October 27, 2025 • 31 mins
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If the world’s most powerful magnets can move turbines and EVs, what might happen when their supply chain starts to seize up? We take you inside the rare earths story—why these elements are abundant in the ground yet scarce in your portfolio—and connect the dots to AI infrastructure, defense systems, and the global energy transition.
We break down China’s processing dominance and the environmental trade-offs that shaped it, then look at how non-Chinese supply could scale through U.S.–Australia–Canada partnerships. From neodymium magnets in motors to lithium and copper in batteries and grids, we map the materials stack that underpins data centers, wind farms, and advanced manufacturing. Along the way, we examine export controls on gallium and germanium, the espionage pressure around ASML and chip tools, and how supply shocks can reverberate through server buildouts and AI cost curves.
On the market side, we contrast hardware suppliers and data center ecosystem winners with software names facing valuation pressure if deployment slows. We also consider the rise of leaner AI models like DeepSeek, which could reward software efficiency over brute-force compute. Taiwan’s central role in leading-edge chips, the push to expand fabrication abroad, and U.S. constraints around water, labor, and subsidies add more layers to the risk map. Our bottom line: stay invested, but right-size positions, add selective hedges, and keep dry powder for volatility in a frothy fourth quarter.
If this helped sharpen your view on rare earths and AI risk, follow the show, share it with a friend, and leave a quick review—what’s the smartest de-risking move you’re making right now?
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Steve Davenport (00:26):
Hello everyone, this is Steve Davenport, and
I'm here with Clem Miller.
And Skeptic's Guide toInvesting is going into the
crust of the earth and lookingat rare earth metals and how do
rare earths affect the economy,trade relationships with China,
and just in general, what arerare earths and how are they and
(00:48):
why are they important?
So, Clem, if I was to summarizewhy rare earths matter, what do
you think is the most importantthing about rare earths and how
they affect our economy?
Clem Miller (01:04):
So the most important thing about the more
common, so first of all, rareearths are a series of elements,
right?
Uh they're quite common,actually quite common in the
earth's crust.
It's just that, you know,everybody talks about China's
(01:26):
near monopoly on rare earths,and the reason why China has a
near monopoly is actuallybecause uh they've been willing
to process rare earths uh andtake the environmental damage
from that.
It took it costs a lot uh uhenvironmentally, in terms of
environmental damage to processrare earths.
(01:46):
And China is less concernedabout the environment, or
traditionally has been lessconcerned about the environment,
and that's why you have a lotof the rare earths processing uh
capacity in China and not in uhin other parts of the world.
So I just wanted to mentionthat point.
Um, but you ask aboutessentially where is the demand
(02:07):
uh for rare earths?
You know, what what is it aboutrare earths that makes it in
demand?
And some of the more commonrare earths are those that are
used in these uh super magnets.
So you might be um familiar uhwith these toys where you've got
these like super magnetic ballsthat connect to each other.
Uh that's called neodymian.
(02:28):
Well, neodymium is uh is uh isone of the more common rare
earths.
And and the reason why thesesuper powerful magnets are
useful uh is because they can beused in various kinds of
engines, various kinds of motorapplications.
So, you know, many of you uhwho have had you know sort of
(02:52):
elementary physics or whatnotwill know that you use magnets
in in motors.
You know, magnets are a key.
Now you can you know you canhave iron bars that are
magnetized, or you can also haveyou can also help that along by
actually magnetizing thingsthat are already magnetized, uh,
(03:13):
such as the this neodymium.
And so neodymium and other rareearth metals have a lot of
applications in things like windturbines, uh in um in
batteries, in uh AI to somedegree, uh so in defense
(03:35):
applications.
And you know, if you throw thatin with lithium, which is not
considered a rare earth, you gotthis sort of uh kind of
critical uh you know mineralskind of uh uh designation,
right?
Which is uh originally it was aUS Bureau of Mines kind of
(03:58):
definition or DOE definition ofthings that are important for
the energy transition and and uhAI and whatnot.
And uh and so that's rareearths plus plus lithium, maybe
a few other.
Sometimes people throw copperinto that mix as well, uh,
because obviously copper is usedfor uh uh electric and
(04:22):
electronic applications.
So that that's why it'simportant.
There's a lot of demand fromthe renewable energy sector,
from the AI sector, and rareearths and the defense sector,
and rare earths are areimportant.
And you know, for theenvironmental reasons I
mentioned, uh China uh you knowwas willing to accept
(04:44):
environmental damage in order tobecome a large processor.
But other than that, there area lot of rare earths around.
And when you look at countriesthat, you know, the other
countries outside of China thathave large deposits of other
kinds of minerals, like Canadaand Australia or the western
(05:04):
part of the U.S., uh there arerare earths in those areas.
It's just they haven't beendeveloped as much.
And so, you know, there's nowan effort to try to um expand
development of those.
And so the U.S., you know, uhtoday under Trump, back under
(05:26):
Biden, uh, there's been aneffort to try to create sort of
mineral security partnerships uhamong countries, so U.S.
and Australia,, US and to tryto develop these non-Chinese
rare earth deposits.
And in fact, we just saw wejust saw, I don't know if you
(05:50):
saw this, Steve.
We just saw a um uh Trump meetwith the Australian Prime
Minister.
Uh and and among other things,uh one of the more serious
things they talked about was uha rare earths agreement.
And and I also saw comingacross my uh my LinkedIn that uh
(06:14):
my old employer from many yearsago, the Export Import Bank, ,
just allocated some letters ofinterest to which could
potentially fund US exports uhto Australian mining companies
for the purpose of building rareearths.
(06:35):
So I don't know what thoseexport those US exports would
be.
I don't know, Caterpillartractors or John Deere equipment
or whatnot to try to supportthe mining developments uh that
are already there.
Steve Davenport (06:50):
Yeah, I find it frustrating that Trump and this
efforts with Canada.
I mean, Canada has greatnatural resources that we should
be looking to figure out how weget more of, not how to
alienate them as a partner,because obviously it's a lot
easier and more and a safersupplier to have Canada
(07:11):
producing these than China.
So I like what we're doing withAustralia.
I think we should be doing morewith Canada.
And whenever we add Greenlandas a state, the 52nd state,
that that also I think now,offers some opportunities.
So I I find that the we youyou get a lot more with sugar
(07:34):
than you do with vinegar.
So I I think it's a mistake forus not to be pursuing rare
earths with Canada and lettingChina know that we're not gonna
be beholden to them for thisnatural resource that we need.
I agree with, you, I thinkpeople who say, let's just drill
(07:57):
here, don't understand theenvironmental damage it causes
or the amount of energy it uses.
So if we're gonna have a lot ofenergy demand from crypto
mining and we're gonna have alot of energy demand from AI,
then we're gonna add energydemand from rare earth
production, yeah.
I think it's better to spreadthese things up and to have
(08:19):
multiple suppliers in Canada andAustralia that seem like ideal
uh partners in this exercise.
Why haven't we why haven't wedone this sooner?
I guess that's my question.
It's not like suddenly werealize the rare earths are
mostly from China, right?
I think we've known about thatfor years and years.
It's just that it's just thatit's just that China is
(08:44):
beginning to flex its muscles invarious ways.
They just like just a fewyears ago, they actually, in
response to US export controlson semiconductor exports to
China, they put exportcontrols on the export of
gallium and germanium uh to theU.S.
(09:06):
And I don't know that you wouldconsider gallium and germanium
rare earths, but they're aswhat are call what are referred
to as doping materials, quoteunquote, for semiconductor
chips.
So they're used to kind ofslow down the signal?
(09:27):
Yeah, I guess so.
I'm not sure what a dopingmaterial means in a
semiconductor context, butthat's what gallium and
germanium are in the and Chinawas uh was restricting those uh
those exports as uh as a I got aquestion before you and if you
(09:48):
get this question right, I'mgonna give you a star and maybe
I'm gonna send you something inthe mail, okay?
Yeah, that sounds like uh thatsounds like you saying there's
no way Clem can know thisquestion the answer to this
question.
I'm just I'm giving you an opportunity, your
brain is rested after 30 dayssacki and sushi, and you've you
(10:11):
know your body a high contentin Mercury right now, but your
brain is very capable.
What country has the mostChinese spies located in its
border?
Clem Miller (10:26):
What country has the most Chinese spies in terms
of number of spies?
Yeah, there's a number ofspies.
Well, I'm gonna say the US.
Steve Davenport (10:37):
Wrong.
The Netherlands.
Because the Netherlands ofASML?
ASML China, since the US hascut off the sending of ASML
equipment for certain leveledchips, uh China is trying to
figure out on their own how to,you know.
So I I think that when we allthink about this technology race
(11:02):
and we think of it as uh kindof a nice thing to follow on the
weekend when we're readingBarons, it's really robot, real
people trying to get ahead.
And China is not foolingaround.
China wants to have the AI racein their favor.
I think they've done a greatjob on solar, and they're
(11:23):
probably the leading producerright now of equipment and and
and solar technology, and Ithink they want to be the same
in AI.
Um, DeepSeek is coming out witha new version or a new rev of
their um software sometime inDecember, which is another
reason why I kind of believethat it's a good time to take
(11:46):
some chips off the table,because the first time Deep Seek
came out, everybody was shockedand didn't know much about it.
Well, now everybody's beenwarned and they've gone back and
they've made it better.
And the question is again, isthe US overspending on a lot of
this development if China candevelop Deep Seek and get
(12:06):
production or capabilitiessimilar to ChatGPT with you know
one-fifth of the investment?
Uh, I think that we have acompetitor.
And if we don't wake up andlook at that competitor and then
figure out how we can createalliances and other things to do
to make up for that competitor,we're gonna um fall behind.
(12:30):
And I think that the rareearths and what's going on with
them, I believe are gonna be theum gating item that slows down
AI.
And if it does slow down AI,the the multiples of those
companies based on deployment onmore and more servers and more
and more uses, um, will have tobe limited.
(12:52):
And if something like Deep Seatcomes along and does it for a
lot less, do people try to youknow take more of a software
approach instead of a technologyapproach to making the best AI?
I I think it could transformwhat's going to happen in this
space.
And so, you know, when I lookat what's going on with an OKLO,
(13:16):
you know, up 625%, I say thosenames and those numbers don't
justify when when you thinkabout a real return on
investment coming in, maybethree years, but closer to five
years for quantum and otherthings.
Uh, I I believe that we're youknow we're in a point where
(13:39):
there's gonna be a correctionand a lot of people are gonna
get shaken out.
And these things, like theinternet in 2000, and like you
know, some of the things we'vedone in 2008 after the
correction, people are not gonnabe able to stay in as they see
the declines happen in this AIspace.
So better to do something now,two percent off of the top, than
(14:04):
something later when Deep Seekyou know takes some people's
lunch money.
Clem Miller (14:12):
I think so.
Are you worried about Chinabeing the leader in AI?
Am I worried about that?
Uh yes, and I think we shouldall be worried about that.
Steve Davenport (14:25):
Um but I think you think they could leverage
rare earths and and and punishthe US to give them more access
to chips, unless they hold AIover Trump's head and say, hey,
without more access to chips,we're not gonna give you any
rare earths.
Clem Miller (14:42):
Well, I think it was very interesting, you know,
from from a Trumpianperspective, you know, tariffs
are you know your all-purposego-to cudgel for anything,
right?
And it was very interestingthat uh you had this sort of
departure from that uh when theyannounced you know some months
(15:08):
ago, much to my shock, actually,uh, that if uh if NVIDIA and
AMD maybe it was, uh gave 10% oftheir revenue uh stream from
China to the US government, thatthey the US government would
(15:28):
allow exports of these chips.
I thought that was I don't knowif that was sheer stupidity,
which is possible, or whetherthere was some kind of
underlying strategy to that.
Um I just I just don't know.
But um, you know, I I agreewith your fundamental premise
(15:50):
that that China wants to be thenumber one player in AI, and
that they will you know do a lotto try to achieve that,
including potentially do thingsvis-a-vis Taiwan, um, which is
why it's very important, notjust from Taiwan's
(16:12):
semiconductor's perspective, butfrom the perspective of the
rest of the world, that Taiwansemiconductor continue to build
out its fab capacity in Arizona,in Japan, in Germany.
Steve Davenport (16:28):
Yeah, I mean, I ever everybody talks about
that, but it's really just adrop in the bucket compared to
Taiwan's impact onsemiconductors worldwide.
Clem Miller (16:38):
I mean, some some ridiculous number, like 80% of
uh the everything less than fivenano, it comes from but it but
it but it it comes it's made byTaiwan semiconductor, but a
large an increasing percentageof Taiwan semiconductors sales
(16:58):
are actually now manufacturedoutside of Taiwan.
It's an increasing percentage.
Steve Davenport (17:04):
I mean, I've also heard from people who
visited some of the newfacilities in Arizona that
they're having trouble findinglabor force to staff.
So we we can have the building,but if you don't have the
people with the experience,guess what?
It's gonna be hard for us tomake Arizona chip capital of the
world.
Right.
Clem Miller (17:24):
I I think that's it.
It's also a little surprisingto me that that Arizona was
chosen because they don't havethe clean water or they don't
have as much clean water, andclean water is a necessity for
chip production.
Steve Davenport (17:39):
Yeah, I I just I think the political decisions
about who gets subsidies and whogets um, I mean, we've talked
about that is it's very hard tosee how the government can make
a decision about um what's theoptimal capital when you should
probably just let the peoplefigure it out and let the
businesses locate where theythink is the right location
(18:01):
because they they probably know.
But I guess I'd like to kind ofwrap on this rare earth and get
to the point, which is is rareearth metals a reason for us to
be concerned about the AI rally?
Uh yes.
And so does do you see it as apotential catalyst to some
(18:28):
downside in AI?
Clem Miller (18:32):
Yes.
I mean, I I would um I wouldsay that if you're if if you're
highly invested in in AIdirectly or indirectly, you
know, you should pull some ofthat down and uh and put it into
(18:52):
uh you know really just sort ofbuild up cash.
Steve Davenport (18:57):
I'm not saying you should be in more cyclical
sectors, but uh I wouldn't I'mjust saying that I think
everybody's expecting this USChina summit uh that on the on
the side of the you know Koreanconference or the meetings
between Trump and G, I I feelcould be a turning point in not
(19:20):
a good way.
I agree.
Clem Miller (19:22):
I agree.
I mean, look at what look atwhat happened with uh look at
what's happening with this uhso-called Hungary, you know,
Budapest uh Putin Trump summiton again, off again, on again,
off again.
I mean, you know, the just thethe failure to interpret things,
(19:42):
you know, how Witkoff failed tounderstand uh what the uh
desires of the different sideswere in the Russia-Ukraine
concept context.
I I just think that you know,we're dealing with an
administration that is um hasshown some competency issues,
and I don't know, and and you'vegot foreign powers that have um
(20:10):
a level of distrust uh towardsthe US uh on account of the
current administration.
And so I think that throws a uhthrows a wrench into things
too.
So I I think you know thechances of successful,
meaningful uh summits that leadto to you know anything other
(20:31):
than kind of um showy results asopposed to substantive results.
Performative results, let's putit that way, I think are you
know small, right?
I think we're I don't thinkwe're dealing with a um with a
(20:52):
an economic diplomacy that is uhanything beyond just
performative.
You know, I'll give you I'llgive you an example, right?
Not to throw shade on my uhprior organization that I was
affiliated with, uh, but theExim Bank, right, when they
issued these uh letters ofinterest, what you know, they
(21:15):
they're presenting them as ifthey're real uh real deals,
right?
Um but a letter of interest, Imean there are no exporters
(21:44):
identified yet, as far as Iknow, right?
They're just oh yeah, we'rewe're willing to uh to provide
some financing uh potentiallyfor uh US exports to these rare
earths plants.
So it looks like a signing, itlooks like a deal, but it's not
really a deal.
Steve Davenport (22:06):
Yeah, I mean, I I hate to say this because I
don't have a crystal ball, butmy implicate my implications of
this meeting with Trump, Ibelieve that if this rare earth
you know gets to be worsesituation and China withholds
rare earths, I think we couldsee a 20% decline in the market.
(22:27):
If we were to see, um, as I'vetalked about in the past, China
do anything to blockade or totry to control Taiwan, I think
we could see a 40% decline.
Yeah.
And both I think bothincidences are not imminent, but
they certainly are on theradar, and they should be on the
(22:48):
radar for most of the time.
Clem Miller (22:49):
I wouldn't, I wouldn't necessarily uh agree
with you on the exact on thosepercentages, right?
I think it might be less.
But but it is it is kind ofinteresting, and it is kind of
interesting that if you look atthe last few months of
performance in the technologysector, the broad, you know,
(23:11):
broader technology sector, youknow, you've got some of the Mag
7 that have performed a lotless well than the hardware
manufacturers like uh you know,like Broadcom and Arista and and
uh you know Taiwan Semi andsome others, right?
Those companies have been doingquite well, whereas uh you
(23:33):
know, you've got Microsoft andAmazon and and so on not not
doing as well, right?
So now granted, those are youknow users of AI, they're the
cloud companies, so they're partof the space, and maybe they're
the canary and the coal mine,really.
Um but I don't know.
I mean, the hardwaremanufacturers have been doing
(23:56):
well, so or the network,networking companies, the those
who supply the uh like comfortsystems, uh that supply
equipment into the uh into thedata centers.
Those companies have been doingquite well.
So it's kind of a mix.
And I would say don't look atit as a as a single theme, uh,
(24:20):
but rather you know, you got tobe picky and choosy about which
companies you're investing in.
Steve Davenport (24:25):
Yeah, I mean, I I just look at the market and
say it's got a narrower.
The the idea that it was goingto broaden out and affect more
things and uh and have a generalrally.
If you take away the AI names,and I know that there's a lot of
them that have partials, likeGoogle and Microsoft, they all
have a component, but the markethas no gains if you take away
(24:48):
AI.
And so we're up 15% on thewhole market, but it's driven by
20 or 30 percent of the market,maybe 40% of the market that
has 100% of the gains.
The other 60%, not so much, andthat's why the weakness in
jobs, and that's why some of theother questions about this
(25:08):
economy are still out there, andthat's why I think the Fed
lowered rates.
I think the lower rates again,and I think they're lower rates
again in in December.
So those two lowers, but Ithink what we're seeing is it's
not going it's not translatingout into the seven and ten
years.
It's translating on the frontof the curve, but it's not
(25:29):
translating out to the far endof the curve where the US real
estate market really needs it tobe.
So I think as we start to seeuh a pullback here, whether it's
rare earth or whether it'sTaiwan, I think people need to
be safe.
And um, you know, it's gettingit's getting dangerous out
(25:49):
there, folks.
And I hope you you realize andand just try to keep learning,
as we are about rare earths andeverything else that comes up on
a daily basis that we've uh notheard a lot about.
I think the moves in Australiaand Canada are good.
I think that some of the othersuppliers are very unstable
countries of rare earths.
(26:11):
So we hope, you know, maybewe'll uh do some research and
come up with a name that wethink would be a safe name for
people to invest in who want toown some rare earth exposure.
Maybe that's you know, the theway to get this is not always
through software.
And as Clem's saying, hardwareis doing a little better.
(26:31):
And we've noticed that circacapital that yeah, it's it's
software has been the weakerpart of the uh technology space.
Clem Miller (26:40):
Right.
There aren't there aren't manyum there aren't many rare earth
companies that you can uh thatyou can buy on the stock market.
Um unless you're like investingum I was thinking of a larger
mineral company like a real thatmight have rare earth
components in it.
Yeah, but uh as a small part ofit, you know, they're more like
(27:02):
copper and probably gonna getbigger, right?
But there are there are somecompanies uh that focus on
lithium.
And uh uh for example albemarl,sqm, uh focus on lithium.
And so again, lithium is not arare earth, but it's you know
(27:26):
it's important to the uh to theuh EV and batteries and whatnot.
So okay.
Steve Davenport (27:36):
Well everybody, I think I think this has been a
great discussion.
And uh I mean, do you haveanything else to add, Clint?
Clem Miller (27:44):
I would just say, you know, you use the term
dangerous time in the market orwhatever it was you said,
dangerous.
And I would say I agree thatit's uh I wouldn't necessarily
say dangerous, but I would sayhighly uncertain uh time in the
market where you know you've gotuh especially uh you know it's
(28:08):
you've seen a lot of uh a lot ofincrease in the market lately.
It seems to have plateaued.
There seems to be a lot ofvolatility from day to day.
Um, you know, the VIX is up,the volatility index or the fear
index.
Um, so I don't know if you wantto call it dangerous, call it
(28:28):
uncertain, but I think it's afrothy fourth.
Right.
I yeah, frothy fourth quarter.
I would say, you know, if ifyou want to define froth as uh
including both downside andupside, right?
Um I I I I would I would saythat despite the high
uncertainty and the volatility,I mean Steve, I think you would
(28:52):
agree with me that you you doneed to stay in the stock
market.
Um maybe not 100%, uh, maybenot even 80% or 70%, but you
gotta stay, you gotta stayinvested.
Steve Davenport (29:07):
Correct.
I'm not saying to get to getout.
All I'm saying is think abouttaking profits to keep yourself
in line and balance.
Think about uh hedging a partof the market that you think
could be more at risk, and thinkabout, you know, I mean, if you
need help, seek an advisor.
Um, I work at Circa Capital andwe try to help clients with
(29:29):
derivatives and also with activemanagement strategies.
I think there are people outthere who can help you to get to
where you want to be in thismarket where you have exposure,
but you also have some downsideprotection.
And I think that as we moveforward, putting on and taking
off protection will be, youknow, as taxes go up, I see the
(29:52):
need for more protection uh aswe go forward because I don't
think people will be selling asmuch when and if we see an
increase in tax rates, which Ithink given our large deficits
is highly likely.
So I I just want people to beaware that these risks are out
there and um there are ways tomitigate them if you need help.
(30:16):
Any uh so anyway, that's that'sit for today.
If you uh please like us, shareus with your friends, and uh
we'll look forward to comingcoming at you in another two
weeks with uh more episodes andmore ideas to try to improve
your investment IQ.
Thanks everyone and have agreat day.
(30:38):
Thanks, Steve.
Hello everyone, this is Steve Davenport, and
I'm here with Clem Miller.
And Skeptic's Guide toInvesting is going into the
crust of the earth and lookingat rare earth metals and how do
rare earths affect the economy,trade relationships with China,
and just in general, what arerare earths and how are they and
(00:48):
why are they important?
So, Clem, if I was to summarizewhy rare earths matter, what do
you think is the most importantthing about rare earths and how
they affect our economy?
Clem Miller (01:04):
So the most important thing about the more
common, so first of all, rareearths are a series of elements,
right?
Uh they're quite common,actually quite common in the
earth's crust.
It's just that, you know,everybody talks about China's
(01:26):
near monopoly on rare earths,and the reason why China has a
near monopoly is actuallybecause uh they've been willing
to process rare earths uh andtake the environmental damage
from that.
It took it costs a lot uh uhenvironmentally, in terms of
environmental damage to processrare earths.
(01:46):
And China is less concernedabout the environment, or
traditionally has been lessconcerned about the environment,
and that's why you have a lotof the rare earths processing uh
capacity in China and not in uhin other parts of the world.
So I just wanted to mentionthat point.
Um, but you ask aboutessentially where is the demand
(02:07):
uh for rare earths?
You know, what what is it aboutrare earths that makes it in
demand?
And some of the more commonrare earths are those that are
used in these uh super magnets.
So you might be um familiar uhwith these toys where you've got
these like super magnetic ballsthat connect to each other.
Uh that's called neodymian.
(02:28):
Well, neodymium is uh is uh isone of the more common rare
earths.
And and the reason why thesesuper powerful magnets are
useful uh is because they can beused in various kinds of
engines, various kinds of motorapplications.
So, you know, many of you uhwho have had you know sort of
(02:52):
elementary physics or whatnotwill know that you use magnets
in in motors.
You know, magnets are a key.
Now you can you know you canhave iron bars that are
magnetized, or you can also haveyou can also help that along by
actually magnetizing thingsthat are already magnetized, uh,
(03:13):
such as the this neodymium.
And so neodymium and other rareearth metals have a lot of
applications in things like windturbines, uh in um in
batteries, in uh AI to somedegree, uh so in defense
(03:35):
applications.
And you know, if you throw thatin with lithium, which is not
considered a rare earth, you gotthis sort of uh kind of
critical uh you know mineralskind of uh uh designation,
right?
Which is uh originally it was aUS Bureau of Mines kind of
(03:58):
definition or DOE definition ofthings that are important for
the energy transition and and uhAI and whatnot.
And uh and so that's rareearths plus plus lithium, maybe
a few other.
Sometimes people throw copperinto that mix as well, uh,
because obviously copper is usedfor uh uh electric and
(04:22):
electronic applications.
So that that's why it'simportant.
There's a lot of demand fromthe renewable energy sector,
from the AI sector, and rareearths and the defense sector,
and rare earths are areimportant.
And you know, for theenvironmental reasons I
mentioned, uh China uh you knowwas willing to accept
(04:44):
environmental damage in order tobecome a large processor.
But other than that, there area lot of rare earths around.
And when you look at countriesthat, you know, the other
countries outside of China thathave large deposits of other
kinds of minerals, like Canadaand Australia or the western
(05:04):
part of the U.S., uh there arerare earths in those areas.
It's just they haven't beendeveloped as much.
And so, you know, there's nowan effort to try to um expand
development of those.
And so the U.S., you know, uhtoday under Trump, back under
(05:26):
Biden, uh, there's been aneffort to try to create sort of
mineral security partnerships uhamong countries, so U.S.
and Australia,, US and to tryto develop these non-Chinese
rare earth deposits.
And in fact, we just saw wejust saw, I don't know if you
(05:50):
saw this, Steve.
We just saw a um uh Trump meetwith the Australian Prime
Minister.
Uh and and among other things,uh one of the more serious
things they talked about was uha rare earths agreement.
And and I also saw comingacross my uh my LinkedIn that uh
(06:14):
my old employer from many yearsago, the Export Import Bank, ,
just allocated some letters ofinterest to which could
potentially fund US exports uhto Australian mining companies
for the purpose of building rareearths.
(06:35):
So I don't know what thoseexport those US exports would
be.
I don't know, Caterpillartractors or John Deere equipment
or whatnot to try to supportthe mining developments uh that
are already there.
Steve Davenport (06:50):
Yeah, I find it frustrating that Trump and this
efforts with Canada.
I mean, Canada has greatnatural resources that we should
be looking to figure out how weget more of, not how to
alienate them as a partner,because obviously it's a lot
easier and more and a safersupplier to have Canada
(07:11):
producing these than China.
So I like what we're doing withAustralia.
I think we should be doing morewith Canada.
And whenever we add Greenlandas a state, the 52nd state,
that that also I think now,offers some opportunities.
So I I find that the we youyou get a lot more with sugar
(07:34):
than you do with vinegar.
So I I think it's a mistake forus not to be pursuing rare
earths with Canada and lettingChina know that we're not gonna
be beholden to them for thisnatural resource that we need.
I agree with, you, I thinkpeople who say, let's just drill
(07:57):
here, don't understand theenvironmental damage it causes
or the amount of energy it uses.
So if we're gonna have a lot ofenergy demand from crypto
mining and we're gonna have alot of energy demand from AI,
then we're gonna add energydemand from rare earth
production, yeah.
I think it's better to spreadthese things up and to have
(08:19):
multiple suppliers in Canada andAustralia that seem like ideal
uh partners in this exercise.
Why haven't we why haven't wedone this sooner?
I guess that's my question.
It's not like suddenly werealize the rare earths are
mostly from China, right?
I think we've known about thatfor years and years.
It's just that it's just thatit's just that China is
(08:44):
beginning to flex its muscles invarious ways.
They just like just a fewyears ago, they actually, in
response to US export controlson semiconductor exports to
China, they put exportcontrols on the export of
gallium and germanium uh to theU.S.
(09:06):
And I don't know that you wouldconsider gallium and germanium
rare earths, but they're aswhat are call what are referred
to as doping materials, quoteunquote, for semiconductor
chips.
So they're used to kind ofslow down the signal?
(09:27):
Yeah, I guess so.
I'm not sure what a dopingmaterial means in a
semiconductor context, butthat's what gallium and
germanium are in the and Chinawas uh was restricting those uh
those exports as uh as a I got aquestion before you and if you
(09:48):
get this question right, I'mgonna give you a star and maybe
I'm gonna send you something inthe mail, okay?
Yeah, that sounds like uh thatsounds like you saying there's
no way Clem can know thisquestion the answer to this
question.
I'm just I'm giving you an opportunity, your
brain is rested after 30 dayssacki and sushi, and you've you
(10:11):
know your body a high contentin Mercury right now, but your
brain is very capable.
What country has the mostChinese spies located in its
border?
Clem Miller (10:26):
What country has the most Chinese spies in terms
of number of spies?
Yeah, there's a number ofspies.
Well, I'm gonna say the US.
Steve Davenport (10:37):
Wrong.
The Netherlands.
Because the Netherlands ofASML?
ASML China, since the US hascut off the sending of ASML
equipment for certain leveledchips, uh China is trying to
figure out on their own how to,you know.
So I I think that when we allthink about this technology race
(11:02):
and we think of it as uh kindof a nice thing to follow on the
weekend when we're readingBarons, it's really robot, real
people trying to get ahead.
And China is not foolingaround.
China wants to have the AI racein their favor.
I think they've done a greatjob on solar, and they're
(11:23):
probably the leading producerright now of equipment and and
and solar technology, and Ithink they want to be the same
in AI.
Um, DeepSeek is coming out witha new version or a new rev of
their um software sometime inDecember, which is another
reason why I kind of believethat it's a good time to take
(11:46):
some chips off the table,because the first time Deep Seek
came out, everybody was shockedand didn't know much about it.
Well, now everybody's beenwarned and they've gone back and
they've made it better.
And the question is again, isthe US overspending on a lot of
this development if China candevelop Deep Seek and get
(12:06):
production or capabilitiessimilar to ChatGPT with you know
one-fifth of the investment?
Uh, I think that we have acompetitor.
And if we don't wake up andlook at that competitor and then
figure out how we can createalliances and other things to do
to make up for that competitor,we're gonna um fall behind.
(12:30):
And I think that the rareearths and what's going on with
them, I believe are gonna be theum gating item that slows down
AI.
And if it does slow down AI,the the multiples of those
companies based on deployment onmore and more servers and more
and more uses, um, will have tobe limited.
(12:52):
And if something like Deep Seatcomes along and does it for a
lot less, do people try to youknow take more of a software
approach instead of a technologyapproach to making the best AI?
I I think it could transformwhat's going to happen in this
space.
And so, you know, when I lookat what's going on with an OKLO,
(13:16):
you know, up 625%, I say thosenames and those numbers don't
justify when when you thinkabout a real return on
investment coming in, maybethree years, but closer to five
years for quantum and otherthings.
Uh, I I believe that we're youknow we're in a point where
(13:39):
there's gonna be a correctionand a lot of people are gonna
get shaken out.
And these things, like theinternet in 2000, and like you
know, some of the things we'vedone in 2008 after the
correction, people are not gonnabe able to stay in as they see
the declines happen in this AIspace.
So better to do something now,two percent off of the top, than
(14:04):
something later when Deep Seekyou know takes some people's
lunch money.
Clem Miller (14:12):
I think so.
Are you worried about Chinabeing the leader in AI?
Am I worried about that?
Uh yes, and I think we shouldall be worried about that.
Steve Davenport (14:25):
Um but I think you think they could leverage
rare earths and and and punishthe US to give them more access
to chips, unless they hold AIover Trump's head and say, hey,
without more access to chips,we're not gonna give you any
rare earths.
Clem Miller (14:42):
Well, I think it was very interesting, you know,
from from a Trumpianperspective, you know, tariffs
are you know your all-purposego-to cudgel for anything,
right?
And it was very interestingthat uh you had this sort of
departure from that uh when theyannounced you know some months
(15:08):
ago, much to my shock, actually,uh, that if uh if NVIDIA and
AMD maybe it was, uh gave 10% oftheir revenue uh stream from
China to the US government, thatthey the US government would
(15:28):
allow exports of these chips.
I thought that was I don't knowif that was sheer stupidity,
which is possible, or whetherthere was some kind of
underlying strategy to that.
Um I just I just don't know.
But um, you know, I I agreewith your fundamental premise
(15:50):
that that China wants to be thenumber one player in AI, and
that they will you know do a lotto try to achieve that,
including potentially do thingsvis-a-vis Taiwan, um, which is
why it's very important, notjust from Taiwan's
(16:12):
semiconductor's perspective, butfrom the perspective of the
rest of the world, that Taiwansemiconductor continue to build
out its fab capacity in Arizona,in Japan, in Germany.
Steve Davenport (16:28):
Yeah, I mean, I ever everybody talks about
that, but it's really just adrop in the bucket compared to
Taiwan's impact onsemiconductors worldwide.
Clem Miller (16:38):
I mean, some some ridiculous number, like 80% of
uh the everything less than fivenano, it comes from but it but
it but it it comes it's made byTaiwan semiconductor, but a
large an increasing percentageof Taiwan semiconductors sales
(16:58):
are actually now manufacturedoutside of Taiwan.
It's an increasing percentage.
Steve Davenport (17:04):
I mean, I've also heard from people who
visited some of the newfacilities in Arizona that
they're having trouble findinglabor force to staff.
So we we can have the building,but if you don't have the
people with the experience,guess what?
It's gonna be hard for us tomake Arizona chip capital of the
world.
Right.
Clem Miller (17:24):
I I think that's it.
It's also a little surprisingto me that that Arizona was
chosen because they don't havethe clean water or they don't
have as much clean water, andclean water is a necessity for
chip production.
Steve Davenport (17:39):
Yeah, I I just I think the political decisions
about who gets subsidies and whogets um, I mean, we've talked
about that is it's very hard tosee how the government can make
a decision about um what's theoptimal capital when you should
probably just let the peoplefigure it out and let the
businesses locate where theythink is the right location
(18:01):
because they they probably know.
But I guess I'd like to kind ofwrap on this rare earth and get
to the point, which is is rareearth metals a reason for us to
be concerned about the AI rally?
Uh yes.
And so does do you see it as apotential catalyst to some
(18:28):
downside in AI?
Clem Miller (18:32):
Yes.
I mean, I I would um I wouldsay that if you're if if you're
highly invested in in AIdirectly or indirectly, you
know, you should pull some ofthat down and uh and put it into
(18:52):
uh you know really just sort ofbuild up cash.
Steve Davenport (18:57):
I'm not saying you should be in more cyclical
sectors, but uh I wouldn't I'mjust saying that I think
everybody's expecting this USChina summit uh that on the on
the side of the you know Koreanconference or the meetings
between Trump and G, I I feelcould be a turning point in not
(19:20):
a good way.
I agree.
Clem Miller (19:22):
I agree.
I mean, look at what look atwhat happened with uh look at
what's happening with this uhso-called Hungary, you know,
Budapest uh Putin Trump summiton again, off again, on again,
off again.
I mean, you know, the just thethe failure to interpret things,
(19:42):
you know, how Witkoff failed tounderstand uh what the uh
desires of the different sideswere in the Russia-Ukraine
concept context.
I I just think that you know,we're dealing with an
administration that is um hasshown some competency issues,
and I don't know, and and you'vegot foreign powers that have um
(20:10):
a level of distrust uh towardsthe US uh on account of the
current administration.
And so I think that throws a uhthrows a wrench into things
too.
So I I think you know thechances of successful,
meaningful uh summits that leadto to you know anything other
(20:31):
than kind of um showy results asopposed to substantive results.
Performative results, let's putit that way, I think are you
know small, right?
I think we're I don't thinkwe're dealing with a um with a
(20:52):
an economic diplomacy that is uhanything beyond just
performative.
You know, I'll give you I'llgive you an example, right?
Not to throw shade on my uhprior organization that I was
affiliated with, uh, but theExim Bank, right, when they
issued these uh letters ofinterest, what you know, they
(21:15):
they're presenting them as ifthey're real uh real deals,
right?
Um but a letter of interest, Imean there are no exporters
(21:44):
identified yet, as far as Iknow, right?
They're just oh yeah, we'rewe're willing to uh to provide
some financing uh potentiallyfor uh US exports to these rare
earths plants.
So it looks like a signing, itlooks like a deal, but it's not
really a deal.
Steve Davenport (22:06):
Yeah, I mean, I I hate to say this because I
don't have a crystal ball, butmy implicate my implications of
this meeting with Trump, Ibelieve that if this rare earth
you know gets to be worsesituation and China withholds
rare earths, I think we couldsee a 20% decline in the market.
(22:27):
If we were to see, um, as I'vetalked about in the past, China
do anything to blockade or totry to control Taiwan, I think
we could see a 40% decline.
Yeah.
And both I think bothincidences are not imminent, but
they certainly are on theradar, and they should be on the
(22:48):
radar for most of the time.
Clem Miller (22:49):
I wouldn't, I wouldn't necessarily uh agree
with you on the exact on thosepercentages, right?
I think it might be less.
But but it is it is kind ofinteresting, and it is kind of
interesting that if you look atthe last few months of
performance in the technologysector, the broad, you know,
(23:11):
broader technology sector, youknow, you've got some of the Mag
7 that have performed a lotless well than the hardware
manufacturers like uh you know,like Broadcom and Arista and and
uh you know Taiwan Semi andsome others, right?
Those companies have been doingquite well, whereas uh you
(23:33):
know, you've got Microsoft andAmazon and and so on not not
doing as well, right?
So now granted, those are youknow users of AI, they're the
cloud companies, so they're partof the space, and maybe they're
the canary and the coal mine,really.
Um but I don't know.
I mean, the hardwaremanufacturers have been doing
(23:56):
well, so or the network,networking companies, the those
who supply the uh like comfortsystems, uh that supply
equipment into the uh into thedata centers.
Those companies have been doingquite well.
So it's kind of a mix.
And I would say don't look atit as a as a single theme, uh,
(24:20):
but rather you know, you got tobe picky and choosy about which
companies you're investing in.
Steve Davenport (24:25):
Yeah, I mean, I I just look at the market and
say it's got a narrower.
The the idea that it was goingto broaden out and affect more
things and uh and have a generalrally.
If you take away the AI names,and I know that there's a lot of
them that have partials, likeGoogle and Microsoft, they all
have a component, but the markethas no gains if you take away
(24:48):
AI.
And so we're up 15% on thewhole market, but it's driven by
20 or 30 percent of the market,maybe 40% of the market that
has 100% of the gains.
The other 60%, not so much, andthat's why the weakness in
jobs, and that's why some of theother questions about this
(25:08):
economy are still out there, andthat's why I think the Fed
lowered rates.
I think the lower rates again,and I think they're lower rates
again in in December.
So those two lowers, but Ithink what we're seeing is it's
not going it's not translatingout into the seven and ten
years.
It's translating on the frontof the curve, but it's not
(25:29):
translating out to the far endof the curve where the US real
estate market really needs it tobe.
So I think as we start to seeuh a pullback here, whether it's
rare earth or whether it'sTaiwan, I think people need to
be safe.
And um, you know, it's gettingit's getting dangerous out
(25:49):
there, folks.
And I hope you you realize andand just try to keep learning,
as we are about rare earths andeverything else that comes up on
a daily basis that we've uh notheard a lot about.
I think the moves in Australiaand Canada are good.
I think that some of the othersuppliers are very unstable
countries of rare earths.
(26:11):
So we hope, you know, maybewe'll uh do some research and
come up with a name that wethink would be a safe name for
people to invest in who want toown some rare earth exposure.
Maybe that's you know, the theway to get this is not always
through software.
And as Clem's saying, hardwareis doing a little better.
(26:31):
And we've noticed that circacapital that yeah, it's it's
software has been the weakerpart of the uh technology space.
Clem Miller (26:40):
Right.
There aren't there aren't manyum there aren't many rare earth
companies that you can uh thatyou can buy on the stock market.
Um unless you're like investingum I was thinking of a larger
mineral company like a real thatmight have rare earth
components in it.
Yeah, but uh as a small part ofit, you know, they're more like
(27:02):
copper and probably gonna getbigger, right?
But there are there are somecompanies uh that focus on
lithium.
And uh uh for example albemarl,sqm, uh focus on lithium.
And so again, lithium is not arare earth, but it's you know
(27:26):
it's important to the uh to theuh EV and batteries and whatnot.
So okay.
Steve Davenport (27:36):
Well everybody, I think I think this has been a
great discussion.
And uh I mean, do you haveanything else to add, Clint?
Clem Miller (27:44):
I would just say, you know, you use the term
dangerous time in the market orwhatever it was you said,
dangerous.
And I would say I agree thatit's uh I wouldn't necessarily
say dangerous, but I would sayhighly uncertain uh time in the
market where you know you've gotuh especially uh you know it's
(28:08):
you've seen a lot of uh a lot ofincrease in the market lately.
It seems to have plateaued.
There seems to be a lot ofvolatility from day to day.
Um, you know, the VIX is up,the volatility index or the fear
index.
Um, so I don't know if you wantto call it dangerous, call it
(28:28):
uncertain, but I think it's afrothy fourth.
Right.
I yeah, frothy fourth quarter.
I would say, you know, if ifyou want to define froth as uh
including both downside andupside, right?
Um I I I I would I would saythat despite the high
uncertainty and the volatility,I mean Steve, I think you would
(28:52):
agree with me that you you doneed to stay in the stock
market.
Um maybe not 100%, uh, maybenot even 80% or 70%, but you
gotta stay, you gotta stayinvested.
Steve Davenport (29:07):
Correct.
I'm not saying to get to getout.
All I'm saying is think abouttaking profits to keep yourself
in line and balance.
Think about uh hedging a partof the market that you think
could be more at risk, and thinkabout, you know, I mean, if you
need help, seek an advisor.
Um, I work at Circa Capital andwe try to help clients with
(29:29):
derivatives and also with activemanagement strategies.
I think there are people outthere who can help you to get to
where you want to be in thismarket where you have exposure,
but you also have some downsideprotection.
And I think that as we moveforward, putting on and taking
off protection will be, youknow, as taxes go up, I see the
(29:52):
need for more protection uh aswe go forward because I don't
think people will be selling asmuch when and if we see an
increase in tax rates, which Ithink given our large deficits
is highly likely.
So I I just want people to beaware that these risks are out
there and um there are ways tomitigate them if you need help.
(30:16):
Any uh so anyway, that's that'sit for today.
If you uh please like us, shareus with your friends, and uh
we'll look forward to comingcoming at you in another two
weeks with uh more episodes andmore ideas to try to improve
your investment IQ.
Thanks everyone and have agreat day.
(30:38):
Thanks, Steve.
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