Wall Street Unplugged
Episode: 796September 21, 2021

Why you should be buying China on this pullback

What a wild week so far—and it’s only Tuesday…

Yesterday, we saw stocks drop 2%, leading the way for everything else—gold, bitcoin, you name it—to sell off as well. [0:34]

You’ve probably heard by now that Evergrande—a Chinese real estate company and one of the biggest property developers in the world—is crumbling… But this shouldn’t be surprising: Recent events have foreshadowed the juggernaut’s demise. The bigger question on everyone’s mind: Will this pose a systemic risk to the world economy? [2:24]

Meanwhile, the volatility caused by Evergrande has brought the bears out of hiding… Now they’re roaring about further downside risk. [10:39]

Some are even comparing Evergrande to the financial crisis of 2008-2009… I give my take on this comparison… how I believe the Chinese government will choose to handle the situation… and what the biggest risk to the market is (hint: it’s not Evergrande). [17:40]

As the situation plays out, I explain why I’m not selling Chinese stocks… In fact, I’m looking to add exposure to China on this pullback. [23:15]

Finally, I point out the biggest risk to the crypto space… [31:31]

Inside this episode:
  • A look at Monday’s major selloff [0:34]
  • Does Evergrande’s demise pose a systemic risk? [2:24]
  • Are the bears right about further downside to the market? [10:39]
  • Why we’re not looking at another financial crisis [17:40]
  • Why I’m looking to add exposure to China on this pullback [23:15]
  • The biggest risk to the crypto space… [31:31]

Wall Street Unplugged | 796

Why you should be buying China on this pullback

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 September 21st. 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. Speaking of the markets, nothing really going on this week, right? Pretty slow, boring, other than stocks getting crushed yesterday, at least from the headlines it says it got crushed. The DOW fell 700 points, very big number, but it was only around 2%, nothing more than that. NASDAQ, small caps, fell a little more. Then you had Bitcoin down 10%, everything getting crushed across the board. Even gold fell a little bit, which isn’t surprising. Gold goes down when the market goes down, it goes down when the market goes up, goes down when interest rates go higher, goes lower. Seems like gold goes down no matter what, or just stays the same. I think that’s going to change. Uranium did the same thing, look where that is. But everything right, everything went down on Monday. No safe havens there.

Frank Curzio: And why this happened a lot of things, right? Mostly fears of inflation, supply chain concerns as the delays are accelerating. Consumer spending is topping out now that were not handing more and more money to people. The Delta concerns are going to lock down some areas of the economy, global economy really. I don’t know if you saw what’s going on in Australia with Marshall law lockdowns, using force… Man, this shit is out of control. You have the debt ceiling debacle, right? Our politicians, got to love those guys, both sides. Right now, it’s the Republicans playing hard ball because when Trump was in office, same thing and even Obama all the time, he just tried to make things as difficult as possible, as difficult as possible, especially heading into election year.

Frank Curzio: So, something they could fix very, very easily. So, Goldman have come out and say, that was one of the biggest concerns the debt ceiling. Hopefully, we take care of that. I think we will. The Fed meeting starting where they’re probably going to talk about tapering. And now you add another risk, which is China real estate. And you’re seeing this and you saying, wow, this thing came out of nowhere. This is crazy. Let me tell you what the real story is about this one.

Frank Curzio: So, Evergrande is one of large property companies in China, they ranked number two, 350 billion in assets, projects in 290 cities, over 200,000 employees. I’d say it’s a pretty big company. They had 120 billion outstanding debt at the end of June. About 43% of this, not about I’ve done the research, done the numbers, 43% of which comes due in less than a year, including over a hundred million debt payments this month, which are likely not going to be made. Now, the average borrowing costs for these bonds, the average and I’m stalling here because I want you to think of a percent in your head. And when you do, you’re probably going to… It’s 9%, 9%, holy cow. Nine percent average borrowing costs. And now, the company’s about to default on out of payments. So, of course big news, which likely led to Mondays selloff. But to anyone watching this company since February, this isn’t a surprise at all.

Frank Curzio: So, in February, Evergrande’s stock hit a high of $18. In May it was trading at 12. That’s a big deal, right? Pushed back tremendously. A lot of stocks got hit then, but the bonds started to collapse. That’s scary. That’s when you look at the bond market. That’s why everybody says, oh, the debt and the dollar is going to get destroyed. It’s not going to be the reserve currency. We have so much debt. And I always tell people, it’s not a concern. As long as we’re paying the debts on time, which we are. It’s fine. We’ve been talking about that for 40 years. That’s been a risk bears have been highlighting. How much debt we’re taking on, we’re in trouble. The bond market will tell us when we’re in trouble here. The bond market told you Evergrande was in trouble, but it told you five months ago. The stock crashing, then you have in June Fitch S&P downgraded the company’s debt because in May, when it went to 12, people started looking under the hood including the debt agencies.

Frank Curzio: So then, in June, as they downgraded the debt, the stock fell further and broke below $10. Now, we’ve moved to July. There’s a timeframe here. After this, you’re going to know more about this situation than anyone out there and anyone’s reporting on TV, so just listen really quick. So, timeline is important because we’re talk about July. The market crash yesterday because… So, in July Evergrande’s stock falls another 40% to the $6 level. Now it starts getting on even more people’s radar. So, Evergrande and it’s brilliant management team thought it would be a fantastic idea with the stock crashing, and keep in mind while the stock is crashing on liquidity concerns, to issue special dividends to shareholders.

Frank Curzio: Holy cow, it’s a great idea. Well, it’s a special dividend. People might not know how bad things are. We use a special dividend as shareholders people are going to jump in and the stock is going to go higher. It’s going to prop up the stock price, and then, we can do this massive, massive equity type, whatever financing, convertible financing that could save us. There’s only one problem with that, when you’re a heavily indebted company and your bonds are crashing, investors, which the investors in these institutions are looking for you to preserve capital, not give it away for free. And this is money you don’t have to equity holders.

Frank Curzio: So, the move completely backfired. And what happened after that announcement Fitch S&P downgraded Evergrande again on the news. And we’re still in mid-July. So, Fitch from B to CCC plus, S&P down here B plus to B minus, didn’t even go to B went right to B minus. Now shortly after these downgrades, Evergrande’s, March 2022, eight and a quarter bond dropped to $50, March, 2022. So, given that bond’s going to mature in less than a year, that puts the annualized yield above 200%. Not bad. You’re looking for income. There you go, guys. Everyone says, Frank, what’s the best way to earn income. There you go, 200%. easy. I’m joking. So, a few days later, this on July 27th, still in July, management decided to cancel that special dividend and say, you know what? Maybe that’s not a smart move. Good job way to go guys. So, this is all happening over two months ago, before mainstream media started talking about it, what? Late last week and into this week.

Frank Curzio: And it’s kind of weird that that’s the case, even though it’s one of the largest property companies in the world, not just in China. Even though its stock crashed 70% since February, even though its bonds were crashing and even though they were receiving multiple downgrades from debt agencies, almost on a monthly basis. This just happened to be a huge story this week in terms of the market pulling back. So now, we fast forward to today and stories are coming out how you should be worried. You should be worried about Evergrande and its massive reach, right? It’s going to crush the entire real estate sector in China, or perhaps result in a global economic problem. And we call this systemic risk. And systemic risk, systemic, it’s a big word. Since systemic impacts and everyone, interest rates are going to fluctuate, stock markets could crash, housing prices, home prices. You saw this during the credit crisis.

Frank Curzio: So, when you look at systemic risk and you start throwing that word around, which was thrown around a lot on Monday, it’s like a giant chocolate sundae to bears in the media. And not just a chocolate sundae, but one with extra whipped cream, extra nuts and lots and lots of cherries on top. It’s almost like pitching an 80 mile hour fastball to Barry Bonds in his prime: Gone, gone, gone. That was the greatest hitting display I’ve ever seen. You couldn’t even pitch to that guy. It was incredible. But the word systemic creates fear. It creates chaos, uncertainty, and you know what? That shit’s really, really easy to sell. So, of course, on Monday, what do media channels do? When the stocks were crashing, everybody worried, again that’s what most people thought when the market was crashing.

Frank Curzio: Even though we fell 2%, just 2%, and the S&P 500 is down just 4% of its all-time highs after a tremendous move over the past few years, only down 4%. You would think it’s down like 10, 15 percent right now if you’re watching TV. But all the bears came out of hiding and they started interviewing Chanos, Andrew Left. These guys said, I warned you about this property bubble in China. I warned you. Yeah, you did, but you warned us 12 years ago. The opportunity cost is, look what the market’s done. And you got wrecked on that.

Frank Curzio: And Chanos talked about that, Andrew Left talked about… Andrew Left was funny because he got sued by… He tried to fight it because of his short report on Evergrande. And I’m not saying Evergrande is a fraud, I just think they were over leverage and people, again, government is asleep at the wheel. And I’m sure when you really look deep, you’re going to find a whole bunch of stuff in there. But Andrew Left, actually this was 10 years of ago, I don’t think you could trade or short any stocks in China since then. And at that anniversary is like up this month, which I think is kind of ironic.

Frank Curzio: But you have all these bears coming out. The masks on the public in China, it’s going to collapse every market. We heard that for the last 10, 12 years. And I have to admit, seeing the bears on TV, made me kind of happy. Almost like after feeding your dog healthy food, that tastes disgusting for 12 years and you say, you know what? I’m going to give you a steak. I’m going to feed you a steak this week. And he was excited. They were all… When was the last time you saw really, Chanos on TV here and there. These short guys are excited because for the past 12 years, all these guys have gotten murdered shorting anything. It wasn’t about, and no disrespect to them either, I’m kind of poking fun at it here, but you want to short Game Stop, you want to short AMC, and then you get the Reddit crowd just to push these things up and go crazy.

Frank Curzio: It’s not about numbers and a market cap. It’s just, you’re getting enough people to buy and you’re short. You’re going to see massive short squeezing and Chanos did say that too. He said, these are not liquid companies. We’re not short these names, but they are short, other names in China and stuff like that and win, which he’s done a great job on. But man, if you have a little liquidity and you have big short position, what do you think is going to happen? If you get people to buy that thing, that short squeeze is going to be insane, which we saw. So, a lot of these guys have really gotten crushed. But on Monday they dusted off the cobwebs, the bears are back in full force doing interviews everywhere. So, lots of them on CNBC and good for them.

Frank Curzio: Now in fairness, Evergrande has a huge size in some of the largest lending institutions, creditors in China and also abroad, including China Everbright Bank, Agricultural Bank of China, China State Construction, Industrial and Commercial Bank of China, China Minson Group and China CITIC, C-I-T-I-C. Also China Railway is a creditor, Credit Suisse and Citi Group London. So, I get the nervousness and the story that they’re trying to tell, because now that Evergrande short term debt is shooting to crazy levels, what does it mean? It means it can’t refine its debt. And that’s what happened with our Fed keeping interest rates super low. Because as they kept rates super low and we took on lots and lots of debt, a lot of companies were able to refinance at much cheaper prices. Which is great for them, it pushed their debt out even further. And a lot of companies restructured over the last three years, tremendously, with the amount of debt, tremendously, which is a good job. You’re lowering your costs. That’s great. You can’t do that now.

Frank Curzio: You just can’t. If you’re a company that has bad credit, you can’t do that. That’s $120 billion in debt that’s a lot of money, of which 51 billion is due in less than 12 months. And another 25 billion on top of that is due after 24 or within 24 months. That’s 65% of their total debt of that 120 billion that’s due in less than 24 months. So, what’s going to happen here? Well, Country Garden Services is a number one player in the industry and there was people on TV saying, hey, you know what? They’re going to come in. They might buy some of these assets. I don’t know about that. They’re going to buy them if they’re handed to them like the government handed Bear Sterns to people and some of these assets to other people. Merrill Lynch to Bank of America and stuff, just handing them, these assets for pennies on the dollar basically during the credit crisis. That’s different.

Frank Curzio: But Country Garden Services just did a major acquisition. It was a $2 billion acquisition. They did it a couple days ago. It amounts to about 15% of that market cap. So, it’s a pretty big acquisition for this company. So again, you talk about government, China, whatever, that could be the case. But what’s going to happen is China is going to bail them out. It has to. They’re not going to call it a bailout, of course, they’re going to call it a rescue plan. Like it makes a difference. I love how we twist words, right? Amazing how we use the right words to change perception, like global warming is now called climate change. This way when it’s super cold, you can still push the agenda. Just let’s change it to make sure… It’s a rescue plan, don’t say bailout. It’s a rescue plan.

Frank Curzio: It just makes people feel better. Even though it’s the same thing. But they’re likely going to sell off its assets. They might get a couple private equity people involved who are filthy, filthy rich right now, especially in the US. That’s what they did in Europe when the banks were forced to sell a lot of their assets because of the credit crisis and lower their leverage. The private equity firms are like these little baby birds with their mouths out saying, okay, throw it to us. And they made a fortune off of that.

Frank Curzio: Maybe they’ll sell it to competitors, or just the government backstop the debt. That worked out well for Fannie and Freddy. We started printing billions in quarterly profits just a few years after the crisis. I think they’re still in conservatorship. What’s the government doing with those… Remember those hedge funds, I think it was Ackman saying they wanted to buy them while they’re in conservatorship. It’s so crazy because real estate is something that usually goes up and up and up. Even you saw General Growth Properties. I thought Ackman did a great job with the bonds, everything. He made a fortune. Thousand percent plus returns on that. And now Fannie and Freddy.

Frank Curzio: What happened is the market collapsed. The housing market collapsed. They were given… Government said, we’re backstopping it. Everything goes through Fannie and Freddy. And they didn’t even have a plan because they thought it would take 10, 15 years. It was like two years, three years. Real estate bounced back tremendously. Now, holy cow, what real estate? The government’s like, hey, we’re making these profits. We don’t want to give them away. You shouldn’t be in conservatorship. But they are. They continue to be. And I believe it’s positive. I haven’t looked at those in a while. Can’t really play them. But the government may backstop the debt. It’s real estate.

Frank Curzio: Anyway, when we look at this story, I don’t think it’s going to be a big deal a few weeks from now. In fact, the markets are rebounding today, which I’m looking at and I’m doing this around 10:00 AM and Evergrande is actually, what I’m looking at, it’s positive this morning. So, I don’t think this is going to be a massive story here. But the reason why the markets came down, I don’t know if it’s necessarily a risk. I just think you’re adding another risk onto everything. There’s a lot of risks out there. And I mentioned them earlier. Inflation should be the number one concern. Why? Because the chip supply market, which we’ve been following for a long time, guys. I’ve been telling you that these CEOs a full of shit that they’re telling you, ford, GM. A bunch of CEOs have come out recently, a bunch of them, top CEO of manufacturing companies saying that this is a much bigger problem than what we thought.

Frank Curzio: All the numbers are being lowered in the third quarter. This is supposed to bottom in the second quarter. It’s not going to bottom in the third. It’s not going to bottom in the fourth. It’s going to go through 2022. Why is that a big deal? Because there’s no way inflation could be transitory unless there’s no more bottleneck, right? Because there’s not enough supplies, we have a labor shortage, but what’s going to happen? How do companies… Think of restaurants and not being able to get enough… They have labor shortage. We see it across the board. Say a company like Starbucks or whatever restaurant you go to. They’re operating… They were operating at a lower capacity because of COVID and then they went to a hundred percent. They’re probably had 80, 85 percent because they can’t get people to work for them. So, what happens? How do you make ends meet? You have to raise prices. And now with supplies coming in, you’re still…

Frank Curzio: Across the board, this is going to be a 2022, 2023 problem now. It was supposed to bottom last quarter. How could you tell me inflation is transitory? Inflation is here. It’s going to be here for… Well, if transitory is 18 months, then they’re right, but transitory is supposed to be a few months as all this shit works itself out. But it’s not working itself out, it’s getting even worse. You look at reports from Malaysia, look at China. This is the stuff I’m reading from the sources, not listening to freaking TV. They don’t know. They were telling you that, that everything’s fine. And vehicle production will be great Ford and GM. Now, they cutting what, by 50% plus, and they’re going to cut again. Plants are still idle. They’re not getting parts. Just go out there. Try to get a car right now. Just talk to dealerships, they’ll tell you. I don’t know when you get a new car, maybe they’ll tell you six months if they want to sell it to you. But in reality, it’s going to be over nine months before you get it. It’s insane right now.

Frank Curzio: Anyway. So, as expected, I’m getting lots of questions on this. So, the markets did take a hit, and we’re having a pretty horrible month for September where the markets have pulled back and only about 4% off their highs, but still. The small caps, midcaps, even some large caps that are not technology have really sold off 15, 20 percent. So, getting lots of questions and let’s take some of them today, especially about Evergrande, you should be worried. And let’s start with Colin. Colin says, “Hey Frank, thanks for being the voice of reason throughout this pandemic. It truly is refreshing to see someone like yourself not promoting all the fear mongering and hatred like the mainstream media. Thanks. Appreciate that. Because the narratives keep getting holes poked through them but many people are still unable to read between the lines. Just nice to know there’s still some voice of reason out there.”

Frank Curzio: I really appreciate that. We’ve been following this Evergrande scandal in news and I’m starting to get concerned that their bankruptcy is going to have an international ripple effect throughout the markets. Do you think this could be a similar outcome as 2009? Thanks. It’s not going to be a ripple effect since we pretty much know the full extent of the damage and how much debt they have. Now, we didn’t… I’m saying that right now and could I be wrong on that? Yes, it could be even, you know who knows. It’s China, and they’re not going to tell you anyway, right? Just like they still, you know, the Wuhan thing, no one’s allowed in there and stuff like that. They can do whatever they want. But in 2009, nobody knew. And the Fed had absolutely no clue what was going on. If it had any clue it would’ve never let Lehman fail because that’s what really, really collapsed the system.

Frank Curzio: That’s when everyone started calling Goldman and they were like, everything’s frozen, the paper markets… Everything’s frozen, nothing’s working. They didn’t even know. They didn’t even know the extent to AIG, nothing. So, when you can’t see the problem, you can’t really fix it. It’s those problems you can’t see like how bad COVID was where, I was showing you Goldman reports saying this is just going to be a quick dip in GDP for one quarter. And I was like, you’re absolutely crazy. This is insane. There’s no way it’s going to be a quick dip. And sure enough, it hurt GDP for a year and a half.

Frank Curzio: And you could say, well, we had a V-shaped recovery because we injected $11 trillion into the market, which is insane. Of course, if you’re not working, you’re making say $50,000 a year and all of a sudden you lose your job and the government says, oh, here’s check $50,000. Nothing really changes. That was okay. It helped the markets bounce back and we took on massive amount of debt and the result is a lot of consequences people staying home, getting paid more than if they worked and stuff. So, craziness, but some problems you can fix. You don’t know, not that you can’t fix, that you really don’t know the full extent.

Frank Curzio: So, when it came to the credit crisis, nobody knew how much leverage these banks took on. Maybe they started figuring out, but when I say nobody, in terms of the Fed or regulatory authorities, they had no clue what was going on. But this problem we can see. China’s government’s going to make sure this doesn’t crash the system. Likely sell its assets to other companies, other bidders or backstop the debt. But this is more like a long-term credit problem but a 2008, 2009 credit crisis that’s going to impact the global economy, no. And you’ve seen that already. Look, Evergrande won’t be up right now, but could there be more to this? Yes. I dug in and saw who has exposure not a lot of US banks. They have very little exposure. A lot of the banks in China and the creditors, large banks do have exposure.

Frank Curzio: It is a huge market, but they pretty much know the extent of this and the debt payments and what needs to be made. And it’s not like you have to bail out the whole 300 billion at the same time. It’s just making those debt payments. The equity’s probably going to be wiped out and you strike a bargain with the creditors and say, hey, it’s either nothing or whatever, 40 cents on the dollar, whatever. They’ll be like, okay and everything is good. And then the government will probably take most of these assets and in five years from now, they’re going to make a fortune off of it. That’s how it goes. As crazy as it sounds. But no, I wouldn’t worry about it. Like I said, inflation’s a much, much bigger concern here now that the supply chain problems are lasting through 2023. Now, we’re hearing or well into 2023.

Frank Curzio: And now, finally, they’re catching up with these reports. They had a list of CEOs, I’m going to break this down later on in the newsletter which you guys are going to get on Wednesday, which is the Curzio Venture Opportunity newsletter. I’m going to break down, you listen to some of these CEOs, major CEOs, guys that you’ve heard of, and this is from last quarter, just have a couple quotes there of how they said, wow, this surprised the hell out of us. We can’t believe there’s still a massive bottleneck. And even FedEx, if you look yesterday, or late, late last night said they’re raising prices. They put it out as late as possible. We’re raising prices by a largest percentage or largest amount in 10 years.

Frank Curzio: That’s crazy that doesn’t sound like inflation is transitory to me, it just doesn’t. That’s the biggest concern because that’s the one thing the Fed can’t throw money at to fix. They’ve got to take money out of the system. And we’re going to see if they’re going to mention any of that in the next couple days, in the Fed meeting and tapering and when all that stuff’s going to happen. But as far as this situation and Evergrande, no. I don’t see it. I think this is going to disappear this story. You might hear more news of how China’s handling it, but I really don’t think it’s a big deal. And I think it was much more led to that sell off on Monday not just this, not just this. I think it was everything combined, people nervous, risk, taking risk off, just risk off market.

Frank Curzio: I could tell you from someone who watches the inflows, outflows a lot of money flowed into China over the past two, three weeks, a ton of money. And I think a lot of that money rushed out of that market right away. So, you’re looking to buying and opportunity with China and everything and going into the industries, I got a question on that in a minute. But probably a lot of money just reversing course, forcing a huge pullback. And then all the fear, systemic risk, holy cow, when people just start selling stuff and going crazy. So, the real story is, I don’t think this is going to be a big deal. There’s much bigger concerns like inflation for US investors and stuff like that. And I don’t think this is going to be a ripple effect and filter over to the global economy. So, thanks for that email, Colin.

Frank Curzio: So, the next question is from, I should do this guy’s initials. So, it is HR because he has a unique name. I don’t want to everybody. I always want to hide that name. Never say the last name. But anyway, HR, he goes, Frank is China trying to destroy the world’s economy. I don’t get its stance on regulating every industry since it will lead to fewer foreign investments, especially from the US and also lead to eventually slowing their economy, which is happening right now. You’re right. It is happening. So, should we be selling everything China? Thanks for all you do.

Frank Curzio: No, don’t sell China. In fact, I think it’s a buy. I know it’s crazy. You’ll probably say, wait a minute, what are you, nuts. You’ll buy with all this uncertainty. Hear me out first. Hear me out. I’m not just… I usually, not usually a hundred percent of the time, I’m always going to have a thesis behind what I’m saying. I’m not just going to say, well, I think you got a shot here and yeah, it could go and if it doesn’t… No. Here’s why I think China’s a buy. Over the past few months, what have we seen? China cracked down on Ant Group and Didi, saying they posed financial security, cyber risk and things like that. Alibaba where antitrust laws were broken. Online gaming restrictions for kids. You could go on, what was it three hours a week or something like that? Tighter conditions on Macau and gambling, which is hurting Wynn because those concessions that they got is one of the three.

Frank Curzio: So, foreign suppliers or foreign companies along with Las Vegas Sands and MGM, were allowed to build casinos in Macau, but they’re probably going to dial back a little bit and say, hey, we’re not going to give you all these concessions. So, you’ve seen those stocks get nailed. And everyone’s like, wow, China’s going crazy. They’re not. They’re not actually going crazy. If you look at these measures, they’re targeting just a few industries. You have that technology where they’re targeting just technology from a security standpoint. They’re targeting education. And then the video game sectors, almost like the entertainment part of the business. So, basically attacking behavioral issues, tied to social media, tied to the education of their kids, who they believe are wasting invaluable time watching stupid shit and celebrities on social media, which I think we could all agree with.

Frank Curzio: I could definitely agree with my kids. It’s getting to the point, I have to take the TVs away. The stuff that we’re watching on YouTube is a joke. Social media, the way it’s geared to just totally… I get it. They’re a customer. They’re a click. They’re just like anybody else. And these are kids that are going to watch stuff for four or five hours and play video games for 10 hours. And that’s what you want to see. Advertisers want to see. How long are they going to be on your site? That’s where you get it from, that younger generation who has the time who just after school, they got much more time, especially in the summer, and they’re off of school compared to people that are working. Those numbers get filtered in with all the other numbers. But China’s really going after that part of the industry.

Frank Curzio: And I’ve got to be honest with you, I kind of like it. You’re not seeing China crack down on Apple. You’re not seeing China crack down on Qualcomm where 47% of its sales come. Or Intel 27% of its sales. China’s not cracking down on Nike, hotel chains, Hilton, Marriott, McDonald’s, Starbucks. They’re not cracking down on any of it. It’s not like, hey, this personal thing against the US where US companies are like holy, should we restructure a few things and get out of China? No, it’s not like that. It’s the areas that… Notable sectors of the economy. And the reason why it’s getting huge, huge headlines is because that’s the sectors that everyone knows and they’re most talked about and high flying stocks. Like 10 cent Alibaba, Didi, Wynn, Las Vegas Sands, people familiar with all those stocks.

Frank Curzio: But remember China is the growth engine of the world and they know this. And it’s only going to grow if it’s on good terms with developed nations who are the richest like Europe and of course the US. And they’re going to make a lot of noise like they did with tariffs. And we talked about tariffs. I wrote a whole entire report on it. I think it was a 20 page report saying, stop worrying about this. It’s the biggest buying opportunity ever. And people were like, it’s a trade war and globalism. Listen, China has no choice. They could say whatever they want. They’re barking. They’re supposed to bark. Just like everybody else. They have no choice. They make the goods which is cool. We’re the ones that pay for them. We could buy them anywhere. Yes, it would be more expensive to buy them in other places. But China, is it going to be able to sell those products to anybody else so they have to comply.

Frank Curzio: They’re not going to tell you they’re going to comply, but they have to. That’s why tariffs, it’s gone. It’s not even an issue tariffs. Not even an issue. Not to mention they’ve thrown out hundreds of billions in this and that. It’s nothing. It’s basically nothing. It results in nothing. There’s like one or two companies. Whirlpool tried to say it hurt them. Whirlpool was just crashing at the time. But all those companies didn’t get impacted by that and everything worked out perfectly fine. But if you look, you’d probably see at least a hundred million stories over the past, what that year. Was it end of 2018, I think 2019, on it, warning you, telling you it’s crazy. And we used it as buying opportunities. We did fantastic.

Frank Curzio: But China’s smart. They’re going to make noise about all this again, just like to do with tariffs. But if you’re looking at China and they want to remain a powerhouse. One, it needs us. Two, it’s not going to start picking and choosing what business can operate there, going after McDonald’s or Nike. It’s just what would we do that for? That’s going to discover foreign investment. But the most important thing is they’re focusing on education and they believe that that’s how they become the dominant country in the world is education. And they’re getting their kids off of all this bullshit and saying, hey, we need you and focus on that education because that’s the long-term. That’s what China is looking at, a long-term plan. So, they come out with a five-year growth plan or whatever, five years. That’s the plan for them.

Frank Curzio: If you notice, that’s the sectors that they’re targeting. Again, you hear me talk negative about China and the government all the time. I love China when I went there, all the people. I’m talking about, the government and investment, just like when I talk about California and the shit that’s going on there, I love California. I have a lot of subscribers in California. I love the people there. I just hate the fact that a lot of goes on with politics. When it comes to China, listen to me, they’re doing the right thing. But the story no one’s really saying is that they’re not targeting all US and destroying all the businesses.

Frank Curzio: It’s kind of like, Hey, we need to dial this back, get our kids back on track with education and that’s how we could completely dominate the world, having the smartest people. And that’s kind of what they’re doing. And for me, I think China’s a buy because that story’s not being told. It’s like, wow, the uncertainty, China, look what they’re attacking. Look at Didi, how much it’s down. But all of this is about entertainment, bullshit, video games, gambling, which is by not providing those concession to Wynn, Las Vegas Sands and MGM means more money they get to keep.

Frank Curzio: So, they’re not like crushing every single industry. It’s just targeting certain industries. So, I don’t think China’s trying to destroy themselves. They’re not. They need foreign capital. They need people to continue to buy their goods, which they could produce super cheap. But that’s the story on China. I think China’s going to be a buy. It’s just be careful of the sector. I won’t go to 10 cent social media, the crack downs. That could hurt our gaming industry. We haven’t seen it’s, let’s see if they report that. It’s a big kids going on like 10 hours a day, opposed to three hours a week. It’s going to impact certain industries, Wynn, Las Vegas Sands. But other companies with their growth plans, again, they’re the growth engine of the world, accounting for 40% of the world’s growth based on GDP. They’re not going to do anything stupid to get rid of that.

Frank Curzio: That would be not in their best interest. And remember it’s all about money, all about power. This is what they’re doing going after all companies in the US. They’re just going in some sectors and the sectors that are targeted is just interesting. They’re like, this is all bullshit. You don’t need this. It’s not going to make you smarter. Let’s focus on the educational part. So, I kind of like that. I think it’s going to open up an opportunity for you to really make some investments in China. And we might go there pretty soon. Okay, last question here really quick. I’d like to keep these 30 minutes from Glen. It goes, “Good morning, Frank, I completely understand the systemic risk regarding non-crypto securities, like today’s China property fears. However, can you please tell me what specific types of systemic risks would affect the crypto security, such as…” I’m not going to and give it away because it was one of our… It was the latest pick in our Crypto Intelligence newsletter.

Frank Curzio: But the systemic risk for cryptos is regulation where the SEC could deem all crypto securities. And if they do that, all of these companies are going to need to come out of the US, and you’re not going to be able to buy them anymore. Because they all are securities, but none of them want to operate as a security. Because then, they’ve got to report the financials, and they’ve got to report everything, and they don’t want to report anything. A lot of them took that cash bought Lamborghinis, bought homes, you don’t know any of that stuff. So, the fact they have to report that, they can’t. They’ll all get arrested. Most of these kids will get arrested. So, I’d say 80% of the industry would… At least 80% of the industry would be in big trouble.

Frank Curzio: And then they not going to report if they don’t have to. So, they’ll just say, okay, we’re not going to trade in the US anymore, which would be bad for Coinbase. You could trade on Kraken and Gemini and stuff like that. That’s the biggest thing that could hurt the entire industry because now you’re taking money out of the system. And remember, this is an alternative Bitcoin theory and especially Bitcoin is a currency. It’s a currency now. It’s accepted in so many different places. It’s forms of payment. Everywhere. It’s becoming more adopted by the week and MasterCard, all the payment plans, PayPal, Square, everyone. They have to get in there. It’s a $2 trillion marker and yeah, they have no choice but to get in it. So, it threatens governments. It does. So, that’s one of the biggest fears. Ray Dalio said, listen, if Bitcoin gets even bigger he thinks the government could come after it.

Frank Curzio: I’m not there, but they could deem a lot of these things securities because Coinbase, they started that lend business and they were about to start it and SEC said, you’re not allowed to do that. You can’t lend through crypto, which is amazing. So, the SEC said, we’re going to sue you if they launch it. And Coinbase decided to scrap those plays. They scrapped them yesterday and said, okay, we’re not going to do it. And it’s crazy considering literally hundreds of crypto companies are doing the exact same thing right now. These are leading cryptos, providing above average interest like BlockFi, Salt Lending, Unchain Capital, Coin Loans, Celsius, Nexo, Binance, Kraken, KuCoin, Coin List. A bunch of them, bunch of them, ton of them. You’re telling the biggest guy that they can’t do this. What are they going to… You can’t let these guys do it.

Frank Curzio: I’d be shaking in my boots if I’m these guys. That’s their business model. That’s where they make the most money here. What are they going to do? So, you want to talk about systemic risk. It comes from the government that could really impact a ton of these things, which is going to impact a lot of different… I don’t think it’s going to happen right away. But after what they said to Coinbase, you’re telling them that they’re not allowed to do something that a hundred companies are doing in the US right now. That’s something that worries me. We’re not in any of those companies within our Crypto Intelligence newsletters. They’re still doing very, very good even though crypto has pulled back a little bit more. I’m going to use this as a buying opportunity because I’m a big believer in crypto. A big believer in crypto. So, all those I explained technically should, all those companies should be getting sued by SEC based on what they said about lend.

Frank Curzio: And that’s the biggest risk I think. And you say that’s systemic risk because it will impact the entire industry. It will. If money from the US comes out of this market. Yes. You’re going to see a lot of these things fall. I don’t think it’s going to happen soon, but it could definitely happen. Okay guys, great interview coming up for you on Thursday. Not tomorrow. Tomorrow, it’s just going to be Daniel and myself and then Thursday’s going to be a fantastic interview. We had an interview on Wednesday last week. It’s going to be Thursday this week. It’s going to be with Frank Holmes. It’s going to talk about the whole crypto industry with chairman of Hive Technologies which is doing fantastic. Also it’s a golden ETFs and stuff like that. So, it’s going to be awesome. But tomorrow be sure to tune in for Daniel and myself where we’re going to cover this Evergrande story and dig further into it.

Frank Curzio: I dug in a lot. You should know the entire story. However, we’re going to break down the best way to play this story. So, some stocks are going to certainly benefit. They always do when a competitor goes out of business. So, it goes down. And there’s also some that won’t and even US companies that are going to have… They’re getting impacted right now, but they can get impacted even more. So, we’re going to break down the positives, negatives and exactly how to play it tomorrow with Daniel. So, be sure to tune in. And then Thursday’s going to be fantastic interview. We love having Frank Holmes on he always shares ideas as well. So guys, that’s it for me. Really appreciate all the support. I’ll see you guys 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 host and guests. You should not base your 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 12 million times.

Editor’s note:

In this month’s issue of Moneyflow Trader—releasing TODAY—Genia shares her thoughts on the Evergrande debacle… and a new hedge set to benefit from the fallout.

Plus, she recommends a bullish play on the oil boom-and-bust cycle.

Both of these trades are primed to return triple digits in just a few short months.

Get access here—along with a portfolio full of ideas to protect your money in any market.

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