sport football: Here’s Why I Sold the S&P 500 and Bought More BTC

Here's Why I Sold the S&P 500 and Bought More BTC

On Monday morning, I sold my entire long exposure to the S&P 500 index. I transferred the proceeds into the BlackRock bitcoin exchange-traded fund (IBIT).

While we might have one more pump in equities ahead of us, I believe the risk/reward ratio of holding the S&P 500 is far too high for me to stomach.

Even if we assume the entire trade war gets fixed tomorrow and interest rates get cut, I still believe bitcoin will far outpace any gains from the S&P.

I'll explain why I believe that in a moment.

Longtime readers know I've been wildly bullish on U.S. equities since 2014. In October of that year, I gave a presentation at an investor summit predicting a massive bull market for stocks.

I shared research on a coming demographic shift that predicted at least 10 years of above-average earnings growth and would lead to above-average stock market returns.

My research suggested we were about to enter a bull market for U.S. equities that would last to at least 2025. At the time, I was ridiculed for being so bullish.

However, the prediction I made in late 2014 proved stunningly accurate.

I don't expect that success to prevent me from being ridiculed today for now being bearish.

Back in October 2014, the S&P 500 was at 1,950. Assuming you bought it and reinvested the dividends, you would have made about 254%.

I told the audience that all you had to do was buy the S&P 500 and just go about your life and forget about the market.

During every step of that bull market, my bullish stance was questioned, doubted, and made fun of.

I explained in 2014 that every pullback should be viewed as a buying opportunity. That no matter how bad it got, all you had to do was buy the dip.

Over the following 10 years, there were plenty of opportunities for me to get bearish and throw in the towel on my prediction.

Instead, I put my faith in my research and stayed bullish on the S&P 500 through the Chinese devaluation scare of 2015... the Brexit scare in 2016… the Q1 and Q4 panic of 2018 when the S&P 500 dropped 10% and 20%, respectively… The COVID-19 crash of 2020… And the regional bank crash of March 2023.

So after all of that, why would I go bearish now?

Here's why…

Unless trade tariffs are completely abandoned (a highly unlikely scenario), it means the cost of doing business will rise.

That means corporate profit margins will shrink. Corporations will have to absorb much of these increased costs because the U.S. consumer doesn't have the ability to pay higher prices.

That means earnings growth must slow down. Even after a 16% decline in the S&P 500, forward earnings are still pegged at 19.2 vs. a historical average of 15.8.

An earnings slowdown means the market will get more expensive over time, even if it recovers to its old price levels.

Let me be clear: This earnings slowdown will not happen right away.

The earnings slowdown might not show up for a quarter or two as people rush to make purchases before the tariffs kick in.

All of that pre-purchasing will mask just how weak corporate earnings will become. This "pull forward" in demand will ultimately lead to an earnings cliff where corporate earnings just collapse.

I don't like being bearish. It's not in my nature.

But you know what I like less?

Losing money.

The question for me isn't if the S&P 500 will recover. Eventually, of course, the S&P 500 will come back and make new highs. But when?

When the last secular bull market peaked in the year 2000, the S&P 500 didn't make a new inflation-adjusted high until 2013.

I'm 54 years old. I'll be 67 in 13 years. I'm not going to postpone my life for 13 years while I wait for the S&P 500 to come back.

Now, I realize I might be a year or so early in making this call… The same way Warren Buffett was about a year early when he sold roughly $100 billion worth of Apple stock last year. Shortly afterward, Apple shares rose as much as 30%.

I realize the same may happen with me on my call to exit the S&P 500.

But I also realize that – even if all the clouds parted tomorrow and tariff agreements are reached, the Federal Reserve floods the world with liquidity, and the S&P 500 storms to new highs overnight – bitcoin will still outperform the S&P 500.

Even as I write, the S&P 500, Dow, and Nasdaq futures are surging higher as Treasury Secretary Scott Bessent hints at an impending China deal and the President walks back his threats of firing Fed Chair Jerome Powell.

And yet, bitcoin is surging even more…

Bitcoin Is the Faster Horse

As I write, over the last 24 hours, bitcoin has risen 10.5%. Over the same period, the S&P 500 is up 4%. I expect this performance gap to get larger and larger.

You have to ask yourself: Where will the earnings growth come from to push stocks higher when corporate input costs are rising?

Stock indexes can only rise from here if sentiment improves and people start feeling comfortable again paying higher prices for the same amount of earnings. That's called multiple expansion, and it's what happens at the end of all bull markets.

When we peaked in 2000, sentiment was so bullish, folks were paying 60x earnings for Coca-Cola stock. They were paying 35x earnings for Walmart. And almost 61x earnings for Microsoft.

Coke did not break its 2000 high until 2016. Walmart did it in 2012. And Microsoft didn't break its high until 2017. Do you have an extra 12-17 years to spare waiting to get back to even?

I don't.

I fully expect the government and the Fed to do everything in their power to push stock prices up. So yes, I expect one last hurrah in stock prices before the music well and truly stops.

The thing is… Anything they do to support stocks will be magnified in bitcoin.

Trade war ends? Great. Stocks run higher. Risk appetite grows. Bitcoin booms.

Surprise Fed cuts? Massive injection of liquidity into the bond market by Fed buying? Awesome. Stocks might even hit new highs on that news… But bitcoin will likely hit $150,000 or more.

But what if the trade war drags on? What if the Fed waits for something to break first? Well, stocks will collapse. But bitcoin won't.

On April 21, we saw stocks, bonds, and the U.S. dollar all get clobbered. And yet, bitcoin was up 3%.

That showed me that something very special, something very different had happened. Bitcoin was no longer being treated as a "tech stock" or a "risk on" asset.

Bitcoin is finally growing into what I have always known it would become: A state-neutral safe haven asset that trades independent of any government, counterparty, or legislative decree such as a tariff.

The investment world is just beginning to wake up to this idea.

The World Is Underallocated to Bitcoin

As the investment community wakes up to the coming earnings cliff in front of us, it will look for ways to both preserve buying power and diversify away from fiat-based assets.

We can already see that happening with the parabolic move taking place in gold. Since April 2, gold is up 6%. That's an insane move for a $20 trillion asset. And bitcoin? It's up 12%.

The divergence is already here. Bitcoin is beating everything. How long do you think this outperformance can continue before Wall Street has to play catch-up and start piling into bitcoin?

On Monday, I put my money where my mouth is. I redeployed millions of dollars out of the S&P 500 into bitcoin. Bitcoin has not gone parabolic yet.

There's still time to increase your exposure. But time is running out. Because remember, the Fed and the government will do everything they can to save the stock market. And that will be rocket fuel for bitcoin.

We are in the last chapter of this bull market. The beauty of swapping from the S&P 500 to bitcoin is you don't have to give up growth… And you can sidestep the coming earnings collapse I see on the horizon.

Even if I am completely wrong on my earnings call, I'd still rather own bitcoin than take the risk of being caught in a decade-long bear market in stocks.

This doesn't mean I'm bearish on all stocks. There are still pockets of value in the market, and I look forward to sharing them with you in a follow-up essay.

For now, though, I want you to be on notice that: If you are heavily weighted in the S&P 500, you need to consider using any rallies to lighten up your exposure.

How to De-risk and Beat the S&P 500

You should also consider taking your bitcoin exposure to a minimum of 10% of your total investment portfolio. If you can deal with the volatility, then I would urge you to go to a 20% allocation to bitcoin.

Ponder this…

The average gain of the S&P 500 is a compounded rate of 10% per year. That means $100 invested in the S&P 500 today should be worth $161 in five years.

In five years, I expect bitcoin to be trading at $1 million per coin. That means $100 invested in bitcoin today could be worth $1,075 in five years.

Let's cut that in half and say BTC is worth $500,000 in five years. Every $100 investment would be worth $537.50.

Let's assume you have a $200,000 portfolio. You could literally take your portfolio and put 10% of it in bitcoin and 90% of it in a short-term government bond fund such as SGOV (that is yielding 4.17%).

You'd have $20,000 in bitcoin (0.21 BTC at the time of this writing) and $180,000 in SGOV, paying you $7,506 in interest.

After five years, if bitcoin goes to $500,000, your account would be worth $322,000. That's $105,000 in bitcoin, $180,000 in SGOV, and $37,500 in accumulated dividends.

If bitcoin hits $1 million, your total profits balloon to $422,000.

That's compared to a best-case scenario of $322,000 in gains investing 100% of your money into the S&P 500.

Think about how much more risk you take owning the S&P 500 with a forward price-to-earnings ratio (P/E) of 19 vs. owning 10% bitcoin and 90% short-term government bonds.

The risk/reward ratio for owning the S&P 500 doesn't make sense anymore.

I'd have to see the S&P 500 drop a minimum of 30% for me to get interested in allocating to it again. Even then, the index would only be at its historic fair value of a 15 forward P/E.

The Move From "Safe" to "Neutral" Assets

For years, global investors have turned to U.S. markets for safety. But right now, that's no longer the case. They're fleeing U.S. assets.

The market is telling us it sees gold and bitcoin as neutral, safe haven assets. For gold, that's nothing new. But for bitcoin, this is a historic moment.

Usually, when markets get slammed, bitcoin goes down even more than the main markets. However, that narrative is changing. Bitcoin is starting to decouple from growth assets like tech stocks.

And where bitcoin goes, so do altcoins.

We could soon see crypto income tokens start soaking up some of the liquidity leaking from U.S. bonds… and crypto AI tokens soak up liquidity from U.S. tech stocks.

Friends, for the past decade, there's been no bigger cheerleader of U.S. markets than me. But that trend is coming to an end.

I've been in this game since 1989. And I've never seen the world abandon U.S. equities, the U.S. dollar, and U.S. Treasury securities all at the same time.

The world has changed.

My job is to do everything in my power to put you in a position to protect and grow your wealth — no matter what happens.

For now, the best opportunity I see is bitcoin. It's the asset you want to own in this time of uncertainty.

Let the Game Come to You!

Big T