Here’s the perfect example of how America 2.0 could save a dying America 1.0 company.
Hertz … the car rental company you’ve probably seen in the news lately. It’s taking a nosedive. Shares even dipped below $1.
But think of this.
One move from Tesla could bring old-world Hertz into America 2.0.
In today’s IanCast, Paul and I will tell you what it’d take for us to buy Hertz. And the No. 1 reason to invest in the companies and mega trends that are doing the disrupting: Tesla, bitcoin and pot.
Not the ones that are being disrupted…
Watch today’s IanCast for the full scoop on how you can make the biggest gains with stocks of the new world … and the companies you should do a quick portfolio check on, before they plummet to zero.
Welcome to another Iancast.
We have the stock market, Bitcoin, Tesla and cannabis. This has got to be the best roundup of investment, crypto, stock cannabis. It has it all.
This week we are going to start with the stock market because I am thinking that’s still the thing people are most interested in. To me, the thing that continues is how negative people are. No one believes our scenario. No one believes our bullish, optimistic, positive scenario.
May Rebound Points to Stock Market Recovery
I saw this morning in my roundup of news I do every morning that Big Lots, which a mainstream, Main Street America retailer, their sales in second quarter are going to be up 30%. 30%! That’s a good indicator of where the economy is and where we are.
Yet, people are bearish.
Retail sales were up almost 18% in May across the board. They were down 7% or 8% in April, May was a huge rebound month. People are going back out and buying things in excess. The consumer economy is two-thirds of GDP. When you see department stores like Big Lots seeing 30% growth, that’s huge.
Some people still don’t want to admit we are in a V recovery, but everything is showing that. Retail sales, housing, manufacturing just saw a huge rebound in May — everything is really coming together to justify this stock market rebound.
Housing is completely on fire. The National Association of Homebuilders’ Housing Market Index (HMI) jumped by 21 points, rising to a level of 58. This is the largest monthly gain in the history of the index. It turns the HMI positive after just two months of negative market conditions.
Single family starts, which was flat in May, expanded by 12%. Multi-family permits for properties, which were down 10%, also are expected to make a comeback. For home sales, new single-family home contracts jumped in May by 676, 000 units, posting a 13% year-over-year gain after downward revision last month.
Also, builder confidence is rising. Everything suggests that this critical part of the economy is absolutely on fire. We mean that in a good way. It’s completely exploding in growth and in terms of activity.
The demand didn’t go anywhere. It just got pent up and compressed. Now it’s just BOOM!
That’s all in May when stuff was just beginning to reopen. June is going to be better. 50,000 more new homes were bought this May than last May, which is pretty incredible. Another thing I wanted to add was Fannie Mae said they had 5.5% growth in their mortgage portfolio.
So more people are applying for mortgages and buying houses. It’s a great scenario for the economy in general.
And mortgage rates, at least in terms of the 30-year, has hit record lows over these last couple months. The Federal Reserve is talking about leaving interest rates and potentially reconsidering some form of negative interest rates. They are talking certainly about keeping it at this level for at least two to three years.
I saw a note from Moody’s talking about the basic demographic structure of our economy today. We have the baby boomers in retirement mode, then we have millennials and gen Z right after them coming. It will allow them to keep interest rates at this very low level, which is very stimulative to housing and any kind of cyclical industry like industrials.
And, if you are buying houses, we’re going to put stuff in it.
Right. That’s Big Lots and places like that. People go there to buy the stuff they furnish their houses with.
If we’re also reindustrializing the country — that’s America 2.0 — where for the last 20 years we’ve been shipping stuff off to China and Asia, we are going to bring it back here. That means rising GDP growth. Then the other part of America 2.0 is the use of all these technologies — IoT, blockchain, artificial intelligence.
These are so early in their implementation and adoption. If you put this together in terms of America 2.0, you are going to see productivity and GDP gains of a magnitude that I believe the stock market won’t see in America 1.0 companies. They’ll benefit too, but they aren’t making the kinds of investments to really benefit.
It’s really the America 2.0 companies. You’re going to see astonishing growth. There is this constant disconnect between previous generation investors and next generation investors. Younger investors versus older investors. America 1.0 versus America 2.0.
America 1.0 vs. America 2.0 — Disruptive Stocks
Certainly, sites like MarketWatch and Yahoo! Finance you definitely get the old version, America 1.0.
One of the best things you can do in investing is to buy companies that are disrupting and not ones that are being disrupted. That’s the difference between America 1.0 and America 2.0. A lot of these companies that are disrupting that people should be buying are finally going public.
There is a ton of cloud software companies going public, which is basically automation for the workplace. It’s not hardware automation it’s software automation. It’s making everything easier for people when they do work tasks or everyday things that involves a lot of paperwork.
Not all automation is constrained to factories. In a way, cloud software can be seen as automation. You also have fintech disrupting banks. You have biotech disrupting old-world healthcare. All of these companies are finally starting to go public and that’s what is going to be driving the most growth in the market.
You don’t always see it in the S&P 500, the Dow or the Nasdaq. That’s a way of gauging all the stocks in the market or a lot of stocks and not necessarily just the ones that are being bid up that are disrupting the economy.
The Dow is clearly used as a tool of manipulation by sites like MarketWatch. The folks who are pushing the Dow around from day to day create a panic and then they count on MarketWatch and Yahoo! Finance to transmit that panic through the system to try to get people to sell stocks. The Dow, today, is not an index worth following.
Potential Hertz Recovery with America 2.0 Upgrade
There’s a lot of stuff about Hertz out there. A couple days ago, Jefferies, which is a brokerage firm, says it turns out that maybe someone like AutoNation or Carmax could come and buy Hertz.
We haven’t been making cars for three months, worldwide we haven’t been making them. Perhaps those rental cars — I don’t know how long they keep them, I think 20,000 or 30,000 miles — they are looking to sell them. They might have value.
That would make sense. Rental cars don’t last long. Usually they are a model year or two behind where we are. That’s an interesting idea because Hertz was dismissed by the market as a company that was for sure going bankrupt. I think the shares went below $1.
It was completely forgotten. The car situation is kind of like housing in that there is a shortage. That would be a great way for them to save themselves by selling all these cars. That’s been a crazy stock. I have been watching it. It went from below $1 to $6. Now I think it is below $2 again.
I had a very America 2.0 idea. I ran it by a couple people. They said, “Paul, you’re crazy.” That’s fine. My America 2.0 idea as to why people see value in Hertz is if you wanted to create an autonomous network of robotaxis, they have all the locations locked up.
They have airports, city locations. So, if you were going to run a point-to-point system of robotaxis, if you simply substituted their current rental cars for Tesla’s that can drive themselves one or three years out, they have the infrastructure built out to actually do it.
It made me wonder if perhaps someone out there — very forward thinking, an America 2.0 thinker for sure — is seeing this. At the point in time I looked at it, they had $1.30 book value. So, at 75 cents if you are a book value investor you might have been willing to buy it.
If you could see some sort of recovery around an America 2.0 implementation and Hertz the brand name is worth something, then perhaps a far-out theory — we are not telling you to buy Hertz. I want to make this clear. It’s not in any of our portfolios. We are purely discussing it as a theoretical concept.
Theoretically you could argue that is has the basic network in place.
That’s a good point. That’s the future of transportation. It’s going to be automated. Tesla is working on that, Uber has said they are planning to work on that. They do have a lot of locations across the country. That’s a very interesting idea.
You can put chargers at the airport so you have a central charging location because the cars would need to come back someplace to charge. They have, in many ways, the perfect setup for an implementation. The journey there — we don’t know. It may make it through bankruptcy.
It did look like, perhaps, someone was accumulating the equity and was willing to bid it up. However, it has collapsed from $6 down to $2. We want to make it clear: We are NOT, absolutely not, recommending you buy Hertz.
This is a good segue into something we cover regularly, but we do want to say before we move on from the stock market that we are still bullish, optimistic, positive for all the reasons we laid out. Housing, the consumer is healthy, and spending and we believe stronger growth is coming ahead as a result of what we believe is going to be rising productivity growth.
The Transition to Electric is Underway
So, Tesla. There’s not a lot of news. I went back and tracked something I had seen. So, based on crowdsourced numbers from the Cybertruck owner’s club, which is a self-organized group and nothing to do with Tesla, when I looked at the worksheet it had 574, 507 orders valued at $39.34 billion.
$39.34 billion. This is one thing. For the most part, we have not seen it and we both went and ordered it. Clearly, so many people around the world had the same reaction. I don’t think in the history of the stock market, a truck that costs $50,000 or $60,000, sight unseen, untouched with no test drive, what company around the world can do this?
I have never heard of such a thing. People are shocked. People say, “Paul, your price targets for Tesla are crazy.” Yea, but look at this. 574,000 and it’s probably slightly higher. Nearly $40 billion in backlogged revenue.
That’s more money than Ford and GM are worth. I know Tesla draw comparisons to those companies, although that’s probably not the best thing to do. It puts into perspective how much they can generate from one car that no one has ever drive.
The Model 3 is the one car they have mass produced. They are selling hundreds of thousands of those. I don’t see why that’s not possible for the Cybertruck as well. People are clearly willing to spend the money. It costs a little extra to buy the Model 3 and the Cybertruck really isn’t that much more than a regular truck.
With a Tesla you don’t have all the maintenance, you don’t have to buy gas all the time, you don’t have any of the parts of a normal internal-combustion-engine car that can break that costs thousands in repairs.
There’s a lot of benefits when you buy an electric car that you don’t think of upfront. It can really save you a lot of money in the long run.
Before we get objections. Yes, when you consider the price of gas even at the current prices and the cost of maintenance, especially for a truck, over the lifetime a Cybertruck will be cheaper than an internal-combustion-engine competitor.
It is probably also true that once we get that Mars outpost going you can take you Cybertruck there and it will work. Obviously, I’m kidding on that.
Generally speaking, there are also companies like NIO and other electric car companies. The Lordstown plant, which is a massive plant that GM abandoned, Vice President Pence was there to open it up. I think it’s called Lordstown Motors. They revealed their truck. It doesn’t have the range of the Cybertruck.
Nonetheless, what it shows me is that there is a huge transition to electric well underway and is happening faster as a result of the crisis. I think Tesla buyers get it. I think Tesla stock owners get it. Other folks are looking backward. Tesla is a great example of that divide, that fracture between America 1.0 and America 2.0.
Some people don’t believe self-driving cars are going to happen and autonomy is never going to happen. They think EVs are a fad and they are going to fade out. Tesla is a great example of that divide.
It’s a perfecting example. It’s the disrupting versus the disrupted. All of these car companies are being disrupted majorly by Tesla. They are trying to catch up. It costs so much money to redo your whole business to accommodate making one or two electric cars when you already have so much money put in the current factories.
I don’t think many, if any at all, are going to be able to catch up with Tesla at this point.
No. The stock market is telling you it looks likely that virtually all the internal-combustion carmakers aren’t going to survive. They may merge into something else. Probably the national champions of some European governments will survive because the governments will keep them open.
Nonetheless, it’s a big shift that backs our view of Tesla. We believe Tesla stock can go much higher. People thought we were crazy when we put out $1,000 target for this year. Then it went to $1,000 and went back to $350 during the crash. Then of course all the folks came to troll us and say it’s going to zero.
We think it’s going to go to $3,000 and $4,000 because everyone thinks of Tesla as a carmaker. Obviously they do make cars. However, it’s a platform for robotaxis and a platform for autonomous software based on a neural network. It’s a supercharging network, which is like a gas station network. The battery is like ExxonMobil. Then there’s solar panels.
To think of it as a carmaker is silly. Your price target has to incorporate the fact they have all these businesses. It’s the first company of its kind. It’s almost as if 150 years ago we put all the ideas of energy together.
We put it all together. A utility, an oil company, a car company. Altogether, what would that be? It would be a big number.
I don’t see why they couldn’t be worth $1 trillion not too far from now. They have the Model 3, they are going to have Model Y, Cybertruck and Semitruck, which are all going to be huge. As we’ve seen with the Cybertruck, I don’t think the nearly 600,000 can be a fluke. They’ve already proven they can do it with the Model 3.
The Model Y is next. We will see just how much they can do with that. All of it combined is going to really justify what the stock has done.
Fintech Rally Shows Signs of Crypto Takeover
It continues to trade under $10,000. I keep getting emails and tweets on crypto in general. Then I saw that amazing tweet from Kevin Rook that says Grayscale has added 19,879 Bitcoin to its trust since last week. That’s amazing.
Bitcoin miners only produced 7,081 Bitcoin since last week. They have produced 39,554 since The Halving. According to them, Grayscale has taken all Bitcoin mined plus 14,000 or more since The Halving. That does beg the question: Who is selling them this Bitcoin?
They are going naked short on Bitcoin on a finite thing. This is how I believe you are going to see a massive spike. At some point, they have to be doing this through the futures market. I think Baakt is a physical market in the sense you actually have to deliver Bitcoin.
There’s a huge short position. That kind of thing is just a typical thing you will see any time there is a big divide, like we were talking about with Tesla. America 2.0 versus America 1.0, disrupting versus disrupted. It’s happening with Bitcoin. It happened with Tesla and Tesla went from $200 to $1,000.
It happened with Teladoc which went from $30 or $40 to $170 in the span of a couple months. Now it’s happening with Bitcoin. You can see where this is going. I still wouldn’t be surprised if it hit $50,000 this year. These short squeezes can be crazy.
Grayscale can pretty much support the market all on its own at this point. They are buying more Bitcoin than are already mined. It’s like $200 million they have spent on Bitcoin this week. They are by far the biggest buyer. You also have exchanges like Coinbase, Binance, CashApp, that are also buying Bitcoin.
How is there room for anyone else to get in at this point? Any amount of buying is going to push Bitcoin up over the long term.
I was looking at the same article, which we will post a link to, that says Grayscale now has $4.1 billion under management all in crypto, no stocks. It’s nearly double from $2.1 billion in May 2019. As I mentioned, we have trackers in the Profits Unlimited portfolio for Bitcoin and Ethereum and they are also buying a large quantity of Ethereum.
They own $396 million in Ethereum. This article says Grayscale purchased $110 million worth of Ethereum in 2020 as of June 5. They are sucking up an extraordinary amount of the top two cryptos out there. I believe those are the top two in terms of market capitalization.
Yes, and they are way ahead of anything else. I think Bitcoin is around $160 billion and Ethereum is $25 billion. Then there’s a steep drop from that. I don’t think there’s anything about $10 billion.
Another thing we’ve been seeing is big rallies in alt coins. Ethereum is the defi capital of crypto. They are going to be the ones disrupting banks, real estate — really buying anything. These smaller alt coins like KyberNetwork are blowing up. These are up hundreds, if not thousands, of percent this year.
We’re definitely seeing money flow into these. These are the future of banks. It’s what disrupting banks and what’s disrupting the whole monetary system really. We’re starting to see the beginning signs of that.
If you were thinking of a pair trade like you’d be selling Berkshire Hathaway and buying crypto. They are really on opposite sides. Old generation investors and America 1.0 investors look at Berkshire Hathaway and they think it’s great. Ian and I look at it and see a pathway to zero.
The thing that’s going to take it to zero is crypto. I think there’s 1,500 different projects on the Ethereum blockchain. We are also seeing these specialized cryptos like Chainlink coming for any different number of businesses.
Largely, I think America 1.0 investors disbelieve this idea that crypto can disrupt banks and insurance. We believe it’s just going to be eaten up by crypto.
Absolutely. It’s a huge divide. It’s pretty much inevitable. Companies like Teladoc, which we saw get boosted up during the lockdowns, all it takes is one big event for people to realize this is for real.
If you don’t see that with Grayscale buying up all this Bitcoin and showing they have demand from institutional, big client, then I don’t understand what is going to make you believe Bitcoin is the future and Ethereum is the future. It’s veering that way more and more.
A sign, I believe, that Bitcoin and crypto takes off sooner rather than later is the massive rally in the stock market with fintech stocks. There’s a huge bid under those stocks of all kinds because this crisis has pushed the transition from cash to digital money on the superhighway. It’s happening crazy fast now.
A big fintech company that’s just going public is Lemonade. That’s going to be the start of a huge wave of fintech companies going from private to public because they’re pretty much all still private. There’s huge pent up demand in the stock market for these stocks, which you are seeing overflowing into crypto.
I think it’s definitely going to translate into the stock market. It’s going to be huge. It’s not going to be good for America 1.0 finance stocks.
Cannabis Legalization Will Rocket Pot Stocks
Virginia is talking about full legalization, including any number of states talking about this. This is the perfect environment. I wonder if something like a federal legalization might get slipped into the next stimulus bill.
Wouldn’t that be a shocking development? It would just rocket stocks up.
I wouldn’t be surprised at this point. Federal legalization is inevitable too. We’ve seen a slowdown in legalization on a state basis because the past few months have been crazy with lockdowns and so forth. Virginia is looking to do that.
I think we are going to see more and more states start to do that. One of the big federal projects working on veteran health just said they would recommend putting more research money into cannabis and related products for helping veterans with PTSD and things like that. There’s a big future medically for these products too.
Another potential for legislation is also going into the police reform legislation which the House has passed. A lot of people who are currently in prison are actually there for these minor cannabis violations. It’s ridiculous. Anywhere it’s even partly legal has designated these as essential businesses.
Meanwhile, we have people who have been in jail for multiple years and are still in there. So perhaps it might happen, and it might be a likely scenario. I can see it in the sense that it would be part of the legalization debate. Should people be in jail right now for something that we have deemed as being critical?
That seems completely wrong. There are many possibilities either on a state level or a federal level. Then we have seen some things. We have seen news from Canopy. They had a deal with Acreage which they scaled down in terms of the amount of money because valuations have shifted.
They are stopping business temporarily at some of their facilities. They have laid off some people. Back a few months ago, it was seen as horrible news and it resulted in the stock going down a lot right after it was announced. Now it is seen as the company on a path to something better.
When it was announced a couple days ago it didn’t really have an effect on the stock, which shows me that there’s nobody left to sell these stocks. They are bottoming out. I think they are in the process of it. The bottom is in, I think that 100%. All it’s going to take is one big hint at federal legalization or something like that.
Or just the continued growth of these companies. A lot of these companies are still growing 50% year. I don’t think it’s going to be far off for us to see a big rally. I still think MJ can double this year. It was at $16 or $17 at the beginning of the year. I think it’s down to $11 or $12 now.
I think a lot can happen in six months and I wouldn’t be surprised to see it double from that $16 or $17 point.
Like we said in IanCast, some of the best America 2.0 companies are coming to the market for the first time — true disruptors of the old.
Demand hasn’t gone anywhere. It’s just been pent up and building, ready to explode!
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