Desperately Seeking Larry (Kudlow)

By David Stockman

About midday yesterday we got to wondering just how desperate bubblevision is for fake good news to peddle because apparently even the talking heads can’t figure out why the market keeps levitating higher.

These ruminations arose after we had turned down a request to appear on the CNBC Halftime Report to comment on the network’s “breaking news” that Larry Kudlow was about to be named Trump’s top economic advisor. Next thing we knew, however, the show’s host, Scott Wapner, broke into the producer’s follow-up call, insisting we reconsider.

The apparent goal was to elicit some praise for Larry’s solid free trade position. And, obviously, Trump’s increasingly unhinged trade-war-in-the-making could indeed upset the Wall Street applecart.

Well, it could if any of the remaining carbon units in the casino should perchance notice—between banging chart points on the coattails of the robo-machines—the import of the Donald’s rejection of Broadcom’s takeover bid for Qualcomm.

That was done on “national security” grounds, which is curious because back in the day Broadcom’s original ancestor was an American tech star when it was embedded in Hewlett-Packard; and it became even more red-blooded in 1998 when it was spun off as a high flying dotcom IPO—only to become positively red-white-and-blue in 2005 when Silver Lake and KKR conferred upon it the blessed state of LBOdom.

Thereafter came another patriotic dousing in the New York IPO market in 2009, when it was valued at $3.5 billion, but that was just a way station in its all-American upbringing. Subsequently it acquired US based Javelin Semiconductors (Austin TX), PLX Technology Inc (Sunnyvale CA), LSI Corp (San Jose CA) and Emulex Corp ( Costa Mesa CA), and then another storied 1990s California-based start-up, Broadcom Corp, in 2015 for $37 billion.

After taking the latter’s name, the merged company then bought still another iconic chip-maker, Brocade Communications of San Jose CA.

Alas, at that p0int the company’s pesky financial planners got ahold of this California based serial roll-up and dropped the tax equivalent of a neutron bomb on it. That is, its vast California and other US based operations and 7,800 US employees were left standing, while its headquarters and mailbox were incinerated and replaced by new ones in (then) lower-tax Singapore.

Still, notwithstanding all of this M&A activity, headquarters shuffling, name changing and mailbox relocation, Broadcom was still the same old US roll-up of “fabless” chip-set designers, assemblers and marketers.

That is, this $18 billion sales/$107 billion market cap semi-conductor conglomerate mainly buys it wafers in east Asia; manufactures its advanced chip-sets largely in the US to protect its knowhow; and then exports them to gadget assemblers, such as Foxconn’s China factories, which send them back to California as i-Phones, thereby enabling America’s Facebook zombies to get their 5 hours of daily social media fix.

So what we really have is an American-on-American M&A attack, where the target (Qualcomm) has nearly the same sales ($22 billion), market cap ($88 billion), business model (fabless chip-set  designer and maker), and main customer (Apple) as the purported “furinner” stalking it.

The difference, apparently, was that Qualcomm had not yet moved its mailbox to Singapore, and was therefore not in danger of having it canned and seized by the latter’s 72,000 man army.

So exactly how all that threatens “national security”, the Donald didn’t say. But the fast money boyz are suddenly getting nervous about the Donald’s trade blunderbuss. Even they are scratching their heads about why the Donald thinks Brazil, South Korea, Turkey, Japan, Germany, Netherlands, Italy, Spain, the UK and Sweden are national security threats on steel.

Yet these countries account for 17 million tons of US steel imports, and most are members of NATO or otherwise historic allies.

Moreover, when you add in the 9 million tons from NAFTA neighbors, Mexico and Canada—which even Trump exempted from the tariffs—you get a total of 26 million tons of steel imports from the putative “friendlies”.

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