Wall Street Unplugged
Episode: 994January 17, 2023

Bank earnings are flashing a warning sign

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I kick things off with some observations from my shopping trip over the weekend. The first has to do with the empty shelves at nearly every store… and the second involves the growing number of homeless people asking for money around Jacksonville. Are you seeing the same issues in your area? (Email me your story here.)

Turning to the market, I dig into the latest results from two Wall Street banks… and why the entire banking sector is in for a rude awakening in 2023. 

Crypto is surging to start the year, with Bitcoin and Ethereum rising more than 25% over the past few weeks. I break down who’s behind the rally… and why this “flight to quality” is great for the crypto industry. 

While it’s great to see stocks start the year with a rally, there are major risks ahead in 2023. And our Moneyflow Trader service will teach you the best strategy for protecting your portfolio AND making a fortune as the global economy enters a recession.

Inside this episode:
Transcript

Wall Street Unplugged | 994

Bank earnings are flashing a warning sign

Editor’s note: This is an unedited transcript.

Announcer:

Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on Main Street.

Frank Curzio:

How’s it going out there? It’s January 17th. I’m Frank Curzio this is the Wall Street Unplugged podcast, where I break the headlines and tell you what’s really moving these markets. I was at a mall last night to get some things from my house. Actually went to a couple furniture stores located in one of the biggest mall areas where the stores are in Jacksonville.

It wasn’t that crowded, I guess it’s expected you have people relaxing after the holidays, taking a little bit of break after spending money and stuff like that. But I have to tell you, I don’t think I’ve ever seen this before because some of the stores that I went into with my kids, they had very little inventory on the shelves.

Everyone’s been critical, including us of inventory, right? Inventory levels are so high. You got to get inventory levels low, but there’s nothing on the shelves for us to buy, right? So when we were going in there, I was just surprised to see very little, especially clothing and stuff like that and different things. It makes you think how difficult of a job these retailers have, especially in some industries, right? Seeing the auto industry, retail get annihilated right now. So many just used car sales coming down, seeing retail in general, not participating too much in this rally, the Bed Bath & Beyond we’re seeing.

We’re just seeing a lot of companies close shops, layoff, announce second rounds of layoffs. We see the market going up a little bit this year, but still in retail you’re critical if they have too much inventory because of the way the market is. You have to be very careful. You’re seeing demand come down tremendously. You see people’s wallets and the amount of money they have in the bank shrink. Talk about that a little bit more later on.

With demand coming down, you want to make sure that inventory level comes down sharply, because otherwise you’ve got to sell it at a significant discount, which crushes earnings. However, you do want to have some kind of inventory there for people who do want to go shopping. You’re just seeing these stores. I wonder, I want to hear from you guys, frank@curzioresearch.com, if you’re seeing the same thing. But I’ve seen this in probably about 10 different stores. I’ve shopped after the holidays and pretty much in January.

Usually you can go there, you can get some of the stuff that they’ll have discounts or those secondary discounts after the Black Friday, just before the holidays or whatever. I mean they don’t even have product on the shelves in some of these stores. I’m talking about the Best Buys. I’m talking about different clothing retail stores. I’m talking about DICK’S Sporting Goods. Very little clothes that they had there. I was surprised in sizes. You know? Again, I’m in XL, I’m not like a super crazy size. But even large and stuff like that, just there wasn’t a lot of inventory, which I was very surprised at.

What I did notice is … and I don’t know if you’re seeing this in the neighborhoods and I’ve just been in Florida so long, but you see more people on the side of the roads and with signs up and asking for money and things like that. I’ve always felt bad about that, but always felt maybe the wrong way about it. If you want to get a job, you can get a job. You know? And I try to see that and explain it to my daughter too because they feel bad. And I’m like, it’s just something I would make sure that for me personally would never happen to me because I would make sure that I’ll work. I’ll work for free someplace and get a job and just bust my ass because I can control how hard I work. Right? Anyone that does that, you always be successful, I think.

Even if you feel like that might not be the industry, you’ll be successful on that journey. You’ll understand work ethic and understand how to be successful, right? Because you’ll be around really good people and you’re working your ass off. Again. The one thing you can control when it comes to jobs and everything, and someone could lay you off, you may be a good employee. I’ve been laid off when I was generating a ton of sales on my company, one of leading sales generators for the companies. Just when they cut back, you don’t know. They have control over you. But what you can control is how hard you work. I’ve always said that.

Just to see some of these people on the side of the road now, I’ve seen a little bit more. Just curious if you’ve seen them, but anyway, me and my wife were going to my house and it was a guy across the street and he had a big sign, money for food, and he had a cane. He was walking across the street with these canes and holding up the sign and trying to hold the cane at the same time.

But this week, it was like the forties in Jacksonville. I mean, it was really, really cool. I don’t know if you saw the Jacksonville game, great job by the Jags. Amazing, amazing comeback. But that it was below 40, that game, which is very, very cold here. It’s usually warmer. Anyway, I thought it hit the under, right? Two hot weather teams in San Diego. But what a game that was. And it was great, but it was really cold and very windy, like 20, 25 mile an hour wind.

This guy was walking across. All of a sudden, his sign blew away. It blew out of his hands and there’s a parking lot behind him. And me and my wife are looking at him because we’re at this light, and all of a sudden … I felt bad with the cane and the sign. But to see that sign come out of his hand and fly in the parking lot. And again, with that cane, the guy went after the sign.

Now, I’m not saying he would’ve beat Carl Lewis in a race, but it would’ve been close. That’s how fast he ran to get this sign. I’ve seen a lot of that in New York too, where you want to feel bad and you do feel bad sometimes when people do need help, but other times, it’s just seeing that. I couldn’t believe it. As soon as that sign went off that guy, man, that guy … it was like a miracle. The guy, seriously, one of the fastest older people I’ve ever seen in my life. That’s how fast. And he got the sign just halfway across the parking a lot. It was great.

I am starting to see that. I am starting to see that on the side of the road, which I don’t really see in Jacksonville. I always saw that in New York City growing up, especially in the eighties and the nineties and stuff like that. But people are starting to struggle. I mean, that’s the bigger trend here. And it’s going to get a lot worse before it gets better no matter how much we see these mini rallies out of stocks. And we’ve seen stocks go higher right now, and now earning seasons really officially … you could say whenever it started, but now it’s the heart.

The next couple weeks, you’re going to see tons of companies reporting. If you own any of our newsletters, subscription star newsletters, this is where especially Daniel finally gets off his ass and works his ass off and starts reporting a lot, just earnings and giving updates and everything, right? Because I love earning season. They give real-time updates.

Goldman Sachs reported, and this is coming off of JP Morgan, which wasn’t that pretty, but Goldman Sachs missed by a mile, the largest miss in over a decade. Okay. I looked it up. I’d never seen a miss by that much. I mean they’re always beating by a ton, trading revenue, and all this stuff.

Morgan Stanley was good. It wasn’t great. It was mostly in line. A little bit of a beat, but it just made the Goldman Sachs numbers look so much more terrible. And it was interesting because it’s a trend that I told you about, probably started six months ago. I said, “We’re in a market where we’re not going to see everything. Where it’s a bull market, everything goes high.” Just like a bear market. Everything goes lower.

We’re in a market where management teams matter, earnings matter, operations matter, right? Because it’s going to be hard to grow top line. It’s going to be hard to even grow bottom line. You got to cut costs and things like that. So management teams are critical, but this is going to be the first time you see it in probably 12 years where there’s going to be companies within a sector that do well and others not do well, where, listen, you see salesforce.com go up a lot higher than some other software companies, but they’d all really go up. But now you’re seeing, today in general, today right now, Goldman Sachs is down 6%, [inaudible 00:07:15] is down 6%, while [inaudible 00:07:18] is up 7%. They both reported today. Right?

You’re seeing the separation within industry leaders one and two. And you’ll see Home Depot and Lowe’s, Target and Walmart. But a lot of times you’ll see 3%, 4%. You don’t see a move like this at the same day that they report. It’s very rare to see something like that far, that wide of a gap, that kind of discrepancy, but it just shows you. Well, Morgan Stanley was okay, but Goldman Sachs looking through the quarter, it was bad even though they laid off 6% of their workforce.

Now, I’m going to get to a very important point here you need to understand because what they said is, “2023 looks uncertain.” Uncertainty is a death of stocks. I tell you that all the time. When you’re uncertain, you don’t know whether to buy, you don’t know what’s going on. That’s why we’re trying to figure out how far the fed’s going to raise, how far they’re going to go.

We still don’t know, because if the market holds up like this and we continue to see this rally, they’re going to go into the summer and continue to raise because the Fed doesn’t want to see this. They want to see the market really, really pull back. We’re seeing inflation trend in the right direction, but it’s not down tremendously off its highs, right? It’s trending in the right direction. It’s still very, very high.

I mean, you’re not noticing, outside of gasoline, that you’re like, “Holy shit, man. My bills are so much lower now.” Gasoline you’re noticing, but you’re not noticing anything else. Food, electricity, a lot of the things that you pay for, insurance, house insurance, auto insurance and things like that. You’re not noticing, right? You’re not seeing it to the point you’re like, “Wow, this is great. Inflation’s coming down. I feel better.” No.

You’re still not seeing. It’s still very high, but they said underwriting’s, extremely muted. And seeing early sign of credit deteriorations. That’s very, very important and you need to understand that. Because if you’re seeing credit deterioration now, what do you think it’s going to look like over the next six to 12 months? We have the Fed that’s going to continue to raise rates at least through March. But if the market does hold up here, they’re going to keep going. They’re going to keep raising.

They’re not going to stop raising and watch the market go up 15, 20% after they stop. They’re not going to see it. No way. It’s the last thing that they want. And they made it very clear. We do not want to be early on this. We don’t want to stop early. And they’re not, which means, for those of you who think that … the pausing, fine. You have an argument. It could be March, April, may, June, July. It can go a little further, maybe into the fall. Who knows? For people saying that the Fed’s going to cut rates this year, they’re out of their mind. Unless we see a dramatic collapse in the markets, it’s not going to happen. It’s not going to happen. So it means rates are going to remain relatively high. And also you throw in QT, quantitative tightening, where the Fed’s shrinking its balance sheet by hundreds of billions of dollars every quarter, removing money, which means market conditions are going to continue to deteriorate. Demand, you’re going to continue to see that destruction.

Like I said, while inflation remains pretty elevated for most families and their bills are still high, it’s tough to see, even with inflation moderating, that the Fed’s going to be like, “Oh, okay, well we’re done. Okay, we are good. Don’t worry about QT. We’re not tricking our balance sheet anymore,” which they said they’re going to shrink probably for the next 18 months. I mean, they have to take that money off of their balance sheet.

Then you’re looking at rates going to stay relatively high and yeah, they’re pulling back a little bit and you’re seeing mortgage rates pull, but they’re, much, much, much higher. You’re not seeing the housing market take off because mortgage rates went from 7% to wherever they are, 5.8, 5.9, around there. You’re not seeing, oh my god, old demands coming back to the market. No, they were below 3% in January.

The housing market, I mean, you want to talk about frozen. Holy cow. And even in Florida, and Florida’s supposed to be a great market. Right? I live here and have three houses here, but I’m trying to sell one of them right now and having trouble selling it. I mean, not even an offer.

Again, it’s January. You go into late February, March, April. That’s great for Florida. You see houses really fly off the shelves here, but we’ll see. But right now, usually it didn’t matter. It’s a couple weeks. It’s been on the market probably for three weeks. I haven’t gotten an offer and it’s in line with everything. Again, not even a low ball offer. No matter what the price is, someone’s not coming in much, much lower, which I’m surprised. But you’re seeing it. You’re seeing everywhere. I’m hearing that from real estate agents that it’s going to deteriorate even more. It’s going to get worse before it gets better.

Now when I look at Morgan Stanley, numbers are a little bit better. Again, I talk about that separation we’re seeing within industries. It’s the first time in a decade. I can’t believe I’m seeing Goldman Sachs down 6%. Morgan Stanley up 7% the same day when they reported. That’s pretty cool. But Morgan Stanley, I don’t know, I may look to sell here. I mean, they’re up, but they even said, they expect net interest income to moderate from the pace of the last two quarters. So they’re predicting slower growth going forward along with most of the banks.

Now, with banks, and people want to buy banks, and I made the mistake earlier and we got out of them, which was good, but interest rates rising are supposed to be very, very good for banks, right? Because their net interest margins expand, what they’re able to lend the money for. Again, that margin expands. That’s great. That’s how banks used to operate forever, until about 12 years ago, because we push rates to zero. So banks are like, “Holy shit, we got to find other ways to make money.”

What do they do? They have fees everywhere. You shook the hand. You waved and it was a fee at a bank. Right? Everybody got fees, fees, fees. But just the investment banking fees were taking off, the trading fees, the fixed income fees are always going to take off because it’s an illiquid market and they use that to their intervention, these banks and investment banks, in terms of trading. But they ramped up their fee-based businesses, their advisory businesses, and there was so many business deals going on. It was crazy. Right? Just they’re making it a fortune.

While higher rates are good for banks, it crushes everything else they made money on including advisory fees, those investment banking fees, overall banking fees, for the past decade. But more importantly, if you are looking at the banks and what’s going on right now, what are they doing? They’re ramping up their provisions for credit losses. They’re preparing for potential loan defaults. That’s one story in itself. Okay?

And some people may say, “Well they’re being conservative. The banks are being conservative.” Right? They’re just making sure, right? Based on new laws and Todd Frank, they’re being conservative. This stuff is based on algos. It’s based on AI, which tries to take out the guessing, so once things hit and they see certain factors happening, the computer systems are saying, “Ramp this shit up because we’re expecting tougher times. Based on everything we know, putting in all the data points for the last 50 years, 60 years, this is what we know what happens.” So it’s their algorithms that are telling you. This isn’t a guessing game. They’re trying to take as much guessing out of it by using AI and using algorithms. Right? Their algorithms. That’s why you’re seeing all these banks increase these provisions for credit losses.

Now, S&P 500 banks reduced their provisions for loan losses significantly in 2021. Remember 2020, the market did great in 2020. We just had a month and a half before the Fed said, “Balls to the wall, 11 trillion, 50% of GDP out there. We’re just giving money to everyone. I don’t care. Even when the mark comes back, we’re still giving trillions, trillions and trillions and trillions.” I always say to put that in perspective, when you look back at Tarp. That would turned out to be $470 billion to save the whole world from a credit crisis. Right? The whole world from a credit crisis cost 470 billion. We’re throwing trillions around like nothing, right? It’s up to 11 and a half trillion just in the US. That’s just a US, right? Well over 20 trillion when you look globally. How much money’s been injected that’s now coming out of this market?

But 2021, banks knew, hey, we’re seeing great numbers. The algorithms are showing that loan losses are the lowest they’ve ever been because everybody has money and free checks. Again, this wasn’t given to the banks to bypass. The banks got the chance to lend out the money. Right? There’s [inaudible 00:14:19] the banks.

Now you bypass everything. You handed checks directly to businesses and PVP loans to people directly. You have a couple kids. Here’s a couple more thousand dollars here, there. Everybody has money, right? Everybody’s rich. Right? Your next door neighbor who held a job for six months has two Mercedes in their driveways now, right? That’s 2021. They reduced their provisions to their tune of $27 billion. Now that’s very, very important for you to understand, because in 2022 last year, fourth quarters being reported right now, they’ve increased these provisions so far, right?

  1. And this is accounting for the estimates and the banks that are already reported, so it’s going to be pretty close to this number. They’re increasing their provisions by $17 billion in 2022. This number’s likely to go a lot higher in 2023. Now, why is this important? Why am I saying loan loss provisions on a podcast? I mean, you got to go to sleep. You’re going to change your channel, you got to put something else on. It’s important if you want to make money in stocks, which I think you care about, is why you listen his podcast. Okay?

Provisions, those provisions, they don’t impact the top line, which is called the revenue. That’s the top line, the revenue in the sales. It destroys the bottom line, and so much so that banks are expected to report this quarter, and it might be lower than this after Goldman Sachs has reported, they’re expected to report a 26% decline in earnings year over year. For this quarter, and you compare it to fourth quarter, a 26% decline in earnings. You know how much that is? A 26% decline in earnings? I mean that is massive. It’s massive.

You’re looking at decline in earnings per share, so when you see banks coming down 20, 25% from their highs, you can’t go in and say, “Wow, I think banks are cheap here,” because they’re not. Why? Because their earnings are absolutely crashing here. They’re revising their models that were fee-based into more net interest income. You could see their results. They’re make it a fortune. They’re making so much money on the net interest margins, but when you’re losing all that business that you got from mergers and acquisitions and even trading, which is a little bit less trading now, so you’re not seeing as much liquidity now with the markets down as much.

Just again, that merger acquisition, advisory fees, you’re seeing the fee business absolutely crash here and that’s hurting these guys. But not only that, they’re seeing their provisions, those loan loss provisions, go higher and higher and higher. As they do that, that comes directly from the bottom line, so when you’re looking at banks and their earnings are declining 25%, you can’t say, “Well, these things are really cheap here,” because their earnings are crushing alongside it.

I try to explain this to you because I try to educate as much as I can, but a stock can go up 100%. You might think you missed it, but it may be cheaper after it went up 100%, because earnings exploded higher. But a stock can also be more expensive after it declines 30% if earnings are crashing like they are with the banks, right?

It’s clearly the case with the banks right here, especially with Goldman Sachs who never misses. Goldman Sachs, we had that in our portfolio forever. I forgot what the percentage was. We did very well on it. We had it for a long time. We up a lot more and it came down a little bit, but still we locked in really, really good gains for Goldman Sachs. They rarely miss, rarely miss, okay? Just in trading fees and everything, low interest rates, they’re the best of the best. Right? We all hate them, but we all kind of want to work for them because we can make a lot of money working for them. But they reported their biggest miss in earning. They missed by the most, they miss in over a decade and I’m not sure how that’s going to get better.

With provisions for loan losses, they’re going to increase for these banks significantly. Why? Because the markets and the conditions are deteriorating, and why many of their growth engines, you’re looking at that growth engine, underwriting, advisory trading, they’re going to continue to be out of favor for at least the next two to three quarters at least. Be careful buying the banks here. So we’re like, “Wow, good time to buy Goldman Sachs. It’s down.”

Listen, I’ve owned Goldman Sachs for a very long time in our portfolio. We don’t own it anymore, but I can’t see owning it even now, even on this pullback old Morgan Stanley who basically warned that, “Hey, the next two core, the next core is going to be a lot worse than the previous two.” Just when you compare it to Goldman Sachs, it looks that much better. It’s probably why it’s up 7%. You might be better off buying puts on that or stuff like that, maybe over the next couple quarters. But man, when I’m looking at these numbers, it’s insane. It’s just insane.

When you see the headwinds, when you see what’s going on with the Fed, when you see that it’s going to continue, you’re got to see demand destruction constantly, money shrink in people’s bank accounts, you’re going to continue to see that if conditions get worse. I can’t see you owning the banks here. It just doesn’t make sense, especially while their earnings are absolutely crashing and those loan loss provisions are going to go up a lot, lot more next year. Much more. Again, they lowered them by 27 billion to 2021. They’re going to be up 17 billion. Do you think they’re going to go much, much higher from here? I think they could be 25 billion next year. If they are, it’s going to be hard for these companies to beat earnings. It crushes their earnings. When they raise these provisions. It comes directly from the bottom line. Something you need to note about when they’re going into earnings.

It’s going to be very difficult for banks to beat earnings if they continue to increase those little provisions, which they’re doing. And it’s why Bank of America missed. You know? I think you had one of… the Bank of America’s okay, JP Morgan missed. The JP Morgans and Goldman Sachs almost never missed and you’ve seen them missed. This is a big reason why and that is not going to change going forward.

I don’t know if I beat that to death or not, but that’s a big story here. Right? That and Davos and what’s going on. I just, again, caught a couple stories at Davos. One of the ones with TikTok I thought was amazing, where one of the guys who got on, I don’t know his ties to it, but apparently has big ties to TikTok and they were like, “Well, what about the privacy issues and states just banning TikTok?” He goes, “Basically, it’s 100% bullshit.” He said, “We’re all on …” I forgot what he said. “The cloud.” He goes, “The safe cloud,” or whatever it was for Oracle. So it’s 100% on Oracle. He’s like, “Everything’s on Oracle. You could see it.” He’s like, “There’s just misinformation out there,” which is what we read. Right?

China’s stealing all the data and it’s stealing everything. But yet, there’s a massive lobbying thing, especially applied by Facebook, because TikTok has been destroying all these social media companies. You know there’s lobbying efforts going on to, “Hey, if you could ban TikTok, please ban TikTok. Do everything you can because it’s eating everybody’s lunch. It’s much, much better service than everything out there.” And social media, I think they said they have 90 million daily users. Daily users. 90 million. I wonder how much time they spend on the platform. Holy shit.

Hey, because the platform is really great. Once you go on it, you’re done. It’s just going to feed you everything you really, really quick and you can just scroll through videos. It’s not like YouTube where you’re picking the video to watch. It gives you everything and then just learns from you and says, “Okay, this is what they want,” and gives it to you no matter what you are. Conservative, if you are just leftist, if you know like sports, if you like golf, it’s got all these tips. It’s got … if you like to cook food, cleaning house, to everything, anything possible, in these short videos that are very exciting, but I found that interesting that he said that. I mean I’m not surprised, but there’s a couple states that ban TikTok.

Yeah, I mean China has the data. They don’t have the data based on this. It’s 100% on Oracle’s cloud. I forgot what you’d call it, like the safe cloud. That’s perfectly fine, but it’s transparent and everything. But again, we don’t know that from what we read, right? Because we’re reading what is controlled out there and what’s controlled is, holy shit, they’re stealing all of my data and this is the worst thing in the world. Let’s see, because there’s a lot of catch up. These companies, social media companies who have gotten annihilated need to do because TikTok came out of nowhere. It’s beating the crap out of them.

Finally, really quick, I want to talk about Bitcoin. Holy shit. You know, you wake up and some people who didn’t pay attention yesterday because the markets are closed, everything was closed Monday, Martin Luther King, but 21,000, even Ethereum surging to a 15,00. It was 1,100 to begin the year.

I will say this about crypto, as someone that follows it a lot. The massive rally we’re seeing, and this is a 30% pop this year, right? This is in 17 days, less than three weeks. It’s not coming from retail investors. This isn’t retail. Retail ventures got annihilated, right? They got annihilated. A lot of these guys are taking their Ethereum and Bitcoin off of platforms and it makes sense. The FTX, Celsius, Voyager, Gemini, and Genesis, now with that back and forth, and I think they’re both being investigated and pretty sure by whatever, just to see their loan lending units. Right? But to see them removed from the platforms doesn’t mean that they’re selling this stuff. They’re putting it into cold storage. I mean they’re starting it offline. They’re going to hold it. And if you’re doing that, you’re probably not going to trade it.

You’re not on a trading platform. You have it in cold storage and saying, “Okay, I’m going to be a long-term holder. I want to make sure it’s safe. Here it is.” You know? Think of a little USB device. Much more different than that of course, because you have all these passwords and these 16 passwords you have to put in and keep things offline so nobody could take them as long as you have them stored. And you have them on FTX and the next thing you know everything’s locked up and you’re like, “Holy shit.”

I know people who have a lot of money locked up, especially in Celsius. A lot of money locked up. You know. Again, they went under and a judge just ruled that Celsius is allowed to keep those assets. Those are their assets. Imagine that. Imagine you have money on a platform. They go bankrupt and they say, “Okay, whatever it is, four or five billion, whatever it was, well there’s a billion and a half left. And that Celsius money. Imagine that shit. Oh my God. I mean, it makes you really want to take your money off all these platforms, which I think is what you’re seeing with Silver Gates. Silver Gates’s a name I like. I don’t see any fraud at all. But however, if you’re making a run on a bank and people are nervous and taking their money out, the stock’s going to get destroyed.

I mean, it’s up tremendously now. There’s somebody shorts in it and people just annihilate him saying, “It’s fraud, it’s fraud, fraud.” I haven’t seen any fraud, but if they had to sell $8 billion worth of securities, I haven’t seen a company in crypto do this when it comes to selling. Usually when they have a big payment or they’re like, “Wait a minute,” they haul withdrawals or anything like that, which Silvergate didn’t do. Silvergate had their money in treasuries and debt securities and had to sell some of those debt securities for a loss because eight billion was removed and they made that payment. They said they sold a little bit of a loss in a debt, but they made that payment. They didn’t say, “Oh my God, we got to claim.”

They’re a publicly traded company that gets audited that has to report quality financials and they’re under more scrutiny because they’re a bank. If money continued to come off that platform, I could see people getting nervous because they’re like, “Holy shit. This could be an FTX.” That’s why you’re going to see the stock crash. But in terms of fraud, I still haven’t seen it. I haven’t seen anything. People are saying it, but I haven’t seen it.

I think it would’ve been reported by now, but it’s interesting to see how that’s jumping. A lot of crypto names are jumping, but when it comes to retail investors who got annihilated. I mean annihilated, right? You’re looking at Bitcoin. This pop and Bitcoin, it’s $100 billion, almost $100 billion in market cap in three weeks. That’s how much has gone up to over 400 billion in market cap.

You don’t see that move from retail investors. This is coming from institutions. It’s interesting to see if they’re going to be able to maintain this rally, right? Because it came out of nowhere, right? And you’re looking at some things in our crypto intelligence portfolio are up 50% from their lows in three weeks. Granted, they’re still down. Right? We saw crypto get annihilated, right? This industry, a lot of industry leaders fell 80%. Right? So even the coins came down just as much. But to see the whole industry come down where you have high quality names, which we do have in our crypto intelligence portfolio, just as much as some of these shitcoins it is ridiculous. They don’t have any utility features or anything. But now, you’re definitely seeing that flight to quality after a huge, long, drawn out bear market, crypto winter, whatever you want to call it.

I’m not saying that this is for real or it’s going to continue to go higher, whatever, but this is a massive move that nobody was really predicting. Right? Especially with FTX and money coming out of the market and you’re seeing Coinbase and even the good names. You know? The Robinhoods and stuff like that. Money being removed from the platforms with a little bit of concern and where we can put in cold storage. Again, they’re not selling those cryptos, but they’re just pulling it from that. It’s kind of remarkable to see how much this has gone up. Again, we’re looking at a 30% move in less than three weeks, but you don’t see a $100 billion move in market cap for an asset class or a stock or whatever. That’s not retail investors, that’s institutions.

A lot of institutions now are starting to offer Bitcoin in their 401ks, which is interesting. But I want to see where this is coming from. But this isn’t coming from somebody small. This is coming from someone very, very, very big in the industry. I’m going from my sources to see where it’s coming from. Again, it’s not retail investors. A lot of these guys are broke, got annihilated in crypto and were on margin and shit and especially had their money in some of these platforms, landing platforms, that seized their assets. This is coming from institutions and it’s interesting to see this move and how it continues to go higher and higher and higher, especially giving that this market crashed even before, right? It’s been a long crypto winter, but it crashed even before the market started crashing. Probably a quarter, a quarter and a half before that.

On a personal note, when I look at crypto, to see FTX go under, one of the biggest in the world, 16 billion valuation at its top. Genesis, Gemini, looking wobbly here. And then you throw in everything that happened with the Celsius, Three Arrows, just massive blow up after blow up after blow up, just seeing a leverage come out of this market, massive leverage.

To see Bitcoin and Ethereum holding strong through this massive uncertainty, it makes you think. How could it get worse than that if you’re able to rally in the face of these massive headwinds, what happens when a lot of these bigger institutions stop buying Bitcoin and Ethereum, which is probably happening right now? But think about all this. Is it going to get worse than what it’s gotten with FTX? Is it going to get worse than that? You’re going to see Binance go on there?

No, they’re going after Tether like they went after a past two, three years, and they were supposed to get audited financials. They didn’t get audited financials. Are they back? Do they have everything covering their stable coin? I get it. You know? You’re going to try to go after these guys and push this thing down. It’s getting much harder to go after them when you see rallies like this, because now it’s destroying the shorts. It’s really killing the shorts.

To see everything that happened, and now you’re seeing this move higher, could it be a shorts covering? Yes, exactly. Of course it could be shorts covering. Just you’re moving higher, but they get a $100 billion dollar move. This is a $100 billion dollar move, right? This is huge. Is it the shorts covering? Maybe you could say shorts covering, but this, in order to force the shorts to cover, you have to push the stock higher. You have to push the Bitcoin higher. You have to push whatever higher. Right? And you have to have some money coming into almost force this, right?

Then when you stop forcing, it goes higher. You see the shorts covering. That’s called the short squeeze. So the shorts have to buy it back or they continue to get annihilated because their risk, if they’re not covered, is unlimited, because bitcoin can go to 60,000, 10 million, 50 million. Right? It can only go to zero on the downside. It can only lose the money put in. But when you’re short, you have unlimited downsides. It’s very dangerous.

To see, yes, there is short covering there, but just to see this massive move in a face of all of these headwinds, I mean I don’t know if anything could be more positive than that. Right? So it is interesting you are seeing more people hold Bitcoin than they’ve ever held. You are seeing volatility come back into it or a little bit more liquidity come back into the market. But overall, I mean Bitcoin to make this move, you got to be happy with it. It’s really good. Again, it’s going much, much higher than the markets. Even when the markets are coming down in December, it was still showing through December. It was still pretty strong.

It’s interesting to see it to couple away from the markets and risk a little bit more. But let’s see what happens in the coming weeks and the coming months. But it is definitely quite a bit up tremendously and I’m happy for our crypto intelligence subscribers, because that’s the one portfolio, obviously, that’s gotten annihilated. After the average position, I’m not kidding here, guys, the average position in that portfolio, and I think we probably had 70 positions, the average position was up 600%.

The risk reward is definitely worth it in crypto when you see the potential gains like that and that’s what you’re still offering. That’s where all the innovation is coming from within the markets. Yes, we know AI’s out there. AI’s been around. It’s getting better and better. You start to see. Yes, you’re looking at new ChatGPT. You’re looking at so many different … Microsoft announcing more AI programs. We’re seeing it firsthand of how AI’s really accelerating, right?

It’s amazing. But that’s a trend that’s been around for a while. It’s getting better and better when talking about the innovation that’s coming from ownership of your own content through merging the physical world with the virtual world, which every company, every major company talked about the CES when I was there last week, two weeks ago. Just defy. I mean, just the trends within this and how it disrupts just our traditional financial system is amazing.

It’s coming. Right? The internet is coming, a new internet, where you own your own content. It’s not owned by four or five people. This is where it’s coming. This is where it’s coming from. There are going to be names that have the potential to go up much, much more than stocks, which is why we have a newsletter about this and we focus on it.

It’s been bad for 2021 like everybody else. We are having obviously a very good start to the year with a lot of our names doing very good quality names in that portfolio. It shouldn’t have been down as much as the shitcoins, but we’re very happy about that portfolio right now, and hopefully, it continues to go higher, because 2021 was a tough, tough year. That’s it right now. I’m going to come back with Daniel and discuss everything, but you’re looking at the markets.

Guys, we’re going to be all over the place. You’ve seen a 4% rise this year already. Yet you go into earning season where earnings have been revised over 7% lower heading into this quarter since September. I’ve never seen a revision that big in over a three-month period heading into this quarter, into a quarter, ever, other than if it’s during black swan events like we saw during COVID and the credit crisis, which everybody, nobody had a clue of how deep it was.

Outside though of those events, I mean, this is a recession, which used to be typical. We were allowed to go into recessions. We weren’t allowed to go into recessions for the past 12 years, but recessions are normal every four or five years. We weren’t allowed to do that because the Fed kept interest rates super low because we didn’t have a lot of inflation. It’s different now. It’s different. Right? It’s different from past recessions, since we have inflation, still near 40-year highs that we’re having trouble controlling. It’s not going down as fast as we want. It’s the first time since 2000 that the Fed is not going to be able to help us out of recession by lowering rates and buying bonds, constant QE. We’ve always seen that for the past 12 years, 13 years. Okay?

Any problem? Fine, we’ll bail out. Don’t worry about it. No, you can’t do that anymore when you have inflation. You have too much money in the system. That’s why they have QT. That’s why they’re shrinking the balance sheet. Right? So they’re not buying bonds anymore and you’re not seeing them lower rates. They’re not going to lower rates anytime soon.

They may pause, but probably not till March, April, which is consensus. Probably even longer if the mark continues to do okay, which is where I think most economists and analysts have it wrong. This is why I’ve been bearish. They’re very optimistic that most of the damage has been done. Earnings are going to hold up, we’re going to see a mild recession, right? That’s a consensus right now. I don’t see any evidence of that. We see the markets try to rebound like we’re seeing now, but it opens the door to buy long dated puts on so many names that are still trading astronomical valuations, given the macro backdrop of what? Higher rates, almost no international growth. Everyone’s cheering. China’s coming back.

Let me tell you something about COVID. It’s almost like a new strand that I’m hearing that’s going around with COVID. It’s a much older population. People are afraid to go out. People are expecting this whole new wave. I mean, there’s bodies lining up. There’s so many people dying because it affects older people and it’s an older population. It’s very, very sad.

I think it’s very misguided where people are saying, “Oh, China’s back and it’s opening up.” You don’t just open up. Even when we opened up and people go out, you’re still going to have most population, especially this older population, very, very scared. This is what I hear from my contacts there. Be careful using that China as the catalyst of growth and oil and everything else. You know. I think oil’s going to do well regardless, but that could really end up as a big catalyst with China coming back online.

It’s just going to take a lot more time to come back online than people are predicting. And people will talk about Davos right now. All right? So when I see these huge valuations and given, again, very little international growth, Fed constantly removing liquidity from the market, shrinking its balance sheet, we created Moneyflow Trader for this environment. Right? It’s one of the products we have that was up 30% last year. Each position was up more than 100% annualized.

I don’t like using annualized, but in this portfolio we do, because some of those gains come in a few months, right? Three or four months. If you make it a hundred percent gains in four months or 30% gains in four months, annualize. You’d annualize it for the whole year because a lot of those gains have come based on stocks and you betting against stocks, getting long data puts over, say two quarters, three quarters, where they’re going to miss earnings. They might go up a little bit and you don’t care if they go up 15% because you’re a good CPI number. But you know that, just with banks, you’re going to see this constant drag on banks as they continue to raise their loan provisions for those losses.

As they continue to do that, it’s going to be very, very hard, especially when you don’t have any of that fee related business. Are you seeing M&A? No. You seeing that? No, absolutely not. No M&A. No takeovers. Advisory fees are going to be down tremendously. It’s going to continue. You know? When I look at banks or I look at some of these other companies, even retailers, you’re going to sit and take a hit in earnings. If you see a 20% decline, especially early on, these puts could go up 1X, 2X, 3X, right away.

Not only are you protecting your portfolio. You can only lose the money that you put in, but you have a chance to make an absolute killing, massive gains, which we showed last year. Again, this is why I created the product. It was a little early on. My apologies, because I knew the market can’t continue to rally. I created, I think in 2017, ’18, when earnings started to peak, and they peaked in 2018. They went down from 2018, 2019, so the end of 2019 was when COVID started. Then we had this massive collapse because China shut down. Everything shut down. COVID went crazy and then we had this massive flood of money which pushed the markets even higher. Now we’re taking that away. This is one of the greatest strategies and easy strategies that you could learn.

We have an offer for you for Moneyflow Trader. It’s very easy to get. You can go to MFToffer.com, we have it for 90% off if you’re interested. If not, please learn how to buy long data puts because even if you’re wrong, do your long positions are going to do okay. It’s fine. Again, you’re only going to lose the money you put in. But please learn the strategy because the volatility you’re going to see, especially this year, demand’s going to continue to fall off a cliff. And I feel like nobody’s talking about that.

It’s suddenly going to get better. It’s not going to suddenly get better. Even if the Fed size are lower rates. We saw how long it takes, even when they raise rates. The fastest amount they’ve raised in history of how we still have inflation. Very, very, very high. It’s going in the right direction, but we see how long it takes. It could take years. Many, many years.

In 2000, 2001. So 2001, we really started lowering rates. So 2002, 2003, we had a three-year collapse in the markets before we saw them bottom out. Right? I expect us to hit the lows again, especially in the NASDAQ and technology over the next couple months. You can make a lot of money with the strategy. And if I’m wrong, you’re still going to be long. Your positions [inaudible 00:36:05] long and long term and you’ll do very, very well. But this is a way to not just protect yourself from making an absolute killing as these guys struggle for profits.

They’re going to go more rounds of layoffs. They’re not going to see demand on that top line. They’re not going to have pricing power anymore. They’re just not. With prices coming down and inflation coming down, they are seeing their costs come down a little bit, which is good, but still demand is not there. And this is your chance to really, I say it, put your middle finger up to Wall Street. All the times they beat you, beat you, beat you, this is the time to bet against them. Easy way. Do it to MFT, Moneyflow Trader. You could do that. Again, it’s 90% off if you’re interested. MFToffer.com.

If not, no worries. Please learn how to buy puts, because I care about you guys. I want to see you guys make money in one of the most difficult conditions that we’re going to see, and for the first time in about 20 years, or well over 20 years, we’re not going to have any Fed help. The Fed is not going to be there for us. They’re not going to lower rates. They’re not going to bail out. They can’t because inflation is still out of control and they can’t lower rates. They can’t just continue to spend money. This is for the first time. They’ve been doing that for a very, very long time. They can’t do it. I don’t think that’s factored into earnings or factored into this mild recession that most accounts are predicting.

Guys, is it for me. I want to say, “Go Jags.” Holy cow, what a game. The team spirit here. I mean you see what giant fans, stuff like that, but even the kids. Our kids go to school, they all make them wear, on Friday, just jerseys and stuff like that, anything Jags. Just to see that game … I don’t know if you guys noticed. It’s 35 degrees on Saturday. When it’s 35 degrees, that’s like 35 below here. People wear scarfs when it’s 50 here and ear muffs and stuff like that. It’s pretty funny when you see them. 55, I’m always wearing shorts, but just again, if Florida, it’s different.

It was 35 degrees. That first half was worst first half, you’re going to see. Four interceptions from Lawrence. It was just a disaster, but for him to come back and a lot of those fans to have stayed there during that game, that was awesome. That was really awesome, just to see everyone going crazy here. It’s really cool. If I was the Chiefs, I’d be worried. Playing that team right now, after that amazing comeback, I’d be worried. Should be good games next week for playoffs. Anyway, questions, comments, I’m here for you. Feel free to email frank@curzioresearch.com. That’s frank@curzioresearch.com. I’ll see you guys tomorrow. Take care.

Announcer:

Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decision solely on this broadcast. Remember, it’s your money and your responsibility.

Frank Curzio
Frank Curzio, founder and CEO of Curzio Research, is one of America’s most respected stock experts. His research is regularly featured on media outlets like CNBC’s Kudlow Report, The Call, CNN Radio, ABC News, and Fox Business News. His Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 12 million times.
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