Dana Blankenhorn

Loyalty

Loyalty is one of the most powerful forces in human nature.

But it can be broken, as anyone whose spouse has cheated on them knows.

Abandoning loyalty is painful. We avoid it even after it’s proven worth less. We defend it even when it’s proven worthless. Usually, we abandon it privately. Whoever or whatever abused our loyalty is often the last to know.

Getting and keeping loyalty is a big topic in business schools. So is getting it back. Not enough study is devoted to losing it. We just know it when it’s happened, when sales at Kmart, or Blackberry, fall off a cliff. When that happens, we usually look at Walmart, or Apple. We don’t study the loss of loyalty. In retrospect, it’s obvious.

While it’s happening, however, it’s not obvious. Loyalty dissipates slowly, then all at once.

An Oilpatch Memo

President Biden’s move to cut gasoline taxes is doomed to failure.

That’s not because Congress won’t like it, or that it will take money from infrastructure. It’s because price is how we ration short supplies. No one has suggested an alternative rationing mechanism.

My family has done its bit for conservation. We bought a Toyota hybrid. We keep the thermostat at 77 during the summer. Except for our recent vacation, we’re not driving much because we’re working from home.

Privileged people can do this. Those without privilege, or those who think they’re without it but are, have a harder time. Poor people who live far from work get chewed up by inflation at times like these. Middle class folks who’ve bought giant pick-ups, boat trailers and homes in the exurbs are also hurting. There’s rising anger on both sides. Conventional wisdom says Republicans benefit as the “out” party.

I don’t want this to be about politics, however. I’m a finance reporter.

Counterculture

Here is the most important point about Trump, his acolytes, and the Christianist forces allied with him.

They’re a counterculture.

They’re not the culture.

The dominant culture of the West is tolerant. It’s tolerant because that’s in the best interest of technology, where creativity is the gating factor to economic growth.

The economic facts aren’t changing. China isn’t going to beat us because you can’t get mass creativity from slaved minds. Russia remains tied to the old economy of resources, money coming out of the ground. Even the Middle East is liberalizing, because the Sauds and their fellow sheikhs can see the handwriting on the wall, can see Israel becoming more powerful than they can ever hope to be. They know they must get on the right side of the new economy. It’s where they’re investing their oil wealth.

Catching Up

I have missed the last two weeks because we finally took a vacation, one we had been promising ourselves for 3 years.

Nothing was going to stop us. Not this time.

You probably feel the same way. That’s the problem. We’ve all been feeling the same way for years now.

In a normal economy, we feel differently. We’re of different ages, with different incomes, different interests, and different lifestyles. Usually, it balances out.

Not these last two years.

First, we were all in lockdown.

Then we all learned about Zoom.

We all saved together, and last year we started demanding things together. The same things at the same time. This brought big raises and labor shortages, especially in scut jobs. Supply chains couldn’t adjust because demand exploded, and China wasn’t ready for it. (They’re still not completely ready.)

Then came the war. We cut off Russia, OPEC took advantage, and Texas knew it had a good thing, so U.S. supplies didn’t jump either.

The result has been a hit of double-digit inflation, the same kind I lived with through the 1970s. Markets are reacting just as they did then. When money costs money, you need an immediate return to pay it back. Equity grows scarce as investors rush for safety. The stock market was crap in the 1970s.

We’ve been whipsawed, and it’s natural to feel upset about that. Our spending patterns changed faster than the economy could. Stock market analysts were months behind these changes. Policymakers were even further behind. They still are. That’s why the national mood is sour. We’re headed for a crash, and it seems there’s nothing we can do about it.

But there is something we can do about it. Our collective common sense will get us through if we just believe in it and act as though our neighbors aren’t all idiots. They’re not. Most aren’t, anyway. That’s why democracy works.

Thanks to Moore’s Law, the speed of adapting to change will increase, too. We have the technology to beat inflation now. If tech companies want to abandon the coasts and find cheaper labor that just means fatter returns sooner.

You want your money in the long term trends, those I identified three years ago. The end of oil. The Machine Internet. DNA as a programming language. 

The problem is that, since we’re early in this new boom, the winners are hard to identify. Winners that look obvious, like Tesla and Enphase, are still overpriced. Look first to the Cloud Czars that will lead the Machine Internet forward. As to DNA, I’d buy an ETF like iShares Biotechnology (IBB) or the S&P SPDR Biotech ETF (XBI) until we know more.

Bear markets end. If you can wait three years, and if you’re investing instead of speculating you should be able to, you’ll mostly be whole and have a clearer idea of what will rise further, especially if you invest in real companies with real earnings. Now is a time to be thankful for diversification and cash.

This too shall pass. In a year or two, we won’t all be thinking the same things, doing the same things. I may be retired. You may be getting started on a family. Our interests and economic patterns will be different. That’s when we’ll find out what the “new normal” really means.

Unless Putin goes nuclear, in which case it doesn’t matter what you’re in because we’re all dead anyway.

How to Adapt to Accelerating Change

The chief theme of my working life has been the pace of change accelerating, under Moore’s Law.

We’ve all had to get used to it, but until this decade economists didn’t.

Now they must.

The pandemic has shown just how quickly economic behavior can change, and how inadequate our tools are for adjusting to it.

Just since the start of 2021, we’ve seen a tech-driven work-from-home economy replaced by a great reopening, followed by huge demand for goods, then workers, and now a giant stop sign as markets have saturated. But fears of recession may be overdone as services are replacing goods in the family shopping cart.

Worthless, Worth Less, or Bargain?

There are three types of tech stocks today.

Companies that aren’t doing anything real are worthless. I’m talking about crypto and NFTs, I’m talking about all the metaverse stocks without a business model. For these companies it’s 2000, it’s Gotterdammerung. Just as was the case then, there’s a lot of stuff that was valued based on the assumption of no limits.

It was easy to find the moment it all came crashing down last time. It was January of 2000, when Time Warner “bought” AOL in a deal that gave AOL shareholders more than half the resulting stock. This put an upper limit on the value of Internet stuff. It was all downhill from there.

The big moment this time was the Crypto SuperBowl. Matt Damon read a ridiculous script that equated buying cryptocrap with going to Mars. It was at that moment, during a game played in SoFi Stadium (another name due to crash) that we realized how artificial it all was. Smart people got out.

Inflation and the Bear Market

Inflation has created a bear market in U.S. stocks.

Inflation this time is a global phenomenon. It’s caused by Russia’s war, China’s lockdown, and the impacts of climate change. The Administration can’t beat it. The Fed can’t beat it. Technology can fight it, the high dollar can offset its impact, and a little belt-tightening won’t go amiss either. But in the end we’re at the mercy of global events.

In a bear market, fear replaces greed. There is fear this morning that the Ukraine war will drag on and force concessions. There is fear that China will invade Taiwan.

I believe the fear is misplaced. American aid should let Ukraine go on the offensive next month. I don’t think China will invade Taiwan.

Why Democracy Works

Democracy works because people are stupid.

I’m stupid. You’re stupid. The smartest are stupid in some ways. Everyone is stupid (except Dolly Parton).

But in a democracy the stupid balances itself out. The collective stupid of every citizen yields enough intelligence that we get by. Even when stupid wins, as in 2016, the beauty of democracy is getting a chance to correct it.

I’ve seen on Twitter that most people think other people are stupid. They’re right. But so are the people making the accusation. We all have our blind spots, our prejudices, our absolutes. They’re different. In the end they balance out and we muddle through.

What’s most dangerous to democracy is the assumption, on the part of all elites, that everyone else is stupid. They are. But you are, too. It’s when elites achieve authority that they can be deluded about this. I don’t care if you’re in the media elite, the intellectual elite, the scientific elite, the business elite, or (God forbid) the political elite. Once you assume authority your stupidity will be laid bare.

What To Buy Today

If you have money to invest, here’s an obvious truth.

We’re at or near the bottom of a bear market.

Everything is down. Some stuff has been crushed. Some of my stuff has been crushed.

But don’t despair, friend Investor. Bear markets end. Even with the worst of them, the average stock has gotten back to even in just a few years.

If you have taxable income you want to hide, and a taxable investment account, then feel free to dump your garbage. Anything that won’t come good in 3-4 years – take the loss. Dump the SPACs, dump the crypto, dump the stuff that’s losing money faster than it’s growing, or that lacks the cash to wait 2 years for another injection of money.

Now, because I write for Investorplace I’m going to tell you what to buy.

Cash is Still King

You don’t have a loss until you sell.

I am reminded of that during the current tech wreck.

I have a retirement account, which for a while was worth over $1 million. It’s worth just two-thirds of that now.

But that’s OK. Because the account includes about $140,000 in cash. I can buy some stocks. I don’t have to sell any. I can wait out the bear market.

The stocks I own are all in real companies, most of them profitable. I have some dogs that may not come back, like Cloudflare and Upstart. But Amazon will rise again. So will Google, Microsoft, and Nvidia. Bitcoin won’t come back (I hope), nor the rest of the cryptotrash. There’s still almost $1.22 trillion locked in that garbage. There are losses still to come.