Andy Kessler

WSJ: Once Trump Leaves, Who’s Left to Blame?

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https://www.wsj.com/articles/once-trump-leaves-whos-left-to-blame-11610314313

Here’s my prediction: On Jan. 20, the No. 1 video on YouTube will be “Ding Dong the Witch Is Dead” from “The Wizard of Oz.” Go ahead, play the song in your head. I’ll wait.

This hope for mass emotional relief was best summed up by House Speaker Nancy Pelosi who, according to Politico, told her leadership team, “I’m counting down the hours ’til he’s gone. . . . I plan to pull him out of there by his hair, his little hands and his feet.” I guess tearing up the State of the Union speech wasn’t therapeutic enough. Nor is there any peace for the mouth breathers who stormed the Capitol and sat feet-up on her desk. Or the quixotic and psychotic contesting and protesting of the 2020 election—or 2016, or 2000 for that matter.

What a mentally unnerving four years. We’ve all heard, “I cried with my daughter that morning.” Some folks actually sent me books on Hitler so I could brush up on what they were convinced would come—but never did. Universities offered therapy dogs and breathing spaces—some with coloring books. “Resist” jewelry jumped off shelves. NBC’s “Today” show seemed to open every day, as did many casual conversations, with “Did you see that tweet?” And we added to the vernacular “Orange Man bad,” “El Cheeto” and the Bidenism “C’mon man!”

So many seemingly functioning adults needed someone to blame. A literary agent told the New York Times : “Trump doesn’t want to let go of his job, and a shockingly high number of us don’t want to let go of him.” Author Douglas Coupland smartly noted that “blame is just a lazy person’s way of making sense of chaos.”

Years ago, I believe the comedian Dennis Miller nailed it by saying—and I’ll clean it up—that blaming cigarette companies for getting cancer is like blaming your Members Only jacket for not getting dates in the ’80s. Blame yourself! Mr. Trump or Mrs. Pelosi may not be to your liking, but they weren’t the cause of all your problems. Everyone ought to stop projecting and look inward. Especially the dude in the horns and animal skins.

According to Salon, “Trump is a psychopath.”

Read the rest here.

WSJ: How the Fed Stifles Lending

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https://www.wsj.com/articles/how-the-fed-stifles-lending-11609697886

Dear Jerome Powell: End quantitative easing now. The Japanese tried QE in 2001, buying government debt, mortgage securities and even stocks. It didn’t work. The Federal Reserve has tried it four times since Lehman Brothers went belly up in 2008. QE doesn’t work and instead of keeping markets stable it creates instability.

The Fed supervises and regulates U.S. banks. But traditional banking (think Mr. Potter from “It’s a Wonderful Life”) represents only about 15% of all lending, maybe less. The rest is the mysterious-sounding shadow banking system based on securities lending and other credit products, including repurchase agreements—the repo market.

In repo, broker-dealers, hedge funds and banks construct short-term transactions. You put up collateral—Treasury bills or sometimes less-pristine instruments—with an agreement to buy them back the next day or week for slightly more, and invest the proceeds in the interim. Jeffrey Snider, head of research at Alhambra Investments, calls it a “reserve-less currency system.” This is how global supply chains are funded, to bring us cheap goods from Walmart or Amazon.

Sometimes lenders repledge the collateral to other lenders and take out repo loans of their own. And the cycle goes on. It’s a little bit like hot potato, passing the collateral to the next guy. Known as rehypothecation, these transfers used to be done once or twice for each posted asset but are now sometimes done six to eight times, each time creating new money supply. Note: this is modern money creation—outside the purview of the Federal Reserve—and it’s huge.

When times are good, repos work fine: The agreements expire without problems and the collateral gets passed back down the chain smoothly. But eventually, iffy collateral sneaks into the system. That’s also fine, until markets hit an inevitable rough patch, like, say, March 2020. No one will take the junky stuff anymore, and everyone scrambles for good collateral. So there’s a mad dash, a brawl really, to buy Treasurys—like musical chairs with six to eight buyers eagerly eyeing one chair.

We saw this collateral problem in action.

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WSJ: Beat the Blues With Music Flicks

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https://www.wsj.com/articles/beat-the-blues-with-music-flicks-11609103299

Locked down again? Finished the gambit of everything on Netflix, Prime, HBODisneyHuluMax+ and even all 201 episodes of “The Office”? Follow me on a magical musical tour down one last rabbit hole before the lockdown looney tunes end. Music will set you free.

You’ve probably seen zillions of concert movies, from “Woodstock” and “The Song Remains the Same” to “American Utopia.” But I think a choice list of movies can lead us all the way to the essence of the 1960s-to-’80s music scene. Forget reading a book; that’s like swimming a marathon—we’ve got to see and hear the story.

Maybe we warm up with the daddy-issues biopics “Bohemian Rhapsody” and “Rocketman.” Or the raunchy “The Dirt” about Mötley Crüe, who just have issues period. Or “Sid and Nancy.” But forget fiction. Let’s hear from real musicians. Don’t stop me now.

We’re ready for “Echo in the Canyon” about the music scene in Laurel Canyon, Los Angeles—lots on Roger McGuinn and David Crosby of the Byrds (the Beatles’ favorite American band, it turns out). Their unique sound came from Rickenbacker guitars made in nearby Santa Ana. John Lennon played a Rickenbacker, and when someone from the company invited the band to a New York hotel to see the second-ever-made electric 12-string guitar, George Harrison grabbed it and changed pop music forever. Americans supplied the weapons Eric Clapton and other Brits used in the Invasion. We’ll learn the beginnings of the Beach Boys, mixing in The Mamas and The Papas, plus Stephen Stills and Neil Young of Buffalo Springfield. Is this that essence we’re searching for? Maybe, but it certainly reveals the origin of decades of American music.

The narrator of “Echo” is Jakob Dylan, Bob’s son. So next watch Martin Scorsese’s “Rolling Thunder Revue: A Bob Dylan Story.” It’s about the 1975-76 ragtag bus tour of Dylan and a collection of musicians—there’s Joni Mitchell, and hangers-on like Allen Ginsberg. Be warned, there are a lot of fake Easter eggs in the documentary, including actress Sharon Stone in a Kiss T-shirt joining the tour.

To keep Scorsese rolling, next watch “Shine a Light.”

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WSJ: How Tech Got Ready for 2020

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https://www.wsj.com/articles/how-tech-got-ready-for-2020-11608499711

Woody Allen was onto something when he said “80% of success is showing up.” Sure, that gives short shrift to all the work we put in— Thomas Edison’s “99% perspiration.” But never has showing up been more important than in 2020. You had to be ready when panic and turmoil and lockdowns hit.

Lots of things didn’t show up on day one: N95 masks, ventilators, toilet paper, kettle bells, flour and common sense. But so many things did show up during lockdowns. Teleconferencing has always been lurking in the background, but Zoom was ready. Where would we be without it? Same for the cloud computing it runs on, which was ready to scale. Add broadband to the list. Europe, with foolish network-neutrality laws, had to throttle speeds.

Telemedicine was ready. I wrote last year that I had fired my doctor and taken up telemedicine and I got tons of emails telling me I would die soon. I’m still here, and now you probably use it. Streaming via Netflix and a dozen other services was ready, and then some. Next year major studio films will appear simultaneously in theaters and on streaming services—previously unthinkable.

The “ready” list was amazing: Contactless payments (though Apple Pay didn’t work with masks), meal delivery, grocery delivery, retail logistics, e-billing, ticketless travel, airport-security line-cutting retinal scans, motion-sensing Purell dispensers. Amazon was ready with essentials, but six weeks to deliver a book? Yes, I’ve heard of Kindle. And weirdly, ballpark crowd noise sold to videogame companies was sold back to teams. Accidentally ready!

You can probably name dozens of others. But the bigger question is: Why was all this stuff ready to go?

The history of digital technology is littered with examples of lowering costs—ever since chips were invented in 1958, things have magically gotten smaller, cheaper, faster, better.

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WSJ: Dear NASA: What’s in It for Me?

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https://www.wsj.com/articles/dear-nasa-whats-in-it-for-me-11607900349

Years ago I visited a friend at JPL, the Jet Propulsion Laboratory in Southern California, and he asked if I wanted to meet the captain of the Voyager 2, the space probe launched in 1977, then headed toward Neptune. “Absolutely!” In the middle of a messy room sat a young woman drinking coffee and smoking a cigarette—the captain!—next to a toaster-size gray box with a white dimmer-like knob on top of it. Radio signals take hours to reach the Voyager, and between long stretches of boredom, the captain could use the knob to adjust its antenna. My friend was captain the previous week, and now it was her turn.

As we recalled during the 50th anniversary of the lunar landing last year, space travel is a great challenge, a destiny just out of reach—until it isn’t. It’s aspirational and inspirational. Even so, wise guys (like me) note that after billions poured into the space program, all we got were Tang and Velcro. Earthwise, that’s not so far off. It’s called space because, let’s face it, there’s not much in it.

Yes, communication satellites are important, as is GPS, which helps Uber steer a car toward you. But note that GPS first got off the ground in 1973 because it was funded for Nudet, or nuclear detonation detection—military tech, not space exploration. To be fair, NASA was an early customer of Silicon Valley, but quickly abandoned state-of-the-art chips in favor of highly reliable older ones.

Still, progress marches along. We now have a Space Force, founded a year ago this week. Boldly go! Last month, a privately funded SpaceX rocket and capsule safely ferried four astronauts to the International Space Station, an amazing accomplishment for all anti-big-government types. Astronauts will conduct experiments of unknown value to earthly pursuits. There have been 3,000 such experiments in 20 years, though nothing earth-shattering. Can spiders build webs in space? Not quite the right stuff. Last week Chuck Yeager died. Oh, and an Israeli former space officer says the Earth has been contacted by a “Galactic Federation.” Uh huh.

Don’t get me wrong, I’m fascinated by fiery launches and rocket stages that land on floating platforms for reuse. But I’m more in the “What’s in it for me?” camp. Communications, imaging and even travel benefit all of us. Going to Mars? I’m not so sure.

How about we mine asteroids for metals and even water?

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WSJ: A Stimulus Dollar Is Only a Dollar

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https://www.wsj.com/articles/a-stimulus-dollar-is-only-a-dollar-11607279296

Wait for it . . . any day now . . . get ready for the “multipliers.” You know, the idea that a government dollar spent magically turns into multiple dollars in the economy. We ought to start hearing that silly word again as the lame-duck coronavirus stimulus negotiations kick in. Expect more multiplier mumbo jumbo as the Biden administration begins its tax-and-spend fiesta.

Let’s face it, the Democrats haven’t had a believable economic messenger since Robert Rubin during the Clinton administration. Since then they’ve presented a cast of characters— Larry Summers, Mr. Biden’s adviser Jared Bernstein, and lately Elizabeth Warren —who bend themselves into pretzels to justify higher spending and then higher taxes.

The New York Times described this trend during the early days of the Obama administration. The financial crisis team of Jason Furman, Tim Geithner and Mr. Summers were “carrying around this list of multipliers” taken from a chart by Mark Zandi, chief economist for Moody’s Analytics. Every dollar spent extending unemployment insurance benefits would, the fairy tale went, boost the economy by $1.64. Sadly, a dollar in reduced corporate taxes would boost the economy by only 30 cents. But cheer up, every dollar spent on food stamps would spur a $1.73 increase in gross domestic product. Mr. Zandi called it “bang for the buck”—the proverbial free lunch. It’s more like “dud for the dollar” because it didn’t work. It never does. Multipliers are a canard, a Keynesian conceit.

The economy grew after the Great Recession, as it does after every recession. The stimulus didn’t stimulate. Shovel-ready projects weren’t ready. Many complained that the stimulus wasn’t big enough. More hooey. The Obama administration’s high taxes and heaps of regulation held the economy back. Is spending driving today’s recovery? Think back to the Heroes Act 2.0, Nancy Pelosi’s $2.2 trillion coronavirus relief bill. Economic growth in the third quarter of 2020 was 33% as lockdowns were lifted, despite—or because of—that gigantic stimulus package not becoming law.

The theory of multipliers is based on the Keynesian view that poorer consumers tend to spend a large amount of increased income, and the rich less so. But multipliers are half a story. Someone has to put up the original money that allegedly gets multiplied, taking it away from the private sector and negating whatever dwindling chain of transactions are hypothesized. It’s like two waves canceling each other out—you can’t just do the math on the additive public wave and ignore subtracting the private. This demand-side theory omits the principle of productivity, the real driver of economic growth and prosperity.

But no matter, expect multiplier talk to, er, multiply.

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WSJ: Beware the Dow 30K Euphoria

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https://www.wsj.com/articles/beware-the-dow-30k-euphoria-11606672322

A great Wall Street lesson: Keep those decamillennial hats around. Last Tuesday saw the Dow Jones Industrial Average close above 30000 for the first time, but by Friday it was underwater again. Remember, more than 10 years passed between March 1999, when the market first crossed 10000 (with wild celebration), and November 2009, when it finally crossed that mark for good (hopefully). Even more time passed between when the market briefly crossed 1000 in 1966 and when it passed that mark permanently late in 1982.

It’s just a number, right? Yes, but blared across tickers, radio, TV, the web and now Twitter, market milestones symbolize progress. Or is it excess? Either way, they’re thought of as a scorecard of success. Oh what a feeling. In many ways, today’s market feels like 1999. Lower-than-expected inflation—check. Relative peace—check. Fed printing money—check. Plus new technological paradigms and IPO mania. Will it end the same way?

It’s easy to see why the market is booming. First, indexes overweigh successful companies (remember when General Electric got tossed from the Dow?). Thirty Dow companies and a cap-weighted S&P 500 mean trillion-dollar-valued companies drive the indexes. A quarter of the Dow’s past 10,000 points were provided by Apple alone.

Then add low interest rates—effectively zero, because there is a glut of capital and low demand for it. The Federal Reserve seems on course to keep rates low forever. The main reason is that we are in the midst of a serious digital dividend. Cloud computing, artificial intelligence and smartphone apps have driven huge productivity gains, in part by reducing each company’s need to build out its own infrastructure. Plus, work from home will mean fewer office buildings, less maintenance on roads and bridges, and less inventory in stores. Each Zoom call equals one less airline seat.

The market is paying for the digital dividend twice (or more). It pays for the profit upside of Apple, Amazon, Microsoft, Google and Facebook, but then again with high earnings multiples induced by low inflation. With interest rates near zero, the market pays up huge for future earnings. But not forever: For those keeping track, long-dated bond yields bottomed on Aug. 4.

But who cares? Wall Street loves a bull market. We’ve got IPO mania and SPAC attacks.

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WSJ: Gambling Is the Only Game in Town

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https://www.wsj.com/articles/gambling-is-the-only-game-in-town-11606069340

As I headed home from college for Thanksgiving, a foreign student staying the weekend asked about the holiday’s meaning. I quickly answered, “Food, family and football.” He said he understood the first two but not football. Another friend piped in, “To enjoy it, you gotta have a little action going on the games.” So I took the Cowboys over the team formerly known as the Redskins (hopefully they’ll be renamed the Washington Swampers soon). We had to explain spreads and over/under—like teaching a baby to walk.

A little action helps. I was in a sports bar during college basketball’s March Madness when all the games were pretty much over, and then Northeast Louisiana hit a bucket at the buzzer to lose by only 8 with the spread at 9. I stood up and screamed and got a lot of funny looks. Yes, interest definitely turns into commitment. But I wonder if it’s gone too far.

No question that gambling is fun, but it’s not for everyone. You used to have to go to a casino, see a bent-nose bookie—I’ve got a horse right here, his name is Paul Revere—or physically write down your picks for a friend’s football pool. Technology makes it so easy to bet—too easy. At any age. I worry.

Professional leagues have a rude history with betting: Raiders quarterback Kenny Stabler’s relationship with a “well-known New Jersey gambling figure,” National Basketball Association referee Tim Donaghy’s prison time for betting and manipulating scores, and Pete Rose’s ban for life for betting on baseball. Temptation is too alluring. But who cares now? Heck, the Raiders play in Las Vegas! Wanna bet all professional leagues embrace gambling as another revenue stream?

Now everyone is gambling. Online poker is addictive, until you lose. After the lockdown drought, sports blissfully came back, as did betting. Even formerly family-friendly fantasy football leagues are now big business. Betting operator DraftKings saw users up 64% and revenues almost double from last year’s third quarter. If, like me, you wonder how this is possible, New Jersey won a 2018 Supreme Court ruling that allowed states to legalize sports betting. Bits easily cross borders to bet. The spigots have opened.

Lotteries are still a monster business, despite the truism that the lottery is a tax on people who don’t understand statistics. Same for casinos.

WSJ: China Is Losing Its Bet on Chips

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https://www.wsj.com/articles/china-is-losing-its-bet-on-chips-11605476356

Apple is making its first Mac computers since 2005 without an Intel microprocessor. Instead, the company announced last week, Macs will use Apple’s own M1 processor, fabricated by TSMC, the Taiwan Semiconductor Manufacturing Co. Hey, nothing personal, Intel—by now the whole industry knows you botched your transition to sub-10-nanometer chips and are still behind. But this has implications way beyond computing.

If Intel is a few years behind, China’s lag may be closer to a decade. In conjunction with formulating its 14th Five Year Plan, Beijing put out an official communiqué (I love that word!) previewing its “protracted battle” with the U.S. and stated, “Technology self-reliance is the strategic support for national development.” What’s scary is that China may have to draw this battle line right through Taiwan, where Apple gets its processors. We now see headlines like this in the Asia Times: “US tech giants exposed if China takes Taiwan.” Ya think? Let’s break this down.

To begin, note that last year China produced only 16% of the semiconductors it consumed domestically. In 2014, China announced a National Integrated Circuit Plan promising to spend $150 billion to expand local semiconductor manufacturing. It didn’t work because you can’t throw money at the problem. The world is littered with companies ( AT&T, General Motors ) and countries (France, Italy, Russia) that failed at semiconductor production. It takes state-of-the-art equipment and homegrown expertise.

Second, to produce wicked-fast chips for smartphones, 5G and certainly the latest precision weapons, you need fabrication facilities, or fabs, that can turn out 7- or even 5-nanometer chips, which isn’t easy to do. According to Mike Brown, director of the Pentagon’s Defense Innovation Unit, “50% of advance semiconductor production is in Taiwan.” The rest is in the U.S., South Korea and Israel.

Third, the Trump administration cut off China’s Huawei from buying advanced chips made by TSMC. Except for Intel and Samsung, most everyone uses TSMC, including U.S. companies Nvidia and Advanced Micro Devices.

Fourth, for about five years, Intel has been stuck at 14-nanometer chips. This gets confusing: I spent most of my early career tracking the chip business, and I still get headaches digging into their guts.

WSJ: Mideast Peace Means Open Markets

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https://www.wsj.com/articles/mideast-peace-means-open-markets-11604867508

“Once the Sand Curtain starts coming down, there’s no stopping it.” This from my friend Jon Medved, CEO of the Israeli venture-capital firm OurCrowd. He likens the Aug. 13 announcement of the Abraham Accords peace agreement between the United Arab Emirates and Israel to the Berlin Wall falling and the end of the Iron Curtain. Within a few weeks, Mr. Medved had hired (via Zoom) a senior Emirati deal maker as his man on the ground and announced a $100 million deal with the Al Naboodah merchant family.

For centuries, the route between the two regions was a land bridge for commerce—think of caravans trading goods between the East and West. But that route had been undertrafficked since the U.A.E. was founded in 1971. The hostility and lack of formal relations between the states made commerce near impossible. Plus, the lack of direct flights means it takes about 20 hours to get from Israel to Dubai—heading west to lay over in Zurich or Frankfurt and then coming all the way back east. Come January, there are plans for more than 100 nonstop flights a week, which will take only three hours.

The accords make sense. The U.A.E. and Israel have similar populations of about nine million to 10 million and a roughly equal gross domestic product. The knee-jerk reaction to this deal, and I’m certainly guilty of this, is to think it’s merely a trade of oil for ideas. But there’s much more to it. The U.A.E. is a country of entrepreneurs: They get 20 million tourists a year flocking to hotels and malls and even indoor skiing. Uber recently bought Careem, an internationally operating Emirati ride-sharing company.

I asked Mr. Medved what folks in the U.A.E. want. “Of course they’re interested in cybersecurity, logistics and fintech. But they’re also interested in smart cities and transportation. Remember, they invested in Elon Musk’s Hyperloop. Add alternate energy and even food security—we get asked a lot about agtech—as well as technology for education and health care.” This is a sign of a region modernizing. The U.A.E. even announced on Saturday that it would loosen its religious restrictions on personal freedom.

A U.A.E. webinar named Emirates Angels got government approval within 48 hours. That a webinar needed government approval means there is still some work to do. But Mr. Medved says U.A.E. merchants want to add value and “see eye to eye” with overseas investment partners, instead of merely being a source of money.

A few years ago, I spoke at OurCrowd’s Global Investor Summit, which gets 20,000 registrations and even a few dozen from the Arab world who attend under the radar.