The Inflation Nobody Is Talking About Is Already in Your Bills

The bills are here. The headlines are not.

China processes over 90% of the world's rare earth minerals. Copper supply is projected 25% short through 2035. Shipping insurance costs are climbing with no resolution in sight. Utility companies are filing for record rate hikes.

None of these made the front page. All of them are moving your money.

You cannot rebuild America's power grid, fuel an AI revolution, and insure global shipping routes through active conflict zones without the cost landing somewhere. It lands on you.

Michelle Connell of Portia Capital Management and Andrew Tang of Turner Financial Group are on Wealth Transparency this week to connect every piece of it.

This is the conversation the financial media is not having. If you learned something today, subscribe, share this episode, and help put Wealth Transparency in front of someone who deserves to hear it.

Chapwood Investments, LLC, is a partner of Ethos Financial Group, LLC, a Securities and Exchange Commission registered investment advisor. No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed in this webcast or video. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. Past performance is not indicative of any future results.

All investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results. 
No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. 
Securities are offered through Innovation Partners, LLC (member FINRA/SIPC). Ed Butowsky is a Registered Representative with Innovation Partners LLC. Ed Butowsky is licensed to business in: CA, FL, LA, TN, TX. 
Innovation Partners LLC and Chapwood Investments are not affiliated.

Transcript

SPEAKER_01 0:25

Hello, this is Ed Butowski. Welcome again to another edition of our Wealth Transparency podcast. Each week, what we do is we take subjects and headlines that don't make the front page but are very, very important on how they impact your investments. And these are not normally talked about on most of the TV shows that you see about finance, but we do cover it here with Michelle Connell from Porsche Capital Management in Fort Worth. Andrew Tang with Turner Financial Group out of New Jersey. Both of these people bring a tremendous amount of insight to these subjects. And again, this is information you won't get just anywhere. So, Michelle, let me start off with the critical minerals out of China. Um, it's becoming a much bigger inflation risk to the United States. Can you kind of explain how the abundance of critical minerals that are held in the the ground in China impact us on the inflationary front here in the United States?

SPEAKER_00 1:28

Even though China holds about 50% of the rare earth minerals worldwide on a worldwide basis, they produce over 90%. And so it's not so much the cost of the mineral from what I was able to read, it is the product processing cost and the fact that they've got the facilities in place to take the rare earth minerals out of the ground, process them, make them magnets, etc. And so US is number one in terms of trying to catch up. You have other countries as well, like Australia and India. But it's really critical, not just from an inflation standpoint, but from a disruption standpoint, that we need those in order to continue manufacturing technology.

SPEAKER_01 2:17

That's an interesting view. Why does this matter to the United States, Andrew, about the lack of ability to get not only our own rare earth minerals, but also to get them from China?

SPEAKER_02 2:28

Yeah, echoing what Michelle said, this is really about the processing access. And unfortunately, the processing plan they're mostly done in China because of costs, and also regulators are much more laxed uh, you know, outside of the United States. And the amount of time and money it takes to set up a processing plan, sometimes it can, you know, it can take something close to like 10 years. This is what I came across. So from that perspective, I I would then I research a little bit further and say, okay, well, you know, what have we done so far to combat this issue? Then I see that in Oklahoma, for example, there's a nickel refinery that starts to uh that's they're in process to be built. There's a rare earth processing uh factory in California and also in Indiana as well as other states. I know Tesla itself is working with Redwood, and they're the ones who are reprocessing and recycling batteries uh from all the EVs and electronic components. So this matters to the United States because it holds a strategic uh position for China and it's an advantage for China to have over us in the in the meantime. But over the long term, I see that we are building out a processing plan for the long term, and I think over the long run, we will see some type of a balancing between the two countries.

SPEAKER_01 3:52

So, one company that I like a lot is ARAC, American Resource Corporation. And they're based in Fisher Island, Indiana, and they are doing tremendous stuff with recycling batteries and then digging for new uh critical minerals. And I think that's a company that everybody should take a look at. Although I'm not recommending it, I have to say this for compliance purposes. I'm not recommending it, I'm just saying you should take a look at it. So let's go to another thing that might be driving inflationary pressures, and that is the data centers. So, Michelle, can you talk to us a little bit about hey how the AI is creating an enormous increase in electricity demand?

SPEAKER_00 4:34

Well, when I thought it was interesting when I read one Bloomberg analysis that showed that if you looked at areas or grids that were near data centers, over a five-year period, the increase in cost was 267%. That's huge. And on an if you look at on an annual basis, costs are going up nationwide 8 to 12 percent. But in some areas where you're have a lot large concentrations of data centers, like for instance, Virginia, came and talk customers are looking at an increase of uh as high as 25 percent. So that's the problem, is that it takes so much to run these data centers. We don't have enough of an infrastructure build-out. It it takes billions of dollars to do that. Plus, we have really old existing infrastructure. I think the average is 50 years. So it's a balancing act when you all of a sudden throw this huge additional demand onto the grid.

SPEAKER_01 5:35

Yeah, and down here in Texas, we have our own grid. So that's a whole nother story about Texas inflation. Andrew, do you want to address this?

SPEAKER_02 5:43

Data centers only accounted for roughly about 4% of total electricity consumed just a few years ago and is projected to go up to 10%, right? 10% by 2030. But now, because states, a lot of states, many states are requiring the data center builders to basically provide their own power. And that way the project can be processed, let's say, in two years versus seven years. So, right now, for example, if you and I get together, say we want to build the data center, we have the space, we have the resources like money and funding and all that, you still have to wait about seven years for an approval. Okay, that that's crazy. So when you propose that you can build your own SMR, you have a small uh, let's say a power plant by natural gas or propane or whatever it is, then you can you know speed up the approval process to let's say two years. But it's still a two-year wait. So, which are the states that are requiring uh you know data center builders to bring their own power? We're talking about like Virginia, Texas, Ohio, Arizona, and Georgia. These are the states that are leading the charge that are requiring the builder of data centers to provide their own power. And other states are following suit. So I think there's still some light at the end of the tunnel in here because one, echoing what Michelle said, our grid is old. Okay, it's time for an upgrade. We're gonna have to upgrade anyway. So blame it on the data center. They take the fall. You know, that's that. But otherwise, for data centers to be built, it, you know, most states, and if they really want to get the project off the ground, seven years is way too long. So I think most builders and producers in this particular area, they are bringing their own, they're providing their own power. And they're working with power companies to have power generation for those projects.

SPEAKER_01 7:29

Well, one of the things we see down here in Texas is a lot of local communities trying to compete and combat the building of data centers. But there's also recently Tramel Crow, a lot of people out there probably have never heard of him, but he was one of the premier builders uh in the country at one time. He built something called the Market Center, which was one of the biggest showrooms for conventions. So let's say there was a car convention, they would have this this massive facility. They're turning that into a data center, which is right off of one of the busiest streets in Texas. So they're trying to find locations. You know, maybe a lot of these grocery stores that are going out of business could become data centers. Uh, but they do need to jump on this as quickly as possible. Let's now kind of address another, again, inflationary type pressure, which is adding shipping insurance. Costs for them to run um are rising quite a bit. And that gets that doesn't get eaten by the shipping company, that gets po you know pushed back to the company that's doing the shipping. Michelle, do you want to talk a little bit about the uh war risk insurance and freight insurance and shipping routes?

SPEAKER_00 8:44

Well, it just it compounds the what we've seen in terms of the the huge increase in shipping cost. And since 2020, shipping cost has increased 40%. And once you start having those costs increase, whether it's insurance related or other means, it takes 12 months for the impact of that increase to be felt. So there's gonna be a lag. So even though those increases are hitting now, expect the costs of shipping to continue to go up because of this. And it's how is this going to affect retail, especially agriculture industry? That's the big concern there, and they're not gonna want to eat that. That's probably going to be passed on to consumers, unfortunately.

SPEAKER_01 9:32

Andrew, how do you feel about uh the increase in insurance for these shipping companies?

SPEAKER_02 9:37

Yeah, it's it's uh definitely an added cost that uh the businesses are absorbing right now. And you know, there are three types of insurance for shipping. You know, there's believe it or not, there's a wall risk insurance for the shippers, and then there's cargo insurance, just insuring the cargo, and then there's a hole insurance when they're hauling the goods. Uh so there's three types. So it gets pretty complex when it comes to shipping insurance, and you just don't see any of these letting up until there's some type of a resolution between the conflict uh between US and Iran. And unfortunately, right now, it in addition to Sri Humus, you know, we're seeing that there's some type of conflict for accessing the Red Sea. So we're moving in the wrong direction right now. And so the shipping costs, we don't see any kind of relief in the short term, but hopefully, you know, with some type of resolution or agreement between Iran and the US and the rest of the world, you know, then uh, you know, there'll be some type of relief.

SPEAKER_01 10:36

So we're always talking about when we think about precious metals, we talk about gold and silver. But there's this other commodity called copper that we always just think about because of pennies. But copper receives less attention than crude oil, but it's essential for AI uh centers, electrical grids, housing, defense, electric vehicles, and it's becoming a much bigger problem. And I'm not really sure how to address that because I don't even know where copper comes from. But I know that it's mined out of the ground. I don't know what the biggest miners are, which country has the most amount of copper. But Michelle, can you address that a little bit on the copper supply becoming a big problem?

SPEAKER_00 11:18

Well, the problem is the demand is much greater than the supply. And to mine copper takes years to develop producing mine that is profitable, it can take a long period of time. And that's why a lot of miners have not spent a lot of time on that particular commodity. They've spent more time on gold and and silver and other areas. So we have not enough, we have uh exploding demand, and we don't have enough mines that are being uh having the mineral extracted at this point. So it's gonna continue to cost us a lot of money if in just this year alone we're close to increases, you know, as I probably said, of you know, 17 to almost 20 percent. That's a lot in one year. And then that also is affecting not just technology, home building, other areas that are, you know, really reliant on and need copper to produce whatever good that they're you know manufacturing or putting together.

SPEAKER_01 12:20

Yeah, Angela, why don't you uh give us your thoughts on copper?

SPEAKER_02 12:23

Yeah, there are two problems. The existing mines that are getting older now, you know, and the rocks are much of it is already mined. So and they say, okay, well, why don't you go, you know, develop more mines? But the problem is that most of these are not in the US. Most of the existing mines for copper, it's in Chile, Peru, and the Republic of Congo and Indonesia. So it's really not here in the United States. And then uh the problem with those countries is that you're you're facing political instability, and you also have labor disputes and water shortage, and then you have weather disruptions and all things like that. So the IEA, which is the International Energy Agency, they predicted that we're gonna have a copper short for, about 25% short for well into 2035. So this is a problem, and you know, for the US miners to really pay attention to. But I think everyone knows that we are moving to a direction that is gonna be increase, a consistent increase in the demand for copper because of the motors and the electronic components. And more and more people are also looking into the recycle of copper. And hopefully, for example, if the building gets demolished, if the electronic components get thrown out, then the copper itself is gonna be some way somehow recycled.

SPEAKER_01 13:41

So, again, you know, this seems to be a gloom and doom type of subject matter, but I want to address the most important things, and that's the purpose of this show is to talk about you know subjects that are not talked about that often. And both of you do an excellent job of bringing up what these subjects are and giving us insight into it. So let's continue on with utilities that are requesting a record rate increase, and that's a perfect example of issues being passed on to the consumer, and the consumer really doesn't have any say in this. I mean, you really are gonna have to pay what is being asked for you to pay. Although in Texas, we have the ability to use different electric providers. I don't know if you do in New Jersey, but still prices are rising, even if you're able to look at other providers outside of your regular provider. I can't exactly think of the word I'm looking for, but this is becoming a major problem because of the demand for electricity. So, you know, basically they're seeking billions and billions of dollars, and the only way to offset that is to vote no when they're requesting it. Michelle?

SPEAKER_00 14:52

Well, if you are in a state where you can look at different providers do it. I know I did last year after my air conditioning costs going through the roof, and it made a big difference. I think I cut I think I cut my power bill at least by 50 to 55 percent. So I was pretty happy about that. But if you look at other areas of the country, especially in the south, that are really reliant upon air conditioning, you know, you've got people that have gone from $100 a month to, I know in one area of Louisiana, it's almost $800 for a house to be air conditioned during the summer. I mean, that's pretty prohibitive, you know, if you're on a, you know, middle class income. But that being said, I think this topic is going to become more of an issue. And I'm seeing that, you know, in all the advertising for midterms anyway, through the state of Texas, the grid, the cost of electricity. And I think it's gonna be really important, you know, if political parties want to stay in office that they're going to have to address this. You can't keep pushing the cost of increasing or approving the infrastructure to the individual consumer. It's not gonna be feasible. So does that mean that we go to some sort of federal funding or state funding? Maybe because we desperately need it if we're going to have AI and those data centers. So it's it's a quagmire, right? I mean, we need it, but you just can't keep pushing everything to the consumer. It's not gonna work. They're going to push back, and I think we're starting to see that.

SPEAKER_01 16:22

But but how would they push back? I mean, do you just vote with electricity? Right, with a vote.

SPEAKER_00 16:27

That's it. I mean, uh, that's the only way I could think that you're gonna be able to do that, you know, and shop, you know, uh your uh carrier if you can. I think it's really hard. I think that's why some people in certain states are so upset right now and they're leaning on their politicians and they're also trying to keep any more built-out of data centers out of their areas. And I guess that's to be understood if you know you just can't afford basic, you know, utilities as families.

SPEAKER_01 16:55

So, Andrew, does this help the investment in utility stocks?

SPEAKER_02 16:59

Not necessarily, because utility stocks are laden with debt. They have lots of debt and they have many existing assets that need to be maintained and upgraded. Don't forget this goes hand in hand with the power grid. It's that utility companies they're still paying for the maintenance of the existing grid and the delivery infrastructure, the whole entire network. And it is old. And then we are picking up more and more storm as the weather is is changing and you're gonna see a lot of damages, tree branches, power lines down, and the cost of labor is increasing as well. So maintaining the grid and maintaining the electricity delivery to your home is getting more and more expensive. I do like to share one example is for myself. For example, in the Northeast region, if you live in a three-bedroom, either apartment or house, in the summertime, your electricity bill could go as high as $500. I mean, you maybe think it's unheard of, but I think you guys can agree with that, right? Is that true? Now, and then I recently, you know, I have two electronic vehicles, I have two EV to plug into. What am I gonna do? So, lucky for me, I I went with a major provider and I installed roughly about 40 solar panels on top, connected to two batteries. So it's a system that I can charge the batteries during the day and use it at night, and that offsets my bills at least 80%. So I'm in a good position. I don't have to worry about that. But most American households they don't have that. And for those that have uh multiple AC units that are running in the summertime, again, the utility bill just on electricity can go up as high as $500, and it's a lot. Uh, for other households, uh, hopefully for citizens, you know, senior citizens and lower income families, they have to have access to public assistance when it comes to utility. Otherwise, the cost of living is it's just gonna become unbearable. And what's gonna happen? They're gonna have to cut back on the grocery shopping when they can't afford it. And so I think it makes a lot of sense for the public assistant to be helping the households here. But there are solutions, and people are already doing that by changing the regular light bulbs to LED. That was the, you know, last decade, we know we started doing that. And and also use uh, and when they upgrade, use more energy efficient appliances and things like that. So I think Hawaii is a perfect example because energy is always expensive there because it's 100% imported. So, what do Hawaiian households do? They build very efficient homes, they build green energy homes. So that's something for us to follow, for us to observe and perhaps to learn from.

SPEAKER_01 19:33

Well, I'll tell you, I wish my electric bill was $500.

SPEAKER_03 19:37

You mean it's more? Can you share with us, please?

SPEAKER_00 19:39

Okay, but how how big is your house?

SPEAKER_01 19:41

It's about $5,600 square feet.

SPEAKER_03 19:44

Well, there's huge. Are you serious? $5,600?

SPEAKER_00 19:48

He's in Texas, Andrew. Okay, everything's big.

SPEAKER_03 19:51

That's the Butaski Castle.

SPEAKER_01 19:53

But it's the downstairs because my kids are gone. Yeah, I'm gonna have to.

SPEAKER_02 19:57

Yeah, you we should talk. I'll recommend you to do solar and battery power, and that's really a great way because my ROI, it used to be 10 years, five years. I already made it up. Every I calculated everything that I put into it, every dollar, every penny went into it, I already made it back from the savings.

SPEAKER_00 20:16

So maybe from an investment standpoint, the companies that provide the solar, maybe that's becomes a good investment. Good investment again. Batteries, if they're those stocks aren't too expensive. I know they've been very volatile.

SPEAKER_02 20:31

Both sides. Yeah, both sides are improving, by the way. The solar panels are getting cheaper and cheaper, and they're becoming more and more efficient. Same thing with uh dry cell batteries. You know, dry cell batteries are getting cheaper and cheaper and higher in efficiency. So the two technological advances and the price decline really gives us the advantage, the consumer, to consider installing solar and battery systems for your homes because utilities, I don't see a way down from here. It's just gonna stay flat or go up.

SPEAKER_01 21:03

Well, I want to thank both of you for being a guest today, as you do each week. And I absolutely love having you on. This is Wealth Transparency. I'm Ed Bitowski. This beautiful lady's name is Michelle Connell with Porsche Capital Management and Andrew Tang with Turner Financial Group in New Jersey. Please reach out to either one of these people. You can find them on the web. Again, Michelle Connell and Andrew Tang. And if you have any questions at all about anything going on investment-wise or financially, they'll be happy to answer your questions. So thank you very much.