Transcription
[Music] Welcome to the Monday edition of the Risk Reversal Podcast. I am Dan Nathan. That is Guy Adami. We've got a lot of stuff going on here at GuyAdami. We do. October's flying by. How are you, Dan? I'm doing great, man. Heck of a weekend here. Uh, lot going on, um, in the markets. Despite the fact of the complacency around a government shutdown, no one seems to care here. The market continues to make new all-time highs on a daily basis. Why, Guy? Because it's open. I mean, that's the logical explanation. That is the logical explanation. So, here we are. We're flying blind. We've got a government that's shut down. We've got no data that's coming out. You and I are going to talk, um, a little bit about that. We're also going to take, um, I don't know, the temperature of this AI trade. You and I have been highlighting kind of the back and forth we've seen about the optimism, uh, from the technologists and the companies that are doing the spend. But then on the flip side, we're starting to see, um, a little trepidation. um, you know, maybe it's valuations, maybe it's the kind of level of funding we're seeing both in the private, um, and public markets. And then you and I are going to do a little bit of a speed round. I love speed rounds. Yeah.
So, let's do this. On Thursday's Fast Money, you and I were both on the desk. The market had closed at an all-time high. Uh, Melissa Lee, the illustrious host of the Fast Money program that you have been doing the show with for how long, Guy? Well, if we make it to January, it'll be 19 years. I take nothing for granted. Here we are in October. So, October, November, December. So, we need to nail down three more months. By the way, if you guys are, are listening to this and you're not watching on the YouTube, Guy did count on his fingers there. No, no, no, no. I, I get it. I get it. I get it. So, um, she looked at us and said, "Okay, people, um, if you had the choice, it was a would you rather sort of thing." And what do you always say when she says that? You always say, "Oh, I love this game." "Oh, I love this game." You actually say that to most games that we do on the Fast Money. Um, there are a lot of gags on Fast Money. Lot of gags. And I mean, I think you are, um, you're like the chief gagster. Yeah, you are the gag master on the show. But she said, between now and year-end, would you rather continue to just buy this market or stay long this market, or would you put that very same amount of cash into a three-month CD paying 4%? Your answer was 4%, Monty. And I said that because I still believe there's going to be some sort of episode here in October. Now, given what's transpired over the last couple weeks, you know, it's hard for anybody to see that, including myself. But it's never what you see coming, right? It's never the bus you see coming that gets you. And I actually can speak, uh, from experience on that one, but we'll save it for another show. So, yeah, I, I would do the guaranteed 4% now to the end of the year as opposed to continue to try to chase this market, which on every valuation metric that I can find is extended to levels that in some cases we've never seen before.
Yeah. And some of the valuation levels, you know, line up with the complacency levels, right? Like if you just think about it, that, and I think that's a really important thing to kind of connect the dots. And, you know, you have an S&P that's trading, you know, 250 points or so below this nice round number of 7,000. This is a number that if you go back when the S&P was trading 4850 at the lows in April, you know, if you said to me the S&P would be, you know, a whisker, are you a whisker or a whisper? You and I go back and forth on this thing. You know what? I, I think either is fine. You know, whispers. Whisper, which I hate it when people whisper. President Biden used to whisper. Used to creep me out. Or whisker because, you know, razor-thin type of thing. A whisker like a cat. Is that? That's what's going on there. Okay. So, we have, you know, we're 6750 or so. We have the 10-year yield, let's call it 4.10. We have a dollar that doesn't bounce. We have crude oil that's trading very near $60. You know, we've got a lot of things going on here where you could make the argument, well, multinationals and large mega-cap multinationals have been driving, obviously, a lot of the performance in the S&P 500. You could say most of those things, if you see a labor market, we don't know what the September, uh, jobs number was because we are shut down. But let's say you have a labor market that is not collapsing. Okay? Let's say that you have inflation that is not raging. You know, all those inputs are probably pretty good tailwinds for the S&P. Like, so that's if you're just thinking about this game of three months, and that's a hard game. Okay, this is on a show called Fast Money, right? So that's what we're doing right there. Um, it's a tough one. I, my answer to that, Guy, was if you tell me that the Fed is going to lower interest rates in late October and then again in December for reasons because they can, not because they have to, then the S&P, in my opinion, continues to go higher. It's going to be above 7,000 at some point. It'll probably be the third year in a row of plus 20% gains for the index. So, your answer was cogent, and it's probably the correct answer. And, you know, the way I look at it is all the things you mentioned are absolutely true, and they're at least, if not benign, they're certainly, you know, they're probably tailwinds for the broader market. The problem that I'm having is it's something else that is out there. And the only reason I continue to say that is a couple of different reasons. This global, global bond yields continue to sort of creep higher in a way that nobody's paying attention to. There's obviously huge geopolitical things going on out there that are not getting any better anytime soon. Now, you will correctly say the market doesn't care about geopolitical stuff, and I agree, but if things start to escalate, I think they will, especially with no valuation cushion. And I'll continue to come back to this. I don't know for the life of me what gold is trying to tell everybody, but it's trying to tell the market something. And every single day, you know, you have these little pullbacks along the way, but gold continues to sort of do this grind higher, which is indicative of something that is out there that I personally can't see. Whether it manifests itself over the next couple months remains to be seen.
All right, so let's talk about then, nerd gold for a second here because, you know, this is one that has failed to make a new all-time high over the last few months or so while gold broke out of this long consolidation. I would say a, you know, few month-long sort of consolidation. And I think a lot of people are exactly in your camp. They see it as a bit of a disaster hedge. They see the way central banks have been piling into it off of, you know, huge reserves. Um, already. And then, you know, crypto, I guess it was going up, or Bitcoin in particular, or others for that matter, because of the treasury ones, because of in-regulation, because of, you know, a whole host of other things, right? The ETFs and all that sort of stuff. Now you see this move 110 to 120 in like a straight line, Guy. Do you think that Bitcoin is now going to fall into that camp that we're, you know, seeing gold get really overbought here, and maybe the idea is like, okay, let's spread out these sorts of bets, and especially as you see the dollar go lower, and you see the risk of all these things not being appreciated? I guess Bitcoin to me, and I'm trying to be cautious here. I, I don't, this, this latest move really caught me by surprise. Many things do, obviously, but crypto is one that clearly is. And I would have said, if you'd said to me, stock market's going to be at all-time highs through the lens of the S&P, Bitcoin was going to be at an all-time high through the lens of Bitcoin itself. And then you say to me, okay, where's MicroStrategy, or now Strategy, going to be trading? And, you know, given those two inputs, I would have said it's safe to say that it's a stock that should be trading at or around its prior all-time high, which I think is around 540 or so, and we are nowhere near it. Now, look, I'm not going to pin the hopes of the market on Strategy or the fate of Bitcoin on Strategy. But the lack of performance on the underlying stock that is, I think, ground zero for everybody's bull case, to me, is a little bit, it, it's noteworthy, and it's worth making the observation. So, we'll see if the crypto move is short-lived or if there's something more to it, and if Strategy at some point's going to play huge catch-up. This reminds me, by the way, of historically how gold trades versus the mining stocks. The mining stocks always lag until they have finally caught up. Well, clearly Strategy is lagging right now.
No, I, I think the main point about that, you know, is that here's this asset, right, that, you know, exists because it used to be an operating company, right? And then, you know, we can all agree that Michael Saylor is probably one of the most committed people that I know in the, in the financial markets, you know what I mean, in the entire universe, um, about it. He's not only bet his company on it, he's probably bet his entire life on this. And he's kind of convinced, not kind of, he has convinced dozens, if not hundreds, of other companies to kind of dip their toe in the water for this strategy. What is that strategy? It means obviously selling debt, selling equity, selling anything that's not locked down at your company, taking those proceeds, buying an underlying, whether it's Bitcoin, whether it's Ethereum. Um, there's probably some other things that are being bought there. But the leverage and then the premium that they're trading to the NAV, it just doesn't make any sense. And so, you know, I've been saying this, you've been saying this. I think if there is another meltdown for financial purposes as it relates to the economy, and it's going to be tied to something in the markets, I think this is going to be probably at ground zero for that. And I don't mean just Strategy, but I mean this strategy across all of these Treasury securities. Okay, there are a handful of companies that are seemingly implementing the same type of strategy. I mean, as you mentioned, Michael's sort of the pied piper, and there is a genius to, to him as a human being. I mean, he's obviously clearly a forward-thinking person. It remains to be seen, though, uh, how this is all going to continue to work itself out. I, I, it feels as though this is one of those things where you have to, cons, continue to sort of feed the beast in the form of continuing to buy the underlying asset, Bitcoin, uh, at a higher, higher price. Now, his average price, I believe, at Strategy is approaching $74,000, $75,000 a coin, and I think they're closing in on 700,000 Bitcoin on their balance sheet. So, as they continue to buy more at these levels, by definition, their average price goes higher. And I've long been concerned if we get to this point of equilibrium where Bitcoin trades down or around the average price of the Strategy holdings, something bad is going to happen. Not because the economics suggests though, because the market's going to start to force an issue, I think.
Yeah. And, you know, the one thing I'll just say is that no one can foresee this as being a problem. And this is the thing that, you know, is kind of bugging me a little bit, um, about the AI trade. There's no shortage of like headlines every day that should be causing, you know, investors who've been around for other cycles for their antenna to be going up a little bit, right? And so, you know, because that's not happening, it doesn't mean that this is going to end tomorrow or next week or next month. It just should be the sort of thing where investors take a step back and they think about how economical is this kind of capital that's being deployed all over the place for all of this infrastructure build that is likely to be very commoditized, that is likely to be hard to see what the return on this investment is for a while. I was just on the phone with a guy who's an AI specialist at a very large, um, you know, one of these consulting firms that works with all the biggest companies in the world, and he is their AI lead, like I just said, and they are coming up with, or they're having a hard time coming up with use cases that their customers are feeling are particularly valuable. Now, we've seen report after report at some point, Guy, that will matter, but it's really impossible to put your finger on it right now.
No, you can't. I mean, Roger McNamee, who is, I, I think you would agree, is sort of on the Mount Rushmore, if he's not on the Mount Rushmore, you know, he's sort of in the bullpen for it, of tech investors and people that understand what's going on. He was on CNBC, I believe, last week on Squawkbox talking about how right now, in the here and now, the market is pricing in everybody, seemingly everybody that's getting involved in AI winning. And he said, by definition, that's not going to happen. And his concern was some of the valuations around some of the stocks we talk about every day, and some of the sort of secondary and tertiary names that we don't talk as much about. And I think he's right to point that out. Now, again, nobody cares to hear this today in the here and now because, as you said, nobody's looking at what the, what can go wrong. But there are a lot of what can go wrongs out there, and seemingly more and more people are pointing them out. I believe it started with that MIT report. It might not have not started there, but it clearly was sort of the beginning of something in terms of people pointing out, uh, some of the negatives that are potentially out there.
Yeah. But even companies like Microsoft are telling you that they're having a hard time upselling this. That most of the people that are using their co-pilots or this other technology are basically doing it on trial. Salesforce, we saw their results just a couple weeks ago. They were atrocious. Like, they're telling you that they're using some of this technology internally, and it's helping them from a productivity standpoint, but they're not being able to sell that. And so, you know, the, the Roger McNamee was an, uh, an op-ed he did in the Guardian. We'll put it in the show notes. Um, but basically, it was entitled "AI Investors Are in for a Rude Awakening." He's talking about all the capital that's been deployed over the last three years is probably three-quarters of a trillion dollars. Jensen and all these other folks are saying, you know, that's going to be a trillion dollars a year in 2030, and by then it's going to be a few trillion that's already spent. Um, you know, this is like something, this is like nothing we've ever seen before on the magnitude of like 10, 20 times what went on during the dot-com. Let me just read because I think this is interesting, Guy. I think we did this last week on the pod. It was a bit of like a, a bookend of all the commentary that we're hearing, uh, from the bullish side, and then it seems like there's plenty of folks now coming out on the other side of this. So, this is just from Friday. These are headlines from Friday. So, this was Axios. "What If We Are Wrong on AI?" This is Dan Primack, who I think is a great journalist. Uh, "The AI CapEx Endgame Is Approaching." That's from the FT. "Jeff Bezos Hails AI Boom as the Good Kind of Bubble," whereas Goldman Sachs' David Solomon says, "It's Not Different This Time." That was also in the FT. "Cracks Are Forming in the AI CapEx Boom," warns Morgan Stanley. Uh, that's from MarketWatch on Friday. "AI Startup Valuations Raise Bubble Fears as Funding Surges." That's Reuters. "This Is How the AI Bubble Will Pop." This is Derek Thompson. You know Derek? This guy is a genius. He has the Plain English podcast. He also writes for the same Substack. I'm going to put that in the show notes, and you guys should subscribe, check it out. He's, he's an absolute, uh, genius.
So, Guy, all of those together, you know, just think about that was Friday or Thursday and Friday, those sorts of headlines. Now, you tell me whether they're journalists kind of putting their finger on this and saying, "Hey, listen, that is that a great warning?" I don't know. It's kind of tough to kind of figure this stuff out. I think there are people that are trying to amplify those messages, but I, I think, you know, you are clearly one of those people. I try to, in the best way I possibly can, but those voices are getting drowned out by the market, which is the ultimate judge and jury. It's the old thing, you know, people say that they want to tell me the truth. I want to hear the good and the bad. The reality is that I have learned is that's not entirely what's going on. People want to hear what sort of basically backs up their thought process and galvanizes, uh, some of their investment decisions, and they want to hear things that sort of help them get to sleep at night and wake up in a good mood. They don't necessarily want to hear what can go wrong. Especially when the market is cooperating to the upside. Invariably, what happens is if things do go pear-shaped, those same people will be the ones that say, "Why didn't, where were you? Why didn't you tell me? You know, what was, why did you know, why did you allow me to go down this road?" And the same people that say, you know what, I guess it wasn't different this time. There's an inevitability to all this. The problem is the timing aspect of it, and that's what our business is sort of built around because in our world, as you, So, if you're early, typically you're wrong. Yeah.
And, and the one thing I'll say back to that is that there should be frameworks that you're thinking about things, right? So, if you believe in this topic, listen, I believe in this technology. I'm using it. I have to see what it means for enterprises. That has yet to be seen right now. You know what I mean? So, like, as a consumer, you know, I can pay $20 a month for Gemini, for ChatGPT, for Perplexity, and try them all out and and use it and see what sort of productivity gains I get and how good it gets. You know, like, make no mistake about it. Any of these chatbots that you use, the one that you use this morning is the worst version you will ever use. You know, like, let's be clear about that. So, you know, it's not just about us. You listen to guys like Jensen Huang, and he was on Brad Gerstner's podcast last week, I think I mentioned it, or week before last. You know, these guys are talking about every person on the planet, and by the time this happens, there'll be nine billion people will have their own GPT. They will have their own GPU on some sort of device that is on them, and you're going to be like a superhuman. Now, whether that comes in 2035 or 2095, it's coming. Like, make no mistake about it. But in the near term, you could say, well, yeah, if they're only going to spend $3 trillion between now and the next few years, that's going to be a drop in the bucket for all of this, you know, development that's going to go on and advancement over the next 20, 30, 40, whatever it is. We can all agree with that. But the market doesn't go from here to there in a straight line. And I think we're probably not far off from a major correction. Listen, the S&P went down 20-some percent in April in a few weeks. And these stocks, a lot of them were down 40% or more. You know what I mean? So, like, that's the thing. You're going to have opportunities to buy these stocks again.
I agree. And, and I mean, not just, just to sort of put a ribbon on this, and this is the simplistic way of looking at it, but, you know, there was a time when, obviously, the internet is still around, and you remember, but, you know, I can basically turn my computer on and go to Google and get things for free. So, there's a commoditization that's going to occur here. Now, people will say, well, this is sort of 10x of what Google's going to be, and there's, there's obviously a premium to be paid for technology like this, but there's also a commoditization phase that's going to go on that the market is clearly not pricing in.
[Music] All right, last topic here, Guy. We've seen this frenzy of deals, like all these different companies, whether you're a component supplier, whether you're a hyperscaler, whether you're, you know, like it just goes on and on and on. The circular nature of this investment cycle. We're not going to dwell on that. But this headline was kind of interesting because there was, um, an article just the other day talking about our partnerships, or at least our company's partnerships with, you know, um, Samsung and SK Hynix. These are memory makers in, um, South Korea, and then obviously TSMC out of Taiwan makes, you know, 90% of Nvidia's GPUs. So, Huawei is the company in China, right, that is benefiting from these export bans of Nvidia GPUs, right? And so the question is, okay, do we sell them our best technology, get them like locked and loaded into our version of AI, and it's not just the chips, but it's the CUDA software from Nvidia and the like, or do we allow Huawei to continue to try to innovate and basically make a better AI that they can push around the world? So, this head, uh, headline, I think, is really interesting. "A Teardown of Huawei's Latest and Best AI Chip Shows That They're Built With Components From TSMC, Samsung, and SK, Companies That Have Long Been Prohibited From Trading With the Chinese Electronics Giant." So, one way or another, Guy, this is all going to happen. Whether Jensen gets to sell his chips into China, whether the Trump administration gets to take their vig, one way or the other. And I think all this back and forth about it is like, listen, man, let's lock down here. Let's use our technology to keep this sort of lead. Let's not kind of put it in the hands of our biggest adversary, right? That's going to find their way to use it against us eventually, right? You know, and the counter is that if you allow them to have a version that'll it'll quell innovation, and we'll still be ahead of the game. I, again, that all remains to be seen. I sort of find myself in your camp on this one, but, you know, I also, I'm not president of the United States or commerce secretary either. They're obviously bigger fish to fry. But then the real question is, in this whole sort of game of, you know, again, horse trading, which is to a certain extent what's going on, you know, what's a chip that's being used? And I've asked the question to a number of different people like, how does Taiwan fit into this whole sort of puzzle? And, you know, what are we promising on the back end if, in fact, we would allow certain things to happen on the tech trade, semi-trade with the Chinese and open those doors? I don't know. But I don't think the market is factoring in the fact that Taiwan could be a major pawn in this entire thing.
Yeah, no doubt. Um, just last thing, we'll put this in the show notes. You can take a look at it, but just on the, on the back of that conversation about Nvidia. There was an article in the Journal, I think on Friday. "Delays to Trump's UAE Chips Deal Frustrate Nvidia's Jensen Huang." The multi-billion dollar deal was announced in May, but the Commerce Secretary has since pushed the UAE for certain US investments first, which, you know, it's fine. Have them invest their gazillions of dollars here in the US. Understand that the UAE, they are not our ally. I mean, we can go on and on about this, right? They want our technology. They know how to play this president. Qatar knows that they can give him a huge plane. And I mean, this, this is not, that's not a political comment that is going on. And so, when Jensen and all these, uh, tech bros are following the president all around, you know, the, uh, Middle East, you know, we know what they're in it for, right? And so, when you have this sort of delay, and it also said that David Sachs, who's the AI czar in the White House, is also frustrated. You know, they are very transactional. They're going to get what they want to get, and then ultimately you're going to have to wait in line to get there. So, it'll be interesting because, like I said about Jensen being on the Gerstner podcast, man oh man, he was gushing about the president. And this is a guy who, I think, was one of the few that was not on the deis, um, at the inauguration back in January. No, he wasn't. But he was in London for that state dinner for sure. And if you remember, it was within 24 hours of that dinner that Nvidia announced a, a deal or some sort of partnership or whatever these things are now called with Intel. So, there's obviously a lot of stuff going on here.
Yeah. You know, that state dinner must have been great, Guy. I mean, if you think about all those folks who came out, you know what I mean? So, um, what do you, what kind of steak tuxedos? I mean, when you look at snails, it's fantastic. What kind of steak do you think they serve? Oh, you said state dinner. State dinner. I didn't say a steak dinner. It's a called a state dinner. Oh, yeah. Um, I mean, they might have had steak at the state dinner. Uh, I'm not sure. I was just messing around. I just, No, I know. But, you know, I will tell you the steak in the UK is not particularly good. I mean, that's where I was going. By the way, when I lived there 25 years ago, they had the foot and mouth thing going on. There was, you, you could not eat beef there. Like, I literally was on a chicken diet or something like that. It was bad. And their steak sucks. It does. Their beef sucks over there. Yeah. I mean, you know, let me tell you, it's not, it's not, you're not going to London for their fine cuisine. Well, it's gotten a lot better. You're not going to London for their dental work either, as it turns out. They have summer teeth. Summer here, some are there. You said it there. All right. So, to all of our friends from the UK, across the Wilford's probably listening to this. Wilford's got perfect teeth. We appreciate you sticking with us. Oh, Jacob just put it in the chat. Trump steaks. That's what they ate. Trump steaks. Remember he was hawking those things? Oh, yeah. Sure. There were Omaha Steaks, and of course, you could get, you could get Trump Steaks on the Sharper Image. Could you think of a worse place to get worse meat there?
All right. Well, on that note, enjoy the week, people. We're going to be back. We've got a lot of fun stuff. Guy, you're ending the week with a Risk Reversal podcast with Danny Moses, which will be really exciting. Yeah, you are. Thanks for being here, peeps. We'll see you later this week.
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