How to Play the End Game

It’s been another crazy week in markets. There are a bunch of topics I want to discuss with you. So today we’re going to look at five stories, with brief commentary on each.

 

Grant Williams and Bill Fleckenstein Interview Jim Grant about “The End Game”

In this podcast, three of my favorite financial voices discuss what the coming financial “end game” might look like. If you’re curious about what will happen with the economy and markets going forward, this is a must-listen. Grant, Jim and Bill are three of the sharpest minds in finance. Hearing them discuss such an important topic was fascinating.

 

Institutional Demand For Bitcoin Soars As Grayscale Reveals Record-Breaking Near $1 Billion Quarter

Institutional investors continue their move into Bitcoin. In this article, Forbes reports that Grayscale — which sells Bitcoin mostly to large financial firms — is breaking new records in terms of inflows. Here’s a snippet from the article:

New York-based Grayscale, which allows accredited investors to buy bitcoin and other major cryptocurrencies through its funds, recorded inflows of $905.8 million for its second quarter—nearly double the previous quarterly high of $503.7 million in the first three months of this year.

Institutional investors, primarily hedge funds, accounted for 84% of Grayscale bitcoin and cryptocurrency fund investment in the second quarter of 2020, up from 81% for the trailing 12 months. 

“With so much inflow to Grayscale Bitcoin Trust relative to newly-mined bitcoin, there is a significant reduction in supply-side pressure, which may be a positive sign for bitcoin price appreciation,” Grayscale wrote in its quarterly report, released on Wednesday.

This is a very positive development for Bitcoin bulls. The world is clearly looking for alternative investments. I believe Bitcoin and precious metals will continue to benefit from this trend.

 

The Silver Rally is Likely Far From Over

One of my favorite precious metals analysts, Otavio Costa, recently posted the following chart on Twitter. It shows the price of silver compared to the U.S. money supply (M2) over time.

Silver to Money Supply Ratio

As you can see, compared to the amount of money that’s been printed, silver prices are still historically low. This chart might overstate the case somewhat. But I believe there’s something to this argument. While precious metals are due for a pullback after this incredible run, I remain quite bullish on precious metals and miners over the long run.

 

Best Investing Strategy for Investors? DRIP – Dividend Reinvestment Plan

In this video on YouTube, my friend Marc Lichtenfeld discusses the importance of dividend reinvestment plans (DRIP). Marc lays out easy-to-understand examples of how DRIP can help grow your portfolio over time. 

I’m a huge believer in dividend reinvestment because I’ve seen the powerful effect that compounding can have on a portfolio. If you don’t reinvest your dividends currently, watch this video. Marc makes a compelling case. And I’m 100% in agreement with him on this.

 

The Bubble 500

In this article, Dan Rasmussen of Verdad Cap takes a look at what could be the 500 most overvalued stocks in the U.S. He describes in detail just how overvalued these stocks are. He also examines the implications for the broader market. Here’s an excerpt:

In aggregate, the Bubble 500 trade at 13–14x sales and make essentially zero profit in aggregate, meaning zero margins and zero return on assets…

Paying >10x revenue for exciting growth stories is historically one of the worst long-term investment methodologies ever. Our research on similarly priced, similarly unprofitable new-issue stocks with similar growth prospects suggests that this is because of their dramatically high failure rate and disproportionate risk of extreme multiple compression.

Things are looking frothy out there. Be wary. Don’t get caught up in FOMO. This market is not cheap.