Welcome to the regular Friday mailbag edition of The Daily Cut.
Coming up… our tech expert, Jeff Brown, on the coming digital-only dollar, FedCoin… and the real reason governments want to get rid of physical cash…
…a paid-up Jeff subscriber admits to shedding a tear due to the profit he bagged on one of Jeff’s recommendations…
…and our commodities investing expert, Dave Forest, reveals why the coming gold bull market will be one “for the ages.”
But before we get to that, I want to make sure you have colleague Teeka Tiwari’s upcoming training session on pre-IPO deals on your radar.
As I (Chris Lowe) have been showing you this week, you can buy stocks on a public exchange, such as the New York Stock Exchange. Or you can buy them in the private market.
And as Teeka hammered home on Tuesday in these pages, buying shares in the private market before their initial public offering (IPO) is potentially much more lucrative than buying them once they’ve gone public.
As he’s been showing his readers, this year, pre-IPO investors are averaging 22,946% gains on the days companies go public.
That’s why Teeka’s putting together a free special event to show you how to profit. It kicks off next Wednesday, September 9, at 8 p.m. ET.
Teeka will share details of one private deal in particular he believes could set you up for life. So make sure you sign up here.
Now, let’s get into your questions on FedCoin… and the cashless society that’s coming.
Reader question: I get the differentiation of bitcoin and other limited-supply cryptocurrencies, but I don’t get how a FedCoin differs from what we have today. Admittedly, the Fed prints actual cash. But that is a small fraction of the total U.S. currency. How does a FedCoin differ from today’s mostly digital currency?
– Dan S.
Reader question: Hi, Jeff. I’m not understanding the need for a digital dollar. Doesn’t any type of currency have to have some type of physical backing? If this is true, why create something new? Why not continue to use what we have?
Or is the need for a digital dollar because of the perceived security that blockchain may provide?
So I ask, why a new currency? What does it get you?
– Rudy G.
Jeff’s answer: Thank you both for the questions. This is certainly a hot topic.
The U.S. Federal Reserve (the Fed) and MIT have been partnering to develop a central bank digital currency (CBDC) over the past several years. We should expect to see tangible progress and testing over the course of the next few years…
Dan, you are correct. A centrally controlled digital currency using blockchain technology wouldn’t functionally be much different from what happens today.
The amount of physical currency in circulation is a small fraction of the money supply. The difference between the physical money – paper notes and coins – and the money supply in bank accounts is that bank accounts are all zeros and ones… completely digital.
Functionally, a FedCoin and the current digital dollar in our bank accounts are very similar.
When we send a wire transfer from our bank account to a business to pay an invoice, the bank isn’t sending physical money. It uses digital information to settle accounts.
Here’s where the technology differs…
When all transactions use a blockchain-enabled digital dollar and all physical money is removed from the system, the FedCoin becomes a cryptographically secured digital ledger of every transaction using it.
This is why governments like the idea so much. They can track every single transaction and tax appropriately in one place.
This technology is getting a lot of attention right now because FedCoin can enable a completely contactless payment system. No one will need to touch and physically pass paper notes and coins, which reduces the possibility of spreading a virus.
And to your point, Rudy, a currency doesn’t have to have any kind of physical backing. Up until 1971, the U.S. government backed the U.S. dollar with gold. Anyone with dollars could exchange $35 for one ounce of gold at a bank. But the U.S. abandoned the gold standard in August of that year.
Today, the U.S. dollar is backed by the full faith and credit of the U.S. government. So far, the credit of the U.S. government has proven to be darn good.
As we’ve been showing you, the introduction of FedCoin will boost bitcoin demand… and send crypto prices even higher.
Many of your fellow readers share our view. But some of them doubt it will last. They reckon bitcoin is bound to fall foul of the feds…
Once FedCoin is adopted and the government can control all purchases, wouldn’t the next logical move be to disallow purchases of bitcoin and any other alternative “money”?
Sales of bitcoin would be extremely difficult to complete if the system prevented FedCoin from being used for this purpose. I fear this would just be the start. Laws governing banking and business transactions could also make the use of bitcoin all but impossible.
– Phil G.
Your take on the FedCoin issue is all well and dandy, until bitcoin is made illegal. I have yet to see anyone put out an in-depth assessment of this issue, including what might happen in the horrible event that Trump loses the election.
– Joseph F.
I agree FedCoin will initially grow the popularity of bitcoin and other crypto. But it could lead to the government outlawing the use of bitcoin.
Additionally, power grid outages, war, and hackers all pose risks to digital currency. Gold may eventually get confiscated but is likely the safest money.
– Brett W.
Now to that feedback for Jeff from a tearful reader…
Reader comment: Hey, Jeff: I have been a subscriber to your services since late last year. This is the first time that I have really MADE money in the market very dependably.
Yeah, I have had success trading futures, equities, and options, but to be honest, I have lost more than I have made, even with a few trades making over $5,000. I had one loss that cost me $10,000 with the same strategies!
Since following your portfolios, a few months ago, I had my biggest win, with five trades netting me $16,000 in a single day! I almost cried that day! Actually, I did shed a few tears of joy and said a prayer of thanks for your services.
I have had some great mentors in the last few years investing, but you are in a class all your own! I don’t say this to boost your ego but to express my heartfelt admiration for your insights, honesty, and dedication. Keep up the great work, and send the team some love from those of us who follow all your advice.
– Chris M.
Jeff’s response: Chris, thank you very much for the kind words. Hearing that I am helping readers like you makes all of the long days of work worth it.
I respect your honesty about your experience trading. It’s actually one of the hardest things to do. It’s human nature to do our best to remember our good decisions and forget our bad ones. But to be a good investor, we have to openly acknowledge the mistakes we make along the way.
And I always remind myself to leave the ego in the closet. It can only cloud judgement and turn objectivity into subjectivity. That’s never good when performing analysis. I appreciate your comments, nonetheless.
Congratulations on your success. There is more to come.
We’ll wrap up today with a question about our favorite precious metal – gold. For insight, we turn to our globetrotting rock hound (geologist) and commodities investing expert, Dave Forest.
Reader question: Hi Legacy gang. Really, really appreciate you guys. Will gold stocks sink as deep as they did in March if we have another crash? Why or why not?
– Daniel L.
Dave’s answer: It’s possible the Fed’s helicopter-money tactics might work. [“Helicopter money” is when a central bank balloons the money supply by directly topping up people’s bank accounts.] Since the corona crash in March, the Fed has pumped out $3 trillion in new money supply. There’ll be more coming.
Intuitively, made-up money shouldn’t solve real economic problems. But it worked in 2008. It might get us through the current crisis as well.
Stock markets could glide on and continue rising. In fact, stock prices might rise faster than ever because of all the new money sloshing around.
But these are uncharted waters. No one knows what’s going to happen. Common sense dictates the Fed can’t prop up the economy forever. If the music stops, it’s going to be ugly.
This is especially important as we near the third quarter. September and especially October are a historic “witching season” for market crashes. It’s almost a self-fulfilling prophecy. Everyone worries, and selling can quickly accelerate into a runaway collapse.
Be ready in case it happens during the coming months.
What does this mean for your resource portfolio? After all, aren’t gold stocks and precious metals supposed to protect us against these black swans?
If we do get a major crash, physical gold likely will offer protection. Historically, gold prices fall less than other assets during financial panics.
But here’s the critical point: Gold will fall initially if we get a crash. During crises, people sell everything. That includes physical gold. In 2008, gold bullion dropped from $1,000 per ounce to $700.
It quickly rebounded. By September 2009, it was back to $1,000. It then soared to a record $1,927.70 in 2011 – triggering a massive bull market in gold stocks.
Many people don’t realize, but the 1930s were the same. Gold mining was one of the few industries that prospered.
Again, it wasn’t a straight line up. The initial shock in 1929 wiped out many investors and companies. And a second collapse clobbered more investors in 1930. You can see that in this next chart…
But here’s the surprising thing. That collapse triggered big gains for gold stocks. Here’s a chart showing major gold miner Homestake through the 1930s. Notice how the gold major took flight starting in 1931, when the big crash was in full swing.
Gold stocks like Homestake got a big lift in 1934, when President Roosevelt raised the gold price nearly 70% to $35 per ounce. That touched off a gold mining bull market that lasted through much of the Great Depression.
And although we’re now off a gold standard… and presidents can’t revalue gold, over the past 15 months, gold prices have risen about the same, nearly 65%. So we’re seeing something similar unfold.
That’s why I’ve been telling my International Speculator subscribers that this could be a gold bull market for the ages.
That’s all for this week. As always, send us your questions and comments at [email protected].
Regards,
 |
Chris Lowe
September 4, 2020
Bray, Ireland