Andy Kessler

WSJ: The Future Isn’t What It Used to Be

https://www.wsj.com/articles/the-future-isnt-what-it-used-to-be-11560714338

Founded in 1867, the Keuffel & Esser Co. commissioned a study of the future for its 100th anniversary. If you’re of a certain vintage, you might have used a K&E slide rule. Their “visionary” study was a huge dud, missing completely the electronic-calculator boom that came a few years later. They shut down their slide-rule engravers in 1976. As Mark Twain said, “It’s difficult to make predictions, especially about the future.” Or was it Niels Bohr? Maybe Yogi Berra?

My father was a proud member of the Book of the Month Club. Bored on a visit home in 1989, I devoured that month’s selection, “Megamistakes” by Baruch College professor Steven Schnaars, where I read about K&E’s study. The book’s message was simple: Don’t be fooled by prevailing opinion, and don’t extend trend lines into the future. Mr. Schnaars chronicles how 1950s jet-age thinking morphed into ’60s dreams of a space-age utopia. A 1966 study by conglomerate TRW forecast manned lunar bases by 1977, autonomous vehicles by 1979 and intelligent robot soldiers by the ’90s. AT&T ’s Picturephone service, ultrasonically cleaned dishes, cheap energy forever, future shock everywhere—all wrong.

Of course, the 1973 oil embargo changed everything. But by the end of the ’70s, expensive oil was considered permanent and the future was about scarcity and energy saving and we’d all be driving small cars with CB radios and living in R. Buckminster Fuller-inspired geodesic domes. General Electric even ramped up production of small refrigerators. Mistakes!

Then the ’80s came along. A bull market and cheap oil lifted the ’70s fog, but everyone believed the Japanese would soon rule the world since they were kicking our butts in manufacturing and the Imperial Palace in Tokyo was worth more than all the real estate in California. Personal computers were mere toys. Oh, and the Soviet Union was a world superpower. Megamistakes!

After the ’87 crash and first Iraq war, the prospects for economic growth in the ’90s were dim. Then Netscape and its browser went public in 1995 and we were off to the races again. By 1999 techno-utopia was in full swing, and all you needed was a good name like burnmoney.com to raise millions and be worth kazillions. Gigamistake!

The Nasdaq’s dot-bomb implosion and 9/11 changed the mood quickly. In 2003 I tried to pitch a book about Silicon Valley and Wall Street and was told nobody would care about them ever again and asked if I knew anything about bioterrorism or Islamic fundamentalism. Uh, no. But I wish I knew about house or derivative flipping...

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WSJ: A Panda Could End the Trade War

https://www.wsj.com/articles/a-panda-could-end-the-trade-war-11559507419

China gave the U.S. two giant pandas in honor of Richard Nixon’s 1972 visit—Ling-Ling and Hsing-Hsing. (We gifted two musk oxen. Fair trade?) China must have been trying to tell us something. “Ling” in Mandarin translates to zero, which happens to be the right percentage for tariffs. Zero, zip, nada, goose egg.

Last July, President Trump and European Commission President Jean-Claude Juncker agreed to “work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.” It’s not a done deal, and autos are—wink wink—national-security threats, but there’s that big fat zero.

Tragically, the U.S.-China trade war is out of hand and both economies are slowing. I’ve lost track of 10% and 25% tariffs on $200 billion in goods, or is it $325 billion? One more round of sanctions and already-expensive iPhones will pop another $200. No one wants that. It’s time to go back to basics.

I get it. We run trade deficits with China. They make all our shoes and toys and lots of apparel and Hibachi grills. So what? You don’t like cheap sneakers? But in the next breath, we hear about intellectual-property theft and subsidies of state-owned companies and that China will soon spend double the U.S. on innovation. We hear the screams from the Mnuchin-Navarro-Lighthizer mercantilist wing of the Trump administration that “something must be done!”

So we get threats and tariffs and whispers that it’s all just a negotiating tactic to stop China’s trade abuses—the art of the trade deal. Some art—now China telecom giant Huawei’s products are banned in the U.S., causing giant disruptions for U.S. software companies and chip makers. U.S. companies are discouraged from hiring Chinese engineers. Soybean exports are curtailed. Critical rare-earth metals from China might get cut off.

Why the impasse?

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WSJ: Dear Grads: How to Slay Dragons in the Business World

https://www.wsj.com/articles/how-to-slay-dragons-in-the-business-world-11558294469

Dear grads: Finish streaming Bird Box, stop moisturizing with CBD, lace up your Allbirds and listen up on how to get ahead. Dressed in medieval gowns and tassels, you’ve been drowned with graduation platitudes and advice.

This year didn’t disappoint. Former CNNer Soledad O’Brien told University of Oklahoma grads, “I think what [my mother] was saying is most people are idiots, so you might be a bigger idiot if you listen to them all the time.” ABC’s Jimmy Kimmel had a surprisingly capital idea for the University of Southern California’s newly minted doctors, telling them that even though the health-care system is unfair, “you should still make a lot of money.” He added: “You deserve it for working so hard and eating so much ramen over these years. And not even the Top Ramen, the bottom ramen.” My favorite is this take on “be yourself” from the Rev. France Davis, who told applauding University of Utah graduates: “Be what you is and not what you ain’t, ’cause if you ain’t what you is, then you is what you ain’t.”

Now for some other realities. It’s the best job market in two decades. But be warned—the working world is very different from campus life. You need to stand out, but how? There are plenty of faceless drones. At your new job, you’ll quickly notice people of no particular talent who are successful inside organizations. I had an old boss who explained an incompetent rival’s political rise: “He climbed the ladder of success, hand over hand with knives in other people’s backs.” Don’t be that guy!

Instead, here’s my simple advice: Be a hero. You’ll have a job with a vague description. Sales. Physician assistant. Manager. Business intelligence. Everyone comes in with a task. Don’t let your job description be a straitjacket. Do something above and beyond. That’s what your employers want, whether they admit it or not.

I’ve seen it again and again. I heard from a woman named Carol working in international marketing for a Midwest company. She was asked by a superior working on a board deck for a list of European competitors. She came up with a single PowerPoint slide that visually showed the reach of each competitor overlaid with her company’s distributors and analysis of how it could best compete. The slide was a huge hit. The chief operating officer thanked her. She got a raise and more responsibilities.

On Wall Street, I used to work with a salesman named Steve. A deal to raise money for a paper company was stuck. No one would touch it at $20. It was uglier than Dunder Mifflin. Steve had a new account in Milwaukee and insisted it buy several million shares, but at $18. On hearing someone was willing to buy, other accounts piled in. Steve is still known as the guy who got the ugly deal done—a hero.

WSJ: The Federal Reserve Is Flying Blind on Inflation

https://www.wsj.com/articles/the-federal-reserve-is-flying-blind-on-inflation-11557688767

I never bought into the “Maestro” description of former Federal Reserve Chairman Alan Greenspan. Mostly because of, well, the 1987 crash, the ’94 bond massacre, his ’96 “irrational exuberance” speech, boosting the money supply before the nonexistent Y2K glitch, which poured gasoline on the dot-com fire, lowering interest rates in the early 2000s to chase the ghost of deflation and then not raising them fast enough to stave off the mortgage mania, which led to the financial crisis and Great Recession. Other than that, Mrs. Lincoln . . .

It turns out Mr. Greenspan was flying blind. The most important economic indicator, the inflation rate, is flawed. Don’t take my word for it. In an interview at Wharton last month, Mr. Greenspan noted: “We have a problem with measuring inflation.” He’s right. April’s 12-month consumer-price index came out Friday at 2%—and it’s wrong.

There’s a simmering controversy over which measure of inflation is best: the CPI, the GDP deflator, the chain-weighted CPI, or even the trendy personal-consumption expenditures index—each of which typically shows an inflation number within 0.3 percentage point of the others. Choosing the right inflation number is vital because it’s used everywhere: cost-of-living adjustments for wages, the Fed’s interest-rate decisions, and tracking wages over time to determine, for example, how the middle class is doing. Inflation is really important. Get it wrong and you’ve blindfolded every economist.

I’m convinced that all of the common measures overshoot by at least 2 percentage points, and maybe even 5 or more. That’s because of the flaw in the Bureau of Labor Statistics’ hedonic adjustment, which totally misses the way the cost of technology declines over time. As we noted a year ago, “by the time the BLS puts something new in the CPI basket, it’s already cheap, so it misses the massive human-replacement price decline.” Google Lens on a $35 phone, for example, can now translate and read aloud signs in 14 languages. Does the BLS capture the costs that technology saves compared with the services of human translators.

Mr. Greenspan is no tech fanboy. He told “60 Minutes” he writes longhand with pen on paper while sitting in his bathtub. But he acknowledges the impact of technology on prices. “Because products are continuously changing,” he said in last month’s interview, “when new products go on the market, they come in at relatively high prices. Henry Ford’s Model T came in at a very high price, and the price went down as technology improved. You didn’t start to pick up the price level until well into that declining phase.”

Mr. Greenspan continued: “So there is a bias in the statistic. You’re getting statistics which are not correct.”

WSJ: Blue and White Collars Don’t Fit Every Job

https://www.wsj.com/articles/blue-and-white-collars-dont-fit-every-job-11557090321

“Give me a job, give me security / Give me a chance to survive / I’m just a poor soul in the unemployment line / My God, I’m hardly alive / . . . I’m gonna be a blue collar man.” So sang Styx in 1978. Now headlines blare “Joe Biden Makes Appeal to Blue-Collar Workers.” But is that a unified voting class anymore?

The moniker was born 95 years ago when the Times newspaper in Alden, Iowa, suggested, “If we may call professions and office positions white collar jobs, we may call the trades blue collar jobs.” It stuck. In “The Audacity of Hope,” Barack Obama worries that “the wages of blue-collar Americans” are held back by illegal immigration. Anthony Scaramucci even titled his nine-long-days-in-the-White-House memoir “Trump: The Blue-Collar President.” They evoke a workforce divided between brains and brawn, lunch pails vs. three martinis.

But today there is no such clear divide between blue and white. According to the Bureau of Labor Statistics, goods-producing jobs—manufacturing, mining, construction, textiles—averaged 38% of nonfarm payrolls in the 1950s. They’re only 14% today. Manufacturing was 30%, but it’s less than 9% today. Service jobs—from cashier to caterer to caretaker—are now 71% of total employment. Was bus driver Ralph Kramden blue-collar? Sure. But is your Lyft driver, or your Starbucks barista?

Country singer Travis Tritt tried his own definition of blue collar in 1992: “I make my livin’ with these two hard workin’ hands / Won’t ever be no millionaire / I’m a blue collar man.” Now it’s much fuzzier.

Politicians trying to attract idealized blue-collar voters will be aiming their appeals at a small and shrinking group. The range of industries Americans fill is now more diverse than the “Star Wars” cantina. Here are some new “collar” categories.

Horse collar. Transportation is a giant industry staffed by millions of workers moving people or things from one place to another. It includes everyone from pilots to truck drivers and tour guides. All work with their hands (and often feet), and their fate is tied tightly to energy and technology. When oil prices rise, jobs disappear. When autonomous vehicles show up, many jobs may vanish for good. These are vital issues for this slice of Americans.

Red collar. Doctors work with their two hands and cut into you. Nurses draw your blood. Orderlies clean it up. Most are on their feet all day. It sounds blue-collar, but it’s a huge service industry that will represent 20% of the economy within a decade. U.S. health-care workers care most about one thing: who’s paying. Talk of Medicare for All scares them, because employees in socialized health-care systems, especially doctors, sometimes make half as much.

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, with its federal job guarantees and a new mechanism to support those “unwilling to work.” Where do I sign up for that?

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.

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.

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.