I always enjoy having guests on the podcast who have opposing views to my own. Understanding a different perspective is always valuable when it comes to making informed decisions.
While I’m more bearish right now… Tom Lee, managing partner and head of research at Fundstrat Global Advisors, believes the market will retest its previous highs. Today, he tells us why he sees this bullish trend continuing… why dividend cuts are a good thing… and his thoughts on the volatile crypto sector. [30:08]
Tomorrow, Curzio Research is doing something historic: We’re hosting our first-ever webinar: “Navigating the New World Order: A Curzio Research Townhall Event.” Get all the details on today’s episode—including how to attend, free of charge. [00:34]
- Guest: Tom Lee, managing partner at Fundstrat [30:08]
- Special Event: Details on our first-ever webinar, “Navigating the New World Order” [00:34]
Wall Street Unplugged | 719
Tom Lee on why the market will retest its previous highs
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 April 29th. I’m Frank Curzio, host of the Wall Street Unplugged Podcasts where I break down the headlines and tell you what’s really moving these markets. A really, really, really big day tomorrow. We’re hosting our first ever town hall event at Curzio Research.
Frank Curzio: We’ll call it navigating the new world order and what I mean by this, the new world order, if you’re looking at everything happening with the coronavirus. Forget about what stage we’re in Georgia is opening up, other States going to be opening up, I guess the infections rise, more people going out to the public that should be expected. It is all short-term thinking, but we’re going to be living in a different world for a very long time, talking many years where industries are going to need to adapt, where people do not want to be in close proximity to each other. They want to be safe. They don’t want to get sick. That’s about wearing mask all of the time. I’m starting to see that a lot in Florida. I don’t know about you guys.
Frank Curzio: The last week, tons of people from zero to 50% easily wear a mask. I’m not talk about that. I’m talking about industries. They’re going to be changed for the better and for the worst. A good example is sports. This thing opens back up probably this year. We do have an NFL, it’s going to in start at August, they probably going to do it with no fans in the stadium, or they get to still play the NBA playoffs, I don’t know.
Frank Curzio: But forget the fact that if somebody gets a coronavirus that you got to have to wash the entire facilities, it’s going to scare the crap out of people. Remember football people are on top of each other, you look at the offence and defense alignment are less than a foot from each other, even closer you’re tackling people three, four, but young is sweating all over these guys. This is as close as you get. Even closer to basketball, maybe laying on top of people.
Frank Curzio: If one person gets it, they may shut, I’m not even talking about that. I’m not even talking on that though, because even when we fully opened back up and they say, “Okay, you can go back to stadiums” they’re not going to be full for very, very long time. Not only that, even if they do say they sold out, if you’re looking, I just read an article, if you’re interested, on stadiums, how they’re going to be changed logistically where they’re going to be taking up seats, making sure that there’s separation in the lines. There’s less revenue for these companies.
Frank Curzio: Think about restaurants, social distancing. Yes, we could open up, okay, well we’re going to take maybe 15% of the tables out, so they’re not as close to each other. That’s less revenue, plus people. That’s different when it comes to restaurants. That could be different in going bankrupt or staying open. That’s a big deal. Having 15% less revenue every year, that’s a huge deal, and then you’re going to result in fewer employees being hired.
Frank Curzio: Even more sports, they’re going to be tailgating. That’s a massive portables fortune. You’ll buy beers and food and cook on grills. Are they going to allow that? People are going to be all on top of each other. I don’t know. I know they’re definitely not going to allow this year, but next year, even when they say, “Hey, it’s okay, we have a vaccine.” Remember, we have a vaccine for the flu and tens of thousands of people get it every year. It’s not like the cure end of all, the end of all, “Hey we got a vaccine.” I think that’s if a vaccine even works.
Frank Curzio: We see reinfection come out. If we have reinfection, a vaccine isn’t really going to be too effective. Now, you’re going to take that vaccine. A lot of people don’t take the flu vaccine. Why am I going to take it or risk anything and most of these are safe. You give it to my kids and I’ve taken it sometimes, I’ve gotten the shot. But without proper studies cause we’re rushing this thing out, who knows the impact that can have on other things.
Frank Curzio: We don’t know that, we’re rushing it, that has to be tested all the way through. But you look at it and that’s just sports, it’s going to affect revenues. It’s going to affect the people who have the rights to broadcast this, that generate tons of money, all those companies, and they’re going to hire a few employees. This is a real thing. This is a real thing. I can name 30 companies right there that are going to be impacted just off of sports and there’s probably hundreds of them, but think about that, not just in the US but around the world.
Frank Curzio: We’re going to break down how I see this market, which I described to you numerous times as the most dangerous I’ve seen in my 25 year career. We see four straight weeks of gains, solid gains. Some of those stocks deserve to come back. We recommended a few in our portfolios with participating in it, but just some of the names that are going up right now. You’ve got to be kidding me.
Frank Curzio: The semiconductors saying here we’re still not too sure what’s going on. You’re still seeing a supply disruption. Should they be trading at high levels? They were pre-coronavirus, should Chipotle be trading higher than at its all-time high, really your all-time. I know they’re doing good, but yeah we’ve broken it down, and we’ll break it down again. I’ve done in videos but there’s a lot of stuff going on in the market where, yes, we can go higher and we will probably go higher.
Frank Curzio: It is earning season right now and expectations of, “Hey we’re just going to remove our guidance” that’s expected. Yeah, we beat this with quarter, we’re fine cause we cut expenses tremendously as some of these companies even took loans that they’re still giving back. Yes, I’m talking about Harvard, The Lakers keep going. A lot of publicly traded companies, Ruth’s Chris, a lot of these companies given those loans back. Thank you for taking away from those small businesses. We appreciate it.
Frank Curzio: Be being bringing all this together, it’s crazy. So for me I’m going to break it down. I’m getting tons of questions for you. I want to go over the analysis of what sectors are going to benefit, which ones aren’t going to benefit. I’m going to be at extreme risk, what to expect in three months, 12 months, even 36 months out because I can tell you after this earning season, reality is going to set in.
Frank Curzio: It’s going to set in when you removed guidance, if under normal conditions, if you report earnings and lower guidance, your stocks going down minimum 10%, minimum, especially if they have high expectations, which most of them did because they ran up and had high valuations going in, if you see the growth then they deserve those premiums are going to go higher and anybody, you have a company, a growth company warn, they usually get nailed, but they warn, they say, “Okay, well we’re not going to earn a dollar. We’re going to earn $0.85.”
Frank Curzio: They’re not even saying that. They’re saying, “We’re removing guidance” because there’s a big difference between earning $0.85 and $0.10. Disney is a good example of this. Pre-coronavirus, you were looking at $5 and whatever, $0.30, $0.40, $0.50 for the consensus estimates in February. They’re like 2015 cents for this year and then like even lower for next year for these analysts. Here, we’re looking at a stock trading at $100, $105 and trading at those levels at 40 times forward earnings not even 2020 but 2021, but reality is going to set in guys it is, we saw the same thing during the internet boom.
Frank Curzio: We saw a lot of these technology stocks they’re trading close to 40 times forward earnings and when they were 20 times we were like, “this is crazy” and they doubled. People forget, they doubled in 1999. Everyone thought it was all the value of 1998 but there’s a difference. Those companies we’re seeing growth. The whole economy wasn’t shut down. These companies were saying… They weren’t removing guidance. They would just like, “Hey, things are going to be great.” Things are not great.
Frank Curzio: During this event, I’m going to break down exactly what I mean by the new world order where sectors going to be in big trouble. Think Dave & Busters. Dave & Busters was a fantastic company. It found a way to actually, for people to spend $150 on video games and food. They found a way. It was great. He had put it on the card so you’re not putting actual money in there. Well, you are putting actual money, but you don’t see it, it’s like a casino and having chips and stuff.
Frank Curzio: The way they set that up, the new games, and everything it was just part of generate tons of cash whole. Stock was doing fantastic, but now a new world order. Think about it. It’s going to be tough to go on an arcade with your kids and you’re playing video games. Everyone’s touching the video games. It’s going to be a different environment. You’re not going to see, right now, Dave & Busters are closed when they open up. You’re not going to see tons of people go back.
Frank Curzio: They’re lucky if they get that 50% of the people, but maybe they get back 60, 70 still that results in a massive decline where we’re seeing a market that’s trading in your old time highs. Even now, we’re only 10% off our all-time high for the S&P 500. It’s pretty crazy. So during the new world, order this event and break down sectors, which ones are in trouble, which ones will prosper because there will be some that prosper that do great in this environment. Software, cloud, video conferencing also going to discuss a massive spending by the government, which it’s definitely a short term fix, but long term it’s not going to lead to people spending more money on the things they love to do, the fun things. It’s not.
Frank Curzio: People, they’re closing their wallets, companies are closing their wallets. So, with CapEx is they’re lowering CapEx, they’re lowering the amount of money they spend on marketing. That’s how these companies grow. They’re not going to grow as fast and also during this live webinar, I’m going to show you exactly what I’m doing with my own money. I’m going to share at least one trade, at least one maybe two think about it, but I got one you should make right now.
Frank Curzio: You should pay attention cause last trade we made is in my newsletter. Curzio Venture Opportunities, Nordic American Tankers, NAT recommended three weeks ago, that was on April 9th before I share over 8000 today, 100% gain less than a month and we just put profits. So in half position, which basically lowers our cost basis to zero. So this new trade I’m going to give you tomorrow, it’s going to come from another insider just like NAT.
Frank Curzio: The reason why I recommend that is after interviewing Cactus, you guys listen to this on his podcast and he didn’t make a forecast that oil was going to the single digits. It wasn’t even a forecast. It was a fact. Here’s a guy that’s been drilling for 40 years. He came on our podcast, came on my podcast and I say our podcast ’cause it’s our podcast. 40 events and listen, when I drill oil, I sell to the pipelines. They said next month, and this was early April interview, he said, next month, they said they gave me $6 a barrel for May.
Frank Curzio: This is a real transaction. Tell us oil was going to single digits and this is ahead of the cuts from Russia, OPEC that they were expecting a couple of days before and I address that with Cactus. What happens if you see a cut? He said unless they’re going to cut on anything on the 30 million barrels a day would be meaningless right now and they cut less than 10 million and when you look under the hood and really look detail, it’s going to be even less than that, which is nothing.
Frank Curzio: They’re making a dent, and it’s funny because oil rose a little bit on that news before crash and then the next week it crashed 260%, 260%, one day… They went negative. The best way to play that, I recommended a two times inverse ETF and oil for Dollar Stock Club, which we booked 20% gains less than a week. Yes, it went up a lot more than that, but it did come back with oil fluctuation by 20% gain in the week. I’ll take it.
Frank Curzio: I recommended at 80 to my Curzio Venture subscribers. This is a small name. We’ve got some really nice names doing very, very well in Curzio Research Advisory, we saw 100% gains in less than a month, so having access to the right people during this market and the way this market is moving, the volatility, you get gains right away, so I’m going to share my favorite trade for you. It’s going to be a big surprise.
Frank Curzio: Again, comes from an insider. When I say inside doesn’t mean insight information, just like Cactus doesn’t have inside information. It’s just having access to the information that everybody else has, that the deep insiders have in this, that work in these industries, that’re being told publicly like a pipeline telling Cactus how much you’re going to give him for his oil that he produces right now and what are they going to pay him for it next month. But the best part of the streaming event, I’m going to answer your questions live. Whole thing is going to be live.
Frank Curzio: If anyone listening right now, if you wants to make questions early, we have to submit them during event but if you want to do it early, because I’m going to design this presentation, it’s live based on the questions I’m getting. So if we’re getting thousands of questions and we’re seeing a lot of questions on inflation, deflation, whatever, or if we’re seeing what’s the government spending going to do, what are the best sectors, I’m going to design this, and this is all on the fly. It’s not going to be scripted. The question you’re sending to me and the ones that topics I get asked the most are the ones I’m going to be addressing and go into detail during this event. But even during the whole entire event, you got to be able to ask questions. I’m going to open up at the end.
Frank Curzio: So, if you have any questions for now, you go to firstname.lastname@example.org again, we’ll get those early, but also during a live event, you just type it in the box. You’ll be able to ask me questions. So, it should be really cool. So Navigating the New World Order streaming event is going to take place tomorrow, which is Thursday, 8:00 PM. Well, if you just go to our website, curzioresearch.com to reserve your spot and it’s absolutely free. I’m really looking forward to it, the past week, man, I really worked my ass off along with my team, but usually we’d be doing this in a studio, but since most we’re working from home, I’m going to be in the office running this technology. Just a technology part myself going back and forth.
Frank Curzio: But behind the scenes, every single employee is going to be on-call, they are on-call. They’ve been working their ass off just to get this event up and running. Some really good thoughts. It’s going to be really, really cool. So should we look, again it’s got to be live. It’s got to be cool. Just going to be relaxed, a lot of fun doing it late 8:00. So even on the West Coast you should be able to watch it, not too late for you guys here on the East Coast. But in all seriousness here, I’ve just been getting a ton of questions from you more than ever, listeners, subscribers. So again, confusing times right now. It is pretty crazy.
Frank Curzio: I just wanted to put on this event for you since I truly believe there’s so many portfolios out there that are at risk and with everyone in the media having such conflicting opinions right now, and a lot of that is even based on politics, guys, November is the election, I’m forced to watch Fox and CNN because I want to see what’s out there. That gives me a good perspective of what people think. CNN is like, “Don’t open up anything, Georgia’s crazy” and they’re based in Atlanta too. I didn’t know that. They’re based in Atlanta, CNN.
Frank Curzio: So, they’re all over it. Georgia, they bring it on the mayors who are disagreeing with the governor again, they love this stuff and whether you agree with it or not, somebody has to open up just to see. So again, it’s going to result in more infections, obviously, ’cause everyone was at home and now you’re going out but eventually we have to open up the economy and maybe George is doing it too early, whatever. I don’t want to argue about it. But then you see the Republicans want this open, sooner rather than later. The safest way possible, but for the Democrats, it makes sense to not open the economy cause that’s what Trump’s really running on and it’s really bad and they got a much better chance.
Frank Curzio: So yeah, they just pushing the issue. People are going to die. I think when it comes to Fox, those guys like, “We just want to put people out there, not that quick” so it’s really great. But politics plays in whatever side you’re on. Please don’t send me emails on whatever side you’re on and I don’t care. I don’t care. You shouldn’t care. This is about making money in stocks. Guys, this is about generational wealth.
Frank Curzio: When you’re investing, you should look at pictures of your kids. That’s what this is about. I don’t care what side left, right, I don’t care, conservative, liberal, I don’t care. It’s not about that. This event, I’m going to tell you exactly how I’m investing with my own money. Just go over the stock sectors that are working, break it down, answer your questions. So again, 8:00 PM tomorrow, which is Thursday to reserve your spot go to curzioresearch.com if you want to submit a question before the event, just email me at email@example.com and again, really, really looking forward to doing this. This is for you. I want to try to protect you guys in these very, very volatile times and it should be a really, really cool event. Now, let’s get to the markets. Everything’s going up, so keep buying stocks. Valuations don’t matter, and that’s it. I’ll see you guys next week. I’ll see you in seven days. Take care.
Frank Curzio: Let’s break this down a little bit. So the S&P is down just 11% right now you had a date. It seems crazy given that the S&P is now trading at 24 times forward earnings, the highest valuation and close to two decades, and I say that a lot, what does it actually mean? Because the average PE ratio, the S&P 500 over the last five years, the average is about 16 just before the market crashed was around February 19th, we were trading at 19 times, 19 and a half times a huge growth multiple, but our economy is doing pretty well. Earnings were growing low interest rates, favorable corporate tax structure. I get it, but then the coronavirus hit.
Frank Curzio: Every major economy is on lockdown other than China, not a lockdown, but is restricting anyone from entering their country from international. Oil was down 80% from as high massive, massive supply. The band is nonexistent and oil fuel actually went negative last week. That’s a sign that the demand is… Where is the demand? It’s horrible right now. We know the economy is going to open up, but it’s horrible right now. Looking at unemployment right now, it’s over 20% I wouldn’t be surprised if it goes up to 30%, now we’re flirting with record unemployment.
Frank Curzio: Let me go back to the depression in the 30s but even when things turned back on, you think everybody’s going to hire all those workers again? No, everyone is learning. Every business in the world was forced to learn how to cut costs, how to be more efficient. They’re not going to hire back all those employees and not only that allows employees and anyone want to come back at least for the next four months, cause some of them getting paid more sitting home than they were working because of the way that these deals are structured, which is crazy. That’s nuts.
Frank Curzio: Well, with less than 4% pre-coronavirus unemployed, which can easily be 8% by year end easily, and that’s a huge number. That’s a huge number of guys because when things so-called is supposed to go back to normal, that’d be double a rate pre-coronavirus. GDP is going to be down, guy, I don’t think you understand these numbers down 20, 30% this quarter. Things we’ve never seen before, and this isn’t just here, this is around the world. Look at Europe, they weren’t locked down before. There’s still a lockdown. Russia is now pushing out on a lockdown. Singapore they great, look how they did. This is great. They handled the situation absolutely perfect. They have few debts. Good. They open up the economy. Now they just closed it. They have more infections now than they did before then.
Frank Curzio: If you looking at GDP 20, 30% down this quarter, now it’s also expected to go negative Q3 but with travel restrictions, social distancing, what I described earlier, how it’s going to impact companies, how can you say the economy be stronger in Q4 that it was last year’s Q4 cause that’s what we’re comparing it to. We say 20, 30% but how much does it down? The comparable is a year before and again, everything is shut off. These numbers are expected to be terrible, but even when we turn them back on, they’re not going to suddenly be great again.
Frank Curzio: We were already spending close to three trillion and stimulus, actually more than that. They just pass even another stimulus yesterday for bond buying small companies, so now they… You’re $500 million. That’s nice and people aren’t really talking about that. When that was over three trillion, and we’re not even close being done, small business loans program is going to require for more funds than it was at 750 billion in total, just for small business. That’s for a small business loans program that’s been approved already and put that in spectrum top the amount of money we use for tarp to say the financial system, everything, 450 billion, we’re up to 750 billion just on small business loans.
Frank Curzio: Airlines, we need the bail guys out, if you’re going to fly anywhere. Whether you agree with it, you don’t agree with it. Think it’s $25 billion. This is a company that generates $300 billion in sales last year. What’s 25 billion going to do? If we can pass those 70% here, 90% altogether, including international, what is 25 billion going to do for these airlines? It sounds like a lot of money, but it really isn’t. It’s highly capital intensive business where it was working. These guys who generate huge profits, lots of cashflow, rewarding shareholders by buying back stock, which is great for all shareholders ’cause it’s going to push earnings higher.
Frank Curzio: If you get mad at the airlines, get mad at every single company because buybacks have been hitting records since 2011, ’12, ’13, ’14. It was going to be monster, huge this year, most buybacks ever, every company did it. Yes, it benefits the people who run the companies, but also benefits shareholders because as these earnings go higher, that’s what Wall Street wants to see and those stocks are going higher.
Frank Curzio: You’re paying dividends, increase in dividends, when you shut everything off, it’s different. Indeed, the government’s not going to go back and give them even more money. You think they’re not going to invest in these airlines, which they should be doing as crazy as it sounds, I’m always saying that because it’s our money you’re bailing these guys out with. I’d rather have a stake in it knowing that the government’s behind this and those are our tax dollars because I know you’ll never let it fail, just like you did with the banks and at least, technically, we’re supposed to be doing well off of this, it’s the way it’s supposed to work.
Frank Curzio: Otherwise, these guys are going to come out of it. It was a bailout taxpayer money and it benefits nobody, except the airlines, they already send people checks already. It’s not going to go to discretionary spending, but it’s going to be, “Hey, let’s pay existing bills which have been piling up since tens of millions of people are not working right now and they’re scared shit.” They want to go to work. Believe me, I talk to families, I talk to friends. It’s insane right now guys. Versus an international medical device company, and now they stopped. They halted all surgeries, not essential surgeries and a lot of this, think about a hip replacement and you’re… All that’s gone.
Frank Curzio: So, they fired him and his wife is a professional photographer, is awesome and that’s not on a list of businesses that are allowed to stay open. They’re not generating revenue. They have kids. And most people in America, most of population. If you’re not saying most, it’s 50, 60% they live paycheck to paycheck and they spend and they go out to dinner and they’re not broke or anything. But if you cut that off for two, three months, four months, man, just like a business, that’s to impact you tremendously. These people aren’t just going to run back. Even if they get their jobs back, which maybe they won’t. Medical supplies, I don’t know. Did they need that many people in any office, they cut down on marketing, cut down on everything, salespeople? No, it’s going to take a while to ramp up. Just give me an example here.
Frank Curzio: So, you’re looking at all these problems. So my question is: Why in the hell are we trading at the biggest growth multiple in nearly two decades with all these massive problems? I’m not even talking about China and what we’re going to do with tariffs and how they are going to pay for spreading this thing everywhere. I’m not talking about Europe, which was in a recession. We depend on international growth. Again, we’re trading at a perfect multiple at 19 times forward earnings pre-coronavirus, everything was okay. Take out the international component, take out China, part of China.
Frank Curzio: It’s going to get serious now, and I’m not being conflicting it cause I told you don’t worry about tariffs for two years where the market is… Hundreds of millions stories written, because China had no choice, they had no choice. We were in a great position, our economy is ramping, their economy was slowing, their numbers were slowing. They were going to come around and sign a deal no matter what and they did. That’s not going to be the case going forward.
Frank Curzio: It’s going to be tariff penalties, restrictions of what happened, this is going to be a major fight with China, China accounted for 40% of the world’s growth last year. I’m not even factoring this stuff in. So getting back to that question is why the hell we’re trading at the biggest growth multiple nearly two decades with all these massive problems? And again, not just taking place now, but likely to last well into 2021, probably a lot longer. Some pretty scary times right now.
Frank Curzio: I can tell you one thing, and I mean this guys, if you’re buying stocks today with the intention and holding them for five years, honestly, this is a good chance, many of these names are going to be trading lower than they are right now. Five years from now. Because that’s how much they move higher. That’s how much they’re pricing in that growth. I’m not comfortable telling you to buy JP Morgan now, hold for five years, you’ll be okay. I don’t know. I don’t think that’s a great investment.
Frank Curzio: It may be the conditions may change tremendously, maybe the government says, we don’t care. We are investing in banks again, we’re investing. Then the thesis changes and that could change next week guys in this market, you have to be willing to adapt. Explain that numerous times, as a right now, for me, to see a lot of risks in this market and not necessarily over the next month or two, expectations already built in. I talked about this earlier for companies reporting right now where there pulling guidance reporting. You’re supposed to be same store sales for Chipotle at 13%, 3% that’s great news. Stock goes at an all-time high, Digital sales up 85% oh yeah but more than 80% of our customers that already exist, so instead of calling they’re going on the app, it’s not resulting in more sales, people love it, they don’t care.
Frank Curzio: I joke around and say, based on that, logic, Chipotle should hope the coronavirus lasts forever. It’s not trading at an all-time high with stores closed, only open for takeout. It’s crazy. That is crazy. They should be dev. They should warrant a premium, which they do. They’re trading at 90 times showed on Chipotle, 90 times. Again, numbers don’t really matter right now. Expectations ran. Nobody cares about pulling guidance. Even though when you pull guidance, you don’t know if that means it’s going to be a 20% decline or an 80% decline.
Frank Curzio: Pre-coronavirus, if you remove your guidance totally, your stock is going down 15 to 20% easily. Today, no problem, you’re going to go up. Any positive is okay. That’s okay right now. But it’s an earning season reality is going to set in and guys, you need to watch out. You need to position your portfolios perfectly. I said this numerous times, biggest lesson, one of the biggest lessons I’ve lived with, is when you are looking to invest in something, whether it’s a bearish thesis, a bullish thesis, a sector, a stock, what you want to do is be willing to listen to the other side of your argument. So if you’re long Apple, talk to the guys who are short Apple, ask them why, dig through their research.
Frank Curzio: Believe me, they announce everything. It’ll give you a better perspective. It’ll shore up your position, at least what you’re not seeing or what’s not priced in. I’d be covering all the angles, analyzing all the risks, and also all the short and long-term catalysts, but if you’re long on stock, you don’t want to talk to that 50 people that are like look… Yeah, it’s going to be great. It’s awesome. I’m telling you guys, when I recommend stocks, when my best results come from people like you sure a Frank about this recommendation, those users starts to take off and when I get tons of know, wow, this is great. This is an awesome recommendation. That’s what I get nervous when everyone’s on the same side.
Frank Curzio: That’s something I’ve always preached to you. Try to, no matter what you’re buying long in the market or if you’re going short, I always talk to people who have a different opinion than you, and that’s going to bring us to today’s interview. He’s a first-time guest, a name I know you’re familiar with because he’s always in the media, CNBC, Bloomberg, everywhere, incredible analyst. Someone who has been very right on this market for a very long time, even though a lot of people say it’s controversial.
Frank Curzio: His name is Tom Lee. Tom is a 25 year market veteran of incredible track record when it comes to his macro thesis on the US global economies, his track record on stocks, and also his track record on bitcoin, which would definitely get to get into during this interview. He’s one of the few guys on the institutional side that covers bitcoin.
Frank Curzio: I think that’s going to change tremendously over the years ahead as bitcoin was created for this environment, just like goals should be thriving and it’s starting to, with all the massive amount of money that’s being spent right now in thrown at the market and just stimulus, not just in the US but around the world, but he’s going to give us his take on bitcoin, the macro, what he sees. Again, Tom is known for more of, not necessarily a permabull, but he’s been bullish for a long time, has been right for a long time. You got to give him credit. I’m negative on this market right now. I want to talk someone as an opposite of me, could be a fantastic interview, and let’s get to it right now. Tom Lee, thanks so much for joining us on Wall Street Unplugged.
Tom Lee: Thanks for having me.
Frank Curzio: So, let’s start with the coronavirus, something that you’ve been covering extensively. I’ve seen your research, have been fantastic. What are your thoughts not what happened in the past, but what’s happening now? What’s going to happen over the next few months because we are seeing a decline in infection rates. We’re seeing a decline in death rates, which is expected. We’re on lockdown, but once we open up these economies, we’re going to see more people in the street. We may see this infection rates rise. I think that’s pretty safe to say it’s going to happen. What are your thoughts on this? Is this reflected in the market right now? Again, for someone said extensively covering this, I’d love to hear your thoughts.
Tom Lee: Yeah, there’s a lot of uncertainties. I don’t think anybody can speak with a lot of true knowledge about what’s going to happen. So if the economy’s reopened, it could fall a couple paths. It could be a second wave or it could turn out to be the right thing to do. Actually, what’s been interesting is, there has not been a single instance yet of countries opening and there being a second wave, not even in Asia.
Tom Lee: So, in fact, there’s some people who said Singapore had a second wave, but we’ve written a pretty extensive review of that Singapore didn’t ever had second wave, it was just a community transmission into the dorms, which was continuous from the first breakout. So I’d say most people think, “Hey, you’re going to open economies, infections are going to surge again,” that’s the default view, and I’m not saying that’s wrong, but what I’ve seen would say it’s unlikely actually.
Frank Curzio: We’re looking at stocks, and I love seeing you on TV because you’ve been a bull for a while and you’ve been right. But I’ve also seen people get kinda annoyed that you’re being bullish. Why do you think that is? Is it just people think that the markets can’t go up forever or, and I know you’re doing this based on your research is this as in you’re not coming out and saying, “Hey, it’s going up no matter what.” You actually have research to back this. So why do you think that is? ‘Cause I see that a lot of times when you are on TV where people sometimes get annoyed?
Tom Lee: A number of people get annoyed with someone they don’t agree with. So, when you see that annoyance, it’s just telling you everybody’s bearish. But also, they’re not my client. I think fair research, we don’t just say something. In fact, we almost never give an opinion, that we pretty much use evidence. So for those who’ve been following, I work on the COVID, we have not made any forecasts about COVD, but we’d been observing it, and our observations have been everything is coming a lot better than expected when it comes to market… I again, I don’t know the future, but what I’ve seen people have baked in and correctly observed, “Hey, look, the economy is trashed.”
Tom Lee: We have a global shutdown, something none of us have ever seen in our lives, and I’m not ignoring that, but I’m also not going to say, “Oh, the stock market’s crazy. It’s going up.” We’re not making the market go up. We’re just observing that it’s going up, and we’re saying that you can’t ignore it. That bothers people because they think they can tell the stock market what to do. We don’t try to tell the stock market what to do because one, I’ve done this for 30 years, the market doesn’t care about my opinion.
Frank Curzio: So, with that said, you’re not ignoring the market, and I love the way you put that, so what’s the market telling you today? We’ve seen stocks rump incredibly, and maybe you can go over maybe your methodology because sometimes it’s technicals, macro fundamentals, what are you looking right now is a market that is going up. So I’m sure a lot of technicals look good, but on fundamentals right now, it looks a little crazy, at least to me, that we’re trading at a higher valuation than we did pre-coronavirus. So what are you seeing now in the market? What’s it telling you?
Tom Lee: Well, a couple things. One, I’ve covered stocks for 30 years, so I know why everyone suddenly thinks if running stink for two quarters, that’s the only thing that should matter to the stock market. I’m actually little puzzled why people think, “Hey, earnings is going to stink for two quarters. So the market should go down 50%.” That is almost like saying we only drive based on what the car in front of us is doing, you don’t chase where cars go. And I think when in equity is, it’s really about our conditions in place for earnings to be stronger than expected and then I’m not making a prediction, but I will just observe a few things. One is I don’t think we had a real business cycle, we had pandemic crash. Now cost of capital is down, lot companies are going to engineer your costs significantly.
Tom Lee: So, I think it does mean for any given level of revenue, earnings are going to be higher. Well, that’s good for equity. So, I think the stock market is telling us that there’s a lot of operating leverage. I would also maybe observe that if there’s a lot of operating leverage, forget where stocks were in January. Think this, let’s say that you and I had a strong business in January and not every company is strong, but a strong one and then you were forced to share and the meantime, you realized maybe 60% of what you do, you don’t need to do. So when things come back, you’re going to just not do it. You and I know we’d make a lot more money. Well, that’s happening to the S&P right now. I would say that new highest is very possible.
Frank Curzio: Yeah, you do bring up a good point because when you’re forced to cut back, you start realizing what you need, what you could do without that. It’s almost a good thing when you’ve seen it. You’ve been doing this for 30 years where even the internet boom, you look at 2008, when these companies come out, they come out 10 times stronger. So I can see what you’re saying when it comes to these companies adapting.
Frank Curzio: Let’s get to something that I love that, that you cover. Something I cover as well is bitcoin. You’re one of the few institutional analysts that I see that are outspoken on bitcoin. For me you’re looking at the reason why this was created, it was 2008 and you’re seeing more government spending than ever and today we’re not even close. I don’t think. I’m pretty sure most will agree when it comes to the amount of stimulus that’s coming, not just from the US every place else, but what are your views on bitcoin and how did you actually, as a macro guy on Wall Street, what made you so attracted to bitcoin?
Tom Lee: Well, one, bitcoin isn’t different than anything that’s a network value based, meaning the more people hold something the more valuable it becomes and by the way, that’s true of equities, people say the company has intrinsic value. I think this pandemic has proven there’s no intrinsic value. If you shut down any company, they don’t exist. There’s no intrinsic value in any business and so only crypto just proves that whatever appeals and causes people to want to hold it, if it’s a larger number of people, it’s going to rise a value and that’s exactly bitcoin.
Tom Lee: Bitcoin is not something that can be manipulated by inflationary policies. It is an extremely secure blockchain in 11 years there has been no single hack on the bitcoin blockchain, and it’s a huge community. This year, even with the shutdown, bitcoin is going to be the third most liquid payment network after MasterCard and Visa, it clears more transaction volume than PayPal or Discover. So it’s clearly quite valuable.
Frank Curzio: PayPal and Discover. I didn’t know that. That’s a great stat. Do you still have your forecast that I know that even when I’ve seen you talk about the forecast where everybody wants a methodology, they want a model behind it, but I think the number, if I’m wrong on this, but it was 25,000 bitcoin, I think it’s 8,500 around today, by 2022 is…
Tom Lee: I don’t do forecasts for crypto. So there’s nothing.
Frank Curzio: That’s great. I was going to say, cause it is hard and it is odd to model, but I did see that in the past.
Tom Lee: If you read a research, we never have a price forecast, so I don’t know why you’re asking me about it. I just want to be clear.
Frank Curzio: Yeah, I’ve just saw in the past that, that I thought that’s what you said about it.
Tom Lee: Ok.
Frank Curzio: So, is bitcoin the only cryptocurrency that you like? Do you like the litecoins or the ethereums or just basically focused on bitcoin?
Tom Lee: We have a pretty comprehensive research suite for crypto. I don’t really want to talk about it to general audience. I think our clients really do get a lot of data on that and I pretty, keep it that way. It’s a closed system because I don’t really want the average person to make bad decisions without actually having our research. We do talk a lot about other cryptocurrencies though.
Frank Curzio: Cool. No, that’s fair enough. I appreciate that cause I have clients as well. So, let’s get into the client part because you have focused on institutional research, but now you’re looking to branch out to provide research to individual investors. I know you have a something called Granny Shots. Could you talk a little bit about that, because I think bringing individual investors into your research, I think that you’ll see a lot of demand for that?
Tom Lee: Yes, funds trap and actually my entire career really has been designing research for institutions. So is usually really very methodical highly researched and heavy analytics, but I think partly because of inbound, it seemed like there was a lot of interest from traditional folks who just want to better understand investing. So we’ve created FS Insight, which is a much more digested version of our research. So, it’s not the same as what institutions get, but it’s probably much more understandable for someone who’s just trying to casually follow markets.
Tom Lee: So, I think it’s been… We’ve had a lot of good, great feedback. We’ve heard from a lot of folks that it seems like we’ve really helped them understand really the last couple months much more clearly through our work. But one of the easiest ways for them to try to express views is through Granny Shots, which is it takes our thematic work, cause we do work like on Millennials and seasonality and style, etc. and we then distill it to a handful of stocks and those are the quality names you’d want to own as almost like an all-weather portfolio, ones that you don’t want to touch even during a downturn.
Tom Lee: It’s actually been a great way to provide some balanced, I know in the first four months of this year the Granny Shots is outperformed year to date by about, I think 200 basis points relative to the market. I think the only month that was slightly underperforming, but it was only slightly was March. But otherwise it’s provided balanced. I think since inception, it’s been over 1100 basis points. So again, it’s a way for people to maybe try to follow our views, but if they don’t want to trade, and I don’t think most people should be trading it’s a way to stay exposed.
Frank Curzio: Now, you say it’s a portfolio to hold it, but then when you see an environment like this, or maybe you have an Exxon or Chevron or you have a Disney where they took on a lot of leverage to get into streaming where their dividend maybe cut. There’s a lot of good names. You’re going to see dividends being cut. So do you look to rebalance or you’re just like, “Hey, what that’s factored in and these are things that, again, we’re in a much crazier environment than we are than we’ve seen in the last 10 years.”
Tom Lee: It’s a fair question. I think everybody needs to realize there’s a lot of uncertainty. So anybody even providing views, including us, we can’t predict the future. So I’m as uncertain as everyone else’s, but dividend cuts aren’t like it’s logical. I think every company should be cutting dividends right now, because why spend cash if you don’t know how things are going to look. So I think that the market should be giving a past any company that has to cut dividends now or is even thinking about it. In fact, I don’t think it’s a virtue to be increasing dividends.
Tom Lee: But what we think is likely to happen is a pretty strong economic recovery. I think consumer confidence has held up shockingly well. We got a read yesterday and with 20% unemployment could consider common. It should be like in the toilet. In fact, ’08 with only 9% unemployment consumer conference was 20. So the fact that consumers have held out, because really there’s been a lot of stimulus coming in unemployment benefits, it shows you that the consumer is going to be pretty resilient. I think that’s why if you’ve got a resilient consumer and you reopen the economy your earnings could do quite well.
Frank Curzio: You bring up a good point because sentiment’s such a big deal in sentiment’s make people spend less, but you’re talking about unemployment rates at 20%, these people are worried. So they could feel confident maybe because they see stocks coming up but do you really think that the people who are unemployed right now are really going to go out there and spend over the next six, 12 months maybe when they get their job back?
Tom Lee: Yeah, that’s a great question. I guess I can only answer it with a couple of observations. One is New York times had a great story over the weekend and it was a joint project with ISI, the research firm. But the majority of people who are filing for unemployment right now are actually having higher income because the $600 supplemental payment per week is actually more than offsetting wage loss. So people who are unemployed actually have more money today than they did when they were working.
Tom Lee: But the second thing is I think there’s a vast misunderstanding of how Wallet is distributed in America number one, almost half of all payments for people’s income today is not even a cyclical, it’s social security and transfer payments. So half of the income of America is preserved because it has nothing to do with whether you have a job. The second thing is within the households today the top 20% of households account for 50% of all spending. So that takes you to 75% of the total Wallet.
Tom Lee: The next 20% of households takes you to 70% of the total. So in other words, close to 90% of the entire wallet of America is nothing to do with people who lose their jobs. That’s why again, I’m just providing you fact, it’s not my opinion and people get mad, I’m not saying it’s fair, I’m just saying the economy isn’t taking the hit people think it is. St Louis FedEx actually confirmed it. They published a piece Friday that showed even if you take 20% unemployment, the effect and consumption’s 3%, and it comes to exactly the same numbers that we’ve been telling our clients.
Frank Curzio: So, these are the same numbers, and again, you’re shooting facts, you’re not giving an opinion, but these are the same numbers of government sees and if the economy is those numbers, again, they’re accurate, why are we talking about much more stimulus on the way then?
Tom Lee: That’s a great question. Look, there’s a human tragedy Frank, really big, 20% of people don’t have a job. That’s really tragic because these people want to work. I think we should try to get people back in their jobs and unfortunately restaurants have a high failure rate already, 92% of restaurants fail after five years as it is. So the pandemic is only just compressing five years into three weeks but most restaurants would fail anyways.
Tom Lee: So, a policy that the government pursues should be part of it as stimulus to fix the hole, but I think the other part has to be how to employ people because I do think restaurants which do have a lot of jobs are going to have a very difficult time scaling again. But you know what, that’s the adaptability of American capitalism and again, I think people who think new York is not going to come back, New York’s been through a lot. It’s going to come back.
Frank Curzio: Yeah, New York always comes back. I’m a former New Yorker. I know. So let’s finish with this, if you can, I don’t want you to give away things of course, that you’re giving away to paid clients, but is there any ideas or even if it’s sectors things that you want to share because I know my audience loves and everybody loves Picks even when I do interviews, I always want Picks, but I was wondering if there’s any the sectors or different areas that, that you’re seeing value in.
Tom Lee: Yeah, sure. The reason I usually don’t talk stocks is because we have right AC side, if I mentioned a stock, then I have to affirm it. So that was a big burden on me but in terms of sectors what we’ve been advising people is to say, look you always want to pick winners, not losers. You don’t want to pick up bad guys. You don’t want to pick a weak company in a bad industry because you’re going to lose money, but in this crisis, the mistake is to treat it like a business cycle and so we think if you treat it like a pandemic, then the stocks that got crushed, the social distance victim companies like the hotels, casinos, travel, they aren’t weak companies, they were forced to collapse because of social distance that’s what we call the epicenter.
Tom Lee: We want people to really buy a pretty hefty chunk of that because that’s just like October ’08. In October ’08 if two block epicenter of that financial crisis, you made a lot of money a year later, and so we think consumer discretionary is the epicenter. We want to be buying a lot of that hand over fist. By the way, the best time in the last 40 years to ever buy consumer discretionary stocks is when consumer confidence tanks, which it is, so that’s another reason. So we like to things that have gotten crushed.
Frank Curzio: I love that thesis too. You’re buying the things like in right in the middle of all the crisis and we’ve seen that in the past, even in technology in 2000 when the markets do crash in ’87, those seem to bounce back the most and you can still get them pretty cheap even though they’re rising now but I really like that strategy. So good luck. I love the fact that an institutional guy that people respect that you’re going to provide that research for individual investors. I think that’s awesome. I think opening that up, a lot of people are going to be interested in what you’re saying. I respect you and I really want to thank you for coming on and how busy you are and you’re a little bit TV and everything. So thanks so much for coming on our podcast, it really means a lot.
Tom Lee: Yeah, thanks. Bye, bye.
Frank Curzio: All right guys, great stuff from Tom Lee, which is that connection was a little better, but a lot of people at home these days. So a little bit in an app. I think you got most of it. He’s a little testy that was forecast on bitcoin. I don’t know if he was looking at it where I was trying to get a price target. I just know that he said 25,000 in the past and it was some place that called a 40,000. But I know for a fact that he did say 25,000 and I know he got a lot of you-know-what for that, a lot of crap for it. Where can people like, “How do you model bitcoin?” And the short sellers came on and said he was crazy, whatever. So maybe he was a little testy there, but a pretty good interview.
Frank Curzio: I was asking him questions. I know he’s bullish. I wish he was a little more… I could see why when people interviewed Tom that, it gets a little testy. I was just trying to get some more answers out of them where, hey, this is not, my forecast is just a fact. This is not my focus. Well, when your analysts people pay for your forecast. So I wanted to get some more forecast and he did at the end, which I thought was fantastic but I love having him on. He was really great. Whether you like him or not, his opinions are always backed up by tons of analysis and I’ve seen that analysis you set me up before the interview fantastic and he really puts in the work, has a great team, have a lot of respect for him.
Frank Curzio: I love is one of the few analysts on Wall Street. I said Wall Street, the institutional side to cover bitcoin and I said earlier, I think that’s going to change. Do you see more institutions following Tom because bitcoin is a great asset to own in this market and this market, by this market I mean with the government over three trillion spending on our end. The stimulus, we’re in better shape than most of the times out there. The amount of money it’s going to be spent to GDP ratios that are going to be debt ratio is 100% over GDP. It’s insane.
Frank Curzio: It’s insane to stop this because it’s going to get worse. We have all the governments out there, altogether the central governments, great time for bitcoin. Just like I say, it’s a great time for gold. I really appreciate it for Tom coming on Wall Street Unplugged, and to be honest, guys getting high quality guests like Tom, that that’s not about me, that’s about you. It’s a credit to you. We’re getting tons of new listeners or social media platforms are really seeing strong growth and by the way, if you want to see this, so tomorrow morning we’re going to have this, I actually did this video.
Frank Curzio: I did a video version of this. So the audio is here on this podcast, but there’s a video. Go to Curzio Research, our YouTube page, do a lot more of these and that’s taken off what uses as well as subscribed to that. Again, that’s a free, but now you’re going to see the back and forth and you get to see it live. You get to see and not lie, but be talking to him and it’s cool to just see that format to see the expressions of people as it’s talking. It’s a big deal. It’s a lot better than the audio.
Frank Curzio: So, we’re going to provide that for a lot of guests and throw all those on our YouTube Curzio Research page and eventually we plan on doing full podcasts on YouTube. We’ll work on that. You have to wait a little bit while we wanted to get that done already. But remember everyone is working from home. Once my team is able to come here, I’m able to invite people here, we’re going to really set up a nice studio here and really turn this into a media type thing.
Frank Curzio: So, it’s going to be a lot of fun but getting back to the part where I just want to say thank you. Social media platforms, again, seeing strong growth, lots of new listeners to the podcast, lots of downloads. But with this type of viewership we can get almost anyone on the podcast. So I know a lot of you have been sending me names to get, I’ve gotten a bunch and I’m putting on now, going to stop booking them in the future. Really high profile names, which is cool. Keep them coming. If you have any suggestions, firstname.lastname@example.org that’s email@example.com.
Frank Curzio: Now, I usually have a cool educational segment for you, but everything is going to be tomorrow. Everything’s going to be tomorrow. Preparing for tomorrow’s live streaming event. I’m going to be breaking down the sector stocks to invest in to avoid how I see the coronavirus thing playing out over the short- and longer term as we start open up economies, not just around each state but around the world also, we’ll be taking your questions live.
Frank Curzio: Yes, you could send those questions early. I mentioned that earlier as well that I’ll try to get as many as possible so the questions at curzioresearch.com. Tomorrow, Thursday, 8:00 PM sharp. If you hadn’t reserve your spot yet, you can do so by going to curzioresearch.com and I’m sure I’ll get to see most of you tomorrow night. Live event, looking forward to it, it’s going to be awesome. I love the live thing and again, feel free to ask me any questions you want. I’m here for you guys and hopefully you guys attend that event because it’s absolutely for free. I’m looking forward to it, of covering everything for you, everything. So, thanks so much for listening, really, really appreciate all of your support. Now, I usually say I’ll see you in seven days, but you know what? I’ll see you tomorrow. Take care.
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