Our Peoplenomics subscribers are probably way ahead of you on this. But, since we feel some compulsion to share cautious outlooks, a couple of ponder points before we roll into the morning minutia and slow Joe rag.
International Events Driving
My consigliere‘s biggest concern is between now – and perhaps a year off – China is likely to grab Taiwan. There’s a brilliance to his thinking and it’s why we pay a humongous annual retainer for his wise counsel.
Observe, he begins, that a Taiwanese company is planning to build a 5-micron chip plant in Arizona. Let me back up and background you on Taiwan Semiconductor Manufacturing Company (TSMC) – one of the global leaders in ultra fine-pitch chip-making:
” TSMC has a global capacity of about 13 million 300 mm equivalent wafers per year as of 2020, and makes chips for customers with process nodes from 2 micron to 5 nanometers.”
As for their new plant in Arizona?
“Arizona, USA (planned groundbreaking 2021, anticipated to use 5 nm process).”
One of the oddities of fine pitch chips is you really need 5 nm chips in order to fab-up a 5 nm manufacturing site. Or, if 3 nm was planned you would need 3 nm chips for the ramp.
Now Consider Lead Times
Although virtually all global chip production is running flat-out, there is an ongoing chip shortage in the USA. Already, as Forbes reported a couple of days ago, “Massive Boon In Computer Chip Shortages Will Slam Future Self-Driving Car Rollouts.”
The lead time to get a new chip facility online is likely two or three years, and maybe longer. The reasons include getting equipment installed (built elsewhere, namely Taiwan) which then needs to ship to the USA – so we’re looking at what, 15 to 20-months, call it?
Obviously, China doesn’t want us to have a 5 nm chip facility, let alone 3 nm. Chips are power. Additionally, they already have effective global control over much of the global discretes market. Including inductors, capacitors, and (since the poor pun is just laying there…) resistors are futile.
This has started what is likely (to use an old broadcast term) be a “back-timer” to taking Taiwan.
For now, we have assorted auto production lines shut down, but with High Tech in Taiwan (South Korea, Japan, and other places) extremely long *(read: indefensible) supply lines, the U.S. choice when the War for Taiwan rolls out comes down to a) bluster and bullshit (which the war party has a good lock on) OR b) going to a limited first-strike.
This latter is highly unlikely, but since (resistors are futile) China is then likely (2024-2025) to further yank our supply chains are reduce exports to America in order to bring us to heel. They will also “buy” the most Sino-palsy American president they can afford.
Europe Has Trouble As Well
One could argue that – after all the problems of financial engineering demonstrated in things like the Housing Bubble Collapse (2007-2012) – that the loci of global competitive screwing has moved on to supply chains.
A good example is found in the Financial Times this morning involving a supply chain financing outfit (Greensill) and potential repercussions that could ripple into 50,000 jobs globally.
It doesn’t take but one (critical) supplier to end entire production outputs. Chair manufacturing isn’t viable without chair legs, for example. Rinse and repeat.
Now the Bad News
We laid out a scenario on the subscriber side (replete with charts) showing how we could be setting up a collapse into early May that could reduce market prices to the panic lows of 2020. And if those fail, then The Big One comes into view.
Despite the early futures being down, we’re pretty sure the Fed and G20 will be (to paraphrase Scotty from StarTrek) “…given her all she’s got, capt’in…”
The problem to avoid (read: Rocks not to crash ship of state on) is the parallel to 1929. As you can see…
…the longer we decline, the Bigger the Boost that will be needed to pull out of the dive-bombing set-up.
Even worse? I put a blue 50-day trend line under our Aggregate Index work to show you the great peril as we sink toward the “Joe Line” – which is the top of a possible wave 1 Elliott count for this roll:
We trust Peoplenomics subscribers will use our “OpenBrain.xls” (download from the Peoplenomics Master Index pages) spreadsheet to plug in the Elliott wave 1 down to figure the potential low sides to come.
BUT…(God, always another asterisk, isn’t it?) The downside projections ONLY get us down to “around the Joe line) (top of small Elliott 1 up). Thing is, if THAT fails…then the Crash of Generations is here.
Elaine and I will pop a bottle of champagne at that point, having estimated from 2010 that the 11-year real estate cycle would come around again, but this time with hunger, so the play to be is on a paid-for small farm. Then time to gather in some of the clan here. But, I digress…
What Panics 401-k Money?
Averages – like the 200-day moving average (DMA) – are often used by fund managers. As long as the market is higher than 200 days ago, staying in things like 401-k accounts in stocks makes sense. But below the 200 and things get even more dicey.
Given that our Aggregate Index was around 21,300 at the end of Q1 20, and its now around 34,650, we might peg 401-k dough in the market somewhere in the $9.1 trillion range. Sure, sure: There will have been drawdowns, of course. But, at least as people were able to find work, inflows have continued, as well.
At some point, as the Baby Boomers like Elaine and me pass on to the (tax-free) hereafter, the heirs will sell it all (37-cents worth) and spend it on today’s useless “sparklies.”
At the end of 2020, total U.S. market cap was in the $51 trillion range. So this morning’s chalkboard exercise would be how much of the (20% of market cap in 401 money) would need to panic to drop the market to our “worst fear” zone?
Homework is therefore assigned: Post your answers in the Comments following this morning’s report. Include such things as which moving average number would the market have to drop below in order for genuine panic to begin?
Bonus Essay: Is this what European banks have been fearing and thus planning for massive negative rates in Q2 – in order to force money out of banks and dark hidey-holes and back into productive lending?
If so…what besides small sustainable acreage…is really worth owning with 7.3 billion people about to go hungry?
Even a good-sized rally (based on massive intervention (expected about here) would only perhaps get us back up to a (ii) up of 3-i down.
Since the power to intervene becomes less effective every time used, at some point the whole global financial fiasco runs out of ammunition. And that’s when you want no bills and a food and water plan for six months, or longer. A side of community radios, a few 7.62’s and a jumbo bottle of Hoppe’s #9? We’d rather have a not need than a need and not have.
Think runs on masks and toilet paper we fun? Let’s see how the water ands calorie runs might work out. Or not.
As always, we pay most attention to the NSA (not seasonally adjusted) numbers. People in denial love seasonal adjustments…
Tomorrow come the Federal numbers. We expect little change in total people working.
Very Bad: Productivity and Costs
Here’s another statistical slice – this one from Labor and just out:
“Nonfarm business sector labor productivity decreased 4.2 percent in the fourth quarter of 2020, the U.S. Bureau of Labor Statistics reported today, as output increased 5.5 percent and hours worked increased 10.1 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the fourth quarter of 2019 to the fourth quarter of 2020, nonfarm business sector labor productivity increased 2.4 percent, reflecting a 2.6-percent decline in output and a 4.9-percent decline in hours worked.
Unit labor costs in the nonfarm business sector increased at an annual rate of 6.0 percent in the fourth quarter of 2020, the combined effect of a 1.5-percent increase in hourly compensation and a 4.2-percent decline in productivity. Unit labor costs increased 4.2 percent over the last four quarters, as hourly compensation increased 6.7 percent and productivity increased 2.4 percent.
Not sure how much is due to inflation and how much is real…another homework project for you? Main thing is productivity was heading in the direction of sucksabunch and not globally competitive.
Need another lesson on Federal fiscal management? IRS paid taxpayers $3 billion in interest due to late refunds.
Look surprised: Texas Power Grid Operator Fires CEO After Storm Chaos.
Says a Time report “‘They’re Fighting Blind.’ Inside the Biden Administration’s Uphill Battle Against Far-Right Extremism.” More likely in our view? “Far right extremism” is anyone who doesn’t agree with the leftocrats and socialists. Coup’s are supposed to be an uphill battle among free peoples. Meantime, behind their razor wire, Intel warns of possible violence at Capitol March 4 and House scraps session. Intel from whom? Make up bogeymen, anyone?
At least Mid-March for the next stimulus bill check – something we told you to plan for back in November. (You realize how predictable incompetence by the Fools on the Hill is, right?). With no elections at hand, we might see ’em dick around with this until April or later. Clowns posse!
Celebrity madness department: Tiger Woods told responding deputies after crash he ‘did not remember driving’: report. Also on celeb watch Prince Philip recovering after heart surgery, Buckingham Palace says.
Not only were there 17,000 earthquakes hit Iceland in the past week. An eruption could be imminent…
But out in the Portland area, near Mount Hood, a seismic swarm is even getting attention in Florida…
Off to work on prepping lists and do more planting around here…
Write when you get rich,