Welcome to your October 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.
I’ll start in China this month, with a story from my own life…
It was maybe a decade ago, 2011-ish. I had landed in Changsha, China, deep in the country’s interior. I was there to visit…Evergrande, the Chinese residential-housing developer that’s in deep trouble these days.
Evergrande sent a car to my hotel to ferry me to one of its properties, where I was to meet with some of the company’s regional honchos to see what Chinese real estate is all about.
As the van turned into the parking lot, there they were. The entire staff—maybe 100 people—receptionists, gardeners, sales agents, the whole shebang, standing along the edge of the vast, semi-circular main driveway.
And did I mention the red carpet?
There was a red carpet. All awaiting me.
It was…surreal.
I ended up recommending Evergrande to my subscribers of the day, and we made a pretty penny as the then-much-smaller property developer blossomed into what it is today: a huge conglomerate.
However, in more recent years, the company got a little too big for its boots…taking on some $300 billion in liabilities as it sought to expand (and yes, that’s billion with a “b”).
This insane borrowing—not just at Evergrande but at other property developers—caught the attention of the Chinese government, which introduced new rules to tame runaway debt in the real estate sector.
As a result, Evergrande has found itself unable to borrow to pay its bills.
Now, the company is on the ropes and there are growing fears its collapse will reverberate through China’s property and banking sectors, as well as various ancillary industries. In truth, it absolutely would. Evergrande is massive these days, easily 10x its size when I met with the company over a fabulously authentic Chinese meal (though I do not recommend fried duck tongue).
The big question: Will China allow Evergrande to collapse, given the tidal waves that will race through the economy?
It’s a moral dilemma no different than the 2007 housing collapse in America that saw Uncle Sam’s political minions race to save banks and car companies and whatnot.
My bet: China bails out Evergrande in some fashion; otherwise it risks an uprising among millions of Chinese waiting for delivery of their Evergrande-developed apartments.
But then the question becomes: Will China bail out all the other heavily indebted developers as well?
According to economists at Nomura Holdings, Chinese developers’ total debts top $5 trillion. That’s more than the entire annual economic output of Canada, Italy, and Switzerland…combined!
I’ll have more on this soon, since it’s such a big deal for the global economy.
Moving on, but staying overseas for a beat longer…
PayPal Extends its Crypto Services to Britain
PayPal has recently planted its crypto flag in the U.K.
For around a year now, PayPal has allowed its customers in the U.S. market to buy, sell, and hold crypto in a PayPal account. I haven’t seen data indicating how much crypto PayPal actually holds for its customers, but I’m going to guess that demand is pretty hot, given that the firm over the summer increased weekly purchase limits to $100,000. There’s no reason for PayPal to do that unless it’s experiencing that kind of demand.
Now, the San Jose, California-based company has skipped across the pond and set up shop in Merry Ol’ England. (Well, technically, Merry Ol’ United Kingdom, but that just doesn’t roll off the tongue nearly as lyrically.)
This is PayPal’s first crypto venture outside of America, but it certainly won’t be the last. I don’t assert this as a known fact, but it seems abundantly obvious that PayPal will introduce crypto in a meaningful number of the more than 200 countries in which its services are available.
There might be banking regulations to deal with here and there, but I can certainly see PayPal crypto accounts in a variety of European countries, as well as Japan, parts of Southeast Asia, and Oceania.
The U.K. is simply another brick in the wall of widespread, mainstream, globalized crypto adoption. And it’s another reason why I am convinced that crypto is not likely to be banned in Western economies.
Yes, governments will most-assuredly impose crypto-specific rules and regulations in coming years.
But if government is smart, it will work with the cryptoconomy to fashion wise, useful, and nuanced rules, rather than impose sledgehammer-like, government mandates brainstormed by bureaucrats who haven’t a real grasp of what’s actually happening in crypto, and who have no meaningful understanding of the blockchain and the myriad ways it’s morphing and changing, seemingly by the hour.
Until then, PayPal’s British invasion is just another breadcrumb leading us to the obvious conclusion that crypto is the future.
Next up, we stick with bitcoin for a moment…
Rumors of Bitcoin’s Death Have Been Greatly Exaggerated (Repeatedly)
It seems like every time bitcoin experiences a moment of volatility, some hack analyst somewhere on MarketWatch, MSN, YouTube, or Twitter seizes the moment to produce some inane article, tweet, or video proclaiming the death of bitcoin.
Indeed, so far this year bitcoin has supposedly died 37 times.
That calculation of the number of incorrect obituaries comes from a database tracked by 99Bitcoins, one of the largest online sources of bitcoin statistics. Last year, by comparison, bitcoin died just 13 times. The high-water mark was 2017—crypto winter—when bitcoin died 124 times.
There’s a scene from an early ’90s Meryl Streep/Goldie Hawn/Bruce Willis movie, Death Becomes Her, in which Bruce Willis asks a doctor where his wife is. The doctor tells him: “She’s dead, sir. They took her to the morgue.”
To which an incredulous Willis replies: “The morgue? She’ll be furious!”
That’s bitcoin. Always taken to the morgue by some nincompoop who doesn’t understand the crypto market or the macro social, monetary, economic, and financial dynamics now at play globally.
Those dynamics are changing our world, as well as the perceptions and definitions of money, wealth, financial security, and personal financial sovereignty. Bitcoin is, without question, one of the most powerful forces driving that trend.
Back in 2017, when bitcoin obituaries peaked, the crypto traded between the low-$2,000s and just under $20,000. As I write this, bitcoin is trading at around $59,000, and earlier this year it was well above the $60K mark. That’s one helluva death/reincarnation.
We’re going to see bitcoin at $75,000 and $100,000…and on and on.
And all along the way, every time bitcoin vomits up another temporary meltdown, the obituary boo-bears are going to pop up like Whac-A-Moles to pronounce that, once again, bitcoin is in the morgue.
They will, of course, be wrong.
Let’s now turn to…Norway.
Norway Becomes the First Major Western Nation to Give In to Inflation
The Norges Bank—Norway’s central bank—raised interest rates late last month…making Norway the first major Western economy to hike rates since the start of the pandemic.
Bank poohbahs says another hike is likely in December.
Granted, the new 0.25% rate is nothing. But the message is clear: The economy, the markets, and the currency can no longer tolerate artificially low interest rates as global inflation roots. The bank expects rates will rise several more times next year and end 2022 at about 1.25%.
Other, smaller central banks have boarded the same train Norway’s on. The Czech Republic, South Korea, New Zealand, and Iceland have raised rates. And earlier this month, a member of the Bank of England’s influential Monetary Policy Committee told his fellow Britons to prepare for a rate hike “significantly sooner” than the market seems to expect.
My guess is that the U.S. will not be far behind. Of course, given the level of Uncle Sam’s debt, how high the Fed can ultimately move U.S. rates is an open debate.
I’d argue the Fed’s flexibility is severely limited because of the knock-on effects to Treasury’s debt-repayment capacity.
I mean, if Congress has itself in a tizzy over the current debt-ceiling fight, what’s that fight gonna look like when the ceiling has to rise sharply because interest payments on existing debt blow out?
As for the Norwegian krone, one of my two or three favorite currencies in the world, it has been gaining ground on the greenback, as I said it would do once these rate hikes began. Since late-August, the krone has gained more than 6%.
There’s more of that coming.
Finally…New Jersey.
New Jersey Delays its Decision on BlockFi…Again
For months, New Jersey’s Bureau of Securities has been hounding crypto-bank BlockFi like a retriever chasing a wounded duck. But every time the bureau closes in…it backs away and offers another extension, which is exactly what happened late last month when New Jersey extended a proposed ban until Dec. 1 on all new BlockFi interest accounts for Jersey residents.
The original ban was set for July 22, but has been extended a few times now as the state aims to better understand BlockFi’s products.
The Jersey bureau claims BlockFi’s interest-earning account (which I recommend because of the safe, 8.25% annual return) is a security.
BlockFi vehemently shakes its head and says, “No, no, no—you don’t understand.” And Jersey regulators apparently agree that, well, maybe they really don’t understand.
Kudos to them for at least stepping back from a knee-jerk ban and taking the time to figure out how this new world of crypto-banking and savings works.
It’s not often I will applaud a regulator because way too often they overstep and whip out the only tool in their toolbox—the ban hammer. And they go around banning everything they don’t understand.
Frankly, this is something we have to tolerate for the time being as crypto investors.
Crypto is a whole new color in the financial rainbow—a color no regulators have ever seen, so they reflexively assume the color is illegal and must be banned for fear it will kill, maim, exploit, assault, and possibly steal the lunch money of every investor who does understand that color.
Frustrating as the process is, I think this effort to better regulate crypto will pay positive dividends.
Once regulators and bureaucrats understand the cryptoconomy, and put in place wise guidelines—emphasis on wise—that’s going to create a great deal more stability in crypto.
At least I hope.
In the meantime, we wait to see what Jersey ultimately concludes.
And with that, I’ll wrap up this month’s Global Intelligence 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.
Talk to you again in November. Thanks for reading and here’s to living richer.
