Andy Kessler

WSJ: Clean Power, No Thanks to Al Gore

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https://www.wsj.com/articles/clean-power-no-thanks-to-al-gore-11600633749

Here’s a fun game. Ask an environmentalist about his top plan of action to fight climate change. You’ll likely get a quick answer urging a carbon-neutral or net-zero-emission clean-energy economy, usually by 2050, echoing the Paris climate agreement. OK, now ask if he’s for nuclear power, which has zero carbon emissions, at which point he’ll usually stare at his shoes and mumble something about high costs.

“The biggest problem with nuclear power,” activist Bill McKibben of 350.org told Techonomy, is that “it’s really expensive.” Al Gore, who sounds more and more like a revivalist preacher, told Reuters last month, “They’ve priced themselves out of the market. Electricity from nuclear power plants is by far the most expensive in the world,” while the cost of renewables “is continuing to go down.”

That’s funny, because in 1994 the Clinton-Gore administration canceled research funding for the Integral Fast Reactor, which sure could have helped us down the learning curve to lower-cost carbon-free electricity today. The U.S. has constructed a tiny handful of new nuclear plants in the past four decades. Yes, the same folks who fought nuclear energy tooth and nail are now complaining that it’s too expensive—like saying they’re orphans after killing their parents.

I mention all this now because earlier this month, and almost miraculously, the Nuclear Regulatory Commission approved the design and issued a final safety evaluation report for a Small Modular Reactor, or SMR, by NuScale based in Portland, Ore. NuScale’s design, funded by engineering firm Fluor and the U.S. Energy Department, joins six older federally approved designs. But it’s the first that looks as if it can scale and reduce costs.

In most nuclear fission reactors, uranium pellets are sealed in metal tubes known as fuel rods. These rods are submerged in water along with control rods that usually contain cadmium or boron, which absorb neutrons. When the control rods are removed, released neutrons cause a fission chain reaction, splitting atoms and releasing heat. This heats the water, which circulates through a heat exchanger with a separate water stream, producing steam to turn an electricity-generating turbine.

The NuScale reactor is smaller—only 65 feet tall and 9 feet in diameter, with much installed below grade.

Read the rest here.

WSJ: Newton’s Law of Stock Momentum

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https://www.wsj.com/articles/newtons-law-of-stock-momentum-11600013869

Does this sound familiar: Smart guy owns a stock in March at $200, sells it in June at around $600, but then buys it back in July and August for between $900 and $1,000. By September it’s back at $200. Ouch. Tesla this year? Yahoo in 2000? Nope. That was Sir Isaac Newton getting pulled into the great momentum trade of the South Sea Co., which cratered 300 years ago this month. He lost the equivalent of more than $3 million today. Newton, whose second law of motion is about the momentum of a body equaling the force acting on it, didn’t know that works for stocks too.

When bull markets get going, investors come out of the woodwork to pile in. These momentum investors—I call them momos—figure if a stock is going up, it will keep going up. But usually there is some source of hot air inflating stocks: either a structural anomaly that fools investors into thinking ever-rising stock prices are real, or a source of capital that buys, buys, buys—proverbial “dumb money.” Think of it as a giant fireplace bellows, an accordion-like contraption that pumps in fresh oxygen to keep flames growing.

Most simply blame the Federal Reserve—especially today, with its zero-interest-rate policy—for pumping the hot air that gets the momos going. Fair enough, but that’s only part of the story. Long market runs have always allured investors who figure they’re smart to jump in, even if it’s late. Everyone forgets the adage, “Don’t mistake brains for a bull market.”

In some ways, it used to be even easier to get carried away. In 1929 you could buy stocks with as little as 5% down payment, compared with today’s 50% margin limit. Even Groucho Marx, who wouldn’t join any club that would have him as a member, joined the momos and lost big in the crash.

The 1960s and ’70s had the Nifty Fifty bubble. In 1987 it was a rising dollar and the Japanese buying anything not tied down. I remember the story of an investor at a large Japanese insurance company asking a market strategist for a list of his favorite 20 stocks. Handed the list, the investor handed it back saying buy me 100,000 shares of each.

In 2000 it was comments like, “The internet is underhyped.”

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WSJ: California Is Coming for You

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https://www.wsj.com/articles/california-is-coming-for-you-11598804191

I didn’t have to read the entire Democratic Party platform, let alone the spend-tasmagoric Biden-Sanders Unity Task Force recommendations. Sitting here in California, I’m already living it. If polls are to be believed, left-coast policies are coming to you soon—and you’re not going to like it. California is an early glimpse for the rest of the country of a blackout-rolling, water-deprived, tax-hiking, spending-spiking one-party state longing for its old incandescent glow.

The U.S. may flip to one party rule; California is already there. Democrats have controlled the state Assembly since 1997 and the governorship since 2011—or 1999 if you ignore Arnold the Governator, as most do. Single-party rule means single-party rules. We’re No. 1 in the top marginal income tax rate at 13.3%, including for capital gains. That beats New York City. We’re also No. 1 in state sales tax, but only ninth when you include local levies. Still impressive! Everything else follows.

This month Californians have been subjected to rolling blackouts because of the state’s renewable energy mandates—33% today, 60% by 2030 and 100% by 2045. When the sun goes down, which I understand happens every evening, solar cells are worthless. So California has to buy energy on the spot market—sometimes for 10 times normal prices when it’s hot. So we get rolling blackouts. This craziness could be yours too in the near future. Get used to higher bills and resetting your clocks.

California is No. 3 in the nation in water prices. Sad, since it grows 90% of America’s broccoli, 95% of its garlic, 71% of spinach, 69% of carrots and two-thirds of fruits and nuts. Your prices are going up. And kiss incandescent lightbulbs goodbye—most were outlawed in California as of Jan. 1. Someone please send a box of 60-watt flame-tip candelabra base bulbs my way. I’m getting desperate.

And of course, California spends money like a drunken sailor. The state is blessed with tax dollars spouting from employees of Apple, Google, Facebook, Microsoft via LinkedIn, Amazon (whose search operation is based in Palo Alto), Twitter, Uber, Lyft, Airbnb, Palantir and—oops, check that, Palantir is moving its headquarters to Colorado. Can’t say I blame them.

Where does the money go?

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WSJ: Life Lessons to Copy and Paste

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https://www.wsj.com/articles/life-lessons-to-copy-and-paste-11598215275

We all owe a debt to Larry Tesler, who died in February at the age of 74. I meant to write about him in March but reality intervened. Tesler isn’t generally considered one of the founding fathers of personal computing but he’s certainly a contributing cousin, including features I guarantee you use every day. His story contains lessons galore—see if you can catch ’em all.

Tesler was born in New York, and took an interest in computers as a kid when he learned they were being used to forecast elections. This was in the 1950s—and it’s still an art, not a science. While at the Bronx High School of Science, he somehow talked folks at Columbia University into granting him 30 minutes per week on an IBM 650. Per week! At 16 he trucked out to Stanford to study mathematics and, like everyone else, got involved in ’60s counterculture, and he eventually became a freelance coder.

In 1970, after a failed marriage, Tesler, along with his young daughter and a bunch of his friends moved to something like a commune in rural Oregon. In a 2005 oral history, Tesler recalls, “That was pretty cool but there was no income up there.” Fortunately, Alan Kay, who invented the easy-to-use Smalltalk programming system, was setting up an effort at Xerox Palo Alto Research Center. Mr. Kay wanted to hire Tesler but couldn’t find him. Happily for all of us, that whole commune thing didn’t work out.

Tesler joined Xerox PARC in 1973 and worked on the Online Office System and a user-friendly computer named Alto running Smalltalk. Looking for features, Tesler found a newly hired secretary, Sylvia Adams, who had only used a typewriter. “I grabbed her. I didn’t want her to get contaminated by some word processor that we were using”—her lack of exposure would provide a fresh perspective. He sat her in front of a monitor and asked what she would want to do with the document on the screen.

She told the furiously note-taking Tesler, “Well, I have to insert something there, so I would point there, and then I would type what I wanted. And to delete this, I would draw through it.” She also told him she wanted to drag text around and even copy it elsewhere. Voilà—Tesler created cut, copy and paste in a system named Gypsy. (I pasted just now!) He even invented the expression “Wysiwyg,” as in “what you see is what you get.” Tesler also worked on an early portable computer named NoteTaker. Xerox didn’t commercialize it, nor much of anything he developed.

In 1979 Xerox had negotiated to buy options for shares of Apple Computer. In exchange, Apple staff could tour PARC.

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WSJ: Stock Scenarios for a Madcap Year

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https://www.wsj.com/articles/stock-scenarios-for-a-madcap-year-11597607961

Every weekday before stock markets open, thousands of “morning meetings” at investment funds are jam-packed with analysts, portfolio managers and chief investment officers. Who’s doing what to whom? Is our macro view about to fall off the rails? Is Amazon going to beat our earnings estimates? The best firms discuss various scenarios and what-ifs so there are no surprises.

Right now, there’s not a lot of margin for error in investing. Most indexes, because they’re weighted by market capitalization, are basically surrogates for Apple, Microsoft, Amazon and Google. At over $300 billion, Tesla feels like it’s valued at almost the cumulative profits of every auto maker since the Benz Patent-Motorwagen hit the road in 1886. That’s probably not far off. Ten-year Treasurys are at 0.7%—hardly worth collecting interest.

It is said that stocks “climb a wall of worry,” meaning that when bad news and worry are reflected in stocks, it’s time to buy. Stocks peak when everyone stops worrying and it feels like nirvana. Kinda like now. Despite virus mania, it’s an Alfred E. Neuman stock market: “What, me worry?”

So what’s the bear case, the worry scenario, that investors discuss in hushed tones even as the market soars like a SpaceX rocket? I used to enjoy visiting one investment firm in Minneapolis. On the white board, someone wrote, “State your conclusions upfront.” So here are four potential scenarios, with some conclusions. As Wall Street strategists like to say, this is not investment advice, unless, of course, it works.

• Inflation returns with a vengeance. Pfizer CEO Albert Bourla says a Covid-19 vaccine could be coming soon. By October, he told the Washington Post, “there is high likelihood that we will know if it works.” From there it moves quickly to Food and Drug Administration approval, and Pfizer plans 100 million doses by year-end.

Then the economy would reopen quickly. Goldman Sachs thinks unemployment will decline to 6.2% by the end of 2021. With a vaccine, maybe it goes to sub-4%? (At this point a buzzer sounds and I’m thrown out of the morning meeting for waffling. Investors need to pick a side and state their conclusions, else they become one more equivocating opinion.)

WSJ: ‘Investment Master’ Goes Abroad

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https://www.wsj.com/articles/investment-master-goes-abroad-11597006944

China’s stock market has been hotter than a cup of Luckin Coffee. Watching its run, along with today’s TikTok turmoil, reminds me of my small brush with Chinese fame. In 2006 I started getting investing emails from China about once a week, with oddly capitalized words and lots of misspellings. It looked like spam, but the wording seemed weirdly personal, so I finally answered one.

I got back a note about a “Master Forum,” asking if I could come to Beijing and Shanghai to speak. Then came pictures of past conferences, one with Jim Rogers, of “Investment Biker” fame. Maybe it was real, so my wife and I booked a trip. If it was a scam, at least we would tour China. They asked for pictures of me so they could promote the conference.

At the Beijing airport we were met by eight people, holding flowers for my wife and a poster with my picture on it. OK, this could be interesting. We took a two-hour drive through smog and traffic and were checked into the penthouse suite at the Peninsula Palace hotel. So far so good. A driver and interpreter met me in the morning and took me to an office building. I could barely see through the smog, let alone the haze of jet lag. I met the staff of Weekly on Stocks, a sort of Chinese Forbes magazine (never heard of it before or since). The recent issue had my picture on the cover. Weird. Again, none of this was registering; it felt like a hallucination.

My wife and I toured the Great Wall and Ming Tombs and the Forbidden City. After another night of bad sleep, I was driven to the People’s Library—posters with my name lined the entrance—and pulled up to a huge auditorium. Inside, I noticed the Chinese version of several of my books. They cost 50 cents. Ah yes, I had sold the Chinese rights, and China’s enthusiasm for free markets created an appetite for investment books. People kept taking selfies with me and asking me to sign books—which happens to me, well, never. “Should we stop this intrusion?” my host asked. I coolly waved him off: “Oh, it’s OK.” I was Tom Wolfe for a day!

We walked into the auditorium and I stopped cold—there sprawled across the back of the stage on a giant red backdrop was a 20-foot picture of . . . my head. Surreal. Lots of Chinese characters, and the few English words were my name and “International Master Forum.” Crazy.

WSJ: The Physics of a Political Crack-Up

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https://www.wsj.com/articles/the-physics-of-a-political-crack-up-11596396637

Are politics swinging out of control? Have we reached the resonant frequency of destruction? Oh, how we’ve swung—from the lefty Third Way of Clinton-Gore, to the righty foreign adventures of Bush-Cheney, to the progressive “Life of Julia” nanny state of Obama-Biden, to today’s confused tariff and border-wall follies of Trump-Pence. No wonder we throw the bums out every four or eight years.

Physics students learn that everything has a resonant frequency, which can cause an object to vibrate with increased amplitude and eventually out of control. This is how opera singers can shatter glass.

One real-life example is “Galloping Gertie.” On Nov. 7, 1940, a day with 35-mile-an-hour wind, Washington state’s Tacoma Narrows Bridge, then the world’s third-longest suspension bridge (after the Golden Gate and George Washington) and just four months after completion, started to twist and swing out of control. Movie footage shows what seems like a wave of energy pulsing through the bridge until, after an hour, it collapsed. Apparently, it had hit its resonant frequency.

Has U.S. politics, always bouncing to the left and to the right, reached its own resonant frequency? Impeachment hearings, looting, fighting in the streets and burning cities sure feel out of control.

Our political system was brilliantly built to last. To the three branches of government, we added freedom of speech and the press as a fourth wall of checks and balances. The two-party system forces compromise and competition for the middle. The Senate and Electoral College counterbalance urban and rural needs. There’s no question the system is flexible enough that, outside a few extreme modes—civil war, civil rights—it hasn’t come close to its resonant frequency of collapse. Sure, we get a racist George Wallace on one extreme and socialist Bernie Sanders on the other, but voters are smart enough to understand their danger and not get fooled again. American democracy is fragile but sturdy.

Until this Memorial Day.

WSJ: Tech CEOs Deserve an Apology

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https://www.wsj.com/articles/tech-ceos-deserve-an-apology-11595796522

It’s summer—must be time to grill a few CEOs. Amazon’s Jeff Bezos, Apple’s Tim Cook, Facebook’s Mark Zuckerberg and Google’s Sundar Pichai will appear Wednesday (virtually, how fitting!) before the House Judiciary Antitrust Subcommittee. It’s tech success vs. lawyers and career politicians who probably have an aide print out their emails. Broadway is closed, so this will be must-see theater.

The CEOs’ task is to disarm, dissuade and dissipate. No need to upstage congressmen, who are playing a weak hand. Antitrust is driven by consumer harm. Sure, there are screw-ups: Amazon favors its own products, Apple its own apps, Google its own YouTube videos; Facebook collects too much personal data. Yet none of these habits necessarily harm consumers and all could be easily fixed without decadeslong antitrust inquisitions. Lawyers are taught: “If you have facts on your side, hammer the facts. If you don’t, hammer the table.” Expect loud table banging.

Mr. Zuckerberg should play up consumer benefit: “Chairman [David] Cicilline, 85.7% of registered voters in your Rhode Island district use Facebook for over an hour every day.” Get him thinking: Would they vote for Facebook over me? Questions will fly about an advertiser boycott over “hate speech and divisive content”— Disney recently joined Starbucks, Ford, Unilever and Verizon. But branded advertising doesn’t really work on Facebook, hence brands are saving money by boycotting. Zuck must think: We don’t need these Mickey Mouse outfits.

Facebook is a small-business platform, and a critical one. Millions of companies rely on it to sell products locally and often nationally. Mr. Zuckerberg should ask: “Are you against small businesses? Is this an indictment of our entire American society? Well, you can do whatever you want to us, but I for one am not going to stand here and listen to you bad mouth the United States of America. Gentlemen!” That last part was Otter in “Animal House,” but you get the point.

On the other hand, Amazon should demand praise—like when you ask the annoying Parisian waiter, “Do you speak German?” and as he sputters “Non” you say, “You’re welcome.” Mr. Bezos’ job is simple: “Congressman, have you watched ‘House of Cards’?” (They all have.) “You’re welcome. Netflix uses Amazon servers. So does Zoom. Did you get your next-day delivery of that 6-quart Instant Pot? You’re welcome.” Lockdowns would have been undoable without Amazon Prime.

WSJ: Hail Mary Agenda

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https://www.wsj.com/articles/a-yuge-re-election-agenda-11595180915

Donald Trump’s presidency may have ended in front of St. John’s Episcopal Church on June 1. Of course, I also thought Barack Obama’s presidency was over when he accepted the Nobel Peace Prize—another futile gesture. President Trump is down big in the polls, but is it too late? Recall, behind 45-41 with time running out in November 1984, undersized Doug Flutie threw his famous Hail Mary pass to victory. Mr. Trump needs one. Populism and trade won’t work this time as Joe Biden has, Clinton-like, triangulated with his “Buy American” plan. My advice: Go big. Here’s a bold second term economy-rousing agenda:

• End the interest expense deduction. This would be a “Nixon goes to China” moment for President Trump, as only a real-estate guy who made his fortune writing off interest expenses could get away with it. The asymmetry—we pay taxes on interest earned but write off interest paid—has always hurt the economy, even caused many boom-busts. It helps mediocre businesses like real estate and levered-up companies bought by private equity, which often get whacked in recessions (Hertz hurts). The 2017 tax reform capped the interest expense deduction at 30% of taxable income for most filers, but there are loopholes a Mack truck could drive through. Get rid of it and watch capital flow toward productive uses.

• End subsidies. Start with corn and biofuels—Iowa has lost sway since it botched its caucuses. Actually, end all energy subsidies: oil, gas, solar and wind. Elon Musk became (briefly) the fifth-richest person in the world by selling unprofitable cars and profitable “regulatory” credits, $350 million worth last quarter. End them. While you’re at it, end inefficient labor subsidies by killing the Davis-Bacon Act of 1931 and sinking the Jones Act of 1920, shipbuilders’ gift. It’s time.
• Buy Cuba and make it a county of Florida. Having a failed communist state 90 miles from Florida should no longer stand. During the 1962 missile crisis, President Kennedy said he would “give assurances against an invasion of Cuba,” so we can’t send in the Marines. Mr. Trump got skunked on buying Greenland, so let’s get Cuba instead. Give $10,000 cash to each of its 11 million citizens: $110 billion well spent. Then give each Cuban a voucher or chit for a share of each of the country’s state-owned businesses, which is all of them except for a few restaurants and old ’57 Chevys. Like in Eastern Europe, these chits start to trade well before various companies or hotels are ready to be sold or go public. Cigars for all. And we don’t need a 51st star on Old Glory—just fold Cuba into Florida (no income tax!). And speaking of Florida . . .
  
  
• Time to fix Social Security. It’s the third rail of politics, but go for it. Set the retirement age to 70 for those born after 1980, 71 after 1990, 72 after 2000. And fix the cost of living adjustment, or COLA, which is 1.6% for 2020. The consumer-price index Social Security uses badly overstates inflation in the digital age. Set COLA at half of the consumer price index. Then, for the young folks:

WSJ: Your 2020 Econ Crash Course

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https://www.wsj.com/articles/your-2020-econ-crash-course-11594578813

Remember Econ 101? Bo-ring. Something about marginal utility, blah blah, and some Keynesian claptrap about wondrous government spending. “The Soviet economy is proof that,” you’ll learn from Paul Samuelson’s 1989 textbook, “a socialist command economy can function and even thrive.” It’s the “con” in economics. But we don’t need no stinkin’ textbooks—just look around. Amid this pandemic and protest perturbed period, Econ 2020 will teach you everything you need to know—no classroom required.

• Price signals. After nights of looting, Los Angeles announced curfews. I watched as protesters trying to make a point (not looters) quietly sat down in the street and were arrested one by one, zip-tied and taken away in modern-day paddy wagons. The next night, crowds dispersed right at curfew. Turns out the police issued $1,000 tickets for breaking curfew—a lot for protesters’ parents to pay. Now that’s a price signal. On the flip side, New York City’s recent restriction of cash bail meant many arrested looters were quickly released so they could loot again.
  
  Health care has the same problem, because so much is “free.” A study published last year in the Journal of the American Medical Association suggested 25% to 30% of health-care spending may be waste. This is especially true of notorious MRI and CT scans and heart angiograms. “Let’s just take a look to rule things out,” the thinking goes, “because insurance pays.” Then came the pandemic, which the American Hospital Association says caused hospitals to lose more than $200 billion. Why? Because frightened consumers skipped procedures, including unnecessary ones.

• Supply and demand. Bob Barker told us, “The price is right.” Well, except in the case of shortages of toilet paper, hand sanitizer, rice, sourdough ingredients and more. Stores wouldn’t raise prices lest they be accused of gouging. Customers tried Amazon, but it had its own antigouging rules and was selling out of many items, like kettlebell weights for home workouts. So savvy sellers began listing “classic,” “vintage” or even “collectible” kettlebells so they could set market-clearing prices. Voilà, no more shortages.

• Jobs. The most important role of an economy is job creation, for many reasons. Hong Kong’s pro-democracy protests last summer took place mostly on weekends, because so many people worked. In the U.S. this year, 40 million have lost work with many willing to be fired to collect the $600 a week unemployment add-on kicker. That meant lots of people sitting around being paid to do nothing—kindling for protest bonfires.