Andy Kessler

WSJ: Tech Will Rule These ’20s, Too

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https://www.wsj.com/articles/tech-will-rule-these-20s-too-11578262248

Does history rhyme? A century ago, the ’20s boomed, driven by consumer spending on homes, cars, radios and newfangled appliances like refrigerators, sewing machines and vacuum cleaners. Most Americans couldn’t afford the upfront cost of a lot of these goods, so manufacturers and retailers invented installment plans. Debt ruled as 75% of cars, furniture and washing machines were bought on credit.

The supply-side policies of Treasury Secretary Andrew Mellon, who pushed for tax cuts in 1921, 1924 and 1926, increased the capital available for new consumer businesses. The consumption boom also sparked a giant service industry: My grandfather ran Kessler’s Refrigeration Service in Brooklyn, N.Y. Lifestyle advertising was perfected on billboards and in tabloids, which, like today, led to complaints about ads’ ubiquity and influence.

And stocks were hot, hot, hot. Radio Corp. of America shares were worth $11 in 1924, $20 in January 1928 and $114 in 1929, with a peak price/earnings ratio of 72. Turns out equities could be bought on installment too—sometimes a margin loan with a measly 10% down payment.

Like the movie “Titanic,” you know how this ends. Speculation. Tariffs. And finally, the crash of Oct. 28-29, where the market dropped 13% on Black Monday and 12% on Black Tuesday, triggering widespread margin calls for debt repayment. That risk is why the Federal Reserve now caps stock margins at 50%. According to legend, it’s also why windows in New York skyscrapers don’t open. By 1932, RCA stock was worth $3.

So what’s next? My fundamental rule for finding growth trends is that you need to see viable technologies today, and then predict which ones will get cheaper and better over time. Microprocessors, storage, bandwidth—all still going strong after half a century.

The fundamental building block of the 2020s will be artificial intelligence, particularly machine learning. Better to ask what it won’t change this decade.

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WSJ: In Tech Years, 2010 Was Eons Ago

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https://www.wsj.com/articles/in-tech-years-2010-was-eons-ago-11577648410

Now that was a decade! In 2009 we wore analog watches, had landline phones, hung out in bookstores, and even hailed taxis. Ah, the good old days. Please don’t make us go back.

Jobless claims were 432,000 in the final week of 2009; they’re now 222,000. Unemployment was 10%; it’s now 3.5%. Ten-year Treasurys were yielding 3.8% and are now at 1.9%—a lower rate than most economists thought possible with unemployment so low.

Oil went from $80 a barrel to $60. The Fed now has $4 trillion in total assets to provide liquidity for the global economy. We’re in the midst of a record expansion, and past decade had no down year for U.S. gross domestic product. Wow. No wonder the Dow Jones Industrial Average rose from 10428 to over 28000.

In 2009 Apple started selling the iPhone 3GS. It had a 3½-inch screen with a 480-by-320 display—less than half the resolution of a 20th-century TV set. The hot feature was—wait for it—a “built-in digital compass.” The price tag was $199. It sold like hotcakes. You wouldn’t want one now.

In 2019 the iPhone 11 Pro has a 5.8-inch screen and a 2,436-by-1,125 display. It features 30,000 infrared probes that can read your face. Yet everyone complains about the $999 price, and sales are flat.

Numbers don’t do the decade justice anyhow.

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WSJ: Santa, Where’s My Hoverboard?

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https://www.wsj.com/articles/santa-wheres-my-hoverboard-11577045182

Another year, another disappointment—I’m still not getting a hoverboard for Christmas. And I mean the real Marty McFly hoverboard, not that self-balancing scooter thing on Amazon that catches fire. Actually, there are lots of “gifts from the future” I’m not getting this year, even though many of them are already feasible or are really, really close to being possible.

Like what? Let’s start with an autonomous selfie drone. Selfie sticks are for tourists—give me a tiny drone with a camera and facial recognition that hovers a few feet away, automatically finds my face, and snaps away. Many early versions have failed. I want an untethered GoPro-like substitute that automatically follows me while I ski, skateboard or surf, taking photos and videos from different angles, instantly suitable for narcissistic social postings.

Next, I want “Gridlock Go.” Stuck in bumper-to-bumper traffic, my car would automatically stay the proper “safety cushion” distance and in the correct lane directly behind the car in front and drive hands-free. Many vehicles have all the sensors, brakes and steering to pull this off. If I’m lucky and hit about 25 miles an hour, it would then beep loudly for me to take over, or engage the regular active cruise control. Actually, this does exist, sort of, but it’s rare. Some Cadillacs have Super Cruise, and BMWs have Extended Traffic Jam Assistant. They steer hands-free but have driver-facing cameras to make sure you pay attention. This should be standard equipment in every metropolitan area.

Next I’d like a pair of augmented-reality glasses to watch sporting events, with simple graphics that can focus on a player and tell me his batting average or probability of making a 3-pointer from that location, or show the yellow first-down line. These glasses should work whether you’re watching a game in person or on TV, which is probably easier. It’s just math. The data exists, the bandwidth exists; it just needs to work in real time—and be made cheap enough.

What else? It’s time someone got me a Smart Mirror. Good morning Andy, it’s a beautiful day, cheer the heck up! On my bathroom wall, it fills me in on the day’s events, warns me that my clothes don’t match (a frequent occurrence), and maybe, in conjunction with a health tricorder (get me one of those, too), reads me my vitals. There are a few expensive smart mirrors for exercise. But really, I don’t want to see myself sweat.

I also want a device that records and provides transcripts of all my calls and meetings, stored securely for privacy.

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WSJ: Self-Driving Cars Roll Up Slowly

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https://www.wsj.com/articles/self-driving-cars-roll-up-slowly-11576439387

I recently got a ride in an autonomous car. Very cool. I want one! Ever since October 2005, when a Stanford autonomous vehicle traversed 132 miles of desert terrain and won the $2 million Grand Challenge prize from the Defense Advanced Research Projects Agency, dreams of self-driving cars have become feverish.

Cars that drop you off at a restaurant and park themselves while you dine, restful commutes, hyperbolic Elon Musk predicting a million Tesla robo-taxis by 2020, 40,000 annual U.S. car crash fatalities dropping to almost nothing. All I can think is, are we there yet? Unfortunately, I suspect patience is in order.

In recent years, the rubber has met the road and hit a few potholes. General Motors subsidiary Cruise planned to launch self-driving taxis in San Francisco this year. It didn’t happen. Daimler recently had a “reality check” on plans for 10,000 robo-taxis by 2021. Ford chief executive Jim Hackett, doing joint research with Volkswagen, said in April, “We overestimated the arrival of autonomous vehicles.” The initial hype cycle has played out, and now it’s time to wait for vehicles to get cheap enough to make economic sense. Just like every other new technology product ever.

Alphabet subsidiary Waymo is testing self-driving Chrysler Pacifica hybrid minivans. Sitting on top is a giant 1,000-foot-range lidar, which is basically a radar that uses laser light instead of microwaves. It costs more than the minivan itself. Plus it has image sensors to see color, and audio sensors to hear emergency vehicles. There are also several radars to see through snow, rain, fog and dust. And attached to the front and back are six short-range lidars to find curbs and pedestrians.

If a pedestrian even flinches an arm into a crosswalk, the car stops. Waymos do get confused by lane-splitting motorcycles, especially when one approaches rapidly from the rear. The sensor can’t figure out whether it’s a bike, person, animal. Waymo’s next version will use Jaguar’s I-PACE electric car.

It’s not a game for the thin of wallet.

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WSJ: Let Bosnia’s Scars Be a Reminder

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https://www.wsj.com/articles/let-bosnias-scars-be-a-reminder-11575838155

The most dangerous concert you didn’t attend happened 25 years ago this Saturday. The venue was a small community center in Sarajevo, Bosnia, a city under siege from 1992-96 during the Yugoslav Wars. Serbs controlled the hills that surround most of the city. United Nations peacekeeping troops controlled the airport and did, well, not much. And yes, this was the conflict during which Hillary Clinton falsely remembered “landing under sniper fire.”

Someone from the U.N. thought a concert would lift spirits in Sarajevo and asked the Rolling Stones to perform. When they passed, a heavy-metal fan in the U.N., Maj. Martin Morris, booked Motörhead, who abruptly canceled. Mr. Morris then contacted Bruce Dickinson, lead singer for Iron Maiden, (of the classic “Run to the Hills”) who was then touring as a solo act, along with a few backup players. Mr. Dickinson immediately answered, “Yeah, why not.” This is all covered in an excellent documentary, “Scream for Me Sarajevo.” It’s worth watching even if your musical tastes run toward show tunes. (By the way, U2 also played in Sarajevo, but in 1997, after the siege had ended.)

When the helicopter Mr. Dickinson planned to take from Split, Croatia, was attacked shortly before the trip, the band instead loaded into a delivery truck painted with a Road Runner cartoon. Armed with beer and vodka, they drove up Mount Igman, crossing near Serbian lines in the middle of the night to get to a U.N. checkpoint, then transferred to armed personnel carriers for the short ride into Sarajevo.

The city buzzed with anticipation. Even though two mortar rounds hit the venue’s entrance earlier in the day, the Dec. 14 show was a huge success. “The gig was immense, intense and probably the biggest show in the world at that moment for the audience and for us,” Mr. Dickinson recalled. “That the world didn’t really know didn’t matter. It changed the way I viewed life, death and other human beings.”

The bass player, Chris Dale, remembers being asked by a local soldier if they brought any drugs with them. Mr. Dale told him no, drugs are bad for you. The local responded that his life expectancy was pretty short already. Such was the desperation in a city under siege.

WSJ: The Five Traits of True Tech

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https://www.wsj.com/articles/the-five-traits-of-true-tech-11575229527

It seems everyone wants to be a technology company these days. But not every company is worth 40 times earnings and 15 times sales in the stock market. How can you tell which growing companies might sustain that valuation? Put more broadly, in the wake of WeWork’s woes, what qualifies a company as highly valued tech?

Any company can call itself tech. Heck, Long Island Iced Tea Corp. changed its name in 2017 to Long Blockchain Corp. and the stock popped 400% to $13 (it’s now $0.16). But can companies that sell razors, glasses or mattresses be high tech? Exercise bikes? Insurance? Or even ads?

I came up with a list of five attributes of real high tech that investors should study. Let’s call it the GRuMPS™: Growth, Research and development, Margins, Productivity and Spending. Score one point for each—get enough, win valuable prizes. Collect all five and you’ll have a company that might trade at a high earnings multiple for a long time, not just the day of the IPO.

High growth: Two friends writing code to automate a lemonade stand is not high tech. Growth is key. The growth I’m enamored with usually comes from scale, meaning technology lowers the cost of a business model for which customers are clamoring. Intel lowered the cost of computing. Facebook lowered the cost of reaching consumers. Salesforce lowered the cost of using software. Even though prices go down, units go up faster so you get rapid and sustainable growth. Beware of fake growth like market-share growth: If you sell seat cushions for a 50,000-seat stadium, you can double sales every year but eventually you’ll run out of seats. Instead look for giant markets.

High R&D: Technology is never static. Hot products today are obsolete within a year. Huge R&D spending is critical to stay ahead. Look for intellectual property that scales. Companies often boost earnings by starving research, a serious red flag.

WSJ: Man Bites Dog? That’s a Mistake

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https://www.wsj.com/articles/man-bites-dog-thats-a-mistake-11574634718

A short business week provides time to think. Here’s what I’ve figured out so far:

Why I don’t eat hot dogs. My wife had an uncle in the vending/food-service business. A friend of his asked him to bid on a contract to provide hot dogs for their corporate cafeteria. He bid 75 cents a hot dog. A competitor bid 50 cents and won the contract.

Months later the uncle ran into his friend, who apologized but said: “I don’t understand. We’ve known each other for a lot of years, and I thought you would cut me a good price, but the other guy came in so much lower, I didn’t have a choice.” My wife’s uncle responded, “I don’t normally bid on hot dogs. You tell me how much you’re willing to pay, and I’ll provide them at that price.” He meant he could supply hot dogs at almost any price point by varying the ratio of meat to byproducts.

The U.S. Department of Agriculture says hot dogs can have beef, pork, chicken and turkey from “raw skeletal muscle meat” and meat derived from “advanced meat/bone separation machines.” Do hoofs have muscles? It also allows “mechanically separated meat,” which is basically paste from a high-pressure machine that removes meat without grinding the bone—a source of calcium nonetheless. And don’t forget those “meat byproducts” like heart, kidney or liver. Mmm mmm good.

I used to enjoy what we called “dirty water dogs” at ballparks—the kind that come out of the mysterious hot-water tank and get slapped onto a bun at your seat. No more. And I’m certainly wary of “dollar dog night” anywhere. Final word: I don’t normally quote Snoop Dogg, but here we agree: “Every time I see a mother— at a barbecue with a plate with a hot dog on it, I’m knockin’ that [expletive] out his hands.”

Why I stop for cars that honk at me. While in grad school in cosmopolitan Champaign, Ill., I met someone from St. Louis who shared my fanatical fandom of Cardinals baseball. On a beautiful spring day, we drove down for a game. He knew where to park free, and on the walk to Busch Stadium we stopped at every location that sold glasses of cold Anheuser-Busch products.

WSJ: Old Age Will Put China to Rest

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https://www.wsj.com/articles/old-age-will-put-china-to-rest-11574018820

The trade tiff with China lingers on—let’s just cut a deal for zero tariffs and move on. Then we can tackle the next question: Is there any real chance that China—with gross domestic product per capita lower than Mexico’s—could soon pass the U.S. in size and strength? The prospect is daunting, but we’ve been here before. Does anyone remember books like “Trading Places: How We Are Giving Our Future To Japan”? Me neither. The reality is that for every country, demographics is destination.

I recently attended the Sohn Conference in San Francisco, which raises money for charity by having hedge-fund managers pitch their best investment idea. Most talks were about broken stocks or esoteric cloud software companies hoping to double in value in three years. But Adam Fisher from Commonwealth Asset Management talked about decadeslong trends in China. (I didn’t talk to Mr. Fisher directly: Silly securities laws prohibit funds from marketing broadly while they’re raising money. So my notes will have to do.)

It turns out that China’s work-age population has peaked or is close to peaking—that pesky one-child policy worked. Even worse for Beijing, according to projections by the United Nations Development Program, China’s 65-and-over population is expected to grow by more than 150%, from 135 million in 2015 to 340 million by 2040, which will be 21% of the population. That’s a lot of retirees. By the way, the current retirement age in China is 60 for men, 55 for women, though both are set to increase gradually.

By comparison, Japan’s 65-and-older population reached 26% by 2015. But as the saying goes, Japan got rich before it got old. What about China?

According to the political economist Nicholas Eberstadt, less than 65% of Chinese workers are covered by any retirement benefits. That share drops to 35% for urban migrants. That’s many mouths to feed in old age.

And here’s where it gets dicey.

WSJ: Warren Is the WeWork Candidate

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https://www.wsj.com/articles/warren-is-the-wework-candidate-11573411997

Are presidential candidate Elizabeth Warren and WeWork founder Adam Neumann the same person? I mean, they have different hairstyles and all, but their philosophies are more alike than not.

They both claim, falsely, to be capitalists. Ms. Warren told the New England Council last year, “I am a capitalist to my bones.” She then told CNBC, “I am a capitalist. Come on. I believe in markets.” It was almost as if she didn’t believe it herself. Then came the caveat: “But only fair markets, markets with rules. Markets without rules is about the rich take it all, it’s about the powerful get all of it. And that’s what’s gone wrong in America.” She clearly doesn’t understand capitalism.

Neither does Mr. Neumann, who said of WeWork, “We are making a capitalist kibbutz.” Talk about mixed metaphors. In Israel, a kibbutz is often defined as “a collective community, traditionally based in agriculture.” WeWork’s prospectus for its initial public offering mentioned the word “community” 150 times. Yet one little secret of kibbutzim is that many of them hired outsiders to do menial jobs that the “community” wouldn’t do, similar to migrant workers on U.S. farms. A capitalist kibbutz is a plain old farm, much like a WeWork building is plain old shared office space. Big deal.

Ms. Warren wants to reshape capitalism, while Mr. Neumann wants to “revolutionize your workspace.” Meanwhile, the Vision Fund, with capital from SoftBank and Saudi Arabia’s Public Investment Fund, has thrown good money after bad, writing off $9.2 billion in its quest toward this WeWork revolution. The same mismatch between communitarian vision and market realities would doom Ms. Warren’s economic reshaping. It’s hard to repeal good old capitalism.

The commonalities go on. Last year, Ms. Warren proposed the Accountable Capitalism Act. If it became law, large companies would have to obtain a federal charter that “obligates company directors to consider the interests of all corporate stakeholders,” or dare I say, community. For each company, Ms. Warren insists that “40% of its directors are selected by the corporation’s employees.” Back to the kibbutz?

In six months in 2019, WeWork lost $1.4 billion on $1.5 billion in revenue. Impressive!

WSJ: Follow Michael Crichton’s Rule

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https://www.wsj.com/articles/follow-michael-crichtons-rule-11572814056

“Jurassic Park” and “Westworld,” from the brilliant mind of Michael Crichton, aren’t real. But neither are a lot of things that pass for arguments these days. Crichton, who died in 2008, gave a lecture at Caltech in 2003 titled “Aliens Cause Global Warming.” In his words, it was about the “uneasy relationship between hard science and public policy” but I took away a lot more. Relax, this column isn’t about climate change.

His first example was nuclear winter. In 1975 the National Academy of Sciences stated that even with multiple nuclear detonations, the effect from dust would be minor. In 1979 Congress’s Office of Technology Assessment said the science was poorly understood and it wasn’t possible to estimate damage. Yet by 1982 the Swedish Academy of Sciences speculated that smoke would cover the Northern Hemisphere, blocking the sun and disabling photosynthesis—nuclear winter.

Within five years, famed astronomer Carl “Billions and Billions” Sagan figured a 5,000-megaton nuclear exchange would cause temperatures to drop below freezing for three months. Of course, there was no empirical study to back any of this. But what amazed me was the observation that no one could take the other side of the argument. Physicist Freeman Dyson said, “It’s an absolutely atrocious piece of science, but who wants to be accused of being in favor of nuclear war?” Argument over.

Same for secondhand smoke. In 1994 the Environmental Protection Agency found that 11 studies of the link between smoke in restaurants or offices and cancer were not conclusive, but nonetheless labeled secondhand smoke a Group A carcinogen. The World Health Organization also began to warn against secondhand smoke despite inconclusive studies of its own. Since then, study after study has found no statistically significant relationship between cancer and being near indoor smoking. Yet no one takes the other side of the argument. Except for smokers, no one likes the smell of tar and nicotine while they’re eating or working. Yuck. No one, including me, is actually for secondhand smoke.

Crichton observed: “Once you abandon strict adherence to what science tells us, once you start arranging the truth in a press conference, then anything is possible.” That includes children at the United Nations yelling, “How dare you.” It’s knee-jerk analysis. I call it the Crichton Conundrum: “I’m against it, so these theories must be right—even though the science is most likely bunk.” Shallow, but sadly a reality.

The conundrum is everywhere. Take the $15 minimum wage, a so-called living wage—who could be against that?