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The stock market doesn't seem to think China will ever take Taiwan.
By many measures, the stock market is valued more richly than at any time in history except 1999 and 1929. Yet a Chinese invasion of Taiwan would cripple the world economy and send stocks plummeting.
There is an argument to be made that any war with China would lead to massive money printing and so, in dollar-denominated terms, stocks could thrive.
But this doesn't explain the stock markets blasé attitude. In the event of a Taiwanese invasion, some companies would be affected more than others. Apple would be crippled by the loss of its supply chain. But oil and steel companies would presumably profit greatly. This is of course not reflected in the stock prices. Apple is worth $3 trillion while U.S. Steel trades at a paltry $8 billion.
Stock markets don't know all that much, that's why volatility exists. There was about a monthlong period where the Chinese locked down 100 million people over a virus and the market was barely affected. It doesn't take a genius to perceive that COVID was a big deal in early 2020, before the March panic.
Nor did it take a genius to perceive that the new AI techniques were a big deal back in 2020 or 2021. The GPT-3 paper was out then, people like Gwern were showing the vast possibilities. And nobody really noticed until ChatGPT several years later when it became blindingly obvious what was going on.
Are you a billionaire?
Because if you knew Covid was a big deal in early 2020 you could have made tens of millions easily. But I am guessing you are not.
So saying “it doesn’t take a genius” when you easily could have made 100x on knowing what to come feels off. If the thing where everything in the past looks like it was obvious but yet almost all very smart people got it wrong.
I am not a billionaire because I did not have high starting capital. And I make mistakes like everyone does, I did not anticipate the massive money-printing resurgence after March and missed out a bit there. You might say 'just use 10x leverage' and I assure you that is the surest route to disaster. There is nothing more dangerous than leverage. Nevertheless, I have made significantly greater returns than the market average. Something like 40-50% annualized? I can't calculate it out properly because I put more money in over time.
In February 2020 we had this: https://www.dailymail.co.uk/health/article-8004055/THE-REUTERS-GRAPHIC-Under-Chinas-coronavirus-lockdown-millions-go.html
But markets didn't react until March! Isn't that insane? China is the factory of the world and they're locking down, where are goods going to come from? What does that say about the rest of the world?
There are loads of smart people who made a tonne of money beating the market. If you're early on the right companies you can make a lot of money. What about the Bitcoin maxis from 2012 or even 2014? They're living in Lambo land right now. I got into crypto much later and still got a couple of 10xes. Or early Nvidia buyers. I bought some Nvidia before ChatGPT and got a 10x there. None of this is terribly hard. There's room for error so long as you work out the broad trends, take things slow and don't leverage up.
I don't understand why AGI-pilled, scaling-pilled people didn't make as much or more than me. I think a lot of people can't be bothered to put in the effort, fill in the forms and stomach that gut feeling of dread when you lose a lot of money.
Alright, so looking at the market today, what broad trends do you see? What are you long?
AI followed by crypto and aerospace/defence (which has been dragging down my portfolio tbh). https://www.themotte.org/post/948/smallscale-question-sunday-for-april-7/205716?context=8#context
Recently I've been trying to get more into the software side of AI, Microsoft as well as Nvidia. As much as I dislike the company's practices, they do have a pretty good business position. And I still think AGIX is a no-brainer. It's a shitcoin with a perfect name and smallish marketcap. We have AGI development, it moons.
https://www.themotte.org/post/381/culture-war-roundup-for-the-week/68701?context=8#context
If you'd bought it back in Feb 2023 when I shilled it even after it went up 150%, you'd have made a cool 50-70% by now. Sure, I should've sold at 1.20 rather than waiting for it to fall back to the 0.70 range. I make no claim to perfectly timing the market. But I feel fine playing the long game here, I got in way lower. That's not so great compared to NVIDA but it still beats the index funds.
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I'm in a similar boat to you. From my perspective the last 5 years has been the easiest time to significantly beat the market in the last 40 years by a large margin. Events you can see coming from outer space and almost risk free investments that take advantage of them (if you manage small amounts of money).
But knowing events are very likely going to happen and that they'll impact the stock market doesn't equal certainty of how exactly they're going to impact the stock market and for how long. Seeing the way the wind was blowing though? Easy.
Still, my investment portfolio is up some 10x the last 5years from relatively risk free investment after a preceeding period of 10 years where I barely beat the market. It would have been great if I had bought a house after this period and not just right before...
Now things seem more uncertain to me and I'm pivoting to index funds. I don't feel confident making any time sensitive (or even general) predictions.
As for why smart people aren't making (more) money, around me the smartest people have more or less given up on investing. They focus on their career+family and put excess money in some kind of portfolio of different index funds. They were kind similar to me but making slightly better bets but then they checked out before things got predictable.
Now I don't think they particularly care, they have more than enough money to meet all their needs so whether the excess money makes a larger or smaller return is pretty uninteresting. Why not rather focus on that next golf trip?
I agree with you. Everyone has repeated "you can't beat the market! Just vanguard and chill!" For so long that it's become practically an article of faith. And, to be sure, that's good advice for the typical investor. But passive index fund investing has become so popular that we forgot you do need someone to actively pick stocks in order for the market to work, and that's left some low hanging fruit on the trees.
People might object, "but what about the pros on wall street! Surely you can't beat them!" well...
a) like @100ProofTollBooth said, hedge funds aren't really trying to beat the market. They're more interested in making safe, consistent returns, not looking to take a risk to find the next 10-bagger.
b) the quant funds, as I understand it, are mostly doing market making and/or looking for arbitrage opportunities. They're not looking to "invest" at all, they just want to get in and get out for fast, risk-free profit.
c) the typical retail financial advisor is... just not that smart? He might pick some stocks, but he's not trying that hard. He's more like a financial therapist, convincing his clients to invest and not sell no matter what. He wins as long as they stay invested with him, he doesn't need to beat the market or even come close.
All this, combined with the frenzy for crypto and meme stocks, has led to an environment where it's surprisingly easy to beat the market, as long as you're willing to take some (reasonable) risks.
stuff that I did which paid off big time for me:
Right now I am modestly into bonds, nvdia, and short bitcoin. I am toying with the idea of getting out of stocks all together, or even puying some bearish puts, as I am increasingly of the opinion that the whole market is simply overvalued: https://www.hussmanfunds.com/comment/mc240623/ . Bonds, and maybe foreign stocks, look like the best opportunity right now.
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I have seen similar smug attitudes during COVID, people who raked in cash when stocks plummeted between January and March 2020 by almost 25% were patting themselves on the back how smart they are and laughed at other people. And they knew that the worst is only ahead of us: lockdowns, supply chain issues and all that. Only for the market returning to previous heights by September, followed by huge surge up until January 2022. Many people who doubled down on bearish prediction in March not only lost all their gains from early 2020, but lost everything in that gamble.
Just give me a break, streets are lined up with homeless market gurus like you who just know how to beat the market.
I benefited from stock market plunge during covid.
It was very clear that the covid panic was overblown. I couldn't predict how long the lockdowns would last but it was clear that deep pessimism was not justified. If the stocks didn't rise in September 2020, they would by 2024 for sure. So, I bought them when they were low.
And then all extra cash we couldn't spend in lockdowns got invested in stock market and it caused a small bubble of its own but it was still worth to invest for most people.
The funny thing is that I based all this on a simple fact: people get cold virus infections up to 10 times per year and it trains our immunity. We cannot meaningfully stop them, not with our current tech. A new virus will cause more problems because we have no previous immunity. And yet, with covid the risk increased exponentially by age.
Thus my prediction was: eventually everyone will get it regardless what we do. Most people will be fine, elderly will experience higher mortality as in an unusually nasty flu season and that's it. It happened exactly like that.
And yet, so many still refuse to face this reality, still argue that “covid is different” or that “people should wear masks during flu/covid season”.
It is sad to live in among such pessimists but at least I can solace myself with a lifetime chance to win on the stock market. The world should have followed Tegnell's recommendations instead of calling him nazi.
It wasn't a chance that I made the correct prediction. It was rather a chance that I got necessary education in this field and see other experts that reasoned exactly in this same way and being correct in their general predictions.
It is somewhat similar to beliefs about Havana syndrome. One doesn't need to be a genius to understand that no sonic weapons of such impact exist. People just want to believe in them for various reasons. Except that it is a small localized event that never had any impact on stock market.
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Perhaps I'm being unclear. I'm not claiming to have figured out some grand way to beat the market. I'm claiming that the market has been acting predictably irrationally (or more accurately just very slowly) for the last 5 years in response to major events and that I've made some money making relatively low risk investments with this in mind.
I didn't make one risky bet. I made a series of low risk bets in different directions over a half decade.
Its not like I've made massive amounts either. $40k is now ~$400k, which isn't enough to pay off even half of our remaining mortgage. I'm not getting rich here, especially since don't know where to put my money going forward.
Have I done everything perfectly, obviously not. Just going all in on Nvidia 1.5 years ago would have had better returns than what I've been doing over 5 years, or going all in on Tesla or w/e. I've acted on the same general trends, I've just done so cautiously and ineptly.
The data is pretty clear that almost all day traders (which admittedly encompasses many different kinds of amateur investor) lose money. That’s true whether they’re mere stockpickers or WSB derivatives gamblers, and it’s also true even for well above average high IQ people.
In fact, even many star traders at big funds would struggle on their own without access to the costly and expensive resources (some of it provided in-house, some bought or licensed, processed by teams of analysts for trade suggestions etc) of their employers, simply because they have an information advantage that even a very smart day trader adept at risk taking can’t match.
Another reason some smart people don’t bet like this is that their job prohibits it. Almost every job in finance prohibits personal trading in most or all derivatives, mandates very long minimum holding periods for financial instruments including equities and so on. The requirements are even tighter for the front office jobs that pay the most, including employer and regulator monitoring of all personal financial activity and pre-approval by compliance and reporting of even long term personal trades. If you really plan to hold Apple for 5 years and believe it’ll hugely outperform the market it’s doable, but for most people the compliance hassle isn’t worth it and they just put their money in an index fund.
Refraining from stock picking and market timing as a retail investor because you’ve read the literature and have a deep-seated conviction about markets being pretty much efficient :drake_no:
Refraining from stock picking and market timing as a retail investor because you’re too lazy to deal wtih compliance :drake_yes:
But indeed, it’s unclear if even star traders actually have some skill that allows them to deliver above market returns for their employers or if they’re just lucky, unless the “information advantage” is something insider information-adjacent rather than baller information-processing. And it’s also unclear if alternatives like hedge funds and private equity deliver above market returns adjusted for risk, especially after fees.
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A lot of smart people don’t care that much to be rich. They’re happy as tenured academics making $120k a year, can buy everything they want to buy, and don’t have a strong desire to make more money. Some may be socialists or very religious people for whom wealth accumulation is also less important. ‘If you’re so smart why aren’t you rich’ is a fair argument in some cases, but there are nuances.
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I'm determined not to miss the next big obvious thing.
I almost bought Novo Nordisk in 2022, saw that it was already overvalued and that they would have plenty of competition before they could make mega-profits. So I didn't buy. It's up more than 100% since then. I still think my thesis is correct, but the market cares about hype not profits.
I was a user of GPT-3, saw it's potential, but figured I was already late to the game. Two years later, the market bids up anything with AI attached to it.
The one success I had was buying airline puts in February 2020. I did get a 50x return on those, but the position size was small.
Of course, it's easier to see these things in hindsight. I have no idea what the next big thing will be. The rationalist community was very early on semaglutide, GPTs, and Covid. But there doesn't seem to be anything comparable today.
And for the record, I don't think China will invade Taiwan, but we are all a little too comfortable with the fact that everything is made in China. At some point this is going to cause major disruptions.
Common mistake, it seems. The market moves slower than we think. Yes, you will always be behind the insiders and a few very sharp movers for entry, but for the masses of normies to enter, that takes weeks, months or even years.
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I did some soul searching after largely missing the AI opportunities. Conclusion: pretend chart spans higher than 2 years do not exist, or greed for reasonable prices will prevent you from buying anything at all.
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I made the same “mistake” on novo nordisk and passed it up for the same reasons
On March 9th I posted a comment talking about how I had in the past prematurely dismissed the remaining upside on Nvidia.
Ironically if I had just bought some the very next Monday I'd be up 48% right now in under 4 months. Hindsight eh.
Exactly what happened to me. Always painful, but you never know. Still don't, really, it could all come crashing down and the guys all-in on colloidal silver and bullets will be laughing at us.
I put every penny of this year's 401k contributions into a short term Treasury ETF anticipating pre-election rate-cuts, only for it to stay flat as my existing holdings gained 20%.
Flat? Short term treasuries are still over 5%, which isn't large but is better than flat. I've been keeping (non-tax-advantaged) cash in them because they're state tax free.
I know you're the wrong guy to ask with where you live, but I actually need to find a "Treasury-like" option for people without state income tax.
It's kind of a waste having your yield driven down by people who are benefitting from the tax reduction.
Honestly I'm just holding new money in a 5% money market fund now.
I buy them non-competitively, so don't blame me.
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It's maddening how taking a pure 'value driven' approach to buying stocks does in fact lead you to ignore hype cycles and their somewhat predictable impact on particular stocks or classes of stocks, such that you feel like you genuinely left wads of cash lying on the pavement because you didn't believe your eyes when you saw them.
ON THE OTHER HAND, the markets also briefly went crazy for NFTs, and "The Metaverse" (actually amazed how little came of that), and of course you could have bought into Gamestop during that crazy era, and ended up with almost nothing to show for it. It was as obvious to me that NFTs were going to eventually implode as it was to me that NVIDIA would take off. Hence why I avoided NFTs and bought NVIDIA and told friends to buy NVIDIA, but didn't go in nearly as aggressively as I could have. Because I severely underestimated the effect of the crowd of people who'd rush in about three steps behind me.
Having operated in the cryptospace through the first decade of its existence (2017 was a CRAZY time) I've learned that its almost always the stuff you DON'T see that will get you. Maybe you make a fortune on altcoins but... your holdings were in FTX (or one of the other failed/fraudulent/hacked exchanges), or you fell for a phishing scam. So I learned that A) trying to time market swings is a fools errand, and B) focusing too much on making good trades and NOT thinking about and protecting against ways you can lose your bags due to factors beyond your control has a small but real chance of wiping you out without warning.
I will never, at this stage in my life, feel regret about not yoloing into Bitcoin in 2013. I bought modest amounts back then (and have the Blockchain transactions to prove it) and sold almost all of them over the years, particularly in order to put a down payment on a house. The stress reduction alone was worth the price. I'd have had to bought a ton of them and held through insane market swings to get truly life-changing wealth out of it.
Hmm. The longevity/anti-aging space is making some rumblings. There's a possibility AI will fuel rapid advancement there, and with the boomers retiring there's obvious demand. No obvious plays that I can see, though.
"Legitimate" and regulated prediction markets are VERY early on the scene but seem to be gaining traction. In a sense they're just another form of gambling, but if they gain real attention they could explode overnight. They could disrupt the insurance industry in a good way
And the one that I think COULD turn into something huge are industries enabled by Starship. Yes, many people (I won't say MOST!) are aware that SpaceX is testing a FUCKHUGE rocket. I doubt any are thinking one or two steps ahead as to what having cheap and plentiful launch capacity will mean. Spot any players that might be onto the killer use for copious amounts of low-earth-orbit capacity.
See, I bet you beat the market too. Not lambo-land but you're better off than index funds.
Yeah NFTs were a bit of a dud. I think the idea was good (I never wanted any and didn't buy any) but everyone hates them for some reason. Aren't they strictly better forms of digital cosmetic items? Why are CS:GO knives worth more than jpegs on the internet? Wouldn't it be good for artists if they got some set% of the resale value of their art? I don't think I've ever been more isolated and alone in defending NFTs though, pedophilia seems more popular.
No, I don't think it would be good to create a new class of rentseeking. I consider this question as part of the background to led to copyright extensions of lifetime of the author + 70 years, total travesty of the system that should never have been considered.
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Because NFT space was filled with lies, fraud, scams etc.
I hate digital cosmetics items
How NFT would even help here or enforce it?
Because it's a programmable contract. You can set it to do whatever automatically.
I don't even know how you can have NFT fraud. It's not like you're being sold a promise of future dev work, only for the devs to disappear. What you buy is what you get. Some people spent about $180 on gas for an NFT which just said how much gas they paid (which is pretty funny tbh). I have screenshots from the discord of this guy offering a bounty for the location of the devs: 'what will happen to them is none of your concern'. It's their own fault for buying stuff they don't need. If you do some basic checks it's very unlikely you'll be scammed.
And "if they got some set% of the resale value of their art?" is impossible as NFT cannot control what happens outside its blockchain
For example, people promising that NFT can enforce revenue share for artist. Like you just did.
People were selling NFT with promises of riskfree earnings. And other typical get-rich-quick scams. Googling NFT fraud will give you parade of examples.
That's not how it works. They stay on Eth or Sol or whatever chain they're on, that's the whole point. You can only deal with them through the chain they're on.
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That was not the reason. NFT hatred was a thing on day 1 of NFTs reaching public consciousness, before there was time for any scams to even theoretically be exposed.
Because scams happened before NFTs reaching public consciousness.
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NFT hatred was a thing on day 1 because people accurately predicted that the NFT space would become full of lies, fraud, scams etc.
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I 'beat the market' but I didn't leverage up or otherwise really demonstrate the courage of my convictions. So my returns were modest in the grand scheme. I was a HODLer more than anything. I was overly sensitive to getting wiped out. That said, I've seen so many people get wiped out I suspect I would have come out behind had I been willing to take bigger risks in crypto.
That is, if you're the type of person who will leverage their bets and accept more extreme risk/reward ratios, you're probably not the type to have sensible exit strategies. Or, you're the type to abandon those sensible exit strategies when you smell more profits, until you eventually overextend.
So I'd guess I'm just not 'built for' that type of behavior, although I think I'm better for it.
Because they're attached to a popular game, and the items can be used to show off status in the popular game. Not vice-versa, where people think that the item itself, rather than the social status, is the point. NFTs never quite got popular enough to confer actual social status outside the NFT sphere, and trying to export status from the NFT world to the real world works about as well as trying to export status from, say, an MMORPG to the real world.
It really came down to the attempt to shove NFT items in many, many places where they didn't really add much, and to 'force' people to get familiar with blockchain tech, which already had a shoddy reputation elsewhere.
I think the one cool use case for NFTs might have been to allow you, the player, to carry NFT cosmetics between games, which is to say you could have a unique outfit, or item, or vehicle, or whatever, and it is tied to your identity in an 'immutable' way, so you can import it to a new game and immediately have access to it, which is to say, add some 'permanence' to your digital property.
For example, I play racing games of various types, and I have a couple cars that I favor and I have some livery designs that I like to recreate in each new game. If I could get an NFT for the cars and liveries that allow me to import those cars from Forza Horizon to Need for Speed to Gran Turismo, and be assured that I would immediately have access to them in future games, I would be enticed to do so.
That would have required significant coordination between different game devs, which seems improbable.
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We were hanging out in the same places back then and I feel the same. The best cast scenario where I had followed through and found a way to get my money into Mt. Gox when they changed their rules as I was waiting for my money to clear Dwolla and ended up with 30 coins for $150. There's no world where I hold them and sell for $2 million. I was going to pay off my house no matter what. My regret is I planned to drop some money every month after I sold but was lazy... that was dumb.
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The only reason Xi invades Taiwan is if he feels like he’ll be overthrown by CCP hardliners who oppose any accommodation with the West, many of whom have been purged, or by young Chinese very online ultranationalists (or some combination of the above two), unless he does it. Since neither of those groups seem remotely close to achieving power in China it appears very unlikely an invasion will happen soon.
If anything, as @KolmogorovComplicity suggests, the chip situation is a distraction; China is likely more than willing to delay its plans until the US sphere has cutting edge production ready so that Taiwan is no longer so geopolitically critical to American interests. CCP ambitions regarding Taiwan have literally nothing to do with chips at all, they predate the modern Taiwanese semiconductor industry by many years. When TSMC is no longer critical, the US will be much more amenable to a slow program of pressuring Taiwan into integration with China.
Frankly this seems to me to be a fundamental misreading of the situation. China has said repeatedly and loudly that Taiwan coming under their control is practically an existential question. That it is non negotiable. And under Xi this has only grown louder. They can’t change their mind without self-humiliation. They also have a surplus of jobless young men with radicalized ideas and a desire to distract the populace from an economy in trouble - literally the classic case of “civilization goes to war”
I haven’t detected any shift in urgency. There’s a nightly show on CCTV where talking heads prattle about Taiwan, but apparently they have been doing this show for thirty years.
The message is still “Taiwan is a part of China,” same as it ever was. I guess there might be a bit more accusations of American meddling, but that may just be reflecting reality and not designed to escalate.
They also don’t have timelines driven by elections, and have no problem waiting until reintegration is a foregone conclusion.
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I’m not saying that China doesn’t want Taiwan. They do want it and they shall have it. I’m saying that the urgency about “muh chips” is fiction invented by American journalists, Chinese ambitions over Taiwan have nothing to do with semiconductors and everything to do with national identity and myth.
It therefore makes sense for the CCP to wait until the West is no longer committed to defend TSMC (which should be no longer than a decade at the most because of large efforts to scale up production in the US and Europe), especially given advances in Chinese chip production, and then to continue with the long term plan of pressure.
The main reason that the United States and China both want Taiwan is that Taiwan is what allows the US to potentially bottle up the Chinese navy and keep them out of the South China Sea. It’s primarily important as a naval asset. Almost no one talks about this. China has to get Taiwan back if it ever wants to be a great naval power. If China gets Taiwan back as a smoking ruin, without TSMC, without the economy, without the people, it would still be worth it.
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The US has been pro-Taiwan since the CCP took over the mainland. What would happen if the PRC invaded a couple small islands was a phony controversy in the 1960 election. Semiconductors may be cover for the US position now, but if that cover goes away due to alternative sources I doubt the US would change positions; there are strong geopolitical motives for an independent Taiwan. That being said, I don't think China plans to invade any time soon.
I’m not reading it the same way.
First of all, we’ve had decades since Mao to recognize Taiwan’s independence. We haven’t, and in fact more states recognize Palestine than Taiwan. When people make the mistake of calling Taiwan a state China will force them to humiliate themselves and publicly disavow Taiwan as a state in order to sell there — the USA doesn’t interfere at all in this ritual. When Taiwan sends its Olympic delegation to France this year, it will be called Chinese Taipei, not Taiwa. None of this signals strong enough support for Taiwan’s independence to risk American blood or treasure on liberating it.
Second, we’re already bleeding hardware and equipment to Ukraine. This limits our options in other areas at least until we stop doing that. Our military supplies are not infinite and if we’re sending weapons systems to Ukraine to fight Russia, starting another war is not going to be easy.
Third, if the chip factory goes away as an issue (which we’re working on), the public case for war is weak. It’s not a strong ally of any sort, it holds little strategic value other than the chip plants, and the cost to defend it is going to be pretty high. This isn’t Iraq that we’ll conquer in a week while Bagdad Bob goes on TV to say there are no tanks in Iraq. China has a pretty strong military, and decent equipment. It’s probably a multi year war
Don't forget that the US is also going to be bleeding hardware, equipment and troops to Israel and the Middle East in short order as well.
Actually, I think the war would be pretty quick - if China and the USA go to war what actually happens is that the entire world burns in nuclear fire and then we have a really tough winter while the survivors try and put civilization back together.
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How's that going for Palestine?
The US and the West in general doesn't officially recognize Taiwan because getting into a war with China over appearances isn't worth it. But it's just appearances. When China bitched about Pelosi going to Taiwan, Pelosi went to Taiwan anyway. When President-Elect Trump talked to the Taiwanese President, China and the US press went apeshit. Trump said the US didn't necessarily have to uphold the One China policy. China did, as they could, nothing. The US is walking a bit of a tightrope -- on the one hand keeping up appearances enough that China doesn't get too offended and do something stupid, and on the other making sure China knows the US is only keeping up appearances so China doesn't think they have carte blanche to do something stupid. But that's been true for decades and it hasn't changed.
The Seventh Fleet likely has rather different needs than Ukraine.
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Seems like a solid point. If the CCP/Xi feels that they can wait out the situation and eventually take Taiwan with lower casualties (and higher chance of taking the chip fabs intact) then they assuredly will.
So eyes should be out for factors, in addition to those you mention, that might push them to take action sooner rather than later.
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Some of this is quantity of investable assets versus investable ideas.
There is always some big bad hanging over the market. Pre-1990 you have nuclear annihilation etc. It was only 1990-2020 when we lacked these risks.
One could also argue AI isn’t fully priced in. It could be anything. It could be a dud. The market is somewhat slow at pricing these type of things in. Covid was priced in slowly then all at once. The average person isn’t thinking about China risks. They need to make their nut today. If war happens we are all somewhat in trouble. Apple though will find a new way to produce so it’s only a temporary set back of a few years of Taiwan is invaded.
Chinese tech though does have quite large discounts.
There's no alpha in betting on global thermonuclear war, though. More limited conflicts you could theoretically profit from.
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But compare to TSMC. There's a good argument that it's undervalued (at least based on its customers' valuations), and the usual response is geopolitical risk.
I don't think there's a coherent argument for why TSMC has risk while downstream companies don't, but at least some parts of the market do seem like they think there is a risk China will invade Taiwan.
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There are serious efforts to get cutting edge domestic chip production up and running in the US, the EU, Japan, and South Korea. I'm not too optimistic about the US (cost disease, overregulation), but it'll likely happen in at least one of those countries in the next 3-5 years, and it's all the same to US multinationals. China may be willing to wait for this precisely so the US is less motivated to defend Taiwan.
Separately, I think we're rather clearly entering a period of disruption with respect to military tech and tactics. Why fight a 20th century war against the 20th century's most powerful military, if you can wait a bit and, I don't know, sneak a million drones into the skies over Taipei from submersible launch platforms?
I'm not sure it's clear if drones/AI shifts the scales in favor of the larger military or not. Houthi's and Ukraine seem to be using drones to punch above their weight for now while Hamas doesn't seem to have been able to do practically anything against S tier military tech.
Houthis are punching above their weight against mostly India, though, right? Like the USA has a carrier there but it’s mostly playing city worker.
Drones are a force multiplier against big middle income country armies like Russia, Ukraine, India, but aren’t helpful against absolutely top tier forces like Israel or the U.S. would be a reasonable conclusion, it seems.
They're making life far more inconvenient for the USA than they have any right to, and gaining major credibility among global jihadis for themselves and Iran in the process.
Right now drones (military ones that are not super-cheap but cheaper than airplanes... or missiles, not the science-fiction swarms of ultra-cheap quadcopters) give an advantage to the aggressor, since they're expensive to shoot down and cheap to use. I expect we will see development of anti-drone technology which will negate this at some point. And then drone advancement to reinstate it, naturally.
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Sure, but the American navy could turn them into chunky salsa. It’s not doing that for whatever reason, but drones probably aren’t that reason.
The "whatever reason" is all the stuff Israel is experiencing trying to turn Hamas into chunky salsa.
International opprobrium isn't something that can just be written off.
They'd accrue less opprobrium when they're doing it for a clear goal (restore international shipping) rather than without a clearer objective than retaliation. And, I'm sure the countries wouldn't mind lower shipping costs too much.
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Eh, Putin can, and he's in a much worse situation. The US could handle a lot more opprobrium than it gets without much material damage. And did, during the Trump years, just because Trump. It's the USs image of itself (or Biden's image of the US) that's holding us back, that and Biden's (IMO reasonable) desire not to get into a long war in Yemen right after getting out of Afghanistan.
The US really wouldn't suffer much in the way of PR if we got a LOT more aggressive with the Houthis, at least if it was effective. It's not like they're particularly well-loved.
I'd like the "series of massive punitive raids" strategy tried out. I think it could have done the job in Afghanistan, and will work with the Houthis. They fire on shipping, the US kills everyone it can find involved in that operation. All the way to the top. Eventually someone will come to power who doesn't fire on shipping.
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If China invaded Taiwan we’ll have months of notice: the movement of men and material needed for an invasion is not hard to spot, and it hasn’t happened yet. Current stock prices tell us that the market thinks an invasion is unlikely in the near future, if China starts mobilizing for invasion you’ll see the market react accordingly. In the meantime you’d be foolish to short the market in the hopes that China will make a move soon.
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The stock market also thought that Enron was a legitimate enterprise.
Look, there's some predictive value in the aggregated market of capital. I'm not denying it. But it suffers the oracle problem in that it can only evaluate the value of publically available information. It can't take into account what is secret and undisclosed.
Like, say, for instance, the movement and intent of state militaries.
If Taiwan is being invaded and cruise missiles are being flung at aircraft carriers, we have a lot more to worry about then our 401ks tanking. A new world war would be a more pressing matter: the economic impact of a global depression would probably be less than a shift to a war economy.
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I was very confident that Russia would not invade Ukraine beyond taking the Donbas region, so what do I know? But I will once again register high confidence that China will not invade Taiwan. If Taiwan has any will to fight, then an invasion would be devastating. If Taiwan does not have the will to fight, then China can take its time and accomplish its ends with soft power.
Also, let me take this moment to say that this is the fault of midwit foreign policy strategic ambiguity. As the Good Book states: "let your yes be yes and your no be no."
It’s really the fault of those self absorbed dumbasses Nixon and Kissinger that left us with a hundred year ticking time bomb of a diplomatic deal.
Taiwan’s willingness might actually be a non issue if they don’t have capability. Their military is laughably under-supplied and incompetent, their reservists almost completely untrained (and that was before they entirely nuked conscription which will take years to start back up), and all their money goes into fancy toys that would almost certainly be wiped out in the first wave.
I have previously disparaged the Chinese capabilities for amphibious landings, and I stand by my assessment for Chinese inadequacy for air assault or amphibious operations. However, the Taiwanese are the worst conscripts I have ever met, uniquely lacking capability, willingness and mass. Most conscript armies have at least mass on their side, but the Taiwanese are hollowed out root to branch. The Taiwanese seemed to be stuck in a 1980s mentality where their western wunderwaffen outclassed anything China had to a significant degree, but have been simultaneously complacent and dismissive since then. I did an assessment once and was shocked to discover the lack of investment in airbases on the eastern side of the island, with a significant percentage of inventory stationed in western bases exposed to direct SSM assault. They may have shifted assets to the Eastern bases since, but the standing assumption at the time seemed to be 'air force will contest directly and establish air superiority over the Taiwan strait'. A tragic reliance on wunderwaffen, a paraplegic domestic army and a population only supportive of the government because of hatred for West Taiwan... If China ever lands, say, 10k boots on the ground (I doubt that), Taiwan cannot resist at all.
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I agree with you. I think that if China takes Taiwan it will be without firing a shot after they achieve naval and trade dominance. Think 10+ years in the future.
Non-sequitur: One thing that's been overlooked recently is that Chinese chip production is actually getting pretty good. Shanghai-based SMIC is making 5nm chips now. Within 5 years, they could be competitive with TSMC. We might soon live in a world where China is banning chip exports to the U.S., not the other way around.
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IMHO, the reality of Taiwan being invaded and/or blockaded and reintegrated into China is so nightmarish, everyone is instinctively recoiling from thinking seriously about it at all. Some people are probably just ignorant at how crucial TSMC is to the global economy, but everyone else is just sleepwalking or engaging in magical thinking. There is no world that exist where China doesn't at least try to assert control over Taiwan in the next 10 years. And the trying will likely be disastrous for industry as well.
I mean, why'd Chinese blow TSMC up ? By that point they'll have a better chip industry of their own, probably somewhat closer to state of the art than now but, but are unlikely to have caught up.
Americans would be due to massive loss of prestige probably unable to stop TSMC's non-US suppliers for working with it. And I don't think Chinese are the kind of die-hard scorched earth fanatics that they'd destroy TSMC rather than go on grinding out chips as before, with a new set of bosses.
Because China doesn't give a fuck about wrecking the world economy. I know a lot of people have selective amnesia about the COVID times, but come on.
They, and reportedly Xi in particular, care about correcting the historical wrong of a divided China. If there is a "short term" global economic crash and the semiconductor industry gets set back a decade, so be it. It's better than allowing a part of China to continue down the path of developing a unique, non-Chinese identity, which is a harder thing to undo.
Not every ruling power worships making numbers go up.
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Unless China takes over without a fight, TSMC seems certain to be damaged in the fighting.
Why?
I mean, Taiwan has a couple of weeks of fuel for its power plants. A naval blockade would be the simplest task. Taiwanese navy isn't up to deterring it, and it could be enforced purely by airpower if needed anyway.
I really don't see Taiwanese as doing a Japanese-style doomed last stand. Totally different culture, ethos and all that.
Bloomberg: ASML and TSMC Can Disable Chip Machines If China Invades Taiwan
It's unclear how irreversably they can remotely disable the machines, but they are by all accounts extremely delicate (as expected for something operating on a nanometer scale) so it's possible they would be difficult or impossible to repair. Spare parts for the machines, like the machines themselves, are only manufactured in the Netherlands.
They would also be trivial to destroy for those on-site of course - I saw a suggestion that spraying them with a powder fire-extinguisher would do it, as would a bit of smashing stuff with a heavy object. Even if Taiwan gives up without a fight, and TSMC doesn't decide to destroy them, and ASML in the Netherlands can't or won't do it remotely, and the U.S. decides not to do it openly, and none of the TSMC employees decide to do it on their own, U.S. intelligence might have at least one TSMC employee ready with a plan on how best to destroy them before fleeing. And even undamaged they require the expertise of TSMC employees who might flee the country, and a whole supply chain reliant on various western countries.
I'm not saying it can't be done. I'm saying that Chinese are generally pragmatic people who wouldn't cause billions of $ of damage, for what? To spite other Chinese, on behalf of a foreign country that doesn't give a fuck about them because they're 'functionally' whites ?
ASML is Dutch, not Chinese. Though I guess if TSMC higher-ups were sufficiently dedicated to protecting the machinery in case of invasion (contrary to their public statements) they might decide to cut them off from the internet before ASML decides to trigger the remote killswitch.
If a minority of people are capable of doing something, "generally" isn't good enough to ensure it doesn't happen. We're talking equipment so delicate that 1 TSMC employee with physical access could do hundreds of millions of dollars of damages in a matter of seconds, and many billions in a matter of minutes. If one or more employees flip out and the reason the others don't is because of "pragmatism", are they willing to get hit by a fire-extinguisher for the sake of limiting the damage? There's presumably also plenty of stuff they could do more covertly by messing with configurations.
Even without anyone deciding to do it organically, given the known geopolitical importance the U.S. could easily be paying a couple TSMC employees in case of such an eventuality. Or some random guys who live in the area and have guns stashed away. I remember when the invasion of Ukraine started Russia had people planting devices that shot green lasers at the sky to help with targeting. It doesn't seem like a stretch that even if the U.S. was completely unwilling to confront China openly, it could easily destroy the fabs covertly and blame Taiwanese patriots deciding to do it on their own. The Nord Stream pipelines weren't even being used and they still got sabotaged.
Even completely intact equipment is reliant on a complicated supply chain scattered across western countries that would be near-impossible to replicate in case of sanctions. The machines themselves and their spare parts from the Netherlands, ultra-pure quartz that is nearly all from Spruce Pine, North Carolina, etc.
I know. But ASML is prevented from doing business with Chinese on order of the US.
Chinese people aren't stupid, I presume they're very tightly keeping people to the stuff they know because if you're dealing with a highly delicate process you don't want anyone poking without asking. It's also a military-style management culture.
Yeah, and how do these employees expect to ..leave Taiwan to collect their bribe for betraying the rest of the company?
Yeah, sure. You can work around these things, Chinese are doing it since they were cut off from western suppliers. And guess what - people can reverse engineer and learn to make do. It gave a big boost to Chinese chip industry startups. Which, in many cases, have TSMC veterans working in them, because it's easier to fly high in a new company.
see this interview: https://www.manifold1.com/episodes/huawei-and-the-us-china-chip-war-44/transcript
Chinese have a higher supply of STEM grads of the appropriate intellectual level than the entire West, so 'catching up' for them is only a matter of will and investment. I mean, they'd even without the spying.
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Well, not in the near future. Further out is uncertain enough to be discounted. Xi could die and a less-belligerent leader could run China. TSMC could be overtaken by a competitor, or could diversify more geographically. China could fail to build up their navy sufficiently.
China is a net importer of oil, and it seems likely the US would attempt to cut them off, so I expect oil companies would not profit.
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