- Another salvo in strategic economic warfare
- Ray Blanco on Team Biden’s “devastating blow” to China
- A boost for a small U.S. chipmaker (GaN chips)
- Zach Scheidt: A simple play for the obvious bear market
- The firing squad for libertarians?… An Apple insider on the Newton device… And more!
— Another salvo in strategic economic warfare: Earlier this month, Washington fired a kill shot at China’s semiconductor industry.
“Under new export controls,” Financial Times notes, “semiconductors made with U.S. technology for use in artificial intelligence, high-performance computing and supercomputers can only be sold to China with an export license — which will be very difficult to obtain.”
“The measures don’t just block things, they block people,” adds Paradigm’s tech-stock expert Ray Blanco.
“American citizens and green card holders are now barred from working in China’s semiconductor industry… and the potential consequences for ignoring the prohibition could even include loss of U.S. citizenship.
“Industry insiders are calling the new measures a devastating blow to Chinese aspirations for semiconductor dominance,” says Ray.
“The new rules [upend] a key pipeline of talent for China’s chip industry that relies in part on American engineers’ and scientists’ expertise to advance its tech,” FT says.
One example? Chinese chipmaker Yangtze Memory Technologies Corp. (YMTC) “has asked American employees in core tech positions to leave, as it rushes to comply with new U.S. export controls.”
The company’s CEO Simon Yang, a U.S. passport holder himself, resigned his position in September, shortly before Team Biden announced new restrictions. “Yang transformed YMTC into China’s leading memory chip producer with the backing of [$30 billion] in funding primarily from the government,” says FT.
For now, Yang remains at the company as a “deputy chair,” but his future at the company is up in the air.
Adding insult to injury, YMTC missed out on a huge contract with Apple; the chipmaker was supposed to supply 40% of the NAND memory chips for Apple’s iPhones.
Almost one year ago, we denounced the folly of the bill that would become the CHIPS Act of 2022, calling it out as a $52 billion taxpayer giveaway to the U.S. chip industry.
Our managing editor Dave Gonigam said at the time (presciently, as it happens): “It opens the door to massive government interference… If politicians are writing the checks, they’ll feel entitled to start calling the shots.” Word.
Boondoggle for U.S. chipmakers or not…
Ray says: “Now that CHIPS Act checks are starting to get cut… even smaller players should see nice boosts to their business.
“This week, GlobalFoundries Inc. (NASDAQ: GFS) announced it will receive $30 million from the feds to advance innovation and production of gallium nitride (GaN) chips in the U.S.
“Most chips we use are made with silicon wafers, but while cheap and plentiful, silicon isn’t the best semiconductor material out there performancewise,” Ray says.
“GaN chips can handle higher levels of power and heat than silicon and have additional electrochemical features that, if fully exploited, could improve the performance of everything from nonpower-related computer chips to solar panels.
“As subsidies are passed out, I’m sure we’ll see plenty more innovation in the semiconductor space,” Ray says. “Ultimately, this will benefit everyone — from the companies innovating to the consumers who will be able to enjoy more advanced technology.”
Checking in on Mr. Market today, the Big Board is up about 300 points to 31,785… Similarly, the S&P 500 Index and the tech-heavy Nasdaq are both in the green: up 1.4% and 2% respectively.
➢ Among the headline earnings reports is GM, beating Wall Street’s expected numbers: now logging adjusted earnings per share of $2.25 vs. $1.88 and revenue of $41.89 billion vs. $42.22 billion. “Despite the bottom-line beat, GM did not adjust its guidance for the year as profit margins narrowed,” CNBC notes.
Commodities are moving into the green; a barrel of West Texas crude is selling for $85.14. As for precious metals, the yellow metal is up 0.40% to $1,660.70 per ounce while silver is up 0.65% to $19.32.
And the crypto market is rallying, too. Bitcoin is up 2.35% to $19,800, and Ethereum is up almost 5% to $1,400.
“We all know we’re in a bear market,” says our retirement-and-income expert Zach Scheidt. “As I write this, the S&P 500 Index is down roughly 21% on the year.
“After nearly 10 months of selling,” he adds, “chances are you’ve made some adjustments to help reduce your risk. Fund managers are in the same boat…
“The research I’ve seen shows a lot of dry powder (or uninvested cash) that institutional investors are sitting on,” says Zach.
“As the U.S. stock market starts to rally, holding cash becomes a ‘career killer’ move for institutional investors. Imagine telling your clients you missed a fourth-quarter rally because you were trying to be careful.
“So for now, we’re in a situation where any rebound in the market could trigger a tsunami of buy orders from professional investors,” he says. “Not necessarily because they think stocks are a great buy… but because they know they’ll lose their jobs if they don’t participate in a rally!
“Don’t be surprised if we get a sharp rally over the next few weeks fueled by scared institutional investors piling into the market as fast as they can.
“Here’s how to play it: As you already know,” Zach says, “I’m a big fan of value stocks in today’s economic environment.
“One of the easiest ways to get exposure to value stocks is by purchasing shares of the Vanguard Value ETF (VTV),” he says.
“This fund gives you a diversified basket of stocks trading at low prices compared with earnings.
“Once you own shares of VTV, you can start looking at individual value plays (like the many stocks that we highlight here at Rich Retirement Letter).
“If you’re comfortable trading options, you may also consider buying call contracts on the S&P 500,” Zach says. “You can invest a small amount… with the possibility of booking a large return if the market surges higher into the end of the year.”
Please note: “Buying options contracts can increase the amount of risk (on a percentage basis) that you’re taking. So don’t commit money to this strategy that you can’t afford to lose.
“No one has a crystal ball when it comes to the market’s immediate direction,” Zach says. “But as we head toward the end of the year, the probability of a sharp bear market rally appears to be very high.
“I recommend putting some money to work” — especially with exposure to value stocks — “so you can grow your wealth during this important season.”
“In March 2020, a maritime shipping advisory panel offered a simple suggestion to the government: Charge all past and current members of two libertarian think tanks with treason,” says an article at The Dispatch newsletter.
The two think tanks in the line of fire?
The 13th-most-influential U.S. think tank, Cato Institute, according to the University of Pennsylvania, and the Mercatus Center of George Mason University. (Plus, the Heritage “Institute” — oops, it’s Foundation — gets an honorable mention.)
“An obscure 1920 law… the Jones Act requires that cargo shipped from one U.S. port to another be carried on a U.S.-registered vessel, built, owned and crewed by Americans,” said the Independent Institute’s William Shughart in 2014.
“Every day,” Shughart said, “the law adds to energy bills because it stops foreign-flagged tankers and barges from shipping among U.S. ports. They can’t help move crude from Gulf Coast ports to East Coast refineries, or supply Florida with oil from Louisiana and Texas ports or ship oil between West Coast and Alaskan ports.”
Members of Cato and Mercatus added similar critiques of the Jones Act more recently, particularly in light of natural disasters including hurricanes. But Big Labor isn’t open to criticism — constructive or otherwise.
“It is unclear whether the [treason] recommendation was serious, a joke or isolated wishful thinking from one or two subcommittee members,” says The Dispatch.
“The treason idea didn’t make it into the advisory committee’s final recommendations that year. (And no libertarians have been charged with treason on account of criticizing the Jones Act — yet.)”
“Hi. I worked in the Newton Group at Apple in the late ’90s,” a reader writes. “By then, we were up to the MessagePad 2000.
“Obviously, Newton was never commercially successful. There were several fundamental issues. First, the feature that Apple touted on Newton was handwriting recognition. That’s the thing that Doonesbury trolled. At that point, the recognition algorithms weren’t good enough and the processors weren’t powerful enough to make it reliable. For consumers, the price was too high, and the feature that Apple kept pushing – handwriting recognition — wasn’t ready for prime time.
“What Apple had invented was a terrific device for certain vertical markets. Disney, for instance, used it to great advantage replacing clipboards in taking guest surveys in their theme parks. Another company licensed the Newton platform and turned it into a device that made patient billing in doctor’s offices in France tremendously more efficient.
“A third company created a ruggedized version of the MessagePad for workers who needed data connectivity while working on a telephone pole. Anywhere you could use it for data collection the device more than justified the cost. But it wasn’t suitable as a consumer device, and Apple wasn’t the company to take something into vertical markets, which is where the Newton belonged at that stage of its development.
“Newton needed a phone,” our reader continues. “The founders of the Palm device started another company called Handspring, and got to the idea of putting a phone into a pocket-sized organizer before Apple did. None of these devices made it. The BlackBerry was a revolution in that it started with a phone and added email.
“It wasn’t until Steve Jobs got back to Apple and started to focus on multitouch technology that the spark was lit under the idea of a computer in your pocket that had your email, your calendar and your phone on one device. The rest, as they say, is history.
“By the way, Steve reportedly passed out copies of George Gilder’s book Telecosm to those directly reporting to him at Apple in the early 2000s.”
We thank our reader for his inside-baseball segment — it’s a welcome breath of fresh air. We also appreciate his sharing the last bit about Paradigm’s futurist George Gilder. True story.
Take care! We’ll be back tomorrow with another episode of The 5…
Best regards,
Best regards,
Emily Clancy
The 5 Min. Forecast
P.S. Since we mentioned George Gilder, here’s his hot take on the U.S. semiconductor industry post-CHIPS Act.
“The U.S. has overestimated its influence,” he says. “Already the U.S. has granted exceptions to Samsung and TSM to continue to manufacture in China and sell chips to China.
“Concessions like those made to Samsung and TSM will not change the message the Chinese (or the Koreans or Taiwanese) are hearing: They must replace the U.S. as a supplier and intellectual partner.
“U.S. politicians will not learn their lesson,” George adds. “Both the politicians and the national security lobby… will demand even more restrictions, further isolating the U.S. semiconductor industry, which will continue to decline.
“The U.S. will cede not only leadership of the semiconductor industry but its global political leadership as Europe and Asia are drawn more closely to China.”
