Andy Kessler

WSJ: Ukraine’s Asymmetric War

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https://www.wsj.com/articles/ukraine-asymmetric-war-technology-starlink-mariupol-theater-collapse-russia-explosives-internet-drones-weapons-11648400672

Reports from Ukraine are filled with stories of Javelin antitank missiles and Turkish Bayraktar TB2 unmanned aerial vehicles taking out Russian tanks and armored vehicles. The Biden administration has announced $800 million in defensive weapons for Ukraine, including Javelins, Stinger antiaircraft weapons and Switchblade drones. More amazing is what Ukraine has also been doing on the cheap. And I don’t mean Molotov cocktails.

Wars are increasingly asymmetric—the lesser-armed side can put up a strong fight. The U.S. learned this in Iraq with insurgent use of improvised explosive devices, basically roadside bombs triggered with cellphones. Similarly, Ukraine has been deploying inexpensive, almost homemade weapons and using technology to its advantage.

The Times of London reports that Ukraine is using $2,000 commercial octocopter drones, modified with thermal imagers and antitank grenades, to find and attack Russian tanks hiding between homes in villages at night. Ukraine’s Aerorozvidka, its aerial reconnaissance team, has 50 squads of drone pilots who need solid internet connections to operate.

When the internet was cut in Syria in 2013, enterprising techies set up point-to-point Wi-Fi connections to bring internet access from across the border in Turkey. You can do this with Pringles potato-chip cans and $50 off-the-shelf Wi-Fi routers. Ukraine may be spared this ad hoc setup as Elon Musk and his firm Starlink have donated thousands of satellite internet-access terminals to Ukraine, including to the Aerorozvidka squads, which come with warnings to camouflage the antennas. They typically cost $499 each and $99 a month for service.

Ukraine also effectively jammed Russia’s long-in-the-tooth wireless military-communication technology, which apparently uses a single-frequency channel to operate. Former Central Intelligence Agency Director David Petraeus told CNN that Russians were then forced to use cellphones to communicate until Ukraine blocked the +7 country code for Russia and eventually took down 3G services that Russia uses for secure connections. Russian soldiers were forced to steal Ukrainian cellphones to communicate with one another. That’s no way to fight a war.

Ukraine also has taken advantage of crowdsourcing.

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WSJ: War Always Muddles Markets

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https://www.wsj.com/articles/war-always-muddles-markets-stocks-volatility-investing-11647783501

Wars perplex investors. I’m always slow to react. Back in my days as a Wall Street analyst at Morgan Stanley, we would bus top investors around Silicon Valley to see Apple, Intel, Adobe, plus Jim Clark at Silicon Graphics, Scott McNealy at Sun Microsystems and even Steve Jobs at NeXT. Breakfast on Aug. 2, 1990, was disrupted by news of Iraqi tanks rolling into Kuwait. Even though the 1990s proved to be paradise for technology, most investors rushed back to New York. The stock market dropped 6% over three days.

My office in Manhattan was next to Wall Street’s top oil analyst. That fall, he studied data from the world’s producers and spoke at Morgan Stanley’s morning meeting. Armed with tables and charts, he basically declared that world demand was X million barrels a day, but without Iraq, there was only Y amount of oil production, so prices were going to rise for the next decade. Sound familiar? I watched salesmen peel out of the room to call their clients. It turns out he was spectacularly wrong.

The rest of 1990 was awful. The market dropped 21% from its July peak to its October low. Fearing terrorists, few were flying. The economy went into a recession. Companies missed on earnings. Uncertainty hung over markets. On Jan. 16, 1991, the companies I was recommending with buy ratings, such as Intel and Motorola, reported awful earnings. That night, like everyone else, I watched Operation Desert Storm unfold on CNN. Still, I dreaded the next day’s morning meeting, where I would have to cut my earnings estimates and eat crow as my stock picks tanked.

As I got off the elevator, the head of sales grabbed me by the arm and started shouting, “It’s dawn in America. We’re shooting missiles right down chimney stacks. Cruise missiles are making left turns down city streets. The market’s going higher. Tech is king!” Sure enough, the market was up before the open. All my stocks were bid up 20% or more. Dawn indeed. It certainly cheered me up.

Markets during wartime are confusing. Baron Rothschild’s line about buying when there is blood in the streets and selling to the sound of trumpets is a great contrarian battle cry. Sometimes it works, often it doesn’t. Although I know some Russian banks today that you can buy real cheap.

The New York Stock Exchange closed from July to November 1914. Stocks dropped nearly 25% when they finally started trading on Dec. 12.

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WSJ: Is the Dollar in Danger?

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https://www.wsj.com/articles/is-the-dollar-in-danger-china-russia-ruble-yuan-reserve-currency-foreign-sanctions-11647195545

The U.S. is sitting on top of a horizontal empire, capitalism’s self-organizing, incentive-based structure with its layers of value. It’s not the Marxist mush of “to each according to his needs.” You gotta earn your spot. Think of the U.S. dollar as the thread or even the duct tape that binds the layers together. Nearly 60% of the $12.8 trillion in worldwide currency reserves are dollars. Is America’s “exorbitant privilege”—the almighty dollar as the world’s leading reserve currency—under threat? Should you even care?

Sanctions have bitten Russia. A huge chunk of its $630 billion in foreign reserves are frozen. Oligarchs’ yachts have been seized. Visa, Mastercard and American Express suspended service in Russia. Apple and Google Pay stoppage stranded cashless travelers on Moscow’s metro. From Netflix to Nike, voluntary sanctions are in force.

Was cutting Russia out of the global financial system the right move? Naysayers think this is the beginning of the end of the dollar as the reserve currency because Russia will cozy up to China and adopt the yuan or pivot to cryptocurrencies. China may start dumping dollars. In fact, since 2014 China and Russia have severely reduced their dependence on the dollar for bilateral trade.

The dollar has been the world’s reserve currency since the Bretton Woods Agreement in July 1944, with the dollar pegged to gold and other allied currencies pegged to the dollar. This wasn’t some bureaucratic pronouncement. The U.S. was in a position of strength after funding the allied effort in World War II. America almost lost this privileged status in 1971 when deficits from war and welfare led President Richard Nixon to drop the gold standard.

Today countries still keep America’s virtual Benjamins in their virtual bank vaults—modern banking’s gold. China has more than $1 trillion in Treasurys. Russia has about $100 billion in dollars of about $500 billion in their increasingly frozen foreign exchange.

But why do these countries keep dollars? What backs the currency?

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WSJ: Putin’s ‘Vertical’ Empire Will Fall

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https://www.wsj.com/articles/putins-vertical-empire-fall-ukraine-russia-business-kleptocrat-oligarchs-value-companies-11646581296

Vladimir Putin obviously didn’t get the memo. The kleptocrat handbook has changed. You don’t invade countries anymore because after the smoke clears, you have to fix their plumbing and heating and cell service. Instead, you hire them.

Some estimate Mr. Putin may be worth $100 billion via hidden holdings in Gazprom, Russia’s state-owned energy company. But Jeff Bezos and Bill Gates are worth more and they don’t control any tanks. Their success shows the world is now divided into horizontal slices, with the most productive sitting on top. The American empire, if you want to call it that, is a horizontal empire. Mr. Putin’s attempt to re-create the Soviet Union’s vertical empire is doomed to fail.

As digitization allowed design and control to be separated from manufacturing, the world got horizontal, organizing into stacks of companies, industries and even countries to which markets provide capital based on their value-add.

IBM vertically integrated computers, while Microsoft, Intel, Dell, Singapore-made disk drives and Japanese memory chips dominated slices of the personal-computing stack. AT&T was vertical, the Internet horizontal, with Google and Amazon sitting on top of the data-center, fiber-optics and cable-modem slices. Apple adds its operating system to smartphones after paying Foxconn to assemble Korean screens and Taiwanese chips in China. Successful companies give up owning everything to expand opportunities.

As long as the U.S. provides the stuff at the top, its horizontal empire will endure, creating societal wealth and enough technology and taxes to defend itself and its allies. These include Japan, South Korea and Taiwan, all of which have far higher gross domestic product per capita than vertical commodity-dominated Russia. Especially in trade, horizontal topples vertical.

Under the guise of reuniting the Soviet Union’s footprint, Mr. Putin wants to control oil and gas distribution to clueless nuclear-reducing, wind-dependent, energy-deprived European countries.

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