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What will hit 40,000 first? The Dow or bitcoin? That was the question Louis Navellier and Matt McCall debated this past Wednesday at their event, “The Race to 40K.” To avoid confusion, both Louis and Matt are bullish on stocks and elite cryptocurrencies. Their difference of opinion is only in the timing and velocity of respective gains. Louis believes the Dow will hit the level of 40,000 first — about 50% above today’s levels. Meanwhile, Matt is confident bitcoin will top the $40,000-mark sooner. That’s a leap of about 240%. So, what’s behind their respective views? You can get all those details by watching a free replay of Wednesday’s event. In the meantime, in this Sunday Digest, we’re sharing recent essays that Louis and Matt have penned arguing their position. Do you have a strong opinion about the winner of the race? Read on to see if the essays support your conviction … or change your mind. Have a good weekend, Jeff Remsburg |
One Key to Dow 40K and Why Growth Stocks Will Do Even Better
By Louis Navellier
I hope you got to view Wednesday’s debate, Dow vs. Bitcoin: The Race to 40K, between myself and my colleague Matt McCall.
I had a great time debating Matt and we’ve got quite the wager riding on the outcome:
He thinks bitcoin will climb 250% to reach $40,000 first, while I firmly believe the Dow will rise 50% to reach 40K before bitcoin does. At the event, we each gave away one of our favorite picks.
More than 25,000 people signed up to watch us debate, and the event was completely free, so if you haven’t watched it yet, you’ll want to take advantage of the replay as soon as you can.
I’d never bet against Matt over the long term, and I’m a huge fan of his top-down research approach. I just think the tailwinds behind stocks right now are too powerful.
Today, I want to start with one of the biggest factors why: interest rates.
The reality is that low interest rates and a Federal Reserve that’s focused on keeping economic growth humming are perhaps the greatest allies any investor could ask for.
You saw it back in March when the novel coronavirus first hit. The moment it looked like COVID-19 was going to be bad for the economy, the Fed jumped in with a huge rate cut of 50 basis points.
The Fed went on to increase the amount available in the overnight repo market by a whopping $1.5 trillion. Then it injected another $1.5 trillion into the financial system, for a total of a whopping $3 trillion.
More importantly, every time the Fed has stepped in to push rates lower, the stock market has climbed higher.
In the chart below, you can see the market’s low on March 23, which coincides with the Fed’s biggest monetary intervention. Since then, the Fed has been implementing and adding to these programs. And the market has bounced 46% off its March 23 lows, though, it’s still down year-to-date.
Source: Ycharts
The Fed is pumping more money into its bond buying programs than the European Central Bank (ECB) in an obvious attempt to spark inflation. Remember, deflation is the Fed’s worst enemy, so it’s going to do whatever it can to stop it. The dollar recently fell to a two-year low in late July, while July represented the worst month for the U.S. dollar since April 2011. As I’ve made clear in a previous article, this is not as alarming as it sounds, and in fact, is one of the reasons I expect stocks to win The Race to 40K!
And the Fed’s not likely to ease up until its key indicators like GDP bounce back. The Federal Open Market Committee (FOMC) said in its July meeting the Fed would maintain its key interest rates between 0% and 0.25% through 2022. It will also continue to increase its holdings of Treasuries and mortgage-backed securities to smooth market functioning.
Overall, the FOMC was incredibly dovish in its July statement, which means it’s likely to continue to promote a weak U.S. dollar, as well as higher gold prices.
The combination of these factors led the 10-year Treasury bond to recently hit its lowest level — 0.507% — in 234 years!
I truly remain shocked how the Fed has flattened the entire yield curve so long-term interest rates don’t fall below short-term rates and damage the banking system. The 10-year Treasury barely yields more than the short-term T-bills, and the 30-year Treasury is barely above 1%!
Fortunately, in terms of recovering from COVID-19, many economies are bouncing back impressively thanks to aggressive central bank actions.
But in the meantime, U.S. debt is forecast to equal the size of the economy this year and could rise to 107% of GDP in 2025. This is why I believe we could be in zero interest rates forever!
I hate to be a party pooper, but if the Fed raised rates, it would break the country. So, we’ve fallen into the same trap as Japan, Europe and other countries. Regardless of who becomes president after November, the massive federal budget deficit and $26 trillion in debt is not going away.
The bottom line is that one of the biggest beneficiaries of the current and likely endless 0% rate environment is the stock market.
Price-to-earnings (PE) ratios are elevated in the current environment, especially in the wake of many S&P 500 companies posting second-quarter positive earnings surprises. In fact, I’m SO pleased with this earnings season that it’s another reason I’m so bullish on stocks — and particularly the ones that meet my strict growth criteria.
But several of the “Strong Buys” my Portfolio Grader has uncovered have much further to run. My Breakthrough Stocks, for instance, are now trading at only 17.8 times average fiscal 2020 earnings. Compare that to some “bubble” stocks like Tesla (TSLA), which trades at 166 times forecasted 2020 earnings.
My Top 5 Breakthrough Stocks have now reached gains as high as 75%, even over 100%! Many of these companies have emerged as leaders for the year. And I gave away one of my Breakthrough Stocks for free at yesterday’s debate, so watch the replay now.
Bottom line, the Fed has thrown in everything including the kitchen sink to set the stage for an explosive stock market surge. In the current 0% interest rate environment, stocks are one of the biggest winners.
The truth of the matter is that money is not leaving the stock market but simply being reshuffled as some bubble stocks are pricked. The stocks with positive sales and earnings, as well as positive third-quarter guidance, have emerged as market leaders. From here, they’ll lead the way to victory in my gentleman’s wager with Matt.
Click here to watch my Dow vs. Bitcoin debate with Matt and get more of my analysis of why stocks are set to surge. Plus, of course, you’ll also get Matt’s take on why he thinks bitcoin and cryptocurrencies will trek higher.
Then check back here tomorrow when I’ll discuss how I think the presidential election will impact the markets going forward.
Sincerely,
Louis Navellier
Bitcoin or the Dow? Why My Pick Will Hit 40K Faster
By Matt McCall
It may not have been a classic, like Muhammed Ali versus Joe Frazier or Hulk Hogan versus Andre the Giant. But we had fun, and we covered important information that investors need to know.
If you missed Wednesday’s debate between me and my esteemed colleague, the renowned investor Louis Navellier, you’re not out of luck.
There’s still time to view the event — Dow vs. Bitcoin: The Race to 40K. We each took a side and hammered out which we believe will soar to 40,000 first.
Louis thinks the Dow will rise 46% to reach 40K before bitcoin climbs 237% to hit $40,000. I had a blast in the back-and-forth with Louis, and we wound up with quite the wager riding on the outcome. Each of us even gave away one of our top picks for the market right now!
The debate was completely free, so if you haven’t seen it yet, make sure to take advantage and watch the replay as soon as you can.
Truth be told …
I’m also bullish on the Dow, and I believe select stocks are set to climb higher. Plus, Louis has a formidable track record and impressive system, so I’d never bet against him long term.
It’s just that I think bitcoin will get there faster.
I know it has a lot farther to go than the Dow. But too many catalysts are lining up in bitcoin’s favor right now, giving it the high-powered momentum it needs to push through $40K.
Even if you’re not overly familiar with cryptocurrencies, you’ve surely heard of bitcoin. It’s the world’s largest cryptocurrency by market cap, and it just hit a 52-week high above $12,000 on Sunday. It’s the first time bitcoin has breached that level in more than a year!
Bitcoin has bounced more than 185% off its March low. And as the chart below shows, it’s also greatly outperforming the Dow year-to-date.
Part of that strength comes from investors new to bitcoin hopping aboard in droves.
The average weekly number of new bitcoin wallet addresses (as tracked by crypto analytics firm Glassnode) reached 140,000 as of August 4. There haven’t been that many since early 2018. No coincidence there. That’s around the time bitcoin reached its all-time high just above $20,000.
Then on Tuesday, second-quarter earnings from digital payments leader Square (SQ) were leaked a day ahead of the scheduled release. The firm had a blowout quarter that topped estimates for earnings and revenue. The news sent shares soaring more than 10% at one point on Wednesday.
And here’s the important part — almost half of total sales came from the $875 million it earned in bitcoin revenue from its Cash App.
Thanks to Cash App’s 30 million active monthly users, that figure surged 186% from just the prior quarter. As a gateway to bitcoin for many mainstream investors, Square has now bought $1.5 billion in bitcoin to meet customer demand over the last 12 months.
It’s not the only well-known payments company bringing bitcoin to more and more customers. PayPal (PYPL) and Venmo plan to offer crypto buying and selling as well.
A recent regulatory change also paves the way for bitcoin to continue higher. The Office of the Comptroller of the Currency gave the green light for federally chartered banks to “custody” cryptocurrency. Banks have done that for years with money and safe deposit boxes, and now they are free to move into digital currency. I anticipate we’ll soon see a major bank enter the space and begin storing crypto for its customers.
But there’s another huge catalyst I think will propel bitcoin to $40k faster than the Dow. It’s not a future event that may or may not happen. It’s already happened!
I’m talking about bitcoin’s “halvening,” or “halving” as some people call it.
There’s a lot going on “under the hood” of this event, but in its simplest terms, the reward for mining new bitcoins is cut by 50%. The end result is that as of May 11, 2020, the supply of new bitcoins coming on to the market dropped by half.
That means all bitcoins are now more valuable.
After the first halvening in 2012, bitcoin shot up 2,135%.
Following the second halvening in 2016, bitcoin rose 3,122%!
You can see why I’m so bullish on bitcoin. But here’s the thing …
A select group of cryptocurrencies other than bitcoin — called altcoins — surged even more than bitcoin after the first two halvenings. In some cases, many times more. For example, after the second halvening, the altcoin Verge shot up an unbelievable 1,362,400%!
We’re seeing similar action now. Since we launched our Ultimate Crypto portfolio on January 7, the altcoins I recommend are up an average of 124%. That’s outstanding anywhere and anytime, but especially compared to the Dow’s 4% loss.
Stocks are on a roll right now, too. And like Louis, I remain bullish as ever.
But when bitcoin gets going, few other assets can match its explosive potential.
These are some of the reasons I think bitcoin will cross the $40K finish line faster than the Dow. I lay out my full case in the big Race to 40K debate — and Louis hits back with his deep research on why he thinks stocks can get there first.
At the end of the day, our debate will leave you with more ideas to build your wealth and take advantage of extremely favorable market conditions. I hope you’ll watch it now before the replay comes down. I’d hate for this opportunity pass you by.
Best regards,
Matt McCall
