U.S. Markets open in 9 hrs 8 mins
  • S&P Futures

    3,838.75
    -3.75 (-0.10%)
     
  • Dow Futures

    30,774.00
    -68.00 (-0.22%)
     
  • Nasdaq Futures

    13,557.50
    +72.00 (+0.53%)
     
  • Russell 2000 Futures

    2,133.10
    -12.70 (-0.59%)
     
  • Crude Oil

    52.87
    +0.26 (+0.49%)
     
  • Gold

    1,845.90
    -5.00 (-0.27%)
     
  • Silver

    25.41
    -0.13 (-0.52%)
     
  • EUR/USD

    1.2161
    +0.0016 (+0.1338%)
     
  • 10-Yr Bond

    1.0400
    0.0000 (0.00%)
     
  • Vix

    23.02
    -0.17 (-0.73%)
     
  • GBP/USD

    1.3734
    +0.0059 (+0.4299%)
     
  • USD/JPY

    103.7200
    -0.0360 (-0.0347%)
     
  • BTC-USD

    31,728.19
    -104.01 (-0.33%)
     
  • CMC Crypto 200

    638.72
    -0.42 (-0.07%)
     
  • FTSE 100

    6,654.01
    +15.16 (+0.23%)
     
  • Nikkei 225

    28,597.22
    +51.02 (+0.18%)
     

Alarming Chinese Espionage

Jeff Remsburg
·8 min read

The Chinese espionage effort reaches a new level … startling economic reliance on China … an investment silver lining

Last week, Axios broke a story detailing a relationship between Rep. Eric Swalwell (D-Calif.) and a woman named Christine Fang.

In short, between 2011 and 2015, Fang began a relationship with Swalwell, who was an up-and-coming local politician in the Bay Area at the time.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Fang helped Swalwell fundraise for his 2014 re-election campaign. She also placed at least one intern in Swalwell’s office. And, as it turns out, she had a romantic relationship with Swalwell.

So, why is this a story?

Because it turns out Fang was a suspected Chinese intelligence operative, taking part in what U.S. officials believe was a political intelligence operation run by China’s main spy agency.

From Axios:

The woman at the center of the operation, a Chinese national named Fang Fang or Christine Fang, targeted up-and-coming local politicians in the Bay Area and across the country who had the potential to make it big on the national stage.

Through campaign fundraising, extensive networking, personal charisma, and romantic or sexual relationships with at least two Midwestern mayors, Fang was able to gain proximity to political power, according to current and former U.S. intelligence officials and one former elected official.

Even though U.S. officials do not believe Fang received or passed on classified information, the case “was a big deal, because there were some really, really sensitive people that were caught up” in the intelligence network, a current senior U.S. intelligence official said …

Among the most significant targets of Fang’s efforts was Rep. Eric Swalwell (D-Calif.).

Today, Swalwell sits on the House Intelligence Committee.

This has raised red flags for other House members, leading them to send a letter to speaker Nancy Pelosi, urging her to “immediately remove” Swalwell out of national security concerns.

Back to Axios:

While this suspected operative’s activities appear to have ended during the Obama administration, concerns about Beijing’s influence operations have spanned President Trump’s time in office and will continue to be a core focus for U.S. counterintelligence during the Biden administration.

***This is just the latest example of the growing strain between Washington and Beijing

Here in 2020, there have been a handful of issues resulting in cooling relations …

The Chinese Communist Party’s use of forced Uighur labor in Xinjiang … its authoritarian activity in Hong Kong … its lack of transparency about the coronavirus … concerns about Beijing espionage through Chinese telecom, Huawei … and, of course, all of this comes on the heels of the U.S./China tariff battle.

The reality is the U.S. is in an economic war with China — one that is going to intensify, despite whatever civil posturing our leaders adopt.

As to the investment implications, this war is going to reshape parts of the U.S. economy.

That’s because certain domestic sectors are woefully vulnerable to a Chinese economic attack.

To mitigate the potential for damage, we’re going to see substantial federal spending as our government tries to fortify these weak spots.

For more on this, here’s our macro specialist and editor of Investment Report, Eric Fry:

America has a long and proud legacy of “retooling” its economy to fight wars and solve problems …

And now we will move mountains again to defeat China … and to keep America safe, secure, and prosperous.

I’m not talking about a shooting war, of course. I’m talking about an economic conflict — one that is raging at this very moment.

To help wage this fight, you can invest in three key “retooling” initiatives the United States is undertaking right now … and make a great deal of money in the process …

Each of these re-tooling efforts focuses on a major national weakness, or “stress point” … aspects of our economic infrastructure we have to “shore up” in order to win against China.

Today, let’s look at one of the most critical stress points — and how federal efforts to boost it could be a huge tailwind for your portfolio.

***U.S. reliance on China in this sector has reached critical levels

On September 30, President Trump signed an executive order declaring U.S. reliance on China in one specific sector a national emergency.

What sector was that?

Rare earth metals.

For readers less familiar, rare earth metals (or elements) are a group of 17 metals that form under the earth’s surface. They can be difficult to find and extract.

These metals contain unique magnetic, heat-resistant, and phosphorescent properties that make them critical to the technology and defense industries.

Here’s Eric with more:

… rare earth elements are also absolutely critical to the U.S. military. They are key components of missile guidance systems, lasers, electronic displays, radar, and satellites.

That’s why we consider rare earth elements highly strategic resources.

Yet … the United States has to buy 90% of its rare earth metals from China!

In other words, China could easily cripple major parts of the U.S. military … simply by refusing to ship rare earth metals to us.

As crazy as the current situation is, the fact that we got here is even crazier.

The U.S. let this happen!

According to the U.S Geological Survey, China produced 38% of the world’s rare earth elements in 1993 … and 33% of the supply came from the United States. Smaller percentages came from Australia, Malaysia, Canada, and India.

However, by 2008, China accounted for more than 90% of global rare earth element production. And by 2011, China accounted for 97% of global production. Just look at this chart:

Simply put, this reliance on China is a gaping hole in our national security.

Our politicians know this and are scrambling to shore it up … with billions of dollars.

Investors who see what’s happening and position themselves accordingly stand to benefit.

***The federal dollars flowing toward the U.S. mining sector

On May 12, 2020, U.S. Senator Ted Cruz of Texas introduced the Onshoring Rare Earths Act of 2020, stating:

Our ability as a nation to manufacture defense technologies and support our military is dangerously dependent on our ability to access rare earth elements and critical minerals mined, refined, and manufactured almost exclusively in China.

Much like the Chinese Communist Party has threatened to cut off the U.S. from lifesaving medicines made in China, the Chinese Communist Party could also cut off our access to these materials, significantly threatening U.S. national security.

The ORE Act will help ensure China never has that opportunity by establishing a rare earth elements and critical minerals supply chain in the U.S.

Beyond this, according to Defense News, the Pentagon has …

… proposed legislation that aims to end reliance on China for rare earth minerals” by earmarking an estimated “$1.75 billion on rare earth elements in munitions and missiles and $350 million for microelectronics.”

And as we noted a moment ago, there was President Trump’s executive order from October.

When you follow the investment breadcrumbs, it leads you directly to top-shelf mining stocks.

From The Wall Street Journal following Trump’s executive order:

Miners say they think Mr. Trump’s executive order could encourage a stronger U.S. industry in critical minerals, not least because investors are more likely to back companies they believe the government supports.

Shares in companies that mine or want to mine critical materials rose on the news of the order.

***It turns out, Eric’s pick in our Best Stock for 2020 contest is a miner that popped on the news … Freeport-McMoRan (FCX)

FCX is Phoenix-based mining company with exposure to rare earth metals. It’s also one of the best-performing stocks in InvestorPlace’s annual Best Stocks for 2020 contest.

Below, you can see FCX climbing 88% here in 2020, nearly 6Xing the S&P’s 15% return. It’s also widely outpacing the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) that’s up 50% in 2020.

Eric remains highly bullish on FCX today. But that’s not the only way to play this renewed focus on rare earths.

Eric recently came out with a special report for his Investment Report subscribers called Red, White, and Blue Stocks … for a Six-Figure Payday that details a unique rare-earth-metals play, a world-class uranium company, and a mining company.

There are also three additional picks in the report that tap into other trends on Eric’s radar relating to escalating tensions with China.

As we wrap up, we’ll keep you up to speed on developments with Swalwell and other sources of U.S./China tension. In the meantime, give rare earth metals a look. The effort to shore up this key U.S. vulnerability suggests there are big gains coming here.

Have a good evening,

Jeff Remsburg

The post Alarming Chinese Espionage appeared first on InvestorPlace.