I’m back in the saddle again after a successful hip replacement. Thanks to everyone who sent me well wishes.
During my downtime, I’ve been researching a topic that hasn’t been getting the attention it deserves: the disaster unfolding in China. In case you haven’t heard, real estate developer Country Garden is in default… the yuan is selling off hard… and the country’s recent economic data shows no signs of improving anytime soon.
Daniel and I break down the latest data points out of China—including warnings from several companies—and explain why things will get worse before they get better.
I also highlight why the yuan is crashing… why China’s attempts to boost its currency aren’t working… and how the country’s real estate collapse could spill over into another $3 trillion industry.
I share how investors should play the situation… and a couple of companies that rely too heavily on China.
One company that expects to come out unscathed is Nvidia (NVDA). Management recently said China’s slowdown won’t affect it at all, despite China accounting for 20% of revenues. Daniel and I discuss the expectations for NVDA’s upcoming earnings report… and share our opinions on how the stock will react next week.
Don’t miss tomorrow’s episode of WSU Premium, where Daniel and I will dive into international markets… sift through some recent 13F filings to see where the smart money is investing right now… and discuss the latest sign of “de-dollarization” in the global energy market.
- Dire warnings about China’s economy [3:05]
- China’s disastrous economic data [8:10]
- The yuan is crashing [11:05]
- A $3 trillion ticking time bomb [14:55]
- These companies rely too much on China [21:00]
- What to expect from NVDA’s earnings [30:00]
- Join us for WSU Premium [37:15]
Wall Street Unplugged | 1065
China’s problems are only beginning
This transcript was automatically generated.
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.
Daniel Creech: How’s it going out there? It’s Wednesday, August 16th, and you’re listening to the Wall Street Unplugged podcast.
I am your host today, Daniel Creech, Curzio Research Analyst here at Curzio Research.
I’m the one that works for alongside and behind the one and only Frank Curzio.
And, hey, just a minute.
Let, Frank had surgery a week ago, people, and he’s hobbling into the office and he just can’t let the reins go.
Frank Curzio, how are you, Sir? .
Frank Curzio: I’m doing good.
I’m doing good.
Daniel Creech: He’s Alive.
He is alive.
Frank Curzio: I surprised Daniel by walking in and he’s like, wow, I had no idea.
Like, I’m glad I was here.
Daniel Creech: Yeah, I was gonna take the day off.
Frank Curzio: Uh, it was funny, but, um, yeah, it’s just, I appreciate all the emails and everything.
Everything is okay.
Surgery went well.
Uh, I’m up and around and walking around, of course that dog’s like you can’t drive for two to three weeks.
And you know, my wife is the same thing.
You can’t drive.
You can get into an accident.
I was like, if I go into get into an accident, it, it’s like, I’m probably gonna get hurt anyway, you know, it’s like, it’s, It’s something else, else might break or whatever, so I’m hoping that it’ll get to, but anyway, it’s very easy to drive.
It’s, you know, my left, not my right.
So I’m not using that to drive and, and I’m not doing anything stupid and pushing the issue or anything.
But, you know, when you’re young, you good recovery.
You need painkillers, which I have on me today, so I might be saying a lot of crazy stuff.
Uh, which I took one when I came in, not when I was driving, so you don’t have to report me or anything.
Daniel Creech: Hey, With the lag time and, actually hitting and affecting your body, it, you could probably take 1 15, 20 miles out and it wouldn’t get in your system before.
I’m just kidding.
Frank Curzio: I’m gonna try that.
Daniel Creech: What’s that Eminem song? I just drank a fifth of vodka Dare Me to Drive.
Frank Curzio: So it was cool today, actually, um, I dropped my daughter off, because they both started school today as well.
So that was, pretty crazy.
My youngest is starting middle school at Bowles, which is like a, you know, it’s sort of like a college.
You go to different buildings and everything.
It’s, it’s pretty crazy.
She’s really nervous.
And my other dude I was really proud of, you know, she’s a sophomore and you know, she had problems with a couple of her friends and she, she just blocked them all and said, I’m not hanging out with them, you know, I don’t like them.
They took behind other people’s backs and everything.
She’s like, if I’m looking forward to it, I was talking to other girls.
I mean, she was so excited to go to school and I was really proud of her.
Just shows good character.
A lot of people would be scared to go to school and their old friends or pains or whatever, but she was, she’s looking forward to a fresh start.
She looked pretty today, both of them.
And, yeah, we start school a little early here in Florida, and then I just came in.
Now I’m here.
And Yeah, happy back to have some fun school day for everybody.
So when I’m home doing nothing, it’s tough.
I mean, you need to get outta the house, you know, when you’re there for a while.
I’m not gonna lie to you.
I think everybody knows what I’m talking about.
Whether you’re a man or a woman, you know, it’s, you know, constant all the time.
And it’s great.
My wife is taking care of me and everybody’s taking care of me and my kids and stuff like that, but I just, you need to get out a little bit and, and, you know, when you get bored and stuff, you’re doing a lot of research.
I, I’ve been doing a lot of homework on, on one particular topic that’s been, I, I feel like everybody thinks they know it, but I don’t think they understand the full impact that’s going to have.
Uh, and, that’s China and, and we’ve seen a lot of news outta China.
Daniel, I don’t know if you’ve been following it as much as, again, we we’re coming in here, we’re just going off the fly and different things, and we’re gonna talk about some of the topics I convi you later on, but, this China thing’s for real, they just lowered rates, you know, trying to provide, you know, less taxes on, on, on trading and stuff, trying to stimulate their economy.
But it was surprise rate cut.
And when you announce a surprise rate cut as a central bank, you only do it if you’re in dire circumstances.
Usually you’re able to predict it.
And I’m not talking about something that goes from 25 and maybe you raise 50 and not, there’s odds against that.
I mean, you didn’t have any odds on China coming in outta nowhere and, you know, cutting their, their rates.
And, and when I looked under the hood and looked in some sites, and it’s very difficult to find, but I probably spent about 10 hours in one day.
It’s, I mean, you guys know how it is when you’re researching something to death and, and you don’t even realize the time is passing.
There’s a lot of stuff under the hood, but I don’t know if you’ve been following it and going along.
I know there’s news in China.
Bloomberg just reported how, how, you know, it’s a lot worse than expected, but there’s a lot of s**t going on that I think you guys should know about because higher interest rates and raising them, Daniel, by over 6000% in a year, the highest we’ve ever raised rates and put in percentage terms was over.
It was 200%.
And that was a long time ago, I believe I would never, and never even came close to this.
Right? And, and there’s gonna be significant consequences.
And I’m not talking about the consequences that where the Nasdaq declined for two, two weeks in a row for the first time this year, or the Dow had whatever, what is it, 13 consecutive winning streaks.
The best sense, I don’t even know if it was 18 hundreds and stuff like that.
But you, you don’t usually see those trends happening.
Uh, when you’re in an earnings decline and interest rates are at a 22, you’re high.
You don’t see multiples expanding and something usually breaks.
We saw a little bit of the breakage, when it came to the commercial banks, and that caught people off surprise.
But that’s what happens with markets.
It’s right now people are like commercial real estate and China’s ba you know, if you could see it in front of you, you could adjust.
You see a recession coming, you could adjust, right? You could fire employees, you could lower costs dramatically.
You could, you know, prepare for it.
It’s what you’re not prepared for.
And I don’t think people are prepared for how China, how bad China’s gonna get.
And, and again, I know you’ve been covering it as well and looking at it in some stories, but I came in and said, listen, I wanna talk about China’s a lot of stuff that’s pretty crazy I talked about, but I don’t know how much in depth that you, you, you’ve been following it.
Daniel Creech: Not not near as in depth as, as you have, um, a couple of Wall Street.
It, it’s funny you you brought that up just because yesterday in the Wall Street Journal, um, on the front page and the right, it has China’s downturn hits us industries.
And I was thinking about for us as individual investors, it’s not real easy.
It’s easier to buy China than it is to short it or try to hedge against it or make money off the downfall.
And really, I was just kind of thinking out loud about what Tovo avoid, and of course you can, you know, go through different systems and look who has sales overseas and things like that.
But a couple things from the Wall Street Journal, I thought they talk about how, chemical makers and giants such as dewpoint and then big industrial machinery such as Caterpillar is getting hit.
this is, this is a quote that says, from Rainier Blair, who’s, chief Executive Officer at, Dayner, and it says, or Donner, I’m not sure if I’m butchering that friend Donner.
But China orders were down 20% in the first quarter, 40% in the second quarter, but really 50% in June part of that quarter.
And then they, the Wall Street Journal goes on to say, um, it derives about 13% of its total revenue from China.
but it’s gonna be mixed results.
And we’ve talked about how you can’t, you can’t have levers and crazy stuff done to a system without having crazy results.
And so you’re gonna have mixed economic data, and we go back and forth about, hey, inflation is trending down, but you’re also gonna see strong jobs, labor, and you’re gonna have these mixed economic data.
Same thing over in China.
So if you’re Caterpillar and DuPont and these guys, maybe you’re getting hurt.
But Marriott reported a surge in China to man mm-hmm.
Starbucks recently reported a huge demand increase.
Same store sales demand increase and such like that.
but these companies, these major companies, Frank China, or excuse me, caterpillar, that only accounts China accounts for about 5% to 10% of total revenue.
But CEO says, quote, we expect further weakness from China.
He said, this was just a month ago.
Because all these are, you know, relevant with earnings releases.
And the last thing I thought was interesting is, um, it says a lot of European nations are getting hurt because China is not, they pass a lot of products through to China.
And so this kind of calls out and says, Hey, watch out for Germany, Australia, Switzerland.
Big reason banks and customers of those counter, um, banks and those customers are losing is ’cause countries are not exporting towards China.
Like, our point is, is that they have been very, very sluggish on their economic recovery that we’ve been talking about.
And that’s just, um, so my, my perspective to talk to you about was gonna be, Hey, let’s just avoid kind of these big holes in the ground, these big potholes.
Let’s try to stay away.
But after talking to you this morning, it’s not gonna be that easy to avoid the downfall or these dominoes that fall over ’cause of China.
Frank Curzio: No.
And, and, and I’m gonna throw some numbers at you.
And guys, we all know about China, we know know it’s bad, how ba bad.
So I respect has been talking about it for a while.
Uh, you know what’s different now, right? We know the real estate property bubble.
We talk about, you know, ghost towns and ghost cities and ghost provinces, pretty much probably seven, eight years now.
Uh, but why now? Like, why, why am I mentioning this now? Uh, if you look on July 4th, they defaulted on 1 trillion in US bonds.
Very few stories out there about it, and nobody really talks about it.
People might be like, oh yeah, that’s right, nothing happened.
Like, imagine if you defaulted on a trillion dollars, a trillion dollars.
I mean, we only have what with Nvidia five companies maybe that traded a a trillion dollar valuation.
Imagine one of those companies defaulting on their bonds and how big that was.
I don’t know how big the biggest bankruptcy is.
I don’t know if it’s still or whatever it was.
Uh, you know, maybe a couple hundred billion dollars.
Th this is a massive story, right? And this is July 4th.
So then we have, what, a few days ago we hear about country gardens.
That is, it’s delaying their payments on bonds and that stock has been coming down tremendously.
I don’t, alright, fine, but, but has anyone looked at how, like what is actually going on? Look at the numbers.
Uh, they reported 7 billion in losses in the first six months.
It owes 4.
3 billion in debt over the next 16 months.
And that doesn’t include 130 million interest payments, for the rest of 2023.
Yesterday we saw Zzi Enterprise.
This is basically called the China Blackstone, right? Because country’s largest asset management group just missed payments on several investments.
Imagine if BlackRock did that here, what would happen? Okay? Uh, now what’s scary to me is the timeline.
So it, the timeline that this happened and why did it happened July 4th and it didn’t happen a few weeks and now it just recently happened.
It’s the one, the one’s absolutely crashing.
So it fell sharply on July 4th in your 16 year lows, right? And then when the won crashes and you have your, you know, your dollar denominated debt, you’re gonna default on that, right? Think about, you know, a good example for us is being Euro, how the Euro used to trade much, much higher.
Uh, I remember athletes wanted to get paid in euros and whatever it was like a dollar 30, whatever it was.
Uh, so if you’re selling to that market, that’s great, right? I mean, it, it’s awesome, right? You’re producing goods here, which are cheap, which China’s used to do.
And so China usually controls the, the, the one and keeps it low on purpose.
And it used to keep it low on purpose, but that’s okay.
So when your currency’s crashing, it’s a sign that, oh my God, you’re, you know, there’s something wrong with the economy.
But they used to do it intentionally.
That’s what Trump argued about and everything.
They’re manipulating the currency ’cause it provides a better environment.
And whenever they wanted to get it back up, they were able to, you know, just get it back up.
Uh, and it wasn’t too hard in, in certain measures, it’s different this time around because in July 4th it crashed 16 years low, it bounced back a little bit.
But that caused a 1 trillion in divorce in defaults started to push high the next couple weeks, but now it’s surpassed those weak levels again.
And this is recently, which led to country gardens and Zzi announcements.
So at the Juan continues to slide further, which is almost a certainty you have to look out.
Now, quick history here.
In the past I mentioned China always wants to keep their currency weak compared to the dollar, right? And those reasons are obvious.
We all talked about ’em, right? But every time they need to prop up its currency, it will lower their reserve requirements for banks to sell US dollars and buy Juan, right? So some of those reserves, China is in dire need of the Juan going higher right now.
And the problem is they’re having trouble getting it to go higher and it’s in free fall and they don’t know what to do.
Uh, everybody thought the reopening right? And by the way, when you talk about Starbucks and same store sales, they’re comparing the same store sales from this time, from last year when it was completely closed and you weren’t allowed to actually go into the building.
Now you’re allowed to.
So your same store sales better be f*****g better, right? Uh, so be careful when you’re saying, hey, from last year, it’s definitely be, it has to be better.
You store how to lock on it, you couldn’t get in it, right? It has to be better, right? If it’s open and people go out, if you do a dollar in sales, it’s better than last year.
So be careful the numbers when people say that, right? But this whole reopening, right? How positive all CNBC oh, the positive reopening, it’s, we reopen, they reopen.
And you know what? That catalyst has passed and the one’s not going higher.
So then China already lowered the rate of financial exchange reserves, right? Their institutions was holding their balance sheets.
They did it twice.
They did it in April, 2020, in April, 2022.
’cause they’re aware, like higher interest rates of the US are definitely going to hurt them.
They hurt everybody else around the country.
Uh, so from, they lowered from 9% to 8%.
Again, this is the financial exchange reserves very, very important.
’cause they did it again in, in September, 2022.
And then it got serious.
It went from that 8% level to 6%.
That hasn’t worked to prop up the, the the one, now we just announced a surprise rate cut outta nowhere, right? Again, if you, if it’s a surprise cut, there’s a reason for it.
It’s a dire situation.
It’s like, holy s**t, right? So they’re gonna have no choice but to cut this ratio again.
And those foreign exchange reserves are basically your safe haven as a country, right? China’s safe haven and, and they’re depleting them to try to come buy the one and keep that one higher.
But they’re running outta measures to do this.
And you might say, well, you know, don’t worry.
I keep hearing this argument, Daniel.
I keep hearing, and I actually talked to Cramer yesterday too, and I sent him this thesis as well.
And, and he said the same thing.
He said, it’s a communist nation.
They’re gonna do everything they can, they’ll lock up the rich people or whatever.
And, and, you know, they’ll make, they’ll whatever.
They could put every company outta business and make sure the bond holders in the US get paid.
Uh, you know, so, so they’re going to do something.
They’re not just gonna sit by and let this happen.
I hear that argument, but why they’re sitting back and letting it happen right now.
Why haven’t they done that yet? Because you’re seeing these massive defaults.
Uh, remember when it comes to the foreign exchange reserve, which you have to remember, that’s like the lifeline.
That’s a lifeline.
That’s, that’s safe haven.
This is the same measure, right? This is what led to the Asian crisis.
And this is like the late 1990s when, when Thailand sold off most of its reserve that their currency was getting crushed.
Uh, they, they tried to do seltzers to prop it up.
Uh, was, I don’t even know if I say right, it’s b h t bot, whatever it is.
Uh, and it didn’t work right? And the currency got crushed.
And people are like, okay, it’s Taiwan.
It’s a big, well, there was contagion there, right? Because now got Malaysia, Philippines, Indonesia, their currencies got crushed.
It filtered over to everything, including the us us got nailed.
Uh, when you’re looking at China and their real estate, Daniel, their, their, their real estate is like their whole entire is is not their entire wealth.
But in the US it’s around.
I think it’s a little bit lower than 50% when it comes to real estate.
The average person of how much it’s tied into their wealth, it’s over 70% for China, right? So their real estate is a, is a lifeblood, right? And the industry, it’s absolutely crashing and the wands going lower and they have a massive amount of debt and these debt payments getting higher and higher and they, they have nothing left to do unless they wanna continue to sell their reserves.
Once you’re outta that, you’re outta that and they’re down to 6% now.
Uh, but real estate is tied to everything.
And what else is real estate tied to? It’s also tied to insurance.
And what insurance companies do, they get this massive amount of money.
Again, it’s the biggest scam industry in the world in terms of it’s the only business you have to pay up front for something that could happen later on in your life, right? So you’re putting that money up front, which is awesome for them.
So they take those pools of money and they invest them everywhere where they invest in, they’re investing in the real estate, they’re investing all these things.
They’re ensuring a lot of this stuff.
Uh, I have a picture of you guys if you can see on YouTube, of the real estate and their exposure right here.
Uh, and it’s 22.
Uh, if you’re looking at their total insurance exposure, and you might say, okay, what does that actually mean in US dollars? That’s $3.
3 trillion, the insurance industry, right? Uh, think about how a I g was providing oil protection for US banks.
The US banks were late and they saw, oh my God, all this stuff is crashing.
And they didn’t provide a market for anyone who is short.
They said, let us get outta this s**t first.
That’s Wall Street for you.
They got out and they said, let’s see if there’s someone stupid enough to actually cover us.
And a I g said, raise their hand and said, we’re the, we’re the idiots is awesome.
We’ll take it all.
They took it all.
And then what happened when the system collapsed, a i g was sitting there, but what a i g collapsed is they can’t fulfill all the short positions that all investment banks took.
Those reverse positions after being long.
All that s**t.
And CDOs and stuff like that.
And the whole system comes down.
There was a bailout.
This is not the us this isn’t something where your currency’s backed by the full faith of the government where you could spend as much as you can, you could do it.
And in the US it same situation.
If it was real estate like that, it was collapsing.
The biggest real estate firms were collapsing.
They would bail it out and worry about inflation later, right? And, and again, it would lead to tons of consequences.
What is China gonna do to stimulate the wha? ’cause everything that they have done so far has not worked.
And if this continues to go lower, why is it have contagion all over it? Many reasons.
I mean, first of all, India’s doing pretty good right now.
That’s fine, right? They, they’re growing their economy.
They’re trying to, you know, Apple’s trying to build manufacturing plants there and stuff like that, but they compete heavily in, in, with China and textiles, apparel, chemicals, Metals.
And when that currency goes down again, that one goes down.
It makes them, their margins get crushed.
People are gonna go to China.
’cause the goods are, are much more cheaper.
Uh, Latin America, very closely tied to China.
Commodities, we are very closely tied.
If you don’t think so, look at Apple’s exposure.
Look at all the chips exposure, NVIDIA’s exposure to, to China.
I mean, massive exposure, right? So, I mean, this is a serious problem that I, I haven’t found an answer for.
And when I started looking at the numbers again, we’ve known this for a while.
I don’t think people know the story that I just told of how much is out there and why is the Juan, they’re doing everything they can.
People maybe be like, oh, it’s not a big deal because, you know, they manipulate their currency and they intentionally kept the Juan lower, which didn’t remove foreign investments because people, like, they’re just doing that on purpose.
They’re gonna be the biggest economy in the world and they’re so big and all, you know, billions of people, whatever.
Now you’re gonna see an exit of foreign capital.
And even at, who was it, Kyle Bass, you said, when, when I mentioned this to you, somebody tried to get their money outta China.
No, it Wasn’t Kyle.
I, I doubt if Kyle Bass has any money over there’s Yeah, but it was a hedge fund guy Was hedge fund already talking about that.
Trying to get the money out.
And they, so basically they’ll freeze the assets, not let ’em out.
That’s a alright, fine.
You’re keeping the assets there.
They’re not gonna get any new capital.
’cause people know it’s an absolute s**t show there.
Even Bloomberg just started reporting on it.
Bloomberg had the balls to say, four months ago after saying nine months ago, the reopening, China’s gonna be amazing because it could, it’s gonna spark inflation there.
Right now they’re seeing, massive deflation.
And now they just said, this is, I think two, three months ago, they’re like, China’s seeing deflation and that’s also good.
That’s gonna be good.
I love when, I love when both it’s like gold.
Hey, inflation’s gonna be great for gold deflation, iss great.
Like everything’s great for gold, but gold never moves up.
Uh, so when I see a scenario like this, it doesn’t mean to exit the us It means you need to protect yourself and make sure you don’t have that much China exposure.
I know that the market, it just in a 52 week low, but it’s not, you know, again, it has, it has been pretty weak.
Uh, for the most part of the year, we’re expecting this reopen.
It’s open, okay? This is economy that’s horrible.
We do know it’s communist country.
They’re gonna try to do everything.
The fact that they’ve been trying to do things and they haven’t worked, I don’t know what else is left to prop this up, but I do know, no matter what they do, and even in the Jim Kre scenario, when we went back and forth, he’s like, you know, they’ll do this and you know, they’ll, they’ll rest.
And what was it, you, you mentioned Jack Ma, right? Yeah,
Daniel Creech: Yeah.
Bought, I mean he did, he just disappeared for months.
Frank Curzio: Yeah, this is like the, the like the, this is the face of China business, right? Valley buy.
And he just, and he came back and we just said he was like lost weight and stuff.
Yeah, it’s the same thing.
He’s like, everything’s fu where’d you go? Ah, I was just gone full.
But that’s fun.
But you know what it does? It’s what happens if you’re a business, if you’re doing business over there.
And a lot of exposure.
Our chip companies have massive Taiwan semi that we have massive, massive exposure to China when it comes to, you know, rare earth Metals, right? So when it comes to, to, you know, a lot of the chips that are produced, this whole AI revolution, I mean, it is tied into China.
So you, you have to look at these statistics.
It doesn’t mean that you have to get out of everything in the us There’s still gonna be things that work in the us.
The US economy is gonna be stronger than than other places.
This is a big deal.
And I challenge you out there.
Let me know ’cause everyone says the same thing.
Oh, China’s just, they’re not gonna sit back and do nothing.
They’re not, and but so far they haven’t sat back and done nothing.
They’ve done a lot and they lowered those reserves, a ton.
They’ve lowered rates, they’re trying to lower taxes.
They’ve been trying to simulate the economy and the Juan keeps crashing.
Okay? And, and if that happens, it’s gonna be very, very, very scary.
And it’s gonna have lots of impact to other countries.
Uh, be careful.
I mean be, when I looked at these numbers, I was like, holy s**t, we’re talking trillions and trillions and trillions and trillions of dollars.
And remember, this is supposedly the growth engine of the world that shut off, right? The growth engine of the world that everybody wants to go into.
And, and if that’s shut off, especially where our technology companies are, the industry leaders in stock pricing, not in earnings outside of NVIDIA’s gonna report, we’ll get to that a minute.
This is a pretty scary situ situation I think you really need to pay attention to.
And you’re gonna see me talk about a little bit more.
But there are ways to, to short China where you’re not actually shorting it.
Uh, there’s gonna be measures that the government does where you might see fluctuations and it might go a little bit higher.
Uh, I would use that to buy inverse ETFs.
You might see those show up on our portfolio.
Uh, I’d reduce exposure.
Tesla, is gonna be in a shitload of trouble.
They lower prices again.
Uh, because you know, just to compete with other China companies who are making cheaper cars with them, you know, you’re looking at, you don’t wanna see a company with a massive sky high valuation lowering prices and margins are crushed.
That doesn’t make sense that you don’t deserve a premium.
You deserve a premium if your company’s growing, if it’s better than, and they are better.
But you’re seeing companies like Rivian Ketchup, a lot of Chinese companies are doing well.
Uh, but when you continue to lower prices and you’re trading at this massive premium and you know, again, in a market in China that doesn’t look really good right now.
I mean, that’s a name I would be really, really worried about.
Uh, as well as Qualcomm, which again, that management team has been absolutely horrible.
That was one in our portfolio.
We got hit a little bit, but you know, early on, and we haven’t been in for a while, but Qualcomm is just, again, they just came out with another weak quarter.
There’s a lot of companies with a lot of exposure there.
Just be very careful.
You might not see it with the wins.
’cause people gonna gamble no matter what in Las Vegas Sands.
And maybe a little bit with the hotels, you know, in terms of traveling to certain areas.
But be very, very careful of China because this real estate market, if I had to guess, it’s in probably the second inning, right? It’s in the second inning you’re gonna see is if the wine keeps coming down, you’re gonna see more and more and more defaults.
How long before the US ignores $1 trillion in defaults? What are we doing? Do we not care? Are we not mentioning this? Are we not talking about, this isn’t even a story on C n BBC A trillion in defaults.
And we’re not even talking about ever grande.
We’re not talking about country gardens.
We’re not talking about the, the China Blackstone.
We’re not even talking about these names.
These are the biggest companies in China that are defaulting the industry leaders that are defaulting on their paper.
Uh, and I don’t see it getting better unless they prop up the wand and do something for the economy.
I just don’t know what that is.
I don’t know what China has in this arsenal.
We know we have an arsenal.
What we could do, and we’ve done a lot.
I don’t know what China has right now.
’cause everything that they’ve thrown at this problem has not worked.
And now the surprise rate cut, okay for a second it worked.
I, that’s not gonna work either.
So just be very careful having exposure to China and having a bullish thesis on China.
Daniel Creech: Just a couple things there on China.
I agree with you that it’s an absolute crazy show.
This should not shock anybody.
The numbers, the, the idea to bring it to your attention is a great idea.
And, and, and you should, you should know what’s going on there.
However, and Frank, I’m not putting this argument on you.
If any business leader from Tesla to Apple to anybody with a brain in their head that God gave them is shocked that this communist regime is about to fall apart, that’s built on a house of cards, a house of sand that’s gonna have trouble.
I don’t know what to tell you about that if you’re genuinely shocked about that.
The other idea here is what are they gonna do? We don’t, we don’t know exactly when or what they’re gonna do, but we know the arsenal.
’cause there’s only so many options.
This is the great thing about politics, about taking over the world, about whatever.
There’s only so many options here, Frank.
You know, capitalism, low taxes, stuff like that.
That’s not any new idea.
These are all been tried and tested and wonderful.
So that’s good.
What are they gonna do? Well, they’re probably gonna try to, well, let’s step back really quickly.
During COVID, what did we do that China didn’t do during Lockdowns? We printed money and gave it to everybody and individuals and let ’em shop.
And as soon as we lifted the authoritarian ties of, you know, the boot off the neck and letting you actually go outside and be free again, then you had money in your pocket to burn China didn’t do that.
So what are they doing now? Well now they’re kicking around the idea to do helicopter money.
They’re gonna print money, give it to their individuals, spur the economy.
I continue to think this is an absolute trading around, um, vehicle I wouldn’t commit long term.
It still baffles me to, to town and back Frank.
That smart guys like Charlie Munger and other hedge fund guys pile into Alibaba and jd.com and all that.
They obviously have better contacts and know a lot more than me.
I just don’t understand how you invest in that kind of regime long-term and sleep at night and expect to grow your capital when it’s an absolute fixed game.
And as long as the fix is in, that’s great.
But to your point, you can’t control a billion people.
You’re not the Chinese, you’re not the growth engine of the world.
You have to quit.
What if we were just to our investors or whoever, Hey, we don’t like our results anymore, so we’re not gonna tell you about ’em.
That’s youth unemployment’s at all.
Not that’s youth unemployment’s at a new time high.
All right, well we’ll just quit reporting it.
Well don’t laugh ’cause I’ll take you out back and you know, we’ll kidnap you.
We’ll go Jack ma.
It it’s terrible.
It’s crazy if you ha if you can’t smile about it, I you go insane.
But yeah, it it’s gonna be volatile.
What makes me nervous is ’cause it hurts.
Our thesis is if they get crazy and start doing capital controls, which I don’t know how they don’t, the US dollar’s probably gonna go up in the short term because if you’re fleeing currencies, you can only go so many places and you gotta run to the strongest military power.
Forget the taxing power.
It’s not about that.
It’s about the military.
Frank Curzio: Yeah.
And even the, the whole de dollarization thing, I hate the argument because, you know, and I’ve been talking, I think of Cynthia Capital, I like that guy over there, but he’s just on this thing.
Like it’s never gonna replace, we’re not talking about that.
I mean, he’s, he, he brought up a whole scenario how, in order for you to have de dollarization you have to have deflation of everybody else.
And when you have deflation of everybody else, what are they gonna do? They, they, they’re going to, um, it, it’s gonna make the dollar go higher.
And, and you know, of course you’ll have inflation and you know, wherever, but it’s gonna make the dollar actually go higher.
And, and it, it wasn’t this like on paper that’s what it looks like.
I mean, but if you really look at the details and you look at the actual numbers, the US dollar in terms of the total right of global currency, right? It, it’s, it was in 1999, it was I think 71%.
And right now it’s 58%.
Okay? That’s a big difference, right? So you’re seeing fewer companies use around the world use the dollar.
And this is why this meeting coming up in a, I think it’s next week, how many countries is it now? I think it’s over 30 that attended the Brix nations and stuff like that, talking about de dollarization and stuff like that.
So you, it’s not that the dollar’s not gonna exist anymore and it’s, but they need to win themselves off the dollar because, you know, being on the Swift system and being in total control over the US and seeing what’s going on in Ukraine is, is crazy, right? We’re defending a country that we, we said that there’s a, a couple years ago that we hated that.
We said there’s no way they’re ever getting into nato.
’cause it’s a corrupt nation.
And we wouldn’t love to do that.
Not to mention the reason why NATO was created.
We said we’d never go, you know, to the western area and, and you know, put our stuff right on other people’s borders, especially nuclear power.
That’s like Russia coming here to Mexico and saying, Hey, you know, we’re, we’re gonna sign agreements, and they’re gonna be, you know, we’re gonna be partnering with, with Canada and Mexico.
We would say f there’s absolutely no way it’s gonna happen, right? So it’s almost like we’re provoking Russia, right? But now all of a sudden we love them and we took Russia a press on a button off the Swift system, which can destroy an economy, right? So, yeah, that whole d idolization, it’s happening.
It doesn’t mean that the US dollar’s not gonna go higher in sometimes or whatever, but you’re right, it could go higher here.
But it, it’s it’s pretty crazy scenario.
And, and you said something really quick to end.
I don’t wanna get, you know, make this whole China podcast.
But you said something interesting where, where this shouldn’t surprise anyone.
This surprised the s**t outta me when I started looking at the numbers, right? And I follow this stuff, knew how big China was.
Didn’t hey, communism isn’t a great way.
Yeah, I, that’s my, my, I did not know when I started digging that.
Not only is the one coming down and you look at it and, and again, it’s not a top story in c n bbc.
Nobody really caress about it.
This is a massive, massive deal.
This is gonna have significant consequences globally because my job right now is to look at when you raise rates by 6000% in a year, right? It’s gonna break s**t.
And if you could predict what’s gonna break, you’re gonna be fine because you see it coming and you could adjust.
That doesn’t crash markets ever, okay? It doesn’t crash markets ever.
What crashes markets is a surprise.
What’s the surprise? You can’t tell me across the world there’s not gonna be any surprises and everybody’s gonna be okay.
This is a surprise I think that a lot of people aren’t expecting.
It’s gonna, you know, result in much, much slower growth.
It’s gonna impact Europe, it will come back to the us.
This is like contagion fear.
This is something that could really, really result in the markets coming down a lot.
Which I think all of us and anyone that that has a history of the market is very surprised it hasn’t come down.
’cause we never see multiple expansion.
When we see a earnings recession and we see interest rates go higher than it’s fastest paced than we’ve ever seen in the Fed era.
We’ve never seen that, right? With interest rates 22, usually you see multiples contract in that kind of environment.
You don’t see them expand.
Uh, so, you know, what’s the damage, what could happen? I think you’re gonna see a shift outta a lot of technology.
Uh, who was it that took the guy from the big short, Michael Bur, I think his name, name is, oh yeah, burry, what is it, the largest technology companies.
Nasdaq 195% of his portfolio, they just recently is his short positions.
I’m not saying it’s gonna happen.
And he was really wrong probably for the first year and almost lost his job.
And, and you know, again, he, it was, it was a nightmare and nobody, you know again, but to see where we are right now at these levels and these valuations and where interest rates are and earnings not growing that fast.
And now we throw in and we just, we just turned off the biggest growth engine of the world.
Uh, and it’s much, much worse than we expect.
Uh, just be careful out there guys.
Look, you gotta be careful.
That’s why I say it’s one of the most dangerous markets.
’cause it almost forces you to be in it ’cause it’s going higher outside the past couple weeks.
But this leads into, you know, one of the companies had the, the biggest exposure to China who said, we have nothing to worry about.
We have absolutely, absolutely zero to worry about.
And that’s Nvidia.
If you look at Nvidia, they’re gonna report, when are they reporting? Daniel, Uh, briefing has it as next week, the 23rd.
So what is that Wednesday? So Wednesday on the 23rd, After the market, it has Confirm.
Have you noticed how many companies have upgraded? Like I feel like every time I’m, I’m putting on CNBC, it’s another company.
It’s Morgan Stanley names the top pick.
U B Ss calls ’em the king maker in ai.
Everyone’s raising their estimates.
I I always think it’s funny when someone’s bullish on something, they have a buy rating on it and they go and they say, well, we’re gonna reiterate, we reiterate our buy rate.
We’re reiterating it.
Uh, and you have a buy rating.
I get it.
Yeah, no, no, no.
What we have a really, really big buy rating on it, right? So, I’m just gonna tell you going into this quarter, we saw Nvidia fall.
A lot of AI stocks have fallen over the past few weeks, but Nvidia bounced back because a lot of companies had, a lot of these firms have been defending it, raising estimates into the quarter, which means that they’ve been talking to management, right? Because you’re gonna lose your job if Nvidia comes out and says, you know, again, it went from seven to 11 billion, which is something I’ve never seen in the history of been doing this for 30 years.
Uh, I’ve never seen that big of a raise and good for them, they deserved it.
And I was wrong on my call.
I just thought that, you know, you have to be careful going in since the stock was up, you know, they’re gonna have to really produce numbers that I didn’t think they were able to produce.
And they did.
So I was wrong on that.
And, and you know, again, that’s on me going into this quarter.
Now all these estimates are sky high.
I mean, they’re expecting earnings of, of over $2.
That’s over 300% increase year over year.
Uh, What’s revenue 11 and change now 11 And change.
They’re gonna easily, they, they better report 12 and change a plus.
You think they better report that? Right? And, and, and you know, a lot of these guys gotta look at the number, right? So they basically, they talk to management.
’cause you’re not gonna lose your job and, and say something stupid and say, this is my top pick and a week later it crashes 30%.
Uh, ’cause that analyst loses your job immediately, right? You gotta know, my questions is how are you gonna increase your supply chain to, to meet this demand when Taiwan semi is close to full capacity? They’re saying their lead times on chips are out six to nine months.
Uh, to me I think that’s a big deal.
Uh, considering you’re talking about a company that’s making 70% margins on chips.
This used to be a commoditized business.
So Ford and GM and everyone that needs chips and everything, they would go out and say, okay, this is what we need guys who wants to supply it? And 20 people would bid it.
And it’s a commoditized product.
A lot of these chips, this isn’t, and these, these are, you know, the main AI chips everyone’s using.
So 70% margins.
If you have a industry or you run a business with 70% margins, you better be innovating like crazy ’cause the world is coming after you.
And the problem is, the world in their industry includes Google, Amazon Meta, and Microsoft who spend tens of billions of dollars every year on CapEx.
They’re all developing their own AI chips along with a m d along with Intel.
We know Intel has been terrible, but maybe Intel.
Listen, if I’m an Intel investor, I would love to invest in Intel.
If they said, listen, we are going 100% AI or going bankrupt, that’s a buy to me.
That’s what I want Intel to do.
’cause I hate you if you’re not an AI because you’re so terrible.
You’ve been late to every freaking trend.
Your management has been terrible.
You’ve burned so many investors.
You’ve been horrible.
Tell me that.
Say this is what we’re doing.
We are going all in.
We’re gonna poach everyone we possibly can in this industry.
We’re gonna overpay for everything.
We’re going 100% AI no matter what.
It’s AI or death.
That would be the best bullish.
I mean investors I think will love that because that’s what you wanted Intel right now.
But they’re getting in it.
And, and remember they’ve been so wrong in so many other spaces.
You know, it, it, it’s gonna pay if they happen to be right here.
Also, they have massive exposure to China, which is in terrible shape right now.
So, you know, and again, China may do something stupid or whatever to try to inflate their economy, I don’t know.
But Nvidia said, well we have nothing to worry about.
So their average target price is a little over five hundreds, about 13% higher.
You’d think it’d be more than that with all the upgrades and everything.
Uh, they better report insane numbers and insane guidance.
I’m expecting that.
I think the stock might hit 500 and go up to those levels.
And then when analysts raise their SMSs, I think that’s gonna be one of the best shorts that you’ll ever see in your life.
Uh, there’s just too much risk over the 12 month outlook for that company where you have the biggest guys in the world that are all coming in.
It is a massive industry.
I’m a believer in ai.
This company is trading at perfection and it’s not perfect.
There’s a lot of things that could go wrong with this company and there’s a lot of competition coming into this space.
Uh, not to mention just, hey, you know, what a global slowdown, in terms of cyclicality, which means a lot of these companies may cut spending a little bit, right? Uh, so, you know, for me, I think they’re gonna blow out the numbers.
They better blow out the numbers.
I think you’re gonna see the stock, you know, go back and forth and then rise and then probably go up to 500.
You’ll see all the analysts like pat themselves on the back.
And I think that’s gonna be the ultimate top for the company, because there is a lot of, a lot of, a lot of competition coming to the space.
But, you know, what are your thoughts on this one? Nvidia, they’re gonna be reporting and it’s a big story.
again, I think short term, this stock’s gonna go high.
The numbers are gonna be great.
Daniel Creech: Yeah.
Since I’m not in it, this is easy.
This is a beat and raise and the stock will go up at least 10 to 15% afterwards.
’cause I’m not in it.
Everybody that is in it.
I promise I will not get in it before next week so you guys can all enjoy.
yeah, I to your point, I mean we, we were talking earlier and there’s been a few hedge funds and there’s some sayings out there that hey, and, and I know the AI bubble quote unquote, however you wanna talk about, has been going on for a while.
Or like you said all year, it just, when everybody’s talking about, I just couldn’t believe the latest results they had, to your point, when they were expecting seven or 8 billion and it came out with 11, it it was absolutely incredible.
I had to add to them.
It was amazing.
And Now you’re getting headlines about Saudi Arabia’s standing in line as everybody else is buying all these chips.
to your point, I, I don’t know how they just don’t blow out the numbers.
I think it’ll be a lap.
But yeah, I mean it’s just emotionally, I, I I can’t touch it now.
It would be a pure gamble.
And when it’s a a pure gamble, I would rather go to Vegas.
Frank Curzio: And and How did they produce ’em, right? I mean we saw massive demand outta the auto industry, right? During COVID and they just couldn’t produce the cars.
Supply chains weren’t there.
The supply chains aren’t there for that kind of massive demand.
So it’s great to see that demand.
But where, where’s the capacity at? Because you know, those lead times six to nine months, that’s light years right now when it comes to being first in, in AI.
Uh, so people are looking for alternatives.
What are the alternatives? And not everyone at Nvidia is making a fortune.
And you probably got a a great unbelievable teams there that are gonna get poached.
They’re gonna go elsewhere ’cause you have deep pockets there in that industry making their own chips.
These are companies that are software companies and search companies and Amazon.
And so they’re making their own.
That’s what you have with 70% margins.
’cause they can make chips within their own AI systems that’s gonna power their own AI system.
And it’s also the software behind it.
Again, Nvidia is doing, it’s killing it.
It’s absolutely killing.
I’m not taking anything away from them.
Uh, but a lot of competition’s coming and this stock is trading as there’s no competition.
They’re the industry leader, but also be careful because they have to fulfill those orders.
And I hate the fact that they, they, they just came on and said, you know, China is is not a risk at all to us.
I mean, I, I hate when companies like just say, listen, it, it’s very small or, or we really don’t see it, or, you know, we’re dealing with it and we’re ahead of it and we’re fine.
And we knew this is coming.
When you say it’s zero, it has nothing that that bothers me.
Especially when a lot of your business is tied there.
So let’s see what happens when the video, Yeah, they get 20% of their revenues from China.
And, and manufacturing capacity and everything.
I mean, look what they’re doing with their chips.
I mean it’s massive.
So, you know, let’s see what happens in video report next week, but we’re gonna be back tomorrow, right Daniel?.
Daniel Creech: Yep.
And Wall Street Unplugged Premium and cheap, but it ain’t free.
Frank Curzio: We’re gonna talk more about in the international markets, right? Which is gonna be pretty cool.
Uh, we’ll talk about, oil as well, right? Because we saw with India, right? Interesting with oil.
Daniel Creech: Yep.
Trade settlement not in US dollars that Yep.
Fits to the thesis.
Frank Curzio: Which, Which is really cool.
Daniel Creech: And 13Fs, we get to go through those.
Frank Curzio: 13Fs As Well.
Daniel Creech: see what the biggest and richest are buying and selling.
Frank Curzio: Yes, absolutely.
So, you know a lot to talk about tomorrow.
So, yeah, we’ll be back at Wall Street Unplugged.
It’s nice to be back in the saddle Guys again, thank you for all your well wishes and stuff like that.
I appreciate it.
But no worries about me.
No worries about don’t send any emails about my, my, my hip anymore.
Just assume that I’m good.
I go back in a saddle and it’s nice to be here.
So I appreciate all the, all those emails.
Daniel, if anyone wants to get in touch you, how do you do it?
Daniel Creech: Daniel@Curzioresearch.com.
Frank Curzio: And for me, it’s frank@Curzioresearch.com.
So that’s it for us.
And see you guys take care.
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