Dana Blankenhorn

Wall Street is Wrong Again

Wall Street is wrong again. But then, it usually is.

Wall Street is a casino. If no one trades, there’s no action. It’s in the Street’s interest to keep the action going. The way to do that is to convince investors that they’re wrong and the grass is greener somewhere else.

The latest myth to be smashed is in the direction of the economy. Wall Street placed big bets on slowing growth, on money costing money and on tech’s cash flows being discounted.

Wrong again. Fourth quarter GDP was again very strong. There are already indications the inflation storm is abating. The reason is technology, which continues to cut costs from manufacturing to the final sale.

I’ve now spent a decade covering markets, after three decades covering tech. My tech stories focused on the lessons of business, and my business stories focus on lessons from tech. I’m not trying to sell you anything. I’m a reporter. I’m telling stories, most of which happen to be true because I’ve been at this a long, long time.

Real vs. Real

Analysts, and investors, are always fighting the last war.

The last war was the asset bubbles of the 1990s and 2000s. The first was in tech. The second was in housing.

Both fell after the bubble hit. Both times the government responded by juicing demand, first with the “forever wars,” then with a domestic stimulus and helicopter money.

Both times, this worked because the problem wasn’t related to what happened during the 1970s. Back then, resource inflation was to be feared. There was no substitute for oil. Now it’s just speculation and its aftermath.

The same kind of blow-off is happening now. There’s a fear that money will cost money, so speculators are pulling back, selling everything else to raise cash. (Cash is doing fine.) So far, it’s not nearly as bad as what came before. But fear is gripping the market because, this time, it’s accompanied by inflation.

When Inflation Strikes

People are always fighting the last war. This is never truer than when talking about inflation.

Prices are rising. Oil producers are making a killing. Employees have their bosses over a barrel. There are supply chain disruptions.

There are also idiots responding that “inflation is theft” and demanding that the dollar be protected. This response made sense in 1979. Oil and other resources were the primary sources of wealth, and the only way to slow their takeover was to raise interest rates and cut the money supply.

This makes no sense today.

That’s because technology is much more effective than manufacturing was in fighting inflation. Just to give one example. Upstart uses artificial intelligence to decide whether someone should get a loan. Instead of just using credit scores, they use 1,000 variables that let banks more than double their lending without increasing their credit risk. The software does a better job than a loan officer. Why have loan officers?

Carter University

Southern governors have a simple strategy for creating jobs.

They buy them.

The move by Rivian to locate its second car plant in Georgia is just the latest example. Governor Brian Kemp paid out a (so far) untold number of billions to get 1,700 manufacturing jobs. It’s like a deal former Governor Sonny Perdue signed 15 years ago to bring Korea’s Kia to West Point. 

The idea has a history. It’s just what southern states did 100 years ago with textile mills. Offer “incentives” and cheap labor so manufacturers score a quick profit. Then hide when they find a better deal somewhere else and leave. There are two such mills within 5 miles of my office.

There’s a better way to economic growth, which is to build it.

For what Perdue and Kemp paid to get a few thousand blue collar jobs, Democrat Stacey Abrams could create a revolution in southern Georgia. Just announce that you’ll turn Georgia Southwestern College into a research institution, like Georgia Tech, Georgia State, and the University of Georgia.

Investments of 2022

There’s too much money running around looking for assets.

When money decides to go to work, this means some asset values will fall, hard.

There were many voices over the holiday worrying about a stock market crash. It wasn’t just the usual cranks. Houses cost too much. Cars cost too much. Stocks cost too much.

There are many ways fake assets can be siphoned off into the real economy. Real interest rates are one, inflation is another. When you need money for stuff you want, you Marie Kondo your assets and dump what doesn’t give you joy.

Idiots think this makes Bitcoin a winner. Bitcoin is designed to always rise in value because there’s an upper limit on supply. But Bitcoin isn’t real. Just like gold isn’t money.

The Creativity Economy

The Creativity Economy is why Trumpism won’t win.

Technology created the Creativity Economy. Creativity is now the gating factor to economic growth. America has more creativity than any other country, thus more growth.

This means more than having talent. Lots of places have talent. But the Creativity Economy has needs that go beyond having talent. Talent must be taught, and it must be free to learn. It must be mentored. Most importantly it must be empowered. Anything, or anyone, who says “no” to a creative person is harming the economy.

Creativity has many dimensions. The Creativity Economy draws from all of them. Whether your talent lies in organizing, in selling, in technology or explaining it, in music or art, the Creativity Economy needs you. Many business leaders don’t have degrees in business. Part of nurturing the Creativity Economy is giving people the freedom to change their path.

Technology Can Whip Inflation Now

Bankers, reporters, and politicians are all focused on inflation right now.

Markets know better.

It’s true prices are rising. Wages are rising, too. Working conditions are even improving. I fail to see a problem here.

But just as some prices rise, other prices fall. Lumber prices have already rolled over. As electric cars begin to roll off lots next year, gas prices should ease.

A generation ago, it was hard to counteract rising commodity prices. Macro analysts are still locked into that mindset.

But now there’s software. Software scales. Software fights inflation with productivity. Clouds also fight inflation, helping scientists and engineers create substitutes for resources.

Democracy Dies Behind a Paywall

 

I saw a tweet last week that got my blood boiling.

It was from a Washington Post columnist to the effect that people should have to pay for news. Paywalls are necessary for the news to exist.

They’re not.

Before the Web was spun, people did pay for newspapers. But the money only covered the cost of distributing the paper. A generation ago you could also buy a bundle of news daily. Today the Post requires a subscription, a monthly or annual fee. Not everyone can afford it. Even for wealthy people, news they don’t pay for doesn’t exist.

Paywalls can be useful. They allow targeting. A paper focused on the entertainment industry only wants people in that industry reading it. Any circulation outside that is wasted. A paywall maintains circulation quality, thus ad rates.

For a broad based news outlet, it’s the opposite. You write for your readers. If all your readers are upper middle-class, that’s who you write for. You may write about the poor but it’s always from the point of view of the wealthy.

Demand Chain

Every reporter worth his laptop is writing about the supply chain. The supply chain is in trouble. The supply chain is broken. Who is to blame for the failure of the supply chain?

The supply chain is fine.

Our economic problem is the demand chain.

In a normal economy people are doing different things at the same time. Some people are cocooning. Some people are running around with kids. Some are planning vacations, and some are buying luxury goods.

For the last two years, this has not been the case. Everyone has been demanding the same things at the same time. We demand bleach. We demand masks. We demand take-out. Now we demand gas. We demand products. We demand to be entertained.

The Creativity Economy

The ignorance of Washington continues to amaze.

Reporters are all claiming Republicans “must” win in 2022, because the economy will be destroyed by inflation.

The economy will not be destroyed by inflation. The economy isn’t what it was.

Yesterday’s economy was based on resources. The economy before that was built on the rising efficiency of manufacturing. Today’s economy is based on technology and Moore’s Law. It’s built on clouds and devices. It’s centered on software. The gating factor in a tech economy is what I have called “human capital” – trained, empowered brains.

This is the creativity economy. (Shown is Richard Florida, who has  been talking about this since 2002.)