There’s the stock market. And there’s the market of stocks.
When people think of the stock market, they think of the Dow and S&P 500 Index. Really that’s only 5 stocks — Apple, Amazon, Google, Microsoft and Facebook. That’s because the indices are weighted by market cap.
People will judge the overall economy based on the performance of these 5 stocks. But that’s wrong.
We’ll tell you what index to watch for a clear picture of what’s really happening in the Fourth Industrial Revolution.
You’ll see what stocks will be the first to rebound. (Check out our rebound stock strategy here.)
And there’s a group of stocks that will replace the old, send the Dow soaring to 100K and put money in your pocket if you invest today:
Apple’s Days Are Numbered
Given the market action yesterday and the general mood, people want us to talk about the stock market. I hope you are ready. As you have seen, any time we bring up the stock market we are forced to bring up Apple stock.
There’s a lot of feeling about Apple stock among our viewer base on YouTube and among our subscriber base on Bold Profits.
We have gotten a lot of criticism over what we have said about Apple, which is that their days are numbered as far as their stock going higher. I have never seen that much push back on any stock, Maybe Tesla will get you some hate in the comments if you say anything good or bad about that.
I have seen so much on Twitter about Apple. People are getting into arguments about if it’s topped out. If you say you are doing anything wrong you are getting slammed.
Paul put up a tweet saying “I know people disagree with my view on Apple but it’s my role and Ian’s role to give you our sense and understanding based on the facts as we see it, rather than find a way to agree with what you think. We’re not trying to be contrarian for the sake of being contrarian on Apple.”
We laid out in the Death Star video on Apple a plausible case based on real facts and real evidence as to what is unfolding at Apple with respect to its stock and buybacks. Then there’s anecdotal commentary out there about whether or not Apple is doing anything with their business.
It’s strange to see a company worth $2 trillion mostly fueled by their own buybacks and Warren Buffett. It’s all about supply and demand. When the demand runs out, the two main sources of demand were Apple itself and Warren Buffett.
I don’t think Warren Buffett is buying much anymore and the buybacks have to stop at some point. It’s tough to see who will pick up the demand, which would not be good for the stock price.
There’s two other things I wrote in my tweet. There must be a way for people who disagree on Apple or any other stock to disagree without animosity. The idea that I am required to agree with anyone’s view on Apple — listen, it’s just our view. Apple is a near $2 trillion stock.
Anything we say with the viewership we have on YouTube has zero impact on the stock. The idea that we are putting out these videos to try to move the stock is impossible. This is probably the world’s biggest stock. The liquidity is in the hundreds of billions of dollars.
The idea we can do anything to influence Apple is genuinely laughable.
I take it as a compliment. They think we’re that big.
The Dow: An Irrelevant Representation of the Stock Market
Another reason we brought up Apple is that it leads to a bigger issue. The idea that the stock market versus the market of stocks. I am going to lay out what the media talks about and what people think of as the “stock market” and why this matters.
People talk about the stock market as it being the Dow, which is a price-weighted index. In other words, the stock prices move around a great deal it can be bounced around a great deal. It’s a naïve, simplistic way, but for a long time it did capture the economy and the direction of many companies.
However, I would say the Dow today is almost completely irrelevant.
You see it being pushed around and these headlines about the Dow dropping 1,000 points. The companies in there, for the most part, are archaic technology that is not in the leader position in any industry anymore.
The second thing considered to be “the market” is the S&P 500, which is a basket of 500 of the largest companies that trade in the United States. If you look at the top five, it’s Apple, Microsoft, Amazon, Google and Facebook. These five companies represent nearly a quarter of this index.
In other words, five companies represent nearly 25% and the remaining 495 companies represent 75%. The vast majority have weights of 0.3% or 0.6%. Apple is at 6%. Microsoft is also somewhere near 6%. Then the others are 3% or 4%. The S&P 500 is swinging around based largely on the price movement of five companies.
Yet, people make judgments about our economy, our markets, the financial health of the country and sometimes the world based on these movements.
One way to distinguish that from the actual market of stocks — by that I mean all stocks in general. One way to distinguish what’s going on in the S&P and the market as a whole is by looking at the equal-weight S&P. The ticker for that is RSP.
Yesterday, for example, the market-cap-weighted S&P was down half a percent more than RSP. That’s a clear effect of those five companies having a drag effect on the overall index. When people see that the indices are red, they might panic sell other stocks that aren’t affected at all.
There are also algorithmic traders that will make a program to say to sell if the S&P is down whatever percent. It can have an effect on the smaller stocks when it’s happening, but when stuff starts to rebound those equal-weighted versions of the indices are going to rebound first and that’s what we saw yesterday.
The Nasdaq Composite is Also Irrelevant
This viewpoint of the market and the dominance of these five stocks extends to the Nasdaq Composite, the Nasdaq 100. But it does not extend to small-cap indices and mid-cap indices. We would tell you there is going to be a fracturing moment in terms of perception where the Dow, S&P 500 and the Nasdaq Composite.
Even though the Nasdaq Composite does have more representation in terms of America 2.0 companies and Fourth Industrial Revolution companies, they are all still dominated by these five companies. People will stop viewing these things as being representative of the market for stocks and of stocks.
When all that money flows out of the big five stocks, that’s hundreds of billions of dollars that’s come out of those companies over the past couple months. Really the stock split of Apple was the top for a lot of these.
Since then, hundreds of billions of dollars has come out of these companies. That’s what is going to fuel the smaller companies. All that money has to go somewhere. There’s really not better opportunity than high growth, innovative companies.
We are seeing every industry being disrupted and that’s where we believe that money is going to go. That’s why we call it the Apple Death Star. They are basically indirectly funding smaller, innovative, higher-growth stocks.
I went back and have done this work a few times. Apple announces a stock split on July 31 and the split happens on September 1. A day later is when Apple peaks and when the S&P 500 peaks. The Nasdaq, because it does have a higher semiconductor representation, is able to continue higher even though it has Apple, Microsoft and others.
There are others in the Composite that can carry it to new highs. However, given that S&P 500 is currently constituted with the big five, then there’s the issue of the S&P 500 and the Dow really being dominated by so many sectors that have no hope. They are done.
America 1.0 Companies Comprise the Dow
For example, yesterday I put up a tweet saying since the peak in July 2014, ExxonMobil stock is down 60%. You can do something like that for Wells Fargo. I believe in the next one, two, three years you will be able to do that for other banks as well. You will see them go through this waterfall decline.
There is no bid anywhere near the current prices for that stock and you have to keep being willing to take lower and lower prices, which is what creates that waterfall effect. If you look at stock prices of ExxonMobil, Wells Fargo and, over time, many other companies represented in the S&P 500, you are going to experience that.
To put that in perspective, Exxon was the biggest stock in the market just seven years ago. Now I don’t think they are in the top 20 or 25. It can change very fast. The beginning is always a slow melt down and then it just takes one big selloff to make these companies irreversible because they are being disrupted so much.
The same thing happened with GE. They were at one time the biggest stock in the market. I believe they are still in the Dow. They have basically flatlined since they made that big drop.
GE was thrown out of the Dow a couple years ago. Nonetheless, you can go through the Dow and the best companies there are Apple and Microsoft. I believe Salesforce is also in there and it is an America 2.0, Fourth Industrial Revolution company. However, the rest of it is very America 1.0.
It’s really, really, really America 1.0. Some of you who have watched my America 2.0 presentation may be wondering, “Paul, you said the Dow was going to go to 100,000.” Well, the truth is the Dow’s constitution changes over time. If you go back 30 years ago the Dow was made up of completely different components than what currently exists.
Future Dow Companies
We are expecting over time you will see companies that today are probably in the higher end of mid or maybe near large. Companies like Nvidia should be in the Dow.
FThere are so many that are hundreds of billions of dollars that aren’t in the Dow and they are America 2.0 companies. I would say Tesla is another one.
Yes, Tesla is another one. AMD should be in the Dow. This is now the dominant chip company with the best chips, the fastest chips, the ones being implemented in every solution. They should be in the Dow. We can think of other that should be in the Dow that are going to dominate their sector.
Or else they are essentially creating a new sector and they are the best representative of it. However, the nature of the committees that select the stocks for the Dow or S&P 500 tend to be backward looking. If you were to guess, when would you think Apple was put in the Dow?
It was something that was seen as being too risky. Even several years after the iPhone was released it was seen as too risk. Given that, who knows when Tesla will get put in the Dow or S&P 500.
They are going to keep growing their product lines and they are always going to be too risky.
Hopefully it will be before they have completely dominated. However, past history suggests the committees will wait far too long. When you look at what they recently added, they added Salesforce but it has been around for a decade.
I’m surprised Amazon is not in there. They have dominated ecommerce for a long time now.
That’s right. Google is not in there. Facebook is not in there. It’s crazy that we are using an unrepresentative basket of stocks, whether it be in the Dow or S&P 500, to judge the health of the market of stocks. People continue to represent this as being “the stock market.”
In Amazon’s case, two-third of the GDP is consumerism. Amazon is the best gauge of that. It makes no sense if it’s supposed to gauge the economy.
On a day like yesterday when the Dow is down 3%, it feels like the same setup scenario we have experienced two or three times. It looks like the algorithmic traders are trying to get the futures contract associated with the Dow is easiest to move, so they hit it in the overnight which is thin.
Then that generates the overnight headlines. If you can hit it overnight, it doesn’t take much money to do it. You relentlessly sell it to get it down a few hundred points. Eventually some journalist on MarketWatch will report that.
Now if Europe buys into the idea the Dow is representative of U.S. markets, they will start to sell the S&P 500. Certainly during March this setup was in play.
The Power of Equal-Weighted Indices
The indices were getting halted overnight and open up 6% lower. It was insane. It was like a snowball effect. It went from not that much selling in the Dow to all over the world.
The S&P 500 contract is hard to move because it’s very liquid. However, the Dow contract is easy to move. We have noticed it seems to be part of a deliberate strategy where you knock down the Dow and you get that to stimulate a snowball effect that they are hoping will transmit itself to the S&P 500 and the Nasdaq. That was kind of in play yesterday.
That’s why it was helpful to have those equal-weighted indices. The fact they weren’t down as much as the mainstream ones was a great sign. Also, just to throw some information about options in here on call options. When they bet on call options they are betting on the price of the stocks to go up in the short term.
That rebounded huge on Tuesday and Wednesday. It bottomed out on Monday, but even as the market was doing down Tuesday and Wednesday, people were buying more calls on individual stocks, especially America 2.0 stocks, which is a great sign people expect a rebound in the short term.
I can also tell you that our amazing colleague Patrick Goodrich tracks our equal-weighted portfolios for our services daily. This focus on Fourth Industrial Revolution and America 2.0 stocks meant that while the Dow, S&P 500 were down 3%, generally our portfolios were down only about 2%.
And we saw a number of stocks within those portfolios were actually up and seeing active bids.
That’s what we’ve seen for every market correction going all the way back to March when we had the crash. Stuff started rallying a week in advance like ecommerce and things like that. The same sectors have been going up during the market going down. That’s been the best signal I’ve seen for the whole year really.
I put up another tweet saying there has never been a more important or critical time to be aware of what kind of stock you own. You are going to see more and more examples of what is happening with Wells Fargo and ExxonMobil.
You have to be vetting your portfolio for Fourth Industrial Revolution, America 2.0 stocks because I believe many of these other stocks are going to stagnate at first and then go into deep decline.
We received a note from Cathie Wood at ARK Invest. She’s incredible and we sometimes recommend their ETFs in our Bold Profits Daily. We would tell you to make sure you subscribe to our free e-letter Bold Profits Daily where Ian, myself, Amber and our entire team write on a regular basis on Fourth Industrial Revolution stocks.
She was talking about how in her career she has never seen innovation so cheap in the public markets and then contrast it to how expensive it is in the private markets.
Some stocks that are worth maybe $100 million market cap would be well over $1 billion if it was private. It would be like a unicorn. They would have to be turning people down for investments. It’s a strange thing going on between private and public markets.
That’s going to get sorted out because a lot of those private companies are going public. They are seeing that same level of demand in the public market too.
Which is why we would tell you that this is the moment to get more Fourth Industrial Revolution stocks and America 2.0 stocks. The way to do that, Ian mentioned the S&P 500 equal-weighted index, ticker RSP.
Small-Caps and ETFs Are Safety Nets During This Market
The other way is own small caps. You could own the Russell 3000 which has an ETF with the ticker symbol IWM. There are any number of other small-cap ETFs you can own. Or you could own the ARK Invest ETF, ticker ARKK.
We could also use this as a moment to plug our services. If you want to invest in single stocks versus an ETF, consider our services. There will be a link to Profits Unlimited which is our flagship service that goes from $49 to $99 to subscribe to that.
The market action going on is also unrepresentative of the economy.
Especially the Dow. With all these America 1.0 companies like old pharma, oil and banks, it’s crazy that is still being seen as an indicator of the economy. Meanwhile you have stocks like cloud software, solar, semiconductors that have gone up hundreds of percent this year.
Even on a macro basis, the idea that you can use the S&P 500 to think it’s telling you anything about the economy is preposterous. We track housing and we know that housing is perhaps the critical factor for the U.S. economy. Housing is on fire.
The Housing Market Sends the Economy and Stocks Soaring
There’s been a housing shortage for a while now. Even with lockdowns, companies were still seeing 50% growth over the past year with home sales. There are a bunch of things playing into that. There’s millennials moving out. There are people moving out of cities and there is a shortage of homes.
During the real estate crisis, after the bubble burst all the homebuilders stopped building homes. Now they have a lot of catching up to do and there’s excess demand on top of that. As a result, we are seeing these companies grow 40% to 70% year-over-year. The ETF to get into that is ITB,
That’s a great ETF to take advantage of homebuilding. I recently tweeted a bunch of stuff from earnings calls of homebuilders. It’s the most bullish outlook I have seen for any sector, ever.
Homebuilding and household formation is the crux around which the U.S. economy is built. The moment you buy a home, as you know, you start to spend a lot of money.
That’s why things like Wayfair, online furniture, online big ticket items — those stocks have taken off too. People have been surprised by that but that’s how people are buying things. When you have a bunch of people buying a new house, those are going to see a huge benefit as well.
This idea that if iPhone sales go down and that brings down the S&P 500 people think it means there is something wrong with the economy. It just means that iPhone sales are lesser than what people expect. They have a lot of competition and have done little in terms of innovation, but it means very little in terms of the U.S. economy.
That’s the key difference between the market and the economy. If the S&P 500 had more innovative America 2.0 companies at the top it would be a better reflection.
Invest in Innovation and America 2.0 Companies
The reality is, for about 20 years the public markets have been mostly unsupportive of innovation companies. They have been unwilling to support their valuations or their secondaries. So that activity then shifted into the private sphere. I believe we are in the middle of transitioning back.
This is a great opportunity to be in innovation-based companies, growth companies and opportunity companies which are generally in the mid to small space. It’s where we at Bold Profits and in all our publications are laser focused on.
We have done the stock market. We want to iterate we are bullish, optimistic, positive — BOP as I say on Twitter — on Fourth Industrial Revolution stocks, America 2.0 stocks. We are not bullish, not optimistic and not positive on America 1.0 because we can see their decline beginning to accelerate.
We would tell you there is some great peril in some of those stocks. There may be volatility in our stocks, but there is actual peril in those other stocks.
By definition, America 2.0 stocks might be more volatile and you might see more price swings in the short term, but it’s where you are going to see the higher gains too.
Bitcoin Reaches New Highs – 2021 Predictions
Let’s transition to Bitcoin which has now officially hit a two-year high. I believe it has marginally passed the peak it hit in 2019. All sorts of headlines are now coming out about Bitcoin.
Speaking of America 1.0, I saw that JP Morgan is now bullish on Bitcoin, which is ironic because they spent a lot of time bashing it before. They actually started their own blockchain, then they sold it, then they bought the company they sold it to. They have had a weird flip flop on Bitcoin.
You’re seeing more of that. The people who were really skeptical are now bullish. You also see America 2.0 supporting it. Micro Strategy and Square are a couple examples of it. Demand is strong across the board right now for Bitcoin.
Micro Strategy has put $425 million into Bitcoin. They somehow were able to do that without bidding it up. So they must have some very good Bitcoin traders.
Their CEO owns $200 million of Bitcoin too. That’s a huge chunk of it.
And what one does, others are eventually going to do, especially as they see that Micro Strategy is going to be rewarded by the market if their call is right. Now people will view not just Bitcoin, but all the store of value coins, once Bitcoin starts to get to a certain point where people want to own more than one. That will draw a bid across crypto.
We have seen this before. When Bitcoin rallies it tends to suck some market cap out of other smaller coins. People are still buying Bitcoin, but they are willing to buy more risky crypto as well. Eventually, it’s going to be good for the entire space. The fact Bitcoin is doing what it’s doing right now is very bullish.
I think it ended last week at a price that has not been seen since January 2018. It was almost a three-year high for the weekly close last week.
You know Ian and I have called for Bitcoin to hit $50,000 this year. We have been given a hard time by people who say, “Paul, get real. There’s only two months left.” However, you can see. Essentially in March of this year it was at $3,800 at the low. It’s now at $13,400. There’s clearly a huge amount of money bubbling underneath.
The big whales continue to buy, whether it be Grayscale, Cash App where you can buy Bitcoin very easily and now companies are coming in and using their cash to buy Bitcoin. I saw a European firm put something like $25 million into Bitcoin. It is starting to transmit itself around the world.
Grayscale is a huge buyer too. That’s a good gauge on institutional demand because that’s where credited investors and big hedge funds go to buy Bitcoin. This month alone I think they bought almost 30,000 Bitcoin. Demand has never been stronger from big buyers. We’ve never seen anything like this.
There are three factors that have driven our call for Bitcoin to hit $50,000 this year. Maybe we’ll miss it, maybe we’ll make it. Even if we miss it, we would say we are well on track for Bitcoin to hit $100,000 next year.
I am saying $115,000 by August of next year.
Our stretch target which comes from me is for Bitcoin to go to $250,000 in 2023 territory. There are folks who are calling for that next year. I will be safer and say 2023. I’m sure we’ll get some heat for it in the comments below.
Just understand, Bitcoin is sucking a lot of liquidity from crypto. However, as it starts to get too high it will naturally draw more capital in the crypto space. Then you will see Ethereum start to rise as well and then some of the other bigger currencies like Bitcoin Cash, Litecoin, Ripple, Lumen — what are the others?
There are a few. EOS is one. They are kinda different. The ones you said are in the group of the core, original crypto.
So we are bullish, optimistic, positive on crypto across the board. We believe it is going to take market capitalization from gold and other stores of tangible value from the past and it is going to shift into crypto. Then from the vast majority of the world’s currencies that have been junk.
As long as you have a phone, you can carry Bitcoin anywhere.
One of the places I find valuable is this website called Useful Tulips. It shows you peer-to-peer Bitcoin sales, which is the main form of buying internationally. Those are through the roof right now too. You are seeing countries with crazy inflation in their currencies and Bitcoin volumes are higher than ever.
People are putting a lot of faith in Bitcoin. It’s not just big companies buying Bitcoin. It’s not just people buying it for speculative reasons. A lot of people are buying it because it’s a lot more stable than their currency.
And that’s with crazy volatility. I can tell you that being from India, when my father was alive it was always a struggle what to leave his money in. The Indian rupee was so terrible as a store of value that people in India would either buy gold or land.
Bitcoin is a genuine alternative for people in India or any place where the currencies have been terrible since the beginning of time.
That’s another source of demand we didn’t mention, but it’s important also.
Then there’s the Treasury function. In other words, for Bitcoin and many other cryptos to take the roles that various things have in the financial system, it might be short-term treasuries or things like that — stores of value people keep cash in. Bitcoin is going to start to take market share from them.
The financial industry as a whole is worth $90 trillion. Crypto is going to take more and more of that as time goes on. There is an endless supply of money going into crypto from the entire America 1.0 infrastructure of finance.
Banks, insurance companies, all these things.
Tesla’s Full Self-Driving Beta Launch
Tesla released their full self-driving beta. This is actually a car that can navigate. It’s limited release. It’s almost 70% self driving.
It’s the most AI product on the market right now. No one else even has anything like it right now. I think it’s pretty amazing what they’ve been able to do.
The thing that’s so insane about Tesla is that Tesla’s Autopilot does not use maps. They use a neural network engine and simulate based on driver behavior based on situation. In other words, as this goes into wider and wider release, the rate at which this is going to improve is going to skyrocket.
That’s the smart thing to do because you have some places where people hardly drive. When people drive there it’s not going to know what to do. So it’s genius that they went that direction. The more people who use the service and the more people who drive Teslas, the better it’s going to get.
That means its robotaxi business, which many people think Elon is kidding around about, is going to become a reality and people are going to start pricing that into the stock.
It’s a relatively new idea too. There might be some big upside there when they start to release this robotaxi industry just from Tesla itself. I do think that is going to be a huge part of their company within the next few years. It’s something nobody else is even talking about.
Google does have a project in Arizona which is completely self-driving, but it is map dependent. I have a lot of respect for Google’s computing abilities. I feel like Google will find a solution. Then Uber is out there as the other potential leader of this transition.
We have seen studies that suggest public transportation will be wiped out. It will reorder the way regional transportation occurs. Short flights? No one is going to want to go drive through an airport and go through the horrible experience of an airport for a one-hour flight if you can get in your car for the total timeframe it would take to get on a plane, off a plane and get where you need to.
It would be much easier in a self-driving car. So, there’s a lot of change coming to the transportation system that very few people, other than us and Cathie Wood, are focusing on. A lot of existing businesses are going to be wiped out, the way Amazon wiped out Macy’s, Sears and all these businesses.
It would also be a way for people to make extra money. You’d be able to rent out your car. You can use it for a taxi service while you’re at home. Otherwise, it would just be sitting in your driveway. So that’s another possibility.
It takes an asset that is sitting there doing nothing and makes it into something productive.
We are still bullish on the stock market but we want to tell you when you see the indices going up and down, it’s unrepresentative of the market of stocks or the economy.
Editor, Rebound Profit Trader