Pelosi & Semiconductors

Macro Perspectives

Yesterday we talked about the noise surrounding Pelosi's trip to Taiwan. What was the geopolitical strategy behind it?

Beyond all of the speculation about the signaling involved, there was good reason to believe there was a practical purpose to the trip.

Again, it came on the heels of the passage of the Chips Act (which came just this past Thursday). And who is the most important chip producer in the world? Taiwan Semiconductor (symbol TSM).

Given the timing of it, we discussed the likelihood that this trip could mostly be about negotiating the building of more productive capacity, of the world's most advanced microchips, in the U.S. (via U.S. government subsidies).

Indeed, it was reported by Nikkei news that Pelosi met with both the founder and Chairman of TSM.

Why does the U.S. government care so much about a Taiwanese chip maker that they would send the number three person in government, under the threat of Chinese aggression, to (likely) offer them (more) direct U.S. taxpayer money?

Influence over Taiwan - TSM - is an existential threat to both the U.S. and China, critical to both their economic and national security.

TSM is the world's chip manufacturer. They manufacture 90% of the world's "advanced" microchips, which power the cutting edge digital technology, critical infrastructure and weaponry used today. Most of the chip makers we know by name, have over the years become just designers, and have outsourced manufacturing to TSM.

That makes everyone vulnerable - thus, the Chips Act. And thus the importance of protecting the global supply coming from Taiwan, until manufacturing and the technological leadership can be diversified (i.e. onshored to the U.S.).

TSM is already building manufacturing in Arizona, whilst Intel is making strides to catch up to the sophistication level of TSM chips, while also making big investments to build manufacturing, including foundry business (where they produce competitor chips, too).

With the above in mind, most of the key chip stocks are down more than 30% on the year, yet are in the pipeline to get significant government money. Institutional money tends to follow government money.

Chart below shows three major Semiconductor ETF’s.

---

The Gryning | Portfolio

Estimated Performance Summary

Anti-Constrained Portfolio

• July: 2.65% vs Benchmark (VBIAX) 6.50%.

• Year To Date: -8.39% vs Benchmark (VBIAX) -11.70.

Uncorrelated Convexity Portfolio

• July: 1.93% vs Benchmark (VFIAX) 9.21%

• Year To Date: 12.04% vs Benchmark (VFIAX) -12.12%.

More information regarding the Portfolio’s is available in the ‘About’ section of this publication. If your interested in moving ahead with acquiring the composition & weightings of the portfolio, you can reach me on: aaj.tgt@protonmail.com.

**These numbers represent our best estimates at time of publication but are likely to change after accounting is finalised later in the month.