Fire, Water, and a Black Swan

When two superpowers collide... The 'next black swan'... What's depending on Taiwan's semiconductor supply... The crisis we're already facing... AI needs energy...

The Chinese president raised the question...

Ahead of ongoing meetings between U.S. President Donald Trump and other American and Chinese officials, Xi Jinping asked aloud publicly in an opening statement of sorts: Can China and the United States overcome the Thucydides Trap? 

It's a question we've asked in these pages over the years. In short, this "trap" is the idea that when a rising power threatens to displace an existing power, war is the likely outcome.

The idea has Greek roots, attributed to the historian Thucydides (pronounced thoo-SID-ih-deez), who wrote about the Peloponnesian War between Athens and Sparta – the two biggest powers at the time – about 2,500 years ago.

"It was the rise of Athens and the fear that this instilled in Sparta that made war inevitable," Thucydides wrote.

When two superpowers collide, war is of course possible, but is it inevitable?...

The odds suggest so, but it's not a guarantee either.

Much more recently, while war has been common in various parts of the world, nations have also used other "cold war" means besides physical violence (meaning bombs, missiles, and troops) to negotiate interests. As our old friend Kim Iskyan wrote here in a 2020 Digest...

Legendary political scientist Graham Allison, as part of a research effort he heads called the Thucydides Trap Project, found that there were 16 occasions over the past 500 years when a major nation threatened to displace the incumbent ruling power – similar to the U.S. and China today.

My colleague Dan Ferris wrote about this concept earlier this year.

Of these 16 instances, 12 ended in war...

From France going to battle with the Hapsburgs in the first half of the 16th century, to the Dutch Republic and England facing off about a century later, to Japan fighting China and Russia in East Asia in the late 19th century, all the way up to World War II.

(One of the 16 cases that didn't result in war, of course, was the Cold War between the U.S. and the Soviet Union. Another that fits the bill is the U.K. and France staring down Germany for political influence in Europe over the past three decades.)

So, a rivalry steeped in fear doesn't create war by itself... But it surely does provide the fuel for a major geopolitical fire. We're bringing this up because such a disruption can ripple through and influence markets.

In recent years, the wars in Ukraine and now Iran have led to oil "shocks" and ensuing price spikes.

And now, as Trump and Xi meet, another conflict is on the table...

The White House reported that both sides discussed trade and illegal drugs. But it's clear that their biggest sticking point is China's pursuit of control over Taiwan, a conflict since the Chinese Civil War in the middle of the 20th century.

The U.S. has long maintained "unofficial" close relations with Taiwan, which operates as a self-governing democracy. At the same time, it officially recognizes the mainland People's Republic of China, which claims Taiwan as part of its territory and seeks eventual "reunification."

Here's the Chinese view, according to a statement from its Ministry of Foreign Affairs...

President Xi stressed that the Taiwan question is the most important issue in China-U.S. relations. If it is handled properly, the bilateral relationship will enjoy overall stability. Otherwise, the two countries will have clashes and even conflicts, putting the entire relationship in great jeopardy. "Taiwan independence" and cross-Strait peace are as irreconcilable as fire and water. Safeguarding peace and stability across the Taiwan Strait is the biggest common denominator between China and the U.S. The U.S. side must exercise extra caution in handling the Taiwan question.

Meanwhile, the White House's post-meeting report didn't mention Taiwan at all, which is a signal of the sensitivity and importance itself...

I (Corey McLaughlin) am not saying it's going to happen overnight. But consider what happens if a conflict of the type we're seeing in Ukraine or Iran breaks out in Taiwan. Among other consequences, we'd face a huge blow to the world's availability of computer chips – and all the consequences that entails...

The U.S. has spent billions in recent years to diversify the supply chain. But Taiwanese-based production is still responsible for more than 60% of the world's semiconductors and reportedly more than 90% of the most advanced chips.

It's not hard to see why control may be so appealing to China... or why Warren Buffett decided to sell all of his shares of Taiwan Semiconductor Manufacturing (TSM) several years ago.

In the past few years, Taiwan Semiconductor and others have grown their U.S. manufacturing presence. But still...

Remember the 'next black swan?'...

This isn't a new story, or risk.

We wrote about a "Nation on Notice," meaning Taiwan, back in 2021. And Stansberry Venture Technology editor Dave Lashmet wrote about the potential impacts in depth in a 2023 Digest, describing what he said was the "next black-swan event" to hit the market, like COVID-19 or other major "surprises"...

As Dave wrote...

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.

In that essay, Dave went on to rank U.S. chip firms and the risks they faced of survival... and offered "safe havens that solve for China-Taiwan risk." Among the companies he highlighted was Intel (INTC) – which has since been building advanced foundries in the U.S. (Dave's subscribers are sitting on a nearly 300% from his 2023 recommendation of Intel.)

Fast forward to today...

While we parse the messaging coming out of China, I suspect the "Taiwan question" will be at the heart of the eventual answer to the other question about whether the U.S. and China will fall into a Thucydides Trap...

And that answer will definitely be significant. It will say a lot about the safety of the world's semiconductor supply – and by extension, the AI boom as we've known it.

Without semiconductors, we don't have data centers. Without data centers, we don't have AI... which America's GDP growth and bull market are both relying on.

Meanwhile, though, we've got an energy crisis to deal with...

In the short term, oil supply remains in the crosshairs as the Strait of Hormuz remains essentially closed. Oil prices have trended higher over the past week. Brent crude futures traded today around $105 per barrel, and West Texas Intermediate was around $101.

As typical global oil supply remains upended, we continue to see additional risks from the war in Iran that may not have played out in markets yet. We're not the only ones.

Stansberry Research senior analyst Bryan Beach wrote about this idea – again – in his latest issue of Stansberry Venture Value, published today.

You may recall we wrote to you about a month ago with research and a recommendation from Bryan around the idea that it wasn't too late to hedge the next energy shock. It still isn't too late, as Bryan wrote to subscribers today...

Oil may trade on screens, but it has to move through the real world. And when there's conflict in a chokepoint like the Strait of Hormuz – which roughly one-fifth of the entire planet's energy passes through – global oil markets are thrown into turmoil.

That's why, for the past few years, we've been building an Energy Crisis Hedge portfolio inside the broader Venture Value portfolio. It's made up of companies largely focused on North American production, where oil isn't held hostage by enemy nations any time there's a disagreement.

Every signal today warns us that the conflict in the Middle East will keep energy prices elevated through the summer... and possibly a great deal longer than that.

So in this issue, we'll introduce you to a largely undiscovered Canadian company whose shares are priced well even if oil prices drop 30%. And if oil prices stay elevated for the rest of the year, shares of this little company could easily surge between 180% and 225%.

Existing Venture Value subscribers can find all the details here.

And in the longer term, as we discussed yesterday, energy demand just keeps growing... and expectations for the AI boom to keep booming continue. Chip stocks have taken off again lately.

Nvidia made another record high today, up 4%, and the major U.S. stock indexes were up across the board.

Semis rallying again is an obvious reaction. But recall what we shared yesterday via the conversation between our Director of Research Matt Weinschenk and Market Maven editor Gabe Marshank: One part of this story hasn't played out in the market yet...

That's the thing that's needed to power it all – energy – and the companies that can provide it to a stressed-out U.S. power grid. Gabe has several ideas to share, and tonight's your last chance to hear all the details.

Gabe goes much deeper on all of this in a free presentation – including stocks up and down the power value chain – and the full case for why he thinks this story has years left to run. Be sure to watch tonight, because the presentation goes offline at midnight Eastern time.

And one note: Stansberry Alliance members and Gabe's Market Maven subscribers, know that you already have the details of this research here. But feel free to check out the informative and entertaining presentation as well.

New 52-week highs (as of 5/13/26): Air Products and Chemicals (APD), BHP (BHP), British American Tobacco (BTI), CBOE Global Markets (CBOE), Cisco Systems (CSCO), Datadog (DDOG), Exelixis (EXEL), Fanuc (FANUY), Alphabet (GOOGL), W.W. Grainger (GWW), Hewlett Packard Enterprise (HPE), iShares Convertible Bond Fund (ICVT), KraneShares Bosera MSCI China A 50 Connect Index Fund (KBA), KraneShares Global Humanoid Robotics and Physical AI Index Fund (KOID), Linde (LIN), Nvidia (NVDA), Ormat Technologies (ORA), Palo Alto Networks (PANW), Pembina Pipeline (PBA), Invesco WilderHill Clean Energy Fund (PBW), Solstice Advanced Materials (SOLS), ProShares Ultra S&P 500 (SSO), Texas Instruments (TXN), and UnitedHealth (UNH).

In today's mail, thoughts on yesterday's Digest... and a view on oil prices and inflation... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"This Digest is exactly what I desire as an Alliance Partner... Great interview and actionable advice, short term + long term. Well done!" – Stansberry Alliance member Terry D.

"I'm going against the grain here by saying the rising price of crude oil is not inflationary and rising prices for it does not justify increasing rates.

"The great Milton Friedman said that 'Inflation is always and everywhere a monetary phenomenon.' The corollary is that not all rising prices result from inflation, but many rise due to supply-demand curve dynamics. Oil's price is increasing due to constraints in supply, so its price increases based on the law of supply and demand. When oil supply is less constrained, or unconstrained, its price will fall. There is no marginal monetary pressure on the price of oil.

"Since the oil price increase isn't caused by monetary oversupply interest rates do not need to increase. The higher price for oil will remove excess dollars from the system, reducing the money supply's impact on inflation, and will slow economic growth on its own, everything else being equal. Increasing interest rates would add to this effect, and the economy would contract more than the result of rising oil prices alone. You are famous for saying the cure for high prices is high prices, and that's what will happen here when oil supply constraints lessen. Will we then call that disinflation and then call to slash rates?

"I know, I know. Whether prices increase by inflation (monetary causes) or by supply-demand dynamics (market causes), prices will still increase, and we lazily call that 'inflation.' But when prices 'inflate' they do not return to the lower prices in the past, whereas when prices rise due to supply-demand imbalances they can and do return to the past's lower prices, if not less than those lower prices (remember negative oil prices in Covid? That was not disinflation.). That's the 'cure' of higher prices." – Subscriber Mark P.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 14, 2026

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