It’s Friday… mailbag day here at The Daily Cut.
That’s when our team of investment experts answers your fellow readers’ questions.
Here at Legacy, our mission is to spot the market megatrends shaping the future… and protect your portfolio from threats like inflation.
Inflation silently kills your buying power. The current annual rate of 7.5% will cut your cash savings in half in less than 10 years.
That’s why we share the best profit opportunities to outrun inflation.
Traditionally, one of the best options has been gold.
There are two reasons…
First, gold is a hard asset. It’s hard to produce more of it relative to existing supply.
Each year, we dig up the equivalent of about 2% of the world’s above-ground gold supply.
Second, there’s only a fixed amount of gold on Earth – about one ounce per person alive today.
But since COVID–19 first upended markets in March 2020, the yellow metal has disappointed investors.
The VanEck Gold Miners ETF (GDX) is a useful stand-in for the wider gold mining industry. Since the worst of the pandemic-induced sell-offs, its price has stayed relatively the same.
Today, one of your fellow readers wants to know how long this will last.
So we reached out to our commodities expert and geologist, Dave Forest, for his insight.
For more than 20 years, he’s hunted natural resources buried under the Earth’s surface.
His boots-on-the-ground research has given our International Speculator readers the chance to make gains of 158%, 277%, and even 997% on his gold miner recommendations.
Silver bounces around in price a lot. But it tends to track gold’s longer-term moves.
And Dave says it’s only a matter of time before both precious metals soar…
Reader question: Do you have a sense of how long it might be before gold and silver stocks start moving up?
– John S.
Dave’s response: Hi, John. In a sense, gold and silver stocks are already moving up.
Not so much in share price. Rather, in profits.
Profits from precious metals miners are at or near all-time highs. Higher gold and silver prices help a lot. Miners also stayed disciplined in this boom. They’re focusing on maximizing operations and avoiding expensive merger and acquisition deals.
That’s translating into excellent investor returns. For example, gold producer Newmont (NEM) pays a dividend yield nearly three times higher than the S&P 500’s.
With that solid business performance, investors are bound to notice. Sooner or later, they’ll rush into these companies.
It’s hard to pinpoint when. Rising inflation and geopolitical tensions have boosted metals prices the last few weeks. That might trigger another move up in metals stocks.
If not, it’s only a matter a time. This sector has some of the best performance on the planet.
The latest expert to join the Legacy Research team, Nomi Prins, also sees upside ahead in precious metals…
Nomi is a former investment banker who quit a seven-figure job at Goldman Sachs (GS) to expose how Wall Street tilts the playing field in its favor… and tries to shortchange regular investors.
Her mission at Legacy is to help her readers profit from the market distortions that central banks create.
These distortions can destroy your wealth. The inflation figures I mentioned are a good example. But they can also hand regular investors profit opportunities.
Nomi shares our view at the Cut that gold is honest money. The Fed can’t create more of it on a whim.
She’s bullish on bitcoin’s future as a store of wealth outside the traditional finance system for the same reason.
But not all her readers agree…
Reader question: Gold and silver are the only full-fledged monies in the world. They are also the only monies the U.S. Constitution recognizes and authorizes.
The demand for bitcoin isn’t widespread enough for the average man in the street to be ready, or even able, to accept it as a currency.
It is far too volatile to be a long-term store of value. Indeed, it’s highly unlikely it will even be around in 10 years – at least in its present form.
Bitcoin is just a Ponzi scheme. It looks a lot more attractive than fiat, as long as its price is going up. But you could say that of any other financial entity. They’re all in a massive, fiat-driven bubble.
When these Ponzi schemes collapse, as they all do sooner or later, and the world financial system collapses with them, many widely desired commodities will function as currencies (e.g., food, booze, tobacco, bullets, medicine).
But only gold and silver will hold and increase their value.
– John R.
Nomi’s response: Hi, John. Thank you for your message. You’ve pinpointed some important issues.
I agree that gold and silver are the only forms of money whose value comes from their use, wealth storage, and historic acceptance as having value.
And I support reviving some form of a gold standard. This would curb this massive money-creation we’ve had since the 2008 financial crisis.
But neither gold, nor silver, nor bitcoin is a fiat currency. They all also have scarcity value. Gold and silver are in finite supply for geological reasons. Bitcoin’s code limits its supply to 21 million coins.
Bitcoin arose because people wanted an alternative to the fiat monetary system. Some have become wildly rich in the process. But mostly, the appeal of bitcoin as a lasting fiat alternative will grow as more people can use it and feel secure.
So as long as the battle against fiat currencies continues, bitcoin has staying power – especially if its volatility stabilizes.
That’s why I don’t view bitcoin as a Ponzi scheme. Its journey towards mainstream adoption shows no signs of slowing down. And I believe its value will rise accordingly. So it’s something I’ll continue to recommend my readers hold in addition to gold.
Switching gears, colleague and Silicon Valley insider Jeff Brown has been helping his readers make outsized gains from the biggest tech advances of our lifetimes.
His model portfolios have closed out gains of 332% on gene-editing company CRISPR Therapeutics (CRSP)… 340% on chipmaker Ambarella (AMBA)… 432% on biopharmaceutical company Synthorx (THOR)… and 448% on chipmaker Nvidia (NVDA).
On Wednesday evening, Jeff hosted a special briefing to share his top recommendations to beat inflation. And he revealed why the next phase of what he calls the “tech shock” – a result of pandemic-induced chip shortages – could hand you 100x gains.
If you missed the briefing, you can learn how to profit by catching the free replay here.
We’ll wrap up this week’s batch of reader questions with one for Jeff about geopolitical tensions in Taiwan… and how they’ll affect chips, aka semiconductors…
Reader question: Thank you, Jeff, for the wonderful insight and for sharing your passion for investing in life-changing technology trends.
Given the geopolitical events unfolding and the U.S.’ weak foreign policy position, I see it as a matter of when, not if, China will take over Taiwan.
Do you agree, and should we position our portfolio for such an outcome? How would this affect the semiconductor landscape?
I wonder how quick it would be to switch manufacturing to the U.S. Obviously companies are preparing for it, but I wonder if it will be too late.
– Nicholas P.
Hi, Nicholas. You’ve definitely spotted a potential trouble zone.
The relationship between Taiwan and China is complex and has been a concern for decades. And the semiconductor shortage we’ve been facing has further highlighted these tensions.
This is important because many industries use semiconductors. They’re the “brains” of all electronics. The U.S. government has said they’re “essential to modern-day life.”
So any trouble in Taiwan would have significant ripple effects.
The U.S. makes only about 12% of the world’s chips onshore, despite leading in chip design and intellectual property.
The majority of chip manufacturing is in a handful of countries in Asia – China, Taiwan, South Korea, Japan, Singapore, Malaysia, and, to a lesser extent, Thailand – because of historically low labor costs.
Taiwan Semiconductor Manufacturing Company (TSM) makes about 90 of the world’s most advanced semiconductors. It also makes around 60% of the less advanced chips our cars need.
In fact, TSM’s chips are in our smartphones, watches, laptops, game consoles, and much more. Without them, manufacturing these products wouldn’t be possible. (That’s why I recommended TSM in the Cut earlier this week.)
Additionally, TSM and Samsung are currently the only foundries capable of making bleeding-edge five-nanometer chips. [A foundry makes chips to order for chipmakers that don’t have fabrication plants.] TSM is even gearing up to produce three-nanometer chips in volume in the second half of this year.
One research firm estimated that other countries would have to spend $30 billion a year for at least five years to have a chance to catch up to TSM.
Other Taiwan-based companies are key suppliers and manufacturers for the semiconductor industry as well. So Taiwan is critical to tech and manufacturing supply chains. If China took over Taiwan, it would devastate the global economy.
If companies like Apple (AAPL), Nvidia, Advanced Micro Devices (AMD), Qualcomm (QCOM) can’t get their chips from TSM, the market would collapse.
Taiwan would bring more wealth, economic growth, and outright power to China. It would have a chokehold to extract whatever it wanted from countries around the world.
And there’s never been a riper time for China to make a move. The current U.S. administration is weak on China at best.
TSM understands the risks, though.
It’s scrambling to diversify its manufacturing base outside of Taiwan as quickly as it can. That’s why it announced a major new manufacturing plant in Arizona and another in Japan.
We should expect more of the same.
As for my recommendations in this space, I’ll keep an eye out for any signs of an imminent move. But I don’t think China would cause any major disruptions in the event of a takeover or assertion of administrative control.
I was in Hong Kong when Britain handed it to mainland China in 1997. China took more than two decades to methodically take complete control and restrict freedoms in Hong Kong. This process continues to unfold today.
In other words, the world will have several years to recalibrate if China moves to take over Taiwan. Either way, we’ll adjust our investment strategies as the world shifts and evolves.
That’s all for this week.
If you have a question for anyone on the Legacy team, be sure to send it to [email protected].
Have a great weekend.
February 18, 2022