Will Quantum Computing Break Bitcoin? By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - The Fed’s third mandate in clear view…
- Inflation will return, but that’s no bear signal…
- Top Power Factor stocks for a high-inflation bull trend…
- Will quantum computing break bitcoin?
- 17 days until the Auspex era begins…
Does this sound right to you…? With stocks, bitcoin, gold, and home prices at all-time highs, GDP at 2.8%, and the core Consumer Price Index running at over 3% for three and a half years – the longest run of off-target inflation since the ‘90s… The Federal Reserve is almost certain to cut interest rates this week. You’d be forgiven for wondering just what the heck the Fed is thinking. How can further fiscal support possibly be the right move when the economy and stock market – especially its more speculative, frothy areas like crypto, quantum computing, and AI – are firing on all cylinders? And even more importantly… When inflation actually just ticked up for the fifth month in a row? Does the Fed know something we don’t? Maybe. But our loyal readers know there’s a far simpler answer. There’s another little thing at all-time highs called government debt. And yet another little thing called interest-payment expenditures at… not quite all-time highs, but (even after a big drop) still at a level we haven’t seen since the mid-‘80s: 
This, as we’ve shown you before, represents the Fed’s Third Mandate. The Fed normally talks about a “dual mandate”: stable prices (inflation around 2%) and “maximum employment” (as little unemployment as possible given inflation targets). But that’s now secondary to the goal of not letting the government spend itself into the grave, with interest expenses being the final sprinkle of dirt. To be clear, this is a good and necessary thing. It’s all the Fed can do to help our spend-happy government. And like it or not, we taxpayers in the wealthiest country in the world need the government to function. But what we should also understand is the Fed expects to slow the pace of interest-rate cuts from here. After all, managing three mandates with two levers – interest rates and quantitative easing – is a tricky thing. That will ultimately keep the inflation floor higher, with a potential reignition in 2025 that we’re likely seeing the beginning of today. Don’t worry, you aren’t reading a bear screed… We like to help you make money here at TradeSmith. So we focus on the trends in the markets and, much like the Fed, set our sights on the bigger deal at hand. The idea of higher inflation, which triggered a bear market when it caught on in 2022, might sound painful today. But I’m confident that this time we’ll see a higher stock market in conjunction with higher inflation. Yes, President-elect Donald Trump’s threats of tariffs and a mass deportation program are at least knock-on inflationary, if not outright. But the new administration should also bring pro-growth, low-corporate-tax policies. An inflationary bull trend sounds harder to manage than it will probably prove to be. To benefit, you should focus on disinflationary forces like technology… and the businesses that consumers will use no matter what, like utilities, financial services, and low-cost retail. Often, these trends are one and the same. Utilities stocks, for example, not only have a consistent business in serving consumer power needs, but are set to benefit even more from increased power consumption from AI. The same goes for financial services. And at least the biggest low-cost retailer, Walmart (WMT), employs blockchain tech to keep its supply chain running smoothly. (Disclosure, I own shares of WMT at time of writing.) But no matter which area of the market you decide to explore for your next buy, the most important thing is to focus on the factors that make or break any business… In an inflationary bull trend, you have to buy great stocks… The higher inflation goes, the lower your real return in the market… and thus, the lower your chances of beating the market. One way to make up that ground is with high-quality stocks that won’t just beat the market… but leave it in its dust. Beating the market is rarer than you’d think. The data proves that even beating Treasury bills is a rare feat. A paper by Hendrik Bessembinder in 2018 found that 96% of all stocks from 1926 failed to do better than 1-month Treasury bills… and naturally, far fewer beat the market. If you’re putting a lot of effort and time into investing and you’re not beating the market, you’re spinning your wheels in the mud. Lucky you – you read TradeSmith Daily. We use data to put the odds of beating the market overwhelmingly in your favor. Mondays are a great example of that. Each week, we look at the top-ranked stocks in Jason Bodner’s quantitative stock rating system. These stocks have what we call Power Factors. They’re the most important things a stock needs to have a good shot of beating the market. And these factors remain the same no matter what sector or industry a business may be in. They are: - Sales, earnings, and profit margin growth. The financial laws of physics dictate that when stocks hit these three checkboxes, they outperform the crowd. They attract investment by virtue of outstanding operational excellence and business success.
- Big Money flows. This is a key overlooked factor. It’s entirely possible for a company to have a solid business but anemic price action in its stock. When we see unusually high trading volume, suggesting massive institutional capital rushing in, that’s a good sign that positive price action is coming. And without positive price action, the best fundamental qualities in the world don’t matter a bit.
Money flows can also give a clue of whether Wall Street’s most advanced, well-connected traders have uncovered something special before the masses. Jason spent years on Wall Street seeing the impact of these Power Factors firsthand. With enough data, he was able to program an algorithm that turned these factors into an easy-to-use tool called the Quantum Edge score. Following stocks with high Quantum Edge scores is a darn good bet. Since 1990, a biannually rebalanced portfolio of the top Quantum Edge stocks outperformed the S&P 500 by 7-to-1. Let’s look at the alpha this week, the top and bottom stocks in Jason’s system… 
If you’re a dedicated reader, you might have noticed a few key names keep gracing the top of the list. Arista Networks (ANET), Apollo Global Management (APO), Royal Caribbean (RCL), and WisdomTree (WT) are just a few of the stocks that have been on this list for weeks on end. They’re worth keeping a close eye on. Just as important are the stocks at the bottom – the worst-ranked stocks in Jason’s system. All this year, we’ve observed a consistent theme of commodity chemicals and biopharmaceuticals companies catching the ire of Wall Street for their poor fundamentals. And the infamous oil giant BP (BP) is on its own cold streak at the bottom of the list. Jason’s subscribers get the newest version of this list later today, with the latest Big Money readings. Along with it, they’ll get Jason’s latest analysis of what’s happening in markets, and updates on his model portfolio. If you aren’t already subscribed to Jason’s work, you can check out the details of a subscription right here. And I recommend you do. The downtrend in interest rates is unlocking strong potential in the small- and mid-cap stocks that Jason focuses on, and new opportunities are popping up constantly. Shifting gears, let’s talk a bit about quantum computing… Google made a big splash last week with the announcement of its Willow quantum computing chip. (Disclosure, I own shares of GOOGL at time of writing.) The mechanics behind quantum computing are super complicated and require some deep thinking… which we won’t get into here. From an investment perspective, all you need to know is that quantum computers are really, really fast and efficient at computing complex tasks. This is the key insight from Google’s announcement that made the rounds (emphasis mine)… Willow’s performance on this benchmark is astonishing: It performed a computation in under five minutes that would take one of today’s fastest supercomputers 10 septillion years. […] This mind-boggling number exceeds known timescales in physics and vastly exceeds the age of the universe. It lends credence to the notion that quantum computation occurs in many parallel universes, in line with the idea that we live in a multiverse. And all this from a computer chip about the size of a hockey puck: 
The advent of quantum computing is exciting, but also presents a lot of scary implications for cryptography. If we have computers capable of solving really hard problems really quickly, which would normally take so much time or energy that it’s not feasible to even try to solve them… The world of cryptography gets broken wide open. And at the center of the world of cryptography is the multi-trillion-dollar cryptocurrency market. Will quantum computing hack the bitcoin network, or that of any other cryptocurrency? It’s entirely possible, especially if nothing is done to mitigate the threat. However, I’m not advising anyone to run out and sell their cryptocurrency right now. For one, Google has already publicly said that Willow isn’t capable of breaking modern cryptography standards… at least not yet. Another factor to consider is the incentive to break blockchain cryptography. If one did want to corner the cryptocurrency market with a quantum computer and make an effort to, say, change transaction histories or alter the value of assets, the system would quickly collapse and provide little to no reward for the attacker. An attacker whose goal is to simply destroy the value of crypto wouldn’t care, naturally. And that threat still exists. But as it stands today, there’s no immediate threat to cryptos. And it’s likely that those with a vested interest in cryptocurrency, including the president-elect and his inner circle, will spur innovation to defend against this eventual threat. We’re 17 days away from the first batch of Auspex picks for 2025… And if the track record is anything to go by, you’ll want those first 10 names in your inbox as soon as they’re available over at InvestorPlace. For example, in August alone – hardly an incredible month for stock-market returns – the Auspex model helped Luke Lango’s Inner Circle close AnaptysBio (ANAB) for a gain of 38% – in a month! Their Carpenter Technology (CRS) position was good for 34% gains, and Zeta Global (ZETA) gained 30% when the Auspex model signaled that stock for August. Now they’re making Auspex available to a wider audience for the first time. And the strategy is beautifully simple to follow. All of the complexity of running 15 different filters is behind the scenes, in Luke’s Bloomberg Terminal, to make sure every stock fits the model: - Strong fundamentals – positive and accelerating earnings, revenues, and margins
- Strong technicals – rising moving averages, healthy relative strength
- Strong sentiment – higher trading volume as well as analyst estimates
All you have to do is invest in the top 10 fast-moving stocks that qualify for Auspex each month. Then, the next month, if any fall out of the top 10, just swap them out. It’s a five-minute process – and in return, those following the Auspex model portfolio will have beat the market in July, August, September, October and November (every month since inception). And the long-term backtest is phenomenal, too. Luke unveiled The Auspex Anomaly in a new broadcast that you won’t want to miss. Watch a free replay right here. To your health and wealth,  Michael Salvatore
Editor, TradeSmith Daily | 
No comments:
Post a Comment