Andy Kessler

WSJ: Innovate From Your Couch

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https://www.wsj.com/articles/innovate-from-your-couch-11585509674

By now you may have read about how Isaac Newton, while sheltering in place during the 1665 closure of the University of Cambridge for the bubonic plague, used his free time to discover gravity and invent calculus. And how during the closing of London theaters due to plague in 1606, William Shakespeare had nothing better to do and wrote “King Lear” and “Macbeth.” Those guys didn’t even have Wi-Fi. You do, plus extra time. Be productive.

Most of us work with our nose to the grindstone: developing drugs, selling homes, marketing gluten-free potato chips, restocking toilet-paper shelves, prescribing blood-pressure medicine, teaching calculus, manufacturing respirators—heck, even knocking out weekly columns. We rarely come up for air and ask if there is a better way of doing all this. Many jobs have long been ripe for disruption, and now they’re being upended in real time. Productivity—doing the right things the right way—is progress, is wealth creation, is what pays for government stimulus. Actually, economic growth is the sum of each of our productivity stories.

How to find it? Well, I’m a sucker for origin stories (except those involving apocryphal fruit, like Newton’s apple and Washington’s cherry tree). So much discovery and product creation happen away from work, when you have absolutely nothing better to do. The mind wanders, problems are puzzled over, and ideas start popping into your head, often in the strangest places and times.

Google famously instituted “20% time,” which let employees spend a fifth of their time on personal projects that benefited Google. But by 2015 only 10% of employees used their 20% time. Former Googler Marissa Mayer claimed it was more like 120% time. Too bad.

In 1993 I helped take public Avid Technology, which created early digital video-editing tools, initially on superfast but expensive workstations costing $25,000 to $50,000. After seeing demos, Apple had sent Avid a few prototypes of its new Macintosh model and helped the company port software to cheaper Macs. But it was too slow, which is why no one else was editing video on personal computers.

One of Avid’s co-founders, engineer Eric Peters, told me he was home sick for a few weeks around then.

WSJ: Cracker Jack Economics

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https://www.wsj.com/articles/cracker-jack-economics-11584906547

What is it with Cracker Jack politicians who want a prize in every package?

Last week when Joe Biden and Bernie Sanders clashed over stimulus in a primary debate, Mr. Biden celebrated the 2009 Recovery Act, saying it “had $900 billion in it and was the thing that kept us from going into a Great Depression.” If you believe that, I’ve got a bridge to nowhere to sell you. The Obama administration touted “shovel ready” projects—they were shoveling something, all right. Then again, remember President George W. Bush’s 2008 $152 billion stimulus in the form of tax-rebate checks? The “booster shot” for the economy was a huge dud. Sadly, here we go again—a stimulus for all of us.

What actually saved the economy in 2009 was one word: backstop. Finance froze because toxic mortgage-backed securities littered the system and, as with mad-cow disease, no one knew which ones were bad. The Federal Reserve provided a backstop to the commercial-paper market, then money-market funds and eventually banks, by buying up many mortgages to relieve default risk. Once bank stress tests took Armageddon off the table, lending restarted and the crisis ended. Spending on roads and bailing out General Motors were mere pork-barrel waste.

The economy is now grinding to a halt. Forty million Californians must “shelter in place” until further notice. New Yorkers too. Everywhere bars are (gasp!) closed. Planes are empty. Cruise ships are mothballed. Marriott and other hotel chains are furloughing employees.

Politicians need to do something, right? Yes, but it should be short-term and temporary. President Trump has a “big bold plan.” White House adviser Peter Navarro wants an $800 billion payroll-tax cut. Senate Republicans want to send $1,200 checks to a huge share of Americans. Treasury Secretary Steven Mnuchin is negotiating with congressional leaders a bailout of as much as $2 trillion. Rep. Ro Khanna, Mr. Sanders’s campaign co-chairman, ups the ante with checks of up to $6,000 for those making less than $65,000. Candy-coated popcorn, peanuts and a prize.

Mr. Mnuchin has smartly authorized the Fed, via Section 13(3) of the Federal Reserve Act, to lend directly to solvent companies, creating a trillion-dollar backstop for the commercial-paper market and money-market funds. A “lender of last resort” is needed. Airlines need capital, so lend to them at a Bagehotian penalty rate, against future ticket sales or even planes as collateral. The penalty rate is to make sure those that don’t need it don’t clog the system. The same program could shore up hotels and other still-solvent large businesses. And with support from the Fed, banks can do the same for small businesses. If the economy has a three-month hole because of quarantines and lockdowns, the Fed can provide a bridge loan across that void.

WSJ: Crisis Means a New Business Era

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https://www.wsj.com/articles/crisis-means-a-new-business-era-11584313927

The junk-bond-financed $6.75 billion buyout of United Airlines collapsed on Friday, Oct. 13, 1989. The stock market immediately dropped 191 points or almost 7%, equivalent to a 1,500-point drop today. Scary.

Rod Berens, head of research at Morgan Stanley at the time, called a departmentwide meeting after the market closed. I dreaded going. I had a list of tech stocks I was recommending that got killed that day. When I showed up, I noticed several cases of champagne—a weird way to celebrate the loss of wealth. But why not? I grabbed a glass; it was Friday.

And then my boss headed toward me. Uh oh, I thought, he’s going to fire me. Instead, he smiled, gave me a high-five and said, “Congratulations, now it’s your turn,” and clinked my glass. Talk about confused—one of the worst days in my professional life and I get congratulated?

I didn’t see it at the time, but he was dead right. Eras change, sometimes overnight. Over the next decade, the stock market shifted from junk-bond-fueled buyouts, a dominant Japan and the Cold War to highly valued emerging technology companies, ending with the dot-com blowout.

The current market turmoil tells me a new era is breaking, so question everything. Will cable, energy, mobile and social media ever come back? And if not, what’s next?

Well, the knee-jerk reactions will come first.

WSJ: How to Read the Myopic Market

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https://www.wsj.com/articles/how-to-read-the-myopic-market-11583685581

Happy 20th anniversary Tuesday to the Nasdaq index peak of 5049 back in 2000, zenith of the dot-com era. After observing our current beer-head frothy market for months, I was an idiot for thinking I could hold off until today to write a warning column. The market always trades to maximize pain. So, ouch.

Time waits for no one. One thing I’ve learned investing is that for every stock there’s this invisible arrow pointing to some moment, some time in the future, that markets focus on to evaluate it. That time horizon isn’t published anywhere; it’s something you feel, an equity duration. Typically, it’s 12 to 18 months.

Euphoria drives that arrow out years. Beyond Meat was selling at 20 times 2020 revenue, Apple stock boomed even with flat-ish iPhone sales, and Tesla stock did Icarus-like figure eights close to the sun. But Nasdaq and the entire market have done so many daily ascents and drops and barrel rolls since their peak Feb. 19—it’s now a coronavirus roller-coaster market. Why? Because uncertainty can collapse time horizons to months or even tomorrow.

Remember, a stock’s value is the sum of all future profits discounted back to today. It’s dependent on profits, growth and risk. Investors estimate future profits and growth rates, but risk? Again, you can’t look that up anywhere—it’s just a feeling based on interest rates, competition, world events and more. Beyond Meat seemed to be priced for five years out. Risk is in the eye of the beholder. So investors use a shorthand: A price-to-earnings multiple that provides some hint to how far out the market is looking. In May 1999, Yahoo’s P/E multiple hit 1,062!

Twenty years ago, we had this new internet thing, a loose Federal Reserve, AOL juicing startups in exchange for IPO shares, and momentum investors, or momos. Like ants to a lollipop, momos crawled into dot-com stocks, pouring in price-insensitive money that attracted even more momos. George Soros’s hedge fund might have been the last one in. After the Federal Reserve flooded the world with dollars to mitigate the nonexistent Y2K threat, it pulled back in early 2000 and markets reversed. Momos became nonos. After 9/11, when time horizons collapsed from years to months, Amazon’s stock had fallen 94%, to $6.

Today’s market madness features fewer IPOs, but the loose Fed and momos are present and accounted for.

WSJ: Give Philanthropy the Market Test

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https://www.wsj.com/articles/give-philanthropy-the-market-test-11583100757

I’m always mystified by philanthropic foundations and how fruitlessly they disperse their capitalism-provided funds. Bloomberg Philanthropies spends a chunk of its $8 billion on “Sustainable Cities.” The new $10 billion Bezos Earth Fund is backing climate activists. The $12 billion Ford Foundation insists, “To address the climate crisis, we must address inequality.”

Huh? Way more than philanthropy, free-market capitalism gets people out of poverty, raises living standards and cures the world’s ills. Of the four things you can do with your money—spend it, pay taxes, give it away or invest it—investing is the only one that increases productivity, the scaffolding of capitalism and societal wealth.

So my eyebrows rose when I was offered a chance to meet Raj Shah, president of the $4 billion Rockefeller Foundation. Maybe I’d be able to gather some squishy grant-making examples to make fun of. Boy was I wrong.

Perhaps the Rockefeller difference traces in part to the foundation’s founder. John D. Rockefeller was an interesting guy, much maligned despite bringing light and heat to the masses (and saving whales). On top of his heroic business efforts, he understood where philanthropy could be useful.

A favorite book of mine, Ron Chernow’s 1998 “Titan,” describes how Rockefeller made his money, then gave it away. He looked for big projects only he could fund, such as eradicating hookworm—a parasite that struck people who walked barefoot, predominantly Southern blacks. Rockefeller funded tests for thousands of rural citizens and provided shoes. It worked. One branch of the Bill and Melinda Gates Foundation uses a similar philosophy to fight malaria and HIV.

Mr. Shah told me about the Rockefeller Foundation’s recent deal to bring reliable power to millions of people in India.