Wall Street Unplugged
Episode: 717April 15, 2020

This will be the greatest trade in decades

Harris Kupperman

Harris “Kuppy” Kupperman, CIO and president of Praetorian Capital, is a market legend. His extraordinary research has been featured on some of the most prominent investment sites and blogs.

So when he shares what he calls “one of the best trades I’ve seen in my entire investing career… and there won’t be a better one in decades…” you want to listen.

Plus, this is the most dangerous market I’ve seen in my 25-plus-year career. And right now, there are two negative trends that aren’t even close to factored into the market. [21:56]

The coronavirus is a world-changing event… which begs the question, what will the New World Order look like a few years from now? Some sectors will thrive from the secular shifts we’ll see… while others will fall by the wayside. And you might be surprised at some of the dividend aristocrats and household names on my biggest losers list. [47:35]

Inside this episode:
  • Guest: Harris “Kuppy” Kupperman [21:56]
  • Education: The COVID-19 New World Order [47:35]

Wall Street Unplugged | 717

This will be the greatest trade in decades

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 is it going out there? It’s April 15. I’m Frank Curzio, host of The Wall Street Unplugged podcast where I breakdown of headlines and tell you what’s really moving these markets. Now, what an incredible market, just unbelievable. You see how far stocks have come with all this uncertainty. Yes, we’re getting hit on Wednesday, but man, major, major move to the upside. Pretty much from the Fed, committing 2.3 trillion to bailing out everything and anything. It’s pretty crazy when you think about that number. One, it was supposed to be 2 trillion and they just added 300 billion onto it, and nobody really noticed. I mean, to put that in perspective, that 300 billion. I think it was 450 billion we use for tarp. Yes, it was 700 billion, but I’m pretty sure it’s about 450 billion that we used and we just added 300 billion to this like nothing, nobody like saying anything, which is great.

Frank Curzio: And you look at the airlines, huge bailout, extending unemployment payments for up to four months. Basically free business loans to any small business that wants them, doesn’t matter. Any business good or bad. Bailing out shitty companies by investing in high yield debt. These are guys that haven’t showed their shareholder return a long time, that are generating millions of dollars themselves, the management teams, yeah, let’s bail out those guys. That’s cool. And pretty big deal considering our corporate debt market is over $10 trillion. The high yielding market accounts for around 15, 20% of that. That’s going to get bigger and bigger, the deck downgrades as there’s no cash flow coming in for some of these companies. In the meantime, we have most companies coming out saying, “We have no clue what we’re going to earn in 2020 and likely 2021 and we don’t know how long this lockdown will last.”

Frank Curzio: I love a lot of these companies out there decided, “Hey, you know what? There’s no need for any of us to pay rent while we’re closed.” If we have a subway not paying rent, if we have Cheesecake Factory saying they can’t pay rent, and I love one of the guys who owns Cheesecake Factory. Man, what a riot. That came on and said, “Yeah, we got like a $5 million loan.” His business fully closed. “No, we’re delivering. We just laid off most of the employees.” Wow, that’s a pretty good thing. Let me generate a shitload of money from the government. That’s great. I mean, you’re supposed to support these things, not make them thrive in times like this. What about the person next to Cheesecake Factory or next to them in the malls because that’s where most Cheesecake Factories are the big mall areas? Why should when mall is closed, why would you pay? Like they’re not paying rent, why am I going to pay rent? It doesn’t matter if I have two years of cash in the bank and tons of working capital.

Frank Curzio: Also looking at unemployment, it’s surging. I mean you could say it’s expected to surge because it’s not even close to going. I mean, it’s going to go much, much higher. Q2GDP expects the sharpest decline since the depression. You have earnings projected to decline 25% this year. I mean, if we take that basis, the S&P 500 is trading at 24 times forward earnings. It’s the most expensive valuation in two decades or since the dot com collapsed in 2008. It collapsed because of those crazy evaluations, but we’re back there and there’s more uncertainty today than ever.

Frank Curzio: And what do we have? Stocks soaring at least before today, despite all the uncertainty, despite all the risks, despite the U.S. and the entire world, having its biggest recession in close to 100 years. I mean the IMF is trying to sugarcoat this yet they said, global GDP, they expect it to decline 3%. Guys, we didn’t even see that during the depression of a global decline like that. I mean, these numbers are not terrible, they’re just unimaginable.

Frank Curzio: Now, here’s the stuff we know. Unemployment rate consensus has a 15%, GDP to fall 25% next quarter, earnings to fall 25% this year. That’s what we know. So, one could say, “Hey, Frank, you know what? A lot of this is factored in.” Since we’re all talking about these numbers right now, this is factored in. You know what? But here’s where it’s not factored in, 2.3 trillion in stimulus, not even close to being enough. It’s going to be closer to $7, $8 trillion. Why seven, eight? Am I picking number. No, I mean, these days there’s no difference between a B and a T on these right? Again, we just add 300 billion to our stimulus bill and nobody raised an eyebrow, but it’s 7, 8 trillion. That’s less than 50% of U.S. GDP.

Frank Curzio: And then when you start doing the math, I mean, take the airlines. They agreed to take a $25 billion bailout, they agreed. They agreed to take 25 billion, good for them. And you know what? They were still pissed off that they had to pay back 30% of this loan. I mean, you got to love that. You got to love that. Oh, you’re going to give us free money? Cool. Oh, come on. It’s not going to be all free. Only 70% of this is like a grant, that’s it. My God, I love these times, man. It’s awesome. Yet, you look at the industry is projected to lose over 300 billion in sales this year, 300 billion, I mean, Delta alone generated close to 50 billion in sales last year. What’s $25 billion going to do? 90% decline in the industry, people flying. And you think that’s going go back to normal? You think it’s going to get back to 50% capacity? You think people are going to sit in the middle seats going forward? It’s crazy.

Frank Curzio: And by the way that 300 billion in sales this year, that was from the International Air Transportation Association, which is like that the EIA, the energy industry comes up with, I don’t know. I won’t even go there. I’m not going to say it’s not important or whatever, but here’s what they said in early March. In early March, when we started shutting down the airlines, they said, “We’re going to need 100 billion or 100 billion in sales is going to be lost in this industry, early March.” By late March, they changed their tune. They said, “You know what? The airline industry is going to need a little bit over 200 billion.”

Frank Curzio: Now, today, two weeks since April, it’s $300 billion. Guys, this is 40 days, 45 days, less than 45 days, you’re talking here where you just said that the airlines are going to lose 100 billion. Wait, now it’s going to be 300 billion. Billion, billion, these are real numbers. These are real numbers. This isn’t a joke. You’re going to see this pattern across every industry, especially the ones that get bailed out because they’re going to get extra more money, but that’s put a bit under this market, which is crazy.

Frank Curzio: They talked about retailers, the subways, Cheesecake Factories not paying rent and other people say, “We’re not paying rent.” You know what’s a good example that? Look at Tesla. Stocks on fire. Mazda is a company in great position. China plane is now open. We’re delivering new cars well ahead of everybody else who’s struggling and electronic vehicles. We have plenty of cash on our balance sheet after the capital raised. Even Goldman yesterday who hated this company at 300, just upgraded them to a buy and said it’s going to $800 a share. He’s almost there, just a huge winner. So what does Tesla do? They turn around, they call up all their landlords and tell them, “Hey, make sure you cut the rent in half for us.” Are you kidding me? Pretty crazy, pretty crazy times.

Frank Curzio: So, even the good company, same thing. If you have a business, whether you’re doing good or bad, say you’re making money, it doesn’t matter. You’ll get a free loan from the government or grant and every small business should apply. It’s free loans to pay employees. Think about that. Is that factored in? No and they’re looking at numbers, which I don’t know who’s providing these numbers, economists, great, good job. I mean, the 2.3 trillion, you’re looking at just industries you’d have to bail out, but we’re talking about companies and industries that don’t need bailouts that are applying for this stuff now. But the amount of future bailouts, which is going to be easily in the trillions 2, 3, 4 more trillion, I don’t think that’s priced in. And you may say, “Frank, who cares?” The Feds going to print 5 trillion, 8 trillion, 12 trillion, whatever it takes, so earnings are meaningless, numbers are meaningless, so I should just buy stocks, and you know what? Maybe you have a point. I mean, you had a point over the past three weeks.

Frank Curzio: I could tell you, there’s another thing, another major factor not priced into this market, which could push us down to the new lows and we have a massive fight between right now, it heated up last week, about a week and a half ago. It’s really been political now between the Democrats and the Republicans and this is an election year, but there’s a debate on when should we open this economy. Republicans want to open it sooner, while the Democrats want to wait. Democrats are attacking the President.

Frank Curzio: People are going to die if you open up the economy, and they’re right. People are going to get to coronavirus. It’s not over. It’s still going to spread, of course it is. Most doctors believe that as well, leading infectious doctors. What is it? You’re going to go back? Of course, there’s another wave. Republicans say, we’ve got to open the economy. We can’t deal with this because that’s what their whole campaign is based on with Trump with the S&P 500 going higher, we need the economy open. We need to see sports.

Frank Curzio: This is a huge deal. Why? Because the plan to handle the coronavirus was laid out. But was it? Well, we need to extend that curve, so we don’t have too many infections at once since hospitals don’t have enough supplies and beds to accommodate all the sick people. We went through that crisis, especially through New York, Cuomo. I think Cuomo is doing a good job. I like him. Loves the media, though. Loves the media, on TV, like 25 times a day. But you’re looking at New York and New York is saying, “Hey, you know what? Things are better. We’ll have supplies. We have hospital beds now. We’re peaking. Have plenty of beds.” Seeing the number of infected people finally tap out in New York. It’s kind of like the ground zero of this crisis. Most hospitals are fine. Hey, okay, good. Now you have supplies.

Frank Curzio: Okay, now that we passed that point, this was the plan. The next step was to open the economy, which is what we’re trying to do. But when we do this, and this is a price thin. Again, we’re going to see this virus spread. To think this won’t happen is insane. I think it’s going to be a good thing. I mean, people need to build up immune to it, which is what we eventually need to happen and this thing spreads like crazy.

Frank Curzio: How much of the population? Very, very tiny percent of population has gotten it, but as we do that, I mean, you’re looking at a disease that spreads faster than almost any other disease that we’ve seen before. If you’re a doctor, I’m sure you’ll send me a couple of, but you know what I’m talking about. I mean, this isn’t a flu. It spreads what? Three, four or five times faster according to statistics? Between three to five times, depending on who you’re listening to.

Frank Curzio: And then by this time next year, we’ll have a vaccine. That’s good. People are going to start feeling more comfortable going out. Ag it’s not going to be like the flu where people don’t care if you have the flu. But even when this happens, it still won’t be the same. The ballparks going to be sold out. Disney Parks going to be jam packed, theaters. This is a major fight going on. I mean, there’s massive protests. I mean, people are outside holding up signs now.

Frank Curzio: We need to open up this economy. Between the red states and blue states. Just look, and I watch CNN, Fox, CNBC, MSNBC. It’s so funny because when I say, “Hey, did you see this Chris Cuomo? Did you see Hannity?” Whatever, right? It’s funny because if you’re a Democrat, you’re like, “Frank, why are you watching Fox? Those guys are assholes.” And if you’re Republican, and like, “Hey, did you see that on CNN?” They’re like, “Why are you watching MSNBC and CNN, those guys are assholes.” It’s great. Just that divide.

Frank Curzio: For me, it’s my job to do that because I want to get the full perspective. That’s the consensus. This is what people think from both sides. And if you’re just watching CNN, you don’t understand what’s happening on the Republican side, and if you’re not watching Fox, you don’t really know or understand what’s happening on the Democratic side, but there’s a massive fight taking place in this election year where it’s going to be thrown down the President’s throat of people dying. You killed these people because you opened up the economy, or do we keep the economy closed longer? Either situation is not good. We act like one’s better for the other and opening up the economy is not a great thing. It’s something we have to do, but so many people think, hey.

Frank Curzio: You guys, you got to remember on TV and you’re looking at economists. These are not people that hang out with the normal crowds. These guys, they don’t hang out at bars. They sit in rooms and look at charts all day. They don’t know people. They don’t know sediment how they’re going to react. You can scare the shit out of everyone in the world, the whole time media like that you will die if you get this, and that’s not the case. Most people, over 98% of people don’t die. People are going to be scared to go back to doing the same things that they’re doing. But you need to get the full perspective both sides, so this is what the world is thinking and that lets you invest accordingly, helps you tremendously.

Frank Curzio: Again, listen to the people who have a totally different thesis than you. It’s the best thing you could do. Best advice I can give you is to research on it. So listen, if you like Apple, don’t listen to old bulls on Apple, listen to the bears. Why am I not getting it? What are they seeing? Believe me, puts things in perspective. And by the way, these shows are great because Fox has Dr. Oz on every night while CNN has Dr. Gupta on, because these doctors are now a doctors for everything. They don’t know anything about infectious diseases, but Dr. Oz is great. They bring them on every day and he says that the coronavirus spreads fast. Be sure to wash your hands, practice social distancing, stay away from older people who are much greater risk of getting infected and could die. But overall, we’re going to get over this.

Frank Curzio: It’s like, “Thanks, man for telling me what everyone in the world is telling me already. Everybody knows.” So it’s just funny to have these guys, it’s like useless information. But Sanjay Gupta is worse and Chris Cuomo had him on his show on CNN. Every single day, this guy is on the show, him and his brother, and Chris has a coronavirus. He’s doing his live show every night, which is pretty cool, from his basement, pretty cool. So, it’s day three of Chris being infected and Dr. Gupta asked, “Hey, Chris, so how long do you think you’re going to be sick for?” You’re the fucking doctor and you’re asking him how long he’s going to be sick for? You’re the doctor, that’s why they have you on. You should be telling him, “Well, you know what? These symptoms are going to get bad by day seven by eight, nine.” He doesn’t know because they’re not infectious doctors, but they’re going to throw you in front of millions of people watch him on TV. Even Chris Cuomo said the same thing. He’s like, “You’re the doctor. Tell me.” He actually said that.

Frank Curzio: It’s just funny. If you’re a doctor in the media world that means you’re a doctor in everything, but sorry. I didn’t want to get off track there, but the argument between the democrats and keep the economy closed and Republicans open the economy sooner rather than later, I mean, this could become a civil war without the killing, but I mean, it’s the emotions are getting high here. And you really need to open up the economy, but when you do more people are going to get infected. We’re going to have another wave and we’re probably going to close the economy again. I mean, to think that that’s not going to happen is naive. Just look at Singapore. Everyone’s praising them, their response to coronavirus. Just really early to the party, locked down and really enforcing it and stay home and I want to say there’s almost no deaths there. And they said, “Hey, time to go back to work.” What was it like, two weeks ago?

Frank Curzio: Well, open up the economy and they’re seeing the virus spread again even faster than it did the first time. And when you have nobody that really has this, it’s going to spread very, very, very quickly. We’ve seen it. We’ve seen the math. We’ve seen people explain this. We’ve seen people on TV. I came home, my whole family had it. We just went to another person’s house for 15 minutes. Their whole family got it. It’s crazy. So, we’re going to open up again then we’ll likely close our economy again and go through this process a few times. This isn’t priced into the markets. Everyone is saying, “Oh, once we go back, no more coronavirus. We’ll get the vaccine. Everything’s going to be fine.” No, we can’t. Even the leading doctors are forecasting this to happen, a resurgence of this.

Frank Curzio: And what’s that going to lead to? It’s going to lead to more and more and more bailouts. As long as this economy is closed and it’s not going back to even 30, 40, 50% capacity. We’re talking about 3, 4, 5, 6 more trillion in stimulus this year and later this year and into next year, maybe, hope not. But to me it’s really, really, really scary when you look at it, because people are going to be out of jobs, not four months, but for nine months, for 12 months.

Frank Curzio: I mean, GDP being negative. Yes, we’re factoring in GDP is negative. It’s going to be down 25, 30%, probably going to be three quarters in a row. But if we have further lockdowns, if we don’t get back to normal, we’re looking at maybe six to eight quarters in a row, where we have GDP coming down. Earnings expect the full 25% this year. I think that’s conservative.

Frank Curzio: But in 2021, analysts are projecting to surge close to 50% from $115, that’s a total earnings of S&P 500 to $170. But now you look at 2021, if we do see another outbreak or we see if you’re a believer, which you should be that the economy is not going to return even to 50% of normal, those who are going to stay home this year, we could see 2021, we could see earnings maybe grow 10, 15% off those lows. I mean, I’m hoping they don’t decline again in 2021. If we do, it means the stock market right now is trading over 30 times 2021 earnings? If we see a further decline. Are you kidding me? I mean, that’s crazy. That’s definitely not factored into the markets.

Frank Curzio: And guys, call how it is, and I’m not trying to scare the crap out of you into going short, I’m not telling you to go all in here either as we picked away at several names in my newsletters over the past few weeks, including five recommendations of Curzio Research Advisory. There will be some sectors and names that are going to struggle long-term. I mean, it’s the changing of the times. This is something that’s going to change the way we live, the way we spend, the way we do things, the way we travel, and it’s going to be like that for a while. This is the New World Order. And there will be names and sectors that will be huge, huge beneficiaries while others won’t be. And you know what? That’s going to lead us to today’s interview.

Frank Curzio: The first-time guest, his name is Harris Kupperman, or what his friends call him, Kuppy. Kuppy is a CIO and President of Praetorian Capital and writes very popular blog, Adventures in Capitalism. Kuppy focuses on asymmetric investing where he identifies exceptional companies that can surge five X over a five-year period. So he looks and searches for ideas and now the coronavirus and so much risk on the table. Again, we have come back, but still it’s not difficult to find these crazy situations as they were in past years where everything is going higher and higher and higher.

Frank Curzio: The sector he’s going to be talking about today, guys and pay attention please, is shipping more specific VLCC Vessels. I love it because that stands for Very Large Crude Carriers. It’s the only industry I know right now where insiders are buying and companies are increasing their dividends. Why? Because day rates, what these ships charge customers to rent a ship for a day, are skyrocketing from 30K to 40K to 250,000 to 300,000. So, it’s a sector that few people are talking about. You’re going to understand why they’re surging so much right now. Don’t think about all the supplies being shipped. We know a lot of businesses are closed. Think about oil, guys. And once you hear his thesis, I’m sure most of you are going to run to invest in this sector because it’s still early. But enough of me building it up. Here’s my interview with Harris “Kuppy” Kupperman.

Frank Curzio: Kuppy, thank you so much for joining us on Wall Street Unplugged.

Harris Kupperman: Hey, thanks for having me on. I appreciate it.

Frank Curzio: All right. So you’ve been making the waves in the media and it has something caught my attention, a sector that you’re in, but before we get to that, because I love this research, I love what you’re doing in this one sector, your investment style, asymmetric investing, you say your strategy is to identify smaller, exceptional companies and usually these are small caps, because you’re looking at names that could increase fivefold over the next five years. Can you explain to my audience how do you find these types of opportunities in terms of your methodology because it’s much more than just using a deep value strategy, isn’t it?

Harris Kupperman: Right, of course. I mean, we think of value stocks, usually they’re cheap for a reason and they stay cheap. There’s a lot of value stocks that were cheap 10 years ago and they’ll probably be cheap in 10 years. What you need are two things, rapid growth and I’m always looking for small companies growing fast that the market hasn’t figured out yet. And then the other thing you need is some sort of a macro tailwind, and usually, to find something cheap enough, it’s something that was down a lot previously. If you follow companies and sectors a lot of these especially in cyclical industries, they go up, they go down. If you play the cycles, there’s a lot of meat in between.

Frank Curzio: Now, we have a little problem here called the coronavirus.

Harris Kupperman: Just a little.

Frank Curzio: A little bit. Everybody’s on lockdown. First time, we’ve ever seen anything like this in the history of mankind where actual countries, billions of people are being told to stay in their houses. Some countries much more stringent on this compared to us in the U.S., which people are not really on a lockdown. We can almost do whatever we want, but a lot of ups and downs in this market and there’s one opportunity that was created because of this that you identified and you call it, “The greatest trade I’ve ever seen in my entire investing career.” And I think you update it to say that, “No, wait. This trade, there won’t be a better one in decades.” Explain that trade.

Harris Kupperman: So, let’s talk about tankers. I don’t say that lightly. I’ve been running a blog now for 10 years and that’s the first time I’ve used language like that, but when you look at what’s happening, basically I look out my window and no one’s driving, no planes going by, there’s no boats going by, there’s nothing. And so oil is just building up, it’s building up into tanks, and we’re going to run out of room to store it on land and eventually we’re going to have to start storing it on tankers. And when you think of the global tanker fleets, there’s only so many of them, you’re not adding any more very rapidly and as they start storing more and more of this oil on oil tankers, it’s going to start shrinking the fleets. And even though the Saudis cut a bit and the rest of OPEC cut a bit, you still need a whole lot of tankers to move oil around, 40 million barrels a day moves around the world on ships.

Harris Kupperman: And so if you’re going to put all these ships into storage, well, it’s going to push charter rates up for tankers and we’re seeing tanker charter rates at historic highs and they’ve been there for a month, but really, they’ve been there since October because the market’s been very tight for tankers this cyclical industry like I talked about before, but right now, it’s extra tight because more and more tankers going to storage every day. This 800 Very Large Crude Carriers, VLCC and they’re putting three to five of them a day into storage and once they’re in storage, I don’t think they’re coming out anytime soon.

Frank Curzio: So, talk about the numbers a little bit more where it’s you could look at 100 million as the benchmark whether supply-demand is balanced and we know Shell for us is going up, will become one of the largest oil producers in the world. Now that demand has cut down, explain the numbers behind this because this seems like something well, what happens and it’s crazy. This isn’t me talking, but this is going to come back so quick, a V-shaped recovery, and Q4 is going to be fine. This is different. Things are going to change differently for a long time. But talk about the numbers a little bit behind this trade, I think people really understand why it’s great.

Harris Kupperman: Yeah, sure. I don’t know what the shape of the recovery is. It’s a V, it’s a U, it’s an L, it’s a W. I just talked to my dad, who’s 74 and he’s scared to go to the grocery store, he’s scared to go get to his golf club. I don’t think he’s leaving in May or June or whenever they let me out and I think there’s a lot of people like that. A lot of people who aren’t going to be flying around or taking cruises or lost their job or won’t be driving anywhere. I think this is going to take longer than people think. Before this all happened, the world was producing about 100 million barrels a day and it was using roughly 100 million barrels a day. It was pretty balanced.

Harris Kupperman: I’ve looked at estimates from people, on one side, you have the Energy Industry Association here or the EIA, whatever they call themselves in the U.S., and they’re talking about a few million barrels. You have Trafigura who actually is trading this stuff, and I assume they know better. They’re talking 35 million barrels. Now in my head, I’m thinking that’s 20 to 30 million barrels of demand that disappeared globally and that starts adding up really, really fast when you think of how long this quarantine has already lasted and how long it’s probably going to last. And then even once you’re out of quarantine, let’s say we bounce back some and we’re at a 10-million deficit globally, like that’s going to just keep putting barrels into storage for a very long time.

Harris Kupperman: OPEC cut a bit and guys are going to stop drilling and they’re going to put some of their wells on care and maintenance, they’re shutting some wells, but in the end, you’re just going to keep building up storage and that’s going to keep tying up vessels. When you do some quick math on this, if you assume 50 days, that we’re building up about 20 million a day, which is way below where Trafigura thinks they are at 35, and you think another 100 days that we’re down by 10, you’re talking about 2 billion barrels building up. And I don’t know if that’s the exact number. I might be over under by 500 million even, but let’s just use 2 billion for this conversation, that’s a whole lot of oil that’s building up. And when you think of a very large crude carrier, we’re talking 2 million barrels.

Harris Kupperman: So, even if we have a few hundred million builds, you’re talking a lot of these vessels disappearing and clearly, these vessels are just appearing into the storage market because every day we see a press release, where a few market disappeared into the storage market. What I want to add, though, is that if you really do put 2 billion barrels away, and let’s say we finally hit some of the equilibrium early in 2021 and then let’s say demand starts really picking up and we have a 5 million deficit of oil, which would be one of the biggest deficits in history in terms of supply-demand, but even that 5 million, we’re talking about 400 days to work off this supply that’s built up. So 400 days, this trade could really go on for two years, which is a period of time where these tankers are really earning excess earnings.

Frank Curzio: Now talk about the word contango and my audience is filled with credit investors, people that are in the oil industry, people who are not hedge fund managers and even, students. So, breakdown what a contango is and why this is playing such a huge factor in what’s going on with storage?

Harris Kupperman: Yeah, sure. So, when you think of crude oil, and if you pull up a chart of what the curve looks like and the curve is basically, the current month which is month one, which is the main month and then you have the June month and the July month. If the month that’s one deferred, so which would be June, if that month is at a premium price to the current month, you would end up with a contango, if they were at the same price, you’d have a flat market, and if it was at a discount, if June was at a discount to May, you’d have a backwardation. So what’s happening right now is you have a very steep contango.

Harris Kupperman: So, let’s put this in actual numbers for you, okay? The May future right now is trading at $21. The July future, which I’m looking at, is trading at 32, okay? So that we’re jumping ones. That is what I have on my screen. So, you basically have $11 difference between May and July. So why is May $11 cheaper than July? Because there’s just too much May crude and no one knows what to do with it and that $11 is your cost to store it. If you’re going to charter a vessel and you’re going to store it for two months, then it will cost you $11 a barrel to store it. And that’s what the shape of the curve is telling you. It’s basically what’s the storage cost of this oil and when you have a very steep contango, you have a very hefty storage cost.

Frank Curzio: Now, when I look at this it just seems like the perfect, and I’m not saying the perfect storm in a bad way, but the conditions have never been so right when I look at this which always makes it scary if everybody agrees with you. I’d rather people say, “You don’t know what the hell you’re talking about, Curzio, you’re right more than you’re wrong.” I mean, you look at new builds, a 25-year low. The entire world basically on lockdown. China’s coming back, but it’s not even near full capacity or anything like that, and gradually people are going to start slowly going back. It’s going to be a very, very long time to get it back to normal.

Frank Curzio: And then you have regulation, where many of these ships and it was starting in January 2020, January 1st, where the whole planet had reduced airborne pollution, so they were saying that they mandated that vessels have to have scrubbers, so a lot of these had to have scrubbers in order to reduce pollution, so a lot of them went into whatever. It takes 40 days or a couple of months. It just seems like everything together and with oil, that supply number. I mean, what could go wrong with this trade, like what could go wrong in the short term on this trade?

Harris Kupperman: So, when I think of this trade, there’s a couple of legs to it, but the biggest leg is that you have 800 VLCs and let’s ignore the rest of the fleet, because there’s different vessel types. I think a few hundred of these end up going into storage and then, like I said, it’s going to take 400 days after we hit equilibrium to undo this trade, so you have this long period of time. What could really hurt the trade is something that undoes that storage faster, which would be something like a Middle East war. You’d need something that takes that oil deficit down much more rapidly, and that’s really the only thing I could think of that undoes this trade.

Harris Kupperman: In the end, this contango is steep. Traders are going out there. They are buying physical oil. They are putting on vessels. They are selling futures. It’s a risk free way to make $11 in two months. They will do this as many times as they could possibly do it because in finance, there’s not a lot of risk free trades. And so I don’t see what undoes this in the near term. And you are right, the global fleet order book is at historic lows, a lot of older vessels will get scrapped just because they don’t want to put scrubbers in, they don’t want to pay for more expensive fuel, they don’t want to put ballast water systems in. I think you have just a lot of things playing in your favor. And look, tanker rates were already at 10 year highs before this whole thing happened because the supply-demand equilibrium was shifting and you’re already getting to a tight market. And this is just taking a tight market and made it into one of the greatest tanker bull markets I think we’ll ever see.

Frank Curzio: Talk about how individuals could play this because most aren’t going to be able to play the contango and stuff for hedge funds and owning those ships, it’s a little bit different story, they could store a lot of this. But you’ve been talking about a lot of the shipping companies, but some of them have more exposure to the very large oil tankers compared to others, so how would you play it. Is it all these guys are probably going to do good because some of them have a little exposure compared to more exposure? Are you looking at it from a term of leverage, which companies are less leveraged, but we’re in a bull market, so the ones that have more leverage might even go higher? How are you playing it specifically?

Harris Kupperman: So, I’m playing this through a basket. I want to get it right, because I’m getting the thesis right. I don’t want to bet on individual management teams, fleet configurations, chartering strategies, I want to bet that tanker rates stay elevated for a very long time, so I’m using a basket here. And my basket is heavily weighted towards the larger, more liquid better capitalized companies, U.S. listed. As I said, I want to play this trend. And what the great thing is that a lot of these companies trade at large discounts to net asset value, so you could actually to buy the steel for less than its worth. I mean, that’s how early we are in the cycle. And so when you buy something at a large discount to liquidation value and it starts earning its market cap every few months, you can create a lot of value here.

Harris Kupperman: And so, I have a basket. I own Euro NAB, I own DHT, I own Scorpio, I own TK. That’s my basket right now. I have a bit of a Frontline tossed in, too, but I have a pretty wide diversified basket of larger players, and all of these guys have reasonably acceptable corporate governance, they have really large fleets, and they’re rapidly paying down debt with the earnings.

Frank Curzio: I like that strategy because I’ve been doing this for 25 years and I’ve got my thesis right on a particular, the macro thesis and been wrong on the individual name or the individual names I select, but you’re right. I mean, you basically take that whole management thing if everyone’s going to mess up or whatever or just poor management, you take it out when you’re on a basket of these things. I love this strategy, which makes sense. I could have used that a few times in my career.

Harris Kupperman: Thanks. Yeah. Look, I want to get the thesis right, not get individual management teams. And you’re also right when you’re saying you go to the more leveraged guy because the more leveraged guy, look, if you get it right, you’re going to get even more right with the more levered guy. I also know that these tanker cycles, you have ups and down months, I don’t want to get taken out of the game because something goes wrong and the thesis is dead right, but management team makes a mistake on something and they take you out of the game. So, I haven’t really gone to the most leveraged guys, but there’s nothing wrong with that because you will have the most upside with those guys.

Frank Curzio: You know what? Now that you’ve mentioned it, talk about the cycle nature of this industry, because we’re not talking about technology here, we’re not talking about secular growing. I believe I heard this and if I’m wrong, please correct me that you saying that, and I believe it’s true as well, this is one of the worst industries in terms of operations, almost worse than mining. It’s more bad than good over a long-term, but when it’s good, it could really have explosion on profits.

Harris Kupperman: Right. Look, this is one of the few industries out there that has lasted for thousands and thousands of years. You can go back to Phoenician times and historically speaking, everyone who’s ever invested in this industry has lost money. It’s really one of the worst industries. The reason people show up to go gamble is because occasionally someone really wins and when they win, they when very big, and there’s been some great fortunes built on shipping. And that’s because these people weren’t just long vessels the whole time, they knew how to trade the cycles.

Harris Kupperman: And the amplitude of the cycle in shipping is greater than the amplitude of any other industry I’ve ever seen in my career because when you look at these bull markets, it’s very rare that you have a bull market that doesn’t at least create 10 baggers and often you get 50 baggers. And that’s just because you end up earning your market cap, it’s that’s the price you pay for the stock every few months, and it usually only lasts for a few quarters.

Harris Kupperman: If you think of a tanker, it has about 20-year lifespan, and during most of its lifespan, it’s going to be losing money. And then you usually get one or two cycles in the lifetime of this vessel where it’s going to earn truly excessive profits. And it might only last, six quarters, eight quarters, 12 quarters, but during that time it will pay for the whole vessel, sometimes many times over. The problem, I guess, in this industry is that people use financial leverage on top of operating leverage, which means you can go broke while waiting for that to happen, but when you do get it right, the upside is phenomenal.

Harris Kupperman: If you look at what happened last cycle, in a five-year period from 2003 to 2008, a company called Frontline, which was the largest tanker player at that time, it went up 50 times, 5-0 and that’s before dividends and they paid some pretty hefty dividends along the way. And so when you look at those sort of upsides you can get in five years and, just to put it into perspective, during that five-year period, there were peaks where charter rates in a VLCC went over 100,000. There were troughs when charter rates went down to about 10,000. It wasn’t easy going, but the average is about 65,000 over five years.

Harris Kupperman: To put into perspective, over the last month and change average has been about 200,000. So, I mean, I don’t know if 200,000 sustainable long-term, but I have to think something over 100,000 is likely to be around for a very long time, which just kind of gives you the magnitude of how much these guys are earning this cycle versus last cycle and remember, last cycle led to a bunch of 50 baggers.

Frank Curzio: Yeah and I love the fact that you beat me to it because I was going to say, “Put that in perspective to today’s market,” so you did that without me even asking. So I don’t even know if I have to ask any questions, this is going so well. But one of the things I realized which is amazing when you think about it, because you cover a lot of industries, I’ve read your blog, Adventures in Capitalism. It’s awesome, guys. Take a look at it. You’re not going to see an arrogant guy here. He’s the guy who’s like teaching you and learning about different markets and different trades. I really love your blog.

Harris Kupperman: Thanks.

Frank Curzio: But what you just what you just said is kind of amazing to me that the last time this was good was 2003 to 2008, so that’s how long it takes sometimes and I guess that leads into the next question where I talked about what the risks of this trade, but is there a sweet spot when it comes to the price of oil for this to work because when I’m reading these reports, I’m reading transcripts. This is one industry that I know of right now where you’re seeing insider buying and increases in their dividend. You’re not really seeing that anyplace else because these day rates are going through the roof.

Frank Curzio: But I also know that when things were good, and like you said, in October, we’re seeing more ships are taken out, we’re seeing oil prices go, if they go higher, that’s usually good, that’s more shipping. But now it gets to the point where that came down, but it came down so much where they’re like, “Wait a minute. Now, we could store this oil if it’s below whatever price, it’s $20 today, maybe $25 and that’s WTI.” Is there a spot where this is really bad for these guys, like maybe between 35 or 40 and like 55, where you’re not seeing the huge demand, but you’re also not seeing the point where people want to store this stuff?

Harris Kupperman: Well, I don’t think the price of oil is all that dependent here in terms of what’s going to happen. The thing that matters really is just charter rates and charter rates are driven by supply and demand of vessels. And so on the supply side, you don’t have rapid changes, especially with the order books so low and so you’re really just looking at what happens on the demand side. And on the demand side right now, because the source demand is to store crude oil, it’s absorbing a lot of vessels and it’s pushing charter rates up. At some point, this will go in reverse as we hit some sort of equilibrium and vessels start dispersing oil. Basically, the vessel start being released after they’ve stopped storing oil. So this will go in reverse and then you have to say, is there enough demand for transport to absorb these vessels?

Harris Kupperman: But for right now, at least, every day that goes by with us having a surplus of 20-ish a day, you’re going to be putting 10 vessels away and you’re going to run out the fleet very fast. And so I think the markets is going to get tighter before too long and I think charter rates that stay here will probably go higher. But what you really should be focused on is the supply-demand in charter rates and the price of oil, these times when the price of oil being very high is really good because people are desperate to get oil and charter rates go up. This time as oil goes down, and it’s really good because you store oil.

Harris Kupperman: The only thing that’s really bad for tankers is when they order more tankers, and at the end of every cycle, it always ends because everyone makes too much money in the order tankers. And if you pull up some of these stock charts and look at it from 2008 onwards, most of these companies lost over 90% of their value. And that’s because they diluted dramatically just to keep the lights on. So remember, you want to sell on the way up. This isn’t Berkshire Hathaway that you’re going to own for retirement. This is a trade. It might last a few quarters, it might last a few years, I don’t really know, but make sure you get out before the music stops.

Frank Curzio: And when I look at it and of course, when the music stops, but when I’m looking at just the fundamentals of this because this is very important is when I’m looking at these tankers and you’re looking at day rates, obviously, because the day rates are much higher than they were, these companies are making more profits. How long and who actually uses them? Is it hedge funds behind this? Is it like big oil storing because there’s no place on land to store anymore and I know you’ve been asked about it. I won’t waste your time with strategic oil reserves, because that’s not really going to make a dent either with country purchasing. But how long do these tankers get contracted for?

Frank Curzio: Because some of them are just days, some of them are months, and it depends on how far you can use the contango, but is it like why wouldn’t people just lock in rates, I mean, the rates are higher, and I know it’s fundamentals. But you could see the curve all the way out is when oil prices are going higher, were they locked about three months, six months, because that’s like guaranteed money coming into the company, but I see a lot of these things are a lot shorter than that short-term contracts.

Harris Kupperman: I mean, it really just comes down to a commercial negotiation, but most of these crude oil storage contracts are at least three months, often six to 12 months, so you have guaranteed revenue and cash flow. We have decent visibility in some of these companies. I mean, take a company like DHT, they locked in six of their vessels two weeks ago at pretty decent rates, nothing spectacular, but I mean, they got one year rates, that’s really good. The guys who are locking these vessels in, they tend to be energy firms that produce their own oil or you’re looking at the Trafiguras and Vitols of the world that trade oil, and they’ll go to a guy with a vessel and say, “I’ll lock in this vessel for six months. I will give you the six month contango,” which is something in the teens right now.

Harris Kupperman: So, let’s say it’s $13. I don’t have it in front of me, let’s say it’s $13. So you’re locking in $13 million. Sorry, 13 times two, you’re locking in at $26 million. They will give that to the owner the vessel. And what they will do is they will go to the front part of the curve which is steeper, that’s usually the one, two or spot two where you have much greater steepness and where they’re paying 13 for six months, they will be earning 10 every month or every six weeks or so. So they’re going into the front of the curve and try to roll up the curve, if that makes sense. And if I’m getting too technical, please let me know and I’ll try to explain it a bit more.

Frank Curzio: That’s perfect.

Harris Kupperman: But these guys are basically trying to make an arbitrage between what they’re paying for the tanker and what they can earn playing around the futures. And these tend to be very sophisticated financial firms, they tend to do this with a lot of leverage, and very little equity and they tend to make phenomenal amounts of profits. If you look at the last contango cycle, the last really big one was in 2009, when the world kind of had its last little freeze up and you had a very deep contango, because oil kept piling up. And some of these firms make billions of dollars in two or three quarters.

Frank Curzio: Yeah, it’s incredible numbers when you look at it. I guess final question here and thank you so much for your time. I know I’d like to keep these 20 minutes or so to go along because I love the topic here, but is there a name that you may keep adding to your basket since you’ve been following this for a while and yes, we know that a lot of these names are going to go up all together and some of the more risky names maybe, but maybe there’s a management team or maybe there’s just a couple of the opposition that people are just going to go into. Is there anything that you kept off your list or is it just like, “Hey, just own a basket.”

Harris Kupperman: This management teams I truly dislike. They have a long history of screwing shareholders. I probably shouldn’t name names though.

Frank Curzio: You don’t have. I don’t want to put you put on the spot.

Harris Kupperman: But some of these management teams that are just notorious for bad corporate governance and I would say stick to the teams that have long histories. The guys I named are C Plus are better for corporate governance and I think stick to the bigger guys and you’ll be okay.

Frank Curzio: Well, I talked about your blog Adventures in Capitalism, but Kuppy, if someone wants to learn more about you, how can they? Is it your Twitter? I don’t know if you want to talk about your fund a little bit because I did mention it earlier, but how can people if they want to find out more information, how could they do that?

Harris Kupperman: I recommend go to my blog at adventuresincapitalism.com and signing up for updates. I have a fund, but only go there if you’re credited. My hedge fund is called Praetorian Capital and the website’s praecap.com and recently, active on Twitter as well @hkuppy.

Frank Curzio: Well, great stuff. I really appreciate you taking the time to do this and I know my subscribers are going to be very happy. Really great stuff, man. Thanks, I appreciate it.

Harris Kupperman: Happy to come on.

Frank Curzio: Hey, guys, great stuff from Kuppy. And @zerohedge had a nice post highlighting his analysis, which I read somewhere. I don’t know if there’s a podcast around the show and I just loved his thesis and when I started researching him, he was just really cool, even on his blog. He highlights some of his mistakes and I lost enough money in natural gas to understand it. But yeah, he’s right more times than he’s wrong, but I love guys that are humble because it’s easy to explain things where you actually get confident about your trades, but you also understand that, “Hey, if you’re wrong, you’re going to lose money.” And just reading some of these stuff and different things he’s invested in and going through his blog. I just really appreciate his analysis. I asked him to come on, and he decided to come on, like a day’s notice, which is awesome.

Frank Curzio: So, again, that’s thanks to you because our viewership is going up, up, up, up. I say viewership because we’re starting to do some interviews, which I wanted to do an interview with him, video but he said which I can identify with if you could see me in videos. I mean, haircut places are closed and people I’ve been interviewing on video just Curzio, our Curzio YouTube page, which is for free to take a look at it, and interview some of these people. It’s funny. I mean, everybody’s kind of a mess, which is fine.

Frank Curzio: That’s good. We’re stuck in our houses or whatever, and a lot of places are closed, but I really appreciate that he came on. And if you’re a Curzio Venture Opportunities subscriber and you know I’ve been all over this trend before I talked to him and yeah, I love this sector. My last recommendation newsletter was made from that sector. It’s from last week, but if you’re looking for the perfect scenario to invest in when it comes to a sector, just think about it, and we have super low oil prices.

Frank Curzio: Remember Cactus. I interviewed Cactus last week. It wasn’t a prediction that oil was going to the single digits and he said, he goes, “They’re going to come up with a deal. It’s not going to be enough.” Once the deal was struck last week, we saw prices go up like 5, 7% and then decline like 6, 7%, the same day, massive, massive move. But he actually said that the pipeline companies where he has been doing this for 40 years and drilling oil in Texas and in oil shale areas, the oil he produces where he’s used to getting a lot more money per barrel, they said that they’re only going to pay him $6 a barrel, which means he can’t drill. I mean, that’s real numbers, guys, that’s a real number. That’s not like “Hey, based on supply and demand,” that’s someone telling a client, “Look, I’m only going to give you $6 a barrel because we can’t store the oil. We don’t need the oil. There’s too much on the market. Warehouses are full,” like he said. That’s why you’re looking at shipping.

Frank Curzio: You look at economies where they’re closed, probably going to remain below 50% capacity at least through 2020, probably longer. There’s no place left to store this stuff. Again, warehouses, a lot of that space has been taken up. There’s much, much smaller supply cut than expected. Looking at 9.3 million barrels. When you look at the fine print, it’s going to be a lot lower than that, which I know too many people reporting. Just read. Just go through it and it doesn’t mean that they have to cut that much, but they’re expected to cut that much, which is kind of funny. And you’re looking at demand falling by what? At least 30 million barrels a day with the economy closed.

Frank Curzio: So, what’s a $9 million barrel cut going to do, not to mention that it’s not going to take a massive supply off the market because 47% of global oil production is hedged. They’re not drilling now, but their existing fields or pumping oil. I think they’re going to continue to pump oil because they need to pay the bills. A lot of this is hedged at over $50, this year. Next year 3% of global production is hedged. Not to mention, new builds, new ships are at a 25-year low. I mean, it already cost a small fortune to build these vessels, especially VLCCs. And we didn’t see demand falling before all this stuff happens, so it was like, “I’m not spending hundreds of millions or whatever it costs to build these things.”

Frank Curzio: But also you’re looking at the watchdog of the industry, International Maritime Organization, they mandated that vessels have scrubbers or they need scrubbers, which helped these ships burn less sulfur and it costs a lot of money to put these scrubbers on and that date that they’re supposed to do this is January 2020, which passed. So that’s people are like, “I’m not building any more ships that that’s going to increase our costs,” and a lot of ships have come off the market because they need these and it takes 40 days.

Frank Curzio: Again, a massive cost, so you want to talk about an industry not to get too far into it. It’s just conditions could not be more perfect for this industry, for day rates to continue to surge as people look for ways to store oil and like you said with the contango and give selling the future which barrels are a lot higher. Buying them today for next to nothing, hey, that makes sense. Pocket a ton of money immediately.

Frank Curzio: But again, not too many industries where you’re seeing huge insider buys and dividends being increased, even doubled in some cases, because the massive growth and profits these companies are seeing now and likely going to see at least over the next what? Six, nine, 12 months? But looking at the bigger picture here, guys, I mentioned this before, the New World Order. It’s a different economy, a different global economy. There’s going to be winners and losers, and they’re not going to be the same winners and losers in past markets. They’re not.

Frank Curzio: I mean, Apple is going up right now. Apple is a hardware company. I mean, their sales are going to decline tremendously. They’d be buying Apple. Yes, they have a good balance sheet, but for the stock to be trading 12, 13% off of its all-time high, are you crazy? There are suppliers that are saying that they’re shut down outside of China and Apple has been a major problem. Why am I bringing up Apple? Because it’s part of the fang where you can’t compare Apple to Amazon. Amazon’s profits are going to surge. You’ve closed so many of these business, everyone’s going to Amazon. They hired 100,000 employees. Microsoft as well has Cloud. People are buying Office. They’re going to be at home. Skype, man, what a bargain that was. People rip them for paying, what was it, $8 billion, even though there’s like 10 people that wanted to buy for between $6, $7 billion. It turned out to be pretty good investment.

Frank Curzio: But you can’t tell me like when you’re looking at fang names, and hey, these companies going to do great. Google Advertising dollars are down. You can’t compare that to Amazon and say all these companies are to going to do it. It’s different. There’s going to be winners and losers. You have software companies, online retailers, shipping beneficiaries. You have airlines, hardware companies that can’t really get their supplies or parts. Restaurants, theaters, theme parks, casinos, these industries are going to be changed forever, not forever for a very, very long time.

Frank Curzio: So my cup over the next year is to bring on people like Kuppy, people who are smarter than me and don’t be wise and say, “Frank, it’s not going to be too difficult to bring on people that are smarter than you.” Don’t go there. But I want to find the pockets that will be secular growers from the New World Order and phase out the ones that are going to be losers. That’s what we’re going to do on this podcast. That’s how you’re going to see it. We started investing like that already. So, expect a lot of new guests on my podcasts across all sectors. Of course, I’m going to continue to have my regulars on that you guys love so much. But now it’s time to prepare. It’s a New World Order and this is a way it’s going to be for a very, very long time.

Frank Curzio: And a good example of this, I mean, just to further submit my point here. Yesterday, I love the guys on Fast Money. The guys and girls, I should say. I interviewed a lot of them on this podcast. I know they were called, I know they care, but yesterday, watching most of them, telling the audience to buy stocks and saying, I’ve never been more long equities and telling me about how stock just broke through their 200-day moving average, which is a bullish technical indicator, there’s a lot of technical analysts on there. For me, I just couldn’t believe it. I mean, talk about a massive run up in the face of the biggest recession and close to 100 years. GDP likely to collapse 25, 30%. Retail sales crashing. Take any economic indicator.

Frank Curzio: Unemployment 15%. It’s going to go 20, 30, 35% because they’re able to furlough employees. Why not do that and have the government pay these employees where you don’t have to pay them out of your pocket for four months. You’re forcing unemployment. You’re not just helping the companies who are struggling. You said the whole, any, whatever it takes everybody. When household names are saying they can’t pay rent, furloughing tens of thousands of workers in a market where there’s more uncertainty than any other time, at least in my 25-year plus career, where more than 50% of the company’s S&P 500 already pulled their 2020 guidance and those that didn’t are going to pull their guidance when they report earnings over the next 30 or 40 days.

Frank Curzio: Think about that. They’re pulling 2020 guidance. Guys, this is April. This isn’t September. I mean, they’re pulling, hey, we don’t know where second quarter is going to be. They’re pulling everything. We have no idea what they’re going to earn. We’re going to find out in a couple of weeks, just like we’re finding out today with some of these indicators and retail sales and people say, “Whoa. Holy cow, this is a lot worse.” Is it? The global economy is closed. Is it much worse than you think? 78% declines in indicators, economic indicators. Things we’ve haven’t seen ever.

Frank Curzio: But you’re get to see a lot of these companies remove their guidance, 75% of them. I mean, a bullish tone is, “Hey, you know what? We’re going to return back to normal soon by early next year.” I mean, are you kidding me? Look at productivity, it’s going to be done tremendously over the next three years plus sales from restaurants, airlines, theme parks, theaters, concert, sports. You’re not going to come close to getting back to normal at least over the next three years likely longer. People are refusing to go back to the office or go back to work.

Frank Curzio: People are refusing to go to conferences. I mean, face-to-face deals over the next two years pretty much going to be non-existent. A very strong possibility that we’re going to see resurgence in COVID-19 after the lockdown ends. We’re watching TV and it’d be bullish with some of these stocks, they’re trading 10, 15% in their highs and to see this massive move and to be bullish here, especially names like AMD, Apple, hardware companies. They’re going to see huge decline in sales and earnings when people close, they won’t have jobs. They’re not going to be spending money on iPhones.

Frank Curzio: At least not the pace that these companies we’re seeing pre-coronavirus and yet they’re trading close to their highs, even though these companies don’t know what they’re going to earn in 2020, in 2021. It’s not just crazy. It’s irresponsible as an analyst, as someone who looks at numbers and looks at things and listen, I hope they’re right and I hope I’m wrong and I hope the market keeps going up and everybody makes money, everybody’s long, but I think you guys know it’s not going to happen. It’s not going to be that easy.

Frank Curzio: Government waves a wand, 2.3 trillion, here you go, stocks go high, oh, stocks are down over 10%. Okay, here you go, here’s another 2 trillion. Significant, significant consequences to all of this, which we’re going to see, and you can’t tell that we’ll have the biggest recession in 100 years that’s going to be solved in two to three months. It doesn’t work that way. How do you keep prepared?? What’s the strategy? Well, this is what I’ve been telling my subscribers. When Curzio Research Advisory recommended five stocks last issue and two were already in the portfolio, but the five stocks are part of a theme where these companies will see sales and earnings explode in the years ahead.

Frank Curzio: You just heard from Kuppy with shippers, specifically VLCC, Very Large Crude Carriers. It makes sense when the demand’s down at least 20%, it’d be down much more at least in the next few months. Most countries are going to remain on lockdown. We have a massive supply of oil when everyone’s looking to store it. Well, warehouses are full that leaves ships, which is why day rates are surging. They’re going to remain elevated for at least the next three, six months likely longer. Look at companies like Roku, who just reported, a streaming company, but it doesn’t have to pay the billions to provide content like Disneys and the Netflix.

Frank Curzio: And yes, you see Netflix going higher, I get it. They’re fine. Their revenue comes from people watching and their services and even marketing. Disney’s just getting started. I mean, I’m not allowed to 150 million subscribers and they’re not making money on that, even 150 million. There’s a reason why Disney put out, “Hey, we’re over 50 million,” because they just had to go to the market and raise money. What are they going to say? They’re going to look to raise money and say, “We’re not generating revenue from any of our businesses,” which they’re not basically, very, very little. No. Put out a positive out there. Let everybody talk about it. And what they do? Raise another 5 billion on top of the 6 billion they raised a few weeks ago.

Frank Curzio: Zoom. Yes, the stock prices are through the stratosphere. I’m not recommending you buy it here. This example of the New World Order. I mean subscribers went from 10 million people daily using their video conferencing services and the technology. That was in December to 200 million. It doesn’t get bigger than that. Remember how terrible food delivery companies were. This model makes no sense. Horrible, horrible business model, not anymore. Blue Apron, Grubhub, even Domino’s and Tripoli who have great delivery services. Look at healthcare, which generate most of the sales in the U.S. These companies are going to see sales and earnings growth continue.

Frank Curzio: But you need to prepare for the New World Order. I mean, for conservative investors, it’s still about buying companies with large moats around that pay dividends and generate cash flow. But there will be a huge shift in these old school companies’ names like Disney, Caterpillar, Exxon, Boeing. Many are dividend aristocrats. They’re going to be under significant pressure in the years ahead. Not only that, think about this because of the taking money from the government, the government could mandate that they can’t pay dividends.

Frank Curzio: They’re always saying, “You can’t use money to buy back stocks.” But what about dividends? You’re taking money from the government to pay dividends, to pay your shareholders? No, this is supposed to be for employees, for salaries to keep you afloat. I mean, you look at the names on a dividend aristocrat list. Those companies that had increased their dividend annually for, what is it, over 20 years, 25 years, some companies are on the list for 40, 50 years, a lot of those names aren’t going to be in that list anymore.

Frank Curzio: And it’s not that difficult to find out which ones will and which ones won’t be on that list. Just use your common sense. Which business is going to be affected the most? If you’re aggressive, best to start researching technology that are going to provide huge beneficiaries for people who are working from home now. That’s going to continue. Find the pockets where companies can see incredible growth.

Frank Curzio: Look at Junior Gold Miners, once mining in all these sites. I think, it’s something like 180 mines that are closed right now in the industry because of the coronavirus, which means the large caps are seeing a bid, gold prices going higher, but they’re not generating cash flow right now. Which is significant because if you’re not generating cash flow, you’re really looking to cut costs as a financial cut costs even though gold prices are going higher.

Frank Curzio: Why am I saying this? Because once they come back online, and they’re generating cash flow, they’re going to have tons of companies to purchase. I mean, these are companies that short up their balance sheet years ago. They’re paying dividends. These guys are in great position, not only that. A lot of these Junior Miners are modeling for 1200 gold prices or 1700. They’re going to raise that to 1500, 1600, the value of these. So many mines could come back online now that were non-existent, so you’re going to see a huge M&A surge in this industry, and this is the perfect storm for gold. You just have to wait until these mines turn back on, you’re going to see all these guys did a great job, consolidating big, big M&As. The big guys merging and how they’re creating these powerhouses like ExxonMobil, used to be two separate companies back in the day, which young people might not know to be the biggest oil companies in the world. They’re allowing the merge.

Frank Curzio: A lot of the oil companies same thing, and they become the super giants. That’s just going to happen. That is what’s happening. But find the pockets where companies can see incredible growth, even some biotech names. And I’m not talking about biotech names where small companies that that are trying to find a vaccine for the coronavirus. I mean, they’re competing with multi-billion dollar companies and if they don’t find a vaccine, these things could go down 60, 70, 80%, be careful because they’re up probably 50, 100% from their lows from earlier this year. Because a lot of names in the biotech area that got nailed over the past 45 days even though that business model remains intact and it shouldn’t be impacted that much. Again, just being in the small cap world. Small caps have significantly underperformed in the markets.

Frank Curzio: And also find out ways to hedge yourself or play to downside in stocks and sectors. And talking about this Moneyflow Trader, yes, the last two weeks we saw last, whatever, 7, 8, 9 days, we’ve seen the markets go higher. They’ve gone higher really fast, but those are good conditions because it’s better than what you see in the previous or this isn’t a bull market, but the bull market that lasted after 2009, 2010 where you see gradually stocks going higher and higher and higher.

Frank Curzio: It’s not going to be like that. You’re going to see days like this where the markets could fall 2, 3, 4% in a day, especially as more and more numbers get released. Genia Turanova uses conservative option strategies to bet against individual names, doing a fantastic job of that newsletter, but find ways to hedge yourself even if it’s inverse ETFs. Those are usually trading vehicles, but just to cover yourself if you’re bullish or bearish. Use those ETFs.

Frank Curzio: But this is what I’m doing for my subscribers, find those pockets, sector, stocks that have incredible upside potential over the next few years compared to China pick off businesses like casinos, airlines, cruise ships, coaling retails that are down 80% and then go up 35%, then come down 20%. And when you look at it as a long-term investor, I mean, we have to come and help, these companies aren’t going to survive. Many of them are. Hotels, many of them won’t.

Frank Curzio: Again, this is your money. This is your investment. This is how you think about investing. You want to provide better times for your family, for your kids. Look at it that way. You want to buy casinos and airlines here? Could they bounce back? Yes, but there’s just uncertainty. And these businesses are going to be affected for many, many years. They’re not going to go back to normal once we do open up the economy and once it comes back and goes away, whatever, even in a year, a year and a half, two years from now, it’s going to be different. Sales and profits are going to decline incredibly in this industry, and they might never ever get back to normal. So for me, those are the areas I’m staying away from right now.

Frank Curzio: Guys, if you’re interested more in learning more about any of our newsletters, just go to curzioresearch.com. Most of these products, I’ve lowered the price on during these difficult times. Look, it’s the least I could do given all the support that you’ve given me since we launched Curzio Research almost four years ago now. We’re at record highs in terms of downloads for this podcast. It makes it very easy for me to call a guy like Kuppy on Monday, and him getting back to me Tuesday morning or I think it was later on Monday, saying he’ll do the interview Tuesday after the close.

Frank Curzio: I can reach out to anybody and that name I got from somebody and continue to send me. If you hearing something that’s interesting from leading doctors, if you’re hearing something that’s interesting from an analyst of different sectors that I could take a look at. And this is a sector that I invested in and then when I looked at him and how he’s really pounding the table, I was like, “Wow, let’s hear it from this guy.” And I thought he did a fantastic job, but these are the people that we can get on this podcast now, thanks to you and I really appreciate it.

Frank Curzio: So, if you want to hear more of me, which maybe you don’t, but on a daily basis, go to my Twitter account. Posted on there every day, a few times a day, absolutely free. Also Curzio Research YouTube page, starting to get lots and lots of people signing up and subscribing to that, providing a lot of videos, my daily videos go on there as well, and we’re going to start doing a lot more live videos, which we’re going to be posting to that site.

Frank Curzio: And also, soon, we’re going to be doing video podcasts. So, this podcast is going to be in a video format. Yes, you can listen to it on iTunes in audio format. Think of something like PTI on ESPN where, “Hey, that show just goes into a podcast.” We’re going to have a show where you could us. You could see some of our guests. It’s going to be pretty cool, but trying to create a whole studio around it and that’s coming soon.

Frank Curzio: So really, really appreciate all the support, and that’s it for me. Thank you so much for listening. I really appreciate everything, guys, and I’ll see you 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 decisions 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.

P.S. While the market may be treacherous right now… several companies are poised to weather the COVID-19 storm—and even soar in the post-coronavirus economy.

And in this month’s issue of Curzio Research Advisory—released just last week—I recommended FIVE of these names.

Right now, you can try out Curzio Research Advisory RISK-FREE for only $49. You’ll gain immediate access to these recommendations when you sign up.

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 weekly Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 9 million times.
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