On Tuesday, I held an emergency briefing to explain why I believe stocks could fall significantly from current levels… and how to not only protect your portfolio, but make a fortune. If you missed it, not to worry—you can check out the replay here.
Next, Daniel and I discuss Biden’s shocking (and tonedeaf) statements about a recession… the latest Consumer Price Index (CPI) and Producer Price Index (PPI) data—and whether we’ll see any relief from inflation… why valuations are still way too high… and why this earnings season will be one for the ages. Plus, some good news about my beloved Eagles.
- Check out the replay of my emergency briefing [2:10]
- What is Biden smoking? [6:30]
- Breaking down the latest CPI and PPI numbers [8:15]
- Why stock valuations must come down [16:10]
- This earnings season will be ugly [18:25]
- Why the Moneyflow Trader strategy is like shooting fish in a barrel [30:30]
- The Eagles are at it again [41:00]
Wall Street Unplugged | 958
Get ready for an ugly earnings season
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: How’s it going out there? It’s October 13th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break the headlines and tell you what’s really moving these markets. We missed Daniel Creech day yesterday. We missed the podcast, so we’re coming back to Daniel. Daniel, what’s going on? How’s everything man?
Daniel Creech: This week, it’s Daniel Creech Thursday.
Frank Curzio: Daniel Creech Thursday.
Daniel Creech: Doesn’t it have such a good ring, but we’ll deal with it. What a wild, crazy week, Frank, and it’s literally only Thursday. We’ve had a lot going on.
Frank Curzio: A lot going on. Yesterday, so, we’re in the middle of this podcast, and we’re doing it, we have about 20 minutes in, and the electricity goes out. For the whole entire building, and pretty much almost the whole, not the block, but most of it. And we had, what was it? Just a transformer blew or something. It’s Florida, we’re an island, we kind of see the whole time. And then, got a note saying it’s going to be down for five, six hours, and we’re like, “Whoa.” And they close down the street. I’m like man, “We’re not going to be able to get this podcast out.” They didn’t finish 5:00 PM, we were taping it. What time did we start taping? Probably 10:15, 10, whatever it was.
Daniel Creech: Yeah, it was around there. What a difference 12 hours makes because the night before you held your emergency briefing and thank goodness everything went off for the most part. Some people had some issues with logging on or whatever, but overall, it went great. Thank goodness the power stayed on during all that.
Frank Curzio: And it sucked because my advice was going to be everyone, if you own a house, sell your house immediately and throw it all into Delta. And we freaking missed that because Delta actually, Delta’s not down today, which is not, we’re going to talk about that later because Delta reported record revenue, it went up 4%, now it’s down. That was in the portfolio for us. We stopped out of it. I mean, there’s companies that you’re seeing that are reporting pretty decent earnings and they’re still not coming off of those lows when they’re down 35%. What about the ones that aren’t?
Frank Curzio: Talk about that in a minute, but let’s get to the hot topic, which is CPI. PPI, right? Both of them came in hot. That CPI was today, PPI was yesterday. We’re going to talk about that. We’ll talk about both of them today, and we had our investor briefing the day before breaking this down, showing that these numbers are going to remain very, very hot. Why you have to prepare, we offered a discount on one of our products that I think is essential. It’s a $3,000 product where we lowered it to 499.
Frank Curzio: A lot of people that attended that event, and I want to thank you for attending that event, who actually took us up on the offer. I mean, the event is free, so there’s a replay on our website if you want, please look at it, guys. I mean, this… A lot of the stuff that you’re seeing you might think gets factored in down 25% and down 30% in the Nasdaq, 25% on the S&P. I’m going to show you numbers, I’m going to show you a lot of stuff, and you’re going to see that it’s not, and it’s scary. And there’s one prediction I hope I’m wrong at, but a lot of people attended. And Daniel, you did a great fantastic job. We did the questions live, which is awesome. So, we’ve taken all the questions, and how long did we do that for? That was a long time, wasn’t it?
Daniel Creech: That’s very kind of you. Yeah, I had the easiest job, it was a lot of fun. You took questions for about an hour and a half. I was just reading the questions and comments from everybody that was submitting things, and a lot of great questions and comments came in to you and me both but to Genia, because she’s doing such a fantastic job with the product. Overall, it was a good night. Like I said, what a difference 12 hours makes because then we’re sitting here in the dark.
Frank Curzio: Yeah, we were sitting, we couldn’t believe him. Shit, I’m like, “We’re not going to be able to do a podcast,” but we were here for you.
Daniel Creech: It was great, for about an hour and a half. Yeah.
Frank Curzio: Yeah. But at the whole, I mean, we were here 10:30 at night doing this, so it was a late night. We started presentation at 8:00, and you guys got that. But again, that’s free if you want to see it on Curzio Research, that’s our website. You just got to go that you can see right now, the replay. But definitely take a look at it guys please because you should be worried, you should be very concerned. It’s not my best interest as a company to say that because I know most of you long, we sell financial newsletters, so you know I’m not, again, for me to be like, it’s going to come back and it’s great, you need to buy all these stocks. That’s the sales pitch for someone who just wants to generate sales.
Frank Curzio: For me, I want to generate people who are going to be through Curzio Research and in Curzio Research for decades, and that’s why we have such a big following for such a long time is we don’t bullshit you. The market’s not going to be great all the time. Right now, it’s very scary. I mean, there’s things happening that I’ve never seen in my 30-year career, and it’s about earnings too. So, you guys are going to see that, it’s not just about the Fed, it’s about earnings, and analysts have this wrong. We’ll talk about earnings, but let’s talk about the CPI number and PPI number, and we could start with saying, well, Biden did an interview but he said everything’s okay. The economy’s fine, we’re good. We only have a slight chance of recession, we’re probably not going to go into recession. What are your thoughts? Is everything okay Daniel or what?
Daniel Creech: Well, not so much. We knew that inflation or everybody is expecting the inflation to be higher and run higher. The futures have 75 basis point rate hike basically baked into the market right now for November meeting. Today and yesterday’s inflation didn’t do anything to deter The Fed from continuing to raise significantly or aggressively, however you want to do that. CPI is what, you’ve talked about this for a while, that’s what The Fed is looking at. They’ve come out-
Frank Curzio: That’s what the Fed’s looking at.
Daniel Creech: They’ve come out and said, “Hey, we are going to pay attention to-“
Frank Curzio: That and unemployment are the only two things.
Daniel Creech: Unemployment and the CPI, and based on what they’ve said recently, and we have to take them for what they’re saying right now. I know they flip flop, and they have. But based on what they’ve said recently and today and yesterday’s inflation data, just to prove how Willy Wonka and Wizard of Oz markets we’re in, Frank, futures were up 300 points on the Dow today because across the pond they were talking about trying to get their financial house in order. That wouldn’t work anyway, but the futures were up. Inflation data came out at 8:30 our time, and the Dow futures and everything went from a positive, excuse me, 300 points to down over to 500.
Daniel Creech: Fast forward to the market open and the market’s making a strong comeback. It’s only, it’s damn near flat and Delta is actually up, it was up 4%, down over 2%. Now it’s up about a percent. I say all that to say as an investor, either a trader or an investor, pay attention to The Fed because you have to, and pay attention to what you own, why you own it, and follow your stops. This is a crazy volatile time, but that doesn’t mean you should be completely on the sidelines. There’s going to be a lot of opportunity. It just means that it’s going to be very hard to predict. So understand the environment you’re in, and we’re going to be in that environment for a long time because as you pointed out earlier this week when you come into the office, now the Fed is projected to go to 4.85%.
Frank Curzio: It’s insane.
Daniel Creech: By March. Did I read that right? By March of 2023.
Frank Curzio: Yeah, and it is crazy.
Daniel Creech: That is going to be a significant headwind for markets overall.
Frank Curzio: Yeah. For me, I was going back to the previous point, it is, do you think Biden’s going, “Okay, I just got three more weeks to bullshit everyone and lie to death and then we’re good once the elections are over?” I mean, I just think it’s funny. I always, I’m a person that regardless of party… And I talk about that in the presentation, I don’t care what political party you’re from, this is about you, your money, your family. And these guys all want to get elected, they care about power. But you’re looking at the S&P 500 down 25%, the Nasdaq’s down 33%, home prices crashing, demand’s falling off a cliff, the dollar at all-time highs, right? Which is terrible for what means it’s going to be a global depression.
Frank Curzio: You got to always see, I mean, this is why, the market went up today, Daniel, like you said, because they think that everything’s okay across the pond and stuff. And with the Bank of England, and the Bank of England was like no, no, no, we got this under control. I know that we raised rates on September 22nd. I know that we did that, and then I know that just three weeks later, we started buying bonds like crazy. But we think we have it under control. These are central banks, this isn’t like a company that messed up or a trade or someone. This is a central bank in three weeks, this is what happens when you raise rates by this amount. You break this system, you’re going to see cracks. We’re seeing tons of cracks. That’s just one of them.
Frank Curzio: I talked about M2 which is down to, again, it’s velocity of money, it was coming down through 2020. But now, it’s at levels which signals as it comes down. At weaker levels, it’s how much a dollar goes through the economy and the more it’s spent, the higher it is single, strong economy. It’s at levels not seen since the Great Depression. You don’t see that. Not 10 years, not 30 years, not 50, the Great Depression. So, Credit Suisse just came out saying, we had no liquidity problems. Okay, thank you for letting me know you have liquidity problems. But the Fed, it’s like, hey, unemployment is strong or we’re good.
Frank Curzio: And even though in my presentation, I calculate why unemployment’s really not that great and why the CPI is going to continue to go higher and higher. And unfortunately, this is the thing they look at. And I knew this number was going to come in hot if you study the numbers. And if you want to hear something funny about the CPI, which we all know how much rental is. I’ve been saying over and over again, rental’s a big part of it, Daniel, 30% with shelter.
Frank Curzio: You have the oil and food. They’re always able to strip out oil and food, which is over 20. Look at 55% of that index, so rental incomes are not coming down. Last month, if you look at where oil started, oil started, Daniel, at $86, and it closed the month last month at 80, so where is it now? It’s 86, $87 a barrel right now. So, oil’s already up, it closed below eight, so it’s already up 10%. That’s going to be factored into the next CPI data. You have food, which is not moderating food prices. People still need to eat. We saw Pepsi come out and say, “Hey we’re good. We’re okay. We’ll just have smaller cans and put less stuff in chips.” And again, that they have ways of doing what they can do when it comes to food, people have to eat, and they can control margins a lot easier by giving you less and not raising prices, but they’re giving you less, right? That’s the difference with food companies.
Frank Curzio: But when you’re looking all around, what does this mean? It means that this number coming, how it’s coming, we were looking, for me, I’m projected for this market to get slammed. It’s going to get slammed. I think it’s going to happen in a couple weeks, if that’s going to happen over the next three months. But that was based on rates going, finishing at 4.4 and a quarter percent this year. Not only a projection 4.8 out to the peak rate. They’re saying 4.8, right?
Daniel Creech: Yeah.
Frank Curzio: That’s what they’re saying, 4.8 in April. It’s a guarantee right now of a 90% that we’re going to get a 75 basis point hike on November 2nd, and the next meeting’s in December. Now it’s over a 62% chance that they’re expecting another 75 basis point hike, so we’re going to be at 4.75. Right now, the market’s frozen. Right now, right? We’re seeing housing. You talk to housing developers, they’re like, “Yo, holy cow.” And every week that goes by, you, I mean, what a rate so over 7%. So, the Fed’s stop now, what would they go down? Maybe they ease a little bit, they go down to 6%, people are going to run out and buy homes and shit. It was, they were giving away free money, below 3% a year ago.
Frank Curzio: So, this well under the impression that the catalyst is, hey, the Fed’s going to stop and then wait, and even I was under that impression months ago when we were at 3%. They’re not even stopping and waiting at 4.75%, which is sick, which is telling you throughout all of next year rates are going to be significantly higher. And guys, please pay attention to the presentation because it’s massive. Look at the chart that I show you with earnings where; they were 2018, 2019, where we couldn’t grow earnings, the market went out, we traded 25 times forward earnings. That was when earnings were at $160, Daniel, they’re expected to be 240 and that’s 100% because the 11 trillion that’s in the market, the Fed’s doing everything you can to get the 11 trillion out of the market. Rates were below 2% back then, we’re going to close to 5% now. I mean, you think this is factored in? I hope I’m wrong on this, I just don’t see where the demand’s coming from. Do you see where the demand’s, where’s the demand coming? It’s not coming from China. China’s again closing for COVID again, someone sneezed again. So, where’s the demand coming from? Where’s the buying come from? It’s not coming from companies.
Frank Curzio: Buybacks, they’re not buying back their stock. They issue these buybacks, and they could do that these buybacks over a year. They don’t have to. The way it’s set up, I could announce, hey, Curzio’s going to buy back 50 trillion worth of stock, and we don’t have to buy back anything, and that’s okay. They’re not buying back stock with their stock down 25, 30%. Insiders are not buying here. They’re laying off employees. What are they telling you? They’re telling you that shit’s going to get a lot worse. That’s what Jamie Dimon says as well. He said, “If you’re going to raise money, raise money now.”
Daniel Creech: Yeah.
Frank Curzio: That means the market’s really going to be shitty going forward, and I don’t know how long it’s going to be with the Fed not there to pick us up. And that’s what you have to worry about because the CPI number is this number. I thought it would moderate, start getting a little bit lower. I mean, the core is still going up. It’s still at highs we’ve not seen since ’84, it hasn’t topped out yet, and it’s not going to top out because of the way it’s calculated, and that’s what the Fed is looking at. You need to understand that because, man, it’s pretty ugly out there. The CPI and the PPI, right? I mean, two in a row were terrible.
Daniel Creech: And to your point, the shelter inflation and the rent inflation were up on a month-over-month basis, year-over-year basis, and their highest on record. You don’t like to hear highest on record in these types of environments and these types of readings. It’s just, it’s going to be very volatile. You have to fight in the arena we’re in. We’re all gladiators now, Frank, we’ve been thrown in here in the Fed. You got to survive and thrive. And to your point, Moneyflow Trader is a great way to do that.
Daniel Creech: The wild thing in looking at the discrepancy, so Pepsi had strong earnings, positive comments from the CEO. Delta, same thing. They’re already above pre-COVID, 2019 revenue. So, it’s not to say that everything is terrible, however, the price action in near damn everything, darn near everything is terrible. And that’s just because of the way markets move and liquidity and all that kind of stuff. We don’t need to get into that right now. I’m just saying when you’re looking at individual companies or sectors or whatever, you just have to take with a huge pound of salt, Frank, about the Fed and the influence that they have, what they’re looking at and pay attention to it. If you want to buy some great stuff that looks too good to be true, scale in very slowly or sharpen up your trading skills, Frank.
Frank Curzio: Okay, so we’re heading into earnings season, and last earnings season, you could say ended three months ago, but there’s a couple of companies that report late, and we saw the companies I reported late, which were FedEx, Nike, Levi’s, CarMax, a few others. I’m cherry picking here, there’s just a few of these that reported late, some do. And when you see what they said, with Nike’s inventory up 23% last quarter, now it’s seasonal, you have to sell this, right? You got to sell that discount, nobody projected that they would see another 44% increase in inventories. CarMax, right? Remember that industry? That used to be great, great, great. Holy shit, that’s rolling over. I mean, the cost to get a loan is incredible.
Frank Curzio: Not to mention Ford. Ford announced, I think it was a $7,000 increase in August to its Ford Lightning, right? Their new EV, and then you had these tax credits that the president passed. Well, we’re lowering by 5,000, and then they just said that they’re increasing it by another, what is it? $5,000 or something like that? I don’t think they can make money on these cars at the current price that they’re selling, which is crazy. And they’re looking to spend 50 billion to push more and more into this industry when demand’s crashing. Absolutely crashing because people are like, “Holy shit, I got to cut back.” They’ve seen their portfolios down, they’re seeing the home prices start decline. They’re seeing it, right? They’re feeling it.
Frank Curzio: So, you have FedEx that removed guidance. I mean, is that the biggest? They know more about the consumer than almost anybody outside of Amazon, AI all over their company for 10, 12, 15 years probably. And they’ve removed guidance. They don’t even know. They’re like, “Holy.” I’ve never seen, I don’t, can’t remember. I’ve been doing this a long time. I don’t even know if 2008 that they removed guidance. So, these are companies that report late. It’s important because they got to look at August.
Frank Curzio: So, the companies that are reporting now, let’s go over that. Pepsi reports solid numbers, and it makes sense, right? You’re going to see some of these consumer staples and you’re like, wow, Pepsi’s off its lows, it’s doing okay. You might want to buy that, you’re going to be buying it, but it’s trading at 23 times forward earnings. 23 times forward earnings and probably expected to grow those earnings maybe seven, 8%, which is gangbuster in this market, which is phenomenal, right? So, you’re seeing earnings decline year-over-year already as of last quarter, if you strip out energy because energy’s earnings were up whatever, 1,000%, right, because energy was terrible. And it’s going to account for a big part, not a big part ASP, but a big part of the earnings picture. But if you strip out energy from earnings, which is I think it’s 13 sectors.
Frank Curzio: So, it’s not like I’m stripping out just this, to cherry pick here, you strip out energy because it was 20 bucks and went to 80, right? So, you’re seeing on average prices, they made a fortune in earnings, and they’re increasing. But outside of that, you’re seeing massive declines. You’re going to see 10, 12% decline in banks, 15% decline year-over-year, which means why should we be trading at 15 times forward earnings? 17 times forward earnings when you’re not growing earnings? And this should be, we should be in trading at a single digit PE, a full PE when you’re not growing earnings. And what do we see, a good example of this is Delta, which is a company I think is fantastic, is in our portfolio. We knew they were going to have strong revenue, it doesn’t matter though. I mean, you have a liquidity event here where people are selling anything.
Frank Curzio: What Delta already got annihilated and fell, and now they come out and say they reported record revenue, the most revenue they’ve ever reported in a quarter. And earnings, they missed earnings by a little bit because they said there was a 3 cent headwind because of Ian. And yet, what happened for picking the right stock that reported good earnings? I mean, it’s up one, what is it? Up 1% right now. I mean, that’s the risk-reward. You’re looking at dividend stocks, utilities, did you notice this Daniel? Utilities are starting to roll over. That was a safe haven. Why are they rolling over? Because why the hell would you buy utility? Why would you buy a consumer staple at this price when you could buy a four year and get 4.2, 4.3% risk free? Why even take on the risk with The Fed constantly raising rates going to. This is a headwind.
Frank Curzio: It’s like you’re climbing a cliff, and you get up there, and they punch you in the face, and you fall down. You climb up there, you climb, get off, and they keep punching you. He’s there to punch you in the face all through 2023. At least they’re going to continue to punch you in a face. Meaning, every time stocks rally, you’re going to see people take profits and you should because the Fed is out of control right now. And you might say they have to be, and inflation’s coming up, I don’t think they have to go this high. I think they have to wait. They’re going to overshoot. They’re looking at lagging data, and the way this is calculated, CPI with rentals. I mean, listen, we have a supply problem.
Frank Curzio: So, you’re seeing home prices come down, which means people can’t afford them. What are they going to do? They’re going to rent. They’re going to need to rent. So, you’re going to see rental prices continue to remain high. And it’s no surprise that during 2008, 2009, Daniel, when we saw the housing market absolutely collapse, you know what didn’t collapse? Rentals, and rentals didn’t go up that much either. They were going up two, three, 4% around, they weren’t going up 20% from 2005 home prices, right? And now, it’s part of the CPI, which kept inflation in check. It’s the opposite right now. So, you had to be very careful what the Fed’s looking at, and it’s crazy. But look at Pepsi. Pepsi, try to put it in real world. Daniel, you and I would talk about this with Pepsi. You love Coca-Cola, right? You drink Diet Coke, right?
Daniel Creech: I like Diet Coke, yeah.
Frank Curzio: And where do you get your Diet Coke from?
Daniel Creech: Where?
Frank Curzio: Yeah.
Daniel Creech: Gas stations, grocery stores.
Frank Curzio: Like it.
Daniel Creech: The best is McDonald’s. You got to get… I don’t know what they put in it, but they still have-
Frank Curzio: I don’t know what they do, man, they got best fries no matter what. Yeah, the best fries and everything.
Daniel Creech: I am embarrassed to tell you I have sat in a drive through of a McDonald’s for a very long time to order a Diet Coke and a Diet Coke only.
Frank Curzio: And when you go into these restaurants, and it’s not too expensive, but some places that you go to, Chipotle, you’ll pay $3 for soda. So, I mean, for Pepsi and Coke, one, it’s a necessity. Everybody needs that and companies generate the highest margins so they have a lot of pricing power. So, you could look at Pepsi and Coke and look at that. But you need to take a look in your house and everything inside your house, look at all those brands. Earnings are coming down 25% for everything that you see, because no one’s buying homes. And when you buy homes, I mean, that’s one of the biggest drivers of GDP because everyone buys so much stuff. I know, I’m building a home. Everybody’s buying stuff, buying new stuff, and you got to see whatever it is. If it’s just furniture, electronics, TVs, all this stuff, I mean, please wait until Black Friday to buy anything. I told you, you’re going to get a 70-inch TV and get one for free. Buy one, get one free. I mean, that’s how much inventory is on the levels for these companies.
Frank Curzio: But that’s a frozen market now. And so, where am I getting to? So, you see Delta, you see Pepsi, Pepsi’s up a little bit. Okay, good. You decide to buy those. But let’s talk about AMAT, Applied Materials. So, this is a semiconductor company, let me see if I can bring it up here, because this is a semiconductor company that’s down tremendously, and I want to try to show this to you. So Applied Materials, it’s $77, and they came out and just had earnings. The stock was 167 at its peak for the two week range, it’s 77 now. Okay, it’s up a tiny bit today. But it reported yesterday and the stock got hit. They got hit four or 5% and the stock got nailed and actually even more than that. But the stock got nailed because they lowered earnings by you know how much? 25%.
Frank Curzio: They lowered earnings and they blamed… They said, “Oh well, we’re kind of on that list where,” the US list and the semiconductor, we can’t supply China, and that’s what they blamed it on. When you’re looking at technology companies across the board, you have to lower their earnings expectations by 25% each, and they’re not even close to being low. They’re lowered by 10% right now. And that’s the danger, where we’re going to see earnings come in and they might be, you might say, “Oh, well, earnings are beating and earnings are doing okay right now.” They’re beating them because they lowered estimates tremendously, but they didn’t even lower them enough because you look at Applied Materials just one, you’re going to see us across the board. We’re seeing it with AMD. AMD was honest enough to come out and say, “Hey, you know what? We’re seeing a massive slowdown in PC demand.”
Frank Curzio: Because if these companies are blaming supply chain concerns, you’re crazy. I mean, it’s not supply chain and you’re seeing it open up more, prices down 80% for long distance, for travel when it comes from the west coast of China, it’s down 80%. You’re seeing this market free up. It’s more free than it’s ever been post-COVID right now, the supply chains. So, they can’t let the supply, if they blame the supply chains on their earnings, you should short them right away. It’s not that, it’s demand destruction. And that’s what you have to pay attention to because you’re going to see companies try sugarcoat it. This isn’t the time to sugarcoat, Ford’s been trying to sugarcoat it. I warned you about that. That stock got killed, Disney was sugarcoat it, I warned you about that because shit was much, much worse than they’re saying. And even Disney, I saw yesterday in earnings, you have to pay attention to this, guys, because Disney came out, Daniel.
Daniel Creech: Your favorite whipping boy.
Frank Curzio: They’re going to come out, just to be honest. That’s why I’m pissed, but Disney came out, they didn’t come out. But JP Morgan, you’re seeing companies lower estimates under the radar. You guys don’t see that because they don’t really report that in the media. We see it because this is our job to see it. We see that as these things come out. So, JP Morgan lowered their estimates for 2023 from 510 to 440, and then they lowered their target price. I mean, that is massive and that’s not even close enough because they’re going to go much, much lower than that. But I mean, they didn’t know, you’ll see adjustments of 510, and oh, we think subscriber growth might be a little bit bad for streaming subscribers, and we’re going to lower it to $5 to 440. So, when you see Disney report, and they beat the number, just know that that number was 510, and this number’s probably going to be 430.
Frank Curzio: So, when they pour 435, you’ll be like, “Wow, Disney’s doing great. Okay.” No, they’re not. It shows that the stock is not trading at what they’re telling you, 15 times forward earnings, it’s really trading well over 20 times forward earnings. And you don’t deserve that premium because earnings aren’t growing year-over-year for most of these companies. They’re declining sharply, and they need to come down, and that’s what you have to worry about. That’s a big risk. That’s what the Fed’s causing right now, and they’re going to continue to do it. It’s bad now, it’s going to get even worse next year. And that’s why you got to prepare. You got to be very careful, guys. This is a really, really crazy market. And just again, we took JetBlue, right? Is a risk-reward there. Do you want to come out and pick that thing and say, “Hey, I’m going to buy the low before the quarter,” and get 1%?
Daniel Creech: JetBlue? Delta.
Frank Curzio: Delta. Sorry, JetBlue.
Daniel Creech: It’s the New York in you.
Frank Curzio: I hate JetBlue.
Daniel Creech: JetBlue.
Frank Curzio: JetBlue.
Daniel Creech: The Northeast.
Frank Curzio: You know what?
Daniel Creech: I don’t think I’ve ever flown JetBlue.
Frank Curzio: Don’t fly JetBlue.
Daniel Creech: Don’t do that.
Frank Curzio: It’s terrible. It’s horrible. I think they had, so they’re the newest airline, which is funny, and they basically had the same fleet for 25 years now, whenever they came out and remember that it was the best thing ever because you had this little TV, and it was Direct TV, you’re like, “Holy shit, I could watch TV.” Now that everybody can, and that TV works on half the slots now because they never replaced it or whatever. So it’s like, oh my God, it’s such a nightmare. But anyway, their hub is in JFK, so a lot of people, they don’t like flying it, but they kind of have to fly it, so.
Daniel Creech: Right.
Frank Curzio: Anyway, but Delta I’m talking about. Yes, thanks.
Daniel Creech: So with earning season, I would expect a lot of companies to take the route of FedEx and not give forward guidance. What’s say you, Frank, because to your point on risk-reward, Delta, hey solid numbers, you’re not really getting that big of a pop. Granted, it’s good to see that during a crazy day, volatile day in the markets. However, if you’re a CEO outside of tech, because tech’s going to be really tough. What risk-reward do you have to give guidance? I mean, selfishly-
Frank Curzio: Well, I mean, the risk is if you don’t give guidance, your stocks can get nailed.
Daniel Creech: Right.
Frank Curzio: Even though it’s down 30%, it’ll fall 15%. Because now you can’t, the analysts don’t know. And we know what happens when you have uncertainty, when you don’t know, is you’re supposed to earn $7 a share, and if you’re bringing it down to five, people could adjust their estimates and be like, “Okay, well, you’re already down.” This stock’s down 35%, maybe it goes down another five, 10% here. If you really could report that and cut costs, and maybe get a little bit better and go to 530, that’s okay. But when you remove guidance, is it four? Is it three? Is it two?
Daniel Creech: Right.
Frank Curzio: Right? So, that’s the uncertainty, that’s the risk. You’re going to see companies like Pepsi, like Coke, some of the food companies, I think they’re able to get some sort of guidance. If you’re a technology company, holy shit. I mean, most of their profits come from overseas, and the dollar’s at 20-year plus highs across the board against basket of currencies, their earnings are going to collapse just for that. Already, we saw a company, a company coming out. Even Pepsi came out, they have big international operations and said, based on constant currency, that’s what you’re going to see. You didn’t see that at all for a while, for 12 years. But now, they’re going to say constant currency, meaning that the money’s not going to be worth a lot more.
Frank Curzio: And I talked about this. I talked this on yesterday’s podcast before the whole freaking building went out, and we were sitting in the dark, but I learned this the hard way in 2012, I’m pretty sure that’s when the last time the Canadian dollar was on par with the US dollar, pretty close I think. 2011, 2012. And I had a lot of private placements and stuff and that, there was a huge differential that it was 30%, probably 35, 40% now differential. And I realized it because I cashed out one of my positions, and when I got my money, it was 40% less. I was like, “Whoa, whoa, whoa.” I paid for this in cash, and they convert it to Canadian at the same level, you don’t realize until it happens how big of a deal that is.
Frank Curzio: I mean, so that’s one thing. Throwing demand to structure where China still, the growth engine of the world. I mean, what’s their GDP? Do you know by any chance? I don’t know if you look it up. I mean, this is a country that’s growing by 8%, 9% and always out there, now with COVID and the problems that they have in there. So, I mean, I don’t know what China’s GDP is now, let me try to figure it out. But let’s see if I can.
Daniel Creech: There’s another data point to take with some salt.
Frank Curzio: Yeah, but exactly.
Daniel Creech: But you got to go off what you, you have to play by the rules you’re in.
Frank Curzio: Exactly. So, it’s just where’s the growth coming from? I mean, I don’t know. I don’t where the growth’s coming from, so I have no idea. And yeah, where’s the buying coming from? And you’re more inclined to think, wow, the stock market is down. It always goes higher and higher. It’s different this time it went higher and higher because we had, Daniel, this isn’t a COVID problem where we injected $11 trillion. That’s part of it. This is a problem since 2008. We kept interest rates low forever, and we never paid the piper. Because the biggest thing that I’ve always said this, that the worst thing that happened during that time, when we bailed out banks and we know that they had to do that or you weren’t going to get your money out of banks, unemployment went 30%. What happened to Lehman could have happened to the whole system.
Frank Curzio: They just chose Lehman. It wasn’t like Lehman did anything different from anybody else. They just said, “Hey, let’s let these guys fail and see what happens,” and look what happened. They were like, holy shit, that was going to be good and it wasn’t. They could have picked anybody to do that outside of JP Morgan who would’ve got destroyed. They’re all leveraged, 30X. But the worst thing that happened during that time Daniel was that the government made a fortune on everybody that they bailed out. And that was because now they feel like, “Wow, we could spend as much money as they can. The kinds are going to come back.” So, you have all of this was, I mean, 0% interest rates, we might not see that for another five years. I mean, the only way we’re going to see levels go down to that level is if markets absolutely crash and we see inflation fall and the markets continue to crash.
Frank Curzio: When we look at the market, the only comparable market I could think of, because you look at 2008, the crash is pretty quick. I mean, it started bouncing back in 2008 towards the end of the year and then crashed again and then bottomed out. But it was relatively, it wasn’t that long. COVID came back, what? Two months March, April, boom, that’s all a huge 30%. The decline came back because you have the Fed there to pick you up with 0% interest rates. But let’s look at the Nasdaq crash, the tech bubble in 2000 and be looking at three years where the Fed law would lower rates incredibly all through 2001. 10 times at 25 basis points, 50 basis points. And then lower 2002, lower 2003, that whole period from March 2000 when the market started to crash, it kept going down for two and a half years before you finally bottomed.
Frank Curzio: And that’s what we need, that’s what the Fed is doing. And we have to be very, very careful to look at our earnings and say, “Wow, things are cheap now.” I heard it 50 times, Daniel, holy shit. 50 times on TV from analysts. Wow. Well a lot of it’s priced in, and it’s cheap trading 50 times from earnings. Well, what earnings are you basing it on? Because I remember 2019, the total amount of earnings for S&P 500 was 160 bucks. Now, they’re expected for $240. How the hell are we get to that level if you’re removing the 11 trillion that got us there? So, if we’re going from 240 to 160, do the math of how much of a decline. Maybe we don’t go to 160. And by the way, we’re at 160, Daniel on S&P 500 in 2019. You know what rates were? 1.75, below 2%. We’re going to be at four and a half percent next year.
Daniel Creech: Yeah.
Frank Curzio: I mean, you could argue that it’s going to be below $160, and we couldn’t grow earnings from 2018, 2019. 2018, they grew tremendously because of Trump, and we had corporate tax cuts, massive, so we grew earnings 25% that year. Now, we have Biden that actually took some of that away, so that’s another headwind that wasn’t a big deal in a normal economy. But now, you’re adding that in, plus the dollar going higher, holy shit. Again, when I did this presentation, I sent it out to everybody, my family, I said, “Guys, watch this.” And even the people, mentors and people are smarter than me. I said, “Tell me where I’m wrong.” And I haven’t got any answers yet. I hope I’m wrong on this because most people are wrong.
Frank Curzio: But there’s a danger out there. There’s a way, not just to protect yourself, you could throw yourself in cash, you can go buy the two-year. There’s a way to make an absolute fortune because this is going to bottom, it’s going to take longer than expected, but you want to have as much cash as possible, and you want to be greedy because you’re going to be able to buy tons of assets that are going to be trade 10 cents out a dollar, and that’s how you create generational wealth. I mean, the good investors welcome these markets. It’s the people who aren’t prepared that don’t know, everybody’s a genius in a bull market. But when you see these type of markets, you don’t see assets decline like they’re going to decline, the Fed do something stupid because they’re going to hopefully learn from it for 10 years from now.
Frank Curzio: This is a time. This is a time to be greedy. And that’s why we’re saying, hey, learn how to buy puts. We’re the best person that I know. I wouldn’t even take any hedge fund. I mean, you have to have $500,000 sometimes put to the hedge fund to get strategies like this. And we lowered the price to 499 for three months. This is a $3,000 product and said, “Hey, if you want, but just even if not, just learn this because you’re going to see over the next year buying long dated puts.” What you’re betting on is one of these stocks that you’re betting or sector, right? Or an ETF, it could be international, whatever that’s going to decline about 15% from the price where you’re buying the put at and where it’s trading. And I could tell you, I would bet that every single stock in S&P 500 is going to see another 15% decline sometime from here over the next year. So, I think it’s like shooting fish in a barrel, and she’s been. 200% gain, 200% gain is coming a month, two months at time. This is the market for it. I mean, it’s a product, it’s very, very easy, you do it in your bank account, you have to get level one, I think on options, right Daniel? Maybe level two, whatever, something like that but.
Daniel Creech: Yeah, value depending on your broker.
Frank Curzio: And it takes a day to do that. Again, you’re only losing money that you’re putting into it. So, whether it’s a thousand dollars, $500, that’s all you, You’re not going short where, again, you could always be wrong. I could be wrong. Maybe the Fed turns around tomorrow and says, “We’re lowering rates,” I’ll change my mind in a second. That’s the only thing. Even if they stop, the damage is already done and the last two hikes aren’t priced in. The one that’s coming out, it’s definitely not priced in. The one in December’s not priced in, holy shit. So, even if they stop now, you’re going to see a lot of things get wrecked still and the Fed’s going to continue to raise rates. I don’t want to sound like, again, I sound like you want to jump out the window. If you do, make sure it’s from the first floor.
Daniel Creech: That’s right. Yeah, that’s good advice.
Frank Curzio: That’s what you said, first floor. We were talking about joking, right? Yeah, just make sure it’s from the first floor. I say, “Well, it depends on much money you have in the market. You might have to jump from the 20th floor.”
Daniel Creech: Yeah. Good news is that-
Frank Curzio: We’re joking.
Daniel Creech: Our office here is one story, thank goodness.
Frank Curzio: Yeah, thank goodness.
Daniel Creech: Yeah. I mean, you don’t want to be a negative, but you have to be honest and you have to explain what we’re seeing. And this is the world we’re in. Listen, not all-time, there’s seasons, this too shall pass. There’s times to do great and take on leverage or be risk on like we’ve had for a long time in the past and this is a different time. We’re dealing in a different environment. A, you got to acknowledge that starting point, and then we just want to explain what we’re seeing right now and how we can do it. The point is here, you need to be very, very cautious. I don’t have any problem saying that. Like you said, this is a bummer for our business. We’re kind of shooting ourself on the foot, however, we’re being genuine here. We’re telling you what we’re seeing.
Daniel Creech: And it doesn’t mean you can’t be or have any exposure. It means you have to change and adapt. We’ve always talked about changing and adapting when data changes. Data is changing at a very fast pace. But the easy steps here are rates high equals a huge headwind. So, either get more cash on the sidelines or learn new strategies, such as Moneyflow Trader. It is very simple, and don’t think that you’ve already missed the boat because again, to your point, it’s easy to say, all right, stocks are down 25%, it’s got to be close to a bottom. No, it doesn’t. It doesn’t mean it’s not, but it doesn’t mean that we are close to anything.
Frank Curzio: 95% of the time, when I see a market like this, I would tell you that, hey, we’re down, a lot of it’s priced in. When you look at the earnings, they’re not pricing them in.
Daniel Creech: Right.
Frank Curzio: We’re expecting $204 in earnings for 2023, which is growth of 7% over this year.
Daniel Creech: When like you’ve talked, those will come down. Those estimates will get down.
Frank Curzio: They have to come down, so when you’re looking and everyone’s looking at forward estimates going, hey, the market’s trading at 15 times, it’s not. It’s still, it’s trading 22 times earnings. If you’d factor in a 20% decline in earnings, it’s still very expensive. And by the way, 15 times earnings, when people say on TV, which they don’t mention, they say historically it’s 15 times. Well, historically that’s based on earnings growing about 7% annually. Earnings did not, they didn’t grow year-over-year, they’re not growing next year. And they’re probably not going to, I mean, good luck unless they really, really come down. Maybe they grow the following year. But you’re going to see earnings declines, which means you shouldn’t be trading it 15 times. You should be trading even cheaper than that. So, you have to be careful where they’re like, “Hey, it’s cheap, it’s trading at 15 times earnings historically.” Well, historically, we grow 7%. We’re not growing, right?
Daniel Creech: Right.
Frank Curzio: We’re pulling, the Fed’s doing everything they can. And just to me, it’s funny listening to the politics behind it, trying to not say the word recession and people saying, “Well not really, okay, we’re going to redefine what a definition of a recession is,” right? Two straight quarters negative GDP, we had that. Oh well, but the unemployment number is great. Oh yeah, it’s great because there’s five, what is it? 5.8 million people on unemployment, which are filing, right? They have to file. And that’s 3.5%, that’s of last number at last quarter, of September. But you have another 5.8 million people who are not being counted that are looking for jobs, but they say that they’re not actively looking for jobs. They’ve always calculated it that way. But now, you’re looking at 5.8 million people who want jobs. You think they need jobs even more now? For inflation through the roof, how are they going to pay their bills?
Frank Curzio: I mean, expenses are going through the roof. Now, if you don’t have a job, you’re probably on credit so now you’re seeing your rates go through the roof. I mean, if you take half of those people, we have an unemployment rate of five, five and a half percent. But just the way these things are calculated, which I did, I wouldn’t suggest you do it. It’s boring. I love that shit, and just looking how rental income, how it was revised from 1983 to 1991, 27 times. Just the way that they calculated to almost show that there’s never any inflation. There’s a reason why the CPI was never over 4% since 1991. A lot of people don’t know that. The CPIs never been over 4% annually since 1991 until this year, or actually last year it started.
Frank Curzio: And then, we had our Fed come in and say last year, Jackson Hole, “Hey, we’re over 5%.” Sorry, it’s going back down 3%. A lot of that was because the way the rental income, they said let’s make this 30% of the index. Rentals usually go up 2, 3% annually, it’ll keep everything in check. That’s why all of us saw massive inflation from 2010, 2020. We all saw inflation, our bills went through the roof, but the Fed was looking at the CPI and they were saying, “Well, inflation’s great.” It’s at 2% and as long as it’s 2%, we’re going to keep it straight to zero. So, you could see just from that formula, how it’s calculated was bullshit based on the bills that you pay. And they’re saying it’s 2%. And if it gets a little high, here’s the core, we strip out food and energy. Well, now rental income is biting you in the ass because you’re looking at something years ago was 2, 3%. Now, it’s up over 15% last year, 15% this year, holy shit.
Frank Curzio: And that’s not stopping anytime soon because it’s not a huge supply of homes on the market. So, I know I’m getting a little technical here, that’s my job to figure out why. I’m not just saying, “Hey, this market could crash,” or it’s dangerous. It’s the data and the research that I’ve put behind this. And again guys, take a look, it’s for free. And go to our site Curzio Research, take a look. And if you want to take advantage of how we would do it, lower the price, Genia’s product. She has a guide and everything. Again, if you really buy it and you’re like, “Wow.” I’m not talking about this for a three-month period. It’s something that, it’s a compliment to everything else.
Frank Curzio: Well, you want to be a little bit long. There are good stocks. I don’t have a crystal ball. You want to be a little bit long, some of these names, you see these bounces in the market. But these things are not just going to protect you. You’re going to make a fortune of it. She’s booking 200% returns in months, and you guys should have access to that. And if you have any questions, comments about it, we just saw huge demand from our presentation, our special briefing. And if anyone has questions, they’re coming in. And again, we’re here for you and that’s the most important thing. But just be careful, and I don’t know, sorry to be so goddamn negative because I love being optimistic. I love finding the bright spots. This is one time in my career I can’t really find a bright spot. I can’t find a bright, and that’s why I’m fucking, I’m sorry, I’m pissed. I’m really pissed. I didn’t even mean to curse today, but I’m really pissed because I just… Usually, I’m like, “Hey, but people are understanding this and this and this and this.”
Frank Curzio: We’re down, I feel like it should be more bullish. Everything that I look at is telling me absolutely not, it’s going to get a lot worse. Even though sentiment’s leaning that way and most people think it’s going to get where I don’t think people realize how worse it’s going to get. We saw a 75% decline in technology stocks, and that was the last time. That was the dot com bubble. Why did it go so low, Daniel? Because The Fed was not injecting cash into the system. That’s a big difference from 2008’s crash, from 2020’s crashed. It’s a big difference.
Daniel Creech: Right.
Frank Curzio: They weren’t injecting trillions now, or even hundreds of billions in a credit crisis. They just let it happen. They lowered rates, but they let it happen. We’re still raising rates and for those of you, I feel like I don’t want to scare them anymore but I see the most interesting stat. So, whenever a market is down 20%, it’s down 20% plus. Once it falls 20%, we’ve never in history saw market bottom while the Fed was still tightening. So, for those of you who think we’re going to have a market rally, we might have a bump up here, and they’re based on technical indicators and always sold to whatever. But if you think stock’s going to rally with the Fed’s raising rates, it’s never happened in history. When we’re down 20% plus, that’s where we are now. And they’re going to continue to raise rates through December into January, February now. We’re looking at it to peak, right? It’s going to peak at 4.8. You look at 3, 4, 5 more months of significant declines and yeah, it’s one prediction I hope I’m wrong on, man, really. So anyway, I love giving the mic to you after that.
Daniel Creech: Yeah. Hey, the world isn’t ending everybody, we’re fine. We’ll find some positive markets.
Frank Curzio: The positive is-
Daniel Creech: Tune into the emergency briefing.
Frank Curzio: And the positive is though, is this isn’t a banking crisis. The banks are going to see the clients or seeing them now. Some have exposure international, but to stress test the amount of capital they were forced to keep on about. This is it, this is the reason why. So, we’re not going to, it’s different type of crash. It’s not a credit crisis where you have to worry about the banks not paying you out and shit like that. Maybe few of them, Credit Suisse and stuff like that and who knows. But the majors and going through the stress test, that’s the positive. This is just a Fed induced demand destruction market, and it’s going to continue for at least another six months as rates continue to go higher and higher. And man, they’re going to overshoot by a mile. So hopefully, for me to get bullish, I need to see them not just stop. I really need to see them say, “Okay, we’re going to,” there’s a shot that we’re going to start easing. And I don’t see that happening, man. I don’t see that happening for a while, so.
Daniel Creech: It’ll be a couple months, but it will happen. We’ll be there.
Frank Curzio: Okay.
Daniel Creech: Keep tuning in right here. We’ll get back to our next week, regular Wednesdays.
Frank Curzio: You know what else is great news? The Eagles baby.
Daniel Creech: Oh.
Frank Curzio: Yeah, I kind of hope they get smoked this game. They’re playing Dallas Cowboys. You may say, “You’re an Eagles fan. Why would you say that?” I think they’re really, really good. But the best Super Bowl champions, even when I see champions in so many other sports, they get their ass kicked a couple times during the year, and it puts things in perspective, it makes them work 10 times harder. So right now, I’m hoping that they’re not over confident going in. Dallas has a great defense, and Dallas is playing well. I know Dak’s probably not going to play, which is probably good news, this guy’s rushes are on fire. But at least the Eagles, I never thought I’d say they’d be the only undefeated team, that might change this week. But let’s see, Dallas is really, really good, and let’s see what happens. Both teams are really, really good, I like to see the NFEs back. Good job for the Giants too, man. Giant fans, good job. They’re doing very, very well. Much better than expected, so did the Jets. Holy cow.
Daniel Creech: Oh Jags, yeah.
Frank Curzio: The Jets, the Jets.
Daniel Creech: Oh, Jets.
Frank Curzio: I’d never thought I’d say those two New York teams. Coming from the, you have to pay 30, 40,000 for PSLs, just the right to buy the seats. Right here, you don’t have to do that in Jacksonville, right? Just go there, it’s fun. But to get season tickets, that’s how much you have to pay. It’s a fortune and whatever, three, four, $500 seat, whatever the hell it is now. And both teams sucked forever. At least judge when it comes to Super Bowls. But now, I see them both playing better, it is exciting.
Daniel Creech: That’s a hard pass.
Frank Curzio: That’s a positive.
Daniel Creech: That is a positive.
Frank Curzio: That’s cool. Any final thoughts?
Daniel Creech: Yeah, big positive. NHL season started, so that’s fun.
Frank Curzio: And so did basketball season. Yeah, really good. So, all right, guys, listen, questions, comments, I’m here for you, firstname.lastname@example.org. Sorry about yesterday’s podcast, I can’t control electricity. I felt like I was in California for a minute, ha ha ha. But imagine having no electricity. Holy shit, that’s got to be crazy.
Daniel Creech: Or Texas at times.
Frank Curzio: Yeah, Texas. Yeah, pretty crazy.
Daniel Creech: And what’s going to be happening across the pond.
Frank Curzio: I know. If people only knew that live in the United States, our kids that are growing up saying they freaking hate this country, if they only knew that that’s how it is in some other countries, in some areas, where people don’t have access to clean water, you’d realize how lucky you are. I always make sure I tell that lesson to my kids, how lucky you ought to be living in this country and how great you have it, even though most people growing up now are thinking the world sucks and it’s going to end. Anyway, questions, comments. Have a great weekend, guys. Let’s see, if you’re a paid member to any of our services, I’m going to take your questions for Frankly Speaking, that’s on Friday. That’s only available to you guys, but everybody else, appreciate it. Again, feel free to contact us, Daniel, what’s your email?
Daniel Creech: email@example.com.
Frank Curzio: I almost forgot, buddy. All right guys, really appreciate all the support, and I’ll see you guys next week. Take care.
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