Welcome to your January 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.
In the first month of this new year, I want to pick up where we left off in 2021 with non-fungible tokens…
Shark Tank Star Predicts NFTs Will Become Bigger Than Bitcoin
NFTs are one-off, one-of-a-kind crypto assets. Because every NFT is unique, these tokens can be used to represent ownership of unique assets. And as we move forward, NFTs are going to invade so many facets of our lives that they will become as commonplace as smartphones.
Physical real estate will be NFTs. Government identification—passports, driver licenses, voter ID cards—all NFTs. Health insurance cards will be NFTs and they will link to your complete medical record so that no matter where you go, doctors will know your full medical history. Access to physical buildings…movie, concert, airline, and sporting tickets…every last one of those will be an NFT. Even stocks, bonds, mutual funds, and other such assets will be NFTs.
Many NFTs will reside right there on your smartphone, easily accessible and stored in something like an Apple Wallet. So, in the future we’ll literally store ownership of all our assets as crypto tokens on our smartphone or other devices.
To that end, Shark Tank investor Kevin O’Leary recently told CNBC, “You’re going to see a lot of movement in terms of doing authentication and insurance policies and real estate transfer taxes all online over the next few years, making NFTs a much bigger, more fluid market potentially than just bitcoin alone.”
His bet: NFTs, now valued at less than $50 billion overall, will one day exceed the total value of bitcoin, which is currently about $800 billion but at one point last year exceeded $1 trillion.
I’m confident O’Leary is right.
Right now, the biggest NFT use-case is digital art. I receive messages from those who insist that all one need do is right-click and save the art and they have the same art I do—only for free.
Right. They do. Except that right-click art is about as valuable as a picture of the Mona Lisa taken with a smartphone while standing behind a crowd in the Louvre—i.e., totally worthless. The image, much like the right-click art, doesn’t have any value if sold, whereas I have the original art, which always has value.
As investors in this space, we’re still at a very early stage. Yet, NFTs are already generating vast wealth, as evidenced by many of my Field Notes dispatches in recent months (such as this one and this one). And even greater wealth is coming. Stay tuned.
Moving on to…the metaverse.
Samsung Opens a Store in the Metaverse
The metaverse is a new vision for how we’ll use the internet. In this vision, we won’t merely stare at the internet on our smartphone or PC, we will experience it all around us using technology such as virtual reality glasses or holographic imagery that doesn’t require glasses or clunky goggles.
This vision may sound fantastical…but some of the world’s biggest tech companies are on board.
Global electronics giant Samsung has announced that it’s opening a virtual store in an online world known as Decentraland, a wildly popular metaverse that operates on the Ethereum network.
The Samsung store is known as 837X, a play on the company’s flagship U.S. store at 837 Washington St., in New York City’s hip Meatpacking District.
Though Samsung’s Decentraland store will exist for just a short time, it underscores a point I’ve been making for months now: The metaverse is going to change how we shop, socialize, and entertain ourselves online.
Sportswear giants Adidas and Nike are already in the metaverse, and lots of companies are beginning to search for their entry into the metaverse as well.
I own NFTs in a metaverse known as Portals (think: high-end, digitally rendered lofts and penthouses), and I can tell you that the venture capital money behind the Portals project is as blueblood as possible. This is money that helped fund some of the most recognizable tech companies in existence today.
I’d also like to say, having explored this space, that this notion of pursuing life inside the metaverse isn’t some sad, lonely take on living a dystopian future at the exclusion of real life.
Many metaverses are going to be bright, cheerful, sunny places where you can gather with friends digitally and see a world-premiere movie. Or you’ll hang out and play games that allow you to earn valuable cryptocurrencies, or shop in the exact same stores that you’re accustomed to, or wander through stores you never heard of overseas, trying clothes on an avatar that is your exact image, only digital.
And, by the way, this isn’t something that will show up in the year 2040 or beyond. This will all take shape this decade.
Next up…
The Federal Reserve Won’t Be Able to Fix Inflation
This week, Federal Reserve Chairman Jerome Powell told the Senate Banking Committee that high inflation is a risk to the job market.
Well, I’m glad we cleared that up…
I’ve been saying for a year that inflation was never going to be transitory…that all the free money the Fed and Western governments have been pouring into their economies for more than a decade now was always going to start an inflationary fire. It just took the COVID pandemic to strike the match.
And here we are. Today, we have:
- Supply shortages that are a direct result of COVID shutting down/slowing the economies and corporate operations necessary to maintain the “just-in-time” delivery strategies that have been the status quo since the 1990s and 2000s.
- An abundance of free money sloshing around the world that has driven up asset prices for stocks, bonds, and real estate, and is driving inflation as consumer spending outstrips the supply of goods.
- A job shortage that is a direct result of people either losing jobs, or dissatisfied employees quitting and pursuing other options…like freelancing, which has exploded in popularity in the last two years.
As inflation gathers pace, employer costs are going to rise. But not all employers can raise prices to meet those costs while still maintaining an acceptable profit margin. The largest expense—employees—are going to be pared in the process of matching income with outflow.
And the bigger problem is this: The Fed can’t fix this problem by raising interest rates in America.
Raising interest rates is normally how governments tackle inflation. But this inflation problem is global.
The Fed raising rates is not going to change anything in Denmark or Thailand or anywhere else.
There’s also U.S. debt to consider.
U.S. debt has almost topped $30 trillion, or 130% of the entire American economy. That’s Third-World debt levels, and I’m not being facetious there. It’s a simple fact.
And it’s a simple fact that the Fed can’t raise rates to effectively battle inflation because doing so will make it that much more expensive for Uncle Sam to service his debt, meaning the government would have to take on more debt just to make interest payments on the existing debt.
And it would slam U.S. consumers and businesses too, since both now hold record levels of debt as well.
Put all this together—the job market, the global nature of the inflation problem, and U.S. debt levels—and it tells me that inflation is going to continue to be a problem, and that at some point this decade the U.S. will face a currency/debt crisis.
Which is why I continue to recommend gold and silver as permanent holdings in your portfolio. And it’s why I recommend exposure to commodities. Ongoing inflation will serve as fuel for the commodity super-cycle—a long-term uptrend in commodity prices now underway.
Onto our next stop…
PayPal Prepares to Introduce Its Own Stablecoin
PayPal, the mobile-payments giant, recently confirmed that it has designs on a PayPal stablecoin, a type of cryptocurrency built to tightly track another asset, such as gold, the U.S. dollar, other fiat currencies, and the like.
PayPal has offered no indication of when its stablecoin might appear, but PayPal Coin, as it’s tentatively called, would be pegged to the U.S. dollar.
Why would PayPal care about this, given that its millions of users can already transact and send money in dollars and other currencies? The answer is simple: Revenue.
PayPal would earn a small fee from the conversion of fiat currency into PayPal coins. And why would consumers convert? For convenience. Let me explain.
Spending $1 for a product that costs $1 is fine, but issues will arise as blockchain gaming and other online services demand micro-payments that are fractions of a penny. That’s not really possible today.
I’ll use the blockchain game Star Atlas as an example. I own a spaceship in Star Atlas that is earning me a 10.84% return monthly in a crypto called ATLAS, which I can convert into U.S. dollars whenever I want. (Read my column on this here.)
Thing is: I have to provision the craft regularly with food, fuel, ammunition, etc. As I write this, the food currently costs 0.0006144 ATLAS tokens per unit. That’s miniscule fractions of a penny. I can’t buy that with fiat currency. I have to use crypto, in this case the in-game ATLAS crypto.
PayPal sees that this is where we are headed on a much larger scale—fractional micropayments for all kinds of things, be it an in-game purchase, or authorization of a document or ID on the blockchain, or maybe even to access your flight to Hawaii when you present your NFT-based boarding pass.
Whatever the case might be, fractional micropayments will be a part of our daily lives, since blockchain transactions generally require authorization. We won’t realize we’re paying the cost because it will be so small, but it will happen in crypto like the stablecoin PayPal will soon introduce.
And finally…
Another Crazy Year for the U.S. Housing Market?… I’m Not Convinced
According to CNN, wannabe homebuyers need to prepare themselves “for another crazy housing market” this year.
Really? I am not convinced that will prove true.
Yes, we have inflation, and inflation can be good for home prices because the value of real assets tends to rise. But this inflation is going to be different to the 1970s-scented inflation. Back then, Americans weren’t so heavily indebted. This time around, consumers are carrying record levels of debt. And income growth for much of the population is fairly weak.
As the Fed pushes up interest rates, two knock-on effects occur:
- The cost of daily living rises because credit-card rates jump too. That will take more money out of paychecks already stretched thin.
- Mortgage rates will rise. That decreases the principal that a would-be buyer can afford to pay.
The combined effect could very well prove to be a dampener on home prices. Indeed, I know a few people back in the States who have listed their homes for sale now because they realize that prices will likely have to retreat in order to fall into the affordability category for buyers who are facing higher mortgage rates. So, they’re front-running the Fed while they can.
I am not saying we’re going into the sequel of the 2007 housing crisis. Much is different these days. Fewer people have adjustable-rate mortgages. The volume of “cash-out refinancing”—refinancing in order to pull money out of a home’s equity to spend on other, generally consumer wants—is roughly half of what it was before the crisis. And sub-prime lending is not as problematic today.
Still…rising interest rates will hit consumers in other ways.
Over the last decade, homeowners have regularly refinanced at ever-lower rates to free up capital in their paycheck by reducing their mortgage outlay. While mortgage payments won’t rise for those who locked in fixed-rate loans, they will no longer have refinancing to fall back on as a way to give themselves a raise.
And that’s actually a problem. All that credit-card debt will result in higher minimum payments and higher interest payments on new purchases, as interest rates rise. You can begin to see how this will affect the family wallet. By necessity, consumers will scale down their discretionary spending on food and other items. Which is very good news for our investment in Slate Grocery REIT and the string of shopping centers it runs, anchored by middling to low-end supermarket chains.
But consumers can’t cut back on healthcare. And they can’t really cut back on gasoline and heating oil. Which means that the big savings are likely going to come from downsizing their homes to cheaper houses or even condos and apartments.
So, while inflation is generally decent news for hard assets such as real estate, rising interest rates mixed with an overload of personal debt threatens the housing market on a broad scale.
Maybe CNN will be right after all; we’ll know in a year. But there are certainly signs indicating that housing prices could begin to stagnate or decline in order to match buyers’ capacity to cover the monthly cost as interest rates rise.
And on that note, I call it quits for January. Talk to you again in a month. 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.
