Here's How the Financial 'Reset' Happens

How a million-dollar deal taught me the lesson of a lifetime... Never fight the macro trend... Bitcoin's time has arrived... Banks out to lunch... A devalued dollar... Here's how the financial 'reset' happens... Your chance to be on the right side of history...

I (Eric Wade) drank too much the night I found out we were selling Wallstreet.com...

This was back in 1999.

I took my wife out to dinner, and we bought steaks and ordered the sort of bottle of wine you'd buy on your engagement night or your 50th wedding anniversary.

We were celebrating properly. See, we were part of the biggest domain name sale in history up to that point. Someone was buying the URL Wallstreet.com from us for more than $1 million. No domain name had ever sold for as much in a cash transaction.

I may have woken up with a hangover the next day. I don't remember. But I do know this: The sale of that domain supercharged me.

I'd been a stockbroker up to that point. And as much as I enjoyed picking stocks, I'd been bitten by the tech bug. I could tell the Internet was a colossal black hole that was just sucking every industry in the world into it.

Growth was happening on the Internet. And I didn't want to merely invest in these tech companies that I knew were going to change the world... I wanted to be a part of them.

So, I started entertaining offers and pursuing a new career path...

I was young, aggressive, and certain that I could tackle the toughest problems... no matter how bad or how uphill they appeared. That's how I ended up working at a struggling advertising company.

This company was low-tech and old school. It delivered ads to homes that didn't subscribe to a daily newspaper. It gave businesses a way to reach people that they couldn't reach through the normal channels.

I was brought in because the CEO knew they needed to modernize, but he just didn't know how to "reset" his struggling company...

Innovate or perish...

Print advertising, such as newspaper ads and circulars, was an effective way to reach consumers for well over a century. And over the years, the industry kept up with technological innovations.

Printing presses got faster, advertisements moved from black-and-white to color, and advertisers were able to target shoppers who lived near their stores and fit their demographics.

But all those innovations were incremental. They were improvements on an old, dying model.

See, in the early 2000s, the Internet was eating up the old ways of advertising. Younger, tech-savvy readers cancelled their newspaper subscriptions and started getting their news online, for free.

You'd think that would be a boon for us since the number of non-subscribers to print media was growing. It should have meant more jobs, revenue, and profits for us. Instead, advertisers simply fled print in droves.

The patient didn't have a cut... He had no pulse.

For three years, I fought an uphill battle as advertisers fled...

I "reset" everything I could. I found inefficiencies and used technology to eliminate them. I worked with developers to streamline our processes and gave customers ways to place orders online.

I went to bat against corporate behemoths like Walmart... and won, getting more revenue at higher profit margins. I developed new products designed to appeal to younger customers.

In short, I improved everything I could. But I simply couldn't change the macro picture: Customer attention was shifting online.

People quite literally picked up our ads and carried them to the trash can. Sometimes, they didn't even bother doing that. I remember driving by houses and seeing weeks' worth of our ads turning white in the sun.

In the end, the company I worked for pivoted out of advertising altogether. And I learned one of the greatest lessons of my career...

You never, ever fight the macro trend...

Fighting this fight dooms businesses, traders, and entrepreneurs into obsolescence.

It loses you money and wastes years of your life.

And most importantly, there's an opportunity cost to fighting the macro trend. You could be riding the waves, not swimming against them.

You could make 10 times, 20 times, 100 times... and not get stuck fighting over an extra 1% on your margins.

In my case, I could have avoided three years of fighting an unwinnable battle. But, again, I learned valuable lessons.

I've carried those lessons with me for nearly 20 years. And today... right now... I'm seeing it all play out again...

I'm looking at one of biggest macro trends I've ever seen unfold before my very eyes today... And I'm not alone.

I joined our founder Porter Stansberry during his "Capitalism in Crisis" presentation last week to talk about it (You can watch that for free here, if you haven't already), and I want to detail more in today's Digest.

I'm talking about bitcoin and cryptocurrencies...

Although I've had an interest in cryptography for decades, as for cryptocurrencies... I've spent the last seven years getting to know everything I can about this "final frontier," as Porter calls it, and relaying all the best information and analysis I can to readers.

In short, I've long thought bitcoin and cryptocurrencies represent the "reset" that our financial system needs to survive today.

And as the Federal Reserve and other central banks continue to just keep printing more and more money, a lot of other people are starting to understand the power and use for cryptos too...

Over the last week, bitcoin has surged above $11,000 after it crossed through a key $10,000 "resistance" level, as our NewsWire analyst Mark Putrino wrote on Friday...

Here's why bitcoin and other cryptos are getting so much attention now...

What Google (GOOGL) and Facebook (FB) did to my little advertising company is what bitcoin and cryptocurrencies are doing to banks...

They're decimating them. They're gutting them from the inside out. Some banks see the writing on the wall, and they're working hard to embrace this new technology.

Others have their heads so deep in the sand, they're going to go bankrupt. I can almost guarantee it.

The path from here to there will be rocky, but it will mint an entirely new class of millionaires and likely billionaires, too.

Banking is changing whether banks like it or not...

Here's just one example of how screwed up the banking industry is. A decade ago, the U.S. government passed a controversial new piece of legislation targeting the banking system.

It's called the Dodd-Frank Wall Street Reform and Consumer Protection Act after its sponsors, Senator Christopher J. Dodd and Representative Barney Frank.

If you were to print out the Dodd-Frank Act, you'd probably have to go to the paper store. It weighs in at over 2,300 pages. Simply reading it would take the average American more than 40 hours.

Now, think about the fact that banks must comply with every page of documentation in the act. Imagine how many lawyers and compliance analysts they needed to hire.

These regulations are supposed to help Americans. Instead, all the red tape kills innovation by making it impossible for new companies to enter the banking space. So now we have enormous, slow-moving, too-big-to-fail banks.

Those were the consequences of the Great Financial Crisis...

That's part of the reason why President Donald Trump signed a law two years ago that rolled back huge chunks of these regulations.

But the Dodd-Frank Act is just a piece of the puzzle. Banking today is weighed down by so many regulations that it has slipping into irrelevance.

It's like the entire sector didn't notice the rise of the Internet...

Think about it... I can send an e-mail from Los Angeles to Tokyo any time of the day for free. But sending money around the world can take as long as five days and costs me $50 or more in fees. Why is that?

For that matter, why does the stock market shut down on nights and weekends? I can tell you one big reason: because banks have to comply with so many regulations.

But what if we could automate those transactions entirely?

That's where cryptocurrencies come in.

As central banks around the world spin up their money printers, crypto will not just blow up the old model of banking... it's going to completely reset the entire financial system, starting with the dollar.

The reset of the dollar...

What exactly is the monetary policy for the dollar? I can tell you. It's a small committee of bankers who lick their fingers and lift them in the air to gauge the markets.

If things feel a little breezy, they crank up the money printer. If the wind's blowing in a different direction, maybe they slow the printer down.

The only thing they never do is stop the printer altogether. We live in a world where the dominant currency is engineered to bleed value.

That runs counter to the fundamental purpose of a currency. In the big picture, the fundamental purpose of a currency is a way to value something over long periods of time.

Now, fiat currencies, like the U.S. dollar, aren't fundamentally flawed...

But the U.S. dollar and other fiat currencies are controlled by humans, and we all know humans are flawed... especially politically influenced central bankers.

Their weakness corrupts the value of the currency. They turn monetary policy into a political issue. And there's always political pressure to print more.

As we wrote last week in the Digest...

The U.S. dollar has lost 95% of its value since 1913, when Congress passed the Federal Reserve Act and "modern" central-bank policy began... and since then, the Fed has only increased its interventions over time.

What's more, the U.S. dollar has lost 60% of its value since 1984 alone... But the amount of money created since the financial crisis in 2008 makes the devaluation in previous decades look insignificant.

Since 2008, the purchasing power of the dollar has plummeted by nearly 20%...

And the Fed keeps printing money, with seemingly no end in sight.

Take a look at the assets of the Fed this year alone...

I've read all about Modern Monetary Theory ("MMT"), which the Fed is clearly a believer in. It's a cute theory. It basically says governments can print as much money as they want for as long as they want with no real repercussions.

Even a kindergartner could tell you that doesn't make sense. You can't create value out of nothing. You can't conjure it out of thin air.

Here's why I think MMT has held true since the Great Recession...

There has been no alternative to the dollar...

What about gold? Gold is great. I own enough to keep myself fed and housed if the global economy truly collapses – and its price has been skyrocketing the last month or so – but, as a currency, gold is simply too hard to use for everyday transactions.

It requires you to trust other people (either the people issuing gold-backed assets or the people holding it in vaults). And if that's the case, it's not that much better than the dollar.

This is where bitcoin has an advantage...

Bitcoin is a form of digital money that runs on independent computers all around the world. It's not controlled by any one person, organization, or government... And its monetary policy is set by computer code.

Isn't bitcoin created out of thin air, too?

Here's a simple, unequivocal answer for you: no.

The only way new bitcoin enters the world is by "mining" it... that is running high-power computers that contribute power to the bitcoin network. It's estimated that bitcoin miners expend more energy creating new bitcoin than the mining industry does digging fresh gold out of the ground.

Bitcoin simply cannot be created out of thin air. It's built into its computer code. The most bitcoin that can ever be created is 21 million. And the amount of new bitcoin that's created is currently on par with the dollar's inflation rate: about 1.8% per year.

This is because the powerful computers used to secure the bitcoin network (called miners) receive new bitcoin as a reward for verifying blocks of transactions. Currently, the rewards being paid out are calculated to increase the supply of bitcoin by only 1.8% per year...

So bitcoin is scarce. It takes control of the money supply out of the hands of a cabal of politically influenced bankers and entrusts it to the inalienable laws of mathematics.

Remember, the whole idea of bitcoin was born in the heart of the financial crisis, as a response to bankers' terrible actions...

Bitcoin can't be stretched, watered-down, or manipulated. Bitcoin is transparent, predictable, divisible, and unstoppable.

In other words, bitcoin is the ultimate backstop for when the dollar blows up.

We believe we'll see one of two things happen in the years ahead: either the world adopts bitcoin as a global reserve currency, or it adopts a basket of currencies that will eventually include bitcoin.

The signs that we're nearing the inflection point for digital currencies are becoming more and more obvious...

China is already piloting a digital yuan in several of its largest cities. Bank of England Governor Mark Carney was calling for a new virtual reserve currency before he left his post in March. And Japan is working on a digital yen.

Cambodia, Thailand, and potentially the Philippines are working on them, too. All will minimize the role of banks and create alternatives to a dollar that's tied to the old-world banking system.

Even the Fed Chair Jerome Powell, as we wrote back in the February 13 Digest, before the COVID-19 outbreak, said the central bank was in the early stages of researching "digital currencies."

These digital alternatives to the dollar are coming just when the world needs them the most. Strategists at Goldman Sachs just started sounding the warning bell with a special report last week, writing:

Real concerns around the longevity of the U.S. dollar as a reserve currency have started to emerge.

If the "best" investment strategists on the planet are saying this in public, imagine what they're saying behind closed doors.

The dollar is starting to feel a lot like that advertising company I joined two decades ago... It's doing what it has always done in a world that's fundamentally different.

Even the U.S. itself is preparing for bitcoin to take on a bigger role...

On July 22, the Office of the Comptroller of the Currency ("OCC"), the Department of the Treasury agency that regulates the U.S. banking system, quietly released a letter telling that they could "custody" cryptos on behalf of their customers.

In plain English, this means that overnight cryptos became as legitimate of an asset as the title on your home or car or a certificate of deposit.

I call it the single biggest news event since the bitcoin network hummed to life in 2009.

See, today there's still a roadblock to buying bitcoin. It requires setting up an account with an exchange. One of our favorites, Coinbase, makes it simple for beginners. But the process still takes 15 to 20 minutes.

And just like setting up an account at your local bank, you'll need to provide them with your identity documents and debit card or bank account details. Then, you need to fund your account and wait for those legacy fiat transactions to clear.

What the OCC letter does is clear the path so that every bank in America can let you swap between dollars and bitcoin instantaneously. You won't have to set up any new accounts. And you won't have to move money around... You'll just have to click a button.

Bitcoin is right on the cusp of going mainstream. It has forever changed money... just as fundamentally as the Internet changed the advertising business 20 years ago.

This is how the financial "reset" happens.

The investors who realize this are going to become fabulously wealthy in the process...

If they know where to look...

If you want to know more, I urge you to check out Porter's "Capitalism in Crisis" presentation that went live last Thursday. Tens of thousands of people have watched it already.

I joined Porter via video about halfway through to talk about bitcoin and cryptocurrencies and why they are a compelling alternative to the U.S. dollar today... and will be in the future.

The presentation is totally free and, if nothing else, I hope you learn a little bit more about bitcoin, the power of cryptocurrencies, how they work, and how everyday investors can make life-changing returns in this space.

Click here to watch the video right now.

New 52-week highs (as of 7/31/20): Agnico Eagle Mines (AEM), Booz Allen Hamilton (BAH), BlackLine (BL), Cognex (CGNX), CoreSite Realty (COR), Digital Realty Trust (DLR), DocuSign (DOCU), Electronic Arts (EA), Emergent BioSolutions (EBS), Expeditors International of Washington (EXPD), Fidelity Select Medical Technology and Devices Portfolio (FSMEX), SPDR Gold Shares (GLD), Kirkland Lake Gold (KL), KraneShares MSCI All China Health Care Index Fund (KURE), LCI Industries (LCII), Osisko Mining (OBNNF), Palo Alto Networks (PANW), Sprott Physical Gold Trust (PHYS), Rollins (ROL), ProShares Ultra Technology Fund (ROM), TFI International (TFII), Take-Two Interactive Software (TTWO), Vanguard Inflation-Protected Securities Fund (VIPSX), and Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP).

In today's mailbag, feedback on Dan Ferris' Friday Digest about Eastman Kodak (KODK), Shopify (SHOP), and wormholes... Do you have a comment or question? As always, send your notes to feedback@stansberryresearch.com. As a reminder, we cannot provide individual investment advice, but we do read every note.

"Didn't Kodak also pass on the initial offering of electrostatic copying (photocopy) technology? Apparently, around 20 companies, including IBM & GE, took a pass on what later became "Xerography", and then jumped on the bandwagon later." – Paid-up subscriber Will B.

"Kodak does have pharmaceutical experience in the past 100 years! They bought sterling drug in 1988. For $5.1 billion if I remember correctly.

"They sold it a decade later for under $2 billion. So they have experience in drugs. A bad experience. Everything they touched in the 80s and 90s turned to [crap]." – Paid-up subscriber David L.

"I worked at Kodak in the late 1980s and my wife stayed through the 1990s. We witnessed its beginning downfall. What Ferris gets wrong is the massive amount of money Kodak spent on digital imaging efforts, such as KIMS, the Kodak Information Management System developed with DEC (now gone) meant to replace microfilm and microfiche. They invented 12" optical discs that held a gigabyte of information at the time, jukeboxes to hold and access stacks of the discs, and digital readers to read the things. A complete system cost $1 billion and the first one was sold to American Express in the late 1980's. Development costs were in the billions.

"Kodak's inability to make this system a success caused the leading candidate to become CEO to lose out to Kay Whitmore, who proceeded to spend over $10 billion in buying Sterling Drug with the expectation they could develop drugs based on Kodak's massive chemical portfolio, developed over the years by some of the world's best polymer and organic chemists. This was a huge failure, and lead to the first external CEO being hired in Kodak's history (George Fischer from Motorola).

"The basic problem Kodak faced was trying to transition from a 75% profit business to a 3% business. In other words, from film to computers. Try making that argument to your Board of Directors. Yet that is what had to be done if Kodak was going to remain relevant in the imaging business." – Paid-up subscriber Dan S.

"I first read about Shopify in one of your columns when it was trading in the $30s and it was described as the Amazon of Canada. Because the numbers never made any sense to me, I was afraid to buy the stock. But it intrigued me, so I sold puts on it when it was trading in a lower range and consistently made money on it. Then it shot up to stratosphere.

"Now that it is presumably trading at 649 times earnings (even though those are a negative number), I still watch it. But because the scope of the business presumably has doubled, I assume so have the losses, and price of the stock is even harder to rationalize. I wouldn't be surprised to see it hit 2000. The analysts are puzzled too, and recommendations range from a 'Buy' to a 'Strong Sell.'

"There are no biblical comparisons or fairy tales I can think of to explain the movement in this stock. What It mostly reminds me of is the advice I read in one of Porter's earlier columns, saying that if you are intrigued by a stock you really don't understand, the smart thing to do is to buy just one share of it. That way you participate without risking too much. I couldn't agree more, because this one really fits the bill!" – Paid-up subscriber Eve H.

Good investing,

Eric Wade
Burbank, California
August 3, 2020