Onshoring The Semiconductor Industry

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

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Onshoring The Semiconductor Industry

House Speaker Nancy Pelosi’s trip to Taiwan this week was very interesting. The 10-year Treasury bond yield plunged to 2.535% intraday on Tuesday as Pelosi’s plane was preparing to land in Taiwan on the apparent fear that World War III would commence.

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Q2 2022 hedge fund letters, conferences and more

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On Wednesday, Speaker Pelosi pledged an “ironclad” defense of Taiwan’s democracy in a meeting with Taiwan President Tsai Ing-wen. Specifically, Pelosi said, “Today the world faces a choice between democracy and autocracy” and added, “America’s determination to preserve democracy here in Taiwan and around the world remains ironclad.”

Overall, Speaker Pelosi’s Taiwan visit was widely praised on Capitol Hill, especially by the Republican leadership. Interestingly, the Biden Administration has been unusually quiet, since they apparently have to deal with outrage from China. The other reason that Speaker Pelosi likely went to Taiwan is the U.S. needs help with “onshoring” the semiconductor industry that Taiwan dominates. Some of the diversification of outsourcing semiconductor manufacturing will likely also occur in Thailand and Vietnam.

Shipping Disruption

China announced it would carry out live-fire drills from Thursday through Sunday across six regions that encircle Taiwan. These live fire drills are expected to take place in international waters, but some regions are close to major Taiwanese ports and could end up disrupting commercial shipping.

On Wednesday, China also announced fresh import bans on Taiwanese citrus and other food items. Since the Chinese Communist Party is about to have a major meeting, Speaker Pelosi’s trip is a major embarrassment, since China warned the U.S. to not have Speaker Pelosi visit Taiwan. Clearly, the relationship between China and the U.S. remains tense, so it will be interesting if China retaliates against any U.S. companies or restricts trade in any manner.

If the Biden Administration did not have enough problems dealing with China, another problem emerged on Wednesday when OPEC+ (includes Russia) announced its smallest ever increase of 100,000 barrels per day in September. As a result, crude oil prices are expected to remain firm, even though worldwide demand typically ebbs in the fall as seasonal demand eases. Near-term, weak economies in China and Europe are also expected to continue to impact crude oil prices.

Reaccelerating Growth

On Wednesday, ISM announced that its non-manufacturing, service index increased to 56.7 in July, up from 55.3 in June. This is the strongest expansion of the ISM service index and is well above economists’ consensus expectation of 53.5. The ISM new orders component surged to 59.9 in July (up from 55.6 in June) and its business activity component also rose to 59.9 in July (up from 56.1 in June), which is very bullish and indicative of reaccelerating economic growth. Interestingly, the Atlanta Fed is estimating third quarter GDP growth at a 1.3% annual pace, but in the wake of the ISM service index report, I expect an upward GDP estimate revision.

Coffee Beans

At least 828 million people were affected by hunger in 2021 – 46 million more than in 2020 and 150 million more than in 2019. Nowhere does the problem have a larger scale than on the African continent with 58% of the population experiencing moderate (34%) or severe (23%) food insecurity, reflecting exacerbated inequalities across and within countries due to an unequal pattern of economic recovery. Source: Statista. See the full story here.