Welcome to the mailbag edition of The Daily Cut.
Each week, we put your most pressing questions to our team of analysts here at Legacy Research. And on Fridays, we publish their responses.
Today, you’ll hear from our tech expert, Jeff Brown, on what a Chinese invasion of Taiwan could mean for the global chip shortage.
And America’s most trusted crypto investing expert, Teeka Tiwari, explains why more regulation in the U.S. is bullish for crypto.
But first, let’s turn to another megatrend on our radar: the energy transition.
Russia’s invasion of Ukraine has shown countries – especially in Europe – that moving away from fossil fuels isn’t just about reducing carbon emissions. It’s also a matter of national security.
Take Germany, Europe’s largest economy. It gets 55% of its natural gas, 52% of its hard coal, and 34% of its oil from Russia. It’s highly vulnerable if Vladimir Putin decides to shut off supply.
As I (Chris Lowe) showed you here, this will accelerate the transition that’s underway from oil, coal, and natural gas wind, solar, and nuclear power.
It’ll also speed up the shift from gas guzzlers to electric vehicles (EVs).
Right now, EVs make up about 6% of car sales around the world. Forecasts show sales reaching 68% by 2040.
The play here isn’t just buying shares in EV makers such as Tesla (TSLA).
As renowned speculator Dave Forest has been showing us, there are also profit opportunities in the companies that make and run EV charging stations.
Plus, there are the companies that design next-generation batteries.
Not to mention the companies that produce the sensors, computer chips, and self-driving software systems for EV makers.
Dave has already given his paid-up subscribers the chance at an average gain of 867% on five EV-related trades. And he says EVs will be one of the biggest profit opportunities for his readers over the next decade.
But one wonders how we’ll generate enough electricity to charge them all…
Reader question: I agree that the push toward EVs is a major trend. But you are not mentioning the huge weak point. There will be a massive increase in demand for electricity to charge EVs.
Where is the energy to power all this new electricity generation going to come from?
The political actions of the current administration in D.C. have crippled America’s energy independence (e.g., oil and natural gas), and there’s been a political push away from nuclear power. But coal-fired plants are going into the dustbin of history, and solar and wind are small, intermittent sources of energy.
How will the EV trend overcome this hurdle?
– Carole Ann R.
Dave’s response: Great question, Carole Ann. It’s one folks often forget to consider.
A lot of folks assume electric means clean. But it depends on how we generate that electricity.
The U.S. generates about 60% of its electricity from natural gas and coal… about 19% from nuclear… and roughly 20% from renewables such as wind, solar, and hydropower.
The good news is the U.S. has enough electricity for EVs. Sort of…
On average, our total power generation can meet projected EV demand. The problem is timing.
Our electricity use varies through the day. During peak times, electricity demand from EVs will probably outstrip supply. That could mean a temporary power shortage.
So we’ll need to store energy during low-use times and send it out during peak demand.
Smarter grids and advances in battery tech are helping us do that. And as I’ve been pounding the table on for my readers, this is creating huge profit opportunities for folks who understand what’s going on.
Companies that help store, monitor, and allocate electricity will be in huge demand.
Take battery companies. You may have heard about the “mega-batteries” Tesla is developing to store power in cities.
As Bloomberg reported earlier this month, a Tesla subsidiary called Gambit Energy Storage LLC is building a 100-plus-megawatt battery storage project in Angleton, Texas.
According to Bloomberg, the battery could power about 20,000 homes on a summer day.
Vanadium flow – or V-flow – batteries seem to be best for this tech.
As the name suggests, they revolve around the chemical element vanadium. They’re more scalable and longer-lasting than the typical lithium-ion batteries that power EVs.
And there’s much more vanadium than lithium in the Earth’s crust. So that’s good for supply.
I’ve positioned my readers for this boom by recommending vanadium companies. They produce key “hard tech” for these batteries. That’s the term I use for the natural resources we need to power all sorts of new technologies.
That’s where the biggest gains can happen.
Next up, that question for Jeff about the chip – aka semiconductor – shortage.
As regular readers will know, he worked for about two decades in Asia for semiconductor companies NXP Semiconductors (NXP) and Qualcomm (QCOM).
And since he joined Legacy in 2015, he’s recommended several chipmaker stocks to his readers.
For instance, in January 2019, he added Nvidia (NVDA) to the model portfolio at our flagship tech investing advisory, The Near Future Report.
It’s up 649% since then.
And his March 2019 recommendation of the world’s largest chipmaker, Taiwan Semiconductor Manufacturing Company (TSM), is up 173%.
As Jeff put it to his readers at the time, TSM is the “world’s best semiconductor company.” And it plays a crucial role in the global supply chain.
That’s because it’s the world’s biggest chip foundry. That means it makes chips on behalf of other companies.
So it’s a great way to play the explosive growth in demand for chips that Jeff sees ahead.
But several readers have written in to warn Jeff of a problem. TSM, as the name suggests, is based in Taiwan. And these readers worry about what will happen if China goes through with its threat to invade that country.
In short, Taiwan is where nationalist forces fled after losing the Chinese Civil War to the Chinese Communist Party (CCP) in 1949. The CCP has seen Taiwan as illegitimate ever since.
And last October, Chinese leader Xi Jinping said that “reunification [with Taiwan] must be fulfilled.”
That’s mild compared to a pledge he made last July to “smash” any attempts at formal Taiwanese independence.
So it’s no wonder folks are concerned…
Reader question: Hi, Jeff. What will happen to chip technology if China takes Taiwan, where TSM makes 92% of the world’s advanced semiconductors and 60% of less advanced ones?
– Mike H.
Reader question: Hi, Jeff. In your opinion, what are the odds of China invading Taiwan? It seems remote, given the military buildup required.
But the U.S. probably has no plans to get directly involved since China has more leverage over it than Russia does. So an invasion is possible. What then?
– Gordon E.
Jeff’s response: Hi, Mike and Gordon – thanks for sending in your questions. This worry is at the top of my mind as I watch events unfold abroad.
China has a clear interest in taking control of Taiwan, the world’s top chip producer.
It would be devastating to see Taiwan fall under China’s chokehold. This would give the CCP the power to alter or stop the supply of chips in the devices we use every day.
Taiwanese chipmakers make parts in almost all our electronics – from medical devices… to fridges and washing machines… to cars… to laptops, tablets, and phones.
So I’m happy to see U.S. chipmaker Intel (INTC) has invested $100 million in research and development to boost semiconductor manufacturing. It plans to build two new chip factories in Ohio.
We need a more decentralized manufacturing structure for national security reasons as well as supply-chain efficiency.
Even TSM gets this. It’s building new plants in the U.S. to de-risk its business. The CCP may gain control over Taiwan. But it can’t control TSM’s plants in the U.S. or Europe.
To wrap up, a question about crypto.
A Teeka reader wants to know about one of the recommendations in the Palm Beach Confidential model portfolio, Ripple (XRP).
Teeka recommended XRP to paid-up subscribers in May 2017. Since then, it’s up 188%.
But starting in December 2020, Ripple Labs – the company that creates and issues XRP – has been embroiled in one of the highest-profile lawsuits between a crypto company and the main U.S. stock market regulator, the Securities and Exchange Commission (SEC).
The SEC claims Ripple violated laws by issuing XRP tokens to raise money. It says this means the tokens are securities. And that it should therefore have regulatory power over the company.
It’s gotten one reader thinking about the broader possible effects of this legal challenge…
Reader question: What happens to the crypto world if the SEC wins its case against XRP?
– Rob T.
Teeka’s response: Thanks for your question, Rob.
Ripple is a settlement system, currency exchange, and remittance network. It aims to be the global leader in payment processing by making transactions cheaper, faster, and more secure.
It uses blockchain tech to achieve this. That’s the decentralized ledger tech underpinning all crypto.
In its lawsuit, the SEC says we should treat Ripple’s token, XRP, as a security. And it claims Ripple’s executives violated securities laws regarding disclosure of information.
It’s a struggle over how to regulate crypto, in other words. And that’s not a bad thing…
The big picture here is that regulation needs to be in place for crypto to go from a niche asset to mass adoption.
It would allow more regulated money from financial institutions to come into the crypto market, amplifying its boom.
If you own crypto, enjoy the ride higher. And if you don’t… consider adding some exposure to your portfolio today.
That’s all for this week.
If you have a burning question for any Legacy expert, write us at [email protected].
Have a great weekend.
Regards,
 |
Chris Lowe
March 18, 2022