The Threat of an EMP

Jun 14, 2024
The Threat of an EMP

Wishing everyone a wonderful weekend, especially to the fathers out there.


Can Companies Fight Against California’s AI Hostility?

Hi Jeff, in reference to the article on CA law regulating open source AI, why can't the companies move out of the state or the the country? Would it be that hard or costly to move? — Mike C.

Hi Mike,

The short answer is that they can, in fact some of them already have. Not because of the regulation regarding AI, but because of the high costs, rampant crime, highly politicized culture, and high taxes, among other things.

There are lots of great things about CA, as well, like the high concentration of talent, weather, proximity to Asia (which is useful in many areas of high tech), and the world’s strongest venture capital ecosystem.

It’s always a tradeoff for companies to make the decision as to whether or not to stay. Moving a corporate headquarters is very expensive, causes disruption, usually requires some changes in the executive staff (some won’t leave CA), and it takes a lot of time. In the short-term, it’s a major hassle and a distraction for a company’s core business. But with a longer-time horizon, it can be a great move for a company.

Some examples of companies that have left CA are:

  • Tesla — Tesla had a very high profile dispute with the state of CA over issues regarding regulations and taxes. And Musk also had issues with state health officials over irrational pandemic policies. Elon Musk threatened to leave CA if the state wouldn’t be more reasonable. CA didn’t think he would move the company. But as CA found out, Musk was serious, and he moved the headquarters to Texas. And last night, Musk took one step further. Shareholders approved Tesla’s reincorporation in Texas, moving away from Delaware where the company was registered. This was the result of the judge’s irrational decision to void Musk’s 2018 performance-based compensation package, which he was owed as he more than achieved all metrics, and which we discussed in yesterday’s Outer Limits — Pay Him.
  • Oracle — Larry Ellison moved Oracle’s headquarters from Redwood Shores, CA to Austin, TX in 2021. And now he is in the process of moving from Austin to Nashville, TN.
  • Palantir — This early AI giant moved to Denver, CO in 2020. The CEO cited that the “monoculture” of Silicon Valley was a primary reason for the move.
  • HPE — Hewlett Packard Enterprise relocated its headquarters to Houston, TX in 2020.

Those are just a few big names that have made the jump. There are so many other smaller companies that have already left.

The reality is that capital and talent migrate to where it/they are best treated. When conditions get bad enough, and the value created by a move is large enough, companies will take the expense and inconvenience of making the move.

For very similar reasons, we’ve seen a flight of financial services companies leave New York for Florida. Texas, Florida, and to a lesser extent Colorado have been beneficiaries of the poor regulatory environment, politics, and fiscal policies in California and New York.

And if SB1047 is enacted in CA, there will be more movement specifically in the artificial intelligence (AI) industry.

Sending Our Best to Lulu

Hi Jeff, my father-in-law got me following you a while back and I love it. You make cutting-edge science and technology easy to understand and get excited about. I am writing you today as my cousin is the teenager that was attacked by a shark last week in Florida and lost her left hand and right leg. I know technology and AI are making advancements in medicine at a rapid pace, but have you come across anything as far as prosthetics or developments that could help her on her road to recovery? I know this is kind of a narrow question, but I figured you would be the best person to ask. Thanks again for all your great content! — Alan

Hi Alan,

I was heartbroken to read about your cousin. I can’t imagine what she and your family have been going through.

There have definitely been some positive developments in the last couple of years with prosthetics, due to the rapid advancements in robotics technology. And that means that there will definitely be more options available to her.

As for leg/feet, there is an interesting Swedish company — Lindhe Xtend — that is known for its range of motion similar to that of a human ankle. Their technology is good for those who are active.

Another company that is definitely worth looking at is Ottobock, which has both leg/foot and hand prosthetics. Ottobock acquired another advanced prosthetics company, BionX, back in 2017. BionX was focused on foot/leg prosthetics, so now Ottobock has a wide range of choices.  Shown below is one of its more advanced products, the bebionic prosthetic hand.

Ottobock Bebionic Hand
Source: Ottobock

And for one final idea, another early stage innovative company that has been doing very advanced work on creating an artificial arm might be worth considering — Atom Limbs.

Atom Limbs
Source: Atom Limbs

Atom Limbs’ approach is to try and reproduce the characteristics of a human arm as much as possible with joint control, wide range of motion with the fingers and hand, and touch feedback.

I hope these ideas are useful and will help in your discussions with medical professionals as you search for the best solution for her.

Sending my best wishes her way…

The Latest on Illumina

Any thoughts on Illumina? — Gilberto M.

Hello Gilberto,

Funny that you ask, as I’ve been thinking about Illumina (ILMN) lately.

This isn’t a formal recommendation, but I like the company a lot. It was a former portfolio holding in The Near Future Report, one of my premium investment research services at my former outfit, and a winner.

Illumina is the dominant player in genetic sequencing machines, controlling most of the market.  Their innovative products are used in applications such as genomic research, personalized medicine, and disease detection. They help scientists and healthcare professionals unlock the power of the genome.

Illumina's technologies are pivotal in fields like cancer research, reproductive health, and complex disease studies, driving advancements in precision medicine and genomics.

Illumina had a run-up to more than $500 a share in 2021 with a valuation that exceeded $60 billion, but it suffered during the biotech winter of 2022 and 2023, which wasn’t a surprise.

Illumina is doing extremely well right now, with high gross margins and increasing free cash flow. It’s trading around $109 today and just an $18.5 billion valuation. This puts Illumina at the very low end of its valuation multiple range for the last 20 years.

With a long-enough time horizon, Illumina will do very well. But the one thing for us to consider is that the biotech industry hasn’t fully recovered yet. And Illumina’s growth will come from a vibrant biotech market, specifically in genetics and genomics. This is why its sales have been pretty flat the last couple of years. Even next year will be single digit growth.

I’d really like to see biotech spring back to life with an explosion of investment into genomics, genetics, and genetic editing. It’s coming, but we’ll just have to be patient until interest rates start to come down and the small capitalization stocks come back to life.

Is Hybrid the Answer?

Unless the [challenges of] cold and freezing, charging time, places, battery costs (particularly 2nd owner), and electricity not from more coal and fossil fuels and others are solved, why isn't the hybrid the answer for quite a while? Meaning, what can Tesla and all do to keep viable? — Knox M.
It was 93 degrees in Denver today and a Tesla with a new car sticker was driving with all windows rolled down. It reminded me of cold winter days in Colorado when Tesla owners were pictured on local TV stations, pushing their EV out of the way of on coming traffic because of short life batteries. Obviously I think there is a better way than EV, at this time, because the EV battery has numerous shortcoming's beyond a tremendous loss of battery power in hot and cold weather. Beyond the shortcomings of EV batteries, EVs require charging, and the world is about to experience a tremendous increase in energy and, no doubt, energy costs, from AI? I believe Hybrid’s vehicles are the overall smart choice by a wide margin. Why aren’t Hybrid’s being used as autonomous vehicles as a transition to EVs in the future, like Toyota, that has access to Aurora? — Fred M.

Hello Knox and Fred,

The topic of hybrids and the weaknesses of electric vehicles comes up a lot, definitely a popular subject for good reason.

An easy way to think about hybrid vehicles is an internal combustion engine (ICE) car that is supplemented with an electric motor and batteries.

There are three categories for us to consider:

  • Hybrid Electric Vehicle (HEV)
  • Plugin Hybrid Electric Vehicle (PHEV)
  • Electric Vehicle

From an automaker’s perspective, hybrids are really driven by product positioning in the market. Most hybrids are designed for price points that are much cheaper than a full EV. This is possible because the size of the battery is much smaller in the hybrid EVs compared to a full EV. 

Batteries are the most expensive component of an EV. So auto makers can market hybrids at attractive price points similar to normal ICE cars, and as “clean and green,” despite having emissions from the ICE.

For comparison, here is the difference in battery size for the three categories:

  • Toyota Prius Hybrid — 0.91 KWh battery, very limited range
  • Toyota Prius Prime PHEV — 13.6 kWH battery, 44 mile range
  • Hyundai Iconiq 5 EV — 58 kWh battery, 220 mile range

As we can see above, HEVs and PHEVs have very limited range with their electric motors and batteries.

As for maintenance, an EV will always win out, because there are so few moving parts compared to an ICE. This is one of the strongest arguments for an EV. That, and the convenience of never having to go to a gas station. Just plug in when we’re at home. I literally charge my Tesla with a 120V plug overnight.

The reason that EVs are strongly preferred over ICE vehicles for autonomous driving is that they are mechanically simpler and easy to control, with precision, when it comes to acceleration and regenerative breaking.

An EV, like a Tesla, is really a large consumer electronics device. It is an intelligent computing system, around which a car has been built. That’s not the way ICE vehicles are designed.

And Knox, you’re right. We absolutely need to address the issue around the source of energy. EVs aren’t “clean” if we’re fueling them with electricity produced from fossil fuels. If we’re serious about emissions, then the world needs to move towards nuclear power — fission and preferably fusion.

But the weaknesses of the EVs aren’t as bad as they used to be. Charging infrastructure is dramatically better than it was even five years ago. And there are measures that can be taken to reduce the impact of cold weather on EVs.

Tesla actually does some very smart things to help mitigate degradation in battery performance.

One simple way is to always keep your Tesla, or any EV, charged above 20%. And when it is cold, keep the charger plugged in if you have one at your house. The act of charging actually keeps the battery warmer, which helps against the cold.

The really smart thing that Tesla enables is to remotely precondition a battery for driving. This can be controlled entirely from the Tesla smartphone app.

We can even set a schedule so that the car automatically preconditions (warms up) the battery at a specific time every day. That way, when we’re ready to drive, the battery is warmed up and the cold won’t negatively impact the performance compared to a “cold start.”

I hope that addresses your questions about hybrids and EVs.

Taking China Seriously

Jeff: Years ago, I read the book, “One Second After,” by William R. Forstchen, and the two sequels when they came out. These books describe a horrible world after an Electro Magnetic Pulse (EMP), without any electric power and how 90% of the people die in three waves: 1) People on life support; 2) Fighting violently over supplies; and 3) Starvation. These books are a very graphic work of fiction but your recent article on China gives me the shivers. Last year, China sent several balloons over the us. Any one of these could have contained and EMP device or could have been researching where to set one off. Recently, I hear that Russia launched an Offensive Weapon into space, that might be able to shoot down other orbiting satellites. China now owns a substantial amount of U.S. farm land and food processing companies. Is this a real possibility and is anybody taking this seriously? More importantly, what defense does the common man have against this? I hope you can comment on this. — Tom L.

Hi Tom,

This is a pretty horrifying scenario to think about, but it’s always a good idea to consider and plan for worst case scenarios. We’re currently in an environment with a U.S. government that is starting wars with a nuclear power like Russia. And policy decisions have shown us that there is a desire to continue the war, not work towards a peaceful resolution. It’s an almost unbelievable situation.

For everyone’s benefit, electromagnetic pulses (EMP) from nuclear weapons delivered at high altitudes can severely damage or destroy any kind of electronics at ground level. It can sever commercial and military communications and even damage the power grid.

At a high-enough altitude, and a powerful enough nuclear weapon (probably greater than 100 kilotons), the reach of damage could cover the entire U.S.

Source: Geopolitical Futures

The severity of the damage, and the reach, would depend on both altitude and size of the nuclear weapon. I would like to think that the U.S. military can defend against such a threat, but the risk is non-zero.

There are ways to protect against the threat of EMPs, some of which would probably not be reasonable for residential homes. Namely:

  • Electromagnetic shielding
  • The use of high-altitude electromagnetic pulse filtering. This involves using technology to provide high-surge pulse current injection protection. The system would have to have a very fast response time to be effective.
  • Surge protection.

Many government and military facilities have this kind of protection, so there isn’t a risk that the government/military would become inoperable. But that doesn’t mean that there wouldn’t be chaos.

There are some more reasonable measures that we can take if we’re worried about an EMP. There’s an interesting company out of Kalamazoo, MI called Faraday Defense that has a wide range of products to protect against surveillance and an EMP.

For example, the Defcon EMP Alert System plugs into an outlet and can alert of an EMP attack. It’s less than $200 and very easy to use.

Faraday Defense EMP Alert System
Source: Faraday Defense

Or for those that want to make sure that their car/truck is protected, Faraday has surge protection for a vehicle.

Faraday Defense Vehicle
Source: Faraday Defense

For $439.99, this surge protection device is installed right next to the vehicle’s battery and is capable of protecting against 270,000 amps of current.

Faraday also carries faraday bags and other protection devices. Another company I really like is SLNT, which makes faraday pouches for smartphones, backpacks, laptop sleeves, and other gear that protects electronic devices and also blocks signals to/from electronics for privacy.

Source: SLNT
SLNT Faraday Bag

While the threat of an EMP might feel uncomfortably high right now, I suspect that the larger threat to the U.S. is inside of our borders. More than 8 million illegal immigrants have been allowed to freely cross the U.S. border in the last 3.5 years, at a pace of more than 300,000 every month, according to the Congressional Budget Committee. The number will be at a mind-boggling 10 million before the end of this year.

The majority of those illegal immigrants are military aged males, many of whom come from terrorist harboring countries and adversaries like China. The risk is extremely high that we have adversaries and sleeper cells widely spread throughout the U.S. right now. This is deeply concerning, especially with the elections coming up.

And the cost to the U.S. taxpayer in 2023 from this open border policy was more than $150 billion, according to the U.S. Congressional Budget Committee. It’s hard to comprehend.

As for U.S. farmland, ironically, Bill Gates is the largest private owner with at least 268,984 acres in 18 states. Gates’ motivations should be greeted with skepticism. He is heavily invested in synthetic food companies and synthetic fertilizer, as well as genetically modified foods.

And he was very wrong during the pandemic and pushed the mRNA vaccines while making a fortune off of investments in companies like BioNTech, which made Pfizer’s mRNA “vaccine.”  The profits exceeded $250 million. Talk about a conflict of interest.

China ownership of U.S. farmland was around 384,000 acres last year, probably even larger by now. China also owns land near an Air Force base in North Dakota. To your point, there is clearly risk here.

But to put things in context regarding farmland, there are about 879 million acres of farmland in the U.S. Therefore, China’s ownership, or Gates’ ownership, are really tiny amounts compared to total farmland.

Thanks for sending in the interesting questions on different topics. It’s always a useful exercise to think about our own personal resilience in times of crisis. Do we have mobility? Protection? Access to clean water and food? And medicine?

Prepare for the worst, hope for the best.

And I’ll certainly be hoping that we make it through the next 12 months with less war and less crisis, not more. I think we’ve all had enough.

Sky Quarry Warrants

Hi Jeff, I just received an email from Sky Quarry about selling Warrants. Could you give me a recommendation on what to do? It doesn't seem to make a lot of sense. Thanks. — Tom S.
Hi Jeff, can you please comment on this Sky Quarry offering during your Friday mailbag summary? This was a preIPO company that was recommended by you. Thanks and have a blessed day! I thoroughly enjoy your research and commentary! Thank you! — Tim L.

Hello Tim and Tom,

I’m not at all familiar with Sky Quarry, as it’s not a company I ever researched. Looks like it recycles asphalt shingles into petroleum products.

It also appears that Sky Quarry has held a series of crowdfunding raises at ever increasing valuations. The latest one appears to have closed earlier this year. It appears that the valuation of the offering was in excess of $150 million dollars, which doesn’t make a whole lot of sense to me given the company and where its at. That’s a big red flag for me.

I don’t have enough information to make any comments about the warrants to provide any insights.

Evaluating private companies requires a unique skill set that requires assessing business acumen of the executive team, go-to market strategy, product features and function, underlying technology, an assessment of the competitive dynamics of the market the company is competing in, predictions about market direction, and an understanding of what a reasonable valuation would be at any given point in time.

It’s hard work that requires a lot of experience both as an investor and as an executive, and I’ve seen very few people who are able to do it well.

We always welcome your feedback. We read every email and address the most common comments and questions in the Friday AMA. Please write to us here.

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