Define Inflation

Krugman’s recipient piece in the New York Times has the following quote, “But that hasn’t been happening; yes, there’s a slight uptick in some U.S. inflation measures, but nothing out there that suggests an interest rate that is way too low in this macroeconomic sense.” as he discussed low interest rates and increasing asset prices.

It may be time to re-define inflation.  As Krugman notes in his column, “…the price of just about every asset category is now high by historical standards. Bond prices in “safe” countries are very high, which is the same thing as saying that interest rates are very low. But so are prices of risky sovereign debt — Paul De Grauwe points out that Spain’s borrowing costs are now the same as Britain’s. Corporate bond rates are low; stock prices are high; all across the board, assets are up.”

So asset prices are higher, but traditional measures of inflation are not.

Hmmm.   When a person’s assets increase, I see them spend more.  401K had a great year like 2013?  I guess you can afford the new car a year early.  That bond fund that you bought to generate income has now increased in value as well?  Pack the kids up, we are heading to Disneyworld.  Homes in your town are up 4% last year?  Tough not to incorporate that positive sentiment into your financial planning.

But much of that which we consume does not increase in price as fast as our assets.  BMW leases are lower this year than last year (due to the lower interest costs), flights to Orlando are cheaper now than last year even though fuel prices are up for the airlines.  My new laptop costs a lot less (and is more powerful) than the previous model.

The traditional measure of inflation looks at the money we spend year on year on certain items.  But maybe inflation needs to be re-examined.  I did not spend any more money this year, but I consumed a lot more in 2014 (so far) than in 2013.  So maybe inflation needs to be calculated as a percentage of disposable income?

I am not against the ability to get more by spending less.  I do benefit from the high asset prices and the low interest rates that have been in place the last few years.  But I believe that there are natural economic cycles; that there has to be bad times to have good times; that monetary and fiscal policy can not create an ever increasingly parabolic graph of economic growth.

And therefore if we continue to prime the pump (as Greenspan did through out the 90’s and early 00’s), we are due to have a harder fall when the bad times kick in (early 00’s and late 07 – 09).  If monetary and fiscal policy are “artificially” keeping interest rates low again, when is the next fall due and how hard will it strike?

Advertisements

Mental Re-Set – Can a Blog Post Help?

Every once in a while you just need to re-set yourself.  Some things are stale, the problem at work is not being addressed, the market for your services seems saturated, the product dev cycle is slow, etc.

For me that means time to do two things; reading and thinking.

READING:

I do not mean reading the onslaught of e-mails or industry press…I mean read some leisure books and  read some blogs of favorite writers.  Get re-invigorated about something or get absorbed by a good piece of fiction.  Take a trip; flights and sunrises in different settings always help me think BIG.

Re-read your own blog posts, read through your old notebooks (digital or other).  See what successes you have had.  See what issues you gave up on.  Re-visit that which excited you a year ago, is there something still there?  Or were you wise to move on?  Is now the time?

THINKING:

We all think every day.  What to have for breakfast?  Answering mundane e-mail questions.  How can I close that sale?

What I mean is think BIG.  What issues are out there waiting to be solved?  Can I be a part of any of those solutions?  Global issues like healthcare delivery, national issues such as tax reform, local issues such as deciding to become involved with the kid’s school committees.  Can I have a positive impact on the issue and if so, do I have the time to make it happen?

Take time to think and visualize what, where and why your life will be in 10 years.  Am I on track to move to that mountain town or beach community once the kids hit college?  What can I do to be a better xxxxx? (whatever your XXX may be)

 

Or maybe just write and post a blog about the steps I like to take to re-invigorate myself.  Like I seem to have just done.  Time to get back after it.

 

Business Idea Generation

Below is a good list sent by a friend that got me thinking about what is next; for the world, for business, for me?  Start with a grandiose goal and find a way to take a bite out of that elephant.

In reading this list there are a number of avenues that are appealing but not at all applicable to me and my skill set, some that are interesting but not something I think I can positively effect in my lifetime, and some that I say….hmmm, I wonder how I could implement the following xxxxxxx.  Have a look and think big.

32 Markets Ready for Disruption

  1. Education: There is a ton of value created by educating the masses in emerging and under-developed markets and those able to capture this value will do very well.
  2. Construction: 3D printing is on the cusp of becoming a mainstream phenomenon. And yet, contractors are still driving their big trucks over to Home Depot.
  3. Insurance: Micro and Peer insurance (everything can be insured, and people can insure other people)
  4. Water rights and distribution: the clean water we are polluting for natural gas wells will soon be worth more than any form of gas.
  5. Loans: who gives them and how people get them (micro and peer financing)
  6. Prime Time TV lineup: this will be all on demand and will change TV advertising forever and in reality, already has.
  7. The legal profession: Simple contracts could be generated and processed by machine at far, far lower cost than a lawyer’s hourly rate. Some legal documents could be modeled as graphs of conditions and outcomes, which could then be compared with tree-diff algorithms and annotated with other data.
  8. Intellectual Property: Consider the black box of patent applications, as well as the aftermarket for IP. “Patent Trolls” is the latest buzz word; individuals or firms pick up bulk lots of IP on the secondary market and file suit against major companies for infringement, hoping for a big win. However, what if there were a more transparent and readily accessible market for IP?
  9. Financial Services & Wall Street: Read what Chris Dixon says about disrupting Wall Street.
  10. Data Informatics: Corporations and professional services firms can pay upwards of six-figures for limited access to certain specialized data stores. While some data pools are proprietary, pulling information from truly unique sources that cannot be duplicated is very valuable.
  11. Politics: Campaign spending alone stretches into the billions when looking at the top 2-3 levels of government. Consider aggregate spending on campaigns at all levels, in addition to significant sums spent on lobbying and other related activities. Disruption would certainly be difficult in this space, but there are examples of companies already attempting, and succeeding in some cases, to disrupt particular verticals.
  12. Real Estate: The fact that a 5% commission is extracted by the brokers for matching buyers and sellers is today’s information age is outrageous. The buy side of the market is very opaque with little visibility into who is interested in buying what and where.
  13. Moving industry: A $16 billion/year industry formed mostly from small players. 50 companies have 45% of the market. The rest are small players, companies with under 10 employees. Frogbox has been disrupting this space recently.
  14. Packaging: In USA alone the CPG industry is $2 Trillion! Anywhere between 10% to 40% of that money is spent for the packaging of the product. That is the cardboard, polythene, plastic, paper etc. meant for covering the actual product. Environmentally focused products could win significant market share in the space if done right.
  15. Recycling: There’s still so much we can do to recycle effectively. There’s a huge opportunity here, but I wonder if we’ll capitalize on it only after we reach a higher level of scarcity.
  16. Landfill Resource Reclamation: As we continue to come to terms with resource scarcity, we’ll dig deeper into our own trash heaps to reclaim re-usable materials. In Indonesia, some people are literally living off the landfill.
  17. Battery Technology: If we can make tiny batteries that never have to be recharged and that don’t cause a nuclear meltdown we will advance tremendously.
  18. Fast Food: The fast food industry is known to deliver more than a quick ready to go meal. Fast food also delivers some of the highest calorie foods eaten during a typical day. Fast healthy food will change this industry. These guys are doing it.
  19. Software Operating Systems: The cloud is gaining ground quickly. OS’s that don’t require booting, installing, or updating by the user are surely preferred over those that do. Of course, you already will find Google & Microsoft here.
  20. Rare Earth Metals: This enormous industry has mostly been pushed into China were extraction labor costs are low enough to be economical. However, with >50lbs of rare earth metals under the hood of your typical Prius or EV – substitutes are needed as China cuts supply (recently announced that <50% of China-mined rare earth metals were available for export).
  21. Payments: While PayPal never quite lived up to its vision of displacing the major processors (Amex, Visa, MasterCard), this area is beginning to heat up again. 2%+ cost for each transaction is the reason $24T of B2B transactions are still completed using paper check. Bitcoin is poised to disrupt payments in a very big way too. This is a crowded space with lots of capital already working to disrupt it.
  22. Low Cost Distributed Energy and Sanitation solutions: Developing countries have a large need for dirt cheap, compact local energy and sanitation solutions, but the same applies to many of the developed countries too. Who wouldn’t like the prospect of generating their own energy with small solar panel or other green energy solution? This is especially true when the electric grid becomes unreliable or cost of energy hikes up rapidly.
  23. Diamond retailing: No major disruptions as of yet. This is a $72 billion a year market. Bluenile.com, the biggest online player, does about $350 million a year in revenues.
  24. The gambling industry: Currently unregulated in half the world (Thailand, India, etc.) and most bettors go through bookmakers with high fixed odds. With online betting exchanges (Betfair, Smarkets) you get the best prices because of efficient markets and high volume/liquidity.
  25. Sewing garment factories: as clothing companies get into “fast fashion”, there needs to be a better way to find, vet and analyze factory capacity and order.
  26. Medical Devices: Most big companies have commoditized existing equipment (esp. Surgical Devices). Much of the new features being added are bells and whistles to justify a price hike or reduce liability. There are a lot of opportunities in their improvement and total replacement.
  27. Healthcare: Simply put, healthcare is not working and it will get worse as the population ages. Efficiencies need to be created or this will bankrupt governments.
  28. Weddings: A $74+ Billion dollar industry that’s fragmented and highly inefficient, probably the last industry left where consumers still shop from a trade show, magazine or Google search.
  29. Business productivity software: Right now, 100s of millions of people are using Microsoft Office on PCs, while their kids are using smartphones, tablets and web applications. The future belongs to collaboration and productivity apps designed for this new reality.
  30. Taxation: The tax system is another system designed for and by accountants. If the congress can get a more simple tax system designed and implemented, the entire accounting system as we know it today will be turned on its head.
  31. Automobile sales and marketing: Particularly at the dealer levels – if you’ve ever purchased a car you’ll realize this industry is completely broken. Car dealers are packed full of sales people who don’t understand the difference between sales and marketing, particularly online advertising and when states are trying to ban the direct to consumer model, you know there is disruption coming.
  32. Mattresses: They cost too much for what they are. Someone needs to disrupt this market. I’m getting a little tired of paying 1000’s for some foam and springs. 😉