In today’s mailbag edition of the Cut, we’re spotlighting the inflation crisis.
Judging from the emails we’ve been getting, it’s one of the biggest worries for you and your fellow readers right now.
That’s no surprise…
U.S. inflation was rising at an annual pace of 7.9% in February… before Russia invaded Ukraine.
And with the war causing the prices of key commodities to skyrocket… we’re bracing for even higher inflation ahead.
That’s a problem if you’re trying to grow your wealth. It means the currency you’re saving in – for most of our readers, the U.S. dollar – is losing buying power.
Over time, that’s devastating for your nest egg.
Imagine putting 10 crisp $100 bills inside a cookie jar.
Now, imagine leaving that jar in your home, unopened, for nine and a half years.
At the end of that time, you’d still have the same $100 bills inside. They’d just be a little less crisp now.
But at an annual inflation rate of 7.9% over that time, they’d buy you only half of what they would have bought you when you first put them in the jar.
It’s all in this next chart. It shows how inflation eats away at your wealth over time if you stay in cash.
And storing your money in a cookie jar is hardly different from keeping your money in the bank.
Right now, the average interest rate on a 1-year CD is 0.44%.
That’s not quite as bad as the cash in the jar, which gains no value at all. But still, at this pace of inflation, your bank savings would buy 50% less stuff after a bit more than nine and a half years.
No one is removing any dollars. But they’re worth less than they were. And the interest you earn isn’t enough to stem the loss of buying power.
That’s why it’s critical you don’t leave too much of your savings in cash. Instead, you need to have assets that gain value as inflation soars.
And here at Legacy Research, our analysts have been hard at work unearthing ways you can do this.
For instance, on Wednesday, colleague Teeka Tiwari went on camera to discuss how you can position yourself on the right side of the oil shock.
But as you’ll see from our first question this week, learning more about hedging inflation is still at the top of readers’ minds.
Standing by with an answer is Dave Forest. On top of being a renowned speculator, he’s also a professional geologist and our go-to expert on natural resource markets.
And as you’ll hear from him below, natural resources are great to own through an inflationary crisis like we’re living through today. Then Teeka, who’s a world-renowned crypto investing expert, weighs in too…
Reader question: A challenging prospect lately has been where we should invest our hard-earned dollars. Obviously, you can’t keep them in a glass jar considering the current inflationary environment and the lack of direction of traditional methods of investing. What are some real-world, sane ways to invest in moderate short-term and long-term prospects?
– Nick B.
Dave’s response: If you want to beat inflation, get exposure to what I call “hard tech.” It covers the various hard assets that go into bleeding-edge technology.
Take nickel. It’s a key ingredient in the rechargeable batteries that power electric vehicles (EVs)… 5G cell towers… and just about any other rechargeable device you can think of.
Earlier this month, nickel shot up 100% in a single day. It’s one of the biggest price explosions ever in any market.
And Russia caused it. The country produces about 10% of the world’s nickel supply. Now that it’s facing sanctions, we’ve lost a critical reserve of the metal.
A 10% supply cut sounds small. But for hard tech, it’s massive.
Workers don’t build hard tech in a factory. They mine, pump, or collect it from the ground. And nature has made only so much of it. That’s why hard tech makes millionaires overnight.
Compare hard tech to regular tech. We can make laptops and smartphones nearly anywhere on the planet. You just need to build a factory.
But nature blessed only a few places on Earth with hard tech supply.
Russia is the world’s third-largest nickel producer. Only a handful of countries have it . And some of them – such as Indonesia and the Philippines – aren’t the best places to do business.
The only other big nickel-producing places are China, Brazil, and the island of New Caledonia, a French territory in the Pacific Ocean.
In the U.S., we have only one active primary nickel mine – Eagle Mine in Michigan. We’re not even in the top 10 globally.
That’s a big problem for U.S. nickel supply. But it’s also a huge opportunity for us as investors.
Low supply of hard tech assets makes them perfect to protect ourselves – and profit – from inflation.
That’s exactly what’s happening right now. Our leaders minted nearly $8 trillion dollars since COVID-19 hit. It’s blowing up prices.
A nearly unlimited supply of dollars is chasing a limited supply of hard tech commodities such as nickel.
Copper is another example. It’s necessary for wiring in EVs and just about every other piece of tech we use today.
The growth potential in hard tech is equal to what we saw in tech stocks the past decade.
I’ve been sharing specific hard tech recommendations with my paid-up readers. And that’s worked out well so far. For instance, I’ve given readers of my International Speculator advisory the chance at a 296% return on a hard tech mining company I added to the model portfolio in October 2019.
But you don’t have to be a subscriber to get started. You can buy shares in the iShares S&P GSCI Commodity-Indexed Trust (GSG).
It gives you exposure to nickel and copper. It also gives you exposure in energy and food commodities, which are rising along with inflation.
Teeka’s response: According to a recent survey by investment firm Charles Schwab (SCHW), the average American worker believes they’ll need to save at least $1.7 million to retire comfortably.
But the average American in their 50s has only $203,000 in retirement savings.
That’s a $1.5 million gap. And it doesn’t even account for inflation’s wealth-stealing effect.
So most Americans have an even deeper hole to dig out of just to reach the standard for a comfortable retirement.
That’s why I’ve been recommending bitcoin (BTC) for the past six years.
Congress and the Fed can digitally “print” as many new dollars as they like. But no one can make more bitcoin than the supply its code strictly limits.
This is why bitcoin has wildly outpaced any other currency or investment over the past decade. Smart people realize it’s one of the best ways to protect – and actually increase – their buying power in the face of rampant money-printing and rising inflation.
Last August, accounting firm Deloitte surveyed thousands of executives across Asia, Europe, and the Americas. Just over 75% of them said they believed crypto assets would be a strong alternative to – or outright replacement for – fiat currencies in the next 5 to 10 years.
These are some of the wealthiest and most connected people in the world.
And they’re saying assets like bitcoin will replace fiat currency. This is something I’ve been predicting for years.
Now, I’m not saying bitcoin will track every uptick in inflation. That’s not how it works. In fact, we’ve seen bitcoin go down lately as inflation has climbed.
But over the long term, there’s no better way to hedge against the devaluation of fiat currencies such as the dollar.
My paid-up readers have experienced this firsthand…
I first recommended bitcoin to my Palm Beach Letter and Palm Beach Confidential subscribers in April 2016.
Since then, it’s up 11,637%. That’s more than enough to offset any inflation that’s happened over that time. Every $1,000 you converted into bitcoin back then is now worth $117,370.
And despite the recent pullback in the crypto market, I see that trend continuing. I’m on record saying bitcoin will reach $500,000 and beyond. So we’re talking at least another 1,011% return from today’s price of just under $45,000.
Next, a question about the nature of inflation. It’s for the newest member of the Legacy team, Nomi Prins.
She used to work for Wall Street firms including Goldman Sachs (GS), Bear Stearns, and Lehman Brothers.
But after the 9/11 attacks, she quit her seven-figure job in disgust over unethical practices there. And now she’s dedicated to helping ordinary investors navigate the distorted markets central banks have created through their all their stimulus programs over the years.
In fact, her latest book is all about the undue influence central bankers have over our financial lives. It’s called Permanent Distortion: How the Financial Markets Abandoned the Real Economy Forever, and it’s out this fall.
So she’s the perfect person to help us understand what’s going on…
Reader question: With all the labor shortages, many companies are using robots to replace workers. That obviously saves some costs.
When will the productivity gains start to kick in and reduce inflation? As I understand it, productivity reduces inflation. Am I wrong?
The Fed is known for doing the wrong thing! It’ll raise rates just as inflation begins to decline. Your thoughts? Thanks for your insights.
– Gordian B.
Nomi’s response: Thank you for your questions, Gordian.
You’re right… If productivity and real economic growth (and even wage growth) kick in together, this can lower inflation.
And you’re right to worry about the Fed doing the wrong thing.
Inflation is not only about money-printing by central banks.
It had help from major disruptions in the supplies of products, basic materials, and transportation chains. These disruptions raised prices, feeding into inflation.
That’s why the price of a can of Coke has gone up. That can is made of aluminum. And the soda that goes in it has a lot of sugar. These commodities need to get from A to B. As gas prices rise, the cost of transporting goods rises. That raises the costs of these commodities.
Take all this into account… multiply this inflation effect across the entire economy… and the cost of living increases. That’s what we’re witnessing today.
Some of those supply chain disruptions have been due to factories and producers still coming out of the pandemic slowdowns. Some are due to demand outpacing the supply of products and basic materials. Others are due to geopolitical turbulence.
The Fed can’t do anything about this. It doesn’t produce anything. And it has no control over supply chains or geopolitics.
That’s all for this week.
If you have a burning question for any of the Legacy experts, write us at feedback@legacyresearch.com.
Have a great weekend.
Regards,
Chris Lowe
March 25, 2021