Andy Kessler

WSJ: How to Slay a Tech Giant (Apple)

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https://www.wsj.com/articles/how-to-slay-a-tech-giant-apple-11593375647

When Apple announced last week that it will soon replace Intel processors with its own, I had a flashback to 1993. Morgan Stanley’s technology investment banker Frank Quattrone called me in New York: “John Sculley”—CEO of Apple—“wants to meet with you Friday,” he said. It was Thursday morning. “About what?” I asked. “I don’t know, do your virtual thing.” I booked the 9 p.m. to San Francisco and the redeye home.

Meanwhile, I was on the phone all day with the banking team to help create “the book.” No investment banker worth his salt shows up without a spiral-bound pitch book put together by lowly associates pulling all-nighters, with strategy ideas and suggested transactions (investment bankers’ payday!) to solve the company’s future problems.

Back then I was intrigued by companies organized in horizontal layers attacking vertical behemoths. IBM was a vertical giant and did everything from soup to nuts: chips, hardware, operating system, software, applications, services. They had 50% of the computer industry’s revenue but 90% of its profits. They used FUD—fear, uncertainty and doubt—to freeze out competitors.

But IBM was vulnerable. A loose horizontal confederation threatened its power: Intel processors, Microsoft’s operating system, Western Digital hard drives and Compaq hardware, along with Lotus, Adobe and Microsoft applications, added up to a “Virtual IBM” and eventually toppled the giant. The same thing happened in the late 1990s with AT&T. A horizontal internet of network equipment, browsers and websites created a Virtual AT&T and toppled the vertically integrated telecom.

The team met with Mr. Sculley, his chief financial officer and general counsel, and I got to make the pitch. I recently dug up my dusty copy of that pitch book to remember what I said. Apple had “superior software and ergonomic hardware design” but needed to “focus on mobility as a natural offspring of smaller form-factor computing.” Not bad, in hindsight, though a decade early.

But Apple’s stock, at 14 times earnings, was valued like commodity PC maker Compaq.

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WSJ: A War of Meaningless Words

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https://www.wsj.com/articles/a-war-of-meaningless-words-11592757588

Truth or consequences? “When I use a word,” says Lewis Carroll’s Humpty Dumpty, “it means just what I choose it to mean—neither more nor less.” In other words, anything he wants it to mean. Prescient. Today words are abused and truth has become so debased that no one believes anything anymore.

It started off Art Linkletter-like: Politicians say the darnedest things. You know—the definition of “is,” uranium yellowcake, if you like your doctor, the size of inauguration crowds. Facebook and Twitter now have truth squads trying to discern truths from fakes. Good luck with that. The Post-Truth Era not only has arrived; in three short months, we’ve descended into the depths of dishonesty dysfunction.

Even numbers. Now 2.2 million = 150,000? Imperial College London epidemiologist Neil Ferguson helped force much of the world into lockdowns with his forecast of 2.2 million U.S. deaths. He assumed 268 million of Americans, or 81%, would be infected. So far it’s 2.3 million. As Bob Uecker would say, “Juuust a bit outside.” Mr. Ferguson then put the hip in hypocritical, having his married girlfriend break the stay-at-home order he inspired.

The White House was also math-challenged. Its “15 Days to Slow the Spread” quickly became 30. Which is it? We flattened the curve, and a quarter of the economy. No matter, we’re now on day 90, quarantine crazy and hankering for haircuts.

The World Health Organization declared in March that you don’t need to wear masks, probably because of the world-wide shortage. California now requires them, even outside. Again, which is it? Whacked in the head so many times with untruths, you stop believing anyone.

OK, those were emergency conditions, where anyone could make mistakes. Except, except…

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WSJ: A Boy and His Flag (Day)

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https://www.wsj.com/articles/a-boy-and-his-flag-11592153447

June 14 is Flag Day. It happens to be my favorite holiday, perhaps tied with food-and-football-fest Thanksgiving. I’m not rah-rah patriotic—I have as much disdain for those who hide behind the flag as those who trash it—but Flag Day is personal for me. I grew up in central New Jersey, in the township of Bridgewater, some 10 miles up the Raritan River from New Brunswick. I’d leave for school each morning and before turning right to the bus stop, I’d look left, up the hill into a clearing with a flagpole, where a flag flew day and night.

In 1777, Gen. William Howe and 18,000 British troops were occupying New Brunswick. George Washington had 8,000 troops encamped in the Watchung Mountains, uphill from my house, with a commanding view to keep an eye on Howe and stop his march to Philadelphia, the nation’s de facto capital. On June 14, 1777, the Continental Congress adopted the 13-star flag. The Middlebrook encampment, toward which I looked reflexively every morning, was where the Betsy Ross flag flew for the first time.

A sign of the times, the Middlebrook encampment of my youth was in disrepair: a couple of old cannons, lots of wrappers and broken beer bottles, and the flagpole. Until recent decades, it was one of only a few places allowed to fly the flag 24 hours a day.

Today you can have the Stars and Stripes on your underwear and sneakers—though Betsy Ross got bounced off Nike’s Air Max 1 USAs. Canceled. Scrubbed. Too bad. I always think of the flag as a banner of opportunity, for everyone. “America is the land of opportunity,” said Elon Musk, the immigrant founder of Tesla and SpaceX, before last month’s successful space launch. “There is no other country where I could have done this.” Heck, freedom-loving John Hancock was an entrepreneur (OK, smuggler) who hated paying taxes. To me, the flag means only one thing: If you respect freedom enough, anything is possible.

We lived on the right side of the railroad tracks but on the down slope of our town’s economic divide. Generally, doctors, lawyers and businessmen lived uphill, while blue-collar and service workers lived below the foothills, like us. Inequality? Nobody cared. My dad was an engineer, which was less valued back then, and my mom worked with learning-disabled children. But they made enough to send their kids to college.

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WSJ: Party Like It’s 1983 - The Reagan Playbook

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https://www.wsj.com/articles/party-like-its-1983-11591560625

“In the grip of the world-wide recession, we must all stick to anti-inflationary, high-productivity policies that adapt new technology, retrain workers, and increase efficiency.” Who said that? Donald Trump? Angela Merkel? Emmanuel Macron? Nope, that was Ronald Reagan in May 1983, speaking on the eve of the Williamsburg Economic Summit of Industrialized Nations.

Now, the off-again, on-again Group of Seven meeting scheduled for June is off until September at the earliest. Too bad. It’s needed more than ever. I spoke with Larry Kudlow, director of the White House National Economic Council and the so-called Sherpa of the meeting’s agenda, and asked what his pitch will be. “It’s the Reagan playbook,” he says. “In some sense, it’s very easy. The same principles apply. You want to reduce tax rates, generate incentives, reignite the animal spirits, and deregulate to remove business obstacles.”

Without Reagan’s principles, the capital investment and innovation since 1983 might still have happened, just more slowly. We’d be getting that original iPhone right about now, delaying improvements in everyone’s living standards. Wait, no Uber?

More than 42 million Americans have filed jobless claims since mid-March, and around 21 million are now unemployed. We need jobs, badly. After the first wave of rehiring, Mr. Kudlow insists, “you must reignite growth—you must. Your car battery is dead because you haven’t used it in three months, so you have to pull out the jumper cables and reignite the battery, which is what we are trying to do with the economy.”

In 1983, the U.S. economy had just gone through the ravages of Paul Volcker’s inflation-slaying recessions. Now it’s zero inflation and lockdowns. Do we need another giant stimulus package? Mr. Kudlow thinks not: “The first tranche was rescue, cash, liquidity, survival. Now we’re transitioning through the reopening, and the third leg has got to be growth incentives. That’s been my mantra internally, and we’re going to press that at the G-7.” He prefers a payroll-tax holiday and capital-gains exclusions for investments through the end of the year.

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WSJ: Give Online Learning an Upgrade

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https://www.wsj.com/articles/give-online-learning-an-upgrade-11590954189

School’s out for summer. School’s out forever? A lot of parents are figuring out that remote learning, forced on us by school closings, is mostly the same old, same old—teachers droning on to students, except online. Not much has changed in education since the Little Rascals’ Miss Crabtree’s one-room class in 1930.

And it’s broken. Even before Covid, more than half of incoming students at community colleges required remedial math or English courses. As former Florida Gov. Jeb Bush told me, “Something’s wrong when you have rising high-school graduation rates and rising remediations.” Seriously wrong. Billions are wasted reteaching high school.

All our Zooming may be a spark. Mr. Bush insists, “We need to flip the system on its head so that time is the variable and learning is the constant—which requires a mastery-based system.” OK, a lot to unpack there. For about a decade, many schools have used “flipped” classrooms. A teacher records lectures that students watch at home, and the next day in class students discuss the lectures and do what would’ve been their “homework.” But that model only goes so far. Lectures are still dull. They don’t engage and motivate kids. Even with small class sizes, many students fall behind.

Forget flip; the flopped classroom is coming. Upend teachers, kind of, by creating a robust online learning system, filled with building blocks and snippets that students need to complete before moving on. Not lectures from your ninth-grade history teacher, Mr. Mailitin, but learning from the best teacher in your district or state or country. Many would nominate Sal Khan and his Khan Academy.

This isn’t science fiction, though that’s the inspiration. Neal Stephenson laid out the concept in his 1995 novel ,“The Diamond Age: Or, a Young Lady’s Illustrated Primer.” Before Netscape went public and well before iPads, Mr. Stephenson envisioned learning via adaptive, customized instruction on thin portable devices. Much of the technology now exists and works. Even a voice interface is plausible. Learning can be made fun—see videogame deep dives—even delivered over phones.

When flopped, teachers (probably fewer of them) become coaches, tutors, encouragers, motivators.

WSJ: Finally, the Low Prices We Deserve

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https://www.wsj.com/articles/finally-the-low-prices-we-deserve-11589740923

Stanford Health Care cut employees’ pay 20% in late April. JetBlue Airways halved top executive compensation. A huge glut of oil, wine, airline seats and even lobsters means prices are plummeting. And whoa, Apple’s new iPhone SE is $399, quite a change from its $999 models. It’s starting: April’s consumer-price index was down 0.8%, but get ready for steady price declines and a long trip down that escalator. Like a released balloon going pffflllttt in slo-mo. Let’s call it the Great Unflation.

Yes, a made-up word—technically it’s deflation. As Milton Friedman said, “inflation is always and everywhere a monetary phenomenon” that is “produced only by a more rapid increase in the quantity of money than in output.” The opposite trend, deflation, is typically caused by a more rapid decrease in money. Current price declines aren’t primarily a monetary phenomenon, as many price increases in the past 35 years weren’t counted in the inflation stats. They were hiding in plain sight.

Have they hit a breaking point? Here’s what I mean: The 2015 Golden State Warriors, mid-playoff run, raised beer prices to $13 from $11 and—I’m convinced—shrank the cup size. Ticket prices tripled over the next few years. That didn’t show up in the CPI, but it’s real nonetheless.

You’ve seen it: $3,000 for a one-bedroom apartment in San Francisco, $4,000 in New York—more than twice what you’d pay in Austin, Texas. It’s $300 for five minutes with a doctor and $75,000 to spend a year at Columbia or the University of Chicago. Average ticket prices for Lady Gaga’s concerts last year were $420. Average.

First-class stamps are 55 cents even though almost everything in your mailbox could be delivered online for free. A caramel macchiato costs $4.80. It’s $8.99 for Cold Pressed Watermelon Water at Whole Foods. We have $100 cable TV bills—same for a middling red Bordeaux or a ticket to Disneyland. Curry 7 sneakers are $140. And for a while I’ve been convinced that the word “organic” means the same thing for twice the price. Time for the pffflllttt.

We’ve been blessed for 35 years with an economy driven by relentless cost reductions in electronics.

WSJ: Graduation Is a Time for Unlearning

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https://www.wsj.com/articles/graduation-is-a-time-for-unlearning-11589139567

Dear Grads, Lockdown Class of 2020: Switch off “Animal Crossing,” wrap up that episode of “The Masked Singer,” pause practicing your TikTok “Renegade” dance, finish ironically chugging your Corona beer, and listen up—Karens, Beckys and Chads, too.

Yes, someone owes you an apology. You’re heading into the worst job market, competing with 33 million recently laid-off plus furloughed employees. I told you to take that antifungals course. To paraphrase the philosopher Bluto, 3¾ years of college down the drain. All this from a coronavirus 22-year-olds have a statistically insignificant chance of dying from. You will forever be Generation C. All of Gen X through Z’s FOMO—fear of missing out—has morphed into FOGO, fear of going out.

You got cheated out of a graduation ceremony, but don’t despair: Facebook to the rescue. This Friday it’s hosting #Graduation2020. Woo-hoo! And professors be damned—“words of wisdom” will come from Oprah, Awkwafina, Jennifer Garner, Lil Nas X and Simone Biles, with special musical guest Miley Cyrus. But, get this, only two of those six graduated from college and they are all incredibly successful. I think this is Harvard dropout Mark Zuckerberg rubbing it in.

They may not be sages, but neither are the people you trusted who got you to blow through your parents’ savings. Especially since you finished classes via videoconference—remember, you can’t Zoom a zoomer because a zoomer can’t be zoomed (ask your dad). The only good news is that you won’t have bad dreams like the rest of us about missing class or that last test. You likely passed automatically.

You were told to go to college, study hard and you’ll get a good job. But that model has been broken for a while. Instead you got cancel culture, pronoun police, plus diversity and inclusion—of everything but sound ideas, which need to be free to mingle and test-drive. You’ve been run down, you’ve been lied to. You ended up with someone else’s agenda.

“You’re going to find that many of the truths we cling to depend greatly on our own point of view. . . . The truth is often what we make of it; you heard what you wanted to hear, believed what you wanted to believe.” Sound familiar? For 20 points, who said it? Socrates? Kant? Hume? Rousseau?

WSJ: How Big Data Is Attacking the Coronavirus

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https://www.wsj.com/articles/how-big-data-is-attacking-the-coronavirus-11588541839

The value of a network rises in proportion to the square of the number of users, observed Ethernet inventor Robert Metcalfe. Metcalfe’s Law— precisely expressed by the formula n(n-1)/2—is what enabled Facebook, Twitter, WhatsApp and all social networks. The more the merrier. But it’s exactly the opposite for pandemics. You’re safest on your own or in small groups. The harm goes up in proportion to the square of the number of your contacts.

Or rather it does until it doesn’t, according to 19th-century British epidemiologist William Farr. He didn’t guess. In 1840 he studied data from the 1837-39 smallpox epidemic and noted that the number of deaths followed a normal bell-curve distribution. Known as Farr’s Law, it’s his curves that we’ve flattened. As the journalist Michael Fumento said of Covid-19, “Communicable diseases nab the ‘low-hanging fruit’ first (in this case the elderly with comorbid conditions), but then find subsequent fruit harder and harder to reach.” That echoes Farr’s observation that pandemics burn out as fast as they start. Yet that tendency, and the data that back it, has barely been mentioned during the Covid crisis.

Farr obviously didn’t plot his data on a MacBook. The first useful, programmable and electronic digital computer, Colossus, was created by Alan Turing and friends a century later in England to decrypt the Nazis’ Enigma and Lorenz code-machine communications. After the war the British were so nervous that Colossus would end up in the hands of Soviet spies that they destroyed all plans and copies. A colossal mistake.

In the U.S., by contrast, the Eniac computer, designed to help create artillery tables, wasn’t turned on until November 1945, completely missing the war. Rather than destroy it or keep it secret, on Feb. 14, 1946, the War Department miraculously put out a press release with details and invited interested parties to meetings to share ideas. Yes, share! That simple press release is why technology is dominated by U.S. firms and Silicon Valley emerged in displaced California orchards and not in, say, Shropshire, England. Call it the Eniac law: Open is better than closed. Dissemination is better than secrets. Turns out, to invoke Metcalfe’s law, ideas network too.

Fast-forward to the Covid era, with apocalyptic pandemic models driving policy. A few short weeks after the World Health Organization declared a global pandemic, Silicon Valley veteran Tom Siebel’s artificial intelligence company C3.ai went live with an open cloud-based repository. Known as a data lake, it contains location and confirmed case data from the World Health Organization and Johns Hopkins, genome sequences of Covid-19 samples from the National Center for Biotechnology Information Virus Database, global patient data such as symptoms and lab results, and the Milken Institute’s database of treatment and vaccine trackers. It’s available to everyone—nonexclusive, royalty-free. The Farr and Eniac laws in action.

WSJ: What Shape Will the Rebound Take?

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https://www.wsj.com/articles/what-shape-will-the-rebound-take-11587930592

For all us former at-home meteorologists turned self-appointed epidemiologists, predicting everything from barely a flu to an epidemic apocalypse of infection rates and ventilator shortages, I’ve got some good news. As the corona clampdown is (please) coming to an end, there’s a new parlor game sweeping the nation. Now, as newly minted armchair economists, we all get to predict the shape and span of the economic recovery. You’re in luck: I’ve got your buzzword-compliant cheat sheet and a few tips, sure to impress your isolation circle and both flatter and flatten their curves.

OK, we’ve clearly fallen off a cliff. There have been 26 million new unemployment claims in the past five weeks. The jobs chart looks like someone dropped a fishing line in the water with a dead whale attached. Same for oil prices. This means the drop in second-quarter gross domestic product will be . . . well, nobody knows exactly. Estimates are still in flux. Sixty economists surveyed by The Wall Street Journal predicted an annualized decline of 25% on average, which works out to about 7% for the quarter alone.

But a fishing line down should mean a Polaris missile right back up, right? President Trump has even said the post-virus economy will take off “like a rocket ship.” That’s the essence of a V-shaped recovery. If we’d had a two-week house arrest—three, at max—maybe a V it would be. The unemployed return to work, stores open, new cars crank out and voilà, just like old times. Unfortunately, that ship has sailed. Sad, because a short lockdown could have been enough to scare the corona out of us, instilling enough fear that we self-enforce social distancing, wear masks, distrust strangers. Mission accomplished weeks ago.

Now there’s no going back. With airplanes idle, hotels empty, theaters going bust, stores like Neiman Marcus threatening chapter 11 and oil going subzero last week, all signs suggest serious damage to the economy.

So many economists now think we’re in for a U-shaped recovery. It’s the next one down the list, though not a bad bet. But there are lots of different types of U shapes. The letter U. Then there’s the Miami Hurricanes’ “The U” hand signal with a little more time in the basement. And for true pessimists, there’s the bathtub with a long time underwater before emerging. Short sellers like to talk about L-shaped recoveries, meaning things will never come back—but ignore them. Still, any of these U’s are possible.

But economies often don’t recover symmetrically.

WSJ: Upgrade Our 8-Track Government

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https://www.wsj.com/articles/upgrade-our-8-track-government-11587317309

I’ll admit to using this line all the time: “The Howard Stern Show” asked Ringo Starr, “What did you do with the money?” “What money?” “The money your mother gave you for singing lessons.”

Earlier this month, Johns Hopkins surgeon Marty Makary told Tucker Carlson about a much-needed Covid-19 antibody test developed in January that was under review by the Food and Drug Administration. Dr. Makary noted, “And we lost precious time when one of the original scientists submitted an application and was told that he had to submit it also by paper mail with a CD-ROM with the files burned on it.” CD-ROM? They might as well have asked for applications on a deck of IBM punch cards with audio on 8-track tapes. The FDA budget is around $5.8 billion. What did you do with the money?

Last week, New Jersey put out a call for Cobol programmers to update its unemployment-benefits software, which runs on mainframes installed 40 years ago. Cobol was invented in 1959. New Jersey has a $39 billion budget. What did you do with the money?

I grew up in New Jersey (Exit 14), but this ineptitude is everywhere. A 2018 study revealed that only 42% of all state and local government computer systems were implemented after Oct. 25, 2001. The rest are “old or broken,” including two-thirds of those used for child support and half of those used for unemployment or vehicle registration.

The feds, who spend $88 billion a year on information technology, are worse and notorious for ancient systems. The Pentagon’s control of nuclear missiles and bombers until very recently ran on 8-inch floppy disks from the 1970s. Some of the weather-tracking systems of the National Oceanic and Atmospheric Administration and the National Weather Service were programmed in Fortran, as far back as the 1950s. Or the National Institutes of Health, which stopped buying fax machines . . . in 2019. And—yikes—remember the 2018 false alarm? “Ballistic Missile Threat Inbound to Hawaii. Seek Immediate Shelter. This Is Not a Drill.” And don’t forget how HealthCare.gov imploded in 2013.

According to the Government Accountability Office, as of May 2016 two different Internal Revenue Service computer systems used for tax data and refunds were written in “low level” assembly language 56 years prior.