Chris Wood, chief investment officer at Riskhedge and respected tech analyst, joins me to discuss the buzz around 5G… and how this incredible growth trend will play out over the next several years. Chris also reveals his process for finding the next big tech disruptors with huge potential upside [7:33].
The financial media loves trade war headlines. Don’t miss today’s rant on why one “huge” China story is complete B.S.… and why permabears are hurting individual investors [32:15].
I’ll also tell you why the NBA playoffs are the best I’ve seen in years…
Wall Street Unplugged | 669
The next big tech disruptors... And why the biggest story out of China is complete B.S.
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 May 15th. I’m Frank Curzio, host of the Wall Street Unplugged Podcast where I break down the headlines and … tell you what’s really moving these markets.
Frank Curzio: So much going on with tariffs. A lot of it’s nonsense. The markets are down a little bit this week. We can address that later on, but for now a much more important topic is the NBA playoffs. Holy cow it’s been awesome. Kawhi Leonard, that shot to win the series against Philly was incredible. Interesting fact. That shot that he hit, which was unbelievable, it’s the only time in NBA history where a Game 7 was decided on the very last shot. Isn’t that crazy when you think about it?
Frank Curzio: If you didn’t see it guys, and we’ll get to tariffs and the markets in a second, but again, it’s a non-factor. I’ll break that down later on, but man so much going on in the NBA. That shot, Leonard going to the corner, shooting it over and Embiid who is probably about 10 feet long with his arms up in the air. The ball bounced on the rim, bounced on the other side, bounced in again and then went in, which is crazy. It wasn’t like a layup it was like a long shot by a three pointer and it bounced softly, bounced again. Went in at the buzzer. Toronto went crazy. It was awesome and I’m happy for Toronto. Had so many disappointments over the years. You just think because Lowry, DeRozan, great number two players.
Frank Curzio: Really good players but to be a championship team you need a number one superstar. LeBron, Durant, Curry which was pre-Durant. Jordan, Magic, Bird, Duncan, Leonard. Toronto never had that, right, until they traded for Kawhi. Now they can afford to pay him and pay him a fortune more than anyone else in the NBA. I suggest that they give him everything he wants because this guy is the most popular athlete in Canada since Wayne Gretzky.
Frank Curzio: When it comes to athletes in Canada it’s kind of pretty short list. Lemieux. Bobby Orr. Gordie Howe in hockey. Steve Nash. And then it falls dramatically to Mike Weir then like Hailey Wickenheiser. Believe me, most Canadians know who that is. I won’t get into it. But Toronto now going to be playing against Milwaukee and the Greek Freak. Milwaukee’s amazing. You have Golden State against Portland. Two things here. Golden State beat Houston in Game 6 to end their season. This game was in Houston. Golden State did not have Durant. He’s out probably for the whole playoffs I believe. And the loss was an absolute disgrace. I think Houston should just dump every player which is going to be hard because they paid Chris Paul the max which is weird.
Frank Curzio: But, I’d dump every player except for Harden including their coach. How do you lose that game? Just a horrible loss. They lose every single year. This is the year. Last year, again they lost Game 7. Chris Paul got hurt. Now they had everything. Durant got hurt. They got lucky this time and they couldn’t take advantage of it. And Steph Curry, got to give him, listen, got to give him props. An amazing, amazing second half during that game, Houston. And you have Portland. Like Toronto won Game 7. They played against Denver. One of the best series I saw in the NBA playoffs in such a long time. Just two teams grinding, killing each other, playing the right way. Hard fouls. In your face, no apologies.
Frank Curzio: I hate the NBA now. And a lot of sports outside of hockey where everyone loves each other and shakes their hands. They hang out together. Magic, Bird, Pistons, Bad Boys. They must laugh when they watch the game during this era. But, these guys were going at it hardcore, respect for each other but, man, what a series. Anyway, sorry about the basketball intro.
Frank Curzio: But, the tariffs you could read five million stories about it and I’m going to address it later like I said. I promise. I’m not going to be the one to just, “Oh, man you got to watch out.” I’ll break down a few. But, just a little more about NBA here and who’s going to win it because I have Milwaukee beating Toronto in five games. Yes, I think Milwaukee is that good. I have Golden State beating Portland in six and I have Milwaukee winning it all which I said at the beginning of playoffs with or without Durant playing for Golden State which would surprise the hell out of me if he plays.
Frank Curzio: I saw the injury live and it looked like he popped his Achilles. It happened when no one around it looked like someone kicked him. He was hopping around. They’re saying it’s a mild sprain. He had an MRI they’re not even talking about it but I’d be surprised if he’s not out the entire playoffs and maybe most of next year. Maybe it’s not that bad but man it looked bad. Anyway, happy to talk to talk about NBA playoff. Really, super exciting, awesome. Again, so many people don’t like the NBA anymore but playoffs this year have been unbelievable.
Frank Curzio: Okay, move on here. Got that excitement out of the way because I have a first-time guest coming on in just a minute. His name is Chris Wood. Chris is a technology specialist and analyst with 15 years’ experience. Currently writes the Project 5X newsletter for RiskHedge. He has a great track record. Going to share some amazing ideas with you and a few including several small cap names and one of his favorite tech trends in the world that he says investors need to have exposure to.
Frank Curzio: Now, if you don’t like Chris’ ideas, if you don’t like him and you’re not happy with the interview, don’t email me because I’m not going to say a word to him since Chris is a pretty big guy who played running back for the Texas Longhorns. So, whatever Chris says is good with me. But in all seriousness Chris has an economics background. His dad was also an economics professor. He’s been doing this for a very, very long time. We have similar backgrounds following our father’s footsteps and just a smart, sharp guy really down to earth so really, really great interview coming up.
Frank Curzio: Then, in my educational segment I’m going to get real with you because there’s something that I’m seeing … I was going to say seeing a lot today. But, even over the past 25 years and it and at the start I’d be seeing it but now in the last five years it’s really, really built up and it’s something that’s killing millions of mom and pop investors. I’m going to talk, I’m going to try to convince you, it’s going to be a big rant here. Convince you why you shouldn’t be listening to something. Why you shouldn’t be doing this. I’m not going to give it away. So, I bet more than 75% of you listening to this segment, it’s going to be impossible for me to convert you. And I say convert because this is what I’m going to talk about is kind of like a religion.
Frank Curzio: But, trust me. It’s an educational segment for the ages. You don’t want to miss it. Going to throw in tariffs in there which have … it’s a small component of what I’m talking about. But, definitely give it a listen. And just to build it up, I’m not talking about exactly what I’m going to talk about. I don’t want to give it away. It’s very important here. But, just know it is going to be a rant and I’m going to be calling out a lot of people and not in a good way. I hate doing this but it needs to be done because they’re killing millions of mom and pop investors. Coming up in a minute.
Frank Curzio: But first, let’s get to my interview with a first-time guest, Chris Wood. Chris, thanks so much for coming on the podcast.
Chris Wood: Frank, thank you for having me. Good to be here.
Frank Curzio: Well, first time guest so I’m going to … stage is yours. You are a technology guy. You’ve been doing this for a very long time. More than technology you really look to find early stage disruptor stocks. Things that are going to impact business like the Netflix’s, the Microsoft before they get really big. Why don’t you talk a little bit about what you’re doing, how long you’ve been in this industry because you do have a fascinating story. It’s kind of similar to mine since you’re following in your dad’s footsteps.
Chris Wood: Yeah, I sort of grew up in the business valuation economic and finance world. My dad was actually a rocket scientist and then started doing security analysis and then got his PhD in economics and finance. So, I’ve been reading those books for a very long time. My background academically was degree in economics and finance. Went on to do business valuation and real estate appraisals for a few years.
Chris Wood: And then got into the analyzing public stocks which I’ve been doing now for I don’t know, 12 years or so. At first I was doing the global macro area and then there’s just so much to be negative about in that area. I wanted to switch into something more positive. Nothings more positive than tech so since about 2008 I’ve been specializing mostly in tech stocks. A lot of small cap tech stocks.
Chris Wood: Yeah, it’s been fun. I love it. This is probably to me the best time to be investing because all the exciting things that are going on even though the markets getting crushed today or whatever. I’m not worried about that. Yeah, that’s basically it in a nutshell.
Frank Curzio: That’s really cool. Your dad was a rocket scientist. Talk about high expectations. It’s probably even higher expectations than Michael Jordan’s kids, right? Although I’ll get to the part later. It’s going to be a lot of fun. I’ll get to this part later which is something that Chris did back in the past and he probably knows what I’m talking about. Don’t mention it because it’s really cool and exciting. Much, much better than what you’re doing now.
Frank Curzio: But, in all seriousness, over the past 15 years you’ve been doing this 15 plus years, you’ve seen a lot of innovation, right, we’ve seen and especially in faster internet speeds provided. Big data analytics to really go … cloud computing, all this stuff. You’ve seen this. Talk to me about maybe the innovative front because it seems like innovation is kind of lacking and this is coming from someone that goes to Consumer Electronics Show. I’ve been there I think seven, eight straight years.
Frank Curzio: It just seems like innovation is within the industries. It’s kind of like enhancing the current things. What’s your thoughts about overall innovation maybe because for me I’m kind of like, man, I wish … last two, three, years is more about AI and enhancing all this stuff and 5G and stuff which is great and there’s tons of money to be made. But, I wonder what the next big thing is, you know?
Chris Wood: You mentioned 5G and artificial intelligence. Yeah, I see what you’re saying about the way innovation is going but I think we’re seeing things accelerate actually but it’s behind the scenes. It’s not the … you go to CES and it’s all about new gadgets and stuff. Okay, well, we’ve seen all that before. This incremental improvements in these gadgets but to me what’s really exciting is what’s going on behind the scenes. What’s enabling these new cool technologies to really flourish?
Chris Wood: If you look at 5G, the story there … everybody’s talking about it as the biggest thing since sliced bread. Literally, Qualcomm CEO said it was the biggest thing since electricity. It’s going to bring us … it’s being hyped up by companies, governments, media, everybody right now. It’s going to bring us lightning fast phones. It’s going to enable things like virtual reality, augmented reality, self-driving cars, the Internet of Things and everybody’s going to get rich for a bit apparently.
Chris Wood: But everybody’s focused on the obvious potential winners. You’re talking about providers like Verizon, smart phone makers like Samsung and Apple. The network gear makers like Ericsson. Cell tower makers companies like Crown Castle. But I think they’re missing a big part of the story and that’s what’s going on behind the scenes. It’s enabling all these things to come to fruition.
Chris Wood: If I can just provide a little background on this. Wireless networks like your current 4G networks that we’re talking about right now on our smart phones, they broadcast signals through the air at specific frequencies on what’s called the radiofrequency or RF spectrum. Other services like TV, FM radio and Wi-Fi for instance, they also broadcast at other specific frequencies on the spectrum. So, you have all these signals buzzing around the air all the time and you have these little chip things that are called RF filters in your smart phone. They’re tiny. They’re like millimeter by millimeter. These filters basically they let the right signals in and they keep the wrong signals out. Without this filtering all those signals would interfere with your phone and it just wouldn’t work.
Chris Wood: You wouldn’t be able to call anybody. You wouldn’t be able to send an email or search the web. Anything that we can do on our smart phones today just wouldn’t be possible. So, these RF filters are beyond vital for smart phones and other mobile devices. Remember, there are billions and billions of these mobile devices out there. They send and receive data using very … using specific chunks of the RF spectrum and what we call bands.
Chris Wood: So, today, basically smart phones need a lot of these filters often several for each specific band. So, for example, bands for things like voice Bluetooth, GPS, Wi-Fi. So, my friend today support about 20 different bands and they need up to about 60 of these RF filters. But, the problem is that the spectrum we have available for these applications is already jam packed so dropped calls. Hopefully we don’t have one today for example are a symptom of this.
Chris Wood: So, 5G networks they need these bands at higher frequencies that we’ve never used before for wireless networks. What this all boils down to, what this all means is that your typical 5G phone could need 200 or more of these filters. That’s triple the number of filters in today. We’re going to see explosive growth in this market. It’s like nine billion dollars today reach over 30 billion in the next five years. That’s a conservative estimate.
Chris Wood: But, it also means that these RF filter manufacturers need to figure out how to shrink the size and cost of these filters while improving performance. That’s one of the things I’m looking at right now like how to … who’s doing that basically? I found a couple of companies that are doing it. One in particular is Akoustis and I’m pretty high on this company I like them a lot. They’ve actually developed this new technology to make filters smaller that improve performance and lower costs so because if we don’t do that we’re going to have huge, huge expensive 5G phones that have batteries that die in no time.
Chris Wood: So, if this company, Akoustis, these filters give you better signal strengths, fewer dropped calls generate less heat and they improve battery life because they draw less power. So, they also allow you to use fewer filters because they can support more bandwidth. Just a bigger piece of that spectrum that we were talking about. So that lowers overall costs.
Chris Wood: It’s still early for these guys. They’re a $250 million company. They’ve got a great experienced team. If they execute which I think they can, there’s a ton of room for growth there.
Frank Curzio: Chris, one I want to say thanks so much for explaining that because you could tell you’ve been in the newsletter industry for a while because some people would be like, “Oh, you know RF filters, get us RF filters.” Most people that we … our audience is retail. It’s not institutional as much but when … you want to explain these things because most people, and we have great listeners here who just have their own full-time jobs but listen to us, but the fact that you explain that whole thing because when I hear people talk about 5G it’s tower spectrum, infrastructure which … it could be RF filters. But, to go that much into detail, most names that I do hear are the Qualcomm or Tower, even Verizon and AT&T as large caps.
Frank Curzio: But, let me ask you this. Is it difficult especially say over the past at least five years for you because you specialize in finding these smaller companies in technology and different areas but specifically in technology. Is it more difficult to find these great small companies that are publicly traded? Because what happens in the market today is, especially in AI, these companies have amazing technologies and the balance sheets of whoever, just name any major technology company are so big they buy these guys right away. Or, they decide to invest in them and then we have … they stay private forever and then finally when they do come out they come out multi-billion dollar evaluations like Uber, Dropbox, Lyft.
Frank Curzio: So, is it difficult to find lots of ideas? Are you still finding avenues to find new ideas in the sector? On the small cap.
Chris Wood: Yeah, definitely. Of course, you see all the numbers companies are staying privately longer and yeah you’re right. The big guys are coming in especially in AI. That’s the big place there are Google’s and Facebook’s of the world. They’re just buying up every AI startup known to man.
Chris Wood: But, yeah, there are ways for I think retail investors to still find these gems, these publicly-traded gems. Everybody’s got a sort of formula or a screen or something like that. For instance, I’ve got one initial screen that I use to find specifically these companies. It’s a five-point checklist of filter to really hone in on a publicly-traded company that has a chance to produce big gains in short order from something that doesn’t. I call it the chaos system. Chaos disruption. That’s what we’re all about these days.
Chris Wood: So, CHAOS is an acronym. It devaluates stock on five specific criteria. I’m talking about change, hype, acceleration, ownership and size. That’s really how we think that initially. Then, of course, you’ve got more financial analysis after that. But, this is a great way to really get down to again what’s got the real potential and what doesn’t.
Chris Wood: So, change for example is really the foundation of chaos and disruption. These small companies burst on the scene and change things in a big way. And you got hype which is basically looking for trends that are being hyped. Again, we can go back to 5G and artificial intelligence and finding companies that nobody has heard about yet that are going to enable or benefit from those trends. Like we could talk about Akoustis. They’re enabling 5G. They’re one of the enablers of 5G. They’re a small company enabling big change.
Chris Wood: So, acceleration is basically about the potential for exponential growth. If you got 30% growth year after over year that’s good but 100% growth is how you really see big gains in short order. Then ownership look at just that. It makes sense to go after companies whose founders and management and board members have skin in the game because their interests are going to be aligned with yours, of course.
Chris Wood: And you also want to follow great investors. In biotech, for example, great investor, I do a lot in that. The Baker Brothers have a long history of making big money in that tough space. It is a hard space, of course. So, if you’re looking at a biotech stock, for example, that checks all your boxes and the Baker Brothers also have just invested in it too, that helps reinforce your thesis.
Chris Wood: And size I alluded to earlier, I think it makes sense to go after small companies that are going to shake things up in large markets. Because that’s the easiest way to grow fast in short order. Think about Netflix. It started its streaming service back in 2007. But, even if you didn’t catch onto the story, [inaudible 00:21:10] just like three years ago you’d still be up 310% plus. But, now Netflix is about a $150 billion company. So, it’s a lot harder for a company of that size to grow 10X which would be 1.5 trillion market cap than it is for 100 million market cap to grow into a billion market cap.
Chris Wood: So, you put those things together really and it has … check all those boxes and that’s where you whittle down the list of 100 potentials that look pretty good down to one or two or three and then you dig in further. That’s the system that I’m using right now and I think it gives … also with retail investing in these smaller companies it’s … we have an advantage because a lot of the big institutions just can’t go there because their trades are too big.
Chris Wood: So, yeah, that’s how I do that.
Frank Curzio: You know, Chris, you brought up the Baker Brothers it’s so funny because I’m very familiar with them. They’re like the Warren Buffet of the biotech industry but nobody really knows about them. That’s one of the things when if you’re looking at 13F, guys, if you’re looking at the holdings of a certain company of the biggest funds, I always comb through that to see if they’re buying any small caps as a starting point.
Frank Curzio: I’ll look and a name came up on that list with Baker Brothers and it was called Invitae . I was like, what’s this company about? It was around six dollars at the time and started researching it and gene … it’s all … it’s a fantastic company. It’s just basically analyzing your DNA and they were basing it on volume more than pricing so they have pretty much the best technology in the space. It’s a massive market and it’s … they’re getting major traction. I started looking and I go, “Wow, this is amazing.” Loved it. Recommended in the newsletter. This is like two years ago. It’s still in my newsletter today that stocks up. I think I recommended around seven and it was at 23. It’s around 20 now but it’s around 250% for us.
Frank Curzio: But it’s amazing that you mention the Baker Brothers because when I see things like that just a very large company actually taking a stake in one of these small things, they’re not doing it, especially with the Baker Brothers, they usually see things out and they help these companies and they make a fortune. They’ll get warrants and everything but it’s not a short-term trade. It’s not based on algorithms and that’s something that triggered that I was able to find Invitae for my subscribers simply because that came up and I’m like, “What is this company I never heard of it.” So, it’s funny that you mention that as a way to find new ideas, guys, it’s fantastic.
Frank Curzio: But, I want to go back to 5G really quick because this is a trend you covered for a while. Everyone’s covering it now because it’s hot but you’ve been covering it for a while. Since it’s a major focus of yours, can you explain the impact because you talked it about a little bit here, but talk about the impact it’s going to have to other existing secular trends, major trends like cloud, virtual reality and augmented reality. The algorithms used for AI and big data, the Internet of Things because I feel like that gets lost with 5G where everyone talks about how do you make money off of 5G and you have these part makers but when you look it’s enhancing almost every one of these trends. Right?
Chris Wood: Yeah. Of course. Say for virtual reality, for instance, because we don’t have 5G right now we don’t have fast enough networks to basically have a good virtual reality experience that’s untethered which means it’s un-wired. I have an Oculus Go. It’s a fully self-containing system. You put it on. There are no wires and it’s okay. It’s fine, whatever, but it connects you basically over a Wi-Fi signal or you can go through your cell signal or something.
Chris Wood: But, because of the speed of the amount of data that the 5G networks are going to be able to carry, then you’ll really be able to see a huge difference and virtual reality will really come into its own. I was at the virtual reality conference a couple of years ago and the [inaudible 00:25:12] just came out with their … they had these handheld things and you put them on and I played this football game. It was tethered to a really powerful expensive computer. It was a cool experience. I actually played a football game in it. I threw a … you could throw a pass and after you throw the pass you turn it to the receiver and you actually feel the ball hit your hand. It’s pretty impressive.
Chris Wood: But, we still can’t get close to that with being untethered, and this is three years later, being untethered because 4G networks don’t have that capacity and there’s too much latency. If you’re in virtual reality and you move your head really quickly and the image doesn’t track exactly like where your eyes are going and your head’s going, that’s called latency. Just a tiny little bit of that will make you basically get sick. The early on lots of people talked about actually throwing up and spinning after 30 minutes or something in virtual reality.
Chris Wood: That’s something that’s going to go away because of the speed of 5G networks and … then you can talk about augmented reality with … augmented and virtual in medical applications. The networks are going to be so fast you could use virtual reality, augmented reality to control a robot across vast distances wirelessly to perform surgery and potentially giving patients across the world access to the world’s best surgeons without having to go anywhere.
Chris Wood: So, yeah, it’s super exciting. You’re right. 5G is an enabling technology. It’s going to enable all these cool things to come. Visiting a meeting in New York. I could be … if we had 5G right now I could basically have a holographic telepresence and be sitting in a table with you instead of just talking over the phone. So, yeah, that’s what’s exciting about it more so than just having lightning fast phones. That’s big. Obviously you’ll be able to do that. Download a movie in a couple of seconds rather than a few minutes. It’s really those edge … those other applications that make it really exciting.
Frank Curzio: You mentioned something interesting there when you said when 5G is here because a lot of people look at this trend and they say 5G … in the last three years I’ve been going to Consumer Electronics Show they started … three years ago it was 5G mentioning it. Last year it was everywhere as the biggest theme and this year it was again a big theme. There’s a whole process that takes place where like you said Spectrum and then you have towers being built. You have Verizon’s and everybody else just building the entire networks and now you’re seeing it in certain cities.
Frank Curzio: But, when does a trend … it stated and you can make money on these stocks obviously, but when is it official? Is it … because I know the next generation of iPhones and Samsung are coming out finally with the parts that enable 5G but is it this year? Is it now, hey, we’re really going to see it or is it still six months or longer? I know if you look at AT&T and Verizon they say, “We have 5G capabilities in certain cities.” But, when is it going to hit mom and pop investors? Mainstream where it really … you’re like, “Okay, 5G is here.”
Chris Wood: You’re starting to see it finally this year. It’s actually coming up … [inaudible 00:28:38] faster than even everybody thought because usually the build outs of wireless networks are you go through the infrastructure and then the phones themselves and then the apps services. But, here the infrastructure and the phones themselves or whatever, the gear, is happening at the same time so it’s a little different. It’s going to be probably a faster rollout but I think 2020 is really when we’re going to say, “Okay, 5G is here,” and then it’s widely deployed within the next five years. I think like a decade it will be everywhere but that’s why I think right now is a great time to get into it because, yeah, everybody’s talking about it and there’s a lot of hype.
Chris Wood: But, you haven’t really started to see the stocks top like we did in the 4G rollout companies made fortunes off of. You look at the Qualcomm, Ericsson and Crown Cap, there were big spikes in the infrastructure companies involved with that. But, 5G is just so much bigger that it’s going to … I think the gains are going to be a lot more but right now it’s a really good time to get into it because you’re right. It is still early, but it’s happening very quickly and there’s a lot of countries are getting involved.
Chris Wood: You hear Trump talking about it. “We got to win the war to 5G essentially.” China’s pumping billions into it so, yeah, things are happening quickly but you’re right. It’s still early on. I think in 2020 we can say, “Okay, 5G is really here.” Maybe midway through 2020 something like that.
Frank Curzio: Let’s end with this because this is more important than anything you said today, in my opinion. And you know where I’m going with this. But, you are actually a pretty decent football player who played running back for the Texas Longhorns, is that correct?
Chris Wood: Yeah, that’s true. I didn’t get recruited that highly in football but I was pretty decent and I walked on to the Longhorns. It was Ricky Williams’ senior season and Mack Brown’s first year. It was a painful experience but also one of the most fun experience in my entire life. Running out underneath the [inaudible 00:30:58] to 80,000 screaming fans. But, it wasn’t all glamor, right? I was a scout team tailback. What that means is basically I would go up against our number one defense and I’d run the other team’s plays. So, running into Casey Hampton over and over and over again. Casey Hampton ended up being, I don’t know if he’s in the Hall of Fame yet but he was a perennial Pro Bowler for Pittsburgh Steelers and a lot of those guys went on to the NFL.
Chris Wood: But, yeah, I wouldn’t change a thing about it. Absolutely had a blast doing it. Only did it for a year though because I might not be as good as doing analysis if I had done it for two more [inaudible 00:31:35]. But, yeah, it was a great time there.
Frank Curzio: Real quick, Chris, before you go if someone wants to learn more about you how could they do that?
Chris Wood: The company is called RiskHedge and website is just riskhedge.com, R-I-S-K-H-E-D-G-E. I’m the Chief Investment Officer over there and we have a great free letter written by Stephen McBride, our chief analyst. That will give you an idea of what we’re all about. Yeah, that’s about it.
Frank Curzio: I appreciate it, man, so thanks again for coming on and hopefully you’ll join us again soon.
Chris Wood: Absolutely, thanks, Frank. Appreciate it.
Frank Curzio: Hey, it’s great stuff from Chris. First time guest. Told you he was a great guy. Very smart. Shared lots of ideas. He could be a regular on this podcast if you’d like but, again, this podcast is about you not about me. I want to put great people in front of you. Great people that you want to hear from. Great people that make you money. I vet everybody before I put them on. Not everyone gets to make it on our podcast. This isn’t a sales podcast where I’m throwing people … no, I’m putting on people that could help you become better investors. That’s why the podcast grows because it’s about all of us.
Frank Curzio: We all want to educate ourselves. We all want to have a massive network. And it’s building and building and building and building. This way we get the most accurate, best information. Get information fast. Get new ideas fast. You’re seeing that on newsletters. Again, this podcast is about you not about me. Let me know what you thought of that interview at firstname.lastname@example.org.
Frank Curzio: Now, let’s get to my educational segment. I didn’t’ start off with tariffs. The whole world’s talking about tariffs. You had my rant on it so don’t worry. It’s not a big deal now. I said China has to do a deal and China kind of reneged, walked away. So, we’re placing 25 cent tariffs on their goods. They retaliated on Monday basically saying, well, June 1st they’re going to place tariffs on our goods. That’s $60 billion or whatever it is.
Frank Curzio: And now there are stories that are actually floating around there that they may sell U.S. Treasuries. That’s kind of interesting to me. Because this has been a selling point for every permabear. Say, “China’s selling treasuries the markets going to crash. It’s going to be ter-” and when people just see the … they don’t look. They just look at headlines. They don’t look at the numbers. They just say, “If China does this, our markets going to crash.”
Frank Curzio: They don’t look at the details. Yet, people don’t realize that if China decided to do this that their economy will absolutely crash. Absolutely crash. And the permabear is saying, “Well, our market will crash too if China sells the U.S. Treasuries.” It’s around 1.2 billion or 1.2 trillion, sorry. They’re saying our markets will fall by 70%. There’s going to be riots in the street. Our economy is going to be done. I’m not exaggerating. Most permabears really believe it’s going to happen if China sells the U.S. Treasuries.
Frank Curzio: But, let’s dig in a little bit because for China to do this, it’d be surprising but if they do they’re going to basically collapse their entire economy and entire banking systems. I’m talking about total chaos, Great Depression-type conditions. If you look at China around 1.2 trillion U.S. Treasuries, if they sell them which by the way is not going to be a complete dump on the market. You’re looking at the current quarters going back for two years, $200 billion worth treasuries, liquidities.
Frank Curzio: So, yeah, if they really wanted to dump all of it, it would 12 to 18 months. That could happen right away. But, if you’re looking at the numbers and we look at the U.S. has a bunch of deficit of around $1 trillion. So, selling treasuries the plan for China is to have our yields rise. Bond prices fall so the U.S. borrowing costs higher and is going to crush our economy. Right? That’s the gist of it. It’s complete nonsense.
Frank Curzio: If you look at China, U.S. Treasuries are the safest most liquid asset in the world. They’re being sold at an instant if needed and there’s going to be strong demand. And the Fed is capable of buying treasuries. They have a printing press. They have other measures to stem the damage if this happens like lowering the rates like it did during credit crisis. I’m going to see it coming. It’s not going to take place right away. That’s beside the point. No one’s going to tell you that. They just think it’s going to be dump and that’s it. Nobody is talking about that. There’s huge demand.
Frank Curzio: Well, it’s never going to come to that not even close. Because if China decides to sell treasuries where are they going to put this money? Email me. Frank@curzioresearch.com. I’m curious where you think they’re going to put this money. I have no idea. And remember, China, they’re going to be in complete chaos if this happens, they don’t do a trade deal with us. You want proof their market crashed 24% the last year compared to ours 5% during this tariff nonsense.
Frank Curzio: You want more proof look at this year. Their mark collapsed by 6% while ours collapsed 2% as of last week and now if this gets worse and worse China’s market is going to collapse much, much worse than us. And it makes sense because China placing tariffs on our goods, we don’t sell a lot of goods to China. It’s not even a factor. They can’t threaten us with that.
Frank Curzio: So, now they’re like, how else could they threaten us? How else? Well, U.S. Treasuries … by the way selling U.S. Treasuries it’s not coming from the government. This is just floating by different stories from different people. It’s mostly BS. It would not be floated by the government because it’s insane. It’s just insane for them to do that.
Frank Curzio: And the foreign exchange reserves needs to be in a liquid asset especially in the need of stabilizing their currency. Having access to that. That liquidity is extremely important in case times are bad and times are going to be completely shitty for China. Especially if they continue to play hardball. Plus, if you’re looking at the sale of treasuries if it’s successful, and successful I mean by pushing up treasury yields. I don’t know.
Frank Curzio: You look at what else would happen? A stronger yuan would weaken demand for China’s exports ended up reducing the U.S. trade deficit with China which would actually be good news for Trump heading into an election year. But, when you look at the details and you look at everything, China has zero negotiating power. Placing tariffs on our good makes zero sense since, again, we don’t export a lot of goods to China.
Frank Curzio: Selling treasuries and we’re going to find a way to absorb this while China, if they do this, risk collapsing their entire economy and banking system. I’m going to tell you, China doesn’t have the tools that we have to stabilize their markets. There will be a massive, massive collapse. So, for this news to even surface, again, it’s great news. It’s a nice headline. It scares people but when you look at the details, it wouldn’t happen. They have to be absolutely crazy and if they do, we’ll be able to absorb it.
Frank Curzio: We see it coming. Remember when I talked about risk. If you see the risk coming it’s fine. This is something they just can’t just dump out of nowhere. It’s going to have to be in stages. We will see demand. We do have a fed. Again, this is worst-case scenario but this isn’t the end of the world type stuff. It’s just a joke. It’s an absolute joke. It’s like discussing nuclear policy and if you shoot us with your nuclear weapons we’re going to shoot you with nuclear weapons and everybody gets destroyed. Although we’re not really going to get destroyed if this happens.
Frank Curzio: The market will come down, we’ll absorb it. We’ll find ways to do it. But, at the end of the day, look, you’re looking at China and the U.S. Who would you rather be? You want to be this rich country, largest consumer of goods? Or, a country that’s selling these goods? Because if you’re a rich country and you need these goods, you can get it from a lot of different places. This doesn’t work with China. Let me tell you something. There is tons of countries lined up to start making stuff that we’ll buy from them. We have plenty, plenty to offer them behind the scenes. And we have the money to buy the stuff. Who’s China going to sell all their goods to?
Frank Curzio: It doesn’t make sense for them to play hardball unless, and from what I see with the trade deal, it’s not like an all or none situation and we’re robbing them. We just want to make it fair. There’s a lot of pride here. There’s a lot of stubbornness. But, they can’t afford to play hardball. So, a deal is going to get done.
Frank Curzio: But this point alone is going to be the heart of my rant right now because when I first started in this business, there was always permabears. It was always crazy but now it’s social media. Now you could say something today and just get it out to the world immediately. We’re in an entertainment-type economy even though you deal with money people still want to be entertained. We’re all built to be entertained. All of us, that’s why we love to go to the movie. We’re looking at our phones all the time. We need to be doing something. In the U.S. at least.
Frank Curzio: We always need to be doing something. We always want to be entertained. But, I never thought it would come to the same thing when it comes to your money when it comes to this entertainment. So many people have been taking advantage of that. It’s killing mom and pop investors. I know you know what I’m talking about. I mention Peter Schiff all the time. I think Peter Schiff is a pretty smart guy but he has an agenda and he’s been dead wrong for since the credit crisis, 10 years?
Frank Curzio: What pisses me off is not that you’re dead wrong. We’re all going to be wrong from time to time. If you’re wrong for a couple of years you should get a new job. This guy will never get a new job. He’ll move his operations overseas so he could do whatever he wants and say whatever he want, whatever. What pisses me off is that everyone that listened to him got killed but this guy’s net worth continued to go higher and that’s pretty fucked up. Sorry to use that language but this is important here.
Frank Curzio: You’re looking at the dents of the world. Right? You have to be very, very careful, guys. Especially you buy newsletters. You buy my newsletters. If you’re in the newsletter industry you’re hearing it from there are certain newsletter writers. The end of the world. All these gold bucks. “Got to buy gold. Got to buy gold.” All right, put 5% of your money in gold. I’d say about 1 1/2% of my holdings are in gold. Gold stocks. Gold coins.
Frank Curzio: But, to say don’t buy U.S. stocks. The world’s going to end. ATM machines are going to stop spitting out cash. There’s going to be riots in the street. You have to be very, very careful, guys, and again, I’m not going to convince anyone. It’s like convincing a Democrat to try to be Republican. It’s like trying to convert your religion. Your beliefs are your beliefs and that’s it.
Frank Curzio: But, this is your freaking money, guys. This is your money. You’re basing your decisions on what someone else is saying. This isn’t like, wow, I believe in this. This isn’t like a Democrat or Republican I believe in this message. This is your money. This is your livelihood. This is your generational asset that you’re going to pass on to your kids and hope that they pass on to their kids. You’re trusting in people who have an agenda. You have to be very careful of that.
Frank Curzio: What do I mean? Let’s get into it a little more. Well, let’s take the credit crisis. I don’t know if you knew but everybody called it the credit crisis. Everybody called it all of a sudden. Nobody knew what happened. Everybody called it today though. “Oh, yeah, I told you,” right? Everybody called it. Now, in 2009 the markets started coming back after they hit the March low 666 on the S&P 500. And the fed started going nuts. Said, “All right, we’re backstopping everything. We’re actually going to give consumers money to buy cars and houses and take all the risk off the bank’s balance sheets. All the subprime mortgages. Don’t worry about student loans. Don’t worry about car loans. Don’t worry about anything. We got your back. We’re going to backstop all of this. And we’re going to invest in every single bank. AIG, we got you covered. Don’t worry you’re find.”
Frank Curzio: Emotions get involved and you’re like, “Wow, I can’t believe the feds doing it.” That’s fine. You want to post your feelings on social media go ahead. But, when you look at the underlying trend and what’s happening, the fed backstopped everything. They took all the risk out of the marketplace and made sure they did everything they can to inflate every single asset. Now, look 10 years later. These are the facts. And that’s fine. People got … I got in in 2010 when I listened to David Tepper when he mentioned this on TV. I said, “Holy shit that makes so much sense.”
Frank Curzio: And bullish ever since. We have a fed that is behind making our stock market go higher. Making our economy grow. Even the slightest whiff of negativity, “Oh, well, we’re not raising rates anymore. We’re fine. Probably going to lower them next year now.” You don’t think stocks are going to go up forever. You’re going to have risks just like tariffs right now. A little bump in the road before it gets fixed probably a couple of months.
Frank Curzio: But, my point here is that be careful listening to people where their philosophy is a religion. They continue to have the same message no matter if the facts change or not and that’s extremely dangerous. Because when the facts change you have to be willing to change. It’s just the way it is. Not every stock’s going to be bad forever. Sometimes they’re horrible, horrible, horrible, horrible and they change everything within their company. New management team. New philosophy. Getting into growth markets.
Frank Curzio: For a person to say, “I just hate that company. They’re just terrible,” for the same reasons 10 years ago that pushed it lower but yet new management, new everything, getting into new technologies, totally different company. You got to revisit the thesis and look at it and say, “Okay, what’s different?” Unfortunately, with today’s message and bashing the fed and bashing the U.S. economy, bashing our deficits. Talk about our deficits. “21 trillion dollar,” … without mentioning anything on the other side of the balance sheet. But, they keep pounding this message despite having low interest rates which by the way, does have positive things. It does inflate assets but easy money makes it easier for people to borrow and we have more unicorns today than ever.
Frank Curzio: Yes, we hate that they come out of valuations like a Uber and Lyft and they get crush investors. We don’t want to see that. But, it spurs innovation. New ideas. If interest rates were so much higher, do you think maybe we won’t have electric cars. Who knows? Maybe a lot of stuff doesn’t exist today. But, you have to take a step back and do the math.
Frank Curzio: I told you about my fracking story where the stories of fracking when I went down I thought there was going to be like dead animals everywhere. I realized that this is all a hoax … by doing the research. But, be very, very careful who you’re listening to because the guys that I see on Twitter it’s a religion. If people are shorting Tesla and they’re like, “Tesla’s going to go broke. Tesla’s going to go broke. Tesla’s going to go broke.” It’s a religion. You’ve got to see they’ll post 20 times. They’re posting these stories all the time. That’s fine. They’ve been right and yeah, Twitter’s in a lot of trouble … I mean Tesla’s in a lot of trouble. But, if you risk is like, “They don’t have enough money. They don’t have enough money,” and now they did a big capital raise, now they have the money.
Frank Curzio: So shouldn’t your thesis change a little bit? Maybe not. I’m just saying there’s a lot more risks. You have the tax credit come up. You still think it’s going to come down. Elon Musk, great innovator but really crazy. Running that company is pretty insane with the Tweets he puts out. I’m not saying that Tesla’s not going to go up, but I’m just saying if the reasons that you thought Tesla was going to crash no longer exist then you need to change your mind.
Frank Curzio: That’s on a particular stock but I’m talking more about the market in general because I listen to people on Twitter. They’ve been bear since 2009/2019. I have to tell you. They’re still bears. They’ve never changed and more important in their freaking head and they’re not doing it on purpose and they’re not lying. It’s their brain. It’s the way they’re wired. They think they’ve been right this whole freaking time. They really believe. I know, I talk to these people.
Frank Curzio: The last 25 years I’ve been going I’ve interviewed over 1000 people. A lot of these people I call my friends. They’re good people. I wouldn’t give them a dime to manage and I don’t put them on my podcast. But, they do manage money and I see them at conferences and they’re really you think stocks going to go high? It’s the same message. I’m not saying you should be crazy bullish. But, you’ve been so absolutely wrong and not being able to take a step back and say, “Okay, why did I get this wrong? What did I do wrong?”
Frank Curzio: This way you could relay a better message to the people who follow you and love you and try to make them money. No. It’s pedal to the metal. Double down. Triple down. Quadruple down. Markets crash … if the market fell 60% from these levels, these assholes would still be wrong from the original projections 2010/2011.
Frank Curzio: So, guy, as mom and pop investors, just be very, very, very careful who you listen to. There’s a lot of shit out there. And yes, it’s entertaining but entertainment does not mix with your money. Jim Cramer is entertaining on television but he’s providing substance. And you can like him or not but he does the work. He has the top CEOs on there. And maybe he’ll dress up like Captain Crunch to make it a little bit interesting which is fine, but there’s substance there.
Frank Curzio: You have to be careful of the people who are just wildly pedal to the metal. They love to piss people off because bad publicity is good publicity. They get tens of thousands, millions of Twitter followers. They jump into your funds and they’re getting freaking destroyed. Yet, the people who are running these companies are making a fortune. They charge you fees out the ass. Or, you’re losing your money.
Frank Curzio: But, that’s the society we live in right now. It’s that crazy especially in the financial newsletter industry. But, just be very, very careful. Look, you listen to those guys, understand those guys, but they have to be willing to change and so many permabears have not changed for 10 years. And more important not only do they lose so much money for mom and pop investors, they really … they go on and say, “I told you so.” What did you tell me? My portfolio’s down 60%, 30%, 20% while the market’s up 300% when I just could have bought money in S&P 500 fund, got charged .2% instead of paying you 5% of the way in. You lost me 30%. I want to take money out of the account you’re going to charge me another 5% on the way out. And you’re making a fortune.
Frank Curzio: Guys, be very, very careful as there’s a lot of assholes out there. I’m sorry to say it like that but there are. Be smart. Again, 75% of us are going to be, “Frank, ah, don’t worry about it. You’re fine. I’m not going to change. I like these guys.” That’s fine. Do what you want to do. But, hopefully if I could just get one, two, three people to understand what I’m saying. Being able to change with the times. Have someone that’s humble that looks back and says, “Okay, I was wrong on this but here’s how I can make a difference. Here’s what I’m going to learn from it.”
Frank Curzio: But, these guys are not learning from their mistakes. You know what? That’s really messed up. I don’t care if they lose money. I don’t care if they lose their fortune, but they’re not. They’re getting rich on the backs of you. Mom and pop investors. You know what? Stop making that happen because those guys are definitely not worth it.
Frank Curzio: Hey, you guys, thank you so much for listening. Hope you’re enjoying those playoffs. Playoffs? Really great stuff in the NBA also hockey. Go Boston Bruins. Doing very well. Thank you so much for listening. I’ll see you guys in seven days. Take care.
Announcer: The information presented on Wall Street Unplugged is the opinion of its hosts and guests. You should not base your investment decision solely on this broadcast. Remember, it’s your money and your responsibility. Wall Street Unplugged produced by the Choose Yourself Podcast network. The leader in podcasts produced to help you choose yourself.
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