Colin’s Note: It’s a Q&A day at The Bleeding Edge…
Today, I’ll be addressing some of the questions and concerns you and your fellow readers have been writing in to me and my team.
If you’ve been wondering about the impact of a China-Taiwan conflict on the semiconductor industry… if PayPal is a good buy right now… or what my thoughts are on central bank digital currencies – CBDCs for short… I cover it all in today’s video.
We cover a lot of ground today, so I’ve included timestamps for when I address each question for those of you who just want to click through.
And for those who prefer to read, I’ve included the transcript below.
If you have a question or comment of your own that you’d like me to address in one of these Q&A videos, you can write us at feedback@brownstoneresearch.com.
What is going on, investors? Hopefully, you guys are doing well out there.
I just want to sit down and do a question-and-answer video where I answer some of your questions.
We have a lot of questions come in through the different subscriber channels and today we’re going to answer some of them. Down below, we’ve included timestamps so you can jump around to the different questions or the topics that interest you the most.
We won’t waste any of your time. We’ll jump into the first question. And it says…
Considering the threat of a possible takeover of China, do you still believe it’s a safe time to invest in semiconductor stocks?
This investor is leery of investing, not knowing what might happen if a takeover does occur. Thank you for your question. We’ve gotten this one a bit less often lately since it’s fallen out of the news cycle.
There was quite a bit of hype – and a lot of talk – about this several months ago. It has certainly quieted down over the past couple of months. That doesn’t mean the threat is any less imminent or not. It’s starting to diminish… But we’ve certainly seen less of this in the news cycle.
Well, so first of all, this investor is referring to China potentially overtaking Taiwan. Taiwan is ground zero for the production of the vast majority of advanced semiconductors.
These go into your computer chips… cell phones… just about all modern, advanced tech. They certainly go into a lot of military equipment and satellite equipment. That’s probably among the most important – some might even argue the most important – business in the world these days, considering we rely heavily on technology. So they’re referring to an invasion of China into Taiwan.
I will tell you what will happen if that occurs: World War III will break out.
You simply cannot sit around if you’re the United States or any of our allies and allow something like that to happen. I’m not trying to be overdramatic. I’m not trying to scare anybody.
But the world’s richest companies are here in the United States – Apple, Google, Microsoft, Amazon. And they all rely heavily on the semiconductor industry in Taiwan. You can’t allow China to overtake that and basically ruin that business. You would have to go in and ruin the country of China, which would start World War III.
That is what would have to happen. And quite frankly, that is the greatest deterrence. It’s the greatest reason why an invasion likely won’t happen.
China is not stupid. They know the military response that would come from the United States. And I don’t think any country in the world in their right mind wants to test the United States in a major way.
The other thing that we have to think about here – a different way to think about it – is that… Let’s assume China does invade Taiwan. And suddenly, the world’s supply of semiconductors plummets because the manufacturing facilities are now under invasion and they’re not operational.
The demand for semiconductors would still be astronomically high. And when you still have demand astronomically high and supply essentially plummets, what happens to price? And Taiwan Semiconductor Manufacturing Company (TSM) – one of the largest manufacturers or the largest manufacturer of semiconductors around the world – well they have other facilities in other countries. The price of that product would absolutely skyrocket.
Now, I’m not here saying that TSM or any of these semiconductor stocks wouldn’t take a major hit if this were to happen. This is one of the reasons why you have risk management across your entire portfolio, particularly in the semiconductor industry. You have different stop losses. You have the discipline to get out. Not only that, but you don’t go completely overweight semiconductor stocks inside of your portfolio. You have a well-balanced, diversified portfolio.
So that when one takes a hit as World War III breaks out, you’ve got a handful of other stocks that do well in that type of environment.
Anyway, the price of semiconductors would absolutely skyrocket.
Now, here’s the most likely scenario. The different political groups – and certainly the news media – will continue to scare Americans and other people around the world. They’ll talk about how this invasion is either imminent, or that China did this, or China did that, and that, “Oh my gosh, something is about to happen!”
Chances are it will be like what we’ve seen for the past… my entire lifetime. It’s a lot of saber-rattling, but nothing ends up occurring. And what will happen is Taiwan Semiconductor and many other manufacturers in that region will diversify out of Taiwan. And then they’ll suddenly mitigate that risk and make that a fantastic investment going forward.
Now, do you protect your portfolio from World War III breaking out? I’ll let you decide that. It certainly depends on your age.
If you’re 60, 70, 80 years old, and you’re relying almost 100% on your retirement portfolio, sure. I would hedge that bet maybe a little heavier than I would someone 20, 30, 40, or 50 who is still looking to gain appreciation and grow their portfolio.
The semiconductor industry historically has been a great industry to grow your wealth. It doesn’t come without risk, but that is the case with virtually all investments.
I hope I helped answer that question a little bit. Again, not trying to scare anybody, but the fact is, the threat of World War III is a great deterrent from China invading Taiwan.
Our next question is a little bit different than what we normally see here, but it says…
A question that I’m hoping that you can dive a bit further into is regarding the impact of tokenized real-world assets.
He’s talking about a real-world asset that we could create an NFT or a tokenized asset out of. It’s something on the blockchain for that item.
And then he says, look at how NFTs popped and subsequently collapsed.
That’s okay. Those markets, those assets are kind of meant to do that. It was a little overhyped.
But then, the reader says this…
I’m wondering how you and the team look at the inevitability of brands tokenizing assets as a way to authenticate their products and create richer and more customized experiences for consumers.
I certainly see this as something that can happen. Look at the luxury watch market… or luxury handbags. Think of Louis Vuitton and those types of brands. Say you buy something like that. It would be pretty cool if you got some kind of NFT authenticating it so you didn’t have to keep the box and papers.
It’s nice to keep that stuff anyways. But should you lose or misplace that, you’d still have this tokenized asset that recognizes that asset as yours.
I bought Super Bowl tickets. I went to the Super Bowl a couple of years ago. And included in the Super Bowl ticket was essentially a tokenized asset of the ticket. It was a digital version – basically an NFT – of the Super Bowl ticket that I bought.
I think these things are nice to have from an investment standpoint. But I don’t think this is likely to blow up in a major way from that standpoint. This is a nice-to-have. It’s not a must-have. Certainly, if you’re in the market for luxury things, only a certain percentage of those people are worried about authentication.
If you can afford to buy $40,000 or $50,000 watches… or $10,000 to $15,000 handbags… You are likely less worried about it being authentic, or proving that it’s authentic, and reselling it than maybe some part of the population is.
So I view this as a useful and interesting use case. But from an investment standpoint – as something we can make a lot of money on as investors – I’m not exactly sure yet if the business model is there to propel that in the future.
But I do agree that for authentication and providing just a little bit extra to a special purchase. It’s certainly something we’ll likely see more of.
Now, another question that I got relates to the video that we posted recently. I went out up to Northern California and visited. I call them the Ritz-Carlton of geodesic domes.
It was these geodesic domes this startup company is manufacturing. And I got a lot of comments from people saying that… I think I quoted a starting price of about $200,000 for the unit I was in.
And some people were saying that that seemed way too expensive. And I think one thing that I didn’t make clear in the video was I’m in California. That is the company’s primary market.
That is where they’re going to start their brand and really propel their brand. And if you look, the median house in California is more than $800,000… So $200,000 for a brand-new facility or a brand-new house is extremely cheap in California.
The other thing that I didn’t emphasize in that video is that the company has an environmental mission. Those structures are made out of material that is much safer for the environment.
In fact, I was told you can actually eat the material. It’s completely organic and you could literally eat and lick the walls, and nothing will happen to you. You wouldn’t want to do that in virtually any other house… not just here in California, but practically around the world. There are a lot of toxic materials used in housing.
Now for some people, some generations, that’s not that big of a deal. But this company’s target market is going to be young people who can’t afford the median $800,000 house, but also are very environmentally conscious.
If you look at Gen Z and millennials, one of the biggest things they’re worried about – one of the things that they vote on and spend a lot of time thinking about – is the environment, okay?
It’s just a product of the education system. Honestly, the education system has brought them up really, really caring about the environment. Some people might agree with that, some people might disagree with that, but the bottom line is that’s the target market for a company like this. They’re hitting a price point and they’re hitting environmental issues.
They’re also hitting the kind of lifestyle that many Gen Z and millennials prefer. It’s away from the big cities. It’s a nomadic, work-from-home type of environment. And that’s who they’re targeting. Now, I agree, $200,000, is still a lot of money. But in the state of California, $200,000 for any kind of property is incredibly cheap.
Now, this is a great question. It says…
Colin, you don’t seem to appreciate that there is a big difference between being smart and your program being smart.
This relates to a video I posted recently where I talked about AI replacing human intelligence… And that AI computer systems are going to democratize knowledge. People without an education or who didn’t go to college – people who didn’t pursue higher education – will suddenly be able to catch up.
Now, this reader brings up a very good point. There is a big difference between being smart and having my computer system be smart. But in the real world, in business, it doesn’t work like a spelling bee. It doesn’t work like an SAT. It doesn’t work like a standardized test that we take in school.
So if I were to hire somebody, let’s say I hire an accountant… I’m not going to test that accountant’s ability to be smart. I’m going to be shocked if they don’t use a calculator.
In fact, I might fire them if they don’t use computer systems like Excel sheets and, maybe these days, if they aren’t using AI. It’s the same thing if I were to hire a customer service agent. I would be shocked if my customer service agent did everything with a pen and paper demonstrating how intelligent they are.
I would much rather them use a computer system. And that is going to be the case time and time again when you look at the business world.
They are going to hire employees and aid them and arm them with a computer program that makes them smarter because there’s no reason not to do that.
Again, if we were playing chess one-on-one, we would battle with our minds. If we were doing a spelling bee one-on-one, we would do that with our minds.
But if we wanted to win in the world of capitalism, if we wanted to win in the world of business, I wouldn’t play one-on-one with Microsoft. I wouldn’t play one-on-one with Amazon with just my mind. I would use computer systems.
And so that is the frame of reference that I’m looking at as it relates to computer systems. Yes, there is a difference between being smart and your computer system being smart. But in the real world, in the business world, and from an employee perspective, they are all going to be armed with a smart computer system.
They’re going to be trained on it. And it’s likely going to help them perform better at their job. And that has a huge impact on humanity in the long run.
Now, the next question that I have here should be a popular one with some people is…
Do [you] think now is a good time to invest in PayPal?
So fundamentally, PayPal is kind of a slow- or low-growth company. So it’s not going to trade at a large multiple. Nothing that we’ve seen with this company recently has changed our minds on this.
From a stock chart perspective, the vast majority of shareholders have accumulated this stock at about $72, we’ll call it up to maybe about $90 per share. So that will be problematic as this stock makes its way back up to that level, you’ll likely have sellers emerge at these levels.
Now, there’s also nothing about this stock chart that says this stock has bottomed. Now, it certainly could be the bottom back here in October at about $51 per share. But there is nothing about the technical chart pattern that says that is the case.
You are still making lower lows and lower highs. You are not really increasing volume. Sometimes in reversals, you see an increase in volume, not really stepping in and seeing a lot of increased volume.
Now, if I were to buy PayPal at this moment right around $57 per share, what would I do? I would set a stop-loss right under the previous lows around $50 per share. So I’m only risking $7 to the downside. And the reason why you’re putting your stop-loss under the previous lows is… well, look what this stock has done for two years.
It is consistently traded under the previous low. It has made a low, and then made another lower low, and then a lower low. This is what they call a falling knife. I certainly would not want to catch a falling knife. But if you made me buy this stock today, I would pay $57 per share. I would put a stop-loss at about $50. I would risk $7 with the idea that you’re going to come back into this consolidation zone around $75.
I would begin my trailing stop and take profits up it here at this $75 because the stock has not broken out of this downtrend until you close significantly over $75. Even when it does, sellers will emerge, and push the stock back down.
This is actually where I’d like to buy it because it made a new high, then a higher low. And what ends up happening is… if you look at the charts of Google, Amazon, Microsoft – all the major tech stocks – they all did this back in October 2022.
They made lows, made a new high, retraced, and then set off on a monster rally chopping higher for the next several months. In fact, those rallies are still ongoing as we speak. But shorter term with PayPal, you could risk $7 to make around $20.
It’s not necessarily the best risk-reward in the stock market these days, but if it happens to be a stock that you’re just dying to get, well, I guess that’s how I would trade that one.
Now the last question that we have today is…
What are your thoughts on tying a citizen’s voting preference to CBDC?
So a CBDC is a central bank digital currency. This is something that is speculated to go into effect at some point. I will give you my thoughts on CBDC here in a second… But it says that all U.S. citizens can vote by simply accessing their CBDC account or their smartphone.
Obviously, their account would have each citizen’s home state and also based on their tax returns. So kind of a way to identify voters. And so I’ll probably start there.
There are political challenges to passing voter identification things. And as we saw during the pandemic, they’re just mailing out ballots. In fact, the other day I got a ballot with somebody that I’d never even heard of. Okay, I’ve lived in my house for a long time. I know who lived here before. But I got a ballot from somebody I’d never even seen before.
And so that’s kind of scary, right? I’m getting ballots mailed to me for people who, first of all, probably aren’t even alive today… let alone lived in this house in the last 15 years. And look, there will be political parties that like that… And there will be political parties that don’t like that.
So tying voting to CBDC… I think we’re going two steps down a rabbit hole there. First of all, you’d have to get CBDC. Again, that’s a central bank digital currency.
You’d have to get that across the finish line and get that widely adopted. And then you’d have to get both parties to agree to use it as a voter identification when there is – particularly on the left – a push to have less identification and less authentication in voting. The argument is to have more of an open voting system.
Now, in terms of central bank digital currency, here’s what I think…
We already have digital currency. Your bank account and any amount of money that you have in your bank account can be levied by the government. I have experienced that personally… and it was actually an accident.
I closed a business. I filled out all the paperwork and all the forms saying that I closed my business. I turned that in. And guess what? At the beginning of the year, my bank account was levied because they said I didn’t pay taxes on a business that I closed.
I had to go through this long process of getting the state of California and the IRS to talk to my bank and say, “Oh yeah, he actually did this, and this was a mistake.” And this was 15 or 16 years ago.
They can come and get your money in a bank account. The CBDC would just simply be an extension of that. There are some folks who have written in who are very concerned about the CBDC. And they’re looking for ways to protect their assets.
Just in case something like that comes across, I am telling you, you already have a form of that. Your bank account is accessible by the government if they want it. They can seize and levy your bank account for a number of different reasons. And there’s honestly not a lot you can do about it.
Now, the CBDC would take that to the next level. They’d have almost full control. And some people are concerned they would tie access to your money based on a number of different things.
There are a number of different rabbit holes you can go down on ways they would restrict your use of that. We saw some things during the pandemic where some people proposed giving out stimulus checks but putting a time limit for you to spend them. I think Mark Cuban had that brilliant idea, and I say that sarcastically.
So to answer the question, “Do I think they could use CBDC to tie it to voters and allow people to vote more easily?” I certainly could see that. But I don’t see either party agreeing on allowing that to be one of the access points for voting.
There are going to be some parties that don’t want you to vote that easily and make it that accessible… And other parties want to make it even easier and more accessible than something like that. As it relates to CBDC, your currency is already digital. If you have any money in the bank or if you’re using credit cards… CBDC, in my opinion, is just another name for that.
Visa, MasterCard, and all the major banks are coding all your transactions, they know where the money flows back and forth. If the government wants access to it, they can get it very easily.
If that is something that concerns you, there are certainly ways to mitigate that. I would have a big giant fireproof safe… And I would have real, hard assets inside of that safe.
Hopefully, you guys enjoyed today’s video. We touched on a lot of different topics here: NFTs, PayPal, CDBC, China, and housing here in California. That was The Bleeding Edge for today. My name is Colin Tedards. See you again soon.
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.
