Fan-favorite guest Andrew Horowitz, founder and president of Horowitz & Company and host of The Disciplined Investor podcast, is back for a wide-ranging conversation about the current environment.
We discuss why the markets are due for a bounce higher… what actions (if any) the Fed should take to control inflation… why bear markets cause good companies to sell off… the future of the metaverse… and more.
- Why the markets are due for a bounce [1:40]
- This is the worst Fed in recent history [5:00]
- Can the Fed control inflation? [9:00]
- The easy money has been made in NFTs and SPACs [12:30]
- Netflix vs. Disney [15:38]
- Why good stocks sell off in bear markets [17:35]
- What sectors Andrew is watching [31:30]
- How consumers will drive the metaverse [34:40]
Wall Street Unplugged | 887
Why the markets are about to bounce
Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on main street.
Frank Curzio: How’s it going out there? It’s Thursday, April 28th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and tell you what’s really moving these markets. I have a great show for you today because I’m about to interview one of your favorite guests, and that’s Andrew Horowitz, host of the Disciplined Investor podcast, president and founder of Horowitz and Company, where he manages money for individual and corporate clients. Also, the best looking man in our industry in finance. You guys go to our YouTube page to check that out, to see that, that’s facts. How’s it going, buddy? How’s everything?
Andrew Horowitz: It’s going great. Thank you so much for that truth. It’s a fact.
Frank Curzio: For the truth, I tell them the truth. You can tell them the truth these days.
Andrew Horowitz: I know, Frank. Thank you. But they could tell, they know it’s video. I was going to say, when I first was thinking about, I’m sorry for all of you that have to watch the video to actually get the information with my and Frank’s ugly face on here, but here we are.
Frank Curzio: There’s a reason why we do radio, but we’re trying to do video for you to see.
Andrew Horowitz: Audio only, audio only.
Frank Curzio: You know you’re not good looking when people say, “You know what? You look good,” and they go, “For 50 years old.” Just leave that part out and it’d be better. Right?
Andrew Horowitz: Right.
Frank Curzio: Listen, we see the market crashing. Obviously, we saw good earnings on Wednesday, it came back a little bit, but man, the selloff is pretty crazy. You and I, whenever we do each other’s podcast, we set a couple of notes to, “Hey, what do you want to talk about,” and we just go from there, whatever, just a couple bullets.
Frank Curzio: One of the things that you sent to me, which is surprising, is we’re not going to have a backup the truck event like January 24th, but short-term bounce, it could be a nice relief rally. Is that what you’re seeing right now? Because right now, it looks like a capitulation, we’re seeing the VIC is very high, but man, we are looking at the biggest companies in the world selling off 30%, 40% now. It’s pretty crazy out there.
Andrew Horowitz: That’s exactly the point. Isn’t that exactly the point?
Frank Curzio: Yeah.
Andrew Horowitz: Now what’s happening is that everybody thinks that everything stinks. Everything’s bad. Nothing’s good, no matter what happens. Yesterday, we saw a Facebook supposedly come out with earnings before, and this is one little hint of what’s happening. There was a Bloomberg article that came out, I think maybe it was noon yesterday or so, and it was about their guidance and it was incorrectly published… Well, we think it was at the beginning, but it was an incorrectly published story.
Andrew Horowitz: The stock dropped like 5% on a minute by minute basis, then it was retracted, and then it was fine throughout the day. We know the rest of the story, but the point is that right now, if you look at what’s happening, well, markets are not as oversold. I use of that term loosely because a lot of people use things like RSI, MAC-D. They use all these different calculations. I have my own that I’ve developed over the years, and it is not showing a severely oversold situation.
Andrew Horowitz: Now we don’t always have to get to that point of being the, “Oh my God,” moment, but there usually is, as you mentioned, this capitulation where people are throwing in the towel and saying, “The hell with this, these companies just go down every single day, even with good news. I’m not dealing with it.” Look at Netflix and what happened over the last week or so.
Andrew Horowitz: What’s happening is that we are seeing that there is a general puking of stocks that is somewhat indiscriminate to a degree, and nobody wants to hold things because they’ve been trained that, “You know what? You don’t fight the Fed,” and the Fed, which we could talk about in a second, has done an extraordinarily poor job at trying to scare the hell out of people to slow down the economy.
Andrew Horowitz: With all that, to answer your question, the point is that there could be a short-term relief rally, as we saw what happened when Microsoft took a good number, as opposed to what we saw with Boeing, for example, which was just horrible, and was able to revive some investor confidence that all is not lost right here.
Andrew Horowitz: From there, when we see that maybe the mega caps will provide some kind of legs in the near term and the realization that maybe some of these overly shorted stocks have done their job of getting eviscerated down 80% or so, that maybe it’s time that there are some bargains and you will start seeing that creeping in. Short covering will ensue, short covering is always the first thing that happens in a market rebound. The other thing we could talk about is if the Fed just can contain themselves for a minute, maybe we can have some legs under a market and valuations that come back to something that is reasonable.
Frank Curzio: What do you mean when you say the Fed contain itself? Because we know that they’re expected, and this is at six price hikes going into Bloomberg, and that’s what they’re factoring in by the end of the year, we know it has to get to two and a half to 3% based on where the 10-year is. They could say anything they want, they could say, “We’ll do it in three months, six months, 12 months,” whatever, but they have to do it, right? What are we waiting to hear from the Fed that we don’t know already?
Andrew Horowitz: Do they have to do it? That’s an interesting question. The rates are there already, aren’t they? On the 10-year, they’re at close to round number, just a round number, 3%, because 2.7%, 3%. They’re close enough to 3%. Interest rates for mortgages 5.35% on the 30 year. The fed, do they actually have to? Who borrows the Fed fund rate?
Andrew Horowitz: What they want to do is slow down the economy. They slow down the economy by raising interest rates and drawing out liquidity. Liquidity is brought by the fact that people can afford to utilize the loan, the debt, the mortgages that are out there. Once it becomes unaffordable because it’s too expensive to utilize, they won’t use it. The Fed has managed to jawbone the rates higher already slowing down the economy.
Andrew Horowitz: Now some people will say, “Well, if the fed is at 0.5 and Fed fund rate features are up here, the futures are up there already.” Right now, the Fed, do they really have to go and do they have to necessarily raise rates? Of course, but do they have to get overly extended to slow down the economy? What I mean by that is what may end up happening is because of all this jawboning, and I wrote this on Twitter two days ago, the Fed speakers need to shut their mouths and go back into their caves instead of the free lunch speakatar.
Frank Curzio: Yeah, which is never the case. Back in Greenspan, back in Volcker, that was never the case. You didn’t have eight or 10 people from the fed all speaking out, and some of them contradicting each other. It was never like that. Right? It was never like that. It’s crazy.
Andrew Horowitz: We didn’t know the Fed guys. We knew Volcker.
Frank Curzio: Yeah, that’s it.
Andrew Horowitz: We knew Bernanke, to a degree. He started getting the communication strategy going. By the way, you probably can’t name them going back even further. I can’t.
Frank Curzio: Yeah.
Andrew Horowitz: But here’s the thing, yeah, Greenspan we knew because he was just a fascinating individual. Now, they’re all rock stars.
Frank Curzio: Yeah.
Andrew Horowitz: It’s cool. Who are you? Part of the Fed. Really? Oh yeah. And what are you? You’re an overpaid economist that gets things wrong all the time. Is that who you are? Yes. Okay, Rockstar. They’re invited to all these Harvard business review lunches and the Stanford Club and this and that.
Frank Curzio: Once they leave the Fed, they make a fortune too. They make an absolute fortune working for the Goldman Sachs.
Andrew Horowitz: Right, exactly, because then they go into the next stage, but they’re speaking and they send up, interestingly enough, trial balloons. It’s a real problem the way they’ve done things, and they do it because they’re nervous. They’re petrified of losing control of the markets with $9 trillion on their books.
Frank Curzio: Yes.
Andrew Horowitz: $9 trillion. That’s a lot of money.
Frank Curzio: $9 trillion of which… I think it was $4 trillion pre-COVID.
Andrew Horowitz: Correct.
Frank Curzio: Believe it or not, I looked this up, I think it was six and a half, $7 trillion. This was through 2020, which I get, okay, fine. You locked down everything. You decided to lock down everything. Nobody knew, whatever you disagree, agree. Nobody knew and everybody played it safe. At the beginning of 2021, we had earnings go back to record highs, household wealth record highs. Every asset class you could think of, cars, homes, everything at record highs. They injected another two and a half, $3 trillion into the market in 2021. Where did they think it was going to go? This wasn’t to the banks to backstop stuff.
Andrew Horowitz: They liquidated the economy. This will go down as the worst Fed ever in my lifetime.
Frank Curzio: I don’t know if they don’t pay their bills. I don’t know if they have personal drivers and they get everything paid for, but anyone who owns anything and lives, saw the inflation coming two or three years ago as it got higher and higher and higher. These guys are trying to tell us, “Well, there’s no inflation.” Where? I don’t want to look at the past. Let’s look at the future.
Frank Curzio: The future is, what you’re saying, is maybe they might not have to be that aggressive, but if they’re not, how do they expect to control inflation? Because that was their playbook. Right? “Hey, it’s transitory. We don’t have to do anything.” Now they’re saying, “Holy shit. We do have to do something.”
Andrew Horowitz: Frank, can they though? Can they control inflation? Let’s break this down for a second. I know that you like to do this, right? What’s inflation? Inflation is when I go to the store and I have chicken panic, I go there the other day, I go in front of the chicken case. I’m going to buy some breast of chicken, and I stand there staring in a phase, in a funk, $5.50 a pound.
Frank Curzio: By the way, really quick. Hold that thought. If you want, go on Twitter, follow Andrew. I’m going to give you a nice plug because what he likes to grill and show, it’s fantastic, passionate about it, but amazing meals. Go ahead. Keep going. Go.
Andrew Horowitz: Yeah. Sorry. My Instagram is Dad Bod Food Blog, only food on there. Dad Bod Food Blog.
Frank Curzio: Go ahead, the chicken.
Andrew Horowitz: Chicken, it was $5.50 a pound. There were three of us standing there looking at each other going, “Humana, humana, humana. What are we going to do here? Who’s buying chicken for $5.50 a pound at the place that I go to get cheap chicken?”
Andrew Horowitz: What we have is a situation where in the chicken, it’s a combination of issues, but we have the bird flu. We have a situation with oil that we have a war in Eastern Europe, we have grains that used to becoming from Ukraine, corn and wheat, palm oil, halted distribution and exportation from… Is it Indonesia? God, I can’t get palm oil from Indonesia, the world’s largest distributor, as of today or as of yesterday.
Frank Curzio: Mm-hmm.
Andrew Horowitz: You have all these things. Now let me you something; how is the Fed ratcheting up rates going to take care of the palm oil situation or the Ukrainian war situation? So there are certain parts of this that they have to realize are more supply oriented and certain supply and demand. The Fed ratcheting up rates is not going to cure bird flu.
Andrew Horowitz: We’re going to have to live with some of this for a while. It’s a weird circumstance, but if the Fed makes the very bad decision, just like they made the bad decision to keep on liquefying the economy, at a time where we see a war time environment, the fed is going to raise rates.
Frank Curzio: With the market crashing.
Andrew Horowitz: It’s insane.
Frank Curzio: Just to put that in perspective, this has never happened. We’ve gone through a lot of periods. This is why I tell you to throw every investment book out that you ever read, because this is nothing, there’s nothing to compare what we’re going through, where we have zero interest rates through 2007, ’08 right? Just started lowering them, kept them there and said, “Wow, this is great. The economy’s doing great. We could just keep injecting money.” There are no consequences.
Frank Curzio: Then you lockdown the whole economy and say, “Wow, we could print as much money as we can. It doesn’t matter.” This is without the Build Back America Bill, which thank God that didn’t get passed, because we’d be sitting at instead of 8% inflation, 12% inflation, but it’s just constant money printing. This has never happened where you see the Fed…
Frank Curzio: Usually, the playbook is they are lowering rates and stimulating the economy when you see something like this in the market. Right? But the fact that they’re so behind on inflation, it’s the first time you see in our market really, really come down the way it’s coming down and the Fed actually tightening when we have all the major indices below the 200 day moving average as of the Tuesday crash and everything, but you don’t see that ever, ever, ever, which is crazy.
Andrew Horowitz: They’ve done a lot of tightening between turning off the bond buying, and of course, not reversing it yet necessarily, but turning off the bond buying program, de-liquefying or sucking liquidity out of the markets, that’s what’s going on right now, really. That’s a big part of what’s going on, aside from the fact that the reason that earnings are not doing as well is because they are slowing. They’ve effectively slowed down and the pull forward effect that we had over the last couple years, that was very apparent.
Andrew Horowitz: The retail investors that just lost their minds with the idea that they can make $1 billion dollars in a day with $20 in their account. This idea that has permeated with NFTs. I had a great lunch with somebody, and we were talking about NFTs, and this is a guy that really digs crypto. He’s like, “How ridiculous is all of this? Right? What’s the purpose of some of this?” There’s some great stuff, NFTs themselves are great, but they’ve been bastardized by Bored Apes.
Frank Curzio: Yes.
Andrew Horowitz: Crypto is great, but it’s been bastardized by these shit coins.
Frank Curzio: Most of it is garbage. Yes, it is.
Andrew Horowitz: Right. Same thing with SPACs, great idea, SPACs.
Frank Curzio: Well, I don’t know if they’re so great. There’s a reason why they disappeared. Now you have a retailer and without the retail environment, it doesn’t work. Right? Because you need someone to pump it to because they’re getting in early, they’re inflating evaluations. They do the roadshow of these companies, every other dollar or two. You need the retail environment and you basically have to say, “Okay, we need a lot of stupid people that are going to buy the shit out this right and keep buying it so we can get out when we launch this thing.” Chamath is out of all of them, they made their money. They cashed out and these people are down-
Andrew Horowitz: You had to know that when Chamath Palihapitiya, I can’t really pronounce this name, whatever it is, Palihapitiya?
Frank Curzio: I can’t even come close.
Andrew Horowitz: Palihapitiya?
Frank Curzio: Yeah.
Andrew Horowitz: Chamath, we can’t even pronounce his full name, so we’ll call him Cham. You knew there was something wrong when he was putting out one-sheeters with proforma, with no information, just multiplication, nothing.
Frank Curzio: No warrant structure, no pipe deals, what’s going on behind the scenes? Nothing. They didn’t have to put disclosure in there. Listen, when you do a private deal, and you know this Andrew, when you invest in a private company that’s going to go public, it’s usually seven to 10 years, by the time you could have your liquidity event. That’s if the company gets acquired or you do an IPO.
Frank Curzio: With SPACs, it’s immediate, right? You’re investing earlier. You’re able to cash out on venture capital. Venture capital is not there to invest in companies and keep them for 10 years. It’s venture capital, and they cash out once you go public, just like Peter Thiel did with Facebook. That’s their job, and then they move on to the next situation.
Frank Curzio: This was the perfect solution for them to throw a ton of money in, get in cheap and get out much, much, much quicker, lower liquidity, less regulation, less disclosure. Now you’re seeing what happens. That’s what you have when you have an environment where it’s so easy to raise money and low interest rates and just flooding the market with cash, that’s what it opens the door to, right?
Andrew Horowitz: Yeah. When I say back of the truck, if there was a truck and it had money and money was zero, how much of that money would you borrow? If there was a truck with money and interest rates were zero and that truck came to your house, how much money would you borrow?
Frank Curzio: Exactly. Yeah, all of it.
Andrew Horowitz: All of it.
Frank Curzio: Yep.
Andrew Horowitz: All of it. That’s what happened. We debase the currency, we went haywire, this grand experiment with fiscal and monetary policy. It’s really a shame. That doesn’t mean all is lost though. I want to be clear about that. Right? There are great opportunities.
Andrew Horowitz: Some of the names that have come down as dramatically as they are, are great earnings. Let’s look at, just for a second, Netflix. I know they’ve got their inherent problems with password sharing and all that and their earnings are coming in and they’re spending a lot on production, etcetera, but what a great property, as opposed to Disney Plus, which is crap in my opinion.
Frank Curzio: Yeah.
Andrew Horowitz: But when you look at Netflix, great property, either for acquisition, maybe, I don’t know, or for the continuation of what they do. They still have a very sticky platform with a good amount of price elasticity in there. They’re just getting beat up incessantly right now. It looks like getting towards a very interesting point. You see this stock by stock by stock, in some areas. There are a lot of crap that deserves to be down 80%.
Frank Curzio: Exactly.
Andrew Horowitz: Is DocuSign a company that deserves to be down 85%?
Frank Curzio: That’s a great company.
Andrew Horowitz: I don’t know.
Frank Curzio: What the ROBLOX, too? I was dead wrong on ROBLOX.
Andrew Horowitz: ROBLOX, too, it just does not stop going down.
Frank Curzio: No, but they’re comparing it to the Rivians that are generating no revenue. These guys have seen tremendous growth, they’re in the metaverse. You see money pour into the metaverse in the past three or four months, billions of dollars. That’s where I only see money being raised right now, through the metaverse. For them to be in that market, NIKELAND is signing up corporate clients. Everything’s going right for these guys.
Andrew Horowitz: The NFL, yep.
Frank Curzio: Listen, they were expensive, don’t get me wrong. They had a growth profile. They needed to be adjusted.
Andrew Horowitz: Right.
Frank Curzio: But just by 70%, 75%? I don’t know about that. Now, I agree with you, just everything’s sold. Let’s get into it. We look at the case here and people, I think aren’t familiar with bear markets and what happens where it’s just like bull markets, all the shit goes high. It goes a lot higher, even good stuff. Right? In the bear market, you’re going to see a lot of stuff come down and you say, “Wow, UPS reported great earnings. How come it’s down? Qualcomm just reported great earnings last quarter. How come that’s down 25% where even Microsoft’s numbers have been great and even they’re down.” Yeah, they went up after a fantastic quarter again, but still down 20% from its highs.
Frank Curzio: Why does that happen? I want you to explain. The margin calls, the leverage in the market. They have to sell different things. Explain that, because I know we get that a question. I get it a lot. I try to explain it, but I want to hear it from you too, is why is my favorite stock going down when they just reported great earnings?
Andrew Horowitz: Beauty is in the eyes of the beholder, first of all, and all the value of what a stock is, is really built on confidence of the outlook in the future of what’s happening, built on a calculation using a capital asset pricing model, a cap M, which basically is very simple.
Andrew Horowitz: How much for technology, for example, because when we talk about that, that’s discount models, etcetera, but basically it says, “Hey, what’s the value today of the future cash flows of a company,” and there are different ways to deal with that, “Backed up by what?” It’s always around an interest rate, right? The interest rate is what, we use what’s called a risk free rate of return.
Andrew Horowitz: For example, Frank, if I said to you that you can guarantee and get 20% on a guaranteed investment, a stock doesn’t have as much great value because who cares? I’m taking the 20% guarantee for the next 10 years. Now if you’re 0% or 0.2% or 0.4% or 0.1% of an interest rate, now all of a sudden a stock that has the future growth of let’s say 20% per year, looks lot more likely that I can make money with that, right? There’s that risk trade off.
Andrew Horowitz: When you calculate the capital asset pricing model, when you look at the discounting methodology, when you put in an interest rate as a risk free rate of return, once you do that, as very simple, “Here it is, black and white,” when interest rates go up, the valuation factors go down. That’s it. It’s very simple. Interest rates go up, valuation models go down.
Andrew Horowitz: Now, the other thing that happens is in recessionary times, oftentimes people think, “Well, we have to revalue or re-rate a stock. Why?” Well, the reason, very simply, is this; the potential for making less money by the company over that time period is much less. They’re not going to earn more because people aren’t spending more. It’s all about consumers and spending and companies and spending.
Andrew Horowitz: When you have a situation like that, again, it re-rates the company. If we’re going into a double edged sword here where we think we’re going into a recession because interest rates are going up, the capital asset pricing model is going to help us re-rate the companies at a lower cost, a lower valuation. The idea that earnings are slowing down doesn’t help. That’s a double whammy. Now all of a sudden, the value of the company has been changed dramatically or re-rated in a recessionary time or in the front end of a recessionary time. Does that make sense?
Frank Curzio: No, no. It makes sense. It makes sense because we get that question a lot. Yeah, I totally agree. Everything comes down, you’re seeing a liquidation preference. Also, you’re seeing people paying for their taxes that they did very well last year, and April 15th just passed and now you’re like, “Holy shit, my portfolio is down,” and you’re going to sell some of those stocks to pay that. Right? You got more money coming out of the market.
Andrew Horowitz: Then you have the word war, then you have the word nuclear that keeps being mentioned, freaking people out.
Frank Curzio: Yeah, yeah.
Andrew Horowitz: Right? We just do not need to say that word. Now Iran’s going to have capabilities in the next couple of weeks supposedly, and Russia’s like, “Hey, by the way, just to remind you guys, we have nuclear capabilities.” No, no, no, no, no. We don’t want to know about that. Don’t remind me.
Frank Curzio: Yeah. This is Ukraine trying to bring the powerhouses into the war to help them out. I get it. Yeah, the nuclear thing, and then you got the Fed. I want to talk to you, because this is a good transition here because I hear this all the time, and people ask me this question and say, “What do you think about the dollar? Is it going to be around? Central government sucks,” and this and that and all this crap, “What’s going to happen?” I’m like, “Listen, the least of your concerns if the dollar crashes or it just goes away is you’re talking about extensive riots and the world ending.” The whole world’s based on the dollar basically.
Frank Curzio: Yeah, but people are like, “It’s going to crash,” and I want to show people something and I want to show you this chart as well, but this is the last six months of the dollar. Right? Look, what’s happened to the market, especially, let’s go to three months. Right? Let’s look at the last month and what happens? Right. We’re seeing the market crashing and the dollar goes higher and higher and higher, dollar index.
Andrew Horowitz: That’s a big issue.
Frank Curzio: Yeah. It is a big issue, but it’s still the safe haven of the world. It’s where people go. Right? Talk about that a little bit because some of it plays on a dollar because as the dollar goes higher, it impacts a lot of industries, a lot of countries, it impacts gold, as the dollar goes higher, even as rates go higher.
Frank Curzio: Gold used to be great. I’ve heard arguments for deflation, inflation, all these things. We’ve had negative real rates forever, which is going to change because it doesn’t pay interest. Now, you’re seeing rates go higher. Is gold good for anything anymore? Because we just went through an environment over the last five or six years where gold should have absolutely exploded and it’s not, and now it’s even coming down now because if you look at a gold stocks and inflationary pressures with everything, all the costs higher, but even gold itself, you would think gold will be trading at $3,000, $3,500. If it’s not now, will it ever? Again, that could be a function of the dollar.
Andrew Horowitz: In the last year it hasn’t moved. It hasn’t moved. It’s not great. I own some gold for client portfolios and silver.
Frank Curzio: Me too.
Andrew Horowitz: Actually, I’m happy it hasn’t moved. Right? Everything else is going a little crazy and there’s no safe haven.
Frank Curzio: Basically it’s underperformed every single asset class since 2012. If you’re in it, you got killed with the opportunity cost. Anything else you could have bought at Five Below, noodles for your pool, and they would be worth more than what you paid for gold, not price but percentage wise, it went up higher.
Frank Curzio: It’s just that every single thing went up except for gold in an environment where you think that gold should actually take off. Again, the dollar goes up, it’s not as good for gold. You’re seeing gold sell off.
Andrew Horowitz: Let’s look at gold. Bring up your chart again. Let’s look at gold just to bring up GLD, let’s say, since November. Bring up GLD. Can we squeeze it down to November or so?
Frank Curzio: Let me see.
Andrew Horowitz: Is this weekly, is it daily? What is this?
Frank Curzio: Yeah, this is a site I just brought up because I don’t have my current platform up.
Andrew Horowitz: Okay, what is this? Where’s November here?
Frank Curzio: This is three month, this is February.
Andrew Horowitz: Let’s call it higher over three months.
Frank Curzio: Six months is November, right here, six months.
Andrew Horowitz: Okay. It’s higher. Would you agree?
Frank Curzio: Yes, definitely higher.
Andrew Horowitz: Okay.
Frank Curzio: Yep.
Andrew Horowitz: That has been a great, not great, it’s been a hedge against equity volatility and bond volatility.
Frank Curzio: It’s higher. Yeah. It’s not bad.
Andrew Horowitz: Not great, not great, but what I’m saying is it worked.
Frank Curzio: Yeah.
Andrew Horowitz: It worked. Now when you want to tell me that Bitcoin’s better or this is better, I don’t know. That’s not the point, but you asked me about gold. What is it good for? You know what? When the shit hit the fan, so far so good. No, it’s not a great investment, but you know what? If someone is down 25% on their portfolio in the last several months due to the fact that what’s going on, they may have been a lot happier, slightly higher in gold.
Frank Curzio: Yeah.
Andrew Horowitz: That’s all I’m saying.
Frank Curzio: Yeah, in the past couple of months, yeah.
Andrew Horowitz: Other than that, there’s a lot of questions. I agree with you. There are those gold bugs, which are like Bitcoin maximalists, that are like Peter Schiff, which I know you do banter with quite often on Twitter.
Frank Curzio: Why do they hate each other? Why gold bugs and Bitcoin bugs hate each other? I own both of them. I’m a believer in both of them. I’m pissed off. That’s what I’m saying.
Andrew Horowitz: Cats and dogs, man. It’s just cats and dogs.
Frank Curzio: They don’t believe in central governments. They hate the dollar. It’s just an alternative. Why not? It’s so funny how it’s the same reason for buying bulk, but I just feel like both of them don’t understand, where if you don’t understand, where gold is our asset-
Andrew Horowitz: It’s very simple, Frank, it’s very simple. You know what it is?
Frank Curzio: Explain it.
Andrew Horowitz: It’s what the most blood has been spilled over our history. My God is better than your God.
Frank Curzio: Yeah, pretty much.
Andrew Horowitz: That’s what it is. They’re just all about that. Right? The Jets are better than Giants. Do you know how many people have been just face-planted for just that? Right? You know, as a Jets fan.
Frank Curzio: Yeah. No, as an Eagles fan, but I know living in New York, it was the Giants. Yeah, no, it is. Yeah, for me, when I look at it, it is pretty crazy when I’m looking at the dollar, which goes into, I love how Russia sold a lot of their dollars going in they knew exactly the playbook of what they were going to do, where these sanctions going to come. They did the same thing when they took over Crimea, Georgia, same exact playbook. We did the same exact thing, they were prepared.
Frank Curzio: But what about China? We’re seeing China where, for me, when I look at where we are compared to China, where I don’t know if it’s the current administration, I just feel like they’re gaining on us. They’re smarter than us. They’re using common sense. Like Poland, for example, is a great example. Even the US, right? Coal’s the worst thing in the world, it’s terrible. Poland’s like, “We got to save the environment. It’s horrible. We’re never going to produce coal. We’re going to import the shit of it from China.” If you do that, like it’s not going to hurt the environment. Right?
Andrew Horowitz: No.
Frank Curzio: So just the political portion of it, but China, listen, they’re producing coal. They’re very smart. They’re one of the few countries where stimulus now, which is going to probably come in tax incentives and things like that, they did see a little inflation pass through quarters, but now you’ve seen their lockdown where they’re a little crazy over there. You highlight it.
Andrew Horowitz: A little?
Frank Curzio: Yeah. You got the statistics. You said it.
Andrew Horowitz: A little? We know what’s going on in Shanghai. In Shanghai, if you don’t know, if you haven’t seen, they’re not only making you stay in your house in certain areas, they are putting fences, physical fences around the house so you can’t get out.
Frank Curzio: Yeah.
Andrew Horowitz: And in Beijing, they did 20 million COVID tests and found one potential case one, one. Now they’re not going to lockdown because of that, of course, but that, first of all is a pretty unbelievable undertaking, especially because they’re charging $4 per test. I don’t know how they’re doing that, but it’s mandatory. They’re collecting, what is it? $80 million on their testing. That’s mandatory. They’re making sure, because Beijing’s obviously their capital city.
Andrew Horowitz: Shanghai is a big port city, and manufacturing. There’s a lot going on in Shanghai, but that’s locked down. You got to wonder if they ever really think they’re going to get away from this. They can’t. This is all because of the Olympics, in my opinion, it has to be.
Frank Curzio: I think it’s hilarious. It’s a fact, this was originated in Wuhan One lab. Right? We all know that now. If you said that, whatever, 18 months ago you got kicked off the internet and probably fired from whatever job you had.
Andrew Horowitz: No, I think it was always known. It was just the way it was presented.
Frank Curzio: Yeah, maybe that.
Andrew Horowitz: Like it was purposely done and all that.
Frank Curzio: Yeah. Well, yeah. Regardless, but what did they do when they found out? They said, “Okay, we’re going to lockdown every place in China.” Wuhan was locked down. And they said, “No traveling,” except you could travel from Wuhan to anywhere else in the world. You just can’t go anywhere else in China,” which is where it spread rapidly throughout the world. Right?
Frank Curzio: Just the fact that they’re this stringent with their policies on lockdown and the fact that they weren’t back then, where they should have just completely locked down and said, “Nobody goes anywhere,” this could have been really contained in this different world, but it’s just funny. I don’t know if it’s learning from their mistakes that you go, “Once you swing one way, you got to swing totally the other way.” Just the policy we’re seeing here, were not the policies at the beginning.
Andrew Horowitz: This seems absurd, almost as we know what’s happening and the potential, I don’t mean to be glib or unfeeling or uncaring about this, but we know at this point, a very small chance of even hospitalization for that matter. Right? Of some of these new variants that are out there. We don’t know what’s going to happen in the future, but right now.
Andrew Horowitz: It’s almost like it would be a good idea, the best idea, to have herd mentality, not herd mentality, herd immunity that’s developed because they are never going to be in the clear if their vaccines don’t work and provide any kind of antibodies. There’s no way to eradicate this because anytime you let somebody in… I don’t see the end of it in China. It’s going to be a constant battle because there’s a lot of people in China.
Frank Curzio: Yeah. Listen, I credit CNN for the reporting. There’s two or three of them that were in China taking videos. It was a complex with a bunch of 30 story, 20 story buildings or whatever. They were apartment complexes and people were actually screaming. They were just breaking doors down, taping stuff up and just showing drones. It was pretty crazy there. Very surprising considering what you’re hearing and just seeing that and seeing these videos, which I was like, “Whoa, holy shit, it’s crazy there.” This is…
Andrew Horowitz: Crazy.
Frank Curzio: This doesn’t seem like a place that we hear about when it comes to China. Right? It was a little nuts, and we have a lot of China listeners, too.
Andrew Horowitz: Rightfully so, there’s a lot. India and China, I don’t want into get to a whole pandemic talk here, but India and China, rightfully so, have a lot to worry about because it could really rip through their citizens and people there and their economy. But China doesn’t seem to care. They’re closed down their economy anyway, but that will yield possibly. I’ve seen this before, in China leading us out of these problems. That will lead to stimulus through China which could bleed into the rest of the world, because that will be substantial, but I wouldn’t count on it.
Frank Curzio: So let’s get to the last part here, because I always ask you for ideas. It’s a crazy marker right now. For me, I’m looking at it where, can you pick away? There’s a big difference in technology if you’re looking at even the bigger names, right? Look at Microsoft, $100 billion in cash, 25 times forward earnings, growing those earnings 20% plus.
Frank Curzio: I look at Disney, which is trading at 25 times forward earnings as well. Those earnings aren’t going to get back to pre-COVID until 2025. They went crazy on streaming, which is costing them a fortune. They’re sitting in $40 billion in net debt compared to Microsoft, same valuation. Yes, two different industries.
Frank Curzio: But I feel like I’m seeing so much separation where everything is down, but there’s a lot of companies I’d rather pick up than some others. What are some of the names that you like right now? Because when you look at the fundamentals and the growth profiles, I see a significant difference between companies that are all down 30%, 40%.
Andrew Horowitz: Just to consider this, that one of the things that we do in our, it’s called the TDI Managed Growth Strategy Portfolio, which consists of stocks that are picked and filtered by us through a quantitative filtering and screening process, is that this is actually bizarre. We are getting more names that make it through our stringent screens, and I ran it today, than ever, ever.
Frank Curzio: It makes sense with how much stocks are down though, right?
Andrew Horowitz: It’s not about down. It’s about earnings. It’s about quality of earnings. It’s about earnings consistency. It’s about revenues.
Frank Curzio: Earnings are still relatively strong.
Andrew Horowitz: That margin. I’m telling you, I’m like looking at this stuff and you know what we did? We started tinkering with this formulation and saying, “You know what? Let’s make it even more stringent,” and we’re still getting more names that I’ve ever had. I’m not kidding. I’m like, “How is that even happening?” Margins are up, you change your margin expansion requirements, your revenue growth numbers, quarter over quarter, year-over-year, and looking back, EPS numbers, all those numbers. It’s like the best run we’ve seen, which is pretty amazing.
Andrew Horowitz: Right now, I think that it’s really important to understand that quality of earnings, generally speaking, like a Microsoft quality of earnings, right? Google, they had a good number. Everybody’s all freaked out. They’re pulling their hair out of their head and running around like they’re on fire because of the YouTube drop and all that, which was not that substantial, for goodness sake.
Andrew Horowitz: Oh my God. TikTok, oh my God. TikTok, oh my God, this whole TikTok thing. Everybody’s freaking out over TikTok. That means that Facebook is going to be horrible. I don’t know. If you look down the road and you think about what’s going to be, especially if Elon is successful in his Twitter pinch, if he does that and he takes the advertisers out, those advertisers are going to look for some other place to go.
Frank Curzio: Yep.
Andrew Horowitz: It’s going to be TikTok. It’s going to be Facebook. It’s going to be YouTube, it’s going to be Google. It’s going to be somewhere. They’re going to have all that money to spend if it’s going to be non-advertising non-ad supported.
Andrew Horowitz: I think that you have to be really careful. Some of the things that we’ve done as slanted over to banks as the year curves keeps on… It’s a little wonky, the yield curve, but banks in general like Bank of America, but banks in general, the concept of leaning into energy related names. Energy stocks have years of earnings momentum built in with what’s gone on with the price of oil. You know, you studied that, you’re an energy guy.
Frank Curzio: Mm-hmm. Yep, absolutely.
Andrew Horowitz: It’s like that and almost to a degree. We’re overloaded, frankly, with energy stocks, which never happens. We hardly get energy stocks ever through the screen. It’s a growth screen. Energy’s not a growth oriented investment, but we get that. I think you need to be on the side of more of a value orientation right now, but not deep value, like a GE, which keeps on shitting in the bed. We can’t get those. That’s done.
Andrew Horowitz: Things that are very interest rate sensitive, housing, questionable from a fundamental standpoint. But there are some really interesting names. You talk about the metaverse. I keep on getting slightly burned and just getting a warm touch and I pull back and they just keep on going lower. I try to get in there again.
Frank Curzio: Don’t look at ROBLOX or Fortnite. That’s not metaverse plays, and Facebook as well, is not really going to be in a blockchain.
Andrew Horowitz: Wait, wait, wait, wait, you don’t think ROBLOX is metaverse. How is that?
Frank Curzio: No, that’s more like a virtual online platform because yeah. They make all the money, right? Really what metaverse is an actual economy that’s permission-less, right? That means that you make the money, you own it and ROBLOX owns it. Right? Oh, it’s filtered one way where ROBLOX is making all profits, where you know these other metaverses, even if you look at the central land, you could have actually businesses in them, own your own properties. You own it, you own this. This is decentralized, right? It’s a lot different from ROBLOX, but ROBLOX is considered in the metaverse.
Frank Curzio: I’m not saying it’s not a metaverse play, but when you really look deeper, the metaverse is something I’ve been doing for the past four or five months, you really see the difference where this is more like a virtual world where metaverse is more like an economy where people can make money and sell their NFTs or sell whatever they want through there.
Andrew Horowitz: I hear what you’re saying. No, I hear what you’re saying. I see the metaverse as the overriding of all of that. I’m not saying you’re wrong, I’m just saying how I looked at it. Maybe that’s right. Are you going to the permission-less this conference coming up in Palm Beach?
Frank Curzio: No, I didn’t know about it, but I am going to a metaverse conference in a couple months, NFT conferences. NFTs are fascinating. It’s sad because of Bored Apes and all that shit, but when you really look at digital ownership of your own property, and I give the example of ticket sales where these owners are tickets where they sell them for $100 to Ticketmaster and StubHub and everything. They sell them for whatever, depending on the venue and how popular it gets, it could be $1,000 a ticket.
Frank Curzio: Now, they’re going to be doing them through NFTs where every time they sell them at a higher price, they get a royalty. That makes sense. Not that I want these billionaire owners to become richer, but the NFTs are fascinating, but unfortunately, like you said, you have so much bullshit and it makes it look so bad.
Frank Curzio: Now you open up an economy where, look, everything we do on the internet, it’s a rental economy, right? They could shut you down. They could shut this down. This is going on YouTube right now. This is going on iTunes. Apple could say, “F you, Frank, we don’t like you anymore and you’re gone.” There’s nothing you could do about it, right?
Andrew Horowitz: Yep.
Frank Curzio: That’s where the metaverse is actually going, where this is your content, you own it, where I think that was the original version of the original thoughts of where the internet was supposed to go, which just so happened that four or five companies took control of every single thing and every aspect. But now I think people are starting to allude to the fact that, “Wow, you’re using all my pictures. You’re using everything I have that I think is okay to put on the internet and Facebook, but you’re actually using them and sending them to advertisers basically to see exactly and track me and basically sit on my couch and make a fortune off of me through advertisers,” because you are the product.
Frank Curzio: Now you’ve seen this thing open up. I think we really saw it through the election cycle, through COVID, of things you can say and can’t say, and how they could shut off people, whoever they want. And I think that’s, again, not to get too deep, but man, to me, that’s an amazing concept, really having people own stuff, instead of being reliant on companies that really own all your stuff. A lot of people still don’t know that.
Andrew Horowitz: The big thing that people don’t understand, and if you haven’t really looked into it, it is very simple, but yet complex. I know that sounds silly, but NFTs, forget about everything you know about it, it’s not buying a painting in there. I look at it as a digital authentication protocol on the blockchain that can be utilized for a lot of things. That’s it, end of sentence.
Frank Curzio: Yeah.
Andrew Horowitz: Now they said, “Oh, by painting says, ‘NFT.'” No, it’s in the NFT. It’s encapsulated.
Frank Curzio: Change a freckle on a face. Yeah. It’s crazy.
Andrew Horowitz: Right.
Frank Curzio: It’s insane. Any individual names that you like? You said oil.
Andrew Horowitz: Not too many individual names this time. I’m not doing it, not doing it, not doing it. Not this time around. I can’t, there’s too much volatility. I will be wrong, I’m sure. I think, do you really want me to give you some names? Do I have to? One or two? Do you want me to?
Frank Curzio: Wait, what’s the symbol for Microsoft again?
Andrew Horowitz: MSFT, Mr. Softy.
Frank Curzio: Good. Microsoft, you recommended. You’re going to recommend shorting Microsoft since you don’t like anything.
Andrew Horowitz: Oh no.
Frank Curzio: You said it.
Andrew Horowitz: I think Amazon is an interesting play right now. No, I think Amazon’s an interesting play right now. I think that when you look at some of the names in… I find it fascinating, some of the names in the security space that they’re just getting obliterated. You look at Sentinel One, you look at CrowdStrike, you look at Palantir, why are these companies just getting obliterated with all the rest of them?
Frank Curzio: Well, Microsoft earnings, Andrew, which is interesting, everything, Surface sales and LinkedIn went through, every single thing went through, but they said that they’re seeing the software part of the business, they said that’s a little bit weaker where they’re seeing slower growth, that I would worry about that, but they’re so diversified in cloud, it’s just destroying it. They’re not including that in software.
Frank Curzio: But that’s interesting that that was the one component that they took out. The CEO said, “I’d be a little worried about the software component part of it.” Yeah, I agree with you. I’m surprised that they’re down so much. I really am.
Andrew Horowitz: Healthcare, I don’t think there’s any particular picks in there that I could see. You have to look at probably the resurgence of some of these drug stocks that can treat. I still like some of these areas that are very, very, very, very far away from anything but CRISPR technologies, whether it’s Editas or CRISPR, an interesting look in there. Those are a few names there also.
Frank Curzio: Listen, you don’t have to give away names and give away names. I just like to get them. I know people like them, but if you don’t have anything, I’d rather you say, “No.”
Andrew Horowitz: I would like to wait to until your next show to see how this all shakes out. Like I told you, energy is a big positioning. We own Microsoft, by the way, Twitter, do you want to get near Twitter? I think it’s very possible that this thing falls through, as crazy as that sounds because I think he’s going to get bored. Yeah, I have a put on it, but it’s two months out at a 40. We’ll see.
Frank Curzio: That’s where it’s going to fall to if this thing falls through. That makes sense.
Andrew Horowitz: Right, exactly. I don’t think it’s the worst thing, but I think we’ll be… Unless something really weird happens, I think you’re still going to see a lot of upward opportunity in Amazon and some of the discount retailers. People still need to buy things. Of course, the continuation with the Costco’s, the Walmart’s, which have been really good plays, some of which we own in our portfolios as well.
Frank Curzio: Great, okay. We got a minute left. If someone wants to find out more information about the wonderful, awesome, and great looking, greatly, you got a nice shirt on today to match your eyes. Yeah, you look sharp today, man. You look really sharp.
Andrew Horowitz: Thanks. Thank you, sir.
Frank Curzio: But if someone wants to find out more information about you, how can they do that? As I pull up your psych.
Andrew Horowitz: You go to ILoveAndrew.com and look at the sandwiches right there. Go over to the DisciplinedInvestor.com. There is all sorts of information. You scroll up a little bit, Frank.
Frank Curzio: I’m waiting for the scroll arrow. Wait, let me see. 15 years. I know it’s 15 because I’m a year behind you. So, nicely done. That’s what I was waiting for.
Andrew Horowitz: 15 years of podcasting. Yep.
Frank Curzio: Awesome. Good for you.
Andrew Horowitz: But basically all the strategies that we manage there because we do manage money. That’s what it’s all about. What we do on a regular basis is in there as well as the different ways that you can get involved. But also, of course, make sure to tune in to the Disciplined Investor podcast on Apple, on Stitcher, on anywhere, anywhere you could find it, that you have on your podcasting apps. It’ll be there. Frank, before we go, if you do want to go to the permission-less conference, let me know. Go look that up. Just write that down somewhere. Permission-less.
Frank Curzio: Are you going?
Andrew Horowitz: If you go, I’ll go.
Frank Curzio: If I go, you better go. You’re pretty close to it.
Andrew Horowitz: If you go, I’m going to go. I do have VIP tickets to it. It’s through BlockWorks. You know BlockWorks.
Frank Curzio: When is it? It’s coming up?
Andrew Horowitz: In two weeks, three weeks.
Frank Curzio: Okay, cool. I’ll let you know.
Andrew Horowitz: Do you want to look it up real quick? I’ll look it up in the background.
Frank Curzio: I’ll be able to take a look. I’ll be able to find it. But yeah, my schedule’s going to open up a little bit, yeah, definitely.
Andrew Horowitz: Web3 in 2022, let’s see. It’s coming up Thursday, May 17th and 19th, which I will happen to be out of town. Now that I look at it. I’m going with my son to Arizona, Sedona.
Frank Curzio: I guess I’ll go. I’m using you tickets. That’s cool.
Andrew Horowitz: You can use my tickets. I’ll give them to you.
Frank Curzio: All right. Cool. I’ll let you know. I’ll let you know. Andrew, thanks so much coming on, buddy. You know I love you.
Andrew Horowitz: Thanks, Frank. You’re the best.
Frank Curzio: I’ll see you soon, buddy.
Andrew Horowitz: Thanks.
Frank Curzio: Take care.
Andrew Horowitz: Bye.
Frank Curzio: All right guys. Great stuff as always from Andrew. That’s it for me. Questions or comments for me, email me at email@example.com. That’s firstname.lastname@example.org, anytime.
Frank Curzio: I know it’s tough market out there. It’s a little crazy, buddies earning season. We’re seeing some really good earnings. And as always, I’ll report back to you guys soon. If you’re a Frankly Speaking subscriber, which you get our podcast, because you are an actual subscriber to any of our products, which we do on Friday, it’s on an iTunes. It just goes to you personally. Those are people that pay for any products, even for the least expensive to the most expensive, you get that podcast. I will see you tomorrow. Otherwise, I’ll see you next and have a great weekend. 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 host and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s money and your responsibility.
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