Not that I'm telling you anything you don't already know, but in valuing a company, you should either discount with real interest rates (not nominal) or inflate the cash flows per expected inflation. The former is easier. In theory inflation should not have an effect on valuation, because inflation is a purely monetary phenomenon. In practice things are trickier (as your chart shows) but if financial assets did not inflate along with consumer goods, then the chart of the inflation adjusted DJI would be downwards trending over the course of it, not just for the 70s.
The real downward Dow of the 70s actually started in '64 or thereabouts and lasted until about '84. This rules out the early '70s oil shock as a cause. Personally, I think it was a result of the massive destruction of economic value caused by our government's spending on the Vietnam war and the cold war; materiel can't be considered an investment once you detonate it.
Not that should assuage your pessimism about financial assets.
Jerry
gregorylent
· 1 year ago
excuse a dumb question, could this be applied to valuing oil?
(separately, speculation and dollar devaluation seem more responsible for price rise than asset shortage, imho)
fredwilson
· 1 year ago
A lot of people think that speculation, dollar deval, and other financial market forces are to blame
I think that's true to a degree. But as they say, when there is smoke, there's fire
Fred
fredwilson
· 1 year ago
Agreed on all points jerry
I think most of our startups aren't going to be able to charge more just because there is inflation
Their costs will not go up much nor will their competitors (labor being the likely exception)
So I think inflated cash flows and current cash flows may be the same for most web startups
Fred
bill_roberts
· 1 year ago
Have you seen "Sustainable energy - without the hot air"? (http://www.withouthotair.com/). It makes fascinating reading on the alternatives for getting away from carbon-based energy. The author is a physics professor and he does a great job of explaining the impact and feasibility of different energy generating choices: wind vs nuclear vs solar vs biofuels etc. Investment tip: buy cheap land in sunny places and build solar power stations on it!
fredwilson
· 1 year ago
I will go read it.
Its interesting to see the second order effects of the oil price increases:
Crops and food getting more expensive because of biofuel competition
Certain kinds of land getting more expensive
Etc, etc
jeremystein
· 1 year ago
id actually argue that its a great time to be a vc. theres going to be a fundamental shift from buying, leveraging, and selling companies to starting and building companies with real value.
Michael F. Martin
· 1 year ago
That should be true, but it depends crucially on investors being able to identify and reach consensus about "real value" over the time-scale relevant to fundraising and growth.
I believe that this cannot happen until accounting standards are changed to provide a more realistic picture of how firms work. The current accounting standards were developed with a picture of firms in liquidation as the model. Newer accounting ideas focus more on how firms are like engines, with inputs (including capital) being fuel for future cash-flow.
We can't invest or manage what we don't measure.
gregorylent
· 1 year ago
and what we can measure can still be the angles and inclinations of a house of cards.
(i suspect the basic structure of the economic/finanacial/market system in us of a is a bigger threat than oil)
fredwilson
· 1 year ago
The former will struggle for sure but I believe there will always be room for both styles of investing
Chris
· 1 year ago
That Dow chart is even worse than it looks on the surface....For $1 in 1970 was worth much less by 1979 because of currency debasement.
So even if the Dow broke even over the decade, you lost money because of a depreciated dollar.
MaxS
· 1 year ago
> Russia, in particular, stands to benefit greatly from the spike in oil prices.
if I may jump in with quick comment: Russia is NOT a beneficiary of ongoing oil madness. In fact that absolutely worst thing that could possibly happen on a country level. As i deal with our RU subsidiaries over last few years its simply horrifing how much Venezuela-style damage is being inflicted. China & India are real winners here, lacking natural reserves many dynamics of post-WWII Japan will come to play here.
fredwilson
· 1 year ago
That's true, long term it doesn't help them
But they are rolling in money right now
MaxS
· 1 year ago
and so are the Saudis. which set a golden "standard" of stagnant patriarchical society going absolutely nowhere. the only difference is that Saudis may not have had any historical choices beside selling oil, Russia [used to have] lots of opportunities. however the tidal flood of oil revenue is breaking all casuality links between perfomance,innovation, personal excelence, rewards for risk-taking, etc etc. today in Russia the choice between "try something" and "join oil patriarchy" is not really a decision - its IQ test with orders of magnitude difference in compensation and career path.
Michael F. Martin
· 1 year ago
Fred,
I believe your analysis is right on the nose. You should read the following speech by Stanford economics professor John R. Taylor about how Japan was able to avoid the inflation trap that the U.S. fell into during the 1970s. The upshot is that if the Federal Reserve were to raise interest rates dramatically right now, it might avoid some pain and suffering later over the longer term.
The BRIC countries certainly are 'drinking our milkshake', to borrow a term from John Stewart, and coupled with the lousy Dollar - a result of the US borrowing billions from those same countries to fund our nasty war habit has left us in a position where we're going to have to start changing our habits, much of which is long overdue.
Life goes on.
Acoustic guitars require no fossil fuels to operate.
Jon
· 1 year ago
As oil gets more expensive, cleantech and alt energy technologies can become commercially viable more quickly.
The sad news is that the US government is putting a large part of clean tech on hold. Applications for large-scale solar and wind development projects in the desert are officially subject to a 2 year hiatus while the government studies their impact on the environment. http://www.nytimes.com/2008/06/27/us/27solar.ht...
You'd think this news comes from The Onion, but the geniuses in DC are more worried about the fate of a few desert animals than the fate of worldwide ecosystems affected by global warming. Well, while solar and wind projects are put on hold, more coal power plants can be built. After all, those won't affect the desert tortoise.
howardlindzon
· 1 year ago
rsx (russia) is one way to keep investing if you believe the oil trend is unstoppable. Canada, which I write about all the time is the other.
great post.
The Dow has basically gone nowhere for 8 years already, so interesting times ahead indeed
Soren Macbeth
· 1 year ago
Don't forget about Venezuela and Mexico.
danconway
· 1 year ago
Unfortunately, there's not much of a difference in the Dow performance so far this decade. We had a spike at the beginning but we're now back below where we started. December 31, 1999 we closed at 11,497.12. Today, eight and a half years into the decade, we're at 11,346.51. I would like to believe that we'll close out the last year and a half strong but at the moment with energy prices, the banking crisis and the correction in real estate there's not a lot of confidence in that happening.
Given the performance of the past eight plus years, it is frightening to think that the value of equities prices are propped up and that real slower growth could just now be beginning.
This might go on for awhile. The '70s market funk carried on until mid-1982.
I'm excited by the opportunities and potential rewards in this market environment. Technology, the web, and intelligent social networks help a great deal. Twitter, when it is working,can be an invaluable asset. It was beyond frustrating to seeing the whale or less on Thursday when the market was down 300+. But that too speaks to the value of that web technology.
fakedjs
· 1 year ago
I watched Jarheads tonight, again I realize why we throw our weight overseas.
CCjudy
· 1 year ago
Union Square Ventures could open another branch focusing on CleanTech. Its value is going to increase. Also can you and your family see Pixar Wall-E there? its a powerful message for a Green World J
fredwilson
· 1 year ago
We aren't going to do cleantech because we don't have the backgrounds and experience to be among the best at it
More likely is we'll look for ways that the web can help
Fred
CCjudy
· 1 year ago
Joseph Campbell said to "follow your bliss" Yours Fred is music - there are many music sites on the New Web. I aggregate new Web Web sites and there are many categories under that umbrella of Music in addition to http://www.strangeglue.com. You could focus on that niche that sector of emerging companies
fredwilson
· 1 year ago
I have spent more time than I care to admit playing with, using, and contributing to 'new music' services on the web
I am a huge fan of many of them
But my assessment of their business prospects is dim. In order to have a viable new music service, you need to have both established and new artists. And you need to be operating legally, not in the grey or black market Unfortunately the rights holders are extracting very large upfront fees, both cash and equity, to license established artists on these new music services
Those fees are crowding out innovation, diluting the entrepreneurs, and establishing a difficult risk/reward proposition for investors
So we will sit that market out and hope that someone else can figure out how to make it work
Fred
Jake Kaldenbaugh
· 1 year ago
Best summary I've heard of the opportunities in Digital Music to date. Also, don't forget that the market is currently dominated by a hardware vendor...
gregorylent
· 1 year ago
often lost, it seems to me, is that the market doesn't measure anything real, it is a manipulated ponzi-scheme mixed in with group psychology ... a pov which should get me well and truly ostrracized from all business blogs :-)
fredwilson
· 1 year ago
On this point I will have to disagree gregory
Markets are the best pricing mechanism over the long run
In the short run, they have issues
Fred
kid mercury
· 1 year ago
markets only work when market participants have the truth. the further you stray from the truth, the more inaccurate the pricing mechanism becomes.
fredwilson
· 1 year ago
But those who have the truth can profit greatly from it
JimHirshfield
· 1 year ago
Your points are SO very much in sync with the scary realities outlined in an article in yesterday's NY Times "Venture Investors Wrap Up an Unusually Bleak Quarter" http://www.nytimes.com/2008/06/28/business/28ve...
Jim
· 1 year ago
2 weeks ago I presented my proposal to grow ethanol (switchgrass) at the MIT Enterprise Forum Whiteboard Challenge. All I had was a whiteboard, a marker, and 5 minutes. No Powerpoints or computers. My idea is to grow ethanol without using any existing farmland. We have currently identified 2.4 million available acres that could produce 2.7 bill gallons of ethanol in a matter of months.
The problem is there is not yet economies of scale in refining for swithgrass (cellulosic ethanol). It is not yet at the point for mass production. Until then though, my partner and I are locking up these land deals.
We need a portfolio solution to our energy problems. That way if one solution fails the rest can still sustain us. We need a mix of Nuclear, Clean-Coal, Ethanol (algae / Switchgrass), solar, wind, and oil.
michael
· 1 year ago
I am not sure you understand inflation.
"But inflation is woefully misunderstood, even among financially-sophisticated folks who should know better. I’ve heard Chairmen of the Federal Reserve, elite Wall Street analysts, and countless news-media personalities claim rising prices are inflation. This common misperception is flat-out wrong. Rising prices alone are not necessarily inflation. Inflation is purely and exclusively a monetary phenomenon."
Too good not to share more for those who won't click through:
"If driven solely by a supply-and-demand imbalance, rising prices have absolutely nothing to do with inflation. If gasoline prices rise because supplies decrease relative to demand, this isn’t inflation. It is simply the free markets at work addressing a supply imbalance. Rising prices simultaneously retard existing demand and entice new supplies to market, leading to a new equilibrium level between consumption and production. These simple economics work in everything from hamburgers to houses.
All throughout history, inflation has exclusively been rising prices directly driven by growth in money supplies. If you have relatively more money competing to buy relatively fewer goods and services, the only possible outcome is higher prices. And although the meaning of words gradually changes over centuries, if you look in any dictionary, encyclopedia, or economic textbook today you’ll find that inflation is monetary.
Dictionary.com defines inflation as “a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency”. American Heritage says inflation is “a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services”. I added the italics for emphasis.
So if anyone ever tells you rising prices are inflation, realize they either don’t know what they are talking about or they are intentionally trying to mislead you. Rising prices are only inflation if they are directly caused by an increasing money supply. The problem is rising money supplies often coincide with supply imbalances in specific commodities, so usually both inflation and simple economics are co-drivers.
For example, global oil demand is growing as China, India, and the rest of the developing world drive more cars and transport more goods. But supply growth can’t keep pace, as big new oilfields are exceedingly rare. So much of oil’s bull is fundamental, it has nothing at all to do with inflation. But at the same time, oil priced in euros has risen slightly less than half as much as it has in dollars. So about half of the oil bull seen by Americans is largely driven by dollar inflation.
So as you live your life in constant sticker shock this summer, realize that varying large fractions of the rising prices you see are purely fundamental. Global demand is straining global supplies. Rice is a great example of this today. But the remaining fractions of price increases we are seeing in the States are the result of true monetary inflation. You can thank the Federal Reserve for this unwelcome development.
The Fed is the greatest engine of inflation the world has ever seen. Its only function is to create new US dollars out of thin air, every one of which is pure inflation. Every second of every day, the Fed ramps US money supplies at much faster rates than underlying US or global economic growth. The result is higher prices thanks to relatively more fiat-paper dollars bidding on relatively fewer real goods and services."
Adam Hamilton
gregorylent
· 1 year ago
thanks for this... it is very difficult to find truth in the economic arena, probably more cases of vested interests per cubic centimeter than any other profession .. ok, maybe hollywood ... smoke and mirrors seem to be something those two have in common
the disappearance of the m3 data was a bit spooky to me
Thomas
· 1 year ago
Actually, I'd argue they are tied together. Supply imbalances lead to outsized profits. Outsized profits leads to entrepreneurs who follow the market and start new businesses attempting to mine some of those profits. This creates growth businesses that seek leverage. Leverage creates more monetary supply. So, in reality trying to separate out the effect of monetary supply from supply/demand imbalances is probably a fool's errand. These things are inextricably linked and this probably the major philosophical argument between strong monetarists and free-market practitioners.
MJM
· 1 year ago
The sky is falling, the sky is falling.......come on. We pay US$8.40 plus per gallon here in Germany and have for some time. You will get used to it and as a result start to conserve energy. The sun will still rise again tomorrow.
Martin Owen
· 1 year ago
If you think of companies that got underway in the "bad times" of the 70's I think you will find there were some fairly good investment opportunities there.
It is having a product that has a development trajectory and customers discovering they need it. although I can't quite remember the name of the company that supplied the 9K `Basic for my home brew computer.... did they ever come to anything?
Geoff
· 1 year ago
Whilst you are over in the UK I would strongly recommend meeting up with David Mackay here in Cambridge (author of Without the hot air). His talks and lectures are very interesting indeed. I thought the Jevons paradox fascinating http://en.wikipedia.org/wiki/Jevons_paradox
pd0
· 1 year ago
I can recommend the documentary A Crude Awakening. It paints a dark picture and puts things in a perspective I hadn't thought of before. Of course it's a bit bias, but some of the things can't be denied.
It's available on iTunes or from your preferred Torrent site.
pd0
· 1 year ago
Oh, and I might add that everyone interested in the environment topic should see the excellent documentary "The Planet". Available free on demand here: http://svt.se/svt/jsp/Crosslink.jsp?d=59430&lid...
Tom Evslin
· 1 year ago
Fred:
Electrical energy management will be the first great D2D (Device to Device) application on the Internet - an application parallel in importance and opportunity to email and the worldwideweb.
This is likely to happen very soon because, while everyone is concentrating on oil used for transportation, we've reached a tipping point in the use of oil for home heating. Radiant electric heat generated from electricity at $.15/kWh (the typical cost in Vermont, for example) is cheaper than for home heating than oil at $5.00/gallon. The switch to radiant heat heat can begin with the purchase of a space heater for as little as $20 so no big capital investment is required to start the substitution. Unless the price of oil backs down this winter (which could happen), there'll be a fairly massive switch to electricity. In 2005 the US used 63 billion gallons of oil for home heating.
The sources of energy for baseload electricity in much of the US - hydro, nuclear, coal - are already much cheaper than oil. Wind and solar CAN be cheaper if electricity can be moved efficiently (which requires information flow). But peak electricity is generated mainly from natural gas. It is much more efficient to burn the gas in a furnace than generate electricity with it, transmit it, and then heat electrically.
The problem (or opportunity) is that the switch to electricity this winter - which will be huge if oil prices continue to climb - will break both the economics and the distribution systems that we're used to. Daytime use of electricity for heating is inefficient but encouraged by flat rates. Nighttime use of electricity for heating is currently a great way to displace oil use but needs to be encouraged by lower offpeak rates.
The D2D application will be the near real-time communication of low-cost electricity availability from the power grid to smart devices in the home which adjust their behavior accordingly. Space and hot water heaters today; heat storage sinks and heat pumps tomorrow; recharging cars the day after tomorrow.
Oil prices rising because demand for energy is increasing is not inflation. Inflation has a specific meaning :
a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency
Just because the price of something goes up does not imply that a currency is losing the its value.
I am not denying that the US has inflation, but most of the rise in the price of oil is due to supply not meeting demand. If we repealed some of our dumber environmental regulations (not drilling, making it hard to build refineries/power plants, have 50 different blends of gasoline, ethanol requirements) oil and gas prices would drop.
If we stopped inflating the dollar, they would drop even more.
fredwilson
· 1 year ago
If I suggested that rising oil was creation then I apologize
But I do think that rising oil prices will feed other inflationary forces
Jesse
· 1 year ago
"A Final Thought: This may mostly be good news for cleantech investors. As oil gets more expensive, cleantech and alt energy technologies can become commercially viable more quickly."
Why is everyone thinking like this? Why not invest directly into the oil industry instead? This is what Russia is doing and their economy is booming. We have tons of oil and coal in the US, why not invest in helping these proven and widely used energy sources become more efficient and cleaner instead of trying to create new markets from scratch?
rfreeborn
· 1 year ago
I've read a number of excellent articles lately on the role of speculators in the oil market and the consensus seems to be that they can't be playing that much of a role because they aren't taking delivery of the oil - they are just investing in an appreciating asset in a similar fashion as people are investing in corn and other commodities.
I don't know if anyone else has read about another excellent idea to help boost investment in alternative energy - a non-revenue tax that kicks in when oil goes below, for example, $50 / barrel. If oil was @ $40/barrel, there would be a $10/barrel tax. This "floor" to the price of oil would ensure alternative energy investors a "certainty runway" that would allow them to know if they hit that mark the investment would be profitable.
r.
rfreeborn
· 1 year ago
In the interest of a fair and open discussion, another interesting link that says there IS a direct relationship between speculation and pricing via academic research done @ Hofstra
All Comments
Not that I'm telling you anything you don't already know, but in valuing a company, you should either discount with real interest rates (not nominal) or inflate the cash flows per expected inflation. The former is easier. In theory inflation should not have an effect on valuation, because inflation is a purely monetary phenomenon. In practice things are trickier (as your chart shows) but if financial assets did not inflate along with consumer goods, then the chart of the inflation adjusted DJI would be downwards trending over the course of it, not just for the 70s.
Here's a cpi-adjusted chart of the DJI: http://www.itulip.com/realdow.htm
The real downward Dow of the 70s actually started in '64 or thereabouts and lasted until about '84. This rules out the early '70s oil shock as a cause. Personally, I think it was a result of the massive destruction of economic value caused by our government's spending on the Vietnam war and the cold war; materiel can't be considered an investment once you detonate it.
Not that should assuage your pessimism about financial assets.
Jerry
(separately, speculation and dollar devaluation seem more responsible for price rise than asset shortage, imho)
I think that's true to a degree. But as they say, when there is smoke, there's fire
Fred
I think most of our startups aren't going to be able to charge more just because there is inflation
Their costs will not go up much nor will their competitors (labor being the likely exception)
So I think inflated cash flows and current cash flows may be the same for most web startups
Fred
Its interesting to see the second order effects of the oil price increases:
Crops and food getting more expensive because of biofuel competition
Certain kinds of land getting more expensive
Etc, etc
I believe that this cannot happen until accounting standards are changed to provide a more realistic picture of how firms work. The current accounting standards were developed with a picture of firms in liquidation as the model. Newer accounting ideas focus more on how firms are like engines, with inputs (including capital) being fuel for future cash-flow.
We can't invest or manage what we don't measure.
(i suspect the basic structure of the economic/finanacial/market system in us of a is a bigger threat than oil)
So even if the Dow broke even over the decade, you lost money because of a depreciated dollar.
if I may jump in with quick comment: Russia is NOT a beneficiary of ongoing oil madness. In fact that absolutely worst thing that could possibly happen on a country level. As i deal with our RU subsidiaries over last few years its simply horrifing how much Venezuela-style damage is being inflicted. China & India are real winners here, lacking natural reserves many dynamics of post-WWII Japan will come to play here.
But they are rolling in money right now
I believe your analysis is right on the nose. You should read the following speech by Stanford economics professor John R. Taylor about how Japan was able to avoid the inflation trap that the U.S. fell into during the 1970s. The upshot is that if the Federal Reserve were to raise interest rates dramatically right now, it might avoid some pain and suffering later over the longer term.
http://www.stanford.edu/~johntayl/Mayekawa%20Le...
Life goes on.
Acoustic guitars require no fossil fuels to operate.
The sad news is that the US government is putting a large part of clean tech on hold. Applications for large-scale solar and wind development projects in the desert are officially subject to a 2 year hiatus while the government studies their impact on the environment.
http://www.nytimes.com/2008/06/27/us/27solar.ht...
You'd think this news comes from The Onion, but the geniuses in DC are more worried about the fate of a few desert animals than the fate of worldwide ecosystems affected by global warming. Well, while solar and wind projects are put on hold, more coal power plants can be built. After all, those won't affect the desert tortoise.
great post.
The Dow has basically gone nowhere for 8 years already, so interesting times ahead indeed
Given the performance of the past eight plus years, it is frightening to think that the value of equities prices are propped up and that real slower growth could just now be beginning.
This might go on for awhile. The '70s market funk carried on until mid-1982.
I'm excited by the opportunities and potential rewards in this market environment. Technology, the web, and intelligent social networks help a great deal. Twitter, when it is working,can be an invaluable asset. It was beyond frustrating to seeing the whale or less on Thursday when the market was down 300+. But that too speaks to the value of that web technology.
More likely is we'll look for ways that the web can help
Fred
I am a huge fan of many of them
But my assessment of their business prospects is dim. In order to have a viable new music service, you need to have both established and new artists. And you need to be operating legally, not in the grey or black market
Unfortunately the rights holders are extracting very large upfront fees, both cash and equity, to license established artists on these new music services
Those fees are crowding out innovation, diluting the entrepreneurs, and establishing a difficult risk/reward proposition for investors
So we will sit that market out and hope that someone else can figure out how to make it work
Fred
Markets are the best pricing mechanism over the long run
In the short run, they have issues
Fred
http://www.nytimes.com/2008/06/28/business/28ve...
The problem is there is not yet economies of scale in refining for swithgrass (cellulosic ethanol). It is not yet at the point for mass production. Until then though, my partner and I are locking up these land deals.
We need a portfolio solution to our energy problems. That way if one solution fails the rest can still sustain us. We need a mix of Nuclear, Clean-Coal, Ethanol (algae / Switchgrass), solar, wind, and oil.
"But inflation is woefully misunderstood, even among financially-sophisticated folks who should know better. I’ve heard Chairmen of the Federal Reserve, elite Wall Street analysts, and countless news-media personalities claim rising prices are inflation. This common misperception is flat-out wrong. Rising prices alone are not necessarily inflation. Inflation is purely and exclusively a monetary phenomenon."
http://www.kitco.com/ind/hamilton/may162008.html
"If driven solely by a supply-and-demand imbalance, rising prices have absolutely nothing to do with inflation. If gasoline prices rise because supplies decrease relative to demand, this isn’t inflation. It is simply the free markets at work addressing a supply imbalance. Rising prices simultaneously retard existing demand and entice new supplies to market, leading to a new equilibrium level between consumption and production. These simple economics work in everything from hamburgers to houses.
All throughout history, inflation has exclusively been rising prices directly driven by growth in money supplies. If you have relatively more money competing to buy relatively fewer goods and services, the only possible outcome is higher prices. And although the meaning of words gradually changes over centuries, if you look in any dictionary, encyclopedia, or economic textbook today you’ll find that inflation is monetary.
Dictionary.com defines inflation as “a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency”. American Heritage says inflation is “a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services”. I added the italics for emphasis.
So if anyone ever tells you rising prices are inflation, realize they either don’t know what they are talking about or they are intentionally trying to mislead you. Rising prices are only inflation if they are directly caused by an increasing money supply. The problem is rising money supplies often coincide with supply imbalances in specific commodities, so usually both inflation and simple economics are co-drivers.
For example, global oil demand is growing as China, India, and the rest of the developing world drive more cars and transport more goods. But supply growth can’t keep pace, as big new oilfields are exceedingly rare. So much of oil’s bull is fundamental, it has nothing at all to do with inflation. But at the same time, oil priced in euros has risen slightly less than half as much as it has in dollars. So about half of the oil bull seen by Americans is largely driven by dollar inflation.
So as you live your life in constant sticker shock this summer, realize that varying large fractions of the rising prices you see are purely fundamental. Global demand is straining global supplies. Rice is a great example of this today. But the remaining fractions of price increases we are seeing in the States are the result of true monetary inflation. You can thank the Federal Reserve for this unwelcome development.
The Fed is the greatest engine of inflation the world has ever seen. Its only function is to create new US dollars out of thin air, every one of which is pure inflation. Every second of every day, the Fed ramps US money supplies at much faster rates than underlying US or global economic growth. The result is higher prices thanks to relatively more fiat-paper dollars bidding on relatively fewer real goods and services."
Adam Hamilton
the disappearance of the m3 data was a bit spooky to me
It is having a product that has a development trajectory and customers discovering they need it. although I can't quite remember the name of the company that supplied the 9K `Basic for my home brew computer.... did they ever come to anything?
It's available on iTunes or from your preferred Torrent site.
http://svt.se/svt/jsp/Crosslink.jsp?d=59430&lid...
Electrical energy management will be the first great D2D (Device to Device) application on the Internet - an application parallel in importance and opportunity to email and the worldwideweb.
This is likely to happen very soon because, while everyone is concentrating on oil used for transportation, we've reached a tipping point in the use of oil for home heating. Radiant electric heat generated from electricity at $.15/kWh (the typical cost in Vermont, for example) is cheaper than for home heating than oil at $5.00/gallon. The switch to radiant heat heat can begin with the purchase of a space heater for as little as $20 so no big capital investment is required to start the substitution. Unless the price of oil backs down this winter (which could happen), there'll be a fairly massive switch to electricity. In 2005 the US used 63 billion gallons of oil for home heating.
The sources of energy for baseload electricity in much of the US - hydro, nuclear, coal - are already much cheaper than oil. Wind and solar CAN be cheaper if electricity can be moved efficiently (which requires information flow). But peak electricity is generated mainly from natural gas. It is much more efficient to burn the gas in a furnace than generate electricity with it, transmit it, and then heat electrically.
The problem (or opportunity) is that the switch to electricity this winter - which will be huge if oil prices continue to climb - will break both the economics and the distribution systems that we're used to. Daytime use of electricity for heating is inefficient but encouraged by flat rates. Nighttime use of electricity for heating is currently a great way to displace oil use but needs to be encouraged by lower offpeak rates.
The D2D application will be the near real-time communication of low-cost electricity availability from the power grid to smart devices in the home which adjust their behavior accordingly. Space and hot water heaters today; heat storage sinks and heat pumps tomorrow; recharging cars the day after tomorrow.
More at http://blog.tomevslin.com/2008/06/the-internets...
Oil prices rising because demand for energy is increasing is not inflation. Inflation has a specific meaning :
a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency
Just because the price of something goes up does not imply that a currency is losing the its value.
I am not denying that the US has inflation, but most of the rise in the price of oil is due to supply not meeting demand. If we repealed some of our dumber environmental regulations (not drilling, making it hard to build refineries/power plants, have 50 different blends of gasoline, ethanol requirements) oil and gas prices would drop.
If we stopped inflating the dollar, they would drop even more.
But I do think that rising oil prices will feed other inflationary forces
Why is everyone thinking like this? Why not invest directly into the oil industry instead? This is what Russia is doing and their economy is booming. We have tons of oil and coal in the US, why not invest in helping these proven and widely used energy sources become more efficient and cleaner instead of trying to create new markets from scratch?
Here's a good article from The Economist - http://www.economist.com/opinion/displaystory.c...
I don't know if anyone else has read about another excellent idea to help boost investment in alternative energy - a non-revenue tax that kicks in when oil goes below, for example, $50 / barrel. If oil was @ $40/barrel, there would be a $10/barrel tax. This "floor" to the price of oil would ensure alternative energy investors a "certainty runway" that would allow them to know if they hit that mark the investment would be profitable.
r.
Blog posting
http://www.salon.com/tech/htww/2008/07/08/oil_p...
Direct link to paper
http://papers.ssrn.com/sol3/papers.cfm?abstract...
r.