Frank is attending his daughter’s Christmas play (yes, midday on a Tuesday), leaving me, Daniel, behind the mic.
Stocks are in rally mode following this morning’s lower-than-expected Consumer Price Index (CPI) data. I share the factors behind the market’s optimism (but why investors shouldn’t count their chickens just yet)… how to take advantage of the rally… and what to expect from tomorrow’s Fed meeting.
Cryptos are also rallying—with Bitcoin nearing the $18,000 mark—following the arrest of former FTX CEO Sam Bankman-Fried. I explain why SBF should be in jail… why the fallout from the FTX collapse isn’t over yet… and why SBF’s arrest is great news for the crypto space.
Wall Street Unplugged | 7
Editor’s note: This is an unedited transcript.
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.
It’s Tuesday, December 13th, and it’s great to be with you on the Wall Street Unplugged podcast. I am your guest host, your fill-in host, your transitory host, Daniel Creech, research analyst here at Curzio Research. Yes, I’m the one that works alongside, for, behind, and with the one and only, Frank Curzio, who, if he were here today, would tell you that his absence is because nobody works in Florida.
Nobody has anything to do, no schedules to keep. It’s Christmastime. You know what would be a great time for a wonderful holiday play, let’s call it mid-morning on a weekday, particularly Tuesday. No, Frank is spreading the Christmas joy or partaking in it, watching a Christmas play for one of his young daughters. He will be back. No worries everybody, he will be back in the office this afternoon and be back behind the microphone tomorrow for our typical headlines and back and forth for Wednesday.
So today, you’re stuck with me and I want to talk about two major themes and I’m going to ask you to do a major favor. I want you to go to your iTunes or Pandora, Spotify, whatever it is you use. And I want you to play Pink Floyd song or the song, Money. The Money song by Pink Floyd. And I’ll give you a second to dial that up. Or you can hit pauses because I want you to hear the cha-ching, cha-ching, cha-ching. It’s like Las Vegas, people, lights are everywhere, whistles are gone, horns are blowing. The market is clapping, standing ovation. We are loving life right now because the market is set to open much higher after a strong rally yesterday. Why? Well, the Consumer Price Index data came out this morning at 8:30 AM Eastern Standard Time. I won’t bog you down with a lot of details because they’re difficult to follow just over on audio.
But know that expectations or the print came in much lower than expectations. November CPI came in at zero spot 1%, that’s verse zero, spot three, and the prior reading was 0.4, so that’s even better. November core CPI came in at zero spot, 2%. That’s also lower than the expectations of 0.3%. Bottom line, the market is getting more confidence in the ability for Fed chair, Jerome Powell, to steer this giant ship of the US economy around storms into a soft landing, i.e., We’re going to raise rates, cause a little bit of slow down the economy, a little bit higher unemployment, but we’re not going to go into the R word which is recession, which we don’t want to say, we can’t say, we can’t say recession.
It’s not popular. Look at markets. Dallas set to open over 2% S&P over almost 3% higher. NASDAQ is almost 4% higher. Everything is in rally mode except the US dollar, which is also positive to see for gold. Quick note on gold, a Bank of America survey came out. Fund Manager Survey, FMS is how they refer to it, and it was a shocking 21% of fund managers said that gold is undervalued. Now, why is that important? That’s important because A, gold continues to hang around the $1,800 level, which I’m impressed with amidst such a strong dollar rally recently. But fund managers 21% say it’s gold is undervalued, that’s up from 13%. That’s a significant, that’s over 60% increase and yet the price of gold from the last reading was up 9%. So you have more fund managers thinking that gold is still undervalued even after a nice pop of 9%. It’s up over a percent today as the dollar pulls back, again, because investors are absolutely ecstatic that we are going to have a soft landing.
I don’t want to be a negative Nancy, I don’t want to be a glass half empty guy, but this is just one day. We’ll see how the markets play out tomorrow and today. So today is a couple interesting things. You have the CPI data that just came out. We’ll see how markets close. Also, today, is day one of two of the Fed meeting. Tomorrow at two o’clock, they’re going to announce the next interest rate increase, market consensus is for 50 basis points, which would be a break in trend from the last several meetings of 75 basis points each time. This inflation data could, towards the end of the day, get some people nervous or into tomorrow. I think Powell was very clear on saying that he was basically going to do 50 and I think he could change his language to be more hawkish because of such a strong rally.
And you can tell they’re looking at numbers and trying to manage expectations in the stock market indexes for investors, in my opinion. I don’t think it’s going to change anything on the 50 basis points tomorrow. And then his press conference will be at 2:30 tomorrow. And that will be interesting because that’s where the markets will have to hang on all the kind of… On every word in every language to see what he says about today’s prints. Remember, he’s said this in the past, he’s trying to be transparent and I got to give him a little credit for that. But remember, he is continually said this is going to take some time. One reading is not a trend. They want to see several positive inflation readings in a row, meaning several months of data. And as Frank’s been talking about, and I, overall you can still be bearish inside these massive market rallies.
And the reason for that is because we’ve talked about how earnings estimates are still very high. We still have a lot of negative headwinds as these interest rate increases make their way through the economy, through all kinds of sectors and things, from services to housing to appliances to manufacturing. Enjoy this for the next couple days and traders, if you are looking to unload some of your high growth stocks that are rallying with the market, I would look to trim some of those positions or at least reevaluate everything. And I would also continue to look at buying puts on your favorite names that are going to struggle over the next 12 months from here. So just a quick note on that, hopefully the Money song by Pink Floyd is still playing because it’s just incredible how volatile this market is and will continue to be and what else is going higher.
And that is the mighty Bitcoin. Bitcoin has rallied over $400, $500 to almost the $18,000 level, which is pretty impressive considering the fact that all else is being… Or excuse me, the fact that there’s so many clouds around the crypto, it’s trading at just under $18,000 up over 5%. Some may say that it was a better than expected CPI reading that sent Bitcoin up over 3% or 4%. It was already up a little bit into the print, but that’s not the case. And now I need you to go to your music device and I need you to switch genres from Pink Floyd and Rock, over to Country and Western. And I’m not talking about this new Country and Western stuff that’s so Hip-Hoppy, it’s odd. I’m talking about the old-school stuff. I want you to play Waylon Jennings and Johnny Cash’s song, There Ain’t No Good Chain Gang.
Again, I’ll give you just a moment to get that up. Maybe get through an ad, click through the first five-second ad and hear it, because Sam Bankman-Fried is now in custody in the luxury life of The Bahamas, waiting to be sent back to the old US of A, where he is charged with all kinds of multiple charges; wire fraud, securities fraud, misleading investors, Ponzi schemes. You name it, he is allegedly guilty of it. And the wild thing here is that there is no coincidences with what’s going on, especially when you bring in Washington, DC. So today, in addition to everything else on this wonderful Tuesday, the Representative Maxine Waters, Chairman Waters and the Housing… There’s some committee here, and I’m reading this, John J. Ray III, who is the CEO of FTX now, who took over and is managing this through its bankruptcy filings and trying to make sense and get people’s funds back from the debacle that Sam Bankman-Fried and his higher management have done.
They are testifying in front of the House and Services, House Financial Services Committee today. And Sam Bankman-Fried was supposed to virtually attend. Now, I have no doubt that he was probably hanging out there trying to avoid what has just happened yesterday and him being arrested, but he’s been doing… This is the most aggravating thing because it’s been over a month. John J. Ray III took over on the early morning hours of November 11th as he says in his open testimony, which or his opening statement, which I’ll get to in just a minute, but it’s been over a month for Sam Bankman-Fried. He’s done several interviews, both with smaller not as well-known platforms on YouTube and different things and good for them for hopefully building a file, as well as going on CNBC, BBC and the New York Times deal book and all that kind of thing.
And most of these… And I know Frank and I have mentioned a little bit, most of these interviews that he’s done have just been absolutely pathetic. And it’s just extremely frustrating for people across the board in finance, let alone somebody in our position, meaning we want to help individual investors and point to the bad actors in all this. This is just another case of fraud and it gives crypto a black eye. And the statements going back and forth on Twitter between Representative Maxine Waters and Sam Bankman-Fried about, “Well, we’re trying, we would love to have you testify if you could.” “Oh well, Representative Maxine Waters, I would love to, I just don’t have a lot of data. I don’t know if I’ll be available by the time you’re requesting,” blah, blah, blah. Now it comes out the night before he gets arrested, that House Financial Service Committee is going to go ahead and put out a statement.
It just says, oh well, we’re not surprised that the justice is taking action and we’re going to bring everybody to justice and all that kind of stuff. It’s like, are you kidding me? This has been the most convoluted ridiculousness going on in finance. I mean, this is why people look at Wall Street and look at big institutions in a negative light. And today, later on when Mr. John J Ray III, that’s fun to say, testifies. I want to read a little bit of his opening statement because it’s just as clear and cut fraud as you can imagine here. Now, this is all alleged. Nobody’s guilty until they are dragged in front of a jury of their peers and found guilty. So we’re going to continue on this front. However, there’s a lot of big holes that are pretty easy to identify.
Now, Mr. Ray starts out and he thanks everybody, Chairman Waters, ranking member McHenry. Thank you so much for inviting me in all this. He goes on to give a little background, he says, to give you a sense of my background and how I ended up in this role, I have over 40 years of legal and restructuring experience. I’ve been the chief restructuring officer or chief executive officer in several large and vexing corporate failures involving allegations of criminal activity, malfeasance, including the Enron bankruptcy. There’s one note for you, everybody sticks out. He goes on to say, nearly all of these situations share common characteristics ranging from gross mismanagement, excessive leverage, failures and internal controls, failures of external checks as a result of audit firm failures or insufficient board governments. He continues to go on. Here is some of the kicker, some of the unexpectable management practices at the FTX Group identified so far include…
Now he gives a few bullet points here. This is about a seven-page opening statement. And what I want to point out to you is that the lowest hanging fruit here is it doesn’t matter what kind of regulation you have. When customers give funds to a platform, then they in no circumstances expect those funds to be taken at will and used without their discretion, knowledge, or anything else. In one of the bullet points that Mr. Ray points out is the use of computer infrastructure that gave individuals and senior management access to systems that stored customer assets without security controls to prevent them from redirecting those assets. Okay, well, that’s a little bit of a red flag. Bullet two, the storing of certain private keys to access hundreds of millions of dollars in crypto assets without effective security controls or encryption. All right, so you kind of see where he is going here.
Skip down one bullet point to number four, the co-mingling of assets. That is simply taking customer funds and using them without their discretion, without their knowledge, without their permission, using them to make bets, leverage bets, all kinds of things. And this just continues to get absolutely worse, the absent of audited or reliable financial statements. And one other point here, he goes in through his objectives and things like that, he doesn’t make any comments… Now, he doesn’t make any comments in his opening statement regarding… And he says he doesn’t want to regarding any previous comments that Sam Bankman-Fried has said in his countless interviews. He does go on to say though that again, he references the commingling of assets. And then he touches on the FTX bankruptcy and the FTX US. Now to bring everybody up to speed quickly here, Sam Bankman-Fried has continued to go on and say that bankruptcy was a bad idea at right after he did it.
And that the FTX US, which is a separate entity evidently, was fully funded. Meaning that he said on more than one occasion that he doesn’t understand why the FTX US customers can’t just be opened up to allow their withdrawal because all the money is there. Getting back to the opening statement from John Jay. As he wraps up somewhat of his statement, he says, questions have been raised as to why all the FTX group companies were included in the Chapter 11 filing, particularly the FTX US. The answer is because FTX US was not operated independently of ftx.com. Chapter 11 protection was necessary both to avoid a “bank”… Or excuse me, “run on the bank at FTX US and to allow our team the time to identify and protect its assets. Since the time of the filing, I have become even more confident this was the correct decision as to books and records issues at FTX US and many relationship between FTX US and other FTX Group companies become clear.”
The point is, this gentleman is absolutely saying that what Sam Bankman-Fried has been saying, and he’s been… You can tell that he’s ignoring his lawyers to go out and do these interviews and talk, but he’s taking some of their advice or at least nibbles of it, because he’s trying to really walk the line with his language. And he says stuff like, “Well, to my knowledge I wasn’t aware of this,” or, “That was never my intention. If that was going on, I wasn’t aware of this.” All this kind of ridiculous stuff. This gentleman, John Ray, has come right out and said that that’s all BS.
I’ll continue to watch… Don’t waste your time with the House [inaudible 00:15:57] Services Committee, I’ll get some more info on that. I’ll be looking at that later on today because… And Frank and I’ll talk about that tomorrow because I want to see what some of the good questions are and how this goes, because afterwards, we have… It’s only going… The news is only going to grow and grow around this arrestment, or excuse me, the arrest… Sam Bankman-Fried being arrested and then getting back to the US. That’s going to be the big kicker there.
The important thing here, the takeaway is that I think the Bitcoin rally is because they are putting one of the biggest crypto frauds hopefully in front of a trial very, very soon, and justice will be served. This is ultimately great for the crypto space. I totally agree with Frank Curzio when he said this was a black eye. This is a setback because I still don’t believe, and I don’t think anybody does, the contagion effect, the ripple effect of the FTX fallout is still going to hurt the industry. Meaning it was just over a month ago that FTX went into bankruptcy, Sam Bankman-Fried resigned, and then you had some bankruptcies and you have all these other companies that are worried now. There’s rumors about the Binance Exchange possibly facing Department of Justice charges for anti-money laundering laws. I simply… I think the worst is passed in the FTX debacle for crypto, but I don’t think the pain is over and it’s just very impressive to me to see Bitcoin’s resilience in trade.
Bitcoin was around 20,000, 21,000 when the whole FTX debacle happened. It plunged quickly to around the 15,000 and I’m being general here, because I don’t have the exact prices. Bitcoin is 24/7 and it’s extremely volatile. But for it to go down to around the $15,000 level and now on not only the news of the better than expected CPI data, but what I believe is great for the industry and the fact that we are putting a criminal behind bars hopefully soon, is why the crypto space is rallying. Because again, as you weed out the bad actors and the… Let’s see, you weed out the bad actors and the remaining players are… If they haven’t been doing it the right way, they’re going to be forced to as regulation comes down. But now it’s not an unknown anymore, in my opinion on regulation. It’s definitely a when, not if, and I think that a lot of people are going to be making decisions over the past month and from here forward in the space on that.
And I think that’s just ultimately a great idea for the space because you can make it through frauds. Wall Street is not uninvestible because of Bernie Madoffs and Enrons of the world. Doctors, lawyers, every profession, servicemen, everybody has their own con artist. It’s just terrible people, for lack of a better word, and just frauds. That doesn’t mean that the entire industry is bad. What is bad for the entire industry is when you don’t have those people brought to justice or punished for their wrongdoing. And that’s what gives the ultimate space, or excuse me, the space the ultimate confidence. And you still have individuals that are interested in crypto. You still have institutions that are huge. You still have an international play. Adoption is still continuing to go up, as Frank talks about innovation and development is huge and ripe in this space even as prices crater.
This is just a business cycle and a newer asset class of highs and lows. So if you’re a short-term investor, enjoy the trading, it’s going to be wildly volatile. I hope you guys are all ringing the cash register and making money. If you’re a longer-term investor, I would just continue to buy over time as you can in increments and know that this is going to be a very, very volatile ride. Just a few minutes left here. I’ll keep things a little bit shorter until I wait for the Frank Curzio to get back. I do want to highlight on energy because I have been an energy bull and I know that sometimes I talk about it too much. But I want to just give you an update because China continues to hint at the reopening and lacks some of the COVID rules and regulations or restrictions, I should say.
And that is boding well for the energy markets. Oil is rallying 2%… Again, today everything is higher because you have algorithms and everybody short covering and everybody’s going to live for the day. Oil is up over 2% WTI, the Brent International crude is up over 2% to almost $80 a barrel, and natural gas is up almost 6% on the day after rallying hard the last few days. You have so much going on in the energy space, and Frank and I talked about this last week briefly, and we’ll pick it up a little bit more about this huge discrepancy between the strong performance in oil stocks and the terrible performance and the price of oil per barrel. And we talked that basically the XLE, the energy ETF for oil producers was near a 52-week-high for the first time when oil was near a 52-week-low for the first time since 2006.
I personally think that because of China reopening is only a matter of when, not if, there’s a lot of rumors in headlines continuing to be around China and Taiwan that are only going to cause more volatility in the oil markets. We are only a week and a day into new sanctions on the Russian oil and the shipping sector, excuse me, and we are only a couple months away, February, which is my birthday month, just as a heads-up for everybody, before more sanctions go on, on refined products and different things. My point to all this is you have energy stocks holding up excellent as oil pulls back. If you think the next move in oil is from for WTI, West Texas Intermediate is from around 74.50, which is where it is right now, down to the 60s, then you want to look to lighten up everything.
However, if you think that all the volatility, the tight supply and demand efficiency or effectiveness we have right now, coupled with everything else geopolitically, if you think that that is all bullish as I do, I think the next leg higher is back towards the $90 level, which means oil stocks are going to either level out and continue higher or continue higher from here. I couldn’t be more bullish on this space and natural gas. And I want to talk to Frank in more detail about some other natural gas plays. One has a huge NFL owner involved in, that’s going to be a quick Google search. The stock has pulled back and yet they look like they’re in excellent financial shape.
So want to tease that a little bit. Maybe we can talk about that tomorrow on Wednesday’s podcast. But today, I want everybody to be happy. I want everybody to listen to the two great songs that I pointed out, the Money song by Pink Floyd, and then there Ain’t No Good Chain Gang by Waylon Jennings and Johnny Cash. Those are the two major themes today. Frank will be back all day tomorrow and I can’t wait until then. Cheers.
Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decision solely on this broadcast. Remember, it’s your money and your responsibility.