their banks’ largest clients they see a greater than 20% likelihood of something worse than a hard recession – then maybe it’s time to check your hard hat is a snug fit. For the last few months, the tone of markets has become more and more confusing. Whether the driver of uncertainty is China, Russia, inflation, war, Ukraine, energy or simple political or central banking ineptitude – the up and down of prices feels like it is making less and less sense by the day. The thing is – these are all known unknowns, things we are aware of, and have worked out how they will hurt us. As a humble market strategist, I continue to pick the information together to discern probable outcomes. Whether it is raw data, reading through behaviours or seeing patterns in events, there is plenty of information out there – often too much. I try to interpret it and use it to discern what markets might be doing. (The key is to understand markets don’t think – they are just a voting machine.) But the thing that really knocksout markets are the no-see-ums – like the pandemic or the energy spike that has routed European economies. Recently, I was looking at Risk On/Risk Off scenarios and came to the conclusion that US Treasuries will remain the core risk mitigation strategy. What could possibly undermine the mighty dollar? But then I also figured out the role of the humble computer chip in the global economic picture. Such a small thing could trigger a geopolitical crisis. Perversely, the global chip business seems to be in shortterm trouble. Investors are focused on declining demand for chips as post-pandemic shortages ease, and the rapidly escalating costs of new chip foundries required to make new ones threaten to overwhelm the market. Even as some of the major manufacturers have seen their stock price tumble, global demand for chips is set to double in the next decade – hence the need for greater investment. On the other hand, semiconductors (to give chips their proper name) are about the most important component of the global economy. Without chips… nothing works. We would go back to the horse and cart. The imperative from Washington to Beijing is to secure their access to chips. Chips have become a critical strategic good – and that means they have become a key issue in the geopolitical Game of Thrones being played in the South China Seas. Here are some points relating to semi-conductors to think about. Chips are ubiquitous: • The US has just approved a $53 billion bill to boost semiconductor R&D – President Biden promises it will cut costs and create jobs. • China has just revealed a state investigation into how money has been siphoned off from a $100 billion state effort to build and upgrade its semi-conductor sector as part of its $3 trillion plan to move China into the top league of global tech. • Chinese chips are still a generation behind. • It takes 3-4 years to build a new chip foundry – there are critical machines to source and install. “Chips have become a key strategic resource. No one wants a destructive, costly war over Taiwan, or to wreck the global chip supply.” Fron t Cove r Fea t ur e 14 Finance Monthly.