Transcription
So, I don't think most people realize this, but the US government is now an investor in the stock market. They're calling it the new economic strategy.
So, here's what happened. In the last few months, the US government took ownership in some of the most strategically important corporations in America. The US now owns about 10% of Intel, the company that makes our microchips, 15% of a company called MP Materials, which is the only rare earth mining company in the country, about 10% of Lithium Americas, which controls one of the biggest lithium deposits in North America, and it also has what President Trump calls a golden share in US Steel, which gives the US veto power over decisions made by a private company.
So, all of these companies, which were once privately owned, are now part-owned, and in some cases controlled, by the US government. Now, the government is telling us that this is about national security, right? Making sure that the US can make its own semiconductors, and mine its own rare earths, and make its own steel without relying on China or anyone else.
But what's really happening is a lot more significant because this is a huge change in how the US economy is going to work. And that's because when the government owns part of a company, it's not just going to influence its policy. It's going to start to influence its profits, its management decisions, and it changes the game of competition because, in a way, it also allows the government to pick the winners and losers of a market. So, it sort of blurs the line between free markets and state control.
And the crazy part about that is that this is exactly the kind of system the US spent decades warning the world not to copy. This is the model used by China, where the government owns stakes in strategic companies and then uses that as leverage to control their economy. Now, the US spent years saying that this system is unfair, it's manipulative, it's dangerous for global competition. Not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers, and the theft of intellectual property.
But now, the US is going to be doing a version of the exact same thing. So, after learning about this, I had a lot of questions, like, how exactly is the US government buying these companies, right? Where's the money coming from? And is this good or is it bad? And how is it going to affect investors and our portfolios? So, things are about to get very interesting. And with that said, let's get into it.
Hi, my name is Andre. Hope you're doing well. Come for the finance, and stay for the new investor on the block: the United States.
So, the first question I had about all of this is, how is the US actually doing this? Like, where is it getting the money to do all of this? So, in the case of this stock, for example, Intel, the government converted funding from the Chips and Science Act into equity. So, instead of just handing out a grant for new plants, the Treasury and Commerce departments negotiated for the shares of the company, about a 9.9% ownership stake, plus the ability to buy more if Intel meets certain production and job targets. So, that's Intel.
Now, another company, MP Materials. The Department of Defense used a mix of something called convertible preferred stocks and contracts, which guarantee the government access to rare earth minerals in exchange for funding. And that deal gave the US about a 15% stake, plus influence over the company's pricing and export rules.
Now, for Lithium Americas, this stock, the Department of Energy renegotiated a huge $2.3 billion loan, which was originally meant for the creation of a lithium mine in Nevada. But instead of just giving them the loan for free, the government added a clause giving it stock warrants, or basically the right to buy up to 10% of the company if the project is successful.
Then there's also Trilogy Metals, which got just a huge infusion of money, and the federal government funded a new infrastructure in Alaska for an access road that the company needed. And in return, the government got about a 10% equity stake and long-term resource rights.
Now, what's interesting is when Nippon Steel, which is a Japanese company, said that they wanted to buy US Steel, the White House said the deal could only go through if the US government got what's called a golden share. It's a special non-economic share that gives the US veto power over major corporate decisions, like, for example, plant closures or foreign sales, executive appointments, and things like that. Anything that might threaten its national security interests.
So, instead of passing a new law or nationalizing industries, the government is using all sorts of things like loan programs, and the Chips Act, and the Defense Production Act, and the Department of Energy loan guarantees, and basically regulatory approvals to take part ownership of these private companies. So, if you want our approval, you've got to give us a portion of your company.
Now, once the government becomes an investor, the question is, should we help companies like this? Like, is this a good thing or a bad thing? And I think that's a really complicated question to answer, and it really depends on how you look at it. Like, one way to look at this is, yeah, it's a really smart strategic move because it's a way to protect America's future by making sure that important industries like chips, energy, and steel stay in America's control. And that's important in a world where China dominates 90% of rare earths, 70% of lithium refining, and makes most of the world's solar panels.
So, the question is, how do you compete with a player that has so much influence because it controls its own supply chain? China controls the resources and the manufacturing that makes all of this possible, and the US just can't compete with that. And here's an example. I recently went down a rabbit hole here on YouTube about Chinese electric cars, and I learned that right now, China is selling cars where a lot of them actually have an excess of 400 miles of electric range. They have cars with hypercar-territory performance and luxury you can't even compare with until you get to multiple six figures. And the price point for these cars, like $30 to $40,000 on average. If you brought these cars over to the US, none of the companies, including Tesla, here in the US, would be able to compete with them. Everyone would be buying these Chinese cars. And why is that? Is it because we don't have the technology to build them? No. It's because if the US made them here, they would cost hundreds of thousands of dollars. And they do, and that's why they're unaffordable. China can do this because, partially, because they steal the United States IP for research and development, because everything is made there, but also because when you get rid of the R&D cost and you have the power of government money to subsidize the manufacturing of cars, no free market can win against it.
So, for years, the United States watched this happen without competing on the same level because it can't. And now that's starting to change. The US is realizing that this idea of the free market cannot win against a command economy that uses state power and influence to win. So, America's answer then is to start playing by the same rules to make national security its new priority. And politically, that's actually really powerful, right? Because no president wants to be the one accused of letting another country win the race of technology and energy. So, all of these equity deals that we're seeing play out, they let the president say, "We're bringing back jobs, right? We're building factories. We're investing in America again." So, on paper, it looks like a very patriotic, very smart change, right?
But it also comes with a huge change to how capitalism works. Because when the government starts deciding which companies deserve to exist, like which ones get the approvals, which ones get the money, which ones don't, then that's not really a free market anymore, is it? And that's where things start to look a lot more like China than I think anyone wants to admit.
But then the question is, so what is that such a bad thing? Before we get into that, here's something I've been personally doing to keep stacking sats while the rest of this plays out with a Bitcoin credit card by Gemini, who's actually sponsoring this video. And it's a card I've been using for a while now. All opinions are mine, and they weren't influenced by Gemini. I use it like any other regular credit card for gas, groceries, and travel, but I earn Bitcoin every time I use it. It has no annual fee, and you can see the rates and fees in the description for more info, but you get up to 4% back in over 50 cryptocurrencies instantly, and you can choose which one you want. Personally, I have mine set to Bitcoin, of course, but it's 4% on gas, transit, and rideshare, 3% on dining, 2% on groceries, and 1% on everything else. It's a Mastercard World Elite. I've used it internationally with no issues, and every time I use it, it adds to my Bitcoin stack, and I plan to hold that for the long term. The best part is you're investing as you spend. In fact, according to Gemini, cardholders who earned and held their Bitcoin for one year saw an average appreciation of 176%. Those are not your typical credit card points. So, if you're interested, click the link in the description or go to gemini.com/andre to get $200 in Bitcoin when you spend $3,000 in your first 90 days. Thank you, Gemini, for sponsoring this segment. And now let's get back to it.
So, here's how you can think about this. When the government becomes an investor in the market, it changes the rules of the whole competition, right? In history and data actually give us a reason to be a little worried. In the Fourth Turning theory, for example, every 80 years or so, this happens in the fourth and final phase, the decline of the empire. And that's where the government steps in to take control of the industries that it sees as important to its own survival. Like during the 1940s, for example, that was steel, oil, and weapons. Today, that's semiconductors, AI, and energy.
Having the government give companies money means they could start doing deals not because they want to create better stuff, but because they want to lobby and buy politicians in return for favorable funding and approvals. Subsidies from the government can become a lot more attractive and appealing than spending all that money on research and development. And we've seen this play out in other economies when state capital, or money, dominates. So, their innovation and creativity slows down because then the safest thing to do is to play politics instead of make a better product, right? Like, why take the chance and compete with Apple and make a better iPhone when you can just instead spend the money to cultivate a better relationship with that politician that could give you that government handout?
Now, I realize that's sort of how it works today as well, but now we have a precedent. Now this is happening, right? The government's now buying these companies. So, now the stage is set for this to happen more. So, another risk is that money might actually move away from good, efficient companies towards those that have government favoritism. Over time, it weakens the economy. We've seen that happen in China. There, the government owns big stakes in what it calls strategic industries: finance, energy, tech, manufacturing. But instead of having a competitive market that's driven by a free economy, it instead creates what economists call rent-seeking behavior, which is when companies exist just to stay in favor with the state rather than its customers.
So, what ends up happening then is on one side, politically connected companies, they get all the cheap loans, all the tax breaks, and all the subsidies, right? And on the other hand, the independent companies, even the good, creative ones, have a really hard time with money and approval. So, they can't really compete. Over time, that favoritism leads to weaker creativity, wasted money, slower growth, less risk-taking, etc., right? That's why some economists say China's biggest weakness, it's not its debt or demographics. It's their parent state, the dependency of it. So, if the US starts doing the same thing, that risks building an economy where political access becomes more important than creativity.
So, that then brings me to the real question, which is, why is the US buying the stock market right now? It's because this is the fight for the control of the future. And this is happening at a time when China's economy is slowing down, Russia is separating itself from the West, and the US is looking at the most expensive debt in history. At the same time, the world is sort of splitting into two separate economies. One that's built around dollars, and the other one that's built around Chinese capital. Both sides are sort of racing to control the same stuff: energy, microchips, minerals, and the internet. Whoever controls that controls the future.
Now, in this game that's being played, China's actually winning. Like, take rare earths, for example. China controls the refining, the processing, the export restrictions, and the licensing. That gives it the ability to say, "If you press that reset button, no more rare earths for you, right?" That means China controls the pricing power and the ability to weaponize its supply. And it's not just minerals, by the way. China also controls roughly 80% of solar panel production. So, the US can't just rely on trade deals or sanctions because those don't work against a country that controls its own supply chain.
So, that's why this is happening now. The US can't compete with China in the open market. The US cannot weaponize the dollar against China the way that it does against the smaller economies. And it can't use the reset button, which has historically been war, because that's not a winnable option. The US government knows this. So, then how do you fight back, right?
So, I think what's happening right now is a strategy of, "Well, if you can't beat them, join them." And that's why the US is buying into the stock market because it has to. It's building its own version of state capitalism, whether we admit it or not. And that, I think, leads to a more important question, which is, of course, is this good or bad for the average person that lives and invests in the US?
And here's my very uninformed opinion because, at the end of the day, I have no idea what's going to happen. But first, I just want to address people that say, "Well, Andre, this is nothing new, right? This is not the first time that the US gets involved. The US is finally just catching up." And that is true. This is not the first time because DARPA funded the internet, right? NASA funded space technology. The government's always been involved in one way or another. There's a long history of public money funding private companies.
But this time is very different because the government is not just giving them the money and funding it. It's also now partially owning them. And I think ownership changes the incentive structure. And that's really dangerous because once you mix politics in with free markets, then it's really hard to see where one begins and the other ends. And I think on the surface, it sounds like a good idea. It sounds patriotic, right? Like, we're investing in America's future.
But here's the truth. This is not the kind of manufacturing that's going to bring back millions of jobs. Because the industries we're talking about, like semiconductors, lithium refining, AI infrastructure, those are all very high-skilled, high-tech industries. In some cases, they'll require PhDs and robotics engineers. They will be mostly automated systems that are going to do most of the work humans used to do. So, even if we do build more factories, they will be filled not with people, but with robots. You might see a ribbon-cutting ceremony or two, and maybe a couple thousand new jobs, but they will never offset what will be lost to automation and AI.
Now, for investors, though, I think this creates a new opportunity because when the government becomes an investor, politics, I think, starts to play a much bigger role than it normally should, whether we like it or not. So, the companies that start to win then are not necessarily the most creative ones. They'll be the most strategically and politically aligned ones, right? We saw that play out earlier in Trump's presidency. A lot of companies were sucking up to the president, and they were there. It's for a reason. If the US owns 10% of Intel, and it funds MP Materials, and it backs Lithium Americas, Wall Street sees that. That money follows that. And if you think about it, when the government invests in companies, it also has an interest in keeping their stock prices somewhat stable, especially during election years. That's kind of a safety net, in a way. In a way, it's the US market is actually being engineered not to fail.
And I think this is where AI sort of ties everything together because the same technology that's going to replace all of us will also be the one that picks our investments for us. So, without letting this video become about anything specific, I think there's going to be a lot of interesting intersections between all of this and AI. So, go ahead and try this out. Ask your favorite AI if it could choose an investment free from corporate control, free from government manipulation, cannot be debased, shut down, or printed into oblivion, something that has increasing demand, is globally liquid, anti-fragile, has a finite supply, network reinforcement. One word, what would it choose? See what it tells you. I'll leave it at that.
So, for investors, this could lead to one of the craziest market runs in years, or it could also be a complete disaster. Either way, I'm staying invested, and I'm just here for the ride. But I'd love to hear your thoughts about it. I hope you have a wonderful rest of your day. Smash the like button, subscribe if you haven't already. I'd love to see you back here next week. I'll see you soon. Bye-bye.