It’s Friday… which means it’s mailbag day at The Daily Cut.
This is where you send your questions to your favorite analysts… and we publish responses from them.
So if you have a burning question for Teeka Tiwari, Jeff Brown, Dave Forest, John Pangere, Nick Giambruno, Jason Bodner, or anyone else on the Legacy Team… send it to feedback@legacyresearch.com.
I’ll do my best to get you a reply.
Later on, you’ll hear from Legacy Research cofounders Bill Bonner and Doug Casey on a radical new way of understanding fiat currency systems – Modern Monetary Theory.
I’ll also report on one of the most eye-popping gains I’ve ever seen in a model portfolio here at Legacy.
It’s a 2,123% gain in 77 days on a “bitcoin stock.”
But let’s get started with some questions about another opportunity we’re excited about – SPACs.
SPAC stands for “special-purpose acquisition company.” You’ll often hear them called “blank check companies.”
They’re publicly listed companies with no commercial operations. They’re created and financed with one goal – take a private company public through a merger (sometimes called a SPAC IPO).
This effectively allows regular investors to buy into companies before they go public. And as wealthy venture capitalists and private-equity financiers have known for decades… this is the single best way to make money in the stock market.
Shares are still so cheap in these early stages… you stand to make maximum gains as the stock soars.
People often forget it. But buying at still-cheap levels is one of the surest paths to profits markets have to offer. It’s a mathematical certainty that the lower the price you pay to own shares… the higher your profits will be when you sell.
It’s why our tech expert, Jeff Brown, recently launched a new advisory, Blank Check Speculator. His mission there is to pinpoint, profile, and recommend the most promising SPAC investments.
But much like investing in cryptocurrencies, buying into SPACs involves a steep learning curve.
Instead of the familiar process of adding a company’s stock to your portfolio, you invest in “units” of SPACs.
These units then split into shares and warrants after the SPAC takes the target company public. Warrants may sound complicated… but basically, they give you the right – but not the obligation – to buy more shares at a certain price before an expiration date. You can use them to pick up exposure to moves in stocks for pennies on the dollar.
If you’re familiar with trading stock options, that may sound familiar. But unlike options, a company issues warrants directly. Warrants don’t need to be attached to a SPAC. And you don’t need any special permission in your brokerage account to trade them. All you need to do is click and buy, just like with any other stock.
One of Jeff’s readers wrote in looking for clarification about SPAC warrants. And although the answer is quite technical, it’s also one of the best descriptions of how the process works. So, if you’re interested in building wealth through SPACs, it’s worth your attention…
Reader question: I understand each SPAC IPO has a closing date. Do the warrants get issued after the offering closes? Once the IPO closes, if we buy the SPAC, will we still be issued the warrants?
Just want to clear this up so I can learn up to what date I can buy the SPAC you recommend and still be issued the warrants. Sorry for the confusion.
– Paul A.
Jeff’s response: Hi, Paul. Thanks for writing in. No apologies needed – SPACs are a new area of investing for most people. They are an asset class all to themselves. So I’m happy to help bring some clarity.
SPACs are one of the most exciting opportunities to make market-beating returns right now…
Last year, nearly half of all IPOs (initial public offerings) were SPACs. This year looks like it will be another record-setter. So far, 228 of the 283 IPOs that have taken place in 2021 have been SPACs.
In Blank Check Speculator, I recommend investing in what are known as “units” of SPACs. These then split into both shares and warrants. Think of the warrants as a bonus that can amplify our profits.
Let me break it down for you…
We buy our units after the SPAC IPO but before the units split into shares and warrants. Before the split, units are the only thing you can buy. This may vary slightly by broker… but you will know you’ve received your units if the ticker symbol has five letters in it or ends in “.U” or “/U.”
The SPAC will eventually file something called an 8-K with the Securities and Exchange Commission (SEC) announcing the separate trading of the stock and the warrants. This is when the units split into stock and warrants. The split is always announced within 52 days of the SPAC IPO.
We will not know precisely when during the 52-day window the units will split. This is why I encourage my subscribers to buy their units as soon as possible – preferably within the first few weeks that follow the SPAC IPO.
After the split, it’s usually possible to buy units, shares, or warrants. But I will not be recommending buying units after the split because trading volume usually drops considerably. And I won’t be recommending buying shares after the split because they will not come with our “bonus” warrants.
Many of these SPACs hitting the market aren’t worth our money. But my new advisory, Blank Check Speculator, helps folks find the best SPAC deals on the market. (If you’d like to join us, go right here to learn more.)
This brings us to a specific question on SPAC warrants…
In general, warrants are one of the most overlooked opportunities for folks looking to really move the needle on their wealth. But as Jeff alluded to, they give you “leverage” over certain stocks – meaning that when the stock price goes up, the warrants go up even more.
Over at our Strategic Trader advisory, Dave Forest and John Pangere have handed their readers the chance to make gains of 418%, 518%, and 964% on open warrant recommendations.
One reader got in touch with a related question about SPACs and warrants. John is standing by with an answer…
Reader question: Let’s say I have $3,000 to invest in a SPAC. Wouldn’t I make a larger profit buying only warrants instead of SPAC units or the stock? Is there any risk or downside to buying only warrants?
– Greg M.
John’s response: Hi Greg. This is a great question.
I can’t give you personalized investment advice. But I can give you a general idea of how we look at SPAC shares versus warrants in our Strategic Trader service.
Warrants can give you greater upside than regular shares in the SPAC can. They’re a leveraged bet on a rising stock price. But the downside of buying warrants is they could expire worthless.
Also, speculating with shares or warrants before a SPAC IPO is risky.
There’s a chance the deal falls through. There’s also a chance the SPAC doesn’t find a deal in enough time. (The time limit for SPACs is usually 18 months to two years.)
If they reach that limit, SPACs return the original investment to shareholders. But the warrants expire worthless.
That’s one reason that, at Strategic Trader, we focus on speculating with warrants from a SPAC deal after the IPO is complete.
There’s usually a honeymoon period that wears off after the IPO. That gives us the chance to pick up warrants on the cheap. That’s what led us to 4,942% gains on the warrants of online mattress retailer Purple Innovations (PRPL).
That was more than 11 times the return on the company’s stock over the same time. That’s how the leverage of warrants can work out versus buying the underlying stock.
Next, a question about Modern Monetary Theory, or MMT.
It’s an explanation of how the fiat money system works. I (your editor, Chris Lowe) believe it’s the best insight we have into what goes on at a nuts-and-bolts level.
You can find a great primer for free online from one of the guys who pioneered this way of thinking, Warren Mosler.
You can also learn a lot from MMT professor of economics Stephanie Kelton in a book called The Deficit Myth.
Essentially… MMT advocates point out that the U.S. government isn’t a currency user, like you or me. Instead, it’s the issuer of the U.S. dollar. So, although it could trigger inflation by creating too many dollars, it can never run out of them.
That’s where the theory runs into controversy…
Alexandria Ocasio-Cortez (AOC) and other progressive lawmakers in Congress use the MMT lens to justify bigger government spending on projects such as the Green New Deal.
And it’s piqued the interest of at least one reader…
Reader question: What do you think of Modern Monetary Theory? According to MMT proponents, the federal government can print all the money it wants, as long as inflation doesn’t get out of control.
They say that controlling inflation is mostly a matter of not printing more money than the resources and productive capacity that we have can handle. What are your thoughts?
– Steve D.
For insight, we turned to Legacy Research cofounders Bill Bonner and Doug Casey…
Bill’s response: MMT has become very popular after AOC proposed it as a substitute for common sense.
While logically coherent, the theory suggests governments can – and perhaps should – print as much money as they want, until something bad happens. Since a government can print the money to pay its debts, it never has to go broke. Therefore, the idea goes, debt doesn’t matter.
But the whole shebang rests on lies. Fake money. Fake interest rates. Fake “us vs. them” battles. Tax cuts without spending cuts. Social programs that we can’t afford. Military adventures that make us less safe.
There are those who go through life honestly – voluntarily giving and taking as best they can… and there are those who cheat and steal, or use the muscle of the government to get something for nothing.
That’s the “us vs. them” fight that really matters.
Doug’s response: MMT centers around the notion that the economy in general, and money in particular, should be the creatures of the State.
It’s not a new idea – the meme has been around in one form or another since at least the days of Marx.
MMT basically posits that the wise and incorruptible solons in government should create as much currency as they think is needed, spend it in areas they like, and solve any problems that occur with more laws and regulations.
It’s nothing new. Just a more radical version of the economic fascism that’s dominated the U.S. since at least the days of the New Deal. It’s just another name for an old, and very stupid, set of economic ideas. By stupid I mean, “showing an inability to predict the indirect and delayed consequences of actions.”
Politicians are now talking about the supposed benefits of MMT. Pseudo-economists are doing their abstruse and incomprehensible mathematical computations about how it might affect the economy.
The public will easily be convinced they’ll get something for nothing.
But what we should be talking about here is moral principle. It’s not a question of whether MMT will work or not work. It won’t. It will work about as well as the economic policies of Venezuela and Zimbabwe. Or Argentina, where I spend much of my time.
These schemes have never worked in all of history. They result in a vastly lower standard of living, along with social strife. MMT is about radically increased government control.
The argument shouldn’t be over whether MMT will “work” or not. The argument should be about whether it’s moral and proper for people in the government – whether elected or appointed – to print money to change the economy into something that suits them better.
Finally, kudos to readers of our Crisis Investing advisory who’ve been acting on editor Nick Giambruno’s “bitcoin stock” recommendations.
Folks who provide computing power… and audit functions… for the bitcoin network, the blockchain, are called miners.
Without getting lost in the weeds, they compete to solve complex math puzzles rewarded in newly issued bitcoin. The winner gets to validate a block – or group of transactions. In return, they earn 6.25 bitcoin as a reward. That’s $305,618 at today’s price.
There are now several publicly listed companies that mine bitcoin. You can buy their shares and profit from the rewards they’re taking in.
Take Argo Blockchain (ARB.L). It’s a British bitcoin mining stock Nick added to the Crisis Investing model portfolio on December 16, 2020.
On Wednesday, he issued an alert for his subscribers to lock in a gain of 2,123% in less than three months.
As you can see, that’s 16x the gain of bitcoin over the same period. So again, kudos to readers who followed Nick’s recommendation here. (Note that Argo is no longer an open recommendation. But you can go here to learn how to get in on future profit opportunities Nick identifies.)
Did you profit from Argo Blockchain… or another of Nick’s bitcoin stock recommendations? If you did, we’d love to hear from you.
As always, you can contact us with your thoughts and questions at feedback@legacyresearch.com.
Have a great weekend.
Regards,
Chris Lowe
March 5, 2021
Bray, Ireland