In an upside-down world, is it time to update your investment strategy?
Yeah, we need to talk about Ukraine and the war against Putin. I'm not going to talk about all the news, you know so well. This is a personal finance show, and you want to know the personal finance implications about your investment strategy, as a result of the war. Putin has managed to unite the entire world, all of us against him. But when folks are asking me, Ric, what does this mean for my investments? What should my strategy be? What should I be buying? What should I be selling? Well, I have to tell you, we've never been here before, and therefore nobody really knows what's next. Putin has his massive military with his weapons of mass destruction, chemical weapons, biological weapons and, of course, nuclear weapons. He's also got the capability of launching cyber-attacks against our digital infrastructure. And this is why the governments are acting delicately, economic sanctions to inflict pain not just on Putin, but his fellow Russian billionaires. Too much pain, though he might turn to more aggressive actions. We're trying to avoid that from happening. And so we're inflicting economic harm.
Ric Edelman: As a result of the sanctions, the Russian stock market fell 40% and it's now closed. The Ruble is worth a penny or less. ATMs throughout the country are empty. Russian interest rates are now 20%, and we're already starting to get reports of massive unemployment, food shortages, prices rising 50% or more. But this isn't just hurting Russia. These sanctions are hurting the entire world. Companies have leased over 500 airplanes to Russian airlines, those planes are worth $10 billion. And those planes are now worthless and they're not making their lease payments. Russia, let's remember, is the world's 11th largest economy. It's the third largest oil producer, 10% of global supply. Seven percent of our own until we shut it off. And this is contributing to U.S. gas prices being the highest ever. Europe gets 40% of its natural gas from Russia. Aluminum, palladium, nickel - all those are at all-time highs. The metals are used in exhaust systems, mobile phones and stainless steel. Russia is the number one exporter of palladium, the fifth largest of iron ore. This is affecting the entire global economy. Companies across the globe are stopping operations in Russia: Visa, MasterCard, PayPal, McDonald's, Starbucks, Pepsi, Coke, Goldman Sachs, and JPMorgan. Thousands of American companies have fired tens of thousands of workers, including a lot of Americans working in Europe, and those companies are all losing revenue because of our economic ties being cut off from Russia.
Ric Edelman: This partly explains why the U.S. trade deficit is now at $90 billion, an all-time high. We're seeing gas and diesel prices at all-time highs. Gasoline in California is nearing $6 a gallon. Russia is also the world's largest supplier of wheat, with Ukraine - 25% of global supply, Egypt and Turkey gets 70% of their wheat from Russia and Ukraine. There's also grain, sunflower oil, barley and more. Food prices globally at a seven year high. And if farmers in Ukraine don't start planting soon, there's going to be a huge food crisis in the world, next Fall. Without cash or access to the world's financial system, Russia's got to turn to other sources. 75% of ransomware attacks come from Russia. They earned $400 million last year that way. They earned a billion dollars from the dark web. And Russia is starting to turn to crypto to avoid sanctions. But don't use this as an argument for hating crypto. Governments love that Russia is using crypto. Why? Because digital money leaves a digital footprint. It's easier for the governments to track and grab the money that Russia is moving. It's a lot easier than tracking cash or diamonds. And Ukraine is using Bitcoin, Ethereum, Polkadot and other digital assets to raise money. They've raised more than $100 million in donations so far. People around the world donating crypto, that's more than what the European Union has donated to Ukraine. The Ukrainian government calls crypto quote an economic breakthrough, and by the way, Ukraine was ready for this. It has the highest crypto usage per capita of any country in the world, and they're using the money to buy military supplies and food.
Investment strategy: Do like the Ukrainians. Gather cash, food and medicine.
Ric Edelman: So, what should you be doing with? Your investment strategy, I want you to do what the Ukrainians are doing. Gather cash, food and medicine. You've got to prepare like it's a winter storm, a hurricane, floods coming. Remember the story a month or two ago of thousands of people stranded on I-95 on the East Coast because of a big snowstorm? If you had food and blankets in your car, you would have fared a lot better than if you didn't have that preparation. So, make sure you're prepared for what might be coming next because as I said, we've never been here before. We don't know what a madman is going to do next. Now, you can certainly argue that this represents a tremendous buying opportunity. Prices are low. They're likely to go lower, but it's going to take a strong stomach. Losses could very easily get a lot worse, and it could very easily take us a very long time for prices to recover. Or, on the other hand, all this could be over tomorrow.
Ric Edelman: A coup by his generals could end this instantly, and the markets would celebrate with skyrocketing prices. So, we just don't know. We've never been here before, and no one knows for sure what's going to happen next. The only thing I can tell you with certainty is that the risks of investing are dramatically higher today than they were 30 years ago, 30 years ago, if you wanted to earn a seven percent return, all you had to do is buy a bank CD. Today if you want a seven percent return, you need to have almost all of your money in the stock market because that's about the only place that has even the hope for those kinds of returns. The investing world is much riskier today than it ever was, made worse at first by the pandemic. now by what's going on with Vladimir Putin.
Metcalfe’s Law – Can the Bitcoin Network replicate the exponential growth of Facebook?
Make sure you're prepared. And part of being prepared is understanding the new economic environment. That means you need to learn more about how crypto works. Have you ever heard of Metcalfe's Law? You've heard of Moore's Law, which is a very famous business axiom that the speed of computer innovation means that computers are shrinking in size and they're becoming incredibly less expensive. The cost drops by half about every 18 months. Their size drops dramatically. Think about the desktop computers you used to have well, now they are laptops.
Ric Edelman: Now there are smartphones in the palm of your hand. Computers are shrinking and they're getting cheaper all the time. Moore's law is a really important fundamental aspect of understanding our economy. Another one is Metcalfe's Law. What is that? It says that as the size of a network grows, the value of the network grows exponentially. Think about Facebook, for example. Right now, it has about three billion users. Well, go back a decade or two when Facebook didn't have three billion, but only had a tenth of as many, 300 million users. What was the stock price of Facebook when it had 300 million users compared to the stock of Facebook today with three billion users? While the users grew by tenfold, the price of the stock has grown by more than 100-fold. The value of a network grows exponentially as the size of the network grows. Why is this important? Think about the Bitcoin network. Right now, only three hundred million users. What will be the price of bitcoin when there are three billion people who own it? Metcalfe's Law, an important thing to consider about future investment prices. And if you want to learn more about this, read my book, The Truth about Crypto. Available now for you to order at your favorite bookstore. Stay with us for more here on the Truth About Your Future.