Welcome to the July issue of the Global Intelligence Wire.
This is the special, monthly digest for Global Intelligence Lifetime Circle members, in which I cut through the media chatter and highlight five underreported news items from the past several weeks.
Some of these relate to what’s going on in the Global Intelligence world. Others highlight big social or economic changes that are coming as we exit the pandemic and enter a new economic era. Basically, they’re the stories you need to know, but probably haven’t heard in the mainstream media.
First up this week, big news from the world of crypto:
Could Ethereum Overtake Bitcoin as the World’s Top Cryptocurrency?
Bitcoin is the granddaddy of the crypto universe.
It was the first cryptocurrency. It remains the biggest in terms of market capitalization by some distance. And I firmly believe it has a bright future…meaning its value will run far higher from its current position in the $30,000 to $35,000 range.
But that doesn’t mean bitcoin will always remain the leading crypto. And right now, the #2 asset, Ethereum, is closing the gap.
Between June 6 and July 6, Ethereum added around 5.4 million new addresses to its network—a very big increase. That’s according to a story by finance news website Finbold, which you can view here.
Why is that significant?
Well, the number of active addresses on a crypto network indicates the overall number of senders and receivers of that coin. So, the fact that Ethereum is adding tons of new addresses demonstrates that its popularity is rising among investors.
In fact, Ethereum recently overtook bitcoin in total number of daily active addresses for the first time ever. This means that while more money has been invested in bitcoin, Ethereum has more individual investors.
As I write this, the total value locked up in bitcoin is roughly $607 billion, while the total amount invested in Ethereum is about $226 billion, so Ethereum has a long way to go to close the gap in terms of market capitalization. But a growing number of industry players now see this as possible in the years ahead.
According to a recent story from Business Insider, Goldman Sachs is among those who believe that Ethereum has the capacity to topple bitcoin as the world’s leading crypto.
My own take: Ethereum is my largest crypto holding, and I am mining more Ethereum every day from three rigs I built in my apartment that produce a bit more than 0.1 Ethereum every 30 days or so. (I’ll be sharing a video of my mining setup in tomorrow’s Field Notes mailing.)
Crazy as this sounds, I expect Ethereum, now in the $2,000 range, will likely see $40,000 this decade, probably before 2025. That doesn’t necessarily mean, however, that it will topple bitcoin, since bitcoin will race higher too. So, though the gap may close, I expect bitcoin to remain the market leader until at least the latter half of this decade.
Our Crypto-Mining Firm Is Expanding Into the U.S.
Keeping with crypto, I want to discuss some news about one of the recommendations in our Global Intelligence Portfolio: the small, U.K.-listed company called Argo Blockchain.
In my special report about bitcoin and why cryptocurrencies and the blockchain will forever change everything about our world (which is available here as part of your subscription), you might recall that I recommended Argo Blockchain as a stock-market play on crypto.
Argo operates three large “farms” that mine for bitcoin and a privacy coin called Zcash (a spinoff of bitcoin that you can read about in your report on crypto privacy). The company’s energy-intensive farms are located in Quebec, Canada, and the 35 megawatts of power they consume comes primarily from low-cost hydropower.
Well, now Argo is expanding to the U.S.
The firm has taken a $20 million loan from Galaxy Digital, a crypto-focused investment bank, to build out a 200-megawatt facility in Texas that will run primarily on low-cost wind power.
Lots of facets make this story interesting, but the one I will focus on circles back around to my July cover story in the Global Intelligence Letter on how to earn double-digit rates of return on crypto assets.
As part of that, I noted that companies are increasingly borrowing expansion capital from crypto-banks. They do so by pledging crypto such as bitcoin as collateral against the loan—which is exactly what Argo is doing.
The benefit: The loan process is far easier, you don’t have to sell assets to raise cash, and your collateral potentially (very likely) will increase in value over the term of the loan.
The new facility, when completed, will increase Argo’s mining capacity by nearly five-fold, which should see the company’s profits surge. That’s very good news for our investment.
Separately, I’ll note that Argo has also announced that it’s looking to list its shares in the U.S. If it does, exposure to U.S. investors should give its share price a further boost.
Trouble Ahead for America’s Overheated Housing Market
Keep your eye on July 31. It might just be the day the wildly overheated housing market begins to crack, since that’s the day the eviction moratorium is slated to end.
Now, to be sure, the feds could push the date back again, as they’ve done before, and all of this will be moot until the next sunset date rolls around. Who knows?
But, if the moratorium does, in fact, sunset that day…well, then, all hell breaks out in America’s housing market.
Housing has been on an illogical tear. Home prices in the last year are up 45% as of May (latest data), and the median home price hit a record $350,000…which is well outside the capacity of most Americans, based on levels of household debt.
A good deal of that growth stems from thin housing supply—the result of the pandemic shutting down new-home construction and keeping the vacancy level for rental properties low. But let’s connect some dots…
Lots and lots—and lots!—of Americans are behind on their rent and utilities payments. The moratorium and government rental support does nothing to repay all the bills in arrears that are due once the moratorium ends. The U.S. Census Household Pulse Survey from last month indicates that 1.2 million households are “very likely to face eviction in the next two months.”
Then, you have all the millions of landlords who are way behind on mortgage payments for their rental properties.
If the moratorium ends, landlords will immediately pursue eviction for non-payments that amount to thousands of dollars, often more than $10,000, per unit.
The great bulk of Americans haven’t got that kind of cash readily available—nor the cash to get into another rental. Evictions will mount and vacancies will pile up. Landlords will default on mortgages and face foreclosure. Rental rates will drop, and housing prices will fall as beaucoup properties hit the market at fire-sale prices.
Maybe time will prove me 100% wrong. But I can tell you I personally would not want to be a buyer of U.S. real estate these days. There’s too much risk. Wait to shop the fire-sales.
Top Investors Warn of Impending Market Crash
Speaking of wildly overvalued, I give you the U.S. stock market, and the growing fears of a crash among some very smart investors that I have long-respected such as Michael Burry and Jeremy Grantham. They worry, as do I, that we are standing on the edge of collapse, blithely unconcerned that one wrong step will send us into the abyss.
Right now, the S&P 500 trades at a value of more than 37 when looking at something called the Shiller PE ratio, which essentially measures the value of stocks over a 10-year cycle adjusted for inflation. It’s a more holistic way to think about the ubiquitous price-to-earnings ratio. But, just so you know, that ubiquitous PE ratio is near 46.
Those are ridiculous numbers. To put 37 and 46 into perspective, the average reading over the last 150 years is about 16 for both measures. Only once before have they perched on such a lofty aerie—in the late-’90s/early 2000s, during the early internet euphoria that led to the dot-com crash.
This is why I harp on about “reversion to the mean”—the idea that numbers move over time toward their historic average.
This reversion is coming. And it’s going to sting…particularly the younger generation of investors who haven’t the foggiest notion what a collapse looks and feels like.
I started going through my portfolio last summer cutting out stocks with ridiculous PE ratios. In my largest retirement account, I’m down to just 5.3% exposure to stocks. The rest is in Swiss francs (by far my largest holding at 44% of the portfolio), dollars, euro, and yen…as well as gold and exposure to inflation-protected U.S. Treasury paper.
I would advise you to take a look at your own accounts and consider locking in gains you might have on high-flying tech stocks or any company with a PE ratio of 25 or above. The market is going to kneecap them in a collapse.
Social Security Concerns Are Growing for Normal Americans
Finally, we come to this July 4 headline from The Guardian that captured my attention: ‘I can’t live on $709 a month’: Americans on Social Security push for its expansion.
As you can tell from that headline, it’s the story of American retirees unable to live on Social Security checks that are increasingly meager (and which will only grow smaller as inflation bites).
This is not a new story by any stretch. When I was working for the Orange County Register newspaper as a cub reporter in the late-’80s and early ’90s, I remember reporting on a story at a local Lowe’s Home Improvement store about a 70-year-old man who was then part of the vanguard of a new reality: Retired Americans heading back to work because they could no longer live on Social Security alone.
Yes, it was Southern California, always a pricey place to call home. But Cali has always been the leader of the pack…meaning what happens on the West Coast inevitably percolates across the country.
Now, retirees around the U.S. are facing this same issue. And it will not go away.
The idea of pushing to expand Social Security is a pipe dream. The system, as you know, cannot afford its current burden. Plus, an expansion of Social Security would not likely pass through Congress.
All of which underscores a message I wish more Americans would consider—retiring abroad.
Outside of major cities such as London, Paris, and Tokyo, living overseas can be radically cheaper. The healthcare is quite often free or very affordable and far superior statistically. And in many places, retirees have perks when it comes to taxes or even certain expenses (Panama, for instance, offers a 25% discount on utility bills).
To be sure, it’s a new way of looking at life when you’ve grown up in the States and only ever considered retiring in the States. But frankly, there are lots of really beautiful, peaceful, stress-free destinations in the world where the average Social Security check ($1,543 per month) will afford a very nice, middle-class life.
If you’re worried about just how far your own retirement nest egg can take you, and the quality of life you’ll have (or do have right now) in America, then maybe consider living some place outside American borders. (International Living has a very good Overseas Retirement Calculator to help you identify some potential destinations. You can check it out here.)
And with that, I’ll end 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 August.
