• Are fiber optics becoming obsolete?
  • My take on portfolio rebalancing…
  • The future of the U.S. dollar…

Dear Reader,

I wanted to send another thank you to readers who attended my Pre-IPO Code Event this past Wednesday night.

I’ve spent over five years hunting for a way for normal investors to access the private markets. It’s unfair how institutional investors and high-net-worth individuals have been able to invest when the potential returns are highest… while retail investors are left with the scraps.

But now I’ve found the way to change the game…

With these “pre-IPO codes,” regular investors can finally invest before exciting companies go public and shares rocket higher. It’s not well understood right now. But that’s what’s giving us such an extraordinary opportunity.

That’s why I’m so excited about this latest idea. I’ve developed a whole new research product just to share these investments with readers.

If anyone missed out on Wednesday, it’s not too late. For just a few more days, you can go right here to watch the replay of my presentation and learn all the details of these pre-IPO codes.

And thanks again to all the new subscribers who are joining me on this new venture.

Now let’s turn 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.

Now let’s turn to today’s questions…

Why “wireless” internet won’t destroy fiber optics…

Let’s begin with a question on the future of fiber optics:

Hey, Jeff – How long do you think it will be before fiber-optic lines are obsolete? [A 5G recommendation in the portfolio] is losing ground. Best…

 – Patrick F.

Hey there, Patrick. Thanks for sending in your question.

Especially with the rise of 5G, some people have wondered whether we’ll soon see the end of our wired networks. After all, if most of us use “wireless” internet, why do we need fiber-optic cables?

And the simplest answer comes from how our networks actually work…

The reality is that the radio frequency spectrum on which 4G and 5G wireless networks are deployed is finite. It is very limited. And more people using the same spectrum results in degraded performance for each user.

Even though 5G speeds will increase a hundredfold, the spectrum in use will not increase by that magnitude. And spectrum is directly related to how much bandwidth/traffic a wireless network can handle.

While more spectrum has been allocated for 5G compared to 4G, the reality is that 5G will enable more bandwidth-intensive applications. The additional spectrum won’t offset the increase in data.

This is why fiber-optic networks are so critical to wireless network deployments. Fiber-optic networks don’t have a finite spectrum problem. The bandwidth available over fiber is magnitudes larger compared to the wireless networks. And more fiber can always be added, while the same can’t be said about spectrum.

Many consumers think that their phone calls hop from cell phone tower to cell phone tower until they reach the person on the other end of the line. It’s not entirely illogical. After all, these are “wireless” networks.

But the reality is different. To deliver a high-quality data service or phone call over a wireless network, the call has to be routed to a fiber-optic network as soon as possible.

That’s because fiber-optic lines send data at the speed of light. So data is sent and received with virtually no delay. This is what enables us to have phone calls without delay, even when we are speaking with someone halfway around the world.

And this delay will drop by about 99% with 5G compared to 4G… It will sound like the person on the end of the line is next door.

The reality is that when data is transmitted through a wireless network, less than 1% of that distance is transmitted wirelessly.

Here’s a visualization of how a wireless call actually takes place…

So as we can see, fiber networks won’t become outdated with 5G. In fact, they’ll be even more critical to 5G compared to 4G. Without them, 5G wireless networks would quickly become congested just like the 4G wireless networks are today.

And as I wrote in my recommendation for the company you mentioned (which I have anonymized out of respect for paid subscribers), the demand on our networks is growing each year for even more reasons than just 5G.

Over the past year, we’ve come to rely on our internet access more than ever. The pandemic has driven up data usage due to more people working from home, remote learning for children (and adults), and more online entertainment.

And not only that, more and more people in developing countries are gaining access to the internet each year. And with the next billion or two billion citizens coming online, we will need a remarkable upgrade in the internet backbone to handle all of the traffic… which will all be fiber.

So I am not worried at all about the company you mentioned, Patrick. We’re currently up almost 71% in our model portfolio, and I expect we’ll book even larger gains as time goes on and the need for this company’s services becomes even clearer.

Should we rebalance our portfolios each year?

Next, a reader wants to know more about rebalancing portfolios:

Since joining in January 2020, I have invested the same amount in each of your recommendations. The four portfolios have done well – thank you so much. I truly enjoy reading your research and recommendations. My question is: Should I rebalance all of the stocks for equal percentage of ownership?

 – Stephen L.

Hi, Stephen, and thanks for writing in. I’m glad to hear that you’ve been having success with our portfolios over the past year. We have another exciting year in front of us.

And you’ve asked an important question that may be on a number of minds as we start the new year. While I can’t give personalized investment advice, here’s my take on portfolio rebalancing.

As you noted, my official guidance is to invest the same initial amount in each recommendation of a portfolio. That way, we can feel confident we won’t miss out on the biggest winners.

And more broadly, we can think of each portfolio as a part of our overall investment strategy.

In The Near Future Report, we invest in large-cap stocks that are more well-established, but still have fantastic growth potential. These investments tend to be less volatile than smaller stocks, and thus a less risky asset class. As such, it may be appropriate for a larger portion of overall investment funds a subscriber has to invest.

In Exponential Tech Investor, we are investing in small- or micro-cap stocks with higher upside potential and also greater volatility. This may make it appropriate for a smaller portion of overall investment funds than The Near Future Report.

Early Stage Trader and my newest product, Blank Check Investor, focus on even smaller companies, which may make it appropriate for them to make up an even smaller portion of an investor’s overall portfolio.

Obviously, not all stocks in my portfolio rise at the same percentage gains. So it may appear that the portfolio is not balanced because one stock is up 380% and the other is up 62%. As long as each position is initially established with roughly the same amount in each investment, it’s fine. Each stock has growth spurts typically due to positive catalysts of one kind or another.

I do not recommend rebalancing portfolios of stocks that have increased in value. In general, we want to hold on to our winners and let them run.

There is no need to sell half of a position in a company that has doubled in order to balance a portfolio. Doing that may have tax consequences, incur unnecessary trading fees, and, most importantly, miss out on future gains.

With all that in mind, I don’t officially recommend investors buy or sell any of our positions outside of the alerts I send out. But many readers have found great success by using my research with their own investment and trading strategies.

And if readers have specific questions about their own portfolio weightings, I recommend speaking with a financial advisor who can help you make the right choices for your personal situation.

Is hyperinflation on the way?

Let’s conclude with a question about the value of the U.S. dollar:

Hey Jeff,

Love your work and research. Keep it up!

Question I have for you is, what do you think is going to happen to the value of the dollar as we move forward? It’s no secret that the incoming administration is going to print money and relieve debt like never before. Pretty scary to be honest.

It only seems logical that we will begin to see hyperinflation and eventually the death of the almighty dollar. A Venezuela-like demise. What do you think the Fed will do about this? They’re already doing pretty much all they can as it is. Do you think we’ll see a radical change to a new currency?

Your research has definitely proven to be sound and plenty capable of creating very nice returns, but if the dollar is worthless and we get 60% taxes, what’s the point?

 – Nate W.

Hi, Nate, and thanks for reading. I appreciate the kind words.

I deeply share your concerns. And yes, the value of the dollar will decline rapidly, and eventually we will see some terrible inflation.

The good news, however, is that it will take a lot longer than we think. A perfect example is the eight years of the Obama administration. That administration printed $10 trillion over the course of eight years. It was worse than my worst projections.

Did we experience hyperinflation? Not at all. And gold ran up less than 100% during that period. Gold bugs had been predicting $10,000-plus an ounce if that kind of money printing happened. What did we get? A peak of less than $1,800 an ounce. We didn’t even get past $2,000.

Even with bad fiscal policies and profligate spending, inflation has remained relatively under control. The reality is that all developed and developing countries are also devaluing their currencies every year with similar policies. The U.S. will only get in trouble if its debt levels start to exceed countries like Italy and Japan (as a percent of GDP), and the U.S. loses its reserve currency status.

And there’s another angle I want to present.

Simply, our monetary system has already been undergoing a shift prior to the election.

As I wrote at the end of last year during my prediction series, the People’s Bank of China (PBC) held a lottery for citizens who wanted to be the first to test its new central bank digital currency (CBDC). So far, 50,000 citizens are already using it to transact.

And a key thing about China’s new digital currency is that there is no anonymity. The government can track and tax each of the transactions people make using it.

This move is going to light a fire in the U.S. to launch its own digital currency – no matter which person or party is in charge.

Why? Because right now, the U.S. dollar is the world’s reserve currency. But what we’re seeing here is a radically new financial system taking shape.

China has already launched its digital currency in a limited fashion. Russia also has plans to release a digital version of the ruble. And I’ve written about other smaller nations also experimenting with their own CBDCs. If the U.S. doesn’t find a way to launch a CBDC, it risks becoming uncompetitive in this new world.

And the other reason why this is inevitable is because the incentives for the U.S. government – or any government, for that matter – are simply too high.

The idea of a CBDC in America really gained traction this past year with COVID-19. A digital dollar would have made it much easier for the government to distribute stimulus funds. We wouldn’t have had to wait weeks to get a stimulus check or receive a direct deposit. We’d simply wake up one day and see that these digital dollars had been “air-dropped” into our digital wallets accessible on our smartphones.

But there’s another side to this, too. It would give the federal government even tighter control over the money we use.

Think about it. A CBDC would allow the government to track and tax every transaction we ever make. The Internal Revenue Service (IRS) would have a field day. And, of course, the government could “print” more digital dollars whenever it wanted… even more egregiously than what will happen in 2021. What government wouldn’t want that sort of control?

And in this scenario, physical cash would disappear. Once a “Fed Coin” is issued, the government would certainly begin the process of removing all paper bills and coinage from the system.

For starters, there’d be no need for them anymore. But physical cash also can’t be tracked the way a CBDC could be. And if the goal is to track every financial transaction we make, then cash can’t be part of the equation.

I don’t say this to worry my readers. It’s a hot button topic. But this is the direction we’re headed.

So what can we all do about it? Here are a few ideas:

  • Finance, or refinance, our primary residence with a fixed 30-year loan at the lowest possible rate. We’ll be paying back the loan over time with inflated dollars, and we can invest the money that we didn’t put into the house and make higher returns.

  • Finance income-producing properties also using fixed interest rate loans. These could be rental properties or timberland. It is the same reason as above, and the benefit is that land is a fixed asset.

  • Invest in digital assets like cryptocurrencies. Well-designed digital assets, like bitcoin, are an interesting alternative. But they do not come without risk. If governments see them as too much of a threat, they can make it very difficult to transact with cryptocurrencies.

  • Precious metals like gold and silver might be interesting, but after watching what happened between 2008 and 2016, I’m not convinced at all. Even with all of the stimulus spending, gold is still only at $1,825 an ounce.

What’s my best antidote for this fiscal silliness?

We’re going to continue to outsmart the market. We’ll continue to make smart investments in high-growth sectors of the market and make returns at a far greater rate of return than the rate of inflation.

That way, we’ll stay ahead of the government’s fiscal mismanagement. Yes, our taxes will increase even beyond today’s unreasonable levels. But we will continue to earn a superior return on our hard-earned income, and we’ll stay ahead of the game.

That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here.

Have a good weekend.

Regards,

Jeff Brown
Editor, The Bleeding Edge

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