Wall Street Unplugged
Episode: 980December 7, 2022

The market’s absurd expectations for 2023 earnings

The Fed is keeping quiet ahead of next week’s meeting… But its silence isn’t necessarily good news…

On today’s show, Daniel and I discuss why the bear market rally is coming to an end… and how investor sentiment has changed from “buy the dips” to “sell the rips.” I explain why the market’s price-to-earnings ratio is worthless right now… why there’s zero chance next year’s earnings will meet current expectations… and why estimates need to come down at least 20% from here. 

As a reminder, you can take advantage of the coming stock market decline with our special offer on Moneyflow Trader

Goldman Sachs plans to invest tens of millions into the crypto space… as it looks to take advantage of this year’s brutal crypto crash. I share why this is great for the industry… what I think Goldman will invest in… and the incredible innovation happening in digital assets.

Inside this episode:
  • Why the Fed is keeping quiet [0:35]
  • Why next year’s earnings estimates are laughable [5:58]
  • How to get greedy as stocks crash [13:12]
  • The market’s P/E ratio is worthless right now [21:30]
  • Goldman Sachs wants to go “bottom feeding” in crypto [28:48]
  • Innovation is alive and well in digital assets [30:40]

Wall Street Unplugged | 980

The market’s absurd expectations for 2023 earnings

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: What’s going on there? It’s December 7th. 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. It’s Daniel Creech, Wednesday. Daniel, what’s new, man? What’s going on?

Daniel Creech: Frank, what’s happening? Happy Florida Wednesday. Another great day on the island.

Frank Curzio: Another great day. Beautiful out. Nice. I’m going to a charity golf tournament later this afternoon, which should be pretty fun.

Daniel Creech: Oh, raising funds for charity. That’s nice.

Frank Curzio: Yeah, for students and kids and stuff like that. It should be nice. I don’t know if my golf game’s going to be nice because I haven’t been playing, I’ve been so busy, but that’s okay. We’re playing best ball so I just have to hit a couple of good shots.

Daniel Creech: That’s right. That’s right. All about the kids. It is nice to not be hanging on every word this blackout period. Normally, we talk about blackout periods when companies can’t buy back their stock leading into earnings. At least now, we don’t have any Fed governors talking because they have to be quiet until next week’s meeting. We can at least, not to say we’re not having volatility around what they’ve already said, but it’s kind of hilarious not to have to pay attention to those, you put nicely, circus clowns. We’ve had fun with them, guys.

Frank Curzio: I mean, we have fun with those guys, and I got to tell you-

Daniel Creech: But in the past, you’d just say, “Hey, I wish they’d be quiet and quit.”

Frank Curzio: Just shut up the F- up. I mean, nobody cares. It’s more confusing. Now it’s different because they’re all, every one of them, are on the same page. You don’t see too many of them dissenting and everyone’s like, “Okay, this is the message. We’ve all got to come out and say the same message now because we have inflation, we have to be on the same page.” But a year ago, it was like, “No, don’t raise rates.” “Yes, we have to raise rates.” And just, they were contradicting each other so much. And it was moving the markets, right? It was moving the market, so it was frustrating. But let’s talk about how crazy this is, a volatility. Because Powell spoke to Brookings Institute, this was a week ago, seven days ago and he said he goes on, he goes, “The time for moderating the pace of rate increases may come as soon as the December meeting,” which is next week.

Frank Curzio: And the market’s absolutely sore, right, Dan? Even though he said absolutely nothing new. Nothing. Even after his speech. Nothing changed at a Fed futures, Fed funds futures, where expectations for a 50 basis point hike in this next meeting, which is next week, was unchanged. And also, when you look at the futures, a terminal rate, which is the peak rate is just over 5%, also stayed the same, despite saying absolutely nothing new because we know right that though the pace of hikes have to moderate. You can’t go 75, we’ve never seen 2 75 back to back hikes. And now, we’ve seen four, which is incredible in four straight meetings, right? Over the past few months. So, we know that you got to moderate right? So, you got to slow down that pace, which again, we know, is going to go, can’t go 75 forever. It’s going to go to 50. Then it’ll maybe go 25, 25 through March.

Frank Curzio: But despite saying absolutely nothing new, the S&P surged that day, right? It was 3% major move, but the Nasdaq went up 4.4% in a day. Everyone into risk as one day.

Daniel Creech: One day.

Frank Curzio: And here we are, we sit seven days later and we’re below those levels. We just saw the worst two days, two months. The S&P is down six of the past seven days since that meeting. So, it’s funny to see the volatility back and forth, back and forth and how quick things change where if you’re watching TV, you’re going to see all the bulls come on and say, “That’s it. Here we go. We’re going to slow down the pace.” Again, he didn’t say anything new in the future, but it’s just the amount of money just switching back and forth and just the algorithms going back and forth and these major moves where you’re seeing a lot of people short, they get caught off sides, they’re going to have to cover. You see these major moves, it’s tough for individual investors and it’s crazy, right? I mean, these moves are just insane.

Daniel Creech: Yeah, we were talking earlier this morning in what? It’s seven out of eight day. The CNBC was given so many, “Hey, this is the worst in two months,” and all that kind of stuff. Giving up all the gains. Oil, to your point, has given up all its gains in 2022. It is difficult for individual investors and what, because you’re trying to time it here, Frank, feel free to push back. I don’t want to make this argument for you. Short-term, we’re just at the mercy of trading, like you said. Algorithms, short coverings, longs, just, it’s going to be a tradable market. And I keep emphasizing tradable because nothing has changed if you look out say, three months or six months from now. Meaning, we know the Fed is going to have to continue raising rates for the next few months. We know next year at some point, the word is, and the feeling on Wall Street is, they’re going to pause and just maintain and see how that works its way through the economy.

Daniel Creech: My point to all that is, right now, if you’re not willing to trade, you ought to just be careful and be more on the sidelines than normal because, Frank, with this rally, I think, I could be wrong here, but I think we rallied 20% off the recent lows. That sounds about right.

Frank Curzio: Yep.

Daniel Creech: My question is, this is not the last bear market rally that we’re going to see. But my point is, is that if you didn’t learn or take any action during this bear market rally, be prepared to do it the next time. And what I mean by that is that, if you’re still holding tech stocks or growth stocks, quote unquote, growth stocks that did well in the previous environment, before the Fed took a hatchet or a whack-a-mole handle to inflation and started raising rates. Use these rallies, in my opinion, to lighten up or to get out, and look to transfer into what you think is going to happen. Like you’ve talked about, Frank, strong cash flows, balance sheets, fundamentals matter. Use these volatile upswings to look to transition out of those names. Unless you’re a believer, then you want to keep buying. I know that’s not the camp you’re in, Frank, and I don’t agree with that either. But again, when we look a few months out, nothing has changed other than earnings estimates, which you’ve been spot on and have got me going down the worm hole to justify everything.

Frank Curzio: You don’t want to want to go down that worm hole. Because if you go down that wormhole, you are going, I mean, it’s insane.

Daniel Creech: Take it away. I got you.

Frank Curzio: So, here’s the wormhole. And this is why, when I had my presentation in October, so it’s like mid-October, I said, “Listen, the markets could really crash this month. If they’re not, they’re going to crash going into next year. Let’s see what happens.” And we had a lot of money slush into the markets. We had just finally saw a little bit of moderating, not much, in some of the inflation data and stocks rebounded, right? But it’s all about earnings. Earnings drive stocks and when I’m looking at this number of earnings of what they have, and I brought this up in the presentation I showed. I try to make this as easy as possible because I know people don’t want numbers. You just want to be told what to do. But you need to understand the numbers. It’s a numbers market right now. Okay. We are looking where, you said it, where earnings declined. You had the stat, earnings revisions, right, were higher than they’ve been in how long? The lower revisions?

Daniel Creech: So, in the first couple of months of the fourth quarter-

Frank Curzio: What we’re in now.

Daniel Creech: S&P estimates for the fourth quarter have come down over 5%, which is larger than five-, 10- and 15-year averages.

Frank Curzio: So, that’s how much they’re coming down? They’re coming down. Yeah, this is just recently, guys. Because of these guys just reported their quarter. So, this is just recently how much these estimates are coming down. Not to mention how much they came down previously, right? Because if you’re looking at June going into Q3, in June, according to FactSet, we’re supposed to see earnings worth of 10%. That went to what? Two and a half percent before they reported earnings. And they’re going to say, “No, we beat earnings. We beat earnings.” That’s because these analysts lowered estimates incredibly. If you’re not familiar with that, listen, it’s a consensus estimate. When you see it on television, where analysts beat estimate, that number comes from the consensus of all the sell-side analysts covering the JP Morgan, Goldman Sachs. They have that number, they put it together, here’s the median, here’s a number and if you beat it, your stock goes up, and if you don’t, it goes down.

Frank Curzio: They’re lowering that number incredibly right now and they keep doing it. So, you’re going to see earnings they’re going to say they beat. But 80% of the companies, 75 to 80% of the companies would’ve missed estimates if you kept the June estimates, if they weren’t lowered that much. So now, where are we today? We are looking at earnings where they’re expected, the whole earnings, right? Calendar year 2023, even with these revisions. So, if you take all S&P 500 companies and you pile the earnings together, it’s supposed to be $232 next year. That declined from 241. At 232, okay, we reported three quarters. So, we got one more quarter to get to that 232. Well, this is 2023, right? So, right now, for 2022, it’s 222,000 earnings. That’s what was expected. They lowered the 2023 earnings to 232. So, they’re still expecting 5% growth, which is going to be record high earnings next year, year-over-year, okay. Year-over-year.

Frank Curzio: They’re expecting record earnings next year. They’re expecting to grow 5%. I could say this with a straight face, Daniel, the chance of that happening, and I could look at statistics and probably, it’s absolutely zero. It’s not going to happen. It’ll never ever happen. That’s not going to happen. Okay? You’re not even close. I mean, I’m seeing earnings that are going to decline by at least 15, probably more like 20% plus. Because it’s not just what’s going on right now. Why is the market selling off? Because now, sentiment is beginning to change. Okay, we’re looking at sentiment where, first of all, previously, when you have zero interest rates and the Fed’s buying bonds, what do you have? Just buy every dip. Buy every dip, every growth stock that gets nailed, even during earnings. Just buy the dip, you’re fine. We’re in a different market. It’s sell a rip. Interest rates are much, much higher.

Frank Curzio: So, sentiment is finally changing, where it went from, “The Fed slowing rates is great for stocks, you got to jump in,” to now, people are taking a step back and going, “Wait. You know what? Even if the Fed stops raising rates and maybe they do that in March, we’re still going to endure a pretty deep recession.” So, it’s not just rates here. Jamie Dimon talked about it and said “Look, this is the first time,” I don’t know if he said ever, or in 30, 40 years, “That we are going through a period of QT.” An aggressive, a massively aggressive QT program where the Fed is reducing its balance sheet, moving liquidity, tons of liquidity from the market, trillions of liquidity from the market. And we’re just talking about rates here. Okay, so now, what do you see? The housing market is dead. Even though mortgage rates have eased up a little bit, they’re still double from where they were in January.

Frank Curzio: We’re still seeing, no one’s taking out mortgages, right? We just saw more data to come. Earnings are going to come down sharply. Huge revisions again, like you mentioned, already to the quarterly earnings and even next year, which analysts expect those earnings to hit record highs next year. But people are starting to realize like, “Holy shit.” And I got to tell you, so my mom’s moving to another area in Florida, retirement community, we’re trying to sell the house. We had an open house on Saturday, and I would say up to about four months ago, and you go back a couple of years, whenever, especially in Florida, you can go back even four or five years, that house probably would’ve received 10 offers. And a lot of people would come up to me because they’re able to, somebody will get inside information on the sites of when it’s coming in, they’ll come to the house and say, “Hey I’ll buy it from you right now, whatever.” But the house is off the market very, very, very quickly.

Frank Curzio: We didn’t get an offer. We didn’t get an offer yet.

Daniel Creech: Not one?

Frank Curzio: Not one.

Daniel Creech: That’s surprising me a little bit.

Frank Curzio: It’s priced as pretty good. We’re not asking for something that’s 20% over market value. It’s priced to where a couple of houses over the past two months sold at this price. So, sold at the price that we’re listing it at. Meaning, I’m expecting people to come in a little bit lower when you’re listing, they come in a little lower. We didn’t get one yet. This is Florida, guys. Okay, Florida. This is the place that everybody’s moving to. This is a place where it has the best tax structure. This is a place where you’re looking at people leaving from major cities because of safety issues or whatever in New York and California. Not because of taxes; they were always high. It’s because those areas are no longer safe.

Frank Curzio: And they’re moving here in droves, and even in Florida and you’re seeing in Texas, if those markets are starting to decline, holy shit, look out. I covered it yesterday, with Blackstone and all the residential properties they bought and the 800 plus private REITs that are out there guys and they are seeing tons of redemptions. They’re limiting the redemptions, but they still have to give 2% every single month. And that 2% means, eventually, you’re going to run out of cash on a balance sheet, so you’re going to have to sell these properties. You’re going to be forced to sell these properties because they went on an incredible buying spree over the past 18 months especially. And these are private REITs that are so called up 9% for the year, even though, the same exact REITs in the same areas where they’re located are down 30% when they’re publicly traded, right? Because they’re not as liquid.

Frank Curzio: So now, you’re seeing this sentiment change right now, where it’s like, “Holy shit, even if we slow this down, it’s still not going to be good.” Okay? That’s why you’re seeing saving rates go down. You’re seeing people, credit card rates through the roof. I’m getting notices from almost every single bank that I use, “Hey Frank, you want to take out a HELOC,” right? Home equity line of credit. And a lot of people are doing that because even though it might be a valuable rate and you might get it for 6 or 8% and maybe it goes up a little bit more as we see the Fed raising rates, when you look at HELOCs compared to credit cards, where the average is 19%, it makes sense. But now, these people are taking all the equity out of their homes now, and that was the one valuable asset that they had.

Frank Curzio: So now, you’re seeing household wealth actually come down as home prices are coming down. I don’t want to sound like the bearer of just terrible news, jump off a building or whatever. But what I’m saying to you is, I’ve been pushing a product of ours, Moneyflow Trader, and pushing it, which buys long data puts. When I say pushing it, I’m trying to shove it down your throat, meaning that we discounted the price incredibly, and what it does is, you’re betting against a stock or even a sector to fall over the next six to nine months, right? Over the next six to nine months. It could happen quick and you make a lot of money. It could happen in three months, six months, depending how far out you want to buy that put. But when the NASDAQ pops 4% like it did a day, you’re going to see more of these, right?

Frank Curzio: Like, a one day, pop of 4% or skyrocket 6%. What was that, a couple weeks before on a positive CPI number that shows inflation moderating, which I hope it’s moderating. We’re raising rates its fastest pace in history of the Fed era. Owning these long data puts, it doesn’t hurt you on these moves where if you’re going short, you’re forced to cover, you could get margin calls. A lot of people who are inexperienced are getting wiped out. The more I see this in this product, and I said I’d lower this price, I’m going to come up with a package deal. Because what I’m realizing even from subscribers is, this is a product that’s an add on to your long positions. It’s not a product that’s the only product you should buy. And when I’m looking at that product, I’m looking at Curzio One members who own all of our products, or people that own all of our products that own say, Curzio Venture Opportunity, small caps, they own Curzio Research Advisory.

Frank Curzio: And when you own this, you have a mix that’s really, really, really working and it’s been working in terms of the stocks to be able to avoid a lot of the BS. Yes, we took some losses like everybody else, but we’re doing very well in those two newsletters, considering the markets. And then, when you throw this product that’s up 30% a year, Genia is now in positions. I’m going to come up with some kind of product to include all three of those because I want you to be into this strategy, and I don’t want you to thank me when you make a ton of money off of it. But over the next six to nine months man, holy shit. You’re going to see volatility be… Like, this is what you’re going to see. The market getting killed six, seven days in a row. And then you’re going to see a nice pop and the market was down today was up a little bit. It’s all over the place.

Frank Curzio: This is the market that you’re in. The bottom line is, a lot of these companies are going to miss earnings by a long shot. And if you don’t think so, look at Pepsi. Pepsi reported probably, I thought, one of the best quarterly results out of anyone. They reported early, along with Coca-Cola. They have pricing power through the roof. You know because you’re going to pay three fifty for a fountain soda or a soda at a regular restaurant. They have huge, huge pricing power. Earnings came in great, they said sales are good, even internationally. And what are they doing now? They’re laying off employees. That tells you how quick things are changing. It’s going to happen. Any company that’s reporting now, saying things are good, you could buy puts on it, and you’re probably going to make a lot of money on it. And it’s not hedging your portfolio, it’s getting absolutely greedy as the shit hits the fan.

Frank Curzio: Where, when you see the people across the street from you and they’re all like, holy shit. They all have Mercedes and even though they have whatever jobs, where you know they can’t afford two Mercedes and building extensions on the houses and when they run out of money, they’re selling the house and you’re going to be buying it at 20 cents on a dollar or 30 cents on a dollar because they’re going to be forced to sell it because of the things you’re doing right now in the market and position yourself. It’s incredibly important, guys. Seriously, if you want information on it, just email frank@curzioresearch.com. It’s not about me selling a product; it’s about making you money. I don’t get paid by any company. If I don’t make you money, you don’t subscribe to my products. That’s been my whole career. Okay? This is a strategy that’s working. It’s imperative. It’s important that you understand this because going into next year it’s going to get ugly.

Frank Curzio: Earnings are way too high. And everything I see here, Daniel, is just… I mean, again, covering it yesterday with private REITs. If you’re looking at earnings across the board and how much they need to come down, energy was a savior now, now you’re looking at oil coming down. So, earnings aren’t going to be as strong. Without earnings, we would’ve saw instead of a 2% gain last quarter, we see a minus 4%. We see a decline earnings year-over-year without energy. So now, energy was supposed to be the savior of the whole S&P 500 in terms of the earnings picture. But now you’re seeing prices coming down like in the seventies, mid-seventies, low seventies now, right? We’re looking at eighties, nineties. Everyone predicted a hundred. It could get there but this is a market that’s extremely, extremely dangerous. You don’t have the Fed to help you when the shit hits the fan. That’s why, instead of buying on every dip, it’s more like taking profits. You say sell a rip. That’s the market we’re going to be in for at least the next 24 months. And you have to prepare.

Daniel Creech: Excellent point. One thing that you mentioned, when you were talking about earnings and things, that really stuck out to me and I want listeners to really think and pay attention about it because you were talking about how we’re expecting record earnings. So, think about what you see, what you hear, what you read, and what you feel in the general economy with prices where they were over the last couple years. And then factor in, hey, at the end of the year or going into next year with so much uncertainty and things going on with the Fed and globally, that it’s still going to be record earnings. That is, those two things do not go together, Frank. So, that helps. I think that’ll help investors, even help myself included, to be honest on thinking of, “Hey, nobody has a crystal ball, but where do you think markets are going to go over the next 3, 6, 12 months?”

Daniel Creech: And one last thing on earnings, Frank. So FactSet, which you’ve talked about a lot in the past, and they put out great research. So, the average percentage, so the average looking out one year, typically earnings estimates come down about 7%. So, on a typical year, analysts are going to say, “Hey, for 2023 we think X.” And when that actually comes to it, it’s about 7% lower, okay? Except for crazy periods like 2001 dot com, 2008, 2009 with the great recession, 2020 with COVID, and such. Those crazy years, let’s throw in a crazy year. Estimates only come down about 2% that year. The point to all this, is if you start at 232 for next year’s earnings that you just talked about and you take either seven or 2% off of that number, you’re still asking companies or still expecting the S&P to generate the highest earnings since FactSet started reporting this in 1996. To your point, Frank, there’s got to be a… I love your zero comment, that’s a hell of a headline. There’s got to be point some chances? No, there’s zero.

Frank Curzio: There’s no chance.

Daniel Creech: But my point-

Frank Curzio: Because the Fed can’t do anything. The Fed can’t go in there because then, you’re going to see inflation go wild.

Daniel Creech: Totally agree.

Frank Curzio: And people are going to get struggle even more. There’s nothing that could happen right now, where the Fed has been here. The Fed, like you’re saying, okay for me and Covid, I’m like, “Holy shit, this is a disaster. Companies never model for 90% revenue declines when you just have to force the shutdown of your whole entire business.” But then, it took us maybe three weeks to realize that in May, going into May, so March it crashed, April. I’m like, “Holy shit, this is so bad.” But no one in their right mind thought that the Fed was going to spend 11 and a half trillion dollars over the next year and a half to inflate these markets.

Daniel Creech: Right.

Frank Curzio: I mean, no one even…. And now, when you open everything up now you push forward all of that demand. Everybody has money. Even the people who don’t have money, have money. Everyone, you just have as many kids as you can, you’re getting paid. If you have a business, you’re getting paid in the PPP loan. Just anything you could possibly do. And you’re making money, right? You’re making money, you’re getting free checks. Hey, don’t even have to work and you’re getting a check, right? Don’t work. “Hey, we’re going to pay you. Don’t worry about it. We’re going to pay you forever. What school? Don’t worry about it. We take care of that too. We’re going to cover that. You don’t have to pay your debt, all right?” I mean, that’s what the government did, where they’re like, “Hey, everybody that has debt, everyone that has no money, don’t worry. Give us a call, and we’ll give you money.” That’s what they said, right? Nobody. So when you see that, you have to change your mind.

Frank Curzio: The problem is, and that’s what happened in 2008, 2009, 2010, where I thanked David Tepper for that interview in early 2010, when he went on CNBC and he said, “You know what’s going to go high?” He goes, “Everything is going to go higher.” And I’m like, “Holy shit. The Fed is just going to put a massive bottom under it.” They can’t do that now because we have massive inflation. And they know that they made a major mistake, which they mention on all the time, every single meeting. “Well, we don’t want to be too early because we know what happened in the eighties, and we cut back, and we stopped raising rates, and then we saw inflation… Again, it fucked up the whole market.” Right? So, we know that they have this agenda to continue to raise rates. They’re not going to lower rates until the CPI goes closer to 2%, which not one economist is predicting until the end of 2020.

Frank Curzio: In fact, they don’t have it below two and a half percent by then. They have it at I think, the average is like 2.9 to 3% by the end of 2024. Not 2023. That’s how crazy it is. But just to go back to your earnings argument, if you want to finish up?

Daniel Creech: Oh, no. Yeah, go.

Frank Curzio: I mean one point here, which is even better. So, if you are looking at this at YouTube, but YouTube suppresses us. So, we don’t really have a big following on YouTube, which is fine because we tell it how it is, and that’s fine. But if you’re on YouTube, here’s Capital IQ, which you pay a lot of money for the system. And you can see the earnings. In 2019, it was 159; 2018, it was 160. So, we peaked at the end of 2019, just before COVID hit. Then, we saw earnings come down, and then we saw the earnings explosion in 2021. All this demand pushed forward, right? Earnings for the S&P 500 were at 206. Remember, they peaked at 159 at the end of 2019 with rates below 2%. Look where rates are now. So now, next year, we’re expecting for… This year it’s 222. Next year is 230, I mean, they stopped at 235, it’s 234, I think. But 2024, what would you guess what earnings are expected to be? So, the $222 total S&P 500 earnings, where would you expect them to be in 2024? This is the analyst estimates of what they have with these companies right now.

Frank Curzio: Meaning in three weeks from now, seriously, in three weeks from now, we go into 2023. So, when they say the forward estimates, they’re talking about 2024. When they say the forward PE, they’re going to be talking about 2024. Okay, what do you think that number is?

Daniel Creech: I hope it’s only about 5% higher than next year. Are they really going to think that earnings are going to grow?

Frank Curzio: It’s basically 13% higher than where it is right now. It’s 253.

Daniel Creech: 13. Lucky number.

Frank Curzio: Okay. This number right here. You could see this number right here on the page. 253 right here. 253, which I highlighted. That’s where it is on Capital IQ, 253. So, they’re expecting from today over the next two years, you’re going to see earnings explode by 14%, which we’ve never done. We’ve never been there, and we’ve never been there even when we’ve had interest rates at below 2%, at 1%, at 0%, now we’re going to be pretty much through 2023. Whatever they peak at, that’s the rate we’re going to be at through 2023, which is going to be about 5% now. They’re going to keep it at 5%. They’re not lowering in 2023. The only way they lower is if we have an absolute collapse in the markets, an absolute collapse in earnings, which means the markets are going to come down tremendously for them to lower because we are seeing a lot of deflation in certain areas.

Frank Curzio: But again, the Fed is only concerned about the CPI and it’s going to stay relatively high, well, well, well above the norm for a while. And that’s what scares me. It’s the earnings picture, earnings drive stocks, people looking at the PE going, “Oh, it’s 18 times, 19 times.” Throw it out, it’s meaningless. It’s meaningless. Because these earnings are going to come down tremendously. And if you really put a real multiple on it of say $200, which is still much higher pre-COVID, like at 2019, you’re looking at 159, we peaked at 2019. Say we put 200 in earnings on there. I mean, you’re still seeing massive growth, right? Pretend COVID didn’t happen and another pull through. But we’re removing everything. That’s what the Fed does when it’s shrinking their balance sheet, they’re taking that money out of the system and they’re raising rates aggressively. So, it’s not just the rates you need to worry about, it’s also liquidity and you’re seeing it dry up tremendously, and you’re seeing it show up, and now you’re seeing sentiment where it comes to consumers, where they’re starting to close their wallets.

Frank Curzio: Because I never heard this before, but now, you’re seeing estimates come out and companies come out and say, “Listen, we’re seeing travel demand kind of slow a little bit.” We haven’t seen that, right? A lot of that money went to that was like, “You know what? I don’t want the material shit. I want to have experience after COVID. I’ve been locked in my house, let me go out.” And then you saw hotels explode and all travel stuff explode. But we haven’t really seen anyone say, “Hey we’re going to see a slowdown in travel.” Now we’re seeing even airlines repair like, “Hey, we’re probably going to see a slowdown in travel,” which is crazy. But this is what we’re dealing with here, guys. As soon as these estimates get more in line, it’s going to be good. Not every company’s going to be impacted. We’re going to see, this is a market where it’s about taking market share.

Frank Curzio: Because the total addressable markets are going to shrink, shrink, shrink, shrink. And that’s going to hurt a lot of companies where a lot, you’re going to see bankruptcies, a lot of companies lower earnings tremendously. But the companies that are able to take market share, those are the ones that are going to see their price explode higher 2, 3, 4 years from now. And that’s what happened during the dot com, where you saw the Microsofts, where you saw the Amazons, where you saw some of these companies that survived the dot com, the market share that they took to build their companies and how they strengthened their balance sheets is incredible. And look how long that has lasted since 2000. Some of these leaders, they’re still industry leaders.

Frank Curzio: So, that’s how these companies need to prepare right now and they need to prepare because this is happening quickly. You’ve seen demand shut off like a light switch and you still have some companies going, “Hey, you know what? I’m not seeing anything. Everything’s great.” I know people, I’ve been doing this podcast for freaking 15 years. It goes out to a hundred companies. I’ve talk to everyone from large hedge funds to college students. I know people and that’s one of the strengths of me being an analyst. Anyone can look at their numbers and interpret them whatever way they want to but it’s the common sense of knowing people and how they spend money and what they like and what they don’t like. Right now, the people that I talk to, the emails that I get, the things that I’m seeing in the market, it’s going to be really ugly next year. People are going to cut back tremendously. It’s going to open the door to lots of opportunities but just prepare. That’s why I say money for free. Just prepare.

Frank Curzio: If you’re buying puts and just on 10%, take 10% out of your long portfolio and you’re buying puts and using that, I’m telling you that 10% is a very good shot to be worth not just the rest of the 90% of your portfolio, but even double and triple because that’s how many companies are going to get hit over the next couple of earning season if these analysts keep these earnings at these levels.

Daniel Creech: Well said. I like that. I hope, people send us your feedback, frank@curzioresearch.com, daniel@curzioresearch.com, because I think this helps put the perspective on, “Hey, what’s the market expecting,” and how to help manage and think about big rallies like this because it’s difficult not to want to jump in when prices rally 20% across the board. Obviously, you have some stocks that outperform that. Speaking of volatility, Frank, do we have any time to talk about something else that’s volatile as well?

Frank Curzio: Yes, go ahead. Yeah, we got… Yeah, just few minutes, go ahead. Let’s go.

Daniel Creech: I mean, the crypto markets make stocks look non-volatile as they say. But there was a headline yesterday that I read, I don’t remember if it was from yesterday, but Frank, one of our favorite whipping boys on Wall Street that we like to poke fun at, although we’re just having fun because we like them a lot, and they made subscribers money and an executive at Goldman Sachs told Reuters that they were looking to deploy tens of millions of dollars in distress crypto assets. This is a positive just from my macro brain because you want to see people come in and at least want to look around bottom fishing. Galaxy Digital, which I’ve talked about a lot in the past, just bought GK8, and I apologize if I am forgetting that, out of bankruptcy.

Daniel Creech: So, it’s good to see that. That was tied to one of the other bankruptcies as we’ve seen through block buy Celsius and all that. I think it’s awesome to see Goldman Sachs, it’d be fun to speculate, Frank. How do they not buy into something like Coinbase, Marathon Digital, or any other publicly traded company? Let me frame it this way, do you think they’re going to make an announcement or look to buy into a publicly traded company where they can get on the board and such or have representation? Or do you think they’re going to stick to the private markets and really look, because just to your point on real estate, those companies have got to be hurting a lot more than what they’re showing on paper right now. So, do you think they’ll go to publicly traded companies or private or both?

Frank Curzio: I think they can go to both here. I mean, we have to look and people might say, “Frank, you’re saying liquidity’s going to dry up, which is bad for growth assets.” And that makes sense and I understand that, but you have to understand, crypto, some of these names are down 80%, 90%. Even the good names. And we felt that in our portfolio, everybody’s getting killed in crypto. There was a time, about 12 months ago, and we had, I want to say 15 positions in a portfolio, the average position was up over 600%, right? When you talk about risk-reward, it’s amazing.

Daniel Creech: 600?

Frank Curzio: 600%, the average position. That’s how we really nailed the market. Now you’re seeing everything come down. I’ve been preaching this for over three and a half years, four years since I’ve been into crypto where 90% of this industry is complete garbage. However, even the report you cited, this is Matthew McDermott, Goldman’s head of digital assets. This story was from Reuters, right. Very reliable. But it’s saying that McDermott, and I’m quoting here, he says, “Definitely set the market back,” when he is talking about FTX, set the market back in terms of sentiment. That’s absolutely no doubt of that. He goes, “FTX was the poster to child in many parts of ecosystem, but to reiterate, the underlying technology continues to perform.” And that’s another thing I’ve been saying, this is where the innovation is coming from.

Frank Curzio: When you’re looking at Web3 and some of these companies, when you’re seeing the top 50 cryptos and the best cryptos also down 80%, there’s a lot of good names, where the utility function is amazing to where they’re burning tokens, constantly buying back the tokens where it’s linked. There’s a lot of great names out there that are linking their tokens in the right way. That’s why Binance is held up because you could use Binance token with so many different things. You don’t have trading fees, you could buy so many different things that it’s tied to with that coin. That’s utility function.

Frank Curzio: So, could you do that? That’s what I’m pretty sure Scaramucci did with FTX. He chose to say, “Okay, we’re doing a deal.” And I think he got some of the FTX token, which again, turned out to be worthless. But looking at some of these assets and where they are, if you’re a believer like me, this is the future where you can click something. And I did this yesterday, okay, it was so funny because I got railed on this on Twitter getting into NFTs and again, that’s 95% of industry shit. But I got into something called Killa Bears has a massive community and a lot of people, who are my traditional followers on Twitter, were like, “Oh this is pumping up, this is bullshit, whatever.” Here’s a guy that’s actually just like Disney. He’s telling a story, creating these products, it’s going to come out all these things in a game.

Frank Curzio: Your allowed to stake some of these things. Again, this might be a little above your head, but I’ll explain it to you for people in our crypto newsletter. These things are up three, 400% for me. And this is kind of like, “Okay, I want to see how this is done.” But as I’m staking different things as they come out, where they’re just, you’re staking them and once you do that, they’ll give you certain products or whatever. And Seth Green’s involved in this project and they’re making movies on Killa Bears where it’s come out where it’s seeing more search results on Open Seas and then Bored Apes. So again, it’s having contacts and the right contacts in this industry. My point is that, when I’m going through this, I can click a button to stake and automatically, it gets recognized in a blockchain. Blockchain, fact. Authentic. So, that is incredible, right?

Frank Curzio: It’s like getting a patent immediately, you own that forever. It’s on a blockchain, you have proof of it. So, when you’re creating something, if anyone else wants to sell it, you have proof that you own it immediately on the blockchain. When you look at this technology and you look at what’s coming out and that’s all part of the metaverse and that’s a bad word to say these days because everybody believes, “Oh, I’m not going to sit there and play.”

Frank Curzio: It’s not that. You’re basically on the metaverse, even right now on your phone. It’s finding a more better experience for people to buy products and do different things, except you have total ownership. It’s not owned by the five biggest companies in the world, technology companies. So, you have all this ownership that you’re going to have. Everything that you build, you’re going to own, you get to sell, you get to have royalties off of this.

Frank Curzio: This is an industry that’s going to be booming in the years ahead. Goldman is smart here, said, “Listen, I’m going to go tens of millions,” which is not a lot to them, “Into some of these things.” But the levels that these things are trading, again, even with markets going to be choppy, many of these names are down 80, 85%. And you look at the markets right now, the S&P 500 is down, what, about 15%? So, a lot of, the downside is priced in and what I said about the market share going down and going lower, yes, it makes sense because these are the companies that are going to take market share and be the owners.

Frank Curzio: And I can picture going and making a big investment in Coinbase. And I can tell you why. Going through their balance sheet, this is a regulated company that came out of high valuation, which is crazy. Have five and a half billion in net cash. Their market cap is below 10 billion. Yes, you’re going to see their monthly active users declined incredibly, which was their bread and butter. But now, they’re more institutionalized where I think it’s 75, 80% is institutions. They have their stable coin, which everybody flock into when times are tough. That’s kind of a money market account. And they make a ton of interest to the point they’re going to generate over 700 million to a billion dollars in net interest income this year. Which is an incredible number.

Frank Curzio: So now, they have a massive employee base, which they can cut easily and cut those costs. But me, I’m taking accounts and I’m having my business accounts there, which are an FDI seeing short. So, Coinbase right now is becoming the player that institutions go to, that businesses go to. They have your production. They put me through the grinder, which is great. I had to answer about 80 different freaking questions. I still haven’t gotten approved yet because it’s taken me two weeks to open an account there. That’s fine. I’m okay with it. I’d rather that, than getting a business account someplace else where they freeze your assets.

Daniel Creech: Or take them.

Frank Curzio: So, looking at this industry and who the winners are going to be, I think they’re going to do both. I think you’re going to see investments in token, investors in private companies and also investment in a few publicly traded companies that look really good. Let’s see what happens with Silvergate. Again, there’s a lot of on Silvergate. I haven’t seen the fraud yet on Silvergate. What everyone’s claiming. Yes, you’re seeing demand. Yes, you’re seeing more and more companies remove assets because they’re getting worried. Because you saw FTX was caught everyone by surprise and Voyager and stuff.

Frank Curzio: But overall, that is a bank that’s regulated by the Federal Reserve. All the numbers are there. They’re trying to say they didn’t have… That they were transferring money from the accounts balances from FTX, which they don’t hold the account balances. They had balances at FTX, but they’re saying that they transferred those balances to Alameda, whatever, and they’re trying to provide proof, and Warren’s gotten involved. Again, it’s a stock, it’s a little crazy. I would be more inclined to buy calls if you had money to lose because I think that stock could skyrocket from here or and go, who knows? I mean, maybe they’re able to prove it. I haven’t seen it yet. But the survivors here in crypto are incredibly cheap. This is where the innovations coming from. This is like buying technology stocks in 2002, 2003, holding on for 10 years. And this is something that will be life-changing for you. I truly believe that. So, I like what Goldman’s doing here.

Daniel Creech: Well said. Goldman, you’re on the clock. I want to see a big purchase of Coinbase, Marathon Digital, maybe even Silvergate. They got to have some fun. They got to throw some press releases out there.

Frank Curzio: I’ll say Galaxy’s another one, right? Has Goldman ties.

Daniel Creech: That’s not going to happen. I own too much Galaxy, I’m not going to get that lucky.

Frank Curzio: They have ties. They said, I don’t know, whatever it is that the exposure that they have was like a…

Daniel Creech: Well, that wouldn’t be crazy because they already do trading partners and Novogratz, CEO of Galaxy Digital, is a former Goldman guy. To your point, I think it’s smart of them to do that. They’re so big and powerful and smart that it would be silly not to look in a distressed asset class like this. Especially with the volatility and history. Yeah, so we need a countdown clock. We want to see a press release.

Frank Curzio: I could picture… Like just someone that’s… And that’s Novogratz. And Goldman may say, “Hey, you know what, let’s get behind this guy. This is the firm we want to get behind, and we’ll see.” But even the public traded companies make sense because at least you could see the numbers and they’re US regulated, which FTX, it didn’t matter if the regulation was here because it’s a foreign entity. So, it didn’t even matter if we had regulation here, I wouldn’t have stopped it. But we do need regulation here and this is where the innovation’s coming from and it’s incredible. So yeah, lots there, guys. I know it sounds like on the very bad news that I’m just telling you how crazy the market is. I just want you to prepare. I’m optimistic, I’m always finding ideas. It’s not as easy to find ideas right now, but you need to prepare.

Frank Curzio: There’s times where you’re aggressive. It’s like chess. There’s times where when you want to be aggressive and play offense and there’s times where you need to play defense. This is a time where you want to play defense because when it gets the time to play offense, by playing defense now, you are going to be in a position where you’re going to have a lot of cash on your balance sheet. You’re going to have a lot of money to spend on so many different great companies that have gotten killed because you know the market’s coming down. And that’s going to change one day. Maybe it’s 24 months, maybe it’s 36 months, maybe it’s a little bit less. But it gives you the opportunity to really be aggressive when the shit hits the fan, which your mind, by the way, Daniel, is not programmed to do, right? You’re programmed to buy shit at its all-time high because that’s when you’re most excited about it.

Frank Curzio: And you’re also programmed to sell things at the absolute low because that’s when you fear. This is when you want to do it the opposite, okay. You want to be able to have money in the sidelines when stuff like this comes down and comes down 10, 20, 30, 40% that you’re able to jump in and get at these levels. And that’s how you make a fortune in this market. And also making a fortune by buying puts, because that seems like a strategy that that’s just alike to shooting fish in a barrel. And hopefully, a lot of you are doing that. Our subscribers are doing it, which is great. I’m getting emails on it, the Moneyflow Trader of profits that they’re making and stuff like that. And I’m really, really happy. I’m really happy because this is a tough market and we want to make you money when times are good and also when times are bad. So, any parting words? We covered a lot there, though.

Daniel Creech: Cheers.

Frank Curzio: That’s it.

Daniel Creech: Another good day.

Frank Curzio: Nice cheers. I hope I play good in golf today. It’s always a coin flip.

Daniel Creech: I hope you do, too.

Frank Curzio: Yeah, we’ll see. Otherwise everybody’s going to yell at me. Anyway, I’m going to have some beers…

Daniel Creech: Office is a lot easier when you play well.

Frank Curzio: Yeah, I need to definitely have some beers and relax a little bit. Just been working my ass off all the time and been crazy with my house. My house is getting built and they’re fucking that up now too, which is incredible. So yeah, I just stress everywhere.

Daniel Creech: I don’t mean to that. Yeah, that sucks.

Frank Curzio: But whatever it is, it is. But guys, listen, thank you so much for listening. I really appreciate all the support. Again, we’re here for you. We tell it how it is. I wish I could say, “Hey, I’m bullish on everything, buy everything.” Again, we don’t get paid, independent. We don’t get paid by anyone. We just get paid for making you money or even saving you money during times like this. And just protect yourself here. It’s going to be a crazy market next year. There’s going to be opportunity to buy lots of names, just protect yourself, play a little defense. So, questions, comments, I’m here, frank@curzioresearch.com. Daniel, email again?

Daniel Creech: daniel@curzioresearch.com.

Frank Curzio: All right, guys. Thank you so much for all the support. I’ll see you guys 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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