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The Hidden Truth About GameStop’s Explosion

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SkyBridge Capital’s top investor and former Trump admin official, Anthony Scaramucci, has said that the retail investor triggered surge in video gaming stock GameStop proves that bitcoin will end up being a success.

This week, turbulent trading mostly driven by members of a Reddit forum called r/WallStreetBets pushed GameStop (NYSE: GME) upwards 92.7%. This even led to trading of the company being stopped multiple times in the past week as its price spikes attracted market protection mechanisms.

After Tesla CEO Elon Musk jumped in, tweeting “GameStonks,” the stock increased 50%. The gaming company’s stock is now valued at $10 billion and classified as large-cap.

Scaramucci calimed during his interview with Bloomberg that this individual trader action is “proof that Bitcoin will work,” and should be taken “seriously.”

He suggested this “decentralized” movement is just like the underlying concept of bitcoin, while mobile-based and cheap trading are transforming formerly isolated markets.

“How will you be beat that decentralized flood? That in my mind is more proof that decentralized finance is the future,” Scaramucci stated.

Earlier this year, SkyBridge announced a new bitcoin fund, claiming its investment in bitcoin had already reached $310 million.

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Tesla Disappoints Both Bulls And Bears

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The electric car maker Tesla (NASDAQ:TSLA) went lower by 5% overnight this Wednesday after the release of its earnings which investors viewed as not so great.  

Analysts anticipated Tesla would give results of $1.01 a share in pro forma profits for Q4 of 2020. But Tesla has stated it achieved only $0.80, and marked its quarterly sales at a surprising $1.07 billion — an increase of 46% year over year. This means the company’s Pro forma profits pretty much doubled (an increase of 95%), while the EV maker’s GAAP profits increased 118% to $0.24 a share.  

GAAP profits — profits per diluted share according to accepted accounting calculations — have now been positive for 6 straight quarters for Tesla.

Last year was Tesla’s first to report GAAP profits and pro forma and for a full year. The year saw Tesla mark $31.5 billion in overall revenues, which is a 28% increase year-over-year. The GAAP profit margins also jumped to 21% after 3 years of falling. The EV maker’s net profit for the year of 2020 was $0.64 a share ($2.24 per share, pro forma).

2020 was also Tesla’s second fiscal year of making positive free cash flow. This measuring stick is important for a company that could raise capital through share issuances, though it doesn’t need to do this. Tesla produced $2.8 billion in profits last year, an increase of 158% from the $1.1 billion it generated in 2019. The company concluded 2020 with a total cash reserve of $19.4 billion.

This final total includes all $10 billion raised through share issuances of Tesla’s stock in Q4 of 2020.

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Federal Announcement Triggers Market Chaos

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Stocks ended lower on Wednesday after the FED maintained rates close to zero, kept its bond-buying at the current rate, and claimed it saw signals that economic recovery “has moderated.”

The Dow closed lower at 633 points, for a loss of 2.05%, to 30,303, the S&P 500 lowered 2.57% and the Nasdaq fell by 2.61%. Equities experienced their worst day since Oct.

Stocks were already lower Wednesday before the Fed’s announcement as investors were nervous over earnings from Facebook, Tesla and Apple being scheduled after markets close.

“The rate of economic recovery has moderated recently, with weakness within the areas most affected by covid,” the FED said in a message after its meeting.

The central bank also promised to keep its bond-buying at $120 billion per month until it saw “much greater further progress” in jobs and inflation.

In a conference, Fed leader Jerome Powell stressed that it would take time before those goals were reached.

“The economy is far from our desired inflation and employment numbers,” Powell stated Wednesday, “and it will very possibly take time for this progress to be gained.”

Powell refused to comment on any stock or move in the equity market. AMC Entertainment and GameStop skyrocketed as heavy shorts went higher in a war between investors and Wall Street hedge funds.

Market sentiment also lowered as a result of uncertainty around President Biden’s $1.9 trillion relief plan, given the Democrats’ small majority in the Senate and information showing that global cases of covid has gone over 100 million.

Biden claimed the government was working to purchase 200 million more doses of Covid-19 vaccines, enough to completely inoculate almost every American, according to Biden.

The Biden Admin. plans to order 100 million more doses from Pfizer and Moderna.

“The Federal Reserve has seen recent data that shows a decline in employment and consumer spending,” said the top investment strategist at Allianz Investment Management, Charlie Ripley. 

“In the end, the Fed seems to be comfortable with the consequences of their current policies as they continue to strive toward the bigger goals of the dual mandate.”

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Saxo Bank Predicts 2021 Gold Shock

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The PM market has had a rough start this year as gold dropped around 5% from its point at the onset of the month.

The precious metal has made a good try to get upside momentum as it pushes resistance near the 200-day moving average. Gold futures (April) were at $1,855.60 per ounce, lower by 0.18% on the day.

But one bank is looking beyond the current situation, and anticipates precious metals to rise in what they’re calling the beginning of the 7th commodity bull market of the past 225 years.

“A commodity bull market is a result of secular inflationary policy, something few investors recall, because the last one stopped around forty years ago,” said chief investment officer from Saxo Bank, Steen Jakobsen.

In the bank’s outlook report, Steen went on to say “We believe this will quickly take over investors’ attention this year, and may last for 10 years or more. The key reason is the continuous response to Covid, which only increased trends in inequality which were growing in the 80s and following three decades of globalization. Going forward, we will witness a true macro paradigm change as policy moves away from maintaining financial stability to ensuring social stability,” he said.

Looking especially at the PM market, Ole Hansen, commodity strategist for Saxo Bank, claimed in the report that he predicts gold prices will be well supported by inflation, combined with a weaker dollar.

Currently, Saxo bank is predicting gold prices to hit close to $2,200 per ounce in 2021, with silver going to $35 per ounce.

Regardless of gold ’s lacking performance in the past weeks, Hansen claimed, “we have a positive view on the market with increasing yields being based mostly upon the rise in inflation; this will put real yields, a key factor for gold, into negative numbers. Combined with liberal central bank policies and more dollar weakness, the least resistance path leads upward.”

The Danish banking company also said it does not expect bond yields or the dollar to give much for precious metals. John Hardy, leader of the bank’s foreign exchange strategy, stated that increasing government debt is forming into an existential moment for the dollar.

“The uptrend in gold, bitcoin and hard assets of any type and the quick increase in monetary velocity triggered by an exodus from dollar-linked assets like treasuries could possible trigger a complete USD crisis,” he claimed.

Hardy went on to say the dollar would not find much support from increasing bond yields, because eventually, the FED will step in with monetary policy.

“The point at which greater rates become an issue has lowered drastically just like every cycle since the 80s,” he said. “Whether the number in the U.S. 10-year benchmark that gets us into trouble is 1.25% or higher than 1.50%, trouble is abound…”

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Why You Might Not Get The Next Stimulus Check

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President Joe Biden has said he is willing to negotiate terms for the upcoming round of economic relief payments, which may show that fewer people will end up getting the anticipated benefit.

While going over his plans to help the economy, Biden said he understands that things might not happen exactly as he planned them in his large $1.9 trillion package.

“For one, you know I proposed the additional direct payment of $1,400 to Americans,” Biden stated. “Well, there’s potential for folks to say, ‘Are the lines in the right spot? Should that money go to someone earning over X-amount?’ I’m willing to negotiate.”

President Biden continued, saying he chose the terms because he believed they were “reasonable,” while admitting it was a “bit of a moving target.”

Some Republicans would need to agree for the legislation green-lighting the new stimulus to pass the Senate. 

But conservatives are anxious of the program’s total price. Giving cash to fewer people – or decreasing check amounts – might help appease the GOP.

The $1,400 amount has also come under fire from some Democrats, who say it is not enough.

Democrats pledged $2,000 stimulus checks. With a check for $600 being given in December, the number of $1,400 would make the total $2,000.

Individuals making up to a $75,000 income, or couples making up to $150,000 received the $600 stimulus payment. In addition, recipients also got a $600 per child bonus.

People making more than $87,000 and couples making greater than $174,000 were not eligible for the payments.

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Incoming Events Trigger A Shift In Gold Prices

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Silver and Gold futures prices were steadier Monday. The bulls have smoothed out both assets’ prices and are now waiting for the next event to transform prices away from their near-term ranges. Feb. gold futures were recently at $1,862.50 (up $6.20) and March Comex silver was at $25.68 an ounce, up by $0.124.

Global markets were even to mostly steadier. American indexes were aiming at higher starts when the session begins. This is a busy 7 days for economic data, founded by the FED’s two-day Open Market Committee meeting that starts Tuesday morning and concludes on Wednesday with Chairman Powell’s conference.

Investors will also be watching the Biden White House’s agenda for a $1.9 trillion aid package for Americans and businesses. The GOP are not liking the size of the plan.

The important “outside markets” see the dollar index up slightly. Meanwhile, Nymex crude oil futures went lower slightly and are now trading around $52.15 per barrel. The yield on the 10-year U.S. Treasury is sitting at 1.10%.

Economic data to be released includes the Texas manufacturing survey and the Fed activity index.

Technically, the gold futures investors are on an even overall playing field. Bulls’ next price target is $1,900.00. Bears’ next downside price target is the solid support at $1,800.80. Resistance was seen at the high of $1,874.60 last week. Support was the overnight low of $1,847.30 and then the low of $1,836.30 on Friday.

Bulls of silver futures have the slight advantage. Silver’s next upside price objective is ending prices higher than the solid technical resistance of $28.105 per ounce. The next lower objective for the bears is ending prices below support at the Jan. low of $24.04. Resistance was at the overnight high of $25.835 and then last week’s top of $26.13. Next support is $25.47 and $25.00.

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One Asset Harvard Investors Are Secretly Stockpiling

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The biggest university endowments in America have been secretly buying cryptos for 12 months through crypto exchanges like Coinbase.

According to insider sources, Brown, Yale and Harvard have been purchasing crypto on popular exchanges. 

“There are a number of them,” said a person who wanted to remain anonymous. “Many endowments are buying in a little at a time.”

Brown and Yale did not comment on the insider’s claim. Neither did Harvard nor the other colleges alleged to be buying digital currencies. University endowments received one mention in Coinbase’s 2020 annual report, but that was without naming the college by name.

Some of these funds may have had accounts on Coinbase for over a year, a source reports. 

“It might be since the middle of 2019,” the source claimed. “Most have been buying for at least one year. I would imagine they might discuss it openly some time soon. I predict they have a good return by now.”

University endowments are buckets of wealth accumulated by institutions, often from donations. These resources, which support research and teaching, can be put into different assets for investing.

Harvard has the highest number with more than $40 billion in their endowment. With Yale having more than $30 billion, and Michigan having near $12.5 billion, and Brown holding about $4.7 billion. It’s not known how much of that they have invested in crypto.

Long Term Approach

In 2018, the CIO of Yale University, David Swensen, made news by supporting two crypto-centered venture funds, with one being led by Andreessen Horowitz and one by Fred Ehrsam (co-founder of Coinbase) and Matt Huang, former Sequoia partner.

Several more universities have also backed crypto VCs, including Stanford, Dartmouth College, MIT and Harvard. So clearly, universities seem to be going forward with the trend of investing directly into cryptocurrencies.

Another source within the crypto hedge fund area, said “a big change” happened over the previous few months. “We are witnessing defined benefit pension plans inching closer to buying in,” the source predicted.

“If this was three years ago, I would have disagreed with that,” said Ari Paul, co-founder of BlockTower Capital. “But many organizations are now warming to the idea of cryptocurrencies. They trust it and now they can just purchase it directly from a well-regulated company like Fidelity, Anchorage or Coinbase.”

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3 Bitcoin Mistakes That Could Bankrupt You

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The biggest cryptocurrency by market cap has quadrupled in price over the past 12-months. It’s up an amazing 9,310% over the past five years. Bitcoin destroys pretty much every other investment, in terms of total profits, since the start of 2016.

Bitcoin fans continue to talk about its scarcity — a limit of 21 million tokens will be created — and the increasing adoption as reasons for its jaw-dropping gains.

While there are many possible paths to getting wealthy from bitcoin, I believe there are three terrible mistakes you could make when trying to invest in this asset.

Riot Blockchain

There is no short supply of crypto stocks that continue to ride on bitcoin’s increases to claim their own gains. Crypto miner Riot Blockchain (NASDAQ:RIOT) is a great example. Riot’s price has exploded over 1,700% in the previous year, giving the company a $1.7 billion value. But go deeper and you will find that even 1/10 of this price may be too much.

As a crypto miner, Riot utilizes high-powered computers to complete complex equations that verify transactions on bitcoin’s underlying technology known as blockchain. In exchange for doing this, crypto miners such as Riot are gifted a reward of 6.25 bitcoin per block. This 6.25 bitcoin is now valued at over $224,000.

It might be a straightforward business, but it’s also very capital-intensive and very competitive. Riot Blockchain created only $6.7 million in revenue through the initial 9 months of last year. It’s given the same $16.6 million net loss through Sep. that it did in the initial 9 months of 2019.  To put it another way, Riot might not even reach $10 million in total sales for 2020, but it has a $1.7 billion total cap.

What’s more, Riot Blockchain’s model is only somewhat driven by R&D. Instead, it requires sustained bitcoin enthusiasm. We have learned that interest in bitcoin comes and goes. With interest spiking again as it reaches $40,000, experience shows that miners such as Riot Blockchain are going to hit a downturn sooner rather than later.

Grayscale Bitcoin Trust

Investors should also avoid buying Grayscale Bitcoin Trust (OTC:GBTC).

Grayscale Bitcoin Trust earns the title of the first trade-able bitcoin basket security. Since the SEC has not green-lit bitcoin mutual funds, Grayscale has been a very popular buy among investors. As of January 19, Grayscale claimed a total of 632,761 bitcoins, which were kept in “cold storage” within the Coinbase Custody Trust Company. With Grayscale routinely updating its bitcoin per share and share count, you can easily add up its net asset value (NAV). 

Though buying a security through an over-the-counter exchange seems a lot easier than purchasing bitcoin from a crypto exchange, there’s just one problem: The Grayscale Bitcoin Trust is always sold at a premium.

Previously, it wasn’t unheard of to see it priced at a 30% to 120% premium to its NAV. Things have gotten better, but it was still priced at an 11.7% premium to NAV on January 19. Investors are already grossly overpaying relative to the value of the underlying “asset,” but the Grayscale Bitcoin Trust wants a jaw-droppingly high 2% fee. So no, this is not how you should invest in bitcoin.

Bitcoin

Lastly — you may have seen this coming — I think purchasing bitcoin directly on exchanges is a terrible idea.

Just last week, I made the case for why related bitcoin stocks are a much safer and smarter way to profit from the excitement that surrounds Bitcoin. I also issued my opinion that bitcoin is among the most dangerous investments of this year.

Though bitcoin fans won’t say it, their “digital gold” is chock full of possible flaws. For one, it’s founded by the idea of false scarcity. For now, bitcoin is limited to 21 million tokens. But, with community consensus, that could increase. With so many people buying and holding “HODL-ing” their coins and refusing to circulate them, the only way for the asset to obtain utility is by increasing its supply.

Bitcoin does not have game-changing utility. It’s having lots of trade volume as traders and computer programs get in and get out. But just 2,300 businesses accept bitcoin as a form of payment. That’s out of around 7.7 million total businesses with at least one employee.

Bitcoin is not unique. There were over 10,000 blockchain companies created in China in 2020. With no barrier to entry in creating a blockchain, there are no certainties that this technology will need bitcoin or other cryptos to revolutionize payment processing. 

I recommend avoiding bitcoin. Instead, buy the related companies that benefit regardless of what happens to the biggest and most-hyped cryptocurrency.

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Pelosi Moves In On Tesla

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Nancy Pelosi, the DNC Speaker of the House from California, has jumped onto the Tesla bandwagon.

On Dec. 22, Pelosi purchased twenty-five call options on Tesla, all with an expiration of 18th of March 2022 and the strike price of $500, according to an official public filing. The value of the move is estimated to be between $500,001 and $1,000,000.

“Pelosi and her husband enjoy taking long-term positions on options,” wrote Davemanuel.com, who wrote about the move, saying that Tesla ended at $640.34 on the date of purchase, “which means the per contract price was probably within the range of $300-$330 each, as Tesla’s options have a large amount of extrinsic value (volatility and time).”

Telsa joined the S&P 500 right before Pelosi’s buy. 

But the company may gain more from the country’s “democratic wave” than from Pelosi’s move, according to a recent report by analyst Daniel Ives.

“A Biden Presidency and DNC Senate is a bullish foundation and a possible ‘game changer’ for Tesla and the overall EV market, with a more environmental agenda over the coming years,” said Ives, going on to predict that a bigger focus on tax credits and other incentives could benefit Tesla, in addition to Fisker, General Motors, and other companies.

Tesla is among the S&P listed companies expected to report their numbers this week. Tesla is anticipated to reveal net income of $1 billion, which is $1.04 per share. This is on a total sales of $10.5 billion after the market ends on Wednesday, according to a FactSet survey of 22 analysts.

In this same time a year previous, Tesla reported earnings of 42.8 cents per share on total sales of $7.4 billion and net income totaling $143 million.

The stock has increased 99.9% since the company’s last earnings report on Oct. 21.

Tesla went higher Friday, ending at $846.64 and went even further in after-hours trading on the Nasdaq. 

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Investors Scramble After Stock Crash ‘Signal’ Goes Public

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The market just had an amazing past 12 months. Investors pushed through the S&P 500 losing over a third of its value in under five weeks during the first quarter of 2020. Only to then experience a record-breaking rally which took the market all the way to all-time highs in just five months time.

Shockingly, 2020 ended with the S&P 500 still higher by 16%, which means an almost doubling of its normal annual return rate. Very good considering that the pandemic hit the economy hard.

Generally speaking, these numbers precede a market crash

Most investors are wondering if the market is overheating.

Let’s consider this: Since 1950, the S&P 500 has went through 38 corrections of 10% or higher. That’s one large move downward every 1.87 years. We might not know the month a crash could happen, or how bad it will be, but we do understand that one is always around the corner.

One thing we can do is study history for guidance. One sign in particular is currently flashing that big problems are nearly here.

The Shiller P/E ratio is based on past 10 years’ average inflation-adjusted earnings. And 150 years of this metric has an average of 16.8. But currently, the Shiller ratio for the S&P 500 is calculated at 34.5 — more than 2x its normal, historical average.

There have been just five occurrences when the S&P 500 has had a P/E above 30: 

  • 1929: Right after Black Tuesday, the Dow lost about 89% of its total value.
  • 1997-2000: Preceding the tech bubble burst, the Shiller ratio was at a record of 44.2. Then, almost 50% of the value of the S&P 500 was destroyed when the bubble burst, with the Nasdaq being slammed even harder.
  • Q3 2018: During Q3 of 2018, the ratio was over 30. This was right before the Q4 selloff when the S&P 500 shed as high as 19.8%.
  • Q4 2019/Q1 2020: Before the covid crash of 2020, the Shiller metric went over 30. The S&P 500 then dropped 34% in February and into March.

History teaches us that when the Shiller ratio goes over 30, bad things are coming. Of course, it’s not possible to predict when Covid might upend the best bull market in history. But regardless, history has shown when stocks reach two to three times higher than their long-term average, a crash happens soon after.

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