Welcome to our weekly mailbag edition of The Daily Cut.
Each week, you send your questions to the team here at Legacy Research.
And on Friday, we feature their responses.
Today, our in-house “Fed-watcher,” Dr. Nomi Prins, weighs in on if it’s wise to trust the Fed…
We’ll also return to how the all-out economic war between the U.S. and China is wreaking havoc in the semiconductor industry with a response from colleague Jeff Brown.
First, a question for Brad Thomas.
Brad is one of America’s most widely read income-investing experts. And he focuses on what he calls sleep well at night – or SWAN – stocks.
These are stocks that have been paying increasing streams of income to shareholders for decades no matter what – even through recessions, crashes, and downturns.
Reader question: Do I buy SWAN stocks the same way I buy other stocks or is there a different process?
– Rebecca M.
Brad’s response: Thanks for writing in, Rebecca. SWAN stocks are investments you want to buy and hold forever.
The reason I’m 100% focused on following the SWAN blueprint is because of the losses I suffered when I didn’t.
Before the Great Recession of 2008–2009, I was speculating. I gave no thought to risk management or diversification. But after taking some big losses, I read The Intelligent Investor by famous investor Benjamin Graham.
He wrote about how you should focus on protecting your principal and gaining an adequate return. Anything else, he said, is speculating.
When I read that book, a light went off. I knew the only way to restore my wealth was to grasp the difference between investing and speculating.
And that’s why SWAN stocks are all about investing.
Uncertainty is the name of the game when it comes to managing money in the stock market.
But you can feel safe about your investment portfolio if you focus on generating reliable passive income.
For that to really work its magic, you need to stick with it for the long run.
Remember SWAN investments don’t just pay out regular income. They pay rising income.
Take Microsoft (MSFT). The tech giant recently hiked its dividend by 10%. That’s 17 consecutive years increasing its payout.
Consulting firm Accenture (ACN) bumped its dividend up by 15.5%. It’s at 18 years and counting.
New Jersey Resources (NJR) – an energy services company – continued chugging along with a 7.6% increase. It’s at 27 straight years.
But my favorite is Realty Income (O).
It’s a real estate investment trust (“REIT”) that owns income-producing commercial real estate. And it’s delivered a 0.2% dividend boost, like clockwork, every quarter.
Over the past year, its dividend is up 5.1%.
That was its 100th straight quarterly dividend hike. That’s 25 years of regularly raising its dividend payment to shareholders.
I don’t want the huge price swings that come with speculative bets. Instead of gambling in the markets, I want to invest. I want to own pieces of businesses. And I want to rely on passive income to pay my bills, rather than having to time the market by trading in and out of stocks.
Now, over to that question for Nomi…
She used to work on Wall Street. But in 2002 she quit her job at Goldman Sachs. And she became an investigate journalist and bestselling author.
I call Nomi our “Fed-watcher” because she’s written two books on the influence central bankers have on our lives.
And at our Distortion Report advisory, she helps readers profit from the distortions central bankers cause in the economy through their endless stimulus programs.
And one Nomi reader has a very basic question for her…
Can we trust the Fed?
Reader question: How can we trust the Federal Reserve when it is owned and run by the very banks it is supposed to control? It looks more like a syndicate to me. Great work, Nomi.
– Gino B.
Nomi’s response: Hi, Gino. This is a question I get a lot.
Commercial banks do own shares in the Fed. And CEOs of banks can rub shoulders with Fed officials in ways we mere mortals cannot.
This is why I believe we must scrutinize the Fed’s actions and interactions much more than we do.
I don’t trust their motives. And as regular readers know, I believe the Fed’s unofficial mandate is to protect Wall Street and the markets.
I’ve studied what the Fed does for decades – during my 15 years on Wall Street and in the 20 years since then.
There is always an external narrative accompanying the Fed’s actions. And those actions always ultimately benefit the banking system.
Meanwhile, ordinary consumers and taxpayers wind up footing the bill – whether that’s in bailouts, a lagging real economy, or unstable financial conditions.
Finally, a question for our tech expert, Jeff Brown, on America’s ban on sending advanced semiconductors to China.
Last month, the U.S. Department of Commerce introduced sweeping rules aimed at cutting China off bleeding-edge chips for supercomputers.
This includes a block on sales of the machines that make chips… and a ban on U.S. citizens from working at Chinese chipmakers.
We covered this in detail last Friday. But the questions keep coming in…
Reader question: According to a lengthy series of tweets, the Biden Administration gave Americans working in China’s semiconductor industry the choice between quitting or losing their American citizenship. The result was a mass walkout on the part of the engineers, leaving China’s industry “reeling.”
Is the above true? Does that increase the likelihood of an invasion of Taiwan?
– David R.
Jeff’s response: That’s right. These export controls have banned access to advanced semiconductor manufacturing technology and advanced semiconductors. They also restrict the ability for Americans to work in China’s semiconductor industry.
I’m surprised I haven’t seen more coverage on this topic. The U.S. has essentially declared an all-out economic war with China. And hardly anybody has noticed.
And as I pointed out, there are several workarounds to these export controls. From my view, the net effect of these controls will be to damage American companies and antagonize the Chinese government. Readers can catch up on my full analysis right here.
But one aspect of these orders we didn’t touch on was the impact it has on Americans who work in the Chinese semiconductor industry. Here’s the language, directly from the report:
BIS is also informing the public that specific activities of “U.S. persons” that ‘support’ the “development” or “production” of certain ICs in the PRC require a license.
In essence, the Bureau of Industry and Security (“BIS”) is saying that any American citizen contributing to the Chinese semiconductor industry – specifically military applications and advanced semiconductor technology – needs to register with the government.
We haven’t seen this policy put into practice yet, but scores of American executives and technologists are already caught up in this mess. And given how aggressive this new policy is, most of them will have to choose between their U.S. citizenship and employment/residency status in China.
Under the circumstances, I could certainly see the government revoking citizenship for any Americans that don’t comply.
As for the second part of the question, that is certainly my fear.
China has been antagonizing Taiwan for the past year. And Xi Jinping has been very clear about his views towards Taiwan. Here he is after his re-election to a third term as general secretary of the Communist Party of China:
We will safeguard the overall interests of the Chinese nation and take resolute steps to oppose “Taiwan independence” and promote reunification.
With the world focused on the war in the Ukraine, and the U.S. government lacking leadership, China believes there’s no better time to make its move on Taiwan than now.
I hope I’m wrong. But this is something we’ll need to follow closely. As readers know, Taiwan is home to TSMC, the world’s largest semiconductor fabrication company.
And while TSMC continues to diversify outside Taiwan, most of the company’s manufacturing is still on the island. And all the company’s bleeding-edge semiconductor manufacturing takes place there.
For these reasons, I am watching these developments closely.
That’s all for this week’s mailbag.
Do you have a burning question for Nomi, Jeff, or any of our experts here at Legacy? Make sure to write it in to [email protected].
I’ll do my best to get you a response.
Have a great weekend.
Regards,
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Chris Lowe
Editor, The Daily Cut