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 February 22nd. 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.

Frank Curzio: So, Daniel Creech Wednesdays, I’m not going to be saying that anymore, since Daniel, I think you graduated, right? Next week, our podcast is going to be part of Wall Street Unplugged Premium. What do you think?

Daniel Creech: Oh, good. It’s a promotion. I was hoping it wasn’t this Don Lemon promotion from evenings to mornings in the morning.

Frank Curzio: Is he going to?

Daniel Creech: He already did.

Frank Curzio: I thought they kicked him off already for that, but-

Daniel Creech: It’ll always be Wednesday to me, fellas.

Frank Curzio: No, it’s great stuff. So, you’re going to see this podcast where we break down in stocks, details. We’re going to have picks and everything for Wall Street Unplugged Premium, guys. If you haven’t subscribed yet, go to wsuoffer.com. It’s just $10 a month. You can cancel any time. Again, we’re going to have newsletters under that, which is Dollar Stock Club, Frankly Speaking, lots of great content. Awesome, awesome content for you guys. Looking forward, we’re launching that next week, March 1st, I think it is. Or, maybe March 2nd. Wednesday or Thursday. But Daniel, how’s it going man? How’s everything?

Daniel Creech: I’m doing well. It’s a beautiful day here on the island.

Frank Curzio: Well, beautiful day, but I have to tell you, it’s pretty cold out there in other places of the United States. Did you see the snow that they’re going to get in Minnesota and stuff like that? It’s crazy.

Daniel Creech: No, I didn’t. I know there’s a winter storm going, but it’s winter for everybody else.

Frank Curzio: Yeah. Two feet of snow. But I was in Minnesota for the Super Bowl, but the Eagles, 2017, the only time I think I’ve been in Minnesota. Holy cow. I mean, that’s a level of cold. I think it was minus 15, 20 windchill. I mean, that’s a different level of cold. You don’t, you don’t. It goes through your bones and stuff.

Daniel Creech: I’m going to have fun with you. You’re in an indoor stadium. You have tunnels in Minnesota. You were outside for what?

Frank Curzio: We didn’t have tunnels.

Daniel Creech: I’m kidding.

Frank Curzio: Yeah, I wish we had tunnels.

Daniel Creech: They do have walkways, but just not for the-

Frank Curzio: They have walkways in certain places that you could hang out and party in before the Super Bowl, which-

Daniel Creech: But not where you needed to go.

Frank Curzio: Yeah, I mean, we were a block and a half away, which wasn’t too bad, but still we were outside for a good half an hour, 40 minutes, which is like five hours in that weather.

Daniel Creech: Yeah, exactly. That’s crazy.

Frank Curzio: And yeah, it was pretty crazy. But anyway, enough of that. Who cares? I’m complaining about going to the Super Bowl because it’s too cold, right? Who’s worse than me? Anyway, so let’s get into what’s going on with the markets today. The Fed minutes are out later today. They’re not out yet as we’re doing this podcast, but people talking about what the Fed president said, how they discussed this, and again, these minutes are just going to show what they’re concerned about. But to me it’s going to be pretty meaningless, because it’s a much different environment from February 1st when this meeting took place, compared to now where we saw horrible, horrible numbers from retail sales, CC… Who is it, the two price index? The PPI, right. Three in a row that we saw, that inflation wasn’t moderating. We saw strong results, and that hinted that the Fed’s definitely going to raise much, much more. Where we saw the terminal rate, I think, Daniel, go from, which is that peak rate go from 4.8 to now 5.3. 5.2, 5.3, which is massive.

Frank Curzio: I’m talking about three weeks’ time. A lot’s different, a lot has changed. So, I don’t know what we’re going to know from the minutes, because if you took it from three weeks ago, it looked like everything was great. The markets are on fire. “Hey, we’re going to avoid recession, everything’s fine.” And now, all of a sudden, out of nowhere, three straight reports over the last three weeks, I don’t know what the minutes are going to tell, but that’s what they talk about in the major networks and CNBC.

Frank Curzio: I don’t know if that’s going to be that big of a deal, because I think that the tone’s going to be much different today than it was three weeks ago, which is pretty crazy. We’re talking about economic data, we’re talking about stuff that should take months to filter in, years to filter in. And three weeks is, to see the change that we’ve seen, Daniel, where the 10-year was 3.4%, it’s now over 3.9%. The 30-year fixed mortgage rate was just below 5%. It’s 6.7%. Again, this is from February 1st till now. The six months T-bill’s over 5%. Quick question, do you know where the six-month T-bill, do you know where it was a year ago today, if you had to guess? So, it’s at over 5% now.

Daniel Creech: Oh, I don’t know, but a guess, I’d say a hundred percent. So, or it’s up over a hundred. So, I’d say two and a half.

Frank Curzio: 0.6%.

Daniel Creech: Yeah, that’s good.

Frank Curzio: Isn’t that insane? I was surprised. I mean, it makes sense when you think about it because rates were very, very low.

Daniel Creech: Well, that’s true. Yeah.

Frank Curzio: Yeah. The Fed, right before they began to raise rates, but I just couldn’t believe it, but it’s much different. But I don’t know if this is going to be meaningless or not. Let’s see what they say, because the market is going to react the way it’s going to react, and we’ll see it come out later on if we’re up or down. A huge percentage. You’ll see it. A lot might have to do with the minutes, but I’m not too sure if that’s a big story considering how much has changed. Right?

Daniel Creech: Well, I think it needs to be meaningless from the standpoint of, to your point, a lot of things have changed. It’s not like they changed these minutes. I’ll be honest, I guess I’m not above the pay grade to understand why you don’t release these minutes closer to this meeting, or whatever.

Frank Curzio: It does make sense. Why wait, three weeks later?

Daniel Creech: But my point is that, the language better not be any different than his press conference and the recent speaking he did, and all that kind of thing. Other that’s going to throw a lot of uncertainty and uncertainty is terrible for-

Frank Curzio: And he had that credibility problem, where it was just, yeah, he would come on TV and the market would take off. And then the next day, he would come out and be like, “No, no, no, I didn’t want you to think that we’re going to stop anytime soon.” And the back and forth between what he said at the meetings, compared to what he said a couple days later was different. So, you make a good point.

Daniel Creech: Yeah, and so it should be much to do about nothing. We’ll see. I would pay attention to this. I will pay attention to it. But to your point, I’m not going to put a whole lot of weight into it because we have some more readings. Because between last meeting and the next meeting in March, I think there’s a seven-week gap. If memory serves me correct. So, we’d still have more inflation data coming out before the next meeting, which they’re already floating the 50-basis-point raise coming up and all that. They’re trying to price that into the market. Or maybe they’re not, I shouldn’t say that, but it seems to be pricing in. Yes, hopefully, it’s worthless and then we can move on and get to more data as it comes.

Frank Curzio: And you’re right, I don’t know why, it’s like a transcript of the meeting. Why wouldn’t they release it earlier? Why do they wait three weeks later? Because you see the big difference now. Just to tell you how big the difference is, at the end of that meeting, there was no discussions of a potential 50 point basis hike, right? There was nothing on the table. I mean, if I had to guess, it was close to zero that that was going to happen. A lot of people thought we would, Dawn Santoyo was saying, “That’s it, that’s the last rate, hike,” whatever. Now three weeks later, is a 25% chance based on the Fed Fund Future Market that we could see a 50-basis-point hike. That’s a huge difference in three weeks. I keep saying that, but it really is.

Frank Curzio: You have to understand, we’re not in healthy markets where you see stuff like this, especially rates change this drastically, where we’re used to pricing 25 basis point hikes and cuts are the norm for the past 20 years. 20 years even plus, where it’s not often you’re going to see more than that or less than that. Most of them are. And to say in three weeks, we’re now pricing in from the terminal rate of 4.8%, which was three weeks ago to now 5.2, 5.3. That’s a 50-basis-point hike, that the bond market is telling you that needs to come. It wasn’t pricing just three weeks ago. So that… It is significant. It really is.

Daniel Creech: Not to spend too much time on Powell here, because I know we got some fun stuff. Do you think they would come out with a 50 basis point hike at the next meeting? Or do you think they would come out with a 25 and then hint at another hike in the future, and then leave the door open for 50? Does that, I don’t know if I did a good job explaining that.

Frank Curzio: I think it’s depending on the data. I mean, if we see that CPI is, because we are seeing it in some areas, right? In some areas. The job market remains strong. Although, we’ll get to ZipRecruiter, which reported today, which is a disaster. I feel like nobody’s really talking about that. And that’s a very, very big story for the positive. And for me, it’ll go against my thesis of saying, “Hey, you know what? It’s going to get a lot worse.” I think people aren’t pricing in, but when you see that, I’ll talk about ZipRecruiter in a second. But it is going to depend on the data, because we’re not seeing inflation. We saw inflation was coming down.

Daniel Creech: Hold on. Even if data’s bad between now and the next meeting, do you think they would come out and hike 50?

Frank Curzio: Oh, I think they might have to.

Daniel Creech: Oh.

Frank Curzio: I think they might have to. Yeah. I don’t think price-

Daniel Creech: See, I don’t think so. I think they’d come out with 25 and then hint, because if he comes out, out of the guns with, unless they leak it to their favorite Wall Street Journal guy, that would be… That’d be wild.

Frank Curzio: It does. Right now, I would say one rate hike was potentially on the table and that was at the beginning, at that last meeting three weeks ago. Now it’s at least two. But if we get data showing that retail sales are surging, we’re seeing prices not coming down and going back up again, it’s this push and pull with the markets where you’re like, “Okay, we’re not going to recession,” but you need to force a recession to stop inflation. You’re not going to stop inflation unless you force a recession, because this is sentiment. This is about people being nervous and not spending as much, and pulling back on their spending. And you’re not seeing that yet, where we thought we would see it, and we thought it would come down a lot quicker. But just to show how much even CPI/PPI, I mean, CPI, we’re still seeing what, 6.4% year-over-year prices. That’s how much inflation is.

Frank Curzio: And that’s one in three X of where Powell said that he wants it, which we thought it would be lower by now. I thought it would continue to be going down a lot lower, a lot faster. That was a big surprise. And we didn’t get it like, “Oh, this is a seasonal.” This is three reports, bang, bang, bang in a row, and it’s coming across Producer Price Index. So producers, factories, orders and things like that. And then consumer prices and then retail sales. I mean, it’s three categories that came out that just punched you in the face three times, and we’re seeing it right now where stocks should have took a hit on these and they didn’t. And now you’re seeing it this week, where all of a sudden, everyone went from super bullish today-

Daniel Creech: They waited till yesterday.

Frank Curzio: Yeah, in like a day.

Frank Curzio: So, I want to move on because there’s an interesting note here, Daniel, from Mike Wilson. Mike Wilson’s a guy from Morgan Stanley. He is the person that told everyone that the market was going to crash and he was, been very bearish. Even in December, he said we could see a market rally, but it caught him off sides, as well as a lot of other people off sides. And he put out a note and it was weird because he put this out on Sunday. The markets closed Monday. So, everyone was talking about it yesterday, and I think this helped contribute to the market coming down. We have that note. And he said, hey, he’s comparing the current market to the death zone on Mount Everest. That’s the altitude to which oxygen pressure is insufficient to sustain human life for an extended period. So, he’s comparing, he’s using that term, the death zone for the markets. He’s referring to the equities or the earnings risk premium, the ERP, which is the excess return from equities over the risk-free rate.

Frank Curzio: So, the risk-free rate is, you would use six month T-bills, is over 5%. So, if you say in the past, you expect to earn 8% on stocks annually, on average, that’s usually the percentage goes up pre-COVID for the past 50 years, on average around 8%. If the risk-free rate was 2%, so say the six-month was at 2%, just say then the equity risk premium is at 6%, which is pretty good. The lower that number goes, the worse it is, right? Meaning on, you’re taking more risk. And it’s important that you understand this, because I might not be explaining it well, but I’m going to try. On the average since 2008, it’s around four to 5%, which is pretty good. So, if you’re buying equities, you’re assuming four, 5% over something that you would get for free, in an industry that you would get for free. That’s what it’s usually been.

Frank Curzio: In fact, since 2008, it’s hit 3% a few times, which is rare. Right now, it sits at 1.5%. There was nothing on the timeline that shows anything close to this. So, let’s think about that for a minute. If you’re watching this on YouTube, I’m going to bring up a chart, but you could earn 5% risk-free, right? Sleep at night, perfectly fine. But according to models, it’s you’re going to earn about six and half percent on equities, and you could debate that model back and forth. So, is it worth to buy stocks here when you see the massive headwinds, where you have higher rates coming, possible recession. Again, these are debatable. Possible recession, slower job growth, inflation picking back up now. I mean, does it make sense to own, think about the staples, right? So, you own them, Pfizer, UPS, Kellogg, Clorox, Broadcom, Exxon, Chevron, Coke, Citi.

Frank Curzio: These are companies that are staples. Not really growing that fast, but they all pay 3% yields. And a lot of people use that and say, “Wow, I want to earn that 3% yield.” Well, why take the risk, because that 3% yield could be worth nothing if these stocks come down 10%. That means you still lost money when you could earn 5% risk-free. And as an equity fund manager looking at this, I feel like at the beginning of the year they saw this and said, “Okay, we’re off sides,” and so much money poured into the market in the last month where the NASDAQ was up, what, 16% in 40 days, which is fricking insane. But right now you’re looking at equities being more expensive, more risky than almost any other time that’s on the map. And I’m going to bring this up really quick, because I’m showing this and this is, I was able to get a picture of this. You guys on YouTube, you could see it.

Frank Curzio: And what I mean, the debt zone has, it’s a high risk zone is in yellow and then it’s a debt zone below it, for those of you who are just listening to this on iTunes or whatever. We’ve been in the high risk zone, the yellow part, which is between 2% and 2.7% a couple of times. And every time it hit that we were okay. We’ve never been at these levels. I mean, you could just see, we’re in an area that that’s an uncharted territory, meaning that is it really worth it? And those are the big stocks. And now when you’re seeing rates go higher, it should mean that a lot of the risky stuff is going to get killed even more. And that’s not happening. You’re seeing a lot of those stocks continue to go higher up to this week.

Frank Curzio: But that report has been surfacing. They mentioned it on TV a little bit. And again, this is a guy who has been right. He’s been wrong recently. But when you’re looking at the details of this, it presents a very scary situation because for the first time ever, Daniel… Not first time ever. First time since pre-2008, where you’re looking at so many of these retirees begging for yield. I mean, this is why the housing market, this is why the housing model happened. You had all these AAA ratings and all these fake ratings that they put on, they’ve created these products of, that offered high interest AAA ratings on it, and then they offered synthetic of synthetic, of synthetic products and everybody flooded. Trillions flooded in to earn an interest rate in a zero interest rate world. Now you can get 5% for free. It makes the investing part into equities, it’s not as enticing. And you could see money flow out, and that’s the danger of this market right now, when you’re seeing rates going higher.

Daniel Creech: The chart, what do they say? A picture’s worth a thousand words. That makes total sense. We were talking offline and I’m a very simple person. I hate formulas and I was talking to you about these formulas and I was like, “These things drive me nuts, looking at the…” You can just go into any search engine and look at the equity risk premium. The wild thing to me, it’s tough to wrap my head around saying, “Okay, it’s better when the equity risk premium is higher than lower.” But it makes sense to say, “Hey, you’re taking on a lot of risk to only generate 1.5% over bonds.” Versus like you said in the last averages, four to five. This just is a… The picture is amazing to me.

Daniel Creech: And it just shows you, hey, this is a great data point to put, think of a T-chart. Hey, I’m bullish, I’m bearish. What do I think of the overall market conditions, when I go and add positions to my portfolio? That chart to me just screams why you should have exposure to bonds. It’s just a simple thing of saying, “Hey, right now, just keep this in the back of your head. Things are very, very tilted to one side, based on historical data.” Like you’ve said, doesn’t mean tomorrow is going to change everything and be totally different environment. It simply says, “Hey, the market is giving you 5% annualized, guaranteed risk-free. Why wouldn’t you take that?” And I don’t think there’s a good argument to say that you shouldn’t take that for a portion of your money. I think that that’s what that chart says. Simplicity. And that’s why charts are amazing, Frank, because reading through jargon sometimes is terrible. But you see that chart and it’s like, “Hey, I don’t need to know everything about this. This is an extreme. I need to file this away in the old common sense department.”

Frank Curzio: And we’ve done this too in our industry, where we have great editors that throughout my career I’ve had them. And whenever you have a chart, the reason why you have a chart, it’s because it makes it very easy to explain something. And a lot of times people use charts and it’s more confusing. This is a chart that’s not confusing.

Daniel Creech: Yeah, exactly.

Frank Curzio: You can see it. So if for any of you out there who want to become publishers or write, you have to convey that message. And if you want a bigger audience, you got to simplify it and you have to make it simple. This chart makes it pretty simple because when you talk about equity risk premium, people are like, “What are you talking about?” It’s just the lower that number, the worse. We’re in uncharted territories to see, to take on that kind of risk and earn that little return, right? Because the whole world is about risk reward. That’s what it’s about. And that’s one of the things I said, and I always highlight my mistakes. One of the things I’m most proud of is being bearish on the market, but being able to outperform in a lot of the newsletters while protecting ourselves.

Frank Curzio: I mean, that’s the goal. That’s what you really want to do. If you could do that, you can offer protection and take on less risk, but still generate very strong returns compared to the market. That’s the goal. That should always be your goal, 100%. In this, the risk-reward, I mean, look at the risks that you have to take. And the reward is very, very little compared to just saying, “You know what? I’m just going to throw this in there and just earn 5%.” So that, you need to understand that because sooner or later, that matters. And if rates are going to go higher, and I don’t know if they-

Daniel Creech: Good point. The momentum right now is, that’s going to go up.

Frank Curzio: Yeah, I mean, we’re seeing rates pull back.

Daniel Creech: So five now, but it might be five and a half or six in three months.

Frank Curzio: Yeah. I mean, we’re seeing rates pull back a little bit right now, which is good. The 10-year is at 3.91. It was three point. It was almost 4%, I think, either it was yesterday or the day before, which is crazy. But you’re seeing this back and forth, this pull and tug. So, those are the negatives. So, be cautious. So, be cautious. But on the positive note, and again, there’s no bias here. For me, it’s all about the data. It’s not like, “All right, I have this agenda and oh my God, this better happen.” My job is to be right and help people make money.

Frank Curzio: ZipRecruiter posted numbers that were absolutely horrible. And I think this is actually a decent sign, because what’s the one concept that’s been crushing the Fed? It’s the job market. The labor market’s been so strong. You’d love to see the labor market come down, because then you’re going to see inflation come down probably likely even more. But we’re not seeing that, right? So, the Fed’s like, “Wow, okay, we’re going to keep raising and raising and raising.” This is where you’re going to see everything come to a head because they’re going to raise much, much further than they have to.

Frank Curzio: And ZipRecruiter is, it’s down 17% right now. They reported this morning, one of the biggest online employment marketplace in America. Their guidance was horrible. They’re seeing next quarter revenues at 180 million compared to 207 million. That’s a very big miss. Full year, 2023, they expected 934 million revenues. They lowered that to 780 million. So, this is what they said, and this is much more important. They said, “With an increasingly uncertain macroeconomic backdrop, employers have moderated their hiring plans and reduced their recruitment budgets in the first weeks of this year. The weakness in 2023 is more pronounced among small and medium businesses than among larger enterprises. As a result, January’s revenue was down 15%, year-over-year.”

Frank Curzio: What they’re saying is, companies are slowing down their hiring. And you need to see that, right? You really need to see that. That might mean we’re going to go into recession. Maybe we don’t fall, go into recession this year, because a lot of stuff is coming back and we’re seeing prices start to go higher in some areas, which you’re like, “Holy cow, how could that happen?” But it is, it’s happening. Rentals are starting to go back up a little bit. Look at Toll Brothers with the housing market. Toll Brothers said they had very strong earnings. But Toll Brothers, and I think also as a positive, they said, “The company attributes the increase in demand to improving buyer sentiment, as inflation appears to be receding.” They said, “Has seen a meaningful uptick in demand that started in January and has continued through this past weekend.” Which, listen, I know a lot about houses. People could lock in their rate and they probably locked in their rate.

Frank Curzio: But I got to tell you, someone looking for a house that didn’t lock in their rate three weeks ago compared to now, that’s a big difference. I mean, you’re looking at below 5% to 6.6, 6.7. That’s what it’s saying on the average on the website. I mean, that is a huge difference in your payment. If you’re locked in, you’re locked in, you’re going to buy a house, that’s fine. Maybe you’re locked in when they fell below 5% for a little while. But right now, it’s going to be interesting. Like, Toll Brothers to me, it seems like it might be… Actually, I always hesitant tell you to short a stock, but you can buy puts on it, maybe short-term puts. But I think they’re going to come out and a lot of these home builders may come out with warnings, because I just don’t see demand picking up next quarter. They still have the backlog and everything, but.

Daniel Creech: That’s the kicker there.

Frank Curzio: It’s going to go fall, right? So, those are two positives, but I’d like to see six months from now. Again, in six months, they’re going to talk about six months after that, and that’s where you could see demand fall off a cliff. But I don’t know.

Daniel Creech: Toll is interesting because… Toll is worth watching because it’s a higher portion of the economy, and I’m not being rude. We’re all at different tiers of the economy. And yes, they’re having cancellations. I don’t know if you have it pulled up. I think they said they were down 20 some percent. Am I way off on that?

Frank Curzio: Is that the cancellations?

Daniel Creech: Yeah.

Frank Curzio: Yeah, I’m not too sure.

Daniel Creech: I could have been wrong on that. My point is that they have billions and billions of dollars of backlog. Yes, they’re going to lose some, but those guys are different than your Average Joe buying a house in the real estate market. So, that’s why I think it’s key to look at some of your higher end builders, some of your lower end builders, your more starter homes and things like that. No doubt, inflation will make its way through each market and have different effects. I wouldn’t race to run out and buy Toll here, but I have to tell you, I’m not as bearish. I wouldn’t touch it right here. But because of the chart and it’s doing very nicely, I just think this continues to impress me, but I think it’s a pocket of a higher income threshold, and I think that’s something to pay attention to.

Frank Curzio: Yeah, I just, I’m looking at notes on briefing now to see, but it’s funny because they said, the White House, right, announced that through HUD, the Federal housing administration to reduce annual mortgage insurance premium by 0.3 percentage points. So, from 0.85 to 0.55 for most new borrowers, I always look at this as a huge negative. When you make it easier for people temporarily to buy, they still have to pay their mortgage, right? So, it makes it more difficult, especially with the job market, especially higher rates, which are going to result in a lot of your bills getting higher and higher. So, I hate when they do this, and this is what happened, even during the credit crisis. We’re definitely not even there. The banks are much more capitalized now. But just looking how they said migration trends are favored, sunshine and mountain states.

Frank Curzio: So, we’re seeing that as well, is Florida. Just the demand here and everyone I talk to in New York is like, “I’m going to Florida. I’m going to Florida or Texas, or whatever.” You just see that. But overall, the reason why I want to bring in Toll is seeing just inflation moderate. The receding, which is good. And then you see ZipRecruiter, which is bad for ZipRecruiter, the stock’s getting nailed, but they’re seeing how due to macroeconomic, that uncertain backdrop that people are cutting back in terms of hiring. And we really haven’t had any evidence of this at all, right? We’ve seen the layoffs, but the numbers of the reporting are great. This is the first time where we’re seeing that for the full year, they’re expecting things to get really bad. That’s a good sign for the Fed. That’s a good sign that, “Okay, maybe we don’t have to go 50 basis points, let’s see what the data comes out over the next couple weeks or so.”

Frank Curzio: But that’s what we need to see, guys. This isn’t like we’re going to see growth. It’s going to be a great market and inflation’s going to go down. You can’t. You almost have to force a recession. Okay? That’s what happened in the eighties. You have to force a recession. They force it, they do reverse course too quick. And then we fell back in recession. Rates started going higher, inflation started going higher again. Powell’s aware of this. He’s not, lowering rates is off the table for this year. We’re not lowering rates. So, that’s off the table, which is part of the bullish thesis.

Daniel Creech: I mean, he literally said that last meeting in this press conference.

Frank Curzio: Yeah, but people just don’t believe it.

Daniel Creech: I know, it’s great. Yeah.

Frank Curzio: They’re just pricing in and don’t believe it.

Daniel Creech: That’s the old marriage joke about, he said, she heard or vice versa.

Frank Curzio: Yeah, exactly. Exactly. So, there’s some other earnings too, that you were covering that interests you. And this is what we’re doing just right now. A lot of small caps are reporting. Most of the large caps, I think it’s 85 and 90% have reported now, but a lot of small caps, mid-caps are starting to report, right?

Daniel Creech: Yeah. I don’t know where this fits in right off the top of my head, but going from luxury to how you got to fill that luxury house, would you put in a… Oh, that’s a good question for you. Are you getting a La-Z-Boy recliner, Frank?

Frank Curzio: I am.

Daniel Creech: Nice. Do you see-

Frank Curzio: I’m going to, but we actually went to La-Z-Boy, and they have great, great furniture there, and they came out with a good quarter, right, yesterday?

Daniel Creech: Yeah. Do you have the chart up? LZB. Do you have FINVIZ or anything? If you would, pull it up.

Frank Curzio: Yeah, I can bring it up in a second. Yep.

Daniel Creech: Yes. They just reported on yesterday, excuse me, on yesterday. Yesterday, they reported they beat by 25 cents. They earned 91 cents a share. Revenue rose 0.2%. So nothing there, but they guided for the fourth quarter. They don’t operate on a calendar year. So, they didn’t report fourth quarter. They reported third quarter earnings. Guidance for the fourth quarter is 500 to 25 to 500 million in revenue. That was first, 526. So, we’re all good there. When you pull up their press release, here’s what stood out to me. So I like to look at companies like this. If you pull up a longer term chart, Frank, you’re going to see that it’s pulled back significantly, because of why? Because when COVID and our government-

Frank Curzio: It’s 15% now. It’s a 5% start to the market. Yeah, 9.30. So, 15%, now.

Daniel Creech: They got a lot of polls.

Frank Curzio: It’s a two-week-high.

Daniel Creech: Now, it’s still down significantly from a year and a half ago, if you back out.

Frank Curzio: So, this is, yeah. So, if we look at a year, closing in, yep. Good call.

Daniel Creech: But what’s interesting here is that they are, when you think of, hey, they got a lot of pull forward through COVID lockdowns, because nobody could go anywhere, furniture and all that. We saw that across all kinds of spectrums from our house and everything else. What’s interesting is that chief financial officer, Bob Lucian, that’s probably not correct. He says, “We’ve essentially worked down our backlog to pre-pandemic levels. We anticipate fourth quarter delivery sales will be at levels consistent with what we write, consistent with historically seasonality, and almost 20% above pre-pandemic.” That is a heck of a number, because just like you’ve talked about macro picture, hey, look at earnings before COVID, and how they were peaking before we got all this stimulus. This is one of those sector and areas that you can put on your watch list because they’re improving margins, they’re improving cash flow, they’re paying down debt, they’re getting back to pre-pandemic levels, and they’re quoting about taking market share and such like this.

Daniel Creech: This is one of those pockets. We’ve talked about Eaton, we’ve talked about different companies in the past. This doesn’t fit with the overall narrative of, “Hey, we got trouble coming.” Doesn’t mean it’s not, but my point is that there’s great companies and great risk reward out here to look at. Hey, these guys’ fundamentals are solid. They’re still doing, I love anything. Anything that’s pre-pandemic and getting through inventory is going to, it should get your attention. It’s not an all clear signal, but that shows you, management is doing what it needs to do. And going forward versus the last 10 years, we’ve talked a lot about this being different, management matters. Decisions that you make on how to allocate capital, how you do market. These guys upped their marketing, saw great returns from it. That’s what you want to see. You don’t want to increase marketing spend and not get any results. That’s terrible downwind, down swirl, that kind of stuff. So, I’m really looking for pre-pandemic levels and all this, to try to find some diamonds in the rough, as you would say.

Frank Curzio: I can tell you my personal experience with them, because we have to get furniture for a new house. So, we’re looking at different places, and a lot of times they got people all over you. They’re just all over you. And it’s kind of like, “All right, leave me alone for a little bit.” It’s not a fun experience going into a furniture store. I don’t think anyone says, “Oh, I had a great experience.” I had a good experience going. The lady was like, “Hey, if you need anything,” she walked away. She was very funny. She’s an old lady. She was very, very funny. And then we had to put down, we were looking at a couch that we liked, at a really nice couch. And then, I was looking at some of La-Z-Boy chairs and everything. And she said, “Look, if you put down $500, what we do is we’ll come to your house and give you a free, we’ll just take a look at it and a free design and everything.”

Frank Curzio: And that’s what they did. They came to the house. I said, okay, because I know I’m going to at least buy a chair there. But the couches they had there were great. You saw the inventory. It wasn’t like a ton of stuff on the floor, which is good. And they said that some things will come, you can get in three weeks. Other things might take two months, three months.

Daniel Creech: Oh okay, I thought they’re going to say a lot longer. That’s still rough, but that’s not nine.

Frank Curzio: It’s still rough. But yeah, because you get to really build it how you want and choose the colors that you want. Sometimes other places only come in a couple colors. What I liked is they did come to the house, they did a whole outline. Now, we’re going to go back there, and they’re going to show us a whole design of all colors, of how they could do it. It’s just a better service. It was a much better service.

Frank Curzio: Daniel, you and I talked about this, we talked about this six months ago, three months ago. The economy contrast, the separation between companies is going to be incredible. Where you got used to free money, zero interest rates, everything was cool, where all the FAANG names moved higher. A lot of cloud companies moved higher, some moved it a little bit more than others, but you could have been wrong on a company and still made money. Right now, it’s different, right? Because you’re seeing the separation, like you said in management teams, where look at Walmart and look at Home Depot. Okay, look at Meta and look at Google, with the latest earnings where Meta got it, right? They’re up 40% year-to-date. They were down much more than Google. Google was only up 4%. But for me, I see if the ChatGPT, the AI, I feel like is this pressure on Google, right?

Daniel Creech: You talking Terminator stuff over there with that?

Frank Curzio: Yeah, But then with Meta, Meta is like, “Okay, we need to address it. We need to go back to our roots. Yes, we want to focus on the Metaverse, that’s our growth model, but we want to, let’s not make it 100% of our company. And then, we want to cut costs,” and they got it right. Where Google, I think still hasn’t gotten it. And then you see Netflix and Disney, big difference over the past six to nine months. And also in autos, right? Look at Stellana Switches, Dodge, Jeep, Fiat, they blew out the numbers today. Very good quarter. GM crushed it, and Ford was absolutely horrible. So, you’re not seeing everything. I mean, you’re seeing Ford actually move up when the stock should be down probably 30, 40% from here, since they stopped producing one of their top cars and they don’t have the battery technology.

Frank Curzio: But you could see the difference and that difference in this type of market, you need to understand, and you brought up just a second ago, where management teams matter. When you are in an environment where money’s no longer free, when you’re seeing higher rates, where you have to cut costs, I mean, management teams matter. And it’s not about increasing your total addressable market, which you’re going to see most total addressable markets shrink. It’s a matter as they’re shrinking, you’re gaining market share. And that’s what you’re seeing out of La-Z-Boy. That’s what you’re seeing, Netflix starting, outperform everybody else now. You’re seeing Celonis and GM again starting to outperform Ford. Are you going to go and get a Ford F-150 Lightning right now? You’d be crazy to, because they stopped making them right now. They pulled them off the market because the battery technology and the fact that they were so vague about it, and they didn’t say what was specifically wrong.

Frank Curzio: Is it something major? Is the car going to blow up? Am I going to die? Or is it something minor that you could fix? And they said, “Well, we might start producing soon.” It’s a big difference there, where this is how great management teams in this type of market, you take market share, you put your flag on the ground, you cement it. “Hey, we are doing great, we’re the industry leader,” but this is the time for CEOs to step up, to cut costs and just work on their growth markets. Don’t get too crazy with marketing and spending, you’re cutting back and you see the difference in stocks, which makes it a stock picker’s market. I think it’s going to be like this through ’23, ’24, because conditions are going to be very, very volatile and crazy due to all the headwinds that we’re seeing. Where again, it’s inflation.

Frank Curzio: Are we going to be in a recession this year? If not, does that mean that the Fed is going to continue to raise rates? Do we go to six? Some people are saying six and half, seven, some people threw out eight, which is insane as a terminal rate.

Daniel Creech: Eight would-

Frank Curzio: I mean, it’s all over the place. It is all over the place. The job market’s strong. ZipRecruiter, number one employment company, finds jobs to people, is saying that it’s going to be terrible. So, you have these extremes and these back and forths, where there’s no clear signals and that creates uncertainty in an uncertain market. You have to be very careful, because if it’s uncertain, just with the economic data, it’s telling you that people are uncertain. And if you’re uncertain, you’re not going to go out there and you’re not going to spend as much as you usually spend because you’re nervous.

Frank Curzio: You’re worried about the market. Yeah, your portfolio came back a little bit. It’s still down. Your home prices come down, you see your net wealth come down and you’re worried a little bit. So, with these types of conditions, stock picker market, it matters, right? And this is what Daniel and I are going to be breaking down in Wall Street Unplugged Premium now, where we’re going to be breaking down these companies. This is the type of podcast you’re going to see with real details. And I’m going to be able to pick one stock, have a writeup for you and throw in The Dollar Stock Club. This also gets you access to Frankly Speaking. A lot of it’s going to be behind the paywall. And again, if you guys are interested, wallstreetunpluggedoffer.com, it’s $10 a month. And again, you can cancel any time.

Frank Curzio: Had a subscriber ask, “Frank, you’re charging for a podcast. Is that going to work?” It’s having this great content for our most loyal subscribers. And when I look at $120 and the work that you and I did, especially during COVID, and helping people and helping their families, I think that is a necessity to get something from someone that’s independent, and someone that doesn’t give a shit about what anyone thinks of me. It’s about providing the best advice, giving you guys our best research, quality research, Wall Street research to the Average Joe, which you don’t really get out there. A lot of places charge huge, huge premiums. This is an affordable product, but it is going to provide a lot of great content to our best subscribers.

Frank Curzio: And, Daniel, this is, I don’t want to say your last podcast because you’ll probably come on even, sometimes when I’m even, I’m doing my monologue. It’s going to be doing those on Wednesday, like five to 20 minutes. That’s going to be the free podcast, Wall Street Unplugged going forward.

Daniel Creech: Oh, good.

Frank Curzio: But, if people want Daniel. If you don’t like Daniel, if you hate Daniel, you’re perfectly fine. You’re happy right now, right? You’re like, “Yes, thank God.”

Daniel Creech: daniel@curzioresearch.com. Yeah.

Frank Curzio: Yeah. Tell us a little about it.

Daniel Creech: It’s funny. I like that guy asking you, “How’s that going to work?” Well, ask us in several months. A guy asked me last night, I was out and he said, “Hey, how’s the whole podcast thing going?” I said, “Oh, we’re launching a new one.” Ask me in three, eight, 12 months, if I’m still here.

Frank Curzio: And people are, well, it’s a different model of a podcast. For me, it’s people are going to pay for great research. They’re going to pay for people that help them, that care about them, which you guys know you do. That’s why we have a hundred thousands of people listen to this. And I know that a lot of people are going to convert over to this, because it is going to be a necessity to them because we’re going to be out there, we’re going to be asking the tough questions, we’re going to have great interviews, going to be in the field, providing you great ideas, trading ideas and stuff like that. And yeah, that’s what I’m looking forward to, to really providing that value for the subscribers. So, it should be really, really cool. But again, questions, comments on that, feel free to email me, frank@curzioresearch.com. Again, it’s wsuoffer.com if you want to subscribe. It’s the only way you could subscribe, is by going to that webpage. Daniel, any final thoughts?

Daniel Creech: Nope. Cheers.

Frank Curzio: Final thoughts. Nothing at all. No sign off, no special sign off.

Daniel Creech: Wish me a happy birthday. It’s tomorrow.

Frank Curzio: Wow. So, someone to send you. So, you can, guys-

Daniel Creech: You had to pull that out of me, see.

Frank Curzio: No negative emails, guys, no negative emails. You can-

Daniel Creech: You can send me anything negative.

Frank Curzio: No, no, just for this week.

Daniel Creech: No. On your birthday, it’s glass overflowing. You can say anything you want tomorrow, and I’m going to ignore the hell out of it.

Frank Curzio: Just for this week. Can I ask how old you’re going to be?

Daniel Creech: 37.

Frank Curzio: Man, you’re getting up there. I’m 40. The difference between 30 and 40 is huge. Everything hurts.

Daniel Creech: So obviously, I’m a glasses wearer, and I was getting my new prescription recently, and the woman that was doing my… I don’t know, what do you call pre-exam or whatever. She says, I said, “Hey, how bad are my eyes going to get over the next couple years? Can you give me an idea how much my prescription will change?” And she just grinned and looked at me and says, “Well, you’re going to be 40 soon. They’re going to get a lot worse.” I said, “Thanks.” At least I like honesty.

Frank Curzio: Honesty is the best. Honesty’s the best. Thanks, Daniel. All right, guys, so questions, comments again, feel free to email frank@curzioresearch.com. That’s it for me, and I’ll see you guys tomorrow. Take care.

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