Welcome to the September 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.
Before I outline the stories that caught my attention this month, I wanted to discuss the Global Intelligence Mastermind #001 online event.
This event will take place this Saturday, September 18, at 11 a.m., EST and it’s exclusively for Global Intelligence Lifetime Circle members like you.
The lineup for the event includes international real estate expert Ronan McMahon, ecommerce entrepreneur Ian Bond, and emerging markets analyst Kim Iskyan, among others. And we’ll be discussing the major changes that are coming to the economy and our biggest opportunities to profit from them.
To view the event, simply go to this link.
The event will go live right there this Saturday. So to watch, simply bookmark this page and tune in at 11 a.m., EST.
Also on this page, you can see the full guest lineup and discussion topics, view the schedule for the event, and set a remind so you don’t miss the start.
I’ll be sending you further details on the event in the coming days, so check your email for those. I sincerely hope to see you at Mastermind #001.
Now, on to our first story this month…the inflation train is gathering steam.
Further Signs We’re Entering a New Era of High Inflation
The big question hanging over the global economy these days is, “Will or won’t inflation take hold…and if it does, how bad might it get?”
You likely know my position on this: Inflation is already mixed into the dough. We’re just waiting for the yeast to activate.
Now comes the latest inflation news from Japan, where wholesale inflation is hovering near a 13-year high. This refers to the prices that businesses are paying to buy from their suppliers, not the prices that consumers experience.
At the moment, Japanese analysts note that businesses largely are not passing along the price hikes they’re having to pay…if only because of Japan’s coronavirus state of emergency, which has impacted jobs and income.
That’s likely temporary. The world is learning to cope with the virus. Life is (slowly) returning to some kind of new normal. And at some point in the not too distant future, companies are going to start raising their prices to cover their increased costs.
They will have to. Rising wholesale prices squeeze corporate profits, which will annoy shareholders, who will react by dumping shares (meaning stock prices fall). Company execs hate when their stock price falls because it hits their personal income.
I know the Federal Reserve insists inflation is transitory. I know there are European economic bureaucrats who say the same.
I’m just not convinced.
Prices are rising all over the world—for everything from shipping containers to milk powder.
Much of the world has spent the past two decades experiencing tepid inflation (at least based on government data, which is not necessarily reality). During that time, many companies struggled to raise prices and instead resorted to shrinking packaging or charging fees for services and whatnot.
That can’t go on forever.
It won’t go on forever.
At some point, all the suppressed price increases explode through our wallets. Foods, metals, electronics—prices for these and many other goods and services will permanently reset higher.
This is why I urge everyone to own the investments that can help protect against inflation: gold and silver primarily.
And I continue to believe that a certain cryptocurrency is going to prove its mettle amid an inflationary spike, even though the asset isn’t old enough to have ever experienced inflation.
But given that crypto is not controlled by any government, and given that the crypto in question, Ethereum, is at the center of a financial revolution that won’t be sidelined by inflation, I suspect we’re going to see it thrive as consumer prices rise.
Let’s stick with crypto for a beat longer…
How We Can Profit From the NFT Boom
I’ve written to you in the past about NFTs, or non-fungible tokens. These are one-of-a-kind crypto assets that cannot be replicated.
NFTs provide an elegant solution to a problem that has existed since the birth of the internet: How do you prove the authenticity and originality of a virtual asset such as a digital photo or artwork?
Because each NFT is unique, non-interchangeable, and securely stored on the blockchain, they are perfect for representing digital photos, artworks, and such. So, they provide a simple way to buy, store, and sell these assets.
NFTs entered the mainstream several months ago when the artist known as Beeple sold an NFT of one of his artworks for $69 million. Since then, art-centric NFTs have taken the collective consciousness by storm as average Joes and celebrities alike offer up NFTs in hopes of a huge payday.
Just recently, a collection of NFTs known as Degenerate Apes exploded onto the scene on the Solana blockchain, which competes with the Ethereum network. And one of the rarest Degenerate Apes just sold for $1.1 million
Critics and naysayers will say this is crazy. Seven figures for a bunch of bits and bytes?
I will, of course, disagree with that.
I’m not saying that particular piece of simian art is worth $1.1 million, or that it cannot go down in value. That, however, is not the point.
The point is that this is yet another indication of the virtual future we’re rapidly racing toward.
Though NFTs primarily have made their splash in the art world, they’re going to become an everyday part of life in the next few years.
Because they are unique assets, they lend themselves to everything from real estate transactions to airline, movie, concert, and sporting-event tickets. I expect they’ll even become an integral part of our IDs and how we vote.
That’s because each is a one-of-a-kind, immutable asset.
There is, for instance, a difference between a ticket on the 50-yard line at the Super Bowl, and a ticket in the nose-bleed seats with a view partially blocked by a support beam. That’s NFTs—each is different from every other in some way, which means each has a different value, based on rarity, access, location, etc.
This may be a little difficult for us Gen Xers and boomers to get our heads around, but we need to recognize that millennials and Gen Z see and experience the world in a vastly different way.
Those generations grew up with technology—with video games and virtual reality and mobile phones and computers. They also saw their parents and grandparents slammed by the tech-bubble implosion and the housing collapse.
As such, they’re less inclined to have faith in systems and institutions, the economy, politicians, and dollars as a physical currency. They more easily and naturally accept the digital world, whether that’s virtual currencies or digital assets.
Really, it shouldn’t come as a surprise that they see value in digital art the same way you and I see value in a Picasso.
And in that, there are opportunities.
Me? I actually do a little painting in my spare time and am working on a series of NFTs now. I’m not expecting to sell them for $69 million…or even $1 million. But I want to be part of that world in some fashion. (I’ll share more about this in coming dispatches as the project comes together.)
In the meantime, there are ways to play this trend without having to unleash your inner Salvador Dali.
Again, I will point you toward Ethereum. It’s emerging not just as the backbone to the decentralized finance (DeFi) revolution, it’s shaping up as one of the key blockchains on which the NFT universe is taking shape.
That will continue—and it’s very likely to expand rapidly when Ethereum 2.0 takes hold next year. (See your September issue of the Global Intelligence Letter for an explanation of why that’s the case.)
This is where we are headed. Best to hop aboard that train, by investing in Ethereum, while some of the cars are still in the station.
Next up…the future of oil and gas.
Major Investment Funds Turn Their Backs on Fossil Fuels
We all know where oil and gas are headed—the way of the dodo bird.
That’s still years away at this point, but news out of Harvard University and the country of Norway tells us that the future is probably closer than we think.
Harvard’s endowment fund has announced that it will essentially divest its $42 billion investment in the fossil fuel industry.
The university didn’t explicitly use the word “divest,” instead relying on the euphemistic phrase that oil and gas investments within the fund are “in runoff mode.”
Whatever the phrasing, the end result is identical: Soon there will be no more oil and gas stocks inside the endowment.
At the same time, another fossil-fuel drama is playing out in Norway, where an election has just concluded…paving the way for a left-leaning coalition after eight years of conservative rule.
A key campaign issue: the future of fossil fuels in the Scandinavian nation.
Now, it would be easy to brush this off as meaningless local politics.
After all, Norway, with a population of just 5.3 million, is basically the South Carolina of Europe—middling, at best.
But in terms of energy production, Norway is the Texas of Europe—the Big Kahuna. It’s home to Europe’s largest hydrocarbon reserves, it’s the world’s third-largest exporter of natural gas, and it’s one of the top producers of oil globally.
Decades ago, Norwegian politicians foresaw a future without oil and gas, and prudently established a rainy-day fund known as the Government Pension Fund Global, or GPFG. It now holds some $1.3 trillion, the largest such fund on the planet.
Moreover, despite its vast hydrocarbon riches, the vast majority of Norwegian electricity is generated by emissions-free hydropower plants. Fossil fuels are banned for heating buildings. And last month, 70% of new cars sold in Norway were fully electric—a higher proportion than in any other country.
That irony—a nation economically dependent on oil and gas, yet demanding of green-energy policies at home—is not lost on the country’s newly victorious left-leaning politicians. They’re pushing to fully end energy exploration and production by 2035.
And here’s the point: The GPFG means that tiny little Norway not only has the financial might to reshape its own future, it has the pocketbook to reshape the world you and I live in tomorrow.
By dent of its wealth, Norway can splash money around the world to drive investment in green energy technology—which is precisely Norway’s plan. It’s why I firmly believe the Norwegian krone might just be the most powerful currency in the world. Sure, it’s a tiny currency; much too small to ever be a global reserve currency.
But Norway’s ability to use that currency to better humanity’s future gives the krone power well beyond the country’s ranking.
Just another reason to hold the krone as a long-term asset (as we do in the Global Intelligence portfolio).
Moving on…
Uncle Sam Is Planning a Hike in Capital Gains Tax
No one will ever accuse the U.S. government of spending its citizens’ money wisely.
Uncle Sam is like that quintessential family member who grew up rich and entitled, never worked a day in his life, squandered all his money on drink, gambling, and gals, and then demands everyone in the family open their wallet to continue supporting his habit.
Which explains why the U.S. has nearly $30 trillion in federal debt. That’s the largest amount of debt ever recorded…a sum too large to ever be repaid.
Now, to afford even more profligacy, the current administration wants to raise capital gains taxes to 43.4% on high-income households (including the 3.8% surtax on investment income). That’s nearly double the current 23.8% rate, and would be the highest level in U.S. history. It would also be the highest among the 38 countries in the Organization for Economic Cooperation and Development.
House Democrats on Monday sought to temper that taxation exuberance by proposing a more palatable cap-gains rate of 28.8% (again including the 3.8% surtax). Who knows where the final rate ends up in the give-and-take that now happens before a plan becomes America’s new tax law…
And frankly, this isn’t about the rate itself.
No, this is about the idea that instead of holistically repairing a fatally flawed and inequitable system of taxation and spending, D.C. (regardless of party) keeps jury-rigging the system with bubble gum, duct tape, and a pair of old chopsticks an aide left in the Capitol lunchroom.
Lawmakers at some point have to address the wound, rather than change the bandage.
Congress has to tear down current spending and reallocate—wisely!—the trillions of dollars Uncle Sam already collects.
A five-percentage point increase in capital gains tax will do nothing to help Uncle Sam pay off his mountain of debt…unless Congress learns how to responsibly reinvest the tax dollars it collects.
Finally…
The Ecommerce Age Has Officially Arrived
It had to happen at some point. Just a matter of time really.
Amazon has surpassed Walmart in terms of sales.
Many had been expecting this. But most analysts were thinking it would happen somewhere near the middle of the decade. But, no, it happened this summer. It’s another of the many knock-on effects the pandemic has brought us.
Amazon sales between June 2020 and June 2021 hit an estimated $610 billion. Walmart managed $566 billion in sales during the same period.
There are too many takeaways to enumerate here. The most obvious is that most brick-and-mortar retail is a lot like Bruce Willis in the movie The Sixth Sense—dead, but unaware of it just yet.
That’s not to say that all physical retail is toast. Consumers are never going to completely stop shopping in person. There’s a tactility to getting out and touching the merchandise, to browsing and trying on clothes, or a certain excitement in finding new products while languidly strolling grocery aisles or electronics and department stores.
Heck, I loved hitting Whole Foods on the weekends just for the free samples. It was lunch on a Saturday, prior to my move to Prague.
It’s one of the reasons I think our position in Slate Grocery REIT is a long-term winner—people like the physicality of shopping for certain items…especially food.
That said, online shopping is only going to grow from here.
Right now, ecommerce claims about 20% of every dollar that consumers spend. That’s going to easily double, and more like quadruple from here as the remainder of the 2020s plays out.
At present, I’m looking for inexpensive ways to play the trend. Too much of the space is much too expensive at the moment. Amazon, for instance, is trading at a price-to-earnings ratio just north of 60. That’s rich.
I’m not saying Amazon’s shares are primed to tank. They could very well rise from here. But there’s not a lot of oxygen at a 60 P/E. Any hiccup in the stock market and richly priced companies such as Amazon would look very much like an avalanche racing down the side of a mountain.
For me, too much risk for the potential reward.
Still, this is a space to keep an eye on. Any chance to buy the companies in the ecommerce space on the cheap is an opportunity that will pay off as this sector of the economy continues to expand.
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 October.
Thanks for reading and here’s to living richer.
Jeff D. Opdyke
Editor, Global Intelligence
P.S. Don’t forget to save the date for the Mastermind #001 online event. It’s happening on Saturday, September 18 at 11 a.m., EST. To watch the event, simply go to this link. I hope to see you there.
