Red Carpets Do Not Fix Supply Chains

A summit can look monumental while changing almost nothing, and that gap is where investors get hurt. We take a hard look at the US China leader meeting and ask a simple question: what parts are pageantry, and what parts can actually move markets? Along the way, we challenge the familiar talking points about “opening China” and “reform,” and explain why those phrases often create more heat than light when you are making real portfolio decisions.

From there we get practical about power and incentives. Governments want endorsement from big business, but companies like NVIDIA are built to pursue shareholder value, not national strategy. That tension shows up in export controls, chip designs that thread regulatory needles, and the broader AI race where usability may matter as much as raw compute. We also revisit Huawei and 5G as a reminder that “trust” is not only technical. Ownership structure, control, and political risk can be just as important.

Then we land on the big risk: Taiwan. With a huge share of advanced semiconductor capacity concentrated there, even a blockade threat can reprice the entire AI trade, the semiconductor sector, and the global growth outlook. We connect that to near term distractions in the Middle East, shipping chokepoints like the Strait of Hormuz, rare earth leverage, upcoming tariff actions, and why higher retail participation can make drawdowns sharper. If you care about semiconductor stocks, AI investing, China exposure, and geopolitical risk, this is the map we use to stay skeptical and stay solvent.

Subscribe so you do not miss what comes next, share this with a friend who is heavy in semis, and leave a review if our framework helps. What is your biggest worry right now: Taiwan, tariffs, or valuations?

Straight Talk for All - Nonsense for None

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Transcript

Welcome And Summit Reality Check

Steve Davenport 0:26

Hello everyone and welcome to Skeptics Guide to Investing. It's good to be back. I was away for about 11 days in Paris, France, and it was quite a time to be over there with everything going on in Iran, and now everything going on in China. Um Clem, how do you feel about this summit? Is this is this the second coming of Kissinger and opening up of China, or is this just sh Trump on display trying to show China how much influence and he has with business leaders? Or I don't know where to start with Trump, but why don't you start to tell me what you think China wants to accomplish from this? Because it seems like they were rolling out the military and the red carpet. I saw an actual red carpet on, you know, when they met. Is this as big a summit as these two guys are making it out to be?

Clem Miller 1:31

Of course not. Okay. Come on. First of all, when it comes to red carpets and honor guards and stuff like that, you know, they'll do the same thing for the president of Burkina Faso as they would for the president of of the United States. So there's nothing nothing particularly special about honor guards. No, no, no, no. I mean, it looks it looks good, but it's it's not something special for the president of the United States, Trump, or President of Burkina Faso, or President of Iran for that matter. They all get the same, you know, heads of state always get the same treatment. So , you know, they're very big on protocol Chinese government. And so so I I don't take anything from that at all. Um I do I think that in terms of some of the rhetoric that's being used on the US side, and some of the the Chinese have sort of picked up on that too. There is this, it's it and it's interesting, it goes back to the old Kissinger days. You know, everybody talks about, quote, opening China, right, as if it really needs to be opened. I mean, China has you know, China has a lot of free trade. You could argue that in some senses, China is much more is an op more open country than the United States is to certain you know types of trade and investment, excluding some areas. But you know, they're they're quite open to that. They're very big proponents of foreign trade. And so you know, I would say that this this old rhetoric of opening China you know goes back to Nixon, and I would say even goes back further than that, goes back to the the opium wars and and you know the 19th century and people talking about opening China back then. So it's it's sort of this this concept that's in the Western consciousness that China is a country that has to be opened, like it's some kind of mysterious kingdom that has to be opened. And you know, that's obviously nonsense, , that idea that it has to be open. The other word that is thrown around a lot, , and I may have mentioned this in other contexts too, and it's not just China, , is this notion of quote reform, quote unquote. And I I remember when I was when you know in my you know working at Eximbank and other places that when countries would talk about reform, they used that as a buzzword that had you know basically no meaning to it. Like a new government would come in and say, oh, we're gonna reform everything. And you're supposed to think, well, reform is a good thing. How how can reform not be a good thing? But it's never really defined, and and reform can be can just mean change. Well, you know, change can be for the better or it can be for the worst.

Steve Davenport 4:42

Yeah, if you look at Trump and say he's reforming our tariff system, I don't necessarily think that reform is it has to be a good, you know, it can be a bad way.

Buzzwords That Hide The Truth

Clem Miller 4:54

So this concept of open, this concept of reform, these are these are nonsense concepts. Uh, I'm also gonna say that, and I'm kind of curious as to your thought on this, Steve, that you know, it's sort of pathetic, I think, to use a word, , that Trump had to bring along all these these business executives. Uh you know, it's it it's you know, it's pandering to Xi Jinping. Do you think that Xi Jinping, when he comes to visit the United States, brings along all these Chinese business executives? No, right? So it's all it's all pandering to the Chinese government. It's it's really pathetic, actually.

Steve Davenport 5:41

Yeah, I mean, I I I think that Musk, that I remember, has visited China and talked to the high-level people, you know, on his own. So it's not like they they're not interested in talking to Musk and figuring out how he could, you know, potentially impact the you know electric vehicle market or the space market or the you know, I I look at all these leaders as having as much or more, you know. If you're the CEO of NVIDIA or you're the CEO of Tesla, I I think that you know people realize now that that market cap means something. And I know that the political leaders say, oh, it doesn't matter at all, but when they're looking for money, when they're you know, when they're doing something and they want support for an idea, they know they need that business. And I I think that the if I look at the two systems, I believe that the US system is better because it has more what I'll call original, you know, you know, original thought. And I think that when we think about businesses and how they operate, a prescription from the government on what you should be doing and how you should be developing your factories and putting it here in Phoenix and here in, you know, Charlotte or another city because that's what would make sense from you. Uh, as I've started to learn from very semiconductor companies, they want to go where the talent is. They want to go not necessarily where the you know electrical grid is the strongest. They want to go where there's a combination of people and resources. And I don't think that government necessarily is gonna make the best decisions. I still believe that you know, government trying to direct decisions is , you know, the Russian orthodoxy of oh, the government knows best. And I I think is a false premise. And therefore, I think when you bring these leaders along, like they're gonna follow and and and and listen to you, is is really probably, you know, just as you say, malarkey or it's it's not it's not likely that a person ahead of a complicated company is is is gonna be able to simplify things for the government in such a way that they can actually have a positive impact. I think they would prefer for most of the government, most leaders that I know in business, they would prefer hands-off, just let us just let us occupy and do things the way we've been doing things on our own. I don't know if alliances with government, I know it's been good for Intel, but I'm not sure it's the you know, the method of the future in terms of we'll have a joint government and corporate entities, and that will be the new, you know, the new black in terms of how to operate in an economy.

Clem Miller 8:40

I I agree with you on that, that that the government that works best is one that imposes the least on on business. Um but but the here's the problem, Steve. The problem is that is that government wants business to basically endorse its political structures. And so obviously you see that with Trump right and trying to establish a a coterie of of oligarchs, right? American oligarchs who support him. And this isn't this isn't the first time that's happened. If you look at Russia, Putin, when he came to power, basically told the oligarchs, I'm not gonna touch your business. You can do what you want as long as you support us. That is the regime, right? Yeah, and it's when it's when they start to get out of line that the regime comes in and takes action. People still fall in other hotel rooms. And China's the same way when when the so the Chinese government until about 2020 sort of left this new realm of of platform businesses like Alibaba and Tencent and so on, let them do their own thing. Then in 2020, Jack Ma gave this speech. He's the head of was the head of Alibaba, and it was sort of an interpreted as an anti-government speech. Then Xi Jinping and others cracked down on that. And that was the beginning of kind of a broader crackdown on the internet platform businesses. Um but it was all sort of motivated originally by by politics and by this fear that that that these businesses were becoming too big and becoming a threat to the government. I know a lot of people like the the myth that was out there that was being promulgated was oh, well, the Chinese are just doing what everybody else does in terms of anti-monopoly behavior. No BS, okay? It wasn't anti-monopoly behavior, it was it was driven by political concerns about making sure that business is on the side of the regime.

Steve Davenport 11:14

Wasn't Huwai the the chip manufacturer kind of in the center of everything because they wanted all of these firms to use Japanese, I mean to use Chinese chips that weren't, you know, they they felt would have some control in terms of what you were doing because there would always be Mother China looking over your shoulder going to use the chip.

Clem Miller 11:37

Well, it was it 5G equipment was Huawei, what was what Huawei was involved with. Yeah, it was trying to sell this 5G equipment all over the place, and there were concerns in the US, in the UK, Europe, Japan, India about Huawei equipment. And you know, there was sort of a technical concern about whether there were backdoors for the Chinese government to monitor. But there were also broader concerns about, well, you know, maybe it even if it doesn't have a backdoor, we're why do we want to rely on Huawei? Not because it's Chinese, but because it's actually its ownership and control structure was kind of vague, right? Supposedly it's owned by the you by the employees of Huawei, but like I mean, come on, who really controls Huawei? It's not an it's not an employee committee, okay? Right? It's it's really it's really the commissar, right, who who who who runs the place.

Steve Davenport 12:45

Yeah, I mean, we've talked about this before about why you don't invest in China, and part of it is this incorporation offshore, right? And yeah these pseudo-shares or whatever they're, you know what I mean, that that don't actually. I mean, I I look at China, and the original reason that I learned in business school was that the rule of law is different, and the rules applied by these foreign governments can be almost whatever they want. And therefore, you have to kind of realize that when you open and incorporate in these countries that there's a there's a a Venezuela moment where all of a sudden you own the land and you own the the facilities, and then you don't. And so when you look at the rule of law, do you feel that these countries have China in specific has changed enough that you can trust the rule of law and how it'll be applied to your organization in a place like China? Or is it still the same as it was 20, 30, 40 years ago?

Clem Miller 14:05

Well, I I don't I don't know that it's the same as like 40 years ago, right? I think it's evolved since then, but but is it better than it was 20 years ago, 10 years ago? I'm not sure I could say that it is, really.

Steve Davenport 14:24

I mean, I see I still believe that when you look at the the the opaque kind of way that the government is involved with these companies, and all of a sudden it could be you know making statements about you know the US. Um, and and I also see the the bluster when they say, well, we don't need the best chips because we have the better software, and you know, and and when you look at this, it it's a race. It's always been a race. Whether it's a race for military power, whether it's a race for technology, whether it's a race for um chips, we are in a race to determine, and I I've listened to the different people on the different platforms, and one of the things they said is maybe it's not the the you know the bot that has the fastest chips. Maybe it's the bot that is most easily used. I remember when Apple was working out music, and they just figured out a better way for people to listen, a better way for people to choose, a better way to, you know, to live their to integrate their lives and their desires with the music. And I look at AI and I gotta think, that's the winner. We just don't know who it is yet, but somebody is gonna be able to, whether it's through glasses or whether it's through a phone or whether it's through some type of other device, how do we help people to integrate with the technology? And that's where I think an Apple has a huge advantage because they already have a good relationship with, and and I I think that in some ways Samsung does too. I think that everybody has to figure out how to how do we take that last, you know, whether we call it the last mile or the last three yards, or whatever analogy we want to make, that's where the real you know leadership is going to come from. And I think that G and Trump talking about AI, I mean, do you think the two of them can figure out, you know, how AI can evolve to benefit both countries in a way that you know is is aligned with their values and aligned with what they want to accomplish as as leaders?

Clem Miller 16:47

I I doubt I doubt that that either individual, she or Trump, has any clue as to what AI is, right? It's it's it's it's their people who who might okay have an idea as to what is going on. And um and so I don't think I think AI is really not something that can be AI rules are not something that can really be imposed from above just yet.

Steve Davenport 17:20

Right. I don't think we know enough to to determine.

Clem Miller 17:22

Uh what I'm saying is that if we release this little chip for China to operate um, you know, from NVIDIA, are we creating a door that you know opens up the AI to China and makes well it's it's clear to me that NVIDIA is operating a hundred percent on its own self-interests and not on US government interests. That's clear to me.

Steve Davenport 17:50

Did anybody say that that was part of NVIDIA's you know um design plan? I mean, did anybody say, hey, don't forget to put in benefit US you know defenses? I mean, they're a corporation that they're not founded for the benefit of the United States. Yeah. I mean, I I don't know what you would expect. I mean, did you expect that they were gonna hey we'll operate and sit?

Clem Miller 18:14

Like I'm being they have to they are there are export controls that apply to them, but did they welcome the export controls? No, right? They're they're imposed on them, and they've tried to work around them, you know, like this doing designs that are compliant for China, and you know, they've tried to work around them, , but you know, they're not you know, they're not there to do the government's business. Uh right. This is what's in the sense that a defense firm, you know, like Lockheed, right, does the the government's business, right? So they they they are hand in glove with the government, you know, a Lockheed or a Raytheon or whatever. NVIDIA is not that.

Steve Davenport 19:01

Right. And even when you look at Lockheed and Raytheon, you're gonna also say they're gonna, you know, they're gonna welcome the sales.

Clem Miller 19:08

They don't sleep at night thinking, oh, should we get these like should these weapons go to you know the UAE or but but the thing is is that is that is that they have their biggest customer by far would be alienated if they were to do anything like that. Their biggest customer by far. Not not even just a regulator, right? Regulator is one thing, but their biggest customer might cut them off.

Steve Davenport 19:44

Yeah, would they? I mean, they've the relationships are so deep, everybody says it might cut you off. Could you cut them off if you've already integrated their jets and their engines?

Clem Miller 19:56

But why why would Raytheon want to risk anything even remotely to that? I if I were a Raytheon shareholder or Lockheed shareholder, I I would want to be comfortable with the fact that there was zero risk of the US government cutting them off.

Steve Davenport 20:14

Yeah, I I guess I don't think there's ever zero risk. So I think it's kind of a false thing. But it's I I see your point that it's the biggest customer, they gotta listen and I think they do.

Clem Miller 20:25

And and that NVIDIA is not in that role.

Steve Davenport 20:30

Right. I think that we know that the US, you know, government wants certain things and and and NVIDIA will play along, just like Cook. I look at Cook there, and I'm like, geech, you know, if if he ever got at the table between the two of them and started talking about how important Chinese production of phones is, and the fact that he's moving some of those to India and Trump would be, you know, I I think that all of this is so complicated that to to look at a 48-hour trip and say, oh, we're gonna get all these things. Like, I think by bringing all those leaders, he's making it more confusing of what the message is. Not more direct, because I I don't know why the Boeing, you know, like the Boeing CEO's there. There's there's a whole bunch of people that you kind of go, oh, I'm I'm not sure how his visit is gonna make it to the top of their discussions and actually get addressed, right? I mean, I I almost feel like if you asked people to do a summit, wouldn't you have picked the top two or three areas of disagreement and get those accomplished versus having 50 executives? You know, like it almost guarantees you can accomplish.

Clem Miller 21:52

It's it's look, it's all it's all for show. It's pageantry, right? Um all these statements have been pre-vetted with each side. Everybody knows what everybody else is gonna say. I mean, Trump, who knows, right? He's given what he's gonna say, but supposedly everything's worked out in advance.

Steve Davenport 22:15

Yeah, I mean, I want to just bring right now. I'm looking at the Bloomberg headlines, and um V tells US CEOs on Trump visit that China will open up more. Yeah, yeah, yeah. I I I I thought that, you know, we we had no free free knowledge of that headline, but right.

Clem Miller 22:38

Well, it's just it's because it for centuries people. People have been talking about opening China up.

Taiwan Pressure And Control Of Seas

Steve Davenport 22:44

Well, they got those big walls, Glen. If you get those big walls, how do you do you blow a hole on the wall? And I don't you you make it sound like it's easy, but I I think getting over the wall and getting the goods over the wall, they have to throw the bags up the top. Not easy, you know. And so they they call it the Great Wall for a reason, but it's not a small ball, they don't call it the China small ball. So I I think that a lot of this mystery of international culture and and what goes on in these different countries and how they're organized. Uh I wish we were further along than we've, you know, Nixon and Kissinger opened up China in the 70s. And I honestly don't feel like we're, you know, that's 50 years ago. In 50 years, have we, you know, have we grown in understanding the Chinese culture and the Chinese government and the Chinese people?

Clem Miller 23:46

Oh, I think I I think I think we have, okay. I think, but I think a lot of that progress was um, you know, it occurred through the um through the Zhang years and the and the and the Xi Jinping years. Uh not Xi Jinping, um now I'm I'm losing my names of the Chinese leaders. But the guy in 78, I think I think that was an opening. I think in the early 90s, there was some more opening. Um but I think since certainly since Xi Jinping came in, which was 2012, um that's when he came in. Um I think since 2012 there's been a reversion back to more state control. And um I think it really accelerated after 2020. Uh and China's much more interested in developing its military and its strategic reach, thinking about eventual um peaceful or even non-peaceful um capture of Taiwan. Or what or what they call reunification, which is a nonsense word because Taiwan has never really been a part of China, at least not fully.

Steve Davenport 25:15

Well, if we go back long enough, you could say just like Russia does, every place was a part of them, right?

Clem Miller 25:21

The British Taiwan, not not, I mean, there were there were Ming colonies. I I I I looked into this, okay, , because I was kind of curious about this. You know, for for one thing, Japan controlled Taiwan for a long time. Uh but before that, you had some Ming colonies on the coast, Ming Chinese colonies on the coast, but the majority of Taiwan was still controlled by indigenous peoples who are non-Chinese. Uh they're kind of a Malay origin who had been there for you know centuries or millennia, actually. And so it's this is not a situation where you had Chinese culture already embedded on all of Taiwan, and the Japanese captured it, and then it was then the whole idea was just to return it to China. That's not the case at all. Um the case is that is that the nationalists escaped from China and the communists were trying to chase the nationalists, and that's why they wanted to capture Taiwan, was to , you know, they say it's reunification, but it's it's actually trying to eliminate a a threat to the communist government.

Steve Davenport 26:53

Yeah, I mean, I think that I looked at a lot of the consultants and strategists recently who've who have said that controlling Taiwan is about controlling you know the waterways. Yeah. And that if you control the waterways, then then you have much more control over the fuel that China needs, the oil. And then you look at what's happened, and basically they're trying to control the the 400 the thousand miles near the coast of final delivery to China. Right. But it's a it's a thorough thoroughfare in the Strait of Hamous that's really it doesn't get through there, it doesn't get to this area that they gain more control over. So you look at them and you say they're kind of like the British, and that they want to have all this control of these different territories, but each territory has its own set of history and risk, and you know, and creating islands off the shore that they can, you know, say, okay, that island is our island, therefore we control all the water on both sides. You know, it's it it feels like it's pre- you know, like this is pre-colonial times, and we're we're we're still mapping out the world in such a way that we can try to control as much of it as we can so that we, you know, China has the um the free flow of of its ships and and it controls more waterway, and then it tells others get out of our water.

Clem Miller 28:23

And I I I think it's I mean can you I think I think Belt and Road Initiative, China's Belt and Road Initiative, was aimed at trying to create some port infrastructure and potential military bases that could be used to sort of um protect Chinese shipping various water waves. So for example, Djibouti, which is on the um which is on the Babel Mandab, the entrance to the Red Sea, that has a Chinese military base. So I believe I believe there's a Chinese port in southern Pakistan on the Indian Ocean. And so that would be the closest to the Red to the to the Persian Gulf, that base. So I don't know what the status is. I haven't read anything about the recent status of whether that's being um considered for use now, but it might be.

Steve Davenport 29:27

Yeah, I mean China's a big country. The you you know, the United States and our relationship with China and trade is almost too big a topic for a podcast.

Clem Miller 29:36

Yeah.

Steve Davenport 29:36

So why don't we try to focus on what we think this summit, although we know it's filled with a lot of pomp and circumstance that will have no relevance on our trade, what do you think are the one or two issues that could come out of this? And I'm gonna start with what I think is the main issue here, which is Taiwan. Yeah. I think that Xi wants to make it very clear that he does not appreciate any of the weapons deals that what the Congress has approved, and that future delivery of those he would like delayed. He would like to show some influence on the United States that would make the people in Taiwan a little bit more likely to follow and listen, that they're being they're being undermined by the Chinese government, which they know, in a big way with their major supporter. And I think that if you look at what's happening in the world right now, I gotta think that Taiwan is a little less comfortable because they see the U.S. distracted by Iran, they see the U.S. distracted by the Ukraine, they see the US Eurocentric right now. And in my mind, they would much rather see us as Asia-centric. And if we were Asia-centric, then we would have more military backup in Taiwan, and we would have more influence in the area and feel it is more important. But right now, what's happened is Trump made decisions and then, you know, whether it's the Monroe Doctrine or whatever he's trying to do in Venezuela and in Cuba and eventually in Panama, he seems to want to center his influence in the areas where he thinks it's most important. And I think right now I'd say that's one the Middle East and Ukraine. And I put those together because they're just in a similar area of the world. And then I'd say two would be the South American governments. And then he looks at after that, you know, he puts three and four as, you know, Asia specific with, you know, the materials and metals from Australia and China, and the the government of Taiwan. And I put those three areas as three and four. And I don't think we can really make those issues more important until the others above them get resolved. And I honestly don't think we're gonna see that resolution soon. On, you know, I just just today reading about the different Iranian attacks or you know, some Indian cargo ship was um was sunk. And I mean, these are not like what I would call, I mean, Trump keeps saying we're in a ceasefire, we're in a ceasefire, and people people keep shooting. So I don't know how he defined ceasefire. I thought ceasefire was there was no shooting. Yeah, you help me with that definition, Club?

Clem Miller 32:48

Well, look. I mean, where do you see this something? When okay, so you you covered a lot of Terry territory just then, okay. So let me let me try to run through it. Um, so first of all, on ceasefire. You know, when Trump talks about ceasefire, when Heggsith talks about, you know, destroying everything in in Iran, all of that is nonsense. I think a lot of people realize it's nonsense, except maybe some Foxwatchers. Uh, they may not think it's nonsense because they believe what's being told them. Uh, but you know, that's they're just, you know, they're just doing propaganda like everybody else does propaganda. And the propaganda they're putting out is that, oh, the war is basically over, , and everything in Iran is destroyed, and and , and things we just have to clear up a few loose ends. That's how they're putting it, right? And that's not the case at all. The case is Iran has still has a lot of power left. They have a lot of missiles left, they have a lot of drones left, they still have the the enriched uranium, they still have that available. Uh and um you've got you've got Israel Don't they have a big ally in China and Russia? Yeah, you've got you've got Israel itching to to start this war again, to to beef it up and to to keep going. Uh and we know that Trump listens to him to some extent, to Netanyahu, to a large extent, possibly. Um and then of course Russia is supporting Iran because Iran supported it. Uh you've got China supporting Iran.

Steve Davenport 34:36

Uh you know, it's a there's a question as to what degree they support Iran, , but there's certainly But wherever you draw the line, don't you think there's probably a little bit more going on between them than you know, hey, they could be doing drone supplies, that could be doing you know No, I think I think there are.

Clem Miller 34:55

I think there is. I think , you know, Russia does have spy satellites, so does China, and so they could be providing some intelligence to Iran. Uh it's really very surprising to me, I'm sure to a lot of people, how well the the the China the Iranians have been doing and attacking U.S. bases around the region. There have been some there's been some reporting out about about there being much more extensive damage to U.S. bases in the region than what's been reported by the government officially.

Steve Davenport 35:32

Yeah.

Clem Miller 35:33

So that's you know, that's certainly interesting. So, I mean, basically, we have a situation where we have a war that's at best a stalemate, and and depending on how you define loss, you know, if a loss means that you you attack and you don't achieve your objectives, then clearly Trump is losing this war because he hasn't achieved his objectives.

Steve Davenport 35:56

Um I mean he and he's if if anything, he's yeah, I mean, I think that the change of government and control of the nuclear materials, , while they weren't necessarily on the list to start. I think they were to, you know, I think they have achieved the goal of severely limiting the military ability of Iran. But I think That's not clear. That's not clear. It's limited to come when the Navy is sunk and the you know, and the the no the airspace is no longer under their control. I think it's limited somewhat. But well, okay, it's not eliminated, but it's eliminated.

Clem Miller 36:33

But you have to ask yourself something. How much of a navy did Iran?

Steve Davenport 36:38

I mean, how how how I I can say equivocably that the US Navy could handle the Iran the Israeli Navy, because there is no Israeli Navy. I mean, I I understand your point about a 92 million dollar 92 million person country, and you know, the Navy has. I I I think all I'm trying to say is I guess um if you thought that there was going to be a lot done here, and I think there are plenty of things to do in China, I think that we have shown that we're we're occupied elsewhere. We are. And and that tells me that this is mostly for show because if it were not, if we were so folk focused on Asia, we would have done a lot more different things. We wouldn't have all of our carries sitting in the Middle East or most of our carrier groups. So in to in terms of where you where you are and where you want to be, they're not they're not wanting. And so to me, what that is is a distraction. And therefore, the Asia thing is a distraction until, as Z is doing now, he says, don't bother us in Taiwan, don't do things that are gonna upset us in Taiwan. And I think the US right now, with all of the things on our plate, are gonna listen. And I think that we have to hope that X doesn't take action while we're not able to fully address it. That's so I I'm gonna I'm gonna the market.

Clem Miller 38:14

I think Trump and Heggsith and company are definitely distracted by what's going on in the Middle East.

unknown 38:21

Right.

Portfolio Risks From War And Chips

Clem Miller 38:22

And and I I think that it's a you know, it's a a chaotic Q U I X O T I C chaotic endeavor to try to get this. What? Don Quixote to try to get to try to get into um get this nuclear material and so on. And actually, I don't even think it really matters to get this nuclear material or not, , because they could always hide some. And also because if they ever tried to use it, Israel simply used their own atomic weapons against against Iran. So I just I just don't think it has I think it's I think it's it's rhetoric. I mean the US was not Trump was not gonna send Iran back to the you know the ages of you know you know it's it's nonsense anyway, because the last time we used language like sending countries back into the stone age, we actually did have a huge loss, and that was Vietnam. Yeah, I I think it's I think it's just whatever.

Steve Davenport 39:31

And so I guess what I ask him is that's about Asia. And as an investor, what do we do with this summit?

Clem Miller 39:40

Well, okay, let me just on Asia, just one second, okay. I think there is some evidence. It's very subtle. You don't hear a lot about it, but I think if you point put some, you know, sort of what draw lines between the dots, okay. Uh I think there's some evidence that we're beefing up our capabilities in Asia. Um so there is, let me put the dots together here. So Japan is beefing up their military capabilities, and especially on islands that are closer to Taiwan. The Philippines is building up their military capabilities, especially on islands closer to Taiwan. Uh Vietnam is building up their capabilities on some of the South China Sea islands that they own, right, that they control, as is the Philippines. Um the US has been beefing up islands that have not seen development for years and years. These are islands that were involved in the island hopping against the Japanese in World War II and were basically allowed to rust away almost literally these islands after World War II. And there's been some rebuilding of some bases on some of these islands. So I, you know, I'm not so I I think there is some effort going on. Yes, we're totally distracted near term by the Middle East, but I think that there's some long-term movement by the U.S. to to counter China. I mean, to be sure, China's doing the same things we're doing in terms of developing relationships in the Western Pacific. So it there's kind of a cold war going on in the Western Pacific.

Steve Davenport 41:43

Well, I look at us sending troops for training in Panama and understanding jungle warfare. And I'm not sure that you know if if we were serious about Taiwan, if we were really, you know, focusing on it and making sure that China has no no lack of clarity, that the US is ready and able to protect and defend Taiwanese independence, I think we would be doing more. So I guess my point is it's a distraction for us, therefore it's a risk. Um, because as we as I said earlier, or I said in another podcast, 80 to 90 percent of the nanometer chips come from Taiwan. Yeah. Repeat, 80 to 90 percent. So if we think the Strait of Hormuz has has disrupted the energy industry with 20% decline, what would what would the chip industry in the world do if Taiwan with 80 to 90 percent of the volume were suddenly be blockaded? I I think that you want to see the AI rally disappear. I think the AI rally would disappear, I think the internet rally might disappear. I think we might, you know, we're we're talking about a serious problem and it's entirely.

Clem Miller 43:11

There goes our podcast, Steve. We won't have the chips to run our podcast.

Steve Davenport 43:14

I I think we might still, I mean, something as important as us would probably be put as an interest of national security. I mean, don't you think that the world needs more skeptics? And they couldn't put take us off the air. I mean the world would be devoid of skepticism, and then we would we just have all yes, man. I I I look at what we do, Clem, and I think it really does give an independent voice to a lot of things. And I I hope that this doesn't happen in Taiwan, but I look at even the threat of it as if the ships were starting to gather, you know, China has control over the strait, and it could, you know, create a problem for the chip manufacturing industries in Taiwan.

Clem Miller 44:05

Oh, yeah.

Steve Davenport 44:05

And even a blockade would help would hurt. A blockade would, you know, and and and to me, the whole world blockade just became it's like the new block. I mean, if we can blockade something, like it's it's , you know, it's a serious issue. And so that's what I would say about this. I I'm looking very closely at the summit and trying to see how the US can still show support for Taiwan in such a way that it doesn't upset China too much and it doesn't make China want to rush forward. Because if we if China waits and the U.S. Resolves problems in the Middle East and the Ukraine and starts to move its forces more balanced fashion to Asia, that's gonna make that blockade much harder. That's gonna make that blockade a battle of two, you know, navies. I think that right now there's a there's an opening, and to me that opening is a risk. And the other thing, Clem, that I kind of was listening to um a podcast, and and they talked about the fact that the current market is 30 to 50 percent retail versus a historic number of 10. So if the markets are used to 10% retail and suddenly that's tripled or gone up five times, what does that mean for how we operate and how how stable those hands are holding the AI stocks and some of the things that have recently gone up two, three hundred percent?

Clem Miller 45:37

As soon as as soon as they start plunging, you're gonna they're gonna plunge even more. Right. And so that's why I have a lot of cash in my portfolio, Steve.

Steve Davenport 45:46

And that's why I'm recommending people, you know, think about protection and SMH puts. SMH is up 60% in the last six weeks. That's a pretty large move, and it's the move that's leading the whole market. And so I understand why chips are valuable, but if you don't understand the risks to chips, then you're only looking at the one side of the equation, which is the return side. And I think that as investors and skeptical investors, you need to look at both sides. You need to look at some of these multiples for for basically memory chips and some things that we think of as commodities. I I think the fact that they're selling for 30, 50 times earnings, you know, is is not an indicator that this market is in a good position for you. I think the market is overpriced, and I don't know, what would you do? Um what else is there from the G? We got five minutes left. What else is there from the G summit besides Taiwan that you think could get done or will get done, and that we should look at as investors as opportunities that could get done or will get done.

Clem Miller 46:59

Uh honestly, I don't think a lot on the metals. Uh oh, rare earths. Uh I think you know that is a that is still, despite things that the US is doing, Australia is doing, , in terms of promoting their own domestic industries, I think that is still something that China can control as a threat. Now, if they just don't sell them, that's not a threat, right? Because they're just not selling them. If they can turn it off and on at will, that becomes a threat. So, you know, rare earths are to China as the Strait of Hormuz is to Iran. That's the way I look at it.

Steve Davenport 47:44

Okay. How about chips and NVIDIA and the race for AI?

Clem Miller 47:51

Do you think we're gonna have to know the summit that's gonna affect that? I think I think that gradually we're gonna see um gradually, but maybe even faster than gradually, we're gonna see China catch up on chips. Okay, but by their own or by having access to US chips? They're gonna they're gonna reverse engineer them. Okay. And they're gonna they're gonna reverse engineer them and they're going to develop AI technologies that are just as good as as ours. And we already saw the beginning of that with Deep Seek.

Steve Davenport 48:27

How about um beef and some of the agricultural things that Trump has been pushing with China?

Clem Miller 48:35

You know, do you honestly honestly I I mean even though I like beef personally, I don't really care about it from an egg from an investment standpoint.

Steve Davenport 48:47

All right. So how how about um tariff levels in general? Do you think we see a relaxation or something that's gonna, you know, um gonna be different in terms of how how are the two countries are the two countries gonna get more efficient and let and take down some of the tariff walls because of the selling? And if so, is it gonna be a boom?

Clem Miller 49:08

You're gonna see you're gonna see an announcement of that. Uh, but you know, you got to keep in mind that there's a lot going on on tariffs in the U.S. domestic front. And one of the things that is being worked on is a whole series of Section 301 tariffs. And those are gonna be rolled out this you know, this summer sometime, is my understanding. And there's no doubt in my mind that some of those tariffs will involve China. So, regardless of whatever might be said now, I think we're going to see some China-related tariffs, you know, in coming months. Okay.

Steve Davenport 49:49

And is there if you were to rate one risk and one opportunity from this summit, what would they be?

Clem Miller 49:58

Well, the one risk from this summit is that we could see heightened tensions over Taiwan coming out of the summit, not lower, heightened. Right? So I think that's that's one you agree with me. I do on that. Okay. Uh and the one benefit it's possible, this is a possibility, it's possible that China might talk Trump down from Iran. I think it's possible you might do that. Uh I think that I think that Iran, I think Iran is going to have to be given something that they really value right now, which is control over hormuz. I don't think they're going to just I don't think they're gonna back down from this desire to treat Hormuz like the Suez or the Panama Canal. They're gonna wanna they're gonna want to keep charging that fee, , which I've read if you add them all, if you apply that fee to the normal traffic levels to Strait of Hormuz, they would be making more oil m more money from that from that charge, from the charging those ships than they would from their own oil expert, oil exports. So it's a huge value to the Iranians to to charge those fees. And those kinds of fees are fees that are charged for the Panama Canal and Suez anyway. So I don't know the exact levels are the same, but if you know if they're similar levels, I you know, why not, right? I mean it's a it's kind of a new kind of a new situation. I mean, you could see, I guess, Singapore and Malaysia.

Steve Davenport 51:56

Doesn't does both sides have to be in the same country for somebody's like Oman is on the other side, doesn't it?

Clem Miller 52:02

Yeah, well that's why Iran they went and and went on a visit to Oman to talk to them about it. Uh and so you know it could be that I don't I don't think the Iranians are against a deal with Oman if they can if they can have half the revenue of the Iranians, right? So I suspect that it it may end up being a deal between Iran and Oman. Um but you know it's I I think you know it's against the law of the sea, right? There's a law of the sea treaty. I don't know.

Steve Davenport 52:34

Well if Oman was involved, it wouldn't it would be part of it it would be considered normal operation, wouldn't it?

Clem Miller 52:41

Uh well go the Strait of Hormuz would be considered international waters under the law of the sea treaty. Now, whether Iran is a member of that, I'm not sure, right? You've got like the the Bosporus Straits where you got Turkey on either side, that's considered kind of an international waterway. Uh there's something called the Montreux Convention, which allows for free passage through that. Uh but you know, we could be entering a new age where where you've got certain authorities, certain government authorities controlling certain certain waterways, right? It can straight away China takes over control of the Taiwan Strait. Yeah. China can control that. Uh that's a pretty wide strait.

Final Takeaways And Next Guests

Steve Davenport 53:33

Is it I know I'm just yeah, I'm just being the devil's advocate here, Clint.

Clem Miller 53:37

Yeah, the U.S. can control the Florida Strait. I'm not sure what that would achieve because you could just go around the other side.

Steve Davenport 53:43

Gulf of America, you mean?

Clem Miller 53:45

Yeah, into the Gulf of America. Uh Gulf, yeah, into the Gulf of America. So because that's the entrance into the Gulf of America, the Florida Strait.

Steve Davenport 53:54

I think that we've we've covered a lot today about this conference and this this summit. And I I I'm glad we got into some of the issues. I think that when I look at it, I see those opportunities. Sure. I think that Z could have a lot of influence and and cause you know an acceleration of an Iran settlement. I think that would be the best thing that happens. Um it would bring down oil prices and it would help the economy. Um, so in my mind, that's the the plus. The minus is um there's less certainty on Taiwan and it eventually leads you know China to be more clamping down and more involved in in Taiwan, which I think would be bad for the economies of the world. So it's great to have you and to be back with you, Clem. I enjoyed it. Yeah, it was a lot of fun this morning. Thanks. I'm glad you're back from Paris safe. Yeah, thanks everybody for listening. And we look forward to um we're gonna have two guests next week. Uh Fraser Rice is joining us, and Fraser always brings the the details and the ideas on high net worth investors, and Stephanie Lang is gonna be joining us. Um Stephanie used to be um or is a friend of mine from from Atlanta in the CFA, and she's involved in some very interesting work with um the Mercy group in at Grady Hospital. So I I look forward to those two guests, and I want everybody to continue listening and letting us know what you like and don't like, and we enjoy serving you here at Skeptic's Guide to Investing.