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Fund Manager Who Called Rally Warns The Great Rotation Is About To Begin Thomas Hayes

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TITLE: Fund Manager Who Called Rally Warns: The Great Rotation Is About To Begin | Thomas Hayes CHANNEL: David Lin DATE: 2026-06-03 ---TRANSCRIPT--- there’s an election coming up. He’s going to get out of it one way or another. What you are going to see that morning is oil is going to be down, yields are going to be down, the AI trade is going to be down, and the everything trade, everything else that hasn’t been working for the 8 weeks of the war is going to rip higher. Do you rotate out of the tech sector or do you just ride the wave? At this point, the S&P 500 just closed at a new record, its ninth straight week of gains, and the longest winning streak since 2023. It’s up more than 10% since the Iran war began in February. And yet, despite this, Alphabet is selling $80 billion in stock to fund AI, the largest equity raise in US history. And even Bergkshire Hathaway is writing a check for $10 billion. Meanwhile, the biggest names in AI are racing to the public markets with Anthropic filing this week for an IPO at a near trillion dollar valuation ahead of open AI and SpaceX IPOs. Even Washington now wants in with Bernie Sanders proposing this week that the government should take a 50% stake in the largest AI companies. The whole market is now betting on one thing, it seems, the AI buildout, which runs on power and needs natural gas and commodities. So, where do you actually put your money when the index at is at a new record, the bond market is flashing warnings, and the AI trade is eating all the oxygen? Well, hedge fund manager Thomas Hayes, managing member of Great Hill Capital and host of Hedge Fund Tips, correctly called the rally, and today he’s back on the show revealing where he’s rotating his money into next. This video was sponsored by Koshi, the largest prediction market in the United States. Unlike a sports book, you’re trading peer-to-peer on real world events, from economic data to political outcomes. And the price moves based on public opinion, not a house. Go to the link in the description down below or scan the QR code here and use my code lin. And new users will get $10 when they trade $10. And right now, traders are predicting that there’s a 56% chance that the May jobs numbers will beat the Wall Street consensus of 90,000 jobs. A $50 trade could yield $83. If you’re right, Thomas, welcome back to the show. Good to see you.

Great to be with you, David. Thanks for having me. You’re on the show. Not too long ago, you had call for the other 493 stocks in the S&P 500 to start outperforming. And you were right, an equally weighted index has started started performing, outperforming the S&P overall. We’ll talk about that in more detail today. Overall though, um the fact that the um S&P is at all-time highs again, despite the Iran war having no resolution in sight, despite inflation expectations coming up, and despite the the deterioration of consumer strength, we have savings rate deteriorating and we have consumer um debt climbing and delinquencies on credit cards climbing. What do you make of this, Rally? Uh tale of two cities. There there’s no question, David, equal weight was crushing it in January and February, and that was a great call. Uh that’s the good news. The bad news is since the Iran war started out of left field, nothing has worked other than the AI trade. And why is that? Uh it’s very simple. If you have increased oil prices, increased inflation expectations, increased yields because expectations of a rate cut goes down. Expectations of a rate hike goes up. Most of the other sectors cannot thrive in a slow growth environment. That will be the case if Iran doesn’t get resolved. And furthermore, what may be the case if Iran doesn’t get resolved is an unexpected recession just in time for the election. Um, that is not our base case, but that that is the the impetus behind the last 8 weeks where only one part of the market has dramatically outperformed and really the rest highquality businesses uh have languished because there’s uncertainty around uh the growth expectations. If uh uh with the energy shock and inflation expectations, I will say that this move is driven by earnings growth. Okay. But but I think it it makes sense, David, for us to look at uh what is under the hood related to that earnings growth and and what is the composition of that earnings growth that everyone’s betting on continuing. This year is shaping up to be one of the most anticipated IPO years um in recent history. Starting with some recent news, Anthropic recently just uh yesterday confidentially files IPO perspectus with SEC. What was the valuation again? Let me just scroll down. I think it’s over a trillion dollars. Yeah, 965 billion. So about a trillion dollars. It’s estimated revenues are 35 billion. So, call it 35 times sales relative to SpaceX. That looks like a bar bargain. Uh, if I could say that with a straight face. I I don’t I don’t think so. Are you buying any of these when they come out? No. Uh, I will say that this speaks exactly to the point that I wanted to open with you, David, which is the earnings growth, the expected 24% this year and 13% next year. That revision upward is largely attributable to the h not the hyperscalers operating profits. It’s the hyperscalers’s other income meaning they hold stakes in these investments in anthropic in particular in chat GPT in some cases. Now, Alphabet and Amazon alone reported a combined 53 billion in other incomes. Alphabet was $ 36.9 billion of the net income was driven by marktomarket valuation on its equity stakes, which again largely anthropic. Uh the gain was more than triple the company’s previously record previous uh quarterly record for non-operating income. So 60% of Alphabet and Amazon’s combined net income came from these windfalls which is simply paper marked to markets. This is not their operating improvement. And 34% of the total income across the five largest hyperscalers was simply marked to market on these holdings which are trading at between 30 time sales and losing money and 100 time sales and losing money. In the case of SpaceX, the good news is he says he’s going to put people on Mars and we’re going to be, you know, mining gold from asteroids. The bad news is at a 100 times sales, even when that happens 15 years from now, assuming you’re you believe that’s going to happen, you’re probably paying for it at a $2 trillion valuation, particularly when the rest of the business does $18 billion in revenues and loses, you know, $5 billion of cash per year. So um I think that yes these valuations look my housekeepers asked me on behalf of her husband whether they should buy the SpaceX IPO. I don’t even know what to tell them because it’s like I I want to just say why don’t you just you know take the flight to Vegas and put it all on black because it’s effectively can it can a can 100 time sales which is ridiculous become more ridiculous at 200 time sales and still losing money. Yeah, you could get a double but can a 100 time sales get rationalized at uh you know to five time sales and you lose 80% of your yes. So the answer to your question is, you know, we’re in a little bit of crazy town right now and you’re seeing it with just the standard metrics. Retail call buying at the highest level since 2021 extremes right before the tech wreck in

Record margin debt provided by broker dealers. Put skew is collapsed. What does that mean in English? It means nobody wants to buy any downside protection. We always say to you, David, the time to buy insurance is before the house is on fire. No one wants to buy insurance. No one believes there’s going to be a fire. I’m telling you, insurance is record cheap. Uh, and it wouldn’t hurt to have a little bit because when you see companies like Google that can no longer finance their capex commitments through cash flow or through debt issuance and they now have to dilute their shareholders by $80 billion raising equity at the top. It’s something to pay attention to.

Yeah. Speaking of, I have this article here said in a statement, “Capital will fund investments in worldclass AI compute infrastructure to meet its unprecedented command customer demand.” Look, the guys at Google are smart, smarter than me. Uh, let’s assume they know what they’re doing. They’ve evaluated, you know, their their their corporate dev team has made the evaluation that selling stock to fund this is going to generate high ROIC at some point. Um, as a fund manager, you’re looking at this and you’re thinking, “What?” I I think I would do 100% exactly what they did. When the ducks are quacking, you feed them. Okay? And that’s exactly what they’re doing. They’re not calculating whether they’re going to get a higher than historic return on invested capital off this. What they’re calculating is we can raise cheap money because at a you know call it uh inverse you know 3% equity yield or wherever they’re trading right now uh that’s cheap capital and we can always buy it back in on a major correction from cash flow assuming that they do get the return on invested capital a year to a year and a half out. We’re not bearish on this on the space. uh we just think there’s going to be a better opportunity to buy it in the summer or in the fall uh buy the AI trade. We’re probably in the fourth or fifth inning of what will be a nine inning to overtime innings game. But I think in the short term, all the signs are pointing to if you’re buying this stuff that’s up, you’re going to be the bag holder. and and uh uh you know it can become a little bit crazier before the air lets out of the balloon, but I’m telling you this is going to be a situation where it is buy the rumor, sell the news. The day you wake up, this was a man-made created war from a tweet. This is going to be a man-made created resolution. And the minute that resolution is tweeted, whether it’s a blink, a pull out, a victory, a good deal, a bad deal, it doesn’t matter. There’s an election coming up, he’s going to get out of it one way or another. What you are going to see that morning is oil is going to be down, yields are going to be down, the AI trade is going to be down, and the everything trade, everything else that hasn’t been working for the eight weeks of the war is going to rip higher because inflation expectations are going to come down and the expectation of a hike in late 2026 or early 2027 is going to revert back to the expectation of a cut because Wors will be able to go out as out uh about his business without the fear of those elevated energy prices hitting input costs across all goods and ser all goods and effectively services. Okay, speaking of what the government wants, we’ll come back to the Fed in just a bit. This is from Bernie Sanders came in last night. Yeah, last night. I will soon be introducing a bill to give the public a 50% ownership stake in the largest AI companies in America. This would guarantee that the trillions created by AI are used to improve the lives of us all and block oligarch decisions that harm the American people. Your reaction? Looks like Donald Trump and Bernie Sanders have something in common. Donald Trump seems to love equity stakes. Look, that helped us out on Intel. Uh we, you know, it’s it’s funny when we bought Intel a couple years ago. You know, we have trenches in the high teens. We have trenches in the low 20s. We actually sold it all at $96, $97, close to a five bagger. It subsequently went to 131. Now it’s back closer to 100, probably going to 60 before it goes back to 200. Um, uh, but that was a national security issue. Uh, and the government standing them up was not because they like Lip Bhutan or because they like Intel. It’s because they had no other option besides Taiwan Semiconductor. And that put us in a very precarious situation relative to China. As far as Bernie Sanders wish list, I mean, keep dreaming. Uh, I don’t think that’s going to happen. I do think if if the US if Google or uh any of these other companies don’t want to raise equity or they want to raise equity and the US government becomes the source of funds, well, yeah, we’re going to take a huge equity stake, but that’ll be when they’ve exhausted all other options. So right now they’ve exhausted free cash flow as a source of funding. Uh they’ve pretty much exhausted the debt markets as a s source of funding. So now they’re diluting their owners with raising equity at high valuations. Yeah. I mean look, I’m not against that. They were buying back shares at lower rates when they had free cash flow. Now they’re no longer buying back shares. I think you got to shift your mind from the AI providers and the AI beneficiaries. And if their thesis on return on invested capital is accurate and we are going to see that materially in 12 to 18 months, that means real everyday businesses, industrial business, manufacturing businesses are getting value from their services and paying for it. And if they’re getting value from their services and paying for it, it means their margins are going up. and they’re replacing or making efficient some component of labor, some component of intellectual capital. And the play will be in the everything trade margin expansion while these providers will continue to have margin headwinds because they’re using up all their cash to stay ahead with investment for the foreseeable coming years. There’s even a prediction market now. Which companies will the US take a stake in this year? unusual machines at 55% Nuros Technologies ion Q um some of these have contracts with the military so um not entirely surprised the the notion that the equities um themselves will be taken over by the government I mean there’s in theory nothing stopping the government from buying the Google equity raise or anything else for example besides maybe legislation but as an investor would you want that uh if they’re a passive equity investor um you know look Capital allocators try to get the best return on invested capital whether they’re public sector or private sector. I think that in the case of Intel whether Trump made the US Treasury 30 billion or 50 billion I I don’t know exact what the exact number is to date but it’s it’s a lot more than they put in. So, if they put in 10 and they got 50 and then they’ve got some warrants on top of it, uh that’s a pretty good return on invested capital for uh the the taxpayer. I’m not a proponent of the government being involved because particularly if they have contracts with them, it it creates uh conflict of interest and uh generally the private sector is better left uh private. But if they are coming to the US government as a source of funds, if it’s, you know, kind of nuclear power companies that maybe can’t raise it in the private market, but we do need that form of energy to be competitive in AI and win the AI race. uh if it’s a national security issue, I’m not averse to it as long as it’s on par pursu terms with what’s available for the public and the government is not crowding out the public, but rather filling up a deficit of demand from the public to to fill those funding needs. So the short answer is um leave them out if possible. Well, the long answer is if it’s something essential for national security and competitiveness over the long term and the funding needs can’t be met by the private sector, then let them top up and be involved in a passive way and make some money for the taxpayer if it’s a good investment. But it needs to be viewed on a discreet thing. If you start funding the Salanas of the world, uh then then that’s an incineration of taxpayer money and a cardinal sin. Okay, let’s move on to the Fed and the economy. Now there actually is a trading market on jobs numbers. So according to CNBC, traders are actually expect that job creation in May will see a slowdown but still surpass Dow Jones consensus of 90,000. So here it is. Uh job numbers in May above 90,000. 56% chance that they’re going to beat expectations. So uh I wonder why traders are positive I guess on on job growth uh more so than the street consensus given uh that slowdowns are appearing in other sectors. But I’ll let you comment on this and ultimately I want to know what the Fed’s going to do after Kevin Walsh takes takes takes um takes the podium. Uh so two things I think on the jobs it’s recency bias. The last print was stronger than expected. We’ll see if that persists. Uh that’s number one. Uh, number two on the Worsh uh aspect, and by the way, I have no idea. Like, go again, take your money, go to Vegas, put it on black, you know, head you win, they write a book about you, tales, you lose, everyone forgets you, and you disappear. So, um, it’s just gambling. There’s no edge there. And so, if I don’t, if there’s not an edge, you’re best to to avoid the game. And sometimes the edge is just intensive research. uh as it relates to WASH, WASH’s mandate is to cut. How do you cut in an inflation uh in an in an environment where inflation is above trend largely due to a man-made war? And the answer is you can’t. And uh now that said, again, all incentives point to the election is coming. He’s going to have to resolve it either with a great deal with bombing them into submission with pulling out and declaring victory. Who it doesn’t matter. He’s going to end it and the straight is going to open. When that happens, that creates the freeway for Worsh to cut, but he’s still cutting into what will be a tail of inflation due to, you know, 2, three, four months of elevated energy prices. So he’ll be at the same time reducing liquidity on the balance sheet by selling bonds on the open market, sping up liquidity there, creating liquidity with cuts. And I think that over the next 12 months, assuming the war is ended, not ended, but like some type of fugazi deal uh or real deal in the next couple of weeks that gives him the runway by the end of the year to probably do a cut before the end of this year, which is non-conensus. And if you want to, you know, place a a high high return bet on those gambling poly markets or whatever you’re referring to, that’s probably the one to do. Everyone’s betting on a hike. They’ll probably wind up with a cut and uh and he’ll follow through again probably next year as well. And I don’t think he’ll have much more room to do a lot more than that regardless of how much uh liquidity he stops up by selling bonds on the open market. So time time will tell. I’m just curious what the probability is. Next Fed rate hike before 2027 is 38%. Okay. Um here’s my question though, not on the hike itself, but what happens to treasuries if they do hike? There’s already a sell-off. Bonds have climbed the 30 years now up to 5.19%. HSBC calls this the danger zone. Um at this level, debt starts getting expensive for a lot of different sectors and people. Yep. That’s why small caps aren’t working. Look, yeah, that that’s not going to happen there. There’s not going to be a hike unless the Iran war continues for another month or two months, which is not impossible, but it’s not probable. I mean, if you’re Trump, and it everyone knows this. You could turn on C every every my housekeeper’s husband will probably ask me a question about this. The the key is is that there’s an election coming and in order for Trump not to get absolutely decimated or the Republicans not to get decimated and him he becomes a lame duck for the next two years fighting, you know, fugazi impeachment hearings. He’s got to get this done. And the minute he gets it done, the everything trade takes off. The AI trade cools down. Worsh gets in and starts talking doubbish to to set expectations around rates. Inflation expectations drop and uh the game is on. If he doesn’t do that, then then the conversation about hikes and debt defaults and consumer destruction and and defaults is a valid one. But that would be the most uh self-destructive thing President Trump could do for a guy who defines his entire net worth by the success of the stock market and his presidency by the success of the stock market. It’s a guaranteed way to uh to destroy that because this kind of shortterm AI, it’s not a bubble, but there’s there’s froth in it in price relative to underlying value in the short term. In the long term, we’re in the middle innings, but in the short term, I think some air is going to come out of that balloon just based on positioning. everyone’s crowded to one side of the boat and uh and this Iran situation is going to be a buy the rumor of a deal sell the news in terms of that overinflated pocket. Just just on the straight of just on the Iran situation, the straight of hormuz is now apparently permanently closed until further notice. Apparently, according to Iran yesterday, who suspended negotiations with the Trump administration, um if the straight of form is permanently closed, would you as an investor look elsewhere for for for alpha uh given that this no longer moves the news? Basically, if the strait is permanently closed, uh Democrats will have control of the House and Senate in the fall. Um inflation will probably go to 5% by the end of the year. Uh bond yields will be 10-year yield will probably be 5 1/2 6%. Small caps will be decimated. Uh unemployment will will be in a we’ll be starting a recession. Probably have our first quarter of negative GDP growth. So yeah, I mean is it possible someone would sell inflict those self-inflict those wounds? I mean look at Xiinping like he had the worst policy for two and a half years during COVID and destroyed his own uh uh industry tech titans and uh eventually once there were 20% of 25 year olds riding in the streets uh he flipped on his policy overnight and you know Alibaba doubled and 10 cent doubled and the game was back on and consumer confidence started coming up but like you know the guy worked 24 hours uh to to destroy himself. And then when he realized he actually might have succeeded, he said, “Wait, I’ve gone too far.” And he flipped the other way. And I and I don’t know when that point is for Trump. I mean the pro bottom line is I think he fools himself by looking at what the indices are doing on a daily basis and and views that as a sign of approval when it’s super narrow and uh driven by those companies that are the only companies that could do well in a recessionary slow growth environment and that’s what the market’s pricing because everything else is not moving. So, um, he’s kind of getting faked out by his own, uh, strategy and, uh, and I think that chicken’s going to come home to roost if something doesn’t change in relatively short order. Now, on the, uh, the yield itself, so yeah, it’s risen longer. The curve has risen dramatically since March. The uh, deficit level has surpassed $955 billion the first seven months of the fiscal year 2026. Now, Thomas, are the bond vigilantes just playing a part in the rising yields or or 10-year yields tracking inflation expectations? Which is it? I think it’s the latter. I mean, okay, you know, the who are the bond vigilantes? Like, look, if if I think that this guy’s going to keep his foot on the pedal with the Iran war, well, inflation’s going up. I’m sell I’m a seller of bonds. If I have an expectation that he’s going to be a rational actor and do what’s in his self-interest and the self-interest of his consi constituents, uh, then I’m going to take the other side of that. And I think that’s the prudent trade because, uh, if you follow President Trump long enough and and you’ve been around, it’s been now six years, you kind of know his playbook. He always pulls a rabbit out of the hat at the end. Is it could this time be different and could he drive us off the cliff? Of course. Is it probable? No. So, you take the other side of the trade and you start buying those things that are out of favor and you wait for his tweet one day when he says, “Uh, you know, I won. We got everything we wanted. They have no navy. They have no air force. They have no water. They have no food. You know, we’re great. They’re bad.” And then, you know, you you get January and February part two where the everything trade rips like bananas. Staples rip, discretionary rips, cyclicals rip, industrials rip, and tech and AI relax. Real quick on the inflation expectations, that is the consensus view. Inflation is here to stay. The Fed even said that, but let’s just challenge that for a second here. If oil stays high, wouldn’t that cause demand destruction if people have to allocate more of their capital, personal spending to oil rather than something else? Isn’t that deflationary or at least in the very least disinflationary for everything else? The market doesn’t care about current inflation. The market cares about inflation expectations. And if the war is wound down, yields are coming down, companies can refinance, housing can come back, which is, by the way, 18% of GDP, which has been left for dead. One thing Buffett did right is they bought Taylor Morrison, which is probably the smartest thing. I’m wondering if that started before Buffett retired because buying you know 10 billion dollars of Google at record high valuation uh doesn’t seem like a Buffett trade. Uh so uh but but on the same day the Taylor Morrison seem makes a makes a tremendous amount of sense. He’s buying something on the expectation that rates are going to normalize. He’s taking the rational actor bet uh and buying in the trough for a long-term uh huge value play with, you know, 72 million millennials in housing formation age. All that has to happen is uh war has to get done so wars can do his job so housing can boom. Uh let’s finish off on sector allocation. So revisiting your call about equally weighted uh indices or at least you know investing in the other um non-MAG7 stocks concentration risk since you made that call around the world has only increased. Uh if you take a look at Taiwan for example it’s just surpassed India a country of more than a billion people in market cap but if you look deeper the Taiwan stock exchange 42% of that is just key of uh Taiwan semiconductor. So the the notion that 42% of the market index from Taiwan is just one stock and that logic translate to the US markets by the way. Do you rotate out of the tech sector or do you just ride the wave at this point? You rotate out because if you look at what what was the catalyst for that change? The catalyst for that change was the the beginning of the war. So inflation expectations went up, yields went up, and the market said, “Oh my goodness, the everything trade can’t work in a recession.” Okay? Because if oil prices stay high and yields go up, we’re headed to a recession. So everyone is hidden out in these in this AI trade which is quote unquote insulated from a recession. Although what we’re finding is guess what? It’s not insulated because now uh the hyperscalers who were using cash flow to finance their capex ran out of cash flow. So then they use debt but now because of the war yields are up. So what are they doing? They’re issuing stock at record high valuations and the public is eating it up. When the ducks are quacking you feed them. And that’s what you’re what’s happening. It’s the same thing Anthropic is doing. The ducks are quacking. They’re all racing to the window. SpaceX the ducks are quacking. They’re racing to the window. You want to pay 100 times sales sold to you. We’re happy to provide. Oh, and by the way, we’re going to control the float to to only 5% of the company so that we can jam the valuation up and then as you as it gets absorbed and pushed into the indices, we’re going to dump a lot more stock on the market to the extent that the market can bear it without crashing the price of the stock. So, um, we’ll see if they can if they can run that. But, you know, look, that’s the environment we’re in. It’s not right. It’s not wrong. You don’t play the hand you want. you play the hand that you’re dealt and I think the hand right now is super duper attractive. If you take defensive sectors, David, uh they are at a record low waiting in the S&P 500. Uh going all the way back 25 years. What does that mean? It means staples. It means healthcare. Means utilities. It’s dropped from 35% waiting in the S&P down to 16% below the waiting that it had at the last tech peak which was the year March 2000 when you couldn’t give away a defensive stock when Barons was putting on its cover on March 2000 has Warren Buffett lost his touch because while everyone was buying the shiny objects like Sienna uh like Micron, like Cisco, uh all these things that are going parabolic right now. Same thing in 2000. He was buying Proctor and Gamble, Coca-Cola, defensive stocks. And while everyone subsequently lost 80% of their money in the NASDAQ over the next year and a half to two, Buffett had three of his best years ever. While the S&P was down, he was up. All the defensives rallied. All the things that no one wanted during the boom started to fly. And I think we’re in a similar environment. The difference here is I don’t think we’re getting a crash in the NASDAQ. I think we’re going to get a breather in that trade. I think it’s midgame uh intermission. So, what do you like then? I think you want to get some exposure to defensives. I think uh you know, you’ve got uh companies like Dagio generates $3 billion of free cash flow. Everyone says that no one wants to drink alcohol. They’re deleveraging the business. They sold off a soccer team. Uh new management drastic Dave is making cuts. He turned around Tesco in the UK. He’s doing the same thing. Every region is growing double digits except the US, which has a tequila problem. They’re fixing that with the pre-made drinks. And uh Dagio is going to return to glory. Even though everyone’s on GLP1s, they still like to go out and have a good time. It’s about the premiumization, higher quality, less drinking, higher margins. Dagio is the leader in that space. That’s a defensive stock. I think you wanna if you want to stay in the AI trade, you want to stay in the relative value. I think Alibaba is the cheapest way to play AI globally. I think you if you’re betting on a weak dollar, you want that emerging markets uh exposure. I think Baba’s the way to play it. You have a lot of optionality. And by the way, the one thing that’s not baked into Alibaba’s valuation, which um you’re seeing here in Alphabet and Amazon and the hyperscalers, is they have equity stakes in pretty much every AI startup in China because when these things were starting up, they said, “Oh, we we need compute, but we have no money.” And Alibaba said, “You know, no problem. Just give us equity. We’ll give you compute.” So, what you’re going to see once that market uh takes off is the same type of thing you’re seeing with Amazon and Alphabet’s earnings where a huge boon to their net income as those paper marktomarket gains hit is going to benefit uh Alibaba. I think um you know other defensives like Hormell that’s been a turnaround story. They’ve raised the dividend every year for 65 years. You get a 6% dividend yield. It grows every single year. Starting to turn the corner. all protein centric stuff. You saw it in the last quarter’s earnings shot the lights out. Uh they’re back to growth. They’re back back to margin expansion and um stuff like that is going to work. Advanced Auto Parts, another turnaround story. They sold off their Canadian business. They clos discontinued their unprofitable stores. They’re back to growth in in all the markets. 75% of their markets. They’re number one or number two in auto parts. Average car on the roads 14 years. The new CEO has turned around the company and they’re back to growth, uh, back to margin expansion. We think this could be a $150 stock. The last time they had operating margins like they’re targeting in 27 and 28, it was $150 stock. It’s still trading at 50 or 60 bucks. Uh, and uh, and by the way, they’re opening 35 stores this year. So, they’re back to growth, back to margin expansion, back to same store sales growth, comps growth. So we like these turnaround FL and then uh you know get makeup another defense estee uh stock got hammered after COVID started to recover doubled off the bottom pulled back on a a deal they were going to do with a perfume company wasn’t a good deal. Uh so now that that’s in the rearview mirror they continue to execute and uh they’ve moved a lot of their business from the walk-in stores and the malls and the travel to online Tik Tok shop, Amazon shop. They’re growing double digits in those venues and uh and they’re absolutely starting to crush it again. So all these companies, you know, got overstocked, overhyped during COVID peak, then they had to detock, delever, sell off non-core assets, and now they’re all back to growth and margin expansion. No one’s paying attention. Stocks are starting to recover and it’s early stages for these. So you just have to be more selective. But buying things, good businesses at great prices versus fair businesses at ridiculous prices. Final question. I’ll let you go Thomas. So on the um rotation out of tech. So people were talking about comparing this era to

  1. You’ve done that already in this interview. Let’s just think about this. Back in 2000, a lot of stocks made no money. Yes, valuations were out of whack. Probably out of whack today as well. But back then we had a situation where there was zero revenue in a lot of these companies and they were just complete trash. Valued at something that was actually good. Now, we have a situation where a lot of these companies are probably overvalued, overhyped, but one could argue premiums are assigned to best-in-class companies, which ultimately is where you want to be as an investor. How would you respond to that?

Uh, two ways. Number one, there are similar characteristics of 2000, but I would not compare it to 2000. I think we’re mid game, fourth or fifth inning. I do think we are going to take an intermission break in coming months uh before the election and some of these overhyped or overvalued names are going to be less valued. But if you think about the mag 7 and the hyperscalers look what’s what made them the mag seven was free cash flow and buybacks. Okay, that has gone gone away. So they don’t have the free cash flow. They don’t are not yet seeing the return on invested capital. I think you are going to see that return on invested capital, but you’re not going to see it for 12 or 18 months. And I think in next quarter’s earnings call when everyone realized a lot of this earnings power in Q1 was related to paper gains. Uh in Q2, they’re going to more carefully assess uh operating gains and and not see any because it’s just too early to get that return on investment. I think that’s when you’re going to get your your break in price. Uh but but those gains will eventually come. I also think you’re going to see a situation where um uh not all the Googles of the world will be able to raise the equity and the debt markets are going to be a little bit more tricky and some of them will actually have to blink and pull back on capex commitments and that’s when this trade is going to cool even though it’s a temporary pullback and it it will resume. Uh, I think that’s probably going to be your catalyst to the downside in the near term. And then over the intermediate to long term for much lower prices, uh, it’s still going to be great opportunity. So, I’m I I don’t think this is a 2000 peak. I do think it is a time to be shortterm cautious, intermediate term cautious. Uh, long-term still bullish, but uh, from from better prices. Thank you very much, Thomas. Excellent thoughts. Where can we go to follow your work and um learn more from Hedge Fund Tips? Yeah, Hedge Fund Tips with Tom Hayes is the number one podcast in the hedge fund category according to Speed Feedspot. You can find it on YouTube or anywhere you get your podcast. Hedge funips.com is our blog and uh we manage money for uh family offices and ultra high net worth individuals. Uh you can find out more to see if you’re qualified at greathillcap.com. Okay, good. Appreciate it, Thomas. Everyone should check out hedge fund tips. great resource for everybody interested in finance or investors alike. Thank you so much, Thomas. Good to see you again. We’ll have you back on again soon. Take care for now. Thanks for having me and thanks for watching. Don’t forget to like and subscribe and use my code lin l i n when you sign up to koshi link down below or scan the QR code here. And remember, new users who use my code will get $10 when you trade $10.