Andy Kessler

WSJ: What Super Bowls Teach Us About Capitalism

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

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

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

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

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

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

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

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WSJ: The Market Fails a Breathalyzer

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

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

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

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

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

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

Venture capital is cuckoo.

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WSJ: A Lesson From a Howler Monkey

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

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

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

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

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

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

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

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WSJ: Those Punching-Bag Elites

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

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

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

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

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

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

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

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WSJ: A Chinese Warning for U.S. Tech

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

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

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

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

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

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

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

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WSJ: To Lie Is Human

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

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

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

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

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

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

The Washington Post “fact checkers” say that Donald Trump made an uncannily precise 30,573 false or misleading claims during his presidency, though in his first 100 days only 78 for President Biden.

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WSJ: August Is Full of Surprises

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

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

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

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

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

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

Surprise! On Aug. 6, 1991, British scientist Tim Berners-Lee published the first ever website, with information on his World Wide Web project.

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WSJ: Congress Can’t Enact a Chicken

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

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

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

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

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

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

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

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WSJ: How to be an Anticapitalist

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

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

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

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

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

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

Anticapitalists in Congress are pushing $3.5 trillion in spending unrelated to infrastructure with an Orwellian sleight of hand by declaring it “human infrastructure.”

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WSJ: Can Robinhood Ride the Bull?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I called one of the industry pioneers, University of Texas engineer Mukul Sharma, who is sometimes called the Frack King (get it?).

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WSJ: Maskless Among the Lemmings

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

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

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

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

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

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

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

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WSJ: Stupefying Summer Small Talk

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

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

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

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

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

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

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

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

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WSJ: Unfortunately, ‘Big Is Bad’ Is Back

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

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

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

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

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

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

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

WSJ: Mark Cuban Knows Crypto

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

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

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

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

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

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

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

WSJ: Automated Luxury Communism?

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

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

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

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

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

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

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

WSJ: The President's Speech

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

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

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

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

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

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

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

WSJ: No Thanks for the Feedback

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

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

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

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

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

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

You see it all the time.

WSJ: When to Invest in a Stupid Idea

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

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

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

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

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

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

Same for electric cars.

WSJ: Don't Think, Just Bleep

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

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

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

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

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

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

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

WSJ: How to Answer the ‘Trap Question’

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

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

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

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

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

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

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

WSJ: Inequality by Way of Government

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

WSJ: Small-Business Loans Are MIA

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

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

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

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

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

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

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

WSJ: When the Stock Boom Turns to Bust

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This year Maxar starts a big upgrade.

WSJ: A Stock-Trading Dupe Is Born Every Minute

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

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

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

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

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

Here are a few things Congress missed:

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

WSJ: Mediocrity Is Now Mandatory

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

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

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

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

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

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

And why push students to think?

WSJ: Behind the Bitcoin Bubble

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

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

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

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

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

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

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

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

WSJ: Online Speech Wars Are Here to Stay

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

WSJ: How the Fed Stifles Lending

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

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

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

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

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

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

We saw this collateral problem in action.

WSJ: Beat the Blues With Music Flicks

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https://www.wsj.com/articles/beat-the-blues-with-music-flicks-11609103299

Locked down again? Finished the gambit of everything on Netflix, Prime, HBODisneyHuluMax+ and even all 201 episodes of “The Office”? Follow me on a magical musical tour down one last rabbit hole before the lockdown looney tunes end. Music will set you free.

You’ve probably seen zillions of concert movies, from “Woodstock” and “The Song Remains the Same” to “American Utopia.” But I think a choice list of movies can lead us all the way to the essence of the 1960s-to-’80s music scene. Forget reading a book; that’s like swimming a marathon—we’ve got to see and hear the story.

Maybe we warm up with the daddy-issues biopics “Bohemian Rhapsody” and “Rocketman.” Or the raunchy “The Dirt” about Mötley Crüe, who just have issues period. Or “Sid and Nancy.” But forget fiction. Let’s hear from real musicians. Don’t stop me now.

We’re ready for “Echo in the Canyon” about the music scene in Laurel Canyon, Los Angeles—lots on Roger McGuinn and David Crosby of the Byrds (the Beatles’ favorite American band, it turns out). Their unique sound came from Rickenbacker guitars made in nearby Santa Ana. John Lennon played a Rickenbacker, and when someone from the company invited the band to a New York hotel to see the second-ever-made electric 12-string guitar, George Harrison grabbed it and changed pop music forever. Americans supplied the weapons Eric Clapton and other Brits used in the Invasion. We’ll learn the beginnings of the Beach Boys, mixing in The Mamas and The Papas, plus Stephen Stills and Neil Young of Buffalo Springfield. Is this that essence we’re searching for? Maybe, but it certainly reveals the origin of decades of American music.

The narrator of “Echo” is Jakob Dylan, Bob’s son. So next watch Martin Scorsese’s “Rolling Thunder Revue: A Bob Dylan Story.” It’s about the 1975-76 ragtag bus tour of Dylan and a collection of musicians—there’s Joni Mitchell, and hangers-on like Allen Ginsberg. Be warned, there are a lot of fake Easter eggs in the documentary, including actress Sharon Stone in a Kiss T-shirt joining the tour.

To keep Scorsese rolling, next watch “Shine a Light,” a two-day 2008 Rolling Stones benefit concert at the Beacon Theatre in New York. Benefiting who? The “get what you need” Clinton Foundation.

WSJ: How Tech Got Ready for 2020

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https://www.wsj.com/articles/how-tech-got-ready-for-2020-11608499711

Woody Allen was onto something when he said “80% of success is showing up.” Sure, that gives short shrift to all the work we put in— Thomas Edison’s “99% perspiration.” But never has showing up been more important than in 2020. You had to be ready when panic and turmoil and lockdowns hit.

Lots of things didn’t show up on day one: N95 masks, ventilators, toilet paper, kettle bells, flour and common sense. But so many things did show up during lockdowns. Teleconferencing has always been lurking in the background, but Zoom was ready. Where would we be without it? Same for the cloud computing it runs on, which was ready to scale. Add broadband to the list. Europe, with foolish network-neutrality laws, had to throttle speeds.

Telemedicine was ready. I wrote last year that I had fired my doctor and taken up telemedicine and I got tons of emails telling me I would die soon. I’m still here, and now you probably use it. Streaming via Netflix and a dozen other services was ready, and then some. Next year major studio films will appear simultaneously in theaters and on streaming services—previously unthinkable.

The “ready” list was amazing: Contactless payments (though Apple Pay didn’t work with masks), meal delivery, grocery delivery, retail logistics, e-billing, ticketless travel, airport-security line-cutting retinal scans, motion-sensing Purell dispensers. Amazon was ready with essentials, but six weeks to deliver a book? Yes, I’ve heard of Kindle. And weirdly, ballpark crowd noise sold to videogame companies was sold back to teams. Accidentally ready!

You can probably name dozens of others. But the bigger question is: Why was all this stuff ready to go?

The history of digital technology is littered with examples of lowering costs—ever since chips were invented in 1958, things have magically gotten smaller, cheaper, faster, better.

WSJ: Dear NASA: What’s in It for Me?

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https://www.wsj.com/articles/dear-nasa-whats-in-it-for-me-11607900349

Years ago I visited a friend at JPL, the Jet Propulsion Laboratory in Southern California, and he asked if I wanted to meet the captain of the Voyager 2, the space probe launched in 1977, then headed toward Neptune. “Absolutely!” In the middle of a messy room sat a young woman drinking coffee and smoking a cigarette—the captain!—next to a toaster-size gray box with a white dimmer-like knob on top of it. Radio signals take hours to reach the Voyager, and between long stretches of boredom, the captain could use the knob to adjust its antenna. My friend was captain the previous week, and now it was her turn.

As we recalled during the 50th anniversary of the lunar landing last year, space travel is a great challenge, a destiny just out of reach—until it isn’t. It’s aspirational and inspirational. Even so, wise guys (like me) note that after billions poured into the space program, all we got were Tang and Velcro. Earthwise, that’s not so far off. It’s called space because, let’s face it, there’s not much in it.

Yes, communication satellites are important, as is GPS, which helps Uber steer a car toward you. But note that GPS first got off the ground in 1973 because it was funded for Nudet, or nuclear detonation detection—military tech, not space exploration. To be fair, NASA was an early customer of Silicon Valley, but quickly abandoned state-of-the-art chips in favor of highly reliable older ones.

Still, progress marches along. We now have a Space Force, founded a year ago this week. Boldly go! Last month, a privately funded SpaceX rocket and capsule safely ferried four astronauts to the International Space Station, an amazing accomplishment for all anti-big-government types. Astronauts will conduct experiments of unknown value to earthly pursuits. There have been 3,000 such experiments in 20 years, though nothing earth-shattering. Can spiders build webs in space? Not quite the right stuff. Last week Chuck Yeager died. Oh, and an Israeli former space officer says the Earth has been contacted by a “Galactic Federation.” Uh huh.

Don’t get me wrong, I’m fascinated by fiery launches and rocket stages that land on floating platforms for reuse. But I’m more in the “What’s in it for me?” camp. Communications, imaging and even travel benefit all of us. Going to Mars? I’m not so sure.

How about we mine asteroids for metals and even water?

WSJ: A Stimulus Dollar Is Only a Dollar

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https://www.wsj.com/articles/a-stimulus-dollar-is-only-a-dollar-11607279296

Wait for it . . . any day now . . . get ready for the “multipliers.” You know, the idea that a government dollar spent magically turns into multiple dollars in the economy. We ought to start hearing that silly word again as the lame-duck coronavirus stimulus negotiations kick in. Expect more multiplier mumbo jumbo as the Biden administration begins its tax-and-spend fiesta.

Let’s face it, the Democrats haven’t had a believable economic messenger since Robert Rubin during the Clinton administration. Since then they’ve presented a cast of characters— Larry Summers, Mr. Biden’s adviser Jared Bernstein, and lately Elizabeth Warren —who bend themselves into pretzels to justify higher spending and then higher taxes.

The New York Times described this trend during the early days of the Obama administration. The financial crisis team of Jason Furman, Tim Geithner and Mr. Summers were “carrying around this list of multipliers” taken from a chart by Mark Zandi, chief economist for Moody’s Analytics. Every dollar spent extending unemployment insurance benefits would, the fairy tale went, boost the economy by $1.64. Sadly, a dollar in reduced corporate taxes would boost the economy by only 30 cents. But cheer up, every dollar spent on food stamps would spur a $1.73 increase in gross domestic product. Mr. Zandi called it “bang for the buck”—the proverbial free lunch. It’s more like “dud for the dollar” because it didn’t work. It never does. Multipliers are a canard, a Keynesian conceit.

The economy grew after the Great Recession, as it does after every recession. The stimulus didn’t stimulate. Shovel-ready projects weren’t ready. Many complained that the stimulus wasn’t big enough. More hooey. The Obama administration’s high taxes and heaps of regulation held the economy back. Is spending driving today’s recovery? Think back to the Heroes Act 2.0, Nancy Pelosi’s $2.2 trillion coronavirus relief bill. Economic growth in the third quarter of 2020 was 33% as lockdowns were lifted, despite—or because of—that gigantic stimulus package not becoming law.

The theory of multipliers is based on the Keynesian view that poorer consumers tend to spend a large amount of increased income, and the rich less so. But multipliers are half a story. Someone has to put up the original money that allegedly gets multiplied, taking it away from the private sector and negating whatever dwindling chain of transactions are hypothesized. It’s like two waves canceling each other out—you can’t just do the math on the additive public wave and ignore subtracting the private. This demand-side theory omits the principle of productivity, the real driver of economic growth and prosperity.

But no matter, expect multiplier talk to, er, multiply.

WSJ: Beware the Dow 30K Euphoria

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https://www.wsj.com/articles/beware-the-dow-30k-euphoria-11606672322

A great Wall Street lesson: Keep those decamillennial hats around. Last Tuesday saw the Dow Jones Industrial Average close above 30000 for the first time, but by Friday it was underwater again. Remember, more than 10 years passed between March 1999, when the market first crossed 10000 (with wild celebration), and November 2009, when it finally crossed that mark for good (hopefully). Even more time passed between when the market briefly crossed 1000 in 1966 and when it passed that mark permanently late in 1982.

It’s just a number, right? Yes, but blared across tickers, radio, TV, the web and now Twitter, market milestones symbolize progress. Or is it excess? Either way, they’re thought of as a scorecard of success. Oh what a feeling. In many ways, today’s market feels like 1999. Lower-than-expected inflation—check. Relative peace—check. Fed printing money—check. Plus new technological paradigms and IPO mania. Will it end the same way?

It’s easy to see why the market is booming. First, indexes overweigh successful companies (remember when General Electric got tossed from the Dow?). Thirty Dow companies and a cap-weighted S&P 500 mean trillion-dollar-valued companies drive the indexes. A quarter of the Dow’s past 10,000 points were provided by Apple alone.

Then add low interest rates—effectively zero, because there is a glut of capital and low demand for it. The Federal Reserve seems on course to keep rates low forever. The main reason is that we are in the midst of a serious digital dividend. Cloud computing, artificial intelligence and smartphone apps have driven huge productivity gains, in part by reducing each company’s need to build out its own infrastructure. Plus, work from home will mean fewer office buildings, less maintenance on roads and bridges, and less inventory in stores. Each Zoom call equals one less airline seat.

The market is paying for the digital dividend twice (or more). It pays for the profit upside of Apple, Amazon, Microsoft, Google and Facebook, but then again with high earnings multiples induced by low inflation. With interest rates near zero, the market pays up huge for future earnings. But not forever: For those keeping track, long-dated bond yields bottomed on Aug. 4.

But who cares? Wall Street loves a bull market. We’ve got IPO mania and SPAC attacks.

WSJ: Gambling Is the Only Game in Town

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https://www.wsj.com/articles/gambling-is-the-only-game-in-town-11606069340

As I headed home from college for Thanksgiving, a foreign student staying the weekend asked about the holiday’s meaning. I quickly answered, “Food, family and football.” He said he understood the first two but not football. Another friend piped in, “To enjoy it, you gotta have a little action going on the games.” So I took the Cowboys over the team formerly known as the Redskins (hopefully they’ll be renamed the Washington Swampers soon). We had to explain spreads and over/under—like teaching a baby to walk.

A little action helps. I was in a sports bar during college basketball’s March Madness when all the games were pretty much over, and then Northeast Louisiana hit a bucket at the buzzer to lose by only 8 with the spread at 9. I stood up and screamed and got a lot of funny looks. Yes, interest definitely turns into commitment. But I wonder if it’s gone too far.

No question that gambling is fun, but it’s not for everyone. You used to have to go to a casino, see a bent-nose bookie—I’ve got a horse right here, his name is Paul Revere—or physically write down your picks for a friend’s football pool. Technology makes it so easy to bet—too easy. At any age. I worry.

Professional leagues have a rude history with betting: Raiders quarterback Kenny Stabler’s relationship with a “well-known New Jersey gambling figure,” National Basketball Association referee Tim Donaghy’s prison time for betting and manipulating scores, and Pete Rose’s ban for life for betting on baseball. Temptation is too alluring. But who cares now? Heck, the Raiders play in Las Vegas! Wanna bet all professional leagues embrace gambling as another revenue stream?

Now everyone is gambling. Online poker is addictive, until you lose. After the lockdown drought, sports blissfully came back, as did betting. Even formerly family-friendly fantasy football leagues are now big business. Betting operator DraftKings saw users up 64% and revenues almost double from last year’s third quarter. If, like me, you wonder how this is possible, New Jersey won a 2018 Supreme Court ruling that allowed states to legalize sports betting. Bits easily cross borders to bet. The spigots have opened.

Lotteries are still a monster business, despite the truism that the lottery is a tax on people who don’t understand statistics. Same for casinos.

WSJ: China Is Losing Its Bet on Chips

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https://www.wsj.com/articles/china-is-losing-its-bet-on-chips-11605476356

Apple is making its first Mac computers since 2005 without an Intel microprocessor. Instead, the company announced last week, Macs will use Apple’s own M1 processor, fabricated by TSMC, the Taiwan Semiconductor Manufacturing Co. Hey, nothing personal, Intel—by now the whole industry knows you botched your transition to sub-10-nanometer chips and are still behind. But this has implications way beyond computing.

If Intel is a few years behind, China’s lag may be closer to a decade. In conjunction with formulating its 14th Five Year Plan, Beijing put out an official communiqué (I love that word!) previewing its “protracted battle” with the U.S. and stated, “Technology self-reliance is the strategic support for national development.” What’s scary is that China may have to draw this battle line right through Taiwan, where Apple gets its processors. We now see headlines like this in the Asia Times: “US tech giants exposed if China takes Taiwan.” Ya think? Let’s break this down.

To begin, note that last year China produced only 16% of the semiconductors it consumed domestically. In 2014, China announced a National Integrated Circuit Plan promising to spend $150 billion to expand local semiconductor manufacturing. It didn’t work because you can’t throw money at the problem. The world is littered with companies ( AT&T, General Motors ) and countries (France, Italy, Russia) that failed at semiconductor production. It takes state-of-the-art equipment and homegrown expertise.

Second, to produce wicked-fast chips for smartphones, 5G and certainly the latest precision weapons, you need fabrication facilities, or fabs, that can turn out 7- or even 5-nanometer chips, which isn’t easy to do. According to Mike Brown, director of the Pentagon’s Defense Innovation Unit, “50% of advance semiconductor production is in Taiwan.” The rest is in the U.S., South Korea and Israel.

Third, the Trump administration cut off China’s Huawei from buying advanced chips made by TSMC. Except for Intel and Samsung, most everyone uses TSMC, including U.S. companies Nvidia and Advanced Micro Devices.

Fourth, for about five years, Intel has been stuck at 14-nanometer chips. This gets confusing: I spent most of my early career tracking the chip business, and I still get headaches digging into their guts.

WSJ: Mideast Peace Means Open Markets

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https://www.wsj.com/articles/mideast-peace-means-open-markets-11604867508

“Once the Sand Curtain starts coming down, there’s no stopping it.” This from my friend Jon Medved, CEO of the Israeli venture-capital firm OurCrowd. He likens the Aug. 13 announcement of the Abraham Accords peace agreement between the United Arab Emirates and Israel to the Berlin Wall falling and the end of the Iron Curtain. Within a few weeks, Mr. Medved had hired (via Zoom) a senior Emirati deal maker as his man on the ground and announced a $100 million deal with the Al Naboodah merchant family.

For centuries, the route between the two regions was a land bridge for commerce—think of caravans trading goods between the East and West. But that route had been undertrafficked since the U.A.E. was founded in 1971. The hostility and lack of formal relations between the states made commerce near impossible. Plus, the lack of direct flights means it takes about 20 hours to get from Israel to Dubai—heading west to lay over in Zurich or Frankfurt and then coming all the way back east. Come January, there are plans for more than 100 nonstop flights a week, which will take only three hours.

The accords make sense. The U.A.E. and Israel have similar populations of about nine million to 10 million and a roughly equal gross domestic product. The knee-jerk reaction to this deal, and I’m certainly guilty of this, is to think it’s merely a trade of oil for ideas. But there’s much more to it. The U.A.E. is a country of entrepreneurs: They get 20 million tourists a year flocking to hotels and malls and even indoor skiing. Uber recently bought Careem, an internationally operating Emirati ride-sharing company.

I asked Mr. Medved what folks in the U.A.E. want. “Of course they’re interested in cybersecurity, logistics and fintech. But they’re also interested in smart cities and transportation. Remember, they invested in Elon Musk’s Hyperloop. Add alternate energy and even food security—we get asked a lot about agtech—as well as technology for education and health care.” This is a sign of a region modernizing. The U.A.E. even announced on Saturday that it would loosen its religious restrictions on personal freedom.

A U.A.E. webinar named Emirates Angels got government approval within 48 hours. That a webinar needed government approval means there is still some work to do. But Mr. Medved says U.A.E. merchants want to add value and “see eye to eye” with overseas investment partners, instead of merely being a source of money.

A few years ago, I spoke at OurCrowd’s Global Investor Summit, which gets 20,000 registrations and even a few dozen from the Arab world who attend under the radar.

WSJ: Digital Voting’s Time Has Come

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https://www.wsj.com/articles/digital-votings-time-has-come-11604251999

Cash a check or go through airport security, and you’re asked for a photo ID. Heck, visit most offices in major cities and you need an ID. But when you vote, which we’re constantly reminded is the most important thing you can do, you have only to provide your name and address and sign a dusty book and you’re waved in. At least a human will check you in—with mail-in ballots, signatures are easy to forge.

No one knows how much voter fraud takes place, but it’s not zero. There’s something behind the stories of dead Chicagoans voting and living ones offered cash and a drink at a pub for the right vote. There’s a better way.

Paper ballots should go the way of the abacus. Someday, last week’s Supreme Court orders about when various states can count mail-in ballots will seem quaint. Voting can be modernized easily with off-the-shelf technology.

Years ago, a hedge-fund friend proposed a simple solution: Everyone who shows up to vote has a photo taken and then gives a signature or fingerprint. That data is uploaded securely to the cloud and some rudimentary checks are done. But here’s the trick: After the first use, it would be really hard to show up and vote under an assumed name, because the photos wouldn’t match. No one could vote more than once, because the photo would show if you’ve already voted. You could cheat, but only with your first-ever vote. With even the most rudimentary facial recognition, dead people couldn’t vote.

It’s ingenious, but I said at the time it went too far. Taking photos of citizens would violate their privacy. Some may not want others to know their location. Illegal aliens might get nervous—oh wait, they’re not allowed to vote.

But I think the time has come.

WSJ: A Biden Economy Means ‘Litter Jobs’

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https://www.wsj.com/articles/a-biden-economy-means-litter-jobs-11603658932

I hate admitting youthful indiscretions. Way too long ago, I was with friends in a desolate Colorado parking lot drinking rare-outside-the-state Coors beers. One guy would occasionally open his window and toss empty cans out. I shyly mentioned that he probably shouldn’t litter. After all, I grew up watching “The Three Stooges” on channel 11 WPIX with constant public service announcements featuring an American Indian standing next to a highway crying as litter is thrown at his feet.

The can-tosser launched into a long diatribe ending with, “Listen, someone will have to be paid to clean up all these beer cans. Who am I to deny someone a well-paying job to feed his family and pay rent?” I stupidly laughed. I think that guy is now a politician, but obviously dead wrong.

During the first debate, I had a Coors flashback when moderator Chris Wallace asked Joe Biden about his $2 trillion climate change spend-fest: “I actually have studied your plan, and it includes upgrading four million buildings, weatherizing two million homes over four years.”

Mr. Biden responded: “The fact is, it’s going to create millions of good-paying jobs, and these tax incentives for people to weatherize” are “going to make the economy much safer.” Maybe he cribbed this from Al Gore in Wired magazine last year. “Now, think about the Green New Deal,” Mr. Gore wrote. “What it encompasses are two things we have to solve: the climate crisis and the opportunity to create tens of millions of new jobs.” That includes “retrofitting residential, commercial, and industrial buildings.”

This is what passes for progressive policy these days? It sounds impressive but it’s dead wrong. These are litter jobs—unproductive work that subtracts from societal wealth rather than adding to it. A waste of resources.

We saw similar thinking this summer.

WSJ: No Quick Fix for Social Media Bias

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https://www.wsj.com/articles/no-quick-fix-for-social-media-bias-11603048637

After Twitter’s ban of the New York Post’s scoop on Hunter Biden’s Ukrainian payoffs last Wednesday, CEO Jack Dorsey called his staff’s actions “unacceptable.” Ya think? The timing was especially dumb, as he’s set to appear next week, along with Facebook’s Mark Zuckerberg and Google’s Sundar Pichai, before the Senate Commerce Committee. The topic is Section 230 of the Communications Decency Act, which shields social-media platforms from liability as publishers. Mr. Dorsey just gave his adversaries the fuel to burn his tweet house down.

Except Twitter didn’t do anything illegal. Section 230 protects online forums against being sued for user-posted content on their platforms. But these platforms can also apply “community standards” to remove anything they deem objectionable. You and I have First Amendment rights to say whatever we please (without inciting violence), but these platforms are private companies. They can remove or allow what they want.

That doesn’t mean they should. All rise: The court of public opinion is in session. Sen. Ted Cruz pointed out the hypocrisy of banning the Biden revelations—however questionable or ill-gotten they may be—but allowing the New York Times’s story on Donald Trump’s leaked tax returns or Buzzfeed’s Steele dossier.

So now Twitter—along with Facebook, which didn’t ban the Biden story but said it was “reducing its distribution”—have drawn a murder hornet’s nest of rebuke, mostly calls for rewriting or repealing Section 230. In a dogpile sandwich, it now seems everybody hates the statute that built the latest version of the internet.

Republicans, led by Sen. Josh Hawley, rightly worry about bias against conservative posts. Mr. Hawley has introduced several bills to rewrite Section 230, and he’s probably not done. House Speaker Nancy Pelosi suggested in April that Section 230’s privileges “could be removed.” And forget Chuck Schumer—even comedian Amy Schumer wants to “Amend CDA 230.”

President Trump tweeted “REPEAL SECTION 230.” This may have been a trick to get Kamala Harris, who said of a vaccine, “if Donald Trump tells us to take it, I’m not taking it,” to be for Section 230.

WSJ: To Serve the Public, Seek Profits

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https://www.wsj.com/articles/to-serve-the-public-seek-profits-11602435735

“It’s way past time we put an end to the era of shareholder capitalism,” Joe Biden declared in Dunmore, Pa., in July. Companies “have responsibility to their workers, their community, to their country.” This echoes last year’s virtue semaphoring by 181 CEOs, when the Business Roundtable redefined corporate purpose away from shareholders and toward “stakeholder capitalism”: a collectivist creed of workers, customers, communities, climate and country. Why does it feel like we’re about to get our pockets picked? The message is clear: Profits are greedy, so spread the wealth around.

It’s been 50 years since the New York Times published Milton Friedman’s article “The Social Responsibility of Business Is to Increase Its Profits.” Most people only read the title, so they miss Friedman’s statement that businesses are obliged to avoid deception and fraud. A company must “engage in activities designed to increase its profits,” he writes, “so long as it stays within the rules of the game.”

Almost as penance for publishing the original, the Times recently printed an eight-page supplement nitpicking Friedman’s article. It’s as if in 1826 the Times of London had ripped to shreds Adam Smith’s “The Wealth of Nations” and said, “No one has actually seen the invisible hand. Hidden incentives? Balderdash! Let’s go back to stakeholder mercantilism.” The sun would have set on the Industrial Revolution.

Capitalism and competition create wealth; other systems slop existing wealth around. Stakeholder capitalism is a passing fad with a blatantly obvious end result. Ding ding!—there were four redundant phrases in that sentence. “Stakeholder capitalism” is redundant because companies already benefit stakeholders or die quickly. “Customers are always beautifully, wonderfully dissatisfied,” Amazon’s Jeff Bezos told Congress in July. “A constant desire to delight customers drives us to constantly invent on their behalf.” And any company that wants to be around beyond next quarter already takes care of its community within the Friedmanesque rules of the game. Underpaying employees means competitors eventually lure them away.

No, profits aren’t greedy. They are a critical price signal—a measure of how well a company is deploying capital and creating value for society. The stock market sums all expected future profits, funding companies with great profit prospects and starving unworthy ones. But besides owning shares in those companies, what’s in it for us?

A lot. In a 2005 paper, Yale economist William Nordhaus concludes, “Only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers.”

WSJ: TikTok Meets the Meddling Feds

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https://www.wsj.com/articles/tiktok-meets-the-meddling-feds-11601843585

TikTok shock: Last week a federal judge enjoined an executive order blocking new downloads of the Chinese video-sharing social network, which has 100 million users in the U.S. Wow—that’s a lot of people wasting time. Now a Nov. 12 deadline looms to shut off TikTok’s U.S. operation or outsource its management to U.S. partners. The Trump administration is concerned that the app’s user data could be funneled back to the Chinese government, which owner ByteDance denies.

In July, Treasury Secretary Steven Mnuchin announced TikTok was under review by the Committee on Foreign Investment in the U.S., or Cfius. There’s no question TikTok has quickly turned into a major social-media platform, but is it really a security threat?

No one can say why the Chinese government might want to spy on 16- to 24-year-olds who watch twerking routines. TikTok may censor information critical of Beijing, but it’s primarily an app for entertainment, not news. Maybe someday the platform could feature videos that influence elections. But that’s a big “maybe.” And please don’t make me think of Joe Biden twerking.

As for its potential as a spy tool, there are simpler remedies, like having Apple and Google set limits on the data TikTok can collect. Or restricting data transfers. I suggest making TikTok put up a bond, say $50 billion, that gets forfeited if it is caught providing data to Beijing.

The real problem is that the current remedy, a forced ownership transfer of TikTok’s U.S. operations to American investors, violates all forms of business decency. The Trump administration is basically stripping away equity from Chinese investors. Originally, Microsoft and Walmart were to invest and run the U.S. TikTok. When they dropped out, Oracle (with Walmart as a marketing partner) negotiated to be the “trusted technology provider” to TikTok. The data would stay in the U.S., and Oracle would buy an equity stake—basically buying a customer. And somehow, still unclear, Chinese investors would own less than 50%. This taking doesn’t smell right.

There’s a history of presidents manhandling corporate assets. Franklin Roosevelt threatened to nationalize the banks in 1933 forcing Congress to pass the Emergency Banking Act to strengthen balance sheets.

WSJ: ‘It Ain’t Braggin’ if You Can Back It Up’

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https://www.wsj.com/articles/it-aint-braggin-if-you-can-back-it-up-11601238077

Hubris is deeply embedded in our culture, especially in social media, which 12-time Daytime Emmy Award-attending actress Moira Rose has called an “amusement park for clinical narcissists” and a “cauldron of self-absorption.” We’re inundated with mean bosses: Gordon “Yes, Chef” Ramsey made a TV career out of it. Even lovable talk-show host Ellen DeGeneres—who actually uses “Be Kind” as a marketing brand—is accused of running a toxic work environment.

Big egos are contagious, especially in sports. Barry Bonds, the home-run-record-holding San Francisco Giant, once told sportscaster Chris Myers, “You pay money to go to baseball games. Well, your ticket doesn’t say autographs. Your ticket doesn’t say that we’re role models. Your ticket just says pay to see the show.” Teammate Jeff Kent, who considered himself closest with Mr. Bonds, has said Barry had a “cocky, arrogant attitude.” Mr. Bonds thought a lot of himself, declaring, “I’m not afraid to be lonely at the top.” All this even though he was getting more than a little help from “the cream” and “the clear”—anabolic steroids.

Was that pride? Ego? Hubris? All of the above.

You know the type. At cocktail parties, they talk your ear off about themselves and if you try to interject with something about yourself—“Just got back from Brazil . . .”—they immediately personalize it and tell you about meeting soccer star Neymar’s agent’s sister at a golf outing where they birdied the 14th hole. The only question they ask is, more or less, “Enough about what I think about me, what do you think about me?” This is when I excuse myself and head to the bar.

The world is overfilled with bloviating, egotistical, one-track, braggadocious, arrogant, chest-pumping, self-important, pretentious know-it-alls. Politicians count these traits as features, not bugs. Wall Street is a hotbed of hubris, à la Tom Wolfe’s “Masters of the Universe”: investment bankers, traders (though a lot fewer of them these days) and, when their returns are good, many venture capitalists, private-equity folks and hedge-funders. All invincible, until they aren’t. Ray Dalio’s Bridgewater Associates, which managed $148 billion in assets, saw its flagship fund lose 18.6% through August this year. Now that’s humbling.

But what if you really are the greatest? Cardinals pitching great “Dizzy” Dean once predicted that he and his brother, Paul (nicknamed “Daffy”), would win 45 games and then famously said, “It ain’t braggin’ if you can back it up.” Fair enough —and to his credit, he only said it once.

WSJ: Clean Power, No Thanks to Al Gore

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https://www.wsj.com/articles/clean-power-no-thanks-to-al-gore-11600633749

Here’s a fun game. Ask an environmentalist about his top plan of action to fight climate change. You’ll likely get a quick answer urging a carbon-neutral or net-zero-emission clean-energy economy, usually by 2050, echoing the Paris climate agreement. OK, now ask if he’s for nuclear power, which has zero carbon emissions, at which point he’ll usually stare at his shoes and mumble something about high costs.

“The biggest problem with nuclear power,” activist Bill McKibben of 350.org told Techonomy, is that “it’s really expensive.” Al Gore, who sounds more and more like a revivalist preacher, told Reuters last month, “They’ve priced themselves out of the market. Electricity from nuclear power plants is by far the most expensive in the world,” while the cost of renewables “is continuing to go down.”

That’s funny, because in 1994 the Clinton-Gore administration canceled research funding for the Integral Fast Reactor, which sure could have helped us down the learning curve to lower-cost carbon-free electricity today. The U.S. has constructed a tiny handful of new nuclear plants in the past four decades. Yes, the same folks who fought nuclear energy tooth and nail are now complaining that it’s too expensive—like saying they’re orphans after killing their parents.

I mention all this now because earlier this month, and almost miraculously, the Nuclear Regulatory Commission approved the design and issued a final safety evaluation report for a Small Modular Reactor, or SMR, by NuScale based in Portland, Ore. NuScale’s design, funded by engineering firm Fluor and the U.S. Energy Department, joins six older federally approved designs. But it’s the first that looks as if it can scale and reduce costs.

In most nuclear fission reactors, uranium pellets are sealed in metal tubes known as fuel rods. These rods are submerged in water along with control rods that usually contain cadmium or boron, which absorb neutrons. When the control rods are removed, released neutrons cause a fission chain reaction, splitting atoms and releasing heat. This heats the water, which circulates through a heat exchanger with a separate water stream, producing steam to turn an electricity-generating turbine.

The NuScale reactor is smaller—only 65 feet tall and 9 feet in diameter, with much installed below grade.

WSJ: Newton’s Law of Stock Momentum

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https://www.wsj.com/articles/newtons-law-of-stock-momentum-11600013869

Does this sound familiar: Smart guy owns a stock in March at $200, sells it in June at around $600, but then buys it back in July and August for between $900 and $1,000. By September it’s back at $200. Ouch. Tesla this year? Yahoo in 2000? Nope. That was Sir Isaac Newton getting pulled into the great momentum trade of the South Sea Co., which cratered 300 years ago this month. He lost the equivalent of more than $3 million today. Newton, whose second law of motion is about the momentum of a body equaling the force acting on it, didn’t know that works for stocks too.

When bull markets get going, investors come out of the woodwork to pile in. These momentum investors—I call them momos—figure if a stock is going up, it will keep going up. But usually there is some source of hot air inflating stocks: either a structural anomaly that fools investors into thinking ever-rising stock prices are real, or a source of capital that buys, buys, buys—proverbial “dumb money.” Think of it as a giant fireplace bellows, an accordion-like contraption that pumps in fresh oxygen to keep flames growing.

Most simply blame the Federal Reserve—especially today, with its zero-interest-rate policy—for pumping the hot air that gets the momos going. Fair enough, but that’s only part of the story. Long market runs have always allured investors who figure they’re smart to jump in, even if it’s late. Everyone forgets the adage, “Don’t mistake brains for a bull market.”

In some ways, it used to be even easier to get carried away. In 1929 you could buy stocks with as little as 5% down payment, compared with today’s 50% margin limit. Even Groucho Marx, who wouldn’t join any club that would have him as a member, joined the momos and lost big in the crash.

The 1960s and ’70s had the Nifty Fifty bubble. In 1987 it was a rising dollar and the Japanese buying anything not tied down. I remember the story of an investor at a large Japanese insurance company asking a market strategist for a list of his favorite 20 stocks. Handed the list, the investor handed it back saying buy me 100,000 shares of each.

In 2000 it was comments like, “The internet is underhyped.”

WSJ: California Is Coming for You

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https://www.wsj.com/articles/california-is-coming-for-you-11598804191

I didn’t have to read the entire Democratic Party platform, let alone the spend-tasmagoric Biden-Sanders Unity Task Force recommendations. Sitting here in California, I’m already living it. If polls are to be believed, left-coast policies are coming to you soon—and you’re not going to like it. California is an early glimpse for the rest of the country of a blackout-rolling, water-deprived, tax-hiking, spending-spiking one-party state longing for its old incandescent glow.

The U.S. may flip to one party rule; California is already there. Democrats have controlled the state Assembly since 1997 and the governorship since 2011—or 1999 if you ignore Arnold the Governator, as most do. Single-party rule means single-party rules. We’re No. 1 in the top marginal income tax rate at 13.3%, including for capital gains. That beats New York City. We’re also No. 1 in state sales tax, but only ninth when you include local levies. Still impressive! Everything else follows.

This month Californians have been subjected to rolling blackouts because of the state’s renewable energy mandates—33% today, 60% by 2030 and 100% by 2045. When the sun goes down, which I understand happens every evening, solar cells are worthless. So California has to buy energy on the spot market—sometimes for 10 times normal prices when it’s hot. So we get rolling blackouts. This craziness could be yours too in the near future. Get used to higher bills and resetting your clocks.

California is No. 3 in the nation in water prices. Sad, since it grows 90% of America’s broccoli, 95% of its garlic, 71% of spinach, 69% of carrots and two-thirds of fruits and nuts. Your prices are going up. And kiss incandescent lightbulbs goodbye—most were outlawed in California as of Jan. 1. Someone please send a box of 60-watt flame-tip candelabra base bulbs my way. I’m getting desperate.

And of course, California spends money like a drunken sailor. The state is blessed with tax dollars spouting from employees of Apple, Google, Facebook, Microsoft via LinkedIn, Amazon (whose search operation is based in Palo Alto), Twitter, Uber, Lyft, Airbnb, Palantir and—oops, check that, Palantir is moving its headquarters to Colorado. Can’t say I blame them.

Where does the money go?