Dana Blankenhorn

The Second Gilded Age

As Congress, and the American people, put $2 trillion, plus $4 trillion in Federal Reserve created cash, into bailing out the economy, a lot of criticism fell on companies that bought back stock, paid out fat dividends, and kept cash balances low over the last decade.

I take a back seat to no one in my criticism of companies like AT&T, IBM and GE, whose dividend-first policies acted as a slow liquidation while the cloud grew up around them. A company needs to grow if it wants to survive. It must keep investing if it wants to have a business tomorrow.

But it is hard to do because of the real villains in this piece.

Hedge funds. Vulture capitalists.

Assets vs. Investment

The recent fall in the stock market makes now a good time to talk about the difference between assets and investment.

Assets, as you’ve seen, are worth only what someone will pay for one of them.

If you bought Apple at $300 and now have a share worth only $240, it’s because the last guy to buy Apple bought it at that price. One sells for that, they’re all worth that. Collectively, they’re all worth that. So it was that nearly $300 billion got wiped away.

Spending, investment, is something else. Buying something, building something, improving something creates value that lasts. Facebook began investing in cloud data centers, at $1 billion/quarter, before it had $1 billion/quarter in sales. Amazon.Com invests nearly everything it brings in. It leads its financial records with the cash flow statement, which includes the amount of money it spent on data centers, on delivery vans, and on warehouses.

Getting Through Today’s Crisis

For the last few years, I’ve made a living talking about stocks. Let me start with that.

Don’t look at your retirement account. It won’t do you any good to sell right now. Unless you must. If you must, and you’re in a taxable account, sell your worst losers first. If you’re in a tax-free account, sell your strongest stocks first.

I have been expecting something like this for a long time. About 25% of my retirement account consists of cash, or equivalents like a three-month government note. I’m going to need to do some bargain hunting to get back to even.

That said, I’m not grabbing a falling knife. So long as the panic is ongoing, don’t get in front of it. The best time to buy, it turns out, is near the end of a down day. The best time to sell, meanwhile, is at the end of an up day.

There are three types of stocks to look at once we hit bottom. Some stocks involved in virus research, like Moderna, Inovio and Regeneron, are up on the virus. That’s stupid. Once the panic subsides, sell them and wait for them to return to normal values.

Some stocks should bounce back quickly. The Internet stocks are going to do great business, yet they’re falling with everything else. Grab them once the storm subsides. I’m talking about companies like Amazon.Com, Microsoft, Nvidia. I’m talking about Salesforce.com, Workday, and ServiceNOW. If anything, the move toward these companies will accelerate, as companies find telecommuting works.

The Gating Factor

Why will liberals win in 2020, why should they win, and why should businesses applaud?

It has to do with the gating factor. 

The gating factor is whatever is limiting something. In an Internet session, it’s the speed of the slowest connection between server and client. This is true on a micro level as well. Chip companies put memory on-chips because the speed of data movement into processing is the gating factor. 

In an economy, the gating factor changes, usually every generation. In the early days of the Republic, the gating factor was labor. That’s why owning slaves made economic sense for Washington, Jefferson, and Madison. Then the gating factor became transportation, and then capital had to be organized. When manufacturing dominated, demand was the gating factor. Failure to grow demand by expanding the money supply caused the Great Depression.

In my generation, resources were the gating factor to growth. It made sense to invest in troops and military hardware who could control vital resources like oil.

In today’s technology economy, the gating factor is brains. Not just people, but smart, motivated, empowered people.

We’re just starting to understand what this means in terms of economic policy.

After the War on Oil

As the war drums beat post-war planning isn’t given a second thought. (To the right, the Air-Gen, which pulls energy directly from the air.)

We can do better. We need to do better regarding the War Against Oil.

Make no mistake. The War Against Oil, which I first wrote about over a decade ago, is behind our current crises. Saudi efforts to destabilize the Middle East are funded by oil. Russian efforts to destabilize the U.S. are built on oil. Trump is all about oil.

But oil is losing. Oil is doomed. The coronavirus, COVID-19, proves it. The International Energy Agency now sees falling global demand for oil at the end of the year.

We should have seen this coming. While Democrats were arguing about “banning fracking,” the frackers were flaring off more natural gas than ever before. Even with that, they couldn’t get $2/mcf for it. The UAE recently said it found a giant pool of gas, close to its export terminals. Texas gas is losing what markets are left.

The Avalanche

Between the Iowa caucus debacle and the rocketing stock market, a lot of Democrats spent the first week of February in a very depressed mood.

Rising stock prices, and low unemployment, have the Trump approval rating as close to 50 as it can get. He is certain to be even more unhinged, and unbound, by the Republican Senate’s refusal to even censure him for his theft so far.

Lincoln said it best. “The hen is the wisest of all the animal creation, because she never cackles until the egg is laid.” 

The tide is still running out on Trumpism. Demographically, it stands no chance. In terms of issues, the same. It’s only the market that’s with him. That, too, may be about to change.

That’s because the stock market, like the housing market, is made up of assets.

The Changing Face of Retail

If all you know of me is this weekly blog, you may not know I’ve made my living for over 40 years as a business reporter.

Even when technology was my focus, from 1983 until 2009, it was always from the point of view of business. My most profitable periods were from 1997-2000, when I covered Internet commerce, and from 2005-2009, when I covered open source and health IT.

These days I make my money from InvestorPlace. It’s a great gig, if a little straitjacketed. They want single-company stories, and they want me to say whether you should buy or sell. I’ve seemed to be a genius, because the market has been rising these last few years. I assure you I’m not.

With all that as background, let me talk about the biggest transformation I’ve seen in my career, which has occurred in retailing.

In my youth retailing was simple. Retailers would buy branded merchandise in bulk, break bulk in their stores, then offer it all up for sale at a mark-up of nearly 100%. My first credit card came from Sears.

Early in my career this shifted with Walmart and “category killers” like Staples, Petco and Sports Authority. But it was still the same game. Companies would buy huge lots of merchandise, break bulk in bigger stores and take smaller markups. Even Costco is like this. The only difference is that they define bulk differently.

2020: The Crisis

“THESE are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman.” 

Thomas Paine (right) died penniless in 1809, the forgotten Founder. He died that way because he was a writer, not a politician. His writing was a demand, not a request or a negotiation. The words above were read to Washington’s men before they crossed the river at Trenton. Paine made ours a revolution, not just for the patrician, but the working man. Not just for the General, but for the private. Not just for those who would lead, but those who would die. 

Every crisis has casualties. The year 1968 was marked by terrible casualties. The Great Depression and the following war killed tens of millions of people. The Civil War killed 2% of this country’s people, mostly young men in the prime of life.

Compared to that, the Crisis caused by Trump should be easy to overcome, its casualties minimal. But that won’t be. His Presidency reeks of all the worst in our history. It combines the greed of those around Warren Harding, the weakness of James Buchanan, and the racism of Andrew Jackson. The crimes are all done in plain sight, as Nixon’s crimes were done.

We’ve had some bad men in the White House, but never one whose soul belonged to another country. Trump is Putin’s man. It’s that simple. We beat Russia in the Cold War, but revenge is a dish served cold, and Trump is Russia’s revenge.

The year to come will be all about Trump. It can’t be about anything else. Can America throw off a foreign dictator when he’s already in the White House? Will we stand, once again, against the racism, the misogyny, and the brutality our forefathers fought against? Are we Americans or docile Soviets?

Against the Mullahs, against Moolah, against the militarists, the three arms of the triad that has kept the developing world in bondage for centuries, it seems we have only words, faith, and hope. The question seems simple. Whose side are you on – America’s or Russia’s? But those who fear the loss of their power over other races, and over women, won’t be swayed by words. It’s going to take the hard work of all of us to win this, and even if we win the battle the war to save the planet will have just begun.

Dorsey of Africa

Everyone’s scared of China. Everyone thinks China is about to take over the world.

It’s not.

China is aging faster than we are. China’s authoritarian rulers stop new ideas from developing. They’re wasting just as much money, and potential, in Xinjiang and Hong Kong as we are with our Gulag and border wall.

In an age where human capital is the gating factor to economic growth, there is only one name for young men and women to know.

Africa.

This is not just about Twitter and Square CEO Jack Dorsey’s plans to spend half his time there next year. It’s about what is there whether he’s there or not.

Solving Health Care

The health care crisis is curable.

It doesn’t require a government takeover. Most of the next year’s debates over health care will talk around the problem. They’ll be the same-old tired arguments over public vs. private control.

In the end it doesn’t matter. You can’t have an unlimited draw from a limited pool of funds. Make that the key to policy and you can develop sound policy. You don’t have a choice about buying health care. You don’t even have much choice on who you buy it from.

The solution has three parts.

Managed care. Bargain for drugs. Guarantee competition.

Let’s start with managed care.