The setting for Robert Harris' thriller, "Enigma," is wartime Britain, where everything is rationed except for the rain.
It follows Tom Jericho, a young prodigy stationed at Bletchley Park, the real-life center of code-breaking operations, who is part of a team of cryptologists trying to break the code used by Germany's armed forces. Any progress can be undone if the enemy changes the code — which he will if he suspects that it has been cracked.
The novel comes to mind when considering the mysteries of shifts in the economic cycle and market reactions. The mood has clearly changed for the better since the middle of last year.
Fears of recession have receded. Global equity prices have rallied. Bond yields have perked up. A truce in the trade war, however fragile, has helped. But the improvement in mood coincided with signs of life in Asia's manufacturing hubs.
The key to these coded messages is the semiconductor industry.
Cars, smartphones, gadgets and cloud-computing servers rely on components, notably memory chips, that are disproportionately made in emerging Asia. The mood-sensitive parts of aggregate demand — capital spending by firms and nonessential purchases by consumers — have microchips in there somewhere.
The chip industry itself has savage mini-cycles. When it turns down, it is a sign of trouble ahead in the world economy. When it perks up, as it has done recently, there is reason to be more optimistic.
The cost structure of the chip business is central to this enigma. A semiconductor fabrication plant, or fab, costs billions of dollars to build. A sudden jump in orders, such as occurred in 2017, is met with increased capacity. But when demand falls, the fabs just keep producing. They are highly automated with few staff, so running costs are low.
