Wall Street Unplugged
Episode: 967November 3, 2022

Don’t buy into Powell’s ridiculous claim

Yesterday, the Fed held its November meeting and raised interest rates by 75 basis points. 

We break down the market reaction to the Fed… why the Fed won’t pivot… an absurd comment Powell made during his press conference… why you need to brace for further downside… and how to rake in profits as that happens.

As earnings season continues, we discuss the record results from power management company Eaton (ETN)… what pawn shop operator FirstCash Holdings’ (FCFS) strong earnings say about the economy… and how energy policies are letting one coal company—a Curzio Research Advisory holding—print cash.

Inside this episode:
  • The market’s up-and-down reaction to the Fed meeting [0:30]
  • Powell’s ridiculous comparison on historical interest rates [6:45]
  • Eaton’s record earnings [9:15]
  • What one pawn shop operator says about the economy [18:00]
  • Energy policies mean this coal company is printing cash [23:40]
  • How to profit as the market plunges [32:27]
Transcript

Wall Street Unplugged | 967

Don’t buy into Powell’s ridiculous claim

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 November 3rd. And I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and try to tell you what’s really moving these markets. It’s usually Thursday interview day, but I wanted to bring in Daniel Creech, since we really wanted to break down the Fed, the reactions to the meeting. Positive, negative, positive, negative. Daniel, what’s going on, and what are your thoughts?

Daniel Creech: Hello, Frank. It’s not very difficult to say what’s moving the markets now; hell, it’s the Fed. End of podcast, that’s a wrap. Let’s go have a cocktail.

Frank Curzio: See you next week.

Daniel Creech: Excuse me. The announcement came out what? 2:00. Q&A starts at 2:30. And we’re hollering here between the walls here at the office. We’re both sitting in the offices and listening to Powell and things. And at different times, we’re like, “The market’s going to go up on that.” And it’d pop a little bit. “Uh-oh, he’s in it now.” What was your trigger? And I’ll tell you my trigger on it. We disagreed about this or seemed to a little bit because I was not surprised. When I was reading the language coming out I thought, “Hey, the markets are probably up” and they were. Are we disagreeing on that? I think the Fed is being a little wishy-washy and back and forth.

Frank Curzio: The comments that came out.

Daniel Creech: I think that’s terrible. Let me tell you that I think it’s ridiculous how they act. But I do think that they’re trying to play both sides of the fence on purpose, and I think that that’s just terrible, and that’s why you see a lot of volatility.

Frank Curzio: You know what? The statement that came out appeared to be okay, but I think people took it where they thought that it was a bullish sign, and they’re going to wait and see and be more data dependent, and stuff like that. You’re going to see the pace slow. Obviously, you’re going to see the pace slow. I think it’s hilarious that was actually… People were looking at as being bullish. I mean, we raised 75 basis points four times. We’ve never done that twice under the modern Fed era, right, when they started focusing on the Fed funds rate. We’ve done it four times so, of course, they’re going to slow down the pace. I think people think that they were going to pause. I didn’t take it that it should’ve been bullish and the market was going up.

Frank Curzio: And it’s so funny because when you watch TV, I feel bad for… I mean, I feel bad for individual investors. I mean, based on watching TV, what hour you put it on, you’re either going to put everything into the market or you’re going to sell every single thing you own, right? I mean, if you look right after the meeting, the Dow started going up, it went up two, 300 points. Steve Liesman wasn’t. He was like, “I’m not seeing why this is bullish or why.”

Frank Curzio: Just by the statement before Powell started speaking. Everyone on there was bullish. Say, “Oh, this is bullish, this is great. Now, we have a target of how high.” And I’m like, “What are you talking about?” And, of course, then Powell opened his mouth. And in the very first line out of his mouth right off the bat, “Our top priority…” The very first thing he say, “Our top priority is getting inflation back below 2%.” Right away, you should assure the market. Because in order to do that we have to get rates above 6% now, not 5%. I know they’re saying 5%. I don’t know what their pricing in now, it goes back and forth. He hasn’t changed. I thought he was going to change four months ago, and then I was like, “Holy shit, these guys are serious, they’re going to go crazy. They’re going to keep raising, and raising, and raising.” He’s not stopping.

Frank Curzio: And for those who think he’s going to stop are absolutely crazy because… And I’ll tell you why. He’s not concerned he said about the slowdown in housing. Someone asked, “What about housing?” We’ve seen a massive slowdown in housing. But he said, “You know what? It was getting overheated already, and credit is much better today than it was when we had the credit crisis.” Meaning that I’m okay with housing coming down, so that’s not going to stop me from raising rates. He actually said this. “It’s very, very,” he said. He used very premature to be thinking about pausing, which people were somehow hoping they would pause even though there’s no indication that inflation is really strong with the indicators that look they’re looking at.

Frank Curzio: Especially if the manufacturing number came out what? Two days ago, yesterday, two days ago. And then, we had the JOLTS indicating that the job market is stronger than ever. He also said unemployment rates are at a 50-year low, and he doesn’t see the case for real softening in the labor market just yet. And then, he said he doesn’t feel like they went too far yet in terms of where rates are right now. For him to say he doesn’t see the case for real softening in the labor market yet, and very premature to be thinking about… Everything is telling us that he’s going to raise rates, and he’s going to raise rates definitely by at least 50 basis points in December.

Frank Curzio: The data’s not going to get better by December. I mean, the data’s going to be really ugly this month and even into next year. I think they’re going to have to bring rates to 6%. He made it clear that he wants real interest rates to be positive. The Fed funds rate wants to be high than the inflation rate, and we are pretty far apart from that. Which means inflation needs to come down, which we’re not seeing, or he’s got to continue to raise. And we’re only at 4%, Daniel. And you would think all right, we’re going to be at 5%. We’re just at 4% right now. It’s easily going to be 5% I think over the majority of next year. That’s not pricing, it’s not pricing into earnings. This was the report that I pretty much expected, to be honest with you.

Daniel Creech: The only thing I somewhat disagree with you on is the language that they put out.

Frank Curzio: You were pissed.

Daniel Creech: Oh, it drives me nuts.

Frank Curzio: You were pissed.

Daniel Creech: It’s just ridiculous.

Frank Curzio: I like when people get pissed when you don’t see them get pissed often because it makes it that much entertaining.

Daniel Creech: I try to be a mellow guy, Frank.

Frank Curzio: You’re like, “This is bullish, this is bullish.” And then, they started speaking. You’re like, “This is the opposite of what they’re saying, or what…” And it was, right?

Daniel Creech: It is, it drives me insane. You have the printout. When the Fed does this announcement at 2:00, they release everything. Like you said, they release it to everybody. “Hey here’s what we did.” And then, the Q&A starts a little bit. Financial media, us including, we’re going through everything. In my opinion, the reason the market popped two or 300 points on the Dow right away was because they added language in there about next rate increases will take into consideration the previous rate hikes and the momentum it’s having, the effects it’s having, et cetera. That was very new. And by itself, that is a bullish statement. And that was one of the reasons we started hollering back and forth between the walls. And then, to your point, to come out and say, “We are. It’s very premature to think about we’re slowing down. Rates have got to go higher for longer.”

Frank Curzio: We’ll pause it, right? They’re not pausing, he’s like, “We’re raising.”

Daniel Creech: And then to your point, to basically brush off the housing market and things of that nature.

Frank Curzio: He brushed off the housing market completely, which I was surprised that he said that.

Daniel Creech: And again, if you want proof on why these guys have no idea what they’re talking about and they’re shooting from the hip, anytime… We’ve talked about this in the past, Frank. Anytime somebody just lays it out there to say, “Oh well, interest rates, they’re not historically high, they’re only back to the same rate they were in 2007, 2008, 2009.” That’s absolutely true. However, the purchasing power of the dollar that your Fed, you in charge Jerome Powell, screw up constantly. Devalue constantly on purpose does not go near as far this time around.

Frank Curzio: You don’t like the Fed, do you?

Daniel Creech: What?

Frank Curzio: You don’t like the Fed, do you?

Daniel Creech: No. Nobody should like the Fed, they’re terrible. But my point is that to say, interest rates are only 7% now, that’s fine, but the payment is a much different. What about the food and the furniture you put in your house, Frank? Is that the same price as it was in 2009?

Frank Curzio: They don’t understand. Most economists don’t understand the concept.

Daniel Creech: That’s my point. Well, they do. They either do, and they choose to lie or they’re… I just don’t believe they’re that dumb, I really don’t.

Frank Curzio: I mean, if you-

Daniel Creech: Even sitting in school that long doesn’t make you that dumb. I’m sorry.

Frank Curzio: I mean, for you to be comparing this to when rates went from 8% to 20% and saying, “Hey, they were a lot higher.” We’ve seen old-school guys get on and say, “My mortgage was 20%.” You were making 13, 14% in your savings account then too, so it was a different market then. When you go from zero, or it was 0.08%, that was where we were, to where we are right now. I mean, at 3.25, we’re up 4300%, that’s how fast. We’ve never seen anything like this. This is going to hit the market like a ton of bricks. We’re seeing it in conference calls, which we’re going to cover, as companies are admitting… You never see companies report record results. I’ve seen this quarter report record results and sound the alarm and say, “You know what? We’re expecting okay.” You know what I mean?

Frank Curzio: Mears said the same thing, record results. Prices have clearly come down for shipping, and we’re going to see this come down. We’re expecting it to be pretty bad. And getting to Eaton, which you covered, and that’s in our portfolio. But you actually was listening to a conference call, and you actually said to me, you said, “Frank, you got to listen to this conference call what these guys are saying, it just doesn’t really make sense.” I mean, the company’s still intact you’re seeing record results. Talk about that with Eaton. It was surprising when you see a company report record results, and then come out in that conference call and say, “That’s the top.”

Daniel Creech: Yes. This is a great story to follow because, as we’ve talked about, the economy, how interest rates and everything affect and flow through the economy. GDP is down, we’re in a recession technically, blah, blah, blah, blah, blah. And these guys are a global intelligent power management company, and they have three main drivers or segments and it’s electrification, thinking electric vehicles. Excuse me. It’s energy transition so think of oil to cleaner, and then digitalization just like the Cisco. I like how you say, “He said in 10 years 100 million products are going to be connected or whatever.” They talked about a recession a little bit. Backup one quarter. Last quarter is when I really… It just sounded so off the wall from everything else you were hearing as far as the economy. They have record backlogs still to this day, it’s growing like crazy. They’re still seeing organic growth.

Daniel Creech: The language was a little different, and their tone was a little different in this previous call versus quarter two just because management says, “Hey, we expect a recession,” but they don’t think it’s going to hurt… They didn’t lower guidance significantly or do anything like that. But they had adjusted earnings per share at an all-time record, and it’s up 15% year-over-year. These are not easy comparables year-over-year to this company because they’re essential. You could argue they have pulled through from COVID, but they weren’t mitigated by it. Sales grew 8%. Organic growth was 15%, Frank. All-time record segment margins of 21.2%. That’s up over 1%.

Frank Curzio: That’s important because if you look at Eaton… Really quickly, let me explain that when it comes to organic, and organic, you hear that… I mean, some companies do this, it’s called roll-up strategy, and they’ll continue to buy companies, and that’s how they fund their growth. And if you great at integrating, like Oracle is then you create a giant, but a lot of companies fail at this.

Daniel Creech: Right. And you have to watch leverage. They have about two-to-one leverage.

Frank Curzio: They have huge and high-interest rates. So, when they say organic, it’s a big deal, it’s a much bigger deal. And organic growth is basically like you’re buying the growth, right?

Daniel Creech: So, the segment margins were over 21%; that was an all-time record. That’s up over 1% or 1.3% year over year. That’s significant. I mean, that doesn’t sound like a lot, but when you’re doing the volume in billions of dollars that adds up a lot. The interesting was, when you look at their pulse on the economy. If you look through their transcript they talk about a recession, they’re not worried about that. They talked about EV cars and auto manufacturing chips and things like that. They expect the semiconductor issue and supply chains for autos to last through 2023. You’ve pointed out a lot how that’s not the same language you hear from different auto dealers and things like that. To show you where margins can grow. Well, that’s a cheap question I got to back up there. I’ll just tell you because I don’t know how to tease it very well.

Frank Curzio: Okay.

Daniel Creech: They do a lot of work with autos on the combustion engine side. Now, they don’t break it down, but even if it’s a dollar over the course of running auto manufacturing and significantly doing that or being exposed to that, they make 18 times more revenue on an electric vehicle car than they do a combustion engine, they said. And they’re looking to grow that business segment, eMobility, between two and $4 billion year-over-year.

Frank Curzio: And that’s a part in a car.

Daniel Creech: Exactly.

Frank Curzio: It’s not like they’re making the whole car.

Daniel Creech: I’m sorry, they’re not manufacturing auto. I’m sorry. They’re in the stuff. They do everything that sets up all the manufacturing.

Frank Curzio:

Absolutely. Okay. Finish your point first, okay?

Daniel Creech: No, I was just going to say, this is a Dollar Stock Club pick. A Dollar Stock Club pick. Excuse me. I think it’s about flat, maybe up 3%, but it went up… Well, it probably didn’t finish out today with the market as everything else closed. It’s doing well amidst all the market volatility. That was my last point.

Frank Curzio: Well, if you look at margins, right, and quarterly. I’m not even sure you mentioned this. Here’s a company that said they achieve record quarterly earnings per share in margins. They saw significant stride across commercial, industrial, utility, and residential markets. Basically, almost all their markets, total company margins also surprised, a little bit higher. 21.2 compared to 21% estimate. And they said the supply chain inflationary environment is improving. The inflationary environment is improving. I haven’t heard too many companies say that, right? So right there, you would think, wow, gangbuster quarterly thing is going to go through the roof. But then they said, right, they said, and this is a CEO coming out, “That they expect a recession next year.” Now, we follow these companies, we listen to what they say in conference calls. I want to say that is the first industrial company that actually said that they expect a recession next year. I haven’t seen that. I heard them say, “Well, it looks like a soft landing, or we could…” They’re like, “We’re going to have a recession next year.”

Frank Curzio: If you’re a CEO and you’re think you’re going to have a recession next year, what are you going to do? You’re cutting costs, right? And this is a company with record results. So, if you’re looking at earnings, earnings, what they’re telling you is earnings just peaked, they’re not going to get any higher. It doesn’t mean the stock can’t go higher because maybe they have a significant advantage over the competitors, they’re doing much better so they deserve a higher premium or higher multiple. This is a company that’s getting it right across all the divisions. And they’re saying that basically, things have peaked. This is a company that’s getting it right. Think about the companies that are not getting it right.

Frank Curzio: Now, you’re going to see earnings come down tremendously. They’re going to cut down tremendously just wait. So, the fact that they’re going higher, you’re destroying demand. You’re destroying consumer demand, business demand. Any company that has a backlog, you have to cut that backlog by at least 25% because those orders are not going to get filled. That’s the market that we’re going to be in. Not everybody’s going to be impacted. Most companies are going to be impacted, their pockets of strength. Again, this is the first market that we’ve ever seen in… Not ever seen, but it’s seen in 12, 13 years, where the Fed is not there to support us and not hand out free money. They cannot do that anymore. Okay. You can’t even get it from politicians where we know it’s going to be a huge day coming next week for the Republicans, you’re seeing it. Even the Democratic polls, which usually, no matter what, will never tell you that Republicans are ahead.

Frank Curzio: But you see this massive push into Republicans, which is going to be a split government. You’re not going to see a lot of spending coming out of government. Where’s the growth coming for China where you see… I mean, the real estate market and everything is horrible in China. COVID policy, who the hell knows what it is? I know that a lot of stuff is still closed there. Where’s the growth going to come from? And this is what’s scary. Because when the Fed’s there to pick you up like they were in 2000 and 2009, when they had to pick you up in 2020 when COVID hit, they’re not going to be there to pick you up. Okay. So, where is demand coming from when we’re not even talking… We’re talking about rates, interest rates. We’re not talking about the Fed massively shrinking its balance sheet, which they almost… They haven’t really begun yet. And you’re going to see that shrink by a trillion. That means they’re not going to be flooding the market with cash, that’s a scary sign.

Frank Curzio: So companies see this, they should see this. Eaton’s a great company, they got a good management team. If you see this across the board, if you’re a company, you have to be conservative here and you have to be cutting costs. You can’t mess around. You could be wrong, you could always hire, but right now if you look at the companies and what they’re seeing, the projections right now are showing for three straight quarters of negative GDP going… Right now, three straight quarters of negative GDP. Wait until that hits the news. People don’t really know that. They’re like “Oh, GDP 2%, and over 2%, we did great.” It’s coming off two negative quarters. If that’s correct, we’re looking at what? Five out of six quarters of negative GDP growth. I mean, with the Fed raising rates while this is happening.

Frank Curzio: I mean, maybe not at the last quarters coming in, but they’re going to be raising rates for at least the next three to six months, that’s what Powell says. It’s interesting to see how a company like this is getting everything right that’s basically telling you, “Hey, our earnings peaked, and it doesn’t get better than that.” Think about the companies that are not doing great and how much worse it’s going to get for them. And that’s how you should look at the markets right now, which is great. But we want to cover a few more earnings. One of the companies that you-

Daniel Creech: Last thing on that real quick because your point is, their backlog is growing. So, a couple things to watch here. I’m comfortable with the way the price action’s holding up, the management team seems to be executing well. We’ll continue to hold it in our portfolio. But to your point, we do need to pay attention over the next earnings about the backlog, margins. And also, just like FedEx and everybody else can tell you, things can turn on a dime.

Frank Curzio: On a dime. And FedEx is smart because FedEx was like, “All right.” They pulled their guide in so they don’t know what’s going on. UPS was like, “We’re raising prices tremendously,” and they beat the quarter. And everyone’s like, “Wow, UPS and FedEx are different.” Well, okay, FedEx is going to be raising prices but again, what does that mean? When you see companies raising prices, when you see their margins going higher, still going higher, it means inflation’s not slowing. And if inflation’s not slowing, that means the Fed has a green light, they’re going to continue to raise rates, which is going to be very crazy for the market. And that brings us to FirstCash. This is a company that you talked about that looks really good for this market, right?

Daniel Creech: Powell is forcing everybody into pawn stores is my new theory, Frank, I think that’s what he wants to do for Thanksgiving and Christmas. Just like Eaton’s a good picture macro-wise of the markets and things like that, this is… I talked about this last week because they were having earnings, they hit earnings. I think the stock popped eight to 10% afterwards. Solid earnings here. What I want to point out, Frank is the chief executive officer Rick Wessel says, “Our third quarter reserves were outstanding with exceptionally strong pawn growth metrics in both the US and Latin America, which drove increases in segment income for the US, it was 35% higher, and Latin America was 14% higher year-over-year.” Just like airlines, they have to compare to pre-pandemic levels to get in apples-to-apples. “Pawn receivables, inventories, and resulting revenues are all well ahead of comparable pre-pandemic metrics at this point in 2019.”

Daniel Creech: He goes on to say that, “Cash funding to customers,” which is new pawns and direct purchases of merchandise for customers, “in both the US and Latin America.” Frank, get ready for this, it’s one of my favorite words. “Remain exceptionally robust with October above comparable pre-pandemic levels in 2019.” What happened? Why am I telling you this, Frank? And management is doing a good job of capital allocation. They authorized another 100 million in buyback. They pay a 33-cent quarterly dividend, that was 33 cents last quarter. Before that, it was 30 cents for a few quarters, so they bumped up that a little bit. Well, I just lost my place. On share repurchases in the third quarter, they bought back over 600,000 shares for an average price of 75 and change.

Frank Curzio: And where is it? 90s?

Daniel Creech: From the year, they bought over 2.2 million shares at an average price is 71.63, and the stock is about 95 today. Everybody can use share buybacks to help balance out earnings per share and all that results. Now, that doesn’t mean they’re going to buy back shares here, and depending on their growth maybe they’re buying back some. I’ll pay attention to that next quarter earnings. The good thing to know about that is, as an investor, if you’re buying this stock because you think there’s momentum because the overall economy is going to get worse and that’s better for FirstCash. So, if you believe that there’s going to be more headwinds, in my opinion, just what Powell told you the other day, then this is going to be on your radar, and you can start nibbling away. Because you know there’s another 100 million in authorization to buyback, if the stock does pull back along with the overall markets, at least a management team is capable and willing to step in and buy in large amounts of shares.

Frank Curzio: Now, this is interesting because what stood out to me is, the porn industry comprises of 80% of their pre-tax income. Do you know how much that they raised fees just in third quarter? 25%.

Daniel Creech: That’s pricing power.

Frank Curzio: Think about that. But that’s what a lot of companies are doing. I keep bringing up this example because I’m so pissed off that I paid $27 for four bagels at a local bagel store in Florida, where bagels suck here. This is a place that they’re not so sucky. They’re not like holy cow this is great. For four bagels, two were egg and cheese the other two with cream cheese. I just went to Vegas, the prices were insane. Everything is through the roof. People are raising prices. Every hotel on Expedia, everything, all of them charge 30 to $50 additional fees per day that you stay there, right? Whatever. Resort fees they’re called, right? And that’s been happening for a while, but they’re going up. They were 20 bucks, 30 bucks, now they’re 50. Some of them were 75, when I was looking at hotels.

Frank Curzio: When a company has pricing power, and you have to look at what’s going to happen in the future. Let’s play this out. You’re going to see demand fall off a cliff. You’re going to see a lot of consumers who are used to having a lot of money not have a lot of money. They’re starting to tap into their savings, which is at the lowest level in a very, very long time, in 15 years. It’s at 3%, 3.3%. It’s usually over 7% pre-pandemic on average. So, where are they looking to tap this equity? I said HELOCs and some guy was like, “HELOCs. I work at a bank.” And I answered and I said, “This is what I’m seeing, they were second-quarter numbers, we’ll see the next numbers coming out.” Home prices have come down a little bit. HELOCs are a way for them to get equity out of their homes because that’s their best asset even though home prices are coming down. I like to see delays results. But as of last quarter, which was only two months ago when they reported, you’re seeing HELOCs explode for the first time since the credit crisis.

Frank Curzio: And now with this, we’re poor, right? It’s how are they going to get money? This is one way that they do it. Where are the consumers going to get money to pay these much, much higher costs? Their costs are skyrocketing. And you could say, “Well, inflation’s going to come down,” but then you have rates. Most people are in debt. They’re seeing their debt payments go up incredibly. And again, the Fed’s not going to be there to hand checks to you like they did with the unemployment. “Oh, take another 26 weeks you’re fine, you’re good. Oh, don’t worry about paying your student loans, don’t do that.” That’s gone.

Frank Curzio: After next week, you’re going to see a split government regardless if you think it’s not going to happen. The House is almost a guarantee, but we’ll see about the Senate, it’s really leaning. I’d be surprised if it’s not Republican. But you’re not going to see anything pass on that end in terms of spending. Where’s it going to come from? You’re going to have to take your medicine. This is a company that makes sense, they’re in the right industry. And not only are they in the right industry… I can’t call it Arch Coal anymore, Daniel, I have to call it Arch Resources, right, because you can’t say the word Coal. Say Coal-

Daniel Creech: That’s right. We aim to be accurate here.

Frank Curzio: Oh, forget it. Coal is on the danger list in the dictionary. Don’t ever say coal, coal, coal. Forget it. They shut you down. Everything. But Arch Resources, did you see those numbers?

Daniel Creech: I did. Yes, I did. You have them pulled up, I don’t have the numbers pulled up. Do you have the number pulled up?

Frank Curzio: Yeah. I know you broke it all down, and you saw it before me, and I said it’s a… I just really went through this a little while before we got on air here. Third quarter earnings, 8.68 cents a share, right? So, revenues rose 45% year-over-year. It’s 863 million and for the quarter, right, that’s sales. They made a dividend payment of $10 a share. $10 a share. What’s the stock trading at? Do you have it up over there?

Daniel Creech: That’s a variable. It was around 150 last time I looked.

Frank Curzio: 150, right. And the market cap’s around 2.7 billion, just to put it in perspective, right? So remember, no coal, they’re bad, everything’s horrible and terrible, right? But price is going through the roof because people need energy. They want to tell you they’re buying coal. Even Germany is now buying coal. You see everybody buying coal, right, because coal is very, very important, especially when everything’s surging through the roof, nobody has anything else. And alternatives, you guys know the story. Anyway. Thus far in 2022, they paid $25 a share in dividends. Starting in this quarter, they repurchased 2.3% of shares. So, looking ahead in Q4, they indicated potential double the pace of buybacks. They generated 413 million of discretionary free cash flow so free cash flow in the quarter. All right. If you would times that by four, right, you’re looking at PFIS market 1.5… Well, more than 1.5 billion in free cash flow for a company that has a market of 2.7 billion.

Daniel Creech: It’s crazy.

Frank Curzio: Has 442 million remaining on its 500 million share repurchase program. What they said, with all that cash flow that they’re generating, which you see by these big dividends, is 50% they said of that free cash flow they’re going to return back to investors, and the other 50% is going to be used for buybacks and dividends, which again, it’s those special dividends in terms of free cash flow. They’re basically returning almost all their free cash flow back to investors in one way or another. Buybacks, dividends, special dividends, and the cash flow is enormous. I mean, it got to the point, when we first talked about it, that their cash flow was higher than its market cap. That’s a major disconnect, something you’ll never ever see ever. It just doesn’t make sense. It makes sense because nobody even knows about this company.

Frank Curzio: Barely anyone covers it anymore because they’re not allowed to. But when shit hits the fan, and you need energy, people will rather buy coal than die, right, because they… I’ll die today but climate change is going to destroy the world three years from now according to the crazies out there. We believe in climate change, I believe in climate change, but not to the point where the shit that’s going on is insane. But Arch Coal is in that sweet spot that… Sorry, Arch Resources is in that… I’m going to get canceled here and thrown off of YouTube. It’s in that sweet spot where this is a company that works in this environment, price is going to remain elevated. These guys are doing it right. I love that they’re quiet about this and they just keep paying shareholders. Isn’t it nice? Who cares if anyone knows but nobody knows about this company. It reminds as me of Texas Pacific Land Trust which is at an all-time high. I mean, I sold 15 shares of that for my mom the other day, it’s a 2000 cheese. Her cost base is in the single digits, my dad owned it for 25 years ago. It reminds me of one of these companies that nobody ever heard of because they don’t really need cash, nobody really covers them, they’re not mentioned anymore. And yet, I don’t think you’re going to find a company with better fundamentals than this in this market. If you can, feel free to email me.

Daniel Creech: It’s just wild. I would love to have an adult beverage with the management team of this. Because when I read through these press releases and conference calls, I’m just… I’ll be honest, I’m impressed. And I mean that sincerely, because they’re just very straightforward on it. What I want to try to explain on why people ought to pay attention to this, and whether or not if you bought the stock and followed our advice or listened to our thesis on it, the big takeaway here is supply and demand and politics. Just like what I talked about yesterday on yesterday’s podcast, and we were talking about the letters that certain Congress and senators are sending to the Fed about warning on inflation or raising rates and things like that. During the conference call of Arch Resources, an analyst asked a good question about, “Hey, you’ve talked about a couple years ago when you were setting your targets, you have these coal power plants and coal mines retiring out of production.” And to Arch’s point, they put a lot of money aside to funds because their industry is shrinking and going away. Nobody is arguing that.

Daniel Creech: And the CEO Paul Lang put it this way and said, “Listen, I’m pragmatic from a point of view.” Listen to this, Frank. And this is why when you have policies directly affecting prices. As your point, you can’t even say Arch Coal anymore everybody gets all upset about it yet they are printing money. The CEO said it this simply. “The last coal fire plant was built about 10 years ago in the United States, and the average age is creeping up to 47 or 48 years.” He says, “The trend is continuing. We’ll see slowdown in retirement. Some of them may have to get extended because of global demand.” They’re still dealing with rail issues. They can’t get enough rails… Excuse me, rail cars to carry out their coal. So, they’re still dealing with that and in all kinds of things. It’s not like everything’s perfect, but they’re executing well in a tough environment.

Daniel Creech: They’re talking about their Black Thunder operations is in this area. But the CEO says, “And we could have some industry… We could see some slow down on the thermal side.” He says, “But it’s going to be a very profitable period of time where this call is going to be headed, and we’ll do very well.” He says, “I’ll tell you what we’re not going to do, and is invest anything to increase production.” That is because you have policies telling you they’re going to penalize you. From coal to oil, it’s about the rumors of windfall taxes. You’re painting people in a public eye. It’s just politics to paint people against each other because you are using… It’s basically class warfare. “Hey, you’re having a problem, you’re paying higher energy prices, it’s because of these guys. These guys are bad. These corporations are bad.”

Daniel Creech: It wasn’t too long ago when we talked about when the bank’s CEOs were drug up in front of Capitol Hill. And one representative questioning Jamie Dimon said, “Well, everybody at your bank should take their money elsewhere anyway.” These have massive implications as they unfold over time and it affects markets in a massive way. You can ignore it. You can email me, daniel@curzioresearch.com, to tell me to quit talking about politics. But politics are why we found this company and why we are doing so well for subscribers, and that’s why you ought to pay attention to it. You can disagree, but disagree and make money.

Frank Curzio: And the housing market, right? So, if you’re in the housing industry right now you better be making adjustments. Because the Fed just came out and told you that, “I don’t care that it’s frozen right now. Maybe in some states it’s still okay, and prices are coming down almost everywhere, even in Florida they are, and in Texas… Not by the extent they’re coming down every place else. Because I don’t really care.” He goes, “It was inflated, there was a bubble there, and most people have a lot of equity in their home still. So you’re good there.” So basically, they told you that doesn’t matter, right? If you are a CEO in the housing sector, you are looking at that saying, “Holy shit, things are going to get a lot worse.

Frank Curzio: When Biden won the election, he said, “All right, we’re going to cancel Keystone Pipeline, we’re going to get rid of fossil fuels.” That’s what he said a year or two before he was… As he was campaigning, regardless of what you say. “We want to reduce fracking and get rid of fracking.” All right. Regardless if you believe that or not, if you’re a CEO of a company, and if you’re listening to that, you have to prepare. Because if that’s the case, you’re going to see a significant slowdown. It’s just funny how the intention is, oh, a cleaner environment, this is great for everyone. I wonder if the oil companies are all just sitting there going, “Man, we want to get Biden elected so bad right now because we’re just going to be reporting windfall profits forever. It’s going to be the greatest thing ever.” I don’t know if they were thinking that at the time. And now that they’re making these massive profits, all because this administration, they come out and they’re like, “Oh, we want to tax you on all these profits.” Which is remarkable to me. I mean, the ironies is incredible.

Frank Curzio: You do have to pay attention to politics, guys, I don’t care what side you’re on. This is about your money, that’s all you should care about. Don’t care about your politician, they don’t give a shit about you. You should know that by now, right? I mean, you should. Hopefully, you do. I don’t care what side you’re on, care about your money. Listen to what they say. You could disagree, agree, whatever side you’re on, but the bottom line is, you want to make yourself financially secure for you, your kids, for the rest of your life and maybe have great generational wealth, which I think you’ll have the opportunity to do if you start to learn how to buy long dated puts.

Frank Curzio: I’ve been pounding this since November. We’re seeing a lot of people take us up on this offer, which is a $5,000 product, Moneyflow Trader. Again, we discounted for three months for $499, so it’s a 90% discount altogether. We’ve gotten a lot of people take us up on it. This is the type of market of what you just saw. This is what you’re going to be used to seeing. Okay. You get this rally like, holy shit, and then you see this downfall, this massive pullback in one day of 3%. And if you’re buying long dated puts, you’re not worried about what the market does in a week or a month or two months, you worry about the first six months, do you think you’re going to see this crazy volatility? It’s based on the put and buy what price you’re paying, which is why Genia Turanova is the best in the world at it and she’ll take care of all that, it’s a very easy strategy.

Frank Curzio: You should be buying long dated puts. It’s betting against stocks, it’s betting against markets that they’re going to come down further. And if they don’t, then you’re going to be longer positions and you’re going to do fine. It’s not a way to hedge, it’s a way to make 500, 1,000% gains at these things. If you get a stock like Meta that’s down 70% and keeps going lower and lower, and it hasn’t found a bottom yet. And you’re seeing Google, you’re seeing some of the best names in the world are getting annihilated. Not all of them, we’ve seen a lot of these come back. And that’s why I said right now is one of the greatest times because we had the best month, right? Again, it’s seasonal, money’s coming into this market, it’s being artificially inflated, money pouring into it. Again, just because of seasonality, and you see we had the best month since 1974, now you got an opportunity to really see what happens because demand’s going to fall off a cliff.

Frank Curzio: The Fed is telling you exactly what they’re going to do, they haven’t changed their tone. I thought they were full of shit five months ago; they’re not full of shit. They’re serious. Rates are going a lot higher, they’re going to be more than 5%, I don’t think that’s priced in, and the earnings decline. Where they have earnings right now, they were 244, when I’ve been reporting to you for the last two, three weeks. Now it’s down to about 230, 234, I think for next year. I think that number’s going to be under 200. If I’m right, we still have significant downside in this market. You’re going to see ups and downs. This is a way to make an absolute killing in the market. So, if you’re interested in that offer, again, you go to our website, take advantage of it.

Frank Curzio: If not learn the system, it’s not going to be as easy unless you’re following someone. It makes it easy for you because all you got to do is do what they tell you what to do. You don’t have to worry about things like implied volatility, and pricing, and when to sell. Genia lets you know all this, she’s one of the best in the business, amazing performance this year. This is what you need to do to protect yourself. Okay. It’s not in our best interest to tell you that the market’s going to come down, right? Most people won’t. It’s contrary to my business needs. This is the reason why I created it. I got my ass kicked on it for a couple of years because I thought the market was going to crash 2019 and pull back, and then we saw COVID eject $11.5 trillion of money into the market, so it went up a little bit. But now, this is the part… It’s like shooting fish in a barrel, I said that this is what you have to learn.

Frank Curzio: Trust me on this one again. If not, you can go on Google, look up my address, and I’ll answer the door, you can punch me in the face if you think I’m wrong. Trust me, you are going to thank me. And I don’t even want you to thank me because this is a great, great strategy in this type of market. And you’re going to see markets like this, where they go up, and up, and up, and then you get a big crash. Let’s see. I don’t know where it’s going to be the rest of the week, I don’t know where it’s going to be next, but I know over the next three to six months, it’s going to be hell.

Frank Curzio: The Fed is raising rates, they have to force a recession. There’s no easy landing here. There’s no like “Oh, easy landing and inflation’s going to come down.” Inflation’s either going to surge or you’re going to crash the market. Okay. That’s where the Fed’s at. They know it, a lot of people don’t know it, but it’s not a pretty outcome either way. Let’s see what happens. Daniel, you want to finish with anything? Any parting thoughts? A lot of earnings, holy cow. A lot of earnings going to be reported in the next couple days. It’s a lot of small caps to mid-caps.

Daniel Creech: A handful that I’m reading through and still going over. No, I thought you said it well. I would definitely follow Moneyflow Trader. I just think the Fed is giving you a roadmap of more pain ahead just pay attention. What you said earlier. When comments are made from public figures, CEOs have to make adjustments. Look at yourself as a CEO of your own money and be prepared to make adjustments because of what the Fed and what we talked about today. Absolutely.

Frank Curzio: And remember, this isn’t shorting the market. If the market goes the wrong way in a month this isn’t shorting the market where you can get annihilated. I thought the market was going to come down in October, and I was dead wrong. I also said, “If it doesn’t go down in October, it’s definitely going to come down over probably the next few weeks, if not very early in 2023 because the Fed’s not stopping the rates race, they’re just going to keep raising rates.” There’s a strategy that works. You only lose the amount of money that you put into each option trade, and it’s very easy to do in your portfolio. Learn it, guys, learn it. You don’t have to pay for the product. I don’t care if you buy it. If not, whatever. If you do, I think-

Daniel Creech: But we kind of care, go ahead and buy it.

Frank Curzio: No. I mean, we’re a business, we want you to buy it. And this is not a sales pitch, but this is… I mean, you guys know me where, look, if I’m wrong, you’re not going to subscribe to anything ever. I don’t get paid by anyone, we don’t get paid by outside partners. My job is I have to show you returns. If I don’t, you guys don’t subscribe to our products.

Frank Curzio: But I’ve been doing this for 30 years, meaning that I’ve been right more than I’m wrong. This one, unfortunately, I think I’m going to be really right on because… And I say unfortunately because I think it’s going to hurt a lot of people, where this market’s going. And you’re really going to see it over the next three to six months, really over the next three months. So again, hopefully, I’m wrong on that. This is a good way to make a lot of money and be put in a perfect position to have a lot of money when these assets do come down where you can buy them at dirt cheap prices. So Daniel, thank you so much for coming on interview Thursday.

Daniel Creech: That’s right.

Frank Curzio: Two days in a row.

Daniel Creech: Have a great weekend everybody, cheers.

Frank Curzio: Have a great weekend. And again, that’s it for us. Questions, comments, frank@curzioresearch.com. Daniel, email.

Daniel Creech: daniel@curzioresearch.com.

Frank Curzio: Okay, guys, I really appreciate all the support, and I’ll see you guys next week. 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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