Interest Rates Drive Tesla, IPOs and Fintech Boom
In today’s Market Talk, Amber Lancaster, Hudson Cashdan, Ian Dyer and I discuss:
- Why Tesla is setting up for a breakout year thanks to its Model 3 and potential interest rate cuts.
- The big initial public offerings (IPOs) to watch this week.
- Why cryptocurrencies are making a huge impact, “disruptifying” traditional currencies around the world, and Facebook’s Project Libra coin could create a new crypto boom.
June 17, 2019
Amber Lancaster: Welcome to this week’s Market Talk. I’m Amber Lancaster, joined by Paul Mampilly, Ian Dyer and Hudson Cashdan. Each week we look forward to sharing our viewpoints with you, our readers, and giving insight into what’s on our radar. Today’s outlook is for the week of June 17, 2019. I’ll begin by sharing with you what I’m watching and then we’ll hear from Ian, Hudson and Paul.
Today I’ll cover three topics. The first will be my take on the U.S. economic release front and upcoming releases. The second will be the innovation story of the week. Then we’ll wrap things up with me with the Disruptification Index performance numbers.
This week all eyes will turn to the Federal Reserve. The Federal Open Markets Committee (FOMC) rate decision will be announced on Wednesday. Currently the interest rate probability table is showing a 0% chance of a rate hike and a 19.7% chance on a rate cut. Economists’ consensus is that the Fed funds rate will remain unchanged for June.
Last week’s U.S. economic releases were mostly in line with expectations, but two compelling retail sales studies were released over the past few days. What the studies and their data confirmed is that there’s a continued shift in the flow of U.S. consumer dollars in the retail sector from the old world shopping habits to new world shopping habits.
In all, data is showing that U.S. consumers are preferring clicks, not bricks. For the first time ever, per Bespoke Investments Group, online sales have surpassed department stores or other general merchandise chain stores.
This chart plots online retailers or non-store clicks versus general merchandise or physical department store bricks since the year 2000. As you can see, there’s been a steady convergence of clicks versus bricks. But now, per this chart, we can firmly attest we are in a click era.
To further confirm this trend, consumer spending flow data from the U.S. Census Bureau is showing that over the past year, Americans are spending more with non-store or online retailers while physical food, beverage and clothing stores feel the pinch of this shifting consumer demand. Per the U.S. Census Bureau, consumer spending habits for the last year have overwhelmingly shifted to online merchants.
As this table shows, spending at online retailers increased by $6.4 billion from a year earlier to $62 billion on an annualized basis. The online or non-store retailer category is a now a larger spending category than physical brick and mortar restaurants, bars and grocery stores. The Census Bureau is predicting, on a yearly basis, that non-store spending will soon be second only to vehicle and parts retailers.
In light of this shift and major anchor store department closings, local malls are seeing more vacancies in their retail spaces. To combat these changes, malls are aiming to fill the vacancies with local and regional tenants that are more community focused.
Some malls are repurposing empty spaces to be community meeting rooms, art closes, yoga classes, summer camp spaces and even leased as office space for companies. Instead of companies leasing a physical commercial structure or building, they are now setting up shop in malls. That’s a trend that’s continuing.
Looking forward to this week’s economic releases, here are the most significant. As you can see in this graphic, on Tuesday we have the May housing starts posting at 8:30 a.m. On Wednesday, the FOMC rate decision will be released at 2 p.m. On Thursday, May’s leading index number will post at 10 a.m. On Friday, we’ll have a reading of May’s existing home sales at 10 a.m.
My innovation story of the week focuses on Amazon’s yearly re:MARS Conference, which just recently wrapped up in Las Vegas. This invitation-only conference embraces an, “optimistic vision of science discovery to advance a golden age of innovation.” The event, hosted by Jeff Bezos, brings together the leading minds in machine learnings, automation, robotics and space.
Attendees are from academia, startups and Fortune 100 companies. At this year’s conference, per Venture Beat, Amazon is sending Alexa developers on a quest — a quest for the Holy Grail of voice science. At the conference, Amazon previewed a new Alexa feature called Alexa Conversations. Per Venture Beat, Alexa Conversations might be, “the most intriguing and substantial pitch to voice developers in years.”
At the conference, the Alexa Conversation demonstration to the attendees showcased a night out scenario. It was pretty cool. What happened in the demo was a woman was able to talk to Alexa in full sentences as if she was speaking to an in-person concierge service. She was able to buy movie tickets, make dinner reservations and book an Uber ride in about one minute.
As seen in this screenshot, the video of this entire on-stage demo is posted to YouTube. I thought it was very enlightening. You can find it by searching for Alexa Conversations demo at re:MARS.
Turning to our Disruptification Index, this chart shows it continues to outperform major indices year to date. It’s up 29% versus 17.5% on the Nasdaq and 11.8% on the Dow.
That’s it from me. Ian, what are you watching for this week?
Ian Dyer: Thank you, Amber.
This week I want to talk about crypto. As you may know, this week Bitcoin just hit a new yearly high. It’s about $9,300 and it’s the highest it’s been in more than 13 months. We still are seeing a lot of people on tv and the internet saying Bitcoin is a bad investment and you should expect to lose everything that you hold in it and all the money you put into it.
They’re saying it’s really risky and there’s no way to prove that it has value. I want to give a different perspective on that. There’s plenty of demand for crypto for real cases all over the world that are just flying under the radar. They are imperative to the future of crypto because this is what’s driving the demand.
I want to use Ethiopia as an example. This is a country with 100 million people with a median age of about 19. A lot of people are very young, entering the workforce and looking for some way to make money. The economy in Ethiopia is doing great actually. For the past 14 or 15 years it has grown about three or four times the rate of the United States economy.
It’s a country that is undergoing a huge amount of growth. People are starting to make more money. It’s a more developed country. People are still not trusting their currency. The one downfall of the Ethiopian economy right now is inflation. Over the years, their currency is valued less and less and it’s getting worthless.
If you make $100 today, it could be worth $10 in just a few years. That’s no way to build any wealth. Now they are turning to crypto. All these young people getting into the job industry want to be paid in Bitcoin. They are buying Bitcoin. The amount of internet in Ethiopia has actually gone up about 1,000% in the past five years.
A lot of the population now has access to the internet. They can buy and sell crypto online and a lot of them are doing that. There’s a lot of other countries in the world going through the same type of thing. We have big manufacturing economies like Vietnam, Indonesia and other countries in Africa like Nigeria with 200 billion people, South Africa with tens of billions of people.
These countries, Nigeria and South Africa, about 3% of the total amount of wealth held in those countries is in cryptocurrency. The demand, for Bitcoin especially, is extremely high. Even though what you’re hearing in America is things like, “there’s no real value for it,” “no one is going to buy it,” “it’s going to go to zero because it’s a fad.”
What I’m trying to say is, there’s so many places in the world with currencies that are getting valued less and less. They are not able to be sustainable. People aren’t able to save anything with the currencies getting so low. They’re replacing them with Bitcoin.
This is going to be a huge trend that we see over the next couple of decades. It’s really a currency revolution where Bitcoin is just going to be the standard. One more point I want to make is the size of the cryptocurrency market is so small that there’s a ton of upside here.
The amount of crypto in the world right now is about $300 billion. That does sound like a lot, but when you consider that the stock market just in the United States is about $30 trillion, it really puts into perspective the upside crypto can have all over the world and not just in one country. It’s 1% the size of the United States stock market.
I just wanted to give that perspective on crypto today as it reaches new highs and more and more skeptics come out of the woodwork in the media about Bitcoin. There is real demand out there for it. It’s still a strong market and I believe it has a lot of upside from here.
Over to you, Hudson.
Hudson Cashdan: Thank you, Ian.
I think you are completely right about that. I think part of the folly is that people compare it to the dollar when they should be comparing it to the worst instead of the best of global currencies. There’s a lot of bad ones out there. I think that’s a good observation.
This week I want to talk about Chewy. Chewy came to the market this week through an IPO. In case you are not familiar, Chewy is an online pet supply business. People are spending more and more on their pets — $70 billion and growing 4% a year. Chewy is a rare pure play on this phenomenon.
They floated a fairly small percentage of their company. There was a rush to get to the IPO and they opened up more than 60% above the IPO price. We think Chewy is interesting. We are going to take a look at it. We think investors are going to keep trying to own this one as it goes forward.
This upcoming week we have Slack. Slack is doing something different. They are doing a direct listing, meaning that they’re selling existing shares from their investors directly to the public. This is different from what most IPOs are where they sell new shares and dilute their existing investors using underwriters to sell the new shares to the public.
This is a little bit different. Spotify did this and they didn’t pull it off that well. I think Slack is a little different animal. Although they are selling 47% of their company to the public, which is more than we’re usually looking for in an IPO, this isn’t an IPO, this is a direct listing. It will be interesting to see at what price they figure out if optimal for moving these shares.
We’ll be watching that because they are doing it without an underwriter. We’ll see how Slack pulls that off. We think this has the potential to be really big. Slack has basically become the essential workplace tool for all the fastest-growing companies in the world. We think there’s going to be strong demand for this one out there.
We’ll be watching this closely this week. Look out for some updates from us. Over to you, Paul.
Paul Mampilly: Thanks, Hudson.
I’m going to go back and touch on what everyone has mentioned. I’m going to lead off where Hudson left off and make the case for you why you should be paying attention in what Hudson is an expert in and focused on, which is the IPO market. We talk about the old and new, underlying that is something even bigger.
It’s this huge thing that the mainstream media never talks about. There has never been a complete implosion of the number of companies you can invest in as a stock market investor. The peak was somewhere in 1999 when there were more than 9,000 companies you could invest in — today it’s less than 5,000.
The number of companies on an absolute basis that you could buy in the stock market has just completely collapsed. In other words, when you go to buy there is far less choice. That increases the potential for when real companies like Slack and Chewy come to the market. There is a hunger and an appetite to buy them, which is what’s boosting their price up.
There’s also something that is really basic that, once again, regular financial media won’t focus on. I have no idea why. Maybe they are ashamed to talk about it. Demand and supply ultimately set price. If there are a lot fewer stocks out there, but the amount of cash in the system continues to be large, the average price is going to be higher for the average stock.
It’s no surprise for our team that we’ve seen these huge jumps. I believe Chewy, its shares after it came IPO, jumped 56%. There was another stock called Fiverr that went up 89%. What you will see is some amount of profit taking, that’s pretty normal. However, because these are real companies and because there is a regular appetite to buy shares, we believe that the IPO market this time around — unlike 1999 when it was hype and junk and a scam perpetrated by Wall Street on regular investors — these companies are for real.
They have actual businesses, actual sales, managements that have been running them for five or 10 years. We think, at the right price, these are going to be good deals. This is why I have gotten with my publisher and we are going to start publishing on these IPOs. I believe they are going to be good opportunities to make good money fast.
We know that’s popular among everyone. Watch out for IPOs. As Hudson said, the big one coming this week is Slack. It’s coming through an unusual way where they are going around Wall Street. Usually you would go through Wall Street and pay them $50 million to $100 million. Slack is saying, “No thanks. We’re just going to sell our shares directly.”
Some people think it will flop. However, we all use Slack day to day and we know how great this is. We think that by itself creates a large of audience of people who want to go buy the company because your experience with it is so good.
Let me go to something that Ian was talking about: Bitcoin. As you know — and you’re probably tired of hearing me repeat this — I made a video in 2017 when Bitcoin was near $20,000 and said stay away. Then, I flipped. I changed my mind partly as a result of discussion we had within our team. Ian being a millennial was really more open to the idea of crypto.
I realized, there is a large and growing audience for crypto, in particular Bitcoin, for all the same reasons Ian is talking about. Ian and I watch Bitcoin pretty closely. We both saw it went above $9,000 this weekend. Ian wrote an article at Bold Profits and If you’re not subscribers, make sure you get on the list because what we offer you is a different view on the world.
You will not get this from MarketWatch. You will not get this from Yahoo! Finance or the Wall Street Journal. We focus on the new. We were talking about this, we also focus on good news. The regular media are the bad news roundup. If you want to hear what’s going on for real based on facts and evidence, pay attention to us.
Getting back to what Ian’s article was about, he said if Bitcoin simply got a small piece of the market capitalization of gold, it would be valued at $56,000. When you extrapolate that on top of what Ian mentioned today, all the crap currencies that exist in the world, whether it be Ethiopia or currencies in China and India, no one trusts those currencies.
They don’t want to leave their money in there, which is why they used to buy gold. But Bitcoin is a real alternative. A lot of people can see that it’s holding its value, relatively speaking. I believe in Argentina, Bitcoin, even with its drastic price decline in 2017, performed better than their currency.
I’ve been talking to my publisher that we would like to do something in crypto. We have a lot of expertise, we have a lot of things that we’ve been working on. It’s something we’ve been looking to do. In general, we’re always looking to put new information in front of you that can help you make money.
We try to be on your side by trying to give you information that helps you, versus having a point of view. If we thought that markets were a bad deal we would tell you that. However, right now our view is that the economy is good, our markets are good. As Amber was talking about, interest rates are essential to that.
It’s pretty clear now that the Federal Reserve made a mistake in 2018. They lifted rates too high. There was no reason to do it. As you know, if you followed some of the updates we made, we said there is no inflation. We believe there is no inflation because of what Amber reports on every week: disruptification.
We have new innovative ways of making things, which makes us more productive. You are beginning to see that. Our productivity numbers are hitting 10-year highs. We have wage growth without inflation. We have record-low unemployment that has never been seen. I have never seen this kind of unemployment and I’ve been here since 1986.
If our media had a different lens, we would be erupting in celebrations all the time and markets would be even higher than they are. They are at record highs, but you could give the justification given macro-news, the individual companies that are doing well — the companies of the new are doing well, the companies of the old are struggling. They are borrowing money that they shouldn’t be borrowing.
They are paying too much for companies that they aren’t actually interested in running to grow. They are going to die. However, the companies of the new are doing great, which is why we continue to be positive on the stocks that are in our portfolios. The Disruptification Index will tell you that the folks who are invested in our services are doing well.
Last thing I want to mention is some of the stocks I know you guys care about. Let’s go with Tesla. I get a lot of email every week on Tesla because it’s a popular stock. It looks like Tesla has put a bottom in. I really believe Tesla is setting up for a breakout year. They are going to have a ton of deliveries of their Model 3 car.
The interest rate cycle, if the Federal Reserve cuts rates, is supportive to housing, it’s supportive to autos and interest-sensitive businesses. Tesla is one of them. They sell cars. The interest rate matters. If you go to lease a car, the payment is lower if the interest rate is lower. If you go to borrow the money, the payment is lower if the interest rate is lower. That’s supportive of Tesla’s stock.
Even more, their product — the Model 3 I believe is set to have a breakout. An iPhone moment as I’ve called it before. Where there’s mass adoption because people can see it’s a great car and the people who are negative on Tesla are wrong. This is a great car. It runs great, the experience is great and people are now starting to say, “I’d like one.”
One last company I want to mention that’s in the news in a positive way is Facebook. They are going to be releasing their version of a currency called Libra. Facebook is a stock in our Profits Unlimited portfolio. Readers have done quite well. I believe Facebook could be the leading edge pushing cryptocurrencies.
Where using WhatsApp or perhaps Facebook messenger where, instead of going through paper currency and the baking system, you can do it through a messaging app. My mother still lives in India. For me to send money there or any place like that, that would make my life a lot simpler.
Amber mentioned Amazon and the development of voice in computing. Just think about where Amazon is or Google is compared to Apple. It’s really a sad indictment of where Apple has gone as a company. This is why I have been negative on Apple for a long time. I have been wrong on the stock for some period of time, however look at what’s going on.
Ultimately, every stock follows its business. I continue to be negative on Apple. This conference tells me that Siri which was once so far in the lead is so far behind now. That’s all I have for this week.
Back to you, Amber.
Amber: Thank you, Paul. Thank you, Ian. Thank you, Hudson. Great insights, gentlemen. Fantastic information for all of us to learn and share. Thank you to our viewers for tuning in this week. We appreciate you very much. We ask that if you like what you hear today, please subscribe, comment and share the Paul Mampilly YouTube channel. Until next week, take care. Bye bye.
There’s a lot of buzz about the Federal Reserve lately, and for good reason. This week, the Fed will decide whether to keep interest rates the same, or lower them.
This is great news for the stocks and mega trends we follow. Take for example Tesla, a company that has had a hard time finding its footing on the market recently, but will benefit greatly from an interest rate drop.
The industries that will benefit the most from lower interest rates are the housing, fintech and car sales industries, and Tesla is just one of the companies that will bounce back greatly as consumers feel more willing to make big purchases with lower interest rates reducing prices.
Lower interest rates also mean more people will invest in the brand-new companies coming to the market, boosting the economy and encouraging other companies to open IPOs to cash in on the IPO craze, like Chewy and Slack.
Existing fintech companies can benefit from a lowering of interest rates, since people are more willing to invest their money when interest is less likely to be a huge factor. In today’s Market Talk, my colleagues and I discuss all this and more.
We also discuss:
- Amazon’s recent Regarding Mars conference presented all of the latest innovations in robotics, tech and artificial intelligence (AI). But the most promising innovation came from a new feature for its Alexa AI called Alexa Conversations, which will revolutionize the way we interact with AI.
- Two recent studies showed that the world is continuing its shift from the Old World of shopping at brick-and-mortar stores to the New World of online retail. And this favoring of clicks over bricks is forcing mall and storefront owners to get creative with their leasing options.
Editor, Profits Unlimited