Dana Blankenhorn

Run on the Bank

The collapse of Silicon Valley Bank may prove to be a bigger story than it appears.

The reason goes back to a story I ran away from, the 1981 collapse of the Houston oil industry.

I didn’t intend to run away. I finally got a job at a daily in Birmingham, Alabama. It was a job I’d hold only 4 months before being fired. But I left Houston June 1, 1981. The collapse began soon after.

As in this case, the Fed had telegraphed what it was going to do. Paul Volcker was going to raise interest rates until inflation gave up, just as Jerome Powell is doing now. Inflation was much higher than, double digits in fact. Add to that the Reagan Administration jawboning the Saudis for lower oil prices and it was a perfect storm.

The Apartment Crisis

I wrote about the housing crisis” last year. My focus was on the tax law. It needs to discourage private equity from buying up houses, and encourage home ownership.

But there’s a second element at work. It’s demographic. Millennials, like my kids, aren’t marrying. If they’re marrying, they’re not having kids. They want small apartments near where they work. Most of them work in cities, where it’s very expensive to build.

Developers, united with young renters, are trying to increase density by block-busting urban homeowners. That’s what a lot of the current “affordable housing” debate is about. I saw it in the 1960s, when it was a racial divide. It’s ugly and leads to crime.

The good news is that apartment construction is already increasing. It is now near the level it was in 1972, just before the first oil crisis. If interest rates moderate even a little, the industry will blow past that number. 

I’m no NIMBY. Planned density can work. But rather than giving developers open season to wreck home values in the name of “15 minute neighborhoods," destroying the tree canopy, start with “30-minute cities," so that the infrastructure keeps up with the demand.

The Limits of Senior Power

If I were around 100 years ago, I would be dead. Instead, I’m rich. (Pictured are my grandparents, May and Edmund O'Donnell, in 1918.)

It’s a demographic and economic transformation that is destroying hope for change in America and (perhaps) making us the last generation.

Until recently, people lived their first 20 years dependent on parents, the next 20 as parents, the next (if they were lucky) 20 as grandparents and anything past that dependent on the children. Most of the world still lives this way.

But starting with Social Security in 1934, and continuing through general prosperity to today, America has turned this on its head. Seniors aren’t just living to an average age of 83, we’re doing it with money. I’m just a 68-year old journalist but, thanks in large part to a wife who works in tech, I’m a millionaire. We own our house. We have enough invested to guarantee a fine retirement, God willing. There may even be something left when we’re gone.

This has changed political incentives. There’s no better example than Florida where The Villages, a huge retirement town of 150,000 (almost all of whom vote), has turned the state’s politics on its head. Add them to those already living up-and-down the state’s east, west and south coasts, and you get a huge state entirely devoted to short term thinking. Education, the environment? Fuck ‘em. We’ll be gone.

Why Adani Fell

The U.S. stock market is off to the races again, encouraged by hints that interest rates may peak soon, and that the economy continues to grow.

But under the radar, there’s a crash. It’s in Adani Group, which you can trade over the counter under the symbol ANNRY. 

A week ago, Adani was worth over $200 billion. Today it’s fighting to hold $100 billion. CEO Gautam Adani has seen his own fortune fall to $75 billion.

This tells you something. Adani is closely held.

The stocks crashed after a report from short seller Hindenburg Group charged that they were being held up by a network of offshore companies and a very thin float. What made Hindenburg suspicious was that the value of the companies rose over 800% in just a few years, on assets like coal mines, container ports, and airports. It didn’t make sense.

But there’s another lesson here, America’s dominance of the global marketplace. About 40% of the world’s stock market value is now held in the two U.S. markets – the New York Stock Exchange and the NASDAQ. About 60% of the world’s liquidity, the capital companies require to do business, is in the U.S. That’s why the threat to cut off Chinese stocks from U.S. exchanges was so powerful. It’s why the Hindenburg report blew such a big hole in Adani’s market battleship.

Wintel (1990-2023): Death of a Monopoly

An era ended this week, as the control over technology Microsoft and Intel held with Microsoft Windows and Intel x86 chips crashed and burned.

From the launch of Windows 3.0 in 1990 to this last week, there was an assumption that Wintel, as the two were called, were where computing happened. No more. OEM sales of Windows fell by a third, and so did Intel’s x86 chip sales.

Client computing has moved from your desktop to the palm of your hand. An iPhone or high-end Android device can cost over $1,000 but you don’t need a manual to use them. They’re intuitive. When they fail, you get another, and all your software follows you from the cloud.

Microsoft was ready for this. They became a Cloud Czar during the 2010s, building a huge network of scaled data centers using open source software and cheap hardware. Intel supplied the cloud, and its data center business beat expectations last quarter, but it was not ready for the change. Its stock fell another 10%, and the company is now worth barely one-fourth the new chip leader, Nvidia.

War of the Cubes

Large tech businesses are forcing employees into a huge hidden pay cut.

They call it “return to the office.” They’re demanding that all people who have worked from home during the pandemic return to their cubes or be fired.

Let’s look at that a moment. (Buy the book.) 

If you’re an hour from work, it takes 2 hours a day to commute. Add in gas, wear on the car. Add in an hour to get ready. Add in the cost of work clothes. Add in lunch. Maybe add in drinks after work.

Now let’s look at it from the employer’s perspective. Add in rent. Add in utilities. Or society’s perspective. Add in wear on roads and other infrastructure costs. Add in fuel.

Finally, let’s talk about hidden costs. When a tech company demands tech workers do their work in offices, what they’re saying is that all the promises they made about tech 5 years ago, that it would improve productivity by letting people work from where they are, were bullshit.

Failures of the Cloud Czars

The failures of “Big Tech” aren’t what you think.

Each of the five “Cloud Czars” – Apple, Microsoft, Google, Amazon, and Meta – grew complacent over several years and let a strength become a weakness. They each now face problems that will cost tens of billions of dollars to fix. They’re cutting workers in growth areas and denying the reality.

This will spell more trouble in 2023, and opportunities for smaller companies.

I can summarize each Czar’s big problem in one word:

 

Apple – China

Microsoft – Windows

Google – Gmail

Amazon – Alexa

Meta – Facebook

Let's take 'em one by one

The Coming Streaming Shakeout

Streaming is about to learn what the printed web learned 20 years ago.

In a world of unlimited content, the gating factor for your audience is time.

There’s a corollary. Don’t depend on ads to make up for this. There’s just too much inventory.

I have a bad tendency to be early to things. I screamed about the dot-com bubble in 1997. I’ve been yammering about the coming streaming crash since 2019.

But now it’s here. First Netflix (NFLX) fell from grace. Then Disney (DIS) did the same. The Cloud Czars are worth half what they were now that you can get paid for having money. When interest rates were 2%, a price to earnings multiple of 45 looked OK. With money at 5% you need to be below 20 to be competitive.

Positives of a Tech Recession

Despite some stunning investment losses, I’m enjoying the latest tech recession.

No one likes a recession, but sometimes it’s like spring cleaning, necessary to clear the excess. There were a lot of zombie technologies, zombie companies and zombie assumptions that have been overrun since the Fed decided that money should cost money and there should be less of it around.

Web3, the metaverse, and crypto were all fake from the jump. Advocates for streaming and podcasting didn’t understand that the gating factor is time, not money. A lot of companies were selling themselves based solely on sales growth, ignoring the need for profit.

This means there’s now opportunity, in the form of talent, for new ideas that will power the economy forward. The main trends I described in 2019 – the end of oil, the Machine Internet, and DNA as a Programming Language – they’re still on. But there’s a lot more, too.

Is This The End of Crypto?

I wrote about cryptocurrency a lot, late in the last decade.

I finally decided it was trash.

There’s no there, there. I can find no blockchain applications superior to what you can do in other ways. Bitcoin and Ethereum claim they’re better than other coins, but the market remains crooked and opaque.

All this came crowding in this week when FTX collapsed. FTX was the creation of a 20-something (now 30) named Sam Bankman-Fried, whom my son now calls Bank Man Fried, as in French fries.