• My outlook on a stock market crash…
  • “Am I just being a crybaby newbie?”
  • Guidance on asset allocation for our portfolios…

Dear Reader,

Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology.

Today, I’ll do my best to answer them.

If you have a question you’d like answered next week, be sure you submit it right here.

Also, like I’ve been sharing lately, there’s one piece of news I want to put on your radar… especially if you’ve been tracking Apple’s movements.

Apple is on the cusp of its next big launch… and it’s going to lead to an incredible opportunity – the likes of which we’ve only seen twice in the last 20 years. And I believe it could create over $12 trillion of wealth… making it a massive opportunity for investors.

But no one is talking about this situation… yet.

I want to get my readers in position for this event right now, so you can profit as Apple makes its move. That’s why I’m holding a confidential briefing on September 22, at 8 p.m. ET, to reveal what this situation is… and how we can profit.

If you haven’t signed up yet, I’d highly encourage you to do so now. Simply go right here to add your name to the list.

Now let’s turn to our questions…

Should we expect a market crash?

Let’s begin with a question on a stock market crash:

Jeff: I value your opinion and would like to know your view on all the negative comments on “get out of the stock market, a crash is coming any day.” I am a retiree and can’t afford my stock investments to disappear. I know you have predicted things accurately before. Should I stop buying and consider selling? Thank you for your expertise.

– Nadia B.

Hi, Nadia. Thank you for writing in with your question. This is certainly a topic of great concern to many readers right now. It’s also a concern of mine.

With the record level of money printing that we have seen in the last 18 months, and indulgent spending by the federal government without any regard for national debt or budgetary deficits, we are absolutely guaranteed to have not only a major market crash in the future, but a depression.

The key question, of course, is… when?

Many believe that time is imminent. It is not. The very things we are worried about that will ultimately cause the crash are also the things that will keep the equity markets alive in the near future.

Unlike the 2008–2009 financial crisis, we’re not sitting on a house of cards this time. We don’t have the same kind of absurd levels of leverage throughout the banking system that we did back then.

We can be absolutely certain that the money printing will continue for the next two years at least into the 2024 elections. And we can also be certain that the Federal Reserve will continue to maintain artificially low interest rates.

Yet inflation will continue to rise. The prices of homes and rentals will continue to increase in this environment, as will the costs of many other goods and services.

As investors, what we need to understand is that in a market condition like this, the government is devaluing our dollars. That’s why this kind of monetary policy is called the “stealth tax.”

The smart money knows this. If we just leave our dollars in the bank, or even buy U.S. Treasury bonds, we are actually losing money. Those same dollars will purchase smaller amounts of goods and services in the near future.

This environment forces institutional funds and smart investors to deploy their capital in order to generate returns that are higher than the actual inflation rate. This is why we are seeing such healthy market conditions, and in some cases, many overvalued assets.

As investors, we can protect ourselves in an environment like this in two ways. We can invest in assets that are operating in industries that are growing much faster than the rate of inflation. 

And we can invest in assets at reasonable and attractive valuations, rather than purchasing those stocks that are grossly overvalued. By doing so, we increase our overall portfolio returns and also provide ourselves with some cushion in the event of a market downturn.

With all that said, there are some other reasons why I remain bullish right now.

While it might not feel like it, the pandemic – believe it or not – is nearly over. More than 383 million vaccine doses have been administered here in the U.S. Worldwide, more than 5.85 billion doses have been given.

As a result, many people are getting back to life as usual. Especially now that the unemployment benefits have ended, I expect more people will be heading back to work as well. I expect to see consumption and spending follow. 

And we can already see that the demand for so many products is far greater than the current supply. We are still in the same economic growth mode that existed before the pandemic started.

We’re also seeing a confluence of technological advancements. Ironically, the efficiencies these technologies bring will offset some of the terrible monetary policies.

Many goods and services will improve and get cheaper or more convenient. There is no better way to grow our wealth than investing in the companies that are delivering these new, disruptive products and services.

We also have record levels of private capital – more than $3 trillion – being invested in the most promising private, early-stage companies on the planet. Venture capital investment is at record levels. And, of course, the most exciting areas are in technology and biotechnology.

In closing, I want my readers to know that I am spending a lot more time monitoring the macroeconomic environment and monetary policy than I ever have before. My team and I are watching carefully for any signs that might indicate we’ll be entering a downturn. 

I don’t expect that anytime soon, but when I do develop my own gut feeling that things are looking perilous, my readers will be the first to know. And I’ll be providing guidance to take profits and close out many positions across my model portfolios.

As for your question on whether it’s time to buy or sell, Nadia – I can’t give personalized advice.

If you’re concerned at all about your risk level for your retirement, however, I’d highly recommend speaking with a financial advisor who can spend the necessary time with you to understand your complete financial situation and provide some appropriate guidance.

How to handle crypto fees…

Next, a reader wants to know more about crypto fees:

Jeff: I’ve been sticking my toe in the crypto world with a few small buys just to get the hang of it. I’ve been making my buys through Coinbase and find that regardless of what I buy, the upfront fees are about 10%. That level of upfront cost seems too high to me. I hate seeing 10% of my money fly down the rathole before the company shows me a little love with a return on my investment.

Is this level of upfront/transaction cost normal in the crypto world? Is this cost too high in your opinion, or am I just being a crybaby newbie? Love my Brownstone Unlimited subscription and only wish I had moved to your service long ago. Your advice is MONEY!!!

– Robert W.

Hi, Robert, and thanks for writing in. I’m glad you’ve been enjoying Brownstone Unlimited and are exploring cryptocurrencies with us in our new Unchained Profits research service! 

That first step into digital assets is always a big leap. But once we get comfortable, we realize that there is an entirely new world out there in an incredible asset class. It’s a learning process, and I hope you stick with it. I promise that the time you invest will pay off many times over.

Coinbase is an excellent platform for transacting and holding cryptocurrencies. It’s user-friendly and has set the standard for security and regulatory compliance in the industry. That’s why we’ve recommended it for Unchained Profits subscribers. It is an easy, safe onramp into the world of cryptocurrencies.

As for Coinbase, there are two versions of its platform: Coinbase and Coinbase Pro. We discussed some of the differences between the two at the start of this month.

The Coinbase version is best suited for easy, one-click investing. It’s not overly complicated. There are no order books, and investors don’t need to understand various order types. That makes it a great tool for those looking to just get started.

The basic conversion fee from U.S dollars to a cryptocurrency is typically 1.49%, and there are some smaller fees when converting from one digital asset to another, just as with any other stock or digital asset exchange. The fees are higher if a user is buying cryptocurrency using a debit or credit card, usually 3.99%.

For that reason, I strongly recommend setting up an ACH transfer by linking a bank account to your Coinbase account. This keeps the fees to a minimum.

In total, the most expensive “legs” are going from fiat currency to digital, and from digital back to fiat. The fees associated with trading one digital asset to another are comparatively small.

If users are willing to do a bit more work, they can bypass some of these fees by using Coinbase Pro. Coinbase Pro is aimed at more experienced users. Investors will need to know how to place an order on the order book.

To help subscribers of Unchained Profits, my team is putting together some instructions for our user guide (Unchained Profits subscribers can access it on our special reports page) that will walk investors through how to minimize the fees incurred on Coinbase’s platform.

This involves depositing fiat currency into USD Coin (USDC), transferring the USDC to the Coinbase Pro platform, and then placing a limit order bid. The process takes several days to complete because funds need to clear before users can spend their deposits on Coinbase Pro. But it will limit the fees incurred.

With all that said, my general recommendation is to keep things as simple as possible, especially for investors that are new to the asset class. While these onramping fees are a lot higher than what we would see when buying equities, the returns in digital assets are worth these conversions.

My one key recommendation is to avoid going back and forth between fiat to crypto and back again.

The smartest strategy is simply to keep a portion of your assets in the digital realm and continue to invest them over a period of years, only taking them out when you absolutely need fiat currency. The added advantage of doing so is that those fees are bound to decrease over time. 

As the world of digital assets and cryptocurrencies becomes more widespread, so will competition amongst exchanges. When that happens, fees always drop.

Please keep an eye out for a walkthrough in the near future. And if any readers would like to join us in investing in the exciting world of cryptocurrencies and blockchain technology, you can go right here for more information.

How to think about asset allocation…

Let’s conclude with a question about asset allocation:

Dear Jeff, I am a Brownstone Unlimited subscriber, with access to all the portfolios of Brownstone Research. You and your team now have seven portfolios to follow and update, and in my opinion, you are all doing a great job. Of course, not every recommendation is an instant success. Sometimes, we need to be more patient, but that doesn’t have to do anything with the high quality of your research.

But besides learning to be patient, an investor has to think about the asset allocation of his portfolio. I know you can’t give personalized advice, but I think the time has come for a general recommendation about how to spread the investments over the seven portfolios: a kind of pyramid or tower-shaped figure with seven layers, each layer representing a certain percentage of the total assets. I think many of us are curious to see how you would see this.

– Peter B.

Hi, Peter, and thanks for being an Unlimited subscriber. I’m glad you’re finding value in all of my research, and it always puts a smile on my face when my subscribers write in asking questions like these.

Smart investors will always have an asset allocation model in mind for their own personal circumstances and where they are in their lives. I’m so happy you are thinking about it.

As you noted, I can’t give personalized investment advice. Asset allocation is so directly tied to each individual’s financial situation, personal goals, their particular moment in time, and their period in life that it is impossible for me to do so.

For example, one investor may be nearing retirement and aiming for more conservative or income-focused investments. Another might have decades of investing ahead of them and prefer higher-growth investment opportunities or even speculative investments.

So I highly recommend investors work with a financial advisor who can help them consider where they are in life, their financial and investment objectives, their desired lifestyle, and other relevant factors when creating an asset allocation plan.

And remember – we will often want to shift our allocations over time as these factors change.

Of course, I have been keeping this concept in mind with our Brownstone Research services. I have designed my research to be complementary with very little overlap. Each product is designed to give my subscribers access to a different investment asset class.

More specifically:

  • The Near Future Report is designed for large-capitalization growth stocks. These are very safe, buy-and-hold recommendations that we intend to hold for more than 12 months for long-term capital gains.

    Well-established, large-capitalization stocks in growth mode are some of the safest investments and therefore could take up a larger percentage of an investor’s portfolio.

  • Exponential Tech Investor focuses on higher-risk but much higher-reward technology and biotechnology companies. These are small- or sometimes micro-capitalization companies that we want to invest in before Wall Street understands their value.

    Again, this is a buy-and-hold strategy. We expect to hold these positions for more than 12 months to capture long-term capital gains.

  • Early Stage Trader is a trading service. We trade on high-probability investment opportunities in early-stage biotechnology companies that are typically pre-product revenue. Our goal is triple-digit gains in less than a year.

    So we intend to be in and out of trades in a matter of months. Generally speaking, this kind of trading would typically be a smaller percentage of an overall portfolio.

  • In Blank Check Speculator, we are investing in special purpose acquisition corporations (SPACs). These public holding companies merge with private companies, providing a “back door” way for the private companies to go public – and for us to effectively gain access to “pre-IPO” shares.

    SPACs are a very unique asset class with a strong element of speculation. They carry great potential upside while limiting downside risk – if a SPAC doesn’t find a private company to merge with, it has to return the funds that it raised to investors. SPACs are truly a unique asset class in that regard. By definition, they are conservative, yet still have great upside potential.

  • My most recent addition, Unchained Profits, offers subscribers investment research on the cryptocurrency and blockchain technology space. These investments can be very volatile, and they carry upside potential that is as great, or greater, than the stocks that I cover in Exponential Tech Investor. As such, a smaller percentage of a portfolio may be appropriate for these recommendations.

  • We also brought expert analyst Jason Bodner under the Brownstone Research banner earlier this year. His fantastic research service, Outlier Investor, tracks Big Money buying in strong stocks within all sectors, and recommendations are held for an average of nine months.

    I really love Jason’s work because he has a systematic approach to finding fantastic investment opportunities with strong momentum in every sector. This allows us to gain exposure in any sector and company that is moving up, including those outside of technology and biotechnology. This could be a larger portion of a portfolio.

  • And finally, I also provide some VIP recommendations for Brownstone Unlimited These are micro-cap companies, private investments, and beta recommendations for products under development. As such, they are more exclusive and potentially more volatile than other investments.

I tend to think of asset allocation models like a wheel, whereby certain percentages of our investable capital are allocated to certain asset classes.

As I mentioned above, a good financial advisor can help investors determine the right percentage to allocate to each of these services and asset classes. But this general guidance will hopefully provide some useful information for making those decisions.

I’m also actively working on new research products that will give my readers access to other asset classes. Over time, my goal is to create a complete suite of investment research services that will support investors in building their own complete asset allocation model. 

I often joke internally that the last investment research service that I will add to the Brownstone Research product portfolio will be one based on fixed income. My goal is to help investors through their entire lifecycle of investing from the early stage of investing, to growing significant capital and wealth, to setting up for retirement and income.

And with The Near Future Report, Exponential Tech Investor, Early Stage Trader, and Blank Check Speculator, my recommendation for each individual portfolio is to build a basket of companies with roughly the same amount of money invested in each.

Remember – it doesn’t matter how many shares in a company you buy. What matters is the total amount invested.

If we invest $1,000 in a stock trading at $10, and we also invest $1,000 in a stock trading at $100, and both return 100%, then our gains – in dollar terms – will be precisely the same.

Balanced portfolios are always a smart investment strategy. They ensure that we always gain exposure to the big winners, and they also limit any downside caused by going all in on a company that doesn’t do well.

That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me at [email protected].

Have a good weekend.

Regards,

Jeff Brown
Editor, The Bleeding Edge

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