Space travel is here… if you can afford the crazy price of a ticket. I kick things off this week by pouring cold water on Sir Richard Branson’s recent trip to space… and explain his true “mission.” [00:30]
We’re about to see an unusual earnings season, according to Andrew Horowitz, president and founder of Horowitz & Company and host of The Disciplined Investor. Andrew explains why he’ll be paying close attention to company guidance and to the Federal Reserve this reporting period.
He also shares his thoughts on whether inflation will be transitory… the “reopen” trade vs. the “shutdown” trade… and a few of his favorite ideas right now. [37:30]
Speaking of earnings season, two major banks recently reported solid numbers… Daniel and I discuss what stood out about their results.
Plus, with former President Donald Trump suing social media companies… and the U.S. government threatening to break them up… should you bet against the headlines—or avoid these names?
Finally, if you missed Curzio Research’s first annual meeting, here’s how you can watch. [01:15:06]
- Rant: Richard Branson’s real “mission” [00:30]
- Guest: Andrew Horowitz of Horowitz & Company and The Disciplined Investor [37:30]
- Educational: Should you avoid social media companies? [01:15:06]
Wall Street Unplugged | 782
Sir Richard Branson's “mission” has nothing to do with space
Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media, to bring you unscripted interviews and breaking commentary direct from Wall Street, right to you on main street.
Frank Curzio: What’s going out there? It’s July 14th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and tell you what’s really moving these markets.
Frank Curzio: So, the biggest story of the week, by far, even though it’s earning season, a lot going on, getting out data, coming out, all this stuff. But by far, the biggest story of the week was Richard Branson flying into space. Is that a test flight from one of the spaceships owned through his company, Virgin Galactic? Is SPCE a symbol? They reached an altitude of 53 miles, and this was on Sunday when he took the trip, and he flew with three company employees. I think it was six people in total, before landing successfully back on earth.
Frank Curzio: So, Branson became the first person to blast off his own spaceship, beating Jeff Bezos, another billionaire, by a few days? I think he’s launching next week. A little bit of egos to feed a few billionaires, which you see all the time. But it really is amazing stuff. I mean, going into space, it’s all over every news station, everyone covering it. Doesn’t matter what industry. Branson’s doing interviews said his goal is to turn the dream of space travel into a reality for my grandchildren, for your grandchildren and for everyone, which is what Virgin Galactic is all about, right? Space tourism, a really cool, amazing achievement. Great, great story. Just feel good, feel good story.
Frank Curzio: Now, I love a great story, just like the next person. I mean, everybody does. We love to be entertained, right? So, I hate throwing cold water on something that so many people are positive about, but I really need to share this story with you that nobody’s telling. At least, I’m not reading at any place. And it may change your opinion on Branson. And again, this is at the height where everybody’s most excited, just went to space. But it could change your opinion, especially with Virgin Galactic since what Branson is doing to retail investment community. When it comes to Virgin Galactic, holy shit, I can’t think of anybody… Swindle, sham, deception, con, pick it. Whatever you want. But man, what a joke. I was sitting by watching, the SEC is not doing anything, regulatory bodies aren’t doing… Nobody’s doing anything to stop this. I know what you’ll say, “What are you talking about? He just wants to go to space, the stock is at all-time highs, everything’s great.”
Frank Curzio: Look, I like Richard Branson. He’s an innovator, entrepreneur. He’s a disruptor. I heard great stories about the man. I hear when people are around him, they just speak to him 10 minutes, just listen to him, he’s going to motivate the hell out of you. And I also know that after this successful test flight, you’re not going to see a lot of negative stories written about him. He’s popular, has a nice smile. He’s a billionaire. Investment banks are definitely not going to say anything bad about him or the stock. I mean, these guys are foaming at the mouth since Virgin’s likely going to have to raise billions and billions and billions of dollars over the next few years, since they won’t be generating any meaningful revenue. I didn’t say earnings, right? You need revenue, you have a ton of revenue and you pay your bills and you pay your employees. They don’t have revenue coming in. Meaningless revenue.
Frank Curzio: So, they’re not generating sales or any meaningful sales anytime soon, which means they’re going to have to raise a lot of money, which is why the investment banks love you, right? That’s what they want. They know they’re going to have to use them to raise money, so they’re not going to say anything bad.
Frank Curzio: Now, let’s start off here, let’s take a quick walk back in time to October 2019. That’s when Branson launched Virgin Galactic through a SPAC with Chamath Palihapitiya, whatever the last name is, Chamath in 2020… In October 2019, right? Right before 2020. And basically, they bypass the traditional IPO, and he did it through a direct listing. And it raised $450 million, which put the valuation to the company at $2.3 billion. Pretty expensive for a company with no sales, but people love the story because once this thing came out, the two most high profile billionaires in the world, Chamath and Branson… Eh, you could throw Elon in there, but not in this case, but one of the most high-profile. But Chamath and Branson, they turned up the marketing machine.
Frank Curzio: So, Virgin debuted at New York Stock Exchange, October 28th. Chamath who became chairman, Branson, who’s a CEO, took an amazing picture of themselves, across the street from the historical building. I took it from the historical building, overlooking the New York Stock Exchange with their thumbs up, going, “Hey, this is great. This is awesome.” And across the street was the New York Stock Exchange, and it had a massive banner of Virgin Galactic on it. I know it’s from the historical building because I worked right across the street from there for four or five years when I was at The Street.
Frank Curzio: And you could eat lunch on the steps; it’s really pretty. You can never go in the building, but I guess when you’re a billionaire, you get access to everything. So, he took this nice picture with them, overlooking, and massive display. The whole banner across the New York Stock Exchange. Massive, massive, massive, right? With thumbs up, this is great! Space. Awesome, right? Then, they started doing interviews all over TV, which a lot of this is also buried in their S-1 filing. So, during the interviews, Virgin Galactic said… Again, keep in mind, this is still October 2019, “Expect commercial space flights to begin by the summer of 2020.”
Frank Curzio: They just got the okay. Branson just came back now. Great. Grady will say, “Oh, it went over my head a little bit,” whatever. That’s what they said, right? That’s what they sold the deal on. We’re not even there yet, right? I don’t know, maybe next year. We’ll see. So, they already had reservations from 600 people in 60 countries, representing approximately 80 million in total collect deposits and over 120 million of potential revenue. Potential. You see all these people sign up. You probably have signed up for like 10 bucks, kind of like when you buy a Tesla car, you put a hundred down and they count it as, “Look at all these buyers that are going to buy Tesla cars.” Well, let’s see if that pans out, that’s no guarantee. The company also projected that by 2023, that’s not too far away, it would generate $590 million in sales and EBITDA of $274 million.
Frank Curzio: The company was generating four million in sales at the time. Lost a 173 million, those at the time of the offering. Today’s sales are lower than four million. According to research, we almost do more revenue than these guys. For 2020, right? So, sales are lower, losses are much, much higher. And this is compared to 2019, where they made this claim.
Frank Curzio: Then Chamath went all over CNBC. Great marketer, saying that direct listings are the way to go, benefits retail investors. I mean, look at this, this is a deal we just did. And he actually said it benefits retail investors, direct listings. I mean, what a crock of shit. You could tailor things and kind of talk out of both sides of your mouth. We see it from politicians, whether they want… This is an absolute lie to the public. It’s a lie. Direct listing. Direct listings are not good for individual investors, they’re not. They’re great for insiders like himself, where they do not require the 180 day lockup period. They get to sell these things at a much shorter period. Sometimes, that day. Robinhood. With Robinhood, it goes public. They’re going to be selling. Insiders going to be selling the day it comes out on the direct listing.
Frank Curzio: So, you could dump shares almost immediately. And also, through this structure, this SPAC and there’s Chamath’s SPAC, you can issue warrants to dispatch and they don’t have to report them. They don’t have to report them. I don’t know if you guys are familiar with warrants enough, but holy cow, that adds massive, massive dilution. And corporations say, “Yeah, this is new money coming into the company. That’s great.” No, it’s not great, you’re diluting the hell out of people. And they’re going to come in at a much lower price, and then immediately going to freaking sell it and dump the stock because they exercise options and money, which the warrants in the money.
Frank Curzio: But they don’t have to report any of this. All these side deals that they did with other investors, they don’t have to report any of this crap. Anyway, after all hype BS, everyone wanted in. Why not? I mean, it’s a great story. Billionaires, rocket ships, space. You bring Chamath who has massive ties to Silicon Valley, major influence to young investors all over Instagram, Twitter. You can see why so many retailers were like, “Holy shit. I need to own this thing. This thing’s great. It’s awesome.”
Frank Curzio: Now, through 2020, the stock held steady between 20 and 30. Then the first few months of 2021, this is where things get interesting. The stock took off. From $35 to $55 share, all-time high. Once that happened, what do you think the insiders did? They use the opportunity to dump the crap out of it, including Chamath-Branson. More on this later. So after that, after that move, the stock started crashing and went from 58 to 17. This is mid-May. So, we’re only talking two months ago, guys. Right now, we’ll catch up at time, two months ago. Now, when the stock was at 17, 18, 19 20, it was crashing. Everybody knew on the inside that Virgin needed to raise cash, since they’re planning on launching in July. They don’t generate any revenue. Again, you have to generate revenue. You can have massive losses, but the revenues coming in, that’s how you pay your expenses. That’s how you pay your employees.
Frank Curzio: You have no revenue coming through the door. So, you have to continuously raise money, and the company was burning through cash like crazy. So, they knew they needed to raise cash. They don’t want to do it at $17, which is kind of around the freaking IPL price now. So, what do these guys do? Hey, let’s turn up the marketing machine again. So, in May, at its successful test flight, which started pushing shares higher, made a big public thing about it. Then last month, FAA gave approval for a full commercial license to operate its spacecraft with passengers. Again, another positive development was pushing the stock higher. Then you have a massive short position, which these guys know, and the short start of running for cover. Now, it’s pushing the stock higher, even higher. Then Branson announced the date of his flight.
Frank Curzio: “Hey, I’m going to go. It’s going to be this date,” which was on Sunday, and the stock goes high, now it’s in the high forties. And then on Sunday, Branson launched into space. Huge success, doing interviews everywhere, telling you that, “Commercial space flights are coming! It’s exciting, it’s awesome. So what, I’m British and own a British airline, but launching my first trip into space from New Mexico doesn’t matter. This is awesome. Who cares? It’s still magical.” As you said, that magical. So, Branson is super excited, and he should be, I mean, you guys just went to space. I get it. The world is super excited. “Oh, space! We’re going to go to space one day, right? We’ll definitely go to space.” It’s $250,000 to go there, so good luck for most people. Just maximum optimism, maximum. And then what does Branson do at the peak of the ultra-excitement period? He announces a $500 million capital raise, right in investors face, shoves it right down their throat.
Frank Curzio: So, as Branson is doing all these interviews everywhere on Monday, right? People are going crazy, this is amazing. The stock is absolutely crashing. That’s now 17% granted. Last time, it ran up a ton in a month, ran up a ton, but now, it’s crashing because all this optimism made perfect timing. Let’s raise money at the highest possible price. Okay, good for them. Now, I took a closer look at this deal. A story’s nobody’s telling, this is awesome. I think it’s awesome. I don’t know if you think it’s awesome. And I’m getting to a very, very big point. Important for all of you listening retail investors. So, of course, the two lead on the writers… I’ll give you a guess, okay, I’ll give you two, you’re only going to get two guesses because you’re going to get it right. Goldman and Morgan Stanley, which they’re getting paid $300,000, which seems reasonable, and at least 2% commissions.
Frank Curzio: So, that’s a quick $10 million for these guys. Quickly. Boom, right? I can almost guarantee these guys are making a whole lot more through warrants, or in this in a second, I’m going to break that down, it’s important. So, I took a quick look at the file and found a few interesting things. Again, things I’m not hearing talked about much in the media. So, the offering was from Frawley’s closing price and that’s an S-1. They had 49 in the filing for the SEC, sorry. $49.20 cents. That’s close to its all-time high. Highest in four or five months. It was 17. In May, it’s 49.20, right?
Frank Curzio: So, that’s the number that they use, and Virgin has 237.3 million shares outstanding. And they’re offering 10.1 million. So, they say, “10.1,” which equals roughly $500 million, look at the rates. So, again, I have to do a lot of numbers that could get you confused. I want you to follow because it’s important. So, the total amount of shares after the 10.1 million share capital raise, they say, is 247.4 million shares outstanding. But when you dig a little further, in the fine print, it says a share count doesn’t include… Guys, listen to this… Eight million shares of common stock issuable upon the exercise of a warrant outstanding as of March 31st, 2021. Okay, so March 31st, 2021 warrants eight million of them with an exercise price of $11.50 per share. As of March 31st, the stock was at 30.
Frank Curzio: So, the eight million shares of common stock issuable, but X has a warrant, it’s giving free money to people. You’re giving warrants to people when they’re already, right off the bat, eight million, but the share capital doesn’t include those eight million. It also doesn’t include the 5.4 million shares of common stock issuable by the exercise of options. These options outstanding, same date, March 31st. Again, the stock was at 30 back then. Right in the money. You’re handing free money to people, I wonder why. Is that allowed? I don’t know. I know Apple got into a lot of trouble early on. Given it was 15 years ago, but Apple can’t bring over the three leading executives from Google and give them stock at $25 a share. You’re not allowed to do that because otherwise they’d have every single employee who’s amazing, who’s great, entire industry, working there if you’re able to do that, right?
Frank Curzio: You can’t do that. These guys are clearly doing it. It’s right in these reports. It gets better. 4.1 million shares of restricted stock units. Again, this is outstanding as of March 31st, 2021. And then they have 7.7 billion shares of common stock reserved for future issuance under our 2019 incentive award plan. And this was as of March 31st, 2020. I don’t get it. I mean, was the incentive program in 2019 never met because it should have been based on stock price, and your stock price went a lot higher from the IPO. So, why are you giving more shares away for an incentive award plan from 2019? I mean, you’re recanting at this, you’re giving free… Is this a cover-up to give more shares to whoever, which we don’t know? I mean, common stock, 7.7. So, no lockup, no lock up on these either.
Frank Curzio: There’s no lockup. So, imagine that. I’m able to get whatever, eight million shares, eight million warrants, whatever I did for the company to get the eight million warrants. I don’t know who got them, but eight million warrants. And they’ll say my stock’s trading at 10 and you get to exercise it at $2, and right off the bat, what are you going to do? You’re going to exercise them right away. You make money. But what you’re doing is diluting the shit out of existing shareholders. Anyway, when you add all those shares I just mentioned, most of them are going to be sold as immediately because they’re in the money. That’s another 25 million additional shares. That’s another 10% plus dilution. You might be saying, “25 million shares. What’s the big deal?” Well, to put it another way, the 25 million shares is worth $1 billion at today’s stock price. $1 billion you’re giving away to who knows who for free. Welcome to the world of SPACs.
Frank Curzio: I’m just getting started here. So, Virgin has a lot of warrants outstanding. Do you know how many? I have absolutely no clue because they don’t have to disclose it. They don’t disclose the warrants. They could issue a hundred million warrants with an exercise price of 30 cents. But nobody has a clue because you don’t have to disclose it. And that’s why the company is being sued by several law firms. The SEC, and this was just a couple months ago in April, because some SPACs may not properly account for warrants sold to investors. So, in the past, many SPACs classified warrants as equity on the balance sheets. However, the SEC is now saying that, “In certain circumstances, the units would have to be classified as liabilities rather than equity.” So, what does that mean? They’re now going to have to disclose these warrants, and it’s why the company pushed back their filing.
Frank Curzio: Because they had to account for a lot of this stuff, but they still have to report. Nobody knows how many warrants they have. But if you notice you’re seeing the dive in SPACs, because when people get a look at those warrants and the deals that they’re giving certain people to raise money… At three of those pipe deals, holy shit, you’re going to see why every single billionaire, every single large investor is doing everything they can to launch a SPAC. Because one, you’re putting money into it. Two, you’re able to sell it pretty much on day one. You’re able to give warrants to whoever you want to raise the money. What do you care? You’re in a penny, right? You give warrants, it’s a dollar, $3, $7. You’re coming out of 10. You buy a company. It comes out at 1,230, you get the retail investors buying it.
Frank Curzio: What do you care? Now you’re going to have to disclose all this shit, all the money. And best yet for these guys is they’re going to make massive, massive gains, which I’ll show you in a minute, taking on no risk, and they’re gone. They’re out of the stock. They’re gone. I mean, who doesn’t want to make a 25, 50, a hundred million dollars in a couple of months with no risk? That’s a pretty cool deal, I think. That’s not a bad deal. I’d like to do that. Getting back to the offering. So, this deal was announced when shares were trading over $49. Shares sold off on Monday pretty hard, to $4 a share, it fell 17%. Yeah, it was great because it was like 5%, 7%, 10% and kept going lower and lower. The more interviews Branson said, there was patting on the back. This is great, loves it. The stock was crashing for investors.
Frank Curzio: And if you look at the offering or into this offering, insiders have been dumping shares like crazy over the past couple of months. Get even into this offering, which is why you’re dumping it. You’re selling it to a whole bunch of new investor for $49. Why are you dumping it? And if you look at Chamath, he dumped his personal stake for over 210 million near the peak in January, February. I think what I read, invest around a hundred billion dollars, October 2019. Again, this was his SPAC when he decided to team up with Branson. So 210, say he made a hundred million. So cool, a hundred million dollars in less than a year. That’s pretty good deal. Good job. Good for him. Also includes Branson, Branson sold $660 million worth of stock up to last month. You know what he did? Just a few weeks ago, sold another $150 billion worth of stock at $25.
Frank Curzio: It’s 49. That was 40, after the offering because it crashed. But if you’ve got Branson selling $150 million with 25, does that tell you where he thinks the stock should be trading? I mean, if he really thought it was going this high, do you really think he’d sell at 25? Looking at insider sales, which again, I like looking under the hood, story nobody’s telling, just the past quarter. So, you’re looking at all the top holders. So first, Virgin Group Holdings, largest holder, sold 9% of their holdings, this is last quarter. You have Abbar Space. I don’t know, get space fund or whatever. Who owns that, I’m not too sure, but they sold 20% of their holdings. You have Susquehanna International Group, sold 38% of their holdings. These guys own massive amount of shares. So, Virgin owns 23% of the company, Abbar Space owns 5% of the company. These are massive stakes. These guys own a little bit less than 1% going through. So it’s Susquehanna, yeah.
Frank Curzio: BNY Mellon selling some of their stake. Neuberger Berman, pretty big fun, selling 56% of their holdings last quarter. So, everyone’s selling, selling, selling, and these guys have an offer going all the way up, goes all the way $49. And now look what they’re doing right now. They’re launching offerings to new investors, and the best on this is Morgan Stanley. So, Morgan Stanley dumped 28% of the positions, Morgan Stanley investment banking, brokerage investments. Remember I said, Morgan Stanley is one of the agents on this deal, Goldman Sachs. So, these guys were selling shares or selling shares to new investors to get into this deal. That’s what the agent does, right? It’s got the investors and they’re the middleman. They collect a fee on the deal. Yet, they sold 825,000 shares themselves last quarter when the stock was in a low thirties, right? 20% of their entire position.
Frank Curzio: I mean, you can’t make this shit up. Morgan Stanley Institutional is selling shares, but yet they’re telling their clients or other clients actually buy it at… With them being the agent. I mean, it doesn’t get better than that. I mean, that’s freaking awesome. Now, why would they do that, is because it’s kind of warrant deal going on and getting it up to disclose any of this shit. Nobody knows. Let’s bring this home real quick and bring it all together, because when you look at the fundamentals of Virgin Galactic, which I do occasionally, since I’m a research analyst… Virgin is sitting on more than $600 million in debt, expect to lose over $300 million in 2021. Now, I’m not sure how many seats Branson is planning to have on each spaceship, but it better be a lot. I think right now it’s six. And then, you have two pilots, but the 120 million in presales, not really going to make a dent, even if all those people do pay up, and I’m not sure they’re going to pay up more than once.
Frank Curzio: Oh, you’re going to space? Oh, that’s cool. Okay, let’s do it again. No, you did it. I mean, it’s basically to say, “Hey, I did it. Look everybody,” right? That’s what all the rich people love. They love the attention. They love it, right? That’s why Branson going up first and doing all these interviews, and Elon Musk, you get to see Jeff Bezos next week. I mean, it’s all about they have enough money as publicity. I know these guys want to change the world, but a lot of this is for Branson’s personal. Personally, it’s great for him. But you look at the fundamentals on it, I mean, you have one ship, right? One ship. It costs $400 million to build a new one. Yes, I’ve looked at the math, done the homework on this, and the next one’s not coming out until 2025. So, where are you going to generate money from?
Frank Curzio: You’re going to send the ship up like three times a day starting next year? I don’t think so. But where are you going to generate the money from? I guess more capital raises to come. Usually, when you look at space, the only way to get funding was from the government, NASA. It was the easiest way to waste tax dollars. I won’t say waste. I mean, listen, you want to explore, but you have to put billions, billions into it and make numerous mistakes. So, it’s money, a lot of money gets spent. And where do you have this money?
Frank Curzio: Governments, because they don’t care how much they spend. They’re not looking. Now you have corporate a little bit and you say, okay, well, Jeff Bezos, these guys are worth hundreds of billions, not even the billionaires. They’re worth like hundreds of billions, some of these guys. So, they build their own spaceships and stuff like that, but they still need the capital. You need the capital and you know what? They’re not going to get it from the government. So, they have their private companies, not really going to get it through traditional IPO market. So, what do they do? They launch in these SPACs, which is great.
Frank Curzio: And you know where they get the money from? From you. From you listening to this. Retail investors. Let’s sell this story. We’ll dump the crap out of this right in their face. Maybe the stock goes up a while, give them some nice gains, which we’ve been seeing. When the wheels start spinning, nobody’s going to know shit. But this funding, this reason of 500 million, I mean it’s classic Wall Street. Look at Branson, he did a great job selling this story. Chamath did a great job saying, “Space is the future!” The guy’s out of the freaking stock in a year, telling you how great everything… He’s out of stock in a year, he doesn’t give a shit. He’s not looking at long-term. He’s not looking at you like, “Space! New frontier, huge upside.”
Frank Curzio: I mean, eventually, numbers matter. You have to make money. How is this company going to make money? It’s barely generating revenue. A couple million dollars in revenue now. I mean, all those forecasts, 500 and what was it? 90 million, whatever it was, in revenue expected 2023, are you out of your mind? Where are you going to get that money from? He’s got one ship, six passengers, how are you going to get that money? It’s impossible, where did you get those numbers from? Well, we needed to sell this deal, and we need to put great projections on it. And that’s what we did.
Frank Curzio: And good for them, because all of them got rich. Branson, great job selling the story, making a fortune on this. Even if the stock goes to zero, he already made a ton of money on this. His early backers made an absolute fortune. They got in at very, very low prices. Most, again, who are no longer in the stock, even though they told you, “Space travel is the future, especially with Chamath.” And then, Branson got to be the first to go to space in a private spaceship. His name’s going to be written, I guess it will be written in encyclopedias that don’t exist anymore, but people are going to be talking that for decades and even long after he’s gone.
Frank Curzio: But, let’s talk about the average investor. What did you get? You buy in a company that’s likely never going to be profitable, never, ever going to be profitable. I mean, I’m trying to do the math. I don’t understand it. I don’t know how you’re going to be profitable. I mean, maybe 20 years from now, 10 years from now, when you have four ships, five ships, maybe you bring in more competition in the market, got to lower the price. I don’t know. I can’t do the math. I can’t figure it out how they’re going to make money.
Frank Curzio: So, Virgin is going to have to continue to raise cash like crazy since it won’t generate any meaningful revenue. Again, revenue guys. We’re not talking revenue or sales for many, many years. But, how did this all work? I mean, looking back in the day, I mentioned the only stupid money chasing space was NASA taxpayer dollars through NASA. But today the only way this works is to get a lot of stupid people, retail investors, to buy the stock up here after the offering.
Frank Curzio: And then what do you have? You have Morgan Stanley, Goldman Sachs generating at least $20 million on fees just off this one deal because you know they got warrants on top of the $10 million in stock, right? And $300,000 in fees. They don’t have to disclose them. What are you kidding me? Of course, they did. Of course, they did.
Frank Curzio: If you’re getting those two guys on board with just 2% commission, yes, that average commission is just like 5%, 6%. 2%, yes. You got warrants, and the fact that they’re exercisable on the spot, hey, that’s free money. You just saw Goldman report beating estimates by how much? 50%, $5. You just saw them in the report this week. Right? Where do you think that comes from? Look at investment banking fees across the board, the deal, especially specs. It’s good for all these insiders involved and it was every major insider. Virgin Galactic, what are they doing? They’re dumping their shares right down your throat right now, right down your throat.
Frank Curzio: And look, I’m not telling you to short the stock here because it can go to a $100 before crashes. I have no idea. I mean, we’ve seen that with AMC, which makes absolutely no sense. I mean, the stock peaked when it was doing max box office receipts at what was it? $12 million in 2018. Now, they’re doing, it just passed a billion, and the stock, its market cap is 20x what it was back then when you had record box office.
Frank Curzio: It doesn’t matter. You don’t know where stocks are going to go, where they’re going to buy them, the shorts or short squeezes, nothing. It’s very dangerous to short a stock in this market because who knows. I mean, you see these shorts, you see the short position and the right story creates that short squeeze, and that thing is going to the roof. So, I’m not telling you to short the stock.
Frank Curzio: I mean it could go to a $100 before it crashes, even though Branson thinks it’s not worth $25, because that’s where he was selling it. But if you really love this deal, this $500 million, and the best people do this when they raise money, they participate in the latest offering. So, you have the insiders and they participate in that latest offering, or they write a check. Branson didn’t write a check. He’s selling shares. He’s like, “I ain’t fricking buying this stock for $40, $45, $49. No way, no way. I own a ton of it. I’m selling it. I’m dumping it. I’ve already made my money on it.”
Frank Curzio: Now, where am I going with this? What am I trying to tell you here? You have to understand of the retail investor, Wall Street is relentless. They’re relentless. They can do everything in their power to fuck the retail investor. I’m sorry to curse, but it’s true. And it’s not personal. That’s their job. That’s their job, using people to get filthy rich, just like they did during the credit crisis.
Frank Curzio: Look at the banks where they are now. Holy cow. This is why they put laws in place, so this doesn’t happen again. Now, what did you do? You made the banks 5x times the size they were when you bailed them out during COVID, paying off politicians by lobbying. I mean, come on, we see this right?
Frank Curzio: But Wall Street is relentless, but the most important point here is none of this crap works without you, without the retail investor, with that last bid to sell everything too, to dump it to you. And today, you as a retail investor has enormous, enormous power, more power than any other time in history due to networking, social media. You have a trade for free now, zero commissions.
Frank Curzio: What is that doing? It’s bringing in tens of millions of new investors. Look at WallStreetBets, the Reddit crowd are 10 million strong now, basically bankrupted Melvin Capital. There’s $11 billion hedge fund that was short GameStop and it wrecked them. I mean, they’re still around. They needed billions in cash infusions. Robinhood, over 30 million people strong, 11 trillion in IRAs, where so many are investing on your own, and using people like me or financial newsletters to find new ideas.
Frank Curzio: But the power that you have right now, I mean, it’s being used by Wall Street saying, “Wow, look, how many people are going to be buying this stuff.” They don’t know. They’re not going to read the stuff that I just told you. A lot of that shit’s boring. I might’ve put a couple of you asleep. You know everybody’s all, “Oh, Wall Street’s going to fuck you. They always do.”
Frank Curzio: I just wanted to go over and show you exactly how they do it because Branson’s out there doing interviews, watching the stock crash. They’re raising money. They’re not going to generate profits ever. Never, ever. I don’t know where they think the stock is going. I mean, I hope we see more exploration in space in it, but it’s at the expense of you, the retail investors. That’s why they’re doing SPACs. They couldn’t do it to a traditional IPO, new direct listings, so the insiders could dump on day one. There’s no lock up period. Now, they’re liquid again to the next back and the next deal, and the next deal. It’s why are you’re seeing guys, the same guys launch more and more specs. It’s not like suddenly they came into another a $100 million, $50 million. No, they just made $20 million, $30 million off this deal in a couple of months. They made a $100 million off of this deal like Chamath did in a year. Let’s start another one. Let’s keep going, and going, and going until the wheel stops.
Frank Curzio: But Wall Street right now, they’re using you, and sure some of you are making money on the ESG stocks, backs, but Wall Street, they’re capturing 95% of these gains with almost zero risk. Wouldn’t it be nice if that was you? Because they know they could sell the shit they bought for a dollar with warrants. They don’t have to disclose and sell it to people like you at $10, $11, $12 when the spec finally takes, or the holding company takes over somebody. “Hey, these guys are going to be buying it.” “Okay, great. We’ll just sell it to them.” And for now it’s all working because those SPACs, they’ll go from $10 to $15, or in some cases, $30 to $40, like in Virgin Galactic.
Frank Curzio: But guys, when the wheel stops spinning, and it has for most specs, and the investors are losing a lot of money in these things like some of these ESG stocks, you’re looking at most of these things are down 30% plus from their highs. Wall Street, they get away scot-free. They are already out of these positions. They bought in the pennies, while you the retail investor gets left holding the bag.
Frank Curzio: Now, the question is, how do you change the game? How do you become the person getting in early? How do you become that? Right? That’s the goal, because that’s what great investors do. It took me a long time to realize that through my career, but the deals that I get into, which opened to Curzio One investors are deals that not everybody has access to. You have to be the in-crowd, socialize with the right people. It’s the way it is.
Frank Curzio: But, how do you recognize that power? And you do it through disruption, through things like security tokens. We don’t need big banks to raise money and go public. Reggae offerings. They’ve raised that considerably, $75 million, where any investor, any investor, anyone one on the census right now can buy into a private company, and both those options are going to allow retail investors to buy into companies during their super early phases of growth. Now, when the IPO at $5 billion plus valuations with a fold P of 200 and the stocks up 20% on day one, it opens up 25% on day one. You have the insight of dumping those shares as you’re buying them because they’re doing a direct listing, and they can sell on day one.
Frank Curzio: You disrupt by networking. I say it all the time in this podcast, the power of network. All the emails I get from people over a 100 countries this is broadcasted to. I get emails from across all industries, CEOs, hedge fund managers, small business owners, students, economists, doctors, and that’s incredibly, incredibly powerful to see that information in real time. That’s why I encourage you, firstname.lastname@example.org to email me.
Frank Curzio: Networking through WallStreetBets, now 10 million plus. Robinhood, 30 million plus accounts, even crypto with Coinbase were institutions and Wall Street still have little understanding of the power of Bitcoin. It’s so funny because what do we say, “Oh, it’s a store of value.” It’s not a store of value. “It’s an alternative to gold.” It’s not an alternative gold. “It’s alternative currency.” It’s not a currency, back and forth with the bears.
Frank Curzio: Nobody gets it. No, it’s none of that shit. That’s not what Bitcoin is about to the original adopters, it’s communicating, class war, telling Wall Street, politicians, governments, we’re sick of your bullshit. It’s about a revolution, and it’s taking place right now. I know why I’m so excited about security tokens. It took a while to develop, but it’s here to the point where I’ve been doing this my entire career, my life, and I base my entire company on this concept of disrupting Wall Street by creating the Curzio Equity Owners token, which by the way, if you haven’t had a chance to watch my presentations, absolutely for free to our annual meeting, the 2020 breakdown of financials, growth initiatives. But more importantly, I share my vision, the future of security tokens, how it’s inevitably going to disrupt Wall Street and how this is by far the biggest industry, that biggest total addressable market I’ve ever seen ever in my career. Nothing’s even close when it comes to tokenization, how many assets can be tokenized.
Frank Curzio: So, you can go see it at www.curzioequityowners.com. Again, it’s absolutely for free. No sales pitches. Just a vision from someone that’s been in this industry virtually their entire life, explaining how tokenization is here. It’s going to disrupt the entire global investment banking industry, and now Curzio Research is in perfect position to be one of the biggest players in this massive, multi-trillion dollar industry.
Frank Curzio: A lot to digest there, guys, but I want to just to break down, that’s a story nobody’s telling, okay? Because, the retail investor always gets fucked, something that I’ve seen throughout my career, and those days are going to come to an end. They’re coming to an end, and the way you do that is by disrupting Wall Street. And there’s a lot of things that are disrupting Wall Street, especially those security tokens to reggae offerings, and stuff like that. Very exciting stuff. You’re going to hear a lot about that in the future, how you guys can get into some private deals, how you guys can invest in companies at the very early stages. Again, it is risky, but at least you’re getting in when a lot of these insiders are used to getting in and that’s going to level the playing field, and that’s what we do at Curzio Research. We try to level the playing field for all investors.
Frank Curzio: Now, let’s get to my wonderful guests. The one and only Andrew Horowitz has been on for a few months. He’s the founder and CEO of Horowitz & Company. Also, hosts the incredible podcast, The Disciplined Investor. We’re going to have a great conversation and break down earning season, which is here. I’ve seen the banks report some very strong earnings. You’ll see over the next two to three weeks lots of earnings come out just about every S&P 500 company. We’ll talk about new lock downs internationally, which companies will be impacted.
Frank Curzio: And of course like Andrew always does, he’s going to share a lot of new ideas with you including one name that’s been getting absolutely smoked. I can’t believe he likes this name. I was just thinking about this name. It’s definitely going to surprise you. And by the way, Andrew, when it comes to our Dollar Stock Club portfolio has an incredible track record where we take one pick, and whatever pick that is you don’t really know, but if you subscribe to Dollar Stock Club, the company gets $4 a month or whatever. It’s a very, very low priced newsletter, but we are able to track the investments of almost everyone that we interview, analysis, and stuff like that. So, we put a pick in there every week. Andrew has been one of the best performers with his picks. So, definitely listen up. It’s a great interview. You know what? Let’s get to that right now. Andrew Horowitz, thanks so much for coming back on Wall Street Unplugged. What’s going on?
Andrew Horowitz: Hey, Frank, how are you doing? It’s summertime, and look at that. What’s with the hair?
Frank Curzio: I don’t know. They cut-
Andrew Horowitz: It’s so short there.
Frank Curzio: It a little short. I had to have someone new. It’s really short. I mean, I really don’t care. It always grows back, so I never get upset, but yeah, I know it is short. Right?
Andrew Horowitz: It’s looking like I’m going to make a wild guess here for a second. It looks like you’re either going to be entering a strong man competition, or a bodybuilder competition. Just sort of getting that look.
Frank Curzio: No, I’ve just been working out and try to stick with it, but you know me when I was really, really fat back in the day.
Andrew Horowitz: March. Plump. Hefty.
Frank Curzio: So, I had to lose weight. We have kids and everything. I think we were both there, right?
Andrew Horowitz: Yeah.
Frank Curzio: We were both heavier. You lost a lot of weight. You look great.
Andrew Horowitz: I was a good 30 pounds heavier than I am now, and then I’m also 30 pounds heavier than at my lightest. So, it goes back and forth, but I’ll still keep it off a little bit. It’s tough. It’s tough. The older you get Frank, you’ll know that the older you get, it’s-
Frank Curzio: Yeah.
Andrew Horowitz: I didn’t eat for three days. How come I gained a pound? I don’t understand. It’s crazy.
Frank Curzio: I went to a barbecue and I’m eating a burger, and then I had another one without the bread, then the fruit, and they got cupcakes out, and everything. I’m like, “Man, it’s hard.”
Andrew Horowitz: Right.
Frank Curzio: It’s not easy. It’s hard-
Andrew Horowitz: Yep.
Frank Curzio: And I’m miserable man. I love eating. I love eating. You love eating. Look at all the pictures you post all the time. You pay this guy. Guys, you got to see.
Andrew Horowitz: Yep.
Frank Curzio: You posted on your Twitter feed and stuff like that, but the food that you cook and grilling, and it’s just amazing, man. Really, seriously. I hate when you send me that stuff to be honest with you. I just wish I was younger.
Andrew Horowitz: It’s tough. It’s tough. I mean, listen, it’s tough. There’s barbecues, there’s birthdays, and it’s not… A kid’s birthday is one thing. Last night, I went out to a birthday party. They went out to Capitol Grille, we went out to, and it was just a table full of food. I’m like, “Oh, I don’t want any. I’ll try it. I’ll take a little bit of that.” And then, they had at the Capitol Grille, they have this thing called the Generous Pour, which is seven different wines that they pour for you. And it’s like, “Oh, I don’t want any of those.” I’m like, “Okay, can I take a refill on that one, and a refill on that one? I liked the flavor.” As you get older, the urges get a little bit more fattening I think.
Frank Curzio: I hear you. I hear you man. So look, I love having you on, especially right before earning season. You’re always giving out ideas and stuff, but yeah, usually we send notes to each other back and forth before the interview, or maybe topics that we could touch on or whatever. One of the things that you said was interesting because I’m getting the same thing here, you have earnings coming out, your stocks are at all-time highs, household wealth at all-time highs. And you said something interesting where clients are worried about a market crash. I’m hearing the same thing, and-
Andrew Horowitz: Yeah.
Frank Curzio: If it’s even possible, because we have our government and the Fed, which is like the same thing now today, basically are going to do everything in their power to avoid a recession. Right? So, how do you answer that?
Andrew Horowitz: Right.
Frank Curzio: Well, for me, I’m always like, “Look, you got to be cautious, hedge a little bit of your portfolio, hedge, hedge, hedge.” Hedging was the worst thing you could ever do in the past seven, eight, nine, and it keeps going higher and higher-
Andrew Horowitz: Yep.
Frank Curzio: But it seems like eventually it’s got to stop. Right?
Andrew Horowitz: So, it’s interesting because I made this analogy because this week on The Disciplined Investor podcast, my podcast, and I talked about this idea of jumper cables, because people were like, “Hey, you know what? What’s going to derail the markets? I’m really worried that I have some cash. I don’t want to put it in right now because the market’s going to crash.” I’m like, “Listen, let’s slow down.”
Andrew Horowitz: Their biggest worry is what happens if the Fed starts to pull back. And their biggest worry also is if the Fed doesn’t pull back. It’s kind of like, “Okay, no matter what they’re worried.” Right? And I tried to make this discussion and this viewpoint of when a car battery dies, what do you do? Well, you call a buddy like, “Hey, you got jumper cables? Come on over,” and you hook it up. You let it charge for a minute and you charge it up, then you turn your car over. You take the cables off, you’re ready to go. Then, the internal components of the engine, the alternator and everything about depending on what kind of car you have, if it’s a non-electric car, will keep it going and charge those batteries, and get it going.
Andrew Horowitz: Well, the same thing with the economy. Right now, we have the jumper cables very firmly engaged with regard to the Fed, to the economy, probably longer than they need to be. One day, they’re going to pull those jumper cables off and the economy theoretically should be running on its own through its own growth process, et cetera. Now, the problem is that they’re here for too long.
Andrew Horowitz: We saw the inflation numbers come out today, a whopping 0.9%, month over a month, the largest, since like 2008. It was at a 5.4% year over year, which is substantially higher. It was 0.4% higher than the expectations, so what’s really interesting about that is it didn’t seem like a lot, but if we went 0.2% in the past, it would be a big deal. Markets aren’t reacting because the Fed has had their hand on the pulse and probably bonds not moving up, which was very interesting. It did drop down significantly after the news, but right when the market opened, the bond started dropping down, a lot of excess money going in there.
Andrew Horowitz: Answering your question, is this, is there going to be a crash? What can happen? The only thing that I’m looking at right now is the potential for the Fed, which they’re not going to do, is to pull out premature, or not even prematurely. It’s in a point where they go quickly. They’re not doing it. The second thing is earnings. Expectations are really high. And I know you, Frank, you read FactSet’s information, right? And, you saw the numbers?
Frank Curzio: He’s great guys. Guys FactSet-
Andrew Horowitz: Yeah, FactSet.
Frank Curzio: Just go to Google, FactSet earnings, PDF, and it’s for free, and it’s amazing. They give you like a nice 25, 30 page report of everything that’s going on. Yeah.
Andrew Horowitz: Right.
Frank Curzio: Yeah.
Andrew Horowitz: Update all the time.
Frank Curzio: And you’re looking at earnings, yeah.
Andrew Horowitz: Yeah. One of the things that’s interesting in this most recent earning season is one thing that’s different about this upcoming earning season, then has been pretty much in any earning season going back years, and years, and years. There’s a few times it’s happened before, but basically there has been a view and they wrote about this, and I made some notes here. They said, “On average, the quarterly bottoms up EPS estimates usually decrease during a quarter. During the past five years or 20 quarters, the bottoms up EPS estimates before earning season has recorded an average decline of 3.8% during the quarter,” which means that analysts are starting to sandbag a little bit, pull back a little bit, waiting for companies. Companies then jump over the hurdle. They beat it, and it’s great, right? That’s what we see all the time. A penny here, a penny there.
Andrew Horowitz: During the past 10 years or 40 quarters, the bottoms up has recorded an average decline of 4% during the quarter. And during the past 15 years or 60 quarters, the bottoms up EPS estimate has recorded an average decline of 5% during the quarter. What’s different in this quarter? In this quarter, analysts increased their earnings estimates for companies. They increased it by 7.3%, only second to the time they did before. Which was when? The first quarter of this year, when they increased that by 6.5%.
Andrew Horowitz: So, what we’re seeing right now is a very interesting situation. It’s kind of like the Economic Surprise Index. You’ve seen that, where analysts swing both ways, and they’re always on the wrong side of the pendulum. And what happens is they always have to change and update. I am just concerned that we’ve gotten too far ahead with estimates and valuations temporarily, and especially as we’re seeing it with the FactSet research information. Something to think about.
Frank Curzio: Okay, now let’s bring everyone in here. Yeah. Let’s bring everyone in here. So, what Andrew is talking about is the institution. So, most investors who don’t cover it like Andrew and myself, this is our job to cover this, is when you put on CNBC to see if your company beat earnings estimates, they’re going to say they beat them or they missed estimates. That estimate is a consensus estimate of all the analysts institutional on the sell side, and as they cover it they provide estimates. So, they come out with that median number, and then if you beat it, you beat it. So, it’s where the analysts think, and usually the analysts which you don’t hear, right? You only hear about upgrades and downgrades in between the earnings reports is they lower estimates a little bit. This way they can come in. A lot of these companies beat even those lower estimates.
Andrew Horowitz: Yep. Right.
Frank Curzio: And now, you’re seeing them raise estimates, which is interesting.
Andrew Horowitz: It’s a game.
Frank Curzio: It is a game. And it’s important to understand because a company they could say, “Wow, we blew out the earnings by 40%,” but you know what? Analysts may have lowered those earnings by 25% going into the quarter. So, it’s still the same number, but the expectations were a lot lower because that’s what you see. But, more to the point here is you’re worried. What I want to see this earning season is the guidance. I want to see how they feel providing guidance because now you have the Tokyo thing with the Olympics, you have the international thing where it’s a joke. I mean, there’s 1,500 new cases in Tokyo. Just to put that in perspective, the UK is opening up everywhere. There’s 24,000 new cases per day, and they’re opening up everywhere. But Tokyo is like, “We’re not letting any spectators there because we believe there could possibly be an outbreak and-
Andrew Horowitz: Frank, there’s 43 in Israel and they’re going to new quarantine procedures for anybody coming in, and soft lockdown procedures right now. So, we’re seeing that there is, and look at Australia. They went to a straight up, full-out, two week, or whatever it was lock down. I think they had a massive surge of 12 cases.
Andrew Horowitz: And I understand that they don’t want the local spread. They’re really concerned. Listen, we have to admit one thing, that if you are in a situation in your own personal household, let’s just kind of put it in that block right there. That there’s everyone outside, you’re starting to see some stuff going on. You don’t want it in your home, and you shut the door, maybe it won’t spread or whatever. All I’m saying is that they’re getting a little bit crazy with some of this, there’s no question about that, and certain countries around the world, or Israel is the interesting one because there they have one of the highest vaccination rates. Right? The question is, is it going to hurt the economy?
Frank Curzio: Yes. They were first.
Andrew Horowitz: I don’t know.
Frank Curzio: Mm-hmm.
Andrew Horowitz: Yeah.
Frank Curzio: Well, that’s the thing-
Andrew Horowitz: Maybe 92%.
Frank Curzio: You’re looking at what is it? It’s around 30, 35% I think of the profits come from overseas. But, this is a surprise. Right? Because we thought everyone was opening up, and we didn’t think it was going to take a setback internationally. We’re fine.
Andrew Horowitz: Right.
Frank Curzio: The US is opening up.
Andrew Horowitz: Right, right.
Frank Curzio: It’s different, but that’s what you want to look at earning season because how do you forecast for that? And I have to tell you food companies, exporters, it’s going to be hard to forecast. What about the autos? I mean, you think it’s bad now? Wait, wait to the next two quarters. Holy cow. I mean, people don’t understand how bad the auto industry is. There’s 10% of cars on the lots right now. They can’t get anything. Their plants are still idle.
Andrew Horowitz: Right.
Frank Curzio: They said they were going to open them back up the last two months. They still haven’t opened some of these up. You’re going to see a message to clients. So, what companies have exposure to that? And what kind of guidance are they going to provide? I mean, there is a reason why you see Ford and GM talking about their EV portfolio, which isn’t coming out for another eight years.
Andrew Horowitz: Well, yeah.
Frank Curzio: It’s because they really can’t tell you anything about what’s going on right now, because this is going to be a pretty terrible production decline.
Andrew Horowitz: Right.
Frank Curzio: So, keep this in mind during earning season as an investor. Companies usually, maybe not today where everything is bullish. Usually, when companies don’t provide guidance and they’re supposed to, the stock gets hit. It means there’s uncertainty, and the only way you don’t provide guidance is if you think it’s going to go a lot lower.
Andrew Horowitz: Right.
Frank Curzio: So, I’m anxious to see the guide. If these earnings are going to be fantastic, you’re going to see blow out numbers, but going forward, I think you’re going to want to see the guidance, and-
Andrew Horowitz: Do you think though-
Frank Curzio: Yeah, we’ll see.
Andrew Horowitz: Do you think we’re going to see a return? Do you think we’ll see a return to once again getting guidance from companies? Because under, the umbrella of, “Oh, we’re in a COVID environment,” a lot of the companies said, “You know what? We’re not going to supply guidance anymore.” Right? And it was like, “Okay, all right, that’s fine. Okay. No problem.” And then, they start hearing, “Well, you know what? Quarterly guidance and quarterly earnings maybe is not the best thing to do. We should be looking a lot longer term on the company.” Right?
Andrew Horowitz: So, investors did. Investors looked beyond. I mean, look at the cruise lines, look at the airlines. Things weren’t picking up. Things were still shut down. Things are pretty much still shut down for the cruise industry to a big degree, and meanwhile the stocks made massive runs from their lows. Right?
Andrew Horowitz: So, do you think they’re going to actually come out with guidance and is that going to be important where… Let me just ask one other question and tag this with it. In an environment that information doesn’t matter, it’s all about just pouring money into a stock or into an index to move it higher?
Frank Curzio: You’re right. I mean, it’s about the liquidity coming into the market. I would say it’s not a black and white issue. I think for airlines, it might be a little difficult because you thought international travel was opening up.
Frank Curzio: And that’s not, and that’s a big part of their business. The Deltas, the major airlines, United Airlines. But with the cruises, again, those ran up. People don’t realize this, but you’re looking at the airlines. The airlines ran up, right? So, they would be trading all-time highs. Great, before COVID, pre-COVID. They’ve come down and then they’ve gone back up. They were still trading around 20% off their highs and now they took another leg down. They never got back to their highs. Cruises on the other hand, their enterprise highs were higher than when they had every ship in the water and full ships. And they barely have any in the water. And so, I’m like, those expectations are high-
Andrew Horowitz: The debt load is ridiculous. The amount of debt the airlines took in and then just see that United is making an all-time biggest purchase of planes. And it’s like a year ago, you’re wondering if these companies would still be in existence in like three months. And that’s the thing that’s so fascinating about the airlines and the cruise lines. Think about how lean they run and the cost factors associated, that these companies, after like a couple of months of not doing, they were like shutting down. There was like no backup plan, right?
Frank Curzio: Yeah. I mean, that never happened in the history, right? I mean, they don’t really forecast for a 20% decline. Maybe they forecast with 20, 15% decline, what’s going to happen. Nobody, no company, major company forecasts for 90% plus decline where you turn it off. So yeah, they did get some help from the government, which is fine. But now when you look at everything open up and the prices. The pricing power, everybody has money. They want to travel. They need to get out. I mean, this is a massive boom to these guys, right? So, it’s going to be interesting how they do report, but just for other companies itself, look, you shouldn’t be impacted by COVID anymore. If you’re a space company, there’s no way you should not be able to forecast. I don’t care if you’re a restaurant, I don’t care if you’re bars, I don’t care what you are, everything is open now and it’s just a matter of opening.
Frank Curzio: So now, you’re going to hear more about the labor shortages. McDonald’s just came out and said, we’re paying employees and get a tuition and stuff like that and giving incentives. I mean, you’ve seen it across the board. That’s going to be a big story. But going forward, Angela, which you mentioned earlier a little bit about the government. The one thing that scares the hell out of me and people aren’t nervous because you’ve seen a 10-year come down, right? Is inflation. So, we do have inflation everywhere, by the 10 years coming down and it’s confusing people. The bond market’s not showing you, some people aren’t concerned.
Frank Curzio: Inflation is the absolute worst thing, because the only way to control… The Fed can’t control that. The only way they could control it is they’ve got to remove money out of the system. They’ve got to almost force a recession. They’ve got to raise interest rates. And that’s an environment where they could bail out and say, listen, they’ve just spent 10 and a half trillion to bail out the world. They’ll do another 10, 20 trillion. It just comes out of thin air. Just turn the printing press on. This is something they can’t control. So, you’d better hope it’s transitory. I don’t know if it’s transitory. I hope everyone out there is transitory. If not-
Andrew Horowitz: How could it be transitory? How could it be transitory if you’re telling me that the cars are not going to be on the lots-
Frank Curzio: It’s simple.
Andrew Horowitz: It’s simple, it’s going to be transitory?
Frank Curzio: It’s simple. Everyone that’s raising prices for their business is suddenly going to lower prices. You didn’t know that?
Andrew Horowitz: Oh.
Frank Curzio: I’m agreeing with you. I’m being sarcastic. I mean, think about it. If you’re busy, you’re raising prices for food for everything. You’re not going to like say, oh, okay, hey, we’re doing better now, let’s lower prices. They’re still having labor shortages. They still open up at 80% capacity because they don’t have enough people to work for them. So yeah, I’m agreeing with you.
Andrew Horowitz: I mean, listen, use whatever phrase you want. Once you let the genie out of the bottle, once the toothpaste is out of the tube, it’s hard to get it back but the truth is that we’re seeing this across the board in so many different things. So, it’s not only this. This is where the farce of all this comes in. It’s not only about prices going up due to demand, right? There’s some supply issues out there.
Andrew Horowitz: I am a boater as you know. Trying to get new engines, it’s impossible. Put an order in April, can’t even get a response as to what’s going on. Meanwhile, I sell my engines, one day, they’re gone. Now fortunately, I’m not an idiot. I didn’t take my engines off before I got my new engines, right? So, we put that in the contract between myself and the buyer. And actually I told him, I don’t know when my engines are coming in. I have no idea. I heard it’s going to be maybe a year until I can get engines. So, the problem you’re having is that with chips, and cars, and resins, and all sorts of other products, hinges, issues with stainless steel. And it’s a combination of the restart, it’s also a problem that was predicated on the just in time manufacturing process that is not good in a shutdown, startup economy. It’s fine if things are rolling along just fine, but you can’t do that without any inventory backlog.
Andrew Horowitz: And I don’t understand if you have that, the supply chain issues that are going to go on for some time. On top of the fact of all this free money. On top of the fact of what we’re seeing in food prices, et cetera. How this is going to be a transitory inflation discussion, unless they say one year from now, look, we’re still not rising as much as we were, right? That doesn’t mean prices are lower. That just means that we’re not seeing the consistency of massive price increases. So, we stay at five and a half percent, which is much higher. Attention Fed, five and a half percent is much higher than your 2% average. And you get to that point and even if it’s at 4% for a while, it seems to me that companies are going to have problems because margins are going to be squeezed. Don’t you agree with that, right? And then they’re going to have to do the pass it on, which is going to cause problems with the consumers.
Andrew Horowitz: And then the Fed, what they’re doing is they’re buying $120 billion a month. Who knows if when these inflation numbers come out, they don’t go to the market and start buying all sorts of treasuries to kind of make it look like nobody’s concerned? You know what I mean? I mean this game is ridiculous.
Frank Curzio: No, I know what you mean. I definitely know what you mean. And it is crazy too, because you talk about margins and I will tell you that for the margins, I think this is Credit Suisse that came out with this, but it was, I’m trying to find the exact number here this way because I wrote about. So, companies already posted Q2 numbers, very, very few. A very small sample size right now, everybody’s reporting in a couple of weeks. They have an average revenue beat of four and a half percent, right? Again, small sample size, but it starts with 1% of revenue beat is accompanied by a 4% rise in margins. So, it’s going to be interesting to see how this… That’s why forecasting is going to be tough, because if you’re growing sales and beating sales, you almost have to forecast that margin is going to be better, but are they going to come down?
Frank Curzio: And that’s when you see it, they think margins are going to come down. Why they’re going to come down. Is it pricing? Is it whatever, but there’s a lot of stuff going on under the hood. And I mean, this earning season, it’s going to be a stock… I say this a lot, stock pickers market where I feel like even the last 10 years, it was just dark and you make money, but there’s a lot of stuff getting nailed right now you’re not hearing about, big tech. You’re talking about growth, catching up to value to-
Andrew Horowitz: Wow. What a move. I was just looking at that-
Frank Curzio: Reopen trade, right? Was big.
Andrew Horowitz: Yeah, right? Now, we’re back on the pandy trade.
Frank Curzio: Yeah.
Andrew Horowitz: We’ve got the pandemic trade that’s happening again. You’ve got the big tech concentrated in $8 trillion worth of net capitalization. Apple and Amazon hitting all-time highs and Google and Microsoft. Just those four companies. This is after you get an inflation read that’s really hot. And an instant move of the bond yields higher than the markets open and all of a sudden that all turns around and you get the NASDAQ outperforming, which is totally insane by the way, except for one thing. Except if that’s actually not what’s going on. What’s going on is not anything to do with that but it’s more of a safety trade. A safety trade into bonds, right? And a safety trade into large cap tech, which is cash heavy, good balance sheets, buy backs are going on, easy borrowing and all that and consistency, cash cows.
Andrew Horowitz: That is what really, in my opinion, as we see a narrowing of the breadth in the markets, is something to watch. It’s something that we saw in the latter part of let’s call it 2019, 2018 to a point also, and then during the pandemic as well, because we’re seeing that reversal of the big trade of, oh infrastructure. But Frank, did they pass that infrastructure deal yet?
Frank Curzio: Not yet. But I think when they do, I think it’s like 7% is going to infrastructure. So, I don’t know if it’s a big deal or not. You know what I find funny? You know what I find funny is that both sides campaigned for the longest time on a trillion dollar infrastructure package. So, they both understand infrastructure-
Andrew Horowitz: Shovel ready.
Frank Curzio: But we haven’t gotten anything out there because again, they hate each other that much. They can’t agree to… Whatever, it’s frustrating-
Andrew Horowitz: They’re buffoons. Yeah, they’re buffoons. All they’re doing is talking about what can get them elected. Let’s be honest about that, right? The thing is that they talk about this. I don’t understand why the first part of this bill hasn’t been passed if it was like a lay-up. Except for the fact that we have earmarks, we have sausage stuffing, we have a whole bunch of pork going into this right now and I think there’s a lot of problems with that. And I think there’s some concern about how much is too much. How much of a good thing is too much.
Frank Curzio: You want to do a little research out there? So look, everybody crazy with the Miami, right? Miami building, close to the industry in Florida. I’m in North, but you’re in Fort Lauderdale, but still that Miami collapse. That’s a 1980 building. Guys go and read the bridge and dam reports that have come out from engineers, saying how important that there’s a dire need to upgrade this stuff. Our water pipelines, everything. The infrastructure is extremely, extremely, extremely old. We need this. You have to come out with something. You’re going to see more of this stuff happening. You’re going to see a dam crack. You’re going to see a lot of this.
Frank Curzio: They’re coming out saying, the engineers, we need this. Just like they did with the Miami building. God forbid, if that happens again. You’ve got to get that infrastructure updated. A lot of these buildings are old. A lot of dams, bridges. Come on guys. I mean, this is about people. It’s about lives. But anyway, I don’t want to get too crazy on the concept but-
Andrew Horowitz: Around the whole country. No, but around the whole country.
Frank Curzio: Yes, absolutely. Yeah. So, let’s get to the fun part of this, which I know you love and I know everybody loves, right? Is your ideas. And you’ve been amazing when it comes to stock picks on this podcast. With your tie to Dollar Stock Club.
Andrew Horowitz: Thanks.
Frank Curzio: You like a couple of picks. We’ll get to one, which is pretty crazy. Well, I think it’s crazy. I like it actually. It’s just crazy when people are going to hear it, but let’s go with some of your picks that you like right now, because there are a lot of interesting things on this list.
Andrew Horowitz: I mean, there’s a lot of interesting ideas, some outside the range ones. One of the things that I’m looking at right now in a time when it’s like, yeah, hey, things are going well because of this. Or maybe this company is doing well because of that. Is the idea of, hey, if something goes right. If we use the theme of, if just one thing goes right for this company there could be a great opportunity. Company called Workhorse, old spec. Basically they make EV, they call them cargo vans to a degree, right? They’re in that genre of all these other companies that are making some kind of EV for commercial uses in their particular instance. One of the big things that happened and why the company rose up for a while was that they were supposedly in the running for a post office deal, right?
Andrew Horowitz: And what they were in the running for was to get postal trucks. And then we saw there was a big deal, a couple of a billion dollars’ worth of deal that went to Oshkosh. Now, what was interesting about that deal was there was a lot of talk about EV, EV, EV. The whole federal government’s going EV by whatever year it was. But yet a lot of the trucks that Oshkosh were building were either hybrid or some other form of fuel, maybe natural gas or something. Still maybe cleaner running than combustion engines with gasoline or diesel. But all of a sudden it was like, hey, what happened to Workhorse? And if you look at that chart, once that happened, Workhorse went like straight down. And now there’re some lawsuits. Yeah, right there. Yeah, that’s Oshkosh. Okay.
Frank Curzio: It’s like the typical spec. They go up, they go up and then the insiders are out and then boom goodbye. I love it.
Andrew Horowitz: Yep. But that was the news specifically when Oshkosh got the deal. Now what’s happening is renegotiation. Now you may say, well, the government never change their mind. Well, I don’t know about that. Look, what just happened with the Pentagon deal that they gave to Microsoft. Now, that deal was shut down, $10 billion contract. And you see that Amazon making all-time highs all of a sudden, again, as the potential for a shared contract. I would venture say if one thing goes right with Workhorse, that the potential is for an opportunity. It’s very aggressive. It’s not everybody’s portfolio. It may never happen, but I’m just saying the opportunity. And you could see that when there was some discussion about this, the stock starts percolating up. So, kind of an interesting situation there. I think there’s 40% upside on that pretty quickly, if we do see that even part of the contract goes there in their way. So, that’s one. The other one is DiDi. Brand new DiDi is interesting. You like this? You hate this?
Frank Curzio: I’m going to punch it up. You’re crazy. I love it. I love the idea. So, everyone knows their story. It’s been going crazy, just IPO’d, right? Let’s bring this up.
Andrew Horowitz: All right-
Frank Curzio: Follow along. So, yeah go ahead.
Andrew Horowitz: Yep. So, the thing is that, do I love DiDi? It’s fine. Is it Uber? Do I love Uber? Don’t really like Uber. Lyft and I’m going to lose money for a long time but still, people like it, investors like it. DiDi does a lot more than that. They do deliveries and shopping services and car services. Well, you know what the problem is? There is a lot of money being made in China right now and a lot of the government agencies are like, you know what? There’s a kind of a toll road here, you need to pay us. And they came out, IPO’d, probably found something to do with the problem with how they held the data for the clientele. China shut down and took away a bunch of apps in the app store.
Andrew Horowitz: I am certain, probably this is going to blow over, pretty certain. It’s going to blow over time. Anything can happen. But just like what we saw with Ant Financial. When Jack Ma got the hand slap, and Baba, and a few others came down and Tencent came down. I think that DiDi long-term will probably just say, Hey, we’ve fixed the data breach, oh, not a breach, the data problem that you say we have. And by the way, here’s a couple of billion dollars, fine. Okay, thank you. They pay the toll, they’re done, stock goes right back up to where it was pre-news.
Frank Curzio: You know what I love about this pick Andrew, is because when you’re looking from an investor point of view, it’s very hard to buy a stock like DiDi, because you look at it, because all the news out has been so negative, right? So, people are like, yeah, look at this thing. And they say, okay, look where it was. It went up to 18, it’s 11. And most people want to buy it at 18. You’re programmed to buy it when the most excitement’s there and you don’t want to touch it here and stuff like 5%, take off its lows.
Frank Curzio: But what I love about this is, what you have to ask yourself is what other negative news could come out on this? And there could be something, it could be like a whole scheme where they… I mean, they took their app off. China’s coming after them. It’s affected the whole industry. Everyone’s pulling… I mean, what else could go wrong to this thing where, like you said, with the last stock, right? If just one thing, maybe one thing goes right. And this thing is going to go 13, 14 dollars base out there. And if it goes right, you’re looking at this thing really taking off. But again, it’s Uber. Think about Uber here. Okay, Uber’s great and they’re international and stuff. But our population is a lot smaller than China. So, I kind of like this pick because it’s against the grain and some people look at it. That’s why I was laughing, because no one’s out there. No one goes on TV and says, I’m going to… DiDi might be a good play here, but as a spec of the play, that’s actually makes a little sense. So, I hear you on it.
Andrew Horowitz: And the other one, as I always give you one more, is the view that if in fact we are in a pandemic trade again, what isn’t in the pandemic trade, right? We see Walt Disney. Walt Disney has been a really great PR machine lately, better than anything else, in my opinion. They’re putting up this stuff, and I’ve never seen so much news, between Boeing and Disney, it’s like they share the same PR agency, I think, that’s just constantly pushing out information. All the specs on the Black Widow and the stuff on Disney+ and how great it was and how it wasn’t. Well, you’ve got that. You’ve got young brands, you’ve got Viacom. We’ll see what happens there. Starbucks, Everett, Holt, AMC networks, Sysco.
Andrew Horowitz: Hey, one of the ETFs out there is called the Travel and Leisure ETF. It has more leisure at the top holdings, but there’s some travel below it. Thinking about shorting that. Looking at that as if in fact the pandemic is, whether we want to agree with it or not, Frank is a different discussion, okay. What’s happening, where it’s happening, if it does happen, if there are further, let’s say not even shutdowns but quarantines or slowing of international travel, slowing of domestic travel. No more stimulus, but yet people can’t get back to work and maybe some jobs being lost. You know what I’m saying? Kind of, if there is another way, whether it’s Delta, Delta Plus, there’s a new Lambda variant coming out or whatever it is. And there was some weird story about somebody that had two different variants that got it. Now, there’s a whole discussion about breakthrough-
Frank Curzio: They’re all covered by the virus. No need to explain that.
Andrew Horowitz: I can’t keep track. Yeah, right. Exactly. So, I’m thinking about, let’s take a quick short of PEJ, is the symbol. Now as a full disclosure, clients of Horowitz & Company, myself, may own or short any of these. So, I’m just making sure that’s very clear when we talk about these.
Frank Curzio: Okay. I’m bringing this up now for you. So, yeah. PEJ, right?
Andrew Horowitz: Yep. PEJ.
Frank Curzio: An entertainment ETF. Wow. So shorting this?
Andrew Horowitz: Is there a holdings page there? Yeah, shorting. It’s kind of topped out, triple top on the top there.
Frank Curzio: Is there a holdings? I mean, CBC is really bad. The reason why I use it is because everyone-
Andrew Horowitz: Look at the profile. Go down the profile. That’s the investment objective to the right. Fund six investments.
Frank Curzio: Story, profile-
Andrew Horowitz: You’re too fast.
Frank Curzio: Yeah, too fast. Here you go. Here you go. Summary news, profile-
Andrew Horowitz: Go to the profile, to the right. There you go. Fun details.
Frank Curzio: Performance objectives. Top 10 holdings.
Andrew Horowitz: Top 10 holdings. There you go.
Frank Curzio: I see bookings. Right here.
Andrew Horowitz: This has been moving around a little bit because I got a couple of different holdings, but yeah, AMC’s in there as well. So, travel and leisure, just the thought consumer discretionary, consumer services, 94% of the overall fund that’s shown right there. So, something to think about. If in fact this pandemic trade is happening and you look at the reverse and inverse of that, it could be an opportunity to hedge out. The problem with hedging right now, you talked about this earlier Frank is, what do you hedge? Right? If everything’s going up. If we’re seeing a terrible situation going on in the gyms around the country, and meanwhile, Planet Fitness keeps on going up no matter what, what do you hedge out?
Andrew Horowitz: And if indices are going up, but like today was a two to one earlier today, two to one decliners to advancers. That was earlier today but meanwhile markets were kind of like in the nowhere zone, right? And the NASDAQ was going up. Which index do your short? Better picking something a little bit more constrained, a little bit more directed, focused.
Frank Curzio: Yeah. I mean, with the Disney pack. I’ll tell you when it comes to Disney, Andrew. Whatever I do, do the opposite and you’ll make money on it. Because like you said, it’s like with Planet Fitness, it doesn’t make sense. When I look at Disney, I bring this up. This is the only thing that makes me… Because everyone’s going back to like their pre-earnings, like pre-COVID earnings. Everyone’s doing great. A lot of companies doing great. What I see right here, look at this line with Disney really quick. And I see, look, this is so 2018, 2019 look, this is their net income. You go to earnings $8, $6. So, even diluted earnings. So, you’ve got eight bucks and six bucks, earnings came down a little bit, but then you got the pandemic okay, into 21 pandemic. If you look all the way out here. So, here’s pre-pandemic six, right? 2019, $6.26 cents. They’re not going to get back to this level until 2023, which is insane to me because people will pay 30 times for this one-
Andrew Horowitz: What was the last one?
Frank Curzio: This one right here. If you could see this, $6.47, that number.
Andrew Horowitz: Oh, yeah. I got it. Yep, I see that.
Frank Curzio: So, that’s 6.47 and that’s 2023 numbers. And guys have your YouTube research phase, I’m showing that. Anyway, they’re not going to get back to those earnings for a couple more years yet. So, earnings are really crappy, but you’re looking at a company that’s trading at 30 times forward earnings, commanding a massive premium. Again, whatever I say about this then do the opposite, you’ll make money because I lost money. I thought this thing was to crash a lot more, but it will be interesting to see with everything opening it up. Now, they have all these users, a lot of them have come on for free. They try and raise prices for ESPN plus, and let’s see if they could raise prices. I think it’s going to be very difficult.
Andrew Horowitz: Yeah. That was another thing. Again-
Frank Curzio: So, we’ll see.
Andrew Horowitz: But Frank, some of these companies have a lot of change they can pull, right? They can, what’s the word I’m looking for? They have a lot of things they could do for example-
Frank Curzio: Rabbit’s out of the hat?
Andrew Horowitz: Yeah, well that too. They could do a dollar increase on ESPN, right? Maybe they could do a dollar increase or 50 cents or whatever it is on Disney plus, possibly they’ll do a quick up. Listen, the only thing they can’t do, which would piss me off is putting a higher price on those turkey legs that you get at Disney. Other than that, you know the smoked turkey legs, you’ve had those Frank?
Frank Curzio: They’re good. Yeah, they’re really good. Yep. At Disney. And they’re raising prices there too.
Andrew Horowitz: Levers. Levers they can pull. But a lot of companies have this opportunity to do so and just that incremental change of a dollar or $5 on the park pass, getting rid of a discount for Florida residents or whatever it may be is really very beneficial to them, to the bottom line. So, they did spread out, they cleaned up their act a little bit. The problem is, are they going back and what are people willing to pay? Because it’s not so much right now. The things are just great, as you just pointed out. You showed it right on the screen. The thing that is now, is that people are willing to overlook and willing to pay up in advance of them getting there. That’s why the market is at an all-time high.
Frank Curzio: Yeah. No, definitely makes sense. And Andrew, I guess we’ll leave it there. I love when you share ideas, you always share really great ideas. And I really like the ideas this week, though. Pretty cool. Some good ones, DiDi, Workhorse and stuff, but listen, we have to get together soon. I say this a lot. I’ll have to go on your boat, hang out, see family again, but listen, keep doing what you’re doing-
Andrew Horowitz: Come down, it’s dolphin season. Mahi-mahi. Hey, go over to The Disciplined Investor. Yep, go to the thedisciplinedinvestor.com. Listen to The Disciplined Investor podcast each and every week, DH Unplugged each and every week as well. Just look up Andrew Horowitz on your Google-y thing. And you’ll find out where you can get more information. Great discussion this week on The Disciplined Investor podcast. We talked about again, jumper cables, trying to make it. Frank, what we’re trying to do on that show is to make it really user friendly, understand very basic things. One of the things that we did over the last number of months is all about, hey, if you’re scared to get in the market, that doesn’t necessarily mean you should be in all the way or out all the way, right?
Andrew Horowitz: There’s some ways in which to get involved in investing for your future, that you don’t have to panic at any level where you can have, as I call it one foot in one foot out through a process of dollar cost averaging. We have this really interesting strategy that we built in order to do that for people. So, it’s really been a great help to them over the last year in change, especially when people were totally freaking out and pulling out of the market, then had no idea how to get back in. Then it was too late, then it was too high, then it’s going to crash, I don’t want to get back in. No, no, no. That’s not how it works. We’ve got a plan. We’ve got a way to do this for you. So, check it out over down to thedisciplinedinvestor.com.
Frank Curzio: Awesome. Awesome. So, listen, thanks so much for coming on as always. Yeah. I’ll talk to you soon, buddy. Thanks man.
Andrew Horowitz: Thanks, Frank, see you.
Frank Curzio: As always great stuff from Andrew, love having him on. Really good friend and always there to provide lots of ideas, lots of trading ideas, which is cool, I know you guys love. But I’ve known Andrew since TheStreet.com days. We’re friends. Went to his house, slept over his house. Family’s great, kids are great, just a really good person and someone that really cares about his clients, listeners, but I love having him on. I really love having him on and really great stuff.
Frank Curzio: I love people who provide lots of ideas and he’s always there to do that. Not only that, his track record has been fantastic. Has been very, very fantastic, which I love, right? That’s why you listen to this to find new ideas and do Dollar Stock Club, we’re able to track a lot of this and making sure we get the right people in front of you that have good ideas that are going to help you make money. And he’s one of the ones that’ve done very, very good. Not one, a lot of them have done good, but he’s been doing really, really good. Anyway, I say it all the time, this podcast’s about you, not about me.
Frank Curzio: So, let me know what you thought at frankcurzioresearch.com. That’s email@example.com. Now, let’s turn to Daniel. Lots of stuff going on, buddy. I mean, we got earnings. I don’t know, man, where you want to go with this? It’s a-
Daniel Creech: Sports. Big week. So, I’m ignorant to horse racing. This isn’t like the start of the season or is it a new season that you’re going to?
Frank Curzio: No, I’m going to-
Daniel Creech: This is just a yearly-
Frank Curzio: Yeah, so basically it’s like a three track system. Aqueduct is open and then you have Belmont, and then you have Saratoga open a certain time. But Saratoga is like the summer track where it used to be open only for August a now they open a little bit early. But I’m going to Saratoga with my friends for one day-
Daniel Creech: And is it opening because of COVID or is it opening because of the season?
Frank Curzio: No, it’s open because of season, yeah it’s opening, that’s the season that it opens.
Daniel Creech: I’m one of those horse racers that know the Kentucky Derby and that’s it. Bigger and better on sports is this week is the open my friend.
Frank Curzio: Yeah.
Daniel Creech: That’s exciting. So everybody-
Frank Curzio: Johnson’s out, COVID.
Daniel Creech: Who cares? The Open’s still going on and I’m excited about that. So with the time change, I don’t know what the time change is over there, but I’m going to have to get up early and whatever.
Frank Curzio: That’s great. You know, I’ve got to tell you-
Daniel Creech: Anyway, it’s worth it. So all you golfing fans out there, it’s a big deal.
Frank Curzio: Yeah. I got to tell you, one thing I love about the Open, it’s one of the only championships that the winner, that person could win and finish like 6, 7, 8 groups behind. And the guys that have finished it, they just drop them lower and lower. Seriously. Usually it’s the top two guys, top four guys who are going to win after round three. But you see that a lot. You’ll see guys just waiting at clubhouse and everyone’s coming in. Some guys shot a great score in the middle of the round and I just love, I think everybody loves as a golfer where you love to see the pro struggle a little bit that.
Daniel Creech: Oh yeah.
Frank Curzio: Yeah, if you’re just not hitting fairways, good luck, but it should be really, really cool. That’s awesome. So, yeah.
Daniel Creech: Yeah. So I’m looking forward to that. But today some excitement started JP Morgan and Goldman Sachs kicked off earning season. JP Morgan is boring, we don’t recommend them. So, who cares? Goldman Sachs though, however, knocked it out of the park yet again. Would you like to talk about the, vampire squid, who started that? When did that happen?
Frank Curzio: I don’t know.
Daniel Creech: I don’t know. I quote it because it is funny and it’s true. But anyway. Yeah, they knocked it out of the park. A couple of divisions had record quarterly revenue. They had record first half earnings for the year. We’ve talked about this a lot in the past, especially you, Frank, the environment of volatility, uncertainty, and really nobody else or nowhere else to go but here in the markets is huge game for them.
Frank Curzio: Real quick to add to your point, here, is listen, you have the perfect environment. You have government injecting trillions of dollars into the system. It’s not yet fully thrown through the system. More trillions are coming for infrastructure. You got super low interest rates. And more people are borrowing, it’s very easy to raise money. You have MNA activity in the all-time highs and you have incredible, incredible, NASDAQ just came out with the option contracts just under their record from March. I mean you just, when you have that kind of volatility and you have those perfect conditions, that’s one of the reasons why I recommended Goldman Sachs a year ago and doing fantastic on it. And I can say, get used to these results of them blowing it out. Like people say, “Well, you know, investment banking, they can’t really forecast for it.” It’s going to be massive, massive, massive.
Frank Curzio: They’re going to be blowing out earnings. Just surprised that they’re not raising it. Yeah. This is where they said they’d be, they’d be by five dollars and 17 cents. And they reported earnings of $15, were supposed to report earnings of like nine 80, whatever it is. So, they beat by over five bucks. But who are the analysts that cover this? That big of a beat, you got to expect like, hey, these guys are used to generate 25% returns on their investment banker. Who are the guys in charge? Because 985 is a consensus estimate probably of 25, 30 sell-side analysts covering Goldman. We pretty much knew they were going to blow it out the last three, four quarters, but yet they keep coming out with these numbers that are so conservative where it’s funny. But they’re increasing their dividend by 60%, they beat them in almost every division, but yeah-
Daniel Creech: Yeah, that’s huge. I mean, the dividend is huge and especially in this environment and going forward because we’re always going to be talking about interest rates and what happens there, but big dividend payers, I got to admit, I’ve been surprised and wrong on how yields haven’t come down on huge dividend companies. I still can’t believe that tobacco stocks pay five to 7%. I still can’t believe AT&T pays a huge dividend, but I’m okay to wait and continue to look at those. We’ll get into tobacco maybe, but yeah, investment banking led by a huge backlog. So, future orders coming down the pipe. And can we get into the battle of the grills real quick? Because one of those, do you have that article up? Because one of the, who is it Frank? Weber, and who’s the other one?
Frank Curzio: I forgot now, but it’s sort of a leading grill, right-
Daniel Creech: Traeger. Is it Traeger?
Frank Curzio: Yeah. They’re both going public. Yeah. Which is awesome.
Daniel Creech: And Goldman Sachs is leading Weber and I think it’s Morgan Stanley leading the other one. And there was a hilarious Zero Hedge, who I’m a big fan of, as you guys all know, had a good article about the battle of Wall Street and the battle of the grills. And I’m pulling a blank here, I’m trying to find the article that I had saved here to bring up for you.
Frank Curzio: So here it is. All right. So we got-
Daniel Creech: And what stood out to me is Weber was profitable in 2019 and 2020, but had an enormous jump up because a lot of people were locked down, state home, bought grills. Have you seen the demand for backyard pools?
Frank Curzio: Oh yeah. And even those-
Daniel Creech: I have an amazing friend and contact in Arizona who does pools and backyard-
Frank Curzio: Oh it’s insane.
Daniel Creech: Business is just booming. I can’t wait to catch up with him this week. But Weber was profitable in 2019, increased it in 2020, but the other one had a huge loss in 2019. Do you see that paragraph? Do you have those numbers in front of you?
Frank Curzio: I have the number. So, it’s Traeger Grills, right? So TGP X, planning to list on New York Stock Exchange under the ticker, you guessed it cook COK. And then you have Weber grills. I think Weber between four and $6 billion. Yeah. This is pretty cool. It’s just a big… But Morgan Stanley. Right? So, you have Goldman doing the Weber listing and Morgan Stanley doing the Traeger listing. So-
Daniel Creech: So these are good fees. And do you think you get like steaks and invited to cookouts as part as this? Or is it just-
Frank Curzio: I don’t think it’s even worth it for these guys, they make so much money.
Daniel Creech: Money and stocks.
Frank Curzio: They probably own the steakhouse, which is why even bother with the free steaks or whatever, but it’s just the, yeah. The amount of stuff these guys are able to get. And also Weber is offering, being led by Goldman, but also bank of America, JP Morgan-
Daniel Creech: Oh yeah everybody is in on it.
Frank Curzio: And just looking at these revenues, man, Traeger reported revenue of $545 million. Net income of 31 million in 2020. Weber reported almost a billion in sales in the six months through March. So, these are real companies and… Just go right to your local Lowe’s you’re going to see tons of grills outside, but people are buying them like crazy. New houses going up and yeah, people have money to spend. And also don’t discount the outdoor effect too. Right? Where people just inviting people. Over barbecues are fun. And in a lot of places, not in Florida, you were told that, until July 4th, you weren’t allowed to have a barbecue with your family or you’re going to die from COVID immediately. So now, it’s all opened up people are like, “Hey, let’s have people over. Let’s have fun.” We saw the home run Derby too, millions of people there. They’re doing interviews without the masks on. It’s just nice to see. Very nice to see.
Daniel Creech: Yeah. And this is the pipeline that Goldman has. So, we had some fun with the grills going public and all that, but those are investment banking fees. This is the great environment where you have a lot of money sloshing around in the system. You still have eager retail investors. I know you were talking about the retail investor and the power that they can enforce and get behind. So, this is a win-win situation. Why not go public if you’re Weber? You love to see it as a Goldman Sachs group. You’re going to close that deal sometime in the next coming quarters or whatever.
Daniel Creech: And yeah, so investment banking staying strong. Asset management is huge. And of course they’re just amazing traders. Even though their commodities and fixed income was down 40 some percent year over year. Now, that’s a little tricky because year over year comps ae comparable sales. You’re comparing this time of year during last time. Obviously, with the coronavirus, the lockdowns, the volatility was extreme. So, their trading desk and revenues went through the roof on the fixed income side, even though that’s down say 47%, it still came in, I believe, what four, just under 5 billion give or take. These guys are just, it’s a boring story now, but hopefully, all the CRA subscribers got into that. And you can’t beat them. So, you join them, Frank, that’s the morality of investing today.
Frank Curzio: We’re going to talk more about that morality of investing and where this is going, because you did talk about Goldman Sachs, right, which is pretty funny. What was that? How much, was it last quarter or last year, the comparable?
Daniel Creech: Yeah. So, I was just going through it real quick, and I loved it because they said, so they reported what, $15? Let’s see, where’s it at?
Frank Curzio: Yeah. 1502 per share.
Daniel Creech: Okay. So, they were talking about in the prior year, this is just from like page one of the earnings release. So, in the prior year, net provisions for litigation and regulatory proceedings reduced diluted earnings per share by $8 and 23 cents for the second quarter of 2020. Obviously, that’s when they took the big charge off and all that kind of stuff. But it goes to your point when you opened up. There’s just certain people that get away with certain things. There’s rules.
Daniel Creech: And when you’re in a situation, and I have family and friends that can’t stand the line of work that I do because they think Wall Street’s a bunch of crooks. Everybody knows that argument and knows there’s a little bit of truth in that. But it’s crazy because you don’t get to set the rules, but these guys get to, and they also get to jump on both sides of them. So as an investor, you can use that to your advantage. You can avoid it, you don’t have to buy it, but it just shows you how there’s a set of rules for certain people and everybody else. And this is a way for the quote, unquote, little guy to at least get a return.
Frank Curzio: Yeah. Yeah. And those results just driven by corporate lending, higher net revenue underwriting. And you saw the same thing with JP Morgan. Really good results. Earnings of 3.78 per share. Beat estimates by 69 cents, which I was surprised to see as revenue fell 8% year over year to 30.5 billion. So, sales fell, but, yeah, you have the interest rates lower, not as good for these guys, but still they beat estimates. So, they brought in the client revenue. Just to put that in perspective, I think Goldman Sachs grew revenue by 12, 13% or something like that. So investment bank, 36 billion… Yeah, so, when you’re looking at… Some of the things that stood out to me with JP Morgan, they said the surge of advisory activity continued Q2. That’s M&A equity underwriting fees up 9% due to strong IPOs, that continues.
Frank Curzio: But a couple of things. Debit and credit card spend was up 45%. And I like what these guys are doing, where it’s up 45% year-over-year, but they say up 22% versus the more normal pre pandemic, second quarter of 2019. So, it gives you a better comparison of, not only, it’s not just, hey, stay at home, stocks benefited tremendously, and now they’re starting to come down. When you’re looking from two years ago, now you’re seeing that comparison where you’ve seen there’s a lot of these companies are growing a lot faster and people are spending more money. Earnings are all time highs, but yet again, pedal to the metal for the fed and they keep going. I don’t know why. It’s another conversation. But expect accelerated growth across travel, and entertainment. Originations and home lending up 64% of 40 billion. Auto up 61% of 12 billion, very strong.
Frank Curzio: However, if you’re looking at this division, which is the consumer, could be the bank, the whole division. Loans were down 3% reflecting elevated prepayments in mortgage and lower credit card balances. I found that interesting. What it’s telling you is that, not only people’s household wealth is increasing, and that’s probably due to home price or whatever, but people are paying off their mortgages and people are paying off their loans. They’re spending money, right, which is just show, but they’re also paying down their debt. But just, when you’re looking, I don’t know what to make of that line surprised me. JP Morgan’s going to make more money the more loans they give out and stuff like that. But the fact that reflecting elevated prepayments and mortgage and lower card balances. I think that’s a good thing for people. It’s not a great thing for the market. You want more debt, more spending, right. When people start hoarding their money and savings and start lowering their debt, that’s less money in the economy, right. But it’s good personally, you’re lowering your debt.
Frank Curzio: But anyway, I just found that interesting. We’re in a super low interest rate environment, maybe their mortgage was at a higher interest rate and stuff like that. It made sense of paid off, refund, whatever they did. But overall, you’re looking at results that are absolutely amazing across the board. Any of you that are concerned about the banks, forget it. They’re more strong than they’ve ever been. You’ve seen the numbers, even the chargebacks, they made money off with fewer chargebacks. Never been stronger. The consumer’s never been stronger right now for most people out there, I know there’s still people struggling and that’s evident. You’re going to see that in the rest of the earnings reports coming out, the rest of the week of banks and financials.
Frank Curzio: But you talked about something else, which is a bigger point, right, Daniel, which is the moral argument. And we’re trying to get that impounded to people. There’s one story out there. I’ll let you go with this, where Trump is suing big tech, right, for imposing illegal unconstitutional government censorship.
Daniel Creech: Yeah.
Frank Curzio: It’s a big story. Then you have, on the Biden side, right, they say, they’re going to have the big tech and stuff. Which was just kind of funny when you think about it since they suppressed, I think all of the leading conservative sites for them, which is cool, but, “We’re going to go after tech”, and we all know how much money they spent on that election to support them, which is fine.
Frank Curzio: But when you’re looking at one thing, first is he’s suing them for illegal unconstitutional government censorship, which is kind of a joke, because I think people have to realize that this is a free country. It’s supposed to be free country. So, when you go outside your home, you can say whatever you want, right. You can be a KKK member, burn a national flag in front of it, be a racist. That’s your freedom of speech. It’s hard, but that’s freedom of speech. But when you’re at a company it’s, you don’t have freedom of speech anymore. Right? You have to abide by the rules. If you don’t think so, if you’re in your office, stand up and try saying something that, “Hey, men should be paid more than women because they’re superior.” Try saying that in your work environment, you’ll get fired in one second.
Frank Curzio: You don’t have freedom of speech when you’re under that corporate umbrella. It’s always one of the problems I had with kneeling in the NFL. NFL pays these players. They own them. They can say, “Hey, stop kneeling or we’re not going to pay you.” But using that platform, someone else’s platform for your agenda, whether you agree with it or not, which is funny to me, but whatever, the bigger point here is the moral issue. Because when you’re suing big tech or you want to go after the big tech, the more these announcements come, Daniel, you say it all the time, right. With Facebook and everything else and justice department. The more you see this, the more, what?
Daniel Creech: I just, this is a layup. So, these companies are A, they’re very, well-run companies. They’re very profitable companies. And I’m talking about Facebook, Twitter, and Google. Margins are huge. Cash flows are amazing. Growth is amazing. I don’t have all the numbers right in front of me, but I mean, and look at the stock charts they’re doing well. I think maybe Twitter isn’t at a 52-week high, but I believe the other two are or damn close. Yeah.
Daniel Creech: I just think… So, we were playing and having fun with this, about the morality of this, but you can’t beat them, join them is something that’s funny. A lot of people getting back to the tobacco real quick, a lot of people don’t want to invest in tobacco stocks. They don’t want to have exposure to marijuana stocks. Some even take it further, and hey, you’re allowed to do whatever you want in my opinion. I’m not going to sit here and say you’re silly or stupid or whatever. But I remember when I was starting out in the brokerage business, a lot of people didn’t want to own fast food companies. They didn’t want to own tobacco companies. Okay. I get you. It’s very hard to buy mutual funds and not have any exposure. And to guarantee that you don’t have exposure to that.
Daniel Creech: But anyway, so if you’re buying Facebook, you’re okay with banning certain people over political comments and or beliefs or whatever. And I’m not here to say that’s good or bad, I’m simply saying that if you’re selling these stocks, because you’re worried about government intervention and or breaking them up, I think that’s a huge mistake. Because there’s one side of the political aisle versus the other side. And if you think that big tech is in bed with the current administration and you think they’re going to crack down on them, I just think that’s a real stretch. And I would take the other side of that bet. And look at Facebook, Twitter, and Google, their charts are amazing.
Frank Curzio: You said that, yeah. You’re buying those stocks, but that’s the thing, it’s if you really think that the big tech companies are going to be broken up, you should be buying them like crazy. They’re going to be worth so much more individual when you break up a company. That’s called sum of parts value. Usually when people talk sum of parts, you should sell the stock right away because no one talks sum of parts-
Daniel Creech: Well like as you say, when that’s your lead in-
Frank Curzio: When that’s your lead in… That means nothing else is working with the company. The business model sucks. Management sucks. There’s nothing else to talk about, but you say, “Hey, if we really break up the company and do this, then this could happen.” Just sell the stock. It’s the best thing. Sell the stock-
Daniel Creech: What did Richard Gere say in Pretty Woman? His dad’s company was the first company. He bought it, and he broke it up into little pieces, and sold every one of them.
Frank Curzio: Yeah. Saw that, yeah. I remember that. Yeah. With Julia Roberts.
Daniel Creech: I fired him, I took it over. I broke it up, and sold it off into pieces. So yeah, if that’s your lead in, that’s a negative, but-
Frank Curzio: But getting back to the moral argument, you have to realize this. You are investors. You want the best for your family. You want to make the most money. And I’m not telling you to do the wrong thing here, but our job is to bring you ideas that can make you money and ideas across all spectrums. Like psychedelic stocks are now, there’s not too many publicly traded stocks, but wow, the research coming out of that is pretty amazing. Big banks, right? I told you, we did a whole segment on this, I think, probably like three, four weeks ago saying this might be the most powerful sector I know. From a risk adjusted basis, it’s a no brainer. You have low interest rates. These guys have all this money. The only thing they can do is buy back their stock or raise their dividends.
Frank Curzio: And you’re seeing a perfect storm where GDP is growing, household wealth is growing. More money entering the system, more loans. Interest rates low. It’s a perfect system, perfect storm for these guys. They’re bigger than ever. They have tons of cash on the balance sheet, which they’re forced to keep on the balance sheet from crazy freaking restrictions. And what’s the worst case scenario? Say we have a massive recession. What’s the government going to do? We know exactly what they’re going to do. They’re going to throw money at it. Just like throw money at COVID. They’re not seeing that the negative impacts from throwing trillions into the market. All they’re seeing is, hey, we’re padding our pockets and everybody’s happy. Stocks are going higher. People are getting richer and we’re happy. There’s a massive divide between the rich and the poor, it’s getting wider and wider. But even during the credit crisis, same thing, hey, let’s just backstop all the banks. Everything’s fine.
Frank Curzio: So, you’re going to see that coming, risk adjusted basis. It’s banks. Look at big tech, what we say, well, they’re stealing all of our information. We all know it. They’re using AI to predict our future. They know everything about us. A lot of these things you don’t even know about. Most people don’t. They think they do. They don’t. Try reading. There’s a reason why websites, all the time, Daniel, update their terms of service, of agreement.
Daniel Creech: Yeah they’re tracking all that.
Frank Curzio: It pops up all the time. They should highlight the changes in that, because that’s basically saying, okay, here’s another way that we can try it. There’s another way it’s going to try it another way. Another way it’s going to track you. Another way we’re going to sell the information. So, you see that on so many websites where it’s almost like you have to click here just to view it and you just click it because you want to see the story, right? So, you just click it and that’s the okay.
Frank Curzio: It’s like marijuana stocks you brought up, also gambling stocks. These things are getting approved. Look, if you don’t want to buy them, you don’t buy them. That’s fine. But yeah. Right now in this investment environment, there’s room for you to make a lot of money on new trends, on things that are going on. And some of that requires you buying some stocks that, vice stocks or things you don’t agree with, but you have to check that at the door. You do. For me, I recommended marijuana. I recommended tobacco companies. And my dad died of lung cancer. Because my job is to make you guys money. Right. I don’t agree with it. I know they lied to everybody. They got fined tremendously, but they pay good dividends. And one time or another I thought the stock was a great buy. So yeah, you have to put those feelings aside sometimes because if you don’t, somebody else is going to make a ton of money off of it. And that’s what they do. And even on Wall Street, which my opening was about, but the whole moral argument, Daniel, you bring up a really good point.
Daniel Creech: Yeah. We’ll get into more of that as things unfold here. But yeah, we’re not telling you to go against anything that you believe in. We’re just saying, “Hey, from our perspective,” and there are certain stocks, it’s not tobacco or gambling or anything like that, but everybody has a line that you draw on the sand. Everybody is getting political, there’s a lot of divisiveness out there right now in culture and everything. The pendulum will continue to swing one way and then it goes back and forth. What stuck out to me, last thing I want to talk, real quick, Frank, is just, I want to see if it’s a trend or just a one-off, but Pepsi reported strong earnings today. B raised fiscal year guidance on earnings per share. I don’t know about revenue, but earnings per share matters more to me.
Daniel Creech: On a CNBC interview, he quoted and said, we’re gaining market share from that company in Atlanta. Coca-Cola. Now that’s a shot across the bow in a funny way, because Georgia passed voting laws. I don’t know if it got through, but they’re trying to pass them if they did or they didn’t. But Coca-Cola, and a lot of people came out and were saying how they were against those. Doesn’t matter where you think on that, the point is that now you have stances, not only do you have people using their platforms, but you have corporations using their platforms as well. And I want to see if people start voting with their wallets. So, does Pepsi continue to gain market share? How much market share? That was just a one off one line, but that stood out to me because if people actually made a decision, a conscious decision to switch over from Coke to Pepsi, which I find hard to believe, that’ll be interesting as a bigger picture in a macro thing of where sentiments going.
Frank Curzio: Yeah, was really good organic growth. They really kicked ass in that.
Daniel Creech: I think they’re going to grow at 6%, which for a conglomerate like that organically, with the options to buy and merge a lot of things, it’s amazing. So-
Frank Curzio: Mountain Dew products-
Daniel Creech: Keep your eye on Pepsi.
Frank Curzio: I’ve got one minute left. More like 30 seconds left. So really quick here. Who’s, don’t say Koepka, I know that your boy, but who do you think is going to win the open?
Daniel Creech: If it’s not Koepka.
Frank Curzio: You love Koepka.
Daniel Creech: It’ll be a, who’s… Oh, shoot. It’s not Lowry. I don’t think he’s going to repeat.
Frank Curzio: Rahm is a favorite. Jordan Spieth is second. Rory McIlroy is up there too, which I’m surprised-
Daniel Creech: I’ll take McIlroy. I’ll go with McIlroy.
Frank Curzio: I was thinking, but he just didn’t make the cut last, I think the Scottish Open. But for me-
Daniel Creech: Only because he just signed a deal with Drive Shack, which we’ll do a video on or something-
Frank Curzio: This sounds like a favorite pick, but I’m going to take Bryson because-
Daniel Creech: Oh gosh, here we go.
Frank Curzio: No, no. Only because his-
Daniel Creech: Look at that, we’re out of time.
Frank Curzio: 3, 4, 5, 6, 7, 8. He’s writing like plus 3000 of the odds where John Rahm is plus 700. But he’s ranked like 10th. I’m surprised. Because he did have that meltdown on the back nine in the last major. But he did play pretty good in that event though.
Daniel Creech: It’s a flat course though. He can hit it forever.
Frank Curzio: Yeah, I know. I know. He’s got a good stoke game. We’ll see. But I like Bryson for this. I think he’ll bounce back, but we’ll see. But Daniel, thank you so much for coming in. Thank you so much for going over the topics. Listen, earning season guys. If you’re a subscribed to all our products, you’re going to get lots of alerts coming out about all the earnings there. Goldman Sachs just reported, and we’re going to be writing that up for everybody, but we like to send them, if there’s something that reports where a company of ours that reports, and it goes down 10, 15%, we send that alert out right away, let you know what to do. But otherwise we send out everything, just a update on earnings. Our thesis is still intact. So, you’re going to see a lot of that if you’re subscribers to our product. Because yeah, everybody’s going to be reporting in the next three weeks.
Frank Curzio: So yeah, Dan, thanks so much for coming on, buddy. And look forward to hanging out with you next week, man.
Daniel Creech: All right, yeah. Cheers.
Frank Curzio: All right guys. So listen, that’s it for me, like I say, www.curzioequityowners.com. It’s absolutely for free. If you want to take a look at my vision of security tokens and also the financial publishing industry, which so many new names are coming in, it’s really, really cool. Again, that’s absolutely for free that presentation. We spent a lot of time getting that done. Really, really cool stuff. But I think you’ll have a better understanding of where I want to take this company and the absolute huge potential we have to be an industry leader into emerging growth industries, massive industries, and a pretty exciting time. So, if you’re interested in that, if not, no worries. But if you do have a couple of subscriptions to our newsletter, especially Curzio One, or if you’re a CEO holder, if you want our tokens when you get equity stake. A day trade on MERJ. Yeah. Definitely give a listen. Because that’s important to you guys, especially as shareholders and love questions, comments, firstname.lastname@example.org. Feel free to email me anytime. So guys, that’s it for me. Thanks so much for listening. As always, I’ll see you in seven days. Take care.
Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its hosts and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.
As the economy recovers from COVID, commodities are absolutely booming… And income guru Genia Turanova has uncovered several strong ways to play this trend…
Just yesterday in Unlimited Income, she recommended an energy veteran that’s staging an incredible comeback on the rising price of oil.
With commodities set to soar, you can’t afford NOT to follow Genia’s advice.