A Comment -- General Comments From an Expert (A Commentary)

GlobalWafers' Texas foundry Congress needs to pass the CHIPS for America Act before the August recess. This is the plan by GlobalWafers to build a silicon wafer factory in Texas. The factory could create up to 1,500 jobs and produce 1.2 million. Supply chain constraints have stopped many industries, especially cards, from accessing semis. Meanwhile, demand is soaring. It takes time to build such a factory, so it's urgent to start now. Meanwhile, demand for semis will continue to climb in the coming decade. No way that a factory can be built in Taiwan, because that is too close to China and would pose a security threat.

Believes credibility of Central banks has been eroded. Events from the past century have proven inability of Central banks to manage economy. Inflation is not a surprise given the length of low interest rates.

Question is how high interest rates have to go before inflation is tamed. Looking for companies that can raise praises in response to inflation. Hoping rising prices will not feed fire of inflation.

The market was very oversold coming into this week, meaning it would soar on any good news. That happened today with a rally of over 3% Technical analyst Larry Williams called this rally. Meta and Salesforce led the rally (tech rallied).

Inflation is persistent, hitting a 40-year high of 8.6% in the US, market volatility and a technical bear market in the S&P. Only energy is the only star this year; there remains opportunity here. The US Fed is hawkish with a 75-point rate hike. He doesn't feel a recession is imminent; the 3- month 10-year treasury spread doesn't indicate one, at least not in the coming 12 months though perhaps later. He has tilted his portfolio away from growth and into value. Canadian and US banks are an opportunity. Energy, materials and healthcare too.

We're stuck now. It will be three weeks before we see June's inflation data and when earnings start. Earnings estimates have been going up this year, and are the big question going forward. That answer will come with earnings reports starting in three weeks. However, personal and corporate balance sheets are still in good shape. Companies are buying back shares. These balance sheets are a positive in a pessmistic environment and cannot be overlooked.

He's waiting for the world to change. He sold some S&P futures on the morning of the last inflation report and hasn't made any moves yet. There's no clarity in inflation, rates or tariffs. There is overwhelming pessimism in the market which gives rise to a trading opportunity, which is a bit of optimism. Also, lumber, copper and wheat are down over 20% or more since the winter. Even gasoline and crude oil are down (the latter 12% from the recent peak).

Not sure if we will enter a recession this or next year, but she expects growth to return to 2017-19 GDP (2-2.5%) levels based on earnings growth. Earnings growth will be the catalyst to raising stock prices. There are companies with strong moats and strong earnings whose PEs have come down a lot. Those names deserve to trade at a premium.

The market is reacting positively to Powell's comments today: the Fed has a blunt tool to raise rates and yet start quantitative tightening--two things that haven't come together before as the economy slows or maybe stalls. We are in uncharted territory for a few quarters. We are in purgatory.

semiconductors He owns no semis, because they are a commodity and we are in a declining economy. Earnings can grow more reliably and strongly elsewhere. You have to time your entry into semis perfectly.

Glimmers of hope over next 6 months? Historically since WW2, every time the stock market ran up 20% or more as in 2021, it fell double digits in the first half of the following year. In the second half of that year, markets had at least returned to break even. The second thing is that inflation and interest rate hikes have already been significantly priced in. So by spring of 2023, developed world economies could experience a relief rally, if investors convince themselves that the Fed will dial back aggressiveness to prevent a deep recession. Remember, stock markets tend to look 6-12 months ahead. So spring 2023 should look more optimistic than today. Lastly, technology sector needs to lead the charge, as it's the biggest sector. Look for tech to be more robust as we enter the second half of this year.

Which area of tech to watch? Every 10 years, the pendulum swings between hardware and software. From 2011-2021, the horses that led the way were software. Before that, it was hardware. Now, the ones that seem to have the stabilizing factor, like META, are starting to move towards hardware. The trend is just starting to swing away from software and over to hardware.

Semiconductor space. The semi space has come off a good 50-60%. Though he's unsure of the macro headwinds, he kept his stocks and shorted the SOXX to protect the portfolio.

Portfolio protection for aggressive tech positions. Everyone should have the tools to at least weather bear markets, if not profit. To protect yourself in a name like ARKK, you can buy the PSQ, which is the inverse of the QQQ. What he does is use equity indices to protect his long stocks. Yes, this year he's down 7%. But this is very manageable compared to the NASDAQ that's down 33%. ARKK's down more than that.

Ideas in tech security. Interesting opportunities in cybersecurity. Look at ZS for web gateways, SPLK for security information management, or PANW for network security.