Welcome to your June issue of the Global Intelligence Wire.
This is the monthly digest exclusively for Global Intelligence Lifetime Circle members, in which I cut through the media chatter and highlight five underreported news stories from recent weeks.
First up this month…bad news for households in Europe means good news for households in America, and our Equinor investment.
A Texas Fire Sends Natural Gas Prices Lower in America…and Higher in Europe
Since Russia’s invasion of Ukraine, Europe has been trying to wean itself off of Russian natural gas. Part of that has involved buying more liquefied natural gas, or LNG, from America.
Now, however, those efforts have run into trouble.
Earlier this month, an explosion hit the Freeport LNG terminal in Texas. Repairs are set to take several months at least…and that’s just to achieve a partial reboot.
This is a big deal. The terminal is a key hub for LNG exports. The suspension of operations at the Freeport terminal will affect roughly 15% of all LNG exports from the U.S.
This announcement led to a spike in natural gas prices in Europe…and a big decline in the U.S.
Unlike oil, the price of natural gas is set regionally, not globally. Since the suspension means less gas can be exported from the U.S., prices in America fell 16%, while prices in Europe moved in the opposite direction—rising 16%.
So, the fire in Texas should bring some relief to U.S. natural gas customers, and lead to further woe for households in Europe.
One party that should benefit is our natural gas supplier, Equinor.
Europe is desperately working to stock up on natural gas before the cold winter months arrive. It will have to make up for this drop in LNG exports from the U.S., and one of the easiest places to turn to is the Norwegian company. So, Equinor should benefit from rising demand and rising prices.
Next up…America’s biggest bank has some potentially surprising advice on crypto.
JPMorgan Sees Significant Upside in Bitcoin
I don’t need to tell you that risk-on assets such as stocks and crypto are having a very bad moment, as the Federal Reserve races to recover from its previous “inflation is transitory” position.
The Fed’s aggressive rate hikes have seen bitcoin fall to about $20,000, from highs of nearly $70,000 last November. Ethereum is down to about $1,000 from a high of more than $4,700. And the S&P 500, once above 4,800 points, has sunk to around 3,700.
It may seem like a moment to retreat and sit on the sidelines, particularly in crypto.
However, JPMorgan is suggesting otherwise.
The white-shoe investment bank is telling its high-dollar clients that bitcoin has slumped below fair value and now has “significant upside.”
If you’re a long-time reader of my daily Field Notes columns, you’ll know I often criticize JPMorgan pooh-bah Jamie Dimon for his position on bitcoin. He has derided the world’s top crypto as worthless and not an asset he would own. Yet the bank he oversees has a very different perspective. It recognizes bitcoin’s potential and is telling clients to do the opposite.
Yes, we are in a market in which crypto prices are down. But as the JPMorgan analysts point out, this just means that “we are at an opportune moment in crypto.”
Of course, crypto is a highly volatile asset class. You should never invest more than 5% of your overall portfolio in crypto and never more than you can afford to lose. And anyone investing in bitcoin and crypto at this moment must be prepared for further volatility ahead.
But as I constantly repeat: Crypto is the future.
Bitcoin, as digital gold, has an important role to play this decade as Western governments look for solutions to their excessive debt. My bet is that bitcoin will be used to help reset Western, fiat currencies that are desperately indebted. Bitcoin, as a stateless asset, is perfectly designed as a benchmark against which other currencies can be priced.
Meanwhile, Ethereum also has a role to play as financial services continue to move onto the blockchain. I expect that ETH, as the world’s leading blockchain, will emerge as the backbone of a new, global financial ecosystem once the Ethereum 2.0 upgrades to this network are rolled out.
Investors who recognize the opportunity amid this blood-in-the-streets moment—and who can stomach the significant volatility now and to come—are going to reap substantial rewards.
Speaking of the crypto future…
Americans Are Using Crypto to Gain Access to Banking Services
One of the biggest socioeconomic divides in America has long been the banked vs. unbanked.
Roughly one in five Americans either has no access to a bank account, or is “underbanked,” meaning they have insufficient access to the financial system.
However, those people still have financial needs. So, where are they turning?
Well, a new Federal Reserve study shows that a decent-sized number of them are turning to the crypto market.
The Fed found that 13% of Americans who are using crypto as a payment mechanism do not have a bank account.
Banks have all kinds of legal methods for effectively red-lining various segments of the population against accessing services. But crypto doesn’t care about any of that. It can help democratize finance by providing financial services to those who have been previously excluded from traditional banking services.
It’s part of the reason why I say that crypto is future.
Next up…a note on one of our holdings.
Tencent Dominates Global Gaming Revenues in 2021
We originally built our position in Tencent Holdings, a Chinese tech company, because it gives us a backdoor play on a gaming giant called Epic Games, based in North Carolina. (See your February issue of the Global Intelligence Letter for all the details.)
Epic is the company behind a global, gaming phenomenon called Fortnite. Plus, its Unreal Engine 5 gaming software is rapidly becoming the standard of excellence in Hollywood CGI and in the rapidly emerging world of the metaverse.
However, Tencent has been down for us so far because the Chinese government, in its perpetual desire to control its population, has cracked down on gaming as a way to “protect Chinese youth.”
Moreover, Tencent is a tech company and as inflation hits and interest rates rise, tech companies are struggling on Wall Street. Investors reflexively take down their bets on high-flying tech companies for fear their earnings will be hurt.
But here’s the thing: Last year was a fabulous year for gaming companies, with total global revenues approaching $200 billion…and Tencent alone accounted for $32.2 billion of that, or more than 16 cents of every dollar worth of global sales. That’s huge. It’s bigger than Apple and Microsoft’s combined gaming-related revenues—and you’d still have room for half of Nintendo’s revenues.
I point this out only to say that Tencent is a long-term winner. It’s a gaming behemoth, and it owns a huge piece of what will be one of the most-anticipated IPOs when Epic Games finally goes public.
That’s not to say that Tencent isn’t risky. Indeed, it ranks as Higher Risk on our 5-level risk investment scale, so this play is only for risk-tolerant investors. And the company’s share price could certainly fall further from here.
But gaming is one of the largest entertainment segments in the world, attracting kids to octogenarians. And the metaverse will redefine society. Tencent is a solid long-term play on both these trends.
Finally…
Inflation Is Already Causing a Shift in Spending Patterns
Dollar-stores such as Dollar General and Dollar Tree are seeing a surge in revenue as inflation continues to rise.
If you’ve read your June issue of Global Intelligence Letter, you know why this is happening. Consumers are shifting their spending patterns because their paychecks are struggling to keep up with rising prices.
Just last month, the economic pundits and media heads were talking about inflation abating due to a slightly weaker April inflation reading. But the May inflation numbers are in: Inflation jumped to 8.6% on an annualized basis—a 40-year high.
As this proves, we have more inflation in the system than the Fed and the economic types are willing to acknowledge. This is not an issue that the Fed can control. Inflation is a global, not a U.S. problem.
And it’s not just because of post-pandemic supply-chain issues and the war in Ukraine.
It’s also because Western central banks have spent the last two decades pouring cash into their economies to prop them up, rather than allowing them to self-correct and heal. This has helped cause the painful backlash we’re experiencing today.
Unfortunately for all of us, this is going to take much longer to play out. A crisis is coming. That’s why I advise owning the Swiss franc, the world’s premier safe-haven currency. And it’s why I advise owning gold…both physical gold and the gold miners ETF in the Global Intelligence Portfolio.
Also, I-bonds. Inflation-protected Treasury bonds are currently offering 9.62% interest, making them a great investment right now. (Read more about those in the May issue of the Global Intelligence Letter.)
And that brings us to the end of this month’s Wire. If you have any feedback or any topics you’d like me to address in a future issue, you can reach me through the contact form on the Global Intelligence website.
Thanks for reading and for being a Global Intelligence subscriber.
