All across the world, supply chains that were disrupted by Flu Manchu lockdowns don’t seem to have fully recovered. Maybe it’s because some political entities are still doing lockdowns, or maybe it’s because vaccine mandates are making critical worker shortages worse. Here are a few data points:
Remember The Great Toilet Paper Panic of 2020? It’s back!
Costco warned customers this week about a toilet paper shortage as the wholesale retailer is having challenging time stocking shelves due to supply chain disruptions, according to Fox News.
Costco told Fox News via an email statement, “Due to increased volumes, you may see a slight delay in the processing of this order.” The retailer noted that the company is “working to fulfill everything as quickly as possible.”
Costco announced purchasing limits on some products but didn’t mention specific items, saying, “some warehouses may have temporary item limits on select items.”
Some shoppers have reported other items of Costco warehouses are either in short supply or there are purchase limits.
Bottled water seems another shortage item.
As for myself, I made sure to start picking up one of the giant megapacks of toilet paper every trip to Sam’s back when lumber prices started spiking, on the “wood = paper” theory, so I’m set for a while.
The semiconductor shortage is getting worse. “A wave of delta-variant cases in Malaysia, Vietnam and the Philippines is causing production delays at factories that cut and package semiconductors, creating new bottlenecks on top of those caused by soaring demand for chips.” Eh, the slice-and-dice portion of the business is some 20 orders of magnitude less demanding than the actual fabrication process, so I expect that hiccup to be overcome quickly. The fab capacity constraints are going to be with us until next year when more capacity starts coming online (or the Biden Recession starts driving the smaller fabless design houses out of business, freeing up foundry capacity). And Biden Administration threats to invoke the Defense Production Act over semiconductor shortages shows that they have no frigging clue how the semiconductor industry works. The auto manufacturers screwed up by cancelling foundry runs last year, which means they’re paying the price this year. No bureaucratic inquiry is going to result in expanded fab capacity, any more than nine women can get together to produce a healthy baby in one month, and there’s no “hoarding” going on.
Shortages are also reported of big rig and diesel parts:
Everyone's worried about computer chip shortage for graphics cards, personal vehicles, but they all forget… The supply line that runs it.
Big diesel trucks. The chips are so short handed now trucks are sitting for weeks. pic.twitter.com/LgTEm3cgtV
On the ammo shortage front, I’m hearing from friends that it’s still pricey, but can be found a bit more readily than last year. According to this report, handgun ammo is starting to be more available, but rifle ammo is still very scarce with hunting season looming.
Finally, from back in August, here’s a piece on how supply chain disruptions were going to get worse.
The demand for shipping containers greatly exceeds the supply, and this has pushed global shipping container rates to levels we have never seen before.
And once shipping containers are delivered to U.S. ports, there isn’t enough port workers to unload them all.
It can now literally take months for products that are made in China to get to the U.S. retailers that originally ordered them.
Some data points for your consideration rather than attempted prognostication on whether things are getting better or worse.
I’ve been writing about China’s bubble economy for over a decade, from the housing bubble to the Ghost Cities and even ghost collateral. And now China’s entire house of cards appears to be trembling thanks to a company called Evergrande, which owes more than $300 billion.
China Evergrande Group, until recently the world’s largest property developer, owns dozens of stalled sites like Sunny Peninsula across China. Buckling under more than $300 billion in liabilities, the company is close to collapse, leaving 1.5 million buyers waiting for finished homes.
That’s why Evergrande has reached its Lehman moment:
Instead of Evergrande making the announcement, it was the entity that will soon control the massively overlevered property developer that made it for them: the Chinese government.
According to Bloomberg, Chinese authorities told major lenders to China Evergrande Group not to expect interest payments due next week on bank loans, which takes the cash-strapped developer a step closer the nation’s largest modern-day restructurings, and guarantees that China’s “Lehman Moment” is now just a matter of days, if not hours.
According to Bloomberg, citing unnamed sources, the Ministry of Housing and Urban-Rural Development told banks in a meeting this week that Evergrande won’t be able to pay its debt obligations due on Sept. 20, and instead most of Evergrande’s working capital in now being used to resume construction on existing projects, the housing ministry told bankers, according to a Bloomberg source.
And since nonpayment of interest and principal will represent an event of default, the company is unlikely to make any subsequent interest, or principal, payments either since it will have already default even though Bloomberg claims that “Evergrande is still discussing the possibility of getting extensions and rolling over some loans.” It won’t, especially since the developer will also miss a principal payment on at least one loan next week, which means it’s game over.
Meanwhile, as reported previously, Chinese authorities are already laying the groundwork for a debt restructuring of the $300 billion company (which recently hired Houlhan Lokey to advise it during the upcoming historic bankruptcy), assembling accounting and legal experts to examine the finances of the group. With senior leaders in Beijing silent on whether they will allow Evergrande creditors to suffer major losses, bondholders have priced in slim odds of a rescue infuriating countless investors and creditors who have mobbed the company’s offices across the country and also gathered at its HQ, demanding the company “return their money.” It won’t happen.
Not only is Evergrande possibly facing complete liquidation, but word came down that the company might make payments on Chinese-owned debt, but stiff foreign debt holders.
But the word this morning is that the Chinese government is now telling them to avoid default on dollar-denominated bonds. After all, if investors worldwide decided that all Chinese debt was potentially toxic, that would leave connected Chinese communists in a world of hurt.
And we can’t have that.
The unusual thing about Evergrande is that they owe money to everyone:
It seems to me that what is interesting about Evergrande is not so much the magnitude of its debt problems but their variety. Evergrande owes money to Chinese banks. It owes money to foreign hedge funds, and foreign investors own its stock. It owes money to suppliers, and to Chinese retail investors in those wealth management products. And it owes apartments to buyers. And the retail investors who bought Evergrande wealth management products were often also Evergrande homeowners, because the products were sold at Evergrande buildings.
It even took out short-term loans from its own employees. Also, it’s evidently stopped paying some employees. I don’t know about you, but for me both those would be signs it was time to look for another job.
When a big company runs out of money, the basic questions are (1) who gets paid and who doesn’t and (2) should the government pay its debts for it? Those questions are interconnected. There is an ordinary way to answer the first question, some waterfall of claim seniority. You look at the company’s capital structure and say “well these people have senior claims and will get paid back, and these people have junior claims and won’t, and these other people are somewhere in the middle and might get some recovery.” And there are complex and subtle questions about the best way to preserve value in the business: Perhaps you have the legal right to stiff customers (perhaps their deposits aren’t particularly senior claims), but if you do that you’ll never get any more customers, so you treat them better than you are legally required to. And the managers of the business and the creditors and the lawyers work together to figure out a plan that maximizes the recovery for everyone.
But if the ordinary process to answer the first question ends up with an answer like “sympathetic ordinary people lose their life savings,” or “politically connected people lose everything,” or “the banking system loses a lot of money and becomes undercapitalized,” or for that matter “housing prices collapse,” then that is a good reason for the government to step in. And if the government is stepping in, there is no particular reason to assume that the ordinary claims of seniority will apply. If the government steps in to rescue small investors or the banking system or housing prices, that doesn’t necessarily mean it will also rescue foreign hedge funds.
Bloomberg’s Joe Weisenthal and Tracy Alloway did an Odd Lots episode with analyst Travis Lundy about this, in which he gives his best guess at a waterfall of repayment. “I think that if you start from the ranking of who ends up coming out well on this, if you had to ask, this is the Communist Party of China who’s the most important stakeholder in this,” he says, and then goes through a list of claimants ordered by, basically, how politically sympathetic they are. This seems like a more reasonable analysis than, like, looking at the corporate structure and legal document to see which claims are more senior.
After the subprime meltdown in 2008, steps were taken to reduce systemic risk in the American and European economies. China? Not so much.
Whatever the ultimately resolution of Evergrande, the Chinese real estate market still seems both way over-leveraged and horribly opaque.
That wasn’t Evergrande, but a dizzying succession of other firms:
The original developer was Kunming Xishan Land and Housing Development and Operation (Group) Co., Ltd. (hereinafter referred to as Kunming Xifang). The project covers an area of about 340 acres. It is planned to have residential, commercial and office buildings. It is divided into 4 plots for development and construction, namely A1, A2, A3, and A4. Among them, the A1 and A3 plots are commercial, and the A2 and A4 plots are residential, with a total construction area of approximately 630,000 square meters. Among them, the delivery of four high-rise residential buildings on the A2 plot has been completed, with a construction area of about 136,000 square meters.
In 2012, due to the break of Kunming Xifang’s capital chain, the project was taken over by Yunnan Tin Industry Real Estate Development and Management Co., Ltd. (hereinafter referred to as Yunxi Real Estate). The project was renamed Yunxi·Gemdale. In July 2013, due to various reasons, Yunxi Construction of Sikkim Land was suspended. 2014 was originally the delivery time for the A2 plot of Yunxi Jindi, but due to the suspension of the project, the delivery did not begin until March 2015. In addition to the 4 high-rise buildings in the A2 plot that have been delivered, the remaining three plots A1\A3\A4 totaling 15 high-rise buildings have been suspended since the end of 2013.
In order to solve the problems left over from the unfinished project, the government restarted the project through the listing and transfer of the Yunnan Provincial Property Rights Exchange. On December 29, 2020, Yunnan Honghe Real Estate Co., Ltd. obtained the right to develop the project through equity transfer.
According to Sun Zheng, general manager of Xifang Group’s Liyang Star City Phase II Project, on January 6 this year, Yunnan Honghe Real Estate Co., Ltd. acquired 100% of Kunming Xifang’s equity and 23,068,600 yuan of debt at a transfer price of 979 million yuan. At present, West Real Estate is a wholly-owned subsidiary of Honghe Land. In order to maintain the continuity of project development, Liyang Star City Phase II will continue to use West Real Estate as the main development entity.
Got all that? That’s just one development in one city you’ve never heard of. How many other ghost developments are there in China? Hundreds? Thousands?
Another real estate boondoggle: Why Shanghai Tower failed. “The Shanghai Tower is owned by Yeti Construction and Development, a consortium of state-owned development companies which includes Shanghai Chengtou Corp., Shanghai Lujiazui Finance & Trade Zone Development Co., and Shanghai Construction Group.”
Remember that declines in real estate holding values were huge drivers for Japan’s bubble bursting as well as the subprime meltdown that took out Lehman Brothers and Countrywide (among others).
Could China’s house of cards finally collapse in the same way? Very possibly. But remember this caveat:
China's economy can be about to collapse longer than you can remain short.
Hunter Biden is the gift that keeps digging: “The Russians have videos of me doing crazy f***ing sex!’ Hunter Biden is seen in unearthed footage telling prostitute that Russian drug dealers stole ANOTHER of his laptops.” 1. Hunter has more Russian-related felonies in a single weekend than Donald Trump had in his entire lifetime. 2. I don’t lose pennies the way Hunter loses laptops…
The obvious fact is, however, that this corrupt corporate press and the Jennifer Rubin “conservatives” of the world are the ones who propped Cuomo up as “the gold standard,” to use Joe Biden’s words, even describing themselves as “Cuomosexuals.”
Cuomo’s “radical transparency” made him a “terrific bureaucrat,” they said. Cuomo is “inspiring, uplifting, fascinating,” and truly “magnificent,” they insisted. He’s “honest, direct, brave,” and what “real leadership” looks like. Elites gave him an Emmy and blessed him with softball interviews and comedy-hour airtime, with left-wing activists working behind the scenes to discredit Cuomo’s accusers.
Tuesday’s resignation signals it’s the end of the road for Cuomo — for now. But if the media can sit and twiddle its thumbs — or worse, kiss keister and perform comedy sketches with giant Q-Tips — while thousands of elderly folks die in New York nursing homes and women in the double digits tell of a gropey governor’s disgusting habits, we must ask: How many other Andrew Cuomos is the media covering for?
Covering for elite misconduct is a perpetual problem in the media; it didn’t start with Cuomo. As Federalist Political Editor John Daniel Davidson wrote on Tuesday, the media did the same with Harvey Weinstein, Jeffrey Epstein, and Theodore McCarrick. Don’t forget Bill Clinton or Roman Polanski, either.
“Everyone knew. No one cared. No one said anything until forced to. Then the feigned shock and outrage, the concern about the treatment of women, the hand-wringing and Me Too-ing, the performances on social media,” Davidson wrote. “As long as sexual harassment, assault, abuse, even the sex trafficking of underage girls stays quiet, then [the media] stay quiet, too.”
You read all this and think: The governor is a letch, a creep, a dirty old man. But also a nut—a high-functioning one, a politically talented one, but a nut. Only a nut would do these things, and only a nut would think he wouldn’t be found out.
No one in New York is walking around saying “I don’t believe it” or “That’s not the Andrew I know.” It’s apparently the Andrew Cuomo a lot of people knew.
(1) When they say inflation will "spike" or increase this year, and then "come back down next year", what they are saying is the price will skyrocket…. AND THEN the price will remain high.
(14) They didn’t. Consumer prices did not increase.
Trump knew they wouldn’t because essentially those trading partners responded in the exact same way the U.S. did decades ago when the import/export dynamic was reversed. pic.twitter.com/FyID9YCSwN
(16) To retain their position, China and the EU responded to U.S. tariffs by devaluing their currency as an offset to higher export prices. It started with China, because their economy is so dependent on exports to the U.S.
Baltimore professor arrested for dealing math. “Prof. Edward C. Ennels taught math at Baltimore City Community College but appears to have been offering a running lesson on supply side economic theory. Ennels reportedly was selling grades on a sliding scale depending on your worth and your ambition: $150 for a C; $250 for a B; and $500 for an A. He has now earned jail time after pleading to 11 misdemeanor charges, including bribery and misconduct in office.”
Speaking of Baltimore schools failing their students: Some Baltimore high school students test at grade school levels.
Dan Crenshaw slams Jennifer Ruben for a huge mistake:
You’re a liar and an idiot. The number you referenced is TOTAL hospitalized since the beginning of the pandemic. Not newly hospitalized. https://t.co/1I7CRES2qA
That’s a hell of a correction. “When we wrote Nolan Ryan struck out 383 batters in a single game, we meant he struck out that many in a single season…”
Individuals and institutions were allowed to choose to align their investments with their values. They could sleep at night knowing that their capital was not supporting causes with which they disagreed, morally or politically. The only cost associated with this socially conscious undertaking was a hit to investment returns, which was inevitable but was accepted voluntarily as the price of peace of mind.
But these days, that’s simply not enough for the Big Sisters of Social Justice Warriorhood. Why make something voluntary when they can force it down your throat? Hence the push for Environmental Social Governance (ESG), a backdoor way to impose far-left values on corporations without having to deal with shareholders at all.
Environmental, social and governance (ESG) is the biggest trend in finance and business. Index funds focused on sustainability oversee $250 billion of assets. Corporate leaders signaled their alignment with ESG when more than 180 CEOs signed the Business Roundtable statement on business purpose.
In contrast to the older ethical investment movement, which accepted that morally constrained investment strategies incur costs, ESG proponents claim that investors following ESG precepts earn higher risk-adjusted returns because companies with high ESG scores are lower-risk. Thus, their stock price will outperform, whereas those firms with low ESG scores are higher-risk, leading them to underperform.
This supposition conflicts with finance theory. Once lower risk is incorporated into a higher stock price, the stock will be more highly valued, but investors will have to be satisfied with lower expected returns. Unsurprisingly, claims of ESG outperformance are contradicted by studies.
Claims that ESG-favored stocks outperformed during the Covid-19 market meltdown disappear once other determinants of stock performance are controlled for. ESG factors were negatively associated with stock performance during the market recovery phase in the second quarter of 2020.
The corollary of the ESG thesis—that low-ESG-rated “sin stocks” are condemned to underperform the stock market—is decisively refuted by the data. When institutional investors “went underweight” by selling down their holdings in tobacco stocks, it made them cheaper for other investors to buy and make money, especially when they subsequently outperformed the market.
The profit opportunities that ESG creates for Wall Street, however, are clear. BlackRock charges 46 cents annually for every $100 invested in its iShares Global Clean Energy ETF and just 4 cents for its iShares fund linked to the S&P 500.
The Trump Department of Labor’s controversial rule on ESG in corporate retirement plans became final in October 2020. In effect, the rule calls Wall Street’s ESG bluff: “You claim ESG investing boosts investment returns net of costs; Show us on the basis of generally accepted investment theories.” Rather than use the Congressional Review Act to nullify this rule, the Biden Department of Labor says it won’t enforce it.
ESG is supposedly about the objective assessment of investment risk. The stated purpose of the Sustainability Accounting Standards Board (SASB), a body supported and funded by Michael Bloomberg, is to provide a disclosure regime that better enables investors to assess risk, climate risk being a major one.
At the same time, the SASB aims to harness the power of capital markets for political ends. Just as the Covid pandemic was sweeping the globe, Bloomberg declared climate change the biggest threat to America and the world. “How do you replace dirty energy?” he asks. “Stop rewarding companies from making it.” ESG thus becomes politics pursued by other means.
Climate risk is primarily about the potential costs of future climate regulation, but the cookie-cutter climate disclosures required by ESG standard-setters are systematically misleading because they treat the world as a homogenous regulatory space. Climate regulations are made by states and vary from the stringent and unachievable in parts of Europe to the virtually nonexistent in many other parts of the world.
Requiring corporations to bind themselves to unilateral greenhouse-gas targets imposes a penalty in competing against companies less beholden to ESG ratings (the unlevel playing field). Forcing corporations to lose market share and shrink their operations constitutes a covert form of divestment. Shareholders lose for no climate gain.
Regulation by governments is not only more efficient but also possesses democratic legitimacy. Proponents claim that ESG is necessary to achieve inclusive capitalism, but political power wielded by a handful of billionaire Wall Street oligarchs provides a pretty good definition of insider capitalism.
The weaponization of finance by billionaire climate activists, foundations, and NGOs threatens to end capitalism as we know it by degrading its ability to function as an economic system that generates higher living standards. This usurpation of the political prerogatives of democratic government invites a populist backlash.
The Real Clear Foundation report leans heavily on the environmental end of things, but ESG also has a strong Social Justice component, as this clip from Joe Rogan’s interview of VJ/Podcaster Adam Curry discusses:
ESG is yet another attempt to impose top-down wokeness by subterfuge on people and institutions that would never voluntarily agree to it.
“I just want to go back to my Tennessee mountain home now.”
Well, you know she’s not gonna go back home.
And I know she’s not gonna go back home.
And she knows she’s never gonna go back there.
And that’s a good summary of many former office workers post-coronavirus: They’re never going back.
With the coronavirus pandemic receding for every vaccine that reaches an arm, the push by some employers to get people back into offices is clashing with workers who’ve embraced remote work as the new normal.
While companies from Google to Ford Motor Co. and Citigroup Inc. have promised greater flexibility, many chief executives have publicly extolled the importance of being in offices. Some have lamented the perils of remote work, saying it diminishes collaboration and company culture. JPMorgan Chase & Co.’s Jamie Dimon said at a recent conference that it doesn’t work “for those who want to hustle.”
But legions of employees aren’t so sure. If anything, the past year has proved that lots of work can be done from anywhere, sans lengthy commutes on crowded trains or highways. Some people have moved. Others have lingering worries about the virus and vaccine-hesitant colleagues.
And for [Portia] Twidt, there’s also the notion that some bosses, particularly those of a generation less familiar to remote work, are eager to regain tight control of their minions.
“They feel like we’re not working if they can’t see us,” she said. “It’s a boomer power-play.”
It’s still early to say how the post-pandemic work environment will look. Only about 28% of U.S. office workers are back at their buildings, according to an index of 10 metro areas compiled by security company Kastle Systems. Many employers are still being lenient with policies as the virus lingers, vaccinations continue to roll out and childcare situations remain erratic.
But as office returns accelerate, some employees may want different options. A May survey of 1,000 U.S. adults showed that 39% would consider quitting if their employers weren’t flexible about remote work. The generational difference is clear: Among millennials and Gen Z, that figure was 49%, according to the poll by Morning Consult on behalf of Bloomberg News.
“High-five to them,” said Sara Sutton, the CEO of FlexJobs, a job-service platform focused on flexible employment. “Remote work and hybrid are here to stay.”
The lack of commutes and cost savings are the top benefits of remote work, according to a FlexJobs survey of 2,100 people released in April. More than a third of the respondents said they save at least $5,000 per year by working remotely.
This is especially true in high tech. If you have in-demand skills (full-stack developer, AI expertise, etc.), lots of companies are vying for you, and all of them have remote-work infrastructure already in place. Chances are good you login into a VPN in the morning, communicate via email and Slack, have your meetings on Zoom, code on your laptop, then check your work into a remote repository running a continuous integration/continuous deployment platform (GitHub, GitLab, etc.) that builds and tests your software. There’s zero reason for you to spend your time commuting to the office. And if your current employer won’t let you work from home, another will. And that other company can be located anywhere, and they can hire the best talent for their position no matter whether they have a local office.
I, for one, save just shy of an hour a day working from home rather than braving Austin roads, and my dogs are much happier.
How can you keep them in the big city once they’ve tasted life back on the farm?
A semiconductor shortage has been plaguing the automobile industry for several months, and this piece explains why:
To understand why the $450 billion semiconductor industry has lurched into crisis, a helpful place to start is a one-dollar part called a display driver.
Correction: The semiconductor industry itself isn’t in crisis, it’s making money hand-over-fist right now. It’s certain industries relying on semiconductors that have the problem.
Hundreds of different kinds of chips make up the global silicon industry, with the flashiest ones from Qualcomm Inc. and Intel Corp. going for $100 apiece to more than $1,000. Those run powerful computers or the shiny smartphone in your pocket. A display driver is mundane by contrast: Its sole purpose is to convey basic instructions for illuminating the screen on your phone, monitor or navigation system.
The trouble for the chip industry — and increasingly companies beyond tech, like automakers — is that there aren’t enough display drivers to go around. Firms that make them can’t keep up with surging demand so prices are spiking. That’s contributing to short supplies and increasing costs for liquid crystal display panels, essential components for making televisions and laptops, as well as cars, airplanes and high-end refrigerators.
“It’s not like you can just make do. If you have everything else, but you don’t have a display driver, then you can’t build your product,” says Stacy Rasgon, who covers the semiconductor industry for Sanford C. Bernstein.
Now the crunch in a handful of such seemingly insignificant parts — power management chips are also in short supply, for example — is cascading through the global economy. Automakers like Ford Motor Co., Nissan Motor Co. and Volkswagen AG have already scaled back production, leading to estimates for more than $60 billion in lost revenue for the industry this year.
A bit of background here: Back in the dim mists of time, some major car manufacturers used to have their own captive wafer fabrication plants for automotive components. They were more art-of-the-state than state-of-the-art, as well as heavily unionized. (Your etch machine broke? Better figure out whether you need the union plumber or the union electrician to fix it…) GM shut down their last semiconductor plan in Kokomo, Indiana (which I think was running a 500 nanomemter process, which was beyond old even then) in 2017.
The situation is likely to get worse before it gets better. A rare winter storm in Texas knocked out swaths of U.S. production. A fire at a key Japan factory will shut the facility for a month. Samsung Electronics Co. warned of a “serious imbalance” in the industry, while Taiwan Semiconductor Manufacturing Co. said it can’t keep up with demand despite running factories at more than 100% of capacity.
“I have never seen anything like this in the past 20 years since our company’s founding,” said Jordan Wu, co-founder and chief executive officer of Himax Technologies Co., a leading supplier of display drivers. “Every application is short of chips.”
The chip crunch was born out of an understandable miscalculation as the coronavirus pandemic hit last year. When Covid-19 began spreading from China to the rest of the world, many companies anticipated people would cut back as times got tough.
“I slashed all my projections. I was using the financial crisis as the model,” says Rasgon. “But demand was just really resilient.”
People stuck at home started buying technology — and then kept buying. They purchased better computers and bigger displays so they could work remotely. They got their kids new laptops for distance learning. They scooped up 4K televisions, game consoles, milk frothers, air fryers and immersion blenders to make life under quarantine more palatable. The pandemic turned into an extended Black Friday onlinepalooza.
Automakers were blindsided. They shut factories during the lockdown while demand crashed because no one could get to showrooms. They told suppliers to stop shipping components, including the chips that are increasingly essential for cars.
Then late last year, demand began to pick up. People wanted to get out and they didn’t want to use public transportation. Automakers reopened factories and went hat in hand to chipmakers like TSMC and Samsung. Their response? Back of the line. They couldn’t make chips fast enough for their still-loyal customers.
Here’s the crux of the problem:
Wu explained that he can’t make more display drivers by pushing his workforce harder. Himax designs display drivers and then has them manufactured at a foundry like TSMC or United Microelectronics Corp. His chips are made on what’s artfully called “mature node” technology, equipment at least a couple generations behind the cutting-edge processes. These machines etch lines in silicon at a width of 16 nanometers or more, compared with 5 nanometers for high-end chips.
The bottleneck is that these mature chip-making lines are running flat out. Wu says the pandemic drove such strong demand that manufacturing partners can’t make enough display drivers for all the panels that go into computers, televisions and game consoles — plus all the new products that companies are putting screens into, like refrigerators, smart thermometers and car-entertainment systems.
There’s been a particular squeeze in driver ICs for automotive systems because they’re usually made on 8-inch silicon wafers, rather than more advanced 12-inch wafers. Sumco Corp., one of the leading wafer manufacturers, reported production capacity for 8-inch equipment lines was about 5,000 wafers a month in 2020 — less than it was in 2017.
Hell, there are people still running some four inch fab lines out there, though usually it’s for something funky like gallium arsenide, old analog signal processes, etc.
The problem is, no one is building any new capacity in those old geometries because fabs are too expensive to build and need 2-3 years of lead time to get up and running. Moore’s second law states that the cost of a new, cutting edge semiconductor plant doubles every four years. You can’t just take an existing building and turn it into a fab, it has to be specially built from the ground up with exacting standards for cleanroom air filtering, concrete slab level uniformity, etc. And equipment manufacturers like Applied Materials and LAM Research aren’t going to sell you old technology machines to build older geometry chips because they’re not making them anymore. And if you have to pay full price for the equipment, you might as well fab higher-value chips in current geometries anyway.
TSMC is already spending $100 billion for expanded manufacturing capacity over the next three years, and Intel another $20 billion. That spiraling fab cost is why so many former integrated device manufacturers went to a fabless model, designing chips but letting the manufacturing be handled by foundries like TSMC, UMC and Global Foundries. (And Intel is expanding their own foundry business at the same time they’re paying TSMC to fab some of their top-end chips. You can’t tell the players without a scorecard…)
The other problem is the extremely cyclical nature of the semiconductor industry. In booms, fabs make money hand over fist. During busts, some segments (like RAM) barely break even. The foundry model has smoothed the spikes out somewhat, but as the current shortage shows, not entirely.
Just-In-Time delivery was one of the great disruptive business innovations. Leaner, more tightly-coupled computerized inventory lead to decreases in unused parts and faster times to market. But when there’s a hiccup in the supply chain, it makes it more immediately disruptive. It’s hard to obtain additional semiconductor parts if everyone’s fab is already at full capacity, so expect shortages to extend into the year.
Following yesterday’s story, I got pushback from readers that asserted the supposed WallStreetsBets silver squeeze was, in fact, a ruse from hedge funds to distract retailer investors from the GameStop and AMC squeezes.
If you haven’t been browsing WSB or doing your own research, you’d probably think that the people on Twitter are correct in saying there is a silver squeeze happening and we should all get in on it. There are quite a few wsb-logo Twitter accounts pushing this. This is BS & the straight up the ANTITHESIS of who we are.
By buying silver/going long on silver, you would be directly putting money into the pockets of the EXACT HEDGE FUNDS ON THE OTHER SIDE OF $GME 🚀 🚀 🚀 💎 🙌 The hedge funds are LONG silver NOT short silver.
The media, Wall Street, normies, and every other non-WSB autist are trying to push you to buy silver. This would be a tragic, irreversible decision that not only will most likely not make you any money because the squeeze is fake, it will put you on the sidelines from this righteous and glorious war we are in.
Another sign it’s a ruse: Citadel Securities, one of the primary hedge funds backers, evidently holds shares in 17 different silver companies.
That’s one of the problems with a decentralized swarm attack: If nobody’s in charge, then it’s much harder to filter out the noise to determine the true direction of the swarm. That can be a strength, but it also makes the swarm vulnerable to ruses like this. Extracting a signal from the huge wave of noise in everyday financial transactions is a daunting problem under the best of circumstances even when giant hedge funds aren’t baiting friendly MSM outlets with elaborate ruses. (Or, I should say, when giant hedge funds aren’t baiting friendly MSM outlets with elaborate ruses even more than they usually are.)
Whatever the source, many bullion dealers were reporting a huge run on silver due to a spike in demand, though physical silvere seemed to be doing much better than “paper silver” (i.e., the futures market). Today spot silver prices are back down in early trading.
Remember, I said yesterday that a silver squeeze was unlikely to work.
With that out of the way, here are some other WallStreetBets/GameStop/etc. news:
Adam Ford with Not The Bee explains the GameStop short squeeze, including more background detail on the origins of the squeeze than was in my original post:
Glenn Greenwald goes into more detail on the GameStop squeeze and Melvin Capital:
The usual Greenwald leftwing caveats apply. (Hat tip: Zero Hedge.)
GameStop stock is back up this morning after Robinhood lifted restrictions on buying shares.
Texas Attorney General Ken Paxton has launched an investigation into “Robinhood, Discord, Citadel and other trading apps that put curbs on stock trading” in GameStop.
Noon Update: And now GameStop, AMC and Silver are all way down right now. Never invest what you can’t afford to lose…
Silver Bullion Market is one of the most manipulated on earth. Any short squeeze in silver paper shorts would be EPIC. We know billion banks are manipulating gold and silver to cover real inflation. Both the industrial case and monetary case, debt printing has never been more favorable for the No. 1 inflation hedge Silver.
Inflation adjusted Silver should be at 1000$ instead of 25$.
Signs that the silver market was about to get hit by a GameStop-style short squeeze emerged Wednesday.
That’s when comments began appearing on the Reddit forum r/wallstreetbets — the investor board now famous for tripling the video game company’s shares this week. People started egging each other on to pile into silver’s largest exchange-traded product. Banks have been keeping silver prices artificially low, they said, masking an actual shortfall of supplies. Help put an end to “THE BIGGEST SHORT SQUEEZE IN THE WORLD,” one poster said.
To say there was a strategy would be overstating things. At about 8:30 a.m. New York time on Thursday, day traders bent on teaching some banks a lesson began flooding iShares Silver Trust. Their buying drove up prices of the underlying metal by as much as 6.8%, the most since August. And just like that, an ETF became the Trojan horse that helped the Reddit hoards break through the gates of the commodities world for the first time since they began upending equities.
It rippled across the entire silver complex. Miners of the metal rallied. Futures gained. A record 3.1 million iShares Silver Trust options contracts traded. The volatility was unlike anything James Gavilan, a commodities market consultant with over two decades of experience in precious metals, had ever seen.
It was “mind-boggling, breath-taking, it’s shocking really,” he said as prices continued to rise further.
Another sign that they’re having a real effect is yesterday’s email missive from gold and silver dealer APMEX:
In the last week, we have seen a dramatic shift in Silver demand from our customers. For example, the ratio of ounces sold per day was running about two times earlier in the week and closer to four times the average demand by the end of the week. Once markets closed on Friday, we saw demand hit as much as six times a typical business day and more than 12 times a normal weekend day. Combined with the extremely high demand levels, we are also seeing a surge in new customers. On Saturday alone, we added as many new customers as we usually add in a week.
This morning spot silver is up over $30 an ounce, various stock brokers are evidently breaking down on the volume, and physical silver rounds are sold out at various silver dealers, even at $6 over spot (which is nuts).
Another sign that the effect is real is that silver is rising but gold remains flat, an unusual circumstance that never seems to hold long for precious metals whose prices have historically risen and fallen together.
Silver has always been populism’s precious metal of choice, with the bimetallist “Free Silver” movement of the late 19th century culminating the William Jennings Bryant’s famous “Cross of Gold” speech in 1896.
Unlike GameStop stock, I actually own physical silver as an emergency hedge against hyperinflation, so the Reddit raiders already made me a little money. And there’s more than a grain of truth to inflation being higher than government indexes are letting on, largely thanks to the huge liquidity the Federal Reserve and other central banks have pumped into the world economy. I do think it is prudent for anyone with sufficient capital (i.e., you’ve paid off your car and credit card debts and have, at an absolutely bare minimum, three months of living expenses in the bank) to keep a certain amount of physical gold and silver in a secure location (and I suspect at least half of you are immediately going to think “gun safe”) you can easily access, just in case.
But color me skeptical that not only can they get silver up to $1,000 an ounce (barring a runaway hyperinflation takeoff), but that they can have any long-term effect on the market. Tangible commodities are fundamentally different than shorted stocks. A big rise in the price of silver would trigger the reopening of dozens of currently shuttered silver minds around the world to meet demand.
Silver is a truly global commodity in a way that GameStop stock is not. I am skeptical that the WallStreetBets crowd has an adequate grasp of the size of the global silver options picture. Traders in Tashkent and Singapore probably never heard about GameStop until this year, but they’ve watched the rise and fall of silver prices for a long, long time.
I’m old enough to remember that there have been several rounds of apocalyptic bullion hype over the years. My father lost quite a bit of money betting on gold futures in the early 1980s, sure than inflation would continue to rise, but instead Paul Volker and Ronald Reagan managed to kill it dead.
This was about the same time the Hunt brothers tried to corner the silver market. Silver started 1979 around $6 an ounce, and briefly peaked above $49 in January of 1980. By June of 1981 Silver was back to trading in single digits, and the Hunt brothers lost their shirts. (There are some parallels with the GameStop squeeze, namely that the Hunt brothers were doing a lot of their buying using options and credits, like some (but not all) of the WallStreetBets crowd.)
The bullion market also has a way of defying your expectations. I was sure that the subprime meltdown in 2008 would send gold and silver soaring. Gold jumped in September, then settled back down below it’s September rates before ending up modestly up for the year. Silver actually ended the year down.
The world economy is an enormously complex organism. You can temporarily jolt some parts of it, but then other parts compensate. Rising and falling prices are timing signals that constantly shift money around to make sure supply meets demand. Investing in silver means opportunity cost in not investing in index funds, Apple stock, or even Dogecoin (way up for the year, but down off last week’s peaks).
By all means, hold gold and silver as a hedge against inflation. But don’t bet the farm on silver hitting that moonshot target of $1000 an ounce anytime soon.
Edited to add: Read the comments. A lot of people are saying this is jamming from the hedge fund backers to take the pressure off GameStop and AMC, and not an organic push for silver from the WallStreetBets core crowd.
The astronomical rally in GameStop has imposed huge losses of nearly $20 billion for short sellers this month, but they are not budging.
Short-selling hedge funds have suffered a mark-to-market loss of $19.75 billion year to date in the brick-and-mortar video game retailer, including a nearly $8 billion loss on Friday as the stock kept ripping higher, according to data from S3 Partners.
Still, short sellers mostly are holding onto their bearish positions or they are being replaced by new hedge funds willing to bet against the stock. GameStop shares that have been borrowed and sold short have declined by just about 5 million over the last week, marking an 8% dip in the short interest, according to S3. Most of the short covering occurred on Thursday, when the stock fell for the first time in six days.
“I keep hearing that ‘most of the GME shorts have covered’ — totally untrue,” said Ihor Dusaniwsky, S3 managing director of predictive analytics. “In actuality the data shows that total net shares shorted hasn’t moved all that much.”
“While the ‘value shorts’ that were in GME earlier have been squeezed, most of the borrowed shares that were returned on the back of the buy to covers were shorted by new momentum shorts in the name,” Dusaniwsky added in an email.
Shares of GameStop were back up Friday after Robinhood and other retail brokers allowed trading to resume.
The borrow fee on GameStop’s stock — or the cost-to-borrow shares for the purpose of selling them short — jumped to 29.32% on existing shorts and 50% on new short positions, S3 said.
“If most of the shorts had covered, we would not be seeing stock borrow rates at these high levels — by now you would be able to borrow GME stock at single digit levels due to an increase in the lendable stock loan supply due to borrowed shares being returned after all the ‘supposed’ buy-to-covers,” Dusaniwsky said.
GameStop remained the most-shorted name in the market as short interest as a percentage of shares available for trading stands at 113.31%, S3 said.
(Supposedly Melvin Capital and Citron are out of their GameStop short positions. So who is still in?)
Assuming all the above is true, the remaining hedge funds and their allies are still shorting more than 100% of the stock, despite the theoretically infinite risk involved. I can think of several theories to explain what appears to be apparently irrational behavior:
Short sellers fully expect their friends in the Biden Administration and/or the financial regulatory apparatus to come to their aid and extricate them from the bind they’ve put themselves into by suspending or changing the rules. Huh. I wonder why they could possibly think that?
Janet Yellen accepted $810,000 in speaking fees from Citadel, owner of Robinhood.
Reporter: Are there any plans to recuse herself from advising the President on GameStop and Robinhood situation?
Psaki: ‘No and she’s an expert and deserves that money.’
Short sellers expect to use their power to force trading companies to bend to their will by forcing retail investors to sell their shares (as Robinhood was reportedly doing on Thursday).
Short sellers expect one or more “whales” (i.e., rich individual investors) to flip and either sell their shares or lend them out to cover shorts once the temptation to take profits is too great.
Deeper-pocketed short sellers expect the squeeze to force weaker rivals out of the game, either taking huge losses to liquidate their positions or going bankrupt. In either case, they expect this winnowing to drop shorted shares below the 100% threshold, relieving the pressure on the shorts for the remaining short sellers.
Obviously, it could also be a combination of all these. (Or something else; feel free to float other theories in the comments.)
It’s the first two possibilities that should worry us from a policy position: If the big players can break the rules at will to reverse their fortunes when they’ve been beaten at their own game by the little players, then it’s not a free market. And if it’s not a free market, what’s to keep ordinary Americans from getting out of the game entirely?
Here’s a Wall Street story that has everything to do with the current political moment.
GameStop is the video game retailer that almost went out of business last year. This year, a whole bunch of powerful hedge funds bet on GameStop stock going by selling the stock short.
For those unfamiliar, a short squeeze happens when a rising stock price forces short-sellers out of their position. When panic strikes and those sellers buy back stock, they send shares even higher. Here, you have what InvestorPlace Markets Analyst Tom Yeung calls a powerful feedback loop.
Yeung also sees GME stock as being a particularly relevant candidate for a short squeeze. Right now, 71.2 million of its shares are being sold short. That is even more than its total outstanding share count!
Enter Wallstreetbets- A trading/investing subreddit. Someone noted that these hedgefunds shorted 140% of all shares available.
These hedgefunds were so damn greedy, they borrowed more shares than actually existed. That's how arrogant and dumb they were. pic.twitter.com/MpsFwMdqdM
And so we reach our main story of how the hedgefund's greed ruined them.
Realizing that these hedgefunds shorted GME by a ridiculous amount, these Redditors (normal people like you and me), bought every share they could get their hands on. Driving the price up like crazy. pic.twitter.com/ojvdEZhNXb
So eventually, the due date for when these hedgefunds need to return the borrowed shares comes closer.
And what do they do?
They double down.
They short MORE. Because they're sure that they can manipulate the stock enough to get it to crash, thereby saving themselves. pic.twitter.com/xIi5iwpV4h
So the short selling bear hedge funds are totally screwed. The result? Carnage:
Across most of America, GameStop is just a place to buy a video game. On Wall Street, though, it’s become a battleground where swarms of smaller investors see themselves making an epic stand against the 1%.
The funds serving the financial elite are starting to walk away in defeat. Big bets they made that GameStop’s stock would fall went wrong, leaving them facing billions of dollars in collective losses. All the wild action pushed GameStop’s stock as high as $380 on Wednesday, up from $18 just a few weeks ago.
The stunning seizure of power gives some validation to smaller-pocketed investors, many of whom are encouraging each other on Reddit and are trading stocks for the first time thanks to brokerages offering free-trading apps. It’s also left more investors on Wall Street asking if the stock market is in a dangerous bubble about to pop, as AMC Entertainment, Bed Bath & Beyond and other downtrodden stocks suddenly soar as well. The S&P 500 set a record high earlier this week, though it fell Wednesday.
Two investment firms that had placed bets for money-losing GameStop’s stock to fall have essentially thrown in the towel. One, Citron Research, acknowledged Wednesday in a YouTube video that it unwound the majority of its bet and took “a loss, 100%” to do so.
Snip.
Melvin Capital is also exiting GameStop, with manager Gabe Plotkin telling CNBC that the hedge fund was taking a significant loss. He denied rumors that the hedge fund will fail. The size of the losses taken by Citron and Melvin are unknown.
Before its recent explosion, GameStop’s stock had been struggling for a long time. The company has been losing money for years as sales of video games increasingly go online, and its stock fell for six straight years before rebounding in 2020.
That pushed many professional investors to make bets that GameStop’s stock will decline even further. In such bets, called “short sales,” investors borrow a share and sell it in hopes of buying it back later at a lower price and pocketing the difference. GameStop is one of the most shorted stocks on Wall Street.
But its stock began rising sharply earlier this month after a co-founder of Chewy, the online seller of pet supplies, joined the company’s board. The thought is that he could help in the company’s transformation as it focuses more on digital sales and closes brick-and-mortar stores. Its shares jumped to $19.94 from less than $18 on Jan. 11. At the time, it seemed like a huge move for the stock.
Smaller investors were meanwhile exhorting each other online to keep GameStop’s stock rolling higher.
The raucous discussions are full of sarcasm, self deprecation and emojis of rocket ships signifying belief that GameStop’s stock will fly to the moon.
Snip.
There is no overriding reason why GameStop has attracted this cavalcade of smaller and first-time investors, but there is a distinct component of revenge against Wall Street in communications online.
“The same rich people that caused the market crash in 2007/08 are still in power and continue to manipulate the market to get even richer, we are just taking back our fair share,” one user wrote on Reddit.
“hey mom i can’t come up for dinner,” another user wrote. “i’m bankrupting a 10 figure hedge fund with the boys.”
Beyond personal attacks, the battle has also created big financial losses for Wall Street players who shorted GameStop’s stock.
As GameStop’s gains grew and short sellers scrambled to get out of their bets, they had to buy shares to do so. That accelerated the momentum even more, creating a feedback loop. As of Tuesday, short sellers of GameStop were already down more than $5 billion in 2021, according to S3 Partners.
Much of professional Wall Street remains pessimistic that GameStop’s stock can hold onto its immense gains. The company is unlikely to start making big enough profits to justify its $22.2 billion market valuation anytime soon, analysts say. The stock closed Wednesday at $347.51. Analysts at BofA Global Research raised their price target Wednesday — to $10.
All the mania is raising some concern that investors are taking excessive risks, and reporters asked Federal Reserve Chair Jerome Powell on Wednesday whether the Fed’s moves to support markets through the pandemic is helping to push stock prices too high.
In short, the hedge funds suffered a serious bloodletting:
NBC NEWS: Short-sellers lost $14.3 billion today alone on GameStop stock, according to S3 Partners
Did the Wall Street titans laid low by retail investors shrug their shoulders over the loss and slink off quietly into the night to lick their wounds? They did not. Instead, our elites staged a fullbore freakout over being beaten at their own game(stop).
were the ones manipulating the stock, but they got caught, and are now trying to take their ball and go home.
While these hedgefunds are on every news channel screaming about Reddit and Wallstreetbets, they inevitably draw attention to themselves, and what's going on.
Perhaps the most flagrant example was where noted CNN tool Chris Cillizza declared the GameStop short squeeze an example of Trumpism. Because how dare ordinary people think they can beat the elite at their own games?
Hate speech, White Supremacy, Racism, etc. These are the new catch-all for the government violating your rights. https://t.co/JMGS9e6YJW
— Article V Convention of States please (@philthatremains) January 27, 2021
(Babylon Bee: “Merriam-Webster Changes Definition Of ‘White Supremacist’ To ‘Anyone Who Wins In The Stock Market When They’re Not Supposed To’.)
There’s even the “Russia! Russia! Russia!” cliche:
Now they are blaming Russia for the move in GameStop.
Why? Because what they are not saying is the squeeze, along with Biden's destruction of the US economy in the name of climate change, has the potential to trigger a 2008 style financial collapse.pic.twitter.com/crF03bo0jz
And finally, a Berkeley professor wants you know they’re investing in GameStop because they’re not having sex:
Arm young men, in a basement, not at work, not having sex, not forming connection, with an RH account, a phone and stimulus and you have the perfect storm of volatility as they wage war against established players while squeezing the dopa bag,,,harder and harder
Secretary of the Commonwealth of Massachusetts William Galvin wants a 30-day trading suspension of GameStop, because retail investors can’t be allowed to make money off the mistakes of their betters.
There are valid reasons for hedge funds and short sellers to exist. But no one, least of all our corrupt political establishment, should let them get away with the classic “I keep my profits private but force the government to underwrite my losses” con game.
Reddit shuts down #wallstreetbets and I honestly think today is a defining day. This is no longer just a war of Big Tech against conservatives. Its just so delicious that @TheDemocrats have officially aligned themselves w Wall Street culture now. #GameOn
lmao some hedge fund might go bankrupt from redditors raising gamestop's stock as a joke.
Newsflash: if you can go bankrupt from one stock going up too much, you are running the same scam as the redditors, the only difference is you wear a suit and tie while you do it.
This may all seem extremely irrational. But thanks to the Federal Reserve’s endless money pump, the market has been irrational for a long time. And the biggest irrationality was short-sellers shorting more stock than actually existed.
I should point out that I have no money in GameStop, AMC, or Nokia stock (unless there’s some tucked away in one of my various 401K funds, which I rather doubt). Though honestly, as weird as this year is already going, I’m tempted to put a few hundred dollars in Dogecoin…
