The Second American Industrialization

A few months back, I started about what I called the Second American Industrialization. The idea was that the whole process of deglobalization – de-coupling from China, breaking American companies supply chain dependence on an unfriendly country and re-shoring manufacturing to the U.S. and its neighbors – would bring about a new era of economic expansion for the U.S. in the near-term. And if managed properly, could solidify American prosperity for decades…

The CHIPS Act from last summer was a big catalyst for my thinking, writing and planning for the Second American Industrialization.

China’s overbearing COVID response was an eyeopener. The massive supply chain disruptions for chips – supply shortages that were bad enough to halt automobile assembly lines here in the U.S – finally brought about the realization that the single most important supply chain in the world was outside of American control. 

Of course, it’s not just the U.S. that was and still is vulnerable to China’s unpredictable policies. Japan, South Korea, Europe, Taiwan – the longstanding tech “partnerships” with China that underpinned globalization suddenly looked like a glaring weakness. 

So the CHIPS Act would help the U.S. secure its own supply chains for semiconductors. And the U.S. ban on selling advanced semiconductors and the equipment to make them would secure America’s technological advantage. At least if South Korea, Japan, Taiwan and Europe joined the U.S. Of course they all did…

The CHIPS Act earmarked $50 billion in incentives for semiconductor companies to expand or build semiconductor manufacturing facilities (called “fabs,” for fabrication) here in the U.S. To date, well over $200 billion of investment in chip fabs on American soil have been announced. 

And maybe you’ve seen this chart from the Fed that’s been making the rounds… 

This shows total construction spending to build new manufacturing facilities. If this chart included money that’s earmarked but not yet spent, the case would be even more impressive. 

The Second American Industrialization

If you wanna know why inflation has remained stubborn, why the labor market has been so strong, why the Fed’s rate hikes have been unable to slow the economy down, and why recession is now basically off the table…

The amazing amount of money and resources being brought to bear on the Second American Industrialization tells you all you need to know. 

Given that it will take at least a couple years to complete many of these manufacturing projects, we will likely see construction spending stay strong..

• For instance, the biggest semiconductor manufacturing company in the world, Taiwan Semi (NYSE: TSM), is building two fabs in Arizona for a total cost of $40 billion. It’s currently estimated at least one will be operational in 2026. 

• At least 6 new Electric Vehicle (EV) battery manufacturing factories will open in the next couple of years…

• $12 billion of investment in new EV factories was announced last year (2022), which brings total investment in new EV factories to $36 billion over the last 3 years. (Pro Trader Today readers have a vested interest here, by virtue of the factory that Rivian (NASDAQ: RIVN) is building in Georgia. Rivian’s progress in becoming a vertically integrated EV company was central to my recommendation of the shares. And we got a nice confirmation of its progress when Rivivan beat 2Q production estimates handily and shares ramped higher on Monday). 

• It’s estimated that the EV charging network will quadruple to 18 million stations by 2027.

• And all that’s not to mention increasing investment in domestic oil and natural gas production as well as exploding investment in renewable energy generation

If you want to know why the S&P 500 entered bull market territory back in early June, well, there you have it. Of course, investors remain a little nervous about the Fed – continued tough talk about more rate hikes to come should not be ignored. And even though inflation numbers have trended lower for 10 months now, it would be premature to say that inflation’s back has been broken…

And that’s because the spending on new manufacturing capacity that I just outlined isn’t going to stop. The Second American Industrialization is well past the point of no return. 

The Game Plan

As I’ve written recently, I believe the stock market is likely to take a breather this summer. So long as the Fed remains committed to higher interest rates, the U.S. economy will be vulnerable to shocks like the regal banking crisis we saw back in March. 

Personally, I’d love to see some real weakness for stocks this summer. While I think a fullblown  10% correction might be a little too much to ask for, I’ll take anything I can get. Because we could be in for a barnburner of a rally to end this year. 

Of course I will continue to recommend stocks that I think will benefit the Second American Industrialization here at Pro Trader Today. So stay tuned…

That’s it for me today, take care and I’ll talk to you Friday.

Briton Ryle
Chief Investment Strategist
Pro Trader Today 
brit.ryle@protradertoday.com

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