Inflation Concerns; China Won’t Harm Taiwan

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In his Daily Market Notes report to investors, while commenting on the inflation concerns, Louis Navellier wrote:

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Q3 2021 hedge fund letters, conferences and more

Inflation Concerns

After rising 4.6% last week, oil continued its rise, now above $82 a barrel. Gasoline is at a 7 year high too at $3.27 a gallon. US drillers added 5 new drilling rigs, the 5th weekly increase in a row. This is the high-profile category regarding inflation concerns. It touches everyone and may force the hands of Central banks to move quicker to wind down quantitative easing and consider raising interest rates.

It still won't be a surprise if Jay Powell hesitates in starting tapering given the recent soft jobs numbers.

Other concerns remain beyond inflation, including the debt ceiling dance where Mitch McConnell sent a warning that further cooperation by Republicans will not be easy to come by.  The pandemic issues continue, with Southwest airlines canceling 2,150 flights this past weekend in an apparent vaccine protest with rumors about Amtrak being next.

Despite these inflation concerns, optimism remains high that the estimated +27% growth in S&P 500 3rd quarter earnings is realized along with strong outlooks for 2022. Without a Black Swan event, such as a domino-ing of the Chinese Evergrande debt collapse, stocks should be heading towards new all-time highs by the end of the earnings season.

Shipping Consolidation

You may have noticed that shipping companies consolidated after the crude oil pipeline break in South California was blamed on a containership anchor dragging the pipe 4,000 feet.  The alleged containership with the anchor incident has not been identified, but I expect the entire shipping group to rebound strongly due to ongoing supply chain glitches.  Like Britain, the U.S. also has an acute shortage of truck drivers, which just exasperates the supply chain bottleneck.

China Won't Harm Taiwan

I get a lot of questions about what is going to happen when China takes over Taiwan after tormenting the island nation an untold number of times with the Chinese air force invading Taiwanese airspace.  My standard answer is that “China will not harm Taiwan’s infrastructure, since they need the semiconductor chips too!

This was reconfirmed by Chinese President Xi Jinping when he recently called for a “peaceful reunification” with Taiwan.  Not surprisingly, Taiwanese President Tsai Ing-wen said that Taiwan would not bow to Chinese pressure.

China currently has its own economic problems and based on the official Purchasing Managers Indexes (PMI), both its service and manufacturing sectors are now in a recession.  Furthermore, the Trump Administration’s sanctions on 5G pioneer Huawei have been severely hurt by these sanctions, so its 5G market share is shrinking.  Since the Biden Administration did not lift modify the Trump Administration’s tariffs on China, if China invaded Taiwan, they not only risk a military reprisal but also potentially more tariffs from the Biden Administration.  So conclusion, my Taiwanese semiconductor companies, like TMC and UMC, remain great near-term buys since I do not expect China to invade Taiwan.

Heard & Notable:

China leads the world in posted packages, shipping 83.4 billion packages in 2020 alone. The U.S. and Japan lagged considerably behind with about 20 billion and 9 billion parcels, respectively. Source: Statista