- Why I don’t own my recommendations…
- How would markets respond to a Taiwan invasion?
- Can AI solve this “grand challenge”?
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in tech and biotech. Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here. I always enjoy hearing from you.
Why I don’t recommend stocks I own…
I appreciate all the information and data that comes through your service. It is eye opening to look at your thoughts. I do notice that every so often you make it a point to state that you do not invest in the recommendations you make. Why is that?
One part of me understands why. Another part of me says: Why invest if Jeff is not? What is he investing in? I’d like to invest in that instead. Anyways, any response would be appreciated. Keep up the good work.
– Alessio D.
Hi, Alessio. Thanks for being a reader. It’s a fair question. And I’d be happy to answer it.
As readers know, as a matter of our conflict-free policy, I do not purchase stock in anything that I recommend, and I do not recommend anything that I already own.
When I look at Wall Street, I see conflicts of interest everywhere, and I want to make sure we’re the exact opposite of that. My subscribers are my priority, and it is critical that I maintain objectivity. This is the best way that I know how to do this.
I’ve seen these conflicts happen all the time on Wall Street. For example, an investment bank puts all its most valuable clients into a stock first. And then in the weeks/months that follow, the investment bank talks up the stock on CNBC, at conferences, etc. This drives retail investor buying. Then, the high-net-worth clients take their profits off the table.
If I were to purchase stock and then recommend that same stock to my subscribers, it would be natural to question my motivation for recommending the stock. Does Jeff really believe in this company? Or is he simply trying to artificially boost the value of the stock for his own gain?
I’m sure many of us have seen pump and dump schemes. That’s a classic example of a major conflict of interest designed to benefit a small number of people at the expense of a large number of normal investors.
This is exactly the kind of thing that I want all of my subscribers to avoid.
The best operating principle that I know to avoid any concerns is to simply avoid the situation altogether. That’s why we have our policy in place. It’s my way of demonstrating that my only motivation is to find investments that exclusively benefit my readers.
Now, that isn’t to say that I wouldn’t want to own the stocks that I recommend. Were I to build my own large-capitalization portfolio, it would look exactly like The Near Future Report. And if I wanted to build a portfolio of small-capitalization growth companies, it would be identical to Exponential Tech Investor.
In fact, there are several occasions when I will pass on an investment that I would love to own precisely so I can recommend it to readers. My latest recommendation in Day One Investor is a perfect example.
Out of respect to paying subscribers, I won’t name the company here. But I can say it is a private investment for a fabulous company operating in the entertainment/gaming industry. It’s very rare to find a private investment of this caliber. Were I permitted to invest, it would likely be the largest holding in my private investment portfolio. But I wanted subscribers to have that opportunity.
To answer your question about ‘what is he investing in’? Because of this policy I actually hold a very limited number of publicly traded stocks. That’s because the ones that I would want to own are the ones that are in my model portfolios.
I invest most heavily in private investments and real estate because there are no conflicts of interest. These types of investments are not generally available to retail investors, and they typically have limited allocation, which means I would never be able to recommend them to my subscribers anyway – there’s not enough to go around.
I don’t view my investment recommendations as a zero sum game. Some take the mindset that if they can’t invest in a certain stock that they love, they are losing. I don’t think that way. I believe that I “win” when my subscribers win.
If I can bring great risk/reward investment opportunities to my subscribers that have a large enough allocation for many to participate, then my subscribers always get priority. And I can allocate my own capital into smaller investments that aren’t suitable for a large retail investor audience.
And even with Day One Investor, I don’t view my giving up the ability to invest in my private investment recommendations as a loss. Some private investment opportunities are really small, there might only be $100K allocation. That’s too small for my subscribers. So when I find a great company looking to raise $5 million, the first thing I think about is my subscribers, not my own portfolio.
Nothing makes me happier than when my subscribers win on investments. And I never want that to be tainted or questioned with any conflicts of interest. This really means a lot to me and how I manage my business.
What does a Taiwan “invasion” mean for markets?
I always enjoy your work in The Bleeding Edge!
I have a question about China’s potential takeover of Taiwan. From what you’ve said, it sounds like it’s inevitably going to happen, so how do you think it will affect the markets, if at all?
– Matthew L.
Hi, Matthew. Thanks for your question.
And yes, based on my analysis, I believe a “takeover” of Taiwan by China is inevitable and arguably imminent.
Recently, Xi Jinping got himself reelected for a third term as Chairman of the Chinese Communist Party. Historically, China had the same two-term limits as the U.S.
Xi had to overcome critics with some key commitments if he were to be allowed to serve a third five-year term, and probably the largest commitment of all was to reunify Taiwan with the mainland.
Xi will not lose on this point. He will not lose face. He will find a way to deliver on this promise. And I am confident that his plans have already been well in place for years. But to be clear, this doesn’t necessarily mean a military invasion of the island.
China doesn’t have to invade Taiwan with its military. It’s a possibility. But it’s not the most likely outcome. I lived and worked in Asia for decades as a technology executive. I’ve probably been to Taiwan a hundred times. And the reality is that China has been in Taiwan for years.
Very slowly, they’ve been asserting administrative control, placing “their people” in positions of influence and power. This is exactly what happened with Hong Kong.
One moment, Hong Kong appeared a semi-autonomous city, at least to the Western world. Then, it felt like all the sudden it very clearly falls under the heel of Beijing. I believe the same thing will happen to Taiwan.
What does this mean for markets?
Unfortunately, it’s not as easy as simply diversifying away from companies with connections to Taiwan. That’s a start, but the impact of this would be far-reaching.
As readers know, Taiwan is home to TSMC, the world’s largest semiconductor fabrication facility. In a real sense, TSMC is the “heart” of global semiconductor manufacturing.
If China is in control of Taiwan’s economic resources, it literally means that it has the power to hold the global economy hostage. Taiwan is that strategically important to the world.
The company has rapidly been diversifying manufacturing capabilities outside of Taiwan, but the majority of manufacturing for semiconductors—and all of the manufacturing for bleeding edge semiconductors—still happen on the island.
I do expect markets would react negatively to a “soft invasion,” but I don’t believe it would be world-ending.
My prediction is that China will allow Taiwan’s industries to operate—more or less— as they had before. However, I do expect the Chinese government will use their effective occupation of the island to extract concessions from the United States.
I expect a lot of posturing from the U.S. government. I predict we’ll hear plenty of speeches about how “unacceptable” it is.
But the Chinese position will be that it’s a Chinese matter. It’s none of America’s business. And if TSMC is allowed to operate more or less normally, then the U.S. will back down.
China is not Russia. The U.S. government may be willing to wage a proxy war with Putin, but it won’t pull the same thing with Xi. The reality is that too much of the American supply chain is still dependent on China-based manufacturing.
And China has certainly spent decades buying influence in the U.S., as well as supplanting its agents across the country. Most people don’t even know this, but it’s widely known in government and intelligence circles that China has police stations on U.S. soil to police its own citizens in the U.S.
It will likely be a tense few years, but longer term, this will be a good thing for U.S. manufacturing.
It was a difficult lesson to learn. But the Western world has finally realized that the security of critical manufacturing capacity is a matter of national security.
Plenty of executives in the industry have been warning about this for years (so have I). But it took the lockdowns, the shortages, and now this standoff between China and Taiwan for the world to finally realize it.
Better late than never?
The result of all this is that advanced manufacturing for our most critical industries will be coming back onshore. This is “The Great Recalibration” that I have been writing about.
Intel recently announced a $100 billion investment into Ohio – the heartland. It wants to build the world’s largest semiconductor manufacturing facility right next to cornfields. The company also announced a $20 billion investment into an Arizona facility.
This is the most exciting thing I’ve seen from Intel in decades. And it’s not happening in Silicon Valley. It’s extraordinary.
Samsung plans to spend $17 billion on a chip plant in Texas. And TSMC is spending $12 billion in Arizona. It needs to diversify its supply chain.
Micron is looking to spend as much as $40 billion – maybe in Arizona, maybe in Texas. On Semiconductors – another favorite of mine – has committed $720 million to take over and expand a GlobalFoundries fab.
And GlobalFoundries – a smaller competitor to TSMC – wants to spend billions on a new facility in upstate New York.
The future of high-tech manufacturing is taking shape before our eyes. And I’ll of course update readers as this trend plays out.
The intersection of AI and nuclear fusion…
Why can’t they use AI to solve the nuclear fusion problem?
– Edward R.
I believe the “problem” with nuclear fusion you’re referring to is the ability to create and maintain a stable fusion reaction. It’s a good question.
As a reminder to readers, nuclear fusion is different from nuclear fission. Fission is the “nuclear power” we’re familiar with today. It’s still a remarkably safe and environmentally friendly form of power, especially when compared to other sources of energy like coal.
However, nuclear fission does create radioactive waste, which does have to be dealt with. And while public opinion has been changing in recent years, nuclear fission technology unfortunately has a negative reputation.
It is not deserved, and certain organizations have gone to great lengths to create vast misunderstandings about how nuclear waste can be safely managed and stored.
Nuclear fusion, on the other hand, is the power of the sun. It produces very little and in some cases no radioactive waste. And, done at scale, the technology promises to deliver nearly limitless, clean, cheap energy for the world. In other words, it’s the holy grail of energy production.
There was a recent breakthrough with this technology and the end of last year. Researchers at the Lawrence Livermore National Laboratory (LLNL) announced that they had achieved “ignition” and achieved net-energy production via a fusion reaction.
On December 5, the National Ignition Facility (NIF) produced 3.15 megajoules of output from just 2.05 megajoules required to achieve ignition.
This was a major milestone for the technology, and something I predicted all the way back in 2019.
The plasma that the experiment created was only a tenth of a millimeter in diameter. It was about 10 times hotter than the sun and only lasted for a few billionths of a second. To commercialize this technology, the industry needs to find a way to produce, and maintain, a stable fusion reaction.
That’s easier said that done.
In most fusion reactors, the plasma is maintained using magnetic fields. And in order to maintain the reaction, thousands of variables have to be considered in real-time. That’s not a task for a human, but it could be one for an AI. And I’m not the only one who sees that.
Back in 2016, a nuclear fusion company called TAE Technologies held a venture capital funding round, raising $375 million. But what was interesting is that Alphabet (Google) was the largest investor.
On the surface, that doesn’t seem to make sense. Why is Google—a search and advertising company—investing in a nuclear fusion startup?
That answer is that Google is one of the most advanced artificial intelligence companies in the world. And the company has been investing heavily in quantum computing in recent years. Google was the first to demonstrate “quantum supremacy”—the moment when a quantum computer outperforms a classical supercomputer—back in 2019.
This is why Google’s investment into TAE is so critical, and so strategic. TAE is one of the most promising companies in the world working on nuclear fusion. It could take investment money from many different places. But TAE’s biggest challenge is using technology to maintain that optimal plasma condition.
As I said, there are thousands of variables that need to be analyzed, optimized, and controlled in real-time to make that happen. And that is exactly where artificial intelligence comes into play. Advanced machine learning applications are highly applicable to managing a fusion reaction in real-time.
To answer your question, Matthew, artificial intelligence can solve this problem with nuclear fusion. In fact, I would argue that it will be necessary to sustain these fusion reactions.
Right now, the nuclear fusion industry is building the hardware for five or six promising approaches to nuclear fusion energy. And in parallel, these companies are working on the software to manage and maintain the fusion plasmas.
We’re getting very close.
What happens between now and 2025 will be incredible. In five or ten years, we’ll be looking back at these years and remember “that’s when it all happened, that was the beginning, the breakthroughs, that led to limitless, clean, and inexpensive energy for the world.”
I also think that the world will reflect back and realize how much destruction was caused through mining for “clean energy” metals and minerals for batteries, solar panels, and wind farms.
The environmental damage, and unrecyclable waste has already become a massive problem, and the world is still producing its baseload electricity from fossil fuels. We’ve been focused on the wrong thing all along.
Nuclear fusion is the answer to clean energy. It can solve the baseload power “problem” for clean energy and ensure that all electricity produced is indeed green.
No other single technology could have a greater impact on reducinsg carbon emissions and reducing pollution than nuclear fusion.
Thanks again for the question.
Editor, The Bleeding Edge