This is a “mattresses day”. And that’s what yesterday turned into. In yesterday’s pre-market I’d read the action as moving towards safety (although some odd action in bonds), but by the end of yesterday, not only were bonds down, but so was gold. This is a continuation of the “stuff the money in the mattress” approach. Money is flowing into the US but it doesn’t seem to be going anywhere. We have the market tanking while bond prices are falling. (Or interest rates rising since bond prices and rates are inverses of each other). Nothing is working except individual names, as traders view long term growth as being in jeopardy.
Overseas the action is even worse because gas prices as well as crude prices were moving higher. Although natural gas is down from it’s December high, it popped up about about 2.70 to 3.10 in a couple of days.
Brent Crude Price per BarrelNatural Gas
The series of events goes something like this. If the closure of the Straight of Hormuz persists, or Saudi facilities are hit, or Iranian facilities are hit, that causes fuel prices to increase. Along with Ukraine hitting Russian supplies to choke the Russian war machine. That will drive inflation, causing the Federal Reserve to raise rates (more on that in just a second), which will slow the economy. But, at the same time that’s happening, you have a slow down in the general economy. What Jamie Dimon calls the “meh” economy goes to a blah economy. And thus, you get oil-shock, 1970s, age of disco cost-push inflation at the same time you have a weak job market… STAGFLATION.
What makes me worried about the health of the credit markets (which can cause a recession just fine, all on their own), is the participation of the Fed in the Repo market. The Fed is looking for new tools beyond the Fed Funds rate and maybe adjusting liquidity may be in that toolkit. Or maybe they’re worried about the cockroach problem. Dunno. Nominally, it’s to help maintain the target Fed Funds rate.
What we may see on Friday is a “weak” payrolls number. But what also has to be kept in mind is that the US population isn’t growing. It’s flattening off and may actually shrink in 2026, as we terrorize brown people working here without papers. Or even with papers. Or even who are citizens (killing them with impunity). And it’s aging. If we have no new immigration and Gen Z ain’t gettin’ bizzy, then we will become older as the millenials push into their 40s. However, the market may react negatively to a flat, or slightly negative, jobs number, even though that keeps us at full employment.
At the end of the day, no one has a crystal ball. Trump may walk in to the situation closet at Mar-A-Lago on Friday and say “enough is enough” and bring this to a halt. He is tired of all these briefings and Pete Kegsbreath doing pushups during meetings. Or he could go for a month. (Either way he’s not going to get his fat ass over to Dover for the dignified transfer). No one knows. But the longer it goes, and the more oil prices rise, the more damage it does to the economy. The more it pushes on inflation. And more traders and investors will take new information with a negative lens, focusing more on how it adds to the problem. The result is a down market and a down economy.
I wouldn’t say every day this goes on, but every week it goes on helps push the US toward recession. And it will likely drive Europe in that direction even faster. As this impacts not just “price at the pump,” but everything from how much people are willing to take a vacation to the cost of getting a box of Wheaties to your table. On top of that, the administration is making it hard for everyone but Israel to be a US ally. Countries we need to be with us to deal with everything from economic growth to terrorism. And unlike Russia and China, who basically told Iran ‘that sucks,’ our allies have shown up for us. Whereas Netanyahu feels like he can lead us around by the nose when ever he needs a strong back and weak mind.
The first thing is that through the pre-session, the market response was predictable. Risk-off, oil up, dollar up, gold up, and shot term bond prices up (although long term came down). The Euro isn’t there yet as a safe-haven, so it dropped. But right now we’re dealing with the early and largely automated response from the market. There hasn’t been time to parse out any nuance.
If this war in Iran is over in a couple of days, I expect things to return back to normal, although maybe no immediately. A quick exit before anything other than a new batch of religious psychopaths take power, will make US policy seem even more chaotic and poorly planned. The realization will set in that the US does what the president decides to do, even illegally, and no one is effective enough to oppose him. Jefferies and Schumer are weak beer. The exit will be seen as driven by factors such as polling or stock market declines. How much money does the rest of the world want to lend a vindictive tyrant who rips up deals he negotiates and runs around the world starting fights?
Medium term, this lasts weeks, an exit without an outcome may be more plausible. If nothing is really changing, other than occasional US or Israeli casualties, and the aftermath of bombs accidentally dropped on schools and hospitals make the news, just leaving may be a reasoned option. And I don’t think they will target civilians, but it does happen that bad things happen in war. Which is why you’re supposed to avoid it. But they could claim “we’ve degraded Iran” and leave. What’s left might be a refugee crisis for Europe and a failed state that will harbor god knows what.
Long term, we enter World War III territory. If two carriers are bogged down around Iran, China may see its opening to send helicopters full of troops across the Taiwan straight. I don’t think it will be boats. It will be some form of air assault. With boats to follow with reinforcements and supplies. But it would be their opening as the US has its attentions focused elsewhere. There is another byproduct of a long engagement that favors China. There’s a lot of evidence the US isn’t replacing its stocks of munitions anywhere nearly as quickly as it depletes them. A drawn out engagement in Iran might leave the US low on a number of systems.
But even when this ends, we have the prospect the military will be used in more conflicts, combined with expected increases in military spending, and the mounting debt from a tax cut that will drive debt to surreal levels. I would say peace-time debt, but it’s not a peace-time increase in the debt. But it’s not really a war. It’s just lighting money on fire. Which leaves inflation and devaluing the dollar as the way out of the debt overhang. Which works exactly once. After that rates go up to compensate lenders for the added risks.
Every day I wonder how did 79 million people think this was the person who should be in charge?
Middling week for news. My gut is PMI will come out okay and payrolls will “disappoint”, but keep in mind the US population isn’t growing. If you have net population growth of zero, all you have are fewer new entrants relative for retirements. A slight job loss can keep you at full employment.
Let’s walk through a scenario that I don’t think is likely, but is plausible. I can’t say it’s a completely original thought, and folks like Denver Riggleman, Rick Wilson, and others have it on their radar. First let’s start with the Draft EO, making rounds. Say he signs it shortly before the elections. So close, in fact, that people are forced to file emergency stays because there is no time to hold a proper hearing. Even on important matters, the court dockets are measured in months and cases in years. Some courts would grant stays and others would not. Meaning the rules could be radically different in different parts of the country, with mail-in ballots largely invalidated in some jurisdictions, or machine tabulation stopped in others. You might mail in your ballot and then find you can’t vote in person, even though that ballot may not be counted.
It sets up a situation where the congressional majority (assuming they hold together over this) is given cover to avoid sitting a new Congress. Even if they can’t target Democratic flips, and just invalidate those. As they were willing to question the presidential votes, but not down-ballot republican wins on the same ballot. And remember the Supreme Court has previously delayed opinions, when it was advantageous to Trump. The situation appears so chaotic that people can create enough of a smokescreen so many feel like the vote can’t be trusted. The confusion is the point, especially if it takes us past legal and constitutional deadlines. At that point Mike Johnson simply says we can’t rewrite the results after the fact, even though he seats all the Republican winners. At this point you have MAGA showing up at rallies armed with guns but the other side is only showing up with legal arguments.
Protests would erupt, if not violence. The military is directed to arrest people for protesting, under the insurrection act. They are just chucked into converted warehouses and other (effectively) concentration camps. The trials, writs of habeas corpus, and any attempts to even locate people are sidelined or slowed by a system designed to be incompetent and unresponsive. Social media begins to censor people speaking out against the administration, if not reporting their details to the Feds, real time. Elon would be fine with it. Zuckerberg, Pinchai, et. al., would likely comply if not complying cost them money. This administration has shown it is willing to operate illegally. Including vindictive prosecutions, even baseless ones, and utilizing the FCC and FTC to damage opponents. Combine the social media situation with a traditional media lockdown. People like Bari Weiss at CBS, Bezos at WaPo, Murdoch, and whoever the Ellisons install at CNN would squash anything but pro-regime reporting.
What would a number of Americans do at that point? Do you stay in a collapsing democracy? Or do you run for the border? Highly skilled, young Americans would generally find it easy to become Canadian citizens, but older Americans or Americans who weren’t nurses, doctors, or in one of a number of highly desirable skills, would find it harder. Or maybe it doesn’t completely go south, and the midterms are more of a probing operation, with the real hammer falling in 2028? Do you get your family out before the stampede for the exits?
That sounds a little extreme? Doesn’t it? But it might be a real choice we have to make. Stay and fight, even if it means being thrown into a room with 30 people, one toilet, and guards who can do anything they want to you? And what about your family? One trick autocrats use (the serious ones) is not to just punish the offender, but their family as well. Charge them for ridiculous fees, put them under investigation, seize bank accounts, and so on.
Or, and hear me out, we start fighting now. We take on the responsibility of shaping the field before we get to that point. And that’s why I find Schumer and Jeffries so worryingly timid.
I guessed that it would have made more sense to attack in complete darkness towards mid-march, but it appears that the US and Israel aren’t worried about Iran’s anti-air capabilities. The ten days turned out to be bullshit and Trump couldn’t wait any longer. Everything he claimed Obama would do about attacking Iran has turned into a confession. Apparently the discussion of Trump having committed sexual assault against a minor was getting too hot.
While it appears the US and Israel have free reign in the Iranian sky, they are not going to land troops. I’m not even certain they really think there will be any kind of popular uprising. If the IRGC is hit, that will hamper their ability to respond to revolts, but it will not stop it. They will likely already have dispersed, making it harder to score decisive hits on their leadership, infrastructure, or personnel. They will continue to attack external targets where they can. The guards will drop anyone they think is an agitator, with an “I don’t have time for this bullshit” attitude.
And we’ve seen where Trump went into Venezuela for regime change but left the regime in-tact. Ultimately, as we discovered in Iraq and Afghanistan, you can’t keep a government in power or eject a government with just air strikes. And if the people don’t want the government, no matter how good, it will not succeed. There will likely be no regime change. There will just be a number of dead Iranians. Maybe some destroyed materiel, but we’ve seen they can reconstitute it fairly quickly.
Just in time for me to point out the 2 year was stuck and that meant curves are likely flattening, it breaks out above its range. There is a big caveat to this. Just because it breaks out, does not mean a true break out. It’s going to need to close above the range and have at least one complete body outside the range before I’ll start to believe it’s a true breakout. It could just retreat today, leaving the wick, and maybe not be a breakout. Also, ranges should be thought of as regions. Just because I drew a line 1 pixel wide, does not mean it’s tick wide. It should be thought of as “around this area, sellers tend to show up.” If it exits the range, it means the sellers are not showing up and there is net buying.
Looks like the two-year finally broke out of its range. At the same time the 10 year is popping. That keeps the yield curve in contago. Setting aside the gap up (which is kind of violent for the 2 year bond future). Maybe we expect the Fed to really inject more liquidity as the cockroaches come out? Dunno. The Fed has been active in the Repo markets, which usually means they’re adding liquidity.
That keeps downward pressure on the dollar. That suggests the dollar will continue to erode. As the interest rates drop, it makes other bonds or investments, or just holding cash, more attractive. That reduces the demand for dollars, and therefore the dollar will fall against other currencies. The weird little resistance area was originally just a marker looking for a higher high, if the dollar is pulling up, because we got a higher low. However, this might be forming a wedge.
Which will continue to push up commodity prices, like oil, which will fuel inflation. Which will limit the Fed’s ability to bring down the Federal Funds rate. But it will impact peoples’ sense of affordability. It’s why you could go into recession, the dollar tanks, but commodities (like food and energy) get more expensive. Core inflation (those sneaky little devils always exclude food and energy), may drop, but what a consumer feels may not improve all that much.
On the 10 year I identified two possible pennants. What do they mean? Does it mean the price will always go up because the pennant exists? No. The pennant is just a price pattern that tells me when sellers showed up to take profit, the buyers didn’t cave. They stepped in. That’s all. It tells me there’s buying energy there for the 10 year bond. And if I were to bet on a direction, it would be toward higher prices. But I don’t bet on it, because chart patterns are not a guarantee of future performance. They are also a Roschach test and subject to interpretation. You might only see the pennants because I pointed them out, not because you would have seen them. And I might be wrong. I might be misreading the price action. So I would never buy or sell based on a chart pattern.
This is not investing or investment advice to you, or anyone. It’s is provided for your entertainment purposes only. And if you are investing, contact a professional before making any decisions. Buying and selling stocks, futures, or any investment is a risky activity and can cause you to lose money, including the principal which you invest.
Taken about 8:45 AM EST in the pre-market. In short, this is the PPI coming out hot. 2.9% annual inflation versus and expected 2.6%. For the market this is as bad as, if not worse than, the CPI coming in hot. If the CPI comes in above estimates, that just means rates might rise. But if the PPI comes in hot, and the CPI doesn’t, it means margins get squeezed. It means that for a $100 of revenue, it means less profit. If both CPI and PPI were going up, that’s not good, but businesses are able to hold their margins. As happened earlier in the inflation burst, CPI went up faster than PPI in some cases, and margins expanded.
That explains some of the impact. The other part of it is the idea that AI isn’t playing out the way people hoped it would. We are seeing a concerted push by companies to adopt AI and (despite the protestations of $XYZ – Block), we have yet to see significant changes in productivity. There may be reasons for this that have nothing to do with AI. First and foremost, it’s a new technology. The “recipe” for mixing it into an organization to boost productivity and reduce costs may need to evolve. With a lot of churn, it’s hard to know if chat bots, RAG (retrieval assisted generation), or some yet undiscovered pattern will produce the best outcome. One that doesn’t give away free stuff from vending machines or cite non-existent cases in court filings. (So, how much do you want to trust an LLM to correctly categorize a major business expense that could cost you in interest an penalties?) But until we do it looks like NVidia may be the only winner as they sell more GPUs to companies that may not have the electrical grid power to turn them on?
But let’s get back to macro. Long rates are dropping, but the 2-year is kind of holding in a range. These are bond price futures, meaning when they go down, interest rates go up. (The price of a bond is the inverse of the rate). The bottom two are 10 and 30 year bonds, respectively. Businesses are generally sensitive to the 10 year rate. Prices were falling on the 10 and 30 up to February, ,while the 2 year stayed in its trading range. (I kind of compressed the 2 year graph to give a better sense of how little movement there was in the 2-year, given a similar $3 range in the 10 year). The fact that long bond prices were going down, while shorter term maturities were stuck, meant that long rates were coming down while short rates were holding. (The shorter you go the closer you track the Fed Funds rate).
A normal yield curve has the lowest rates for the shortest maturity debt. Everything beyond that carries more risk. These risks may be interest rate risks (the interest rate falls and so the price of your bond falls), or re-investment risk (the rates go down and you can’t re-invest at the same rate). There’s almost no risk at 30 days to 90 days. At thirty years, there’s almost a certainty things will be different and you might be underwater in your bonds or unable to secure a similar rate when the principal redeemed. The price of the bond is a negotiation between buyers and sellers about future interest rate risks.
When the price of long bonds start going up, it means that people are betting future rates are going to be lower. This is because they expect lower demand for capital in the future – likely because the economy is slowing. A rate inversion, when the rate on the long bond falls below the short rates, is a sign investors expect the economy to be in recession so rates will be reduced to stimulate the economy. That’s why we get yield inversions, and why they tend to be at the start of, or just in front of a recession. Also, in most cases, the short term rates go up because the Fed has been slowing the economy. This last inversion period was both large in scope and did not result in a recession, so far1. (And there won’t be as much borrowing to invest in new businesses). What you want to see is the entire yield curve (the interest rates at various maturities) move down together. Lower rates plus strong future expectations.
Which brings me to this graph, the balance of payments (trade deficit). If you eye-ball a line across the graph, between -60,000 and -80,000, you probably have close to the average trade deficit. Then you have “Liberation Day” in April and a huge spike. What’s that about? Those are businesses bringing in inventory prior to the tariffs taking effect. That inventory was spent down in the next few months, as businesses imported less because their inputs were sitting in warehouses. At some point they are going to have to bring in more product, and that’s why I think we’ll be back to roughly the same (maybe a hair smaller) trade deficit. We’ll have to see how it plays out, but the last reading was in line with the historical average.
That suggests that businesses are continuing to import final goods and inputs for their manufacturing at nearly the same rate as before the tariffs. Some businesses elected to eat the tariffs (note it is businesses that pay tariffs, not governments) rather than pass those costs onto consumers. They were assuming the tariffs would get rolled back and it’s better not to piss off your customers. They might even get refunds. But given the number of businesses that sold the refund rights to Lutnick’s kids at 20 cents on the dollar (yes the same one working for the president as the secretary of commerce), I don’t think they held out high hopes. We’ll have the lovely spectacle of the commerce secretary’s kids suing the federal government for refunds of illegal tariffs imposed by the administration, which they scooped up at bargain basement prices. Ain’t corruption grand?
If businesses are importing as much, and they are paying higher prices, and they have spent down their inventory, we might FINALLY start seeing the consumer level inflation impacts of tariffs. But we’ll first see it at the business level. Businesses have eaten the tariffs, for now, but will either suffer lower margin or start passing on those costs. That means businesses will start cutting costs to deal with tariffs and the easiest way to cut costs is to reduce head-count. When people no-work they no-spend. Block’s hope is the reduction in headcount (maybe over-hiring a few years ago), will result in better margins as costs fall, even if revenue falls. But, like I said earlier, there is no clear indication we’ve figured out how to incorporate AI into businesses or operate an AI provider profitably. It’s all subsidized by giant pools of investor money.
If you expect a softer economy (not radically expecting recession tomorrow), you want to hedge your risk (equity) exposure by buying bonds. Foreign companies have become a lot more wary of buying bonds, except there is no other currency with the depth of the dollar. And therefore US debt is still attractive. (TINA – there is no alternative right now). If short rates hold up because inflation actually starts making its way into the consumer market (not in one quick burst but trickling in as business after business has to raise prices), and the Federal Reserve can’t cut without resuming inflation, you should expect the economy to slow. By how much? I don’t know, but I would not expect long rates to stay where they are. I expect them to come down, or there is an increase that the Federal Reserve would need to step in by shoving liquidity into the system.
The two year has been betting the interest rates will stay about the same. Until February, the long rates were making similar bets (or maybe a little AI optimistic combined with nervousness about the Fed forced to cut rates combined with dollar de-risking). They were holding or going up slightly. Now they’re falling, compressing the yield curve. At the same time business costs may be going up. With a Fed that can’t immediately inject liquidity until the economy gets a lot worse. What a lovely little shit-show we’ve built.
This is not investing or investment advice to you, or anyone. It’s is provided for your entertainment purposes only. And if you are investing, contact a professional before making any decisions. Buying and selling stocks, futures, or any investment is a risky activity and can cause you to lose money, including the principal which you invest.
It may be the ONE TIME that the Fed slowed the economy but didn’t throw it into recession. The so-called soft-landing. Something I did not think could be done and therefore missed out on some returns (albeit at a higher risk). ↩︎
This is the “cash” index ($SPY) for the S&P 500. That’s different from the index that most people look at, which is actually the price of a futures contract on the S&P 500. The price action is a little different, but not radically different. But the S&P 500 that everyone talks about in the news is actually an expectation of the S&P 500 price in the very near future, traded almost continuously. So there are fewer gaps in the price action. The cash index primarily trades during normal trading hours in the US. The chart below is the futures contract and is smoother, with fewer gaps, but it’s basically the same movement.
But what is it really? It’s the behavior of the 500 companies included in the index. The 500 best companies? The 500 most representative companies? The 500 largest companies? Yes and no to all of those questions. These companies fall into sectors: technology, consumer cyclical, consumer defensive, financial, communication services, healthcare, industrials, real estate, utilities, energy and basic materials. From the heat map below you can get a sense of their relative size and how they’ve performed over the last three months. Sorry, if you’re red-green color blind, but for squares that are large enough, you get the percentage change.
We have different stories about the expected behavior of the sectors under different economic conditions. For example, during a recession, when people are losing their jobs, we expect consumer defensive stocks to hold their value while consumer cyclical stocks to fall. And if we look at the 3 month performance, we can see that defensive stocks have out-performed the aggregate cyclical stocks. These stories aren’t perfect, like maybe TJ Max (TJX) is doing okay because people are bargain hunting more, and maybe McDonald’s (MCD) is doing better because people can’t afford nicer restaurants.
We’ve had a set of contradictory stories. Financials have hit hard, and consumer cyclical and communication services and technology have been meandering to falling. That suggests a slowdown. But material providers, energy, and industrial stocks are rallying. That suggests the early part of a recovery after a recession, when output is picking up. And consumer defensive and utilities are doing great, which is a sign of a slowdown.
What might be going on? I suspect there are two sets of behaviors. Part of the behavior can be ascribed to macro-economic movements and part can be ascribed to idiosyncratic movements. Idiosyncratic is really a short-hand way to say the fish is swimming upstream for a different reason than the current is moving the rest of the fish down stream. I think, in part because the yield curve may be flattening, that the market is anticipating an economic pullback.
That explains the behavior that utilities, financials, consumer cyclicals, consumer defensives, technology, and communication services are exhibiting. I think any strength in technology is coming from the AI bubble. The AI bubble is powering some of the industrials, along with a re-arming of Europe and a possible expansion of the defense spending. The policy chaos and dollar de-risking explain energy prices and basic materials. If the dollar de-values, then the price of commodities and energy will increase for American consumers. If the dollar falls, without doing anything, Exxon Mobile (XOM), Chevron (CVX), etc. will make a lot of money. As will miners.
So here’s the score card. The long term bet being made by most investors appears to be for a weaker economy. That’s not certain. They can be wrong. But that’s what most of the sectors are telling me. (And therefore I could be wrong). My confirmation is that maybe the yield curve is flattening. (But I could be wrong). The dollar is expected to weaken (as per official US policy), and falling interest rates will further weaken the dollar beyond the chaos that is driving countries away from the dollar. That means energy and basic materials have a tail wind. Until such time as we demand less energy because economic activity slows down, and even then we could see prices increasing on net.
Anyway, that’s how I square the circle.
And this is not investing or investment advice to you, or anyone. It’s is provided for your entertainment purposes only. And if you are investing, contact a professional before making any decisions. Buying and selling stocks, futures, or any investment is a risky activity and can cause you to lose money, including the principal which you invest.
We have no visibility, or little visibility, into the fraction of the GOP that feels comfortable with right wing social policy, but is there for economic reasons. Or pseudo-economic reasons. I once had a discussions with someone who felt it was worse to go from a top marginal rate of 33% to 40% on his federal income tax, even if his income doubled. The funny part is he cited the state and local taxes he used to pay, as a New Yorker, but no longer had to pay since moving out. The hilarious part, given his job, is I doubted he was very far in the 28% bracket. Or people with almost no active trading screaming about equal treatment of capital gains and regular income, even if their house (by far their biggest capital gain) were exempted.
Sometimes peoples’ views on taxation have less to do with reality than with their status as temporarily embarrassed billionaires. Or vague notions that the “job creators” would leave the country if we taxed them (like they’re moving to Florida and Texas from New York… sort of). I’m not sure where they would go. Maybe they would try to move their business to low tax jurisdictions, like Europe, or where they might have a less heavy government hand, like China. Or that they would decide the next marginal dollar just wasn’t worth it. And would “slack off,” as if they did everything at the family offices or companies they helm. These are people who’d gladly trade your grandmother for a nickle.
These idiots may code socially liberal, like their favorite niece or nephew is “trans” and they are careful about pronouns and dead-naming. Or they might be gay. But have no problem backing bigots. Or enjoy recreational drugs, especially of the mind-expanding variety. Although I sometimes wonder if they’re using them correctly. They know it’s not a suppository, right? Abortion is okay. Although they don’t get too bent out of shape over taking rights from women. They love crypto currency because of some strange notion about a broken fiat-currency system. Some are staunchly independent, except almost always vote Republican because they think government is out of control, or would like to see a balanced budget. (Something no Republican has done since maybe Eisenhower,). But they would rather talk about sports, crypto-currencies, or video games.
Because they code two ways, I suspect they throw off our sentiment about the country. They might answer a survey saying they are unhappy with the way that Trump is running the country. They may express ire at rounding up immigrants, although they will also talk about “doing it the right way.” They might have liberal girlfriends or wives, or conservative girlfriends or wives, and write “that stuff” off as their partner’s thing. They’re independent. But they will vote Republican at the national level. They’re not Republican, they’re independents, and will point to (for example) supporting someone like Spanberger in Virginia. You know, a “normal” Democrat. But when push comes to shove, at the national level, they have pulled the lever for Trump, more than once, if not all three times.
I suspect status and other grievances in their psyche may play a bigger role in how they vote. Even though they code liberal they like to think they’re a man’s man. (And if you haven’t figured it out – I’m talking about men in particular). Some of them are well educated, even if they haven’t opened a book for pleasure since college. They are not having the career or age of adult manhood they anticipated. Something I suspect they covet, as they prefer super-hero movies, John Wick, or the “pre-woke” Lord of the Rings. They tend to listen to man-o-sphere podcasts. I think there’s definitely an aspect of anxiety about their position and their power. (A lot of them are technically adept but feel they lack power or feel they are bossed around).
This mass of mostly men (almost exclusively men) are part of the reason the mid-terms will be so hard to predict. The expectation, which if the vote were held today I think would be certain, is a wave of anger pushes even safe Republicans out of power. We wind up with a flipped House and Senate. But I’m already seeing more right-wing content show up in my social media feed, so we have to deal with that bleeding off the weak over the next 8 months.
If they view the election as a chance to reign in, or course correct, the president, they may vote for Democrats. Especially since they know the president makes all the decisions, but “congress has a role.” Voting for a Democrats might tell the Republicans to back it off a little. Or, if they are well managed and well messaged by the stupid amount of money that will be coming from the Ellisons, Musk, or any one of a number of injured billionaires, they may ride or die with the Republican party. Woke democrats will be out of control. And when they pull that lever, they think they are doing so as Frodo, not some anonymous orc in Sauron’s armies. After all, they are independent voters.
“The Looming Taiwan Chip Disaster” asks a question many are wondering. If China blockades and invades Taiwan, what is Apple going to do? It gets many of its chips from Taiwan and TSMC manufactures its very custom CPU. A blockade or invasion would cut Apple off from TSMC. That would be the end of Apple products, right? So why haven’t Apple and other Silicon Valley companies diversified out of Taiwan to at least have capacity in the United States. Let me tell ya… business idiots are beyond your tiny brain. They understand a broader, global picture that they have to carefully consider. They had a great press event in the oval office to announce a lot of stuff about sexy advanced chips. They even gave Trump a gold thingy for his desk. They’re saying things and doing things you can’t understand. So let me help break it down for your tiny (non business idiot) minds.
First, let’s start with a larger problem, that you can’t just fabricate (fab) a CPU and you’re done. This is part one of that problem, and it’s packaging. Once the silicon is etched and cut into separate chips, it needs to be packaged. This is not just slapping a bunch of plastic or ceramics around the chip. A poorly packaged chip will show problems that prevent it from operating correctly. And modern packaging is a far cry from the 1970s DIP modules, pictured below. A DIP packaged chip might have 40 or so connections. A modern chip can have hundreds of connections. And it may be housed in the same package with other chips, either support chips, or because they’ve adopted a chiplet design to improve yield (number of successful chips on one 30 cm wafer). Packaging is done in Taiwan and because it isn’t sexy, no one focuses on it. Without packaging, you have nothing. And chips etched in the US have to be flown to Taiwan for packaging. If China invaded tomorrow, and all the etching was done in the US, we would still have to fly the chips over for packaging.
Next part of you can’t just fabricate a CPU. A computer isn’t a CPU. There are other chips on the motherboard that control various features. For example, there’s a chip that controls the attached drives. It’s actually a little CPU in its own right, likely running a variation of Linux. Then there are chips to manage the power through the system. These are not simple voltage regulators, they are programmed to ramp up and down the current to keep the CPU running efficiently and cool. You likely have chips to handle all the slow speed IO, like USB ports. That’s not done directly by the CPU, there’s a separate processor for that. You can’t just make the CPU in the US and make a computer without all these other critical chips. Most are made in Taiwan, some in Japan, some in Korea, and some in China. That’s right, you already can’t assemble most electronic things for the US without Chinese made parts.
Next, you have to understand that Apple would buy chips from China. And so would Google and HP. If China took Taiwan tomorrow and the option was to go under or buy chips from a now Chinese controlled TSMC, Apple, Microsoft, Google, Meta, or whoever would buy the chips. Even if it meant entering into agreements that require more of the design to be done in a Chinese controlled company that would rip off the IP. Because going without sales (and maybe going under) is worse than maybe losing some US government sales. Plus, the US government will come around when there’s no option. In fact, it might make some things easier and they make even more money in the short term. If you go to these companies and say it might cost you a little bit more, but you insure your supply from being cut off, they would choose not to spend a little more. They will just assume they can continue with business as usual, buying chips from a Chinese controlled Taiwan. And they’ll be happy to do it.
Related, is the executives won’t believe it. Just as the Ukrainians didn’t believe the Russians would actually invade, and it was just a war game, as the Russians were setting up field hospitals on the Ukrainian border to treat the expected wounded, these business idiots don’t believe it will happen. I don’t even think it entered Tim Cooks little pointy head, as he sat through a screening of “Melania,” that China views the situation with anything other than a money lens. That’s because, like all business idiots, he views the world in a money lens. Why would China do something that would cost them money? The idea that China has felt humiliated and carved up by the West and this is about national pride is alien to them. Pride? If it costs you money? Tim Cook sat through a screening of what was essentially a bribe from Bezos to Trump to protect his money. Executives periodically line up, lips puckered, to pull down Trump’s piss-stained shorts and kiss his un-wiped ass. Money good. Must get more money. Corruption make more money faster.
For all these reasons, until China invades Taiwan, US tech companies are going to do a goddamn thing. And when China invades Taiwan, they will happily license their IP (their chip designs and process documents) to the Chinese controlled TSMC. The fact China will cut them out of the fucking loop once all the IP is stolen is lost on them. Just as they have done with every step of the way so far. Just as China is learning to cut Western designers out of other products. Why would you buy something at a premium, just because it has a Western label on it, when you can buy from the Chinese factory at a discount? Why would you buy an US branded computer when all the chips come from China, and it’s manufactured in a Chinese factory? It’s not like they’re going to get payback for the US putting spyware into the US networking gear bought by Chinese companies.
Once upon a time, there was a thing called the Marshmallow Test. You take a preschool aged child into a room and tell them if they don’t eat the marshmallow on the table, they’ll get that one and another one later. The idea is to see which kids will become doctors, lawyers, and CEOs, by delaying gratification, and which kids will scroll Tik-Tok and scratch their junk for a living. It turns out the whole thing was bogus, but it made a lot of parents try this at home and weep to see little Johnny gladly stuffing the first marshmallow in his fat little mouth. No delayed gratification. No future. Delayed gratification is not what business idiots learned. They learned to demand more marshmallows or else they’ll stop going potty in the right place. Just as they’ve learned to demand tax breaks, guaranteed loans, or other inducements to do the right thing.
If you think you’re going to get Tim Cook to buy a US made chip for his Macs or iPhones, well… he might. He might buy some from a Fab in Arizona to kiss Trump’s fat ass, ship them to Taiwan to be packaged, and then off to China to be assembled into an iPhone. Because Tim can’t package the chip in the United States. Nor can he make all the other parts of an iPhone in the United States – as just a practical matter. And as far as he’s concerned, it’s just keeping Trump happy. Just like he goes through the press conference (along with many tech leaders) announces a bunch of stuff but does nothing. Just like NVidia was supposed to invest 100 billion… I mean 30 billion… I mean up to 30 billion in OpenAI1. Business idiots just say words that have no meaning. He will do the bare minimum necessary to keep Trump happy so Apple doesn’t have to worry about the administration lobbing trade bombs at Apple. He will make the bare minimum number of chips in the US, though parting with that extra nickle every iPhone makes him weep.
Note that this story from Forbes does not invalidate my point. They will likely have US workers shove motherboards flow in from into a case and call that American manufacturing (because, remember, other parts come from other parts of Asia, including China). On their lowest volume product. And a vague promise for other stuff. All so they don’t have to pay a significant tariff on iPhones (their highest volume product).
Note that $20 in McDonald’s gift certificates counts as “up to 30 billion.” ↩︎
I wish I was like you/easily amused 