Dear Reader,
It’s now a game of chicken… Only the stakes are much higher.
As the U.S. enjoyed the three-day weekend that Labor Day provided, Europe didn’t fare so well. Russia shut down Nord Stream 1, the main pipeline for natural gas to Europe.
The requirement to turn it back on, and potentially Nord Stream 2, is simple: the West must drop the sanctions against Russia.
Russia claims that it had to shut down the pipeline as sanctions have made it impossible to get critical turbines repaired. True or not, it doesn’t really matter… Russia is in an incredible negotiating position.
The ruble is the strongest it has been in the last seven years, and Russia has found an outlet for its natural gas in India, China, and other Asian countries. In short, its currency – and its energy industry – are thriving.
But there is some funny business going on… The European sanctions aren’t at all what they seem.
Europe’s imports of liquified natural gas (LNG) grew an incredible 60% in the first half of this year. That’s an enormous jump, which obviously helped offset the loss of natural gas from the Nord Stream 1 pipeline.
But where is that LNG coming from? The answer is China. China has been happily reselling its LNG to Europe in its time of need.
But where is China’s LNG coming from? The answer is Russia!
Russia sells its natural gas to China, and then China turns around and sells the natural gas back to Europe. And the European politicians get to virtue signal about their sanctions of Russia’s natural gas. Makes perfect sense, right?
Europe is buying so much of Russia’s LNG – through China – that at the current pace, it expects to fill 80% of its natural gas storage facilities by November. The worst part is that this sleight of hand comes at the cost of normal Europeans, and it is grossly enriching both Russia and China, exactly the opposite of what we were told the sanctions were intended to do.
Also of interest is that this information isn’t available from mainstream media. Even search results on Google make it hard to find. Our news “feed” is being manipulated to such an extent that the global “cabal” simply doesn’t want us to know what’s happening behind the curtain.
There were peaceful protests across Europe over the weekend about energy prices. Paris, London, Prague, and Cologne, Germany held massive protests in the tens of thousands of people.
It’s incredibly moving to see something like this happening… But it’s not surprising. After all, who can afford to pay their electricity bills if prices rise by 5X or even 10X in just a matter of months?
These kinds of protests are the type of thing that we’d expect to see on the front page of every newspaper, the lead on the nightly news, or on the website landing pages of CNN or the BBC. But nothing. Nothing was to be found. We are made to believe that these things aren’t actually happening.
This level of media distortion, filtering, and manipulation is truly frightening. My team and I have never had to work so hard to figure out what is actually going on.
Europe will likely have enough energy to survive the winter and keep its factories – and its economies – running. But the LNG imports from China (which come from Russia) will not be enough to fuel entire countries, nor will it be enough to cause a precipitous fall of the cost of electricity so citizens can keep their homes warm in the winter.
Which brings us back to the game of chicken.
One might argue that Russia has made somewhat of a “kind” overture due to its timing in turning off Nord Stream 1. It comes right at a time when September will bring cooler temperatures to Europe, and well before the very cold temperatures of winter. If there is a time of the year to go without air conditioning or heating in Europe, it’s now.
Seeing hundreds of thousands of European citizens die from the cold or from starvation this winter is not an “acceptable or necessary sacrifice,” from my perspective. Nor is sending an even larger number into poverty because they have to spend their savings on grossly inflated electricity bills.
The only thing that is happening is the shift of European taxpayers’ savings to China, and ultimately to Russia. It’s absurd.
Let’s hope both sides sit down at the table and figure out a way to turn the pipeline back on… preferably both of them. It’s pretty obvious which side will flinch first. It appears Russia holds most of the cards, the sanctions clearly haven’t worked, and the charade has become all too obvious.
We have been discussing what I call the Great Recalibration quite a bit recently. This is the massive reshoring of manufacturing for high technology in America and Europe.
Last month, this trend brought us the U.S. Chips Act, legislation that sets aside $52.7 billion for companies willing to invest in semiconductor manufacturing on U.S. soil.
This bill prompted semiconductor giant Intel to propose up to a $100 billion semiconductor campus in Ohio – just outside of Columbus. And this is on top of a previous announcement to build two new semiconductor factories in Chandler, AZ, just a few days ago.
Just for context, today’s bleeding edge semiconductor factories cost billions, usually more than $10 billion, to build. Intel originally budgeted $20 billion for the two Chandler fabs, but that cost is now expected to increase to $30 billion with this latest bout of inflation.
These investments are fantastic news. Producing semiconductors on U.S. soil simplifies the supply chain and reduces the likelihood of extreme semiconductor shortages in the future.
But this does present Intel with an interesting dilemma…
There’s a common problem that all publicly traded companies in the industry face. When they commit to building new factories, it creates a few years where the quarterly financials look really bad.
That’s because they are spending billions of dollars in the present, but they won’t generate any additional revenue until the plants are completed. It’s a multi-year process to build and commission a plant, and this creates a very unprofitable window… one that tends to negatively impact the share price when quarterly earnings are announced.
What’s more, semiconductor companies typically take on debt to finance this process. But if we look at Intel, it’s already loaded with debt – to the tune of $35 billion. And it’s on pace to generate negative free cash flow this year and next.
That’s not a strong financial position… which makes new debt even more expensive. But Intel came up with a creative solution. The company just announced that it will partner with private equity (PE) company Brookfield Asset Management to build the two Arizona factories.
Per the deal, Brookfield will share the costs of building out the new plants. Then, when they are complete, the PE firm will receive a share of the revenues the factories generate from product sales.
As regular readers know, I’m typically critical of Intel’s poor strategy, management, and lack of execution. But in this case, I must give them credit. This is a smart move to manage debt levels and find a creative way to finance the $30 billion expense.
This is an interesting deal structure… And I suspect this might start a new trend in the industry.
The world of private equity continues to carry record levels of dry powder. These kinds of large projects would be a great outlet for all that capital, presuming that other semiconductor firms are willing to share in future revenues.
Today is Apple’s annual iPhone product launch day. Apple typically holds this event sometime in the first two weeks of September every year.
This year will feature the iPhone 14. I’m sure Apple will announce some other developments around its software as well.
I always look forward to this event each September. But I must admit, this year I’m much more excited about what’s coming next…
A few days ago, Apple released some trademark filings around its augmented reality (AR)/virtual reality (VR) headsets. And they were quite interesting.
Apple usually files its trademark applications through a proxy company. And this time was no different. It’s a weak attempt at secrecy that doesn’t throw off anyone who understands Apple’s practices.
That said, several names pop up all over the place in these latest filings, including Reality One, Reality Pro, and Reality Processor. And this is consistent with Apple’s previous trademark filings for AR software, called RealityOS.
I expect that we’ll hear a lot more about Apple’s upcoming AR/VR launch later this year. It’s a completely new computing platform where new applications will be developed. So I believe Apple will dedicate a standalone product launch event to it.
The naming implies that there will be a high-end version (the “Pro”), a mass-market version (“Reality One”), and a custom processor (“Reality Processor”) upon which Apple’s AR/VR tech will run.
And the big takeaway here is Apple’s emphasis on the word Reality. Clearly, Apple expects consumers to spend a lot of time in augmented or virtual worlds – metaverses. These new “operating environments” will actually become “reality” for many who exist in them.
In fact, a recent study shows that people in the Gen X, Millennial, and Gen Z generations are likely to spend four or five hours a day immersed in virtual worlds. And this is not just for gaming and entertainment. We are going to see productive activities move to these metaverses as well.
Clearly, Apple is positioning its AR/VR offering as a new reality of sorts. I don’t expect any AR/VR product announcements at today’s event. This will be an entirely new computing platform, so we should expect to see a dedicated launch event within the next 6–9 months.
We’ll wrap up today with a topic that’s on the bleeding edge of biotechnology. An interesting company called LyGenesis is pioneering a whole new approach to addressing liver disease.
As we know, there’s a massive shortage of livers available for transplantation. And it’s somewhat difficult for people to qualify as eligible patients to receive a transplant.
One solution to this is called xenotransplantation. We’ve discussed this a few times before… It’s the process of growing organs in genetically modified animals and transplanting them into humans.
While xenotransplantation is showing promise, it’s not without risks… mainly that the human body will reject the organs. In an ideal world, human transplant patients would like to receive human organs. That happens today with organ donors, but there is always a shortage of available organs, and the waiting lists are long.
LyGenesis is working to solve this critical problem. Here’s how…
LyGenesis is taking cells from donated human livers that weren’t suitable to serve as a transplant. Then they inject these cells into the patient’s lymph node to grow liver tissue inside the body.
This creates what is basically a new mini-liver. And the mini-liver helps restore liver functionality to patients suffering from liver disease. It’s a remarkable approach.
And here’s the best part…
The cells extracted from a single donated liver can support 75 patients using LyGenesis’ technique. That has the potential to solve the problem of liver transplant shortages very quickly.
That is… if LyGenesis can get its technique approved through the U.S. Food and Drug Administration (FDA).
In their preclinical trials, LyGenesis demonstrated that this approach was very successful in mice. The company is now advancing into human clinical trials. The first trial will feature 12 patients with end-stage liver disease that aren’t eligible for liver transplants.
This has all the making of what could be a groundbreaking clinical trial. If successful, it could save the lives of these first 12 patients… and potentially thousands more in the years to come.
I’ve never seen anything quite like this before.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
