It’s earnings season!
Daniel and I start by digging into Netflix’s latest quarterly results. Daniel highlights the numbers that impressed him the most… while I point to a few red flags investors should watch out for.
Asset manager BlackRock is taking some heat for its ESG (environmental, social, governance) stance. We break down the controversy… how it affects investment in certain areas… and whether it’s a good idea for asset managers to play politics.
The White House just released a fact sheet about its plans to keep draining the strategic petroleum reserve (SPR) before refilling it next year. Daniel breaks down why this plan for suppressing energy prices is absurd… But it will create a major tailwind for investors looking for reliable and growing income.
- Daniel’s take on Netflix’s earnings [0:50]
- A few Netflix red flags to watch out for [6:10]
- BlackRock’s ESG drama [17:44]
- The White House’s absurd plan for the SPR [24:35]
- Frank’s favorite picks in the oil sector [35:00]
- Where to find reliable and growing dividends [38:10]
Wall Street Unplugged | 960
Biden’s absurd plan to suppress oil prices
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: What’s going on out there? It’s October 19th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down headlines and tell you what’s really moving these markets. We’re back. It’s Daniel Creech Day, Daniel’s favorite day of the week.
Daniel Creech: I like that. It is my favorite day of the week. Should be your favorite day of the week as well, Frank.
Frank Curzio: Yeah, it’s all right. I don’t know. It’s not Frank Curzio Day.
Daniel Creech: Hey, we have power.
Frank Curzio: Daniel Creech day.
Daniel Creech: We have power today. It’s good. This power Wednesday.
Frank Curzio: Yeah, yeah, very true. And also, our favorite time of the year, which is earnings. A lot of companies reporting earnings. We have banks that reported probably about 50, 60 companies reported out of the 500 so far. So, the next couple of weeks, lots of fun, lots of news stories. See if that’s driving the market, it’s going to continue to drive the markets. People expect the earnings will come down tremendously. But we did see very good earnings so far as some companies… And I think we have to start with Netflix. I mean, Netflix really blew the numbers out of the water much better than expectations. The stock has done tremendously. I mean, talk a little bit about that because those numbers did look pretty good, but I also dug a little deeper and there is a little cause for concern, which we’ll go over in a second. But what did you think of Netflix?
Daniel Creech: I like that. I’ll take the macro and you can do the hard work there, Frank. This is not my… As Austin Powers would say, “This really isn’t my bag, baby.” I haven’t really followed Netflix other than the fact that I think it’s an interesting stock because it’s a market mover and there’s so many people that follow it. We’ll get into content here in a minute because there is a few things that I want to… I’m interested into watching on it. The headline number is great because they beat on earnings per share. The net ads was over 2 million. And you talk about this a lot, the bar, or the expectations that they set, were a million. So, that’s a little bit low depending on past quarters or whatever. But that come in as a beat.
Daniel Creech: The next quarter for Q4, they’re projecting about four to four and a half million paid net ad subscribers. That’s impressive because year over year, if you look at fourth quarter last year there was over 8 million people. So, the market is looking at this and saying, “Hey, that’s not terrible given tough comps and things like that. The most interesting stat that I saw released on their earnings is they gave a percentage. And I don’t think you saw this at first, did you Frank, because we were talking about this last night and I said, “Hey, these numbers are incredible.”
Frank Curzio: I love this metric, yeah.
Daniel Creech: And the company noted that it was measuring its engagement versus other streaming companies. And it said in the UK, Netflix accounts for 8.2% of video streaming. That’s compared to 2.3 for Amazon and 2.7 for Disney+ in the US. Netflix accounts for 7.6%. And I apologize, I know numbers are kind of tricky to listen to on air, but Netflix in the US accounts for 7.6% of streaming TV time. Amazon at 2.6 and Disney+, Hulu plus Hulu Live, that’s a mouthful, is 1.4. If you are in this space, if this is your area and you like Netflix and you want to deep dive and look into this as an investment, those numbers are incredible to me. And you want to keep measuring these over time. Again, from a 10,000 foot view and a guy that doesn’t follow this stock or trade it or anything, I was surprised to see that big of a gap between the streaming percentages with Netflix and its competitor.
Daniel Creech: Now, maybe everybody listening to this then, their Netflix fans are not in an agreement and saying, “Yeah, but we already knew that.” I’ll admit I did not know that. And I think that’s very impressive as the leader. So, if you’re going to be in this streaming world, or if you want exposure to this industry, talk me out of this and tell me why this is… What did you find that made you want to step back for a minute?
Frank Curzio: I mean, we could talk about that for a minute because Netflix accounts 7.6% again of all the streaming on TV in the US where Disney is 1.4 times. That number could change drastically quarter by quarter, depending on what content comes out. And when you look at a content that Netflix release, it’s not surprising. I guess it did really surprise the street, but I found myself watching a hell of a lot of Netflix. I mean, Monster: The Jeffrey Dahmer story, Cobra Kai, which is fantastic for anyone who grew up in the eighties, please watch that. You would laugh hysterically. Not necessarily for kids. It’s some dirty stuff in the… It’s hilarious. It’s just really, really great. Takes you back there. They released a new Stranger Things. That did Stranger Things 4. My kids stream the hell out of that thing. Watched it immediately. So, it puts a lot of pressure and it just shows you a business model that I believe… A business model that is not broken, but Netflix found a way to make it work.
Frank Curzio: They’re generating money off it, where Disney hasn’t found a way to make it work. They’re losing billions and billions and billions of dollars. They have Hulu. Hulu’s been around, I think, man, just as long as Netflix, I want to say. I might be off a little bit by a couple of years. They still lose a ton of money. I think they lost a billion dollars. It just, it’s all about new content and getting new great content up, it’s very, very costly. And then what do you, you turn around and you charge, well for Netflix it’s going to be $15 with their new ad-based service or I think 7.99 with ad-based, 15 without. And Disney’s average revenue per user is like foreign change, right? It’s much, much lower because they give away the service are free. What Netflix did say, there’s a couple things that I didn’t like because the numbers were good and everyone was talking about how good the numbers are.
Frank Curzio: And I love Netflix, I love Reed Hastings. You guys know that. Every time they tell that guy he can’t do something, he’ll do it. I mean, he put Blockbuster out of business when he was trying to get bought by Blockbuster and then they fire him. That guy is just unbelievable CEO, just unbelievable for years and years and years. Now you got to the point where there is saturation now because of these numbers. People say, “Well there’s still lots of growth.” Yeah, I don’t know how much growth there is in terms of how much time people have. I don’t know if you’re going to see more growth than when people stay home all day during COVID. I mean, it’s tough comparisons. I don’t think you’re going to see those numbers go up dramatically. But subscriber account is good. They’re going to generate more money from ads. I think it’s not going to change me from going to Netflix.
Frank Curzio: I still think Netflix is the best. But you look at sales outside the US, 55%. You mentioned this stat to me too because I didn’t see yet in terms of currency. You guys know how hard I’ve been pushing on how that’s a big deal when you know that the fact that dollars are 20-year high. I think it’s a 30-plus year high against the yen. But talk about those margins. I mean, when you mentioned, I said, “No way was it that much of a hit.” I told you how much of a hit to Adidas, or was it Nike. I said that last couple times. Earnings before interest in taxes, it turned out to be a 18%, 20, almost 20% hit just due to currency. With Netflix, I mean, were their margins? Was it operating margins 10%?
Daniel Creech: They issued guidance for the fourth quarter, and they expect operating margin of 4% compared to 8% a year ago. And they said the impact, excluding the year of year impact for currencies, the margin forecast would’ve been 10%. So, you have a 6% gap there just because nothing other to do than say, “Hey, you’re paying me here, I’m going to exchange that.” And bam, just like your story about losing the 30% in your Canadian investment-
Frank Curzio: Yeah it is. You don’t realize… You don’t realize it, Dan, until it happens to you. I’m like, “Holy shit.” You get money. It’s like, “Wait a minute, I invested,” and now, I mean, I have to gain considerably and have massive gains because the currencies went down because a lot of that stuff I invested in Canada, the Canadian dollar and stuff like that. That got crushed but it gets a dollar. But you look at Netflix said they’re going to stop reporting member growth. I hate when companies remove a metric that gives you a clear indication of what’s going on. I hate that. It tells me that you’re worried about growth. They also lowered their guidance into next quarter, which no one’s really talking about because they really blocked the numbers this quarter. So, I love what Netflix did. This is one of their best content quarters that you’ll see.
Frank Curzio: I mean, Stranger Things, Cobra Kai, getting Jeffrey Dahmer, I can go on. There’s about three, four other things. I found seriously myself, and we would talk about this Daniel, watching a ton of Netflix with my wife when I get home. And I bust my ass at work, she bust her ass with the kids and run around and does everything and pays the bills. And when I get home very late at night, we watch TV, and sometimes, I’ll watch Chicago PD or Special Victims Unit. SVU is something. But I found myself, both of us are like, “Hey, let’s see what’s on Netflix.” And we’d be watching Netflix, and now we’re in certain series, which again, this is how you have to look at it with stocks too. If you’re really good at streaming, if you’re using those services, this how you could determine if the numbers are going to be strong or not.
Frank Curzio: I didn’t think they were going to be this strong, but the stock was super depressed. And getting to Disney, which Disney is going up, Disney doesn’t have as much FX exposure. I looked. So, when you look at Netflix, it’s 55% of sales is overseas. For Disney, it’s like 19-20%, much less. They’re not going to get hit too hard with currency issues. But I can’t see them putting up these numbers because I didn’t see anything on Disney that makes me want to go there. They lost subscribers year-over-year. People don’t talk about that domestically or quarter-over-quarter, I think from last quarter to this quarter. And I think they’re going to lose subscribers again unless they’re giving them away for free. So, I mean, they could say, “We gained 7 billion,” and that’s what people like to hear.
Frank Curzio: Just like Netflix, it matters how much you pay for these subscribers because the one thing about Netflix that totally separates themselves from everyone is, especially Disney, is they make a lot of money off the streaming. Disney has not even come close to finding a way of making money off the streaming. Look at the cash show numbers. That’s why all the companies lowering estimates. So, if Disney doesn’t beat the estimates, it should go down 20% because the estimates have been lowered dramatically for next year, dramatically. And no one’s telling. Just like they were with Goldman Sachs, “Goldman Sachs beat the numbers, it was great,” and what did they report? Net income was down what? I think it was 26% or more?
Daniel Creech: Yeah, earnings were down big, too. 40% or something like that.
Frank Curzio: Yeah. So, earnings were down 40% year-over-year. But they beat the estimates. So, we have to be careful here because you’re seeing some companies report. You saw American Airlines report great, great numbers, apples comparison and you saw Delta record revenue. But when you’re looking at some of these other companies, where the estimates have come down tremendously, tremendously, and then saying X currency, like this is going to be a short-term issue. It’s not going to be a short-term issue. As long as the Fed’s raising rates, it’s going to be destroying the rest of the economies around the world. All the countries are loaded with debt, saddled with debt. They’re going to be pushing so much more money into the dollar. The dollar’s going to go higher. This is going to be the norm going forward until the Fed actually turns around and lowers rates, not stops.
Frank Curzio: We’re under the impression, “Oh, once he stops, it’s going to be fun.” They have to lower rates. Until they lower rates, it’s going to be very, very dangerous for a lot of these companies where this is the norm. So, you could separate this and separate that out of earnings. But with Netflix, I think just to show you the discrepancy of the difference of how people do it in terms of the analysts estimates, and this is what you’re going to see, there’s so many stocks where you could drive a truck through it, and you made fun of me. You can drive a truck to it. So, the benchmark company is a very good company, research company and it brought research, so institutional sites. Their target is 162. I don’t know if you know where Netflix is now, where is it? Do you know? Like 270-
Daniel Creech: 240.
Frank Curzio: Is it 240?
Daniel Creech: Well it’s up pre-market, so it’s 268, give or take.
Frank Curzio: Yes, that’s right.
Daniel Creech: Pre-market.
Frank Curzio: It’s 268.
Daniel Creech: Up 11%.
Frank Curzio: 268. Their target is 162 after these numbers.
Daniel Creech: Wow.
Frank Curzio: JP Morgan’s target is 330. When have you ever, I mean, we’re talking about one of the largest companies in the world here. Even though that Mark Cap has come down tremendously, it’s still the number one street. From 330 to 162. I mean, think about, so that’s just a target price. I wonder what the… In order to come to 162 and 330, you have to analyze, you have to have your model. I’d love to dig deep into the model and see how you’re getting 162 from 330. Is it simply, you got the same numbers and say Netflix should be trading at 15 times earnings compared to 23 times earnings or whatever it’s trading at.
Frank Curzio: But that’s a massive, massive, I mean, if you’re an investor, you’re going, “Okay.” I think Netflix is fully valued. I think it has a lot of upside, not a lot of upside, a little upside of momentum. I wouldn’t be buying after this quarter because again that content, you have to continue to pay for that content. They had an amazing quarter when it comes to content. I wouldn’t take this as, “Hey, the whole industry’s back and buy Disney.” I’d be very, very careful with that piece.
Daniel Creech: Right. Nobody believes you’re buying Disney here.
Frank Curzio: I’d be very, very careful. The one thing is they don’t have to worry about currency, but I said Disney could be an amazing stock if they just started licensing out their content instead of doing streaming because it forces them not… You can’t put your best content on there. Netflix puts their greatest, best new content on there. It’s the only place you could look. The greatest content that Disney has doesn’t go on their platform until after it goes out in the movies. So, it’s a big difference. So, they’re tied in this thing that they can’t really figure out and they cannot figure out and they haven’t figured out, even though people think they did because just adding free subscribers and that’s all they want to look at. But the average revenue per user is one of the lowest among the industry outside of Paramount. But it is going to be interesting to see what Disney… Disney does a great job. Financial engineering and the numbers have come down, I want to say more than 15% just over the last month and a half.
Frank Curzio: So, if they don’t beat this number by a wide margin, I’m going to be, again, they wouldn’t beat the number if it was the actual number from last quarter. But the fact that it’s been lowered so much and Disney’s down so much, I mean, it sets up for them to actually, dude, like they did last quarter with a lot of companies in last quarter. It’s like just report numbers were going to beat, stocks would go up, and then you’re going to see it go down a lot further leading up to next quarter.
Daniel Creech: Two things quickly on Netflix, I know we’re spending quite a bit of time. Did you see the next quarter guidance? I want to ask you this because this stood out to me. Netflix is up about 11% pre-market. The guide for Q4 next quarter earnings per share is $.36. According to Capital IQ, that says that’s versus an estimate of $1.22. That’s about a 70% difference from $1.22 down to $.36. And yet, now is the market pricing in what you’ve talked about, those estimates that have to come down? I mean, how do you look at that and not think, “Well that can’t be good,” but yet the market, hey, right now-
Frank Curzio: So, when I see that number in that low, one is a chain-
Daniel Creech: Talk about driving a truck through it, $.36 from $1.
Frank Curzio: But there’s a reason for that. I’m pretty sure. I mean, they changing that business model advertising, they’re spending a lot of money. So that money is going to be more backend loaded, so with the advertisers, so it matters what they’re going to report for the full year. I mean their guidance has been lowered incredibly, but that might be because they’re spending a lot more money on something that they’re going to make up in the future.
Daniel Creech: Got you. So a one time off, like hey, adjusted. Okay.
Frank Curzio: Yeah, I mean, I wouldn’t say it’s a one timer because usually, they don’t include those in earnings, if it’s a one-timer, right, that they strip them out-
Daniel Creech: They adjust it, yeah.
Frank Curzio: Yeah, adjust or we took banks, we raised for whatever, for loan reserves or whatever, or we lost money, we’re putting more money for loan loss reserves. But that number I’d look into a little bit because that number’s a lot lower. And then when I see that number, I’d be like, “Okay, are they also lowering revenue?” And they’re not really lowering revenue. It’s 7.8 billion versus 7.98. So, it’s something within there that I would look at. But it will be interesting to see how they report going forward. It is… Yeah.
Daniel Creech: Last thing here, all you free loaders out there have until 2023 because they’re cracking down on that account sharing password stuff, Frank, so I need your password because I want to watch two things. I want to watch the GameStop saga thing. That looked interesting to me. I thought the ad they took out in the Wall Street Journal was nice and two A, have you seen that? And two, have you seen the John McAfee story? It is running with the devil? Have seen either one? You watched Netflix almost every night and you haven’t watched either one of those two, Frank.
Frank Curzio: I didn’t see that one. No.
Daniel Creech: Well that’s what I want to watch. I’ll refer-
Frank Curzio: What was the first one? Wait, what was the first one?
Daniel Creech: The GameStop deal.
Frank Curzio: No-
Daniel Creech: The GameStop.
Frank Curzio: They had great documentaries on it.
Daniel Creech: Yeah.
Frank Curzio: There’s great documentaries on it. One last thing, here is Amazon, right? Amazon and nowhere is 2.3% in terms of… Or was it 2.6% in the US, right, where Netflix, 10.6%. Disney 1.4. There’s another thing that Disney could do that’s very important because ESPN is in shambles because it has so much political shit around it. The demand for live sports is insane. And Amazon, with Thursday night football and Thursday night football, the first two games are good. The next two games are really about the worst two games ever. But I’m sure they’re going to be able to dictate those games going forward. And that’s why when you’re looking at the NFL ticket with Apple, I think they want to… They’re working out some kind of deal where they’re probably going to get it. But there’s still little things here and there. But Amazon’s numbers, when it comes to live, I mean, people with streaming, Amazon said they signed the most Prime Members ever.
Daniel Creech: Right, 13 million or something.
Frank Curzio: They found a way to generate money off that where you had it… So, you have to be a Prime Member, which is good. So, you’re paying for the Prime Membership, and you’ve got tons of benefits and you get one day ship, next day delivery and stuff like that. So now, it’s Amazon showed that the model works, especially when it comes to sports, and people will watch sports for the rest of their life because of how exciting it is. It’s the greatest content, it’s unpredictable, it’s live.
Frank Curzio: That’s why sports are amazing and football is by far one of the biggest assets in the world, not just in sports but in the world. But Amazon, if I was Disney, but ESPN, they were going to get rid of it. They were looking to sell it. Now they’re not looking to sell it. If they could find a way, just stream all those games or have the exclusive where you’re streaming certain games, that’s going to result in a lot more viewership and people are going to watch a lot longer because they watch a whole sports game. They don’t watch one or two series. So, we’ll see.
Frank Curzio: I mean, it is a war. I think the market is kind of saturated. I think Netflix are part of good numbers. It’s about content and it cost of fortune. I know. Netflix has figured it out. I know that Disney hasn’t come closer to figuring out and Amazon is just now starting to figure it out. So, it is going to be interesting and look at the competition there. Amazon and Apple, right? So, the guys with the deepest pockets something that Disney doesn’t have, something that Netflix has a decent balance sheet. Disney doesn’t but it’ll be interesting.
Frank Curzio: So, we spend a lot of time on that. I want to turn to other news, which is BlackRock reported earnings, what last week? I think they’re pretty good, but the news hit where Missouri’s pulled 500 million out of pension funds managed by BlackRock over the managers, asset managers, environmental, social and governance, ESG priority over shareholder returns.
Frank Curzio: We saw Louisiana do the same thing. 794 million. So, it’s 794, 500, I don’t know how many other funds have pulled it, In the scheme of things, that’s a billion. They have 11 trillion under management. That was I think, six months ago. You got to figure that’s about 15% less because of the market, 20% less at least or 15% less because they probably have even in bonds where’s it? HUD where that, it’s not down tremendously, but I think this is a very big deal, Daniel. I think this is a very big story, especially for BlackRock and asset managers. And I think it’s worth consideration of talking about it because I don’t know who BlackRock thinks they are or what they’re doing.
Daniel Creech: Oh yes, you do.
Frank Curzio: I mean, well you have Coca-Cola, Nike, their board of directors. They can do what they want. They can support what they want in terms of because they think it’s going to generate more business. Nike could support Colin Kaepernick because they think that’s their target market, and they could help generate more sales. That’s fine. If you don’t like it, you sell Nike. BlackRock is an asset manager. We talked about fiduciary responsibility of doing in your best interests for investors, and are they really doing the best interest of investors when ESG is, “Let’s get rid of oil. No more fossil fuels.” You’re not investing in these companies when this is the only sector that’s gone up. I mean, this is legit. I mean, it’s political line. You’re seeing Missouri, Louisiana, you’re seeing a lot of the red states all coming after them. This should be red state. This has nothing to do with politics.
Frank Curzio: I mean, it does with BlackRock. It does at BlackRock. For the asset managers, it shouldn’t be political where if you’re Democrat, I’m going to keep my money with BlackRock because I want them to continue to donate money from me. They are losing money. You hire them to make you money and do everything in the best interest where their smartest guys out there, they’re investing and they’re investing in something for political reasons, which means that they’re a fiduciary responsibility, which means that if their returns are down and don’t beat the benchmark, almost every state would have the right to sue them. Especially since they have low, right… I mean, just the asset allocations is extremely low when it comes to energy and other things as well. But I think this is a really serious story. It’s going to get a lot more attention. But it’s interesting to see how there’s actual pension funds coming out and saying, “Look, we’re out of here. We’re going to go someplace else.”
Daniel Creech: Yeah, attorney generals from state to state are having a field goal with this. And then on the other side, getting political on the right side, you have them writing letters and saying, “Hey BlackRock, you’re not doing your duty. We’re going to pull some funds. On the other side, BlackRock is in, pardon the pun, between a rock and a hard place because then you have the left saying, “You’re not doing enough yet.” And the takeaway here is this is proof, in my opinion, that markets work. And this is why the economy, and markets, capital markets are essential and key. Outside of energy, which you literally need to keep the lights on and keep the world moving, you need capital markets because you have this tug of war pullback. To your point on October 13th when they reported, assets under management fell 16% year-over-year to 7.96 trillion.
Daniel Creech: So, they still are huge. They got 8 trillion under management. What’s happening here, which I think is good, and listen, you can believe anything you want. You can’t argue what your fiduciary responsibility is for your clients. If BlackRock wants to get political and use their influence like Larry Fink, CEO of BlackRock said in his annual letter recently, that they are going to start voting and use their weight and CEOs better get in line, that’s fine. That’s up to them. However, you can’t get upset about people pulling their money for those reasons. And now, this is on oilprice.com. BlackRock was forced because of people pulling funds, to come out and say, “Listen, we are not shunning the oil and gas industry. We are not doing this.” And then they tried to back it up. So it says, “BlackRock’s role in the transition is as a fiduciary to our clients. It is not to engineer a specific decarbonation outcome in the real economy and asset manager,” a spokesman said.
Daniel Creech: This is good because once you get so far out of line, people can vote with their feet and vote with their wallets, and that kind of brings it back in. This is literally capital markets working and showing you how it can keep balance outside just based on money because you have to make solid returns. These pension funds are relying on funds to keep kicking the can down the road. Most of them are underfunded by a huge margin when you look at it. Now, if you want to eliminate one of, if not the most important sector, which is energy, forget what kind of energy. Energy is by far the most important. I think this is overall a good takeaway. This is a wonderful case study that’ll go on for years, and we’ll look back on this to see what BlackRock’s role is. They’re not going anywhere.
Daniel Creech: I just think it’s great to see states like Texas and Louisiana, no doubt oil and gas states have got to come up there and state the obvious. But I just think this is a great macro picture of capital markets balancing out, people voting with their feet and their wallet. I do think that it’s wrong for them to shun oil and gas. I think when you have to come out and defend your role, it shows you are probably a little too far outside and you need to come back. This will remain to see how it unfolds. This story is nowhere near done, but where does the money flow?
Daniel Creech: So, think about the opportunity. You’re another asset manager. There’s already been ETFs that are anti-woke. We talked about the inverse Jim Kramer ETF in the office. There’s an inverse Kathy Wood technology, arc invest. You can do it. My point is that, that money’s going to flow where it’s treated best. That’s a great story that everybody needs to grasp on, and I just like to sit on the sidelines and think, “This is great.” You know I’m bullish on oil and energy. So, this is just more fantastic for me.
Frank Curzio: I mean, it’s an easy solution. And we talk about politics, we got to get into politics too, the strategic oil reserves being released and get into that with Biden in a second. But it’s an easy solution. I mean, BlackRock has start their own ESG fund that is dedicated just to that and if investors want to check that fund, that’s fine. But when you’re checking BlackRock and you’re checking their funds and it’s being managed to the point where you have to be politically correct, and a lot of that political correct stuff has to do with donations and payouts and bribing, which is basically what lobbying is, it’s just bribing, then that crosses the line. But if you’re not seeing returns, because you’re not in oil in some of their biggest positions or whatever they’re in, different funds, that’s major. Again, you could argue that you’re not doing what I hired you to do, what we sign in our contract.
Frank Curzio: And I think that’s what you’re seeing here. And now, we look at the strategic oil reserves, which is amazing. But listen, in all fairness, Biden says he’s going to announce they’re going to release 10 to 15 million barrels from the strategic petroleum reserve, SPR. I mean, it is exactly what he said he was going to do in terms of how much. They’re right in line here where it said they released 160 million barrels from the SPR out of the around 180 million that they said they were going to release, I think in March. So, within that, but I mean, it’s getting crazy right now because when you throw this in and the timing right and how much it is where it was a million here, million here, now, I mean, this is a big amount right before the election.
Frank Curzio: We know that. We get it, we understand. And almost every single president has done this, not to this extent and how much when it comes to the SPR, but the European Union embargo in Russia, right? That’s scheduled to go into the fact that December 5th, I think it’s December 4th, OPEC is meeting again. What do you think that they’re going to do? I mean now the US… Not only did Biden try to go there, which I think it’s funny because just to people who are pulling that guy’s strings, I think everyone’s aware that the guy is just out there, but even the Democrats or whoever’s running it, they’re throwing him completely under a bus just saying, “Just tell him to do this, tell him to do that,” and it’s getting crazy now, and it’s just some of the things that you’re doing that we see from a mile away, “You’re not doing this for a better country, you’re doing it to get votes.
Frank Curzio: And we see that. Releasing prisoners from jail and stuff like that. It just, there’s so many measures here that are getting crazy. But you just try to convince Saudi Arabia to say, “Hey, you know what? You have to be on our side here. We’re releasing oil reserves, stay the same, don’t cut,” or whatever. And Saudi’s basically giving him the finger and said, “You’re doing what’s in best interest for your country by releasing all this oil? We’re going to do what’s best interest in our country and keep oil prices higher.” And then after this happened, the US current administration started attacking them, “Oh, we’ll tell them. We told them, oh wait, this is what we’re going to do.” This is what you’re going to do for what?
Frank Curzio: I mean, you can’t do anything to Russia. You can’t do anything… This is what happens when you have your own energy. What are you going to do? And the fact that you’re threatening them at this stage when they’re coming up with another meeting, who knows? Is it going to be another cut in production? Is it? Why wouldn’t they? I mean, it’s kind of crazy, where you think the oil dynamics, where as long as we don’t have this incredibly deep, massive recession, it looks like oil has to go a lot higher.
Frank Curzio: However, we are seeing demand getting curved a little bit. And it’s interesting. I want to get your thoughts on. I know you love oil, but I mean, you just think oil’s going higher no matter what, right? Especially when you look at this dynamic, and I know a lot of people talk about it. It looks like oil’s going a lot higher, but I think you have to factor in with, look at the drop off every place, right? Where you’re not going to see as much building, housing starts with down much more than expected. That number, it just came out as we were talking, down 8% compared to I think it was 6% was the number. You’re going to see construction come down, you’re going to see all the stuff come down. Which again it’s hard for me to see. It looks like oil prices are going a lot higher, but there are headwinds out there in terms of the macro view.
Daniel Creech: Demand destruction is definitely a worry of mine as the recession and/or large recession and/or depression unfolds. So yes, I’m constantly reading, as Charlie Munger said of Warren Buffett, “I am sitting on my ass and reading a lot,” Frank to try to figure out where I’m wrong on this. Oil is about $84 a barrel right now for us on WTI. It’s about 91-ish on the world markets. Frank, the White House put out a fact sheet. Now, we’re going to have to talk quietly here because we don’t want Saudi Arabia to listen. The fact sheet about the SPR release and all that, do you know where we are planning as a country to buy back our oil to refill those reserves?
Frank Curzio: Is it Venezuela?
Daniel Creech: No, what price, I’m sorry. Oh, I set you up for that.
Frank Curzio: Oh, I think I saw that yesterday. They were looking at, was it in the 70s?
Daniel Creech: 67 to 72. The White House put out a fact sheet that I’m reading off of right now, and they want to repurchase crude oil for the SPR when prices are at or below $67 to $72, that’s roughly 14% lower on our stock, excuse me, on our price, WTI. To your point, how does oil get there if… Let’s say we have a huge demand destruction, major recession or depression, whatever you want to call that. I don’t think the language is important there. If you’re OPEC, how do you let that go? I just think there is a unfolding of new alliances being made around the world, and we’ll talk about that over the upcoming podcast because I think that that has to play… That is going to play a huge role in the energy and everything else.
Daniel Creech: To your point, yes, I’m bullish on oil because there has been a lot of under investments for several years in oil and gas and basically, and I was talking to you off air, I don’t know if I’ve mentioned this on a podcast yet, but Kyle Bass did an amazing interview with Will Van Low or Van Law, I’m not sure how to say that from Quantum Energy, and they have some amazing stats. It was earlier this year, but we were basically in balance at 100 million of production and 100 million of demand per day. But we’re going to use more oil this year because we’re back to pre-COVID levels on the demand side versus what we produce.
Daniel Creech: Now, that’s not saying, “Hey, that’s a huge imbalance, supply demand, it’s not rocket science. It’s going to go up.” There’s a lot of components within that. However, pre-2004, I told you this, Frank, pre-2004, there was over $700 billion a year being invested in capital expenditures for oil. The last five years that’s been under 350 billion. Now that by itself, again, that doesn’t mean, “Oh goodness, oil’s going up no matter what.” But when you factor in logistics, alliances, price caps… You go back to 1970, Richard Nixon came out and actually said something intelligent when inflation was running high and he said, “Listen, price caps are not the way to go. That’s only going to make the problem worse. We’re not going to implement those.”
Daniel Creech: In 1971, for everybody listening out there that doesn’t follow numbers well, that’s a year later. He said, “We’re implementing price caps and everybody has to do price caps,” and that’s why inflation continued to get worse. Price caps are being talked about right now in the European Union, all over the world. America seems to be pushing that, Treasury Yellen, Secretary of Treasury, Yellen is backing that for some reason. Anyway, when you add all these components, that’s why I’m very bullish on oil despite a slowdown of somewhat demand destruction because you’re going to take oil and supply off the market and you have other countries like India… I believe India is going to pass China as the most populated coming. I think that’s going to happen within a year, if I read that right. They’ve come out and said, “Hey, it doesn’t matter what you guys do on sanctions, we’re going to buy oil,” because why? They want to increase the livelihood of their people, their whole civilization and you need energy to do that.
Daniel Creech: The whole idea of $67 to $72 to refill these and release even more, I don’t know why you would show your cards heads up. Email me at email@example.com, I’d love to know where I’m wrong and what you think about this. I don’t blame them, for the Democrats for doing this. As the upcoming election, you want to try to get gas prices lower because people vote with their wallets. I understand this from the political side. What I don’t understand is how the administration can put in writing a fact sheet out to buy this oil back and what they’re trying to do, if you read through this fact sheet, Frank, which I did for everybody else so there’s no need to, they’re trying to explain and use the angle that, “Hey, we’re telling producers there’s going to be demand at 67 to 72, so go ahead and produce.” And they tell, “Hey, we’re going to do 12 million barrels a day, we’re going to increase that by a million barrels a day.”
Daniel Creech: Frank, 180 million divided by 12 million is 15, if my math is correct. So, you’re telling producers, listen Frank, you’re a producer. I’m the SPR, I’m the government. You want to go ahead and increase production because I’m going to buy it at 14% less than where it’s trading right now and I’ll buy 15 days’ worth of production. Mic drop. That makes absolutely zero sense. That is why you want to have exposure to oil and gas going forward.
Daniel Creech: Last thing, I’m sorry about the rant. Baker Hughes Oil and Gas Services company reported this morning, I’m not even going to go into the details. They beat on earnings per share, missed on revenue slightly. The takeaway here from their press report was, we believe the fundamentals remain supportive. Granted, they’re biased, they’re going to sell oil and gas because they’re an oil and gas company. So, take this with some salt. “We believe the fundamental remains supportive of a multi-year upturn in global upstream spending and the elevated natural gas and L&G pricing remains constructive for future FIDs.” That’s future investment decisions. When you talk about multi-year upturn in global investing, that is great for oil and gas services companies. Schlumberger reports later this week. I believe Halliburton reports next week. I would keep those on your radar. I think those are good trading opportunities around their earnings. I know Baker Hughes is up a little bit today. I think it’s 3% last time I looked. My point is that, you can email me and tell me to shut up and you can mute me once you have exposure to oil and gas, Frank.
Frank Curzio: I love that. Great analysis there. You looking at the oil services companies and you think that they would really be kicking ass, right? So Baker Hughes, Schlumberger, Halliburton.
Daniel Creech: The stocks got hit,
Frank Curzio: I mean, look at these names. If you look, I’m looking at the last 12 months, Daniel, I mean, here. Let me see if I can bring this up here. If you’re looking on a YouTube channel I like to bring up charts and stuff like that. This is an ugly CNBC drop. But it’s okay. You guys, again, I like to use free sites and bring it up right away. I’m trying to, let me see if I go just one here. Okay, so if you’re looking at one-year, if you’re looking at Halliburton figures, Schlumberger is up 27% for the past 12 months. You’re looking at Halliburton only up 17%, right? I mean look what oil is right now. I’m talking about the past 12 months, and yet, it went to 130, and we saw in June, a lot of these oil companies went up and then came down.
Frank Curzio: But we also saw them rebound. Not all the way back, but rebound. And then you have Baker Hughes down 10%, down 10%. And I remember analyzing this a couple months ago. It was so surprising. I know they have exposure and had a lot of cost problems and stuff like that international. But when you’re looking at just the main fund, so if you’re looking at the main fund here, which is XLE, is up 43%. I mean, significantly outperforming these guys, significantly outperforming these guys. So I mean, this might be an area that makes sense if you think oil’s going higher, one of the areas that we recommended in one of our newsletters is a deep oil drillers which have gotten annihilated. They were filled with debt. But if you think oil is going to stay above, I mean, right now they’re making money, they could make money.
Frank Curzio: But if you think it’s going to go higher, 90, 100, I think oil services and because the producers have done well, natural gas producers, Continental, we saw that buyout for Harold Ham by himself. By the way, they didn’t require a shareholder vote because he owns so much of the stock. So, he could’ve did whatever he wanted. I don’t know why he even paid a 15% premium. He should just said, “I’m going to buy this at a 30% discount,” and there’s no vote because he owns the majority of stocks. So, it didn’t matter what anyone said. But I think, look at the deep water drillers. I think that’s where you would see a ton of alpha if you think oil’s going to go higher. And also the Halliburton’s, Schlumberger’s and stuff like that. I mean, Schlumberger is up 20%, pretty much outperform the rest of these guys when it comes to Halliburton and Baker Hughes.
Frank Curzio: But I would look at a Halliburton. I mean, look at the names. You want to separate yourself and just say, “Hey, you get exposure in oil and by Exxon or whatever. That’s XLE, I think it’s 40% is Exxon of that fund is Exxon and Chevron. But what’s going to separate? Do I see natural gas going higher? Who has exposure overseas when natural gas prices could go higher? I mean, who would just as oil services companies. Because like you said with CapEx, now they’re going to start ramping it up because they changed their mind. At the beginning, these guys had a cut because the president of the United States before he got elected, “If I get elected, no more fossil fuels.” We know that’s impossible. But if you’re a CEO of an oil company, we need to freaking cut back right away because we’re not going to be able to drill. They’re not going to let us drill, right.
Frank Curzio: Now we have a whole energy crisis, especially in Europe, which you were talking about too. Not online to how, if you want to mention that really quick too, I think that was interesting in terms of we look at oil and say, “Oh you can make money as an investment.” I mean, this is extremely dangerous for Europe right now. We’re talking about not having power during the winter where it’s very, very cold and-
Daniel Creech: And yeah, I’ll be able to report back on this next week. I’m having dinner with a friend from Germany this weekend, so that’ll be fun to talk about. I was reading that their natural gas storage facilities are about 90 to 93% full. I took that assuming so and being wrong because I thought that would make them through the winter. Turns out, that won’t make it through the winter, but they’re already worried about 2023 winter. That just means this is a prolonged thing. To your point, real quick, Frank, the XLE is up, you’re right. Exxon and Chevron make up about 40% of that. Exxon, by itself, is up 60% year-over-year. Not year-to-date, but year-over-year. And yeah, I think you’re right to look at oil services. I just, I’ll continue to look at why I’m wrong, but just have exposure to the industry.
Frank Curzio: Yeah, I mean-
Daniel Creech: And Exxon, sorry. Exxon got an upgrade this morning. Yeah, so did the OG, which is also in XL.
Frank Curzio: And one on this is yeah, the S&P yield is 1.8% and you can say why even bother when you’re… Look and now the four year’s up to four and a half. So, even though the market’s going up, you’ve seen two year. It’s telling you two and a half and 10-year above 4%. It’s not good, right? With this, and we’ve seen these bear market rallies and they get extreme. It doesn’t mean it’s a bottom. This is normal. It’s not normal to see 10 to one ratio where you up, down, which we saw two days in a row. But now, you can get paid a nice dividend. It’s hard when you’re consumer staple or whatever where you’re seeing, “Okay, the economy could get worse.” Are oil prices really going to come down a lot from this level? I don’t really see that. Maybe they don’t have the upside that so many people believe and a lot of people predicting and have the stats to back it.
Frank Curzio: But I don’t see it coming down as much where the Exxons of Chevrons that dividend, at least you’re going to get paid a dividend, they’re going to be printing money, profits are going to be surging going forward at least over the next couple of years. So, those are interesting places. We’re in a market that’s terrible. Yes, you could buy those and hold those and they might get hit, but I don’t know how much they’re going to get hit, especially when you have a lot of momentum and oil prices going higher. So, it is interesting. But those dividends are definitely safe now. So Daniel, thanks for doing so much work on the oil part. I know that we’re going to come up with a lot more recommendations for oil going forward because it’s just doing a lot of research and I appreciate that. But guys, questions, comments, feel free to email me. I’m here for you, firstname.lastname@example.org. Daniel, what’s your email?
Daniel Creech: email@example.com.
Frank Curzio: All right. Any plans coming up this weekend since I’m going to be away?
Daniel Creech: Yeah, I’m going to play golf and then have a fun dinner planned, like I said, so need some help on the golf game. It is worse than the market’s right now.
Frank Curzio: Isn’t it weird how quick it was in and out? It’s so crazy. You can be really good. Really. That’s why I love it. You’re so competitive. But it’s awesome.
Daniel Creech: It is the greatest game, but it sucks.
Frank Curzio: Yeah, I’ll be reporting back to you tomorrow with a podcast, guys, but I am going away from Thursday to Sunday at my wife’s birthday and I’m taking her to Vegas. It should be pretty cool, having some fun. But again, questions, comments here for you, firstname.lastname@example.org. Dan’s here a for you as well. Really appreciate all the support, and I’ll see you guys tomorrow. Take care.
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