Get Ready for Stablecoins

 For those not familiar with this financial instrument, a stablecoin is a type of cryptocurrency that aims to maintain a stable value relative to a specific type of asset. For the most part, the specified asset is either fiat-backed (U.S. dollar) or commodity-backed. The structure of fiat-backed stablecoins closely resembles that of money-market funds. The issuer defends the peg of the stablecoin by holding fiat-denominated short-term assets, such as Treasury bills, commercial paper, repurchase agreements, and bank deposits. Commodity-backed stablecoins, for example, those backed by gold, are relatively rare at this point in time. A stablecoin should not be confused with a central bank digital currency (CBDC). While both are electronic digital payments using the blockchain, CBDC is issued by central banks, meaning they are a direct claim on the central bank, while stablecoin is issued by a private entity. Basically, stablecoin is a digital representation of fiat money, moving not through the arteries of traditional payment rails, but through the digital circuitry of the blockchain.

The future of stablecoins points to significant growth. As of July 2025, the stablecoin market was approximately a $270 billion market. With the passing of the Genius Act on July 18,2025, many financial movers/shakers are projecting a $3.7 trillion market by 2030. The Genius Act is a game-changer. This recent legislation provides a sturdy regulatory platform on which stablecoin ecosystems can be built. Under its provisions, stablecoin issued within the United States must maintain a full 1:1 backing of outstanding coins with high-quality reserve assets; they must publish monthly disclosures of reserve composition and undergo independent audits for larger issuers. Compared to the current bank-centric era, transfer of funds under the stablecoin system will be faster and cheaper. Domestic wire transfers can now take hours, and even be processed the following business day if the wire is initiated after 3:00p.m. Fees for domestic wires typically range between $25-$50, depending upon the commercial bank involved. International wires are processed via the SWIFT system and have to navigate a network of banks and middlemen. Fees for international wires exceed domestic wire transfer fees. Stablecoins can travel at the speed of light to anywhere in the world, for just a few cents in fees.

As the name implies, stablecoins will address the major reason why Bitcoin and other cryptocurrencies have not been adopted on a large scale in the payment system - volatility. Stablecoins are not instruments of speculation, but of settlement. Even the only cryptocurrency that makes any sense to own, Bitcoin, has weathered extreme volatility since its inception in 2009. There have been four major drawdowns of over 75% before rallying to new highs. Many investors will still favor Bitcoin as a "store of value" and as an asset to trade for speculative purposes. For payment and settlement purposes, however, Bitcoin holders will turn to stablecoins. They are comfortable and familiar with blockchain technology. Owning the stablecoins themselves won't make anyone rich, though. Each one is designed to be worth exactly $1.00, and it will remain valued at $1.00 even a decade down the pike.

As mentioned earlier, stablecoins will not be issued by Uncle Sam. They will be issued by commercial financial institutions and other private entities that have the resources to sufficiently collateralize the coins they issue. Amazon, Walmart, and other household names are already rumored to be exploring stablecoin integration. Stablecoins will be used extensively for cross-border payments, especially for cross-border remittance to less developed countries. Cross-border payments are traditionally associated with high transaction costs, prolonged processing times, and limited access for unbanked populations. Since stablecoins can be sent using a smartphone, they will supersede the banking system and facilitate faster, cheaper transactions for individuals with zero or limited access to financial institutions. Stablecoins will continue to be popular in countries dealing with hyperinflation. Due to the monetary policies implemented by these countries, average citizens experience non-stop debasement of their local currencies. The U.S. dollar has some problems, but it remains the cleanest shirt in a drawer full of dirty shirts. Thus, it remains in high demand across the world. Foreign countries and foreign banks fear the potential widespread adoption of U.S. dollar stablecoins. I would say their concerns are justified. American banks have mixed feelings about stablecoins. They see the potential for a mass exodus of deposits, which in turn could shrink banks' lending capacity. Simultaneously, they view stablecoins as a part of the future financial landscape and are developing strategies to incorporate stablecoins and monetize them in their business models.

Many people, including myself, are moderately surprised that our federal government has adopted an attitude that is favorable to cryptocurrencies, particularly stablecoins. Five years ago, I would have put the odds of the regulations incorporated in the Genius Act becoming law at something like one in one hundred. That said, when you step back, look at the big picture, and take into account the evolving macroeconomics environment, it makes perfect sense. Scott Bessent, U.S. Secretary of the Treasury, knows that crunch time is rapidly approaching for the dollar and Treasury securities. Foreign central banks have been either selling U.S. Treasuries on the secondary market or letting them roll off at maturity while hoarding more gold to supplement their reserve holdings. These actions were accelerated when the West sanctioned Russia after the 2022 invasion of Ukraine. Trump's ill-advised tariffs imposed in 2025 have also retarded the purchase of U.S. Treasuries. Then you throw in utterly reckless fiscal and monetary policies courtesy of Congress and The Fed, respectively. All of this is a recipe for disaster. Who is going to buy our debt, and at what price? Secretary Bessent's solution - besides financial repression and yield curve control - expect an exponential growth in stablecoins. There is no question that stablecoin issuers will be actively buying U.S. Treasuries to back their coins. This activity could plug the demand hole. However, unless there are serious entitlement reforms at the fiscal level, this will simply kick the can further down the road and delay the inevitable crisis.

Contrarian Investing

 In simple terms, contrarian investing is about doing the opposite of what most people are doing in the stock market. A contrarian investor strives to identify and then capitalize on market inefficiencies driven by emotional "herd mentality." It is an investment strategy of going against the crowd, against the mob. If everyone is buying a stock and its price is going up quickly, a contrarian might avoid it or even sell it. On the other hand, if a stock is being sold by everyone and the price is falling, a contrarian might consider buying it. The concept is based on the premise that markets frequently overreact to good news and bad news. When prices go up too fast, they might be overvalued. And when prices fall sharply, they might be undervalued. Contrarians attempt to take advantage of these situations. Contrarian investors believe that by staying calm and thinking differently, they can find opportunities where others see trouble. It's about being patient, doing your own research, and not getting carried away by emotions.

There are numerous traits associated with a contrarian investor. First and foremost, contrarian investors are independent thinkers. They have the confidence to form their own opinions based on their analysis of fundamental factors and market trends. They have the ability to tune out the noise of the financial media and ignore short-term fluctuations in market prices. Contrarian investors have the courage to go against the crowd and take positions that may be unpopular. They have an abundance of patience and discipline, as well as possessing a long-term perspective on investing. Contrarian investors have the resilience and emotional control to stay committed to their investment thesis, even in the face of adversity. They are lifelong learners who continuously seek to improve their investment skills and adapt to changing market conditions. Additionally, they are open-minded and willing to learn from both their successes and failures. Last, but not least, contrarian investors ultimately focus on value. They are not contrarian for the sake of being contrarian, but rather because they believe that the market is not always efficient in accurately pricing. Contrarian investors seek to identify undervalued opportunities that offer the potential for attractive returns over the long haul.

A major challenge for contrarian investors is accurately identifying undervalued opportunities. This can involve extensive research and a deep understanding of fundamental analysis. Furthermore, simply - you could be wrong. Just because everyone else is selling doesn't mean they're wrong. Sometimes, a stock falls because the company is genuinely in trouble. There are a few general guidelines to consider when determining whether or not a stock qualifies as a contrarian play. The first requirement would be the "down-by-half rule." A stock must be down at least 50% from its highest closing price during the past 12 months. Another prerequisite would be a price/earnings (P/E) ratio of less than 12. Normally, "beaten up" stocks that are undervalued are selling at low multiples. The contrarian investor is also looking for a company with a price/free cash flow (P/FCF) of less than 10. This metric is extremely important. It never ceases to amaze me how often free cash flow is ignored. Another buy signal would be significant stock purchases by insiders. When it comes to knowing when to sell a contrarian play, it is quite simple: Sell once the stock rises 50% from its purchase price, or after three years, whichever comes first.

Numerous studies support the premise that "down and out" stocks frequently rebound and turn the table on peers that were considered "winners" in a given year. Using 36-month performance spans, two prominent researchers, professors DeBondt and Thaler, created portfolios of "loser" stocks (those that had performed worse than the market), and "winner" stocks (those that had beaten the market). Their findings: You're better served buying losers than winners. An investor who put together a portfolio of loser stocks and held it for three years would beat an investor who assembled a portfolio of so-called winner stocks by 25%. The emphasis on a three-year holding period echoes the approach of Ben Graham, the universally acknowledged mentor of Warren Buffett. And, Mr. Buffett arguably just happens to be the second greatest investor of all time. He religiously subscribed to value and contrarian investing principles.

There are a couple of factors that can undermine the traditional contrarian strategy. The 800-pound gorilla in the room is "large, mindless robot investing." This is a term attributed to Mike Green that describes the enormous, automatic flow of capital via 401(K) account contributions into passive investment vehicles like index funds and exchange-traded funds (ETFs). Passive flows now account for more than half of the funds flowing into the stock market. Unlike active fund managers who make discretionary decisions based on stock valuations and other factors, passive funds have a non-discretionary mandate to simply track an index. When an active manager might sell an overvalued stock, a passive manager will buy more as its market share grows. This insensitivity is a recipe for disaster. Another distortion is created by the ever-increasing propensity of corporations to allocate significant portions of their profits to buying back large amounts of their own stock. No longer are buybacks restricted to just when a company's stock is deemed undervalued. Now this type of financial engineering is utilized even if the stock is fairly valued or overvalued. This is another example of insensitivity to price.

Although I don't consider myself a full-throttled contrarian investor, I do share some tendencies common to that approach. This is not surprising since by nature I question many common assumptions after discarding my rose-colored glasses several decades ago. In my mind, it is preferable to be skeptical instead of naive and gullible. I feel knowledge, understanding, and the truth supersedes conformity, even in cases where the contrarian position is unpopular with the majority. We are living in an era when so much of what we have been told to be true is in fact false. I would rather be wrong with my viewpoint and change accordingly, than to blindly accept something as the gospel.

Poor Man's Gold

 I am old enough to remember when the Hunt brothers (Nelson and William) attempted to corner the global silver market in the 1970s, which subsequently imploded in March 1980. Using significant leverage, these two sons of Lamar Hunt amassed a huge silver portfolio, buying physical silver and futures contracts. Their buying activities contributed to a massive increase in silver's price, rising from $6.00 an ounce in 1978 to a record high of $49.45 per ounce in January 1980. It was a crazy time, especially on the economic front with inflation hitting double digits in the late 1970s. I had started working at The First National Bank of Ottawa in 1978 when the price of silver began its relentless climb. People started to sort through their loose change and coin jars to pick out pre-1965 U.S. coins. Coins minted in 1964 or before were primarily (90%) made of silver, and the melt value was significantly higher than face value. Bank customers were finding safe places to store their sterling silver. Everybody was talking about silver and how it was set to blow by $50 per ounce. Needless to say, the silver bubble burst with values eventually retreating to the $5-$6 range. It made another run at $50 in 2011, peaking at $48.70/oz. before sliding back to the $10-$20 range.

Fast forward to the 4th Quarter of 2025. We find ourselves in the midst of the third major silver bull market in the past half-century. The precious metal has finally breached the $50 per ounce plateau. Silver is up 70% in the past 6 months and 22% in the past month. Extreme optimism, make that euphoria, has seized the silver market in 2025. Many market participants, especially those selling their book, are predicting silver reaching $100/oz. or even much higher. Before expressing an opinion on those predictions, let's take a look at some fundamental conditions that can influence the price of silver.

Silver has widespread industrial uses, primarily because it is the world's best electrical conductor. It shows up in almost every electronic device. If something has an on-off switch, there's probably some silver inside. Every electrical connection in a modern car is activated with silver-coated contacts. Electric vehicles contain more silver than internal combustion autos. Despite the Trump Administration's disdain for solar energy, this source of energy will continue to expand. Solar cells, also known as photovoltaic cells, convert sunlight into electricity. Silver powder is turned into a paste that's loaded on silicon wafers on a solar panel. The bearings in jet engines and helicopter engines require silver because they operate for long periods at high temperatures. Silver also serves a purpose in medicine. It helps fight germs, serving as a longtime go-to antibiotic. Silver is an important component in the water purification process. It prevents bacteria and algae from building up in the filters of purifiers. I'm not sure if it qualifies for "industrial" use, but sterling silver jewelry and tableware have historically been in demand by consumers in most cultures. By definition, sterling silver is 92.5% silver and 7.5% copper. Another non-industrial utilization of silver would be as a component in an investor's portfolio of assets. That will be addressed shortly after addressing the ongoing silver squeeze in terms of supply and demand.

Global silver demand is surging while supply provided by mining operations has either been stagnant or declining over the past decade. It is estimated that silver has been in a 10%-20% annual supply deficit over that time period. This consistent market deficit has drawn down above-ground reserves. The primary reason that mine supply remains constrained is due to the fact that silver is often a by-product of the mining of other metals such as lead, zinc, copper, and gold. Over 80% of mined silver is a secondary output of other mining activities. There are very few true silver mining plays, with the number of "primary" silver mines dwindling. There are only a dozen or so mines in the world where silver is mined as the primary metal. The current high price for silver may well trigger the development of new mines. However, that process takes years, if not a decade, due to the massive red tape and regulatory hurdles. Another drag on silver supply could be the fact that its price is somewhat inelastic. An increase in price may not lead to higher supply. This is primarily because, as mentioned, silver is a by-product of base metal mining. Economic slowdown could dampen demand for base metals - therefore, we may not see an increase in the mining supply of silver.

For those who readily embrace conspiracy theories, there is one out there involving silver. According to this particular theory, the big banks (looking at you J.P. Morgan) have been consistently repressing the price of silver. The behemoth banks do this by relentlessly shorting silver futures contracts on the Comex exchange and the LBMA (London Bullion Market Association) exchange. For commodity futures, such as silver, buyers rarely stand for physical delivery. The overwhelming majority of contracts are closed out before expiration by taking an offsetting position. A tiny percentage, typically 2% or less, results in physical delivery. In the past few months, a significantly higher percentage of futures buyers have been "taking delivery" of physical silver. The LBMA's physical silver supplies have decreased by 30%-40%. Many informed participants in this market believe there is a real danger of this exchange defaulting on delivering physical silver to futures contract traders and needing to pay cash instead. This would inevitably trigger panic buying.

All of which leads us to the proverbial $64,000 question - where does the price of silver go from here? In a nutshell, I don't know. I will, however, tender a couple of possibilities and opine in my humble opinion which one is more likely to come to fruition. One possibility, a distinct one in my estimation, is that silver is being fueled by a speculative bubble and will fall (to the $30-$40 range) back to earth in due time. The other possibility, also a distinct one in my estimation, is that this is different, and we're in the early innings of a long-term silver bull market that will push the silver price to $100 per ounce or beyond before the books are closed on this decade. Those favoring this outcome, which includes the author of this blog, have an argument that should not be summarily dismissed. In the last few years, I have arrived at the conclusion that an investment portfolio should include some exposure to precious metals, including physical possession of gold and/or silver. Silver has been prized for centuries as a storehouse of wealth and as a medium of exchange like gold. Because of its lower value than gold, silver is more available to a greater number of people. Thus, the term "poor man's gold."

The value of silver is inextricably linked to gold. Without fail, a gold bull market eventually incites a silver bull market. We have witnessed that process work out over the past couple of years. The gold-to-silver ratio is a comparison of the price of gold against the price of silver. It is also effectively a measure of the number of silver ounces that would be required to buy a single ounce of gold. Generally speaking, the ratio has existed between 40:1 and 80:1 for most of its history. After creeping above 100:1 earlier in 2025, the ratio at this time sits at 74:1. Silver may have some more room to go higher. Although it lags in starting, silver almost always outperforms gold during a gold bull market. I remain optimistic about the direction of silver trending upward. There is a scenario that would certainly temper my expectations. This scenario would entail a reversal of foreign central banks buying gold, a dissipation of geopolitical unrest, and Congress enacting entitlement reform to reduce the obscene level of annual federal outlays. Of course, the Easter Bunny and Santa Claus also may magically materialize in the next few years.