Welcome to your August 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…
Will AI Force Governments to Adopt a Universal Basic Income?
What happens when artificial intelligence eliminates the last worker?
Facetious question, yes. But with a kernel of truth in there.
See, AI is exploding across society and the economy faster than most experts expected. The tech is increasingly proving it can do what humans do… only far quicker and at far less cost.
This means AI is going to eliminate way more jobs than anyone realizes, as Insider pointed out in a recent story.
Goldman Sachs, Insider notes, issued a report this past spring suggesting that AI will disrupt 300 million jobs globally. Frankly, that could be wishful undercounting.
But either way, it raises a very significant question: How will people earn an income when AI is doing everything?
Some have suggested that maybe we’re going back to some pre-tech agrarian society, since AI can’t work the fields. But the reality is we’ve already built farming robots, and it’s not hard to envision a world in which AI directs and manages them. AI can also manage medical scans, and wedding photography, and manufacturing of all kinds, and writing, and graphic arts, and… on and on.
As such, we’re likely facing a future in which AI and robotic workers (their corporate overlords, actually) are taxed very heavily so that governments can distribute something that smells like Universal Basic Income. That will free up people to be more creative, likely even using AI to dream up new products and services.
The genie is out of the toothpaste tube at this point. We’re not going back. Society might look normal right now, but under the surface, the infrastructure is already changing.
By the end of the decade, we’ll likely look back on 2023 as the end of one age and the start of another.
Next up, a hidden inflation crisis…
Food Inflation Is Still Rising… and the Situation Is About to Get Worse
While headline inflation has abated to various degrees in the U.S. and internationally, the fact is that the declines we’ve seen recently are mostly due to falling energy prices.
Take away the decline in energy prices over the past year, and everyday inflation is still going up. And a key component of that—food—shows no signs of returning to normal anytime soon.
Several factors are driving this, including extreme weather destroying global crop yields and the ongoing war in Ukraine. Especially significant is Russia’s recent decision to back out of a deal that allowed Ukraine to use the Black Sea, which Russia controls, to export grains.
Ukraine is a major producer of crops such as wheat. Closing off Ukraine’s access to the global grain markets does more than hurt the Ukrainian economy, it hits food supplies all over the world. That, in turn, reduces food security in developing nations, and pushes prices higher globally.
Food crops are a global commodity. If wheat supplies from Ukraine aren’t available, then the world goes shopping for its needs elsewhere, which means more buyers chasing a shrunken supply from Europe, the U.S., Brazil, Uruguay, etc.
Thus, the impacts of Russia clamping off access to Ukrainian wheat ripple across the world … leading to higher food prices at your local Piggly Wiggly.
Don’t expect food prices to abate anytime soon. And, worse, do expect oil prices to march back past $100 per barrel, which will keep inflation well above the Fed’s 2% target.
Speaking of oil…
Oil Could Touch $150 Per Barrel as Supply Struggles to Meet Demand
The world’s Big Oil companies—names like Exxon, Chevron, BP, and others—have reported rather tepid second quarter profits. Exxon, for instance, posted $7.9 billion in profits for Q2, nearly $10 billion lower than the $17.5 billion in profits it reported in last year’s second quarter.
Alas, this is not a sigh-of-relief moment that indicates energy prices are on a downward trajectory. It’s a moment to reflect on the fact that the second quarter could very likely mark the bottom for Big Oil, and that from here on out we’re likely looking at higher oil prices and, thus, a return to higher inflation.
Though Exxon’s profits fell sharply in Q2, it was still the second best Q2 for Exxon in more than a decade. Moreover, Big Oil’s profit weakness is the result of energy prices falling over the last year. By June of this year, Brent Crude, the world’s benchmark, was trading at about $72 per barrel, down from $123 last June. That drop is what’s reflected in weaker Big Oil profits for Q2.
However, $72 looks to be the floor price for oil. The commodity has touched and bounced off that level repeatedly over the last year. Moreover, it has now rebounded to $85 per barrel. And it’s likely to go higher.
Experts have been warning for several months that the energy industry has not adequately replaced dying oil fields with new reserves, and that oil supply is not keeping up with expanding oil demand. They now expect those two facts to clash before the end of the year, sending oil prices even higher.
My bet, as I’ve been writing for many months now, is that we are heading into an energy “super shock” that sees oil prices approaching $150 per barrel. Inflation will rebound with a vengeance.
In short: We’re just in a lull at the moment. The backside of the storm is coming.
Moving on to an inflation hedge…
America’s Debt Burden Is Leading to a New Bull Market for Gold
Clearly, bearish investors are the red-headed stepchildren of the gold market.
Kitco News’ Weekly Gold Survey shows that just 7% of the Wall Street analysts surveyed are bearish on gold. Bulls are at 53%, and the fence-sitters make up the final 40%. Granted, the survey base is small—just 15 analysts—but the results tell a story about gold and the economy.
Recent jobs reports, while generally OK, showed downward revisions in employment growth earlier this year, even as wages are going up. And we still have inflation higher than the Fed’s target of 2%.
That hints at a 1970s-style stagflationary economy in which economic growth is stagnating while inflation becomes entrenched… and that’s a good economy for gold.
Indeed, gold tends to outperform every other asset class in stagflation environments because savers want to preserve their purchasing power as inflation erodes the value of the dollars in their wallet. Investors, meanwhile, pile into gold as a form of safety.
This time around, though, hints of stagflation come packaged with an even bigger tailwind for gold: America’s mounting debts. The U.S. national debt ($32 trillion and growing larger by the second) is now raising global concerns about the safety of U.S. Treasury paper.
Indeed, credit rating agency Fitch just this month downgraded U.S. debt from a AAA rating—the highest—to AA+ because the debt is simply too burdensome now, and because political theater between Democrats and Republicans threatens Uncle Sam’s ability to effectively manage this vast debt load.
I’ve been buying gold for 13 years now. And I will continue buying it. Anyone who is bearish on gold as this point in America’s financial history is simply not paying attention to life around them.
Finally this month…
Europe’s First Spot Bitcoin ETF Launches… and a U.S. Version Won’t Be Far Behind
Europe’s first exchange-traded fund tied to the spot price of bitcoin is alive and kicking.
London-based Jacobi Asset Management listed the Jacobi FT Wilshire Bitcoin ETF on an exchange in the Netherlands just this month. Alas, Americans cannot invest in it since the Securities and Exchange Commission bars Yanks from investing in ETFs traded outside the U.S.
But that’s not the point, really. The point is that Europe continues to lap the U.S. in terms of crypto legislation and crypto investing.
The reason is because of one man: Gary Gensler, head of the SEC. Under his leadership, the SEC has become exceedingly antagonistic toward crypto.
That stance, however, is doing Gensler and the SEC no good. Courts have been ruling against the SEC in its high-profile fights against crypto, and the industry is increasingly pushing back against the SEC’s nonsensical hostility.
Thus far, the SEC has rejected every single application for an ETF in America tied to the spot price of bitcoin (the spot price is the figure you see when look up the current price of the cryptocurrency).
The rationale: The agency claims that the spot price can be too easily manipulated. However, the agency has approved ETFs tied to bitcoin futures… which is nonsensical because futures are intrinsically tied to the spot price. It’s like saying selling cocaine is illegal, but if you mix it into a soft drink first, then it’s fine.
Major U.S. financial firms are undeterred by the SEC and in recent months have filed at least six applications for a spot bitcoin ETF. The biggest names among that bunch: BlackRock and Fidelity.
BlackRock is run by Larry Fink, arguably the most well-connected human on the planet. I’m certain he has the swagger and influence to get his firm’s ETF through the SEC process. And when that happens, the floodgates are going to open.
We’re going to see a host of spot bitcoin ETFs, which means we’re going to see rapidly rising demand for bitcoin as those ETFs snap up bitcoin for their investors.
In short: We’ll soon see a new bull market in bitcoin that pushes the granddaddy of crypto to new all-time highs (likely above $100,000). And once bitcoin begins to rise, many other major cryptos will follow suit.
With that, we’ve reached the end of this month’s Wire. If you have any feedback, you can reach me through the contact form on the Global Intelligence website.
