Fun to read the Russian to English Translation. Can't vouch for the accuracy!
Andy Kessler: Wall Street Meat : My Narrow Escape from the Stock Market Grinder
My first book. Stories of working as a Wall Street analyst with Jack Grubman, Frank Quattrone, Mary Meeker, and Henry Blodget
Andy Kessler: Running Money : Hedge Fund Honchos, Monster Markets and My Hunt for the Big Score
New York Times Bestseller Barron's Best Business Books 2004
Andy Kessler: How We Got Here : A Slightly Irreverent History of Technology and Markets
Connect the dots from the Industrial Revolution to the Computer and Communications business of today.
Andy Kessler: The End of Medicine: How Silicon Valley (and Naked Mice) Will Reboot Your Doctor
Can we get medicine on the same ever-lowering price curves as technology. Funny stories of my quest to figure out where silicon will change medicine.
Fun to read the Russian to English Translation. Can't vouch for the accuracy!
Apple is a juggernaut. Its stock touched $600 on Thursday, which represents $560 billion in market capitalization. Compare this to Exxon Mobil, with a market cap of $400 billion, IBM's $240 billion and Wal-Mart's $210 billion. Can Apple really be worth that much?
The easy answer is that the company is worth whatever the market says it's worth. Well, yes, the market is right every day—but it is right only for that day. What about tomorrow?
Smart investors look under every rock to estimate what's going to happen next. And some are breathlessly claiming the stock is cheap and headed for $1,000—a trillion-dollar market cap. Others invoke the Wall Street adage that no tree grows to the sky.
So which is it?
It's clear what Germany is up to. Let the rest of Europe wallow in their own red ink. Let riots in the streets cause regime change. Dangle as bailout bait a "fiscal union" with countries giving up sovereign control of their budgets in exchange for Germany guaranteeing debts. The ECB will do the dirty work but it's Germany alone that will save the day and end up owning Europe. But why?
The euro zone is a wasteland of "entitlementarians" while Germany is an industrial might. But this source of German wealth is sputtering. Germany's industrial icons—Mercedes, BMW, Siemens, ThyssenKrupp—are so '80s. Teutonic efficiency hasn't adapted well to modern-knowledge industries.
Germany doesn't have an Apple or a Google or a Cisco, let alone a LinkedIn or Zynga. SAP is Oracle's weak sister. There's no Pfizer or Johnson & Johnson. Boehringer Ingelheim, Germany's largest pharma company, doesn't crack the top 10 globally. MorphoSys, their largest biotech company, is 43rd globally. Their Neuer Markt (rival: NASDAQ) closed in 2003.
Demographics stink. Go to Germany and you basically see Germans. Entrepreneurial companies require the best, no matter nationality. Silicon Valley feasts on a smorgasbord of international scientists and coders. Same in the London. Germany's no melting pot.
The economic history of war is that when internal wealth creation runs out, you have to beggar thy neighbor. Obviously, there's no military option, but Angela Merkel is on an economic mission. Her goal is to take over Europe and coax out Teutonic efficiency from players in the knowledge economy. Germany needs to harness them and pump knowledge wealth as the Russians pump gas.
Start with French wine, Italian fashion, Spanish farming, and Greek tourism. They can all use huge management efficiencies. In France, bureaucrats control half of the economy. Just privatizing government stakes can set off a productivity bonfire.
Merkel may also have designs on turning East Europe into a startup-driven Silicon Valley. Estonia is critical. Skype, bought by Microsoft for $8.5 billion, was founded there. Silicon Valley startups are hooked on Estonian employees and contract out programming to a country with 22 percent taxes.
Done right, Germany's Europe can kickstart a knowledge economy. Merkel may have Germany on the cusp of lasting greatness by being, well, a little less German--while all the rest are a little more so.
It used to be so cool to be wealthy—an elite education, exclusive mobile communications, a private screening room, a table at Annabel's on London's Berkeley Square. Now it's hard to swing a cat without hitting yet another diatribe against income inequality. People sleep in tents to protest that others are too damn wealthy.
Yes, some people have more than others. Yet as far as millionaires and billionaires are concerned, they're experiencing a horrifying revolution: consumption equality. For the most part, the wealthy bust their tail, work 60-80 hour weeks building some game-changing product for the mass market, but at the end of the day they can't enjoy much that the middle class doesn't also enjoy. Where's the fairness? What does Google founder Larry Page have that you don't have?
Luxury suite at the Super Bowl? Why bother? You can recline at home in your massaging lounger and flip on the ultra-thin, high-def, 55-inch LCD TV you got for $700—and not only have a better view from two dozen cameras plus Skycam and fun commercials, but you can hit the pause button to take a nature break. Or you can stream the game to your four-ounce Android phone while mixing up some chip dip. Media technology has advanced to the point that things worth watching only make economic sense when broadcast to millions, not to 80,000 or just a handful of the rich.
The chairman of the Federal Reserve is stuck between a rock and a hard place—well, more like a house and a gas tank. How to escape? Mr. Bernanke, raise interest rates now.
In order to the save bank balance sheets that he never cleared of toxic mortgage assets, Ben Bernanke's near-zero interest rate policy and dollar- printing programs were an attempt to create a so-called wealth effect. "Lower mortgage rates will make housing more affordable and allow more homeowners to refinance," Mr. Bernanke wrote in a Washington Post op-ed last November. "Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending."
In other words, the Fed is manipulating the stock market. And it has been on a tear, up 19% since Mr. Bernanke's Jackson Hole speech last August outlining a second round of quantitative easing.
Unfortunately, when you print dollars, you debase the currency—and it shows up in higher oil prices, already rising well before the rebellions in Egypt and Libya. Copper and wheat and food are also seeing increases. For that matter, just about everything is rising except home prices. The Case-Shiller home price index dropped 2.4% in December.
What Mr. Bernanke's dollar printing has given to consumers in a supposed wealth effect, it has taken away in the cost of living.
Early in "Eat People," a business-advice book for "game-changing entrepreneurs," former hedge-fund manager Andy Kessler casts his mind back to 10th-grade chemistry to muse on the "highly reactive" nature of atoms and molecules called free radicals. Because free radicals have an unpaired electron, he says, "they are always looking for something to do, hungry for some chemical reaction—like combustion."
Mr. Kessler's heroes, he says, are the free radicals of the business world, "someone who not only creates wealth . . . but at the very same time, improves the world, makes life better, and increases everyone else's standard of living." The roster ranges from modern free radicals like Steve Jobs and Sam Walton back to Andrew Carnegie and John D. Rockefeller, though the latter two gents "at some point" stopped being free radicals and "became monopolists." Rockefeller, Mr. Kessler says, was "more likely criminal."
It's a typically cheeky aside from Mr. Kessler, who likes to incite and amuse while getting his unvarnished free-market views across to readers. After a long and varied career in finance—he was an analyst, banker and venture capitalist in addition to managing a hedge fund—he has become an author. Much of his early writing—"Wall Street Meat" (2004), "Running Money" (2005) and "How We Got Here" (2005)—was grounded in his first-hand experience.
Sometimes geopolitical lessons come from the strangest places. With Eric Schmidt stepping down as CEO of Google and replaced by founder Larry Page, I can’t help but wonder if world leaders are taking note. Google perfected the horizontal business model. To the delight of enthusiasts of David Ricardo, the comparative economist, the company does one thing really well—search—and has built an ecosystem for others to flourish using it as a platform.
Contrast this with IBM and AT&T, long past their expiration dates as successful vertical companies. It’s no coincidence that the Soviet Union and IBM, two raging, top-down, command-and-control systems, collapsed at about the same time. What do I mean by vertical? In its heyday, IBM did everything from soup to nuts. Designed chips, wrapped plastic around them, wrote operating systems and applications, and then sold and serviced mainframes. The giant captured half of computer-industry sales and 80 percent of profits until horizontal companies Intel and Microsoft knocked it out at its knees. AT&T owned phones and switches and long-distance lines until a very horizontal Internet and companies like Skype changed the economics of the phone call.
These same dynamics are now driving the world economy into a productive horizontal enterprise. And it’s about time.
Economies are about increasing the standard of living of their participants. If you don’t have an economic system to create productivity, you end up stealing it from your neighbors. Think Roman Empire. Or the British who colonized large parts of the world to lock up natural resources to plug into their manufactories. Both very vertical.
Hitler had a manufacturing engine, but felt Germans were above toiling in factories. So he chose to increase German living standards by the blitzkrieg process: take what you need by force. Grab territory. Steal their resources. Put them to work. Get rich. Vertical instead of horizontal.
And they lost to a nation that went the horizontal route. America won WWII. Japan and Germany could have been American territories. But the horizontal model kept them independent as trading partners and we bought manufactured goods from partners around the world, especially Japan and Germany. It was better economics to let these countries run at their own pace, and own some horizontal layer (radios, clothes, cars). Today they trade cars and TVs for oil.
Imperialism and territorialism are increasingly obsolete. Why take over a country and deal with the headaches of a welfare system, and have to fix the plumbing in Uzbekistan, when you can buy its output on the cheap?
The vertical Soviet system lost precisely because it had no productivity. If you just steal resources, there is no incentive for others to create productive solutions.
And what about China? Well, it’s found its place in the horizontal stack. It leverages its cheap labor force and owns the logistic slice. It’s also locking up resources in Africa, trading instead of owning.
As of 1989, the United States of America became the world’s sole superpower. But what is America going to do with this status? Unlike past empires, there’s no incentive to take over the rest of the world. Imperialism is such a hassle. The world economy transitioned from loosely knit but mainly stand-alone industrialized countries through the 1970s to a tightly wound digital ecosystem today. Imperialism and territorialism are increasingly obsolete. Why take over a country and deal with the headaches of a welfare system, and have to fix the plumbing in Uzbekistan, when you can buy its output on the cheap, even ordering its goods over the Web? Despite all the protests, globalization instills peace. Trade now represents 26 percent of world GDP, up from 18 percent in 1990.
Globalization has linked the free world in a smart horizontal alliance. Computers, cell phones, and fiber optics are not made in any single country to be exported worldwide, but instead have components and labor from more than 30 inseparable countries, including China and Vietnam. Horizontal rules!
Without much forethought or planning or a dictator, benevolent or otherwise, the world has structured itself into a horizontal wealth-creating and peace-maintaining system—a productive system that actually increases the standard of living of all the participants, not just those in the United States. America still sits on top of the heap, sure, but wealth has increased for every country, company, and person that contributes. And they get rich not by stealing from the rest of the world, but by adding value to the food chain. Just ask Google.
It's time to close the Federal Communications Commission. This week, FCC Chairman Julius Genachowski gave a speech outlining his push for net neutrality, the absurd notion that the Internet should be "open and free" when in fact it's quite expensive to build. Net neutrality will straitjacket the U.S. economy's single most important driver of productivity and transformation.
Besides the obvious question of whether the FCC even has the authority to regulate the Web—in April, the U.S. Court of Appeals for the D.C. Circuit said it doesn't—the agency has a long history of restraining trade. Founded in 1934 partly to regulate radio spectrum (which in reality hasn't ever been scarce), the FCC delayed FM radio by favoring AM and television in spectrum allocation, mandated a TV network oligopoly by restricting station ownership, and kept long-distance rates too high for decades by forcing operators to subsidize local telephone costs. Now, because of bad bandwidth policy, it limits what smart phones can really do.
Federal Reserve Chairman Ben Bernanke's $600 billion quantitative easing program has been roundly criticized in this country and around the world. So why is he doing it? Does he know something the rest of us don't? Mr. Bernanke claimed earlier this month in a Washington Post op-ed that "higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending." But, as Mr. Bernanke must know, the Japanese have been trying to influence their stock market for 20 years, with little effect on their economy. It is also unlikely, as some claim, that the Fed chairman is whipping up a stealth stimulus or orchestrating a currency devaluation. He knows these have been tried and are more likely to destroy jobs than create them.
I have a different explanation for the Fed's latest easing program: Without another $600 billion floating through the economy, Mr. Bernanke must believe that real estate (residential and commercial) would quickly drop, endangering banks. The 2009 quantitative easing lowered mortgage rates and helped home prices rise for a while. But last month housing starts plunged almost 12%. And in September, according to Core-Logic, home prices dropped 2.8% from 2009. Commercial real estate values are driven by job-creation and vacancy rates, both of which are heading the wrong way. Because of unexpectedly bad construction loans, the staid Wilmington Trust was sold to M&T Bank earlier this month in a rare "takeunder"—what Wall Street calls a deal done below a company's stock value, in this case by 40%.
In other words, real estate is at risk again.