Andy Kessler

WSJ: Lessons From a Trip to the Moon

https://www.wsj.com/articles/lessons-from-a-trip-to-the-moon-11563137910

“It’s a 1202. What is that?”

Fifty years ago this Saturday, Neil Armstrong and Buzz Aldrin were 30,000 feet above the moon and descending in the lunar module. Behind their seats was the 70-pound Apollo Guidance Computer, with 2,800 Fairchild Semiconductor integrated circuits, each containing two logic gates and running at a speed of 43 kilohertz. It was programmed for the physics of a lunar landing, able to read data like speed, angle, altitude and fuel remaining. But a warning horn sounded. Mr. Aldrin typed 5-9-Enter on a keypad and the machine displayed the error code “1202.” In all their simulations in Houston—so many the “abort” button label practically rubbed off—they had never seen a 1202. So Armstrong asked.

Each program in the guidance computer used a 12-word, 16-bit data-storage unit known as a Core Set. The system had handled countless complicated tasks through the takeoff, approach and orbit, but something had gone wrong during the landing attempt. Turns out a radar used to track the Command Module was overrunning the Core Sets with bad data. Fortunately, the guidance computer had been designed to crash and reboot when that happened, and not lose data so it could continue its guidance function.

Imagine sitting in a tin can, about to make history, trusting a computer with your life, already white-knuckled, and getting the early equivalent of the Microsoft Blue Screen of Death. Each time the alarm sounded, the display went blank for 10 seconds as the computer crashed and rebooted. There were five alarms and crashes in four minutes, the last at 2,000 feet. With no clear sign of any systems malfunctioning, the astronauts and Mission Control scrambled to make sense. Armstrong’s heart rate hit 150. The display finally returned 800 feet above the lunar surface. Noting no data was lost, the flight controller in Houston, Charlie Duke, replied, “Eagle, looking great. You’re GO.”

There are many lessons from Apollo 11, and you’ll hear them all week. First, timing is everything: Inspired by John F. Kennedy, all six lunar landings occurred during Richard Nixon’s first term. Another obvious and overlooked lesson is that technology is an indispensable yet imperfect tool. I’ve had my iPhone crash trying to hail an Uber. I know, First World problem.

Apollo 11 was a source of pride, but also confusion. Whenever hurricanes and other freaky weather hit in the ’70s, my grandmother would explain it by insisting, “They touched something up there on the moon.” Sadly, climate thinking hasn’t advanced much.

People often ask whether space exploration is worth the cost.

Read the rest here.

WSJ: The Key to the Long Expansion? Logistics

https://www.wsj.com/articles/the-key-to-the-long-expansion-logistics-11562526973

“You can’t recommend those stocks,” a Wall Street strategist insisted in 1986. “We’re in the third year of a four-year expansion. They won’t work.” Being naive, I did it anyway. The expansion lasted a total of almost eight years, until July 1990. Strategists don’t know much, but to be fair, it was a B-school accepted truth that expansions last four years. Another expansion began in 1991 and lasted a record 10 years. And this month we broke that record. Since June 2009, the U.S. economy has kept growing. Every day is another record.

Did you ever wonder why we are enjoying a decadelong run? What changed? Everyone wants credit. Was it the Federal Reserve and its relentless stimulus? Nope. The Fed creates the money the economy needs, but not the need itself. Obama or Trump policies? A divided Congress? Demographic shifts? A strong or weak dollar? Actually, none of the above. The answer is just-in-time. You can thank all those freshly minted consultants you see in premium economy crisscrossing the country with their AirPods and Allbirds and airy attitudes.

In the previous era, before pervasive computing, economies would live and die by inventory cycles. Heck, biblical times record seven years of feast and seven of famine. The expansion starts, consumers buy, investment and hiring ramp up, wages and prices rise, inflation emerges, consumers buy ahead of price increases, investment peaks, inventories build, consumers are tapped out, recession starts, inventories are drawn down, and layoffs begin—then start all over every four years. Until recently, price signals didn’t travel very fast, and inventory tracking used clipboards.

In a micro version of this cycle, the videogame industry had a huge bonanza in the early 1980s that ended in ’83 with bust of the highly anticipated “E.T. the Extra-Terrestrial” game. Warner Communications literally buried about 700,000 unsold cartridges of “E.T.” and other titles, and lost more than $500 million. The semiconductor industry got stuck with loads of chips in inventory that had to be written down. It was ugly. After a similar inventory mess related to then-newfangled personal computers, the tech world started implementing just-in-time delivery. Companies like Compaq would ask for chips to be delivered Tuesday for PCs shipped on Wednesday. This gradually smoothed out the cycles of a very volatile industry.

Thirty-six years later, much of the global economy has perfected this just-in-time supply chain. Digital cash registers and bar codes log consumer purchases. Logistics software allows manufacturers to track every production detail everywhere on the globe. Data is fed into giant databases that forecast demand. Manufacturing, transportation and retail are a highly choreographed water ballet of delivering inventory right before it’s needed. Exactly the right amount of toothpaste is magically dropped onto Walmart shelves each night.

Read the rest here.

WSJ: Kill Section 230, You Kill the Internet

https://www.wsj.com/articles/kill-section-230-you-kill-the-internet-11561924578

The internet was almost killed in its cradle. Will it happen again? In October 1994, an anonymous poster on Money Talk, a bulletin board run by the early online service Prodigy, accused Long Island brokerage firm Stratton Oakmont of fraud. Yes, that Stratton Oakmont, of Leonardo DiCaprio and “Wolf of Wall Street” movie fame. Fraud central. But in 1995 Stratton Oakmont sued Prodigy for defamation. The firm claimed the online service was liable as a publisher because Prodigy posted content guidelines that human “board leaders” enforced and deployed software that screened for offensive language. Sound familiar?

Amazingly, Prodigy lost the case. This prompted Congress to insert language into the Communications Decency Act of 1996, known as Section 230: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

That’s all it took to enable the online world as we know it today. Online companies can claim they are a bunch of disk drives and, with few exceptions, innocently passing along whatever their users post on them. Without Section 230, tort lawyers would have smothered the internet. Facebook , Twitter and Google today would be Little Tech—if they existed at all.

Section 230 also allows companies to restrict content that is “obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected.” With these “community standards,” online companies can remove anything and can’t be sued.

There’s a wide lane between moderating hate speech (Facebook Live of Christchurch shooting) and crippling free speech (banning conservative voices). OK, but Facebook and the like are often governed by the court of public opinion, with its varying views on fake news, identity politics and political meddling. Seems lots of folks are triggered by what they see online. But Facebook, YouTube and Twitter’s community standards are murky and vague and seem to change daily, so the dogpile to regulate or even break up tech giants grows, with the addition of new bodies across the spectrum from Elizabeth Warren to Ted Cruz.

Are online companies publishers? Should Section 230 be repealed? Heck no.

Read the rest here.

Gerald Loeb Awards 2019

Thrilled to win the Commentary Category.

http://newsroom.ucla.edu/stories/ucla-anderson-school-of-management-announces-2019-gerald-loeb-award-winners

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

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

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

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

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

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

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

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

Read the rest here.

WSJ: A Panda Could End the Trade War

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

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

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

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

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

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

Why the impasse?

Read the rest here.

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

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

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

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

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

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

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

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

WSJ: The Federal Reserve Is Flying Blind on Inflation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

WSJ: Jamie Dimon’s Timely Warning About Socialism's Misery

https://www.wsj.com/articles/jamie-dimons-timely-warning-11555873352

Socialism is now woker than a two-for-one Che Guevara T-shirt sale, with Bernie Sanders leading the Democrats’ presidential primary polls and Alexandria Ocasio-Cortez dominating the party’s imagination.

In a rare calling-out of this bogosity, JPMorgan CEO Jamie Dimon warned shareholders this month that “socialism inevitably produces stagnation, corruption and often worse.” He was echoing Winston Churchill’s observation that socialism allows for “the equal sharing of misery.” Why is it only capable of generating misery?

Because under socialism, politics rather than productivity drives employment. Technological innovation is suppressed. Long ago, an Israeli explained to me that under socialism—Israel’s economic system until 1985—you would always hire two workers to do the job of one.

Of course, there is a spectrum of socialism. The textbook definition is government ownership of the means of production, as in the communist-run Soviet Union or Cuba, or the state-owned factories of China today. But socialism can also mean “owning” an industry by burying it in regulation (see education, Medicare, the overregulated auto industries and so on). 

Socialists are modern-day Luddites, destroyers of technology to preserve jobs. Article 4 of the current postal-workers’ union (sweetheart) contract states that “any new job or jobs created by technological or mechanization changes shall be offered to present employees capable of being trained to perform the new or changed job.” It’s one reason, even with automation, we still have 500,000 postal workers when the right number is zero. Similarly, Detroit was slow to use robots. It’s only recently that United Auto Workers union contracts did away with job guarantees.

Workers at the Port of Oakland went on strike to protest the use of RFID tags on shipping containers because it would kill lucrative clipboard-toting jobs. Productivity be damned.

And that phantasmagoria, the Green New Deal? It’s a productivity pallbearer, with its federal job guarantees and a new mechanism to support those “unwilling to work.” Where do I sign up for that?

WSJ: What You Need to Know to Pick an IPO

https://www.wsj.com/articles/what-you-need-to-know-to-pick-an-ipo-11554661746

It’s red-herring season for IPOs—so named for the red warning language on the left side of an initial public offering’s preliminary prospectus. Thanks to the Federal Reserve’s interest-rate pause, the IPO jailbreak is becoming a stampede. Last month Lyft raised $2.2 billion. Pinterest is next, and Uber, Slack, Postmates, Airbnb and others likely aren’t far behind.

How do you know which IPOs to buy? No, not to trade—you’d never get it right. Lyft priced at $72, traded at $85 on its first day, then closed at $78, only to fall to $67 on its second day. It’s now $74. I’m talking about buying and holding for a few years. Yes I know, how quaint.

The trick is to read the prospectus. What are you, crazy? That’s a couple hundred pages. Well, not the whole thing. But remember, where the stock trades on its first day is noise. There is usually a lockup of insider shares for 180 days, which are then, like a bucket of cold water, thrown on the market. So understanding long-term prospects are critical. Here are a few shortcuts.

First, glance at the underwriters along the bottom of the cover. On the top line are the banks putting their reputation on the line. If the one on the far left is Goldman Sachs , Morgan Stanley or JPMorgan , you’re probably OK, in that order. If it’s Soprano & Sons, run away.

Next, open the management section and study the directors. Forget the venture capitalists or strategic partners with board seats—they have their own agendas. Non-employee directors are the ones who are supposed to be representing you, the public investor. And their value depends on their experience.

WSJ: Rejection Is Like Rocket Fuel

https://www.wsj.com/articles/rejection-is-like-rocket-fuel-11553459174

Rejected? Take a lesson from University of Tennessee basketball coach Rick Barnes. According to ESPN, Mr. Barnes has saved every rejection letter he’s ever received, including those from Indiana coaching legend Bobby Knight and Louisville coach Denny Crum. When hyper-announcer Dick Vitale heard this, he said, “Wow, those are real schools.” Turns out Dickie V was turned down by almost every high school and small college he applied to coach. These are successful people holding on to long-ago rejections. Effect, meet cause.

Rejection notices used to be called boot letters (until email ruined everything). High-school seniors would draw a boot on college rejection letters and wallpaper their rooms. College seniors would thumbtack job rejections, with an inked boot, on their doors.

These happy rejects are in good company. One publisher turned down Herman Melville’s “Moby-Dick,” saying, “First, we must ask, does it have to be a whale?” Joseph Heller’s book once was turned down with the comment, “I haven’t the foggiest idea about what the man is trying to say. Apparently the author intends it to be funny.” Heller named it “Catch-22.” John Cleese’s hilarious sitcom “Fawlty Towers” initially was written off as “a collection of clichés and stock characters which I can’t see being anything but a disaster.” And there’s Steve Jobs: “I didn’t see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me.”

Now it’s college-admissions week. You or your child might soon be turned down by some institution of higher learning. Or worse, maybe you lost a spot because some pushy parents used William “Rick” Singer’s tutoring and college-application “services” and “side door” to get into Yale or Georgetown or USC.

So how do you handle it? In one Ted Talk, a psychologist named Guy Winch suggests you “apply emotional first aid,” and if that doesn’t work, try to “boost feelings of social connection.” That sounds like a first-class ticket to Depressionville. My advice? Ignore the namby-pamby voices telling you to forget it, let it slide, move on, or pack up your troubles in your old kit bag. And don’t waste your money on books filled with motivational gobbledygook, like Norman Vincent Peale suggesting, “Change your thoughts and you change your world,” or Tony Robbins’s insight: “Where focus goes, energy flows.”

Instead, embrace rejection. It’s a power boost. Grab it. Internalize it. Feel it. Swirl it under your tongue like a single-malt scotch, or a Mountain Dew Baja Blast for you high-schoolers.

WSJ: Warren’s Populist Puritanism or Should we break up Facebook, Google, Amazon and Apple?

https://www.wsj.com/articles/warrens-populist-puritanism-11552848483

H.L. Mencken defined puritanism as the haunting fear that someone, somewhere, may be happy. Remember that amid the deluge of demands to break up Facebook , Google, Amazon and Apple .

Columbia law professor Tim Wu insists that bigness is bad. “We’ve let Facebook have their ride, they’ve made their money and they’ve been very successful,” he told the American Enterprise Institute last month. “I just think there’s a very good track record in tech of trying to put pressure on the monopolist and break things up a little bit.” Basically, Facebook got big and now it’s someone else’s turn.

Wannabe president Elizabeth Warren wants to “break up Big Tech” and split the companies into heavily regulated “platform utilities.” She told crowds at South by Southwest: “The monopolist will make fewer monopoly profits. Boohoo.” The politics of envy is the populist playbook.

Yet the Sherman Antitrust Act prohibits two specific types of business practices: anticompetitive agreements, or collusion, and conduct to limit competition. Judges define these violations by a consumer-welfare standard, assessing whether consumers are harmed by a lack of competition. “Innocent monopolies” earned by merit are not illegal. Antitrust says nothing about bigness.

No matter. The calls are getting louder for Facebook to split off Instagram and WhatsApp. Same for Amazon carving out Whole Foods. Or Google divesting its 2007 acquisition DoubleClick. Or spinning out the App Store from Apple, as Spotify is seeking in the European Union. There’s little sign of consumer harm in any of these cases.

Sure, the tech titans have some issues. Google’s searches favored its own sites over others. Facebook sold private information after agreeing not to, and the Federal Trade Commission is set to collect a huge fine. So keep up the pressure. Firms clearly ought to respect property rights better, and pay for news content and user data. But demanding divestitures and regulation is an old trick competitors use to get government to do their bidding. In reality, the moves would freeze innovation without enhancing competition.

WSJ: Impeachment and Your Investments

https://www.wsj.com/articles/impeachment-and-your-investments-11552245553

“It’s very clear that the president obstructed justice,” House Judiciary Committee chairman Jerrold Nadler told ABC’s “This Week” last week. On the same show, House Republican Leader Kevin McCarthy said Mr. Nadler “decided to impeach the president the day the president won the election.” You don’t get better foreshadowing than that! The $64 trillion question is what happens to the stock market if President Trump is impeached.

I’ve long contended that only fools predict stock markets, so here I go. Fortunately, there are plenty of clues. A week before Election Day 2016, analysts at Barclays forecast the market would drop by 11% to 13% if Mr. Trump was elected. When it became clear he had won, CNN anchors noted—almost with glee—that Dow 30 futures were down more than 900 points. They dropped 5% overnight, the maximum selloff allowed on the exchange. But I hope you didn’t sell: The Dow Jones Industrial Average regained 3% the next day and has risen almost 40% since. Shocked investors had traded on their emotions the night of the election, but others undid the damage when they woke up thinking about policy.

A similar mix of shock and shrewd analysis is apparent in market reactions to each of the three impeachment episodes in U.S. history. When Andrew Johnson was impeached in 1868, markets were cruising in the wake of the Civil War, with banks and railroads making up the majority of the stocks. Lehman Brothers strategists calculated that the market—call it the Dow Jones Pre-Industrial Average—rose 10% in the three months before the impeachment, paused, then rose another 6% over two months after acquittal.

Richard Nixon resigned before being impeached. From the start of the televised Watergate hearings in May 1973, the market began a 16-month decline of more than 20%. After Nixon released the White House tapes and then quit on Aug. 8, 1974, the market popped up 5% in a few days. I hope you did sell then, because that’s when the real bloodbath started. The Dow dropped 27% through early October and bottomed out at 577 in December. Messy oil markets, inflation, a recession and Gerald Ford didn’t help.

Bill Clinton’s impeachment made similar shock waves. During the run-up to the release of the Starr report, from July through September 1998, the market sold off almost 20%. A friend who ran a big investment fund told me, “I don’t care what Clinton does with his sex life until it affects my portfolio.” Financial chaos after Russia’s debt default made matters worse. After Mr. Clinton was acquitted in February 1999, the dot-com debauchery began.

So if a Trump impeachment takes place, here’s what I think will happen: First, stock futures will soar, maybe by as much as 5% on Day 1. Bells will peal across the land, and I’d expect massive flash mobs dancing in circles singing “Ding, dong, the wicked witch is dead!” Or something like that.

WSJ: Superheroes Are Rescuing Hollywood

https://www.wsj.com/articles/superheroes-are-rescuing-hollywood-11551045451

I’ve been around the special effects and movie business for decades as an adviser and investor and had a front-row seat to the development of computer-generated imagery. On a tour of the back lot at Paramount Pictures in the early ’90s, my host pointed to a shallow pool and said: “Here’s where Charlton Heston parted the Red Sea in ‘The Ten Commandments.’” I was impressed—but playing my role as an annoying Silicon Valley visitor, I replied “Someday this will all be replaced by CGI.” I was right. CGI has been the best thing to happen to the movie business—and a curse.

Take a look at the top 10 domestic grossing films of 2018: “Black Panther,” “Avengers: Infinity War,” “Incredibles 2,” “Jurassic World: Fallen Kingdom,” “Aquaman,” “Deadpool 2,” “The Grinch,” “Mission: Impossible—Fallout,” “Ant-Man and the Wasp” and “Solo: A Star Wars Story.” Not a single one would have even been greenlit without computer graphics. I had to go back to 2014’s “American Sniper” to find a top-10 grosser that wasn’t CGI dependent. Even this year’s dramatic films needed CGI, like re-creating 1985’s Live Aid concert at Wembley Stadium in “Bohemian Rhapsody.”

Except for “Mission: Impossible” they’re all superhero movies and animations. The plots are similar and shallow: Outsmart villains, save the world, fight a giant monster, and resolve somebody’s daddy issues. But they entertain. Movies are supposed to transport you somewhere else for 110 minutes, then drop you back into your mundane existence. You want to see something you’ve never seen before—hence the success of watery “Aquaman” and vapid “Venom.” Audiences want faraway galaxies, explosions and a little humor. And when that gets old, just have the superheroes fight each other.

The rest of Hollywood looks down their noses at comic-book movies, but they should be thankful. “Avengers: Infinity War” grossed more than $2 billion world-wide. In a decade, 20 Marvel superhero movies have grossed a total of more than $17 billion. That pays for a lot of dull arty films, flatulence-joke comedies and oversexed, clichéd rom-coms that nobody goes to. It’s as if Hollywood has forgotten how to make movies people want to go see. Whose idea was it to make the 2017 Matt Damon eco-dud “Downsizing,” or Jennifer Lawrence’s allegorical “Mother!”? I’d like my four hours back.

My wife hates watching movies with me. At the right moment each time, I lean over and say: “Boy meets girl, boy loses girl, boy gets girl back,” or some derivation. And when it inevitably happens, I say, “And there’s the message.”

The so-called dramatic films are just as bad. At the Oscars, the word “best” in best picture has been watered down to be almost meaningless.

WSJ: It's Time To Fire Your Doctor

https://www.wsj.com/articles/its-time-to-fire-your-doctor-11549829009

Barack Obama famously and falsely said, “If you like your doctor, you will be able to keep your doctor, period.” But . . . what if you don’t like your doctor?

Let’s say you, like me, are one of the 20 million Americans who work for themselves—no boss, but also no corporate-tax deduction for health insurance. The smart move is to get a high-deductible insurance plan. Now it suddenly matters what doctors charge: $500 to take your blood pressure and bang your knee with a rubber hammer, $1,200 for a blood test that uses pennies worth of chemicals to tell you your hemoglobin levels are fine. Plus four months to get an appointment, and then the doctor asks you to fax an authorization. What? It’s 2019. It’s time to fire your doctor.

Like roughly half of American adults, I’m borderline: hypertensive, high cholesterol, though only “pre”-diabetic. A streak of misdiagnoses has led me and many others to take doctoring into our own hands. I do an annual blood test for $199 through WellnessFX and get results on a smartphone app. A Bluetooth-connected cuff from Omron Healthcare tracks my blood pressure and even notes atrial fibrillation or irregular heartbeat. A Fitbit scale tracks my weight. Beautyrest Sleeptracker tells me my REM sleep duration. My Apple Watch charts my resting pulse and does a simple electrocardiogram. The more data, the better.

When you do get sick, you still need to see a doctor—they have that prescription pad. But insurance companies tired of overpaying for five-minute doctor visits have begun setting up alternatives. Sutter Health runs walk-in clinics for $129 a visit. Online care is cheaper, so Anthem Blue Cross encourages customers to use LiveHealth, a videoconference platform, for $49. Aetna has a deal with Teladoc, a $4.5 billion public company, for $38 consultations. No pain meds, of course, but almost everything else.

Consumer-driven options have already changed nonvital care. After doing in-home teeth impressions, you can order orthodontic aligners for $80 a month. For acne treatment, you can upload photos of affected areas and receive medicine by mail monthly. Technology is lowering costs and improving care on all fronts.

Technology has moved so fast that several smartphone-based platforms now function like Uber for doctors:

WSJ: Strike Back Against Every Cyberattack

 

https://www.wsj.com/articles/strike-back-against-every-cyberattack-11548624081

Another week, another data breach. The latest is 773 million online accounts for sale, many with passwords included, known as Collection #1. More are likely to come—go ahead and check your status at HaveIBeenPwned.com. All this the same month Marriott admitted that five million unencrypted passport numbers were snatched from its system, probably by the Chinese. Oh, and the Russians might have hacked the Democratic National Committee again after the 2018 midterms. How do we stop this?

The foreign hacks are the most disturbing. Last month members of a Chinese espionage ring known as Advanced Persistent Threat Group 10 (a k a “Godkiller” and “Stone Panda”) were charged by the Justice Department with hacking NASA, the Jet Propulsion Laboratory and even IBM . Earlier last year the Chinese were caught stealing submarine data from a U.S. Navy contractor. And horror of horrors, in 2017 an Iranian national hacked HBO and threatened to release unaired episodes and plot summaries from “Game of Thrones.

The U.S. has done close to nothing in response. Sure, special counsel Robert Mueller indicted 12 Russian intelligence officers last summer. I’m sure they’re quaking in their boots. Maybe those “Game of Thrones” episodes could have taught our leaders something about retaliation and revenge.

So what is America’s policy? That’s unclear. But a good start would be to heed the words of Israeli Prime Minister Benjamin Netanyahu, who told the press last week that his state has a permanent policy of hurting “everyone who is trying to hurt us.” The U.S. needs a similar stance to halt cyberattacks.

John Yoo, a Berkeley law professor and former Justice Department official, sees a parallel between deterrence in cyber and nuclear warfare. “Offensive nuclear weapons are relatively cheap,” he explains to me: “It’s defensive systems that are expensive.” Think about it. Each mission to drop one nuclear bomb would cost the U.S. about a quarter-billion dollars. But we’ve spent trillions on our defense and deterrent system. The nuclear triad of intercontinental ballistic missiles, bombers and subs ain’t cheap.

Mr. Yoo continues: “Similarly, offensive cyber weapons are cheap. It’s defensive cybersecurity tools that are expensive.”

WSJ: Stock Picking Is Like Time Travel

https://www.wsj.com/articles/stock-picking-is-like-time-travel-11547412001

Tesla stock—bam! Apple —kapow! That sound you hear amid the market tremors is the future screeching back to the present, like the wail of the flux capacitor in Marty McFly and Doc’s DeLorean. Wall Street perfected this sort of time travel long ago: Successful investing is mostly about looking into the future and deciding what to pay for it today. But how do investors know where to look?

The equities side of Wall Street, including me, always writes off bond investors as automatons. Their business is straightforward: Bonds have a face value, maturity date and coupon. That’s it. The rest is math such as Macaulay duration, which is basically how long it takes to get paid back. Investors just guess future interest rates and the risk of default. How hard is that?

If only it were that simple for stocks. At its most basic level, the value of a company is the sum of all its future profits discounted back to today. But it’s tricky to pin down this value because the variables are all loosey-goosey: earnings, growth rate and a theoretical discount rate. Future earnings are at the whim of management, growth depends on the economy and industry trends, and the discount rate is based on inflation and that fuzzy thing called risk. In other words, every input to the value of stocks is elusive. That’s why stocks rise and fall by the minute.

It helps to think of stocks as having a focal length, like the lens of a camera, which is the point in the future investors are looking at. Stocks with long focal lengths have an area of high magnification, a smaller angle of view, and fewer things in focus. Amazon’s investors were willing to overlook low margins in the short term in exchange for a bountiful prize out there somewhere. A short focal length means investors don’t look too far and can see everything all in focus, warts and all, like General Electric . Stocks have a duration, but you can’t really measure it—you have to sense it, or feel how far out the market is willing to look. It’s the most confusing part of investing.

How far should you look? Typically—though things are rarely typical in investing—investors look between 18 and 24 months into the future and apply a price-to-earnings ratio on future profits. Today the market multiple is 16 times 2019 earnings, which is close to the average for the past several decades. Since 1990, forward-earnings multiples have been as low as 10 at the 2009 market bottom and as high as 26 in the 2000 dot-com boom.

But P/E multiples aren’t buy or sell signals.

WSJ: Where in the World Is Larry Page?

https://www.wsj.com/articles/where-in-the-world-is-larry-page-11546199677

Has anyone seen Google founder Larry Page? Me neither. He’s in the witness protection program of his own doing. Brilliant.

As you chill the champagne ending 2018, the only thing worse this year than owning bitcoin was being the visible face of corporate America, especially technology. It’s the year of the beleaguered CEO, with Facebook ’s Mark Zuckerberg being the poster child under the caption “Mamas, don’t let your babies grow up to be CEOs.”

Whenever I meet chief executives, whether they’re fresh-faced startup founders or grizzled managers of public companies, I remind them there are only two rules for being successful. The first is pretty easy: Don’t run out of money. Ever. Former General Electric CEO John Flannery now knows this. Elon Musk might be whistling past this graveyard again as Tesla’s batteries run low.

And the often neglected second rule of CEO success? Hire a solid No. 2—but not for the reason you think. Sure, a competent operating person would be nice, to offload some of the drudge work. But the real purpose is to serve as a heat shield—someone to roll out front when the villagers with torches and pitchforks show up at your door. Bluntly, someone to take the blame when things go sideways, or even fire so your board doesn’t fire you. What could be more important?

In October 2015, Sundar Pichai became CEO of Google. But really, he is CEO in name only. Mr. Pichai runs a division of Alphabet, a holding company that contains Google (which accounts for 99.6% of Alphabet’s revenue) and a bunch of hemorrhaging “Other Bets.” Mr. Page is CEO of Alphabet, a heat shield between himself and trouble.

It was Mr. Pichai who fired James Damore in 2017 for writing the “Google’s Ideological Echo Chamber” memo.

WSJ: Inner Peace Is a Booming Business

https://www.wsj.com/articles/inner-peace-is-a-booming-business-11544991939

California is weird—and full of contradictions. On the one hand, California as a country would have the world’s fifth-largest economy. On the other hand, state Senate leader Toni G. Atkins is doing her best to diminish that wealth by pushing a campaign to ban fossil fuels. Despite the drama, a 2017 WalletHub survey concludes that 12 of the 20 happiest American cities are in California. Hmmm. Maybe it’s because California is home to an endless expanse of spiritual retreats—a booming enlightenment industry.

You may know of such places, promoting harmony among mind, spirit, body and earth. They have rooms filled with crystals to tune your vibrational frequency, Himalayan-salt therapies high in negatively charged ions, and meditation mazes with a speaker blasting “Ommmm” from its center. On your way to happiness are large doses of xylophonic-oboe-harpy new-age music, root-vegetable dining, cozy chakra chambers and, of course, handwritten signs with Eckhart Tolle-like spiritualist scribblings everywhere. “You have only one life to live, but if you do it right, you’ll only need one.” Insightful! And “Let go of your material possessions.” Conveniently, the Ranch at Live Oak Malibu takes care of that for you. One week starts at $7,800 a person—I hope that includes bottomless cups of bearberry herbal tea.

The famous Esalen Institute, left over from the culty ’70s, offers more than 400 workshops on topics from cosmology to other shams—er, I mean “shamanic rituals.” In 2013 Esalen brought in almost $18 million in revenue with margins rivaling some software companies.

Follow the money. According to Marketdata Enterprises, meditation is a more than billion-dollar business. Deepak Chopra is the meditation master and mogul, offering books, seminars, videos and several California-based “Perfect Health Retreats” where you can get instruction in primordial-sound meditation.

I heard Mr. Chopra pitch one of his more than 100 books at a conference I attended. His spiel was something about “your cosmic self.” He went on about the vastness of time and space and then stopped and asked attendees, “Shall I teach you how to meditate?” “Yes!” they roared. “OK, close your eyes, relax,” he said—then launched into a bunch of stuff about rotating galaxies and interstellar motion and karma. I started chuckling, because all I could think about was my favorite bathroom-stall graffito, “My karma ran over your dogma.” I opened my eyes and saw a room in a trance. Then Mr. Chopra caught my eye and I thought I saw him crack a tiny smirk. Maybe that’s how he achieves his own moments of zen.

WSJ: Life as We Know It Turns 50

https://www.wsj.com/articles/life-as-we-know-it-turns-50-1543786471

San Francisco in 1968 was littered with flower children, free love and dreams of utopia encapsulated in Timothy Leary’s exhortation: “Turn on, tune in, drop out.” How wrong that was! But out of this purple haze rose that year’s Joint Computer Conference, where an assembly of geniuses wearing white short-sleeved shirts and pocket protectors convened 50 years ago this week. The event shined a guiding light on the path to personal computing and set the modern world in motion.

On Dec. 9, 1968, Doug Engelbart of the Stanford Research Institute presented what’s now known as “The Mother of All Demos.” Using a homemade modem, a video feed from Menlo Park, and a quirky hand-operated device, Engelbart gave a 90-minute demonstration of hypertext, videoconferencing, teleconferencing and a networked operating system. Oh, and graphical user interface, display editing, multiple windows, shared documents, context-sensitive help and a digital library. Mother of all demos is right. That quirky device later became known as the computer mouse. The audience felt as if it had stepped into Oz, watching the world transform from black-and-white to color. But it was no hallucination.

At the time, the data line Engelbart used for the demo probably cost more than 10 grand a month. And he needed an amazing amount of not-yet-invented science to back up his vision: The first internet transmission wasn’t sent until the next year, when a message was sent from a UCLA lab to a terminal at the Stanford Research Institute. The integrated circuit was invented 10 years earlier, but Engelbart would be considered a false prophet today if the microprocessor hadn’t come along a few years later. He saw where the technology was headed and helped to hurry it up.

The coolest thing about this story is that, starting 20 years ago, Doug Engelbart was my next-door neighbor. We would invite him to our parties and get invited to his. At his place I got to meet the tech hall of fame: In the living room I met Ted Nelson, who conceptualized hypertext, and I met the inventor of the disk drive in his kitchen.

One of Engelbart’s biggest influences was Vannevar Bush’s 1945 essay, “As We May Think,” which envisioned a “memex” machine—a portmanteau of “memory” and “index”—that would enhance human cognition. While I chased my kids’ errant basketballs in his backyard, Doug would tell me about this sort of “human augmentation,” arguing that computer science was developing in ways that would aid humans, not replace them. Networks of humans and computers would create a “collective IQ.” He would interlock his fingers to make sure I got the point.

So what have we learned in 50 years?

WSJ: Anything Good Takes Exactly Five Meetings

 https://www.wsj.com/articles/anything-good-takes-exactly-five-meetings-1542578334

I was headed out of the office with a stack of papers I spent all week preparing. My boss stopped me at the door and asked, “What are you doing with all that junk?” I was trying to sell a company. “It’s the first meeting, right?” Yeah. “Don’t be an idiot. Leave all that stuff here.” But . . . “Don’t dump it all now. You need something to talk about the next few times you meet.” I looked confused. “Listen,” he told me, “everything good takes five meetings.”

I was mad, but he was right. Everything—and I mean everything—takes five meetings or at least five touch points. Deals, interviews, promotions, club membership, dating.

They have something you want, and you have something they want. But you can’t just come out and ask for it. Like poker, you never lay all your cards on the table. Reveal them slowly. Sadly, no one has the patience anymore.

We were all taught by Blake, Alec Baldwin’s character in “Glengarry Glen Ross”: “A-B-C. Always be closing.” As he berates an entire Chicago real-estate office, he brags, “I can go out there tonight with the materials you got, make myself fifteen thousand dollars! Tonight! In two hours! Can you? Can you? Go and do likewise!”

Two hours? That’s so 1992. A recent Comscore study shows millennials have an attention span of five seconds. That’s less than goldfish. (Sounds about right.) Everyone’s in such a hurry these days. Likes, 1-click buying, retweets, Amazon Dash order buttons, binge watching, keyless ignition.

Slow down!

WSJ: Big Brother Isn't Watching You

https://www.wsj.com/articles/big-brother-isnt-watching-you-1541361909

Hardly a week goes by that I don’t run into people who, when I ask how they are doing, tell me they’re worried about authoritarianism. Living in California, my impulse is to ask if they’re worried about the state’s one-party rule. But before I can get that out, the complaints begin: Trump, Facebook , Google, police state. Uh boy. Pot-dispensary paranoia?

This fascist-behind-every-tree thinking isn’t helped by the tech industry. Apple CEO Tim Cook told privacy commissioners in Brussels last month that personal information “is being weaponized against us with military efficiency. Today, that trade has exploded into a data-industrial complex.” Mr. Cook was poking at Facebook and Google and calling for more regulation.

In high Silicon Valley style, former Facebook security executive Alex Stamos took to Twitter to criticize Mr. Cook’s hypocrisy: “Apple uses hardware-rooted [digital rights management] to deny Chinese users the ability to install” virtual private networks. That means iPhone users in China can’t avoid their government’s censorship and surveillance. Fear mongers in the U.S. worry about authoritarianism, but in China it’s real. Anyone caught resisting there gets a mark on his not-so-proverbial permanent record.

In 2014 China began rolling out a Social Credit System, aiming for nationwide implementation by 2020. Like the FICO financial-credit system in the U.S., scores come from hundreds of data sources, but in this case those sources include more than 200 million cameras that monitor citizens’ behavior. Debtors end up on blacklists, unable to take trains or stay in luxury hotels. Some who have refused to join the military have been locked out of universities.

There are also “red lists” of good citizens, who are entitled to perks like skipping lines at ferries and not paying a deposit to rent bikes. Every man, woman and child must adapt to the government’s social pressure—or else. As the Dead Kennedys sang in 1979: “It’s the Suede-Denim secret police / They have come for your uncool niece.”

Is authoritarianism a rational fear in the U.S.?

WSJ: A Universally Bad Idea

https://www.wsj.com/articles/a-universally-bad-idea-1540147422

Bad ideas just won’t die. Ronald Reagan’s goal was to “leave Marxism and Leninism on the ash heap of history.” But they keep coming back, albeit in different forms. Of today’s bad ideas—from net neutrality to open curriculum and living wages—the most dangerous is the universal basic income.

For twisted reasons, Silicon Valley, the embodiment of meritocracy and incentives, thinks universal basic income will be the next great economic force. Facebook co-founder Chris Hughes is helping to fund a UBI pilot program in Stockton, Calif. He even wrote a book about the idea—something about 1%-ers paying money via tax credits—hardly original.

He’s not alone. Barack Obama has recently expressed interest in the idea. So have Bill Gates, Richard Branson, Mark Zuckerberg, Elon Musk, Marc Benioff and others in Silicon Valley. Why? I figure it’s their misplaced guilt about patriarchal dominance over workers displaced by automation. That’s a triple crown of bad excuses.

The enthusiasm seems infectious. In July, Chicago Alderman Ameya Pawar told the Intercept, “We need to start having a conversation about automation and a regulatory framework so that if jobs simply go away, what are we going to do with the workforce?” It wasn’t a long chat. This summer, Mr. Pawar introduced legislation for a pilot program that would give $500 a month to 1,000 families. Think of it as a new version of walking-around money. Never mind that Chicago can’t even afford to fund its public-employee pensions.

It sounds eerily similar to startup incubator Y Combinator’s Basic Income Project Proposal. It’s the harebrained idea of the organization’s president, Sam Altman. A thousand lucky folks would receive $1,000 a month for as long as five years. Another 2,000 would form a control group and might get $50 a month for their troubles.

WSJ: Think You’re Smarter Than Your Boss?

 https://www.wsj.com/articles/think-youre-smarter-than-your-boss-1539546566

Oct. 16 is National Boss Day, a Hallmark holiday if there ever was one. It’s a funny holiday, because almost all employees hate their bosses or at a minimum think they can do the job better. CEOs are especially reviled—slightly above cable installers and just below lawyers on the Rodney Dangerfield “no respect” totem pole.

Popular opinion insists that chief executives are greedy: CBS’s Les Moonves paid himself $69 million each of the last few years to air “NCIS” reruns. Or heartless: Amazon’s Jeff Bezos paid meager wages until a tight labor market forced him to raise them. Or scheming: Mark Zuckerberg and Facebook know our wants and desires. Or truth-challenged: Investors in Elizabeth Holmes’s Theranos learned that the hard way. Or plain clueless, like Lehman’s Dick Fuld and just about every other CEO.

But where would we be without them? Despite an industry of business schools, management books and seminars, nobody can teach you how to be an effective boss, leader or entrepreneur. They’re all self-taught. I’m always impressed when one is actually successful.

Most of investing is analyzing management. When I ran an investment fund, my partner and I would visit a dozen-plus CEOs a week in their offices. One rule of thumb was that if they closed their door, it was because they didn’t want their staff to catch them lying to us. Silly, I know, but it worked more often than you’d think. We’d grill them on their organization—how many people report to them directly, how soon after the quarter closes do they get accounting numbers, who signs off on contracts? The answers didn’t mean much; we were more interested in how the CEOs answered—confused, confident or hubristic—and seeing how good a handle they had on their teams.

We learned that running a company is like driving a tank down the middle of the road, except there are no windows so you can’t see the road. There are dozens of levers and knobs to adjust the tank’s direction. Your team works together to drive this machine as efficiently as possible with the fuel (capital) on hand. You’re doing fine until you sense a giant tree right in your path, and you make a million small decisions in short succession as your team scrambles to adjust the levers and knobs to get around it safely. Oh, and unknown to you, a few members are plotting a mutiny to oust you.

It’s not easy.

WSJ: Lessons From an ’80s Trade War

https://www.wsj.com/articles/lessons-from-an-80s-trade-war-1538950192

An extra two grand for a Harley Hog because of steel tariffs? We can’t be wimps in the world of trade, but tariff wars are never good. I would know: I was in the middle of one. In the mid-1980s, when Donald Trump was in casino mode and hosting prizefights, the Japanese were knocking out U.S. memory-chip makers.Hitachi instructed salesmen to “quote 10% below their price. If they requote, go 10% again. Don’t quit until you win.” The company later claimed it was never official policy, but the Japanese controlled 90% of the market for some crucial chips. Something had to be done, right? Well, no. Bear with me.

In early 1986, President Reagan’s Commerce Department cited Section 301 of the Trade Act of 1974 and ruled that the Japanese were selling chips below cost. The administration threatened dumping duties of up to 146% on Japanese memory chips. Never mind the oversupply and industry recession. To avoid duties, Japan came to the table and signed an agreement to limit exports and increase U.S. market share in Japan. Sounds like the current tariff tiff with China?

Here’s where things got weird. The chip recession continued, and the Japanese didn’t live up to the agreement. At the time, I was a 20-something Wall Street analyst, way over my head, running around the world tracking all this. In early 1987, I figured out the U.S. government was going to do something big: impose duties on computers, TVs and other products that use chips. I alerted every investor who would listen, but no one seemed to care. At a boxing match I met a reporter from the New York Times. I laid out the whole story to him. (Sorry, I didn’t know anyone from the Journal at the time.) He told me it wasn’t his beat but he’d look into it.

Sure enough, the Times ran a front-page story quoting me. And another the next day. I was sitting in my office, probably playing Tetris on my computer, when a producer from Ted Koppel’s “Nightline” called. I remember it went something like this: “I know you are very busy, but I was hoping we could send over a camera crew to talk about dumping.” I didn’t know much, but I was the expert! I thought of a good quote before they came. The interview lasted 30 minutes, but one line made it to national TV: “We can’t be wimps in the world of trade.”

I still believe that’s true, but duties and tariffs are a fool’s game. Memory chips are a notoriously low-margin commodity business. Intel got out of the memory business. So did AT&T . I’m still not sure why it was making chips in the first place.

Getting out of the dynamic random-access memory market, which Japan was dominating, was the best thing that ever happened to U.S. semiconductor industry.

WSJ: The Company Implosion Pageant

https://www.wsj.com/articles/the-company-implosion-pageant-1537724159

Minimal sales, an unproven business model, huge losses—and a multibillion-dollar valuation amid a booming stock market. Sound familiar? Dozens of companies could fit this description today. But I’m thinking about Webvan, the online grocery company that went public in November 1999. Its leaders scaled a flawed business until it failed, blowing through $830 million and declaring bankruptcy less than two years after its initial public offering.

Webvan wasn’t alone. Who can forget Naveen Jain, CEO of directory company Infospace? He declared in 2000: “The nonbelievers will be converted when we become a trillion-dollar company.” The stock peaked at around $1,300 a share in March 2000. It then fell to about $3 two years later as investors soured on the company amid accounting irregularities.

There are plenty of great companies being created today, but it’s late in the cycle. Venture capitalists are funding questionable businesses they pray will scale. It’s hard to call the absolute peak, but the brew is frothy. As Groucho Marx in “The Cocoanuts” said of Florida real estate: “You can have any kind of a home you want. You can even get stucco. Oh, how you can get stuck-oh!” Who will be this cycle’s Webvan, eToys, Pets.com?

Honorable mention: Tesla. Forget Elon Musk’s $420-a-share buyout tweet. Unlike Google or Facebook —which deliver virtually zero-marginal-cost services—Mr. Musk actually has to make cars. Many Teslas still appear to be made by hand. Tesla lost $718 million last quarter and had negative $1.8 billion in cash flow through June, with debt due soon. Cash is available, but at what cost?

Harry Lange, who ran Fidelity’s Magellan Fund, once told me his rule of thumb for valuation: Divide a company’s market value by 10 and see if it eventually can make that in annual net income. Tesla is worth around $50 billion. To make $5 billion, it has to produce and sell a million cars a year with a $5,000 after-tax profit. That’s a stretch, especially with hundreds of competing electric-car models already announced.

First runner up: WeWork. 

WSJ: Lehman: Political and Personal

https://www.wsj.com/articles/lehman-political-and-personal-1536524375

Lehman Brothers filed for bankruptcy on Sept. 15, 2008—left to twist in the wind by Treasury Secretary Hank Paulson. Ten years after, is Wall Street safe from another financial meltdown? Banks, pulling in record profits, appear to be in pretty good shape. But something seems wrong, as if the lessons of the financial crisis already have faded.

That’s only an intuition, so I called someone who would know—the former CEO of Lehman Brothers. No, not Dick Fuld, one of the public faces of Wall Street’s collapse. Instead, I talked last month with Bryan Marsal, of Alvarez & Marsal, who led Lehman for the three years after its bankruptcy. 

I asked Mr. Marsal why Lehman was allowed to fail and what lessons were learned. He responded with two words: political and personal. What made business or economic sense wasn’t considered. Mr. Marsal explained that Mr. Paulson “had no standing in the Lehman bailout decision but seemed to dominate the entire process.” The Bush administration already had bailed out Bear Stearns five months earlier, and Fannie Mae and Freddie Mac the week before. Using taxpayer money to bail out perceived Wall Street fat cats had become very unpopular.

Why was Mr. Paulson channeling Ralph Kramden? The Treasury secretary, Mr. Marsal thought, “should have taken a back seat and let the pros from the Federal Reserve drive the bus.” Plus, as a formerGoldman Sachs CEO, “Paulson simply didn’t like Dick Fuld, and he had run out of patience.” It didn’t help that in 1998, when Long-Term Capital Management needed bailing out, Wall Street got together and everyone kicked in, except Mr. Fuld’s Lehman.

On Sept. 9, Mr. Paulson told a group of CEOs about Lehman, “There’s no government money here.” Shortly thereafter, taxpayer money went into Goldman Sachs, Morgan Stanley , Citigroup and others. It seems Fed Chairman Ben Bernanke grabbed control of the bus from Mr. Paulson after the almost instant contagion and carnage from the Lehman bankruptcy. Withholding a bailout was a mistake. A subsidized merger or an orderly bankruptcy would have made more sense. 

Why is this so important? Today there is nothing stopping the political and the personal from trumping rational economic decision-making in the next crisis. 

WSJ: The Chip That Changed the World

 

https://www.wsj.com/articles/the-chip-that-changed-the-world-1535311622

Sixty years. But how much longer? In 1958 Jack St. Clair Kilby —from Great Bend, Kan.—created one of the greatest inventions, a great bend, in the history of mankind. Kilby recently had started at Texas Instruments as an electrical engineer. Most everyone left on a mandated summer break, but he stayed in the lab and worked on combining a transistor, capacitor and three resistors on a single piece of germanium. On Sept. 12, he showed his boss his integrated circuit. At a half-inch long and not very wide, it had ugly wires sticking out, resembling an upside-down cockroach glued to a glass slide.

In January 1959 Bob Noyce, another Midwesterner, was keeping busy at Fairchild Semiconductor in Palo Alto, Calif. He deployed a photographic printing technique—the planar process, which uses glass as insulation—to deposit aluminum wires above silicon transistors. Without the messy cockroach-leg wires, the integrated circuit, or chip, became manufacturable.

In March 1960, TI introduced the Type 502 Flip Flop—basically one bit of memory for $450. A few weeks later, Fairchild announced its own. The U.S. Air Force used them in 1961. So did new computer companies and even NASA in its Apollo rockets. One bit turned into four, then 16, then 64. This started the shrink, integrate, shrink, integrate, rinse, repeat motion that’s still going strong today. This relentless cost decline creates new markets out of nothing.

In 1965 Fairchild research chief Gordon Moore wrote a now-famous article for Electronics magazine, “Cramming More Components Onto Integrated Circuits.” Today known as Moore’s Law, the article’s thesis was that chips would double in density every 18 to 24 months. By 1969, the 3101 64-bit memory chip shipped at $1 a bit. We’ve come a long way. Your iPhone probably has a trillion bits at picocents a bit. Kilby received the Nobel Physics Prize in 2000 and credited Noyce, who had died a decade earlier, in his acceptance speech. You have to wonder what took the Nobel Committee so long.

Integrated circuits are the greatest invention since fire—or maybe indoor plumbing. The world would be unrecognizable without them. They have bent the curve of history, influencing the economy, government and general human flourishing. The productivity unleashed from silicon computing power disrupted or destroyed everything in its path: retail, music, finance, advertising, travel, manufacturing, health care, energy. It’s hard to find anything Kilby’s invention hasn’t changed.

Now what?

WSJ: Warner’s Plan to Ruin the Internet

https://www.wsj.com/articles/warners-plan-to-ruin-the-internet-1534110172

Virginia Sen. Mark Warner made millions in the murky world of government-issued cellular licensing. He parlayed his riches into a governorship and U.S. Senate seat. Today, from his perch as vice chairman of the Senate Intelligence Committee, Mr. Warner has produced a 20-point plan to take on Facebook ,Google and other tech giants with “potentially insuperable competitive advantages over new entrants.” Insuperable! Of course most of his proposals would end up locking the big guys in place while freezing innovation.

No matter. The shallow-analysis pundit class jubilated. Mr. Warner and Democrats could “crack down on Big Tech,” “tame social media,” and “knock Silicon Valley into shape.” Woo-hoo. The cheerleaders’ only complaint is the lack of a 21st proposal: breaking up the tech giants. Still, Mr. Warner wants to show that techland has gotten too big for its breeches and that the center of power radiates from the Hill—not the Valley. But he forgets that there’s one market to rule them all.

Good luck getting through Mr. Warner’s 23-page report. It’s filled with impossible-to-implement mandates (identify bots), silly bromides (addressing the safety and security of at-risk individuals), and dangerous power grabs (updating Section 230 of the Communications Decency Act). If even a handful of these proposals become law, faceless bureaucrats would control the internet instead of energetic entrepreneurs. No one would win under this new internet. And compliance costs would be so massive that no new startups would emerge.

Mr. Warner appears to have a John Kerry-like admiration for the power of European Union regulators. Europe’s stringent General Data Protection Regulation was one of the biggest power grabs in recent history and has lighted a fire under U.S. legislators hoping to emulate it. It would be a huge mistake. GDPR almost assures that no new innovations will come out of Europe.

And the Continent is already feeble—of the top 100 global technology companies, only 13 are in Europe. Bet you can’t name three. Heck, half are local consulting companies that shouldn’t even count. Why set up a company in Europe when the rules are so bent toward excess expense and certain failure? An American GDPR would turn the U.S. into Europe, making America’s technology industry french toast. But that’s one of Mr. Warner’s goals.

Consider the sop to lawyers.

WSJ: Google’s Anti-Pentagon Decision Will Kill More People

https://www.wsj.com/articles/googles-anti-pentagon-decision-will-kill-more-people-1532889656

Earlier this year more than 3,000 Google employees signed a letter to chief executive Sundar Pichai demanding the company halt work on the Defense Department’s Project Maven, which applies algorithms to warfare. The disgruntled employees also wanted their boss to pledge “that neither Google nor its contractors will ever build warfare technology.” In June the company announced it would not renew its Project Maven contract. This is incredibly shortsighted and will increase the likelihood of war and civilian deaths.

Past warfare was described primarily by tonnage and throw weights, because precision was almost nonexistent. But ever since humans started dropping bombs out of airplanes, they’ve been aiming for more precision.

On June 15, 1944, a squadron of 75 American Superfortress B-29s left China to destroy the Imperial Iron and Steel Works in Yawata, Japan. The site manufactured about a quarter of Japanese steel at the time. The 47 bombers that made it to Yawata dropped more than 365 bombs. One accidentally destroyed a power house more than a kilometer away from the complex. The rest missed.

It wasn’t for lack of trying. In 1943, behavioral scientist B.F. Skinner demonstrated new guidance technology to track simulated Japanese destroyers. He then revealed that inside the nose cone of the bomb were three pigeons trained to peck away at silhouettes of Japanese warships. But real technology advances. Wartime news reports claimed the highly complex Norden bombsight could hit a pickle barrel from 20,000 feet above. But in 1944 bombardiers recorded that “75% of Norden bombsights fell short of specifications,” missing by more than 300 feet.

For the rest of the war, the city of Yawata was firebombed in an unsuccessful campaign to destroy the iron and steel works. Notably, it was a target on Aug. 9, 1945, three days after Little Boy was dropped on Hiroshima. A B-29 carrying the atomic bomb Fat Man made runs over Yawata, but thick smoke from the ground made targeting impossible, and the bombers headed to the next target on the list, the Mitsubishi Steel and Arms Works in Nagasaki. The bombardier, Capt. Kermit Beahan, used a Norden bombsight to target the factory. He wasn’t even close—off by almost two miles. Horseshoes and hand grenades!

WSJ: Will Bitcoin Save Us From Google?

https://www.wsj.com/articles/will-bitcoin-save-us-from-google-1531680720

The hardest part of investing is knowing when to sell a stock. When you do buy one, always have an exit strategy—not for right away, this quarter, this year or even the next few years. But constantly question how soon the seeds of destruction will bloom at your company. I guarantee they’ve been planted already.

Let’s probe Apple , Facebook , Amazon and Google, because they make up about 12% of the S&P 500—while representing almost all of the stock-market’s gains this year. Yes, calls to break them up persist. But that actually could increase their enterprise value based on the sum of the parts. Beyond rambunctious regulators, what could go wrong?

Apple’s problems already have become visible. Smartphones are now like radial tires. Everyone has one and they don’t wear out. Phone franchises are fickle. Ask Motorola or Nokia , if you can find them. One near-term sign of distress: Marketing tech products with splashy colors, as Steve Jobs did with tangerine iMacs almost 20 years ago, means the fun part is almost over. Apple hopes to make it up in services, but Google leads in maps, Netflix in video, and Uber in transportation. Apple is falling behind in most other growth segments. The company’s destructive seed is its desperate need for a new product category. It won’t be watches.

You might think Facebook’s biggest problems are privacy concerns, which have shown up everywhere but the company’s finances. The media cares about privacy. Users? Not so much. Facebook stock is hitting all-time highs. I think Facebook’s bad seed is population. The site has 2.2 billion monthly active users, a number that has roughly doubled in the past five years. Yet the growth rate is necessarily slowing. User count probably won’t double again, and most growth comes from the less wealthy developing world. Investors won’t like it when growth stalls.

Amazon’s biggest benefit, and problem, is its hall pass from Wall Street. It’s allowed to show very little in profits while inventing the future. That’s great, but the business of selling stuff—that is, the company’s main business—is notoriously low-margin. Retail stores never had high margins. Buying Whole Foods was fascinating, but supermarkets often squeeze out profits of only 1% of sales. Now Amazon is bursting into the health-care industry with its purchase of online pharmacy PillPack—right into the teeth of regulators. Eventually Wall Street will demand high margins after years of investment. I wouldn’t want to be around when that happens.

The bad seeds at Alphabet, Google’s parent company, are more elusive. 

WSJ: Look Out, Bitcoin Has Lost Its Tether

https://www.wsj.com/articles/look-out-bitcoin-has-lost-its-tether-1530477448

Would Isaac Newton have fallen for bitcoin? By the spring of 1720, Newton was one of the most famous scientists in the world—and a very wealthy man. He decided to sell his shares in the South Sea Co., earning a 100% profit. The physicist, said to be worried the market was getting out of hand, supposedly quipped that he “can calculate the motions of the heavenly bodies, but not the madness of the people.” Yet a few months later, as he watched the stock trade ever higher, he let his own madness get the best of him. Newton got back in, and he eventually lost the equivalent of millions in today’s dollars when the price crashed. Sound familiar?

Investment bubbles are almost always created the same way: Someone takes money—maybe cash or debt—from the balance sheet and moves it to the income side of the ledger. This transformation makes profit prospects seem better than they truly are, and the perceived value goes up. The bubble bursts when the balance sheet has no more to give.

Britain gave the South Sea Co., founded in 1711, a monopoly on trade with South America. The company was part of a clever scheme to finance government debt, which could be converted into South Sea shares. As the stock rose, South Sea’s profit would come from the difference between the share price and the value of the underlying debt.

There was a government slush fund buying up South Sea shares, making it easier to get rid of more government debt. The company would even lend money to those buying its shares. In 1720 government and company balance-sheet cash sent the stock from £100 to £1,000. When there weren’t any more buyers, the bubble burst and financial gravity took hold.

It wasn’t so different from the 1636-37 Dutch tulip mania. That bubble had little to do with bulbs. Instead wealthy traders used their balance sheets to manipulate tulip futures and derivative contracts. The flowers might as well have been condos in Fresno. The bubble popped, though there’s some debate today about how severe it was.

Fast forward to 1999. If your dot-com company was eyeing an initial public offering, Goldman Sachs and Morgan Stanley wouldn’t do it unless your website had a marketing distribution deal. What that meant is you’d go to AOL and ask for the IPO special.

WSJ: General Electric’s Long Unwinding

https://www.wsj.com/articles/general-electrics-long-unwinding-1529862757

I had only one question after seeing General Electric tossed from the Dow Jones Industrial Average: What took so long? Yes, GE used to be revered by Wall Street. Investors would explain to each other that GE was 1% of the U.S. economy. As the company went, so did the U.S. But its stock peaked in 2000, and GE has been a failing industrial giant ever since. This underlying reality was hard to see through the smokescreen of its finance business, GE Capital.

I remember when HarperCollins, which had published a book of mine, announced it would be publishing a book by former GE CEO Jack Welch and his wife. I immediately called my publisher and complained in mock horror, “I thought I was your hedge fund guy.” He didn’t get it. I explained that he should forget about turbines and locomotives. GE was basically a giant hedge fund—a bet on its finance unit, which contributed half of GE’s profits.

Jack Welch played Wall Street like a fiddle with his decadeslong record of consistent earnings. His CFO, Dennis Dammerman, even told Fortune magazine in 1997, “We have a lot of diverse businesses, and when you put them all together they produce consistent, reliable earnings growth.” Wall Street believed it. A colleague once told me that Mr. Welch would get up in front of Wall Street analysts and toy with them. He’d joke, “Well, you guys are saying that ‘we might not meet our earnings estimates this quarter because of this or that.’ Wait, why are you writing that down? I’m telling you what you are saying, only write down what I am saying, which is that we deliver consistent earnings growth.”

Dammerman further admitted, “We’re going to take these large gains and offset them with discretionary decisions, with restructurings.” I’ve seen it. I invested in technology companies only to see GE Capital come in and write big checks. It’s an old corporate accounting trick—some called it a honey pot, others a cookie jar. When the investments went public, GE could time the sale of stock for when it needed to book additional profits to make up for a shortfall elsewhere. Jeffrey Immelt took over as CEO at the end of 2001 and kept the Welch legacy going, growing assets at GE Capital to more than $500 billion for a globally expanding business of loans, leasing, factoring, equity finance and insurance.

Mr. Welch had a famous leadership lesson—be No. 1 or No. 2 in any business, or get out. Sadly, as a hedge fund, it was dead last. During the 2008-09 financial crisis, its honey pot was destroyed. GE even took $3 billion from Warren Buffett to meet short-term obligations. Mr. Immelt and GE have been unwinding this hedge fund ever since.

WSJ: The Art of the Brushoff

 https://www.wsj.com/articles/the-art-of-the-brushoff-1529258628

While watching the Washington Capitals hoist the Stanley Cup, I had to chuckle. I was reminded of an old boss. When I first started at his small brokerage firm, I was told that if he didn’t like someone in a meeting, he would pick up the person’s business card and pick his teeth with it. The meeting would end soon thereafter. A lot of people don’t want to say no, nor do they know how to. It’s an art.

Some people have brushoffs down pat. A decade ago, I heard activist Ward Connerly explain Bill Clinton’s premeditated move. Headed to the White House in 1997, Mr. Connerly learned that Mr. Clinton’s signal that he didn’t like someone—so his staff shouldn’t bother—was to compliment his tie. Mr. Connerly was amused until Mr. Clinton approached him to tell him how much he liked his tie.

I’ve been brushed and hushed. In the mid-1990s, after much hassle, my colleagues and I landed a meeting with Jeff Berg, who ran one of Hollywood’s top talent agencies. We were in his lavish office pitching him on getting his clients to invest in our fund. Technology was disrupting music, television and movies, and we were the perfect hedge. I thought the meeting was going pretty well until his secretary walked in saying John F. Kennedy Jr. was on the line. Mr. Berg gave us the eyebrow lift and took the call. As we were ushered out, we heard him yelling, “Yes, I know everything in this town.” Great theater—no deal.

Maybe a year later, I was on a panel at an investment conference with Mike Milken. We had a great discussion about finding value, which ended with him saying he was extremely interested in our fund. Could we please send him materials and follow up? I’m still waiting for his call back. Countless others have used this tactic.

Earlier in my career, I was in Houston pitching chip stocks to a famous but rather elderly money manager. About 20 minutes into the meeting, he fell fast asleep. I didn’t know what to do. Naturally, I kept talking. He eventually woke up, thanked me for visiting, and quickly showed me out.

At a conference in downtown Manhattan, I met the founder of the famous though usually pointless series of talks—it rhymes with “zed”—and we had a great discussion. We continued the chat on the sidewalk as we were heading to the same Midtown restaurant for an event. A limousine pulled up. The driver jumped out and opened the door. The founder got in, alone, leaving me stranded—and with a clear message.

WSJ: The Canard About Falling Incomes

 https://www.wsj.com/articles/the-canard-about-falling-incomes-1528054223

As election season approaches, chants about the hollowed-out middle class predictably grow louder. Wages have been flat for decades, we’re told. “In 1973, the inflation-adjusted median income of men working full time was $54,030. In 2016, it was $51,640,” the New York Times breathlessly reported last year. Sounds awful. Except it’s nonsense. Cast a leery eye on anyone who uses 1973 as a base—it was a high-water mark before a deep recession. But the real red flag—what makes this argument totally bogus—is the phrase “inflation-adjusted.”

The odoriferous offender is the manufacturer of inflation data, the Bureau of Labor Statistics. After the creation of Social Security in 1935, Congress would occasionally bestow vote-winning gifts on retirees in the form of benefit increases. In 1975 Congress switched to automatic cost-of-living adjustments based on a consumer-price index, or changes for “a market basket of consumer goods and services.” That’s food, rent, electricity, T-Mobile,Netflix .

Forget for a moment that some of that didn’t exist in 1975. As consumer items got more feature-rich and complex, the BLS simply couldn’t note the absolute price of, say, a microwave oven. So the bureau came up with the indulgently named hedonic quality adjustment, defined as “decomposing an item into its constituent characteristics, obtaining estimates of the value of the utility derived from each characteristic, and using those value estimates to adjust prices when the quality of a good changes.”

It’s a better measurement but still inaccurate. Here’s a thought experiment: Think about your car’s automatic emergency braking, sometimes known as precrash or collision avoidance. It has been an increasingly popular option in recent years. By 2022, it will be standard on most cars. Some silicon sensors and a few pieces of code—today it costs maybe $50 to produce. But what’s it worth?

Let’s do a little hedonic decomposing of our own. Before these sensors, you would have had to hire a person to ride shotgun and constantly watch for potential collisions and slam on the brakes for you. In 2016 the AAA Foundation for Traffic Safety estimated the average driver spends almost 300 hours a year in the car, logging more than 10,000 miles. Paying someone even $10 an hour to stare into traffic means that over five years, collision avoidance is worth nearly $15,000. Double if you want someone to look out the back window, too.

Does this show up anywhere in the consumer-price index? Of course not. Of course not. One of the most lifesaving features has dropped in cost by three orders of magnitude in less than a decade. To the BLS, it’s practically nonexistent.

WSJ: Advice to New Grads: Scale or Bail

 https://www.wsj.com/articles/advice-to-new-grads-scale-or-bail-1526841165

Dear Grads: How can you make an impact on this world? Michael Keaton told Kent State students, “I’m Batman.” Ronan Farrow encouraged Loyola Marymount’s class of 2018 to “trust that inner voice.” Human-rights lawyer Amal Clooney told Vanderbilt grads last week, “Courage is needed more than ever.”

Maybe you’re looking for something less vacuous than warmed over “Wizard of Oz” themes? If so, put down your JUUL vape pen, unplug from “Fortnite,” tuck in your “I Am the Change” shirt, and listen up. Scale or bail.

Many of you graduates think you want socially conscious careers—giving back, fighting injustice and making a difference. “Well, you know, we all want to change the world.” You want to reduce inequality, end poverty, comfort the homeless, expand human dignity. Guess what? Me too! But you’re going about it the wrong way.

Some 44% of millennials believe they do more to support social causes than the rest of their family, according to the 2017 Millennial Impact report. If you’re volunteering at shelters or working for most nonprofits, that’s all very nice, but it’s one-off. You’re one of the privileged few who have the education to create lasting change. It may feel good to ladle soup to the hungry, but you’re wasting valuable brain waves that could be spent ushering in a future in which no one is hungry to begin with.

There’s a word that was probably never mentioned by your professors: Scale. No, not the stuff on the bottom of your bong or bathtub. It’s the concept of taking a small idea and finding ways to implement it for thousands, or millions, or even billions. Without scale, ideas are no more than hot air. Stop doing the one-off two-step. It’s time to scale up.

I hear you talking about food deserts and the need for urban eco-farms to enable food justice. You certainly have the jargon down.

WSJ: Columbus Discovers the Amazon

https://www.wsj.com/articles/columbus-discovers-the-amazon-1525635011

Jeff Bezos is the world’s richest person. Amazon is on a tear—sales grew 43% last quarter—and may soon pass Apple as the world’s most valuable company. Amazon has ruptured retail, floated in the cloud, and even made superhero TV shows like “The Tick.” But what makes Mr. Bezos tick?

Sure, he sells everything from books to the TubShroom drain protector/hair catcher. That’s why Amazon owns close to half the American e-commerce market. And its 100 million Prime customers will shrug off the recently announced 20% fee hike. But retail is a low-margin business. That can’t be Amazon’s endgame. The prize is much bigger.

Like Warren Buffett, Mr. Bezos likes to write rambling annual shareholder letters. Most are about Amazon’s fanatical devotion to the customer. This year he labels them “divinely discontent.” Don’t be fooled—his customer focus, referred to as the “Bezos Way,” is only marketing fluff, not a strategy. And think about it: Mr. Bezos got us to read books on pieces of plastic and to query an imaginary woman residing in a cylindrical speaker. We weren’t discontented. We were amazed.

Years ago, I took a stab at understanding Bill Gates’s strategy for Microsoft . I likened him to James Monroe. As with the Monroe Doctrine, Mr. Gates defended to the death his hemisphere—that is, basically anything that touched his Windows operating system. His dominance of compression, word processors and spreadsheets forced others to play in markets away from Microsoft. But Mr. Gates fenced himself in. He was Microstuck as innovation happened in other worlds: the Palm Pilot organizer, Netscape browser, Google search, Apple iPhone.

Is there a Bezos Doctrine? I suspect he learned the Gates lesson well. Too well, as Mr. Bezos is now channeling pioneers, be they Columbus or James T. Kirk, exploring strange new worlds. His strategy is that he doesn’t let business models get in his way while exploring on the edge. He started selling books with no real endgame in sight. He squeezed prices and didn’t make much money. But Amazon shareholders gave Mr. Bezos a long runway, as they anticipated long-term riches. He was forced to create an infrastructure—digital clicks and analog bricks—to move merchandise. Amazon pops up distribution centers in new cities in mere months. With same-day delivery, it is a logistics beast. But making a ton of money wasn’t immediately important.

WSJ: Three Cheers for Internships

https://www.wsj.com/articles/three-cheers-for-internships-1524420970

It’s that time of year. Students hoping to land summer internships are flooding inboxes with their résumés. Managers should hire as many as possible. It’s good for the company but even better for the student—and for society. Pay them? Don’t pay them? It doesn’t matter. Just let them in the door.

In my junior year of college, I got an internship at Hewlett-Packard . It was way across the country in Cupertino, Calif., where Apple ’s spaceship headquarters is today. To save money, since I had little, I got an apartment with no furniture, slept on the floor, used a shopping cart for a dresser, and borrowed a friend’s bike to get to work.

HP was a fun place, with a pretty loose work culture and beer bashes most Fridays. I coded math functions in what’s known as microcode for a future minicomputer, because they didn’t trust the guy designing the chip to do it. I learned a lot about deep technology but nothing about business, marketing or sales. It was a big company, so I also missed a peek into the startup culture then bubbling up in the Bay Area. A shame.

Still, I can’t think of anything better for college students than plopping them in the middle of some exciting enterprise. It almost doesn’t matter what the company does; good interns absorb it all. I call it learning by osmosis. Lessons about your industry, trends, pricing and profits can’t help but work their way into the pores and brains of hungry students bored from endless reading assignments and seminars.

Put them at the center of whatever a company does—not in the copy room. I can almost guarantee that they’ll be a net positive. The payback usually comes in the form of a single good idea, one productive change that fresh eyes will see while others, especially those sucking up for a promotion, won’t.

A few years ago a nasty controversy erupted over intern pay. The Atlantic ran a story, “Why Free Internships Are Immoral.” Unpaid interns for the movie “Black Swan” won a suit against Fox for back pay, later reversed and eventually settled. Sheryl Sandberg’s Lean In organization even caught flak when an editor put out a request for an editorial intern, “part-time, unpaid.”

WSJ: A Better Way to Make Facebook Pay

https://www.wsj.com/articles/a-better-way-to-make-facebook-pay-1523209483

Facebook has been on fire lately—but not in the way it usually is. Its stock is melting and congressional grandstanding (i.e., hearings) about privacy and security begins Tuesday. Facebook is a threat to democracy and society, critics now argue. I’ve lost track of how many professors are demanding the feds regulate or even break up the social-media giant. Don’t they teach classes anymore?

Apple CEO Tim Cook joined the pile-on last month: “I think that this certain situation is so dire and has become so large that probably some well-crafted regulation is necessary.” Be careful what you wish for. Sure, no one wants Russian bots controlling their minds, but targeting consumers’ minds based on detailed demographic information isn’t new. Bud Light has perfected it. Dilly dilly.

Techies have an expression for Facebook’s model. It’s “free as in beer”—in the sense of costing no money. You pay in other ways. I propose a simple fix. Let’s flip the whole thing—make it about property rights, 21st-century style. America was built on property rights. Congress can deliberate for 90 seconds and then pass the Make the Internet Great Again Act. The bill would contain five words: “Users own their private data.” Finis.

Contrast this with the European Union, which adopted its General Data Protection Regulation in 2016. It is more than 250 pages of confusing rules, exceptions and fines. But it doesn’t change the flawed model of today. It only adds regulations that make the situation even more confusing.

WSJ: Don’t Be Too Eager to Make a Deal

 https://www.wsj.com/articles/dont-be-too-eager-to-make-a-deal-1522005036

If talk is cheap, advice is cheaper. I sprinkle advice out like salt on french fries, not knowing if it works or not. You’re probably thinking: typical newspaper columnist. But hear me out.

About a decade ago, I met my friend Andrew for lunch at Henry’s Hunan Restaurant in San Francisco—hot and spicy. He was from Washington, knew everybody and had worked at a policy-strategy shop. He had even done business with T. Boone Pickens, the legendary wildcatter.

“I owe you,” Andrew insisted, “for the advice you gave me.” I had no idea what he was talking about, and my face must have shown it. “The ‘put it in the corner of your desk’ trick,” he reminded me. It all flooded back.

I once had a boss who would never sign anything, at least not right away. Instead, he told me, he would put the document in the corner of his desk. He would see it every day—and not forget about it—but not sign it. Eventually, a series of people would call until the person in charge got on the phone in a huff. Then my boss would say, “Hey, I’m happy to sign this, but what do I get?” At that point, he could ask for almost anything.

It works because it makes the impersonal personal. In 1999 one of our fund’s private investments was going public. The bankers at Goldman Sachs sent over a standard 180-day lockup agreement. I hated lockups. I’d rather sell into the frenzy, like Dropbox last week. What the heck, I thought, I’ll just put it in the upper right corner of my desk. Over the next few weeks, I got a series of calls and voice-mail messages asking me to sign the lockup. I ignored them, and eventually the head of tech banking called.

“You’re holding up the deal. We can’t proceed with the IPO without your signed agreement,” he told me. “Well, I doubt that,” I replied matter-of-factly, “but what’s in it for me?” After a pregnant pause, he asked what I wanted. Bingo. I was ready: “How about an allocation of 30,000 shares for my investors. It would beat the 1,000 shares we normally get.” Another pause. “OK. Agreed. Fax the signed pages within the hour.”

WSJ: AT&T’s ‘South Park’ Argument

 https://www.wsj.com/articles/at-ts-south-park-argument-1521397501

The biggest antitrust trial since U.S. v. Microsoft begins Monday in a federal court in Washington. The Justice Department seeks to block the $108 billion merger between AT&T and Time Warner. But the government doesn’t stand a chance—like Wile E. Coyote chasing Road Runner off a cliff and ending up suspended in midair.

What may have started as a Trumpian jab at #FakeNewsCNN has tragically turned into a serious antitrust action. The Justice Department’s case stands on such modern foundations as Section 7 of the Clayton Antitrust Act of 1914, which can block mergers whose effect “may be substantially to lessen competition.”

The crux of the case is that AT&T’s subsidiary DirecTV, with its 21 million U.S. subscribers (about a fifth of the cable and satellite market), should not be combined with Time Warner’s HBO, with its 54 million U.S. subscribers. The result would be a “vertically integrated programmer” with the alleged ability to raise prices at will on other cable operators. It could even (horrors) withhold HBO’s “Game of Thrones” from DirecTV’s competitors.

I’ve got to admit, even four or five years ago, I might have agreed. The cable industry has abused geographic monopolies to raise prices almost since the first coaxial cables were strung on telephone poles. Comcast ’s 2011 merger with NBCUniversal was potentially anticompetitive, which is why the government imposed 150 different conditions on it. But the landscape has changed since then. A lot.

If I were AT&T’s attorney, I’d introduce as evidence a clip from the “Franchise Prequel” episode of “South Park,” which makes fun of Netflix for funding so many new TV series. A Netflix employee answers the phone saying: “Netflix, you’re greenlit. Who am I speaking with? . . . Would you like a pilot or just go straight to an order of six episodes?”

WSJ: George Costanza’s Investment Tips

 https://www.wsj.com/articles/george-costanzas-investment-tips-1520800111

I’m frequently asked what it takes to run a hedge fund. Translation: “If a dope like you can run one, I certainly can too.” Fair enough. A lot of hedge funds are getting killed in a huge upmarket: Brevan Howard’s Master Fund shrank 5.4% in 2017, while David Einhorn’s Greenlight was down 12% in the first two months of 2018. It’s time for a new batch of fund managers. Think you can do better?

First, let’s see if you’re up to it. Right now, go out and buy a 60-inch flat-screen TV. Easy, right? As soon as it arrives, return it for a 75-inch model. Then, when that shows up, return it and get the 42-inch version. Still having fun? It’s a royal pain. As soon as you’re comfortable with something, it’s probably time to sell it. This self-qualifying exercise will show if you can turn on a dime when, say, tariffs tank the economy.

Next, visit all the people you know and ask them to take out their wallets and give you a slug of their money. Do the same for a bunch of strangers, too. Then promise that you’ll return triple the money in a decade, minus your modest 20% of the upside fees.

Ready to invest? What’s your style, your edge? Macro, distressed debt, long-short, dollar-event-driven, cryptocurrency arbitrage? Actually, there’s only one way to invest, especially in today’s environment. It works for everyone, from $20 billion hedge funds to individual retirement accounts worth a few thousand bucks: Take the pulse of the market and figure out how everyone is wrong.

Easier said than done. It isn’t hard to get caught up in the emotion of the market. It’s euphoria when stocks are booming and you’re getting crypto tips from Uber drivers—and despair when everyone is dumping stocks and swearing never to own them ever again. You’ve got to zig when everyone else zags. “Serpentine, Shel, serpentine!”

How do you know what’s right? It almost always feels wrong. There’s an old saying on Wall Street: “Your hand should be shaking when you place your order.” You can learn from George Costanza of “Seinfeld.”

 He once lamented, “Every decision I’ve ever made, in my entire life, has been wrong. My life is the opposite of everything I want it to be.” When Jerry Seinfeld opines, “If every instinct you have is wrong, then the opposite would have to be right,” George gets it. “Yes, I will do the opposite. I used to sit here and do nothing, and regret it for the rest of the day, so now I will do the opposite, and I will do something!”

WSJ: Elon Musk’s Uncontested 3-Pointers

https://www.wsj.com/articles/elon-musks-uncontested-3-pointers-1519595032

I have a suspicion that Stephen Curry and Elon Musk are the same person. First, as was said of Michael Jackson and Diana Ross, you never see them in the same room together. More important, they both dislike crowded spaces.

Mr. Curry, a two-time NBA most valuable player with the Golden State Warriors, has mastered the art and science of shooting 3-pointers. But a closer look at his stats reveals that he really likes to shoot uncontested 3s. Who wouldn’t? Making uncontested baskets is a lot easier.

Mr. Curry often takes shots from several feet behind the 3-point line. Defenders, figuring no one would be stupid enough to shoot from that far away, leave him open. And he makes baskets with surprising accuracy. At one point in 2016, he made 35 out of 52 shots from between 28 and 50 feet. Uncontested indeed.

Elon Musk’s business strategy isn’t so different: Go far enough into the future that there are no other competitors. Mr. Musk’s first success was X.com, an email payment company. It merged with Peter Thiel’s Confinity to form PayPal —and avoid competition. They had the market to themselves for a long time because fraud, especially from Eastern Europe, was so rampant on early internet payment platforms. They solved the fraud problem and enjoyed an uncontested market, eventually selling for $1.5 billion to eBay.

Then Mr. Musk headed further into the future. He took the nine-figure payout from PayPal and pushed ahead with SpaceX, Tesla and Solar City. Literally his last $20 million went to Tesla in 2008. “I was tapped out. I had to borrow money for rent after that,” he later recalled. Private space launches, electric cars and rooftop-solar financing were all huge Muskian pushes into the future, where no one else dared play. Today, Tesla is worth around $60 billion. SpaceX raised money last summer at a $21 billion valuation. Mr. Musk is no longer borrowing to pay his rent.

Quite impressive, even though I find all the handouts offensive. When I see someone driving a Tesla I greet him with, “You’re welcome.” When he inevitably asks for what, I roll out the long list of subsidies: a $465 million Energy Department loan in 2009, a $7,500-a-car income-tax credit from the feds, $1.3 billion in incentives from Nevada for a factory, and more. Removing competition by racing to the future is one thing. Seeking special treatment to boost your advantage is cheating.

Mr. Musk still pushes the boundaries.

WSJ: What Does Facebook Do Now?

https://www.wsj.com/articles/what-does-facebook-do-now-1517776963

I have a confession: The day I started on Wall Street, my boss handed me a yellowing copy of Benjamin Graham and David Dodd’s 1934 book, “Security Analysis.” He told me Warren Buffett swears by it! I read maybe three pages before the section on valuing railroad bonds put me to sleep. I still have the book, which is now a doorstop. What I quickly realized was that only three things matter when investing in technology: growth, growth and growth.

Last week Facebook announced that its quarterly earnings grew 61% year over year, amazing for a company with $40 billion in revenue. The stock is up a similar amount since the start of 2017, but some cracks are showing in user engagement and growth. Is Facebook really worth $553 billion? Has it peaked?

The company certainly is under fire. Too many people falsely believe that fake news on Facebook got Donald Trump elected. Like cockroaches, critics calling for regulation are scurrying out of the woodwork. Salesforce CEO Marc Benioff thinks Facebook is so addictive that it should be controlled like cigarettes. George Soros told the Davos crowd that Facebook and Google are a “menace, and it falls to the regulatory authorities to protect society against them.”

Some critics even think Facebook is too successful and should be broken up, though the Federal Trade Commission would have to search far and wide to find consumer harm. Now there is a call, led by News Corp ’s Rupert Murdoch, for Facebook to pay publishers like this newspaper for their content. (News Corp is the parent company of Dow Jones, which publishes The Wall Street Journal.)

Under pressure last month, founder Mark Zuckerberg announced changes to Facebook’s “news feed” that would emphasize posts from family and friends rather than outside publishers. Considered as a business proposition, this is a loser. Will more of grandma’s fruitcake recipes keep Facebook users clicking? It almost answers itself. “In total, we made changes that reduced time spent on Facebook by roughly 50 million hours every day,” Mr. Zuckerberg said last week. Yet investors yawned, and the stock rose 4%.

The company’s biggest threat is simple: Facebook is running out of people. In March 2007, when I sat down with Mr. Zuckerberg for a Journal interview, he bragged about having 16 million users. In its early years, Facebook was limited to college students, and critics suggested he would soon run out of them. They were right! Which is why the requirement to have an email address ending in .edu was soon dropped. Today 2.14 billion people use Facebook at least once a month.

Chew on these numbers: There are about 3.5 billion internet users today—less than half of the world’s population. It might seem like that leaves plenty of room for growth, except that about 750 million internet users are in China, where Facebook is blocked. Another 110 million or so are in Russia, where most use the homegrown social network VKontakte. That leaves Facebook with only a few hundred million potential recruits, mostly in India, Japan and Africa. Its reach is amazing, but this doesn’t leave much room to grow. In the lucrative U.S. and Europe, user growth is basically flat.

WSJ: Stocks Weren’t Made for Social Climbing

https://www.wsj.com/articles/stocks-werent-made-for-social-climbing-1516565984

Wall Street considers it a truism that money sloshes around the globe seeking the highest return. But there are countless investors, believe it or not, who are willing to accept lower returns. P.T. Barnum supposedly said there’s a sucker born every minute. Many of them go into so-called socially responsible investing. Laurence Fink of BlackRock , which manages $6 trillion in assets, is only the latest to evangelize this fad. But the basic idea is to throw money away. In reality there is no trade-off of Vice vs. Nice. There are only returns.

“Corporate social responsibility” fails under the same halo. Reread Milton Friedman’s 1970 article “The Social Responsibility of Business Is to Increase Its Profits.” For stockholders to push their view of social responsibility, Friedman wrote, is simply to force others “to contribute against their will to ‘social’ causes favored by the activists.”

Profits are the best measure of a business’s value to consumers—and to society. No one holds a gun to the customer’s head. If the buyer weren’t glad to pay the free-market price, he would make the product or perform the service himself. Yet this idea is questioned all the time.

A case in point is Amazon, currently worth $625 billion based on expectations for Amazon-size profits to come. A Seattle Times headline in 2012 lamented that the company was “a virtual no-show in hometown philanthropy.” Sally Jewell of the retailer REI told the newspaper: “I’m not aware of what Amazon does in the community.” Really? Besides offer low prices, huge variety and quick delivery, along with jobs not only in Seattle but around the world, as manufacturers leverage Amazon’s platform to reach global customers? But the company didn’t sponsor concerts in the park! Gimme a break.

A counterexample is Etsy , which for years proudly touted that it was a “B Corp,” one “certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance.” Sounds a bit wishy-washy, but maybe it was supposed to attract social-impact investors. How’s it going? After Etsy went public in 2015, it opened at $31 a share, bottomed out in 2016 around $7, and now trades at $19. That’s worse than dead money, given that the overall market is up a third since Etsy’s IPO. Little surprise, Etsy is no longer interested in being a B Corp.

WSJ: Unicorns Need IPOs

https://www.wsj.com/articles/unicorns-need-ipos-1515361043

Get ready for the Unicorn Jailbreak. Tech stocks have taken off this year like a bat out of hell. But several hundred startups valued at over $1 billion, so-called unicorns, are watching with envy. Sure, 57 startups became unicorns in 2017, according to Recode. Their valuations are rising with venture-capital money, but what’s the fun in that? Liquidity is where it’s at.

This market is dominated by investors suffering from split personality disorder, rotating between risk-on and risk-off modes. Risk off means uncertainty and caution—and investors avoid risk like they’re retiring next week. Today the market is definitely risk on. Heck, the Cboe Volatility Index, or “fear gauge,” briefly hit an all-time low last week.

It’s time for the whole blessing of unicorns—look it up—to break out, hit the public markets and trade every day like real companies. Spotify has done a confidential filing for a direct listing on the New York Stock Exchange. It’s a great start, but others will need a bigger splash.

I’ve rarely seen a frothier market. Fed-driven low interest rates mean investors are begging for things to buy. They’re chasing mirages like cryptocurrencies and initial coin offerings. Calpers just raised its equity allocation, more as a magic wand to stave off municipalities actually kicking in more dough. But no matter, they need stock. As they say on Wall Street, when the ducks are quacking, feed them.

Where are all the IPOs? One problem is that SoftBank’s $93 billion Vision Fund is bagging unicorns like Teddy Roosevelt shooting wild buffalo from his train. It put $4.4 billion into office-space provider WeWork, $2.5 billion into the Indian online retailer Flipkart, and $1 billion into Fanatics, which sells football jerseys. And don’t forget the $7 billion it just invested in Uber, shrinking the ride-sharing giant’s valuation to $45 billion from $68 billion at the previous round. Only public markets can judge whether these valuations are right. For now, it’s shoot and wish.

WSJ: 2018: You Read It Here First

https://www.wsj.com/articles/2018-you-read-it-here-first-1513538788

It’s that time again: Get ready for lists of year-end predictions. My prediction? You hate them. Me too. The old game on Wall Street and Silicon Valley is for members of the bloviating class to polish their crystal balls and tout their brilliance by predicting how the next 12 months will unfold.

The worst predictors are those who hedge. They produce lists of worthless predictions that can be considered correct no matter what happens. You know them: “Unless there are exogenous economic shocks, stocks will rise next year.” Or, “Outside of OPEC intervention or tight supplies, oil prices are headed down.” Then a year later, these prognosticators will claim their predictions are uncannily correct, while they roll out new hedged mush for the next year.

I want in on this game too. Here are mine:

1. Interest rates will go up in 2018. I’m already 1-0.
2. The stock market will underperform 2017’s returns. See what I did there? Stocks are up around 24% this year. Even if they are up again by 23.99%, I’m right.
3. Tesla will miss production forecasts again. This is easy. Put another correct prediction in the book for me.
4. Bitcoin appreciation will slow. The cryptocurrency is up around 1,700% this year. Again in 2018? Store canned goods if it does. Cryptobulls claim bitcoin is a store of value, and to handle the world economy, it must be valued in the trillions. That’s a leap of faith wider than the Grand Canyon. Currencies were once backed by gold but now derive value from faith in governments and their ability to tax citizens and boost the economy. This became evident during the 2009 financial crisis, when bank bailouts in dollars didn’t crater the currency. Remember Zimbabwe’s $100 trillion note? I’ve calculated bitcoin being worth no more than a few hundred dollars. I’ll stick with that.
5. No, 2018 will not be the year of augmented reality. Techies salivate over the facial-recognition sensors in the iPhone X. But animoji karaoke is just not that big a deal. Augmented reality will come of age when I can go to Gettysburg, look through glasses toward Cemetery Ridge, and watch Pickett’s Charge play out in real time. Wake me when that happens.
6. Donald Trump and Vladimir Putin will still be in power.The Russian will rig the system, and the Russia investigation won’t stop the Trump Train© from rolling over the resistance.
7. The best-performing market in 2018 will be out of Africa. No real insight here. Some downtrodden market, most likely in sub-Saharan Africa, will come out of its slumber and double in value. Maybe Zimbabwe.
8. Net-neutrality regulations will be repealed, customers will be happy, and the internet won’t collapse. George Orwell would chuckle at neutrality proponents who doublethink a free and open internet through regulations. In reality, net neutrality comes free with competition and without regulators. I hope the same energy can be instead harnessed promoting fiber and 5G and any other competition-expanding technologies. As soon as the regulations go away, watch providers offer new discounted plans. Free internet with Amazon Prime?
9. China will experience financial indigestion. The International Monetary Fund is nervous about China. So am I. Property prices are inflated. Debt has become a bad drug. I’ve heard of consumer-goods companies that don’t pay their suppliers for a year, but then offer them financing so they can get cash. They then sell that supplier debt to the public—the same customers that buy the consumer goods. What could go wrong? Even a small glitch becomes a disaster.
10. The U.S. economy will do better than expected in 2018. Bit of a low hurdle here. After years of Obama -burdened 2% growth, a combo of regulatory reform and corporate tax cuts will unleash the animal spirits. I can see GDP growth over 3% each quarter in 2018, perhaps even surpassing the naysayer 4% barrier. And it’s exactly why interest rates will rise—see prediction No. 1.
11. The first disease will be cured with Crispr technology. Gene editing is very cool, and Crispr tools will reshape health care over time. But all I need is one disease to be cured. Heck, I’ll settle for canine flatulence or even colorblindness.
12. Two self-driving cars will collide with each other. It’s inevitable. Why not predict it?

    There you have it. I’m already batting .500 and it’s still 2017.

WSJ: The Expense-Account Racket

https://www.wsj.com/articles/the-expense-account-racket-1512338252

It was almost a rite of passage. Soon after I started on Wall Street in the 1980s, sales folks from the trading floor invited me to dinner. We met at one of those fancy New York steakhouses where French wines flow like tap water. I felt part of a new fun group.

Until, that is, the bill came. Everyone looked at me and another new guy. “You know about the tradition, right?” I recall the senior salesman asking. “Last one in, pays.” At 26, I wasn’t sure my credit-card limit would be high enough. I sheepishly asked how to expense the enormous bill. Simple, I was told: Mark it down as a couple of cab rides a week. Oh, and welcome to Wall Street.

This story came to mind last month after Navnoor Kang, a manager at New York’s state pension fund, pleaded guilty to fraud. He had been bribed to direct bond business to the trading firms Sterne Agee and FTN Financial. This included vacations, drugs and prostitutes. I kept thinking: How the heck did the salespeople at these firms write off all this stuff on their expense accounts?

Wall Street was supposed to have been cleaned up by now. In 2006 the investment-banking firm Jefferies paid nearly $10 million in fines after lavishing gifts on Fidelity traders. These included “a booze-fueled bachelor party replete with strippers and dwarves,” according to the New York Post.

Two years later the Securities and Exchange Commission charged Fidelity for “improperly accepting more than $1.6 million in travel, entertainment, and other gifts paid for by outside brokers courting [its] massive trading business.” The perks included “premium sports tickets to events including Wimbledon, the Super Bowl, and the Ryder Cup golf tournament.” Fidelity cleaned house.

Who hasn’t fudged expenses? 

WSJ: Quit Modifying Capitalism

https://www.wsj.com/articles/quit-modifying-capitalism-1511071712 

After the calamitous century between Russia’s October Revolution and Venezuela’s debt default last week, you might think socialism would be dead and buried. You’d be wrong: It’s capitalism that is back on the rack, being tortured and refitted according to the ideologies of its detractors. But be warned, when you modify the word “capitalism,” you are by definition misallocating capital. I call this fill-in-the-blank capitalism.

Bernie Sanders offers a fine place to start. “Do I consider myself,” he asked at an October 2015 rally, “part of the casino capitalist process by which so few have so much and so many have so little?” (Emphasis mine.) Never mind that it was a progressive hero, Barney Frank, who said in 2003 that he wanted to “roll the dice a little bit more in this situation toward subsidized housing”— which helped lead to the financial crisis. Now Mr. Sanders wants to load the dice: Free college for all. Free Medicare for all. Free rations for all?

Al Gore, an ostensible environmentalist who made millions dealing with oil-rich Qatar, is no stranger to ideological modifications. On these pages in 2011, Mr. Gore co-wrote “A Manifesto for Sustainable Capitalism,” which demanded that markets integrate “environmental, social and governance (ESG) metrics throughout the decision-making process.” Yet messing with critical price signals through “ESG metrics” is exactly what would make capitalism unsustainable. See: Frank, Barney.

A 2014 Huffington Post headline declared “Let’s Make Capitalism a Dirty Word.” This was right around the time that “Capital in the Twenty-First Century,” the French economist Thomas Piketty’s now largely discredited book, was published in English. Mr. Piketty called for a tax on dynastic wealth because of “a strong comeback of private capital in the rich countries since 1970, or, to put it another way, the emergence of a new patrimonial capitalism.” Tell that to Mark Zuckerberg and Larry Page, self-made billionaires who weren’t even alive in 1970.

Nobel Prize winner Joseph Stiglitz tried to one-up Mr. Piketty, complaining in a 2014 article for Harper’s magazine about “phony capitalism.” But he offered a remedy! “A well-designed tax system can do more than just raise money—it can be used to improve economic efficiency and reduce inequality.” Messrs. Stiglitz and Piketty and all the modern-day central planners will no doubt gladly make the economic decisions needed to right the ship after they have sunk it.