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A RIVALRY OF GREAT CONSEQUENCE

“There cannot be two suns in the sky, nor two emperors on earth.” Confucius

America’s rivalry with China will have a significant impact on what stocks go up and what stocks go down in this decade.

It will also determine whether America’s leading role on the world stage will be confirmed or upended.

This rivalry is the squaring off of the two largest economies in the world with each country representing strikingly different brands.

China seeks to leverage its momentum, scale and authoritarian state-sponsored capitalism to push America and its free market capitalism into second place.

The comparisons between these two giants are endless.

  • America’s spends the most on its military with China ranked #2 (World Bank)
  • America has the most billionaires with China ranked #2 (Forbes)
  • America ranks first in the Cyber Power Index with China ranked #2 (Harvard)
  • America has the most supercomputers with China ranked #2 (Top 500 Project).
  • China has the most companies in the Fortune Global 500 with America ranked #2

This rivalry will impact markets, sectors, and stocks all over the world determining which countries and companies capture the commanding heights of the global economy.

………as well as which companies and stocks dominate.

Learn now why it is less about America and China,

and more about specific power sectors.

chinese-digital-currency

 

Sector Battlegrounds = 10X Opportunities

Specific key sectors will be at the heart of this tug-of-war. This is because they are strategic, are tied to critical technology, and therefore they will attract government resources and private capital.

The sector battlegrounds in this competition will be in technology, finance, space, 5G and 6G infrastructure, artificial intelligence, cyber security, robotics, drones, electric vehicles, advanced manufacturing, semiconductors. and all the future-oriented industries, will be critical to each country’s wealth, power and national security.

JinpingFor example, China is already well on its way to create the Silicon Valley of electric vehicles (EVs). In financial technology, the battlegrounds are digital payments and digital currencies, and of course ecommerce.

If China calls the shots in these key industries, the S&P 500 stock index could be lower in 2030 than it is now and China’s economy will be larger than America’s by a sizable margin. The U.S. dollar’s reign as the world’s reserve currency would be in jeopardy.

A struggling Boeing is still the king of aerospace. But since an estimated one billion Chinese people have yet to even board an airplane – by 2030 the world’s dominant aerospace company could be the Commercial Aircraft Company of China (COMAC).

Nothing symbolizes the gravity of this rivalry than its elevation into space. In 2020, China’s first mission to another planet, the Tianwen-1 blasted on a seven-month journey to Mars.

These high stakes make America’s contest with China much more challenging than was its Cold War rivalry with the Soviet Union or its economic rivalry with Japan.

The chart below by hedge fund guru Ray Dalio shows the relative standing of great empires over the centuries.

You can easily grasp China’s sharp rise over the past four decades.

ray-dalio-empire-chart

But for most Americans, China is still a faraway country making cheap stuff for Wal-Mart rather than a near peer rival going for America’s jugular in supercomputers.

Let’s learn more about how America is fighting back.

And how you can reap profits by investing in power stocks.

 

A SUPERPOWER FIGHTS BACK

Any country best achieves security, by which I mean economic security, financial security and national security, by having the largest, most vibrant, technologically advanced economy, deep capital markets and a dominant currency.

All of this allows for the resources to sustain the most powerful military in the world.

In short, becoming a superpower.

Staying a superpower, like maintaining an empire, requires financial security at home, ambition all around, and a sharp eye on emerging rivals.

Hubris and complacency are what topples superpowers and empires alike. And nothing concentrates the mind like a peer rival with a full head of steam.

Our chief rival has moved from Japan and the Soviet Union to the more formidable and disruptive China.

In the last two decades, there are a number of trends in America going the wrong way and this has increased fear and anxiety that America will lose its superpower status.

While America has strategically stumbled over the past three decades against the backdrop of great upheaval in finance and technology, China has become the leading economic power in Asia.

As the world’s largest exporter and manufacturer, China is taking a dead aim at pushing America into the back seat of world influence by capturing the global commanding heights of technology and finance. China challenges America on all fronts, militarily, ideologically and especially in economics and business.

According to CIA statistics, China’s economy has grown a stunning three times faster than America’s every year during the last three decades.

Only the Paranoid Survive

“Success breeds complacency. Complacency breeds failure.

Only the paranoid survive.” Andy Grove, former CEO of Intel

 

The next decade will likely determine the outcome of the power rivalry between America and China because it represents an aging China’s window of opportunity and a divided America’s window of vulnerability.

This titanic rivalry is also unique because China is not just another country – it was for centuries the world’s leading power. America is not just a country either – it is a bold experiment that went from a fledgling frontier market to become the world’s largest economy in 1890, and has been the world’s hegemonic superpower since 1945.

But make no mistake; China has become a peer, power rival.

China is a $17 trillion economy, the leading trading power and capital exporter, home to seven of the ten busiest shipping ports in the world, a rising rival in technology and the second largest nuclear-armed military power.

China now accounts for about 30% of global manufacturing according to Credit Suisse research.

Consider the changing U.S.-China rivalry through the frame of a football game. If in the second quarter your team is ahead 30-3, you might head for the exits or order another beer to celebrate. If however, it is the beginning of the fourth quarter and your team is ahead 24-17, you will pay attention.

This was, and is, the proportion of world economic output by the trans-Pacific rivals, America and China. In 2000, the United States accounted for more than 30% of global GDP and China a bit over 3%. By 2020, the American lead of nominal world GDP was 24% to 17% according to World Bank statistics.

Where is the momentum, what is the trajectory of the two teams? Who will win in the end?

Nothing captures this power shift better than the Fortune Global 500, which every year ranks the largest 500 companies by revenue. In 1990, China had zero companies on the list. By 2002, China had 11 companies on the Fortune list while America crested at 197 companies.

In 2020, we reached an inflection point since for the first time, China led the list with 124 companies in the rankings versus 121 for the United States.

As an investor, you can profit by this intense rivalry by investing in stocks at the heart of this rivalry. I call these power stocks.

Let’s now turn to an overview of five power sectors and some Cabot Explorer success stories and then we’ll reveal how you can immediately gain access to our special report.

Learn how to receive the

New Cabot Explorer Special Report:

Three Power Stocks for America’s Future

As mentioned earlier, technology competition in space, 5G and 6G infrastructure, financial technology, robotics, drones, electric vehicles, advanced manufacturing, semiconductors, and all the future-oriented industries, will be critical to America’s country’s wealth, power and national security.

Let’s take a closer look at five of the many sectors that the Cabot Explorer is following closely.

Power Sector #1

Space/Aerospace

From Satellites to Mars Tourism

Chang-e-5-spaceship

A struggling Boeing is still the king of aerospace. But since an estimated one billion Chinese people have yet to even board an airplane, by 2030 the world’s dominant aerospace company could be the Commercial Aircraft Company of China (COMAC). Nothing symbolizes the gravity of this rivalry than its elevation into space.

In 2020, China’s first mission to another planet, the Tianwen-1 blasted on a seven-month journey to Mars. It orbited the red planet for a few months and then a rover conducted scientific experiments. Just a couple of weeks later, an American mission landed the Perseverance rover on Mars. It will also deploy the Ingenuity Mars helicopter – the first craft capable of powered flight on another planet.

China is also accelerating its government-sponsored satellite initiative to beam internet from space, taking on American rivals SpaceX’s Starlink and Amazon’s Project Kuiper as well as the United Kingdom’s OneWeb in the competition to dominate the age of space connectivity.

According to the Asia Times, China’s “StarNet” could launch up to 10,000 satellites by the end of the decade as it joins the race to provide inexpensive broadband access to 4 billion people in the world without it.

Finally, by 2025, it may be possible to fly from D.C. to Paris in four hours, instead of the current eight – or from San Francisco to Tokyo in just six hours on a supersonic jet according to Axios Future.

You may recall that British Airways and Air France flew the Concorde from 1976 to 2003 New York to London in three hours. But the Concorde was unprofitable not to mention terrible for the environment.

Now, lightweight materials, more efficient engine technologies and cleaner fuels can make supersonic jets both cheaper and profitable.

For example, Aerion is developing a supersonic business jet with the backing of Boeing that will begin production in Florida in 2023, and should be ready for customer delivery by 2027. NetJets has ordered twenty of the planes at $120 million each.

Cabot Explorer Space Power Return

Virgin Galactic (SPCE) +360% (recommended 12/2019)

Before we move to the next power sectors and power stocks, I want to alert you to the opportunity to get your money in front of a massive capital flow coming out of Washington, DC.

HOW TO GET AHEAD OF THE BIDEN

$2.3 TRILLION INFRASTRUCTURE PLAN

 

Broadband (Fiber Optic) providers

The plan aims to provide universal high-speed broadband, expanding coverage to more than 30 million Americans the White House says are lacking. The administration wants to throw $100 billion at the problem.

That is a boon for the industry, especially makers of the fiber lines used to create broadband systems. The fiber supply chain is a clear winner.

Semiconductor manufacturers
Semiconductors are a clear winner with the industry being offered $50 billion. Mr. Biden is invoking China’s competitive threat as a justification for his package. That argument has widespread bipartisan appeal, and members of both parties already joined hands this year on legislation providing federal incentives to boost domestic chip production and design.

 

Electric-vehicle makers
The administration has an aggressive $174 billion plan to boost the EV industry. That ranges from direct subsidies to manufacturers to tax credits and other incentives for consumers, as well as federal spending on 500,000 new charging stations to accelerate the building of infrastructure needed for a robust, functioning market.

 

Power Sector #2

Electric Vehicles – Clean Energy

Electric car plug

 

While in the pandemic world economy overall auto sales declined, based on data collected by Matt Bohlen, electric vehicle (EV) sales, particularly in late 2020 and into early 2021, have accelerated beyond expectations.

The second half of 2020 will be remembered as an EV inflection point.

American investors can easily miss the electric vehicle opportunity by focusing only on the U.S. market place. Less than 2% of cars sold last year were fully electric and Tesla dominates with 205,600 sales followed by GM’s Chevrolet Bolt at 21, 000 and Nissan’s Leaf with 9,500 sales of electric cars.

In 2020, there were about 3.2 MM battery electric cars sold throughout the world. Europe leads the way closely followed by China. Roughly 235 of all cars sold in Europe are BEVs and the proportion in China is 9%.

By 2025, China expects total auto sales of 40 million and that 20% of 8 million will be BEVs.

The talk of the town in EV circles these days is the largest by volume automaker in the world – Volkswagen. VW sold 326,000 cars in America last year, recently announced a big move to electric vehicles.

This ties into the company taking orders for its new ID.4 small electric SUV. Of course, only a small proportion of VW sales in America this year will be electric. In Europe, VW tripled its BEV sales from 45,000 in 2019 to 134,000 in 2020.

This new higher EV trajectory will of course impact auto companies, EV infrastructure such as chargers, and battery chemistry but it will also impact critical material markets.

Global electric car sales finished December 2020 with over 500,000 sales for the month, up 105% on December 2019, with a market share of 6.9% for December 2020, and 4.0% for all of 2020.

China accounted for about 44% of EV sales in 2020 followed by Europe at 28%, and North America with 16%.

Full year global EV 2020 sales of 3.24 million were up 41% compared to 2019.

For France, 19% of all auto sales in December 2020 were EVs. Here are some even more impressive numbers:

Germany: 27%

Sweden: 49%

Netherlands: 72%

Norway: 87%

All of Europe: 23%

For China: 9.4%

Based on this, it is looking like EV global market share might reach 7% in 2021 and 10% in 2022. All these numbers make our earlier baseline 2025 targets too conservative.

Essentially the previous 2025 target of 10 MM EV sales could be hit by 2022 and the previous 2030 target of 25 MM EVs might be achieved well before the generally accepted 2030 target date.

Globally, battery-powered electric cars made up around 4% of all new cars sold last year in the world’s largest market in the U.S., Europe and China, up from around 1% in 2017, according to data from Deutsche Bank. By 2025, the bank expects that the EV share of the auto market to be 22%.

Cabot Explorer EV Power Return

NIO (NIO) +812%

(Recommended in special report 3/2019)

NIO chart

China’s EV market sizzled in the second half of 2020 but has cooled off so far in 2021 providing us with an attractive long-term entry point.

 

Keep reading to learn how you can access the

Cabot Explorer Special Report:
5 Electric Vehicle Stocks to Buy Now

Now let’s move onto the next power sector – strategic resources.

Power Sector #3

Strategic Resources
The Foundation of Empires

Rare Earth

“The Middle East has oil, China has rare earths.”

The above quote by former Chinese premier Deng Xiapeng sums up that in rare earths and many rare metals, China has a commanding 85% market share of global production.

Furthermore, China is doubling down on its commanding lead by having its state-sponsored firms gobble up reserves and mining assets all over the world. Even in America’s backyard, Canada and Latin America.

In addition, China has been consolidating hundreds of smaller rare-earth players down to six powerful state-owned firms and is keeping more production at home to support high tech in China.

Here are just a few examples of the many products dependent on rare earths.

made with rare earths

The media focuses on shortages of copper and nickel but these are big liquid markets. About 20 million tons of copper and 3 million tons of nickel are produced each year. Meanwhile, rare earths and rare metals are under the radar of most investors because they are much smaller and opaque.

Some of their critical, strategic materials essential to EVs, wind turbines, fiber optics, semiconductors have world annual production levels less than 200 tons.

Many have annual production under 2,000 tons. Demand is already outstripping supply and prices are in an uptrend.

In addition, China is already keeping more of its rare-earths production at home for its domestic needs. Geopolitical Futures states that Chinese exports have already declined as a result, including a 24% drop in 2020 from the previous year. Indeed, Chinese demand has outpaced Chinese mining production for the past five years, forcing China to import increasing amounts of raw material from Myanmar and Vietnam.

Next we move to demand for rare earths from the wind turbines. The use of these rare earths is primarily the larger offshore wind turbines. The International Renewable Energy Association projects that offshore wind energy installed capacity will more than double between 2020 and 2025.

 

Cabot Explorer Power Rare-Earth Return

Lynas (LYSCF) +496%
recommended in

special report 4/2020

lyscf

Power Sector #4

Semiconductors:
The Brains of Technology

semiconductor

Semiconductors are crucial and the most strategically important technology because they are the materials and circuitry needed to produce microchips that are at the heart of everything from smart phones to advanced satellites. You might think of these microchips as the brains inside all advanced technology.

One trillion chips a year are made and an electric vehicle has about 3,000 microchips.

Roughly speaking, there are three different types of firms in this sector.

The first are the chip designers such as Nvidia (NDVA), which is a competitive space with low capital requirements and huge margins.

The second are companies that make the equipment that makes the microchips. America leads in both of these areas.

Then comes the actual making of the chips in what is referred to as fabrication plants. The advanced chip making business, which is extremely capital and talent intensive, has gone through a rapid consolidation as companies producing cutting edge, high performance chips has declined from 25 firms to 3 firms.

You can see from the below chart that the American and European share of this pie has declined since 1990.

semiconductor manufacturing

Taiwan Semiconductor is the leader closely followed by Samsung Electronics. As production has expanded in Asia, the U.S. share of chip manufacturing has fallen to 12% according to a report by the Boston Consulting Group. China and many other countries substantially subsidize their semiconductor sector.

chip manufacturing

The U.S. is also a leader in the semiconductor equipment used to make and process wafers as well as test and assemble the final chipsets. According to the U.S. International Trade Commission, U.S. chip equipment firms, which have roughly 60,000 domestic employees, account for about half of global production. America is even more dominant in chip design software, controlling about 80% of the global market.

The challenge for America is that its wants to protect its lead in semiconductor technology while U.S. companies want to continue selling advanced chips to China.

Cabot Explorer Power Semiconductor Return

Taiwan Semiconductor (TSM) +81%

profits (recommended 8/2020)

tsm-chart

 

Power Sector #5

Financial Technology (Fintech)

american and chinese money

In 2021 and during the next decade, the overarching issue separating the winning stocks from the losers will be U.S. – China rivalry in the areas of finance and technology.

More than Wall Street, Washington will impact this deep and powerful geopolitical and investment trend. The Fed is moving from a passive to active player in financial markets. The U.S. Treasury, other obscure but influential agencies and corporate interests will also play a more important role in economic and financial diplomacy.

Because of their size and technology base, America and China lead in fintech though China has perhaps the edge because of its ability to scale up over a population more than four times that in America.

The fintech space will have a substantial impact on which country will dominate finance and technology in the coming decade.

Fintech

In 2020, after more than five years of research by its central bank, China became the first major economy to conduct a test a “digital Yuan” in four major cities.

This development highlights that China is likely way ahead of the United States in the development of a crucial link in the emerging digital world economy. U.S. policymakers so far seem unprepared for the impact of digital currencies while China will partner its digital yuan and strong electronic-payment platforms (such as Alipay and WeChat) to expand its influence.

Cabot Explorer Fintech Power Returns

Sea Limited (SE) +1,410% (recommended 2/2019)

SE Chart

 

Advice from a Trusted Source

Cabot Wealth Network Building in Salem, MA

Cabot Explorer is published by Cabot Wealth Network, which was founded in 1970 by Carlton Lutts, a disciplined investor with an engineering mind who developed a proprietary stock picking system using technical and fundamental analyses.

Carlton personally researched and wrote the hugely influential Cabot Market Letter, which recommended many big-time profitable trades. Since then Cabot Wealth Network has grown to become one of the largest and most-trusted independent investment advisory publishers in the country, serving hundreds of thousands of investors.

The headquarters for Cabot Wealth Network is in Salem, Massachusetts, which first made its money through global maritime trade, particularly to China and the far East. Salem resident Elias Hasket Derby’s first ship landed in China in 1786. When he died 13 years later he was the world’s richest man with an estate of what some have said would exceed $31 billion in today’s dollars.

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Three Power Stocks for America’s Future

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Presidential seal

You won’t want to miss this special report highlighting three power sectors and three power stocks to buy right now.

Technology competition in space, 5G infrastructure, financial technology, robotics, drones, electric vehicles, advanced manufacturing, semiconductors, and all the future-oriented industries, will be critical to America’s wealth, power and national security.

Receive this special report and learn the identity of three Explorer Power Stocks.

Power Stock #1
Breakthrough Electric Vehicle Battery Technology

Power Stock #2
America’s Only Source of this Strategic Resource

Power Stock #3
The Most Valuable Company in the World

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The global electric vehicle (EV) market sizzled in the second half of 2020 but has cooled off so far in 2021 providing us with an attractive long-term entry point. Find out our power stock ranking of this exciting market.

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Carl Delfeld
Chief Analyst, Cabot Explorer

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