Welcome to the weekly mailbag edition of The Daily Cut.
Each week, you and your fellow readers write in to feedback@legacyresearch.com… and we put your most burning questions to our team of analysts here at Legacy Research. And every Friday, we publish their answers.
Coming up today, geologist and commodities expert Dave Forest on the power of stock warrants… our “billion-dollar trader,” Jason Bodner, on secretive parts of the market called “dark pools”… and more on the gold versus bitcoin controversy that’s been raging in the mailbag of late.
But first, colleague and world-renowned crypto expert Teeka Tiwari tackles a recurring concern: Will governments be able to destroy crypto?
Reader question: What would stop governments from making crypto illegal? It seems to me no asset is guaranteed against a rogue government. Is there any way to be truly safe?
– James D.
Reader question: Do you know if U.S. banks or government will try to prohibit the use and profitability of bitcoin, or in some way make it a losing investment?
– Virginia J.
Reader question: What are your thoughts about the risk of governments shutting down bitcoin and other cryptocurrencies because they see them as competition for their own digital currency plans? If that happened, the crypto market could crash.
– Richard G.
Teeka’s response: I’ve been recommending cryptos to my readers since April 2016. That’s back when you could buy one bitcoin for about $400. Today, it trades for nearly $60,000. And I can’t tell you how many times I’ve gotten this question…
Bitcoin’s strength stems from the fact that it’s a decentralized network. And decentralized networks, by design, are very hard to kill.
Each “node” – or computer – in the bitcoin network retains a copy of the blockchain ledger. That’s the record of all bitcoin transactions. It shows who has how many bitcoin.
The bitcoin blockchain has 11,558 nodes across the world. So to kill bitcoin, a government would have to shut down every node. That’s impossible.
These nodes are in scores of countries. It would take a concerted international effort – costing billions of dollars in resources and manpower – to even attempt to destroy bitcoin. If even a single node survives, the whole shebang can restart.
China, as you probably know, has one of the more repressive governments in the world. It has its Great Firewall of China – the technology it uses to censor the internet – and extreme intervention in its society.
The Chinese government has tried to ban bitcoin. But it couldn’t kill it. Bitcoin trading still flourishes there.
Russia, Vietnam, and Colombia have also tried and failed to ban bitcoin. Now, India is threatening to ban bitcoin. If it does, it will fail, too.
Governments never liked crypto. They still don’t. Big whoop. We’ve been dealing with that for almost six years – while adoption of crypto is growing at a record pace and prices keep rising.
Next up, a question on stock warrants. If you watched my colleague Dave Forest’s recent presentation about these little-known securities, you’ll know they’re one of the best “asymmetric bets” we’ve ever discovered.
They allow you to bet on stocks shooting higher, and require putting down only a small amount of money.
The results can be jaw-dropping. Dave’s recommendation of an EV charging company’s warrants gave readers the chance at gains of 2,805% in a little more than a year and a half. And his recommendation of a mattress company’s warrants handed readers the chance at gains of 4,942% over about the same amount of time.
But not everyone is convinced these investments have a bright long-term future…
Reader question: I saw your presentation, but it leaves a big hole… perhaps. Every example of making money with warrants is based on the price being cheap and going up a lot to make huge percentage gains of profit.
What if the bull market dies, and the stock market goes sideways and/or down for years? Are warrants good only in a bull market?
– Michael D.
Dave’s response: Hi, Michael. The great thing about warrants is we can use them in just about any type of market.
You’re absolutely right. One day this bull market will die. But as the old saying goes, there’s always a bull market somewhere.
A good example is the recent market turmoil caused by rising Treasury bond yields. A lot of companies, especially in the tech sector, sold off when the yield on the 10-year Treasury note spiked at the start the year. That’s because higher yields mean a higher rate at which investors discount future earrings.
Rising yields are also a sign investors are worried about inflation. And inflation expectations are now at their highest level since July 2008.
The thing about inflation is it tends to be good news for commodities such as oil and gas. We can see that in the price of a barrel of West Texas Intermediate (WTI) oil. It’s up more than 25% so far this year.
Meanwhile, the tech-heavy Nasdaq is up only 6% this year. And at one point in February, after hitting an all-time high, it sold off 10%. Over that time, oil surged to a one-year high.
So although warrants of tech-related companies sold off, warrants of oil and gas companies surged.
That’s the beauty of owning a diversified basket of warrants, as we do at Strategic Trader. Even as one sector falls, another sector is making new highs.
We can play almost any market scenario with warrants.
The next question is for our “billion-dollar trader,” Jason Bodner.
He was one of the few guys on Wall Street authorized to make trades worth $1 billion… and up. He now helps his subscribers profit in the stock market using a strategy he developed after he quit his trading job.
And he’s been knocking it out of the park in the Outlier Investor model portfolio. His top three open recommendations are up 331%… 370%… and 1,385%.
The average gain across the 22 open recommendations in the model portfolio is 133%… with the longest holding time at 30 months.
Today, one of his readers taps Jason’s insider knowledge of Wall Street with a question about “dark pools”…
Reader question: I keep hearing about the “dark pools” in the market. These are supposedly huge hidden trades that really show how big money moves behind the scenes. Is this newsletter hype? Or are these pools worth tracking?
– Don B.
Jason’s response: Don, thank you for writing in.
Think of “dark pools” as prearranged algorithmic secret meeting places where big accounts go to trade stocks. Yes, they’re a thing. Yes, they happen all the time. Big accounts want to stay anonymous.
Why the secrecy?
Say I’m a big hedge fund manager. And say I tell the world I’m buying a stock before I’ve bought it. Everybody else is going to pile in. That will push up the price on me before I can complete my order.
I could be buying hundreds of millions… even billions… of dollars of stock. That takes time. So it makes sense to keep it a secret.
Part of keeping it a secret is dark-pool technology. If you manage a ton of money, you can enter in a buy order using this tech. Nobody sees it. But if someone happens to have entered a matching sell order, you get paired off, and you execute the trade.
Is it newsletter hype? Well, dark pools are a secretive technological way of trading. It’s very behind the scenes. So I can see the mysteriousness of it all.
Finally, the gold versus bitcoin debate continues to rage in the mailbag…
As regular readers know, Teeka says gold is no longer doing its job in guarding against inflation. So he recommends his readers sell some of their gold and buy bitcoin instead.
Teeka compares the transition from gold to bitcoin as a store of wealth with the transition from the horse and buggy to the automobile at the start of the 20th century. Here’s how he put it recently in these pages…
Gold has thousands of years of history. Bitcoin has been around for only a decade. I get it. But people also used horses to get around for thousands of years. Then, in less than a decade, cars rendered horses obsolete.
It’s not hard to imagine bitcoin replacing gold in the same way. One study from deVere Group, an independent financial advisory organization, revealed that more than two-thirds of millennials prefer bitcoin over gold as a safe-haven asset.
They function similarly and offer many of the same benefits. Bitcoin is equally scarce, durable, and private as gold. But it’s more easily stored, transported, and exchanged than gold. That makes gold the horse… and bitcoin the car.
This triggered a flood of feedback – both for and against Teeka’s big idea.
What do you own when you own bitcoin? There’s nothing there! A large amount of electrical power was wasted to create it, and more power to store and retrieve it. When gold is mined, there is something of beauty and utility available for future use.
– William R.
Gold versus bitcoin is a fool’s trap. Gold has served as money for millennia because of its scarcity and usefulness. What can you produce with bitcoin?
With all the people buying into an unproven new form of money, it’s obvious “Tulip Mania” is recurring. Once the bloom is off the bulb, I wonder who the last fool will be.
– William C.
Clearly the last year has shown a lack of confidence in gold as the premier safe haven for wealth in troubled times. But gold will always retain some of that safe-haven niche.
Suppose in a dystopian world, the internet goes down, becomes inaccessible, or is totally controlled by totalitarian statists. How would one access bitcoin?
We all may face such a time lamentably soon. The only way to survive will be to access the stash of gold and silver coins prudently laid aside for such a disaster.
– John P.
I’m 67 years old, and I own both. I began buying gold back in 1998 and silver in 2010, and I’ve continued adding to my stash.
I hesitated for a year after Teeka recommended bitcoin and ether. In 2017, I jumped in with both feet. Other than a few missteps, where I’ve managed to lose crypto or have crypto stolen, it’s been a solid investment for me – I’m up around 700% to date.
I’m going to continue owning both unless I see a reason to change.
– Jim T.
I have doubts with respect to the future risks of bitcoin versus gold.
Intuitively, gold feels less risky. Maybe I’m paranoid, but I cannot forget the warning that when something seems too good to be true, often it is!
– John H.
Is gold the only real money? Why shouldn’t money be completely assimilated into the digital world? After all, private banks have been creating “real” money with keystrokes for decades. And central banks have been creating “fake” money in the same way for just as long.
At the end of the day, all value is about perceptions, not reality. Occasionally, the two collide in spectacular fashion. It will be so for cryptocurrency, but no one will need “wheelbarrows” to haul it around. And it won’t keep anyone warm by the light of its fire.
– Brien A.
When the bottom drops out of crypto, the guy holding the bag will be crowned the fool. The trick will be getting out while the going is good!
– Mike R.
That’s all for this week’s mailbag.
Remember, if you have a question for anyone on the Legacy team, be sure to send it to feedback@legacyresearch.com.
Have a great weekend.
Regards,
Chris Lowe
April 2, 2021
Barcelona, Spain