By Kris Sayce, editor, Casey Daily Dispatch

Andrey Dashkov

It’s the biggest story of the year.

But perhaps the least understood.

It affects everyone and everything.

And rather than things improving, they seem to be getting worse.

What are we talking about?

In short – the biggest threat to America’s national security since the end of the Cold War.

That’s no exaggeration. For more details on exactly what this is all about, read on…

If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.

At the Dispatch we have two goals:

  1. To introduce you to the most important investing themes of the day, and

  2. To show you how to profit from them.

We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.

Today, we dig into a little-understood global crisis. One that has an outsized impact on America.

And it’s the global microchip shortage.

The Biggest Threat to National Security

The saying goes, “An army marches on its stomach.”

Some attribute the saying to Napoleon Bonaparte, while others say it was Peter the Great. In truth, it doesn’t matter who said it first.

The importance of the saying is what it means…

It’s about the importance of supply lines in wartime. Not just food, but equipment, fuel, and other supplies, too.

History is full of examples where wartime supply-line disruptions caused more problems than the fighting.

Napoleon’s march on Moscow and Germany’s attack on Stalingrad are two well-known examples.

And in a different way, that supply chain disruption is playing out now.

It’s affecting individuals, businesses, governments… even bitcoin miners! It’s all due to the global microchip shortage.

And while this has been a problem for several months… everyone hoped it would soon end. But that doesn’t seem likely, because as The Wall Street Journal reports:

A surge of COVID-19 cases in Malaysia, a little-known but critical link in the semiconductor supply chain, has opened a new front in the battle to fix manufacturing woes that have rippled across industries during a global shortage of computing chips.

The Southeast Asian nation is one of the world’s top destinations for assembly and testing of the devices that control smartphones, car engines and medical equipment. Disruptions in Malaysia threaten to prolong uncertainty over chip supply well into next year, dashing hopes of relief in the second half of 2021.

The fact is today, you could argue that microchips are the single most important part of any product in a supply chain – especially a military supply chain.

Because microchips are in everything.

Vehicles, satellite systems, communications, and obviously, even basic computer systems and electronics. Not to mention the systems used for fighting and defending against state-sponsored cyber warfare.

And while this whole story has only come into focus in recent months, the idea of America having a “strategic reserve” of crucial supply chain components is something colleague, Dave Forest, has pounded the table on for years.

America “Outsourced” Too Much and Is Now Paying for It

For the most part, nobody listened.

That was until, in 2017, the government did take notice of the problem… when President Trump issued Executive Order 13817.

Now, that Order referred to “critical minerals.” But the idea behind it was that America had a big problem when it came to securing its supply chain.

(As an aside, “critical minerals” refers to minerals such as rare earths, lithium, and vanadium. You may also see them referred to as “tech metals,” due to their use in the technology sector.)

A big part of the problem was that over the years, America had outsourced much of its industry overseas. So there was little need for a big domestic mining industry.

Because of all this “outsourcing,” America let others mine raw materials… and it let others make the goods from those raw materials. America just assembled the parts or sold the finished goods.

And we’re not just talking about cars, machinery, and everyday consumer items. We’re talking about high-tech items, too. Remember, even America’s flagship company, Apple (AAPL) outsources most of its manufacturing overseas.

Having outsourced pretty much every part of the manufacturing process – from low-tech to high-tech – the U.S. has found out how little control it has over the supply chain.

The current chip shortage highlights the problem.

That’s why you see companies facing higher prices for the components that go into their products. It’s also why they’re passing those costs onto other businesses and consumers.

So what’s the solution?

This Problem Is Far From Over

The obvious answer is to develop these industries in the U.S. That way, the U.S. doesn’t have to rely on foreign players for the entire supply chain.

Of course, establishing a domestic industry won’t happen overnight. It will likely take years for capitalists and entrepreneurs to get everything in place.

The next best option is for American companies to set up deals with trusted businesses overseas… in countries that – arguably – are less prone to government meddling.

That’s what Dave Forest liked about a European-based chip manufacturer in the latest issue of his Strategic Investor newsletter (current subscribers can catch up here). The company already has major contracts with some of America’s most innovative companies.

Now, it too is raising prices due to the chip shortage. But the play here is that it will likely see more demand for its products as companies and governments around the world shift away from China and towards a more secure supply chain.

This story, like the chip shortage, is far from over, and so we’ll continue to follow it as it develops.



Kris Sayce
Editor, Casey Daily Dispatch