Editor's note: For this weekend's Masters Series, we're excited to do something different...

In short, it's a special two-part Q&A with our Director of Research Austin Root.

Austin is one of the smartest and most careful investors we've come across in the industry. He manages our suite of Stansberry Portfolio Solutions products, which just completed a banner year in 2020 despite all the craziness in the markets... And he also leads our crew of editors and analysts as they develop ideas for their own newsletters.

A former Stansberry Research subscriber himself, Austin has worked in senior roles at some of the most well-regarded investment groups in the world – like Steve Cohen's Capital Advisors and George Soros' Soros Fund Management... And he previously co-founded a New York-based hedge fund that had a strategic investment from Julian Robertson's famed Tiger Management firm.

We caught up with Austin a few days ago to find out his outlook on the markets today... learn how a pro like him goes about managing our Portfolio Solutions products... and talk a little bit about his path to Stansberry. (We also couldn't help but ask about his thoughts on bitcoin, too.) We covered a lot of ground, so we're splitting the discussion into two parts.

We hope you enjoy...

The Bull and Bear Cases for 2021

An interview with Austin Root, director of research, Stansberry Research

Corey McLaughlin: Austin, thank you for joining us. Let's get right into it... What's your assessment of the markets as we sit here today?

Austin Root: My base case expectation for the markets is that we push higher, but – and it's a big but – that markets are highly vulnerable to a shock.

Why do I think we're going higher? The market has rallied a lot and retail investment sentiment is very high, but there's still a number of things that can push us even further...

We continue to have more fiscal and monetary stimulus than we ever had contemplated prior to this pandemic. There's more liquidity and more dollars sloshing around than ever before.

If you think about where we're going to be in six months, while we've got an economy that's growing faster than it was in 2019, as a result of coming off a low base in 2020, we have a TINA ["there is no alternative"] environment with stocks. The investment alternatives are worse... So you have negative rates across Europe and Japan, you have very low interest rates for safe instruments in the U.S. All of those things are lower than they were in 2019.

On top of that, there's expectations for more fiscal stimulus, and we have the Federal Reserve saying that it's going to keep rates lower for longer than we ever thought before.

Before we kind of thought, "OK, if we get to a 2% inflation level, as we approach that, the Fed will take the foot off the pedal"... And now, they've told you the opposite, now they've told you they're going much further, that we've had below 2% inflation for so long that they're willing to run hot and run higher than that 2% for a while to almost balance things out.

This tells me that you're going to get stimulus and low rates for a very, very long time. And so, as the market prices in those low rates for longer, what they're willing to pay for something like equities goes up.

CM: That brings us nicely to the "valuation" discussion. Stocks are expensive today, right? But they could go higher...

AR: Exactly. When you look back at these market multiples [S&P 500 price-to-earnings ratio at 30 times], yes, the market is very high on any historical basis... But if you strip out the times when interest rates were much higher, then our multiples right now are not that crazy. They're a little high, but they're not a lot higher relative to other times when we've had really low interest rates.

We've seen some "animal spirits" and retail investors certainly showing a considerable interest in the market, and froth and investor sentiment is high.

But institutional sentiment is only a little bit high... There's still cash balances on the sidelines. More and more folks are having trouble with reinvesting bonds as they come due. And whereas, before you saw flows toward bonds from equities, you could see the opposite happening as some of these mature, and you can't get any yield on your bond capital.

So the 60/40 stock-bond portfolio switches to 80/20.

CM: So if that's the bull case for stocks in 2021, what's the bear case and how do you prepare for that?

AR: It won't take much of a shock to get this market moving down quite a bit because there's no safety net underneath it, other than the Fed and stimulus argument.

Pick a big stock... The "FAANG" stocks were, at the peak, roughly 25% of the S&P 500. And now that you add Tesla (TSLA) in there, they've come down a little bit... But the top six stocks now are still about 25% of the market. All of those could be cut in half, and they still are expensive stocks.

So if the next mutation or strain of this coronavirus is resistant to the vaccine... or it's even more deadly... or anything else that sends the market down... while I think the bias is up for stocks, I also want to find ways to increase our margin of safety with the portfolios [to] increase our portfolio protection.

CM: What do you mean by "margin of safety"?

AR: It's almost a barbell approach, where I want to own the great stuff, but I also want to have more portfolio protection.

I still want to stay long world-class companies, and great stocks, and great businesses that we own across the portfolios. I want to make sure that I'm owning stocks that I really do believe in, and ones that I would want to buy more of when they're down... instead of bailing out because I'm scared.

But I also want to hold more "dry powder." We're holding that in the form of cash or gold, and in some cases, bitcoin. And you want to consider portfolio hedges, in some cases.

CM: Speaking of bitcoin, what do you make of its ridiculous rise over the past several months?

AR: I don't necessarily think it's "ridiculous," but it's crazy how it has happened so quickly.

You've probably read my essay, "A Skeptic's Case for Investing in Bitcoin." I definitely came at bitcoin with a doubting mind, but my outlook over the long term is much higher for bitcoin.

I think it's just a better store of value than gold or cash given the finite supply. Everything that you own is a confidence game. Any store of value is a confidence game.

It's one of these self-fulfilling things that, the more people who believe in it and own it, it almost starts proving itself to be true. And then, the case is made even more.

It's not something for the majority of net worth, or even a majority of your dry powder. For instance, in our Capital Portfolio, we recommended a 4% allocation... And it has tripled, so we've trimmed that back. And we might trim it back again because it has done very well.

In the short term, I think the easy money has been made, but I do think that over the next 10 years, I'd be willing to take a bet with anyone... I'd bet that bitcoin is definitely worth more in 10 years than a dollar invested in cash or a dollar invested in a 10-year Treasury or gold today. And those are the two or three stores of value that I think are reasonable alternatives.

Bitcoin is the one that I like the best, even buying it at $32,000 a coin or whatever it is today.

Editor's note: We'll share the second half of this exclusive interview with Austin in tomorrow's Masters Series... He'll talk in detail about how he manages our Portfolio Solutions products, why picking individual stocks can be better than indexing, the piece of investment advice that changed the way he approaches investing, and much more.

In the meantime, we want to make sure you get Austin's complete thoughts on 2021... as well as how you can best put our research to work this year and in the years to come.

So we hope you'll tune in for our FREE beginning-of-the-year kickoff event with Austin, True Wealth editor Steve Sjuggerud, and Retirement Millionaire editor Dr. David "Doc" Eifrig next Tuesday night... It will go live at 8 p.m. Eastern time.

Click here to reserve your spot right now. One final note... Everyone who attends the event will learn the name and ticker symbol of their No. 1 stock recommendation for 2021.