☀️☕️ No ESG for Florida

07 December 2022

Happy Wednesday!

📊 IN THE MARKETS

• Red-hot services (pt.2), Shrimps, Crabs and Crypto, No hoarding

📝 FOCUS

• No ESG for Florida

• TSMC's triple-sized Arizona "foundry"

📊 IN THE MARKETS

After Monday's blazing start to the week, HK / China shares held onto their gains despite weakness in US markets overnight amid reports of niggling worries about the economic slowdown in China (though more likely an after-the-fact explanation for natural, technical caution from some traders after such a strong day.)

European stocks were (a bit) soft for the third day running, this time pointing to the heavy sell-off on Wall Street thanks to the hotter than expected US services data. The "uh oh" action in the US market on Monday continued into Tuesday, centred around the continued strength in the vast US services sector can be largely explained with this:

Markets are worrying that the US economy may be strong enough to keep feeding inflation, leading to interest rates that are higher for longer in the Fed's attempt to thoroughly squish inflation (to use a technical term) that could then potentially lead to a recession. In other words, what The Fed chairman and most of the voting members have been saying for the month since the last meeting of the FOMC with varying degrees of "hawkishness" (an ugly fake word meaning inclined to higher rates, raised faster and held for longer) and "doveishness" (an ugly fake word at the moment meaning inclined to higher rates, but not as quickly, as high or for as long).

According to research from crypto trading platform Bitfinex, there "are signs that a significant number of retail investors have been discouraged to the point of exiting crypto entirely," since it's been such a brutal year for "investors" with bitcoin down 64% so far this year and the overall cryptocurrency market capitalization losing US$1.63 trillion in value.

BUT interestingly, they also note that "Shrimps" (people who own less than one BTC) have added 96.2k BTC to their holdings since FTX collapsed, while "Crabs" (who own up to ten BTC) have also seen a record balance increase of 191.6k BTC over the last 30 days, eclipsing the July 2022 peak of 126k BTC/month.

Hope springs eternal for these crustaceans! Another "C" is cryptocurrency. See below for more money "C"s!

Residents of Beijing were allowed into parks, supermarkets, offices and airports without negative COVID-19 tests on Tuesday, the latest in a mix of easing steps nationwide including less testing and allowing positive cases and close contacts to quarantine at home. Offsetting the undoubted positives from these steps is that many now feel more vulnerable to catching the likely even faster-spreading virus, who started stocking up on COVID antigen kits, allopathic and traditional Chinese fever medicines, masks and disinfection merchandise. Regulators issued warnings against hoarding and hiking prices.

📝 FOCUS

No ESG for Florida

BlackRock, the world's largest asset manager and a major proponent of considering climate change in investing decisions, has been sacked as the manager of US$2 billion in Florida state Treasury funds. In perspective, the assets Florida is yanking is miniscule relative to the US$8 trillion that BlackRock (BLK) manages.

The move is to stop managers of state funds from using environmental, social and governance or ESG 🎓 principles to guide their investments. This seems to be part of a spreading Republican backlash against sustainable investing, and was led by Florida's governor and likely 2024 US presidential candidate, Ron DeSantis. Republican state leaders argue that ESG investing limits exposure to oil and gas companies (true) in a way that can hurt performance (perhaps) since concerns about climate change are unwarranted (well, not based on the weight of scientific evidence.)

At least 18 other Republican states have now taken similar action against BlackRock and other asset managers like fellow passive investing giant Vanguard, as well as banks like Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley and Wells Fargo for their involvement in the UN Net-Zero Banking Alliance.

TSMC's Triple-sized Arizona "foundry"

TSMC, the world’s largest "foundry" or contract chipmaker, is tripling its Arizona investment to US$40 billion. This will make it one of the largest foreign investments in US history and comes under the US$52 billion CHIPS and Science Act which was enacted in early August to provide subsidies for chipmakers based in the US.

Geopolitical tensions have put pressure on TSMC to speed up the diversification of its production facilities away from its home base in Taiwan given the risk of losing increasingly vital advanced chip supplies in the event of a China invasion. But even with the AZ plant up and running, analysts believe it would only provide some 15% of TSMC's total capacity given the massive scale of the existing operations in Taiwan.

And while the chips made in the US plants will be extremely advanced, they would continue to follow the principle of N minus 1, meaning that any fab (wafer fabrication plant) outside Taiwan would be one technology generation behind the most advanced in production in Taiwan since essentially all the company's research and development takes place there. Introducing the most advanced technologies (such as those needed for the latest generation of iPhones) anywhere other than Taiwan would significantly inflate costs.

(See the MFM on TSMC from last month here , when Warren Buffett announced his stake, including how fabless and foundry semiconductor companies work together.)

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