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?

 

 

 

 

 

It’s Called Acting, Dear Boy

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Or so Laurence Olivier is supposed to have said to Dustin Hoffman, during the filming of The Marathon Man, when Hoffman got a little too deeply immersed in his role.

It’s acting convincingly pretending to be a person you are not; experiencing events and emotions on the stage or screen that the actor might or might not have really experienced. It’s pretending, in the service of storytelling. In our current over-the-top state of extreme wokery, any kind of illogical insanity seems to rule; in this latest example, an American soprano singer, one Angela Blue, has made a great show out of quitting an opera performance, because of her objections to another opera performance and singer in the same venue. Angela Blue objected vociferously to Russian soprano Anna Netrebko singing in the title role of Aida, while made-up to appear as … gasp … Ethiopian. (A production design originated by the late Franco Zeffirelli, as an aside.) Angela Blue, who is African-American, terms it as ‘blackface’, although comparing serious grand opera to the buffoonery of vaudeville minstrel shows of a century ago is considerable of a stretch. What adds an interesting twist to this, is that the opera performance which Angela Blue walked away from was La Traviata, and her role as Violetta a French courtesan, and in the original concept, a woman not of any color save lily-white.

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Command Failure in the Ardennes, December 1944

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This past December 16th 2022 marked the 78th anniversary of the German Unternehmen Wacht am Rhein (“Operation Watch on the Rhine“) offensive in the Ardennes area of Europe, otherwise known popularly as “The Battle of the Bulge.”   The “official narrative” for this battle is that it was an “intelligence surprise” where “Ultra’ code breaking signals intelligence missed because Hitler kept all of the important communications on untappable telephone/telegraph land lines or special couriers. The sole exception being General Patton’s 3rd Army G-2 intelligence officer Colonel (later Brigadier General) Oscar Koch who didn’t rely upon ULTRA and put together the complete picture through a process now known as “All Source Analysis“. Which built an intelligence picture for every intelligence discipline. signals, human, photographic, geographic, combat reports plus dogged order of battle cross filing that sorted every bit of information to plot existence, location and status of enemy ground and air units. A week before the German attack, December 9th 1944, Colonel Koch briefed General Patton’s full 3rd Army staff as to German capabilities and most dangerous probable intentions of those capabilities. Based upon this briefing, Patton ordered his 3rd Army staff to put together a series of counter attack options that were immortalized in a scene from the 1970 movie PATTON.

 

Figure above from 1997 masters paper “Signal Security In The Ardennes Offensive 1944-1945“  Laurie G. Moe Buckhout, Maj. USA

Like a lot of narratives of World War 2, it uses a couple of nuggets of truth with the German ULTRA security black out and Colonel Koch’s brief to Patton to hide and conceal more than inform. It turns out that a lot more people on the allied side than Colonel Koch foresaw the impending German offensive. And that the failure to act on these multiple sources of accurate intelligence was a Command Failure by the “Ultra Cliques” of allied officers at Supreme Headquarters Allied Expeditionary Forces   (SHAEF), United States Strategic Air Force (USSTAF), the American 12th Army Group, and American 1st Army.

This command failure came less from a German security induced blindness of ULTRA than from a months long manipulation of Ultra intelligence data stream by senior officials in the British government — located in the Ministry of Economic Warfare, the “Oil Lobby” through out the Air Ministry and Whitehall ‘Committee Bureaucracy’ as well as the Directorate of Bombing Operations in the Air Ministry — intent on making German oil supplies the top strategic target set over German transportation targets in the Combined Bomber Offensive.   Their motives here were not only to collapse the German economy as a “War Termination Strategy,” but more importantly, make sure Air Power was seen as responsible for the German collapse  after the Russian capture of the Romanian Ploesti oil fields in August 1944.   (If you are seeing some post-war institutional motivations here…you are correct.)

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These manipulations were discovered in February 1945 by SHAEF when the after action forensic analysis by Royal Air Force Deputy Chief of Air Staff (DCAS) Air Marshall Bottomley found the Combined Strategic Targets Committee (CSTC) was systematically removing messages relating to the distress of the German Railroad, and collapse of the German economy resulting from the railway problems, starting in the fall of 1944.

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How to turn a recession into a Depression.

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The Fed has confirmed that we are officially in a recession. The actual decline in GDP is higher, though. It is at least -1.6%

What caused the Great Depression? Amity Schlaes’ book “The Forgotten Man” suggests that Roosevelt’s “Regulatory Uncertainty” was a big part of the cause. How were businessmen supposed to plan when policies changed from month to month ? The Roosevelt “Brain Trust” could not decide what might work. Some were good ideas, like the CCC which took young men off the street, helped them get into condition and did many worthwhile projects. Some, like the National Recovery Association, were Fascism which was popular in the 1930s.

Now, we face a disastrous shift in the national focus to imaginary threats like Global Warming. This has become all powerful among politicians because none of them know any science and the science people have become dependent on government funding. Fear is a great driver of government money. Climate science has become a rich field through flogging the unskeptics with fear of global warming. It doesn’t matter that there is no evidence of global warming or any of the other alleged threats. The super rich, like Barack Obama, are still buying waterfront estates no matter what they tell their followers.

Here is a proposal that might help.

Central planning always fails, but the utopian visionaries implementing the plans cannot admit that they are at fault. A scapegoat must be found. As a leading example, when Soviet dictator Josef Stalin’s collectivization of agriculture led to mass starvation, the official blame was placed on “saboteurs” and “wreckers.”

Our current-day analog is the centrally-planned replacement of our very large, inexpensive and highly functional energy system, mostly based on fossil fuels, with the alternatives of intermittent wind and sun-based generation, as favored by incompetent government regulators who don’t understand how these things work or how much they will cost. Prices of energy to the consumer — from electricity to gasoline — are soaring; and reliability of supply is widely threatened.

All of which brings our President forth to blame the current price and supply issues in the energy markets on anything but his own administration’s intentional efforts to suppress the functional fossil fuel energy. One day the scapegoat is Vladimir Putin; another it is “companies running gas stations,” who stand accused of price gouging.

One possible solution is to use the states as experimental laboratories.

With federalism in energy policy, we can have New York forging ahead with its “Climate Leadership and Community Protection Act,” and California doing the same with its SB 100 — both of them seeking to eliminate fossil fuels from the generation of electricity, and then to force all energy consumers to use only electricity for their supply. Will that work? If New York and California are successful, they will be a model for the rest of the country to follow. Congratulations will be in order. If they fail relative to other states — that is, if they see energy prices soar, or frequent blackouts or shortages of needed energy — then it will be obvious to all that it was the green energy that failed, and not that there were “saboteurs” or “wreckers” or “price gougers,” who after all could have attacked the other states as well.

Well the Feds allow this? Probably not with the current regime in power.

Fortunately, the red states are not just going along with this kind of thing any more. This will be a critical battleground over the next five to ten years.

We will see after the election. Many Republicans are in thrall to the climate hoax.