Plus Rich Insiders Dump Tons of Stock
Welcome to your Sunday digest…my weekly breakdown of the things we’re thinking about and talking about in the Global Intelligence world.
First up this week…something big.
A few days ago, I stumbled across one of the most important news stories I’ve seen in a long time.
This story didn’t make big headlines. It wasn’t on the front page of USA Today or The New York Times. I didn’t see any talking heads arguing about it on Fox News or CNN.
But it is HUGE because it means that soon all the paper money and metal coins in our pockets are going to disappear…forever.
The headline: French, Swiss Central Banks Conclude Major CBDC Payments Test.
You can see why most news organizations didn’t carry this story. It sounds technical and boring. It’s about the French and the Swiss and central bankers. And it’s about CBDC payments, which means nothing to most people.
But when you put those ideas together, it means that our banking lives are going to change fundamentally.
Let me explain…
CBDCs are central bank digital currencies.
These are the dollar, the euro, the British pound, the Japanese yen, the Chinese yuan…but based on the exact same blockchain technology as bitcoin, Ethereum, and all other cryptocurrencies.
They are—just as the name suggests—digital versions of the currencies you and I use every day.
In other words, right now, central banks all over the world are preparing to move our money completely online…using the same system that governs bitcoin.
In this particular case, the French and the Swiss were checking whether Bank A in Switzerland could transact with Bank B in France using one of these digital currencies.
Yep, that’s right. Central banks have not only developed these digital currencies…they are already testing them for international payments. And the test was a big success.
According to the Bank of International Settlements, the central bank for the world’s central bankers, the test “confirms that a well-designed wholesale CBDC can play a critical role as a safe and neutral settlement asset for international financial transactions.”
Translation: digital currencies work and they are the future.
Which brings me to my point: Change isn’t just coming, it’s imminent.
Physical money is on its last legs. The Federal Reserve is deep into the process of forever burying physical bucks and replacing them with digi-dollars. Major banks are already preparing for this.
This change will not just affect how we spend money, but how we get paid and how we interact with money.
Wallets and physical billfolds…well, you won’t be needing those. In the future, all your money will exist in a digital wallet on your phone.
Now, I know how all this sounds. It can feel scary or unnatural, but when a new technology like this comes along, there are always rewards for early adopters.
By exploring this new frontier before most other people, you will see how it works and you’ll learn where the best opportunities are.
Of course, CDBCs haven’t been released yet in the U.S., but they’ll work in exactly the same way as cryptocurrencies. So, you can learn everything you need to know about how they’ll work by investigating the cryptoconomy.
That’s why I say it’s better to start investigating this space now. Get a leg up on everyone. Understand the crypto world and how the mechanics of it work. Understand things like digital wallets before the Federal Reserve or the Treasury mandates them so that you can collect your tax refund in Digi-Dollars or Sam Bucks or whatever e-greenbacks will be called.
Now is the time to get a feel for how money moves in the cryptosphere. Because as change happens, opportunities always arise. And the people who are able to take advantage of those opportunities are those who already understand the system. (I’ll be speaking about this and other topics at the IL Retire Overseas Bootcamp conference in Las Vegas.)
Next up…the rich are dumping their stocks.
From January through November this year, major insiders across the S&P 500 have sold more than $63 billion worth of stock in their own companies. That’s up 50% from 2020.
The list of insiders selling their stock include people like the Walton family, Mark Zuckerberg, Elon Musk, and Larry Page and Sergey Brin (co-founders of Google).
Analysts have offered a few reasons for this. First, sales and profits are up (and so are stock valuations) after a tough 2020. The rich are also cashing out as the Biden administration and Congress mull increases to the capital gains tax.
That definitely makes sense. And as I pointed out in a recent Field Notes column, insiders have a million reasons why they might sell. However, I can’t help but wonder if their exit means they see, as I do, that stock valuations have peaked and they’re cashing out with the goal of buying back the stock later when it’s cheaper.
Finally this week…a warning from Turkey.
For some time, Turkey has been pursuing an absolutely bonkers economic path—and I say this as a huge fan of Turkey. Not only did I get engaged in Istanbul, near the Blue Mosque, I have visited Turkey on numerous occasions to write about the investment opportunities it represents.
Still…the country’s all-powerful President Recep Tayyip Erdogan, who has ruled for two decades, has pressured the Turkish central bank to slash interest rates—even as inflation has spiraled out of control.
No sane economist would ever follow this path. But Erdogan has managed to successfully remove all sane economists from his government…replacing them with inane yes-men.
Normally, when inflation rises—and it’s hit 21% in Turkey!—central bankers try to raise interest rates. This encourages people to stick their money in the bank, which reduces spending in the economy and thus lowers prices.
Slashing interest rates when inflation is out of control is like trying to put out a fire by tossing napalm on it. Ka-boom!
The local currency, the Turkish lira, has lost 45% of its value this year, and the country is spiraling into a financial abyss.
This will not end well. And there’s a broader message for the U.S.
When inflation spirals, you simply have to raise rates. There’s no way around it. But will the Federal Reserve have the gumption or the ability to raise rates by enough to tame inflation in America…knowing that this will also increase repayments on Uncle Sam’s $30 trillion in debt?
Raising rates would also increase the cost of living for ordinary Americans, who are some of the most heavily indebted humans on the planet.
My expectation: The Federal Reserve will raise rates…but not by enough to truly curb inflation.
So, expect a mini-version of this Turkish crisis in which the U.S. experiences persistent high inflation, and the U.S. dollar grinds lower.
Prepare your portfolio accordingly by reviewing the inflation-protection investments in the Global Intelligence Portfolio.
That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, please reach out through the contact form on the Global Intelligence website.