Welcome to the Friday mailbag edition of The Daily Cut.
It’s where we field questions from you about the big ideas we’ve been sharing… and get answers from your favorite analysts.
As always, you can write us at feedback@legacyresearch.com with your questions.
This week, we have answers on cryptos and gold.
But first… a question about a theme we haven’t talked about in a while – the wave of cannabis legalization sweeping North America.
After taking a battering over the past year or so, cannabis stocks are one of the most interesting speculative opportunities right now.
As we showed you, cannabis businesses are booming in the age of COVID-19.
Many cannabis retailers are seeing boosts in online sales and offering delivery services during the pandemic.
For example, dispensaries in California, Oregon, and Maryland have reported over 100% gains in delivery revenue since the pandemic began.
This is no big surprise. These are trying times. Studies show cannabis relaxes you… helps with sleep… and even combats anxiety and depression.
That’s all helpful when your world is tossed upside down… and you’re confined to your home.
And while most businesses have closed their doors indefinitely, states such as California, Illinois, and Colorado have deemed cannabis businesses “essential.”
So they’re staying open… just like grocery stores and pharmacies.
I (Chris) can sympathize. I haven’t been sleeping well during the lockdown. I recently bought CBD drops to help. They seem to have worked. So I’m now going to buy some for my father, who’s also having trouble sleeping.
CBD is one of the 113 known chemical compounds in cannabis. It doesn’t get you “high.” So it’s 100% legal. It’s mainly extracted from a type of cannabis plant called hemp.
Next up, one about another of the profit themes we track for you – the rise of the crypto economy.
Reader question: My basic understanding is that mining supports the crypto system. Miners solve the problems and add blocks to the blockchain and are rewarded for this.
What happens down the road when all 21 million bitcoins [the supply cap] have already been mined? What will run the system at that point? It seems nobody will do it. Mining is expensive. And when there is no more coin to be mined, there are no more rewards. Not sure I’ve ever seen this addressed anywhere.
– Mel L.
Teeka’s answer: Hi Mel, that’s a great question. The short answer is that miners will continue to run the network when all the bitcoin are mined. Transaction fees will be the incentives.
Right now, when miners verify a “block” – or group of transactions – they earn a reward of 12.5 newly created bitcoins (BTC) and fees from all the transactions associated with that block.
Over time, transactions will grow as the network grows. This means transaction fees will replace the reduction in mining rewards.
Right now, the 30-day average reward per block is 1.26 BTC. In 2014, it was 0.32 BTC. In 2010, it was less than 0.01 BTC. So you can see miners are earning more in fees over time on average.
In 2036, 99% of the bitcoin supply will be issued. By then, miners will primarily be earning bitcoin from fees from block rewards. Hope that clears up any confusion for you.
Next up, a question on our favorite precious metal here at the Cut… gold. In particular, gold mining stocks.
As I’ve been showing you, gold mining stocks give you leverage – or extra oomph – over the price of the physical metal.
Here’s why… When the price of gold rises, miners’ profits go up… but their costs stay the same. That’s rocket fuel for any business because margins explode higher and more revenues drop to the bottom line.
But as you can see from the chart below, gold mining stocks fell 36% in March as stocks tanked before recovering.
And one reader is wary of another drop. So I reached out to our globetrotting rock hound (geologist), Dave Forest.
Dave heads up our International Speculator advisory, where he recommends a portfolio of gold and precious metals stocks.
Reader question: Hi Chris and gang. Really, really appreciate you guys. Will gold stocks sink as deep as they did in March if we have another crash?
– Daniel L.
Dave’s answer: There’s a good chance gold stocks could go as low as the March low… or lower… over the next 12 to 18 months.
If there’s another market panic, investors will sell everything they can. Gold stocks won’t be immune. Does that mean you should steer clear of gold stocks?
I don’t think so…
This year’s crash showed that gold stocks are resilient. In March, gold mining stocks got hit as hard – or harder – than the broad stock market. But by April, they’d recovered to pre-crash levels. Many of them are much higher now.
My recommendation is to keep some cash available to buy during the pullbacks. One gold stock I added to the model portfolio at International Speculator at the depths of the March sell-off has gained as much as 84% in just over a month so far. That’s some of the fastest money in the markets.
Look back to the 1930s. That was when the last economic depression hit. Gold stocks soared after the markets and the economy tanked. Some folks got through those hard times on the profits they made investing in gold stocks.
Finally, in yesterday’s dispatch, we brought you messages from readers of Jeff Brown’s tech-focused e-letter, The Bleeding Edge.
They were responding to Jeff’s reporting on how Google wants access to all your health records. They were gravely concerned. And they weren’t the only ones…
There is no democracy without privacy rights. This development is unacceptable. Our data is being stolen. What happened to respect for the individual? This erosion of rights needs to stop.
– Marianne I.
I have zero trust in Google. Our medical information is ours and should not be offered ever to anyone without express permission from us. The love of money is the root of all evil, and Google loves what power and control it brings!
– Elizabeth S.
Violates my privacy. I would rather fill out forms and tell the doctor what I want them to know. Another scary intrusion into my life by technology.
– Gary H.
I think this is a dangerous idea. I would not be able to control who could see my confidential medical records without my consent. Who else would be able to access my records? Not a good move on Google’s part. I vote NO!
– Rafaela W.
Google is a known enemy and ALWAYS abuses data to the detriment of its victims. The best direction of attack is through those who supply its data.
– Matthew R.
I would not trust Google to give me the correct time of day if we were both standing in front of Big Ben. It is an outrageous company, and it is totally out of control.
– Jerry S.
I have absolutely no trust that Google – or any of the other big tech firms – can do this in a way that does not compromise our privacy. Nor do I trust the government to do this. I certainly agree this is a problem worth solving. But before we go down a path of giving untrustworthy organizations all our data, we need to find a more secure way to do it.
– Henry M.
It’s outrageous. It’s more of the same and business as usual. And the cat’s pretty much out of the bag, so there’s probably little we can do about it. Sadly, because it’s Google, it will be competent and efficient. At least when the government was doing it, the feds couldn’t find their asses with both hands, so we were safe.
– Roger A.
Do you trust Google with your health records? Have you read our advice about “going dark”? (Catch up here.)
Write and let us know at feedback@legacyresearch.com.
Regards,
Chris Lowe
May 1, 2020
Dublin, Ireland
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