Andy Kessler

WSJ: Crypto Is Shedding Its Tether

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https://www.wsj.com/articles/crypto-shedding-tether-stablecoin-backed-john-law-11635103866

The launch of the first bitcoin-focused exchange-traded fund last week proves crypto bulls need to meet John Law. The Scottish gambler, economist and financier is likely why why so few top French banks have Banque in their name. Instead, there is Crédit Agricole, Société Générale and Crédit Mutuel. Law’s Banque Générale, later renamed Banque Royale, issued bank notes out of thin air, then royally blew up in 1720 and destroyed the French economy. The reputation of French banks has never fully recovered.

Law’s connections gave him exclusive rights to trade between France and its Louisiana Territory. The Mississippi Co. was funded by selling new shares of Banque Générale that could be paid for with bank notes issued by—wait for it—Banque Générale. Shares took off, rising from 500 livres to 10,000 livres from January to December 1719. Soldiers had to be sent in to keep order in the frenzied financial district.

Law’s flaw was issuing bank notes willy-nilly, without real backing for their value, to keep the stock price rising. The French government eventually made the huge mistake of making these bank notes legal tender, doubling the French money supply. Inflation raged, hitting a 23% monthly rate in January 1720. By September 1721, shares dropped back to 500, and the French economy imploded.

Fast-forward 300 years. Crypto had a big October, with bitcoin rising from almost $44,000 to a $66,000 peak in anticipation of the ProShares Bitcoin Strategy ETF, which actually doesn’t buy bitcoin—it buys bitcoin futures. Meanwhile the stablecoin issuer Tether Ltd. paid a $41 million penalty after the Commodity Futures Trading Commission found the company had falsely claimed it had adequate dollars in reserve to back its tokens.

The New York attorney general’s office ran a similar investigation over Tether’s claim of 1-to-1 backing with U.S. dollars. It ended, unsatisfactorily if you ask me, with an $18.5 million settlement paid in February and an agreement to produce reports on reserves for tether. Why not dig further? Tether neither admitted nor denied the attorney general’s findings.

I wanted to know more, so I submitted a Freedom of Information Law request with the New York attorney general’s office requesting reserve statements, ledgers and bank records from Tether. It was denied, citing disclosure that would “constitute an unwarranted invasion of personal privacy” and “interfere with law-enforcement investigations or judicial proceedings.” Hmm. And thanks for nothing.

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WSJ: Failure Was Always an Option for Elizabeth Holmes

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https://www.wsj.com/articles/failure-entrepreneur-innovation-failing-upward-startup-11634480558

As the Elizabeth Holmes trial for alleged fraud at her startup Theranos winds on, the biggest question is: When the company’s blood testing machines didn’t work, why didn’t she change tactics? Real entrepreneurs fail early and often. Ms. Holmes instead was stubborn and chose deception over failure. That’s a shame. Despite today’s IPO and SPAC fireworks, the truth is that in Silicon Valley most ideas fail. Heck, most companies fail. More than half of venture-capital investments are smoking holes in the ground. Fortunately, success often rises from the ashes of ruin.

Some history of failure: Thomas Edison, the “Wizard of Menlo Park” (New Jersey, not California), had the hardest time finding a filament for his incandescent lightbulb. He tried bamboo, cedar and flax until he found that carbonized cotton worked. “I have not failed. I’ve just found 10,000 ways that won’t work,” Edison said. Fail until you succeed beats fake it till you make it.

Then there is the computer mouse. The Douglas Engelbart version of 1968 was a crude wooden block on two wheels with three buttons. Xerox PARC came up with a better mouse using a metal ball and motion sensors. Steve Jobs wanted one, so Apple hired a design firm, which came up with over 25 prototypes, all failures, until a design in 1981 worked. Think of all the failed mice it took to create today’s curved mouse with multiple buttons, a scroll wheel and optical sensors. Speaking of failures, James Dyson made 5,127 prototypes over four years for his “cyclone” vacuum cleaner.

Entrepreneur Stewart Butterfield once tried to build a multiplayer online game but switched to photo sharing, selling Flickr to Yahoo in 2005 for $25 million. Success, but not a home run in Silicon Valley. Mr. Butterfield left Yahoo in 2008 to help found a company called Tiny Speck and build another multiplayer online game called “Glitch.” Persistence! “Glitch” attracted tens of thousands of gamers, but not enough to cover its costs, so Mr. Butterfield killed it in 2012.

Tiny Speck pivoted, which in Silicon Valley means fail and scramble to do something else. The company had built its own crude internal communications system for employees to chat digitally during the development of “Glitch.” Maybe others would use it. Seven months after they started work on Slack, the company announced its preview release. On the first day of the press blitz, 8,000 people requested the preview version. In February 2014 Slack had 16,000 users and by November it had 285,000, with 73,000 paying for it. Now more than 10 million people use it daily. Mr. Butterfield sold Slack to Salesforce for $27.7 billion last year. That’s failing upward!

Then there’s Elon Musk, who very openly noted, “My proceeds from the PayPal acquisition were $180 million. I put $100 million in SpaceX, $70m in Tesla, and $10m in SolarCity. I had to borrow money for rent.”

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WSJ: Catch Society’s Meltdown on HBO

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https://www.wsj.com/articles/society-meltdown-hbo-white-lotus-mike-white-connie-britton-progressive-woke-11633884922

The best writer in Hollywood right now is Mike White. In 2003 he wrote the film “School of Rock” for his friend Jack Black to star in. After a stretch competing in reality shows like “The Amazing Race” and “Survivor,” Mr. White is back where he belongs. He created, wrote and directed the recent HBO series “The White Lotus.” Set in Hawaii, it chronicles the dysfunction and competing narratives of staff and guests at a luxury resort. It is funny, biting and eye-opening. Mr. White so perfectly dissects society’s mental meltdown, I’m worried he might end up canceled.

Mr. White really shines when writing about the Mossbacher family. The mom, Nicole ( Connie Britton ), is chief financial officer of a search company. The dad, Mark ( Steve Zahn ), has health issues, and their daughter, Olivia ( Sydney Sweeney ), and a friend are pitch-perfect judgy college sophomores, dreaming of utopia while dripping in mockery and ridicule. The dinner conversations are priceless.

After Olivia accuses her mom of “old tribal thinking,” Nicole pushes back. “My feeling is most of these activists, they don’t really want to dismantle the systems of economic exploitation, not the ones that benefit them, which are all global, by the way. They just want a better seat at the table of tyranny.”

Olivia sneers: “Hmm, no, that’s just you, mom.” Nicole then puts her daughter back in her place—something mothers don’t seem to do anymore: “And what’s your system of belief, Olivia? Not capitalism. Not socialism. So just cynicism?”

In another conversation, about expensive jewelry and who deserves wealth, Olivia declares, “Mom, good news. I’m looking around the hotel, and it seems like all of the white, straight men are doing just fine. They are still thriving.”

The mom responds: “Point taken. I just think it’s funny that now it’s OK to reduce everybody to their race and gender, but isn’t that the kind of thinking that we’ve been fighting against all these years?”

Finally dad pipes up. “I agree,” Mark says. “I mean, for years, I was the good guy, you know. I was the one in the room, saying, like, ‘Hey, that’s not cool,’ to all the chauvinists and bigots. But now I’m the bad guy, or at least I shouldn’t say anything on account of my inherited traits. I mean, why do I need to prove my antiracist bona fides? It seems wrong.” How many of us think this but are too afraid to say it out loud these days?

Olivia, with her daughterly venomous scorn, then lets this perfect line rip: “Yeah. It’s not all about you, dad. It is time to recenter the narrative.” Mark shoots back, “That’s fine by me. I don’t want to be the center of the narrative. Believe me. Let’s center the narrative around, uh, Paula.” That’s Olivia’s friend, who happens to be, as today’s narrative calls it, a person of color.

WSJ: Will China Save Evergrande?

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https://www.wsj.com/articles/china-save-evergrande-bankruptcy-real-estate-housing-bubble-market-collapse-11633275348

Is China about to get a lesson in “Too Big to Fail?” Its second-largest real-estate developer, China Evergrande Group, with 1,300 projects in 280 cities, has some $300 billion in liabilities. Evergrande owes investors as many as 1.6 million unfinished apartments, and as far as financial debt, it owes $88.5 billion to banks and bondholders with $37 billion due within a year. It already missed an $83.5 million coupon payment on Sept. 23 and a $47.5 million payment last Wednesday. Evergrande does have a 30-day grace period, so the clock is ticking toward a default.

Is Evergrande too big? Is there an implicit guarantee for Chinese real-estate investments similar to the foolish U.S. implicit guarantee of Fannie Mae and Freddie Mac debt? No one knows—yet.

China is littered with ghost developments and half-finished projects. On a visit to Shenzhen more than a decade ago, I saw empty buildings with homeless people living in the rubble of the lobby. Debt financing is always treacherous.

The press keeps touting a “Lehman moment” and predicting financial collapse. I doubt it—it’s more like Bear Stearns, a loud warning to others heavily in debt. Evergrande’s short-term debt is about 1% of China’s foreign reserves, so a bailout is possible. But China has dozens of large debt-laden real-estate companies, including Sunac, whose bonds investors are busy selling off. Will China let real estate blow up?

The answer is typically this: China doesn’t have a safety net or a robust retirement system, so most Chinese households—as many as 70% (but like most statistics in China, who knows if that’s right?)—put their wealth into real estate. When new buildings are announced, there is a frenzy to buy apartments, even if many remain vacant for years. The thinking goes: Hong Kong prices more than tripled since 2004; surely the same can be true going forward for mainland China. That’s bubble logic.

So while Xi Jinping and the Chinese Communist Party can hammer internet companies and make them pledge allegiance to a “common prosperity” policy, limit videogame play, decimate the after-school tutoring business, and even denigrate television celebrities as “sissypants,” they can’t let real estate fail.