This Week In Doom – #19: Chicken In A China Shop

This Week In Doom – #19: Chicken In A China Shop

May 30, 2024

In the latest episode of This Week In Doom, Grant and Doomberg turn their focus to China’s strategic push to become self-sufficient in semiconductor technology, drawing parallels to its successes in electric vehicles and solar energy.

Along the way, Doomberg highlights China’s use of intellectual property theft and internal competition to establish national champions like Huawei and we also cover the geopolitical implications of U.S. and European sanctions on China, emphasizing the potential for China to dominate despite Western efforts.

Finally, we pick apart the shifting global power dynamics, particularly the weakening of U.S. dollar hegemony and the strengthening alliance between China, Russia, and the global south as we try our hardest to figure out what the hell happens next.

The Grant Williams Podcast
The Grant Williams Podcast
This Week In Doom - #19: Chicken In A China Shop
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Grant Williams (00:10):

Before we get going, here’s the bit where I remind you that nothing we discuss should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets. And now on with the show.

Welcome everybody to another edition of This Week In Doom. Joining me as always, the other half of the gloomsome twosome, the Green Chicken himself, Doomberg. Hello my friend, how the clucking hell are you?

Doomberg (01:00):

Grant Williams, I’m doing amazing. I must say, where in the world are you right now? Because I have recorded every episode of this fun podcast in the exact same chair, and I don’t think you recorded two from the same place.

Grant Williams (01:11):

I don’t think I have either. I am currently in North Berwick in Scotland, which is one of my favorite places in the world. And normally when one gets to the cusp of June, it’s a beautiful place to be. However, this year things have played out a little bit differently and I had to go and buy myself a wooly bobble hat this morning. It’s so cold and so wet and so gray and so miserable. So sometimes things don’t work out quite as you plan them, but who cares? I’m in Scotland. It’s beautiful. I love it here.

Doomberg (01:40):

Yes, it looks marvelous behind you and it must be said, I would call that a toque and it looks like a very fine one.

Grant Williams (01:47):

A toque. A toque, yes, a toque. Well, we can call that a toque if you like. You can call it whatever you want. It doesn’t change the weather, and if it did, we can call it anything. And the weather forecast, it just says Scottish on the weather channel. So I think that just means more gray, wet and windy and cold, but I don’t care. It’s lovely. So my friend, it’s been a while since we convened to chat about things and you and I, we’ve had a couple of full starts with this conversation, the most recent of which was a delay after we learned of the, at that point, potential demise of the Iranian president in the helicopter crash. And we both wanted to see how things played out, so we gave that a couple of days to see if that was the trigger for World War III.

So far it hasn’t been, but there’s always a ton of stuff to talk about and you’ve been incredibly prolific lately. There’s been a lot of fantastic stuff that you put out. And the recent piece that caught my eye, that I really want to talk to you about was the piece that you wrote about the CCP and the people that they were maneuvering into their pockets, should we say, to put it delicately. Why don’t we kick off with that piece and why don’t you give us a little summation of what you’re writing about?

Doomberg (02:49):

There’s a piece that precedes that one that I think I would start with, because we made a call in the piece that we wrote called Chip Shot, which published on April 30th that the Chinese would win the war on semiconductors. If you define winning as Xi Jinping’s national objective to become self-sufficient in the semiconductor industry, basically. Right now most of the really hard stuff gets done in Taiwan, and we believe, many analysts believe, that should China become self-sufficient with chips that would be one less barrier to Xi Jinping making a move on Taiwan, which I believe is why U.S. is working so hard to simultaneously build up our own domestic semiconductor supply chain and to stop China from achieving their objective. And in our view, we made the argument in that piece, that China was likely going to win. We’ve seen this movie before. We’ve seen how it plays out in the electric vehicle space, in the solar industry.

Whenever China puts its entire Chinese Communist Party machinery to work to achieve an industrial objective in the national interest, they have a very, very good track record. And to be clear, semiconductor technology is very, very hard. It’s all about the people. The technologists in Taiwan are amongst the most valuable people in the world at the moment, but our view has been that China will do whatever it takes to win, and they likely will, and that this is not being properly internalized in the market. Just as one example, and this is not a stock haul and we own no position, but Nvidia isn’t worth what it’s currently trading for if China cracks semiconductors, just as one small example.

Grant Williams (04:20):

Absolutely not by a long one.

Doomberg (04:22):

Right, and we’re seeing that in electric vehicle space, right? I mean they are just dominating the space. And so the piece we wrote about… That you referred to in your opening question, was one we just published on May 20th called The Greater Fools.

Grant Williams (04:33):

Before we get to Greater Fools, let’s stick with Chip Shot for a minute just because it was a great piece and we should have started there. You’re right. So I’m glad you brought that up, but let’s talk a little bit more in detail about that. You talked about Huawei in that piece, and Huawei is something that everybody was familiar with the name Huawei a couple of years ago, and it’s faded because of the sanctions and because the restrictions placed on it, it’s disappeared from Western consciousness. It certainly hasn’t disappeared in terms of a company. So let’s talk a bit about Huawei, what they’re doing and where they figure in all this, as you did in the piece. And then let’s also dig into the electric car piece because again, that’s a fascinating part of the market now, particularly as Western nations gear up sanctions, which are going to be specifically targeting the electric vehicle space.

Doomberg (05:19):

So here’s how things typically work in China, which were laid out in the piece. China will create a domestic competition and they will steal intellectual property. They will bribe people, they will spy, they will hack, they will do all these things that you read about in the news and I can assure you that they’re true just from my own personal experience. For example, suddenly somebody working in your lab ends up at a Chinese state-owned enterprise, and then magically your technology is all over the Chinese market. And then after a while they pick a national champion and then that national champion gets all the resources they need, and in this case they have selected one and suddenly we’re seeing that they’re creating chips that Washington, for example, didn’t think were within their capabilities. And we’re in denial about these developments. We’re dismissing the news as proof that China is not yet caught up, because they’re only slightly behind in our view.

We’ve seen this movie before. They have selected their champion, Huawei is going to win. And we’re seeing now early signs. It could be a combination of pattern recognition meets confirmation bias, but we’ve long held a hunch that at least some of the frenzy in demand for Nvidia chips was because of Chinese shell companies pre-buying to evade sanctions. It’s going to be interesting to see how true that hunch is, and perhaps if the Chinese feel confident enough that their local champion has put the country in a position where they no longer need to proactively evade the sanctions because they’re self-sufficient, we would expect to see some cooling off in the AI bubble frenzy. Now that again, they’re very careful. That’s not something that I would use to make a trade. You never want to short a bubble, you get your head blown off. But in our view, this is happening and we’re at the denial stage.

And next thing you know, like we talked about in the piece, you’re going to see that there’s a $10,000 electric vehicle that no Western automaker can compete with. This is exactly what happened in electric vehicle space. They brought in Tesla. In the automotive sector in general, in order to play ball in China, you had to form joint ventures with state owned enterprises. Then magically an unknown company appears with just amazing capabilities and priced so cheaply that the West doesn’t believe it’s possible.

And we’re seeing it right now play out in the electric vehicle space. I mean the BYD Seagull has a 200-mile range and costs you $9,700 and as we said in the piece, the rest of the world is going to welcome radically superior cars at a fraction of what they’re used to paying. Japan and Europe and the U.S. may throw up trade barriers to protect their national brands, but those brands are capitalized to compete globally. Toyota, Volkswagen, GM, Ford and Tesla, just to name a few, are in big trouble. And at a minimum the scores of billions that are being invested to chase electric vehicles, we think largely driven by the absurd valuation of Tesla and boards of the other companies trying to do anything in their powers to replicate that in the hopes of getting a higher multiple for their own stocks, which have mostly lagged, China’s going to dominate batteries, electric drive trains, and all the other critical aspects of technology. And now it’s only a matter of time.

Grant Williams (08:20):

It is fascinating, and we’ll come onto the electric vehicle space in a minute, and I do want to stick on that for a little while, because it is really, really interesting what they’re doing and looking at some of these reviews of the Xiaomi SU7, some of these other cars which are competing with the sportier incumbents are extraordinary in their technology, but also extraordinary in their price. And we’ll come back to that, but let’s go back to Huawei for a second, because you’re right, this whole model of picking the national champion and funneling all kinds of ill-gotten research and proprietary information to them to make sure they win, is a pretty familiar playbook for the Chinese. And during a time of, let’s call it equilibrium in the force, rather than peace, people have been kind of blasé about it.

Now, obviously we’re seeing things ramp up, but what was interesting to me, given the spotlight that Huawei has been under and the contempt within which it’s held by just about every Western government, it was really interesting to me that China still made Huawei its champion, because in years gone by, what the Chinese would’ve done would be pick another company that wasn’t on everybody’s radar, funnel this stuff into them and make them the new champion and leave Huawei by the wayside. What do you read into the fact that they’ve basically said, “Yeah, we know you hate this company, but things are different now. We’re sticking with it and we’re going to funnel everything through that, through the company that you all hate, and give them all the technology and make them our standard-bearer.” That to me is a big change in in tact by the CCP.

Doomberg (09:51):

So I would challenge your assumption that outside of the U.S. and a few of the Western countries, Huawei is extremely popular, does very well, is not controversial.

Grant Williams (10:00):

In Asia, certainly.

Doomberg (10:01):

The global south, certain parts of Europe, Hungary for example. This comes on the heels of this pattern that we see with the sanctions and everything else. We radically overestimate ourselves and we substantially underestimate our geopolitical adversaries. To answer your specific question, I believe they just simply won the internal contest and China’s not going to let outside factors influence who their national champion’s going to be.

Grant Williams (10:26):

I guess that’s my point. China is not going to back down now. They’re at a point where they can dig their heels and say, “Okay, well we don’t care. Huawei is our horse and we’re going to ride it.”

Doomberg (10:34):

Xi Jinping has made this, alongside energy independence, the most important national strategy. In your long history of observing China from wherever you’re in the world, have you ever known the CCP to fail after its leader publicly proclaims something is absolutely critical. They will grind this problem down until it is solved. In my experience in industry, we’re going to take over solar, boom, 99%. We’re going to take over EVs, boom, $10,000 electric vehicle. They tell you what they’re going to do. They’re like Babe Ruth calling their shot. They’re going to become self-sufficient in semiconductors.

Grant Williams (11:13):

It’s this disconnect between self-sufficiency and export dominance that I think is probably the crucial change here. That’s where we’re going to see something different, because you’re right, that’s exactly what they’ve done and they have been successful. But part of that success has been their ability to flood foreign markets with the capacity they produce in terms of creating that dominance. And that has suddenly… It’s almost as if the politicians have woken up one day and gone, “Oh, hang on. Wait, what?” And we’re seeing Yellen putting pressure on the Europeans to join them in their sanctions against the Chinese. And this is the interesting thing to me, this is the change. We don’t live in a place of forced cooperation and the West playing ball because they realize that by playing into Chinese hands, they keep prices down domestically. That has really been the game, but that game doesn’t work anymore, certainly not in the way the world’s set up at the moment.

So western politicians are being forced to get very, very aggressive with the Chinese. So this idea of them winning every time they set their mind to it, I think we’re going to have to re-examine what winning looks like if their products are priced out of big overseas markets. Now they’re going to go hard on Asia and they’re going to go hard on the global south as you say, but obviously the buying capacity of those markets is dwarfed by that of the United States and Europe. So it’s going to be an interesting new equilibrium to find. I don’t know what that’s going to look like, but I definitely think it’s going to be different this time.

Doomberg (12:44):

I do think that their objective is not to dominate the global market for semiconductors. It is to become independent of the West in that supply chain. And that’s a very different objective. And again, we’re trying to stop them from becoming self-sufficient. They’re trying to become self-sufficient. That is the war that is going on. And so the winner of their national championship, Huawei in this case, is going to be who gets the funds, who gets the support, who gets the full weight of the CCP, and they’re already shocking people. So if you just look at the rate of change and project forward, we think it could be as soon as this year. They’re far ahead of where most people thought they would be. And again, two years ago, had you ever heard of Xiaomi, the new company that’s making these amazing electric… It just came out of nowhere, right?

Grant Williams (13:33):

I had, because I’d lived in Asia, but I know in the West they were not a well-known name.

Doomberg (13:37):

Right, and all of a sudden they’re making vastly superior versions of the Tesla Model Y at two thirds of the price and bits and pieces of everybody’s technology are in there. So, somebody asked me privately, one of our subscribers, “Is this any different than the rise of Japan and the fear of Japan taking over the world?” The Japanese companies were deeply respectful of Western intellectual property and they just sought to compete on equal terms. The Chinese… Here’s the thing about patents that most people don’t understand. In order to be granted a patent, which by the way only protects you to the extent that you’re willing to sue to enforce it, and there exists courts that can enforce it if you win. To get a patent, you have to describe the invention in sufficient detail. The legal standard is that somebody skilled in the art could replicate it.

So when you file a patent, by definition A, you’re giving away your secrets and B, you’d best be sure that in the locations that you care about, they get granted and that you could sue to enforce your rights. And by the way, filing a patent does not give you the right to practice. It just allows you to sue others if they infringe you. And so the Chinese just don’t care, right? They just take it. And so what you see then is companies turtling up and keeping their crown jewels as trade secrets. Well, that’s another risk for companies because if somebody walks out the door with a flash drive with your trade secrets on it, you cannot protect yourself. And that happens all the time too.

I’ve personally been involved with lawsuits where an employee walked out the door with a flash drive and a multi-hundred million dollar trade secret escaped, and we would never have filed a patent on that because you have to describe it such that somebody skilled in the art can replicate it. Well, I could tell you, that there’s plenty of people skilled in the art in China, and so it’s a real conundrum. It’s like courtroom battles are only fairly adjudicated if both sides are playing in good faith. China’s not playing in good faith. That’s fine. I don’t blame the CCP per se. There’s plenty of blame to go around, which is what we got to in the next piece, but that’s just the reality. And your job is to play the pieces on the board.

Grant Williams (15:47):

This is the interesting part of this to me. China isn’t doing anything now that it hasn’t done for a long time, and everybody’s known how they operate and everyone’s been okay with it because they wanted access to China. What fascinates me is the change in needs from the West, from the U.S. and Europe, because again, they’re now doing things that they feel they need to do in terms of the sanctions that they’re trying to A, impose and B, persuade other people to impose. And that to me is not a sign of strength in any way, shape or form.

Doomberg (16:20):

So here’s what’s different this time Grant, because you’ve hit on a really important point, which is another channel that I’m sure we could talk about here that we’ve been digging into, which is something that Luke has been talking about for the better part of the decade, the demise of U.S. dollar hegemony. We have an active war between NATO and Russia today and American leaders with their Western allies, some of them at least, suspect that this will spread to China. If you read the propaganda inside of Russia and China to the extent that you can, and we have tried, they’re talking to themselves as though they are already in World War III. So if you compare the way in which Antony Blinken was treated when he arrived in China, and the way Putin and his vast delegation of senior government leaders and senior executives were treated, it’s very clear.

By the way, we sent Blinken to warn Xi Jinping. He sent him home, dared him to do something about it, and then rolled out the red carpet in historic fashion for Vladimir Putin, who is ostensibly public enemy number one in the U.S. China has selected its side. If the war in Russia becomes kinetic, the Chinese will support Russia in every way, shape or form. And so to your point, one wonders whether this isn’t what we all would’ve predicted would’ve happened, the specifics of which may be interesting in particular to the day in the later stages of the U.S. dollar hegemony system as Luke has been writing about. And I think you’re seeing it in the price of gold. You’re seeing it in the indictment of Netanyahu by the ICC. The global south is aligned with Putin and Xi, and it’s basically the G7 against them.

Grant Williams (17:55):

It’s interesting because this has been such an important part of this dynamic, the role of the U.S. dollar, and it’s been fascinating to me to watch the acceleration post that confiscation of Russian central bank assets. And I bang on about this like a man with a drum and nothing to do all day, but it’s so important and it was evident at the time that this was going to be a significant watershed and it’s turned out to be that way. And what you brought up there in terms of what Luke’s been writing about, Luke Grumman, is absolutely right. We can argue the dollar’s role, we can argue its place as a reserve currency. We can argue its place as a reserve asset all we like and say it’s not going away anytime soon, but just as you talked about the rate of change in terms of this technological advancements, the rate of change here in the disavowment of U.S. hegemony is also stark and you are seeing it in the gold price and you are seeing it in the repudiation of treasuries.

And yes, this auction, that auction, you might be able to argue the toss in terms of numbers, but the direction of travel is very, very clear here. And I think to the point of your pieces, China’s lack of really caring about what people think about what it’s doing now, is consistent. The difference is we’ve been able to turn a blind eye in the West for a long, long time now. We’ve been able to just say, “Well, that’s just how China works. That’s the cost of doing business.” But the change in the reaction to that by the Treasury, by the administration of the U.S. and the pressure they’re putting on the EU to do the same thing tells me that they recognize there has been a considerable shift who holds what George Costanza calls the hand right now.

Doomberg (19:33):

We did a Doom Zoom called Geopolitics In War, where we, for our pro tier members, laid out in great detail what we think we were doing wrong, starting with overestimating ourselves and underestimating our adversaries. We had a slide in that presentation called China is the New Arsenal of Democracy. We have outsourced virtually every important supply chain including critical ones for the military industrial complex to China. Look at how Russia is vastly out producing us at a fraction of the cost. Where do these hundreds of billions of appropriations that go to the U.S. Military end up? We can barely keep Ukraine armed. China feels, and you may believe that they’re wrong, but I believe the assessment that China believes it has more power than the West believes it does, is true. China believes that. That is a true statement. And might is right. If we don’t like where Putin’s armies are in Ukraine, are we going to send our soldiers to kick them out or not, because it doesn’t look like the Ukrainians can do it?

And are we prepared, because the other big thing we talked about in that presentation, which is totally absent from the debate around what we should do, this whole analogy of Chamberlain in World War II, and if you give in to Putin on Czechoslovakia, he’s just going to roll his tanks into Poland and France and so on. If Hitler had nuclear weapons and France had nuclear weapons and the UK had nuclear weapons, World War II would’ve evolved rather differently, I suspect. Russia has the largest and most sophisticated nuclear arsenal in the world. China is also a nuclear power. You cannot win a kinetic war against a nuclear power. The very reason that we care so much about proliferation and that we want as few countries as possible to obtain the bomb is because once they do, you have to treat them differently. We are behaving as though Russia does not have nuclear bombs.

We are sleepwalking into the abyss. This is the subtitle of the Doom Zoom that we did. If anybody’s listening and wants a free copy of that, I’m happy to send it to you if you just send us an email and reference this podcast. It’s surreal to me. You can hate Putin. I think what’s going on in Ukraine is tantamount to war crimes, carpet bombing of villages and taking out of the national power grid, and all of those things are dastardly, but the man has nuclear weapons. Ukraine is not a NATO. Is that our red line, and are we going to debate that? Shouldn’t we have a vote in Congress that says, “Okay, we are going to get into a kinetic war with Russia over the Donbass.” Okay, let’s debate that. But instead we’re doing it through proxies. And I saw Victoria Nuland out over the weekend saying how we need to be allowing Ukrainians to use British and U.S. missiles to attack targets deep inside Russia.

Does she know what that means? Putin has said what it means, by the way, very under reported story. Called in the UK and French ambassadors and read them the right act and said, “Look, this is my red line. You have been warned.” Now let’s talk about that. Do we take that warning seriously? Are we prepared to go to nuclear, because he will. If he’s the monster that you’ve been telling us that he is, then why wouldn’t that monster resort to nuclear weapons over what he has very clearly said are existential issues for Russia? I’ve not yet heard how the Chamberlain analogy plays out when both sides, the U.S. and Russia are nuclear superpowers.

Grant Williams (22:57):

It’s incredibly concerning and it just shows how big this shift has been. And yet it feels to me as though Western leaders are acting in exactly the same way as they always have. There’s a degree of hubris and arrogance about the way they deal with the Chinese, the Russians, that feels out of date. It just feels like it doesn’t, as you say, take into account that whether you like it or not… And I don’t think any of us are sitting here saying, “Hey, this is all great what’s happening in the world.” It’s not, it’s terrible, but we have to deal with the cards we’re dealt. Whether we like them or not is irrelevant and the way things are right now and the position that the Chinese and the Russians have both individually and more importantly as a united bloc it does require that we deal with them differently. And I don’t understand why we don’t get that, and we’re not trying different tactics with them.

Doomberg (23:52):

A hundred percent. And that’s the entire thesis of much of what we’ve written about in the past few months. And it begins, by the way, all the way back when you and I and Luke were writing about the freezing of the reserves, I guess back then, this Zion style underestimation of our enemies. Industry is the source of your power regardless of the manner in which your economy is organized, whether you’re communist or capitalistic. Having competed against the Russians and the Chinese and the Indians, and having observed the university systems that they have to hear people just flippantly say that sanctions are going to collapse the Russian economy, is nonsense. And that’s dangerous.

In game theory, dangerously underestimating your opponent, leads you to make incorrect decisions. Moscow State University, when I was in industry, if somebody had that school on their resume, boom, hired. We used to jokingly call it Genius University. I don’t know what it’s like today, but a couple of decades ago, that was true. China has an entire university dedicated to petroleum engineers. I think there’s 15,000 students enrolled there. We produce what, a couple of hundred a year. And you combine the army of engineers and technologists that they’re cranking out of their universities, with the fact that they’re willing to steal IP and get a head start. They’re going to win. We need to recognize the power.

Grant Williams (25:14):

Yeah, and this is, I guess, one of the big changes. Before it was all about stealing the IP and then having to try and hire away the experts to develop it for them from foreign countries. And now they’ve insourced that.

Doomberg (25:26):

Absolutely. When the sanctions were imposed, we were quick to point out, I believe even on this podcast, that China will just fill the gap. Between China, India and Russia, they can keep Russian energy flowing because it is in their national interest to do it. And it’s not that hard. If you think there’s anything going on in the shale patch or in Schlumberger, the Chinese don’t know, you’re kidding yourself. This is just reality. I’ve seen firsthand how difficult it is to protect crown jewels at major corporations. And by the way, it’s surprisingly cheap for them to get it, either because we’ve patented it or because they find some technician somewhere and pay them or bribe them to walk out of a high security building with a flash drive in their pocket.

Grant Williams (26:05):

That’s the perfect segue to come onto the Greater Fools, because the people for sale used to be random engineers or students coming out of wherever and they would just buy the best talent they could. But now, as your piece points out, they’ve moved up the food chain. So talk a little bit about this piece, the Greater Fools piece, because I say the methods are the same, but the targets are very different now.

Doomberg (26:29):

So Greater Fools is a piece that we’ve been thinking about writing for a long time, and the reaction to Chip Shot was the final motivation for us to put it out, because I think some of reaction to that piece wondered whether we weren’t being a little hyperbolic or overestimating the Chinese or underestimating our ability to develop countermeasures. So the piece begins with the sad story of Charlie Lieber, who was at one point, the most prolific research chemist in the world. He was the chair of the historic chemistry department, I believe it’s chemical and chemical biology at Harvard. He was widely considered to be a shoe-in for a Nobel Prize. And he was the recipient of somewhere between 15 and 20 million dollars worth of research grants from the highest levels, the most sensitive levels of the U.S. government. We’re talking DARPA, office of Naval Research, the Air Force Office of Scientific Research and so on.

But at the exact same time that he was doing this, he was on the doll of the CCP. He had been secretly getting paid very healthy monthly stipends, some of which was paid to him in cash, literally bricks of a hundred dollars bills when he was in China that he would take home and not declare and not file on his taxes and so on. And one of the challenges with taking U.S. government money, of course, is that you have to disclose any foreign money, especially from sensitive countries. For example, if you were taking money from North Korea, the DOD probably would be asking you a few questions about that. And every time that you file for one of these, you have to sign a disclosure that everything in this application for the next $2 million grant is true to the best of my ability. And if you’re leaving out, “Oh, I don’t know, you’re getting bricks of cash from China,” that’s probably a crime.

Anyway, he was arrested in one of the most bizarre press releases. You probably remember it and then forgot about it, but it was just before the COVID-19 virus spread over here. And he was arrested along with two other Chinese individuals, one of whom was arrested for trying to smuggle biological materials out of the country. And he was arrested because he was getting paid by Wuhan University, which is of course now at the epicenter of all of the debate about COVID and lab leak theory and all of these things. And even though if you read the indictments as we did, they’re three completely separate cases, the fact that they were all put out on the same press release caused a lot of confusion about what was really going on. So that’s just an interesting side note.

I believe that they had nothing to do with COVID, and in fact, they wanted to arrest a U.S. academic who was not of Chinese origin to look like they were not just singling out people from China during this investigation, which was wide-ranging by the way. And as we said in the piece, this blew the lid off the open secret. I mean, I knew this was going on, that the CCP showers the best universities in the West with lavish amounts of money, and plenty of people who should know better are more than happy to take it. The Wall Street Journal came out with a big expose detailing this. I believe the number they could tally up manually was 2.32 billion in a little over a decade from 2,900 contracts between Western universities and Chinese companies, many of whom have direct ties to the CCP. And if they aren’t direct, you should assume they are, because nothing goes on in China without the CCP’s blessing.

And so from there, we talked about the semiconductor industry and the big news, back to our favorite Huawei, was following research dollars through this nonprofit professional society optica, and they were getting access to very sensitive technologies that would have applications in the semiconductor space. And the board is replete with esteemed western members of academia. And basically their defense was, “Our lawyers said it was okay.”

As we said in the piece, this is both suspense and comedy. A high profile Chinese company, which everybody knows is subject to sanctions and everybody knows why, is secretly funnelling millions of dollars through your organization and you have agreed to hide who they are. And then all of these universities are submitting proposals with their best ideas that presumably find their way back to the sponsors. And, “Yeah, well, it wasn’t specifically illegal, so we did it.” And so it just goes on and on from there. But same thing with EVs, by the way, this is a really fascinating one to me. Blanket’s in China, he’s threatening Xi Jinping with sanctions and mentions only two industries. Well, three. Solar EVs and semiconductors. Two days later, Wall Street is underwriting a Chinese EV maker’s IPO into the Western markets.

Grant Williams (31:17):

This is Zika, right?

Doomberg (31:17):

Yeah, Zika. Right. And by the way, we both know that you’re not actually buying equity in Zika. You’re buying shares in a variable interest entity based in the Caymans. And by the way, as we said, these IPOs are best modeled as check valves. Money flows into China, but good luck getting it out. And so we’re paying for the development of the companies that are going to undermine the big three. And let’s say we called it… In the piece, I believe, we called it a vast perversion of intent.

So these things get added to various indices. Those indices get passive flows as Mike Green has so eloquently described, which puts a bid under them that might not otherwise be. And by extension, that means the pensions of General Motors and Ford are enabling the companies that are going to put General Motors and Ford out of business, and all for a spot of fees for Wall Street. And in fact, as we said in the piece, the bankers don’t even collect their fees from China. They just take it out of the funds raised. And I think the line we used in the piece was, “Money for nothing and the tips for free.”

Grant Williams (32:21):

Yes, exactly.

Doomberg (32:22):

It’s really absurd. And so everywhere we look, we see this. We talked about McKinsey in there, and Lord knows if there’s a scandal, there’s always McKinsey involved, but these are elites that should know better. And look, we don’t put the full fault with the CCP. It’s the elite class willing to sell itself for paltry sums, Grant.

Grant Williams (32:43):

Okay, so let’s challenge that idea, this idea that elites who should know better, because I would argue that’s irrelevant. It’s not about what they should or shouldn’t do. As you said, it’s about the fact that they can be bought and they do know better, but it doesn’t matter, because there really are rarely any punishments for this kind of stuff. You get the odd person who gets in trouble here and there, and as you pointed out so beautifully in the piece, this is all done if not in the wide open. It’s only difficult to find if you’ve got no interest in looking. And that’s to me, the crucial thing, right?

Because as you laid out, it’s not like you have to dig 15 layers down to find out who funds these companies. It’s a one-shot deal, and it’s all there. And I think what’s been interesting to me, tying the two things together is how suddenly a way of doing business that has been very consistent for a long period of time, both the way the Chinese do business, and also the way this money is funneled and the don’t ask, don’t tell, will happily turn the other cheek because everyone’s getting a load of money, that suddenly is hugely problematic because of the leaps that the Chinese have made.

And because the Chinese have now said, yeah, we don’t even care anymore. We’re going to do this in the open. And the fact that they’re doing it in the open is a direct problem for the US, a direct problem for Europe. This is a real sticky one because if you acknowledge what’s going on and you dedicate yourself to fixing it, it’s actually a pretty straightforward thing to do.

But to your point with the elites, the places that this is going to go are all the wrong places. And so the elites are really in the bag here for China and the rest of the elites are right in the bag with them. So it is tough to see how you prosecute this particular war, and by that, I mean the war on graft, without taking yourself down. Am I being too cynical?

Doomberg (34:54):

I would go one step further. We close that piece by saying-

Grant Williams (34:58):

I hoped you’d say that.

Doomberg (35:00):

… we haven’t even scratched the surface of what’s going on in the political sphere.

Grant Williams (35:03):

Well, exactly.

Doomberg (35:04):

And the graft in Washington, D.C., is being leveraged in the very same way by the same players for the same objective. So it’s not like the cops aren’t on the beat, they’re on the beat protecting the criminals. Washington is on the take too.

We just decided that Doomberg is generally not a political periodical. And we certainly didn’t want to not acknowledge it, and we linked to a half a dozen examples in Australia, UK, Canada. Obviously what’s going on in Canada could be a whole piece on its own. So this is everywhere. It’s not like Nancy Pelosi and Mitch McConnell are champions of ethical governance.

Grant Williams (35:43):

God forbid.

Doomberg (35:43):

I mean, let’s not kid ourselves. So of course, the elites are going to do it because there’s no cops on the beat. All they have to do is share a small fraction of their ill-gotten gains with the police and they get to drive right through.

How could it be that the major banks on Wall Street would underwrite a Chinese EV maker with the US Secretary of State in Beijing warning the Chinese about non-competitive behavior in the EV space?

That day happened within I think 48 hours of each other. It’s just amazing. Again, they are leveraging our own weaknesses. We have serious political problems in the West. You and I have talked about this before.

This slate of G7 leaders is probably the weakest that you’ve seen in your life and that has consequences. Like who leads your country? This is not Eisenhower. We could use an Eisenhower right now and who cares what party he comes from?

Grant Williams (36:37):

Well, regardless of the party he came from, he came from a war. And unfortunately, this is chicken and egg situation, which I know you are all too familiar with. But these leaders we’ve got now are the poster children for end cycle, late stage capitalism, whatever you want to call it, and that’s the reality.

And we can weave in Neil Howe’s phenomenal work with The Fourth Turning and look at what’s happening here and debate all day long whether the politicians are just the outcome of the way this cycle’s turned. Or the politicians are creating this cycle, it doesn’t really matter because we’re stuck with both of them. The real question is how does this cycle turn?

And as you’ve already touched on, the difference in positions of strength held in the traditional powers, i.e., the US and Europe and NATO versus China Russia. Where India falls, we don’t know. Where certain Eastern European countries fall, we don’t know. It’s a huge problem and to talk about us already being in a war, and I agree with you with that.

I don’t think it’s the kind of war that people expected, or are looking for, or are ready to describe and pinpoint, but we’re in it nonetheless. And nothing I’ve seen suggests that winning this war is going to be particularly easy or even possible for the West.

Doomberg (38:03):

Yeah, look, I would keep a close eye. We’re publishing a peace that will come out probably before this podcast drops about the upcoming elections in the European Parliament. We note with great interest that Xi Jinping visited Serbia and Hungary in addition to his mandatory stop off to see Macron in France.

It’s not clear to us that the EU survives all this, at least in his current form. The piece we’re writing about emphasizes that their energy policies are what is driving populism. And fundamentally, the green energy agenda is incompatible with democracy because democracy is a popularity contest and nobody is thrilled to observe substantial decreases in their standards of living.

That’s the core of the piece, but we have some fractioning going on in Europe today. I note your favorite Argentinian was in Spain and caused a bit of a international brouhaha over the weekend, which is again, totally underreported in the US media.

It’s only because you had written about him and I was looking at European parliamentary elections that they had this far right “gathering” in Spain and Milei accused the socialist prime minister’s wife of being corrupt, for those that are unaware of the details. This has triggered Spain to recall its ambassador from Argentina and so on.

We have, as I think you correctly pointed out, Eisenhower came from war. The current slate of G7 leaders, whether it’s Trudeau or whoever it is that’s holding up Biden, pick your favorite.

We’re walking around as though we just won World War II and we’re the dominant superpower. The reason we postponed this podcast is because our first thought immediately with the death of the president of Iran that this might escalate things. And we didn’t want to record a podcast where we miss some massive event. That shows you what a tinderbox the world is.

We’re one misunderstanding away from an escalatory spiral. Look no further than what Victoria Nuland was saying over the weekend. There was a time where strategic ambiguity was thought to be in the national interest because you didn’t want anyone on the other side of the iron curtain to misconstrue something as a true threat. Because we don’t know who has what fingers near which buttons, and we’d rather not find out.

It’s just bizarre to me to see a former senior official of the US government, who has a long history in Ukraine, openly calling for effectively NATO to be launching missiles onto Russia proper is staggering to me. And the subtitle of our doom zoom was sleepwalking into the hibiscus. Almost nobody is talking about this in the US.

The Cuban Missile crisis, it’s kind of cliche to say that this is the most dangerous time since the Cuban Missile crisis. The Cuban Missile crisis was wall to wall front page news 24/7. Who in the US is talking about the fact that we’re sleepwalking into a nuclear war with Russia, aside from Tucker Carlson?

Grant Williams (41:01):

Well, look, it’s true. And to come back to your point about the green agenda in Europe. Again, the common thread that I see that’s so fascinating when you pick all these different threads apart and then try and weave them back into some kind of rug at the end of it, is cost.

Cost is the big factor. And this is why inflation is such a problem, because the green agenda when it was ideological was a great idea and everybody was all for it. And subsidies and all the things that went on to promote green initiatives were great. We were saving the world.

Now, the bills are coming due and people aren’t any less zealous in their ideological bent, but they’re unable to afford these things now. And so suddenly, it’s, yeah, look, we really, really do want to save the world.

But to the point you’ve made consistently through all this, people are saying, A, I can’t afford this, and B, I’m not willing to suffer degradation in my standard of living. The whole idea is progress.

We’re all trying to get a better standard of living. And whichever way you look at this, the bills are all coming due. And the West, as debt-laden as it is, simply cannot afford to pay the bills.

And of course, alienating your cheap supplier at this particular point in the cycle through sanctions and through finger pointing and through anything you can to make them out to be the bad guy, is going to be catastrophic. Whichever way you look at it.

Doomberg (42:29):

We wrote in a piece that in-

Grant Williams (42:32):

There’s always a piece. There’s always a piece, Doomy.

Doomberg (42:35):

When you’re cranking them out, seven, eight times a month, I’m on quite the treadmill. In Lindsey Graham’s world, nobody ever punches back. And in the world of the architects of the green energy agenda, physics doesn’t matter.

We’re just blatantly denying reality. And this is what we lay out in the piece like the one that’s coming. Fundamentally, the green energy agenda is incompatible with democracy, and so either the European Union will forgo democratic principles or it will forgo the green energy agenda, one of the two.

Now, they’ll still use the label democracy. It’ll have undergone a deep semantic shift to mean rule by the current elite. It won’t mean that the popular vote will be respected and if look no further than Germany for the early signs of how this is going to go.

Grant Williams (43:23):

Yes, with the AFD, right?

Doomberg (43:25):

Yeah, we’re keeping a very close eye on the European elections, which I believe are between June 6th and 10th. It’s going to be fascinating to see who gets elected and how the voice of the people is interpreted by those who consider themselves to be the rightly appointed leaders of said people.

Populism, embedded in the word populism is popular, right? There’s a reason why unquote “far right populists” are attractive today because the existing rulers are underserving the people.

So you might be very frustrated about your economic situation, and you might think the AFD goes a little too far on immigration. But in the same way that I think Trump’s election in 2016, people will vote, and I suspect, you tell me, you’re closer. Brussels is extraordinarily ill-prepared for what’s coming.

They will not handle this well, with grace, with class, with wisdom in ways that make them proud decades later of how they behaved during this crisis. I suspect we have very little to be optimistic about when it pertains to the future of democracy in Europe. That’s our view.

Grant Williams (44:34):

It is going to be a bonfire of the vanities in Europe. For sure it is. We are going to see the people take it to the elites. I don’t think there’s any doubt of that in my mind. I mean, look, hey, maybe we’re surprised.

I can’t see a way this doesn’t happen. It’s been brewing for, I mean, almost 10 years now. This has been happening, and each time there’s an election cycle, the Marine Le Pens, the Nigel Farages, the AFDs of the world get closer and closer to a victory.

And every time, it’s couched as thank God right-thinking people came out in their droves and didn’t allow this to happen. But the reality is people don’t tend to vote ideologically when push comes to shove. They vote for their own survival.

They vote for their own pocketbooks, they vote for their own wellbeing. And as you pointed out consistently, somebody smart once said to me that in the battle between physics and platitudes, physics is undefeated.

And it’s so true. And you coined that phrase, how many years ago? Three years ago, four years ago? I don’t know, a long time ago. And to watch that cycle play out again and again and again, and to reach the point where we are now, where whichever way we cut it and all the different vectors we’ve come up this problem from in this conversation alone, platitudes no longer cut the mustard.

Those European elections and the US presidential election in November, I suspect are going to be when all those vectors converge into some seriously unsettling political outcomes.

Doomberg (46:06):

Yeah, let’s pivot to optimism because despite all of that, the best time to have figured out what China was up to was a decade ago. And the second-best time is today. And the best time to have gotten our manufacturing and supply chain house in order was 20 years ago.

The second-best time is today. And the West does have enormous power, does have enormous resources, does have enormous skill sets, can get its shit together. And the reason we keep writing these pieces, and you and I keep talking about these things and other people as well, is because we love these countries.

You love Scotland, where you are right now. You love Europe. I love Europe. I love the US. By pointing out the flaws of our efforts to contain Putin, we’ve been called a Putin sympathizer for it, which is the opposite of the truth.

Of course, we are just pointing out that this isn’t going to work in an effort to, in our own tiny insignificant way, impact some people’s views on the matter so that we can have a better outcome. There will come the rebirth as Neil Howe’s book, The Fourth Turning, describes. And the quicker we get there, the better.

The West is still vastly blessed, and the reason that we’re both so passionate about it is because you’d like to preserve that and to see it flourish. And to spread it to other countries. There is a better way. Once we’re done screwing around with all the ones that won’t work, hopefully we’ll settle on the ones that do.

Grant Williams (47:26):

It’s interesting though, this idea of spreading it to other countries. That idea has been constant. It’s just the attitude with which it’s been done is the problem. We are trying to spread that from a position of strength, and that position of strength dictates that these sub-par leaders don’t try and spread that message from a position of humility.

They try and lecture people and force these things onto countries that simply aren’t in a position. As you’ve said all the way through the energy sanctions, these countries are not in a position to do what rich Western nations want them to do in their own political interests.

And so push has come to shove, and these countries are being forced to take actions which really ensure their survival rather than anything else, not to take actions, which further the ends of wealthy nations political ambition.

Doomberg (48:20):

I listened to a podcast that Simon Hunt was on, and I forget who the host was, but you know Simon of course, and made a point about bricks and gold. And the point of the Russia-China Summit was basically to begin the process of formally moving away from the US dollar system.

It’s only a weapon you could fire so often, which was again, I think a point that all of us were wondering when the sanctions were first rolled out and the assets were frozen. Look, we’ve lost India. That’s a big deal.

India was about a few years ago, on the cusp of a kinetic war with China. We’ve lost India. India is firmly in the BRICS. We’ve lost South Africa. Who has been the country making the hardest push against Israel at the International Criminal Court? South Africa.

The BRICS have grown to something like what, 30, 40 on their way to more than 100. It’s going to be the G7 against the rest of the world. Can we win that fight? Do we want that fight? Is there a better way? These are the questions that unfortunately we’re not asking because we have this hammer that’s worked since the end of World War II and all we see are nails.

Grant Williams (49:26):

Exactly. Exactly. Well, Doomy, listen, it’s been a fascinating hour, as it always is, when you and I finally get a chance to sit down and do these. We really need to find time to do them more often because they’re just so interesting. So I thank you for the pieces that you’ve written.

Every single one of them is fodder for a conversation on its own, but it’s nice to be able to wrap two or three of them into one conversation. But for those people listening, and there will be a few out there who aren’t familiar with your work, give them the 411 on how they can find out more about it.

Doomberg (49:53):

You bet. And I must say that we’ve lived up to the title of this podcast during this conversation.

Grant Williams (49:59):

Hey, we can still smile at the end of it. That’s the main thing.

Doomberg (50:02):

Everything can be found at doomberg.com. We have our pieces, we have our pro tier, we have our podcast appearances, our full archive. We are subscriber supported. We don’t take ads or sponsorships just to keep editorial freedom to the maximum.

Really appreciate it, Grant. Lovely to see you again. I hope the weather turns for you in Scotland, and I agree with you that we should do this more often.

Grant Williams (50:26):

Even if the weather doesn’t turn, it doesn’t matter. My friend, it’s always a pleasure, and I will see you soon.

Doomberg (50:31):

Talk soon.

Grant Williams (50:49):

Nothing we discussed should be considered as investment advice. This conversation is for informational and hopefully entertainment purposes only. So while we hope you find it both informative and entertaining, please do your own research or speak to a financial advisor before putting a dime of your money into these crazy markets.

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