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Future

Opinion: Biden’s infrastructure plan must look to the future, not wrap itself in a nostalgic view of past American greatness


CAMBRIDGE, Mass. (Project Syndicate)—President Joe Biden’s $2 trillion infrastructure plan is likely to be a watershed moment for the American economy, clearly signaling that the neoliberal era, with its belief that markets work best and are best left alone, is behind us. But while neoliberalism may be dead, it is less clear what will replace it.

The challenges that the United States and other advanced economies face today are fundamentally different from those they faced in the early decades of the 20th century. Those earlier challenges gave rise to the New Deal and the welfare state. Today’s problems—climate change, the disruption of labor markets due to new technologies, and hyper-globalization—require new solutions.

Capitol Report: Biden says he’s ‘prepared to negotiate’ on infrastructure as he meets bipartisan group of lawmakers

We need a new economic vision, not nostalgia for a mythicized age of widely shared prosperity at home and global supremacy abroad.

On climate change, Biden’s plan falls short of the Green New Deal advocated by progressive Democrats such as Rep. Alexandria Ocasio-Cortez. But it contains significant investments in a green economy, such as supporting markets for electric vehicles and other programs to cut carbon-dioxide emissions, making it the largest federal effort ever to curb greenhouse-gases.


Economics is different from an arms race. A strong U.S. economy should not be a threat to China, just as Chinese economic growth need not threaten America.

On jobs, the plan aims to expand employment offering good pay and benefits, focusing, in addition to infrastructure, on manufacturing and the growing and essential care economy.

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The role of government

New ways of thinking about the role of government are as important as new priorities. Many commentators have framed Biden’s infrastructure plan as a return to big government. But the package is spread over eight years, will raise public spending by only 1 percentage point of gross domestic product, and is projected to pay for itself eventually.

A boost in public investment in infrastructure, the green transition, and job creation is long overdue. Even if the plan were nothing more than a big public investment push financed by taxes on large corporations, it would do a lot of good for the U.S. economy.


We need a new economic vision, not nostalgia for a mythicized age of widely shared prosperity at home and global supremacy abroad.

But Biden’s plan can be much more. It could fundamentally reshape the government’s role in the economy and how that role is perceived.

Traditional skepticism about government’s economic role is rooted in the belief that private markets, driven by the profit motive, are efficient, while governments are wasteful. But the excesses of private markets in recent decades—the rise of monopolies, the follies of private finance, extreme concentration of income, and rising economic insecurity—have taken the shine off the private sector.

At the same time, it is better understood today that in a complex economy characterized by so much uncertainty, top-down regulation is unlikely to work. Regardless of the specific domain—promoting green technologies, developing new institutional arrangements for home-care workers, deepening domestic supply chains for high-tech manufacturing, or building on successful workforce development programs—government collaboration with nongovernmental actors will be essential.


If it succeeds, the example it sets of markets and governments acting as complements, not substitutes—demonstrating that each works better when the other pulls its weight—could be its most important and enduring legacy.

In all these areas, the government will have to work with markets and private businesses, as well as other stakeholders such as unions and community groups. New models of governance will be required to ensure public objectives are pursued with the full participation of those actors who have the knowledge and capacity to achieve them. The government will have to become a trusted partner; and it will have to trust other social actors in turn.

In the past, each excessive swing in the state-market balance has eventually prompted an excessive swing in the opposite direction. The Biden plan can break this cycle. If it succeeds, the example it sets of markets and governments acting as complements, not substitutes—demonstrating that each works better when the other pulls its weight—could be its most important and enduring legacy.

Biden’s unhelpful framing

In this regard, it is unhelpful to view the Biden plan as a way to restore America’s competitive position in the world, especially vis-à-vis China. Unfortunately, Biden himself is guilty of this framing. The package will “put us in a position to win the global competition with China in the coming years,” he recently argued.

Peter Morici: Biden doesn’t understand how dangerous China is

It may be politically tempting to market the infrastructure plan in this fashion. In an earlier era, the prevailing fear that the U.S. was losing its edge to the Soviet Union in ballistic missiles and in the space race helped catalyze a national technological mobilization.

But there is much less reason for fearmongering today. It is unlikely to buy much Republican support for the plan, given the intensity of partisan polarization. And it diverts attention from the real action: if the plan increases incomes and opportunities for ordinary Americans, as it should, it will have been worth doing, regardless of the effects on America’s geopolitical status.

Moreover, economics is different from an arms race. A strong U.S. economy should not be a threat to China, just as Chinese economic growth need not threaten America. Biden’s framing is damaging insofar as it turns good economics at home into an instrument of aggressive, zero-sum policies abroad. Can we blame China if it tightens restrictions on U.S. corporations as a defensive measure against the Biden plan?

The plan could transform the U.S. and set an important example for other developed countries to follow. But to achieve its potential, it must avoid misleading state-versus-market dichotomies and outdated Cold War tropes. Only by leaving behind the models of the past can it chart a new vision for the future.

This commentary was published with permission of Project SyndicateBiden Must Fix the Future, Not the Past.

Dani Rodrik, professor of international political economy at Harvard University’s John F. Kennedy School of Government, is the author of “Straight Talk on Trade: Ideas for a Sane World Economy.”

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Future

Opinion: How to invest in the future — here’s an idea for a ‘Spacebook’ fund


Two years ago I was so bullish on Tesla that I basically wanted to become “the Tesla Fund.” Tesla was trading around $50 a share. It closed at $563 on March 8.

That was two years ago. I thought the setup was perfect for Tesla
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and the pending electric-vehicle onslaught. Fast forward to today and Tesla is up more than 10-fold since we bought it, even after dropping more than 30% from its $900 high. The EV revolution is here and most of the stocks of the companies in that revolution have risen to bubblicious levels.

I am scouring the globe and even the universe to find the next revolutionary industries to get in front of, and I keep coming back to what I call The Space Revolution and The Virtual Reality Revolution.

So here’s what I’ve come up with as the best risk/reward for my hedge fund and perhaps for individual investors as well. I’m calling it “Spacebook,” which means being overweighted in space stocks and Facebook
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-3.39%
.

Big bargain

Let’s start with Facebook. Holy cow, Facebook’s valuation is cheap. The shares trade for 22 times the consensus earnings estimate for the next 12 months among analysts polled by FactSet. This is for a company whose sales are expected to increase 25% in 2021 and 20% in 2022, following 22% in 2020. (You can see the consensus sales estimates for Facebook and other big tech stocks here.)

That valuation is only slightly ahead of a forward price-to-earnings estimate of 21.7 for the S&P 500 Index
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.
For the index, sale per share are expected to increase 9% in 2021 and 7% in 2022, after a 3.5% decline in 2020.

Facebook’s consistently high double-digit revenue growth is a lot for a company that did $86 billion in revenue last year. What’s most exciting about the growth numbers is that they don’t include any of the upside that Facebook is about to achieve in the burgeoning virtual reality market provided by the Oculus platform. As I wrote in January, the VR market is coming, and it’s coming soon. Facebook is going to be one of the biggest winners in that market, if not the biggest.

As I type this about Facebook, I can’t help but think back to two years ago (and 1,000% ago) as I wrote to you about Tesla. I’m getting the same exact feelings about valuations and revolutions.

To be clear, it’s not this current generation of Facebook’s Oculus virtual reality headset that is going to go mainstream, but it’s the next, lighter, even more advanced one and the versions thereafter. Facebook has a critical mass of developers as well as apps and games being created for its platform already. The first version of Oculus was like a late-version iPod.

Space revolution

Now, how many times do I need to talk about the Space Revolution? The technology has gotten advanced and cheap enough that the whole thing is literally taking off. This is a private company’s dream come true. We are starting to see private space companies come public just as I was saying they would be two years ago.

Over the next 20 to 30 years, there are so many applications that can come to fruition. Space factories, space tourism, space hotels, asteroid mining, supersonic transportation, new colonies — the list goes on. If your time horizon is the next two to three years, I don’t know what to tell you. It might not happen in that period.

But if you are like me and thinking about the next 10,000 days, then we have to get in front of this revolution. I started two years ago when I bought Elon Musk’s SpaceX in the private market for my hedge fund and followed up a year and a half ago when we got into Virgin Galactic Holdings
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-2.78%
.

A lot of public technology companies are bubbled up right now, space players included. We are probably paying two to three times what these companies are really worth right now as they come public.

VC-like investments

However, we are making venture-capital-like investments in these with the potential to see 50 to 100 times our investment over the next 10 to 20 years. I’m OK paying up a little for that kind of opportunity. If we compare this sector to the bubbled-up electric-vehicle revolution that is already here, I like the risk/reward of the coming Space Revolution much more. The EV market has already had its huge run.

So how do we continue to invest in the Space Revolution? SpaceX is clearly the best company right now. If you’re wealthy enough, with a little work, you can find a way to make a private investment in the company. I’ve done that in my hedge fund.

But if you don’t have hundreds of thousands (if not millions) to throw at SpaceX, I think Rocket Lab
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-4.00%

is the best way to invest in the space revolution right now. You can read more about Rocket Lab and Vector Acquisition Corp., the special purpose acquisition company, or SPAC, that is expected to take it public, here.

I have begun to take a position in both the hedge fund and my personal account. It has come down some (like most space stocks and high growth tech over the last week) since my initial report and I have continued to add to the position. Virgin Galactic remains another favorite public space company to invest in. We first got into that name in November 2019 at around $8 per share.

Virgin Galactic, just like the other space companies, is probably a little overvalued at the moment. Especially with no revenue and not being able to get its test flights successfully into orbit. But again, we are looking up to 30 years down the road and this is currently my third-favorite way to invest in the space revolution.

I’m researching four or five other space companies that have recently come public. I’ve also made Facebook one of my largest positions again for the first time in a while.

As always when making an investment, I suggest that you give yourself room to add to the position if it falls. Over the next six months to two years, I think we’ll have the opportunity to buy most small-cap tech stocks at lower prices. On the flipside, I can’t guarantee that those positions will drop, which is why I have begun to build my positions in the space and virtual reality revolutions, and why I will continue to add to them if given the chance at lower prices.

That’s why I am basically becoming “the Spacebook Fund.”

Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.



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News

As Apple releases its new line of Macs, the biggest beneficiary may be Microsoft


Apple is set to launch its next generation of MacBooks this week. For the first time since the surprise 2005 announcement by Steve Jobs that Apple was moving from PowerPC to Intel (x86), the company is set to take on chip-making responsibility for the Mac.

With Apple
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-0.37%

coming off strong earnings that included better-than-expected growth for its Mac line, which grew 7.3%, more than double the PC market’s 3.6%, it would seem like the perfect moment for its new launch of improved MacBooks.

However, I believe the launch could test Apple, as it is essentially deriving the silicon for its new Macs from the iPhone. In time this may pan out well, but there is a good chance this show could get off to a rocky start.

Apple has made many claims about its new MacBooks, and while we will have to wait until Tuesday’s event to get the full picture, there have been plenty of leaks on what to expect from the company.

It’s the same old-new normal for Apple, which CEO Tim Cook alluded to at this year’s WWDC event, including promises of a whole new level of performance, with the lowest power consumption, maximizing battery life to be better than ever before. Also, a new level of graphic performance and even more market innovation.

In the WWDC transcript, Cook’s exact words were: “The Mac will take another huge leap forward.”

All of this will remain TBD until broad benchmarking and compatibility testing for software and peripherals is available.

Challenging transition

My biggest concern, though, isn’t the promises, but rather the potential vulnerabilities for Apple. The transition from Intel
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+1.87%

to its new Arm-based silicon is almost certain to be a challenging transition that will impact both consumers and developers.

The company’s entire software ecosystem will have to be rewritten to work on this new architecture, and this takes time. Microsoft
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,
for instance, has been working for a decade on building its software ecosystem to run smoothly on Arm-based variants, both of its Surface Pro X but also other Arm-based notebooks from the likes of Samsung and Lenovo. The improvement has been material, but it has been markedly difficult to meet all the developer and consumer needs.

More specifically, the transition from Intel to Apple’s new silicon will likely break applications, and create compatibility issues with peripherals. While I expect Apple to have a set of “hero apps” that will work flawlessly, this certainly won’t be the case across all the apps, tools and games used by Mac consumers.

Reaction of consumers, developers

This will leave consumers frustrated with their new Macs, perhaps more so than Mac’s constant quality issues with its keyboards in recent generations. Furthermore, this creates more work for developers, who will now be required to support disparate apps for the Intel version and the Arm version — this is anything but straightforward.

Perhaps Apple’s biggest mistake is its claims that this transition will be seamless. Sure, that is good marketing, but the more realistic approach should be: “Bear with us while we make the Mac experience even better.”

Another big question mark for Apple will be around support of its current generation of Intel-based Macs. The company was heavily scrutinized for its short period of support for PowerPC after shifting to Mac. The support period lasted only three years, and that left some Apple customers dissatisfied. Many Mac users stay with a device for five to eight years, and certainly won’t want to be forced to buy another $2,000-plus device prematurely if Apple decides to stop supporting its Intel-based Macs after three years. This will be something to watch closely.  

If Apple does stumble for a period while it seeks to perfect its new silicon, the next question is where do consumers seeking an alternative to Mac turn?

Microsoft stands to gain

I believe Microsoft could be the big winner during this transition for the Mac. The Microsoft Surface has seen its growth rates up 37% in its most recent quarter, tracking over $6 billion in its trailing four quarters. This number is still much smaller than Mac, which saw its Mac revenue at $9 billion in its most recent quarter, reflecting its best quarter ever, growing 28% year over year. Still, I believe there may have been some padding with buyers seeking to upgrade before Apple moves away from the Intel-based silicon.

Maybe more than just Microsoft and Surface’s growth momentum is the brand strength and ultra-premium branding that comes with Surface. I have long believed Microsoft’s endeavor into Surface had much less to do with competing with its large software OEM’s like Dell
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+0.55%
,
HP
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+3.40%

and Lenovo, and much more to do with building a true competitor to the Mac.

This has been visible in the entire approach to Surface, including acute attention to details such as the packaging, the branding on the notebooks, the construction materials and the premium pricing. Microsoft has also been wise in its development of the Surface to include Intel, AMD
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and Arm-based variants, giving customers a choice while taking advantage of its ability to support all three chipsets’ software compatibility nuances.

Tuesday’s launch has a lot at stake for Apple. Apple’s move away from Intel has long been touted as a big problem for Intel, but it could be equally, if not more problematic, for Apple. With Microsoft Surface continuing to gain momentum for its ultra-high-quality notebooks, Mac faces more competition and will be under pressure to get this right— sooner than later.

Daniel Newman is the principal analyst at Futurum Research, which
provides or has provided research, analysis, advising and/or consulting to
Qualcomm, Nvidia, Intel, Microsoft, Samsung, ARM, and dozens of companies in
the tech and digital industries. Neither he nor his firm holds any equity
positions in any companies cited. Follow him on Twitter 
@danielnewmanUV.





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