October Begins the Best 3 Months of the Year

No matter who you are, there’s at least one thing you like about the last three months of the year.

This is the time of year when holidays cluster. Schools and workplaces close. Families gather to celebrate.

As an investor, I like the fact that stocks deliver their best returns of the year in the last quarter.

In an average year, the Dow Jones Industrial Average and the S&P 500 produce half of their gains in this three-month period. For the Nasdaq Composite Index, the gain in the last three months of the year is about 40% of the annual average return.

Skeptics might question this trend. They may believe there’s no reason for this behavior. But there is.

Swinging for the Fences

Stocks go up when investors add money to their investment accounts. In the fourth quarter, individuals and professionals create demand for stocks.

In an average year, the Dow Jones Industrial Average and the S&P 500 produce half of their gains in this three-month period.

Individuals might fund retirement accounts as the end of the year approaches. They might also fund educational accounts as news stories about tuition costs scare them into action.

Professionals also buy in the fourth quarter. Annual reports to shareholders list all the positions they own. Managers sometimes take part in “window dressing” to make those reports look better.

Window dressing is a powerful motivation.

Bonuses for hedge fund managers depend on fourth-quarter performance. Better performance means a better bonus.

This is often the time of year when managers “swing for the fences” and make aggressive trades in pursuit of a bonus.

Once again, skeptics might not want to believe something like window dressing exists. Academic studies confirm managers sometimes buy stocks just to show off. But studies confirm this doesn’t really help the managers.

One study concluded: “Window dressers also have poor past performance, possess little skill, and incur high portfolio turnover and trade costs, characteristics which, in turn, result in worse future performance.”

A Time to Buy

Now, since window dressing exists, it can benefit highly skilled investors.

Knowing the fourth quarter could deliver large gains, investors should buy aggressive stocks. If you’re not comfortable picking stocks, buy ETFs that track aggressive indexes.

An ETF is an exchange-traded fund. These are investments that trade, like stocks. An ETF usually owns a collection of stocks, like the stocks that make up the S&P 500 Index.

In the fourth quarter, the best ETF to own is the PowerShares QQQ ETF (Nasdaq: QQQ). This ETF tracks the Nasdaq 100 Index and includes companies like Facebook, Amazon, Apple, Netflix and Alphabet (the parent of Google).

Now, the fourth quarter has also included some of the worst market crashes in history. In October 1987, the Dow fell 22.6% in one day. In 2008, the index declined more than 30% at one point.

Including those losses, history says this is a time to buy.

It will be important to manage risk, but it will also be important to accept some risk. Based on history, now is definitely not the time to avoid the stock market.


Michael Carr, CMT
Editor, Peak Velocity Trader

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Source: Banyan Hill

Sell These 3 Popular High-Yield Stocks Before They Crash

Sometimes what looks like a great investment deal is just the opposite. I see many investors and financial writers who view stocks trading at a discount to book value as “good deals”. The reality is that these “good deals” are often a danger to your portfolio value. This especially applies to the business development company (BDC) sector.

The book or net asset value of a company is the assets owned minus debt divided by the number of shares outstanding. You can view it as the amount an investor would receive for each share if the company were to be liquidated. It is an understandable assumption that if a stock is trading at a discount to the net asset value, an investor picks up some “free” value by purchasing shares at less than the liquidation value. If you add in a high dividend yield, this type of stock looks like a winner. Yet several features of pass-through and the BDC business structures make this analysis a path to losing money on this type of stock.

Companies that use a pass-through business structure do not pay corporate income taxes in exchange for paying out the majority –usually 90%– of net income as dividends to investors. Since these companies have little or no retained income to fund growth, the usual practice is to pay for growth projects or acquisitions with a combination of issuing new equity and debt capital. A company with stock trading at a premium has a significant advantage when raising capital through additional stock issuance. For example, a company price at 1.2 times book value can buy $120 worth of assets for every $100 of new stock issue. For a company with stock trading at a discount, issuing new shares means the company will overpay for assets to grow the business. If the stock is at a 20% discount to NAV, using stock to raise capital means the company will pay $125 for $100 of asset growth.

BDCs face another challenge. A BDC must pay out at least 90% of the net interest income it earns as dividends and the BDC rules do not allow these companies to set up loan loss reserves. By law, BDCs make business loans to high-risk, non-public mid-sized corporations. Because of the types of lending clients it serves, a BDC cannot avoid loan losses. If the company does not have a growth plan, the asset base will steadily bleed off. Another rule limits debt to 50% of assets, so a BDC must issue stock, just to stay even.

For a BDC, having a stock that trades at a deep discount to NAV inevitably leads to a death spiral of declining interest income earnings and dividend reductions. It is very, very difficult for a BDC management team to stop the decline, as the dividend cuts lead to share price declines, which leads to a deeper discount to NAV. No matter what you may read, avoid any BDC trading at a significant discount to NAV or book value. Here are three you’ll want to avoid:

Prospect Capital Corporation (NASDAQ: PSEC) is one of the larger BDC’s with a $2.4 billion market cap. In August PSEC slashed its dividend by 28%. This was the second dividend reduction in the last two-and-a-half years. The stock trades at a 28% discount to NAV, so is well into the death spiral. Do not be tempted by the 10.8% yield.

Apollo Investment Corp. (NASDAQ: AINV) is a $1.4 billion market cap BDC. The company reduced its dividend by 25% in 2016. AINV trades at a 10% discount to NAV. The current yield is 10.0% and the company’s net investment income just covered the dividend for the 2017 second quarter.

Small cap BDC Medley Capital Corp (NYSE: MCC) may look attractive with its 11% yield. However, the stock is now trading at a 31% discount to book value. Earlier in 2017 Medley Capital was forced to cut its dividend by 27%. Shares fell 16% in on day and despite small bump in July they’ve continued to slide.

High-yields can look attractive in a low yield environment where none of the traditional safer investments like bonds and CDs pay anything near what we expect or need… especially if you’re looking to live off it for retirement money. That’s why it pays to look at closely at numbers like NAV and cash flow.

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The Dollar vs. Bitcoin

The U.S. government will pay $474 billion in interest on its debt this year. And that’s with rates around 1%.

Total debt is now $19.845 trillion, and it just exceeded annual GDP.

Our unfunded liabilities top $100 trillion.

I believe that eventually we’re headed for a financial reset. I don’t know exactly when or how. That will depend on the whims of bankers and politicians.

But I can’t picture any long-term (20-year) scenario where the dollar does well. There appears to be zero chance of cutting federal spending anytime soon. It should have happened long ago, yet the spending seems destined to keep rising until the whole thing implodes.

Eventually the interest on the debt will become unsustainable, and we’ll have to start monetizing our debt on a massive scale. I’m not saying we’ll default on our bonds. I’m simply questioning whether the dollars they’re paid back with will have much value.

When this happens, we’ll have an opportunity to choose a new system. I would vote for a cattle-based monetary system over the current one, personally.

But luckily we have bitcoin. The rise of cryptocurrencies like bitcoin may prove to be a catalyst that speeds the transition.


Cryptocurrencies offer a path forward to a new and better monetary system.

A system where the money supply can be hard-coded. One that doesn’t require middlemen… and that vastly increases efficiency.

It’s no coincidence that bitcoin is rising now.

Bitcoin was launched amid bank bailouts in 2009 by a guy who thought the financial system was broken. Fortunately, Satoshi Nakamoto was a genius, and he created a brilliant piece of software.

It’s growing exponentially now because people are looking at the current system, shaking their heads and then looking for something else.

And bitcoin is transforming the financial world with blockchain because the technology is superior.

People want this. They want a way to store value and trusted transactions that doesn’t suck.

If this crazy monetary revolution does happen, don’t you want to own at least a piece of it?

Cryptocurrency ownership rates are still well under 1%. If you do buy, you’ll still be doing so extremely early.

Good investing,

Adam Sharp
Co-Founder, Early Investing

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Buy These 3 Stocks Before the Next Big Computer Hack

According to a Lloyds of London report issued in July, a global cyber attack could result in damages of as much as $121.4 billion. But based on the growing frequency of such cyber attacks and hacks, this estimate will likely turn out to be too conservative.

The reason is straightforward. The world’s volume of data has been growing exponentially year after year, with the trend really accelerating after 2005. This gives cyber criminals more and more opportunity to gain access to massive amounts of data in a single breach. And potentially a bigger payoff.

Research from IT services firm DXC.technology gives us an idea of how much of our data is out there, exposed to unsavory people. Its research forecast that…

  • By 2020, over one-third of all data will live in or pass through the cloud.
  • In 2020, data production is estimated to be 44 times greater than in 2009. That’s a 4,300% increase!

The reality is that our personal data as well as corporate and government data will become more and more exposed to those who would exploit access to such data. That does open though a world of opportunity for investors. More on that later.

But first, more on this nasty underside of life in the 21stcentury coming to the fore again as the credit-reporting agency Equifax (NYSE: EFX) revealed a massive breach of its cyber defenses.

Equifax Debacle

Equifax, with $3.1 billion in revenues in 2016, has a dual role as both a credit-data bureau and fraud monitor. Yet, its cyber defenses could be best described as a sieve.

The hack, which began in mid-May, went undetected for two and a half months. Exposed were the personal records of up to 143 million Americans. That’s nearly half the U.S. population, folks.

The hackers gained access to both the credit card files as well as the company’s back-end systems that store exhaustive data profiles on consumers. This data included Social Security numbers, driver’s license numbers and other sensitive information.

This isn’t the industry’s first brush with poor security of customers’ data. In 2013, it was discovered that an identity thief in Vietnam ran a service that helped others access millions of Americans’ credit reports from a company Experian PLC (OTC: EXPGY) had recently purchased.

Of course, massive data breaches aren’t confined to just this industry. Last December, Yahoo (now part of Verizon (NYSE: VZ) revealed that attacks between 2013 and 2016 had compromised the personal information of more than a billion users. The data stolen included names, phone numbers, birth dates and passwords.

But Equifax’s approach to the breach seemed particularly egregious to me.

First, it did not report the breach for 40 days – just beating the deadline of 45 days, which certain states require. Then, if you were affected by the hack and sign up for Equifax’s offer of one year of its TrustedID product, which scans the black web for your stolen information, you lose all rights to sue the company.

And finally, three Equifax executives sold $1.8 million worth of stock just days after the breach was discovered. That may have been a coincidence, but still the stench from Equifax is almost overwhelming. Talk about a stock to avoid.

More Dangers Lurk

You and I are more at risk though from more than just fraud being committed in our name. Other types of hackers are aiming at other important targets in our lives.

According to a report from cyber security company Symantec (Nasdaq: SYMC), hackers have breached the operational systems of utility companies in the U.S. Symantec says they are lying in wait with the ability to switch off the power and sabotage computer networks.

The group of hackers goes by several names – Dragonfly, Energetic Bear and Berserk Bear. The group is believed to have ties to Russia and has been around for a while. In 2014, it is believed to have compromised the systems of more than 1,000 organizations in 84 countries.

Access is almost too easy for these hackers. With the recent hack of U.S. utilities, entry was gained by simply tricking employees into opening Microsoft Word documents that steal employees’ usernames and passwords.

The danger is very real. Eric Chien of Symantec said that even if hackers compromised a small electric utility company, they could put the power grid at risk by either removing or putting too much power into the grid.

This should not come as a shock to any of us. In July, the Department of Homeland Security and the FBI warned that the U.S. energy industry had been targeted by hackers.

Cybersecurity Investments

While these hackers may be waiting for the exact right moment to strike, you should not.

Wall Street continues to largely ignore the threat of cyberattacks and hacks. This has left most cybersecurity stocks trailing the performance of other technology sectors, making them relative bargains.

For the broadest possible exposure to the sector, I like the ETFMG Prime Cyber Security ETF (NYSE: HACK). It is up nearly 13% year-to-date and just 10% over the 52 weeks.

Its portfolio consists of 25 stocks, with its top five positions being: Palo Alto Networks (NYSE: PANW)Cisco Systems (Nasdaq: CSCO), the aforementioned Symantec, Splunk (Nasdaq: SPLK) and the British cybersecurity firm, Sophos Group.

This group of stocks contains my next two choices – Symantec and Palo Alto Networks. These companies are benefiting from the growth of the IT security industry from $75 billion in 2015 to $101 billion in 2018, according to IT research firm Gartner.

Symantec provides a wide range of Internet security solutions to both individuals (41% of revenue) and businesses (59% of revenue). You probably have one of its Norton products installed on your computer.

The company’s last earnings report was strong with revenues jumping nearly 33% year-on-year. These kind of results should continue propelling the stock higher (up 34.5% year-to-date and 31.25% over the past 52 weeks).

Palo Alto Networks offers network security solutions, such as next-generation firewall products, to businesses, service providers and governments. As of the end of 2016, the company was third in the security appliance segment (in terms of revenues) trailing only Cisco Systems and Check Point Software Technologies (Nasdaq: CHKP).

It continues gaining customers, with it recently adding 3,000 to its 42,500 global customer base. I also like the fact that Palo Alto’s balance sheet is strong with cash on the books and no debt obligations.

As with Symantec, its latest quarterly report was good with revenues climbing 27% year-on-year. Those kinds of numbers should finally get the stock going. It is up more than 16% year-to-date, but just 1% over the past year.

Owning some sort of cybersecurity is one of the rare no-brainers in the investment world, especially in light of recent events like the Equifax breach.

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3 Electric Car Stocks to Crush Elon Musk and Tesla

There was news out last week about electric cars that will change the industry forever. And it was bigger than anything that Elon Musk has ever said.

What could possibly be more important than Elon Musk when it comes to electric vehicles, you ask? That’s easy – the world’s largest vehicle market – China.

Comments were published by Xinhua (China’s official news agency), from the vice-minister of industry and information technology, Xin Guobin, that the government will likely announce the future date when production of internal combustion engine vehicles will be banned. In going down this road, China is following the path already taken by countries like France and the U.K. that have prohibited the manufacture of such vehicles, beginning in 2040.

China’s move is so important because of its size – it manufactures the most vehicles, with about 28 million vehicles produced in 2016 according to data from the International Organization of Motor Vehicle Manufacturers. And it is already the biggest electric car market, with 507,000 such vehicles produced domestically last year, a rise of over 50% from the prior year.

And yet, still only one in five Chinese citizens own a vehicle!

An official announcement of a ban on internal combustion vehicles while give an almost unimaginable boost to the global electric vehicle industry. This news already set off a frenzy among investors worldwide.

So let’s ‘imagine’ a bit… I’m going to reveal to you the best ways to play this milestone for the electric vehicle industry. And it does not involve buying Elon Musk’s Tesla Motors (Nasdaq: TSLA).

China’s Electric Powerhouse

I was almost amused at the reaction of some U.S. investors. They bid up the price of Tesla by more than 10% last week after the news broke.

Tesla will be lucky to get even a tiny sliver of the Chinese market. It should not be surprising to you, but the companies that will gain the vast majority of market share will be Chinese companies.

The Chinese government has zeroed in on electric vehicles as a “strategic and emerging industry”. To this end, the government plans a 48-fold increase in charging stations nationwide to 4.8 million by 2020. That’s because the government’s goal is to have 5 million electric vehicles on the road by then.

There are a number of Chinese companies already in the electric car race. One example is Volvo, which is controlled by the parent company of Geely Automobile (OTC: GELYY), will introduce its first 100% electric car in China in 2019.

Leading the race already in China is BYD (OTC: BYDDY), of which Warren Buffet owns 8.25%. It is currently the world’s largest electric car maker and produced nearly 47,000 electric and hybrid vehicles in the first seven months of 2017.

And it is also the world’s biggest producer of electric car batteries in the world. While Tesla investors are breathlessly awaiting the company’s Gigafactory to crank up annual production of batteries to one gigawatt, BYD passed that mark more than three years ago. BYD is bringing online an additional four gigawatts of battery-making capacity by year’s end. That will make its annual battery output 12 times larger than Tesla’s!

So its stock nearly 20% move up in Hong Kong is a bit more justified than Tesla’s, although it is probably too much too soon. By the way, Buffett’s investment into BYD in 2008 has now grown more than sixfold.

Electric Dreams to Come True

You may wonder whether all the hype surrounding the future of electric vehicles is justified. I believe it is – the only disagreements are as to the timing of the changeover to an electric future.

Research from Bloomberg New Energy Finance (BNEF) forecast that falling battery costs will make electric vehicles cheaper than conventional ones by 2025. Batteries currently account for roughly 50% the cost of an electric car, but BNEF says these costs will fall 77% by 2030.

The automaker Renault also believes the cost difference between the two types of vehicles will be negligible by the mid-2020s. That could mean there are more than 37 million electric vehicles on the road in 2025, according to Navigant Research.

Looking even further ahead, BNEF predicts there will be 530 million electric vehicles traveling on global highways in 2040, a third of the overall market. Even OPEC says there will be 266 million such vehicles by then, having quintupled its forecast number over the past year.

Of course, all of these forecasts are contingent on one thing – the falling price of batteries and cars.

That brings me to that best path of investing for you in this electric future… the electric car revolution cannot happen without the necessary commodities that go into the making of electric cars, and most importantly – the batteries.

New Commodities Boom

Thanks to rising production of electric vehicles, there will increasing demand for metals and minerals such as copper, aluminum, nickel, manganese, graphite and certain rare earths.

Let’s look at copper, for example. Electric cars contain about three times more copper than a regular vehicle. That’s because copper is needed in these vehicles’ motors, inverters and charging points as well as in the lithium-ion batteries. And don’t forget about all those charging stations that will be needed.

Copper recently hit a three-year high, rising 18% for the year at one point. While a pullback is underway, rising demand for copper from electric cars meeting dwindling supplies will mean higher prices going forward. New mine supplies will be needed, perhaps as much as 20 million metric tons by 2025. That much added supply is unlikely considering the long lead times (a decade or more) it takes to bring a copper mine online.

Another example of commodities needed for electric vehicles are two rare earths – neodymium and praseodymium – whose prices have over 50% so far this year. That’s because some electric carmakers, such as Tesla, are choosing to use rare earth-based permanent magnet motors rather than induction motors because they are lighter and more powerful. Argonaut Research says such usage will cause demand for these two rare earths to soar by 250% over the next decade.

And now I want to tell you about the hottest commodities sector…

Lithium and Cobalt

That hottest of all commodities sector centers on the key elements needed in lithium-ion batteries – lithium and cobalt (needed for the cathodes). These commodities account for roughly 60% of the cost of a lithium-ion battery, so says Simon Moores of the specialized consultancy, Benchmark Mineral Intelligence.

And these prices are soaring, according to data from Benchmark. Since 2015, lithium prices have quadrupled and cobalt prices have doubled. The price gains, especially for cobalt, have only accelerated this year.

These gains are highly likely to continue. Another consultancy, Roskill, forecast demand for lithium will soar fourfold by 2025. I’m sure that’s why the London Metal Exchange is considering starting to trade a lithium contract.  And cobalt demand will also soar.

There are intricacies to these specialized markets. For instance, lithium can be obtained either from lithium brine deposits, which are found in salt flats, or it can be mined from spudumene lithium hard rock deposits. In general, brine is a lower-cost asset to develop. But then there are other considerations such as the richness of the find and its location.

Then after mining, there are specialized types and multiple grades of lithium and cobalt that are needed for lithium-ion batteries. Some of these include lithium carbonate, lithium hydroxide, cobalt sulphate and cobalt hydroxide.

Investors almost got it right this past week when they poured money into the Global X Lithium & Battery Tech ETF (NYSE: LIT). Investors sent the price of this ETF up by 10.25% last week, pushing this year’s gain to 55.25%.

This is the right space to be in, but LIT is the wrong instrument. Its top position – 23.5% of the portfolio – is FMC Corporation (NYSE: FMC), which I would not touch with a 10-foot pole.

How would I play the electric car revolution?

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The Future Is Here. Now’s the Time to Grab These Investments

“Think about all the money that will be made.”

We were having a somewhat uneducated discussion about the money that will be made from self-driving cars.

At the time, self-driving cars were still just in the movies. But the possibility of them being on our roads soon was in the works.

“Every road will need new sensors for the car to know it is still in its lane. The stop lights will have to talk to the cars too. This is going to make someone a ton of money.”

At the time, it seemed like the future of self-driving cars relied on expensive changes, like the need for computer chips inserted in everything.

Fast-forward to today and, man, were we wrong.

 Now Tesla Inc. (Nasdaq: TSLA) has multiple cars already on roads that are able to drive themselves, yet our roads have not added one chip to assist in this transition.

So how’s it possible for self-driving cars to work without these changes?

Well, it’s all in the advancement of technology. But to be specific, it’s in the high-powered cameras that Tesla uses, and the uses for this technology extend well beyond self-driving cars.

And that’s our opportunity to profit today.

Our Never-Ending Push for Convenience

Apple Inc. (Nasdaq: AAPL) announced last week that its high-end iPhone will use facial recognition software to secure your phone. But its only possible thanks to improvements to its camera display and other camera-based sensors.

Other experts behind self-driving car technology recently designed a security camera for your home that identifies objects and people more specifically — such as if your kids are home instead of an adult. Or if an adult enters your home with your kids. Even if your dog got out. The possibilities are endless.

And as Apple showed off in its presentation, when you give the world the greatest facial recognition technology that exists, what do they do with it? They make a poop “animoji” (an emoji that your face controls).

At this point, a Minority Report-type of environment is not hard to envision.

Your self-driving car drops you off at the mall entrance. From the moment you enter, every sign, every store automatically knows you are there. They know what you like or don’t like right away, and can point you in the right direction. Checkout no longer becomes a physical experience.

Amazon.com Inc. (Nasdaq: AMZN) is testing several stores where you scan a device to enter the store, pick up what you want and simply walk out. The checkout process is an automatic experience that charges you for the items you selected.

With the improvements in recent years in facial recognition software, that’s easily the next step in our never-ending push for convenience.

It’s seamless, as Apple proved you can unlock your phone in just seconds by looking at it.

No wallets, no phones and no computer chips. Just your face.

That’s the future, and here’s how you can profit…

The Big Winners

Each of the stocks mentioned so far are all winners in the space.

Tesla has worked to a great extent with using camera technology, and its breakthroughs could easily lead to another profit segment for the company.

Apple could eventually use its knowledge and facial recognition software to sell to other companies or license its own new product line to other businesses. Plus, it makes many of its own chips now, and that could end up as a new revenue stream to sell to other companies if necessary.

Amazon is all over the place with its operations, but it is looking to change our retail experience. So it is going to be part of the future of retail.

But it’s stocks like Intel Corp. (Nasdaq: INTC) that are going to be the big winners.

The company recently bought Mobileye, one of the leading tech stocks in the self-driving car industry.

Its technology is what helps cars detect other cars on the road, people walking and other objects. This is the technology that retailers will eventually use to know if you put the leather jacket in your cart, or if you grabbed the pants that were just below it.

It will be the seamless checkout Amazon is looking for, and it doesn’t require added infrastructure.

All it requires are a few cameras located in the store, which are already in place for security reasons.

We are not talking decades away, either. This will happen in the next few years. Now is the time to grab these investments.


Chad Shoop, CMT
Editor, Automatic Profits Alert

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The State of Blockchain in Five Charts

It’s been a busy few months for all things blockchain. (If you’re interested in learning more about how blockchain works, I suggest you read my article to quickly get up to speed.)

CoinDesk captures the key trends and events with its just-issued “State of Blockchain Q2 2017” report. Click here to read the full 115-page report, which has dozens of charts and graphs.

For a quicker review, read my commentary below on some of the report’s most noteworthy findings.

600%-Plus Returns, and It’s Only September

This hyperbolic rise is not bitcoin-driven. Bitcoin has “only” risen by 320%. Earlier in the year, its share of the total cryptocurrency market was around 80%. Now it’s 40%.

It’s the other currencies – like Ripple, Litecoin and Ethereum – that have ignited cryptocurrency’s price explosion.

Historically, cryptocurrency prices have featured large swings in both directions. It’s obvious we’re in a big upswing right now, with Irma-like tailwinds pushing prices higher and higher.

It’s also obvious a correction is coming.

A Correction: How Soon? How Much? Everybody Has an Opinion…

A majority (58%) of those surveyed in the report believe we’re in a bubble, while 30% think we’re not. These are “blockchain enthusiasts” being surveyed, so there’s a bias toward optimism at play here.

A slew of ICOs is coming down the pike this month and next. They could very well drive prices much higher… or restrictions out of China could initiate a correction in the very near future.

Look, I’m no fortune-teller. Nobody knows how much longer this current climb will continue. Nor does anybody know what the extent of the correction will be.

But here’s the thing: It’s not something I’m losing sleep over. The cryptocurrency market will correct and then begin a new climb that will reach new highs. That’s the historic pattern. Nothing changes.

I’m not nearly smart enough to time the peak or the bottom. I’m keeping it real simple. As far as I’m concerned, the trend is your friend, and this trend is still pointing upward. So I’ll continue to invest.

And, post-correction, I’ll make sure to have cash on hand to take advantage of some nice price points as the market begins its next climb up the charts.

We should all remember this is no silly fad. Some of the most successful venture capital firms – including Andreessen Horowitz, DFJ, Sequoia Capital and Union Square Ventures – have made large investments in blockchain and digital currency companies.

Hundreds of potentially transformative new blockchain technologies are being developed, but perhaps none are generating as much excitement as Ethereum’s “smart contract” blockchain technology.

Don’t Ignore Ethereum

It’s hard to ignore Ethereum’s 3,800% price jump since the beginning of 2017. This period also saw an explosion of ether usage. (Ether is the currency that runs the Ethereum network.)

Transactions involving ether coins have come significantly closer to bitcoin transaction volume, but ether still has a ways to go. Bitcoin averages 291,000 transactions a day.

A big reason for ether’s rise? The explosion of recent ICOs, many of which raised money using the ether currency.

ICO Funding Starting to Outpace VC Firms

ICO funding in the second quarter easily exceeded money from venture capital firms. But look at the above chart (on the right) and you’ll see that VC funding still dominates blockchain fundraising.

ICOs can be volatile. And they’re not easy to participate in. But without them, regular everyday investors would be completely shut out of investing this early in exciting blockchain companies.

ICOs are like startup crowdfunding. Both allow you to invest very early. Likewise, in both cases, most of these young companies will fail. But the ones that get over the hump and put themselves in a position to experience hypergrowth?

They can hand – and already are handing – investors unbelievable returns.

But What About the Government?

The SEC will impose regulations. It’s just a matter of time.

The question is will they be fair or – and this is my great fear – overly restrictive?

If the regulations are balanced and fair, it would be a good thing that would provide much-needed regulatory certainty. If not…

Then the U.S. government would be putting itself on the wrong side of history, clamping down on capital investment flows to technologies that could grow into massive businesses and wealth generators.

In July, the SEC ruled that the Decentralized Autonomous Organization’s coins were securities and thus subject to the agency’s regulation. But the SEC offered no “bright-line” test as to what constitutes a security.

The SEC said each ICO must be considered individually.

So we’re waiting for more guidance from the government.

If this follows the same path as crowdfunding regulations, the government will be cautious, but it’ll allow ICOs to continue under certain conditions and as long as certain rules are followed.

It’s a big test for the government. And it needs to get it right.

Good investing,

Andy Gordon
Founder, Early Investing

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It’s Bitcoin’s Time to Shine

One of the first purchases ever made with bitcoin was pizza.

In 2009, an early user sent 10,000 coins to a friend who in exchange ordered him two Papa John’s pizzas.

Those same coins used to order pizza would be worth $27 million today.

Back then, the cryptocurrency community was tiny. There were no exchanges.

Today, around $2 billion worth of bitcoin is traded daily. That’s a higher volume than that of the SPDR Gold Trust (the most popular gold ETF), as recently noted by Bank of America.

You can spend bitcoin at an increasing number of places. But as I’ve mentioned before, that’s not the real purpose.

Bitcoin is digital gold. You hold it, and it appreciates in value over time as it spreads to more users.

Having Its Moment

The cards are lined up perfectly for bitcoin. Its primary competitors are all vulnerable to disruption.

For example:

  • Trust in the government is at an all-time low.
  • Stocks are expensive.
  • The government is printing fiat money like never before.
  • Precious metals have been flat.
  • Bond and CD yields are tiny.

Then there’s bitcoin, the best-performing asset ever, up 45,000X or so. It’s the only asset that can be easily sent around the world, safely stored on a USB stick in your pocket, and turned into cash almost anywhere.

Bitcoin is “mined” by very powerful specialized computers. It takes a lot of energy to do this cryptographic work (which helps secure the network). Bitcoin mining has become an industry, with hundreds of millions of dollars being spent on equipment and energy.

Bitcoin is also decentralized. It runs on hundreds of thousands of computers all over the world. That means you can’t shut it down. The network cannot be seized or easily blocked.

Bitcoin evolves over time. Changes to the software can be proposed by anyone and are voted on by bitcoin holders. Miners have significant influence as well.


Bitcoin’s biggest problem is that it can’t handle today’s transaction volume. The network’s jammed, so transactions can be slow, often taking hours to confirm.

Multiple fixes are in the works and are being fiercely debated by miners and owners.

But I’m not too worried about this. It’s in everyone’s best interest to fix the issues, and some of the smartest people in the world are working on these problems.

That’s another thing about bitcoin – it attracts math geeks, techies, libertarians and alternative investors. This is a good (and large) demographic for an asset to have.

Broadening the Base

Bitcoin’s base is expanding. It used to be hard to buy bitcoin, which restricted growth. Not today. It takes just a few minutes, and you can pay with a credit card or a debit from your bank.

In the coming days, we’ll have a detailed 10-page cryptocurrency report coming out. It has four specific coins I’m bullish on (one of which was up 25% yesterday).

All members of First Stage Investor will get access to it. My latest presentation, which includes the aforementioned cryptocurrency report AND four coin plays, will hit your inbox in the next week or so.

Click here to learn more…

What Happens if Bitcoin Goes Mainstream?

Over the last few years, two new investment opportunities of note have come online.

Both have the potential to rise in value more than anything else available to the general public… in history.

The first is private startup equity (equity crowdfunding). This gives everyone the chance to invest very early in companies that are small enough to grow 100 times – or more.

The second is digital currencies (bitcoin and others). And that’s what we’re going to talk about today.

Specifically, we’re going to explore what would happen if bitcoin went mainstream.

As is the case with most new disruptive technologies, the world’s never seen anything quite like crypto. There’s still quite a bit of skepticism to overcome.

Bitcoin is still in the very early adopter phase, which means it still has quite a ways to go, assuming we’re headed for mainstream adoption.

To get an idea of what “going mainstream” looks like, here’s a chart showing the rate at which consumers adopted various new technologies.

You’ll notice that each curve is roughly S-shaped, and that over time, adoption grows faster. For example, it took around 35 years for the refrigerator to reach complete adoption, while it only took around 15 years for the cellphone.

With bitcoin and cryptocurrencies, we’re in the first inning. Perhaps 1% of Americans own any at all. Crypto adoption today is where cellphone adoption was in 1992.

Cryptocurrencies are high-risk, high-reward assets. As such, they should make up only a small percentage of your overall portfolio.

It’s not a sure thing it’ll hit mainstream adoption. But it’s looking more likely every day.

Because as more people make money off bitcoin, more of their friends hear about it. More people get interested and eventually become comfortable enough to invest.

This is bitcoin’s secret to viral organic adoption. And unless a black swan event happens, it will continue doing its thing.

What’s the Price?

Let’s say 1% of Americans own bitcoin today – roughly 3 million people. How will the price look as the other 318 million buy?

And let’s not forget that bitcoin is huge in Asia, Europe and South America. And it’s getting more popular in Africa too.

There are only 21 million bitcoins that can exist. Fifteen million already exist today, and the rest will be mined over the coming decades.

It’s not a lot of coins to go around, is it?

Each coin costs around $2,600 today. If bitcoin goes mainstream, the price will go orders of magnitude higher.

The volatility will be extreme at times. But progress marches on. Every day it gets easier and safer to buy bitcoin, and consumers have more options to choose from.

So if you think you’ve missed out on bitcoin, look a little further into the future.

How to Trade Facebook (FB) With Options

Death, taxes, and Facebook (NASDAQ: FB) user growth… it should be the new saying. Social media giant Facebook continues to grow its user base quarter after quarter with almost military-like discipline. It seems like the only thing that could halt the growth is the limited population of the planet. Eventually, FB will run out of users, but does it even really matter once you have an audience of over 2 billion people to market to?

More importantly, user growth is clearly resulting in robust ad revenues. Last quarter, FB generated $9.2 billion in ad revenue, 87% coming from mobile ads. Quarter over quarter, FB’s monthly active users jumped 3.4% to over 2 billion. Daily active users came in at 1.3 billion – a stunning amount of people if you think about it. Remember, that’s daily users. No wonder FB’s ad platform is so dang popular.

What’s more, earnings far exceeded Wall Street’s expectations, coming in at $3.9 billion or $1.32 per share. Analysts had expected a $1.13 EPS. By the way, that profit number was even bigger than Alphabet’s (NASDAQ: GOOGL) this past quarter.

But here’s the thing…

Despite overall amazing numbers this past quarter, there is one weak link in FB’s impressive armor. Ad revenue growth is slowing. There simply isn’t enough real estate on mobile devices to offer any more ads. And, ads in the website’s timeline (the main spot for news and info) are already maxed out. While it’s really through no fault of Facebook, it’s a big deal for a company which generates the vast majority of its revenue through ad sales.

However, as you can clearly see in the chart, investors don’t seem in the last bit concerned about FB’s ad space dilemma. After earnings, the stock shot up to new highs. Yes, FB did post excellent numbers, but investors also tend to be very forward looking.

Fortunately for FB, management is also very forward looking. Mark Zuckerberg and the executive team realized a long time ago in order to continue growing, the company was going to have to diversify its revenue sources. That’s the reason they shelled out big bucks for products like Instagram and WhatsApp.

While FB’s legacy product may be running out of ad space, there is still plenty of opportunity with the company’s other products. WhatsApp has a user base of one billion users and sports 250 million daily users to boot. Instagram has 700 million users. Moreover, FB will soon be rolling out an enterprise messaging product to compete with Slack. Business software is a whole new realm of potential revenues.

As such, it doesn’t seem like FB is going to run out of new revenue channels anytime soon. Obviously, investors agree, judging by the buying occurring post earnings. So, what’s the best way for options traders to trade FB?

If you are a fan of FB but are concerned about buying the stock after a big run up, one strategy you could use is selling cash secured puts. By selling a put at the price you want to buy the stock at, you can earn income while you wait for the stock to pull back to your price. (Keep in mind, you need to have enough money in your account to cover owning 100 shares of the stock per options contract.)

For example, let’s say you’d like to purchase FB shares at $165, about $7 lower than where we are at the time of this writing. September 15th 165 puts could be sold for about $2.25. That means you’d collect $225 per contract in premium by selling the put.

If FB doesn’t drop below $165 by expiration, you get to keep the money and simply repeat the process (selling another put expiring in a month or two). However, if the stock does drop below the strike, you’ll get assigned the shares on expiration, thus getting long at the price you want. Either way you win. That’s why cash secured puts can be a great way to get long a stock at the price you desire.

Stock Research Made Simple