The World Economic Forum is meeting in Davos, Switzerland this week… giving us an up-close look at the so-called “global elites.” Daniel and I discuss why these world leaders are hypocrites. We also highlight the industry that benefits the most from this meeting: high-end sex workers… and how inflation is hitting escort prices.
Markets are rising after the latest Producer Price Index data came in lower than expected. I hate to pour cold water on this rally… but a little-known indicator says we’re due for a pullback.
The latest results from Interactive Brokers Group (IBKR) show how rising interest rates are benefiting certain corners of the financial sector. I share which brokerage stock I’m most bullish on… why investors should avoid the banking sector for now… and a word of warning about what’s going to happen when the Fed starts cutting rates.
- The Davos meeting is great for prostitution [0:30]
- Why investors should expect a market pullback soon [6:15]
- Buy this sector while interest rates are rising [19:20]
- Things will get ugly when the Fed starts cutting rates [30:16]
Wall Street Unplugged | 7
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 January 18th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and tell you what really with these markets. So much going on: Davos, economic data, earning season, craziness, and I bring back my buddy, Mr. Daniel Creech to discuss everything that’s going on. He’s going to give you the two-second take right now about what you should do with your money. Again, two seconds, go.
Daniel Creech: Keep it away from those boogeyman and Davos. Put it under your mattress.
Frank Curzio: Yeah, that would be-
Daniel Creech: Happy Wednesday, Frank.
Frank Curzio: I’m glad I get it started Wednesday because you have this thing with Davos, and yeah. I mean, you don’t really like it, do you?
Daniel Creech: No, I don’t.
Frank Curzio: Why?
Daniel Creech: Because it’s the global… Global elite gets used too much. If you read or listen to any of these guys’ speeches, and Klaus the kind of head guy of this world economic forum, Klaus Schwab or whatever, he says some outright scary stuff, and I don’t know if you remember, Frank, but back in 2016, you know how people like to switch the narrative on you. Move the goalpost as we joke. Back in 2016, here is what the World Economic Forum tweeted out. “Welcome to 2030. I own nothing. I have no privacy and life has never been better.” And there’s a funny article out there circling and Elon Musk, who I’ll be completely honest, that guy has driven me nuts, and I couldn’t stand the comments he made about the tweeting about Tesla, which is now in court, about taking it private and such, but he is winning me over because he’s at least calling out silliness on the world stage.
Daniel Creech: And what aggravates me is from… This is just the glaring example of rules for thee and not for me, because what’s the core thing at Davos that people talk about year in and year out, Frank? Climate change, and how you and I have to change our life significantly because we are up against such a front that we have no way to get past civilization to continue. And how do all of those old angry pointed shoe wearing people get to Davos? Do they walk? You think they take a rowboat or do you think they get in a private jet and burn tons of gas, fuel and all that kind of stuff? It is the biggest hypocrisy in shame on CNBC and everybody else for not telling the truth about all those manipulative, just… It’s a good thing I try not to cuss on this family show, Frank.
Daniel Creech: You should be having this segment. You can get away with it. Your name’s on the door. But anyway, my point is that all they tell you is how they want to, if you read between the lines, they’re telling poor people to stay poor, middle class to go to poorer class, and just them as the rich elites because they’re smarter, bigger, and better than everybody can continue to tell you, and we’ll just barely get through this. It’s all just a big sham, and it’s disgusting. I will tell you the biggest, now that I’m on this roll, the biggest winner of this from Davos is, quote, the dark side of Davos because sex workers has soared during this week. And there’s an article here. I don’t come to this unprepared, Frank. There is a woman who uses a stage name and she says, “Well, I’m dressing in business attire of blend in with a crowd.” She says, “I have an American businessman.” And she charges 700 euros per hour and 2,300 euros for the whole night.
Frank Curzio: That’s incredible.
Daniel Creech: Now, think about that. 2,300 euros is about $2,500. If you go back to 1990, you want to talk about inflation, the best rom com movie in the world, in my opinion, Frank, is Pretty Woman. There’s a negotiating scene there where Gere asks Julia Roberts for the week because he wants no romantic hassles. It cost him $3,000 for six nights with her. You want to talk about inflation?
Frank Curzio: You want to talk about-
Daniel Creech: That was 25 a night. I’m going to need a raise, Frank.
Frank Curzio: How much is she charging? How much she charging?
Daniel Creech: 700 an hour euros, which is what? 760, 750. And then, she said the 700 euros per hour. 2,300 euros for the night. That’s $2,500.
Frank Curzio: Wow. Yeah.
Daniel Creech: Telling you.
Frank Curzio: Maybe I should-
Daniel Creech: That’s inflation right there, people.
Frank Curzio: Yeah.
Daniel Creech: You need no… Yep, Pretty Woman.
Frank Curzio: Walk-in price or the full price. Maybe we shouldn’t go there, but I know that’s… She’ll be able to tell you that.
Daniel Creech: Not only that, how do you get her home? She better be local. That’s another plane seat.
Frank Curzio: Oh, they have a-
Daniel Creech: That’s more carbon in the atmosphere. Now you got a whole plane full. It’s ridiculous, right?
Frank Curzio: They have a whole plane. Yeah, you look, listen, when we look at Davos, guys, it’s supposed to be all these billionaires get together to talk about climate change, and then talk about the economy, and it can never say, “Hey, the economy’s great.” Never ever. They’ll never say that, right? It’s against the law to say that. I think it really is. It may be against the law. Not so much that maybe you won’t get arrested, but you might lose your job obviously. You know what? Things are great. We’re doing great even though we have close to 2,500 billionaires growing their net wealth by 2.7 billion each day, which is incredible. But yeah, it is a joke to me how they highlight the inequalities of just that wealth gap, and yet, they’ll do absolutely nothing about it. And the policies and politicians and how they get together. You have politicians there, which means the whole thing is complete bullshit if you have politicians anywhere. Right?
Frank Curzio: So, the whole thing is false. It’s lies. It’s built on bullshit garbage. Right? If your politicians are going to Davos, which you are, it’s a bullshit thing to even listen to them because they’re going to pass the policies that make people more rich. They get more donations. All revolved around money, which we’re seeing more and more of on both sides. So, when I just see this whole entire thing, I listen to the CEOs come on and stuff and just talk about different things. The climate change, I kind of ignore, right? Because it’s a forced agenda. So, it’s forced kind of like, oh, we got to really, really, really talk about this. The hottest summer ever on record and all this and stuff like that. For me, I like listening to the CEOs and some of the things that they’re saying and they are, and it seems like a lot of guys are relatively nervous.
Frank Curzio: No one’s super bullish. They can let it’s going to end. A couple of guys are like, “Well, it looks okay or whatever.” But even today, when we look at some of the things that are reported, the S&P 500 is of 4% for the year, went down yesterday, but it’s up today. And people would say, “Wow, you know what? Things are good. It’s a new bull market.” S&P close above 200 day, moving average, which is always good size for technicals. So, it’s bringing out more and more of the bulls saying, “Hey, this could be it, this could be it.” And then you have the producer price index came in much lower than expected, which is good news on inflation front.
Frank Curzio: Year-over-year, we’re still up 6.2%, but it felt 0.5% much lower than the 0.1% expected. And when I see some of these things and people say, “Well, things are good.” Where copper surge, highest level in seven months. Oil’s at the highest level since early December. Those kind of bullish signs usually for markets. Right? Oil goes higher in the bullish market, not in the bearish market. And people think oil goes lower, people spend less. You don’t really see bull markets when oil’s going lower.
Daniel Creech: You’ve warned about this, but why is copper getting a bid right now or recently?
Frank Curzio: You know what? There’s just such a supply demand imbalance, and you could say that for several commodities. So copper, because I cover copper companies, it’s never been this wide, and it’s huge. So, of course copper is… You’re looking at the economy and saying, okay, we’re going to hit a recession this year, and why’s it going? So, there’s just such… It’s like uranium as well. I mean the fundamentals was so terrible when it comes to supply demand, that imbalance which favors higher prices. You just need any kind of little demand, and it’s going to set off because we just did not build up supplies in such a long time.
Daniel Creech: And to your point, some CEOs have some good things to say at the Davos. They also have some leaders. China’s leader made a big… One of China’s leaders. I don’t want to emphasize or assume it was President Xi. It wasn’t. But it was a China leader talking about how we are reopening to the world. This grand reopening. Borders are open, economy’s back open. No doubt that’s helping on copper catch a little bit of a bid.
Frank Curzio: It is.
Daniel Creech: Now, that could be a fun conversation for later. Do you fade that? Because to your point, just because you flipped the switch doesn’t mean you go back to the economy that you had in 2019. There’s going to be a lag there overall for the markets though in sentiment it’s bullish than bearish are down.
Frank Curzio: Things are great too. That’s what I’m trying to explain to people. It’s that, yeah, I don’t want to pour cold water all over this, but in 2019 when there was no COVID, China peaked. Right? And it was growing much, much faster than it was today. This is the peak of 2019 where we’re trading at 23 times forward earnings. We had interest rates much, much lower. We did have still quantitative easing, the Fed buying bonds and pushing more money into the market given still had stimulus going. So, it’s a much different market now, even opening up at this level where people are like, “Oh, we’re going to go back.” What are you going to do? Go back 2019 levels? Because if you do, that means the markets should still be down tremendously in terms of earnings, right? Because we’re at 240, and it was 160 in 2019 when you were fully open.
Frank Curzio: That was my thesis for saying that, holy shit, this market’s going to crash because we peaked at earnings and growth peaked, and then all of a sudden, COVID hit, and we got to jump on COVID. Thanks to so many people who listen to this podcast and doctors and people all over the world, which is broadcast in over 100 countries and being able to interview them and say, “That’s why I was like, whoa, this market.” I was bearish on the market. And then when you shut down China completely, which we heard in January, Apple and Levi’s and Young Brands, these companies are the biggest presence with the biggest presence in China, where we’re completely shutting down. I’m like, okay, if you’re completely shutting down and you look at Nike as well, that’s their growth model.
Frank Curzio: China is their growth model. That’s what they’re depending on for growth, and you’re completely shutting that down at valuation. You haven’t traded pretty much. Historically, some of your highest valuations in history outside of when 2000 the Nasdaq was at 40 times forward earnings before it crashed. But before, yeah, I always want to talk about both sides. I don’t have an agenda here. I don’t get paid by anybody or whatever. It’s just how I look at the market. So, do we have some good news? We had some good news. You’ve seen the mark go up, but be very, very careful here because there’s a great stat out there, where you’ve seen the shorts get squeezed. So, Goldman Sachs has a most shorted basket. It’s the most shorted basket and outperform the S&P 500 by 1.8% yesterday, believe it or not. The market’s down. It’s up 16% year-to-date compared to the S&P 500 up 4%. This is as of yesterday, right? Massive, massive performance.
Frank Curzio: And then, Bloomberg came out and saying, noting that this performance gap hits 10% plus. When that happens, it’s coincided with a recent market top and based on the market falls, and this happened in March, May, and August. So, we see these markets all the time during this bear market, where we’re seeing this whole thing go, come back, and everyone’s like, holy shit. But you’re seeing that. They say that difference when it gets 10%. Right now, it’s over 12% with the shorts. You’ve seen a lot of risky stuff go high. In fact, Bitcoin, which is incredible, it was up 14 straight days. Did you know that? I know how much it was up.
Daniel Creech: Only because I read it this morning, and it shocked me that it was consecutive.
Frank Curzio: 14 straight days.
Daniel Creech: Yeah, that was wild.
Frank Curzio: And it’s so funny because I’ll give Coinbase credit on this day. I will. I listened to a call because I’m like, where the hell’s all this money coming from? Yes, you’re seeing short covering, but we’re talking about a hundred billion plus move in Bitcoin and its market cap, which is not done. Yes, you have short covering, but you need to start the short covering. This is institutions. Retails are kind of out of this market right now. They’ve gotten so annihilated the past year. So I said, let me listen to Coinbase. They had five guys on, all heads on trading department and institutional sales and this and that, and I listened. Every single one of them was like, “Hey, this is going to be short-lived.” And I really appreciated that. Because you talk about Coinbase, and they can go on and be like, “Whoa, we’re back and this and that, and you got…”
Frank Curzio: Listen, they’re crypto. They’re a crypto company. That’s what they are. Crypto does good, they do very, very good. When it doesn’t, it comes down. And for those guys to be like, “Well, we push a little too far.” And they’re going over trading guy with different 200 day moving averages and stuff like that. But almost everyone was like, “Look, we’re got to be pulling back.” And they’ve been saying that for a couple days, which kind of makes me think that Bitcoin’s probably going to go higher. But when it comes to the markets, this is normal in a bear market. And when I’m looking at the data itself and not just from trading perspectives because you break the 200 billion people like, “Oh shit, we got to buy. We got to buy.” Be careful because again, when that short index that go Goldman Sachs shorter basket, that’s been around for a very, very long time. That they provide that and when it goes higher, you’re seeing a short squeeze.
Frank Curzio: Again, when that outperforms market by more than 10% as Bloomberg notes, it signals the top part at 12%. We’re very, very close to seeing this market turn around, especially during earning season because we have the United and stuff like that, which is pretty good. But a lot of these companies have lowered their earnings significantly into this quarter. So, you’re going to see 70% of the companies beat just like you did last quarter and be like, wow, earnings are okay, but they were revised 7%, 8% lower over the past three months. The highest amount that I’ve ever seen a revision outside of black swan event, which I said yesterday. But now, Daniel, look at total retail sales, right? Retail sales got crushed for 1.1% month-over-month. It was worse than the 0.8%, and this is after falling in November. They reported negative 0.6% in November. However, that was revised because we always have revisions when it comes to economic data and then we’re like, well here’s the real number.
Frank Curzio: The revision for November last month is now it fell 1%. So, it’s almost double what they reported, which is big because if you reported 1% in retail sales last month, it would’ve been market moving, the market would’ve got hit pretty hard, but it’s only 0.6%. Now you look at retail sales in the middle of that and holy cow, I mean, department stores said sales dive is 6.6% after falling 3.2% in November. Again, this is December. This is the holiday season. Motor vehicles parts sales decline 1.2%. This is broken down. I’m going to give you the breakdown here. Electronics and appliance stores fell 1.1% after falling the November. General merchandise decline 0.8%. Clothing, clothing accessories fail 0.3%. Gasoline sales are down 4.6%. I mean, yet, had sporting goods, hobby, music, instruments and bookstore sales, which is one category, rose 0.1%, maybe a couple people felt like, “All right, I’m going to be home. I’m going to buy a guitar and buy a sports shirt to hang out outside in the porch.” I have no idea.
Frank Curzio: Building materials, gardening supplies rose a little bit after falling 3.1% in November. So, you’re looking at these sales come down and the PPI was good, but remember when it comes to the PPI, prices are coming down, companies are losing pricing power. And yes, you’re going to say, well, their costs are going down, but are they? Because we’ve seen oil prices now move up to the highest level since December. So, we’re seeing oil prices move up higher. We’ve seen copper prices. Again, direct import costs. A lot of these costs are starting to move higher while you’re seeing prices come down sharply with the producer price index.
Frank Curzio: And then, finally, when you look at another negative is Microsoft. And Microsoft came out today and said, “Hey, you know what? We’re going to lay off 10,000 employees.” Guys, I don’t know if you realize-
Daniel Creech: 10,000?
Frank Curzio: 10,000. I don’t know if you realize how big Microsoft is and if you don’t, it’s okay because I’ve really got a reminder of how big they are. Daniel, when I was at Consumer Electronics Show because it’s the first time since they released their phone, which was like, holy cow, I don’t even remember when. Seven, eight years ago that they actually had a physical presence on the floor at CES, and it had two massive boots, one in the metaverse section and one in the auto section. They never really have a presence in this, Apple, but everybody talks about Microsoft and Apple. Microsoft is everything. Microsoft is the ultimate bell weather for technology.
Frank Curzio: I mean, you could say Apple’s there too. But we’re talking about one of the biggest companies in the world, trillions dollar in market cap, products and everything from laptops, PCs, Azure’s integrated in how many S&P 500 companies? A ton, right? Along with AWS, and we’re seeing weakness there and plus they warned or they didn’t warn, but the last two quarters they missed in cloud sales, which is their bread and butter, right? Xbox gaming, advertising, social media, AI. They’re across the board in every single thing. At this stage, if you really think, hey, you know what? We are good. We can see the Fed and we are fine and we’re okay. At this stage, this company just said, “We’re laying off 10,000 employees.” Because they see it, okay? They see how much demand is slowing, and these guys are in everything. They’re not in one particular market and saying, okay, PC sales are getting crushed. Social media’s getting crushed. Advertising revenue’s getting crushed. Streaming’s getting crushed. Anything like that, right? Streaming, the whole streaming.
Frank Curzio: They’re not in any particular industry. They’re in all these industries. For them to come out right now and say this, I mean to me, it tells you, right, that that’s the writing on the wall tells you, listen, it’s not going to be a good year. You’re going to see the market bounce like this and shorts get out there and go crazy and everybody leans to one side and it’s easy to have these short covering stuff, and maybe that’s what you’re seeing even with Bitcoin. And some of the names in our portfolio, seriously now at 50% from their lows, again still down incredibly because they’re down 80%, and talk about the crypto portfolio. But overall, there’s nothing that tells me anything is changing. In fact, a lot of these things are telling me that things are getting worse because we all know the producer price index, CPI, Daniel has no place else but to fall.
Frank Curzio: It better fall. It has to fall, okay? That’s what happens when you raise rates by the highest pace at faster amount in the history in the Fed era. So, you’re going to see that, and it’s happening. You’re going to continue to see it. Will we get to 2%? I don’t think so. And if the market continues to hold up like this, if you really think the market’s going to hold up like this and we’re going to be up say… Say we’re up 4% in March, we’re up 4% now, so if the market’s flat in March up 4%, you really think the Fed’s going to stop raising rates? You really think that they’re going actually to totally reverse and start cutting this year if that’s the case? I mean, they’re looking at the markets and the remaining resilient, it’s going to give them the okay to continue to raise because that’s exactly what they said they’re going to do, whether they agree with it or not.
Daniel Creech: Yep, that’s a good point. Money is emotional. Investing is emotional. If you feel like you are missing out on this rally and you shouldn’t be completely missing out because you should always have some quality longs. To put this in perspective, I think you just did a good job. You have to think through that and it’s easy when you just read a headline like, “Oh, okay, CNBC, I just saw that. Oh, Microsoft will lay off 10,000 people. Okay, now it’s all priced in. Move on.” You have to get out of that mindset because if you think where we’re at right now, here’s a snapshot, Frank. We’ve had a little rally. The S&P 500 is right around the $4,000 mark. That is a handful of Wall Street banks target for the end of 2023. Now, smartest guys in the room and not everybody gets it right. They don’t have a crystal ball.
Daniel Creech: I don’t mean to be arrogant here or abuse them. I’m simply pointing this out to help you put this in perspective. The smartest guys on Wall Street, several of them think that we are trading right now where their target was at the end of last year for this end of this year. Well, what that means is you’re going to have a lot of volatility up or down to get back to that if they’re right. Think about that. The smartest guys in the room were already at their targets, a lot of them. Other than Morgan Stanley, Mike Wilson, I believe his name is, who thinks it’s going to tank again. The point is-
Frank Curzio: You’re talking about earnings, right?
Daniel Creech: I’m talking about market, where markets are going to finish. Several came out-
Frank Curzio: So, 2023.
Daniel Creech: Several came out and said the S&P will be around-
Frank Curzio: I’d like to go over that.
Daniel Creech: Over that 4,000.
Frank Curzio: We have that. That’s a great point.
Daniel Creech: It’s on my whiteboard in there. I talked about it on Frankly Speaking when I filled in for you.
Frank Curzio: So, it’s the forecast of 2023. Saying it’s going to up 4%, 5%, whatever.
Daniel Creech: Exactly. When they were-
Frank Curzio: 4%, 5%, we’re they already, right?
Daniel Creech: When they were making these predictions, it was roughly a four, 5%, which bam, right here we’re at. My point is the average guy out there thinking, “Hey, you missed out.” Just take a few deep breaths because we’re in this Willy Wonka-ish of hey, producer price is coming down. That’s good in a sense, but it’s not great in a sense. And when the market takes bad news as good news, to your point, you’re just given Jerome Powell, the Fed Chair, the bigger hammer to play whack-a-mole at the end of this month and beginning of February when they have their next Fed meeting. Real quick on interest rates and how that affects boring businesses, Frank. Interactive Broker, which is just a platform that hedge funds, financial advisors, individuals use. So, think TD Ameritrade, Morgan Stanley platforms, blah, blah, blah, blah. Their CEO and founder from Hungary, I believe. I can’t butcher his name. Have you ever seen an interview with this gentleman?
Frank Curzio: He’s great.
Daniel Creech: He is the most cutthroat-
Frank Curzio: He’s real.
Daniel Creech: Just real down-to-earth spoken guy, and he’s very, very wealthy. Anyway, good friend of yours and wonderful analyst, Chris Mayer, who you’ve had on the podcast, has talked about this company for a while. And as I hinted at and a few months ago, we were talking about Chubb Insurance and the benefit that some companies, these boring companies that we’ve been joking about that are going to outperform growth stocks. They get a huge boost of their bottom line doing absolutely nothing other than just being in the same business they’re in when interest rates move higher. And for interactive brokers in their conference call that just came out yesterday, they’re talking about net interest income. So, that’s the difference between what you’re earning in interest and what you’re paying your depositors, whether it’s on their money market balances or what have you. Their net interest income went up 565 million for the quarter or that’s what it was, and 1.7 billion for their year.
Daniel Creech: U.S. rates have moved from an average effective rate of 0.08% in the fourth quarter of ’21 to 3.65% in the fourth quarter of 2022. That is an incredible jump, and a lot of that goes straight to their bottom line. And what they talk about is, “Hey, basically we get another 25 basis point hike. We’re going to expect 25 million in net interest income.” This isn’t an exciting promo, everybody, but when you have businesses like this that have quality run businesses that are going to not only benefit, but they don’t do anything. It doesn’t cost them at all just to get an increase to their earnings when interest rates move higher. They pass some along that to their customers to keep them there, but you’re not doing anything. You’re not hiring anybody special. You didn’t come up with any new idea. You’re just getting back to normal with interest rates or semi-normal.
Daniel Creech: And I got to end with this, Frank, because during the Q&A, to your point, a lot of the bullish argument is, hey, things are going to get so bad that that’s good, and the Fed will end up cutting rates at the end of this year. In fact, I forget his name, but the CEO of Carlyle Group, Frank, the big private equity company, he was on CNBC at Davos earlier this morning, and he is even holding to that from what little bit of the interview. I caught him and I believe Joe Kernen were talking, and he’s holding to the interview the Carlyle Group CEO about, “Hey, we hope that they do cut rates later this year.” There’s an analyst on the interactive broker call and he says, “Hey, if I can just switch over to the net interest margin.”
Daniel Creech: He says, “If we start to see…” This is a gentleman from Bruyette & Woods, research division on the conference call. He says, “If we start to see central banks cut overnight rates potentially by later this year, does that change your strategy on the duration of segregated cash portfolio at all?” That’s a murky question just on how you’re handling customer funds and what are you paying them all that. And the founder and chairman says, “Well, if you believe they will cut it, good luck to you.” And pushes it right back into the queue.
Daniel Creech: Now, he doesn’t have a crystal ball either, but the point is that the odds of betting and needing a bullish argument to have the Fed cutting rates at the end of this year is not a sound investment policy. To your point, if the Fed cuts rates near the end of this year, it is because something very significant that nobody is planning for right now has taken place in 2022. We can deal with that when we get there. You always have protection. It’s not the end of the world. The point is that listen to quality guys that run great companies at least put their opinion out there with everybody else’s is the big takeaway from there.
Frank Curzio: And there’s a lot going on here, guys, because you should definitely take a look at Interactive Brokers. Credit to Chris Mayer who’s had this. A stock nearing its two-week high and it should be. I mean, you’re looking at. I think it’s revenue up like 60% or whatever it is. So, I always say this, and it’s very important if you’re looking into… I try to educate you as much as I can from the mistakes I’ve made in 30 years, but there’s always something that move stocks. There’s always like a figure where… For Disney, they were able to change that figure from into streaming and how many clients they’re adding and nobody cared about how much they were paying for them. Right? But that’s fine. People said, “20 million. Holy cow, it’s more than 10 million subscriber ads that they added to the streaming segment, DTV segment, so DTC segment.”
Frank Curzio: You look at same store sales from most retailers. Sometimes it is traditional, just earnings or whatever, but there’s different metrics all the time. And the biggest metric for the brokerage firms are usually DART. They’re called DART, daily average revenue trade. So, it’s used with brokerage represents average trades per day that generated commissions or fees. Right? So, that’s what they report every month and that can move the stock just like same store sales moves retailer. When I look at interactive brokers, the DARTs, right, and we’re talking about a company just reported great metrics that I think record profits Right? It was down 22% from last year. And that’s the metric in brokerage firms, that you might say, holy shit, because obviously it makes sense, right? You’re seeing less trading, less people trading, especially when it comes to crypto and all these platforms. And this is why I’ve been telling you about the bullish case on Coinbase.
Frank Curzio: Coinbase is going to make anywhere from 700 million to a billion dollars in net interest income Simply from their stable coin. It’s the money that you have in money market accounts. So, as interest rates go higher, these guys make an absolute fortune as rates go higher. And I just covered this yesterday. When you’re looking at banks and people say, “It’s great.” Higher interest rates for banks is great because that’s a net interest. Those net interest margins go higher and higher. Right? So, how much they’re lending compared to how much they’re… It was a dead business for such a long time, but they made it up with fees. So now, interest rates are going higher. You think banks should do good, but they’re not because they’re losing all their fee business and investment banking and whatever. Right?
Frank Curzio: Stay with me. I’m getting to a point here. So for me, I’m looking at the banks. I’m saying, okay, now they’re increasing their loan loss provision, which comes directly from the bottom line. Right? And that’s why it’s going to be hard because they’re going to continue to increase that. That doesn’t hurt the top line, but it kills the bottom line, which is going to be hard for banks to have strong earnings. Throw that out the window when it comes to brokers.
Frank Curzio: You don’t have to worry about any investment banking fees or all that shit. You’re talking about trades. Right? So now, you have Coinbase that’s come down tremendously. Again, that’s one focus on crypto. You’re looking at Robinhood as well. These are the pure players. If you want to bet on the industry where rates go higher and higher and higher and how they do, this is what you do. These guys are folks that, these guys are the economists in a room. That’s why. And I forget his name. I love him because every time they do an interview, he has a camera that he doesn’t know how to use. So, they have a Zoom call and looking, he looks directly at the computer. It’s like above his head.
Frank Curzio: So, you see the top of his head, and I love it because he’s just like, I’m glad you don’t know how to use the camera, but I know he’s one of the smartest guys ever, because the marking campaign you came out with showing that your margin rates at 10 times lower than anybody else out there, resulted in just so much business for these guys, and it was like one of the greatest marketing strategies you’ll see. You could go read about and look at it. But now, you have a lot of this money and even Robinhood too wants to offer much, much higher fees for money market accounts, and you’re not getting that in banks. Right? Because these asshole banks, if you have a savings account, you watch interest rates go up, how much? Short-term rates from zero to… They’re going to 5%.
Frank Curzio: How much are you making in a savings account? Shit. They really haven’t… A little bit, but not a lot. So now, even Robinhood came out. I think they said anyone who puts funds in our accounts, if they’re going to be a market, it’s like 3% they’re going to earn. So, that’s a good place to park your money and then if you want to trade, you’ll trade. But these guys are the pure players. So, if you’re looking just a 100, a 1.30 a share, 13% better. And all they had to do is report that one, what is it? $1.17 cents was to consensus. That was record earnings for them. That would’ve been a record earnings for them. Right? That was a consensus and they reported the $1.30. So, they blew out the number. Right? So, revenues were 61% year over year.
Frank Curzio: Find a company with that top line has risen by 60% this year in one of the toughest years we’ve seen. Again, excluding black swan events, but since the credit crisis, even before that, after that. So, you’re looking at net interest income increased 92% to $565 million simply because rates went higher. You have to understand that. I didn’t hire anybody. I didn’t do anything. This is just like, hey, something happened and we just got a check for $565 million for the net interest income, for the net interest income, 92% year-over-year, which is incredible. They have the customer accounts increase again, and DARTs decreased by 22%, which is usually their metric. But you don’t even have to look at that anymore because that’s what I’m saying about Coinbase. Coinbase, I had open up account in Coinbase because we have crypto and things like that and different investments.
Frank Curzio: These guys are the only game in town, Dan, when you look at Coinbase because now they’re insured. You’re a accounts are insured. They’re a publicly traded company. Again, I said the same thing for Silvergate, which people are still screaming that, “It’s a fraud, it’s a fraud, it’s a fraud.” They did a great job paying the eight point was it, whatever billion dollar, the whole that they had. I mean any other crypto company would’ve been out. But it’s not so much that it’s a bullshit company or there’s fraud there, which I haven’t seen and nobody proved. But you’re seeing assets being removed from the platform, which is going to destroy anything. It’ll destroy any bank if you’re removing all the assets from a bank, and that’s what’s happening. But when it comes to Coinbase being one of the last men standing and having $5 billion in cash on their balance sheet, this is a company that everyone’s going to be doing business. Institution’s going to be doing business because it’s publicly traded, it’s U.S. based.
Frank Curzio: They went through all the bullshit, and even getting on that call, like I said earlier, Daniel, when these guys are like, “I’m expecting. Hey, high fives. We’re up 25, 30% in 14 days in a row with Bitcoin.” Ethereum started to surge, we’re at 1,500. Yeah, you’re seeing some shit coins as well up 100% off their lows in three weeks. Again, granted they were down tremendously, but these guys weren’t high fiving each other. Well, it’s probably going to pull back, and just credit to them. But these are companies you want to look at if you have a three-year time horizon.
Daniel Creech: Absolutely.
Frank Curzio: I’ve been touting this. Buy puts, especially now with the markets up, and especially with all this shit, because those are the most heavily shortest stocks, are usually the biggest shit in the markets. They’re up 16, 17% year-to-date, a lot of these names. And like I said, with Bloomberg, I love that stat. When that goes, when there’s a 10% gap and the S&P 500 is only up 4%, so there’s a 12% gap. Usually, that’s a sign of a top. Now’s the time to do it, but then, you’re throwing companies like Interactive Brokers in your portfolio long term or Coinbase in your portfolio long-term. That’s how you want to play this market. You want to play from the short side because there’s a lot of things that are deteriorating. Retail sales. Again, producer prices, they’re coming down, and they’re showing how prices are coming down across the board, and they laid it out. I won’t bore you at all the statistics and individual segments within that, but I’m looking at a market that’s going to be really, really tough going forward.
Frank Curzio: It’s super expensive. Earnings are going to come down tremendously. You’re going to see economic data very, very weak. The bull argument is that the Fed’s going to stop. Yet, once they’ve reversed, whenever the Fed reverses course, Daniel, over the past, I don’t know how many tightening cycles dating back for about 40 years, 50 years, the market absolutely crashes once they start lowing rates. I know it doesn’t sound right and that’s weird, but that’s what happens because people realize, okay, that catalyst is in and it’s going to take a very, very long time for rates to come down to get adjusted within the economy. Just like we still have inflation. Inflation is still freaking really, really, really high. If we didn’t see 10% right now, it’s 6% year-over-year, right? Dan, we’d be like, holy shit, it’s at that 6%. But it’s coming down. It’s treading in the right direction, but it’s still very, very, very high. Right?
Frank Curzio: And we’re going to have those conditions through 2023 with the Fed, with QT, and you have to be careful. There’s names out there clearly. Interactive Brokers, I mean killing it. You’ve seen some of these brokers. But now instead of buying Interactive Brokers at its high, Daniel, I’d be looking at Coinbase. I’d be looking at Robinhood. Look at some of these names that have gotten annihilated, that have very good balance sheets because they just went public. And when you go public, you raise a shit-load of money. Right? Unfortunately, the stock gets destroyed just like SPACs. But even SPACs, some of those companies are really good. They just shouldn’t have come out at 70, 80 times freaking sales and robbing and destroying retail investors. But a lot of these companies, even with SPACs, have cash in a balance sheets when you have the Robinhoods. You have the Coinbases.
Frank Curzio: I don’t think Coinbase came out as SPAC. I’m not too sure. But these companies that just went public have tons of cash on their balance sheets, and they’re going to be the survivors. And now with interest rates right here going to remain relatively high. They’re printing money for free. It’s important. They didn’t put a billion dollars into initiative, whatever carbon to reduce carbon, Daniel, or do whatever, that’s going to result in 20 years from now, you’re going to start making money off of it. They’re making it. It’s free check. It’s a check that they’re getting simply because interest rates are going higher and it’s no cost. It’s all margin. And that’s why you’re seeing these names really blow it out of the water.
Daniel Creech: Yeah, it’s just a result of policies. That’s why we talk about policies so much, not because we want to beat you up politically, but because they have real world implications.
Frank Curzio: And to that point too, they’re reporting these numbers and these insane numbers while you’re seeing trade activity decline significantly. Down 70, 80% in Coinbase. And that’s what I was saying, even though they had the balance sheet, most of their money and that net income is going to come from the higher interest rates and also institutional that are starting to become more and more of the company’s trading in terms of the pie, in terms of retail investors. So yes, you’re seeing it, but don’t look at it where hey, DARTs are down. If you just took DARTs for Interactive Brokers, I’m looking at the numbers right now. Down 22%. If you just told me that number, I would’ve said Interactive Brokers is going to be down 15% today, but it’s hitting a new high and close to-
Daniel Creech: Hip hop. They’re taking… We’re doing this live. It’s pulling back from its high. I don’t think it’s going to go all the way. It’s about 79. I don’t think it’s going to get to the 70 mark, but if it did, I would look at adding it to it there because this checks a lot of boxes. It’s quality management. It’s a quality company. And we go back and forth and have fun with this. If you know this company just coming off earnings, which is lucky because it just happened yesterday. If you know what you own and why, and this does pull back just because the general market pulls back, that’s when you want to go against the crowd and try to do that.
Daniel Creech: It’s not easy. I don’t want to come across like I have it all figured out. But my point is that’s what we try to highlight instances like this to say, hey, the market’s down 4%. Interactive Brokers is down six, nothing’s changed. They’re still making money. The rates are still there. Anyway, it’s just a great… Don’t get too bullish or bearish. We’re keeping reality in check. Cody Jinks has a great song, country music guy called “Somewhere in the Middle’s All Right.” “Somewhere in the Middle’s Just Fine.” That’s what you need to be as an investor. Don’t get hire too low. Just be chill.
Frank Curzio: No, I hear you. I hear you. All right, guys. A lot of stuff we covered there. Questions, comments, feel free to email me at firstname.lastname@example.org. Daniel, what’s your email address?
Daniel Creech: email@example.com.
Frank Curzio: Okay, guys. Got a great surprise interview for you tomorrow, which is going to be awesome. I’m going to be taping that, and it’s great. And definitely give a listen. It’s a name that everybody should be very, very familiar with. I’m not going to drop any hints on it, but it’s going to be a really, really good interview set up for tomorrow. So guys, definitely give a listen. We send out emails and stuff like that. And yeah, I wouldn’t say it’s an exclusive but close. You don’t see this person do interviews a lot, but it’s going to be a lot of fun, and I’ll see that. Take care.
Announcer: Wall Street Unplugged is produced by Curio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decision solely on this broadcast. Remember, it’s your money and your responsibility.
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