Diamonds in the Rough

An Obvious “Setup” for Overlooked Stocks

Today, Paradigm’s iconoclast investor James Altucher says: “I can't think of another time when I was looking at a setup that was this obvious.”

James is eyeing a catalyst for a potential microcap rally. That’s because microcap stocks — typically defined as companies with market capitalizations under $300 million — have historically outperformed larger stocks.

And the Federal Reserve's anticipated rate cut later today could create a favorable environment for microcaps. While smaller companies often carry more debt than larger firms, lower interest rates reduce their financial burden, which can lead to increased profitability.

“When the Fed cuts rates, it creates enormous appetite for microcaps,” James adds. “This is one of the greatest investment opportunities in 50 years.”

And James is not alone in his assessment. Wall Street's biggest players are quietly shifting their billions from tech giants to these tiny stocks.

• Take Stanley Druckenmiller, the billionaire who rode Nvidia’s surge. During the second quarter this year, he sold a large tranche of Nvidia shares, investing instead in small caps. Even BlackRock, with over $10 trillion in assets, just launched a small-cap fund. Why? Because they know something big is brewing.

Although the broader market indexes have been performing well recently, they don’t offer the same explosive growth potential as microcaps. During the COVID-19 market recovery in 2020, for instance, microcap stocks nearly tripled in value…

Indeed, the largest gains in recent years have come from smaller stocks that were once overlooked.

But small, innovative companies can deliver extraordinary returns when they find a niche and execute well. Companies like AST SpaceMobile (ASTS) — a microcap company which partnered with Verizon to expand cell service across the continental U.S. via satellite.

• After announcing its partnership, ASTS shares surged by as much as 1,623% in only three months

• Or consider Celsius Holdings (CELH), the energy drink maker that soared 7,451% in five years

• Monster Beverage (MNST)? It was once a tiny microcap. Today, it's up a mind-bending 109,504%... That’s equivalent to turning every $1,000 into over $1 million.

And James has unearthed gems like a $2 stock trading below its cash value, with revenues skyrocketing 2,000% in four years. “It's like buying dollar bills for 50 cents,” he says.

For those wanting a taste of the action without picking individual stocks, James recommends the iShares Microcap ETF (IWC). But he cautions: “While it's fine to invest in IWC, you'll only do as well as the average microcap…

“The real magic happens when you find those diamonds in the rough,” James says.

And finding those diamonds is James’ specialty. With a track record that includes selling two companies for eight-figure sums, he's got the Midas touch when it comes to spotting opportunities.

This afternoon, James is gearing up to invest $50,000 in a little-known microcap stock trading for less than $5. Altucher believes this stock is positioned at the intersection of three significant trends: artificial intelligence (AI), cryptocurrency… and a third opportunity he has yet to reveal.

As he prepares to make his investment, James invites you to consider joining him before the anticipated market shift occurs.

As we stand on the precipice of what could be a microcap revolution, James’ message is loud and clear: “This is your chance to get in on the ground floor of the next Apple or Nvidia. Don't let it slip away.”

No-Drama Fed: Not Political, Not Panicked?

The Federal Reserve is set to cut interest rates for the first time since March 2020 — marking a pivotal moment for the markets.

“We’re sticking with our 0.25% forecast for three reasons,” says Paradigm’s macro expert Jim Rickards.

“The first is that this is the no-drama Fed. They’re definitely cutting rates, but they don’t want to appear panicky or to suggest the economy is worse off than they admit. Far from providing ‘stimulus,’ a 0.50% rate cut may signal recession fears and lead to a stock sell-off.

“The second reason is the election itself,” Jim adds. “Delivering a rate cut just six weeks before the presidential election would appear to favor Harris and work to Trump’s disadvantage.

“Still, the economy is showing signs of slowing,” he says. “A 0.25% cut will give Harris and the economy a boost (so they believe) without being too blatant.

“The third reason is that more rate cuts are on the way. Third-quarter GDP growth looks healthy, at least according to the Atlanta Fed GDPNow tracker, which estimates 3% growth.

“The Fed has two more scheduled meetings this year in November and December and will likely cut rates at both meetings,” says Jim. “A 0.50% rate cut can always be rolled out at some future meeting if needed.

“In effect, the Fed is saying, ‘What’s the hurry?’

“A 0.25% rate cut will have the desired effect, at least in the Fed’s eyes, without appearing too political or too panicked,” Jim concludes.

It’s still early in the day, but it’s worth mentioning that the market seems to be holding its collective breath, awaiting the Fed’s decision this afternoon.

The three major U.S. stock indexes are just slightly in the red, with the S&P 500 and tech-heavy Nasdaq seemingly paused at 5,630 and 17,630 respectively. Meanwhile, the Dow is down about 0.15% to 41,550.

Turning to commodities, crude is down 0.25% to $71 for a barrel of WTI — but that’s considerably higher than it has been recently. (Something to do with Israeli-rigged pagers and Hezbollah in Lebanon. A wild new chapter in asymmetric warfare.)

Precious metals are holding up, with gold up 0.15% to $2,596 per ounce and silver hanging tough above $30. (More on silver in a moment.) As for crypto, Bitcoin ($59,515) and Ethereum ($2,295) are both in the red at the time of writing.

The big economic numbers of the day are housing starts and permits — both of which blew away the expectations of Wall Street economists.

Starts rose 9.6% in August. Granted, some of that might be a pickup in construction that was disrupted by Hurricane Beryl — especially on the Gulf Coast and the Mississippi River valley. But falling mortgage rates certainly helped, too.

Silver, Solar… and Bankers

According to the Silver Institute, industrial demand for silver hit a record high last year.

“Indeed, silver demand massively exceeded silver supply for the third consecutive year in 2023, resulting in a structural market deficit of 184.3 million ounces,” says an article at trade publication International Banker.

That said, silver prices have fluctuated wildly for decades…

• They peaked at $36 per ounce in the early 1980s, but fell for many years thereafter
• Prices began to rise again around 2006, driven especially by strong demand from China
• The Global Financial Crisis of 2007–2009 pushed prices nearly to $50 per ounce by April 2011
• After that, silver prices dropped and stabilized around $20 per ounce.

But in May this year, the price of silver surpassed $30. “Much of this support has been provided by the global silver-supply deficit that persisted for the three years through 2023, in addition to the expanding supply deficit widely predicted for 2024,” the article notes.

As for the rest of the year, “UBS updated its outlook for silver in May, largely due to this robust industrial demand as well as possible supply cuts in the market” — forecasting $34 by the end of this month.

“J.P. Morgan, meanwhile, has forecast that silver prices will average $36 per ounce by 2025, underpinned by ‘strong macro fundamentals and a supportive supply and demand backdrop,’” International Banker says.

Getting back to industrial applications, the Silver Institute predicts an increase of 40 million ounces in the solar industry’s demand for silver this year. But Chen Lin of Lin Asset Management believes silver demand could be even greater.

“Once investors see the huge deficit [in] silver,” Lin says, “silver will go to $50 just like that — just in a heartbeat.”

But we caution: Remember those wild price swings (see bullet points above)? Yeah… However, we point out that this article appeared in a trade pub for bankers. Interesting…

Ford Patents a New Revenue Stream

Ford recently filed a patent for a system that would collect and use driver information… to display targeted advertisements in vehicles. Sounds totally safe, right?

The proposed technology would gather data on the vehicle's route, destination, speed, traffic conditions, travel history — even conversations within the car! — to create personalized ads.

Ford’s patent is part of a larger trend on the part of automakers collecting driver data. General Motors, for example, faced criticism for sharing information about driving habits with insurers, leading to a lawsuit in Texas.

The revelation of automakers sharing driver data without warrants has prompted calls for the Federal Trade Commission to investigate. However, current consumer privacy laws do not explicitly prohibit such technologies.

But a Ford spokesman emphasizes that filing a patent does not necessarily mean the company plans to implement the technology. Riiiight.

On second thought, maybe he has a point…

Image source: U.S. Patent and Trademark Office, PowerNation
A 2023 patent for drivers to operate a Ford Bronco while standing up…

Ford says patent applications should not be viewed as indicators of business or product plans (see illustration above), and that customer interests would remain a priority in decision-making processes (see illustration above).

Clearly, the data-collection patent raises concerns about privacy — especially so since automakers have resisted sharing their diagnostic data with independent repair shops. Infuriating…

Mailbag: Texas Pastime and a “Taxi” Scam PSA

“I live in Texas where property tax complaints and discussions are a state sport,” a reader comments on North Dakota’s referendum to abolish property taxes.

“Personally, I support property taxes in preference to other forms of taxation. There are many reasons for my support, but the short answer is that everyone (except the homeless) pays the tax. And the tax is not progressive like the income tax.

“A property tax gives everyone (from the poor to the rich) a vested interest in how the government spends the taxpayers’ hard-earned money.”

Emily: The Tax Foundation holds a similar viewpoint, noting “property taxes are largely rooted in the benefit principle of taxation: The people paying the property tax bills are most often the ones benefiting from the services.”

Check out the interactive map here

On the other hand, do you really own your home and property if you run the risk of having it confiscated unless you fork over a regular fee to the government? Just sayin’. 

As for Dave highlighting “taxi” scammers in Canada, a reader comments…

“If the RCMP would have made the simple observation you did — about a cord to the cigarette lighter — scammers would be starving and the RCMP would look like leaders,” he writes.

“I could go on a tirade about a lack of critical thinking, but words fail me. I will never get into a taxi with a cord going to the cigarette lighter. That’s thanks to you, Dave. What an obvious solution to a problem.

“Don’t worry about me giving up on the 5 Bullets anytime soon.”

We appreciate your support — particularly after the lambasting I received for Saturday’s Kamala Harris-centric issue. Heh…

Take care! We’ll be back tomorrow with a post FOMC meeting wrap-up…