- My thoughts on Intel’s new facility…
- What are the odds of China invading Taiwan?
- How wash sale rules work…
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.
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This is going to be a fun night, and I look forward to seeing you there!
Now let’s turn to our mailbag…
Intel is actually making a good move…
Let’s begin with a question on Intel’s new facility…
Hi, Jeff, I am a lifetime member and truly enjoy all of the information you provide through your various products.
I have one question for you. During the State of the Union address, President Biden mentioned that Intel is building a new facility in Ohio.
I am wondering with all of the items you have mentioned about Intel, what your thoughts are on this development, and is it related to your recent article on Intel moving into the digital asset space? Thanks.
– Dean P.
Hi, Dean, and thank you for being a lifetime subscriber. I’m glad you’re enjoying the research services we offer.
I’ve often critiqued Intel’s moves in recent years. Far more nimble competitors like Advanced Micro Devices (AMD), Qualcomm, Xilinx, and even smaller players have been eating Intel’s lunch for years.
Intel completely missed the market for mobile devices. The same is true for graphics processors or any chips to support the massive boom in artificial intelligence (AI) and machine learning (ML).
Worse yet, it’s years behind on delivering anything that looks like a leading edge semiconductor. Its own projects have been delayed by years due to technical issues. And despite having the financial resources to adapt, it’s barely grown in recent years.
Yet surprisingly, I have had some good things to say in the past couple of months.
In January, I commented on its plans to produce an application-specific integrated circuit (ASIC) optimized for highly efficient bitcoin mining.
As a reminder, ASICs are semiconductors designed to perform a specific application. While they cannot be reprogrammed after their manufacture, they are cheaper to make and consume less power once implemented.
It appears the first-generation ASIC will offer performance that’s on par with the best mining rigs on the market today… at 15% reduced power consumption. That means lower electricity costs, which will boost profits.
I do have a disclaimer, though. All I’ve seen is a PowerPoint presentation. We have no idea how this ASIC performs in real life. I’m going to set my expectations low and hope to be surprised.
With that said, having a U.S.-based supplier of a bitcoin mining ASIC will also make the industry more resilient in terms of available supply. So much of the world’s supply of bitcoin mining ASIC comes from one company in China – Bitmain – which is not healthy for the industry.
As availability improves, that may no longer be the case. We’ll have to see what Intel’s actual performance looks like.
Intel still has a way to go before I’d consider recommending it, but it’s encouraging to see it finally take some of the right steps to remain competitive and grow its business.
That brings us to manufacturing. Intel announced it will spend $20 billion to build two semiconductor fabrication plants (fabs) on the 1,000-acre plot in Albany, Ohio, with construction beginning late this year. The facility won’t actually open until 2025, however.
Fabs are incredibly expensive and time-consuming to build. They aren’t like normal factories. Imagine a massive factory that has to be built in such a way that it is a clean room.
Even the finest particles of dust can cause imperfections in the manufacturing process. This is why it usually takes two to three years to build a fab and bring it into operation.
So clearly, Intel’s plant will not have any positive impact on the current semiconductor shortage.
Intel is claiming that the Ohio facility will be the “largest silicon manufacturing location on the planet.” Impressive. And hopefully its true…
But I suspect this is just political positioning. And the government is trying to use a new moniker – the “silicon heartland.”
What’s incredible is that this is the first time that Intel is breaking new ground on a semiconductor manufacturing site in 40 years. While it has invested to increase production capacity in existing locations, it hasn’t been building new plants. That tells us a lot.
Intel’s CEO has stated that the Ohio plant will be used to manufacture chips at the 2 nanometer process nodes. If that happens by 2025, that will put Intel on the leading edge, but not the bleeding edge.
Taiwan Semiconductor Manufacturing (TSMC) will still be at least two years ahead of Intel by that time. But at least we know that Intel will be producing advanced chips at that location.
I’m glad to see this step toward moving semiconductor manufacturing onshore. That’s important given the disruptions to supply chains we’ve seen recently with COVID and now the new geopolitical unrest with Russia and Ukraine.
We’re at the early stages of what I call the Great Recalibration. And I’ll help my readers profit as we watch this trend take shape. To find out about some of my top recommendations, go right here to learn more.
This international threat is still hovering…
Next, a reader wants to know more about other geopolitical risks on the horizon…
Hi, Jeff, in your opinion, what are the odds of China invading Taiwan? It seems remote given the military buildup required.
But if the U.S. has no plans to get directly involved, and given that China has much more leverage over the U.S. than does Russia, it is a possibility. What then?
– Gordon E.
Hi, Gordon – thanks for sending in this question. It’s certainly a worry at the forefront of my mind as I watch the events unfolding abroad.
As I’ve written previously, China has a clear interest in taking control of Taiwan. Right now, Taiwan is the No. 1 country in the world when it comes to semiconductor manufacturing.
As a result, it would be devastating to see it fall under China’s chokehold. Taiwan-based chipmakers are responsible for the semis in almost all of our electronics – from medical devices and home appliances to our cars and phones and beyond.
This would give China the ability to control, alter, allocate, or completely stop the supply of key semiconductors in electronics that we use and need every day.
That’s one reason I’m happy to see moves like Intel’s that I discussed in the previous question.
We need to move to a decentralized manufacturing structure for security reasons as well as supply chain efficiency.
Even TSMC, the world’s largest semiconductor manufacturer based in Taiwan, understands this.
TSMC is building manufacturing plants here in the U.S. It’s doing this because it needs to de-risk its own business. If China gains control over Taiwan, at least it can’t control its manufacturing plants onshore in the U.S. or Europe.
I have already predicted that China will make some kind of move to take control over Taiwan.
My reasoning is that the current U.S. administration is the weakest that I’ve ever seen on foreign policy with deep conflicts of interest with China. If there were ever a time for China to make its move, it is now.
And the Russia/Ukraine conflict presents an even more opportune time given the current chaos. While the world is distracted, it is a perfect opportunity for China to make a move.
But I don’t believe that it will be a violent takeover. A much more likely scenario will be along the lines of what transpired in Hong Kong. A slow, creeping, administrative takeover of the island. Therefore, it won’t be an “invasion” like the one that we’re seeing in Ukraine, but more like a creeping occupation.
This would be a better outcome on a global level, as it would give the world time to make its own manufacturing bases and supply chains resilient before China would be in the position to “control” global production.
I’ll keep readers closely updated if anything appears to be shifting in the geopolitical situation abroad that might impact specific sectors or markets that we are investing in.
How to understand wash sale rules…
Let’s conclude with a question about wash sale rules…
I have an individual account and a Roth IRA. The Roth is all cash. Correct me if I’m wrong, but it’s my understanding there’s a 30-day limit on paying capital gains for selling a loss and then buying it back at the lower price.
Can one avoid that rule by buying that same item in one account (in my case, in the Roth) and then selling it in the other account? Also, can you have more than one Roth IRA account? Looking forward to your comments.
– Michael M.
Hi, Michael. As you know, I can’t give individualized advice. But I can speak generally on this topic. And it’s an important topic for all investors to understand, as it can have big tax implications.
When we sell a security for a loss, we report it when filing our taxes for the year. That loss can offset the capital gains we earned from other investments, thus lowering our income tax burden. For married people, this can offset our taxable income by as much as $3,000 a year.
However, this changes if an investor buys the same (or a significantly similar) security within 30 days of when they took the loss.
This is known as the “wash sale” rule. If an investor sells or trades a stock at a loss, but then buys the same investment back within 30 days, we don’t get to take the capital gains reduction.
This Internal Revenue Service (IRS) rule prevents taxpayers from claiming artificial losses to max out their tax benefit.
And the IRS doesn’t allow workarounds like the ones you suggested. Wash sale rules apply to investors, not accounts. So buying and selling the same security in different accounts will still fall under the wash sale rule.
In fact, even if a spouse or a business under your control buys or sells the security within that time frame, the same rules apply.
We should also note that if we buy and sell within the same account, our broker will track and report wash sales to the IRS. Yet if we perform these trades in different accounts, we’re responsible for tracking our wash sales.
To sum it up in simple terms, Uncle Sam wants his cut. So if we’re concerned about meeting these rules, we should consult a tax accountant.
As for your question about multiple Roth IRA accounts… the simple answer is that there is no limit to the number of IRAs we can open.
Yet opening multiple accounts doesn’t increase the amount we can contribute annually. In the case of Roth IRAs, the limit is $6,000 per year for both 2021 and 2022 (or $7,000 if we’re over age 50) no matter how many accounts we have.
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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