Inflation… Fed money-printing… hype… speculation… and “meme stock” madness…
Do these mean the mother of all stock market crashes is coming?
As you’ll see in today’s mailbag edition of The Daily Cut, our experts aren’t so sure…
Coming up, Jeff Brown reassures a reader worried about an impending crash…
Jason Bodner reveals how his unique stock-picking system spots the hidden buying signals of big money…
And amid a Chinese Communist Party crackdown on bitcoin, Teeka Tiwari reminds us that America is not China.
Before we dive in, if you have your own question for the team, email us at [email protected].
Now, let’s begin with that question for Jeff on the threat of a stock market crash.
Reader question: Hey Jeff, I’m a Brownstone Unlimited member and have thoroughly enjoyed your honesty and investment advice. Last year ended up being a great year for investing, and I’m glad I listened to your advice. This year, however, has been pretty darn tough so far.
If I’m being honest, Jeff… I’m VERY fearful right now and would love to hear your honest thoughts. As I’m sure you’ve seen, Michael Burry is calling for a massive correction in the stock market and in crypto.
We, of course, have already seen a pretty significant correction in the stock market and crypto… For me personally, the amount of gains I’ve missed out on by not selling is devastating. I highly value your opinion and I’ve trusted you so far. But Jeff… I’m extremely worried.
– Drew S.
Jeff’s response: Hi, Drew. Thanks for being a Brownstone Unlimited member. I’m glad you wrote in with your concerns about the state of stocks and crypto.
Michael Burry rose to fame after placing a massive “short bet” against the mortgage lending market when he anticipated that it was a house of cards.
The movie The Big Short featured his story a few years later, building his profile. Following that, Burry has made other noteworthy predictions, including his bullish position on GameStop (GME), which played into the short squeeze this past January that helped kick off the meme-stock boom.
And earlier this month, he shared another prediction on Twitter…
All hype/speculation is doing is drawing in retail before the mother of all crashes. When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries.
Drew, I actually share your concerns and also agree with Burry that there will be a large crash in the future. The only question is when. And this is where my thoughts probably differ from Burry’s.
The environment we have today is quite different from that of 2007. We don’t have the same absurd levels of leverage throughout the banking system. We’re not sitting on a house of cards like we were back then.
What we’re witnessing is completely irresponsible monetary policy and an administration that has committed to print and spend more than $15 trillion over the next few years. No country can do that without serious repercussions.
That said, with this much “free money” being injected into the system, conditions like we are experiencing now can continue for a long time before things get ugly.
That’s what I believe will happen. We’ll see a continued rise in inflation. We’ll feel that in our daily spending. We’ll see that in asset prices such as real estate. And we’ll be paying more for just about everything.
But that won’t cause a market crash. And there’s still a little more room to take interest rates a bit lower.
We’ll continue to see government stimulus and low interest rates, at least leading into the midterm elections. This is bullish for the equity markets.
So I predict we will see the stock market continue to rise over the rest of this year and even into 2022. The Fed has already made it clear it doesn’t plan to raise interest rates significantly until 2023, which is after the elections.
We’ll certainly see some volatility in the stock market with relatively small pullbacks. But I just don’t see the crash Burry is talking about in that time frame.
As a reminder, there are a lot of great things happening right now. In the U.S. and many other countries, the pandemic is over. Vaccines are widely available, and more than 3 billion shots have already been administered around the world.
We’re experiencing a strong economic recovery post-pandemic. Everyone is getting back to work. I see the fall as a real turning point. That’s when stimulus checks will end, and the labor force will return in full back to pre-pandemic levels. This will increase consumption and spending.
And as I mentioned before, with low interest rates and continued stimulus in the form of trillions of dollars, the economy will continue to move. And the stock market will remain strong, too.
As for cryptocurrencies, we should expect higher levels of volatility there than we do in the stock market.
There has been way too much speculation in the crypto market over the last several months. So this correction is natural. In fact, I’d be worried if it didn’t happen.
If we see a further drop, I would look at that as a great buying opportunity. The industry is building the next generation of the internet and of the financial services industry.
These developments are radical and exciting. They will take years to unfold. We’re still very early in this process, and there are so many more incredible investment opportunities to look forward to.
The levels of investment in the blockchain industry continue to increase. This is bullish for the industry as a whole.
I promise my subscribers that when I feel things are about to get ugly, I’m going to let everyone know. I just don’t see it right now.
One final point…
If we have a healthy diversification of assets, have a balanced portfolio invested in great companies and projects, maintain rational position sizing, and invest only at a level of risk we’re comfortable with… we can maintain a sense of calm when it comes to our investments.
If we’re having a hard time sleeping at night, we probably haven’t achieved that.
Switching gears, a question for Jason Bodner.
The picks he’s made in the model portfolio at our Outlier Investor advisory have handed his readers the chance to make returns of 262%… 346%… and 358%.
I (Chris Lowe) call Jason our “billion-dollar trader.” That’s because he was one of the only guys on Wall Street authorized to make billion-dollar trades. Now, at Outlier Investor, he uses algorithms to track big-money buying.
I’m talking about buying by some of the richest, smartest investors in the world. Today, one of his readers wants to know more…
Reader question: Hi, Jason. I love reading your weekly Saturday essay in The Bleeding Edge. As a Brownstone Unlimited member, I plan to gradually build a portfolio of outlier stocks you recommend.
I do have a question: How can your system tell whether there is more buying or selling? In my humble opinion, for every trade, an equal amount of stock is sold by someone and bought by someone else.
– Frank D.
Jason’s response: Thanks for the kind words! Building a portfolio of outlier stocks is how I have built and continue to build my wealth – so I’m confident it’s the winning recipe for me over the long run.
As far as telling when there’s more buying than selling… that’s a great question. Your opinion is correct, but it’s only like a snapshot at any given moment.
What I mean is this: If 1,000 shares are offered at $100, and someone wishes to buy 1,000 shares, that’s parity. Things are equal in terms of buying and selling.
But if buyers want 1,500 shares and only 1,000 are for sale, only 1,000 still trade at $100. But there’s a remaining bid for 500 shares.
Imagine now if buyers want 10,000 shares, but there are only 1,000 to sell. Only 1,000 trade, and buyers must continually pay higher prices to trade more quantity.
So you’re right. At any given moment of a trade, buyers and sellers are equal. But over time, the balance of potential buyers to actual sellers still pushes prices up or down.
We wrap up today’s dispatch with a question for crypto expert Teeka Tiwari…
He first recommended bitcoin (BTC) to his readers in April 2016. Since then, it’s up 7,747% – enough to turn a $1,000 grubstake into $78,474.
Yesterday, he revealed his next big trade – one outside the crypto space – to a live audience of more than 22,000 people. (You can catch the free replay of that here.)
Below, he shows why there’s no reason to worry about the future of bitcoin in the U.S…
Reader question: Teeka, what are the chances that cryptos will drop to zero and disappear? What if the United States decides to ban all crypto in an all-out war with China and the rest of the world for currency domination?
– Heeje Y.
Teeka’s response: Thanks for your message, Heeje. The Chinese Communist Party is cracking down on bitcoin and banning bitcoin mining. People are afraid that what’s happening there will happen in the U.S. too.
But that doesn’t make any sense…
Ask yourself why the U.S. would cut off all the fiat on-ramps and off-ramps to bitcoin. It’s not run the same way as China – a one-party state.
The U.S respects property rights, for a start. Do you think it’s rational that the U.S. would all of a sudden do this complete turnaround and ban access to these assets?
And do you think this makes sense after the Securities and Exchange Commission (SEC) has let cryptocurrency exchange Coinbase (COIN) go public at a $50 billion-plus valuation?
Or after the SEC and all the regulatory agencies have allowed Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM), and Citigroup (C) to offer bitcoin funds to their clients?
Or after MassMutual, the oldest insurance firm in the country, added bitcoin to its balance sheet?
Or after the Office of the Comptroller of the Currency, a part of the U.S. Treasury Department, has ruled that banks can custody crypto assets?
No. The U.S. is not China. This is not an authoritarian regime, where, at the stroke of a pen, you can cut off hundreds of billions of dollars’ worth of business.
As new participants come into the bitcoin network, they defend it. Now, big banks and financial institutions are trying to get into bitcoin. They’ll have a vested interest in protecting the network, too.
The idea that the U.S. is going to ban bitcoin doesn’t make sense. We’ve already crossed that event horizon. It’s not going to happen.
We may see more crypto regulation in the U.S. But that regulation needs to be in place if you want to see this become a mass-market asset.
Right now, crypto is still a niche asset. One hundred million people are in it. More than 500 million people own stocks. And there are more than 7 billion people on the planet.
For bitcoin to go mainstream – and I believe it will – we’ll need some regulation. That’s happening now. But it doesn’t mean the death of bitcoin.
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.
July 9, 2021