Racism threatens vaccine plans

Plus rising rates and jobless claims, Intel’s vicious cycle, China’s fight against algorithm bullies

Welcome to another edition of Contention! This week we have just about seven minutes of fabless dissident business news:

  1. Interest rates rise despite sinking economy

  2. Swan falls to Intel’s vicious cycle

  3. Racism threatens vaccine plans

  4. Rapid Round: China warns of “evil,” Dutch government plays pretend, Palantir fails

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Interest rates rise despite sinking economy

Markets had a bad week as more economic indicators pointed to a deepening slowdown -- the Dow lost 0.9% and both the Nasdaq and S&P 500 dropped 1.5%. Concerns around U.S. political instability also began to weigh on investors despite earlier disregard for these risks. 

Now these fears and their most likely policy implications are driving up interest rates, with complex consequences in store for capital. 

Three reports last week reiterated the fact of a sinking economy:

Obviously consumers prefer lower prices, but overall inflation is near zero due to stagnant consumption, fueled by a stalling labor market. Yet despite this negligible price growth, interest rates -- specifically the benchmark rate on 10-year Treasury bonds -- are back on the rise

Yields went over 1% the day after Georgia’s Senate runoffs made more stimulus spending likely, going on to their biggest one week gain since June. Rates are now back to pre-pandemic levels. What’s causing this rise? At least three possible sets of expectations:

Successful Treasury bond auctions last week suggest ongoing market faith in the long-term credit of the U.S. government, discounting the third option. Rising rates, however, undermine stock prices by devaluing future corporate earnings. This means Wall Street will likely demand state action to keep rates low

Austerity is one way to do this, so expect major headwinds to any stimulus package in Congress and quick surrenders from the Biden administration. Escalating Fed asset purchases -- monetizing Treasury debt -- is the other way, making other reserve options besides the dollar and dollar bonds more attractive to the world’s largest investors. 

This means that even if optimism is driving rates up, Wall Street may demand moves that undermine broad-based gains for the benefit of their own portfolios. In any case, it looks like the story will stay the same: working families paying the price for capital’s gains. 

Swan falls to Intel’s vicious cycle

U.S. semiconductor giant Intel fired its CEO Bob Swan last week after less than three years at the company’s helm. The victim of an activist shareholder and the company’s rapidly fading industry leadership, its board replaced him with veteran Intel hand and current VMWare CEO Pat Gelsinger. The company’s stock rose 8.5% on the news.

Far from just another bit of boardroom intrigue, the change of leadership reflects geopolitical turmoil in the world’s most important industry. How Intel moves forward under Gelsinger has real consequences for the future of U.S. power.

Daniel Loeb -- CEO of Third Point LLC, the activist hedge fund that forced Swan out after accumulating a $1 billion stake in Intel -- acknowledged as much in a late December letter to the company’s Board of Directors.

“Without immediate change at Intel, we fear that America’s access to leading-edge semiconductor supply will erode,” Loeb wrote, “forcing the U.S. to rely more heavily on a geopolitically unstable East Asia to power everything from PCs to data centers to critical infrastructure and more.” 

Intel is still the world’s leading integrated design and manufacturing semiconductor company -- combining both the chip design done by “fabless” rivals AMD and Nvidia and the fabrication done by competitors UMC and Taiwan Semiconductor Manufacturing Company (TSMC). But high-profile failures to keep up on the latest generations of integrated circuits have led to calls for the company to outsource production. 

This, as Loeb notes, would be a strategic blow to the United States, a world historic rotation in advanced industrial leadership. Thirty years ago the United States led the world with 37% of all semiconductor manufacturing; now it comes in behind Taiwan, South Korea, Japan, and mainland China with only 12%. 

No company has benefited more from this shift than TSMC, which last week reported a 50% year-over-year net profit increase. Now it is set to spend up to $28 billion this year on R&D, further pushing it ahead of Intel. 

What happened? The cost of keeping up with Moore’s Law -- the trend named for Intel’s founder Gordon Moore that semiconductor power doubles about every 18 months -- has increased 18-fold since 1971. Dropping rates of profit in the economy overall mean less investment available for innovation, further shaving off economic growth as technological gains slow down. 

Intel has been caught in this vicious cycle for years, and now it faces a no-win situation: either it outsources its production to TSMC or it spends years trying to catch back up, all the while losing market share to AMD and others -- all of whom outsource to TSMC. 

In the meantime hopes for a “Marshall Plan for Chips” have to get in line behind all the other urgent needs of a failing society. From that perspective, maybe it’s Swan who got the easy way out after all. 

Racism threatens vaccine plans

U.S. President-elect Joseph Biden unveiled his plan for vaccinating all U.S. residents against the coronavirus on Friday, three days after the country first exceeded 4,500 deaths in a single day. By the end of this week more than 400,000 Americans will have died from the virus. 

Unfortunately, Biden’s plan is coming together even as the pandemic’s shape is shifting in dangerous new ways, exposing the deadly ramifications of a broken way of life. 

The plan contained few details, focusing on high-level promises to accelerate vaccine production, distribute shots both through new federal vaccination infrastructure and to existing clinics and pharmacies, ease some of the waitlist protocols, and “overcome hesitancy” to receive the vaccine. Biden promised to activate the National Guard and FEMA, and appointed Dr. David Kessler, head of the Food and Drug Administration under presidents George H. W. Bush and Bill Clinton, as director of his efforts. 

Virtually any federal coordination would be better than the status quo: to date 30 million doses have shipped but only 12 million have been administered. This delay has become even more dangerous as new strains of the virus threaten to upend the vaccination/herd immunity strategy. A strain first identified in the United Kingdom is 30-70% more infectious than the present strain, and will likely be the dominant U.S. strain by March

This B.1.1.7 strain does not appear to be effectively stopped by cloth masks, only the less commonly-used N95 masks work to prevent its spread. Its increased reproduction rate also raises the population vaccination threshold needed to end the epidemic -- already a problem in light of long-standing medical abuse of non-white populations

This abuse is not in the past. Israel has the world’s highest vaccination rate among its citizen population -- having reached 1.6 million people -- while Palestinians under its military occupation have received zero vaccines. Last week the Zionist government gave the Palestinian Authority permission to accept 5,000 doses of Russia’s Sputnik V vaccine, the first vaccines allowed in the West Bank other than those earmarked for illegal Jewish settlements. Gaza has received none, and Israel has discarded expiring doses before allowing Palestinians to receive any.

Now that a potentially vaccine-resistant strain first found in Denmark has shown up in Los Angeles, colonial abuses like these have consequences for dominant populations as well: as long as any population is exposed, it’s only a matter of time before a mutation wrecks the vaccination strategy.

The question for Biden and his friends is whether they will sacrifice their dominance to save their own lives. U.S. politics to date suggest the answer is no. 

Rapid Round

China watchdog warns of algorithmic ‘evil’

The China Consumers Association (CCA) has accused tech firms of wielding data to “bully” consumers, reflecting growing anger from the public toward the giants’ misuse of personal information. China’s  state-backed consumer protection watchdog, the CCA has called on “all sectors of society to work together for ... the fair and reasonable application of algorithms, and prevent operators from using algorithms to do evil."

What the CCA calls “technical bullying” ranges from scanning consumers’ data and charging different prices for the same goods and services, to burning out exhausted delivery drivers trying to keep up with algorithm-determined deadlines. 

Case in point: food-delivery companies such as Meituan, which controls 90% of the Chinese market. Meituan has come under scrutiny for upcharging customers, shortchanging drivers, and pushing them into driving dangerously to avoid fines if they’re late to their destinations. 

The pressure on workers can be extreme. On Jan. 11, a worker for another food-delivery app, Alibaba-owned Ele.me, set himself on fire at the company’s offices to protest unpaid wages.

Dutch government pretends to resign 

The Dutch government resigned on Friday after fallout from crimes by the government’s tax authority which falsely accused thousands of people of child benefits fraud. The false claims began in 2012 and ensnared 26,000 parents, disportionately ethnic minorities, forcing 10,000 families to pay tens of thousands of euros for subsidies they did not receive.

“Mistakes were made at every level of the state, with the result that terrible injustice was done to thousands of parents,” Outgoing Dutch prime minister Mark Rutte said.

The Dutch government has earmarked $607 million to compensate the parents, but the government’s resignation is just a symbolic move. The Netherlands’ regularly scheduled general election was already set for March 17. The governing, pro-business People's Party for Freedom and Democracy is leading in the polls, so those responsible for the scandal will likely face no consequences.

Palantir’s flawed pandemic tracker

Data-mining firm Palantir could lose a $36 million contract with the Department of Health and Human Services to develop a Covid-19 patient database. The reason: inaccuracy in the system, called HHS Protect, developed with Palantir's software. Trump administration officials reportedly warned incoming Biden administration aides about the system's flaws. Palantir founder Peter Thiel has been a close Trump ally.

The newly-minted HHS Protect tracks hospitals' cases, testing and supplies. Palantir's tool also began tracking and reporting shipments of monoclonal antibody therapeutic drugs last week. The CIA-founded firm also won contracts with the U.S. Food and Drug Administration, the U.K. National Health Service, and the Pentagon for a remote computer system known as TITAN. This device connects “space, high altitude, aerial, terrestrial sensors and data sources for use in intelligence and military targeting operations.”

Palantir is also hiring in Washington. The company has open positions in the U.S. capital ranging from engineering, data science, and information security -- for those with the willingness to obtain a Top Secret clearance.


Our only investment advice: Remember Kwame too.

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