We all know Netflix. Co-founder and CEO Reed Hastings’ brainchild has disrupted the entire entertainment complex through its massive global expansion and improved streaming technologies.

Remember video rental giant Blockbuster? Unfortunately, most people under 20 surely do not.

Netflix put them out of business in 2010.

Remember when Hollywood had a stranglehold on deciding which films could be made?

Well, Netflix’s studios have gone on to win Oscars and forced film moguls to play by their rules. Today, Netflix has more than 207 million paid subscribers around the world.

But now it has another target in sight.

The $90 billion video gaming industry.

With several video game producers and related tech companies ready to report earnings, let’s examine how Netflix might master the gaming sector over the next 10 years.

How Netflix Succeeds

Back in 2006, Netflix started as a rental company for movies. Then, it was locked in a battle with Blockbuster over monthly DVD mail-in rental programs.

People will say that times and customers changed. But it was the acceleration in streaming and supporting technology that aided Netflix’s rise over the competition. Improved bandwidth, 4G, and faster internet speeds made it possible for Netflix to blast films directly into your living room.

The video gaming industry has experienced a significant benefit as well from stronger, faster internet speeds, improved graphics cards, and more advanced software.

To show that Netflix is serious about its future in gaming, it made a strategic hire last month to lead its new initiatives. Netflix hired Mike Verdu, a former executive at video game giant Electronic Arts and Facebook. While at the social media giant, he oversaw a division that brought games and other content to Facebook’s Oculus virtual-reality platforms. While at EA, he focused on the popular Sims franchise and Star Wars games.

For the moment, Netflix says that it will offer video games on its primary platform as a new genre of programming. However, if you’ve ever used Netflix, you know that they segment different categories of programming by subject. So, for example, you’ll see standup comedy, documentaries, and 1980s films lumped into separate categories.

Buy Versus Build?

The question that everyone should ask now is how Netflix plans to build a video gaming dynasty.

When a company wants to get into a new growth industry, it typically has one of two strategic options. It can either build the entire business from scratch, or it can acquire a company that already has deep experience and a solid customer base.

“Buy versus Build” is the subject of classes and debates at business schools across the country.

You’ll recall that Netflix famously built its own movie production house from scratch. It relied on strategic partnerships with media companies like Starz. But it never went out and bought a movie studio.

Its rival Amazon (behind the Prime video platform) also built its own content- and movie-production unit. However, Amazon has lagged behind Netflix in terms of original content. As a result, it boldly decided to purchase MGM Studios recently for $8.5 billion. Amazon will use the Buy model in its quest to compete against Netflix’s ongoing dominance.

Netflix, meanwhile, has focused on making its content stronger and exploring new opportunities that would benefit its customers. As it moves into video games, it will likely start with mobile gaming and then expand to its other platforms.

So, what will Netflix do with video games?

There are theories that Netflix could go out and purchase a video gaming company. A simple Google search will deliver countless clickbait articles speculating that Netflix could buy role-playing game designer CD Projekt or even merge with Electronic Arts or Take-Two Interactive.

But I’ll give you an effortless secret that will tell you what they’re likely to do.

All you need to do is check the company’s job postings.

Following the hiring of Verdu, the company posted multiple job openings for gaming production team members.

A posting for Producer, Studio Games reads:

“This is your chance to be at the forefront of Netflix’s new offering of Video Games. We will bring these new experiences to market through the world’s leading streaming entertainment app with 208 million paid memberships in over 190 countries who are already enjoying TV series, documentaries, and feature films across a wide variety of genres and languages.”

And a posting for Product Designer, Games Platform reads:

“We are looking for a lead-level product designer to push the boundaries of interactive experiences on Netflix. Collaborating with the world’s best game developers, we leverage our product and content expertise to design experiences where viewers interact and engage with gaming content in new and memorable ways. This role will work closely with a talented team of designers, product managers, engineers, and external game partners to help millions of viewers around the world discover and enjoy their next interactive experience on Netflix.”

Read the language closely. Netflix is going to build its video game platform out.

At least to start.

This strategy matters because there isn’t a threat that the company needs to issue new debt or take a hit by purchasing a company and eating into its cash position.

Now, it’s not going to be easy for Netflix to become a video game producer. Companies like Apple, Facebook, and Amazon have all struggled with gaming. But given Netflix’s massive platform and ease of access for more than 200 million accounts, it has the supporting tech.

Plus, given its success in partnering with companies before it entered its own content production, this could be a very slow and successful effort.

It will be interesting to listen to the earnings calls of companies like Electronic Arts (EA) and Take-Two Interactive (TTWO) to see if they view Netflix as a competitor or collaborator.

It looks like this $90 billion gaming industry has a new entrant. So let’s sit back and watch the battle.

The markets continue to charge higher.

Thursday’s gains came despite news that the U.S. economy grew at a weaker pace in the second quarter. Once again, we can point the finger at the Federal Reserve, which again failed to discuss asset tapering or raising interest rates.

Remember one thing.

The Federal Reserve will eventually taper its purchases of bonds and mortgage-backed securities. It will also have to take its foot off the gas at some point on interest rates.

While “normalization” – or the process of moving rates back toward 3% or 4% – could take years, we’re expecting two smaller interest rate hikes by 2023.

Such moves could hit growth stocks hard.

We could also see weaker economic growth due to higher borrowing costs. We might even slip into a recession. At least, that’s the chatter coming from some of the more bearish voices.

Former Federal Reserve Bank of New York President Bill Dudley recently penned an opinion piece in Bloomberg. He didn’t hold back any punches. “Unfortunately, the way the Fed is putting this long-term monetary policy framework into practice is likely to result in more volatile interest rates and more risk of recession,” he wrote.

In the event that they are right – that we do see weakness – we want to know the best defensive stocks to play. Today, I want to talk about three of our favorite “recession-proof” stocks that you can add to your watch list or start adding to your portfolio today.

Playing Defense in a World of Speculation

Before we dive into these three stocks, I want to clear up a misconception about the stock market.

Remember, the stock market is not the economy, and the economy is not the stock market. While one might occasionally lead the other – in many ways the tail wagging the dog – they are not as interconnected as everyone expects.

One of the things I hear often is the comparison between a bear market and a recession. These terms are mutually exclusive. A bear market is a stock market term referring to the downturn of an index or market that falls more than 20% from recent highs. It doesn’t matter what the time frame is. For example, we saw the fastest bear market ever in March 2020 when the Dow Jones fell by 20% in just 20 days.

A recession, meanwhile, is marked by two consecutive quarters where gross domestic product (GDP) is negative. That means that we get two consecutive negative readings over two 90-day periods.

Now, a bear market typically punishes the entire world of equities. But a recession doesn’t do the same. A recession will typically see investors transition their capital away from higher-risk growth stocks toward safer, higher-yield-generating picks like utilities, drug companies, or consumer staples companies that produce household products, like toilet paper.

The reason is that these companies tend to generate strong revenue regardless of the state of the economy. As I’ve noted over the last two weeks, energy utilities and pharmaceutical drug manufacturers can provide strong defense due to the underlying trends. Regardless of the economy’s state, Americans will require electricity. And aging populations will continue to drive demand for new drugs and medical procedures.

Let’s take a quick look at three companies that fall under these umbrellas.

Recession-Proof Stock No. 1: Procter & Gamble (PG)

Procter & Gamble is a Cincinnati-based company that has dozens of brands in the consumer staples space. The company operates in 36 nations and generated a stunning $70.95 billion in revenue in 2020. The company produces grooming, hair care, feminine, family care, and beauty products. It is also the company behind the toilet paper brand Charmin. This was the stock to own during the great toilet paper crisis at the height of the pandemic.

Procter & Gamble is currently in the Green Zone on TradeSmith Finance. This signals that we rate it a “buy.” However, it’s worth noting that PG’s momentum is in a side-trend. Investors will be happy to know that the company pays a reliable 2.5% dividend and has historically performed well in times of economic uncertainty. Americans will continue to buy toilet paper, shaving cream, and other household products in a recession, and PG offers broad exposure to this defensive space.

Recession-Proof Stock No. 2: Consolidated Edison (ED)

As I said, Americans have to keep the lights on. Consolidated Edison is a stock that weathered previous recessions well and kicked off strong dividends in the process. The New York-based utility company pays a solid 4.15% dividend and operates in a very profitable space. It is one of the biggest investor-owned energy utilities, which is important because that private ownership tends to do a better job at driving profits for investors.

The company has a very attractive operating margin of 21.3%. Its subsidiary Con Edison of New York alone provides electrical energy services to 3.3 million customers and gas service to more than 1 million households in New York City and Westchester County.

Again, you don’t need me to tell you that electricity is essential. But I will tell you that ED entered our Green Zone in May. The stock’s momentum has been in a side-trend for two weeks, but its strong dividend and reliable sector make it an attractive Watch List stock.

Recession-Proof Stock No. 3: Kroger Co. (KR)

There are a lot of people who might speculate on discount stores like Walmart (WMT) or Dollar Tree (DLTR). I am looking at grocery store chain Kroger Co. instead because it is a more reasonably valued stock than the alternatives and has a more attractive dividend.

Kroger is a supermarket chain based in Cincinnati. With a 2.06% dividend, the company has reliably returned cash to investors over the years. It recently hiked its dividend in June from $0.72 to $0.84. That’s a pretty significant jump. Even in times of recession, Americans will obviously continue to go to the grocery store. But I will say that the second-largest U.S. supermarket brand performed very well through the 2020 recession and 2008 great financial crisis.

Kroger is currently in our Green Zone (signaling that it is a Buy.) It is also in positive uptrend momentum, indicating that investors continue to pour money into the stock. Whether investors are getting more defensive or see the value in the company doesn’t matter. But if a recession hits, it will certainly pay to keep money in the grocery store sector with this play.

Conclusion

Remember, you can still own strong, defensive stocks in the event of an economic downturn. We might be far off from a possible downturn, but it’s always smart to have a strategy in mind. Look for defensive stocks with strong balance sheets, reliable dividends, and great products that people will purchase in any economic condition.

We’ll start digging into more earnings reports next week.

We’re getting older.

I don’t mean that in the obvious sense that time continues its inexorable march forward.

Or in the sense that we discover new pains in joints we didn’t know we had.

I mean that, as a whole, we’re getting older.

Human populations are aging.

In major developed nations, the population of people 65 years old or more is growing at a fast pace.

In China, there are more than 166.5 million people 65 or older. In India, there are 84.9 million people in this demographic. The United States (52.7 million) and Japan (35.5 million) round out the top four countries with the largest number of citizens over 65.

But it’s not just the leading economies that are witnessing this trend.

According to the United Nations, in 2050, 16% of the global population will be 65 years old or more, up from 9.3% in 2020. In absolute numbers, that’s a more than 100% increase, from 727 million to 1.5 billion.

This swell of older humans creates another important trend.

Even when the markets teeter and fall, you can protect your money by investing in the universal trend of aging populations and the various products and services that cater to life extension. Let’s look at a few ideas.

The “Why” Is the Easy Part

Through improvements in nutrition, education, and health care, the chances of making it to age 65 and beyond are rising all over the world.

Take Sweden, for example.

In the 1890s, the probability that the average Swede would make it to 65 was less than 50%.

Today, the odds are higher than 90%, in both Sweden and most Western, high life-expectancy countries.

This transition is happening all over the world, though at different speeds. Today, 25% of the average person’s life is spent over the age of 65.

In the U.S., the number of people 65 years or older is set to almost double from 46 million to 90 million by 2050. By 2030, 1 in 5 Americans will be 65 or over.

This is going to change the workforce and economy in dramatic ways.

In Massachusetts, for example, the number of home health aides (that is, people who help the elderly to live in their own homes by assisting with medical and living needs) is set to be the fastest-growing job between now and 2024. The number of home health aides there could soar by 37%, according to state projections.

And Massachusetts isn’t even a particularly elderly state, relatively speaking. With 16.5% of its population at or above 65 years, Massachusetts ranks No. 24 in the nation.

That’s because, as researchers of aging sometimes say, “lifespan isn’t healthspan.”

What that means is that just because medicine has allowed us to extend the number of years we live, it hasn’t always been as good at extending the number of years we live healthily.

After all, we may live longer than our parents or grandparents, but many of those years are spent battling frailty and chronic diseases.

That’s why the biggest changes from our aging population will come in health care.

As the population ages, the cost of combating the diseases of aging will continue to rise. The federal Department of Health and Human Services, which oversees Medicare, estimates that in 2026, U.S. spending on health will make up 19.7% of the economy, up from 17.9% in 2016.

Consider that by 2030 more than 60% of baby boomers will be managing two or more chronic conditions, according to the Office of Disease Prevention and Health Promotion. That means taking medicines and seeing doctors for at least two conditions for the rest of their lives – lives that promise to be much longer than their parents’.

Not to mention the need for more elder care facilities.

Real Estate Boom in Medicine

As recently as 2017, 1.2 million Americans needed nursing home care, according to the Family Caregiver Alliance. In 2030, that number will be 1.9 million. Meanwhile, the number of people in need of assisted living facilities will almost double to approach 2 million, according to the same source.

And remember: 2030 is just a snapshot, not an end point. The millennial generation is larger than even the boomer generation, and will live even longer. Their needs for more health care will be even greater.

One company I’m watching is Welltower (WELL). Its stock moved into the Green Zone back in March and remains in a solid upward momentum trend, according to TradeSmith Finance.

Welltower is a public real estate investment trust (REIT) that invests in health care infrastructure across the United States. Its primary focus is on senior housing and facilities to treat the aging population.

According to a company presentation, its average tenant is 75 years old. During the pandemic, its balance sheet got much stronger from seniors moving into the company’s real estate holdings as more people sought to downsize and cut costs. The company’s portfolio also consists of long-term post-acute care facilities, outpatient medical facilities, and general health management properties.

This is a very intriguing long-term play that I’ll discuss at greater length in the weeks ahead.

Prescription Drug Demand to Grow

The fastest-growing part of health care spending is actually prescription drugs. Because drugs for the complicated diseases of aging are so complex, they are also very expensive.

Just consider Aduhelm, the recently FDA-approved Alzheimer’s drug from Biogen Inc. (BIIB). Even if we set aside the controversy surrounding whether the drug even works (probably not), Aduhelm’s cost is a sign of things to come.

Biogen will charge patients $56,000 per year for the drug. Mind you, even the best-case scenario has Aduhelm only managing Alzheimer’s, not treating it. That means $56,000 a year for the rest of every Alzheimer’s patient’s life.

Now, the number of Americans suffering from Alzheimer’s is set to grow to 14 million by 2050, up from 5 million in 2013. If we assume every one of them is to receive Aduhelm, which isn’t even close to the most expensive drug for age-related conditions, that would mean $784 billion every year spent on just this one drug.

That’s not to mention the cost of drugs for diabetes, blood pressure, bone loss, and other chronic conditions.

So it’s no surprise that spending on prescription drugs is already rising by an average of 6.3% a year, according to the Center for Medicare and Medicaid Services. This rate will likely keep growing, which is good news for drug companies.

Biogen has my attention.

But I’m also very bullish on AbbVie (ABBV), a pharmaceutical stock that is in the Green Zone, has uptrend momentum, and offers a rock-solid dividend of 4.38%. AbbVie was established out of a 1993 spinoff from Abbott Laboratories (ABT). The company specializes in high-margin drugs and is developing a new pipeline of products to offset slowing sales of its signature Humira drug. In 2023, the company will lose its patent exclusivity on that drug.

With that said, the company is developing two relatively new drugs – named Skyrizi and Rinvoq – that have similar overlap to Humira, which is used as a treatment for arthritis and other autoimmune diseases. Sales of both drugs exploded during the first quarter of 2021. Skyrizi sales increased by 89% year-over-year, while Rinvoq saw gains well over 100%. As a result, it appears that concerns about the loss of Humira are overblown. Once the market realizes the upside of these replacement drugs in the pipeline, this stock could take off like a rocket.

Conclusion

Remember, even when the market is frothy, there are rock-solid trends that you can follow to generate income and upside from the underlying stock. Pharmaceutical drugs and an aging global population create a good framework for identifying investment opportunities.

I’ll be back tomorrow to talk about Amazon.

This morning, investors are parsing through yesterday’s earnings report from Apple.

And the company absolutely destroyed Wall Street earnings expectations. The company reported earnings per share of $1.30. Analysts had anticipated just $1.01 per share.

Apple sales increased by 36% from its June-ending quarter compared to the same period in 2020. It reported $81.41 billion in revenue, well above the consensus forecast of $73.3 billion.

Its iPhone sales alone increased by almost 50%. It sold $39.57 billion in new phones during the quarter, crushing analysts’ projections of $34.01 billion.

And every one of the company’s product lines has experienced a sales increase of at least 12% year-over-year.

After this report, I believe there will be two types of people.

Those who own Apple stock…

And those who eventually will own Apple.

Even if you think you don’t own Apple, you might find that you really do.

Regardless, Apple is now the single-most important stock in the U.S. markets.

Don’t believe me?

Wait until you see just how influential this stock is on the U.S. markets.

So Goes the U.S. Stock Market

In 1953, Charles Wilson, then CEO of General Motors, appeared before Congress. During those hearings, he famously said: “As goes GM, so goes the nation.”

Fast forward nearly 70 years, and GM is largely an afterthought in the U.S. economy. It’s largely been replaced by Silicon Valley tech giants with incredible reach and influence.

No one is larger than Apple.

In fact, it’s fair to say today that “As goes Apple, so goes the U.S. stock market.”

Apple is the largest public company in the United States, with a market capitalization of $2.44 trillion.

To put that figure into perspective, let’s just look at a world map.

Apple’s market capitalization is larger than the GDP of all but seven nations. Its market cap is bigger than the individual economies of Italy, Canada, South Korea, and Russia.

I joke that when economic leaders host the next G20 conference, they should invite CEO Tim Cook.

But that figure is just the start.

The Heart of our Stock Market

I often repeat that the Dow Jones, S&P 500, and Nasdaq are not the U.S. stock market. They are indexes that attempt to measure various levels of performance at certain stock exchanges.

The Dow Jones Industrial Average measures the daily price movements of 30 very large U.S. companies that list on the Nasdaq exchange and the New York Stock Exchange.

The S&P 500 measures the value of shares from the 500 largest companies by market capitalization that trade on the Nasdaq or New York Stock Exchange.

Meanwhile, the Nasdaq 100 Index – known by the ticker QQQ – represents the top 100 non-financial companies trading on the NASDAQ exchange.

It turns out that Apple is part of all three indexes. And the company has a significant weight on the value of each one.

On the S&P 500, Apple represents 6.24% of the weight of the index. (Microsoft, which is No. 2 in weight, comes in at 5.81%.)

On the Nasdaq 100, Apple is nearly 11.4% of the index weight. (Microsoft is second at 9.99%.)

And on the Dow Jones, it represents 3.1% of the index. Apple is actually 18th on the Dow list, well behind UnitedHealth Group (No. 1 at 7.74%.)

So, it’s pretty clear that just one stock has a remarkable impact on the direction of the three largest indexes, the broader market, and investor sentiment.

But it gets even deeper than this.

Passive Investments Are Heavy On Apple Stock

Now, some people might not own Apple directly. They might not have 10 or 200 shares sitting in their portfolios.

But if you own a retirement account or you work with a broker or you have any exposure to exchange-traded funds (ETFs), there’s a high probability that you own Apple stock.

Retirement funds, pension plans, and even brokers like using passive investments such as ETFs because they expose you to a broader index, industry, or sector. In the case of Apple, there are 244 ETFs that have Apple as a Top 15 holding in their portfolios.

The Technology Select Sector SPDR Fund (XLK) is a technology equities ETF that generates significant interest from institutions and retail investors alike. Apple represents 22.25% of the total weight on that ETF.

The Fidelity MSCI Information Technology Index ETF, which is popular in the brokerage’s retirement accounts, lists Apple as 20.3% of its weight.

Now those are technology funds, so Apple should be a big holding.

But large-cap ETFs like the iShares Global 100 ETF (IOO) and luxury ETFs like the Emles Luxury Goods ETF (LUXE) also have a large amount of exposure to Apple stock –12.54% and  7.49% respectively.

Is This Normal?

It’s fair to ask if it is safe for so many ETFs, indexes, and other funds and portfolios to have such substantial exposure to one single company.

But this is the nature of the market. It certainly is quite dangerous given that Apple has such a large market cap and significant global reach.

From a behavioral standpoint, everyone is all-in on Apple. Which is why it’s important to remain vigilant about the company’s stock and to ensure that you have protective stops in place.

Apple is an amazing company. But we have seen pullbacks and struggles at certain times in the past. For now, the stock remains in the Green Zone with a positive momentum uptrend.

The current Health Indicator trailing stop for AAPL will trigger at $108.53.

Be sure to keep an eye on the price and be ready to act should that stop be triggered. We’ll talk more about other companies reporting earnings all this week and next week.

In February 2020, most retail investors didn’t know what was happening with COVID-19.

Many politicians told Americans to continue going out to restaurants.

They said that they shouldn’t avoid public events. But they failed to disclose the threats they heard behind closed doors in Washington. Some leading politicians even dumped large amounts of stock, knowing that COVID-19 could ravage the U.S. economy.

If only there was a significant indicator that similar selling was happening at the executive levels of many public companies.

Oh, wait. There is one.

It’s called “insider buying and selling.”

And it is one of the most important signals that you can use if you’re worried about a potential market crash.

Follow the Insiders

Last year, COVID-19 caused significant disruption to the global economy and the stock market. We witnessed the fastest bear market in history. It was followed by the quickest bull market in history. The stock market was fast and furious.

We know about the Federal Reserve’s unprecedented actions to unleash a wave of capital onto the economy. And we know that when the uncertainty started, there were some ambitious moves by corporate insiders to sell their stock.

When I say “insider buying and selling,” I’m not talking about the illegal practice of using private information to trade a stock. That’s “insider trading,” which refers to the use of nonpublic information to trade a stock before a major catalyst hits.

Insider buying refers to the practice of corporate executives buying their company stock with their own money. Insider selling refers to the sale of those same assets by those executives. Insiders can refer to positions like the chief executive officer (CEO), chief financial officer (CFO), the chairman of the board, members of the board of directors, and anyone who owns more than 10% of the stock (and likely has a board seat).

The reason why investors should follow the buying and selling practices of these members is pretty obvious. No one knows the balance sheet better than these executives, who can act on information related to their business that might affect the stock price in the future.

What Happened in 2020

Recently, researchers at Simon Fraser University and the Ross School of Business (at the University of Michigan) conducted a study of insider transactions that occurred during the first few months of the COVID-19 pandemic.

They studied more than 300,000 insider trades. And the results were pretty incredible. The researchers started with a pretty basic thesis.

If an insider believed that COVID-19 would impact the company’s future outcomes and thus the stock price, they were more likely to sell the stock.

Inversely, if the insider believed that positive catalysts existed for the future, they were more likely to buy the stock. The study examined buying and selling activity across the United States, China, Canada, Italy, Spain, and South Korea.

Key Findings from the Study

There are a few key data points from the study that stood out:

1. The researchers discovered a significant amount of insider selling in January and early February among investors with Chinese backgrounds. This insider selling coincided with a period when COVID-19 cases were rising in mainland China but had not yet hit the United States.
2. U.S. insiders engaged in a lot of selling in late February. These transactions, which investors can track through Form 4 insider designations with the SEC, were part of a longer-term trend of selling. However, this was short-lived. Insider selling quickly turned to insider buying in mid-March.
3. In March 2020, as the S&P 500 fell nearly 35%, insider buying hit record levels. The buying transpired at larger firms that had significant book value or higher levels of debt and leverage. The strongest buying during that period came in the financial, energy, and consumer sectors.
4. In April 2020, insiders increased their stock buying despite the sharp appreciation in the market from the March bottom.

What 2020 Insider Buying and Selling Tells Us

The insider buying that happened in March 2020 coincided with the Federal Reserve’s decision to unleash a wave of capital across the markets. If you recall, Minneapolis Federal Reserve Bank President Neel Kashkari appeared on “60 Minutes” and said that the central bank would provide support across the entire economy.

Not everyone believed the Fed would take such action. But executives at companies did. The fact that so many firms that had significant debt saw insider buying is a testament to the expectation that the Fed would provide cheap cash to support business.

Sure enough, it came. But the record amounts of buying also signaled another important element. In this time of great uncertainty, insider buying continued, and these investors continued to expect that share prices would rise in the future. It’s another reminder that insider buying and selling is a very predictive metric for future returns. There is plenty of academic data to support this indicator, which I’ll cover more in the weeks ahead.

Since the beginning of human civilization, the growth of our society has inevitably been accompanied by one thing: the energy demand.

Whether it’s for heat, light, or mechanical assistance, the growing energy demand has been a constant throughout history.

And at almost every stage, investing in the energy-generating technology of the day has been a brilliant idea.

Let me show you what I mean.

Innovation at the Heart of Energy Consumption

Back in the day, people used animals for transport, plowing fields, or grinding grains into flour. Later came windmills and water mills to handle the milling.

Wood for fire and heat was eventually replaced by whale oil, the source of huge amounts of wealth.

Today, few people know of the port town of New Bedford, Massachusetts.

This town was once the richest-per-capita city in all of North America.

The reason? New Bedford is where Quakers discovered that whale oil could be made into a clean, smoke- and scent-free oil for lamps.

The city became the world’s whaling capital and was known as “The City That Lit the World.” However, discovering the even cheaper petroleum oil took away New Bedford’s crown and wealth.

Fossil fuels like coal, oil, and natural gas replaced other fuels, too, to power cars, airplanes, power plants, and much of everything else in the modern world.

I don’t have to remind you that John D. Rockefeller, still one of the richest humans in history, built his fortune in the oil business after it replaced the whaling industry.

Today we also have wind, solar, nuclear, and water power, among others, to generate electricity for us.

As you can imagine, humans use a lot more energy today than we did even 100 years ago. But you might be surprised by just how much more:

As you can see, there’s been a 13-fold increase in energy consumption  since 1900 alone.

If you go back to pre-industrial times, that increase is even higher.

This growth shows no signs of stopping. In 2019, the U.S. Energy Information Administration (EIA) forecast that global energy demand would grow by almost 50% by 2050.

As you can imagine, the increase would primarily come from Asia.

There, fast-growing economies mean more energy demand per person – but the population is growing fast, too.

I bring this up to show that investing in rising power demand is almost always an excellent idea. Not only historically, but right now, too.

Of course, investing in Asian power generation isn’t all that easy (although some select tech companies or solar companies are worth looking at). And you may think that here in the U.S., the picture for energy companies looks much worse.

And while it’s true that total U.S. energy demand growth has slowed down, the devil is in the details.

Because if you split that energy demand up by where the energy comes from, there’s a lot of change.

See, the COVID-19 lockdowns led to total U.S. energy consumption dropping by 7% compared to the year before, according to the EIA.

That’s the biggest drop on record, from data going back to 1949.

Shifting Trends in Energy Consumption

The transportation industry was a major reason for this decline. Overall, energy consumption from transportation dropped by 15%. That makes sense – with cars staying in their garages and factories closing down, Americans had less need for power.

Of course, transportation relies almost exclusively on oil-derived products. Jet fuel, gasoline, and diesel saw a major drop. With that said, that decline precedes an expected long-term decline in the use of gasoline and other oil-based products for transportation.

Electric cars will likely be the dominant form of transportation in the decades ahead. I’m not saying we’re all going to be driving Teslas tomorrow.

I’m not even saying that would be a great world. (Some of those videos of Tesla battery fires look scary.)

But it’s hard to deny the transition to electricity and batteries as part of a broader trend in American (and global) energy use.

Electric vehicles will likely follow the same path for energy generation as most American homes have over the years.

It used to be common to heat homes and cook food with wood, then coal, then gas. Today, more than 25% of U.S. homes are entirely electric, according to the EIA, and that number is only set to grow.

Because while cooking with gas has its enthusiasts, usually electricity is just more convenient. Not to mention that with electricity, you don’t depend on just one fuel source.

It simply makes sense for electrification to eventually hit the transportation sector, too.

Right now, fewer than 1% of cars in the U.S. are electric.

But with all major car manufacturers phasing their nonelectric cars out over the next few years, that’s about to change, and fast.

The impact here will be huge.

For example, if every car in America today were switched over to an electric one, electricity demand would jump by 25%. This would happen – even though total energy demand might go down a bit – because electric engines are more efficient than combustion engines.

Now, this won’t happen overnight.

But it will happen eventually. And power companies need to be thinking about that right now. But more importantly, they need to be building power plants to make up for that difference – and profit from it.

They already are.

That means lots more money heading their way – and to investors who pick up the right utility and energy stocks, too.

Because come rain or shine, pandemic lockdowns or huge bull markets, electricity demand is going up. This is always a sector for long-term investors to exploit in any market conditions.

Consider These Energy Plays for Any Market

If you’re looking for ways to play the changing energy trends of the future, you can start with our signals at TradeSmith Finance. We will see various moves in stocks based on buy and sell recommendations and momentum indicators.

Enterprise Products Partners (EPD): As we’ve noted, Enterprise Products Partners is one of the largest master limited partnerships in the United States. The company specializes in the transport of oil and gas products. It operates in a special part of the energy supply chain known as the midstream. This portion of the supply chain connects oil and gas producers to downstream refineries and other end users of these fuels. EPD currently sits in the TradeSmith Finance Green Zone. It also remains in an uptrend, an important momentum measurement for investors to boost their confidence. EPD pays a very attractive 7.68% dividend.

NextEra Energy (NEE): NextEra Energy is one of the nation’s largest investment companies in energy infrastructure. The company has built the energy infrastructure of the future with significant investments in renewable energy, solar energy, and wind products. The company continues to make massive strides in the Sun Belt, with a special focus on Florida, where it owns Florida Power & Light Company. In 2020, the company won the S&P Global Platts Energy Transition Award for leadership in environmental, social, and governance (ESG). Given the increased interest in ESG as an investment trend, NEE will likely become a viable investment among institutions in the future as the economy continues its trend toward renewable energy sources. It is the largest rate-regulated electric utility in the nation and serves more than 5.6 million customer accounts. NEE pays a reliable dividend of 2.0%, but currently lies in the TradeSmith Yellow Zone and is in a side-trend. Wait for the buy signal and for a nice uptrend to come in the future.

Clean Energy Fuels Corp. (CLNE): Clean Energy Fuels Corp. is a company engaged in the production of renewable natural gas and other fuels. The company aims to reduce carbon emissions and is the largest provider of renewable fuel derived from organic waste. The company stands to benefit from the transportation industry’s shift away from diesel fuel and gasoline. The stock is currently locked in the Red Zone and sits in a side-trend. But based on its potential, keep the stock on a watchlist. The moment it moves into the Green Zone and starts to catch momentum, it could be a very significant long-term opportunity.

Editor’s Note: Today we’re sharing a guest editorial from Jeff Clark, editor of Market Minute at Legacy Research Group. As everyone starts to hold their breath in anticipation of a bearish turn in the market, he’s talking about an interesting pattern that can help people find profits even in a stagnant market. We think you’ll be interested in what he has to say. Read on for more details, and we’ll be back on Monday with our own thoughts on ways to invest in the market, regardless of its direction.

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Imagine a stock market that goes nowhere for the next 12 months. 

What would you do?

Would you stick with the old “buy and hold” strategy, knowing you wouldn’t make any money at all? Or would you try to adapt to the environment and find a way to profit?

These aren’t unreasonable questions. 

After all, history shows that buying stocks at lofty valuations usually generates subpar returns. So, with the S&P 500 currently trading at a lofty 22 times earnings, and with interest rates about as low as possible, the broad stock market is likely headed for a long period of choppy back-and-forth action. It is quite possible most stocks will go nowhere for the next 12 months or longer.

How will that feel? 

Well… just ask shareholders in IBM (IBM), Intel (INTC), AT&T (T), Citigroup (C), Exxon Mobil (XOM), and any number of other blue-chip stocks that haven’t done anything since 2018. That’s right… all of these stocks trade today for just about the same prices they traded at three years ago.

Of course, these stocks didn’t just flatline. They had rally phases. And they had decline phases. But if you bought any of these stocks three years ago and held on until today, you made nothing.

That’s what we call a zero-sum market. 

That’s a tough environment for typical buy-and-hold investors. But it can be a paradise for traders.

Think about it this way…

Buy-and-hold investors who bought shares of technology behemoth Cisco Systems (CSCO) two years ago have earned nothing. The stock has gone higher, and it has gone lower. And those moves have canceled each other out – creating a zero-sum movement.

Traders, though, could’ve had a much better experience – by waiting patiently for a very specific pattern to emerge and then taking advantage of that pattern to achieve large, fast gains.

This is how I’ve booked 14 different 100% gains this year alone.

For example, I targeted Cisco for my subscribers last October. We had CSCO on our watchlist and waited patiently for a specific pattern to emerge. As soon as it did, we booked a 120% gain in just 16 days on a single recommended trade.

Rather than buying and holding the stock for two years and making nothing, we traded CSCO and saw the chance to more than double our money in about two weeks. That’s the sort of action I expect we’ll see much more frequently over the next three years.

The pattern that triggers these fast, profitable trades is something we call an “M-Wave.” It shows up in stocks that are stuck in zero-sum movements.

It showed up in the chart of CSCO last October. It showed up several times in Citigroup (C) last year. It showed up in a lot of gold stock charts this past spring (which is how we’ve booked nine different 100% gains in the precious metals market this spring alone). And, as the market morphs into a zero-sum environment, we should have lots of opportunities to trade this pattern in the weeks and months ahead.

Last week, our Chief Research Officer, Justice Clark Litle, offered his strong conviction about the future of Bitcoin and other cryptocurrencies in Decoder.

Let’s take a look at what he had to say…

We will say a lot more about crypto soon – but for now, we will say our level of bearishness in respect to crypto, Bitcoin included, is off the charts. In our view, it looks highly likely that all crypto assets will be annihilated by the asteroid that is coming. It will be a mass extinction event. Bitcoin will survive after another massive crash. We don’t know what else will.

Justice always tells us how he feels.

And that’s precisely what you want out of a financial expert.

Today, let’s take a look at the state of Bitcoin and other cryptocurrencies.

A shakeout is coming. But with every impending crash comes a significant opportunity.

Bitcoin Has Been Cut in Half

There are plenty of people who believe that Bitcoin is the currency of the future. I explained this week that the Winklevoss brothers believe that the technology behind cryptocurrency will dramatically alter the perception of money.

However, Bitcoin flew way too close to the sun yet again this year. The world’s largest cryptocurrency by market cap pushed just shy of $65,000 in April 2021.

Since then, the value has been cut by roughly 50%. Earlier this week, Bitcoin fell under $30,000 for the first time since January 2021.

This is a reminder that investors using TradeSmith’s tools would have been informed about how to use a trailing stop on Bitcoin. TradeSmith would have told you that Bitcoin stopped out at $50,381.89 and recommended that you sell your holdings. This would have protected the bulk of your gains from the massive rally that transpired at the start of the year.

What’s been pulling Bitcoin down from record highs?

There hasn’t been a lot of good news. First, Elon Musk is no longer pumping up Dogecoin and the rest of the crypto universe. Remember that Tesla bought a large amount of Bitcoin earlier this year, and then sold near the height of the mania.

Overbought conditions fueled a sell-off. Remember, Bitcoin gained more than 1,000% from the bottom of March 2020. Profit taking was inevitable.

We’re also witnessing additional crackdowns by regulators. For example, New Jersey’s Attorney General recently filed a cease and desist order against a cryptocurrency services firm called BlockFi. Last week, the company’s CEO confirmed that the state of New Jersey wants the company to stop providing interest-bearing accounts for cryptocurrency.

The final thing to consider is the bull and bear sentiment in the broader financial markets. We have seen a strong decline in market momentum, and Monday’s sell-off was the worst one-day performance for the Dow Jones since October 2020.

China Continues to Rattle Cryptocurrency

The other big driver of Bitcoin’s sell-off has been the Chinese government.

The nation is once again cracking down on cryptocurrency trading and mining. China has been the top destination for cryptocurrency mining, but large-scale operations have essentially shut down. In addition, criticism over energy consumption in mining and the environmental impact has also generated negative headlines across the globe.

China has been far more aggressive in its regulations around cryptocurrency than the U.S. government. For example, China’s central bank has ordered domestic financial and fintech firms not to provide any cryptocurrency services to their customers.

This trend is not anything new. China initially banned cryptocurrency exchanges in 2017 from operating within its borders. This had pushed most operators offshore into unregulated territory. And any exchanges that had operated in Hong Kong are now facing additional pressure after China’s ongoing crackdown on the region.

Bans of cryptocurrency exchanges have increasingly become more popular than regulatory oversight from global governments. The United Kingdom banned Binance, the world’s biggest cryptocurrency exchange, last month. Japan, Thailand, and several other nations have issued warnings around Binance and remain concerned about potential illegal activity on the platform.

Sell-off or Rebound

As Justice predicts, we’re going to see a continued sell-off in Bitcoin and other cryptocurrencies. Worthless digital currencies like Dogecoin might collapse and disappear forever. But Bitcoin – given its massive reach and influence – should endure.

With that in mind, I’ve been paying very close attention to what is happening in the options markets. This week, we saw a significant level of buying out-of-the-money put options on Bitcoin at strike prices of $20,000 and $22,000 for Dec. 31, 2021. Remember, an investor will buy a put to obtain the right, but not the obligation, to sell Bitcoin should it fall under those strike prices.

So, if Bitcoin falls to $15,000, that put owner would have the right to sell Bitcoin at the strike prices of $20,000 or $22,000 (depending on the contract).

If you’re sitting on the sidelines right now wondering when to buy Bitcoin, the answer isn’t right now. As I noted, Crypto by TradeSmith told us to sell BTC/USD just above $50,000 due to the trailing stop.

We will be looking for Bitcoin to bottom out and then show positive momentum before reentering the position. It’s very important to follow the rules. Whether you’re a fan of Bitcoin or other projects like Litecoin or Polkadot, be sure to use our signals to determine buy and sell opportunities.

Monday’s selloff was fast. It was furious.

And it was the one we’ve been expecting for a few weeks.

On Tuesday, we had a bit of a relief rally. All those worries about inflation dissipated for a few hours. All those threats about stretched company valuations vanished.

Traders also set aside fears about COVID-19.

That latter factor requires greater reflection. With the threat of COVID-19 impacting investor sentiment and the broader economy, I want to remind you about how to manage your money now.

Let’s dive in.

The Return of COVID-19

Let me ask you an honest question.

While the market melted Monday, did you miss the threat that China made to Japan?

In case you did miss it, China threatened to hit Japan with a nuclear strike. That’s right. Chinese officials approved a video that said the nation would attack its neighbor if Japan interfered in China’s quest to reunite Taiwan.

At any time before COVID-19, such a threat would have fueled a massive selloff in the market.

We experienced several big drops after North Korea threatened to blow individual ships out of the water.

But the world’s second-largest economy threatens to blow up the world’s third-largest economy?

People barely noticed.

It was a sign of how self-centered investors are about the state of the U.S. economy. There are worries about inflation. There are concerns about valuations. And now we have to deal with the ongoing surge of the delta variant.

The latest COVID-19 numbers are serious. We experienced a 50% increase in COVID-19 cases across the nation in the space of a week. Fatalities from COVID-19 increased by about 48% to an average of 239 per day. Roughly 83% of all new cases are from the delta strain.

It’s not just people who are unvaccinated who have caught this strain of the virus. But it’s very concerning that so many Americans have avoided the vaccine over the last year. According to the CDC, about two-thirds of all counties in the United States have vaccination rates under 40%. Across the U.S., as of July 19, 56.3% of Americans had received at least one dose and 48.9% were fully vaccinated.

Within the next two weeks, we could see an even greater surge in the number of cases.

And it’s important to note that even if we don’t see new shutdowns or restrictions, this will harm market sentiment.

What to Do With COVID-19 Stocks?

On Monday, we saw speculators pile into several different stocks that were winners after the outbreak and ensuing shutdown in March 2020.

Investors piled into vaccine stocks, blood testing and diagnostic stocks, and those at-home stocks that would benefit if more Americans had to work from home during a third wave of COVID-19.

But on Tuesday, those same stocks plunged.

This is an important lesson.

Take Lakeland Industries (LAKE), for example.

The company is a manufacturer of protective clothing, masks, and other safety products.

Before the first wave of COVID-19, shares traded for under $11 apiece.

But at the onset of the COVID-19 outbreak, shares steadily charged higher. Shares climbed as high as $47.95 this past February as speculators continued to press the stock higher and higher.

Since then, shares have collapsed. From February to early July, the stock plunged from 52-week highs to under $22 last Tuesday.

On Monday, however, traders piled in on speculation about the third wave.

Then, they sold the stock off to other investors looking to pile in and speculate as well.

Shares fell by more than 6.5% on Tuesday.

This is what happens in a very choppy market. We see head fakes happen.

But anyone who used TradeSmith Finance would know that Lakeland Industries was a stock to avoid. Lakeland hit its trailing stop back on March 23, 2021. It is currently in the Red Zone, which means it’s not a stock to buy.

In addition, the stock has been locked in a side trend. That means momentum has effectively stalled. So, the pop you saw on Monday was heavy speculation. A lot of day traders took advantage of the Monday pop and likely exited on Tuesday.

The reason I bring up the side trend is because of our Smart Moving Average. Stocks that lack an uptrend in momentum are not experiencing a strong price trend and are likely not attracting a wave of institutional capital.

Does that mean that you should avoid Lakeland? Right now, absolutely.

But if the stock does start to see consistent gains and an uptrend in momentum, it will be a company to buy. We’re still in the early days of determining how the market will react to the latest wave of COVID-19. Be sure to avoid speculating on stocks that aren’t “buys” or that lack positive momentum.

I’ll be back tomorrow to discuss how to trade Bitcoin and other cryptocurrencies.

And I’m also working on a special report on how to protect ourselves if we experience a significant market selloff in the weeks ahead.

The movie “The Social Network” offers a dramatic representation of the early days of Facebook.

In 2002, Mark Zuckerberg founded Facebook inside his dorm room with a few of his then-friends.

The antagonists – if you want to call them that – in the film are two brothers who claimed that Zuckerberg stole the idea for Facebook.

Cameron and Tyler Winklevoss were two young entrepreneurs who had teamed up with friend Divya Narendra to create a social network at Harvard called ConnectU. They hired Zuckerberg to build their site.

He didn’t follow through on the ConnectU project. Instead, he created Facebook.

Zuckerberg, who would later pay the Winklevoss brothers $65 million in cash and stock to settle a lawsuit around the “idea,” would go on to become one of the wealthiest people on earth.

The Winklevoss brothers, meanwhile, have still done very well for themselves.

They became thought leaders in the global cryptocurrency space and founded Gemini, a regulated crypto exchange that has gained popularity.

Back in 2014, the Winklevoss brothers gave an incredible presentation about the history of money. I bet it will transform your understanding of how money works and why cryptocurrencies will be critical investments for your portfolio.

Survival of the Fittest “Money”

On Nov. 3, 2014, the Winklevoss brothers gave a presentation called “Money is Broken; Its Future is Not” at the Money20/20 conference.

The brothers started with a basic argument.

They argued that money is very poorly understood as a technology.

Money itself was created to store value when people could not directly barter on a one-to-one level.

If you have two bushels of corn and I have a wheel of cheese, this might make for a good trade, the brothers argue. But if I don’t want your corn, there is nothing in place to facilitate a transaction.

Money is needed in society to ensure that people can do more than just barter.

For money to exist, it must have nine qualities to ensure its viability, according to the Winklevoss presentation.

It must be scarce, divisible, storable, durable, fungible, verifiable, portable, hard to counterfeit, and widely acceptable.

But in a pre-industrial world, where fiat currencies were not the norm, human beings had minimal options. And this is where the story gets interesting.

Back to Eighth-Grade Science Class

If you think about gold, it has long been a store of value. It was widely used in coin form for thousands of years – from as early as 550 B.C. through approximately 1933.

But what fundamentally is significant about gold?

Let’s go back to eighth-grade science class. Gold, it turns out, is just one of a few elements on the periodic table that fit those nine classifications of money.

As the Winklevoss brothers explained, money cannot be a gas. It would vanish into the air. That eliminated 11 elements from our current periodic table.

Source: Winklevoss Presentation: “Money is Broken; Its Future is Not.”

Next, money cannot be reactive or corrosive. Imagine if something was so unstable that it burned your hand (rather than a hole in your pocket). That quality knocked out another 38 elements like lithium (which is explosive) and iron (which rusts).

Source: Winklevoss Presentation: “Money is Broken; Its Future is Not.”

The brothers also explained that money can’t be radioactive. This makes sense. So, all the elements that could kill you were eliminated. And with that, another 40 elements on earth were eliminated.

 Source: Winklevoss Presentation: “Money is Broken; Its Future is Not.”

The Winklevoss brothers then homed in on the first quality of money: scarcity.

They noted that copper is far too abundant to be a stable store of value. But you also can’t have something like osmium, which comes from meteors and is extremely rare. So that knocked out another 26 elements.

Source: Winklevoss Presentation: “Money is Broken; Its Future is Not.”

The thesis goes that there were only five elements that fit all the qualities we listed above: rhodium, palladium, silver, platinum, and gold.

But scientists didn’t discover palladium or rhodium until the 1880s.

Platinum, meanwhile, has too high of a melting point. Pre-industrial coin makers would have struggled to get their furnaces up to that temperature.

That left gold and silver.

But there’s one last point that they made about the remaining two. Silver tarnishes quickly, while gold keeps its luster and shine.

In the end, the Winklevoss brothers said that gold is “just useless enough” to be the currency of the first 2,500 years of money.

The Future of Money

Now, the Winklevoss brothers make no effort to hide their enthusiasm for cryptocurrency. After all, gold – in its physical form – is still a challenging element to transport in large sums.

Despite all its inflationary flaws, fiat currency is more portable, more divisible, more storable, more fungible, and more difficult to counterfeit than gold is. (It’s very difficult to get forged money into the banking system.)

But cryptocurrency is better in all these departments when compared to both gold and fiat currencies like the U.S. dollar.

The U.S. dollar has primarily been digital since the 1960s with the advent of large computing and banking networks. The purpose of money, as noted, is to facilitate trade.

And when consumers have a currency that is more easily transferable, it can accelerate trade and consumption. For these reasons, the Winklevoss brothers argue that Bitcoin and other cryptocurrencies will become the money of the future.

It’s not very far off. And it’s a very compelling thesis. It’s hard to imagine, but Bitcoin and cryptocurrencies have only been around for 12 years.

Fiat currency – government-backed banknotes – has been around since the 11th century in China. And gold had a head start of several thousand years.

So, yes, Bitcoin will be volatile, as we have witnessed in recent months.

But if you’re not exposing yourself to the potential of this technology, you could be missing out on the most significant shift in global commerce since the onset of the Internet.

I’ll be back tomorrow to talk more about the history of Bitcoin and why it’s so compelling. And if you’re trading cryptocurrency in this choppy market, remember to use Crypto by TradeSmith to help manage your positions and set trailing stops should this market selloff continue.