Welcome to our regular mailbag edition of The Daily Cut.
Each week, I (Chris Lowe) send your most pressing questions and comments to our “brain trust” of experts here at Legacy Research.
And on Fridays, we share the team’s responses here.
So if you’re a fan of Teeka Tiwari, Jeff Brown, Bill Bonner, Doug Casey, Tom Dyson, Dan Denning, Nick Giambruno, Jason Bodner, Dave Forest, and John Pangere… you’re in the right place.
You can send your questions, thoughts, and feedback for me and the team at feedback@legacyresearch.com.
But before we get to your fellow readers’ questions… I’m extending an invitation for you. I want to see if you have what it takes to be our next investment guru.
Someone who can rub shoulders with Teeka, Jeff, Doug, and our other experts. Someone who, after latching onto a big trend, researches everything there is to know about it. Someone who makes sure friends, family, and colleagues know about it, too.
Right now, you may be working on Wall Street or in Silicon Valley. You may be disillusioned with the way the firm you work for treats its customers… its clients… even its staff.
Or maybe you’ve read our research and wondered why we haven’t covered the ideas you’re thinking about.
If any of what I just said rings true for you, my colleagues and I want to hear from you.
You should satisfy the following criteria:
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Have a minimum of 12 years’ experience in a senior role in the financial services industry (such as a trader, stockbroker, analyst, fund manager) OR a minimum of 12 years in a senior technical role in any industry (such as chief scientist, senior programmer, senior engineer).
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Have a postgraduate degree relevant to your industry and/or specific qualifications relevant to your industry experience.
If you’re the right candidate… with the right idea… this is your chance to join the Legacy team.
It won’t be easy. There will be a multistage application process. You’ll sit for analytical and writing tests… pitch ideas… and attend several interviews with our team.
But if you’re up for the challenge, here’s the first step…
Describe in no more than 1,000 words your best investment idea. Also, tell us about a specific way to profit from it. Include this with a resume and a cover letter.
Send this all to jobs@legacyresearch.com. If we believe you have the potential to join our team, we’ll be in touch.
Now, let’s dive into today’s main topic…
With a $1.9 trillion stimulus bill snaking its way through Washington… and central banks due to pump out $3.6 trillion in newly created money this year alone… inflation is one of the biggest concerns on your fellow readers’ minds right now.
Here’s how Legacy research cofounder Bill Bonner describes what’s coming…
After 40 years of falling inflation, the tide may have turned. If so, in the years ahead, we will see a huge wave of job losses and bankruptcies as businesses, government, and consumers are forced to refinance debt at higher rates.
We’ll see retirement savings – often resting on a bed of U.S. Treasury bonds – collapse. And we’ll see consumer prices rise… as inflation eats into incomes.
It’s a worrying picture. But it’s also something you can act on now… before it’s too late.
So today, I have an inflation-themed mailbag for you. You’ll learn the strategies our experts recommend to not only preserve… but also grow… your wealth in the turbulent times ahead.
At the Cut, I’ve been showing you why two great assets to beat inflation are gold and bitcoin.
Gold… because it’s expensive to get out of the ground. And there’s only so much of it on Earth.
Bitcoin… because its issuance is also bound up in an expensive “mining” process… and because there’s a hard cap of 21 million bitcoins. (More on the world’s first and most famous cryptocurrency at the end of today’s dispatch.)
Central banks can’t digitally “print” more of these alternative currencies.
This stands in contrast to the U.S. dollar… the euro… and the yen. Central banks can emit these “fiat” currencies – at will – with nothing more than a few strokes of a computer keyboard.
But one reader wants to know where else to look for inflation-busting investments.
Standing by with answers are our globetrotting “gold bug,” Tom Dyson… and our commodities investing expert, Dave Forest.
Reader question: What income-producing assets will benefit most from inflation?
I mean assets that will increase in value and income production at or above the rate of inflation. I’d be interested in owning something like that. We know inflation is on the horizon. Practical steps and timing to prepare for it would be interesting.
– Robin F.
Tom’s response: It’s a great question, Robin. It’s something I’ve been thinking about a lot over the past few years.
As you may know, I’ve been warning my readers that the international monetary system is broken.
The U.S. has too much debt. There is no way of rebalancing the economy without inflation and a major devaluation of the U.S. dollar. This makes the debt burden more manageable.
My go-to protection from the madness that’s coming is gold. But lately, I’ve been looking for a way to diversify from gold – without moving away from my core insight that keeping as far away as possible from the financial system will protect me from what the future holds.
And shipping stocks fit the bill. I’m talking about stocks in companies that move goods and commodities across the world’s seas and oceans.
Shipping is a great business to protect your wealth from inflation and dollar devaluation, because ships are hard assets. They’re made of steel.
As inflation pushes up the costs of commodities – including steel – ships become more expensive to make. You also get more for selling them for scrap. That puts a floor under the asset values of shipping companies.
It suits my general view of trying to get out of the U.S. dollar – and doing it via something that’s very cheap, has been hated for a long time, and generates a lot of cashflow.
This is not something vulnerable to becoming obsolete, like electric vehicles replacing taxis. There is no substitute for shipping heavy materials across the ocean.
Technology cannot make the shipping business redundant. It’s here to stay. That gives me a lot of confidence.
My paid-up Tom’s Portfolio readers can find my shipping stock recommendations here. You can also find out how to subscribe here. But if you’re not a subscriber, a good place to start your search is Scorpio Tankers (NYSE: STNG). It focuses on delivering products from refineries to railcars, trucks, and pipelines.
Its share price has soared about 50% over the last three months. But I see more gains ahead as folks wake up to fact that inflation is coming.
Dave’s response: Thanks for your question, Robin.
I’m a fan of blue-chip gas-pipeline stocks as a way to protect against inflation and earn an income stream in the process.
Once these pipelines are in place, these businesses are opening checks other companies send them for allowing them to use their pipelines to transport natural gas.
Someone puts the gas in one end of the pipe. Someone takes it out at the other. The gas-pipeline operator gets money in the middle.
Right now, these companies are paying dividend yields of between 6% and 15%.
Where can you get that kind of income these days?
The 10-year U.S. Treasury note yields 1.3% as I type. And the average dividend yield on the 500 large-cap corporations listed on U.S. stock market bellwether the S&P 500 is 1.5%.
Even if drilling for natural gas stopped… we’ve got enough coming out of existing wells for years to come.
People are not going to stop heating their homes. They’re not going to stop generating electricity. And right now, you can’t meet all the demand for power with renewable resources such as wind and solar.
So why wouldn’t you take a 10% payout? And you’ll probably make more as natural gas prices rise and shares in pipeline stocks go up as well.
Three blue-chip gas-pipeline companies to consider are TC Energy Corporation (TRP), which yields 6.1%… Kinder Morgan (KMI), which yields 7.1%… and Enterprise Products Partners (EPD), which yields 8.3%.
Corporate America is waking up to the inflation threat, too.
Companies such as Nasdaq-listed software maker MicroStrategy (MSTR) and electric carmaker Tesla (TSLA) are converting billions of dollars of cash reserves to bitcoin because of its scarcity value.
We got a great question about this, which I sent on to Bonner-Denning Letter coauthor Dan Denning.
Dan has been warning about the coming inflationary wave for several years. And as you’ll see, he’s not convinced bitcoin is an end-all solution…
Reader question: A number of companies are climbing on the bandwagon to buy bitcoin as a part of their corporate treasuries. I have some trepidation about how regulators will look at it…
And what about these same companies using debt to finance a purchase in crypto? I can see a statement coming out about this trend that could send bitcoin reeling.
– Thomas B.
Dan’s response: Why not file papers for a SPAC (special purpose acquisition company) – or “blank check corporation” – with the purpose of buying bitcoin? That seems to be the spirit of the age.
Public companies such as Tesla and MicroStrategy have bought bitcoin to improve their balance sheets. The gains from their bitcoin holdings over the long run could supplement (or dwarf) the increase in value to shareholders delivered by selling products and services.
Is that a sound strategy?
Well, in one sense, it’s rational – especially if you believe bitcoin is going to become the world’s new reserve currency.
There’s a kind of “land rush” now. It’s to buy whatever is left of the scarce assets before they’re all gone. And it’s to be in anything but U.S. dollar cash.
But don’t forget to buy real assets that will have real or functional value in addition to the digital kind. Energy-producing commodities, such as oil and gas, spring to mind.
If you were in Texas right now, you’d much rather have a generator that could produce heat and light than shares in MicroStrategy.
Thomas isn’t the only reader with doubts about bitcoin. For this next question, Casey Research analyst Nick Giambruno is on call…
Reader question: India’s Parliament has just voted to ban any currency that is not sovereign. China is also looking to have its digital currency be the only one it permits. How do you view this development in relation to bitcoin? Should we be concerned?
– Robert G.
Nick’s response: Thanks, Robert. This is not anything to be concerned about. China banned bitcoin several times with little to no long-term effect.
It’s entirely impractical for governments to ban bitcoin. They’re no match for the economic incentives that attract millions – soon billions – of people, and also increasingly corporations, to bitcoin, a harder and superior form of money. By “hard,” I mean something that is hard to produce more of.
Governments in Argentina and Venezuela have laws restricting their citizens from accessing U.S. dollars. But these laws have little effect on their citizens’ desire and ability to use them. These actions just create a thriving “black market” – more accurately termed a free market.
Similarly, governments have tried to ban cannabis for decades, which hasn’t worked out very well for them. Bitcoin would be infinitely more challenging for governments to ban than U.S. dollars or a plant.
I would like to see governments try to ban bitcoin. They’ll fall flat on their faces. This will reinforce the value proposition of bitcoin as a superior form of money that nobody controls.
Nigeria recently banned bitcoin. It’s an interesting case. Because the ban caused the bitcoin price to increase, not decrease. After the ban, bitcoins started selling at up to a 60% premium.
As we clearly saw with the War on (Some) Drugs, government prohibitions caused prices of otherwise cheap plants, like cannabis, to rise far higher than they would otherwise be in a free market. The same dynamic would be at work with bitcoin. As counterintuitive as it may seem at first, government bans would be bullish for the price.
Another factor that makes bitcoin impossible to ban is that all aspects of it are genuinely decentralized and robust. That brings up another interesting point. Aside from bitcoin, no other cryptocurrency is truly decentralized and thus resistant to a serious state-level attack. They all have key players, insiders, and development teams that are central points of failure. And that is to say nothing of the centralization of their network infrastructure.
For example, if the G20 (the world’s 20 largest economies) declared Ethereum [the blockchain system for trading ether, the world’s second-largest cryptocurrency] to be illegal, arrested Vitalik Buterin (the founder) along with all the senior developers, and shut down all the network infrastructure within their jurisdictions, it would likely be the end of Ethereum… or any other crypto aside from bitcoin.
If such a thing were to happen to bitcoin, it would undoubtedly hurt the price in the short term, but it wouldn’t be able to kill bitcoin. Eventually, economic reality – people desiring a hard money that is resistant to inflation – would assert itself, and bitcoin would recover.
That’s all for this week’s mailbag edition. Remember, if you have a question for anyone on the Legacy team, send it to feedback@legacyresearch.com.
Have a great weekend.
Regards,
Chris Lowe
February 19, 2021
Bray, Ireland