Growth Stocks Are Going to Rip Higher … Get in Now!
What a year!
It’s been a tough one for our stocks, but I hope you held Strong Hands.
Because the tide is turning and our growth stocks are going to rip higher!
As I like to say, zoom out and we can tell you about the bigger picture.
If you look at the actual growth of our America 2.0 stocks, it’s still there. This is why we tell you not to put too much emotion into day-to-day stock prices. And hold on for big gains over time.
We do not want you to miss this rebound.
It IS coming. Hold strong, be #BOP (bullish, optimistic, positive) and take action now!
See our outlook for our 2022 growth stocks and our favorite strategy for buying in now:
Paul Mampilly: Good afternoon, Ian.
Ian Dyer: Hey Paul. How’s it going?
Paul: It’s going good. How are you?
Ian: Doing well.
Paul: We were able to resolve our technical difficulties so I am back in my studio here. You were here. You know this is not a studio. These are real books.
Ian: It’s a real thing. I saw it in real life. It was crazy because I am used to seeing it on the computer.
Paul: Our team was here and they all thought this was something else. They all said, ‘It’s a lot smaller than what I thought.”
What’s Been Going On In The Stock Market
Paul: We are back on track with the IanCast for this week. I think we will spend a lot of time on the stock market. We will cover crypto. I think we will keep our discussion there so we can keep it nice and long. We know cannabis stocks have gone down. There’s nothing new to say.
Tesla, well there’s some profit taking there. We will cover that next week. Let’s get going with the stock market. In anticipation of the IanCast I put a whole bunch of charts into our Slack channel.
The one that really hit me that I think in one image tells you what has gone on since about mid-October is this chart that compares Apple to ARKK.
In the chart you will see Apple is the red line and ARK Innovation ETF (ARKK), which we use as our proxy for America 2.0, Fourth Industrial Revolution, growth stocks, is the one in green.
It’s literally Apple is a straight shot up and ARKK is a straight shot down. Then when you consider what was going on at the time, there was essentially just three stocks going up keeping the indices up. Apple was one of them.
If you go to the next chart it compares the Nasdaq 52-week lows versus the 52-week highs.
The lows are in red, the highs are in green. You will see the number of 52-week highs is nonexistent. There was a day when there was just three. The number of lows, there was a day when Isaw 700 or 800.
I don’t even think that list was complete. There is something extreme going on.
Ian: That’s a good point. I have seen tons of questions coming in saying, “Why is the market going up but our stocks keep going down?” It’s a common misconception. The indices are not the market, especially now more than I have ever experienced or seen with trading and investing.
The indices you see — S&P 500, the Nasdaq — are controlled by Apple, Microsoft and Google and to some extent Facebook and Tesla. I think there were 730 new lows made on that day that only three stocks made new highs. Yet, the whole index was only 5% or 6% off the 52-week high.
That tells you that’s not a representation of the overall market. Even though the indices might look otherwise, growth stocks are very cheap.
Paul: It continues to befuddle me that the regular financial media does not widely talk about the fact the S&P 500’s movements come down to five stocks. You just own those five and you are capturing the vast majority of the returns and movements of the index.
This is still unknown by a lot of people who think because there are 500 stocks in the S&P 500 that there are somehow 500 stocks rising.
Ian: I tell people in regular conversation when people ask me about the market. They are blown away by that, but it’s true. Like I said, there’s a lot of very good opportunities to buy in right now. What we are seeing right now at the end of the year is people are getting rid of the bad performers.
Window dressing is the term you have been using. They are buying the top performers so they can make their portfolios look good for clients at the end of the year. The rally in Apple is crazy. That’s just as unsustainable as the big drop we have seen in America 2.0 stocks.
Paul: It was always humorous when I was on Wall Street to see come yearend that all the year’s winners would suddenly catch a bid right after Thanksgiving and then leave right before Christmas because they all want to go on a Christmas break. It’s called window dressing because it gets captured in the yearend statement.
It’s an attempt to not be fired. If you have been underperforming all year, just pretend you have owned all the big winners all year by showing it on your yearend statement and hope your client is obtuse. It’s just put out there to try to trick people.
Ian: Since most of 2021 saw huge rallies into tech stocks, it’s had an effect on the indices that make them not represent the overall market at all.
Paul: I am going to keep going with these charts. The next chart here is 2021 performance, which is almost in the record books.
There are a few days left, but I doubt these will be dramatically altered.
As of the recording of this, which is Thursday after the market closed, S&P 500 cap weighted 25.75%, equal weighted is 25.87%, Nasdaq Composite is up 18%. ARKK for 2021 after being up nearly 25% is now down 26% for 2021. The Russell 2000 is up 10% for 2021.
Just to talk about what has happened, we discussed this before the IanCast. The multiples on growth stocks have gone from double digits to single digits. In some cases, very low single digits. I looked up stocks like Stitch Fix, Pinterest, Fiverr and others and they had price-to-sales multiples from 16 to 20.
They are all now in the single digits. However, the thing that makes me BOP is that their growth rates are largely unchanged. They are still growing at 30%, 40%. Compare it to Apple or anything else. They have buybacks going so they can point to earnings growth. Sales growth?
The America 1.0 companies steady sales growth of -1% to -3%. They went through a year where they were able to anniversary 10% to 15% growth and they have been bid up with these anemic growth rates to nine or 10 times sales.
Ian: At this point, I haven’t check this recently, but I wouldn’t be surprised if Apple and Microsoft have bigger price-to-sales than a lot of the growth stocks. It’s crazy. I was just looking at another one called Invitae which is this amazing biotech, life sciences and genomic stock.
Its price-to-sales is six times. Companies like that it’s just amazing to see. There are so many great deals out there. These stocks have just collapsed and are at prices that are going to get bid up.
Paul: I just looked. Microsoft is now at 14 times sales.
Paul: It’s behaving like it’s this hyper-growth company. Meanwhile, the hyper-growth companies are valued like they’re stagnant companies. It’s been a total role reversal between February and now. Let’s talk about where the opportunity really is from our judgement.
Also, let’s deal with the market event from this week where the Federal Reserve said they are going to taper a little faster. In other words, they are going to buy fewer bonds of various kinds. They have also committed and plan to raise interest rates three times in 2022.
I think the fear from all the supposedly “smart money” is that interest rates are going up. “Let’s buy Apple.” Then own cash. However, if you go back to the last time we went through this, it was the trigger point for growth to go to phase one of a huge bull market.
The tapering began in 2015 and then there was a panic like this one at the end of 2015, early 2016. Coming out of that, that’s when semis started to rip and so much growth started to rip. I think these folks have it completely wrong in terms of what they are in.
Ian: In my opinion, the Fed is not going to raise three times next year. There’s all this fear about inflation and rising interest rates. On one level, the market hates uncertainty. So at least the Fed saying that provides certainty for the market.
But they are setting themselves up for a worst-case scenario for growth because rising rates are bad for growth. Inflation is bad for growth. I think the Fed is going to end up walking this back and that’s even more good news for growth next year. I think everything is setting up to see another amazing year for growth.
I think there’s going to be a lot of stocks that bounce back and might even make new highs. They are down 70-80% from their highs last year and it’s possible they could go on a run next year with this as the starting point.
Paul: I will go a step further and say I feel very good. People will not believe it when it happens. Our stocks have discounted higher rates. In other words, they have priced that in. They have priced in that somehow there is going to be a growth slowdown when none of these companies have experienced a growth slowdown.
They have seen a multiple crash. What is going to happen as a result of this tapering? Nothing is going to happen. The economy is going to go back to its old steady state of growth, minus the lockdown effects and pandemic effects where growth was scrunched up because you had hardcore lockdowns for three or six months.
Then that set a low base, particularly for these stagnant America 1.0 stocks that have now been bid up to crazy levels relative to their growth rates.
Ian: That was the trade for most of 2021. It was those stocks going back to normal after crashing 80-90% at the beginning of those lockdowns. Opposite of that was growth stocks because that’s what rallied at the very beginning of the year and late last year.
It’s a big reallocation in the market that I think is going to get flipped back this year to the companies that are actually growing and making a difference.
Paul: I believe the place that you really want to put yourself is in small stocks where there is this coiled spring and incredible mix of low multiples, low liquidity and probably a bunch of people who are short this. This is going to be rocket fuel. Look at this chart. This is the Russell 2000 over the last five years on a weekly basis.
It has really held tight in this range. It peaked and made a new high, which is always a bullish sign, especially when the underlying companies in there are growing. In other words, there is actual growth versus people just looking to take advantage of the illiquidity of the stocks and bidding it higher.
This is based on real growth. It tells me we are about to see a massive turnaround in small-cap stocks and that mix of low multiples, real growth. Then, add in the fact people have sold all these off in a hurry over the last month and I think that is an incredibly strong mix.
Ian: There is also the fact that most of the people who bought into those rallies last year have sold out, taken a big loss and are just wiped out. That money is going to come back in and fuel that rally even more. We were talking about price-to-sales, these companies have been growing the whole time their stocks have been going down.
There have been two forced happening at the same time to make these stocks look even better from a valuation perspective. Growth buyers are going to be having a really good time next year with these deals because they don’t come around too often.
Paul: I think this is the perfect moment to really go all in on our kind of small stocks — America 2.0, Fourth Industrial Revolution stocks. We actually are running a special event on Extreme Fortunes — our small-cap service — which has had two 1,000% winners over the past couple of years.
We have an open 1,000% winner. We have six or seven multiple-hundred-percent winners. I think next year this is going to be like shooting fish in a barrel. The sales growth is huge, the multiples have shrunk. As the money comes in, a few million dollars would just rip these higher.
That was my experience in 2008. You were with us in 2018. We saw these stocks rip. 2020 as well. I would tell you this time around I think we will see a continuation. As these go up, they are going to stay up. I think the big money is going to have no choice.
They bid all this junk up that has no growth. There is no chance of that coming back and being growth. They are going to come in and choose to buy these growth stocks that represent the future. If you are interested in checking out this event, click on the strong hands.
It will send you to my presentation that I am called phase two. This is, I believe, going to be the cycle that puts America 2.0 and Fourth Industrial Revolution stocks as being the prominent stocks. I think in time people will forget these are Fourth Industrial Revolution and America 2.0 because that’s all you will ever consider investing in.
Nonetheless, I think this is a golden moment. The conditions are right. It’s a coiled spring setting up to go. You can see from that chart that we have been in this range for about a year. Everything is being twisted in. Don’t miss out. Check out our Phase Two Super Cycle event.
Let’s go to this next chart. You mentioned inflation. After the Federal Reserve indicated what it was going to do, I went and checked my indicators for inflation. If inflation actually matters, the people who would be most sensitive to it are the people who buy the longest bonds.
If you are 10 years out and 6% inflation is actually real, you would expect the 10-year bond to be jumping and that yield to be skyrocketing. Actually, go and look what happened since they announced it.
The yield was bid down yesterday.
It’s a strange reaction to the Federal Reserve looking to raise interest rates due to inflation. But there’s more. Also, I looked at the 30-year bond which should be even more sensitive to inflation.
That was also bid down. It’s not even back to where it was pre-pandemic.
The last canary in the coal mine, let’s look at gold.
Theoretically, because there are a lot of non-Bitcoin believers — and I never considered Bitcoin to be a hedge against gold. Maybe some people believe that and maybe for some people it’s true. I just see it as a speculation on demand and supply.
But gold is seen as an inflation hedge. Gold was also bid down.
Ian: I saw that. Gold and silver were down.
Paul: While the media keeps talking about inflation, the people who care most about it, people who buy long-term bonds, people who buy gold, nobody cares.
Ian: It was a “buy the rumor, sell the news” type thing. It’s strange because with all the talk about inflation being this huge deal next year and the foreseeable future after that, you wouldn’t expect to see a “sell the news” type thing after the announcement.
It’s not like they’re jumping today. It’s just a strange situation. I think the money in those commodities and bonds understands the likelihood of having 6% inflation a year from now is farfetched. Instead, I think prices a year from now are going to be much lower, especially in energy and commodities.
I think the market understands this is actually temporary.
What Is Going To Unfold With The Inventory Position?
Paul: We have been chatting about what we believe is going to unfold with the inventory position as a result of people piling up all these goods. It provides a little bit of an explanation on why we believe inflation is not going to be anything to be concerned about. Tell folks about that.
Ian: That’s one of the big trends going on right now that people aren’t talking about. Everybody, after the lockdowns, ordered way too much stuff so they would be prepared if it ever happened again. Of course there was a giant crunch in the shipping industry.
There weren’t enough ships to fulfill all the orders and that’s why we’ve had these shortages. But now, things are starting to get smoothed out. There’s a ton of inventory coming in to all kinds of companies. Every non-perishable good you can imagine because companies don’t want to be in this situation again with shortages.
When you have a high supply and steady demand, you are going to see prices go down. Companies are going to be overstocked of everything and demand stays the same, they are going to have a surplus. That’s going to be another force acting on deflation that I think we will see next year.
Paul: I think it’s a horrific situation for these America 1.0 companies. They are spending their capital buying back stock at these crazy multiples and often borrowing to do it, which is insane. Then they are stacking up inventory at every level. They are lifting prices, which will eventually have a demand response.
People will stop buying some of these things. They are lifting inventory, lifting prices, buying back stock using borrowed money — it’s a horrific situation. Meanwhile, a number of people in the markets are taking this at face value and saying there’s going to be massive inflation.
Then the Federal Reserve is saying they are going to taper, which is also going to create a bit of demand response for these goods. What’s that going to do? It’s going to slow the America 1.0 part of the economy down.
Ian: Exactly. Meanwhile, you have the whole mid- to long-term macro trend of innovation and disruption of pretty much everything making things cheaper. Not only are companies going to have to lower their prices, they are also going to be priced out of the market by companies that can do it cheaper.
You are going to have deflation from innovation and disruption on one hand and on the other hand you are going to have deflation out of being forced to lower your prices. A lot of these companies have a lot of debt they are going to need to make interest payments on.
Like you mentioned, they are using that debt in not the best ways. Lower prices means low sales means lower earnings because they have to pay higher interest payments. There are a lot of things looming that are going to be negative forces for these companies.
Paul: I will double and triple down on my call for negative interest rates next year. Between the Fed looking to tighten monetary policy, all these companies having put themselves into incredibly vulnerable positions — and we didn’t even talk about how some of them are committing to increasing capacity.
It only makes sense at the new high prices. It does not make sense at pre-pandemic prices. They are using all their cash to buy back stock so they are borrowing money to do it. It’s so crazy. Really, other than Cathie Wood, who has doubled down on deflation — and people are laughing at her.
People are mocking her on Twitter. She says the bigger risk is deflation and we would 100% agree.
Ian: Once in a while I see someone on Twitter post about deflation next year and it makes me happy because I know someone else out there is seeing what we are seeing. It’s few and far between and the butt of a lot of jokes right now. There are good reasons we have laid out week after week about why we see this happening next year.
Paul: We are down, but we ain’t out. I am very bullish, optimistic positive. When I look at the facts, I think we are going to win. It’s going to be huge. Ian said, “I think our stocks will be at new highs.” I feel really, really good that they will make even newer highs next year.
People will see it was so obvious. Don’t miss out. If you are out, get back in. Stocks are cheap. They are setting up for a big run. Consider our small-cap portfolio, Extreme Fortunes. Click on the strong hands and watch my presentation where I talk about this Phase Two Super Cycle.
I believe it’s going to be incredible. You have liquidity that needs to push and buy into these things and they are going to be forced to bid it up and bid it high. It’s going to be gains in your portfolio.
The other place that’s going to benefit from the same stuff we are talking about is crypto. Lay out what’s going on in the crypto market.
Crypto Market Moves
Ian: I am actually seeing some big trends that I think are going to flip in crypto just like we have seen in the stock market. For the last six months or so you have seen all these Ethereum (ETH) competitors and other blockchains be bid way up thousands of percent.
It reminds me of what the DeFi coins did in 2020 in the second half of the year. Right now, the only things that I am seeing people post about on Twitter are a few coins that are propping up the entire market. Things like Solana, Avalanche and Luna and some of these other coins that are up 5,000% to 10,000% this year.
They have obviously done very well, but at the same time, a lot of these other DeFi coins that have real use cases too and are disrupting how we use the financial industry have been crushed. They are down 60-80%. It’s crazy considering the growth they have had this year with the money locked down in those apps.
There is actual revenue being generated by these companies, projects or whatever you want to call them. I think there is going to be a reversal in trends for the crypto market. I think these DeFi coins are way under owned. Just to name a couple we have said before, Aave and Uniswap are big ones for sure.
Then I think Bitcoin (BTC) is going to have a big turnaround next year. It’s been widely forgotten. The seemingly unanimous narrative is that ETH is going to flip BTC next year. I am not sure that’s going to happen. I think when everybody is on one side of the fence about something, it usually goes the other way.
Everybody is piling into ETH killers and some other random coins. Everybody seems to have forgotten about DeFi and BTC. I think they are going to surprise a lot of people in 2022.
Paul: You put out a number to me on Slack where you said those DeFi coins are trading 60-80% below their previous high. Was it something like that?
Ian: Yes. A lot of them are. Just off the top of my head, I think Uniswap is 65-70%. I think Aave is 70%. It’s crazy the amount they have dropped. I think the downside from here is limited. The upside potential is unimaginable from what we have seen.
Paul: The market capitalization of these coins is like small cap. It’s interesting that the growth market and the quality crypto if you will — I know people will take issue that Cardano is not quality or Solana is not quality. We have a definition. Would you say Total Value Locked (TVL) is a good indication of quality?
Ian: I think so. In most cases, especially sustained TVL. There is more than $10 billion locked into some of these apps and they have had more than $10 billion for the past six to eight months. Meanwhile, the coins have gone straight down.
Paul: What’s the state of BTC on exchanges? I know you keep very close track of that. What’s going on with that?
Ian: That’s still the lowest since early 2018. It’s just about 12% of all BTC on exchanges right now. More than 75% of BTC hasn’t been touched in more than six months. A lot of people bought in last year and the first half of this year and haven’t sold.
We have gone through a legitimate crash in May and what we saw the last few weeks could be considered a crash. There are long-term holders in BTC that continue to accumulate. They are not selling. I think next year we will see a huge imbalance of supply and demand that’s going to push BTC up to new highs.
Paul: It does look like it would carry the things that have the same market shape as BTC, which would be DeFi coins.
Ian: Right. ETH has been doing very well this year. I think that’s justified considering the amount of disruption on these apps and the number of people using them. The DeFi coins have been way underperforming ETH. I think that could flip. Not that ETH will crash next year, I think it will be fine.
But it could trade in a range for a while next year while some of that money goes into the DeFi apps on ETH that have been doing well.
Paul: I can also imagine that some of these so-called “smart money” hedge funds will come up with some kind of strategy where they will go short one, long the other. Now this will become a thing. With that, it will drive its own dynamics that sort of pushes money to bid one side up and keep one side hedged in a range.
Ian: That’s another thing with a lot of these alt chains. They are mostly owned by venture capital (VC) and hedge funds. After a 5,000% rally in one year, I am guessing they are looking to sell. The selling pressure on these coins is going to be extremely strong.
I think they might another blow-off top, but the upside I think is limited.
Paul: I shared a chart with you showing some of the ownership pie charts of some of these. It was a shocking thing to see that some of these coins are 40-60% owned by VCs.
Ian: It’s crazy. Meanwhile, ETH is way more decentralized, way more owners in retail. Some of the original founders have a bunch of ETH, but not a majority stake like you see in these other blockchains.
Paul: I am going to put you on the spot here. Between growth stocks, particularly small cap, and DeFi crypto, which is the better opportunity? Are they equal? Is one better than the other? In early 2021 I would have favored crypto. Now, some of these stocks have just been crushed.
There are some that are trading at less than one times sales.
Ian: In some cases, some of those growth stocks that are now small or micro-caps that were mid caps at the top, might be better bets than DeFi, but it’s really hard to say. For example, Aave is on pace to make $400 million in revenue through fees on their platform this year.
The market cap of Aave is $2.25 billion. If there was as disruptive a platform that was private and was making $400 million a year, I am guessing that would be valued $20 billion to $30 billion. That’s over 10 times what Aave is.
There are some cases like that, but there are also some growth stocks that could go up 1,000% next year. It’s really hard to say. I have been buying more growth stocks recently than DeFi, but I already had some money in DeFi coins and not as much in growth stocks. I am very bullish on both.
Paul: I am going to say it’s a tie depending on the coin. Definitely everything is setting up right for us. We are down, but we ain’t out. At the end of next year we are going to be in a completely different place. Whatever you’ve got, stay in. Be strong hands. Be BOP.
Ian, we are going to close this IanCast out. We will deal with the other things in the future weeks. I am not clear if we will do another IanCast before the year ends. I think we have one more. I don’t think we will do one Christmas week, but we are setup to do one right before New Year’s.
Just in case we don’t end up doing it, we should wish folks this week. You go first.
Ian: Thank you for watching. I hope everybody has a great holiday season. I just want to say thank you for sticking with us. This year has been rough, especially with the stock market. Thank you for staying bullish with us. We are super bullish on next year.
If we don’t see you again before the end of the year, Happy New Year. Have a great holiday season. We’ll see you next time.
Paul: I want to wish everyone a Merry Christmas and a Happy New Year from us, our team, to you and your family and friends. We appreciate your loyalty, support and commitment. We are very bullish, very optimistic, very positive. We think this time next year we will be singing a different song.
Hallelujahs and, I believe, champagne will be involved. In the meantime, be strong hands. Be BOP. We will have the next IanCast next week or next year. Until then, this is Paul saying bye.
Editor, Crypto Flash Trader
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