The Next Black-Swan Event

Chinese and U.S. tensions in the Taiwan Strait... The next black swan... What war will do to the semiconductor industry... Red, yellow, and black flags... The safe havens... Don't ignore this warning... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] Chinese and U.S. tensions in the Taiwan Strait... The next black swan... What war will do to the semiconductor industry... Red, yellow, and black flags... The safe havens... Don't ignore this warning... --------------------------------------------------------------- Editor's note: We'll get to today's main essay on the next "black-swan event" to think about in a moment... But first, I (Corey McLaughlin) want to make sure we cover the latest news out of the Federal Reserve... The central bank wrapped up its latest policy meeting today. As we suspected, the Fed decided to keep its benchmark lending rate steady in a range of 5% to 5.25%. This means it has finally "paused" its interest-rate hiking spree after 10 raises over the past 15 months in an effort to slow the pace of 40-year-high inflation. In other words, for the first time in more than a year, the Fed is taking a wait-and-see approach with inflation and other indicators before it plows ahead with any more policies that could slow the economy. Specifically, the central bank says that "tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation" and "the extent of these effects remains uncertain." All the while, in its latest quarterly economic projections, the Federal Open Market Committee now projects that inflation will be higher than it previously thought for the rest of the year. The Fed plans to eventually raise interest rates by possibly another 50 basis points. As Fed Chair Jerome Powell said in a post-meeting press conference today... Nearly all committee participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year. I will have more analysis of the Fed's latest policy decision and the market's reaction in tomorrow's Digest. In the meantime, today I also wanted to share a special guest essay (and warning) from Stansberry Venture Technology editor Dave Lashmet. He wants to get the word out on an escalating geopolitical risk that he has been writing about for years, but which he believes the market has still not fully recognized... This possible black swan would upend the global economy in myriad ways... And it would change the fortunes of dozens of companies, abruptly creating new winners and losers. In today's essay, Dave shares his analysis of the situation, which he urges all investors to prepare for before it's too late. --------------------------------------------------------------- The South China Sea, June 4... A Chinese navy warship heads right for a U.S. destroyer and its traveling partner, a Canadian frigate... This is daytime, and there's no obscuring fog or rain. The Canadians recorded a video of the whole encounter, and the U.S. Navy shared photos... The Chinese ship closes within 450 feet of the U.S. destroyer. That's far closer than comfortable, as the U.S. ship itself is 505 feet long. Plus, the U.S. ship weighs 10,000 tons with an arrow-shaped bow carving through the water. It can't stop. The U.S. captain can slow the destroyer down, though. So that is how China's recent ramming attempt in the Taiwan Strait ended – with a near miss. There are rules against this sort of thing... Like a 2014 Memo of Understanding between the U.S. and China. The key rule is No. 5: "A ship may act in self-defense." All the other rules are to prevent Rule Five. See, the U.S. warship is named a destroyer for good reason. It carries 96 missiles, six torpedoes, and a 5-inch gun with 700 rounds. So, a single U.S. destroyer can turn a few hundred targets into flaming rubble, artificial reefs... or both. Best to not poke at the shark, then. But China is pushing the boundaries – literally: It's trying to claim the South China Sea as its own lake. Yet some $3 trillion worth of trade passes through this body of water annually... from Japan, China, South Korea, Taiwan, and the Philippines. Plus, tankers full of oil, coal, and frozen natural gas for these five Asian nations cross the South China Sea. That's why everyone but China is trying to prevent this takeover. And that's why a U.S. destroyer sailed in. Put simply, freedom of the seas is colliding with Chinese national ambitions... China has already built its navy. In turn, the U.S. Navy thinks – and I (Dave Lashmet) agree – that open hostilities could break at any time. We're talking months, not years. So that's why encounters in the South China Sea can be so dangerous. The U.S. and China are inching ever closer to war. More than likely, this war will include Taiwan – the next piece in China's puzzle map of recent conquests. You can add it to the list with Hong Kong, Nepal, Tibet, the Uyghur regions, and the Sino-Russian border. But Taiwan is different than all these other places, since Taiwan is a global player in one of the most important industries in the world: high-end silicon microchips. Today, chips run everything... your refrigerator, car, phone, and the Internet. So for you – and for your portfolio – a war between the U.S. and China involving Taiwan could be a disaster. This Digest is intended to help shield you from that outcome... Oh, THAT black swan... The technical term for an unforeseen calamity that massively disrupts markets is a "black-swan event." Of course, once this was coined, the man behind it tried to profit off it, calling everything a "black swan." So when COVID-19 broke out, calling it a "black swan" was an afterthought. That's because the market responded to the crisis within days – all in a single direction. Everything fell. For example, the U.S. benchmark S&P 500 Index closed at 3,338 on February 21, 2020. By March 20, it was down 31% to 2,305. That's a portfolio of stocks, though. Some individual companies like airlines and cruise lines fared even worse. Royal Caribbean (RCL) shares fell from $106 to $24 over the same period in 2020, a 78% haircut for investors. And if you'd seen this coming, you would have prudently gotten out of Royal Caribbean before the disaster. Alas, we don't have a time machine. So we can't go back in time to get you out of cruise-ship stocks before COVID-19. But we can explain that another major market upheaval is poised to happen, because of China and Taiwan. The worst-hit firm will likely be Taiwan Semiconductor Manufacturing (TSM)... It's based in Taiwan. Whether China's war with Taiwan starts with a naval blockade or a missile salvo, this chipmaker (best known as TSMC) is at ground zero. Even in a bloodless war, the Taiwanese stock exchange would simply end. TSMC shares could go to zero. Warren Buffett concluded that Taiwan Semiconductor [faces multiple unsurvivable threats]( so he sold every share of his TSMC investment. Unfortunately for the U.S. market, TSMC is only a foundry. It makes chip products designed by other firms. So if something happened to it, these other U.S. chip firms – collectively worth $5 trillion in market cap – would suddenly have no products at all. Yeah, that's the black-swan event. So, today, I want to walk you through the list of U.S. chip firms to find the survivors... I'll rank the competition and the risks they face in terms of yellow, red, black, and green. Apple is well positioned, yet it faces challenges... Apple (AAPL) invests in backup plans... For years, Apple saw an end to using cheap Chinese labor and the prospect of losing access to TSMC chips from Taiwan. To solve for the first problem, Apple invested in setting up product assembly plants in Tamil Nadu, India. To solve for the second, Apple is funding – with hard orders – a new TSMC chip factory in Phoenix, Arizona. Apple also designs its own semiconductors, like the Bionic chips, which include more graphics processing than a standard graphics card. In addition, Apple is supporting a new fabrication plant ("fab") for Samsung to manufacture chips for it in Austin, Texas – for logic, memory, or both. We suspect Apple also has a third plan: a "right of first refusal" for Samsung chips made in South Korea. There are only so many chip fabs in the world – most of which are running at 95% capacity already. Samsung also has yield problems: The company might start on some chips, but 3 in 4 won't work. It's neither simple nor cheap to add chip-fab capacity. But Apple is the richest player, so it sets the rules. Last quarter, Apple had $95 billion in sales, collected $28 billion in profits, and paid out $23 billion to shareholders. Apple holds $100 billion in debt, but that's just for appearances: It's securitized and at low interest rates. (More than likely, this is also to avoid repatriation taxes that the U.S. charges domestic firms on foreign profits.) The point is, if it seems like you're $100 billion in debt, then greedy politicians don't see you as a prize. Instead, it's shareholders who make out. But in any quarter, Apple has $25 billion to get out of trouble. That's bad news for the other "fabless" U.S. chip companies... because when the music stops, Apple wins. And now for the 'black flag' list... When we do our due diligence, any potential problem in an investment opportunity is a yellow flag. It means we see the risk. If there's no easy way around this risk, then it's a red flag. We don't invest. Worse is a black flag: When we think the company could be in such trouble, it can fundamentally shatter. Mind you, I am not talking about shorting these stocks – as we don't know when this risk might manifest. Still, it spooks us. That's where we are with four major U.S. fabless chip firms: Broadcom (AVGO), Nvidia (NVDA), Advanced Micro Devices (AMD), and Qualcomm (QCOM). Frankly, they can't all get around the problem of not getting chips from TSMC... because no one can outbid Apple. Graphically, the "China-Taiwan War Risk" problem looks like this for America's top 16 chip companies... By market cap, Apple dwarfs these top 16 U.S. chip firms combined. Still, we gave Apple a "red flag," as its disruption from a China-Taiwan conflict could upset its business for five years. Even worse, Broadcom, Nvidia, AMD, and Qualcomm might not have alternate suppliers for a decade. That's how long it could take for new contract chip fabs with spare capacity to be built up from scratch. These take a long time to get off the ground. (You literally need to build a university nearby to train students how to use the tools that create chips.) Now, if these four firms are in your portfolio – even inside a basket with other stocks – you own this risk. So, if and when serious trouble starts in Taiwan, these firms could face a disaster on the scale of owning Royal Caribbean during a pandemic. Fortunately, there are safe havens... I don't bring this up just to scare you. Rather, you should know these risks... and that there are some U.S. safe havens that solve for China-Taiwan risk. For starters, these are innovative U.S. companies that design and manufacture their own silicon chips. Chief among these U.S. chipmaking firms is Texas Instruments (TXN), then Micron Technology (MU), Analog Devices (ADI), and Intel (INTC). Subscribers to my Stansberry Venture Technology newsletter and other Stansberry Research advisories have received recommendations for these companies over the years. Here's an important point to understand about these names, which the market is not recognizing right now... Today, Wall Street seems to think that the cost of owning your own fabs is superfluous. We think it's the only way for a chip company to control its own destiny, given the clear and present danger to Taiwan. The U.S. government agrees. The U.S. Department of Commerce seems poised to give away $30 billion or so in 2024 dollars for U.S. chipmaking. It offers 35% cost-sharing per new fab or per fab makeover. Pure U.S. foundry plays like Marvell Technology (MRVL), Microchip Technology (MCHP), ON Semiconductor (ON), and GlobalFoundries (GFS) are also what I consider chip safe havens. These firms directly compete with TSMC. So TSMC's loss – although regrettable – is their gain. Finally, four U.S. firms are 'yellow flags' in our due diligence... They face short-term risks. Namely, chip toolmakers Applied Materials (AMAT), Lam Research (LRCX), Synopsys (SNPS), and KLA (KLAC) would lose a customer in TSMC. I described what chip "tools" are [in the latest issue of Stansberry Venture Technology]( like a "celestial deep purple" machine with an unearthly color that I introduced to my subscribers. It uses an ultraviolet light that is undetectable to the human eye and has a small wavelength to cut tiny features into chips, using lasers. In the event of a war involving Taiwan, there would be no channel for these companies to sell their tool inventory until Intel, Micron, Texas Instruments, or Analog Devices built new factories... or Onsemi or GlobalFoundries, Marvell or Microchip built new fabs that need chip tools. Clearly, the demand is there – and all eight safe-haven companies have the know-how to use the gear. Still, it's a disruption. Frankly, we abhor war... But being blind to the risk of war won't solve for it. Look at Russia and Ukraine. This war was never going to happen – until it did. Hundreds of thousands of people have been killed. Plus, millions of Ukrainians have been displaced, and up to a million Russians fled their military call-up. But Russia's five largest exports are all oil products – which the U.S. also exports. For Ukraine, it's grain. Economically, then, the effects of the ongoing war in Ukraine have been modest for most Americans. War in the Taiwan Strait will not be so simple... The U.S. might get directly drawn in. What's at stake is not just the destiny of the free people of Taiwan, nor just the threat to open sea lanes... Taiwan is the well for most of the world's high-end silicon chips. If the flow of these chips gets disrupted, new manufacturing globally will grind to a halt within weeks. That's the black-swan event we are warning you about. Savvy investors need to know about this to protect themselves from what's coming. Find some safe havens before it's too late. Our Most Popular Event of the Year The 21st annual Stansberry Research Conference & Alliance Meeting is back in Las Vegas, from October 16 to 18, 2023. As longtime subscribers know, the Stansberry Conference is a gathering of some of the brightest minds in financial research and beyond... During this year's event, you'll hear from your favorite Stansberry Research editors – including Dave Lashmet as well as Dan Ferris, Eric Wade, Dr. David "Doc" Eifrig, Greg Diamond, and more. And, of course, we also welcome special guests from outside our business as well. This year, our all-star lineup includes Danielle DiMartino Booth, Josh Brown, Lance Armstrong, Meb Faber, Dave Daglio, Peter Zeihan, and many more. Last year, conference tickets sold out! Don't miss out on what is shaping up to be our best event ever... [Click here to reserve your seat today](. Early tickets also come with a $1,000 free gift – for a limited time only. [Find out how to get yours right here](. --------------------------------------------------------------- Recommended Links: # [This 'Living' Stock-Picking Program Is Scarily Accurate]( You might find artificial intelligence disturbing. But one "better than AI" program based in Connecticut shows you where the biggest funds are putting their money – BEFORE the transaction is complete – for the chance to make three to five times your money. [Click here to see how it works (and claim free access)](. --------------------------------------------------------------- # [Move Your Money Before June 23]( More than 50% of the U.S. stock market is set to move before the market closes on Friday, June 23 – including Apple, Amazon, Tesla, Alphabet, and thousands of others. This major Wall Street event will send some stocks soaring... while slashing others up to 90%. Don't get blindsided – see what's coming and how to protect yourself immediately [right here](. --------------------------------------------------------------- New 52-week highs (as of 6/13/23): ABB (ABBNY), Adobe (ADBE), Applied Materials (AMAT), Ansys (ANSS), ASML (ASML), Berkshire Hathaway (BRK-B), DraftKings (DKNG), iShares MSCI Emerging Markets ex China Fund (EMXC), iShares MSCI Japan Fund (EWJ), Fluence Energy (FLNC), Fortive (FTV), W.W. Grainger (GWW), Ingersoll Rand (IR), iShares U.S. Home Construction Fund (ITB), Lennar (LEN), MSA Safety (MSA), OMRON (OMRNY), Palo Alto Networks (PANW), Parker-Hannifin (PH), PulteGroup (PHM), Pure Storage (PSTG), ProShares Ultra QQQ (QLD), Construction Partners (ROAD), ProShares Ultra Technology (ROM), SoFi Technologies (SOFI), The Trade Desk (TTD), Sprott Physical Uranium Trust (U.UN-TO), Vanguard S&P 500 Fund (VOO), and Walmart (WMT). In today's mailbag, feedback on DailyWealth Trader editor Chris Igou's [Tuesday Digest](... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Chris, good story. I surfed the East Coast back in the 60s when there still was a Virginia Beach Steel Pier (and Peppermint Lounge). I had one of the first Bayne boards with thin rails... Of course, I never was a 'big wave' surfer... but your story applies to both big and small waves (investments). Both require prep. Thanks. Great analogy." – Stansberry Alliance member Bill B. "My high school buddy has been living in Costa Rica for 15 years and we were body surfing buddies in L.A. at Zuma beach. When Hawaiian storms hit south-facing CA beaches the waves can get huge. At Zuma they were 20' and they pull out the sand and make sand cliffs where people sit and just watch. "My buddy and I got laughed at when we took our fins and started swimming through 8' white water. It took 30 minutes to get out and we would swim into the breaking wave and fly 15' in the air and do flips out the backside. After an hour we caught a 15-footer in and got a standing ovation. One of the best days EVER!" – Paid-up subscriber Paul M. Good investing, Dave Lashmet Seattle, Washington June 14, 2023 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open positions across all Stansberry Research portfolios Stock Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 1,215.3% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,048.8% Stansberry's Investment Advisory Porter ADP Automatic Data 10/09/08 795.9% Extreme Value Ferris wstETH Wrapped Staked Ethereum 02/21/20 667.1% Stansberry Innovations Report Wade HSY Hershey 12/07/07 624.1% Stansberry's Investment Advisory Porter WRB W.R. Berkley 03/16/12 500.7% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 496.4% Retirement Millionaire Doc AFG American Financial 10/12/12 398.2% Stansberry's Investment Advisory Porter TTD The Trade Desk 10/17/19 324.5% Stansberry Innovations Report Engel FSMEX Fidelity Sel Med 09/03/08 314.1% Retirement Millionaire Doc Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 4 Stansberry's Investment Advisory Porter 3 Retirement Millionaire Doc 2 Stansberry Innovations Report Engel/Wade 1 Extreme Value Ferris --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Stock Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 1,548.5% Crypto Capital Wade ONE-USD Harmony 12/16/19 1,055.8% Crypto Capital Wade POLY/USD Polymath 05/19/20 1,015.8% Crypto Capital Wade MATIC/USD Polygon 02/25/21 794.3% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 589.9% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Band Protocol crypto 0.32 years 1,169% Crypto Capital Wade Terra crypto 0.41 years 1,164% Crypto Capital Wade Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Frontier crypto 0.08 years 978% Crypto Capital Wade Binance Coin crypto 1.78 years 963% Crypto Capital Wade Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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