In 2020 and 2021, we got rip-roaring years for markets.
Then, in 2022, investors suffered their worst losses since the 2008 global financial crisis.
If you’re new to investing, you may have made some moves you’ll regret – like selling out of your long-term investments.
But if you’ve been following along in these pages, you’ll know something most folks don’t.
The way to deal with bear markets isn’t to rush out of the market along with the crowd.
It’s to sit out the panic.
As billionaire investor Warren Buffett put it, “The stock market is a device for transferring money from the impatient to the patient.”
Impatient investors sell as asset prices tumble. Patient ones snap them up at bargain prices.
It’s the patient investors who end up getting rich.
If nothing has changed about the investments you own other than their prices, your No. 1 job this year is to ride out the volatility.
Plunges like the one we went through last year are a feature, not a bug, of markets.
We’ve had 12 of them going back to 1950, occurring roughly every six years. And, on average, they’ve taken the S&P 500 down 34%.
And that’s sleepy volatility compared with crypto.
Since bitcoin started trading in 2010, it’s gone through plunges of 50% or more at least once a year.
But the S&P 500 has averaged gains of more than 9% since 1950. That’s enough to turn every $10,000 into nearly $2.3 million.
And a $10,000 stake in bitcoin when colleague Teeka Tiwari first recommended it in April 2016 is now worth $390,000.
But you only earned those gains if you were able to ride out the dips and plunges along the way.
Yes, markets have taken a beating.
But as we’ll explore over the next few days, there are lots of reasons for optimism as we head into 2023.
Assets are selling at major discounts across the board. Meanwhile, many of the megatrends we track for you are kicking into a higher gear.
That means potentially life-changing profits for folks who ignore the doom-and-gloom brigade… and buy while others are selling.
So, this week here at the Cut, I’m showcasing some of the most profitable megatrends Teeka, Jeff Brown, and Nomi Prins have their eyes on. And I’ll show you how to profit.
Think of it as the optimist’s guide to 2023.
It’s the trend of onshoring advanced manufacturing in the U.S.
And as Jeff, our tech expert, has been showing his readers, it’s the start of a new wave of tech profits.
An example of this trend in action is the CHIPS Act. President Biden signed it into law last August. And it continues President Trump’s efforts to push back on globalization and bring manufacturing jobs home.
The CHIPS Act directs $280 billion in spending over the next decade to onshore semiconductor manufacturing capacity.
And it’s urgently needed.
The U.S. makes 12% of the world’s semiconductors – aka “chips.” That’s down from 37% in the 1990s.
That leaves many U.S. tech firms dependent on chips made abroad. And we learned last year how fragile those supply chains are.
This led to a shortage of chips in the U.S. – impacting everything from car manufacturing… to consumer electronics like smartphones and laptops.
It’s the island nation about 100 miles off the coast of China at the juncture of the East and South China seas.
Taiwan Semiconductor Manufacturing Company (“TSMC”) accounts for about 50% of the global “foundry” market. These are factories contracted to make chips designed in other countries.
And other Taiwan-based chipmakers claim a further 10% of the market.
That makes Taiwan’s position in the global chip market like Saudi Arabia’s position in the global oil market. Knock out production there, and all hell breaks loose.
And that’s a problem, given the mounting tensions between China and Taiwan.
Even since the losing side of the Chinese Civil War fled there in 1949, the Chinese Communist Party and its leaders have wanted it under their control.
And with Chinese leader Xi Jinping vowing to take over Taiwan by military force as soon as this year, the U.S. needs to build domestic chipmaking capacity – fast.
It’s creating high-tech manufacturing hubs in places we’d never expect.
U.S. chipmaker Intel says it will spend up to $100 billion to build what could be the world’s largest chip-making complex in Ohio.
This will include eight fabrication plants or “fabs.”
The company will also invest $20 billion into a mammoth fab in Arizona. That’s the largest private-sector investment in the state’s history.
Meanwhile, Samsung plans to spend $17 billion on a chip plant in Texas. TSMC is spending $12 billion in Arizona. And Micron Technology is looking to spend as much as $40 billion, also likely in Arizona or Texas.
GlobalFoundries, another leading chipmaker, wants to spend billions on a new facility in upstate New York.
Over to Jeff for more on how it all ties together…
The Great Recalibration has been a key area of research for me since 2019. For years, semiconductor industry execs have been warning about the fragility of our supply chains. But it took the pandemic-related lockdowns, and the resulting shortages, for the world to finally realize it.
The onshoring of the semiconductor supply chain that’s underway is the most exciting thing I’ve seen in decades. Intel, for instance, hasn’t broken ground on a new plant in 40 years. And it’s not happening in Silicon Valley. It’s happening in America’s heartland.
Everybody tends to think of Silicon Valley in California as the epicenter of chip technology. But that’s not where these investment dollars are flowing. In a few years, we may be talking about Silicon Valley West and Silicon Valley East. It’s an absolute transformation of the industry.
The obvious play is to buy shares in the companies building these new facilities – Intel (INTL), TSMC (TSM), Micron (MU), and GlobalFoundries (GFS).
And Jeff knows that sector well. He worked for chipmakers Qualcomm and NXP Semiconductors before joining the team here at Legacy Research.
But he says the more interesting angle is the tech that will power this new Silicon Valley. Back to Jeff…
One automation company I like as a way to play the Great Recalibration is Cognex (CGNX). It specializes in machine vision systems for manufacturing. These help firms inspect parts, spot defects, and guide assembly robots.
I also like Ambarella (AMBA). It’s another company that specializes in machine vision.
These stocks are “pick-and-shovel” plays on this larger manufacturing trend. That’s reference to Mark Twain’s line, “When everyone is looking for gold, it’s a good time to be in the pick and shovel business.”
This trend will take years to unfold. The most exciting, and high-growth part of this trend will unfold over next five to seven years. So, we’ll have plenty of great investment opportunities along the way.
And the rebirth of U.S. high-tech manufacturing is just one of the exciting developments in 2023.
That’s the message from colleague and world-renowned crypto investing expert Teeka Tiwari.
I know that seems like a crazy claim after the beating the crypto market took in 2022.
But as you’ll see in tomorrow’s dispatch, he’s predicting a bull market sometime in the last quarter of this year.
Regards,
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Chris Lowe
Editor, The Daily Cut