Tomorrow, the Fed will announce its latest interest rate hike… and investors are on the edge of their seats as they wait to hear from Fed Chair Jerome Powell.
Daniel shares some wild details from Powell’s recent speech from Jackson Hole… and explains why Fed members are happy to see the markets fall.
I recap why the Fed is out of its mind lately as it ignores the most important inflation data. But there’s still a chance it will come to its senses. I break down exactly what the Fed could say that would spark a 1,000-point rally tomorrow.
Hedge fund manager and “SPAC King” Chamath Palihapitiya is in the news again after canceling two of his SPAC deals. Prepare for a rant on why SPACs aren’t a level playing field for regular investors… how these rich guys pump the share prices before dumping their positions… and how much money Chamath has made on these kinds of deals.
Lastly, if you’re interested in fully vetted private placement deals, check out a membership to Curzio One, where you’ll have access to amazing opportunities from an insider network you can trust.
- Why the Fed is happy about this bear market [0:30]
- Why the markets could rally 1,000 points tomorrow [7:33]
- The Fed should pay attention to FedEx’s warning [20:15]
- The “SPAC King” is full of s*** [25:15]
- Proof SPAC investing isn’t a level playing field [29:50]
- Investments that give individual investors access to Wall Street gains [38:30]
Wall Street Unplugged | 948
The market could rally 1,000 points tomorrow
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 Tuesday, September 20th. 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. We have a big day tomorrow, and I’m bringing in my buddy, Daniel Creech, who I usually bring in on Wednesday, but there’s a lot going on with the Fed. Everybody’s concerned, the market’s all over the place. Been going down over the past few days. And Daniel and I have just been talking about a lot, what’s going on and I wanted to bring him in. Daniel, thanks so much for coming in on a Tuesday. It’s not Wednesday.
Daniel Creech: I know. People at home listening, do not adjust your calendars or anything. You’re not mistaken. It’s Tuesday, not Wednesday. So, that’s good. We don’t want to get everybody off on the wrong start, Frank.
Frank Curzio: So, we’ve been having some really good conversations about the Fed. It’s mostly me ranting, I think, in the office.
Daniel Creech: I rant too. So, it’s not all you, can’t blame it all on you.
Frank Curzio: I’m trying to get somebody to explain to me what the Fed is doing and everyone I talk to can’t do it. So, tomorrow is a big day where the Fed is expected to be raised by 75 basis points, which shouldn’t be too much of a surprise there. However, there are some surprises that I think. One is that, I think it’s funny that the probability of recession, as of right now, by the futures is 52%, which is funny, because we’re already in a recession, and we’ll determine that later on. 52%. By the way, I think it was leading up to 2008, I think it was 35% of the economists, and they’re like, the same gauge was basically showing 35% chance of recession. So just to let you know, this means, at 50%, it’s like 110%, just to let you know. Those are the fucking numbers.
Frank Curzio: Sorry. You know what, I’m not going to curse. I’m not going to curse, because I’m going to get emotional here and I’m going to get pissed off, because I get fired up about this stuff. But here’s… What’s the surprise, Daniel. The peak rate is expected to be 4.26%, right? So, where are we now? At two and a half percent. They’re expected to rate 75 basis points, which is going to bring us three, three and a quarter percent. And then we’re expected to get to 4.2%, 4.26, pretty much by February, March. But we should get to 4%, and a lot of people believe we’re going to get to 4% this year. Now the surprise here is, that’s supposed to stay there, they’re projecting, for at least 11 months. At peak, at 4.2% at 11 months.
Frank Curzio: So, we’re at how many months, just a few months? And we’re seeing the effects of housing. We’re seeing the effects of FedEx. We’re seeing the effects of companies, warning like crazy. We’re at two and a half percent right now. And the last 75 basis point hike didn’t even filter through the system yet. That’s going to take a few months. Usually takes like six to nine quarters, maybe a little sooner, but you’re seeing it already. And we’re going to bring it up tremendously from here, because we see inflation. That’s what’s projected for tomorrow, at least 75 basis points. Should we expect any surprises? I mean, or is this going to be the Fed saying that, “We’re going to do everything we can. We’re not seeing any signs at all that inflation’s moderating, and pedal to the metal, we’re going right up to 4.2%.” What are you expecting for tomorrow?
Daniel Creech: I didn’t see the last percentage or what the futures were doing Frank, but the 75 is all in, 75 basis point hike tomorrow. Is it 1%? That would be the only shock, and I don’t even think that’s a shock. If the Fed comes out and raises 1%, I think that would be a headline, but I think 75 or a hundred is not going to… I’m not saying markets won’t be volatile and move lower. I just don’t think… A real shock, to get that word, for me to use that word, he’d have to go over 1%. I don’t think he’s going to do that, no. I do think he’s going to remain hawkish, because I want to cover a couple things in a great article today on the Wall Street Journal, which makes me, we kind of got to, dove into the minds of the smartest people in the room, so to speak.
Frank Curzio: Good. Good. Yeah, I hear it.
Daniel Creech: Well, so there’s a lot of take on how hawkish or how dovish he will be. You and I have been in the same camp about, hey, at some point they’re going to have to pivot, excuse me, and be more dovish and talk about lowering interest rates and things like that. That’s when more risk assets, excuse me, will take off. I’ve been wrong on that up to this point. I thought he would’ve already signaled a little bit of that, but let me tell you this, Frank. So, today’s paper, the Wall Street Journal, has a good article and it says, Powell draws from Volcker’s playbook. Volcker is the, how do you say that? He was in a ton of different, he helped Nixon with the advising him with getting off the gold standard. He was treasurer.
Frank Curzio: He’s the one that went crazy with interest rates and controlling inflation. And, they thank him for it, they’re like, “Okay, they controlled inflation by raising rates significantly in the eighties.” And everyone’s like that again, we’re looking back at policy that was four decades old.
Daniel Creech: It’s not apples to apples. I agree with you. And the Wall Street Journal this morning talks about how Powell is looking at, or the market was kind of looking at how they would react to the seventies. And that was under Fed Chair Arthur Burns, who much to the same playbook as our recent Fed, Bernanke and things. Anytime the market got upset or sold off hard, when you have low interest rates and all that pre-COVID, you basically just switched it and went back to easing or you put out some dovish comments.
Daniel Creech: One thing, to your point, Frank, is they cover a couple of quotes here. And this is from St. Louis Fed President James Bullard. He says, “I don’t really see why you want to drag out interest rate increases into next year.” This is in reaction to getting to 4%. So, you just said that, that triggered me reading that. So, he is simply saying, “Hey, there’s no reason to drag this out. Let’s just,” it’s basically equivalent of ripping the Band-Aid off, trying to get over the pain trait or whatever.
Daniel Creech: My concern here is that first of all, did you know that the Jackson Hole speech that Powell recently gave where I forget how many times he used the word pain, but he used it a few times. Do you know that the Wall Street Journal is reporting, Frank, that that was not his original message into Jackson Hole. So, looking behind this theatrical play, that’s called the Fed, Frank, you and I are in the front row. We’re eating popcorn, hanging out. Lights go down, shows on. We actually sneak backstage and see what’s going on. Fed Powell was so upset apparently by reports that the market was rallying, and another Fed Chair, and I’ll find this quote in just a minute, who is unhappy with the market rally from August after that, thinking Fed pivot and all that kind of stuff.
Daniel Creech: That makes me believe that they are going to be much more hawkish. Powell evidently just scrapped his speech of whatever he was going to say. He didn’t like how the market was rallying, so he was more direct, said painful. They basically are hinting now or trying to get the market to believe that they’re not going to reverse course anytime soon, that they’re here to stay. And now, these guys are really serious about inflation, and they’re going to do whatever they have to. Unfortunately, that’s painful for investors, but when you have Fed Chair and Fed members saying that they don’t like… Here’s one, Frank. This is Minneapolis Fed President Neel Kashkari. Okay. He says, “I was actually unhappy to see how Chair Powell’s Jackson Hole speech was received.” He said, “I certainly was not excited to see the stock market rallying after our last Fed open market committee meeting.” Now this is, he’s not talking about, the market sold off after Jackson Hole. He was talking how it rallied from the previous meeting into Jackson Hole.
Daniel Creech: My point to all that is, and then Mr. Powell closes, they closed the article with, “The clock is ticking,” Mr. Powell said, in a conference on September 8th. “The longer inflation is high, the greater the risk that the public will start to just naturally incorporate higher inflation into its economic decision making. And our job is to make sure that doesn’t happen.” That is for lack of a better term, Frank, balls to the wall, my friend. That is the biggest risk right there.
Frank Curzio: I think there’s a good shot tomorrow that we could see a thousand-point rally in the markets. There’s a very good shot. And I’ll tell you why. Because I don’t know how he could be more hawkish, or anyone could be more hawkish. If you’re looking at the trends of the money that’s on the sidelines, the amount of money that’s on the side, I mean, you’re looking at things like near all-time highs. Seven indicators to all-time highs, meaning that they’re contrarian indicators. This is how bearish. People have never been more bearish than they are right now, in history. Some of these indicators, in history. This is like World War II. This is COVID. This is credit crisis, world almost ended. So, this is just inflation that’s relatively high, but not the highest we’ve ever seen. And it is again, it’s going to come down, just where the rates are.
Frank Curzio: But I love when they say, the rip off the Band-Aid analogy, because you’re not ripping off the Band-Aid. It sounds like it’s you’re ripping off a quick, you got all this quick pain, then you get, okay. What happens when you rip off a Band-Aid? Right? It hurts like hell for about 10 seconds, and you’re done. If you are bringing rates higher, it takes six to nine months to filter through the system. It’s not ripping off the Band-Aid. Okay? So, I want to go over a couple things here, because we’ve been saying this pretty much for, ever since Jackson Hole. I was like, “Holy shit. The Fed is really serious.” I thought they were going to, and the word pivot is so bad because we are set in our ways, Daniel, where it’s all and none. It’s like politics, right? Everything’s black or white.
Frank Curzio: It’s either you have zero carbon emissions or you think climate change is a hundred percent bullshit. There’s no middle, right? You have to have your state go a hundred percent EVs, no matter why. Like California, no gas cars by a certain date, or EVs are a complete waste because they really don’t lower CO2 when you account for the mining of cobalt, lithium needed for batteries. What about COVID? Everyone, everyone, Daniel, has to wear a mask 100% of the time, everyone for everyone, nobody. And then you have, nobody should ever wear a mask, where there’s such a middle there. We know the people we need to protect. Kids don’t ever need to wear masks, but yet, people over 65 who have and underlying condition, they need to wear masks. There’s a huge medium, but everything’s black and white. Why is the Fed black and white with this? It’s not that you have to pivot where you’re going to say, “Okay, not only are we done, but we’re going to ease rate.”
Frank Curzio: They’re not going to ease rates for a very long time. They’re not going to ease rates for a long time. They need to see much, much more evidence. Stopping and easing is two different things. You can raise tomorrow by 75 basis points, bring us to 3.25% and say, “You know what? We’re going to wait and see what the data. The current hikes are not yet priced in that, because they do, they take six to nine months at least.” And imagine they come out and say, “While we’ve seen inflation remains steadily high, and food and rents, we all know it. There are clear signs that higher rates are working to lower inflation.” With the velocity of money, it’s at the lowest level since the Great Depression. The money’s coming out of the system clearly.
Frank Curzio: We’re seeing a lot of companies lower margin guidance, which means, you look at almost every industrial, FedEx, just so many warnings that I covered already. And this means, they’re no longer able to raise prices to account for their higher costs, which means that is the deflationary trend, right? You look at copper, you look at lumber, look at cotton. I don’t think you’ve seen cotton. No one’s really been talking about cotton. Cotton has crashed, and absolutely crashed. I mean, you look at cotton, down 20% since Jackson Hole, down 40% since May. What’s cotton used for? You guys can do the math when it comes to apparel. Okay? So, that’s coming down tremendously. Home prices are coming down. So, there’s clear evidence that what you’re doing is working, but the Fed has inflation under control right now. It’s not out of control like it was last year. I mean, Jackson Hole last year, they were saying, “Oh, it’s going to be transitory.” And it went from two to 5%, and you were like, “It’s going to be transitory.”
Frank Curzio: We’ve never been above what? Three and a half percent. I think 3.8%, once since the 1990s, annual CPI, where you look at deflation, that’s a Fed gauge. So, if you’re looking at those numbers and you’re seeing 5%, you need to be worried. The Fed wasn’t worried at all last year. And he says, “It’s going to be transitory.” So, what happened? They didn’t do anything, and then it went to eight, nine. Now you’re out of control. Everybody’s like, “Holy shit. The Fed has nothing,” but where you are right now, you’re in control. It went a little bit higher, but you’re in control. You’re in control. The rates are currently working. We’re seeing it’s working. Yes, we didn’t get a good CPI number, but you’re looking to try to control inflation.
Frank Curzio: And when you have a bunch of 80 to a hundred-year-old people who are on the Fed, and I’m not even kidding. I mean, they just had some, but I’m not even going to mention his name. Listen, I’m going to be the same way when I’m 85, but these guys are, one, they don’t care, because they’re extremely wealthy. They’re probably just, watch TV and hang out in the room all day and have servants. But you’re looking at data from the past that doesn’t make sense. You’re looking at the eighties, you’re comparing, “Oh you want to be a Volcker.” It’s really? That’s who you want to be, from 1980, 40 years ago. Right? I mean, everything is so different to the point where you injected $11 trillion into this market. Now that 11 trillion, a lot of it is coming out of the market based on them two, you’re seeing it. There’s still a lot of it in there, but you’re seeing it.
Frank Curzio: So, if you raise to 3.5 or 3.75, and just wait, inflation’s going to come down. It’s going to automatically come down. It’s going to fall. It’s just not going to happen as quick as you want, which is fine because the tradeoff is a solid market for bonds and equities. It’s predictable. You’re seeing it come down. It’s not like all of a sudden, say if I’m wrong, and the Fed does exactly what I just said that they should do. And just take a wait and see approach, 75 basis points. Let’s see the data. Probably going to raise, but let’s see. If they say that, one, the market’s going to take off because it’s going to be seen as they’re pivoting, even though they’re not.
Frank Curzio: But if I’m wrong and inflation happens to magically surge from here, all of a sudden people are just going to decide to buy homes like crazy, despite mortgage rates doubling in nine months, right? They’re going to look at over 6%, six and a half, pretty close now and be like, “Oh, I am going to buy a house,” right, which is not going to happen now. Housing market, it’s almost frozen now. That’s one of the biggest drivers of GDP, to the point where we may see three of the next five quarters, maybe four of the next five quarters, not next quarters, in counting the two that we just went negative, be negative. Four or five quarters could be negative. We could see negative GDP. We’re likely to see that if you keep raising rates, but it’s more predictable.
Frank Curzio: If I’m wrong, then you could raise rates, right? Wait. And if you happen to see inflation continue to rise next month, or the month after, then you raise rates. But to say you’re going to keep them at 4% plus is insane through the whole year, 2023. And this is why it’s so unpredictable, because the Fed’s projected to keep rates above 4% right now, for all of 2023. But the conference board, which is widely used, everybody looks at conference board and stuff. They report, right? They believe GDP is going to grow. This is their prediction though. They believe GDP is going to grow by 5% for the second half of 2023 with rates over 4%. I’m not going to curse. I’m going to be nice.
Daniel Creech: Say Florida.
Frank Curzio: I guarantee there is, I wouldn’t even say a 0.1%. There’s 000% chance that it’s going to happen. Okay? You’re not going to be at 4%, and then the economy’s magically going to grow at 5%, right? It’s not going to happen the second half the year. That’s the disconnect you’re seeing, because they really don’t know. So, 4.25, and keep them there for all of ’23. It’s insane. It’s not rational. I mean, you’re going to destroy the market. When you see companies like the Dow, Intel, Salesforce, Nike, Walgreens, they’re down 35% each. These are staples. Could we come down with stocks a little bit more? Yes. Apple’s 24 times earnings, Nvidia’s 35 times earnings. Google’s 18 times earnings.
Frank Curzio: Disney’s 30 times earnings, and that’s based on earnings this year of 380 and the forward PE is based on them earning files and 40 cents next year, which is insane because you’re losing billions and billions. So, they’re really traded at 40 times forward earnings. Regardless. The stock market can still come down, but if you’re really going to raise rates, finally, we’re seeing a lot of people come out like pretty smart people. Scott Minerd, Guggenheim Chief Investment Officer, Guggenheim managed over 300 billion. He’s saying that we’re going to go down another 20%, at least. He says it’s going to end in tears. So, the current PE of the S&P 500 is 19X. And he goes, “Since 1960, when core PC year-over-year was four and half to 5% as it is today, the S&P’s PE was 15.2.” And where are we now? We’re at 19. We’re not really at 19. I think we’re more like 17.
Frank Curzio: If he’s looking at a forward rate, if not forward rates, I think we’re more like a 19 currently. So, he says we could see, go down to 15.2 and that’s going to be a nice steep decline. But also, Ray Dalio expects stocks to fall 20% if rates rise to four and a quarter, four and a half percent. But in January 6th, okay. I went back to see what Dalio said. In January 6th, he also said the Fed timing won’t derail the bull market. He was right. The Fed timing won’t derail the bull market. It has, but you know what has, because in January 6th, we were predicting four rate hikes, and we didn’t even discuss. Four rate hikes meant four 25 basis point hikes. No one, they were like, “They’re not going to raise by 50.” Now they’re raising by 75, three quarters in a row and they might do four quarters in row. Are you fricking crazy?
Frank Curzio: And then last month, and this was under the radar, which no one really picked up for Ray Dalio, because again, this just came out the other day that it’s going to fall down. Market’s going to fall another 20% if rates rise of four and half percent. He said that like last week. But last month, he said, “Stocks will fall another 25%, as the current rate hikes are not priced in.” The current rate hikes are not priced in. The current ones, not the ones that you’re about to do like crazy. Not the one and a half percent you’re expected to rise from here. So, think about that. He’s like, “The normal relationship between cash flows and asset price means there’s a significant decline to come, and to align the real economy with the financial economy.” So, we’re looking at markets where, why is it all or none, Daniel?
Frank Curzio: I mean, I know I’ve been talking a lot here, but why is it all or none with the Fed, where it’s either, oh, people think they’re going to pivot. I mean, to me, the pivot is just saying, “Listen, we’re going to raise rates accordingly. And we may raise.” If they come out and say, because what are they going to say? You even said it, Daniel. They’re going to be hawkish than ever. How much hawkish could they be? How much hawkish could the Fed be right now? They just said 75. There’s a 20% chance that they’re going to price it on 1%. They already said, expect more pain. Everyone is predicting that they’re going to come in and say, they already said, “We see zero signs. We see no signs inflation is moderating.” So, what are they going to? If they come out and say, “We see no signs of inflation moderating and we’re going to continue to raise rates after a 75-basis point hike,” that’s priced in right now. It’s why the market’s getting crushed the past week.
Frank Curzio: So, if they come out and say, which I think they should say, that we’re seeing some signs, but we’re not there yet. Even if they say that line, we’re seeing some signs, but we’re not there yet. So, we’re going to monitor this. But if we continue to see some of these things remaining steadily high, then we’re going to raise rates, the market’s going to go up a thousand points tomorrow. And there’s a possibility that they could say that. I’d give it 50/50, they could say that, which is still hawkish. But now you’re saying, “Okay, we are seeing some of these things.” We saw FedEx warn. When did FedEx? I can’t remember. You guys tell me. When did FedEx ever, 2007, eight, maybe during the crisis, remove their guidance? They have no idea, because they just saw in the last month and a half, that they saw businesses absolutely crash out of nowhere, new quarter.
Frank Curzio: Record earnings last quarter. Immediately, they’re like, “Earnings are going to be,” they lowered earnings by 33%, going into next quarter. They had to warn. So, you’ve seen these companies warn out of nowhere, because the demand’s falling. Ford’s another one. They’re like, “Well, inflationary concerns, supply chain.” Who the hell’s buying your cars. Who the hell is going to buy your cars? Yes, there’s a backlog of orders and people are going to buy, but really? I mean, it’s not just the inflation. You’re not this. What they’re saying is, we’re not able to pass that inflation off to customers anymore. That’s what Ford said. And now, you’re looking to sell all these EVs, which are 35, 40% higher than they were, in a recession when people are getting murdered. I mean, just come out and say it. It’s not just the supply issues, where, “Whoa, supply.” And you’re seeing prices go up a little bit. I mean, demand destruction across every single industry is happening immediately right now. And you didn’t even go up. You didn’t even talk about 75 basis point hike for tomorrow.
Frank Curzio: So, the Fed, and again, this is a trading opportunity. I’m not saying that you should be. The Fed controls a market where they can make this a lot more orderly than they’re making it. They don’t have to say, “Well, you got to feel the pain.” We’re feeling the pain, and we’re going to feel the pain. If they do nothing, we’re still going to feel the pain at this rate. We’re still going to feel the pain. The SPAC market is dead. We’ll talk about that. IPL market is dead. Money, completely flown out of the market, money on the sidelines. It just everyone’s out of this market right now.
Frank Curzio: The dollar is freaking going, is surging because the more you raise rates, the more emerging economies are dead. They’re filled with debt. Look at the developed economies. Look at Europe, GDP. You think ours is bad. A hundred percent check out. Check out Italy, Greece, check out most of Europe. Holy shit. Look at China’s numbers. I mean, come on. I mean, you’re really just going to go, you’re accomplishing it. You’re seeing it. All you have to do is wait, but they’re not going to wait. They’re going to go pedal to the metal. And that’s pretty scary to me.
Daniel Creech: Yeah, absolutely. The FedEx numbers were shocking because the guidance that they gave for 2023, that they just pulled, they only gave that guidance three months ago. So, to your point, that is a quick 180. I mean to say that’s a turnaround is a very understatement. Nucor is the, basically a big bellwether for steel, so that was important. Ford, the thing that stuck out-
Frank Curzio: Keep Ford. Keep the Ford coming, and you know why they’re doing this, right? And this is, listen, just think a little bit.
Daniel Creech: Who are we talking about here?
Frank Curzio: Talking about FedEx.
Daniel Creech: FedEx. Gotcha.
Frank Curzio: Why did they pull their guidance? What’s coming up? The biggest season for everybody, which is the holiday season. They’re pulling their guidance, because they understand where the companies are coming from. You’re going to see demand fall off a cliff. There’s lots of inventory out there, and they really have no idea. They’re expecting Christmas to be absolutely hard. For them to pull their guidance, they’re expecting, and they have their eye in the pulse. They see exactly what’s going on with orders and ramping up. And how many people they know, every business. They’ve been doing this for decades and decades, and decades. They know this industry and with the holiday season coming up, right, we’re seeing it. What, just a couple weeks, couple months away. Not even, couple weeks away from Black Friday. And you’re going to see right after Halloween, and Christmas sales and stuff like that, they’re really, really worried about the holiday season. They’re really, that’s what they’re saying. Yeah. Go into Ford.
Daniel Creech: Yeah. And I agree with that. When you yank it, you yank that kind of guidance. That’s incredible. The Ford, the only thing that stuck out to me, I mean, you’ve been on the steady bandwagon of calling them out, for them saying the supply chains are always easy.
Frank Curzio: Just don’t lie to the public. I hate that shit. Just don’t lie.
Daniel Creech: The big thing there was, they expect a billion, one billion in cost and supply chain, and material costs and things, that they, and the way I read it, and I could be wrong, but it was a billion additional from what they thought previously. Well, I mean, in this day and age, it’s kind of funny, everybody just like, “Ah, yeah. A billion. A trillion.” That’s a lot. I mean, that’s a crazy amount of money when you’re like-
Frank Curzio: That’s the bottom line. That’s the bottom line. It’s like, that’s for all of them.
Daniel Creech: “Hey, what’s this going to cost? Oh, it’s going to cost a billion more.” That’s a lot.
Frank Curzio: Oh, yeah. But the thing is now, what do companies do, Daniel? Well, all right. We’re seeing billions in costs. Let’s raise prices. Well, you just raised price by 35% for EVs. How much more can you raise them? You can’t, because people aren’t going to buy EVs if you do that. And we might not see that many people buy EVs, we still don’t. I mean, you look at Teslas. If you listen to Tesla owners, they love their Teslas for the first year. And then you read the comments on the second year and third year. And that’s because again, it’s a new technology. It’s brand new, but replacing the batteries for some of these things, and getting them fixed. You see the complaints come in after two, three years. People are like, “I owe my…” not everybody, but what’s going to happen when these guys are releasing these first-generation trucks.
Frank Curzio: I mean, already with the Lightning, with Ford. You saw that once you tow something, I mean, it uses, what was it? I don’t want to even guess a percentage, but a massive amount of the battery where it was supposed to travel a lot further. But yet, if you’re towing like you normally do, and a lot of people do with these big Ford trucks, F150’s been a winner for decades. The greatest truck ever. Now you’re seeing, again, these are things they still need to figure out, or I mean, the recalls are going to be enormous with these cars. But, anyway.
Daniel Creech: If you’re buying a Ford, if you’re buying, not even a Ford. If you’re buying an electric pickup truck to haul and do anything of any merit, you’re a fool and you should pay a hundred thousand dollars and be disappointed. That’s with where we’re at right now in the grand scheme of things, you don’t have to be an engineer to understand that. You can just look around and read reports. Anyway, are we segueing into the last segment?
Frank Curzio: We are, I just want to end with this, guys.
Daniel Creech: All right, I got to give a comment. There is no way, I love you Frank, but I’m going to bet against you on this. There’s no way we get through this without you cussing.
Frank Curzio: No, I’m not going to. Oh, this next part?
Daniel Creech: Let’s roll. It’s SPACs. Take it away.
Frank Curzio: It is SPACs. Say guys, tomorrow, we’re going to report before, Daniel and I will be on before, just talking about again, a little bit more about what the Fed’s going to do. But again, I just wish the Fed used a little bit of common sense and just said, “Look, we’re all-seeing inflation come down in a lot of different areas, but we’re not seeing it at rents, and we’re not seeing it in food, and we understand. We’re also seeing the energy, that’s declined tremendously.” Again, you could say Strategic Oil Reserve or whatever, but you’re seeing prices come down, which is helping consumers, even though they’re more expensive than they were, year-over-year. However, there are definitely big signs showing that your rate increases are working. And for you to say, “We’re not seeing anything,” again, to say, “We’re seeing no signs of inflation moderating,” because you just saw a hot CPI number, I mean, that’s big.
Frank Curzio: It’s what they’re going to say afterwards. It’s got to be 75 basis point hike. Maybe they go 1%, who knows. It’s all about what they’re going to say afterwards. And I just think, they can’t say anything worse, that’s being priced in right now, because they can’t say that they’re going to tighten even more. It’s going to be crazy. I mean, everything. I mean, 4% for the entire year, it’s going to be over 4% in short-term rates for the entire year of 2023. There’s nothing, the Fed didn’t come out. I think it’s a surprise on the negative tomorrow, but yet they could surprise on the positive. And if they do with the amount of money on the sidelines, the amount of money short, you are going to see this market absolutely surge tomorrow. And it could.
Frank Curzio: I think it’s a good bet. Don’t go crazy. I think it’s a trade, but it’s a good bet, because I don’t think I’ve ever seen, I can’t say ever, but man, a trade where everyone’s on one side saying, “If Fed’s not stopping, getting out of the market,” I mean, we’ll see. Remember, hedge funds are significantly underperforming. And if you’re seeing the market go up tomorrow, they’re going to jump in immediately. And that could create a pretty big short squeeze, and let’s see what happens. Anyway. Segue into what Cramer was talking about this morning. And we also have, this was David Faber talking about SPACs. One of my favorite topics.
Daniel Creech: Special purpose acquisition company.
Frank Curzio: Yes. So, these were very popular. I think these were very popular a while ago and it’s no secret when they were popular. It was 2005, six and seven. Why? Because you have more idiots with more money, and you have easy money policies and more people making money. You see home values go up to the five, six, seven. People feel richer. So, it’s easy to sell these deals. These shitty, garbage deals to the public. And when you could do that, that’s why these things surge to the point where in 2020, we had 244 announced. 2021, 613 came to public, and then 2022, this year, it’s only 76. But before this, it was pretty much less than a hundred. Now, when you look at statistics, Daniel, I’ll set everyone up for this before I get your comments. There’s still 550 in the pipeline for deals right now. And this number was over 660, because there’s over 113 that were liquidated.
Frank Curzio: So, they come to a certain time period, they either have to pay for the extension or they remove it and they give the money back to investors. But the people who started this SPAC and put up a few million dollars, they lose that money. The few people who started this SPAC, they lose money. That’s why they want to keep pushing and pushing it. There’s 164 that want to come public, meaning that they made the deals. They’re just waiting to come out $10, but maybe they’re looking for different pipe deals and stuff like that. So, you’ll get over 700 looking to rob you to individual investors. But now, the individual investors are mostly broke, and they got wrecked on a lot of these deals. And Cramer was just talking about with Faber, how this is fraud. This is bullshit, but let’s start there, and your thoughts on this.
Daniel Creech: I think the SPAC, it was just a matter of timing, in my opinion. You had another fun story to be told, during a time where you had a lot of investors ripe with money, because you had stimulus. You had layoffs. Not layoffs in the terms of taking away, but you had the shutdown, COVID, and all that kind of stuff. I think that when I first heard about it, I assumed it was new or newer. And then, you start reading about it. And you’re like, “Oh, this is nothing new under the sun. It’s just the timing of it.” It is a good idea to go quickly to get public and all that. For insiders, it’s great. For the individual investor, it’s not so good. I’m not saying they’re all bad.
Daniel Creech: This is just, but I’ll be the boring kind of grandpa here, Frank. A lot of these were sold as just the new world problem solver. I mean, anytime that it’s just the old cliche, anytime something seems too good to be true, it probably is. And you need to look at that. Here you have, I mean, again, you can replace SPACs with crypto, Tulip, way.com, anything. You get very good salesmen, high end celebrities, rich folks backing stuff, you’re going to see pops. And yeah, a lot of people end up getting hurt. I know you got some great stats. Some stats that you’re about to share, I was blown away by.
Daniel Creech: I don’t care that the entity exists and the process exists to do these reverse mergers, and take companies public. I don’t care about that. I do have a problem with the story that’s told, versus the story that would be read, if you do all the filings. And to your point, that’s the best thing I can say. Because a couple of stats you told me as to what people put up and the amount of shares they get in return, I honestly thought you were misreading it or just having fun with me. But that’s pretty crazy. So, I’m not against that. I’m not against the entity. I don’t know if you are or if you think they shouldn’t be allowed… I’m just, there has to be more transparency here, but there has to also be a huge, to your point, you want the Fed to use more common sense. Individual investors have to use some common sense as well. And just know, they are only selling this because it’s their book.
Frank Curzio: I always say individual investors, you got to do your own homework and stuff like that and take responsibility. It’s their money and stuff like that. There’s things that they just don’t know. And you can’t know unless you’re in the inside of this industry and that’s why we’re trying to change it. We’re trying to change where Reggae offerings are. Fortunately, Reggae offerings, 99% of them are going to be shit for Reggae. The reason why you come out with Reggae is because you can’t do like a regular Reg D and you can’t get institutions to fund it. So, you want to go to all these individuals and its less regulation around it where a lot of those deals, I mean, aren’t going to work out.
Frank Curzio: But it, the Reggae’s are designed to say, “Okay, we wanted to level of playing field,” but it’s never level, because you’re looking at Chamath who’s canceling two deals. And this is why it’s brought up, because the two deals that he’s canceling, that he’s given the shareholders back is, one is the largest that he ever raised, which is 1.15 billion. And another one, which is 460 million. And he raised that money, mostly you could say, “Well, is that from individual investors?” No, he didn’t raise that money from individual investors, he raised it from institutions. And why the institutions are given him one, 1.15 billion? Because it’s a guaranteed massive return, because they’re getting in at 50 cents, a dollar, $1.50. These things come out at 10. And the only reason they come out at 10, is because that’s when they go to you. They go to all the people and say, “Okay, how could we find enough stupid people to buy this, and buy it at a valuation where they’re not going to care, and they’re not going to look at it?”
Frank Curzio: Okay, well let’s go to the general public and go out there, and then I’ll promote the hell out of it and go on the New York Stock Exchange and put my thumbs up like Chamath did, across the street with Virgin, with Richard Branson saying, “You know what? We’re going to space. The whole world’s going to space.” Right? Well, here’s what Chamath has over you. And this is the advantage. So, you see Virgin Galactic. He has 10 million shares. 10 million shares. Daniel, how much you think he paid for 10 million shares? Say if you’re buying 10 million shares, you buy 10 million shares at a dollar, that’s a lot of money. 10 million shares.
Daniel Creech: Yeah. I bet he got them at well, I remember a few figures, but let’s say he got them at a 50% discount.
Frank Curzio: All right. 50% discount.
Daniel Creech: Or whatever, yeah.
Frank Curzio: Yeah. So, $16,000.
Daniel Creech: 16. That’s good.
Frank Curzio: Do you have $15,000 to invest? Think about that guys. Do you have $15,000 to invest right now? Some of you have, right? A lot of you have $15,000 to invest, right? If you took $15,000 of your 401k, you want to invest it. Imagine if you were able to buy 10 million shares of Virgin Galactic at .001, whatever it was. So, he sold six million of those shares for $210 million at $34 a share. Where is Virgin Galactic now? It’s five bucks. He’s totally out of the stock. Branson sold 60 million shares. He owns like 200 million shares, and these warrants, and by way, the great thing about SPACs is you didn’t have to list the warrant structure or anything of the pipe deals. You don’t know what these people are actually getting in. And plus, to have quick liquidity periods where they could sell this thing within a couple months.
Frank Curzio: Okay? Opposed to what? Going into a private company, investing in a private deal and the liquidity period before you can get out, this is why hedge funds, everybody wants liquidity. They want liquidity. When they say they want liquidity, it means we want to sell this fricking stock immediately, whenever the hell we want to. That’s what it means. When a hedge fund approaches you, you have a private company. Say, “We need liquidity. How are we going to get liquidity?” It means they want to get the hell out of your stock immediately, and how to do it at the highest rate of return. That’s what it means. It doesn’t mean that, “Oh, well, we want to be in your business long-term.” No, it doesn’t mean that at all. So, you guys should know that. But the liquidity part is funny because if you’re going into a private company, the average liquidity period is seven to 10 years.
Frank Curzio: And the liquidity period is what, if you get bought out or if you IPO. With SPACs, the deals already trading publicly. It’s a holding company. So, you don’t have to go through all the red tape, all the bullshit with the regulation. And this thing comes public almost immediately. You raise the money and then it comes out at 10 and go a lot higher, based on how much they’re promoting. But that’s the thing, they’re promoting the hell out of this. So Branson was promoting the hell out of this, he got 200 million shares. I mean, with warrants, you don’t know, you don’t have to disclose any of this stuff like you do in normal IPOs, S1 filings. So, Branson got these 60 million shares. And if I had to guess, he’d probably pay like three, 400,000 for them. He sold just 16 million of those shares for $458 billion. And he got to go to space for free. That’s good. Thank you, investors, for funding that. So you look at Opendoor, which is 6.3 million shares. He bought them for $15,000. Clover Health, 17 million shares. He bought them for $20,000.
Daniel Creech: Hold on, sorry. Clover Health. How many shares?
Frank Curzio: 17 million.
Daniel Creech: And how much money?
Frank Curzio: 20,000.
Daniel Creech: Another good one.
Frank Curzio: SoFi. You guys are in that one, right? 50 million shares at 18 bucks.
Daniel Creech: 18 bucks a piece?
Frank Curzio: So, 18 bucks, you do the math of that, where SoFi is under four, even at $3. Even at $3, you’re looking at a $45 million, right? This is at three. If it goes to a dollar it’s $15 million. If it goes to a dollar, he made a fortune on this. $15 million on $18,000 investment. Yet, if it goes to a dollar, you bought at what? 10, nine, eight? You could buy today. It goes to a dollar. I mean, you’re looking at a 95% decline. These guys are making money, no matter what. This is why the field is not level. These are called founder shares. This is why all of Wall Street was like, “Holy shit. This is really working.” Remember the first couple SPACs and everybody started going in, all of Wall Street. Then you had Ackman getting in there. You had Einhorn getting in there. All of these.
Daniel Creech: Our favorite bank. Goldman was a big player there.
Frank Curzio: Everybody. Yeah, because they could make an absolute fortune. But the only way this works is if you have enough idiots to buy it at nine, 10, as long as you could sell it to that crowd, because then if you’re buying it, who’s getting out? Who do you think is getting out? These guys that… So now, you have Chamath to come out and say, “Well, we canceled these two funds,” and this is what he has the balls of saying, “This is all illegal.” What he did. He’s brilliant. He made a lot of money for himself, but don’t go out there and pretend like he wants to run for Congress now, whatever in California. Don’t pretend like you’re not bullshitting people. That’s what I hate. Don’t be, I didn’t curse. Don’t be fake. I hate people that’s-
Daniel Creech: Is bullshit not a curse word?
Frank Curzio: I hate fake people. That’s not a curse word. No way.
Daniel Creech: That’s genius.
Frank Curzio: So, two reasons. Yeah. That’s the list of non-curse words on Wall Street Unplugged. So, really quick. And again, we like to keep this at 30 minutes, going to go a little bit longer it takes, because I’m having fun here. He said, “Two reasons for those cancellations,” for the recent two funds, Daniel. He goes, “Valuation and volatility.” So the valuation goes, “A combination of factors made it difficult to find a company at a reasonable valuation, margin of safety. Ultimately, to get a deal done would have required us stretching on price, while buying an inferior asset. Neither were those things we felt comfortable doing.” What are you out of your mind?
Frank Curzio: And then the volatility, “We saw resistance from management teams who either weren’t prepared for or didn’t want to face the public markets in the face of the current volatility. Neither things we feel comfortable with.” Okay. So Virgin Galactic that you sold, the $34 that you sold this whole pipe dream, that the whole world’s going to space and nobody’s going to space, other than the guy, Branson and maybe 10 other people. So right now, even now, because he went on TV and this is a couple months ago. He’s like, “Look, you got to base these things on three years.” He goes, “I’m going to be seen as an enemy, but you got to base it on three years dance.” He’s like, “Three years. You’ll see. I want those same people who are ripping me apart, to write these reports. Because, that’s where you’re going to be.”
Frank Curzio: Firstly, you’re out of the stock. You’re out of the freaking stock. Second of all, if you’re looking right now, Virgin Galactic is five bucks. And he’s talking about, “Have required a stretching on price to get a deal done.” It would’ve required a stretch on price or basically valuation. “Neither were things we felt comfortable doing.” You did pretty, felt comfortable doing it with Virgin Galactic. Because right now at five bucks, it’s trading at 200 times enterprise value to sales. Enterprise value, it is just bringing in the cash and that’s a much more pure number, 200 times. But you felt pretty comfortable coming out with it a while ago under the same conditions. So, just don’t bullshit and lie. All right?
Frank Curzio: And he’s going to get sued and you know what he is going to do? He’s going to take whatever. He’ll get sued under the table, because they’re suing him right now and he’ll pay. What is he going to pay? $20 million of the 200 million plus that he generated, just off of this one deal alone? I mean, when he sold the shares. So, you’re looking at Wall Street and you wonder why everybody hates Wall Street. You wonder why crypto is gathering momentum, where so much of the technology is in there. Why Bitcoin was created in the first place, because people hate this shit. Because you have people up there lying to you, absolutely lying and being fake, and making a fortune off of you. And who cares if they get sued? Oh, they kick back, and they know everybody they kick it back to. The top people at the SEC, all going to be working for Goldman and everybody else. That’s the way it is. Just do your research. You could see. That’s not a conspiracy theorist.
Frank Curzio: Is because they have the inside scoop and they make nothing from the government. And then Goldman’s like, “Wow, this guy knows everyone within the SEC. So, let’s hire him and give him $5 million a year from the 150, 125, you were making as the top position there.” So, great. That’s awesome. But just think about this, guys. This is the market. This is what you’re competing against when you’re buying this shit. For me, I’m trying to bring a lot of these deals to you very, very early on where you can invest. And a lot of times, it is for accredited investors, and people get pissed. But unfortunately, a lot of Reggae deals and I’ve sift through hundreds, hundreds and hundreds of deals over the past year or two, hundreds of them, and said no to almost every single one of them. Thank God, because a lot of them are getting crushed now, but there are certain deals that are coming out. That look fantastic. That could be great.
Frank Curzio: But this whole SPAC market is really, it really is a joke. And for Cramer too, Cramer’s been saying it here and there throughout the years. He represents the people. Okay, he’s on TV and he knows his audience. I worked for him personally. I know he cares. And now, he’s like really, really ripping them. And he ripped them a few times, but he’s also recommended a few of these. You need to really call these guys out over the past two years, like we were doing. Not now when everyone’s crashing now. Everyone can say, “All these SPACs, these guys are criminals,” who cares? They made a fortune, everybody else didn’t, and nothing’s going to happen to them, just like the credit crisis. So it’s all, all right, you win, Daniel. It’s a fucked up system. It’s a fucked up system, that unfortunately is at your expense.
Frank Curzio: And that’s right, really what pisses me off. It really pisses me off. It does. It pisses me off and there’s nothing you could do about it, because what’s going to happen at the end of the day? Nothing. Nothing’s going to change. Nothing’s going to change. Why you get a couple people that are sued, that made two, three, $400 million, are going to get sued for what? 10, 20 million. Government makes their money. They make their money. They’ll go onto whatever they do. They have 27 houses and you, you’re broke. And they’re going to continue to do that, and continue to do that. And that’s why you’re going to see the rise of crypto. The rise of Dow, which is governance tokens, when everybody could vote. It’s not just bullshit board of directors, making all the decisions.
Frank Curzio: Just with security tokens eventually, I mean, security tokens is a hot market. I hate where the current people are taking it, because they’re going institution to make money, because they can’t make money on it right now because it’s a bad market. To me, the security tokens are always a way for every investor to be able to invest in really great companies during their early stages. Now it’s all institution, where you have to be a credit investor to trade some of these. That’s what the current companies are doing that we’ve dealt with, which is very, very frustrating. That we used to deal with. It’s like, that wasn’t my vision for security tokens of what they’re doing right now. And I get it. You need the money. Otherwise, you go broke and no one’s trading security tokens. And that’s how you make money off it. But still. Yeah, but that’s why you’re seeing the rise in crypto. A lot of this bullshit. You’re seeing decentralized finance with no third party just constantly taking money out of your pocket, no matter what. And you’re seeing it right now.
Daniel Creech: Yeah. It’s a good warning. Listen, you can’t end on that note, Frank, even though I won the bet, that’s fun. Yeah. You call it out. You try to tell people, the individuals and level the playing field and things. The easiest way, just look at these as either trading assets or just avoid this. There’s plenty of other good core companies, sectors, industries to follow, especially during these times like this. But yeah, it needs to be said. I think it’s great. You had a lot of great numbers there, and it is BS. It’s not a level playing field. You and I can’t change the rules. So, you either have two decisions. You either play in the rules the way they’re set up and do the right thing and build up, or you just don’t play at all. And we like to fight. You, especially.
Frank Curzio: It’s kind of, one of the best lines I heard Trump say, and I know everyone’s like cringing right now. Trump. One of the best lines I heard him say is when they were, someone he was debating, I think it was Clinton, Hillary Clinton. And she said something about taxing. “You did this on tax.” He goes, “Yes.” He goes, “Yeah I did. I made a ton of money because I knew the tax code that you created. I know all the loopholes, so I know how to change it.” But he’s like, “If the rules are there,” he’s like, “Of course I took advantage of it. They’re your rules. Your rules suck, and I took advantage of it.” He said. He actually admitted that and said, “At least, I know how to change that.” But the rules are out there. These big guys, they know the rules.
Frank Curzio: If you want to play with them, play with them and you could make money. You’re probably not going to get founders shares, even I have trouble getting founders shares. But you could get into a lot of great deals early stage. And we do offer that through Curzio One, and also do Curzio Venture. Although, we didn’t do any in the past probably 12 to 15 months at least, and I’m glad we didn’t, because there’s a lot of deals that I see that are just crazy dilutive. It’s not that I don’t want to give you more deals. I can give you, everyone in the world’s looking to raise money. Every company, even Microsoft and Apple raise money through the debt markets, right? Bonds. Everyone’s looking to raise money, especially not just in this market, but almost all the time, if you could raise money. So, it’s a matter of bringing the right deals at the right time, and that’s coming.
Frank Curzio: And I will say this about SPACs. The companies aren’t terrible companies. You could actually look in buying it. What’s terrible about SPACs is the valuation they sold you on. So, now you’re seeing SPACs and also IPOs get murdered. But a lot of these companies are still seeing growth, except instead of buying these things at stupid, crazy, idiot valuations. Now they’ve come down 75, 80%. And, a lot of the cash they raise is still in their balance sheet, right? Palantir is one of them, right, Daniel, you’re talking about, and others? There’s a lot. There’s 10 or 12 others that we will research. And I want to get a little more research for you guys. Not too much, because we might be recommending a few, but the companies themselves, it’s not like you should say, “Okay, I’m never going to. I hate this company because it came out as a SPAC.” You should always look at it at the valuation. You hate the valuation, right?
Frank Curzio: So, the valuations are coming in, where they have a lot of cash on the balance sheets and they still have growth. They’re not growing at 40%, 50% or even a hundred percent, some of these early stage. But they’re growing fast to the market. They’re trading at lower levels. They have recurring revenue. There’s a big difference between a company coming out at $10, or a valuation of 300 million, compared to three or four, five billion. And that’s what you’re seeing. That’s why a lot of these things are getting smoked, because the valuations didn’t make sense. But now, they’re coming down to reasonable valuations. They got good business models, decent management teams. You could actually start looking at some of these, if the Fed ever stops being an idiot and hopefully not raising rates for the next five years in a row. We’ll see more of that tomorrow. But, this is an area that we’re looking at, because there are some ideas that are growing fast to the market. They’re now cheap, and they have very, very good business models.
Daniel Creech: Yeah. And sorry, on Palantir, they weren’t a SPAC, but they were investing in a lot of SPACs, which caught my attention. And they have a lot of cash, but yeah, there are a handful of SPACs out there. Their share price has gotten absolutely hammered. However, if you just do a quick look at FINVIZ or anything, just see what their cash is to total debt, as a kind of a real easy sifter or, not segue, but filter to start.
Frank Curzio: Yeah. And a lot of these guys, they do have good business models still. It’s just the valuation was just insane. And you could do that when the whole market’s flushed with cash. You’re giving the $11 trillion to everyone, handing that out to people. Directly to people in businesses and people just looking to invest, in crazy stupid things that they were never able to invest in. And that’s where SPACs came in. So now, this market is completely dead. I mean, completely dead. It’s not like the SPAC market is terrible. It’s just, if you’re going to do a SPAC, be careful, because they’re coming out at 10. And remember when you’re buying at 10, there is a lot of investors that are dying to sell it to you at 10, that bought at a dollar. And just remember that. So at $10, it could come out at a valuation that really makes sense.
Frank Curzio: Maybe they’re generating money. Maybe it’s coming out at 20 times forward earnings, and they’re growing at 40 times, they have a great business model, software cloud, AI, whatever. That’s great. But, if you’re generating a certain amount of money for these things, but yet, you’re coming out at 25 times that valuation. I mean, what do you expect, when the market isn’t bad? These things are crashing. Daniel, let’s be fair. These things are crashing before January, right? I mean, these things are crashing like mid-2021. That’s when you really saw this market actually start to collapse, even before like the Fed said, “Holy cow, we have no idea what we’re doing on interest rates. It’s not transitory. We got to raise like a bunch of idiots.” That was before that, just to let you know.
Daniel Creech: Just well-said.
Frank Curzio: Well-said, okay. Thanks buddy. All right, Daniel. Thanks for joining us. You can join me tomorrow. It should be pretty-
Daniel Creech: Oh yeah. I’ll see you tomorrow.
Frank Curzio: Yeah. So guys, yeah, any questions, comments, email@example.com. Thank you so much for listening, and we’ll see you tomorrow. 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.