Harris “Kuppy” Kupperman, founder of Praetorian Capital and editor of Adventures in Capitalism, joins me to discuss the environmental, social, and corporate governance (ESG) movement—and why it could be terrible for energy prices going forward.
Kuppy also shares his take on the Reddit army of retail investors… how he finds his best ideas… and a few of his favorites right now… [26:13]
With the Federal Reserve meeting later today, Daniel and I discuss market expectations… whether the Fed will raise rates later this year… and why it can’t afford to be wrong on inflation.
FInally, there are major shipping delays out of China related to another coronavirus outbreak. We debate whether this is priced into the markets… and explain why you should be prepared for volatility around earnings season. [01:02:58]
Wall Street Unplugged | 778
The Fed can’t afford to be wrong on inflation
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 June 16th. 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. Remember when nobody cared about inflation? I’m talking just a few months ago. It was all the data, the CPI, the PPI, which is consumer price index, producer price index, wages, rising labor shortage, chip shortage, everyone raising prices, everyone. I mean, nobody cared. It’s like talking about uranium from 2012 to 2018. Nobody cared. Uranium. What’s uranium? We still use that for electricity, really? There’s publicly traded companies outside of chemical that I can buy? Everybody hated uranium. Now our uranium videos, they’re the most watched. About uranium, it’s pulled back a little bit, which is okay because we’re as pulling back though prices are going higher. But it’s a bit up incredibly, but it’s like talking about inflation, it was uranium. Nobody cared. Nobody cared.
Frank Curzio: Over the past two weeks alone, holy shit. I mean, everyone is talking about inflation. It’s a top story across all the financial sites. Go look for yourself, there was list of top stories. Everywhere. It’s everywhere. Why? Because consumer prices, the CPI are now a 25 year highs. That’s the CPI guys. The gauge is created by our government to basically never show inflation. Well, now it is. The PPI, the producer price index rose by its highest amount this year, just one year, two year, four years ever, since they’ve been keeping track of this, ever. Are you surprised at this? You shouldn’t be. I mean, it’s a direct reflection, commodities, look what commodities are, look at the cost of housing, the cost of everything is going higher because materials are much higher.
Frank Curzio: Why are we surprised at this? Even in China, you see the data inflation 12-year highs. We’re going to see this in Europe, as the rest of Asia. Europe, they’re going to open up from COVID. Wait, explosion, inflation, they’re going to see the same thing. And now over the past week, some pretty powerful people have come up talking about it. And you look at Jeffrey Gundlach, who’s came out and said, “Don’t count on inflation being transitory.” Well, brief. And Jeffrey’s a pretty important guy, known as the Bond King, he’s a billionaire and manages a cool $135 billion through his firm, DoubleLine Capital. Then Jamie Dimon, CEO of JPMorgan, another pretty important person. He came out and said JPMorgan is hoarding cash right now because inflation, and I’m quoting, “is here to stay.”
Frank Curzio: It’s a pretty big statement considering he is the head of JPMorgan and what do they manage these days? Two and a half, $3 trillion. And we have Paul Tudor Jones coming out of the woodwork. Did a pretty cool interview on CNBC saying, “Go all in on the inflation trade as the fed keeps ignoring higher prices.” And they are. They’re ignoring higher prices. Paul Tudor Jones, and not one of the hedge fund managers has mentioned often in the media, but very, very important guy, legendary, billionaire. I think he has something like 45 billion in assets under management in Tudor Investment Corp.
Frank Curzio: Now, there’s something these guys have in common other than being filthy rich, pretty smart, and we all kind of wish we were at that level. They’re all old dogs. Meaning, they remember the last time we saw inflation in the ’80s. They lived through it. Most of these guys were managing money during this period, and it was double digit inflation and it was scary. It was really scary. We had double digit inflation. By the way, Kyle Bass just came out, I think it was yesterday on CNBC saying, if you use a non-chained weighted index, inflation right now is at 12%. That’s ’80s. 12%. What does that mean? Non chain weighted. The Fed currently use a chain weighted CPI. Again, it’s a way to mask inflation, so counts to effect consumers’ purchasing decisions.
Frank Curzio: They change along with the changes to prices, as opposed to merely measuring the regular changes in price of a fixed basket of goods. That’s the textbook def. What that means is, we’re going to use a chain based index because it’s always going to show lower inflation. He said, “Don’t use a chain,” right? Because all of our costs across the board are higher. Why are we eliminating certain things? Why do we exclude food and energy? Why? We don’t pay those prices? Really? That’s what we want to do? We want to master inflation and make sure it doesn’t look that bad? Because it is that bad.
Frank Curzio: Now, why are these guys sounding the alarm? Because they understand the only way out of this mess is ugly. It’s the force of recession. It’s not going to be pretty. It’s not fun when you’re pulling a rug out from everyone. Shrinking their wallets, making it incredibly difficult to borrow money. I mean, how easy is it to borrow money these days? Doesn’t matter how much debt you have. Fine, go ahead. Low interest rates. But during these times unemployment usually goes up as tons of businesses begin laying off people, see rates go higher, see lots of bankruptcies. How many companies, especially the model of the past five, 10 years has been take out as much debt as you can, and we just want to see the numbers grow. Even Disney adopted that model. We don’t care about the numbers.
Frank Curzio: One of the few companies where you’re not going to see numbers go back to pre-COVID levels probably for another two years because they gave away a streaming service for free and said everybody wants to see the numbers, and that pushed the stock to all-time highs ,and they raised money. Good for them. The model worked. That model is really dangerous when you’re sitting on massive debt piles and you’re a roll-up company, which is a great strategy with low interest rates, right? You’re using your stock as currency to purchase other smaller names and build a huge company, right? So, you’re acquiring and you take use of the debt markets. These guys are incredibly talented, using leverage in a good… Oracle is a perfect example of the roll-up that there’s just a bunch of software companies, they put together integrated.
Frank Curzio: AutoNation’s another one, but these guys get destroyed when it doesn’t work out. TAC Technology was a former holding; we stopped that, and we learned that it was a roll-up. And they got destroyed for a while. But it kills a lot of these companies. They get to ESG companies that aren’t expected to generate money forever. Forever. Now, you got high interest rates, and you’re borrowing, and it impacts so many companies.
Frank Curzio: We’re going to see asset prices deflate since higher rates cost less spending, especially discretionary spending. Because in America we love buying stupid shit. We love buying stupid shit all the time. You want proof? Just look at Five Below. America spent $2.4 billion over the past 12 months buying crap that they probably won’t use longer than a week at Five Below. 2.4 billion in sales that company did. Seriously. Water balloon pumps, fidgets, an inflatable outdoor checkered mat. I mean, listen, I’m guilty. I go to these stores, my daughters love it. Okay. I’ll inflate and play checkers. A week later, it’s gone. Fidget, they play with the fidget, a week later they’re not playing with it anymore. But I love it. Making fun of it. But I’ve never seen a store sell so much useless stuff in my life. It’s pretty easy to do when you have money to spend and money to burn.
Frank Curzio: And again, everybody’s being handed checks like crazy. But trying to stop hyperinflation, when you’re looking at it, it’s usually too late. It’s usually too late. And that’s what’s happening right now. We don’t have hyperinflation yet, but we have significant inflation. And the Fed has even hinted that they’re going to raise rates. Now, we have a Fed meeting coming up, I’m doing this midday Wednesday. So, you’re watching this later in the day, if you’re watching on Curzio Research YouTube channel, or you’re listening to iTunes or whatever, I think they may address it because we saw some really big names come out and say, “Hey, you really need to start addressing this.” But the Fed not even concerned, and that’s really what scared the shit out of me two months ago. Saying on the podcast. It wasn’t just how the data turned so quickly where the CPI turned, and you’re looking at annualized gains.
Frank Curzio: And you’re looking at right now we’re at 4%, 5%. Nobody’s talking about that. Are you kidding me? And the Fed’s blind, they’re not doing anything and it’s going to get higher and higher. We all see that. I guess everyone’s calm about it because it’s inflation and we haven’t seen it more than two decades. But here’s the big problem, here’s the thing that’s not being mentioned on TV, in the media. This is the biggest point. The fed can’t afford to be wrong on this. They can’t hope it’s going to be transitory. It’s not like the credit crisis where, “They know nothing,” and Cramer went, “You know nothing, nothing.” So funny. I was working for them during that rant. And coming from New York, if I ever had a rant like that and I’m yelling and my friends around me, they’d smack me right across the face and say, “Get a grip.” Wish someone did that on TV. Would’ve been funny.
Frank Curzio: Anyway, “They know nothing.” And he was right though, right? Cramer was right. They knew nothing. They were raising rates at the time. And he was talking to hedge fund managers seeing how everything was blocked up, it was terrible. More pain was coming. I don’t think anyone knew just how much pain, but the Fed was really late to the party. Had no clue what was going on under the hood, especially just financially. The AIG, I mean, I didn’t know about the AIG until mid-2008. But the Fed came and they fixed it almost immediately. Here, here’s $500 billion. Backstopped the banks, bail out Fannie and Freddie, bail out AIG, everything’s fine. I mean, how quick was that after TARP did we see the markets coming back? Less than a year. Just throw money at it. That’s cool. Hyperinflation or trying to control inflation, totally, totally different.
Frank Curzio: If you want a good analogy, it’s like having bad kidney stones. One of the most painful things in the world. How do you get rid of it? Drink a lot of water, which means you going to be in a lot more pain and you’re going to try to pass it out. I mean, it’s tough. It’s extremely painful. Sometimes, it can last for 30 days. It’s almost like kidney stones, but it’s not like, “Hey, I got kidney stones.” “Okay. Here’s a shot. You’re good.” No. Here’s the process. It’s a lot of pain. But it’s truly amazing how nobody gave a shit about inflation a few months ago. And now everyone does. It’s all over the news. And why is it such a big deal? And not just in numbers, but this impacts everyone. This isn’t just a stock thing. It’s not Wall Street, but every retail investor, every family, everyone. And I’m using that term truly amazing because all of you, and I’m not just going to talk about listeners, but everybody saw this coming miles away. Miles away.
Frank Curzio: You’re better equipped to seeing inflation than Fed governors, economists. They get paid millions of dollars to do this job. Why are you better equipped? They do zero, zero boots underground research. They’re not out there like you. They’re looking at lagging data. And the lagging data they’re looking at, if you look at GDP, no matter what you look at. If it’s retail sales, if it’s PPI, it gets revised three times. You got GDP come out and growing at 6% and it beats an estimate of 5.8%. You guys won’t realize it next once it gets revised lower, maybe to 5.8, then it’s 5.6, Then it could be 5.4. It gets revised three times. That’s a lagging data they’re looking at. Before they catch up, you, you’re out there, you’re shopping, you see everything. You’ll see these guys are on TV. I mean, their job is to be on TV all the time. They’re not in the field either. These guys get driven to wherever, Fox, CNN, and driven back.
Frank Curzio: Why do you think their own drivers live in expensive neighborhoods? I’m sure they don’t do their own shopping. I’m sure most don’t eat at any fast food restaurants or go to local bars like you, because people that did that saw exactly what was happening. You saw the huge labor shortage. You go into almost any restaurant, they have signs on them. I mean, I know you all see them. “Please be patient with the employees, they’re working hard. We’re incredibly short-staffed.” Or, “We’re closing early.” We have business operating at 60% capacity, not because of COVID, because there’s no workers. They getting paid more to stay home than work anywhere. You want proof? The numbers came out 9.3 million jobs available. And it’s about 9.2 to 9.3 jobs than people on unemployment.
Frank Curzio: So, if you want a job, you can get it, set employment rates really at zero. Yes, it’s different areas are going to have more jobs and different skill sets and stuff like that, but there’s jobs available. Take away the punchbowl and people are going to have to go to work to pay their bills. But until then, you have companies operating at 60% capacity in the services industry, and they need to be operating pretty much more than 75%. I would say 75% is breakeven. Everything else is gravy for some companies. A lot of expenses, employees. So now, if you operate at 60, 65%, what do you do? How do you stay open? You raise prices. You got to raise prices. And we’re all seeing that. You’re all seeing that. The Fed’s not, the economists aren’t. They don’t get it.
Frank Curzio: I mean, you’re going to the supermarket, you’re seeing the cost of food explode. You fill up your car every week while gasoline prices are surging. You’re seeing neighbors remodeling their home, the value of your home going up 25% in what? Six months. Friends that you grew up with that you know very well driving $75,000 cars when they’re sitting on $100,000 in student debt. Very easy to borrow money, yes. And also, every bill you’re paying, electricity, cable, wireless, streaming, even water, much, much, much higher. And we’re not talking about year-over-year, we’re talking month-over-month. Every month, they’re higher. You see it.
Frank Curzio: So guys, please keep that in mind because you have a significant edge over Wall Street when it comes to investing. And yeah, these guys have the inside track on certain things and certain levels and can invest in very early stages, but when it comes to these trillion dollar institutions, trying to shift money and reallocate, they can’t move that type of money without the world knowing. And they can’t always move it fast enough to adopt or to adapt to these major market shifts like we’re seeing. Three, four months ago, no one’s complained about inflation. Two months ago, I was talking about we’re seeing tons of people come on. I mean, it’s a pretty big shift over the last three months where no inflation took tons of inflation. But they can’t move money fast enough without massively moving the markets.
Frank Curzio: I mean, it’s a reason why you see crypto is now $1.3 trillion mark. Could be 1 trillion or 1.5 trillion, depending on when you’re listening to this podcast. But it’s such a big industry now that’s why you’re seeing institutions get in because they can move money in certain areas without too many people knowing. It’s liquidity. So, you need to move markets to scale. You need that liquidity. So right now, guys, you should be positioned for inflation. And I talked about this on previous podcasts. You should invest in gold right now. Real interest rates are at their lowest levels since the ’70s. What is real inflation? It accounts. Or the real interest rate accounts for inflation. Meaning that right now interest rates are close to zero, but as inflation goes higher and higher, if you keep your money in the bank, it means you’re going to earn less. And now, it’s negative, and it’s going even more negative and more negative. It’s declining even further.
Frank Curzio: But you have the real interest rates at the lowest level since the ’70s, it’s great for gold, it’s store value. I also like Bitcoin, I wouldn’t say Bitcoin’s a store of value. I mean, ask the guy who bought it at 60,000 if it’s a store value because it’s 40,000 a month and a half later, but still, it’s a play on reckless government spending. And I like Bitcoin here. And any young investor’s probably going to buy Bitcoin compared to buying gold because gold is just too boring for them. Bitcoin’s a good alternative. Also, still at this stage, invest in the reopen trade. We’ve done incredible through our portfolios, recommended hotels, casino stocks, sold off travel related stocks, and given one away. Avis was a great winner for us with probably 300% buy in that, not long ago. Infrastructure names. Right now, you’re seeing a lot of these names go up and you’re like, “Wow, I missed the move. We’re up 200%.”
Frank Curzio: A lot of times these things continue to go higher. Get tons of money. They’re inflating the markets. I mean, these are good trades right now. And I see a ton of opportunity within a particular sector, I’d say airlines. If you look at the cruises and you take their enterprise value, which is accounts for debt. They’re trading at a higher enterprise value today than they were pre COVID. There’s no cruises right now. How’s that possible? So, they’re a little ahead of themselves. Maybe they go higher. I don’t know. Airlines roared back. They’ll still well off their highs, but the last four, five months, they kind of haven’t moved. And they have exposure internationally. Well, China is opening up, Asia’s opening up, Europe’s starting to open up. Especially Euro Cup guys, great games. Germany, France, biting, goals taken away, fights. Yeah. Love soccer. People just throwing themselves like they just got shot, and they get up, they’re okay.
Frank Curzio: But they only have half the crowds there. And I’m telling you, people are going to die because… Soccer is amazing. I won’t even go there. I went to world cup 2016, greatest sports experience. I’ve been in so many different venues across all sports. Never seen anything like that before in Brazil. Unbelievable. Those guys are dying to get back. Everything’s going to be opening up. Just buy an airline. They’re trading around 20, 25% off of their pre-COVID highs. So, they bounce back a lot. But still, I mean, try booking a flight. They have incredible pricing power. Everybody has money. Everyone’s looking to get away. You can try and rent a car. I have a friend who’s going to come in for a month. Actually, my partner’s going to come in for a month with his family and hang out where I live, in Amelia island, Florida. And he wanted to rent a car. And he asked, he’s like “Frank, do you have an extra car or anything?” He said, “I was going to rent and it’s $4,000 to rent a car for the month.” $4,000. $4,000.
Frank Curzio: Anyway. You’re looking at the airlines… And that’s rent a car it’s a good favors, I guess. But you’re looking at airlines, these guys have plenty more room to run. I’d say we’re at about 60% of the way, and they should be touching all-time highs because those margins are going to explode. They’re going to be buying new planes like crazy from Boeing, they had all these orders in due to high demand. They had to cut back. I mean, that demand’s coming back. It’s going to be much, much, much, much greater than it ever was. Because they’re going to continue with those orders, you’ll see Boeing come back, but the airline industry is a place where you could definitely outperform.
Frank Curzio: Now, is there a chance that we do not see hyperinflation? Absolutely. I mean, the bond market for now is not pricing and huge inflation. But to be fair, the bond market was not pricing in anything. Show the credit crisis late 2006, 2007, at least not from the data I look at. But I do have a friend who’s the largest or one of the largest, I’ll say, or if not the largest independent bond fund manager, probably saw that coming back then because those people are incredibly smart in just these things nobody else does. It’s also a bit better to me. We’re bouncing ideas off from a great, great guy, very, very, very, very smart. But I mean, he started coming, but still I remember looking at date 2006. It didn’t really show. So, I don’t know what… The bond market’s not showing. And that’s the argument. And of course, inflation could be trends or maybe they’re right. Maybe they’re right.
Frank Curzio: But the Fed cannot afford to get this one wrong. They can’t be late to the party. And the fact they’re not even concerned with inflation, that’s what scares the hell out of me. Again, they may come out right now, it’s before the fed meeting. And they’re meeting, they’re going to come out, and I’m sure with all the big names that worry about inflation, JPMorgan has a direct line into the fed and a lot of these guys do. But maybe they come out and say, “Okay. We’re not seeing it. Maybe interest rate…” Again, I think November 22 is expected interest rate hike. You going to see that push forward a little bit. At least talk about it. But for the Fed not even to be concerned, what we’re seeing these numbers is insane. Is insane. It’s insane. And the Fed should be raising rates right now.
Frank Curzio: That’s why you should position yourself accordingly because the Fed right now, pedal to the metal. Continues to buy bonds, low interest rates, not worried. Even though stocks, home prices, commodities, everything near all-time highs, wages are rising, all the bills you’re paying. Every company in the world is raising prices. If you listen to conference calls, everyone is raising prices. They need to. The Fed has added close to 35% more money to the system in the last 14 months. And more is coming in infrastructure, which by the way, I don’t care what party you’re on, but about 10% of that bill was for infrastructure. Everything else is for bullshit. Again, more money being injected into the system. They’re not done. They get addicted to this the politicians. They love it. They love when there’s a crisis. They love it. Increased spending, get money for everything, they all become incredibly wealthy, they love when it’s crisis. Push the issue, get as much money as they can because it benefits them.
Frank Curzio: But take advantage of this trend. You have the opportunity. Yes, you could be wrong if you’re wrong. It’s not going to be a big deal because we’re still going to see inflation. But just looking at all the data, not to mention Ford, GM, still have plants idle. It’s not because there’s not enough demand. It’s too much demand. Not enough chips to put in these cars. And when does that happen ever? I’ve never seen that. Maybe you’ve seen it. Maybe you work in different… I’ve never seen closing plants because demand is too strong and we just don’t have the parts. I don’t think I’ve seen that before. The idling plants. Usually, okay, we’ll increase capacity. Have these people work at…. No. Go home. We don’t have the parts to put in the cars. Go home. That’s crazy. It’s absolutely crazy. Make sure you position yourself accordingly.
Frank Curzio: We were talking about this months ago. Everybody’s talking about it today. That’s my job to get ahead of things. So, we had COVID and other things, again, this is because of you, because of the network I have out there that we get stuff in real time and dealerships emailing me, this goes out to a hundred countries. I mean, so many people emailing me data on COVID that I haven’t seen any place. I remember coming to the podcast and telling people, and they were like yelling at me, “Frank, you don’t understand.” I’m like, “Actually, no. I kind of understand it.” You’re just listening to the wrong freaking people. And you’re starting to see all the shit come out now. But it’s because of you having this massive network, which is amazing. At email@example.com, You guys email me all the time. You have real time data, access to real time data, through your businesses, through everything.
Frank Curzio: But a lot of these people on TV, they’re looking at lagging data, looking at things in the past. I mean, it’s created significant advantage for me. I’m not some kind of genius that just sees… No. I listen to a lot of people, I have a great, great network. And just the amount of people across different industries that own their own businesses and even go to colleges and email me the biggest trends coming up or what they’re seeing. It’s on their school, what people are buying, what they’re using. I mean, it’s unbelievable, the acts of information. And that’s what I always wanted to create here. So, I love this. Been doing it 14 years. People say, “Why do a free podcast?” It’s not free to me. The information I’m getting, the fact that I could interview great people all the time. Man, holy cow. That’s resulted in the portfolios outperforming for a very long time. Resulted in just getting ahead of trends, well ahead than you see mentioned in the media.
Frank Curzio: And again, talking to these brilliant people every single week, where they have a different opinion of me than not. I’ve been doing that for 14 years. It’s pretty freaking amazing. That brings us to today’s guest, who’s awesome. Brilliant, brilliant, brilliant analyst. He’s not been on close to a year; we’ll have him on a lot more often going forward.
Frank Curzio: And having him on a year ago, I think it was one of the most widely listened to podcasts for Wall Street Unplugged. His name is Harris Kupperman, or Kuppy for short. If you follow him on Twitter, you probably have a lot of fun. He is the founder of Praetorian Capital, a hedge fund that invests pretty much in contrarian industries, asset classes, places that people hate. He’s more like a value guy, gets into certain sectors and things well ahead of everybody else.
Frank Curzio: Also, founder of Adventures in Capitalism, that blog where he does an incredible job sharing trading ideas. He also has very strong opinions, that’s why I say if you follow him on Twitter, you probably love it. He speaks his mind, which I love. I love people who speak their mind, I guess it’s a New York thing. But I love it; you know exactly where they stand.
Frank Curzio: This is going to be entertaining, definitely educational, and you’re going to get some cool ideas. So, make sure you listen up, and let’s get to my podcast with Kuppy right now.
Frank Curzio: Harris Kupperman, Kuppy, what’s going on, man? It’s great to have you back on the podcast.
Harris Kupperman: Hey. Thanks for having me back.
Frank Curzio: Well, I follow you all the time. I think it’s been a year since you came on, and I’d like to get you on even more, at least quarterly because I love reading your tweets. I love your research. And I want to start out because of the new revolution that we’re seeing, which is called ESG, which stands for environmental, social governance. And you know where I’m going with this because you have a different meaning for it, don’t you?
Harris Kupperman: Yeah, yeah. I see it a little differently. I think it means energy stops growing. The world runs on energy, I mean since humans learned how to play with fire and they needed wood. I mean, society runs on energy. And so if you put a bunch of regulations in place and stop the growth of energy, or maybe even make energy usage shrink. Well, that seems what the plan is and that should be pretty good for energy prices, I’d think, because I don’t think the demand’s going to slow at all.
Frank Curzio: No, I think you’re right. But have you seen anything like this before? I mean, it’s small groups of people, right? When you’re looking at NGen one for Exxon, you looking at a Chevron, especially the oil companies where I think it’s a $50 million stake that these guys have, which is nothing in Exxon. However, they’re able to convince people like BlackRock and other firms who have trillions in assets under management to support them. I mean, is this a fundamental shift where… Look, you could agree with it, not agree with it, you could be pissed off and say it’s BS. But it is going to have a significant impact on what these companies are going to do in the future.
Harris Kupperman: Oh yeah, absolutely. It’s really dramatic. I mean, I think, let’s unpack this into a few pieces. I mean the first piece is that everyone looked at ETFs as being this sort of benign thing. They buy all 50 stocks, and it’s a low cost way for retired people to get a little bit of exposure to the market. Suddenly, four or five individuals control these, BlackRock and Vanguard.
Harris Kupperman: Suddenly, they wield unusually dramatic power at large corporations where normally… What’s Exxon? A $500 million company. Normally, you wouldn’t have people who could amass big enough stakes to influence the outcome. But here you have three or four people that control what’s going to happen at the company. It’s sort of terrifying really because no one voted for these people. No one asked if they were the best for society. I mean, look, I’m a shareholder of some of these things, but I get no say. It’s kind of just weird.
Harris Kupperman: So, it’s a terrifying development that I’d never thought ETFs would get to. I always thought ETFs would just be focused on earning a few basis points for the owners, not changing society. So, that’s the first thing. And I don’t know where this is going. I mean, firstly, it’s a coal, then they’re after energy. What if they don’t like some other business? They could do almost anything. They could mandate anything. It’s really quite scary, and I don’t know. What thoughts do you have on that? I mean, obviously, I’m not the only one.
Frank Curzio: I mean, look I’m a stock junkie. I’ve been doing this 25 years, and I just find it fascinating, as someone that loves earning season, combs through trying to find ideas. Every single company has a portion of their quarterly presentation, if you’re looking online or whatever, dedicated to ESG. Like, they have to say it. If not, they’re going to be attacked.
Frank Curzio: So, regardless of what they think in the situation, and that’s what really pisses me off is regardless of how they believe in something, or whether they believe it or not, they have to do it because they’re so afraid of getting attacked. And that makes me think that their interests are not in the best interest of shareholders because that’s not really… I want an energy company to drill more and generate more money, right? But if you can’t do that, then it changes your thesis on the stock, right?
Harris Kupperman: This one’s a funny activist campaign because normally activists could look at Exxon and say, “Hey, look, they’ve been paying too much dividend. They really need to repair the balance sheet. They really need to invest for growth.” Maybe they want a buyback instead of a dividend. There’s a lot of sins you could do as an activist shareholder that maybe you’re right, maybe you’re wrong, in the direction you want to take the company. But buying those shares, you have a say and you influence the outcome.
Harris Kupperman: This is a situation where I’m not sure if the activist cares if the shares go up or not. They’re doing this to grand stand because they’re launching their own ETF, so it was good marketing. I don’t think they actually care what happens to the company. It’s the first case of activism I’ve ever seen from a shareholder.
Harris Kupperman: Then, they own a few basis points of the total equity. It’s a rounding error. I’ve never seen that either. Normally, if you want to be an activist, you go out there and you buy a few percent of the company. I mean, I’ve never seen an activist like General Electric, those guys bought, what? 2%, 3% of the company? And they influenced the outcome. But normally you have to buy 10%, 20% of the company for people to take you serious that you’re actually going to get board members out there.
Harris Kupperman: The whole thing is bizarre. Someone else is probably behind us, and we’ll never learn who, or maybe we will. But it’s dramatically changed corporate America. And if they’re doing that here, the rest of the world’s only a few quarters behind.
Frank Curzio: Very, very true. And I know this impact in the oil industry because it could result in much less development in the industry, which looks like the way it’s going, which is going to probably push prices a lot higher, which is all dependent on oil, natural gas. What is it? 75, 80%, I think, just in the US. I mean, we would love to… Not we, you and I. But a lot of people would love to go to wind and solar, they don’t realize that it’s all based on power. But it is going to be interesting what happens to this industry in particular.
Frank Curzio: And let’s talk about this industry when it comes to energy. You were very, very early to this, and I’m a big fan of energy. I’ve researched the depth for so many years, and decades actually. But when you came out, and this was very early stages of COVID, and I did a great job researching COVID, tremendously in January, knowing it was definitely going to come here, just with the context I had in China and Italy and those lockdowns and stuff.
Frank Curzio: I actually thought you were a little crazy to go that early. I’m like, all right, I know Kuppy likes like deep value and stuff, but you almost nailed it completely, right? And now you’re seeing these massive gains. But based on what we’re talking about here, it seems like oil prices could easily go a lot higher from here. Is it hard for you to buy stocks when they’re up 300%, 400% because… Well, you benefited tremendously, but would you be adding to your positions here, which doesn’t make sense on big, big winners, you want to take some off the table. I mean, what’s the strategy here? Because it looks like that energy has another leg up here.
Harris Kupperman: I think there’s another leg up. I mean, normally at this stage of the cycle, energy companies would be increasing their drilling budgets and with about a two-year lag, you’ll see a lot of supply come. And that’s why it’s a cyclical industry. It tends to oscillate from big boom to big bust. And it’s a tough industry to invest in, but it’s very cyclical.
Harris Kupperman: But this time, I don’t know if the drilling and capital expenditure cycle will kick off. I feel pretty confident in saying that through crises or whatever else, energy demand grows between a million and two million barrels globally every year. Just look at a chart of it, it just keeps going up. I mean, last year was a little odd because of COVID, but I think we’re going to be caught up to that 100 million, we were before COVID started. And then, it’ll just keep growing one or two. And with all the stimulus, maybe it grows three.
Harris Kupperman: And I don’t think the supply side’s coming, and I think you’re going to have a huge boom in energy prices. How do you play it? I mean, I don’t think anything I’m saying is all that a contrarian anymore. I think it’s actually… Consensus is a little scary. But I don’t see what changes it. I don’t think people have really thought through the ramifications though, because we’ve been living in a world since 2014, where oil has been between 40 and 60. So, no one really thinks that the price of oil in their day to day, but what if oil goes to $200? I think you might need something crazy to happen. How am I playing it? I own a couple oil stocks that I bought at the depths of the crisis.
Harris Kupperman: But honestly, I’ve been peeling a bit off here on there. I kind of worry that… You have a rogue court in Europe that attacks Shell. You have executive orders here in the US, you have Colorado passing ordinance, made it harder to drill. I think owning the producers is not the way to play it, though you will get some spectacular wins along the way.
Harris Kupperman: I own some energy services companies. I think offshore will come back in a major way, and one’s predicting that. Because while the US will make it harder for people to operate, I think you have countries that are poor, that don’t really care about carbon dioxide. West Africa, Ghana, Indonesia, all these places that are growing production and at a higher oil price, they’re just going to go produce and they don’t really care.
Harris Kupperman: So, they could take these drill rigs there that are in the Gulf of Mexico, and they’re going to mobilize them. And so a lot of the drilling companies, you can buy a bunch of that steel at 10 cents, 20 cents to the dollar. And usually at the top of the cycle, it trades at two or three times replacement costs. So, there’s a big move from 10 to 20, to 30 times move.
Harris Kupperman: So, I own some of that, I own some services. But the real way I’m playing this, I’m just buying oil calls. A 2025 oil future oddly trades at 54, while the front month trades at 70, because everyone’s expecting shale to ramp up and for oil to basically readjust back to the fifties where it’s kind of been in its band for the last six years. And I don’t think it’s going to work that way.
Harris Kupperman: I think six months from now, people will start realizing that the supply response will be slow, and demand response will be more aggressive than people expect. And I think that part of the curve, going out a few years, will get really bit up. And because of the fact that it’s currently backwardated, you could buy those calls very cheaply. So, I bought a whole lot of those calls, and the thing I like about call options when vol is cheap is you know exactly how many dollars you’re risking.
Harris Kupperman: I mean, oil went negative once in my life. It could do it again. Futures that very leveraged, you want to be careful. But in the end, you buy those call options, you know how many dollars you’re risking, and if it turns out like how I think it’s going to, they could be multi baggers. And I think is a lot better than buying some producer where you get an executive order and suddenly, you get zeroed. Where here, if they go out there and zero some producers, my oil calls just do better. Sometimes it’s the simplicity of it all is the beauty.
Frank Curzio: Yeah, it makes sense. I love the way you’re playing that too, through the call options. And wow, I mean, deep offshore drillers. I remember that industry used to be Transocean. Noble was a company, it was great when oil prices were 90, a hundred for several years over that stretch. But man, those guys have disappeared and that’s an interesting industry to look at it. I love that industry. So, I appreciate those ideas.
Frank Curzio: I want to change tunes here because we’re research guys, data guys. How are you looking at what’s going on with the Reddit crowd? AMC, GameStop, Dogecoin events, and I’m having the same reaction as you, right? I’m laughing. But for me, whenever I miss something, if I miss a trade in something, I’m hard on myself. And I’m like, “Okay, what did I miss?” Is there a way to look at this industry because there’s no denying the gains, the spectacular gains.
Frank Curzio: I mean, so we can sit here and laugh at it and make fun. But if you look at the massive gains, is there a way for investors to capitalize this? Is this just a BS trend? I mean, we know that the valuations don’t even come close. I mean, MKM Partners came out with their target, reiterated their $1 target price on AMC. And it was based on fundamentals. I’m like, “What are these guys doing?” I mean, you should raise it to at least two bucks, right? $1?
Frank Curzio: Anyway, how do you view it? Do you view it as, “Wow, why am I missing this?” Is this a fundamental change in the way people are going to invest, bring on more speculation to the market? Or is it like, “Hey, I’m avoiding this, this is totally BS.” I’m just curious how you see this.
Harris Kupperman: Well, obviously it’s just blatant speculation. It’s not very different from buying dog coin or tit coin, or I don’t know which other coins are popular. They get popular for a few weeks and then they kind of fade away and some people make a lot of money and some people lose a lot of money. But it’s just a big video game in a way.
Harris Kupperman: Obviously, these are untethered to any sort of like fundamental value. In terms of how do you play them, I think this is for professionals to play at home and be very careful and you play small. But things in motion tend to stay in motion for longer than you think. And I’ve been playing these on the long side and I’m terrified to short them. But the volatility spikes dramatically and there’s much to be made playing them by selling a straddles, or selling strangles.
Harris Kupperman: There’s a lot of ways. You got to look at your option chain and see where vols are. But this there’s ways to make money by just selling volatility and taking a view that things will eventually mean revert. I use the word eventually, kind of highlight that, will eventually mean revert. And if you can stay with it long enough, you’ll probably do okay.
Harris Kupperman: And in the history of life, if you sell straddles on something with a 300 volatility, you’re probably going to do okay. I’m not going to say that everyone will work out, but if you do it small and diversified across a lot of these meme stocks, you’re probably going to make some money because… Remember these guys, they all have their Robinhood accounts, and they’re slinging one and two lots. And they don’t really understand volatility, they don’t understand how much they’re overpaying.
Harris Kupperman: And so they’re buying these things and if you’re taking the other side of it, you’re probably going to make some money. But you will get ran over sometimes. So, please play small, please be patient. But I don’t know, so far that’s how I’ve been playing it. I’d say I make money out of about eight out of 10 and one or two out of 10 really hurt bad. But other than that, I’m doing well.
Frank Curzio: And let’s talk about that. Let’s talk about your strategy which I love to do with great analysts like yourself. You say it’s based on two core principles. So, identify a relatively small number of really exceptional companies that could increase more than fivefold in the next five years. You say five and fives, and also focused on company sectors undergoing some sort of inflection.
Frank Curzio: Just based on that, to me, it shows me how many different styles of investing. I mean, it’s top down, bottom up right there. Yeah, I’m sure you’re not really focusing on technicals, but sometimes, you do if you’re looking for inflection points. What does this lead to? Because if this is your strategy, for me, it looks like that you’re really, really focusing on small caps.
Harris Kupperman: I do a lot of small cap. I don’t talk about it much just because I don’t like talking about small companies. But I do a lot small caps, a lot of… Our sweet spot’s kind of in that like hundred to billion range. And we’re looking at stuff that’s having some sort of selection, maybe it’s a management change, maybe it’s an industry change. I look at a lot of cyclical sort of businesses, a lot of things that are having some sort of secular change.
Harris Kupperman: I mean, there’s a lot of cheap companies in this world and there’s a lot of really smart guys that have a Bloomberg and know how to scan for them. So, just because it’s cheap, doesn’t mean anything. You need to find something that’s cheap, that things are getting better. I mean, Wall Street pays up dramatically with things getting better. And when things are staying the same, but they’re cheap, Wall Street doesn’t really care. Oh great, it’s seven times earnings, you get a dividend. Like, who cares?
Harris Kupperman: It’s when you look at it and you have that FOMO of saying, “Wow, earnings are really going to grow next year.” Like that’s what gets Wall Street excited. And to have growth, you need either revenue growth or somebody happening on the cost side. But Wall Street really likes the revenue side, so you need something that’s changing the business. And that’s what I’m trying to figure out, what’s driving this? And what’s changing in the world around me? And I usually start with the top down, what’s changing in the world around me and then how do I play it? Energy prices going up, got it. Now, I go through how to play it.
Harris Kupperman: You look at any of the trends I’ve been in for the last while. I mean, copper price up, well, they’re going to go drill and look for more copper. I’m going to buy some hard rock mining exploration, drilling companies. They’re going to do this. I’m going to go find that. And then you look at a couple of companies in the industry and I tend to buy the guy that has the better balance sheet. So, if I’m wrong, I don’t get hurt too bad.
Harris Kupperman: I mean, obviously, the guy with the worst balance sheet is the fulcrum security, and you have the most upside, but if I get my thesis right, I have enough upside. The whole point is, how do you protect your downside? And that’s by making sure you have a clean balance sheet. And then from there, you just put it on and you kind of forget about it because this isn’t rocket science.
Frank Curzio: And you don’t use stops, right? So, it’s basically, if you really believe in a thesis and something comes down, the thesis is still intact, then maybe it’s just taken a little bit longer. Because that pendulum can swing one way, the other way, much, much further than anyone believes.
Harris Kupperman: Of course.
Frank Curzio: Is it, “Hey, I get into a position and staying patient with it?” I mean, because that is discipline, right? I mean, that’s not the easiest thing to do if you see something come down 30, 40, 50%, which was the case when I saw some people recommend oil. But they’re up tremendously now. And usually good investors, great investors, I don’t know if you agree with this, are usually a little bit early to their trades.
Harris Kupperman: Oh, a lot early. No, like I don’t believe in stops. I believe in getting the thesis right and I exit the position if I realize I got my thesis wrong. And sometimes the stock is up and I go, “Wow, I got lucky,” or “I got that totally wrong.” And sometimes the stock is down and I go, “Wow, this thesis keeps improving. I’m just going to buy a lot more.” And I’m focusing on the thesis, not the stock price.
Harris Kupperman: Obviously, I look at charts. I’m not really a chart guy, but I understand enough to know that you don’t want to buy a chart that keeps making new lows. You want to at least wait until it stops going down. Usually, it makes a little bit of a base or something, that’s kind of what tells you, hey, it’s safe to go now. But I really don’t want to buy stuff that’s making new lows. And I don’t want to buy something that’s up too much because then I’m paying for… It’s already starting to get priced in.
Harris Kupperman: I want something that’s stopped going down and it’s just starting to curl. That’s the word I use, where it’s just starting to make new highs, out of the base. And that’s usually the indicator that I’m probably right about my thesis. And then from there, I mean, I just ride it. It’s volatile and there’ll be shake outs. There’ll be these moments that really test your resolve. But if you’re right, you’re right.
Frank Curzio: Yeah. No, no, I hear you. I hear you. If you’re right, you’re right. Yeah, so when you’re in the wrong sometimes, it could be a little painful. But yeah, I mean, sticking to that thesis. Yeah, I understand that. And most value investors do, right? Most value investors, listen, they believe in their thesis and they’ll stick to it.
Frank Curzio: But I love the fact that you said, “Look, you need to see something going on with the company that’s changing it.” Where if it’s revenue, if it’s earnings, an event driven… Something’s going to change, where you’re seeing that kind of growth because that’s where the premium comes from. Great, great, great stuff there. Now, the easy question for you, this-
Harris Kupperman: Oh-
Frank Curzio: Go ahead.
Harris Kupperman: So, I was just going to say, I mean, usually in this macro stuff that I do… Or, I call it micro actually, because macro is like interest rates and currencies. And micro is how many dollars we spent in hard rock exploration next year, or how much will be budgeted for off shore, like those are micro trends.
Harris Kupperman: Normally what happens is, by the time it starts showing up the numbers, you’re too late. You really got to see the trend and say, “I see this happening and in six months it’s going to show up in the numbers, by I see it starting to awaken.” That’s when I got to get involved. By the time it’s shown up in the numbers, if it shows up the numbers, the stock’s already doubled because a lot of these things are so depressed because everybody’s saying, “Oh, offshore will never come back again.”
Harris Kupperman: So, as soon as people say, “Maybe it comes back, maybe not.” I mean, getting from never to maybe it’s like a five bagger. But you also don’t want to buy it when it’s never, because sometimes it’s pitch black before it… Sometimes, it’s dark, it’s pitch black, so you want to make sure that you see there’s some light on the horizon there.
Frank Curzio: Nah. No, it definitely makes sense. And the easiest question for you right now is any sectors to share that are at an inflection point? Because we’ve seen so many things get super depressed during COVID and are up tremendously now. I mean, I don’t know. I mean, EVs is a story that’s out there. ESG we talked about, it could be agriculture. For me, I’m not a gold bug at all because people have been saying that currencies, and issues, and debt and stuff like that since the seventies, it’s the same thesis today.
Frank Curzio: But if you really look at what’s happening today, where inflation is going through… It’s at a 25-year high inflation. And yet, the Fed still pedal to the metal, interest rates to zero, which now, real interest rates are at the lowest level since the seventies, which has to be very, very, very good for gold I would think. At least something that has a little limited risk and upside potential, but I don’t want to sound like a gold bug because I’m not. But I’ve positioned myself.
Frank Curzio: Well, what are some of the things that you see? Is there something out there that you see as an inflection point? And I don’t want you to give anything away that you’re giving people who pay for your research for, but I was just curious.
Harris Kupperman: Well, I think there’s a lot of things that are at inflection points and were really early. I think a US housing has… There was a decade long period where house construction was below trend. I think there’s a huge catch up there. I think anyone in the supply chain to housing, I think anything touching housing is going to do very well. I think it’s going to be a multi-year trend and we’re in year… I mean, we’re nine months into it. The stocks have all doubled and tripled, but on the way to a 10 bagger, you double and triple.
Harris Kupperman: I think the reopening trade is a great one. All these companies in the US have gone absolutely crazy with the reopening trade in terms of a price action. And so, I don’t know if there’s anything to do there, but go overseas. I mean the same things that worked here in the US, a lot of the places in Europe, they’re like two months behind America in terms of… They’re like two quarters behind America in terms of reopening. So, casinos, hotels, restaurants, auto rental, like anything that touches basically living normal life. Those companies are all still just depressed.
Harris Kupperman: Go to a Latin America. There’s been really no reopening trade there yet. I think reopening is going to be a Q3 story there. Basically look at what worked in America and just copy it. It’s been one of the best trades we’ve had actually, by just copying what works here and buying all the ones that aren’t up yet in 20 countries.
Harris Kupperman: I think hard rock drilling, guys doing exploration, it’s been really 30, 40 years, where they haven’t had any reserve replacement globally. And those reserves going to have to get replaced. You don’t really have a mine if you don’t have your reserves. I think that reserve replacement is going to be a huge trade.
Harris Kupperman: And there’s going to be tens of billions spent on reserve replacement. And you don’t replace reserves and the price of copper is two, you do it when it’s four and a half. So, I think that’s going to be another great one. I’m just going through what we have here. I mean, obviously this is the normal stuff everyone’s focused on. Those things are already priced like they succeeded and the jury’s still out. Oil services, I think a going to do just great. I mean, I have bits and pieces of the whole oil services supply chain.
Harris Kupperman: But those are the trends I’m really focused on right now. Oh, AG. I think AG prices are probably going to be structurally higher for a while. Basically, anything commodity related is going to do great because like we talked about the start of the show, you have these government mandated restrictions on production. It’s easy to look at what’s happening with oil, the same thing’s happening with almost any commodity products. And so, there’s going to be shortages everywhere and the global population keeps growing and getting wealthier, so they want more stuff.
Harris Kupperman: And there’s what, six billion people that want the stuff that the billions of us already have. And so as that trend keeps going, it’s a trend that’s been going for a hundred years, but as that trend keeps going, I think we will see demand increase. I think commodities do the sine curve thing. You get five good years every 20, and we’re into five good ones now. So, I like all that sort of stuff. That’s the sort of stuff I’m focused on. Every couple of quarters I get excited about something, but the great thing about this industry, investing, is that you don’t have to have a lot of epiphanies. You kind of need one smart idea every year.
Harris Kupperman: And the hardest thing actually is to look at a lot of things and go, nah, I’d rather just sit in cash. Something better will come along. And that’s the hardest thing, just sitting in cash and saying, nah. And so, when the market’s gone straight up for a year, I’m much more prone to say, nah. And in March, when everyone was panic selling, I was saying, I’ve got to buy stuff, buy stuff, buy stuff. And there’ll be a time again, the next few months, maybe few quarters where you can go buy stuff and feel really smart again. But I like to be buying stuff when they kind of give stuff away. I don’t like being chasing. That’s just how I play.
Frank Curzio: Yeah, no, no, I love it. And what about on the short side, right? You’re talking about the opposite of inflection points, but you’re looking at… And I think that you’ve done some work with Citroen, and I know Citroen is not, they’re like, all right, enough of the short stuff. It’s so hard to short companies, but you’re looking at technology which has been selling off. You look at some of these ESG names that ran tremendously that are down 30, 40% from their highs. And you mentioned SPACs, right? Four that you identified on your Twitter page that you’re seeing these major unlocks of these insider shares, which is going to create huge selling pressure. Is that something, too? Or, what’s your allocation in terms of long to short? Do you go short, like big positions when you want to if you think the market’s high? Or, is it just like, hey, these are certain situations. I’m going to put some money on the short side here.
Harris Kupperman: I don’t short much. I have this thesis called Project Zimbabwe, which kind of says that our Federal Reserve will do to us like they did in Zimbabwe. The stock market in Zimbabwe basically went straight up. It went up thousands of times. And so you don’t want to be short if you know the market’s going higher or you think the market’s going higher. Yeah, sometimes I selectively put a little tiny short here and there, but most people short because they feel like it’s their job as a hedge fund. And I don’t see why you have to hedge if there’s nothing worth hedging. I think the most under-priced assets, probably the thousand strike SPY call. I think we’re going straight up. There’s going to be a lot of volatility, but I’m not smart enough to know how to time it.
Harris Kupperman: And so if you think the market’s going to be higher in three months, six months, two years, what’s the point of shorting it? I see a lot of my friends wasting a lot of their money and a lot of their energy trying to short stuff, and the meme stocks don’t really make sense from our evaluation. Neither do a lot of other companies. So, what’s the point of shorting? Obviously you have these SPACs, they’re unlocking, you have this moment in time where a lot of shares are hitting the tape. If you look at it from an odds perspective, there’s a lot of sellers and probably not a lot buyers. They’ll go down. I’ve made some money there, but I think it’s an easier thing to do on the long side. That’s really where I’m putting my attention. We have this thing I’d like to talk about called KEDM. It stands for Kuppy’s Event Driven Monitor, and it tracks…
Frank Curzio: Before you go any further. I saw this, KEDM. Adventures in Capitalism is your website. This isn’t some pump thing, and I’m hyping this up. But you call it institutional idea generation for venture in special situations, which that name kind of like, all right, let me take a look at it. It makes you not want to take a look at it a little bit. I went into this, and it’s free. And I went in there, and this must be one of the best things I’ve seen in terms of research, and you do it weekly. Explain it, because the amount of idea generation and everything, it’s just incredible. I haven’t seen a product like that, and I’m not even kidding. I’ve seen millions of products. I just spent like 45 minutes just going through the whole thing.
Harris Kupperman: I appreciate it. I’m glad you enjoy it. I mean, look, I’d never set out to be in the publishing business. I run a hedge fund. That’s my job, but I wanted this data, and it didn’t exist. I do a lot of event-driven stuff because when you’re looking for inflections, the most important inflections are corporate events. You have a CEO get fired, and the new guy comes in. He comes with a new set of eyes, a new vision, a new strategy. There’s an inflection in the business. People look at spinoffs and stuff, but that’s all been picked over now, but there’s a ton of these other sort of corporate events that lead to an inflection in the business. I felt like I needed a way to keep track of all these, and so I asked a friend of mine if he’d come work with me and start producing this. Him and I, we thought he’d just build an API and download the data from Bloomberg, and we’d be done.
Harris Kupperman: What we realized is that a lot of the data that we wanted doesn’t actually exist. He had to actually manually create it. And then the data’s buggy, and we were surprised how much time it took and kind of realized that we need more eyeballs, actually, because I need a few people to do this. So, if you need a few people to do this, it starts getting kind of expensive for a research budget. We’re a small fund. And so I said, let’s build this into something that we can sell because if I want this data, probably other people do. If we have enough people get together, maybe it’ll be a little business that’s profitable, or maybe I’ll just lose less money collecting this data, but I want the data. And so, we launched this thing called Kuppy’s Event Driven Monitor.
Harris Kupperman: It started as a free thing that I’ve been sending to some of my friends, and eventually, we opened it up to everyone because I figured other people would want it. It’s free right now. Go to kedm.com And sign up. It shows up in your mailbox every Saturday. We intend to put up a paywall pretty soon and charge for it just because, like I said, I’m looking to hire a couple of guys and someone’s got to pay for them. I can’t do this pro bono forever.
Harris Kupperman: You’re talking about the unlocks, and we track those unlocks. We’re going to get a lot better at tracking the unlocks, actually. That’s our first project where we hired new people, and I think there’s a lot of alpha there over short periods of time in terms of with an unlock. Let me explain what that is. That’s when founders or insiders have shares that after an IPO or a SPAC, those shares are restricted and can’t be sold. The unlock is the period is when those shares cannot be sold. And a lot of people, they’ve owned the stock for many years or it’s their PE fund, a venture capital fund. Their job is basically to buy and sell shares, and when they can get out, they get out. And so, you have this period of time where there’s extra pressure on the stock, and there tends to be a lot of money to be made by shorting the stock a few weeks before and covering when all of the selling happens.
Harris Kupperman: It’s not rocket science. It’s supply/demand. And so, we track that plus a couple dozen other strategies, and we’re looking to add another 25 or so in the next year to just track all these sort of corporate events and make money. So, I hope you all sign up. Kedm.com.
Frank Curzio: There’s no way that you’re going to be able to continue. It’s a 100 page report every week. It highlights new ideas, including short squeeze candidates, which is part of the Reddit. You talk about an ark indicator, the Cathie Wood monitor, CEO changes, left for dead names, spinoffs, fallen angels, just all the events that happen on a weekly basis, over 100 pages. I’m like, man, you definitely have to charge for that. It really, really is amazing. I think open it for free, but I have no idea.
Frank Curzio: I know it’s charts and figures, and you could have a couple guys do it, but the amount of information that you have there for a 100 page report. It’s almost like a jumpstart, where you can really get ahead of what’s happening for the week and certain ideas and what’s going to move the markets, but just the way you lay it out there. Again, I’m not getting paid for this, guys. I was really impressed. You’re like, hey, just mention this KEDM. And I sort of like, holy cow, this guy is, he’s not charging for this thing?
Harris Kupperman: I appreciate it. I mean, let me flag something. We had this situation that was flagged. Anglo American spun off their thermal coal assets because, you know, ESG. Anglo American’s a big mining company, global mining company that did a spinoff of their thermal coal assets to South Africa. Who is the investor who has a mandate to buy thermal coal in South Africa? Nobody. And so, every 10 shares you own of Anglo American, you got one share of this company called Sungela. And a lot of the shares are owned by ETF, so they just immediately sell it. And a bunch of shares of Anglo American is owned by funds that have ESG mandates. They sold it. Pretty much everyone, the day they got it, sold it. And so yesterday, the stock opened for trading. It was trading at about 110 P in the UK, and they had 95 P of cash. No debt.
Harris Kupperman: And so, now this thing is trading at 15, 20% premiums with a cash balance. And it was trading at less than one times cashflow, but on ED base this is trading at like a 10th of one times cash flow. And so, I bought a lot, and I bought them at about 115. They closed today at 150. So, day two, it’s already up about 40%. I don’t know where it goes tomorrow, but it’s really cheap. And here’s a company that’s a north of a 200 million market cap company. It’s reasonably liquid, trades 10 million US dollars a day, and we flagged it in Canada. We wrote about it three weeks in a row, said this is going to be a situation where there’s all these structural forces that’ll make this thing really, really cheap in the first couple of days, and it pretty much happened exactly as we expected it.
Harris Kupperman: Our hope is, it’s not every week you’re going to have a great trading idea, but I think that every month or two, once a quarter, we’ll flag something that ought to be able to pay for a full subscription. That’s kind of what we’re trying to do. Without KEDM, I would never have known about this because I’m not tracking South Africa and coal companies. It’s the one that would have slipped through the cracks, maybe a lot of money. And I hope there’s going to be many more found.
Frank Curzio: Yeah. The bottom line, too, is, through your contacts or my contacts, to be in this for a long time. The goal is to see as many of these as possible, and just seeing this report… It just provides idea generation which we’re all seeking, and especially in a market now, because every stock you’re looking at, it’s up 2, 300% off its lows feels like, especially in some of these sectors’ energies financials, but yeah. Just fantastic job with that. Go to your website, Adventures in Capitalism, and what is your Twitter handle so you can give that out as well because I know people are going to want to follow. You are definitely entertaining.
Harris Kupperman: Thanks, appreciate it. My Twitter handle is @hkuppy. I try to be entertaining. Twitter is just meant to have fun, but I use Twitter also on the idea side. You throw something out there, and I’ve got over 20,000 followers, there’s probably someone who knows something about the company that’ll write something. I go… Hmm. I hadn’t thought of that. It’s just a great way to just test an idea and see what other people are thinking.
Harris Kupperman: But most of the time I’m just making fun of dumb stuff. Most of finance is pretty dumb, honestly. It’s amazing that you have people wearing suits doing this because it’s really just pretty stupid. But the whole beauty of the stupidity is that you sit there and keep your wits about you, and every couple of months someone will do something just so amazingly stupid that you say, I’m going to take the other side of that. And then you make a lot of money. Most of the time you try not to think too hard because I think the mistake most people make is they try to say, oh, I got to be fully invested or I always have to have a new idea this week. Nah, that’s not the way it works. You basically just have a lot of fun and laugh at the stupidity around you, and every once in a while it’s just completely obvious to make that money.
Frank Curzio: No, no, no. I hear you. I hear you, man. So listen, Kuppy, thank you so much for coming on. Last time you were on, we got tons and tons of views, so you got a lot of fans out there. You’re one of the guys out there, and I’m critical, too, that I follow religiously. I love your research. I love your style of investing. It’s fantastic. Keep doing what you’re doing, man. It’s a lot of people, a lot of big fans you have. Thank you so much for coming on, man.
Harris Kupperman: Hey, appreciate it. Thanks for having me back on. Let’s do this again next year.
Frank Curzio: You got it. Great stuff from Kuppy. Brilliant. Love his personality, no-filter opinions. Just find it refreshing in a world where everyone, or I should say every company, anyone working for major companies, has to be careful what they say these days. Following agendas or whatever. No agenda there. Love having Kuppy on, probably going to have him on as a regular going forward, which is every three months, four months or so. But that depends on you. Let me know what you thought. I always say this podcast is not about me. It’s about you. So, let me know what you thought, frank curzioresearch.com. Frank@curzioresearch.com, and let’s move on here and bring in my buddy, Daniel Creech, senior analyst at Curzio Research. We usually break down the latest topics going on this week. Dan, what’s going on, man. How’s everything?
Daniel Creech: Hey, things are good, man. Happy Fed Wednesday, Frank. I know you touched a little bit on it, but we got to talk about Jerome Powell, and evidently this is one of the biggest meetings of his career, which I find a little hard to believe.
Frank Curzio: He’s going to say nothing, probably. By the time you listen to this, guys, you’re going to know what’s going on. Right now we’re just assuming that they are probably going to talk about tightening a little bit considering all the big names that came out, right. And I think that was really important.
Daniel Creech: We’ll see. That’s the big rumor. It’s either now or, what is it? August? When they go to Jackson Hole, the rich retreat over there, which is really nice.
Frank Curzio: Yeah. It’s usually really, really nice. It’s going to be nice in here because we actually had an AC issue which, by the way, Daniel isn’t too good in warm climates.
Daniel Creech: Awful.
Frank Curzio: He spent some time in Arizona.
Daniel Creech: It’s miserable.
Frank Curzio: But do you want to tell a story? Should I tell it? Because holy cow, wow.
Daniel Creech: It’s still not fixed. The AC is working right now, which is nice. But I come in the other morning and it was like 74, 75 degrees in here, which wasn’t bad, but nothing’s working. Well, it doesn’t take very long to where… Yesterday was 94, 95 here? So, it was 81, 82 in the office. Frank, the wonderful leader that he is, stayed here to do something and work. And I left. I went to the cigar bar where they had Wi-Fi and a working AC unit and worked on a couple of things from there.
Frank Curzio: Let’s get to the real story here. This is my version. So, typical Florida. I don’t care if this offends anyone anymore because everyone living here knows exactly what I’m talking about. I should realize, I know it’s like this here, but it still pisses me off. But we had AC problem and it just went off, and probably one of the hottest days. Right? So, it’s getting into the 80s, and it’s really, really hot in here. Right? So I brought in fans. Call them at probably 11, 11:30. They get here pretty quick. They fix it. Everything’s cool. I’m like, thanks a lot. Thanks so much for coming quick. Good. Two hours later, it breaks again. So then, I call them, this is around two-thirty. I work late anyway, but just, most people say, if you’re leaving at five. I call him at two-thirty and say, hey, it’s broken. Can you get the guy over here? This is a business. We have employees. It’s extremely, extremely hot.
Frank Curzio: Sorry, no problem. We’ll get somebody over there. We’ll have someone call you. Yeah, right. Three o’clock, four o’clock five o’clock, six o’clock, nobody’s here. I’m working here around seven-ish. Nobody’s here. Call them, and they close at five. They have a call center. I’m like, is this normal? I stayed here an extra two hours. At least most people would if I was staying anyway. But still, you haven’t fixed it. You told me you’d come and you didn’t call, nothing. You didn’t even call me. Nothing.
Frank Curzio: I guess that’s par for the course in Florida, but it gets even better because now we have no AC, and then I wind up calling him. Somebody gets back to me around eight-thirty at night and says, look. Hey, I worked night shift. I’m just hearing about this. I’ll try to get there. I have three other jobs before you. I said, that’s cool, man. I understand. Nine-thirty, ten-thirty. Doesn’t call. My office is five minutes away from my house. I would’ve met him here. Doesn’t call. So, I’m coming in the office today thinking things are going to be bad, and the AC just is suddenly working again out of nowhere. Thank God, right?
Daniel Creech: And another guy came by and just asked us… This is just recently before I started taping.
Frank Curzio: Just now.
Daniel Creech: Yeah. And he was looking at things. Well, hell, like I said, now it’s working. So obviously, there’s a power issue somewhere between us, our vents, and the unit. But yeah, I’m sure it’ll get hot in here again, and we’ll be calling those guys. That’ll be funny. We may have to have them on the podcast.
Frank Curzio: It’s so typical. It’s just so typical of the service. Yeah, I’ll be there. They don’t call. They don’t ever call. If anyone says they’re going to call you back in Florida, just assume that they’ll never ever call you for the rest of your life. It never ever happens. They never ever call you back. They never give you a courtesy call saying, oh. Nothing.
Daniel Creech: The entire state of Florida. Worthless.
Frank Curzio: It even filters over a little bit to Georgia. I’ll probably get some emails in this because my daughter next week has a gymnastics competition. So, my wife’s been telling me, and I always tell her whenever she tells me something, because she plans everything. And she’s like, Frank, we’ve got this. And whenever she goes a week out, I’m like, babes, don’t tell me anything because it’s a waste of time. I got too much on my plate, and I’m going to forget it. I said, let me know a few days in advance, but she’s been telling me for like three weeks, and planning as a parent, I’m like, okay, cool. So I’m like, okay, next weekend we’re going. And she’s like, no, it’s not on the weekend. I said, what are you talking about? She’s like it’s Thursday. It’s Thursday, 8 AM.
Daniel Creech: Eight?
Frank Curzio: 8 AM on a Thursday. That’s when they have her competition. I’m like, I guess nobody works. Right? Nobody works? The parents don’t work. Nobody works. Everyone’s going. It’s fine? This is a competition, I know, trying to save money. Having an event in Savannah and whatever you have to rent out, it’s going to be cheaper on Thursdays than a weekend, but really? I know it’s summertime, cool. The kids are out, but parents work, right? Last time I heard, most people work, right? I think. Unemployment rate is pretty good. It’s low, right? So, I wasn’t sure if people actually work or not, but I must’ve missed that memo. So now, yeah. Thursday I have to leave. So Wednesday, in the middle of the day I’m going to head out there and get a hotel. It’s about two, three hours away or whatever it is. But yeah, it’s par for the course.
Daniel Creech: Well, you’re having a good week, Frank. That’s good to hear.
Frank Curzio: It is. It’s pretty cool. I got to get used to this stuff and just take off, guys.
Daniel Creech: How long have you lived here?
Frank Curzio: I don’t think they’re going to mind. 11 years now. And I cannot get used to it. I just can’t get used to it. I can’t. I know the way it is. I know the way it’s going to be, and it’s never going to change. And I still can’t freaking get used to it. Anyway. Little rant there.
Frank Curzio: But let’s talk about the inflation because a lot of people have been coming out, right? I don’t want to beat this to death, but Kyle Bass’s interview was pretty interesting. People who have money in the bank are losing, he said, 5 to 12% of their purchasing power. This is based on his metrics, and I said this earlier, in non-chain weighted index, which is kind of the way you should actually track inflation. He says it’s running around 12%. That is insane. I see 6%, 5-6%, saw a couple months ago how it just dramatically changed. But again, he’s usually a bearish guy. He usually has great, great stats, but man, that’s not really factored in, and nobody’s talking about that, right?
Daniel Creech: Yeah. The crazy thing about inflation is that you don’t really feel it until it gets crazy and/or out of hand. That’s a great argument, and we’ve talked a lot, Frank, and you, in the past about if you change the measurements, you’re going to get different results. So, you have a lot of these inflationary numbers that are kind of gamed, for lack of a better word, to not show anything. For instance, when the government reports inflation for us, they don’t include food and energy.
Frank Curzio: Mm-hmm. Or inflation.
Daniel Creech: Well, if you don’t have to pay for food or energy, obviously you’re going to have some skewed numbers, But really, do you think the average person thinks about their bank account losing money even at 0% interest rates? I don’t. I know I could be totally wrong on that. Because if they did, you wouldn’t keep money in savings at 0%. You would shift money elsewhere. And a lot of that has happened on a macro level, but inflation is a scary thing because, like I said, you don’t feel it every day. It’s just a crazy phenomenon until it gets out of hand.
Daniel Creech: Now, the big thing for me is, whatever the Fed says today, you got to brace yourself for beyond childishness, Frank, because you got all these wonderful, supposedly smart people on TV and suits talking about, when is the Fed going to think about talking about tapering. That’s the dumbest thing. How anybody can take our industry serious from a global scale is beyond me. But we do it. Here we are.
Frank Curzio: But, really quick on that point. Probably not intentionally, but the whole world is talking about it, which means that people worried about it, which usually means it’s factored in. And if they do come out today, again, we don’t know what they’re going to say. This is before. By the time you listen to this, you’re going to know exactly what they say, the Fed, I mean, today. They may come out and say, hey, we’re really looking at raising rates maybe end of the year or first quarter. They may come out and say that. And you know what? The, market’s probably not going to take that big of a hit off of it because everyone’s really, really talking about it. It’s a top story right now. I don’t think that’s their intention.
Daniel Creech: You think they’re going to maybe say they’re going to raise rates this year, at the end of this year?
Frank Curzio: They’re not going to say that, but I think they will.
Daniel Creech: Okay.
Frank Curzio: They’re not going to say that yet, but they’re going to build this thing up, and we’re going to see all these indicators get worse and worse and worse.
Daniel Creech: I’ll bet you a beer on that. I don’t think they have the gall to do that.
Frank Curzio: I bet you we do. I’m hoping that we do. We have to see something because everything’s back to normal pretty much. I know there’s some people that are still struggling, but overall, if we look at all the industries, the profits that are being made, the revenues, everything’s back to pre-COVID levels. And yet they’re still injecting money into systems, still buying bonds and keeping interest rates zero right now. You injected another 35% of money, purchasing power into the hands of people and more is coming. What do you think is going to happen? We’re seeing inflation everywhere, not just here. Asia, China, everywhere. Daniel was seeing it everywhere. So yeah, I think it’s great.
Frank Curzio: And you know what, again, maybe we don’t see it. It’s just the Fed can’t afford to be wrong on this. But if you’re looking at some of the tracks you see they’re saying, well, look at some of the data. Retail sales are down a little bit. They’re down because goods aren’t being delivered. Then, they’re talking about housing, and housing is really interesting here.
Daniel Creech: The number’s pulled back nicely.
Frank Curzio: It’s pulled back, but it’s still up incredible. It pulled back 25%. It’s still up 400% over the past few months, the past, whatever, 6, 7, 8 months. I got to bring up a chart and see exactly where it is, but it’s still incredibly high. Incredibly high. So now, you’re looking at the supply chain issues, and you have to look under the hood, especially in housing because housing data came out, and it was lower than expected readings in housing, homes sold, housing starts and people say, hey, it’s slowing up. But when you look under the hood, those supply chain issues are huge.
Frank Curzio: They’re leading to delays where the average time to build a house, and this is from sources where you’ll get people within the industry have gone from 16 weeks to 22 weeks because of supply chain issues still, because of labor pressures still. We’re still here. Furniture, they were interviewing some guys with furniture, and they said they’ve seen backlogs in the supply chain. The cost of a container from Asia, they said, has gone from $3,500 per container, that’s pre-pandemic, to as much as $15,000. So, Evercore came out… I love these guys when it comes to economic research, one of the guys I really respect. And they talk about, the key indicator is not a number of homes being sold today, but the number of homes being built today. They had a great line in one of the reports saying, as long as the pace of construction remains robust, the builders’ inventory will age successfully, and the pace of sales will soon rebound up to production capacity with improved margins.
Frank Curzio: Translation: A lot of this stuff is being delayed, and you’re seeing a lot of weakness in the numbers because there’s major, major demand issues right now, and it’s major supply chain issues. And we are not even close to solving them as much as what everyone says. Maybe a little bit in technology, but not so much in the auto industry. Plants are still closed. In some other areas it’s been really bad, and now it seems like it’s getting worse and worse.
Frank Curzio: Everyone’s telling us it’s getting better, but wait till you see how much Ford and GM cut production. You heard it here first. Wait until you see how much they cut. They’re going to cut production by 30 to 50% over the next two quarters. They have no cars on the lots. That’s what their numbers are going to come in at. And what are they doing? A fantastic job. It’s the Tesla model. Let’s talk about our EVs for 2030. To 2030, we’re going to be great in 2030. Go up 2040, 50, 60, that’s cool. We’ll see like five recessions in between that, but that’s what people like, and they’re buying it, so good for them.
Daniel Creech: There was a Bank of America survey where a majority, like 77% of fund managers think that inflation is going to be transitory. What you just mentioned reminded me. I think the majority are not expecting a recession until 2024 or something hilarious. That’s a hell of a runway for Marcus to just move higher from where we are now in 2021 to 2024 or 2023. It doesn’t matter.
Daniel Creech: So Frank, why are interest rates… Why is the 10-year down over 10% from the March highs when we have all this crazy data coming out?
Frank Curzio: Because-
Daniel Creech: How in the world are yields continuing to come down? And there’s two ways to fight inflation. I know you’re a big guy on the rate hike, but like blocker did or blocker, however, you say it. Blocker.
Frank Curzio: Blocker.
Daniel Creech: You either raise rates or you take money out of the economy. Well, naturally if things keep on the same pace as they are now, what expires September 6th nationwide? The unemployment extra benefits. So, by definition there, you’re going to have some money being taken out or at least not injected into the economy. Some states are already rushing ahead of that. A lot of that’s political, getting people back to work, et cetera, et cetera. But you have a couple of movements right now that over the next course of the years you’re going to have less money being dumped into the economy. That’s interesting to me.
Daniel Creech: And again, the massive move in treasuries. I don’t know if you saw the long-term chart between yields and interest rates, but these things move over decades and decades. And it’s wild to me how we’ve had all this info coming out since March when the 10-year hit about one seven-ish give or take. That’s a huge move, Frank. 10% yields with all this shoving it in our face. Either we’re way too complacent and the Fed’s going to pull the rug out under your feet and shock everybody which I doubt it just because they don’t have the spine or B, you need to focus on companies with pricing power and stronger brands going forward because everybody from La-Z-Boy to Procter & Gamble, and every conglomerate is raising prices as you’ve talked about. Well, what… Something’s got to give, Frank, so it’s either margins, a multiple in the market, or whatever. The short answer there is brace for volatility and focus on good names during sell-offs. I know that’s very general, but I’d like your thoughts on inflation going up as far as pricing and consumer goods going higher, but yet yields are manageable let’s say.
Frank Curzio: Well, for the first thing, it makes sense with the survey, right, with the hedge fund managers and it makes sense from bond fund managers where they’re not seeing this inflation, and that’s something that you have to take in account for. People say in the bond market… They don’t say bond market’s much bigger than the stock market. However, you look at past periods, I mean, the bond market was not really a good indicator for the credit crisis if you’re looking at 2006 and into 2007, right? It didn’t give us these huge, massive warnings, right? So, usually you see people most optimistic at the what is near the top. I’m not saying that it’s cause for crash, but even when you’re looking at the ’80s, Daniel, when you’re looking at interest rates which peaked in 81, whatever around… Okay, actually 10 years, 15.7, which is rising, rising, rising, but in the ’80s it came down to this is… By 82, it came down to 11% and then it went all the way back up again even though we were trying to control inflation.
Frank Curzio: But is the 10 year that the best measure of this? Is it the end-all? I don’t know. I mean, the people are going to say, “Okay, the 10 year should be a lot higher, insurance are going higher, this is what we’re going to see.” Again, it’s not being priced in right now, but that the scary thing for me. It’s not necessarily oh if the bonds not worried about it don’t worry about it. And can we sort of… Certain things, credit default swaps really go through the roof and there’s just ways of seeing it, but that pretty much happened in late 2007, 2008.
Frank Curzio: But when it comes to the 10-year, it’s not being priced and the people don’t believe it. That’s what scares me because you can’t afford to be wrong on this. Again, can’t be late on this. You can’t say, “Oh, and the fact that we are seeing inflation, a 25-year high on the main gauge that the Fed looks at that’s pretty much designed not to show inflation.” And I have a Fed coming out saying, “Hey, we’re not worried, it’s going to only be short-term.” You can’t afford it because we think it’s only going to be short-term you’re not going to do anything. And we’re seeing prices get higher and higher and labor shortage. It’s going to get a lot, lot worse. And then when they decide oh, wait, wait it’s going to be too late. That’s why you need to position yourself.
Frank Curzio: The good news here, Daniel, is that when you position yourself here what are you going to do buy gold, Bitcoin? I covered it earlier. But the good news is when you position yourself in these things, if you’re wrong on inflation we’re still going to have inflation, maybe it’s not hyperinflation, you still going to have a chance to get out of these things. But for me, it’s almost, I won’t say it’s never a no risk trade, but from a risk-adjusted basis, positioning yourself for inflation right now makes a lot of sense because these stocks should still do well as everything reopens. China’s not fully reopened now. They’re getting there. And so is Europe is going to start opening so you’re going to see a lot more inflation coming. These asset classes should do well, and if we don’t, we’ll probably see a move back to technology and technology stocks doing better which we’re seeing a little bit as a tenure is going lower.
Frank Curzio: But to answer that question, look, it’s not showing I understand that. But for me, it’s not… I’m not out of the market. I’m not saying everyone get the hell out of the market, I’m just saying, “Look, position yourself,” because I can’t believe that the Fed is not addressing this and really doesn’t care about this at a problem that they… It’s very, very difficult to control. It’s going to be very painful and nobody really remembers that because last time this happened was the ’80s.
Daniel Creech: That’s a good point. And the wild card here is that whatever PAL says today, you almost… If you take them for what they say, which you should, they really think they can control it. That’s the wild card here because everybody thinks that you have the chemistry experiment under control until it blows up. So, they think they have… And they do have the tools to fight it. I mean, I would push back a little bit that they can’t afford to be late. Sure you can. You can jack rates overnight just like anybody else has in history. Now, do you have the spine to do that because you’re going to call either a recession or a stock market dip? You’re going to be put under tremendous amounts of pressure from the talking heads to do something to help the people. They tug at all these emotional strings.
Daniel Creech: The scary thing is though, from the individual investors, they actually believe, hey, if we see this go from transitory to longer-term we can fix it. Sure they can but the destruction and or volatility and or craziness that happens between oh, shit we missed our point to oh, let’s get this under control is going to be dramatic. So we’re… Like you said, I want to try to provide some value here but I would focus on very strong brand names with strong balance sheets. Did you see Monster got an upgrade today from somebody? And I just threw in capital like real quick. I mean zero debt to worry about. Growing earnings and revenue at double digits. 16% this year, I think 10 the next two years projected. But when you think about pricing power and just keep that simple when it comes to those inflationary scares-
Frank Curzio: Everyone has inflation power right now.
Daniel Creech: And then have you’re hedges in the month.
Frank Curzio: I mean, everyone has pricing power right now. Everybody. Everybody that like you were-
Daniel Creech: Well, I wouldn’t say everybody.
Frank Curzio: Why would they raise prices?
Daniel Creech: I mean, I think you’ll see that over the next quarter.
Frank Curzio: I honestly would say everyone because people are not looking at something saying, “I’m not going to pay for that right now.” They do it a little bit in housing. A little bit. They’re like, “Oh, okay, I’m going to wait.” But when I see most people paying-
Daniel Creech: But the more that stays with you… You’re going to get to the point where you have to choose between Monster and or another drink and that’s when it’s going to come down to hey, what do you want? I think that’ll be interesting.
Frank Curzio: And what do you think the other drink is going to do? So, that’s what… The point is, I just went to go buy a car and it took me two months. I’m not going to tell the story again, the past couple of podcasts, but they bagged me out and they were raising prices. They were raising their fees, they raise everything, and I had to pay it. If I didn’t pay it the guy behind me is buying that car I’m not getting a car. I mean, so when you have nothing on the shelves where you’re seeing that massive, massive demand where they’re like, “Well, we’re raising prices because if you’re not going to buy somebody else’s going to buy,” which means they have pricing power.
Frank Curzio: There’s very few companies I’ve seen right now that don’t have pricing power. I mean, Disney might be one of them. They’re going to try to raise prices and I don’t think people are going to be too happy because they give away the service for free everywhere. And the new content is big and they’re spending enough on new content compared to the competitors. But most companies that I’m seeing have pricing power. I just haven’t seen anyone that raised prices and I’m not going someplace because they raise prices, they’re still going. Otherwise, you’re not going to go out to eat, you’re not going to go anywhere. And I mean, I don’t know that’s just… This is my opinion.
Frank Curzio: And something else, Dan, I wanted to get into. It does have to do a little bit about inflation. I don’t… Again, inflation is not always the most exciting topic to talk about but this is important, guys. This is going to help your portfolio. But did you see the news out of China where they have another virus outbreak? And for some reason, this is under the radar. I mean, this is a couple of days ago I started reporting about it. They’re not mentioning anything about it and I’m very surprised because it’s significantly impacting shipping already where wait times for vessels out of Shenzhen went from less than one day and now it’s up to 16 days. I’ve been to Shenzhen. Think about the biggest city in America, which would be Jacksonville based on mass, believe it or not, and the entire area is 100% industrial. That’s Shenzhen. So every… Just the ports, everything coming out of it, it’s where tons of goods are made especially for the U.S.
Frank Curzio: I mean, this is going to impact so many companies, so many sectors, and I don’t think that’s being factored in because people say, “Well, it’s only two weeks.” No, because stuff has been… I bought a mattress. I bought a brand new mattress, went through the whole system. I said, “Okay, this is the one I’m going to buy.” I ordered it three months ago. I didn’t get any news on it until two weeks ago and I said, “Is this a fraud or something?”
Frank Curzio: And then finally someone called me. I said, “Am I going to get charges back or whatever and charge,”… If you the word chargeback… If you ever want someone to call you back you say chargeback because if you get a chargeback, if you get enough of them, your credit card company could shut them down and they can’t take online orders. Just mention the word chargeback. We know that very well. But you never want to see chargebacks, right? If someone wants a refund give them their money back. But they called and they were like, “Well, it’s going to be there and we see the order. It’s going to be there in about two weeks,” and this was two weeks ago, but now it could be delayed even longer, right. So, we’re looking at product delays which are… Everyone has experienced. If you order so much stuff they say, “Well, it’s not… You’ll get it in a month, two months, three months.” Even the autos is six months delays to nine-month, 12-month delays.
Frank Curzio: Now, how does this factor into stocks? It’s going to cause companies to delay their earnings. They’re not going to be getting paid on these orders. You could see more cancellations. And we are pricing in for perfection. An all-time highs like nothing’s wrong there’s no inflation. They have pricing power. Every company’s seeing margins explode right now. If you don’t have products to sell that’s a pretty big deal. You’re going to see that with Ford and GM as the rest of the year goes on and they warned about it, but they’re talking again about the E… Just the EV market. And there’s a reason why GM’s not reinstating its dividend even though the stocks at an all-time highs and profits are all-time highs, right. So, there’s a reason why they’re not reinstating the dividend because they’re worried over the next six months, and they should be.
Frank Curzio: Now with these delays you’re going to see furniture, housing, materials come from here. Infrastructure, consumer good companies. I mean, this is going to impact tons of US-based businesses, which may force them to… You’ll see that maybe miss earnings and then push out the guidance even further where they might not even see next quarter but the further quarter. And when you see delays or if you see companies miss estimates, especially at these levels and what they’re trading at, they get nailed and they get nailed hard. This is a pretty big story. I think the best way to play it, Daniel… Again, we talked about this a little bit but just look for companies like the largest U.S. importers of goods from China, because they are going to be significantly impacted.
Frank Curzio: Look at manufacturing companies, infrastructure companies, a lot of these materials come out of there. These are major ports. This is a big deal because it is China and we know that China lies about everything. So, if they’re saying there’s an outbreak and it’s 16 days and where that’s… You have the wait times of the vessels out of Shenzhen, it’s probably a lot, lot, lot worse than that and they’re not telling everybody, right, because we all know what happened with China and everything. Now, we know, right? We’re not allowed to post that on social media or you got thrown off. But that’s a pretty big story to me. I don’t know if you’ve been paying attention to it. I know we talked about briefly, but that’s something that I think should be talked about even more than this Fed meeting because we know what the Fed’s going to say in a little bit.
Daniel Creech: I did see the… I saw the headline. I think it was a good CNBC article about the shipping delays and things like that. And I like this, Frank because I got to tell you, I read that, and I went, and here’s why. It’s a new strain of COVID, right. The new… That’s what I took from it. A new strain of coronavirus outbreak. Unless they shut down and do a lockdown or stop… And I know that they’ve done delays and it sounds like they’ve shut down some of the shipping areas, but unless they do something where the interpretation is a lockdown and a oh crap, oh shit moment, I think the market will give companies a pass. And I think that the way you handle that during earnings is, “Hey, we got delayed because of such and such, but our backlog is at record amounts.”
Daniel Creech: Now, I think there’s going to be volatility there. But unless the people get word, investors get nervous about another lockdown and then rolling lockdowns that would expand from China like it did the first time, I think the market’s going to be a lot more lenient than maybe you do. I think volatility, but I don’t think they’re going to get hammered.
Frank Curzio: They could. They could get hammered.
Daniel Creech: And, of course, I could be dead wrong. But I did. I love that because I could tell you were digging into it, and I’m like ah, here we go. Another one of these outbreaks, another one of these delays.
Frank Curzio: Listen, I’m just… I mean, to say that the wait times went from less than one day to 16 days, that’s what’s-
Daniel Creech: It’s crazy.
Frank Curzio: The reporting means that that’s-
Daniel Creech: That’s crazy.
Frank Curzio: Big news, right? That’s really big news. That’s a big, big, big deal, guys.
Daniel Creech: But the also big deal is how long does that last? If that last a week that’s a big deal. If it lasts a month and a half that’s huge.
Frank Curzio: That’s huge.
Daniel Creech: You know what I mean?
Frank Curzio: We get to see what happens and we’re probably not going to know what happens, right, because it’s China and we’re really not going to have the data. But Willie’s company is going to pass. I have to tell you something. I’ve been in this industry 25 years. I think people even with options, you could throw us options which is important, but the value of time I think people underestimate it because saying that, “Oh, these orders are delayed and maybe they’re delayed for a quarter a little bit long.” The longer you delay the more you bring in everything possibly that could happen over that timeframe, right? It’s with options. It’s you could be 100% writing a thesis, but the timing is wrong and you lose all your money depending on what options and strategies.
Frank Curzio: But what you say… You’re right. Maybe everything’s okay. But when I see the Fed not raising rates and I see inflation rates going higher, and you may see people pull back a little bit the pocketbook and say, “Well, all right, we’re not spending too much. We’ve been spending a lot lately. We’ve gotten all this money from the government.” We’re going to see supposedly benefits, right, expired by September. So, that means less money going to a lot of people and they’re going to have to work now. So, who knows what’s going to happen over the next three to six months. So, if this lasts longer, this is a serious story you got to pay attention to it, and it’s going to result in companies missing earnings. Could they get a pass? Yes. A lot of companies got a pass so far. They’ve pulled back and then people bought them and they went higher, but this could lead to fewer orders.
Frank Curzio: And I would definitely keep track over this because usually when you see delays, even during earnings, you see a company get hit. It’s been common for these companies to bounce back tremendously like we’ve seen time and time again. It’s going to turn out to be a buying opportunity. There’s going to be a time where it’s not such a buying opportunity. And the fact that inflation is going high, the Fed doesn’t seem like they’re doing anything. I don’t know. I mean, when inflation goes higher people are paying more, pay more prices, everything’s more expensive than it’s ever been. Eventually, they’re going to have to cut back a little bit and who knows. But I just think this is a story that demands attention and we’re not seeing it. And I could be wrong, and I hope I’m wrong on this.
Frank Curzio: I mean, I hope I’m wrong on inflation because the portfolios are going to do fantastic. I’ve done a lot of research on this. I’ve studied it because I’m just a data nut. Guys, inflation. Man, you guys never lived through it. I didn’t really live through it when during the prime of my career but holy cow, I hope that we do not have that because I don’t… I know that 95% of people do not understand how painful it is going to be. When you can’t get a car loan, you can’t get a mortgage, you can’t get any money, your rates are going higher. I mean, most people are… Have tons of debt right now. It’s not going to be pretty so I hope that doesn’t happen. And that’s why I’m a little concerned about the Fed. But this story in China needs a little bit more attention I think, Daniel it really does. At least monitor it. If you have companies in your portfolio-
Daniel Creech: Absolutely.
Frank Curzio: That a furniture company have received 60% of their funding from China, and they are getting them in, just be careful. Don’t be surprised if they miss earnings and say, “Holy shit how did that happen?” This is how it happens. Okay. So, this is a leading indicator telling you that hey, we could see problems going forward. Monitor it, ask lots of questions, try to go… Again, it’s not easy to find accurate information on China, but that story could command some attention. Now, last topic here is the most important, Daniel by far.
Daniel Creech: Uh-oh.
Frank Curzio: I know you’re looking because usually, we say, “We’ll talk about this and this.” This one no is not on your sheet.
Daniel Creech: Not on my sheet. Not a heads up.
Frank Curzio: And it’s the easiest question in the world.
Daniel Creech: Perfect. I love this.
Frank Curzio: Who’s going to win the U.S. Open?
Daniel Creech: Who is going to win the U.S. Open?
Frank Curzio: That’s right.
Daniel Creech: It starts tomorrow.
Frank Curzio: At Torrey Pines, right?
Daniel Creech: Yeah.
Frank Curzio: I got the winner guaranteed so just to let you know.
Daniel Creech: Well, I got to go with Koepka because-
Frank Curzio: Oh, that’s your boy.
Daniel Creech: He’s my favorite.
Frank Curzio: That’s your boy. You love that guy.
Daniel Creech: And I will go with… My long shot would be… So, I like one of the pairings. I saw Jordan Spieth, Schauffele, and I forget the third guy in that group. I think it’s-
Frank Curzio: Is it, Rory? Because Rory had… Oh, I think Rory, maybe Dustin Johnson.
Daniel Creech: I like Schauffele a lot. I would… Whatever the odds on him are I would take that as my dark horse or long horse. What’s that term I’m looking for?
Frank Curzio: Dark horse.
Daniel Creech: Dark horse. I would do that.
Frank Curzio: Long shot. That’s your-
Daniel Creech: What’s your… Who’s your guarantee?
Frank Curzio: Jon Rahm.
Daniel Creech: Okay. Oh, because the… Okay.
Frank Curzio: He’s going to come with vengeance.
Daniel Creech: He’s favored, right? He’s plus 1100. I think that’s the best odds.
Frank Curzio: Is he actually favored? Is he favored?
Daniel Creech: I glanced at it so.
Frank Curzio: I can see things… It’s almost… I see things like this where I’ve seen Rory blow tournaments down the stretch and next week come back and win. Golfers just have that ability to do when things really go bad. If you don’t know about Jon Rahm, he basically was at six strokes up going into the last round and apparently he tested for COVID and he couldn’t play the last round so somebody else went to win the tournament. There was absolutely no way he was going to lose it and they let him know as he was walking off and the poor guy’s like, “Oh my God.” So, whatever. But you could have told him when he was inside, right. You could see the guy go to floor he’s like, “Oh man.” He just played an amazing round, right, he’s the best, and you’re like, “Sorry pal, you’re out of here.” But I just have a feeling he’s going to be really, really pumped for this event, and he’s playing well, so I think it’s going to be Jon Rahm, and we’ll see. It should be pretty interesting but-
Daniel Creech: And happy early Father’s Day, because the U.S. Open is always around Father’s Day.
Frank Curzio: Yes. It is. Thank you very, very much. Looking forward to all my gifts from my daughters and my wife.
Daniel Creech: I got to figure out what I’m going to get my dad.
Frank Curzio: I don’t know. Get him something… I mean, when we went golfing it was great, right. I mean, it was-
Daniel Creech: I’ll probably wait until August and his birthday and just double up and be like, “Hey, Happy Birthday and Father’s Day,
Frank Curzio: You know what? I hope your kids do that to you one day too, you’ll see.
Daniel Creech: Throw rocks at me, Frank.
Frank Curzio: I’ll probably wind up going golfing over there and hang with the family. But definitely Happy Father’s Day to everyone out there, guys. And Dan, thanks so much for coming on buddy I appreciate it.
Daniel Creech: Absolutely. See you next week.
Frank Curzio: All right, guys. Thank you so much for joining us today. Love you guys. If you’re on our email list you probably saw the special offer Curzio Venture Opportunities, the newsletter, reflection newsletter. We look at statistics all the time and a lot of you viewed that promo and viewed it for a while and did not subscribe. And it was basically for two reasons. Because some emails that we got people saying, “Hey, Frank, I know you’re coming out with Curzio One, it’s going to be next week,” which is access to full access membership where you’re going to get access to all products we publish, special deals and stuff that are too small to give to any… Guys, we had three of these amazing deals in the past three months, and you’re going to have access to everything we produce in the future. I mean, just worth the price expensive membership? You’re like, “Hey, you know what, I want to wait because I might just take you up on your Curzio One offer first.” Okay, that was one excuse that we had that we saw.
Frank Curzio: The next one was the price. So, this is a very expensive newsletter that we discount of 40% to $3,000. And since we saw a couple people say, “Price is a little too high,” this is we’re going to do. Some people that ordered that it at 3000, if you did call me, and I’ll give you a discount because we’re going to lower that from a 40% discount to a 50% discount. All right. So, instead of 3000, it’s going to be 2,500. I’m not doing that because we need money. I’m doing that because the ideas that I’m seeing in this space are really, really cool right now.
Frank Curzio: Again, past performance not an indicator of future performance. I’m not guaranteeing anything, but the company that I’ve seen is a small-cap space. And I know small caps are up whatever 17% this year. There’s a lot, a lot of great names that I want to see people get in so companies completely off the radar. I know people who structured some of these companies where some just IPO they merged to form new entities so you’re not going to find them on most screens or any place. And there’s a couple of really good names out there that are just trading at prices that if everything goes right you’re going to see exceptional, exceptional returns. All these are small-cap, micro-cap stocks so there’s a lot of risk, but you want to make sure that reward is worth it and the reward has been really, really great from a lot of these names I’m seeing right now and the potential reward compared to the risks that you’re taking which is usually around a 35% stock that we’ll put on these things.
Frank Curzio: So, just for you guys, I am going to lower that price because we like to listen to our customers. Again, it’s not to the point where oh, let’s keep lowering. No, it’s not going to get lower than that because it’s not worth us selling lower than that. But we did offer $2,500 a couple of times, so we’re going to honor that offer. And again, if you’re on an email list you’re getting that. If you don’t want Curzio Venture Opportunities, don’t worry about it. But again, we want to listen to our customers and we want to help you guys out.
Frank Curzio: And guys that talked about the Curzio One membership and want to come into the Curzio One, just know that that’s an invitation only. You have to send us an email, firstname.lastname@example.org. We only send it out to the people who email us and usually, that’s people that own more than one of our products or even one lifetime product to a backend because the deal that we offer is really fantastic if you are a true Curzio, it’s going to be around forever, Curzio Research, it makes sense and pays itself off pretty much in two years unless you want to purchase all the subscriptions.
Frank Curzio: So if you are… If you’re interested in that please email me. I usually talk to people before they actually subscribe to Curzio One. I like to know the person that’s coming in because it’s a tight-knit group, and also make sure the product’s right for you because I have turned down people saying, “Just you’re not going to have enough to really invest in certain ideas and I don’t want to just take people’s money.” So, that’s the scoop with Curzio Venture Opportunities, and also Curzio One expect next week. But if you’re going to subscribe I’d do it because we’re going to have it out probably for a few more days I think, Curzio Venture, and then it’s going to go back up to $5,000 a year. So, we can only discount our products certain times during the year. So, if you’re interested fine, if not no worries. If you’re on an email list you’re getting that offer, if not you can just go to our website Curzio Research, and you’ll see one of the banner ads there.
Frank Curzio: So, enough of that. I want to wish all the dads out there Happy Father’s Day. Have fun. Enjoy life, it’s such a great thing. I say it all the time. People complain and they argue. They’re pissed all the time especially you look at social media, you look at whatever news channel you’re watching. Enjoy it, man. Enjoy your families. Have fun. Barbecues, have some beers, go play golf. Really, really enjoy it because that’s why we do all this stuff, right? We try to make a better lives for our families. And I appreciate all the support that you’ve guys have given me over the years and I just want to say thank you and Happy Father’s Day. So, that’s it for me, and I’ll see you guys in seven days. Take care.
Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.
- Guest: Harris “Kuppy” Kupperman, founder of Praetorian Capital and editor of Adventures in Capitalism [26:13]
- Educational: Why the Fed can’t afford to be wrong on inflation [01:02:58]
P.S. Two massive economic trends are colliding for the first time in our lifetimes…
And one tiny company at the crest of the coming $25 trillion “market tidal wave” could easily 6x your money.
I recently recommended this stock to my Curzio Venture Opportunities members. And I want all of you to have a chance to get in. So for a limited time, I’m offering this elite service for a whopping 50% off.