Andy Kessler

WSJ: Dear Grads - A To-Do List for the Class of ’22

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https://www.wsj.com/articles/class-of-2022-graduation-advice-college-university-workforce-reputation-higher-education-11653236765

Dear Grads of 2022,

I bet when you heard there’d be lots of test-taking in college, you didn’t think that meant twirling swabs up your nose. But you made it! Your multitasking-from-anywhere skills are perfect for today’s work world. You deserve your reputation for resilience under dire conditions. Meanwhile, the reputations of experts are in tatters.

But be warned, you’ll forever be the Zoom-groomed Corona crew. No matter what you say or do, like drinking Blueberry & Açaí Truly Hard Seltzer or bragging about your now near-worthless NFT collection, you’ll be put in a box, stereotyped. Others will say behind your back, “Oh, that’s so on brand.” As you enter the real world from the conformities of the college cocoon, think hard about your reputation, your personal brand. Like it or not, wherever you go, your reputation precedes you.

People will probe to construct your story: “Where are you from?” “Where’d you go to college?” “What did your parents do?” Yes, life is like your college application on steroids. But you can break free. Don’t think worse of me for quoting the movie “Dirty Dancing” and suggesting “nobody puts Baby in the corner.” Take charge of your own reputation.

Hyperconnected Wall Street traders and bankers, analysts and salesmen do trillions in transactions every day based on the reputations of folks they often have never met face to face. You can lie to a customer any time but only once. And then word gets out, goes viral and everyone knows it. It’s a short walk from great rep to out of the business. On Wall Street, all you have is your reputation. Same for you.

If all goes well, you’re about to begin a job—you better, there are now five million more jobs than job seekers. “Influencer” doesn’t really count, but congrats anyway. You’ll figure out how to do well, get promoted, earn raises. Of course, there are always shortcuts—maybe cut some corners, trade in a bit of integrity to move ahead. Don’t do it! In this ever-connected world, everyone will find out. Everyone. People will stop dealing with you, and you’ll never really know why. Bad reputations are hard to shake.

Here’s a little story. A friend of mine was a bartender in college and famous for performing flaming shots that lit up the bar.

Read the rest here.

WSJ: When Will the Selling Stop? Crypto to go-go...

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https://www.wsj.com/articles/when-will-the-selling-stop-crypto-bitcoin-stocks-market-terra-hype-value-debt-11652624704

In the past six weeks, $1 trillion in cryptocurrency value has evaporated—yes, trillion. Since there was nothing of economic value driving up crypto prices, only mass delusion, there hasn’t been much to cushion their descent. It’s as if a giant bellows has been blowing hot air into bitcoin and others, and it suddenly stopped working. Fanboys yelling “store of value” and “fiat hedge” can’t seem to explain why bitcoin is falling as inflation rages.

This column noted a few weeks ago the risks of “algorithmic stablecoin” Terra, backed by the Luna token. Terra was designed to stay at $1, and Luna tokens would be issued to buy Terra if it dropped below $1. Well, it did last week, dropping to below 20 cents. So many Luna tokens needed to be issued that Luna’s price dropped more than 99% in 24 hours and it is now worth 3/100ths of a cent, down from $60 seven days ago. Ouch. Things happen fast. Remember the initial public offering last year for Coinbase, the crypto exchange, which traded at close to a $100 billion valuation? It’s now $18 billion. Too many momentum investors late to the crypto party traded real money for fake currency and lost.

The same thing is playing out in stocks, which are at least backed by future earnings. The market selloff has been nasty—down, down, down for seven weeks in a row. And it’s not only the hyped, memed, freshly IPOed and SPACed, like DraftKings and Beyond Meat, it’s real stuff. Facebook is running out of new customers. Netflix, PayPal, Lyft—all are enduring relentless stock sell-offs. It’s certainly less bubblicious out there, but is it over?

I asked an old Wall Street buddy when we’d know the selling is over, and I thought I heard him say, “After we seek redemption.” I suppose he’s right, so I asked, “You mean a spiritual awakening, atonement for the guilt of overpaying for Rivian and Carvana, deliverance for the sin of thinking NFTs were real? For . . .” “No,” he interrupted, “what I said is the selling stops after we see redemptions.” Oh.

We need to see capitulation. That’s when those newbie investors who bought crypto and stocks via Robinhood or piled into Cathie Wood’s ARK Innovation exchange-traded fund, ARKK—and “held on for dear life” with “laser eyes” and “diamond hands,” to use some Reddit lingo—finally dump what they own and swear to the almighty Elon Musk never to buy crypto or stocks again. It’s coming. By the way, Robinhood stock is down 85% from its August peak; ARKK is down 74% from its February 2021 peak.

In Wall Street speak, it’s known as the puke.

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WSJ: The Biden Loyalty Machine

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https://www.wsj.com/articles/the-biden-loyalty-machine-democrats-dgb-disinformation-sec-climate-risk-fauci-covid-lockdowns-biden-inflation-supply-equity-federal-reserve-military-russia-11652025653

In her 2014 book, “A Fighting Chance,” Elizabeth Warren describes advice she received from Lawrence Summers when he was Harvard’s president: “I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People—powerful people—listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders.”

Want to see this in action? In his 2021 book, “A Plague Upon Our House,” about his time as an adviser to the Trump administration on Covid-19, the Hoover Institution’s Scott Atlas describes “a functioning troika of ‘medical experts’ composed of Drs. Birx, Fauci, and Redfield.” He “noticed that there was virtually no disagreement among them. It was an amazing consistency, as though there were an agreed-upon complicity—even though some of their statements were so patently simplistic or erroneous.” Loyalty! But was that for the best? After two years of Covid restrictions, obviously not.

Loyalty is overrated. Harry S. Truman, worried about communist infiltration, instituted a Loyalty Program in 1947 via executive order, expecting “complete and unswerving loyalty” from federal employees. Seventy years later, FBI Director James Comey insisted that President Trump, at a private dinner, asked him for his loyalty. Mr. Comey declined. Mr. Trump then asked for “honest loyalty,” which Mr. Comey agreed to, knowing it didn’t mean anything.

Judge Ketanji Brown Jackson wrote in a 2019 ruling: “Presidents are not kings. . . . This means that they do not have subjects, bound by loyalty or blood, whose destiny they are entitled to control.” Amen.

But the Biden administration doesn’t want to hear this. Today’s insiders all seem to be singing from the same hymn book, imposing a strict ideology on us, their subjects. As an outsider I can insist: This isn’t healthy.

Treasury Secretary Janet Yellen, a monetary dove who helped get us into today’s runaway inflation mess, launched “a Treasury-wide equity review”…

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WSJ: Debt Can Be a Killer

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https://www.wsj.com/articles/debt-can-be-a-killer-investments-stocks-loans-elon-musk-twitter-economic-cycle-inflation-downturns-stock-prices-11651420308

The arrest last week of the founder of the investment firm Archegos, charged with securities fraud, is a great reminder of hidden debt. In March 2021, Archegos was overleveraged, allegedly hiding its debt from Wall Street firms as it used funky “total-return swaps” to manipulate stock prices. The inevitable collapse destroyed $100 billion in stock value. (Archegos’s lawyers have denied the allegations.) Separately, supply-chain financier Greensill used what Fitch described as a “hidden debt loophole” and collapsed around the same time.

Are there more of these out there? I ask because we’re in the most dangerous part of the economic cycle. Interest rates are rising to combat inflation, and there could be all sorts of leverage we don’t know about. There always is. A slowdown (and especially a recession) would expose these hidden horrors. In 2018 this column argued that “in downturns, equity hurts but debt kills.” We’re about to find out if that’s still true.

More than $850 billion in credit-card debt and $800 billion in margin debt are high but off their peaks, and at least they are known amounts. It’s always hidden debt that comes back to bite when things fall apart. In June 1929, banks had $82 in deposits for each dollar in cash on hand. Bank runs followed. The 2008-09 financial crisis resulted from mispriced collateralized loans and weird derivatives on the balance sheets of Lehman Brothers, Bear Stearns and many others. Citibank used “structured investment vehicles” loaded with mortgages and who knows what else essentially to hide $100 billion in debt by keeping it off its balance sheet.

Now debt is fashionable again. Tesla’s last proxy statement shows Elon Musk owning 73 million options and 170 million shares, of which more than 88 million were “pledged as collateral to secure certain personal indebtedness.” Even assuming a 20% loan-to-value ratio, that’s a lot of personal indebtedness. In the pending Twitter deal, Morgan Stanley is providing a $12.5 billion margin loan against another 62 million of his Tesla shares.

Tesla sold around a million cars in 2021 and was worth $1 trillion last week at the time of the Twitter deal. Ford Motor Co. sold almost two million vehicles in 2021 and is currently worth just under $60 billion. I’d rather have Tesla’s business than Ford’s, but perhaps Tesla’s valuation is a tad fluffy. Netflix stock has fallen 72% in six months. Carvana is down 84% since August. Valuations are fleeting, and we aren’t even in a recession. Now may not be the time to borrow against Tesla shares.

There are reports that Mr. Musk may take out a loan against his current 9.2% stake in Twitter. Yes, borrowing against Twitter to buy more Twitter.

Read the rest here.