By Teeka Tiwari, editor, Palm Beach Confidential
Will you be ready for the next big bubble?
By my calculations, we’re about to see two massive bubbles inflate.
They won’t be in stocks or bonds. And today, you can buy into both of these pre-bubble sectors at crazy cheap prices.
Over the next year, you’ll see these two sectors soar to levels you’ve never seen before. And it’s all thanks to central banks and politicians.
Let me explain…
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Start Up the Money Presses
What is money really worth if you can print an endless supply of it?
Last week, both the Senate and House passed a $2 trillion stimulus package to rescue the U.S. economy from the coronavirus pandemic. And the Federal Reserve may print twice that much to revive the financial system.
Plus, there’s an extra $330 billion from the U.K., $250 billion from the Bank of England, and another $814 billion from the European Central Bank.
That’s a total of over $7 trillion in direct and indirect stimulus.
Friends, do you really think all of that money is free?
Ask Zimbabwe and Venezuela in the early 2000s.
Both countries tried the same policies… and watched inflation rise as high as 79,600,000,000% and 9,586%, respectively.
To be sure, the U.S. and Europe are backed by massive and diverse economies possessing unmatched, gigantic earnings power. So I don’t expect inflation to reach the astronomical levels we saw in Zimbabwe and Venezuela.
But surely, even they have their limits.
After all, the combined GDP of the U.S. and Europe is $26 trillion. Yet, total government debt and central bank holdings are expected to top $51 trillion.
How many people would let you borrow 196% of your annual income?
Yet, that’s exactly what’s happening on an international scale. How is that money ever going to be repaid?
Long story short: It’s not…
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Lenders Are Now Paying Borrowers
Now, I’m not suggesting the U.S. and Europe will default on their debts. What I think they’ll do instead is dilute the value of their currencies.
Here’s a simple analogy…
Let’s say I borrow $100 from you with a 10-year loan term. Today, I can buy about 25 Big Macs with that $100.
In 10 years, I’ll pay you back your $100. But by then, you’ll only be able to buy about 22 Big Macs with that same $100.
That’s assuming a normal rate of “Big Mac” inflation.
Of course, this is a simplified example. But it illustrates my larger point.
Normally, the interest I pay you will cover inflation. But in today’s world, you’d actually pay me interest to hold your money. In other words, factoring in inflation, lenders are now paying borrowers.
It’s insane… But that’s exactly what investors are now doing with trillions of dollars of sovereign debt.
But borrowing money for free isn’t enough for the bankers. They want an even better deal.
So what I’m suggesting is central banks will dilute money so much that 10 years from now… $100 may only buy 12 Big Macs.
By cutting the real value of money in half, they’ll reduce their debt burden.
This is an old playbook governments have been using and perfecting for centuries.
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Two Bubbles Will Emerge
But I’m not writing to you today to bore you with the arcane details of how central banks will pull off their next heist.
The key now is getting you squared away so you can actually profit from it.
And the two easiest ways for you to do that are to buy bitcoin and gold.
While both got slammed in the early stages of the current broad market sell-off, I counseled against reading too much into it.
I wrote that the selling in gold and bitcoin had more to do with meeting margin calls in stocks than a loss of confidence.
While the world was selling bitcoin and gold, I advised Daily readers to buy. Since then, we’ve seen bitcoin prices rally back as much as 68% off its lows. And gold ran 9% higher just last week.
Friends, it’s a no-brainer: Buy gold and bitcoin.
Every central bank in the world is about to dilute the value of their paper money at a scale we’ve never seen before. But they can’t devalue gold or bitcoin.
And that makes them the only refuge for investors looking to shelter their money from the ravaging effects of reckless money-printing.
Gold prices could easily double from these levels. And bitcoin could quadruple (or more).
The key point is, out-of-control money-printing will massacre the buying power of dollars, euros, yen, rubles, etc. So it’s imperative you hedge your buying power by owning some gold and bitcoin.
And if you want exposure to these two trends, consider a small position in SPDR Gold Shares (GLD) and bitcoin. They’ll both gun higher as central bankers continue to print money out of thin air.
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Between the Federal Reserve’s unlimited credit lines and the federal government’s $2 trillion stimulus package… we’ll see inflation skyrocket in the U.S. Meanwhile, central banks around the world are firing up their money presses, too, to deal with the coronavirus pandemic.
So the financial tools are now in place to get us out of this dark period. And stocks will benefit… But if you want the best risk/reward setup, you should consider cryptos.
While the stock market was up over 11% last week, the crypto market had already leapt 25% higher the week before. But I’ve identified five tiny cryptos I believe have the potential to turn a few $500 investments into as much as $5 million.
As people flee fiat currencies, they’ll flock to crypto. And combined with a rare event that happens only once every four years, we could see the prices of these five coins go through the roof.