Daniel’s back in the office and I rib him about taking a sick day… the day before his birthday! [0:30]
Markets continue to be volatile around the Russia-Ukraine conflict. We discuss Russia’s latest “peacekeeping missions”… and why Biden’s sanctions will actually help the Kremlin. [2:45]
I point out the huge difference in public perception between Russia and China… and why the U.S. (wrongly) takes a different approach in its dealings with these two countries. [7:50]
Hopefully the Russia-Ukraine situation is a short-term problem for markets… and once it resolves, it could be the perfect time to buy oil stocks and other commodity-related plays. [11:45]
Speaking of commodities, coal is surging—and the price will remain elevated for the foreseeable future.
While “coal” is a swear-word in most investing circles… investors in this commodity stand to make a ton of money. [14:00]
Another swear-word in the investing world: Uranium. We share why we’re shocked prices aren’t much higher. [19:55]
Turning to inflation… markets continue to anticipate multiple interest rate hikes this year. JPMorgan thinks we’ll see nine in a row. Daniel and I debate whether the Fed will be aggressive enough… and Daniel explains why rising oil prices will give the Fed some wiggle room. [24:15]
Virgin Galactic, a popular SPAC, is making headlines following its earnings report. I break down why SPACs are terrible for individual investors—for the most part… And whether there’s any value to Trump’s SPAC, Digital World Acquisition Corp. (DWAC). [32:30]
- Why Biden’s sanctions actually help the Kremlin [2:35]
- Why we view China and Russia so differently [7:40]
- The perfect time to buy oil stocks and other commodity plays [11:35]
- Coal investors stand to make a ton of money [13:50]
- Why aren’t uranium prices a lot higher? [19:45]
- Why rising oil prices could give the Fed some wiggle room [24:00]
- Why SPACs are terrible for individual investors—for the most part [32:20]
Wall Street Unplugged | 859
The commodity trade is far from over
Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on main street.
Frank Curzio: How’s it going out there? It’s February 23rd. 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. Just going to bring in Daniel, it’s Daniel Wednesdays. I’m glad you came in today, since you decided not to come in yesterday. Daniel, how’s it going man?
Daniel Creech: It’s going well. It’s a rough day. I just didn’t feel well. So, back in the saddle again, as Zero Smith would say, though. And it’s Wednesday, I can’t miss Wednesdays. Wednesday is the best day of the week.
Frank Curzio: Now, it’s funny. Daniel calls, “I’m sick. I’m sick. I can’t make it in.” I’m like, “It’s all right, bud. Don’t worry about it.” But yeah, to be honest, I think that may be the first time you called in sick in like four years and of course, I’m not going to give him shit for it, right? Since it never happens, I’m like, “Dude, it’s all right.”
Daniel Creech: I did feel bad. I feel worse about it today because I’m going to play this card, because we’re not going to buy this. But I don’t plan on working the entire afternoon today. 23rd is my birthday, Frank.
Frank Curzio: Wow.
Daniel Creech: Look at that, I surprised him. Put the camera back on you, I got him.
Frank Curzio: You did surprise me. You know what’s funny, I got to tell Mike, “You know what, I’m pissed. I’m pissed at…” I won’t even tell you who it is, just sends me-
Daniel Creech: I’m going to go hit golf balls this afternoon.
Frank Curzio: Everyone’s birthday in the company and make sure you send me whose birthday in the company, because we’re still relatively slow, we’ve 17 employees total. And I was like, “Make sure you sent me.” And they didn’t even send me that. I knew it was because we had all the birthdays. So, we had my mom, we had my daughter, a bunch of cousins, just February’s nuts. So, I didn’t know it was the 23rd, happy birthday, man.
Daniel Creech: Look at that everybody. Look at that, that’s genuine. Look at that. Thank you Frank.
Frank Curzio: You know what? I don’t really feel bad. I just made it funny actually. I was going to say dude, but I don’t. But that’s okay. But I was going to say-
Daniel Creech: I was going to say, who calls in and plays hooky the day before their birthday? What an idiot. You’d probably think, and I don’t even know why, what’s going on here?
Frank Curzio: Are you going golfing later at least?
Daniel Creech: Well, I want to try to go hit balls. Finally, we got beautiful weather, so I want to at least hit the range, and have a cigar and a beverage, three, six.
Frank Curzio: That’s cool man. You’re getting up there, don’t worry.
Daniel Creech: All right. Let’s get something serious, enough about this.
Frank Curzio: You’re getting close to 50, and I’m pushing 50.
Daniel Creech: I played that card to get at… What?
Frank Curzio: No. I’m going to be 50 in May, so you’re fine. Don’t worry about it. I don’t want to hear how old you feel or whatever.
Daniel Creech: Oh no, I don’t. Just pointing it out, just a number.
Frank Curzio: Just I don’t want to hear.
Daniel Creech: Hey, next year 2-3, 2-3. That’s cool too.
Frank Curzio: Yeah. Now, we’ll-
Daniel Creech: Just for numbers games anyway.
Frank Curzio: Next year, I’ll be sure to bring that up. Let’s get-
Daniel Creech: It’s something serious for crying out loud.
Frank Curzio: Let’s get to the bar, because the dominating story to talk about yesterday too. Continuing with the Russian and the Ukraine, the mark gets up today. And whether invading, not invading, they taking over two territories in the dumbest region and not to get too technical for people who aren’t really following the story in detail. These are on the Russian border, which are Russian backed area since 2014. So, there’s a debate whether they invaded or not, where, obviously you have the UK and most of NATO and the US saying, invaded, they invaded. They didn’t invade really yet. But we’ll see what happens, but it’s still driving the markets, right? I mean, it’s still headlines everywhere and you’re seeing sanctions. So, we have to pay attention. It is moving the markets, I want to get your thoughts on it, Daniel.
Daniel Creech: Yeah. The invading thing, it’s so crazy to see how words can be and will be taken out of context and things. Have you seen the latest Trump quotes about how the left is out there to say he’s quickly praising Putin, and telling him atta boy, because he said it’s a genius move or whatever. And he was being coy from what I… And not to sit here and defend him, but it was funny because he made comments about how it was smart, where you say, oh, well, you declare the independence and then we’re going to peace keep like, oh, that’s a real peacekeeping mission instead of just going across your border and things like that. It’s definitely driving markets. We tape this live in the morning, I don’t expect… Is the market still up?
Frank Curzio: Yeah, the market’s doing well.
Daniel Creech: Okay. I don’t expect that to hold, I think that’s a bounce, but there’s going to be a lot of opportunity around volatility. Speaking of Russia, Frank, what has my attention on Russia is, have you followed this at all with the Finance Ministry of Russia and then the Bank of Russia?
Frank Curzio: No.
Daniel Creech: And how they’re disagreeing about Bitcoin?
Frank Curzio: No, I haven’t seen it.
Daniel Creech: It’s wild. I mean, to paraphrase quickly here, the Bank of Russia sounds to say, “Hey, digital currencies are terrible. They’re a threat to us.” But yet, Putin seems to be in favor of Bitcoin and things like that. Now, naysayers out there are going to take this and run with it about,” Hey, it’s illegitimate. It’s only for bad uses. They’re going to get sanctioned,” which they are. We’ve handed out some sanctions. We need to talk about those and market relations to that. But the concept of, how do you have it if Putin is for it? How the hell do you have any other disagreement over there? Is this just fun PR? I mean, I’m going down this rabbit trail. There’s a great article on Zero Hedge, I’ve seen a few things out of Reuters, and it’s amidst all the Ukraine stuff.
Daniel Creech: And I don’t mean to make light of that, that’s terrible. I hope there’s not war, that’s awful. Yet, the Bitcoin thing is just, how do you have that disagreement over there and what does that mean? They’ve already banned it, we’ve seen headlines about that, similar to the China, which just rinse and repeat. Something is there, and I think that’s more bullish for the crypto in general than not. And that’ll be something I’ll follow and look to report back. But that’s just one of those, there’s something under the surface there that is not in the limelight, and that’s why you should continue to research it.
Frank Curzio: Yeah. I mean, we’re looking at so many stories. I mean, I think it was yesterday that the President of Ukraine said, they have invaded and then we’re being told they have invaded, that’s the President of Ukraine saying that. So, just the information out there and misinformation, I think is funny. But, what’s also funny is how the US and the UK can’t do anything. The fact that Ukraine’s not now, and never be, in NATO, they can’t do anything. So, what do they say is, Biden tell Putin did the US would impose serious and severe course if they invaded. Now they’re calling an invasion. So, what does the US do? They cut off Russia from western financing. Russia has a surplus; they don’t need financing from the west.
Frank Curzio: Europe’s response was even funnier. The UK froze assets of three billionaires. I mean, if you froze the assets of three billionaires here in the US, is that going to result in the US not invading another country? I have no idea what that means. And they also said they froze assets in five Russian banks operating in the UK, again, very, very little steps here.
Frank Curzio: Germany’s response is even better. They said, “Hey, we’re no longer supporting the Nord Stream 2 pipeline.” And I don’t know if you’re familiar with that pipeline, it’s not operational yet. They have gas in it, but they’re still going through the final… It’s completed I think in September. So, it’s not operationally yet, but this is going to send gas directly into Germany, bypassing the pipeline that goes through the Ukraine and Poland. So, it’s a huge deal to Germany, especially if you really think that Ukraine’s going to get invaded, whatever.
Frank Curzio: So, what does this do? Like these Germany sanctions? What does it do? It results in oil prices surging, which is great for Russia since it’s the world’s biggest oil producer and pretty close to it. I think they just surpassed us because the US, we cut back on drilling to focus on renewables, the planet renewables that we don’t have available yet. So, we’re cutting back. It’s terrible for Europe since 40% of all Europe’s gas supply comes from Russia. So, you’re cutting it off even more, and prices are out of control there. I don’t know if you’ve seen and they are at its crisis level, it’s crisis. And now, that is terrible for the US and the rest of the world, because now what? Now, we have to pay higher gas prices, higher energy prices, which we’re seeing as starting to surge.
Frank Curzio: These are the sanctions that push against Russia, which are fantastic for Russia and terrible for the rest of the world. I don’t know if I’m going to use the right words here, you could say it’s ironic or hysterical. I mean, that it is actually funny, but we have this perception where Russia is a number one enemy of the world, right? Where we trash Putin, we lie about Russia, how we lied about Russia fixing our elections. We paint a picture of like, they look at a conquer the world, similar to Germany and that’s Germany in World War II and stuff like that, and this is the start of it. We paint this crazy picture around them. Why? Because we don’t do any business with Russia. It doesn’t hurt us.
Frank Curzio: But you know who we do a lot of business with? With China, who kill 6 million people in every country to coronavirus. They steal a lot of technology and talk about the government. I love people in China. I’ve been to China, I like it. I’m just talking about your government. They lie about everything, committed genocide, makes people who speak out against the government suddenly disappear. And how do we treat China? With open arms.
Frank Curzio: But wait a minute, Daniel, they had the Olympics there. And what do we do? What do our politicians do? The politicians boycotted the Olympics. We have a lot of our athletes there, if they boycott, what does that mean? It means our politicians then go to Beijing and take photos with China’s politicians, higher ups. That’s what it meant. However, we have VISA, Airbnb, Procter & Gamble, Coke, Intel, they’re sponsoring the Olympics. They make a ton of money.
Frank Curzio: We have the NBA still broadcasting and supporting China’s along with our NBA. Why? Because we do a ton of business in China and every politician is on the take, and we know that. There’s so many links in the back. It’s not a conspiracy theory. If you really do a little bit of research, it’s fine, I get it. You can call it lobby and call it whatever it is, but it’s so funny how we have one place that’s significantly worse than another one. But we’re being told that Russia is this huge enemy that’s taking over this nice little Ukraine country, who’s one of the most corrupt nations in the world. And it’s just funny, it’s not like I’m taking Russia’s side or Ukraine side. For me, I just think it’s not smart for us to be poking the bear where we have a nuclear superpower that we tend to mess with all the time.
Frank Curzio: And we can’t really do anything about it, because they’re not in NATO. So, we’ll talk a big game, we’ll talk over this. But the bottom line is this, I’m going to agree with Trump here. I mean, Putin’s plan fits perfectly, because now it makes no them to invade. It makes no sense to them go any further. They got what they accomplished. They have all their troops on the front line, on the border. Now, they can demand whatever they want and which Europe has to comply because they receive 40% of their energy from them. So, they’re going to talk a big game and say how we stop this or whatever, but they’re going to comply because when you control the energy, you control the world, right? And Russia controls a lot of the energy.
Frank Curzio: And then you have the US. And the US is forced right now, we are forced to show strength. That’s why we see, “the severe consequences,” why? Because we really f-ed up Afghanistan. We just left, got taken over by Taliban, look basically horrible, weak, left US troops there. And now, China’s looking at us because they’re about to take over Taiwan. So, when you look at everything here and everything that’s going on as an investor, here’s what you need to know. This is a short term problem. It’s going to impact stocks, it’s going to impact oil. You see it impact energy, we’ll cover that in a second. But the bigger problem as I see yesterday, is more like the Fed and what’s going to happen with the Fed, how many rate hikes, we’ll talk about that in a minute. Because if more, just came out.
Frank Curzio: But for this whole problem is a lot of noise. You’re going to hear a lot of stuff, but under the table, I think a lot of this is going to be settled again. I don’t know for a fact, but it makes sense. It doesn’t make sense to Russia to really have the whole entire world hate them. Because right now they could have the whole entire world on their side and everybody say, “Hey, we made Russia do this.” And Russia’s going to get whatever they want right now, be able to sell their natural resources to maybe even the US. So, whoever, right? I don’t know.
Frank Curzio: I mean, we don’t need to do that if we drilled in the US, but as crazy as it sounds, but we’ll see how they play it out. But right now, Russia’s in the driver’s seat, they’re smart. Just paint the picture that this is what we’re going to do, and now they can get whatever they want, because everybody they wants peace, and now they’re in a driver’s seat and that’s how you play politics. So, let’s see how this plays out. I mean, that’s how I feel about it. As far as stocks, you can go there. I know you talked about energy for a long time and now, again, prices keep going higher and higher.
Daniel Creech: Yeah, from dumping it down and taking away outside of the act of war, or invasion and all that kind of thing, I’m going to dump this down to my level and I don’t mean to make nice, or foo-foo any of this, and the seriousness. From specifically or literally, an economic and high rich resource company like him, you could argue he is doing well for what he wants because commodities are high, and Russia’s big producer and things like that. Daniel Creech would like to see something here. If you don’t already have exposure to oil and natural gas, you should. And the best thing that could happen here is that you see a de-escalation over the next week or two and oil prices drop, say five to 10%. That would be fantastic, because Brent is closing in on a 100. WTI, West Texas Oil is about 93-ish, 94-ish I think.
Daniel Creech: If those could drop five to 10%, you’d see a quick pullback in oil and natural gas stocks related. That would be a good entry point to add to, we’ve talked about scaling into positions around volatility in every sector over the last several months, just due to rising interest rates and political fears. That would be what you do because higher commodity prices are not going away. If Russia pulled back all their troops today and said, “Hey, you know what? We were just kidding. Got you. Move on, we’ll go play nice again.” The higher commodity prices are not over, and there’s tight supply, there’s lack of drilling, there’s political forces headwinds with the green movement, we talked about in the past. And again, not agreeing or disagreeing, just simply saying what’s going on. And that would be great for commodity prices being sustainably higher for the long term.
Daniel Creech: So, in a perfect world, Daniel says, “Hey, some form of de-escalation, quick drop or pull back in the price of oil. And that would be your entry to buy another, third of a position or however you want to do that specifically.” But low hanging fruit of Exxons, Devon Energy, we’ve talked about Continental Resources, anything like that, I definitely think you should have exposure to. And don’t forget the railroads and the lowest hanging fruit of all the best inflation play around is Berkshire Hathaway.
Frank Curzio: Berkshire Hat-
Daniel Creech: In my opinion.
Frank Curzio: I mean, let’s stay in the commodity thing, because it’s higher oil prices. We see higher oil price, higher energy prices, it means every company, that impacts every one of them. So, what are they going to do? They’re going to raise prices. And that leads directly to inflation, which hurts us all.
Frank Curzio: It’s funny how all of a sudden, nobody’s talking about coal anymore. And coal is very, very, very, very interesting, which coal prices in January 2021, it’s $60, you know what they’re at today? $235. If you want to see companies that reported the best earnings this earning season, and probably the past two earning seasons, you could look at Arch and Peabody. And these companies are seen so much demand and generating so much money.
Frank Curzio: And again, you’re not going to hear it because they better not put publicity on this, you don’t want that. Everybody hates the coal, it’s the enemy, they’re killing the world. But what they’re doing is, they’re exporting a lot of it to places like China and people that are using it. They’re promising that we are going to lower emissions, instead they’re using very, very cheap coal to fund their operations and build their economy while we decide to cut our drilling right now, because… Which again, I support climate change and I agree with it, but it would be nice if we had the renewables to cover what we’re cutting, which is why we’re seen this massive surge outside. It was happening before this Ukraine and Russia is escalated. And to see where coal is going right now, to the point where these guys are generating so much free cash flow, it amounts to about 80% of their entire market cap. Try to find a company that you could say that about. There aren’t any, there’s zero. You’re not going to find that any place.
Frank Curzio: I mean, let’s add a different quarter, selling business or whatever bought in cash, but when you’re looking at that, what everything else is paid in that free cash for free money, that the amount of money that these companies are making right now and phasing out a lot of their operations like they’re supposed to. And they thought that would cost a lot of money, but now it’s not because you’re seeing coal prices higher, and just focusing on other things like coal that’s a little bit cleaner than the real dirty coal in those dirty coal plants. That’s what they’re shutting down in the US.
Frank Curzio: But man, it’s just the commodity prices. And what we’re seeing, look at Lumbers through the roof, again. Even palladium, platinum have been surging. I mean, surprised gold hasn’t really, really taken off a year, we’re just waiting for that. It has steadily moved higher, seen some of the stocks do a little bit better, but I’m surprised it’s just not surging here. But yeah, coal is… Man, China’s using it more than-
Daniel Creech: China and India too.
Frank Curzio: India, yeah. It’s two largest user of coal, and it’s crazy. It really is. There are players off of this, that work. Inflationary indicators are going to continue to go higher as long as we have this back and forth. We’re looking today, as we started this, Nasdaq was up around one and a half percent, it’s down now. Same with the Dow, as we’re doing this and we’re doing this around, 10:15. So, you got to constantly see this back and forth, back and forth, but there are industries that are going to continue to do well, that will do well in inflationary environments and also just have pricing power. And I covered a lot of that yesterday, and that’s really what we’re seeing here. But it is amazing just to see where coal prices are, what commodity prices are and just continue to search.
Daniel Creech: I have a fun stat for you around coal and I’m going to totally screw it up right off the bat. I’ll admit this, I don’t have the year over year or anything, but it has to be significant. And for everybody out there, we’ve referenced where we get data and different websites things, oilprice.com is a great source for energy related, all kinds of things, as the name includes or hints. Between January 2019 and November of last year, commercial banks funneled a jaw dropping one and a half trillion dollars in the coal industry alone. 80% of coal financing and investments come from just six countries, which isn’t going to shock anybody. United States, China, Japan, India, Canada, and the United Kingdom.
Daniel Creech: Nothing can go straight up forever, we’re going to see ebbs and flows, volatility and things. But here’s why I think this has a lot further to run or at least sustainably higher. You mentioned if we could replace all the energy needs from, quote-unquote, dirty, to quote-unquote clean, that would be fantastic. And I don’t think anybody, including yours truly, would be upset with that. But since you can’t and it’s not actually possible, then there ought to be better steps to take.
Daniel Creech: Here’s why it’s going to continue. This gentleman, the head of research, they’re not basically saying, this is a quote, “Unless we end financing of coal, it will end us.” They’re not even acknowledging the fact that people need energy around the world and they don’t care. They don’t care about higher prices. They’re simply saying, “Hey, this is such a serious situation that if we don’t get off a coal and just cut off the financing, then it’s going to ruin and kill the earth.” That, my friends, is all you need to know on why this is still a timeout box. Coal is a swear word for investing, just like leverage is a swear word. If you say leverage, a lot of people just think you’re being a housing market in 2007-2008, and it’s not. So, as long as you have people just putting their head in the sand and thinking, “Hey, we got to get off this, because the world’s coming to an end.” You can make a lot of money as they come to realize that just simply isn’t true.
Frank Curzio: Yeah. I mean, that’s a bad word. I really quit because I just… I’m going to bring up a chart-
Daniel Creech: We need a swear jar Frank, that’d be a fun little podcast. We need a swear jar for different words… Not good words like you used, but coal and things like that. It’d be fun.
Frank Curzio: Yes. And even swear words I get, yeah.
Daniel Creech: Get subscribers to…
Frank Curzio: My emotions come out, and then yours comes out. But right now, I have the UK gas chart here. It’s funny if you watch it on the YouTube page, if not, I’m going to explain it to you if you just listen to iTunes. But you’re looking at $30 prices in September 2020, and they went up as high as almost 400 bucks, 350 when its highs. And now, it’s at 200. So, they don’t have leverage. You don’t have leverage in Europe where you want to cut off your biggest supplier of energy.
Frank Curzio: But another one, you mentioned a dirty word, another real dirty word is uranium. And that solves a lot of people’s problems when it comes to uranium. So, I’m just surprised that you’re not seeing more. We just see a huge rise, we’re looking at 2820, $9 prices. They did go 50 for a little bit, and they pull back down. They’re like 43-$44 a pound. But man, that solves so many problems, especially in Europe, which really… Again, Fukushima, a lot of craziness and everybody came off, everyone’s going to die and nuclear plants are going to explode every place and all this stuff. But if you really focus on that, I mean it cover a lot of these costs and reduce the need for these fossil fuels. It’s a cleanest fuel, it’s 24-hour base load, which is not like solar or wind where you need the sun to be out or the wind to be blowing for energy. And it just makes sense. It’s safe.
Frank Curzio: A lot of people worry about it, I get it. But man, you could see, some plants turn back on, France got turn back on. France also said that they’re going to use a little bit more coal, which makes sense because they have to, you don’t have a choice. You know what I mean, look where prices are when you have all these initiatives and stuff. But man, I’m surprised when I seeing more out of uranium, Daniel. And prices really, really surged because even in this environment where we’re seeing how oil prices could really skyrocket, and they’re going to stay here, guys. Even outside of this, they were rising tremendously before this crisis, right before Ukraine-Russia. Just where you’re looking at demand, the supply issues and so much supply coming off the market and under investments and stuff, this is going to be around for a while. Energy’s going to be around for a while, you’re going to see high energy prices. So, it will be interesting to see how this plays out. But man, uranium just makes a lot of sense to me now.
Daniel Creech: Uranium’s in the same situation as gold. I’m just surprised it’s not spiking and a lot higher than it is. I wish I had a better answer to tell everybody that, I’m as dumbfounded as I have been, but that’s the reality of it. So, we’ll just continue to research and follow that. But yeah, both of those are kind of head scratchers on my end.
Frank Curzio: Yeah. No, it definitely is. And it’s just funny, because all this stems from all the… You have Fukushima, it seems like every 20-25 years we have something with nuclear waste and radiation link or something like that. But when you look at where the most earthquakes come from, and that’s what of Fukushima, they happen along the ring of fire. And that so happens with, the ring of fire is where the most nuclear plants are located, which doesn’t make sense to me. But that doesn’t include Europe, especially in some of these places where just very, very little part of Europe, not a lot, if any. But for France, and Germany and everybody just like, “Hey, no more nuclear, no more nuclear ever.” For me, I think it’s funny when you really look at it.
Frank Curzio: And right away, I’ll bring up a picture right here where you could see it through the ring of fire, but that’s where you see, the most earthquakes happen. So, let’s not build nuclear plants along that if we can, but doesn’t mean you have to close every single one, because that would take 24-hour baseload, cheap energy, cleaner than ever. It just makes sense at every level. But again, it’s a dirty word. It’s a dirty word that people-
Daniel Creech: Swear word sounds better.
Frank Curzio: Are definitely afraid of. And it’s crazy. It’s crazy. So, I guess coal I think is better. I think people could, when it comes to coal say, “Hey, I’m okay with coal.” Much more quicker than they would be okay with uranium. I think around the world, I really do. I think in the US, that’s no. But every place else around the world, I think that’s-
Daniel Creech: The meltdowns, the fears of explosions and radiation… I mean, I get that to a certain extent. You could go down there, you could have conversations and explain how it’s safe and why it’s safe and all that. But meltdowns are awful, and I give people credit or I at least understand that sympathy and that worriness. I’m not saying it’s enough to stop and not build them out, not continue down that path for all the positives. But I understand how the highlight of the negative is an eye catcher, granted. I mean, you’re not overlooking that. Yes.
Frank Curzio: And it was funny because yesterday came on, and this has to do with the conversation here where, how a lot of this caused inflation and we’re seeing inflation rise. We’re still very, very strong, inflation number’s very surprising. Usually, higher prices is a cure for inflation, because it just results in people changing their habits and people are going to change their habits. It’s just, eventually you’re not going to pay as much. And you usually see a tail off, which the Fed thought that would happen over the past 12 months and it didn’t. But now, we’re getting to rate hikes, and how many rate hikes. And it went from three-four, we were debating, and I think I was over that. And you were like, “Yeah, I don’t know if the Fed will or whatever.”
Frank Curzio: And then we’ll go into… I think Goldman Sachs went from three to four in a month from November to December, then in January, I think they said we can get six. And now, you brought this up and I didn’t even see this, this is from two days ago. JP Morgan came out and said that they see nine rate hikes, nine rate hikes until March 2023. That’s the number I haven’t seen, I don’t think that number is being factored in. And I hope that they’re wrong on that, Daniel. But that’s definitely a very big number I haven’t seen or heard yet.
Daniel Creech: And they we’re saying, “Hey, they’re all going to be a quarter percent, .25.” There’s been a lot of talk, and you pointed this out and it’s correct. They don’t have to do anything in the sense of, they’re trying to be transparent, they’re trying to steer this big ship and tell everybody what they’re going to do to take away from volatility, just shows you they don’t know what they’re doing because it actually adds to volatility. But they could say, “Hey, instead of .25, we’re going to go .5.” A gentle from the Fed, I don’t know if he’s a voting member, but last week didn’t somebody come out and say, “Hey, I’m in favor of raising 1% right off the bat. So, screw .25, .5. Let’s just go to 1%.” You could do any of that. Again, they should be raising rates quickly, I just don’t think that they’re going to have the guts to do the right thing. Color me, color me.
Frank Curzio: See, I don’t think it has do with guts, I think they have to. I mean, if inflation-
Daniel Creech: Right, but they still have to come out and do it. I mean, they still have to take action and-
Frank Curzio: I mean, you’re seeing rates rise already, but if you don’t do it and inflation continues to go higher, you risk destroying the economy. Inflation is extremely-
Daniel Creech: Not arguing with that.
Frank Curzio: It’s dangerous.
Daniel Creech: Just don’t have a lot of faith in-
Frank Curzio: We have a recession, which is a normal course. And you see the S&P 500 close yesterday at I think it’s… Whatever. How much is it down? 10, 12, whatever it’s down. Correction territory, that’s a big deal or whatever, but Nasdaq’s got more that, so is a Russell. But when you look at all these numbers and factors on a whole… Where you’re looking at, okay, where’s inflation going and it hasn’t really tailed off yet. And then you look at a Fed, that knows it behind the curve. I mean, they haven’t even done anything yet. So, anything less than a 50 base point hike is going to be very, very surprising. Half percentage, that’s going to be very surprising.
Frank Curzio: I don’t know if I could say nine consecutive, because a lock had happen in nine consecutive. I mean, you talking about through… This is longer than a year, there’s 13 months where we could see these prices really tail off. That’s a good thing. But the Fed has to react right now and they have to react immediately. It’s not totally out of control, because our economy’s still holding up well, a lot of assets are higher and home prices are higher and stuff like that. But when that changes, I said yesterday, this is going to be the first time in history that the Fed is going through a tightening. It’s about to start a tightening cycle with all the major indices below a 200 day moving average, that’s never happened before. That’s freaking scary. With that said-
Daniel Creech: Say that again, first time it’s hiking,
Frank Curzio: First time, it’s going into a tightening cycle where the hiking interest rates with all the major indices are below 200 day moving averages.
Daniel Creech: Okay. All right. That’s a fun fact.
Frank Curzio: That’s scary. Usually, it’s the opposite, it’s not getting hot, okay. So, that’s what happens when you back into a corner, you’ll you continue to inject money into this, even though asset prices a year ago were at record highs and we went back, look at the earnings, earnings get back to normal pre COVID. And you still pedal to the metal, which is why we have massive supply chain issues, because we’re not talking about hundreds of billions of dollars. We’re talking about trillions and trillions and trillions getting jacked to the system and that’s what’s happened.
Frank Curzio: So, I think this forecast is useless, the JP Morgan forecast, whether he’s saying, nine times, the 25 base points each time. I mean to me, just so much could have happen six months from now where, I’m hoping that and a lot of people hoping that prices just ease a bit. And then they’re saying, “Hey, we’re not going to tighten as fast as quick. And who knows, maybe we’ll stop tightening a quarter or two.” That’s what you want to hear. Because right now there’s still uncertainty. There’s so much uncertainty, Daniel. I mean, we’re talking about November. It’s February, we just talk about a couple months. We went from three rate hikes to four rate hikes to six possible to nine. You want to talk about an uncertain market and throwing Ukraine and Russia doesn’t get more uncertain than this.
Frank Curzio: The only advantage when I say yesterday, the only thing that’s a positive is that, the hedge funds and everybody are net short. Everyone’s leaning to one side shorting this market. The net equity exposure was over 40% at the beginning of the year. It’s negative now, it’s negative eight. So, equity’s on the net short. So, when you’re looking at that position, everyone on one side, it’s usually a contrarian indicator because all you need is one tiny little positive note, just one little tiny positive note. If you get it, tensions ease, you see rush, you’re going to see this market really spiking. It’s probably going to spike three, four, 5%, maybe more because you’re going to see massive, massive, massive, short covering.
Daniel Creech: Absolutely.
Frank Curzio: Because everyone’s leaning to one side, that’s the one positive. But still, a lot of risks out there, and hopefully this plays out right. But the risks come with the uncertainty, and this doesn’t help with JP nine times. Where did that come from at a left field? We’re talking about the biggest bank in the world, nine times. And we’re talking about nine times when Jamie Diamond has the biggest ties to the Fed. I mean, he’s got the most connections to the Fed, getting one of the smartest men in the space, whether you like him or not. I think he’s pretty straightforward guy, but there’s a lot of uncertainty out there and you got to prepare.
Daniel Creech: If I can, one day to point on why I don’t expect that many hikes and just don’t really have a whole lot of faith because one thing that’s helping the Fed is higher oil prices. And the longer the oil prices remain higher, going forward three months, six months, it’s going to help them in my opinion, because when you have sustained higher oil prices that makes the cost of everything move higher. That’s going to hit everybody. Everybody listening to this podcast over time, filling up your tank, $2, 250, from 2 to 250, to three to 360, like here is on the island. That weighs on you over time.
Daniel Creech: You do that another quarter from today forward, it’s going to cause affects and cut back somewhere else. I say all that because the inflation readings coming down the pipe three to six months, I think we’ll back off some and that will give them a little bit of grace they need. You got to quit seeing the spikes of year-over-year and all that kind of stuff, because headlines saying, “Hey, 40-year high inflation.” That doesn’t look so good. Now, you’re going to get a hike in March. You’re going to continue to get higher commodity prices. And I think the following inflation readings, after that, as long as they show a little bit of improvement, that’s going to give the Fed wiggle room, and I think they’re going to use that. So-
Frank Curzio: I know what you’re saying with higher oil prices, but we’ve seen higher oil prices for months now. Six months and in the middle of that, we’ve seen inflation absolutely surge, which is the opposite of what the Fed was going to do. So, my only fear is that. I hear you, like the cure for inflation is higher prices because people are going to change their business habits, and then you’re going to see less demand, you’re going to have to lower costs. And again, that could force a recession and profit margins get hit and stuff like that, leverage coming out of the market. But the problem is, we’re seeing oil prices surge and inflation continue to surge. And we’d like to see those trends, both of them, I mean, come down and we’re not.
Frank Curzio: So, it’ll be interesting to see how it plays out because energy’s a one thing that affects every single company across all industries. Higher energy prices, most industries, but not maybe software companies and stuff.
Frank Curzio: But yeah, it impacts a lot. Especially industrial sectors. So, that’s going to force them to raise prices tremendously and logistics and stuff like that. And it does affect even software companies. If you’re getting parts and stuff or whatever, any place for your computer systems or whatever, you’re going to see much, much higher prices. But it will be interesting to see how it plays out. I think everyone’s waiting for some moderation here and we’re not getting it. And that’s why it’s like, “Holy shit, how come this hasn’t happened yet?” I mean, surprise affect tremendously. And it’s so surprising right now, hopefully those trends change again.
Frank Curzio: All you need is a little bit of good news because everyone’s leaning short this market and you’re going to see this thing really, really take off. And plus there are companies that are getting it done that have pricing power. I’m not saying to sell off everything, but I wouldn’t be going into the highly leverage positions yet. Those stocks are down 80%, I wouldn’t even touch those, because when you look the valuations guys, like I said, with Virgin Galactic, it’s still trading a 2 billion plus valuation in a market cap, generating 3 billion in sales. So, it’s still was 10, 12 billion or whatever it was.
Frank Curzio: But even after 80%, people are like, “Wow, I’m going to buy this thing.” I don’t see a lot of people going to space anytime soon to the point where you’re scaling that business. So again, it was a lot of people made money and unfortunately, a lot of average investors got the shit kicked out of them, but the Wall Street guys made a fortune off of it and it’s sad, but that’s what happens with most SPACs. And I think you’re going to see SPACs, not completely disappear, but down tremendously. And I think people are onto these crazy valuation and people dumping the stock right in your face and all this hype and shit like that. I think that cycle is played out, I don’t think you can see a lot of SPACs come out going forward. So, we’ll see how that plays up.
Daniel Creech: Yep. You want to piss everybody off with the SPAC? The DWAC is $87. It’s down 6%, but it’s still huge.
Frank Curzio: I mean, at least you could put valuation to that because a lot of these SPACs you can’t. They’re going to try to put valuations on, it’s funny when they do the road shows that they try to explain how this company that was worth, $500 million three months ago is now worth 3 billion in five months. All because it’s a SPAC, and they’re raising this money and pipes and giving everyone whatever they want, a dollar, $2, $3, you get to buy a 10, 11, 12, 13.
Frank Curzio: But with that, you could look at the amount of people that followed Trump on Twitter. And if they get a certain percentage of that audience, you could see how much is that’s worth, because that’s worth a fortune. That’s why Peloton have so many bidders, even though it got crushed, because you have a lot of people that recurring revenue. When you have those people on a platform that are going to follow you, now you could sell them anything you want.
Frank Curzio: The hardest thing is getting to the platform and he has as a following. So, I’m sure you’re not going to get even 70 or 80% of audience. But if you get 30, 40, you’re talking about, how many Twitter followers would he have? I don’t know, a hundred million. I don’t even know. But now, you’re talking about, tens of millions of people on that platform that you could sell stuff to, whatever. But to me, I could see that where, okay, that SPAC makes sense, where you can put evaluation behind it. But a lot of this other shit where it’s all positioned to where… It’s basically a pump and dump scheme, every one of these, almost every one of them. I would say 85% are pump and dump schemes.
Frank Curzio: They just inflate this shit, go on the road show. They don’t need to add or disclose warrants or a lot of stuff and ownership and doing these pipe deals. And then, finally get them launch and everybody makes a fortune… Well, not everybody, but all the insiders make a fortune and credit investors. It just really piss me off when I see that whole system. But that one, at least, DraftKings are right. They did the right thing. I know that one’s getting crushed too, their leverage and it’s a roll up. And they bought a whole bunch of shit, but there’s a couple of them that are doing the right things. Most of them, especially the later ones that came out in, 2020, 2021, a lot of those are really garbage and you’re seeing it right now. A lot of them are getting destroyed. So, we’ll see how that market plays out.
Frank Curzio: But Daniel, that’s our time. Thanks so much for coming on. Yeah, great stuff. Love your opinion and glad you’re doing better. And most importantly, happy birthday, man.
Daniel Creech: Yeah, thank you. Thank you very much. It’s great to be here. Love Wednesdays, because all of you guys are out there. So, cheers.
Frank Curzio: Yeah. Just remember if you are offended by anything Daniel said, give him a break today. Don’t send him an email, send it tomorrow. Not today, because it’s his birthday.
Daniel Creech: You can send it today. I’ll read it tomorrow.
Frank Curzio: Yeah, read it tomorrow.
Daniel Creech: Daniel@curzioresearch.com.
Frank Curzio: Yes, that’s cool. All right guys, questions, comments for free, I’m here for you. Email at firstname.lastname@example.org. That’s email@example.com. I really appreciate all your support, and I’ll see you guys tomorrow. Take care.
Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respect financial media companies in the industry. The information presented on the Wall Street Unplugged is the opinion of its host and guest. You should not base your investment decision solely on this broadcast. Remember, it’s your money and your responsibility.
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