In today’s mailbag edition of The Daily Cut, we’ll look at the bull case for bitcoin (BTC).
We’ll also look at three blue-chip tech stocks selling at the bargain counter.
But going by the feedback in the mailbag, one of the most pressing questions on your minds the fate of Taiwan and the future of the semiconductor industry.
Taiwan Semiconductor Manufacturing Company (TSM) is responsible for about 90% of advanced semiconductor manufacturing.
And as the name suggests, it’s based in Taiwan.
If Chinese leader Xi Jinping fulfills his promise to take the island nation by force, it could cut off supply to the rest of the world.
It’s a powder keg.
And it has profound implications not just for Taiwan and China… but also for the U.S.
Our macro expert, Nomi Prins, has been keeping a close eye on developments.
As she’s written…
I don’t believe China will unilaterally attack Taiwan. It doesn’t want to deal with the same kind of sanctions imposed on Russia for attacking Ukraine.
But if this did happen, it would cause severe supply chain disruptions, notably in the semiconductor industry.
One Nomi reader wants to know more about what will happen if China does go through with its threat – and captures the chipmaking industry in the process…
Reader question: You can agree or disagree with Nancy Pelosi’s trip to Taiwan. But it had the advantage of showing China’s true colors.
I predict that, in the very near future, China will set up a maritime blockade of Taiwan and will maintain it until Taiwan surrenders. In that scenario, everything coming out of Taiwan will have to be flown out.
How will the semiconductor industry survive? The U.S. stock markets will crash. Any suggestion on how to protect ourselves? Thank you for your insight.
– Paul B.
Nomi’s response: Hi, Paul. Thank you for your email. You make some interesting observations.
The “military exercises” China engaged in around Taiwan following Pelosi’s visit closed the entire Taiwan Strait to commercial shipping and closed the skies above the island to all air traffic.
So there’s no doubt it was a form of blockade. But it was temporary…
It’s debatable China could pull off a longer blockade without collapsing its own economy. It would almost certainly isolate itself from its most important trading partners.
And that’s particularly problematic now for Xi Jinping. Economic growth in China is already slowing thanks to ongoing Covid-related shutdowns and a blow-up in the housing market.
But if it does do something stupid, it would trigger severe supply-chain disruptions.
Taiwan accounts for 65% of the world’s total chip production. And it makes 92% of the world’s specialized chips.
Apple and other U.S. companies depend on TSMC for the chips that go into electronic devices, cars and trucks, farm machinery, and household appliances. The U.S. military also relies on these chips.
If China invades Taiwan… or encircles it with a maritime blockade… Taiwanese exports of semiconductors would dry up. That would deal a hammer blow to the U.S. economy… financial markets… and the defense sector.
But here’s the thing…
This would have significant blowback for China. It also relies on TSMC chips. Despite pouring the equivalent of billions of dollars into developing its industry, it still controls less than 10% of the chip market.
That’s the most likely reason why China’s most recent attempts at economic coercion left Taiwan’s semiconductor industry unaffected.
One way to play this in your portfolio is to invest in U.S. chipmaker Intel (INTC).
The company will spend nearly $60 billion on new cutting-edge semiconductor plants in the U.S. and Germany. It won’t get these plants up and running overnight. But securing supply of semiconductors domestically… or from our allies… will be a top priority over the next decade and beyond.
That’s why Congress passed the CHIPS and Science Act this past summer. The bill allocates more than $52 billion to chipmakers like Intel to research, design, and build semiconductors and plants in the U.S.
Intel has already announced a new $20 billion plant in Ohio. It expects to boost its margins and expand operations thanks to the CHIPS Act. That means it will be able to compete against major foreign chipmakers like Nvidia, Samsung, and TSMC.
Switching gears, crypto investors continue to face a brutal bear market.
Bitcoin is down 71% from its all-time high last November. And the world’s second most valuable crypto by market value, Ethereum (ETH) is trading 72% below its November peak.
So the hopeful message colleague and world-renowned crypto investing expert Teeka Tiwari delivered this week may surprise you.
As Teeka showed during his special briefing on Wednesday, the smartest investors in his network aren’t selling. They’re buying.
They’re using the lower prices the bear market has created to invest in the world’s best blockchain networks at steep discounts.
And he’s been urging his readers to do the same.
He’s targeting a niche within the crypto market he calls “Tech Royalties.” These allow you to take an amount as small as $1,250 and generate a five-figure monthly income.
Catch up on that here. Below, a reader wants to know more from Teeka about the granddaddy of crypto – bitcoin.
Reader question: Can Teeka give us another fireside chat on bitcoin and what he suspects will happen?
– William R.
Teeka’s response: I first recommended bitcoin to my readers in April 2016 when it traded for about $428. Since then, we’ve seen peak-to-trough falls of 41%… 55%… and 84%.
And even after more than six years of bone-crushing volatility, these price drops are still extremely tough to endure psychologically.
But after each time bitcoin has plunged like this… it’s gone on to new all-time highs.
And my research still points to more upside ahead.
A major source of adoption is the millennial generation. More than 44% of them own bitcoin or another crypto. And millennials are the largest demographic group in the country… larger even than the boomers.
And no Washington politician will disenfranchise 44% of the nation’s most important voting bloc.
The second big source of adoption is Wall Street. It now accepts bitcoin as a tradeable asset.
That’s why BlackRock, one of the world’s largest asset managers, just partnered with the Coinbase, the world’s largest cryptocurrency exchange.
Blackrock has over $10 trillion under management. Its institutional clients want access to this space so badly it’s teamed up with Coinbase to provide them an access point to crypto assets.
But we should still expect bitcoin to be highly volatile as it makes it way toward mainstream adoption. When breakthrough new technologies are in the early adoption stages, the volatility can be wild.
The internet took a similar path in the 1990s. Those who bought in early… and rode out all the volatility… made away with fortunes.
I wish it were otherwise. But there are no free lunches. That’s why I constantly remind my readers that volatility is the price we pay for the chance to make life-changing gains in crypto.
Finally, a question former Silicon Valley insider Jeff Brown on the wipeout in tech stocks.
The tech-heavy Nasdaq peaked last November along with crypto. Since then, it’s down almost 33%.
But that masks even steeper losses in once high-flying tech stocks.
Good afternoon, Jeff. I understand your stance on position sizing for our investments. But your thesis remains the same on the future of tech. So adding shares at today’s more favorable prices makes sense to me. Why is this not an effective strategy?
I’ve been a subscriber since early 2020. I thank you so very much for sharing your wisdom, knowledge, expertise, and guidance!
– Charles M.
Jeff’s reponse: Hi, Charles. Thanks for subscribing. And thanks for your question. I’m sure many readers are wondering the same thing.
As a publisher, I can’t give individual investment advice. But as a rule, this depends on the circumstances of each investor. Most important, it depends on how long you’re planning on investing in these stocks… how much you plan on investing… and your tolerance for risk.
Seasoned investors with extra money to invest… and the right time horizon and risk tolerance… are well suited to take advantage of today’s discounted prices.
It’s never easy to go against the crowd. But this is the best time to buy. The lower the price you pay to own shares in the world’s best tech companies, the higher your profits will be when you go to sell.
But like I said, it’s hard. So newer, or more risk-averse investors, can just focus on holding onto the stocks they already own… and making sure they don’t sell at or near the bottom.
For folks who are comfortable with scooping up bargains, here’s the shopping list I’d start with. These are all blue-chip tech stocks that will come back strong when sentiment shifts again.
Advanced Micro Devices (AMD) – AMD is a chipmaker that specializes in computing and graphics chips. It’s down 58% from its November high.
Corning (GLW) – This glassmaking company specializes in the production of fiber optic cables… and display screens for TVs, cars, and smartphones. It’s down 30% from its January high.
Block (SQ) – Block, formerly known as Square, is an online payment processing company. It’s down 79% from its November high.
That’s all for this week’s mailbag.
If you have a question for anyone on the Legacy team, be sure to send it to [email protected].
Have a great weekend.
Editor, The Daily Cut