Welcome to the regular Friday mailbag edition of The Daily Cut.
You’ve sent a fascinating haul of questions this week.
Today, we bring you the insights we’ve gathered from the Legacy team of experts in response.
Our globetrotting goldbug Tom Dyson and Bonner-Denning Letter coauthor Dan Denning chat with each other to show how to protect yourself from the storm that’s about to rip through the money system…
And we reveal what the new, digital-only dollar means for the stock market.
But first, a question for Legacy’s resident tech expert, Jeff Brown. It’s about one of the big tech profit trends on his radar – the rollout of 5G wireless networks…
Reader question: Hi, Jeff. I heard a rumor that Apple is going to announce that it is putting 3,000 satellites into orbit with the intent of having Apple Wi-Fi available.
Thus, there will be no need for all this mumbo jumbo with internet services and components and cables and towers, etc. Is this true? Please address this because I need help to know what companies to pull stock out of and what companies to go into.
– Marie G.
Jeff’s answer: Hi, Marie. Thanks for the fun question.
I know exactly what you’re referring to. In late 2019, news broke that Apple was working on a project to launch a series of satellites. The satellites could “beam” data directly to Apple devices without having them rely on wireless network operators like Verizon or AT&T.
Since then, others have speculated that this could herald the imminent destruction of today’s wired and wireless networks, including 5G.
But that’s complete nonsense.
Even if Apple rolls out this technology, our smartphones will still use the 4G and 5G wireless networks for connectivity. We can think of a satellite configuration as an overlay network.
And Apple would have to put additional semiconductors and antenna technology into its phones to receive the signals from satellites.
It’s possible we’ll see something roll out within the next five years. But I seriously doubt that anything will happen this year or next.
5G connectivity will be cheaper than paying for satellite internet. Which do we think consumers will opt for?
So even if Apple does get this project off the ground in the next five years, it still wouldn’t be a threat to 5G. Some of the best investment returns on offer anywhere are in 5G-related companies right now. That will be the case for years to come.
If you haven’t gotten exposure to the 5G trend, I recommend you do so soon. Every day, we get closer to the mass adoption of 5G technology. Once that happens, the largest gains will be gone.
Now onto that conversation about what’s ahead for gold between Dan Denning and Tom Dyson.
In Dan’s office in Colorado, they discussed everything from gold’s “date with destiny” to Tom’s road trip across the U.S. and Canada. (Paid-up Legacy Inner Circle subscribers can catch up on that here.)
They also addressed a reader question about gold, the dollar, and America’s future…
Reader question: Let’s say the worst occurs. Gold surpasses $10,000, and the dollar crashes. Do you foresee a point where the U.S. dollar is no longer the world’s No. 1 currency?
– Patrick W.
Tom: I don’t think the dollar is going to crash. If anything, it could be like when Britain lost its status as global superpower to America.
But Britain is still around. It didn’t go anywhere. And its currency, the pound sterling, is still there. It just lost a lot of its value, relative to gold.
I can see the U.S. dollar losing a lot of its value relative to gold, too. But I don’t see America losing its cultural capital or its military supremacy to Japan or Europe.
I’m not a doom-and-gloomer at all. I’m just playing the credit cycle.
Dan: It’s a fascinating question. We’re talking about long-term cycles, historically and economically. On a day-to-day… week-to-week… or month-to-month basis, it’s hard to notice change.
But as the dollar falls against gold over time, the biggest change is that the cost of living in America will go up. That’s because it will be more expensive for us to buy things from the rest of the world.
Will people notice that next week? Maybe in some cases. Especially if the price of certain commodities moves ahead of a falling dollar…
But this idea that it will be like a decisive military engagement… or a battle in which the dollar is defeated and suddenly replaced… it generally doesn’t work that way.
Or at least it didn’t work that way with Britain.
Tom: I agree. I don’t think the dollar is going away.
In the worst case, the global financial system might have to be rewritten a bit to redefine the dollar’s role within it. But that doesn’t mean the dollar is going to disappear. It just means we need to do things slightly differently.
I’m not advocating a gold standard. But I think we’ve lived too high on the hog for a while. You could say that America has abused its position of having the world’s reserve currency to take consumption out of the future and have it all now.
This short-termism has led to some bad decisions and imbalances in the economy. They need to be corrected, and that might cause a temporary decline in prosperity. But over the long term, I would still bet on America over China.
Moving on… the government’s plan for a digital-only dollar, or FedCoin, is a hot-button topic for you right now.
As colleague Nick Giambruno explains in this viral video, it could lead to a much weaker U.S. dollar. That’s gotten folks thinking about the implications…
Reader question: In the event that the U.S. government completely devalues fiat currency and puts its own digital currency into play, what happens to investments in the stock market? We have just joined Legacy Inner Circle, and this has been a concern for a while.
– Bruce and Sheryl S.
Chris’ answer: Thanks for writing in, Bruce and Sheryl. This is a great question. It has a ton of implications for a wide variety of investments.
When it comes to a complete devaluation of the dollar, the impact on the stock market is hard to determine.
But since the “Nixon shock” took the U.S. dollar off the gold standard in 1971, we’ve been able to study how the markets react to periods when the dollar loses value.
Overall, a weaker dollar is actually good news for the stock market.
Since 1973, there has been a negative correlation of -0.2 between the dollar and the S&P 500 – our regular stand-in for the U.S. stock market.
Don’t be put off by the jargon. If two assets have a correlation of 1, it means they move in perfect lockstep. If two assets have a correlation of -1, they move in complete opposite directions.
A correlation of -0.2 means as the dollar goes down, the U.S. stock market tends to move up. This correlation has gotten stronger in the past 20 years, coming in at -0.35 since 2000.
In other words, the inverse relationship is even stronger. And a falling dollar has been even better news for stocks.
We’ll wrap up today’s dispatch with a message from a reader who isn’t losing any sleep over the digital dollar…
Well, I’m one of the ones collecting quarters. Why? Because the laundry machines where I live can run only when quarters are loaded into them.
If the Fed was really planning on eliminating cash, my apartment complex would have to install credit-card readers on the six washers and four dryers in our laundry room.
Really? Do you really imagine that the Fed wants to make it impossible for anyone to do their laundry? Or buy soda pop from vending machines? Or that the Fed will ban gumball machines? Come on!
– Steve M.
Are gumball machines too high a hurdle for the Fed to overcome? Or do you expect a digital-only dollar soon?
Write us with your thoughts at [email protected].
July 31, 2020