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 26th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines and tell you what’s really moving these markets. I was going to pause for as long as I can. One time, I’m just going to pause. I’ve got Daniel Creech. What’s going on? How’s everything? I was going to pause for five minutes one day and see if everybody just stays there and listens.

Daniel Creech: They won’t. Don’t do that. That’s a little too long. It is your signature though. You even had me there. I was kind of waiting on you there.

Frank Curzio: Interesting time. It’s Daniel Creech Wednesday.

Daniel Creech: It’s another wonderful Wednesday here on the island, Frank.

Frank Curzio: Yes, wonderful.

Daniel Creech: It’s cool. The weather is amazing. Hopefully it is for everybody else as well. Changing of the seasons. Earnings season, Frank, which is good.

Frank Curzio: Which is good. All over the place, right? We’re seeing some strong earnings. I want to talk about that, because we’re seeing a rally in stocks here, and the rally I think is based on technicals a little bit, over-sold levels. So, we’re seeing a little craziness here with this rise. It’s also based on earnings coming in better than anticipated, where if you look at the statistics and you’re watching TV right now, they’re going to tell you 72% of companies have reported so far, which is about 125 companies in the 500, have beat estimates. That’s great. Earnings are better. Consumers are resilient. We’re great.

Frank Curzio: I wanted to talk a little bit about that, Daniel. I’ll start this off here because I pulled up a report, and I’ll tell you guys, one of the best research you can get for free is FactSet. You can go into Google, go FactSet PDF earnings, and it’s going to bring up a 20 page earnings report, which is very detailed. I’m surprised they’re giving it away for free. They do it kind of every week, every 10 days maybe, where they’ll update it. The last one that came out was a couple of days ago. I think it’s like 100 companies report, or maybe 90 or whatever. It’s like two or three days old. It doesn’t have everything that happened today with Microsoft and Google, which we’ll get to in a minute.

Frank Curzio: But I wanted to pull up a report because they say earnings are expected to grow 1.5% this quarter. I’m like, wait a minute. 1.5% this quarter. Remember, next year, they’re supposed to grow I think 7% in 2022, and then definitely 7% next year. It’s supposed to be strong growth next year of 7% in earnings, which I think is absolutely insane. Now it’s 1.5% growth. Then I took a report from… I’m going to try to bring this up actually. If you watch this on YouTube, definitely watch it because this is fascinating what I’m about to bring up.

Frank Curzio: This is a FactSet report, and this is from July, Daniel. So from July, and I have it up on the screen now. It says, “Looking Ahead: Forward Estimates Evaluation.” It says from July, three months ago, the Q3 2022, analysts are projecting earnings growth of 10.2%. Now as of last week, that’s gone down to 1.5%. What does that mean? For the last three months, you’ve had Wall Street lower estimates considerably. Considerably. When I see that happen, and then you watch on TV, Daniel, where all these guys are like, “Well, earnings repeating estimates,” I’ve never seen revisions this big in a quarter outside of a major event, when it comes to COVID or 2008.

Frank Curzio: Not in the middle of everything. Again, we’ve seen the markets fall back a little bit, but companies only estimate 9%. There’s a 9% adjustment. If you kept the 10.2%, you would see 75-80% of companies missing their estimates right now. If you’re watching TV, it looks like this is a strong earnings season and things are great, but this is what you don’t see what you behind the scenes. The earnings number is the earnings number. You could bring it down and say, “Wow, we’re beat and we’re great.” That’s fine. But the earnings number is the earnings number, and you’re seeing these companies report not only have they been adjusted, and some of these reports have beaten, but now we see today, Daniel, where two companies…

Frank Curzio: Microsoft was okay. Google was an absolute disaster. What are your thoughts on those?

Daniel Creech: To your point, that is a significant revised lower. That is the ultimate how low can you go kind of a limbo theme on just dropping that from 10% down to 1.5%. This is the environment we’re in though. As you said, earnings move stocks, so it’s all about the narrative. They are beating earnings to a certain extent, although they are revised lower. That’s just part of it. I do think there’s a lot… Frank, we were joking about this, I’m not smart enough to point to the data specifically. There is a lot of rumors and talks about “Hey, we just started the fourth quarter. We have a lot of money managers that are behind, results and indexes.” You talk about beating your benchmark a lot of as a money manager.

Daniel Creech: You still have a lot of inflows from 401Ks. You talked about Bank of America reports and things like that. Nothing moves in a direct line. The odd thing here is, Frank, even though we’re in this better un-forwarding earning season, nothing has changed. The main concerns, if we were to build a short list of main concerns, the Fed raising interest rates, liquidity issues, none of that’s changed. That’s what’s wild about investing to me, is that for lack of a better term, you can have this kind of storm going on, or these headwinds, but yet, in pockets in between that like now, you can see ultimate rally modes. I tend to agree, I hate to agree with you on everything because it’s not for good press, but the bear market rally is fine.

Daniel Creech: We can talk about that. I didn’t think the tech earnings were that bad. So, they’re down 5-6%. Honestly, I think that’s good. The market’s reversing as we’re doing this. These companies are so big, and so massive, and so unbelievable, what attracts me to this is the bigger argument of what should the premium be? Everybody can agree these are amazing businesses. They generate unbelievable profits and returns to investors. They give services that corporations through the cloud and everything need and rely on. Yet, if we’re trading a 10, 12, 15 times earnings as a market, do these deserve 20 times? Do they deserve 25 times?

Daniel Creech: That’s the ultimate goal here. I’m sorry, I just didn’t think they were that bad. I thought, “Hey, this is impressive. The stocks are way off.” If you think that tech is going to regain its mojo despite higher interest rates, use these levels to buy aggressively. I don’t think they were that bad. I don’t think that. I wouldn’t. I think growth is dead in that point, but overall I didn’t think they were as bad as… Especially Microsoft, I didn’t think they were as bad as some of the headlines that came across the desk yesterday.

Frank Curzio: I’ll tell you why both of them went down. I thought Google was a disaster, and I’ll tell you why.

Daniel Creech: Disaster.

Frank Curzio: Google, their ad revenue service… Yes, they’re into cloud, but they’re not into cloud like Microsoft is, and Amazon, where those companies are dominating. When you look at their ad revenue, their ad revenue is up 2% year-over-year. This is ad revenue search. This is the search. The search, right? You also have declining ad revenue for YouTube, which is clear indication that TikTok is destroying them. You saw Snap come out. Snap was a disaster. The stock fell 30%. Then you have operating margins. Operating margins of 25% compared to 32% a year ago. That’s massive. That’s massive.

Frank Curzio: They also see weakness in Excore as well as more impact from foreign exchange. They call this constant currency. Based on constant currency, this is what we report. That means they’re not including currency; yet, you have to include currency because this is money you lost, not money you’re going to get back. They’re trying to make an apples-to-apples comparison to show growth. But you can’t make the apples-to-apples comparison because the dollar is high and is going remain high for a while. As long as the Feds are raising rates and lowering rates, you’re going to see other countries get destroyed. We’re the best of the shittiest currencies in the world, so everyone is going to flop to the dollar again. The dollar is a little bit weaker. That’s why you’ve seen the market move higher.

Frank Curzio: When you’re looking at earnings, and I want to explain the currency thing, because it’s difficult I think for people. You’re not mentioning a lot, this is why it’s such a big deal. They’re seeing a 7% impact in search revenue from exchange. What does that mean? What’s 7%? Search generated $39 billion for the quarter. That’s 7%. It’s close to $3 billion in sales. They say it’s going to happen again next time. That is massive. You’re looking at Google. You’re looking at Microsoft… Speak of Microsoft different, because they’re two different businesses. But let’s go over the ad revenue space. This isn’t like a reversal of COVID. That’s what I’m hearing from analysts, “Well, COVID and everybody online, and more online businesses, and everyone wants to increase their online presence, like Chipotle and everybody else, so many businesses, and this is a reversal.”

Frank Curzio: This is a fundamental shift in the business. These guys enjoyed a secular growing business, which means it grows forever, forever, forever, forever. There’s a fundamental change to this business model because you can no longer steal everyone’s data and show it everyone. Now, you’re seeing not only because of the recession that we’re seeing globally, and almost every tech companies, many companies are shrinking their ad budgets like crazy. They’re shrinking their ad budgets, but you’re getting hit from that from one end. On the other end, they were used to getting everything, where if I wanted to market I could market on Facebook, on Google. They’re in your living room. They’re following you and knowing every single time you do everything, what time you eat, what time you go to bed. They know everything, in your living room, all the devices and everything. They’re just sharing. You’re on these platforms. They’re stealing all of your information. Again, they make you sign a private policy where you don’t even have to click it anymore. You just have to click off of it and click the page to read, and it counts as you clicking it. They say, “We’re going to share everything.” Now what Apple did, is they said “Okay, we’re going to come out with this new privacy policy where you can’t say I want information,” and immediately, you saw the revenue decline in these businesses. This is a fundamental where advertisers are not getting what they paid for. These guys don’t have that premium that they have, where who the hell is watching TV and what demographic?

Frank Curzio: I can keep the TV on all day, you’re not going to know. But yet, when you’re on Facebook and people say, “I like this place. Look where I am right now. Here’s picture,” and you could send it to someone says, “Here’s Starbucks. Here’s one million people that are in your stores right now. What do you want to send them?” Now you have premium pricing. You don’t have that anymore, because it’s a shift. That’s what the Metaverse is about. That’s why I got to credit Facebook, because everyone is ripping this guy apart just like they ripped Zuckerberg apart so many times, Daniel, when it came to buying Instagram for $1 billion, which is worth more than $100 billion today.

Frank Curzio: We saw it with Tesla with Elon Musk. They ripped him apart. We saw it with even Jeff Bezos and Amazon, and they’re never going to penetrate this market, and retailers, and it sucks. You’re seeing the same thing with the Metaverse. The Metaverse is the ownership of your own content. At least Facebook is transitioning into another growth model. Google is just sitting there going, “Okay, this is what we do. Yeah, we’re getting into cloud.” And they’re cloud. You’re seeing cloud grow, but you’re going see these numbers continue to get hurt. Next quarter, the impact from foreign exchange is not going away. The dollar is not going to crash and go down.

Frank Curzio: If that happens, you’re saying the whole entire market is going to go up without the Fed help, with the Fed raising interest rates. It’s not going to happen. You’re looking at this fundamental next two or three years, where earnings are going to decline significantly. When I see that ad revenue is up 2%, YouTube ad revenue is down, search down, this impact from currency is not going away. If you look at it, and this is a great note from JP Morgan, they said Google is giving up all the margin expansion in Google Services between 2019 and 2021, and 60% of the margin gains for alphabet overall based on this quarter. Business. These are fundamental trends that are getting worse, and they’re going to continue to get worse.

Frank Curzio: Now Google still has 42 by-ratings on it, Daniel. Four holds, no sells. The stock’s down considerably. I didn’t see a downgrade yet. You’re not going to see one. JP Morgan did lower its target from 136 to 115, but of course, no downgrade. Goldman Sachs lowers their estimates from 626 to 586. That’s a 6% cut. Remember, you’re seeing a 6% cut to these earnings, and you’re seeing a cut to Microsoft earnings, you’re seeing movies reported earnings out that was significant decline, but it was a big number from 950 to 8-something. Remember, we’re expecting earnings to grow 7% year-over-year when all these guys are getting their estimates lowered.

Frank Curzio: They’re already lowered significantly into the quarter, and now they’re getting lowered even more. I don’t know how we’re going to see that growth next year. It’s not going to be 7%. It’s going to be negative. You’re seeing it right now. Now, do you want to pay 17 times earnings for this company, who with sales and earnings are probably going to decline year-over-year? Are you going to pay that market multiple? I don’t know, that’s up to you. But they just said next quarter’s probably going to be even worse.

Frank Curzio: When I look at Microsoft, it’s a little bit better, but you’re seeing slower growth. The reason why it’s… Again, I’ll get into constant currency because I want to get your thoughts on Microsoft here, because I know you like Microsoft. It’s down 6-7% of all these companies today. When I look at Microsoft, this is a company that’s trading at 24 times forward earnings, and now, you’re seeing cloud growth slow a ton. It’s still growing, but not at the pace where you deserved it. It’s +20, multiple. That’s why you’re seeing this name come down, because this is a more expensive name and the numbers were definitely better than Google, but it’s more expensive.

Frank Curzio: All of a sudden, your bread and butter, your growth model is what? Is cloud. And you saw 50% growth in cloud, and now, you’re going to see that slow dramatically. That’s from December last year. This December, you’re going to see much, much slower growth. What are some of the things when it comes to Microsoft do you like? I don’t know if I want to pay that much for Microsoft right now when you’re seeing growth… You pay the higher premium when companies are growing. When you’re seeing growth slow, even if it’s a percentage basis, if it goes from 50 to 25 to 20, you’re seeing slower growth on a percentage basis, that usually results in you lose your premium.

Frank Curzio: Microsoft is still trading a 40% premium to the market. Does it deserve it when you have all these headwinds and tech, and everybody’s cutting? I don’t think so. I wouldn’t go into Microsoft, but I would definitely buy Microsoft a million times faster than I would Google.

Daniel Creech: If I had to choose between the two, yeah. If I’m going to buy and hold… Honestly, and this is going to put the long hat on here Frank, to go to sleep and wake up in several years, if you don’t want to have anything to do with this and you buy Google here, and you wake up in a few years, I don’t know that you’re going to be hurting. I don’t think you’re going to do that well overall compared to the markets. But yes, if I had to choose, I would definitely go with Microsoft.

Frank Curzio: To your point on currency, and it’s boring and nobody really cares, but for their cloud Azure and cloud services revenue growth, it was 35%. Up 42% in constant currency, if you keep that. That’s 20% difference. To your point, you back that down into dollar amounts, you’re talking huge amounts of dollars. That’s just in thin air. Microsoft has its hands in just about everything. Their services are great. Like I said, it’s a great company. Does it deserve this premium? I don’t think so. I think that you don’t transition… The world really changed at the end of last year when the Fed changed on interest rates. I’m still not even wrapping my head around it fully, because again, you had this huge bull market of low interest rates and easy money policies.

Frank Curzio: To say that that has now ended and now we must change, is very difficult. It takes some time. Even if Microsoft starts to… They’re going to continue to cut expenses. They’re going to be fine in the long-term. There’s no permanent loss here of this company going out of business in the huge scheme of things. The issue is, Frank, even if these start to improve, why would you reward tech in this new environment? That’s where I keep coming back to. I think that this is just going to be a sideways to lower market for tech in general as interest rates remain high.

Frank Curzio: I do want to tell you too, in resting stocks that jumping out to me on earning season, can I have the floor here for a minute?

Frank Curzio: You got it.

Daniel Creech: Xerox, I’ve talked about this XRX. I’ve talked about this for a few podcasts in the pasts, also on a Frankly Speaking. Carl Icon has a tremendous portion of the shares. I believe he owns over 20, maybe 30%. I’ve constantly been looking at this, and Frank, we’ve talked about it, basically the business model I was trying to wrap my head around is, “Hey, we’re a lean business, offers different IT and services, and print, and things like that. We’re going to generate $400 million in free cash flow, and we’re going to pay dividends, maybe special dividends buy back shares.”

Daniel Creech: I can wrap my head around the business of that, but boy do things change quickly, Frank. This reminds me of FedEx. Xerox reported the other day, they came out and there was a stationary CNO, not a CEO, not transitory, Frank, and now he’s permanent. A little bit of me wants to think that this is throwing everything out as the first permanent CEO reporting a quarterly earnings update. They lowered free cash flow from $400 million to $125 million. That is significant. The stock dropped 18% following the news. Frank, what they’re telling us is that “Hey, this FITTLE program is the equipment financing business.”

Daniel Creech: That is growing, and they see such tremendous upside in that business segment, Frank, that they are diverting a lot of the free cash flows to grow that business. I’ll continue to watch this. I’ve asked for subscribers, what am I missing here? What’s the business thesis? I’ll continue to monitor what Carl Icon does. But Frank, in the world we live in, do you really want to sacrifice free cash flow dividends and steady on an equipment financing business? I doubt it, but we’ll see. The stock market didn’t like the initial reaction. Again, we’ll continue to update.

Daniel Creech: Number two, Frank, is First Cash Services. They operate pawn stores across the United States and South America. They report earnings tomorrow, I believe before the bell. It’s trading near 52-week highs. This is a great reading on the overall economy, because as interests and your “traditional banking” and resources for people get tighter, money gets harder to borrow, banks tighten their belts, et cetera, customers are going to go to where they need money. They’re going to have a lot of repeat business. If you pull up FCFS, Frank, on a chart, the stock has made an incredible rebound.

Daniel Creech: The very volatile dips are because there was lawsuits about the company charging higher than normal rates. They charged exuberant rates anyway. But they were charging to military families and things like that. I don’t know how all that’s resolved, to be honest. If you look at the stock price, it’s obviously not affecting it anymore. They come out with earnings, that’ll be a good reading we can update you next week on what they say about the general economy and things on the middle class to lower middle class. Those are two things that jumped out to me outside of your big tech stocks.

Frank Curzio: Yeah, Wingstop, was pretty good today. There was a couple ones that were good. Texas Instruments was down. Again, it is a reversal. Markets are actually holding up kind of well considering two biggest companies really shit the bed here. Not that Microsoft shit the bed, but I want to really talk about those numbers even more, Daniel, because when you’re looking at cloud, which is their growth, growth is very, very important because all these technology companies they all have this crazy multiple because of growth and where that’s heading.

Frank Curzio: So, you deserve the premium based on the future of the company and growth. When you see cloud, cloud grew, and you mentioned 42% constant currency. Again, constant currency, remember that, you’re going to hear that reporting with earnings pretty much for the next 12-24 months. Its constant currency. They didn’t say anything when the dollar was lower, because they’re generating massive profits over it. They don’t say, “Constant currency, no.” Now they’re going to mention it. Now they’re going to mention it, which is great. But they said it’s going to slow to 35% constant currency, which is the real number. You have to include that, that’s the real number, 35%.

Frank Curzio: You’re like, “35% is still amazing growth.” You’re right, but it’s much lower than expected. You said, “Let’s take into account how much that is,” because intelligent cloud division, which is Azure generated $20 billion in sales, 7% of that is going to be lost due to currency, which is $1.4 billion revenue just in that division. $1.4 billion in revenue for the quarter. How many companies do you now generate $5-6 billion of revenue for the year? This company is going to be losing $6 billion in sales for the year simply based on currency. Again, that is not going away. The dollar is not going to come down significantly from here.

Frank Curzio: All of you are predicting that it’s going to get worse going forward. We’re seeing a rebound here in stock, just like we saw exactly three months ago when we looked at July into August. I don’t want to be this Debbie Downer. I just want to tell you that this is normal to see a market like this and you’re like, “Stocks are down so much and they’re rebounding because earnings are strong.” Earnings are not strong. That’s bullshit. The Fed is not stopping. If you really think that stocks are going to rebound and have a great fourth quarter, and the Fed, which is going to see the CPI, the core CPI has not peaked yet. It’s not peaked, and it’s not going to peak next quarter.

Frank Curzio: The number is going to be much, much higher even for CPI in general, but if you strip out food and energy, it has not peaked. The Fed is not stopping. I don’t know who believes in the Fed stopping. I thought that they would stop. I was wrong. They’re not stopping. They’re going to go to at least… They’re going 4% on November 2nd, and then they’re going to go to 4.5-4.75 by the end of the year. They’re not going to stop there, especially if the market… You’re going to see the market come back. If you’re looking at UPS, UPS beat the numbers. Why? Because they raised prices significantly.

Frank Curzio: Why did Coke and Pepsi peak? They said they raised prices significantly. People are still raising prices. Companies are still raising prices. You’re still seeing inflation out of control. It’s not giving the green light for the Fed to stop, or saying, “Hey you know what, here’s what we got to do. Slow down.” You’re going to see rates go higher and higher, even though mortgage rates are well over 7%. I just heard a stat from one of my friends in the industry. They’re a big builder, and they just saw lumber… They order lumber. They said 50% of the contracts in lumber that they ordered have canceled. They canceled. So, they don’t no longer need them.

Frank Curzio: 50%. They had this whole huge lumber contract, and they said 50% of those orders were cut. 50% of those orders. That’s what you’re going to see across the housing industry, because with 7.2 or whatever it is, but it’s going to go higher, but when you look at Microsoft and you’re getting back to this currency thing, that’s a lot of money, $1.4 billion. Where Microsoft says it’s cloud division will grow 35% in December, it’s really saying 28% because that’s what they forecast for. They said cloud’s going to grow at 35% in December. That’s really 28 when you’re accounting for currency.

Frank Curzio: You’re saying, “Well, Frank, 28 is still pretty good.” It’s good, but it’s a big deal because cloud grew 50% from the December to December quarter last year. So, you’re basically cutting growth in half for Microsoft, but yet, you want to pay that same multiple of 24 times. Now, you know why the stock is getting hit today, even though those numbers look pretty good. They looked a million times better than Google. Google’s costs are through the roof. They’re in a lot of trouble, Google. YouTube is done. Snap is done. You’re seeing the social media and ad revenue. That is not just “Oh, we’re seeing a slowdown in business.”

Frank Curzio: There’s a secular change to this business model that doesn’t work anymore. You no longer steal everyone’s data, and that’s why every single company is getting murdered, who has their app, who relies on Apple for a lot of their business, which most of their mobile online business. It’s going to happen through that app. The fact that they can’t take everything that you know, all the data now, you’re seeing these companies… This has been happening for over a year now, but now, it’s even worse. Now, you’re seeing into recession. When I look at these numbers, I just think you have to be really careful here. Again, Snap was…

Frank Curzio: Snap said something on that call which was interesting, that they’re all fighting for time. You want these guys on the platform as long as you can. That’s why Facebook was such a big deal, because they were on a platform. People were on there for 20 minutes, 25 minutes on average. TikTok is stealing everything away. It’s why you’re seeing YouTube numbers go down. Snap said they saw 5% decrease in the amount of time spent on that app. That’s TikTok. They were all going to short video format. TikTok is wrecking these companies right now.

Daniel Creech: Meaning, TikTok is taking market share from all of them.

Frank Curzio: If you’re on your phone, you only have a certain amount of time per day, you’re not going on SnapChat now. You’re not going on Facebook now. You’re not going on YouTube now. You’re going on TikTok. As you take that, and the advertisers see that, now when you show your statistics you’re like, “Holy shit.” It used to be 15 minutes, five minutes of your time. You get five minutes of someone’s time on your site, that’s worth billions of dollars in ad revenue. Five minutes of everybody’s time of day, but now, that extra time that you have, whatever it is, it’s going towards TikTok. People love TikTok. I’m on TikTok. It’s the best social media platform. It’s not like this fun thing… You can be an adult. It’s going to give. You’re into golf? It’s going to have a whole bunch of professionals you never heard of showing you golf tips. If you like funny stuff, they’ll show you funny stuff. If you’re Conservative, Conservative, Liberal, Liberal. They’re going to feed you what you want with these short videos, and people are creative. It’s fun. It’s easy. You zip right through it if you don’t like it. The way they have that platform set up is just a million times better, but it is impacting.

Frank Curzio: I just want to make that clear to everyone that this isn’t temporary. This isn’t like, oh the slowdown from COVID. This is like a secular change in the business of fundament change where you’re going to see earnings continue to get hit for a lot of these companies. Microsoft, they are LinkedIn, not too much social media in terms of overall revenue, but when you’re looking at Google, when you’re looking at Facebook, these companies, I know they got hit already but those earnings are going to slow dramatically. You’re looking at paying 70 times forward earnings for Google, where revenue and earnings are probably not going to grow year-over-year.

Frank Curzio: That’s very, very expensive. Or, 25 times for Microsoft, and you’re seeing growth so dramatically now. So, let’s see what happens in the future. These are the companies, but I don’t know if you saw anything. This is just from today and yesterday, but the market is being resilient here. It is coming back. You’re seeing yields come down. You’re seeing the dollar retreat a little bit. Again, that’s expected. The Dow is holding up much better. I’m surprised the NASDAQ is not down 2% or so, being that two of its largest components are getting wrecked today.

Daniel Creech: That is impressive. Last thing on the earnings from me is that Meta, you keep calling them Facebook, Frank, that’s rude in today’s world. They changed their name.

Frank Curzio: Well, I’m supposed to call it Google Alphabet, too.

Daniel Creech: Oh, damn. Darn.

Frank Curzio: There you go, right back at you.

Daniel Creech: Meta… Exactly. See? Meta reports today, speaking of the data, looking at privacy data-

Frank Curzio: Doesn’t Amazon report today?

Daniel Creech: All that kind of stuff. I think they do Thursdays.

Frank Curzio: Oh, okay.

Daniel Creech: I think Amazon is typically a Thursday. The only thing that I care about on Facebook earnings is how many shots they’ll take on Apple for the privacy that Apple implements through their system, because as you said, that has a huge effect on Snap and different things, and advertising. That’s really the only thing that I’ll look for in the Meta earnings, that and the loss that they’re going to take on the metaverse, and in the corresponding funny news articles that will follow about that. That’s the only thing that has my opinion. What’s next?

Frank Curzio: Look, a couple more earnings here. I have Moody’s, Mist, and then guys significantly lower, from 950 to 820. I’m say Moody’s because the number’s big in terms of earnings, $9.50. That’s how much they earned compared to 820. This is for next year. Look at that discount. You’re seeing another 10%… This is Moody’s saying this. Analysts are going to come down. You’re going to see estimates get dramatically lowered. If you’re looking at the S&P 500 and people on TV are telling you it’s trading at 15, 16 times forward earnings, it’s bullshit.

Frank Curzio: It’s 100% bullshit. That’s based on the earnings number that’s going to come down at least 10-15%. I think it’s going to come down more than 20%, that earnings number. I don’t know how we’re going to get to 240 next year, which is still the number right now, which is 10% growth. I think the number could be under $200.00 a share. I mentioned this over and over. It’s a big deal because earnings drives stocks. At the end of 2019, we were trading at $160.00 in earnings for the S&P 500. Right now, they’re expected 225 in 2022, and 244. The reason why we got over 200 is the $11 trillion that was spent. Now that’s being removed for the market.

Frank Curzio: We’re in 2019 at 160. We peaked. We actually saw earnings slow from 2018 to 2019. Not much, but just by $1.00, but it slowed and rates were at 1.75%. They were below 2%. We’re probably going to be over 5%. I thought it would never go over 3.5% next year. We’re going to be definitely over 4-4.5% next year. I think we’re going to be over 5%. If we’re going to be at 4.75 at the end of this year, we’re going over %5, because the CPI numbers are not going to show any decline in inflation, and you’re seeing it. The companies that are beating are raising prices. It’s not because they’re selling more stuff. It’s because they’re raising prices.

Frank Curzio: Just listen to the calls of Coca-Cola, Pepsi, UPS. Good for them. They have pricing power. That’s awesome. But does every company have pricing power? You’re seeing Chipotle starting to get nailed. I noticed. I go there, and it’s like $60 when it used to be $40. I’m like, “Oh, let’s eat someplace else now.” It’s to the point where enough is enough. You’re seeing that across a lot of businesses. You’re seeing the airlines, you’re not seeing too much of travel, hotels. There’s a few notes before we go here, Daniel, I want to mention is, be careful of currency.

Frank Curzio: I just told you how much it impacted some of these companies. When it came to Nike and they reported, they told you because of currency next year, they’re going to lose $900 million. That’s one fifth of their operating profit due to currency. Due to currency. That’s massive, a 20% decline that wasn’t really being factored in with just a normal recession. You’re looking at two growth engines. Why do we grow so much, Dan? Why do we grow so much over the past 12 years? Well, we had a Fed. The Fed was the biggest growth engine, zero rates, and pouring money into this market, buying bonds, and then $11 trillion-

Daniel Creech: The list would be Fed, Fed, Fed, China.

Frank Curzio: Fed, Fed, Fed, Fed, right? And then China. But you look Fed, Fed, Fed, and that’s gone. That’s not here. It’s not going to be here for a couple of years. Fed’s not there. Then you have China. China is a disaster. Any company that’s linked to China… Listen, Nike operating profits, not only is it currency but you’re also dealing with China in two ways because you’re not just getting hit from the slowdown and demand, you’re getting nailed from the currency. We don’t have to talk about slowdown and demand.

Frank Curzio: If you have companies that have a lot of exposure to China, which companies went all in because they need to show growth, because they need to meet those estimates quarter after quarter, they’re forced to or your stock’s going to get wrecked and you could lose your job as a CEO… You look at Las Vegas Sands, Wynn, Apple, Tesla, Nike, Texas Instruments just reported. Those numbers were not good. I’m surprised they’re not down further. Down only 3% today, but I would avoid these names, Starbucks, Yum Brands, these are companies that went all in on China.

Frank Curzio: China is a disaster. Not only that, you’re getting nailed from the currency. I don’t know how these guys’ estimates don’t come down significantly from here. Let’s see what happens. The positive is, you have energy out there. I went to Vegas recently. I just recommend a company based on Vegas. Holy shit, I’ve never seen it more crowded in 12 years that I’ve been going there. I’ve been going for a long time, but constantly these two, three times a year, it’s the Consumer Electronics Show every single year. I’m going this year as well, which I’m expecting about 4,000 companies to be there-

Daniel Creech: I used to go to Vegas on a regular basis too, Frank. Just throwing that out there.

Frank Curzio: I’ve never seen it.

Daniel Creech: I would like to go back, maybe see-

Frank Curzio: I couldn’t get on Fremont Street. My wife and I couldn’t get on… That’s how many people were on there. It was more crowded than I’ve ever seen it in my life. There are pockets. You’re going to see airlines have pricing power. You’re going to see Coca-Cola and Pepsi have pricing power. There’re areas there. Some small caps don’t have exposure to overseas, so they’re not going to get hit with any currency issues. A lot of these names are down 70-80%. There are pockets here, and I don’t know if you want to talk about Bitcoin and Ethereum, which is… Is it surprising? I don’t know. I mean, they got hit earlier than everybody else, but look at those moves, right?

Daniel Creech: Yeah, quickly, it’s gotten hammered over the last year. There was a good article on Zerohedge, and the final takeaway is the best because it’s talking about how Bitcoin… We’ve talked about this in the past, when will it break? It makes sense in the early stages of Bitcoin to be caught up in this high growth, kind of tech thing. It was basically trading in tandem with tech stocks. It’s too soon for me to call this a real trend. A Bank of America analyst actually points out and says, “Listen, the correlation between Bitcoin and gold,” which they’re measuring as the XAU, “It was not correlated in June ’21 through February ’22, turns negative.” But now it’s starting to trade, and gold is up about 1% today.

Daniel Creech: I just think it’s a great takeaway. I don’t want to get too excited. I’m still very bullish on it for a lot of reasons in crypto space. However, it’s great to see initially today the market selling off with tech stocks, Google, and Microsoft, but yet, Bitcoin and Ethereum rallying. Again, we’ll see if this turns into a trend. That’s one in a row, as there’s a great country song talks about, Frank. The longer this drags around, the 18,000-20,000, I don’t understand how that’s not more Bullish for Bitcoin and the other leading cryptos in general. There’s still a lot of innovation in investment and everything behind the scenes. None of that is slowing down.

Daniel Creech: When nothing changes on the thesis other than the price, again, it’s hard to wait. It can be frustrating at times. But there’s nothing long-term there that deters me from that. Again, the short-term differentiation between the price right now and the overall markets is very bullish, so we’ll see how it plays out.

Frank Curzio: For me right now, I keep saying buying long data puts, because we want to sell one of our products to an infiltrator, and we often has discount for 499 for three months, which is a $5,000 product. This is the time. As you’re seeing, now you’re going to get pricing when a lot of these technology companies have bounced back. If you’re expecting a 15% decline at all in these stocks, and the price you’re buying them now for a year from now, buying long data puts, I think that’s shooting fish in a barrel.

Frank Curzio: I think it’s very easy, and if these things decline even further… So, Snap declined 30%, you’d probably make 300% if you had a long data put on that. You’re going to see that happen tremendously. There’s just too many headwinds, and you don’t have the Fed to pick you up. One of the things that convinced me being a data guy, and wants a data change, if the Fed comes out tomorrow and says, “We’re going start lowering rates,” you got to change your mind. Things are going to be different. But they’re not.

Frank Curzio: When I see Apple announce that they’re expanding… This is news for Apple. This is not supposed to be news for Apple. They’re expanding their collaboration deal with Target. When I see Disney saying they’re selling majority stake in X Games franchise, will probably equity firm. When I see Intel come out with their mobile IPO, which was worth $50 billion a year ago, now their market value’s at $16 billion, the same price they paid for it in 2017, why do it now? Forget about the past. Why even do it now? That’s telling you right now these companies, it’s two things. One, they’re not really expecting things to get a lot better from here.

Frank Curzio: You look at these companies all cutting employees, cutting costs, shutting down production, Apple telling their suppliers to stop production for the iPhone 14 sales are not seeing as much demand-

Daniel Creech: The new one.

Frank Curzio: These are what big companies do when they expect sales and earnings to slow, because they have to continually try to meet analysts’ estimates. If they don’t, they get crushed. What you want to see is them acquiring, spending money, increasing CapEx. Instead, they’re looking at ways to increase revenue to strengthen their balance sheets. It’s a clear sign that they’re expecting a slowdown in demand. You don’t see news… I’ve never seen Apple say, “Oh, we expanded our partnership with Target, so now, they’re selling five times the amount of product.”

Frank Curzio: You don’t do stuff like that. I want to see them buying AI companies like crazy, expanding. Just getting into Web 3 services, or they’re getting into the metaverse, or they’re going to try to compete more with Facebook and different things like that, and autonomous vehicles. You saw that months ago. Now, it’s just amazing. Disney selling majority stake in X Games, you need the money. You need the cash. The reason why Disney is not reinstating their dividend, I think it’s one of the only companies outside of Boeing in the DOW that hasn’t reinstated a dividend, because they can’t.

Frank Curzio: Because they don’t have a strong balance sheet. They’re getting wrecked. They’re seeing constant losses, massive losses. Again, they’re going to report I think in a week, and they’re going to beat the numbers because those numbers have been revised 15% lower. The same thing is going to happen like we saw three months ago. The market’s going to continue to rally. We might get a further bump with the election as we see a split government, which is always good for business. The Republicans right now, they’re leading. After that and going into December, I think you’re going to see a huge decline from here, and we’re going to not only retest the lows, we’ll push through those lows.

Frank Curzio: Again, I hope I’m wrong on that. I hope it’s not that bad. What I’m seeing right now from companies, and even what they’re saying, it doesn’t look good. The consumers aren’t strong. Earnings are not as strong as people are saying. They’re just beating revised estimates that have been significantly lowered. Just be careful, guys. There’re pockets. We said, Daniel, I know you always like… You’re into energy. We’re going to be recommending a lot more. We’ve seen these pockets within energy that look fantastic. You just have to be careful here.

Daniel Creech: Yeah, absolutely. There’s always going to be opportunity. Like I said, I’m going to look through First Cash tomorrow for earnings, but that stock has been doing very well outside of the allegations of lawsuits and things. Yeah, there’s always going to be a lot of picks. We’ll do our best to bring you a lot of good opportunities. Life is good, Frank. Another good Wednesday.

Frank Curzio: Life is not that bad. Performance is down. Your own price is coming down. Remember, we’ve been up significantly over the past three years. We should have benefited from. Your home price have significantly over the past years. I just think it’s going to get a little worse before it gets better, especially now that the Fed’s not there. The easiest way to help is not sell all your stocks and just go into cash completely, even if you did buy the two-year, which is yielding twice the S&P 500, more than twice. Start to learn how to buy long data puts. Learn about the pricing. If you need help on that, Genia Turanova is one of the best in the world. She’s great.

Frank Curzio: You would have to put $500,000 into an account at a major brokerage firm, or hedge fund to get the research that she’s doing within that industry. But man, people are very, very happy they’ve been in that newsletter. It’s a great compliment to all the other newsletters, all positions that you’re long in. Real quick, final with Bitcoin here pushing higher, I agree. I think that your first time ever you see in institutions, it’s going to be an allocation in 401Ks, and that’s going forward. You’re going to see it. It’s like, “Hey, I want to buy a bond. I want you to put into ETF. I want to buy S&P 500,” growth, value, whatever it is, there’s going to be a Bitcoin there. You’re going to be able to have Bitcoin, Ethereum for the first time, and that’s trillions in assets for the first time being open to it. Not all of it’s going to come in, but you talk about tens of trillions of assets. That’s why you’re going to see Bitcoin, Ethereum continue to rise from here. They got hit a lot earlier. Those are already down. But you’re seeing them bounce back much more in the overall market. I’m expecting that to go much, much higher for both of those in the future.

Frank Curzio: Daniel, thank you so much for joining. Lots of earnings. We love this, as you can tell. We dig into these numbers. We’re going to have a lot of numbers. You said, who’s reporting? We have who, Meta?

Daniel Creech: Yep, today.

Frank Curzio: We’ve got Meta today.

Daniel Creech: And First Cash, and then Devon Energy kicks off next week. I know there’s a slew of earning companies coming up. So, yeah.

Frank Curzio: Yeah, we’re going to see energy companies. Energy is going to count for the bulk of the gains this year. Massive gains, because they’re going to be growing earnings probably 100% year-over-year. They’re going to be reporting all next week, and of course, we’ll come back to you with the best ones. Dan, thanks so much for joining us. Really appreciate it.

Daniel Creech: Cheers.

Frank Curzio: Guys, that’s it for us. Questions, comments, frank@curzioresearch.com. Daniel, what’s your email?

Daniel Creech: daniel@curzioresearch.com.

Frank Curzio: Okay, guys. We appreciate the support, and I’ll see you guys tomorrow.

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.