Why We Still Like Japan & Other Contrarian Takes | E185

Weekly Update 84_mixdown

Jacob Shapiro: Hello listeners and welcome to another episode of Cognitive Dissidence. As usual, I’m your host. I’m Jacob Shapiro. I’m a partner and the director of geopolitical analysis at Cognitive Investments. There is no micro geopolitics segment this week because for once I’m in my home office in New Orleans fighting off a cold.

But here with you, nonetheless Rob and I both had very busy days, but we didn’t want to leave you without a podcast as quickly as we could. At our usual hour, but we hope you enjoy it. We tried to talk about some things in markets that maybe don’t make the headlines as much. We talked about Japan and how that sort of fits in the context of our general international strategy.

We talked about Vietnam. We talked about some lessons from the CHIPS Act grants to Intel and a couple of other things. If anything on this podcast, pique your interest, whether it’s our international wealth strategy and how to get access to it, or any of the things we talked about with Vietnam or CHIPS and supply chain consulting and things like that, you can email me at jacob at cognitive dot investments.

If none of that is interesting to you, that’s cool to enjoy the podcast. And if you have not. Left a rating or a review for the podcast. We’ve got a lot of new listeners in the last sort of six weeks or so. Please consider taking five seconds, give us a rating on whatever app you’re listening to us on. It costs you nothing.

It’s really helps us move our way up the algorithm and do better in general and keep bringing you this content without ads and without having to charge for it. So thank you in advance. Write to me if you want to chat, take care of the people you love, cheers and see you out there.

Alright listeners, both Rob and I have to run to meetings, so this is not going to be our usual hour long, relaxing, deep dive into Cromwellian geopolitics. We’re going to give you a more like a 30, 40 minute podcast of what’s going on. Rob, you were the one who sent this to me, the the Telegraph published some very sexy pictures of Emmanuel Macron, showing his quote, unquote, ultimate virility.

So I have to ask, where is your ultimate virility? Because you look pretty schlubby compared next to Macron. He’s even got the vein over the bicep while he’s punching the punching bag. What is going on? What is in the water in France? Do you think that’s photoshopped? A vein in the bicep?


Rob Larity: It’s that’s hard to do.

Jacob Shapiro: I actually, I went down this rabbit hole once cause I really wanted the vein in the bicep. And apparently that a somewhat genetic also it depends on body fat percentage and like exactly what exercises you’re going to do. But there are some people you could have 8 percent body fat and do 500 bajillion pushups a day, and you still won’t get the vein in your arm right there because genetically it’s just not going to work for you, which I learned about myself that.

I can get that vein to pop and I only got it to pop for one eight month period in my life. And I know that I’m, I’ve been out of shape since 2013, because I’ve never yet gotten back to getting that. And I do not have it popping like Monsieur Macron in this picture. My God, it’s got to be photo, maybe they got Kate Middleton to Photoshop it.

I don’t know, that’d be a nice little reengagement of British French relations. We’re off to a good start here. Rob, let’s have a podcast where we don’t talk about China and where we don’t talk about Russia and Ukraine. And let’s start with one of our favorite hobby horses with his Japan and listeners.

Rob and I literally just spent the last hour and a half talking to each other about our strategic wealth strategy, where we wait different countries, Pro on a geopolitical level, pro on a markets level or against. And then we compare that next to an index which is an interesting exercise and is also a service and a, a product that we produce.

So if you want more information about that, you can email me about it too. But I think Japan is the most important part of that conversation because it’s the biggest weight. In sort of our strategy and Japan’s getting pretty popular these days. We’ve joked before about how, Warren Buffett started paying attention last year.

We’ve been paying attention for more years and have enjoyed the performance of Japanese equities. But to give you guys the three big pieces of news this week, the first is that the Nikkei stock exchange has closed at an all time high on Thursday. I don’t know if that’ll keep up on Friday, but up 2 percent to close at an all time high.

So we’re Conquering the levels that were last seen in the late 1980s. On the other end this is probably the more in the weeds one, but Japan’s biggest union groups announced in negotiations, a wage hike of 5. 2%. 28 percent for 2024. That’s the biggest pay hike for Japan’s largest union group in 33 years.

So it’s not just that equities are doing great. It’s also that we’re beginning to see real wage increases that are above the rate of inflation in Japan. But then the reason that everybody started paying attention was because the Bank of Japan decided to end eight years of negative interest rates on Tuesday and also eliminated What Reuters calls remnants of its unorthodox policy.

I wonder if some editor at The Economist is doing double duty at Reuters with that sort of description, but exiting negative rates And speaking in terms of reverting to quote unquote, normal monetary policy. I don’t know. Interest rates of a range between zero and 0. 1 percent does not feel like normal monetary policy to me, but that’s what they’re calling it.

I love that the sort of the headline for all these things, like here, I’ll just read the headline from Reuters Bank of Japan scraps radical policy makes first rate hike in 17 years. And then you just read a little further in and it’s oh, the new short term rate target is zero to 0. 1%. Thank you very much.

Really radical stuff the way that we’re reporting that there in general, but Rob, why don’t I lay it up for you there because you’ve been paying this also dovetails nicely with our episode last week about doji’s and rice trading and how to read the chart. We were joking about a friend of mine. Who’s doing some day trading on her own, sent me a picture of the Nikkei zoomed out to the 1980s and said, Oh, look, it’s a double top, which I take as a bad thing.

And I said that to you and you said, I don’t know how long double tops last. It seems like it’s invalidated. So tell me if you’re feeling optimistic about Japan right now.

Rob Larity: I’m super optimistic. We’ve been very optimistic for the last, geez, three years or so. And nothing has really changed.

Really the whole time what we’ve been focused on is this notion of self reinforcing reinflation. Because as a reminder, this is what Japan has been trying to engineer for the last three decades. And if you look at periods of Japanese outperformance in the past, so go back to 2005 to 2007 during that time too, the Nikkei was relatively very strong.

Inflation was picking up and people thought, Oh, now is the time it’s happening. And of course it didn’t. And we got lurched into, the great. deflation post 2008. But this is what the markets have been looking for. This is what the Japanese economy has been trying to light the match to to ignite for all of these years.

And and it’s happening. It’s you know, the data is really accumulating that this is playing out. So this is unequivocally good. First of all, and it’s also unequivocally a change. And I think from a market standpoint, that’s really important because, talking about double tops and rounded bottoms and, let’s not get too salacious.

But, uh, these things are meaningful because in this case, Japan has been in this long period of underperformance, a long rounded bottom. If you want to say that on a relative basis to the rest of the world, certainly. And now we’re starting to emerge from that. So usually the adage in technical analysis is the bigger the base, the higher in space.

In other words, the longer something’s been languishing in the wilderness, the more catching up it has to do, the more reversion to the mean can provide fuel for that to continue. I am. Super optimistic on Japan. And I think this is just the beginning of a process that’s starting.

Jacob Shapiro: I want to underscore what a contrarian take this is, and I’m just going to, so this is from an economist article published we’re recording Thursday.

So this will come out Friday. So this was published Tuesday. Tuesday, March 19th, I’ll even put it in the show notes. And people joke about the economist being a good signal for what’s wrong. I always talk about the Germany is the sick man of the euro, but the title of the economist article is why Japan’s economy remains a warning to others.

And it, It concludes the opposite of everything that you just said that this is a pyrrhic victory, that Japan is is, it’s wrong to conclude that Japan is, quote, de Japanifying that the fundamentals are still terrible, that the inflation target is above where it was for the last 10 years.

That feels like circular logic to me. It does the whole You know, 30 percent of the population is over 65. There’s abundant savings that aren’t being used to actual economic productivity. It cites IMF expectations that GDP is not going to rise that much. And it also, of course, calls out public indebtedness specifically Japan’s 255% Debt to GDP ratio or 159 percent after you net off government financial assets.

And we’re actually we’re having an episode with economist James Midway in a couple of weeks where he and I talked a little bit about debt and why everybody thinks debt is bad, but then we can’t figure out what is the level at which debt actually becomes poisonous. But how would you respond to that Economist article that says, Hey, like the economy is getting super old.

It’s still the government is still super indebted. We’re still not even close to inflation being at the target or something like that. Like, how do you push back against what is the mainstream narrative here about Japan? I think.

Rob Larity: While you were talking, I was thinking of all these sophisticated arguments I can make and, points I could marshal in my defense.

But sometimes I like to go back to when Samuel Johnson was in Scotland with Boswell and Boswell asked him Bishop Barkley says that matter does not exist. How can you disprove that? And Dr. Johnson just kicks the rock next to him and he says, I disprove it thus. Look at the chart.

That’s the disprove it thus. Mr. Market is speaking pretty clearly. That’s, I’m being a little bit glib here on purpose, but those issues. Those issues haven’t gone away. People have been talking about that for literally 25 years. All of those problems with Japan. We can go into them all in great detail, but I don’t know if we have time to do that today.

But needless to say, I don’t think those are fundamentally Problematic issues in many ways, and certainly they are not disproving Mr. Market speaking here. And what’s clearly a shift in perception and reality. And not just in the market because. You can look at the fundamentals in Japan and just see that inflation or I’m sorry, investment, corporate investment has been accelerating again for the last several years in a way that has not for a very long time.

So it’s not just a bubble. It’s not just mumbo jumbo. But I just prove it. Thus.

Jacob Shapiro: You don’t just disprove it thus. It’s also as you said, we have been bullish on Japanese equities for three years. We’ve enjoyed the rise up to the all time high. The economist has to sell magazines. And we have to manage money for clients and we have to make sure the strategy is doing well.

And we walked out of our meeting, keeping our Japan exposure where it is. Because we think it’s not done yet. So in that sense, I think it’s it’s good to close off on that. We don’t have to get any more down in the weeds. It’s funny. I also have a Samuel Johnson anecdote. I don’t know if this one’s actually true.

I stole it from Christopher Hitchens. May he rest in peace. But you might know this after completing the dictionary a delegation of London’s respectable womanhood came to Johnson and congratulated him on the exclusion of all indecent words from his dictionary. And he is rip is reported.

Reputed to have said, ladies, I congratulate you on your persistence in looking them up. So always nice to have a Samuel Johnson shout. See, we got into, Britain in the roughly the 17th or 18th century. Somehow we backed into it in the podcast. There’s always space for it. Oh, absolutely.

Rob Larity: But we should talk about just one last thing on Japan, because I think it ties into the U.

S. One of the reasons why I think people should remain very bullish on Japan is because Of that history. And because of the institutional bias that’s now built in, because you, as you point out, they’re normalizing, quote unquote interest rates to, 0.1%. They are going to be extremely cautious.

In getting too aggressive on monetary policy, and I think what you’re seeing is you’re seeing negative real interest rates really starting to show their head and not just in the short term, but interest rate expectations. Inflation expectations for the longer term starting to reflect a changed situation.

And they’re going to be very reluctant to kick against the pricks because this is what they’ve been waiting for Godot and Godot finally showed up. Like you’re not gonna, You’re not going to you’re not going to ruin that. So compare that to the U S where, the fed had its had its monthly it’s March meeting and released the statement this week.

It was viewed as relatively dovish because Jerome Powell came out and said while it certainly didn’t. Improve our confidence the January and February inflation numbers, but we also, we’re going to be very slow to draw conclusions. And, it was viewed as him generally not trying to signal too much hawkishness and the markets, are up in the, in, pretty sharply in the day or so afterwards.

I think the U. S. situation is very different, and those institutional biases are aligned in a very different way, as we’ve been arguing. And Jerome Powell is no Bank of Japan. So if you want to compare one opportunity against the other, because that’s what’s driving U. S. markets, it’s the perception that the punch bowl is being given back to the party goers and oh, we’re not going into a recession.

Economic growth is rebounding. Demand is rebounding. It’s back. It’s party time. That, I don’t think applies nearly as well to the U. S. case as it does to Japan. And that’s a nice juxtaposition you can make between the two right now.

Jacob Shapiro: I think also, just from a geopolitical perspective Japan on paper is a great is great justification for why geopolitics as a discipline should exist and is important because if you just look at its resources and its geography, it shouldn’t exist and it certainly shouldn’t be as powerful and as wealthy as it has been.

It doesn’t have any of the natural resources it needs. It’s, threatened by neighbors all around it that are much bigger and have historically been much more powerful, but what Japan has shown is a level of cohesion. and strategic discipline that most other countries can’t muster. And I think that gets exactly to your point.

Since Shinzo Abe, and he’s since been assassinated, but since Shinzo Abe decided that he was going to move in this direction with Japanese monetary policy, everybody’s calling for, Oh, the end of unorthodoxy and all these other things. And Japan doesn’t care. Japan does what it’s going to do because it has a very single minded focus and what it’s going to achieve.

And we’ll get into this a little bit later, but I think this is also one of the reasons that Japan is much better suited For a world where you have to think about decoupling supply chains from China, or you need to think about massive infrastructure investments to become more self sufficient when it comes to things like semiconductors, there’s a reason that the United States is having a devil of a time spinning up domestic semiconductor plants and things like that.

And where Japan is lapping them and Japan is investing in Southeast Asia. Japan is building all this infrastructure. Like you can feel that Japan has woken in. Welcome to the threats that are around it and that it’s behaving in that way geopolitically. Before we back into that, I thought we would just close off with a couple thoughts in general from our country review because we made a couple decisions that I think were notable.

And this goes back to Mr. Virol Macron in France. France, our largest holding inside of Europe. I think it’s worth calling that out, worth calling out that we still want to stay away from China. Worth calling out that we’re still enamored with Italy and Greece, which is an interesting, that’s an interesting place to be in its own right.

Even more interesting to be correct that’s actually panning out. I had to drag

Rob Larity: you kicking and screaming on the Greece. You never wanted to get into Greek equities.

Jacob Shapiro: I never did, which I would say is to my credit, but you won. I eventually you made the argument. I waved the white flag. But the biggest, like active decision that we made besides staying with our current positions was We eliminated Canada and we downgraded Australia.

And I’ll let you talk about why, from your perspective, that was the right call. From my perspective and especially when we’re talking about Canada, there’s probably no country that has more to lose from a Trump presidency than Canada. Just go back to Trump calling Canada a national security threat and imposing tariffs on things like aluminum that were coming from Canada.

There was so much of the Canadian economy is Dependent on things that are happening across the border. You throw in low energy prices for a sustained period of time. Low food commodity prices. We’re finally in that sort of, none of this sort of looks good for Canada, from that perspective, Australia has some resources that are not quite as dependent and had a better relationship with the Trump administration, but just the sort of.

Toss up nature that the polls seem to be telling us that the election is hurtling towards was enough for me to say, we really because before we were overweight on Canada enough to say, why don’t we walk away a little bit here? Because I don’t think there’s much room for improvement. And the downside is significant.

If you had, just imagine if you have Trump and Trudeau squaring off again, and Trump deciding that he wants to make even with all those things. Maybe we’ll reconsider if Biden squeaks it out. And if things start looking a little bit better for the things that Canada exports. But why were you all so similarly skeptical or why were Canada and Australia on your on your negative list?

Rob Larity: I think just to add to the geopolitical issues that you already covered, the one thing I would point out is that both of them are very bank heavy. Indices and bank heavy countries. And it’s an interesting contrast with the southern European focus that we’ve had in the portfolio, which has done really well, which is also bank heavy.

French, Italian Greek equities, Greece is so tiny it’s hard to even put them in the same bucket as the other two. But It’s an interesting contrast, I say, because in Canada and Australia, those names have been moving. Talk about, intermarket analysis. Those banks have been trading strong when long term yields have been declining.

In the later part of last year as interest rate expectations came down significantly and bond yields came down significantly all of those banks performed, relatively quite well. And that was a boon for us. But since then they’ve been bleeding off a little bit and given our kind of worries about The potential for rate expectations to move higher in the future and long term bond yields to move higher.

I think that’s an exposure to be a little careful of when you think of the big four banks. And I think there’s big four in both Australia and Canada. Ultimately, these countries always resolve to four big banks. But if you compare that to to Southern Europe, um, the Mediterranean countries, which is where we have most of our European exposure those banking stocks have done very well, which is an interesting contrast.

And I think it shows you something about expectations regarding the yield curve in Europe and also the potential for credit growth. Because those Mediterranean countries have performed well. And Germany really has not, for a whole bunch of reasons, but I don’t know. We will see what that might be showing us in terms of expectations.

But so far, that’s been anyone who’s looked at a chart of Italy, which we’ve occasionally referred to, because it’s been one of our one of our positions here My God, Italy is absolutely on fire. Italy looks like NVIDIA.

Jacob Shapiro: I’m not sure if that’s a good place to be or not for Italy. But we’ll move on from there.

I think before we close with some thoughts about the CHIPS Act and semiconductors, it’s worth spending a little bit of time on an issue that flies below the radar for most, which is Vietnam. Vietnam obviously has a complicated history with the United States. We’re not going to go through that complicated history here.

The recent history is that the United States sees Vietnam as a really critical partner in Southeast Asia and in balancing against China. And China, excuse me, and Vietnam and the United States, agreed to upgrade their relationship to a comprehensive strategic partnership last September which was an inter it was interesting timing, it was an interesting move, and I’m going to come back to it in a second because I think that might be driving some of what’s going on here.

American companies, the major tech companies, have been thinking about Vietnam as an alternative to China really since 2016 2017. That’s when you start seeing major investments from companies like Apple who are, Prioritizing the Vietnamese market and thinking they’re going to build capacity there, and I can’t tell you how many times I’ve talked to potential clients or clients who are thinking about Vietnam as a place that they want to build up capacity.

And the thing is, Vietnam’s full the companies that decided to make their strategic allocations there for better and for worse, like they’re there, but it’s not going to be easy for Vietnam to spin up that Sort of level of infrastructure support, but what’s happening in Vietnam right now and think of Vietnam ironically as a mirror image of China, because even though Vietnam has geopolitical interests.

It’s in common with the United States. The form and the structure of the Vietnamese government is very much like China’s. This is a communist state. It’s basically the Chinese Communist Party and the Vietnamese Communist Party. Maybe you can throw in North Korea, but I think that’s like North Korea is really its own thing.

Those are the two for me, major communist powers that are still left standing and everything is still structured like that. You have a general secretary who’s in control. You have people who are. Immersed in Marxist thinking and thinking about materialism as a real way for how to project policy going forward or make predictions about what’s going to happen.

It’s deep in the wool there. And so even though there is mistrust when Vietnam is looking at China and looking at their territorial disputes and everything else, there’s also a kinship, especially between the North Vietnamese factions, which were more communist when they’re looking forward in general.

What’s been happening in Vietnam. Is there having a leadership transition? Just like China, they recycle the leadership every five years, roughly, and just like China, the current general secretary he didn’t want to leave and he’s decided to stay on. I’m not going to butcher his entire name, but his general secretary Trong is his name, and he didn’t want to go anywhere.

The problem is that he’s older than she, and he’s in much worse health, and he has had a rough go of it lately. So he tried to, Have a hand picked successor, maybe start waiting in the wings that hand picked successor went away. His response to that was to start a massive anti corruption purge.

Again, sounds like Xi Jinping and China in general. That’s what Xi Jinping did when he wanted to put together his rule. And that’s actually caused a lot of problems on the ground in Vietnam because officials are so Afraid of the corruption purge that they’re not clearing new investments or not encouraging new infrastructure developments because they don’t, they’re worried that anything they do could be used against them as for being thrown in a prison or being thrown out of their position.

After Tron successor went away, there was a period of competition underneath the surface, and then a new president was eventually announced And after just one year in the job, we learned this week that he has now been felled in a new round of an anti graft purge. And this comes after in sort of January of this year the general secretary basically disappeared from view.

He was supposed to have a meeting with Jokowi in Indonesia. I forget if Jokowi was coming to him or if he was going to Indonesia, but he was sick. And he disappeared for a couple of weeks, and everybody was wondering, has something happened? Is his age or his health finally catching up with him? And I say all of this because Vietnam is one of those countries, it’s hard to get really solid information.

We can really just look at the, what’s simmering on the surface and try and interpret it. But if you just play that back, you’ve got that U. S. Vietnam Comprehensive Strategic Partnership. You’ve got An anti corruption purge, you’ve got the sort of picking of a new president, and then you’ve got the elimination of that president in a new round of anti corruption purges, plus the general secretary disappearing from view for a couple of weeks.

It does not take a genius to connect the dots here and say, that doesn’t look very good. Now, is that the general secretary asserting control over the system? Could be. Is that the general secretary has lost control of the system and now these competing factions, whether it’s North and South and whether it’s those that want a tighter relationship with the United States versus those that want a more pragmatic relationship with China, are they now duking it out in real time and putting their candidates up against each other and using the anti corruption purges to eliminate their other candidates?

We don’t normally get this level of Visibility into Vietnamese political intrigue in general and the last thing I’ll just say here is that it really highlights how difficult it is for the United States in a multipolar world to pursue relationships with some of these countries because it is not as easy as just, Oh, we’re going to get out of China and go to Vietnam, or we’re going to get out of China and go to India.

We’re going to get out of China and go to Indonesia. All of these countries are extremely complex, have their own issues, have plenty of anti Americanism sentiment in them themselves, not to mention protectionism and concerns about self sovereignty and everything else. And I think for a lot of reasons, Especially in the sort of the psyche of the United States, we want to think that we’ve gotten past our demons in Vietnam and that, oh, now we’re friends.

Remember, or I don’t know if, do you remember this when Obama went there and they, he sat in the noodle house with Anthony Bourdain and they, Yeah, exactly. I I wrote a whole piece about trying to imagine what was behind that picture because it looks like they’re just two casual dudes in a noodle house.

I wonder how much security and street clearing background checks had to be for every person who was in the shot. But I think Americans want to think that, okay, what happened in Vietnam was a long time ago, and now we’re going to be friends and we’re going to make up for our sins in Vietnam by, pushing back against China and helping them be more independent and sovereign in their own backyard.

It’s a little more complicated than that. And if you are in this business. a lot of, I won’t say negative because you could read it as the general secretary clamping down in the way that Xi Jinping has, which would be, would probably be a net positive if he succeeds. But what I think is the only thing that I feel comfortable saying with a lot of confidence, it is that Beneath the veneer of political stability that we usually have in Vietnam There’s a lot of competition happening and I don’t think the victor has emerged quite yet And that’s a big deal when you’re thinking about the balance of power in southeast asia and a lot of u.

s companies Who bet that vietnam was going to be their friend and be a favorable place to go?

Rob Larity: Do you think there’s any similarities between Vietnam today and China, say, in the early 1980s, where you had the jostling between different internal factions with very different views on what direction the country should take economically and politically? And, you still have communist true.

ideologues and hardliners up against, more pragmatic modernizer figures. Is that the framework that you would apply? How, what, how is it different and how is it similar?

Jacob Shapiro: Yes, but the difference is that was fairly early on in China’s growth miracle. And China still had favor maybe not favorable demographics, but not the very negative demographics that they have now.

The analogy is more recent. It’s China 2012 2013, when Xi Jinping emerges, Xi Jinping was a consensus candidate. He was seen, As a second rate guy that everybody could agree on and he shocked everyone by emerging and being much more powerful and much more ambitious than everyone thought and he then eliminated all of his rivals and now he’s the top dog.

But that was by no means clear that was going to happen in 2012, 2013, all these different factions were fighting against each other and because they couldn’t decide what to do, Xi Jinping gets elevated and then he makes all these other changes. So I think that’s. a more analogous situation to where Vietnam is right now.

You have these competing factions. Nothing has been decided yet, and there is no heir apparent. So maybe you get a successor chosen who we don’t even know what his eventual intentions are going to be. Maybe one faction emerges victorious over the others. Maybe I’m making too much of this and the general secretary has everything under control.

Maybe this, these are all just ways of eliminating other rivals so that he can get in and put in his handpicked candidate. But I would compare it to 2012 2013 China. I think the economic and demographic situations are not as favorable as it was for China in the period that you called out.

Rob Larity: They just killed the mouse by the way. I don’t know if you could hear that in the background. The poor mouse. I did not. Running around for the last two days in our office. Just finally

Jacob Shapiro: got gacked. That’s so sad. Poor went out for this poor mouse. He could have been the star of Ratatouille 3 and instead he’s been executed by these awful, French people without the dignity of a final meal of a croissant or anything else anyway.

Poor mouse. I’ll pour one out after we get off the podcast. We have to go in five minutes. So let’s close with a little bit of talk about chips. We finally have the U. S. Chips Act award to Intel. 8. 5 billion dollar in grants. There’s probably another 11 billion in loans that’s going to Loans with very generous terms that are going to come on top of that Intel is also going to get to claim federal tax credit that could cover 25 percent of the expense of its U.

S. Expansion projects, which are supposed to cost more than 100 billion over the next five years in the spirit and vein of micro geopolitics, the grants are intended to help fund construction in four states. Arizona, huh. Ohio, New Mexico, Oregon. I for the life of me cannot figure out why Arizona and New Mexico are on this list.

In my understanding of semiconductor manufacturing, it’s very water intensive and those are not places I would want to be if I’m in a water intensive business. But nobody asked me. But we’ve kick the tires on Intel here and there. We’ve talked on the podcast a lot about the decoupling of the semiconductor supply chain and how we’re going, there’s really no better example of how we’re going from globalization to multipolarity.

then how semiconductor supply chains are reacting. But I wanted to ask you two questions. Rob, what is your knee jerk reaction a for sort of the United States semiconductor manufacturing industry that the U. S. Government is offering this level of money? Do you think it helps? Does this put the U. S. Back on the map when it comes to things?

Is it a drop in the bucket? And then I also just wanted You to put your equity analyst hat on and say, is this the turnaround for Intel? Is this what everybody was waiting for? Intel shares were up 2 percent in the pre market trading. They were flat on the day after the market opened. They’re up another 2 percent today as we’re recording.

It was certainly not a massive jump. So I guess it was in the price or people think there’s going to be a much longer road to hoe. Give me your thoughts about what this means for U. S. Semiconductor industry and for Intel in particular, before you get out of here.

Rob Larity: Let me do Intel in particular first, and I guess.

We’ve looked at Intel a number of times throughout the years, I guess the greatest testament to what we found, cause these are, we could have all, several podcasts just on Intel would be that our core innovation strategy that we’ve been designing for the last year and a half and building now for our private clients is designed to own the assets that we think are going to be harnessed to, Kind of the big trends the technology revolutions that we’re focused on researching and while we have a number of semiconductor names in there, Intel is not one of those names, so any investment recommendation depends on your time horizon, so that’s why we don’t really do that.

But what I would say is there’s a lot of uncertainty there on Intel in particular and that’s before even getting into all the. Technology cycles and, the different kinds of chips that they’re doing. That’s a whole nother thing. More broadly, my sense is, um, we’ve talked about industrial policy here and the U.

S. Building, its own semiconductor supply chain and, all the talk about that. I suspect that when the semi cycle turns, and it is probably going to turn in the next 12 months, which is not really a consensus view, but I think, people are forgetting how cyclical this business is, and you’ve had a massive demand shock that’s Resulting in a pretty big supply response, and a lot of the little things on the edge that we monitor suggest it’s looking pretty peaky and maybe turning around little signs of, deceleration here.

I think once we’re on a different part of the cycle, the impetus behind a lot of this is going to fade. And I think this is going to be similar to what the U. S. is doing more generally in terms of Chinese supply chains, where we’re saying a lot of stuff, but we’re not really doing much that’s different.

I suspect the semiconductor, replicating supply chains, get away from Taiwan reduce your risk. I think that’s going to be put on the back burner. especially if inflation increases. I think the notion of throwing money at companies to build and invest is going to become less favorable than maybe it was two years ago.

But we will see. I’m not super bullish on the U. S. building out its own semiconductor capacity, if only because we’ve not shown ourselves to be very good at doing those sorts of strategic long term horizon initiatives in the

Jacob Shapiro: past. At least not in the last half century. We do have some evidence of being able to do it before then.

I would just say, some of this also depends on which who’s elected and what kind of power they have in Congress and things like that in the next election, I would just say a lot of, Listeners have found me in the last couple of months, either from agriculture or from energy, which those have just been the speaking events I’ve done lately.

And I just would say, if you’re in either one of those sectors, you should really be paying attention to what’s happening with Intel and what the US government is doing to support. These companies in general and how that support evolves over time, whether Rob is correct. And that support starts to flag a little bit or whether the United States government doubles down and starts giving more money there.

Because if the United States government is saying we want semiconductors to be manufactured here, food sovereignty and restricting energy exports. Those are the equivalence of that. And I think that we’re living in this sort of fever dream where, oh, we’re gonna bring some of these critical tech supply chains back to the United States, but you’re still gonna be able to export all your agricultural commodities anywhere you want in the world.

And we’re still gonna export LNG all over the place. It’s gonna be great for U. S. Energy exporters. That’s not the way it’s gonna work. There’s not gonna be one critical industry that is reshoring. And countries are going to be happy to import from the United States without any sort of consequences, even in abide administration.

So I’ve said this a couple of times to audiences. And if you found me through some of those recent speeches, you know that I put up that slide of sort of U. S. Ag self sufficiency versus U. S. Investments in tech infrastructure. Here’s a bright, shining klaxon for you to Pay attention to what’s going on here and pay attention to how this evolves, because it has implications for you and it has lessons for you, I think, going forward.

Rob, I’ve made you late enough. Anything else you want to say to the listeners before we get out of here?

Rob Larity: Go Japan.

Jacob Shapiro: Go Japan. And pour one out for the mouse. Okay. We’ll talk to you soon. And I’m sure we’ll pick it up there, if not next week, in the future. All I’m not gonna go enjoy the water park, but I gotta go give a speech.

So I will see you later, my friend. Thank you so much for listening to the Cognitive Dissidence podcast brought to you by Cognitive Investments. If you are interested in learning more about Cognitive Investments, you can check us out online at Cognitive. Investments. That’s Cognitive. Investments. You can also write to me directly if you want.

Jacob at cognitive dot investments, cheers. And we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions. This podcast may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

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