Every media outlet is buzzing with the news of a trade truce with China… but it’s not time to start celebrating just yet. Andrew Horowitz of Horowitz & Company explains why. Plus, learn Andrew’s favorite ideas to buy right now… and one popular large-cap stock to short [16:41].
Do the positive trends in the U.S. economy even matter? Interest rates are falling across the globe… Brexit, after being delayed twice, is around the corner… corporate debt is out of control… How much is too much? Today’s podcast is about what really matters in today’s volatile global economy.
Plus, the simple, yet super important thing millennials can do for their parents… and themselves.
Wall Street Unplugged | 691
It’s not time to start celebrating a trade deal with China
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 mainstream.
Frank Curzio: It’s going out there. It’s October 16th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, why I break down headlines and tell you what’s really moving these markets. I’m going to get real with you today. Share personal story with you. If you’re a millennial listen up, you know what, even if you’re 40, 50 years old, you should also listen up since this is relevant to you as well. So my mom is 76 years old. She has diabetes and also CLPD, that’s from smoking. She quit over 30 years ago. She’s active, has tons of friends and really amazing person. I’m really close to my mom.
She’s great, but what’s so amazing about her is it just, she’s always a fighter. I mean, even when we lost my dad and her husband … when a lot of people lose their spouse, especially when they’re married for 20, 30 years, sometimes they can go into a little bit of depression and go into little, which happens, which is normal. But sometimes you see people go through life with little interest. It’s such a shock. Again, that happens all from a couples who stood together for 20, 30 years, like my parents were. And my mom just, she just kept plugging along, kept living. She moved down to Florida about three years ago, to be closer to me and my family.
And she lives in a community where she’s now the welcome person in the community. So greeting all new homeowners that come in, showing them the ropes in Florida, even though she’s been here for something like three, four years, whatever. So she has tons of friends. She goes to the movies with them, to dinner, to plays. I mean, it’s funny because when I call, she’s probably more busy than I am. She’s always out and doing things. And I love that. I’m happy that if she’s able to move on, never met another guy after my dad, which all of us would have been okay with. We would get, my brother, sister and me that’s what I’m talking about. But she’s really living life to the fullest and I respect that.
Now, three weeks ago, just before my hip replacement surgery, she asked me to go to the doctor with her, and she had two really bad hernias and the doctor was looking to operate on her. So she wanted a second piece said, “Frank, can you talk to the doctor, let me know what you think and everything.” She started having pain and hernia comes in all forms and sizes. Basically, it’s like a rip in your stomach that holds your intestines and your intestines could pour out of it. And that’s what happened. Like she had, it’s her intestines like pushing out a little bit because it just got a little, it was pretty bad. I mean to the point where it was visible, you saw it and it was two different hernias.
So yeah, very noticeable. You can see them come out of the belly. One was on lower left side and the other was on the right hand side. Now, when you look at hernia surgeries, they’re usually 45 minutes long. Since its two, she’s a little bit older the doctor said, “It could take around three, three and a half hours depending,” because once you go in, you have no idea. You could use robotics and invasive surgery, but you had no idea when you go in, depending on what’s in there, you’ve got to put it back in place, some things may break, there may be whatever. So he didn’t want, it could have been, could be worse than expected if they do the surgery, it could take a little bit longer.
But the only way he’s going to know is after they opened her up. So 10 days ago, and this is on Monday, she went to surgery and had major complications. So our doc said he sewed up one of the hernias, didn’t like the way it looks. So we did it again. He saw some damage to her colon, where he cut out like the bad area, had to sew the rest. So we’re talking about three different areas with surgery. And it took him over seven hours to complete the surgery. Seven hours, which is insane considering my mom’s age. So after the surgery, she went to a regular room and then started having major complications. So she was breathing heavy, had extreme pain, which I get is normal, but her blood pressure crashed and the results were, her kidneys started to fail.
So they immediately put her in ICU and she’s been in ICU for the last nine days in ICU. Now, I hope, I hope most of you are not familiar with ICU in hospitals. It’s a morbid place. A lot of people don’t make it. The care is nonstop, so you get zero sleep. They come in every hour. But it’s also tough, because you’re walking through the waiting room and there’s usually a lot of people there. Because I’ve been going on for nine days and they’re hugging and crying and yeah, it’s just not a fun place. Now, my mom’s health got really bad. They’re on several machines now, which include a breathing machine, dialysis since the kidneys stopped working.
They prick her finger like every two hours checking diabetes. She has direct lines going right into her chest and stomach, to inject medicine directly into the bloodstream. So not just IVs, but directly like close to the heart. They put things in there just in case, because her blood pressure drop tremendously and then it was really, really high. So they need to inject medicine that it would be even quicker than an IV, believe it or not. So it almost goes, it’s pretty close to the heart. So, they also have to give her insulin shot several times a day. She’s not eating food other through IV. And she hasn’t done any exercise.
They’re just starting to get her up a little bit now, but it was supposed to, a hernia surgery, I guess she had two, but they say, yeah, after hernia surgery, they want to get you up and walking that day, and it’s usually a 24 hour period and you leave the hospital. Now you guys know me. I like when things are chaotic, either business or whatever. Not when it’s related to my family. I love running a company where there’s always deadlines, problems that need to be fixed, making revenue numbers. There are only 20 things at work at once. I love that life. I mean almost procrastinate to get more busy. I don’t know, maybe it’s in New York and me, but I kind of like that.
I’d love it. But when it comes to my family we’re dealing with so much shit lately. I mean, you guys are like family. I tell you personal stories. My wife is a breast cancer survivor. My daughter has Crohn’s, recently needed another colonoscopy and she’s nine. She’s taking medicine every day at nine years old and now my mom. Yeah, you’re strong. But man, it’s not the easiest thing to handle. And when I look at my dad who passed, that was not easy, but at least I had time to prepare. I spent two years learning everything about his business. I asked him millions of questions pushing around a wheelchair.
I treasured that time with him. And that’s what I remember the most today when I think about him, but with cancer … And he had it really bad for him. It was a non-small cell. Writing was on the wall, it was just a matter of time. Okay not easy, but at least you could try to prepare yourself. But with my mom, this is supposed to be a band bang bank surgery. I never thought in a million years they’re going to open up a 76 year old lady with diabetes and CLPD, for seven freaking hours. Well, I probably would have talked her out of this surgery or maybe just told the doc, “Hey, you know what? Why don’t you do one hernia now?
I know she’s old and then maybe the other next year if everything turns out okay, we’ll do the worst one now.” But yeah, I don’t want to play Monday morning quarterback here, but it’s extremely frustrating because it was a huge surprise. Again, bang bang surgery. I didn’t see this happening. And for me, when I look at it, I still want to take my mom to places like St. Augustine and Vegas, which I’ve done before and I was hoping she would be there. And I’m not saying that it’s … she’s getting slightly better but still on a lot of machines. But when I look at it, like for me thinking about it now is, I was hoping she would be there when we have our first Curzio Research conference one day.
And I think she would’ve loved that given our family history in the newsletter industry. My late dad started his own company, operated for 30 years. I think she would’ve been really proud to see something like that. Again, my mom is doing slightly better and I have been at the hospital every night for the last nine days, from seven to midnight. I’m taking the late shifts when my brother and my sister are there. We would like to have someone there for just in case. She had trouble talking and now she’s, again, she’s talked a little bit more, but we could tell the doctor, “Hey, could you give her a little bit pain medication or give this to give her that,” where the ICU is crazy.
We hear code blue, code blue, which means it’s very, very, I don’t know if that’s the same across all hospitals, but in this hospital it means someone’s in a lot of trouble. You hear that a lot. It’s an ICU again. It’s just a morbid place. And she’s still in there, and everything that they’re giving to her to help her impacts something else in a negative way. For example, she was given steroids to help breathe, but that raised the white blood cell count, which in turn shutting her gallbladder, so they had to stop. She had trouble breathing again. They gave her new medicine, which unfortunately lowered her pressure significantly, which resulted in her kidneys shutting down.
That’s why she’s on dialysis. She’s on full dialysis now. It’s like three day a week dialysis. Now, they think there’s bleeding from one of the surgeries and it may be an infection, which we’re just learning about, but the communication hasn’t been too great either. They’re trying to find it and they and everything’s coming back okay. But, she is in a ton of pain, which could be expected in a surgery, but it’s really tight where, I don’t know what was really done in there. When I look at her, she hasn’t eaten, she hasn’t walked around, a lot of pain and now she’s getting super depressed, because she’s in freaking ICU for nine days. I don’t blame her. And I’ve been very positive with her, joking around telling her, “Hey, I’m going to show your house to new tenants just in case.”
And based on her will I was like, “If you give me a car, make sure you have gas in it.” I have a great relationship. My mom, we joke around, I make her laugh, she makes her laugh Just trying to keep her in good spirits, and I really want her out of the ICU, hopefully up and walking again and eating regular food. Last night that I was with her was probably the best night so far. She had color and a face. Things were getting mildly better, but again, she’s not out of the woods. She’s still on machines and they still really don’t know like, “Hey, why her high blood pressure spiking and not spiking?”
Different levels, the white blood cell count increasing tremendously and then not like … things are just happening out of nowhere and it’s hard to take her off everything, because one of these things, her blood pressure drops, it goes high. Yeah, at her age, it could be very, very serious. So yeah, they’re keeping her on these machines. Hopefully she’s out of ICU. Now, I’m not telling you this story to feel sorry for me. I mean everybody has issues, right? Some have kids that are sick. Some have parents or their family members that are doing well. Some struggle to make ends meet financially. We all have problems. I’m telling you the story for another reason.
If you have a chance to hang out with your parents, maybe it’s going fishing or watching a football game with your dad, you’re taking your mom to one of her favorite places, which may be a play or dinner or whatever. Make the effort to do it. Because right now this is the shit you think about when your parents get sick. At least what I’m thinking about. I wish I’d hung out with her a little bit more. I wish you had more time and she may come out of it. She’s a fighter, but I truly don’t know if I’m going to have that opportunity, since she has a lot going on. And I know for most people, especially when you’re younger, it’s more fun to hang out with your friends, have a few beers, go see a football or baseball game. If you only had wine night with the mother’s, whatever it is.
So, it might not be a priority hanging out with your mom and dad one on one, but trust me, it’s a huge deal to them. Your parents want to spend time with you. They want to hang out with you. Man, I’m hoping my daughters want to hang out with me in their 30s and 40s. I’m sure they’re not going to, because they’re going to have a busy schedule like I have now. They’re going to have their own kids. It’s going to be crazy. I hope they put a little time aside for their dad, because I always will be there for them. More important, I love hanging out with my kids and they’re going to be much bigger then. But when look at, it’s not about you and how you feel. It’s about your parents, right?
It’s about your family, which at the end of the day is the most important thing in all of our lives. It’s the reason why we work so hard, so our kids have a better living than us. It’s the reason why … We complain about the holidays, but at the end of day it’s pretty cool, because you get to spend time with family members they might not see. But our lives and everything we do revolves around on families. And if they don’t, if you’re one of those people that, “Forget, I’m a loner,” whatever, chances are you going to live a lonely life. And do you want to be on your deathbed at 70 years old and have nobody there had to hold your hand? And would it be cool to have all your grandchildren around maybe in a bed way?
Just you can look around and appreciate your accomplishments and say goodbye the right way. To me, that’s pretty cool. That’s a perfect way to pass. Now you guys know me. I said this early. I’m the most optimistic person you’ll ever meet. I try to find a good in every situation. So I’m optimistic my mom will recover. She’s a fighter. She’s not ready to give up. And of course I hope she makes it, because you get to that age and for me, I’m 47 but it could be 40, 50 even 60 where I don’t have grandparents. My dad passed at a young age, so I had my mom and now she’s pretty sick. And I’m definitely not ready to let her go yet.
So I know you listen to Wall Street Unplugged, getting new ideas, honest advice about what’s really going on with the markets. I try to be right all the time. I would love to, to get you guys make so much money for you. But you know the business, it’s possibly right all the time, it won’t be right more times when we’re wrong, but forget financials for just a minute. Because the best advice I could give you is, try to spend more time with your parents. Maybe just go to the house to watch a movie or TV show. Trust me; it is such a big deal to them. And also after you do it, when you’re driving home and you come home, it’s really going to make you feel good. And that’s the message I want to come out with. So hopefully you guys say a couple of prayers for my mom.
Slightly better, not out of the woods yet. Yesterday when I was there was definitely by far the best night, a couple of nights. They actually said, “You may want to get your things in order.” My sister said, “Just shut up. We’re not going to get things in order. My mom is a fighter.” And now she’s doing better. But still that there’s lots of things going wrong, where they’ve got to get the machines on and she’s been ICU. How many of you know people in ICU for nine days, is a long time. And hopefully she gets out of there and gets into a regular room. But yeah, I appreciate it if you say prayers and everything, but more important with this message, we talk about financials, we’re going to cover financials.
I know what’s this podcast is about, but the best advice I can give you is not financial related. You know what, try to hang out with your parents a little bit because when you’re in a position like me, the things that you think about, “Man, I wish I could have hung out a little longer. I wish I could’ve made time to go on a trip with her or just hang out and stuff like that.” Your parents aren’t going to be around forever, so you should treasure that moment. Let’s move on. As you know, it’s been a busy week for me. I actually teased a guest and said, “Hey, I’m going to have a guest this week. That’s one of my, by far greatest guests that I’ve had, popular guests when I used to do Podcast at the Street.
We lost touch and just got in touch with them. I’ll give you the name. It’s Dan Fitzpatrick. However, because of everything going on last week, he would have been able to do the podcast, but I really couldn’t get in touch with him. I’ve been off the grid for the past seven days with my mom and stuff like that. So he’s away this week. It was like a Tuesday. So he said it probably could do next week, if not definitely the following week. So I know I teased that and people were excited, because I got so many emails saying, “It’s Dan Fitzpatrick isn’t it?” Which I love, which means you’ve been listen to my podcast for over 10 years, in a place where everybody has a podcast now. When we were we’re doing it people were like, “What is a podcast?”
The first five years that I did it, but he’s going to come on shortly. We’re going to have a lot of great guests coming on. But this week it’s awesome because I reached out to Andrew, Andrew Horowitz’s. He’s a founder of Horowitz and Company Money Management, The Disciplined Investor podcast. I love having him on every corner. So more important, Andrew and I have since his podcast; he’s been doing for about six months longer than me, a little bit longer than me. So he’s the real pioneer of the industry when it comes to the financial podcasts. But we always have this summer pact like, “Hey, if you get stuck, you’re in a bind and …”
I really wasn’t into business, especially in the past five days, we’re able to each other and say, “Hey man, you want to come on?” And it’s not that we’re mailing it in. We’re able to talk about all the markets, everything that’s going on and earning season trade. Andrew has strong opinions about; this is going to be a fantastic interview. It’s going to be long interview as well. Not typical, 20, 25 minutes. It’s going to be long because we’re going to cover the economy, earnings season, trade deal. We go back and forth. We have different opinions on this. You’re going to get lots of ideas. We’re going to go over the ideas he recommended last podcasts he was on, not too long ago and also he’s going to share two ideas.
One of them is going to surprise the hell out of you. It’s a short, a major company that no one in their right mind would say they would short right now, which I’m surprised. So it’s going to be fantastic, fantastic interview, lots of information. Get your pens, paper out, whatever you need to do, because it’s going to come out a lot of recommendations. Really cool stuff. And you know what; let’s get to that interview right now. Andrew Horowitz, thanks so much for coming back into podcast bud.
Andrew Horowitz: Well thanks for inviting me. Always a pleasure to spend some time with you, quality time.
Frank Curzio: Quality, quality time. A lot going on. A lot going on, right? So I want to start with the economy. And I like talking about the economy, because especially with you, because we try to make it as interesting as possible. When you talk about bell curves that you foresee … It’s real life, right? So buying milk, buying a car or your house, what you’re seeing outside tuition costs. All of this is factored in and I want to start off with this subject, because there’s a lot going on if you look at the data. IMF downgrades global growth to 3%, lowest since 2008/2009 which is the note that you sent me, which is pretty interesting. You look at the US, you had manufacturing was really weak.
GDP slowing. Now we had retail sales come out, which were bad. I mean you can’t say, “Well this … It wasn’t X this and X …” I mean spending was weak almost across the board, building of materials, hobbies. But the biggest surprise for me was online purchases, were weaker than expected. When have online purchases been weak?
Andrew Horowitz: Yeah, never.
Frank Curzio: That’s been a secular growing trend such a long time, but this is fantastic news, because it gives the Fed and basically every other central bank around the world, the green light to lower rates aggressively. So is this being taken as a positive, a negative? What are your thoughts?
Andrew Horowitz: Everything has spin. Everything has a spin. You look at the IMF number. Last night when the IMF number came out and showed that the global growth was slowing down to about 3%, which doesn’t sound like it’s too bad, but when you factor in a lot of the emerging markets in there, it’s bad, because they are growing at a much greater clip. Developed markets of course are much slower, but there was some spin. The spin was, “Well …” And I heard this on, I think it was the CNBC last night. “It’s good. It’s good news.” I’d love when the IMF downgrades to these kinds of levels because it tells me we’re at a bottom and they’re usually, it’s a great contrarian play.
And I’m like, “Oh my God, is it …” So when the IMF upgrades global growth, it’s good. And when IMF downgrades global growth, it’s good. And this is a real problem. And that’s what you’re talking about when you start about, it can be boring discussing economics, but the reality is you have to, you have to spend a little time understanding where you’re getting your information from, and try your best as an individual investor and professional to step back for a second and say, “Okay, what does this really mean?” The IMF downgrading global growth to 3%, which is usually a positive organization. They’re trying to of course have a good global growth situation. That’s their goal. It’s not good that they’re downgrading it like this. So that’s number one. Is it something terrible? Are things going to keep on going the same direction? No, not necessarily. They are also saying that next year is going to be a bit higher. I think 3.2% or so. But again, that’s their optimistic view on things. Retail sales, retail sales are expected to come in at plus 0.3% change. Came in at negative 0.3% change.
Frank Curzio: How big of a deal is that, because when people see that number they’re like, “It’s just a point, this point that.” But how big of a deal is that?
Andrew Horowitz: It’s a big deal because first of all there’s a mist that was pretty substantial. Secondly, the real crux of the matter with this particular data point is that, for a long time now there’s been a lot of people saying, “You know what, the good news is that the consumer is strong. The good news is there’s good employment, and we’re seeing that we have some wage growth.” We’re seeing that optimism and consumer sentiment is relatively high. And the bottom line is that, we are a consumer driven country, and therefore everybody’s been hanging their hat on the idea that, “Hey, the consumer being strong, ah.” So we’re in a manufacturing recession.
Service is slowing down a little bit. Okay fine. Inventory builds not as much, and you kind of go through all the different gyrations of what’s out there and it doesn’t really matter they said, because the consumer’s strong. Now we start seeing that there is, even though it’s one data point one month, but this is now coinciding with the rest of the slowdown. So there is a confirmation that, whether this is a weak patch or something more is yet to be seen, but it is important to understand that yes, this is, consumers are either one of two things. Either they bought a lot for some reason into this and don’t need anything further, slowed down their purchases or they’re concerned about something, and are pulling back and saying, “You know what, maybe I don’t need all these extra products.”
Even though there’s a lot more people working right now, even though wages are higher, there’s much more money in people’s pockets, consumer sentiment high, it is a real big issue because that’s the one thing that everybody was holding out as the consumer. The backbone of our economy is still strong and this is not showing that.
Frank Curzio: Well. Let me ask you this because I just highlighted a couple of weak data points, but let’s go to some of the positives which you mentioned. We have super low unemployment. We do have a little bit of wage growth. Housing data has been positive last couple of months, rates coming down, which could be expected refinancing and stuff like that. But does all of this really matter? Because when I look at the Fed and I said this one, because everyone’s looking at the economy, we know they look at inflation and CPI, but I’m being serious people and that’s how we’re programmed to look the economy. They’re lowering rates no matter what.
Don’t they have the low rates no matter about considering where you’re looking at corporate, where corporate yields are? You’re looking at the rest of the world lowering … I mean to be more competitive, we almost have to lower rates regardless of what’s going on, unless we see that CPI really take off two and a half, three, 4%, whatever, then you’ll definitely, you’ll get everyone out there saying, “Okay, we need to slow down.” But there hasn’t been a hint of inflation, since we’ve been easing, since the world’s been using, which kind of caught 99.9% of people off guard. They know we’d had runaway inflation and gold, all this stuff, but we haven’t really had that. So for me, when I look at all the data, does this really matter?
Because it’s pretty clear that the Feds probably going to lower rates or its most likely going to lower, and it’s even probably they’re going to 1% at least over the next six months setting into the election year, right?
Andrew Horowitz: It’s going to … Here’s your answer. It will matter when it matters. In other words right now … Seriously, right?
Frank Curzio: No, I know, I know.
Andrew Horowitz: It’s going to … Everybody’s make up all sorts of excuses say that we have the backing of the Fed, say that we have a lower tax structure that we’re going to have … So there’s a lot of hope trade going on right now. We have the hope of a tariff deal of some kind of deal with China coming through. We have the hope that the Fed will have our back reducing rates. We the hope that earnings will outpace the lowered and low bar estimates that analysts are putting out there. We have the hope that the consumer will hold up and continue to do what they do. We have the hope that there’s going to be a, there’s no repercussions due to negative interest rates.
All of this and hope … Let me, I’ll say hope that there’s a Brexit deal that will happen by the end of this month. A lot of hope out there. When does that hope break? Well, probably when we see a reversal in the job trends that will be a big one if that happens, if. When the stock and if the stock market starts to come down, I mean there is only so much that the fed can do or central banks can do to keep stocks higher. Even the lower rates do provide for a better valuation point, where you can extend valuations on for a bit higher with lower rates. It’s not good. Let’s just step back for a second. It’s not good that we have to lower rates. Would you agree with that?
Frank Curzio: Yes, I would agree with that, yeah.
Andrew Horowitz: It’s not good that on top of all this, we have mountains, piles of debt-
Frank Curzio: Which makes slowing rates expected, even more expected.
Andrew Horowitz: Right, of course.
Frank Curzio: We don’t have to make those big interests payments. That’s why everyone’s … We’ve heard about the debt stories since the ’70s, ’80s and how it’s going to kill us because of markets. It’s the biggest secular trend other than the S&P 500, near its highs but as long as interest rates are low, right?
Andrew Horowitz: Right.
Frank Curzio: That’s why it’s another reason why they’d probably need to go lower.
Andrew Horowitz: Well, we’re looking like we’re going towards MMT, modern monetary policy, modern monetary theory, which is this whole idea that we can sustain growth with extraordinary amounts of debt, which is exactly opposite of what we’ve known for the last hundreds so years. But now all of a sudden we have this idea that, “Hey, high debt isn’t a problem as long as rates are low.” Meanwhile, we have corporate debt that’s out of control, right? We have the most amount of corporate-
Frank Curzio: Picked up the oil industry. There’s a reason why the whole industry is crashing. They pushed out that debt when oil prices crashed, right? Like 15, 15, 16, 40, 50, 16, and now they restructured the debt, pushed it out, and now it’s coming due. But you’re seeing the oil companies getting crushed right now, because of those debt levels, yeah. Just bring up a good point to that. Yep.
Andrew Horowitz: Right. And even though interest rates are low, what the problem is going to be that even though interest rates are low, we still have the debt services that have to be paid on a higher amount of debt outstanding. Therefore, we have to either eventually raise taxes, have earnings and better sales depending on if it’s corporate or government side. And, all of this is this kind of thing that, “Okay, we have it going.” But when that does in fact break and see … Frank, the thing right now, everybody’s thinking, we broke the economic cycle. The whole peak to trough, trough the peak, recession to expansion, it’s dead.
The Fed somehow through negative interest rates and through lower interest rates, and through quantitative easing and various different tools that they have, have obliterated the economic cycle. And if they have done so, by the way, miraculously, it’s only over the last 10 years, because that’s the only time we haven’t seen a recession since, right?
Frank Curzio: Yeah. I mean, yeah, it’s been awhile. It’s been a bull market. You could say, well, it was broken from September last year to December when markets closed 20% off their highs. But what happened immediately is we’ve recoup those gains over the next three, four, five months. Every single pullback is being met with a huge buying opportunity,
Andrew Horowitz: But not only in markets, economies. The idea that we have the ability now to en masse around the world break the economic cycle is only, you’re only going to hear that in peak times of the economic cycle, because everybody is really confident that, “You know what, this will never end. How could it end? There’s nothing that can go wrong.” We have everybody at our back, we have all this good things going on, which is exactly opposite of when things are really bad. At that point nothing’s ever going to get better. Nobody can fix this. Everybody’s sheltered up and in bunkers; nobody’s going to buy anything. Jobs are never coming back. But they do, and it’s not necessarily about the Fed. It’s not necessarily about only the Fed fiscal policy too.
We had a major tax cut recently. Now this is from Republicans who historically have been all about maintaining a balanced budget and more importantly, low debt. We have an unbalanced budget and we have massive debt and a lot of that is due to the fact of lower tax receipts, excluding tariff income that’s coming in. And the fact of the matter is that there’s, we’re out of balance. So how long can this last? Well, it could last as long as there’s milk in the bottle, then the baby’s going to cry.
Frank Curzio: When I look at this too, and I want to get your thoughts before we move on to the trade deal, but isn’t it amazing how quickly someone like you who’s been doing this for over 20 years, how three weeks ago the world was ending. Earnings are coming down tremendously. What we’re going to get into earning season, which just started. You’re looking at it, there’s no trade deal and everything is slowing. And now you watch TV just three weeks later, everyone’s saying, “Buy, buy, buy. It’s everything …” And I just feel like if you close your eyes and went to sleep, and you fell into a coma for, since the credit crisis, say 2009, you would’ve ignored Brexit, North Korea or prices crashing or two elections, where Trump got elected. You could name every single risk on the table and yet, look where we are with the stock market.
Andrew Horowitz: But if you also had that Rip van Winkle approach to things and you fell asleep for 20 years and you came back and you would say, “Hey, where are we? Okay, stock markets near an all-time high. Hey check. That’s good. Economy looking pretty good, unemployment at a lowest point in history. No real inflation to speak of. No …” Even though everything’s costing more, there’s no official inflation. Where should interest rates be? You’re not going to say, “I don’t know, one and a half, 2%, three.” You’d probably say four or five is more of a normalized level. But meanwhile we have interest rates super low. And the other thing that’s really a concern, think about how fast the Fed went from, who by the way proclaim that they can project out the next couple of years of what the economy’s going to do.
Frank Curzio: I love that.
Andrew Horowitz: Okay. And all of a sudden they’re like, “Oh, wait a minute. We were on this rate, things are good and we’re going to increase rates. And we’re on a predestined course to keep on increasing rates.” All of a sudden, “We’re going to loosen up policy and start to talk about this because why?” Well, it’s all about the stock market. Yes, it’s all about economy too. But what didn’t they see, and how come they were so blinded by this to begin with that either they were increasing rates for this period of time, or are they wrong now? I’m not sure which one it is, but you have to take the Fed and realize that some of their credibility has been lost by all this. Now, whether or not you’re a believer in low interest rates, low interest rates, hey, I’m all in, right?
You could buy a bigger house, you can go out and get loans and expand businesses, do all sorts of things. You can get the credit and at a very low rate, that’s good, expansion of the economy due to credit. Basically that’s the world we live in now. We have an economy that expands and contracts on credit availability, which our grandparents would be like, “What are you talking about? I’ve got the money, I’ll pay for it. If I don’t have the money, I’m not paying for it.”
Frank Curzio: Your grandparents should going back to 70% interest rate, not even grandparents, but in the ’80s right?
Andrew Horowitz: I was there.
Frank Curzio: [crosstalk 00:30:41].
Andrew Horowitz: Every 30 days my mother and I would go to the bank and she would go and put money into a 30 day CD, and get a toaster and get like 15% interest rate. And whenever the round number was, if in other words that she got interest of, I’m just picking a number, $532 and 15 cents, she would give me like $32 and 15 cents. She’d give me the round number on the end of it. So that’s why I would go to the bank all the time with her. That was kind of the fun thing. And she would do this on a 30 day basis and that was a crazy time. But there’s a much different philosophy. Right now we have people that are buying cars, not on a four year deal, a three year deal. They’re buying seven year deals. No wonder we have, the high … We have seven million Americans right now that are 90 days or more delinquent on their auto payments. Did you know that?
Frank Curzio: No, I didn’t know that.
Andrew Horowitz: That’s a big number I think. The other part of that equation is, the lowest credit ratings are the highest velocity of late payments right now.
Frank Curzio: Which makes sense. And by the way guys, a lot of people compare the subprime auto loans to the housing market, which is totally not even in the ballpark, because when you have your house and you know they say, “This is a risk definitely.” But if you’re not paying your bill, they come to pick up your car. They’ll bring it out to the lot to sell to somebody else. They know exactly where you live. But your house, people could stay in there for another year. They’re not going to get kicked out. They could destroy the asset and just walk away. It’s a lot different where when we started the housing crisis and people said, “Well, starting all over, look at the auto loans.” It’s different. They could take the cars away and they could resell them, they could crush the cars and sell the … whatever they do.
But they could repossess that right now within a day where your house it’s a lot different. All these things stay in the market for a long time. But I hear you. That number is going up and another sign that … And real quick, because we’re spending a lot of time on economy, it’s very interesting, but it’s another sign of … It’s Goldilocks, right? You’re going to find things that are good, things that a bad but markets excel during times, because you’re not seeing anyone go on TV. Well maybe the last two days, “The market’s going to go crazy or higher,” and you’re not seeing …
Well, outside the permanent bears who are predicting crush every single day since they woke up, since they were born. But you’re not seeing, “Wow, the market’s is going to crush 20, 30%.” You’ve seen this cautious, it’s good for the market-
Andrew Horowitz: Neutral.
Frank Curzio: … I think, right?
Andrew Horowitz: The big word is we’re neutral on stocks, which has the connotation when you hear it that we’re neutral on it. Meaning we’re not really invested, but that means it just on par with the S&P 500.
Frank Curzio: And nobody’s going to tell you that, because that’s the most boring word in the dictionary, neutral, right? Nobody’s going to go on TV saying, “Hey, you know what, things are cool. We’re going to …” No, they’re going to have people on TV say, “The market …” Just with extremists, right? That’s how you get on TV. Anyway, let’s move on because I want just a little bit with the economy. Let’s talk the trade deal, because we brought out strong opinions on this. For me-
Andrew Horowitz: I’m right that’s why.
Frank Curzio: You’re right like once a year or so. No, but I like it because, we debate healthy. It’s a shame even when you look at politics, it’s like if you’re one side of the other, you have to hate each other. We don’t hate each other. We want to come to the right conclusion.
Andrew Horowitz: It’s become a sports team theme. If you’re a Jets fan, you’ve got to hate every boot, everybody else that comes on the field, right?
Frank Curzio: Mm-hmm (affirmative).
Andrew Horowitz: And if you’re, well, if you’re Miami fan, which I don’t know any right now, if you’re a Miami fan, you kind of fair weather. That’s kind of like the independents, right? But if you’re a Chicago Bears team or, a lot of the cold weather States right, they’re there no matter what. They’re there. It could be sub 20 degrees and the team’s losing, and they’re out there and they’re, they’ve got their Wisconsin cheese hats on in some areas. It’s crazy. But this whole political mess has become like, “This is my team and that’s your team. And my team is right.”
Frank Curzio: It is crazy. And we won’t even go even further into that, because that’s a whole entire podcast by itself. But yeah, and I agree. So with that sort of trade deal, for me, and I’ll go over this really quick because I’m interviewing you, I want to hear your thoughts on it is that, China really needed to do something. Now people are trashing this deal already. For me, I think it’s a big positive, because they got to the table and they’re talking and yes, yeah, they’re going to sign a few things and people are saying, “Well, it’s not really doing too much,” but this is how it starts. This is the first step where they both came back. They both feel like they won.
They both reported back to their country, say, “Hey, this is what we did. We won and everything’s friendly,” and where friendly is good. Now, my argument with China is that it is a short, because if you look at the amount of companies, I’d have to say at least one third, I’m probably being very conservative there, have already moved their operations out of China because if you’re running a company, you cannot afford to have that risk where, basically based on what Trump is going to tweet that day about China, it can reflect whether your supply chain gets disrupted or not and they just can’t go through that risk. So that a lot of them, every time one, one of my services, this company pull a third, 100% of the business they in Taiwan now, Vietnam, they’re pushing out of China.
So even though this trade deal is done, for me when I look at China, it’s a huge necessity. They need to do this. I understand their culture, but for me I was like the US is in a much stronger position. You could see by the numbers how their market crashed a lot more than us. And it went up tremendously, when we did sign that trade deal that was like last year when everything was okay, but didn’t sign things, everything’s okay. For me, China’s getting impacted more and they have to do a deal and I just, from what I hear out there, it gets me frustrated saying, “China is winning and they don’t have to do a deal. They’ll never do a deal.”
You’re right. I mean I understand their cultures, but if they want to destroy 30 years of economic prosperity, it’s … They’re flirting with something and I wonder if that’s going to impact the culture there, because at the end of the day, people do vote with their wallets. And when they see in their wealth decreased by 30, 40% all because of a little bit of stubbornness, we’re not asking them to change culture, they’re not asking us to change culture.
Andrew Horowitz: Yes we are, Whoa, Whoa, back up. We are asking them to change culture. Let wait a second.
Frank Curzio: You’re right. We’re asking them to be fair. We’re asking them to basically say, “Hey, stop stealing intellectual property and let’s make trade a little fair,” which is a change in culture. So I agree, but it doesn’t, we’re not asking them to like, “Hey, you got to get rid of your freaking military or anything,” which would be a joke. This seems doable to me. The solution seems doable,
Andrew Horowitz: Frank, you’ve been in business a long time. You’ve had people that you work with and oftentimes somebody will take somebody in, and they’ll teach them the ropes and that person excels and excels like crazy. And all of a sudden that person says, “What do I need the company that’s taken a big piece of my action right now?” Or there’s two partners in a company and one is doing, I don’t know administration, finance and oversight. The other ones do in sales and all that. Both think that their job is the most important of the two. And what ends up happening sometimes is that they start fighting saying, “You know what, if I didn’t sell anything, you wouldn’t have a business.” The other guy says, “Yeah, but if I didn’t create the products, you wouldn’t have a business.”
Who’s going to win this?” They eventually may split and it’s not good for either one of them, but you know what, both sides have to suck up a little bit of the problems that they created. And don’t forget who created the China manufacturing dynasty. It was us. We created it, didn’t we? We wanted cheaper prices, we wanted quicker products. We didn’t want to have to pay workers. We thought that, if we can get this supply chain working really quickly, we can get good solid to whatever degree quality that was acceptable. Look at the iPhone situation. What would iPhones cost if they were made back here? And I know they’re talking about opening up something in Texas, I believe it is in Houston or Austin, Austin, maybe somewhere.
But the point is that all I’m saying is that there is a give and take to all of this, and forget about the pride and all that. Throw that out the window. But my take on this skinny partial phase one trade deal, which all of a sudden we have a phase, by the way, we have phases now. We were going from, if we’re going to do a deal, only if it’s a complete and thorough deal and it’s a great deal. Now we’re at a phase one. What actually happened? My take, okay? Ag purchases, 40 to $50 billion. First of all, I’m not exactly sure what President Trump’s fetishes with the agricultural products and why that has to be part of all this, but let’s just say that’s an important component.
Let’s just leave it at that. We know why, but let’s leave it at that. If you look at history, that is the same amount, and that’s over a two year period. That’s the same. But they flash up 40 to 50 billion. That’s the same amount they were purchasing going back to the last several years. So, there’s not much change there. So yeah, they need agricultural products. They’ll buy it from us and that’s good. They said, “Oh, we’ll do that. We’ll agriculture products from you. We need that, no problem.” Now again, it’s not as big because it’s the same as they’ve been purchasing, generally speaking.
Frank Curzio: It’s not, it’s not that big. It’s not that big at all.
Andrew Horowitz: Right.
Frank Curzio: And they like it.
Andrew Horowitz: Nothing’s on paper. As a matter of fact, it’s going to take four to five weeks to get it down. Already China’s backtracking a little bit on this saying, “We want to maybe get some of these other tariffs off.” In my opinion, the only thing that I saw that actually happened here, like actually happened was that the 15, the increase of 5% on the tariffs that we’re going to be in effect on October 15th were lifted, or not put into place. So the only actual physical thing that we could take away from this right at this moment right now, because there’s still is tariffs on products all over the places, December 15 tariffs are also scheduled and be increased.
In my opinion, I’m not trying to be anti-American, China won this round. They’re not doing anything different, but they got a relief. So you may say, well, it’s goodwill by the US. Okay, that’s fine. Okay, I’m good with that. Yes, they did get back to the table yes, they did, but the real issues here are not agricultural products, that’s nothing. The real issue is, that I thought we were going into this fight, was intellectual property theft and the technology transfer issues, tightening that up. I thought that was … And balancing trade, right? Balancing, making it a better two way deal. So we have this phase one now, we could spend a lot of time on this, but just think about game theory.
So all of a sudden we give in to a couple things, China is like, okay, that’s good. You may increase our tariffs or not, we’ll push it off a little bit. We have four to five weeks to see if we like this. But we flinched again. We have flinched several times by the way, on this deal. And it looks like that our deal as I’ve talked about from the beginning is going to be beholden to both markets and political ambitions. They don’t really care about that as much. Will they get destroyed? They build houses that nobody occupies for hundreds and hundreds and hundreds of miles that they just knock down. They don’t care.
I really don’t think they care. But here’s the thing, I want to throw this at you. The big deal is IP theft, right, or some kind of copyright infringement, copying product selling it from China, right?
Frank Curzio: That’s a big deal, yeah.
Andrew Horowitz: Big deal, right? Big deal. We both agree with that. I agree with that. But how do we know exactly what’s being stolen or not? For example, what about house brands? And what I mean by that is just, this happened just two days ago, I went to Best Buy and I was needed a bait freezer for fishing, one of those outdoor stand up bait. These are important issues, okay?
Frank Curzio: Yeah, the set life man, the [inaudible 00:42:25]. I feel you.
Andrew Horowitz: Yeah, real life problems. Man, my old freezer wasn’t working the way I want it to, okay?
Frank Curzio: Goddammit, yeah.
Andrew Horowitz: So I need it. They’re not expensive, they’re 250 bucks, you put it outside last couple of years and that’s it. But it keeps the bait outside, the stink outside. So I went to Best Buy, and I originally had an Igloo. They had an Insignia on sale, it’s the house brand for all sorts of appliances and TVs for Best Buy. You’ve probably seen those. They have TVs and all this, Insignia. So I bought this new freezer, it looked exactly like the Igloo that I bought, and I was replacing the Igloo, which is a Texas company, manufactured in, I think it’s Katy, Texas, knobs were all in the same place, it looked great. So did Best Buy copy this product, get it manufactured in China, and had it sent back here, or did China develop? Is that like IP theft through China?
Frank Curzio: I think IP theft is more about how many illegal Apple iPhones and how some of their companies are create … Like if the laws were a little bit … And again, now you’re really messing a culture when you’re telling a country how to police people. But when you look at the movies, right? Copyright infringement, just everywhere, right? There’s streaming services right now, you can go through China and download every single movie, let’s be real.
Andrew Horowitz: And like bags, like Gucci and Prada and all that.
Frank Curzio: Bags, all of that, so some way that they could, listen, you get punished even for … Again, that’s hard to do, right? It’s like another country telling us what to do. “Hey, you know what, those people should actually get a minimum of five years in jail if they do that.” But we wanted … When it comes to that intellectual theft, that’s where … It’s hard. It’s how do you stop that and how-
Andrew Horowitz: That’s copyright.
Frank Curzio: I don’t know how you stop it.
Andrew Horowitz: That’s copyright infringement.
Frank Curzio: How do you monitor it?
Andrew Horowitz: I don’t know.
Frank Curzio: That’s how they … How do you know that that’s working if you come with a deal. So I agree with you at that point where … Two points I want to make, one is, yes, physical, only a small thing take, but you got to look at the bigger picture here, right? Because they had a clip of Trump at Minnesota when he was doing, his rallies are incredible, right? 30 40,000, I don’t know what people are thinking, but he’s actually saying, he was going off on Biden’s son. That whole thing was in the media. Now again, I won’t get political, but one of the things he said, he’s like, imagine those guys dealing with China, because I got to tell you, China, those guys know how to negotiate. These are the most difficult guys negotiate, they know what they’re doing. You’re seeing positive things being sent out at both sides instead of negative tweets.
Like, “Hey, I’m not going to do a deal with China,” and, “China ripping us apart,” where I think this is a big step to basically shake hands and say, okay, let’s work on this further, and that can’t be lost because that’s … At least now we’re both at the table, we’re both friendly, compared to three, four months ago where back and forth new tariffs are coming out, so I like that they actually sat down and shook hands and said, “Okay, let’s work with this.” I think that’s a big step. You’re right.
Andrew Horowitz: I agree. I agree. Of course.
Frank Curzio: Not too much has been done, but for me, for everyone to be trashing us and saying, “Oh well, nothing’s really getting done.” We’ll see in three, four weeks if anybody like backtracks or whatever. The other thing too that you mentioned-
Andrew Horowitz: If they do, hold on a second, if they do, if this deal does this little partial skinny phase one deal gets shredded or reduced further, what’s your comment going to be at that point? Let’s kind of get this on the table now.
Frank Curzio: All right. On that point, China’s market’s going to crash even further. China is dead. Not even from the Hong Kong protests which they are dealing with, but more important is they already taken a massive, massive hit where companies are moving out of China and pushing their operations elsewhere, and that’s really going to hurt them. We also signed a deal where we’re going to be able to invest in some of their bigger companies, they can invest in some of our companies. We want more regulation for the companies they have on the exchange where they’re very relaxed. But for me, this deal is an absolute necessity for China because for us, and this is the point I was going to make, what would you rather do, Andrew? Would you rather it be the person creating a product or the one who’s the richest country in the world then buying the product?
Because we could buy those products from anybody we want. It’s going to be more expensive in Taiwan, it’s going to be more expensive in other places. China can’t sell their products to anybody else. We’re by far the biggest economy.
Andrew Horowitz: I agree. I 100% agree but it’s going to hurt us still.
Frank Curzio: So that for me if we [crosstalk 00:46:40] China … It is going to hurt us, but it’s not going to hurt us as much as it’s going to gurt-
Andrew Horowitz: Right, I agree.
Frank Curzio: They’re sitting on goods that they can’t sell to anybody and we could buy these any place and we’re going to pay more. And yes, you’re going to see that in margins and earnings and some companies are going to be impacted, but we’re at a position of strength because we’re the ones that are buying these products compared to people that are making these products, which could be made any place. It’s not like they’re specialized and you can make-
Andrew Horowitz: Totally agree.
Frank Curzio: So that’s why, for me when I look at this, and then you throw in Hong Kong, you see the slow down, and the numbers in China absolutely horrible.
Andrew Horowitz: 50% reduction in tourism over the last month in Hong Kong. That’s a big number. And it’s amazing how well their markets have held up considering that.
Frank Curzio: Yeah, no.
Andrew Horowitz: All things being considered.
Frank Curzio: Yeah, and again, when that trade deal on too, you’re going to see China’s market go up at least 2X, 2.5X if you look back, because I tracked it the last two years. When things are good their mark goes up more than ours because it benefits them more when things are good and it crushes them more when things are bad.
Andrew Horowitz: By the way, I agree with all this. I’d like to get a deal done so you know that I want to get a deal done. I just think that if I’m trying to be objective about this and look at both sides of this, I just wonder if China’s going to kind of slow play this deal-
Frank Curzio: Of course.
Andrew Horowitz: … until the election, frankly.
Frank Curzio: Yeah.
Andrew Horowitz: Just keep this rolling because the hope is from right now, as we sit here at this exact moment, the hope, if I was on China’s side, and I’m sitting there and I’m thinking I’d be like, let’s slow play. We’ve been dealing with this 18, 19, 20 months already, you know what, what about another year, let’s see what happens in a year.
Frank Curzio: And you’re right, it’s worth it, because if Trump doesn’t get reelected, this goes away.
Andrew Horowitz: Pretty much.
Frank Curzio: You’re not going to see a Chinese situation, right? You’re not going to see … They’re going to be like, “Okay,” work everything out. So I could see them, that’s definitely on their minds. But it is going to be an interesting period over the next six months. I just like the fact that they are talking. We have two great economies, the whole [inaudible 00:48:21] situation and everything, it just goes … Again, we’re going to this because I want to cover earnings next.
Andrew Horowitz: One more thing, I just have to say something. You know what’s interesting the Democrats right now, I don’t recall any of them … They’re trying to pick apart everything US-Based, not even focusing on international at all. I don’t even remember them talking about any of this.
Frank Curzio: They don’t, but I can tell you, following Democrats right now, there’s a reason why Warren’s getting so much traction is because I think she’s the only person. And again, I probably got to get emails because everyone has her own feelings. She’s the one that … Everyone’s there and I feel like wake up and want to destroy Trump. And with Warren when I listened to her, I’m not saying I agree with her or whatever, she’s more focused on the common sense and not looking at polls. Like the impeachment thing, all right, we’re not going to sign it, we’re going to sign it. Let’s see. All right, when we look at the polls, 51% want Trump impeached, okay, let’s go at it. They’re looking at polls too much. And when I look at Elizabeth Warren I feel like she’s separated from everything with her own ideas, whether you agree with them or not, but I think that’s why she’s really picking up steam.
Where she’s just not doing a status quo she’s not looking at, it doesn’t feel like she’s looking at polls, she’s telling it how it is or how she’s … She’s actually coming up with ways how she’s going to improve the country instead of just yelling at Trump all the time. And I think that’s a big deal bause that’s what people want, right?
Andrew Horowitz: I want to hear some fresh ideas. I don’t like, listen, I don’t like that we have record debt. I don’t like that we have to have these low interest rates. I don’t like that some of the ways that corporations are doing things and all that, I don’t like the fact that there’s this gigantic disparity in income and wealth and the cost of healthcare, the list goes on. So I would like to see a lot of that stuff dealt with not just the business, but you know what I’m saying? Not just the business of America. I’m talking about the business of the average American, not just the … You know what I’m saying?
Frank Curzio: Yeah.
Andrew Horowitz: There’s a slight difference, but I don’t know. We’ll see. I-
Frank Curzio: And here’s the case, and this is how we’re going to get into earnings, because regardless of how you feel or I feel, you’ve got to look the facts, right? You could hate the fact that we have record debt, you could hate the fact that the fed is lowering rates. You could hate that. That’s fine. You could go out with a big sign in front of the fed, whatever, just yell at the top of your lungs, tweet all you want about that you hate the fed, which everybody does, that’s fine. The reality is it’s about your money, right? So the fed’s lowering the rates, and we know when they lower, even with recession, when we inverted yield curve, people got nervous, the market crash 800 points because the yield curve inverted for like three seconds. It was amazing. But people don’t realize where you look at the data, the market goes up 15% on average in between when the yield curve inverted and when we actually hit the recession, nobody wants to talk about that, right?
So we want to make money and if we’re not going to make money on stocks, we want to be able to be conservative and pull money out if the market’s going to come down. So, that leads us to earning season. We have a fed that’s on our side, we have a president that’s very market friendly, that’s going to continue through the election until, if he gets elected again or not. Which to me seems like a good recipe for stocks to go higher right now. So we’re looking at earning season, and I want to get your thoughts because when we look at earnings, or when you try stock prices, thus far I’d say much more positives than negatives. We had Goldman Sachs week, most of the banks report a great numbers. Healthcare companies reported really good numbers from what I’m seeing. But with that said, as you know, because you [inaudible 00:51:26], these estimates were lowered pretty close around 4% going in, in between the quarters, right?
You don’t get … You only see that from the sell side research firms where they’re upgrading and downgrading. That’s when you see it in the news. You don’t see these notes that I’m putting out the clients saying, “Hey, we’re lowering our target, we’re lowering our estimates. Now expectations heading in are super low.” But when you look at the underlying data, you’re having companies beat because expectations lower, but at the end of the day, this is going to be the third quarter in a row where we see negative year over year earnings growth. So what are your thoughts about earning seasons? Do people care about that or they just want to see them beat the underlying number?
Andrew Horowitz: I’ve talked about the incredible change to the market dynamic where we have bad news is good news, good news is good news, sometimes good news is bad news. That’s all related to the fed. Then we have companies, companies are smart. Listen, we don’t have multi-million, billion dollar companies that are out there on the public markets generally speaking, that are stupid people running at the helm. What they’ll do is they’ll shift production or change pricing or do something internally about cutting expenses. They know they have to do what they have to do. They’re looking at this in real time. It’s not like they have a lag on this data. So they’re making adjustments and companies are obviously with bonuses attached to how the stock price does. Companies are very sensitive to this. So you have mechanics that are also at play.
I’ve talked about this a thousand times. You have the buybacks that are really funding and fueling a lot, buybacks are down a little bit this year, but funding and fueling a lot of what’s going on here, or a good part of that. While you see that money, markets are an all-time high, the retail investor doesn’t really want to be a part of this. At the same time, you have to understand that there is a record number of people generally working, right? They’re putting their money into their 401k every paycheck, that’s going into generally speaking, equity funds or at least markets. And that is also providing a good amount of underlying strength for this. Then you have a lot of robo investing where they’re going to do a rotation if stocks are down at the end of the month, compare it to bonds, compare it to whatever, they’re going to rotate back in so you get that kind of mechanical buy, the dip going on.
And of course the fed is always there, and President Trump tweeting up a storm about how great things are. So, it’s interesting though that a lot of what we see is discounted, looking out further, that this is the worst it’s going to get. This is just because there’s comparisons against when there was new tax cuts that were put in and companies really accelerated through that on earnings. Our companies are resilient, and again, we’re in a market cycle that basically is busted. We’re not going to see these massive drawdowns due to recessions, depressions, it could be a technical matter that lasts two or three months and once we hit that number, once we hit that 20%, okay, the bare are markets here, therefore it’s over. That’s the concept. A lot of stocks are very constructive in terms of their pricing and their charts.
The one question I have though is are we going to be setting this up very similar to what we’ve seen in past earnings quarters where you have a little bit of people getting a little upset and despondent over the fact that earnings are coming down. Then it’s like euphoria because we beat, but then everybody is kind of, the after parties like not feeling so good because those beats were really on maybe, on lowered bars. And therefore there is the effect after the fact where maybe things aren’t as good and we shouldn’t keep business up. However, it seems that even with, when we saw Goldman Sachs have a pretty awful report that I saw, stock was down four bucks premarket into the early morning, It was down. It ended the day in the green. Now, the market was up and so that pushed it up in general.
Companies are … People are just saying, you know what, I don’t think I care about today, tomorrow or even next month. It looks like there’s a longer term involved that they believe that, hey, you know what, long-term things are going to be good. And don’t forget that those advisers, those investors that now have money, that are in their thirties, only lived through the good times in the markets. So therefore they believe that buying the dip is always a positive occurrence for them because they have no history. I saw somebody talking about, “Oh look at this advice we see here, it’s just save less, do this.” And I said, “Do you know what? You’re obviously a young guy that thinks you have to be complicated with computer models. Go back, ask some older folk that had been involved in this a long time and it’s not as difficult as you make this.”
And I think there’s a lot of fresh ideas that are out there from people that have never been through an economic cycle of any sort, only the good times. And I think that’s kind of affected things. So to sum this all up, earnings are okay. They’re not great. I don’t think we should be at all-time highs from what I’m seeing from earnings. Even like a JB Hunt they did not have a good report, actually it was in the green last I looked today. But how much higher can we go? Lot of metrics that say that we’re a little bit pricey, some say, well if you take that and you discount that for the fact that how low rates are, not that pricey on the stock market, but it is pretty amazing that we have all these headwinds, the outlook near term is questionable and all the things that we mentioned that there really doesn’t seem to be any kind of concern.
The Vic’s at 15, was at 22 last week, came down to 14 and a half yesterday. So it seems like the desire to move markets up, to move stocks up, to own these companies is very great. I don’t know if that’s going to change. No reason to fight it.
Frank Curzio: Yeah. And plus when you look at the rest of the world, you could say, well, the US has seen slower growth, we’re in much better shape than 95% of the development in emerging economies right now.
Andrew Horowitz: But even Europe’s markets haven’t really crashed. Look at how awful, awful, Europe is doing in terms of the economy and their companies, and their markets are still holding up pretty well. So there’s something else going on here. It’s the only game in town.
Frank Curzio: No, definitely good points. And it’s going to be interesting to see the rest of earnings. The guidance is always key guys, you could miss earnings by a mile and if you raise guidance, your stock’s going to go higher and vice versa. Like you could have an amazing quarter, past three months but going forward if you lower that guidance your stocks get … I don’t see them raising guidance because there’s still an uncertainty in the marketplace. So it is going to be interesting, but I have to say this is someone who’s come to earning seasons for 20 years plus. This is one of the times that I’ve seen one of the most pessimistic outlooks going into earning season than ever. Usually people are like, “Oh, they’re probably going to be,” people were just trashing. [inaudible 00:58:26] estimates, earning season’s going to be terrible.
It almost sets it up with sediment is so bad with these things that anything they report, if it’s in line, like you said JB Hunt, a couple of other companies have reported that not too good and by the end of the day, at the end of the week they’re not really getting crushed.
Andrew Horowitz: But stocks didn’t get crushed either, Frank, with all the pessimism. Which is really interesting because I think people are like, “You know what, maybe I’m not willing to get rid of my stock. It’s been good for me, things have been going well, markets seem to recover all the time, I’m not selling.” I think the analysts, even with their downgrades, we didn’t see the kind of move on stocks on a big picture. Not individually, but on a big picture that you would’ve expected with all this pessimism there really wasn’t any.
Frank Curzio: Well you know what, if you look at the major industries I would say yes, but if you’re looking at the underlying, because I have a small cap newsletter and I have a large mid cap newsletter, right? And the small cap newsletter, a lot of these companies reported a great earnings the last two, three quarters and they’re down 20% off their highs. We’re up on a lot of those situations and some of them went down a little bit, but small caps have gotten murdered. The discrepancy between small caps-
Andrew Horowitz: Small caps-
Frank Curzio: … and large caps have been the biggest in 17 years, which it makes sense if it doesn’t make sense because you see China trading and you’re like, well, small caps don’t normally have that much international exposure, right, compared to the big companies. But it was kind of like a risk off trade, and what did you see, offensive names, cyclical names do good. Apple held up, some of the big names held up a little bit better, which held the averages up. But when you look at the underlying companies, I did a screen a week ago and it was 30% of the companies in a Russell were down more than 15% a year to date. And I was like, whoa.
Andrew Horowitz: Russell, did that. Listen, when you have Macy’s up today on a bad retail number, okay, stock markets were down, they turned around, went positive so far today. You see things like the continuation of Apple at all-time highs with the fact that there was concern even after their iPhone 11 announcement that they were lowering prices and margins were squeezed and they got the problems there and they may also get to December 15th tariffs all time high on it. It’s telling you there’s a little bit of excess, I think excitement in the markets. That’s fine. That doesn’t mean it has to come down either. But this seems like there’s a little touch of overconfidence in markets right now considering all the things we saw. We saw a bad ISM came down, we saw the services number, not so good, but then a week later it was totally rectified.
So when you see a day that you see numbers come in that are really poor for the economy and markets just turn around and stocks then see bad reports and they go green, it’s telling you that there’s more of an algo trade going on, there’s more of a technical trade happening. Again, it’s not necessarily bad, it’s just what it is. So kind of like take it over time and let’s see at the end of the quarter how things play out. Right now I’m not really hearing a lot of negativity on the outlooks, haven’t seen anything, that’s where the expectation was for real problems I think.
Frank Curzio: Yeah, definitely. I agree with you 100%. So let’s move on to stock next, because people love. So last time you were on, you talked about shorting planet fitness, which dipped and you took out 14% profit off of that. You also were on [Winner 01:01:41] Resorts, which actually went up and came down a little bit, but it was a good trade and Luckin Coffee which you’re trading in and out of and it’s a little bit higher than the levels that you gave us. But out of those three I guess, because Short Planet Fitness, it was long Luckin Coffee and Winner Resorts in long, any of those trades that … It looks like Luckin you’re still in a little bit but let’s hear it.
Andrew Horowitz: In and out. In and out of Luckin coffee, trying to hit it at the 19 get out of a 21 unless it really spikes, does something, used 19 as my lower band. Matter of fact, I think I mentioned last show that Luckin coffee I like the idea that a potential for an anti-American sentiment in China may have the people that got hooked on Starbucks starting to go for a house brand, if you will. And that’s back and forth, back and forth. But we are trading it pretty successfully back and forth between that range and that’s a 10% gain from 19 to 21, so take that every day, right? And let’s not forget about DocuSign that I gave you a few months ago that kind of dipped when he first got it, now at all-time highs.
Frank Curzio: Yeah. Not every IPO is terrible. We’ve seen a lot of those things come down and you know what, you had an interesting conversation before and that’s why I love one of the products we have is Dollar Stock Club where we take picks from our guests. And sometimes they’re online and a lot of times we discuss with all my guests, probably same with you in your interview, and like even before and after the podcast we talk about different things and sometimes we’ll have ideas then. You talked about Peloton, not so much that you got to buy the stock, but talk about it because you got an interesting story that surprised me.
Andrew Horowitz: Yeah. So Peloton, I’ve got a few friends that have the Peloton bike and I’m like, “How do you like it?” They’re like, “I love it.” I’m like, “Oh, what’s to love about it?” “Well, you get the guided tours and you get the classes and they really push you and all that.” And they start, and all of a sudden one of my friends pulls out his a smartphone and he says, “Hey look, I even have this app.” I’m like, “What does the app do?” “Well, if you’re let’s say not on a bike, a Peloton, you go to the gym, you can kind of do a class on your iPad.” Oh, interesting. So if you don’t have a treadmill, they have some treadmill stuff, they have things like stretching in yoga and meditation classes that you could either attend or go and look at the recorded ones. And I’ve been running, so I said, “Let me try that.” They have an outdoor one, audio only.
So I put on one of the walk, jog, run one’s to check it out, see what was going on, and it was kind of interesting because it really seemed to … I didn’t really dig the music frankly, but the instructor was pushing me the whole time. I could have just said, “Okay, I’m tired, I’m stopping,” but they were constantly in your ear, telling you what was going on. I thought the app was pretty cool. Two week free trial so I’m doing a free trial of it. It’s 19.95 a month. So if Peloton can, I think, grow this and really make this a really good central piece and used for people that don’t have bikes or don’t have any kind of equipment at all, it could be an interesting little thing. I think the app is really cool, stock, I think it’s possible that it’s also very easy to replicate. There’s the fly, a flywheel or the fly flywheel.
There’s Nordic track, there’s a couple of companies that are out there with competing products, but if they can really develop a really good database of instructor led programs, I think that that’s a cool thing. And if anybody’s into exercising, I would definitely check out the 14 day free trial of this thing.
Frank Curzio: Now, the biggest surprise of everything you said there is that you’re running. Are you running or are you walking?
Andrew Horowitz: Run, walking, jogging. I’m actually, no, no, I’m jogging and I’m running, and I’m old enough that like, if I’m tired, I’m like, “I’m going to take a couple of seconds to walk a little bit.” I used to just push myself through the whole run. I’m not marathon speed, but whatever, like 10 minute mile.
Frank Curzio: Hey, that’s better than me right now.
Andrew Horowitz: You’re mister kinky right now.
Frank Curzio: Yeah, everything’s good though. Everything’s cool, I’m walking around and exercising, so it’s getting better.
Andrew Horowitz: Oh, by the way, thanks for sending me that picture from right when you were out of the hospital through text. I really appreciate that. That was a beautiful wound. Beautiful.
Frank Curzio: You know what, some people were like, “Oh, I want to see that.” And I actually posted it on Twitter, I said, “If you want to see it, I’ll show it to you.” So it was a big, and I got my hip replaced three weeks ago, and I’m walking without a limp, I feel great. I just saw my doctor, she’s like, “Listen, just take it easy the next three weeks because the bone meshes with the metal that’s in your leg and everything’s going to be good.” But it’s an amazing surgery. The success rate is very, very high, it is an amazing surgery, but you’ve got a brand new hip, which is really cool. And most of this takes place with people that are 70 years old so it’s a long recovery. For me it was about, I didn’t … I used a walker for one day, I didn’t have a cane or nothing. But I’m younger and not too many young people do these surgeries.
So I asked my doctor, I was like, “How long is this thing going to last?” She’s like, “We don’t know since we only do this on 70-year old.” I was like, “God, that’s great. Thanks a lot doc.” But she was amazing. Now, let’s get to the final part of this because you have some interesting picks. One of them is a company I’ve never heard of, PagSeguro Digital, you’ve talked about that one. But also one of the things that you sent me is you want to short Facebook, I’m not hearing that a lot so why don’t you talk about those two.
Andrew Horowitz: So these are two kind of against the grain in a way. Let’s start with short Facebook. First of all, I think that the hope trade is helping them along. They have major pressure, I think the political headwinds. It’s going to be a lot within the political cycle. Even though they’re talking recently about their Libra cryptocurrency concept not falling apart, we’re seeing companies like Stripe and PayPal, MasterCard and a whole host of the big names bailing. And the reason is that they don’t want to have any scrutiny. I’m like, wait a minute, you got into this thing you thought no governments could maybe look over this whole deal with you creating a new currency, what were you thinking? But the company’s still loved by advertisers, not a lot of opportunity to get targeted advertising.
But with them closing up a lot of the loopholes with putting on a massive amount of headcount in terms of paying people to, you know, buckle down a security and the fact that they seemingly can’t get ahead of it anyway, there’s a new thing every week or so about that. Meanwhile, the stock’s been holding up really well. I just think that there is, the opportunity, may not be the shortest of term of trades, that Facebook is a bit overdone and there may be some fallout from some of the things that have gone awry and make sense to, if you have a major position in growth stocks, and Facebook would be one that I personally am shorting. I’m shorting it successfully, moved out of it from the 200 range down to the 170 and change range just reshorted recently. Just think that into the election cycle is a major headwind for this company. It’s a major target.
Frank Curzio: I want to say this about Facebook because, and it’s true, this might be a fantastic trade, but when it comes to Facebook, it’s one of the only companies I know of ever in history following companies that had to change, I won’t say their business model, but their system, right? You had political pressure, privacy concerns and they said, “Okay, we’re going to put more measures in it for advertisers.” And advertisers came in and said they had extra steps to take to get their ads posted. We know this because we’re in the business as well, we advertise on Facebook. There’s a whole process that people had to learn, and for me I was like, “Wow, Facebook’s definitely going to get hit.” And the next quarter and the following two quarters, they reported blockbuster earnings. And I’m like, it’s the only company I know that actually made a little bit more difficult for their advertisers and changed their system.
I just thought it would be, not a long-term headwind, but just a short-term headwind and they didn’t miss a beat. They were just … And the reason why they didn’t miss a beat is because 20% of the world’s population is on Facebook and it’s still the greatest advertising platform in the world where you’re getting the best results because they know exactly, people check in, they know exactly where you are, they have pictures, they have algorithms, they know exactly what you’re going to do, right? We all have patterns, we all do the same thing every day. They know everything. They know … And the advertisers. Hey, you want to advertise your Starbucks, there’s 3 million people in Starbucks right now. Or you can put a commercial on Comcast and you have no idea who’s watching.
Andrew Horowitz: I totally get it. No, I totally get it.
Frank Curzio: So that’s why one of the things that-
Andrew Horowitz: But they’ve also been constantly talking about the expense expansion, dramatic and a fall off of their overall earnings for the last couple of quarters, question is when’s that gonna hit? So I’m thinking it’s about time.
Frank Curzio: That’s a great point. Yeah, and that’s a great point. But for me, I was just surprised that that happened. And a lot of that’s factored in, it’s not even trading that far off, it’s just [inaudible 01:10:00], but for me I was just surprised but a lot of that can be factored in. It’s interesting. I like the fact that … And real quick over the other stock that you were talking about, which is PagSeguro Digital, I think it’s called.
Andrew Horowitz: Yup. Yup. It’s a Brazilian Fintech company. We’ve had it for a while in our managed growth strategy. It’s actually made it through screens the last couple of quarters, which is hard to do especially because in our screens where we whittled down about 5,000 stocks utilizing fundamental technical and quantitative analysis, we’ve gone from about 60 stocks down to 30, which is really interesting because companies are not able to compel us to show us that well they have growth earnings, growth revenues, growth margins and all those other things. Now, this company has done so and really well. The Brazilian Fintech market is really expanding very quickly and obviously there’s a lot of potential with some of the current government initiatives. The company has been doing really well. PAGS is the symbol.
They did a massive secondary this week and they pre announced their earnings stock was down about 18% on that, finished today at about, I think down 13% or so, came down a little bit again today. It just seems to me when this kind of all gets through the market and then maybe it is going to be that, “Hey, what are they doing with that secondary?” And even though it maybe some of it’s selling shareholders and all that stuff, and not taking money in, and there is dilution of the shares, a lot of times that we’ve seen these secondaries definitely keeps the stock down, any stock down for a while, and then when the earnings start to come out and things look a little better, cleans up, starts to ramp the other direction for good quality companies. So just something that I’ll think about
Frank Curzio: Good ideas, good ideas there. So, Andrew I want to thank you so much for coming on. I had some personal problems I’m dealing with last weekend and we always have this unwritten pact that, hey if we ever need each other, we’ll drop everything and we’ll get on each other’s podcasts, which is really cool. So I appreciate it and it’s perfect timing anyway because we both have strong opinions on China and trading, that deal just got done and a lot of economic news coming out on earning season. So I love having you on, we can go anywhere and talk about everything. So I just want to say that I really appreciate you coming on short notice. You know I love you. We’ve known each other for a very, very long time.
Andrew Horowitz: Whenever. Hey, by the way, I did a little research somebody was saying, “Hey, you know what, we just had,” somebody said to me, “Oh we just had our anniversary for a podcast for X amount of years.” Do you know the first episode of the Disciplined Investor podcast was in March of 2007?
Frank Curzio: Yes.
Andrew Horowitz: March of 2007.
Frank Curzio: Yeah, because I started doing it a little bit after you, and I think 2008 I started at the street and then, yeah, and that’s how we got to know each other. You had the street and then, I think you were doing interviews there or something. I don’t know if you did like a video there or something but then we just-
Andrew Horowitz: Yeah, I was on for something. But you know what, I’m saying it, I’m the OG of financial podcast.
Frank Curzio: Yes. Yes. It’s funny because people come to me and say, “You’ve even doing this for over 10 years.” I was like, “Yeah, I’ve just been doing it for 11.” So yeah, I say that, I don’t say that to everybody, you say it personally. So I’m like, “Yeah, I’m a pioneer in this industry,” No, actually you’re the pioneer, you’ve been doing it even longer and it’s amazing how everyone in the world has a podcast now, right?
Andrew Horowitz: Everybody, everybody.
Frank Curzio: It’s a platform that’s like, what is it? Podcast? And now it’s everything gets into a podcast,
Andrew Horowitz: It’s so many, it’s so boring.
Frank Curzio: It is, it’s tough. You have to have a … I try to listen to some of them and there’s very few that actually keep my attention throughout the whole thing, and it’s why I’m so surprised that everybody listens to you. I’m like, “Wow, that’s so surprising.” But it’s cool and I guess we’re doing something right and it’s nice.
Andrew Horowitz: We are. And by the way, one of the things that we do, just to mention, because I know you’re going to ask because you always do-
Frank Curzio: I always do.
Andrew Horowitz: … but you can find just email@example.com. We have three unique strategies, one is our global allocations, which is more of a traditional strategy, our managed growth strategies, a long short. If you think, hey, you know what, maybe markets are not setting up really great, I want to diversify and I want to have style diversification, this is the place to do that because you get the opportunity to have long positions is core, we hedge around, we do some trading, we do [inaudible 01:14:04] trading and all that, we could utilize options. A lot of different things happen there. So it’s a non-correlated investment strategy within your other strategies. And then we have even a robo ESC strategy called Envestology with an E, and that is adviser crafted and technology enhanced. There are a lot of people, ESC focuses a $10,000 minimum investment, which a low enough bar for most people to get into.
Frank Curzio: No, that’s great stuff. And if someone wants to learn more about you, I’ll ask it after you said everything.
Andrew Horowitz: Just email me at firstname.lastname@example.org. You could go to the disciplinedinvestor.com, listen to the podcast, the disciplined investor podcast, and then of course available at any of your favorite podcast directories.
Frank Curzio: Sounds great. Awesome buddy. So listen, thanks again for coming on and of course I’ll have you on probably a couple of months from now.
Andrew Horowitz: And feel good, looking forward to getting back in the groove with that leg and all the other issues that are surrounding you. I hope it heal fast.
Frank Curzio: Ah, thanks buddy. Thanks man. I appreciate it and I’ll talk to you soon. sAll right. All right guys, great stuff from Andrew. Nice little podcast. I usually do an educational segment, but we really covered everything. We really went into detail to earning season. I was going to do education, not earning season, but a lot of that was covered already. Tried to keep this to around an hour, I don’t want it to go hour and a half. Believe it or not, some people love longer, most people love long podcasts, even though everything traditionally in media they say do short videos, do three minutes. Every time you do long videos … I mean I guess you got to keep the interest for people, right? You just can’t be boring. But it’s funny how many people love it longer, but I like to keep it within an hour, and we covered a lot there.
And I love Andrew to come on the podcast, fantastic. I said earlier we have this relationship where we can go on a podcast whenever we want last minute and stuff so I appreciate that he did this. Dan Fitzpatrick is probably going to be on next week if not the following week but we’ve been talking and things are really, really cool. And he’s a guy that I love, he’s witty, he’s a the stock market mentor, he has site where he teaches people how to trade. Just a remarkable guy, remarkable person who’s really [inaudible 01:16:06] the street.com days and someone that I like. And he’s very outspoken, very entertaining. Most of you are going to love him, some people will hate him because he goes into politics as well, but he’s going to be on a couple of weeks. I love reconnecting from people in my past, especially the emails that I got from you is really cool.
Just, “Hey, is it Dan Fitzpatrick?” Or you name so many of the old players that were on my podcast when I was at street. Believe it or not guys, I used to do a daily, like an hour every single day when I was at the Street, every day, which is really cool because I knew more than anyone ever because it was reading the wall street journal on the way in, working with Kramer, going over every stock sector and everything to doing a podcast, interviewing people, two, three people a day sometimes because we had a big news department. You knew everything that was going on. It was fantastic but it was a little crazy. I like doing the weekly one much better. Just too much. Major, major commitment to do it every day. But thanks Andrew for coming on, and guys, I say it all the times, podcast is about you, not about me so let me know what you thought.
email@example.com, that’s firstname.lastname@example.org. So guys really appreciate all your support. You can say a prayer for my mom, hoping things get better. Of course I will update you on her progress. Again, it’s a little bit better still not out of the woods, but I love you guys and I love telling you guys everything. You guys know everything about my personal life, which is really cool. So again, appreciate all support. I’ll see you guys in seven days. Take care.
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