Andy Kessler

WSJ: From Zero to Hero

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https://www.wsj.com/articles/from-zero-to-hero-biden-inflation-fed-fdic-svb-deposit-insurance-bailout-interest-rates-oil-gas-willow-643b9f2d

Isn’t it bizarre that so many people who cause problems then turn around and become heroes fixing the same problems they created?

Between the Biden administration’s $1.9 trillion American Rescue Plan and the green-laden $738 billion Inflation Reduction Act and paying people not to work, Bidenflation is roaring. It peaked last summer at 8.5% but is still running at 6%. In December President Biden, the newly self-declared inflation warrior, said, “My goal is simple: get prices under control without choking off economic growth.” And there it is: The Biden administration is trying to slay an inflation dragon that it created.

To help fight this inflation, the Federal Reserve has raised the federal-funds rate from near zero to 4.5% to 4.75% since January 2022. This has caught a lot of banks, such as Silicon Valley Bank, holding portfolios of underwater bonds and mortgage-backed securities. Treasury Secretary Janet Yellen, in her previous role as Federal Reserve chair, kept rates too low for too long.

Now to save banks, Ms. Yellen says the Treasury, along with the Federal Deposit Insurance Corp. and the Fed, will act “in a manner that fully protects all depositors,” which means those not insured above $250,000. Catch that? She helped cause inflation and now is a hero for saving depositors. The press release notes, “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.” Uh huh. Pay no attention to those losses behind the curtain, which “will be recovered by a special assessment on banks.” Maybe no one will notice.

This D.C. trio of heroes are effectively guaranteeing all bank deposits, which by the way total $17.7 trillion even though the Fed’s balance sheet is only $8.4 trillion. Hmmm. This creates a classic moral hazard, encouraging bankers to let risk rip—no need for a chief risk officer—and then maximize profits because the federales will step in later. The only thing this guarantees is future bailouts.

Fed Chairman Jerome Powell is also playing this “saving us from his own mistakes” game. He has kept rates below the consumer-price index level for most of his five-year tenure.

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WSJ: Who Killed Silicon Valley Bank?

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https://www.wsj.com/articles/who-killed-silicon-valley-bank-interest-rates-treasury-federal-reserve-ipo-loan-long-term-bond-capital-securities-startup-jpmorgan-bear-stearns-lehman-brothers-b9ca2347

That giant slurping sound on Friday was Silicon Valley Bank imploding. America’s 16th-largest bank had some $175 billion in deposits and disappeared by breakfast. It wouldn’t have happened if not for management mistakes. This was a 21st-century bank run—customers tried to withdraw about $42 billion, a quarter of all deposits. But what triggered the collapse?

Let’s go back. In January 2020, SVB had $55 billion in customer deposits on its balance sheet. By the end of 2022, that number exploded to $186 billion. Yes, SVB was a victim of its own success. These deposits were often from initial public offerings and SPAC deals—SVB banked almost half of all IPO proceeds in the last two years. Most startups had relationships with the bank.

That’s a lot of money to put to work. Some was lent out, but with soaring stock prices and near-zero interest rates, no one needed to take on excessive debt. There was no way SVB was going to initiate $131 billion in new loans. So the bank put some of this new capital into higher-yielding long-term government bonds and $80 billion into 10-year mortgage-backed securities paying 1.5% instead of short-term Treasurys paying 0.25%.

This was mistake No. 1. SVB reached for yield, just as Bear Stearns and Lehman Brothers did in the 2000s. With few loans, these investments were the bank’s profit center. SVB got caught with its pants down as interest rates went up.

Everyone, except SVB management it seems, knew interest rates were heading up. Federal Reserve Chairman Jerome Powell has been shouting this from the mountain tops. Yet SVB froze and kept business as usual, borrowing short-term from depositors and lending long-term, without any interest-rate hedging.

The bear market started in January 2022, 14 months ago. Surely it shouldn’t have taken more than a year for management at SVB to figure out that credit would tighten and the IPO market would dry up.

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WSJ: The Rise of Kickback Capitalism

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https://www.wsj.com/articles/the-rise-of-kickback-capitalism-american-rescue-plan-government-benefits-debt-chips-act-inflation-reduction-act-smoot-hawley-e2a74ba8

“I’m a capitalist,” President Biden said in the State of the Union address. Yeah, right. He then added, “But pay your fair share.” He’s missing the fashionable modifiers for capitalism: late, sustainable, patrimonial, state-directed. Real capitalism is, by definition, a meritocracy in which money flows to those providing the highest returns. No modifiers needed.

Collectivism always fails for lack of meritocracy. America’s rugged individualism makes it most compatible with real capitalism. Sure, the U.S. always has had some patronage and cronyism. Elections are expensive, after all. But now we’ve entered an era of kickback capitalism, which has created a mangy mob of meritless mooches.

Why do I suspect this? Because Jared Bernstein—the economist who, like an old REO Speedwagon T-shirt, has been hanging around Joe Biden seemingly forever—said the quiet part out loud. Just before being nominated to run the Council of Economic Advisers, Mr. Bernstein told the Brookings Institution, “We’re trying to do, you know, what we believe, what the president believes . . . is really great, important policy on behalf of strengthening workers. And sometimes that’s not necessarily all kosher economics, sometimes it’s political economics. And sometimes you have to do things that may not be as aesthetically appealing in a neoclassical model.” Lael Brainard, nominated as director of the National Economic Council, worries about “irreversible ‘tipping points’ that introduce new climate shocks.” These aren’t the people who should be making economic policy.

What kickbacks? Start with up to $20,000 in student-loan forgiveness for tens of millions of voters who took on debt to overpay for college. Those who saved and paid retail get nothing. While it’s likely to be struck down by the Supreme Court, it’s also a kickback to universities that constantly raise prices and hire more administrators. In 2021 the average university had 45 diversity, equity and inclusion officers, according to a Heritage Foundation report.

But isn’t buying votes illegal? I looked it up—18 U.S. Code 597: “Whoever makes or offers to make an expenditure to any person, either to vote or withhold his vote, or to vote for or against any candidate . . . if the violation was willful, shall be fined under this title or imprisoned not more than two years, or both.”

Well, Mr. Biden does have two more years in office.

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WSJ: How ChatGPT’s AI Will Become Useful

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https://www.wsj.com/articles/ais-not-useful-yet-but-it-will-be-chatgpt-artificial-intelligence-robots-microsoft-bing-chatbot-elder-care-tyrell-corporation-self-driving-tesla-technology-a1a27df0

In the rudimentary days of videogames, I met the team that created the first multiplayer Formula 1 Grand Prix racing game. They had to alter the original code because they discovered almost every player at the start of the first race would turn his car around on the track and crash into the incoming traffic. I started to laugh, because that’s what I did too. Gives new meaning to the Facebook motto: Move fast and break things.

That’s exactly what’s going on with the newfangled generative AI chatbots. Everyone’s trying to break them and show their limitations and downsides. It’s human nature. A New York Times reporter was “thoroughly creeped out” after using Microsoft Bing’s chatbot. Sounds as if someone needs reassignment to the society pages. In 2016 Microsoft had to shut down its experimental chatbot, Tay, after users turned it into what some called a “neo-Nazi sexbot.”

Coders can’t test for everything, so they need thousands or millions banging away to find their flaws. Free testers. In the coming months, you’re going to hear a lot more about RLHF, reinforced learning from human feedback. Machine-learning systems scan large quantities of data on the internet but then learn by chatting with actual humans in a feedback loop to hone their skills.

Unfortunately, some people are ruder than others. This is what destroyed Tay. So ChatGPT currently limits its human feedback training to paid contractors. That will eventually change. Windows wasn’t ready until version 3.0; generative AI will get there too.

For now Microsoft’s solution is to limit users to six questions a session for the Bing chatbot, effectively giving each session an expiration date. This sounds eerily similar to the Tyrell Corporation’s Nexus-6 replicants from the 1982 movie “Blade Runner.” If I remember, that didn’t end well.

Every time something new comes out, lots of people try to break it or foolishly try to find the edge, like jumping into the back seat of a self-driving Tesla.

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WSJ: This Is One Puzzling Job Market

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https://www.wsj.com/articles/one-puzzling-job-market-employment-unemployment-productivity-tech-layoffs-help-wanted-technology-automation-robots-ai-chatgpt-70d9e54

Before generative AI replaces me (it can pry my keyboard from my cold dead hands), what’s going on with jobs? The jobs report for January was huge: 517,000 new hires and a 3.4% unemployment rate, the lowest since Woodstock. Restaurants and retailers can’t hire fast enough. Yet we’re bombarded with layoff announcements: Google, Amazon, Goldman Sachs, Salesforce, Microsoft, Disney, Dell and—say it ain’t so—fake meaters Impossible Foods and Beyond Meat. Meanwhile, productivity dropped 1.5% in 2022. Something’s screwy.

Technology has brought wonders: desktop publishing, spreadsheets, automated check deposit, social networks and speech bots. Many jobs became obsolete. And now ChatGPT spits out humanlike prose. Google’s Bard promises the same. So why are productivity statistics so underwhelming?

In 1987, the economist Robert Solow said, “You can see the computer age everywhere but in the productivity statistics.” Why? Because, as science-fiction author William Gibson purportedly said, “The future is already here. It’s just not evenly distributed yet.”

Same with technology and jobs. This headline from November is a case in point: “ILWU clerks shut down Port of Oakland.” As International Longshore and Warehouse Union president Willie Adams had written in a letter to California Gov. Gavin Newsom, “This is simply not the time to allow further job losses to automation.” Uneven distribution indeed. This pushback is sad because technology enables better jobs as capital flows to more productive uses.

We saw this on Wall Street in the 1980s with spreadsheets, which replaced X-Acto-knife-wielding experts cutting Mylar sheets spread out on large tables. Many jobs were lost, but Wall Street expanded because everybody could build digital balance sheets and dividend discount models. I think Wall Street and private equity made more money from spreadsheets than Lotus or Microsoft did.

Same with desktop publishing. Layout jobs were lost, but 10 times as many magazines were printed until the web enabled digital delivery.

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WSJ: The FTC Can’t See the Future

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https://www.wsj.com/articles/the-ftc-cant-see-the-future-activision-microsoft-lina-khan-antitrust-xbox-gaming-consoles-video-games-11675628406

In December, Federal Trade Commission Chair Lina Khan told the WSJ CEO Council, “competition is critical to have an economy that’s thriving, to ensuring that we have robust innovation.” That’s idle chatter. Actions speak louder than words. Look at her agency’s innovation-killing actions: “FTC seeks to block” Meta’s acquisition of virtual reality app Within. Or Microsoft’s acquisition of videogame maker Activision. Ms. Khan is playing checkers while others are playing chess.

In the early 1990s I raised money for Activision at a $100 million valuation. Last January, Microsoft offered $69 billion for the company—we’ve come a long way. Gaming companies used to sell cartridges for videogame consoles like Nintendo and Sega or floppy disks for personal computers. Over time this changed to CD-ROMs for new consoles like Sony’s PlayStation and Microsoft’s Xbox. Then came handhelds. And now mobile phones. The FTC, seemingly prodded by Sony, is worried that Microsoft will “harm competition in high-performance gaming consoles.”

That’s laughable. It’s like protecting floppy disks. While Microsoft has promised to make some games available on competing consoles, including Sony’s PlayStation for the next 10 years, I doubt anyone will be selling new consoles a decade from now as everything moves to the cloud. Why? Because while 75% of today’s televisions are Smart TVs, soon TVs will have graphics engines as powerful as today’s videogame consoles. Then it’s game over.

As usual, the FTC is still fighting the last war. The next war is over online worlds, the so-called metaverse. This makes even more bizarre the FTC’s attempt, which was recently denied by a district court judge, to block Meta from buying fitness app maker Within. As if Jazzercise or “Sweatin’ to the Oldies” is innovation. The metaverse already exists and videogames are, pun intended, its killer app so far.

Don’t care about videogames? OK, but the future of commerce and education will live in online worlds. Microsoft will bring Azure’s cloud expertise, HoloLens’ headset, and even ChatGPT’s conversational artificial intelligence to Activision’s 3-D worlds. Chatbot avatars might replace salesmen and teachers one day.

Microsoft would make a formidable competitor to Meta. So would Apple…

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WSJ: A Better Future for ALS Patients

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https://www.wsj.com/articles/a-better-future-for-als-patients-medicine-research-fundraising-cure-basketball-pharmaceuticals-lou-gehrig-11675000441

For 15 years, I sat next to Stephen Kauffman and his dad Scott at Golden State Warriors games. Every National Basketball Association referee knew Stephen because he’d call them out by their first names for bad calls. Sadly, Stephen first started showing signs of neurodegenerative disease at age 27 and was soon diagnosed with amyotrophic lateral sclerosis, ALS. The disease, which causes the brain to stop communicating with the muscles, has no cure. Early on, Stephen would ask me to help him stand for the national anthem and eventually attended games in a wheelchair and a device to help him breathe. He kept his same bright attitude and diligence with the refereeing, but his slow-motion decline was one of the saddest things I’ve ever seen.

Scott and his family deal with ALS 24/7. He is now chairman of the ALS Association. Meeting last week in Palo Alto, Calif., he told me that in the U.S. more than 30,000 people live with ALS, typically only for two to five years after diagnosis. Only 15% of cases are hereditary; the causes of the rest are unknown. There are no diagnostic tests for ALS—doctors eventually rule out everything else.

I’ve noticed that ALS is either fast or slow. In 2012, at age 57, one of my old college roommates told me he noticed he couldn’t hit a golf ball as far and got drunk on half a beer. He soon was diagnosed with ALS and died a year later leaving behind two teenage daughters. On the other hand, Stephen Hawking was diagnosed in his 20s and died at age 76. ALS is often known as Lou Gehrig’s disease. The Yankee great died with ALS at age 37. Here’s a twist: Stephen, now 38, was a huge Lou Gehrig fan as a kid—he had a Gehrig-signed baseball and even wore his No. 4 in Little League.

Only a few drugs slow the disease’s progression, and none provide a cure. Scott told me that the Food and Drug Administration “has pledged to bring ‘regulatory flexibility.’ Of course, patients are willing to risk everything for drugs that might work once they’re deemed safe.” In September, the FDA approved the drug Relyvrio from Amylyx Pharmaceuticals. Patients who take it generally show a slower rate of decline and live longer, but only by a few months.

In July the FDA accepted Biogen’s Tofersen into its accelerated-approval pathway, and it might receive full approval this spring. The drug binds to the SOD1 gene whose mutation is common in ALS patients. A few other drugs are in the pipeline, but little is known about what causes ALS, which makes developing treatments difficult. There is so much research to be done. That takes money.

Remember the ice-bucket challenge in 2014 that took over social media?

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WSJ: Can ChatGPT Write This Column?

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https://www.wsj.com/articles/can-chatgpt-write-this-column-openai-computing-scale-fusion-gene-editing-technology-11674399416

With every new piece of technology—today it’s generative artificial intelligence like OpenAI’s ChatGPT—I’m fascinated by the possibilities but always ask: Will it scale? Can it get smaller, cheaper, faster, better? Early releases are usually clunky. After the initial “huh, I didn’t know that was possible,” often comes denial and ridicule. I’ve been guilty of this. So how do you figure out what works and what’s a dud?

ChatGPT uses machine learning to find patterns of patterns in training data, mostly written by humans, to produce human-sounding prose in response to prompts. Machine learning is the greatest pattern-recognition system ever invented. It’s why Alexa’s voice interface works and how Google can find you in photos from when you were 3.

I’ve played around with ChatGPT, and it’s pretty good—if you need to turn in a high-school freshman term paper. Its answers are dull, repetitive and often filled with mistakes, like most freshmen.

Speaking of dull, lawyers may have the greatest reason to be nervous. In February, online ticket fixer DoNotPay will coach someone to fight a speeding ticket in a live courtroom using its AI chatbot speaking into the defendant’s earpiece. DoNotPay has even offered $1 million to the first lawyer arguing before the Supreme Court who agrees to wear an earpiece and repeat what the bot says.

Will this work? Who cares? This is Kitty Hawk. Google, which funds its own generative-AI efforts, has declared a “code red,” worried about threats to its money-gushing search business, as it should. Microsoft was years late in responding to a quirky but scaling internet.

Pure digital technology almost always scales.

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WSJ: Euchre's Life Lesson

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https://www.wsj.com/articles/euchres-life-lessons-midwest-cards-game-tricks-suit-win-cheat-juckerspiel-trump-players-dealer-advice-11673791542

If you hail from upstate New York, downstate Illinois, Michigan, Wisconsin, Indiana, Ohio and many other Midwest locales, chances are good you’re a Euchre fanatic. This four-person, trick-taking card game—originally called Juckerspiel—was brought over by German immigrants who settled in the Midwest.

Euchre, it turns out, reflects life. The game is played with 24 cards, 9 through ace. Like bridge, one suit becomes trump and defeats all other cards (no election jokes, please). The jack of the trump suit is called the right bower (Bauer is “farmer” in German) and is the highest card. The other jack of the same color is called the left bower and is the second-highest card. Then it proceeds from the ace on down.

The dealer is supposed to shuffle the deck only twice before dealing five cards to each player, in sets of twos and threes. This is to maximize good hands, making the game move faster. The dealer turns one card up and keeps the last three facedown, or “buried.” Players go around clockwise from the dealer and say whether they think they and their partner can win three hands, or “tricks.” If so, the dealer is told to pick up the card, whose suit becomes trump, and has to discard another. If it goes all the way around and the dealer turns down the card, bidding goes around again, and players in turn can pick any suit as trump. There are lots of local variations, with allegedly ancient rules. You can learn in five minutes, but it takes years to master.

As cards are played, you must follow suit, unless you can’t. Then you can play a trump card. Highest card wins. Win three tricks for a point. Win all five for 2 points. If you call trump and fail to win three tricks, the other team gets 2 points and will loudly yell “Euchre!” With a really strong hand, you can tell your partner “I’m going alone” and win 4 points if you get all five tricks—a “Lone Bone.” First team to 10 points wins.

As in life, the rules are pretty simple and mindless, but decent strategy gets you ahead.

In Euchre, there are many unknowns. That’s true of many card games. In poker you learn about others through their body language, their tells. In blackjack, you assume every other card is a 10. But in euchre, because there are only 24 cards, you have to figure out what’s going on by seeing a quarter of the cards. Every time a card is played, you learn more. In cards and in life, especially investing, acting without knowing the whole truth is an art some people, but not many, actually master.

Euchre is also about camaraderie.

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WSJ: The Voting Bloc Against Bossiness - Don't Tell Me What To Do!

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https://www.wsj.com/articles/the-voting-bloc-against-bossiness-dontell-libertarian-freedom-covid-education-language-silicon-valley-11673195159

Meet the Dontells, sure to be a political force in the next few elections. Their mantra is simple: Don’t tell me what to do, hence the name. Their telltale sign is an obvious case of ODD. What’s that? Oppositional defiant disorder, which, according to Johns Hopkins Medicine, is a behavior disorder, often in children who “are uncooperative, defiant, and hostile toward peers, parents, teachers, and other authority figures.” Yeah, I’ve got that.

Also add: Don’t tell me what to say, to think, to pay. Backlash was inevitable against the metastatic absurdity. Use only paper straws. Don’t tell me what to do. You can’t say “master bedroom” anymore. Oh yes I can. That 6-foot-tall dude winning all the NCAA women’s swimming meets is really a woman. I don’t think so. Every threat is existential. Maybe to you. No abortions ever. What? Your taxes pay people not to work. Make it stop!

Tea partiers and red-hatted MAGA supporters pushed back against Obama-era bossiness. They didn’t want high taxes to pay for open-border welfare, gun confiscation or being woke poked. Heck, they even supported a blundering bloviator for president. That’s how desperate their Dontell dedication was. Note, there is a fine distinction between the Doncares (I don’t care), the Leavmis (leave me alone), and the Dontells. The first two groups rarely vote. But Dontells vote in droves, on both sides of the aisle.

Amazingly, the whole Dontell thing still comes as a huge surprise to self-important city dwellers on both coasts. Yes, most big-city progressives like to be dominated and enjoy being told what to do. Walk/Don’t Walk. Mind the gap. Wait in long lines. Alternate-side-of-the-street parking regulations. Calorie counts in doughnut shops. Confiscatory taxes. New York’s (unconstitutional) ban on large sodas. San Francisco’s ban on Happy Meals. The seemingly mandatory use of words such as “positionality” and “performative” in conversation.

Liberals, implied in the name, say they are for freedom, but are they? The progressive wing is full of authoritarians telling others what to do or how to think: America is a racist country. Wear a mask. Limit charter schools. Bees are fish (in California). “A drag queen for every school” (Michigan’s attorney general promises). ESG. CRT. DEI. I could go on. Meanwhile, Dontells are fed up with submission.

Elon Musk, who tweets about a “woke mind virus,” became a card-carrying Dontell in 2020 when California Gov. Gavin Newsom’s lockdowns closed his Tesla factories.

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WSJ: Lincoln, Douglas and Netflix

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https://www.wsj.com/articles/lincoln-douglas-and-netflix-streaming-social-media-tv-stories-plot-intelligence-attention-gold-fish-tiktok-11672427896

I just finished streaming the latest season of “The White Lotus.” And “House of the Dragon,” “The Peripheral,” “The Crown,” “Andor,” “The Rings of Power” and too many more. What a change from May 1961, when Newton Minow, chairman of the Federal Communications Commission, called television a “vast wasteland.” Or 1992, when Bruce Springsteen sang “57 Channels (and Nothin’ On).”

Many shows exist only because computer-generated imagery can create otherworldly landscapes and gravity-defying creatures. Like it or not, Silicon Valley owns Hollywood. Well, not literally, but clearly today’s Hollywood wouldn’t exist without Silicon Valley’s streaming technology and high-end graphics. As these two industries continue to merge, which will become more dominant driving society and culture?

I have to admit, I’m usually in the camp suggesting that Hollywood makes us dumber and technology makes us smarter. But now we are at Yogi Berra’s fork in the road. Sure, I have my beefs with Hollywood, with its preachy output and woke agendas. Most of the shows I mentioned above pushed back against toxic masculinity, the punching bag du jour. But increasingly I think streaming is making us smarter, while social media is bringing out the goldfish in us.

In the old days of 22-minute sitcoms, almost every episode had three intertwining plots. The A plot was the main one, “The One With Monica and Chandler’s Wedding,” while the B plot was often centered on another character, think “Kramer takes over Moviefone.” The C plot is often incidental, like Jim and Pam playing pranks on Dwight in “The Office.” This TV-writing formula was meant to please the lowest common denominator. These intertwining plots were why “Friends” had six main characters. You could pair up any two in any given plot. “Seinfeld” had four but often plugged in two other characters: Newman, Puddy or Jerry’s parents at Del Boca Vista. A-B-C! This defined the mostly mindless over-the-airwaves television. As the saying goes, television is 50 inches wide and barely an inch deep.

But with cable came more bandwidth and time available on premium networks such as HBO, so more characters could fit in each season. Shows could have long arcs and much more complexity. Think of how many twisty plots and characters filled “The Sopranos” and “The Wire.” This lengthened the attention span of viewers. Characters could be developed over years—such as Tony Soprano’s therapy sessions involving his mother. Try doing that in 22 minutes. Was it good for us? Author Steven Johnson suggested “Watching TV Makes You Smarter” in 2005 in the New York Times. I think he was right, and that was way before streaming.

Today we have infinite storage and massive bandwidth to deliver elaborate narratives that make you think.

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WSJ: Tech and the Wisdom of Crowds

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https://www.wsj.com/articles/tech-and-the-wisdom-of-crowds-guardian-missing-children-crime-elizabeth-smart-google-genes-11671383537

Are you ready for a good story about the internet, one that doesn’t mention Twitter’s reality-censoring cesspool of snark or twerking TikTokers? About the internet’s power to connect all of us instantly? I sure am.

I recently had a Zoom call with Elizabeth Smart—yes, that Elizabeth Smart, who in 2002 was abducted as a 14-year-old and held for nine months in Utah, a harrowing experience for her and her family. I once lost a son at Disneyland for three minutes and went out of my mind.

Ms. Smart not only is an advocate for missing children but is doing something about it. She told me 600,000 children go missing in the U.S. every year and that 98% of missing children are located within a few days. She noted that “after 48 hours, the chances of being found are almost zero, but obviously not zero in my case.”

Ms. Smart had good things to say about the Amber alerts posted on highway signs and blasted to cellphones, but pointed to their shortcomings. There is an age limit, and law enforcement needs a reasonable belief of imminent danger, so it is used rarely. Something else is needed. She connected with an Oregon-based tech company to help design and promote its Q5id Guardian app, which makes use of crowdsourcing. When a child is missing, the app sends out localized alerts to a network of volunteers, all verified to avoid potential predators on the system. “Remember,” she said, “I was found by everyday people paying attention, not law enforcement.”

The Guardian app launched in November. I asked Ms. Smart what makes her think it can be scaled to an effective size. “I believe in the goodness of people.” Amazing given her experience.

That goodness does exist. Wikipedia was enabled by digital crowdsourcing in 2001, but real-time volunteer networks started gaining traction in March 2014, when Malaysia Airlines Flight 370…

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WSJ: The Tech Censors Return

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https://www.wsj.com/articles/the-tech-censors-return-twitter-apple-app-store-elon-musk-tin-cook-free-speech-big-tech-files-laptop-iphone-11670773265

Do we need hall monitors? Last week Elon Musk released the “Twitter Files,” revealing that the company blocked anything it wanted related to the Hunter Biden laptop story—wrongly it turned out. I wrote a column in October 2020 on social-media bias that Twitter restricted for many users simply because I mentioned the ban and Ukrainian payoffs. In addition, Mr. Musk previously accused Apple of threatening to remove Twitter from its App Store after his company uncanceled Donald Trump and others. Apple CEO Tim Cook then walked Mr. Musk around the company’s spaceship headquarters in Cupertino, Calif., and assured him that “Apple never considered doing so.” Sunshine can be a pre-emptive disinfectant.

Apple could censor any time it wants. Its App Store, the only one on the iPhone, with fees that would make Tony Soprano blush, demands that apps “not include content that is offensive, insensitive, upsetting, intended to disgust, in exceptionally poor taste, or just plain creepy.” OK, that sounds creepy.

And Apple does censor. The social-media app Parler was suspended from the App Store for more than three months in 2021. A video app named Odysee also has issues. According to Tucker Carlson and Fox News, “Apple presented Odysee with a list of nearly two dozen search terms, most related to Covid, that it had to ban if it wanted to join the App Store.” I decided to see for myself. I downloaded Odysee and typed in “covid origin china.” Sure enough, a screen popped up warning me: “This search term is restricted for iOS users of Odysee.” I find it offensive that Apple can decide what is offensive.

Other companies are doing the same. The “China Uncensored” podcast notes that if you type “protests in Chi,” Google offers to autocomplete with Chile or Chicago, but not China. And in July 2021, Clarke Humphrey, a member of the Biden administration Covid-19 response team, wanted Facebook to remove an Anthony Fauci parody Instagram account. He emailed the company: “Any way we can get this pulled down? It is not actually one of ours.” The reply came in under 60 seconds: “Yep, on it!”

That’s right, the public square of social media is no longer in public, it sits partly inside a government building. Apple, Facebook, YouTube and Twitter are like nerdy grade-school hall monitors. That’s also creepy.

Doesn’t this all sound familiar? I typed “June 4, 1989” into Google and got “Tiananmen Square protests and massacre.” When I typed the same thing into China’s leading search engine, Baidu…

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WSJ: A Market Hype Cycle Winds Down

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https://www.wsj.com/articles/a-hype-cycle-winds-down-crypto-ftx-bankman-fried-musk-ipo-investors-hubris-greed-11670161728

Crypto exchange Coinbase went public in April 2021 and briefly traded at a $100 billion valuation. Its owners soon piled into real estate. Last December, CEO Brian Armstrong bought a $133 million Los Angeles estate, while his venture backers bought up swaths of Malibu. Post-IPO shares are usually locked up for six months, so assuming they all sold Coinbase shares, that was a smart move. Coinbase now is barely worth $10 billion.

I’m a huge fan of venture capitalists, who put risk capital from investors with long time horizons (like foundations and endowments) into companies that invent the future. Corporations usually don’t have the risk tolerance. I’ve invested venture capital. You really do have to think ahead of everyone else. But I’ve noticed that most of the returns from venture investing, mine included, came when everyone got too excited about future possibilities, deep into the hype cycle of new technology. That’s when the toxic cocktail of greed, stupidity and hubris takes over.

In 1983 an IPO boom emerged from the recession raising funds for Compaq and other computer companies. In 1995 Netscape investor John Doerr said, “It’s possible that the Internet in fact has been underhyped.” On its first day of trading that August, Netscape was valued higher than General Dynamics at nearly $3 billion (I know, how quaint). Dot-com mania took hold until early 2000. America Online milked the hype long enough to merge with Time Warner on Jan. 10, 2000, before spiraling down as reality set in.

Don’t get me wrong. The hype cycle is a great time to fund future technology. Electric-truck maker Rivian says the company is funded through 2025. Many great winners have emerged from a hype cycle—Compaq, Google, Amazon, Salesforce, Facebook. But many multiples of those winners try and fail. That’s OK, but overenthusiastic public investors almost always end up holding the bag stuffed with losers after venture capitalists sell or distribute unlocked shares to their limited partners at puffed-up prices.

The 2014-21 cloud-computing hype cycle, helped by near-zero interest rates, was a barn burner that lasted way too long. Some great companies went public: ServiceNow, Snowflake, Uber. But it also brought huge dreams of autonomous cars and electric vehicles, pumping Nikola and others and burning investors. Remember QuantumScape, funded by Bill Gates? With its vision for a better battery, it peaked at $114 in December 2020 and is now under $8. QuantumScape went public via a special-purpose acquisition company, taking advantage of quirky rules that almost ensure sponsors don’t lose money while making whatever future projections they want without investor lawsuits. A license to hype.

Social Capital’s Chamath Palihapitiya became known as the SPAC king after promoting and then burying investors in companies such as Clover Health, SoFi, Opendoor and Virgin Galactic, which are down 49% to 86% from their $10 offering price.

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WSJ: Crypto’s Final Price Could Be Zero

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https://www.wsj.com/articles/cryptos-final-price-could-be-zero-technology-debt-lbo-twitter-musk-bankman-fried-ftx-market-cap-coin-11669567022

There aren’t many leveraged buyouts of technology companies, and for good reason. Technology and debt, like Red Bull and milk, don’t mix. Why? Because when technology works, it commands high valuations. You can’t LBO Google. But when technology moves on to the next new thing, there isn’t much residual value in the form of assets and collateral to call on in case of debt defaults. FTX, Elon Musk and SoftBank are learning this lesson.

Twitter, which last turned a profit in 2019, now has $1 billion a year in debt payments. Wall Street can’t off-load Twitter’s buyout debt, now maybe 60 cents on the dollar, without losing money. Mr. Musk even told employees “bankruptcy isn’t out of the question.” Of course, he has benefited from selling his own highly valued (though declining) Tesla shares, recently another $4 billion for a total of more than $19 billion. As Chief Twit, Mr. Musk proclaims Twitter will operate under free-speech principles. Advertisers are fleeing. So are employees. If he defaults and walks away, the only thing left is some aging code and a few plastic blue birds to sell at auction.

The new poster child for the toxic cocktail of technology and debt is Sam Bankman-Fried, with his imploded FTX and Alameda empires. Sure, these companies misappropriated, to put it nicely, customers’ assets. And yes, withdrawals that acted like a bank run drove the company into Chapter 11. But the company’s original sin was to borrow against its own FTT token, which was held up by nothing but air.

This was crypto’s mass delusion. FTT was so thinly traded that FTX could set any price, but not forever. FTX and Alameda borrowed against tokens they themselves were manipulating, including Solana and others, which some called Sam Coins, now Scam Coins. The fatal conceit: They thought FTT would stay high forever, so they invested in often illiquid positions. FTX was even paying employees, vendors and whoever else would take it in FTT tokens, whose total market cap used to be almost $10 billion and is now about $400 million.

You can’t manipulate something forever. Reality eventually replaces delusion. All it took was someone to touch a pin to the bubble. After Coindesk leaked a copy of Alameda’s balance sheet loaded with FTT tokens, Binance CEO Changpeng Zhao started selling. FTT went from $22 to under $3 in 48 hours. So much for collateral. When the smoke clears, FTX/Alameda may have $8 billion to $15 billion in debt outstanding, with little to sell for repayment. It will take years to sort out who gets what.

Meanwhile, others also barreled in.

Read the rest here.

WSJ: My Attempt at Tuning Out the World

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https://www.wsj.com/articles/my-attempt-at-tuning-out-the-world-wellness-retreat-meditation-thanksgiving-spa-emails-work-life-11668976792

Welcome to Thanksgiving week, which raises the question: How do you turn it all off? You know, thinking about work, the fire hose of newsfeeds, emails and texts, constantly solving the never-ending puzzle of a job. I’ve asked other columnists this question, on this page and others, and to a person they smiled and said, “You don’t!”

Things requiring complete focus work for me: Playing basketball. Building an electric car. Skiing. But you can’t do these things 24/7. Recently, coming off a family wedding, my wife suggested we go on a wellness retreat. Being a red-blooded American male, I said “absolutely not.” We went.

The whole place had that classic spa smell—a mixture of lavender, eucalyptus and mugwort (I asked). I was informed the cucumber water was available only until 4:45 p.m. Not a problem. Everything had a spiritual twist to it. I noticed some people carrying Chopra-branded tote bags. Appropriate because Deepak Chopra personally—well, at a conference with a few hundred people—tried to teach me how to meditate. It didn’t take.

I’ve always been envious—well, not envious, more in awe—of those who could detach from real life with only their thoughts and meditation. Maybe this place could do that for me, and for what they charge a night, it better.

I figured I would spend my time sitting in a hot tub and watching football, my kind of wellness. Little did I know that I was signed up for a host of activities. Sadly, I slept through the morning “Intentions Ceremony,” which promised mindfulness and neuroplasticity. I was already behind. I intentionally skipped “Intentions Burning.” No need, I’ve burned many bridges with bad intentions in my life already.

Instead, I was off to “Floating Guided Relaxation”—more my speed.

Read the rest here.

WSJ: The Decline of Work

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https://www.wsj.com/articles/whats-work-worth-unions-profit-value-life-balance-human-capital-labor-foce-economy-manufacturing-11668268509

You hear these all the time now. “I want a career with a purpose,” which usually means an activist. Or “I need a good work-life balance,” which suggests someone doesn’t want to work very hard. Gimme a break. The CEO of a Fortune 500 company told me he recently spent an entire afternoon discussing his company’s pet-bereavement policy. He asked the human-resources folks, “Let me get this right, someone’s goldfish dies, and they get a week off from work?”

Work has become a dirty word. Cyber bohemians just want to dream and stream. And now this: The New York Times ran an opinion piece titled “How to Fight Back Against the Inhumanity of Modern Work.” What? Paper cuts are a bigger risk these days than losing an arm in a loom. Still, I thought the piece would be about dirty jobs—the hardships of coal miners, the plight of burnt-out nurses or the inhumanity of waking up at 5 a.m. to milk cows. Nope. The author complained about digital monitoring—coders, cashiers and others being tracked by evil bosses, who are measuring productivity. Gasp! Has society become that spoiled? Apparently so. The prevailing thinking is we’re all Lucy Ricardo and Ethel Mertz wrapping chocolates on a conveyor belt.

Only 8.4% of U.S. nonfarm payroll positions are in manufacturing. Many of those jobs were exported long ago to cheaper labor markets such as China. Even if some of those jobs return to the U.S., many workers aren’t qualified. Mike Rowe of “Dirty Jobs” fame said, “We are lending money we don’t have to kids who can’t pay it back to train them for jobs that no longer exist.” So they are underemployed. Or quit. Or seek purpose and balance.

We rightly encourage STEM jobs—science, technology, engineering and math. I recently learned of HEAL jobs. Dog walkers? No, jobs in health, education, administration and literacy. These are the growing jobs of a vibrant service economy.

It isn’t news that the U.S. is a service economy, yet too often the focus is on labor vs. capital, as if we still make widgets. Unions want to arm-wrestle value from capital and force higher wage payouts than is economically sound. This blatantly disregards human capital—what workers learn on the job is theirs to keep. We increase productivity and wealth by having workers figure out how to do more with less from the bottom up. So please stop paying people not to work. The best antipoverty program is a job because a job’s value comes from this increase in human capital. One-time payments are a waste.

I’ve written often that profits are a measure of the societal wealth created by corporations, and that the price paid for products and services is the minimum amount of value created.

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WSJ: FTX and Binance: Another Nail in the Crypto Coffin

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https://www.wsj.com/articles/crypto-coffin-ftx-sam-bankman-fried-market-exchange-loans-binance-bailout-token-alameda-deal-11668030037

Tuesday’s blowup of crypto exchange FTX—run by wunderkind Sam Bankman-Fried, who once boasted that he could spend $1 billion on the 2024 elections—was inevitable. My beef with the crypto market has always been that it is backed by nothing but air. At any moment, that support could disappear. For FTX it just did. FTX sister company, Alameda, had been making loans against billions in an FTX token known as FTT, which traded last fall near $80 with a value of over $9.5 billion. On Monday it was $22 amid concerns that a leaked balance sheet showed excess leverage. Now it’s hovering around $3. No wonder FTX has liquidity problems. The fall happens fast. FTX agreed to be acquired by rival exchange Binance, the world’s largest, though Binance indicated Wednesday the deal was off.

Only four months ago, Mr. Bankman-Fried said that the worst of the crypto crisis was over and that FTX had a few billion dollars to bail out failed crypto companies. I guess not. Binance could afford to buy FTX because Binance is backed by its own token, BNB, which was worth $106.5 billion last fall, though now is worth only $45 billion. Is that crypto’s last $45 billion for bailouts? Bubbles collapse when no one else buys in. Coinbase, whose stock is down almost 90% from its initial public offering, and other exchanges may not have the heft to bail out too many failed crypto ventures.

So what backs BNB? I’m not privy to Binance’s balance sheet or income statement—one of the reasons tokens should be classified as securities, so investors can know what they are holding—but my guess is that the Binance token is held up by the same magical forces as FTT, nothing.

It has been only six months since the “algorithmic stablecoin protocol” Terra, tied to the Luna coin, blew up. They were held up only by hype. Then one day the bellows stopped pumping. This wiped out $80 billion in value, whacking some hedge funds and lots of individuals, neither savvy enough to see the bubble.

The dollar and Treasurys are backed by the good faith of the U.S. government via its income-tax-generating ability. When stocks sell off, they eventually find a bottom so long as they are viable enterprises that can eventually make money. Real-estate loans are backed by the value of a home or building, but crypto has no backing.

And the heat is on.

Read the rest here.

WSJ: The Cure? Cut Taxes and Spending

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https://www.wsj.com/articles/cut-taxes-spending-joe-biden-liz-truss-inflation-energy-costs-california-economy-manufacturing-recesesion-11667746085

A 45-day period will forever be known as a “Truss” for Liz Truss’s tenure before resigning as British prime minister, much as 11 days is a “Mooch” for Anthony Scaramucci’s short stint in the Trump administration. Come to think of it, a “Biden” is 208 days, the time from Inauguration Day until the fall of Kabul after the Afghanistan scram in August 2021. President Biden has been a bit of a lame duck ever since, and if polls are right, even more so after Tuesday’s elections.

I feel bad for Ms. Truss, but only because whoever was in that seat, like the passenger in James Bond’s Aston Martin DB5, was going to be ejected. Unknown to many, U.K. pension funds had been hedging against interest rate increases, using derivatives with six or seven times leverage. As inflation hit 10.1%, interest rates were going up no matter what, which caused funds to dump gilts, or bonds, to pay their margin calls, crushing the currency.

The press jumped on Ms. Truss’s tax cuts (lowered from 45% to 40% for £150,000 earners) but ignored her subsidies for high energy bills. It wasn’t tax cuts that did her in; it was deadly pension leverage. Both Reagan and Thatcher knew to slay the inflation dragon first. To stabilize the situation, the Bank of England printed tons of pounds to buy bonds—more quantitative easing in an inflationary world. Not smart.

The new prime minister Rishi Sunak, a Stanford M.B.A., is foolishly exploring tax increases. Sadly, tax cuts are probably dead in the U.K., maybe for a decade. Well, stick a fork in jolly old England. Mr. Sunak should listen to his predecessor Winston Churchill, who said: “We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

The U.S. should heed that advice as well. Mr. Biden says “in our bones, we know democracy is at risk” but nevertheless he turbocharges spending—bucket handle lifting. The Biden administration is pro-union, a tax on consumers. It killed pipelines and energy exploration, raising energy costs. It has forgiven student loans, which means tuition is going up. Its Inflation Reduction Act is filled with green pork and healthcare tax credits. It set minimum corporate taxes of 15% for big corporations that will be passed along to consumers. And a 1% excise tax on stock buybacks. And 87,000 new IRS agents to shake down the American middle class. Democracy is fine; I’d say the economy is at risk.

Interest rates of 5% or higher should slay the inflation dragon, but then what?

Read the rest here.

WSJ: The Deadly ‘De-Growth’ Craze

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https://www.wsj.com/articles/growth-world-economic-forum-sustainability-poverty-investment-esg-climate-protectionist-trade-energy-11667077994

The modern world is constantly subjected to crackpot movements that eventually fail, but not before causing serious damage. Karl Marx was a crackpot. So was the John Birch Society in its mission to fight communism “behind every tree.” The latest is Modern Monetary Theory and unlimited dollar creation for government spending, which caused today’s runaway inflation.

In the 1970s, the Club of Rome insisted that for the world to be ecologically sound, we needed a “no-growth economy.” This was as dumb as the debunked Malthus theory that population growth would outstrip food. The disgraced Club of Rome thankfully went dormant. But it’s baaaack.

The new craze is “de-growth.” Proponents demand we “put well-being ahead of profit.” Normally, I’d say “Pfffft, ignore them,” but none other than the Davos dudes of the World Economic Forum are featuring arguments for de-growth. Weird because mostly growing global companies pay the WEF’s bills—tributes to the woke dons. The WEF’s website is filled with scholar-infested nonsense including a video asking, “What would a post-economic-growth world look like?”

It wouldn’t be pretty. Like Manta rays that must keep swimming or die (sharks too), societies that don’t grow eventually devolve into oppression, chaos, anarchy and then ruin. The Roman Empire. The Soviet Union. Venezuela. De-growth is living with less. Capitalism’s productivity is doing more with less. Big difference.

What would this mean for the U.S.? No growth means no investment for innovation. This leads to stagnation—freezing everything in place. Then comes command and control. Experts to allocate slices of a finite pie. Unions (see how they treat independent gig workers as meat to organize). True collectivism. Eventually “Lord of the Flies” chaos. The Fyre festival. Everyone for himself.

Growth is oxygen.

Read the rest here.

WSJ: Make the Metaverse a Sandbox

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https://www.wsj.com/articles/metaverse-sandbox-innovators-tech-companies-meta-google-microsoft-tim-cook-apple-future-supernatural-ftc-facebook-11666548553

Apple CEO Tim Cook was asked recently about the dreaded green bubble—the one that appears when you send a message to someone without, gasp, an iPhone running the proprietary iMessage app. But it’s worse than that. His questioner added, “I can’t send my mom certain videos and she can’t send me certain videos and so . . .” Mr. Cook interrupted with a chuckle and said, “Buy your mom an iPhone.” Corporate hubris usually proceeds a downfall.

Interoperability can make or break technology, and much is still broken. Many Google apps don’t work well on an iPhone. Why? Apple wants you to use its apps, interoperability be damned. The iPad only recently added support for a mouse, but it’s not good enough for iPads to replace Mac computers and laptops. Why? To protect Apple’s $35 billion Mac business. Users suffer. Technology has a long history of ignoring interoperability. America Online ran its business like a walled garden. More hubris that didn’t end well. It even had two messaging services, AOL Instant Messenger and ICQ (I seek you), that couldn’t send messages to each other until 2003.

In 1990 a judge ruled that competitors infringed Lotus Development’s copyright on its 1-2-3 spreadsheet’s command structure and keystrokes. But it turns out that file formats can’t be copyrighted or patented, allowing Microsoft Excel to read and write Lotus 1-2-3 spreadsheets. This interoperability was a boon to users, though in the end not so good for Lotus, as the company didn’t innovate enough beyond spreadsheets. To protect its Windows operating system, Microsoft was slow to embrace internet protocols like TCP/IP and mobile standards such as Bluetooth and lost its edge in both.

Standards matter. Think of road widths, gasoline mixtures and lights that don’t blind opposing drivers. The 120/220 volt electricity divide was fixed via sensors that allow travelers to use their computer and phone chargers universally, although with different plugs. AA batteries were introduced in 1907, standardized in 1947, AAA in 1911 and 1969. Cellphone standards were another benefit to users and keep evolving—6G isn’t coming until 2030 or so.

Which brings me to the Metaverse, an awful moniker for the nascent three-dimensional online world where we will eventually work, learn and play. I’d prefer names like the Hive or the Vortex (franchising opportunities available). Whatever we call it, there are no real standards for avatars, clothing, motion, weapons, speech or architecture.

To figure this out, Facebook aka Meta announced the purchase of Within, maker of virtual-reality fitness app Supernatural. Almost immediately, the Federal Trade Commission fought the purchase.

Read the rest here.

WSJ: Stocks Can Always Get Cheaper

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https://www.wsj.com/articles/stocks-can-always-get-cheaper-wall-street-investment-earnings-bargain-market-trends-losses-charges-recession-peloton-11665945285

Are stocks cheap yet? When I was a young Wall Street analyst visiting institutional investors in Boston, I sat in a money manager’s office noting his framed prints of horseback riders in red jackets on a fox hunt. He asked me what I thought about a particular tech stock. I walked him through my forecast for the company and said the stock was a buy. “Why?” he asked. I said, “Because the stock is cheap.”

Big mistake. He launched into a 10-minute tirade, screaming, “Who are you to know if a stock is cheap? Have you ever lived through a downturn?” He even told me my tie was too expensive before he threw me out of his office. Ah, the service business. But I never again said a stock was cheap and instead focused on fundamentals, emerging trends, expectations and market sentiment.

Cheap stocks can always get cheaper. Companies such as Peloton, Carvana and Robinhood are down 80% to 95% from their peaks. Buy the dip, right? Be careful—the biggest mistake is looking backward, not forward.

Later I worked as an investment banker until I found out you had to be nice to people. I discovered a graphics-software company with a $5 stock and $5 a share in cash. Intriguing. If they could turn around their business, it could be a bargain. I won’t ever say cheap! I kept an eye on it and visited a year later. Because of losses and restructuring charges, the company only had $4 a share in cash and, sure enough, the stock traded at $4. After another year, it had $3 a share in cash and the stock was worth $3. I stopped visiting. It eventually went out of business. No future, no upside.

Market bottoms form when everyone is negative. The International Monetary Fund says the world economy is headed for “stormy waters.” Ray Dalio, who founded the hedge fund Bridgewater Associates, thinks we’ll see five years of “negative or poor real returns.” JP Morgan CEO Jamie Dimon says stocks could fall another 20%. Is that negative enough? It’s a start, given that few said these words a year ago.

My sense is there is more ugly stuff coming.

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WSJ: Blame Lockdowns on Silicon Valley

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https://www.wsj.com/articles/blame-lockdowns-on-silicon-valley-technology-artificial-intelligence-safety-privacy-innovation-liberty-new-york-crispr-11665321090

Lockdowns were a huge policy mistake. I blame Silicon Valley. I know, I know, the real blame resides with ill-informed technocrats who instituted the draconian and non-Jeffersonian lockdowns: the Trump and Biden administrations, blue-state governors, the Centers for Disease Control and Prevention and the rest of the alphabet soup of head-nodding agencies. Yet policy makers implemented lockdowns only because they could—because Silicon Valley provided the tools to lock people in their homes without completely imploding the economy.

Think about it. You couldn’t force lockdowns without laptops, Zoom, Amazon deliveries, cloud computing, Slack, QR codes or Netflix. Without them, lockdowns would have lasted two, maybe three weeks tops before the utter destruction of the economy forced everyone back to the workplace. Instead, we took the Faucian bargain of technology-enabled yearlong lockdowns because it was doable. Silicon Valley’s tools became shackles.

Lockdowns came with huge costs: job losses, increased crime, stunted learning, delayed medical treatments, violent protests, government spending blowouts, supply-chain disruptions, inflation, mental-health issues—all avoidable. Like bad air days, I fear bad carbon days will soon invoke climate-emergency lockdowns to keep people from driving.

Technology giveth and technology taketh away. The latest example is the plan to install cameras on every New York City subway car to limit crime. Gov. Kathy Hochul said, “You think Big Brother is watching you on the subways? You’re absolutely right. That is our intent.” Privacy advocates, such as the New York Civil Liberties Union, are naturally up in arms. Its statement reads, “Living in a sweeping surveillance state shouldn’t be the price we pay to be safe.”

Smart cities are now possible. Surveillance cameras, congestion pricing, timed traffic lights, buses that actually show up on time, balanced electricity usage, it could be urban utopia. But I wonder when smart cities crash, will we turn them off and then back on again? China has already created smart cities and uses data as scoring inputs for its Social Credit System, which stifles freedom for its citizens. Tech giveth and taketh.

The National Traffic Safety Board last week recommended blood-alcohol monitoring for all new vehicles. Another invasion of privacy, although no word yet from the New York Civil Liberties Union.

Read the rest here.

WSJ: Marxism at the Museum

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https://www.wsj.com/articles/marxism-at-the-museum-new-york-washington-capitalism-socialism-marx-smith-wealth-productivity-schwarzman-donors-11664712471

Polls show more than half of 18- to 24-year-olds in the U.S. have a negative view of capitalism. More than half have a positive view of socialism. I wonder where they got that.

I recently strolled through the New York Public Library’s “Treasures” exhibit, which would delight readers and writers alike: Charles Dickens’s writing desk, a manuscript delivered in a box from former newspaper columnist Mark Twain, draft cover art for Jack Kerouac’s novel “On the Road,” and an illustrated page from Tom Wolfe’s “The Bonfire of the Vanities” manuscript. Pretty cool stuff.

Ah look, a first edition of Adam Smith’s “The Wealth of Nations” from 1776—the free-market bible. I was in awe until I read the description: “Adam Smith believed, as did Karl Marx the following century, that national prosperity was best measured by a country’s labor power rather than by how much gold lay in its treasury.” I guess the description is technically correct, but Karl Marx? In the same breath as Adam Smith, who called free markets “the obvious and simple system of natural liberty”? Unlike Smith, Marx naively saw a static world without productivity, only labor exploitation. He completely missed that labor is more brain than brawn. Add exhibit curators to the list of socialist tub thumpers.

I wonder what Stephen Schwarzman, CEO of the rather capitalistic private-equity firm Blackstone and giver of $100 million to the New York Public Library, whose name is etched in stone outside, thinks about the Marxist agenda of the library’s curators.

Wouldn’t you know it, next to “The Wealth of Nations” was none other than manuscript notes for “Das Kapital” by Karl Marx with this description: “The work has exerted an immense and lasting influence on world events: over the past century, its ideas have not only maintained a secure place in the realm of economic and political theory, but also inspired anticapitalist revolutions across the globe.” OK, but it was a lasting negative influence. And of course there was no mention of the hundreds of millions of people impoverished and slaughtered by Marxist regimes.

The description goes on: “Karl Marx’s foundational account of capitalist production and its manifold effects on human lives still inspires argument, insight, and resistance.” Inspires?

Read the rest here.

WSJ: A Nation of Quitters

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https://www.wsj.com/articles/a-nation-of-quitters-great-enabling-exodus-working-age-men-parents-stimulus-covid-quit-retirement-bohemian-videogame-11664112795

The unemployment rate was 3.5% in July, the same as in February 2020, but the U.S. has three million fewer workers. Where did everyone go? This in an economy with 11.2 million job openings. It’s mostly men 25 to 54 who haven’t come back to work. Now a McKinsey study suggests that 40% of workers are thinking of quitting their jobs. Does anyone want to work anymore?

Everyone has an explanation for the Great Resignation: extended unemployment benefits, eviction moratoriums, baby boomers retiring, work-from-home complacency, anxiety, long Covid. Sure, all reasonable excuses. Here’s my theory: Too many got a taste of not working and liked it. A lot. Until recently, many people could make more money by not working and became glued to screens, Insta-Tok-ing and living the easy life by sponging off the rest of us. What’s not to like? Parisians called those with unconventional lifestyles “bohemians.” Now we have unemployed, perpetually plugged-in, dopamine-addled Cyber Bohemians—let’s call them Cy-Bos.

Before you send me hate mail, I’m only talking about the underachievers, including those who traded crypto and NFTs and lost all their stimulus and unemployment money after the crypto crash. Now Cy-Bos, with nothing better to do, are streaming away, including the first five of an eventual 50 hours of Amazon’s new “Lord of the Rings” show—“and in the darkness bind them.” I’ve also discovered that a huge idle couch-bound class spends its days playing the battle-royale videogame “Fall Guys,” the latest craze, with 50 million players. It’s nonviolent, almost cuddly, and—be warned—ridiculously addictive fun.

Zoned-out Cy-Bos, at least in 19 states, can buy weed at dispensaries (Twinkies optional), including Oakland, Calif.’s descriptively named Smoakland, which delivers! Yes, while you’re working, many 20- and 30-somethings are giggling and wasting away playing mindless games and humming along to those classic Styx lyrics, “Is it any wonder I’ve got too much time on my hands?”

It is cultural malaise, motivational submission. Society now promotes mediocrity and calls it equity—witness the scarcity of SAT test-score requirements for college. Sadly, once you get a taste of the easy life, it is difficult to pull up your socks and try hard again—self-induced avolition.

Why so many quitters? And who’s paying for DoorDashed dinners and the exorbitant rent for all these un- and underemployed?

Read the rest here.

WSJ: A Faraday Is Worth 1,000 Faucis

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https://www.wsj.com/articles/a-faraday-is-worth-1-000-faucis-science-electricity-computer-dynamo-equity-fairness-stem-pandemic-pew-trust-experts-11663505143

The public’s trust in scientists is way down this year, according to the Pew Research Center. Ya think? “Fifteen days to slow the spread” and “flatten the curve” may have something to do with it. Some airlines still hand out disinfecting wipes as you board—to combat an airborne virus. Real scientists, like Michael Faraday (1791-1867), whose birthday is this week, would be rolling their eyes.

What did Faraday do? Well, if there was no Faraday, there would be no modern economy. A former bookbinder who studied magnetics, in 1820 he noted that electricity applied to a loop of wire could get a magnet to move through it, an insight that produced the electric motor found in every fan, vacuum cleaner, washing machine and electric car. Faraday then turned his own thinking inside out. In 1831 he invented the dynamo, an inverse motor. Moving a loop of wires around a fixed magnet can induce electricity. Place a dynamo next to running water, like Niagara Falls, and you can generate reliable electricity.

No Faraday, no communications. By running electricity down a long wire to an electromagnetic relay switch, you can ring a bell. This innovation became the telegraph, telephone and today’s wireless devices, which are all based on Faraday’s induction.

No Faraday, no computers. The 1945 Eniac computer used those same electromagnetic relays, open representing zero and closed representing one. While today’s semiconductors are based on the quantum effect—thank theoretical physicists Niels Bohr and Max Planck for that—they need gobs of electricity for power, which Faraday’s work helps generate.

Faraday took science seriously: “Conclusions are drawn from data, and its principles supported by evidence from facts.” Facts! Imagine that.

Why is science so maligned these days? To me, the turning point came in 1984, with (fictional) Columbia professor and ghostbuster Dr. Peter Venkman, played by Bill Murray, who when questioned said, “Back off, man. I’m a scientist.”

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WSJ: The Hot-and-Cold Economy

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https://www.wsj.com/articles/the-hot-and-cold-economy-federal-reserve-inflation-interest-rate-hikes-wages-earnings-multiples-jobs-layoffs-recession-mortgages-11662809991

F. Scott Fitzgerald wrote that “the test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” George Orwell labeled the ability doublethink or indoctrination. Psychologists call it cognitive dissonance. I call it the current economy.

There are mixed signals everywhere. Inflation is running hot at an 8.5% annual rate—subtract food and energy and it’s 5.9%. Despite a string of long-overdue Federal Reserve rate hikes, credit is still loose and will be until short-term rates rise above inflation. At 2.25% to 2.5%, we have a way to go.

Prices are popping. Restaurants everywhere seem to have New York prices. Haircuts are more. Same for doctor’s bills, furniture and Uber rides. There’s still $5 rotisserie chicken, and the $1.50 hot-dog special, but it sure feels like Costco added a couple of bucks to every other item.

More heat: The U.S. economy added 315,000 jobs in August, and unemployment is 3.7% as workers are hard to find for the 11.2 million available jobs. Stores are closing or limiting hours owing to a lack of workers. And unionization is back, burdening Amazon, Starbucks and even Google’s cafeteria. A national railroad strike might hit soon.

Once wage hikes start, they are hard to stop. John Deere increased workers’ pay by 10% last November. Lowe’s is giving out $55 million in bonuses this quarter. I expect more pay increases of 10% to 15% over the next year. The new- and used-car market is still tight because of chip shortages, but that’s almost over. Container ships now are idling outside East Coast ports, as I observed flying into New York recently. Hot, hot, hot.

Policy makers keep pouring gasoline on the inflation bonfire. California Gov. Gavin Newsom signed a law that would increase fast-food worker wages up to $22 an hour next year from $15.

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WSJ: Live the Contrarian Way

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https://www.wsj.com/articles/live-the-contrarian-way-zuckerberg-musk-complacency-skepticism-investing-expectations-debate-thinking-thought-11661651369

I have to admit it: I’m a contrarian. It’s who I am. Dorothy Parker once said, “The first thing I do in the morning is brush my teeth and sharpen my tongue.” Me too—one needs to be sharp for contrarianism.

I started early. In college, I was a charter member of the Poachers Society. We would threaten to bite alligators off the Lacoste shirts that seemingly everyone else was wearing. I may have no fashion sense, but I got good at figuring when something was overdone, “so in that it’s out.” Or even better, seeing the future coming and sensing what was “so out that it’s in.” I declared that disco was dead the first time I heard it. I was right . . . though a bit early, an important lesson.

Many think contrarians are skeptics. Or curmudgeons. Or just crusty. I often get tweet-bombed after many of this column’s rants, sometimes with an image from “The Simpsons” showing a newspaper headline: “Old Man Yells at Cloud.” Au contraire, we are more like nonconformists, leaning against prevailing moods. And no question, Twitter really is a cesspool of snark, though it’s useful as a Parkerian tongue-sharpener.

Being contrarian isn’t about playing devil’s advocate. The devil is too doctrinaire. It isn’t about being cynical either, though a dose of both surely helps. It’s more about seeing things a bit different, like Apple’s old “Think Different” ads.

At an airport recently, I saw a woman wearing a T-shirt that read, “ ‘Nah.’ Rosa Parks 1955.” I want one.

Don’t think contrarians are stuck in the mud. We know that change is constant and that progress happens via surprises that should come as no surprise. This is where most good things happen. Richard Feynman, who won the Nobel Prize in Physics, once said, “There is no harm in doubt and skepticism, for it is through these that new discoveries are made.”

It takes work.

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WSJ: Guess My Job! Here’s How

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https://www.wsj.com/articles/guess-my-job-heres-how-word-clues-lingo-activist-lawyer-balance-justice-community-private-equity-consultant-parties-11661094160

Barbecues, cocktail parties, weddings—they’re back. Let the games begin! After chatting with someone at a party, I used to whisper to my wife, “That guy’s going to be out of a job in six months.” It annoyed her so much that I switched to, “I can name that profession in just one or two words.” You can play along.

You’re in a social scrum and someone is babbling on about who-knows-what but keeps using the word “balance,” as in “we need to find a balance.” I’ll bet you dollars to doughnuts that person is a lawyer. In fact, if I had a nickel for every time a lawyer says “find a balance,” I could actually afford a lawyer.

People use certain words so often that they serve as a tell about what they do for a living. And, yes, anyone who uses the word “tell” clearly plays too much poker. My ears are sensitive to word clues. I hear “leverage” in casual conversation, even if the context doesn’t involve money, and I can tell the person is in private equity or maybe real estate. Private-equity folks are usually better dressed.

It’s fun to play! Some words are giveaways. “Covers” is a restaurateur. When you hear “hands on” it’s probably a doctor or a Hollywood producer. Marketing folks leave an impression by always talking about “impressions.” Someone droning on about “bugs”? That’s either a software coder or a farmer, so check his fingernails, Sherlock. Last year, the cockiest person in the room was the startup founder, who this year is nervously whispering “help” as funding has dried up.

Financial types are easy to spot. Hear “quota” and it’s usually someone in sales. In rare instances, it might be someone in college admissions. If you also hear “holistic”—voilà, admissions. Hear “round” and unless the speaker is buying one or bragging about golf exploits, it’s probably a venture capitalist. “Deal” means investment banker or again, if shabbily dressed, a realtor. “Externalities”? Duh, an economist.

You already have enough to win this cocktail-party game, but here’s some inside scoop.

 

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WSJ: The Semiconductor Boondoggle

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https://www.wsj.com/articles/the-semiconductor-boondoggle-chips-act-subsidies-industrial-policy-sand-fabs-taiwan-tsmc-intel-china-11660487881

President Biden last week signed the $280 billion Chips and Science Act, or Chips+, to subsidize domestic semiconductor production and ease shortages. Big mistake. This comes on the heels of China’s banning exports of natural sand to Taiwan in retaliation for Speaker Nancy Pelosi’s visit. Sand!

There should never be a shortage of semiconductors. Semiconductor chips are made by melting sand and slicing it into thin wafers for processing. Shortages? Just go to the beach. Yet shortages still happen, though the current one is almost over.

You can’t just throw money at the problem. Yes, to process those wafers companies spend billions on fabrication facilities, or fabs, and expensive ultraprecise machines that stay state-of-the-art for maybe five years. They spend constantly on lithography, implanting, annealing, sputtering and polishing, with constant tinkering to improve yields. In semiconductor manufacturing, a tiny fleck of dust is like an asteroid hitting a city. One speck can ruin months of work. Intel founder Andy Grove once told me the story of someone who accidentally spilled ink into a fab’s distilled-water supply. Engineers freaked out, but bizarrely yields went up. Making chips is more art than science. It isn’t only sand plus capital; brains play a huge role.

I once visited a fabrication plant in Dayton, Ohio, where General Motors had decided to make its own chips. GM was shocked when the plant couldn’t produce any usable chips. Nothing worked. It turned out the tweezers that employees used to hold and move wafers were kicking up contaminants.

In the early 1990s in Taipei, I met with Morris Chang, founder of the new fab-for-hire Taiwan Semiconductor Manufacturing Co. He proudly showed me enclosed carriers for their wafers, no tweezers needed. That’s really how TSMC got its start.

A new “fabless” semiconductor model emerged.

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WSJ: RIP Big Bull Market (1982-2022)

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https://www.wsj.com/articles/rip-big-bull-market-1982-2022-bear-stocks-investors-productivity-tax-rates-supply-side-innovation-apple-ibm-intel-silicon-valley-machine-intelligence-11659889307

The bull market started 40 years ago this week. I say “the” bull market, not “a” bull market, because even though we’ve had several bear-market drops of more than 20%—the 1987 crash, dot-com implosion, post-9/11 drop, 2008 financial crisis and Covid—this was the Big One, a secular, interest-rate-plummeting, multiple-expanding, earnings-exploding market bonanza that ushered in the modern digital era.

On Aug. 12, 1982, the Dow Jones Industrial Average bottomed at 776.91, around where it was in January 1964, though it had bounced off 1000 five times in the interim. It peaked on Jan. 4, 2020, at 36800, a gain of 47 times, or a 9.6% annual rate, until inflation slew the super bull. I’m really going to miss it.

Were there any clues that a rip-roaring bull market was starting? In 1982 the federal-funds rate was 10%, down from a peak of 19% a year earlier, and it began a long, steady drop until hitting zero in December 2008. It was still zero this March. Not anymore. The price-earnings multiple in 1982 was 7.7.

The biggest clue was that most investors in 1982 were either complacent or had sworn off owning stocks after years of awful returns. Reminder: Bear markets are no fun. Stocks often go up in the morning and down in the afternoon. And there are bull traps—stocks rally for months, enticing gullible momentum investors, only to be followed by gut-wrenching drops.

The bull born in 1982 got some help. Investors started to seek higher returns than bonds. President Reagan cut taxes, especially on capital gains, driving capital formation. Lower interest rates meant a lower cost of exploring new ideas. And explore we did.

It is no coincidence that the IBM PC was introduced exactly a year earlier, with its whopping 16 kilobytes of memory standard.

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WSJ: You’d Be Stupid Not to Evaluate Risk

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https://www.wsj.com/articles/youd-be-stupid-not-to-evaluate-risk-crypto-financial-crash-high-yield-ge-price-earnings-interest-rates-dividends-11659270592

Before the 2008 financial crisis, one of my neighbors took out a home-equity loan from Wachovia, paying around 5%. Wachovia never sent an appraiser to the house, but that isn’t the weirdest part of the story. My neighbor asked his financial adviser what to do with the money left after he’d paid some expenses. The adviser suggested a money manager who guaranteed 12% returns, explaining “you’re borrowing at 5% and getting paid 12%—you’d be stupid not to do this.”

It was stupid, all right. The money manager was buying homes and hockey teams, and his Ponzi scheme soon collapsed. No warning label said: “The more enticing the interest rate, the higher the risk.” Risk is often nebulous, hazy, unmeasurable—so it is usually ignored. Years of zero interest rates have caused havoc, but with the Federal Reserve raising short-term rates, investors should be extra careful shuffling money around.

Bernie Madoff promised an 11% average annual return and faked brokerage statements before he made off with investors’ money. You can almost hear the cocktail-party conversations in New York and Palm Beach: “You’d be stupid not to do this.”

Same for the crypto scheme known as Anchor Protocol, which offered 19.5% yields—practically screaming risk—with tokens backed by nothing but hot air. It soon imploded. So did crypto hedge fund Three Arrows Capital whose founder told the Journal, “The Terra-Luna situation caught us very much off guard.” The word lunatic is too kind.

Recently, bankrupt crypto lender Celsius was offering interest of up to 18.6% annually to attract deposits. Celsius’ assets reached $25 billion last October. You would have been stupid not to invest—except, well, the company now has $4.3 billion in assets and $5.5 billion in liabilities, mostly owed to depositors.

It reminds me of July 2007, when Citigroup CEO Chuck Prince told the Financial Times, “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

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WSJ: ‘Effective Altruism’ Is Neither

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https://www.wsj.com/articles/effective-altruism-is-neither-bankman-fried-givewell-philanthropy-taxes-capitalism-artificial-intelligence-pandemic-pet-projects-11658658039

Talk of movements makes me nervous. The latest swirling in tech world is “effective altruism.” Elon Musk had a brush with it. Its biggest proponent is crypto king Sam Bankman-Fried, CEO of FTX, who very quietly was the second-largest donor in support of the Biden campaign at $5.2 million. Be warned, he said on a podcast, he might donate $100 million to $1 billion in the 2024 election cycle.

So who is this guy? Mr. Bankman-Fried, 30, made his first killing doing bitcoin arbitrage, taking advantage of different prices in Japan and the U.S. He also leveraged a “kimchi premium”—a 30% gap between the American and South Korean prices. Then he created one of the largest crypto exchanges. Profiles of him dutifully note he’s a vegan, drives a Toyota Corolla, and sleeps on a beanbag next to his office chair. FTX bought the naming rights to the Miami Heat’s arena and lots of umpire and referee uniforms. Since May, he has been bailing out failing crypto firms, and he noted recently that FTX has a “few billion” left to help. Hope that’s enough. Oh, and he plans to give away everything except for 1% of his annual income to “long-termist” causes, guided by effective altruism.

Others active in this movement include Facebook founder Dustin Moskovitz and his wife, Cari Tuna. So what is effective altruism? In 1972 philosopher Peter Singer suggested using metrics rather than emotion to direct charitable giving. On the surface it makes perfect sense. There is even a framework to be effective: Giving must scale, be aimed at causes neglected by mainstream philanthropy, be directed at solvable problems, and be a good personal fit for the giver. Sounds great so far.

But like everything else, high thoughts often devolve to personal biases. While claiming that effective altruism is a worldview and a way of life, Mr. Singer also said “there are glaring things wrong with the way people are living.” Effective altruism also seems to be related to the “work to give” movement. Workers will rationalize high-paying jobs by giving most of their income away. Actually, when you work, you already give to society, but that is too complex for some to understand. Animal rights and veganism are big in the movement as well.

For true believers, it must be hard to find worthy projects. No problem! An organization known as GiveWell will tell you what charities are effective. I did a little digging, and I’m not so sure they’re effective at all. Yes, they direct money toward malaria nets and treatments for parasitic worms, but they also supply supplements for vitamin A deficiency, though genetically modified “golden” rice already provides vitamin A more effectively. Hmmm, seems like a move backward. GiveWell also suggests direct cash transfers to solve extreme poverty, similar to universal basic income.

William MacAskill, a major effective-altruism booster, told the Washington Post that more should be spent on “preparing for low-probability, high-cost events such as pandemics.”

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WSJ: The Lesson of Carlin’s Dirty Words

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https://www.wsj.com/articles/the-lesson-of-carlins-dirty-words-social-media-censorship-profanity-comedy-language-discourse-offsense-television-cancel-culture-11658059965

“Now everyone is walking around wondering what they can say and censoring themselves and, as a result, lowering the standards of discussion and thought.” Sounds like 2022, but the guy who said this was arrested 50 years ago this week on a charge of “disorderly conduct, profanity.” We’ve come a long way but seem to be looping back.

Comedian George Carlin was performing at Summerfest in Milwaukee on July 21, 1972, doing his then-current routine noting the absurdity that “there are more ways to describe dirty words than there are dirty words: dirty, bad, filthy, foul, vile, vulgar, off-color, blue, naughty, bawdy, saucy, raunchy, street language, gutter talk, locker-room talk, barracks language, indecent, in poor taste, suggestive, cursing, cussing, swearing, profanity, obscenity, and all I could think of were . . .” He then listed what will forever be known as the “seven words you can’t say on television.” I won’t repeat them, but I bet many of you can rattle them off from memory.

The Summerfest arrest wasn’t his first. For refusing to show his ID, he was thrown in the same paddywagon as Lenny Bruce in 1962. Maybe that’s why Carlin developed a routine to push free-speech rights even further. The new HBO documentary “George Carlin’s American Dream” chronicles these stories, although like most documentaries it eventually devolves into political hackery. Skip the final 30 minutes—the rest is comedy gold.

The Milwaukee district attorney asked a policeman, “Was it disorderly?” Getting no answer, he turned to an assistant district attorney and asked, “You were there, what did the audience do?” “Well, they gave him a standing ovation.” During the trial, the judge apparently hid his face to cover his laughter. Mr. Carlin was acquitted.

In 1973 a man complained to the Federal Communications Commission that his 15-year-old son heard Carlin’s famous routine on WBAI-FM, a noncommercial station in New York. Eventually, FCC v. Pacifica Foundation made its way to the Supreme Court, and Justice John Paul Stevens’s 1978 opinion, which still stands, ruled that to protect children from “inappropriate” speech—add that to Carlin’s list of dirty descriptors—those seven dirty words shouldn’t be heard on public airwaves.

Though antiestablishment, Carlin’s politics were hard to pigeonhole. On the illusion of choice:

 

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WSJ: The Many Reasons ESG Is a Loser

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https://www.wsj.com/articles/esg-loser-funds-costs-basis-points-blackrock-500-environment-green-sec-11657461127

A few years ago, a guy with a famous last name who ran a socially responsible investment fund asked me to lunch. I was hesitant because I figured he was planning to yell at me for a column I had recently written: “Stocks Weren’t Made for Social Climbing.” I wrote, “Profits are the best measure of a business’s value to consumers—and to society.” Instead, he was quite pleasant, though while I ate, he complained that most other environmental, social and governance funds weren’t all that socially responsible compared with his—“not ESG enough.” I asked him what was in his portfolio, expecting Tesla or some oat-milk company. He answered, “ General Motors. ” OK then.

These days ESG is big business, with $2.77 trillion in “global sustainable fund assets.” The average expense ratio is 0.41%. And sure enough, apparently some funds aren’t ESG enough. Police in May raided the European offices of Deutsche Bank’s DWS unit in an investigation of “greenwashing”—saying its investments were more sustainable than they were. The authorities claim, “We’ve found evidence that could support allegations of prospectus fraud.” In June the Securities and Exchange Commission announced an investigation into Goldman Sachs for claiming some of its funds were sustainable and ESG when they really weren’t. This is a fight over branding. What has the investment world come to?

Then there’s this: On May 18, the S&P dropped Tesla from its S&P 500 ESG Index. Exxon is still in. The S&P explains why, unconvincingly citing “Tesla’s (lack of) low-carbon strategy.” Tesla CEO Elon Musk tweeted, “ESG is a scam. It has been weaponized by phony social justice warriors.” Those are strong words. Let’s investigate.

Larry Fink, CEO of BlackRock, which has around $10 trillion in assets under management, wrote in a letter to CEOs, “We focus on sustainability not because we’re environmentalists, but because we are capitalists.”

Let’s look inside. BlackRock’s ESG Aware MSCI USA ETF has almost the same top holdings as its S&P 500 ETF with Apple, Microsoft, Amazon, Alphabet, Tesla, Nvidia, JP Morgan Chase, Johnson & Johnson and United Healthcare, dropping Berkshire Hathaway and moving Meta and Home Depot to higher weightings. Fees on ESG Aware are 0.15%, or 15 basis points. BlackRock’s plain-vanilla iShares Core S&P 500 ETF index fund charges only 3 basis points. That’s right, BlackRock charges five times as much for juggling a few names and slapping ESG on the name. Capitalists indeed. As of June 30, ESG Aware was down 23.7% vs. down 20% for the S&P 500 index.

Look away if you’re squeamish, but BlackRock helpfully notes that the S&P 500 has investments of 0.92% in controversial weapons, 0.59% in nuclear weapons, 0.68% in tobacco and 0.12% in United Nations Global Compact violators. Yikes. But not the BlackRock Sustainable Advantage Large Cap Core Fund

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WSJ: The Alzheimer’s Cure Conundrum

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https://www.wsj.com/articles/alzheimers-disease-cure-funding-pharmaceutical-research-foundation-judy-fund-congress-part-the-cloud-drug-11656261539

Chances are you know someone or have a loved one with Alzheimer’s disease and its slow-progressing dementia. An estimated 6.5 million Americans—and 44 million people world-wide—suffer from it. Scientists are still unsure of its causes: Amyloid protein, tau tangles, inflammation, fat protein complexes, high cholesterol and low bile acids, and even gum disease have all been conjectured. We see headlines that declare a “Cure Breakthrough” and “Reversing Dementia in Mice,” but still, if you get sick, there is no treatment. Why?

There was a glimmer of hope in June 2021, when the Food and Drug Administration approved Biogen’s drug, Aduhelm. But studies since then have been mixed, and Medicare announced that it will only pay the $28,200 annual cost for patients enrolled in clinical trials, of which there are few. This month we learned of disappointing results from a trial in Colombia for Roche’s new amyloid-protein-targeting Alzheimer’s drug, crenezumab.

Still, those I spoke with who are funding Alzheimer’s research, to a person, are surprisingly hopeful. They see a pipeline populated with potential, though they point to some flaws in the system.

My friend Elizabeth Gelfand Stearns, whose mother lived with Alzheimer’s for eight years, has raised almost $10 million over the years for the Judy Fund, which provides research funding and supports advocacy. Government spending on Alzheimer’s and related dementia research was $448 million when President Obama signed the National Alzheimer’s Project Act in January 2011, the aim of which was to “prevent and effectively treat Alzheimer’s disease and related dementia by 2025.” Ms. Stearns tells me, “Our pitch changed from ‘this is an awful disease’ to ‘90 million baby boomers are entering the prime age for Alzheimer’s and will swamp Medicare and Medicaid.’ ” It worked: This year the National Institutes of Health received $3.5 billion in research funding for the disease. Sadly, the NAPA now needs reauthorization through 2035. Patience is a virtue.

So why is there no cure after all this money has been spent on research? I could spend a dozen columns rattling off compelling theories and drugs that still need investigating. But drug approval by the FDA via trials funded by pharmaceutical companies can take eight to 10 years and cost more than $2 billion.

It turns out there is a huge flaw in the drug-discovery process—namely, a wide gap between government research funding and private pharmaceutical company spending on drug trials. Another friend, Mikey Hoag, says this is known as the “valley of death” where drugs often die. She is involved because her father showed signs of Alzheimer’s at 65 and lived with it until he was 79. A couple of months after he died, her mother showed Alzheimer’s symptoms. She lived to 88.

What is the valley of death? The Catch-22 is…

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WSJ: Bees Are Fish and Other Fake Narratives

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https://www.wsj.com/articles/bees-are-fish-and-other-fake-narratives-progressive-partisanship-woke-1619-project-words-11655650274

A friend recently told me he asked the management at a vegan restaurant why they didn’t have honey on the menu. “It’s from an animal, so it’s not vegan,” he was told. He tried to explain that honey isn’t part of a bee but instead nectar that bees carry back to a hive, mix with enzymes, heat, dehydrate . . . Exasperated, he finally said, “It’s bee barf!” (It’s not, but it isn’t prime rib either.) He didn’t win the argument.

I mention this because last month a California court ruled that bumblebees are actually fish and can be protected by the California Endangered Species Act. This is as silly as the Environmental Protection Agency trying to define puddles and drainage ditches as “navigable waters.” Yes, they were saying that a puddle should be regulated like a lake or river. Even before this, the Army Corps of Engineers had a “glancing geese” test, meaning if a migratory bird ever looked at a wet spot, that spot was under federal jurisdiction.

Meanwhile, we have oat milk and almond milk, even though they obviously aren’t milk. Similarly, oxymoronic “plant-based meat,” which isn’t meat, is really fake meat. Even worse, it’s nasty, chock full of salt, and not even good for you. Be warned, we’re being trained that anything can be anything. The truth has taken a back seat. I don’t like it one bit.

In June 2020, in the middle of coronavirus lockdowns, tens of thousands marched in American cities in protest of the police. In the protesters’ defense, 1,200 health and medical professionals signed a letter “in response to emerging narratives that seemed to malign demonstrations as risky for the public health because of Covid-19.” It went on: “Instead, we wanted to present a narrative that prioritizes opposition to racism as vital to the public health, including the epidemic response.” Ah, the narrative. How have the signers not been summarily fired and barred from the healthcare industry? We know why: If a bee is a fish, then protests provide immunity.

This is the world we live in today. Who actually believes this stuff? George Orwell said it best in his 1945 “Notes on Nationalism”: “One has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool.” Bertrand Russell had a similarly great line: “This is one of those views which are so absurd that only very learned men could possibly adopt them.”

It wasn’t only protests. I spent the week after Memorial Day 2020 flipping between CNN and Fox News. I watched Chicago Lake Liquors in Minneapolis repeatedly looted—even the safe was dragged out.

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WSJ: Who Pays for Crypto’s Collapse?

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https://www.wsj.com/articles/who-pays-for-crypto-collapse-class-action-lawsuits-bitcoin-ethereum-losses-investors-coinbase-luna-xrp-11655056359

Is anyone liable for the $1.5 trillion in recent crypto losses? Maybe so. After every market downturn, the class-action crowd canvasses the carnage looking for whom to blame—and then sues the pants off them. With so many stocks down 80% to 90%, such as Carvana and Robinhood, the pickings are plentiful. But most public companies have smart lawyers who sprinkle protective legalese like “safe harbors” and pad their registration statements’ risk section. Most securities suits are settled, basically to pay lawyers to go away.

But this cycle had something new: crypto craziness. The Federal Trade Commission reports that 46,000 people have reported losing $1 billion in crypto to scams since January 2021. Bitcoin is down more than 50% since its 2021 peak, Ethereum is down 65%, XRP 78%. And of course, the Luna token is down from $116 on April 5 to essentially zero. Is anyone liable? Binance, FTX, Coinbase, Kraken, Bitfinex and Crypto.com are some of the largest exchanges for crypto trading.

Class actions will follow the money. Kim Kardashian and boxer Floyd “Money” Mayweather Jr. are being sued for false statements promoting crypto. But that’s nothing! The trillion-and-a-half-dollar question is: Are cryptocurrencies securities or not? Selling unregistered securities can be a felony, with up to five years in jail, and damages could include the dollar amount of an investors’ losses or more.

A 1946 Supreme Court case, Securities and Exchange Commission v. W.J. Howey Co., established the test that determines whether something is a security under the Securities Act of 1933 and subject to registration and reporting requirements. It is a four-criteria test, summarized as: A security requires an investment in a common enterprise with expectations of profit via efforts by others.

I don’t think any cryptocurrencies have registered as securities. But crypto creators can’t say they weren’t warned. In 2017 then-SEC Chairman Jay Clayton cautioned “market participants against promoting or touting the offer and sale of coins without first determining whether the securities laws apply to those actions.”

In 2019 the SEC ruled in a letter that bitcoin specifically failed the Howey test, meeting only the “investment” criteria. I see it differently, but no matter—the rest of crypto is still in flux.

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WSJ: Chesa Boudin’s Lawless City

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https://www.wsj.com/articles/chesa-boudin-lawless-city-district-attorney-recall-san-francisco-homeless-drugs-11654439544

San Francisco

As I walked to lunch last week in Little Saigon, a few blocks from City Hall, I hurried across Eddy Street to avoid an obvious group of drug dealers. The sidewalks were filthy, filled with homeless tents and a god-awful smell. Distracted, I almost tripped over a squatting man sticking a hypodermic needle between his toes. Two cops leaned against a police car nearby. Meanwhile, pedestrians lawfully waited at a traffic light before crossing. Why bother?

No wonder Chesa Boudin, if polls are correct, will be recalled as San Francisco district attorney on Tuesday via Proposition H. He’s a big source of the city’s current rot.

I’m reluctant to convict someone based on his parents’ background, but Mr. Boudin’s provides many clues. Former members of the Weather Underground domestic terrorist group, his parents were jailed and convicted for being getaway drivers in the 1981 Brink’s robbery and murders. He was then raised by the Weather Underground’s Bill Ayers and Bernardine Dohrn, who, you may remember, were friends with Barack Obama. Mr. Boudin says he didn’t learn to read until age 9, later graduated from Yale, Oxford and Yale Law School, and even served as an interpreter for Hugo Chávez, Venezuela’s socialist president, although that somehow was left off his LinkedIn profile. He supports San Francisco as a “sanctuary city.”

In November 2019, with help from George Soros, Mr. Boudin was elected district attorney after running on a platform of “decarceration” and ending cash bail. Asian-Americans were big supporters. Not anymore. After leading a successful February recall of three school-board members—one member, Alison Collins, said that merit is “racist”—Asian-Americans in San Francisco are now fed up with increased personal and property crimes against them that often go unprosecuted. Flaw and disorder.

San Francisco has seen a rash of robberies. Stealing items valued at less than $950 is considered a misdemeanor. Last fall, organized “smash and grab” looters hit Louis Vuitton and other luxury stores. Eleven Walgreens have closed since 2019. In a remarkably still-open CVS near Eddy Street, nearly every item is locked behind plexiglass. Is this the future?

Don’t be fooled by the Orwellian newspeak of the “unhoused” that completely ignores the problem of mental illness and addiction rampant in San Francisco.

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WSJ: Dear Grads - A To-Do List for the Class of ’22

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https://www.wsj.com/articles/class-of-2022-graduation-advice-college-university-workforce-reputation-higher-education-11653236765

Dear Grads of 2022,

I bet when you heard there’d be lots of test-taking in college, you didn’t think that meant twirling swabs up your nose. But you made it! Your multitasking-from-anywhere skills are perfect for today’s work world. You deserve your reputation for resilience under dire conditions. Meanwhile, the reputations of experts are in tatters.

But be warned, you’ll forever be the Zoom-groomed Corona crew. No matter what you say or do, like drinking Blueberry & Açaí Truly Hard Seltzer or bragging about your now near-worthless NFT collection, you’ll be put in a box, stereotyped. Others will say behind your back, “Oh, that’s so on brand.” As you enter the real world from the conformities of the college cocoon, think hard about your reputation, your personal brand. Like it or not, wherever you go, your reputation precedes you.

People will probe to construct your story: “Where are you from?” “Where’d you go to college?” “What did your parents do?” Yes, life is like your college application on steroids. But you can break free. Don’t think worse of me for quoting the movie “Dirty Dancing” and suggesting “nobody puts Baby in the corner.” Take charge of your own reputation.

Hyperconnected Wall Street traders and bankers, analysts and salesmen do trillions in transactions every day based on the reputations of folks they often have never met face to face. You can lie to a customer any time but only once. And then word gets out, goes viral and everyone knows it. It’s a short walk from great rep to out of the business. On Wall Street, all you have is your reputation. Same for you.

If all goes well, you’re about to begin a job—you better, there are now five million more jobs than job seekers. “Influencer” doesn’t really count, but congrats anyway. You’ll figure out how to do well, get promoted, earn raises. Of course, there are always shortcuts—maybe cut some corners, trade in a bit of integrity to move ahead. Don’t do it! In this ever-connected world, everyone will find out. Everyone. People will stop dealing with you, and you’ll never really know why. Bad reputations are hard to shake.

Here’s a little story. A friend of mine was a bartender in college and famous for performing flaming shots that lit up the bar.

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WSJ: When Will the Selling Stop? Crypto to go-go...

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https://www.wsj.com/articles/when-will-the-selling-stop-crypto-bitcoin-stocks-market-terra-hype-value-debt-11652624704

In the past six weeks, $1 trillion in cryptocurrency value has evaporated—yes, trillion. Since there was nothing of economic value driving up crypto prices, only mass delusion, there hasn’t been much to cushion their descent. It’s as if a giant bellows has been blowing hot air into bitcoin and others, and it suddenly stopped working. Fanboys yelling “store of value” and “fiat hedge” can’t seem to explain why bitcoin is falling as inflation rages.

This column noted a few weeks ago the risks of “algorithmic stablecoin” Terra, backed by the Luna token. Terra was designed to stay at $1, and Luna tokens would be issued to buy Terra if it dropped below $1. Well, it did last week, dropping to below 20 cents. So many Luna tokens needed to be issued that Luna’s price dropped more than 99% in 24 hours and it is now worth 3/100ths of a cent, down from $60 seven days ago. Ouch. Things happen fast. Remember the initial public offering last year for Coinbase, the crypto exchange, which traded at close to a $100 billion valuation? It’s now $18 billion. Too many momentum investors late to the crypto party traded real money for fake currency and lost.

The same thing is playing out in stocks, which are at least backed by future earnings. The market selloff has been nasty—down, down, down for seven weeks in a row. And it’s not only the hyped, memed, freshly IPOed and SPACed, like DraftKings and Beyond Meat, it’s real stuff. Facebook is running out of new customers. Netflix, PayPal, Lyft—all are enduring relentless stock sell-offs. It’s certainly less bubblicious out there, but is it over?

I asked an old Wall Street buddy when we’d know the selling is over, and I thought I heard him say, “After we seek redemption.” I suppose he’s right, so I asked, “You mean a spiritual awakening, atonement for the guilt of overpaying for Rivian and Carvana, deliverance for the sin of thinking NFTs were real? For . . .” “No,” he interrupted, “what I said is the selling stops after we see redemptions.” Oh.

We need to see capitulation. That’s when those newbie investors who bought crypto and stocks via Robinhood or piled into Cathie Wood’s ARK Innovation exchange-traded fund, ARKK—and “held on for dear life” with “laser eyes” and “diamond hands,” to use some Reddit lingo—finally dump what they own and swear to the almighty Elon Musk never to buy crypto or stocks again. It’s coming. By the way, Robinhood stock is down 85% from its August peak; ARKK is down 74% from its February 2021 peak.

In Wall Street speak, it’s known as the puke.

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WSJ: The Biden Loyalty Machine

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https://www.wsj.com/articles/the-biden-loyalty-machine-democrats-dgb-disinformation-sec-climate-risk-fauci-covid-lockdowns-biden-inflation-supply-equity-federal-reserve-military-russia-11652025653

In her 2014 book, “A Fighting Chance,” Elizabeth Warren describes advice she received from Lawrence Summers when he was Harvard’s president: “I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People—powerful people—listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders.”

Want to see this in action? In his 2021 book, “A Plague Upon Our House,” about his time as an adviser to the Trump administration on Covid-19, the Hoover Institution’s Scott Atlas describes “a functioning troika of ‘medical experts’ composed of Drs. Birx, Fauci, and Redfield.” He “noticed that there was virtually no disagreement among them. It was an amazing consistency, as though there were an agreed-upon complicity—even though some of their statements were so patently simplistic or erroneous.” Loyalty! But was that for the best? After two years of Covid restrictions, obviously not.

Loyalty is overrated. Harry S. Truman, worried about communist infiltration, instituted a Loyalty Program in 1947 via executive order, expecting “complete and unswerving loyalty” from federal employees. Seventy years later, FBI Director James Comey insisted that President Trump, at a private dinner, asked him for his loyalty. Mr. Comey declined. Mr. Trump then asked for “honest loyalty,” which Mr. Comey agreed to, knowing it didn’t mean anything.

Judge Ketanji Brown Jackson wrote in a 2019 ruling: “Presidents are not kings. . . . This means that they do not have subjects, bound by loyalty or blood, whose destiny they are entitled to control.” Amen.

But the Biden administration doesn’t want to hear this. Today’s insiders all seem to be singing from the same hymn book, imposing a strict ideology on us, their subjects. As an outsider I can insist: This isn’t healthy.

Treasury Secretary Janet Yellen, a monetary dove who helped get us into today’s runaway inflation mess, launched “a Treasury-wide equity review”…

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WSJ: Debt Can Be a Killer

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https://www.wsj.com/articles/debt-can-be-a-killer-investments-stocks-loans-elon-musk-twitter-economic-cycle-inflation-downturns-stock-prices-11651420308

The arrest last week of the founder of the investment firm Archegos, charged with securities fraud, is a great reminder of hidden debt. In March 2021, Archegos was overleveraged, allegedly hiding its debt from Wall Street firms as it used funky “total-return swaps” to manipulate stock prices. The inevitable collapse destroyed $100 billion in stock value. (Archegos’s lawyers have denied the allegations.) Separately, supply-chain financier Greensill used what Fitch described as a “hidden debt loophole” and collapsed around the same time.

Are there more of these out there? I ask because we’re in the most dangerous part of the economic cycle. Interest rates are rising to combat inflation, and there could be all sorts of leverage we don’t know about. There always is. A slowdown (and especially a recession) would expose these hidden horrors. In 2018 this column argued that “in downturns, equity hurts but debt kills.” We’re about to find out if that’s still true.

More than $850 billion in credit-card debt and $800 billion in margin debt are high but off their peaks, and at least they are known amounts. It’s always hidden debt that comes back to bite when things fall apart. In June 1929, banks had $82 in deposits for each dollar in cash on hand. Bank runs followed. The 2008-09 financial crisis resulted from mispriced collateralized loans and weird derivatives on the balance sheets of Lehman Brothers, Bear Stearns and many others. Citibank used “structured investment vehicles” loaded with mortgages and who knows what else essentially to hide $100 billion in debt by keeping it off its balance sheet.

Now debt is fashionable again. Tesla’s last proxy statement shows Elon Musk owning 73 million options and 170 million shares, of which more than 88 million were “pledged as collateral to secure certain personal indebtedness.” Even assuming a 20% loan-to-value ratio, that’s a lot of personal indebtedness. In the pending Twitter deal, Morgan Stanley is providing a $12.5 billion margin loan against another 62 million of his Tesla shares.

Tesla sold around a million cars in 2021 and was worth $1 trillion last week at the time of the Twitter deal. Ford Motor Co. sold almost two million vehicles in 2021 and is currently worth just under $60 billion. I’d rather have Tesla’s business than Ford’s, but perhaps Tesla’s valuation is a tad fluffy. Netflix stock has fallen 72% in six months. Carvana is down 84% since August. Valuations are fleeting, and we aren’t even in a recession. Now may not be the time to borrow against Tesla shares.

There are reports that Mr. Musk may take out a loan against his current 9.2% stake in Twitter. Yes, borrowing against Twitter to buy more Twitter.

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WSJ: Why Does Hollywood Hate Silicon Valley?

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https://www.wsj.com/articles/hollywood-hates-silicon-valley-theranos-uber-wework-neumann-kalaniick-television-holmes-11650817560

Has streaming peaked? Netflix stock dropped 37% last week after the company’s loss of subscribers, and CNN+ was dead on arrival. Are viewers finally revolting? Maybe it’s the shows and content. It’s hard to find a movie, series or newscast that doesn’t push a social or political agenda, from “Bridgerton” to “Squid Game” and “The Handmaid’s Tale.” Even formerly family friendly Disney is getting too preachy. Elon Musk calls this the “woke mind virus.”

The agenda list is too long, so I’ll focus on the current rash of shows about entrepreneurs: Showtime’s “Super Pumped” on Travis Kalanick and Uber; Apple TV’s “WeCrashed” on Adam and Rebekah Neumann and WeWork ; and Hulu’s “The Dropout” on Elizabeth Holmes and Theranos. Their debuts curiously coincided with the Netflix’s “Inventing Anna” about the con artist Anna Sorokin. Hollywood seems to equate entrepreneurs with scammers, almost as if filmmakers have a vendetta against success.

As I watched these entertaining series, I mostly laughed instead of cried, knowing this is how many people will think about entrepreneurs going forward. It’s a shame the entertainment industry is bent on destroying the reputation of Silicon Valley, which is keeping Hollywood alive.

Watching these series was fascinating but also a bit spooky, because I’ve known or met many characters in these shows. So it was fun to compare their real-life looks and personalities with the portrayals. Most weren’t even close. The opening line of each episode of “Inventing Anna” could apply to all the series: “This whole story is completely true. Except for all the parts that are totally made up.”

Here is the common thread: Silicon Valley entrepreneurs are misogynistic, adolescent, narcissistic tech bros running cults—even Ms. Holmes with her black turtlenecks and deepened voice. They consume only tequila, mysterious green juice or kombucha. Every company party has a bounce house. Bankers are idiots, and venture capitalists can be manipulated easily. Board members are rubber-stamping cretins. Every startup founder travels on private planes. (Note to venture capitalists: If a startup uses a company jet, then you’ve invested too much money and have lost control.) Finally, everyone’s motivation is the same: “We’re saving the world” or “making the world a better place,” a generational delusion. While there’s always a smidgen of truth to tropes, these are all clichés.

Anna Sorokin was a con woman.

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WSJ: Oprah, Pavlov and Gavin Newsom

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https://www.wsj.com/articles/oprah-pavlov-and-gavin-newsom-gas-tax-rebate-debit-cards-california-oil-reserves-gasoline-prices-electricity-11650205836

California is a mess and Gov. Gavin Newsom is sending treats to its citizens. It has the nation’s highest gasoline prices—over $6 a gallon for premium. The Western States Petroleum Association explains, “The first $1.27 a gallon we pay at the pump now is for taxes and regulatory programs.” Pretty easy to fix, but not for Mr. Newsom, who proposed, Oprah-like, sending Californians $400 gas-tax-rebate debit cards: You get a card. You get a card. Everybody gets a card!

The Legislature may vote on it this week. Of course, $400 is barely a month of fill-ups for many commuters. California, which has the fifth-largest oil reserves of any U.S. state, should have some of the cheapest gas in the country. Plus, Mr. Newsom’s gift cards aren’t really a gas-tax rebate. Electric-vehicle owners, who don’t buy gas, get a card too, even though they already get up to a third off their electricity bill via California’s Home Charging EV2-A electricity rate.

So if it isn’t a rebate, what is it? Simple: a bribe for Californians to forget who got them into this mess. And it’s a brazen step toward a universal basic income program, following the federal government’s blatant attempt to get citizens hooked on receiving money: $1,200 stimulus checks, $600-a-month unemployment supplements, $300-a-month child tax credits. Like Pavlov’s dog, Americans are asking “Did the mail come yet?” as they wait for government checks. Yes, money that people need to survive due to massive policy screw-ups by the same government giving them the money. Here’s a treat. Good dog.

Same with electricity. California has steep progressive pricing—the more you consume, the more you pay per kilowatt-hour, from a baseline 24 cents to 60 cents in peak hours. Yet the state still gets rolling summer blackouts because of renewable-energy mandates and cap-and-trade carbon taxes. California forces power plants, natural-gas providers, and other large greenhouse-gas-emitting industries to buy carbon-pollution permits. But Californians get some of that money back as—you guessed it—a rebate, another treat.

Instead of developing low- or zero-carbon energy such as nuclear or geothermal, the state forces utilities to buy carbon credits, runs them through the Sacramento money-shaving machine, and then trickles a few bucks back to consumers to make it look as if it’s doing something. Many Californians this month will get climate credits for electricity and natural gas worth $87 and another in October worth $39. Everyone gets a rebate, and the credits are per household while rates are usage-based, another distortion.

Water is another puddle of muddle.

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WSJ: Major League Baseball’s Respect Problem

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https://www.wsj.com/articles/major-league-baseballs-mlb-respect-strike-lockout-salaries-sports-money-players-canceled-games-cancellation-contract-dispute-11649613926

The Major League Baseball lockout delayed Opening Day until April 7 this year. I passed on attending. Long ago in grad school, I postponed graduating until August so my neighbor and I could do a driving baseball trip. The schedule was almost perfect: a game in St. Louis, the next night Kansas City, then Seattle, the Bay Area, Southern California and Dallas. Right as we were about to leave, the players went on strike. Aargh! Ultimately 713 games were canceled in 1981. I’ve never forgiven the players or their union.

I’m still a fan. Back in my New York days, I tried and failed to get tickets to opening day at Shea Stadium between the St. Louis Cardinals and the New York Mets. Fortunately, I scrounged up tickets for the next day. Rodney Dangerfield threw out the first pitch—marketed as “No Respect Opening Day.” Just my speed.

That’s how I feel about baseball: I love the game but have no respect for the money side of the business. As NBC producer Don Ohlmeyer told reporter Tony Kornheiser when asked about the problems in sports, “The answer to all your questions is: Money.”

The constant bickering over revenue sharing and minimum salaries and luxury taxes is tiresome. It’s not as if players are exploited workers sweating on an assembly line—the lowest-paid player got $570,500 last year. It’s now $700,000. Yes, I’m aware there’s no crying in baseball, but every strike and work stoppage ups salaries, and then prices spiral higher—tickets, beer, dirty-water dogs, Cracker Jack, media rights—to pay outrageous contracts such as newly minted Met Max Scherzer’s $130 million three-year deal.

Meanwhile, baseball is struggling to get fans out to the old ballgame. Forget the Covid years: Total attendance at regular-season games peaked in 2007 at almost 80 million, and in 2019 only 68.5 million went to games. Maybe that’s because average ticket prices in 2007 were $22.77 and are now up 50% to $34.21. The Yankees raised nosebleed ticket prices 40% between 2018 and 2020.

Because of this and media rights sales, Major League Baseball revenue nearly doubled, from $5.4 billion in 2007 to $10.4 billion in 2019. Good luck maintaining that. Eventually price hikes stop working.

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WSJ: Here Come the Price Controls

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https://www.wsj.com/articles/here-come-the-price-controls-oil-reserves-rent-consumers-joe-biden-inflation-drugs-11648998374

On the 2020 campaign trail, Joe Biden declared, “ Milton Friedman isn’t running the show anymore.” Wrong! In March 2020 the money supply was $16 trillion, it’s now $21.8 trillion. Lo and behold, inflation is running at 7.9%, supply chains are tight, and many store shelves are empty. Friedman’s adage “Inflation is always and everywhere a monetary phenomenon” has stood the test of time.

But what scares me most is the likely policy responses by the Biden administration that would pour salt into this self-inflicted wound. It feels as if price controls are coming. Don’t trust my Spidey senses? Joe Biden’s own words from March 16: “Oil and gas companies shouldn’t pad their profits at the expense of hardworking Americans.” And in last month’s State of the Union address he said, “As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up. That ends on my watch.”

And the worst offense: “Cut the cost of prescription drugs. We pay more for the same drug produced by the same company in America than any other country in the world. . . . let’s let Medicare negotiate the price of prescription drugs. They already set the price for VA drugs.” That sounds good on the surface, but don’t fall for it. As Tomas Philipson noted on these pages, companies would “face a tax as high as 95% on sales if they don’t concede to the government price.” These aren’t negotiations. They are price controls.

Prices set by producers are signals, and consumers whisper feedback billions of times a day by buying or not buying products. Mess with prices and the economy has no guide. The Soviets instituted price controls on everything from subsidized “red bread” to meat, often resulting in empty shelves. President Franklin D. Roosevelt’s National Recovery Agency fixed prices, prolonging the Depression, all in the name of “fair competition.” Watch for the resurrection of that phrase to rationalize price controls.

In 1971 President Richard Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.” We got new government entities: a Pay Board and a Price Commission. Americans paid for this mistake for another decade. Farmers drowned chickens rather than send them to market. Store shelves emptied. Price controls contributed to long lines at gasoline stations in 1973 during the Arab oil embargo. It’s pretty simple: When you freeze prices too low, producers stop producing.

Price controls don’t work. Never have, never will.

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WSJ: Ukraine’s Asymmetric War

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https://www.wsj.com/articles/ukraine-asymmetric-war-technology-starlink-mariupol-theater-collapse-russia-explosives-internet-drones-weapons-11648400672

Reports from Ukraine are filled with stories of Javelin antitank missiles and Turkish Bayraktar TB2 unmanned aerial vehicles taking out Russian tanks and armored vehicles. The Biden administration has announced $800 million in defensive weapons for Ukraine, including Javelins, Stinger antiaircraft weapons and Switchblade drones. More amazing is what Ukraine has also been doing on the cheap. And I don’t mean Molotov cocktails.

Wars are increasingly asymmetric—the lesser-armed side can put up a strong fight. The U.S. learned this in Iraq with insurgent use of improvised explosive devices, basically roadside bombs triggered with cellphones. Similarly, Ukraine has been deploying inexpensive, almost homemade weapons and using technology to its advantage.

The Times of London reports that Ukraine is using $2,000 commercial octocopter drones, modified with thermal imagers and antitank grenades, to find and attack Russian tanks hiding between homes in villages at night. Ukraine’s Aerorozvidka, its aerial reconnaissance team, has 50 squads of drone pilots who need solid internet connections to operate.

When the internet was cut in Syria in 2013, enterprising techies set up point-to-point Wi-Fi connections to bring internet access from across the border in Turkey. You can do this with Pringles potato-chip cans and $50 off-the-shelf Wi-Fi routers. Ukraine may be spared this ad hoc setup as Elon Musk and his firm Starlink have donated thousands of satellite internet-access terminals to Ukraine, including to the Aerorozvidka squads, which come with warnings to camouflage the antennas. They typically cost $499 each and $99 a month for service.

Ukraine also effectively jammed Russia’s long-in-the-tooth wireless military-communication technology, which apparently uses a single-frequency channel to operate. Former Central Intelligence Agency Director David Petraeus told CNN that Russians were then forced to use cellphones to communicate until Ukraine blocked the +7 country code for Russia and eventually took down 3G services that Russia uses for secure connections. Russian soldiers were forced to steal Ukrainian cellphones to communicate with one another. That’s no way to fight a war.

Ukraine also has taken advantage of crowdsourcing.

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WSJ: War Always Muddles Markets

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https://www.wsj.com/articles/war-always-muddles-markets-stocks-volatility-investing-11647783501

Wars perplex investors. I’m always slow to react. Back in my days as a Wall Street analyst at Morgan Stanley, we would bus top investors around Silicon Valley to see Apple, Intel, Adobe, plus Jim Clark at Silicon Graphics, Scott McNealy at Sun Microsystems and even Steve Jobs at NeXT. Breakfast on Aug. 2, 1990, was disrupted by news of Iraqi tanks rolling into Kuwait. Even though the 1990s proved to be paradise for technology, most investors rushed back to New York. The stock market dropped 6% over three days.

My office in Manhattan was next to Wall Street’s top oil analyst. That fall, he studied data from the world’s producers and spoke at Morgan Stanley’s morning meeting. Armed with tables and charts, he basically declared that world demand was X million barrels a day, but without Iraq, there was only Y amount of oil production, so prices were going to rise for the next decade. Sound familiar? I watched salesmen peel out of the room to call their clients. It turns out he was spectacularly wrong.

The rest of 1990 was awful. The market dropped 21% from its July peak to its October low. Fearing terrorists, few were flying. The economy went into a recession. Companies missed on earnings. Uncertainty hung over markets. On Jan. 16, 1991, the companies I was recommending with buy ratings, such as Intel and Motorola, reported awful earnings. That night, like everyone else, I watched Operation Desert Storm unfold on CNN. Still, I dreaded the next day’s morning meeting, where I would have to cut my earnings estimates and eat crow as my stock picks tanked.

As I got off the elevator, the head of sales grabbed me by the arm and started shouting, “It’s dawn in America. We’re shooting missiles right down chimney stacks. Cruise missiles are making left turns down city streets. The market’s going higher. Tech is king!” Sure enough, the market was up before the open. All my stocks were bid up 20% or more. Dawn indeed. It certainly cheered me up.

Markets during wartime are confusing. Baron Rothschild’s line about buying when there is blood in the streets and selling to the sound of trumpets is a great contrarian battle cry. Sometimes it works, often it doesn’t. Although I know some Russian banks today that you can buy real cheap.

The New York Stock Exchange closed from July to November 1914. Stocks dropped nearly 25% when they finally started trading on Dec. 12.

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WSJ: Is the Dollar in Danger?

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https://www.wsj.com/articles/is-the-dollar-in-danger-china-russia-ruble-yuan-reserve-currency-foreign-sanctions-11647195545

The U.S. is sitting on top of a horizontal empire, capitalism’s self-organizing, incentive-based structure with its layers of value. It’s not the Marxist mush of “to each according to his needs.” You gotta earn your spot. Think of the U.S. dollar as the thread or even the duct tape that binds the layers together. Nearly 60% of the $12.8 trillion in worldwide currency reserves are dollars. Is America’s “exorbitant privilege”—the almighty dollar as the world’s leading reserve currency—under threat? Should you even care?

Sanctions have bitten Russia. A huge chunk of its $630 billion in foreign reserves are frozen. Oligarchs’ yachts have been seized. Visa, Mastercard and American Express suspended service in Russia. Apple and Google Pay stoppage stranded cashless travelers on Moscow’s metro. From Netflix to Nike, voluntary sanctions are in force.

Was cutting Russia out of the global financial system the right move? Naysayers think this is the beginning of the end of the dollar as the reserve currency because Russia will cozy up to China and adopt the yuan or pivot to cryptocurrencies. China may start dumping dollars. In fact, since 2014 China and Russia have severely reduced their dependence on the dollar for bilateral trade.

The dollar has been the world’s reserve currency since the Bretton Woods Agreement in July 1944, with the dollar pegged to gold and other allied currencies pegged to the dollar. This wasn’t some bureaucratic pronouncement. The U.S. was in a position of strength after funding the allied effort in World War II. America almost lost this privileged status in 1971 when deficits from war and welfare led President Richard Nixon to drop the gold standard.

Today countries still keep America’s virtual Benjamins in their virtual bank vaults—modern banking’s gold. China has more than $1 trillion in Treasurys. Russia has about $100 billion in dollars of about $500 billion in their increasingly frozen foreign exchange.

But why do these countries keep dollars? What backs the currency?

Read the rest here.