The Microchip Demand

Central Computer Processors CPU concept. 3d rendering,conceptual image.

Past performance is no guarantee of future results.  Trend signals are proprietary research of Fortunatus Investments, LLC, a Registered Investment Advisor with the Securities and Exchange Commission (SEC). Reference to registration does not imply any particular level of qualification or skill.  Prior to June 2014, Fortunatus Investments was a wholly owned subsidiary of Executive Wealth Management, LLC and they continue to share common ownership and control. Data source for returns is FactSet Research Systems Inc. This chart is not intended to provide investment advice and should not be considered as a recommendation.  One cannot invest directly in an index. Executive Wealth Management does not guarantee the accuracy of this data.

Quote of the Week

Standard Life Aberdeen plc (“the Company”) today announces its intention to change its name to “Abrdn plc”. The new Abrdn name (pronounced “Aberdeen”) will be part of a modern, agile, digitally-enabled brand that will also be used for all the Company’s client-facing businesses globally.

A recent press release from the largest investment company in Scotland. Apparently, the letter e is not a part of a modern, agile, and digitally-enabled brand.

Market News

The U.S. gross domestic product (GDP) grew at a 6.4%  annualized pace during the first quarter of 2021, the federal government reported last Thursday. This was sizable pickup from 2020’s fourth quarter reading of 4.3%. Growth at the end of 2020 was restrained by a new wave of coronavirus complications, but with vaccinations up and cases down, the impediments to growth from the recent past are diminishing.  The new concern is inventory, specifically microchips. The U.S. Bureau of Economic Analysis (BEA)  indicated that GDP growth would have topped 9% if inventory levels could have been maintained during the past quarter. Specifically, during last week alone, Honda Motor Co., BMW, and Ford Motor Co. all either announced production cuts or reduced earnings forecasts due to a scarcity of semiconductors.  The chart below shows that the delay in delivery of microchips from their manufacturers (called foundries) has increased to a new three-year high. 

Why such logistical problems? Well, as employees moved to home offices in 2020, the demand for computer hardware  increased. Companies like Apple needed more microchips to satisfy the changing global workforce. On the other hand, with the restrictions on travel and increased economic volatility, car companies reduced their orders for advanced electronics anticipating smaller sales. Now with the economy bouncing back faster than many expected during the lockdowns of 2020 and with the increasing need for integrated circuitry in modern automobiles, there is a backlog of microchip orders.

Due to the enormous fixed costs and the tremendous amount of human capital needed to operate a microchip foundry, there are few companies that can compete in this industry. The chart below shows that Taiwan Semiconductor Manufacturing Co. (TSMC) is the dominant player in the field and the limits of its manufacturing capacity have become an important bottleneck on global technological growth.

In March, Intel Corp., the largest and most advanced microchip manufacturer in the United States, unveiled a $20 billion dollar plan to set up its own foundry business. Previously, it had only designed and manufactured its own chips; now, it plans to mass produce chips for other companies. How successful this venture eventually becomes may determine how fast future economic growth can progress in this increasingly computerized age.

Model Update

There were no trades in the Fortunatus models during the week ending on May 1st, 2021.  The major equity market sectors remain in a long-term favorable trend, and the Fortunatus Asset Allocation models are near their maximum allowable equity exposure with domestic stocks favored over international shares.

On a Lighter Note

What is the most unrealistic scene in most modern sci-fi/action movies? Well, it’s not when a group of basically omnipotent superheroes decide to determine the fate of the universe with a highly choreographed street fight. No. And it’s not that a dinosaur theme park is able to find insurance underwriters to open for business when it is inevitable that their main attractions will snack on at least 50% of the spectators. No. The most unrealistic scene is when a character is confronted with a clone or a long-lost twin, and he instantly recognizes him as his double, often engaging in a mirror pantomime in amazement at their resemblance. This would never happen real life. Below is a quick dialogue showing how real people would react when encountering a duplicate: 

Two friends walking in the park
Friend 1: Wow, that guy looks just like you! 
Friend 2: Where? 
Friend 1 (pointing) : Over there.
Friend 2: I don’t see him. Is he behind that goofy-looking fella? 
Friend 1: No, he 
is the goofy-looking fella.
Friend 2: What? I think you need to get your eyeballs checked by a doctor.

You see, there is a way we see ourselves, and there is a way the rest of the world sees us, and they are almost always different, making it difficult to see a reflection of ourselves. So if

Someone sees himself as a 
mild-mannered sports reporter for The Daily Planet …
While others see a thrice-divorced, motivational speaker living in a van down by the river…

That guy is not going to pick his clone out of a crowd.

Executive Wealth Management (EWM) is a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any particular level of qualification or skill. Investment Advisor Representatives of Executive Wealth Management, LLC offer Investment Advice and Financial Planning Services to customers located within the United States. Brokerage products and services offered through Private Client Services Member FINRA/SIPC. Private Client Services and Executive Wealth Management are unaffiliated entities.  EWM does not offer tax or legal advice. Please do not transmit orders or instructions regarding your accounts by email.  For your protection, EWM does not accept nor act on such instructions. Please speak directly with your representative if you need to give instructions related to your account. If there have been any changes to your personal or financial situation, please contact your Private Wealth Advisor. 

Returns are calculated as indicated below with reinvested dividends not considered except for the Barclays U.S. Aggregate Bond Index. Data source for returns is FactSet Research Systems Inc. The London Gold PM Fix Price is used to calculate returns for gold.

1 Week = closing price on April 23, 2021 to closing price on April 30, 2021

 1 Month = closing price on March 30, 2021 to closing price on April 30, 2021

 3 Month = closing price on January 29, 2021 to closing price on April 30, 2021

 YTD = closing price on December 31, 2020 to closing price on April 30, 2021

All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness. All information and opinions as well as any prices indicated are current only as of the date of this report, and are subject to change without notice. Material provided is for information purposes only and should not be used or construed as an offer to sell, or solicitation of an offer to buy nor recommend any security. Any commentaries, articles of other opinions herein are intended to be general in nature and for current interest. Some of the material may be supplied by companies not affiliated with EWM and is not guaranteed for accuracy, timeliness, completeness or usefulness and EWM is not liable or responsible for any content advertising products or services.

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