I start things off this week with some advice to you all: Don’t ever build a house! I share a light-hearted rant about my family’s current struggles… and why they’re good problems to have.
Earnings season is about 75% over… and honestly, it’s been terrible. I break down some numbers that show why the headlines about “beating earnings” aren’t nearly as positive as they sound… why the next few quarters are going to be ugly… and why Wall Street’s expectations are ridiculously high. Put simply, the current market conditions are a recipe for disaster.
Next, Ford CEO Jim Farley is getting credit for his “honesty” about the headwinds his company is facing. I explain why this media narrative is wrong… how Ford’s management has been screwing up for a long time… and why its stock should be trading much lower.
Gold miner Newmont Corp. (NEM) just announced a bid to acquire Australian gold company Newcrest Mining. I highlight the impact the deal would have on NEM… what it says about the current environment for gold miners… which group of gold stocks is in big trouble… and whether I’d buy NEM here.
- Don’t ever build a house! [00:30]
- This earnings season has been terrible [7:05]
- Why the current market is a recipe for disaster [9:55]
- Ford should be down a lot more after its awful results [10:30]
- Is NEM a buy right here? [12:55]
Wall Street Unplugged | 1004
Current market conditions are a recipe for disaster
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 February 7th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and tell you what’s really moving these markets. Man, word of advice, don’t ever build your own home. Whoever says it’s the best thing in the world, you’ve got to do it, they’re lying. Because holy cow, the amount of time, aggravation, BS, everyone trying to rip you off, HOA, permits, your relationship with your spouse. It better be really, really strong to survive this because it’s stressful, it’s really stressful. I enjoy the fact my wife’s in a car four hours a day, driving my daughters to school, which she lets me know about for probably two and a half of those four hours every single day. Then of course, the work schedule, which everybody has. I work a lot. Then I get home, which is usually late. I’m helping my kids with their homework, and I don’t know how it is with homework with you or with your kids.
Frank Curzio: When I grew up, and again, I was a bad student, I didn’t really do too much homework. But it’s insane. I mean, it is insane. It’s my 12-year-old, this is just a homework from last night. She needs a study for her history test, it’s going to be India, ancient times, which is seven chapters and 60 pages. Includes 30 definitions and essays. She has 20 problems in math to do, and the 20 problems are not easy, like hard word problems, conversion charts, tables, stuff that I have to go back and look at. English and grammar, which makes her label every word in every sentence. She’s like, “Could you help me with this?” Every word. I’m not just talking nouns, verbs, adjectives, adverbs, that’s easy. But subject nouns, subordinate conjunctions, objects of the prepositions? I mean, I’m considered a professional writer, I don’t know how to find half of that shit anymore.
Frank Curzio: Are you kidding me? Just labeling everything, over the top. And that’s not it, she has vocabulary for English, 20 words every week that they test are on. And it’s not like there’s multiple choice and I could teach her, “Hey, know how to eliminate some of these answers and this way, it could increase your odds to get it right.” No, no, no, they make her write senses with these words to make sure that she actually knows what they mean. Then, she has three book reports due this week, of books that she read pretty much over the past three to four weeks. And then, two tests and two quizzes this week, and that’s more work that I did my sophomore year of college, and she’s in the sixth grade.
Frank Curzio: My wife and I would talk about it, we were pissed off because we were up helping her, we have no time. But all right, we need to see the teacher. And we saw the teacher last week and I asked her, we sat down. I was like, “Is it normal for a 12-year-old to go to school for seven hours a day, 35 hours a week, and then have at least three hours of homework every day?” I mean, you’re looking at 50 hours a week. These kids in China making Nike sneakers wouldn’t trade places with my daughter right now. They’d be like, “No way, man. That’s slave labor, I wouldn’t even do that ever.” It’s crazy. But apparently, this is the norm from people that I talk to, how much homework these kids have. But it’s insane, it’s insane, so much. And even when I’m studying some of this stuff, I have to learn.
Frank Curzio: It’s not like, “Oh, well, this is going to be easy, I’m going to help her out.” It’s not that easy. And I told my daughter, “Look, just get Cs. You get Cs, you’re gold, because by the time you get to college, you going to know more than your professors.” But just the time management right now with my life and the house, holy shit man. I don’t know who said, “Build your house, it’s going to be great.” I used to play golf at least once a week, now it’s maybe once every three weeks. I mean, I go out and I hack the ball and I have a great time because I’m just out, I don’t even care. My idea of free time now is watching five minutes of TikTok in a bathroom once a day. And even them, my wife and daughters are knocking, “Hey, you coming out of there?” I’m like, “Just give me five minutes, five minutes.”
Frank Curzio: Should have stayed put, not build a new house, not send them to new schools. I was a real idiot in high school and I don’t know, I think I turned out okay, I’m not that nuts. But you have to reach for the stars, go all in, go get the house and everything. Anyway, enough bitching, things could be a lot worse I guess. There’s not too many people out there that are telling you, “Hey, you know what? You buy a new home or you’re building your new home, it’s stressful.” Everyone’s like, “Oh, you got to do it. It’s great, it’s great.” That’s what you hear all the time. It’s kind of like the Disney postcards you see. Your seven-year-old daughter on your dad’s shoulders, the mom, your nine-year-old son, holding hands, sharing an ice cream cone.
Frank Curzio: What you don’t see is the parents waiting two hours for the ferry or tram to get out of Disney World at 9:00 PM because the kids want to see the fireworks, and they wind up falling asleep anyway. They’re crying, the parents are telling the kids to, “Shut the F up before I throw you in the lake.” You don’t see that, you don’t see that. Believe me, any parents leaving Disney World and staying there for the fireworks knows exactly what I’m talking about, because you’re like, “Oh, all right, I’m done.” And next thing you know, it’s two and a half hours to get to your car and then another probably half an hour in traffic to drive to your hotel. And then are you getting something to eat? If you eat at Disney, it’s going to cost you $500 for kids. They don’t tell you that on the postcard, no. Just like the house, they don’t tell you how stressful it’s going to be, how crazy it is.
Frank Curzio: Anyway, house is almost done, moving in a few weeks. School’s going to be 15 minutes away, so much happier times ahead. But I like bitching, especially on my podcast, it’s therapy. It forces you guys to listen, or maybe you don’t listen, I don’t know. But anyway, appreciate your support. Going to have fun getting emails on this. But trustful times, all I guess, good stuff and good problems to have, right? Healthy daughters, building a new house, going to good schools, working hard, but still, doesn’t mean I can’t about it like everybody else. And man, this is a bitching world these days. Everybody bitches. Friends, family. I mean, you remember when we used to go, we used to have beers and laugh and joke. Everybody’s bitching about everything now, they bitch about everything. Everything, no matter what it is. It’s just like, ugh.
Frank Curzio: I just walk away, I don’t want to hear it. And as you get older, that’s why I always appreciated my grandma when she was alive, and grandparents and stuff. There’s no bullshit. They don’t want to hear something. They’re like, “I don’t want to hear it, just stop talking.” They know time’s limited, they don’t want to deal with any of the bullshit, but I see that as I just turned 50 now. But anyway, let’s get to the markets, let’s have some fun here. Earning season about 75% done and it’s been a disaster for the most part. You wouldn’t know that by watching TV or watching where the major indices are, but when all is said and done, this quarter, Q4, earnings are likely to decline by over 5% year-over-year. And now, earnings have been revised so much, they’re expected to decline the next two quarters. So, you have two quarters, that’s an earnings recession. It’s going to be at least three quarters, probably more than that. But estimates have finally been coming down tremendously.
Frank Curzio: You look at September earnings, this quarter projected to grow over 2%. Again, they’re going to see minus 5% of the quarter. That’s how big the revision was. Isn’t that amazing? Tech companies had weak earnings, I think they’re down 20% year over year, margins down 10% the same timeframe. Even recently, Pinterest, Chegg, Take-Two lowered guidance, four was disaster. This is recently over the past few days or so. You’re looking at these numbers, they’ve just been, ugh, lowering, lowering. But it doesn’t matter. Even when companies miss, their stocks are holding out well, which is crazy, considering how much almost every stock has run up into the earnings report. Usually if the stock is running up into earnings and they beat earnings, usually you see a little bit of a decline and okay, it ran up. But now, it’s like you’re running up into earnings.
Frank Curzio: The earnings are terrible, especially with the FAANG names in most technology stocks. And even the ones that beat like Skyworks, just look where the estimates were three months ago. And they’ve been lowered significantly, most of them by 10%, 15%. I’m not even kidding, by 10%, 15% over the past three months, that’s how much they’ve been lowered. But you’re going to hear that 70% of these companies have beat earnings estimates. They’re revised estimates. I mean, 80% would’ve missed if you kept the estimates from three months ago, they’re not going to tell you that. But it’s going to matter, it’s not like I’m bitching. Good, if you own stocks, that’s good. They’re going up or whatever, but it is going to matter, it really is. Just to see where earnings are and how you see earnings declining, starting to decline sharply and still for 2023, right now as of today analysts are expecting 2023 earnings to go 3% year-over-year.
Frank Curzio: 3%, recognize 3%. Even though they’re expecting, they just had negative growth, negative 5%, around that’s where it’s going to end, a little bit more than 5% for Q4. They revised the estimates over the next two quarters, so they’re going to show negative and negative, but they still think earnings are going to grow, I think by the third or fourth quarter, by 10% magically. I don’t know if they think that the Fed’s going to lower rates and immediately, the Fed’s going to be like, “We’re lowering rates,” and everyone in the world the next day is going to go out and spend everything they have in a bank, they think 10%. Maybe it happens, I don’t know. But I could tell you it’s a recipe for disaster. When you see stock prices, not just gradually going high, surging while earnings are plunging, it’s a recipe for disaster.
Frank Curzio: It’s just a matter of when it’s going to happen, and it will happen, and it’s going to get ugly. You got to protect yourself, you want to be long and do good in our portfolios. However, you got to be protecting yourself, you got to be careful. Have all the new stories, I try to break down a couple things, especially my monologue. I talk about Ford and how that was disaster. I love how people are saying that, “Oh wow, the CEO was so honest on the call.” Really, he was honest on the call because he said he had shitty numbers?” If he was really honest, he would’ve told you how shitty the company was the last four quarters, instead of lying about your projections and lying about the money that you’re putting in and how EVs and the demand is through the roof.
Frank Curzio: “The demand is so strong, it’s so strong for our cars right now that we’re actually going to lower prices. We’re going to lower prices. Even though we don’t make money currently on any EV we sell, we’re going to lower prices, we’re going to lower them just for you.” Who lowers prices if demand is high? I mean, I just hate when CEOs lie through their teeth. But again, Ford ran up 25%, 30% into the quarter, reported the worst quarter by far this earning season and fell probably is down 7% off of those highs. We should be down pretty much 25%, 30%. And that’s going to happen, you’re going to see some companies have pricing power, some companies are doing okay. That’s good, I’ll try to find those for you, throw them in portfolios.
Frank Curzio: And not every single company, but there’s a lot of names that are in big trouble. When you tell me that your strategy for Ford and you can see there’s a Ford GM, which I’ve been telling you guys about for a while, but you see the difference with Ford where they come out and say, “We’re lowering prices and we’re not going to see profits on these cars until 2025.” Imagine you have a company and you’re spending 50, your market cap, a little more than your market cap. You’re spending $50 billion on a growth model that you’re not going to make money on for the next three years. And not because you’re overspending, even if they didn’t understand.
Frank Curzio: It’s because every product, every car you sell, you’re losing money on. Not to mention, Tesla owns the market, they’re lowering prices, they’re still selling cars like crazy. And yet, Ford’s going to be like, “We sell the second most cars at 6,000, whatever, EVs.” I don’t know, you’d better sell more of those Ford 150 gas guzzlers because that’s your highest margin product and you’re trying to get off of that. Hopefully, you go back to that. GM realized that a lot earlier than you. GM was like, “Oh, we’re not going all EVs, no, no. We’re trying to get into autonomous, yes EVs, we’re going to have a nice portfolio, but we’re selling these cars. We’ll just keep it under the radar and not be on the map where we can get yelled at by the politicians and bullshit climate maniacs, that’s fine.”
Frank Curzio: But anyway, you’re looking at earnings are horrible. But that was Ford last week. This week, one of the biggest stories that I wanted to talk about is Newmont. Newmont’s proposed takeover of Newcrest. Newmont is a portfolio holding and the stock went down about 6% on that news. I think it’s a screaming buy here. One, they’re looking to pay $17 billion for Newmont, which they have. They’re going to do in stock mostly for Newcrest, they’re looking to buy Newcrest, which is one of the largest miners or the largest miner in Australia. Gold producer, big copper producer as well.
Frank Curzio: And the reason why I like Newmont because the deal, they think Newcrest is going to ask for a little bit more money, they already did. It was behind the scenes and I don’t know when they tried to purchase them, but this price apparently is 7% to 10% higher or something like that than the price was. And I didn’t get a timeframe, but it could have been a month ago or six months ago, whatever, but they said this is a second time that they came back. They might ask for a little bit more, but yeah, I’m not sure the deal would get done. Because you have Newcrest, which has great assets, long shelf life. Again, huge copper producer, but shitty management. They’re still looking for a CEO the past three months, the previous CEO left in December. He was there for eight years, and he was bullying the shit out of people where he would humiliate employees if they didn’t make their goals.
Frank Curzio: That’s probably why the company had record profits, but every employee was seeing a shrink, so I’m not too sure if you’re happy about that. Maybe if you’re an investor, you might be happy about that. I don’t know if that’s defining success, but he came out with this whole apology. He wound up leaving pretty much abruptly in December, I guess. For some reason, he didn’t think he was going to leave. He made this big apology, why apologize and then leave anyway? So, they don’t have a CEO, had management issues and stuff.
Frank Curzio: And for Newmont, they have great fundamentals, but growth is expected to slow over the next 12 months or so. But it’s priced into the stock where it’s being down, that’s why I really like it. Nice dividend, but this is going to help the company significantly. They’re saying it might be dilutive to earnings instead of being accretive right away where you’re making money off of it right away, where you’re going to lose money for a couple of years, not that much.
Frank Curzio: Because if you look at gold companies, it’s not like factories and Ford or whatever where you can cut costs and you have synergies and stuff like that. You have gold mines in different places, and it’s not like you can cut employees. You still need to develop, you still need to have truck day, you still need to have separate people on site. It’s not like, “Oh, well, let’s close that mine and then merge it into here.” You can’t do that. With factories, you can. “All right, we’ve got four factories. Let’s close two of them. All of our production comes from here now.” Again, I make it pretty easy, but there’s not a lot of synergies in some of these things. What it is for Newmont though, and why this is going to be fantastic for them, well, one is if the deal doesn’t go through at this price, Newcrest has to be careful, because I don’t know if that anyone else is going to come up with this price. You could say Barrick, I’m not too sure if Barrick would do it, though.
Frank Curzio: They’ll be, not a merger of equals, but they have a smaller market cap than Newmont. But if Newmont’s able to pull this off and buy Newcrest, listen to these numbers, guys. Newmont’s going to increase their gold reserves by 60 million ounces, that’s a 50% increase. They’re going to increase their measured inferred resources by $120 million, which, Newcrest M&I resources are greater, so they’re going to increase by 150%. They’re going to increase their copper revenue. Right now, it accounts for 3% of sales, it’s going to count for more than 10% of sales. They’re going to increase their sales of copper by 230%. 230%, which is huge. Copper is on fire, cover that in a second. And the combined company’s going to produce roughly 8 million ounces of gold production at an average all in cost of 1150. I mean, you talk about margins, talk about a great investment, this is it.
Frank Curzio: This is great. They can go a little bit higher for it, but this is it. Now, why do I like Newmont? Because either they’re going to get this deal done, and maybe the stock goes a little bit lower because that’s what happens when you acquire, you make a large acquisition. But if you’re a believer in gold over the next two, three years, of how big it’s going to be… And I’ve bought so many companies like this that they’ll acquire, they have one of the biggest acquisitions in their history, and you’ll see the stock come down and be 10%, 15%, and two years later, it’ll be up 200%. I’ve made a lot of money in my career doing that with companies, just seeing that. This whole balance because everyone’s like, “Quick, quick.” They want to know one year, it’s going to be diluted. I just told you the numbers.
Frank Curzio: I mean, it’s Newmont and everybody else. You got Barrick, they’re not even in the ballpark of Newmont anymore. Not only that, the copper’s huge. When you look at the bigger picture, it’s difficult to add reserves in low-risk countries and it’s been that way for decades. If you look out of… And this is Thompson, the first call. It’s S&P that came up with the stat, it was fantastic. 341 major deposits discovered between 1990 and 2021, so we’re looking at 30 years, basically. Only 28 of those 341 were found in the past decade. Of those 28, again, since 1990, they’ve only amounted to just 6% of the total gold discovered since 1990 for the past 30 years. That’s how crazy it is and how difficult it is to find major gold deposits, especially in mine friendly jurisdictions.
Frank Curzio: More importantly, let’s dig in a little bit. This is why I wanted to cover this subject today. Look at the recent deals that we’ve seen in gold. Newcrest mining buying resources. You have Agnico Eagle and Kirkland Lake Gold, that’s a $10 billion merger. Kinross Gold’s $1.4 billion acquisition of Great Bear Resources, which, they say it’s a junior, but it’s a super high grade project. It’s a really special project, Great Bear Resources, so $1.4 billion. You look at these deals and for me, it makes you think that the junior miners could be in a lot of trouble, a lot of trouble.
Frank Curzio: Because why would these companies go after the junior miners? And you can say, “Well, they might have this big discovery.” And again, they’re planting their flag in the ground, everyone’s cheering. Okay, great, that’s awesome. And they try to sell this project, they’ll drill a couple holes here or there, few million dollars, whatever. And they try to sell these projects, increase that grade, increase that deposit as much as they can, make it look rapid and just nice present. And this way, they’ll get bought by the bigger guys. However, you’re looking at what, 12 to 15 years by the time you put that stick in the ground and drill that first hole just to see what’s in the ground, compared to when you’re actually producing gold?
Frank Curzio: Think about the costs associated with that. I mean, you are looking, the costs right now, these juniors are going to acquire tens if not hundreds of millions in capital over the years to bring these projects to production. Not to mention the borrowing costs and financing now compared to last year. You know how much it costs, how difficult it is to raise money? It’s not that easy anymore, it’s insane. So, when you’re looking at this, unless it’s a fantastic high grade gold project with super low costs, which I don’t think you’re going to find anywhere, it makes you think. The juniors, and look, if prices go up to $2,200, $2,300, $2,400, the whole market’s going to do well, and junior miners might outperform the bigger guys.
Frank Curzio: But you could see how the bigger guys are positioning themselves, they’re not going out. $17 billion is enough to buy almost every fricking junior on the planet and they’re like, “F you, we don’t want that. This is what we want, we need producing.” Producing assets have long lives, more than 10 years. And more importantly, you want to make sure that it’s not just gold producing, but gold producers have lots of exposure to copper. Because copper prices, and man, you think of supply demand and balance for uranium is crazy, you should see copper. Prices have been surging for the past few months and that was when China closed. China’s open now, I mean, look out. But gold prices, I see gold go much higher this year, over $2,000, I think $2,200, $2,300 would not surprise me.
Frank Curzio: Margins for companies like Kinross, Barrick, Newmont are going to explode higher. As you’re looking at their all in cost around $1,100, $1,150. They’re already printing money at $1,800, $1,700 gold prices. They have dividends, cash flow, massive cash flow that they’re degenerating. Again, the only thing that happened to these companies and why it wasn’t so big is because those all unsustainable costs were $900. And they’re $1,000, now they’re $1,000, $1,150 because the cost. Oil, rubber, tires, metal, it’s insane how much the cost have gone up to drill, to mine. And it’s kept these guys from really going a lot higher because in a market where you’ve seen, again, technology company, their margins on average are down 10% from last year, year-over-year. This coming quarter compared to last quarter, earnings are down tremendously, but margins are down 10%.
Frank Curzio: These are companies that margins are getting higher and higher and higher. You’re not seeing that a lot, companies are starting to lose pricing power. But if you look at gold as prices go higher, now all these guys are finding ways to eliminate their costs and maybe cut back on employees and lower costs and improve their cost structure. But then, when you see that underlying commodity going higher and higher, which is likely with gold from here, a lot of people see gold over $2,000 this year. I don’t see it at $1,500. Wherever it is now, $1,800. But to me, that’s a big story. That $17 billion bid’s a big story. I want to see if that goes through. If Newmont get that deal done, great for them. Might have to go a little bit higher on it, but I’d be careful if I was Newcrest because I don’t think anyone else is coming around the corner.
Frank Curzio: And again, looking for a new CEO, the culture, the employees and stuff like that hasn’t been too good over there. They better be careful. They better be careful because if Newmont calls her bluff and says, “Hey, you know what? I’m walking away,” kind of like have what Amazon did to AOC when she was like, “Oh, we don’t want these tax credits or whatever.” She doesn’t understand economics, that how much they were going to give to the community, Long Island City and pay these new employees, I think it was 25,000 new employees and stuff and build this home base in Long Island City, which is such a great area, man. Just the melting pot, just so many different nationalities, hard workers. I’ve lived there for a few years in Queens and AOC just pounded chess, was like, “Yeah, I beat Amazon.”
Frank Curzio: Amazon in two seconds, “All right, we’ll go someplace else because there’s 5 million places in the world that want this deal, that would take this deal on the heartbeat.” She just didn’t understand economics. Be careful with Newcrest, because they push, push, push. And if Newmont walks away, you’re going to see that stock really get hammered, because I don’t think anyone else is coming. I don’t see Barrick coming, that would be a very big deal, maybe. Maybe when the big metal miner producers, I’m not sure, we’ll see. But definitely get some exposure to gold, especially now since gold stocks have really taken a beating in the past week. And holy cow, a lot of these names are down. I used the opportunity to buy on this pullback. It’s a great opportunity if you have a 12-, 24-, 36-month time horizon.
Frank Curzio: And it seems long from 12 to 36 months, but seriously, the next two years with gold, I think it’s one of the areas that you could see clearly where the margins are going to go higher, where it just makes sense for all the government spending with everything. People go into gold as a safe haven, as a store of value. Even the margins are good in this industry. As long as you’re holding up above $1,600, $1,700, which I see gold prices easily doing and likely going over $2,000, these companies are going to print money, the big names are going to have nice dividends. I mean, you’ve seen a lot of consolidation in the industry. This is an area that actually is not uncertain over the next couple of years and that’s why I like it. I think it’s a great place to park some of your money and get exposure. And I do that on this pullback, especially Newmont. Newmont could come down a little bit more if that deal gets through.
Frank Curzio: And if that deal doesn’t go through, you’re going to see the price jump up, pretty much regain everything that’s lost, which is down about 6% since they made that offer. Maybe it goes down a little more, but again, take a small position and add to it, hoping that it goes down even more. Because if this deal gets done, holy cow, Newmont’s going to be a powerhouse, a powerhouse. I mean, there’re going to be the gold company and man, just the valuation and everything, it’ll be a screaming by if that deal goes through. I’m hoping that stock would come down.
Frank Curzio: We have a half position right now, that’s what I’ll use to add to that position, and I think we have that in Curzio Research Advisory. So guys, that’s it for me, covered a lot today. Sorry about the bitching, I don’t do it often. But again, relieved some stress. I’m glad you guys are there to listen to me or not listen to me. I’m sure I’ll know by getting your emails. And those questions and comments to go to firstname.lastname@example.org, that’s email@example.com. I’ll see you guys tomorrow with the one and only Daniel Creech. Take care.
Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decision solely on this broadcast. Remember, it’s your money and your responsibility.
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