The Only Way to Break a Financial 'Heroin' Addiction

Daniela Cambone's latest interview is a must-see... How stocks can 'crash up'... The Federal Reserve's meeting goes virtual... The only way to break a financial 'heroin' addiction... Bitcoin is up 60% from its lows... A new frontier of finance...

A commenter on our YouTube page described what we're about to share perfectly...

"That was one of the fastest 13 minutes I've ever seen."

The commenter was talking about our editor-at-large Daniela Cambone's recent video interview with George Gammon, host and founder of the Rebel Capitalist Show.

I (Corey McLaughlin) agree... Anyone with "skin" in the investing game should drop what they're doing and watch this full video. There are several reasons why...

First off, Gammon has a great knack for explaining seemingly complicated topics in simple terms... We last shared his thoughts with you in the July 8 Digest, when he talked with Daniela about the "reverse repo" market – what it is and how it works.

In this most recent interview, Gammon talks about the reverse repo market once again...

Related to that, he details why banks are putting nearly $1 trillion on the Federal Reserve's balance sheet instead of their own – and what that implies for the rest of us.

But Gammon also covers much more than that in the roughly 13-minute span...

He also explains that the Fed "doesn't supply money"... but instead "supplies narrative" to Mr. Market more than anything else. And at one point, he offers a warning...

Once people get their mind around that, they see the emperor is really wearing no clothes. The market hasn't gotten to that point where they realize they're being played... At some point, they will.

Gammon also describes the idea of a "crash up" – meaning that stocks can go higher while your money loses purchasing power... Something like this happened in the Venezuelan stock market, which went up 114% in 2016 on the way to 130,000% hyperinflation in 2018.

And as I'll explain later in today's Digest, during the interview, Gammon even lays out the case for investing in bitcoin without even mentioning the cryptocurrency by name.

Daniela interviewed Gammon in advance of the Federal Reserve's meeting later this week...

A quick programming note on that event, by the way...

Since we last wrote about this annual confab of economists and their hangers-on, it has been relocated from Jackson Hole, Wyoming to the virtual world for a second straight year due to Delta variant concerns. (That's good news for the fish in the Grand Teton valley!)

Still, we expect to hear the same thoughts we did before about what the Fed plans to do in the months ahead... For example, everyone will be hanging on with bated breath to hear if the central bank will "taper" its bond purchases sooner rather than later.

On that point, perhaps the choice to "go virtual" is an early symbolic sign that "tightening" isn't going to happen yet... even with inflation still running higher than we've seen in years.

We also saw a key news item recently that said U.S. Treasury Secretary and Former Fed Chair Janet Yellen has endorsed current Fed Chair Jerome Powell continuing beyond his current term, which is scheduled to end in February 2022.

In other words, expect more of the same.

We're talking about low interest rates, "easy money," and subconsciously or consciously pushing many investors into stocks, thereby pushing prices higher.

It might make people feel good to see higher returns in the short term. But as Gammon says, there will be unavoidable long-term consequences with this much leverage (debt) in the system...

At some point, you got to pay the fiddler. You have to have a deep deleveraging because of the amount of debt in the system. The question is, is it a deflationary deleveraging or an inflationary deleveraging?

But what you're dealing with is an economy that's addicted to monetary heroin. It's addicted to a drug. So you've got to look at it the same way. Is there an easy way for a heroin addict to get clean and sober? No, there's not. You got to go through significant amounts of pain... and withdrawal.

At some point, the U.S. economy – and the [entire] Western economy, for that matter – is going to have to [experience] that process of withdrawal to get back on stable footing.

But Gammon said no Fed leader is going to want to have that on his or her résumé... so the "most likely release valve is going to be the dollar."

By that, he means a continued devaluation of the dollar... and inflation.

If you gave Powell a few glasses of whiskey...

Gammon suspects that the Fed chair would say his ideal scenario for the next decade would be cutting our debt-to-GDP ratio in half (to around 70%)... having negative "real" interest rates... and somehow managing to keep inflation in check... while balance sheets for corporations and the private sector will have also improved over that stretch.

What's the problem with that? Well, there are a lot of factors in play, Gammon says...

You can't micromanage an economy. And usually when governments try to implement that strategy, there are a lot of unintended consequences.

At the end of the day, he says, we are "imperfect human beings." And as such, when it comes to a financial system...

Ideally, we would have some sort of constraint on the money supply to let the free market really work. In a free-market environment, prices go down. That's a healthy economy. That's how the consumer, the average Joe and Jane, the poor and middle class, increase their standard of living. It's through deflation, not inflation.

Again, you can watch the entire interview here for more comments from Gammon... And be sure to sign up for more exclusive, free content from Daniela at DanielaCambone.com.

What are the options?

In the meantime, let's explore the "ideally, we would have some sort of constraint on the money supply" point that Gammon made. It's an important one, and only a few options really come to mind...

One is gold. As we know, the U.S. abandoned the gold standard 50 years ago. Still, as we said in the August 12 Digest, central banks keep buying gold, so they still find it useful as a hedge against chaos... much like we recommend for your own portfolios.

You could argue that the money supply could be tied to any real, tangible thing (like apples or baseball cards), and it could work... if enough people buy in.

But good luck convincing enough people to think of money in terms of a "fruit" or "Ken Griffey Jr. rookie card" standard... It seems silly. Plus, there probably isn't enough of either of those items to go around to ensure easy business transactions.

But this scenario is exactly what's playing out with bitcoin...

The world's first and most popular cryptocurrency is called that for a reason. As we've written before, it has a compelling story and practical use...

Bitcoin's capped supply design (21 million mined – which, at its current "hash rate," won't happen until 2140) is baked into its code, free from the whims of Fed governors or anything else... And it can be bought and sold globally through the leading means of communication today.

This feature of bitcoin is a big part of the reason why many of our editors are bullish on it. So when we talk about bitcoin being a "hedge against inflation," the reasons that Gammon shared – and the alternative that bitcoin presents – are what we mean.

After its crash through the spring and into mid-July, bitcoin is back in an uptrend...

You'll likely recall bitcoin crashed by 50% over the past several months – from highs of more than $60,000 in April to less than $30,000 a little more than a month ago.

But if you haven't been paying attention lately, we're here to tell you today that bitcoin has since rebounded – and quickly...

The world's largest cryptocurrency has been in a strong uptrend – rallying to above $49,000 as we go to press... or more than 60% from its most recent lows in just over a month. This week, its price even briefly jumped above the key $50,000 level.

Crypto Capital editor Eric Wade explained some of the headlines pushing bitcoin higher in the "Crypto Corner" section of Stansberry Innovations Report last week. They're related to the growing adoption of the crypto in the mainstream...

Well-known companies like Amazon (AMZN), Apple (AAPL), and Walmart (WMT) are all looking to hire crypto experts – likely so they can start accepting crypto payments. If just one of these companies starts accepting cryptos in place of credit cards, it would immediately further bolster the legitimacy of the market.

This trend is only getting stronger... More widespread acceptance will continue to push bitcoin – and other cryptocurrencies – higher.

Eric just gave us a timeline for how high bitcoin's price can run...

In his weekly Crypto Capital video update, published as usual on Fridays, Eric ran subscribers through an indicator that maps out bitcoin's "floor" in the years ahead... That's technical jargon for the price that the cryptocurrency won't break below at any point.

Eric last used the indicator in January 2020, when he correctly predicted a near-term top in bitcoin's price. This time, Eric used the indicator to predict when bitcoin will hit various milestones – like $100,000 and $1 million.

As he explained in the video, this indicator suggests bitcoin will exceed $100,000 in the next three years and reach $1 million within the next decade. From Eric's video update...

How far down do we have to go before the floor price hits, for example, $100,000? That's November 2024... If this chart modified continues to hold, we might see a floor price of bitcoin at $101,000. And how long does it take us to get to a floor price of $1 million? That is April 2029.

Both of those dates are even sooner than Eric has previously estimated bitcoin would hit those levels. And while the increased adoption trend we've seen play out in recent weeks will play a part, there's an even bigger factor at play, according to Eric...

Inflation.

It's not going away any time soon. More from Eric...

We have 15 different aspects of bitcoin and cryptocurrencies that we like... that we can name off. But we can't ever forget that if the dollar plunges in value, it also makes this come true.

Now, a move in bitcoin isn't going to be a straight line higher, of course. The entire cryptocurrency space is known for bouts of extreme volatility. And as Gammon said in his interview with Daniela, that's the point...

In a free market, crashes happen... and so do rebounds.

Our colleague Dan Ferris made this same point in the May 28 Digest. As he wrote...

Can you imagine the benchmark S&P 500 Index losing 54% in 36 days?

Last March, the S&P 500 plunged 34% as COVID-19 lockdowns devastated global economies. That was the biggest economic contraction since the Great Depression.

It makes you wonder what sort of "Greater Depression" would follow a 54% plunge in a little more than a month. (And remember, millions of Americans are still out of work from the initial collapse.)

When the stock market tanks like that, it nearly always correlates with serious economic damage. That's simply not the case with bitcoin and cryptos.

In other words, the indicator that Eric shared is predicting a great reward for those investors who can withstand the price swings.

In the big picture, there's still plenty of room for bitcoin to move higher...

The longer we see the Fed doing what it does... and the longer we see bitcoin sticking around and its price pushing higher... the more we think the "outside the system" option is a much more convincing place to grow wealth.

Let me be clear... We've never said anyone should put their entire portfolio into bitcoin or cryptos (and still don't), but you can get a lot done with even a small allocation.

Remember, our founder Porter Stansberry talked in late July 2020 about bitcoin being the great "asymmetric bet" of the year – meaning potentially huge returns for a relatively small amount of risk.

Since that call, bitcoin's price has shot up 380%... with as we said, more upside likely ahead.

Recently, bitcoin has been outperforming stocks as well...

Our friend and technical analyst J.C. Parets from AllStarCharts.com is so convinced on the bullish case for bitcoin right now that he says...

If you're not long on cryptocurrencies, you're short.

In an August 18 blog post, Parets shared his thoughts about the technical outlook and the ratio of bitcoin compared with the benchmark S&P 500. From the post...

We can get into what's happening with all these protocols and platforms, or you can just focus on price. Fortunately, the latter happens to be our area of expertise.

The bottom line is this: If the Bitcoin vs. S&P 500 ratio is above 7.0, you HAVE to be long. Period.

What's more, we see the fundamental case for bitcoin and other cryptos gaining traction...

It wasn't that long ago that critics and supporters of bitcoin frequently argued about its potential to either go to $0 or $1 million... And sure, that debate likely still lingers today. But nowadays, we're only seeing signs of more cryptocurrency adoption, not less...

And as Eric told thousands of viewers of his "Crypto Cash Summit" last month, an entirely new ecosystem of crypto investments – beyond the headliners of bitcoin and Ethereum – is maturing and providing an alternative to the "system."

In short, income-producing investments have become more widely available to crypto investors... with yields of 8% or much higher on your capital (like a bank used to do)... in addition to potentially spectacular capital gains.

This is one (new) way to beat the (old) problem of inflation. In fact, for this exact reason, Eric launched his new Crypto Cashflow service back in July. It's entirely dedicated to this idea...

It's connected to bitcoin and Ethereum, but it's also an entirely new form of income-generation that 99% of Americans don't even know exists... And yet, it could be a critical part of protecting and growing your wealth in our current debt-addicted system.

Eric says getting your feet wet in this space today is like investing in bitcoin back in 2017. It's an exciting new frontier of finance... and an alternative worth considering.

Just remember... $100 in bitcoin back in 2010 would be worth more than $60 million today. Sure, it has endured massive bouts of volatility along the way. But people are pouring into cryptos like we haven't seen in years.

For that reason and more, we urge you to check out Eric's latest presentation right now if you haven't already... He covers everything you need to know about this idea. Get started right here.

New 52-week highs (as of 8/24/21): AbbVie (ABBV), Alphabet (GOOGL), Innovative Industrial Properties (IIPR), Intuit (INTU), James Hardie Industries (JHX), Palo Alto Networks (PANW), Invesco S&P 500 BuyWrite Fund (PBP), ProShares Ultra Technology Fund (ROM), ProShares Ultra S&P 500 Fund (SSO), and Vanguard S&P 500 Fund (VOO).

In today's mailbag, feedback on Monday's Digest about the industry in the crosshairs of war. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"With regards to the Digest on the supply chain impact to the semiconductor industry given a hypothetical [People's Republic of China ('PRC')] takeover of Taiwan, the author is missing a few critical points...

"First, [Taiwan Semiconductor], Intel, and Samsung have already stated they will be building mega-fabs in the U.S. and potentially in Europe. Those fabs take about 2 years from ground breaking to come on line and another year to reach full production (volume, yield, etc.). Of course, full production is a moving target as most fabs are built in modules. Unless the PRC invades Taiwan inside that timeline, their impact on the global supply chain will be reduced.

"Secondly, you would likely see a worldwide embargo on anything coming out of a military 'unification' of China. So, while China might control a large piece of installed base capacity, it likely would only be of use for internal consumption. Given a western world embargo on China, I would expect their economy to collapse in a matter of months.

"Lastly, acquiring, by force, state-of-the-art semiconductor manufacturing is a fleeting objective. State-of-the-art is a 18-24 month window (Moore's Law) and that applies not only to manufacturing capabilities but also chip design and verification.

"With regard to manufacturing, you need the entire equipment set to achieve a new node. Miss a single piece of critical equipment (EUV, implant, dep/etch), and you can't build that node. Given that China has no full-scale equipment manufacturing, what will they do when ASML, [Applied Materials], Lam [Research], [Tokyo Electron], et al refuse or are banned from selling to China? It isn't like copying a toy, it would take decades to replicate the lens from a deep UV scanner let alone an EUV scanner... not to mention the laser, reticle, pellicle, photoresist, developer, inspection...

"Those decades (or even just years) will leave China where they are today – a second- or third-class semiconductor manufacturer when measured against the angstrom era that is now close to a reality in IC manufacturing." – Paid-up subscriber David J.

C. Scott Garliss comment: Thanks for the note, David. You gave me a little bit to think about... and I think you're helping make my point.

Asia-based companies Samsung and Taiwan Semiconductor realize that other regions are about to invest in more manufacturing capacity and the relevant supply chain. And the COVID-19 pandemic has sped up a shift to our lives being more technology-dependent.

Semiconductors are the key architecture to all of that.

Samsung, Taiwan Semiconductor, and Intel all know the U.S. is going to support the industry and spend more because the car-production issues have highlighted the importance of semiconductor supply to economic activity... A lack of them is holding it back.

They're also looking in Europe for the same reasons. Intel CEO Pat Gelsinger has been pitching to governments there regarding tax breaks and building out factories.

This is why the Department of Defense awarded Intel an agreement for foundry services as part of an effort to build out a semiconductor manufacturing ecosystem in this country... It realizes the need to be more self-sufficient. And yes, "state of the art" declines quickly in the industry... It takes years to build a semiconductor fabrication plant that gets old quickly.

But our broader point is trying to highlight to individual investors where the money is headed and where the opportunity exists... That way, they can get ahead of it and protect themselves from an investing standpoint.

This is just the beginning of a longer-term trend. China's ambitions are telling the rest of the world why it needs to take a hard look at this situation and consider the potential ramifications.

One of those potential ramifications is a boost for chip companies outside of Asia. Our colleague and Stansberry Venture Technology editor Dave Lashmet has been all over this story... If you're interested, you can learn more in a brand-new presentation right here.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
August 25, 2021