- My thoughts on our supply chain issues…
- “It makes my blood boil…”
- Books at the top of my reading list…
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology.
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.
The ramifications of supply chains…
Let’s begin with a question on the supply chain crunch…
Does Jeff have any thoughts on the supply chain issues? Some are saying it’s going to be really bad, but I trust Jeff on the real scene and its financial ramifications.
– Greg R.
Hi, Greg, and thank you for sharing this question. This is a topic that has really been on my mind lately.
And it is a topic that has been poorly covered by journalists and the financial press. They tend to cover only one aspect of what is happening, rather than examining the entire picture.
The reality is that, in general, there is plenty of manufacturing capacity to meet the current demand. And in most cases, the products have already been manufactured. The problem has been that these products are stuck either on a ship waiting to unload or on cargo containers sitting at a dock.
About 500,000 containers are just sitting off the coast of Southern California doing nothing. The ships are just waiting to dock at the port of Los Angeles or Long Beach. And on top of that, there are 250,000 containers just sitting at the docks waiting to be picked up.
Container Ships Waiting Offshore
Source: Popular Science
I’ve seen the same thing with my own eyes as I recently flew over both San Francisco and Savannah, Georgia, which is a major port on the east coast. It’s absolutely crazy.
The issue is that many dockworkers have refused to return to work. A similar situation, but not as bad, has also happened with truck drivers.
The most frustrating thing about this logjam is that it was completely avoidable. The government paid people not to work, literally. And it has been incentivizing workers to stay unemployed. This is a direct consequence of these terrible policies.
To put things in perspective, there are almost 11 million jobs available, and 9 million unemployed. Many simply don’t want to come back to work. We have a surplus of jobs due to the strength of the economy pre-pandemic. It was so strong, it just shrugged off the pandemic and kept moving.
And the reality is that if a container of products hasn’t yet been shipped, there is no way that it will be in stores before Christmas. It’s going to take months to clear out the backlog, and that assumes that people come back to work on the docks.
The one area where there is genuinely a manufacturing bottleneck is the semiconductor industry. On average, the semiconductor industry is seeing almost a 22-week order lead time. That’s the time it takes from placing an order for a semiconductor to receiving it for manufacturing.
Imagine that. Having to wait more than five months to get the semiconductors so that you can manufacture your product. Insane. I’ve never seen it this bad in the semiconductor industry.
This is entirely demand-driven. And the pandemic contributed to this problem. With the ridiculous and irrational lockdowns and the dramatic increase in remote work, consumers have been buying more electronics devices. And that, coupled with a massive technological upgrade in both wireless networks (4G to 5G) and Wi-Fi networks (to Wi-Fi 6), made this a perfect storm for the semiconductors to be at full production.
As I wrote in yesterday’s Bleeding Edge, if Apple is having trouble getting its semiconductors, we know it must be even worse for everyone else.
With all that said, we’re in for a tough holiday season. We should get our holiday shopping done right away.
I expect that the problems at the ports in the U.S. will last another couple of quarters, and the semiconductor lead times will still be extended well into the second half of 2022. (I’ve shared ways we can profit from this unique supply chain situation right here.)
And this is why I believe many companies will return to onshore manufacturing… They have learned a tough lesson over the last year and a half. If companies and countries want to be more in control of their economic future, they need a more resilient domestic manufacturing base.
The reality is that the labor cost differentials just aren’t that large anymore. And with technologies like 3D printing, computer vision, robotics, artificial intelligence (AI), and automated manufacturing, companies can now affordably make products in developed markets.
So while we will feel the sting of the current supply chain disruptions for some time yet, I’m confident we’ll begin seeing vast improvements in this area going forward. This was the catalyst we were waiting for.
My thoughts on the Fed vice chair controversy…
Next, a reader wants to know more about some recent headlines…
Dear Jeff, I’d like to share a compliment. I really respect how you and your team always publish the harshest criticism and answer directly and honestly.
Your answers are always sincere and show how much you really do care about your subscribers. This really does make a huge difference. Just want you all to know it does not go unnoticed.
Please do share your thoughts on the Fed vice chair controversy in any of your upcoming letters if appropriate. On the face of it… it makes my blood boil, and I’d like to know if I’m missing something!
– Yogesh M.
Hi, Yogesh, and thank you for your compliment. I never shy away from publishing negative feedback. It provides a great opportunity to address topics that are important to readers and put issues into context.
Not doing so would be a disservice to my subscribers, as oftentimes reviewing topics like these can make for great learning opportunities.
As for the topic that you bring up, this is one that gets me really riled up. And it is tied into a much larger problem.
For readers who missed it, at the beginning of this month, the Federal Reserve made headlines by announcing it will investigate trades by a handful of officials around the time of the COVID-19 lockdowns in 2020.
Vice Chair Richard Clarida, Dallas Fed President Robert Kaplan, and Boston Fed President Eric Rosengren each made significant transactions last year that have come under question. And Kaplan and Rosengren have already resigned as a result – though each claimed innocence of any wrongdoing.
These officials are suspected of using insider information to profit in the stock market. It is illegal for elected officials to trade on non-public information.
And it is, of course, illegal for anyone to trade on insider information. Sadly, those in the government are not held to the same standards as investors. And this crazy discrepancy always comes down to it being difficult to prove.
This issue has been around for decades. And it finally came to light in 2011 when 60 Minutes ran a piece of investigative journalism that exposed what was going on. Those were the good old days when objective journalism still existed in some of the larger media outlets. Those days are gone.
The 60 Minutes episode resulted in the Stop Trading on Congressional Knowledge Act – or the STOCK Act. This act reinforced that congressional officeholders were not exempt from securities laws prohibiting insider trading.
Astonishingly, prior to the STOCK Act, it was widely held that the rules didn’t apply to congressional officeholders. They could trade on anything with almost no risk of recourse.
Yet it still continues. Nancy Pelosi is often used as an example of how corrupt the system still is. She and her husband were recently exposed in a Fortune article for having just made $5.3 million on a single trade related to an antitrust bill.
Making the trade even more suspicious, Pelosi’s husband put millions to work on a risky options strategy that theoretically could have gone to zero. The use of options suggests that Pelosi knew the specific timing of the antitrust-related matters and used it to his great advantage.
The Pelosis are now worth about $120 million. There are many out there that build their model portfolios based on what the Pelosis are buying because they know they are using inside information to place trades. Ironically, this is a legitimate investment strategy.
This kind of behavior makes me sick to my stomach. If any of us were to trade on insider information, we’d be thrown into jail just like Martha Stewart was.
Yet Pelosi, the Vice Chair, and so many others have been getting away with this nonsense for decades. No repercussions, no recourse at all. Disgusting.
And not to conflate issues, but it remains incredible to me that the U.S. Securities and Exchange Commission (SEC) doesn’t allow normal investors to invest in private companies.
These are by far the most attractive assets to build generational wealth, but the government won’t allow us to invest… yet they are permitted to trade and profit from non-public information.
The crazier part is that their defense is almost always what is referred to as the “mosaic theory.” This basically states that those working within government are exposed to all kinds of non-public information from various sources. They typically claim that there was no one single source of information that informed a trade, nor can they ever be sure which information is accurate or not.
Yogesh, you’re spot on. Your gut is right. This is criminal, it’s not fair, and it’s not right.
Let’s conclude with a question about Jeff’s reading list…
Hello, My name is Clayton D. I am an everyday reader of The Bleeding Edge and a loyal Brownstone Unlimited member. I enjoy reading the newsletters and always look forward to learning about new bleeding-edge technologies and investments.
I am wondering if you have a list of books that you can recommend on various topics like bleeding-edge technology, cryptos, investment research, philosophy, etc. I am always looking to strengthen my knowledge no matter the topic and figured you may have some good book suggestions.
– Clayton D.
Hi, Clayton, and thanks for being a loyal subscriber and hanging out with me a bit every day. I’m very glad to have you along as we invest in the bleeding-edge trends we cover in my research services.
I’m glad that you asked this question. It is a good reminder for me. I have been meaning to compile a more comprehensive list of reading for my subscribers like you that want to dig deeper.
I think the list would be too long if we explored every area of technology, so I’ll give you a few that talk more about technology, how it is adopted, and the impact of technological revolutions. If we develop a good framework for thinking about these things, we will become better investors.
Information Rules by Carl Shapiro and Hal Varian
Technological Revolutions and Financial Capital by Carlota Perez
The Innovator’s Dilemma by Clayton Christensen
The Internet of Money Volumes One and Two by Andreas Antonopoulos
DeFi and the Future of Finance by Campbell Harvey, Ashwin Ramachandran, and Joey Santoro
Investment Valuation by Aswath Damodaran (Note: this is more of a reference book, but it is excellent and useful)
Meditations by Marcus Aurelius (a stoic mindset is very useful in becoming a great investor over a longer period of time)
The Beginning of Infinity by David Deutsch
And for a little fun, there always should be some science fiction:
The Diamond Age by Neal Stephenson
Snow Crash by Neal Stephenson
Neuromancer by William Gibson
OK, that should keep you busy for a while!
That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here.
Have a good weekend.
Editor, The Bleeding Edge
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