Andy Kessler

WSJ: August Is Full of Surprises

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https://www.wsj.com/articles/berlin-wall-arab-spring-color-tv-internet-innovation-investing-11627829703

It’s August—the hazy, lazy days of summer. People are either at their vacation homes or wishing they were at Burning Man, virtual again this year. The future’s on hold, so you might as well head to the ballpark or the beach, shut your brain down and read Lizzy Dent’s novel “The Summer Job.” Nothing ever happens in August. Except . . .

Surprise! On Aug. 11, 1951, New York’s WCBS-TV broadcast the first baseball game in color, a double-header from Brooklyn’s Ebbets Field. The surprise was that television could do color at all—maybe 100 color sets existed at the time. Yes, “The Wizard of Oz” stunned theatergoers with color in August 1939. But television? Around 20% of U.S. homes had black-and-white TVs, often to watch Rocky Marciano’s almost monthly boxing matches, which my dad called the Bum of the Month club. By 1960 almost 90% of homes had sets. As broadcasts in color ramped during the ’60s, color-TV sales boomed. Someone paying attention 70 years ago would have seen the future.

Surprise! On Aug. 13, 1961, the world woke up to 32,000 troops in the Soviet sector of Berlin installing 97 miles of barbed wire and eventually building concrete fences—not to keep people out, but to keep anyone from leaving. The Berlin Wall stood for 28 years, as the icy Cold War proved that capitalism in the West, especially West Germany, completely outdistanced the stagnant communist Five Year Plans and neighbor turning in neighbor via East Germany’s Stasi secret police. The only question is why it took so long to implode.

Surprise! On Aug. 15, 1971, President Nixon ended the international gold standard set up at the 1944 Bretton Woods Conference. Most didn’t see that coming. After years of funding Lyndon B. Johnson’s Great Society and the never-ending Vietnam War, the U.S. couldn’t afford both guns and butter as other countries began demanding physical gold instead of printed dollars for trade imbalances. Subsequent inflation was definitely not “transitory.” Oil embargoes and economic “malaise” followed. Real assets soared, stocks flatlined. This was broken only when President Reagan had Federal Reserve Chairman Paul Volcker’s back as he slew inflation with punishing interest-rate hikes.

Surprise! On Aug. 5, 1981, Reagan fired more than 11,000 striking air-traffic controllers, members of the Patco union. Union membership as a percentage of the U.S. workforce peaked in 1945, but the decline slowed in the 1960s and 1970s. It’s been steadily falling since Reagan’s action. That and capital-gains tax cuts, encouraging capital formation, set up U.S. companies for rapid and profitable growth. A massive bull market began in 1982—Aug. 13 actually—with the Dow Jones Industrial Average at 777. We’ve rarely looked back.

Surprise! On Aug. 6, 1991, British scientist Tim Berners-Lee published the first ever website, with information on his World Wide Web project.

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WSJ: Congress Can’t Enact a Chicken

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https://www.wsj.com/articles/congress-economics-investment-consumption-11627222067

Egg first. As legislators play a game of chicken with “infrastructure” bills, there is a huge misconception about how the economy actually works. Last week Moody’s economist Mark Zandi said more government spending on infrastructure and social programs like Medicaid “will lift productivity.” Does he even know what productivity is? He thinks you can give people money and they’ll spend it, prime the pump and boost the economy. That is backward. An economy has to produce first, then consume.

Reagan-era supply-side economics has been badmouthed for so long, and given monikers like voodoo and trickle-down, it has more or less been discarded. Why? Probably because it worked, taking power away from Keynesian big-government power mongers and their cheerleading economists. So let me suggest something else. Let’s call it Produce First or, if you insist, Supply First.

Here’s how capitalism works—pay attention if you took the social-justice version of Econ 101. SIPPC: Save. Invest. Produce. Profit. Consume. Save means postponing consumption, money and time. Only then you can invest, especially your human capital, in something productive. Usually this means doing more with less, being efficient and effective. This is when innovation happens.

Wealth comes only from productivity, not from giving away money. And despite the Federal Reserve’s dollar printing, profit is the only way real money is created. That dollar in your pocket is just something convenient to exchange that represents what you already produced profitably.

Supply first and then consume. “How can you have any pudding if you don’t eat yer meat?” Supply First is the fundamental nurturing of economic creation, creating incentives to put money into the hands of entrepreneurs and clearing a path for them to innovate by getting government out of the way.

For example, the Biden administration’s proposed 43.4% top capital-gains tax rate is an investment killer, stealing savings and investment from productive producers.

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WSJ: How to be an Anticapitalist

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https://www.wsj.com/articles/president-biden-progressive-economics-capital-gains-socialism-infrastructure-11626623593

It is hard to sit by and watch your economy being strangled. Ibram X. Kendi’s book “How to Be an Antiracist” is all the rage now, but the Biden administration and its progressive hangers-on are providing a master class on “How to Be an Anticapitalist” and suck the air out of the economy.

Start by paying people to do nothing—1.8 million workers, according to a recent Morning Consult poll, have turned down jobs due to generous unemployment benefits, including an extra $300 a week from the federal government in some states. Meanwhile, Burger King is offering a $1,500 signing bonus.

Anticapitalists then shut pipelines (except Russian ones) and suspend drilling leases in parts of Alaska, helping send oil prices above $70. The government says it wants to limit carbon emissions, but then it squashes better energy options like nuclear. On June 30, months after New York state closed the Indian Point nuclear power plant, Mayor Bill de Blasio asked New Yorkers to cut back on energy usage during a heat wave. You can’t make this stuff up.

An anticapitalist would next restrict capital formation, so President Biden has proposed raising the top capital-gains rate from 23.8% to a punitive 43.4% and the top individual income-tax rate to 39.6%. Mr. Biden also wants to waive Covid vaccine patents—making pharma companies think twice before investing in new drugs—and is even pushing a series of antitrust bills that could reverse mergers, like Facebook’s 2012 purchase of Instagram, as if that would do anything good for the economy or consumers. Nothing is safe.

Add the Federal Trade Commission’s roadblocks to mergers. It worked hard to block early-cancer-detection pioneer Grail’s merger with genome-sequencing firm Illumina, now on hold as it lets the European Commission investigate. This is moronic. If you or a loved one is diagnosed with late-stage cancer in five years, the Biden administration could be to blame. Without meddling, Grail may have found it earlier, when it was still treatable.

Anticapitalists in Congress are pushing $3.5 trillion in spending unrelated to infrastructure with an Orwellian sleight of hand by declaring it “human infrastructure.”

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WSJ: Can Robinhood Ride the Bull?

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https://www.wsj.com/articles/can-robinhood-ride-the-bull-11626025309

Robinhood, the commission-free meme-stock dream shop, is going public. There’s talk of a bubbly $40 billion valuation. Woohoo! Plus, the company has announced that up to 35% of the new shares in the initial public offering are reserved for its own retail customers. Groundbreaking? I don’t know. If Robinhood really is the future of Wall Street, why not take itself public and sell 100% of the new shares to retail customers? Who needs Goldman Sachs and JP Morgan ?

Back in my days as a Wall Street analyst, one of my favorite things to do was IPOs. I’d go on roadshows with management teams. My job was to provide earnings estimates since companies aren’t allowed to give forecasts, but really it was a branding exercise. I’d have my name associated with them, and maybe become “the ax in the stock”—the first person investors would call for insight.

But before that, you had to win the deal. Prospective banking teams would show up to do an IPO pitch, nicknamed the bake off, with thick pitchbooks some lowly bankers would pull all-nighters putting together. My job was to position the company to investors. Since there were tons of pitches and I was generally lazy, I used the same three bullet points every time: 1) The company sells into a monster market, 2) has an unfair competitive advantage, and 3) a business model to leverage that advantage. It worked almost every time. Sadly, that unfair stuff is now grounds for an antitrust investigation.

During the dot-com boom I ran a fund and my experience with IPOs meant I got calls most days from startup CEOs saying, “I hear you’re helpful picking bankers.” So I’d walk through pros and cons of bankers: reputation, research, retail vs. institutional, pricing, first-day stock pops (usually 10% to 20%, though sometimes it would double or even quintuple).

Remember, after an IPO, only 10% to 20% of total shares trade at first, until insider shares are unlocked some 180 days later, though sometimes earlier. Until then it’s not a real market—there is often more demand for shares than supply and IPO stock prices inflate. Perversely, that’s when most Robinhood customers will buy Robinhood shares and likely overpay. Steal from the (wannabe) rich, indeed.

After Eliot “Steamroller” Spitzer alleged abuses by Merrill Lynch ( Henry Blodget’s “POS” emails) and others, IPOs changed as a Wall Street settlement put up a Chinese wall between banking and research, even cutting off phone calls.

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WSJ: ‘Drill, Baby, Drill’ Is the Future (Deep Geothermal)

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https://www.wsj.com/articles/drill-baby-drill-is-the-future-11624810731

Remember the cringeworthy “Drill, baby, drill” slogan from the 2008 Republican Convention? Maybe they were on to something, but not what you think. We’re bombarded daily with calls for sustainable, renewable and carbon chewable technologies to meet our energy needs. But the solution may be just underfoot.

Dig deep enough and, no surprise, it’s hotter than hell down there. Isotope reactions in the mantle under the Earth’s crust generate 20 terawatts of constant heat flow. Typically, the temperature rises about 25 degrees Celsius for every kilometer, or 75 degrees Fahrenheit for each mile, and more the deeper you go. The steam wafting out of hot springs in Yellowstone National Park or Iceland, places where the Earth’s crust is thin, shows how much heat the mantle gives off.

We already have a good-sized surface geothermal industry in the U.S. For $15,000 to $30,000, you can hire someone to dig a few hundred feet and install a heat pump that circulates heated water to keep your house cozy.

But that’s just scratching the surface. There is huge upside to digging down miles and injecting water into underground reservoirs—think radiators—and then the heated water is pushed back out to generate steam and electricity. It’s carbon-free—clean, green and mostly unseen.

The trick is to get a large enough surface area to do the heat exchange. A typical vertical oil well might have 1,000 to 10,000 square feet of surface area. But it turns out that the same thing that’s been perfected over the past 30 years to make America energy independent can also increase that surface area—horizontal drilling and hydraulic fracturing.

I called one of the industry pioneers, University of Texas engineer Mukul Sharma, who is sometimes called the Frack King (get it?).

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WSJ: Maskless Among the Lemmings

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https://www.wsj.com/articles/maskless-among-the-lemmings-11624203554

California finally opened up on June 15. We can actually set foot inside stores and restaurants without having to wear a mask. Freedom! And it’s about time. More than 70% of California adults have at least one vaccine jab. The state’s seven-day average number of daily coronavirus cases is down 98% from its peak in January. Herds can romp. It’s over—except, well, Gov. Gavin Newsom will keep his emergency powers.

In case he changes his mind about reopening, I made a trip to Trader Joe’s to stock up on Ultra Chocolate ice cream. And yes, I see the irony of buying the least healthy item in a store stocked with expensive organic bruised bananas and dairy-free cashew cheese alternative mozzarella-style shreds. The parking lot was practically a showroom for Teslas and Prii.

I counted 50 shoppers, 49 masked. Did these people not get the unmasking memo? I was the only one not wearing a mask, and I was loving it. California is operating on an honor system, and though I’m fully vaxxed, I wish I weren’t. That very same day, Mr. Newsom was at Disneyland doling out $1.5 million prizes (taxpayer money) to 10 winners of a California vaccine lottery. That beats President Biden’s “Get a shot and have a beer.” Lesson Learned: Next pandemic, I wait to get paid.

Maybe those 49 maskers haven’t yet been vaccinated? The adage is: To find the next measles outbreak, find towns with Whole Foods supermarkets. Those places usually have high concentrations of antivaxers. That adage could probably apply to Trader Joe’s, too.

But this vaccine is different. Statistics suggest red-staters are the ones declining the Covid-19 vaccines, not the usual dissidents inspired by Robert F. Kennedy Jr. I’d bet good money all 49 of my fellow shoppers are topped up with vaccine-induced antibodies. So who exactly are they protecting? Me? Thanks but no thanks.

As I made my way past the wild arugula and baby spinach—the rabbit-food section—I noticed many shoppers giving me the stink eye. But c’mon, it’s not like I had 11 items in the express line.

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WSJ: Stupefying Summer Small Talk

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https://www.wsj.com/articles/stupefying-summer-small-talk-11623598185

Covid isolation got you tongue-tied? Here are tips for getting the hot air flowing again.

The loudmouth at the cocktail party was on a roll. “We need to move the Overton window about the Tullock paradox.” Heads nodded in agreement, but most, like me, were clueless. Summer social season is here but our conversation skills are rusty and crusty. After 15 months of isolation, I can talk to my wife, kids and dogs. But interacting with friends and acquaintances at barbecues or overpriced coffee bars? Tough going. Over Memorial Day weekend, it was clear that my go-to questions—“What have you been up to? Been anywhere recently?”—are irrelevant and completely worthless.

I was familiar with the Overton window—what’s currently acceptable in the political mainstream—but had to look up the Tullock paradox: If it’s so cheap to buy off politicians, why doesn’t everybody? I can toss out quippy H.L. Mencken quotes when needed, like “Nature abhors a moron,” but man, I’ve got to step up my game.

These are extreme times. We all need an almost remedial course in conversation, beyond our usual monosyllabic babble, especially mine. So here’s a handy guide to stick it to your co-conversants and have their heads nodding at your bon mots in sublime stupefaction.

First, it’s always good to reference someone long dead, especially with a foreign twist. Throw around phrases like the Baader-Meinhof phenomenon: After noticing something for the first time, like how Grand Rapids constantly pops up in the news, you tend to notice almost every day. Or casually mention someone is afflicted by Munchausen syndrome—faking sickness. They’re so easy to slip into conversations. See how many heads nod with bewildered eyes. Don’t explain yourself either—a magician never reveals.

Next, if someone launches on you about his investing prowess, especially trading crypto, I suggest a comeback such as, “Oh, that’s just a classic Veblen good.” That should stump him for a while. American economist Thorstein Veblen noted that many goods are more desirable the more expensive they become, even though they’re not any better. Like BMWs. Or Jimmy Choos. Or Cristal champagne. Or GameStop shares. If the crypto braggart, wearing a Rolex, actually knows what a Veblen good is, then correct yourself and say that actually it’s probably more of a Giffen good, a nonluxury good, like rice, that can see increased demand at higher prices. That’ll buy you some time to plot an exit strategy—needing another drink, hysterical coughing fit.

We’ve all been warned never to talk about politics, religion or money. But how dull is that? Most blowhards quickly break that rule anyway. You need to be prepared.

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WSJ: Unfortunately, ‘Big Is Bad’ Is Back

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https://www.wsj.com/articles/unfortunately-big-is-bad-is-back-11622995107

Will the Biden administration break up Big Tech? Antitrust basically operates under two main schools of thought. The Harvard school is best summed up as: Big is bad. This is an echo from Justice Louis Brandeis, who disliked big business, especially railroads.

Fortunately, the Chicago school has held sway for more than 40 years. That school’s thinking was popularized by Yale’s Robert Bork in his 1978 book, “The Antitrust Paradox.” His thinking was that if consumers are harmed, regulators should look into why. But if consumers aren’t harmed, there’s no case.

But “big is bad” is back! Grover Norquist, president of Americans for Tax Reform, told me to beware of “Neo-Brandeisians.” “Break up Big Tech,” said the Elizabeth Warren presidential campaign. Channeling Brandeis, Columbia Law School professor Tim Wu’s book was titled “The Curse of Bigness.” Does that include big government? Apparently not. Mr. Wu is now working for the White House, specifically on technology and competition for the National Economic Council. Lina Khan, currently awaiting confirmation to the Federal Trade Commission, once railed against “Big Chocolate” and has offered recommendations for how to break up Amazon in an article for the Yale Law Journal.

There’s even a neo-Brandeisian offshoot known as “hipster antitrust,” which focuses on “social harm” including distribution of wealth, political power and employment. Sen. Amy Klobuchar (D., Minn.) introduced legislation in February 2020 that would have required companies to prove to regulators that a merger or acquisition wouldn’t reduce competition. Sen. Josh Hawley (R., Mo.) introduced legislation in April that would end all acquisitions by companies worth more than $100 billion. But these legislative efforts are going nowhere fast.

Fortunately, the consumer-welfare school still seems to rule. And rewriting antitrust laws doesn’t appear to be in the cards. Of course, the other way to break up companies is simple: Catch them in the act of harming consumers.

Let’s go back. AT&T used to have a government-granted monopoly.

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WSJ: Mark Cuban Knows Crypto

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https://www.wsj.com/articles/mark-cuban-knows-crypto-11621785848

After my recent column on buying devices like iPhones but not really owning them, Mark Cuban, as he sometimes does, responded via email: “Nice argument for NFTs,” referring to nonfungible tokens. I’ve known Mr. Cuban since the last tech bubble, when he famously sold Broadcast.com in 1999 to Yahoo! for $5.7 billion, more than Apollo Global Management paid Verizon for the remnants of Yahoo, AOL and even Netscape earlier this month. He smartly hedged his position and bought the Dallas Mavericks in 2000.

I’m not sure Mr. Cuban ever talks on the phone, but he’s sure quick with email responses.

“It depends what you ‘own,’ ” I shot back. By now, you’re probably familiar with the eye-opening $69 million dropped on NFT “artwork” by Beeple. Or the $2.9 million for the NFT of Twitter founder Jack Dorsey’s first tweet, which you can easily see online: “just setting up my twttr.” I guess you own something, I’m just not sure what.

“The NFT is the authentication of what you own that is made public for anyone to see,” Mr. Cuban explains. Today, “all provenance is siloed and not public. NFTs can change that.”

Little did Mr. Cuban know that I had been poking around NBA Topshot for a highlight NFT of Mavericks star Luka Dončić. One cool NFT goes for $120. But what’s this? A 5% transaction fee? Even more surprising, the fine print says there are potentially 9,999 other “owners” of the same highlight with asking prices into the thousands for the same NFT.

Mr. Cuban adds, “All the prices paid for entertainment collectibles is fun and works well and it’s more efficient than physical collectibles as long as you are good with valuing digital items. We value our pics and music on our phones. Collectors value what they value and if there are more buyers than sellers pricing will go up.” Then again, maybe it’s a hustle, as Elon Musk said of dogecoin on “Saturday Night Live.”

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WSJ: Automated Luxury Communism?

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https://www.wsj.com/articles/automated-luxury-communism-11621185487

At first I thought it was a joke. I still do. A couple of years ago, there was a stir around Aaron Bastani’s book “Fully Automated Luxury Communism.” It’s a manifesto for the “postwork” movement. Technology will “liberate us from work” and automation is “the path to a world of liberty, luxury and happiness—for everyone,” the book advertises. Cue rainbow-belching unicorns. The Atlantic wrote that “the vision is compelling.” The New York Times helped promote it. And it sure feels like the Biden administration is trying to implement it. Naturally, it’s complete baloney.

The idea isn’t even original. It’s the plot of the 2008 Pixar- Disney animation “WALL-E”: Tubby humans in personal mobility vehicles leaving planet Earth on a luxury spaceship as robots like WALL-E clean up the industrial wasteland. Kid-friendly propaganda.

Collectivist visions (Cuba, “infrastructure” bills) fail in real life for one reason: They ignore productivity. Karl Marx was ignorant that capital and technology could increase living standards for everyone, including workers. His shallow “immiseration thesis” missed that productivity drives society to make obsolete certain low-end work as more jobs move to a higher intellectual plane. Even night-school economists know that productivity is the only path out of poverty.

Plus, as economies shift toward services, workers themselves, via human capital, become owners of the means of their own production. Even Lord Keynes fell for the ruse 90 years ago, envisioning a 15-hour workweek. But there is always, always something else to invent—like mRNA vaccines—to improve society’s living standards.

Fully automated luxury communism is a joke, but maybe over the past year we’ve experienced a version of partly automated luxury communism. Think about it. Many Americans stayed home in their comfy chairs. We worked, schooled, exercised and entertained via a telescreen that, as George Orwell imagined, “could be dimmed, but there was no way of shutting it off completely.” Amazon primed our doorsteps. Instacart delivered groceries. Cities became ghost towns. Governments justified spending willy-nilly with crackpot ideas like Modern Monetary Theory.

Coyotes came back to San Francisco, and U.S. carbon-dioxide emissions dropped 12% in 2020. For climate-change control freaks, this is a dream world—a Green New Deal delight—and they’ll do anything to re-create these conditions. Wait for the headline: “Bad CO2 Day, Lockdowns Enforced.”