2021 Market Outlook: Small-Cap Stock Surge
Here’s what we think you’re going to see in the markets this year and into 2021:
A huge surge in America 2.0 stocks.
Right now, there’s so much stock market value locked up in old world companies — like Microsoft and Apple. We’d guess about 70% worth.
But this year is about transition.
We see an enormous bull market accelerating into 2021 as that money floods into the new world — starting in small-cap stocks.
This is only the beginning…
Hit the play button below to see the full scope of 2021 markets and the top sectors we’re watching for huge America 2.0 gains:
News Flash: Stocks Don’t Change Overnight
On Monday there was a big move up. However, actually all our stocks were down.
It was like opposite day. All the America 1.0 companies and the ones that were hurt by the lockdowns were sold off. People have been waiting for them to go up for months but they kind of trailed off and did nothing. Those were the ones that popped on Monday.
This is a function of the market that computers can drive a lot of sentiment in the market. The vaccine news came out Monday morning before the market started. I watched the shift happen. I watched the Nasdaq pre-market tank and I watched the Dow shoot way up.
Computers are doing a lot with trading these days. People can run programs to buy and sell stock on news and it happens more than you think. It can really set a precedent for the entire day or longer than that when you see Dow stocks rallying huge in the pre market and tech stocks and “stay at home” economy stocks down 5% pre market.
That can really drive sentiment. So we saw that on Monday and then it was over just as quickly as it started. Tuesday it was kind of the same thing. You could see toward the end of the day that tech stocks started to rally. Then by Wednesday everything was up 7% to 10% or even more than that.
It’s crazy that people can think we have one world on Monday, a different world on Tuesday, a different world on Wednesday and then we are back. The likelihood of us going back to what we used to do pre-pandemic or prior to the maturation of these platforms, whether it be Zoom, telemedicine or work-based messaging.
We can really start to look forward to robotaxis and automation. People think we are going to roll this back? It’s crazy. They’re buying up airline stocks? It sounds insane.
It wasn’t a fully authentic move. It was basically algorithms that said, “Buy this stock when a vaccine comes out.” A lot of people have been holding these stocks forever. They will even take a small profit at this point. But these services aren’t going to go away.
Ecommerce stocks tanked. People aren’t going to stop buying things online. These things are really sticky. When you do something that’s more efficient than it’s ever been before, why would you stop. That’s essentially what the market was saying was going to happen Monday.
It’s not realistic and it was very short lived.
It was interesting so many people were warning about crazy volatility around the election. In other words, people look back to the last episode and think the next one is going to be identical. The last election had crazy volatility.
The futures were down — I don’t even remember. Something like 1,000 points. Then it turned right around after the election results were announced. People expect it, with no real understanding of what the current conditions are like. We always talk about this.
There’s a Lot of Parked Cash…
There is an extraordinary amount of cash sitting on the sidelines in investment accounts. Many people say cash is cash and if someone is selling for cash it doesn’t mean there’s more cash in the account. In other words, the buyer and seller are both dealing in cash.
However, we will separate cash allocated for investing versus cash. What I can tell you from tracking this, the general cash sitting in corporate treasuries is enormous. They have been generating huge amounts of cash for months and months now. The amount of money sitting in investment accounts is huge.
There’s huge amounts of cash sitting in checking accounts across the board. The economy has plenty of liquidity. Generally speaking you can only stimulate a panic if there is a need and desire for liquidity. That’s what makes people push their stocks in and say, “I’ll take any price,” which starts a cascade of lower prices.
There is $1 trillion in cash more than there was pre-pandemic, even with the big rally in tech stocks. That was as of August, since then we have seen Apple, Amazon, Microsoft and Google go down. More than $1 trillion has come out of those stocks alone.
There is so much cash right now in investor accounts. Another thing I saw was Blackrock, the number one, biggest investment firm in the world. They said a tiny percentage of money going into their firm was coming from the stock market. A lot of it was into money markets or treasury bonds.
That’s where you park cash when you’re afraid of losing it. Those things aren’t sustainable right now. If you see the market and all the opportunity, it’s eventually going to draw a lot of that cash. We still have a ways to go up when that finally comes into the market and people aren’t satisfied with the half-percent or whatever they are getting in those other accounts.
Half a percent? Ian, if you are getting half a percent I can tell you you are going to take in trillions of dollars. There is no half-percent available in the regular banking system at this moment. In my savings account I believe the percent being offered is something like 0.02%.
For treasuries, even the 10 year is under 1% now. The banks, savings account and money markets are 0.02% or less.
We just had our investment meeting right before we came on. You guessed that 70% of the stock market value is in America 1.0 stocks or old world stocks. I actually believe it’s higher. It may be 70%. Amazon, Google and Facebook, in our judgment, represent America 2.0 stocks.
Microsoft and Apple do not. They belong, in our opinion, to the previous generation. They are in an earlier stage of decline so they have a longer runway into decline. Amazon, Google and Facebook are still innovating and have a few layers of opportunity ahead of them.
However, the vast majority of the opportunity is in small-cap stocks, mid-cap stocks. We look at a company like Zoom where we use their platform. This is a $160 billion company. Apple is worth $2 trillion. For sure Amazon is wroth $1 trillion, Google is worth $1 trillion and Facebook is not worth $1 trillion yet.
Nonetheless, when you think of companies that you and I think are massive opportunities. They are also mainstream companies we use all the time like Zoom, Slack or any of these other platforms of today. They are valued in the tens of billions of dollars in a world of trillion-dollar companies.
A company that is dying and on its way to certain death like Wells Fargo is still a $100 billion company. ExxonMobil is a $154 billion company. There is no much capital locked up in these old world, America 1.0 companies. I believe what you are going to see happen is over the rest of 2020 and accelerating into 2021 is a huge moment of phenomenal surges in our kinds of stocks.
The Coming America 2.0 Stock Surge
That is market capitalization pouring itself out.
A lot of those America 1.0 stocks topped out when Apple had their stock split. That’s when Apple topped out. That’s when a lot of those older tech companies that aren’t as relevant or innovative topped out and did not come back up.
Meanwhile, a lot of the newer tech stocks we’ve seen like cloud software, social media websites and things like that are going way up and have made new highs. Alternative energy is another one of those I keep forgetting to mention. That sector has been on fire with solar and hydrogen stocks.
Add to that precision medicine stocks and molecular diagnostic stocks which are essentially a brand new bull market which we believe you are going to see the Pfizers and Mercks of the world start to lose market capitalization. Those companies, people don’t believe it, but they are nearly 100 years old.
We saw the transition start to unfold when those three stocks got taken out of the Dow.
There are an enormous number of bull markets and the growth that can unfold over one, three, five or seven years is so extraordinary because so much of the stock market value is locked up in these old world companies.
We have brought this up before, look at the waterfall declines in ExxonMobil and Wells Fargo. You are going to see that again and again. ExxonMobil’s market cap I think less than 10 years ago was in excess of half a trillion dollars. Today it is around $154 billion.
In a year or two it will be less than half that. Wells Fargo at one point was the largest bank and the most valuable bank in this country. It was Warren Buffett’s largest holding for a very long time. It’s now down to $100 billion. Where will it be at the end of 2021 or 2022.
It has a lower market cap than Zoom.
The Rise of Fintech
The emergence of companies like PayPal, Square and others, many of which are private and going to come public through an IPO process of some kind. They are going to take market share away from insurance companies and banks.
There is an extraordinary transition unfolding. I did my Bold Profits on “the market” known as the S&P 500. You would just never know about it, Ian.
They never talk about it mainstream finance shows or on finance websites. The market cap of crypto, speaking of fintech, is only $450 billion. That itself is the size of Tesla. If you take Bitcoin out of that it’s $150 billion, then if you take Ethereum out of that I think it’s under $100 billion.
There’s no money in crypto despite all the amazing advancements they have made to fintech. Those companies are never going to be listed on the stock market. We’re seeing a whole new market unfold where you can invest in fintech.
We’ll get to crypto next. There’s this combination between fintech and crypto, which we will get to. If you are constantly thinking that the S&P 500 reflects the U.S. stock market and the state of the U.S. economy, please watch my video from this week where I talk about this.
It’s no longer representative of the stock market. It’s unrepresentative of America 2.0 or the Fourth Industrial Revolution, which is where the growth is and the opportunity is. Looking back three, five or seven years, you’ll say, “That’s where I should have been.”
The S&P 500 is totally dominated by five stocks and then a number of these older companies. Please watch my video from Tuesday. I went through this in great detail.
Crypto’s Latest Innovation: Ethereum Bonds
Ethereum just underwent this massive change in the network. Anyone can now buy 32 Ethereum coins and “stake” them. So you put them into the Ethereum network. It’s pretty simple to do. You earn a return on them and you earn it in Ethereum.
Instead of buying a treasury bond and having a set return on that, you can put your Ethereum tokens into an account where you earn a yield. Unlike traditional bonds, it doesn’t have a maturity or things like that, but it does have an interest rate.
Ethereum, I see it as the cash of the crypto world. There’s no supply cap. It’s what everybody pays with to do transactions on the Ethereum network and what they charge in fees. It’s an interesting concept because mostly you hear about Bitcoin and the supply cap, but Ethereum isn’t held to the same restrictions.
So when you put your money in Ethereum and you get these bonds, which is a lose term for just earning a yield, is going to replace the risk-free rate in treasury yields. That yield is determined by smart contracts which are basically pieces of code which say, “the rate is determined this way.”
This is instead of kneejerk reactions which we’ve seen from central banks all over the world. It’s been chaotic. So rather than have that kind of disorder, you are making it very ordered. You have a certain price you have to pay to get that yield and you have the contracts in place to tell you what that yield is.
It’s like the first signs of a yield market or some semblance of a return we’ve seen in crypto. I think this is a huge deal.
The crypto world is really starting to actively take share form the existing world of finance, monetary instruments — really, the old world. Everything from central banks to insurance companies to regular banks to lending institutions. The crypto world is starting to go deep into that.
That explains why the Wells Fargos of the world are losing market capitalization and why Bitcoin is rising. It’s now at $16,000. As everyone should know, we called for Bitcoin to be at $50,000 but understand a prediction is our best bet. It’s not locked in stone. It could be right, it could be wrong.
We have a shot at it. We realize we’re running out of time with only a few weeks left before the years ends. Nonetheless, Bitcoin is on its path to getting more and more share of sucking market cap out of all these useless fiat currencies around the world.
Americans Are Moving Cash to Stable Coin
Another thing in the crypto market that’s been remarkable this year is what’s called a stable coin. Basically you can transfer your dollars into a token called USD Coin, that’s one example. There have been billions and billions of these coins put into the crypto market.
So more people are transferring their fiat currency into a digital token of the dollar. That’s been a big development that has flown under the radar this year. Billions and billions of dollars have flowed into these.
For those of you who don’t know, there’s a number of digital stable coins which essentially represent cash. The benefit of using this is you can send it to anyone you want instantly. Versus the clunky way of exchanging cash. You can go to any number of stores today and they are no longer willing to accept cash because of the pandemic.
Nobody wants the potential of being infected with the virus through a paper exchange. That is true of checks as well. In digital there is no contact. It’s very trackable. You know exactly where it’s coming from, where it’s been, where it’s gone, how it got there.
There are so many benefits of digital cash. Like with any number of other innovations that have been accelerated, digital has also accelerated. PayPal, CashApp and Venmo are facilitating this movement more and more.
It’s come about really fast. Before this year no one knew what stable coins were. Obviously people know now, $15 billion to $20 billion have been put into them this year. That’s a huge development. All of this is very bullish for crypto.
Not only because people are trusting stable coins and Ethereum more, but also the rise of these stable coins and the money being put into them is good for Bitcoin. It means people are most likely to buy Bitcoin. At this point you can’t really spend any of these stable coins in stores.
The number one reason why people are putting their money into these digital forms of the dollar is to buy Bitcoin and other cryptos too. We’ve seen a lot of the smaller coins go up hundreds or thousands of percent this year. There is definitely an influx of cash.
Instead of going into the banks, they are going into the new digital crypto economy.
There are also a lot of lending innovations that are happening. Today they are small, but in one year they will be bigger and three years even bigger. It will be like everything else, it will seem small and then suddenly it’s large. Suddenly the old world is in deep decline.
You’ll wonder, “Wow, where did that come from?” The crypto world is setting up where Bitcoin is representing the reserve currency of the crypto world. Credit to our friend and longtime John who tweeted this at me. I thought it was absolutely perfect. It really is acting like the reserve currency of crypto.
It’s not like you’re going to go to any store and buy things in Bitcoin, it’s more like a reserve currency. That’s the best way to put it actually.
Ethereum in many ways represents a platform for so many of the functions today represented by the financial infrastructure, which is paper based and very clunky. Even though they use computers, it’s really to mimic really old ways of doing things.
There are far better, cheaper, faster and certainly less bureaucratic ways to achieve all of this. Everything from smart contracts — and that’s Ethereum which is maybe a central bank in its own kind of way. So the crypto world is starting to form in a way where you can see its utility and use and where other people will see it’s better and find a way to use it.
It is kind of a central bank. Another comparison I’ve made before is to Android because this is where all the DeFi apps are coming from where you can put your money in an exchange that doesn’t have any corporate oversight. It’s all just peer-to-peer.
Even the money supplied to the exchange is peer-to-peer because people are lending their Bitcoin or Ethereum and then they earn a yield on that. Other people trade that money. We’ve seen other crypto projects like Ubisoft which is basically what I just described. It now has more than $3 billion in it.
People are putting their money in these because it’s basically the future of how the transfer of money is going to work. For a while it’s been innovation with communication and information. Now it’s innovation of money transfer and making it easier.
There is an extraordinary amount of innovation going on with crypto in conjunction with fintech. It’s great news if you are invested in crypto and some of these fintech operations. However, it’s terrible news if you are invested in the old world.
It’s a moment of great opportunity and also a moment of incredible peril for these old world, America 1.0 companies and their stocks which many people are still highly invested in. People say, “That’s so small. All the money is still in these companies.”
Yeah, but you can see very clearly that they are going to be in accelerated decline. All you have to do is look out one to three years and you can see the decline coming.
Look at what happened to GE and that’s basically the model of how it can happen slowly and then all at once.
Bitcoin 2021 Price Predictions
I predict that Bitcoin will reach $115,000 by next August.
We are going to get to the next peak before we see a major slough. It’s going to be in the range of $250,000. It could come anywhere in the next one to three years. The old Ethereum high is $1,400. I believe that’s going to go significantly higher. I can see Ethereum at $4,000+.
Then as the number of projects just start to morph and the volume and market caps of projects that sit on the Ethereum blockchain will start to mushroom up. You are going to see the demand for Ethereum skyrocket and with that push its price up. There’s going to be so much scarcity of Ethereum.
They are going to release some amount of it to facilitate it, but I believe it’s value is going to skyrocket.
It’s been a crazy, great year for projects on Ethereum. At last look $13 billion have been put in these projects just from individual investors.
At some point some of this money is going to push out to the other big blockchains that are out there, which are XRP and Lumens. They’re still waiting to scale up and have fewer projects. Then, the Ethereum blockchain will start to specialize in certain areas.
Cannabis is Ready to Take Off
There have been huge rallies in cannabis stocks. People are suggesting it’s about the elections, and I suppose in a way that’s true. However, these stocks were ready to be bid up.
Although it might partially be due to the election, everyone is looking forward to legalization on a federal level anyway. The market is pricing it in. The market knows it’s probably going to happen at some point in the near future.
For the past few earnings seasons in marijuana stocks, the stocks have exploded the week before. People are anticipating this industry is ready to take off. The reason all these stocks went down so much is because all these companies tried to spend too much before they made money.
They tried to build too many facilities. They bought a lot of land and resources. They found that they couldn’t support that big of a business yet so they had to cut back. That resulted in these stocks selling off for 18 months.
Now, right before each earnings season — which I don’t see as a coincidence — these stocks are attracting huge amounts of money and more volume than we’ve ever seen in them. It’s because, in my opinion, people are betting that this is the quarter where things are going to start going back up.
A lot of these companies have been cutting costs for at least nine to 12 months. It’s really just a matter of time. Within the next couple of quarters, that money is going to stick. The bottom is going to be in. For a lot of the stocks it already is. There are some that are still making new lows.
As a sector overall, within the next couple of quarters there’s going to be a sharp move up. Similar to the Nasdaq at the bottom in March with the lockdowns.
From our perspective, seeing 52-week lows is in some ways a good sign. It does tell you that the folks who no longer want to be in are flushed out. At that point in time, the positions get concentrated into people who actually believe in the cannabis opportunity which we believe is enormous.
It’s massive; it’s huge. It’s going to suck market cap from beer, wine, spirits, tobacco and all the old vice stocks which still have hundreds of billions in market cap. It’s going to flow into cannabis because this is where the growth is. Ultimately, this is what stock market investors desire.
They want to see growth. They want to see it happen. We are going to see accelerating growth. We are still early. Not even all the states have it legalized. Then there’s the consumerization of cannabis that’s going to come as people find ways to put it in various things that make it friendly and usable.
That will drive more use. Some people say it’s terrible. We accept that. However, from our perspective it’s going to continue to take off and it’s like the post-prohibition period of alcohol.
It’s almost identical to that. It’s resulted in the budding of a huge industry that is barely forming yet. Outside of the U.S. in Canada and Europe it’s just getting started. It’s just barely started in other areas as well. There’s still so much room for growth.
Tobacco and alcohol globally are worth more than $2 trillion. Whereas the marijuana industry, I think the biggest company is a little over $10 billion if that. There’s so much room for that market cap to shift. It’s similar to the shift we are going to see from banks into crypto.
Tesla Surpassed Our 2020 Price Prediction
While looking at the Tesla price action that the laggard money that pushed in at the very top is flushing out.
It had a steep selloff at one point but it has remained stable. So people are still supporting that price, which is a great sign. Pre-split, right now the stock would be $2,000. Our prediction was $1,000 this year and people thought we were crazy.
Here we are. It hit $2500 a few months ago.
In terms of Tesla, it’s crazy to think that given the promise of what it participates in, the one company encompasses so many opportunities in one.
People talk about their cars, but for me it’s mobility and transportation as a service. Then there’s energy which is a mix of ExxonMobil and the supercharger network is like gas stations. Then there’s the solar business which is like electricity. Who knows what else you can put in there.
And Autobidder which is like DeFi because you can sell your excess energy back to the grid and make money. That definitely has elements of crypto in it.
So this single company can disrupt at least three major, massive industries. Yes, it has gone down some from some period of time which represented a period of excess demand for the stock. People get excited when people announce a stock split.
There are some number of people who have very little understanding in what a stock split is. Essentially they are cutting the existing shares up into more shares. It creates no value. As I like to say, it takes the same pizza and cuts it up into more pieces. It’s still the same size pizza.
It drove a lot of excitement in the stock market, but the opportunity is still there. With the demand for Tesla stock, it’s wild to think in 2020 Tesla is still a contrarian name. It still generates a level of hate from a number of people, including a number of peers in our business who think it’s going to go to zero or bankrupt.
At this point it’s hard to deny they are for real. They are just going to keep growing.
Editor, Rapid Profit Trader
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