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 October 6th. I’m Frank Curzio. It’s the Wall Street Unplugged Podcast where I break the headlines and tell you what’s really moving these markets. Moving these markets. A lot going on. So a nice bounce to open up the week, mostly due to oversold conditions. Some of the most oversold conditions that we’ve seen in history actually, which is crazy. A lot of this is based on hope, hope that the Fed is going to stop raising rates. Yet, our Fed has not given any indication that they’re going to stop, which is interesting because coming up on the next two trading days we have the jobs report and CPI, and both are likely to come in hot based on expectations.

Frank Curzio: So, is this rally for real? Should we be putting money into it? I’m bringing in my buddy, the best analyst in the world, as well as the best looking, that’s Andrew Horowitz, president and founder of Horowitz & Company, host of The Disciplined Investor Podcast, the second best financial podcast in the world. What’s going on, man? How you doing?

Andrew Horowitz: Frank, thank you, Frank. Thank you so much. Thank you.

Frank Curzio: It’s the best financial podcast. I joke around. But yeah, you’ve been doing it longer than me.

Andrew Horowitz: Yeah.

Frank Curzio: Andrew, I love having you on this podcast.

Andrew Horowitz: Now you should know, first of all, did you play for your audience the mix that we made for you?

Frank Curzio: Yes.

Andrew Horowitz: You did, okay. Just checking.

Frank Curzio: I don’t think I played it on the podcast. We posted it on social media. You know what? I’m going to post that on the podcast. I could do it early next week.

Andrew Horowitz: I have that somewhere I could play, but I don’t know where it is. But-

Frank Curzio: You should play it.

Andrew Horowitz: Yeah, I mean, it’s interesting. You and I had a conversation yesterday and we both started yelling and ranting at the same time on the phone, right. It was at the same time you and I were talking, and we just started just talking and not listening to each other. And you said, “All right, enough. Let’s get this on a podcast.” That’s what you said. That’s how the conversation went. So here’s-

Frank Curzio: I love having you on because during these times, Andrew, we go macro and we discuss this all the time, this is the whole thing, right. You can’t look at the bottom, up. You can’t look at stocks. You can’t look at anything. I mean, if the Fed is really serious about continuing to raise rates, we’re hearing everybody come out. We’re seeing cracks in the foundation all over the place, which is really scary. But for me, real quick, in June, and I was a couple weeks early, insiders were buying. We were at these crazy low levels, totally oversold conditions. We saw inflation moderating a little bit, and I was like, okay, we got 150 base point hike, and then the Fed’s going to say we’re going to stop, and stocks rallied on that.

Frank Curzio: Then, we noticed the data over the next month or so was horrible, and the Fed came out, Jackson Hole, and said. “We’re not even close to stopping. No way.” And now, we’re expected to be at 4.2% all throughout next year, right. So, it’s a lot higher than we are right now. We’re seeing a lot of stuff going on. So, if the Fed is going to pivot, and pivot is weird word because people think pivot is you’re going to start easy. I’m talking about just stopping. It is a chance for stocks to rally. I just don’t see it happening based on what the Fed is saying and to gauge they’re looking at. What are your thoughts? I mean, can we believe in this little bit of rally that we had or are you still cautious?

Andrew Horowitz: So, a couple things. First, you talked about oversold conditions. Every single technical indicator that I’ve looked at, whether it was McClellan, the Spearman, the KRI, which we have internally that I developed years ago, I looked at this saying, “Wait a minute, we don’t get these magenta…” just follow me here on this. “We don’t get these magenta colors very often.” I went back in history, and I’m like where are those magentas which are extreme, like ultimate extreme measures on the downside or upside. Cluster formations, little dots that I put on there to remind me that we’ve seen this in a continuation pattern. And I’m like, where have I seen this before, and I couldn’t find anything back to 2009 for a few days. Maybe there was something in 2016 for a few days. And the oversold condition, which can stay oversold by the way, it’s just a view of just how harsh and how the scope of selling that’s going on.

Andrew Horowitz: That can last a long time, but it doesn’t. It’s just human nature, the mechanics of the market. Beginning of the month, for example, when you start seeing pension contributions come in on a regular basis, the 401K contributions are paid in, a lot of things happen at the beginning of the month. So, the hope trade you talked about a minute ago, which was the title of last week’s podcast, on The Disciplined Investor podcast. It was Hope and the Ostrich. That was the title of this week’s podcast. I talked about the hope strategy is not a strategy. It’s more like, oh my gosh, I hope this comes back. The problem with the hope trade is once you do come back, you sell it. You’re like, I’m done, I’m out, I got lucky, which may be the wrong decision as well.

Andrew Horowitz: So, to answer the final point of a pivot and to talk about what is a pivot, is a pivot only 50 basis points move? Is a pivot reduction in the rhetoric? I think the Fed has a, this Fed, not the Fed, this Fed with Powell and the band of merry Feders, has been all about not only trying to craft expectations, but trying to brainwash. And if that doesn’t work, take a plunger and shove it down your throat. And what they’ve done before with the idea of we’re not even thinking about thinking about thinking about raising rates, that whole crap they put out there to try to really boost things and how they’re not going to slow down on quantitative easing, and how now they’re doing the same thing in reverse, I think is a terrible disservice as opposed to the Feds that I remember over the last three decades.

Frank Curzio: I’m more confused, Andrew, than I’ve probably been in my 30-year career because usually when you see-

Andrew Horowitz: Right with you.

Frank Curzio: Markets come down like this, long-term investors are like, “You always got to invest when we’re down.” We’re down over 20% S&P 500 from its highs. Nasdaq down a lot more than that. The reason why is because you could say, okay, I think we bottomed here and you may be wrong on 5%, and that’s fine, right. You’re never going to catch the absolute bottom. But you could say, well based on valuation. You can’t base your decision to come in based on valuation because you have no idea what earnings is going to be, which is the widest discrepancy of earnings, the gap that I’ve seen where for next year they’re either projected to go up 10% for the year or down negative 7%. That’s the consensus estimates, right. That’s the difference between the high and the low right there. That’s how crazy that is.

Frank Curzio: It’s a big difference. That’s the difference between if you’re going to buy a stock at 17, 18 times forward earnings or 12 or 13 times forward earnings, which is a significant difference. Also, I feel like whether you think you’re going to sell here, maybe you don’t come… The confusion is, we’re all basing our decision on one organization, the most powerful organization in the world is the Fed, right. It has the power to destroy the entire global economy, which it seems like they’re on the path of doing.

Andrew Horowitz: Good job, guys.

Frank Curzio: But you don’t even have to cut… We’re not looking at that, but the pivot is just, stop and let me wait a little while. Because I went back and did hours and hours and hours of research on this over the past few days. When you look at interest rates and you go back to say 2008, or even go back even further, 2000, when the market started crashing from the tech bubble, they lowered rates pretty much by 25 basis points most of the time and a couple of 50 base points cuts, and they did it the whole entire year through 2001 and the market was still falling.

Andrew Horowitz: Right.

Frank Curzio: And they did it next year as well, and the market was still falling, reaching bottom. That’s how long it took. And this, cutting rates, how long it takes to filter through the system. We’re used to getting 25 basis point hikes to the point where January, everyone’s like, we’re getting four hikes this year. They said four hikes. They didn’t save four 50… No one even thought that was possible. It’s normal 25 basis points. We did three 75 basis point hikes in a row. We’re about to do another 50% base point hike now.

Andrew Horowitz: Which is unbelievable.

Frank Curzio: But the time it takes for this to filter through the system, where $36 trillion has been wiped out of the global economy.

Andrew Horowitz: So, why are they doing this then, Frank? What’s the point?

Frank Curzio: I have no idea.

Andrew Horowitz: Why are they going so fast to a point that they feel that the only thing… The only thing it could be is they’re trying to correct their extraordinary policy mistake by creating another policy error on top of it by trying to just short circuit this whole thing. Here’s the thing, Frank, the… By the way, something I just remembered. You talked about earnings, and you talked about how there’s either a positive 10% or a negative 7% potential, whatever the particular range is. I remember something that you said from one of the first times you were on my podcast, and it’s always stuck with me every time I hear these words, and it was a phrase that you said, “You could drive a Mack truck through those earnings.” That was something that you said. You did. Do you remember saying that?

Frank Curzio: Yes I do.

Andrew Horowitz: That’s your phrase. That’s your phrase.

Frank Curzio: Mack truck through it. Yeah.

Andrew Horowitz: You could drive a Mack truck through those estimates, and that’s what you’re talking about right now.

Frank Curzio: It’s hard with the confusion, and you just asked a question which, so what do we think And people listen to our podcast to get our thoughts. I’ll be honest with you, and I hate saying this, but I don’t know. I mean, the Fed, for me, should have stopped a while ago and just wait. Maybe we see inflation really… But the indicators that they’re looking at are lagging indicators. You have the real estate market, rentals aren’t coming down any time soon, especially now houses are more unaffordable than any time in the past 35 years, which is insane, right? We just got a call from my wife. It’s 7% loan. We didn’t take out a loan, but there’s 7% now, the average loan for an auto, for auto.

Andrew Horowitz: Yeah, and for a mortgage.

Frank Curzio: The mortgage, yeah, it’s incredible, right. So, you’re seeing it higher and higher and higher and higher with the housing market is frozen. You’re seeing the chip sector go from it’s the booming industry, massive supply chain. We need demand through the roof to… It’s stopping like that because of how quickly and how fast you’re removing liquidity from the system with these rates.

Andrew Horowitz: It’s stopping and changing. There’s two things going on. There’s stopping, and you look at Walmart, you look at Target. Target and Walmart didn’t stop, they just changed dramatically because of what happened with the reopening. I think we’re still a lot of this is the impact of this incredible pandemic, opening, reopening, closing China, opening China, closing China. You saw what happened with shipping rates. You saw what happened with the commodity prices. People freaked out. I mean, if you’re manufacturer and you’re seeing that whatever particular plastic or ethanol product, or oil derivative, or lumber product, aluminum, whatever you’re using to manufacture, whatever you’re manufacturing is going up as fast as it was going up, and tighter supply, seemed to be getting tighter supply and tightening continually.

Andrew Horowitz: You were probably hoarding, and then somewhere along the line, that’s going to fall bad. You’re going to have excess inventory. Then on top of it, could you imagine if all of a sudden, for whatever reason, all the things that were being bought… Like everybody was buying Traeger grills and Webers and smokers and outdoor furniture and desks from Wayfair. How many barbecues do you possibly need after you buy the first one that lasts five years, let’s call it?

Frank Curzio: You should know about-

Andrew Horowitz: I do. And I bought my-

Frank Curzio: What’s your Twitter handle? What’s your Twitter handle? You have to give it to everybody.

Andrew Horowitz: Oh, it’s not Twitter. You’re talking about Instagram.

Frank Curzio: Instagram.

Andrew Horowitz: Instagram is DadBodFoodBlog. Dad Bod.

Frank Curzio: All right. Don’t follow him because of the stocks. No way. It’s much, much-

Andrew Horowitz: No, no, it’s for the food.

Frank Curzio: Better is the food and the cooking on a grill all the time, and the fish that you catch. That’s why I follow you, not the stocks. Sorry. No, I’m kidding.

Andrew Horowitz: Yep, DadBodFoodBlog on Instagram.

Frank Curzio: But it brings a question, the Fed, everything that you’ve learned, everything that I’ve learned, whether it’s trading, whether it’s indicators, whether it’s fundamentals, whether it’s when to buy stocks because they’re down so much, it’s frustrating as analysts, and I’ve been doing this for 30 years. Nothing matters. You’re throwing everything out. It doesn’t matter. The only thing that matters is the Fed, and the Fed has put us in that position, right. They put us in a position because you didn’t raise rates, or you didn’t decide to raise rates when, and Jackson Hole last year, we have 5% on the CPI. 5% of the CPI you’re saying is transitory, right? With you’re still buying bonds, right? We have zero interest rates, and you’re saying it’s transitory even though we’ve never been above 4% annual and CPI since, what, 1992, I believe. And you just dismissed it.

Frank Curzio: So, we’re in this because of what you did and what you refuse to do. Now going over the top here, if the Fed didn’t exist right now, we’d take them out of the equation. I would be buying hand over fist. That’s what I was doing a month and half ago, two months ago. But with the Fed-

Andrew Horowitz: Do you think, Frank, it’s-

Frank Curzio: If they’re really considering bringing it up, man, holy cow. I mean, you haven’t seen nothing yet.

Andrew Horowitz: Do you think this is all one giant, ill-conceived experiment? Because we had kind of the ability to do so with the fact that, well, we have a pandemic, the whole world’s closing down. Why not see if we could do modern monetary theory involved here or some other kind of thing, where we’ll just print our way out of this whole thing and give away money and experiment, and we’ll see how it goes on the other side? Why not during a three- or four-year period within a pandemic, let’s go and do something crazy and see if we can actually really start the economy and see if this really works and stop the economy. Pump a lot of money in, make a lot of people really happy. If they’re stupid enough not to follow along what we tell them, then that’s their problem. But let’s just do this as a giant experiment. Possible?

Frank Curzio: I mean, the experiment is working though, but you’re just not looking at the right indicators. That’s what’s frustrating because-

Andrew Horowitz: They’re not.

Frank Curzio: You’re looking and the numbers for the jobs and if you’re looking at the pre-data, it’s looking as more and more there’s going to be less hiring. There’s more jobs coming off the market obviously. I mean, you can obviously see it, right? Every day that comes out, another company’s laying off 10, 20% of their staff. You’re seeing companies remove guidance like crazy. But he seems like Powell’s looking at the ’80s, right, Volcker, and I get it because people say, “Well, we were at 20% interest.” We went from 10% to 20% and that’s a massive difference. But it’s only a two-time increase in your rates. Right now, you’re raising it, and you could say, well, we’re only… And I hate when they just say, “Well, we’re going to go 4% but look back in a day.” You’re raising rates 13x-

Andrew Horowitz: Well, it’s worse. It’s more than 13x. It’s infinitum. The reason I say that is, we essentially went from zero to let’s just call it 1%. That’s the first gap up, okay? And this range, this zero to .25, these ranges we have, I don’t understand what that’s all about and why we can’t just compress it to one number. But okay. So, we go from 0%, but if we’re going from 0% to 1% is not a 10x move. You can’t calculate. It’s incalculable.

Frank Curzio: Yeah.

Andrew Horowitz: Now going from two to three, three to six, six to eight, those are calculable and the differentials right now. The bigger problem we have is not only, and to touch on your point of what do you do, man, have you seen what happened with bonds? No matter what duration you had with bonds, whether they were domestic, international, high grade, low grade, mortgage, treasury tips, they got eviscerated in the last three months, in the last three months in particular.

Frank Curzio: Last year, really. I mean, one of the worst performing years, yeah. Unbelievable.

Andrew Horowitz: It’s the worst performing start… Right now, it would be the worst performing year for bonds since 1949.

Frank Curzio: Mm-hmm.

Andrew Horowitz: 1949.

Frank Curzio: Yeah.

Andrew Horowitz: The highest inflation since the ’70s. These are not the kind of records we want to be talking about. Now, we don’t need to talk about the best stock market since 1942, whatever. That’s not the point either.

Frank Curzio: Mm-hmm.

Andrew Horowitz: The economy growing at a reasonable pace, and if we don’t have the Fed with their nose involved in every maneuver here, what’s going to happen? Well, inflation is going to spike. What is that going to do? It’s going to slow down the economy, right, eventually. Make things much more difficult for people to buy, and then it’s going to slow things down and eventually bring things back to where it needs to be naturally.

Frank Curzio: Do you think that-

Andrew Horowitz: The Fed feels they need to unnaturally do the same thing, and it’s for the good of the people because by doing so, they’re going to slow down the economy. They’re going to hurt people, make things less affordable because people have less money and more people have laid off. Absolute insanity. Insanity.

Frank Curzio: Yeah. They want 10 million people to be laid off this way. Right now, those 10 million people are not laid off, but they’re paying taxes to the government. But they’re going to be laid off. Now you’re going to be paying them, and then you’re going to extend benefits, right, and then… So, that should be-

Andrew Horowitz: Nuts.

Frank Curzio: Interesting. But-

Andrew Horowitz: Then you’re going to screw the states.

Frank Curzio: You know what scares the hell out of me? This is one-year, okay. You have your philosophy on trading. I have a philosophy of fundamentals. We all have philosophies or whatever, and for me, you always change with the times if things change. This is one-year. One year ago, we have this Fed and Powell saying that the cure for inflation is higher inflation. That’s why it’s going to be transitory because that’s the way it’s always been, right? Outside of the ’80s, that’s the way it’s always, always been. So, when you see prices go up, it cures itself because people are like, all right, I’m not going to pay $5 for the Snicker bars. I’m going to buy the Twix for a dollar, right. So, higher prices cure higher prices. And you see that’s why they were transitory.

Frank Curzio: That’s what they believed. Now in one year, not only do you not believe that anymore, but you raised rates by the fastest pace, I want to say at least in four decades, right? I mean we’ve never seen this-

Andrew Horowitz: Yes, this is Volcker. No question about that. Yeah.

Frank Curzio: So, you’re looking since the ’80s, and in one year, you went from having this belief of everything that you learned in 40 years of studying economic policy and theories, one year later, you totally threw everything out that you’ve ever learned and you’re saying, no, no, no, we got to go totally the opposite, balls to the wall, continue to raise… And for these economists, I know that you’re economists for a reason because you’d have much, much higher paying jobs if you understood the markets a little bit better. But you understand bell curves and shit like that. I’m not putting down all economists, but you have to listen to the corporations. You have to listen to what’s going on, and you’re seeing stuff break-

Andrew Horowitz: Well look what happened, let’s talk about FedEx. First of all, analysts, let me explain something. The Citi Group has an economic surprise index, and we look at that, right? You and I have looked at that before. What’s interesting to note about that, and what I’ve learned over the many years is this, that economists are pretty much always wrong, and they always extend to the wrong side and then make up for it. That’s why that surprise index gives you a good hint of where economists are going to go. Not necessarily how quickly things are changing in the economy. It’s more about how the economists need to self-correct because what they do is, they go to consensus for the most part. They don’t get too far away because getting too far away could have them either be a star or being fired, and they don’t want to really do that.

Andrew Horowitz: So, they stay with the consensus, and then the economics around them move around to a degree that’s maybe extended or accentuated beyond what they thought. And then, what they do is, they all, like penguins, all start going and changing their numbers to line up again. And that’s when you get a compression of the dispersion of differential between the economic consensus and the surprise index. So, it only really can be used, in my opinion, to see how far economists are and where they’re going to then put their next numbers. And when you see that, you have to realize that a lot of times markets will follow that. So, it’s really that range that you want to look at, and you also want to find where they’re sorely wrong on the surprise index and then work the other side.

Frank Curzio: Yeah. And the same with analysts, right. You want to always pay attention and find out if they’re too optimistic, too pessimistic, and that’s how you can make money on the long and short side because that’s consensus.

Andrew Horowitz: Right.

Frank Curzio: But the Fed’s saying it’s transitory at 0%, why wouldn’t you say it’s transitory at 3.25%, or when we go to 3.75%? I think it’s transitory except-

Andrew Horowitz: Because they can’t. No, I’ll tell you why. There’s a reason. They cannot step off this idea because they’re fearing. They have absolute panic that if they change their tune… That’s why everybody that comes out, the Fed parade that comes out, whether it’s Mester or you got Bullard or whoever, whoever’s coming out on a Tuesday, on a Wednesday and a Thursday, it’s all the same crap they spew. You know there’s a script that they give out to every single one of them saying, you know what, you’re the devilish one, we want you to say this. You’re the hawkish one, we want you to say that. And they go out, and they speak, and they try to reinforce their commentary to really, as they would say, I guess pin that or to anchor. That’s the word they use, anchor expectations appropriately. They can’t change that tune because if they-

Frank Curzio: They can. See that’s where I’m-

Andrew Horowitz: Did, all of a sudden, market this? It’s a problem.

Frank Curzio: There’s this whole thing, Andrew, about, it’s almost like a war and say you’re invading a fort, right? There’s a big difference between going all in, and you’re killing people, and there’s a massive war, and then saying, okay, all right, we’re done… And staying by the wall and making sure, hey, it’s over now. Everyone going to relax, compared to just completely retreating and going away and letting them build up again, right. I mean, I don’t know if that’s the best analogy, but the point is you’re not retreating-

Andrew Horowitz: I think it’s more the analogy would be if they’re low on ammo and trying to prove that they’re not, right? You know what I’m saying?

Frank Curzio: It’s not retreating by stopping. That’s not retreating.

Andrew Horowitz: Right. Right.

Frank Curzio: Retreating would be lowering, and I think there’s this big difference where people think a pivot, and they’re making sure we’re not pivoting. Pivoting is not stopping and waiting to see these rate hikes go through, which the last 2.75 basis point hikes are not even going through. That’s why you saw the UK do what they did. They’re making fun of the UK. They had to intervene. You have pension funds getting margin calls. You’re looking at Credit Suisse come out and say, oh we don’t have liquidity problems. No. If a bank comes out and says they don’t have liquidity problems, it means they have liquidity problems.

Andrew Horowitz: Liquidity problems.

Frank Curzio: So, you’re seeing it more and more within these industries when you have, like you said, FedEx earlier, FedEx has AI all over their systems for the last 10, 15 years almost, right? They know all spending patterns. They could see slowdowns coming. They know when to raise prices or whatever they know. For them to completely and absolutely remove guidance going into the holiday season tells you they have absolutely no clue what’s going on. So, if these companies have no clue because of the Fed, how are they going to invest? How are they going to put their CapEx to work? What are they going to invest in? Same with the fat plants with semiconductors. It was a 4 billion to 10 billion to build these things. All of a sudden, we’re like, we just saw record demand, we have massive demand, all these orders, record backlog, and everyone, you know what? Just we don’t care now.

Andrew Horowitz: Well, as soon as the government came in with all the extra money to create the… You know that was over. It’s like they’re the worst timing organization ever, right? I agree there’s a lot of confusion out there, and the problem is that the Fed and the central banks around the world, because they all need to keep pace or else they’re going to have big problems. Going back to Credit Suisse, Deutsche Bank, two worst organizations probably, maybe just ahead of Wells Fargo in terms of financial institutions. These are banks that have been in trouble forever. They make some of the Greek banks look like JP Morgan. These banks ahead of Credit Suisse, every time there’s some kind of kerfuffle or bad trade or fat finger or whale that makes a mistake, seems to be that, well, Credit Suisse or some kind of other scandal.

Andrew Horowitz: I do agree entirely that there’s a big problem. Listen, we’re not even touching on the reality though. We’re focusing on the Fed. What about Russia’s now going to do some kind of nuclear test on the Ukrainian border.

Frank Curzio: Mm-hmm.

Andrew Horowitz: Why do we keep having to hear the word nuclear anything in this day and age, right? And we got North Korea shooting off bombs.

Frank Curzio: I think it’s funny that we have… War’s terrible, but I love that the president of Ukraine where, first, you’re provoking, you’re poking the bear, right. I’m not taking Russia’s side or Putin’s side, but now you’re almost provoking that, oh, if you guys don’t fight back… You know how many times he’s sitting all alone like, oh, these uranium plants are getting bombed and these nuclear plants. It’s almost like he wants to fight a nuclear war over a country that we know was completely corrupt in every single one of their elections. You’re not allowed to say that, but yet, every leftist organization has said that about this country about a year before the war, right. We knew-

Andrew Horowitz: Well now, they put them up on a pedestal.

Frank Curzio: But now, they’re like, okay, it’s good news that they’re going to join NATO. If they join NATO, that’s a war. That’s a war with Russia, right, because we have to-

Andrew Horowitz: That’s not going to happen. Not happening.

Frank Curzio: I know it’s not going to happen, but the fact is, politicians supporting that saying because they’re trying to fast track it or whatever, and it’s not going to happen. They’re like, oh that’s good for them. It’s-

Andrew Horowitz: That’s like an auto insurance company giving you car insurance after you have an accident. They’re not entering into NATO in the middle of a war with Russia. It’s just not happening.

Frank Curzio: It’s just, it’s crazy what we’re seeing right now.

Andrew Horowitz: They can go in front of there in the middle of the street to… Did you see the signing? Two big gorillas on either side of Zelensky, and he’s in the middle of a street that apparently there’s no traffic on, and he’s got this desk. I don’t know how it got there, and a pen. And he’s signing this NATO application. The most ridiculous, dramatic stupidity. I mean-

Frank Curzio: I mean, the politics behind too, like you’re saying with the Russia war, but it’s just so… So, here’s a question, right. We’re talking about the… There are positives where Russia… I mean, not Russia, but China’s finally going to say, okay, we realize COVID’s more like cold. We don’t have to shut the whole entire nation because-

Andrew Horowitz: That’s a good thing. That’s good.

Frank Curzio: That they’re going to open. That’s a positive thing. If the Fed, not pivots, but just says, hey, we’re going to take a wait and see approach, that’s positive news. That would send stocks sharply, sharply higher from here because a lot of these… I mean, we’re seeing stocks where even the airlines, I don’t care if you like them or not, they’re trading at levels below like the first month in COVID when they were all grounded. They didn’t have anything working, and they’re trading below those levels. Granted, it might not be apples-to-apples comparison because they had to do a little dilution and raise money.

Andrew Horowitz: They have a lot more debt, yeah. Same thing with cruise lines.

Frank Curzio: But you’re looking at these companies where, holy cow, where they’re trading at, and it’s insane. Under normal circumstances, I’d be like, hey, you’ve got to buy here. But if the Fed’s serious about going forward… So, you have this confusion. What are you doing? What are you telling your clients? I know that you told me something interesting, where you’re seeing more demand for your services. We’re seeing more emails coming than ever before, more people. They want to know what to do. What are you telling your clients here because I know it’s kind of like you have to imply risk management in case the Fed does this stupid thing of continuing to raise rates. But also, if they stop, there’s going to be a really, really nice rally here. So, what are you telling your clients, and what are you looking to buy here?

Andrew Horowitz: So, yeah. One of the things that’s happened is that over the years, we’ve developed a diversified process and worked on a portfolio to try to balance it. And I’m got to tell you something: Not worked so well this year. This has probably been one of the most difficult years in terms of achieving any kind of buffer, any kind of backstop for a portfolio. Of course, some of the things like short-term duration bonds, alternative investments, some of the commodities, okay fine, some tilt to the value. But I got to tell you, not so pretty in terms of just the overall… When you look at it and you step back and say, where was the usual amount of ability for a portfolio to withstand?

Andrew Horowitz: Now, I can only imagine, because I’ve seen them come into me, portfolios that were equity only, I mean, obliterated, right? I mean, down 40, 50, 60%, a lot of these. So, you’re looking at down 15%-

Frank Curzio: And that’s not even being aggressive. That’s buying-

Andrew Horowitz: Exactly. Exactly.

Frank Curzio: Netflix, Meta, I mean, they’re down like 50% plus. But yeah, go ahead.

Andrew Horowitz: Right. So no, my point is though so that diversification did work to a degree. You didn’t get totally taken out and, honestly, just taken out to the back and shot. One of the things we do for new clients is a dollar cost averaging program. We do an opportunistic as well as a time based, and the fact is that we are looking right now that there is opportunity that’s there. I think the dollar is absurdly high compared to other areas of other currencies around the world. Maybe some things like the euro, okay, I’ll give you that. But Japan, maybe Japan can keep the yen depressed for as long as they can. Maybe China can do so as well, but I just can’t imagine the dollar being this strong over time. It’s gone and done a lot of damage to the global markets and the global economies on its own.

Andrew Horowitz: So, the idea of having a lot more alternatives in the portfolio where we have either commodity trading, or we have option alternative strategies, or we have, for example, headline-driven, or we have credit arbitrage, there’s a variety of different things. We have a much bigger position now than we’ve had in a long time. Cash, we’re getting 2.6 to 2.9% on our cash now. You may say, oh Andrew, wow, we’re going to hire a money manager to put us in cash. Cash has become a reasonable asset class for temporary movements in and out of right now, whereas before it wasn’t. So, there’s a lot of the-

Frank Curzio: Imagine you were in cash since January.

Andrew Horowitz: What?

Frank Curzio: Imagine you were in cash since January. I mean, people… Oh, inflation-

Andrew Horowitz: Yeah, everybody’s like, oh, but if you’re in cash… You have inflation down 8%. I’m like, okay, so now, your stock’s down 20% plus 8%.

Frank Curzio: Yeah. I know. It’s-

Andrew Horowitz: I mean, it’s such stupidity out there.

Frank Curzio: Oh, yeah, I know.

Andrew Horowitz: There’s such stupidity from the people in the mainstream media. It’s unbelievable. One of the things we’re looking at right now, I mean, when I say looking at it, I’m going to bring it in. Come a little closer, Frank. I’ll tell you what we’re going to talk about.

Frank Curzio: Okay.

Andrew Horowitz: We’re having a discussion right now about defense stocks. We’re talking about nuclear. I’ve been looking for, and I can’t find the one I’m looking for, but is there a radiation detection/prevention? But I think it’s potassium iodide and there’s other ways to protect yourself. I’m not going all bunker on you right here, but looking at least defense stocks, there’s a few names out there that are really interesting.

Frank Curzio: I’ll be honest with you, if there’s a nuclear attack, the last thing I’m thinking about is buying a stock that prevents it that we could find it quicker. I think we’re going to have more problems. So, that scares the hell out of me.

Andrew Horowitz: Right, right. No, I hear you. Right. Somebody’s, “So like, what if we have a nuclear attack? What are you going to invest in?” I’m like, it doesn’t matter. It doesn’t matter if it goes to that direction. But Northrop Grumman is one of the best looking charts out there. Symbol NOC. If you want to take a stab at this area, and again, I haven’t waded in there. I’ve looked at the Raytheons, the Northrops, the Boeings, all these. Their stock charts are not looking so great, which tells you something there, right? I don’t think we’re going to stop spending on defense. I’m not a big lover of the defense stock and industry, but I will tell you that right now, if you want to do something like the ETF, the ITA, which is defense and aerospace, interesting. Something to look at. I think some of the biotech, even if we do go into and we are in a recession, biotechnology CRISPR, EDIT to simple CRSP-

Frank Curzio: Like that for a while. Yeah.

Andrew Horowitz: And EDIT. Yeah. I’ve liked that. Gone back and forth, in and out of it, moving in and out of it. Low range of 60 for EDIT, 72 on the high… Or, excuse me, 60 CRISPR, CRISPR Technologies, 60 on the low end, 72 on the high end. What else would I like? I think that it’s interesting. I’m starting to very strongly consider the bond exposure increasing the duration, thinking that we’re really going to top out at 4%, which we’ve seen bottom end at three and a quarter, but maybe look for a better opportunity. Right now in a 10-year, you can get 3.5. Couple of weeks ago, you get 3.9 on a treasury, 4.2 on a two five-year.

Andrew Horowitz: So, there’s some, honestly, some opportunity I think there, especially if we are moving in a recessionary path. And I still think crazy… Call me crazy. I still think there’s opportunity in specific emerging markets around the world. Europe is the wild card for me right now. I can’t clearly see how it’s going to get a lot better economically there. There’s some-

Frank Curzio: How it can get much worse though? I mean, that might be-

Andrew Horowitz: That’s the other point. That was the other point I was mentioning. I mean-

Frank Curzio: Five straight weeks of outflows or something. I mean, everyone’s having to-

Andrew Horowitz: Right, and we have everything going against it, right. We have bad banks, bad government, rates going up, no energy, a winter that’s going to be hellacious for people in Germany, France, restarting nuclear reactors, restarting… We’re using coal again. We’re back to using coal.

Frank Curzio: Yeah.

Andrew Horowitz: When the going gets tough, we’ll use dirty fuel.

Frank Curzio: When it comes to people’s lives, not heating. Yeah. And Germany’s gone back, Europe. I mean, those have been the biggest people against coal, but when you have nothing and things… You know. I don’t know. But-

Andrew Horowitz: The amount of, listen, the amount of hypocrisy that’s out there is mind boggling. The idea that we can pick a stock right now, as you… I think this is the culmination of this discussion. The idea of picking a stock right now, thinking that that, because it has quality balance sheet or… That’s a very difficult task because if everything is being sold due to margin calls, change in positioning, fear of the Fed, whatever you want to call it, right, very difficult. I mean I like some of the banks. I like Bank of America, JP Morgan, of course I do. Generally speaking, I prefer a Bank of America, more local, even though it has the Merrill with it. Look at Ford. I think that Ford, the price on Ford, even though they had some concerns, where they have 40,000 excess inventory waiting for parts right now, but we’re getting down to very good dividend on Ford, assuming it’s not cut, which I don’t expect it to be, but we don’t know.

Andrew Horowitz: Earnings on it. I mean, they have some really nice cars right now in the EV side of things. Still, the biggest problem with Ford, of course, is that they’re paying more people to be retired than working due to their the pension.

Frank Curzio: Right now, every car they produce on the EV side, they’re losing money on.

Andrew Horowitz: Correct.

Frank Curzio: That’s also a problem.

Andrew Horowitz: That’s a big problem. No, no, big problem. I get it.

Frank Curzio: Yeah. So, I hear you. But-

Andrew Horowitz: Big problem.

Frank Curzio: One of the defense companies I like is AeroVironment, AVAV. They are getting tons of new orders. They’re one of the best drone makers in the… I can’t believe they haven’t been taken over because it’s a pure drone company and it’s-

Andrew Horowitz: Are they a pure play? They don’t have anything else?

Frank Curzio: Yeah, it’s pure play, but they have these switchblade drones. They’re called suicide drones. Basically, you can carry them in your backpack. So people, troops could have it in a backpack. Put them down, set them off. They go like 70 miles an hour, and they’re armor piercing. They could destroy a tank, and they’re undetectable by the new ones. Undetectable by Russia and their radar system. So, you’re seeing that stock really ran higher, but again it came down. And you brought up a good point. I mean, for me, that is an awesome, awesome play. I think it’s an easy takeover target, where it’s very small compared to the larger players that could easily take over this and give this technology.

Frank Curzio: But, when you’re in a market, David S. Everest said it best, I’m pretty sure it was 2010 when they had him on TV, and it really changed my outlook because I was a little nervous in 2010. We were just coming off the credit crisis. I’m like, man, I don’t know if we’re going to… He’s like with the Fed lowering rates the way they are and basically going to zero, he’s like, “You know what’s going to go higher? Everything’s going to go higher,” and he was right. Everything went higher. We’re in a reverse market right now. So, we have the Fed continuing to raise rates. You know what’s going to go higher? Nothing is going to go higher. When you have the leveraging, when you’re taking liquidity out of the system, it means even your good stocks are going to get sold.

Frank Curzio: That’s why it’s tough to pick individual stocks not knowing and being clear where the Fed has been pretty clear. It’s just nobody believes that you’re going to be that stupid to raise rates because that is going to cause depression. Globally, it’s going to be absolute nightmare. I mean, it’s already… The UN actually said, they came out publicly and said that you need to stop because you don’t know what’s going on.

Andrew Horowitz: How was that? That was pretty weird.

Frank Curzio: Yeah. I mean… But you’re not even thinking of stopping. It’s a little scary. But, I mean, there’s so many cows that we could go much, much higher from here, but just that one big gorilla in the room which is most important, it is the Fed and if they continue, it’s a little scary. So, I hear you. Defense makes sense, but if you are seeing liquidity constantly coming out of this market, which you’ll see even more come out of this market if rates continue to go higher and the Fed maintains this ridiculous course of tightening. A lot of these names are going to continue to get hit and, again, it’s going to create a better buying opportunity, but it’s hard. It’s like a coin flip: On what side do I want to be on here? Do you believe the Fed or not?

Andrew Horowitz: I think though, you would agree with me, it’s high-quality. You have to be at higher quality right now.

Frank Curzio: Yeah.

Andrew Horowitz: The idea of trying to jump in some crap stock because it may be really low, look at Peloton for example, or some other name that’s a really troubled stock that you may be like, “Wow, look at that. It’s really low. It’s basing out and technically it could move up,” that’s great. But I think if you’re investing different than trading, there’s that differential, I think you have to be at high quality. Look at quality of earnings, earnings growth, revenue growth, margins that have expanded and decent management. That will save you a lot of grief. It will still come at back at you, but it won’t be the same as some of the other companies that really are stretched in terms of debt and stretched in terms of balance sheet and problematic because they won’t survive. There’s a difference. One will get hit, one won’t die.

Frank Curzio: And also, just to push back on that, you’re right. You want to look at strong balance sheets and earnings growth, and then FedEx comes out and says, we’re not providing guidance. New car comes out and says, we just-

Andrew Horowitz: 43%.

Frank Curzio: The last two quarters ago, they just reported recently, they reported record quarter. Everything is fantastic. We’ve never seen an environment like this, and then earnings came in 33% lower and they basically said, we had no idea what’s going on. So, that’s also a question. You want to invest-

Andrew Horowitz: Look at Nike, Nike also. Nike’s got an 40% increase in inventories. I mean-

Frank Curzio: On top of a-

Andrew Horowitz: Like how was that?

Frank Curzio: When you see retailers, even Walmart when they announced their inventory, and Target, you have to… This is seasonal businesses, right. So, you got to sell that stuff off at cheap price quick as you can. They had a 23% increase in inventory last quarter. So, that’s why people were like, okay, China’s closed. That’s a growth engine. But they probably got rid of a lot of inventory. We’ll see sales come up. Maybe ours will get hit a little bit. Then they’re like, well, now we have a 44% increase, which is $9 billion. I mean, how do you buy that stock trading at 24 times earnings when you’re seeing their growth engine turned off from China. I mean, holy cow.

Frank Curzio: I mean, you could look at, Andrew, and say, wow, this stock was 170, and it looked like a buy at 100 or 110. You have to look at the… 24 times forward earnings, they’re not seeing growth from their key markets. I mean, the stock is arguably more expensive at $100 than it was at 170, when you remove the growth component.

Andrew Horowitz: But this is the barbecue discussion. How many barbecues do you need? Now I don’t know about you, I never had a sneaker fetish until recently.

Frank Curzio: Yeah. Oh, sneakers. Yeah, I’m a sneaker fan.

Andrew Horowitz: I have the new Nike Metcon 7s. Have you seen those?

Frank Curzio: No.

Andrew Horowitz: Those are cool, and I just, forgive me, I just did a design your own Nike. I did a design your own.

Frank Curzio: Did you? That’s cool.

Andrew Horowitz: Have you done those? Yeah, yeah.

Frank Curzio: You could actually design your-

Andrew Horowitz: Yeah.

Frank Curzio: Yeah, that’s cool.

Andrew Horowitz: Very cool. Yeah-

Frank Curzio: Do they have a feature?

Andrew Horowitz: The Nike Metcon… It’s $160. You could do the laces, you could do the back, you could do the colors of the tongue, you could do the sides, you could do the underlying point. There’s the heel. There’s like 18 different spots you can… And then, on the left one, it says Horo, and on the right one, it says Witz.

Frank Curzio: Nice. Oh, I love it. So, that tool is a feature in Nike land that they have, where you can create your own sneaker, and you can actually wear it in the Metaverse and people like it, you could sell it, and you’d give a commission to Nike, and that’s-

Andrew Horowitz: Oh.

Frank Curzio: Digital ownership in the Metaverse is why that instead of getting-

Andrew Horowitz: Oh.

Frank Curzio: Buying all these skins in Fortnite and everything goes to Fortnite or Roblox, now you could have digital… You own this digital stuff, right. And of course, you pay-

Andrew Horowitz: Do you actually get the shoe, or are you just wearing it in the Metaverse?

Frank Curzio: It would be in the Metaverse. And also, so you could make-

Andrew Horowitz: Wow.

Frank Curzio: That shoe. You could have it, but you could be wearing it in the Metaverse, and say you don’t have the Horo and the Witz on it, but say if you have something that they’re like, “Oh my god, that’s really cool,” they can’t build it or unique, and you got developers who are incredible, now you’re incentivizing innovation because you’re letting anyone produce anything using the Nike name.

Andrew Horowitz: Sure.

Frank Curzio: People might love them, and say, even in your character in Metaverse, which we’re talking about hundreds of millions of people who are all over Fortnite in these games and stuff like that and want to look different, but you could actually make money off of that, right, to owning your own digital content and stuff.

Andrew Horowitz: And then, you may want to buy the physical item as well. That’s probably why Nike has that Nike Build Your Own tool that’s on their website that you can buy the sneaker, which would be their ultimate, the best for both world, so to speak. The Metaverse and IRL.

Frank Curzio: I’m not technically, I come in with… Because I work out. I try to work out a lot. So, I’m coming in with shorts and t-shirts all the time, and I’ll throw on a collar to do an interview and stuff. But the one thing I do focus on is sneakers. All my life in basketball, and Nike, by far, still to this day makes the greatest sneakers ever. I mean-

Andrew Horowitz: Just as a side note, I used to wear New Balance all the time because I have wide feet and forever, forever. Then, I started wearing Sketchers. I never wore Nike because they were really too tight. I don’t know. I don’t know if they’ve widened them. I don’t know what the story is. Maybe my feet are thinner, maybe. I don’t know.

Frank Curzio: I don’t know. For basketball, they were always the best and running too. But just casually, yeah, New Balance and Sketchers, a lot of people wear. So, I hear you, but-

Andrew Horowitz: Right, right.

Frank Curzio: All right, so just a couple of ideas that you did share with us. I really appreciate it. And if someone wants to learn more about you, how can they do that?

Andrew Horowitz: So, you go over to thedisciplinedinvestor.com, or you can go and simply just, on Apple, look up Andrew Horowitz, look up The Disciplined Investor podcast. I also have a podcast with John C. Dvorak on Tuesday nights called DH Unplugged. DH Unplugged is a live podcast, nine o’clock eastern time. But yeah, oh, there you go. Right there. What’s that? Scroll down there, Frank, for a second. What was this… Or, up, I should say. Scroll up.

Frank Curzio: Mm-hmm.

Andrew Horowitz: There you go. So, there’s all our podcasts. You can see the themes.

Frank Curzio: Yeah. If you’re watching this on our YouTube channel, I have his site up, and I just showed his beautiful young picture, which I like. And then, all this stuff all over his website.

Andrew Horowitz: Yeah. You said young. That was yesterday. But on there, there’s our various strategies, the global allocations, The Disciplined Investor managed growth, which is an equity-only strategy with some hedging and some other things that are in there, as well as investotology. Everything’s on the website, how to work with us, all the podcasts there, all the list of historical reference. You could take a look at a view of all the podcasts. All of it is right there. You can just check it out. So, definitely do so over on thedisciplinedinvestor.com.

Frank Curzio: All right, man, listen, thank you so much for coming on, coming on short notice, but you’re one of the people that I really trust in this market, that I know we can have this conversation and really break it down and go back and forth. So, I really appreciate you coming on, Andrew, and-

Andrew Horowitz: Thanks.

Frank Curzio: Hopefully, you’ll join us again soon. All right, buddy.

Andrew Horowitz: Yeah, thanks, Frank. Always a pleasure.

Frank Curzio: All right, take care. All right, guys-

Andrew Horowitz: You’re the best.

Frank Curzio: So, great stuff from Andrew. Always like having him on during times like these because we can really go anywhere, talk about current events, especially in macro picture, which as you could see, this is the picture, right? This is extremely relevant when it comes to positioning your portfolio short, long-term of what the Fed is doing. So, we have to pay attention here. But thanks so much for Andrew coming on. But I always say this podcast is about you, not about me. So, let me know what you thought at frank@curzioresearch.com. That’s frank@curzioresearch.com. Also, any questions or comments, you could email me there as well. That’s it for me. I say this all the time, and I really mean it, I appreciate all the support, guys. I really do, and I’ll see you guys next week. Take care.

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