Andy Kessler

WSJ: Congress Can’t Enact a Chicken

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https://www.wsj.com/articles/congress-economics-investment-consumption-11627222067

Egg first. As legislators play a game of chicken with “infrastructure” bills, there is a huge misconception about how the economy actually works. Last week Moody’s economist Mark Zandi said more government spending on infrastructure and social programs like Medicaid “will lift productivity.” Does he even know what productivity is? He thinks you can give people money and they’ll spend it, prime the pump and boost the economy. That is backward. An economy has to produce first, then consume.

Reagan-era supply-side economics has been badmouthed for so long, and given monikers like voodoo and trickle-down, it has more or less been discarded. Why? Probably because it worked, taking power away from Keynesian big-government power mongers and their cheerleading economists. So let me suggest something else. Let’s call it Produce First or, if you insist, Supply First.

Here’s how capitalism works—pay attention if you took the social-justice version of Econ 101. SIPPC: Save. Invest. Produce. Profit. Consume. Save means postponing consumption, money and time. Only then you can invest, especially your human capital, in something productive. Usually this means doing more with less, being efficient and effective. This is when innovation happens.

Wealth comes only from productivity, not from giving away money. And despite the Federal Reserve’s dollar printing, profit is the only way real money is created. That dollar in your pocket is just something convenient to exchange that represents what you already produced profitably.

Supply first and then consume. “How can you have any pudding if you don’t eat yer meat?” Supply First is the fundamental nurturing of economic creation, creating incentives to put money into the hands of entrepreneurs and clearing a path for them to innovate by getting government out of the way.

For example, the Biden administration’s proposed 43.4% top capital-gains tax rate is an investment killer, stealing savings and investment from productive producers.

WSJ: How to be an Anticapitalist

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https://www.wsj.com/articles/president-biden-progressive-economics-capital-gains-socialism-infrastructure-11626623593

It is hard to sit by and watch your economy being strangled. Ibram X. Kendi’s book “How to Be an Antiracist” is all the rage now, but the Biden administration and its progressive hangers-on are providing a master class on “How to Be an Anticapitalist” and suck the air out of the economy.

Start by paying people to do nothing—1.8 million workers, according to a recent Morning Consult poll, have turned down jobs due to generous unemployment benefits, including an extra $300 a week from the federal government in some states. Meanwhile, Burger King is offering a $1,500 signing bonus.

Anticapitalists then shut pipelines (except Russian ones) and suspend drilling leases in parts of Alaska, helping send oil prices above $70. The government says it wants to limit carbon emissions, but then it squashes better energy options like nuclear. On June 30, months after New York state closed the Indian Point nuclear power plant, Mayor Bill de Blasio asked New Yorkers to cut back on energy usage during a heat wave. You can’t make this stuff up.

An anticapitalist would next restrict capital formation, so President Biden has proposed raising the top capital-gains rate from 23.8% to a punitive 43.4% and the top individual income-tax rate to 39.6%. Mr. Biden also wants to waive Covid vaccine patents—making pharma companies think twice before investing in new drugs—and is even pushing a series of antitrust bills that could reverse mergers, like Facebook’s 2012 purchase of Instagram, as if that would do anything good for the economy or consumers. Nothing is safe.

Add the Federal Trade Commission’s roadblocks to mergers. It worked hard to block early-cancer-detection pioneer Grail’s merger with genome-sequencing firm Illumina, now on hold as it lets the European Commission investigate. This is moronic. If you or a loved one is diagnosed with late-stage cancer in five years, the Biden administration could be to blame. Without meddling, Grail may have found it earlier, when it was still treatable.

Anticapitalists in Congress are pushing $3.5 trillion in spending unrelated to infrastructure with an Orwellian sleight of hand by declaring it “human infrastructure.” Big surprise, it is larded with climate provisions and other progressive party favors.

WSJ: Can Robinhood Ride the Bull?

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https://www.wsj.com/articles/can-robinhood-ride-the-bull-11626025309

Robinhood, the commission-free meme-stock dream shop, is going public. There’s talk of a bubbly $40 billion valuation. Woohoo! Plus, the company has announced that up to 35% of the new shares in the initial public offering are reserved for its own retail customers. Groundbreaking? I don’t know. If Robinhood really is the future of Wall Street, why not take itself public and sell 100% of the new shares to retail customers? Who needs Goldman Sachs and JP Morgan ?

Back in my days as a Wall Street analyst, one of my favorite things to do was IPOs. I’d go on roadshows with management teams. My job was to provide earnings estimates since companies aren’t allowed to give forecasts, but really it was a branding exercise. I’d have my name associated with them, and maybe become “the ax in the stock”—the first person investors would call for insight.

But before that, you had to win the deal. Prospective banking teams would show up to do an IPO pitch, nicknamed the bake off, with thick pitchbooks some lowly bankers would pull all-nighters putting together. My job was to position the company to investors. Since there were tons of pitches and I was generally lazy, I used the same three bullet points every time: 1) The company sells into a monster market, 2) has an unfair competitive advantage, and 3) a business model to leverage that advantage. It worked almost every time. Sadly, that unfair stuff is now grounds for an antitrust investigation.

During the dot-com boom I ran a fund and my experience with IPOs meant I got calls most days from startup CEOs saying, “I hear you’re helpful picking bankers.” So I’d walk through pros and cons of bankers: reputation, research, retail vs. institutional, pricing, first-day stock pops (usually 10% to 20%, though sometimes it would double or even quintuple).

Remember, after an IPO, only 10% to 20% of total shares trade at first, until insider shares are unlocked some 180 days later, though sometimes earlier. Until then it’s not a real market—there is often more demand for shares than supply and IPO stock prices inflate. Perversely, that’s when most Robinhood customers will buy Robinhood shares and likely overpay. Steal from the (wannabe) rich, indeed.

After Eliot “Steamroller” Spitzer alleged abuses by Merrill Lynch ( Henry Blodget’s “POS” emails) and others, IPOs changed as a Wall Street settlement put up a Chinese wall between banking and research, even cutting off phone calls.