It Only Took a Pandemic to Bring (Some) Supply Chains Home
People are spending a lot more these days... The shortages continue... Developments in the chip shortage... It only took a pandemic to bring (some) supply chains home... Big news in SPACs... Don't miss Berna Barshay's new event...
We're living in interesting times...
If people have money, they've been spending more than ever – at least on their credit cards.
Yesterday, credit-card giant Visa (V) released data that show 52% of consumers spent more money in May than they did in the same month back in 2019. It's the most reasonable comparison we can make to "normal" – since it doesn't make much sense to look back to last May... when much of the world was in the throes of Lockdown Nation.
And according to the data, these consumers are spending a lot more overall...
In April and May, Visa said consumer spending was up more than 30% each month compared with 2019 levels. As Stansberry NewsWire analyst Nick Koziol wrote yesterday...
That's a good sign for the American consumer, which should boost the overall economy. Remember, consumer spending is the largest part of the U.S. economy. It accounts for about 70% of gross domestic product.
It's also good news, of course, for Visa and other credit-card companies that collect fees on each transaction their cards are involved in.
At the same time, job openings in the U.S. surged to a record 9.3 million in April – with a more than 30% surge in leisure and hospitality positions, which were among the hardest-hit industries during the COVID-19 pandemic.
The fact that these jobs are one, coming back, and two, available is good news in general... although companies haven't been filling them nearly as fast as they want to just yet.
But jobless claims have been steadily declining since the end of March, too, showing that people are steadily going back to work – or at least that fewer folks are relying on unemployment benefits...
The 376,000 people who filed claims with the Department of Labor last week was the lowest number since March 14, 2020, when businesses were abruptly shutting down all over the place as COVID-19 lockdowns began.
We hate to parse government numbers too much because... well... we're talking about the same people who sent stimulus checks to millions of dead people then tried to ask for the money back.
But in general, the "official" numbers can show us sustained directional trends...
Today's data are a good combination for anyone interested in economic growth... and it's an indicator that life is returning to a semblance of normal for more folks each day (even if many folks like us are still working at home).
But of course, there's another side of this discussion...
People can also spend more because things cost more.
We're talking about that insidious, always-there tax called inflation, which is growing... and the ongoing supply-chain issues that are still heavily contributing to it, which we covered last week.
With job hiring going slow for many businesses over the past few months and the pandemic recovery still impacting sourcing and distribution, all kinds of industries are experiencing supply-chain problems that are directly or indirectly leading to higher prices. As we wrote in the June 1 Digest, citing the results of a key recent U.S. manufacturing survey...
Manufacturers can't find people to work for them... supply chains are tight... and the [Institute for Supply Management] survey shows that raw materials keep rising in price and dropping in supply. We're talking about basically everything – cardboard, aluminum, plastic, and stainless steel.
At a conference yesterday, Clorox (CLX) CEO Linda Rendle said the consumer-staples company will likely announce price hikes in August because of cost inflation, while demand for products is moderating. The company also did that in March... And those price hikes won't even go into effect until next month.
Rendle specifically mentioned the high cost of resin, which is sourced from plants or tree bark... And we all know what has been happening with lumber prices over the past year.
We've also recently seen reports and social media posts that major coffee retailer Starbucks (SBUX) is having trouble getting cups, syrup... and basically everything, it seems. Here's the sign outside one Starbucks store...
(If you know what a "cinn. dolce" or "matcha" tastes like, please let us know. We're curious.)
The headliner for the past six months or so has been the 'chip shortage'...
Because microchips are in such high demand – and still were, even with so many people at home throughout 2020 – their shortage was actually the forerunner of the widespread supply-chain issues that we've seen more recently.
In other words, to see what might happen with things like apple juice, guava, and drink trays... we can look to microchips. This sector can give us some indicators of what's to come for other industries and the leading businesses within them.
And today, we're seeing a few important developments in the chip-shortage story...
Depending on your point of view, you might think of it as strengthening supply chains or "reshoring," meaning bringing jobs back inside U.S. borders. Both can be true.
If only it didn't take a pandemic to put this trend into serious motion...
NewsWire analyst Daniel Smoot, who has been covering this story closely, picks things up for us here with the details...
Last week, Taiwan Semiconductor Manufacturing (TSM) announced it has begun building a factory in Arizona...
This is big news...
If you're not familiar, Taiwan Semiconductor is the world's largest contract chipmaker. The business supplies firms like Apple (AAPL), Advanced Micro Devices (AMD), and Nvidia (NVDA) with chips for everything from smartphones to computer processing to video graphics.
As its name implies, the company is based in Taiwan, the tiny country that combines with South Korea to make roughly 43% of the world's semiconductors. That's a staggering concentration of production for any industry... And many people only realized it recently.
But now, the company is in the early stages of significant, new "made in the USA" plans...
At Taiwan Semiconductor's annual investor and client presentation last week, CEO C.C. Wei revealed that the company is building a semiconductor fabrication facility in Phoenix, Arizona... The goal is for the plant to produce 20,000 "wafers" – a single microchip – per month by 2024.
The company said the facility would cost roughly $12 billion to build. However, the total price tag for Taiwan Semiconductor's planned expansion is much higher...
In April, the company said it would invest a total of $100 billion over the next three years to expand its factories' capabilities... $30 billion of which it will spend in 2021 alone. And it anticipates building five additional facilities in Arizona over the next 10 to 15 years.
This construction comes as Taiwan Semiconductor and rival chipmakers Intel (INTC) and Samsung compete over $54 billion in semiconductor subsidies to increase fabrication capabilities in the U.S.
The White House has also revealed further plans to reduce disruptions caused by the global chip shortage...
This week, President Joe Biden's administration released the results of a supply-chain review... Officials looked at the availability of semiconductors, critical rare-earth materials, and other key items for manufacturing.
Following the review, the White House noted the U.S. has become too reliant on overseas production for computer chips. It said the country needs to invest in its own manufacturing for national security reasons, as well as to remain competitive against China and on the broader global scale.
Still, the Biden administration's review remained largely vague regarding its next steps. Officials recommend that Congress pass legislation to bolster domestic production and research and development.
But even without concrete actions, the expansion of Taiwan Semiconductor in the U.S. should help alleviate some of the ongoing supply-chain woes that many industry experts say could last through 2022, if not longer.
And earlier this week, the Senate passed a bill that encourages companies to bring supply chains 'home'...
As our NewsWire team reported yesterday...
On Tuesday, the chamber passed the Endless Frontier Act, legislation designed to provide additional funding for the development of the domestic manufacturing and technology sectors.
The bill's roughly $250 billion in resources is aimed at making the U.S. less dependent on China.
Roughly $50 billion is suggested to go to the semiconductor industry... And around $190 billion will be spent on research and technology development. Of that, almost $100 billion could be distributed to research universities and U.S. government-run labs, among others.
The intention is to spur the development of new technology and support existing scientific research. According to our NewsWire team, Republican Sen. Marco Rubio of Florida said...
This type of targeted investment in a critical industry was unthinkable just a couple years ago, but the need for smart industrial policy is now widely accepted.
The legislation still requires approval in the House of Representatives... But early indications show that there is support for the idea, although maybe with a smaller price tag.
This reshoring trend is a big one to watch for so many reasons, not the least of which is that it could be a boon for U.S.-based manufacturing sectors and stocks. And of course, these areas of the market are long overdue for a boost.
(As we shared in our February 1 Digest, manufacturing jobs represented more than 30% of total U.S. employment throughout most of the 1940s and 1950s. A steady decline has pushed manufacturing's share to around 8% of U.S. jobs today.)
In the meantime, people still buying products from companies like Clorox or at places like Starbucks – despite higher prices and lack of the finer things in life, like guava in their drinks – shows that these companies continue to have pricing power.
In other words, people will buy their products no matter what. As we can't say enough, these are the types of companies that you want to own shares of during inflationary times.
We'll keep tracking this story and bring you updates here in the Digest in the days, weeks, and months ahead.
In the meantime, if you don't already, be sure to follow our free NewsWire service for around-the-clock insights and analysis on this and other news that's moving the markets.
Switching gears to another piece of timely news – this time about SPACs...
Over the past several months, special purpose acquisition companies ("SPACs") have lost a little bit of their shine, so to speak, at least in terms of performance...
Investors who have followed our advice know that not all SPACs – essentially "blank check" companies that have become popular to take companies public – are created equal.
Like anything else, you'll find SPACs worth investing in and ones not worth touching with a 12-foot pole... But generally speaking, SPACs today are not enjoying the same star turn that they did in 2020.
For instance, the Defiance Next Gen SPAC Derived Fund (SPAK) – a basket of SPAC stocks (how many ways can we say SPAC in one sentence?) – is down about 25% since its most recent high in mid-February.
But today, we want to alert you to something that one of our colleagues over at Empire Financial Research, Enrique Abeyta, calls a fantastic buying opportunity in this area – and share a terrific, nearly 30-page research report that he has opened up to the public about it...
It's about the much-anticipated "Bill Ackman SPAC," which operates under the official name of Pershing Square Tontine Holdings (PSTH). Enrique talked about PSTH during his event last October, in which billionaire Bill Ackman joined the launch event for Enrique's first-of-its-kind newsletter, Empire SPAC Investor.
During that event, Ackman explained the nuances of a SPAC and the types of companies he was seeking to invest in via the investment vehicle. As we wrote in the October 12, 2020 Digest...
According to Ackman, in a lot of cases, a SPAC structure often encourages a company or minority party that is being acquired to sell shares at a lower price... That's because they know the numbers are pre-IPO evaluations, and prices will soar after the deal is announced.
Ackman told viewers about a SPAC deal he was involved in with a company called Justice Holdings that eventually reached an agreement to take fast-food restaurant chain Burger King public back in 2012. That company eventually became Restaurant Brands International (QSR), in which Pershing Square still owns roughly a 13% stake.
Today, we know more details of what PSTH might look like in the future...
The biggest point is this, which was reported late last week...
Pershing Square Tontine Holdings is seeking to buy a 10% stake in Universal Music Group ("UMG"), a global leader in the music industry... which Enrique knows a bit about as the owner of the rock and metal publication Revolver magazine.
Plus, a few other wrinkles to Ackman's plans make his SPAC a little different...
In short, the SPAC isn't taking one company public. Instead, it wants to have its hands in multiple companies. As Enrique writes...
Basically, PSTH is going to use $4.1 billion of its cash to fund the purchase of the UMG shares, but after Pershing Square injects $1.6 billion of capital in new share purchases, PSTH will have $1.5 billion of cash remaining.
This will be the same publicly traded vehicle as what exists today, and it will have this $1.5 billion of cash but also parent-company Pershing Square will have the ability to inject another $1.4 billion into it.
PSTH shares traded down roughly 10% upon the news last Friday... It's hard to say exactly why, but it appears the market was collectively underwhelmed or confused. But Enrique says that sellers are missing the true value in owning PSTH shares today...
He first recommended shares back in January. And based on his analysis, he believes the company is worth at least $30 per share – or about 30% higher than its current share price of roughly $23.
If you're interested in SPACs at all – or the current state of the music industry and where it might be headed, for that matter – give Enrique's totally free (and lengthy) report on PSTH a read today.
Even if you don't want to buy shares of the company he's talking about, I guarantee you'll pick up something valuable that can help with your portfolio. Access the full report right here. And if you like what you see, consider giving Enrique's Empire SPAC Investor a try... You can get all the details about how to do that right here.
Finally, one more note about our friends over at Empire Financial Research...
As we mentioned yesterday, 25-year Wall Street veteran Berna Barshay – an editor and analyst who works with Enrique on Whitney Tilson's team at our corporate affiliate – is showcasing her unique investing perspective in a brand-new special event.
It went live earlier today... Alongside Whitney, Berna discussed a "hidden" corner of markets that could hand investors 100%, 200%, and even 500% gains in the next few months. And she also described exactly how she has found countless winners over the years.
In short, Berna believes it's important to learn as much as you can about a select few market sectors. By fully understanding a specific area of the market, it's much easier to identify the winners and avoid potential pitfalls.
And her track record speaks for itself... In Berna's free Empire Financial Daily e-letter over the past 14 months, she has been giving readers great insights and numerous stock recommendations showing huge gains, such as...
- 341% on L Brands (LB)
- 266% on Revolve (RVLV)
- 249% on Children's Place (PLCE)
- 251% on Peloton Interactive (PTON)
- 130% on Fiverr International (FVRR)
- 80% on Nordstrom (JWN)
If you missed the debut of Berna's "Wealth Accelerator" event earlier today, you're in luck... You can still catch the replay right now. Click here to get started.
What Janet Yellen's Cryptic Message Really Means
U.S. Treasury Secretary Janet Yellen's recent comments about the prospects of higher interest rates have caught some warranted attention...
"If we ended up with a slightly higher interest rate environment," Yellen said in an interview, "it would actually be a plus for society's point of view and the Fed's point of view."
Our editor-at-large Daniela Cambone recently spoke with GraniteShares CEO Will Rhind to get his take...
Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.
New 52-week highs (as of 6/9/21): Analog Devices (ADI), American Homes 4 Rent (AMH), Biogen (BIIB), CBOE Global Markets (CBOE), Richemont (CFRUY), Colony Capital (CLNY), Alphabet (GOOGL), Intuit (INTU), Lonza (LZAGY), MAG Silver (MAG), Annaly Capital Management (NLY), Nestlé (NSRGY), Novo Nordisk (NVO), VanEck Vectors Russia Fund (RSX), Victoria Gold (VITFF), and Washington Real Estate Investment Trust (WRE).
In today's mailbag, more feedback on Kim Iskyan's Tuesday Digest about the economic "skeleton key." Do you have any comments or questions? As always, send them to feedback@stansberryresearch.com.
"The Digest on the Skeleton Key was eye-opening, informative and extremely well-written. The context of that piece was very easy to comprehend for all to grasp." – Paid-up subscriber Gerald B.
All the best,
Corey McLaughlin with Daniel Smoot
Baltimore, Maryland
June 10, 2021