• I have mixed feelings about this project…
  • A new competitor for Microsoft-controlled GPT-3…
  • Bullish news for Ethereum…

Dear Reader,

Today’s Bleeding Edge is a special one. It’s the last regular letter of the year. We’ll still have our mailbag tomorrow, which I always enjoy.

However, our next normal issue will be in the new year on Monday, January 3rd.

But that doesn’t mean we’re done for the year. My team and I have been working feverishly this month to line up 10 more issues of The Bleeding Edge for you between the 20th and the 31st.

I use these issues as an opportunity to make predictions for the coming year. It’s always a fun process to think about what’s to come and how it might impact our investments and our lives.

That’s why the next two weeks are important. It’s always useful for us to peer around the corner so we’re prepared for what’s next.

It also gives the Brownstone Research team a chance to step back, relax, enjoy the holidays, and recharge for the new year. They’ve certainly earned the break, and I’m grateful for their support and teamwork. I simply couldn’t do it all without them.

As I look into next year, we have some incredible things to be excited about, and we also have things to keep a close eye on. Here are some risks for us to be aware of:

  • The inflation we’re experiencing is clearly not transitory. It’s comical to suggest otherwise. It’s very real. It’s the direct result of terrible fiscal policy.

    The question is whether or not it will be dealt with. Federal Reserve interest rates need to rise to get inflation under control, and the money printing needs to screech to a halt in order for that to happen.

  • How many more trillions of dollars will be printed next year? Obviously, this is closely tied to the issue of inflation, but it’s also tied to the job market. It also directly affects our purchasing power with the U.S. dollar.

  • There are more than 10 million open jobs in the U.S. alone in a strong economy, yet many are incentivized to stay home. Will everyone return to work? And will the economy return to pre-pandemic workforce participation rates? This issue is closely tied to the supply chain problems experienced in the U.S.

  • Will public health officials continue to pursue pandemic response policies that have now been proven to be completely ineffective?

    I won’t mince words here. Authoritarian and totalitarian regimes are bad for economies and eventually end in disaster. Will they succeed or will freedom reign? My belief is the latter.

  • Will China make its move to take control of Taiwan? This would have severe repercussions for the global economy if it happened. This is also an issue tightly linked to global supply chains, given the importance of the Taiwanese economy for the electronics and semiconductor industries.

On the bright side:

  • The pandemic is basically over. Omicron is extremely effective in transmission, but it results in nothing more than a mild cold. And this is exactly how mutations in viruses work.

    When they start running out of tinder, the mutations help to increase in transmissibility, but they almost always become far weaker.

    Omicron will spread widely to infect both the vaccinated and unvaccinated parts of the population that have not yet built natural immunity through exposure to the virus, which is the only thing that results in long-lasting, durable, cellular immunity. Omicron is about the safest, best mutation that we could have asked for to accomplish that end.

  • The technological advancements that we saw this year in artificial intelligence (AI), machine learning (ML), nuclear fusion, robotics, autonomous driving, and so many other fields were mind-blowing. There is much more of that to come in 2022.

  • We have just been through two years of record levels of funding in private technology and biotechnology companies. Companies are able to innovate and iterate at speeds never seen before, which is bringing new technologies and therapies to market at an unprecedented pace.

  • There is still a massive backlog of hundreds of exciting private companies lining up to go public in 2022. We’re going to see the continuation of newly trading public companies that will create great investment opportunities for us.

  • The private capital markets are opening up to all investors as a result of changes in crowdfunding regulations. We are part of this movement, and I simply can’t wait for what’s in the pipeline for next year.

  • Interest rates will remain at extremely
    low levels, which will continue to power healthy stock markets, presuming that none of the risks listed above implode the markets.

  • With the pandemic quickly coming to an end, the biotech industry will finally get its footing and resume the normal pace of clinical trials.

    While research and development never stopped during the pandemic – it actually accelerated – pandemic policies deeply affected clinical trials in a negative way. In terms of value and upside potential for 2022, this is the one sector of the market that I am most excited about.

My belief is that the positive developments will prevail in 2022, and many of the risks will be mitigated by a rapid shift away from failed public policy.

We’ll be here every step of the way with you in 2022. Good, bad, or indifferent, I’ll do my best to provide objective and unvarnished insights on what’s happening in the world so that we can make informed decisions about our investments and our lives.

I’m grateful to all of you, my dear readers, for the engagement, feedback, and support throughout 2021. It really motivates my team and I to keep pushing ahead and building products and services that simply don’t exist anywhere else.

Thank you, and best wishes for a wonderful Christmas, New Years, and holiday season wherever you may be.

We have so much to look forward to.

Next-generation nuclear fission is coming to Wyoming…

TerraPower, a company founded by Bill Gates, just released plans to build its next-generation nuclear fission reactor in Kemmerer, Wyoming.

And while this is a large improvement from legacy nuclear fission technology, I have very mixed feelings about this development.

TerraPower calls its nuclear reactor design “Natrium.” The word is likely a play on the symbol for sodium (Na), nature, and uranium. And that speaks to the reactor’s unique design.

The Natrium reactor is smaller than legacy nuclear fission reactors. One reactor will only power about 400,000 homes. It produces about half the electricity of what today’s reactors will produce.

What’s unique about the design is that it uses liquid sodium, which can absorb a lot more heat than water. This reduces the pressure within the reactor, which in turn reduces the risk of explosion. It’s a much safer approach.

And each Natrium reactor costs about $1 billion to build. That makes them 25 times cheaper than a legacy nuclear reactor.

But here’s the downside…

This is still nuclear fission. That means the reactor needs enriched uranium. And the Natrium design requires 20% enriched uranium, which is far higher than legacy reactors. Traditional nuclear fission requires only 3–5% enriched uranium.

This means it requires weapons-grade enriched uranium and the processing equipment to make it. If this material fell into the wrong hands, it could be used to create nuclear weapons.

Safeguards could certainly be put in place, but the risk still exists. And if a lot of Natrium reactors were to be built, that risk would only multiply.

What’s more, the Natrium reactors still produce nuclear waste that must be dealt with. To be fair, it’s less waste than legacy reactors. But disposing of nuclear waste is very difficult. We do not yet have reactors that can process that waste. And that comes with risks as well.

To me, nuclear fusion is a much better solution. I agree that the Natrium design is a step up from traditional nuclear fission, presuming the risks are managed properly.

Still, I think this is largely an unnecessary step. And even assuming that the Natrium reactor is a success, it is not expected to be producing electricity on the grid until 2030. Therefore, it doesn’t even provide us with a time advantage.

After all, we have seen tremendous progress with fusion reactors this year. As a reminder, nuclear fusion technology can produce 100% clean and limitless energy. There’s little to no waste to deal with. And since it doesn’t use radioactive material as fuel, there is no risk of weaponizing anything.

I’ve predicted that by 2024, we’ll see the world’s first net energy production demonstrated by a nuclear fusion reactor. And every development in the industry that I saw this year gives me more conviction that the industry is on track to hit that target.

That means that safe, compact, radioactive waste-free nuclear fusion reactors could be producing commercial electricity well before Natrium comes online.

Still, TerraPower’s first Natrium reactor in Wyoming is worth watching. The project has support from the Department of Energy (DOE), which invested half a billion into it directly.

What’s more, TerraPower will receive $1.5 billion as part of the Infrastructure and Jobs Act that Congress just passed. It is scheduled to apply for its permit to build in 2023, so the real wildcard is whether or not the project moves forward. It could conceivably be blocked.

And interestingly, the first Natrium reactor will feed into PacifiCorp’s power grid. PacifiCorp happens to be owned by Warren Buffett’s Berkshire Hathaway.

That makes this project something of a joint effort between Gates and Buffett, who have had a long, enduring friendship. They both certainly have enough capital to make TerraPower a reality.

Grammarly is going to surprise a lot of investors…

Grammarly – the company that provides a popular grammar check tool – just raised $200 million in a late-stage venture capital (VC) round.

Believe it or not, this values the company at $13 billion… which is remarkable for what appears to be a simple piece of software that checks grammar and spelling.

I don’t think it needs the money, so I suspect there is something larger at play here…

It’s a great product and a simple business model that has proven to be very effective. The company offers its basic grammar/spellchecking software for free, and it also provides some premium features for customers willing to pay for a subscription.

In addition, Grammarly has focused heavily on integrations. The software can be integrated with commonly used software packages like Microsoft Office, Slack, Discord, and Jira. These are popular platforms that millions of people use every day.

Functionally, it’s simple and effective. Most people who use Grammarly have no idea that they are using advanced artificial intelligence (AI).

The company has developed an incredible natural language processing (NLP) model – a form of AI. And Grammarly uses machine learning (ML) to help the AI improve over time.

So Grammarly may look like a company that just produces simple software, but it’s really an AI company. And that’s where this $200 million raise comes in.

I believe that Grammarly could become an alternative to OpenAI’s GPT-3.

As a reminder, GPT-3 is a natural language processor capable of understanding natural language, processing it, and generating output. With basic input from users, GPT-3 can write short stories, technical manuals, and even write software code.

Yet because Microsoft has become the exclusive licensee of GPT-3 code, controlling who gets access to the tech, there’s now a major need for an alternative. Why not Grammarly?

Given Grammarly’s superb technology, it’s not a stretch to think the company could use this $200 million to evolve into a text generator that can write articles and even software code as well.

This is a company we’ll be watching closely in 2022. It may not be what it seems. There may be a much better development here.

I think Grammarly could quickly become one of the world’s hottest AI companies if I’m right. And that would make it a fantastic investment target at the right valuation.

This company is powering the Ethereum ecosystem forward…

Another $200 million VC round caught my eye this week. This one was by a company called ConsenSys. This is an interesting company that is seeding a lot of activity in the Ethereum (ETH) ecosystem.

ConsenSys was founded by Ethereum cofounder Joe Lubin. The company serves as a consulting arm and incubator within the Ethereum community.

Blockchain projects building on top of the Ethereum blockchain can work with ConsenSys to get tech, business, and even financial support. In exchange, the upstart blockchain projects pay ConsenSys with either equity in their company or their own digital asset tokens.

Lubin used a chunk of the wealth he generated with his ETH holdings to get ConsenSys off the ground. And he uses the company to stimulate development within the Ethereum ecosystem.

ConsenSys has also made some big acquisitions along the way. One of the most notable was Quorum, which ConsenSys bought from JPMorgan last year.

Quorum is a “permissioned” blockchain platform designed to serve the banking industry. Unlike Ethereum, the blockchain isn’t open for anyone to use. Only those who are invited may build on Quorum. Hence the “permissioned” label.

Still, more than 100 banks are now using Quorum’s platform. And get this – 10 central bank-backed digital currency (CBDC) projects are being developed on Quorum as well.

The fact that ConsenSys could acquire this platform from JPMorgan speaks to the company’s scale. That makes it unique in the digital asset industry. Not even Bitcoin has an entity geared toward incubating projects and making big acquisitions.

And the sale of Quorum to ConsenSys actually makes sense.

To have one single band like JPMorgan controlling the software serving many central banks would likely be seen as having too much control. At least ConsenSys is seen as more of an independent entity tied to the broad Ethereum ecosystem.

And this $200 million funding round is only going to help ConsenSys scale even more. The firm plans to use these funds to hire 400 more employees around the world – each of whom will help drive further adoption and development on the Ethereum blockchain.

So, we will be watching the Ethereum ecosystem closely next year. It will continue to grow. I expect we’ll see some big developments over the next 12 months. And that’s bullish for the price of ETH.

That’s why we’ll also be keeping a close eye on this space for potential investment opportunities going forward.

As these kinds of projects grow and mature, they become big winners for readers… To learn more about some of my recent recommendations, go right here for the details.

Regards,

Jeff Brown
Editor, The Bleeding Edge

Like what you’re reading? Send your thoughts to [email protected].