Frank Curzio 00:00

How’s it going out there, it’s Wednesday, October 14. I’m Frank Curzio. This is the Wall Street Unplugged podcast where I break down the headlines and tell you what’s really moving these markets. Daniel Creech, what’s going on, man, how’s everything?

Daniel Creech 00:16

Another beautiful day in paradise, Frank.

Frank Curzio 00:18

Beautiful day, but I did hear that you’re having trouble with your transmission.

Daniel Creech 00:21

Yeah. Yeah. Yeah. Yeah. If you want to know why the markets are down, it’s because I had to take money out to buy a new transmission.

Frank Curzio 00:29

The little things. The little things that matter.

Daniel Creech 00:31

Frank, if I was older, I would rant about how we can’t make things that last anymore. We can send a man to the moon and I can’t even get 150,000 miles out of this damn thing. That’s okay, though.

Frank Curzio 00:39

Yep. And catch rockets. After they fly in a year and come back down, we do all this. New technologies. Past couple days too, I was out, I had to go to a meeting in Orlando, which is going to lead to a very, very big announcement. This is one of our sponsors, and he’s going to be at our conference. Basically, you know, an asset manager. And really excited. So I had to just finalize a couple of details. I went to Orlando, and our conference is just 10 days away, so if you’re one member, really excited. We have an unbelievable lineup, which is going to include a lot of AI companies. New ones that we invested in, older ones. We’re going to be interviewing the CEOs of Vivo and also Digipower X, which are companies that we’ll talk about in a little bit, because they’ve been getting annihilated along with the rest of the industry, right? And, you know, we want to get updates from these guys. So those interviews, I won’t say exclusive, but you’re not going to see a lot of interviews with those guys.

Frank Curzio 01:28

And I’ll send them out to everyone on free after, you know, maybe a week from now, after I get back, because there’s a lot, a lot of work that’s going into interviewing. I think it’s now 16 or 17 CEOs on stage. And a lot of these companies were invested in the private markets. I think the private markets are one of the best areas to invest in. You’re immune from a lot of this stuff that’s going on. AI is lowering their costs considerably, so it’s one of the greatest times to start a company. And it’s just going to lead to new ideas. It’s going to be marketable ideas. It’s going to be ideas that you invest in right away. We’re going to actually open up another private placement, which is cool. It’s going to be a surprise announcement. So a lot of fun, great entertainment. It should be a really good conference, and that’s two weeks away. But when I went to Orlando, my mom lives in a village, so I went to go see her. And so this is on Monday, and I had to take a video of this, because when I go there, she’s like, “Oh, the band’s playing.” There’s a band that plays, like, every day, basically, from, I think, 5 to 9 p.m.

Frank Curzio 02:22

And villages are just this massive retirement community. Unbelievable how big this place is. And I have that video. Joe, throw up that video. Is it going? Okay, so the video. So if you look at this video, this band is one of the best bands around. You know, they play every place, I think, not just Florida. So when they come, it’s a big deal. This is a Monday. And around that section right there, which is like the square, and that’s where they have old stores and a huge town, is they have the, you know, like a car show where all the cars, these old, old cars are parked all around. And there’s a little bit of money there, right, from these retirees. But there’s jokes about this. You know, I call it Disneyland for retirees. There’s jokes saying it’s STT capital of the world, and how they do have groups of everything, including swinging, which is, you know, but you just look around and I was just looking at people who are 65, 70, dancing on a Monday night. I mean, it couldn’t have been more crowded.

Frank Curzio 03:21

You’re talking about, we couldn’t get seats, right? We had to bring chairs. Everyone has golf carts there. And, you know, I just brought my mom there. They listen to the band. They play old music, and they’re really, really good. I mean, they’re playing Earth, Wind & Fire like it was them. It was unbelievable. But look at all the people enjoying themselves. They’re happy, dancing without caring the world. I mean, they earned this life, right? And I feel like nobody reports this, because I’m sitting in the middle of nowhere. It’s hard to get to the villages. It’s in the middle of nowhere. You have to go through, like, these little towns to get there. It’s not easy. So much so that when I had ways on going there, that one of the streets were closed, because it takes you, like, little different ways through little towns and sometimes dirt roads. And this one road that it took me to was blocked. So, you know, Waze didn’t pick that up, because it’s a tiny little street. And I had to go around to try to get back on that road, and it took me about 20 minutes going through little streets.

Frank Curzio 04:09

And there was, like, cobblestones with a street that didn’t fit two cars on it. And it’s, like, kind of like in this residential area, like Long Island-ish. And I had to pull over on the grass to let cars go by. I’m like, where am I? Right? Just in the middle of nowhere. And then it opens up and there’s, like, thousands of houses, like, hundreds of golf courses. Just people having fun and having a good time. And it’s just, it’s happy. It’s cool to see that, where especially right now, we’re in the middle of political season, where, you know, every other commercial is trashing everything. Everyone’s a threat to democracy. Our lives are going to be over if we vote the wrong way. Just craziness. You know, we hear all this, you know, just constant videos that we’re seeing on TV right there, where you just have these crazy people, old, heavy-set women with purple hair cursing and spitting on our flag, trashing America. A younger generation saying how fucked they are, because, yeah, they’re so depressed, even though they have more access to tools and, you know, than anyone, right?

Frank Curzio 05:03

Any generation before them has had something to be successful. I mean, AI, global reach from the internet and stuff. They just hear the negatives all the time. Negatives, negatives, negatives, negatives. And I get it, and the higher cost of living and everything. But, you know, it is a really good environment to learn, to study, to research, to just, you know, to build companies using AI, which cuts a lot of the cost out. So, you know, it’s really just nice to see people having a good time, which never gets reported. You’re not going to hear any of that stuff in the next month on the news or in social media. All you’re going to see is everybody hates each other, America’s dead, all this stuff, this nonsense. But it’s just really nice to see people that earned it and said, “Hey, you know what? I’m living my life. Okay? I busted my ass, I raised my kids, I worked my ass off, and now I’m just hanging out, having fun with my spouse, and just having a good time.” And it was really nice to see and just see my mom there and, you know, dancing and stuff like that. It was just really, really cool time. It’s a break away from, I think, this is the reality, what we live in, right?

Frank Curzio 05:52

What we’re seeing, where that’s just like, “Wow, how much fun is that?” It was really cool. So it was a good time. The meeting went well. Can’t wait for the conference. But, yeah, now I’m back at the helm in a market, Daniel, that doesn’t look pretty, huh?

Daniel Creech 06:03

Well, Frank, let me comment real quickly. Glad to hear everybody’s having fun. And I’ve met your mom, and she’s sweetheart. If AI doesn’t kill us all, then it’ll lead to universal basic income, and then we can all party like the villages. You won’t have to be 55 or whatever. Is it 50 or 55 over there?

Frank Curzio 06:19

I think that.

Daniel Creech 06:19

I know there’s a limit.

Frank Curzio 06:20

I think there’s 55. But there’s areas where there’s areas that you have families, areas that have, like, 55 to 65. Then there’s another area, like, you can move in. And it’s good, because some of these retirees, I mean, you have people with canes that are, you know, just dancing, like, just, you know, and, you know, there’s other areas. But everyone knows the deal, right? You’re seeing people with wheelchairs, people who are sick, but they have access to everything and providers and people helping them. So it’s just an unbelievable.

Daniel Creech 06:44

I do have to have fun with your comment about being a Monday. Frank, they’re all retired. They don’t have anything to do.

Frank Curzio 06:48

Yeah, but where do you see on a Monday where it was like a club setting where there was, you know, I want to say, like, 1,000 people that you couldn’t get seats and the music’s blasting and they’re having fun and they have two-for-one drinks and then they drive their cars into each other? I mean, how much fun is that? I mean, come on. If you’re a retiree, it’s, I mean, you know, back retirees sitting on a couch, like, watching, you know, whatever, whatever program it was back then. Archie Bunker. And, you know, sitting there with a drink and you can’t even move and get up. These people are dancing, having fun, enjoying themselves, going golfing. It’s just, yeah, it’s just really cool to see, man. That’s what life’s about. That’s why we all work so hard to get to that level and be happy, you know? Because our kids are out there, they’re working, they have, you know, so many responsibilities. It’s hard sometimes. And, you know, it’s just nice to see this whole entire community. My mom has so many friends.

Frank Curzio 07:34

She’s 85. She has so many friends there and enjoys it so much. I said, “Hey, Ma, I see you on Monday. Can you come after 3? I’m hanging out, I’m playing bocce ball.” Bocce ball, you know? Bocce ball golf, it’s called, I think. It’s just amazing. You know, it’s a really, really good feeling. It’s nice to see that she’s great, that I want to go there and she’s hanging out with other people. So, but it was good. My mom cooked me some spaghetti meatballs, like she always does, and I had a really, really good time spending time with her, which was cool. So now back to reality, which is this market. And I think this theme here, which I really want to dig into, because we’ve been really nervous on these markets. And it’s basically because of the risk-reward. And when I look at what’s going on in these markets and people are wondering, “Holy shit, why are my stocks getting killed?” And granted, if you own a couple of healthcare stocks, maybe a couple of hyperscalers, a couple of good stocks do.

Frank Curzio 08:21

But most stocks, we’re looking at 70, 75% of stocks in the S&P 500 are getting killed. The momentum names are really, really getting crushed over the past few days. And we saw this happening. And I’m not patting myself on the back, because we do have stocks in our portfolio that are getting hit. You might be saying, “Frank, why don’t you just sell every stock in your portfolio?” It’s because I don’t have a fucking crystal ball. You know, if I had a crystal ball, I’ve been wrong before, right? So you want to have some kind of exposure. We have exposure in different sectors, and a portfolio is probably holding up than the rest of the market. But we do have small caps in there that were momentum names that did very, very well that are coming down. And nothing’s really changed too much to their thesis. But, you know, we do have exposure, but not as much exposure. And sold a lot of stocks within our portfolio. And, you know, when I look at this and say, “Well, you know, Daniel and I, we could be wrong. Everybody’s wrong sometimes.” Everybody’s wrong. Not sometimes. Everybody’s wrong in the markets, and they’re going to get things wrong and stocks wrong, and that’s part of it.

Frank Curzio 09:09

You’re not going to have 100% win ratio. And I look at this market and you say, people might be saying, and I’ve got a couple of questions. Why wouldn’t you pull everything out if you really thought this was going to happen? And I think it’s going to get a lot worse. I’ll get to that in a minute. But even the AI trend, when it first came out, remember, Daniel, like, we’re looking at 2021, 2022, when it really went. Nvidia had earnings. I remember looking at that Nvidia core saying, “There’s no way they’re going to meet these estimates. There’s no way. They’re crazy.” And I was kind of negative on AI. It’s a lot of hype right here. I just, for large language models, I think OpenAI just came out. It was the only model at the time. And I’m like, you know, there’s just a lot of things being priced in. I’m not crazy. And then I saw Nvidia’s numbers. And I was like, “Holy shit. I’ve never seen a quarter like that in my life. In my life.” I was like, “I cannot believe the demand.” And then boom, you see. So me looking at that changed my mind and the data and saying, “Wow, you know what?

Frank Curzio 09:55

I was negative on this.” And we became positive and had monster winners in AI. Monster winners. And we have a couple getting hit now, but still, if you’re looking at Celestica, Bloom Energy, Dell, you know, we just, we had a lot of really good hits. Google, we kicked ass in. Nvidia, we did very well in 30% returns in, I think, less than a year. And we stole it went before it started to come down. So, you know, we did very, very well in that trend. But you’re looking at the markets today, and what’s different now is the risk-reward and being able to change your mind. And I changed my mind a couple of months ago and said, “Look, the risk-reward is not favorable. It’s just not.” And you can go into that. But the theme right now, I think, that people need to grasp is the fight to maintain. Okay? It’s the fight to maintain. That’s the battle so many companies are having right now, because they’re coming off the best earnings season in four years, 30% earnings growth, pretty much the greatest earnings season in the last three years.

Frank Curzio 10:46

I’m not talking about COVID when you’re completely closed and then you reopen and you’re going to see this massive growth. And then, you know, a wonderful government put, you know, trillions and trillions and trillions behind the fuel, the biggest inflation that we’ve seen since, you know, 25, 30 years. But we’re coming off of companies that have tremendous growth, 30% plus annual growth year over year, which we usually grow earnings by 8%. How can you possibly maintain that growth since this is how your company stock is trading right now? But how do you maintain that growth when you have interest rates surging and energy prices surging, many key input costs surging? And now we look at the banks, Daniel, and look at the banks, most of them are lower, even though those profits were at record highs, right? We’ve seen some of these names get hit, especially the Bank of America’s. I think State Street’s getting hit today. You know, so some of these names, even though they reported decent earnings, most of them beat.

Frank Curzio 11:35

You’re seeing this industry get hit now, right?

Daniel Creech 11:37

Yes, sir. Big banks have gotten hit a little bit. And to your point, I mean, they’ve come off their highs, but some of this is just maintaining. And everybody says, “Yeah, that’s great, but what are you doing for me tomorrow? And what have you done for me lately?” type deal. You like these stats, Frank. So we look at JP Morgan, Bank of America, Citigroup, and Wells Fargo, the Big Four. Combined revenue for Q3, $126 billion. Now I’m rounding here, so if you want to. So their net interest income, that’s a big one, $73 billion. And net income was $33-ish billion for the quarter.

Frank Curzio 12:11

For the quarter.

Daniel Creech 12:12

To your point, it is a great environment. One thing about Bank of America, they’re getting hit harder than most. Last time I saw, they were down about 8% today.

Frank Curzio 12:18

8%, I think, yeah.

Daniel Creech 12:19

Because they got fined over a billion dollars for not reporting. Actually, they weren’t reporting certain transactions. And there was about $5 billion in transactions that they, I guess, did not report as should have. And then this was a penalty. Now, banksters are banksters. That’s why we call them banksters. It was interesting that Treasury Secretary Bessent actually called out Bank of America yesterday. So that was kind of fun. Fun meaning just back and forth, people don’t get crazy. But yeah, I mean, I think you hit that nail on the head. It’s just, hey, we know things are good, but everybody’s worried about tomorrow. I got a few comments on the consumer, but go ahead first, because it’s a very mixed. You’ve gotten this correct. It’s a very mixed market, because it’s hard to determine. It’s always easy to say, “Hey, there’s going to be a correction.” The timing is obviously difficult. But man, the consumer, and I’ve been wrong on this, I would have thought the consumer would have kind of thrown in the towel more say a good while ago, but they haven’t yet.

Frank Curzio 13:20

We look at the banks outside of Bank of America. Most of the earnings were not terrible. And the last six months, I’ve been saying pretty much the last nine months that this is the best environment I’ve seen in my career for banks. And why is that? Because interest rates were high. Nobody had interest rates going this high. If you look at a year ago, all the companies were lowering their net interest income. They were saying it’s going to come down because we were under the impression that interest rates were going to come down. We were going to cut rates. And this is even as of 18 months ago. Now the rate keeps going high, which is very good, right, for the net income surges. And if you look at this number specifically, the four banks, this is insane, generate $73 billion in net interest income for the quarter. $73 billion, the four largest banks. So rates are higher. However, you’re looking at record demand for IPOs in terms of dollar amounts, which usually doesn’t happen, right? So we see rates go higher, the economy slows.

Frank Curzio 14:15

No, we have an economy that’s doing very, very well. We’re seeing the investment banking market really kick ass. We just saw, you know, off-record profits, right? So, you know, despite these rising rates, to see the U.S. economy still doing well where the middle class and high end, you know, and, you know, these massive asset classes that really drive the U.S. economy, they’re still spending based on retail sales data. And for low income, maybe the bottom half of the middle class, you know, banks are charging them enormous fees, right? So they’re making the fee businesses great. So every single division, I feel like for the banks, I’m looking at when Microsoft reports, Meta reports, when they have every one of the divisions, and Amazon reports where it’s like up 30%, up 25%, up 20%, up. That’s the banking environment. Usually one of these works, two of these works, two of them don’t. Every single line of their business is kicking ass right now, except it’s starting to change a little bit.

Frank Curzio 15:03

Now, buying these banks have been a great trade. I’ve said for the last four years, you should have one of these big guys in your portfolio. We actually like Citigroup the most, and that was doing well. And maybe even throw like a Goldman Sachs or a Morgan Stanley in there. We’ve been saying this for four years, and they’ve done, you know, they’ve done tremendously. But you have to ask yourself, how much better can it get for these financials? You know, Daniel, if rates keep moving higher, you’re going to see the net interest income surge, which is the biggest source of their profits. However, those higher rates usually lead to a slower economy. And now look at the housing markets getting its ass kicked. I mean, it’s getting choked out. It was choked out at 6.5%. We’re at 7.5% mortgage rates. Did you see Fannie and Freddie? Down 40% each in the past month. And you could say, well, okay, the government and its conservatorship, and they’re going to get out of that where, you know, they want to get out of these stocks.

Frank Curzio 15:52

And people were worried. And you had Michael Burry come out and say these things are probably going to be worthless. But the common stock, when they get out, what’s going to happen? You’re going to see dilution of 100%, right? So that leads to it as well. But the profits, I mean, rates are so high, consumers have stopped refinancing, which is a big deal because that was their ATM for most households. So if you look at the net wealth, everyone wants to say, oh, our debt. Everyone looks at one side of the equation depending on their argument. If you’re a bear, you’re going to say, look at how much debt we have and all the mortgage debt. Look at the other side of the balance sheet. And if you look at that, you’re going to see household equity at record highs. And that’s from the last five years. And I would say probably more than 70%, if you’re looking at households, Daniel, that’s their net wealth is tied up in their house because their equity has gone up so much. And they had a low interest rate and keeps going higher and higher and higher.

Frank Curzio 16:37

And they were able to tap that. Now they’re not tapping anymore because rates are so high through refinancing. You’re starting to see IPOs get pulled, like OpenAI. It’s going to go to next year. And Daniel, your favorite thing, it’s not because of safety, which, you know, I’m just like, oh, well, safety concerns. So we’re going to push it. No, you’re going to push it next year because Anthropic’s been eating your lunch. Your growth is slowing dramatically compared to them. Now you’re doing a capital raise at $1.4 trillion, which I think you’re insane to get into. Because if that’s the case, Anthropic’s coming out with their IPO, they’re growing much, much faster. If that’s the case, Anthropic’s IPO could be $2 trillion to $2.5 trillion, which I don’t think we’ll ever see an IPO that big ever again. And when I say ever again, maybe for decades and decades. Maybe not in my lifetime.

Daniel Creech 17:20

I believe Anthropic has a big meeting this afternoon. They’re doing some more disclosures or comments.

Frank Curzio 17:25

Yes.

Daniel Creech 17:25

They’re still on pace to try to IPO this year, is my understanding.

Frank Curzio 17:28

I think it’s next month. I think that’s.

Daniel Creech 17:29

They’re going to try to do it in November.

Frank Curzio 17:31

And they better come out because the whole industry is really collapsing. And there’s a company called Fermus. Probably never heard of it. I don’t blame it because it’s Australian. It’s a $30 billion AI company backed with liquid cool technology, builds data centers, and it’s backed by heavy hitters, Nvidia, Jane Street, Blackstone. This was supposed to be one of the largest IPOs on ASX, Australian exchange ever. And it would give those investors, which a lot of investors in other countries don’t have direct access to AI companies, especially if you’re looking at Nordics. They don’t have a lot of exposure. Yes, they could buy our companies here, but they don’t have a lot of direct exposure. This is going to give, you know, direct exposure with large IPOs, AI, you know, give them AI exposure. And they just pulled it. They just pulled this, which was surprising because they don’t think that the inflated valuation is going to hold up, which happens every single time a company IPOs. That’s a liquidity event, guys.

Frank Curzio 18:23

When a company IPOs, it’s a massive liquidity event. It’s the insiders to really get out. I know you get people get excited. Oh, I could buy SpaceX, and that’s why we didn’t like it when it first came out. And when it came all the way down, we’re like, hey, that was a good time to buy it when it was $105, $110. I wouldn’t be buying it all the way up here. But now you have these inflated valuations, and you’re seeing these AI names get crushed because, yes, they’re signing long-term contracts, but they have to take on a lot of debt before that. And those costs, you know, especially if you’re looking for smaller companies, which we’ve liked in the past, those, you’re not really going to see a lot of positive news except them building these data centers and building these facilities, which cost a lot of money. And some of them may raise that money, but you got like an 18-month period with no news on revenue that’s going to start like over a year from now. And a lot of these companies are getting hit in this market because of their higher interest rates. And people say maybe they won’t get funded.

Frank Curzio 19:08

But this is a little bit of a crack when you see this Fermus IPO get pulled off the market, right? So you’re looking at this IPO. You’re seeing, you know, will that happen to other IPOs? I don’t know. But you’re looking to the IPO market where how could you live up to those expectations where you just came off? I mean, how is investment banking for these banks going to grow, which is a key component to their profits as well, where you have OpenAI next year? Okay, that’s going to skew the numbers. It’s going to be a trillion dollar deal, maybe even bigger. But outside of that, how do you continue to grow your investment banking division after seeing record growth, which amounts to nearly 25% year over year growth in global investment banking fees? So a lot of times we’re programmed a certain way to always look at the positive. Holy shit, this is growing so fast. This is great. When we made massive gains in Celestica, no one heard it. When we made massive gains in Blue Energy, nobody knew what was going on.

Frank Curzio 20:01

When you see people talking about the story, and this is where I look at Kramer today having a fit on TV, going nuts and going, oh, look at SK Hynix. And Nvidia is going, oh, Micron, oh, who cares that they say 23rd ASML came out with an amazing number saying the growth that they’re going to see five years from now is unbelievable, right? And Daniel, I think you have more about that. But Kramer’s going crazy and saying, holy shit, how is this, you know, happening? And you’re seeing these companies, a lot of that is being priced in if you’re talking about it, you know? So, you know, getting back to banks specifically, the banks are stuck. I mean, you have higher rates are going to lead to a decline in revenue in almost every other segment. And higher rates are definitely, they’re going to start impacting the economy. That’s why I think you can’t own rates, own banks right now, own the large banks right now. Because if rates do pull back, then the net interest margins are going to get hit.

Frank Curzio 20:47

You know, they’re going to get hit either way. But they’ve grown so fast that how do you continue to grow at this level? And it’s hard to own one of these big banks right now, which is different from what I’ve been saying, because a lot of this is priced in. And I’m not even talking about the competition they’re going to see when it comes to, you know, $6 trillion plus, Daniel, that’s sitting in the checking and savings account generating no interest. Now you have AI apps like Muse that could say, hey, idiot, you know, why don’t you throw this in a money market account and earn 4% risk-free, risk-free return? You know, so looking at the banks right now, when I see their reporting and they’re down, I think they’re going to go down a lot more from here because a lot of this is priced in, you know, just it was the perfect environment ever. But how do you follow up on this massive earnings growth? And you’re seeing that across the market. That’s one of the things that worried me of why I was saying, hey, we’re going to see a lot of stocks get hit here.

Frank Curzio 21:33

The expectations are way too high. And, you know, it is a dangerous market right now.

Daniel Creech 21:38

I’m glad you mentioned that because I wanted to ask you about Muse and such. When you go through the conference calls of, like, I was reading through JP Morgan’s and such, and they, one of the first, I think it was the first question from an analyst was about AI in your bank and how do you use it and for consumers. And they were worried about bank runs and potential headwinds like that. And I think Jamie Dimon, CEO of JP Morgan, I think he got taken out of context later when I heard CNBC talking about it because they said, well, he’s not, they’re not allowing people to use AI agents. And I say all this, Frank, because your comments you just said with Muse. I need some help understanding this. If you have an agent that is going to go look around for the best money market rate and move your money around, A, that takes a lot of trust. I know we already trust our financials with a lot of stuff, but JP Morgan is saying, hey, we’re not going to let agents just start moving money. And Bank of America said the same thing.

Daniel Creech 22:37

And I’m not trying to mislead you. I’m simply saying what they were saying, I’m paraphrasing is like, hey, and Bank of America said it great. And he wanted to talk about anything other than the billion-dollar fine. So good for him. But he was saying, listen, we don’t want to get in a situation where Frank calls our bank and says, hey, I’ve authorized this agent to do certain things, but I didn’t authorize him for this. The money’s gone. I don’t know where it is. Whose fault is it? Well, did you authorize him? Yeah. Well, then it’s your fault. Well, no, I authorized, blah, blah, blah, blah. That, to me, does seem like a big deal. And then the other side, and I can be called lazy and stupid about this, I don’t care to take your shots. I don’t understand the value of this, Frank. I can understand the concept of saying, hey, I got so much money, I want my agents to look at the best money market deal. I get that. However, when I buy something, rental car, airplane ticket, my credit card information populates on the site.

Daniel Creech 23:29

That’s helpful. I think that’s great. If I just type the same thing, hey, get me a ticket around these print, I don’t understand why there’s such a request or need or goal to remove the humans. Like they were joking about, oh, well, your agent, my agent will talk. What the hell value is that, Frank?

Frank Curzio 23:47

I think it’s a value of productivity. I mean, I don’t have time for this shit. I mean, I’m fucking busier than shit. You know, save you 10 minutes maybe on booking a flight. What’s the difference between populating your credit card information and saying, hey, are these dates, Frank? I mean, you have to authorize something unless you’re just going to wake up and your AI is going to tell you, hey, Frank, dumbass, get on a plane. You’re missing your flight. Oh, well, my bad. So what I would say to that is I think it’s two totally different circumstances where I don’t know, I wouldn’t put my credit card and let them do whatever they want and contact your bank, have an agent contact your bank. But, you know.

Daniel Creech 24:21

That’s where they’re going.

Frank Curzio 24:22

Don’t discount the fact. And the reason why I’m saying this is, one, it’s used as a tool, right? So basically, you could plug it into Muse and Muse is going to say, okay, here’s a better rate. Go and get it yourself. Here, why are you doing this where this is 0% and these guys are basically fucking you because they’re taking that 6 trillion at zero, taking that money. And what are they doing? They’re making 25% on credit cards and all loans and 10% on all loans and whatever, you know, mortgages at 7.5, 8%, right? So they’re taking that money, making a fortune on it. But a lot of people don’t know the dynamics of finance. I would say like 90% of people don’t know that. And it’s because it’s not because that they’re literate. It’s because this isn’t their field. It’s because, you know, they’re great at what they’re doing and they don’t understand like what the banks are doing. And, you know, just a lot of people I talk to who are very successful, even when I go golfing with the very, they’re like, I don’t know anything about stocks. I don’t care. And there were, you know, tens of millions of dollars, some of these people.

Frank Curzio 25:08

So just because they’re used to their certain industry, which is fine. But now you have something that’s telling them and tapping them on the shoulder. I’m not talking about them giving Muse full reign to do whatever you want. I’m just saying using it where they could say, hey, this is going to be cheaper or why don’t you push this in a money market account, which is, you know, you can push it here and earn 4%. And it’s not just money market accounts, other places. That’s a risk-free rate, right? So that’s where it is. But I understand your concerns because, one, productivity, I need that. It’s like having your own personal secretary do a million things because, man, it just, for me, if I’m doing that, if I’m doing this stuff, I’m not doing right by the people and my shareholders, right? Because they want to focus on what I’m great at. And if I’m doing these little tasks that I know that could be done by other people or something that’s very simple, it’s different. My job is to find good ideas for them and, you know, help them generate generational wealth.

Frank Curzio 25:54

But circling back to the market here and overall, I’m outside the banks. We’re seeing huge declines in about 70% of these stocks in the S&P 500 and many, many, many small caps. And Russell’s been getting annihilated. And it’s not just the US market, right? You’re looking at Japan down five straight days, the Kospi, which, you know, Kramer had a little fit about, you know, getting annihilated. That’s down tremendously. You’re looking at Germany wholesale prices. I don’t know if you saw this. Germany wholesale prices increased 8.7%. How could that be right? I mean, maybe that’s good for them because they just, you know, it’s just a shitty market and maybe inflation will push everything up. I don’t know. Or if Europe and their policies are crazy. But, you know, when I see Kramer throwing that fit on Nvidia, SK Hynix, Micron, you know, they’re getting nailed in all these companies are saying the greatest things in the world. They’re saying all this stuff. And not only are they saying all these great stuff, they’re saying it’s going to stay this way for years.

Frank Curzio 26:41

Micron, hey, 28, 29, 30. You know, you looked at ASML. What did they say, right?

Daniel Creech 26:46

Yeah, they were talking about how, and they make the machines that make the chips. So they’re not chip makers. They’re making the machines that make the chips. And they were talking about how customers are looking to place orders for 28 and 29 or into 2030 already. And that is just to try to say, hey, this isn’t your typical cycle. This is going to be extended several years because of AI.

Frank Curzio 27:03

And you probably have.

Daniel Creech 27:04

The market said, who cares?

Frank Curzio 27:06

Yeah, so you’re probably saying, wow, why don’t any stocks with these stocks are coming down? There’s a reason for this. It’s because sentiment trumps everything. It trumps earnings. It trumps demand. It trumps whatever CEO of a company says positively about, you know, the future or raises guidance. Because when people fear things, they change their habits. And I’ll give you the most drastic example. Like after September 11, it took years for some people to start flying again, right? It’s not because they didn’t have the money. It’s because it was fear. It took four or five years for people old as 65 after the credit crisis to get back into the market because they were 65 years old, 70 years old. They had a nice nest egg of, say, whatever it is, say, a million dollars. They just got cut by 40% in a couple of months. Their home price, which was paid for, and they’re like, oh, we have equity on our homes got cut by 30, 40%. And they’re going, holy shit. I had everything mapped out by every single financial planner that puts it in a computer system saying, I have another 40 years.

Frank Curzio 27:59

Now it’s five or six. Am I going to have to go back to work at 75? You know, so it scares the shit out of you. And when you do that, it’s not that they didn’t have money, right? The market recovered. And the market recovered. They could have, you know, the housing price recovered. They could have got back in. But it’s the fear that drives this. It’s the sentiment that drives this. And a lot of this stuff we’re talking about at Micron, we all know Micron, memory prices. We all know it’s great. Elon Musk came out with a great statement saying Micron’s the only one in the memory industry that’s not fucking their clients, right? Everybody else is. And he said, and that should have been a positive saying, wow, they’re better than everybody else. Doesn’t matter. It’s coming down. So, you know, when people are nervous, they don’t care what any CEO is saying. If profits are up, if guidance is good, which, you know, may lead to the stock pushing higher in a day or two. But look what we saw with Goldman Sachs after reporting blowout earnings yesterday. Look what we saw with Iron announce a huge cloud deal with Anthropic two days ago.

Frank Curzio 28:45

Put up Iron. What’s it down today? This is a pretty good name. Down 10, 11%. I mean, so, you know, you’re looking at Constellation Energy after announcing a huge nuclear deal with Google. Put that out on Constellation Energy. And I think this is what, like a week or two ago? You put them on chart and you’re looking at a stock that went from the lows of what, 250 two weeks ago to nearly 300, now back down to 280. And look at this stock getting hit off of a major deal. Look at that big spike. And now it’s being used where you’re selling off. So this is the risk-reward. This is the market that we’re in where if you’re not going to get rewarded if you’re right, but if you’re wrong, you get annihilated. And this is why I was saying, I brought up what Bank of America said was so key. And they said this about three weeks ago. We were saying this, you know, two months ago. Bank of America said, we expect earnings growth to continue to be very, very strong. 25, 30%. I forgot the number it was. But then they said the S&P 500 returns.

Frank Curzio 29:42

They were expecting, I think, 2% returns, 1.5% returns. You mean to tell me that earnings are going to grow 30% and my returns are only going to be 1.5%? How is risk-reward favorable? And that’s why I was like, you could basically earn 4% for free. Why don’t you come off the sidelines? And that’s what we did. And, you know, people are trying to analyze this. I see on TV, is this a bubble? Everyone comes on. Is this a bubble? Is this a bubble? It’s not a bubble. Bubbles are formed when supply dramatically exceeds demand, right? Bubbles happen when valuations get out of control. So when we’re looking at demand, demand is off the charts. This demand’s going out to 28, 29, 30, 31. We’re hearing that from so many companies. We heard that from Nvidia. If we had full supply, they don’t have enough supply, their earnings would have grown 100% instead of 70% year over year, right? So if you’re looking in terms of demand for AI, data centers, power, off the charts. In terms of valuation, the S&P is trading at 19 times forward earnings right now.

Frank Curzio 30:35

The S&P was over 25 times before the 2000 bubble burst, right? And the NASDAQ was the key, which was over 40 times. The average forward PE for the past 30 years is 17 times. However, that’s with 8% earnings growth. Or 30% earnings growth. Even if we go to 20% earnings growth, we’re at 19 times earnings. We’re not trading at these inflated crazy valuations. It doesn’t mean that the whole market can’t re-rate and trade at a lower forward multiple of 18 or 17. It doesn’t mean that there’s a bubble. So the way we’re analyzing, the way I see people, oh, this is a bubble and what’s going on? We’re not in a bubble. This is a sentiment shift of people saying, listen, you know what? I’m worried about high interest rates. I mean, I’m worried about, you know, it’s not just rates in terms of corporations and lending. And this is what drives the economy, which is leverage and lending, not over-leveraging. Oh, we see the credit crisis. You know, energy prices. Okay, this is going to be temporary. It’s going to be temporary.

Frank Curzio 31:27

It sounds the same thing, transitory in 2022, right? So we’re not in a bubble. It’s not why we’re seeing this massive sell-off in many names in the S&P 500. It’s about sentiment. And many investors, including myself, now you’re seeing it come to fruition, believe that companies are not going to be able to maintain this 25% plus earnings growth they enjoyed for the past two years with all these risks in front of them. And, Daniel, you’re seeing data support this. I mean, the bank profits came out. Everyone’s looking at net interest income. Yes, you’re looking at the fine by Bank of America and Goldman Sachs trading revenue. You know, you look at things like employees. They’re laying off tons of employees. And these profits, you could look at them and say, ah, they didn’t meet estimates. They’re record profits across the board. It’s record across the board. They never reported stronger profits than right now. They’re just not growing as fast as they did in the past, right? And that’s different.

Frank Curzio 32:15

So you’re looking at, you know, but they’re laying off employees. Yet you’re looking at a ton of these banks. Citigroup is down. Put Citigroup up there, Joe. Citigroup, I thought had one of the best quarters of all the banks outside of Goldman Sachs, but Citigroup is down too in selling off. So, you know, how is Citigroup selling off when, you know, again, very, very strong earnings because they were buying a shitload of their stock. A lot of these companies are buying their stock. They’re raising their dividend. But Citigroup didn’t really come out and say for the first time, hey, we’re going to buy even more stock. And that was a lot of this thesis. This is why I like this stock over the past three, four years, because they said, we’re going to buy back 25% of the float. Are you insane? 25%. If you announce a buyback and you hear these, you know, $100 billion buybacks, they’re usually like 1% of the float, 2% of the float, because the companies that announce this are the hyperscales and a trillion dollar valuations. They were buying 25% of their market cap they announced four years ago.

Frank Curzio 33:01

That’s why I love Citigroup, you know, and a good name that pays a dividend. So, and it changed, right? This is a company that’s significantly underperformed the rest of their peers since the credit crisis was significantly damaged, but they turned the corner. So, you know, if you’re looking at these companies, the biggest takeaway for me is they have to pass on these massive costs with oil, gas, commodities to consumers. And I’m not sure if you saw this index. I’m sure 99% of the people have no idea what I’m going to talk about. This is something called the Cass Freight Index. Did you see this, Daniel? The Cass Freight Index, okay, which measures transportation costs. The rates for September are up 18.2%. This is year over year. While shipping volumes rose just 1.9%. Hear me out, because this is a leading indicator. It’s not an indicator that, you know, when banks and everybody reports earnings the past three months, that’s what happened the past three months. That’s why guidance is most important.

Frank Curzio 33:52

You want to look at leading. This is a leading indicator. Okay, when you look at shipping volumes up 1.9% and yet rates, prices are up 18.2%. That’s year over year. That divergence means that shipping volumes, it means that inflation for transportation costs is absolutely surging. Now, how much? Because you’re looking at 18.2% year over year growth is the fastest since 2022. Remember what happened in 2022, Daniel? Why is she transitory? It’s only going to be a couple of months, Powell. It’s going to be a couple of months transitory. We’re fine. We’re good. And then we saw CPI go 3%, 4%, 5%, 6%. It went all the way up and almost hit 10%. So that’s what we’re comparing it to. While everyone’s saying inflation is going low, the cost of these companies to do business, which is transportation, and it’s a leading indicator. Okay, this is a leading indicator. This is what happens. These are the prices that you’re seeing before the goods get to the store for you to buy and before they’re raising them.

Frank Curzio 34:47

This is the cost that they’re paying right off the bat. This is what the cost, when you’re looking at what we say, Taiwan Semis is a leading indicator, because if they’re saying growth is 25, 30%, that’s the companies that are buying the chips that are going to build the data center to put this in all their products and then go further and build out their AI system. So if you see it slow in Taiwan Semi, you’re going to see it slower every place else. And Taiwan Semi continues to raise their growth rates. It’s a leading indicator. This is a leading indicator telling you transportation costs are absolutely surging. And then the CPI comes out today. I mean, what was your thoughts about the CPI, Daniel, when it came out today?

Daniel Creech 35:20

I thought it was, well, it was basically in line with estimates. So I was glad to see that there wasn’t some major outlier there. It is way too high, though. I mean, it’s hot. So, but my initial reaction, I mean, I read so many, like, it wasn’t outside the given range too much. So that’s what I mean when it was nothing to see here, but I was glad to see that it was within ranges, I guess, is my point.

Frank Curzio 35:42

And that’s what’s so misleading, because we see it meet the estimates. It meets the estimates. So what does that mean? What happens if the estimates call for 19% inflation and you meet the estimates? You’re going to, it met the estimates. Fucking inflation, you know, you’re selling your house, you’re on a, you know, sleeping on a park bench. You’re looking at this number that came in. It’s showing 3.7% year over year growth. I don’t give a shit if it’s in line with estimates. We’re supposed to be trailing back to 2% of what the Fed’s been telling us for the past 18 months, no matter who was running the Fed, who’s the chairman. Last 24 months, we’ll go up, mandate, getting to 2%, 2%, 2%. It’s going higher. It’s going high. It’s not even close. It’s almost 100% higher than it’s supposed to be. And it’s going higher. It’s not reversing. We’re not seeing the, and that’s how you make money in stocks and in trends and everything, is when you first see it, not when it happens where everyone always invests when shit happens.

Frank Curzio 36:29

You want to get in before. It’s not going, starting to go down. It’s starting to go higher. And it’s not all food and energy, right? Because you’re looking at the core CPI, which excludes food and energy, came in higher than estimates, showing inflation growth of 2.6%. So if you strip out those two key components, we’re still well over the 2%. And when we’re talking about inflation, it’s broad. It’s not, oh, well, just this sector, just this sector. Use car and truck prices search. Shelter prices increased much more than expected. Also, apparel. Do you know airlines? Airlines are up 22%. Airline prices year over year. 22%. Holy shit. How is this not hurting them? Eventually, it’s going to hurt them. Maybe not right now, but when you have all the rest of your costs going higher, you’re going to be like, you know what? F this, man. I don’t know if I’m going to go away. I might just drive if I can. Or maybe, hey, let’s do a Zoom call. That’s what it’s going to come out to. You’re talking about 22%.

Frank Curzio 37:21

Holy shit of a cost that everybody that’s listening to this flies, right? I fly a lot for business. I’m driving to Orlando. I’m driving to Fort Lauderdale, even for my conference, which is four hours away. I’m driving that shit. I’m not paying $700 for a freaking an hour flight. No way. Yeah, I’ll drive there. It’s easier. It’s cheaper. But you have this broad inflation. Tuition costs continue to rise. Smoking products up 6%. Shelter rent, which is the biggest component on purpose, because it’s not supposed to rise a lot. They’re 3% year over year, which is insane. So now you’re looking at once this number came out, did you see the odds for the rate hike for the October rate hike?

Daniel Creech 37:58

Yes, sir. They went higher.

Frank Curzio 37:59

22% before. It’s an election year. And it hasn’t happened since when? What was it? 19?

Daniel Creech 38:03

I think it was ’92 from here.

Frank Curzio 38:04

’92. We haven’t seen a raise in interest rates in the month leading up to the November election for an election in 1992. Those odds just went to over 50%. They’re 53% right now, which is telling you that there’s more of a likelihood of a rate hike than not. Now you have a 96% chance, which is 100% chance of a December rate hike. My forecast, and I said this like a month ago with Daniel, we’re going to see at least four more rate hikes. People are like, you should stop. It’s oil prices. And then, you know, if we remedy that situation, which is like Vietnam. I mean, when you have nobody running the country, there’s nobody to negotiate with. It’s not like China and you have Xi. It’s not like Putin, right? It’s not like you can negotiate with these guys. You don’t know who you’re negotiating with because there’s so many different groups that are getting paid from whatever sources to just, they’re bombing Saudi Arabia now. They’re bombing just Middle East countries. You don’t, it’s such a wild card there.

Frank Curzio 38:57

There’s no deal that we could offer them. If we say, hey, you know what? Build nuclear facilities and blow up the fucking world. They’re going to be like, nope, we’re not accepting it. They don’t care. They don’t care right now. So how could you tell me that that risk is temporary? And once that happens, and oh, the Fed, all the increases are going to have to be reversed. I don’t see any solution to this problem. Maybe oil prices come down a little bit because we’re going to find different ways, different routes, build different pipelines. Maybe we don’t use the straight as much, and that’s going to take time again. And we’re adjusted to that, but that’s going to take time. But overall, how do you see this ending quickly, even after the election, right? You don’t see it. I mean, it’s just not going to happen. So, you know, my forecast, more rate hikes are coming because the Fed has lost total control of its top mandate, which is controlling inflation. They totally lost control. Yeah, the Treasury has its hands high. Everyone says, don’t fight the government.

Frank Curzio 39:43

Well, the government can’t do shit because you have 40 trillion in debt and nobody believes Bessent, who basically said, hey, you know what? We’re going to buy three times, four times the amount that the long-dated bond buying. That’s not working at all, right? Didn’t work at all. Interest rates came down a little bit. Again, they continue to push higher. They almost hit more 25-year highs again today before they pull back a tiny bit. So, you know, a lot of bond experts are also saying that, hey, you know what? They’re going to reverse that decision and stop buying long-dated bonds at this pace that Bessent outlined a few weeks ago. Was it four or five weeks ago? So, you know, when I see all this and all the risks and looking at what’s going on, it’s a very, very dangerous market that you’re not going to get rewarded, even if you’re right. But that’s why you have to be very, very careful in these market conditions, guys. But if you’re wondering, how come this stock’s going down? They’re reporting such good news and such demand.

Frank Curzio 40:31

There’s a sentiment shift of, hey, you know what? I don’t know if these AI companies, I don’t care about what’s going to happen two, three years ago when these guys finally are seeing that money, you know, roll in. But the next 12 to 18 months with all these costs and going into earnings season where these guys are seeing, you know, huge costs and higher costs, how do they raise guidance? How do they raise guidance? And that’s what you have to worry about here, you know? I mean, I don’t know what you’re seeing, Daniel, but just beginning of earnings season, banks reporting. You’re going to see this in the next three weeks. Holy shit. We’re going to see a really crazy market in the next three weeks, I can tell you. And BlackRock, by the way, really kicked their state. They have, you know, again, their assets are now $15 trillion in assets under management, which basically includes them owning every single company, which, you know, the previous administration used to push DEI into Exxon. Holy shit. I mean, that was amazing, right?

Frank Curzio 41:17

You know, now they don’t have any other policies, but it’s crazy when you have that kind of power that owns all the biggest companies that could, and they control a lot of the voting power too. You know, but just 15 trillion assets under management, that company has done very, very well because, you know, they’re not really susceptible to a lot of other things that the big banks are. But, you know, this is a name that actually, it was up 5% and now you’re flat. Again, are you being rewarded for BlackRock reporting amazing results? Look at that chart. It’s down from the beginning of September, mid-August. Okay, it’s down going into the quarter. They report the number that best number that you could possibly have for BlackRock, they reported, and you know what? The stock is flat. What happens if they didn’t report that number? If they don’t report that number, you’re Bank of America. You know, you’re getting crushed. You’re going to get crushed. So just be careful of this market. It’s very dangerous right now.

Daniel Creech 42:03

Yeah, it is. There’s good, I like your attitude there. Quickly from me on inflation and the CPI numbers. It is too high. It’ll be interesting to see what further comments at the end of this Fed meeting later this month. And we also get personal consumption. We get PPI tomorrow and then the consumption comes out later this month. So true inflation still has CPI significantly lower than our current one. Frank, 2.26% as of today. Now, everybody on the media likes to talk about annualized, and I think that there’s some value here. So if you look at three, six, and nine months on the headline number of inflation, three months, we’re running at four, five, four and a half. Six months, three, seven. Nine months, four, five. Okay? So that trend is not in our favor. If you go to core, as Frank said, hey, you take out the most volatile and most important food and energy, you go three months running at 3.2%. That’s higher, you know, higher, obviously. Six months, 2.8, 3.4, nine months ago. So you could argue, well, that trend, but that doesn’t mean that it’s all energy, as Frank talked about it through airline prices and all kinds of things.

Daniel Creech 43:09

It’s going to be a very messy platform and result-driven data coming. And like I said, I agree with you on the risk-reward right now. And the thing I’m looking at and trying to figure out here is, and I like your comments about sentiment, because I do think sentiment changes after the midterms, good or bad. It doesn’t matter who wins. It will take away some of the nervousness, I think. It’s not going to fix everything. If Democrats win everything, if Republicans hold everything, I do think sentiment gets better in a sense. However, I just think that the market is waiting and needs to hear a lot better story from Bessent. So Bessent’s buying another $6 billion a day. He didn’t start this. He just increased it. We’ve been doing it for a long time. So it’s not that big of news. The news is, as Frank said, he’s trying to give the signals that we have this under control or we can contain this genie in a bottle. Obviously, the bond market is not agreeing right now. But that sentiment and what he’s trying to do there, I think the market is just trying to sniff out and say, hey, are we serious about how this Treasury and Fed are going to basically kick the can down the road and make everything less volatile?

Daniel Creech 44:21

The answer right now is absolutely not. There is nothing right there, which is why we’re seeing this. But, you know, do not think that they are not going to pull levers and push buttons like every other administration to kind of bridge this chaos here. So it’s a wild ride. I agree with you, especially as earnings really kick off with some of the other companies. But yeah, it’s a coin flip right now. Absolutely.

Frank Curzio 44:42

You brought up a very good point.

Daniel Creech 44:42

Although I still don’t think they hike in October. I could be wrong on that. I just, I don’t know.

Frank Curzio 44:47

I don’t think it matters.

Daniel Creech 44:48

We’ll have to watch.

Frank Curzio 44:49

I think it matters.

Daniel Creech 44:49

Yeah, because everybody’s been vague and stupid.

Frank Curzio 44:50

It’s all about politics and stuff, but either way, they’re going to raise rates. I mean, it’s 100% chance they raise it in December. And I think that, I don’t know what the odds are. If they don’t raise, and I don’t think they will for political reasons or whatever, they just don’t. But you could see a half a point hike in December. And I don’t think you’ve heard that anywhere. But you need to slow down this economy. It’s getting out of control. Interest rates are getting out of control. And people are like, oh, this is with the norm. This is what it’s doing. It’s not normal for this environment. It’s not. Where you had housing driving earnings, all this, it’s not happening right now. So, you know, the housing market is frozen. And you brought up a good point about the CPI, where the market is trading and going higher up 14% this year, right? Yes, we pull back a little bit now. We’re probably going to pull back a lot more. And the indices are pulling back a little bit, but overall stocks are getting hammered. But this was based on that inflation number, which you said nine months ago was much higher, and then six months ago, or whatever it was, was a lot lower.

Frank Curzio 45:41

And now you’re looking at it going in the reverse direction, right? So when you see the trend, okay, inflation’s coming down, down, down, down, down. That’s great. The Fed’s not going to raise rates. Great, great, great. Okay, that’s better for equities. Okay, rates coming down. That’s better. Plus, you’re taking out that beautiful option of 4% risk-free. Beautiful option, right? And you can get more than that in different products, in Goldman Sachs products, in high-yielding products and stuff that don’t, you know, are not into stocks. You know, again, you don’t want to take on the risk of stocks with the yield. So don’t buy like high dividend paying companies because you could get paid at, you know, a 5, 6%, 7% yield right now, and your stock will be down 15%, 20%, which means the yield’s dog shit. But if you’re looking at this market, it was supposed to be trending inflation lower, and now we just got this spike to go back up. And you’re like, whoa, what happened? I mean, you know, and it’s not just energy here. And it’s not just food.

Frank Curzio 46:27

We’re seeing the core. And you brought up retail sales. And, you know, when you look at retail sales and say, okay, right now, everyone’s saying that consumer spending, retail sales are strong. It’s a laggy indicator. It’s a laggy indicator. And this is why I say with economics, it’s so amazing because all of you can know what’s going on well ahead of the economists, because all they do is look at past data and look at data, data, data, data-driven models. However, it’s real-time. Talk to your friends. Talk to family members. Talk to your neighbors and ask them, hey, you know, did you go dinner this week? And what are they going to say? Holy shit, I went to dinner. Did you see how high the costs were? The line was crazy. They don’t have good service there anymore. It’s like these companies are providing worse service, but they’re raising their costs because they’re cutting employees to generate, you know, keep their margins high. But yet, you know, they have to raise those prices. So, you know, what’s it going to be?

Frank Curzio 47:14

Are you going to be Disney where Disney’s raising prices? You’re not, and you’re providing a much worse service where you have, you know, terrible content. You’re not paying a lot of money for content anymore, but you’re raising prices. You’re throwing commercials all over this, and now your product is dog shit. Eventually, that’s going to lead to people canceling their service, right? And that’s what you’re seeing at restaurants. That’s what you’re seeing with a lot of companies where, holy shit, why am I paying this high price and getting worse service? You know, and these companies, they’re doing it because they have to. They have to raise their costs, especially now with the past month, energy prices up tremendously, high interest rates, cost of debt. A lot of these companies are in debt. It’s going up tremendously. So, you know, when you’re looking and getting back to earnings season, there is good news. Okay, I’m going to show you the good news. Money flows someplace. It has to flow someplace, because if it doesn’t, then they don’t earn their fees. And we’re talking about trillions and trillions of dollars. And if you look at healthcare, Joe, pull up like Eli Lilly.

Frank Curzio 48:06

LLY. And then if you pull up, you know, look at that. Near it’s all time. Pull up Amgen. I mean, did you see UNH? I mean, Amgen, you know, you punch it up. Amgen, United Healthcare. Even Merck’s doing better. So you’re seeing this move into healthcare because these guys have incredible pricing power. I mean, United Healthcare, I think, I mean, I don’t know the percentage of declines. I know because they decline everything. And we have United Healthcare here, which, you know, they can do everything not to give you insurance, but charge you massive, massive premiums and continue to raise every single time. But every single time you want anything done, it’s kind of like, oh, we’re not going to do that. And then you have to go through this whole process to call 20 people, and they’re like, oh, okay, all right, we’ll cover it. You know, again, it’s shitty what they do. If you’re looking from a stock perspective, these healthcare insurance companies are just printing money. You’re looking at Amgen near its high.

Frank Curzio 48:56

You look at some energy stocks doing well because they sold off with anticipation that everyone thought energy was going to come down a lot. But now look at these earnings are going to be, I mean, one of the biggest drivers of earnings outside of AI stocks is energy. And that has always lagged for the past four, five years. It’s been such a lag. Energy has been terrible, terrible, terrible. But even energy, they’re supported by these earnings. And these guys have been through cycles up and down where oil prices crash. They know what they do. They’re hoarding their cash. You know, they’ll, you know, hedge their energy prices at much higher prices. They’re very, very smart of what they need to shut off when prices come down. They’re much, much better run operationally where you see this boom and bust. Companies go bankrupt in that industry for decades. It’s not like that. You know, so you’re looking at some of these names holding up. The biggest hyperscalers too seems like a little bit of a safe haven, just the biggest ones.

Frank Curzio 49:43

You know, maybe four or five biggest names. But if you look at tech getting annihilated, momentum means getting crushed. And I don’t know if you saw the last money flow data from Bank of America that comes out weekly, and they just show the money flows of trillions of dollars of, you know, money being managed by hedge funds and everything else. Money management funds have a 37% weighing in tech, which is their highest proportion since August 2020. What do you think is going to happen if tech keeps coming down? They’re going to rotate out of that. So if you think the tech route is over right now, these guys, for some reason, right now, over the past couple weeks or even quarters, they have been really pushing into tech. And granted, a lot of that 37%, maybe 20%, 25% might be into, you know, Amazon or Meta that’s done well. Some of these stocks and some of the bigger names and maybe not the core we’ve, but, you know, we could see this sell-off continue. We’ll likely see it continue. But getting back to my thesis of what we were saying, Daniel, three months ago, and saying, hey, you know, heading into earnings season, the risk-reward is absolutely terrible.

Frank Curzio 50:46

It’s terrible for you. So it’s the massive risk of higher rates, higher energy costs. And we just started earnings season. Wait till we go through this, because I said, and this was weeks ago, that we could see a lot of stocks at risk of falling 25, 30%. I mean, you look at coal, we’ve down 30% in the past week. Cerberus down 25% in the past month. Bank of America, usually a safe name. Bring that back up, Joe. What is it, down 7, 8%? Usually a safe name in a rising interest rate environment. Doesn’t have a huge exposure to the higher energy costs. I mean, you know, now it’s down 5% in a day. Boom. Where’s State Street? State Street reported too, which is kind of like, you know, under the radar now. It’s big. It’s huge, right? So what’s STT, I think? And that’s come back a little bit, but that was down, I think it’s down 7%, State Street. Nobody’s really talking about that. But, you know, you look, this is the first week of earnings season. The first week of earnings season. And it’s not the risk also of many of these companies falling 25% if they don’t, you know, issue that positive guidance, which they have to because their earnings have grown so fast going into this quarter that they have to try to maintain this.

Frank Curzio 51:50

How do you maintain it? And if they come out with cautious commentary, good luck. But it’s not just because of that, but look what happens if you’re right. Bring up Morgan Stanley, MS. Morgan Stanley reported an awesome, awesome quarter. Look at how you got rewarded. Oh, I’m only down 3%. Thank you. Let me see your chart on that. So look, I mean, the stock has done very, very well, but look at it going into earnings, putting three months, going into three months. Look at this trend three months going in. You would think that Morgan Stanley is going to get annihilated. They’re going to have terrible earnings, well over 200 bucks. They’re going to have terrible earnings going into this quarter. And what happens? The stock comes down, so expectations are low. They beat, strong beat. And how do you get rewarded? 3%. Why bother taking that risk? Because if Morgan Stanley warns, they could be down 10%, right? Like a State Street. But yet, if you’re right, why not just take that money and put it into a money market and earn 4% and wait this out for a little while?

Frank Curzio 52:45

I mean, Citigroup, we brought up their best quarter at the major banks, down 4%. Goldman Sachs, holy shit, monster beat, crushed it in trading. And again, bring in Goldman Sachs. I mean, it’s comparable. Put it in a three-month chart. I mean, you’re talking about a stock that’s down 20% heading into this quarter. Blew out the numbers, and how do you get rewarded? You don’t. You’re down 2%. This is what we were talking about going into this earnings season, where the biggest, it’s just like Bank of America said with their analysts. We’re going to see 30% earnings growth, but that’s going to amount to 1.5%, you know, stock gains. Holy shit. I mean, that’s crazy. If you think about it, that’s like saying, hey, we’re going to announce, we didn’t announce them yet, but we’re going to announce about $7 billion contracts, and we’re just a billion-dollar company. You announce them, and your stock goes down. I mean, so what’s the risk-reward? A lot of this is sentiment. So why own all these stocks?

Frank Curzio 53:30

You want to earn some. When you can earn 4% risk-free, you finally have that option. You didn’t have that option for years. And when your company warns, you’re going to lose 20%. So if you’re right and raise guidance, you’re not getting rewarded. And if your company warns, you lose 20% in a day. The risk-reward just isn’t there. But the good news is you should have a lot of cash on the sidelines. We saw a lot of stocks in our portfolio in the past two months saying, be careful, man. It’s really risky out there. And yes, we’re getting, like I said, we’re getting out on some of them in our portfolio. I’m not saying everything’s great. You know, and again, everyone’s asking, you know, why not sell everything? You don’t know. You know, I don’t have a crystal ball. We want to have exposure. We have exposure to a lot of different sectors where it’s energy, offshore, you know, gold, you know, royalty companies in the gold space, you know, little exposure with crypto, with Bitcoin going higher. You know, and then we have a little bit of AI exposure, which we lower tremendously.

Frank Curzio 54:17

But, you know, again, it’s, you don’t have a crystal ball of where exactly the market’s going. But if you’re looking at the risk-reward, it’s crazy. But the good news is, what we see when this happens, bear markets don’t last long. And we’re in a severely bear market that people wouldn’t realize if they just own the major industry because, you know, it’s holding up a little bit well. I mean, we’re 5% off its highs. But many stocks, 70%, I think it was a stat last week, Daniel. What was it? 60% of stocks are down more than 20%.

Daniel Creech 54:45

Yeah, the numbers are high.

Frank Curzio 54:46

Which is insane. But you wouldn’t think that the big companies are holding it up. But the good news is, it won’t turn into a great buying opportunity. Now, maybe for individual stocks, but look at the S&P 500. Joe, pull up the chart of the S&P 500 if you can. Just go to the top and click that. Yeah, click the S&P 500. And now pull up all. Look at that chart. It’s the greatest chart in history. It’s so long that you can’t see the little ups and downs and stuff like that. But you have this constant growth, constant growth, constant growth. And when you get a little ahead of that growth and you pull back, it turns out to be a good buying opportunity. And that’s the good news here, because you should have money on the sidelines. You should have cash sitting and earning 4% risk-free, which we’ve been saying for many, many months now. It’s great. But now you’re going to get the opportunity to buy really good brands at 30% discounts. And that’s how you create generational wealth. That’s when you want to invest in some of these names where, you know, a lot of these names, people are following the trend and saying, look at what the companies are saying.

Frank Curzio 55:40

I know that company at stock is up freaking, how much, it’s up 300% in the past two years. And of course, and they’re saying things are going to be great. And you’re like, why is it coming down if they’re saying things are great? It’s the sentiment is shifting, saying, you know what? A lot of this is priced in. Let’s wait and see, especially a lot of companies in the infrastructure side of AI. Let’s wait and see, see how these companies do. But that’s the market we’re in, guys. I feel like, you know, watching CNBC and just hearing the same fucking shit over and over again. Why is the stock going down when they’re saying so many good things? This is a market that the risk-reward is less favorable probably than any time I’ve seen in the last 10 years because the expectations are so high with 30% earnings growth going in. These CEOs, everyone all positive, this great AI something about business. How do you maintain that growth? And that goes back to the theme that I said is, you know, it’s how do you maintain this?

Frank Curzio 56:26

It’s the fight to maintain for these CEOs to maintain that strong growth, which at the end of the day, you can’t grow forever. If you grow 8%, 7%, 8%, that’s fine. But when you grow 30% and you go 20% last year, 30% this year, and your stock’s up tremendously, I mean, the last three years, what’s the market up, Daniel? Probably 75, 80%. I think it’s 25, 21 now at 40%.

Daniel Creech 56:46

Yeah, some 20% a year, yeah.

Frank Curzio 56:47

Right? So if you’re looking at 20% a year, how do you maintain that? It’s almost impossible. You’re going to slow a little bit. And if you do, a lot of these names are getting hit. And this is just the beginning of earnings season. Be careful, but be smart, because you’re going to get the opportunity like is CoreWeave that bad? Down 40% off its highs? No, they’re good. You know, if you’re looking at Cerberus, down tremendously. Still, that demand is intact. And you’ve seen these stocks down tremendously. It’s going to create a good buying opportunity to get into some of these names, just like we saw when AI got annihilated in 2022 and Nvidia got nailed and a lot of these stocks got nailed. Just be patient here. You should have money on the sidelines waiting, foaming at the mouth to buy stocks. Just wait till after this earnings season. Let’s see what happens after the elections. It’s probably going to give you a good opportunity going into at least January, February. That’s when we’ll probably get more aggressive and you’ll see a lot more names popping into our portfolio because, you know, right now, I’m, you know, pissed some of the stocks are down, but I’m also excited at the opportunity to buy so many great names that are down tremendously on little to no news at their, you know, reporting, which is going to be pretty decent earnings and decent guidance, but it’s not going to be enough to push these stocks higher, I think, in this earnings season.

Daniel Creech 57:46

Well said. Buckle up.

Frank Curzio 57:49

Buckle up. Definitely buckle up. So, you know, you’re looking at the banks. Amazing. You know, just, but you’re seeing most of them down. Like I said, I just don’t think that you’re going to see the environment’s not going to be better than it is today. And a lot of these stocks are priced in. So just be careful with the banks here. I would definitely get out of banks. Maybe smaller banks might do a little bit better because I haven’t participated that much in this, in the past couple of years. But the large banks, you’re going to probably see revenue. A lot of them won’t. You’ve seen different divisions come down a little bit and crack the fixed income and things like that and fees and stuff. And I think you’re going to see that going forward. I just can’t see them maintaining this massive growth, which is the best environment they’ve ever seen. Because either way, interest rates go, if they go higher, yes, net interest income goes higher, but you’re going to see the rest of the divisions probably come down, housing and stuff like that.

Frank Curzio 58:36

And reverse, if interest rates come down, they’re going to get hit on net interest income. So you’re not going to have this perfect scenario where everything’s going up. You’re going to see cracks and different things. And that’s why you’re seeing these bank companies come down. You’re probably going to see that across the board with a lot of earnings going forward. So we’ll see what happens. So with that said, be very, very careful. We’re going to have a Q&A tomorrow. You asked Curzio. And also, if you’re watching football, don’t watch the Eagles and the Jaguars game, which I heard a lot about because I’m in Jacksonville and I really love Jacksonville here. So I don’t know. I don’t know if you watch football or what’s going on, Daniel, but holy cow, what a crazy week where.

Daniel Creech 59:14

I’m not saying this just because they’re your Eagles and you’re my boss. They were hurt. That wasn’t a big deal. That was a horrible game to watch as somebody without a dog in the fight. I met several friends at a cigar lounge to watch that. Boy, was that a mistake. That was a horrible game to watch. But they won, so good to do. Good for the city. Hey.

Frank Curzio 59:30

Yeah.

Daniel Creech 59:30

Cheers.

Frank Curzio 59:31

I mean, I will say this though. I thought Sirianni coached his best game of the year outside of that stupid dumb decision not to kick it into the end zone. They had no timeouts left. They come out 35 yard line. One pass and bounce, game’s over. Why even? And you gave up a kick return right at the beginning that got called back, right?

Daniel Creech 59:46

To a guy that can kick it from like the parking lot.

Frank Curzio 59:48

Yeah. I mean, they could all kick the end zone where they’re kicking off from now, but you want to kick it between like.

Daniel Creech 59:52

No, man. It’s a field goal kicker for Jacksonville.

Frank Curzio 59:53

Oh, yeah.

Daniel Creech 59:54

He can kick it from the.

Frank Curzio 59:55

He can kick it from here. With eight seconds left. And I’m watching that game with my daughter and they just kicked it and it’s eight seconds. I was like, why are you watching it? They won. I said, no, they didn’t win yet. And sure enough, that happened. But I could tell you, you said it was the worst game. I don’t know if you put on the Eagles-Washington game, which, holy shit, the NFC East is probably the worst I’ve ever seen it in history.

Daniel Creech 01:00:14

No, you’re talking about Giants and Washington.

Frank Curzio 01:00:15

The Giants and Washington. Yeah, the tie. Why would I say?

Daniel Creech 01:00:18

Eagles.

Frank Curzio 01:00:18

No, yeah. I mean, the Giant game against Washington where it went into overtime. It was great because Giants got two touchdowns. Holy cow. And the Giants have a lot of momentum. Yes, their quarterback’s out. Winston’s playing better and they scored two late touchdowns. They tied a game. It goes into overtime. Then all they basically have to do is take a knee to kick the field goal. They give a scatterball. He fumbles. And I’m listening to this.

Daniel Creech 01:00:39

Joe’s right here.

Frank Curzio 01:00:40

Washington.

Daniel Creech 01:00:41

He’s a Giant fan.

Frank Curzio 01:00:41

I’m listening. He’s happy. I’m listening to this because in the radios I’m driving because they, and they put on the Washington broadcast. Like, oh my God, he fumbles. Because the game is over. And all of a sudden they come all the way down. 40 seconds left. It wasn’t, 40 seconds left, no timeouts. Washington in the field goal range. Game’s over. It’s chip shot. And all of a sudden they just go to the line, wasting time. 40 seconds goes off the clock and nobody knows what’s going on. All of a sudden they snap the ball at 10 seconds left. He just has to spike it. He starts looking around. He runs. He gets tackled and they run out the clock. I mean, that’s like, that’s pretty much, I wouldn’t even say high school.

Daniel Creech 01:01:16

They’re gaming friends.

Frank Curzio 01:01:18

If you’re 10 years old playing football, you know that. And the fact that Jalen Daniels didn’t know that and the coach couldn’t get that call in to say, hey, just spike the ball, game’s over. And that goes in a tie. Holy shit. I mean, what’s going on with the NFC East is so bad. But anyway.

Daniel Creech 01:01:31

Vegas. Vegas called in, said, hey, yeah, tie. We’re done.

Frank Curzio 01:01:35

I know. I know. I mean, with the Eagles and then I’m a Penn State fan as well. And holy shit, you lose the wideout game again. Geez, it’s pretty, it’s pretty pathetic.

Daniel Creech 01:01:44

Boy, we’re ending on pretty depressive news, Frank.

Frank Curzio 01:01:46

I know. Let’s get better with hockey. Yesterday with hockey, that was great. The.

Daniel Creech 01:01:49

Frozen frenzy.

Frank Curzio 01:01:50

Frozen frenzy. Every single team played.

Daniel Creech 01:01:51

Every team played yesterday.

Frank Curzio 01:01:53

How cool is that? They just so good. They just get it right. It’s so good. The play is good. I love that they fight it out and they stop fighting afterwards.

Daniel Creech 01:01:57

Yeah, too bad nobody watches.

Frank Curzio 01:01:59

I love when the announcer’s like, oh, you need to punch that guy in the face to teach him a lesson. That’s what the announcers say. I love it. I love it. It’s so great. It’s no bullshit. It’s nobody flopping in the NBA and shit. And no stupid calls and the freaking, you know, with the refs getting involved in NFL’s craziness. But anyway, at least that’s the positive with football. But guys, tomorrow, feel free to email in. You probably have lots of questions. But if you’re watching CNBC, you’re watching Fox Business. I mean, these are channels I know a lot of the people on there. I’ve interviewed a lot of people on here in this podcast. I actually worked for Kramer for a while. It’s painful to listen to right now of them saying, why are these stocks going? It’s a sentiment shift that you have to be careful that trumps everything. It trumps earnings. It trumps what the CEOs are going to say. Just be very careful. We’ve been highlighting this. I had a special live event on this like a month ago. You know, just saying, be very, very careful. You’re going to see stocks fall 25, 30% in a day. Be very, very careful going in.

Frank Curzio 01:02:46

Hopefully you listen. You should have cash on the sidelines because it’s going to allow you to buy a lot of those stocks back 25, 30% lower. And you probably do very well over the next couple of years. Just be a little patient here. If you have any questions, comments, go to askcurzio.com. That’s what our Thursday podcast is for. Use it to your advantage. Use it to your advantage because I hate just, I always watch CNBC and everybody says, yo, I hate CNBC and I hate watching because that’s the status quo. That’s what everyone’s watching and what you hear. For me, when I look at it and say, okay, these guys have this wrong or they have this right or they’re not, they don’t have it as right as it should be, that leads to new ideas generation when you disprove the status quo. Right now, what they’re talking about, they keep talking about having guys on, Daniel, that are bullish as hell on this market. Oh, the economy’s doing great. The economy’s all lagging indicators. This is great. The earnings season is going to be great. It’s all lagging. That’s why the market’s trading higher going into this.

Frank Curzio 01:03:31

Be very, very, very careful because this earnings season is going to be, I think, a disaster in terms of the stock prices, not the earnings and the guidance. So you’re risking a lot and we just started. You’re going to see, I think, the next two weeks, you’re probably going to see 250, 300 companies S&P 500 report in the next two to three weeks. Be very, very careful. It’s going to drive the markets. That’s going to create good buying opportunities. So we’ll leave it there. Questions, comments, askcurzio.com or if you have anything else to ask, email me at frank@curzioresearch.com. Daniel.

Daniel Creech 01:03:58

Daniel@curzioresearch.com.

Frank Curzio 01:03:59

All right, guys. We’ll see you tomorrow. Take care.

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Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money, and your responsibility.