- Why JPMorgan and Goldman Sachs aren’t breaking sanctions [2:35]
- Should individual investors have the option to invest in Russia? [7:25]
- Big brands are cutting ties to Russia [12:15]
- Would an end to the war make Russia a buy? [21:10]
I, Daniel, am leading the show today… and this episode is all about Russia. [0:30]
JPMorgan and Goldman Sachs are catching the attention of politicians such as Elizabeth Warren over trading Russian bonds… I break down why—despite the bad perception for Wall Street—these banks aren’t breaking any sanctions. [2:35]
But what about Main Street? Should individual investors have the option to invest in Russia? [7:25]
Several of the world’s largest and most successful brands are cutting ties to Russia—including Coca-Cola, PayPal, PepsiCo, and McDonald’s, to name a few. I highlight one step McDonald’s is taking that could create shareholder momentum. [12:15]
If Russia’s invasion of Ukraine ends, and the sanctions were removed… would Russia become a buying opportunity? [21:10]
Wall Street Unplugged | 865
Should you be allowed to invest in Russia?
Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on main street.
Daniel Creech: How’s it going out there? It’s Wednesday, March 9th, and you are listening to the Wall Street Unplugged Podcast. Normally hosted by Frank Curzio, but he is busy today on the road. He is headed down south in Florida to Miami, also known as Miami for some locals around here. But yes, he is away on business for a day or so, quick trip. So, it is I. Hello and welcome, Daniel Creech, senior research analyst here at Curzio Research, filling in behind the mic for the one and only Frank Curzio.
Daniel Creech: Normally, I join Frank every Wednesday, and we kick back and forth the hot topics. Whatever is moving markets, give our opinions, some stock ideas, things like that. Today, obviously it’s just a monologue from me. And no surprise, I want to talk about Russia, Russia, Russia.
Daniel Creech: I know this is dominating headlines, markets are in rally mode today, which is good to see more headlines around peace talks. Maybe Ukraine is not pursuing the NATO membership. Maybe they’re going to take a neutral. We’ve got to take all these with a ton of salt because over the last couple weeks, markets have been wildly swinging up and down based on headlines such as this. Hey, we’re going to meet, peace talks. All the peace talks didn’t go good. Oh, they’re going to meet for another round of peace talks. Market goes up. And that peace talks didn’t go anywhere, there’s more bombings, and it’s awful.
Daniel Creech: And again, I don’t mean to make light of this. I’ve said this a few times, but it’s genuine. I don’t mean to make light on what’s going on, the tragedy that’s going on. I do want to look at this and talk about this from an economical perspective, and a few perspectives from Wall Street all the way down to the individual investor, and I want your feedback on this because there’s a lot of open ended questions here.
Daniel Creech: There is some takeaway. I can talk about good businesses and one that’s caught my radar that I’ve been talking to Frank about, and no doubt you’ve heard of it and it’s going to tie in with the Russia and doing business with Russia. But everybody needs to understand the importance, in my opinion, of A, the economy in general for people and how it affects everybody. And I’m talking worldwide and individual in local areas, as well as capitalism and the structure to help support that.
Daniel Creech: I’ll do my best. We’re in no need or no way going to solve all these problems today in under 30 minutes. It might spill over into some other conversations, but I do want your feedback on this, good or bad, email@example.com. That’s firstname.lastname@example.org.
Daniel Creech: Starting with Wall Street. And let’s go to the most wonderful, nice people on Wall Street, the largest, JPMorgan Chase and Goldman Sachs. They made some news as a Bloomberg article reported on March 3rd, that they were actively either buying and selling different bonds related to Russia. Either Russia foreign, or sovereign bonds, government bonds, issues, and/or corporates like their oil and gas companies bonds.
Daniel Creech: No doubt, this is a sticky subject to say the least. And so, the macro part of my conversation here is, I want you to thinking from a perspective from each position, so from a Wall Street banker, to a corporation, to an individual shareholder. We’ll go through these. And I want to see where we draw the line on this good versus evil, or should you have the option or not to i.e. invest and/or try to make money from this situation?
Daniel Creech: So, Wall Street is cutthroat business. Everybody knows that. Don’t let it fall in deaf ears, even though you cannot along and think so, just remember that they are in the sheer businesses to separate everybody else from their money and make profits. That’s not all bad to be driven by profits in general. It can lead to bad decisions or greed and/or things like that, but that by itself to be motivated to profit, to build your own entity and then help others through that as you grow, is not a bad thing. So I’m not anti-big banks there.
Daniel Creech: This has caught some attention because, A, are they avoiding sanctions like this? So, Senator Elizabeth Warren has come out and pointed to, and I got a quote here. Because J.P. Morgan put out a research report on, hey, here’s kind of the cleanest dirty shirts. If this gets back to good standards, if you see some relaxation and sanctions, if things ease up, the war seizes, we get “back to even somewhat on the road to normal,” here’s some stocks, here’s some oil and gas companies, here’s some bonds that are trading next to nothing that you can make great money, great return quickly, if all this thing turns around.
Daniel Creech: Now, no doubt this caught the attention of one of Wall Street’s biggest critics, Senator Warren. And she says, “Giant Wall Street banks like J.P. Morgan and Goldman Sachs never miss an opportunity to get richer, even if it means capitalizing on Russia invasion of Ukraine and undermining sanctions placed on Russian businesses.”
Daniel Creech: Here’s a key fact because you can always fall back on, hey, we’re following the rules. You make the rules, we just follow them. Evidently up to this point, there’s no reason to believe that these sanctions that have been announced and are implemented against Russia and Russian businesses, that doesn’t mean that these bonds necessarily are off limits or are under those same sanctions. So, you have an easy question here.
Daniel Creech: Well, J.P. Morgan and Goldman Sachs, are they doing anything wrong? According to the sanctions, not necessarily. Is it morally wrong? Now, that’s a slippery soap because, hey, is this money going into support Russia, and does that directly funnel through and just support or encourage more behavior of this invasion and the destruction in the war we’re seeing?
Daniel Creech: I’m not saying that there’s an easy answer right there. I’m simply saying from a black and white right and wrong issue, if those aren’t under the sanctions on trading those bonds, then “it’s not wrong.” But that doesn’t mean it’s necessarily okay. It doesn’t mean they should be.
Daniel Creech: J.P. Morgan put out on the March 3rd Bloomberg article that they had traded roughly 200 million of bonds. That’s not anything for those guys, given this year trillions and assets it has.
Daniel Creech: It shouldn’t shock anybody that Wall Street’s doing that. It certainly looks bad, especially if you’re Jamie Dimon or the Goldman Sachs people, because you’re just giving an opportunity for anti-Wall Streeters or non-capitalist to take a swing at you just like Warren. I mean, she has a good argument here, this looks terrible. Hey, it looks like you’re undermining Russian sanctions. You’re just about profit. You don’t care about anything. That’s not necessarily a good look. So, look for the public relations and PR and what they’re going to try to do to get in front of that.
Daniel Creech: I’m sure Jamie Dimon is going to make some statements and/or just to express how, hey, they’re trying to help the individuals in Russia and their clients. They have a few fiducial responsibility. We’ll see how that unfolds.
Daniel Creech: But that’s got my attention because all the sanctions and how it disrupts markets and things of that nature. We hold Goldman Sachs in Curzio Research Advisory, it’s up a lot. It’s pulled back a lot lately. Yet, this is one of the reasons you own a huge investment bank, is because they have connections everywhere, and they’re going to try to make money no matter what. I’m not saying this is good or how much they have. I haven’t seen specific numbers. I’m just kind of pointing to reality in wanting your thoughts on this and those situations.
Daniel Creech: Would it make you, if you were a shareholder in J.P. Morgan and Goldman Sachs, would it make you want to sell those shares, or would it make you want to buy those shares, kind of knowing, hey, nothing’s off limits, these guys are going to do whatever they have to if you weren’t already a shareholder? That’s an interesting question, and a good transition to the next one.
Daniel Creech: From an individual standpoint, should you be allowed to, or should you even think about buying Russian stocks? A week or so ago, when Kuppy, known as Kuppy, was as Frank’s guest, they kind of jokingly and said, “Hey, the most contrarian investment right now would be to buy Russian equities. They have been absolutely decimated.”
Daniel Creech: And there was a great article on ZeroHedge on March 6th. And it just highlights one of these Russian equities. And I’m going to butcher the name of course. And I’m assuming this is trading in Russian markets. But they point to Novatek PJSC, it’s Russia’s second largest natural gas producer, and the world’s seventh, one, two, three, four, five, six, seven, largest publicly traded by natural gas production volume. It collapsed from $215 a share on February 16th, down to 65 cents. $215 to 65 cents in a matter of just a few days.
Daniel Creech: That is going to cause havoc, obviously, in the local economy. If you’re a Russian citizen, if you’re a Russian shareholder or a trader… I don’t know if anybody’s seen the viral… And again, anything you read or see, I mean, I scour headlines and different news sources all over throughout the day, and you got to take everything with a grain of salt.
Daniel Creech: There was a video that went viral about a Russian equities trader on camera, like a news anchor place being interviewed. And opened a beer, and basically cheers to the end of opportunity and the end of the economy over there, and I think he made the joke that he was going to go back and work as a clown like he did 20 years ago or something.
Daniel Creech: I mean, think of it from that perspective, if you’re over there and you’re just a typical citizen working, you either A, don’t know or don’t care, maybe you support the war, maybe you don’t, but it’s having a drastic impact on you and your local economy, through the banking system, through the payment system, through the ATMs with bank runs through your currency, absolutely collapsing on a worldwide stage.
Daniel Creech: I mean, just imagine the chaos that’s going on locally there. And then you have some hints and some headlines about protests there, and they’re going to crack down on that. It’s just utter chaos. So these stocks, this one particular goes from 215 down to 65 cents a day. And then J.P. Morgan is writing this out and kind of just saying, “Hey, should you buy these?” Or, “Here’s kind of the ones to do.”
Daniel Creech: From an individual standpoint, we’ve talked about a couple of ETFs, the RSX, that’s the VanEck Russia ETF, RSX is the symbol. And then you have the ERUS, which is the iShares MSCI Russia ETF. And that’s ERUS. These don’t even trade anymore. Let me give you a perspective on just how things can evaporate quickly.
Daniel Creech: This is from the iShares by BlackRock. And this is their fact sheet for the ERUS. And this is from December 31st, 2021. Obviously, things can change in a few months. At the time, it had net assets of 500 and call it 60 million. That’s essentially wiped out. They’re not creating shares. You’re not even allowed to buy this. So, if you’re an investor and you have this money, what now, are you just out your total investment? Are they just going to hold on these? And I’m sure there’s been some updates. I’m talking from a macro standpoint as an investor to think about how to process this and how this ripple effect works through economies.
Daniel Creech: Are these fund companies VanEck and iShares, just going to continue to hold these and just kind of wait on sanctions to see if this blows over, to see what happens or what escalates further with this war? When will it reopen and retrade if ever?
Daniel Creech: The Russian stock market I believe the currency is supposed to start trading today, if it didn’t already. I was seeing those headlines over the last couple days. I believe the market was still going to be closed over there, which what’s going on over a week now. Again, just utter chaos and craziness there.
Daniel Creech: Question, should you be allowed, should iShares and should these VanEck funds, should they pull this? Should they just say, “Hey, we’re going to write all this off. We’re sorry. There’s risks when it comes to investing. This is a special situation because it’s an invasion. It’s an act of war. It’s death. It’s destruction. So, hey, sorry. Don’t put all your eggs in one basket. Hopefully, you’re not broke off of this.”
Daniel Creech: What do you think about that? Is that okay? Should it be there? And should it be up to the individual? Where do you draw that line on saying, “Hey, what if the world gets better?” We’ll get back to that in a minute if sanctions ease, because then you could see a reflux or an influx of capital or a raise there, and see prices rise from the ashes and skyrocket. So, that’s two funds there that we’ve talked about.
Daniel Creech: From a company standpoint, there’s a great article in the Wall Street Journal today. And the title is, it’s on A12 for those of you following along at home. It’s Pepsi and Coke, take a step back. And this is in addition to a lot of companies like McDonald’s, PayPal. I believe I saw a headline that said PayPal was up over 1% today because it announced that it is cutting ties or business ties with Russia.
Daniel Creech: You have this political push, and rightly so. I mean, for lack of a better sense, wars can unite people. I mean, look how the popularity of the Ukraine president over there and the speeches he’s giving, he’s capturing folks, the US government, I mean, a lot of surrounding nation are backing them, not with necessarily troops, but with money, and/or ammo, and/or supplies.
Daniel Creech: So, it’s uniting that sense. And there’s a big tailwind there to take a stand and there’s pressure there for lack of a better word for corporations, McDonald’s… Well, let me stay on point here.
Daniel Creech: So Pepsi and Coke from the Wall Street Journal today, it says, “PepsiCo said it was halting sales of its big soda brands there at Russia, such as Pepsi, Cola, and 7Up, but would continue to sell potato chips, dairy essentials such as milk, cheese, and baby formula. The snack-and-drinks giant is exploring options for its business in Russia, including writing off the value of the unit, according to people familiar with the matter set.”
Daniel Creech: If we were doing an educational class or a classroom setting, the keyword today would be essential. Notice what they’re saying here, hey, they’re in a tight line, because if you’re Pepsi, if you are McDonald’s, if you are Coca-Cola, Coca-Cola doesn’t have that big of an exposure over there. And don’t get me wrong, Russia is not making or breaking any of these companies that we’re talking about right now.
Daniel Creech: But from a PepsiCo and from a McDonald’s perspective, McDonald’s has 850 stores restaurants in the country, and 62,000 people it employs at those restaurants, at those McDonald’s restaurants.
Daniel Creech: The bigger picture here going to Pepsi with essentials and McDonald’s as well. Because I think what McDonald’s is doing is great, and PepsiCo too here, they will continue to do essentials such as milk, cheese, and baby formula.
Daniel Creech: Think of the responsibility and the tight spot you’re in here. You’re a CEO of a huge, you have political pressure, and just genuineness of humans saying, “Hey, these people, Russia is doing something bad, cut them off yet.” Yet if you do that, if you actually do that, forget the earnings or whatever revenue it could bring into your company. Forget for a minute the fiduciary responsibility you have for your shareholders to do what’s best, to stay profitable, to build and run the best business and reward shareholders. Forget that.
Daniel Creech: It would be nearly impossible, and they’re not overlooking this, to think about, hey, what about the impact on the local economy? Maybe these employees at McDonald’s and PepsiCo are supporting Putin and thinking that the war is great. Maybe they’re against it. Maybe they’re just trying to stay alive over there. So, to see the PepsiCo and McDonald’s continue, PepsiCo continuing to do the essentials, which like I said, I’m having fun with that word.
Daniel Creech: Unilever PLC also said it was suspending imports. This is from the same Wall Street Journal article. It was suspending imports and exports and its products into and out of Russia. Unilever, which doesn’t break out sales in the region said it would continue to supply the essential food and hygiene products it makes in Russia.
Daniel Creech: So, PepsiCo also has a huge dairy operation. They paid $5 billion for it. And it’s not really accreditive to earnings, but again, it still employs a lot of people. To McDonald’s point, McDonald’s and their 62,000 employees, they announced they’re closing all 850 stores restaurants. Yet, they’re going to continue paying all of their 62,000 employees.
Daniel Creech: So A, I want your point on that, is that a good thing or a bad thing? Should McDonald’s and other companies just cut… Man, I’m giving you guys a lot of homework. I’m asking a lot for you. It’s hard to get any feedback whatsoever, but now I’m asking several questions.
Daniel Creech: So, email@example.com, answer, should they just cut off Russia entirely, and say, “To hell with everybody over there, we’re going to just move on and write this off. Take our losses on our books and build businesses everywhere.” Or do you applaud that? And do you applaud them saying, “Hey, yeah, it’s going to cost you. You’re not going to have any revenue coming in. You’re going to have costs going out because you’re going to continue to pay these salaries.” But is that the right thing?
Daniel Creech: This is where investing. This is where capitalism. This is where compassion can come forward through the economy. Because if you’re not successful in other areas, you don’t even have the option to continue paying people without revenue coming in from that sector. These companies can all absorb it. They can increase prices, they can cut costs different ways. They can invest in different technologies. These guys are multi-conglomerates, multi, multi-billion dollar companies that can handle this. Are they doing the right thing here?
Daniel Creech: Personally, I’ll give you my personal thing in a minute here. I wonder about how that’s impacting the shareholders or the current shareholders. McDonald’s is an interesting stock because it caught my eye for some reason, I believe I saw some insider buying on it. And I don’t want to just put too much weight into that, because I don’t remember who exactly it was. But it caught my eye and I started looking at it, and the prices pulled back along with the market in general.
Daniel Creech: But just a couple of quick numbers. McDonald’s is one of the most recognizable, most amazing brands in the world. They have huge margins over 50% on gross margins, I believe. They’re trading at a 2223 forward price to earnings PE ratio, which is below their five-year average, which is closer to 25. There’s no worries with McDonald’s as an investor, you don’t worry about them being bankrupt or paying their debts, or losing massive market share or anything.
Daniel Creech: And so, as the share pulls back, it gets more attractive. And I was kind of talking to Frank and pitching that idea as maybe a Curzio Research Advisory holding or things like that.
Daniel Creech: But just as political wins can push shareholders away, could this possibly be something that encourages shareholders to buy companies like this? Will the same kind of senators and politician who kind of take shots at corporations, will they applaud them for saying this, “Hey, you know what, maybe BlackRock, or Vanguard, or these huge asset managers will be more prone.”
Daniel Creech: We’ve already seen the likes of BlackRock get in the role of activists with energy companies and things of that nature. Are they going to go activists on this way and say, “Hey, we applaud McDonald’s continuing to pay this. We know it’s going to hurt a little bit on the books, but overall, this is the right thing to do. And this is going to create shareholder value in the long-term and long lasting shareholders. Therefore, they’re increasing their buying on that.”
Daniel Creech: I don’t know, it’s just something to throw out there, political headwinds, momentum. It can come from all different shapes and sizes. If you see these companies announce they’re cutting ties or changing their ways with Russia and that’s causing the stock to go up, well, that’s obviously a buying opportunity and causing momentum. That’s something to pay attention to.
Daniel Creech: From a shareholder perspective, if you own McDonald’s or PepsiCo, or any other company that is pulling ties and/or cutting ties with Russia, are you okay with that? Does that make you want to sell shares? Does that make you feel good about them doing “the right thing” in your opinion or whatever you agree with? Does that make you want to sell shares because you think, hey, these guys are just going to keep paying them, revenue’s not coming in, this is just kind of a political stunt? I want to go look elsewhere?
Daniel Creech: I’m not saying anything of that is right or wrong. I’m asking for your opinion on that. This is very interesting to me in how this ripple effects through the investor from all the way at the top to the individual, all the way at the bottom. And I don’t mean bottom is bad. I just mean from the scale there.
Daniel Creech: Having said all that… And by the way, I think McDonald’s is one of those great companies. If you bought it now, I wouldn’t buy a full position just because of the current market environment. I would want to hold that through a business cycle. Obviously, as gas prices and everything are going high, people are going to have to cut back eventually. Not everybody can sustain and live whatever they were living just like the same a month or two ago when gas is four or $5 a gallon. At some point, it’s going to have an effect on that.
Daniel Creech: So, I would want to hold McDonald’s if I was buying it now, I would want to be buying it over time, or at least scaling into it over a business cycle of thinking, hey, these guys are great. They’re probably going to gain market share. If we do have a recession and/or slow down on the economy, they’re not going anywhere. Maybe it’s the cleanest dirty shirt. If it does go down, hopefully, it goes down less than the market and/or, and supports that dividend and things like that.
Daniel Creech: Just another boring stock. But remember, don’t focus on exciting or boring anymore. The environment is changing rapidly with higher inflation is the new normal. So, focus on great businesses and operating businesses.
Daniel Creech: Lastly, I just want to talk about Wall Street corporations and individuals. What if things get better quickly? What if this next round of talks, which hopefully go on and hasn’t changed since I started this podcast, what if the next round of peace talks are successful? What if you have ceasefires? What if you have just start to pull back? Again, I’m not agreeing or disagreeing, but what if Ukraine says, “Hey, we’re not pursuing NATO membership anymore. We’re neutral. We want peace.” And Russia agrees to that? You’re going to see a massive rally.
Daniel Creech: What if all that happens and then the sanctions start to unwind? Now, who knows how long these are going to be in place. There’s a tit-for-tat, we’re going to do sanctions. Russia’s talking about banning exports of some raw materials. So, there’s a lot of uncertainty there.
Daniel Creech: However, if you actually see improvement, you’re going to hear hints or headlines about sanctions getting easier. Then, is it okay that J.P. Morgan and Goldman Sachs are looking at buying bonds? Is it okay for iShares and VanEck to create more ETFs and more shares to allow individual investors, if they choose to buy the ERUS or the RSX?
Daniel Creech: Then you have the corporations like McDonald’s, hey, we paid you through this hard time. They’re going to keep great employees. They’re going to continue to grow their businesses there. Think about how all that changes right away.
Daniel Creech: And the big takeaway here is that, the economy is the most important thing. That’s why I’m so passionate about trying to get people to pay attention to the economy. It’s not that difficult to understand. It’s not over your head. It’s a lot like the micro guy off dirty jobs and what he’s doing. It’s great to point to all kinds of jobs throughout the economy. What makes the world go round?
Daniel Creech: Not everything is an Amazon. Everything has an effects on all of us, and everything needs to be working. And you want to have a stronger economy because that leads to a stronger everything. And it gives you options. So, when you have countries acting badly, you can do the right thing from a humanitarian standpoint, you can do the right thing from a corporate standpoint, paying individuals to help them out, and/or making changes to continue to grow your businesses elsewhere.
Daniel Creech: It’s why I want everybody to pay attention, especially to politics and policies, because these drastically affect everybody, not only lives and paychecks, but the economy, and the way of life, and the standard of life. So, gas prices are sky high. Yeah, they were going to be high no matter what, a little bit because of Putin, but there’s also decisions we could have been making over the last couple years, or just not changed at all from the last couple of years, that would substantially have helped keep prices lower than what they are now.
Daniel Creech: That’s not political. That’s just a fact. And that’s what ever needs to pay attention and kind of understand that, because then once you know the policies and kind of this roadmap, then you have the option to try to figure out and put your money where you want, to hopefully benefit you and your family and grow from the inside out.
Daniel Creech: Please give me your feedback, firstname.lastname@example.org. I want to know if you guys like the idea of McDonald’s, what they’re doing, give me your take on the Goldman Sachs and J.P. Morgans of the world. And just the option of investing in Russia, Russia, Russia.
Daniel Creech: Just quick podcast note. Tomorrow, Frank has an excellent guest, and for the life of me, I can’t remember if I was supposed to tease it or go ahead and announce it. So, I’m going to go with teasing. It’s a timely interview. This gentleman has been on a couple times. He’s one of the fan favorites. It’s a great interview, and he’s got some excellent numbers, and stats, and exciting figures about uranium. So, be sure to tune in for that.
Daniel Creech: And until next week, I hope you guys all have a wonderful, safe rest of the week and weekend. Have some adult beverages and enjoy one another. Take care. Cheers.
Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.
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