✂️ Intel to Split its Foundry Business

MARKET UPDATE

Good Morning Investor! The markets were closed over the long weekend for the labor day holiday, however European markets saw some interesting developments. Shares of british home listing platform Rightmove ($RMV) saw its share price rocket into the stratosphere by 27% after news emerged of Rupert Murdoch-owned REA Group contemplating a takeover offer for the company in a bid to create a global digital real estate business.

TODAY’S BIG HEADLINES

The Fed’s Focus Shifts to the Jobs Market

Is Buying a Home Still Worth it?

Intel Soars on News of a Potential Foundry Split

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MACROECONOMICS

The Fed’s Focus Shifts to the Jobs Market👀

The Fed's High-Wire Act: We're diving into the Federal Reserve's dual mandate, a balancing act so delicate it makes tightrope walking look like a walk in the park. As we've previously covered here on Tickergeek, the Fed has two main jobs: keeping inflation at a cozy 2% (price stability) and making sure everyone who wants a job can get one (maximum employment). It's like trying to juggle flaming chainsaws while riding a unicycle

Quantitative Juggling: The Fed’s has the responsibility of delicatly balancing these two counterweights without one of them falling through the floor — an undesirable task given the ‘trailing nature of most economic indicators. The Fed's toolkit for this economic circus act includes Quantitative tightening and easing. In layman's terms, that's raising interest rates/cutting rates and printing money. It's like they're playing Monopoly, but with real-world consequences.

• Lately, inflation has become less of a pressing issue. But the jobs market? It's starting to flash more warning signs than a teenager's first time behind the wheel. No wonder the Fed is now shifting its undivided attention towards saving the jobs market.

The Economic Superbowl: That makes this week bigger than a sumo wrestler in a phone booth. On Friday, the US Labor Department will drop its monthly employment report for August like it's hot. It's the final close-up view of the job market's health before the Fed's interest rate pow-wow on September 19th.

• Economists are forecasting 165,000 new jobs in August. But if the numbers fall shorter than a Smurf in stilettos - at or below zero, for example - or if the 4.3% unemployment rate jumps higher than expected — a clear indicator of a potential recession on the horizon, expect the Fed to take a deeper cut at interest rates. We're talking a 0.5 percentage point slice instead of a measly 0.25. It's like choosing between a paper cut and a machete wound!

September Blues: Here's a fun fact to keep you up at night: the market's about as fond of recession hints as a vampire is of garlic. And September? It's historically the stock market's least favorite month, performing worse than a dad joke at a teenage party. If these two factors collide, we could be in for a financial rollercoaster that would make even the bravest day trader reach for the barf bag.

REAL ESTATE & ECONOMICS

Is Buying a Home Still Worth it?🏡

The American Dream or Financial Nightmare?: The "American Dream" of owning a home is starting to look more like a fever dream, with home prices never having been higher, and interest rates haven’t been this steep since the ‘80s. Meanwhile, property taxes in desirable areas are rising faster than yeast in a bakery, and insurance & maintenance costs are inflating. It's enough to make you want to build a fort out of moving boxes and call it a day!

When Renting Becomes the New Black: This financial fiasco has created a scenario where buying a home is no longer the default smartest move for most Americans. It's like playing a game of Monopoly where landing on "Free Parking" costs you your life savings. Both folks on the lower end of the income spectrum and the caviar-and-champagne crowd are finding themselves either priced out of home ownership or simply better off renting.

The Unstoppable Force Meets the Immovable Object: Of course, even today, owning a home can still be a great investment (if you can afford it and don't mind surviving on ramen noodles for the next 30 years). Housing stock in America is more limited than common sense in a reality TV show, and demand is very robust. The simple physics of supply and demand tell the rest of the story

• The median value of a US home in 2000 was $119,600. This figure has since risen to 2023’s median value of $413,200. For context, this represents a 300% increase, outperforming the 80% inflation we’ve experienced in the same period like Usain Bolt in a race against snails. Majority of these price increases have occured in just the past five years, with US house prices spiking by 54% since 2019.

• All while 30-year mortgage rates have spiked from just under 4% to nearly touching 8% in November last year. This paints a clear picture, the real winners are the ones who bought a home 20 years ago and have been cackling all the way to the bank ever since.

When Protection Costs an Arm, a Leg, and Your Firstborn: Owning a home is now more expensive than a designer handbag made of solid gold. The price of insuring a home has on average increased around 33% since 2019. The spike has been worse for homes in areas increasingly prone to extreme weather events like floods or wildfires, some areas have been abandoned by insurance companies altogether due to the risk associated with them.

• Last week Wednesday, Bloomberg reported that AllState is preparing to increase insurance rates in California by an average of 34% starting in November, with some customers seeing premiums rise as much as 650%. At this rate, even those who got lucky buying a home when dinosaurs roamed the earth might be forced out of home ownership simply by insurance costs. It's like paying for a force field to protect your house from asteroids!

SEMICONDUCTORS

Intel Soars on News of a Potential Foundry Split✂️

Building a Silicon Sandwich: Intel ($INTC), once the undisputed chip champion, now finds itself in a pickle - or should we say, a silicon sandwich? With its financial woes spreading faster than thermal paste, declining data centre market share, and a stock price that's taken a nosedive steeper than a skydiver without a parachute (56% year-to-date, ouch!), it was only a matter of time before they pulled a rabbit out of their motherboard. The chip maker is now reportedly mulling over a potential split of its foundry business — its chip design and manufacturing operations, a prospect which sent its share price soaring over 9% on Friday, proving that sometimes, breaking up isn't hard to do - especially when billions are at stake.

No More Chips, Time to Dip?: Intel's foundry division, which churns out chips for outside customers, has been struggling harder than a CPU fan in a heat wave. This flaccid performance is largely thanks to stiff competition in the AI space from the likes of Nvidia ($NVDA) and Advanced Micro Devices ($AMD), who've been flexing their silicon muscles. Despite securing a hefty package of nearly $20 billion in U.S. grants and loans to boost chip production (talk about government stimulus!), Intel's recent financial performance has been about as impressive as a floppy disk in the age of cloud storage.

• The company reported a net loss of $1.61 billion in Q2 2024, leading to a 26% stock price plunge – its worst single-day performance in over 50 years.

• In response, Intel has announced plans to lay off about 15,000 employees, representing 15% of its workforce, and aims to reduce costs by $10 billion annually by 2025.

Treading on Thin Margins: While Intel's stock has shown signs of life following news of the potential restructuring (proving that even silicon can rise again), the company's long-term performance remains a concern for investors who aren't ready to go all-in on this game of chip roulette. A metric that's flashing red warning signs for me is Intel's razor-thin profit margin of 1.77%. For a company operating at the scale of Intel, being only marginally profitable is like trying to run Crysis on a calculator - it's just not going to cut it. There's clearly much work to be done from an efficiency standpoint, unless Intel plans on pivoting to a non-profit organization specializing in very expensive paperweights.

MORE NEWS

Additional market-moving events🌎

Black Myth Dollars: China’s first attempt at a top-tier video game has smashed world records, bolstering the industry’s global ambitions after Beijing’s gaming crackdown. Black Myth: Wukong, an action game set in mythological China, sold more than 10 million units three days after its launch on August 20th. (NBCLA)

Thai Casinos on the Horizon: If the law gets passed, Thailand could be Macao and Singapore’s largest competitor by the end of the decade, with the country now looking to begin building casinos to attract tourist dollars. (CNBC)

Miracle Drug Status: According to a recent study, the cure all weight-loss drug Wegovy has shown positive signs of preventing covid-19 related deaths. (Quartz)

Judge Says No to Minor Filtering: A federal judge issued a last-minute partial block on a Texas law that would require some large web services to identify minors and filter what they see online. Called HB 18 or the Securing Children Online Through Parental Empowerment (SCOPE) Act. (TheVerge)

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Our selections performance👾

On Monday the 11th of March, we released our “superperformers” stock pick which we believe will provide significant outperformance compared to the S&P 500. Then on the 14th of June we released our next stock selection. Lastly, on August 6th, we initiated a position in Celsius holdings.

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