Andy Kessler

WSJ: Silicon Valley Goes Soft

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

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

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

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

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

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

Everyone is caving in like an overcooked soufflé.

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

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

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

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

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

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

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

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

WSJ: Antitrust Can’t Catch Big Tech

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

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

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

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

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

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

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

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

WSJ: The Fed Can’t See Its Own Shadow

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

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

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

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

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

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

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