Welcome to your May 2022 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…signs that big buyers are loading up on bitcoin.
Bitcoin Whales Are Buying the Dip
It has been a torrid few weeks for crypto. In my Field Notes column on Saturday, I explained in detail the causes for this decline and what I see happening next (if you missed that column, click here to check it out).
However, over the weekend, there was an interesting development: It seems the recent price dip has fueled considerable buying activity among moneyed investors.
Santiment, a cryptocurrency data feed for investors, reported that bitcoin’s drop below the $30,000 mark late last week, led to the highest volume of transactions exceeding $100,000 since January.
It seems lots of crypto whales were buying the dip.
My take, as I noted on Saturday, is that the BTC price could still drop further from here. The Federal Reserve seriously spooked the stock and crypto markets with its recent 0.5 percentage point interest rate hike and the scaling back of its bond-buying program, which pumps tens of billions of dollars into the U.S. economy every month.
The Fed will likely enact another one or two rate hikes this summer as it attempts to contain runaway inflation. So, it’s possible we could see further short-term declines in risk assets like stocks and crypto.
However, long-term I remain very bullish on bitcoin and crypto in general.
The Fed will fail in its effort to tame inflation. After the most recent hike, the Fed funds rate stands at 0.75% to 1%. Even with another two increases, the rate would reach at most 2% to 2.5%. And what good is that against inflation running north of 8%?
Ultimately, the Fed will have to abandon this path or it will push the economy into a deep, lasting recession. When it does reverse course, the markets will rebound massively. And that includes crypto and bitcoin.
That means the best policy at present is patience.
U.S. 30-Year Mortgage Rates Reach Highest Levels in Over a Decade
In a sign of why the Fed will have to abandon course on its interest rate hikes, the interest on the key 30-year mortgage loan last week hit its highest level since 2009.
Freddie Mac reported last week that the 30-year rate rose to 5.3%. A year ago, the average rate was just 2.94%.
This rapid increase in rates is putting major financial strain on hopeful new homebuyers. In practical terms, this increase means that the monthly principal and interest on a $400,000 mortgage is now roughly $600 higher than it was at this time last year.
Given that recent data shows rent and home prices increased 17% and 14% year on year, respectively, U.S. consumers, and particularly young people, are getting crushed from all sides.
This is bad—bad!—news for the housing market. I see home price declines in the offing if the Fed doesn’t relent.
Moreover, consumers—the lifeblood of the American economy—simply cannot afford these sorts of increases in key expenses like housing and continue to spend in the economy. And if consumers aren’t spending, that means a recession, which I am predicting is likely by late summer or fall.
Once the dreaded “R” word is our reality, the Fed will be forced to react and offer relief to consumers in the form of more stimulus and reduced interest rates.
Oil Outperforms iPhones Amid the Commodity Super-Cycle
Of course, the underlying cause of all of the current economic turbulence is inflation. Last year, the Fed brazenly ignored the inflation surge, claiming that it was “transitionary” and would pass as the pandemic supply chain problems were resolved.
I had a different take…
My expectation was that inflation was here to stay and would help unleash a trend the world had seen only three times in the previous 125 years: a commodity super-cycle.
We are now firmly locked in that super-cycle. Prices for everything from oil and natural gas to wheat and industrial metals like nickel have surged to multi-year or multi-decade highs.
And this week, we saw a powerful symbol of this trend when Apple lost its spot as the world’s most valuable company.
The corporation that replaced it? Oil giant Saudi Aramco.
As of market close last Thursday, Apple was valued at $2.307 trillion, while the state-owned Saudi oil firm was valued at $2.383 trillion.
This is the result of an Apple decline and a commodity ascent.
Amid high inflation and rising interest rates, investors are rightly worried about consumers’ ability to buy brand-new iPhones. The commodity super-cycle is also increasing Apple’s manufacturing costs. As a result, its stock is down roughly 20% for the year.
Meanwhile, Amarco reported that its full-year profits for 2021 almost doubled as oil prices soared.
Apple’s fall from top spot is illustrative of what’s happening in the wider market. Commodity stocks are best placed to do well, or at least hold their own, as this market turbulence plays out.
Speaking of commodity stocks…
A Major Investment Service Changes Its Tune on Farmland Partners
One of our plays to profit from the commodity super-cycle is Farmland Partners.
This is a real estate investment trust, or REIT, that owns hundreds of thousands of acres of farmland across the U.S. It was obviously poised to benefit as the super-cycle plays out, since it collects rent from its land and profits from sales of produce grown on the land, too.
Recently, a few investment research firms have jumped onto the Farmland Partners bandwagon, upgrading the shares.
Zacks Investment Research, for instance, pushed up its rating for Farmland to “hold” from “strong sell”—which is more than a little ignorant when you think about it. They previously counseled their clients to sell. So what, pray tell, are their clients left “holding” when they haven’t been told to buy? Seems a bit flawed.
Whatever the case, Zacks and the others are jumping into the shares when they’re up more than 35% from their January lows. We’ve captured almost all of that gain—up 31% so far.
Farmland has plenty of upside remaining. This commodity super-cycle we’re in is not going away anytime soon, and food prices will keep climbing for a while. That flows through Farmland’s earnings. I expect we will see the price test $20 (it’s at about $14.50 today).
I guess it’s at that point, after Farmland’s shares will have nearly doubled, that the research firms will then tell investors to buy…just as the smart money—us—is using those late-comers as our exit liquidity.
Finally, this month, we end with another note about Apple…
The “New Normal” or Back to the “Old Normal”?
After years of allowing employees to work from home due to the pandemic, some of America’s biggest corporations, including Apple, Google, and Microsoft, are now telling workers to return to the office, at least part of the time.
It’s a similar story over in the U.K., where government officials are urging workers to go back to the “old normal.” This week, Prime Minister Boris Johnson said that working from home doesn’t work, and called on workers to return to the office, where he said they would be “more productive, more energetic, and more full of ideas.”
This is putting workers in a bind: Should they return to expensive financial and tech centers like Silicon Valley or London…or find new jobs that allow them to maintain their more flexible, work-from-anywhere lifestyles?
You’ll likely know which side of the aisle I occupy…
Companies want workers back in the office to maintain the value of their real estate assets. It’s a similar story with governments. They’re hoping a return to the office will stimulate consumer spending, as workers are forced to go back to paying for restaurant lunches, coffees, and such.
The reality, however, is that workers aren’t willing to do this.
According to a survey of more than 32,000 workers by ADP Research Institute, two-thirds said they would quit rather than go back to the office full-time.
Indeed, at Apple, an open revolt is underway about the company’s new office-return policy, which as of April requires employees to work in-person on Mondays, Tuesdays, and Thursdays. A group called Apple Together says more than 1,400 current and former employees signed an open letter to company executives asking them to reconsider the policy.
Companies are going to have to pay attention to what workers are saying.
We’re on the cusp of Web 3.0, a new version of the internet economy. Web 1.0 was the internet of AOL online and Ask Jeeves…the slow, dial-up internet. Web 2.0 is the era we’re currently in…the internet of massive data and e-commerce companies like Google, Amazon, Facebook, and so on.
Web 3.0 is the new emerging internet. This will be a decentralized internet built on crypto technology. And in Web 3.0, no one cares where you work.
I already see from my interactions in the world of non-fungible tokens, or NFTs, that a large number of people are leaving traditional tech jobs and launching Web 3.0 companies, and hiring employees to work from home from all over the world.
That’s the future. And it’s why these new companies—populated by young, hungry employees working from the beaches of Mexico, Spain, and Thailand—will ultimately overtake Facebook, Google, and all the other tiring giants of Web 2.0.
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.
