Wall Street Unplugged
Episode: 890May 5, 2022

The market now controls the Fed… and that’s dangerous

Federal Reserve

The major indices surged over 2% yesterday following the Fed’s interest rate hike announcement. Daniel joins me to discuss Fed Chair Jerome Powell’s comments… if the markets are in the clear… this year’s midterm elections… why earnings season is proving we’re in a stock picker’s market… and the key thing to look for in a great investment.

Inside this episode:
  • The Fed hikes interest rates as expected [1:50]
  • Why the Fed should be more aggressive [4:40]
  • How the Fed has lost control of the market [8:50]
  • Why commodities have room to run much higher [16:30]
  • A sector to be cautious of heading into the midterms [19:40]
  • Putting the market rally into perspective [23:15]
  • It’s a stock pickers market—here’s what to look for… [27:20]
Transcript

Wall Street Unplugged | 890

The market now controls the Fed... and that's dangerous

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 Thursday, May 5th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down headlines and tell you what’s really moving these markets.

Frank Curzio: It’s Thursday, I like to bring in people and interviews and things like that. And the interview today’s going to be with Daniel Creech. We really said it, right, Dan? We said Thursdays will be interviews, but I’m trying to get more timely interviews, better interviews, and not just anyone on the podcast. I’m very selective now. We’re getting positive feedback of our back and forths which we do every Wednesday.

Daniel Creech: Wonderful.

Frank Curzio: They like you for some reason, Dan, for some reason. I don’t know why.

Daniel Creech: Well, I appreciate that. Continue to send all your feedback, good and bad. I love this. When you asked me to join in on Thursday, well, that’s great. So, now instead of a happy Wednesday, we got a great Thursday.

Frank Curzio: I know.

Daniel Creech: Happy pre-Friday, since we were being funny yesterday with the 4th. Cinco de Mayo. Happy Cinco de Mayo, and then Friday. Man, life is good, Frank.

Frank Curzio: Life is good.

Daniel Creech: Markets are rallying, everything’s fixed. Well, not today maybe.

Frank Curzio: I mean, you wouldn’t think that watching the news. Holy cow. I can’t even watch the news anymore. We’ll get into a little bit of Roe vs. Wade, and not in the political part, but I feel bad for Ukraine.

Frank Curzio: I feel bad for Ukraine, because remember that was such a big deal, and now it’s like there’s not even a war going on. It’s the midterm election so it’s got to get really, really crazy. We’ll talk about that because it’s important. Because what’s going to come down the pipeline, right? You’re going to see a lot of bullshit, a lot of craziness, a lot of whatever on both sides. Just extremes and stuff because it’s very big, its midterm elections. We’re talking about your portfolio, how it could impact you?

Frank Curzio: And one of the things, obviously, we saw the Fed come out and do what it said it was going to do exactly and the markets didn’t really do anything at first until you had Powell say… Someone asked about a 75 basis point hike and he said, “You know what? That’s off the table. It’s something the committees is not considering.” And you saw stocks take off towards the end of the day. I mean, literally take off. You could’ve blinked your eye and it’s “Holy shit the Dow’s just surging. Everything started surging and everything is up.” I mean, let’s start there. What do you think about it?

Daniel Creech: Well, it was hilarious because I was sitting at my desk and Frank was walking through the common area here in the office and he just shouted nonchalant, “Hey, what’s the market doing?” I says, “Oh, everything’s rallying. Dow’s up damn near 1,000 points.”

Daniel Creech: He’s said, “What?”

Daniel Creech: Because as we were joking, I mean, it changes so much and then boom, it takes off. First off, I was surprised. On the front page of Wall Street Journal today, Frank, “Fed rate rise is the biggest since 2000.”

Frank Curzio: Yeah.

Daniel Creech: If we had mentioned that yesterday, I totally ignored that. I thought I saw somebody reference it to a historic Fed meeting or something. I get it. There’s a big paradigm shift going on from where we’ve been and where we’re going. We’ll talk about that in a minute but put that in perspective. A 50-basis point hike was the largest since 2000.

Frank Curzio: 2000, I know.

Daniel Creech: That’s crazy. At a later time, people take the time to think about that because it’s worth it. The 75 basis point thing, to your point, I got to give you some credit, markets hate uncertainty. So now, you can at least plan, “Hey, alright, so next month another 50 basis point is going to be priced in. The following meeting at least another 50 basis points.” And now, he has two more opportunities when he does these next two meetings. I don’t know when the one is after next month, but he has two more opportunities and all the time beforehand. Because remember, these people are just like celebrities out of Hollywood, minus the slapping in public so far, because they like to be in front of the cameras and talk.

Daniel Creech: Andrew Horowitz, and you had a good conversation about this a week or so ago. If they would just be quiet in between meetings more, other than what they’ve already said, that would be good for investors and markets. Let it figure it out. Let prices slosh around. However, to your point, now they can bake that in. They can think, “Okay, we know nothing uncommon is coming or uncharacteristic.” Jerome Powell is trying to communicate and steer this economy. Hey, I wish him the best. We can make money either way. We need to be nimble. But I think, it’s to your point, they hate uncertainty and now you got a little bit more certainty to carry you through the next several months, which is why I think everything rallied.

Frank Curzio: You bring up a good point there, because certainty is important, and I think that 75 basis point being off the table, obviously. You want certainty in the market. I really talk about that issue all week, right. That’s why that’s so important. With that said, we know where the Fed has to go. And when they’re saying, “that’s off the table,” you know where you have to be. You really do. We all know, right. You got to get it up to 3 percent. And you could do it now or it could take 12 months. But what they’re doing right now is playing that hope strategy. “Okay, let’s see what happens, and hopefully it’s not too bad. We’ll see. And inflation moderates.”

Frank Curzio: And I get that but when I look at the bigger picture, I’m a person that’s, “Hey, you know what? We all know where it has to go, raise aggressively because I also said that you should be raising aggressively. We knew who they were. There’s 100% chance that they were going to do exactly what they did.” But when I take a step back, what’s important is you should be raising aggressively right now because you could always take it back. Not that’s a great thing when you take it back, and there are market implications and stuff like that, but you can take it back. Because I hate when people look at a scenario and say, “But for every decision you make there’s consequences.” Even if you make the right decision, but still there’s going to be consequences on the other side.

Frank Curzio: So, there’s nothing perfect where if you do this, everything’s going to be great. But I could tell you, if you look back, and I went back in the past and, “How did the Fed handle situations like this?” You’re looking at the tech bubble. It blew up in March 2000. That month, the Fed raised rates by 25 basis points-that month. And then in May, when the market was absolutely crashing, we’re in the heat of this, Daniel, they raised again by 50 basis points, but they were wrong. They were dead wrong. That’s okay.

Daniel Creech: In 2000? May of 2000?

Frank Curzio: In March of 2000.

Daniel Creech: Okay. Got you.

Frank Curzio: So, this the tech bubble. Of course, in 2001 they say, “Holy shit, this is really, really bad,” and they cut rates dramatically from 6.5 percent, they were back then, to 1.75 percent, and by 2002, we came down 1.25 percent. And then 2002, that’s when we bottomed and we took off. In 2006, pre-credit crisis, and I shouldn’t say pre-credit crisis, it wasn’t really pre-credit crisis, because the writing was on the wall. We saw several hedge funds blow up. We saw mortgage companies file for bankruptcy. We knew in 2006, “Holy shit, man, something’s going on right now?” We didn’t know to the extent, obviously, that we’re leveraging subprime loans through the fucking roof.

Daniel Creech: Didn’t know how bad it was.

Frank Curzio: We didn’t know how bad it was with AIG and stuff like that in 2008. But we saw the writing, “Holy shit,” it’s not often where hedge funds go bankrupt and big companies, mortgage companies, go bankrupt, right, so we saw it. This is 2006, the foundation was cracking and the Fed increased rates of 4.5 percent to the 5.25 percent in 2006. Right. So, what happened? “Holy shit, we were wrong,” right? So, rates are pretty high until September 2007, they were still high through September 2007, before it started aggressively cutting through 2008, which we all know what happened. They brought them down significantly to effectively, zero. And in 2017, we started raising rates again. I thought it was a smart move because we’re seeing very strong growth, low unemployment and zero is not normal, right? So, we had to get up there, but we finished the year at 1.5 percent to sever rate hikes. And in 2018, the Fed just said, “You know what, hey, we got to take this back and cut rates.”

Frank Curzio: And in 2018, the reason why, it wasn’t from some dramatic event or craziness, it was a fearing of a global slowdown due to trade wars, right, which was ridiculous. When you look at 2018, the Fed tightening, and then all of sudden, in 2019, they started cutting it. I didn’t think in 2019 they should have cut. They didn’t really need to cut right, when we were at, I think we got up to 2.5 percent, right. We got up to 2.5 percent by 2019, all of a sudden, they started cutting again, fearing the global slowdown. All this shit, there was a lot of talk. It was still okay. But anyway, we brought them all the way back down. My point is this, if you aggressively raise rates, and you’re wrong, you could always take it back.

Frank Curzio: And like I said, it’s not like you take it back but it’s something. That’s what you have. That’s what you could control. The Fed could control that. When a reverse happens, when you’re not raising rates during booming economic times, when all asset prices search to record highs, which we saw last year, and trillions injected into the market. Then you have today’s environment where stocks are crashing, inflation surging, and the Fed’s forced to raise rates, which backs them into the corner. Under that first scenario, the Fed controls the outcome. If they’re raising rates aggressively, and they’re wrong, they control the outcome, Daniel, right, so they control it. In today’s scenario, the Fed has no control. They don’t control the environment. The market is controlling the Fed. That’s a major, major difference what’s going on. The Fed is acting like this because of the market where the Fed can say, “Okay, here’s what we could do.”

Frank Curzio: Now, you’re so behind the curve. When I see a rally like this, because you say you’re not going to aggressively raise rates, I wish you aggressively raise them. What’s going to happen, I think, over the next two weeks is you’re going to see a sell off. You’re going to see the markets pull back because they’re going to realize all this uncertainty, “Holy shit, we got to raise rates, the war is still going on, inflation is still happening, AG prices, all this shit.” And yet, if they aggressively raised, I think you would’ve saw the opposite happen. You would’ve saw the market crash and the Dow go down a thousand points. And then, I think over the next couple weeks, you would’ve saw it gradually go up, because we’re getting closer to that point.

Daniel Creech: Right.

Frank Curzio: Right. And the Fed is having more control now and as crazy as it sounds, “The Fed has control.” I’m just saying, the Fed could control the outcome, which they’re used to. Right now, the Feds can’t do anything, it’s handcuffed, right. They’re handcuffed. That’s why they’re not aggressive because they’re praying and hoping that something happens. That something so that inflation comes down. I didn’t mean to take up that much time with that, but it’s important for you to understand this didn’t solve any problems.

Daniel Creech: Right, yeah.

Frank Curzio: We didn’t solve any problems. We didn’t come out and say, “Holy shit.” It’s not that the Fed could be there with the punch bowl. It’s everything, all the problems, that they still exist today, except, “Hey, we’re not going to do this aggressively,” which I think is a negative. I think it’s a negative, if you’re stretching out how long it’s going to take for us to get the 3 percent, 2.75 percent, whatever. Why stretch it out so much? Why not just do it and get it there? Or, again, I think you can get a little more aggressive than what they did, but again, I don’t think it solved any problems, so we’ll see how the market reacts after this, right.

Frank Curzio: The initial knee jerk reaction, obviously when you see a move like that, there’s tons of shorts.

Daniel Creech: Right.

Frank Curzio: And when you see the market moving like that and these algorithms like, “holy shit, boom,” right away. Right, we have to cover these shorts right away and we’ll put them back in later on, but you saw a lot of short covering take in place, but it’s going to be interesting to see. It’s just going to be even more volatile over the weeks ahead, I think.

Daniel Creech: I like that. I like the transition here because I want to talk about what do we think the odds of the future events are happening, not that we have a crystal ball, of course. Let me put on my political consulting hat. What do you want? I think what you’re saying, Frank, is, “Yes, the Fed’s not controlling the market, in a sense,” but you want them to be in a position of strength so they can control the narrative.

Frank Curzio: Mm-hmm.

Daniel Creech: And that’s what Powell is trying to do. He’s out there with a microphone telling people.

Frank Curzio: That’s why it’s not a big deal. Like what you said, right? This is the first rate hike, with this 50 basis points, hike. The first one since 2000. We knew it was coming, right.

Daniel Creech: Right.

Frank Curzio: So the Fed’s controlling that, right. It’s a great headline and it’s awesome. It surprised me too. I was surprised at that, but it’s not a big deal, right.

Daniel Creech: Right.

Frank Curzio: Because we knew it was coming. That’s what the Fed’s used to doing: Just being able to predict and control.

Daniel Creech: And to answer your question on why they’re not doing that, because I believe you, if they would’ve surprised the market, if Powell said, “Seventy-five basis points is on the hike,” even if a percent is on the table. Dell does the exact opposite. The cynical in me, I guess, or the pessimist in me, they look at stock prices. In that sense people, you really want to think about, “Hey, stocks only go up, prices are good, wealth effect” and all that kind of thing. They pay attention to stock prices. They care about the reputation. They care about what they’re doing. And I’m not saying to you that’s bad. I have to give him credit.

Frank Curzio: Political organization.

Daniel Creech: He’s at least halfway being consistent, in the sense that, he’s admitting, “Hey, I’m trying to be communicative. I’m trying to explain to you guys what I’m doing.” To that point, I got to give him some credit.

Frank Curzio: What you just said is exactly right, Daniel.

Daniel Creech: Oh, stop right there. Next topic.

Frank Curzio: So let’s go. And I’ll see you guys tomorrow, take care. Daniel was right. But just to the point of how the Fed looks at the market, just look at 2019, why did the Fed start cutting rates in 2019?

Daniel Creech: Because we had a hell of a sell off when I was at home celebrating Christmas and you were working.

Frank Curzio: But it was because of trade wars that didn’t exist. Right, China beating the drum, and with Trump, and talking a big game, even though they can’t do anything, right. We buy their goods. We could buy them from any place. It would be more expensive to buy them other places, but as long as we have the power, we are buying your goods that you produce, China will always need us forever.

Frank Curzio: They are not in the driver’s seat. Our politicians made them in the driver’s seat and I know that a lot of these contracts, and maybe Trump handled it the wrong way, tariffs, whatever it is, but you look at 2019, we still had strong GDP. When you see the media on trade wars and, “Oh my God, and there’s going to be no more globalization,” all the bullshit. You get things wrong, get things right. But I wrote a report and I felt like it was controversial and saying, “This is a hundred percent smokescreen bullshit. All right. There’s no trade wars. There’s not going to be a trade war, buy the freaking dip here, the Fed’s there, low interest rates.” Right. None of that shit.

Daniel Creech: They were good buying opportunities.

Frank Curzio: If you go back to 2019, I bet there’s about 50 million plus stories. You can look on Google. Just Google it, and it’ll come up with a hundred million freaking stories on it, of everyone, the media going crazy, no more globalization. All of this bullshit, when you’re supposed to say a lot of shit which China did in the U.S., but underneath, nothing really happened. China was just like, “Okay, whatever.” Whatever they give each other under the table, whatever it is, but nothing really happened for that. When I look at 2019, it’s, “Hey, the market’s crashing. Holy shit.” But it was crashing for reasons that really didn’t exist. It wasn’t like we’re seeing today, where inflation, right. That’s a data point. Inflation.

Daniel Creech: Right.

Frank Curzio: Right. We didn’t see China stop trading with us, right. We just assumed that was going to happen. COVID, lockdowns, okay, that’s a data point. Holy shit, we need to do something. Like, 2019 was a data point where you just looked at the market and said, “Okay, well let’s start cutting again.” And, when you did, the market came up, everybody applauded it, and then who knows it would’ve happened if we didn’t have COVID in 2020. Just to your point, I didn’t mean to cut you off.

Daniel Creech: No, you’re good.

Frank Curzio: If you look in 2019, it’s a clear example of how the Fed’s looking at the market and just reacting instead of doing things where, “Holy shit, this is a major problem right now. We need to handle it.”

Daniel Creech: Exactly. And we’re looking at the market, and what they’ve done is done. Now we got a couple of more Fed meetings in place over the couple months that are going to be bullish, in general, for that. Well, Frank, this new normal, what do we think? Like I said, not that we’re predicting, but because of actions they’re taking right now, where are we at? Well, we still have COVID issues. We still have supply chain issues. Looking forward, what do we want to be positioned to as this plays out? And again, it’s not that we’re telling you what the future holds. We’re simply saying, “Hey, the odds are pointing to higher inflation year over year at a constant level,” because, as we’ve talked about in the past, once you get to that year-over-year mark, it may not go down a lot, but it looks a heck of a lot better when you’re comparing to high levels last year to high levels this year.

Daniel Creech: I say all that because we want to steer you to energy and commodities. The policies in place that are being enacted right now, including the Federal Reserve, including oil and gas prices, sanctions, restrictions, regulations are playing a major role.

Daniel Creech: And there’s some good articles, if we want to segue into that, Frank, from the Wall Street Journal today about that. Now that this new normal from easy money policies and low interest rates into a rising interest rate environment, commodities are definitely going higher and we’ve been pounding the table on this, but I guess I want to give you another opportunity, because I’m crazy bullish on that because of what I’ve just said. What do you think the next three to six months look like?

Frank Curzio: I think certain commodities, right. Looking at oil makes sense when Russia is controlling it. I think, for me, my mistake is I thought it would be over by now. I don’t know what the consequences would be.

Daniel Creech: You mean the Russian, Ukraine. Yeah, yeah.

Frank Curzio: But it’s not and it’s up in the air, right, which is uncertainty, and they control Europe, right. The two things that control the world is energy and food. And you know what? We solve the problem on energy. We really did solve the problem on energy where we became the biggest producer in the world, and we could produce, and our drillers are being restrictive, regardless. If you want to have the argument, federal land print. They’re being restricted. They can’t drill as much as they want to drill. And then, we could send all the oil to Europe and all the climate change idiots, right, who think the world’s going to end tomorrow, right. Right, but tomorrow, you know how they are, right? They’d rather you sleep on a fucking park bench and lose your house because you’re paying all your energy prices now to save something that may happen a hundred years from now, or 50 years, or 30 years from now, right.

Frank Curzio: So, we’re in it. This is national security here, right. We’re seeing prices where, at the pump, it’s a fucking joke to heat your house. These costs are going up tremendously. Just to put in perspective, inflation up eight and half percent, you’re looking at the S&P 500, that’s the average gain for the S&P 500 annually since it became the 500 companies in the fifties, right. You’re taking that away with eight and a half percent inflation. It’s almost impossible to make higher returns than that, right. You’re going to see lower returns. And when I look at this, what’s going happen in the future, right?

Frank Curzio: To your question, I talked about that earlier where, “Holy shit, you shouldn’t have any fertilizer company, ag company in your portfolio now. It looks like oil prices are going to go higher. Again, when Russia’s controlling that oil and about to cut off all the natural gas to Europe, that’s a pretty big deal. That’s a pretty big deal. The producer price index in Germany was up like 30 percent or something last month. It’s insane. It’s insane what’s going on in Europe? And you think things are bad here? It’s terrible in Europe. But that’s how you want to position yourself, right. Yes, commodities is one thing that I like, absolutely. And what are we seeing right now? Roe versus Wade, right. Whatever the league, I don’t give a what side you’re on.

Frank Curzio: This is a topic that’s so highly debatable, 50/50. And no matter how much you debate it, whatever side you’re on, a lot of this is smoke screens, right. Because is this going to happen? Who knows what’s going to happen? I know that they’re trying to give the authority back to the states. And some of those states are saying, “We’re going to outlaw abortion.” And I get it, I understand why people are pissed off on both sides. The point is you’re going to see narrows like this, where all of a sudden, notice that I mentioned earlier, Ukraine doesn’t exist. That Ukraine war, the problem, it’s nowhere.

Frank Curzio: The media’s not talking about that. They’re going crazy over Roe vs. Wade right now. They’re going to be going crazy. What else are they going to create because the midterm elections are fucking huge. These people only care about power, 100 percent. They don’t give a shit about you, don’t give a shit about me. I don’t care if you’re a Conservative, Liberal, Republican, Democrat, they do not give a shit about us. We know that. We saw that during COVID. They don’t give a shit. They don’t give a shit about us, right. They want power. You’re going to see a lot of these crazy stories come out, which for me, one of the sectors I’d be most worried about is social media because the “free speech thing” and it’s “free speech” and “Conservatives say all this bullshit and they’re lying.” And then we’re saying, “Liberals are lying” and back and forth and shit, but you’re going to see this really, really get played out into the midterm elections, and Snap, Meta, companies like that, I think, you’re going to see under pressure because of these narratives.

Frank Curzio: But expect to be very angry over the next couple of months. And you’re seeing that if you watched any news fucking program over the past 24 hours. Did you see Elizabeth Warren? Did you see Elizabeth Warren? Holy shit. If she had a gun, she would’ve shot 50 people in the face. I’m not kidding. She came out.

 Daniel Creech: Yesterday? Okay.

Frank Curzio: But when she came out she said, “I’m pissed.” And I said, “Okay, when are you not pissed? I’ve never seen you not pissed in your life. You’ve been off for the last 15 years in a row every day. Every day.” She’s not married, right? She can’t be married. There’s no way. Is she married? There was no way.

Daniel Creech: I’m sure she is, Frank.

Frank Curzio: Is she? I mean, at least she’s not home that much, because she’s a politician, but holy shit.

Frank Curzio: Imagine being married to Elizabeth Warren. Oh my God. Holy cow. What you have to deal with when she gets home every day.

Daniel Creech: Ladies and gentlemen, that’s great. That’s great you didn’t hear.

Frank Curzio: I guarantee it’s like Tom Brady, right. Tom Brady’s said, “I’m retiring.” And he went home and he said, “No, I’m un-retiring. Fuck that.” But did you see? You have to see. Watch the clip. How angry, right. And again, that’s what’s going to happen. That’s what you’re going to see over the next three months, regardless of what side you’re on. Just the anger issue, how do you play that? Who’s going to win? Who’s going to lose? The Republicans are likely going to take over, maybe the House and the Senate, right? It looks that way right now. Maybe they don’t. Who knows what happens a couple months away.

Frank Curzio: But instead of being saying, “Holy shit, this sucks,” if you’re a Democrat, or applauding it and cheering it if you’re Republican. What’s going to happen? What’s going to change? Right. What’s going to go on? Right.

Daniel Creech: Right.

Frank Curzio: And there’s a lot of things within climate change issues. There’s a lot of things within social issues, ESG, more oil. There’s lots of sectors that are going to be impacted based on what happens and, instead of looking at it emotionally, our job, Dan, which you talk about all the time, is looking at it as, “How do you make money off of it?” Because that’s your goal. The politician’s goals to get more power and control you, right. Fuck them. For you, you want to make as much money for your family as you possibly can right? You want to support them. You want to be filthy rich. You want to be able to retire. That’s how you have to look at this. You have to put your emotions aside, and that’s how you have to look at it. When you see these politicians, and how emotional they get, it’s pretty scary. It’s pretty scary. Seriously, if you saw Elizabeth Warren, I used to think she’s always angry until I saw her. She came out, she was walking the streets.

Daniel Creech: Redlining? Just redlining?

Frank Curzio: Oh, watch it. Seriously, anyway, if you didn’t watch it yet, and you go to YouTube and you watch that, I’m not like playing this up like “holy shit,” exaggerating, and trying to make it a story, making it funny. I’m being dead serious.

Daniel Creech: It’s that bad?

Frank Curzio: If she literally had a gun on her she would’ve used it. That’s how crazy she was when this whole thing got leaked. But how do you play that, right. And also, I talked about crypto, you talked about it yesterday. It blew my mind away, Daniel, that 20 percent fidelity, right. Twenty percent. Listen, we have a security token. I believe in crypto. I don’t think people should be putting 20 percent in, maybe if you’re younger. If you’re younger, it’s different, you have working power, I get it.

Frank Curzio: But 20 percent in Bitcoin, I mean, it’s an allocation. That’s what I’ve been arguing. And five percent allocation makes it massive, right. I don’t like gold right now. I think gold price are going to come down based on, we talked about it yesterday, but Bitcoin surged over 40,000, it’s down a little bit today. The market’s pulling back a little bit, but it’s amazing that the crude price has been up to $110 and natural gas, man, over eight to eight 50. Holy shit, that’s not going to stop. I don’t see that stopping. These are areas that you want to look at, and how do you benefit, and how do you make money off of them.

Daniel Creech: Right? And to your point, what’s happening now and quickly how that’ll affect. The relief rally is great and we’re not trying to be pessimists here. We want to just say, “Hey, the environment don’t get crazy and go all in here because you’re going to see a lot of these rallies.” I read a good article or report from somebody that we get, Frank, I can’t remember which bank it was, but they were talking about how this mirrors 1994, and you have this sell off, and you go sideways and rally up and down, and then maybe rally into the end of the year and come flat or whatever. Try not to get so bogged down in everything, moving up or down together, what’s going on right now and what’ll affect things. Frank, you know China is still having semi-lockdowns with COVID and all that kind of stuff.

Frank Curzio: A lot of companies talked about it.

Daniel Creech: Yep. And Apple talked about how they’re going to take between around $8 billion in the next quarter. Now a lot of the manufacturing and stuff that got shut down, recently, some of that is back on. But just a couple of quick things. Honeywell mentioned that about half of its 20 manufacturing facilities in China aren’t fully operational. Now this is going to improve but this is from today’s Wall Street Journal. You think, several months out, J.B. Hunt transportation, our customers are concerned about the July timeframes. Frank, Cinco de Mayo is today, right? I’m not crazy.

Frank Curzio: No.

Daniel Creech: You’re worried about July. I’m not saying the market’s tanking. I’m simply saying all these relief rallies, all the market sell offs, keep thinking ahead and know supply chains, inflation, higher prices are here to stay. Just keep that in mind when you’re investing in quarterly. I don’t want to get crazy here and turn people into a trader but when you have huge rallies like yesterday, depending on your allocation, like Frank just talked about, if you have winners that increase, don’t be afraid to sell or trim positions into rallies and buy on dips because, within this broad market moves, you’re going to have a lot of trading opportunities. We’re not traders. I’m not saying that. I’m just simply saying expect more craziness like yesterday.

Frank Curzio: And, and it’s so tough in a market environment like this because you said, Honeywell, how many plants was it?

Daniel Creech: Half of its 20 manufacturing facilities in China. There are about 10 that are running fully, at capacity, or operational, and there’s 10 that aren’t roughly. My point is that that all filters through? I use this silly analogy all the time about a spill in the river, and it’s going to have to go down. If we hear, “Hey, stuff has hit the fan 10 miles upriver.” Well, if it’s coming, if it’s going to be here today, that sucks. If it’s going to be here in two months, well, that’s not as bad. We got some time to plan, but just be thinking about that in quarterly segments, or rolling couple of months, because the things that are still going on today in China, lockdown, supply chain issues, and all that are going to have a huge effect the longer they last.

Daniel Creech: Russia and Ukraine, you made a good point. I would’ve thought this would’ve been over by now.

Frank Curzio: Yeah.

Daniel Creech: Okay, well, every day that goes by, you got to remember Russia and Ukraine still account for over 25 percent of the world’s wheat and barley, 16 percent of corn, 24 percent of sunflowers, blah, blah, blah, blah, blah. That’s only going to get worse as every day this continues to drag out and that’s going to kick the football down. Anyway, just don’t get too caught up in single day rallies or selloffs because this is going to take a long time to play out, and position yourself accordingly.

Frank Curzio: I like that. Kick the football, kick the can, kick the baseball.

Daniel Creech: Well, we’re on politics.

Frank Curzio: It’s going to throw everything. Yeah, I know. Use whatever analogy you want.

Daniel Creech: Wherever the puck is going. The NHL is in playoffs now.

Frank Curzio: It’s the best sport, NHL, plays.

Daniel Creech: England’s won the other night. My dad will be happy.

Frank Curzio: I’m not, I’m a Rangers fan.

Daniel Creech: Oh, I didn’t even think about that.

Frank Curzio: Yeah, and that call should have counted, by the way, for your Rangers fan. But anyway, it’s interesting. They lost that game. And what was it, triple overtime? But I want to bring up something here, Dan, which is crazy because you said that about Honeywell. And when I look at Honeywell’s chart here, I’ll bring this up so you can see on a YouTube channel. Just simple CNBC thing. Just bringing it up really quick. You look at the past six months and this is Honeywell. In January, they reported, and they warned about this shit. Supply chain issues. “Holy cow, you’re in trouble.” And the stock went from 220 to 180, and flopped around or whatever, it was 185. And then, they just reported and said, “We’re being impacted by this,” but they reported amazing numbers, right.

Frank Curzio: So when this comes back online, it’s going to be great. This is Honeywell. But then you look at GE report, you look at 3M report, right. Competitors. Bombed their quarters, and their stock has fallen down. And I have, Johnson Controls here. Again, you could say they’re definitely competitor, right? And that stock fell 8 percent yesterday, but similar chart, all these guys have similar charts. If you look at GE, you look at Johnson Controls, you look at 3M and you look at Honeywell, they all have similar charts from January, all warning and their stock really tanking through March and into this quarter. However, into this quarter, you’re like, “Holy shit, all these guys have problems.” And then they all took another leg down outside of Honeywell. And Honeywell went higher, but it’s just, it’s so difficult to figure out. It’s impacting Honeywell. Is this the analyst’s numbers? Or is it too aggressive?

Frank Curzio: That’s the things I would look at for because they beat the expectations, right. That’s what’s important. For me right now, Dan, we’re looking at during earning season is what are the expectations of these companies? Because Honeywell was put with everyone else and they drastically lowered their estimates, which is the analysts, right, the consensus estimates, and then they beat them and it went incredibly higher. Where that’s why you have to be careful of companies like Ford, companies like GM, there’s other companies out there saying, “Hey, we’re almost done with the supply chain issues,” because that creates optimism and, what that results in, is the analysts, the 30, 40, 50 that are covering the stocks, they’re going to keep their estimates the same, which GE said, “Hey, this is impacting us. But not that much.”

Frank Curzio: You’re looking Johnson Controls, same thing. Right, 3M, “It’s impacting us but we’re getting a handle on it.” And I think Honeywell said, “No, the shit’s hit the fan and it’s going to get worse.” So what do analysts do? They lower it. So, think about that from a stock perspective because all these companies decline like the same percentage, since January, but notice how the other three went down. They went down because their estimates were much, much higher than expected compared to Honeywell. That’s a way to look at how to play this. If those estimates have come down, and you could see that through free sites, that’s why people subscribe our newsletters because we let you know that, with our companies, you’re seeing that optimism.

Frank Curzio: That’s one of the things I look for, Daniel, sentiment is massive when it comes to these things. And when you have a stock where everything’s bad, it lost the management team, everything sucks, their business models threatened or whatever, they cut costs and everything, they only need a tiny catalyst. Just one bit of positive news, because these are companies that still up 50, 60 percent. And you’ll see that thing pop 20, 25 percent, right. Not that Honeywell popped that high, however, when those expectations are still high and, overall at the markets, Daniel, the estimates have not really come down that much. Even though we’re seeing all this shit, even though there’s less money in consumers’ pockets because of all the shit that they’re paying for and all their bills, right, which we know is going to impact spending, consumer spending 75 percent of the economy or 70 percent, that’s going to impact earnings going forward.

Frank Curzio: If you’re not lowering the estimates, you’re not going to beat the estimates and you’re going to wind up holding GE, Johnson Controls thinking, “Okay, things are going to get better.” But the estimates so high, they missed, and next thing you know, they took another leg down.

Daniel Creech: Right.

Frank Curzio: Another eight to ten percent leg down, which, which you’re saying, “Holy shit, how did that happen?” That’s one of the things you need to look at in this market. Are they done? Did the right management teams tell the truth? Listen, shit is really bad right now. We’re trying to work through it. We don’t know if we’re going to be able to work through it, right. That’s really cool. What’s not cool is what Ford said, 12 months ago, that “Hey, supply chain issues, we got like another quarter left and we’re going to be fine. And then we’re going to massively produce,” which they still don’t have a plan how they can produce these things to scale.

Frank Curzio: Same with GM. They don’t have a plan. They don’t have the plans in place. They don’t have the technology in place, but they’re telling this story, and that’s why you’re seeing these stocks get nailed the most because you got to be careful when you have this optimism during your calls, especially in a bear market. That’s okay, you get away with it. If you’re wrong in a bull market, you get hit, the stock comes back. In a market today, you can’t bullshit, because the numbers are the numbers, and the numbers that are meeting, you’re seeing these stocks go down 10 percent, over the next week or two. The companies that are not, you see them go down 30, 40 percent. That’s a big difference.

Frank Curzio: So, pay attention to those conference calls. That’s our job. I know everyone has their own job. That’s one of the things that I’m looking for. Again, when we’re looking at future catalysts and things like that, let’s see where the estimates are, hopefully, they come in a little bit light and it makes it a lot easier for these companies to beat estimates. And then you see Honeywell, which popped nicely compared to their competitors.

Daniel Creech: Absolutely. It’s going to be choppy. It’s going to be rough. But management matters. Prices, operations, execution matters. And it’ll be a stock pickers market. And that’ll be great for us.

Frank Curzio: It is.

Daniel Creech: We don’t want to be arrogant and say, “Oh, we can’t wait.” It’s going to be tough, but this is the environment that you need to pay attention to. Stay tuned to Wall Street Unplugged so we’ll help you navigate that.

Frank Curzio: And just one last thing here, before we go, is if you’re looking at numbers, it’s not every company in every sector that’s getting nailed. You look at semiconductors. Most of them got nailed on semi report, record earnings, record sales, record margins. Skyworks reported yesterday, and they lowered their estimates significantly. And the stock got hit, right. It sucks getting hit.

Frank Curzio: You got to look for who’s the winners, who’s the losers. Why is that? Go into the conference call, “Why are they able to do that?” Maybe you could look at suppliers, believe me, it’s worth your time, if you know a company is not going to have these issues. Because demand is still pretty strong. A lot of these names are down 20, 25 percent from their highs, even though they reported, but if you could figure out which companies have solved this and figured out the supply chain issues like Taiwan Semi, that’s an easy 30, 40 percent gain in probably six to 12 months, compared to the companies that aren’t getting it right.

Frank Curzio: Because in different industries I’m seeing companies get it right and others not get it right. And it’s amazing right now. Tesla is still producing a massive amount of cars, generating record profit and these guys can’t even get any of these cars off the assembly line and any of their competitors yet. You have to look at those details. It’s very important because that’s how you make the quick gains, and that’s a massive problem that’s not going away, especially with the lockdowns in China, right.

Daniel Creech: Yep. Exactly. So, we’ll help you navigate through it.

Frank Curzio: All right, guys.

Daniel Creech: Don’t panic.

Frank Curzio: No, don’t panic. I love it when people say don’t panic when the market’s crashing 30 percent, “Don’t panic. Don’t panic. How the am I going to pay my bills? Don’t panic. Everything just don’t panic. You’re going to be fine. How do you know I’m going to be fucking fine? Right? What? You don’t know how much debt I have. I’m going to be fine. My portfolio was a half a million dollars, and it’s a hundred thousand dollars because I own SPACs. And you’re telling me everything’s going to be fine. Don’t panic.” If you panic, you would’ve been out. Anyway, they say leave your emotions out of it when it comes to stocks.

Daniel Creech: That’s right.

Frank Curzio: We’re all emotional with stocks. Are you kidding me? It’s money. Everybody’s emotional when it comes to money. Anyway, Daniel, thanks so much for joining us on this wonderful Thursday. Really appreciate it.

Daniel Creech: Absolutely. Have a good one. Cheers.

Frank Curzio: All right guys. So, that’s it for us. Questions, comments, email frank@curzioresearch.com or-

Daniel Creech: Daniel@curzioresearch.com.

Frank Curzio: I always forget that all the time. It’s so hard to remember.

Daniel Creech: It’s tough. More going on five years.

Frank Curzio: All right, guys, enjoy Cinco de Mayo, and I’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.

Frank Curzio
Frank Curzio, founder and CEO of Curzio Research, is one of America’s most respected stock experts. His research is regularly featured on media outlets like CNBC’s Kudlow Report, The Call, CNN Radio, ABC News, and Fox Business News. His Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 12 million times.

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