Today’s News 21st February 2023

Authored by Victor Davis Hanson via AmGreatness.com,

Joe Biden ran on “unity,” which is critical in a multiracial America. He vowed to heal the divisions supposedly sown by Donald Trump. Instead, he is proving to be the most polarizing president in modern memory. Often his racialist rhetoric and condescension have proven demeaning to both blacks and whites. In a volatile multiracial democracy that demands tolerance and restraint, a highly unpopular Biden, for cheap political advantage, continually proves incendiary and reckless. 

Last week Joe Biden snarked after watching a White House screening of Till:

Lynched for simply being black, nothing more. With white crowds, white families gathered to celebrate the spectacle, taking pictures of the bodies and mailing them as postcards. Hard to believe, but that’s what was done. And some people still want to do that. 

Exactly who are these “some people”? Who fits Biden’s innuendos of contemporary “some people” who, he alleges in 2023, still wish, as “white crowds, white families” of the past, to mail celebratory postcards after they lynch black people? The Ultra-MAGA villains of his recent Phantom of the Opera speech? Have his current targets ever echoed anything like Biden’s own racist past warning that busing would force people to “grow up in a racial jungle”?

What current data might support Biden’s absurd charges? Is Biden referring to federal interracial crime and hate crime statistics charting violent white propensities against blacks? None exist. In fact, they continually reveal that so-called whites are underrepresented as perpetrators in both categories, while overrepresented as victims in interracial crimes—dramatically so in the case of black-on-white violent crime.

In our sensationalist YouTube world, are we suffering an epidemic of Internet-fed, white-on-black incendiary crimes that might have prompted the president’s demagogic accusations? Not at all. Most of the most recent publicized interracial violence—a woman in a gym fighting off a would-be rapist, a bicyclist doctor stabbed to death in an intersection as his attacker spewed racial hatred, a 26-year-old mother lethally shot in the back in front of her children in a parking lot over a minor argument, a young boy violently choked on a bus, a small girl on a bus beaten repeatedly by two teenage boys—have involved black perpetrators and apparent white victims. So, what contemporary evidence or widely publicized anecdotes prompt Biden’s recent charges of “white rage”-fueled violence?

Yet simultaneously with Biden’s blanket and unsupported charges of racism, no president since Woodrow Wilson has offloaded more racialist verbiage than Joe Biden himself. In an eerie example of psychological projection, never has a president accused others of racism more, while freely revealing himself either to be a racist or non compos mentis, or both.

Stranger still, Biden’s latest accusation comes from a president who once eulogized the former racist, Exalted Cyclops, and segregationist Senator. Robert Byrd (D-W.Va.) as “one of my mentors” and lamented that “the Senate is a lesser place for his going.” That was no isolated fluke.

During his campaign for the presidency, Biden in 2019 praised segregationist Senator James O. Eastland for not labeling a younger Biden with the derogatory term “boy”: “I was in a caucus with James O. Eastland. He never called me ‘boy,’ he always called me ‘son.’” 

How odd, then, that Biden, as president no less, has used just that derogatory insult “boy” for distinguished blacks. Indeed, the very day before Biden leveled his “some people” slur, he was back at it with his racist “boy” reference to the black governor of Maryland: “You got a hell of a new governor in Wes Moore, I tell ya,” Biden told an audience of union workers on Wednesday. “He’s the real deal, and the boy looked like he could still play. He got some guns on him.” 

Such condescension was consistent with Biden’s past usage of “Negro” and his earlier August 2021 similar “boy” trope of referring to one of own top aides: “I’m here with my senior adviser and boy who knows Louisiana very, very well and New Orleans, Cedric Richmond.” 

In Biden world, blacks seem to be a collective to whom he can pander in stereotypical terms, as opposed to Latinos, whom Biden feels can think for themselves. Or so he said on the campaign trail in 2020, “Unlike the African American community, with notable exceptions, the Latino community is an incredibly diverse community with incredibly different attitudes about different things.”

These were “gaffes” only if one believes Biden’s frequent racialist smears and slurs are more the symptoms of senility than bias. Again, as a 2020 candidate, Biden gave us his absurd racist “Corn Pop” fables. In these concocted, He-Man sagas, Biden stood down purported ghetto gangster with his own custom-cut chain, while often showing his tanned legs’ golden hairs to curious inner-city black youth.

Biden also smeared two black journalists who had the temerity to ask him a few tough questions, one with the now infamous slang ad hominem, “You ain’t black” and the other with the personal dismissal “junkie.”

A consistent trope in these insults is his lifelong condescension of accomplished black Americans, such as his long-ago infamous talk-down to Supreme Court Justice Clarence Thomas during Biden’s travesty of conducting his 1991 Senate confirmation hearings. In that context we also remember Biden’s idiotic warning, replete with his accustomed affected black patois, to black professionals in 2012 that Mitt Romney would “put y’all back in chains.”

Like Bill Clinton, who reportedly uttered of supposed 2008 upstart Barack Obama, “A few years ago, this guy would have been getting us coffee,” Biden was especially bewildered by Barack Obama. He apparently seemed, in Biden’s racialist view, an aberration from Biden’s own usual stereotyped views of blacks of limited ability: “I mean, you got the first mainstream African American who is articulate and bright and clean and a nice-looking guy. I mean, that’s a storybook, man.” That assessment came from a candidate, who, even predementia, could never string together more than a few coherent sentences. 

Biden, remember, explained top-performing states in education as attributable to fewer minorities: “There’s less than 1 percent of the population in Iowa that is African American. There is probably less than 4 or 5 percent that are minorities. What is in Washington? So, look, it goes back to what you start off with, what you’re dealing with.”

In a world of law schools turning out record numbers of black lawyers, and billionaire entrepreneurs like Bob Johnson, Jay-Z, Kanye West, Oprah Winfrey, or Michael Jordan, Biden opines, “The data shows young black entrepreneurs are just as capable of succeeding given the chance as white entrepreneurs are. But they don’t have lawyers. They don’t have, they don’t have accountants, but they have great ideas.”   

The reason we do not associate Biden with characteristic racist stereotyping and tropes, other than with raw political demagoguery, is the same reason we give passes to liberals who say overtly racist things, which might otherwise suggest that their loud progressive rhetoric serves as some sort of psychological mechanism to square the circle of their own discomfort with the proverbial other.

Do we remember the late Justice Ruth Bader Ginsburg’s quickly hushed up and contextualized confession that abortion was targeting the proper people.

(“Frankly I had thought that at the time Roe was decided, there was concern about population growth and particularly growth in populations that we don’t want to have too many of.”)? 

Do we recall liberal icon and former Senate Majority Harry Reid, who eerily dovetailed Biden with similarly racist assessment of Obama (“a ‘light-skinned’ African American with no Negro dialect, unless he wanted to have one”)? 

Somehow Biden has transferred his own checkered history of racial disparagement onto the white working class. Fact checkers assure us that when Joe Biden libeled Trump supporters as “chumps” and “dregs” he really meant the Ku Klux Klan or white nationalists who gravitate to Trump. But most took his blanket smears as they were intended. And they fit the larger patterns of his more recent “semi-fascism” smears, and indeed, the genre of tired leftwing demagoguery that earlier gave us Obama’s “clingers,” Hillary Clinton’s “deplorables” and “irredeemables,” or the smelly who stink up Walmart in the Peter Strzok-Lisa Page joint text trove: “Just went to a Southern Virginia Walmart. I could SMELL the Trump support.”

In occasional opportunistic moments, Biden transforms into “ol’ Joe Biden from Scranton” to accentuate his middle-class roots. But he has a repugnant propensity for using racial terms of condescension and disparagement and for projecting his own unease onto a supposedly racist white middle class and poor even as he seeks to win support from the very minority communities he has so often crudely characterized. 

What is the concrete result of this now common Bidenesque schizophrenia?

Consider the toxic plume that has polluted the skies over East Palestine, Ohio, a working-class small town that is 98 percent white, with a median income of $26,000, and sits amid the Pennsylvania borderland. That very region once rejected in its 2008 primary Barack Obama—and in turn was blasted in stereotyped fashion by him: “And it’s not surprising then that they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.” 

Ol’ Joe Biden from Scranton resonates that same contempt for the convenient target of the white poor and lower middle class. Rather than send in FEMA on day one of the toxic release with tents, mobile kitchens, and supplies and medical personnel to care for the evacuated, the federal government waited two weeks and then acted only when even the liberal media was confused by Biden’s deliberate neglect. 

Amid the disaster, Transportation Secretary Pete Buttigieg, in his now tired boilerplate, was on record instead railing against supposed white hardhats who supposedly do not look like the communities in which they work. For a Biden or Buttigieg, the fish and animals dying from toxic air or water were insignificant artifacts, as were the complaints of burning lungs and allergic reactions to the black chemical cloud.

One wonders what would have been the immediate reaction of Biden and the federal government had a corporation decided to vent the contents of wrecked rail cars full of vinyl chloride and butyl acrylate and then to light up the escaping gas, birthing a toxic black plume over Martha’s Vineyard or Malibu, as opposed to East Palestine or, say,  South-Central L.A. or Ferguson, Missouri. 

Biden would have sent legions of aid workers in to ensure social justice for the marginalized and performance-art reassurance to his donor class.

Whether Biden spouts racial bombast to curry favor with his Democratic base or to project onto others his own habitual racist put downs is not quite clear. But Biden’s utter contempt for white poor and lower middle classes, who are were deemed not worthy of the prompt federal attention customarily accorded to others in times of disaster, is self-evident.

Otherwise, Biden would have sent help immediately rather than smear “some people” as 21st-century lynchers.

For much of the waning days of 2022, the broader theme in markets was a downbeat one, especially for one group of habitual gamblers investors: after a stellar 2021 when nothing made sense and the junkiest of companies exploded higher steamrolling shorts, for retail investors 2022 felt like the polar opposite: a relentless series of gut punches which knocked the air out of basement dwelling daytraders and crushed some of the most popular retail names.

And indeed, a quick search of headlines from mid/late 2022 confirmed that the retail spirit had been broken:

• Did Retail Investors Boost The Broader Market During The “Most Hated Rally” – Aug 2022
• Retail Traders Throw In The Towel – Sept 2022
• Are Retail Investors Done? Biggest Liquidation Since 2020 As Retail Is Now ‘Selling The Rally’ – Oct 2022

It all culminated with the near record year-end liquidation when in addition to momentum, tax loss selling prompted retail investors to dump single stocks at an unprecedented pace as described Retail Investors Slamming The Bid Amid Tax-Loss Selling Capitulation

However, this record selling flow would not last long, and indeed, just one month later, we wrote that with LO institutions and hedge funds extending their bearish positioning, it was retail investors that picked up the BTFD torch in January, adding that “if retail is once again a more powerful price setter than institutions and hedge funds (thank you zero market liquidity), and we are facing another Jan 2021-type meltup, then watch out above even if none of the abovementioned technicals go into play.”

In retrospect we were right, but not even we had any idea just how much we were right.

That’s because according to the latest report from retail orderflow specialist Vanda Research, January was a blowout, record month for retail buyers in the market.

As Vanda’s Mario Iachini writes, “in the last month, retail investors poured an average of $1.51bn/day into the US markets, the highest amount ever recorded.” And as we expected, this group of investors “has continued driving US equity market swings since the second half of last year.”

Echoing verbatim our own thoughts, Vanda writes that “with recent surveys showing the institutional investor community remaining broadly bearish on stocks, it would be unwise to underestimate the importance of the retail cohort” as so many bearish hedge funds learned the very hard way in early 2021. “That’s in keeping with retail sales and jobs data for January, suggesting that consumers retain impressive levels of buying power. While the jury is still out on whether that’s due to a robust job market or excess savings from pandemic stimulus, the bottom line is that investors should heed signals from the ‘unsophisticated money’ crowd.”

Having said that, seasonality suggests that flows could abate somewhat in the weeks ahead as earnings season falls in the rear-view mirror and investors start preparing for Tax Day in mid-April. However, if broad equity markets continue to perform well, we may instead see flows shifting towards smaller, more speculative companies (this is already occurring to an extent). And while the same could take place in the options market, especially with the dominance of 0DTE option activity, Vanda does not anticipate a repeat of the 2020-21 bubble, given that we are still in the late stages of the economic cycle.

Finally, contrary to popular belief, retail money market funds’ net assets at an all-time high suggest that retail investors still have plenty of capital to allocate to riskier investments, provided that market conditions remain supportive.

Vanda discusses this and other related topics in more detail below.

Total net purchases of US securities exceeded expectations by a significant margin on Wednesday. If we only consider periods when the S&P 500 closed in positive territory, Wednesday’s aggregate purchases surpassed the previous record set on February 8th. Normally, Vanda would expect this this level of inflows on a day when the S&P 500 experiences a daily decline between -1% and -4%. Instead, “this type of behavior suggests retail traders are FOMO-ing more than any sentiment recent survey would show.”

The flipside to the recent retail euphoria is that Vanda expects retail flows into cash equities to decrease in the weeks ahead, as seasonality suggests that March-April are typically middle-of-the-road months during the calendar year.

Furthermore, when looking at a rolling one-month period, inflows have never been higher since the dataset began in 2014 (second chart below). Sustaining such a robust daily pace will prove challenging but it won’t mean the end of the current bull market if institutional investors pick up the slack.

At the same time, and contrary to popular belief (especially among bears), the above doesn’t mean that retail investors are running out of capital to allocate to risky investments. Indeed, from a stock level perspective, the chart below suggests that retail investors have plenty of dry powder in the form of capital parked in money market funds that could be deployed in the equity space once confidence about future market returns increases more broadly.

Adding insult to injury for the institutional bears – of which there is plenty – there is potential for bullish positions to be added in the options market. However, it is uncertain to what extent retail investors are willing to participate in the rally with leverage, given they’re still sitting on significant losses (-25% on average). In any case, nobody expects that the level of speculation observed during the 2020-2021 period will be replicated as we’re still in the later stages of the market cycle. Those dynamics are more likely to take hold during the early recovery phases after a recession has occurred.

The soaring retail investor flows underpin the outperformance of their favorite stocks. A basket of the top 10 most-purchased retail stocks over recent months is experiencing a strong rebound relative to the SPX in 2023. Retail flows have accounted for a +US$18.5bn capital injection YTD in these names (listed below the chart). Should positive momentum in the broad equity market persist, it could push retail investors toward more speculative names, which are more susceptible to such flows given their smaller market cap.

Many smaller-cap single stocks are also beginning to populate the top part of the retail leaderboard so far in 2023. Indeed, the first table below shows that beyond the top 10 most-bought securities, there’s a host of smaller-cap names that have attracted significant inflows this year (~US$2.23bn in total). Moreover, the weighted average performance of this group of stocks is roughly +50%, which is widely outpacing the S&P500 total return of 8.2%.

The other outcome of this dynamic is a pick-up in retail purchases in the ARKK ETF and some of its underlying holdings. It was common back in 2020-21 for retail investors to buy ARK ETFs while at the same time piling in some of their more hyped underlyings. While we don’t expect retail speculation to reach those levels for the reasons discussed above, it is noteworthy that retail investors are vastly outpacing Cathie Wood and Co. regarding purchases across some of these names.

Vanda concludes its weekly retail tracking by pointing out that crypto TradFi proxies are among some of the best performers week-to-date.

Silvergate Capital (SI) shares were up 28.6% at the end of trading Wednesday after Citadel Securities announced that it had taken a stake in the company. Indeed, 13F filings show Citadel Securities bought 5.5% in the digital currency banking company. The shares are up 69% over the past month but remain 91% below their all-time high. With the latest data showing 67% of SI’s shares held short it is likely that retail purchases have helped fuel a short-squeeze over the last three trading days. Given the size of the short book, we wouldn’t be surprised to see retail traders attempt to push the stock further in the coming days, although flows over the past three months show that interest in this name tends to be sporadic and short-lived. In contrast, Coinbase (COIN) seems to enjoy stronger retail tailwinds as bullish activity in the options space is surging as well (second chart).

Finally, here is the aggregate retail flow tracker”

Authored by Tom Jefferson and Carl Heneghan via The Brownstone Institute,

The Lord of the Rings trilogy is spectacular, with Orcs, Elves and breathtaking scenery filmed on location in New Zealand. The special effects were good too – the eye of Sauron looked very realistic – perhaps it is.

We have come across a minimally redacted 28-page draft of a Kiwi Government document entitled “Communications approach to managing disinformation, online harms and scams” dated 10 Dec 2021 (Available here). 

The document’s aim appears to be coordinating countering disinformation seeking to harm “by threatening public safety, fracturing community cohesion and reduced trust in democracy.”

All well and good then; it’s a bit like saying, do not open fire on the Red Cross. 

Except that the object is “disinformation” relating to the Kiwi government’s response to the Covid pandemic.

The definition of disinformation in the document is on page 5:

We will not summarise the complex and superficial content of the document other than to note that this is precisely the attempt at normalising the message of the pandemic that we have reported. The government has put out a message, and its credibility must be defended at all costs, with tech media partners, academics, the community and, of course, the armies of Sauron.

One consideration is that the Covid narrative in Middle Earth (as elsewhere) is based on the misuse and misinterpretation of polymerase chain reaction (PCR) and the death of clinical medicine, as we have made clear. 

Cases may not have been active cases, hospitalisations may not be due to SARS-CoV-2, and deaths may be due to various causes related or unrelated to SARS-CoV-2. We will never know for sure. Why? Because the PCR cycle threshold for testing PCR “positive” in Middle Earth was 40 to 45, ensuring that most tested people would test positive even in the total absence of contamination (a very tall order). 

So presenting figures of cases, hospitalisations and deaths based on qualitative PCR results inflates the totals and undermines the confidence in the competence and honesty of public health bodies: it is disinformation.

We make the document available now (see here), and all our readers will find different parts interesting or as scary as the orcs.

So if you think you live in a democracy, one last word of warning: do not go too near the Black Gate. You may think it is fiction, but it’s not.

*  *  *

Republished from the author’s Substack

By Peter Tchir of Academy Securities

There has been more discussion about World War III in the past year than at any time in recent memory. Yet, we can’t help but wonder if World War III isn’t a misnomer and World War v3.1 is more accurate – because chips and semiconductors are likely going to play a huge role in initiating and winning any such global conflict.

The tech space, generically, likes using “versions” and decimalized numbers rather than Roman numerals, so let’s run with that.

This is more of a “thought” piece than something that is actionable today. However, we think that it is important to be laying out the background of how we are thinking about this important subject. It is something that comes up in more conversations and dominated the discussions we had when we were in Silicon Valley back in January. It will shape decisions and influence who wins and loses at the national and corporate levels.

The Intel CEO at Davos said that: “Chip supply chains will shape geopolitics more than oil over the next 50 years”.

Fifty years seems almost too long of a timeframe. It is already shaping geopolitics and getting it right in the next 5 to 10 years (not 50 years) will be crucial.

Academy’s Geopolitical Intelligence Group addressed “Rare Earths – A National Security Threat” back in February 2021. During meetings, our position has been that securing (and processing) rare earths and critical minerals will dominate our commodity efforts in the coming years. Ten years ago, all you needed was a map of energy production and you could pinpoint U.S. interests. In five years, all you will need will be a map of major cobalt, lithium, etc. deposits to determine where the U.S. will be most active. The sad reality is that China figured this out years ago and we are just now seeing the urgency of the issue.

I have said (half-jokingly, but mostly serious) that the West has a vision for sustainability but no workable plan to get there, while China has no vision but a great plan to secure the resources that they think the West will need.

While we haven’t focused as much on chips in the past, it is a natural extension of our though process and these rare earths and critical minerals (and their processing) are an integral part of the semiconductor supply chain.

While I’ve doubted the effectiveness of sanctions, the one area where even I think they have worked is in the higher-end of semiconductors. This is one reason why we need to write this World War v3.1 report now.

Another thing that prompted us to finally get this “initial” piece out there was the reports about IP theft at ASML. Finally, we’ve had several highly respected people recommend the Chip War book.

Today, we will lay out how we’ve been thinking about this at Academy and why we do think that “getting it right” will be crucial for countries and companies.

Prior “Thought” Pieces

Before diving into today’s subject, we have written several thought pieces that have stood the test of time. We’ve included a link to the “rare earths” piece above, but this is just one example.

On China, our views have evolved, but we’ve historically been more negative than most on the future of the relationship with the U.S., and so far, that has turned out to be accurate.

• A DIME Framework for Strategic Competition. In 2019, few were talking about the importance of naming China a “Strategic Competitor” in national security strategies.
• The Recentralization of China. In 2021, we saw China clamping down on their citizens and turning more inwards, while Xi consolidated power.
• The Beijing Olympics as Cultural Bookends. This piece was completed just days before Russia invaded Ukraine. The report almost “begs” people to understand that China’s needs (with respect to the West) have changed and are unlikely to revert back to anything that we have seen in the past 10 to 20 years.

Russia has always been “top of mind” for our Geopolitical Intelligence Group, even when it wasn’t on the radar for most.

• From Watch Russia (April 2021), to Russia on the Warpath (Jan 2022), to Scenario Update (10 days before the attack), the insights of our Geopolitical Intelligence Group have been invaluable in anticipating this conflict and helping investors and companies deal with it as effectively as possible.
• Russia’s Nuclear Threat was published around Academy’s 2nd Annual Geopolitical Summit in Annapolis (we have our 2nd San Diego Summit in less than 2 weeks). It still reflects the scenarios that we see, though it is interesting that we’ve discussed the risk of China selling military equipment to Russia and that was high on the list of things that Secretary of State Blinken discussed with Chinese officials this weekend.

Setting the Table

General (ret.) Walsh pointed out a few key things to think about as we address the stress around chips from a geopolitical framework:

• The Commerce Department is setting export controls on AI and semiconductors in an attempt to stop China from acquiring the highest-end semiconductors that could be used in advanced military systems during a future military conflict with the U.S.
• The U.S. operational concept for future warfare is the Joint All-Domain Command & Control Strategy. China is attempting to outpace the U.S. military in the ongoing tech war by announcing their own operational concept called Multi-Domain Precision Warfare. The country which wins this tech war will possess the most advanced military capabilities (which will rely on high-end semiconductors).
• China set 2030 as its target date to become the global leader in AI. China also expects to be on par with the U.S. militarily by 2035. High-end semiconductors are key to meeting this objective.
• High-end chips are needed for AI, supercomputing, and weaponizing the technology required to achieve geopolitical power.

I spend a lot of time with military experts in my role here at Academy and found the intensity of the “military focus” on this topic surprising. It is good that the high tech sanctions do seem to be more effective than other sanctions that we’ve imposed (Russia and Iran). This is a top priority for national security at every level! The military has embarked on multiple projects to ensure that chips of Chinese origin are not in any sensitive U.S. military equipment. Without a doubt the military and national security focused agencies have been focused on this and that focus is only going to grow (both at the national level and ultimately at the corporate level).

The Semiconductor Industry Viewed Through a Geopolitical Lens

I am sure that people in the industry will cringe at some of the simplifications here, but I strongly believe the “simplifications” will help us understand this issue and lead to fewer errors in our thought process at this stage.

Before getting into that, I want to highlight what Admiral (ret.) Barrett had to say. She has an interesting viewpoint as she was responsible for the Navy’s cyber-attack capabilities.

• Although the outsourcing of chip manufacturing (particularly to Asia where 75% of the world’s semiconductor chips are currently manufactured) was a known problem for years, these problems really hit home during the COVID pandemic and the subsequent disruption in critical supply chains that resulted in a massive shortage of chips. Investment in organic chip manufacturing in the United States by U.S. companies has been a recognized problem for years, but only recently have government attention and corporate investment taken hold. For example, Micron Technology is investing $100 billion to build four separate semi-conductor fabrication plants outside of Syracuse, New York. The first phase alone would provide 3,000 jobs and $20 billion of investment over the next five years (with the other phases to follow). This represents the largest single private investment in New York State’s history. The project will also create 40,000 construction and supply chain jobs, a significant boon to the state and national economy.
• Control over the production of semiconductors/chips is critical to ensuring the viability of our supply chain and mitigating possible cyber-espionage and malicious activity. With the advent of the Internet of Things and digital modernization in every industry from manufacturing to agriculture, this type of control over chips for improved cyber-security is a national strategic imperative. President Biden’s CHIPS and Science Act of 2022 invests in our national capacity to build chips in the United States and directs policy and funding support to R&D, workforce skills development, and science/technology. The U.S. government investment associated with the Act is significant and provides $52.7 billion in funding including $13.2 billion for research and development and $39 billion for production incentives and workforce development. It also provides significant tax incentives for private industry investment in semiconductor/chip technology. This investment by both the government and private industry will result in competitive global business advantages, provide improved cyber-security for commercial and military industries, and will create jobs (particularly at plants that are built in economically depressed areas).

Types of Chips

• Cutting Edge. These are the smallest, fastest, and most “state of the art” chips. The manufacturing of these chips is still dominated by Taiwan. While the U.S. and other countries might be catching up, Taiwan is still the clear leader and is well-positioned to continue that leadership. Even as Taiwanese companies build more foundries outside of Taiwan, they will not produce cutting edge products anywhere other than onshore (it is their “ace in the hole” from a geopolitical standpoint).
• High Tech. Let’s classify these chips as anywhere from one to three generations behind the “state of the art process”. Taiwan is extremely strong here, but not alone. This is an area that the U.S. (and presumably Germany and Western Europe) can compete in. China is creeping up the scale here and is prioritizing this. Russia and Iran, two important adversaries in the space, cannot really compete at this level. This is the main battle ground and an area of growing competition.
• Mid-to-Low Tech. These are the chips that are being phased out, but are useful as the products they were designed for continue to be built and the manufacturers don’t want to update the specs significantly. This is the “cash cow” of the industry and it is global in nature.
• Commodity or Generic chips. This is not an area that lends itself to higher cost producers. It doesn’t help that much of the business was ceded to other regions and countries. At one level they are very generic, but at another level, why give up so much of the production?

While these classifications are overly simplistic, it will let us explore the geopolitical framework.

Chip Design AND Chip Manufacturing.

• Designing chips is only part of the industry. It is difficult to design chips in any case, but it is extremely difficult to design chips that can be manufactured as well.
• Building the foundries is crucial. The level of precision required to make the highest-end chips is unheard of in any other manufacturing setting.
• It is the marriage of chip design and manufacturing technology that is the key. That is one reason why we highlighted the ASML story so early in today’s report. While it is easy to imagine people capturing schematics of chips, it is also easy to imagine them being unable to build those chips. Not that any chip company would give away their designs, but even if they did, a competitor (nation or otherwise) might have difficulty replicating it due to the difficulty in manufacturing (especially for a “cutting edge” or even “high tech” chip).
• Maybe this “marriage” was obvious (and I’ve wasted your time), but it seems somewhat unique to the space and is crucial from a geopolitical standpoint.

Just by using these simple building blocks we can discuss a few scenarios that come up frequently in meetings.

D.C. Pushes Too Hard

The scenario that gets discussed the most is that D.C. pushes too hard. One thing that has stood the test of time is that the elected representatives serving in a national security capacity tend to put country first and politics second. That is a good thing as it ensures the safety of the country as much as possible.

One concern is that D.C. gets involved in technology that isn’t as critical. The entire industry seems to be behind on the “cutting edge” restrictions and even the “high tech” restrictions. There is a concern that the government could start interfering with segments of the industry where their action could do more harm than good (though that is potentially in the eye of the beholder).

At its simplest, U.S. companies sell a lot of “mid-tech” chips to China. That “cash cow” is an important part of what funds research and development for new chips and also funds the building of foundries on-shore. If these sales get attacked by D.C. (a possibility as the popularity of banning tech with China seems high), then the chip industry might be hurt and it would hamper its ability to wrestle more control of higher tech (and ultimately cutting-edge tech) away from Taiwan. This would potentially make it easier for China to catch up in this area.
The second problem is that many of those chips could wind up back in the U.S. as they are components in products that China manufactures for sale here.

From a commerce standpoint, there is a balancing act that needs to be executed by D.C. So far, so good, but it is something that needs to be watched closely. While we stated earlier in the piece that this isn’t necessarily an “actionable” T-Report, if we get an inkling that D.C. is going to go too far, this report will be highly actionable as this would hurt the chip industry and be inflationary (not a good combination for markets or the economy).

The other way our “success” could play out negatively is understanding what happens to China’s view of Taiwan.

China is doing what it can to build out their own chip industry. In terms of tech, they are behind us (but have closed a portion of the gap) and both countries (the U.S. and China) are behind Taiwan.

Could China Decide:

• That hastening their progress in chip manufacturing is in their best interest and try to capture Taiwan’s foundries and bring them “in-house” by force?
  • This is unlikely because in any attack on Taiwan, there is some risk (no matter how much China tries to avoid this) that the factories would be damaged to the point that they are inoperable and even the equipment that can be salvaged isn’t enough for China to leapfrog us in development.
• To ensure that if they can’t get cutting edge chips, that we can’t either?
  • If you can’t get cutting edge chips but your competition can, maybe it is just easier to stop their ability to get them. Highly unlikely at this stage, but worth thinking about.

Other Thoughts

While China remains a trading partner, albeit one where our relationship grows more complex by the day, Russia and Iran are not.

The Iranian drones that have been sold to Russia have very old technology. The sanctions on Iran have worked to limit their tech (and presumably what they get is going into their nuclear program which is their highest priority).

The fact that Russia needs these drones is a testament to how much the chip sanctions have hurt them.
Using the phrase “two sworn enemies” of the U.S. might seem a bit harsh, but it doesn’t seem too far off in terms of describing our relationship with Russia and Iran. So, here we are with “two sworn enemies” that are seeing their fighting capacity reduced due to access to chips. What do they do about that? Maybe they will take the proverbial “knee” and acquiesce to us, but that doesn’t seem to be in their nature. We could easily weave North Korea into this mix as well.

We are winning right now against Russia, Iran, and North Korea but I do get the feeling that we are cornering a wounded animal, which by all accounts is risky.

China has the time, money, and the political apparatus to catch up.

As General Walsh pointed out, they have specific goals in place and presumably have the plans in place to achieve these goals as well.

As Admiral Barrett pointed out, we have government support for industries too, but the relationships here tend not to be as linear as they are in China.

Bottom Line

We need to balance getting foundries built with government support and effectively cut off what technology “export” we can without going overboard.

China will try to develop their own industry, which we need to watch closely. It is also another element in their decision-making process regarding Taiwan.

The lack of “linearity” in the U.S. (i.e., open competition) has served us well. China’s single-minded approach gives them the benefit of scale that we don’t have, but risks major setbacks if they go down a wrong path.

We are a long way (hopefully) from World War v3.1 but the concept of a “commodity” war or battle for commodities is becoming a global competition for chips and technology and the stakes are extremely high!

This is a subject that will be taking up more of your time in the coming months and years and hopefully Academy will be an effective guide.

Authored by Kevin Stocklin via The Epoch Times (emphasis ours),

The Biden administration is preparing to sign up the United States to a “legally binding” accord with the World Health Organization (WHO) that would give this Geneva-based UN subsidiary the authority to dictate America’s policies during a pandemic.

Despite widespread criticism of the WHO’s response to the COVID pandemic, U.S. Health and Human Services (HHS) Secretary Xavier Becerra joined with WHO Director-General Tedros Adhanom Ghebreyesus in September 2022 to announce “the U.S.-WHO Strategic Dialogue.” Together, they developed a “platform to maximize the longstanding U.S. government-WHO partnership, and to protect and promote the health of all people around the globe, including the American people.”

These discussions and others spawned the “zero draft” (pdf) of a pandemic treaty, published on Feb. 1, which now seeks ratification by all 194 WHO member states. A meeting of the WHO’s Intergovernmental Negotiating Body (INB) is scheduled for Feb. 27 to work out the final terms, which all members will then sign.

Written under the banner of “the world together equitably,” the zero draft grants the WHO the power to declare and manage a global pandemic emergency. Once a health emergency is declared, all signatories, including the United States, would submit to the authority of the WHO regarding treatments, government regulations such as lockdowns and vaccine mandates, global supply chains, and monitoring and surveillance of populations.

Centralized Pandemic Response

“They want to see a centralized, vaccine-and-medication-based response, and a very restrictive response in terms of controlling populations,” David Bell, a public health physician and former WHO staffer specializing in epidemic policy, told The Epoch Times. “They get to decide what is a health emergency, and they are putting in place a surveillance mechanism that will ensure that there are potential emergencies to declare.”

The WHO pandemic treaty is part of a two-track effort, coinciding with an initiative by the World Health Assembly (WHA) to create new global pandemic regulations that would also supersede the laws of member states. The WHA is the rule-making body of the WHO, comprised of representatives from the member states.

“Both [initiatives] are fatally dangerous,” Francis Boyle, professor of international law at Illinois University, told The Epoch Times. “Either one or both would set up a worldwide medical police state under the control of the WHO, and in particular WHO Director-General Tedros. If either one or both of these go through, Tedros or his successor will be able to issue orders that will go all the way down the pipe to your primary care physicians.”

Physician Meryl Nass told The Epoch Times: “If these rules go through as currently drafted, I, as a doctor, will be told what I am allowed to give a patient and what I am prohibited from giving a patient whenever the WHO declares a public health emergency. So they can tell you you’re getting remdesivir, but you can’t have hydroxychloroquine or ivermectin. What they’re also saying is they believe in equity, which means everybody in the world gets vaccinated, whether or not you need it, whether or not you’re already immune.”

Regarding medical treatments, the accord would require member nations to “monitor and regulate against substandard and falsified pandemic-related products.” Based on previous WHO and Biden administration policy, this would likely include forcing populations to take newly-developed vaccines while preventing doctors from prescribing non-vaccine treatments or medicines.

Circumventing America’s Constitution

A key question surrounding the accord is whether the Biden administration can bind America to treaties and agreements without the consent of the U.S. Senate, which is required under the Constitution. The zero draft concedes that, per international law, treaties between countries must be ratified by national legislatures, thus respecting the right of their citizens to consent. However, the draft also includes a clause that the accord will go into effect on a “provisional” basis, as soon as it is signed by delegates to the WHO, and therefore it will be legally binding on members without being ratified by legislatures.

“Whoever drafted this clause knew as much about U.S. constitutional law and international law as I did, and deliberately drafted it to circumvent the power of the Senate to give its advice and consent to treaties, to provisionally bring it into force immediately upon signature,” Boyle said. In addition, “the Biden administration will take the position that this is an international executive agreement that the president can conclude of his own accord without approval by Congress, and is binding on the United States of America, including all state and local democratically elected officials, governors, attorney generals and health officials.”

There are several U.S. Supreme Court decisions that may support the Biden administration in this. They include State of Missouri v. Holland, in which the Supreme Court ruled that treaties supersede state laws. Other decisions, such as United States v. Belmont, ruled that executive agreements without Senate consent can be legally binding, with the force of treaties.

There are parallels between the WHO pandemic accord and a recent OECD global tax agreement, which the Biden administration signed on to but which Republicans say has “no path forward” to legislative approval. In the OECD agreement, there are punitive terms built in that allow foreign countries to punish American companies if the deal is not ratified by the United States.

As with the OECD tax agreement, administration officials are attempting to appeal to international organizations to impose policies that have been rejected by America’s voters. Under the U.S. Constitution, health care does not fall under the authority of the federal government; it is the domain of the states. The Biden administration found this to be an unwelcome impediment to its attempts to impose vaccine and mask mandates on Americans, when courts ruled that federal agencies did not have the authority to do so.

“To circumvent that, they went to the WHO, for either the regulations or the treaty, to get around domestic opposition,” Boyle said.

According to the zero draft, signatories would agree to “strengthen the capacity and performance of national regulatory authorities and increase the harmonization of regulatory requirements at the international and regional level.” They will also implement a “whole-of-government and whole-of-society approach at the national level” that will include national governments, local governments, and private companies.

The zero draft stated that this new accord is necessary because of “the catastrophic failure of the international community in showing solidarity and equity in response to the coronavirus disease (COVID-19) pandemic.”

A report from the WHO’s Independent Panel for Pandemic Preparedness and Response (pdf) characterized the WHO’s performance as a “toxic cocktail” of bad decisions. Co-chair Ellen Johnson Sirleaf told the BBC it was due to “a myriad of failures, gaps and delays.” The solutions proposed by that report, however, did not suggest more local autonomy or diversified decision-making, but rather greater centralization, more power, and more money for the WHO.

Read more here…

North Korean state television has aired footage of their recent test of a new long range ICBM system capable of carrying a nuclear payload.  The missile covered 614 miles and reached an altitude of 3,584 miles, landing accurately in a designated area on the West Coast of Japan. 

Tensions have been rising in the region as the US commence joint military drills with South Korea.  North Korean leader Kim Jong Un warned Friday of “unprecedented strong responses” to those drills if they go ahead, while his sister, Kim Yo Jong, warned that “the frequency of using the Pacific Ocean as our shooting range depends on the nature of the US military’s actions,” according to a statement posted on the state-run Korean Central News Agency.

Monday’s missile tests were the second in three days with three such tests in less than a year.  

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Locals who live near the train derailment and release of toxic chemicals near East Palestine, Ohio, have complained about various health problems since the incident unfolded earlier this month, including rashes, headaches, and other issues. And they’ve expressed concerns that these new symptoms may be tied to the chemicals that were burned or released.

The Feb. 3 derailment triggered officials to initiate a controlled release and burn of various chemicals as they cited concerns that those materials would explode and send out deadly shrapnel. Chemicals carried on the Norfolk Southern-operated train include toxic vinyl chloride gas, which was vented and burned, releasing a large cloud of black smoke that hung over the area for days.

A plume of chemicals from the train derailment was also detected heading down the Ohio River, although some Ohio environmental officials assert that they may largely be fire retardant substances used to put out the fire. Other chemicals carried on the train include butyl acrylate, ethylene glycol monobutyl ether acetate, and 2-ethylhexyl acrylate, the U.S. Environmental Protection Agency said (pdf).

Residents of East Palestine were told they could return to their homes on Feb. 8. Since then, there have been reports from locals of adverse health events they’ve suffered amid separate reports of animals, including fish and chickens, dying off.

“When we went back on the 10th, that’s when we decided that we couldn’t raise our kids here,” local Amanda Greathouse told CNN, adding that in the area, there was a smell that “reminded me of hair perming solution.”

About 30 minutes after returning home earlier this month, she developed nausea and a rash, Greathouse told the network. Her house is located about a block from the train derailment site.

“When we left, I had a rash on my skin on my arm, and my eyes were burning for a few days after that,” added Greathouse, who said she has two preschool-age children.

“The chemical smell was so strong that it made me nauseous,” Greathouse said. “I just wanted to quickly pick up what I needed and leave. I only took a few pieces of clothes because even the clothes smelled like chemicals, and I’m afraid to put them on my kids.”

Read more here…

By Russell Clark of the Capital Flows and Asset Markets substack

A large number of economic thinkers that I respect are calling for peak inflation, and that interest rates increases have topped out. With oil prices down from USD 120 a barrel to USD 77 today, this would be a strong indication of reduced inflation pressure. For “peak inflationistas” the cherry on the top would be this week’s cover of the Economist, warning that inflation will be harder to contain than people think. The Economist has a long and illustrious career as a “contra” (a contra is somewhere who gets market calls consistently wrong). Peak inflationistas even have the benefit of financial markets agreeing with them, with US 2/10 year yield curve as inverted as it gets. Inversion really is the markets way of saying that they don’t believe central banks will raise interest rates any further.

Is the Economist wrong again? Just looking at US CPI YoY, it already peaked out and started falling, and with the bond market in inversion, it does like the Economist leader writers have proven why they are writers and not hedge fund managers.

But, these days I place politics as more important than economics in doing financial analysis. From this perspective, I do not see central banks, and particularly the Fed going dovish until they get food inflation under control. Rising food prices are political dynamite. So lets us look at the most recent US CPI data from a food inflation perspective. On a year over year basis it is still rising at 10%, and even though it is slowing a little, it still doing 10% on high comps from a year ago.

What I really like about food inflation is that it is universal and easily understandable. A Birkin bag or a Panerai costing 30% more is not inflation that matters to most people. But the price of bread and meat? That matters to everyone. What is really great about the US CPI data is that it breaks down white bread and meat CPI back to pre World War II. White bread CPI is still rising at nearly 20% year on year, while meat CPI is back to 2% year on year.

For CPI calculations, food CPI is given a total weight of 13.5%, with bread having a weight of 0.2% and meat having 1% weight. This means that soaring bread prices should not really be that important to Federal Reserve and other western central banks. But soaring bread prices are very important to politicians – certainly more than the CPI weightings given above. For me the question comes down to whether the meat index is right, or the bread index is right. Or in other words, will bread prices fall back, or will meat prices spike? One of the best things about free market capitalism, is that incentives are transparent. For US pork farmers are currently disincentivised to farm pigs. The price of hogs relative to corn are at close to 40 year lows, meaning that hog prices are not covering the cost of feed (which is mainly corn).

With hog farmers disincentivized to farm hogs, then one of two things must happen – corn prices must fall, or hog prices will rise. When we look at the corn market, we see that China has become a major buyer of US corn.

This is despite the Chinese placing tariffs on corn imports that have meant that Chinese corn prices are much higher than US prices.

In other words, geo-politics has driven China to have high food prices, which it now exporting back to the rest of the world. Just as we have seen with Covid, it is possible for the Chinese to change policies, but self sufficiency in food production seems to be a key policy for China. With Chinese activity picking up, my guess is that corn prices globally will remain high, which means feed prices will stay high, and meat inflation will catch up to bread inflation. In my view food inflation is still ongoing, and hence central banks will keep raising rates.

Authored by Steve Watson via Summit News,

In the wake of CNN’s last remaining woke host being sidelined for making a ‘sexist’ and ‘ageist’ remark about Nikki Haley, a video of Don Lemon from 2013 in which he surprisingly speaks sense has gone viral.

The video shows Lemon talking about what the black community should do to fix its problems, including stop littering, and encouraging kids to try harder in school.

The host also extols the virtues of marriage, and warns about the problem of absent fathers, asserting “just because you can have a baby doesn’t mean you should.”

Lemon even tells young black men to stop using the N word and to pull up their pants and stop walking around with their asses hanging out looking like prison bitches.

Imagine the meltdown that would occur if Lemon spoke like this today, just 10 years later:

2023 Don Lemon would call 2013 Don Lemon a white supremacist https://t.co/fFhbgSGw1M

— The Woke Antidote Podcast (@TheWokeAntidote) February 19, 2023

.@donlemon in 2013 talking about how black people can make their communities better before he got infected by the Woke virus pic.twitter.com/T3ahnHh1c4

— Hodgetwins (@hodgetwins) February 19, 2023

Some pointed out how frightening it is that things changed so monumentally because of the woke mid virus:

It’s terrifying how fast society fell off the cliff

10 years ago Obama, Hillary, and Biden were defining marriage as “a man and a woman”

10 years ago Don Lemon was telling black people “pull your pants up”

10 years ago Dems only supported “safe, legal, and rare” abortions

— End Wokeness (@EndWokeness) February 19, 2023

What happened to that guy?

Video: CNN’s Lemon Blames Anti-Mask Conservatives For Rise in TRAFFIC ACCIDENT DEATHS

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