Andy Kessler

WSJ: Is Climate Change in Your Problem Top 10?

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https://www.wsj.com/articles/is-climate-change-in-your-top-10-urgent-issues-gop-democrats-problems-worry-global-warming-environment-don't-look-up-11641741976

At a recent dinner, I sat between two men talking past each other. “Mr. Redd” was complaining about our borders and how President Biden’s policies have led to the arrest of nearly two million illegal immigrants. “Mr. Bleu” jumped in, “First of all, they’re unauthorized migrants. Second, I can’t believe you’re worried about that. It’s not even on my top 10 list.” Not one to let a good brawl whimper out unnecessarily, I asked sheepishly, “What’s No. 1?” “Climate change,” he replied. I couldn’t resist. “Really, over failed schools? The homeless? Opioids? Structural unemployment? China?” I asked. “Yup, follow the science,” he said. Ugh. He probably thought the dim-witted eco-allegory “Don’t Look Up” on Netflix was a documentary.

Sure enough, if you check the latest Quinnipiac poll of “the most urgent issues facing the country today,” you get the same divide. For Republicans, the answer is immigration (28%), the economy (24%) and the federal debt (10%). For Democrats, it’s Covid-19 (28%), healthcare (14%) and climate change (13%).

A few years ago, my family was hiking in Point Reyes, north of San Francisco, with our Rhodesian Ridgeback off-leash. Yes, I know, a politically incorrect canine. We spotted a coyote up in the hills and quickly leashed our dog. As we approached another group with a dog, we warned them about the coyote. Instead of a “Thank you,” we got a smug “Well, they were here first.” Really? I may have wished the coyote would eat their mutt for breakfast.

To me, that exchange sums up the current state of environmental thinking. They were here first; let’s go back to the old days. I have no time for this “degrowth” movement. Progress, not retreat, solves problems. While the climate may be changing, meteorologists can’t even model snowfall in Virginia accurately this winter, let alone over decades. We should adapt to change, not slam the brakes on growth. Climate change is the latest manifestation of a tiresome throwback—shift-into-reverse thinking. It’s all back to nature, rewind the clock, fear of overpopulation, and let coyotes roam. This “limitarianism” may prove to be as deadly as other 20th-century “isms.”

Americans have plenty of other problems. Crime is on the rise, and cities are a mess. I asked a resident of Manhattan’s Upper West Side what she thought about New York’s new mayor, Eric Adams, a former captain in the New York Police Department. “We hope he’s like Michael Bloomberg, ” she said. “Isn’t he more like Rudy Giuliani, law and order?” I asked. “Ick,” she replied. “So, you like crime?” I asked sarcastically, knowing that murders in New York City were up over 50% in 2021 compared with 2019. Her answer? “Hey, we live in New York City, we expect it. Plus, we don’t have much crime in our neighborhood anyway.” Right.

When was it that we gave up? San Franciscans gladly struggle to drink through paper straws but divert their gaze from brazen smash-and-grab robberies.

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WSJ: Can Social Media Alter a War?

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https://www.wsj.com/articles/can-social-media-alter-a-war-nato-russian-bots-colonial-pipeline-national-security-ukraine-cyberwarfare-hack-invasion-11641130267

The Cornell-Harvard hockey matchup is legendary. Harvard home fans used to play square-dance music and throw hay on the ice making fun of bumpkins from upstate New York. In retaliation, Cornell fans at Lynah Rink in Ithaca would throw fish on the ice (they still do despite being searched on entry), and for many years they even tied a live chicken to Harvard’s goal. I spoke with a recent graduate who explained how students have modernized taunting. Using fake social-media accounts with pictures of attractive coeds, hecklers would inevitably “friend” Harvard’s goalie and learn details about his personal life. During the game, the crowd would taunt him about his aunt Millie, dog Muffin or recent breakup. Eventually the goalie would turn and stare at the crowd in confusion. Successful psy-ops!

The same tactics are leaking into war planning. Psychological operations are nothing new: We’ve had Tokyo Rose, pamphlets dropped from planes, and Iraq’s Information Minister Baghdad Bob’s spewing lies on CNN. Now Instagram? In February 2012, I wrote a column titled “When Will Social Media Elect a President?” Most readers said never. Well, that ship has sailed. It’s time to ask: When will social media alter wars?

In 2019 during a military exercise, the North Atlantic Treaty Organization’s Strategic Communications Center of Excellence deployed a “red team” to see if it could disrupt 150 soldiers. Spending only $60 on Russian bots and using only open-source data, researchers were able to learn the usernames, phone numbers, emails and identities of soldiers. They also engaged with them on Facebook and Instagram, mapped their connections with other armed-forces members, determined their location within a kilometer, and even got soldiers to send selfies with their equipment. Apparently even soldiers believe that if it isn’t on Instagram, it didn’t happen.

According to the report on the exercise, they could “pinpoint the exact locations of several battalions” and track troop movements. Here’s the scariest part: “The level of personal information we found was very detailed and enabled us to instil [sic] undesirable behaviour during the exercise.” Janis Sarts, a director of NATO StratCom, told me: “Every time we attempted to manipulate behaviors, we succeeded.”

Facebook did shut down some of the researchers’ fake accounts due to suspicious activity. But many groups and fake profiles weren’t suspended. This raises the question: Is Facebook ready or even willing to help during a hot war?

Let’s say, hypothetically, that Russia invades Ukraine and the U.S. sends in troops.

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WSJ: The Metaverse is Already Here

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https://www.wsj.com/articles/the-facebook-mark-zuckerberg-metaverse-is-already-here-virtual-reality-headset-oculus-11640525817

Are you ready to live in a 3D-navigable, socially connected, conscience-curving, carefree virtual world? Facebook’s pursuit of this metaverse dream as its next platform is bold, though it may be like swapping out a car’s engine while it’s going 100 mph—hard to do without crashing. Look at Apple as it transitioned from computers to iPods and iPhones. Facebook even changed its name to Meta. “The dream was to feel present with the people we care about,” CEO Mark Zuckerberg explained. He also promised “immersive all-day experiences.” Facebook may need a new platform anyway if the Biden administration dismantles its current one in the name of antitrust.

This has been tried before. A virtual space called “Second Life” launched in 2003. You could buy digital property and clothes with real money and hang out with other blocky avatars. It was early days. Naysayers in Silicon Valley liked to say that “Second Life” was for those who didn’t have a first one.

The metaverse marks another interface transition. Green and amber text monitors gave way to Apple’s and Windows’ graphical user interface, making computers much easier to use. Then slow modems connected us to the internet and we used the barren search-page interfaces of Yahoo and Google. Eventually graphics and photos sneaked in, especially as blogs and social networks boomed, and smartphones with cameras turned many into photo bugs. Then video was added, peaking this year with TikTok and multi-tile Zoom calls. Each interface iteration means humans spend less time navigating the computer and more time harnessing its power.

Think of the metaverse as another change of perspective. Videogames have 3D worlds already, a big jump from 2D Tetris. Epic Games, maker of “Fortnite,” has more than 350 million registered users. Roblox, for younger gamers, has more than 160 million active users. There are thousands of 3D games on smartphones. An estimated 2.5 billion people play videogames daily, a $150 billion market. My guess is this is where Facebook will go shopping—after it begs for permission from the Federal Trade Commission.

No one reads a videogame instruction manual; players learn by doing. Entire generations have learned how to interact with computers by playing videogames, even if they were mostly killing one another virtually.

Facebook paid $3 billion for virtual-reality headset maker Oculus in 2014 and likely has poured in billions more.

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WSJ: Back to the Office in 2022

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https://www.wsj.com/articles/back-to-the-office-in-2022-work-booster-omicron-meetings-lockdown-11639943352

A Chicago Tribune headline declares: “Experts warn of brutal flu season.” Of course. With never-ending lockdowns (in California especially), working from home, and even people alone in cars wearing masks, we’ve probably lost immunity to many illnesses—and patience for many former day-to-day annoyances.

I hate to break it to you, but with last week’s news that booster shots reduce the severity of the Omicron variant and the success of Paxlovid, Pfizer’s new antiviral pill, it’s back to the office in 2022 for most of us. But are we again vulnerable to a host of diseases, plus many inconveniences we’ve long forgotten? Life moves pretty fast. I don’t know if most folks are ready.

Let’s face it, after more than 20 months of the roll-out-of-bed commute, many have zero tolerance for traffic—remember rubbernecking delays? Or wearing pants, let alone clean clothes. Or drinking industrial-grade office coffee mellowed by nondairy creamers. Your body will reject that like week-old fish.

It’s the broom for Zoom. Welcome back to conference rooms and crowded in-person meetings, including that marketing associate who subtly coughs while you’re talking, and you always fall for it and exhibit common decency and pause only to be interrupted by the cougher and have the meeting hijacked. Yeah, bet you don’t miss that.

Remember cubicles? Or open-office layouts—the vast sea of desks? There was no privacy, and employees would have to crawl under their workstation to make personal phone calls. During lockdowns, your kids might have run noisily around your apartment or house, but you could yell at them to stop, unlike annoying co-workers.

I think one of the greatest abilities the human mind has is its tolerance for small talk. What was with Pete Davidson’s hot pink hoodie when Steph Curry set the record for career 3-pointers?

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WSJ: Old Wisdom for Today’s Markets

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https://www.wsj.com/articles/old-wisdom-for-todays-markets-wall-street-meme-stocks-interest-rates-crypto-inflation-bubble-11639323322

I love Wall Street adages—find all 30—that help explain today’s crazy markets. One that keeps popping into my head lately is “bulls make money, bears make money, but pigs get slaughtered.” I’ve called this market bubblicious, and markets still push relentlessly higher. My mentor, the famed investor Barton Biggs, explained, “A bull market is like sex. It feels best just before it ends.” And now as coronavirus variants come and go, we see 500-point yo-yo swings. Be warned, no one rings a bell at the top of markets.

Near-zero interest rates fuel the fire. Don’t fight the Fed! But rates may rise this spring, which is why high flyers and meme stocks have been reined in. A good proxy is the ARK Innovation ETF, down 38% from its February peak. It is smart to leave early before everyone rushes for the exits.

Maybe stocks will revert to the mean, but what is normal anymore? I remember a Wall Street strategist who claimed stocks go from 25% undervalued to 75% overvalued. Sensible but wrong—the price is always right. Stocks end every trading day valued correctly. Yes, even in the past few weeks, with stocks rising and falling like a runaway roller coaster. Billions of shares traded balance millions of bullish and bearish thoughts to reflect consensus expectations. Or as Efficient Market Hypothesis believers say, “Asset prices reflect all known information”—emphasis on known.

Correct compared with tomorrow? Heck no. In the long term, the consensus is always wrong. In the past 40 years, the S&P 500 has ended the trading day unchanged only 10 times. Inputs change. Expectations change. Macro information changes. Industries change, sometimes ever so slightly. Markets move up or down to reflect new information and investor moods and stuff out of left field. Bull markets climb a wall of worry and top out when there is nothing left to worry about and all the good news is baked in.

My advice is to figure out in which direction the consensus is wrong. Warren Buffett says, “Be fearful when others are greedy and greedy when others are fearful.” Sure, but the hardest part of investing is figuring out what everyone else thinks. Finding the pulse of the market is harder than waiting to buy when there is blood in the streets.

That pulse gets harder to gauge when bull markets turn everyone into momentum investors shouting, “The trend is your friend!”

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WSJ: cool Bond video

WSJ: James Bond’s License to Kill Fun

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https://www.wsj.com/articles/james-bond-license-to-kill-fun-daniel-craig-no-time-to-die-sean-connery-media-hollywood-11638713465

I’ve proudly seen every James Bond movie ever made, even the George Lazenby, Timothy Dalton and Pierce Brosnan doozies, plus Woody Allen’s 1967 “Casino Royale” spoof. As a kid, I even inhaled Duco Cement fumes assembling a plastic model 1964 Aston Martin DB5—with a working ejector seat!

Bond films delivered a feeling of sophistication and fun. The original James Bond was suave and sassy while he resolved sinister plots. He exemplified cool: He drank vodka martinis but never to excess, was impeccably dressed and, though flirty, was a gentleman. The early films were filled with innuendo and scenes that were simultaneously exotic and a touch campy. Sean Connery’s Bond had a joie de vivre. Roger Moore’s was less serious and a little over the top, but the audience was in on the joke.

Scholars love to analyze Bond creator and author Ian Fleming’s work as an allegory: Bond is the new Churchill, saving the British Empire from its inevitable postwar decline. Bond’s motivation in Her Majesty’s Secret Service is always God and country, epitomized in the opening scene of “The Spy Who Loved Me” when he skis off a cliff and unfurls a parachute emblazoned with the Union Jack.

But since Daniel Craig took over in 2006, things have turned strange, especially with his final Bond film, “No Time to Die,” which I recently watched. It was dark and gloomy like 2012’s “Skyfall.” Billie Eilish practically whispers the theme song, seemingly from a shrink’s couch. Bond was brooding, with a constant scowl on his face. What was he so depressed about, Brexit? No wonder Mr. Craig reportedly couldn’t wait to finish his run as 007.

What the heck is going on? After paying for $15 movie tickets plus overpriced and overbuttered popcorn, I expect to escape the drudgery of real life for a couple of hours. I want to come out of a dark theater with a huge smile on my face, not feeling as if I got hit by a sad sack of potatoes.

Why does Hollywood sulk so much these days? Is it simply reflecting society?

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WSJ: A California Attempt to Repair the Crumbling Pillar of U.S. Education

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https://www.wsj.com/articles/the-crumbling-pillar-of-education-california-dave-welch-vergara-school-choice-charter-11638115242

Public-school education has gone from bad to worse. In the Chicago Public Schools, only 26% of 11th-graders were at grade level in reading and math in 2019. Remarkably, the school system had a record-high graduation rate of nearly 84% in 2021. Those students must have had strong senior years! This is why over half of first-year community-college students in the U.S. take at least one remedial course in reading or math. In the U.S., 43 million adults are illiterate. This is a disgrace.

In pre-pandemic California, only 32% of fourth-graders were at or above proficient for their grade in reading. Only 19% of eighth-grade Hispanics read at grade level, and only 10% of eighth-grade blacks did. Those who find disparate impact everywhere should be screaming from the rooftops that public education is racist. Instead, silence.

Despite these poor results, spending per student goes up each year. New York spent $25,139 per student in fiscal 2019. In California, it’s over $20,000. So why haven’t outcomes improved? Parents know why. Bad teachers don’t get fired. Because of tenure, even some capable teachers mail it in. Bad school districts don’t get fixed. Caps on charter schools, even those with proven records, limit their ability to put pressure on public schools. Teachers unions are all-powerful.

Silicon Valley entrepreneur Dave Welch is trying to improve California’s education system. He tells me we need “accountability of quality education.” You may recall the 2014 Vergara v. California decision, a suit Mr. Welch and others funded. Filed on behalf of nine public-school students, the ruling found that five California statutes related to teacher tenure, firing bad teachers and layoff policy violated the state’s Constitution. In his ruling, Los Angeles County Superior Court Judge Rolf M. Treu noted, “Evidence has been elicited in this trial of the specific effect of grossly ineffective teachers on students. The evidence is compelling. Indeed, it shocks the conscience.”

No matter. The California Court of Appeal reversed Vergara in 2016 stating: “With no proper showing of a constitutional violation, the court is without power to strike down the challenged statutes.” In the court’s view, the California Constitution guarantees merely a free public education.

So Mr. Welch was back where he started, with, he says, an “educational system that doesn’t prioritize its actions to educate the children to a degree necessary to function in our society.”

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WSJ: Politicians Have Earned Your Distrust

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https://www.wsj.com/articles/politicos-earned-distrust-biden-inflation-reconciliation-cuomo-covid-deaths-nursing-homes-11637504680

Each day government bombards Americans with reasons not to trust it. It has been only 616 days since the Trump administration’s “15 Days to Slow the Spread.” From the Fauci dance—no mask, one mask, double masks—to the airport mess known as the Transportation Security Administration. If it’s OK for travelers under 12 and over 75 to keep their shoes on through airport security, then surely it’s OK for everyone. Americans aren’t stupid. Each time we’re spun or deceived or outright lied to, trust in government melts away.

Case in point: President Biden’s speech at the Port of Baltimore about the recently enacted bipartisan infrastructure plan, in which he said “this bill is going to reduce the cost of goods to consumers.” Spend more, prices go down? Not likely. A few breaths later: “I’m going to create good-paying union jobs—union . . . not $12 an hour, not $15 an hour—$45 an hour and up with good benefits.” And that will somehow reduce the cost of goods to consumers? C’mon, man. Is Sen. Joe Manchin the only one who understands the wage-price spiral? Inflation is “transitory,” we’re told. Uh-huh. Meanwhile, some Californians are pumping $5 gas.

Mr. Biden also claims the $1.75 trillion social-climate-porkfest reconciliation bill—really more than $4 trillion without accounting gimmicks—“costs zero dollars.” The administration must be using that new “equity” math I keep hearing about. A third-grader could see the deception. Any wonder why Mr. Biden has a 41% approval rating?

White House press secretary Jen Psaki declared the chaotic Afghan withdrawal the “largest airlift in U.S. history . . . so no, I would not say that is anything but a success.” That’s like saying the Titanic was a success as the largest lifeboat deployment in history.

California government becomes less trustworthy by the minute. It lifted most Covid restrictions in June based on 70% of adult Californians receiving at least one vaccine dose, meaning you could go maskless in Trader Joe’s. By August, however, health officials, blaming the Delta variant, reimposed mask mandates in California’s big cities. Then in October, the same health officials said that restrictions will be lifted when 80% are vaccinated. No problem, 80% of adults had gotten jabbed. But wait, the new target is 80% of the entire population, including children under 12, who weren’t eligible for shots. Talk about moving the goal posts.

Sen. Amy Klobuchar and others are going after Facebook, claiming its products are addictive. Maybe they are.

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WSJ: The Chip That Changed the World

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https://www.wsj.com/articles/the-chip-that-changed-the-world-microprocessor-computing-transistor-breakthrough-intel-11636903999

The world changed on Nov. 15, 1971, and hardly anyone noticed. It is the 50th anniversary of the launch of the Intel 4004 microprocessor, a computer carved onto silicon, an element as plentiful on earth as sand on a beach. Microprocessors unchained computers from air-conditioned rooms and freed computing power to go wherever it is needed most. Life has improved exponentially since.

Back then, IBM mainframes were kept in sealed rooms and were so expensive companies used argon gas instead of water to put out computer-room fires. Workers were told to evacuate on short notice, before the gas would suffocate them. Feeding decks of punch cards into a reader and typing simple commands into clunky Teletype machines were the only ways to interact with the IBM computers. Digital Equipment Corp. sold PDP-8 minicomputers to labs and offices that weighed 250 pounds.

In 1969, Nippon Calculating Machine Corp. asked Intel to design 12 custom chips for a new printing calculator. Engineers Federico Faggin, Stanley Mazor and Ted Hoff were tired of designing different chips for various companies and suggested instead four chips, including one programmable chip they could use for many products. Using only 2,300 transistors, they created the 4004 microprocessor. Four bits of data could move around the chip at a time. The half-inch-long rectangular integrated circuit had a clock speed of 750 kilohertz and could do about 92,000 operations a second.

Intel introduced the 3,500-transistor, eight-bit 8008 in 1972; the 29,000-transistor, 16-bit 8086, capable of 710,000 operations a second, was introduced in 1978. IBM used the next iteration, the Intel 8088, for its first personal computer. By comparison, Apple’s new M1 Max processor has 57 billion transistors doing 10.4 trillion floating-point operations a second. That is at least a billionfold increase in computer power in 50 years. We’ve come a long way, baby.

When I met Mr. Hoff in the 1980s, he told me that he once took his broken television to a repairman, who noted a problem with the microprocessor. The repairman then asked why he was laughing.

Now that everyone has a computer in his pocket, one of my favorite movie scenes isn’t quite so funny.

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WSJ: A Long Time Since ‘Zeppelin IV’

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https://www.wsj.com/articles/a-long-time-since-zeppelin-iv-music-era-70s-1971-classic-rock-stairway-to-heaven-11636303100

“It’s been a long time since” . . . 1971. Fifty years ago on Nov. 8, the album “Led Zeppelin IV” was released, which included the eight-minute classic “Stairway to Heaven.” It was a year of transition from turmoil to modernity, a songwriter’s paradise. And yes, I’m a sucker for anniversaries.

Back in 1971 we listened to music on LP records—for the uninitiated, 20 or so minutes of music pressed into vinyl, spun at 33 1/3 rpm and amplified from a scratchy needle to giant speakers. Without TikTok, my generation wasted time poring over album-cover art in search of hidden meaning and reading the liner notes printed on the album sleeves.

More legacy-defining albums were released in 1971 than in any other year by my count. As proof, let’s play a game: I name the album, you name the artist, and no googling. “Sticky Fingers,” “Who’s Next,” “L.A. Woman,” “Aqualung,” “Tapestry,” “What’s Going On,” “Fragile,” “Imagine,” “At Fillmore East,” “Madman across the Water,” “Pearl,” “Anticipation,” “Shaft,” “The Low Spark of High Heeled Boys,” “The Concert for Bangladesh.” How many did you get? Now add the Grateful Dead’s first gold album, and of course “Led Zeppelin IV,” sometimes known as Zoso.

Nineteen seventy-one is still considered “the ’60s,” which started when JFK was assassinated and ended with Watergate. The antiwar Democratic Convention riots defined chaotic 1968. Woodstock embodied 1969. In 1970, the Beatles disbanded and Apollo 13 proved failure wasn’t an option. But what was it about 1971?

The sound of Vietnam protests and smell of tear gas still hung in the air, along with a hippy-dippy free-love ethos perfectly parodied by the TV show “Rowan & Martin’s Laugh-In,” which ran until 1973. Although Richard Nixon was in the White House, there were hints of modernity. U.S. astronauts landed on the moon six times between 1969 and 1972. Nineteen seventy-one was the perfect segue between past despair and future hope and dreams, which were sadly delayed by the inflation and smog-filled skies of the 1970s.

Led Zeppelin captured this transition. Singer Robert Plant’s lyrics had mystical musings and a Tolkien-esque feel—“bustle in your hedgerow.”

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WSJ: Nine Theories of Progressive Power

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https://www.wsj.com/articles/nine-theories-of-progressive-power-weath-distribution-tax-socialism-biden-aoc-11635705664

Go ahead, try to tax the unrealized stock gains of billionaires, a wealth tax of questionable constitutionality. Or wear a “Tax the Rich” dress with the same font as a Chick-fil-A takeout bag to a gala for millionaires and billionaires. Or expand the idea of “infrastructure” to include social giveaways—free stuff for all. But what do progressives get out of it?

They must know that massive wealth redistribution and public spending crush the economy if they have ever studied the failures of Lyndon B. Johnson’s Great Society or Franklin D. Roosevelt’s New Deal. Progressives often invoke Europe as an economic model knowing full well that the U.S. outstrips almost all European countries in economic output per capita—15% higher than Germany’s, 43% higher than France’s.

Surely former law professor Elizabeth Warren has studied enough history—I mean, Harvard, right?—to understand the fallacy of her socialist leanings. Her government-controls-everything policies usually lead to Venezuela-style ruin. Why pursue these policies? What is the end game? Here are nine answers.

The obvious yet unsatisfying answer is to gain and then stay in power—to buy votes. That is understandable, but then why take it to the extreme, like they did with ObamaCare, which anyone with a revenue-vs.-expense spreadsheet knew would fail?

A better explanation is the shakedown theory. Even Honest Abe Lincoln’s administration was rife with patronage. The goal of single-payer healthcare recalls the opening scene from “The Godfather” when Don Corleone meets with a favor-currying constituent. Bonasera wants justice for an assault on his daughter. Now imagine he’s asking his senator for permission to have gallbladder surgery.

Then there is the “noblesse oblige” theory that the privileged should use government to improve the lives of the less privileged. Hooey, but everything sounds smart in French.

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WSJ: Crypto Is Shedding Its Tether

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https://www.wsj.com/articles/crypto-shedding-tether-stablecoin-backed-john-law-11635103866

The launch of the first bitcoin-focused exchange-traded fund last week proves crypto bulls need to meet John Law. The Scottish gambler, economist and financier is likely why why so few top French banks have Banque in their name. Instead, there is Crédit Agricole, Société Générale and Crédit Mutuel. Law’s Banque Générale, later renamed Banque Royale, issued bank notes out of thin air, then royally blew up in 1720 and destroyed the French economy. The reputation of French banks has never fully recovered.

Law’s connections gave him exclusive rights to trade between France and its Louisiana Territory. The Mississippi Co. was funded by selling new shares of Banque Générale that could be paid for with bank notes issued by—wait for it—Banque Générale. Shares took off, rising from 500 livres to 10,000 livres from January to December 1719. Soldiers had to be sent in to keep order in the frenzied financial district.

Law’s flaw was issuing bank notes willy-nilly, without real backing for their value, to keep the stock price rising. The French government eventually made the huge mistake of making these bank notes legal tender, doubling the French money supply. Inflation raged, hitting a 23% monthly rate in January 1720. By September 1721, shares dropped back to 500, and the French economy imploded.

Fast-forward 300 years. Crypto had a big October, with bitcoin rising from almost $44,000 to a $66,000 peak in anticipation of the ProShares Bitcoin Strategy ETF, which actually doesn’t buy bitcoin—it buys bitcoin futures. Meanwhile the stablecoin issuer Tether Ltd. paid a $41 million penalty after the Commodity Futures Trading Commission found the company had falsely claimed it had adequate dollars in reserve to back its tokens.

The New York attorney general’s office ran a similar investigation over Tether’s claim of 1-to-1 backing with U.S. dollars. It ended, unsatisfactorily if you ask me, with an $18.5 million settlement paid in February and an agreement to produce reports on reserves for tether. Why not dig further? Tether neither admitted nor denied the attorney general’s findings.

I wanted to know more, so I submitted a Freedom of Information Law request with the New York attorney general’s office requesting reserve statements, ledgers and bank records from Tether. It was denied, citing disclosure that would “constitute an unwarranted invasion of personal privacy” and “interfere with law-enforcement investigations or judicial proceedings.” Hmm. And thanks for nothing.

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WSJ: Failure Was Always an Option for Elizabeth Holmes

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https://www.wsj.com/articles/failure-entrepreneur-innovation-failing-upward-startup-11634480558

As the Elizabeth Holmes trial for alleged fraud at her startup Theranos winds on, the biggest question is: When the company’s blood testing machines didn’t work, why didn’t she change tactics? Real entrepreneurs fail early and often. Ms. Holmes instead was stubborn and chose deception over failure. That’s a shame. Despite today’s IPO and SPAC fireworks, the truth is that in Silicon Valley most ideas fail. Heck, most companies fail. More than half of venture-capital investments are smoking holes in the ground. Fortunately, success often rises from the ashes of ruin.

Some history of failure: Thomas Edison, the “Wizard of Menlo Park” (New Jersey, not California), had the hardest time finding a filament for his incandescent lightbulb. He tried bamboo, cedar and flax until he found that carbonized cotton worked. “I have not failed. I’ve just found 10,000 ways that won’t work,” Edison said. Fail until you succeed beats fake it till you make it.

Then there is the computer mouse. The Douglas Engelbart version of 1968 was a crude wooden block on two wheels with three buttons. Xerox PARC came up with a better mouse using a metal ball and motion sensors. Steve Jobs wanted one, so Apple hired a design firm, which came up with over 25 prototypes, all failures, until a design in 1981 worked. Think of all the failed mice it took to create today’s curved mouse with multiple buttons, a scroll wheel and optical sensors. Speaking of failures, James Dyson made 5,127 prototypes over four years for his “cyclone” vacuum cleaner.

Entrepreneur Stewart Butterfield once tried to build a multiplayer online game but switched to photo sharing, selling Flickr to Yahoo in 2005 for $25 million. Success, but not a home run in Silicon Valley. Mr. Butterfield left Yahoo in 2008 to help found a company called Tiny Speck and build another multiplayer online game called “Glitch.” Persistence! “Glitch” attracted tens of thousands of gamers, but not enough to cover its costs, so Mr. Butterfield killed it in 2012.

Tiny Speck pivoted, which in Silicon Valley means fail and scramble to do something else. The company had built its own crude internal communications system for employees to chat digitally during the development of “Glitch.” Maybe others would use it. Seven months after they started work on Slack, the company announced its preview release. On the first day of the press blitz, 8,000 people requested the preview version. In February 2014 Slack had 16,000 users and by November it had 285,000, with 73,000 paying for it. Now more than 10 million people use it daily. Mr. Butterfield sold Slack to Salesforce for $27.7 billion last year. That’s failing upward!

Then there’s Elon Musk, who very openly noted, “My proceeds from the PayPal acquisition were $180 million. I put $100 million in SpaceX, $70m in Tesla, and $10m in SolarCity. I had to borrow money for rent.”

Read the rest here.

WSJ: Catch Society’s Meltdown on HBO

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https://www.wsj.com/articles/society-meltdown-hbo-white-lotus-mike-white-connie-britton-progressive-woke-11633884922

The best writer in Hollywood right now is Mike White. In 2003 he wrote the film “School of Rock” for his friend Jack Black to star in. After a stretch competing in reality shows like “The Amazing Race” and “Survivor,” Mr. White is back where he belongs. He created, wrote and directed the recent HBO series “The White Lotus.” Set in Hawaii, it chronicles the dysfunction and competing narratives of staff and guests at a luxury resort. It is funny, biting and eye-opening. Mr. White so perfectly dissects society’s mental meltdown, I’m worried he might end up canceled.

Mr. White really shines when writing about the Mossbacher family. The mom, Nicole ( Connie Britton ), is chief financial officer of a search company. The dad, Mark ( Steve Zahn ), has health issues, and their daughter, Olivia ( Sydney Sweeney ), and a friend are pitch-perfect judgy college sophomores, dreaming of utopia while dripping in mockery and ridicule. The dinner conversations are priceless.

After Olivia accuses her mom of “old tribal thinking,” Nicole pushes back. “My feeling is most of these activists, they don’t really want to dismantle the systems of economic exploitation, not the ones that benefit them, which are all global, by the way. They just want a better seat at the table of tyranny.”

Olivia sneers: “Hmm, no, that’s just you, mom.” Nicole then puts her daughter back in her place—something mothers don’t seem to do anymore: “And what’s your system of belief, Olivia? Not capitalism. Not socialism. So just cynicism?”

In another conversation, about expensive jewelry and who deserves wealth, Olivia declares, “Mom, good news. I’m looking around the hotel, and it seems like all of the white, straight men are doing just fine. They are still thriving.”

The mom responds: “Point taken. I just think it’s funny that now it’s OK to reduce everybody to their race and gender, but isn’t that the kind of thinking that we’ve been fighting against all these years?”

Finally dad pipes up. “I agree,” Mark says. “I mean, for years, I was the good guy, you know. I was the one in the room, saying, like, ‘Hey, that’s not cool,’ to all the chauvinists and bigots. But now I’m the bad guy, or at least I shouldn’t say anything on account of my inherited traits. I mean, why do I need to prove my antiracist bona fides? It seems wrong.” How many of us think this but are too afraid to say it out loud these days?

Olivia, with her daughterly venomous scorn, then lets this perfect line rip: “Yeah. It’s not all about you, dad. It is time to recenter the narrative.” Mark shoots back, “That’s fine by me. I don’t want to be the center of the narrative. Believe me. Let’s center the narrative around, uh, Paula.” That’s Olivia’s friend, who happens to be, as today’s narrative calls it, a person of color.

WSJ: Will China Save Evergrande?

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https://www.wsj.com/articles/china-save-evergrande-bankruptcy-real-estate-housing-bubble-market-collapse-11633275348

Is China about to get a lesson in “Too Big to Fail?” Its second-largest real-estate developer, China Evergrande Group, with 1,300 projects in 280 cities, has some $300 billion in liabilities. Evergrande owes investors as many as 1.6 million unfinished apartments, and as far as financial debt, it owes $88.5 billion to banks and bondholders with $37 billion due within a year. It already missed an $83.5 million coupon payment on Sept. 23 and a $47.5 million payment last Wednesday. Evergrande does have a 30-day grace period, so the clock is ticking toward a default.

Is Evergrande too big? Is there an implicit guarantee for Chinese real-estate investments similar to the foolish U.S. implicit guarantee of Fannie Mae and Freddie Mac debt? No one knows—yet.

China is littered with ghost developments and half-finished projects. On a visit to Shenzhen more than a decade ago, I saw empty buildings with homeless people living in the rubble of the lobby. Debt financing is always treacherous.

The press keeps touting a “Lehman moment” and predicting financial collapse. I doubt it—it’s more like Bear Stearns, a loud warning to others heavily in debt. Evergrande’s short-term debt is about 1% of China’s foreign reserves, so a bailout is possible. But China has dozens of large debt-laden real-estate companies, including Sunac, whose bonds investors are busy selling off. Will China let real estate blow up?

The answer is typically this: China doesn’t have a safety net or a robust retirement system, so most Chinese households—as many as 70% (but like most statistics in China, who knows if that’s right?)—put their wealth into real estate. When new buildings are announced, there is a frenzy to buy apartments, even if many remain vacant for years. The thinking goes: Hong Kong prices more than tripled since 2004; surely the same can be true going forward for mainland China. That’s bubble logic.

So while Xi Jinping and the Chinese Communist Party can hammer internet companies and make them pledge allegiance to a “common prosperity” policy, limit videogame play, decimate the after-school tutoring business, and even denigrate television celebrities as “sissypants,” they can’t let real estate fail.

WSJ: Ilhan Omar’s Idea of Progress

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https://www.wsj.com/articles/ilhan-omar-progress-gross-domestic-product-squad-11632672223

Rep. Ilhan Omar (D., Minn.), along with five other Democrats, recently introduced H.R. 4894, the Genuine Progress Indicator Act of 2021. The bill, only six pages long, is a glaring example of why Congress has a meager 28% approval rating.

The goal is a progressive alternative to gross domestic product, which presumably is an unjust tool to prop up big bad business. “The world needs new economic indicators and economic policies that will prioritize and encourage truly sustainable and equitable development,” Ms. Omar claims. The bill requires that “the head of each Federal agency, the President, the Chair of the Federal Reserve, and Congress shall” use both the genuine progress indicator and GDP when budgeting or forecasting economic activity.

The new measure, a cousin of the United Nations’ squishy World Happiness Report, is likely being proposed to rationalize the progressive multitrillion “infrastructure” spending blowout. The genuine progress indicator aims to blur the lines between entitlement and investment. This is dangerous. As Sen. Kirsten Gillibrand (D., N.Y.) tweeted, “Paid leave is infrastructure. Child care is infrastructure. Caregiving is infrastructure.” No, they’re not.

So what is genuine progress? A 2018 paper in Ecological Economics—regrettably, my subscription has lapsed—defines it as the net of benefits and costs neglected in GDP, things like “inequality, regrettable defensive expenditures, uncounted environmental externalities, depletion of natural resources, and trade-offs with non-work uses of time.” Squishy indeed.

In H.R. 4894, benefits that don’t show up in GDP but would in the genuine progress indicator include “environmental and social factors” addressing “ecological scarcities” and directing “resources to sustainable development without degrading the environment,” you know, things like carbon sequestration and “maintenance of biological and genetic diversity.” Probably on purpose, these are not as easy to measure as lemonade sales or how many widgets roll off an assembly line. I would guess when Democrats are in control, genetic diversity and social factors would rise, and when Republicans are, environmental degradation would send genuine progress spiraling.

WSJ: What Super Bowls Teach Us About Capitalism

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https://www.wsj.com/articles/super-bowl-capitalism-market-brady-buccaneers-tech-antitrust-innovation-11632069545

As they used to say in Oakland, Calif.: The autumn wind is a Raider. Football is back! This season’s NFL championship will be played at SoFi stadium in Inglewood, Calif., the new home of the Los Angeles Rams and Chargers (bye-bye San Diego). On Feb. 3, 2002, Tom Brady appeared in his first Super Bowl—XXXVI, that is 36 for you non-Romans. The New England Patriots beat the St. Louis Rams. U2 played at halftime.

U2 hasn’t put an album out since 2017, St. Louis no longer has a football team, and see if you can spot a trend from some of the companies that each paid $2.2 million to run 30-second Super Bowl ads in 2002: Blockbuster, Circuit City, AOL, CompUSA, HotJobs, RadioShack, Yahoo! and Gateway. Yes, they are the ghosts of Super Bowls past.

The technology companies driving change in 2002 got run over by, well, technology changing. It wasn’t overnight, like a championship team losing its opening game the next season. Technology changes slowly enough that it creeps into our lives, often unnoticed, until you open your junk drawer and pull out that old BlackBerry. Or a 64-megabit flashcard for your one-megapixel Sony camera (later this month you will be able to buy an iPhone 13 with a terabyte of storage.) Or the six-pound IBM ThinkPad with the weird red nub you were issued when you started at McKinsey.

But technology is also about expectations. It is easy for tech investors to get lulled into complacency when they see what is growing, extrapolate forever and, as far as stocks go, pay for future earnings that may never materialize. Some like RadioShack were obvious disasters in the making. Heck, in 1996 Cosmo Kramer conspiratorially asked Jerry Seinfeld, “Why does RadioShack ask for your phone number when you buy batteries?” It doesn’t anymore. Same for Blockbuster. Netflix started mailing DVDs in 1998, and while video streaming was small and blocky at the time, it was clearly coming.

Tom Brady is from San Mateo, Calif. in Silicon Valley and went to—warning: canceled person alert!—Junípero Serra High School. Famously, Mr. Brady was the 199th pick in the sixth round of the 2000 NFL draft out of the University of Michigan. Low expectations at a time of peak stock-market expectations.

Another graduate of Serra High, Barry Bonds, hit his 756th career home run on Aug. 7, 2007, passing Hank Aaron’s record—more of a juiced-player era vs. juiced ball like today’s juiced stock market era.

WSJ: The Market Fails a Breathalyzer

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https://www.wsj.com/articles/low-interest-rate-dow-35000-joby-aviation-carvana-coinbase-beyond-meat-investing-11631464939

Joby Aviation, which plans to begin an electric air taxi service in 2024, is worth more than Lufthansa, EasyJet or JetBlue. Does that seem right? In this market, why not? Heck, earlier this year, Tesla was worth more than the next nine car manufacturers combined, though now only the next six. Beyond Meat, made with pea protein, is worth more than the entire market for peas eaten globally—like the bumper sticker says: Imagine whirled peas. Do fundamentals even matter?

I can go on. Used-car sales platform Carvana is worth more than Volvo, Honda, Ford or Hyundai. Airbnb is worth more than Marriott and Hilton combined. Crypto-exchange Coinbase is worth more than the Nasdaq. I live at the intersection of innovation and disruption, but when companies are worth more than any possible reality, watch out.

How about those meme stocks still getting hyped on Reddit’s WallStreetBets? Those who bid GameStop shares into the stratosphere waved at Virgin Galactic Holdings as they soared by. A year ago, the stock was $6 and it is now $190—some dupes paid $483, game over. Short sellers Melvin Capital, Point 72 and D1 Capital focused on fundamentals and got their assets handed to them. Shorts lost more than $9 billion between January and June.

New Chairman Ryan Cohen, who is driving change at GameStop, may be a retail genius for turning around Chewy, but Redditors may want to put in a call to hedge-fund manager Eddie Lampert, who bought Kmart and merged it with Sears in 2005, as a highly touted “integrated retail” play, combining stores and online sales, eerily similar to the argument for investing in GameStop today. The stock peaked at $135 in 2007. It is now at $0.30 as the company languishes in bankruptcy. A 1970s Sears Johnny Miller leisure suit is worth more.

AMC Entertainment’s stock was scraping $2 at the end of 2020. It is now $50 thanks in part to Robinhood speculators, and the company has smartly raised cash. But what about fundamentals? Theaters are still sparse, and Disney and others are willingly putting blockbusters directly onto their streaming services—ask Scarlett Johansson about Black Widow’s ticket sales. Theaters are the new roller rinks.

Venture capital is cuckoo.

WSJ: A Lesson From a Howler Monkey

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https://www.wsj.com/articles/howler-monkey-travel-dominance-masculinity-parenting-siblings-costa-rica-11630271847

I miss travel, though I definitely don’t miss airports. But slow security lines and overpriced paninis will be worth it again soon, because great life lessons emerge in the oddest places. Way back, my family took a trip to Costa Rica. They have beaches, volcanoes, rafting, ziplines, horseback riding, hikes, hanging bridges. What’s not to like?

Early in the trip, my wife and I, along with our four sons, stayed at an “eco-hotel.” The rooms had little cardboard placards bragging about how much water and carbon they didn’t use, and there were plenty of vegan choices at the buffet breakfast, next to the eggs and bacon. I asked the front desk what “eco-hotel” meant and was told that it was just branding to get Americans and Germans to stay there—they weren’t doing anything different than before they adopted the moniker.

On our first morning, our guide, Alberto, picked us up in his van and unloaded us at some important rainforest, grabbing a tripod-mounted Swarovski spotting scope. He marched us maybe 50 yards in, stopped to set up the scope, and launched into a long-winded description of the very rare and elusive three-wattled bellbird, a favorite of birdwatchers because of its clanging metallic voice. He stared into the telescope, spun it around, huffing and puffing and searching so long that I began to suspect the bellbird was extinct.

The rest of us were bored to tears. After 20 minutes, my eldest started flicking something at No. 2. Yes, sometimes it is just easier to number them. He didn’t like having things flicked at him, but his older brother was bigger, so he started poking at No. 3, who started screaming, “Don’t touch me because I don’t like being touched.” Then No. 3 started picking on our youngest, pushing in the back of his knees so he couldn’t stay standing up.

Alberto kept droning on about mating habits and migratory patterns. As my youngest kept getting bullied, he started sobbing to my wife. This went on for a while until she turned to me and told me to do something about it. I didn’t think she was actually paying attention to Alberto or even interested in the mythical three-wattled bellbird. None of us were. She just wanted the bickering to stop. So what did I do? I reprimanded my eldest for starting the chain reaction. It didn’t matter; within minutes the flicking, touching, sobbing and “do something about this” pleading continued. Ah, the circle of dominance and submission.

Alberto finally found the dumb bird, and we all looked in the field scope at some fuzzy white-and-brown thing that sounded like the banging exhaust pipes of a Ford Pinto.

WSJ: Those Punching-Bag Elites

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https://www.wsj.com/articles/scape-goat-elites-politics-billionaires-taxes-coastal-technocrats-expert-class-obama-clinton-trump-populism-progressives-11629641837

Who are these elites I keep hearing about? Is there some superior set that run everything? “It’s time to hold American elites accountable for their abuses,” former Chicago Mayor Rahm Emanuel blared in the Atlantic on the college-admissions scandal in 2019. Best line: “America’s middle class is Cinderella, and the nation’s elites are her evil stepsisters.” OK then.

So who are they—the “sophisticated, vaccinated crowd” at the Obama birthday bash a New York Times reporter gushed about? Maybe. “You know, I always hear ‘the elite, the elite,’ ” Donald Trump told a 2019 crowd in Grand Rapids, Mich. “I have a better education than them, I’m smarter than them, I went to the best schools, they didn’t. [I have a] much more beautiful house.” Mirror, mirror . . .

America hasn’t had royalty since tossing King George III, but is there some secret cabal of rich, like-minded elites who control everything? An American Illuminati? I keep looking. What I’ve discovered is that “elites” are mostly made-up groups everyone uses as punching bags of envy for whiny complaints.

A federal criminal filing notes that many Oath Keepers, a right-wing group, believe “government has been co-opted by a cabal of elites actively trying to strip American citizens of their rights.” Hillary Clinton wanted to collect “taxes in an equitable manner, especially from the elites.”

Ancient Rome had patricians and plebeians too. Look what happened to them. Same for Florence’s grandi, made famous by Machiavelli. The French foolishly funnel university elites into government. The Chinese Communist Party elites are now cracking down on their rich entrepreneurial elites. And the British still have hoity-toity duchesses and lords and knights and dames.

But we Americans? This is the land of meritocracy, for now anyway. Maybe we just dream up our elites.

WSJ: A Chinese Warning for U.S. Tech

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https://www.wsj.com/articles/china-tech-ant-didi-alibaba-ccp-censorship-antitrust-neo-brandeis-biden-khan-kanter-wu-11629036761

Big U.S. tech companies must be watching with glee as China cracks down on its homegrown technology companies. They are thrilled not only because they are seeing potential global competitors in e-commerce, music licensing, ride sharing, food delivery and more weakened, but because they now have a powerful card to play at home.

It started last October when Jack Ma, founder of Alibaba and its affiliate Ant Financial, complained at the Shanghai Bund Summit that regulators were too cautious: “There is no innovation in this world without risk.” He also said Chinese banks have a pawnshop mentality, requiring collateral before they lend, unlike Ant, which was about to go public, which uses algorithms to assess creditworthiness. Mr. Ma’s criticisms were correct, but he angered the powers that be. Even though shares for Ant Financial’s initial public offering were 870 times oversubscribed, the Shanghai Stock Exchange effectively canceled the IPO in early November. Alibaba stock is down more than a third since then. Ouch.

Never bite the hand that feeds you. Back when Alibaba was private, Mr. Ma benefited when Chinese regulators and the Chinese Central bank forced a spinout of their payment system, Alipay, basically taking away value from existing Alibaba shareholders, like Yahoo and SoftBank, and giving it to Chinese investors. That was a money heist.

Killing the Ant IPO likely damaged the company’s ability to raise capital. It was a dumb move given how fickle global markets are about government control. Ever wonder if capitalism and communism/authoritarianism are compatible long term? We are finding out.

The purge continues. Food-delivery company Meituan was fined $1 billion for abusing its market position. Ride-sharing leader Didi Global was warned to delay its U.S. IPO listing over cybersecurity concerns. It went public anyway, at $14, and then the China State Council announced new rules and a probe of overseas listings. Didi stock is now under $9.

Tencent shares plummeted after a state-owned newspaper said online gaming was “opium for the mind.”

WSJ: To Lie Is Human

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https://www.wsj.com/articles/lying-human-politics-parenting-flatten-the-curve-riots-11628433108

We all tell lies. Some are forced: “It must have gone to my spam folder.” Others mislead: “15 days to flatten the curve.” Some are corrupt: “You can keep your doctor.” Others are dangerous: “mostly peaceful protests” and “destruction is not violence.” Have we finally gone overboard with all the lying?

I’m guilty too. On my youngest son’s 7th birthday, my wife and I explained that he was still 6 until 7:24 a.m., the actual time of his birth. We were in Lake Louise, Alberta, and we all wanted to ride horses. But the minimum age was 9. He was big for his age so, undermining years of careful parenting, I told him, “Listen, when they ask how old you are, I know you’re 6 and 7 today, but you have to say that you’re 8.” It was touch and go. Children are often refreshingly honest, but he lied and got to ride.

Later that day, we went to a ski resort to ride the lift to the top of the mountain and look for bears, moose and elk. The cost was $35 each, though 5 and under rode free. So I told my son, “Forget what I told you this morning, when they ask, you now have to say you’re 5.” So yes, my son was 5, 6, 7 and 8 on the same day. In retrospect, I feel awful for having made my son lie for access and money, though I now realize I may have started training him for a career in politics.

We know politicians lie, and trust in government is near an all-time low. A recent Rasmussen poll said only 40% of voters thought Anthony Fauci was telling the truth about gain-of-function virus research funding of the Wuhan Institute of Virology. That is not a lot of credibility.

Urban Dictionary’s third definition (there are six) for the word “Fauci” is “someone that everyone should know is a liar, but somehow maintains credibility with some despite obvious duplicity.” Heck, Elizabeth Warren is still a senator, despite lying about her purported Native American heritage.

The Washington Post “fact checkers” say that Donald Trump made an uncannily precise 30,573 false or misleading claims during his presidency, though in his first 100 days only 78 for President Biden. That sure feels like at least one thumb on the scale. Oh, and “if you’ve been fully vaccinated, you no longer need to wear a mask” came on day 113.

WSJ: August Is Full of Surprises

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https://www.wsj.com/articles/berlin-wall-arab-spring-color-tv-internet-innovation-investing-11627829703

It’s August—the hazy, lazy days of summer. People are either at their vacation homes or wishing they were at Burning Man, virtual again this year. The future’s on hold, so you might as well head to the ballpark or the beach, shut your brain down and read Lizzy Dent’s novel “The Summer Job.” Nothing ever happens in August. Except . . .

Surprise! On Aug. 11, 1951, New York’s WCBS-TV broadcast the first baseball game in color, a double-header from Brooklyn’s Ebbets Field. The surprise was that television could do color at all—maybe 100 color sets existed at the time. Yes, “The Wizard of Oz” stunned theatergoers with color in August 1939. But television? Around 20% of U.S. homes had black-and-white TVs, often to watch Rocky Marciano’s almost monthly boxing matches, which my dad called the Bum of the Month club. By 1960 almost 90% of homes had sets. As broadcasts in color ramped during the ’60s, color-TV sales boomed. Someone paying attention 70 years ago would have seen the future.

Surprise! On Aug. 13, 1961, the world woke up to 32,000 troops in the Soviet sector of Berlin installing 97 miles of barbed wire and eventually building concrete fences—not to keep people out, but to keep anyone from leaving. The Berlin Wall stood for 28 years, as the icy Cold War proved that capitalism in the West, especially West Germany, completely outdistanced the stagnant communist Five Year Plans and neighbor turning in neighbor via East Germany’s Stasi secret police. The only question is why it took so long to implode.

Surprise! On Aug. 15, 1971, President Nixon ended the international gold standard set up at the 1944 Bretton Woods Conference. Most didn’t see that coming. After years of funding Lyndon B. Johnson’s Great Society and the never-ending Vietnam War, the U.S. couldn’t afford both guns and butter as other countries began demanding physical gold instead of printed dollars for trade imbalances. Subsequent inflation was definitely not “transitory.” Oil embargoes and economic “malaise” followed. Real assets soared, stocks flatlined. This was broken only when President Reagan had Federal Reserve Chairman Paul Volcker’s back as he slew inflation with punishing interest-rate hikes.

Surprise! On Aug. 5, 1981, Reagan fired more than 11,000 striking air-traffic controllers, members of the Patco union. Union membership as a percentage of the U.S. workforce peaked in 1945, but the decline slowed in the 1960s and 1970s. It’s been steadily falling since Reagan’s action. That and capital-gains tax cuts, encouraging capital formation, set up U.S. companies for rapid and profitable growth. A massive bull market began in 1982—Aug. 13 actually—with the Dow Jones Industrial Average at 777. We’ve rarely looked back.

Surprise! On Aug. 6, 1991, British scientist Tim Berners-Lee published the first ever website, with information on his World Wide Web project. Hardly anyone noticed. And then a double whammy—on Aug. 18, 1991, hard-line communists attempted a coup against Soviet leader Mikhail Gorbachev but were foiled by Boris Yeltsin, marking the beginning of the end of the Communist Party. On Christmas Day Mr. Gorbachev resigned, the U.S.S.R. dissolved and Yelstin took over the Russian state. Capitalism won. In 1993 Marc Andreessen put out the Mosaic browser at the University of Illinois, then came to Silicon Valley and started Netscape, which went public in, yes, August 1995. Stuff happens fast! These surprises were both world-altering.

WSJ: Congress Can’t Enact a Chicken

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https://www.wsj.com/articles/congress-economics-investment-consumption-11627222067

Egg first. As legislators play a game of chicken with “infrastructure” bills, there is a huge misconception about how the economy actually works. Last week Moody’s economist Mark Zandi said more government spending on infrastructure and social programs like Medicaid “will lift productivity.” Does he even know what productivity is? He thinks you can give people money and they’ll spend it, prime the pump and boost the economy. That is backward. An economy has to produce first, then consume.

Reagan-era supply-side economics has been badmouthed for so long, and given monikers like voodoo and trickle-down, it has more or less been discarded. Why? Probably because it worked, taking power away from Keynesian big-government power mongers and their cheerleading economists. So let me suggest something else. Let’s call it Produce First or, if you insist, Supply First.

Here’s how capitalism works—pay attention if you took the social-justice version of Econ 101. SIPPC: Save. Invest. Produce. Profit. Consume. Save means postponing consumption, money and time. Only then you can invest, especially your human capital, in something productive. Usually this means doing more with less, being efficient and effective. This is when innovation happens.

Wealth comes only from productivity, not from giving away money. And despite the Federal Reserve’s dollar printing, profit is the only way real money is created. That dollar in your pocket is just something convenient to exchange that represents what you already produced profitably.

Supply first and then consume. “How can you have any pudding if you don’t eat yer meat?” Supply First is the fundamental nurturing of economic creation, creating incentives to put money into the hands of entrepreneurs and clearing a path for them to innovate by getting government out of the way.

For example, the Biden administration’s proposed 43.4% top capital-gains tax rate is an investment killer, stealing savings and investment from productive producers.

WSJ: How to be an Anticapitalist

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https://www.wsj.com/articles/president-biden-progressive-economics-capital-gains-socialism-infrastructure-11626623593

It is hard to sit by and watch your economy being strangled. Ibram X. Kendi’s book “How to Be an Antiracist” is all the rage now, but the Biden administration and its progressive hangers-on are providing a master class on “How to Be an Anticapitalist” and suck the air out of the economy.

Start by paying people to do nothing—1.8 million workers, according to a recent Morning Consult poll, have turned down jobs due to generous unemployment benefits, including an extra $300 a week from the federal government in some states. Meanwhile, Burger King is offering a $1,500 signing bonus.

Anticapitalists then shut pipelines (except Russian ones) and suspend drilling leases in parts of Alaska, helping send oil prices above $70. The government says it wants to limit carbon emissions, but then it squashes better energy options like nuclear. On June 30, months after New York state closed the Indian Point nuclear power plant, Mayor Bill de Blasio asked New Yorkers to cut back on energy usage during a heat wave. You can’t make this stuff up.

An anticapitalist would next restrict capital formation, so President Biden has proposed raising the top capital-gains rate from 23.8% to a punitive 43.4% and the top individual income-tax rate to 39.6%. Mr. Biden also wants to waive Covid vaccine patents—making pharma companies think twice before investing in new drugs—and is even pushing a series of antitrust bills that could reverse mergers, like Facebook’s 2012 purchase of Instagram, as if that would do anything good for the economy or consumers. Nothing is safe.

Add the Federal Trade Commission’s roadblocks to mergers. It worked hard to block early-cancer-detection pioneer Grail’s merger with genome-sequencing firm Illumina, now on hold as it lets the European Commission investigate. This is moronic. If you or a loved one is diagnosed with late-stage cancer in five years, the Biden administration could be to blame. Without meddling, Grail may have found it earlier, when it was still treatable.

Anticapitalists in Congress are pushing $3.5 trillion in spending unrelated to infrastructure with an Orwellian sleight of hand by declaring it “human infrastructure.” Big surprise, it is larded with climate provisions and other progressive party favors.

WSJ: Can Robinhood Ride the Bull?

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https://www.wsj.com/articles/can-robinhood-ride-the-bull-11626025309

Robinhood, the commission-free meme-stock dream shop, is going public. There’s talk of a bubbly $40 billion valuation. Woohoo! Plus, the company has announced that up to 35% of the new shares in the initial public offering are reserved for its own retail customers. Groundbreaking? I don’t know. If Robinhood really is the future of Wall Street, why not take itself public and sell 100% of the new shares to retail customers? Who needs Goldman Sachs and JP Morgan ?

Back in my days as a Wall Street analyst, one of my favorite things to do was IPOs. I’d go on roadshows with management teams. My job was to provide earnings estimates since companies aren’t allowed to give forecasts, but really it was a branding exercise. I’d have my name associated with them, and maybe become “the ax in the stock”—the first person investors would call for insight.

But before that, you had to win the deal. Prospective banking teams would show up to do an IPO pitch, nicknamed the bake off, with thick pitchbooks some lowly bankers would pull all-nighters putting together. My job was to position the company to investors. Since there were tons of pitches and I was generally lazy, I used the same three bullet points every time: 1) The company sells into a monster market, 2) has an unfair competitive advantage, and 3) a business model to leverage that advantage. It worked almost every time. Sadly, that unfair stuff is now grounds for an antitrust investigation.

During the dot-com boom I ran a fund and my experience with IPOs meant I got calls most days from startup CEOs saying, “I hear you’re helpful picking bankers.” So I’d walk through pros and cons of bankers: reputation, research, retail vs. institutional, pricing, first-day stock pops (usually 10% to 20%, though sometimes it would double or even quintuple).

Remember, after an IPO, only 10% to 20% of total shares trade at first, until insider shares are unlocked some 180 days later, though sometimes earlier. Until then it’s not a real market—there is often more demand for shares than supply and IPO stock prices inflate. Perversely, that’s when most Robinhood customers will buy Robinhood shares and likely overpay. Steal from the (wannabe) rich, indeed.

After Eliot “Steamroller” Spitzer alleged abuses by Merrill Lynch ( Henry Blodget’s “POS” emails) and others, IPOs changed as a Wall Street settlement put up a Chinese wall between banking and research, even cutting off phone calls.

WSJ: ‘Drill, Baby, Drill’ Is the Future (Deep Geothermal)

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https://www.wsj.com/articles/drill-baby-drill-is-the-future-11624810731

Remember the cringeworthy “Drill, baby, drill” slogan from the 2008 Republican Convention? Maybe they were on to something, but not what you think. We’re bombarded daily with calls for sustainable, renewable and carbon chewable technologies to meet our energy needs. But the solution may be just underfoot.

Dig deep enough and, no surprise, it’s hotter than hell down there. Isotope reactions in the mantle under the Earth’s crust generate 20 terawatts of constant heat flow. Typically, the temperature rises about 25 degrees Celsius for every kilometer, or 75 degrees Fahrenheit for each mile, and more the deeper you go. The steam wafting out of hot springs in Yellowstone National Park or Iceland, places where the Earth’s crust is thin, shows how much heat the mantle gives off.

We already have a good-sized surface geothermal industry in the U.S. For $15,000 to $30,000, you can hire someone to dig a few hundred feet and install a heat pump that circulates heated water to keep your house cozy.

But that’s just scratching the surface. There is huge upside to digging down miles and injecting water into underground reservoirs—think radiators—and then the heated water is pushed back out to generate steam and electricity. It’s carbon-free—clean, green and mostly unseen.

The trick is to get a large enough surface area to do the heat exchange. A typical vertical oil well might have 1,000 to 10,000 square feet of surface area. But it turns out that the same thing that’s been perfected over the past 30 years to make America energy independent can also increase that surface area—horizontal drilling and hydraulic fracturing.

I called one of the industry pioneers, University of Texas engineer Mukul Sharma, who is sometimes called the Frack King (get it?) and has a startup named Geothermix that develops enhanced geothermal systems.

WSJ: Maskless Among the Lemmings

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https://www.wsj.com/articles/maskless-among-the-lemmings-11624203554

California finally opened up on June 15. We can actually set foot inside stores and restaurants without having to wear a mask. Freedom! And it’s about time. More than 70% of California adults have at least one vaccine jab. The state’s seven-day average number of daily coronavirus cases is down 98% from its peak in January. Herds can romp. It’s over—except, well, Gov. Gavin Newsom will keep his emergency powers.

In case he changes his mind about reopening, I made a trip to Trader Joe’s to stock up on Ultra Chocolate ice cream. And yes, I see the irony of buying the least healthy item in a store stocked with expensive organic bruised bananas and dairy-free cashew cheese alternative mozzarella-style shreds. The parking lot was practically a showroom for Teslas and Prii.

I counted 50 shoppers, 49 masked. Did these people not get the unmasking memo? I was the only one not wearing a mask, and I was loving it. California is operating on an honor system, and though I’m fully vaxxed, I wish I weren’t. That very same day, Mr. Newsom was at Disneyland doling out $1.5 million prizes (taxpayer money) to 10 winners of a California vaccine lottery. That beats President Biden’s “Get a shot and have a beer.” Lesson Learned: Next pandemic, I wait to get paid.

Maybe those 49 maskers haven’t yet been vaccinated? The adage is: To find the next measles outbreak, find towns with Whole Foods supermarkets. Those places usually have high concentrations of antivaxers. That adage could probably apply to Trader Joe’s, too.

But this vaccine is different. Statistics suggest red-staters are the ones declining the Covid-19 vaccines, not the usual dissidents inspired by Robert F. Kennedy Jr. I’d bet good money all 49 of my fellow shoppers are topped up with vaccine-induced antibodies. So who exactly are they protecting? Me? Thanks but no thanks.

As I made my way past the wild arugula and baby spinach—the rabbit-food section—I noticed many shoppers giving me the stink eye. But c’mon, it’s not like I had 11 items in the express line.

WSJ: Stupefying Summer Small Talk

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https://www.wsj.com/articles/stupefying-summer-small-talk-11623598185

Covid isolation got you tongue-tied? Here are tips for getting the hot air flowing again.

The loudmouth at the cocktail party was on a roll. “We need to move the Overton window about the Tullock paradox.” Heads nodded in agreement, but most, like me, were clueless. Summer social season is here but our conversation skills are rusty and crusty. After 15 months of isolation, I can talk to my wife, kids and dogs. But interacting with friends and acquaintances at barbecues or overpriced coffee bars? Tough going. Over Memorial Day weekend, it was clear that my go-to questions—“What have you been up to? Been anywhere recently?”—are irrelevant and completely worthless.

I was familiar with the Overton window—what’s currently acceptable in the political mainstream—but had to look up the Tullock paradox: If it’s so cheap to buy off politicians, why doesn’t everybody? I can toss out quippy H.L. Mencken quotes when needed, like “Nature abhors a moron,” but man, I’ve got to step up my game.

These are extreme times. We all need an almost remedial course in conversation, beyond our usual monosyllabic babble, especially mine. So here’s a handy guide to stick it to your co-conversants and have their heads nodding at your bon mots in sublime stupefaction.

First, it’s always good to reference someone long dead, especially with a foreign twist. Throw around phrases like the Baader-Meinhof phenomenon: After noticing something for the first time, like how Grand Rapids constantly pops up in the news, you tend to notice almost every day. Or casually mention someone is afflicted by Munchausen syndrome—faking sickness. They’re so easy to slip into conversations. See how many heads nod with bewildered eyes. Don’t explain yourself either—a magician never reveals.

Next, if someone launches on you about his investing prowess, especially trading crypto, I suggest a comeback such as, “Oh, that’s just a classic Veblen good.” That should stump him for a while. American economist Thorstein Veblen noted that many goods are more desirable the more expensive they become, even though they’re not any better. Like BMWs. Or Jimmy Choos. Or Cristal champagne. Or GameStop shares. If the crypto braggart, wearing a Rolex, actually knows what a Veblen good is, then correct yourself and say that actually it’s probably more of a Giffen good, a nonluxury good, like rice, that can see increased demand at higher prices. That’ll buy you some time to plot an exit strategy—needing another drink, hysterical coughing fit.

We’ve all been warned never to talk about politics, religion or money. But how dull is that? Most blowhards quickly break that rule anyway. You need to be prepared.

WSJ: Unfortunately, ‘Big Is Bad’ Is Back

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https://www.wsj.com/articles/unfortunately-big-is-bad-is-back-11622995107

Will the Biden administration break up Big Tech? Antitrust basically operates under two main schools of thought. The Harvard school is best summed up as: Big is bad. This is an echo from Justice Louis Brandeis, who disliked big business, especially railroads.

Fortunately, the Chicago school has held sway for more than 40 years. That school’s thinking was popularized by Yale’s Robert Bork in his 1978 book, “The Antitrust Paradox.” His thinking was that if consumers are harmed, regulators should look into why. But if consumers aren’t harmed, there’s no case.

But “big is bad” is back! Grover Norquist, president of Americans for Tax Reform, told me to beware of “Neo-Brandeisians.” “Break up Big Tech,” said the Elizabeth Warren presidential campaign. Channeling Brandeis, Columbia Law School professor Tim Wu’s book was titled “The Curse of Bigness.” Does that include big government? Apparently not. Mr. Wu is now working for the White House, specifically on technology and competition for the National Economic Council. Lina Khan, currently awaiting confirmation to the Federal Trade Commission, once railed against “Big Chocolate” and has offered recommendations for how to break up Amazon in an article for the Yale Law Journal.

There’s even a neo-Brandeisian offshoot known as “hipster antitrust,” which focuses on “social harm” including distribution of wealth, political power and employment. Sen. Amy Klobuchar (D., Minn.) introduced legislation in February 2020 that would have required companies to prove to regulators that a merger or acquisition wouldn’t reduce competition. Sen. Josh Hawley (R., Mo.) introduced legislation in April that would end all acquisitions by companies worth more than $100 billion. But these legislative efforts are going nowhere fast.

Fortunately, the consumer-welfare school still seems to rule. And rewriting antitrust laws doesn’t appear to be in the cards. Of course, the other way to break up companies is simple: Catch them in the act of harming consumers.

Let’s go back. AT&T used to have a government-granted monopoly on telephone calls, local and long-distance alike, and even on hardware.

WSJ: Mark Cuban Knows Crypto

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https://www.wsj.com/articles/mark-cuban-knows-crypto-11621785848

After my recent column on buying devices like iPhones but not really owning them, Mark Cuban, as he sometimes does, responded via email: “Nice argument for NFTs,” referring to nonfungible tokens. I’ve known Mr. Cuban since the last tech bubble, when he famously sold Broadcast.com in 1999 to Yahoo! for $5.7 billion, more than Apollo Global Management paid Verizon for the remnants of Yahoo, AOL and even Netscape earlier this month. He smartly hedged his position and bought the Dallas Mavericks in 2000.

I’m not sure Mr. Cuban ever talks on the phone, but he’s sure quick with email responses.

“It depends what you ‘own,’ ” I shot back. By now, you’re probably familiar with the eye-opening $69 million dropped on NFT “artwork” by Beeple. Or the $2.9 million for the NFT of Twitter founder Jack Dorsey’s first tweet, which you can easily see online: “just setting up my twttr.” I guess you own something, I’m just not sure what.

“The NFT is the authentication of what you own that is made public for anyone to see,” Mr. Cuban explains. Today, “all provenance is siloed and not public. NFTs can change that.”

Little did Mr. Cuban know that I had been poking around NBA Topshot for a highlight NFT of Mavericks star Luka Dončić. One cool NFT goes for $120. But what’s this? A 5% transaction fee? Even more surprising, the fine print says there are potentially 9,999 other “owners” of the same highlight with asking prices into the thousands for the same NFT.

Mr. Cuban adds, “All the prices paid for entertainment collectibles is fun and works well and it’s more efficient than physical collectibles as long as you are good with valuing digital items. We value our pics and music on our phones. Collectors value what they value and if there are more buyers than sellers pricing will go up.” Then again, maybe it’s a hustle, as Elon Musk said of dogecoin on “Saturday Night Live.”

WSJ: Automated Luxury Communism?

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https://www.wsj.com/articles/automated-luxury-communism-11621185487

At first I thought it was a joke. I still do. A couple of years ago, there was a stir around Aaron Bastani’s book “Fully Automated Luxury Communism.” It’s a manifesto for the “postwork” movement. Technology will “liberate us from work” and automation is “the path to a world of liberty, luxury and happiness—for everyone,” the book advertises. Cue rainbow-belching unicorns. The Atlantic wrote that “the vision is compelling.” The New York Times helped promote it. And it sure feels like the Biden administration is trying to implement it. Naturally, it’s complete baloney.

The idea isn’t even original. It’s the plot of the 2008 Pixar- Disney animation “WALL-E”: Tubby humans in personal mobility vehicles leaving planet Earth on a luxury spaceship as robots like WALL-E clean up the industrial wasteland. Kid-friendly propaganda.

Collectivist visions (Cuba, “infrastructure” bills) fail in real life for one reason: They ignore productivity. Karl Marx was ignorant that capital and technology could increase living standards for everyone, including workers. His shallow “immiseration thesis” missed that productivity drives society to make obsolete certain low-end work as more jobs move to a higher intellectual plane. Even night-school economists know that productivity is the only path out of poverty.

Plus, as economies shift toward services, workers themselves, via human capital, become owners of the means of their own production. Even Lord Keynes fell for the ruse 90 years ago, envisioning a 15-hour workweek. But there is always, always something else to invent—like mRNA vaccines—to improve society’s living standards.

Fully automated luxury communism is a joke, but maybe over the past year we’ve experienced a version of partly automated luxury communism. Think about it. Many Americans stayed home in their comfy chairs. We worked, schooled, exercised and entertained via a telescreen that, as George Orwell imagined, “could be dimmed, but there was no way of shutting it off completely.” Amazon primed our doorsteps. Instacart delivered groceries. Cities became ghost towns. Governments justified spending willy-nilly with crackpot ideas like Modern Monetary Theory.

Coyotes came back to San Francisco, and U.S. carbon-dioxide emissions dropped 12% in 2020. For climate-change control freaks, this is a dream world—a Green New Deal delight—and they’ll do anything to re-create these conditions. Wait for the headline: “Bad CO2 Day, Lockdowns Enforced.”

WSJ: The President's Speech

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https://www.wsj.com/articles/the-presidents-speech-11619974402

At his first press conference and at last week’s address to Congress, I noticed (most didn’t) that President Biden experienced a few blockages, or disfluencies in his speech. In other words, he stuttered. I’m writing this not out of malice, but with enormous respect. I know because I have sons who stutter. I found out my wife had stuttered during a call telling her mother she was pregnant. Yes, it’s genetic—and life-changing.

Mr. Biden has said, “You know, stuttering, when you think about it, is the only handicap that people still laugh about. That still humiliate people about. And they don’t even mean to.” My G-g-generation. Th-th-that’s all folks.

As a listener, you learn to be patient. We hired speech therapists. None were effective. Then we heard about an in-ear device that delays incoming sounds and shifts their frequency, providing voice feedback to trick your brain not to stutter. We eagerly met a representative who fitted a prototype in my then-fifth-grade son’s ear, fiddled with some settings and asked my son to speak. No stuttering! Amazing. Excited, we ordered a custom-fit version immediately. We hassled our son to wear it at home and at school, but sadly it never worked. He would complain that it sounded like his younger brother whining in his ear all day. Fair enough; his brother is annoying. Eventually someone “accidentally” stepped on it.

A few years later, on a trip to Moscow, we heard about scientists who had PC-based software that trains stutterers to speak without blocking. We visited them in a blocky Soviet-era housing complex. They had my son put on headphones and speak into a microphone. We left the room as the training started. After maybe 20 minutes, they had us come back in. My son took off the headphones and spoke without a single blockage. Amazing. We scrambled to several ATMs to get cash to pay for the software. Back home, we’d have my son train with it for an hour a day. Not surprisingly, it didn’t work.

As a parent, you’ll try anything. We attended seminars and conferences. One conference brought a group of inner-city teenagers with stutters of varying severity to put on a play. My son took to them immediately and hung around with them all weekend. It was very emotional to watch the group perform. Afterward, I spoke to a group of these teenagers and complimented them on their performances. One turned to me and, with many blockages, explained how they had practiced, and then said, without stuttering, “Actually, it feels like I’m on a stage every day of my life.”

I was surprised to learn of many famous actors whose style may have come from their disfluencies. Marilyn Monroe stuttered, hence her breathy voice.

WSJ: No Thanks for the Feedback

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https://www.wsj.com/articles/no-thanks-for-the-feedback-11619373972

Garage bands know about feedback loops. If you place a microphone in front of speakers, the sound picked up by the mic gets amplified and then fed out to the speakers, which the mic picks up and it gets amplified again and again. The circular process turns the sound into a screech or squeal.

After the presidential election, some Trump supporters filled Twitter with conspiracy theories of election fraud, including a mysterious box in a red wagon in Detroit, ballots “magically found” in Milwaukee at 3 a.m., and fraudulent Georgia signature checks. Almost all were made-up nonsense, later disproved. But President Trump repeated many of these claims, especially in his Jan. 6 “Save America” rally speech: “They should absolutely find that just over 11,000 votes, that’s all we need. They defrauded us out of a win in Georgia, and we’re not going to forget it.”

The same squid-brained cosplayers who made this stuff up in the first place then believed Mr. Trump when he said, “Make no mistake, this election [was] stolen from you, from me and from the country” and stormed the Capitol. This is the worst case of squealing circular logic that I’ve ever seen.

But not the only one. We had endured a summer of protests, with charges of “systemic racism” and calls to “defund the police.” In a June article, former presidential candidate Kamala Harris wrote that “structural racism lives on in our policies and everyday life.” This systemic stuff is good politics.

Or is it? Last month, at U.S.-China summit in Anchorage, Alaska, Secretary of State Antony Blinken brought up “deep concerns with actions by China, including in Xinjiang, Hong Kong, Taiwan.” The top Chinese diplomat, Yang Jiechi, responded with a 15-minute tirade in which he asserted that “the challenges facing the United States in human rights are deep-seated. They did not just emerge over the past four years, such as Black Lives Matter.” I wonder where he got that idea. Circular thinking. Who’s fooling whom?

You see it all the time.

WSJ: When to Invest in a Stupid Idea

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https://www.wsj.com/articles/when-to-invest-in-a-stupid-idea-11618767345

When I read that technology can construct an image of your face from your DNA, my initial reaction was: That’s the stupidest thing I’ve ever heard. Fortunately, I’ve had a lifetime of stupidest-things-I’ve-heard things (like Bleep) became reality. Like the Kübler-Ross stages of grief—denial, anger, bargaining, depression, acceptance—technology goes through similar phases.

My phases of techno-hype: Incredulous. Will never happen. Dread. I’ll try it. Booster. Overhype. Failed expectations. On to the next paradigm. Understand these before plunking money into passing fancies.

We know the famous will-never-happen predictions. IBM’s Thomas Watson : “I think there is a world market for maybe five computers.” Digital’s Ken Olsen : “There is no reason anyone would want a computer in their home.” Funny now, but not unreasonable at the time.

I’ve learned to harness those knee-jerk denials when I know that technology performance will increase and costs decrease. Classic scale. I’m actually suspicious of things that aren’t controversial from the start. I live in those denial phases—ask my wife. Why? Because almost every time, no one believes in the future. That’s the time to invest. Until everyone believes it and then some. Then it’s probably time to sell.

Think of the 2007 iPhone introduction. Typing on glass, are you kidding me? So many white-collar warriors hurdling through airports were thumb-writing on BlackBerry s—a k a Crackberrys. Take away my keyboard, even though it’s tiny and painful to use? Over my dead body. Well, we know how that turned out. BlackBerry is now worth $5 billion. Apple a bit more.

Same for electric cars.

WSJ: Don't Think, Just Bleep

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https://www.wsj.com/articles/dont-think-just-bleep-11618162999

Cancel culture has a vaccine. Its name is Bleep. At the 2021 Game Developers Conference Showcase last month, Intel touted research and sample screenshots of technology that “uses artificial intelligence to get rid of other gamers’ hateful and abusive audio chat.” Silicon Valley never ceases to amaze.

Oh, how Meyers Leonard, a National Basketball Association player formerly with the Miami Heat, could have used this in early March, when a video surfaced of him spewing anti-Semitic language while playing the videogame “Call of Duty.” He was fined $50,000 by the NBA, traded and summarily cut and released. Game over.

With simple, easy-to-use slider controls, like fiddling with the treble and bass, Bleep lets you adjust whether you hear, say, swear words. Settings include none, some, most and all. How nice. I wonder who decides what constitutes swearing. Does it work in all languages? Adolescents of all ages will have a field day finding new phrases to defeat Bleep.

But that’s only the start. You can adjust, choosing between the same four settings, for sexually explicit language and even white nationalism. “Use of the N-word, including all its variations,” according to the Intel presentation, doesn’t have a slider, only an on-off switch. Warning: You can get canceled for even discussing this.

Also available for filtering are ableism and body shaming, aggression (“negative language intended to wound the recipient”), LGBTQ+ hate, misogyny and even plain old “name-calling.” If you can’t play “Call of Duty” and call the person you’re about to virtually shoot a lying, dog-faced pony soldier, why play?

You know who else could have used this technology? American Federation of Teachers President Randi Weingarten.

WSJ: How to Answer the ‘Trap Question’

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https://www.wsj.com/articles/how-to-answer-the-trap-question-11617559915

Being a CEO is hard. You work like a beast of burden to build your company, hire smart workers and delight customers so they’ll buy your products and you can show great returns to please investors. Then, no matter how successful you are, you still get asked social-justice “trap questions” like “What are you doing about inclusion and equity?” Just by answering, you’re assumed guilty. Some of these things might be important, but more important than growing the company to create those inclusive jobs in the first place?

This year’s Stanford Institute for Economic Policy Research Summit included a fireside chat with Microsoft CEO Satya Nadella. Unlike his clipped predecessor, Mr. Nadella turned the company around into a cloud colossus. Former Microsoftie Jeff Raikes, like George Stephanopoulos interviewing Nancy Pelosi, asked the softball questions.

But these are Seattle-soaked folks, so Mr. Raikes had to ask the unanswerable trap question: “Let’s talk a little bit more about equity. Before the pandemic, the world was facing big challenges: climate change, structural racism, economic insecurity, wealth inequality and more.” Oh boy, here we go. “What is the responsibility of the corporations,” he asked, “particularly the underlying connection to racial justice in the U.S. and elsewhere?”

Mr. Nadella isn’t CEO of a trillion-dollar company for nothing. Coolly and calmly, he explained that “the social purpose of a company is to find profitable solutions to the challenges of people and planet,” crediting Oxford economist Colin Mayer for the definition. “Driving broad economic growth is perhaps the biggest thing that a company can do,” Mr. Nadella added. “In order to have the pie distributed evenly, the pie should first grow.” Left unsaid is the pie should never stop growing.

Mr. Nadella’s comeback was the best misdirect to the trap question I’ve ever heard. Every CEO should pay attention. Mr. Mayer’s definition of corporate purpose as finding “profitable solutions” is—shh, don’t give it away—basically the same as Milton Friedman’s “the social responsibility of business is to increase profits,” except with the crowd-pleasing word “planet” tacked on. The definition was even part of the agenda of the World Economic Forum, making it suitable for John Kerryish globalists everywhere. Write it with a Sharpie inside every CEO’s eyelids for future reference. The answer is brilliant.

Here’s a different take. Years ago, I was on an investor panel with Jeff Ubben of ValueAct Capital.

WSJ: Inequality by Way of Government

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https://www.wsj.com/articles/inequality-by-way-of-government-11616950304

Often when I make the case for free-market capitalism, I’ll get a head nod or two and then the inevitable comeback: “Yeah, but inequality.”

Forget all the great things that capitalism has done, the smartphones we carry, the broadband we use to stream movies, the drugs and vaccines that extend lives. Forget those who hold back consumption to fund or invent stuff that brings the masses out of poverty. Because Jeff Bezos had the audacity to get rich for his efforts, he gets pushback. All that technology and red-meat capitalism comes at a great societal cost, critics say. People with smartphones are living below the poverty line. Capitalism is broken and needs to be reformed. We need a new, fairer system.

Oh, we’re getting one, good and hard. (See: stimulus, $1.9 trillion plus another $3 trillion coming up.) John Cochrane, an economist and senior fellow at Stanford’s Hoover Institution, tells me inequality is raised frequently as a nasty symptom of some alleged disease of capitalism. “Not so fast,” he warns. “Are capitalism and free markets the reasons for income inequality? Or are misguided government interventions to blame?” He quickly rattles off poor schools, occupational licensing, land-use rules, and disincentives to work as examples of things that keep people down—an “opportunity gap.” Let’s call them the Four Progressive Horsemen of Inequality.

Public schools are controlled by teachers unions. Covid proved that. Forget learning; they push students along to graduation rather than teach them the skills to capture life’s opportunities. We know public schools have failed because more than half of new students at community colleges require remedial courses in math, English or both. Then consider those who don’t attend college. American Federation of Teachers President Randi Weingarten collects Grade-A compensation—$500,000 a year—but has failed students. The average Chicago public-school teacher made $108,000 last year in salary and benefits. Illinois State Rep. Blaine Wilhour put it best: “The teachers union has become the biggest obstacle to upward mobility and to breaking the cycle of poverty for poor and minority students.”

Occupational licensing is a nice way to say job restriction. Around 1,100 occupations, involving close to a quarter of U.S. workers, require licenses. For doctors and lawyers this might make sense, but for many low-skilled jobs, it’s a huge barrier and a root of inequality. Hair braiding in Mississippi used to require 300 hours of training and a license in “wigology” until workers fought back. It’s now a $25 fee. Needing a license to be a pedicurist, a home inspector, a security-alarm technician, a pipe-fitter and so on is putting entry-level opportunities out of reach. California’s A.B.5 foolishly restricted freelancers, the so-called gig economy. In Washington, D.C., the House just passed the pro-union PRO Act to repeat this mistake at the national level. Can’t they see this perpetuates inequality?

Land-use restrictions might actually be a bipartisan effort to drive up home prices—the rules keep housing supply from keeping up with demand—but progressives have been heaping on regulations.

WSJ: How a Company Can Help a City (Newark)

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https://www.wsj.com/articles/how-a-company-can-help-a-city-11616345641

When I was growing up in New Jersey, Newark was always a pass-through city—as in: quickly pass through the airport, train station, highway. Newark consistently shows up on high-crime, corruption and “murder capital” lists. Many have tried to turn it around.

I met Cory Booker when he ran for mayor in 2006. This was before he became Sen. Spartacus. I don’t like giving money to politicians—it only encourages them—but I offered advice. Given Newark’s international airport, thriving seaport, Amtrak station, interstate highways, proximity to pharma and chemical manufacturers and refineries while being within shouting distance of Wall Street, I said he should demand an exemption from federal and state taxes for companies that locate in Newark and increase hiring. A Booker aide interrupted: “I don’t think we can propose cutting taxes. It won’t look good.”

As mayor, Mr. Booker instead raised $100 million from Facebook CEO Mark Zuckerberg for Newark schools—a deal considered a dud once the dust settled. The crime rate in Newark rose during his seven-year tenure, 2006-13, though the financial crisis didn’t help. Government failed again.

It doesn’t have to be that way. I met Don Katz soon after he founded audiobook company Audible in 1995—I even had one of their MobilePlayer devices. In 2007 Mr. Katz moved the 125-person company from the Willowbrook Mall in Wayne, N.J., to downtown Newark, and he did it without government-proffered incentives. Audible hires lots of area talent for readings, and the fastest train is 13 minutes from Manhattan. Though Amazon bought the company in 2008, Audible is still in Newark, now with 1,700 employees plus contractors, and it is helping turn things around.

Mr. Katz told me he’s always disdained companies and executives who “give money away but don’t apply the same inputs and outputs as they do with their business.” More spray and pray, they rarely measure effectiveness. That’s also true of government.

Instead, Mr. Katz strongly believes there are “scalable models that are good for business and good for society.” His favorite is “live local.”

WSJ: Small-Business Loans Are MIA

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https://www.wsj.com/articles/small-business-loans-are-mia-11615750498

Selling the Covid relief package on Jan. 22, Vice President Kamala Harris tweeted, “@POTUS and I are taking immediate action to help small businesses—because they power our economy, and they need relief.” It got 120,000 likes! Then? Not much. The $1.9 trillion “rescue plan” porkfest has some one-off grants but is quiet on getting small-business loans going again. The U.S. has (or had) 30 million small businesses, employing almost half the workforce. Of the 10 million currently unemployed, maybe five million to seven million worked for small businesses. They need help.

The Main Street Lending Program in last year’s Cares Act set aside $75 billion in loss provisions so the Federal Reserve could facilitate $600 billion in loans to small businesses. Here’s the report card: As of October, MSLP had made fewer than 400 loans, totaling $3.7 billion. That’s it! A dud. That month MSLP reduced its loan size from $250,000 to $100,000 but still found few takers. It shut down in early January. That’s your government inaction.

The average small business (fewer than 500 employees) borrows just under $40,000, according to Fundera. Sixty-one percent take out the loans to fund day-to-day operations. Bars, hotels, small manufacturers, retail—maybe they own the pizza oven and now need some dough.

So why only 400 loans? Those $40,000 loans, well below the MSLP thresholds, usually last 18 months and 12% never get paid back. Add origination and servicing costs, and banks need to charge interest rates in the high teens or even 20% to make money—Tony Soprano rates. Not good optics.

Plus, banks like to lend to companies that don’t need it. Prime customers have FICO scores of 720 and above. Too many small businesses score between 580 and 720. And banks are required to take upfront losses on these loans because of a standard known as CECL: current expected credit losses. So banks didn’t bother. No wonder MSLP was a bust.

Technology can help, especially with the tedious credit analysis needed to process loan applications.

WSJ: When the Stock Boom Turns to Bust

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https://www.wsj.com/articles/when-the-stock-boom-turns-to-bust-11615144869

Even after last week, it feels as if a lot of people think markets only go up. Buy the dip! Hold on for dear life! Feed the ducks when they’re quacking! Stocks. Bonds. SPACs. Real estate. Commodities. Crypto. $200,000 nonfungible tokens, known as NFTs, with clips of LeBron James. Even GameStop is flying again. The sentiment is: Assets go up; cash is for losers. That hasn’t been a bad bet. The March 2020 Covid insta-bear market quickly returned to an insta-bull market. So how do you know when to jump off the runaway train instead of being run over by one?

I don’t think I’m breaking new ground when I suggest that markets do go down. A lot. I was somewhat new to Wall Street when the crash of 1987 took 22.6% out of the Dow Jones Industrial Average. In retrospect, that’s nothing. A partner at an old-line investment bank once told me that you haven’t seen a real bear market until you’ve lost 90% of your money.

In the mid-1990s, my partner and I ran a small-cap tech hedge fund. We experienced (and I’m putting it nicely) turbulence when Federal Reserve Chairman Alan Greenspan proclaimed “irrational exuberance” in December 1996, and again in the summer of 1997 when a currency crisis hit Indonesia, South Korea and Thailand.

We had built a portfolio of what we hoped were the next wave of high-growth technology companies out on the bleeding edge. No one else believed it yet. Most names traded over the counter. Human market makers would set the bid and ask prices. On most days you owned the expected earnings stream on an exciting future. Other days, you owned a funny piece of paper.

In 1998 there was another Asian currency mess, coupled with a Russian currency debacle. Few knew that hedge-fund geniuses at Long-Term Capital had levered up a bunch of bad bets. And when I say levered, I mean a Chernobyl of debt waiting to blow. It did, that September.

Markets opened—at 6:30 a.m. on the West Coast—and sold off hard.

WSJ: Earth to Techies: Let’s Map It All

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https://www.wsj.com/articles/earth-to-techies-lets-map-it-all-11614531885

To make nuclear bombs, you float a gaseous uranium compound down long distances until molecules with the heavier U-238 isotope fall away, leaving only highly fissionable U-235. That’s why during the Cold War the U.S. flew U-2 spy planes over the Soviet Union to film the ground, so that analysts with lightboards and magnifying glasses could study photos looking for long, narrow buildings. And you thought your job was tedious? We’ve come a long way. But that was a while ago—what’s possible today?

To find out, I recently spent some (Zoom) time with Dan Jablonsky, CEO of Maxar Technologies, a Westminster, Colo.-based satellite and imaging company that, as far as I can tell, is the state of the art.

Circling every 94 minutes, Maxar’s satellites survey 3.5 million square kilometers of the Earth every day to capture images that are accurate down to a meter and are stored in a massive data set. Each satellite’s camera can be swung up to 50 degrees from overhead. Maxar has 17 years of imaging history. It stores 120 petabytes of data on Amazon’s servers.

The military, naturally, is its most important customer. Maxar’s data set and 3-D point clouds can track enemy missile launchers or tanks or anything else, and note changes in case of a threat. Generals then have the option, as Mr. Jablonsky put it with one of my new favorite expressions, to “send kinetic energy down range.”

Google Maps is a customer too, using the imagery to help create maps and look for changes—the shops in an average strip mall turn over by 25% every year. Autonomous-vehicle manufacturers will be an emerging market, to map terrain and then to deal with the growing complexity of insurance. Google probably doesn’t want to be liable in an accident, so autonomous car makers may need to purchase their own mapping data.

This year Maxar starts a big upgrade.

WSJ: A Stock-Trading Dupe Is Born Every Minute

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https://www.wsj.com/articles/a-stock-trading-dupe-is-born-every-minute-11613933258

Michael J. Meehan and friends started buying a tech company’s shares, but from each other, driving up the price on each trade. Others noticed the rising stock and started buying too, sending shares to more than $100. Then everyone piled in until it hit around $500 at its peak. Sound familiar? GameStop ? AMC? Nope. It was RCA, pumped by the so-called Radio Pool in 1928-29.

Pump-and-dump schemes and roving gangs of investors are an age-old problem. In the 1930s, Congress made these stock pools illegal. Problem solved, right? Ha ha, sure—just like last week’s Roaring Kitty congressional hearings will “fix” the latest iteration. To be fair, RCA was successful and radios really were the future. No matter, after the crash the stock hit $10.

For a pump and dump to work, you need a certain type of investor—specifically, the type P.T. Barnum said is born every minute (on platforms like Reddit and Robinhood, more like every nanosecond). To be nice, let’s call them dupes. “Greater fools” works too.

On Feb. 2, Barstool Sports founder Dave Portnoy tweeted, “I have officially sold all my meme stocks. I lost 700kish. Vlad and company stole it from me and should be in jail”— Vlad Tenev being the founder of the stock-trading app Robinhood. Let me gently suggest what he meant to tweet: “Robinhood limited trading of GameStop and AMC so even bigger fools from Reddit couldn’t bid up the price further and let me dump my shares on them.”

Here are a few things Congress missed:

• GameStop had a float, or shares available for trading, of about 50 million. Yet there were 71 million shares sold short. This can happen but shouldn’t. Prime brokers, like Goldman Sachs and Morgan Stanley, are supposed to make it very difficult. It’s a form of leverage. But they looked the other way. Their securities-lending business is too lucrative—fees, fees, fees—and replaces stock-trading profits lost long ago to high-frequency traders like Citadel and Virtu.

WSJ: Mediocrity Is Now Mandatory

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https://www.wsj.com/articles/mediocrity-is-now-mandatory-11612724198

Has an era of American mediocrity begun? In January the College Board announced it would eliminate the essay portion of the SAT, as well as all of the separate SAT subject tests. Their stated purpose was “reducing and simplifying demands on students.” Such a burden.

One high school near me just dropped freshman advanced-standing (honors) English “to combat the effects of academic ‘tracking’” because it “ultimately separates students of different socioeconomic and racial backgrounds.” It turns out that middle schools from lower-income areas aren’t adequately preparing their students for high school. So rather than fix that problem, they dumbed down high school.

Then again, when the University of California system did away with racial preferences in 1996, it moved to holistic admissions. What does holistic mean? Anything you want. The Association of Public and Land-Grant Universities defines it as “assessing an applicant’s unique experiences alongside traditional measures of academic readiness.” Grades are only a suggestion—and SAT scores are biased, supposedly. And here you thought smart students got into good colleges. Yes, mediocrity has crept into our self-proclaimed elite colleges. Job recruiters understand this.

Virtually all universities and now many companies have D&I departments, for diversity and inclusion. Sounds worthy. But as far as I can tell, the No. 1 job of a D&I department is to hire more people into the D&I department. No one ever mentions excellence.

Many schools, like Hampshire College, Antioch University and Reed College, don’t even bother with meaningful grades—feelings might get hurt. Yes, the same Reed College Apple co-founder Steve Jobs attended for six months. He took courses in calligraphy, dance and Shakespeare. Reed students do receive a loosey-goosey grade-point average, but “papers and exams are generally returned to students with lengthy comments but without grades affixed.” Out in real life, Jobs was graded every day by customers, employees and investors.

And why push students to think?

WSJ: Behind the Bitcoin Bubble

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https://www.wsj.com/articles/behind-the-bitcoin-bubble-11612125537

To figure out if you’re in a bubble, you need to find the source of the hot air. Obvious for GameStop, but for bitcoin, not so much.

In July 2018, we wrote about the cryptocurrency company Tether, which issues tokens called tethers that trade under the symbol USDT and should be valued at $1—making the currency a “stablecoin.” Tether’s creators might have manipulated bitcoin, a University of Texas paper suggests, by issuing tokens willy-nilly unbacked by real dollars and then buying bitcoin to jack up its price. (The company claims the research is flawed.)

At the time, Tether’s total value was some $2.7 billion, and its website claimed: “Every tether is always backed 1-to-1 by traditional currency held in our reserves.” So somewhere there should have been $2.7 billion in real money—that’s how a stablecoin is supposed to work. In November 2018, New York state Attorney General Letitia James invoked the Martin Act to begin an investigation into iFinex, which owns Tether and the Bitfinex cryptocurrency exchange, “in connection with ongoing activities that may have defrauded New York investors.” The company has disputed the attorney general’s claims, denied it misled customers, and said it will fight any action. An appellate court last year rejected its challenge to the probe.

Bitcoin peaked at the end of 2017 at $19,000 and over the next year collapsed to $3,200. Well—they’re baaack! On Friday Elon Musk was the latest to pump Bitcoin, which briefly reached almost $38,000. And there are now some $26.4 billion of USDT tokens, $18 billion of which were created since March 2020. Why the increase? No one has a good explanation.

All that glitters is not gold. In 2019 Tether subtly updated its claim to say reserves “may include other assets and receivables from loans made by Tether to third parties.” Tether has even admitted it only has 74% of the cash or cash equivalents to back its stablecoin. Hmmm. Basically unbacked.

In October 2019, a separate lawsuit was filed against Bitfinex claiming the exchange’s alleged market manipulation “likely surpasses $1.4 trillion,” which Bitfinex denies. Yes, that’s trillion with a T.

Section 230/anonymity column at Commerce Secty hearing and put into the Congressional Record

WSJ: Online Speech Wars Are Here to Stay

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https://www.wsj.com/articles/online-speech-wars-are-here-to-stay-11611526491

Ding dong, he’s gone, but Donald Trump’s bans from Facebook, Twitter, Google, Reddit, Snapchat, Grindr (wait, what?), Pinterest, TikTok and others mostly persist. Don’t bans on Mr. Trump and others violate the First Amendment? Actually, it’s private companies invoking their own First Amendment right to bar things they don’t like. But even Twitter CEO Jack Dorsey called it “a failure.” That’s also true of Parler’s decapitation. Never mind that these actions seem partisan and hypocritical; the bans will continue until morale improves. Democrats may cheer but the precedent is scary—soon they’ll be silencing their own. Vive la guillotine electronique.

Expect the siren calls for regulation to become deafening—mostly focused on “updating” Section 230 of the 1996 Communications Decency Act, the provision that limits social-media companies’ liability for things users say. A year ago Joe Biden said it should be “revoked, immediately.” The law states that except for illegal materials like child pornography, companies can host everything and employ their own community standards to take down what they consider offensive.

This mess was all predicted by a comic strip (really!) in 2004, when only Harvard dorm residents knew about TheFacebook—and Twitter was two years away. John “Gabe” Gabriel—the alter ego of one of the creators of Penny Arcade, a web comic—came up with the Greater Internet [Jerkwad] Theory (obscenity deleted). The theory is spelled out on a green chalkboard: “Normal Person + Anonymity + Audience = Total [Jerkwad]” while interpreters note that “normal, well-adjusted people may display psychopathic or antisocial behaviors when given both anonymity and a captive audience on the Internet.” It’s no longer a theory, is it?

In our new slushy, snowflake-soaked society, some folks are offended by just about anything, and are quick to deploy torches and pitchforks to silence and cancel anything not currently considered politically correct. It’s worth reiterating: social media and all its benefits (ask small businesses) wouldn’t exist without Section 230. Instead of hiring hundreds of thousands of coders, Facebook and Twitter would instead be giant law firms forever fighting lawsuits.

Still, Facebook ran ads all fall practically begging for regulation. But any attempt to “fix” Section 230 would surely kill it. Legislation would be a bicameral camel—a horse designed by committee—trying to define community standards, hate speech, what “incites” riots, what constitutes “systemic” racism and on and on, with the inevitable loopholes for certain politicians and favored groups.

Twitter tried to quash the unmasking of an anonymous user, @whysprtech, who in 2016 had released forged FBI documents concerning the death of Democratic National Committee staffer Seth Rich.

WSJ: Once Trump Leaves, Who’s Left to Blame?

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https://www.wsj.com/articles/once-trump-leaves-whos-left-to-blame-11610314313

Here’s my prediction: On Jan. 20, the No. 1 video on YouTube will be “Ding Dong the Witch Is Dead” from “The Wizard of Oz.” Go ahead, play the song in your head. I’ll wait.

This hope for mass emotional relief was best summed up by House Speaker Nancy Pelosi who, according to Politico, told her leadership team, “I’m counting down the hours ’til he’s gone. . . . I plan to pull him out of there by his hair, his little hands and his feet.” I guess tearing up the State of the Union speech wasn’t therapeutic enough. Nor is there any peace for the mouth breathers who stormed the Capitol and sat feet-up on her desk. Or the quixotic and psychotic contesting and protesting of the 2020 election—or 2016, or 2000 for that matter.

What a mentally unnerving four years. We’ve all heard, “I cried with my daughter that morning.” Some folks actually sent me books on Hitler so I could brush up on what they were convinced would come—but never did. Universities offered therapy dogs and breathing spaces—some with coloring books. “Resist” jewelry jumped off shelves. NBC’s “Today” show seemed to open every day, as did many casual conversations, with “Did you see that tweet?” And we added to the vernacular “Orange Man bad,” “El Cheeto” and the Bidenism “C’mon man!”

So many seemingly functioning adults needed someone to blame. A literary agent told the New York Times : “Trump doesn’t want to let go of his job, and a shockingly high number of us don’t want to let go of him.” Author Douglas Coupland smartly noted that “blame is just a lazy person’s way of making sense of chaos.”

Years ago, I believe the comedian Dennis Miller nailed it by saying—and I’ll clean it up—that blaming cigarette companies for getting cancer is like blaming your Members Only jacket for not getting dates in the ’80s. Blame yourself! Mr. Trump or Mrs. Pelosi may not be to your liking, but they weren’t the cause of all your problems. Everyone ought to stop projecting and look inward. Especially the dude in the horns and animal skins.

According to Salon, “Trump is a psychopath. He has all the defining characteristics in spades: narcissistic, sadistic, antisocial, paranoid.”

WSJ: How the Fed Stifles Lending

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https://www.wsj.com/articles/how-the-fed-stifles-lending-11609697886

Dear Jerome Powell: End quantitative easing now. The Japanese tried QE in 2001, buying government debt, mortgage securities and even stocks. It didn’t work. The Federal Reserve has tried it four times since Lehman Brothers went belly up in 2008. QE doesn’t work and instead of keeping markets stable it creates instability.

The Fed supervises and regulates U.S. banks. But traditional banking (think Mr. Potter from “It’s a Wonderful Life”) represents only about 15% of all lending, maybe less. The rest is the mysterious-sounding shadow banking system based on securities lending and other credit products, including repurchase agreements—the repo market.

In repo, broker-dealers, hedge funds and banks construct short-term transactions. You put up collateral—Treasury bills or sometimes less-pristine instruments—with an agreement to buy them back the next day or week for slightly more, and invest the proceeds in the interim. Jeffrey Snider, head of research at Alhambra Investments, calls it a “reserve-less currency system.” This is how global supply chains are funded, to bring us cheap goods from Walmart or Amazon.

Sometimes lenders repledge the collateral to other lenders and take out repo loans of their own. And the cycle goes on. It’s a little bit like hot potato, passing the collateral to the next guy. Known as rehypothecation, these transfers used to be done once or twice for each posted asset but are now sometimes done six to eight times, each time creating new money supply. Note: this is modern money creation—outside the purview of the Federal Reserve—and it’s huge.

When times are good, repos work fine: The agreements expire without problems and the collateral gets passed back down the chain smoothly. But eventually, iffy collateral sneaks into the system. That’s also fine, until markets hit an inevitable rough patch, like, say, March 2020. No one will take the junky stuff anymore, and everyone scrambles for good collateral. So there’s a mad dash, a brawl really, to buy Treasurys—like musical chairs with six to eight buyers eagerly eyeing one chair.

We saw this collateral problem in action.