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.

Daniel Creech:

How’s it going out there? It’s Wednesday, March 22nd, and you’re listening to the Wall Street Unplugged podcast normally hosted by the one and only Frank Curzio, but as he’s explained over the past couple weeks, they can see the light at the end of the tunnel. The long, over-a-year-long uphill battle of building a new house is finally being done and they are in the process of moving the long 30 ish miles south from the island here to Jacksonville. Have no worries. He’ll be back in the saddle very soon, but today I get to be your guide. Hello and welcome. I’m Daniel Creech, Curzio Research analyst, and I’m the one that works for, alongside, behind, in, with the one and only Frank Curzio. A great caption for today’s podcast would be What’s going on, and just a note for programming and logistic reasons, I’m actually taping this a day early, at least Tuesday afternoon.

Markets are rallying and what do we have that’s going on? We have an ongoing banking crisis or fears over a banking crisis, and then we have this little news event tomorrow on Wednesday. We already have this podcast. By the time the Federal Reserve meets and Fed Chair Jerome Powell announces the latest decision on interest rate hikes and then he’ll do his Q&A to follow tomorrow afternoon and what else is going on? We could have former President Donald Trump get arrested today if headlines and news stories have any merit to them. I’m not going to get into that, but wow, we got plenty to talk about today. The ongoing banking crisis. If we check out here, Finviz, as I said, the market is rallying here today or at least holding on to gains after the Federal Reserve and Treasury have come out. Treasury Secretary Janet Yellen was speaking earlier today to a group of bankers, worldwide bankers, et cetera, and assuring that deposits are safe.

The financial system is strong and I want to start there because when we know what’s happened the last couple of weeks with the bank runs the collapse of Silicon Valley and Signature Bank and the ripple effects, and if we pull up the poster child for this is First Republic Bank, and as you can see here, it has gone from call it 120 down to under $17.83, where it trades right now. Know your eyes are not misleading you. It is up 46% as I record this and you can see here the absolute extreme volatility that this stock has seen from absolutely just plunging to rallying a couple of days and yet overall it has just absolutely continued to get hammered. What’s scary about this and the real takeaway here is I want all individual investors to ask yourself if you think that the people in charge, the powers that be, the Federal Reserve, the regulators, and all the way to our Senate and House members and politicians, do you really think that they know what they’re doing?

Do you really think that there’s a game plan for all of this? Do you think that the problems, the fears of depositors taking their money and fleeing to bigger banks, more secure banks, spreading it out to get under the FDIC $250,000 limits, do you think that they have a plan to really pull this in and can they pull it off number one and provide, we talk a lot about how money is emotional, markets are emotional and it’s more about feeling. Jerome Powell has talked a lot on the inflation Q&A in the past about how, “Hey, we don’t want consumers to feel like inflation is going to continue higher because then it will, it has this effect.” They are trying desperately to call markets and they’re throwing big names around. So Jamie Dimon, CEO of JPMorgan Chase is supposedly talking and helping, trying to make deals with this FRC, the First Republic Bank.

There’s been news that they’re trying to get liquidity. They already had 30 billion deposited in, it’s just an absolute crap show, for lack of a better word, and the problems aren’t just here. We’ve had a lot of regional bank problems, but then Credit Suisse started having, well continued to have, its problems and it caused craziness going on. And an interesting thing that happened was the Federal Reserve and the other central banks around the world, and I’m not going to get into the weeds and act like I know everything about it. I’m not an expert on this. My point is when they create overnight situations and change the rules or change their plans, that should not signal that they are on top of their game and they’re being quick to react and that ought to put you at ease and make you proud. It ought to just reassure you and it’s… I mean I’m not trying to cause panic, but email me danielcurzioresearch.com with this answer.

Do you really feel like they know what they’re doing? I want the individual investor to really think about that because I accept the fact that they have no clue what they’re doing. I think that it’s absolutely clear, for lack of a better term that they are winging it, that they are just coming up with ideas basically on a whiteboard and, “Hey, any good idea is good. Give me one and we’ll put it up on there and see if it sticks.”

The big issue here, just to recap the problem that is going with… the problem going on in regional banks is in my opinion, going to last for several months if not longer. And here’s one of the key reasons why, and I don’t think you’re getting a lot of this or this is being talked about enough on mainstream media and I understand why you got commercial breaks and it’s hard to get every little word in and everybody has good opinions and all that kind of thing, but the situation, and Frank has joked about this and talked about the irony with taking massive losses on safe government bonds and the Fed has created this monster, if you will, because for the last 10 years, keeping interest rates very low, we’ve had China kind of lower their exposure to US bonds, so you don’t have a buyer, you have to have a buyer for all this debt that you’re issuing and over time we’ve shifted that to our banking industry.

The Federal Reserve was a big buyer for some time and this finances the whole US system and now what we’re finding out is no shocker because you can’t tinker with the financial system for 10 years and expect all the pain to be ripped off like a bandaid in one year. Now think of the issue on banks having to put their money somewhere and if they don’t want to be a big buyers of longer term treasuries, that’s going to be a major issue going forward. To continue, we have to keep issuing debt to finance everything you need buyers of that debt. The banks were huge purchasers of those debt, but now if they have to sell it, bonds get hurt when interest rates rise, a lot of their long books portfolio bonds have been decimated and there’s a Yahoo Finance article and a report from the monetary tightening in US bank fragility in 2023.

This is done by researchers and members from University of Southern California, Northwestern University, Columbia University, Stanford University, and the big takeaway here is they do all these wonderful calculations and they examine all these bank books and their bonds and how hard they get hit when interest rates are spiking and let’s say that they run scenarios where 50% of depositors run or all of them run and it’s a well done paper for the most part. Again, I’m not acting like an expert on questioning the calculations here, but the takeaway is just to show, “Hey, because interest rates were so long for a decade and a lot of banks had to buy these bonds, there’s a lot of trouble brewing if depositors don’t really calm down, which is why you’re seeing the Federal Reserve take the steps they are.”

Treasury Secretary is… the conversation this morning, she’s trying to assure that they’re implying that all deposits are safe right now just to calm emotions. Well, there’s pushback there because if you’re going to do that, if you’re going to increase or tamper with a federal deposit insurance of 250,000, that’s a legislative issue. So you’re going to have to have both sides of the aisle come together in the House and the Senate and all that such. The odds of that are probably not great right now given the political divide that we have in the country, let alone in a tight House and Senate. But the takeaway from this report and the big number that grabbed all these headlines was 190 banks are at potential risk of impairment and insured deposits with potentially 300 billion of insured deposits at risk. Now that’s what’s going on in people’s minds. They hear that and why wouldn’t you just move your money or move it to a safer place?

Now, I just don’t believe just thinking about that, that’s not going to go over or go away anytime soon and if you want to trade something, then I would trade your regional banks. I would look for… I mean look at this. This is up 49% in just today, and these are not buying holds by any means, but if you want to trade these things, have at it, this is going to be a great… in fact, if we look at this, and this is Finviz, so this is a free website and take all these numbers with a grain of salt, but the average volume as you can see down here is around 17 million and already over 130 million shares traded just today. So that gives you an idea of the volatility and the action taking place. Now let’s turn for a moment to this week’s big event on the Fed. The CNBC is reporting here, “The Fed is likely to hike rates by a quarter point, 25 basis points, but it must also reassure it can contain a banking crisis.”

This plays into the fact that I was just talking about on the emotional, the pulling of the strings at the heartstrings for us individuals so that we keep our money in the big banks and are just happy stewards of wealth. The Fed wasn’t just a couple of weeks ago, Frank and I had kicked this around and he did an excellent job explaining that the rates, the market futures were expecting a 50 basis point hike just a couple of weeks ago, or at least it was very much in the cards. Those have absolutely collapsed and now there’s a good chance a 20 ish percentage depending on where you’re looking at the futures of an absolute pulse in rate hikes, meaning they come out, Jerome Powell comes out tomorrow and says, “Listen, we’ve been saying we’re based on the data. We’re going to pay attention to the data. We’ve got a lot of issues going on in the banking crisis. We’re taking our steps, we’re doing what is necessary and rest assured we have the tools to stay committed to fighting inflation.”

A pause is now on the table. I don’t think that that’s going to happen and this is great. I’ll go out on a limb here, not a big limb, but I may look like I have egg on my face after it’s all said and done tomorrow. I think that they have to raise by 25 basis points for no other reason other than to save face because if they come out and they pause, I think the market will… I think it would absolutely tank, and the reason I think that is because A, a lot of people are on one side and over the last couple of months, investment banks and the bull case for stocks to move higher has been, “Hey, we’re going to hike a little bit and then come this summer, we’re going to hold rates steady and then start cutting at the end of this year. That’ll stimulate the economy and economic growth and that’s all well and fine.”

That’s a good thesis. However, that’s out the window. Now they’ve gone from inflation is transitory to, “We’re going to fight inflation. We have the tools, we’re going to do everything it takes to get it back down to our 2% target,” which I think is ridiculous. They’re going to move those goalposts soon enough to now if they come out and pause tomorrow, I think the initial reaction, the knee-jerk reaction would be for stocks to rally, but I would look to sell into that and look to buy protection and or move money to the sidelines because what that signals is that they have no idea what they’re doing and inflation would get out of control because inflation is for the most part, trending in the right direction that is lower.

But like we saw in last CPI data, while energy had pulled back, and let’s pull up here… while energy has pulled back, it’s rallying a little bit today. You can see West Texas crude is around $69 a barrel fell all the way to 65 ish. Brent Crude is at 75 ish, but it was under 70, so we’re definitely seeing some volatility. And with the last CPI numbers, energy was going down, but natural gas had absolutely collapsed. Oil prices were falling, so okay, inflation was okay, but they keep having to raise rates. The Fed keeps saying, “We have to raise rates to combat inflation.” Now if they change tune and say, “We have to pause, wait and listen to the data and then go back to fighting inflation,” I think that that’s going to unleash inflation and it’s going to start trending higher because we’re not going to get at least, excuse me, the odds are not in our favor for another massive collapse in energy like natural gas.

It’s great that the winter has been more mild over in Ukraine for natural gas prices with the Russian invasion and all that. That’s very positive for humanity. I just think to expect another drop in energy prices of significance to really help the inflation data is not in our cards anymore and for no other reason. Now, I’m not saying it’s the right or the wrong thing here. I’m simply trying to put myself in Jerome Powell’s shoes and explain, “Hey, you have to say face, you have to come out. You have to acknowledge and say all the right talking points. You have to say, we know the pain that it’s causing for people dealing with inflation and we’re dealing with it and we understand and we’re going to do what is necessary,” and he’s got to raise by 25 basis points just to save face and then he can hint and be very, very dovish.

He can say, “Listen, we can continue. The economies are still strong.” He can point to jobs or whatever he wants to. You can find pockets and he can say, “We’re going to remain data dependent and we can keep lagging or we can keep doing these small 25 basis point increases depending on data.” I think, like I said, the initial market reaction’s going to be positive, but overall that’s not a bull case in my opinion because you’re betting on the guys that are supposedly the smartest in the room that are going to get us out of this mess even though they created it, they’re going to get us out of this mess and I just think that there’s better places to put your money. Like where? Well, it shouldn’t surprise anybody that gold and Bitcoin are doing well amidst all the fallout.

Now gold is down 2% as of this writing, but just check out this last month’s chart or last chart through the last month. It was down to almost 1800 and it’s rallied to over 1900, just about to 2000, and it’s doing exactly what it should do. Gold, Frank and I have joked about this. Is it good for inflation or deflation? It’s good for panic. When people fear that the financial system is collapsing under government watch, people get nervous and they rush to safe havens and the yellow metal, the barbaric relic, the pet rock, all kinds of fun things for gold being kicked around is showing exactly what it’s doing. It’s a safe haven.

Turning to Bitcoin. Pull this up here. Bitcoin continues to hover around the $28,000 level. It’s up a little bit above that right now and you can see in the last seven days it’s rallied 10%. Ethereum, the second-biggest dog in the room is rallied just over 3%, but it’s an 1800 and that’s the same concept of not only a store of value but just I think there is something like, “Hey, what do I got to lose?” A little bit of that percentage makes up of the attitude of people trying this Bitcoin thing because Bitcoin was built for this.

Michael Novogratz, CEO of Galaxy Digital, was on CNBC earlier this week and said, “Listen, when you have fears of financial crisis, this is why it was born out of 2008, Bitcoin, out of that financial crisis and a lot of people around the world that are used to their currencies fluctuating a lot and with ease of being able to access Bitcoin.” Fidelity now lets you, I read on Twitter from a guy that I’ve take this with a grain of salt, I don’t want to call him or her a liar, but they posted that hey, Fidelity didn’t get a Bitcoin ETF but it does have access in giving access to like 30 million accounts through fidelity.com through their website to buy Bitcoin.

And as you break down the barriers and you get more and more customers comfortable with it, going through big names and big portals like Fidelity, well-known establishments to buy Bitcoin and to see it rally just like with the Fed chair trying to calm investors’ emotions, that greed emotion, the emotion of missing out is going to kick in and that could continue to help Bitcoin rally. So that’s where we are with what’s going on and what I expect from the Fed. I expect a 25 basis point. I think that Bitcoin and gold have had such a good run up the last couple of days. It’s good to see gold pull back a little bit, 2% I would look to buy some exposure there. And as far as if you’re not going to trade, I wouldn’t be so quick to jump into the banking sector right now. I would look at mega stocks like Berkshire Hathaway.

No doubt when deals need to be made, he’ll get some of the best deals that come to him. And like I said earlier, he’s been in contact with the White House, so there’s a little front running there, I’m sure. All good. I don’t mean that in a negative way, I just mean he’s the guy, Uncle Warren to go to when stuff hits the fan and I think you could focus on buying quality. Tomorrow on Wall Street Unplugged Premium, I’m going to go over one of the best businesses in the world and why higher interest rates or higher interest rates from past is very positive for this business. It’s going to generate a lot of cash and the stocks have pulled back with the overall market over fears that aren’t related to specific companies and we can use that volatility and the punishment of those stocks to scoop up shares and good risk reward opportunity.

So all you subscribers, please be sure to check that out on Thursday. Last thing to wrap up here with some general comments. If the bullish thesis is hanging on the Fed to admit they were wrong or to change course of what they’ve been hell-bent on, I think you need to be very cautious and that’s why Frank continues to pound the table on protecting yourself. He’s talked about how we’ve discounted Moneyflow Trader significantly so that everybody has a chance to come in, see what that product’s like, see if it’s for you, MFToffer.com. Make sure you check that out and because as you see these market rallies, if you are invested in the high-tech, high valuations, high multiple stocks, high price to earnings ratio, these growth stocks, I would use these market rips to unload that, like trim those positions, move some money into cash.

We are in a trader’s market now and we are at the mercy of comments, headlines, and we always have been to a certain extent, but right now with the Fed taking actions and just kind of winging it and coming out with statements all in unison, the Fed, the Treasury, international, global, central banks, that tells me that if you think that this is all over and there’s not more pain ahead, I just agree to disagree. So my job is to explain what we believe, what we want to bring to you as value to individual investors and don’t believe all the headlines of, “Hey, we’re backstopping everything, the government stepping in and backstopping. Everything is going to be okay.”

That’s a bigger conversation. I’ll explain. I touched on that a little bit last week in Wall Street Unplugged Premium about why that nationalization terms and ideas are terrible over the long-term, but right now we’re focused on the short-term and we are at the mercy of the Fed, which will come out with its big announcement tomorrow. Other than that, we’ll see everybody next week. Thank you for tuning in. I hope you have a great day. Traders, investors, keep cash on the sidelines, be prepared, and we’re going to bring a lot of great ideas to you over the next coming weeks and months. Cheers.

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.