We’ve talked a lot about the rising tensions between the U.S. and China. That spy balloon floating across the continental United States certainly didn’t help smooth any of the animosity between the two countries…
And I hope it’s pretty clear that there isn’t anything that will help the U.S. and China get back on friendly terms. Maybe if China issued some kind of full apology for its sneaky behavior ever since it entered the World Trade Organization.
Something along the lines of “we’re sorry we stole U.S. technology and embedded spyware into consumer electronics, sorry for manipulating our currency, subsidizing industries like steel and solar panels and then dumping low cost products on the market to undercut competition, sorry for supporting the wing nuts in North Korea and Russia, sorry for sending fraudulent companies to list on U.S. exchanges and stealing directly from U.S. investors…oh, and sorry about that whole COVID thing…”
Yeah, the list of Chinese double dealings is a l-o-o-o-ong one, and the odds of a full mea culpa from President Xi Xinping and Co. is pretty much nil. It was a marriage of convenience to begin with and irreconcilable differences have broken the bond.
It’s over, and unraveling the entanglements of the globalized world economy is the defining investment/financial trend for the next decade.
Of course, the media is mostly focused on the political aspect of the U.S.-China spat. We get Congressmen accusing the president of bungling the spy balloon thing. We get National Security guys assuring us that they had it all under control. But as usual, the media coverage is about as significant as small talk at a political cocktail party…
Nobody’s really talking much about the deeper implications of the escalating Cold War with China …
The China Threat
You can write me off as an alarmist if you want. Like I’m just some guy trying to find the limelight in the black hole of the internet. But the U.S. is arming Japan with tomahawk missiles, opening military bases in the Philippines, sending nuclear subs to Australia, arming and training Taiwan’s military, running war games with South Korea…
A new Cold War has already started. And it’s not just a political action. It’s economic, too. Which means companies that do business in China are affected…which means, whether directly areas part of your retirement savings, you probably own stocks that are vulnerable.
U.S. companies have been moving supply chains and other operations out of China for a couple years now. Apple (NASDAQ: AAPL) has moved some of its iPhone assembly to India. GE (NYSE: GE), Generac (NASDAQ: GNRC), Ford (NYSE: F) – these are just a few of the companies that have moved supply chains out of China.
In many cases, supply chains and manufacturing are coming all the way back to the U.S. Bloomberg says that the “…construction of new manufacturing facilities in the US has soared 116%…[in 2022].”
If you wanna know why inflation and the jobs market have remained so strong while the Fed hikes interest rates, well, there you go. I’ve started calling this trend the Second American Industrialization™. And I believe we are at the start of a golden age for the American economy.
But there’s still a very real threat to individual American investors who don’t see the threat that China-dependent companies represent. Apple gets about 20% of its revenue from sales to Chinese consumers. For Tesla, it’s about 30%. General Motors (NYSE: GM) has nearly half of its factories in China…
It’s time for you to ask a simple question: WWWD?
WWWD (What Would Warren Do?)
When 13-F filings for the July-September 2022 quarter became public In November of 2022, we learned that Warren Buffett had bought $4.1 billion worth of Taiwan Semiconductor (NYSE: TSM) stock – around 60 million shares at around $70 a share. (From Investopedia: The Securities and Exchange Commission's (SEC) Form 13F is a quarterly report that is required to be filed by all institutional investment managers with at least $100 million in assets under management. It discloses their equity holdings and can provide insights into what the smart money is doing in the market.)
Now, Taiwan Semiconductor is a fantastic company. It’s a semiconductor foundry, meaning that it makes chips for other companies, using those companies’ designs. Taiwan Semi is literally the only company in the world that can make the most advanced chips, and so it has something like 90% market share for the chips that power iPhones, Artificial Intelligence (AI), advanced weapons systems, etc…
That level of dominance makes it a perfect Warren Buffett stock.
But of course, you don’t have to look very far to see the problem. It’s right there in the name: TAIWAN.
We all know that China wants to take Taiwan back. And if you ask me, this is why last week, in the latest 13F filings, it was revealed that Warren Buffett had already sold 80% of that Taiwan Semi stake.
It’s pretty clear what Warren would do. Question is: what are you gonna do?
That’s it for me today. Have a great weekend and I’ll talk to you on Monday…
Chief Investment Strategist
Pro Trader Today