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Andy Kessler's been writing on his blog about the state of affairs for being a media mogul. The the final piece about the new state of affairs has been published, as has a consolidation piece of all of the parts. The comparison to media control to control of The Pipes is an apt comparison.

Andy Kessler's been writing on his blog about the state of affairs for being a media mogul. The the final piece about the new state of affairs has been published, as has a consolidation piece of all of the parts. The comparison to media control to control of The Pipes is an apt comparison.

Andy Kessler's been writing on his blog about the state of affairs for being a media mogul. The the final piece about the new state of affairs has been published, as has a consolidation piece of all of the parts. The comparison to media control to control of The Pipes is an apt comparison.

The same technology and silicon and 3D algorithms we play around with every day are about to invade medicine. The following is an excerpt from Andy Kessler's new book, The End of Medicine: How Silicon Valley (and Naked Mice) Will Reboot Your Doctor. CT Anxiety I always feel a certain anxiety when I walk into the Hyatt Regency at the bottom of California Avenue in San Francisco. The cutsie Trolley car outside, the Embarcadero tile pattern on the sidewalk — they are all part of the package. But as I've done every time I've been there, I head straight into the lobby, tilt my head back and scan the Escher-like floors, starting at the top and then down and outwards to the bottom until I start feeling dizzy. I thank Mel Brooks for this.

With my head spinning from this "High Anxiety" flashback, I stroll into the conference, half expecting to be given a barium enema by a cross between Nurse Diesel from Mel Brooks' flick and Nurse Ratched from One Flew Over The Cuckoo's Nest. I really gotta switch to decaf on days like this.

The 7^th International Multi-Detector Row Computed Tomography Symposium sounded innocuous enough. I assumed it would be a bunch of technical papers on the future of scanning, where I would read the paper in the darkened hall until lunchtime and then head off for some hot Hunan and home.

Instead, the place was like a carnival for cardiologists. Talk about feeling like a fish out of water. Outside the hall was an expo of sorts, with big signs flashing Toshiba and Philips. Instead of TVs or microwave ovens, there were PCs with 3D models of some poor schmuck's diseased coronary arteries being folded, stapled and rotated.

The back wall of Toshiba's booth caught my eye and I just stared at it. Rule number one at any tradeshow booth is never look interested or you are doomed to a rapid-fire ten-minute lecture on the ins and outs of the product and forced to give up your card as a qualified lead, to be hounded by phone, fax, email and snail mail for the next year.

"Those are our detectors." Damn, I was snagged.

"They look like the display on my laptop," I noted.

"Well sure, they are not that much different from a flat-panel display."

"Same economics making them?" I asked. Flat panels are notoriously expensive to manufacture, because of their size, unlike chips, where hundreds can fit on an eight-inch diameter wafer.

"Oh no, as we go from 4- to 16- to 64-slice, the detectors can be manufactured discreetly and butted up against each other. We don't have yield issues."

"How much is one of these 64-slice scanners?" I asked.

"Are you ready to buy one today, or this month?" booth-guy asked me.

"No, no, although I wouldn't mind one in my garage. I'm a tech guy."

"Oh, OK. Well, these are basically one- or two-million dollar machines."

"Wow." I wasn't sure if that is a lot or a little, but often a well-placed 'wow' gets you all sorts of inside scoop.

"I know, pretty cheap. We think we have a variety of advantages over the competition and you will see in the face-off that ..."

"Why so much? I've been in enough factories, and those flat panels are a couple of hundred bucks each and the motor to rotate can't be more than ..."

"Well, the X-Ray source is not inexpensive."

"What? Hundreds of thousands of dollars?" I trolled.

"Probably not. We do have high selling expenses. When you only sell a hundred of anything, there is lead generation and a sales pipeline and funnel."

He started whispering. "They could be a lot cheaper." He must be having a tough month.

"Don't let me stop you, by the way," I said, looking around, trying to imply he should hard sell some of these cardiologists and radiologists who were buzzing around the display.

"Doctors aren't buyers, not for these machines. We sell to a few clinics. The rest is into hospitals - they are the only ones that can afford them for now."

"But you said cheaper — I mean, these can be in the hundreds of thousands of dollars instead of millions." It was a statement dressed up as a question.

"Someday," he whispered, again.

That's all I needed to know.

Several times, I heard references to the big face-off that afternoon, like it was the reason everyone was there. "Don't miss the face-off," "This ought to show well at the face-off," "This year is going to be so much better than last year's face-off." OK, I get it.

I sat down in the auditorium and the talks and dim lights put me right to sleep.

The head whips woke me up, as my neck turned into Jello and my chin dug into my chest. I wasn't sure if I was awake, my heart was beating fast - I was on the top floor looking over the rail next to Mel Brooks ... Nope, I'm OK, I'm awake, although embarrassed as quite a few radiologists turn to see what the commotion was in my seat.

"Ladies and gentlemen, welcome back, take your seats, fasten your seatbelts, this is going to be exciting. I am pleased to announce that for our 3^rd Annual Workstation Face-off, we have five different vendor groups competing — well, facing off. We have five different data sets: brain, runoff, lung, colon and heart."

The room exploded in applause, like this was some sort of important revelation.

"On the stage, we have workstations from GE Healthcare. Dr. Gruden, please take a bow. Also Vital Images, Philips Medical Systems, Siemens Medical Solutions and TeraRecon. May the best workstation win. Let's get started."

The room was buzzing. On stage were two giant screens. On the left was a view from the monitor of the workstation and on the right was a live feed from the operator's keyboard and mouse so the audience could see how many clicks and keystrokes and other contortions are needed to get through the data set.

"OK, let's start with the brain. GE, you have six minutes for both the Angiogram and the Perfusion. Go."

A giant clock on stage started counting down from 6 minutes. The doctor operating the GE workstation was furiously clicking and slapping his mouse around and on screen; we all could share his view zooming through someone's brain.

"OK, we can see the internal carotid artery on the right-hand side, so now let's quickly move over to this area on the left, ah, not hard to find, there it is, we see the ICA stenosis, let's measure it, 63% blockage." A smattering of applause. "We can zoom in and clearly delineate the calcified vs. the soft plaque." More applause.

"OK, let's quantify the infarct core ..."

I was transfixed. This guy was zooming through someone's brain like it was a Sunday drive. More like a Sunday afternoon video game. I kept looking for a brain in a jar of formaldehyde labeled "Dysfunctio Cerebri — Abnormal Brain" and Dr. Frankenstein's assistant Fritz limping back to the laboratory.

"Let's mark this tissue at risk for infarction and measure some things while we are over in the left cerebral - OK - MTT is 86.7, TTP let's call it 52.5 ..."

He zoomed around the brain like it was just a bunch of bits on the screen, which of course it was. Duh.

"OK. Time. 5 minutes 32 seconds. Very nice. Thank you," the moderator said. The place went crazy. This was repeated on each of the workstations by different doctors to often-thunderous applause. I had a mild headache from all the excitement.

I watched these workstations find aneurysms in the arteries from the waist down, the run off. The trick is to remove the bones from the view and be left with just the arteries. Jeez, everyone knows that. Even I could find the mild aneurismal dilation of right renal arterial trifurcation! But my feet started to hurt and I looked around and lots of folks were rubbing their calves.

In the lung, the fly-throughs were looking for lobe nodules, which weren't so obvious. It was a maze of tubes in there — who can even find their way, let alone in under 4 minutes? But sure enough, there was the posterior and the one adjacent to the heart. Each of the five operators then went back and compared them to a study from three years earlier, after finding them in the previous study, of course. Pretty cool. Does my doctor have this? I coughed, more of an unconscious reflex than anything else.

"OK, a perennial favorite, let's move on to the bowels. This year's virtual colonoscopy will require identifying and measuring five different polyps as well as comparing supine and prone data sets to differentiate stool from polyps."

There was a gasp from the crowd, probably from all the men over 50 who have not-so-fond memories of their real colonoscopies.

"The folks from TeraRecon will go first." "Thank you. For this data set, we have decided to show off our handheld interface device. It is a two-handed device, requiring minimal keyboard usage."

On the right-hand screen, the view zoomed into the doctor's hands wrapped around what looked like a Nintendo or Sony Playstation controller. He was banging it and twisting it around, not much different than my kids playing Halo 2. Except that on the left-hand screen, instead of you as Master Chief blowing away the Covenant to stop them from destroying Earth, you are Master Doctor searching for cancerous polyps extracting revenge and trying to destroy your patient. Or something like that. And you only have six minutes and a crowd of a thousand to cheer you one.

"OK," the doctor running the TeraRecon station said, "let's go into C.A.D. mode to navigate through the colon."

On screen, the screen started flying through the wrinkled walls of the colon, twisting and turning, to the left, sliding over, turning up, then right, around a corner, then down again until it saw something abnormal and stopped in front of a hanging polyp. Ah, that's what Steve Sandy was telling me about.

Massive applause.

TeraRecon found all the polyps and so did everyone else. It wasn't hard, those polyps hung like fruits from a tree, pretty obvious against the background of the empty colon. Each of the operators had to go to the alternate data set to show that a few potential polyp looking globes were nothing more than a pile of, well, stool.

My cough had mysteriously turned into a pain in my lower gut.

"Now, what you have all been waiting for, the grand finale, someone left their heart in San Francisco."

On screen was a giant rendering of a heart and most of the coronary arteries. It might as well have been pumping and spraying blood all over the audience like the movie Carrie, there was such a frenzy.

Each of the workstations zoomed in, probed for diameters of sinotubular junctions and aneurismal sinuses. Ho hum. But in no time, each found blockages, stenosis that either had already caused a heart attack or was about to any day.

I just stared at the screen. My eyes were wider than Marty Feldman as Igor in Young Frankenstein. It's not some dream of the future, there it is in front of my face. I felt some pains on the left side of my chest, but my stomach ache went away.

This is it. The resolution was high enough, and there was plenty of speed to zoom around and find all the gunk in less than five minutes. These guys could peak inside and tell me if I was going to have a heart attack, before I do, before I drop on the floor grabbing my chest and my wife screams to the 911 operator to get someone there as fast as they can, before all my relatives get the call saying Andy has had a heart attack, before I get overloaded with blood thinners and can't remember what day it is.

This changes everything. Blood pressure readings, cholesterol checks for low-density lipoproteins, echocardiograms, all that stuff is primitive stuff, like silent movies — OK, another Mel Brooks reference. It just has to be cheap enough and it will be as routine as the doctor banging your knee or squeezing the crowned jewels.

Let's see: $2 million machine, 5 minutes per patient, of course, that means 144 a day, 720 per week, 36,000 per year, hmmm, that's $55 per scan. Add a little for the attendees and five minutes of the radiologists time and voila, maybe this is a mass market thing after all.

Andy Kessler is a former Bell Labs chip designer, turned Wall Street analyst and hedge fund manager turned author. Sounds like he can't keep a job. See this book's page at Amazon.

Andy Kessler has written a short tongue-in-cheek summary of the net neutrality debate over on the Weekly Standard. Kessler identifies the two sides as the 'schlocky ad salesmen' (Google, Yahoo!, etc) and the 'monopolist plumbers' (Verizon, AT&T, etc) and when you add the politicians to the mix it creates a pretty untenable situation. From the article: "But the answer is not regulations imposing net neutrality. You can already smell the mandates and the loopholes once Congress gets involved. Think special, high-speed priority for campaign commercials or educational videos about global warming. Or roadblocks--like requiring emergency 911 service--to try to kill off free Internet telephone services such as Skype. And who knows what else? Network neutrality won't be the laissez-faire sandbox its supporters think, but more like used kitty litter. We all know that regulations beget more lobbyists. I'd rather let the market sort these things out."

A reader writes:"Ever wonder why Michael Faraday, steam engines, Ezra Cornell, the Van de Beurses family and the Edison Effect were so important to today's computer business. Andy Kessler has a free download of a PDF of his new book, How We Got Here: A Slightly Irreverent History of Technology and Markets. It's a James Burke-style connect-the-dots of events and people from 1642 to this morning. Kessler's site takes you through a "poor man's DRM" process to get your very own PDF." Yeah, yeah - DRM. But the PDF/book is worth reading for understanding the history to tech. Speaking of good things to read, I also read this little ditty Not Proud, which was good. It's stuff from NotProud.com collected in dead tree form.

We've reviewed Wall Street Meat, by Andy Kessler. Andy's recently released Running Money. Andy sent this piece on to us, and it's one that I think will be appreciated.

"You can't wear jeans," the woman at the United Airlines counter told me.

"What was that?" I asked.

"I'm sorry, we have rules and codes of conduct to adhere to. I can't let you sit in First Class wearing jeans."

"Really?" I had a cheap suit in my bag, but the last thing I wanted to do was dash into some phone booth and change into super executive so I could fly to Chicago.

"We can't have some sort of riff-raff in our premium sections."

"Well, I'm headed to a--"

"This is United Airlines, global leaders in air travel and destinations."

"I'm interv--"

"Just a second. Your record is flashing red. This is very odd. Are you some sort of VIP?"

"I like to think so, but I don't think too many beyond my mother would agree."

"Well someone at United Airlines thinks so. Your record has been flagged and the ticket comped. I don't think I've ever seen one like this. Family members get comped, but something is going on here with your record. Here you go, seat 2B. Or is that 'not to be,' tee-hee. Enjoy your flight."

She then whispered, "Next time, please don't wear jeans -- we have standards here."

"OK, got it," I whispered back.

"And welcome to the Friendly Skies," she shot back.

Actually, I was headed to a job interview at United Airlines outside of Chicago. I was a 26-year-old techie, and could not have cared less about United. But they were nice enough to provide a round trip first class ticket to Chicago, where my girlfriend Nancy happened to live, and I was tired of paying up for the 771-mile trip.

On board, I sat next to a pilot who told me he was jealous that I got to wear jeans in First Class. I saved the "I'm interviewing" line just in case he started harassing me, but he couldn't have been a nicer guy.

Chicago, Illinois: Spring 1985 "Hello, welcome to United Airlines. Thanks for coming out all this way. I'm sure you have a very busy schedule, I appreciate your time."

"Not a problem, I have been looking forward to this visit to Chicago."

"Great. Oh, I should introduce myself. I'm Norm Poole. I haven't been here that long, six months or so. I was hired with the task of updating United's computer systems. It's pretty antiquated stuff around here. You're from Bell Labs, right?"

"Yes -- Holmdel."

"Great. I saw that on your resume, that's why you're here. Actually, my son is also with the Labs, out here at Indian Hill."

"I doubt I know him, it's a big place."

"OK then, let's head back to my office. It's a bit of a hike. They don't care too much for us tech types." Norm and I proceeded to walk what seemed like a quarter mile through United's building.

"You know that United is building a new terminal at O'Hare?"

"I think I read something about that."

"Yeah, it is loosely based on the Great Crystal Palace of Victorian England fame, 1850-something."

"In what way?" I asked.

"As far as I can tell, lots of glass."

"I like watching the planes take off and land."

"Most people do, calms the nerves. Actually, the Crystal Palace was part of the Great Exhibition that showed off all the accomplishments of England and its colonies. So the powers that be around here want the new terminal to be as high tech as possible, to show off their constant path towards progress, a â Now is the Time' sort of thing."

"Isn't that the tag line of the GE Carousel of Progress at Disneyland?"

"Probably. Wasn't it the World's Fair? No matter. We'll show off our advanced thinking."

"How is that?" I asked

."Lots of computer monitors, maybe even in color. Plus, we have to figure out some scheme to move data around without wires. The architect has already placed all the glass and forgot we might need wires. Wires are pretty ugly, so my group has to fix the design flaws with some wireless technology."

We wound our way through the building talking about computers and networking. I realize later that the interview had already started, but I was too busy talking in the sights.

"So, you know a lot about the UNIX operating system?" Norm asked.

"Sure, I use it, and I can program in C." I answered.

"Great. That's what we use around here."

We kept cutting through these large rooms with giant tables in the middle of them.

"Personally, I prefer VAXes. UNIX machines are always crashing."

"OK, Andy. This is an airline. There is an unwritten rule to not use that word."

"Which word?"

"The C-word."

"Oh, I get it, sorry. I find that UNIX machines are ... are prone to unscheduled service disruptions."

"There you go. You'll fit in here well."

As we walked through more of these rooms, I kept noticing what looked like airline tickets stacked in foot-high piles all over these massive tables. Workers (almost exclusively women, but of all ages), were gabbing away while flipping through these piles of tickets. It seemed like United Airlines Global Headquarters had dozens of these rooms, with stacks and stacks and stacks of these tickets.

"Can I ask you something?" I asked.

"Sure. Fire away." Norm answered.

"What's with those giant tables and all those women?"

Norm started to chuckle. "Oh that? Ticket sorting. It's sort of the dirty little secret of the airline business. We can get people on and off planes, and fly them to where they need to go, but then we have to sort all their damn tickets."

"Don't you just throw them out after the flight takes off?" There were no depths to my personal naivete.

"We wish. Every single ticket is flown back to headquarters to be processed. First we have to strip out our competitors tickets, which we accept for payment, and then settle with them."

"Aren't they a different color or something?"

"That would make it too easy, but not a bad idea. Once their tickets are gone, we have to sort our own tickets and match them against the flight manifests to make sure everyone actually paid, measure yield and load and all those other things that schedulers like to know about."

"Wow, sounds like a really boring job."

"I'm sure it is. Most of these people are high-school grads, and maybe a few dropouts. You don't have to be a rocket scientist to sort tickets, but you've got to be literate."

"But this is 1985. Shouldn't this stuff be automated somehow?"

"You're kidding right? There is a room full of Ph.Ds who sit around and figure out just how to code those stupid tickets, so when we get them back, we know where they came from. Each ticket is touched something like fifteen times from the time we collect it at the airport until we are done with our sorting and accounting."

"But isn't it expensive?"

"Probably 20 bucks per ticket. I've only been here for six months, but as far as I can tell, the airline industry is not that concerned about costs. First, they -- er, we -- can just raise prices. You pay the $20, not us. Second, if we took one olive out of each salad we serve on every flight, we could save a half a million bucks a year. Sorting tickets is a necessary evil."

"Still ... "

"I know, I know. I agree. If I were in charge, that is the first thing I would attack. Get rid of the stupid tickets. But my priority, my mandate, is to make the Crystal Palace at O'Hare seem high tech."

We walked through four or five more of these rooms, and I started thinking hitting rocks with a sledgehammer all day was more interesting than running an airline.

"OK, we're finally here."

Not me.

* * *

It wasn't hard to solve United's paper shuffle. In fact, the technology had been around for over a decade -- the same stuff that saved Wall Street.

It was the modern computer that helped create the modern stock market. In fact, they grew up together: Wall Street provided the capital for the computer industry to create faster machines to handle Wall Street's growing computing needs. Wall Street used to be a collection of people, but as computers insinuated their way into every crack and crevice, it changed the business of raising and managing risk capital.

In 1949, punch cards, introduced by Herman Hollerith as a record-keeping unit to speed up the 1890 census, were finally used to record trades. Can you hear IBM salivating? In 1950, electronic computers started doing the sorting of trades; in 1961 magnetic tape stored data; in 1964 computers were used to clear certain trades by matching records. IBM computers were indispensable to Wall Street, and Wall Street bid their stock up to provide IBM as much capital as it needed to grow.

As volume and profits grew, more Wall Street partnerships were created to get in on the game. By the 1960s, electronic message switchboards replaced those pneumatic tubes of 1918 so order entry and execution confirmation could happen in something close to real time. Of course, this was to the advantage of the traders -- to be able to get the most current feel for the market; customers were still out of that loop. But the back office was neglected, stock certificates still had to be collected and distributed. Wall Street hit a wall in 1968, and for many it was fatal. Electronics facilitated trading but did nothing to help clearing and making sure buyers got certificates from the sellers.

As volume increased, by some 30% a year in both 1967 and 1968, the people-intensive clearing process took forever. Certificates piled up to the ceiling tiles at brokerage firms, either awaiting payment or as errors and bad trades yet to be reconciled. Hiring more people barely helped. Firms would work 24 hours a day, 7 days a week and still fall behind. Customers simply stopped paying since they stopped getting their certificates. The NYSE began closing one day a week to catch up. They mandated a Central Certificate Service that created electronic certificates for a few stocks so settlement and clearing could happen without handling physical certificates. It was too little, too late. 160 NYSE member firms went belly up in 1969 and 1970, their credit squeezed as it took so long to process the volume of trades, victims of their own success. It was a big problem for those not tech savvy.

* * *

Small companies, who couldn't afford the NYSE or didn't have the size or pristine balance sheets needed to be listed, could have their stocks traded off-exchange, or OTC, over-the-counter. Until 1961, it was a pretty sleazy business: trading was thin, quotes were by appointment, spreads were at the whim of one or two traders. In 1961, the SEC empowered the National Association of Security Dealers or NASD to automate the trading of these OTC stocks. Pretty impressive for 1961. (Of course, it took until 1971 for the first NASDAQ stock to trade, as lots of new technology clearly needed to be invented.)

But capital raising on Wall Street was typically for blue chips only. It merely required a handful of phone calls. "We are raising $200 million for a new line of yellow cheese for Kraft, how many shares can I write you down for?" Tech deals were almost impossible to sell that way. It's not so much that investors wanted equal access, it's that the only way high tech could be sold was to explain it face to face.

One neat company was waltzed around that made these strange devices named I2102s, which were one kilobit of static memory made with a planar process; these static memory units were rapidly replacing core memory in IBM computers.This company also had a new "micro" processor used in some Japanese calculators. Yup, in 1971, Intel had a lot of explaining to do.

The phone didn't cut it, and so they had to visit institutional investors in their offices across the country to sell their Initial Public Offering. The IPO road show was thus invented by C.E. Unterberg Towbin to raise money for futuristic and hard-to-explain technology companies. Now all companies have to go through this grueling ritual. But Wall Street was all too happy to take these new companies out -- IPOs paid 7% fees, and still do.

In May 1973, a new entity took over the clearing process: The Depository Trust Company, or DTC, with the help of IBM using cheaper Intel memory, quickly created a system of electronic record transfer of ownership, replacing the sorting tables. 16 million shares were trading every day, 4,729 different companies had their shares registered with the DTC, and the back-office paper crunch soon ended. With an automated back office, liquidity went up and the risk of investing on Wall Street went down. This is a subtle and critical point, but lower risk on Wall Street meant more risk capital could be deployed in the economy and Silicon Valley started heading down the runway for takeoff.

* * *

For 25 more years, most traditional investors missed the big move in technology stocks, until they all rushed in on the same day in January, 1999. Hedge funds were too busy playing with currencies, especially a lucrative yen-carry trade that blew up in October 1998. Julian Robertson's Tiger Fund had only one saving grace in 1999 -- a huge position in US Air. It was a value stock, and Julian Robertson had bought it right. By May of 2000, United Airlines had made a $60 cash bid for US Scare-lines. Tiger was sitting pretty, despite a tough year of withdrawals: $20 billion in assets dropped to about $6 billion. But with the airline merger, Tiger showed a gain for 1999. But, Julian Robertson joined a long line of old dogs chasing fire hydrants. Once deregulated, airlines were protected by the complexity of their back office. Anyone could refuel and fly a plane, but it took a special organization to sort the paper tickets. In fact, like United, you could buy other airlines and sort their tickets too, saving zillions.

But when technology ended the paper trail and e-tickets came of age, it wasn't the existing airlines that benefited. New players like Southwest and JetBlue could enter the business cheaply. A couple of million bucks in servers and broadband was all the back office they needed. Tthe sorting tables were a thing of the past. It was like taking candy from a baby for these new guys to take market share from unionized United or US Air with their Vietnam-era pilots and aging battle-ax flight attendants.

Withdrawals were relentless, so Julian Robertson closed Tiger in March of 2000, holding onto a few shares he thought would do well, like US Air. Oopsy - US Airline filed for bankruptcy in August of 2002, its stock a children's shoe size of 2 or 3 compared to the mature $60 United offered and withdrew. He should have paid attention to those folks in Silicon Valley.

JFK: Winter 2003 The Van Wyck was backed up, as usual. I hated the trip out of Manhattan to JFK, except I was headed back to SFO. I was running late, it was raining, I was lucky to even get a cab at all, and now I'm crawling down what should never have been named an Expressway. Most cabbies know how to cut through the borough by taking Woodhaven Boulevard. My grandmother used to live somewhere along it, near Cross Bay Boulevard, but I would lose at Queens Monopoly.

We finally hit JFK, and I threw $50 to the driver and ran out to check in. I think I had just enough time to get frisked by airport security, buy a NY Post, and get on the plane. I just hope there was no line at check in. I always got stuck behind some family headed to Moomba via Dallas and Frankfurt.

But just inside the door, instead of a line, there were five kiosks. Nice touch screen displays lined up in a row with United's logo blinking away. This I had never seen before. It prompted for my United Mileage Plus card, which I kept handy for upgrades to First Class. I swiped away and my reservation instantly popped up.

"Do you need any help?"

"Excuse me?"

A nice middle-aged woman with a Queens accent smiled. "I just wanted to know if you needed any help with these machines."

"No, I've got it figured out." I had read somewhere that with these kiosks, United dropped the cost of ticket handling from $20 to under $1.

"Well, don't figure it out too well. Some of us need the work." She smiled again, but I could tell she would just have soon picked up a nearby fire extinguisher and smashed all five kiosks in a heartbeat.

"I understand." I nodded. It had been not quite twenty years since was a stowaway in United First Class under the pretext of an interview, saw the groaning tables in Chicago.

"Well, welcome to the Friendly Skies."

She smiled again and didn't give me any grief about wearing jeans.

We've reviewed Wall Street Meat, by Andy Kessler. Andy's recently released Running Money. Below is an excerpt from the book, which we'll be reviewing soon; I've read it already and whole-heartedly enjoyed it.

What is with these Asians? Twice now, they have whacked our fund. Just as things started rolling, some currency gyration would give risk a bad name and we'd be back to break even. This was starting to annoy me.

Long ago, I figured out that I would never invest in Asia. Once a year, I used to travel to the Far East as an analyst for Morgan Stanley. Like William Kaye in Hong Kong, I don't think they ever made any money. I always figured that was their problem, but the world is interconnected, like dominoes, so in reality, it was my problem too.

Osaka, Japan - December 1991

I almost missed out on the most startling revelation of the secret to the supposed success of the Japanese. Across a small conference room in Osaka sat an overweight, middle-aged Japanese man, with a thinning mop of jet-black hair. But his most distinguishing feature was one of his front teeth. It pointed straight at me, like a loaded gun. It was perfectly perpendicular to his face and jutted out from his gums instead of hanging down. And like Mona Lisa, it always stared directly at me. I snuck looks at it while sipping green tea and all I could think about was how he was going to drink from his teacup without drooling it all over his shirt. I couldn't pay attention to much else but his bayonet tooth, but luckily some of his words stuck. He spoke with a huge smile, and -- without realizing it -- explained why Japan was doomed.

Traveling at 250 miles per hour on the bullet train from Tokyo to Osaka, I wasn't sure whether to be scared shitless or impressed by Japanese efficiency. Instead, I struck up a conversation with my colleague, Takatoshi Yamamoto. We had met at the main Japanese train station on a brisk evening in December of 1991. I was always in Japan around Pearl Harbor day, maybe because most Americans avoid it.

Like everyone else scurrying around the station, we loaded up on supplies. He bought what looked like a comic book to read and suggested we buy some food. He picked out two bento boxes from a vendor at Track 5 and then headed to a vending machine and asked if I wanted a can of Pocari Sweat (which turned out to be something like Gatorade). I wasn't drinking anyone's sweat, so I politely declined and scanned what else I could have. I settled for coffee in a can.

We were headed to Osaka to visit Sharp Electronics and I was just trying to figure out how Japan works. Yamamoto-san was the electronics analyst for Morgan Stanley Tokyo, which made him the mirror image of me. We got along well. He set up several days of meetings for me with chip companies, consumer electronics companies and even Nintendo.

"So tell me about Sharp," I said.

"Sharp is one of my favorite stocks. They are a big player in memories and also in liquid crystal displays. I set up meetings with the president of both of these divisions."

"Great, I look forward to meeting them." There was a glut of memory chips on the market, and everyone was bleeding red ink -- I couldn't believe that anyone was making money at it, in Japan, Korea or the U.S.

Just the day before, we had gone to Toshiba in Tokyo and met this tall, handsome, gray haired president of their memory division. I knew that both Texas Instruments and Micron were getting killed selling memory chips, and wondering how Toshiba was doing, so I asked. A stern look crossed his face as he shot a why-did-you-bring-this-American-fool-in-my-presence look to Yamamoto-san.

"Mr. Kessler. You must understand that we are big players in memory, and we must meet our commitment to MITI (Ministry of Industry and Technology) for production. It is in all of our long term interest to sell memories." Yamamoto-san was nodding.

"Mr. Kessler," the man from Toshiba continued, "you must appreciate the power of the Japanese." The word "power" was thrust at me, almost spit as "p-HOW-er." Yamamoto-san smiled and mentioned there weren't any markets in which Japanese couldn't outdo American manufacturers. I got the point. But Japanese or not, this guy was also losing money hand over fist selling memory chips.

I was fascinated by LCDs, which Toshiba also made, but I didn't get to ask anyone about them, so I was looking forward to the meetings at Sharp.

Laptop sales were booming, and someday, computer monitors would be replaced by LCDs -- once they got cheap enough. I had done some homework on how LCDs were made. Basically, they take giant pieces of glass, a couple of feet on a side, and then use the same techniques as chip making: print and deposit the transistors to turn on and off pixels, right on the glass. A light behind red, green and blue tinted glass is either blocked or allowed through for each of the million pixels. But dust was a killer. With chips made on six-inch diameter wafers, 80% or 90% of the chips worked, a very high yield as they say in the industry. Dust or other defects kill the others. With LCDs, dust could kill every display on the giant piece of glass. Yields were more like 5-10%. Tough to make money, which is why no American manufacturers even tried. Shareholders hate money-losing businesses.

The coffee in a can tasted like a used kitchen sponge, and I began jonesing for Yamamoto's can of Sweat. I learned that Sharp was originally a maker of mechanical pencils, hence the name. They ventured into other markets like TVs and VCRs just as those markets were booming in the U.S., Europe and Japan. Now they make everything from laptops to camcorders to cordless phones.

As the train pulled into Osaka, I got a sense of a city of farms and railroad lines interspersed with giant modern factories. It looked like a drab version of Atlanta.

Lots of sushi and Asahi Super Dry's helped launch me into a fitful sleep.

In the morning, we took a taxi over to Sharp Headquarters. The white-gloved taxi driver spoke fluent English. "You American? I get lots of Americans, I take them all over Osaka. Here are some of my American friends." He handed me a stack of business cards. I politely shuffled through them, and noted with amazement that I knew a few names, including Scott Cook, the CEO of Intuit who I had met with a few weeks earlier. Small world.

We entered the lobby, which was filled with visitors. I was handed a five-page application to fill out to enter the building, promising not to steal any of their secrets. I noted with suspicion that Yamamoto-san had a 3x5 card to fill out.

We walked for what seemed like a half a mile to a conference room, passing giant rooms filled with huge tables and people sitting around them, yapping away to each other or on phones. They were like Wall Street trading floors, but without screens.

"This is all marketing," I was told by our guide. I noted maybe one personal computer off to the side in these giant rooms.

We got to the end of the hike and entered a small conference room. They all look the same with furniture from the 1960's. A green couch on one side, two chairs on the other side and another facing the center. I sat in one of the chairs and got a quick "Tsk, tsk" from Yamamoto-san.

"Sorry, Japanese custom, you must sit with your back to the window, and the hosts will face you."

In walked two gentlemen. We shook hands and exchanged cards. I got good at the two-handed grab the card and stare at it a while with interest, which always pleased. But I passed on the bowing. One gentleman ran the memory chip division and the other the LCD division.

We started with memories, and it was clear after a few minutes of listening that they were losing tons of money, probably $100 million a year. But I already knew that. We moved onto LCDs, and that's when I almost stopped listening. Years and several children of mine later, I would sit through multiple screenings of the animation Land Before Time. The baby Tyrannosaurus Rex is named Sharp Tooth, and it would always make me chuckle.

In Osaka, my Sharp Tooth was one of the smartest, most articulate Japanese managers I had ever met. He walked me through their production plans, screens per glass substrate, costs, market prices, overhead, yields, fully loaded depreciation and anything else I asked for. It took me a while, but I figured out that he was dropping between $1.5 and $2 billion a year in operating losses.

Still shaken from the "p-HOW-er" meeting the day before at Toshiba, I was very nervous about how I asked questions. Plus, it was hard to look up from my paper. I chose my words carefully.

"So, this product line is in investment mode?" I asked.

"Yes, I see what you are asking. Of course it is in very big investment mode, but so too is it in investment mode for everybody else. No one is in profit return mode, if you understand my choice of words."

I think he just admitted that he is losing lots of money, as are all of his competitors.

"Either we do this important market, or it will be in Korea or worse, in Taiwan. It is our imperative to invest, as you say, in LCDs."

"And a billion dollar annual investment is what it takes?" I asked.

"Well, Mr. Kessler, probably more like two."

"But isn't there some return expected, from, you know, from the stock market?"

"That's not an issue. Someone else can figure that out. We as a corporation and a nation have priorities." He gave me a smile that I will not forget, for a lot of reasons.

Yamamoto-san and I were then escorted to a large but austere office and introduced to Haruo Tsuji, the President of Sharp Corporation.

"What do you think of my company?" Mr. Tsuji asked. "It's quite impressive," I stammered out. I thought I was going to be asking the questions. "You are clearly a leader in LCDs." "Yes, this is our most important product strategy. Every American will soon carry a notebook computer with one of our color displays." "It is an expensive strategy, yes?" "Of course. But we have the resources and financial strategy to dominate." "Can you elaborate?" He must not have heard me. "Thank you for coming," he said as he handed me a small wrapped gift. "A financial strategy?" I thought. "Aren't you supposed to just make money and eventually show a profit?"

* * *

We next got a tour of the company museum next to the lobby. There was the first mechanical pencil, some old TVs and giant VCRs from the late '70's, and some new projection TVs. At the end of the tour, they had a 17-inch LCD TV playing video of some Japanese golfers and, I think, a Pocari Sweat commercial. It looked pretty good -- I had never seen video on an LCD, but something was wrong. It was too slow between frames. It's hard to describe, but my eyes started to hurt, because some of the previous images were still there as the video played, the golfer's club was still in mid-air as the ball was hit. Very weird.

Three women with clipboards accosted me as I was leaving.

"What do you think?"

"Very nice," I replied. "It's a beautiful museum."

"You like the TV?"

"Yes, the TVs were great, I think I have a Sharp TV at home," I lied as I tried to get away. "And what about the last one?" "The last what?" "The last TV, that one." One woman pointed to the LCD TV. "Very nice," I said. They all scribbled something on their clipboards. "You like?" "Yes." "No, no. What you like?" "I liked the commercial."

"Good TV?"

I figured I would never get out of there at this pace. "Well, if you really want to know, the screen is a little small. I have a 27-inch TV at home."

I heard a few "tsk, tsk"s and more clipboard scribbling.

"And," I continued, "it's a little slow between frames, bad hysteresis, I think." I forgot what hysteresis meant, something from college physics about lags in fields. It sounded good and I figured that would throw them for a while to get me out of there.

I got to the lobby, and we waited for a taxi back to the train station. I picked up an English version of Sharp Electronics' annual report, and noted that the company was making money and had made increasing amounts of money for the last 10 years.

Our next stop was Nintendo. This meant a bullet train to god-knows-where and then a couple of slower trains to Kyoto.

Nintendo was in a white, non-descript one-story building next to some railroad tracks. It could have easily been a warehouse on the south side of Chicago. Management rarely met with investors, but we were able to meet with a few hardware designers in a conference room near the lobby.

Nintendo was fascinating. It was the most valuable company in Japan, maybe even the world. Why? Because it was the most profitable company in the world. They were selling tens of millions of Super NES platforms -- which, at $99 apiece, were almost certainly sold at a loss. But they sold hundreds of millions of game cartridges at $40, which cost them $6. Nice business if you can get it -- and they had twitchy fingers around the globe addicted. It struck me that this was the first Japanese company I had spoken to that actually sold software; the rest were just manufacturers with huge factories.

The hardware designers gave me a 12-page document with a big red symbol with Japanese kanji characters inside of it stamped on the front page. I skimmed through it and it looked like the design and specifications of their next game platform. I got excited -- maybe this was some giant scoop that I could take back to investors in the U.S., and point to some part or another in the next Nintendo game machine.

On the taxi back to the train station, I asked Yamamoto-san "So what does this mean?"

"The meeting?"

"No, this red symbol and Japanese words inside of it."

"Oh, that means top secret, do not distribute outside the company."

"Really. Wow. Can you help me translate the rest of the document?"

"I could, but it's not worth the bother."

"Why not? This is hot stuff!" I screamed, barely able to bottle up my excitement.

"Kessler-san. Do you think they would really just hand you secret documents? They have been trying to figure out for the last 18 months what their next platform will be and have been bouncing ideas off of everybody. They just want feedback."

"Why give it to me?" I asked.

"Because maybe you can get it in the press in the U.S. and competitors will pick it apart, and then Nintendo learns valuable things. I would just throw it out if I were you. Not everything is what it seems in Japan."

I was learning that more each day.

* * *

We finally headed back towards Tokyo and my flight back to NY from Narita. I scanned the headlines of the only English language paper I could get my hands on. One article that caught my eye, but just barely, was about the Japanese Fair Trade Commission, whatever the hell that was, signing a consent decree with Nomura Securities, Daiwa, Nikko, and Yamaichi, who promised never to compensate their clients for stock market losses again.

"Again?" I thought. "Protection against stock market losses? Who gets that? What's this all about?"

The JFTC reminded these firms, the article continued, that if they were caught in similar offenses again, it would lead to criminal charges.

I asked Yamamoto-san, who once worked for Nomura Securities, what this was all about. He shrugged. The Nikkei had peaked at 40,000 a year before, and was now 23,000. He said most people figured it was a wrist slap -- a little house cleaning is good, and the Nikkei would be back.

* * *

A few years later, with the Nikkei at 15,000 and dropping, Yamamoto-san came to Morgan Stanley offices in New York. He looked like he had been through a monsoon.

"You OK?"

"Things very tough."

"What do you mean?"

"Lots of money disappear. You remember our visit to Sharp?"

Who could forget? There were already a few sequels to the Land Before Time animation.

"Yeah, sure. How are they doing?" I asked.

"Big problems. They had $2 billion dollars, about a third of their cash, at a non-bank bank."

"A what?"

"Non-bank bank. It's really just an investment fund. They were speculating with Sharp's cash, in the stock market and in real estate. They used lots of debt."

"Go on."

"Well, with Nikkei down and real estate down, the non-bank bank failed. That $2 billion is gone."

It hit me right then and there. This is what Sharp Tooth was telling me, but I didn't know what he was saying. It seemed to me that not only did Sharp lose $2 billion, but they lost all their earnings. Nomura potentially rigging the Nikkei by paying clients back for losses meant every company could count on a rising stock market. Speculating was a one-way street, and paper profits could be washed through their income statement as earnings. No wonder Sharp was profitable.

LCDs were losing money, but the company was profitable because they were showing speculative stock market and real estate gains as if they were the company's profits from operations. But it was bogus, a sleight of hand. Sharp didn't make money at all. Ouch. If that's true, the entire Japanese electronics business was, well, a profitless pit. Turns out it was worse than that.

Andy Kessler, the author of Wall Street Meat had a recent piece in the WSJ, and now reprinted on his own site. It's a piece about how companies are shifting much more to "hacker" friendly models. It's a particular area of interest for me, as it's something that I've talked about with the folks at BCG for a while.

Max Tardiveau writes "I had the pleasure of reading Andy Kessler's Wall Street Meat, which has just come out in print. Despite the title, this book is not just for those familiar with Wall Street -- it is in fact very readable, and even enjoyable, by complete financial boobs (like yours truly), and provides some great insights into the world of investment and the stock market, especially as they relate to technology companies." Wall Street Meat author Andy Kessler pages 208 publisher Escape Velocity Press rating Very good reviewer Max Tardiveau ISBN 0972783210 summary An candid insider's view of Wall Street

Wall Street Meat is Kessler's story over the past fifteen years, from starting as a junior stock analyst at Paine Webber, to becoming a well-known technology analyst, to leaving Wall Street and going off on his own. Along the line, Kessler has bumped into many famous and infamous people, and he is very candid about what he thinks of these people (hint : it's usually not good).
In fact, one of the main characters is Frank Quattrone, who was just arrested last week for obstruction of justice and destroying evidence -- making this book rather timely.

Kessler spends a lot of time illustrating the fact that stock analysts are often clueless (and he should know, having been one for a number of years). To me, that was perhaps the most enlightening aspect of the book : I learned that even (very) highly paid analysts can be stupid, lazy, negligent, incompetent, greedy, and even sometimes dishonest (I know how shocking that might be to most of you, hopefully you can recover from that).

I found it interesting to get a behind-the-scene look at the life of analysts : the trips, the meetings with management, the lies and half-truths, etc... Also the bullshit that goes around, the phony rankings, the uninformed guesses. And of course these people get paid to be confident, so even when you don't know, you have to act like you do know.

If you really make it, you can even become a market-maker : someone whose recommendations actually affect your segment of the market. But Kessler makes it clear that this is a trap, and that many analysts have overestimated their power. After all, these stocks represent real companies, and whether these companies make money or not does eventually affect their stock price. Ah, the painful sting of reality.

Kessler follows the evolution of the profession of analyst from 1985 to the late 1990's, and comments at length on how that role has changed. Back in the old days, the commissions were high, research was a serious business. Interestingly, the Internet changed a lot of that, mostly because it made the commissions practically disappear, going from $0.25/share to less than a penny per share in just over a decade.

Kessler makes some interesting points about the unintended consequences of some of the regulations. For instance, during the 1987 crash, a lot of small investors could not get their trades executed because the traders stopped answering their phones. So the SEC put in a regulation to put a system in place that would execute small trades automatically.

That was the first step towards what we now know is inevitable -- a fully automated marketplace where human traders are used only for large or unusual deals. Therefore, in just 15 years, the world of investment and securities trading has undergone a complete transformation.

Another dramatic change during these years was simply the staggering amount of money that became invested in the market. In 1980, there was about $40 billion invested in professionally managed mutual funds. In 1996, that figure was over $1 trillion.

We are all more or less aware of these changes -- this book brings it all to life.

I found the first third of the book to be absolutely spellbinding, and I would heartily recommend the book just for that. The book opens with a few anecdotes that just made me guffaw aloud as I was reading them. The middle of the book was less exciting. There are lots of names being thrown around, which meant nothing to me. The final part of the book makes up for this, however, with a lot of good stories and observations about the late 90's dotcom boom and bust.

Kessler's style is direct, sometimes almost abrupt. No flourishes for this guy. I particularly appreciated the, how shall I put it, frank and honest evaluation of the many people mentioned in the book. It sometimes feels like target practice, but it's a refreshing break from the mutual admiration society.

The book is often funny, mostly fast-paced. There are a few uninteresting passages, and (much to my surprise) even two pages (1-2) repeated almost verbatim at pages 172-173. At $26, it is a bit steep (it comes out at 12.5 cents/page).

Kessler has written a number of columns for the Wall Street Journal. They are very readable, although some of them are now dated. If you want to get a feel for his style, I recommend reading a couple of these columns before you splurge for the book.

Having read it, I feel a bit more cynical about Wall Street, which is probably a good thing. I also feel like I have gotten a good peek into that universe, and it's not pretty -- no wonder so many things have been hitting the fan over the past couple of years.

Overall, I warmly recommend this book. Unless you're allergic to the world of investment, you should enjoy it and learn quite a bit from it.

You can purchase Wall Street Meat from bn.com. Slashdot welcomes readers' book reviews -- to see your own review here, read the book review guidelines, then visit the submission page.