A VC - Latest Comments in Heading For The Exit Lane

Re: Heading For The Exit Lane

rfreeborn — Thu, 10 Jul 2008 13:47:29 -0000

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

Blog posting
http://www.salon.com/tech/h...

Direct link to paper
http://papers.ssrn.com/sol3...

Re: Heading For The Exit Lane

rfreeborn — Mon, 07 Jul 2008 20:44:17 -0000

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.

Here's a good article from The Economist - http://www.economist.com/op...

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.

Re: Heading For The Exit Lane

Thomas — Wed, 02 Jul 2008 20:35:45 -0000

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.

Re: Heading For The Exit Lane

Jake Kaldenbaugh — Wed, 02 Jul 2008 20:30:45 -0000

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...

Re: Heading For The Exit Lane

Jesse — Tue, 01 Jul 2008 19:35:19 -0000

"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?

Re: Heading For The Exit Lane

fredwilson — Mon, 30 Jun 2008 13:00:06 -0000

If I suggested that rising oil was creation then I apologize

But I do think that rising oil prices will feed other inflationary forces

Re: Heading For The Exit Lane

Brian — Mon, 30 Jun 2008 12:52:09 -0000

Fred,

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.

Re: Heading For The Exit Lane

Tom Evslin — Mon, 30 Jun 2008 10:22:47 -0000

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.

More at http://blog.tomevslin.com/2...

Re: Heading For The Exit Lane

John Sjölander — Mon, 30 Jun 2008 10:05:12 -0000

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/Cross...

Re: Heading For The Exit Lane

John Sjölander — Mon, 30 Jun 2008 10:01:03 -0000

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.

Re: Heading For The Exit Lane

fredwilson — Mon, 30 Jun 2008 09:05:05 -0000

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

Re: Heading For The Exit Lane

CCjudy — Mon, 30 Jun 2008 08:34:53 -0000

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

Re: Heading For The Exit Lane

Geoff — Mon, 30 Jun 2008 05:48:12 -0000

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/wik...

Re: Heading For The Exit Lane

MaxS — Sun, 29 Jun 2008 18:36:13 -0000

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.

Re: Heading For The Exit Lane

Martin Owen — Sun, 29 Jun 2008 15:53:51 -0000

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?

Re: Heading For The Exit Lane

MJM — Sun, 29 Jun 2008 13:44:00 -0000

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.

Re: Heading For The Exit Lane

gregorylent — Sun, 29 Jun 2008 12:50:01 -0000

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

Re: Heading For The Exit Lane

michael — Sun, 29 Jun 2008 12:32:02 -0000

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

Re: Heading For The Exit Lane

michael — Sun, 29 Jun 2008 12:24:27 -0000

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."

http://www.kitco.com/ind/ha...

Re: Heading For The Exit Lane

Jim — Sun, 29 Jun 2008 11:20:08 -0000

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.

Re: Heading For The Exit Lane

fredwilson — Sun, 29 Jun 2008 10:55:06 -0000

But those who have the truth can profit greatly from it

Re: Heading For The Exit Lane

JimHirshfield — Sun, 29 Jun 2008 09:37:37 -0000

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...

Re: Heading For The Exit Lane

kid mercury — Sun, 29 Jun 2008 09:36:45 -0000

markets only work when market participants have the truth. the further you stray from the truth, the more inaccurate the pricing mechanism becomes.

Re: Heading For The Exit Lane

fredwilson — Sun, 29 Jun 2008 08:51:04 -0000

That's true, long term it doesn't help them

But they are rolling in money right now

Re: Heading For The Exit Lane

fredwilson — Sun, 29 Jun 2008 07:11:03 -0000

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