Andy Kessler

WSJ: Let Bosnia’s Scars Be a Reminder

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https://www.wsj.com/articles/let-bosnias-scars-be-a-reminder-11575838155

The most dangerous concert you didn’t attend happened 25 years ago this Saturday. The venue was a small community center in Sarajevo, Bosnia, a city under siege from 1992-96 during the Yugoslav Wars. Serbs controlled the hills that surround most of the city. United Nations peacekeeping troops controlled the airport and did, well, not much. And yes, this was the conflict during which Hillary Clinton falsely remembered “landing under sniper fire.”

Someone from the U.N. thought a concert would lift spirits in Sarajevo and asked the Rolling Stones to perform. When they passed, a heavy-metal fan in the U.N., Maj. Martin Morris, booked Motörhead, who abruptly canceled. Mr. Morris then contacted Bruce Dickinson, lead singer for Iron Maiden, (of the classic “Run to the Hills”) who was then touring as a solo act, along with a few backup players. Mr. Dickinson immediately answered, “Yeah, why not.” This is all covered in an excellent documentary, “Scream for Me Sarajevo.” It’s worth watching even if your musical tastes run toward show tunes. (By the way, U2 also played in Sarajevo, but in 1997, after the siege had ended.)

When the helicopter Mr. Dickinson planned to take from Split, Croatia, was attacked shortly before the trip, the band instead loaded into a delivery truck painted with a Road Runner cartoon. Armed with beer and vodka, they drove up Mount Igman, crossing near Serbian lines in the middle of the night to get to a U.N. checkpoint, then transferred to armed personnel carriers for the short ride into Sarajevo.

The city buzzed with anticipation. Even though two mortar rounds hit the venue’s entrance earlier in the day, the Dec. 14 show was a huge success. “The gig was immense, intense and probably the biggest show in the world at that moment for the audience and for us,” Mr. Dickinson recalled. “That the world didn’t really know didn’t matter. It changed the way I viewed life, death and other human beings.”

The bass player, Chris Dale, remembers being asked by a local soldier if they brought any drugs with them. Mr. Dale told him no, drugs are bad for you. The local responded that his life expectancy was pretty short already. Such was the desperation in a city under siege.

Read the rest here.

WSJ: The Five Traits of True Tech

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https://www.wsj.com/articles/the-five-traits-of-true-tech-11575229527

It seems everyone wants to be a technology company these days. But not every company is worth 40 times earnings and 15 times sales in the stock market. How can you tell which growing companies might sustain that valuation? Put more broadly, in the wake of WeWork’s woes, what qualifies a company as highly valued tech?

Any company can call itself tech. Heck, Long Island Iced Tea Corp. changed its name in 2017 to Long Blockchain Corp. and the stock popped 400% to $13 (it’s now $0.16). But can companies that sell razors, glasses or mattresses be high tech? Exercise bikes? Insurance? Or even ads?

I came up with a list of five attributes of real high tech that investors should study. Let’s call it the GRuMPS™: Growth, Research and development, Margins, Productivity and Spending. Score one point for each—get enough, win valuable prizes. Collect all five and you’ll have a company that might trade at a high earnings multiple for a long time, not just the day of the IPO.

High growth: Two friends writing code to automate a lemonade stand is not high tech. Growth is key. The growth I’m enamored with usually comes from scale, meaning technology lowers the cost of a business model for which customers are clamoring. Intel lowered the cost of computing. Facebook lowered the cost of reaching consumers. Salesforce lowered the cost of using software. Even though prices go down, units go up faster so you get rapid and sustainable growth. Beware of fake growth like market-share growth: If you sell seat cushions for a 50,000-seat stadium, you can double sales every year but eventually you’ll run out of seats. Instead look for giant markets.

High R&D: Technology is never static. Hot products today are obsolete within a year. Huge R&D spending is critical to stay ahead. Look for intellectual property that scales. Companies often boost earnings by starving research, a serious red flag.

Read the rest here.

WSJ: Man Bites Dog? That’s a Mistake

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https://www.wsj.com/articles/man-bites-dog-thats-a-mistake-11574634718

A short business week provides time to think. Here’s what I’ve figured out so far:

Why I don’t eat hot dogs. My wife had an uncle in the vending/food-service business. A friend of his asked him to bid on a contract to provide hot dogs for their corporate cafeteria. He bid 75 cents a hot dog. A competitor bid 50 cents and won the contract.

Months later the uncle ran into his friend, who apologized but said: “I don’t understand. We’ve known each other for a lot of years, and I thought you would cut me a good price, but the other guy came in so much lower, I didn’t have a choice.” My wife’s uncle responded, “I don’t normally bid on hot dogs. You tell me how much you’re willing to pay, and I’ll provide them at that price.” He meant he could supply hot dogs at almost any price point by varying the ratio of meat to byproducts.

The U.S. Department of Agriculture says hot dogs can have beef, pork, chicken and turkey from “raw skeletal muscle meat” and meat derived from “advanced meat/bone separation machines.” Do hoofs have muscles? It also allows “mechanically separated meat,” which is basically paste from a high-pressure machine that removes meat without grinding the bone—a source of calcium nonetheless. And don’t forget those “meat byproducts” like heart, kidney or liver. Mmm mmm good.

I used to enjoy what we called “dirty water dogs” at ballparks—the kind that come out of the mysterious hot-water tank and get slapped onto a bun at your seat. No more. And I’m certainly wary of “dollar dog night” anywhere. Final word: I don’t normally quote Snoop Dogg, but here we agree: “Every time I see a mother— at a barbecue with a plate with a hot dog on it, I’m knockin’ that [expletive] out his hands.”

Why I stop for cars that honk at me. While in grad school in cosmopolitan Champaign, Ill., I met someone from St. Louis who shared my fanatical fandom of Cardinals baseball. On a beautiful spring day, we drove down for a game. He knew where to park free, and on the walk to Busch Stadium we stopped at every location that sold glasses of cold Anheuser-Busch products.

Read the rest here.

WSJ: Old Age Will Put China to Rest

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https://www.wsj.com/articles/old-age-will-put-china-to-rest-11574018820

The trade tiff with China lingers on—let’s just cut a deal for zero tariffs and move on. Then we can tackle the next question: Is there any real chance that China—with gross domestic product per capita lower than Mexico’s—could soon pass the U.S. in size and strength? The prospect is daunting, but we’ve been here before. Does anyone remember books like “Trading Places: How We Are Giving Our Future To Japan”? Me neither. The reality is that for every country, demographics is destination.

I recently attended the Sohn Conference in San Francisco, which raises money for charity by having hedge-fund managers pitch their best investment idea. Most talks were about broken stocks or esoteric cloud software companies hoping to double in value in three years. But Adam Fisher from Commonwealth Asset Management talked about decadeslong trends in China. (I didn’t talk to Mr. Fisher directly: Silly securities laws prohibit funds from marketing broadly while they’re raising money. So my notes will have to do.)

It turns out that China’s work-age population has peaked or is close to peaking—that pesky one-child policy worked. Even worse for Beijing, according to projections by the United Nations Development Program, China’s 65-and-over population is expected to grow by more than 150%, from 135 million in 2015 to 340 million by 2040, which will be 21% of the population. That’s a lot of retirees. By the way, the current retirement age in China is 60 for men, 55 for women, though both are set to increase gradually.

By comparison, Japan’s 65-and-older population reached 26% by 2015. But as the saying goes, Japan got rich before it got old. What about China?

According to the political economist Nicholas Eberstadt, less than 65% of Chinese workers are covered by any retirement benefits. That share drops to 35% for urban migrants. That’s many mouths to feed in old age.

And here’s where it gets dicey.

Read the rest here.

WSJ: Warren Is the WeWork Candidate

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https://www.wsj.com/articles/warren-is-the-wework-candidate-11573411997

Are presidential candidate Elizabeth Warren and WeWork founder Adam Neumann the same person? I mean, they have different hairstyles and all, but their philosophies are more alike than not.

They both claim, falsely, to be capitalists. Ms. Warren told the New England Council last year, “I am a capitalist to my bones.” She then told CNBC, “I am a capitalist. Come on. I believe in markets.” It was almost as if she didn’t believe it herself. Then came the caveat: “But only fair markets, markets with rules. Markets without rules is about the rich take it all, it’s about the powerful get all of it. And that’s what’s gone wrong in America.” She clearly doesn’t understand capitalism.

Neither does Mr. Neumann, who said of WeWork, “We are making a capitalist kibbutz.” Talk about mixed metaphors. In Israel, a kibbutz is often defined as “a collective community, traditionally based in agriculture.” WeWork’s prospectus for its initial public offering mentioned the word “community” 150 times. Yet one little secret of kibbutzim is that many of them hired outsiders to do menial jobs that the “community” wouldn’t do, similar to migrant workers on U.S. farms. A capitalist kibbutz is a plain old farm, much like a WeWork building is plain old shared office space. Big deal.

Ms. Warren wants to reshape capitalism, while Mr. Neumann wants to “revolutionize your workspace.” Meanwhile, the Vision Fund, with capital from SoftBank and Saudi Arabia’s Public Investment Fund, has thrown good money after bad, writing off $9.2 billion in its quest toward this WeWork revolution. The same mismatch between communitarian vision and market realities would doom Ms. Warren’s economic reshaping. It’s hard to repeal good old capitalism.

The commonalities go on. Last year, Ms. Warren proposed the Accountable Capitalism Act. If it became law, large companies would have to obtain a federal charter that “obligates company directors to consider the interests of all corporate stakeholders,” or dare I say, community. For each company, Ms. Warren insists that “40% of its directors are selected by the corporation’s employees.” Back to the kibbutz?

In six months in 2019, WeWork lost $1.4 billion on $1.5 billion in revenue. Impressive!

Read the rest here.

WSJ: Follow Michael Crichton’s Rule

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https://www.wsj.com/articles/follow-michael-crichtons-rule-11572814056

“Jurassic Park” and “Westworld,” from the brilliant mind of Michael Crichton, aren’t real. But neither are a lot of things that pass for arguments these days. Crichton, who died in 2008, gave a lecture at Caltech in 2003 titled “Aliens Cause Global Warming.” In his words, it was about the “uneasy relationship between hard science and public policy” but I took away a lot more. Relax, this column isn’t about climate change.

His first example was nuclear winter. In 1975 the National Academy of Sciences stated that even with multiple nuclear detonations, the effect from dust would be minor. In 1979 Congress’s Office of Technology Assessment said the science was poorly understood and it wasn’t possible to estimate damage. Yet by 1982 the Swedish Academy of Sciences speculated that smoke would cover the Northern Hemisphere, blocking the sun and disabling photosynthesis—nuclear winter.

Within five years, famed astronomer Carl “Billions and Billions” Sagan figured a 5,000-megaton nuclear exchange would cause temperatures to drop below freezing for three months. Of course, there was no empirical study to back any of this. But what amazed me was the observation that no one could take the other side of the argument. Physicist Freeman Dyson said, “It’s an absolutely atrocious piece of science, but who wants to be accused of being in favor of nuclear war?” Argument over.

Same for secondhand smoke. In 1994 the Environmental Protection Agency found that 11 studies of the link between smoke in restaurants or offices and cancer were not conclusive, but nonetheless labeled secondhand smoke a Group A carcinogen. The World Health Organization also began to warn against secondhand smoke despite inconclusive studies of its own. Since then, study after study has found no statistically significant relationship between cancer and being near indoor smoking. Yet no one takes the other side of the argument. Except for smokers, no one likes the smell of tar and nicotine while they’re eating or working. Yuck. No one, including me, is actually for secondhand smoke.

Crichton observed: “Once you abandon strict adherence to what science tells us, once you start arranging the truth in a press conference, then anything is possible.” That includes children at the United Nations yelling, “How dare you.” It’s knee-jerk analysis. I call it the Crichton Conundrum: “I’m against it, so these theories must be right—even though the science is most likely bunk.” Shallow, but sadly a reality.

The conundrum is everywhere. Take the $15 minimum wage, a so-called living wage—who could be against that?

WSJ: The Gig’s Up for Freelancers

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https://www.wsj.com/articles/the-gigs-up-for-freelancers-11572208945

I’ll give up my keyboard when you pry it from my cold, dead hands. Didn’t Charlton Heston say that? Don’t tell anyone, but this weekly column may be illegal next year—all because of the latest self-wounding law from the statehouse in Sacramento.

California is so stupid. It was kind of funny when San Francisco’s airport banned plastic water bottles, prompting travelers to guzzle Gatorade instead. It was annoying when supermarkets were forced to charge for plastic bags—and a few folks may catch dysentery from bacteria festering on unwashed reusable burlap bags. Ditto for Berkeley’s ordinance banning natural-gas hookups to eliminate carbon emissions by 2045. It’s Berkeley: They’ll enjoy eating avocado toast while they shiver.

Yet Golden State legislators outdid themselves by passing Assembly Bill 5, signed last month by Gov. Gavin Newsom. Effective Jan. 1, the law reclassifies most independent contractors as full-time employees. This codifies the state Supreme Court’s 2018 Dynamex decision about “misclassified” freelancers.

The new law was pitched as a simple measure to provide contract workers with benefits like sick leave and health care. Yet as the dust clears, many ugly details are emerging. There were lots of carve-outs: for doctors, lawyers, accountants, psychologists, insurance agents like Jake from State Farm. But here’s something weird: Freelance journalists are limited to 35 submissions a year per “putative” employer. Wait, what?

The author of the law is a former labor organizer, Assemblywoman Lorena Gonzalez, who you can bet had union help in writing the thing—it’s easier to organize employees than freelancers. Ms. Gonzalez told the Hollywood Reporter her goal is “to protect and preserve good jobs. We’re trying to create new good jobs and a livable, sustainable-wage job.”

And the 35 number?

WSJ: Tech Treadmill Wears Firms Out

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https://www.wsj.com/articles/tech-treadmill-wears-firms-out-11571599552

Does technology provide a competitive advantage? Companies are counting on it. In March McDonald’s spent $300 million buying an Israeli artificial-intelligence startup to personalize menus based on weather and trending items. Now they’re considering license-plate recognition systems for drive-through lanes. Based on your history they might offer to supersize your order, or just hand you your usual Happy Meal. CEO Steve Easterbrook says, “Technology is a critical element of our Velocity Growth Plan.”

The problem is that adopting a useful technology doesn’t mean your advantage will last. I’ve long been amused by a succession of Harvard Business Review pieces that demonstrate this point. In 1985 Michael E. Porter wrote “How Information Gives You Competitive Advantage,” then in 1990 came Max Hopper’s “Rattling SABRE—New Ways to Compete on Information,” and finally in 2013 we got Rita Gunther McGrath’s “The End of Competitive Advantage.” Each of these takes describes a different stage in the life cycle of corporate tech.

Hopper was, as Harvard professor James Cash noted, “the first person who really defined the marketing leverage that could come from using technology.” In the late 1950s Hopper helped build Sabre, an automated flight-reservation system, and in 1981 he helped design the first major frequent-flier program to give American Airlines a competitive “AAdvantage.” Yet by 1990 he worried that the game was over, suggesting that technology was “table stakes for competition.” Hopper noted that “SABRE’s real importance to American Airlines was that it prevented an erosion of market share.”

That insight comes to mind watching the Streaming War of 2019. Netflix and Amazon have a huge lead in streaming video. But eventually everyone uses the same technology.

Tim Cook wants in, so Apple TV+ launches Nov. 1 with (probably overpaid) Jennifer Aniston and Reese Witherspoon. Robert Iger wants in, and Disney paid (probably too much) for control of BAMTech, the streaming-video technology developed by Major League Baseball, which it is deploying for streaming services Disney+, ESPN+ and Hulu + Live TV. AT&T wants in and paid (again likely too much) for Time Warner to create HBO Max. NBCUniversal wants in too. See the trend? Google ought to rename its streaming service YouTube TV Max+.

Yet when a company adopts a new technology, it can’t set it and forget it.

WSJ: What’s a Wealth Tax Worth?

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https://www.wsj.com/articles/whats-a-wealth-tax-worth-11570995598

Why do liberals think rich people have money just lying around, like Scrooge McDuck swimming in a giant pool of gold coins? That’s the myth behind plans to tax Americans’ wealth, as Sens. Elizabeth Warren and Bernie Sanders both propose.

Ms. Warren wants an annual asset tax of 2% on households worth more than $50 million, and 3% if you’re worth more than $1 billion. Mr. Sanders would tax “extreme wealth” starting at 1% on households worth $32 million and topping out at 8% on those worth $10 billion or more. Whereas the Soviets confiscated wealth virtually overnight, at least Bernie will take a dozen or so years to pilfer most of your savings.

University of California, Berkeley professors Emmanuel Saez and Gabriel Zucman estimate that Mr. Sanders’s tax would raise $4.35 trillion over 10 years, while Ms. Warren’s would raise $2.75 trillion. But something seems fishy—oh, Messrs. Saez and Zucman advise both campaigns on their wealth-tax plans. I doubt they account properly for how levies on wealth would shrink the tax base. Can we get some outside audits please?

Even setting comical revenue projections aside, the wealth-tax idea doesn’t stand up to scrutiny. Never mind that it’s likely unconstitutional. Or that a wealth tax is triple taxation, heaped on top of a 21% corporate tax plus 20% capital-gains tax when someone sells shares to pay it. (I concede that it definitely would provide lifetime employment for tax lawyers.)

The most preposterous part of the wealth-tax plans is their supporters’ insistence that they would be good for the economy. Only in an upside-down world could anyone think “a wealth tax is pro-growth,” as a New York Times columnist has claimed.

Start with the spending side.

WSJ: An Investment Tip From Mr. ZIP

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https://www.wsj.com/articles/an-investment-tip-from-mr-zip-11570393678

Here’s an enduring lesson about investment. In the mid-1990s, well before streaming (2007) or Blu-ray (2003) or even DVRs (1999), I was convinced that every television would someday have an attachment to record and play back shows digitally. Digital videodiscs were available and personal computers had only expensive read-only drives. But I figured drives that also let users burn DVDs would soon take off, so my partner, Fred, and I started scouring Silicon Valley for technology that would benefit.

In the small city of Milpitas—ZIP Code 95035—we stumbled upon a company named Elantec Semiconductor, which had gone public in 1995 at $7 a share. Cowen Inc. and Hambrecht & Quist were the underwriters, for those who remember those days. Don Valentine of Sequoia Capital and Apple Computer fame was the (pedigreed) chairman. It had $30 million or so in revenue but wasn’t really growing. When Fred and I found it, the stock was broken, trading around $3. It had 10 million shares, so it was trading at a lowly one times sales.

We started visiting the company, meeting the CEO and CFO once a month. They told us they had developed a little $2 laser-diode driver that could allow a compact-disc drive to burn data onto a blank disc. Lights flashed in my mind when I heard this: Could their laser driver do the same thing for DVD drives? Someday, I was told, but it would be really expensive. Even so-called CD-R drives for PCs were still $500. Gut check—time to move on? Nah.

We weren’t discouraged. Everything that comes out of Silicon Valley starts out expensive, then sells like hot cakes as costs decline. We were long-term investors—patience was our middle name. So we started buying stock at $3. It started ticking up: $3.13, $3.25, $3.50. We were geniuses! Then we got too busy to buy more shares for a few days and the stock slid back to $3. Turned out we were the ones driving up the thinly traded stock!

So we slowly kept buying shares and continued to visit the company for updates. Elantec’s only competitor for laser-diode drivers was Toshiba, and because Toshiba also sold CD drives, every other Japanese CD company bought from Elantec.

Around the same time, music was becoming available online through MP3 downloads, which Napster had made easy.

WSJ: Silicon Valley Goes Soft

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https://www.wsj.com/articles/silicon-valley-goes-soft-11569785993

I miss Travis Kalanick. Sure, the former Uber CEO was known to attack colleagues in the boardroom and berate his drivers from the back seat. And yes, when I met him in 2013, he was pacing around with a golf club looking as if he wanted to break a window in his conference room.

But he told me the story of when Uber received a cease-and-desist order from the San Francisco Municipal Transportation Agency. Did you cease? I asked. “No.” Did you desist? “No” he repeated, asserting that Uber is perfectly legal, and that the agency didn’t have jurisdiction anyway. That was a bold move—just the kind that Silicon Valley is missing these days.

I’m not condoning the culture that festered under Mr. Kalanick. He famously wrote an email to the “Uber Team” before a Miami off-site meeting in which he advised, among other things: “Do not throw large kegs off of tall buildings.” It isn’t bad advice, but it shows he had a lot of growing up to do—much like the 22-year-old Mark Zuckerberg, whose card read: “I’m CEO, Bitch.” Uber during his tenure was also known for shrugging off sexual-harassment claims. Mr. Kalanick was replaced for a reason.

The problem is that too many in the media don’t distinguish between Uber’s rotten corporate culture and its legitimately bold business practices. Instead both get placed under the same umbrella of “toxic bro culture,“ as if everyone in Silicon Valley is a misogynist Neanderthal strutting around with his baseball cap on backward.

Tragically, the pendulum has swung too far in the other direction. Silicon Valley has gone wussy on us—wait, can I even say “wussy” anymore? The New York Times suggests tech workers are all experiencing “existential dread” and in need of therapy. Bad leadership is to blame.

Everyone is caving in like an overcooked soufflé.

WSJ: Is an M.B.A. Still Worth It?

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https://www.wsj.com/articles/is-an-m-b-a-still-worth-it-11569184032

“What year were you?” a Morgan Stanley colleague asked me years ago. “Huh? Year?” I replied. “What year at HBS?” H-B-what? “What year did you graduate from Harvard Business School?” Oh, I get it now. “I didn’t go to HBS,” I told him. “Actually, I don’t have an M.B.A.” After a long pause and scrunched-up face, he asked, “Well, then how the hell did you get a job here?” As I walked away, I murmured under my breath, “Maybe I earned it.”

So should you get a master’s in business administration? These days a lot of people are rethinking that question. Applications are down, even at HBS and GSB (that’s Stanford’s Graduate School of Business—get with the lingo). The number of GMAT test scores sent to two-year, full-time M.B.A. programs has plummeted since 2015. Last year 70% of two-year M.B.A. programs saw declining enrollment; in 2014 it was only one-third. Rats deserting a sinking ship?

Before I really pile on, it’s worth mentioning that there are a few decent reasons to go. The first is pedigree. If you want to get a job on Wall Street or in private equity, you pretty much need an M.B.A.—a golden ticket. But although these jobs pay well, they entail long hours chained to giant monitors. It’s basically the mushroom treatment: Higher-ups will keep you in a dark room and constantly throw, let’s just say, manure on you.

Another reason to go is the networking (it only takes a couple of drinks for most graduates to admit this was their main draw). Business school is a great place to meet other up-and-coming climbers to get pulled up by, or better yet, pass on your way to the executive floor, bathroom key included. I constantly meet people who studied with former Microsoft CEO and GSB dropout Steve Ballmer. The final reason to go to B-school is that you might actually learn something—like how to do macros in Excel.

But—you knew this was coming—man oh man is it expensive. HBS tuition is now $73,440 a year. Total costs are estimated at $110,740 if you’re single and more than 150 grand if you’re married with two children. That excludes the cost of your MacBook, let alone forgone wages. You’d better get that Wall Street job.

I’ve dug into the curricula at dozens of M.B.A. programs, from Booth to Kellogg to Fuqua.

WSJ: Antitrust Can’t Catch Big Tech

https://www.wsj.com/articles/antitrust-cant-catch-big-tech-11568577387

On Friday the House Judiciary Committee joined the dog pile of 48 state attorneys general, the Justice Department and the Federal Trade Commission in investigating whether to break up the Big Bad Tech companies. It all makes me think of a Hangtown Fry, my favorite dish at the Tadich Grill in San Francisco. During the Gold Rush, a prisoner condemned to death could request a final meal. To delay the hangman, a smart prisoner would order an omelet with bacon and oysters, meaning someone had to head down to the coast for ingredients, which could take weeks or months. Delicious, by the way.

Any action to break up Google, Facebook and others is, like that Hangtown Fry, going to take a very long time to happen, if it happens at all. The first antitrust suit against IBM was filed in 1968. The U.S. government dismissed all antitrust cases against IBM as “without merit” in 1982. AT&T , an actual government-mandated monopoly, faced its first antitrust suit in 1974. It settled through a consent decree in 1982, with the Bell telephone system breaking into Baby Bells. Yet unlike Humpty Dumpty, the market put AT&T mostly back together again, with it and Verizon going strong in wireless—a field few foresaw at the time of the breakup.

After all the saber-rattling and congressional hearings, to succeed in court antitrust advocates will have to demonstrate that tech companies’ actions are harming consumers. Yes, the FTC recently penalized Facebook for privacy violations, but its antitrust investigation is aimed at countering potentially anticompetitive practices, an entirely different matter. The rather weak case from the director of the FTC’s competition bureau is that Facebook bought startups “that might ultimately unseat them,” which the director says may violate the commission’s “theory of competitive harm.” Theory indeed.

The Justice Department is more gung-ho. Its antitrust enforcer Makan Delrahim declared, “Without the discipline of meaningful market-based competition, digital platforms may act in ways that are not responsive to consumer demands.” Note that Mr. Delrahim uses the weasel word “may”—which is to say the tech companies may ignore consumer demands, but then again they may not. Mr. Delrahim is hinting at regulators’ dream: forward-looking antitrust analysis.

Mr. Delrahim and the crystal-ball gazers at Justice and the FTC think they have a perfect view of the future, so they want to break up companies before they commit any offense. They’re channeling Tom Cruise in “Minority Report,” in which cops use a psychic technology to catch murderers before they commit crimes.

Unfortunately for the Justice Department, current antitrust law is based on evidence of actual consumer harm and not mere speculation about what could happen in the future. A sharp legal mind tells me, “The key is the degree of certainty with which the government can prove the future harm is likely to happen.” Justice can pull a minority report on companies contemplating mergers—note how T-Mobile and Sprint had to give up business to get their deal done—but not antitrust.

So has Big Tech squashed competition? Hmmm, let’s see.

WSJ: The Fed Can’t See Its Own Shadow

https://www.wsj.com/articles/the-fed-cant-see-its-own-shadow-11567969957

What’s going on with the bond market, especially what the Journal has called “the relentless demand for longer-term debt securities”? Over the past few weeks 30-year bonds yielded less than 2% interest. That inverted the yield curve as short-term rates were higher, including the rate on repurchase agreements and what the Federal Reserve pays on excess reserves.

Should we blame the usual suspects—a weakening global economy and trade wars? Not so fast. Sometimes it helps to look at things differently. “There’s a dollar shortage,” Jeffrey Snider of Alhambra Investments tells me. “The market knows what’s going on and further knows the Fed doesn’t.”

For more than a decade the Fed furiously expanded its balance sheet through quantitative easing, buying Treasurys and mortgage-backed securities and then paying interest on excess reserves to soak up all the extra money in the banking system. The Fed’s assets increased from less than $1 trillion in September 2008 to almost $3.8 trillion today. Sadly, the stimulus hasn’t stimulated very much. What went wrong? Maybe the shadow knows.

Shadow banking, that is. That’s the market for repurchase agreements, or “repos,” a form of short-term borrowing. Mr. Snider calls it “collateralized interbank borrowing.” One party puts up collateral such as a bond, and is paid for the value of that asset on the promise to buy it back later at a higher price. It can be overnight, 90 days or more. Often that collateral is lent out again, creating a money supply outside traditional fractional-reserve banking. It’s huge—today nonbank lenders hold more total assets than traditional banks do.

But shadow banking has issues. In times of stress, the repo market demands better or “pristine” collateral, usually longer-term U.S. debt, of which there often isn’t enough. In 2013 I wrote about a shortage of collateral for the repo market and how Fed buying was squeezing the shadow banking system. Mr. Snider recalls the moment as well: “They were stripping the repo market of the best collateral as well as lesser-traded issues. They still had to buy up repo collateral to keep up the ruse that they were ‘printing money’ they weren’t.” The lack of inflation is proof that the total money supply has barely grown.

That shadow-banking crisis resolved as demand for pristine collateral eased, but today the collateral squeeze has returned at a much larger scale.

WSJ: The Market Gets What It Wants

https://www.wsj.com/articles/the-market-gets-what-it-wants-11566755407

Are you talking to me? The market dropped 767 points Aug. 5 on news of China’s currency devaluation, then popped 311 points the next day on delayed tariffs, then sank 800 points eight days later after signs that the yield curve had inverted further. It’s been yo-yoing since then—up 275, down 623 on Friday. When the stock market goes through these spasmatic gyrations, it’s a desperate cry for attention. But what is it trying to say? Ya got trouble, with a capital T.

We had a great economy going. Tax cuts had led to 50-year-low unemployment, rising corporate profits, and a growth rate nearing 4%—almost twice the anemic level it hovered at during the Obama years. But like an “own goal” in soccer, the Navarro-Lighthizer-Mnuchin tariffs scored one for chaos, and now the stock market is reacting. Until recently the market was pretty silent on trade. Could the recent drop be its loud call to end tariffs?

President Trump delayed some of his Sept. 1 tariffs until Dec. 15, including those on iPhones and laptops, and the market traded up. But the tariff burden is still onerous, and stocks dropped again in sync with the bond market as 30-year Treasurys dropped below 2%, their lowest rate since . . . ever. This flight to safety may indicate structural problems in credit markets, triggered by tariffs. But it’s almost as if the bond market is demanding the Fed cut rates in September, or else. Why should the stock market do all the talking?

It reminds me of Sept. 29, 2008, when the House voted down a $700 billion financial rescue package after the Lehman Brothers implosion. The market dropped 777 points, losing $1.2 trillion in value, the first time more than $1 trillion was lost in a day. Congress got the message. The Emergency Economic Stabilization Act passed five days later and was quickly signed into law by President George W. Bush.

The market gets what it wants. Facebook traded down after its initial public offering because of concerns that it lacked a mobile strategy—then it quickly got one. Uber laid off 400 employees to try to stem its post-IPO slide, but the stock has kept declining, so expect even more layoffs. And it doesn’t take a crystal ball to see the day within a year of WeWork’s IPO that their stock sells off and they finally change their squishy cash-soaking business model. This is what public markets are good at: creating urgency.

Sure, this makes the stock market sound like a stubborn bratty child throwing a hissy fit. And that’s basically right.

WSJ: What Will California Ban Next?

https://www.wsj.com/articles/what-will-california-ban-next-11566158511

First they came for our plastic grocery bags. Then they came for our plastic straws. Now they’ve come for our plastic water bottles at SFO. Yes, you read that right. Starting Tuesday, the sale of plastic water bottles will be banned at San Francisco International Airport, one of the few places they actually make sense. California has many dumb laws and statutes and bans, but this one is especially brainless—spurred by futile self-righteousness.

After running late for your flight after a 30-minute security line only to have TSA confiscate your Fiji water bottle, you’ll now have to stop at a crowded water fountain to fill your own metal flask. Or buy an overpriced glass or aluminum bottle at the concession stand, paying another 10 cents for a bag. And your teeth will chatter if you drink through a paper straw. Of course you could risk dehydration instead: Men lose up to a half-gallon of water during a 10-hour flight. Oddly, you can still buy sugary drinks in plastic bottles at SFO; only healthy, calorie-free water is banned in plastic. You can’t make this stuff up.

Other fields are even worse. Starting next year, the California Building Standards Commission will require every new home to have solar panels. This will add $8,400 to the average cost of the state’s already expensive homes. With a shortage of about 1.4 million housing units, according to the California Housing Partnership, that’s a $12 billion unfunded mandate.

But maybe the housing shortage can be solved with yet another legislative “fix.” Last December state Sen. Scott Wiener introduced Senate Bill 50, which would allow developers to ignore certain local zoning laws within half a mile of train or subway stations and some bus stops. The bill would allow five-story buildings, high density and massive parking structures. Although the bill was tabled in May, many of its growing group of supporters argued it didn’t do enough to create incentives for affordable housing. That tells me another version of this bill will pass eventually. So here’s what may happen: Many towns will preserve local zoning pre-emptively by closing their train stations. Lose-lose situation.

So what? you might ask: Just take an Uber or Lyft. Not so fast. Also winding its way through Sacramento is Assembly Bill 5, which would reclassify “gig economy” workers as employees, entitled to full benefits and a $12 minimum wage. This means the cost of rides, deliveries and even manicures would go up, up, up. The bill is an overreach because most drivers truly are temporary workers. According to the delivery company Postmates, half of delivery workers quit after 80 days and about 45% work less than nine hours a week. Once again California legislators are trying for a trifecta: Fix a problem that may not exist, kill a very Californian innovation, and damage the employment prospects of the same workers they are trying to protect.

There’s more. Proposition 64, passed in 2016, allows Californians to grow six pot plants at home. Why not seven?

WSJ: Social Media and Hawley’s Folly

https://www.wsj.com/articles/social-media-and-hawleys-folly-11565551761

What does Missouri Sen. Josh Hawley have against Silicon Valley? On July 31 he tweeted (as opposed to sending by Pony Express) “Social media ‘innovation’? What innovation? Big Tech doesn’t deliver for the American people, and that’s the biggest problem of all.” The previous day the senator introduced S.2314, the Social Media Addiction Reduction Technology Act, which would smother with a giant pillow the innovation he claims not to see. Be warned: Regulation may soon arrive in Techland.

Who is this guy—and why does he think he can micromanage a trillion-dollar industry? Born in Arkansas and bred in the Show Me State, Mr. Hawley graduated from Stanford, then Yale Law. He became Missouri’s attorney general in 2017 and began investigating the classified-ad website Backpage. The site sued to stop the investigation, lost, and then Mr. Hawley sued it back. He was thwarted in gathering information by Section 230 of the Communications Decency Act, which I wrote about last month; the provision defines certain online services as platforms, not liable for the content their users post. The episode may have stoked Mr. Hawley’s disdain for social media and Big Tech. He also opened an antitrust investigation into Google the same year.

This antitech inclination hasn’t always defined Mr. Hawley’s persona. As attorney general he said, “American workers and American entrepreneurs can compete with anybody, anywhere if our government will stop making America a cost-prohibitive place to do business.” Hear, hear. When he won his Senate seat last year he ran mostly as a conventional conservative.

But even then he already had his enemies marked. His first Senate speech lamented the “cold and judgmental world of social media,” and things kind of went downhill from there. He even wrote a letter to Mark Zuckerberg more or less describing Facebook as one of the “forces parasitic on our national life.” Ouch.

Mr. Hawley’s new bill has all the worst instincts of the regulatory state—a disappointing achievement coming from a Republican. It would remove the autoplay feature from YouTube, end infinite scrolling on Twitter and Facebook feeds, limit scrolling time to three-minute sessions, set default limits on the use of platforms to 30 minutes a day, and outlaw Snapchat streaks (rewards for consecutive days of contact with friends) and most “gamification” (badges, rewards) for any online service. These diktats are the opposite of market freedom.

WSJ: Have No Fear of Facial Recognition

https://www.wsj.com/articles/have-no-fear-of-facial-recognition-11564955494

Englishman Francis Galton first noted the unique arches, loops and whorls in our fingerprints back in the 1880s. Thirty years later, Clarence Hiller confronted an intruder in his Chicago home and was fatally shot. The culprit fled, but not before leaving a fingerprint in fresh paint on a railing. Thomas Jennings became the first defendant convicted using fingerprints as evidence. This is now routine, but back then there was public hysteria over the fingerprint’s invasion of privacy and then questionable accuracy.

Today, with faces matched almost instantly via machine learning and artificial intelligence, fears of Big Brother have created similar hysteria—especially after Georgetown legal scholars discovered last month that Immigration and Customs Enforcement has access to driver’s license photos from 21 states.

So much so that the crime-ridden cities of San Francisco and Oakland, Calif., along with Somerville, Mass., have banned the use of facial recognition by law enforcement, even though local businesses can use it to track who enters and leaves their buildings. Pretty crazy.

Paranoid? Is someone watching you? Let’s get some constitutional rights out of the way first, especially “unreasonable searches and seizures.” In Katz v. U.S. (1967), the Federal Bureau of Investigation used an electronic eavesdropping device, attached to the outside of a phone booth, to record the defendant’s gambling transactions. Charles Katz won and the Supreme Court ruled that in a phone booth, “like a home, and unlike a field, a person has a constitutionally protected reasonable expectation of privacy.” On the flip side, the justices held that “what a person knowingly exposes to the public, even in his own home or office, is not a subject of Fourth Amendment protection.”

But we are still protected against dragnets (dum du dum dum)—the use of cameras or other surveillance to track collectively where everyone goes and what they do. Even in public, where you have no reasonable expectation of privacy, law enforcement can’t record everything in hope that someone commits a crime. The USA Patriot Act weakened some of these protections, but the 2015 USA Freedom Act fixed that.

There’s added hysteria around the potential bias in facial recognition’s mistakes.

WSJ: Great Books for a Brainwashing

https://www.wsj.com/articles/great-books-for-a-brainwashing-11564337511

It’s that time of year again. Soon-to-be college freshmen are whooping it up before being shaped into adults—cruising to Whataburger in mom’s Prius, sneaking cans of ruby grapefruit White Claw Hard Seltzer. Soon it will be goodbye to innocence and hello to an exciting new adventure. But first there’s—ugh—your summer reading assignment.

I’m all for reading, but when I dug around to see what books were assigned this year, I was thunderstruck. The selections are clearly intended to make new students “woke”—a push toward political awareness, an initiation into the cool social-justice league.

Stanford’s “signature common reading program” has two books and a collection of essays this summer. The first is “There There,” a novel set in Oakland about the “plight of the urban Native American.” It’s always troubling to see the word “plight”—you know you’re about to be manipulated.

The next book on Stanford’s list is “Silicon City: San Francisco in the Long Shadow of the Valley.” Uh oh, long shadows sound ominous. Sure enough, the author informs us that San Fran is rich, unequal and un-diverse, with “rapid gentrification, an epidemic of evictions, rising crime, atrophied public institutions.” Wasn’t Gavin Newsom mayor? Worse, it’s “a cautionary tale for the entire country.” Wait, shouldn’t students be focusing on the Bay Area’s unbounded success in driving the global economy by making productive tools that have lifted billions out of poverty? Of course not, because that nasty, long shadow obscures “the birthplace of the Beats, the Black Panthers, and the LGBTQ movement.” The message to students is that if you win, you lose.

The last item is an e-book (saving paper!): “The Just City Essays: 26 Visions for Urban Equity, Inclusivity and Opportunity.” I’m sure the first two or three essays are enough to get the “sustainable, equitable future” point across.

Yale is not to be outdone.

WSJ: Better Living Through Simulations

https://www.wsj.com/articles/better-living-through-simulations-11563738861

What was Neil Armstrong thinking about as he stepped on the moon? His first words were rehearsed, and he still blew it: “That’s one small step for man” he said, meaning to say “a man.” He then talked about how powdery the soil on the surface seemed. And then this: “There seems to be no difficulty in moving around as we suspected. It’s even perhaps easier than the simulations at one-sixth g that we performed in the various simulations on the ground.”

Armstrong was doing something no one had ever done before, but he was struck by how different it was from the simulations of doing something no one had ever done before. In other words, he was so well-prepared that the only shock was that the experience was somewhat off from what he had been trained to expect. Amazing—and a preview of today. The rest of us would have been jumping with glee like kids in a bouncy castle, unlike the cool, calm and collected Armstrong, who had taken multiple flights in a KC-135 jet to simulate low gravity.

Simulations helped create the computer industry. The first U.S. computer, the Eniac, ran statistical simulations for hydrogen-bomb blasts—not something you can test in the lab. Every chip in your personal computer and phone is simulated well before it is manufactured in billion-dollar fabrication plants. Simulating weather patterns has led to better though never perfect forecasts.

Commercial airline pilots log hours in simulators practicing situations, like hitting a flock of seagulls, that they’ll hopefully never face in real life. So do soldiers, surgeons, nurses—even truck drivers. Add cheap virtual-reality goggles, and all sorts of training can be enhanced, from tricky manufacturing to firefighting and law enforcement.

Simulations can be useful for nearly every product being designed today. Cars have long been tested in wind tunnels and crash labs, but most of that experimentation can now be digitally simulated before the prototype is ever built. Bridges and buildings are now modeled and run through worst-case scenarios before plans are completed. Design, simulate, fix, simulate again and roll out.

WSJ: Lessons From a Trip to the Moon

https://www.wsj.com/articles/lessons-from-a-trip-to-the-moon-11563137910

“It’s a 1202. What is that?”

Fifty years ago this Saturday, Neil Armstrong and Buzz Aldrin were 30,000 feet above the moon and descending in the lunar module. Behind their seats was the 70-pound Apollo Guidance Computer, with 2,800 Fairchild Semiconductor integrated circuits, each containing two logic gates and running at a speed of 43 kilohertz. It was programmed for the physics of a lunar landing, able to read data like speed, angle, altitude and fuel remaining. But a warning horn sounded. Mr. Aldrin typed 5-9-Enter on a keypad and the machine displayed the error code “1202.” In all their simulations in Houston—so many the “abort” button label practically rubbed off—they had never seen a 1202. So Armstrong asked.

Each program in the guidance computer used a 12-word, 16-bit data-storage unit known as a Core Set. The system had handled countless complicated tasks through the takeoff, approach and orbit, but something had gone wrong during the landing attempt. Turns out a radar used to track the Command Module was overrunning the Core Sets with bad data. Fortunately, the guidance computer had been designed to crash and reboot when that happened, and not lose data so it could continue its guidance function.

Imagine sitting in a tin can, about to make history, trusting a computer with your life, already white-knuckled, and getting the early equivalent of the Microsoft Blue Screen of Death. Each time the alarm sounded, the display went blank for 10 seconds as the computer crashed and rebooted. There were five alarms and crashes in four minutes, the last at 2,000 feet. With no clear sign of any systems malfunctioning, the astronauts and Mission Control scrambled to make sense. Armstrong’s heart rate hit 150. The display finally returned 800 feet above the lunar surface. Noting no data was lost, the flight controller in Houston, Charlie Duke, replied, “Eagle, looking great. You’re GO.”

There are many lessons from Apollo 11, and you’ll hear them all week. First, timing is everything: Inspired by John F. Kennedy, all six lunar landings occurred during Richard Nixon’s first term. Another obvious and overlooked lesson is that technology is an indispensable yet imperfect tool. I’ve had my iPhone crash trying to hail an Uber. I know, First World problem.

Apollo 11 was a source of pride, but also confusion. Whenever hurricanes and other freaky weather hit in the ’70s, my grandmother would explain it by insisting, “They touched something up there on the moon.” Sadly, climate thinking hasn’t advanced much.

People often ask whether space exploration is worth the cost. I’ve certainly been in and out of the “We went to the moon and all we got were Velcro and Tang” camp. Doubters now insist the money should have been spent to fight poverty in inner cities.

WSJ: The Key to the Long Expansion? Logistics

https://www.wsj.com/articles/the-key-to-the-long-expansion-logistics-11562526973

“You can’t recommend those stocks,” a Wall Street strategist insisted in 1986. “We’re in the third year of a four-year expansion. They won’t work.” Being naive, I did it anyway. The expansion lasted a total of almost eight years, until July 1990. Strategists don’t know much, but to be fair, it was a B-school accepted truth that expansions last four years. Another expansion began in 1991 and lasted a record 10 years. And this month we broke that record. Since June 2009, the U.S. economy has kept growing. Every day is another record.

Did you ever wonder why we are enjoying a decadelong run? What changed? Everyone wants credit. Was it the Federal Reserve and its relentless stimulus? Nope. The Fed creates the money the economy needs, but not the need itself. Obama or Trump policies? A divided Congress? Demographic shifts? A strong or weak dollar? Actually, none of the above. The answer is just-in-time. You can thank all those freshly minted consultants you see in premium economy crisscrossing the country with their AirPods and Allbirds and airy attitudes.

In the previous era, before pervasive computing, economies would live and die by inventory cycles. Heck, biblical times record seven years of feast and seven of famine. The expansion starts, consumers buy, investment and hiring ramp up, wages and prices rise, inflation emerges, consumers buy ahead of price increases, investment peaks, inventories build, consumers are tapped out, recession starts, inventories are drawn down, and layoffs begin—then start all over every four years. Until recently, price signals didn’t travel very fast, and inventory tracking used clipboards.

In a micro version of this cycle, the videogame industry had a huge bonanza in the early 1980s that ended in ’83 with bust of the highly anticipated “E.T. the Extra-Terrestrial” game. Warner Communications literally buried about 700,000 unsold cartridges of “E.T.” and other titles, and lost more than $500 million. The semiconductor industry got stuck with loads of chips in inventory that had to be written down. It was ugly. After a similar inventory mess related to then-newfangled personal computers, the tech world started implementing just-in-time delivery. Companies like Compaq would ask for chips to be delivered Tuesday for PCs shipped on Wednesday. This gradually smoothed out the cycles of a very volatile industry.

Thirty-six years later, much of the global economy has perfected this just-in-time supply chain. Digital cash registers and bar codes log consumer purchases. Logistics software allows manufacturers to track every production detail everywhere on the globe. Data is fed into giant databases that forecast demand. Manufacturing, transportation and retail are a highly choreographed water ballet of delivering inventory right before it’s needed. Exactly the right amount of toothpaste is magically dropped onto Walmart shelves each night.

WSJ: Kill Section 230, You Kill the Internet

https://www.wsj.com/articles/kill-section-230-you-kill-the-internet-11561924578

The internet was almost killed in its cradle. Will it happen again? In October 1994, an anonymous poster on Money Talk, a bulletin board run by the early online service Prodigy, accused Long Island brokerage firm Stratton Oakmont of fraud. Yes, that Stratton Oakmont, of Leonardo DiCaprio and “Wolf of Wall Street” movie fame. Fraud central. But in 1995 Stratton Oakmont sued Prodigy for defamation. The firm claimed the online service was liable as a publisher because Prodigy posted content guidelines that human “board leaders” enforced and deployed software that screened for offensive language. Sound familiar?

Amazingly, Prodigy lost the case. This prompted Congress to insert language into the Communications Decency Act of 1996, known as Section 230: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

That’s all it took to enable the online world as we know it today. Online companies can claim they are a bunch of disk drives and, with few exceptions, innocently passing along whatever their users post on them. Without Section 230, tort lawyers would have smothered the internet. Facebook , Twitter and Google today would be Little Tech—if they existed at all.

Section 230 also allows companies to restrict content that is “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected.” With these “community standards,” online companies can remove anything and can’t be sued.

There’s a wide lane between moderating hate speech (Facebook Live of Christchurch shooting) and crippling free speech (banning conservative voices). OK, but Facebook and the like are often governed by the court of public opinion, with its varying views on fake news, identity politics and political meddling. Seems lots of folks are triggered by what they see online. But Facebook, YouTube and Twitter’s community standards are murky and vague and seem to change daily, so the dogpile to regulate or even break up tech giants grows, with the addition of new bodies across the spectrum from Elizabeth Warren to Ted Cruz.

Are online companies publishers? Should Section 230 be repealed? Heck no.

Gerald Loeb Awards 2019

Thrilled to win the Commentary Category.

http://newsroom.ucla.edu/stories/ucla-anderson-school-of-management-announces-2019-gerald-loeb-award-winners

WSJ: The Future Isn’t What It Used to Be

https://www.wsj.com/articles/the-future-isnt-what-it-used-to-be-11560714338

Founded in 1867, the Keuffel & Esser Co. commissioned a study of the future for its 100th anniversary. If you’re of a certain vintage, you might have used a K&E slide rule. Their “visionary” study was a huge dud, missing completely the electronic-calculator boom that came a few years later. They shut down their slide-rule engravers in 1976. As Mark Twain said, “It’s difficult to make predictions, especially about the future.” Or was it Niels Bohr? Maybe Yogi Berra?

My father was a proud member of the Book of the Month Club. Bored on a visit home in 1989, I devoured that month’s selection, “Megamistakes” by Baruch College professor Steven Schnaars, where I read about K&E’s study. The book’s message was simple: Don’t be fooled by prevailing opinion, and don’t extend trend lines into the future. Mr. Schnaars chronicles how 1950s jet-age thinking morphed into ’60s dreams of a space-age utopia. A 1966 study by conglomerate TRW forecast manned lunar bases by 1977, autonomous vehicles by 1979 and intelligent robot soldiers by the ’90s. AT&T ’s Picturephone service, ultrasonically cleaned dishes, cheap energy forever, future shock everywhere—all wrong.

Of course, the 1973 oil embargo changed everything. But by the end of the ’70s, expensive oil was considered permanent and the future was about scarcity and energy saving and we’d all be driving small cars with CB radios and living in R. Buckminster Fuller-inspired geodesic domes. General Electric even ramped up production of small refrigerators. Mistakes!

Then the ’80s came along. A bull market and cheap oil lifted the ’70s fog, but everyone believed the Japanese would soon rule the world since they were kicking our butts in manufacturing and the Imperial Palace in Tokyo was worth more than all the real estate in California. Personal computers were mere toys. Oh, and the Soviet Union was a world superpower. Megamistakes!

After the ’87 crash and first Iraq war, the prospects for economic growth in the ’90s were dim. Then Netscape and its browser went public in 1995 and we were off to the races again. By 1999 techno-utopia was in full swing, and all you needed was a good name like burnmoney.com to raise millions and be worth kazillions. Gigamistake!

The Nasdaq’s dot-bomb implosion and 9/11 changed the mood quickly. In 2003 I tried to pitch a book about Silicon Valley and Wall Street and was told nobody would care about them ever again and asked if I knew anything about bioterrorism or Islamic fundamentalism. Uh, no. But I wish I knew about house or derivative flipping - that’s what the aughts were about, until the Great Recession. The 2010s were about holding cash, maybe in your mattress, vs. owning stocks. Oops— Apple , Amazon and Microsoft would soon flirt with trillion-dollar valuations. Teramistake?

WSJ: A Panda Could End the Trade War

https://www.wsj.com/articles/a-panda-could-end-the-trade-war-11559507419

China gave the U.S. two giant pandas in honor of Richard Nixon’s 1972 visit—Ling-Ling and Hsing-Hsing. (We gifted two musk oxen. Fair trade?) China must have been trying to tell us something. “Ling” in Mandarin translates to zero, which happens to be the right percentage for tariffs. Zero, zip, nada, goose egg.

Last July, President Trump and European Commission President Jean-Claude Juncker agreed to “work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.” It’s not a done deal, and autos are—wink wink—national-security threats, but there’s that big fat zero.

Tragically, the U.S.-China trade war is out of hand and both economies are slowing. I’ve lost track of 10% and 25% tariffs on $200 billion in goods, or is it $325 billion? One more round of sanctions and already-expensive iPhones will pop another $200. No one wants that. It’s time to go back to basics.

I get it. We run trade deficits with China. They make all our shoes and toys and lots of apparel and Hibachi grills. So what? You don’t like cheap sneakers? But in the next breath, we hear about intellectual-property theft and subsidies of state-owned companies and that China will soon spend double the U.S. on innovation. We hear the screams from the Mnuchin-Navarro-Lighthizer mercantilist wing of the Trump administration that “something must be done!”

So we get threats and tariffs and whispers that it’s all just a negotiating tactic to stop China’s trade abuses—the art of the trade deal. Some art—now China telecom giant Huawei’s products are banned in the U.S., causing giant disruptions for U.S. software companies and chip makers. U.S. companies are discouraged from hiring Chinese engineers. Soybean exports are curtailed. Critical rare-earth metals from China might get cut off.

Why the impasse?

WSJ: Dear Grads: How to Slay Dragons in the Business World

https://www.wsj.com/articles/how-to-slay-dragons-in-the-business-world-11558294469

Dear grads: Finish streaming Bird Box, stop moisturizing with CBD, lace up your Allbirds and listen up on how to get ahead. Dressed in medieval gowns and tassels, you’ve been drowned with graduation platitudes and advice.

This year didn’t disappoint. Former CNNer Soledad O’Brien told University of Oklahoma grads, “I think what [my mother] was saying is most people are idiots, so you might be a bigger idiot if you listen to them all the time.” ABC’s Jimmy Kimmel had a surprisingly capital idea for the University of Southern California’s newly minted doctors, telling them that even though the health-care system is unfair, “you should still make a lot of money.” He added: “You deserve it for working so hard and eating so much ramen over these years. And not even the Top Ramen, the bottom ramen.” My favorite is this take on “be yourself” from the Rev. France Davis, who told applauding University of Utah graduates: “Be what you is and not what you ain’t, ’cause if you ain’t what you is, then you is what you ain’t.”

Now for some other realities. It’s the best job market in two decades. But be warned—the working world is very different from campus life. You need to stand out, but how? There are plenty of faceless drones. At your new job, you’ll quickly notice people of no particular talent who are successful inside organizations. I had an old boss who explained an incompetent rival’s political rise: “He climbed the ladder of success, hand over hand with knives in other people’s backs.” Don’t be that guy!

Instead, here’s my simple advice: Be a hero. You’ll have a job with a vague description. Sales. Physician assistant. Manager. Business intelligence. Everyone comes in with a task. Don’t let your job description be a straitjacket. Do something above and beyond. That’s what your employers want, whether they admit it or not.

I’ve seen it again and again. I heard from a woman named Carol working in international marketing for a Midwest company. She was asked by a superior working on a board deck for a list of European competitors. She came up with a single PowerPoint slide that visually showed the reach of each competitor overlaid with her company’s distributors and analysis of how it could best compete. The slide was a huge hit. The chief operating officer thanked her. She got a raise and more responsibilities.

On Wall Street, I used to work with a salesman named Steve. A deal to raise money for a paper company was stuck. No one would touch it at $20. It was uglier than Dunder Mifflin. Steve had a new account in Milwaukee and insisted it buy several million shares, but at $18. On hearing someone was willing to buy, other accounts piled in. Steve is still known as the guy who got the ugly deal done—a hero.

WSJ: The Federal Reserve Is Flying Blind on Inflation

https://www.wsj.com/articles/the-federal-reserve-is-flying-blind-on-inflation-11557688767

I never bought into the “Maestro” description of former Federal Reserve Chairman Alan Greenspan. Mostly because of, well, the 1987 crash, the ’94 bond massacre, his ’96 “irrational exuberance” speech, boosting the money supply before the nonexistent Y2K glitch, which poured gasoline on the dot-com fire, lowering interest rates in the early 2000s to chase the ghost of deflation and then not raising them fast enough to stave off the mortgage mania, which led to the financial crisis and Great Recession. Other than that, Mrs. Lincoln . . .

It turns out Mr. Greenspan was flying blind. The most important economic indicator, the inflation rate, is flawed. Don’t take my word for it. In an interview at Wharton last month, Mr. Greenspan noted: “We have a problem with measuring inflation.” He’s right. April’s 12-month consumer-price index came out Friday at 2%—and it’s wrong.

There’s a simmering controversy over which measure of inflation is best: the CPI, the GDP deflator, the chain-weighted CPI, or even the trendy personal-consumption expenditures index—each of which typically shows an inflation number within 0.3 percentage point of the others. Choosing the right inflation number is vital because it’s used everywhere: cost-of-living adjustments for wages, the Fed’s interest-rate decisions, and tracking wages over time to determine, for example, how the middle class is doing. Inflation is really important. Get it wrong and you’ve blindfolded every economist.

I’m convinced that all of the common measures overshoot by at least 2 percentage points, and maybe even 5 or more. That’s because of the flaw in the Bureau of Labor Statistics’ hedonic adjustment, which totally misses the way the cost of technology declines over time. As we noted a year ago, “by the time the BLS puts something new in the CPI basket, it’s already cheap, so it misses the massive human-replacement price decline.” Google Lens on a $35 phone, for example, can now translate and read aloud signs in 14 languages. Does the BLS capture the costs that technology saves compared with the services of human translators.

Mr. Greenspan is no tech fanboy. He told “60 Minutes” he writes longhand with pen on paper while sitting in his bathtub. But he acknowledges the impact of technology on prices. “Because products are continuously changing,” he said in last month’s interview, “when new products go on the market, they come in at relatively high prices. Henry Ford’s Model T came in at a very high price, and the price went down as technology improved. You didn’t start to pick up the price level until well into that declining phase.”

Mr. Greenspan continued: “So there is a bias in the statistic. You’re getting statistics which are not correct.”

WSJ: Blue and White Collars Don’t Fit Every Job

https://www.wsj.com/articles/blue-and-white-collars-dont-fit-every-job-11557090321

“Give me a job, give me security / Give me a chance to survive / I’m just a poor soul in the unemployment line / My God, I’m hardly alive / . . . I’m gonna be a blue collar man.” So sang Styx in 1978. Now headlines blare “Joe Biden Makes Appeal to Blue-Collar Workers.” But is that a unified voting class anymore?

The moniker was born 95 years ago when the Times newspaper in Alden, Iowa, suggested, “If we may call professions and office positions white collar jobs, we may call the trades blue collar jobs.” It stuck. In “The Audacity of Hope,” Barack Obama worries that “the wages of blue-collar Americans” are held back by illegal immigration. Anthony Scaramucci even titled his nine-long-days-in-the-White-House memoir “Trump: The Blue-Collar President.” They evoke a workforce divided between brains and brawn, lunch pails vs. three martinis.

But today there is no such clear divide between blue and white. According to the Bureau of Labor Statistics, goods-producing jobs—manufacturing, mining, construction, textiles—averaged 38% of nonfarm payrolls in the 1950s. They’re only 14% today. Manufacturing was 30%, but it’s less than 9% today. Service jobs—from cashier to caterer to caretaker—are now 71% of total employment. Was bus driver Ralph Kramden blue-collar? Sure. But is your Lyft driver, or your Starbucks barista?

Country singer Travis Tritt tried his own definition of blue collar in 1992: “I make my livin’ with these two hard workin’ hands / Won’t ever be no millionaire / I’m a blue collar man.” Now it’s much fuzzier.

Politicians trying to attract idealized blue-collar voters will be aiming their appeals at a small and shrinking group. The range of industries Americans fill is now more diverse than the “Star Wars” cantina. Here are some new “collar” categories.

Horse collar. Transportation is a giant industry staffed by millions of workers moving people or things from one place to another. It includes everyone from pilots to truck drivers and tour guides. All work with their hands (and often feet), and their fate is tied tightly to energy and technology. When oil prices rise, jobs disappear. When autonomous vehicles show up, many jobs may vanish for good. These are vital issues for this slice of Americans.

Red collar. Doctors work with their two hands and cut into you. Nurses draw your blood. Orderlies clean it up. Most are on their feet all day. It sounds blue-collar, but it’s a huge service industry that will represent 20% of the economy within a decade. U.S. health-care workers care most about one thing: who’s paying. Talk of Medicare for All scares them, because employees in socialized health-care systems, especially doctors, sometimes make half as much.

WSJ: Jamie Dimon’s Timely Warning About Socialism's Misery

https://www.wsj.com/articles/jamie-dimons-timely-warning-11555873352

Socialism is now woker than a two-for-one Che Guevara T-shirt sale, with Bernie Sanders leading the Democrats’ presidential primary polls and Alexandria Ocasio-Cortez dominating the party’s imagination.

In a rare calling-out of this bogosity, JPMorgan CEO Jamie Dimon warned shareholders this month that “socialism inevitably produces stagnation, corruption and often worse.” He was echoing Winston Churchill’s observation that socialism allows for “the equal sharing of misery.” Why is it only capable of generating misery?

Because under socialism, politics rather than productivity drives employment. Technological innovation is suppressed. Long ago, an Israeli explained to me that under socialism—Israel’s economic system until 1985—you would always hire two workers to do the job of one.

Of course, there is a spectrum of socialism. The textbook definition is government ownership of the means of production, as in the communist-run Soviet Union or Cuba, or the state-owned factories of China today. But socialism can also mean “owning” an industry by burying it in regulation (see education, Medicare, the overregulated auto industries and so on). 

Socialists are modern-day Luddites, destroyers of technology to preserve jobs. Article 4 of the current postal-workers’ union (sweetheart) contract states that “any new job or jobs created by technological or mechanization changes shall be offered to present employees capable of being trained to perform the new or changed job.” It’s one reason, even with automation, we still have 500,000 postal workers when the right number is zero. Similarly, Detroit was slow to use robots. It’s only recently that United Auto Workers union contracts did away with job guarantees.

Workers at the Port of Oakland went on strike to protest the use of RFID tags on shipping containers because it would kill lucrative clipboard-toting jobs. Productivity be damned.

And that phantasmagoria, the Green New Deal? It’s a productivity pallbearer, with its federal job guarantees and a new mechanism to support those “unwilling to work.” Where do I sign up for that?

WSJ: What You Need to Know to Pick an IPO

https://www.wsj.com/articles/what-you-need-to-know-to-pick-an-ipo-11554661746

It’s red-herring season for IPOs—so named for the red warning language on the left side of an initial public offering’s preliminary prospectus. Thanks to the Federal Reserve’s interest-rate pause, the IPO jailbreak is becoming a stampede. Last month Lyft raised $2.2 billion. Pinterest is next, and Uber, Slack, Postmates, Airbnb and others likely aren’t far behind.

How do you know which IPOs to buy? No, not to trade—you’d never get it right. Lyft priced at $72, traded at $85 on its first day, then closed at $78, only to fall to $67 on its second day. It’s now $74. I’m talking about buying and holding for a few years. Yes I know, how quaint.

The trick is to read the prospectus. What are you, crazy? That’s a couple hundred pages. Well, not the whole thing. But remember, where the stock trades on its first day is noise. There is usually a lockup of insider shares for 180 days, which are then, like a bucket of cold water, thrown on the market. So understanding long-term prospects are critical. Here are a few shortcuts.

First, glance at the underwriters along the bottom of the cover. On the top line are the banks putting their reputation on the line. If the one on the far left is Goldman Sachs , Morgan Stanley or JPMorgan , you’re probably OK, in that order. If it’s Soprano & Sons, run away.

Next, open the management section and study the directors. Forget the venture capitalists or strategic partners with board seats—they have their own agendas. Non-employee directors are the ones who are supposed to be representing you, the public investor. And their value depends on their experience.

WSJ: Rejection Is Like Rocket Fuel

https://www.wsj.com/articles/rejection-is-like-rocket-fuel-11553459174

Rejected? Take a lesson from University of Tennessee basketball coach Rick Barnes. According to ESPN, Mr. Barnes has saved every rejection letter he’s ever received, including those from Indiana coaching legend Bobby Knight and Louisville coach Denny Crum. When hyper-announcer Dick Vitale heard this, he said, “Wow, those are real schools.” Turns out Dickie V was turned down by almost every high school and small college he applied to coach. These are successful people holding on to long-ago rejections. Effect, meet cause.

Rejection notices used to be called boot letters (until email ruined everything). High-school seniors would draw a boot on college rejection letters and wallpaper their rooms. College seniors would thumbtack job rejections, with an inked boot, on their doors.

These happy rejects are in good company. One publisher turned down Herman Melville’s “Moby-Dick,” saying, “First, we must ask, does it have to be a whale?” Joseph Heller’s book once was turned down with the comment, “I haven’t the foggiest idea about what the man is trying to say. Apparently the author intends it to be funny.” Heller named it “Catch-22.” John Cleese’s hilarious sitcom “Fawlty Towers” initially was written off as “a collection of clichés and stock characters which I can’t see being anything but a disaster.” And there’s Steve Jobs: “I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me.”

Now it’s college-admissions week. You or your child might soon be turned down by some institution of higher learning. Or worse, maybe you lost a spot because some pushy parents used William “Rick” Singer’s tutoring and college-application “services” and “side door” to get into Yale or Georgetown or USC.

So how do you handle it? In one Ted Talk, a psychologist named Guy Winch suggests you “apply emotional first aid,” and if that doesn’t work, try to “boost feelings of social connection.” That sounds like a first-class ticket to Depressionville. My advice? Ignore the namby-pamby voices telling you to forget it, let it slide, move on, or pack up your troubles in your old kit bag. And don’t waste your money on books filled with motivational gobbledygook, like Norman Vincent Peale suggesting, “Change your thoughts and you change your world,” or Tony Robbins’s insight: “Where focus goes, energy flows.”

Instead, embrace rejection. It’s a power boost. Grab it. Internalize it. Feel it. Swirl it under your tongue like a single-malt scotch, or a Mountain Dew Baja Blast for you high-schoolers.

WSJ: Warren’s Populist Puritanism or Should we break up Facebook, Google, Amazon and Apple?

https://www.wsj.com/articles/warrens-populist-puritanism-11552848483

H.L. Mencken defined puritanism as the haunting fear that someone, somewhere, may be happy. Remember that amid the deluge of demands to break up Facebook , Google, Amazon and Apple .

Columbia law professor Tim Wu insists that bigness is bad. “We’ve let Facebook have their ride, they’ve made their money and they’ve been very successful,” he told the American Enterprise Institute last month. “I just think there’s a very good track record in tech of trying to put pressure on the monopolist and break things up a little bit.” Basically, Facebook got big and now it’s someone else’s turn.

Wannabe president Elizabeth Warren wants to “break up Big Tech” and split the companies into heavily regulated “platform utilities.” She told crowds at South by Southwest: “The monopolist will make fewer monopoly profits. Boohoo.” The politics of envy is the populist playbook.

Yet the Sherman Antitrust Act prohibits two specific types of business practices: anticompetitive agreements, or collusion, and conduct to limit competition. Judges define these violations by a consumer-welfare standard, assessing whether consumers are harmed by a lack of competition. “Innocent monopolies” earned by merit are not illegal. Antitrust says nothing about bigness.

No matter. The calls are getting louder for Facebook to split off Instagram and WhatsApp. Same for Amazon carving out Whole Foods. Or Google divesting its 2007 acquisition DoubleClick. Or spinning out the App Store from Apple, as Spotify is seeking in the European Union. There’s little sign of consumer harm in any of these cases.

Sure, the tech titans have some issues. Google’s searches favored its own sites over others. Facebook sold private information after agreeing not to, and the Federal Trade Commission is set to collect a huge fine. So keep up the pressure. Firms clearly ought to respect property rights better, and pay for news content and user data. But demanding divestitures and regulation is an old trick competitors use to get government to do their bidding. In reality, the moves would freeze innovation without enhancing competition.

WSJ: Impeachment and Your Investments

https://www.wsj.com/articles/impeachment-and-your-investments-11552245553

“It’s very clear that the president obstructed justice,” House Judiciary Committee chairman Jerrold Nadler told ABC’s “This Week” last week. On the same show, House Republican Leader Kevin McCarthy said Mr. Nadler “decided to impeach the president the day the president won the election.” You don’t get better foreshadowing than that! The $64 trillion question is what happens to the stock market if President Trump is impeached.

I’ve long contended that only fools predict stock markets, so here I go. Fortunately, there are plenty of clues. A week before Election Day 2016, analysts at Barclays forecast the market would drop by 11% to 13% if Mr. Trump was elected. When it became clear he had won, CNN anchors noted—almost with glee—that Dow 30 futures were down more than 900 points. They dropped 5% overnight, the maximum selloff allowed on the exchange. But I hope you didn’t sell: The Dow Jones Industrial Average regained 3% the next day and has risen almost 40% since. Shocked investors had traded on their emotions the night of the election, but others undid the damage when they woke up thinking about policy.

A similar mix of shock and shrewd analysis is apparent in market reactions to each of the three impeachment episodes in U.S. history. When Andrew Johnson was impeached in 1868, markets were cruising in the wake of the Civil War, with banks and railroads making up the majority of the stocks. Lehman Brothers strategists calculated that the market—call it the Dow Jones Pre-Industrial Average—rose 10% in the three months before the impeachment, paused, then rose another 6% over two months after acquittal.

Richard Nixon resigned before being impeached. From the start of the televised Watergate hearings in May 1973, the market began a 16-month decline of more than 20%. After Nixon released the White House tapes and then quit on Aug. 8, 1974, the market popped up 5% in a few days. I hope you did sell then, because that’s when the real bloodbath started. The Dow dropped 27% through early October and bottomed out at 577 in December. Messy oil markets, inflation, a recession and Gerald Ford didn’t help.

Bill Clinton’s impeachment made similar shock waves. During the run-up to the release of the Starr report, from July through September 1998, the market sold off almost 20%. A friend who ran a big investment fund told me, “I don’t care what Clinton does with his sex life until it affects my portfolio.” Financial chaos after Russia’s debt default made matters worse. After Mr. Clinton was acquitted in February 1999, the dot-com debauchery began.

So if a Trump impeachment takes place, here’s what I think will happen: First, stock futures will soar, maybe by as much as 5% on Day 1. Bells will peal across the land, and I’d expect massive flash mobs dancing in circles singing “Ding, dong, the wicked witch is dead!” Or something like that.

WSJ: Superheroes Are Rescuing Hollywood

https://www.wsj.com/articles/superheroes-are-rescuing-hollywood-11551045451

I’ve been around the special effects and movie business for decades as an adviser and investor and had a front-row seat to the development of computer-generated imagery. On a tour of the back lot at Paramount Pictures in the early ’90s, my host pointed to a shallow pool and said: “Here’s where Charlton Heston parted the Red Sea in ‘The Ten Commandments.’” I was impressed—but playing my role as an annoying Silicon Valley visitor, I replied “Someday this will all be replaced by CGI.” I was right. CGI has been the best thing to happen to the movie business—and a curse.

Take a look at the top 10 domestic grossing films of 2018: “Black Panther,” “Avengers: Infinity War,” “Incredibles 2,” “Jurassic World: Fallen Kingdom,” “Aquaman,” “Deadpool 2,” “The Grinch,” “Mission: Impossible—Fallout,” “Ant-Man and the Wasp” and “Solo: A Star Wars Story.” Not a single one would have even been greenlit without computer graphics. I had to go back to 2014’s “American Sniper” to find a top-10 grosser that wasn’t CGI dependent. Even this year’s dramatic films needed CGI, like re-creating 1985’s Live Aid concert at Wembley Stadium in “Bohemian Rhapsody.”

Except for “Mission: Impossible” they’re all superhero movies and animations. The plots are similar and shallow: Outsmart villains, save the world, fight a giant monster, and resolve somebody’s daddy issues. But they entertain. Movies are supposed to transport you somewhere else for 110 minutes, then drop you back into your mundane existence. You want to see something you’ve never seen before—hence the success of watery “Aquaman” and vapid “Venom.” Audiences want faraway galaxies, explosions and a little humor. And when that gets old, just have the superheroes fight each other.

The rest of Hollywood looks down their noses at comic-book movies, but they should be thankful. “Avengers: Infinity War” grossed more than $2 billion world-wide. In a decade, 20 Marvel superhero movies have grossed a total of more than $17 billion. That pays for a lot of dull arty films, flatulence-joke comedies and oversexed, clichéd rom-coms that nobody goes to. It’s as if Hollywood has forgotten how to make movies people want to go see. Whose idea was it to make the 2017 Matt Damon eco-dud “Downsizing,” or Jennifer Lawrence’s allegorical “Mother!”? I’d like my four hours back.

My wife hates watching movies with me. At the right moment each time, I lean over and say: “Boy meets girl, boy loses girl, boy gets girl back,” or some derivation. And when it inevitably happens, I say, “And there’s the message.”

The so-called dramatic films are just as bad. At the Oscars, the word “best” in best picture has been watered down to be almost meaningless.

WSJ: It's Time To Fire Your Doctor

https://www.wsj.com/articles/its-time-to-fire-your-doctor-11549829009

Barack Obama famously and falsely said, “If you like your doctor, you will be able to keep your doctor, period.” But . . . what if you don’t like your doctor?

Let’s say you, like me, are one of the 20 million Americans who work for themselves—no boss, but also no corporate-tax deduction for health insurance. The smart move is to get a high-deductible insurance plan. Now it suddenly matters what doctors charge: $500 to take your blood pressure and bang your knee with a rubber hammer, $1,200 for a blood test that uses pennies worth of chemicals to tell you your hemoglobin levels are fine. Plus four months to get an appointment, and then the doctor asks you to fax an authorization. What? It’s 2019. It’s time to fire your doctor.

Like roughly half of American adults, I’m borderline: hypertensive, high cholesterol, though only “pre”-diabetic. A streak of misdiagnoses has led me and many others to take doctoring into our own hands. I do an annual blood test for $199 through WellnessFX and get results on a smartphone app. A Bluetooth-connected cuff from Omron Healthcare tracks my blood pressure and even notes atrial fibrillation or irregular heartbeat. A Fitbit scale tracks my weight. Beautyrest Sleeptracker tells me my REM sleep duration. My Apple Watch charts my resting pulse and does a simple electrocardiogram. The more data, the better.

When you do get sick, you still need to see a doctor—they have that prescription pad. But insurance companies tired of overpaying for five-minute doctor visits have begun setting up alternatives. Sutter Health runs walk-in clinics for $129 a visit. Online care is cheaper, so Anthem Blue Cross encourages customers to use LiveHealth, a videoconference platform, for $49. Aetna has a deal with Teladoc, a $4.5 billion public company, for $38 consultations. No pain meds, of course, but almost everything else.

Consumer-driven options have already changed nonvital care. After doing in-home teeth impressions, you can order orthodontic aligners for $80 a month. For acne treatment, you can upload photos of affected areas and receive medicine by mail monthly. Technology is lowering costs and improving care on all fronts.

Technology has moved so fast that several smartphone-based platforms now function like Uber for doctors:

WSJ: Strike Back Against Every Cyberattack

 

https://www.wsj.com/articles/strike-back-against-every-cyberattack-11548624081

Another week, another data breach. The latest is 773 million online accounts for sale, many with passwords included, known as Collection #1. More are likely to come—go ahead and check your status at HaveIBeenPwned.com. All this the same month Marriott admitted that five million unencrypted passport numbers were snatched from its system, probably by the Chinese. Oh, and the Russians might have hacked the Democratic National Committee again after the 2018 midterms. How do we stop this?

The foreign hacks are the most disturbing. Last month members of a Chinese espionage ring known as Advanced Persistent Threat Group 10 (a k a “Godkiller” and “Stone Panda”) were charged by the Justice Department with hacking NASA, the Jet Propulsion Laboratory and even IBM . Earlier last year the Chinese were caught stealing submarine data from a U.S. Navy contractor. And horror of horrors, in 2017 an Iranian national hacked HBO and threatened to release unaired episodes and plot summaries from “Game of Thrones.

The U.S. has done close to nothing in response. Sure, special counsel Robert Mueller indicted 12 Russian intelligence officers last summer. I’m sure they’re quaking in their boots. Maybe those “Game of Thrones” episodes could have taught our leaders something about retaliation and revenge.

So what is America’s policy? That’s unclear. But a good start would be to heed the words of Israeli Prime Minister Benjamin Netanyahu, who told the press last week that his state has a permanent policy of hurting “everyone who is trying to hurt us.” The U.S. needs a similar stance to halt cyberattacks.

John Yoo, a Berkeley law professor and former Justice Department official, sees a parallel between deterrence in cyber and nuclear warfare. “Offensive nuclear weapons are relatively cheap,” he explains to me: “It’s defensive systems that are expensive.” Think about it. Each mission to drop one nuclear bomb would cost the U.S. about a quarter-billion dollars. But we’ve spent trillions on our defense and deterrent system. The nuclear triad of intercontinental ballistic missiles, bombers and subs ain’t cheap.

Mr. Yoo continues: “Similarly, offensive cyber weapons are cheap. It’s defensive cybersecurity tools that are expensive.”

WSJ: Stock Picking Is Like Time Travel

https://www.wsj.com/articles/stock-picking-is-like-time-travel-11547412001

Tesla stock—bam! Apple —kapow! That sound you hear amid the market tremors is the future screeching back to the present, like the wail of the flux capacitor in Marty McFly and Doc’s DeLorean. Wall Street perfected this sort of time travel long ago: Successful investing is mostly about looking into the future and deciding what to pay for it today. But how do investors know where to look?

The equities side of Wall Street, including me, always writes off bond investors as automatons. Their business is straightforward: Bonds have a face value, maturity date and coupon. That’s it. The rest is math such as Macaulay duration, which is basically how long it takes to get paid back. Investors just guess future interest rates and the risk of default. How hard is that?

If only it were that simple for stocks. At its most basic level, the value of a company is the sum of all its future profits discounted back to today. But it’s tricky to pin down this value because the variables are all loosey-goosey: earnings, growth rate and a theoretical discount rate. Future earnings are at the whim of management, growth depends on the economy and industry trends, and the discount rate is based on inflation and that fuzzy thing called risk. In other words, every input to the value of stocks is elusive. That’s why stocks rise and fall by the minute.

It helps to think of stocks as having a focal length, like the lens of a camera, which is the point in the future investors are looking at. Stocks with long focal lengths have an area of high magnification, a smaller angle of view, and fewer things in focus. Amazon’s investors were willing to overlook low margins in the short term in exchange for a bountiful prize out there somewhere. A short focal length means investors don’t look too far and can see everything all in focus, warts and all, like General Electric . Stocks have a duration, but you can’t really measure it—you have to sense it, or feel how far out the market is willing to look. It’s the most confusing part of investing.

How far should you look? Typically—though things are rarely typical in investing—investors look between 18 and 24 months into the future and apply a price-to-earnings ratio on future profits. Today the market multiple is 16 times 2019 earnings, which is close to the average for the past several decades. Since 1990, forward-earnings multiples have been as low as 10 at the 2009 market bottom and as high as 26 in the 2000 dot-com boom.

But P/E multiples aren’t buy or sell signals.

WSJ: Where in the World Is Larry Page?

https://www.wsj.com/articles/where-in-the-world-is-larry-page-11546199677

Has anyone seen Google founder Larry Page? Me neither. He’s in the witness protection program of his own doing. Brilliant.

As you chill the champagne ending 2018, the only thing worse this year than owning bitcoin was being the visible face of corporate America, especially technology. It’s the year of the beleaguered CEO, with Facebook ’s Mark Zuckerberg being the poster child under the caption “Mamas, don’t let your babies grow up to be CEOs.”

Whenever I meet chief executives, whether they’re fresh-faced startup founders or grizzled managers of public companies, I remind them there are only two rules for being successful. The first is pretty easy: Don’t run out of money. Ever. Former General Electric CEO John Flannery now knows this. Elon Musk might be whistling past this graveyard again as Tesla’s batteries run low.

And the often neglected second rule of CEO success? Hire a solid No. 2—but not for the reason you think. Sure, a competent operating person would be nice, to offload some of the drudge work. But the real purpose is to serve as a heat shield—someone to roll out front when the villagers with torches and pitchforks show up at your door. Bluntly, someone to take the blame when things go sideways, or even fire so your board doesn’t fire you. What could be more important?

In October 2015, Sundar Pichai became CEO of Google. But really, he is CEO in name only. Mr. Pichai runs a division of Alphabet, a holding company that contains Google (which accounts for 99.6% of Alphabet’s revenue) and a bunch of hemorrhaging “Other Bets.” Mr. Page is CEO of Alphabet, a heat shield between himself and trouble.

It was Mr. Pichai who fired James Damore in 2017 for writing the “Google’s Ideological Echo Chamber” memo.

WSJ: Inner Peace Is a Booming Business

https://www.wsj.com/articles/inner-peace-is-a-booming-business-11544991939

California is weird—and full of contradictions. On the one hand, California as a country would have the world’s fifth-largest economy. On the other hand, state Senate leader Toni G. Atkins is doing her best to diminish that wealth by pushing a campaign to ban fossil fuels. Despite the drama, a 2017 WalletHub survey concludes that 12 of the 20 happiest American cities are in California. Hmmm. Maybe it’s because California is home to an endless expanse of spiritual retreats—a booming enlightenment industry.

You may know of such places, promoting harmony among mind, spirit, body and earth. They have rooms filled with crystals to tune your vibrational frequency, Himalayan-salt therapies high in negatively charged ions, and meditation mazes with a speaker blasting “Ommmm” from its center. On your way to happiness are large doses of xylophonic-oboe-harpy new-age music, root-vegetable dining, cozy chakra chambers and, of course, handwritten signs with Eckhart Tolle-like spiritualist scribblings everywhere. “You have only one life to live, but if you do it right, you’ll only need one.” Insightful! And “Let go of your material possessions.” Conveniently, the Ranch at Live Oak Malibu takes care of that for you. One week starts at $7,800 a person—I hope that includes bottomless cups of bearberry herbal tea.

The famous Esalen Institute, left over from the culty ’70s, offers more than 400 workshops on topics from cosmology to other shams—er, I mean “shamanic rituals.” In 2013 Esalen brought in almost $18 million in revenue with margins rivaling some software companies.

Follow the money. According to Marketdata Enterprises, meditation is a more than billion-dollar business. Deepak Chopra is the meditation master and mogul, offering books, seminars, videos and several California-based “Perfect Health Retreats” where you can get instruction in primordial-sound meditation.

I heard Mr. Chopra pitch one of his more than 100 books at a conference I attended. His spiel was something about “your cosmic self.” He went on about the vastness of time and space and then stopped and asked attendees, “Shall I teach you how to meditate?” “Yes!” they roared. “OK, close your eyes, relax,” he said—then launched into a bunch of stuff about rotating galaxies and interstellar motion and karma. I started chuckling, because all I could think about was my favorite bathroom-stall graffito, “My karma ran over your dogma.” I opened my eyes and saw a room in a trance. Then Mr. Chopra caught my eye and I thought I saw him crack a tiny smirk. Maybe that’s how he achieves his own moments of zen.

WSJ: Life as We Know It Turns 50

https://www.wsj.com/articles/life-as-we-know-it-turns-50-1543786471

San Francisco in 1968 was littered with flower children, free love and dreams of utopia encapsulated in Timothy Leary’s exhortation: “Turn on, tune in, drop out.” How wrong that was! But out of this purple haze rose that year’s Joint Computer Conference, where an assembly of geniuses wearing white short-sleeved shirts and pocket protectors convened 50 years ago this week. The event shined a guiding light on the path to personal computing and set the modern world in motion.

On Dec. 9, 1968, Doug Engelbart of the Stanford Research Institute presented what’s now known as “The Mother of All Demos.” Using a homemade modem, a video feed from Menlo Park, and a quirky hand-operated device, Engelbart gave a 90-minute demonstration of hypertext, videoconferencing, teleconferencing and a networked operating system. Oh, and graphical user interface, display editing, multiple windows, shared documents, context-sensitive help and a digital library. Mother of all demos is right. That quirky device later became known as the computer mouse. The audience felt as if it had stepped into Oz, watching the world transform from black-and-white to color. But it was no hallucination.

At the time, the data line Engelbart used for the demo probably cost more than 10 grand a month. And he needed an amazing amount of not-yet-invented science to back up his vision: The first internet transmission wasn’t sent until the next year, when a message was sent from a UCLA lab to a terminal at the Stanford Research Institute. The integrated circuit was invented 10 years earlier, but Engelbart would be considered a false prophet today if the microprocessor hadn’t come along a few years later. He saw where the technology was headed and helped to hurry it up.

The coolest thing about this story is that, starting 20 years ago, Doug Engelbart was my next-door neighbor. We would invite him to our parties and get invited to his. At his place I got to meet the tech hall of fame: In the living room I met Ted Nelson, who conceptualized hypertext, and I met the inventor of the disk drive in his kitchen.

One of Engelbart’s biggest influences was Vannevar Bush’s 1945 essay, “As We May Think,” which envisioned a “memex” machine—a portmanteau of “memory” and “index”—that would enhance human cognition. While I chased my kids’ errant basketballs in his backyard, Doug would tell me about this sort of “human augmentation,” arguing that computer science was developing in ways that would aid humans, not replace them. Networks of humans and computers would create a “collective IQ.” He would interlock his fingers to make sure I got the point.

So what have we learned in 50 years?

WSJ: Anything Good Takes Exactly Five Meetings

 https://www.wsj.com/articles/anything-good-takes-exactly-five-meetings-1542578334

I was headed out of the office with a stack of papers I spent all week preparing. My boss stopped me at the door and asked, “What are you doing with all that junk?” I was trying to sell a company. “It’s the first meeting, right?” Yeah. “Don’t be an idiot. Leave all that stuff here.” But . . . “Don’t dump it all now. You need something to talk about the next few times you meet.” I looked confused. “Listen,” he told me, “everything good takes five meetings.”

I was mad, but he was right. Everything—and I mean everything—takes five meetings or at least five touch points. Deals, interviews, promotions, club membership, dating.

They have something you want, and you have something they want. But you can’t just come out and ask for it. Like poker, you never lay all your cards on the table. Reveal them slowly. Sadly, no one has the patience anymore.

We were all taught by Blake, Alec Baldwin’s character in “Glengarry Glen Ross”: “A-B-C. Always be closing.” As he berates an entire Chicago real-estate office, he brags, “I can go out there tonight with the materials you got, make myself fifteen thousand dollars! Tonight! In two hours! Can you? Can you? Go and do likewise!”

Two hours? That’s so 1992. A recent Comscore study shows millennials have an attention span of five seconds. That’s less than goldfish. (Sounds about right.) Everyone’s in such a hurry these days. Likes, 1-click buying, retweets, Amazon Dash order buttons, binge watching, keyless ignition.

Slow down!

WSJ: Big Brother Isn't Watching You

https://www.wsj.com/articles/big-brother-isnt-watching-you-1541361909

Hardly a week goes by that I don’t run into people who, when I ask how they are doing, tell me they’re worried about authoritarianism. Living in California, my impulse is to ask if they’re worried about the state’s one-party rule. But before I can get that out, the complaints begin: Trump, Facebook , Google, police state. Uh boy. Pot-dispensary paranoia?

This fascist-behind-every-tree thinking isn’t helped by the tech industry. Apple CEO Tim Cook told privacy commissioners in Brussels last month that personal information “is being weaponized against us with military efficiency. Today, that trade has exploded into a data-industrial complex.” Mr. Cook was poking at Facebook and Google and calling for more regulation.

In high Silicon Valley style, former Facebook security executive Alex Stamos took to Twitter to criticize Mr. Cook’s hypocrisy: “Apple uses hardware-rooted [digital rights management] to deny Chinese users the ability to install” virtual private networks. That means iPhone users in China can’t avoid their government’s censorship and surveillance. Fear mongers in the U.S. worry about authoritarianism, but in China it’s real. Anyone caught resisting there gets a mark on his not-so-proverbial permanent record.

In 2014 China began rolling out a Social Credit System, aiming for nationwide implementation by 2020. Like the FICO financial-credit system in the U.S., scores come from hundreds of data sources, but in this case those sources include more than 200 million cameras that monitor citizens’ behavior. Debtors end up on blacklists, unable to take trains or stay in luxury hotels. Some who have refused to join the military have been locked out of universities.

There are also “red lists” of good citizens, who are entitled to perks like skipping lines at ferries and not paying a deposit to rent bikes. Every man, woman and child must adapt to the government’s social pressure—or else. As the Dead Kennedys sang in 1979: “It’s the Suede-Denim secret police / They have come for your uncool niece.”

Is authoritarianism a rational fear in the U.S.?

WSJ: A Universally Bad Idea

https://www.wsj.com/articles/a-universally-bad-idea-1540147422

Bad ideas just won’t die. Ronald Reagan’s goal was to “leave Marxism and Leninism on the ash heap of history.” But they keep coming back, albeit in different forms. Of today’s bad ideas—from net neutrality to open curriculum and living wages—the most dangerous is the universal basic income.

For twisted reasons, Silicon Valley, the embodiment of meritocracy and incentives, thinks universal basic income will be the next great economic force. Facebook co-founder Chris Hughes is helping to fund a UBI pilot program in Stockton, Calif. He even wrote a book about the idea—something about 1%-ers paying money via tax credits—hardly original.

He’s not alone. Barack Obama has recently expressed interest in the idea. So have Bill Gates, Richard Branson, Mark Zuckerberg, Elon Musk, Marc Benioff and others in Silicon Valley. Why? I figure it’s their misplaced guilt about patriarchal dominance over workers displaced by automation. That’s a triple crown of bad excuses.

The enthusiasm seems infectious. In July, Chicago Alderman Ameya Pawar told the Intercept, “We need to start having a conversation about automation and a regulatory framework so that if jobs simply go away, what are we going to do with the workforce?” It wasn’t a long chat. This summer, Mr. Pawar introduced legislation for a pilot program that would give $500 a month to 1,000 families. Think of it as a new version of walking-around money. Never mind that Chicago can’t even afford to fund its public-employee pensions.

It sounds eerily similar to startup incubator Y Combinator’s Basic Income Project Proposal. It’s the harebrained idea of the organization’s president, Sam Altman. A thousand lucky folks would receive $1,000 a month for as long as five years. Another 2,000 would form a control group and might get $50 a month for their troubles.

WSJ: Think You’re Smarter Than Your Boss?

 https://www.wsj.com/articles/think-youre-smarter-than-your-boss-1539546566

Oct. 16 is National Boss Day, a Hallmark holiday if there ever was one. It’s a funny holiday, because almost all employees hate their bosses or at a minimum think they can do the job better. CEOs are especially reviled—slightly above cable installers and just below lawyers on the Rodney Dangerfield “no respect” totem pole.

Popular opinion insists that chief executives are greedy: CBS’s Les Moonves paid himself $69 million each of the last few years to air “NCIS” reruns. Or heartless: Amazon’s Jeff Bezos paid meager wages until a tight labor market forced him to raise them. Or scheming: Mark Zuckerberg and Facebook know our wants and desires. Or truth-challenged: Investors in Elizabeth Holmes’s Theranos learned that the hard way. Or plain clueless, like Lehman’s Dick Fuld and just about every other CEO.

But where would we be without them? Despite an industry of business schools, management books and seminars, nobody can teach you how to be an effective boss, leader or entrepreneur. They’re all self-taught. I’m always impressed when one is actually successful.

Most of investing is analyzing management. When I ran an investment fund, my partner and I would visit a dozen-plus CEOs a week in their offices. One rule of thumb was that if they closed their door, it was because they didn’t want their staff to catch them lying to us. Silly, I know, but it worked more often than you’d think. We’d grill them on their organization—how many people report to them directly, how soon after the quarter closes do they get accounting numbers, who signs off on contracts? The answers didn’t mean much; we were more interested in how the CEOs answered—confused, confident or hubristic—and seeing how good a handle they had on their teams.

We learned that running a company is like driving a tank down the middle of the road, except there are no windows so you can’t see the road. There are dozens of levers and knobs to adjust the tank’s direction. Your team works together to drive this machine as efficiently as possible with the fuel (capital) on hand. You’re doing fine until you sense a giant tree right in your path, and you make a million small decisions in short succession as your team scrambles to adjust the levers and knobs to get around it safely. Oh, and unknown to you, a few members are plotting a mutiny to oust you.

It’s not easy.

WSJ: Lessons From an ’80s Trade War

https://www.wsj.com/articles/lessons-from-an-80s-trade-war-1538950192

An extra two grand for a Harley Hog because of steel tariffs? We can’t be wimps in the world of trade, but tariff wars are never good. I would know: I was in the middle of one. In the mid-1980s, when Donald Trump was in casino mode and hosting prizefights, the Japanese were knocking out U.S. memory-chip makers.Hitachi instructed salesmen to “quote 10% below their price. If they requote, go 10% again. Don’t quit until you win.” The company later claimed it was never official policy, but the Japanese controlled 90% of the market for some crucial chips. Something had to be done, right? Well, no. Bear with me.

In early 1986, President Reagan’s Commerce Department cited Section 301 of the Trade Act of 1974 and ruled that the Japanese were selling chips below cost. The administration threatened dumping duties of up to 146% on Japanese memory chips. Never mind the oversupply and industry recession. To avoid duties, Japan came to the table and signed an agreement to limit exports and increase U.S. market share in Japan. Sounds like the current tariff tiff with China?

Here’s where things got weird. The chip recession continued, and the Japanese didn’t live up to the agreement. At the time, I was a 20-something Wall Street analyst, way over my head, running around the world tracking all this. In early 1987, I figured out the U.S. government was going to do something big: impose duties on computers, TVs and other products that use chips. I alerted every investor who would listen, but no one seemed to care. At a boxing match I met a reporter from the New York Times. I laid out the whole story to him. (Sorry, I didn’t know anyone from the Journal at the time.) He told me it wasn’t his beat but he’d look into it.

Sure enough, the Times ran a front-page story quoting me. And another the next day. I was sitting in my office, probably playing Tetris on my computer, when a producer from Ted Koppel’s “Nightline” called. I remember it went something like this: “I know you are very busy, but I was hoping we could send over a camera crew to talk about dumping.” I didn’t know much, but I was the expert! I thought of a good quote before they came. The interview lasted 30 minutes, but one line made it to national TV: “We can’t be wimps in the world of trade.”

I still believe that’s true, but duties and tariffs are a fool’s game. Memory chips are a notoriously low-margin commodity business. Intel got out of the memory business. So did AT&T . I’m still not sure why it was making chips in the first place.

Getting out of the dynamic random-access memory market, which Japan was dominating, was the best thing that ever happened to U.S. semiconductor industry.

WSJ: The Company Implosion Pageant

https://www.wsj.com/articles/the-company-implosion-pageant-1537724159

Minimal sales, an unproven business model, huge losses—and a multibillion-dollar valuation amid a booming stock market. Sound familiar? Dozens of companies could fit this description today. But I’m thinking about Webvan, the online grocery company that went public in November 1999. Its leaders scaled a flawed business until it failed, blowing through $830 million and declaring bankruptcy less than two years after its initial public offering.

Webvan wasn’t alone. Who can forget Naveen Jain, CEO of directory company Infospace? He declared in 2000: “The nonbelievers will be converted when we become a trillion-dollar company.” The stock peaked at around $1,300 a share in March 2000. It then fell to about $3 two years later as investors soured on the company amid accounting irregularities.

There are plenty of great companies being created today, but it’s late in the cycle. Venture capitalists are funding questionable businesses they pray will scale. It’s hard to call the absolute peak, but the brew is frothy. As Groucho Marx in “The Cocoanuts” said of Florida real estate: “You can have any kind of a home you want. You can even get stucco. Oh, how you can get stuck-oh!” Who will be this cycle’s Webvan, eToys, Pets.com?

Honorable mention: Tesla. Forget Elon Musk’s $420-a-share buyout tweet. Unlike Google or Facebook —which deliver virtually zero-marginal-cost services—Mr. Musk actually has to make cars. Many Teslas still appear to be made by hand. Tesla lost $718 million last quarter and had negative $1.8 billion in cash flow through June, with debt due soon. Cash is available, but at what cost?

Harry Lange, who ran Fidelity’s Magellan Fund, once told me his rule of thumb for valuation: Divide a company’s market value by 10 and see if it eventually can make that in annual net income. Tesla is worth around $50 billion. To make $5 billion, it has to produce and sell a million cars a year with a $5,000 after-tax profit. That’s a stretch, especially with hundreds of competing electric-car models already announced.

First runner up: WeWork. 

WSJ: Lehman: Political and Personal

https://www.wsj.com/articles/lehman-political-and-personal-1536524375

Lehman Brothers filed for bankruptcy on Sept. 15, 2008—left to twist in the wind by Treasury Secretary Hank Paulson. Ten years after, is Wall Street safe from another financial meltdown? Banks, pulling in record profits, appear to be in pretty good shape. But something seems wrong, as if the lessons of the financial crisis already have faded.

That’s only an intuition, so I called someone who would know—the former CEO of Lehman Brothers. No, not Dick Fuld, one of the public faces of Wall Street’s collapse. Instead, I talked last month with Bryan Marsal, of Alvarez & Marsal, who led Lehman for the three years after its bankruptcy. 

I asked Mr. Marsal why Lehman was allowed to fail and what lessons were learned. He responded with two words: political and personal. What made business or economic sense wasn’t considered. Mr. Marsal explained that Mr. Paulson “had no standing in the Lehman bailout decision but seemed to dominate the entire process.” The Bush administration already had bailed out Bear Stearns five months earlier, and Fannie Mae and Freddie Mac the week before. Using taxpayer money to bail out perceived Wall Street fat cats had become very unpopular.

Why was Mr. Paulson channeling Ralph Kramden? The Treasury secretary, Mr. Marsal thought, “should have taken a back seat and let the pros from the Federal Reserve drive the bus.” Plus, as a formerGoldman Sachs CEO, “Paulson simply didn’t like Dick Fuld, and he had run out of patience.” It didn’t help that in 1998, when Long-Term Capital Management needed bailing out, Wall Street got together and everyone kicked in, except Mr. Fuld’s Lehman.

On Sept. 9, Mr. Paulson told a group of CEOs about Lehman, “There’s no government money here.” Shortly thereafter, taxpayer money went into Goldman Sachs, Morgan Stanley , Citigroup and others. It seems Fed Chairman Ben Bernanke grabbed control of the bus from Mr. Paulson after the almost instant contagion and carnage from the Lehman bankruptcy. Withholding a bailout was a mistake. A subsidized merger or an orderly bankruptcy would have made more sense. 

Why is this so important? Today there is nothing stopping the political and the personal from trumping rational economic decision-making in the next crisis. 

WSJ: The Chip That Changed the World

 

https://www.wsj.com/articles/the-chip-that-changed-the-world-1535311622

Sixty years. But how much longer? In 1958 Jack St. Clair Kilby —from Great Bend, Kan.—created one of the greatest inventions, a great bend, in the history of mankind. Kilby recently had started at Texas Instruments as an electrical engineer. Most everyone left on a mandated summer break, but he stayed in the lab and worked on combining a transistor, capacitor and three resistors on a single piece of germanium. On Sept. 12, he showed his boss his integrated circuit. At a half-inch long and not very wide, it had ugly wires sticking out, resembling an upside-down cockroach glued to a glass slide.

In January 1959 Bob Noyce, another Midwesterner, was keeping busy at Fairchild Semiconductor in Palo Alto, Calif. He deployed a photographic printing technique—the planar process, which uses glass as insulation—to deposit aluminum wires above silicon transistors. Without the messy cockroach-leg wires, the integrated circuit, or chip, became manufacturable.

In March 1960, TI introduced the Type 502 Flip Flop—basically one bit of memory for $450. A few weeks later, Fairchild announced its own. The U.S. Air Force used them in 1961. So did new computer companies and even NASA in its Apollo rockets. One bit turned into four, then 16, then 64. This started the shrink, integrate, shrink, integrate, rinse, repeat motion that’s still going strong today. This relentless cost decline creates new markets out of nothing.

In 1965 Fairchild research chief Gordon Moore wrote a now-famous article for Electronics magazine, “Cramming More Components Onto Integrated Circuits.” Today known as Moore’s Law, the article’s thesis was that chips would double in density every 18 to 24 months. By 1969, the 3101 64-bit memory chip shipped at $1 a bit. We’ve come a long way. Your iPhone probably has a trillion bits at picocents a bit. Kilby received the Nobel Physics Prize in 2000 and credited Noyce, who had died a decade earlier, in his acceptance speech. You have to wonder what took the Nobel Committee so long.

Integrated circuits are the greatest invention since fire—or maybe indoor plumbing. The world would be unrecognizable without them. They have bent the curve of history, influencing the economy, government and general human flourishing. The productivity unleashed from silicon computing power disrupted or destroyed everything in its path: retail, music, finance, advertising, travel, manufacturing, health care, energy. It’s hard to find anything Kilby’s invention hasn’t changed.

Now what?

WSJ: Warner’s Plan to Ruin the Internet

https://www.wsj.com/articles/warners-plan-to-ruin-the-internet-1534110172

Virginia Sen. Mark Warner made millions in the murky world of government-issued cellular licensing. He parlayed his riches into a governorship and U.S. Senate seat. Today, from his perch as vice chairman of the Senate Intelligence Committee, Mr. Warner has produced a 20-point plan to take on Facebook ,Google and other tech giants with “potentially insuperable competitive advantages over new entrants.” Insuperable! Of course most of his proposals would end up locking the big guys in place while freezing innovation.

No matter. The shallow-analysis pundit class jubilated. Mr. Warner and Democrats could “crack down on Big Tech,” “tame social media,” and “knock Silicon Valley into shape.” Woo-hoo. The cheerleaders’ only complaint is the lack of a 21st proposal: breaking up the tech giants. Still, Mr. Warner wants to show that techland has gotten too big for its breeches and that the center of power radiates from the Hill—not the Valley. But he forgets that there’s one market to rule them all.

Good luck getting through Mr. Warner’s 23-page report. It’s filled with impossible-to-implement mandates (identify bots), silly bromides (addressing the safety and security of at-risk individuals), and dangerous power grabs (updating Section 230 of the Communications Decency Act). If even a handful of these proposals become law, faceless bureaucrats would control the internet instead of energetic entrepreneurs. No one would win under this new internet. And compliance costs would be so massive that no new startups would emerge.

Mr. Warner appears to have a John Kerry-like admiration for the power of European Union regulators. Europe’s stringent General Data Protection Regulation was one of the biggest power grabs in recent history and has lighted a fire under U.S. legislators hoping to emulate it. It would be a huge mistake. GDPR almost assures that no new innovations will come out of Europe.

And the Continent is already feeble—of the top 100 global technology companies, only 13 are in Europe. Bet you can’t name three. Heck, half are local consulting companies that shouldn’t even count. Why set up a company in Europe when the rules are so bent toward excess expense and certain failure? An American GDPR would turn the U.S. into Europe, making America’s technology industry french toast. But that’s one of Mr. Warner’s goals.

Consider the sop to lawyers.