Dear Reader,
It is easy for us to get caught up in the fear and panic-driven headlines in the media these days. This has become so much more common over the last decade… And it has been increasing in “volume,” as there is so much additional noise to compete with.
I always remind myself that the mainstream media, which includes many financial media outlets, does this intentionally in an effort to keep us glued to the TV, their websites, or their newspapers.
Which is why, at times like these, I have found it always helps to step back and put things into perspective:
What we’re seeing in the markets right now is something that we’ve seen before. In fact, it reminds me a lot of what we saw back in the fourth quarter of 2018, as there is a strong similarity between what is happening now and what happened then.
As a reminder, starting in 2017, the Federal Reserve began a series of seven straight Fed Funds rate hikes, of 25 basis points each, leading into the 2018 mid-term elections. This, not surprisingly, caused the Nasdaq to decline 23% in the fourth quarter. It really seemed to be well planned, especially considering what happened next.
After the series of rate hikes, the Fed completely reversed course and pulled the Fed Funds rate down to basically zero in less than a year. The whole thing was pretty remarkable considering one simple point – there was no concern about inflation back in 2017 and 2018.
In other words, there was no reason whatsoever for the Fed to have been so aggressive in raising interest rates.
This time around, we do have real inflation concerns, but the Fed has really been all talk, very little action. The Fed began pounding its chest with aggressive talk of large interest rate hikes in the fourth quarter of last year.
Yet all we’ve seen is a meager increase to 75 basis points. We’re still less than 1%, which is almost nothing.
The aggressive talk, not surprisingly, concerned institutional capital and investors, resulting in almost a 28% decline in the Nasdaq as of the close on Monday. All indices have declined to a similar degree.
Gold and silver are down 10% and 18%, respectively, from their November highs. Even digital assets like Bitcoin and Ethereum, the two “reserve” cryptocurrencies, are down more than 50% from their fourth-quarter highs.
And it has all gone too far.
Monday’s market action felt like capitulation. We saw a lot of forced selling in both equities and digital assets. We can now see growth companies trading at very attractive valuations – too attractive to pass up. In short, the market is way oversold right now.
The Federal Reserve has backed itself into a corner right now. It can’t afford to follow through on its aggressive “threats” to do something similar to what it did back in 2017/2018… The reality would be too devastating to the market.
And we heard some much less aggressive guidance from the Fed last week. I believe that there is more where that came from.
As we can see in the chart above, if we step back and look at the big picture, every time we’ve seen these kinds of pullbacks in the market, they have been followed by strong bull runs.
The conflict in Eastern Europe will come to an end. The pandemic is now endemic and largely behind us. The job market is still remarkably strong. And capital is being invested in private companies at a pace that I’ve never seen before in my lifetime.
It’s all about growth, innovation, and disruption of the old ways of doing things.
It can be hard to juggle the concept of fear in the markets with real investment and growth in the economy at the same time. Our brains tend to be wired to think that things are either “good” or “bad.”
But the reality is that we’ve been experiencing another window of terrible fiscal and monetary policy, while at the same time having a strong underlying economy that just wants to be left alone so it can run.
The Fed will have to reverse course just like it did in 2019.
It won’t be long before we see more stimulus and quantitative easing as an answer to the pain that it has caused.
And we’ve reached a level where so many equities are presenting very attractive valuations, institutional capital will step right back into the market as quickly as it stepped out… and the markets will rise accordingly.
Apple just made a telling move: The consumer electronics giant has hired Desi Ujkashevic away from Ford.
Ujkashevic had been with the iconic carmaker since 1991. And she was an important executive in charge of engineering both the interior and exterior design of key Ford and Lincoln models.
These include the Ford Escape, Explorer, Fiesta, and Focus, as well as the Lincoln Aviator and MKC. Ujkashevic was also involved in Ford’s early electric vehicle (EV) designs.
This is Apple’s most obvious hire for “Project Titan” yet. And it signals that Apple is very close to unveiling its full plans…
We first talked about Project Titan back in December 2020. For the sake of newer readers, this is Apple’s secretive EV/self-driving car initiative.
Apple has kept this project quiet over the last decade, but it’s no secret on the streets of Silicon Valley. Occasionally, we will see an autonomous car with lots of sensors but no logo on it.
That’s Apple working on its self-driving technology. Below is a photo of one of its earlier prototypes:
Apple’s Prototype
Source: Mac Rumors
We now know that Apple’s first EV could hit the streets as soon as 2025. And that, in conjunction with this big hire, means that Apple must be close to finalizing its first design. In fact, I suspect it is largely complete.
As a reminder, it takes three years on average for carmakers to line up the key suppliers and components for a given model.
If Apple plans to launch its first EV in 2025, it needs to lock down the design this year – to give the company enough time to coordinate manufacturing.
So I expect we’ll see Apple formally announce its plans around Project Titan sometime before the summer of next year. That will certainly generate a lot of buzz in the industry.
But this begs the question – why does Apple want to get into the auto industry? It’s a notoriously difficult business because it’s so capital intensive.
The answer is simple: Tesla just became a $1 trillion company solely in the EV/self-driving space. Apple took note of Tesla’s success, and it now sees this as a future growth opportunity.
And after all, as a $2.5 trillion company, Apple needs a trillion-dollar opportunity in order to grow significantly. Another iPhone, or augmented reality (AR) eyewear, simply won’t affect that kind of massive growth.
EVs are much simpler to manufacture than traditional cars. There are no belts or hoses. And EVs have very few moving parts, making the supply chain logistics easier to manage.
And Apple would almost certainly outsource manufacturing anyway.
This is exactly what Apple does with all of its electronics; an EV is no different. It is a large form of consumer electronics… just on wheels. I’m sure the company would take the same approach with its EVs.
Even more importantly, Tesla demonstrated for modern cars that the magic is in the software. We can think of it as the car’s operating system… And that’s where the competitive advantage lies.
As we know, Apple has a long track record of developing great operating systems that result in a fantastic consumer experience. I can’t wait to see the details of Apple’s first EV. It will be yet another painful blow to the traditional automotive industry.
As more EVs and self-driving cars hit our roads, we’re going to have some incredible investment opportunities… And you can find more information about those opportunities here.
We had a look two weeks ago at how Coinbase’s new non-fungible token (NFT) marketplace will power NFTs towards mass adoption. Well, Kraken – another massive digital asset exchange – is getting in on the act.
Kraken just announced its own NFT marketplace. This, again, makes me very bullish for NFTs in general.
And Kraken is launching with a clever incentive. The exchange will help cover the Ethereum transaction costs (“gas fees”) associated with all NFT transactions on its platform. This is a great way to gain quick adoption.
Last week we saw how gas fees have skyrocketed. At times, this results in gas fees costing more than the NFT being purchased. That can more than double the overall cost for investors.
Kraken’s offer will help its NFT platform gain market share very quickly.
At the same time, this speaks to how lucrative NFT platforms are. Right now, they can take between 2.5% and 5% of every transaction.
That’s a huge cut. And this is how Kraken can cover gas fees without risking taking a loss.
Bigger picture, exchanges like Coinbase and Kraken will put NFTs in front of millions of people who may not have seen them otherwise. That will fuel the trend, as an asset exchange, that provides custodial services. It will also simplify the purchase and storage of NFTs.
And here’s the thing – we don’t have to buy NFTs directly to profit from this trend.
Blockchain projects that provide infrastructure, and services to the NFT community will continue to experience exponential growth. We can think of them as “picks-and-shovels” plays.
I know that the cryptocurrency and NFT markets have pulled back with the overall stock markets in recent weeks… and that may make some investors leery about these kinds of opportunities.
But as the Kraken story shows, there’s a lot of promising development happening right now. And that means we can get into promising projects at a discount right now.
For more information on this trend and on specific “NFT coins” on my radar, readers can go right here.
We’ll wrap up today with exciting news on the fifth-generation (5G) wireless network front. The Federal Communications Commission (FCC) just granted over 4,000 5G licenses from the $22.4 billion spectrum auction that closed in January.
As a reminder, radio frequency (RF) spectrum enables the transmission of voice, video, and data over wireless networks.
That’s why wireless operators must acquire spectrum to launch wireless services… and what these FCC auctions are all about.
With the FCC dishing out these licenses, the wireless operators are now free to deploy 5G networks over their designated spectrum. That means we will continue to see 5G networks “turned on” in cities around the U.S. this year.
And it’s interesting to note which companies came away from this recent auction with the most licenses.
AT&T was the big winner with 1,624 licenses. Dish Network was close behind with 1,232, U.S. Cellular followed with 380, and T-Mobile got 199 licenses.
This tells us that these four companies will be bringing additional 5G coverage online in the coming months.
Interestingly, Verizon didn’t bid much at all on this one. That tells us that Verizon, the big winner in the previous auction, now has most – if not all – the spectrum it needs to roll out nationwide 5G coverage in the U.S. That’s great news.
What’s more, the purchase of 5G-enabled smartphones has eclipsed the purchase of non-5G smartphones. In fact, nearly 60% of all smartphones sold are now 5G-enabled.
We haven’t talked that much about 5G much recently. That’s not because nothing is happening… Quite the opposite.
The industry is feverishly building out the “core” of its 5G networks in this mid-band spectrum. Every month, swaths of new mid-band 5G wireless networks are “turned on” around the country.
By the end of the year, the majority of the U.S. population will have 5G coverage. And many consumers now have 5G-enabled devices that take advantage of 5G’s lightning-fast speeds.
This dynamic will lead developers to roll out new software applications designed specifically for a world of 5G. That is when this technology will get very exciting… and when it will feel “real” to the average consumer.
Believe it or not, the most exciting part about the 5G story is still in front of us…
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
