We’re doing things a little differently today… This episode covers Daniel’s and my take on the top news… The regular weekly interview segment (featuring the legendary Frank Holmes) will air tomorrow.
Let’s get to it…
You undoubtedly know by now about the collapse of Chinese property juggernaut Evergrande. Daniel and I debate whether now is a good time to gain exposure to China. [1:23]
Will we see an infrastructure bill this year? Daniel explains why it would make more sense (politically) for Democrats to wait until next year… While I think they’ll want to pass it right away. But regardless of when it happens… I explain why you should be prepared to sell a lot of your stocks when the bill does pass. [12:21]
FedEx missed earnings expectations and announced massive price increases… [16:53]
Cracker Barrel also missed earnings and warned about higher commodity and wage costs… [25:14]
Finally, Disney warned investors about slowing growth… causing a hit to the stock. [28:17]
Is it a good time to buy any of these companies? Daniel and I share our thoughts on each.
Wall Street Unplugged | 797
When an infrastructure bill passes… sell stocks
Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on Main Street.
Frank Curzio: What’s going on there? It’s September 22nd. I’m Frank Curzio, host of Wall Street Unplugged podcast, where I break down the headlines and tell you what’s really moving these markets. Man, a lot moving these markets these days. Things going crazy. I’m going to bring in Daniel Creech, senior analyst at Curzio Research, right away here under our new format. Dan, what’s going on, man? How’s everything?
Daniel Creech: Oh, you know, just whatever happens today is fixed tomorrow in our markets. So, down 2%, and now everybody’s happy, market’s up today. So yeah, nothing to see here.
Frank Curzio: We’re definitely going to cover a lot of stuff. First thing I want to say, that’s a beautiful shirt you have on, if you’re watching our YouTube page. I don’t know. Is it new or no?
Daniel Creech: No. No, no, no, no. This is years old.
Frank Curzio: Is it?
Daniel Creech: Years old. Yeah.
Frank Curzio: Wow.
Daniel Creech: I have so many nice golf shirts that, especially living out in Arizona, that the top is a more faded color than the bottom just because the sun hitting you all the time. So, that’s my look. Going for that tie-dyed look.
Frank Curzio: You usually have 10, 15 golf shirts when you’re going five, six times a day. Yeah. I used to have that. And yes, I’m jealous because he’s getting really good that I can’t even play with him pretty soon, but shooting under 80.
Frank Curzio: But so listen, there’s a lot going on with this market, right? A lot of crazy stuff. Let’s start out right away with questions. I’m going to ask you a question and we’ll try to cover each topic right away because a lot to go over. So is Evergrande, is that story over?
Daniel Creech: No. No way. You did a great-
Frank Curzio: Okay, next question.
Daniel Creech: You did a solid job on your monologue yesterday and you went over a lot of figures and stuff, but I got to say, man, I disagree on the fact… I feel like, I don’t want to put words in your mouth, so I’m going to give you a chance to defend yourself. But I feel like you’re taking China for its word. And I think that’s a big gray area and red flag. So, for instance, let me ask you this. 300 billion roughly in total liabilities. That’s about 2% of China’s GDP according to some reports. You mentioned they have over 200,000 employees, and they have over 800 projects of which a lot of reports are showing that half of them are halted because they’re in such a dire corner, let’s say, of crumbling. A, do you believe the 300 billion? And what about off-balance-sheet stuff? I guess that’s my point.
Frank Curzio: I think that they’re going to have to open up their books to China, which is, we can’t trust anything that they say, which is fine. But whenever they open up the books, China, this a black eye for them. So, they got to take care of it, just like Wuhan. Swept under the table. I don’t know how that’s going to impact the US markets or have systemic risk. It could have risk for China. Yes. Which leads, I guess, to the next question, should US investors be selling all their China exposure right now, China stocks? And before you say “No, that’s absolutely crazy,” or “Yes,” remember, a lot of people own very good names there. Alibaba and DiDi, good names, Tencent, that have gotten fricking destroyed.
Frank Curzio: So, people are like, “No, not all exposure,” but just keep in mind from someone who is an investor there, who invested in good company, all of a sudden, a couple of rule changes, and then they are getting smoked. So, what do you think? Should they just totally… We have a lot going in the US, so many places to invest, so much assets, housing market, cars. Cars are the best investment now. No more new cars. You can buy new cars worth more now. So, what’s the deal with China?
Daniel Creech: So, if you have positions in China, what would I do? I don’t have any exposure there. I wouldn’t be looking to buy yet. I wouldn’t add new money to China yet, no, just because you can’t trust them. And what they’re doing is they’re fundamentally changing, the president over there is fundamentally changing what made China the growth engine of the world. And I agree with you that I believe they still are. I don’t believe that they’re going to grow at 6 and 8% a year like they project. Again, just because of fudged numbers. And I could be totally wrong on that. Our government, Frank, doesn’t deserve the benefit of doubt. No government does because they’re awful, awful people.
Frank Curzio: Agree.
Daniel Creech: Let alone their government because of the history and the type of government they run, controlled more so than here, communism and all that kind of stuff.
Daniel Creech: So they are, the president is literally undoing what made them so successful by mixing a little bit of capitalism in, so I don’t want to say it’s catching a falling knife right now. I just think if you want to buy big, connected companies in the government, buy tech companies here. Hell, we’re for sale. Our government’s for sale. Buy… Facebook’s down a little bit. Buy Google. Buy the FAANGs, basically. If you weren’t connected with the government, buy that. No, I wouldn’t be shopping here. I’d start a shopping list if you really wanted exposure. And I understand the diversity thing, but man, I just think there’s other low hanging fruit there. So, no. But I’m not saying sell everything if you have exposure there, I guess.
Frank Curzio: Yeah, I think there’s a buy opportunity. You didn’t notice, there’s this big theme out there saying that China’s crushing the market. They’re hating everything. And they’re relating this to the US and ties with the US somehow. But remember, China needs us. I covered this yesterday. China needs us no matter what. They could say what they want out loud. Everybody’s going to believe them for some reason, even when they talked about tariffs, it was like, “Wasn’t that China, they’re going to cut… ” Listen, we’re buying everything from them so we’re the most important people to them, by far. Someone’s got to buy their goods or they’re done. They’re not going to sell our bonds. All the bullshit about they have more control. No, it’s not true. It’s the people who have the money who have control. And it’s the United States, even Europe buying goods and services from them.
Frank Curzio: Now, when you look at the places they attacked, I would stay away from entertainment, social media, video games, gambling. It seems like that’s what they’re targeting, but notice how Apple’s fine. Amazing you didn’t hear one thing out of Apple at all, other than, “Hey, there’s a new iPhone 13,” which kind of got killed by even the most biggest fans of Apple saying that whole panoramic view camera that they have to shoot movies wasn’t even that good and blurry. And of course, they’re going to come out with just fixes on that over the next whatever months and stuff like that. But from the 12 to 13 is really not a lot other than the battery. The battery is a big deal. I know people care about a battery, but they’re trying… Apple used to be able to make everyone upgrade every three years, and now they want to do it like every year, year and a half and that’s going to be difficult, but that’s what you need when you’re at that level, and as a hardware company, mostly. Yes, their service division’s growing.
Frank Curzio: Anyway, you look at Nike. Nike. Didn’t hear anything about Nike. Caterpillar got hurt a little bit because of infrastructure and stuff like that and it’s in real estate, but I would think Caterpillar would be more of a buy. They need Caterpillar and Caterpillar got screwed over and had to write down a $500 million investment in China. But it’s a massive, massive… Caterpillar’s building their stuff and they’re getting paid by governments. So, regardless if there’s anyone in these buildings or not, doesn’t really impact Caterpillar. So, they’re going to get paid.
Daniel Creech: Right.
Frank Curzio: But I would focus on those names because some names have gotten crushed, especially small/mid-caps that have exposure to China because everyone thinks, okay, China’s a devil. They’re done. Get out of everything. It’s not the case. They are targeting certain industries.
Frank Curzio: So, I think it’s an opportunity. I’m not telling you to go all in on China. I’m saying you could have exposure, but there are buying opportunities there where, could it get worse? Absolutely. But when you see companies selling off for reasons other than their earnings are going down, management teams, or whatever, they’re just going down because of other sectors are going down, it’s usually a good buying opportunity. I think that’s what you’re going to see with a lot of names there.
Frank Curzio: So, I’m a buyer of China right now. Everybody wants to sell China. I’m a buyer as it’s getting crushed. It’s one of the worst performing equity markets this year so far. And that’s because a lot of their big names, the Tencent, Alibaba got hit, stay away from those. But there are names with China exposure in the US that are going to do fine. You’re not going to see that much of an impact because they’re not targeting those areas ,and I think it’s a way to make a little bit of money and just a way to outperform the overall markets.
Daniel Creech: Two quick things on that. You mentioned Alibaba. Yesterday in the Wall Street Journal, there was a great article, and it’s a solid long article, but they point out that over a trillion dollar in stock market value has erased from a handful of the big companies, Tencent, Alibaba. And listen to this, Frank, this is up your alley, especially from that bigwig meeting you attended last week. Over a hundred billion dollars of wealth from entrepreneurs such as Alibaba founder Jack Ma, and Tencent’s Pony Ma have been wiped out.
Frank Curzio: Yeah, but still… You know what? I look at that as so funny-
Daniel Creech: But Alibaba, what they did was because their… It’s funny how… It’s disgusting actually, but if you don’t learn to laugh at it, you’ll go insane. It’s funny how similar we sound to China because President Xi or however you… I’m butchering that. I butcher all names. Everybody knows that. All he’s saying is nothing new under the sun. They are taking from the rich and giving to the poor because he’s coming up to stay in power as well. What do our politicians always say? They want to make everybody pay their fair share. They want to limit income inequality. They want to make everything better for everybody.
Daniel Creech: Alibaba, they are… China’s forcing them over there. So, the interesting thing I’m going to be watching for going forward, and I say, going forward, let’s call it through the next quarter or end of the year. Hell, it’s already October, basically, is when do they make Nike pay more? When do they make Caterpillar pay more to make their fair share? That’ll be what I want to see because Alibaba has pledged $15.5 billion to this basically social net. And all that is, is basically a donation, because you want to get it on the good. So, that’s interesting to me.
Daniel Creech: I like how you said to stay away from those because they are being targeted. So, my second thing is, how would you play that? Would you just buy a general ETF and kind of hide out there? Or would you buy a specific company? Maybe you don’t have one specific, but would you just say, “Hey, you can have exposure there. It’s been beat up. Risks are in your favor?”
Frank Curzio: For me, I’m always looking at places, Daniel, where I could have exposure to, for China, right? So, for China, I’m looking for say a company that has 20% exposure, and yet you’ll see that stock come down like 10, 15% because of something like Evergrande. People are looking at wind. There’s different ways to look at wind. And I’ll be quick on this. When it comes to wind, the stock’s down 50%, about 50, 60% of their sales, I believe, I’m pretty sure I’m very close to that number, come from Macau. So, we were like, “Well, it’s already factored in,” right? That’s how people look at it. But Dan, that’s the wrong way to look at it because it’s not factored in. Even though yes, it went down the percentage of revenues that allocated it that they’re generating from there, you’re taking away its growth multiple.
Frank Curzio: And if you want to know what that means, look at IBM compared to Amazon. Okay, IBM makes 50% now, finally, 50% of their profits from cloud. Doesn’t matter. They’re trading at what? 12 times forward earnings. Yet, Amazon command’s 30 times… Look at Microsoft, 30 times forward earnings. They command a bigger multiple.
Frank Curzio: So, it’s not that simple because Macau was the massive growth market. And if you take the growth market out, yes, you’re losing those revenues, and you might say, “Okay, we’re down 50%. It’s factored in.” It’s factored in if they get the full concessions. That then you’re going to see that company best… But say China says, which they’re not going to say, that, “Okay, you’re done. You can’t be in Macau anymore.” That stock is going to crash incredibly because you’re taking, because you take away the growth model. Now, you have Vegas, which is not really a growth model. Even though it’s big and it’s growing year over year because of COVID and stuff like that. So, that’s what you have to be careful of.
Frank Curzio: Another thing, I hate when they discuss net worth and how much was wiped out. Because if you look at Jack Ma’s net worth, it was probably about, if I had to guess, like 2000, like ’13, ’14, ’15 was probably about 15 billion, 20 billion. And it’s like 50 billion now. So, it goes down to 47 billion. They’re like 3 billion in a day got wiped… Believe me, these guys aren’t… The amount of money and where the markets are right now and how much all these billionaires have made and how much they’re going to make because of inflation, and they all own massive assets and real estate that are going to continue to inflate is incredible. So, when you see a market come down 2%, it’s a great headline. Oh, these guys lost a hundred billion dollars. But how about how much did they make over the last three years is nine… You know, whatever. I just laugh at stuff like that.
Daniel Creech: Oh, you’re right. And I totally fell for one because you’re right. It’s good clickbait. But it is just funny to think. Can you imagine, Frank, for one second, and everybody listening, imagine losing billions of dollars and still having billions of dollars. Wouldn’t that be amazing? how cool is that?
Frank Curzio: That’s a pretty good position to be in.
Daniel Creech: I mean, you could be having a high-end cocktail and say, “Man, boy, how was your week?” “Well, that sucked. I lost $10 billion a day over the week.” “Oh man, are you broke?” “Oh, well, no. I mean, I might have to sell an airplane, but I still got a fleet.” Anyway. Different world. That’s a lot of fun.
Frank Curzio: I’ll have to end that segment. All right. Let’s move on. We got a lot more to talk about. I’m going to try to cover a lot of things here. So question, will Congress finally pass an infrastructure plan?
Daniel Creech: This year?
Frank Curzio: This year.
Daniel Creech: No.
Frank Curzio: No.
Daniel Creech: No.
Frank Curzio: Why not?
Daniel Creech: Well, hell, they’re still arguing about the debt ceiling and all that kind of stuff. I just… if I were a politician… Let’s do this. I’m going to put a Democratic hat on. If I was a Democrat, I would wait to try to push in through the infrastructure until next year, because next year is a midterm election year. And if I wanted good news to try to revamp, and I don’t think either party is smart enough to understand actually what’s going on with the inflation and how much they’re responsible with Fed policies and the whole screwed up area up there in Washington. But when you have people hurting and people, the inequality growing, and it’s going to continue to get worse because you have higher prices and stagnating wages, you need something to point to when you’re closer to election, not further away.
Daniel Creech: So, if you pass it now, you’re playing your hand first in my opinion, to get elected because you want to be able to point to that and how good you’re doing right now when you want them to go vote. So, I don’t think either one is serious about getting an infrastructure bill this year. I hope I’m wrong for different reasons because macro wise, there’s a lot of things that could be good from that. But so, no. I’m rambling. Stop me, Frank. Short answer is no. Not this year because it’s not politically motivating.
Frank Curzio: So, I can tell you this. They’re dying to pass an infrastructure bill right now, Democrats, because only 400 billion is really for infrastructure. Everything else is for them, right? So, those numbers are broken down. It’s 400 billion, and I’m talking about power, roads, bridges, public transit, airports, freight. You can look at the numbers. That’s what’s going to infrastructure. Everything else, going to social programs. A lot of bullshit. Some of it’s going into nuclear or whatever. There’s different areas, but they want to pass it because that’s going to give them a lot more power of all the people that donated to them that wanted them to fund all these interests. So, they want to pass it right now.
Frank Curzio: Forget about that. Forget about what side of the aisle you’re on because both of these idiots on both sides of the aisle wanted a trillion-dollar infrastructure plan, which seemed like an enormous number. When Clinton and Trump were running, that was enormous. Now, it’s three and a half trillion. Everyone’s like, “Oh, okay, that’s cool. Who cares? It doesn’t matter.” Where’s the money coming from? Nobody knows. Taxpayer. It doesn’t matter.
Frank Curzio: Forget about that. I could tell you this one thing that’s not being mentioned anywhere, and mark my words on this, because I feel as strong as this as I felt like when the markets are going to crash of COVID. If we pass this infrastructure bill, I suggest, and you’ll see this happen in my portfolios, we are going to start dialing back on a lot of positions because we are going to see inflation beyond belief, worse than what anyone thinks, forcing the Fed to immediately raise rates. Taper, forget it. Tapering, they stopped… But, no. Immediately. Because we have massive inflation right now.
Frank Curzio: If you’re looking at the whole supply thing, the supply chain, which I’m covering in detail and have great sources, this is a late 2022 to 2023 problem right now. I recently read… If you have Curzio Venture Opportunities newsletter, I covered I think it’s seven or eight leading CEOs talking about this over the past two weeks, of the supply chain issues and thought it was going to be fixed right now, and it’s not. If you throw the infrastructure, how is everyone going to get the materials? How they’re going to get everything? They’re already huge bottlenecks. You can’t even get cars. You can’t get anything right now. The labor shortage that’s going on. It’s incredible. You saw FedEx. We’ll cover that in a second. See if that’s a buying opportunity. It’s actually, the numbers are great, but the cost went up tremendously because salary was up 27%, fuel costs up 50%. I mean, what the fuck is the Fed doing? Do they see what’s going on? Do they see this? Because you should be raising rates immediately.
Frank Curzio: If you throw on top of that the infrastructure, it’s going to be throwing gasoline, kerosene, pick whatever flammable you want, all over this inflation thing. It’s going to go through the roof, which means assets are going to really surge. But then you’re going to see a very, very big selloff because a lot of credit has to come out of this market. We have to slow it down. I mean, guys, the people who are talking about this aren’t in circles like you are. They don’t go to restaurants a lot. They don’t talk to their friends. They don’t see what’s going on. They don’t see that you’re waiting 40 minutes to eat something that usually takes 20 minutes. They don’t see that, that the labor shortages, the signs on the doors. These guys hang out with rich people in rich circles. They’re not seeing any of that. But what does that mean?
Frank Curzio: A lot of companies are operating at 80% capacity. Their costs are going up tremendously. Food costs, raw materials, everything is going up. Labor is going up. And they can only operate at 80% capacity because they can’t hire anyone. So, if you can’t hire anyone right now, and it’s a huge labor shortage, what are you going to do? You have to raise prices. And that’s what we’re seeing right now. I mean, you’re looking at FedEx raising prices. Before they reported this yesterday, they said they raised prices by the most percentage basis in 10 years. I mean, you’re going to see if you look at the numbers, even with FedEx, they said, which I thought was interesting, how across FedEx right now, more than 600,000 packages a day are being rerouted. Rerouted. They don’t have-
Daniel Creech: 600,000?
Frank Curzio: 600, more than 600,000 packages a day are being rerouted. It’s in the call. So, they have a $450 million year-over-year increase just in labor costs. Fuel, I don’t understand. I don’t know why they’re not freaking hedged like everybody else in this industry and anybody who has fleet. But for me, when I look at this, if you see Congress passed this, mark my words, you should be dialing back. You should be scaling out of positions and lowering because you are going to see the market really, really come down, especially risk assets. At the beginning, when this inflation really starts taking off, you’re going to see home prices go up, asset prices go up. That’s okay. When you have inflation, that’s what the Fed wants. The Fed’s really going to get what they want if they pass an infrastructure bill. That’s my warning.
Daniel Creech: I like that. That’s a good warning. Yeah. So, we get out of some stuff and then where does that money flow? It would have to, doesn’t have to, but we would probably recommend a lot more commodity plays. We would recommend a lot more hard asset plays, because you can’t just go hide out in cash when inflation really takes off. And I’m not saying that’s what you’re saying, but think about that from an investor standpoint. You don’t want to hide out in cash when inflation is going through the roof because you’re going to be losing money hand over fist. But you’re right. There’s going to be a lot of… What we need to prepare for, in my opinion, is this new normal going forward, because inflation is not… Frank, I don’t even want to say your favorite word because it sets you off, but I love it. Inflation is not transitory.
Frank Curzio: Transitory.
Daniel Creech: That’s a drinking game right there, I’m telling you.
Frank Curzio: Let me ask you a question. How can inflation be transitory? How could it be transitory if we are going to have a supply shortage that lasts through 2022? It’s impossible.
Daniel Creech: Absolutely.
Frank Curzio: We’re going to see higher inflation over that time. So, transitory to them could be 18, 24 months. It’s transitory being like three months by definition. Maybe you go six months? Very short-term. They’re not projecting that inflation to go up that high next year. And there’s no way inflation goes down if you continue to have this shortage, and you do. If you’re looking at the shippers, you’re looking at the builders, you’re looking at… It’s getting worse. They’re lowering their numbers for third quarter and they’re starting to lower the numbers for fourth quarter. This was supposed to be a bottoming out in Q2 and it’s not happening. I told you. Ford, GM, they’re fricking… The CEOs are on TV lying to you talking about their EV portfolios because they’re going to have to fricking report 40, 50, 60% declines in production.
Frank Curzio: It’s going to happen across the board. Everybody sees it. And what’s going on right now is there’s a bid. There’s bidding. So, there’s always a limited supply of containers and the biggest companies have the most money and they’re willing to overbid, which means other companies are not going to get their supplies in time. It’s why you’re getting golf clubs in six months, your mattress in seven months, why you can’t get a new car with your specs, just what your color is going to take you nine months. They’ll say it’s four months, but it’ll take you longer than that.
Frank Curzio: This is a problem that’s not short term. They haven’t figured it out yet. It’s very difficult to say, “Okay, produce more of everything and more containers.” Because then, I look with Taiwan Semi in 2017 when crypto went nuts and they needed all the chips and stuff like that, they started making a lot of money off it. Then they overproduced, and the market crashed, and all that shit. Now, it hurt them.
Frank Curzio: That’s what companies are afraid of. They’d rather have this problem, be able to generate profits, then just over and it has tons of inventory. So, it’s not going to fix itself right away. It’s something that’s… I feel like it’s not a big issue. People talk about supply chain but they still think it’s going to end pretty soon. It’s not going to end soon, which means you’re not going to see inflation slow anytime soon. It cannot happen.
Daniel Creech: No. And we talked about this months ago, the definition. It’ll be transitory because all they got to do is get through the year-over-year comps. And then once it’s sky high, but “Hey, it’s not too bad compared to last year how it was sky high.” And that’s going to be their view. “Well, they’re going to move the goalposts like it… “
Daniel Creech: And another thing we’ve talked about, you’re right. It is impossible not to have inflation because any time you dump and create more money into an economy that’s not created by entrepreneurs, it’s not created by generating wealth and services, anytime you dump more money into an economy and you can’t increase the supply of goods, you simply have more money chasing the same amount of goods or less and you have higher prices. The new normal is going to be, hey, people are going to have less money because at some point you think the stimulus has to taper back and it already has. And I’m talking direct checks and things like that. And yet you have wages suppressed other than people just trying to get employees. But you have costs going sky high. Like you said, fuel and everything else.
Daniel Creech: That, we’re transitioning into that period, Frank, where I think what’s good for Main Street is not going to be good for the stock market. And that’s a big deal because if things do get out of hand and then Main Street starts to recover a little bit, everybody’s going to have to pull back. That’s not going to be good for the markets. There’ll still be pockets to where we can find great opportunities, but you’re going to have to be a lot more nimble than just… You’re just going to have to get to a new expectation level and a new normal.
Frank Curzio: So, we got a couple minutes left here. Let’s go over some stocks. FedEx, is it a buy in this pullback?
Daniel Creech: No, not yet.
Frank Curzio: I think it’s a buy in this pullback. You know why?
Daniel Creech: What percentage is it down? It can’t be down 10%, is it?
Frank Curzio: It’s down 8% as of now. So, we’re doing this about 10:30. So it’s at 8% as of now. The time you guys get this, it’ll be a few hours from now. We’re getting better at production, right? Right away, getting this stuff out quick. It’s pretty good. I mean, CVC even takes time lapse.
Daniel Creech: Oh, it’s well off its highs too.
Frank Curzio: What were you saying?
Daniel Creech: It’s well off its highs too.
Frank Curzio: So FedEx, the reason why I like FedEx here, and I’m not telling you that if you buy it here, it couldn’t go down another 5, 7%. I’m not telling you that. So, if it’s technical and you’re going to take a quick loss, so whatever. That means you’re not going to… Whatever. You’re going to be short-term.
Frank Curzio: FedEx is a sock to buy because they have pricing power. You want to buy companies that have pricing power. This is why I think a lot of restaurants are going to get crushed. A lot of restaurants are going to get crushed. They’re trading at crazy multiples. But when I look at Chipotle, Chipotle could charge whatever they want. People going to buy that. All right? So, there’s certain areas, there’s certain places that people are going to buy. McDonald’s is also going to have pricing power because even if they raise everything by 10, 15%, they’re still going to be the cheapest around to buy. And it’s going to be, make a big deal right now. So, McDonald’s is a great buy, I think.
Daniel Creech: The best breakfast for fast food around. Amazing.
Frank Curzio: I mean, listen. McDonald’s, I won’t say-
Daniel Creech: Sorry. I’ll get you out of there.
Frank Curzio: No.
Daniel Creech: Oh gosh. No, not that story.
Frank Curzio: No. Yeah. I went in with nuggets. I went to get nuggets for my daughter and one of her friends, and they forgot-
Daniel Creech: Don’t go there, Frank.
Frank Curzio: They forgot the nuggets. Right? So, I go in there. Really quick story. I went in there. I say, “Hey.” So, I went through the drive-through. I always check the bag because they always make a mistake here every time. Like 90% chance, right? I’m like, “Ah, they can’t make a mistake. It’s like a Happy Meal and nuggets.” So, pull out. They’re like, “They forgot the nuggets.” So, I’m like, “Shit.” So, I pull out and I park into like there’s Applebee’s right next door because I couldn’t get around that quick.
Frank Curzio: So, I walk across the parking lot and go to McDonald’s, and say, “Hey, you forgot my nuggets.” She goes, “No, I didn’t.” I said, “They’re not in the bag.” She’s like, “Go get the bag.” I said, “What?” So, I went to go get the bag and I showed it to her. She’s like, “No, I gave them to you.” And I was like, “Are you kidding me right now?” I say, “You’re really… ” So, I walked out and then I just… And I’m not like this. I never lose it. I never really lose it like this. And I went in there and I lost it. And there was a lot of people in there. And I started… I said, “You got to be fucking kidding me right now.” I said, “You really think I’m trying to get six nuggets from you?” I said, “My daughter’s in the car with a friend and one of them can’t eat because she forgot it.” I said, “Put the cameras on.” I said, “Let me talk to your manager.”
Frank Curzio: She goes, “I am the manager.” I said, “You’re the manager?” I said, “Really?” And all of a sudden she starts going to the back, and another one’s like, “You got to deal with this guy.” And 10 minutes, I’m like, “Are you kidding me right now? Like either give me my money back or the nuggets. Give me the… I suggest giving the nuggets since you’re making, like margins are through the roof on that, right?” I was like, “But you really think I’d come out of my car, go in there, and say, and try to get, like steal six nuggets from you?” Like, that’s fucking Florida for you.
Frank Curzio: And I felt bad because I’m not a person that makes scenes. People were backing away because I started… I was like, “You got to be kidding me.” And sure enough, some lady just comes by behind the counter and gives me nuggets. Says, “Here you go.” And I said, “Really?” I said, “Was that so difficult?” I said, “Did this really have to happen? You’re calling… ” And she’s like, “Well, you didn’t have to curse or anything.” I said, “Yes. You’re calling me a liar.” I say, “You… For chicken nuggets.” Anyway, that’s my story.
Daniel Creech: I guess all publicity is good publicity.
Frank Curzio: Holy cow.
Daniel Creech: For listeners and subscribers, I immediately went to YouTube to make sure that Frank wasn’t on TikTok or YouTube or anything.
Frank Curzio: Oh my God. I wanted to get… You know what? How is that possible? How is that possible? Imagine that? Anyway.
Daniel Creech: Anyway.
Frank Curzio: That’s my story. But FedEx I like because they have pricing power. I focus on the companies that have pricing power. That leads us to Cracker Barrel, which hasn’t done so good, right?
Daniel Creech: No. It’s well off its highs too. It was a little… It was right around $175 a share, call it May-ish. A little bit before May. Now it’s under $140. They warned, they missed… It wasn’t bad earnings. They got a $1.30 in dividend, which is damn near 4% yield. They’re expecting single to high, mid-to-single-high digits, wage inflation, and commodity inflation. I like Cracker Barrel. I think that’s a great brand. I think you have tremendous loyalty there. Stock has pulled back nice. So yeah, I’d buy Cracker Barrel over FedEx right now.
Frank Curzio: Yeah, Cracker Barrel, I’m telling you. I’m going to get in so much trouble for saying this, but that’s the ultimate fat person place.
Daniel Creech: It is amazing.
Frank Curzio: Because I was fat for a long time.
Daniel Creech: I’ve got redneck in me, so I… I think those places are great.
Frank Curzio: If you, and I feel bad saying that, but if you have an appetite, man, you can get like pancakes, waffles on top of it, eggs, whatever, and it’s like less than 10 bucks.
Daniel Creech: Well, it might not be anymore.
Frank Curzio: It’s an awesome place. It’s an awesome place, but I’m… If you like to eat, that’s where you go. But I will say same-store sales, restaurant sales declined 6 to 8% in Q4. That’s a little surprising-
Daniel Creech: Well, they get hit with travel because a lot of their businesses, they have good locations right off the highways and different things.
Frank Curzio: That’s a good point.
Daniel Creech: So, you’ve got this Delta scare and all that. But yeah, just they’re low too. They’ll buck up. They got a lot of options, and they also, I don’t know if they announced a new or it was an increase on a share buyback. So, they’re trying to play that game and manage the share price, as they should, to a certain extent. And they got options to cut costs in my opinion, to really get serious.
Frank Curzio: This is it right here. This is it. COVID. So, reading from their call. This was yesterday. “COVID’s impact, not only consumer traffic, but also staffing, and many industries are facing the challenge of a nationwide labor shortage. So, Cracker Barrel made significant progress in back-of-house staffing, for example, kitchen staff, but fewer servers. Service can be very slow, which doesn’t help create more repeat customers.” There’s something very powerful there because when you go into a restaurant now, it is slower, you’re paying more, but you’re not getting the same service. And that’s a problem. That’s going to result in people not coming back. Because if you can… I’ve paid much more than I was supposed to for things, and the service was that good where I’m like, “That’s why I’m paying.” That’s what people pay for. It’s like a luxury brand. It’s made of the same shit that fucking everything else is made of, but because you slap a name on there, that’s what it is.
Frank Curzio: So, if you’re damaging that brand or that restaurant is not that good anymore, and the service isn’t that good, which I’ve seen with Starbucks over the years, used to be fantastic. Now, they’re missing like half the stuff there. You go in there, they don’t have half the stuff. The line, it wraps around the building. It takes 15, 20 minutes to go through a drive-through. It used to take five minutes. And you know what? I find myself going someplace else.
Frank Curzio: So, I don’t really know if a lot of that is factored in where stocks are trading. We saw a little bit of pullback. We’re only about 3% off of our highs in the S&P 500. But there’s going to be a big separation, especially restaurant stocks, stocks that don’t have pricing power, because inflation is going to get worse. You’re looking at FedEx. You’re looking at these numbers. You’re looking at fuel costs. Look at natural gas. Holy cow. I mean, if you’re not paying attention, the Fed, they’re even not paying attention. It’s on purpose, and they don’t give a shit, or they’re ignorant.
Daniel Creech: Both.
Frank Curzio: But either way, they’re going to have to do something because it’s crazy.
Frank Curzio: Last thing here is Disney, because you know how much I love Disney. But they came out and they warned and said, “Our subscriber growth’s not going to be as high as expected.” And the stock fell about 4%. What are your thoughts? Is Disney a buy here?
Daniel Creech: No, I haven’t liked Dis… I mean, I missed it. Disney went up. We recommended the put. But no, I just, like I said, there’s too many opportunities out there to avoid something that’s talked about every single day on TV. So my biasness towards that is just ridiculous, I admit.
Frank Curzio: Disney did a great job marketing. They did a great job marketing, showing that, “Hey, we could add tons of subscribers, over a hundred million.” A lot of those are free. I bet you more than 70% are free. Now, they’re coming off their list. They’re seeing churn, especially with their international customers, which are much less. Their average revenue per user is lower than everybody else. So, they put all their eggs in one basket, and that’s what demanded the premium, it’s trading at 40 times earnings.
Frank Curzio: Now, you just said that you’re going to see slow subscriber growth, fewer new content coming out. I just looked at content for September and October. All content, all streaming content. The top 20 were amazing. HBO and Netflix dominated them. The best to see because they are spending $20 billion, which Disney doesn’t have to spend. They’re sitting on a terrible balance sheet because it had Fox assets, or acquiring Fox assets, media assets. And you’re looking at a company where earnings are not growing as fast. Now, you don’t have that growth. How the hell does this have a 40 times multiple?
Frank Curzio: I just looked today to see if anyone downgraded the stock. Of course not. You know why? Because they know they’re going to have to raise money. They’re going to raise a shitload of money if they want to compete in this industry.
Frank Curzio: So, when you look at the new content in October, it has the best actors. You get HBO is going crazy. The new Soprano. You got Netflix coming out, Diana: The Play, whatever. They’re just loading it up. It’s not even like these are… By the day, they have so many programs come out by the day that Disney can’t compete. Disney is not even on there. Streaming is about new content. If you want people to continue to pay up for that service, which you’re not really going to have pricing power anymore because there’s so many competitors, so many competitors.
Frank Curzio: One of my favorite shows was Inside the NFL with Phil Simms and Ray Lewis because they have a contract. I don’t know if it’s exclusive, with NFL films, which mics the players. So, when they show the highlights, they show the player mic’d and talking trash. It’s great. They took it off Showtime. We know it’s on Paramount streaming. I’ve never seen it again. So, I’m not going to download Paramount to stream. I mean, I liked the show and everything, but everyone is streaming, so how do you have pricing power?
Frank Curzio: It’s all about new content. Disney. If I was Disney, I’d raise $10 billion right now at 160, 155. You could easily do that because not one analyst downgraded them because they all have positive outlooks. I don’t know how a string of 40 times earnings when you’re not seeing those earnings grow and their growth just got cut. But yet, there’s not one downgrade. They’re not lowering estimates because they want a piece of that massive, massive financing that they’re going to do, and they have to do it. So, I think you’re going to see it come. They should do it right now while everyone’s positive, because I think those numbers are going to get a lot worse, but we’ll see.
Daniel Creech: So, in the end, that’s the first stock we agreed on. We just both avoid Disney?
Frank Curzio: Yeah. But for me, you should do the opposite because my track record with Disney sucks. I mean, the numbers all make… It’s almost like AMC telling you that it’s worth $2 and it goes-
Daniel Creech: So, buy calls. Buy next month’s calls.
Frank Curzio: So, you should be buying calls right now. But I’m fair with that. I know I’ve been wrong. It’s all about the stock price. But I’m just saying, someone that looks at the numbers, it’s funny how Disney has been lying for such a long time, and they won’t tell you how many are free. And I got Disney free forever. I’m sure a lot of people do who have Verizon accounts, but it’s just really interesting.
Frank Curzio: But anyway, we covered a lot there.
Daniel Creech: We ended on a good note there.
Frank Curzio: That was good. I think we zipped through everything, right? We’re at the 30-minute mark. That’s pretty good.
Daniel Creech: Oh, nice.
Frank Curzio: All right. Well, thanks for coming on again.
Daniel Creech: That’s damn near a first. That’s good for us.
Frank Curzio: It is. It is. It is. We both got to shut up now because we’re at 31.
Frank Curzio: So Dan, thanks so much for coming on, man. Great stuff. And guys, feel free to email us. Frank@curzioresearch.com. Danny, what your email?
Daniel Creech: Daniel@curzioresearch.com.
Frank Curzio: Very simple. Very simple to remember. Feel free to send your complaints, arguments, whatever you want.
Daniel Creech: To me.
Frank Curzio: We’re here. We can take it. We can take it. All right, Dan. Thanks for coming in. Guys, that’s it for me.
Daniel Creech: Cheers.
Frank Curzio: Really appreciate all the support, and I’ll see you guys next week. Take care.
Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its hosts and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.