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The current chip shortage is no small potatoes.

Not that many years ago, if a ship got stuck in the Suez Canal and blocked the shipping lanes, our economy would have come to a grinding halt. I say this because the vast majority of our oil used to pass through the Suez. But, in the last 20 years our domestic oil production has ramped up, and now our nation is self-reliant. We are no longer dependent on foreign oil.

Although troublesome, incidents like the stuck cargo ship no longer force our economy to shut down. Thanks primarily to our increased domestic oil production we’re now an energy independent country. And it’s a reassuring situation to be in.  

That’s the good news. Unfortunately another shortage has moved in to threaten our economy. I believe it merits far more concern and news coverage than it’s getting. I’m talking about computer chips.

Obviously a chip crunch affects the manufacture such things as computer components, gaming consoles and cell phones. But the shortage has also forced our iconic auto companies to either reduce or completely stop production of many of their vehicles. And that’s the bad news.

I find it a bit ironic. Years ago we were dependent on foreign countries for oil. Now that we’re essentially energy independent, we’re dependent on foreign countries for computer chips. Just as we freed ourselves from foreign oil dependence, it’s vital that we become chip independent as well.

We need a reliable supply of computer chips. We need to manufacture them ourselves. Otherwise our economy could suffer a serious dip.

There have been a lot of political discussions about rebuilding our infrastructure. I suggest the most important place to start is with domestic chip production. Most equipment needed for construction relies on such chips.

If auto plants can’t build trucks, the production lines shut down and good paying jobs are lost. If trucks aren’t on the roads there won’t be much rebuilding of infrastructure.

To avoid foreign disruptions, we need the technology and capacity to manufacture chips in America. Domestic chip production would also provide good paying jobs

From an investor’s perspective, if the chip shortage continues for any length of time, I wouldn’t be surprised if the markets paused or even declined. That’s especially likely if there’s any indication our blossoming economy is hitting a snag.

I recently came across some data from the Bank of America that I found to be mind-boggling. Evidently there’s no logjam in the flow of money into the equity markets. More money has flowed into stocks in the last five months than it has over the last twelve years. With that much new money I’m guessing there are a lot of new investors that have never experienced a pull back.

In the financial battlefield, investors like to think they’re brave and can withstand a pullback. But when the first significant market correction hits? Well, that’s when panic hits too. I can only imagine how many investors that sold in a panic during the 2008-2009 downturn must feel. They finally got enough nerve to invest again just in time to be faced with more market turbulence.

Nobody knows when the next market downturn will occur. But I do believe if the chip shortage continues, economic turmoil and a possible market downturn will arrive sooner than anyone expects.

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Ken Morris 248.952.1744

E-mail your questions to kenmorris@lifetimeplanning.com

 Ken is a registered representative of LPL Financial. Securities and financial planning offered through LPL, a Registered Investment Advisor, member FINRA/SIPC. Ken is Vice-President of the Society for Lifetime Planning in Troy. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.