China Takes Advantage of Foreign Direct Investment

In the earliest days when China opened up to the world many European and American firms rushed to take advantage of cheap and plentiful Chinese labor combined with Japanese management principles to produce their products much more cheaply than at home and then export those products across the world and even back home for less than if they had simply manufactured and distributed in their home countries. As soon as foreigners started manufacturing in China they brought their expertise as well as taught what were essentially trade secrets to their Chinese workers.  The next step in this process was that Chinese companies were formed that were able to manufacture goods of equal quality to their American or European counterparts for less thus cutting into or even erasing the profits of the original foreign direct investments.

China Joins the World Trade Organization

After more than a decade of negotiations China joined to World Trade Organization in 2001. Although China complied partially with WTO rules critics say they have not complied totally to the detriment of trading partners across the globe. From 2001 to 2023 China’s total trade (imports plus exports) grew from about $500 billion to more than $500 trillion making China the dominant manufacturer in the world. Today there are Chinese companies with market capitalizations in the hundreds of billions. These include Tencent Holdings (TCEHY), Commercial Bank of China (IDCBY), and Agricultural Bank of China (ACGBY). There are hundreds of other Chinese stocks which, like the three mentioned, can be traded as American Depositary Receipts on the New York Stock Exchange. Considering the Chinese dominance in manufacturing and increasing global clout should you be investing in these companies? Or should you be considering the risks of investing in China?

Chinese Real Estate Market Collapse as an Investment Risk

One of the most significant aspects of China’s economic opening up was the ability of private individuals to own property. Thus, as China’s economic miracle evolved, more and more folks bought property. This ran to excess as many choose to invest in more property than just their own home. This dynamic drove developers to build more and more homes, apartments, shopping centers, etc. The result has been so-called ghost cities. As of 2026 China has at least fifty “underoccupied” cities with roughly sixty-five million unoccupied apartments or houses. All of these units are owned by folks who do not collect rent or otherwise experience a return on their investments. One might think that this situation might be a benefit as China’s population could grow and already have housing available. Unfortunately, China’s population decline is such that by the end of the century its population could be as low as half of today’s 1.4 billion people. Thus millions of permanently unoccupied housing units will be a permanent drag on China’s economy and a risk for other investments.

Chinese Debt as a Risk

China has not only a national debt issue but also a personal debt problem. The personal debt size is becoming a problem for the Chinese banking system. Delinquency rates of small business loans, mortgages, and personal loans are this year approaching rates not seen in China since the Financial Crisis. China’s national debt is about $19 trillion if converted to US dollars and is about ninety percent of gross domestic product and climbing. As with the USA and other nations, China’s high national debt will translate into higher borrowing costs, slow economic growth, and make markets more volatile thus making investments risky.

Can China Sell Enough Abroad to Keep Offset Domestic Financial Problems?

China needs to find ways to ramp up domestic consumption but that is not happening and may never happen with a shrinking population. The sum total is that China is trying to work its way out of a domestic financial mess by exporting goods to a world that may well be teetering on the edge of a recession brought on by the Iran war and reduction energy and fertilizer supplies. Damage to infrastructure by the war will take up to a decade to repair so that even when the active war is over there will be ongoing harm to the global economy and therefore reduced capacity to buy goods produced in China. All in all there are intrinsic value issues overhanging Chinese companies and their stocks. China’s population will continue to shrink and nobody is going to live in all of those empty apartments. As with the US, national debt will likely keep going up as well. Consider these issues when thinking about long term investment in ADRs of Chinese stocks.

Reasons for Offshore Retirement

There are several good reasons why many folks have chosen to retire out of the USA over the years. These include lower cost of living, lower taxes, a better climate, a freer lifestyle, more affordable health care, ease of travel from your new home, and a social and political climate more to your liking. Each of these factors can be broken down into subfactors. For example, the cost of living in a country has to do with its own economy, the rate of exchange between their currency and the US dollar as well as inflation within that economy.

Panama City Panama Cinta Costera

Exchange Rates and the Cost of Living Offshore

The cost of living for an expat will be affected by the rate of exchange between the nation’s currency and the US dollar if the retirement country does not have a currency pegged to the US dollar. For example Panama, Costa Rica and Colombia are side by side in Latin America. The Panamanian Balboa is pegged one to one to the US dollar while the Costa Rican colon and Colombian peso both float up and down versus the dollar in the Forex market. Exchange rates change with the strength of the economies of the respective countries as well as when the central banks of the countries in question change their interest rates. We wrote recently about being careful of the Colombian peso carry trade for currency traders. The arguments we made in the article could equally be applied to retirees in Cartagena, Bogota or less “retired-to” cities like Manizales in Colombian coffee country. Just two years ago every $1,000 that you transferred into pesos to use in Colombian gave you more than four million pesos. Today it is closer to three million. That is a twenty-five percent loss in pesos at a time when inflation in Colombia has run from five to six percent further reducing your real purchasing power. By comparison, Panama has seen virtually no inflation for several years as well as having a currency pegged to the US dollar. However it still costs about a third less to live in Colombia versus Panama although the advantage is being eating away with Colombian inflation and currency rate changes. Inflation in Costa Rica has been negligible over the last three years and the exchange rate has made the dollar a quarter less valuable versus the Colon over the last five years.

Finding English Speakers Offshore

Ideally a retiree will choose to learn the language of the nation where they will retire or already speak it. Some nations, like Panama due to the long US presence, have lots of English speakers including families of former US military personnel. This is not the case with nations like Costa Rica or Colombia with exception of North American retirees who already live there. Beside the issue of being isolated socially if you don’t speak the language it can make life more expense living offshore if you are continually reliant on paying someone to do your business for you which should be a consideration when choosing an offshore retirement location.

Can You Invest and Do Business in Your Offshore Retirement Location?

Assuming you are fluent in the local language you will still find it hard to do business when you are commonly seen as a foreigner or interloper. The most successful kinds of offshore business include buying property and renting it out with the help of a local rental agent. As a rule if you want to be retired in an offshore location you will want to enjoy your retirement and not worry about losing your retirement capital in risky business schemes.

What to Do When Political or Social Risks Emerge in Your New Home

Just looking at our three Latin American retirement destinations, Costa Rica and Panama have been politically and socially stable for decades. However, Colombia has experienced decades of civil war only improved with a peace treaty ten years ago. However, there are rebel groups still operating in remote areas of Colombia, funding their operations with cocaine and marijuana sales. These groups have tended to enforce cooperation in areas under their control by violent means. Thus anyone who wants to retire to Colombia will do well to pick larger and safe cities such as Cartagena, Bucaramanga, or Santa Marta along the Caribbean or quiet cities like Manizales in the interior. A new factor in the mix for Colombia is the election of a far right president with great ambitions including building ten mega prisons to house drug selling guerillas whom he intends to arrest. This could well lead to a war similar to the Pablo Escobar era which resulted in thousands of death, billions of dollars in infrastructure damage, collapse of foreign investment in Colombia and a generally unsafe situation for foreigners retired in Colombia. This is a situation that one will be let play out a bit before choosing Colombia as a retirement destination. Aside from the threat to one’s health and safety, unrest in Colombia or in any retirement destination could result in one having to leave and being unable to sell now-devalued property and taking substantial losses. Useful news sources for keeping up on news from this part of the world include CNN Español, El Jazeera in English, and the BBC much more so than US news sources.

Economical Retirement Destinations in the USA

If offshore retirement issues make such a choice unpalatable you may simply wish to look for an inexpensive place to retire within the USA. Money Talks News has a useful list of possible retirement destinations for folks on a budget. The list includes Chattanooga, Tennessee, Fayetteville, North Carolina, Augusta, Georgia, Dover, Delaware, Huntsville, Alabama, Birmingham, Alabama, Columbia, South Carolina, Fort Smith, Arkansas, Memphis, Tennessee, Huntington, West Virginia, Mobile, Alabama, Cheyenne, Wyoming, Knoxville, Tennessee, Casper, Wyoming, and, first place, Montgomery, Alabama. Foreign exchange rates and finding English speakers will not be an issue if you go this route but you will still want to look into good and affordable health, the local culture, and taxation. Good luck with your search!

Practical Offshore on Onshore Retirement Location Advice

Years ago a Panama English language news source on the Pacific coast published a pole of American retirees. One finding pertinent to anyone thinking of retiring offshore was that folks who rented and lived in the country for a year before choosing where to live and buying a home were universally happier than folks who moved to the country and immediately purchased a home, especially in gated and isolated retirement communities.

Is There any Likelihood of the US or Other Government Reducing Their Debts?

It is instructive to look at the top items in the US budget when considering if the US can reign in its debt. The top budget item is social security. Social security was less than a percent of US spending during the world war two era but broke above 20% at the turn of the century. Today it accounts for 22.5% of Federal spending. When the system as set up by the Social Security Act in 1935 life expectancy was less than today. By 1960 a 65 year old retiree could expect between twelve and thirteen years of life. By 2000 that increased to sixteen years and by 2023 to eighteen more years of life on average. People are living longer and collecting Social Security benefits longer than in the early days of the program. As better health care and medicines are likely to continue to allow us to live longer Social Security is likely to cost more every year unless cuts are made to the program. Making significant cuts will be difficult for legislators who are fully aware that the most likely people to vote are those receiving or about to receive monthly Social Security payments. So don’t for a quick fix in this area. Where else can the government look to decrease spending?

Time Running Out to Fix US Debt Courtesy of Bloomberg

Where Else to Look to Save on Government Spending

After Social Security, Medicare, directly funded health care, interest on the total debt and defense are costliest items in that order. With the country locked in a war with Iran and in need of replenishing stockpiles of expensive weapons, defense is not likely to be a place in the short term to look for savings. As buyers of US treasuries become leery of the US being able or willing to pay its debts, they will demand higher interest rates in order to purchase bond, especially on the longer term issues. This will increase the debt burden as we go forward. That only leaves medical and social programs to cut which will also not be popular are people lose health care and health problems mount across society.

How About Taxes as a Cure for the US Debt?

Taxes are never popular but today the fact that many in the highest earning groups are paying a lower portion of their income in taxes than those with lower incomes is making folks angry. It remains to be seen if enough legislators could be elected to significantly raise taxes and if doing so could make a meaningful difference in regard to the massive US debt.

Reduction of Immigration and US Debt

In the 1980s Social Security was in trouble like it is today with the trust fund running out. At the same time there was a national debate about immigration and how “no county with two languages ever survived.” Behind the scenes the US opened the flood gates and had the most immigrants in a century. These folks worked, paid taxes and paid into the Social Security system and rescued the system for decades. A side eforfect of the current war on immigrants is that the Social Security system will not be rescued and with the US having such a low birth rate there will be fewer and fewer young workers to pay taxes, support government programs and pay the massive US debt.

Worst Case Scenario for US Debt

JPMorgan published some useful information about possible outcomes of the current federal debt dilemma. The suggest five possible outcomes:

• Steadily rising debt-to-GDP with rising borrowing costs
• Slowly rising debt-to-GDP with little market reaction
• A fiscal crisis
• Slower growth in federal debt via spending cuts
• Slower growth in federal debt via higher taxes

The worst case would be a fiscal crisis. Possible instigators of such a crisis would be the Congress refusing to raise the debt limit, another government shutdown, unwise tax cuts or extension of current tax cuts when revenue is needed, or total loss of foreign investor confidence in US debt!

It remains to be seen if the government and the American people will be able to cut spending and pay more taxes while finding a way to stop getting involved in expensive wars.

What Are the Risks of So Much Debt for the Average Investor?

The slowly evolving case is higher interest on debts, and depression of economic growth. The fast and lethal case is when over extended traders and investors using derivatives or shorts to enhance their profits. When these folks get caught in bad positions they need to liquidate and that can cause market panic and crashes inflicting harm to investors who had nothing to do with derivatives, shorts, etc. If the government decides to print money to pay the debt the dollar will devaluate making imported goods more expensive for individuals as well as businesses.

How Can an Investor Prepare for a Debt Crisis?

We are seeing investors like Ray Dalio suggesting that people start hedging with gold and Bitcoin against a debt crisis. Alternatively, one might follow a useful approach in a recession which is to invest in companies that produce what people want or need no matter how the economy is doing. We wrote years ago about investing in beer in that vein. Other choices include utilities, retailers that cater to folks with less money. Holding on to cash may seem counter productive if the value of the dollar is falling but folks with cash on hand are better able to take advantage of opportunities when they arise. The most important part is to get rid of any high interest debt such as with credit cards and have at least enough cash on hand for six months of expenses.

Ty Cobb, Baseball Great and an Excellent Investor

Early 20th Century Investment Opportunities

During the early twentieth century automobiles became the primary means of transportation. What started as an oddity among horse drawn carriages and wagons grew to where virtually every family had a car and buses and trucks completely replaced horse drawn vehicles. During the same period the USA connected cities and the whole country by telephone and a small soft drink company took a soda fountain beverage and bottled it making it more widely available, and profitable! Folks who bought Coca Cola, American Telephone and Telegraph, Eastman Kodak or United Motors which became General Motors turned small investments into fortunes.

Mid to Late 20^th Century Investment Opportunities

The invention of the computer created an investment niche in the years after World War Two and going forward. Leading companies included IBM which dominated this niche for decades until the company missed out on the introduction of the personal computer in the early 1980s. Companies that took advantage of personal computing were Apple and Microsoft, which grew to be modern day tech giants with market caps in the trillion dollar range.

Meanwhile, a revolution in biotechnology focusing on the molecular basis of diseases, and recombinant DNA technology drove the development of new drugs that previously were only the stuff of dreams. Companies like Amgen and AstraZeneca increased in value hundreds or even a thousand fold over the last forty years and the pharmaceutical sector holds continued promise as AI is applied to drug development.

Early 21st Century Investment Opportunities

The rise of the internet has driven many investment opportunities in the last few decades. The rise of several tech titans like Microsoft, Apple, Amazon, Netflix, and Alphabet was preceded by the dot com boom and bust during which fear of missing out drove investors to buy any new stock with dot com in the name. Now the high tech world is offering us artificial intelligence as well as quantum computing. Where in this mix can investors find the next best investment opportunity?

Sector Investing Versus Picking Individual Stocks

In general it is easier to see the promise of profits in given sector than to pick the winners within the sector. IBM was an obvious winner for years until it missed the personal computing boat and then it was not. Legendary investor Warren Buffett said that he tended to avoid tech stocks because technology changes so rapidly that a sector leader may lose it lead and profitability within five years as new tech translates to new products and services. Microsoft rose to tech prominence and created fortunes by first providing the software made it possible to code with an IBM PC and then developing the Windows operating system that allowed normal, non-programmers, to use personal computers. Microsoft went on to develop and sell many more programs and services targeting business users without professional computer programming skills. Similarly, when Steve Jobs came back to Apple he led development of smart phones thus greatly widening the market for Apple’s products and services. The take home lesson from Microsoft and Apple is that the most profitable investments in a given niche will likely be those companies that provide services to a broad market not dependent on specific technology but rather aimed at helping people solve problems and deal with the real world as they live it.

What Are the Best Mid-21^st Century AI or Quantum Computing Investments?

Nvidia is currently the most profitable and visible leader in the AI niche with chips specifically designed for this ultra-high tech world. In addition they provide software and other services as well as gaming software, which was their main product line prior to the emergence of AI. Thus the company is well rounded in the AI niche with backup products and services in gaming. They also provide AI tools and services that can be used by “normal” consumers who do not have professional AI training. This is more like the Microsoft approach to personal computing and bodes well for long term profitability. In general we believe that companies that provide “picks and shovels” in the AI gold rush will do the best and provide the best long term profits for investors. In regard to quantum computing, Nvidia has made three recent acquisitions in this space giving them the ability to integrate quantum into their AI line of products and services. As we noted in our articles about the best quantum computing investments you can try for a home run with a company that deals solely in quantum computing or a well-rounded company with exposure to this niche. Nvidia appears to fit well into the later category.

What Is Quantum Computing?

Quantum computing is based on quantum mechanics the laws of physics at the level of atoms and even sub atomic levels. The laws of physics as discovered by Isaac Newton in the late 17^th century are understandable using standard mathematics including calculus, which Newton invented. However, quantum mechanics describes the tiniest of worlds where Newton’s laws of physics do not apply. At the quantum level photons and electrons simultaneously behave as matter and energy. Superposition at this level of quantum mechanics means that a particle can be in several locations as well as several states all at the same time. While this branch of physics is so complicated it is also the basis of modern technologies including smartphones, lasers, MRI scanners and computing. Standard computing uses binary code made up of ones and zeros. Because so many quantum states can exist simultaneously, quantum computers numerous states can be processed at the same time not having to rely on “just” the two states of one or zero. This aspect of quantum mechanics as well as entanglement (connection) of states allow quantum computers to solve difficult problems in hours or minutes that might take standard supercomputers hundreds or thousands of years. It is a fair estimate that fully functioning quantum computers will be able to break today’s encryption codes of 248 bits in days instead of millions of years for the fastest non-quantum super computers of today.

How to Invest in Quantum Computing

The good news is that you do not need to be a nuclear physicist with a thorough understanding of quantum mechanics in order to profit from this developing technological niche. Like with all new technologies, you can invest in companies the make quantum computers, those that provide quantum computing services or companies that use quantum computing technology to make their businesses more efficient and more profitable.

Image Courtesy of IBM Website

Safe Quantum Computing Investment Bets

IBM has been working with quantum computing technology and building computers for years. Likewise, Microsoft and Alphabet are tech giants that are already making quantum computers and offering computing services. Because the technology has not fully matured investments in any of these companies will provide an income stream but will dilute the “quantum” aspect of your investment both in regard to risk and profit.

Potential Quantum Computing Homeruns with Increased Investment Risk

If you are willing to accept the risk and are looking for a greater return on investment than with the likes of Alphabet, Microsoft, or IBM there are companies that are more nearly pure quantum computing investments. These companies create the software and hardware for quantum computing. They include IonQ, D-Wave Quantum, and Rigetti Computing. Nvidia Is also a reasonable bet as they offer the CUDA-Q platform that provides both quantum and standard computing. However, they are like the other tech giants in that your quantum investment will be somewhat diluted.

IONQ sold for $11 a share when it debuted at the start of 2021 and sells in the $70 range today. D-Wave Quantum sold for $10 a share at the end of 2020 and sells in the $30 range today. Rigetti Computing sold for just under $10 at the start of 2021 and sells in the $20 range today. None of these stocks is overly expensive. It remains to be seen where any of these companies will fit in the world of quantum computing yet to come. They embody the issue with tech that Warren Buffett spoke about often. Tech can change so quickly that what looks promising and profitable one year can become outdated within a couple of years. To the extent you are able, it might be best to diversify your quantum computing investments including both big tech “sure thing” giants and one or two of the riskier companies with potential for a home run, or two.

What Is a Carry Trade?

The use of the carry trade goes to the heart of capitalism. One borrows money in a currency with low interest rates, converts to a currency with higher interest rates and invests or loans out the money for a tidy profit. As noted by Britanica Money, this strategy can be very profitable when it works out and devastatingly and rapidly painful when it does not. A key problem is knowing when to get out and not getting trapped in a trade that one cannot unwind. The unbridled optimism we see with folks pouring into this strategy is worrisome due to political and social considerations in Colombia, the country at the far Northwest corner of South America from where much of the world’s best coffee comes as well as coal, oil, cut flowers, and precious metals.

Courtesy of Bloomberg

What Prompted the Colombian Peso Carry Trade?

High Colombian interest rates and fiscal optimism are driving the Colombian peso carry trade according an informative article by Bloomberg. There is a change of president coming up in Colombia. Colombia has had a socialist president for the last four years, Gustavo Petro. Mr. Petro’s term expires August 7 of this year. Under Colombian law a president serves one four year term and can never run again. The candidate who won the election to be the next president is Abelardo de la Espriella. Mr. de la Espriella does not have a political party and is an outsider. He is both a US and Italian citizen although born in Colombia, a registered Republican in the USA, and a successful lawyer and businessman. He ran a successful political campaign promising to be tough on crime and to send the military after drug dealing guerillas scattered throughout the country. He gathered support from business leaders by promising the building of ten mega prisons, cutting government spending by forty percent, “broadening” the tax base, and instituting “anticorruption” measures in both governmental and public institutions. He also promises a conservative anti-abortion, no gay marriage, or adoption agenda. De la Espriella beat Ivan Cepeda, a socialist senator, by less than one percent of the vote in a runoff election and together both he and Cepeda received eighty-seven percent of the votes amount thirteen candidates in the first round of ballots.

Will the Colombian Peso Carry Trade be Profitable When the New President Is in Office?

The Colombian peso carry trade is based on the assumption that interest rates will remain high in Colombia and that de la Espriella will be able to enact policies that lead to economic success. There are a few issues to be concerned about if you are cheering for him. The incoming president founded and leads the Defenders of the Homeland party which is totally new. The new party holds no seats in either the Senate or the House of Representatives. The largest Colombian political party representation in a system split among five different parties is the Pacto Historico which is the party of still president Petro and the second place finisher, Ivan Cepeda. The rest of the seats are split among the green alliance, conservative party, liberal party and central democratic party. The bottom line here is that the new president will need to go hat in hand begging for votes for any programs and funding that he wishes in the coming months.

Image Courtesy of the Bogota Post

How Will Espriella’s Presidency Work Out?

Going into th e 2026 presidential election voters in Colombia were tired of attacks by guerilla attacks in rural areas, the fact that cocaine production is many times higher than during the time of Pablo Escobar as well as having to live with steadily increasing inflation. A couple of items from recent Colombian history are instructive in regard to what to expect if de la Espriella is too ham handed. The first goes back to the Covid Pandemic when folks were unable to work, buy food and pay rent. The government responded by handing out parcels of food in the barrios. The solution was not perfect but helped a lot. Then President Duque assigned the job of paying for all of the expenses of the pandemic to his treasury secretary who proposed reducing the monthly 877,803.00 COP (less than $300 USD) minimum wage and putting taxes on the purchase of beans and rice, the staples of a poor or average Colombian family along with increased taxes on utilities. The result was rioting throughout country, extensive property damage, many deaths and the eventual patrolling of streets in previously tranquil cities like Manizales on the western edge of Andes with military patrols with M-16s and live ammo! The tax increases were never enacted but it was a lesson in just how much economic pain and hardship the Colombian populace will put up with before reacting. When de la Espriella talks now about “broadening the tax base” we think about taxes on beans and rice and riots throughout Colombia!

Will Colombian Drug Lord Guerillas Fight Back Like Escobar Did?

The most infamous of Colombian drug lords was Pablo Escobar who became a multibillionaire in the 1980s. When the Colombian government tried to crack down on his activities and signed an extradition treaty with the USA Don Pablo and his Medellin drug cartel declared war. High government officials were assassinated along with hundreds of police officers, dozens of judges and as many as five thousand innocent bystanders. Economically, his war caused billions in infrastructure damage, loss of Colombian credit in global markets and convinced foreigners that investment in Colombia would be dangerous. It took nearly two decades for Colombia to recover from the war between the government and the leading drug lord. Mr. de la Espriella as well as folks in love with the current Colombian peso carry trade need to be mindful of this before the new president goes to war with well-armed guerillas backed by billions in cocaine and other drug profits!

What to Look Out for Regarding a Colombian Peso Carry Trade

There was a lot of pent up dissatisfaction with Petro’s slow walking talks with guerillas in the rural areas who did not follow the example of FARC, the largest antigovernment rebel group what agreed to a peace treaty in 2016. The fact that Colombia’s cocaine production keeps setting records, the folks making money from this business keep murdering people to maintain control of their production areas. However, that general opinion could easily change if an all-out war with guerillas breaks out.

The rationale for the carry trade using the Colombian peso is that de la Espriella’s presidency will help Colombia’s economy, eradicate the drug trade in Colombia without an all-out war or economic collaps, and maintain high interest rates. Much of de la Espriella’s agenda will require gaining allies in both branches of the legislature. This will be difficult but will not play out rapidly. It will take some time to see if he has any success, which will give those in carry trades time to get out if the trade gradually becomes unprofitable. Civil unrest if the new president screws up and makes the population angry or an all-out war with drug dealing guerillas could happen rapidly and would potentially cause traders to trapped in devastatingly unprofitable carry trades. Either way anyone intent on continuing this currently profitable trading and investing strategy needs to pay attention and remember that the Colombians themselves will have a vote in how all of this works out!

Light Versus Heavy Rare Earth Elements

Successful investors know what they are investing in. In the case of rare earth elements there is a clear differentiation between so called “light” and “heavy” members of this group of elements. Light refers to the rare earth elements with atomic numbers of fifty-seven to sixty-three. These elements end up in advanced magnets used in electric vehicles, wind turbines, and computer hard drives (Neodymium and Praseodymium). Additionally, cerium and lanthanum (numbers 57 and 58) are used in petroleum refining (fluid catalytic cracking units). Cerium is also used to polish glass in optical systems. Europium, number 63, is used for LED lights and TV screens and other display technologies. The “light” members of this group are more abundant and easier to refine and process than “heavy” rare earth elements.

Rare Earth Magnet Courtesy of Bloomberg

Heavy Rare Earth Elements

Heavy rare earth elements have higher atomic numbers than the light members with two exceptions. The “heavy” group ranges from gadolinium, 64, to lutetium, 71, but includes yttrium, 39, and scandium, 21. These elements are rarer than the “light” group, create magnets and other tech products with much better performance at extremely high temperatures and create magnets with superior coercivity which is the ability of a high performance magnet to work within a magnetic field and not become demagnetized. Thus magnets and other tech products derived from heavy rare earth elements are used in the highest tech commercial and military products making them critical for national defense and technological supremacy.

What to Consider When Investing in the Rare Earth Element Realm

Years ago long term successful investor Warren Buffett said that he tended to avoid high tech stocks because changes occurred so quickly. A company that dominated a market niche with a new technology and line of products one year could easily lose their lead and profitability the next due to newly discovered and developed technologies by a competitor. One thing to remain aware of is that scientists are looking for newer ways to create the highest tech products including the use of cheaper “light” rare earth elements instead of more expensive “heavy” rare earth elements. Non Chinese companies to watch in this regard include the following:

• Lynas Rare Earth Limited, Australia
• Proterial, Ltd., Japan
• Arafura Resources Limited, Australia
• Avalon Advanced Materials Inc., Canada
• Alkane Resources Limited, Australia
• Frontier Rare Earths Limited, UK (operations in Namibia
• MP Materials Corp., USA
• Rare Earths Norway,
• LKAB, Sweden
• Leading Edge Materials, Canada (operations in Sweden)

Rare Earth ETFs

Considering that you, as well as most folks, do not have the technological savvy to stay current enough to invest wisely in the rare earth realm, an alternative investment would be an ETF that tracks rare earth stocks. Three that might be worth investigating are URNM, LIT and REMX. REMX or the VanEck Rare Earth and Strategic Metals ETF has a current stock price of $96 a share and has ranged as high as $120 and as low as $34 a share since its inception in 2021. LIT or the Global X Lithium & Battery Tech ETF has a current stock price of $84 a share with a range of $24 to $92 a share over its 16 years of existence. URNM or the Sprott Uranium Miners ETF has a current share price of $60 a share up from its $12 a share opening in 2019 and down from its $75 a share price in January of 2026.

Short Versus Long-Term Rare-Earth Investments

Rare earth minerals will be with us for a long, long time. Technologies will evolve, rise, and fall. To the extent that you like to “play the market,” use technical indicators as your guide and be wary of market hype. For long term investing you will want to research the company or companies that you are interested in using intrinsic value based on forward looking earnings as a guide. That will require more attention and self-education. Those who do this well are likely to be handsomely rewarded for their efforts as the global push to develop more capacity outside of China is not going to go away, ever. For a useful set of insights on how the US and others are working to catch up with China and the details involved, take a look at a recent Bloomberg article about rare earth tensions at the recent summit.

Snapshot of World Oil Production

The biggest producers of oil by rank for 2025 were the USA at 13.7 thousand barrels a day, Russia at 10,000 barrels a day, Saudi Arabia at 9,940 barrels a day, and Canada at 5,200 barrels a day. Next in line are China, Iran and the United Arab Emirates all in the 4,000 barrels a day range. Following on the list are Brazil in the 3,000 barrels a day range followed by Kuwait and Kazakhstan in the 2,000 barrels a day range and Norway, Mexico, Nigeria, Libya, Qatar, Algeria, Angola, Oman, and Venezuela all in the 1,000 barrels a day range. Countries producing less than 1,000 barrels of oil a day include Guyana, Argentina, Colombia, India, Indonesia, the United Kingdom, Azerbaijan, Malaysia, and Egypt. These are followed by nearly seventy more nations producing less and less oil as one goes down the list.

Where Will Oil and Natural Gas Come from Until the Persian Gulf Situation Is Remedied?

While none of the Latin American oil and natural gas producers stands in the top ranks, the sum total of oil produced in Latin America comes to a bit more than produced by Canada, the world’s fourth leading producer. And, as noted by Bloomberg. Nearly half of the growth in energy supply going toward 2030 will come from Latin American producers, Brazil, Argentina, Venezuela, and Guyana. That amount may come to more if the next Colombian president later this year takes away drilling restrictions currently in effect in that country under current President Gustav Petro whose single five year term expires this year.

Latin American Oil and Natural Gas Investment Opportunities

Although nearly half of the increase in natural gas and oil supplies in the coming years will come from Guyana, Brazil, Venezuela, Argentina and, perhaps, Colombia what are your specific investment opportunities that could come from this situation? This area today provides scalable resource potential, visible project pipelines, and stable environments for investment. Three energy stocks from Latin America are Petrobras, Ecopetrol, and Pampa Energia. Pampa Energia trades on the NYSE with one ADR equal to twenty-five shares of the stock. Petrobas ADR shares on the NYSE represent two share of the stock. ADR shares of Ecopetrol represent twenty shares of the stock. All of these stocks pay dividends. Each of these stocks has at least a “hold” and usually a “buy” rating by those who track them.

Investing in Oil Stocks via American Depositary Receipts

Mom and pop investors can take advantage of foreign investment opportunities using American Depositary Receipts. However, they need to be aware that while the ADRs they purchase are denominated in dollars, the underlying foreign stocks are denominated in the currency of the stock’s home country. While currencies of both Brazil and Guyana are reasonably stable the same can not be said for either Venezuela or Argentina. Thus, Petrobras may be a reasonable choice for investment based on the forthcoming energy boom and a stable Brazilian currency. Guyana has a stable currency but the energy consortium involved in Guyana in led by ExxonMobil thus your investment would not be in an ADR but rather a US based stock. Based on potential currency exchange issues both Venezuela and Argentina may be problems for unwary investors. To the extent that a new president allows more oil and natural gas production in Colombia, the Colombian peso is currently gaining ground against the US dollar!

What is the PCE Index?

The PCE or Personal Consumption Expenditures Price Index comes from the Bureau of Economic Analysis or BEA. It tracks prices paid by households for services and goods. Compared to the CPI this index covers a broader range of what folks pay for and picks up on how folks change their spending habits to adjust for higher prices. The CPI Index only covers out of pocket payments by urban consumers. The CPE looks at all payments for durable and non-durable goods and services including things paid on behalf of households by employers, like health or other insurance.

How Does the CPE Differ From the CPI?

Over time the CPE commonly shows a lower rate of inflation than CPI although both track inflation and thus rise and fall more or less in parallel. As the graph from the Cleveland Federal Reserve Bank shows, the two indices do not differ widely but they do diverge enough at times to cause different FOMC decisions when following the CPE than if they solely relied on the CPI index.

CPE vs CPI 2000 to 2025, Federal Reserve Bank, Cleveland

When Are the CPI and CPE Numbers Released?

The release of the CPI Index by the Bureau of Labor Statistics happens between the tenth and thirteenth of the month, barring any government shutdowns. The CPE Index by the Bureau of Economic Analysis is released during the last week of the month assuming that the government is operating. Thus the CPI hits the news first and tends to drive the market up or down. Assuming that the CPE index is sufficiently different from the CPI its results may well drive the market in the opposite direction from what the CPI did.

How Should An Investor Use the CPE Index in Making Investment Decisions?

Because the CPE Index covers a broader range of consumer expenditures than the CPI it is not surprising that the Fed Open Market Committee prefers is to the CPI in making their decisions. So, it makes sense for an investor to pay more attention to the CPE than the CPI in making their own decisions. Successful long-term investors look at the intrinsic value of their investments. This means analyzing forward-looking earnings and how they affect stock prices going forward. Then the investor compares stock value based on intrinsic value with current market prices. To the degree that these numbers differ significantly an investor using this approach will buy, hold, or sell an investment. Successful long-term use of the CPE index as a tool will require that the investor looks to how the index reflects earnings going forward. This approach differs from the “hall of mirrors” approach used by short-term investors and traders who assume that bad new with the economy as evidenced by an index automatically means good news for the market based on expectations that the FOMC will react in a knee jerk fashion to a rise of fall of the CPI, especially when the CPE will follow in a couple of weeks and may differ sufficiently to lead to a different FOMC decision that what the CPI might have led to!

Effects of High Oil Prices on the World Economy

When the price of crude oil and natural gas go up so does inflation. Higher energy prices make it more expensive to produce and ship goods. Because ammonia used for fertilizer is derived from natural gas the price of food goes up both because farm equipment uses fuel and fertilizer becomes more expensive. The sum total of effects of high energy costs result in economic stagnation. It is of note that whenever energy prices go up producers raise their prices and pass on the cost to consumers. When energy cost subside it is rare to see producers pass those savings back to consumers thus prolonging the inflation effect of high energy prices.

How Much Has Gulf of Persia Energy Infrastructure Been Damaged?

As noted by the House of Saud website, hundreds of billions of dollars of infrastructure has been damaged by the Iran energy war. As the website notes, mines laid in the Strait of Hormuz can be swept and removed. Damage to oil wells and be repaired over months or a year. Damaged oil tankers can be repaired or replaced within a few years. However, damage to the two Saudi oil refineries, the huge Qatar LNG complex responsible for a fifth of all liquid natural gas, Qatar’s Ras Laffan Industrial City, the sprawling complex north of Doha that houses the world’s largest LNG export facilities, and similar damage to processing infrastructure took decades and hundreds of billions to develop and will take a decade or more to repair or replace. Thus the lingering effects of the war will keep oil and natural gas prices higher for the indefinite future!

Are There Investment Possibilities Related to the Iran War?

In September of 2025 Exxon stock sold for $115 a share and the Iran war sent the price over $150 a share. Providing that Iran is not able to attack and damage Exxon’s assets across the globe and in the USA the company is likely to see its share price remain high for perhaps a long as it takes for the Gulf nations to repair their infrastructure, namely a decade or more. Chevron stock has gone up and presents a similar investment opportunity to Exxon. Companies poised to help repair or rebuild Gulf oil and natural gas infrastructure include Haliburton, Saipem (Italian), Baker Hughes, Flor, Petrofac, and McDermott. In addition to repairing Gulf facilities it highly likely that Saudi Arabia will prioritize upgrading the pipeline to the Red Sea to reduce reliance on the Strait of Hormuz. Firms gaining such a contract will also benefit as the Saudis race to replace lost production, processing, and revenue.

Will Renewable Energy Benefit from the Iran Conflict Damage?

Although it would be impossible to ramp up solar and wind power energy infrastructure fast enough to drive down energy costs in the near term or to prevent associated economic damage, the hand writing is on the wall for many nations badly hurt by the current conflict. For the patient investor investment in companies that work in this niche including First Solar, Brookfield Renewable Partners, Enphase Energy, JinkoSolar and Sunrun may well be excellent long term investments.

Drones and the Future of Warfare

The Iran war has shown how $20,000 drones can inflict serious damage as Iran attacks Gulf neighbors who have had to use $4,000,000 Patriot missiles to shoot them down. Meanwhile in Ukraine the Ukrainians are using $2,000 drones to shoot down $20,000 Russian drones, copies of Iran’s drones. Swarming tactics with drones and use of drones for battlefield surveillance have become part and parcel of the war in Ukraine which has become the world leader in the use of these tools of war. Looking ahead one might consider companies that make and perfect both these vehicles and the AI controls as alternatives to Lockheed Martin, Boeing, and other defense contractors as investment opportunities.