Prof G Markets: Is Breaking Up Intel The Right Move? + The New Gold Rush

29:53It well predates the launch of ChatGPT and the AI era. But of course, that only made the disparity between Intel and NVIDIA even worse. Companies like ASML overseas and other chip companies, ARM holdings, They all got the memo and Intel didn't. And as a result, this is why this company is now a shell of its former self. It's a hundred billion dollar market cap in a land of trillion dollar companies like Broadcom and Nvidia. In the last eight quarters or two years, Intel has been profitable on an operating basis in only three of those quarters. On a net income basis, Intel has lost money four quarters in a row through the last quarterly report.

30:36It's just an absolutely horrendous fall from grace And maybe the right answer is To put a nail in the coffin Separate out the chip design From the foundry business Have somebody else take those things over And say goodbye to Intel And maybe that might be the better outcome For current shareholders Than trying to continue to slog it out given the market realities of today where Intel is in no man's land. Just going back to the decision to get into Foundry and just to clarify for our listeners, Foundry is basically getting into the actual manufacturing of these chips. Most of the big companies we're talking about, NVIDIA, NVIDIA is probably the best example, Broadcom, they're designing chips, which is just a better business and then they pay someone else to produce it for them.

31:29And Intel decided they wanted to try to get into the business of actually producing these chips for other companies like Qualcomm. This is the business that TSMC is in. And so they made that decision to go into Foundry. And I think everyone would agree with you that was a bad decision. They got caught completely flat-footed. This AI boom took off. And then suddenly everyone has these GPUs and Intel's operating with a kind of shitty CPU business. And then also they're investing huge amounts of capital into building out this foundry business. I guess from sort of like a management perspective, what could they have done differently?

32:10Should they just not have invested in foundry to begin with? Should they have invested more maybe in R &D, trying to predict AI? I mean, it feels very easy to say, oh, what a terrible decision. It's the wrong people running the company. in this day and age, if you're going to be at the helm of a chip giant, you have to have a visionary streak that enables you to see around corners and predict. You cannot be a bean counter. You cannot be just like an operations guru, but not have a vision of where the tech is going. I mean, you can get away with that for a few years, but ultimately it catches up to you.

32:53It's not a surprise that Broadcom got to a trillion dollar valuation. It's run by Hock Tan, who is a visionary. He's a 40 year veteran of the chip industry. And he's been there at the birth of so many milestones in the tech landscape. Jensen Wang, Lisa Su, who runs AMD. These people are running circles Around Pat Gelsinger At Intel I think has already stepped down It's a management It's not just one decision This is this cumulative Decision making process And you either get it Or you don't And if you don't You miss where the market's heading That's one Two A friend of mine, Jason Hsu Who's a radiant global advisor He had been at Research Affiliates He's a Chinese-born Investment manager here in the United States Brilliant guy And Jason, I asked him last year Shortly after the CHIPS Act I had a conversation with him And there was this whole push to start the on-shoring And the semiconductor shortages of COVID For the automobiles And we can't let that happen again And Intel is going to spearhead This effort to start building chips here in the United States and Arizona and elsewhere.

34:20And that we're going to build our own fabs and the government is going to underwrite it and it's going to be great. And Jason kind of said, not so fast. What you have to understand is if you are a highly technically skilled person in Taiwan, you dream of being in an underground white room for Taiwan Semi, working in a laboratory all day in a hazmat suit. That's like, that's your dream. Your counterpart in America does not have that same dream, does not want to work in a clean room 11 hours a day for Intel in Arizona. It's just not what, so our most talented, most brilliant scientists and technically savvy engineers in America do not want what that same person would want growing up in Taiwan.

35:18And so Jason said the idea of us having our best and our brightest living in Glendale. What's wrong with Glendale? It's not going to go that way. There's a reason for Taiwan's ascension to the top of the heap in terms of chip manufacturing around the world. There's a reason it's there and it's not in Connecticut. Yeah, exactly. just looking ahead now. So we've got Broadcom, which is eyeing the chip design business. And then TSMC is looking at purchasing the foundry business. There are a lot of questions over how viable any of this really is. I've seen some analyst notes pointing out that TSMC has very different equipment to Intel.

36:03So maybe you won't have those synergies that people were expecting. Maybe it doesn't actually make sense for them. I think the biggest question mark, though, is the regulatory approval for this. Because if this deal were to go through, at least for TSMC, you will need sign-off from the US government. So just from a regulatory perspective, how do you think this goes down, Josh? Do you think Trump and the government would ever let this go through? I would just comment, if Taiwan Semi really wants it, if Broadcom really wants it, I would just say, gentlemen, prepare to golf. You are going to be spending a lot of time at Mar-a-Lago.

36:45Prepare to tweet positive things about Trump and prepare to golf because this ain't going to go through the courts. This is 2025. If you want this deal done, it's got to look like a win for Trump. If the headline is Trump successfully sells Intel to two of the most successful companies in the world to create new jobs for American workers in red states, you got a shot. If the headlines are going to look more like American failure while Trump was in office, this ain't going to this ain't going to fly. This is going to be looked at from an optic standpoint, more so than a strategic standpoint. point.

37:28I will say Taiwan Semi is a foreign company, but if they're going to commit to making a go of this kind of semi-manufacturing on American soil, and we say that that's not a bad outcome, that's a good thing, then maybe it could happen. But I don't have any edge on whether or not they'll approve it. You've been working on your swing, Josh? Not nearly enough. Thank God I'm not trying to buy Intel. All right, we'll be right back after the break with a look at the new gold rush. If you're enjoying the show so far, hit follow and leave us a review on Prof2Markets.

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39:41We're back with Prof G Markets. Gold is hitting record highs, up more than 10 % year to date, as investors seek out safe havens amid geopolitical uncertainty. President Trump's tariff threats, paired with fears of resurgent inflation and higher for longer interest rates, have pushed the price of the commodity to nearly$3 ,000 per troy ounce. Josh, this asset has had its best month in 13 years. I never really understand gold, or I really struggle with gold as an asset. What is going on with gold right now, from your view, and why are investors so obsessed with it in this moment? The best way to understand gold is just take whatever the price is doing and then take whatever the headlines are and concoct a story that enables you to say A plus B equals C, like truthfully.

40:35If gold goes up concurrent to there being inflation, oh, it's very simple. People are buying gold because they're worried about inflation. If inflation is rising but gold is not rising, oh, it's very simple. gold already rallied and now the inflation is happening. Therefore, the people that bought gold before the rally anticipated the inflation. It's honestly, it's a fucking joke and nobody knows why. Nobody knows why anything does anything, but they definitely can't explain a gold rally other than ex post facto. So here, I will tell you why gold is rallying. Gold started to rally in the winter of 2022 when Russia invaded Ukraine.

41:19And that is, to this day, the predominant reason for why gold is rising. Central banks looked at the way Russia was kicked out of the SWIFT banking system. They looked at the way Russia was sort of deplatformed from the global economy. And they said to themselves, maybe we need to diversify away from the dollar. Because if we get kicked out of the global banking system, we're going to have to have a way to transact and we're going to have to diversify our currency reserves. So once you reach that conclusion, you realize there aren't really that many other assets that make a lot of sense. Gold is, as a result, being bought by central banks around the world, especially in countries where they might be concerned about this sort of thing, like China, like Iran, like Russia.

42:10And so the demand for gold is truly a geopolitical phenomenon. So fine, we'll say the reason for gold's rise is geopolitics. Okay, I can point to historical examples where gold sold off during geopolitical tensions flaring, but fine. That seems to be the story that most people have accepted. But then the other thing that happens that is the trading mentality shifts and all of a sudden that story becomes so popular that people in their investment accounts start to accumulate gold on the theory that that sort of thing will continue. And so people start to extrapolate the recent past. And that's where you get the momentum.

42:54So now gold is up 9 % annualized over the past 15 years in nominal terms. 8.8 % annualized over the past 10 years. But over the last three years, it's been rising faster. 15 % annualized return over the last three years. Over the last one year, it's up 45%. And it's up 12 % since the year started. So if you think about gold over the long term, does not do better than stocks. But I can show you these five and 10 year periods of time where it far outperforms the stock market. And so people are looking at the momentum there and they're saying, okay, this is a gold bull market. I don't know when it ends, but I need to be there for it.

43:37So that kind of feeds on itself. And I think that's where we find ourselves today. I'd love to get your view on gold as an investment in general. I mean, you as a wealth manager, do you think that this is a worthwhile investment? And I'll just put it out there. I don't really see the value of gold when you can invest in companies that pay dividends and generate cash flows and provide actual value into the world. And then meanwhile, gold just sort of sits there and does nothing. Here's a long-term reality. Go back to 1928. So we have 86 years worth of data. Stocks have done 11.8%. This is nominal, not adjusted for inflation.

44:20Stocks have done 11.8 % of the last 100 years. Gold has done 6.6%. High quality bonds, US treasuries have done 4.8, real estate 4.4, cash 3.4. So gold has done well, has not done well as well as stocks. And I have to tell you the chasm between 11.8 and 6.6 is absolutely massive. When you remind yourself that we're talking about compound annual returns. We're not just talking about one year. We're saying like a 30-year investment time horizon It's not just 50 % better It's substantially better the returns of stocks And I think that will probably be Always be the case over really long periods of time But there are periods of time where gold beats stocks And there are specific years And three-year and five-year and ten-year periods So some people use it as a diversifier in portfolios Some people don't We do not There's no reason to own commodities at all individually.

45:24And if there is a commodity boom, it'll show up in the stock market. And if you own stocks, you'll get the benefit of that. So we own oil equities. We don't buy barrels of oil. If you have an S &P 500 exposure, you have gold equities. And if there's a huge boom in gold, those gold equities in market cap terms will become larger proportionally to the rest of the stock market. So you will see some of the benefit of that. But we don't own commodities outright individually. We own stocks and we will get the reflection of those booms and busts via our exposure to the stock market. in the reporting on this, you know, we hear a lot about the spot price of gold, and then we hear a lot about the futures price, gold futures price.

46:09Could you just break down for us briefly what that difference actually is and why that difference matters if it does at all? It doesn't really matter unless you're in the jewelry business. The spot price of gold is literally what you're taking what when you're taking physical delivery of gold bullion, that's that's what that price is about. And of course, most people who are trading, they're taking delivery of nothing during ETFs. They own GLD. The futures market is what producers and and what they call commercials used to hedge the volatility of future prices. So as a for instance, if you're in the business of buying a certain amount of gold over the course of the year as a commercial player in the market, let's say you're a jewelry manufacturer, okay?

47:10The big risk for you is that the gold that you have to buy six months from now will rise significantly in price. So you would use the gold futures market as a way to hedge that risk. You would put on certain trades or collars or whatever your strategy is to try to mitigate the disastrous impact of the price of gold rising 30%, which could wreck the economics of the business that you're engaged in. And vice versa, if you're a gold miner, you know that you need to sell a certain amount of tons of gold a year from now and you're worried the price might be lower, you could lock in using the futures market.

47:50you could lock in the price that you'll be selling gold at. So think of the spot market as being more relevant to companies that are physically engaged in the gold market, buying and selling, or banks that are stockpiling gold, central banks. And think of the futures market as more of a tool to either hedge or speculate on the price three months from now, nine months from now. I bring it up because we're just seeing this very interesting dynamic, but in that difference, where right now you have gold futures trading at record highs in New York. But over in London, the spot price is significantly lower.

48:29And that's where the Bank of England holds all of that physical gold that you're talking about. And because of that spread, it's just a very interesting story that we're seeing. You have JP Morgan and HSBC and all these other banks who, as we speak, are literally flying gold across the ocean. from London to New York. And what we've seen is that they have these concerns over these tariffs. And so they need to get gold out of London and into America as quickly as possible. I'm not sure how important it is in global markets, but it's certainly an interesting visual. Could you just explain how this strategy is playing out and why it is important that the banks do this?

49:15Yeah, it's chaotic and it won't last. It won't last a long time, that type of frenzy, that type of activity. There are historical examples of that. One of the causes of huge market dislocations throughout history has historically been the movement of gold from one country to another or from the rest of the country back to New York. We've had instances where they closed the New York Stock Exchange heading into World War I. And one of the main concerns is all of the gold was about to be sucked out of the banks in New York and sent to England to finance the prosecution of that war against Germany.

50:02And they wanted to preempt the chaos that that kind of thing had historically caused. and you have these situations that have arisen in the past where just this seasonal pattern in the springtime, America 100 years ago is very agrarian economy. Everything was about agriculture and farming. So you'd have all the gold leave the banks in Boston, New York, Philadelphia, and it would head to the Midwest and it would be dispersed amongst the farmers who had to, it would show up in the banks in rural America. The farmers would then be able to fund the cost of seed, and equipment and hiring farmhands and people who would help them plant.

50:43And then the summer would go by, there would be speculation, the gold would return back to New York. All that gold would lead to there being excess capital, that excess capital would lead to these huge booms in the stock market and people speculating with the money while it was there. And then all of a sudden the banks in rural America would call that gold back because it was time to bring in the harvest. and you would have this seasonal pattern that resulted in us saying things like sell in May, go away or you would see like October being this month where all of a sudden all hell would break loose on Wall Street because the gold would leave these financial centers where all this trading and you would have this literal dearth of liquidity and you would have this drop off in money and in capital and it kind of became ingrained in the patterns of stock markets and business and commerce.

51:38We've been able to neutralize that over time as society has become less agrarian. And we don't really have that every October, the market crashes because the farmers need their gold back. Like that's not the way the economy runs now. So it is interesting when you see something like this, all of a sudden people are flying their gold across the Atlantic to get it from one country to another. It's chaotic activity. It's kind of a throwback to the way the economy used to function when everything was on a gold standard. And it's weird. And I guess I would tell you not as an investor to react to that type of thing because it's not likely to be a long-lived phenomenon.

52:18Yeah, it certainly feels very apocalyptic. And it's very interesting that gold has this association with geopolitics and inflation, but really just panic. It's like when the world starts to look like it's crumbling, suddenly people start to be interested in gold. Emotional volatility. Exactly. And I would just like to get your final reaction to this because we had Ray Dalio on the podcast. And it was very interesting because, you know, he was very concerned about the world from a geopolitical perspective. And I think a lot of people are very concerned about the world geopolitically. I mean, I think back to what Jamie Dimon said in the most recent earnings call, where he said that we are in the most unstable geopolitical time since World War II.

53:08And Ray Dalio basically told us, you know, if I would put my money into anything, it would be gold. And my reaction, I think, is similar to yours, which is, is this really worth the panic? And if we are to panic to the extent that these people say we should, what is buying gold going to do for us? Is that really going to solve our problems? So I guess I'd be interested to get your view on gold from a geopolitical perspective. You know, does Ray Dalio's view make sense to you? I think gold probably can get to 5 ,000 just purely on momentum alone because a lot of people are worried and there are a lot of reasons to be worried.

53:46It's not completely invalid. I think during the course of the Trump administration, if you told me this all ends with some major geopolitical conflagration and gold runs up to 5 ,000, I would say that's completely within the realm of things that could be expected. So I don't disagree with Ray Dalio, except in the utility of it. So we have World War III. We're going to fight China over Taiwan and Russia over Western Europe simultaneously. The fuck are you going to do with your gold ETF? I'd rather own a farm and food. Bullets, motherfucker. What are you going to? Oh, but look, I'm long gold miners.

54:31Don't shoot. Dude, the only currency in these worst case scenarios will be like the backbreaking labor that you have the muscle tone to accomplish on behalf of whomever is enslaving you. And it won't be Bitcoin? You want me to spare you? Don't tell me about what's in your Roth IRA. Remember what I told you at the start of this? Think about what could go right. And worst case scenarios very rarely play out. And if they do, in this case, think about the things that we're talking about. talking about like multiple nuclear powers potentially like being goaded into a conflict here like it's nothing you do in your portfolio is going to help you okay so don't bet on the don't bet even if you bet on the worst case scenario if it comes to pass who are you going to collect from who's paying out on that bet if we're all uh squatting around a fire eating a squirrel.

55:27So I view my role in this is to understand the risks and try to help people process them and try to give people the context that risk is omnipresent, ever present. It's always a thing that exists. We feel it more acutely in some moments than in others. But honestly, it's usually in those moments where everything feels great that the big risks are really about to arrive. And it's rarely the thing that we're all worried about that actually ends up going wrong. Let's take a look at the week ahead. We'll see data on the personal consumption expenditures index for January. We'll also see earnings from Salesforce, Dell, Berkshire Hathaway, and NVIDIA, which will be a huge one.

56:16Josh, this is a part of the show where I ask Scott for a prediction. No pressure, but do you have any predictions or is there anything that you're thinking about in the next couple of months or so that you think that our listeners might want to keep an eye on in the markets? I think NVIDIA reports and hits a new all-time high. Yeah, there's a lot of skepticism going into this earnings report. There has been for a while on NVIDIA. Their stock doesn't always rally after they report earnings. Sometimes it rallies into the earnings. In this case, it's kind of been stagnant for a while. I think the conversation is starting to pivot from large language models, and it's starting to go more toward physical AI, automation, and robots.

56:59And I think NVIDIA has got the most compelling case for why they will be at the forefront of all of these things than any other company in existence. And I think that'll come through in the remarks Jensen Wang makes. I'm a long-term shareholder here in NVIDIA. I've owned the stock since 2015. So of course I'm biased. I would also point out everyone owns NVIDIA at this point. It's the number one or two largest weighting in the S &P 500. If you have a pension, if you have a 401k, if you're - 2015 is early. I was extremely early to the story and very publicly so talking about the stock on television revision every week for 10 years.

57:41It has been a once in a lifetime stock. It's up 10 ,000 % in that period of time. If I lived another hundred years, I'd probably never see anything like it again. And I don't think it can continue to rise at the rate that it has. But the reality is it's just not that expensive of a stock because as much as the share price has gone up, the earnings have gone up as much, if not more. So I think it'll be a good conference call. I'm hoping to get a positive reaction after. My prediction is that we will, but who knows? Anything can happen. Josh Brown is the co-founder and CEO of Ritholtz Wealth Management, a New York City-based investment advisory firm managing more than$5 billion in assets for individuals, corporate retirement plans, and foundations.

58:27Josh, just an absolute pleasure as always. Thank you so much for coming on. Thank you so much for having me, Ed. Appreciate it. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Isabella Kinsel is our research associate. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. Join us on Thursday for our conversation with Mike Moffitt, only on Prof G Markets.

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