Wall Street Unplugged
Episode: 913June 29, 2022

Why MicroStrategy’s ‘all-in’ Bitcoin bet is flawed

Bitcoin microstrategy

Bitcoin dipped below $20,000 and overleveraged companies are going bust. We start today’s show by discussing the liquidation of crypto hedge fund Three Arrows Capital and its ripple effects… the flaws of MicroStrategy CEO Michael Saylor’s “all-in” Bitcoin strategy… and how the current crypto bear market reminds me of the dot-com crash. 

Next, we discuss Morgan Stanley’s ridiculous call that Carnival Corp will go to zero… and I explain why I’m bullish on the cruise industry. In fact, my latest Curzio Venture Opportunities recommendation is a Carnival competitor. 

Finally, I highlight why Intel’s recent price action hints the markets could be near a bottom—and an important lesson from previous bear markets.

Inside this episode:
  • Overleveraged crypto companies are unraveling [1:55]
  • MicroStrategy’s “all-in” Bitcoin strategy is flawed [6:30]
  • Could Bitcoin go to $250k next year? [10:50]
  • Why the crypto industry needs regulation [13:50]
  • Big players are stepping up in this crypto bear market [18:14]
  • Why Carnival Corp. won’t go to zero [25:51]
  • Intel’s recent price action is positive for markets [34:05]
  • Don’t make this common bear market mistake [35:40]

Wall Street Unplugged | 913

Why MicroStrategy's 'all-in' Bitcoin bet is flawed

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 out there? It’s Wednesday, June 29th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down headlines and tell you what’s really moving these markets. So, it’s Wednesday. It’s happy Daniel Day. Or, what you like to call it, Daniel, happy Wednesday, right?

Daniel Creech: Absolutely. Wednesday, best day of the week.

Frank Curzio: So, Daniel’s a senior research analyst at Curzio Research, and we break down the markets all the time, and on Wednesdays, and a lot going on as usual, especially in Bitcoin world. So, we haven’t talked about Bitcoin, you and I, probably for the last two podcasts, but you know, we’re seeing it continue to come down. We’re seeing the leverage come out of the market, and now we’re seeing who’s for real and who’s not for real. And it’s kind of crazy because today’s announcement is, Three Arrows Capital is going to liquidate, which is interesting, which you know Daniel, because this is a company where Kyle Davies, co-founder, said two weeks ago, “We’re committed to working things out and finding an equitable solution for all our constituents.” This is a company that had 3 billion in assets under management, and they are liquidating. Okay, meaning $3 billion of assets under management and management fees from that are incredible in this world. But these are guys that have to leverage and leverage it in crypto, unlike our markets. I mean, some Bitcoin, you could leverage 10 X, 15, you can go crazy. And, as you can see, a lot of people went crazy, and now this is coming home to roost. So, what are your thoughts on this? This is the major story in crypto, and you’re seeing it have ripple effects across so many different cryptocurrencies and across the whole industry.

Daniel Creech: I was impressed with… So, the volatility sucks. It’s tough to handle, and I should have warned everybody, and maybe I’ll get my own Twitter, Frank, because I know why Bitcoin broke briefly below 20,000, because I added some Galaxy Digital yesterday and also for everybody else, I added some Curzio Security Token. So, look how below on that one. But listen, when you go through downturns and bear markets and things, it’s painful, but we’ve been here before. There’s actually a wonderful article in a Bitcoin magazine, basically saying that exact same thing. But what I’m focusing on is… And heads up here, I don’t think the industry’s going away. So, if people are down on investments or thinking that, hey, we’re taking this light. That’s not the case at all. I’m simply saying that when you dig in and do the research and you come to a thesis, you want to see that play out.

Daniel Creech: Bear markets are part of investing. What I like to see is people stepping up and either buying or not running away from the limelight. We’ve had Mike Novogratz, Galaxy Digital, the FTX CEO, the exchange FTX, the brilliant guy, Sam, Binance CEO, CZ, because I’ll butcher his name as well. And then Michael Saylor with MicroStrategy. So yes, it’s volatile. It’s crazy. The liquidation of Three Arrows, I think is a solid because it’s… Listen, when you get over-leveraged and you make bad decisions, and I’m not saying those guys are stupid and I’m… It’s not that angle. I’m simply saying that there is nothing new under the sun. When people go broke, it’s either frauds or over leverage and that’s pretty much cut and dry. And you see that ripple effect. Voyager Digital’s stock has gotten absolutely hammered, their trading platform for cryptocurrencies because they had what a 600 million, in change, dollar loan that 3M defaulted on. This was before the court ordered them to liquidate.

Daniel Creech: But it’s painful, it’s terrible. But this is a lesson, and what don’t kill you will make you stronger. And I think this is a necessity. Hell, even Snoop Dogg, Frank, did you see what Snoop Dogg said?

Frank Curzio: No.

Daniel Creech: The amazing rapper, and empire, and I… Quick side note here. Are you a Snoop Dogg fan?

Frank Curzio: Yes.

Daniel Creech: I like a lot of his stuff. I only know the older stuff, and I say older meaning when I was in high school, but I’ve always respected him. Dr. Dre, who… I don’t know his name now. Sean Puffy Combs, it used to be, I think it’s changed three or four times.

Frank Curzio: P Diddy or Puff… It was Puff Daddy, now it’s P-Diddy.

Daniel Creech: Those guys… And I’m leaving a handful out. Those guys have built empires, and I respect that. I love story of capitalism, all that, but Snoop Dogg was on with his son, and they were talking about, hey, this is needed. It weeds the bad companies out. The people that were just trying to take advantage of… He didn’t say this, but basically money grabs, like the ICOs you’ve talked about and things in the past. People will go wherever money is flowing easily and sometimes carelessly. So, I say all that to say, it’s just a part of a bear market. It is painful, but that ripple effect needs to happen. The Band-Aid needs to get ripped off, and then we can get back into some positives that you like to see at… I’m not saying it’s a bottom yet, but during downturns.

Frank Curzio: Yeah. And you know what the problem here is I see with cryptocurrencies of the currencies is the extremes. It’s either you’re all in, or it’s going to zero and you find very few people in the middle of that. And for us, at least for me and speaking for myself, even when Fidelli said, well, we’re going to raise Element to 20%, which is possible for Tyrese to put in Bitcoin. I thought that was insane. Okay, I thought that was insane. I mean, I think it should be fibre. I think Bitcoin deserves a 5% allocation in all your portfolios. I think gold does. But when I get pissed off is when people say all your money should be in gold because the dollar’s going to lose reserve currency. A lot of people say that Bitcoin, I’m going to hold onto it forever, forever, forever, forever.

Frank Curzio: And now, they’re realizing that that’s not smart. You should never ever have an investment that you hold forever. That should not be your thesis. Your thesis has to change when the facts change. So, maybe you still want to hold… Maybe the facts have not changed, but you know, what has changed? The amount of leverage in this industry, which didn’t come from institutions. And that’s why for us, at least for me, I’m bullish on Bitcoin because institutions are finally going to be able to offer this to retirees. And now, you’re going to see real money come into this. Right? And that moved to 60,000, 6,000 plus. 66,000, where the high was in Bitcoin, that’s retail only. And now, it turns out it’s probably more like 20,000, the rest is all leveraged, that’s coming out of the market, but now it’s providing opportunity because the innovation’s there.

Frank Curzio: But there’s such a middle ground, where I don’t agree with Michael Saylor, what he’s doing. He likes Bitcoin? That’s good for him. To put your cash balance in Bitcoin instead of cash, that’s not a strategy. It’s not a prudent strategy. It’s not, I mean, right now, MicroStrategy is a crypto company. They’re not a software company, which is crazy. So, maybe he wants to change the identity of his company. But you know, he’s like, well, putting it in a store of value, and it’s going up, it’s fine. And you’re still buying it. But you know, keeping it in cash and people can say, well, inflation’s there. Nobody really cares about inflation right now. Because if you had your whole portfolio in cash in nine months, you’re not about inflation. You’re celebrating because you didn’t lose 30% in your portfolio, right?

Frank Curzio: So, you’re not saying, oh well, inflation. You know, they say, well, inflation is going to destroy the purchasing power. Well, you know what? Go down 35%, 40%, some people down, 60%, 70% in their portfolios. And you see that how much you wish you were in cash right now, but there’s a big middle ground. Because when you look at the… And I keep saying the innovation that’s coming out, and this isn’t innovation, where I’m talking about just EVs or 5G. I mean, this has changed, the world changed every industry technology when it comes to metaverse, when it comes to NFTs, when it comes to ownership of your digital assets, when it comes to Facebook changing, who was one of the owners, one of probably five owners of the internet, where close to 3 billion people are on their platform, right? And they monitor every single thing. And they’re changing their business model because the way it is.

Frank Curzio: And I just read a story about TikTok as well. TikTok… And this is more fuel for metaverse, more fuel for ownership of your properties. But TikTok, there was, I think, it was a senator or somebody that came out and said, or somebody said that Apple and Google shouldn’t offer the app anymore. If that happens, holy cow, that means nobody could really have access to TikTok. Right? So, you can only have access because of the Apple phone. Yeah, if it comes down to that and Google and Apple do that, you know what? AT&T, Verizon should shut them off. They should shut off the networks and say, okay, you want to shut everyone else out because you guys have duopoly. Then, you know, we should shut you out. Of course, it’s never going to happen, because everybody loses tens of billions, hundreds of billions of dollars. I’m just saying how, imagine you don’t have those layers where you’re dependent on someone where just a flick of a switch, everything you own, everything you’ve ever created is gone.

Frank Curzio: I mean, this is where we are going. This is why billions of dollars are flowing into this industry. In the meantime, this does remind me, Daniel, of 1999, 2000. We saw a lot of shitty companies coming out, lots of leverage. But look what happened when you had the wipe out, and it took a couple years, but who survived? Microsoft, Amazon, Apple. And that right now, that’s Binance, FTX, right? These are the companies that are providing these bailouts that, if you survived through this, and… Look the whole Voyager Digital thing, I don’t know what Voyager Digital was thinking. And this is a company we had in our portfolio. We made a lot of money on, we sold a while ago, and now it’s down tremendously. It’s a hundred million market cap now, and they’re looking for $650 million payment from Three Arrows, which they’re obviously not going to get, which is, I think with total package all in is like 650 million.

Frank Curzio: But how is a company like Voyager lending them this money? They just did a product placement recently in June. You’re lending them this money, and it was for Bitcoin, and it was probably, whatever Stablecoin, USDC. I don’t get it because when you have our markets, Dan, when you’re looking at this market, it’s… We see the credit ratings, we see… And that allows us determine… We get to see the interest rate on that debt. We get to see the maturities. We get to see how much cash flow’s coming in. We get to see all these numbers. And I think this thing in DeFi… I mean, DeFi, can’t be 100% DeFi. We’re realizing that because when you lose your money, you have no one to go to, and you need some kind of centralization on top of that, a little bit where DeFi is going to lower your fees.

Frank Curzio: Because banks and investment firms, they charge massive amount of fees. We all know that from having our money in the banks and investing in anything or wiring money, but there’s such a huge middle ground of innovation that I think people are missing here, where it’s like, all of the diehards saying, “I told you Bitcoin’s going to zero.” It’s still 20,000. You said it was going to zero at 300, 1,000, 5,000, 20,000, 50,000, 60,000. So, you were dead wrong even though it’s come down, and then you have the other saying, “You have to hold forever because…” Isn’t this… Somebody that just came out with a massive target price for next year or something?

Daniel Creech: Yeah. But that’s not just somebody. This is Tim… Is it Draper? Tim Draper?

Frank Curzio: Yeah.

Daniel Creech: Yeah. So venture capitalist, crazy successful guy. I love reading all of his stuff in interviews, but this interview, I’m reading from Forbes here, and it opens up and says, during an interview with Forbes in January of this year, Frank, the venture capitalist, said he had an ambitious prediction. He says Bitcoin would hit a whopping $250,000 a coin in a year. Now at the time, January, it was around 41,000. Obviously, Frank, that predictions can still last, Bitcoin has been cut in half. And the article goes on to say that he was reached by email. And he says, “I am more convinced than ever that it is happening,” meaning his development and price targets. Now he just says by late 2020 or 2023, what he says is he’s just talking about, hey, there’s a lot of innovation coming.

Frank Curzio: So, he’s predicting 250 by 2023.

Daniel Creech: Yeah. Let’s give him the end of next year. And yeah, he’s saying, because it was 41,000, got cut in half. And it says… But Draper isn’t backing off, reached over email. He reiterated his price target quote and said, I am more convinced than ever that it is happening. It meaning the development explosion, I’m guessing. Yeah. Yeah. The Forbes article goes on to list a couple of the biggest players and wealthiest people. So CZ, the CEO, excuse me, of Binance, the largest trading crypto trading by volume, his net worth on March 11th, Frank… Now, take this with the grain of salt because he’s already pushed back. CZ has already pushed back on Twitter about these numbers. March 11th, Frank, his net worth was an easy $65 billion. On June 22nd… And went to 18.7. You think that’s where you share private jets, or you think you’re still own your…

Frank Curzio: No, you’re still doing fine.

Daniel Creech: Still got your… Okay.

Frank Curzio: I think you’re still doing-

Daniel Creech: This is your world, not mine. Sam Bakeman, who we just-

Frank Curzio: That’s on another level. I’ve been to parties like that. It’s another freaking level. I’ve been to parties like that.

Daniel Creech: Out of the two of us, who’s ridden on a private plane very recently?

Frank Curzio: Yes.

Daniel Creech: Moving on.

Frank Curzio: I’ve been to an event and a fundraiser, man. It was crazy. I don’t feel uncomfortable often, not that I felt uncomfortable, but these are people who are building cities, that a billion dollars is nothing to them. And it’s another level. It’s another level of conversation. It’s like, okay. Yeah. Anyway, but yeah. And CZ is… I love him. I like him a lot. I think he’s one of the most transparent people in the industry. I know Binance… He tweets a lot. One of the things that he said recently, which I loved in his tweet and one of the things that we love to do here is he said, we have to stop teaching cryptos from an IP standpoint because nobody’s going to understand them. We need to simplify this.

Frank Curzio: And this is a couple days ago. And it’s tough. You don’t know everything that goes on behind the scenes, in a brokerage firm, they made it so easy where you just open an account and you could trade. And everything’s linked together. In crypto, it’s not like that. It’s very difficult, especially some tokens where you have to swap them, on Pancake Swap, UniSwap, and do all the shit. And then, you like the KYCAML, what are they looking at, know your customer and anti-laundering and stuff like… They’re doing all that already. But all this stuff has to be explained to you and put in writing and making sure in the stamp of approval in the U.S. There just needs to be regulation here. That’s it. There needs to be regulation behind this because there’s a lot of garbage and a lot of shit.

Frank Curzio: And you need those protections if you’re going to get in the average investor. And plus, if you’re going to get in the institutions, because you’re looking at these institutions, I mean, Galaxy Digital is invested in a lot of these companies, Daniel, a lot of them. And you’re seeing 90%, 80, 90% drops across the board. Even the good names. Why? Because when you see a company like Voyager Digital probably is going to go bust if they don’t get this payment, which it doesn’t look like they’re going to get this payment. The amount of leverage that’s taking place out there is insane. And you’re seeing Celsius halting withdrawals. You’re seeing BlockFi, FTX, Ballot, BlockFi, and they’re not calling a bailout BlockFi, and I interviewed Zac Prince, who’s a great guy. That valuation, I think was 6 billion.

Frank Curzio: I think it’s under a billion now, but you know, they said, hey, we’re fine. We’re cash flow positive. We’re generating money right now. But it’s smart to raise money in this type of market. It didn’t seem like that. But a lot of these guys who are offering, which is BlockFi and a lot of these other platforms and Voyager app and stuff like that, where you… Or these massive rates… Store your tokens, and you’re going to… 10%, 12%. Because if you’re generating 12% interest, that means these companies have to be generating more than that to pay you, right? So, it’s almost like a Ponzi scheme type of thing. Because now, we have higher interest rates, and you’ve seen demand come down. Now, how do you pay that? It’s the only way you could pay that.

Frank Curzio: It’s the only way it could be sustainable, right? That’s why banks are paying a certain amount. If you’re going to go that much higher. And again, zero is crazy for bank accounts, checking accounts. And again, it should be raised significantly now, interest rates going higher. But when you’re paying interest like that, much higher than the S&P 500, which is whatever. It’s like 2.7%. You got to question it, right? You got to look at it and say, why? Why is this happening? When I looked at details, you can’t find out the information anywhere. I went into Digital, Voyager Digital, I looked at private placement, it was a pipe, and I’m trying to figure out they raised $60 million, and I’m trying to find out when they lent this money. And I can’t even find out when they did, I have to dig further and further and further and further.

Frank Curzio: And this is a publicly traded company. Granted, they are not on a major exchange, right? They’re on, well, the Toronto exchange, but they also trade on, the pig sheets. So, when I’m looking at this, and I can’t even see some of this stuff, it’s frustrating. Because when I did the research on it, I was able to see a lot of this stuff, and it was fine. But I didn’t know about this massive freaking loan that they… This has to be reported, this is material information, if you’re a public company, but a lot of these people… As Luna Terra, 60 billion wiped off these market caps, Celsius now halting withdrawals, you don’t know what’s going on under the hood. And that’s the problem, because you can’t see it. And when you have no regulation and these companies don’t… That’s why I think Security Tokens is going to be huge because there are legit really good companies that want to do good by shareholders, they’re going to share their information and say, this is what we’re doing. This is what we’re investing in.

Frank Curzio: But when you have these things and they’re saying, we’re not securities, you’re not securities. Well I’m down 85% on it. And I thought I was going to make money because of you’re a great technology, everyone believes they’re investing in it as a security. You know, it’s a security, you’re making money. You sold some of your stock… Which, you’re not even listing anyway where the fuck it is. You don’t know how much these guys are dumping right now. The inside holds, you don’t know anything. So, for a lot of these, it’s all tied to the utility of the token and if that’s not working, then these things are worthless. And that’s why researching them, I was amazed. I was like 90% of these are shit and garbage, and you’re seeing that get wiped out. But don’t be discouraged to the point where… I mean, there’s amazing technologies in here that’s coming out of crypto and blockchain, that we’ve never seen. That’s changing landscapes.

Frank Curzio: The reason why institutions are all getting in, is the reason why Jamie Dimon change his mind. He hates Bitcoin. He changed his mind because his clients are dying for it. You’re looking at Ethereum and NFTs and app platform and other blockchain. I mean, this makes sense. These are like software companies, but you’re going to see this wipe out as extremely painful, and I get it. But if you invested a while ago, at least for the most part, we did very, very well at the beginning, but now you’re seeing this total collapse, but I think it’s going to lead to a lot of great opportunities going forward. So, I think you’re right on that, Daniel.

Daniel Creech: Yeah. And it’s just good to see the FTX, they extended either a credit facility or a loan to Voyager Digital as well. Also BlockFi for 250 million, CNBC was re reporting. And hey, I’d like to see… I know you disagree with Michael Saylor’s all in kind of… Not all in, but significantly, because they just bought… What did he buy, $10 million worth?

Frank Curzio: Yeah, I think. Yeah. And listen, I like Michael Saylor. I love the fact that he’s 100%.

Daniel Creech: Yeah. I didn’t need to…

Frank Curzio: That’s cool. The thing I don’t like is, you’re a software company, and you’re… The shareholders, you’re putting that money that you’re losing, and it’s reflected in your stock price, where that wasn’t the original reason why people were buying your stock. And you’re putting it in there saying it’s a store of value, meaning that it’s going to be worth a lot more later.

Daniel Creech: But it has been for the last several years. You’re basically buying MicroStrategy because of Bitcoin for the last several years.

Frank Curzio: For several years. Yeah. And I’ve been clear about that, but I didn’t agree with that strategy. It’s either software company or go into Bitcoin. That’s how I felt… Or a storage company for Bitcoin. Because it doesn’t matter what your storage company… Doesn’t even matter what the numbers are right now, because Bitcoin’s collapsed and look what you do to your cash balance. So that’s why I always… Again, it has nothing to do with… It’s more about, it’s a publicly traded company that has a totally different business model that’s using Bitcoin, but I just feel like it’s more of a Bitcoin company than a software company. I think he has to choose.

Daniel Creech: Yeah, absolutely. I appreciate the irony here because if you’re a Bitcoin bull, whether you’re Michael Saylor or Peter Schiff, the answer is always the same. If Bitcoin is down, like it is now 70 some percent from roughly 70 to 20, then the Bitcoin bulls are going to say, oh, well revisit this in two years, and then we’ll see how this ages. If Bitcoin’s at 70,000, the bears are going to say, oh, we’ll revisit this in a little time and we’ll see how this ages. Because it’s so damn volatile. That’s my goofy sense of humor. The point there that I want to make is this is what you want. You want to see bigger players be vocal, be transparent, step up and buy. I think the FTX guy is basically planning on… If you’re going to loan money like that, there’s got to be some talks about… There’s rumors about him taking over hood. FTX buying Robinhood, the platform. And if those all have security token licenses, which I believe you said… Do they? I know we talked about this. Does Robinhood have, and Coinbase have, a security token?

Frank Curzio: I don’t… Coinbase does.

Daniel Creech: Coinbase does? Okay.

Frank Curzio: Coinbase has the security. And so does, I think it was… So, Coinbase did it about 18 months ago, 24 months ago, knowing that the SEC is going to come out and deem a lot of these securities.

Daniel Creech: Yeah. In fact, Ginsler, the chairman or SEC, he recently said that Bitcoin is a commodity, but that’s the only one he named. He stayed shy of Ethereum and everything else, which does signal coming down the pike, that these will be labeled as securities, which is fine. There’s going to be a lot of pain there. It’s just good to see from a macro level. You want to see people buying up, you want to see people extend loans, FTX, Binance is diversifying. And this is just the next extension of finance. And it’s exciting. It’s not going anywhere. I get it, if you’re down, you’re upset, but nothing has changed in the overall thesis other than the price. And yeah, I wish I had a crystal ball and could have sold some or sold it all and bought back at a much lower price, but I’ll admit, I’m human and I’m not a trader. And I’m not worried about that, as goofy as that sounds.

Frank Curzio: No, it’s true. And Gemini as well, which is the Winklevoss twins and their platform. They also have their license of security to trade security tokens, which takes a long time to do. So, I think Coinbase bought their way in, and bought companies, and you know, Gemini, actually… Yeah, I think they announced that about maybe a year ago, nine months ago. So, the fact that they have those that they’re anticipating, this is one thing, but… And you bring up a good point. Just look, if you look at what FTX is doing, the deals that you’re able to sign, look at what Warren Buffett did during the credit crisis with Goldman. I mean, look at the banks. It’s incredible. The deals that you could get where… You just look nine months ago, where the market was right now.

Frank Curzio: You’re getting all those things Voyager. I don’t know how many people are on a platform, but it’s a very good platform Voyager. And I know they have tons of people. So now, FTX, I mean, they could bail them out and take over their entire company. And yeah, maybe it costs a hundred million, but they know the value of those millions and millions of people are going to be worth maybe a billion dollars or more to their platform, and they can get anything they want, because Voyager right now is kind of a dead company.

Daniel Creech: Yeah.

Frank Curzio: You made that loan, and it’s now $600 million due to you, and they it’s just like during a credit crisis, everybody who you did all the shady shit, all the Goldmans, every bank across the board with mortgages and mortgage bank securities, and all the bullshit that they did, when they saw the shit hit the fan and they got out right away, and they got everything insured by AIG.

Frank Curzio: What you don’t realize is if AIG goes out of business, nobody gets paid and the whole system collapses and everybody goes out of business. So, that’s the thing. So, when you’re looking at Voyager having this lifeline and giving it this loan… Which I thought was crazy, Three Arrows Capital. What happens when Voyager goes bust, right? Or Three Arrows goes bust? Now, they can’t pay Voyager. But that’s the way it goes. It’s fine to be leveraged, it’s fine to lend people money. But when you’re not getting… I just can’t believe the amount. I’m looking at it, and I looked at it this morning, I’m trying to find more details on it, to really dig in. But yeah, it’s Voyager’s Digital as a brokerage firm, right. It’s 15,250 Bitcoins and 350 million of the Stablecoin USDC.

Frank Curzio: So, it turns out to be about $650 million. What would they… A bank would’ve never, ever, ever came close to even lending Three Arrows Capital this money, if they saw the leverage, and when did they do this? I’m not even too sure when they did this, but I’m sure they did it recently and not too long ago. So, if they did it not too long ago, I mean, up to nine, 12 months ago… Nine months ago, that’s when the market really started collapsing crypto. I mean, that’s when you’re lending it to these guys, when you’re seeing how leveraged they are, and they’re getting margin calls? This is the due diligence you have to do. And that’s why you have to have some kind of regulation here, but I don’t want to beat this to death, but it is providing amazing opportunities, especially for the metaverse, for us buying digital real estate, again the innovations taking place here that we’re excited about.

Frank Curzio: And you’re going to see a lot more of this where I would say the worst is behind us in the markets. I don’t know if the worst behind us in crypto yet. I think Bitcoin and Ethereum are going to be perfectly fine. Great, great buys. But there’s a lot of other companies where you have to know the leverage. You have to know their exposure before you’re really investing in some of these. And we have a lot of good names on our portfolio, which are down a ton, because there’s just so much leverage coming out, and everyone’s selling the good stuff. So, you have to be careful here, but it is creating a big opportunity, because crypto’s here it’s for real, it’s long-term, it’s going to be here forever, but you have to weed out a lot of bullshit, which is happening right now. Right?

Daniel Creech: And one last thing, exactly on the big players and the people with money are going to have a lot of great opportunities and options during bear markets, coin dust just reported a few days ago, our favor ride bank in Wall Street, Goldman Sachs is the leading investor group to buy Celsius assets, which was another crypto lender that went broke. They’re talking about getting up to $2 billion in commitments to buy discounted assets from them. Now, we need to timestamp this, revisit this later. Goldman also just got an upgrade, I believe from bank of America earlier this morning. But that’ll be interesting. You always like to see the most cutthroat, terrible people who make a lot of money, do things like this.

Frank Curzio: Well-

Daniel Creech: I love Goldman Sachs. I love to hate them. They’re the easiest… It’s like… I like Goldman, like I like the Fed. You hate it how everybody piles on the Fed. I’m the guy that says you ought to, because you ought to remind people why a bunch-

Frank Curzio: You don’t have to remind them though. Because everybody’s saying it all the time with the Fed. But,

Daniel Creech: But it falls on deaf ears. Anyway.

Frank Curzio: Yeah. Yeah. That’s true. And looking at the calls that you’re making, it was an interesting call today on the carnival cruise lines, right? So, Morgan Stanley came out and lowered their price target to seven and cited debt concerns. But they said that the worst case scenario, and you don’t see this often, is they put a zero target on carnival because their net debt remains above 30 billion for this foresee future. So, this is nearly triple the pre-COVID level, which again, you shut off all their business and they got hit the hardest. One of the companies initially that got hit the hardest, and Morgan Stanley says they’re going to have to raise at least 12 billion to get that leverage down to where any more demand shocks could cause a company to go bankrupt. So, what are your thoughts on that?

Daniel Creech: Yeah, when you have that kind of debt, if you do see something like a lockdown or a COVID, where they literally tell you, the government, your services are no longer legal for a certain period of time, you cannot operate. That’s going to hurt everybody. I don’t think they’re going to do that again. So, I think that’s more of a headline. I don’t believe that we’re going to have another lockdown to that extent, at least I hope not anyway, but I do like seeing the zero price target. Hey, our bear case, Frank, is zero. Oh no kidding. Wow. You’re pretty… What’s the upside. Did they give the upside on that?

Frank Curzio: I don’t know what the upside is, but I could tell you… So, we recently recommended a cruise line and this is a couple weeks ago, and I think we’re still up on it, even though the market’s getting hit on this news. And I looked at Carnival and I avoided Carnival, because Carnival’s debt. The other company that we recommended was in much, much better shape. 80% of their debt is fixed. They’re going to be able to pay it very, very easily. And they have all their ships now in operation, seeing more demand than they’ve ever seen. And looking at the numbers are about to explode and that’s across the industry, right? So, I will say this, I’m a numbers guy and the person who wrote this, I’m not going to mention the name, the Morgan Stanley guy, it’s kind of like a bullshit note. Okay. And you got to be careful with this, because this is where marketing comes in.

Frank Curzio: Because most companies don’t provide… Some of them do, and you know, a base case scenario, and you know, the bull case scenario, and here’s where our target is, right? And everyone’s base case scenario nine months ago, every stock is like 30% lower than that now. So, you know, a lot of this is bullshit with numbers and because they compare it to multiples of the industry and the past and stuff like that, and multiples are coming down. My point is, I’m a numbers guy when I look at this. And he says, if there’s any more demand shocks, of course, if we get another, COVID-like event where we lock down completely, yes, okay, we could go to zero. Okay. And this guy’s going to take credit for that. Even… But that’s not going to happen. We’re never going to lock down again.

Frank Curzio: We know it’s the worst decision, probably the worst decision made in our country’s history to lock down and the numbers come out, and I’m looking… I don’t even go there. That’s a whole other conversation. But when you’re looking at Carnival, here are the numbers. Okay. 8 billion of that debt is due over the next three years, they have 7 billion in cash, 3.6 billion in revolving credit. So, they can cover it right there. Cash flow’s going to be positive starting next year. They’re going to generate about 2 billion in free cash flow in 2024. And that’s projected to go up to 4 billion in 2025. So, unless you completely shut down the entire shipping industry like you did again, then it did go to zero. Other than that, they’re going to be able to pay their debts. Lowering the target makes sense. They have more debt than anyone else. I didn’t like Carnival because it caters more to middle market, lower end consumer.

Frank Curzio: So, they’re priced a little bit cheaper. And the one that we chose is higher where, they have more spending power. So, when I looked at Carnival, I avoided it. I said, holy cow, there’s a lot of debt. I don’t like this one. But the one that we recommended is in good shape. But you have to realize this is a business that’s absolutely booming right now. They just had to take on a lot of debt because you shut them down completely. And then even international, it was worse. So you know, these guys are building debt. It’s like an auto company. If you shut them down, the amount of debt that these companies… Look at the debt on Ford’s balance sheet. I mean, I have no idea. You look at this company and the mass amount of debt. They raised their spending from 4 billion in 2018 on EV technology and it’s 50 billion now. 50 billion.

Frank Curzio: So obviously… And now, you just said that after every lease, we’re going to take the car back, you can’t buy it, meaning that you don’t have the technology yet. You don’t have the batteries to scale. I just thought that was very interesting. It just shows how it’s a different story from what a lot of these car companies were telling us like GM’s, Ford, and CEOs were telling us about the EV, and they’re going to produce millions of cars by now. And they basically have almost none on the road as you could see, and Ford just recalled their F-150 Lightning, which I thought was interesting. Anyway, getting back to carnival, it’s kind of a shit call. It’s a guy that wants to get his name mentioned. And that’s why it’s being mentioned as zero.

Frank Curzio: If you lower it to seven, it would be a headline. Now, it’s like being mentioned on every single segment that comes on CNBC. But when, you’re looking at the numbers, it’s not going to zero, unless we have some crazy frigging event that happened once or twice in the last a hundred years. Barring that, they should be okay. Remember, demand for cruises is… It’s on fire right now. These guys are seeing stronger demand than they did during COVID, they have pricing power. They could put more stuff, they could charge you for more stuff when you’re on the actual ship. These guys are okay, but Carnival had to take out more debt than anyone they were in the worse shape, but I wouldn’t go away from this, because this is the travel industry, discretionary spending’s coming down. But there’s clear evidence from everything, from 50 different data points that I’ve seen, that that money is as you shrink the amount of money that discretionary you’re going to spend, people are going more into cruise lines.

Frank Curzio: They’re going more into traveling. And that’s why you’re seeing hotels report saying demand stronger than ever. Yesterday, we saw it, casinos stronger than ever and China’s opening back up. But you know, the most important point when I look at this. So, when it comes to cruise lines, guys, and the last point here is not only is demand through the roof, but the average cost of a cruise for a family of four is 40 to 50% cheaper on average then taking a family to other destinations. And that’s huge. Because if you’re cutting back, cruises are pretty cool. People like cruises, they’re family events or whatever, and I’m not talking about Disney, whose cruises are probably two X, three X more expensive than anybody else. But to me, this industry is ripe for growth.

Frank Curzio: You got to get out of the debt. Carnival is in the worst shape when it comes to debt. But if you’re looking at the other two cruise lines, I won’t give them, because one we recommended, they’re in very good shape in terms of their debt and going to easily be able to pay off. And if you look at the numbers over the next three years, the explosion… Explosion in revenue, explosion from the past two years, three years even, and pre-COVID blowing out those numbers and earnings, profits. It’s incredible. And this is a good industry if you think that we’re not going to fall into a huge major, major, major recession. But I don’t see this company going out of business. And I credit that guy. He got his name mentioned because he put a price target of zero in a worst case scenario, which is not going to happen. It’s good for him.

Daniel Creech: Let me ask you something. Is it cheaper for me to go on a cruise… If I had a wife and kids cheaper to go on a cruise than to, say, to go to Disney World, is that what you’re saying?

Frank Curzio: The average cost of Disney is about-

Daniel Creech: $10,000

Frank Curzio: I think for a family of four is a little over $10,000 right now, I think.

Daniel Creech: Oh shit. I was kidding.

Frank Curzio: No, no it is. It was like 8,500, 8,700. I think it’s over 10 grand. Last time I looked, I think it was about three months ago. So, the cruise lines are definitely cheaper than that, but then it also depends like, if we’re in Florida, we can go to cruise lines we could drive that to different areas. And even on the coastlines, you could drive to different areas. If you take a flight, holy shit, now you’re in trouble.

Daniel Creech: I mean, if you’re in Missouri and you want to go cruising, you’re getting on a plane, whether you’re going to Disney World or… Yeah.

Frank Curzio: But overall, even that, wherever you go on a plane, hotels and food and stuff like that, because remember, on these cruise lines, a lot of it is included. So, a lot of that stuff is included, especially if you have kids who get… Depending on the age, which I have young kids, but they’re a little bit old now, 11 and 14, but they get hungry every hour and a half. And when you’re at Disney it’s, “Oh, can I have a bottle of water?” “Sure.” Five bucks. “Oh, could I have an ice cream?” “Sure.” Nine bucks. Next thing you know, you’re out like $300 throughout the day, feeding your kids because oh, could I get that little thing? Yeah, that little thing is like 20 bucks now. And a lot of that you avoid on cruise lines. My opinion with cruise lines, when I look at the numbers, these guys are perfectly fine. Things have to go much, much worse or they have to have a catastrophic black swan event for Carnival to go out of business. But you know, good job by that guy getting his name mentioned in every place, which is cool.

Daniel Creech: Yeah. It’s working. Yeah, absolutely.

Frank Curzio: So, you know, great stuff, Daniel. We talked about crypto, really dug to what’s going on in crypto. It is providing great opportunities. I know it’s tough when people are just losing money and they’re like, well, I’m not interested in stocks. I covered this yesterday, how important it is, because everybody’s negative. One last thing I wanted to mention here, Daniel, is Intel. So Intel, I mean, really in terms of innovation, one of the worst companies I’ve ever seen over the last 15 years. Nvidia should not even exist if Intel was doing its job. And look what Nvidia did, look what AMD did. I mean, they just ate their lunch, right across the board. And then they sold that division to Apple. But you’re looking at Intel, and things are really bad for this company, and you’re not seeing it sharply come down, which is interesting.

Frank Curzio: They have a good balance sheet and everything, but someone on CNBC mentioned, which was funny, and they said, everyone who’s going to sell Intel has sold it. And we’re getting to that point in stocks. Not all stocks, because you see any of the cloud companies, technology companies, they were trading in such astronomical valuations that they’re still trading above the average market multiple. Where they’re trading at 25 times earnings, where they’re trading at 60, 70 times earnings. So, you could still see downside there, but there’s some names that are falling alongside them that are trading at 12 times earnings and growing those earnings easily in the double digits. Going forward, their margins are good. They have pricing power. So, you see incredible opportunities, where a lot of the selling out of the market, the worst is behind us. I know it’s hard to see. There is going to be a little bit more pain, but it is an opportunity.

Frank Curzio: This is the type of market, where you can get things at 40, 50% discount. If you’re a long term person who believes in these businesses that you’re investing in and you see the long-term viability of these companies, there’s so many names I’m looking at right now that I’m just picking away at and I’m enjoying it. I mean, the market’s going up and down. I nailed some of them because a lot of stocks are well off their lows, especially in biotech, in some industries. But you see the market yesterday came down and there’s still, I think, downside of technology, but there’s unbelievable bargains out there. If you’re an investor, that just wants to hold stuff 18 months or longer.

Daniel Creech: Yeah, I mean, we’re not perma-bulls here, but in a sense you should be. Unless capitalism is structurally changed, which is talked about a lot, but unless that changes, you should buy and have exposure over the long-term. Interest rates have had a huge paradigm shift to the markets in the shorter term. And we’ve talked about that. We can discuss that more next week, but I do think that it’s going to be choppy and lower at least through the end of the year. But that doesn’t mean you shouldn’t be buying. In my opinion, like you said, scaling into stuff over time.

Daniel Creech: It’s painful, but that’s… Listen, in this game that we play, in this world that we live in. You and I, Frank, and our investors, this is part of it. And you’ve talked many times I want to get into more of this later, but you don’t want to miss… Whatever you missed in lessons you learned during the downturn in ’08 or the crisis of 2020 with COVID, whatever you’ve learned from that, don’t make the same mistake here. So, it doesn’t mean buy blindly, but it does mean that you shouldn’t be sitting on your hands all the time and waiting for the market to go up a tremendous amount. And then, you’re playing the flip emotions of holy shit, oh, things are going to hell, and I’m going to lose. And the world’s coming to an end, and that’ll quickly flip to, oh, I missed it. And now, you’re just sitting on the sidelines.

Frank Curzio: And we lived through a market, Dan, that’s great on this. We lived in a market where the Fed didn’t allow recession. It wasn’t allowed in 12 years, 13 years. So, we’re not used to this. We’re not used to inflation area environment, where we haven’t seen this in such a long time. I mean, the trillions of money printing that we all know about. What I love about this market is it highlights who’s good and who knows how to analyze companies, because you could have made money and been the biggest idiot in the world over the past 12 years and made money, which is fine. But just like this, when I just gave the example of carnival, there’s a massive difference between carnival and the other two cruise lines, a massive difference, right? And you’re going to see that. So, you’re going to see the cream rise to the top, and that’s our job.

Frank Curzio: And that’s your job to look at companies where not everything deserves to be down. In biotech, 70, 80, 90%, I told you yesterday, we’ve picked away two names, and two great names that shouldn’t have been even close to where they’re going, but they’re there because there’s forced selling. There’s leverage coming out of the market. People are being forced to sell their good stuff, to cover all the bad shit, and bad mistakes they made, and the margin calls and their debt payments. But this is a market, where you’re going to see separation within the industry. So, you could have bought any cloud company, you’re up a ton and maybe a little bit more in the best collar company, or you have a ton on software, the best, whatever it is. But right now, there’s going to be separation of companies within industries. And that’s how you can make a fortune because those companies are going to get bigger.

Frank Curzio: Like a company like carnival may look to sell some of their ships to the other guys just to raise capital. You don’t know, and that’s going to make these companies stronger. So, that’s where we are in this market where those industry leaders are going to come out and if you’re able to buy those industry leaders, which are down 30%, you’re going to make a fortune in this market, because they’re going to take market share. They’re well-positioned, they got good balance sheets insiders are buying, and they have good growth profiles, but they’re getting hit along with everyone. And that’s the names we’re looking to put in our newsletters and portfolios, Daniel. So yeah, any final words?

Daniel Creech: Cheers.

Frank Curzio: Cheers. And it’s Wednesday Dan-

Daniel Creech: It’s Wednesday.

Frank Curzio: Daniel’s favorite day.

Daniel Creech: Love Wednesdays.

Frank Curzio: Favorite day. All right, guys. So, that’s it for us. Questions or comments, feel free to email me frank@curzioresearch.com. Daniel, email address…

Daniel Creech: Daniel@curzioresearch.com.

Frank Curzio: Awesome stuff. Thanks so much for joining us, guys. And I’ll see you tomorrow. Take care.

Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall street Unplugged is the opinion of its hosts and guests. You should not base investment decision solely on this broadcast. Remember, it’s your money and your responsibility.

Frank Curzio
Frank Curzio, founder and CEO of Curzio Research, is one of America’s most respected stock experts. His research is regularly featured on media outlets like CNBC’s Kudlow Report, The Call, CNN Radio, ABC News, and Fox Business News. His Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 11 million times.

Editor’s note:

Frank believes small caps are nearing a bottom. And research from investment banks like Jefferies and Bank of America back him up.

Money is already beginning to flow back into the Russell… making now the perfect time to start buying.

Go here… and Frank will show you a small-cap investing strategy you can start using TODAY to capitalize on this rare setup.

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