Andy Kessler

WSJ: Jamie Dimon’s Timely Warning About Socialism's Misery

https://www.wsj.com/articles/jamie-dimons-timely-warning-11555873352

Socialism is now woker than a two-for-one Che Guevara T-shirt sale, with Bernie Sanders leading the Democrats’ presidential primary polls and Alexandria Ocasio-Cortez dominating the party’s imagination.

In a rare calling-out of this bogosity, JPMorgan CEO Jamie Dimon warned shareholders this month that “socialism inevitably produces stagnation, corruption and often worse.” He was echoing Winston Churchill’s observation that socialism allows for “the equal sharing of misery.” Why is it only capable of generating misery?

Because under socialism, politics rather than productivity drives employment. Technological innovation is suppressed. Long ago, an Israeli explained to me that under socialism—Israel’s economic system until 1985—you would always hire two workers to do the job of one.

Of course, there is a spectrum of socialism. The textbook definition is government ownership of the means of production, as in the communist-run Soviet Union or Cuba, or the state-owned factories of China today. But socialism can also mean “owning” an industry by burying it in regulation (see education, Medicare, the overregulated auto industries and so on). 

Socialists are modern-day Luddites, destroyers of technology to preserve jobs. Article 4 of the current postal-workers’ union (sweetheart) contract states that “any new job or jobs created by technological or mechanization changes shall be offered to present employees capable of being trained to perform the new or changed job.” It’s one reason, even with automation, we still have 500,000 postal workers when the right number is zero. Similarly, Detroit was slow to use robots. It’s only recently that United Auto Workers union contracts did away with job guarantees.

Workers at the Port of Oakland went on strike to protest the use of RFID tags on shipping containers because it would kill lucrative clipboard-toting jobs. Productivity be damned.

And that phantasmagoria, the Green New Deal? It’s a productivity pallbearer…

Read the rest here.

WSJ: What You Need to Know to Pick an IPO

https://www.wsj.com/articles/what-you-need-to-know-to-pick-an-ipo-11554661746

It’s red-herring season for IPOs—so named for the red warning language on the left side of an initial public offering’s preliminary prospectus. Thanks to the Federal Reserve’s interest-rate pause, the IPO jailbreak is becoming a stampede. Last month Lyft raised $2.2 billion. Pinterest is next, and Uber, Slack, Postmates, Airbnb and others likely aren’t far behind.

How do you know which IPOs to buy? No, not to trade—you’d never get it right. Lyft priced at $72, traded at $85 on its first day, then closed at $78, only to fall to $67 on its second day. It’s now $74. I’m talking about buying and holding for a few years. Yes I know, how quaint.

The trick is to read the prospectus. What are you, crazy? That’s a couple hundred pages. Well, not the whole thing. But remember, where the stock trades on its first day is noise. There is usually a lockup of insider shares for 180 days, which are then, like a bucket of cold water, thrown on the market. So understanding long-term prospects are critical. Here are a few shortcuts.

First, glance at the underwriters along the bottom of the cover. On the top line are the banks putting their reputation on the line. If the one on the far left is Goldman Sachs , Morgan Stanley or JPMorgan , you’re probably OK, in that order. If it’s Soprano & Sons, run away.

Next, open the management section and study the directors. Forget the venture capitalists or strategic partners with board seats—they have their own agendas. Non-employee directors are the ones who are supposed to be representing you, the public investor. And their value depends on their experience.

Read the rest here.

WSJ: Rejection Is Like Rocket Fuel

https://www.wsj.com/articles/rejection-is-like-rocket-fuel-11553459174

Rejected? Take a lesson from University of Tennessee basketball coach Rick Barnes. According to ESPN, Mr. Barnes has saved every rejection letter he’s ever received, including those from Indiana coaching legend Bobby Knight and Louisville coach Denny Crum. When hyper-announcer Dick Vitale heard this, he said, “Wow, those are real schools.” Turns out Dickie V was turned down by almost every high school and small college he applied to coach. These are successful people holding on to long-ago rejections. Effect, meet cause.

Rejection notices used to be called boot letters (until email ruined everything). High-school seniors would draw a boot on college rejection letters and wallpaper their rooms. College seniors would thumbtack job rejections, with an inked boot, on their doors.

These happy rejects are in good company. One publisher turned down Herman Melville’s “Moby-Dick,” saying, “First, we must ask, does it have to be a whale?” Joseph Heller’s book once was turned down with the comment, “I haven’t the foggiest idea about what the man is trying to say. Apparently the author intends it to be funny.” Heller named it “Catch-22.” John Cleese’s hilarious sitcom “Fawlty Towers” initially was written off as “a collection of clichés and stock characters which I can’t see being anything but a disaster.” And there’s Steve Jobs: “I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me.”

Now it’s college-admissions week. You or your child might soon be turned down by some institution of higher learning. Or worse, maybe you lost a spot because some pushy parents used William “Rick” Singer’s tutoring and college-application “services” and “side door” to get into Yale or Georgetown or USC.

So how do you handle it? In one Ted Talk, a psychologist named Guy Winch suggests you “apply emotional first aid,” and if that doesn’t work, try to “boost feelings of social connection.” That sounds like a first-class ticket to Depressionville. My advice? Ignore the namby-pamby voices telling you to forget it, let it slide, move on, or pack up your troubles in your old kit bag. And don’t waste your money on books filled with motivational gobbledygook, like Norman Vincent Peale suggesting, “Change your thoughts and you change your world,” or Tony Robbins’s insight: “Where focus goes, energy flows.”

Instead, embrace rejection. It’s a power boost. Grab it. Internalize it. Feel it. Swirl it under your tongue like a single-malt scotch, or a Mountain Dew Baja Blast for you high-schoolers.

Read the rest here.

WSJ: Warren’s Populist Puritanism or Should we break up Facebook, Google, Amazon and Apple?

https://www.wsj.com/articles/warrens-populist-puritanism-11552848483

H.L. Mencken defined puritanism as the haunting fear that someone, somewhere, may be happy. Remember that amid the deluge of demands to break up Facebook , Google, Amazon and Apple .

Columbia law professor Tim Wu insists that bigness is bad. “We’ve let Facebook have their ride, they’ve made their money and they’ve been very successful,” he told the American Enterprise Institute last month. “I just think there’s a very good track record in tech of trying to put pressure on the monopolist and break things up a little bit.” Basically, Facebook got big and now it’s someone else’s turn.

Wannabe president Elizabeth Warren wants to “break up Big Tech” and split the companies into heavily regulated “platform utilities.” She told crowds at South by Southwest: “The monopolist will make fewer monopoly profits. Boohoo.” The politics of envy is the populist playbook.

Yet the Sherman Antitrust Act prohibits two specific types of business practices: anticompetitive agreements, or collusion, and conduct to limit competition. Judges define these violations by a consumer-welfare standard, assessing whether consumers are harmed by a lack of competition. “Innocent monopolies” earned by merit are not illegal. Antitrust says nothing about bigness.

No matter. The calls are getting louder for Facebook to split off Instagram and WhatsApp. Same for Amazon carving out Whole Foods. Or Google divesting its 2007 acquisition DoubleClick. Or spinning out the App Store from Apple, as Spotify is seeking in the European Union. There’s little sign of consumer harm in any of these cases.

Sure, the tech titans have some issues. Google’s searches favored its own sites over others. Facebook sold private information after agreeing not to, and the Federal Trade Commission is set to collect a huge fine. So keep up the pressure. Firms clearly ought to respect property rights better, and pay for news content and user data. But demanding divestitures and regulation is an old trick competitors use to get government to do their bidding. In reality, the moves would freeze innovation without enhancing competition.

WSJ: Impeachment and Your Investments

https://www.wsj.com/articles/impeachment-and-your-investments-11552245553

“It’s very clear that the president obstructed justice,” House Judiciary Committee chairman Jerrold Nadler told ABC’s “This Week” last week. On the same show, House Republican Leader Kevin McCarthy said Mr. Nadler “decided to impeach the president the day the president won the election.” You don’t get better foreshadowing than that! The $64 trillion question is what happens to the stock market if President Trump is impeached.

I’ve long contended that only fools predict stock markets, so here I go. Fortunately, there are plenty of clues. A week before Election Day 2016, analysts at Barclays forecast the market would drop by 11% to 13% if Mr. Trump was elected. When it became clear he had won, CNN anchors noted—almost with glee—that Dow 30 futures were down more than 900 points. They dropped 5% overnight, the maximum selloff allowed on the exchange. But I hope you didn’t sell: The Dow Jones Industrial Average regained 3% the next day and has risen almost 40% since. Shocked investors had traded on their emotions the night of the election, but others undid the damage when they woke up thinking about policy.

A similar mix of shock and shrewd analysis is apparent in market reactions to each of the three impeachment episodes in U.S. history. When Andrew Johnson was impeached in 1868, markets were cruising in the wake of the Civil War, with banks and railroads making up the majority of the stocks. Lehman Brothers strategists calculated that the market—call it the Dow Jones Pre-Industrial Average—rose 10% in the three months before the impeachment, paused, then rose another 6% over two months after acquittal.

Richard Nixon resigned before being impeached. From the start of the televised Watergate hearings in May 1973, the market began a 16-month decline of more than 20%. After Nixon released the White House tapes and then quit on Aug. 8, 1974, the market popped up 5% in a few days. I hope you did sell then, because that’s when the real bloodbath started. The Dow dropped 27% through early October and bottomed out at 577 in December. Messy oil markets, inflation, a recession and Gerald Ford didn’t help.

Bill Clinton’s impeachment made similar shock waves. During the run-up to the release of the Starr report, from July through September 1998, the market sold off almost 20%. A friend who ran a big investment fund told me, “I don’t care what Clinton does with his sex life until it affects my portfolio.” Financial chaos after Russia’s debt default made matters worse. After Mr. Clinton was acquitted in February 1999, the dot-com debauchery began.

So if a Trump impeachment takes place, here’s what I think will happen: First, stock futures will soar, maybe by as much as 5% on Day 1. Bells will peal across the land, and I’d expect massive flash mobs dancing in circles singing “Ding, dong, the wicked witch is dead!” Or something like that.

WSJ: Superheroes Are Rescuing Hollywood

https://www.wsj.com/articles/superheroes-are-rescuing-hollywood-11551045451

I’ve been around the special effects and movie business for decades as an adviser and investor and had a front-row seat to the development of computer-generated imagery. On a tour of the back lot at Paramount Pictures in the early ’90s, my host pointed to a shallow pool and said: “Here’s where Charlton Heston parted the Red Sea in ‘The Ten Commandments.’” I was impressed—but playing my role as an annoying Silicon Valley visitor, I replied “Someday this will all be replaced by CGI.” I was right. CGI has been the best thing to happen to the movie business—and a curse.

Take a look at the top 10 domestic grossing films of 2018: “Black Panther,” “Avengers: Infinity War,” “Incredibles 2,” “Jurassic World: Fallen Kingdom,” “Aquaman,” “Deadpool 2,” “The Grinch,” “Mission: Impossible—Fallout,” “Ant-Man and the Wasp” and “Solo: A Star Wars Story.” Not a single one would have even been greenlit without computer graphics. I had to go back to 2014’s “American Sniper” to find a top-10 grosser that wasn’t CGI dependent. Even this year’s dramatic films needed CGI, like re-creating 1985’s Live Aid concert at Wembley Stadium in “Bohemian Rhapsody.”

Except for “Mission: Impossible” they’re all superhero movies and animations. The plots are similar and shallow: Outsmart villains, save the world, fight a giant monster, and resolve somebody’s daddy issues. But they entertain. Movies are supposed to transport you somewhere else for 110 minutes, then drop you back into your mundane existence. You want to see something you’ve never seen before—hence the success of watery “Aquaman” and vapid “Venom.” Audiences want faraway galaxies, explosions and a little humor. And when that gets old, just have the superheroes fight each other.

The rest of Hollywood looks down their noses at comic-book movies, but they should be thankful. “Avengers: Infinity War” grossed more than $2 billion world-wide. In a decade, 20 Marvel superhero movies have grossed a total of more than $17 billion. That pays for a lot of dull arty films, flatulence-joke comedies and oversexed, clichéd rom-coms that nobody goes to. It’s as if Hollywood has forgotten how to make movies people want to go see. Whose idea was it to make the 2017 Matt Damon eco-dud “Downsizing,” or Jennifer Lawrence’s allegorical “Mother!”? I’d like my four hours back.

My wife hates watching movies with me. At the right moment each time, I lean over and say: “Boy meets girl, boy loses girl, boy gets girl back,” or some derivation. And when it inevitably happens, I say, “And there’s the message.”

The so-called dramatic films are just as bad. At the Oscars, the word “best” in best picture has been watered down to be almost meaningless.

WSJ: It's Time To Fire Your Doctor

https://www.wsj.com/articles/its-time-to-fire-your-doctor-11549829009

Barack Obama famously and falsely said, “If you like your doctor, you will be able to keep your doctor, period.” But . . . what if you don’t like your doctor?

Let’s say you, like me, are one of the 20 million Americans who work for themselves—no boss, but also no corporate-tax deduction for health insurance. The smart move is to get a high-deductible insurance plan. Now it suddenly matters what doctors charge: $500 to take your blood pressure and bang your knee with a rubber hammer, $1,200 for a blood test that uses pennies worth of chemicals to tell you your hemoglobin levels are fine. Plus four months to get an appointment, and then the doctor asks you to fax an authorization. What? It’s 2019. It’s time to fire your doctor.

Like roughly half of American adults, I’m borderline: hypertensive, high cholesterol, though only “pre”-diabetic. A streak of misdiagnoses has led me and many others to take doctoring into our own hands. I do an annual blood test for $199 through WellnessFX and get results on a smartphone app. A Bluetooth-connected cuff from Omron Healthcare tracks my blood pressure and even notes atrial fibrillation or irregular heartbeat. A Fitbit scale tracks my weight. Beautyrest Sleeptracker tells me my REM sleep duration. My Apple Watch charts my resting pulse and does a simple electrocardiogram. The more data, the better.

When you do get sick, you still need to see a doctor—they have that prescription pad. But insurance companies tired of overpaying for five-minute doctor visits have begun setting up alternatives. Sutter Health runs walk-in clinics for $129 a visit. Online care is cheaper, so Anthem Blue Cross encourages customers to use LiveHealth, a videoconference platform, for $49. Aetna has a deal with Teladoc, a $4.5 billion public company, for $38 consultations. No pain meds, of course, but almost everything else.

Consumer-driven options have already changed nonvital care. After doing in-home teeth impressions, you can order orthodontic aligners for $80 a month. For acne treatment, you can upload photos of affected areas and receive medicine by mail monthly. Technology is lowering costs and improving care on all fronts.

Technology has moved so fast that several smartphone-based platforms now function like Uber for doctors:

WSJ: Strike Back Against Every Cyberattack

 

https://www.wsj.com/articles/strike-back-against-every-cyberattack-11548624081

Another week, another data breach. The latest is 773 million online accounts for sale, many with passwords included, known as Collection #1. More are likely to come—go ahead and check your status at HaveIBeenPwned.com. All this the same month Marriott admitted that five million unencrypted passport numbers were snatched from its system, probably by the Chinese. Oh, and the Russians might have hacked the Democratic National Committee again after the 2018 midterms. How do we stop this?

The foreign hacks are the most disturbing. Last month members of a Chinese espionage ring known as Advanced Persistent Threat Group 10 (a k a “Godkiller” and “Stone Panda”) were charged by the Justice Department with hacking NASA, the Jet Propulsion Laboratory and even IBM . Earlier last year the Chinese were caught stealing submarine data from a U.S. Navy contractor. And horror of horrors, in 2017 an Iranian national hacked HBO and threatened to release unaired episodes and plot summaries from “Game of Thrones.

The U.S. has done close to nothing in response. Sure, special counsel Robert Mueller indicted 12 Russian intelligence officers last summer. I’m sure they’re quaking in their boots. Maybe those “Game of Thrones” episodes could have taught our leaders something about retaliation and revenge.

So what is America’s policy? That’s unclear. But a good start would be to heed the words of Israeli Prime Minister Benjamin Netanyahu, who told the press last week that his state has a permanent policy of hurting “everyone who is trying to hurt us.” The U.S. needs a similar stance to halt cyberattacks.

John Yoo, a Berkeley law professor and former Justice Department official, sees a parallel between deterrence in cyber and nuclear warfare. “Offensive nuclear weapons are relatively cheap,” he explains to me: “It’s defensive systems that are expensive.” Think about it. Each mission to drop one nuclear bomb would cost the U.S. about a quarter-billion dollars. But we’ve spent trillions on our defense and deterrent system. The nuclear triad of intercontinental ballistic missiles, bombers and subs ain’t cheap.

Mr. Yoo continues: “Similarly, offensive cyber weapons are cheap. It’s defensive cybersecurity tools that are expensive.”

WSJ: Stock Picking Is Like Time Travel

https://www.wsj.com/articles/stock-picking-is-like-time-travel-11547412001

Tesla stock—bam! Apple —kapow! That sound you hear amid the market tremors is the future screeching back to the present, like the wail of the flux capacitor in Marty McFly and Doc’s DeLorean. Wall Street perfected this sort of time travel long ago: Successful investing is mostly about looking into the future and deciding what to pay for it today. But how do investors know where to look?

The equities side of Wall Street, including me, always writes off bond investors as automatons. Their business is straightforward: Bonds have a face value, maturity date and coupon. That’s it. The rest is math such as Macaulay duration, which is basically how long it takes to get paid back. Investors just guess future interest rates and the risk of default. How hard is that?

If only it were that simple for stocks. At its most basic level, the value of a company is the sum of all its future profits discounted back to today. But it’s tricky to pin down this value because the variables are all loosey-goosey: earnings, growth rate and a theoretical discount rate. Future earnings are at the whim of management, growth depends on the economy and industry trends, and the discount rate is based on inflation and that fuzzy thing called risk. In other words, every input to the value of stocks is elusive. That’s why stocks rise and fall by the minute.

It helps to think of stocks as having a focal length, like the lens of a camera, which is the point in the future investors are looking at. Stocks with long focal lengths have an area of high magnification, a smaller angle of view, and fewer things in focus. Amazon’s investors were willing to overlook low margins in the short term in exchange for a bountiful prize out there somewhere. A short focal length means investors don’t look too far and can see everything all in focus, warts and all, like General Electric . Stocks have a duration, but you can’t really measure it—you have to sense it, or feel how far out the market is willing to look. It’s the most confusing part of investing.

How far should you look? Typically—though things are rarely typical in investing—investors look between 18 and 24 months into the future and apply a price-to-earnings ratio on future profits. Today the market multiple is 16 times 2019 earnings, which is close to the average for the past several decades. Since 1990, forward-earnings multiples have been as low as 10 at the 2009 market bottom and as high as 26 in the 2000 dot-com boom.

But P/E multiples aren’t buy or sell signals.

WSJ: Where in the World Is Larry Page?

https://www.wsj.com/articles/where-in-the-world-is-larry-page-11546199677

Has anyone seen Google founder Larry Page? Me neither. He’s in the witness protection program of his own doing. Brilliant.

As you chill the champagne ending 2018, the only thing worse this year than owning bitcoin was being the visible face of corporate America, especially technology. It’s the year of the beleaguered CEO, with Facebook ’s Mark Zuckerberg being the poster child under the caption “Mamas, don’t let your babies grow up to be CEOs.”

Whenever I meet chief executives, whether they’re fresh-faced startup founders or grizzled managers of public companies, I remind them there are only two rules for being successful. The first is pretty easy: Don’t run out of money. Ever. Former General Electric CEO John Flannery now knows this. Elon Musk might be whistling past this graveyard again as Tesla’s batteries run low.

And the often neglected second rule of CEO success? Hire a solid No. 2—but not for the reason you think. Sure, a competent operating person would be nice, to offload some of the drudge work. But the real purpose is to serve as a heat shield—someone to roll out front when the villagers with torches and pitchforks show up at your door. Bluntly, someone to take the blame when things go sideways, or even fire so your board doesn’t fire you. What could be more important?

In October 2015, Sundar Pichai became CEO of Google. But really, he is CEO in name only. Mr. Pichai runs a division of Alphabet, a holding company that contains Google (which accounts for 99.6% of Alphabet’s revenue) and a bunch of hemorrhaging “Other Bets.” Mr. Page is CEO of Alphabet, a heat shield between himself and trouble.

It was Mr. Pichai who fired James Damore in 2017 for writing the “Google’s Ideological Echo Chamber” memo.