America's biggest companies take aim at each other... The next critical battlegrounds for 'Big Tech'... Good news for a Hong Kong IPO... Wrapping up our crypto Q-and-A... Don't miss Eric Wade's special crypto event with Ron Paul tomorrow night...
Last Thursday, our colleague Dan Ferris discussed the collision course between the U.S. and China...
More specifically, he cited the concept of "Thucydides's Trap."
Coined by international policy writer Graham Allison... Thucydides's Trap essentially says that when a rising geopolitical power gets big enough, conflict – usually violent conflict – with the reigning power is inevitable.
A scan of the financial headlines over the past few weeks suggests a different Thucydidean clash is already confronting us...
Some of the biggest companies in America have been taking aim at each other...
Entertainment giant Disney (DIS) yanked its content from streaming service Netflix (NFLX), and last week celebrated the hugely successful launch of its competing service Disney+.
Nike (NKE) announced its divorce from online retailer Amazon (AMZN). The sneaker behemoth ended a two-year-old deal to make Amazon the primary retail site for its products. Nike now plans to focus on building up its own e-commerce site.
And Amazon revealed that it's appealing the U.S. Defense Department's decision to give rival Microsoft (MSFT) a 10-year, $10 billion contract to modernize the military's computer systems.
To some degree, these events are just the nature of a competitive market.
But it's notable that the largest, fast-growing tech stocks are in the middle of all the action...
The so-called "FAANG" stocks have been the poster children of our historic bull market.
It's well-documented how the share prices of Internet-focused tech stocks like Facebook (FB), Amazon, Apple (AAPL), Netflix, and Alphabet/Google (GOOGL) – the FAANG stocks – have exploded over the past 10 years...
Amazon is up more than 1,200% since 2009. Google, the laggard of the group, is only up more than 600%.
You can throw Microsoft into the club as well... Its shares have posted a roughly 700% return over the past decade.
Or consider this...
The most valuable technology brands in 2009 were Microsoft and International Business Machines (IBM), both worth around $59 billion, according to research firm Interbrand. The only more valuable brand at the time was Coca-Cola (at $67 billion). Also among the Top 15 were General Electric ($53 billion), Nokia ($3.6 billion), Intel ($31 billion), and Hewlett-Packard ($24 billion).
By 2018, three of the top five most valuable brands were Apple ($202 billion), Alphabet/Google ($150 billion), and Amazon ($87 billion). Facebook's brand weighed in at $46 billion. Microsoft managed to hold its own among the upstarts... Interbrand pegged the company's brand at $88 billion last year.
The FAANGs have traditionally had their clear areas of strength...
Matt Weinschenk, the lead analyst for Retirement Millionaire editor Dr. David Eifrig, who is long several of these stocks in his various publications, noted that most of these companies have a core area in which they are the undisputed leader.
For example, Amazon is the dominant online retailer, and Google is the unrivaled provider of Internet search services. However, as Matt told us in a private note earlier this week...
But they are all trying to find what's next to keep growing. So they keep competing on all the ancillary "start-ups."
These tech colossuses are expanding into areas like payment technology... music streaming... "wearable" devices... health technology... and online advertising.
That's why the Amazon-Microsoft dispute may be the most important of the recent headline-making clashes. It's focused on a key battleground for these rivals...
Cloud computing is not an ancillary business anymore...
The Joint Enterprise Defense Infrastructure ("JEDI") program is the U.S. military's effort to both integrate and modernize its computer systems. We described the effort in the August 27 Digest...
The basic idea is to create a single cloud capable of supporting real-time decision-making by warfighters anywhere in the world. Currently, the Pentagon operates more than 500 cloud-computing platforms, which require thousands of servers and different cloud providers. It's a mess, and it makes it difficult to quickly access and analyze data.
The huge payday set up the contract-award process as a clash of technology titans. Amazon, Alphabet/Google, IBM, Microsoft, and Oracle (ORCL) were all vying to win.
Microsoft's victory surprised some experts who thought Amazon had an edge, since it had built a cloud-based system for the Central Intelligence Agency.
And you can count Amazon among the surprised... The Financial Times reported recently that the company filed paperwork with the U.S. Court of Federal Claims to protest the award.
Amazon was among the first businesses to make a major move into cloud computing.
Hosting client businesses' applications and files on Amazon servers now represents about 13% of its revenues - bringing in $8.9 billion for the third quarter of 2019. But Microsoft has entered the arena and is making huge strides, Weinschenk said.
Whether or not Amazon's complaint amounts to more than sour grapes, the JEDI contract is a very public sign that the company is not guaranteed to roll over the competition like it has done in the retail world.
If you want to follow which of the mega-tech companies can continue to grow and grow, watch these conflicts...
And one of the next critical battlegrounds to watch is online payments.
We wrote in Friday's Digest about Alphabet's recent announcement that it will offer checking accounts through its Google Pay app. As Austin Root, our director of research and portfolio manager for our Stansberry Portfolio Solutions products, told us earlier this week...
Currently all the big tech names are competing around the edges. To date, the only successful new entrants into payments have partnered with Visa, Mastercard, and Amex, rather than against them.
This friendly relationship has in part helped the big credit-card companies become even bigger. (Visa and Mastercard sport market caps of $390 billion and $280 billion, respectively.) However, as Austin added, it might not be that way for long...
Things like Facebook's Libra cryptocurrency, Facebook Pay, Paypal's Venmo, Square's CashApp, and Apple Pay could upend digital payments in a big way going forward. If so, you know all the tech giants will want to be there.
Finally, as if we haven't talked enough about IPOs already this year...
In a year that will be partly remembered for its string of out-of-the-ordinary initial public offerings ("IPOs") – from the foolishness of WeWork to the meatlessness of Beyond Meat (BYND) – we're not done yet...
We'll cover the looming IPO of Saudi oil giant Aramco in a future Digest... but today we want to talk about Chinese e-commerce giant Alibaba's (BABA) Hong Kong listing.
Alibaba is considered China's equivalent of Amazon. It has a $484 billion market cap and, just last week, Alibaba's "Singles Day" 24-hour shopping extravaganza actually crushed Amazon's total Prime Day sales from the summer. Alibaba said that in its first hour, it generated $13 billion in sales, nearly double what Amazon did in two days.
This week, Alibaba is near the end of the process of raising $13.4 billion with a secondary stock listing in Hong Kong... where the daily street battles and protests have not dampened investor enthusiasm.
In fact, Alibaba is exceeding its own expectations in the IPO process...
As our colleague C. Scott Garliss at the Stansberry NewsWire wrote on Monday, Alibaba is expected to close the books early on its Hong Kong IPO "roadshow"... likely because of the positive response the company has already received from institutional and retail investors about buying shares.
Scott has valuable experience when it comes to IPOs...
He was a part of this process several times during his Wall Street days before joining Stansberry Research. And he said an early close is typically a good sign... indicating strong demand. That dovetails with the bullish argument that our Steve Sjuggerud and his True Wealth Opportunities: China team have made about Alibaba's secondary listing for months.
When reports first surfaced this summer of Alibaba's plans to list shares in Hong Kong, we asked our colleague Brett Eversole, Steve's lead analyst, about the idea. He told us it would be a "super bullish" development and pointed to one big reason...
Historically, Hong Kong didn't allow dual-listed shares, but that seems to be changing. And because the Shanghai and Shenzhen connects now exist, a Hong Kong listing would also allow mainland investors to own shares for the first time.
Brett reiterated this fact to Scott on Monday... "I don't think the masses get that it will attract mainland dollars for the first time," he told Scott.
Alibaba only went public on the New York Stock Exchange in 2014 because of Hong Kong's "one share, one vote" principle. That rule changed last year when the Hong Kong Stock Exchange said it would begin offering dual-class shares in a move made to encourage major Chinese IPOs.
That's exactly what has played out...
And while the political situation remains uncertain in Hong Kong, it certainly hasn't hurt Alibaba's already existing listing in the U.S.
BABA shares have gone up 20% since the protests broke out five months ago.
And now, it doesn't appear the unrest will hurt the company's Hong Kong listing, either. Demand is high, and as the Wall Street Journal reported earlier this week, a total of $18 billion has flowed into the Hong Kong stock market from the rest of China since June.
To learn more about the opportunities in China, how to set up your brokerage account to invest directly in Hong Kong-listed stocks, and why as much as $2 trillion could rush into Chinese stocks in the coming years, be sure to check out this special offer for Steve's True Wealth Opportunities: China research.
What You Want to Know About Cryptos...
But Are Too Embarrassed to Ask
We're wrapping up our special Q&A session on cryptos in today's Digest...
Recently, Crypto Capital editor Eric Wade and analyst Fred Marion have answered several common questions about the industry. They began with two basic questions on cryptos last Thursday... addressed how to separate good cryptos from ones that are junk on Friday... and noted in yesterday's Digest that buying mainstream cryptos is easier than ever before.
Don't forget... Eric will sit down with special guest Dr. Ron Paul for a massive crypto event tomorrow night at 8 p.m. Eastern time. During this free event, Eric will share all the details about one tiny crypto that could soon become the most talked-about investment in America... and create hundreds of surprise millionaires. Register for the event right here.
Now, let's dive into the final batch of questions...
Couldn't bitcoin crash again like it did last year? Is it really a good store of value?
It's no secret that bitcoin is extremely volatile...
In 2017, its price soared from less than $1,000 to as high as $20,000 at its peak in December of that year. But then, last year, it went through a deep bear market. The price of bitcoin plunged about 85% from its all-time high to around $3,200 by late 2018.
If you factor in that volatility – and keep in mind, this is a young asset class – then you can consider bitcoin to be an extremely speculative store of value. But as I (Eric) told a group of investors recently, I believe we'll see the volatility settle down once bitcoin's total market cap grows to more than $1 trillion. That's up about 500% to 600% from its current level.
Like a penny stock that trades a few times a day, the bitcoin market can get whipsawed by just a few big orders. As the market grows, it will be less susceptible to the whims of large traders. It's anyone's guess how long that will take, but I believe we could see a $1 trillion market cap for bitcoin in as little as 24 months.
I've also told people that the only thing bitcoin stores perfectly is... bitcoin.
If you're asking for a way to store U.S. dollars, that may sound like a smarty-pants answer. But storing dollars isn't what bitcoin is good for. And frankly, bitcoin was released at a time when the Federal Reserve was flooding the country with more dollars...
So bitcoin wasn't built to protect you from losing dollars. Instead, it's an alternative to holding all of your wealth in dollars... which lose their value in the long run due to inflation.
At this year's Stansberry Conference in Las Vegas, I made this point...
If my great grandfather had set aside $1,000 for me a century ago, I would still have $1,000. But the purchasing power of that $1,000 would have plunged more than 95%.
So if you're talking about storing dollars, bitcoin has already endured periods where you could have increased your dollars by 1000%-plus. For example, 2017. And other times, like in 2018, you would have reduced your dollars by 85%...
When I first became interested in bitcoin, it cost around $300. After all the volatility, I could sell one bitcoin for around $8,000 today. In my case, the bitcoin stored value extremely well because I've held it for a long time... and it has appreciated in value as I've held onto it.
With that said, a "Black Swan" (or unpredictable) event can always cause a dramatic crash in prices of any asset. Bitcoin isn't excluded from that... We can't predict the future.
That's why we always encourage people to keep their investments small and reasonable for speculative assets like cryptos. But remember, the general, long-term trend is clear...
Bitcoin prices are heading higher.
With a limited supply and a falling inflation rate, more users should always translate into higher prices. And bitcoin offers an escape hatch from the dollar's steady devaluation.
How do I limit my risk?
That's simple... You should treat your bitcoin stake like any other investment.
As we just noted in our response to the last question, you should keep your bitcoin investments small and reasonable. Don't invest more than you can afford to lose.
Take the time to educate yourself on safely storing your bitcoin. Always research smaller cryptos before entering a position, too. You want to be sure that it's safe to own.
Because crypto is such a new and rapidly changing field, it has attracted plenty of charlatans. In Crypto Capital, our reports are designed to steer you away from scams... and educate and inform you on the most promising investment opportunities in the space.
As we mentioned yesterday, a lot of people start with as little as $50 to $100 in cryptos just so they can learn how everything works (as far as the process of the exchange, wallet, etc.)...
That's perfectly fine!
In time, you'll start to learn how to invest without emotions. Also, only buy amounts you can manage and only invest in cryptos you believe in. That's an excellent way to limit risk.
How will regulation affect the crypto industry?
Regulation is a double-edged sword...
On one hand, it protects individual investors from scams and keeps money out of the hands of the bad actors. On the other hand, U.S. regulations have chased some of the world's biggest crypto companies offshore.
The U.S. Securities and Exchange Commission ("SEC") has claimed that most cryptos qualify as securities without explaining exactly why. That means many exchanges aren't even sure which cryptos they can offer to American traders... .
That's bad for crypto and bad for American investors...
Binance.com, the world's largest crypto exchange by volume, stopped serving American traders in June. It has since launched Binance.us... but so far, that platform does just $6 million or so in volume per day. Binance.com does nearly 150 times as much – and trades about one-seventh the number of tokens as Binance.com.
Several other exchanges have stopped serving Americans altogether, including Poloniex, Huobi Global, HitBTC, OceanEx... and the list goes on. In fact, about half of the Top 30 crypto exchanges by volume block Americans right now.
We believe regulators and lawmakers recognize the problem... And we're optimistic that we'll soon get balanced rules and much-needed clarity. In the meantime, while your trading venues may be limited, nothing restricts you from buying and holding cryptos in the U.S.
Why would global governments allow people to use cryptos instead of traditional currency? What if the U.S. government decided to "protect us from scammers and speculators" and "fix" the bitcoin "exchange rate" at, say, $100 per bitcoin?
Bitcoin is a truly global currency. A bank or government doesn't have to approve its use.
That means a country could ban bitcoin, but short of cutting people off from the Internet, the country can't stop its citizens from using it. We saw this happen recently in China...
When the Chinese government banned mainstream crypto exchanges in 2017, people found new ways to trade... either offshore or directly with one another. All the government did was force entrepreneurs, companies, and investments to move outside the country.
Now, the Chinese government itself is increasing investment in the sector and working on its own blockchain-based digital currency.
Though the overall numbers remain small, the growth we're seeing in crypto trumps all other fast-growing industries,... from self-driving cars to artificial intelligence. Indeed, in 2018, "blockchain developer" was the fastest-growing job sector on LinkedIn.
As for the second part of the question, a fixed exchange rate is an interesting idea...
But it would likely bankrupt the government. You see, traders who could acquire bitcoin cheaper than the exchange rate would sell it to the government for a profit. Or they would do the reverse: Buy it from the government and sell it elsewhere for a profit.
Remember, bitcoin traders can always trade directly with one another... no matter what the government says. They don't need an official exchange to do it. In China, trading happens in chat rooms and in person. As long as people can communicate online and send money back and forth using PayPal, Alipay, cash, or checks... they can trade bitcoin.
We hope you've learned a lot about cryptos over the past several days...
If you want to take the next step, we encourage you to tune in for our free event tomorrow night at 8 p.m. Eastern time. And even if you're still skeptical, we hope you'll join us...
Eric will offer a behind-the-scenes look at why everything you need to know about the crypto space is about to radically change – and why 2020 could see a bigger crypto boom than we've ever seen. It's free to attend, so what's your excuse? Save your spot right here.
New 52-week highs (as of 11/18/19): Home Depot (HD), Huntington Ingalls (HII), JPMorgan Chase (JPM), Microsoft (MSFT), Nvidia (NVDA), O'Reilly Automotive (ORLY), Invesco S&P 500 BuyWrite Fund (PBP), Flutter Entertainment (PDYPY), ProShares Ultra Technology Fund (ROM), ProShares Ultra S&P 500 Fund (SSO), AT&T (T), ProShares Ultra Semiconductors Fund (USD), ProShares Ultra Financials Fund (UYG), and Vanguard S&P 500 Fund (VOO).
A quiet day in the mailbag... Do you still have questions on cryptos? Don't miss our special event tomorrow night or, as always, e-mail us at feedback@stansberryresearch.com.
Regards,
Carli Flippen and Corey McLaughlin
Baltimore, Maryland
November 19, 2019