Welcome to the regular Friday mailbag edition of The Daily Cut.
Coming up… Legacy’s go-to tech expert, Jeff Brown, addresses a hot-button question: Is your phone spying on you?…
Bonner-Denning Letter coauthor Dan Denning explores what might happen if the dollar returned to the gold standard…
And geologist and commodities expert Dave Forest reveals how to play the boom in “tech metals” in your portfolio.
But first, a question about the “King of Cryptocurrencies” – bitcoin.
For a response, we reached out to chief analyst at The Casey Report, Nick Giambruno.
You see, Teeka Tiwari and Jeff Brown aren’t the only two Legacy analysts who are bullish on bitcoin. Nick recommended bitcoin to his paid-up subscribers in 2018.
And he’s been laying out the case in these pages for why bitcoin is one of the world’s scarcest assets – scarcer than even gold.
Reader question: Apparently neither the U.S. nor China has succeeded in destroying or corrupting bitcoin – so far. I’m wondering what would happen if an autocratic government declared the possession of bitcoin illegal. Would this be enforceable?
– Rudi S.
Nick’s answer: First, the idea that a government would want to throw peaceful people in cages for using bitcoin is an insult to anyone who values personal and financial freedom. It would be a sign that much worse things are coming, and I would suggest leaving such a place.
Second, if governments try to ban bitcoin, it would be an explicit recognition of its value and threat to their control of money. Governments wouldn’t bother banning something that didn’t matter. That’s why I would consider it an enormous stamp of approval if a bunch of bureaucrats tried to ban bitcoin.
Third, in any case, banning bitcoin is impractical. Think of it like this. Look at how successful governments have been at prohibiting cannabis over the decades. Despite their best efforts, cannabis has always been readily available in most big cities. Trying to enforce a prohibition on bitcoin would be much less practical.
I’d like to see governments try to ban it and then fail spectacularly. It would be a big reinforcement of bitcoin’s value proposition.
Regular readers know we’re bullish on bitcoin because it’s honest money. The Fed can’t inflate its supply on a whim. That makes it a much better form of “cash” than fiat, or government-issued, currencies like the U.S. dollar.
One member of Legacy’s brain trust well-known for sounding the alarm about dollar inflation is Bonner-Denning Letter coauthor Dan Denning.
As Dan has been warning his readers…
We’re on the brink of redefining money in America. If it goes the way I see it, you’ll see trillions more in government spending. That spending will render the U.S. dollar increasingly worthless and drive massive inflation in real goods and objects of permanent value.
But one reader challenges Dan to imagine what would happen if the Fed turned the clock back on runaway money-printing…
Reader question: Curious what you think will happen to the price of gold in the scenario that the U.S. dollar returns to the gold standard.
– Shannon G.
Dan’s answer: That’s an interesting question. The main benefit of a gold standard, historically, is price stability. After a relinking of gold to the dollar, you’d expect the gold price to be stable (although not necessarily fixed).
But before that happens, I’d expect gold to rise dramatically, which is another way of saying there will be a dollar crisis. Remember, the point of “saving” in gold is to preserve your purchasing power.
But it’s unlikely you’d be buying and selling things in physical gold bullion and coins.
There have been several different types of gold standards in history. A gold coin standard meant you could take gold to the king’s mint and have coins struck. A gold bullion standard linked paper money with gold. But the bullion stayed in a vault and was not used as a medium of exchange.
Storing and handling gold adds costs to transactions. And it makes gold less useful as a medium of exchange.
I’d look for the “tokenization” of gold, where either a metallic coin, paper money, or even a digital token is linked to the gold but is more usable in transactions.
The question of convertibility would remain. For example, from 1934 to 1971, private citizens couldn’t convert dollars to gold. But foreign governments and certain authorized institutions could (Nixon ended the dollar’s convertibility into gold in 1971).
Own some gold bullion and coins. Don’t spend them or exchange them. Expect them to increase in value as gold is remonetized and backs the value of a new paper currency or a digital one. That’s the plan.
Here at the Cut, we believe asset allocation is the most important wealth-building secret there is.
It could be the difference between retiring in comfort and losing your shirt in the markets.
But sometimes, there are wild swings among different assets within a particular sector. This is especially true of metals. Metals can be the bedrock of your wealth-protection strategy… or a moonshot play for exponential profits.
The next question asks how you can position your portfolio to profit from the current metals boom.
On hand with an answer is our commodities investing expert, and trained geologist, Dave Forest. Dave heads up our International Speculator advisory, where his mission is to uncover junior mineral exploration companies that give readers the potential to double or triple their investments in 12-24 months.
Reader question: I currently have some silver and gold stocks that you suggested. I also have a few other metals groups that you suggested.
When gold dropped $100+ an ounce (along with the gold and silver stocks), I noticed the other metals stocks did not follow and seemed to not be correlated.
Should I bucket these stocks as different market sectors? Are the lithium-nickel-copper stocks more like automotive tech?
– Shannon B.
Dave’s answer: Hi, Shannon. Remember, I can’t give personal advice on your individual holdings.
But I will say that, in general, these are very different sectors. Gold and other precious metals, like silver and platinum, are protection in bad times. They often do well when things get worse.
By contrast, industrial metals like copper, nickel, and vanadium are “good times” commodities. They do well when economic activity is flourishing, creating demand.
Right now, it’s the best of times… and the worst of times. Stock markets are flying; tech companies are thriving. At the same time, unemployment is running high and global economies are shrinking at unprecedented rates due to COVID-19.
But even with that happening, all metals are going up. We’ve seen big rallies in stocks for gold, silver, nickel, lithium, copper, and many other metals the last few weeks.
When the price of gold fell, investors dumped gold stocks. But other metals remained strong.
In that way, these are somewhat of a hedge against gold. But we believe commodities, in general, will more than likely move together, at least in the coming years.
That’s because of the massive money creation happening globally. Central banks like the Fed are printing trillions in various currencies to stave off a COVID-19 economic collapse. That inflationary force should boost all metals – and commodities – just like in 2009 to 2012.
There’s another side to this. If we do get a market crash, everything will sell off. Gold, copper, battery metals – they’ll all drop.
In times of panic, investors sell everything. During past crashes, precious metals like gold fell the least. But they still saw double-digit percentage falls. Gold also rebounded faster than other sectors.
There’s going to be a lot of money made during the rise. But you have to be careful to guard your downside against a potential fall.
At the end of the day, how you view metals is entirely up to you. Ultimately, you need to be comfortable with your personal investment mix.
We wrap up today’s edition with a question about data mining for Legacy’s tech expert, Jeff Brown…
Reader question: Hi, Jeff. Thanks so much for the scary words on data mining off of free phone apps. Now, a silly question. Do I need to be actively using the app to have my info mined, or can info be mined by simply having the app on my phone? Maybe it’s time for me to travel light with the phone apps! Thanks for all the education; I’m learning so much.
– Bernie T.
Jeff’s answer: Hi, Bernie. Thanks for your question – it’s not silly at all. My research wasn’t meant to scare anyone. I simply want to educate and inform so that we all can be aware and make informed decisions.
As I discussed recently in The Bleeding Edge, we need to be mindful of what apps we download on our phones and other devices. If an app is free, the first thing we should ask is, “What’s the business model?”
Some apps, like Fortnite and other games, can be downloaded for free, but then users can make in-game purchases to advance more quickly. That’s a valid business model that doesn’t require the company to harvest and sell our data to make money.
But many “free” apps don’t have a clear mechanism for generating revenue. If that’s the case, we can bet the app is mining our data and selling it.
Regarding your question about this data mining, the bad news is we often give these free apps permission to spy on us… even when the apps aren’t in use.
When we download an app, it often asks us for permission to view our location, see our contacts, access our storage, or use our camera and microphone. It’s easy to download an app and approve its permissions requests without thinking about what we’re handing over.
And I wouldn’t blame anyone for clicking on “Allow.” Who has time to read a 72-page legal document outlining what a user is consenting to with each and every application we use?
Some of these permissions are necessary. After all, a map app for directions wouldn’t be very helpful if it couldn’t access your location. But we should always think critically about which permissions we’re allowing when we download something to our phones or other devices.
And even necessary permissions can expose our data. Once that map app has permission to see your location, for instance, it can share that information with its developer… who can sell that data and let third parties track you.
As one specific example, whether you’re using an iPhone or an Android, Google Maps logs where you go, your route for getting there, and how long you stay at any particular location. And it does this even if you never open up the app.
I understand if readers find this unsettling. It certainly makes me very uncomfortable, which is why I try to avoid all Google products. Its business model is built on selling data to generate advertising revenues. It’s that simple. That isn’t Apple’s business model at all.
That’s why I strongly recommend looking for premium alternatives to these apps. It’s worth the time to search for trustworthy apps from reputable software developers and worth paying a premium for quality and security.
That’s all for this week. Have a great weekend, and keep sending in questions for your favorite analysts. Our mailbox is always open at [email protected].
September 11, 2020