The Daily Morning Brew: The Great Chip Flip-Flop
Please Keep Your Arms and Legs Inside the Narrative at All Times.
Good Morning Brave Souls,
Let's imagine, for a moment, that you are the CEO of a rival superpower. For the past two years, the United States has been telling you, in no uncertain terms, that it will do everything in its power to kneecap your technological ambitions. They've sanctioned your companies, restricted access to key components, and lectured you on the global stage about the dangers of your military-civil fusion. The centerpiece of this strategy is a strict ban on selling you the most advanced AI chips the magic silicon brains required to build the future. You've been scrambling, investing billions in domestic alternatives, trying to catch up.
Then, one Tuesday, you wake up, check your email, and discover that the US has... changed its mind. Sort of. They've decided to let Nvidia and AMD resume selling you some of their pretty good AI chips again. Not the best ones, mind you, but more than good enough. Why? Because, as Treasury Secretary Scott Bessent so eloquently put it, the chip ban was a "negotiating chip." It was all part of a "mosaic."
This is, without exaggeration, one of the most dizzying policy reversals imaginable. It's like running a marathon and, at mile 25, the race officials announce the finish line is now back at the start, but also you can take the bus. On the very same day, the President is hailing a new trade deal with Indonesia that involves a 19% tariff and forcing them to buy $20 billion worth of our stuff, and his Treasury Secretary is openly suggesting on television that it might be time for the Fed Chair to pack his bags.
We are witnessing a government trying to play checkers, chess, and 52-card pickup all at the same time, on the same board. And the market? It's just trying to figure out which game is going to make it the most money today.
The Situation Report: A Guided Tour Through the Contradictions
If you feel like you have whiplash, it's because the news cycle is now a category-5 hurricane of conflicting signals. Let's try to make sense of it.
The Great Chip Flip-Flop: This is the headline of the day. After months of hawkish rhetoric, the Trump administration has green-lit the sale of Nvidia's H20 and AMD's MI308 chips to China. This is a massive win for the chipmakers and their CEO, Jensen Huang, who basically lobbied his way to a multi-billion dollar revenue opportunity. The official line is that this was a concession to get China to cooperate on rare-earth minerals. The unofficial line is that the "decouple from China" strategy just got a lot more complicated. What it means for you: The tech cold war has an asterisk. Commercial interests can, and will, override geopolitical strategy when the price is right. This is wildly bullish for chip stocks but raises serious questions about the long-term coherence of US policy.
The Indonesian Handshake Deal: While easing up on China, Trump was playing hardball with Indonesia. The deal: a 19% tariff on their goods, but in exchange, they have to buy 50 Boeing jets and a combined $19.5 billion in US energy and agriculture. He even noted a deal with India is working along the "same line." What it means for you: This is the transactional "America First" doctrine in its purest form. It's not about free trade; it's about managed trade where the US dictates the terms. It creates clear winners (Boeing, US energy) and losers (anyone who has to compete with them).
The Bond Market Finally Wakes Up to Inflation: The June CPI report was "tame" on the surface, but the 30-year Treasury yield immediately spiked above 5%. Why? Because the market read the fine print. While used car prices fell, prices for tariff-exposed goods like toys, appliances, and furniture surged at the fastest pace in years. The bond market is sniffing out the real, sticky, tariff-driven inflation, not the headline number. What it means for you: The era of ignoring inflation might be over. The long end of the curve is starting to price in a future where government spending and tariffs make things permanently more expensive.
The Fed Under Siege: As if on cue, Treasury Secretary Bessent went on TV and publicly suggested that Fed Chair Jerome Powell should step down from the board when his term as chair expires. He admitted a "formal process" to find a successor is already underway. This is a direct, public pressure campaign against the Fed's independence. What it means for you: The long-term credibility of the US dollar is now an open question. When the Treasury Secretary is openly speculating about the Fed Chair's departure, it signals that monetary policy is becoming just another political football.
Crypto's Week Goes Sideways: In a moment of pure Washington comedy, the much-hyped "Crypto Week" in the House stalled because a faction of conservative Republicans revolted, demanding that a ban on a Central Bank Digital Currency (CBDC) be attached to the main stablecoin bill. What it means for you: Even with a crypto-friendly President, the legislative process is a sausage factory. The industry's path to regulatory clarity is still a long, messy, and uncertain one.
The Week Ahead: PPI and Bank Bonanza
The market just got a taste of inflation with the CPI report. Now it gets the second course with Wednesday's Producer Price Index (PPI). If it also shows rising input costs, it will confirm the bond market's fears and put even more pressure on the Fed.
The other main event is the continuation of bank earnings. After a mixed bag from JPMorgan, Citi, and Wells Fargo, we get the investment banking titans: Goldman Sachs and Morgan Stanley. Their results and, more importantly, their commentary on dealmaking and trading in this chaotic environment will be a key tell for market sentiment.
Investment Strategy: A Portfolio for a Schizophrenic World
A Quick Look Back: The "Monetary Mayhem" theme just got a gallon of gasoline poured on it. The "New Cold War" theme, however, just got weird. How can you be in a cold war with someone you're also selling advanced technology to?
Today's Core Trades: Your 12-Month+ "Embrace the Contradiction" Portfolio
🛡️ The Schizophrenic Superpower Basket (Defense ITA, Chipmakers SMH, Commodities DBC):
Rationale: US policy is now officially running in two opposite directions. On one hand, we are preparing for great power competition (good for Defense, ITA). On the other, we are enabling our primary competitor with key technology (great for Chipmakers, SMH). The only logical response is to own both sides of this contradictory strategy. Add a broad commodities basket (DBC) as a hedge against the inevitable inflation that this chaotic fiscal and trade policy will generate.
Why Now? This week's news is the thesis. The chip reversal and the Indonesia deal happened within days of each other. The policy is the portfolio.
🪙 The Monetary Mayhem Hedge (Gold GLD, Bitcoin IBIT, Short the Dollar UDN):
Rationale: This trade is no longer speculative; it's a direct response to public statements. The Treasury Secretary is openly questioning the Fed Chair's future. This is a five-alarm fire for the long-term credibility of the dollar as a neutral reserve asset. Owning apolitical hard assets (GLD, IBIT) and betting against the dollar (UDN) is the most direct way to position for this erosion of institutional norms.
Why Now? Bessent's comments are a new escalation. The risk is no longer just about Trump's tweets; it's about the stated intentions of his Treasury department.
🏗️ The Real-World Bottleneck (Energy XLE, US Industrials XLI, Rare Earths REMX):
Rationale: Away from the geopolitical drama, the administration is pushing a massive domestic investment agenda. Trump's announcement of $92 billion for AI and energy infrastructure is a clear signal. This, combined with Apple's $500 million deal to buy rare earths from a US producer (MP Materials), shows a powerful push to on-shore critical supply chains. This is a bet on physical stuff made in America.
Why Now? These aren't just plans; they are active investments being announced now. This is a durable, multi-year tailwind for domestic energy, industrials, and materials.
Today's Tactical Trades: Alpha Hunting in the Whiplash (Short-Term)
🟢 Momentum | Long Chipmakers (NVDA, AMD):
Rationale: This is the trade of the day. The China chip reversal is a completely unexpected gift to these companies, potentially unlocking billions in revenue. The market is just starting to price this in.
Entry/Levels: This is an immediate buy on the news. You're not waiting for a pullback; you're riding the shockwave of the policy change.
🔄 Contrarian | Short Long-Duration Bonds (TBT):
Rationale: The bond market is finally pricing in the inflation that the equity market is ignoring. The 30-year yield breaking 5% is a major technical and psychological event. Shorting long bonds (via an ETF like TBT) is a bet that yields have further to run as the market wakes up to the reality of tariff-driven inflation.
Entry/Levels: The breakout above 5% on the 30-year is your signal. You can enter on any failed attempt by bonds to rally (i.e., for yields to fall back down).
** hedging️ The Bank Earnings Straddle (Options on XLF):**
Rationale: The first batch of bank earnings was all over the place. JPM and Citi's traders did great; Wells Fargo stumbled. With Goldman and Morgan Stanley on deck, the outcome is uncertain. A simple straddle (buying both a call and a put option) on the financial sector ETF (XLF) is a pure play on a big move, in either direction, after they report.
Entry/Levels: This is a pre-earnings play. You enter before the reports from Goldman and Morgan Stanley, positioning for the volatility their results will create.
🌏 Under-the-Radar | Long Indonesia (EIDO):
Rationale: Trump just handed Indonesia a "get out of jail free" card. While there's a 19% tariff, the certainty of the deal, the removal of the threat of higher tariffs, and the massive purchase orders for Boeing and US energy are a huge net positive for their economy. The market may be too focused on the tariff number and missing the bigger picture.
Entry/Levels: This is a contrarian play on a "good deal" being disguised as a "bad tariff." Look for stability in the Indonesian ETF (EIDO) after the initial news and consider building a position if it holds its ground.
The Mic Drop: The Mosaic of Madness
The Treasury Secretary described US-China policy as a "mosaic." It's a fitting word. A mosaic is a picture made up of tiny, broken pieces, painstakingly arranged to create the illusion of a coherent image. From a distance, you might see a grand strategy. But up close, all you see is a pile of shattered fragments.
That's the market we're in. One day, the fragment is a trade war. The next, it's a trade deal. One day, the Fed is an independent pillar of stability. The next, its chairman is being measured for a pink slip. Trying to predict the next move is a fool's errand. The only strategy is to accept the chaos, own the contradictions, and remember that in a mosaic of madness, the most valuable asset is the ability to not get whiplash. Good luck.
Disclaimer: None of this is investment advice, life advice, or even particularly good advice. It’s just one man’s attempt to make sense of markets held together by duct tape, tariffs, and vibes. If you trade on this, may your gains be large and your whiplash mild.