The Pandemic's Most Overlooked Investable Trend

Cash, as we know it, is going away soon... Are you prepared?... A look at central bank digital currency... A logical evolution of money... The good, bad, and ugly... The pandemic's most overlooked investable trend...

In 2020, we did things we never thought we would do in our lifetimes...

We wore masks the very moment we stepped out of our homes, as if radioactive dust were floating in the air outside.

Our children stopped going to school, while we stopped having dinners with relatives and drinks with friends.

For those of us fortunate to have jobs, we became accustomed to working from home. We learned to voice our ideas through the lens of a computer camera.

At most other times, last year went by with most of us staring too long at our ceilings or out of the windows...

The investors among us, like me (Brian Tycangco), watched in awe (and hopefully readers like you benefited) as the stock market rose to new records.

But some changes weren't as obvious.

In today's Digest, I want to talk about something else in everyday life that changed in a big way last year. But it went nearly completely unnoticed, except for a few thousand people...

Cash, as we know it, is disappearing...

Regular Digest readers know I'm not talking about the unprecedented amounts of "cash" the Federal Reserve has been creating... That keeps growing.

I'm talking about a practical matter... the cash that you hold in the bank. And of course, this also involves the cash you hold in your wallet, sock under your mattress, or keep in your safe.

What if all that cash was suddenly replaced by something else? What if it was replaced by something that's still considered as good as cash but not something you can physically hold, tuck away, or even use for a coin toss?

A decade ago, the thought of something that would replace cash would have been outlandish to even mention. Today, that isn't the case at all...

We already live in a world where cryptocurrencies like bitcoin and Ethereum have been accepted as stores of value. Their combined market capitalizations exceed $1.1 trillion today... To put that in perspective, that's on par with the annual gross domestic product of Mexico.

But the changing face of cash I'm talking about isn't driven by cryptos...

Despite the amount of wealth held in cryptocurrencies, you still can't use them for any practical purchase of goods or services.

Sure, if Tesla (TSLA) founder Elon Musk gets his way, one of his cars may be purchased with bitcoin someday soon. (That's what he announced earlier this week.)

But a lot of crypto investors don't think of bitcoin as a true currency. After all, most people purchase bitcoin or other cryptocurrencies today with a credit card or their bank accounts.

Most people are buying bitcoin today in the hopes of selling at a higher price in the future. That's not exactly something most people want to do with their cash...

Bitcoin, at least for now, is also too volatile to use as an everyday form of currency.

Instead, I am talking about a central bank digital currency ('CBDC')...

The concept of a CBDC is simple... It's an electronic version of the paper bills and coins you hold in your hand, issued and "printed" by the central bank.

Think of it like this...

All those physical stimulus checks that have been going out across the U.S. in recent weeks (and over the past year) could be replaced by a simple electronic transfer. It could be possible even to those folks without a direct-deposit account previously linked to the government through their tax returns.

Imagine a world where every citizen has a CBDC account, for instance, that's directly linked to their national government's "digital printing press." Goodbye, paper dollars or Chinese yuan...

CBDCs are closer to becoming reality than you might think...

Central banks all over the world have been looking into the development of their own CBDCs for years. We just don't hear much about it.

They want one for many reasons, and they're not all the same...

Some central banks want a CBDC to curb illegal activities such as money laundering and the drug trade. Others want to eliminate the cost of printing money and minting coins. The Federal Reserve, for instance, spends about $1 billion each year printing dollar bills. And still other central banks see CBDCs as a way to "bank the unbanked."

The idea sounds alien to most of us. But in China and India alone, more than 400 million working adults still don't have bank accounts and can't access financial services. And remember, these are the two most populated countries... They make up about 35% of the population in the entire world.

For large countries without a well-developed financial infrastructure, such as India, a CBDC could greatly improve the effectiveness of monetary policy. For example, it can guarantee that the correct people get a tax refund or a stimulus check almost instantly.

Another major attraction for CBDCs among governments is their ability to track how money – cash, in particular – flows through the economy. The government would get real-time information on where cash is being spent the most – like having a CT scan of the economy.

So it's no surprise that central banks are hopping on board. The following chart shows the percentage of 60 central bank respondents engaged in CBDC research and development, based on a recent survey conducted by the Bank for International Settlements...

As of last year, five nations (China, Cambodia, Thailand, Ukraine, and Sweden) have test piloted their own forms of CBDC. And one (Brazil) has already launched a payment network called "Pix" that will enable a fully digitized Brazilian real by 2022.

Another five nations (Canada, France, Venezuela, South Africa, and the United Arab Emirates) are currently developing a CBDC, while about a dozen others are now researching a CBDC to use in the future. These countries include Russia, India, Pakistan, Iran, Australia, Germany, the United Kingdom, and even the United States.

We've already been preconditioned for this change...

A decade makes a lot of difference, especially when you're talking about technology.

As I mentioned earlier, a decade ago, it would've been almost impossible to talk about the real possibility of a CBDC that would replace physical cash in circulation.

But the widespread adoption of cashless payment services (or mobile payments) combined with the meteoric rise of e-commerce globally has made CBDC a logical evolution of money as we know it.

We can now actually imagine a world where we don't use paper bills or coins.

Nowhere is this more evident than in China, the world's biggest e-commerce market. There, the two major mobile payment services, WeChat Pay and Alipay, are already being used by a billion people each.

These services function as apps on a smartphone that link to a bank account or can be funded using a credit card. They generate a unique barcode – called a "QR code" – that can be scanned at a cashier to automatically charge your account upon verification.

In China's biggest cities, people no longer carry around wallets or purses. Their smartphones, equipped with WeChat Pay or Alipay mobile wallets (and enough battery life), are all they need to get around and buy what they need.

As of 2019, 35% of all Chinese people used mobile payments. In other countries, the prevalence is also high – like India (29% of citizens use mobile payments)... Indonesia (16%)... Israel (14.5%)... and Russia (10.6%).

In the U.S., cash is still king for now...

But mobile payment activity, using mobile wallets like Apple Pay, Google Wallet, and Venmo, which is owned by PayPal (PYPL), are also growing in popularity among Americans... In the U.S., 9% of the population reportedly uses a digital wallet today.

The COVID-19 pandemic served as a catalyst for this evolution...

It's common knowledge that paper money and coins are among the dirtiest things exchanged by people around the world. The average paper currency is passed on 55 times in a year.

In fact, paper money is known to be able to carry a live flu virus for up to 17 days.

Because of this, the COVID-19 pandemic drastically changed the way people all around the world handled cash...

People started carrying plastic bags around to store the cash they received from other people... They stuffed cash in boxes equipped with ultraviolet light... And they even sprayed cash with disinfectant.

But many people opted against using cash altogether. And they also stopped using credit cards... While eliminating the need to give and receive change, it still requires passing a piece of plastic from one's hand to another, causing similar concerns for people averse to cash.

That's why in places where mobile wallets and payments were accepted, the use of mobile payments soared dramatically in 2020. Globally, mobile payments grew nearly 50% last year, compared with 2019.

The convenience and speed of mobile payments are fueling the growth...

We saw it at sporting events – like this year's Super Bowl, for example, where a reduced-size crowd watched the big game. As Stansberry NewsWire editor C. Scott Garliss wrote last month...

This year, the Super Bowl didn't accept cash payments for the first time in its history. Through a partnership with Visa (V), the Super Bowl only accepted contactless payments. Prior to the event, Visa said it would have "reverse ATMs" at the stadium, where customers can deposit cash in exchange for prepaid cards for use at contactless payment locations...

Visa's senior vice president of North American marketing said the plan was originally in place to go cashless at the Super Bowl by 2025. But because of the pandemic, Visa and the NFL pushed the timeline forward.

The aggregate value of mobile payments worldwide is expected to grow from $1.45 trillion in 2020 to $5.4 trillion by 2026. That's a 25% compound annual growth rate.

So with the world increasingly accepting of mobile payments, central banks are taking advantage of the trend by coming up with their own digital money.

The good, bad, and ugly (of not having actual cash)...

These CBDCs are primarily designed to replace cash in circulation.

The idea is that they would be distributed initially by your commercial banks when, for instance, you withdraw money from the ATM or a bank teller.

Just like the popular mobile wallets today, CBDCs would also be stored in a mobile wallet on your smartphone. The currency could also take the form of a security-enabled smart card that stores your information and money.

Now, I know this concept might raise eyebrows...

What do you mean by an all-digital currency? Isn't cybercrime a growing threat? How secure will it really be? And if the government can give me money easily, can't it just as easily take it away?

Sure, those are all valid concerns that I will address shortly. But first, as difficult as it might be to believe, the creation of a CBDC comes with plenty of positives as well...

There's the obvious benefit of not having to carry cash around that can be lost, stolen, or simply misplaced. It's neither bulky nor messy. And you never have to worry about counting your bills and coins again.

On a more meaningful level, replacing cash with a CBDC helps to get more people involved in the financial system... by banking the unbanked, so to speak. As I said earlier, many people still don't have bank accounts... So they're unable to use financial services that could improve their lives.

In the U.S. alone, 14 million adults don't have bank accounts. In China, an estimated 250 million are in the same boat, while in India the figure is 190 million.

Let's not overlook the impact this could have on e-commerce or the growth of an economy...

Anyone who hasn't been able to buy things online because they didn't have a credit card or a bank account will be able to take part in the booming e-commerce industry.

For a central bank like the Federal Reserve, a CBDC would be tantamount to having a magic wand for monetary policy.

With complete control over the supply of cash, stimulus policies like the $1,400 checks could be distributed within seconds – not weeks. And they could be directed toward select target groups for maximum impact.

But then, of course, there's the ugly side of a digital currency...

The digital aspect of a CBDC makes it easily traceable. Goodbye anonymity.

That's bad news for drug dealers and money launderers. But it's equally bad news for the average Joe who wants to buy some gold, silver, or crypto to tuck away without Uncle Sam finding out.

Yes, a CBDC in its purest form is probably the most invasive tool of government against our privacy. It's tantamount to having the government – your central bank – point a video camera at your wallet 24 hours a day, seven days a week.

If that sounds like a big deal to you, I agree. It is.

And this is why I said at the start of today's Digest that the significance of this most overlooked change of 2020 – and the COVID-19 pandemic – cannot be overstated.

The creation of the actual technology of a CBDC is one thing...

If Federal Reserve Chair Jerome Powell wanted to do this today (and as he said last year, the Fed already has), he could probably quickly get a good framework and timeline from a development contractor for what making a U.S. CBDC would look like...

That is, if everyone agreed to the idea.

The implementation, or the debate that a CBDC causes among a nation's people, is an entirely different ball of wax.

The speed at which CBDCs will be implemented around the world will no doubt vary greatly...

In places like China and Cambodia – countries with few (if any) privacy rights and where much of the population already doesn't use cash – it could happen very fast.

In countries where people have a particularly high degree of trust of government and cash use is generally in decline, like Sweden, the shift to a CBDC could also happen in the blink of an eye.

By contrast, it will be anything but fast and painless if implemented at all in the U.S. After Powell mentioned CBDCs while testifying before Congress in February 2020, law and policy expert Elizabeth Renieris told crypto-focused website CoinDesk...

Realistically... it may be many more years before the Fed reveals any details of its research and development on a digital dollar to date, as we hope there would be many rounds of public consultation before any kind of official announcement or rollout.

But almost nine out of 10 central banks are now looking at CBDCs in varying stages of conception and development. Digital payments are fast becoming the rule instead of the exception in retail and wholesale transactions.

The signs are getting clearer and louder that we're headed for a world where cash is no longer something you can hold but rather see through an electronic device screen – whether it's a smartphone, a computer, or a CBDC card.

Fortunately, you can take some actions today to prepare for a cash-less world...

There's little point in hoarding physical cash when the very institution that created it ceases to honor it in favor of its digital twin...

You can, however, begin diversifying into assets that still give you a degree of privacy and flexibility that digital fiat currencies aim to destroy.

One way is to start investing in hard assets like gold and silver if you haven't already done so. As a close friend of mine, an avid numismatic and gold investor, once told me...

There's nothing like having a few gold coins in your pocket to get you out of sticky situations.

A second idea is to park a portion of your portfolio in cryptocurrencies like bitcoin, which I expect will soar in popularity as one central bank after another launches a fully functional CBDC.

That's because one of the biggest attractions to bitcoin is its use of a decentralized system, where transactions can take place without any need for intermediaries. No banks needed.

Most of all, no pesky central banks. And since you never use your name, only your cryptocurrency address, you maintain more anonymity than you would with a CBDC.

Finally, everything I'm talking about today leads to why you should invest in e-commerce stocks...

The coming rise of CBDCs adds an entirely untapped segment of the population into the sphere of e-commerce... Hundreds of millions of previously unbanked consumers around the world are being thrust into the world of digital payments.

I see emerging-market countries as the most likely to launch CBDCs first...

True Wealth editor Steve Sjuggerud and I cover a number of these markets in our True Wealth Opportunities: China service, which Steve broadened last year to include recommendations in other countries beyond China.

A good way to have exposure in the biggest burgeoning e-commerce markets that will benefit from a cashless society is through owning shares of the Emerging Markets Internet & Ecommerce Fund (EMQQ).

The top holdings in this exchange-traded fund include the largest e-commerce firms in China, like Tencent (TCTZF) and Alibaba (BABA), as well as major e-commerce companies in Southeast Asia, Latin America, and Europe.

As I said, in the U.S., I think the reality of a CBDC is a long way off. But the digital-payments trend is going to continue along with the growth in e-commerce... So while the prices of the U.S. digital-payment majors like Square (SQ) and PayPal are too rich in my view right now, it's good to keep them on your radar.

These dominant U.S. digital-payment firms will likely play an instrumental role in the widespread acceptance of a CBDC, just like what's happening now in China. There, the two dominant payment platforms, WeChat Pay and Alipay, have agreed to accept a digital yuan as a form of payment.

This isn't new competition for the two Chinese payment giants. It effectively allows millions of people with cash in their pockets to start buying things online through their platforms.

So the digital economy only stands to get bigger as a result.

To sum up, in terms of CBDCs, the ball is in the emerging markets' court right now...

It's a major shift in the way people will use cash. And there are ways to make money from it, giving investors like yourself a way to diversify out of U.S. stocks trading at eye-popping valuations.

If you're interested in this developing trend, I'd encourage you to check out our True Wealth Opportunities: China advisory... Each month, Steve and I give subscribers the best investment ideas we can find to profit from the boom in Asian markets, which is happening right now. The shift I discussed today is just one of these opportunities.

As I write, our basket of Chinese "New Economy" stocks is sitting on average gains of about 100%. And our "Next Chinas" picks are doing well, too... Shares of one company are up more than 285% since December 2019, while two others are up more than 50% since our recommendations last fall.

And right now, we want to give you a taste of our work through a free research report...

You see, one small company you likely haven't heard of offers massive upside in the e-commerce space today. It helps provide the framework for the giants in the space like Alibaba, allowing them to generate hundreds of billions of dollars per year in sales.

Last month, China formalized a new rule that will hugely benefit this company – which we've dubbed the "Shopify of China." And we believe this little catalyst creates a great opportunity for its stock to surge 200% to 300% in the coming months. We've put all the details into our brand-new report, "The No. 1 China Stock of 2021." Get started right here.

New 52-week highs (as of 3/24/21): AutoZone (AZO), Home Depot (HD), Hershey (HSY), and Waste Management (WM).

Today's mailbag includes more feedback on Tuesday's Digest from our colleague Dan Ferris, as well as more thoughts about inflation and GameStop (GME). Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Excellent piece [in the Tuesday Digest] that I thoroughly enjoyed reading. Having also seen many cycles of the markets, it is very appropriate to today's situation. I only wish all those newbie speculators would read it, but then, that would be like trying to disrupt the natural cycle. Their very 'success'-derived hubris would make them think that you are the idiot that doesn't understand the new markets of today." – Paid-up subscriber Julia B.

"Isn't it time to start calling out these ridiculous claims by the Fed that inflation has been below 2% for years?

"Inflation's definition, 'A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money.'

"Yet our government's definition of CPI, excludes food and energy, which make up between 10-20% of any person's cost of living. Housing also is excluded from 'Core Inflation,' which makes up roughly 15-25% of most people's cost of living. All three categories have seen increases in pricing since 2012.

"So by just excluding between 25%-45% of what people spend money on we are told that inflation is below 2%. Hogwash!" – Paid-up subscriber John J.

"Seriously----do we need to hear any more BS about GAMESTOP?????????

"It's been beaten to death and has passed--LET IT BE GONE." – Paid-up subscriber Bruce M.

Corey McLaughlin comment: Fair point. We'll go back to writing about crocodile dreams instead.

Good investing,

Brian Tycangco
San Juan City, Philippines
March 25, 2021

P.S. By the way, my colleague Eric Wade is a great guide if you're looking to go "beyond bitcoin" in the world of cryptos...

Over the past year, he has led a select group of Stansberry Research subscribers to countless triple-digit winners in the crypto space. And next Wednesday, March 31, at 9:30 a.m. Eastern time, he's releasing a critical update about what's next in this corner of the market – including six tiny cryptos that he believes could help you make 10 times your money this year.

Best of all, Eric's event is absolutely FREE to attend. Reserve your spot right here.