Dana Blankenhorn

The Next Market Move

Right now, what’s working is overpriced, what might move is ridiculously priced, and what should move is barely priced at all.

Cloud Czars like Apple and Microsoft are trading for more than they should. Their price to earnings ratios hover around the mid-30s, their dividend yields are below 1%.

What might work, speculative EV stocks like Workhorse Group or pot stocks like Tilray, carry prices you can’t evaluate at all, based on the size of the businesses.

What should be moving are companies focused on increased demand from the economy. The COVID relief package is going to pass. It’s going to give Democrats the support needed to do more. Both private and public demand are going up.

This means “value” stocks, grocers like Kroger, landlords like Simon Property, and even oil companies like Exxon Mobil, should be exploding. They’re not. Exxon is up, but that just brings its dividend yield to 6.9%. Simon is yielding 5%, and Kroger’s price to earnings ratio is below 10.

There’s more money running around than there are good places to put it. Investors aren’t chasing returns, but “alpha,” which means returns higher than the market. All the children are not above average.

China

President Biden is right.

China is not our enemy, but it does represent “extreme competition.” 

The difference between the two is simple. If they’re our enemy, then only one side can win. If we’re in competition, both sides can.

This is not a popular view. It’s popular to hate China. We hate China because of the Uigyurs. We hate it because of Hong Kong. We hate it because of the South China Sea, and the way it threatens Taiwan. Some say the country is accreting territory from neighbors like India and Mongolia.

But China’s autocratic ways can be used against it, assuming we maintain America and the West as reasonable, attractive alternatives. That means welcoming Chinese immigrants and their money. Tyranny also hurts creativity.

But there’s one area where China is smarter than we are. That involves its Cloud Emperors.

The Big Tech Conspiracy That Wasn’t

Once you show you like something, I offer you more of it.

Is this a conspiracy?

Not unless I’m a scaled Web site. Because this is at the heart of the charge against “Big Tech,” the companies I call Cloud Czars.

• Show a preference for certain videos on YouTube and YouTube offers you more videos like them.
• “Like” things on Facebook or Instagram, and you will get more things like them.
• Follow certain celebrities on Twitter, you’re offered more like them.
• The same with Amazon Kindle books. When you buy something from Amazon, you’ll be followed for days by ads offering the same thing.

The algorithms follow human nature. Chances are that if you like a book about 12^th century monks who solve murders, you might like another one. If you like Henry Winkler, you’ll probably like Ron Howard.

The problem is that if you like crazy conspiracy theories on Instagram, or videos describing the terrors of the Illuminati on YouTube, you’ll get more of them. Like those, you’ll get more. And more and more.

Stop Trumpism by Ending the Gerrymander

I don’t want this to become a political blog again. I have little faith in politics.

But there is a political issue that isn’t being discussed regarding the next two years. It needs to be discussed. It can change the future trajectory of the country.

The issue is redistricting, and gerrymandering.

The word “gerrymandering” refers to Elbridge Gerry (right, from Wikipedia). He signed the Declaration of Independence. He was at the Constitutional Convention. It was years after that, after becoming Massachusetts governor, that he signed the law which made his name, redrawing legislative districts for partisan advantage.  An opposition newspaper published a cartoon showing one district as a strange animal with claws, calling it a “Gerry-mander.”

The point is that gerrymandering is legal. But modern technology has made it scientific. It now takes enormous statewide majorities to overcome a legislative gerrymander.

The Downside of Energy Abundance

The first half of the last decade was marked by an energy gold rush.

Fracking made the USA energy independent for the first time in decades. Outside its impact on the environment, the boom was short-lived.

By 2014 demand was beating supply, and the boom has now turned to dust.

It wasn’t solar and wind power that killed the boom. It was efficiency and technology. LEDs require a lot less power than fluorescent bulbs. Intelligence added to warehouses and stores reduces the need still further. Insulation means you need less electricity for heating. New appliances are more energy efficient. The cloud is super-efficient, and the excess energy can be recycled. Laptop technology means this took less power to write than it would have then.

The oilpatch did its bit to kill the boom, too. There are now huge oilfields off South America and Africa that we didn’t know about before. The eastern Mediterranean gas fields have made Israel independent of Arab energy. Things like fracking and boiling the Alberta tar sands aren’t just environmentally destructive. They’re economically worthless.

All these things have put a thumb down on energy prices. That thumb is getting bigger over time. As I predicted in 2010 (based on Department of Energy research) we have now achieved “crossover,” the point where renewable energy costs less to exploit than fossil fuels. It’s hard today to justify a new natural gas plant. Soon, solar will cost less than gas fired in an existing burner.

The result is going to be another energy boom, this time a renewable energy boom.

But this one, too, has a sell-by date.

Resources and the New Era: What the Best Futurists Got Wrong

This coming year represents the start of a new era.

It’s an era defined by technology, as much as the previous era was defined by resources.

I’ve written here many times that the gating factor for technology is human capital. The more trained, empowered, and willing human minds you can bring to bear, the more you can grow. Contrast this to the resource era, where the key to growth was control, over the land and what lay on or beneath it.

The politics of 2020 were defined by the clash of these two economies. It was expressed throughout the culture. But the market made its verdict clear, and it was a true landslide.

T for Texas, T for Tech

For Republicans, the most exciting post-election news is that some tech companies are moving to Texas.

Tesla is going. HPE is going. Oracle is going.

Supposedly, this means California sucks and that business prefers Texas, with its lower taxes, lax environmental laws, and strict caste system.

The result will be the opposite of that. Here’s why.

First, it’s mostly loser companies that are moving.

HPE is a loser company. They supply data centers. It’s a declining market. Having them in Compaq’s old city (HP bought Compaq under Carly Fiorina) instead of where HP itself was born is no big deal. This isn’t Bill and Dave’s company anyway. It hasn’t been since it went all-in on PC manufacturing in the 1980s. HP spun out the original company as Agilent in 1999. HPE isn’t even all of HP. The company broke up in 2015. The computer and printer piece is bigger.

1876: Original Sin, Republican Hell

Trump’s efforts to overturn the 2020 election are not unprecedented.

Republicans have already won twice this century without getting the most votes. Gore outpolled Bush. Clinton outpolled Trump. If just 45,000 votes in a few states had gone the other way, Trump would have won again.

But this isn’t new. Twice in the 19^th century Republicans won the White House while losing the popular vote. The 1888 election, with Benjamin Harrison beating Grover Cleveland, was like 2016.

It’s the 1876 election that is the Republicans’ original sin.

After 8 years of Reconstruction, with the South occupied, Wall Street was tired of it. New York had never been behind Lincoln’s War. The Panic of 1873, caused by New York greed, was still laid entirely at the feet of Washington. Mark Twain’s least successful book, The Gilded Age, is also the one he didn’t write by himself. Charles Dudley Warner, an essayist, was co-author. It’s as if Mozart wrote an opera with Salieri. It's the very definition of gilded, and history isn't fooled. 

But the book’s name became that of the era. The late 19^th century was truly gilded. Wealth was designed to impress, but it was all show. There was nothing behind it. Speculation ran rampant, and big railroad owners were like wolves. I’m considered out of step for saying this but the Progressive Era’s reforms were driven by Wall Street, by men like J.P. Morgan, forced to personally step in and stop the Panic of 1893, acting again in 1907. The only solution for the excesses of the market, it would turn out, was the firm hand of government. When everyone is a crook, civilization requires cops.

The Greediest Generation

We are closer to the start of 2030 than we are to the heart of 2010.

In the year 2030 the average baby boomer (that’s me) turns 75. Millennials will be entering menopause.

More important, labor of all kinds will be in short supply.

I’ve talked before about the talent shortage. Programmers and scientists can name their price. Locking the door to emigrating talent is economic suicide.

But the same problem will also exist with ordinary labor.

Cash Flow Rules The World

The biggest financial discovery of the last decade is cash flow.

Cash flow created the Cloud Czars. Cash flow is why Amazon is worth $1.6 trillion while AT&T is worth one-eighth as much.

Cash flow has always existed. But it was something to spread around. It was profit. When calculating whether a company could afford its dividend, analysts would do it in terms of cash flow.

That’s because business accounting isn’t just about cash. It’s about all the kinds of money that flow through the business. It’s about loans and equity, about costs that are capitalized and those that are written off on taxes.

Dividends paid for with cash flow are the lifeblood of conservative investing. Financial planners make their money moving retired folks’ money into bonds or companies that pay a regular dividend. A company that pays fat, regular dividends has its stock bought by retirement funds who don’t make trouble for management.

Tech companies don’t like to pay dividends. The thinking goes, if I’m giving money to shareholders it’s because I don’t have any other use for it. Until the last few decades very few tech companies paid dividends. They saw capital gains, the rise in the stock price that comes with growth and profit, as the shareholders’ reward.