something that you haven't seen in a long time. Okay? People have a short memory. And what you're going to start to see happen once we get another 50 basis points, maybe 75 basis points, is something called option ARMS, okay? Which are priced off of short rates. And what it is is a teaer rate where they say for seven years you pay interest only of you know whatever it is 100 200 bips above Fed funds rate. So you could have you know 5% interest only 5 and a half% interest only for seven years. If you're betting rates are going to go down further that's a good thing. You can refinance it. If you're betting rates are going to go up higher you're betting well I'm going to be out of the house anyway you know say Levie. So uh uh that's the that's the short end of the curve affects the five and sevenyear option arms and that game has not even started yet and with bull bill py at the helm that they are going to bring that game back. That's number one. Number two, you have $35 trillion of home equity locked in people's houses. Okay, for anyone sleeping under a rock, uh just take a look and see what's happened to house prices over the last four years. people are stuck. They have high rates. They can't trade out of them, but they've got trillions of equity lock. And if you get rates down into the fives uh for HELOCs, for 30-year fixed mortgages, which we will, uh you are going to see the the option arm game come back for people buying new homes. You're going to see the heliloc game come back for people who own homes. And that's going to be a massive stimulus in the US economy that people cannot even comprehend that's going to take place. St. Lending standards are going to go down a little bit. Credit is going to expand. Household balance sheets are the healthiest they've been in decades. We got plenty of room for credit expansion and for an expansionary cycle. And then you take the four million home deficit because we've underbuilt for the last decade and a half. You take the 72 million millennials aged 34 who are trying to start families family formation, housing formation, haven't been able to afford. And then you got over the weekend the possibility of Trump declaring a national emergency for housing. What does that mean? Is he going to take your house and give it to someone who can't afford a house? No. He's going to open up federal lands till the cows come home. And by the way, there's more than enough federal lands in actually metropolitan areas. People think it's only in super rural areas where you buy a new house and you get a free elk. That's not the case. Uh the case is that we need, you know, 500,000 acres and he can do that easily. Once he declares a federal ma uh a federal emergency, he can automatically open up those lands and that's going to create unbelievable opportunity for the homebuilders to do massive volumes uh and supply the unmet needs and um and and that fundamentally is not going to drive house prices up as everyone thinks when rates come down prices are going to go up more. It's actually going to drive uh um house prices down because number one, you're gonna have increased supply and number two, all the 60 and 70 year olds living in sevenbedroom houses that uh and indoor pools that don't need that anymore that want to downsize to a town home just because they don't want to maintain it all. Uh those are going to hit the market like nobody's business. So, we're going to see a ton of supply of existing homes, a ton of supply of new homes once we get that 30-year fix below six and once the option arm game ticks up and then a huge stimulus in the economy with the heliloc. And no one's really talking about option arms and no one's talking about helocks and no one's really talking about a 30-year fixed mortgage below 6%. Those thing three things are going to happen I'm going to say within the next six to 12 months and you are not going to believe what happens to the housing industry which by the way Trump talks about reshoring Trump talks about manufacturing. One of the best things we manufacture in America when we get the policy right is houses and it's 16% of GDP creates a ton of highpaying jobs. It creates all the type of jobs that Trump wants to see and it's just getting started. So, if you don't have Now, would I play the the homebuilders when the supply is going to be massively coming online and it's going to be a race to the bottom and incentives and price? No. I'd play the arms dealers, the building suppliers like Brad Jacobs, QXO, who just uh did their first acquisition. It's a roll up of building supplies uh of Beacon Roofing. He's going to be doing a lot of add-on and he's one of the greatest uh wealth creators for shareholders whether it was United Rentals, XPO, uh GXO, uh Waste Connections. He he's done it over and over for shareholders, made them billions upon billions of dollars and obviously made himself billions of dollars in the meantime. Uh the ancillary plays like Stanley Black & Decker is a housing play. Generrack is a housing play. play what's going to benefit from massive new supply of homes, not the ones producing it because they're going to have to they're going to be fighting on price and their margins are actually going to compress. >> Could you clarify from maybe me personally, maybe some of the audience member, what what what's HELOC? >> Heliloc is a home equity line of credit. So, let's say you borrowed a million dollars on your house and uh in 2019, precoid it was worth 1.5 million. Well, unless you know you live in a really uh not ideal area, your house is now worth $3 million. Okay? And if you live in California, it's probably worth $5 million. Okay? And uh you have all of that equity, the difference between what you owe and what the house is worth trapped. Okay? It's phantom equity that was created because house prices went up due to some of the policies that were put in place during COVID. And um so you say, "Well, I can sell the house and if I sell the house for, let's call it $5 million and I owe $1 million, I get $4 million of profits, right? I pay off the loan." Or you can borrow against it when rates become attractive. So, if you can borrow against that 4 million of equity, maybe you don't have to move and you take $2 million out at five or 6% and now you can use that to start a business, to buy a car, to um, you know, buy a boat, to, you know, uh, spend as you like because now you can access that without actually selling the house and moving. I mean, this is a a big thing that we saw in the early 2000s. I think the governors the governors and the rails on this will be a lot more stringent than they were in the early 2000s so we don't wind up with another situation like that. But considering where household balance sheets are and the amount of untapped equity uh this is going to be massively stimulatory for coming years as uh as the Fed gets its policy normalized. >> Fantastic Tom. Really really great insights. I have maybe to end the conversation I got a couple rapid fire questions for you. just yes or no or higher or lower usually is what how we call the game. Uh probably should record a jingle or something for it, but um but by the end of the year um let's go through it. S&P 500 higher or lower? >> Um incrementally higher uh probably a little bit of uh bumpiness in you know September and October and results higher. >> Yeah, I should have started with the macro data but macro inflation higher or lower? um potentially a short-term bump and uh uh lower by the end of the year and certainly into the first quarter next year a lot lower. unemployment rate >> higher >> higher uh dollar Dixie >> counter trend bounce lower over the the trend I can't tell you in the next three months but I can say over the next two years the dollar will be lower >> 10-year yield >> uh we're going to see a three handle at some point in the next six months I think it goes down to 375 at some point >> fantastic Tom that's all we got time for it. Really appreciate you joining us. Like where can we send our audience to follow more of your work? >> Uh you know pretty uh Tik Tok famous official hedge fund tips uh Twitter or xhedgefund tips or just go to hedge funtips.com you'll find the podcast you'll find contact uh and everything is there and YouTube just put in hedge fund tips with Tom Hayes and you'll find everything. >> Fantastic Tom really appreciate your time. It's great to catch up with you again and let's do that again soon. Uh can't wait maybe before the end of the year we'll do a catchup episode just to recap the year and try to give a bit of an outlook of what we should be expecting in 2026. So thanks so much for joining us and uh everybody else. Thanks so much for tuning in to Soore Financially. Phenomenal episode. We dove a little deeper on Intel because it's a topic we haven't discussed much here on sore financially and also the national interest of the US investing into Intel and what the ramifications might be and whether it was necessary and Tom highlighted as well. It's an interesting investment opportunity. Curious if you think the same way let us know down below. And of course many other factors weighing on the economy right now as well. Friday will be key non-farm payrolls report coming out. So we'll be watching that very closely while we're on the road. And uh in the meantime, don't forget to hit that like and subscribe button. It helps us out tremendously. Helps with the nasty algorithm here on YouTube. So, thanks so much for that and we much much appreciate you. Thank you so much. Take care. [Music]
GOLD Is Not A Signal, Tush Push For Intel | Thomas Hayes
Summary
Transcript
We are witnessing a dramatic shift in the financial markets as we speak. Gold, silver are breaking out. Gold is trading at an all-time high. But we have to figure out like what changed in the macro landscape that now the precious metals are moving. The S&P 500 is retreating. The dollar is retreating ever so slightly, but it is having an impact and bond yields are dropping as well. So, what has changed? Was it just a speech by Jerome Powell and Jackson Hall or is there more to it? And I've invited a fantastic guest to discuss. His name is Tom Hayes. He's the chairman of Great Hill Capital, also the the publisher, the editor, the host of a fantastic podcast called Hedge Fund Tips. Go check it out on YouTube as well. We'll link to it below. And we'll try to make sense of what is going on in the markets. Are we looking at a traumatic shift in the markets or is this just a blip on the radar screen and maybe just something more micro? Maybe it's just the precious metals. Maybe I'm too focused. Maybe I'm too much in my own bubble. So, I'm curious what Tom has to say about that. Before I switch over to my guest, hit that like and subscribe button. It helps us out tremendously and we much much appreciate it. Did I mention it's free? A must have. So, thanks so much for doing that. Now, everybody else, oh, Tom, thank you so much for joining us. It's good to see you. I hope you had a great summer. >> Uh, thanks for having me, Kai. Uh, yeah, we did have a great summer and uh, super happy to be here with you. >> Yeah, really looking forward to catching up. A lot has happened. It feels like in the last 10 days. It seems like the floodgates have opened. A I'm super busy on work on work work-wise, but also the markets are reacting, responding. I don't think it's just the end of the summer. I think there's more to it. What is your like assessment of the economy and the financial markets right now, Tom? >> Well, I think uh you know, you referenced gold and silver. We don't spend a lot of time on that. were equity managers. But I will say that Powell's acknowledgment of his dual mandate and the kind of cracks in the labor market and the recognition of those and not being so uh systematically focused exclusively on 2% inflation was was very very positive. And then I think a little bit of what you may be seeing today was the after f Friday headline about the tariffs may be voted illegal. Uh President Trump loves has has spent his career in court. He will litigate this to the end. He will appeal it until the cows come home and the tariffs will ultimately go through. Um, I think if I had to have a view on metals, I'd be less sanguin than the market is right now. Uh, I'd be more inclined to be focused on the, uh, unmagnificent 493, some of the left for dead parts of equity markets like small cap, some opportunities in in international. I think that's where you're going to see doubles and triples and quadruples. I think uh, uh, to expect that in gold and silver from these levels is a is a bit ambitious. No, it it it is. I don't see $9,000 in gold, for example, next week. Um, and we'll get maybe to some sectors that are still undervalued in your opinion here in a second, but we do have to stay uh on on the macro side for a second cuz president or Fed Governor Chris Waller also brought up jumbo cuts uh last week. It was uh yes, >> it was it was mentioned. >> Curious like a what is your interpretation of a jumbo cut? Is it 50 basis points? Is it 100 basis points? and uh why it seems like the market is reacting to it. >> Well, we are going to know if we're getting a jumbo cut on Friday because that's when we get the jobs report for August. That's what everyone's focused on. If that comes in a lot weaker and with considering the revisions that we've gotten in recent reports, uh it's not out of the question that that could come in weaker. Uh then 50 basis points is on the table. I think Trump has got Powell surrounded at this point. Powell has made the proactive shift. So he's not going to get caught sideways. Uh he's done on his own valition to shift shift that talk. But when you look at Waller, when you look at Bowman, they're going to push through Mirram before the SE September meeting. And Lisa Cook, I mean, you know, the one thing that she's been missing in all of her thou dost protest has been uh I'm innocent. She's been saying you have no right to fire me. You're a bad man for firing me. But she's not said that I'm uh innocent. So if she's out then, you know, right now we're at the most dissenters in three decades. You add that to the fold uh and effectively, you know, a a a larger than 25 basis point cut could be a reality, but the data definitely has to support it. The data has supported a 25 basis points uh sequence for for many many months when you consider how restrictive the Fed is in terms of uh being you know 150 basis points over the rate of inflation. Uh they're they're going to move. The question is how much? My bet would be 2 to 325 bips cuts before the end of the year. More likely two. But if that employment date is weak on Friday, everything's on the table. >> Yeah. No, and that's that's exactly what everybody's looking for, I guess, but some sectors and and maybe coming back to gold, and we don't have to be this doesn't have to be a gold discussion, but it's often that gold predicts stuff that's supposed to happen in the future, and now gold is rallying, hitting 3500. Maybe it is pricing in a two rate cut already. Maybe it's pricing in negative data based on what you just said, like all the revisions um that we've seen for like May, June as well. Um, why isn't the S&P 500 rallying if it expects or if the if gold expects 500 or 50 basis points or a jumbo cut? >> I haven't found gold to be a useful predictor of anything other than people's interest in buying gold. But, uh, leaving that aside, I would say uh, copper is probably a better economic indicator than gold, although it's been less reliable in recent recent years. I think the number one predictor of uh, of expectations is um, is earnings. You know, earnings are the name of the game. You know, markets don't go up by accident. Over time, they're a short-term voting machine based on emotions and headlines and expectations. In the long term, they're a weighing machine based on fundamentals. And the fact of the matter is, uh, what we're seeing is kind of a divergence that people haven't quite dialed into yet. And that divergence is the Magnificent 7 that everyone is still crowded into. Uh slowly a little bit of air coming out. uh has had aggressively decelerating earnings growth rates from 30 plus percent to 33% a year ago to this quarter will be the first quarter where in aggregate the mag 7 earned somewhere between you know uh high single digits to low double digits call it 9 to 13% earnings growth uh for this quarter while the unmagnificent 493 the left for dead stocks that people haven't been paying as much attention to uh is now accelerating from negative earnings growth last year to four five 6% and by a year from now when MAG7's at 10% unmagnificent 7 will be at 493. Why is that important? Because you're paying 33 times still for declining earnings growth whereas you could pay you know 16 17 times for accelerating earnings growth. And that's your arbitrage. If you want to make a lot of money in a reasonable amount of time over the next one, two, three years, uh, skate to where the puck is going, not looking in the rearview mirror to where the puck has already been. >> Yeah. No, it's uh, it's interesting like you've been talking about Nvidia and Nvidia put out solid earnings, although data center demand seemed to be down. I'm not an expert on Nvidia by any means, but uh it seems like growth is slowing a little bit, although three to four trillion dollars in uh investments into AI and chip. Doesn't sound like it's nothing, right? How's that going to be split up? Let's discuss that. Like what are the prospects of others because I want to talk about Intel with you as well. Um how's the three to four trillion dollars being split up here? Look the this was the first quarter sequential negative growth in data center GPU okay the compute part of data center GPU compute that everyone the AI dream is built upon was actually negative sequentially the category was positive sequentially because it was masked by ne networking which no one cares about it's not you it's not a useful indic indicator as for the you know anticipating uh the AI perspectively I would say uh that doesn't make Nvidia a bad company it doesn't make uh make it a a bad situation what it what what Nvidia suffers from is the same thing that AMD ARM holdings all the rest of them Broadcom uh uh they are designers that rely on the kindness of strangers for their business to exist and the kindness of strangers is singular, not plural. It's right now it's called Taiwan Semiconductor. And you'll see the revenue growth on a sequential basis quarterly going back, you know, a dozen quarters has been about $4 billion revenue growth per quarter. That's not because the demand stopped at 4 billion growth. It's because the supply stopped. Taiwan Semiconductor has limited Nvidia's allocation to four billion of growth. So the law of large numbers dictates when the denominator gets larger uh and you have the same revenue growth on the top line your revenue growth declines considerably and that's exactly what happened down from you know 300 400% revenue growth to on track for 50%. Which you know any other business would say this is the greatest thing that's ever happened to us but um when you're on that downward trajectory that's a problem. So the dark horse in the AI game that no one's talking about is Intel and Intel. Uh the better Intel does, the better the government deal with the Intel does uh the better it is for Nvidia, ARM Holdings, AMD because their growth is limited by capacity, the ability to supply to meet the overwhelming demand that they have. and that 18A node in uh Arizona that that uh that is going to be completed that they're going to be able to produce advanced chips on and interestingly enough right as the US government was funding with the 9 billion plus the two billion grant all of the sudden Masayoshi's son of SoftBank comes in and he says oh I want to put in two billion dollars also because I believe Intel can play a major role in manufacturing advanced chips. So, you know, here you've got one that's trading at liquidation value. If they if they liquidated Intel today and did nothing more, you'd get 22 23 bucks a share. And if uh half of what they say is going to work, you wind up with 80, 100 or more per share. If they completely destroy the fab business, like I don't know the build, you know, I can't imagine how they could do it now with the government back stop, but let's just say that business goes away and they just focus on the legacy business. It's probably worth 40 45 bucks. So you know downside protected uns upside unlimited you got the biggest winner running the turnaround in Lip Bhutan he came into Cadence Design Systems his last company when the stock was down 86% familiar situation as it relates to Intel and over the next 14 years he turned the thing around and if you had put a million dollars in Cadence uh design systems when he became CEO 14 years later you had $68 million. So 68 bagger. This guy is no joke. He's a miracle worker and he's going to do great things at Intel. Not a 68 bagger, but if you get a three, four, five bagger in a reasonable amount of time, uh it's something that you're not going to see per se in an Nvidia which is trading at, you know, four four and a half trillion dollars. So what are we going to have a five bagger and it's going to be 80% of the US economy? Like you know, grow up. Like let let's do a little bit of math. Pull out the crayons. I could explain this. You know, if our glo if our economy is 30 trill, you know, 25 trillion, how much can Nibidia be? And my sixth grader will be like, probably not a whole lot more. Maybe double, Dad. Maybe every 50 cents out of every dollar we're going to spend is on Nvidia. But I doubt it, Dad. We have to like eat and food and clothes and shelter and all that stuff. But people don't think like that. They chase the shiny objects until the until the momentum runs out and, you know, the trap door opens and they say, "What happened?" you know, they missed by 1% and the stock is down 50 and people can't understand why. >> Yeah. Well, have you seen the prices of the latest GPUs, the 50 series? It's insane. So, it is it feels like half the economy if you have to spend half your household budget on a graphics card. >> Um, but real quick on the topic of Intel, maybe there's a lesson to be learned here. Like what where did Intel go wrong? Like there they were a powerhouse just a couple years ago or maybe four years ago. Like I remember trying to buy uh parts for a computer that I've been building and Intel was everywhere. They had the greatest gaming chip. Where did they took take the wrong turn here? >> Yeah. It's the normal entropy. You know, they got big, fat, and happy. And they spent times in committee meetings and they had all this middle management that passes paper back and forth to justify their existence versus innovating uh staying competitive, staying hungry. It's uh complacency set in and they got the the others their competitors ate their lunch. So um the beauty is with Lit Bhutan that culture has been gutted. Uh he's been firing so many people and taking the fat out of the middle and uh focused on you know writing tickets actually doing business actually innovating actually staying competitive actually being hungry and um you know it starts from the top. It was there was a cancer at the top. it's been uh extricated and now we've got a winner at the helm with unbelievable blue skies. Uh and now they got the backs stop. The existential risk is off the table with the implicit backs stop of the US government and it is a national security decision and it was the right decision. I'm not saying that uh Donald Trump should take equity stakes in Loheed Martin. They're doing just fine. They don't need government money. But Intel did need that vote of confidence. uh the money is helpful to ensure that these nodes get completed and the advanced chip production can start in the United States. And once that happens, you know, if you're a chip designer and you want to diversify your risk from Taiwan Semi, you're going to start putting chips into Intel. If you want an ear in Washington, you're probably going to start putting your orders through Intel. As long as Intel can deliver the quality, which they will, uh um it's it's going to be off to the races because no one's even close. They're they're at the 10 yard line and they almost got, you know, stopped right before the end zone. Instead, they got a little tailwind from the government to push them over the end zone. They're going to spike the football and people are going to say, "What happened?" And you're going to have five, six, seven bagger in Intel and uh you know, Nvidia is not going to go up nearly as much from these levels. Not because it's not a great business, not because there's unbelievable demand, not because there's not going to be robots. There are all those great things are going to happen. The question is how much of that is already priced into one stock versus the other stock. And as you know, Kai, you know, Amazon.com was making bold promises in 2000. And uh all of the things that they promised came true and a lot more. The problem was people were already paying for those things to come through 15 years later, which did come true at the prices they were paying in 2000. So what did they have to endure over the next two years even as the fundamentals of the business continue to improve? A 90% draw down. And and I'm not calling for that at all on any of these mag seven stocks. I think they'll be fine. I just think they're going to do less well in the next couple of years than they have done in the last couple of years. uh that doesn't mean they won't do well less well. I'll bet the fundamentals continue to improve. The question is did the price get ahead of itself and are there better ways better uh returns for your dollar uh looking elsewhere uh before people start to look in those pockets that that uh exist great opportunity. >> Yeah, absolutely. No, it makes total sense. And you brought the the or the meme of a tush push uh to to my to my mind. So uh just pushing That is >> Oh, you don't? Okay. It's a football analogy. Like Philadelphia Eagles are famous for it where they place a couple players behind the quarterback and push him into the end zone. >> Love it cuz they got stopped short and uh now the quarterback's being pushed in, but uh they're using his tushi to push him in. So that's why it's a tush push. So no, really interesting uh analogies here, but uh I I understand where you're coming from on Intel. Um maybe just one last like really short followup. um is just the the topic of nationalization and the government really stepping in. We've seen it in other sectors, MP materials getting grants at least or or also direct investments from the government. What what is your take on it? Like what what what is your opinion, your two cents on uh government stepping in? >> Look, it's a national security issue. I mean, if if uh if in the event China took over Taiwan, which is not going to happen anytime soon, but if it did, uh Nvidia's out of business, AMD is out of business, armholding's out of business, all the designers are out of business, they design everything, they produce nothing, and um and we're toast. And then China has all the chips they can put into weaponry, they can put into whatever they want, out compete us all day long. So, if we're not doing this, so this is like, you know, I'm not calling it I'm not saying we're at war, but if that were to happen, we're toast. So, uh, you know, if you look back to World War II, if you are were a factory owner and you were producing furniture or, you know, kitchen tables or cars or whatever, yeah, you know what? You retrofitted your factories and you started producing weapons, okay? Because we needed them for the war. So, this is not like, uh, we're going to pick winners and losers. This is like we have no choice. Intel's the one at the 10 yard line. Let's give them the tush push as you said. Push them across the end zone through the through the center there. Get get them up the middle and uh and get it done. And and that's that's what we're talking about here. This is not like should we, shouldn't we, there's there's not a choice here. I mean, unless the government's going to start from scratch, they got it's going to take them four or five years to do what where Intel is today ready to go. They've made all the investment. I mean, look, Gellzinger, he's no lip boutan, but I will say he's probably not as bad as advertised. He was they let him do what he did. He was near the finish line. The board the the price got of the stock went down because the sell side couldn't wait five more minutes. So, he got kicked to the curb. So, it is what it is. Uh, you know, out of every negative comes a positive. The positive is Lip Bhutan is is a proven huge winner. Gellzinger, you know, was uh was a mentee of Andy Grove. So, he he knew his stuff, but um you know, Intel's now set up for for great things. And it's not again, it's not the government picking winners and losers. It's the government having no choice. And it is national security. And it is something they need to be involved in. And and we as taxpayers, if we're going to give Intel something 11 billion dollars, why do we get nothing? Why do we get, you know, because because we didn't because the government didn't plan ahead. They should get 11 billion of our dollars and we get nothing. No, the go we as the taxpayers are now going to get a five bagger. It's going to reduce our deficits. And again, this is opinion, not advice. Maybe we don't get a five bagger. Maybe we get a two bagger. Maybe we get a 10 bagger. I have no idea. But I think the upside is much greater than anyone is uh considering at the moment. >> Perfect. No, Tom, appreciate that point of view here. And uh I just found my YouTube title, the tush push for Intel. >> Yes, I love it. I love it. >> Fantastic. Um but let's zoom back out again. Let's come back to the the Fed cuts because there's another topic I want to discuss with you is the housing market in general as big US economic impact or factor in the US economy. Um, I I feel like there's a false sense of hope a little bit in the housing market and I'm curious what your take on that is because the second we talk about a Fed rate cut, everybody talks about cheaper mortgage rates and maybe making housing affordable again. Do you agree with that statement? Like what is your take on the housing market right now, Tom? >> Uh, unequivocally. You know, there's this whole narrative, oh, we cut rates last year and mortgage rates went up, therefore the Fed fund rate has nothing to do with it. That's complete nonsense because what you're what you're going to see happen is something that you haven't seen in a long time. Okay? People have a short memory. And what you're going to start to see happen once we get another 50 basis points, maybe 75 basis points, is something called option ARMS, okay? Which are priced off of short rates. And what it is is a teaer rate where they say for seven years you pay interest only of you know whatever it is 100 200 bips above Fed funds rate. So you could have you know 5% interest only 5 and a half% interest only for seven years. If you're betting rates are going to go down further that's a good thing. You can refinance it. If you're betting rates are going to go up higher you're betting well I'm going to be out of the house anyway you know say Levie. So uh uh that's the that's the short end of the curve affects the five and sevenyear option arms and that game has not even started yet and with bull bill py at the helm that they are going to bring that game back. That's number one. Number two, you have $35 trillion of home equity locked in people's houses. Okay, for anyone sleeping under a rock, uh just take a look and see what's happened to house prices over the last four years. people are stuck. They have high rates. They can't trade out of them, but they've got trillions of equity lock. And if you get rates down into the fives uh for HELOCs, for 30-year fixed mortgages, which we will, uh you are going to see the the option arm game come back for people buying new homes. You're going to see the heliloc game come back for people who own homes. And that's going to be a massive stimulus in the US economy that people cannot even comprehend that's going to take place. St. Lending standards are going to go down a little bit. Credit is going to expand. Household balance sheets are the healthiest they've been in decades. We got plenty of room for credit expansion and for an expansionary cycle. And then you take the four million home deficit because we've underbuilt for the last decade and a half. You take the 72 million millennials aged 34 who are trying to start families family formation, housing formation, haven't been able to afford. And then you got over the weekend the possibility of Trump declaring a national emergency for housing. What does that mean? Is he going to take your house and give it to someone who can't afford a house? No. He's going to open up federal lands till the cows come home. And by the way, there's more than enough federal lands in actually metropolitan areas. People think it's only in super rural areas where you buy a new house and you get a free elk. That's not the case. Uh the case is that we need, you know, 500,000 acres and he can do that easily. Once he declares a federal ma uh a federal emergency, he can automatically open up those lands and that's going to create unbelievable opportunity for the homebuilders to do massive volumes uh and supply the unmet needs and um and and that fundamentally is not going to drive house prices up as everyone thinks when rates come down prices are going to go up more. It's actually going to drive uh um house prices down because number one, you're gonna have increased supply and number two, all the 60 and 70 year olds living in sevenbedroom houses that uh and indoor pools that don't need that anymore that want to downsize to a town home just because they don't want to maintain it all. Uh those are going to hit the market like nobody's business. So, we're going to see a ton of supply of existing homes, a ton of supply of new homes once we get that 30-year fix below six and once the option arm game ticks up and then a huge stimulus in the economy with the heliloc. And no one's really talking about option arms and no one's talking about helocks and no one's really talking about a 30-year fixed mortgage below 6%. Those thing three things are going to happen I'm going to say within the next six to 12 months and you are not going to believe what happens to the housing industry which by the way Trump talks about reshoring Trump talks about manufacturing. One of the best things we manufacture in America when we get the policy right is houses and it's 16% of GDP creates a ton of highpaying jobs. It creates all the type of jobs that Trump wants to see and it's just getting started. So, if you don't have Now, would I play the the homebuilders when the supply is going to be massively coming online and it's going to be a race to the bottom and incentives and price? No. I'd play the arms dealers, the building suppliers like Brad Jacobs, QXO, who just uh did their first acquisition. It's a roll up of building supplies uh of Beacon Roofing. He's going to be doing a lot of add-on and he's one of the greatest uh wealth creators for shareholders whether it was United Rentals, XPO, uh GXO, uh Waste Connections. He he's done it over and over for shareholders, made them billions upon billions of dollars and obviously made himself billions of dollars in the meantime. Uh the ancillary plays like Stanley Black & Decker is a housing play. Generrack is a housing play. play what's going to benefit from massive new supply of homes, not the ones producing it because they're going to have to they're going to be fighting on price and their margins are actually going to compress. >> Could you clarify from maybe me personally, maybe some of the audience member, what what what's HELOC? >> Heliloc is a home equity line of credit. So, let's say you borrowed a million dollars on your house and uh in 2019, precoid it was worth 1.5 million. Well, unless you know you live in a really uh not ideal area, your house is now worth $3 million. Okay? And if you live in California, it's probably worth $5 million. Okay? And uh you have all of that equity, the difference between what you owe and what the house is worth trapped. Okay? It's phantom equity that was created because house prices went up due to some of the policies that were put in place during COVID. And um so you say, "Well, I can sell the house and if I sell the house for, let's call it $5 million and I owe $1 million, I get $4 million of profits, right? I pay off the loan." Or you can borrow against it when rates become attractive. So, if you can borrow against that 4 million of equity, maybe you don't have to move and you take $2 million out at five or 6% and now you can use that to start a business, to buy a car, to um, you know, buy a boat, to, you know, uh, spend as you like because now you can access that without actually selling the house and moving. I mean, this is a a big thing that we saw in the early 2000s. I think the governors the governors and the rails on this will be a lot more stringent than they were in the early 2000s so we don't wind up with another situation like that. But considering where household balance sheets are and the amount of untapped equity uh this is going to be massively stimulatory for coming years as uh as the Fed gets its policy normalized. >> Fantastic Tom. Really really great insights. I have maybe to end the conversation I got a couple rapid fire questions for you. just yes or no or higher or lower usually is what how we call the game. Uh probably should record a jingle or something for it, but um but by the end of the year um let's go through it. S&P 500 higher or lower? >> Um incrementally higher uh probably a little bit of uh bumpiness in you know September and October and results higher. >> Yeah, I should have started with the macro data but macro inflation higher or lower? um potentially a short-term bump and uh uh lower by the end of the year and certainly into the first quarter next year a lot lower. unemployment rate >> higher >> higher uh dollar Dixie >> counter trend bounce lower over the the trend I can't tell you in the next three months but I can say over the next two years the dollar will be lower >> 10-year yield >> uh we're going to see a three handle at some point in the next six months I think it goes down to 375 at some point >> fantastic Tom that's all we got time for it. Really appreciate you joining us. Like where can we send our audience to follow more of your work? >> Uh you know pretty uh Tik Tok famous official hedge fund tips uh Twitter or xhedgefund tips or just go to hedge funtips.com you'll find the podcast you'll find contact uh and everything is there and YouTube just put in hedge fund tips with Tom Hayes and you'll find everything. >> Fantastic Tom really appreciate your time. It's great to catch up with you again and let's do that again soon. Uh can't wait maybe before the end of the year we'll do a catchup episode just to recap the year and try to give a bit of an outlook of what we should be expecting in 2026. So thanks so much for joining us and uh everybody else. Thanks so much for tuning in to Soore Financially. Phenomenal episode. We dove a little deeper on Intel because it's a topic we haven't discussed much here on sore financially and also the national interest of the US investing into Intel and what the ramifications might be and whether it was necessary and Tom highlighted as well. It's an interesting investment opportunity. Curious if you think the same way let us know down below. And of course many other factors weighing on the economy right now as well. Friday will be key non-farm payrolls report coming out. So we'll be watching that very closely while we're on the road. And uh in the meantime, don't forget to hit that like and subscribe button. It helps us out tremendously. Helps with the nasty algorithm here on YouTube. So, thanks so much for that and we much much appreciate you. Thank you so much. Take care. [Music]