Wall Street Unplugged
Episode: 962October 25, 2022

Don’t be fooled by the positive earnings headlines

I just got back from a trip to Las Vegas with my wife. I highlight some of our adventures (including driving excavators)… and why the bustling Vegas economy is a bit of an anomaly.

Stocks have been rallying thanks to better-than-expected results (so far) this earnings season. But the headlines aren’t telling the real story. I explain what’s behind the numbers… why this rally won’t last… and why investors need to brace for the downtrend to continue.

But that doesn’t mean you should sell everything. I share how to make a fortune as stocks move lower with the Moneyflow Trader strategy… while holding onto quality long positions (like the one I’m recommending tomorrow in Curzio Venture Opportunities).

Inside this episode:

Wall Street Unplugged | 962

Don’t be fooled by the positive earnings headlines

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 25th. 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. So, fresh back from Las Vegas, celebrated my wife’s 50th birthday. Had a great time and holy cow, it was crowded as hell. But I took her to go see a Katy Perry concert. Had some great seats, which was awesome. She is an unbelievable entertainer. Outside of me and my wife, I think the rest of the entire audience, I’m talking about thousands of people, were gay, I think, but… I don’t think, I know, but I guess she’s really big with the gay community. I had no idea. But the place was rocking. It was absolutely rocking. Everybody was just having a great time. She was again, just a great, great entertainer. She was funny. She had a dance off contest and offered free pizza to the winner and pulled two people up from the crowd.

Frank Curzio: There was a young girl who was eight years old, probably the youngest person in the whole crowd, that was sitting in the row ahead of me, which was the first. We had second row seats and Katy Perry came over right to her and said, “Hey…” and was talking to her. We were right behind her. So, it was almost like she was talking to us. It was really, really good. And she was just funny. The pizza, she took a slice of pepperoni pizza, throw it into the crowd, probably hit somebody. She said, “I got one show left, it doesn’t matter.” It was entertaining. She sang all great songs. A lot of fun. And then, yeah, we did a few other things. I told you guys two things I didn’t want to give away, that was one of them. The other is, we went to… I took her to a place called Dig.

Frank Curzio: And if you want to do something original when you’re in Vegas, this is definitely it. We got to drive six ton excavators. And we were actually driving these things, where we were in our own trucks with headsets, an instructor is basically on this steel metal ladder and guiding you, and we’re next to each other just swinging that massive… Just pile that just digs into dirt. And it was unbelievable. I mean, these machines are incredibly, incredibly powerful, incredibly. So, you do everything yourself. I mean, you dig these massive holes, picking up tires, building pyramids, going through an obstacle course. And it was fantastic. And it was original, it was an experience. It was funny when we first got there, my wife’s face, she was like, “What the F are we doing? What is this?” And afterwards, I said, “Just give it a try. I heard great reviews.” And I think every single review, like over 5,000, were fantastic.

Frank Curzio: Afterwards, she loved it. But this is about a 10, 15 minute ride from the strip. Not too far. They have a massive facility with all these huge pickup trucks, excavators, bulldozers, the ones you see at major construction sites. You could take out different things. You could destroy cars if you want. We did the obstacle course one, and I mean, it’s really serious. And they actually certify people to work in the field. And my wife and I, we could actually operate these things. If we had to operate them, we’d know what to do. That’s how much they show you and teach you. Yeah, but if you’re in Vegas, looking for something original to do, this is it. These are those big construction trucks that you see at all these major construction sites. It was fantastic. But we had a really, really good time. Did not win gambling.

Frank Curzio: We got crushed the first couple days. Did okay the last day. But holy cow, it was… Surprisingly… I go to Vegas a lot, probably three or four times a year. It was jammed. It was pre-COVID levels, prices through the roof like you’d not believe. Sodas at casinos were, just for a cup, were $6. Slice of pizza were $9. To where I said, “How much is the pie?” And it was like $42, $43, I said, “Just give me a pie.” And this was like this big pie, right? And we had to walk to our room, my wife and I with it, and it’s like 1:30 in the morning and they don’t have a lot of places to eat. And our hotel was hooked up to another major hotel. We stayed at the Palazzo and it was hooked up to the Venetian, so they had the food in the Venetian.

Frank Curzio: So, I’m walking with this pie, and I felt like I was the one Chippendales, at the strip club with a thousand girls there. I mean, everybody was like, “Where’d you get that? Oh my god.” It’s like a bunch of drunk people. Everyone’s looking for food, and it’s not easy to find food that late in the casinos. There’s only a couple places open. And we had this big pie of pizza, and it was like we were rock stars just walking through. Because we had to walk through the whole Venetia Casino, then the Palazzo casino to get to our hotel, which is literally thousands of people. It was so funny how many people stopped us. “Where’d you get that? Oh my god, that’s great.” It was just so funny. But we also went downtown to Fremont Street, which is crazy area. And they had several live concerts, they had a big festival going on and one of the places at Fremont, where they had… Slaughter was performing, which we didn’t even know.

Frank Curzio: My wife actually likes them a lot. She was like a rock head when she was younger, with the eighties hair and stuff and Skid Row, Def Leppard, Poison, Police-type person. So, she was like, “Oh my God!” So, that was … Yeah, I told her that I planned the whole thing and I didn’t. We got lucky that they performed and got to see them up close. I took videos of this. There were thousands of people in the street everywhere. This is a free concert. Everywhere. You could barely walk. And these are off strip casinos, which were packed with people. I mean, the strip ones, not so much when it came to gambling and the casino floors, but the ones on Fremont and off strip, they were packed, absolutely packed. Slot machines packed, tables were packed. It was just… You couldn’t even get a girl to get your beers or anything. It was insane.

Frank Curzio: It was so packed down there. But Vegas is rocking now. I know MGM Las Vegas, Sands, Wynn have exposure to Macau, especially Las Vegas, Sands and Wynn, who are all in on Macau and China. And the zero COVID policy is hurting them tremendously. I think it’s going to continue. But the casinos with no Asian exposure, especially with China exposure, Red Rocks, several others I won’t give away since I may be recommending one of these in tomorrow’s Curzio Venture Opportunity newsletter. In fact, we have Red Rock Resorts in the portfolio already. It’s up about 150% for us, 140%, 150% for us. And that’s like a two-year hold. We bought that right after everything started open up in COVID, and we sold everything just to avoid the crash in COVID. That was one of the names we bought early on. I think it was in June and July, 2020.

Frank Curzio: And we did unbelievably in that name. And I still think it’s going to go much, much higher. I mean, these casinos outside of the strip were just completely jammed. I couldn’t believe it. Yeah, they had a big music festival there. The Raiders were playing at home. So Uber drivers, even when we went to airport, I mean, they jacked up prices incredibly, probably double. Just from someone that goes to Vegas a lot. I couldn’t believe how busy it was everywhere. I was talking to… I mean we took probably about five or six Ubers to different places and I asked him how business was, everyone said it was booming, it was great. I asked them, a couple said definitely back before pre-COVID levels, that’s how busy it is. But for me, I couldn’t believe how busy it was everywhere. It just shows that some places, people are going to travel, they want to spend money, there’s still money out there.

Frank Curzio: But it was a crazy trip. It surprised me how busy it was, and my wife had a great time for her 50th, even though she’s saying that. Yeah, what I say to her 50th, I’m trying to say it’s her 30th… It’s a big birthday. That’s what we say, “It’s a big birthday.” But we had a great time, just got away. It was really, really cool. And her official birthday was yesterday, which was celebrated and had a cake and everything with the kids and stuff and my family. But it was a really, really good time. A nice time away. But man, it was booming. But when I look at the markets and get into the markets earnings, we’ve seen pretty strong earnings. If you’re watching TV and listening to them, earnings are strong and markets going higher. 3MG did cut estimates, so did JetBlue. But we are seeing some strong earnings in other areas.

Frank Curzio: GM reported very strong results. But kind of like these companies that even reported good results, they’re not raising guidance. I mean, you got to be a little crazy to raise guidance. Maybe some are a little bit. Just, there’s so much confusion going forward. Is the economy good? Well, I went to Vegas, an economy you would think it’s unbelievably great, and you go other places and it’s absolutely terrible. You look at the housing market, and Florida and Texas is still holding up, most states are not. You’re seeing prices collapse, you’re seeing a lot of building projects get canceled. I’m starting to finally hear from vendors that have told me listen to this podcast that things have been absolutely booming, they’re not seeing it. They’re starting to see it. They’re starting to see it and starting to prepare now. I mean, again, there’s pockets that are doing well still, but other places where you’re going to see houses, just… That’s a major driver of the economy, and we’re looking at 7.2% mortgage rates, and you look at double the payments that you had only a year ago, which a lot of people can’t afford.

Frank Curzio: And that’s why you’re seeing a collapse in housing market, right? Again, big driver of the economy. GM reported those decent results. It’s one of the names we have in Curzio Research Advisory. I just think they’re… Much, much better position. I think we’re flat in the position right now, around flat. We just recommended it like a month or two ago. Much better position than Ford and a lot of the other OEM competitors in terms of balance sheet. EV investments and technology, outside of Tesla, which is 100% EVs. They’re rolling out their EV vehicles much faster than… Again, you’re looking at the GMs, the Hondas, the Fiats. Everybody who says that they have… All these EV companies, all these EV products and cars that you see on tv, they advertise the shit out of this, right? Everywhere. You see EVs… They’re not available yet.

Frank Curzio: They’re not going to be available… You can’t even buy them within a year. Rivian and all these companies, they’re everywhere. That’s all they do is advertise. They’re advertising a product that looks awesome that you cannot buy, that you can’t get. And it’s going to be interesting. I think people who are familiar with this trend and you’re going to buy an EV, that’s fine. I think a lot of people are more optimistic on this market than ever. And you’re going to see people when… Think about if you go out with your friends, and you’re hanging out and you drive them someplace and you drive them three hours away, that’s fine. You might get away with one charge, but then you’re like, “Oh, I’ll be back in 40 minutes. I got to go charge my car,” compared to one minute and go into a gas station which is a half a mile away.

Frank Curzio: There’s not everyone that’s going to adopt to this. I mean, you could force it and mandate it like they’re doing in California, and by 2030 everyone no matter what you have to, right? Which is crazy, especially since they have grid problems. And if that doesn’t turn on then I guess you’re not driving anywhere, and hopefully nobody has a heart attack, has to go to the hospital because everything’s going to be EV vehicles. I don’t know if they have bicycles and going to be driving people while they’re having heart attacks to the hospitals, who knows? But it’s just interesting. With GM, I think they have much, much better position. But again, it’s a tough economy. They’re seeing supply chains ease. I just like the quarter overall, they didn’t raise guidance, which is smart. So yeah, I do think when I look at the rest of the industry that this one’s going to do much better, even though I think, yeah, the markets could head gradually lower, especially over the next year.

Frank Curzio: I’ll talk about that in a minute. But overall we’re seeing a strong rally. A couple weeks ago, I’m like, “We’ve got to watch out. This could be a market crash. This could be crazy.” And what happens is, you’ve seen stronger than expected earnings, where over 70% of companies have beat estimates. Those are all facts. Those are facts. I covered this because this is why I love data. You could look at things and see these effects, but it’s how you interpret them. You could interpret that 70% of companies have beat estimates, over 70% and you’d be right, you’re not lying. But keep in mind these estimates have been revised significantly lower into the quarter. For example, when we look at the actual numbers, and that’s what I like to do, and I like to dig in. I’m not pouring cold water over all this. I said, I hope I’m wrong in this prediction that stocks are overvalued, that they’re going to come down.

Frank Curzio: This is a bear market rally. We’re going to see a few of these, right? Again, I’d like to see stocks go incredibly high. Most of you are long. I have you in long positions, but I’m protecting myself. And I showed you how to do it by buying long-dated puts and not just protecting, but making a lot of money off of that. And I think right now, this market rally, it’s one of the greatest times ever to really put in the strategy. And they have great pricing now, a couple of these stocks and a couple names have gone just higher with the overall market. But let’s dig into this data a little bit. For example, when we look at the actual numbers, only 26% of companies reported thus far. That’s 26% of the companies in S&P 500. And when you look at these 26% of companies and you can say, “Well, 70% of them have beat estimates,” you’re right.

Frank Curzio: But if you take the actual number earnings from those companies, we’re up 3% year-over-year, only 3%. That’s an incredibly, incredibly slow growth rate for a market that’s trading at 70 times forward earnings. That’s what we’re trading. And when I’m saying 70 times forward earnings, I’m taking a number that’s six months away. So, I’m not even taking the much, much higher earnings number, which I have no idea how we’re going to get to without the Fed help, right? That’s how we got to… I told you the number that we peaked at, I keep saying this number, which is scary. We peaked in 2019 at 159. If you want to go on our YouTube channel, I’ll show you the chart and all my figures and stuff. So, we peaked at 159 in 2019, because 2018, we were at $160 in total earnings for the S&P 500, right?

Frank Curzio: That’s what you do when you do… You figure out the PE ratio for the S&P 500. You do price divided by earnings. That’s the earnings number they take. The full earnings number of all the companies. In 2018, it’s 160. 2019 it’s 159. And then we had COVID, but then we had trillions, 11 trillion, injected into this market, massive quantitative easing, right? Fed buying bonds. And 2021 went over $220 earnings. In 2022, we’re expected $226 in earnings. So, we’re not finished with 2022 yet. And then in 2023, we’re expected, this is the expectations, $244 in earnings and 2024, $260 in earnings. These two numbers right here, which is insane. How are we going to get to those numbers when in 2019, we couldn’t come close to those numbers when… Again, we had zero interest rates. We were trading at 25 times forward earnings back then, and then we had COVID 2020.

Frank Curzio: But how do we get to $244 with the Fed removing the $11 trillion from the market and rates going to be probably over 5%. We could talk about that too. I mean, it’s insane to think that earnings are going to be this strong. I don’t know how they even going to get to $200. And again, companies are doing their job. This is what they do. So, they go into earnings, and they predict how much earnings are going to be, and they have these expectations from analysts, and they try to meet these expectations. But when you really look at the numbers, guys, and you look at what they’re doing, they’re actually cutting costs dramatically. And at this level, it is kind of scary. It’s scary to see how they’re going to continue this. And even right now, you could say, “Well, earnings are much better than expected.” They are, but they’ve been revised lower.

Frank Curzio: We’re going to show probably no growth. We showed no growth year-over-year. I don’t know how we’re going to show growth… We’re expecting 7%, 8% returns next year. You can see they’re only 3% right now. You wouldn’t know that. You would think they’re much higher than that because everybody’s beating estimates that analysts actually lowered. So, if you look back three months ago, this is exactly what happened with the markets where stocks fell sharply heading into the quarter, then rose more than 10% during the quarter. And media analysts, they all came out with reports, “Earning share is still strong despite the Fed raising rates. Our economy’s resilient, it’s working. The Fed’s able to raise rates and the economy’s not getting crushed.” That’s what they said last time. And then what happened? Stocks fell 16% shortly after. Probably within six, seven weeks after. I’m not sure how we won’t see this same trend with the Fed looking to raise rates considerably from here. 75 base point hike in November. I think it’s on November 2nd, which brings short term rates to about 4%.

Frank Curzio: But most are expecting another 75 basis point hike in December. Now rumor has it, which is the Wall Street Journal, a lot gets leaked to the Wall Street Journal just before. Right? That’s what everybody does within the government. And rumors have it that the Fed may talk about slowing down. My question is, how the hell can they? UPS reported, and you saw with FedEx, which was a disaster of a move, guys, but US was strong. They beat earnings per share, not sales. They beat earnings per share. And the earnings per share beat was based almost solely on rising prices. And they said, “Well, we’re seeing demand. But they raise prices considerably and people paid them for now. Coke said the same, seeing solid demand, but yes, we raised prices. So did Pepsi, raised prices. So, what do we have here? We have energy prices rising again. This month they’re rising, right? We’re going to see a huge jump in that, in CPI.

Frank Curzio: We have food prices rising again, we’re seeing it. We’re seeing across the board with food companies that are reporting they’re raising prices. You’re looking at rental properties and rents not going down anytime soon, which we know, right, that’s 55% of the CPI. So, we are going to see the October CPI get reported in whatever, two, three weeks. It’s likely going to rise month over month, which is insane. And we’re going to show that the core CPI, which is what they look at, right, which is goods, food, and energy, has still not peaked. It’s not like it’s peaked and we’re seeing it come down slower and slower and slower. It hasn’t peaked yet. So, how can the Fed slower these rate hikes or say, “Hey, we’re going to stop raising rates,” especially as this is going on?

Frank Curzio: And now, with the market starting to get a little bit of a bid here and people say, “Well, it’s going to continue for the fourth quarter.” If it is, we’re probably going to see even more of a collapse when it comes to first quarter. I think it’s going to happen even in December or after this earning season. We might see a little bit of a pop when stocks usually do well when you have a split government. And it looks like the Republicans are going to take back not just the House, which is expected, but also, the Senate right now, based on the polls, which we saw what the polls were last time, so who could believe them?

Frank Curzio: I think they had Trump losing, what was it, Ohio, by 12 or 15 points. And he won. I mean, yeah, some of these polls were insane. But right now, that’s the expectations. Even the biased polls and Democratic polls have the Republicans really starting to surge right now. So, that could be a little bit of a catalyst. And that’s election in late in the first week, early the first week of November. But other than that, when earnings are over, again, these estimates keep getting revised lower and lower and lower. And that’s what you’re going to see. And yes, it’s easy to beat them and you can say, “Wow, things are good.” But you’re looking at the 10 years still over 4%. You’re looking at the two year at 4.4%. You’re looking at mortgage rates over 7%. The dollar has retreated a little bit, which is why you’re seeing a little bit of a rally.

Frank Curzio: But how could that continue? I mean, I’ve talked about plenty of disinflation areas of the market and I said, Well, the Fed would have to…” I never thought the Fed would be going over 4%, they’re going to be over 5% next year and for most of the year. I mean, forget 4%, it’s going to be 5% now. And that’s why I changed my tune. I’m like, “Wow, the Fed is really looking at the two gauges that they only care about.” Unemployment, and that’s staying artificially low, and you have the CPI, which it’s not going to moderate anytime soon. I mean, you really think we’re going to get down to 2%. Even if they change it, which they’re going to change, they always change and revise and say, “Well, it’s probably going to be more like 3.5%.” We’re not going to 3.5% next year unless you raise rates considerably.

Frank Curzio: And that’s what they’re going to continue to do because that’s the gauge that they look at. But this inflation, you look at housing, not rentals, have come down. Commodities are like copper and lumber. Lumber prices are up 25% this month. Copper prices are up in October. Soybean, canola, a lot of these big price inputs into food now rising again. Sure, you have PCs, technology price coming down as we have supply gluts, same with cars, but Apple stopped production on iPhone 14 because it seems slow in demand. And even that’s catching a bid here, which is surprising. But the gauge the Fed looks at is the CPI and it’s still going higher.

Frank Curzio: So, a price is going higher and the market’s rallying here. I’m going to ask the question, how can the Fed stop raising rates? What makes you think they’re going to stop raising rates? How can they? They’re going to stop raising rates with the CPI at 7, 8% and staying there. And the markets rebound and gives them a little help because people… The markets, you say, “Well, it’s supposed to be different from the Fed,” but it’s sentiment, right? When the markets go, people are going to be happy. They have more money, they’re happy, they’re going to spend more, right? They saw their house price come down, considerably in most areas, and it’s still coming down. It’s going to come down sharply more. And yeah, the markets have come back a little bit, but even with the markets coming back, you’re going to see sentiment maybe gain a little bit, get a little bit stronger, but it’s given the green light for the Fed to continue this policy.

Frank Curzio: And that’s what’s scary because they already overshot. They already overshot, they clearly overshot. They just don’t have the patience to wait this out. I mean, they thought inflation was transitory, everything they’ve learned for 40 years, it was transitory, transitory, transitory, for 20 years. All of a sudden, in the blink of an eye, they switch. It’s never going to be transitory. We got going to keep raising and raising and raising, right? It’s just a big flip flop. That’s why I said that most of these guys should be fired. They’re not qualified to run in this type of market or run the Fed in this type of market. If you thought it was transitory at 5%, it went to 9%, and now all of a sudden, it’s not going to be transitory at all. After you raise rates considerably from basically zero to 4, 4.5% by the end of this year, at least. You got to figure that you are going to see a much, much quicker slowdown.

Frank Curzio: But they’re not anticipating that. They’re like, “No, no, no. Forget it.” So it is interesting, it’s a tough market. Three months ago, a 4% Fed fund rate forecast for all of 2023 was absolutely insane. We’ll likely be over 5% for much of next year. And I can’t see how that’s not going to result in a collapse in asset prices across the board, especially equities. I mean, you have no Fed help. They’re not be buying bonds injecting money directly into the economy, which we call QE. Mortgage rates well over 7%. You’ve seen that collapse in the housing market outside of few states, which is a massive, massive driver of the economy. Look at Europe, look at China, look at Japan and then look at most emerging markets are getting wrecked, which means as rates go higher, they’re going to get wrecked even further because they’re filled with debt.

Frank Curzio: And what are they going to do? They’re going to buy the dollar. It’s going to push the dollar higher, which remains at 12-year high against most currencies. It has come down, which is leading to this rally. But how do we see the dollar continue to come down when we’re raising rates and the global economy is getting wrecked. They’re going to be buying the dollar. 10 years over 4%, two years over 4.4%. I mean, so even the two-year over 4.4%, that’s risk free. That’s risk free. It’s a risk free rate. And if you compare that to S&P 500, which pays a 1.8% yield, which one would you rather buy right now? Because you got one that’s risk-free guaranteed, 4.4% or, hey, you know what? The S&P, yeah, it’s got a nice yield, but now you’re taking on the risk of buying a super expensive index.

Frank Curzio: It’s extremely expensive based on how much earnings are growing. So, when they say the multiple is around 17 times on average for the past five years, and over the past 10 years is 15 times, that’s based on zero interest rates, and that’s based on more than 10% growth and earnings on annually. Year-over-year over, year view, which we saw a lot of those years. Now, we have interest rates skyrocketing, which should bring that multiple down. And now you’re looking at the growth and earnings at 3% year-over-year, we should be trading at a 10 multiple, 12 multiple tops. That’s 16, 17 times. That’s crazy. Do you want to buy the S&P 500 at those levels? And then, it’s not going to grow year-over-year in 2023, most likely, at this level, paying a 1.8% yield. Or, let’s just buy the two-year, I don’t know. I say buy the two-year. Yes, you have to have exposure. Maybe the Fed just totally stops and says, “Okay, we’re going to lower…” Who knows?

Frank Curzio: I mean, you have to have some long exposure, but you could see that when you’re looking out 3, 6, 9 months, I mean, it’s not a pretty picture. The only way stocks continue moving higher is the Fed not just pauses on rate hikes, but anticipates or signals that’s going to start lowering. That’s not until mid-2024, maybe. We have inflation that’s still surging. So, I’m not sure how the Fed can slow the pace of rates anytime soon. It doesn’t make sense. Which again, it’s going to hurt the global economy, which many countries are already in a recession, results in a higher dollar, which is terrible for our equities market, especially gold. No more bond buying QE from the Fed, but the opposite, where they’re removing money from the market. So, that’s a terrible market for risk assets, but enjoy the bear market rally. Companies are doing everything they can to meet their revised, lowered estimates. Maybe they start buying back their stock soon to say slow considerably. They’re drastically cutting costs, which doesn’t mean… You would think the economy’s great if you’re watching tv, but they’re drastically cutting costs.

Frank Curzio: They’re closing factories, spending less on CapEx, cutting back marketing, laying off tons of employees across technology. And I don’t think you’ll find a major technology company that hasn’t laid off employees, while also conservatively raising prices, which is unsustainable if you think about it. I mean, you’re raising prices while not providing the same services. With fewer people helping you. You want proof, try calling a customer service department today, you’re going to be on for 45 minutes. Airlines, banks, retailers. Hey, what happened to India and stuff like that? Even they’re too busy to answer your call. Restaurants are charging more than ever with prices going up. Their profit margins are surging. So, they’re not just like, “Oh, we have to charge higher prices because our input costs are higher.” No, they’re charging higher prices on top of the higher input prices, right? Input prices. And yet, they have fewer employees and fewer items on the menu. You’ve seen that across the board with so many restaurants, even fast food places.

Frank Curzio: So, how do you provide the same level of service? You can’t, which are going to result in fewer customers. And then you have the Fed taking money out of the system, when most people don’t have the buying power they had a year ago when rates were super low. The home value was surging, they felt more confident even with the markets at all-time highs. But now, with rates surging and most people having debt across every country, including most consumers in America, their payments are much, much, much higher. Not just from rising rates but also inflation. So, something has to break, and we’ve seen the cracks, right? Central banks flip flopping in weeks between QE, quantitative easing, and QT, quantitative tightening. In weeks, they’re flip flopping. “Oh, shit. No, we can’t. Oh my god, wait, wait, wait, we’re raising rates. Oh, wait, wait, wait, we’re going to buy bonds. Wait a minute,” These are central banks.

Frank Curzio: I mean, it’s like Exxon buying a 10 billion facility in Saudi Arabia, and then selling it a week later going, “Holy shit, we were wrong.” You don’t see stuff like that ever. But be very careful here. You don’t have to sell everything. That’s not what I’m saying. We’re so long in our portfolios. But there’s ways to protect yourself. Learn how to buy long dated puts in Moneyflow Trader that we talked about, which is selling crazy right now due to us lowering the price by 80%. It’s a three-month membership, that’s only $499, it’s a $3,000 product. And I’m more happy than ever that people took us on. Again, it’s a place where the greed factor, you could make an absolute fortune. If you really think of what I’m telling you over the next year with the Fed no longer there to help you out. It’s going to be a crazy volatile market, guys.

Frank Curzio: I mean, the next six, 12 months, probably more volatile than any other time the past two decades. And you’re like, “Frank, are you absolutely out of your mind? We had COVID, we never seen anything in 2020. It was crazy. Then we had the credit crisis, where the whole system almost got destroyed.” Yeah, you’re right. But you know what we did have? We had the Fed there to print hundreds of billions during a credit crisis and trillions during COVID. They were able to buy bonds, they were able to keep rates super, super, super low. That’s gone. We don’t have that anymore. We don’t have the Fed there to… The power to lower rates to zero like during those times. The Fed doesn’t have the power to print money like they did during those times because we have massive, massive inflation.

Frank Curzio: So, it’s not a buy the dip type of market. This is more like a 2000, 2003 style market where, sure, the Fed lowered rates… Which again, we’ve never seen a market down over 20% and the Fed’s still aggressively raising rates. We haven’t seen that. Usually, it’s supposed to be lowering as things get worse. They’re not, because they can’t because it’s the first time we had inflation in 40 years. But it’s not a buy the dip type of market like it’s been like for at least the last 12 years with rates near zero and unlimited QE from the Fed, and they can do whatever they want. It’s a new market, guys, get used to it. We set it in November, as soon as they pivoted. Set it a year ago when they pivoted. This is different. This is a fundamental change in the market and you have to be careful.

Frank Curzio: This isn’t like something, “Oh well, it’s a typical three month sell off, and then we go in and buy,” which a lot of people are starting to do right now. It’s worse than that. This is a market where you need to start listening to those old boring value investors who have been wrong for so long because interest rates were zero and the Fed was cheating. It’s basically providing a cheat code in a video game. That’s why you’re able to buy these freaking crazy SPACs coming out at 700,000 times fricking sales, and a retail environment buying because everybody has money. That works. You don’t have that anymore. That’s big. It’s like a company able to inject trillions if anything goes wrong, just suddenly went bankrupt and is not there anymore. Be careful. But listen to those boring value investors because numbers are going to matter. You’re not going to see this runaway growth in buying these crazy multiple stocks anymore. Where’s the growth going to come from?

Frank Curzio: The two biggest sources over a decade have been the Fed and China. And both those growth catalysts will be nonexistent at least through 2023 and likely well into 2024. So, buckle up. Be selling stocks on rallies, be careful in names you’re buying when you’re going long. It’s not that you can’t go long anywhere. But if you’re going to go long, look where the pockets of growth are. It’s energy. People still need to go on vacation, they need to go on vacation. They missed a lot of that during COVID. You’re seeing that. Which, again, in Vegas as well. So hotels, casinos should do well. I do like cruises, not Carnival, since they’re saddled with debt, they didn’t restructure like they had to. They cater to low income consumers who are really struggling right now. We have one name in our portfolio that’s up 25, 30% since three months ago, and it’s cruise line.

Frank Curzio: It’s 40% cheaper to take your family on cruise than it is to take them to Disney right now. And this name restructured all of its debt. They have fixed rates so they don’t have to worry about rising rates, and they’re going higher and higher. They finally have every boat in the water that’s operational, which wasn’t the case for a long time due to COVID. And they have no more COVID policy restrictions in place. So, you’ve seen profits explode. I mean, look what you can get for your value. And a lot of these cruise lines are really cool when you go on with your family. I mean, there’s some really nice places you can go and nice ships. And you can get the old exclusive package for what you’re getting for average trip to Disney or average trips to other places.

Frank Curzio: But find those pockets of names that got annihilated since March, have pricing power, which right now still happens to be quite a few companies. Names that are not saddled with debt, since payments are sky rocking due to higher rates. And names that can grow earnings outside of China. Now, tomorrow’s Curzio Venture Opportunities, that newsletter comes out, I’m going to highlight a bunch of sectors and individual names to avoid. And even large caps, even though that’s in Venture newsletter. I’m going to share lots of names that you have to be careful that have the most exposure to China. As well as sectors to avoid and also the sectors that you need to be in. I’m going to share at least one name, probably two, I’m not sure. I’m just doing a little more research on the second name. Looks promising. But again, just need to do a little bit more homework on it. But definitely one name. But I’ll highlight all of these names for you in Curzio Venture.

Frank Curzio: I’m not going to be giving away a lot, lot of this free stuff. Again for a free podcast. I know you guys like to listen, but people pay for our services and they get that value through the actual ideas. I’m going to recommend a lot of more ideas and stuff like that. I had a whole thing written up of 20 different ideas and sectors and stuff like that to avoid and different names and stuff like that. We’re going to keep them within these newsletters that people are paying for. I mean, that’s incredibly, incredibly valuable, especially in this market. But just be careful here. And you’re probably getting excited, “Hey, the worst is over. We’re starting to rebound. Stocks are rallying. The Fed may pause.” At least that’s a sentiment out there. But the Fed is not going to pause. They haven’t given any signal that they’re going to pause.

Frank Curzio: Even if they do it 4.5%, which would be 75 base point, which guaranteed, on November 2nd. And then a 50 base point hike, which are pricing at a 75 base point hike for December. But if they stop at 4.5%, which is lower than the market is pricing in right now, people are not going to go out and start buying houses with 7% mortgage rates. The Fed’s not going to suddenly start buying bonds again in QE. And you’re seeing stocks, these types of moves where everything is going higher at the same time, it’s the blueprint. It happens all the time in bear markets. So right now, it’s not the time to be super aggressive. It’s the time to be smart. That greed inside you should be… It’s inside your head. It shouldn’t come from, “I want to go long aggressive stocks here.” It should be from, “Let me buy puts because a lot of these companies are going to get wrecked going forward.”

Frank Curzio: But don’t be afraid to take some off the table, especially during these market rallies, since you want to have as much money as possible. Since asset prices, you’re looking at homes, many stocks, collectables, you’re going to have a chance to buy most of these assets much, much cheaper in the future. And when you’re buying stuff at super cheap prices, and you can do with some stocks here, but when you’re going to do it with homes and you’re going to do it with a lot of assets… Collectibles coming down sharply from here, even NFTs have come down sharply from here. That’s how you create generational wealth. You welcome these types of crazy markets, and it’s going to be crazy for a while. So buckle up, be careful. Protect yourself, and if you’re long, be long in the right industries. Those industries you’ll learn from all of our products, all of our newsletters. Questions, comments, I’m here for you, frank@curzioresearch.com. We appreciate all support and 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 decisions solely on this broadcast. Remember, it’s your money and your responsibility.

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