If you wanted something to chew on from U.S. government activities over the weekend, Wall Street’s fairly predictable response to Jackson Hole is fortunately not all there is to consider. (Jerome Powell didn’t actually say anything we didn’t already know, but hey, liquidity is liquidity.)
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Elsewhere, not long after Washington invested in REE explorer MP Materials, the White House has just bought a second 10% stake in another company.
This time it’s microchip giant Intel, once the cool kid on the technology block, no longer, since NVIDIA got bored with graphics cards.
Like NVIDIA, Intel has fallen on Trump’s radar in the past for its dealings with China. Which is to say, he wanted the Intel CEO fired three weeks ago, which probably sped up the government engagement process. As for counterpart NVIDIA, its dealings with China – initially framed as suspect – are now allowed to continue, just as long as the American government gets a share. AMD, too, are in that boat.
It raises a good question. What other major world economy has a government that allows market activity to go on, so long as it retains an undisputed stake of ownership and veto power?
Truly, nowhere comes to mind.
Good news til it’s not
While the U.S. government haven’t offered Intel any kind of price support guarantees for their products, as was the case with MP Materials, which in turn has many Australian traders eyeing Canberra for hints of the same strategy, it ultimately signals an interesting development for America.
The Land of the Free, currently spearheaded by one of the most vocal advocates (you’d think) for free marketeering, is increasingly seeing its government interfere with its market.
So far, that interference hasn’t led to any ire, because it’s generally been a good thing for all involved.
Investors are agreeing amongst themselves to ignore massive billion-dollar sums both NVIDIA and Intel have enthusiastically committed to investing in the U.S., presumably because you can get pretty creative with CapEx as is.
You could say it looks like the Trump Administration’s tactic, here, isn’t entirely different from the average trader’s daily calculus either. Consider Intel shares are down -50% in the last five years, making them a loser of the 2020s AI boom. That means shares are cheap.
You could also say the good news is that it looks like the government simply wants a cut of profits. Beyond what the IRS is already there for.
Not what Adam Smith meant
That, at least, is what I make of the USA’s recent agreement to allow NVIDIA to sell its microchips to China – as long as the White House gets to take 15% of sales.
That concession alone belies a fairly drastic turnaround from recent Trumpspeak invoking China as enemy, but probably not surprising coming from an Administration that doesn’t want Ukraine to fire missiles at Russia for some reason.
At any rate, forgotten founding father and capitalist-poet Adam Smith probably didn’t have quite this in mind when he wrote the defining treatise on how markets and societies intersect.
The man absolutely thought the government should get involved when nation-building was involved – but now, the White House is telling companies you can only continue to be a business if it gets a cut. Frame it however you want, but that’s what’s going on.
What other organisations approach businesses and tell them they must pay up in order to continue doing what they’ve always freely done?
Truly, nothing comes to mind.
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