Dana Blankenhorn

Know Your Enemy

My biggest frustration with Lefty Twitter these days is they don’t know what they’re facing.

They think it’s Trump. Or Marjorie Greene. Or the Texas Legislature. Or Fox News.

It’s none of those things. These perceived enemies are merely front-line targets. Take them out and there are others behind them.

The Republican Party isn’t in disarray. It isn’t incoherent. It’s very coherent. I’ve already identified where most of its foot soldiers come from.

But the Great Awakening is just one element in a broader coalition. It’s a coalition familiar to any Latin American, from Mexico to Argentina. It’s a coalition that was Made in the USA and imposed on their home nations by Americans. We’ve been at it for two centuries, ever since John Quincy Adams wrote, and James Monroe endorsed, what became known as the Monroe Doctrine.

Kids are taught that the Monroe Doctrine told Europe to keep its hands off the Americas. It did. But it didn’t say the USA wouldn’t keep its hands off the rest of the Americas. We have been doing it ever since. Nearly every nation in this hemisphere has seen an American invasion, either directly or by proxy. Most have had governments imposed on them, and they’ve all been driven by three basic elements:

• Militarists – These governments have been led by generals. Armies and police can impose whatever order they want, especially if they have a bigger army, like ours, behind them.
• Oligarchs – A few rich men can organize an economy however American sponsors want. It’s about controlling the land on behalf of some activity. The phrase “banana republic” comes from American control over Central American countries on behalf of United Fruit. We have also used oligarchs to control minerals, and oil, even tourism.
• Religion – This is how you control a people. You tell them this is what God wants, and you may not question it. The more extreme the religion, the better it works. You put the other race down, the other sex down, and tell them it's God's will. 

Obligations of Capitalism

Capitalism isn’t a free ride. As described by Adam Smith in The Wealth of Nations, wealth carries obligations to the common good.

This isn’t a new concept. The whole story of Buddhism is of a man in mid-life who renounces the pursuit of wealth in favor of spirituality. Even Mohammed was a trader before he was a prophet. The idea is that you spend the first half of your life building wealth, recognize how shallow that is, and spend the back end doing for others.

Against that we have Nietzsche, for whom self-interest was the whole of the law. Against that we have Nietzsche’s acolyte, Ayn Rand, who brought him to America with badly-written novels that were thinly-disguised political screeds telling the poor to fuck off.

Tech’s Democracy Problem

Somewhere in the Caribbean, there’s a 12-year old kid poised to control the fate of a trillion-dollar company.

Google has what’s called a “dual-share” structure. There are GOOG shares, which supposedly convey ownership. Then there are GOOGL shares, which hold most of the voting rights and convey control. This was put in place by co-founders Sergey Brin and Larry Page. Through GOOGL they control the company in perpetuity.

This is tech’s democracy problem. The democracy in corporate governance is disappearing.

Alibaba came public in New York first, rather than China, because it had this dual-share structure. You can’t buy Alibaba except through Jack Ma. China had to relent on this before Alibaba would list in Hong Kong. Yes, China’s market was (it isn’t now but it was) more democratic than America’s.

In a democracy it’s one man one vote. In a corporation it should be one share one vote. Increasingly it isn’t. The whole thing became a comedy in the mess around WeWork. Softbank’s Masayoshi Son sent billions to WeWork under the mis-named “cult of the founder.” He structured the deal so that founder Adam Neumann couldn’t be ousted. When it became apparent that Neumann was an idiot or perhaps worse, it cost WeWork billions to get rid of him. The same thing happened at Uber with Travis Kalanick.

This idea that founders should control their companies indefinitely arose in tech during the 1980s. Wall Street was able to oust Apple co-founder Steve Jobs, installing “adult supervision” that nearly wrecked the company, before Jobs was asked to return. Even after that, Jobs’ stake in Apple remained a minor one. His estate left nearly as much value from his Walt Disney shares, from Pixar, as from Apple.

Tech’s Stock Problem

In today’s technology age, wealth is defined by stock.

This is causing a big problem for those who believe in capitalism.

To exercise their vision and keep companies out of the hands of Wall Street, entrepreneurs need a controlling stake. If their vision succeeds, this can create fortunes of unimaginable size. Of the 8 “centi-billionaires” listed by Forbes on May 19, 5 were American tech executives. 

They’re not the responsible, prudent men they were in the good old days. Jeff Bezos is living out the wildest fantasies of in-your-face wealth, buying giant mansions and super-yachts with his girlfriend – he divorced his wife last year. Bill Gates has been “outed” as a hound, a sexual predator, as he goes through a messy divorce. Elon Musk is just being an asshole, manipulating crypto-currency markets with his tweets. Larry Ellison buys islands and moves thousands of people around the country if you dare try to tax him. Mark Zuckerberg, not yet 40, seems the most responsible of the bunch.

It’s not just the ultra-rich giving wealth a bad name. The merely insanely rich are also being shown to be grade-a assholes. As I explained in my recent SPAC piece, these people create companies out of cash, buy operating tech companies, win even if they lose, and turn other people into billionaires before they’ve really accomplished anything.

Austin Russell, for instance, is 26. His company, Luminar, is just one of several trying to build Lidar systems that will help make cars autonomous, self-driving.  So why is he worth $2.2 billion?  It’s because a SPAC took Luminar public, and investors have yet to catch on that sales of $5.3 million in three months, don’t justify a $7 billion market cap.

SPACs Deliver Fortunes Without Results

I’ve been noodling on the SPAC problem for months now, wondering what’s wrong with them. Only recently has the answer come to me.

Special Purpose Acquisition Companies (SPACs) are designed to take private companies public before they’re ready for the public market. That is, the SPAC buys what’s basically a venture company, then sells stock in the venture to the public.

SPACs don’t have profits or even sales to justify their valuations. What they have is the sponsor’s word, and the CEO’s presentation. These are carefully stage-managed, as though public investors were buying into a venture fund. Of course, small investors can’t buy into venture funds. We’re not accredited. We can’t guarantee that if the venture goes bust, we won’t be hurt. That’s what being accredited means. 

Democrats Should Stop Worrying

A lot of liberal Democrats, helped along by ignorant Washington pundits, insist that Democrats are in trouble.

They’re not. We’re just not.

Yes. Republicans have put in idiotic voter suppression laws. Yes, Republicans want to gerrymander. Yes, there are big money groups hiding their support for right-wing causes. Yes, Fox News. I get it.

But there are bigger, stronger, longer-term trends at work here.

Inflation Bears

Right now, inflation bears are everywhere.

They worry about commodity prices.  They worry about gas. They worry especially about wages. 

Inflation might be high this year. There’s enormous pent-up demand from the pandemic. There’s a tremendous amount of spare cash running around. You can feel it on the roads, traffic jams and people driving like maniacs. Restaurant wait times, and check sizes, are up.

But as usual the worriers are fighting the last war. Inflation is no longer a threat as it was in the 1970s. Today’s threat is deflation.

Reckoning With The Great Awakening

If any period in American history deserves re-examination today, it’s The Great Awakening. 

Following a similar movement in 18^th century Britain, America’s Great Awakening came in the first half of the 19^th century. Most of our popular Protestant denominations – Methodists, Presbyterians, Baptists, and Mormons – had their heyday then.

But the most historically important group were the Millerites. They initially followed a man named William Miller who claimed to know when the Second Coming of Christ would happen, followed by the end of the world. It didn’t happen. But The Great Disappointment led, in turn, to the creation of 7^th Day Adventists.

A version of Millerism has been alive in America ever since. It was the primary reaction to the 1960s. Evangelical and fundamentalist risings occurred in both Catholic and Protestant churches. This was accompanied by rising political involvement, the “Religious Right” that stood behind Reagan, the Bushes, and Trump.

Liberals who pretend that current events are unprecedented, that mass denial of reality hasn’t happened here, haven’t studied the Great Awakening. That, too, was a rejection against elites. Its political tool was Andrew Jackson, who owned slaves, expelled Indians, treated women like dirt, and destroyed the economy along with the Second Bank of the United States. It’s no coincidence that Trump put Jackson’s picture over his desk. His is the same type of movement.

Tech Wreck Opportunity II

Every move the stock market makes comes before the economic change it assumes.

It’s also, always, exaggerated.

What I have been saying for months is that we will see a rotation from tech stocks to “real economy” stocks. In with the cruise lines and the tractor makers. Out with the cloud applications.

That has now happened. While I’m still getting calls to write about industrials, I noticed today that Deere (the tractor company) is trading at 34 times earnings. That’s ridiculous. They’re not growing, and when they do grow it won’t be by anything like 20% per year.

The other side of this trade is the tech slide. What you’re looking for, as an investor, is a price to earnings ratio of about 25 on strong growth. Alibaba (BABA) is already there. Apple (AAPL) is at 29 times earnings. Facebook (FB) is at 26.

Don’t be fooled into buying cheap tech names. Cisco (CSCO) and IBM (IBM) are cheap for a reason. They’re not growing. If you’re going to pay 25 times earnings, you want growth with it. Micron (MU) is at 29 times earnings. Want to know why Cathie Wood is doubling-down on JD.Com (JD)? Because it’s under 15 times earnings.

If you see a tech stock with earnings and 20% growth, trading at 25 times or under, you grab it. As with everything, this move is going to over-shoot. Keep your discipline, nibble when you see your target, and ride it all back up.

Tech Wreck Opportunity

Moore’s Law creates accelerating deflation.

Faster computers and bigger clouds mean that learning of all kinds is sped up. Human talent becomes the gating factor to growth. Science finds or creates new materials. Engineering also accelerates, enabling replacement of what’s scarce with things that are more abundant.

This isn’t news, but with the economy growing rapidly, and inflation rising, it’s easy for investors to forget the fundamental facts of today’s economy.

Since the start of the year tech stocks have been moribund. Many of the biggest names have been down. Apple is down.

Why? Mainly because there are other ways to make money. Investors, and speculators, buy the rumor and sell the news. What works for speculators is usually what might work, and what might work right now are old-fashioned industrials and basic material stocks.

Many stocks you never heard of with names like Deere (DE), Stanley Black & Decker (SWK) and United Rentals (URI), are having fabulous years. Meanwhile Amazon.Com, whose business is fabulous, has barely budged.  The ARK Innovation ETF (ARKK), which buys bleeding edge tech names like Tesla (TSLA) and Shopify (SHOP), is down by a third in 2021.