Andy Kessler

WSJ: Google’s Anti-Pentagon Decision Will Kill More People

https://www.wsj.com/articles/googles-anti-pentagon-decision-will-kill-more-people-1532889656

Earlier this year more than 3,000 Google employees signed a letter to chief executive Sundar Pichai demanding the company halt work on the Defense Department’s Project Maven, which applies algorithms to warfare. The disgruntled employees also wanted their boss to pledge “that neither Google nor its contractors will ever build warfare technology.” In June the company announced it would not renew its Project Maven contract. This is incredibly shortsighted and will increase the likelihood of war and civilian deaths.

Past warfare was described primarily by tonnage and throw weights, because precision was almost nonexistent. But ever since humans started dropping bombs out of airplanes, they’ve been aiming for more precision.

On June 15, 1944, a squadron of 75 American Superfortress B-29s left China to destroy the Imperial Iron and Steel Works in Yawata, Japan. The site manufactured about a quarter of Japanese steel at the time. The 47 bombers that made it to Yawata dropped more than 365 bombs. One accidentally destroyed a power house more than a kilometer away from the complex. The rest missed.

It wasn’t for lack of trying. In 1943, behavioral scientist B.F. Skinner demonstrated new guidance technology to track simulated Japanese destroyers. He then revealed that inside the nose cone of the bomb were three pigeons trained to peck away at silhouettes of Japanese warships. But real technology advances. Wartime news reports claimed the highly complex Norden bombsight could hit a pickle barrel from 20,000 feet above. But in 1944 bombardiers recorded that “75% of Norden bombsights fell short of specifications,” missing by more than 300 feet.

For the rest of the war, the city of Yawata was firebombed in an unsuccessful campaign to destroy the iron and steel works. Notably, it was a target on Aug. 9, 1945, three days after Little Boy was dropped on Hiroshima. A B-29 carrying the atomic bomb Fat Man made runs over Yawata, but thick smoke from the ground made targeting impossible, and the bombers headed to the next target on the list, the Mitsubishi Steel and Arms Works in Nagasaki. The bombardier, Capt. Kermit Beahan, used a Norden bombsight to target the factory. He wasn’t even close—off by almost two miles. Horseshoes and hand grenades!

WSJ: Will Bitcoin Save Us From Google?

https://www.wsj.com/articles/will-bitcoin-save-us-from-google-1531680720

The hardest part of investing is knowing when to sell a stock. When you do buy one, always have an exit strategy—not for right away, this quarter, this year or even the next few years. But constantly question how soon the seeds of destruction will bloom at your company. I guarantee they’ve been planted already.

Let’s probe Apple , Facebook , Amazon and Google, because they make up about 12% of the S&P 500—while representing almost all of the stock-market’s gains this year. Yes, calls to break them up persist. But that actually could increase their enterprise value based on the sum of the parts. Beyond rambunctious regulators, what could go wrong?

Apple’s problems already have become visible. Smartphones are now like radial tires. Everyone has one and they don’t wear out. Phone franchises are fickle. Ask Motorola or Nokia , if you can find them. One near-term sign of distress: Marketing tech products with splashy colors, as Steve Jobs did with tangerine iMacs almost 20 years ago, means the fun part is almost over. Apple hopes to make it up in services, but Google leads in maps, Netflix in video, and Uber in transportation. Apple is falling behind in most other growth segments. The company’s destructive seed is its desperate need for a new product category. It won’t be watches.

You might think Facebook’s biggest problems are privacy concerns, which have shown up everywhere but the company’s finances. The media cares about privacy. Users? Not so much. Facebook stock is hitting all-time highs. I think Facebook’s bad seed is population. The site has 2.2 billion monthly active users, a number that has roughly doubled in the past five years. Yet the growth rate is necessarily slowing. User count probably won’t double again, and most growth comes from the less wealthy developing world. Investors won’t like it when growth stalls.

Amazon’s biggest benefit, and problem, is its hall pass from Wall Street. It’s allowed to show very little in profits while inventing the future. That’s great, but the business of selling stuff—that is, the company’s main business—is notoriously low-margin. Retail stores never had high margins. Buying Whole Foods was fascinating, but supermarkets often squeeze out profits of only 1% of sales. Now Amazon is bursting into the health-care industry with its purchase of online pharmacy PillPack—right into the teeth of regulators. Eventually Wall Street will demand high margins after years of investment. I wouldn’t want to be around when that happens.

The bad seeds at Alphabet, Google’s parent company, are more elusive. 

WSJ: Look Out, Bitcoin Has Lost Its Tether

https://www.wsj.com/articles/look-out-bitcoin-has-lost-its-tether-1530477448

Would Isaac Newton have fallen for bitcoin? By the spring of 1720, Newton was one of the most famous scientists in the world—and a very wealthy man. He decided to sell his shares in the South Sea Co., earning a 100% profit. The physicist, said to be worried the market was getting out of hand, supposedly quipped that he “can calculate the motions of the heavenly bodies, but not the madness of the people.” Yet a few months later, as he watched the stock trade ever higher, he let his own madness get the best of him. Newton got back in, and he eventually lost the equivalent of millions in today’s dollars when the price crashed. Sound familiar?

Investment bubbles are almost always created the same way: Someone takes money—maybe cash or debt—from the balance sheet and moves it to the income side of the ledger. This transformation makes profit prospects seem better than they truly are, and the perceived value goes up. The bubble bursts when the balance sheet has no more to give.

Britain gave the South Sea Co., founded in 1711, a monopoly on trade with South America. The company was part of a clever scheme to finance government debt, which could be converted into South Sea shares. As the stock rose, South Sea’s profit would come from the difference between the share price and the value of the underlying debt.

There was a government slush fund buying up South Sea shares, making it easier to get rid of more government debt. The company would even lend money to those buying its shares. In 1720 government and company balance-sheet cash sent the stock from £100 to £1,000. When there weren’t any more buyers, the bubble burst and financial gravity took hold.

It wasn’t so different from the 1636-37 Dutch tulip mania. That bubble had little to do with bulbs. Instead wealthy traders used their balance sheets to manipulate tulip futures and derivative contracts. The flowers might as well have been condos in Fresno. The bubble popped, though there’s some debate today about how severe it was.

Fast forward to 1999. If your dot-com company was eyeing an initial public offering, Goldman Sachs and Morgan Stanley wouldn’t do it unless your website had a marketing distribution deal. What that meant is you’d go to AOL and ask for the IPO special.