Welcome to your regular mailbag edition of The Daily Cut.
Every week, we send your most pressing questions and comments to our “brain trust” of experts here at Legacy Research.
Then on Fridays, we share the team’s responses.
As longtime readers know, our job is to spot market megatrends early on – so you can really move the needle on your wealth.
We do that by plugging you into the latest big ideas from Jeff Brown, Teeka Tiwari, Dave Forest.… and the rest of the Legacy Research team.
So if you have a burning question to put to any of them, let us know at [email protected].
Coming up, Jeff tackles a reader’s concerns about Google (GOOG) spying on us… and offers some privacy-focused alternatives.
And Teeka weighs in on the scandal surrounding stablecoin Tether (USDT).
First, we turn to one of our favorite positive asymmetric investments – stock “warrants.”
As regular readers will know, a positive asymmetric investment is one where the upside potential greatly outweighs the downside risk.
Here’s Casey Research founder Doug Casey on why that matters:
If you risk $1 for the chance of making $20, you’re making an asymmetric bet – especially if the odds are very good you could be right.
Amateur investors too often risk 100% of their money in the pursuit of a 10% return. These are horrible odds. But the financially and statistically illiterate take them. You might do better in a casino or most sports betting. It’s one of the key reasons most people struggle in the market.
Here at the Cut, we want to help you avoid those “horrible odds,” to borrow Doug’s words… and put the best positive asymmetric investments on your radar.
And warrants fit the bill for positive asymmetric investments perfectly…
Without getting into the weeds, warrants are similar to call options. They give you the right to buy a stock above a set price for a pre-agreed length of time (usually a much longer time until expiration than options).
Warrants are easier to buy than options… as you generally don’t need to get a special approval with your brokerage account.
And they allow you to invest in a company and get full exposure to gains in its share price without investing as much as you normally would in regular shares.
And when warrants pop… they really pop.
Colleagues Dave Forest and John Pangere recommend warrants at our Strategic Trader advisory.
They’ve given their readers the chance to close gains of 329%… 2,805%… and even 4,942%. And the top open recommendation in the model portfolio is up 1,437% since they recommended it in July of 2020.
Now, one reader wants to know more about the “strike price” – the price above which the warrant buyer has the right to buy the underlying stock.
Reader question: How do you find out what the strike price is for a warrant?
– Scott E.
John’s response: Hi Scott. In most cases, you should be able to get the strike price from your broker. But Dave and I have found that sometimes brokers – and even expensive tools we use such as Bloomberg – don’t always have the right information on warrants. That includes the strike price.
So the best way to find that information is directly through company filings. We always double-check for every warrant we track what the strike price, expiration date, and other information is by pouring through company filings.
The strike price tells you more about a company than you may think. For instance, if the strike price is $11.50, the company most likely was a SPAC listing.
A SPAC is a special purpose acquisition company. It raises money and then goes out and takes a private company public. In the process it issues warrants.
That’s how we spotted warrants of online mattress company Purple Innovations (PRPL). We got into the warrants after the company merged with a SPAC. Our readers cashed out with a 50x return in just under two years.
Now on to that question about U.S. dollar stablecoin, Tether…
A stablecoin is a cryptocurrency that is pegged, one for one, to a government currency. In the case of Tether, that currency is the U.S. dollar.
The idea is to have a cryptocurrency that doesn’t fluctuate in value too much relative to national currencies.
For every digital USDT coin it issues, Tether is supposed to hold $1 in reserve, in the form of safe assets such as U.S. Treasurys.
But regulators say stablecoins could be vulnerable to the equivalent of a bank run if large numbers of investors suddenly rush to redeem their USDT coins for actual dollars.
And there have been persistent questions over whether Tether has enough dollars to back its coins.
Some of Teeka’s readers are getting worried this means more regulation for stablecoins – and possible trouble for crypto in general…
Reader question: A well-known investment advisory agency is stating that the SEC [the Securities and Exchange Commission, the main U.S. stock market regulator] is about to regulate stablecoins, since they’re based on the U.S. dollar.
If that happens, and stablecoins like Tether collapse during a market crash, would that bring down the entire crypto market?
– Don R.
Reader question: Can Teeka comment on the suggestion that bitcoin and all other cryptos will suffer a huge meltdown due to regulators looking into Tether? Will they be deemed illiquid, and will that create massive outflows in crypto space?
– Philip C.
Teeka’s response: I’ve been getting questions on Tether since 2017. These are usually over concerns about articles suggesting there are enormous problems with it that threaten stability in the crypto market. And I get those concerns.
I’ve never been a fan of Tether. I’m not a fan of most stablecoins because they can be quite opaque.
With Tether, each USDT coin equals $1. Tether is supposed to have a dollar in cash for every USDT coin it mints. But I don’t think it has enough dollars in reserve to cover the USDT in circulation.
In the past, there have been more USDT coins than dollars to back them. Bad actors have absolutely used these new coins to manipulate prices of cryptos. And there’s a fear that if Tether collapses, it will collapse the whole cryptocurrency market.
All the USDT in circulation are now worth a total of $68 billion. If Tether collapses, or if it comes out that it’s a fraud, there’s no question about it – crypto prices will fall across the board. By a lot…
Will it be the death blow of crypto? No, it won’t. It will be just another sell-off we have to endure along the road to crypto going mainstream.
As for regulation from the SEC or other government agencies… Any time you have a new asset class come along you’re going to have bad actors. You’re going to have fraud. So regulation that doesn’t stifle innovation makes perfect sense.
I don’t think it makes sense to have a completely unregulated asset backed by God-knows-what grow to be worth nearly $70 billion.
With that in mind, be careful with stablecoins. They’re useful for moving funds around in a quick way, without exchange-rate fluctuations. But using Tether is like putting money into a bank that is not FDIC insured. You could lose everything.
To wrap up, a question about another of the big themes we track for you here at the Cut… the rise of a digital surveillance state.
A question came in for our tech expert, Jeff Brown, about privacy-focused search engines…
Reader question: Hello, I’m a Brownstone Unlimited member [Jeff’s top membership tier], and I love the service. I really appreciate the frequent communications that we get from you. In the past, you’ve recommended a couple of search engines that are more private than Google. Can you mention their names again? I think I’m ready to make a switch.
– Frank B.
Jeff’s response: Hi, Frank. Thanks for being a Brownstone Unlimited member and for writing in.
Google’s convenience means it’s difficult for people to detach from its services. It has burrowed deep into our lives… extracting as much personal data as it can from us… and then selling it to the highest bidder.
If you care about privacy, it’s critical to move away Google and Facebook (FB) – another huge data harvester. I’m glad to hear you’re interested in making the switch.
There are several great options.
The first is DuckDuckGo. It’s a search engine that doesn’t track you or harvest your data. And its search results are close to being on par with Google’s.
The second is from a company called Brave Software.
Brave’s browser is a privacy-focused browser. It strips out ads from the websites you visit. Instead, it allows you to pay content creators directly for their content in cryptocurrency called Basic Attention Token (BAT).
And in June, Brave announced it was testing a privacy-focused search engine, Brave Search.
Brave Search is still in beta mode. It’s still working out kinks and bugs. But it’s available at search.brave.com.
Another option is Neeva.com. It’s a search engine that doesn’t serve you ads. It doesn’t harvest your data. And it doesn’t store information on you. It’s focused completely on privacy – just like Brave.
Neeva costs $5 a month. That may seem like a lot if you’re used to “free” search engines. But remember, these aren’t free. You’re paying with your data. They’re only “free” because you agree to be spied on.
And Neeva pledges to share 20% of its revenues with the most popular content producers that show up in its search results. That could help it attract a lot of interest. Because it further differentiates it from Google, which doesn’t pay a penny to content producers online.
Any of these options means more privacy online. I hope they eat away at Google’s market share.
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 [email protected].
Have a great weekend.
Regards,
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Chris Lowe
October 1, 2021
Barcelona, Spain