Billionaire investor Peter Thiel is back with another Tolkien-inspired venture: Erebor. The bank, named after the mountain where the dragon Smaug hoards his treasure, plans to serve tech startups and crypto companies.

Thiel is part of a group of investors led by Palmer Lucky, the cofounder of Anduril — which, yes, is a reference to “The Lord of the Rings.” Jon Lonsdale, the cofounder of defense tech company Palantir, is also part of the group, and Palantir’s name is … you get it.

Luckey and Lonsdale view Erebor as an opportunity to fill the void left by the collapse of Silicon Valley Bank, according to the Financial Times.

One Bank to Rule Them All

And in the darkness … fund their crypto startups?

Erebor’s bank-charter application targets “the innovation economy,” including companies involved in virtual currencies, AI and defense technology — riskier ventures that have struggled to access capital since the demise of Silicon Valley Bank.

Some backstory to set the scene for Erebor’s foray into the financial world:

• At its height, SVB was the 16th-largest bank in the US, with $218 billion in assets. It was a go-to institution for early-stage tech and crypto startups. But in 2023, investors withdrew $42 billion in a single day after the bank slashed its annual guidance. With the majority of its assets uninsured, the bank collapsed, triggering a domino effect that led to the collapse of Signature Bank and First Republic.
• Although SVB was brought back to life under First Citizens Bank, its risk tolerance didn’t seem to recover. Across the financial industry, funding for early-stage startups dried up following SVB’s demise.

But now, two years after the incident, investors’ optimism is rising and startups are on the hunt for funding.

Second Breakfast: It’s not quite 2021 again, but markets are trending in that direction. The S&P 500 and Nasdaq both hit fresh records last week, and the IPO market is waking up after more than three years of hitting the snooze button. More companies have gone public so far this year than have since the bell-ringing heyday of 2021, including AI cloud company CoreWeave and crypto biz Circle. Speaking of crypto, bitcoin is above $108,000 this morning, not far off its near-$112,000 record high reached in May. Regulators, meanwhile, are developing ways to prevent a future SVB situation, with a new set of global banking reforms in the works.

The passage of President Donald Trump’s “Big, Beautiful Bill” wasn’t a pretty sight for the influential group of federal deficit hawks known as bond vigilantes.

Market experts say it’s a matter of when, not if, their simmering discontent will bubble over. So far, 10-year Treasury notes don’t show the level of alarm signaled after Liberation Day tariffs, when yields screamed up to over 4.5%.

Fiscally Responsible Cowboys

“Inattention to the deficit is more serious now than it would have been during Mr. Clinton’s administration, when we were concerned about debt levels reaching a mere 65 percent of GDP by 2000,” Robert Rubin and Larry Summers, Treasury secretaries in the Clinton administration, wrote in The New York Times last week. The US debt is about the same as the country’s entire economic output and is projected to grow now that the megabill has passed. Before the vote, they argued: “A responsible Congress would reject it.”

Maybe bond vigilantes are picking their moment. They were most effective during the Clinton years when they drove 10-year yields from 5.19% in October 1993 to 8.05% by November 1994 in protest of the administration’s plans to increase government spending. Clinton blinked and made balancing the federal budget a priority. That story had a happy ending.

A more recent example of vigilantism didn’t. In September 2022, then-Prime Minister Liz Truss’s “mini budget” roiled the UK bond market. Recall the Truss lettuce meme — a livestream of a decaying head of iceberg crowned by a blonde wig, nodding to the PM’s precarious position. Truss resigned before her vegetable effigy reached the end of its shelf life.

Market experts are looking out onto the horizon for the cowboys:

• “The bond market will impose discipline on the federal government,” Jim Bianco, macro strategist at Bianco Research, said in a mid-June interview with Financial Sense. “When, I don’t know, but I do remember from Hemingway’s The Sun Also Rises, ‘How does one go bankrupt? Slowly, then suddenly.’ We’re in the ‘slowly’ phase.”
• “If the Fed were to lower interest rates, or if the Treasury were to play this game with issuing more bills, the bond market might be very concerned that we aren’t out of the woods when it comes to tariff-related inflation,” Ed Yardeni, the economist who is credited with coming up with the term “bond vigilantes,” said in an interview with CNBC last week.

Say When: Treasury yields ticked up ahead of the June jobs report, which showed steady growth, and revisions showed hiring was stronger in May and April, contrary to expectations. The probability of a July rate cut hit under 5% before the holiday weekend. And the House narrowly passed Trump’s spending bill. The 10-year Treasury auction results last month soothed investors — we’ll see if that demand holds in the upcoming one.

When it comes to competing on the world’s semiconductor stage, US lawmakers are not content to let the chips fall where they may.

Which is why, among myriad other provisions, the “One Big Beautiful Bill” passed by Congress and signed into law by the White House late last week includes some hefty new perks and incentives for semiconductor manufacturers.

We’re (Semi)conducting Serious Business Here

Passage of the bill was not exactly a bipartisan effort — attracting not a single Democratic vote and even encouraging a few Republican defections across both chambers of Congress. Still, supporting the semiconductor industry is one of the very few zones of bipartisan consensus these days. Back in 2022, the Biden-era CHIPS and Science Act provided grants of $39 billion and loans of $75 billion for US-based semiconductor manufacturing projects.

And while the new administration in the White House has threatened to repeal the CHIPS Act altogether, provisions in the Big Beautiful Bill reveal the GOP is still eager to support the critical industry one way or another:

• Under the bill, semiconductor manufacturers will be eligible for an investment tax credit of 35% if they break ground on new facilities ahead of a 2026 deadline; that raises the incentive from an existing tax credit of 25%, and even beyond the 30% tax credit included in an earlier draft of the bill.
• That’s great news for chipmakers, reflected in near across-the-board share price gains upon news of the law’s passage on Thursday: Intel (2.7%), TSMC (0.5%), and Micron (0.4%) all closed up heading into the holiday weekend.

Chip Stack: It’s not the only recent policy win for the industry. Last week, the US Commerce Department told leading semiconductor design software providers — including Synopsys and Siemens — that they are no longer required to obtain government licenses to conduct business in China. It’s a welcome change of pace for an industry that has been caught in the crossfire of the trade war so far this year. In sum: the government giveth, the government taketh. What else is new?