Andy Kessler

WSJ: The High Cost of Raising Prices

https://www.wsj.com/articles/the-high-cost-of-raising-prices-1501446630

Most investors love companies with pricing power. Me? Not so much. Consider the life of a wealthy expat who asked a broker to show him the most expensive apartments in Rome. The first, at €20,000 a month, was a dump. So was the second, at €18,000. Yet the third apartment, at €16,000, was well-maintained, with gorgeous views of the Italian capital. Sensing confusion, the broker explained that the first two apartments had sat empty for months—and the owners kept raising prices to make up for the lost rent.

Sound familiar? The U.S. Postal Service has seen first-class mail volume drop from a peak of 103.7 billion letters in 2001 to 61.2 billion last year. It raised rates from 34 cents to 49 cents to make up the difference. Movie tickets sold in the U.S. peaked at nearly 1.6 billion in 2002. Last year only 1.3 billion were sold. Meantime, average ticket prices jumped from $5.81 to $8.65.

The more prices rise, the more customers bolt. It’s like running up a down escalator and never getting to the top. With the stock market hitting highs just about every day, investors need to be wary of companies that raise prices to make their numbers. These stocks make for spectacular sell-offs on even the slightest earnings miss. Case in point:Starbucks , the $4.65 macchiato maker, slid nearly 10% on Friday.

Disney ’s stock has been stuck around $100 for the past few years as investors bite their nails over cord-cutters. ESPN and cable networks were over half of Disney profits in 2012. Figuring the party would rage on, ESPN signed multibillion-dollar TV deals with the National Football League and the National Basketball Association. The Oakland Raiders’ Derek Carr makes $25 million a year? Thanks, ESPN.

Yet the sports channel’s subscribers have dropped from 100 million in 2011 to 89 million today. So ESPN raised prices, from $4.69 per sub a month to $7.21 today, a fee five times as high as any other channel. This newspaper reported earlier this month that Disney is in talks with cable operator Altice USA to raise prices again by perhaps 6% a year and institute “minimum penetration guarantees” to make up the difference. We’ve seen this movie before: ESPN may be a few price increases away from losing another 11 million subscribers.

WSJ: Learn a Language, but Not a Human One

https://www.wsj.com/articles/learn-a-language-but-not-a-human-one-1500229654

Donald Trump, whose wife speaks five languages, just wrapped up a pair of trips to Europe during which he spoke only English. Good for him. If Mr. Trump studied a language in college or high school, as most of us were required to, it was a complete waste of his time. I took five years of French and can’t even talk to a French poodle.

Maybe there’s a better way for students to spend their time. Last month Apple CEO Tim Cook urged the president: “Coding should be a requirement in every public school.” I propose we do a swap.

Why do American schools still require foreign languages? Translating at the United Nations is not a growth industry. In the 1960s and ’70s everyone suggested studying German, as most scientific papers were in that language. Or at least that’s what they told me. In the ’80s it was Japanese, since they ruled manufacturing and would soon rule computers. In the ’90s a fountain of wealth was supposed to spout from post-Communist Moscow, so we all needed to learn Russian. Now parents elbow each other getting their children into immersive Mandarin programs starting in kindergarten.

Don’t they know that the Tower of Babel has been torn down? On your average smartphone, apps like Google Translate can do real-time voice translation. No one ever has to say worthless phrases like la plume de ma tante anymore. The app Waygo lets you point your phone at signs in Chinese, Japanese or Korean and get translations in English. Sometime in the next few years you’ll be able to buy a Bluetooth-based universal translator for your ear.

Yet students still need to take at least two years of foreign-language classes in high school to attend most four-year colleges. Three if they want to impress the admissions officer. Four if they’re masochists. Then they need to show language competency to graduate most liberal-arts programs. We tried to get my son out of a college language requirement. He pointed to his computer skills and argued that the internet is in English. (It’s true. As of March, 51.6% of websites were in English. Just 2% were Chinese.) We lost the argument. He took Japanese and has fun ordering sushi.

It’s not as if learning another language comes with a big payday. In 2002 the Federal Reserve and Harvard put out a study showing those who speak a foreign language earn 2% more than those who don’t.

High schools tend to follow colleges’ lead, but maybe that’s beginning to change. I read through all 50 states’ language requirements and only one requires either two years of a foreign language or two years of “computer technology approved for college admission requirements.” Wow. Is that California? No. New York? No. Would you believe Oklahoma? South Dakota and Maryland also have flexible language skill laws. Foolishly, the Common Core state standards are silent on coding.

WSJ: No one rings a bell...

 https://www.wsj.com/articles/for-whom-the-bell-tolls-sell-1499029457

You think this market’s crazy? One day in early 1987, with Wall Street humming, a meeting after trading closed involved several cases of champagne. The Dow Jones Industrial Average had breached 2000 that day, a cause for celebration. A week and a half later, more champagne was ordered when the average passed 2100. Then again a few weeks later for 2200. Eventually my boss stopped buying bubbly when breaking records became the norm. Japanese insurance companies would show up at the brokerage firm where I was a securities analyst and ask for a list of our five favorite stocks, then hand it to their salesman and say “buy 50,000 of each.”

On Friday, Oct. 16, 1987, the average dropped 108 points. Rumors swirled that we’d celebrate with cases of Bud Light. No matter: I was with some traders and a client in a stretch limo, headed to watch Mike Tyson fight Tyrell Biggs for the heavyweight championship—an event staged by Donald Trump in Atlantic City, N.J. Man, I miss the 1980s.

The market truly crashed the next Monday, dropping 508 points, or 22.6%. In retrospect, there had been signs all over the place. How did everyone miss them? Well, as the old Wall Street adage goes, no one rings a bell at the top (or bottom) of the market.

So here we are in 2017. The stock market is supposed to be the great humbler, but the records are coming fast and easy. The Dow Jones Industrial Average is up 8% for the year and flirts with a record practically every day. Some of this is structural: Bonds are no fun, since the yield curve is flattening and three-month Treasurys are 1%. So money flows to stocks—and other weird things.

A friend of mine used to run a large-growth mutual fund. In the dot-com mania of 1999, he told me that tens of millions of new capital would flow in every single day. Trying to figure out where to put it, he would consider the new batch of initial public offerings—and then inevitably he just would buy more Yahoo or America Online or Cisco or, what the heck, Yahoo again.

Today, money is flowing into exchange-traded funds. But because ETFs are weighted by market cap, that money flows into the biggest names: Facebook , Amazon, Apple, Microsoft , Google. Classic momos, or momentum stocks. The church of what’s working now. What could possibly go wrong?