Andy Kessler

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.