The Opportunity in Rare Earth Metals Is the Silver Lining to Chinese Espionage
I tend not to dwell on political news here, but sometimes I must in order to dig up investment opportunities for you. So, bear with me for a moment.
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Earlier this month, Axios broke a story detailing a relationship between U.S. Rep. Eric Swalwell of California 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.
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Fang helped Swalwell fundraise for his 2014 reelection campaign. She also placed at least one intern in Swalwell’s office. And, as it turns out, she had a romantic relationship with Swalwell.
It turns out that 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.
This is just one example of the growing strain between Washington and Beijing.
Dating back to even before President Trump’s tariffs, the reality is the United States is in an economic war with China — one that is going to intensify.
But what does this have to do with investing?
Because certain domestic sectors are woefully vulnerable to a Chinese economic attack, this war is going to reshape parts of the U.S. economy. We’re going to see substantial federal spending as we fortify these weak spots.
So 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 …
An Overreliance on China
On September 30, President Trump signed an executive order declaring U.S. reliance on China in rare earth metals a national emergency.
Rare earth metals (or elements) are a group of 17 metals that, while not exactly rare, 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. They are key components of missile guidance systems, lasers, electronic displays, radar, and satellites.
That’s what makes them 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.
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.
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 rare earth mining stocks …
One of 2020’s Best Stocks Could Keep Climbing
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.
As it turns out, my pick in InvestorPlace’s Best Stock for 2020 contest is a miner that popped on the Freeport-McMoRan Inc. (NYSE:FCX).
Freeport-McMoRan is a Phoenix-based mining company with exposure to rare earth metals. It’s also one of the best-performing stocks in that contest.
While I remain highly bullish on Freeport, it’s not the only way to trade this renewed focus on rare earth metals.
I recently came out with a special report 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 relating to escalating economic tensions with China.
The effort to shore up this key U.S. vulnerability — and other “stress points” — suggests there are big gains coming here.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south.
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