It’s Friday… so it’s mailbag time here at The Daily Cut.
Today, we’ll kick off with a question about crypto.
June was brutal for crypto investors.
Bitcoin (BTC) plunged 38% last month alone. That brings its losses to 71% since its November all-time high.
It’s a similar story for Ethereum (ETH), the world’s second-most valuable crypto. It dropped 47% in June. That puts it 78% below its all-time high from November.
And as usual when crypto goes through carnage like this… the naysayers come out in force.
For example, at a TechCrunch talk on climate change last month, Bill Gates described the crypto market as “100% based on greater fool theory.”
It’s the idea that people buy in a speculative market only because they believe a “greater fool” will pay even more to own already overvalued assets.
And it has some of your fellow Legacy Research readers thinking.
Here’s an email from a subscriber of colleague and world-renowned crypto investor Teeka Tiwari, or “Big T,” as his followers call him. Teeka is standing by with an answer…
Reader question: Hi, Big T. What’s your take on Bill Gates’ statement that crypto is a con “100% based on the greater fool theory”?
– Meng L.
Teeka’s response: Bill Gates isn’t the first billionaire to bash bitcoin. It won’t be long before he’s eating his words.
That’s what happened with Ray Dalio. He’s the billionaire founder of the world’s largest hedge fund, Bridgewater Associates.
In January 2020 – when bitcoin was at $8,600 – Dalio said bitcoin was “not effective” as a store of value or a medium of exchange. He changed his tune by that December, when he admitted bitcoin had established itself as a “gold-like asset alternative.”
So we’re no strangers to this kind of flip-flopping.
Gates isn’t so different from the millions of people spewing baseless ideas on YouTube, TV, and social media.
They have to generate clicks and sell ads. I get it. And some of that stuff is entertaining. But don’t let it dictate how you allocate your capital or your long-term view on this asset class.
Bitcoin’s cryptography secures its payment network and makes it impossible to counterfeit. And you can send the digital currency anywhere in the world in minutes. Bitcoin’s use cases are part of the reason I see the crypto hitting $500,000 by 2025.
Next, a reader’s take on gold stocks. And an answer from former investment banker Nomi Prins.
She now helps regular folks navigate – and profit from – the market distortions that central banks’ massive money-creation causes.
Over at her free e-letter, Inside Wall Street With Nomi Prins, she’s been showing why she believes gold belongs in every investor’s portfolio.
Nomi favors the SPDR Gold Shares ETF (GLD). It’s an ETF (exchange-traded fund) that buys and stores gold bars in secure vaults.
But this reader has his doubts about this fund…
Reader comment: I have no confidence that GLD is holding gold bullion in vaults somewhere! I believe most of its gold backing is “paper gold” [a piece of paper acting as a substitute for gold].
– Thomas R.
Nomi’s response: Hi, Thomas. I appreciate your concern. Some folks in the gold community share it.
Let’s start addressing it by looking at GLD’s custodial arrangements.
It holds its gold in HSBC’s vault in London. Twice a year, independent auditors from Inspectorate International Limited count the bars.
Once annually, there’s a random sample count. The other annual count is a complete bar count. This usually coincides with the SPDR Gold Trust’s financial year end on September 30.
Here is the latest certificate of the GLD gold bar count. Based on the April 29, 2022, random sample count, there were 87,599 gold bars of a purity between 99.5% and 99.99% and a weight of about 35.2 million fine troy ounces.
The most recent full count happened in September 2021.
HSBC also publishes a daily list of current holdings. You can find it here. It shows 84,180 bars today.
The World Gold Council fully owns GLD’s sponsor, World Gold Trust Services. The sponsor visits the vaults up to twice a year to inspect the gold.
GLD’s financial auditor also visits the vaults before signing off on its annual audits.
So physical gold definitely backs GLD. Each share represents about 0.09 ounces of gold.
But investors can’t redeem GLD shares for gold bullion.
This is something all gold investors should keep in mind. Because it’s not just GLD. With many gold ETFs, when you redeem shares in them, you don’t get physical gold. You get the cash equivalent.
Still, GLD is an easy way to own gold. You avoid the hassle of storing, transporting, and securing it. So GLD is great if you’re okay never seeing or touching the metal you’re buying.
For anyone who values holding actual gold, consider buying gold coins. Some of the more popular ones are American Eagles and Canadian Maple Leafs.
We wrap up today with a question for Jason Bodner, Legacy’s “billion-dollar trader.”
Like Nomi, Jason used to work on Wall Street.
He was one of the few guys cleared to make trades of more than $1 billion.
Now, he heads up our Outlier Investor advisory. It’s where he identifies big-money flows into the highest-quality stocks.
And as he’s been showing his Outlier Insights readers, after brutal price falls in recent months, blue-chip stocks are now bargains.
One Jason reader wonders how much cash he should put aside to take advantage of these deals…
Reader question: Hi, Jason. How do you handle the cash in your personal investment accounts?
Do you normally have a certain percentage in cash to use when the market drops? Is this a good practice?
– Gerardo H.
Jason’s response: Thank you for your message, Gerardo. As you may know, I’m not allowed to give personalized financial advice. But I can answer your question about what works for me.
For my personal investment accounts, I like the model super-investor Warren Buffett follows. He advises, “Be fearful when others are greedy… and greedy when others are fearful.”
Did you ever wonder how he always seems to have money to buy stocks when they’re on sale?
He doesn’t generally sell other stocks. He’s the longest holder out there. He says his ideal holding period is forever.
Buffett has cash flow constantly coming in because he owns insurance company GEICO. That money comes from people paying their insurance premiums. And he invests this cash.
I do something similar. I take income from investments or businesses I own. I take what I need to live and deploy the rest when the stock market is falling, like it has been lately.
When the stock market is going up, I save the cash instead and let it build up. That way, in times like these, I can take advantage.
In the short term, that means I have to sit with losses. Over the long term, though, I pick up bargain shares of companies I believe in. That ramps up my returns when I go to sell.
That’s all for this week’s mailbag.
If you have a question for anyone on the Legacy team, be sure to send it to [email protected].
Have a great weekend.
Regards,
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Chris Lowe
July 1, 2022