We’ve got a lot to get into in today’s mailbag edition…
Jeff Brown weighs in on how AI could help us achieve sustainable nuclear fusion… and solve the world’s energy crisis.
And Nomi Prins answers a question about the housing crisis she sees on the horizon.
First, a question for currency trader Imre Gams.
Imre has been a professional trader for almost 10 years. And he used to work alongside currency trading legend Andy Krieger.
Andy was the guy who made $300 million betting against the New Zealand dollar in 1987.
And last October, Imre launched a new advisory in partnership with friend of Legacy and master trader Jeff Clark.
Their aim is to help folks profit from what Imre calls a “golden age” for currency traders that began last year.
It’s all down to the big moves in interest rates we’ve seen over the past year.
This give currency traders opportunity after opportunity to trade the big moves between currencies this is causing.
Of the 21 recommended trades Imre has made at his Currency Trader advisory, 20 have been winners.
That’s a 95% win rate.
As you can imagine, he’s had a ton of feedback from subscribers who are keen to learn more about the currency market.
And one reader has a question on how to best get set up with a currency – or “forex” – broker.
Reader question: I’m new to forex, and I appreciate the materials you have put together. I haven’t set up a currency trading account yet. One thing I want to understand before deciding on a broker is how commissions and fees work.
It seems that the longer a position is held, the greater the fees to be paid. Is this typical? Do different brokers charge more or less than others? Can you offer advice on how to evaluate brokers with respect to fees? Thank you!
– John C.
Imre’s response: Hi, John. I’m happy you’re thinking about fees and transaction costs. Most brokers have a couple different account types that cater to different kinds of traders.
One common one gives you tighter “spreads” or differences between the spread bids and asks. The bid is the price at which you can sell a currency. The ask is the price at which you can buy a currency.
The cost to you is baked into the spread of the currency pair itself. But this type of account means paying a higher fee per trade. This is best suited to more experienced traders with relatively large accounts.
The other typical type of account is where the broker is paid on spreads. You won’t have to pay any fees per trade. But the spreads will be higher. This is typically best for traders with smaller accounts.
My advice is to shop around. Some brokers will credit your account if you hold your positions overnight. This depends largely on which currencies you’re trading.
If you’re long one currency that has a higher rate of interest than the currency you are short, then you may be eligible for a credit.
I’m typically not too concerned about earning these credits. They’re usually tiny. So they have an impact only if you’re hanging on to trades for several weeks or months. And I don’t anticipate us doing that at Currency Trader. Our average holding time so far has been about three days.
Up next, a question for colleague Jeff Brown.
He tracks the most exciting tech breakthroughs over at our Bleeding Edge e-letter.
That includes advancements in artificial intelligence (“AI”) and nuclear fusion. And one of his readers wants to know what happens when these two tech megatrends collide…
Reader question: Jeff, why can’t they use AI to solve the nuclear fusion problem?
– Edward R.
Jeff’s response: Hi, Edward. The problem I think you’re alluding to is our inability, so far, to maintain a stable fusion reaction that gives us more energy than we put in to create it.
Just to make sure we’re all on the same page, nuclear fusion is what’s happening in the Sun and all the other stars in the universe.
Basically, atomic nuclei are fusing together. This process releases energy.
Unlike the nuclear fission reaction that powers reactors today, fusion produces very little radioactive waste. And done at scale, it promises to deliver nearly limitless, clean, cheap energy for the world. That makes it the Holy Grail of energy production.
And last December, there was a breakthrough in fusion. Researchers at the National Ignition Facility (NIF) produced 3.15 megajoules of output from 2.05 megajoules of input.
This was a major milestone for the technology and something I predicted in 2019.
But a stable fusion reaction – basically creating a star on Earth – is easier said than done.
In most fusion reactors, scientists use magnetic fields to contain the reaction. To make that happen, they have to factor in thousands of variables in real-time. That’s not a task for a human. But an AI could do it. And I’m not the only one who sees that.
In 2016, a nuclear fusion company called TAE Technologies held a venture capital funding round that raised $375 million. And Google’s parent company, Alphabet, was the largest investor.
Google is one of the most advanced AI companies in the world. And it’s been investing heavily in quantum computing. Google was the first to demonstrate “quantum supremacy” – the moment when a quantum computer outperforms a classical supercomputer – in 2019.
That’s why Google’s investment into TAE is so interesting. TAE is one of the most promising nuclear fusion companies. It could take investment money from many different places. But its biggest challenge is using technology to maintain that optimal plasma condition.
And that’s exactly where AI comes in. Advanced machine learning applications are highly applicable to managing a fusion reaction in real-time.
That brings us tantalizingly close to nuclear fusion becoming a reality… and ending the world’s energy problems forever.
Finally, colleague Nomi Prins answers a question from a worried reader about the slowdown in the U.S. housing market.
One effect of the Fed hiking rates is that the cost of the average 30-year mortgage has doubled since December 2021.
This has triggered a national fall in house prices.
And Goldman Sachs is now forecasting that four U.S. cities – San Jose, Austin, Phoenix, and San Diego – are set to see a decline in housing prices of more than 25%.
That’s a plunge not seen since the housing market collapse in 2008 when the average house price fell about 27% nationally.
Reader question: Wasn’t the 2008 crash mainly about bad mortgage loans?
If the Fed keeps raising rates, won’t it kick off another mortgage crisis like that? Some developers may be stuck with unsold properties. And sales will slow down even more.
– Richard S.
Nomi’s response: Hi, Richard. Thanks for writing in. You bring up a great point.
Two years ago, the average 30-year mortgage rate was at its lowest level ever of 2.6%. Today, the average 30-year rate is 6.1%. That means you’re paying $1,100 more a month for the median home compared with just two years ago.
It now takes at least a six-figure salary just to afford the average U.S. home. That puts the American Dream of owning a home out of reach for many.
The housing market is the linchpin for whole sectors of the U.S. economy – from construction to retailers. And now, more than at any point since 2008, it could be facing a major collapse.
So I’ll continue to keep a close eye on the housing market.
To your point about faulty loans being responsible for the 2008 crash… that’s only half the story.
As I wrote about in my 2009 book, It Takes a Pillage, it was also about Wall Street banks bundling these loans into trillions of dollars of derivates. They then sold this toxic goop to pensions, municipalities, retirement funds, and each other.
When folks started defaulting on their mortgages in droves, it took those derivates down, too. This blew up banks’ balance sheets. And it triggered the 2008 financial crisis.
And these derivates are not as big a problem today as they were in the run-up to 2008. So, although I expect some more major price falls in the housing market, it’s unlikely to play out again like it did in 2008.
That’s all we have for the mailbag this week.
As always, we’d love to hear from you. So if you have a question or comment for Jeff, Nomi, Imre, or any of the Legacy team… write us at [email protected].
Have a great weekend.
Editor, The Daily Cut