Hayes: "950 Billion Reasons" to Buy Bonds, PFE & XRAY Buy Opportunities

**SPEAKER_1** (0:00)
Yields hitting new highs we haven't seen in years. Our next guest says, you should buy bonds for more. We want to welcome in Tom Hayes, founder, managing member of Great Hill Capital, joining us here at the Big Board. Tom, it is good to see you.

**Thomas Hayes** (0:13)
Great to be here.

**SPEAKER_1** (0:13)
All right. So why? Why should we buy bonds right now?

**Thomas Hayes** (0:16)
This is a contrarian trade. There's hysteria around bond yields. I'll give you 950 billion reasons to buy bonds right now. It's called the Treasury General Account. Everyone said they're not taking him serious because he said that he was going to buy bonds and yields went up anyway. Well, the first operation doesn't start until September 9th. What he basically said is, we're going to increase the amount we can buy on the long end of the curve, 10 years, 30 years from 2 billion to 4 billion. They do four operations per quarter, which means 16 billion of buying per quarter, 64 billion per year. Now, quantitative easing was 85 billion a month. This is nothing like quantitative easing, and they're not printing money to do this. But he is going to be in the market, creating that liquidity to hold the 30 year down around five. I think what you're going to see now is institutions saying, wait a second, I can lock in 5 percent pensions who have 6 percent hurdles. I can lock in 5 percent for the next 10 years. Guaranteed, we're going to go ahead and do that. That's number one. Number two, commercial hedgers. They are the longest 10-year notes that they've been since 2018
They are always early and they're always right. What happened in the next 12 months from 2018 to 2019? 10-year yield dropped from 352 to 150 within 12 months. I'm not saying we're going to 150, but I think we could see a three handle. Finally, tariffs were shut off. There was no income, so that made the deficit look worse. The 301, it's 10-12 percent across the board, unless you're Canada, then we're going to tax 50 percent on 20 billion dollars until you comply.
So the tariff revenue is coming in. Then finally, people are afraid of inflation. That's temporary because of Iran. As you saw, 17 million barrels got through. They're getting it around, and this is a temporary situation.
Core CPI is down to 2.5 percent. I know Warsh is talking about PCE, and he's talking Hawkesh, 60 percent chance of a hike.
I'll take the other side all day long. I'd assign to 1 percent chance of a hike before the election.

**SPEAKER_1** (2:30)
So it's so funny. I've heard, I've talked to a couple strategists this week who have the outlier viewpoint similar to yourself, that they don't expect to see a rate hike even with the consensus odds increasing. And the take away is from his conference or this symposium in Jackson Hole. Because essentially, he said jobs not done on inflation. I do hear your point though.
And real quick in terms of bonds, is part of your view on why you should be adding that this month in particular, because of the seasonality effect in September?

**Thomas Hayes** (3:07)
I think there is the seasonality effect. I think we're going to move into a period of volatility. We're starting to see it pick up. We were on the show in June saying, get out of the crowded trade semis in memory. What happened in July? They crashed. The average semiconductor was down 30 to 60 percent.
Situational awareness cleared from Citadel. You've got this dead cat bounce, short covering in the month of August. We're rolling back over. It's interesting. You saw unbelievable earnings from these semiconductors like NVIDIA. NVIDIA has got $250 billion in financing and vendor financing commitments. They crushed earnings. They guided two years of revenue. Guess what happened to the cost to ensure their bonds? It stayed elevated. The cost did not come down and you know you've been around long enough. The bond market is smarter than the stock market.
Keep an eye on Oracle CDS, keep an eye on the hyperscaler CDS. The market is saying they're issuing an awful lot of debt, and we don't see the free cash flow to support it yet.
Into the fall, I would be lightening back up on that semi and memory trade again, Weakness by bonds and by defensives, which are out of favor.

**SPEAKER_1** (4:13)
That's exactly what I want to ask you about, because a couple of the defensive names on, I'm not surprised so much by the sector, but for instance, one name in particular. So you suggest healthcare, but you suggest Pfizer. And the reason I'm surprised by that, I suppose, is because the returns, I mean, Pfizer doesn't usually give you much.