Semiconductors Can Predict the Future — Here’s How

by Andrew Zatlin

What if you had a bulletproof way to predict the future of the U.S. economy? 

That way, you’d know which stocks to load up on, and which ones to avoid.

This indicator exists — and today I’ll show it to you.

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

Semiconductors Can Predict the Future — Here’s How

Back in the Industrial Era, steel and oil were the world’s basic building blocks.

They were used to build or power almost everything.

But today, our basic building block is semiconductors. Nearly everything has a semiconductor inside — from John Deere tractors to talking teddy bears.

Bottom line: semiconductors are ubiquitous.

And not only do they reflect what’s happening with the overall economy, but they even have the power to forecast what’s about to happen. Let me prove it to you.

Gauging Demand for Semiconductors is Easy

Only about five companies in the whole world can provide the raw materials that go inside a semiconductor.

And only another five or so companies are capable of actually making finished chips.

But the fact that this sector is an oligopoly means we can easily get a quick sense for semiconductor demand.

And here’s where things get interesting…

Today’s Semis Equals Tomorrow’s Sales

It typically takes about six months to create a chip and then insert it into a finished product like a car or phone.

Why is that so important?

Because it means that today’s semiconductor activity equals tomorrow’s sales activity.

In other words, by looking at what’s happening with semiconductor manufacturing, we get a six-month advanced look at what’s about to happen with the U.S. economy.

In a minute, I’ll show you how accurate this forecasting is.

But first, let me briefly explain the manufacturing process and show you why it takes six months.

A Delicate Six-Month Process

The process begins with making a “wafer.” Typically this involves turning a crystal into a cylinder and then slicing it up.

This is a delicate process. Any impurities render the wafer worthless.

From there, wafers are treated and polished, and various elements are added. Each step requires a complex set of equipment and machinery.

Then, once produced, the chip is sent to the customer and installed in the final product.

Start to finish, it’s a six-month process.

And as I mentioned, having an understanding about this process enables us to get a sense of what’s about to happen to the U.S. economy. Let me show you…

A Six-Month Forecast

This is a five-year snapshot of semiconductor shipment activity (in red) and the U.S. Gross Domestic Product (in blue):

Notice two things:

  • How perfectly correlated the lines are.
  • Recent wafer activity is plummeting. This is a bad sign for the U.S. economy.

But wait a minute:

Aren’t semiconductors supposed to forecast economic activity?

Absolutely. That’s why the data you see above has been “lagged” — in other words, I adjusted it by six months.

For comparison, this is what the non-adjusted data looks like:

This might explain why other people aren’t telling you about this… they haven’t figured out that you need to lag the data.

But wow — just look at the predictive power of semiconductors!

That’s why I’m sharing this with you. I want you to be prepared for what’s ahead.

Given the drop-off in semiconductor activity, you can bet that economic activity is six months away from crashing. A recession is coming, and you need to get positioned for it.

That’s the only way you can potentially earn significant returns and not lose your shirt.

If you’re a “Pro” subscriber, I’ll share some tips for how to prepare — and I’ll share a stock I believe will thrive when the economy takes a dive.

In the meantime, Zatlin out. Talk to you soon.

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In it to win it,
Andrew Zatlin
Andrew Zatlin
Moneyball Economics