Nancy Pelosi and I Have Something in Common

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…both of us will benefit from increases in the price of Nvidia stock.

Paul Pelosi acquired 20,000 shares of NVDA (via a call option exercise) in June of this year.   I’ve been an NVDA shareholder for several years, and sold part of the position at prices considerably more favorable than today’s price of $178/share.

Given that the CHIPS act, which is intended to benefit the US semiconductor industry, is now before Congress, concerns have been raised about whether Paul Pelosi’s purchase might have been influenced by insider information related by his wife.

I note that Nvidia is not thrilled with the bill as currently drafted: it provides benefits for semiconductor manufacturing companies, and Nvidia is not a manufacturer…it is a   ‘fabless semiconductor company’, ie, a design, software, and marketing house.   The actual manufacturing is done by contract manufacturers, especially Taiwan Semiconductor Manufacturing Company.   Some market participants do,   however, have hopes that in the final version of the bill the subsides will be expanded to encompass chip-design companies.

The bill would include ‘guardrails’ to prohibit recipients of the subsidies from making investments to expand chip manufacturing capacity in countries of concern, namely China. There may be an exemption for countries-of-concern whether that chips being made are at >28nm notes, ie, a long way from high-end.   But one industry analyst said:

The guardrail doesn’t change that most of Intel’s or Texas Instruments’ test and packaging is done in China and will continue to be done in China. What use are new fabs for national security if they have to go to China for test and packaging anyways?

I think there are a couple of issues here.   First is the issue of Congresspeople potentially profiting from inside information.   The Pelosi buy does look very bad from this standpoint, especially when there are headlines associating Nancy Pelosi’s support for the CHIPS bill with increases in certain stocks–which include NVDA.   It’s quite possible that this particular transaction is an innocent one, given that the bill as it stands is not one that Nvidia would have preferred, and also that NVDA price is now low enough, in the context of recent history and the general excellence and positioning of the company, that one could develop an entirely reasonable ‘buy’ case without benefit of any inside information.   But the issue of officeholders profiting from inside information is a serious one, and becomes more serious with every further entwinement of government into the details of the economy.

But there is an even more important issue: Do we really want the level of investment in particular industries to be largely controlled by government?   It is true that the semiconductor industry is vital to the US economy and to US national defense…but this is true of a lot of other industries as well.   How about pharmaceuticals and their precursor materials, for example?…I seem to remember threats from Chinese sources to let American burn in the fire of Covid by withholding pharmaceuticals.   What about large transformers, which are vital to the electrical grid and take a long time to manufacture?   What about key minerals, many of which are in fact present in the United States but are mostly sourced from elsewhere because of legal and cultural hostility toward mining?   What about machine tools?

I have low confidence in the ability of Congress, or of government in general, to determine what industries and what specific segments of those industries are truly vital.   There are many complex interconnections which are not easily understood.   I remember that during the pandemic, GE Healthcare was asked to produce a large number of ventilators in an accelerated timeframe. It turned out that they were using a very small contractor…a 3D printing shop, IIRC…which had been shut down as ‘nonessential’.

I’d prefer to see legislative solutions which improve the US business climate for manufacturers in general and for ‘thing’ businesses in general, to the crafting of specific ‘solutions’ for specific industries.   Legislation should deal with the general case as much as possible, rather than functioning as a Reverse Bill of Attainder.   But developing such legislation requires ability to think in abstract terms, and is not a comfortable to politicians who think mainly in terms of interest groups to be used or placated.

Here is the text of the CHIPS bill.

There is also a proposed broader US competitiveness bill, the United States Innovation and Competition Act.

Here’s a WSJ Opinion piece on the CHIPS bill and its proposed galactic expansions.

And here’s Intel CEO Pat Gelsinger and Ford CEO Jim Farley arguing the case for semiconductor subsidization.

Thoughts?

 

 

 

 

 

30 thoughts on “Nancy Pelosi and I Have Something in Common”

  1. I don’t really know about the CHIPS bill and all the rest, but I have been pounding the table forever on NOT letting any congresscritters or their immediate family be allowed to own any stocks, with the exception mutual fund or equivalent instrument, say, worth over a billion dollars, with no concentrations of stocks over five percent in said funds.

    I’m sure there are always end arounds to my basic proposal, but this horseshit has to stop with the lawmakers frontrunning the market.

    It is completely ridiculous.

  2. Yes, Nancy is completely corrupt, as are most Congresscretins.
    I think this is probably a bit overblown, because this CHIPS Act or whatever has been talked about for months as something the Dems were going to push as a standalone bill if/when their attempts to strongarm Joe Manchin into voting to destroy the economy failed.
    And yes the federal micromanagement of industries is a terrible idea and opens up all sorts of possibilities for corruption of various types. Hence there being zero constituency in legislative bodies to end it. Officials can say they voted to support the industry, and their friends and families can benefit explicitly.

  3. Congress has always been corrupt. Mark Twain famously said, “No man’s life, liberty or property is safe while Congress is in session.” The difference is that, when he said it, Congress had much less to do with the economy than they have now. Congress, since the McCain-Finegold Law, has been largely a fund raising body and has delegated legislation to the Administrative State. The massive role of government began with the War Fascism of the Wilson Administration. That was rolled back in the 1920s by Harding and Coolidge but, after 1929, it came roaring back with Hoover and Roosevelt. World War II completed the transition. David Brinkley had a great book about the transition, “Washington goes to War.”

  4. “I’ve been an NVDA shareholder for several years, and sold part of the position at prices considerably more favorable than today’s price of $178/share.”

    Its likely she bought because of the bitcoin crash. That has made Nvidia’s cards worth quite a bit less, and tanked their shares.

  5. It’s been a number of years since a graphics card was capable of mining Bitcoin at a profit. and the drop in “value” puts that even further out of reach. Some other cryptos may still be profitable without dedicated rigs using custom ASICS. You’d have to ask somebody that cares.

    That’s probably a good thing for Nividia since it means that with crypto crashing as sanity and reality asserts itself they should not crash with it. They are going after AI which may turn out to be a major market assuming this time it amounts to something. They are either unwilling or unable to pursue the power/performance curve to become a player in the phone market.

    The actual chips are probably the smallest part of the ongoing shortage. The hangup is all the steps between a wafer and packaged device. Even there, the things I’ve seen in terms of shortages are not the top line CPU’s and GPU’s as much as all the much smaller cheaper chips and components where a penny or two is a large proportion of the price. A circuit board worth thousands of dollars is so much e-waste unless all the chips are there.

    I have perfect faith that this just another example of the government passing out billions to the wrong people to fix the wrong problem. My regret is that I’m not imaginative enough to get in line for some of it.

  6. Chips are in odd places. On a recent (last month) cruise, the fancy coffee machine (makes espresso, cappuccino, etc). was permanently out of order and couldn’t be replaced or repaired because a chip or maybe several were unavailable. To my surprise, at a restaurant during the same time period, several dishes were unavailable because the deep fat fryer was hors de combat and no replacements were available – chip shortage meets supply chain problems. Of course, prior to our modern age either could be replaced by an experienced and reliable employee – but these no longer exist either, apparently.

  7. About five years ago, I had a refrigerator fail in a weekend home in Tucson. A friend who kept an eye on the place stopped in and smelled the rotting stuff in the freezer. This is where I learned about modern refrigerators. The motherboard had failed and replacing it was a thousand dollars. A month later, the same thing occurred and the new motherboard had failed. At least the appliance repair place had a warantee and I did not have to pay twice.

  9. If the GOP had any brains, or any backbone, they would have simply told the Dems, first quietly, and then publicly, that every single member of this “committee” will be kicked off every single committee in the next Congress, there will then be another “select committee” seated to investigate this atrocity, the Dems will not be allowed to have members, every single member of the Democrat Congressional leadership will be subpoenaed, etc. Fight fire with nukes. But of course we know that the GOPe has no spine, and that they are run by quislings and traitors, and will do nothing. Purge them all, then do all the above.

  10. Seen elsewhere – a person’s washing machine stopped working. When he called a repairman the first question asked over the phone was “did you unplug the machine and then plug it back in.” This served as a reboot and got the machine working again with no need for a service visit.
    As for innovation – only bureaucrats could think you can turn creativity and inspiration on and off like an assembly line.

  11. “It’s been a number of years since a graphics card was capable of mining Bitcoin at a profit.”

    I believe this is true, but there are several other coins the NVIDIA cards kill on, and their cards were widely used for them.

  12. Frank…”As for innovation – only bureaucrats could think you can turn creativity and inspiration on and off like an assembly line.”

    You can’t, of course…but wise people can create a climate that is more innovation-favorable, and unwise and/or malevolent people can create a climate that is innovation-hostile.

    As an example of the latter, note that our supposedly-pro-innovation conference modified the tax code such that R&D expenses must be depreciate over 5 years rather than expensed when incurred.

  14. “Chips are in odd places.” Chips are everywhere. Do you remember the sneakers with the lights that flashed as they walked?

    This was a long time ago and I had assumed that they used some sort of simple switch. I was surprised when I read an article in a trade paper that explained that the lights were actually controlled by a tiny microprocessor. One in each shoe. These aren’t very powerful but they do qualify as a computer in their own right.

  15. correction…”our supposedly-pro-innovation CONGRESS modified the tax code such that R&D expenses must be depreciated over 5 years rather than expensed when incurred.”

  19. I don’t see a link to this whole report, but clearly Milley needs to be thoroughly investigated, he was without question completely up to no good, starting from sometime in mid-2020.
    Someone trustworthy needs to be in charge of a real investigation in his actions and the military and IC and federal LE before and after the election, especially regarding Jan 6, in Congress starting next year and in the White House in 2025.
    https://twitter.com/julie_kelly2/status/1551243529049047044
    Holy sh*t. This is from DOD IG report on January 6”¦DOJ supposedly was lead agency but in reality it was DOD.
    And looks like Milley ran the show:

  22. Both Schiff and Dick’s daughter now openly threatening to subpoena Clarence Thomas’s wife, after clearly setting the precedent that refusal means jail, and I haven’t heard a single peep from anyone in the GOP to threaten to rain down fire on the Dems if this doesn’t stop immediately.

  23. “I haven’t heard a single peep from anyone in the GOP to threaten to rain down fire on the Dems if this doesn’t stop immediately.”

    Seriously, when was the last time we heard anything of substance from the Institutional GOP?

    It seems like the Swamp Creatures are hoping that everyone is so pissed off with the utter incompetence of Biden*’s handlers that we will all rush out and vote Institutional. And then they expect their 20/80 share of the good things than flow in the Swamp will switch to an 80/20 split in their favor.

    Running as “Not the Democrat” may have worked before for the Institutionals, but that could be the wrong approach this time around. Unless the Swamp GOPers can give a heartfelt apology for their prior failure when they had House, Senate, & Presidency, and explain the systems they have put in place to make sure it never happens again, and provide a serious program to turn the country around … there are a lot of us who will sit on our hands on voting day.

  24. WSJ today:

    “Money from Washington always comes with strings attached, and we hope the semiconductor CEOs know what they’ve signed up for.

    That message couldn’t have been clearer from President Biden on Tuesday when he told business and labor leaders on a conference call that the bill’s $52 billion in grants for Intel and other chip makers would not be “a blank check to companies.” The President said he will “personally have to sign off on the biggest grants.”

    Uh-huh…and what do you think Biden’s criteria for such sign-off might be?…a deep analysis of which projects offer the greatest economic & resilience benefits to the US economy? Does Biden know the difference between analog, digital, and mixed-signal chips, or what kinds of products might need a 5nm chip or better, or what an FPGA is?…Does anyone in his cabinet have the interest and ability to understand what the best strategic investments would be?

    Decision criteria will be largely political, I feel sure, ranging from what geographical areas are most important from an election POV to which companies are most synced up with the most approved forms of Wokeness.

  25. And which ones have connections to his brother, and Nancy’s husband, and Chuckie’s friends, you can be sure…

  27. Japanese companies had lots of problems assimilating to American culture when they first started building plants here. Things eventually smoothed out and seem to be going well. Some of their problems seem to be peculiar to Arizona and some directly related to proximity to Intel. Maybe they should have taken time to think things through and look past the undoubtedly large amount of money that Arizona bribed them with. It’s a big country. They may come to regret locating in a place with a rapidly declining water supply as well.

  28. TSMC, a Taiwanese company with multiple factories in mainland China, looking to open factories in the US with massive government subsidies.
    Sounds like it can’t possibly not work…

  29. MCS…”They may come to regret locating in a place with a rapidly declining water supply as well.”

    Yes, given the water requirements of chip-making it seems odd to locate such plants in the desert. One reason may be the need for extreme geological stability, since even the slightest earth tremors or foundation settling can throw precision equipment just a little out of alignment.

  30. They don’t use too much water for the actual chips, mostly for cooling. All the workers will be wanting water too. Next to look for is massing troops on the Arizona-California border.

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