Finance Futures

The decline of green investments

2011-08-26T10:08:00.000-07:00

I blogged a long time ago that getting involved in anything green would be a mistake, and it is always a pleasure to be able to say I told you so. Since then, the bottom has fallen out of carbon trading, green power subsidies are falling, and 'green' generally has lost a great deal of its fashionable status. The genral public has lost trust in anyone proclaiming doom on the basis of supposed AGW (man made global warming). I was greatly amused to find the first ads Google put alongside were for carbon trading companies. Click them, those companies will need all the help they can get. The traders, not Google, who are doing just fine.

This isn't the beginning of the end, that was ages ago. What we are now seeing is the rapid collapse phase, before the green industry as a whole will start to level off with the hard core of supporters in classic S-curve manner. Among those who are currently involved but are deserting like rats from a sinking ship are governments and big companies especially those who have been investing in wind energy. Much of the US government is running away now and trying to block any further green programmes while closing down existing ones. The Germans, the Japanese, and the Australians are all going in that direction too. The UK government is even showing a few signs of reform now. Expect that the previously high but already falling subsidies for wind farms and solar panels will soon collapse or even be blocked, though existing contracts will have to be honoured of course.

I suggested that the moment that the CERN CLOUD experiment crew announced their results would be critical. They have now announced them, and serious scientists will note their conclusions and start worrying about their own affiliations, even if they historically were ardent warmists. It will be extremely hard now to retain any momentum for further green programmes based on avoiding human-caused climate change. It looks increasingly certain that the warming has stopped and was mostly due to natural causes, especially solar activity. If you look at all the results of experiments and measurements over the last year or two, the contribution to previous warming from CO2 looks like being at most 15%, probably less than 10%.

That should scare off anyone thinking of getting into carbon avoidance industry, and will certainly reduce greatly the value of investments in associated assets.

My advice: if you still can, get out now.

Future socio-economic conflict

2011-03-03T05:39:00.000-08:00

I actually posted this on my main blog ages ago, and forgot to copy it to the finance one. Anyway...

Democracy isn't perfect, but as a means of keeping a large population working together more or less as a team, it is the least bad system we know. Such is the received wisdom. One of the major faults of democracy is that it sometimes allows a majority of beneficiaries to vote in measures that they know will have to be paid for by other people. The people paying may have no choice if they are a minority, or otherwise without power, and simply be unwilling victims of a selfish majority. Such is the situation facing much of the west right now. Many countries have overspent, with governments investing large amounts of borrowed money to ensure votes from large parts of the population, knowing that the price would be paid by other future governments and by different parts of the population. Now that the time has come for savings to be made, we are seeing some very selfish squabbling indeed, with everyone wanting someone else to pay the bills, leaving them undisturbed. The results in some countries are not pretty, with street demonstrations and rioting. The UK hasn't gone that far yet.

There are some basic principles that most people give at least lip service too. The weak and the deserving poor must be protected, and those that are able to do so should carry more of the burden. No major political party disagrees significantly with that, though they differ enormously when defining poor and deserving. Until recently, there has also been a consensus that children should be protected. Now that appears to have vanished. The debts that have been incurred by the adult generations are to be handed on to their kids, who of course have no legal say in the matter. Various groups of adults blame each other for the mess, but it is the future generations who will suffer most of the pain. Any suggestions of reductions of benefits, pensions, pay, jobs or public services are being resisted furiously, but if everyone insists that we must delay repayments, then it is today's and tomorrow's kids who are being left with much of the bill. And of course, if the services and benefits are eventually reduced, as they must, those same kids picking up the bill won't even benefit from them.

This does not seem a sensible, moral, or sustainable approach to democracy. If unwilling generations are forced to pick up large bills for benefits only available to their ancestors, we can be pretty sure they will rebel. Inter-generational conflict will see young people refusing to pay for the luxurious benefits their elders voted for themselves.

The same is true of any other sectors of society. All must see that they are having a reasonable package of price and reward. This is important, as it is this balance that make democracy stable and prevents revolution. No sector should be seen to benefit unduly at the expense of others.

Some people have gained much more than others from the various decisions that accrued the debts we now face, indeed some of the costs can be attributed to vote buying. For example, much of the debt is due to generous pension commitments in the public service. While private industry long ago recognised that increasing lifespans have made traditional final salary pension schemes unaffordable, and abolished them, the public sector has conspicuously carried on large scale recruitment with terms and conditions associated with lifespans that became out of date in the 1960s, knowing they were unaffordable (increasing longevity has caught noone by surprise) , and understating costs by using different pension valuation formulas than the private sector (e.g. 8:1 instead of 20:1). It does not seem unreasonable for those paying the bills to demand that terms and conditions such as pensions, holidays, pay and bonuses, be realigned to a more sensible baseline. All wealth generation arises in the private sector, so it makes little sense to provide public service conditions more generous that their equivalent in the private sector. Of course, those living very comfortably at the expense of others can't be expected to surrender their comfort without a struggle, but if public sector staff are seen to be very comfortable while those who have to pay them suffer, conflict is inevitable as stresses increase.

Similarly, benefits and welfare are already being addressed to ensure that those who are able to work (including those who are sick or disabled but who retain some saleable skills and abilities) must do so before they can claim state support, and to ensure that working will always make them wealthier than idleness. In a wealthy society, provided that everyone looks after themselves as far as they can, the state can easily ensure that everyone can afford survival with reasonable comfort. Ideally, welfare provides a basic existence for everyone, and then everyone could add to their personal comfort by making whatever contribution they reasonably can. This would be affordable and sustainable and would not disincentivise personal effort. It will take time to deliver this principle, but we are heading in that general direction.

But inter-generational problems will prove far more problematic than those between private and public. Inter-generational conflict in fact is already overdue. For me, the biggest surprise about the French demonstrations against pension age increase is not that they are happening, which isn't surprising at all, but that young people have also joined the demonstrations. It is the young who are being left with the huge bills, and they ought to be demonstrating in favour, not against pension age rises. Today's retirees are retiring at the same age as their parents, but unlike them, they will cost far more than they ever paid in. They are in effect demanding a huge unearned windfall, paid for by younger people. The older ones on the demonstrations may hope to benefit similarly themselves, but it is near impossible that younger people will be able to do so, yet they are being expected to pay the bills for those older people fortunate enough to do so. When someone else gets a big cake free, and you have to pay for it, it is not unreasonable to be annoyed. It is very surprising if you demonstrate in support of them getting the cake. The young French may be a little sluggish in realising the situation they are in, but they will catch up eventually. In the UK, the retirement age increase looks like it is being accepted, but it still leaves the young with huge bills. With the duration of the payback times being considered, many of the kids who will have to pay the bills are in school, and aren't politically aware yet, but as they come on stream politically and realise the enormity of the debts they face entering adulthood, we should expect them to start complaining. We may well see a Europe-wide rebellion against older population, and demands that they pay for themselves and their own retirements.

Immigration is an interesting issue too. The papers are full of stories about resentment of perceived advantages enjoyed by immigrant populations, but most of the stories are from communities that are under stress with limited employment or housing. The economics are interesting. On one side, someone immigrating and becoming a citizen gains a share of all the accumulated wealth of the country built over the centuries, and we may also pick up some liabilities to overseas family. On the other hand, we get the benefits of their education and skills free, and presumably benefit from any wealth they bring with them, plus their future contributions, and perhaps those of their families. And we gain also from their overseas links and networks, helping trade and reducing military threats. Set against that, some people emigrate, with the reverse economics. Of course, the two groups don't match. Emigration often happens in retirement, when people have a lot of wealth. Immigration tends to be of younger people with lower wealth. And of course, there is a lot in between in both directions. It is this that presents the biggest problem. Many people who immigrated to the UK to get a better life are now going back, because conditions there are improving while conditions here worsen. This new flow may be called remigration. It is strongest in those areas that are most useful, such as engineering and medicine. Remigration is a threat to the economy, because we tend to lose those immigrants who make the greatest contributions, leaving skills shortages, but we still are left with the costs of the lower contribution immigration. Adding to this, intergenerational conflict, if left unsolved, could lead to a large brain drain as young people decide to leave for lower tax regimes elsewhere, leaving behind the debts they were to be saddled with. If we lose the most able people from society, we not only lose their economic contribution but also face a skills shortage. The nightmare scenario would see the UK becoming an ill-funded retirement home, with lots of expensive old people, lots of people needing state support, a lot of people just about paying their own way, and too few wealthy taxpayers to pay for the difference.

So it is rapidly becoming apparent that society has many stresses to face over the next decade, and obvious that some communities in France are already at the point of rebellion. The first trouble is resistance to change. But soon some parts will realise that they want change and demand it, then trouble won't be against the state but between communities. The degree to which that spreads to the UK, and to other pressures, is debatable, but we will soon see.

Future high street retailing

2011-03-03T05:37:00.000-08:00

Retailers are complaining afresh about their high street shops being finely balanced between survival and closure: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8358028/Retail-chiefs-warn-Treasury-over-wave-of-shop-closures.html.

It is hard not to feel some sympathy with them, but I also feel a degree of annoyance at their lack of vision. They look like yet another British industry group whose managers can seemingly only understand two tools - cost reduction and price increases. I guess they could get jobs with government if they are made redundant, they are obviously a good match for those who are seemingly only able to tweak tax and interest rates (I feel another blog entry coming on).

In brief, many people have much less money due to the recession, and petrol and food prices have risen a lot, so they have consequently reduced their spending on clothes to help balance their budgets. Like many people, I buy almost everything online or in out of town superstores, and only ever go into town if I need clothes. But the clothes I buy do come from the high street, apart from basic stuff that you can easily pick up at Tescos. (I did notice that my favourite men's shop in Ipswich has now gone. I have often joked that Ipswich used to be a one-horse town, but then the horse died. So my joke has become a personal reality. Anyway, back to the point).

The retail industry leaders want less financial and administrative pressure on them from government (fair enough) and the ability to pay less to young people (not so sure here). They argue that being able to reduce wages for young workers would let them employ more, thus increasing employment and leading to a retail-led recovery. There is some truth in the argument of course. Reducing the cost of labour allows prices to be reduced, increasing sales. Extra sales stimulates more manufacturing, more supporting services, more R&D, new ideas, and some of all that might be suitable for export. So the argument is not without merit, but economics is very complex, and it is very easy to trip up and invest too much in policies with poor returns. For example, retailers could simply abuse wage reduction to increase profit margins, without either creating increased jobs or reducing customer prices. Also, many clothes are imported so much of the associated economic benefit from increasing sales would go elsewhere. So, even though allowing retailers to pay lower wages might yield a little economic benefit for the UK as a whole, I think other policies might prove better.

There are many factors in costs of running a high street shop, and many that affect the overall cost of a shopping trip other than the price of the goods. Some have a natural feedback loop. If lots of high street shops close, and there is insufficient demand for yet more coffee shops, the rents demanded by the property developers will fall - they make nothing at all if they charge so much that their building is left vacant. If town centres are left sufficiently empty, the amount that councils can demand for car parking will fall.
There are also lower limits on how far demand will fall. Not everyone is severely affected by recession. A high proportion of the workforce is still in jobs with high job security, especially in the public sector. Some have just as much money as ever, and if anything, have benefited from reducing prices and interest rates. Most are not facing any likely redundancy that might make them unwilling to spend. Others have seen only small reductions in income, via reductions in pay rises or overtime. This bulk of the population guarantees a continued demand for products and services, even in luxury sectors. They will still want clothes, regardless of price reductions, so some stores will certainly be able to stay in business.
So although reducing wages and using the savings to lower prices or increase jobs a bit might help a little, what we really need is the development and deployment of new manufacturing and services that can be sold elsewhere as well as internally. Moving wealth around inside the economy doesn't help nearly as much, and only yields slow growth. If the retailers focused less on cost reduction and more on other ways to stimulate sales, the benefits would be greater. This is actually true throughout the UK economy, in every sector. UK managers have generally been far to focused on cost reductions instead of looking at ways to improve revenues.

During the 1990s, many retailers introduced coffee shops and restaurants into their high street stores. Since then, there has been little change. The next decade will have to be a bit more imaginative. There are many areas where shops should be innovating and many new areas will be opening in the next few years. High street shopping could and should be much more exciting, and retail revenues could be increased. Some of the services and technologies required would be well suited to exports, so the UK economy as a whole would grow. It is developing these that should be the priority, not wage reductions. So what are they? I looked at some upcoming retail trends in my blog last summer, slightly more nicely packaged in http://futurizon.com/articles/retailing.pdf, but I'll cut and paste the more relevant bits now to save you having to click, and maybe update a bit.

Since the iPhone and iPad became popular, followed by numerous competitive offerings, mobile internet access is now much more useful and accessible. People can now access the net to compare products and prices, or get information, or add value to almost every activity. But the underlying, less conspicuous trend here is that people are getting much more used to accessing all kinds of data all the time, and that ultimately is what will drive retail futures. With mobile access increasing in power, speed and scope, the incentives to create sites aimed at mobile people is increasing, and the tools for doing so are getting better. For example, people will be able to shop around more easily, to compare offerings in other shops even while they remain in the same one. Looking at a suit in M&S, I'll also be able to see what comparable suits Next has across the street, and make a sensible decision whether it is worth going to try it on.
This will be accelerated by the arrival of head-up displays - video visors and eventually active contact lenses. The progress in 3d TV over the next few years will result in convergence of computer games and broadcast media, and this will eventually converge nicely into retailing too, especially if we add in things like store positioning systems, gesture recognition and artificial intelligence (AI) based profile and context engines. These are all coming quickly. Add all this in to augmented reality, and we have a highly versatile and powerfully immersive environment merged with the real world. It will take years for marketers and customers to work out the full scope of the resultant opportunities. Think of it this way: when computing and telecoms converged, we got the whole of the web, fixed and mobile. This time it isn't just two industries converging - it is the whole of cyberspace converging with the whole of the real world. And while technology will be the main driver, it will also stimulate a great deal of innovation and progress in the human sides of retailing.

So we should expect decades of fruitful development, it won’t all happen overnight. Lots of companies will emerge, lots of fortunes will be made, and lost, and there will also be lots of opportunities for sluggish companies to be wiped out by new ones or those more willing and able to adapt. Companies that only look at cost reductions will be among the losers. The greatest certainty is that every company in every industry will face new challenges, balanced by new opportunities. Never has there been a better time for a good vision, backed up by energy and enthusiasm. All companies can use the web and any company can use high street outlets if they so desire. It is a free choice of business model. Nevertheless, not all parts of the playing field are equal. Occupying different parts requires different business models. If a store has good service but high prices and no reason someone should not just buy the product on-line after getting all the good advice, then many shoppers will do just that.

An obvious response is to make good use of exclusive designs. A better and longer lasting response is to captivate the customer by ongoing good service, not just pre-sale but after-sale too. A well cared for customer is more likely to buy from the company providing the good care. If staff build personal relationships and get to know their customers, those customers are highly unlikely to buy elsewhere after using their services. Augmented reality isn't just a toy for technophiles. We'll all be using it, just as we all now use the web and mobiles. Augmented reality provides a service platform where companies can have an ongoing relationship with the customer. Relationships are about human skills, technology is just a tool-kit.
As we go further down the road of automation, the physical costs of materials and manufacturing will generally fall for any particular specification. Of course, better materials will emerge and these will certainly cost more at first, but that doesn't alter the general cost-reduction trend. As costs fall, more and more of the product value will move into the world of intangibles. Brand image, trust, care, loyalty, quality of service and so on - these will account for an increasing proportion of the sale price. So when this is factored in, the threat of customers going elsewhere lessens.

AI will play a big role in customer support in future retail, extending the scope of every transaction. Recognising when a customer wants attention, understanding who they are and offering them appropriate service will all fall within the scope of future AI. While that might at first seem to compete with humans, it will actually augment the overall experience, enabling humans to concentrate on the emotional side of the service. Computers will deal with some of the routine everyday stuff and the information intensive stuff, while humans look after the human aspects. When staff are no longer just cogs in a machine, they will be happier, and of course customers get the best of both worlds too. So everyone wins.

Adding gaming will be one of the more fun improvements. If a customer's companions don't want to just stand idly and get bored while the customer is served, playing games in the shop might be a pleasant distraction for them. But actually games technology presents the kind of interface that will work well too for customers wanting to explore how products will look or work in the various environments in which they are likely to be used. They can do so with a high degree of realism. All the AI, positioning, augmented reality and so on all add together, making the store IT systems a very powerful part of the sales experience for shopper and staff alike.

Positioning systems exist already, via GPS and mobile phone networks, with Galileo also maybe coming soon. Indoors, some of these systems don't work, so there is a potential niche for city positioning systems that extend fully inside buildings. With accurate positioning, and adding profiling and AI, retailers can offer very advanced personalised services.

Social networking will change shopping regardless of what retailers do, but if the retailers are proactively engaged in social networking, adding appropriate services in their stores, and capitalising on the various social networks fads, that is surely better than being helpless victims.

Virtual goods have a significant market - online gaming and social networking has created a large market for virtual things, and some of these overlap with stuff sold in high street shops - clothing, cards, novelties, even foods. People in games spend real money buying virtual goods for their characters or their friends. There is no reason why this can't happen in the high street. Someone playing a fantasy character in World of Warcraft may well be open to trying on a magic cloak in a high tech changing room in a high street clothes store, or drinking something in a coffee shop based on a potion their character is drinking. In fact, the good on offer in a shop could extend to vastly more than are currently on display. With augmented reality, a shopper might walk around a physical store where the entire display area is full of goods customised to them personally. The physically present items that are not suited to them might be digitally replaced in their visors by others that are. This increases the effective sales area dramatically. The goods need not be entirely virtual of course. They might well be real physical products available online, or form a larger store, or from associates. We may see companies like Amazon using real high street shops to sell goods from their stores - they've effectively been doing that with bookshops for years without even having the consent of the bookshops, so why not extend it using proper business alliances, implemented professionally, instead of simply digitally trespassing?

Try-on outlets are another obvious development. People mostly want to try clothes on before purchasing them (I am one of the many men who lets their wives buy most of their clothes, so am not sure how much of a 'mostly' it is). But not everyone is a standard shape or size, in fact very few people are. So although an item might fit perfectly, usually it won't. Having a body scan to determine your precise shape and size, and having a garment custom manufactured would be a big improvement. With advanced technology and logistics, this wouldn't add very much to the purchase price. A shopper in a future high street outlet might try on a garment, and if they like it, they would take it to the checkout, or more likely, just scan the price tag with their mobile. Their size and shape would be documented on a loyalty card, mobile device, store computer, or more likely just out there somewhere on the cloud. The garment then goes back on the shelf. A custom garment (the customer may be able to choose many personalisation options at this stage) would then be manufactured and delivered to the person's home or the store, and this process could well be as fast as overnight. The customer gets a garment perfectly suited to them, that fits perfectly. The shop also gains because only one item of each size needs to be stocked, so they can store more varieties. The store evolves into a try-on outlet, selling from a greatly increased range of products. Their revenue increases greatly, and their costs are reduced too, with less risk of being left with stuff that won't sell. Local manufacturing benefits, because the fast response prohibits long distance outsourcing. If the services and technologies required for all of these advances are developed in the UK, there may well be large export potential too. From a UK perspective, everyone wins. None of this would happen simply by trying to cut costs.

Clothes and accessories stores will obviously benefit greatly from such technology, allowing customers to choose more easily. But technology can also add to the product itself. Some customers will be uninterested in adding technology whereas for others it will be a big bonus having the extra features. Today, social networking is just starting to make the transition to mobile devices. In a few years’ time, many items of accessories or clothes will have built in IT functionality,enabling them to play a leading role in the wearer's social networking, broadcasting personal data into surrounding space or coming with a virtual aura, loaded with avatars that appear differently to each viewer. Glasses can do this, and also provide displays, change colour using thin film coatings, and even record what the wearer sees and hears. They might even recognise some emotional reactions via pupil dilation, identifying people that the user appears interested in, for example. Health is another are obviously suited to jewellery and accessories, many of which are in direct contact with skin. Accessories can monitor health, act as a communications device to a clinic, even control the release of medicines in smart capsule.

But the biggest change in retailing is certainly the human one, adding human-based customer service. Technology is quickly available to everyone and eventually ceases to be a big differentiator, whereas human needs will persist, and always offer a means to genuine value add. This effect will run throughout every sector and will bring in the care economy, wherehuman skills dominate and computers look after routine transactions at low cost. Robots and computers will play an important part in the future, but humans will dominate in adding value, simply because people will always value people above machines - or indeed any other organic species. Focusing on human value-add is therefore a good strategy to future proof businesses. The more value that can be derived from the human element, the less vulnerable a business will be from technology development. The key here is to distinguish between genuine human skills and those where the human is really just acting as part of a machine.Putting all this together, we can see a more pleasant future of retailing. As we recover from the often sterile harshness of web shopping and start to concentrate more on our quality of life, value will shift from the actual physical product itself towards the whole value of the role it plays in our lives, and the value of associated services provided by the retailer. As the relationship grows and extends outside the store, retailing will regain the importance it used to have as a full human experience. Retailers used to be the hub of a community and they can be again if the human side is balanced with technology.Sure, we will still shop on-line much of the time, but even here, the ease and quality of that will depend to some degree on the relationship we already have with the retailer. Companies will be more responsive to the needs of the community and more integrated into them. And when we once again know the staff and know they care about us, shopping can resume its place as a fun and emotionally rewarding part of our lives.In the end it is all about engaging with the customer, making them excited, empowering them and showing them you care. When you look after them, they will keep coming back. And it is quite nice to think that the more advanced the technology becomes, the more it humanises us.

So, retailing, and even in the high street, has a potential very bright future. There is lots of competition, but good companies will thrive. Cost cutting is the wrong approach, even during recession. Investing in advanced technologies and improved services increases revenue, increase profits, leads to real economic growth, maintains potentially high wages, stimulates lots of new jobs in many sectors, and improves quality of life for all concerned. It really should be a no-brainer. Retailers should stop moaning and get on with it.

Executive pay. Why too many CXOs are paid far too much

2010-01-09T03:45:00.000-08:00

The BBC chief says they need the best people, therefore have to pay the best too. This line of argument is seriously flawed but is cited in every boardroom remuneration battle. It too often results in highly excessive reward for mediocre performance.

I meet a great many CXOs in my line of work, and with a few exceptions who really are worth their pay, I have noticed very little correlation between overall capability or quality of judgement and rank. So why should they be paid much better? I have given some thought to the issue and it seems actually quite straightforward. Only vested interests maintain the ubiquity and longevity of this flawed reasoning that top executives have to be paid very richly within a company. There are a few stars who ought to be rewarded, but most senior posts can be filled just as well at much lower cost.

In the vast majority of situations, and at every stage of promotion, a number of candidates apply for the job. With only a few exceptions, there is very little to choose between the top several candidates, and the job goes to the one who performed marginally better in the interview. What is then conveniently forgotten is that although the job has been filled, there are still several almost equally good people who could do it. If the winning candidate were to move on for higher pay elsewhere, one of the others could easily pick up the baton and do just as well. It is therefore nonsense that the pay for the job has to be a lot higher than the grade below. If it were just 5% bigger than the lower grade, it would still be filled by someone just as competent. People would still want the more senior job because it is more senior. Pay is actually one of the lesser incentives, power being a much greater one.

If each grade were paid 5% more than the grade below, wages would be much flatter. Typical blue chips have about 7 layers of management, and even this is open to question in terms of wisdom. That means that the top job only really needs to pay 40% more than the lowest grade. If an executive then performs far better than expected, they could be rewarded by bonuses, just like any other staff. If such a remuneration policy were implemented, it would save companies a great deal of money.

Of course, experience should be rewarded too and a wage scale within each grade is still useful to reward people who stay with a company as they become more useful. It would be reasonable to implement a bigger differential between the top and bottom of a scale than between scales. A higher grade might mean more responsibility or longer hours, but doesn't necessarily need significantly more talent, and usually the job could be done by any number of people at the layer below. Therefore, promotion should be rewarded less lucratively than progress up each pay scale according to experience and tenure, which does correlate very highly with being more useful. Too often, someone who is excellent at their job is promoted to one where they are much less excellent, and the company suffers (as does the person). Rewarding skill and experience within the job is usually a better idea than promoting someone.

Clearly, some people do deserve to be paid much more than their colleagues. In many fields - design, leadership, research, engineering, teaching, law, medicine and so on, there are always a few high fliers who are so good at their job that they produce many times the value of their more ordinary colleagues. A top engineer might invent many of the key products on which the company depends, whereas many others perform at levels where they are easily replaced or outsourced. A top designer might make the product so appealing that it sells far better than it would otherwise. Companies should try hard to keep such people since they generate a disproportionate amount of income. But even here, pay is only one of a range of incentives that appeal to people, so companies should spend more effort looking at the individual's goals and desires and target them more accurately. Bonuses and pay can be used of course if that is appropriate. In this case, there is no good reason why a top designer should not be paid more than the CEO.

So, the problem is not that some people should not be paid more, it is that it isn't always necessary to pay more. Just beating a few other candidates at an interview does not in itself guarantee that a person is much more valuable than others who also applied. In most cases they aren't.

So, how to identify those that should be paid more? Simple. Top people stick out. If they don't stick out, they aren't top people. Top people don't get discovered at job interviews. If a product is hailed as having a wonderful design, find the people who were responsible and reward them. If a team performs well ahead of expectation, first reward them, and then ask them why they did so well. If they think that excellent leadership was a key factor, then reward the leader again too. Just don't always jump to conclusions and always reward the people who happen to be in charge at the time something goes right. It may well have happened anyway, or even in spite of their involvement.

One of the big problems that many companies are now discovering is that top people no longer want to work for them. Often those people have found that thanks to the net, they can work freelance on a contract by contract basis for the highest bidder. Some of them can't now be bought at any price as permanent employees, other will respond to higher offers. The result will be a small elite who are highly rewarded, and a large majority who are simply commodities and whose skills can be acquired at low cost either locally or from other countries.

So, what of the BBC and other companies paying high salaries for top people. Well, some of them deserve it. Having them on board can save a company or dramatically improve its performance. But the simple truth is that most of the so-called top people are not top at all, but only marginally better than the competition at a series of interviews. They deserve 40% more than the junior manager, and not a penny more. We need to spend a lot less on high blanket remuneration of all executives, and start spending a little effort on identifying the really top people and reward them instead. It doesn't take that much more effort, because as I said, the top people really stick out, and if they don't, they simply aren't top people.

Carbon markets, invest for the short term only

2009-12-14T09:37:00.000-08:00

The influence of the current environmental lobby ensures that there will be a thriving short term market for carbon avoidance and carbon fixation schemes as well as markets related to carbon trading. However, I am increasingly convinced, having read a lot of the science on all sides of the debate, that the quality of climate models is low in that they ignore major components such as the impact on cloud formation of cosmic rays. By contrast, evidence from research centres such as CERN, in which I have much higher confidence, especially Jasper Kirby, suggests that this may be able to account for the bulk of the warming we have seen so far, backed up by analysis of good proxy data going back millions of years (I am familiar myself with some of this data).

If you want to read Jasper's paper it is at: http://arxiv.org/PS_cache/arxiv/pdf/0804/0804.1938v1.pdf or you can watch him present similar material at http://cdsweb.cern.ch/record/1181073. He isn't the only scientist saying this sort of thing, but he is pretty convincing, for me anyway, and when you put it all together, it makes a lot of sense.

Although CO2 may well also still be shown to be a significant contributor, I believe that we will find that current climate science bodies such as the IPCC have over-stated its importance in dealing with climate. The Cloud experiments at CERN (along with their collaborators at a number of other prestige labs) will investigate the cosmic radiation related mechanisms for cloud formation and will produce results over the next two or three years. Based on what I consider to be well-informed hypotheses by Kirby et al, I expect him to be shown to be correct. By contrast, recent evidence indicates that some of the most influential temperature records appear to be corrupted, data and models tweaked to fit hypotheses rather than the reverse, and worse still, group-think seems to have severely polluted the quality of application of the scientific method in large parts of the field. So while I have little confidence in the IPCC and some other climate bodies, I still have great confidence in the quality of basic science at a large number of sites, and CERN probably comes at the top of my list in that regard.

In my view therefore, it is highly likely that over the next few years, results from CERN will show that most of the climate change being experienced can be explained by variation in solar activity. Science will win out and most scientists will change their positions to adapt to this new knowledge - that is the nature of science when it is at its best - theories are changed to fit the data, not the other way around.

Even though limiting ocean acidification will also require management of CO2, the public understanding and support for carbon taxes is based on its impacts on climate. Consequently, it will be very difficult then to persuade people to back another reasoning base for the same taxes and governments will be accused not unreasonably of crying wolf. Due to decline in support, they will be very reluctant then to pour any more funding into schemes for carbon trading or fixation, and large corporations will also largely abandon their support for carbon markets and taxes.

Although it may take some time for schemes such as carbon trading to be dismantled, long-term valuations for any companies involved in CO2 reduction will fall very quickly once the science changes. Many green companies will go bust. Problems such as ocean acidification will be considered a lesser problem, solved on the fly by slow changes in carbon output that will happen in any case via technological change in energy and transport sectors.

The good news is that as the sun returns to 'normal', so will our climate and not for the first time, doom mongers will be shown to be wrong. The money we have already spent in green energy will not all be wasted, it will have accelerated development of cheap solar and wind power that will still have a market, (although subsidies will no longer be justified and will stop as contracts terminate).

Related to this, the CLOUD team is looking at a number of factors in cloud formation. The list is long but includes particulates and other aerosols, aircraft contrails, and various gases. They will investigate a range of atmospheric altitudes and temperatures and vary the kinds of radiation. I am confident we will know a great deal more about how our environment works as a result, and once the physics is understood, it can be factored properly into climate models, which will of course benefit from parallel development in many other branches of science. Since the 'climategate' affair, we can be reasonably assured that scientists will be more careful to do their work properly.

Summarising: strong short term market in carbon reduction and fixation technology due to what is likely to be shown as misunderstanding of climate science, but many companies in the carbon reduction sector will die in a few years when better science shows that CO2 is not the main problem. If you must buy now, get ready to sell quickly. The carbon band-wagon might well crash any time between the end of 2010 and 2012.

Carbon trading v R&D investment

2009-12-03T02:10:00.000-08:00

Carbon trading won't save our environment. As Dr James Hansen (one of the world's leading climate scientists) says http://www.timesonline.co.uk/tol/news/environment/article6941974.ece, it would be better that the Copenhagen conference fails than that a carbon trading scheme be locked in as the solution to climate change. Carbon trading has already been shown to be deeply flawed. It has encouraged fraud, especially in the offset area, with payments for schemes that would have happened anyway, phantom forests, multiple sales of the same trees, and poor monitoring or maintenance of planting schemes. It has also enriched the more imaginative criminal fraternity via intricate tax avoidance scams. Even on the legitimate market, it has perversely incentivised the destruction of forests and peat bogs since countries that weren't covered by Kyoto restictions could still sell carbon offsets and biofuels, so cleared forests and bogs to allow them to capitalise on planting new trees and plantations. And as Hansen says, it is really little different from the Catholic Church's indulgence scheme, where forgiveness for sins was sold for cash.

Carbon trading obviously needs a profit motive to work at all, and to do so it also needs a lot of administration. Yet there is little evidence that it significantly reduces CO2 production. This money could instead be spent on either improving climate science, filling in the remaining gaps, or accelerating the production of cheaper alternative energy sources, such as solar.

Wind power uses a fundamentally mechanical system, which limits the potential cost reductions. Solar uses either indirect production using sunlight concentration via mirrors or direct electricity production using photovoltaics. Solar power using photovoltaics offers a lot more potential for cost reduction and conversion efficiency improvement. It is already clear that in sunny areas, solar power will become cheaper than using energy from the grid (grid parity) by 2015. That will enable those regions to greatly reduce their fossil fuel use. Other areas that are less sunny will eventually be able to import energy from sunnier areas as technologies such as supercables develop. Europe could get much of its energy from the Sahara desert for example.

In parallel, development of electric vehicles and electronic driving technology will allow much greener transport solutions.

These areas will now develop anyway, there is already enough momentum in their markets to guarantee that. I certainly wouldn't argue for any subsidies on the products, which would disincentivise improvements. But increasing research funding would accelerate their development. That would be a much better use of the money that will be wasted in futile carbon trading schemes.

If Copenhagen results in governments agreeing targets and using carbon trading schemes as their mechanism for achieving them, the environment will suffer, because CO2 emissions will not be reduced sufficiently. Economies and quality of life will suffer due to extra costs, without significant benefits. People will become opposed to environmental taxes and it will be harder to solve the problem by more effective means later. We will be locking in a solution that won't work at the expense of ones that might. I fully agree with Hansen. If the climate scientists are right and CO2 is the problem they tell us it is, carbon trading will not solve it, and because this is being pushed as the main measure for solving CO2 emissions instead of incentivising R&D on alternative energy sources, Copenhagen will fail.

Art market, Sell: collapse is inevitable, only the timing is uncertain

2009-11-30T09:40:00.000-08:00

Had a good think about the art market. Time to sell.

It is clearly in an unsustainable bubble, with high prices for stuff often with low intrinsic value. It seems to be sustained mainly by the desire to avoid tax, and as globalisation catches up over the next decade, art prices will inevitably start to fall. Once they start, they will drop very very quickly. The last people holding the items will often be left with something that still looks pretty but is now worth a fraction of what they paid.

Think dotcom. Everyone knew it would collapse, but everyone kept buying for ages, and most gained because some sucker would always buy at an even sillier price tomorrow. No-one knew exactly when it would happen till it did, but one day, the price increase cycle stopped, followed by a huge collapse. The last one holding the dotcom stock lost his shirt.

Don't be the last guy. Don't get burned. Sell now before the collapse. If you like it, sell it now, buy it back later at a pittance.

cake glue

2009-11-20T05:20:00.000-08:00

No interest in developing this myself, so any culinary entrepreneurs out there who fancy having a go, be my guest (and send me a nice cake as a reward). I think there is some real potential for a paste that allows cooks to glue together parts of cakes that have fallen apart. It is quite common for cakes to break during kitchen processing, so a simple paste that allows people to stick them back together, without of course changing the taste, could be an essential item in every home cook's baking cupboard.

It could be a neutral-tasting paste that the cook spreads on both halves and then just puts them back together. Or it could use the remaining cake mix as a base, with an added agent to cause it to 'self cook' over an hour or so using the remaining heat in the cake.

Being able to salvage not just the cake, but also the reputation of the cook, would make this a valuable tool.

I think Murdoch is wrong to charge for web content

2009-11-17T02:14:00.000-08:00

Apparently, a study by Boston Consulting Group has shown that people are willing to pay for news on news sites. Rupert Murdoch plans to introduce fees on News Corporation sites, so such a study appears at first glance to offer hope for his model. But I think even a slightly deeper glance suggests that would be a strategic error.

Like many people, I read a good selection of newspapers every day. Sometimes I buy one or two, but I always read a few on-line. To date, even though I was among the first web users, and have spent thousands on retail sites, I have still never spent a penny on web content. If News Corporation starts demanding a fee to read the Times, I'll just abandon it and carry on reading the Guardian and Telegraph. I pay for Sky TV, but I just don't think of that in the same way as I do web content.

I think the Guardian and Telegraph sites offer a good model for the future of news-sites: professional journalists starting the ball rolling and stimulating numerous bloggers and contributors to add their comments to cover other angles.

Charging for some sites will concentrate advertising revenue on the rest. As Murdoch points out, there is only so much advertising revenue to go round so removing some of his own titles from the pool will help. The others will get a larger share of the advertising market, survive well and retain influence, while the Murdoch sites will probably end up with lower overall revenue, and much less influence.

Both kinds of site will soon offer personally targeted adverts, and these will pay more lucratively. The loyalty gained by allowing readers to contribute their own comments, read by a decent audience, will make them more sticky, and more aligned with the culture of the paper they contribute too, increasing both its marketing and political influence. Advertising will then be even more valuable on the freebies, so they will attract even more of it. News Corporation will see its profits fall and its political influence decline.

Then again, Murdoch became a rich man by knowing what will sell and for how much. Maybe he's right and I'm wrong. Time will tell.

Optional spend is key to recovery

2009-11-17T01:49:00.000-08:00

The recession will hit profits at easyJet, my favourite airline: http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6919684.ece

No big surprise, many people are flying less and are more price sensitive. It's good that they are surviving at all. They blame rising unemployment and cost pressures for their expected profit drop in the months ahead, but one of the main problems is that flying is one of the easiest areas to reduce expenditure. Travel bans on staff in many companies appeared early in the recession, and many are still in place. Conference businesses are seeing large drops in attendance too, since it is easy to abort conference attendance when money is scarce.

Businesses that depend on optional expenditure are mostly the first to suffer and the last to recover in a recession. There are notorious exceptions of course. Providers of small luxuries benefit as people opt for small treats, and takeaway restaurants benefit at the expense of more expensive sit-in restaurants. But areas like holidays and conference trips offer big financial savings at low emotional cost, so are attractive targets for cuts.

There are many areas that indicate the start of recovery, such as manufacturing equipment sales and retailing. The sign that recovery is well under way will be when the markets for airlines and conferences pick up. That shows that people and companies are happy to loosen their purse strings for business-as-usual.

Personal carbon allowance will damage the environment

2009-11-14T04:03:00.001-08:00

According to the Telegraph, Lord Smith of Finsbury, head of the Environment Agency, will recommend that everyone in the UK be given a personal carbon allowance, and penalised if they go beyond it:
http://www.telegraph.co.uk/earth/environment/carbon/6527970/Everyone-in-Britain-could-be-given-a-personal-carbon-allowance.html

Global warming is a problem that we must deal with, and scientists and engineers are making good progress both in understanding more of the science and figuring out mechanism to deal with it. The science is far from complete, but we know that although CO2 is a cause of warming, it is by no means the only one, and many scientists think it is far more appropriate to tackle other warming agents such as methane first, and making early impacts at much lower costs.

If we can't develop technology fixes to the problem, and consequently have to use solutions that depend on everyone changing their lifestyles, we need to ensure social cooperation. This requires that such changes be party-politically neutral. Solutions such as personal carbon allowances provide fuel to accusations that some green policy is just thinly veiled socialism, and are guaranteed to alienate those people who believe that personal effort should be rewarded by expectations of higher social status or comfort. We use the tax system to redistribute wealth, but we still accept that even after some distribution, people who earn more should be able to buy more, at least once they rise above dependence on welfare. We do not expect everyone to have the same cash allowance to live on, or insist they all live in the same sized houses, or eat the same amount of food, so why give everyone the same carbon allowance? It makes no sense except as a means of social levelling.

If we were to impose a personal carbon allowance that covers flying and other transport use, many people such as business executives would not be able to make their contribution to the economy without suffering personal hardship. Business will suffer, the economy will suffer and we will be less able to afford to look after the environment. So such a policy will damage the environment, not benefit it as it pretends to do.

We need to protect our environment, so we need good science, and we need to develop good technology based on that science. We will also need social cooperation right across every part of society. We must therefore reject environmental policy that favours one social group over another. Whatever we think of making society more socialist or capitalist, we should pursue those goals independently of protecting our environment or we will all suffer.

Free paper: Ten top attributes for business survival

2009-11-07T09:06:00.000-08:00

A new report listing the top ten attributes for business survival has just been published by Ian Pearson and Simon Branston. it can be downloaded free of charge from http://futurizon.com/articles/tentopattributes.doc

Dartford Toll, we'd all be better off without it.

2009-11-03T04:20:00.001-08:00

We just got back from a business trip which involved going via Gatwick, and hence going both ways through the Dartford Crossing. We had a 7 mile traffic jam going and a 4 mile jam coming back. There was no accident, that was all caused by the toll points. So, 11 miles of traffic jam to collect £6 from each car. On one hand, that's a lot of £3s so a large amount of cash. On the other hand, that £6 into one coffer caused two taxpayers to wait 45 minutes each, i.e. 90 taxpayer minutes. By any standards that is a low return, it is only about minimum wage. And yet the taxpayers in the cars mostly earn more than minimum wage (they drive cars). So on balance, the economy loses. As a nation, we would be considerably richer if we just abandoned the toll and let everyone use the crossing for free. We would spend less time in traffic jams, make less CO2 and less pollution, suffer much less stress and have a higher quality of life, and still be richer.

The Dartford toll makes no economic sense and should be stopped.

Second Life, imminent death

2009-10-21T03:47:00.000-07:00

http://www.telegraph.co.uk/technology/5078444/Second-Lifes-span-is-virtually-over-as-firms-decide-to-get-real.html is a good article describing the decline of Second Life. As someone who was talking about future markets for virtual environments as early as 1991, I find it sad, but not surprising. Second life was a good idea, but the novelty has worn off. It is essentially a combination of an exploratory computer game, a role playing game, and chat room. With many excellent computer games that add excitement to large-map virtual environments and many of those offering networked multiplayer options, the game and virtual world side of it has very strong competition. With the glut of social networking sites offering lots of bells and whistles on top of chat capability, it has lost this battle too. As the telegraph article points out, it still has a lot of visitors, but the market will continue to decline as awareness and availability of high quality competition increases, and as it starts to fall below critical mass, people will abandon it very quickly. It is sad, but Linden Labs started with a great idea, which at the time was pretty much state of the art. but they have failed to adapt and evolve fast enough, and in the rapidly evolving jungle that is the web, that is usually fatal. They could still reinvent it, but the signs are that it is too late.

What was it the Bond film was called? You only live twice? This is Second Life already in this case. The interesting question is whether Linden Labs can take the money, run, and build something else that is as new and fresh as Second Life once was. I hope so, and I wish them well.

The Loch Ness Monster Recession

2009-10-19T07:03:00.000-07:00

Economists differ on their views of the shape of the recession. Is it a single dip, i.e. a V-shaped recession, or a double dip, W-shaped recession? Most economists seem to agree on the latter now. I'm not a formally trained economist, I am a Physics and Maths graduate who has spent my working life in various branches of engineering and now apply myself mostly to predicting future technology and its impacts, thinking about the nature of many input forces as part of that process. Since economic forces have an enoprmous impact on the future, and the economy is a topic of interest in its own right, I do certainly have my own views about the workings of the economy, and am very happy to make general predictions about its future, formally trained or not. So, just for the record, so that no-one claims that no-one saw it coming this way, I think the recession will actually follow a series of dips and recoveries, and is therefore a 'Loch Ness Monster' recession (the monster is often portrayed as a sea serpent with its body dipping in and out of the water).

The reasons I think it will follow this shape are as follows:

1 the UK will have to reduce expenditure dramatically, but this won't happen for a few years for political reasons, so the economy will show the corresponding dip later
2 The rise of China and India will continue, and will cause big rise in demand for basic commodities. China especially is already trying to assure its own access to the commodities it needs. Prices will rise due to this demand, but again, the major effects have yet to be felt. Give it another 5 years and the price of meat, fish, oil, metals will rise a lot. With more of our incomes taken up providing for basic survival, there will of course be less for discretionary spend.
3 Taxes will have to rise a lot to pay for holes in pensions provision, but this won't really affect us until several years time, so a dip will happen then.
4 Rises in travel costs due to environmental targets (however inappropriate) will make it harder to do business, and also directly undermine tourist industry. This dip will be a short term one and will coincide with the second dip widely predicted elsewhere.
5 intergenerational conflict will become significant due to young people blaming their parent's generation for the problems they will face. Many of the most talented will emigrate to other lower-tax countries, leaving the UK with the old and those with less earning capability.

These forces will act in parallel, but their curves will be quite different. In a background of (hopefully) economic growth stimulated by improving technology and the markets it brings, they will result in a series of dips superimposed on a slow underlying recovery. Hence, a Loch Ness Monster recession.

Gold v lithium

2009-10-19T05:17:00.000-07:00

My first post on the metals markets. Gold is expensive at the moment and Fortune warns of a bubble. I have to agree. There is little intrinsic value in gold. It looks pretty much like brass and has few industrial uses that need much of it. It is an excellent conductor but circuits only need tiny amounts of it. Jewellery uses it mainly because it is expensive, but the real value of that must lie below the $300 mark since the market wasn't demanding significantly more gold jewellery even at that point. So there is no good reason why it should remain at today's level, and it won't. Once the recession starts to recede, its value will fall back to a sensible level. You don't want to be holding significant amounts then, because it may be quite a while till the next crisis forces its value back up again.

Lithium on the other hand will be in great demand as electric cars pick up over the next decade. The price can only increase, especially given the difficult regimes where much of the reserves are.

Sell your gold and buy lithium futures.

bankers and bonuses

2009-10-19T04:56:00.000-07:00

I'm still amazed at the number of articles about bankers and how they wrecked the economy and how they are still getting big bonuses. Politicians keep promising to stop it but still haven't. But I will say again and again till people stop missing the point. Bankers should be able to give whatever bonuses they want to incentivise their staff to maximise their profits. What they should not be able to do is to gamble with taxpayer's money. They should only be allowed to use their own. If bankers can make big profits using their own company's cash then fine, let them spread it out among the shareholders and those who earned it. Why should shareholders keep it all and the staff who earned it not get their rightful share? On the other hand, if they blow it all, then let them die. They will then be directly incentivised to take reasonable risks and benefit accordingly when they get it right, suffering accordingly when they get it wrong. We do not need to regulate their bonuses, just the means by whihc they earn them. We should protect taxpayers from having to pay the bill when they make wrong decisions. Then the banks are just companies like any other that live or die in the jungle of the markets.

Limiting bonuses will not in itself protect the taxpayer from the same thing happening again, limiting the funds with which they gamble will. It is baffling why our government cannot see that simple truth, and insist all the time on threatening to regulate the wrong targets. Until they understand, we all remain at risk.

JJB Sports, sell

2009-10-17T04:42:00.000-07:00

We just went to JJB Sports on the way home. I was surprised to see it was still there after its problems earlier in the year. The shop had 5 or 6 staff on the ground floor, and 3 or 4 customers. At the till, the one guy in front of us, already mid sale, was buying sunglasses and a pair of trainers. Almost 5 minutes later, the two girls at the till had finished and were ready to serve us. I don't think I need to say more. Sell.

HFT High frequency trading, dangers

2009-10-12T05:21:00.000-07:00

In June 1998, I wrote an article on IT and the Future of the City,
http://futurizon.com/idp/future/thecity.htm. I'm quite pleased now as I read an article in today's Times that says pretty much the same, albeit 13 years later.

Fast computing and geographic location

With a factor of 1000 in computer speed and memory capacity per decade, in parallel with advances in software, computers can now make logical deductions from the flood of information on the internet, not just from Reuters or Bloomberg, but from anywhere. They can often assess the quality and integrity of the data, correlate it with other data, run models, and infer likely other events and make buy or sell recommendations. Much dealing can now be done automatically subject to human-imposed restrictions, and the speed and quality of this dealing far exceeds current capability. The technology is now called High Frequency Trading, or HFT. Very predictable back in the 90s, and it has arrived on cue.

It will bring problems…

Firstly, the speed of light is fast but finite. With these huge processing speeds, computers can make decisions within microseconds of receiving information. Differences in distance from the information source become increasingly important. Being just 200m closer to the Bank of England makes one microsecond difference to the time of arrival of information on interest rates, the information, insignificant to a human, but of sufficient duration for a fast computer to but or sell before competitors even receive the information. As speeds increase further over following years, the significant distance drops. This effect would cause great unfairness according to geographic proximity to important sources, but there are two solutions. Either there is a strong premium on being closest, with rises in property values nearby to key sources, or network operators could provide guaranteed simultaneous delivery of information, which I believe is now the case. However, the simultaneous delivery only applies to a small number of companies and in a restricted area. It does not apply to the large number of individuals or companies situated a long distance away.

Secondly, exactly simultaneous processing will cause problems. If many requests for transactions arrive at exactly the same moment, computers or networks have to give priority in some way. This is bound to be a source of contention. Also, simultaneous events can often cause malfunctions, as has been demonstrated perfectly by numerous system crashes across many computer systems and networks. Information waves caused by significant events are a network phenomenon that could potentially crash networks.

An interesting future side effect of this is that the predicted flood of people into the countryside may be averted. Even though people can work from anywhere, their computers have to be geographically very close to the information centres, i.e. the City. Automated dealing has to live in the city, human based dealing can work from anywhere. If people and machines work together, they must both work in the City.

Consumer share dealing and software

Ultra-powerful palmtop computers pick up and analyse information all day long, organising every aspect of their owners' lives. With finance applications able to show which shares are doing well, spot trends and act on their computer’s advice at a button push, markets will grow for tools to profit from shares, whether they be dealing software, advice services or visualisation software.

However, as we see more people buying personal access to share dealing and software to determine best buys, or even to automatically buy or sell on certain clues, we will see some very negative behaviours. Firstly, traffic will be highly correlated if personal computers can all act on the same information at the same time. We will see information waves, and also enormous swings in share prices. Most private individuals will suffer because of this, while institutions and individuals with better software will benefit. This is because prices will rise and fall simply because of the correlated activity of the automated software and not because of any real effects related to the shares themselves. Institutions may have to limit private share transactions to control this problem, but can also make a lot of money from modelling the private software and thus determining in advance what the recommendations and actions will be, capitalising enormously on the resultant share movements, and indeed even stimulating them. Of course, if the share-dealing public generally perceives this problem, the AI software will not take off so the problem will not arise. What is more likely is that such software will sell in limited quantities, causing the effects to be significant, but not destroying the markets.

A money making scam is thus apparent. A company need only write a piece of reasonably good AI share portfolio management software for it to capture a fraction of the available market. The company writing it will of course understand how it works and what the effects of a piece of information will be (which they will receive at the same time), and thus able to predict the buying or selling activity of the subscribers. If they were then to produce another service which makes recommendations, they would have even more notice of an effect and able to directly influence prices. They would then be in the position of the top market forecasters who know their advice will be self fulfilling. This is neither insider dealing nor fraud, and of course once the software captures a significant share, the quality of its advice would be very high, decoupling share performance from the real world. Only the last people to react would lose out, paying the most, or selling at least, as the price is restored to ‘correct’ by the stock exchange, and of course even this is predictable to a point. The fastest will profit most.

The most significant factor in this is the proportion of share dealing influenced by that company's software. The problem is that software markets tend to be dominated by just two or three companies, and the nature of this type of software is that their is strong positive reinforcement for the company with the biggest influence, which could quickly lead to a virtual monopoly. Also, it really doesn’t matter whether the software is on the visualisation tools or AI side. Each can have predictability associated with it.

It is interesting to contemplate the effects this widespread automated dealing would have of the stock market. Black Monday is unlikely to happen again as a result of computer activity within the City, but it certainly looks like prices will occasionally become decoupled from actual value, and price swings will become more significant. Of course, much money can be made on predicting the swings or getting access to the software-critical information before someone else, so we may see a need for more equalised delivery services, with more suppliers covered. Without equalised delivery, assuming a continuum of time, those closest to the dealing point will be able to buy or sell quicker, and since the swings could be extremely rapid, this would be very important. Dealers would have to have price information immediately, and of course the finite speed of light does not permit this. If dealing time is quantified, i.e. share prices are updated at fixed intervals, the duration of the interval becomes all important, since it strongly affects the nature of the market, i.e. whether everyone in that interval pays the same or the first to act gains.

Also of interest is the possibility of agents acting on behalf of many people to negotiate amongst them to increase the price of a company’s shares, and then sell on a pre-negotiated time or signal.

Such automated systems would also be potentially vulnerable to false information from people or agents hoping to capitalise on their correlated behaviour.

HFT is a great idea in some ways, but it is not without costs. We can expect severe problems, with lots of opportunities for instability, crashes, wild swings, and abuse of customers.

How the CWU's stupidity will help the economy

2009-10-09T04:04:00.000-07:00

It is amazing how stupid people can be sometimes. They will happily cause themselves great harm if they believe it will hurt an enemy. Quite a few soldiers have killed themselves to deny their enemy the privilege. Such is the current behaviour in the CWU, killing the Royal Mail (and ultimately themselves) to get their own back on the management, at the expense of the livelihoods of the union members. They are not the first or only union to wreck the prospects of their members - many British Airways employees are far worse off because of the actions of their unions which have forced the company into its current financial state. But seeing the impacts on BA, it is all the more amazing that the CWU have still taken the action they have. It should be blindingly obvious to them that customers can and will use alternatives in the future, so they know they are causing irreparable and possibly terminal harm to their own employment prospects. Many administrative procedures that previously used the post can be done on-line, and once implemented thanks to the strike, will never again use the post. In fact, it will be beneficial to the owners of those procedures.

And here is the silver lining. The stupidity of the CWU will cause earlier adoption of better managerial practices elsewhere, by making postal communication more difficult and expediting the migration to electronic systems. So while it might mean disaster for their members, it will help the rest of the economy to evolve. This is a widespread impact of the recession too. Of course, recession is bad, but it does have a benefit of expediting the demise of companies that don't measure up, replacing them earlier with ones better suited to the future, with leaner management, more efficient practices, less waste, and more agility. Anything that helps improve the economy isn't all bad news.

The Royal Mail was once an important organisation. Now it is much less so. That is a simple fact of life. In my company, they provide no function at all except the delivery of magazines and parcels. All of our communication is done on the networks. On a personal level, I very rarely send cards now, and never letters. So the only impact I will notice from a strike is that I will have less junk mail to bin. I can live with that. In which case, the longer the strike, the better. Today's papers are full of news of the major web retailers switching their delivery companies. Why would they ever want to switch back if the alternatives provide a decent and economic service. If the CWU is relying on customer loyalty, it is dangerously over-estimating their hand. The rest of the world has moved on, and willing to move even further.

If the Royal Mail is to survive at all, it will need to be fiercely competitive in the distribution of magazines and parcels, the only area with any future market. It will need a lean and mean organisational structure, with competitive labour rates and unbroken, high quality service. The action of 20th century unions trying to force the company to retain 20th century terms and conditions, when the market has moved on, will simply see the company shrink even more rapidly as competition rapidly captures the remain bits of the market.

This is not a case of poor staff being exploited by a wicked company. It is a fight for survival in a changing market, and the CWU's actions will lead directly and inevitably to disaster for the people it is meant to represent. They will suffer enormously as a result, but the economy will not, it will actually benefit.

Dixons campaign, next steps in marketing wars

2009-09-27T04:00:00.000-07:00

I am surprised it has taken so long for the marketing professionals to explicitly recognise and exploit the behaviour people have been exhibiting for decades, to check something out in a store with good staff and good advice, and then go down the road to a cheaper supplier to buy it. We don't have to go outside the Dixons empire to see the whole history. I used to got to Currys, make a decision (when Currys still had good staff who had some idea of what they were selling and could tell you more than was just printed on the sticker), and then go and buy it 50 metres away in Dixons. Then of course Dixons bought Currys and the saga moved on to their other wing, PC World, which was their first major campaign using the web in harmony with the store. Dixons group has played the evolution of the web very well and this new campaign is just the next phase. It is no big surprise they are the first company to start it in any big way. It's just surprising that no other company has done it bigger, better, earlier, given how obvious the evolution route is.

So, what's next? Pretty obvious really. And I expect Dixons will probably be in the front runners here too, though probably not the first next time.

Now that we are seeing the first glimmerings of augmented reality, where you can hold out your phone and see graphics showing where the tube stations are, it is a short hop to overlaying marketing data onto video visors. It sort of works with a phone screen, but it is too small and too much effort to use, so the market won't really take off properly until visors become commonplace. Once the augmented reality market reaches critical mass, which won't be very long, you will be able to browse products in a store, point your phone at them, and see how much it costs with another store. So you could do that in John Lewis, and see how much Dixons charges, and order it from there. Booksellers already suffer from some customers scanning barcodes on their books and ordering them directly from the web at a discount, but that is nowhere near as intuitive as it will be using augmented reality.

Augmented reality will allow full-blown digital trespassing. Getting a price for a product is one thing, and will certainly get the market moving, but imagine being in Marks and Spencer and seeing the clothes on sale in their competitors right alongside. A tiny amount of AI is needed to determine which products to set alongside, but it will happen. It will be just like Next having their clothes racks in Marks and Spencer right beside theirs. And vice versa of course.

Of course, marketers will encourage security to block wireless and mobile signals so that they can't carry real-time connections from competitors, but it is easy to bypass that. Mobiles will have plenty of memory, and will be quite capable of downloading enormous databases of competing products before the shopper leaves home. Of course, that also means they don't have to leave home, but we know from experience that people still like to visit real shops for all kinds of reasons even though they have broadband web at home.

Actually, although the first battles will be interesting, I expect the whole market will quickly adapt. Companies will know what brings people to their stores and will still be able to make advantage from that. Even if people can shop around more easily, it doesn't mean and end to diversity in the high street. New technology is mainly a threat to companies that refuse to adapt. For good companies, the battle just moves on, and competition thrives. Bring it on! And congratulations to Dixons for opening the next phase. But you know what? I'll still only buy from Dixons sometimes, sometimes not.

city bonuses

2009-09-07T03:33:00.000-07:00

Some people get paid lots more than I do. It's a fact of life, and I accepted it a long time ago. Some of them don't deserve more, some do, and I get paid more than some people who deserve more than me, but we all know life isn't fair. But that isn't the point with city bonuses.

Banks have to encourage staff to perform well. Staff are not all equally good. Some can make much more than others because of their personal edge in the market, and without large differences in reward, it is hard to keep such people in a free market. Especially a global market such as banking. So I have no problem with big bonuses if they are rewarding success, and I think it is a mistake to try to stop or limit them.

What does need to be limited is the level of risks that bank staff are allowed to take. I believe strongly in free markets, but free markets mean that companies come and go. Some die, if they are not good enough. That is fine. But when they die, it should be their owners (shareholders) that suffer, and their suppliers (including customers who chose to do business with that company). It should not be the wider community, i.e the taxpayer.

The implementation of this could be relatively straightforward regulation to limit risks to what the company can show it can afford. It is fine if the company wants to risk all it has and lose it and die. It is not fine if it risks all it has and also some of what everyone else has too. Ensuring that banks must show that their total risk exposure is less than their total assets would eliminate the sort of problem we are trying to deal with. They should in essence be forced to gamble only with their own money, not the whole country's. The reason we had the problem was because banks were essentially allowed to gamble with the wealth of the whole country, keeping any big wins for themselves, while expecting losses to be underwritten by the taxpayer. Taxpayers aren't currently even being rewarded for underwriting unlimited losses by getting a guaranteed share of the winnings (apart from corporation tax). That is still the case now, and limiting bonuses will not solve it. I don't care how big the risks and rewards are, that is a free market problem, but they must be forced to gamble with their own cash, not mine. And that's it.

We don't need much more regulation, we probably need a lot less, but it needs to be the right regulation regulating the right things.

Accountants, corporate governance, strategy

2009-09-06T06:08:00.000-07:00

I might come across in occasional blog entries as not thinking much of accountants, but that isn't true. I trust my tax affairs to an accountant and expect that he will save me more in taxes than he charges in fees. They have a valuable place in the world. I have a lot of respect for them, I just think they should stick to what they are good at.

The reason I am so often critical of the role they play is that they are often used outside their core expertise. In a narrow world of counting, calculation, extraploation and looking for legal holes to exploit, they are excellent. I have problems once we assume that this is the primary skill needed to run a company. Every board should have an accountant on it who understands the corporate finances extremely well. But this should only ever be an information provision role, one of simple advice on what is available, and of alerting threats and opportunities. Decisions though should be taken by people who fundamentally align with the nature and purposes of the company, who are visionary and can see the big picture, where they fit in now, and where they could migrate into nearby green fields. There is no reason why an accountant can't learn these skills, and I am certain that many companies are led very well by people of vision who also happen to be accountants, but there is no reason to assume any link between such talents.

Accountancy as a whole needs to learn to better understand the workings of companies. Movement of cash is only one part of it, and I think that too often, they overlook many of the mechanisms that influence the creation and destruction of wealth. Without analysing productive mechanisms properly, it is easy to make cuts where they cause harm to production in excess of the supposed savings. A good example of a classic error would be the elimination of coffee breaks, since if staff are working instead, surely they will be more productive. Errors such as this, and there are many like this, ignore the mechanisms of inetrpersonal interaction in the happiness levels, personal development and loyalty of staff, but even more importantly, the effects on creativity and even invention as staff cross fertilise, the sharing of good practice, the roll-out of corporate messages, improved networking, and of course oiling of the corporate machine by enabling staff to form key relationships with others in the business. These things are hard to measure, but that doesn't mean they should be ignored in favour of those that can, such as hours at the desk or numbers of transactions.

If and when accountants use business models that account sensibly for all the factors that govern the well-being of the company, and its rightful contributions to the host community (no company exists in a vaccuum and all parts of the economy are ultimately linked, so accepting a small loss to a competitor can sometimes generate a long term benefit), then I will be much more willing to give them more control. But where all they do is to count some of the beans, they should be firmly limited to advisory roles, with decisions left to others with a view of the bigger picture, and especially one that includes the long term future of the company.

eBay and Skype, the correct strategy

2009-09-06T05:25:00.000-07:00

So eBay made a big loss selling Skype. While a lot of analysts are saying 'I told you so' because they never thought it was a wise purchase, I think it was the right decision, but it was badly managed. Certainly, eBay should have ensured that they were buying the proper package, it seems that they didn't actually buy the rights to use some of the key technology on which it depends, so are now crippled. But that is the only obvious error in the acquistion. In my view, the rest of the subsequent decline in the perceived market value is down to vision failure. And it was entirely recoverable right up to the point of the discount sale last week. The biggest mistake eBay made was to sell it. With a strategy review and a bit of effort, they could have made a lot of money from it, and used it to increase the overall presence of eBay, ensuring its longevity. They thought it was just a means to allow people to talk to each other during auctions, but they over-estimated the size of the market for that, and how saturated it already was. Now eBay is disappearing fast from everyday awareness as other entrants on the web take the limelight. Here is what they should have done and why the deal made perfect sense if they had carried through a sensible strategy.

When they acquired Skype, eBay already had a large market presence, with a very high level of trust from a very large number of users, and hence enormous brand value, while Skype was just getting going, so was still relatively cheap with a lot of potential in the right hands, but already well recognised and trusted. eBay owned Paypal, a well-recognised electronic cash variant, used all over the world.

At the same time, we started seeing the market acceptance of electronic cash, e.g. the Oyster card in London, which was just beginning to migrate from the London underground, to become acceptable in other shops for minor payments, exactly the sort of territory Paypal could have aimed at. And at the same time, mobile phones were being used for more and more payments, such as car parking, ticketing, store vouchers. So we were seeing a key vulnerability in the small payments markets worldwide. People everywhere obviously want a simple, convenient, portable, and most of all, trusted alternative to carrying lots of cash around, especially small change. The key factor in acceptance is the level of trust in the supplier, people need to be sure they won't lose all their cash through technology errors or fraud, and eBay was exactly the sort of company that could have pulled it off. It had enough presence, brand image, trustworthiness, and the ability to handle the many transactions involved. Supposing it had decided to do so. It would be the provider of the sort of platform needed to make a whole range of viable business models for mobile music,and all kinds of on-line content purchasing. It would also be able to implement cross linking of the physical and on-line worlds in areas such as enabling and policing access to on-line content on purchase of other physical products or services. So, but this physical product, get various forms of electronic cash bundled, and access to on-line content. Areas such as air-miles, supermarket loyalty points and other electronic cash could migrate easily onto a single platform.

So where does Skype fit in to all this? It was the missing link. Provision of the servers and software is only part of the solution. Having a global communication capability is also key to such a market success. Skype provided the ability to allow users free text, data, voice and video interactions across the net, so that vouchers and cash could change hands easily, and discussion or negotiation between parties could take place easily and for free. Skype was the oil to the global small financial transaction machine. Most importantly, mobiles were starting to replace laptops as the platform of choice for email and web access on the move. That was obvious even then. Now, with mobiles also due to become the target platform for services such as Spotify, destined to be the prototype business model for content distribution, it is increasingly obvious that we need more than ever a simple electronic payments service that works across all platforms, with no currency borders. Paypal, backed up with Skype, and offered as a wholesale platform for mobile operators, with the eBay transaction engines there to run it all, and all implemented by a trusted company, would be in pole position to capture a very large share of the revenue from micropayments, air miles, loyalty schemes, travel ticketing and minor purchases at millions of retail outlets. They could become the default platform for paid content distribution. And any mobile operator that didn't join up would face the threat of becoming marginalised since their call and text revenues would be increasingly bundled into other more palatable business models by their competitors. Even services such as smart metering would naturally fall into their camp.

So in a nutshell, the eBay/Skype/Paypal alliance was in a superb position to capture a lion's share of the revenue circulating the networked world. Starting with small payments and establishing trust, they could have grown via future alliances into the world's default electronic banking/retailing/ticketing system. With a competent and visionary team at the top, they could still be up there with Google as masters of the universe instead of looking enviously at Twitter and Facebook and wondering where it all went wrong.

eBay didn't really understand the world they were in. The guys who created Skype were visionaries. The guys who invented eBay and Paypal were too. But as with most companies in the IT world, they grew, the visionaries moved on to other things, and they became ordinary companies, with any lingering visionary skills pushed further and further down the organisation structure, as control migrated to mega-managers who are probably really good at managing generic big companies, but don't really understand the point of the company they are managing, and have too little awareness of the value of what they have in their armoury. They bought Skype for the wrong reasons, and never really understood what it was or how to use it.

So they blew it. Not the first company to get lost, and they won't be the last. But it's still sad looking at the lost potential.

Workplace Facebook ban is ill-advised

2009-09-04T04:56:00.000-07:00

So, one of the Dragons from Dragon's Den (Theo Paphitis) has banned his staff from using Facebook at work and suggested other companies should do the same? I am not about to criticise the business judgement of someone who is obviously successful; what he does in his company is up to him and it plainly works for him. But I don't agree that other companies should necessarily do the same. It depends what business they are in, and is wrong for most.

Some companies, indeed, most companies, exist to make money. Some are short term ventures which only make a fast buck and then close. For some such companies, I think he is probably right. They want a focused workforce who just get on with the job, make money for the owners, and then disperse when it all shuts down. The advantages of allowing staff to use Facebook might be exceeded by the costs is some of these companies, in others, not.

Other companies have an additional purpose in mind, but want to make money too, and still others are not for profit organsiations. Most companies though have a desire for longevity, and I think that regardless of their profit or social function motives, long term businesses should not ban staff from using social networking tools such as Facebook and Twitter, provided that they don't let it get in the way of doing their jobs, which obviously is a line management policing function. Allowing them to use them during breaks is fine, and even a modest usage during work periods is fine too. Only if it takes up so much time that it reduces their productivity significantly should managers intervene. Why?

Actually, a few good reasons:

People are not just cogs in a big machine, or rather, they should not be treated as just cogs in a big machine. We don't stop being human when we go to work, and as our economy grows, we can afford to concentrate on other quality of life issues than pure financial wealth. Part of the point of wealth generation is that as we become wealthier, we can take time to enjoy life a bit more. Being able to blur the lines between home and work a little is a good thing. It makes people happier. They feel more in control of their lives. This is especially true of people working in mundane jobs. It is historically the nature of low paid work that there is a clear line between work and non-work, but it doesn't have to be that way. As long as the business can cope, why not let staff enjoy their lives too? They will probably work harder and be more loyal.

Secondly, many staff take work home, and companies of course encourage them to do so (Blackberry users work much longer hours than no-users), and it is both mean and exploitative to ask that they leave their social lives at home while expecting them to take work into their social lives. Companies make money by exploiting the efforts of employees, and of course employees gain from the relationship too, but there should be a mutual respect. Confrontation between unions defending staff from bad employers is a regular symptom of bad management or bad unions. In a good company, both sides understand and respect each other, and ensure that both sides get an equally fair deal from the relationship. To demand otherwise is selfish and unethical.

Thirdly, the economy is changing. People doing mundane jobs and behaving as cogs in a machine is sometimes unavoidable, in production lines for example, where they fill the areas that still can't be done by machines. Humane management can make up for this by providing generally good working conditions. But this kind of work is disappearing fast in the developed world. Modern work is already less machine-like, and will become increasingly focused on 'human skills' as time goes on. Adminsitration can be automated to a high degree by smart machines, especially as the semantic web takes hold. Professional knowledge can increasingly be captured and used by machines. Transactions in call centres have been highly displaced by voice recognitions and basic AI. What is left after all this runs its course is that part of work that involves emotional skills, caring skills, interpersonal skills, leadership and communication skills, entertainment, sports, policing, teaching, social work, personal services and and so on. i.e. jobs that are focused on dealing with other people. People doing this kind of work need to have good people skills of one kind or another. Companies that are here for the long term need staff with those skills. It make little sense to prevent them from becoming adept at them by banning them from using social networking tools. Time spent on sites like Facebook and Twitter might be wasted sometimes, but not always. It also sometimes helps improve human skills, so companies could reasonable think of it as training.

Fourthly, using social sites and thereby building and fostering personal networks helps people's employers directly. It is key to them building relationships with other companies that might be suppliers or customers, since those companies are also staffed by people. When companies are comprised of armies of AIs directly interacting with other AIs, we will no longer need to worry about Facebook anyway, but while the work is done by humans, it is a useful tool. Knowing people at the other end helps build and maintain trust, a very key (and increasingly so) ingredient for successful business interaction. Inter-company interaction via social networking also helps cross fertilise ideas and best practices. Finally, having staff that know potential future employees personally is a huge asset, saving on recruitment costs. And of course knowing the competition personally is a great asset too. The ancient wisdom tells us to 'keep your friends close but your enemies even closer'.

So companies have a lot to gain by letting staff use social networking sites while they are at work. Their loyalty will increase, they will be happier, and hence more energetic and probably work harder. The company's relationships with suppliers, customers and other companies will improve and their chances of survival enhanced by continuous updating of best practice and cross fertilisation of ideas. Sure, some employees will always abuse the freedom, but that is a simple line management issue. Most people will behave better when the company treats them better.

So, summarising, I don't think Theo Paphitis is necessarily wrong to implement a Facebook ban in his own ventures, it all depends on his business models. But for most organisations, it would be counter-productive. Treat your staff like humans and you will earn more, it's as simple as that. Even for the most extreme capitalist company, the long term advantages probably outweigh the short term costs.

Tesco, town decay, democracy

2009-08-12T02:25:00.000-07:00

George Monbiot wrote an interesting piece in the Guardian about Tesco trying to move into his local town, and predicting its inevitable decay.

http://www.guardian.co.uk/commentisfree/2009/aug/10/tesco-planning-superstore-independent-shops

Although I enjoyed reading it, and he is probably right that it will result in the loss of many other shops in his town, I disagree with some of his analysis, particularly his assertion that this is a problem. 20% of people in his area have objected to it in writing, and he argues that each area should be able to decide whether they want a Tesco, and the process of blocking it should not be so potentially expensive for the local council that big companies should be able to bully them into accepting planning proposals. I fully agree that the planning and appeals system should be repaired so that planning decisions shouldn't be made on the basis of economic blackmail, but I think there is a wider issue here. I don't think that whether the area should have a Tesco should be up to local planners at all. Instead, I think that people everywhere in the country should be entitled to the same level of service provision. People are much the same everywhere, and within a country, should be able to live anywhere with the same basic rights and service provision. Postcode lotteries in state provision are a symptom of bad government, whether in health care, education, or social services. basic shopping facilities. In commercial markets, the free market is an excellent way of providing services to people at the level they want. We have very little direct control over the quality and level of local health care or education, but commercial enterprises live or die directly as a result of how well they fit the needs of the local market. If the presence of a Tesco in the area is so attractive to shoppers that other stores inevitably close due to lack of custom, then that shows that the market actually wants Tesco and doesn't care enough about the existence of the shops that die. It is a simple result of competition in a free market, and isn't something that should be blocked by local democracy. I don't think someone who thinks they like small shops should be able to prevent me from shopping in big ones, or vice versa. If there are enough of them, then both can happily survive side by side. If there aren't, or people who say they want to keep the small stores actually swap to Tesco once it's there, as many do, then the market is functioning perfectly when the other stores close. That isn't a fault, it is the nature of a free market.

Local democracy has a place, but not in regulating markets or basic quality of life issues, something best done at national, regional or even global levels. When we determine how the market should be regulated, then it should apply equally throughout the jurisdiction. Local government should be limited to local tweaking within that - issues of precise location, minor influences on look and feel, and ensuring that the services they are responsible for are adapted as appropriate to cope with the changes resulting from people's free decisions.

In the future, it will be interesting to see whether a hybrid model could survive. Some superstores have tried having small outlets alongside within the same superstore building. This combines the convenience of the big store with the ability to shop in small ones. Out of town malls do the same. This would be an option that might be able to satisfy both markets. If Tesco were permitted to build in an area, but obliged to make some space available in the same location for competing small shops, even the same ones displaced from the town centres, then we would retain some element of local vaiety and local culture without sacrificng the quality of life improvements offered by the superstore model. I rather suspect that the small shops would still fail, and that the perceived demand for them doesn't really exist in anything like the magnitude that George suggests. I don't like Tesco all that much, but I much prefer it to any of the alternatives. It seems that so do most other people.

Airport charges, Ryanair reducing Stansted flights

2009-07-22T02:20:00.000-07:00

Big news yesterday was Ryanair announcing that they will reduce their flights from Stansted by 40% because of the various charges that make it much less attractive for them to operate from there. Instead, they apparently want to focus their efforts on overseas traffic where their business model is better suited, or rather, where airports and governments suit their business model better.

I am no great fan of Ryanair, but I do use them frequently, so I guess I am a good customer at least, and I have a lot of sympathy in this instance with their arguments. Flight taxes in the UK are much higher, but also airports charge very high fees to both customers and airlines.

I could rant all day about the ludicrous parking fees at Stansted and other London airports, but everyone knows from their own experience already. I could also rant about the apparently incompetent management that has taken a year to get a payment booth operating from when the 'open shortly' sign appeared, that redesigned the car parks to make them as irritating as possible, that can't operate security with anything remotely resembling competence, but you get the point.

Although it wouldn't help taxes, introducing competition at airports would certainly help abuses of customers and airlines. Runways are in short supply, but there is no reason why terminals couldn't be in competition. If BAA was forced to sell parts of its airports rather than entire airports, then different companies could operate alongside. It would even be possible to organise it so that a flight could accept passengers from either terminal, so that true choice would exist. I would be able to choose to pay high car park fees, take ages in security, and have end to end frustration, or to go to a different terminal run by a good company, where the end to end experience is both pleasant and cost effective. In such a competitive market, standards would inevitably improve.

It is so obvious that this is possible to organise, that it really begs the question why BAA was given local monopolies in the first place. Living where we do, of course there is only one international airport close by. I use the further away ones not by choice, but only when there is no suitable flight locally. That is not true competition, it is just a local monopoly system just like rail travel and it simply doesn't work as a good business model for private competitive enterprise. It encourages bad management, poor customer service, and eventually wholesale monopolistic abuse of the customer.

If Stansted can still manage to win its expansion debate, then it should be forced to open a new terminal operated by a different company, with its own car parks, and its own charging. Regulators should ensure that a simple cartel doesn't operate where both termianls agree to ignore customer interests to both get rich quick. Then we can move on.

By firing a shot over the bows, Ryanair has highlighted the high fees, and Stansted arrogantly dismissed it as unimportant in spite of the high fraction of flights that Ryanair represents. This shows that the existing management is both managerially incompetent and determined to continue its ripoff strategy. Regulators have a responsibility to ensure that the customer's interests are protected. So far they have failed in that role, but expansion would be a perfect opportunity to take control, and to break up the airport monopolies that have been so badly abused.

bank bail-outs

2009-02-17T04:06:00.000-08:00

I am getting increasingly angry at the UK government throwing taxpayers' cash down the drain to bail out failed banks. Lots of it. In spite of all the commentary I have read from numerous analysts, I remain totally unconvinced that it is the right thing to do. Some banks are failing because they made some very stupid deals. Others are not failing, because they didn't. Building societies that didn't get involved in buying bad debt are doing fine. The obvious solution is to let market economics run its course. Companies that make enormous mistakes go bust. So let them. It's a tough world out there, and no company should have a god-given right to success. Most companies only last a few years before they die, but although that is sad, it leads to better companies, a better deal for customers, and a more efficient economy. The banks are bigger, but the rules should still apply to them.

The government (and many others) believe we need to bail them out because the economy cannot work without them. Why? Why not just let the surviving banks pick up the customers as their failed competitors collapse? Surely building societies would naturally grow back to their positions before their cousins mistakenly decided to become banks and surviving banks could apply their proven better practices to the rest of the industry. People would be able to borrow and lend via surviving banks. Since survivors would presumably be able to pick up staff and computers and buildings, and even some of the better managers, surely it would all return to reasonable normal efficient working in no time? By offering bail-outs even as a distant possibility, the government has encouraged banks to forfeit responsibility for their own survival. The result has been disastrous, with many people kept in lucratively rewarded jobs who deserved fully to be unemployed or even prosecuted for negligence, while the enormous consequences of their actions are paid for by wholly innocent people who in most cases can ill-afford to help.

Much of the commentary is about the failure of capitalism. I think that is mis-stating the situation. It is a failure of part of the banking system to apply due care and diligence in a free market. Like any market, some of the produce on offer was good, some bad. Companies that failed to take the effort to inspect products before purchase deserve to suffer the consequences, up to and including their own demise it the mistakes are big enough.

As for the shareholders of the banks, the same law applies. Don't buy things you don't understand. It is no defense to argue that these companies appeared to be sound. Banks were involved in very tricky business. Investing in them without understanding the risks of that business was unwise. The rewards were attractive when times were good, but that came at the price of risk, and it is unreasonable to demand protection from that risk while reaping the rewards while all is well.

The only people for whom I think protection should exist are the ordinary people who deposited their money in the banks. It is right that the government should protect them, certainly up to the celing level, above which it could once again perhaps be argued that the owners should know better than to have all their eggs in one basket.

The market is a jungle. There are tigers and cute little bunnies. Animals quickly learn to distinguish them, or they get killed. But jungles work very well, and support a rich diversity of fauna and flora. Human markets are just the same, but the same care is needed, because similar rules apply. Banks should have known better. They didn't, so they should have been allowed to die, with the market ecosystem quickly adapting to their demise, followed by a rapid return to normal healthy operation. Interference by government has wrecked it.

BT

2008-11-03T02:45:00.000-08:00

I used to work for BT for 22 years and still feel quite loyal to them, though increasingly frustrated at the apparent determination to die. BT is a good company in many ways, dumb in others. But overall, it has missed out on the IT boom, and the share price has tumbled in recent years, so many of us loyal shareholders have lost a lot of money by staying optimistic about its future. In an industry packed with potential, it has consistently avoided capitalising on the many opportunities it has had.

BT has had a lot of CEOs over the years, and most have missed their main opportunities. Though I am sure some people would disagree, here is my take: Michael Heiffer came from the finance industry but completely failed to understand BT's potential to use its transaction management capabilities in the banking market. Peter Bonfield came in from the computing industry, but totally failed to understand the potential from telecomms-computing convergence, passing over lucrative opportunities worth tens of billions, while wasting tens of billions instead on 3g licenses and incomprehensible company purchases that almost took the company into bankruptcy. The less said about Cockburn the better. Finally, Ben Verwaayen was at least competent. He stopped the fall for a few years by selling off much of the company's most valuable assets, although he failed to dump the network when given the chance, which would have liberated the company to concentrate on what it does best. But although he was good at stopping the rot for a while against tough odds, he was never the right manager to capitalise on growth opportunities. But at least he had the good sense to go when he'd done his bit, to let someone else take BT into the growth phase. But once Ian Livingston was identified as the man likely to take over, there was never any prospect other than doom.

I believe the main problem in BT is accountancy drive. Accountants dominate many blue chip companies because the perception is that since the company exists to make money, people who can manage money ought to be able to run the company better than others, such as engineers. In some industries, perhaps that is true, I won't comment here. But in a high technology company such as BT, it is not at all appropriate. So I warned my friends to sell their BT shares when Ian Livingston was marked to take over. Since then, the price has fallen by about two thirds, proving I was right.

Accountants count beans, but usually only some of the beans. They look at those things that appear on the balance sheet, such as costs, and income, but don't look properly at things that are hard to measure, such as engineer productivity, creativity, or staff loyalty, and rarely look at potential revenue. So they put in place micromanagement systems that greatly reduce productivity by using up staff time to get small quantities of useful information worth a fraction of the costs of acquisition, but since those costs are not directly measured, they are ignored. The result is a very precise but very inaccurate figure for the numbers of beans.

They also have much less understanding than engineers of what it is that the company actually could do, what its skills are, or what the industry could offer. So while BT sits in a field full of promise, surrounded by gold, its focuses on headline cost reduction as the main route to profits, while splashing out heavily on low-potential investments such as BT Vision. Ignoring enormous revenue sources while putting too much effort into cost reduction is folly, but it is sadly a problem that has affected BT for many years. Its single strategy has been hiding in the corner, leaving new opportunities to other companies, while technology progress erodes the potential income from traditional sources, and then trying to stay in business by reducing costs.
This strategy hasn't worked so far and it won't start working in the future. It is long overdue for the scrapheap.

BT has a network that is very expensive to maintain, and is wholly inadequate to run modern services. Its strategy director was quoted in the weekend papers saying that she can't see why anyone would need more than 20Mbit/s to the home. Such comments will go down in the infamous quotation books alongside Bill Gates' comment than no-one could ever need more than 600k of memory in a computer.

The company must start to explore the modern telecoms and IT marketplaces, look around the find the services it could offer, quickly develop them, and then sell them at a reasonable price without its usual confusion marketing. This will cost money, but it will be a sound investment. Saving money ad-infinitum will eventually lead to a tiny company with tiny value. Investing heavily to create adventurous new products and services would create new income streams that will take the company to its full potential.

BT still has a lot of high quality staff, though many have left in recent years in management -induced despair, having offered the company the ideas it needed and having them rejected by accountants and managers with little or no real understanding of telecoms or IT. It is not too late yet, but it soon will be. Identifying key technology-enabled opportunities and financing them will lead to recovery. Counting beans will lead to oblivion. Livingston has to go, and go soon. In my opinion, he just doesn't understand the business he is in, and should never have been at board level, let alone CEO. Francois Barrault has gone as a scapegoat, but I think he had a far better understanding of BT's business than Livingston ever will. BT was once a great company and could be one again with the right policies. Sacking good people and over-promoting fools will not help. Nor will counting only a selection of the beans.

But I haven't sold my shares. I am hoping in spite of everything that one day, BT will appoint a CEO who understands the business, who is prepared to take risk and invest heavily in the right areas, with huge injection into R&D. With the courage to identify and remove some of the thoroughly incompetent managers dotted here and there, and to reward the better ones, BT could once again be a world leading company. But BT can only be a good investment in the long term, and it might not survive that long.

Very risky, but potentially a good buy for the long term.

Marks and Spencer share price decline

2008-11-03T02:33:00.000-08:00

M&S used to offer the kind of clothes I would wear. I have no fashion knowledge, and effectively used to outsource that to M&S. I buy whatever shirt they have in stock, knowing I can go out in public wearing it without looking daft.

They seem to be in trouble with declining share prices and I wondered why. I hadn't been clothes shopping for a few months since my wardrobe was stuffed. But when we recently got a black tie dinner invitation, I took my wife there to get a new dress. We couldn't find one. We weren't being fussy, it's just that they only had three, all pretty similar. We searched the whole shop assuming we must have missed the appropriate section, but eventually gave up and went elsewhere. And come to think of it, I had the same trouble last year when I bought a new dinner suit, it took ages to find the right section because the layout had all changed, and when I did, there were very few choices. And I couldn't find the shirts I like either.

I think if this problem is a common one for their regular and loyal customers, it would explain why they are suffering. They have simply lost touch with what their customers want to buy, a potentially fatal problem if it continues. Too much trying to invent new styles and cater for new markets has left them alienating many of their existing customers, who want to spend money there, but can't.

Too bad. I'd like to help by buying stuff there, but they'll have to stock it first. My needs are simple - I just want ordinary everyday clothes that are reasonable quality, look OK, feel OK and don't cost a fortune. I suspect that's what the rest of their traditional customer base also wants.

Back to basics then.

National Express

2008-10-10T01:49:00.000-07:00

Poor management and lack of investment in new technology. Sell.

environmental waste

2008-09-30T02:28:00.000-07:00

A brilliant piece in today's times by Bjorn Lomborg, one of my favourite environmentalists. While the world goes mad jumping on every passing bandwagon with a climate change banner, there is precious little common sense being applied. Lomborg's simple case that we should cost actions in seems to be ignored by the vast majority of environmentalists. His calculations suggest that for every pound the UK is spending, we will receive roughly 4p worth of good. The money could and should be spent elsewhere.

I can't disagree with a thing he says. His analysis is spot on.

What irritates me more than anything about the whole climate change debate is the almost total ignoring of the effects of future technology with its consequences for business and social change.
All the projections of doom and gloom rely on technology staying similar to today, yet the assumption is that we will still consume more and more. So environmentalists take full account of increasing wealth and consumption, without taking any account of what we will actually be consuming, or how it is made or used. We still see lots of ads telling us how important it is to switch off TVs and other IT and not to leave them on standby. The fact is that these devices don't use 30W on standby any more, it is now more like 0.1W. Recent rises in oil prices have already led to car manufacturers accelerating their plans for electric cars, and caused hundreds of entrepreneurs to get into new energy technology. Panic is not required, solutions are being developed and will be delivered. Not tomorrow, but easily early enough to prevent anything like the doom and gloom being forecast for the long term.

In this light of rapid technology development and the mid term solving of climate change, and the certain aversion of long term doom, Lomborg's criticism of the extreme waste of money on reducing CO2 emissions becomes even more appropriate. Governments are spending extreme amounts of money on very little gain, whereas if they spent much less in the right areas, such as technology R&D, they would accomplish much more.

So why is this in my finance blog rather than my grumpy old man rant? One day, in the not too distant future, the tide will turn, and it will be obvious to everyone that the money has been misdirected. Companies that are developing genuinely useful technologies will flourish, whiloe those sustained by the financial fallout of environmental hype will suffer and most will die.

Time to start looking at your portfolio and weeding out shares in so-called ethical companies, and any that spend a lot of effort to tell everyone how environmentally sound they are. I'd rather have sound financial and business management any day than a CEO whose main effort is to appease the stupid end of environmentalism. The day of reckoning will come sooner than you think.

bank collapses and the suspension of logic

2008-09-30T01:14:00.000-07:00

I have been asked several times recently to comment on the economic collapse and have refused to do radio shows because I know too little about economics to make any sensible comment. Or so I thought. But the decisions our leaders have been making in response suggest I am not the only one who knows nothing. I am astonished at how much absolutely obvious sense has been thrown away in the panic. Our UK treasurer has responded to the collapse of Bradford and Bingley by selling much of the bank to the Spanish Santander, while keeping most of the debt. Fair enough if the deal was sound, except that the price he sold it at was only sensible if Santander also took on most of the debt. As far as I can tell from the figures in the morning papers, he effectively sold £21Bn of safe cash for £610M, while the UK taxpayer kept all the debt. Sure, the bank shares were worthless, but cash is cash, and debt is debt, and even if the overall sum is low, the cash bit is still cash, bank branches are still branches, and still worth just as much. Banco Santander must be laughing themselves silly at the stupidity of the UK treasury. I am feeling rather let down, having had a large chunk of my hard earned money given away to a bank for no good reason. Along with every other UK taxpayer. Why is our government so panicked into doing something that they will do anything, regardless of whether it makes any sense? Surely in time of crisis, actions need more than ever to be thought through sensibly.

In any case, I am rather puzzled by this whole thing, and I am not alone. Why is it such a big problem if some banks go under? They can't all fail. The world economy is perfectly sound. People are working, generating wealth. Some people have surplus, others want to borrow. If every bank went broke, new ones would spring up on the internet tomorrow to ensure that borrowers are put in contact with savers, for a cut. As it is, some banks have overstretched, and bought bad risks from other banks, and they deserve to suffer the consequences of their own bad decisions. Other banks who haven't done so will survive, since their assets outweigh their bad risks.

Of course, the situation has created an atmosphere of distrust, and slowed liquidity, but throwing away good money at people who have already proven should not be allowed to manage it does not seem a good idea. Capitalism hasn't failed, the companies failed, that's all. If they are allowed to die, no big deal. Life, business, and the flow of money, will quickly return to normal. The real problem is if taxpayers' money is thrown away, taxes increased, and people can't afford to live well. That will certainly collapse economies.

So, I don't get it. Perhaps I am missing something, but I suspect not. I suspect the real problem is that our leaders don't get it, and are far too willing to listen to bad advice from people who stand to gain a great deal of money from it. If I were in power, I would leave the market alone. It will be very turbulent, lots of people will lose money, and lots will gain. And the banks that survive might be a little more sensible in future. Bail them out, and the pain will affect everyone for a very long time, and the banks will still take bad risks, because that is how their executives are incentivised.

Oil price $30 per barrel by 2030

2008-09-08T09:44:00.000-07:00

Oil is a valuable commodity and the subject of a great deal of panic right now. The panic is based on ill-informed doom-mongering, with little basis in reality. Some long term perspective might be useful.

By about 2030, as a result of technology development, stimulated at least in part by high oil prices today, solar energy farming will be a big business. Already, work is under way to start building solar farms in the Sahara, where suitable land is both plentiful and cheap.

The staring point for a calculation must be the energy equivalent of a barrel of oil, since that is the prime purpose of oil today. Each barrel contains approximately 6 gigajoules of energy.

Assuming that solar panels can be mass-produced, with a sunlight conversion efficiency of about 12%, at a cost of $200 per sq metre, in today's money, a 1 sq metre panel will generate approximately 8.5kwh of energy per day, equating to 1 barrel of oil every 6 months. The land also needs to produce a good income for its developer, who would presumably be happy with a return of $50,000 per hectare for otherwise worthless land, i.e. $5 per sq m per year, and assuming that 50% of the land is covered by panel, that translates into $10 per panel + depreciation costs, of say $50 per year for a 4 year write-off. With total revenue of $60 per panel per year, 6 months is $30.

If the energy equivalent of a barrel of oil can be generated for $30, it is reasonable to set this as an upper limit on the market value of oil, when used for fuel. Prices of oil for other purposes such as plastics manufacture or specialist industries may be higher.

However, since oil is mainly used for fuel, substitution in this market by cheaper alternatives such as solar power will lead to a gradual collapse in the oil market as supply far outstrips demand. Therefore, most oil will probably be left in the ground, and it will be much cheaper than today in real terms.

oil and recession

2008-05-01T02:44:00.000-07:00

I'm not an economist so maybe I should keep my mouth shut, but...

The subject of rising prices has already been done to death in the media recently, but I do think that too little has been said on the underlying effect of the rise of India and China on our relative wealth. Common opinion seems to be that this is a short term recession that will fix itself soon with the right amount of government stimulation. I don't think so. I think it is a much bigger and longer term trend.

For many years (even before I came on the futures scene), futurists were speculating about the fact that there are only so many resources in the world and as other countries develop, so the developed countries would have to decrease their consumption. But common opinion resisted this and insisted that rich countries would stay rich and that other countries would just have to live with what was left.

I think we are now finally seeing the consequences of the irresistible pressure of the market, which will re-level the global playing field. Developed countries will find their populations having to take a drop in standard of living as people elsewhere become relatively richer.

Of course, we are not yet in the business of reducing salaries, and I don't think that is likely to happen any time soon. The market doesn't need that to rebalance things. All it needs, and we are seeing this happen abundantly now, is for prices to change. As people in other countries get richer, so demand rises and the market ensures that global prices rise. This already conspicuously applies to oil and grain and will affect other commodities in due course too.

As these basics become more expensive, the cost of everything else increases. So even though our wages stay the same, our spending power decreases sharply. Falling exchange rates (just another way of rebalancing prices according to relative national efficiency, power and influence) makes imports of commodities still more expensive.

People will not stop developing and getting richer. That will continue. Demand for resources will increase and prices will rise further. Of course this slows the rise of buying power for the newly rich too, but a free market ensures that resources go to people according to their ability to pay, and if they are willing to pay more, you will have to as well if you still want that resource.

Of course, it is not a free market. There are political influences, and powerful countries can and do strike deals with resource providers to ensure preferential treatment. This reduces the resources left to the rest of the world and consequently amplifies the interaction of price with demand.

The losers as always are the billions on low incomes. As rich people can afford to feed grain to livestock to make meat, there is less left for the poor for whom it is their only food supply, and the increased prices make it impossible for them to feed their families. Compound that with increasing pressure from the stupidity of using limited agricultural land to grow fuel for rich people's cars, and we create food riots.

So, where will it go? The world is getting richer. Improving technology means that we can take more resources from the environment and add more value to them with the same human effort. We can educate more people to a higher standard and create more wealth generating potential. So however the wealth is distributed around the world, we will simply have more people with money than we had before. Demand on basic resources will increase steadily for several decades to come. Commodity rices will rise and rise as more and more people can afford to pay.

Away from basics like oil and grain, it is far more complicated. Technology will also increase automation, and the resulting derivative products will become relatively cheaper. So although the price of raw materials may increase, it will cost less and less to turn them into final products such as TVs or cars. Automation will affect resource extraction too. Costs of production will decrease while there is abundant resource available, since robots can make robots to make robots to make mining equipment and staff mines and deliver, refine and process the extracts. Of course, as we use up reserves that are easily accessible, the costs of extracting will eventually increase again, as we are seeing with oil now. But new technologies can often create substitutes. Copper hasn't run out mainly because we don't need so much of it now for plumbing or communications, as fibre and plastics have substituted.

Automation reduces the need for human involvement and forces people to find alternative work too. This is another way of reducing people's wages of course, albeit indirect.

The only real hope in all of this is that we can somehow make the same resources go round efficiently enough to satisfy everyone's needs. This might just be possible with advancing technology. Nanotechnology will create wonderful new materials that are stronger and lighter and use less basic resources. With enough high-tech and automation, they might even cost less. Improving recycling and mining of landfills will enable easier recirculation of resources. Miniaturisation of IT will allow today's large devices to be replaced by electronic jewellery. Even large screen displays can ultimately be replaced by active contact lenses. If we can create enough cheap energy, for example by using enormous solar farms in the world's deserts, then agricultural techniques such as multi-layer farms might become feasible, and together with genetic modification, precision farming, and abandonment of the rich world's self-indulgent organic farming, we may easily be able to grow enough food to supply the whole world at low prices. Even meat can theoretically be cultured in factories instead of using real animals, which are an extremely inefficient way of turning sunlight into meat.

So let's hope that technology will catch up with its potential quickly, because it is only highly advanced technology that can provide a solution that allows everyone in the world to have a reasonable standard of living. Otherwise, market forces will continue to increase prices until our standard of living in the developed world has been levelled down to meet the increasing standard of living in developing countries. This is no short-term recession. Development is here to stay and historic privileges are not sustainable.

Likely civil rebellion in the UK in 2-3 years

2008-03-29T03:37:00.000-07:00

There is a great deal of commentary recently about the poor health of the UK economy, with rapidly rising prices and taxes, falling disposable incomes, reducing access to credit and so on. People of middle incomes are feeling most of the pain, targeted as they are with most of the new tax burden, but not rich enough for it not to matter. In parallel, seemingly every newspaper carries daily gripes about the poor public service value-add for the increased taxes, with appalling health, education, policing, and transport systems. The relatively generous public sector pay, especially pension costs, which are far more generous than most private sector employees receive, will steadily become a bigger issue until it is tackled. Poorly targeted and imbalanced welfare is making too big a drain on middle earners, who see too little reward for working hard. And a wide range of poorly thought-through policies have resulted in a very degraded social fabric.

People have little choice over this system, with their politicians unwilling or unable (or both) to address the problems. Some of the more able and mobile just emigrate, and we are already seeing a serious brain drain again, but most people can't just leave, they have commitments here, or don't want to uproot and move to a strange new place. So the UK socio-economy is effectively a fairly well-sealed system, only slightly leaky (in fact, with the added pressures caused by immigration, it is worse than that, with an effective one-way valve). Pressure can build and build in a sealed container with little obvious activity until it reaches a certain level, and then a sudden release occurs.

I believe that we are not very far away from a backlash. This is not a party politics issue -many people don't like the existing government and think they are incompetent, but have little faith in the opposition either. They are very disillusioned with our supposed leaders, of all flavours. But while the British population is notoriously tolerant, and will put up with huge amounts of discomfort before saying or doing anything, there is a breaking point.

When people feel that they are being steadily squeezed from all directions, that their own needs are seemingly always ignored, that their government seems to treat them as an enemy, that their own quality of life has been eroded by legislation and taxation for too long, so that they feel abused, neglected, and that in spite of all their best efforts they can no longer sustain a reasonable quality of life, then they no longer feel any allegiance to the state, nor any civil duty to stay calm and respect the authorities.

The pressures are not just financial. People are certainly feeling much poorer, although they are working harder. But there is also an increasing perception of too much state-imposed cultural change. There is too much uncontrolled immigration. There is too much surveillance, too much erosion of privacy. There is too much serious crime, while the police and local authorities pay most of their attention on minor offences by the largely law-abiding majority, such as speeding offences, or leaving a bin lid open. In short, the state has become too big, too invasive, too controlling, too expensive, and coupled with serious and frequent incompetence, that is rapidly building resentment in middle class Britain. The state is becoming people's enemy instead of their friend.

We saw disorder during the poll tax mishandling in the 80s. There were many demonstrations and some violence. But technology has moved on more than a little, and it is a better educated class that is affected this time. The potential for organising rebellion via today's and future IT is vastly greater. My own perception is that we are now about 2 to 3 years away from a serious backlash, which will include widespread and well coordinated civil disobedience, demonstrations, and probably significant violence.

Such widespread and effective disruption will of course have enormous implications across the board. We should expect some major changes in government policy to be imposed by a new government, a wholesale redesign of taxation and welfare, reforms of the public services and the pay and conditions for public sector workers, and generally a great deal of legislation abolished or rewritten.

Garbage disposal unit manufacturers

2008-03-14T12:28:00.000-07:00

Rubbish taxation is extremely likely in the next few years in the UK, and perhaps around Europe. If taxation is by weight, as many expect, then expect to see a lot of people buying garbage disposal units since a lot of the weight in rubish is from waste food and vegetable peelings. Many households won't want to bother separating everything into the appropriate recycling bin, so a lot of vegetable peelings and waste food will simply be washed down the drain.

Of course, this will increase water use dramatically so water companies will also benefit, and more treatment of water will be needed, increasing their costs and justifying price rises.

Plumbers will also pick up business in installation, as will kitchen manufacturers.

The net effect is that everyone will pay more for water, pollution will increase, and garbage disposal unit manufcaturers will flourish.

If waste taxation is partly by volume, or if loony councils refuse to empty bins where the lid is even slightly open, this will also create a need for rubbish compression devices.

It's an ill wind that blows nobody any good.

Fleet management

2008-03-09T10:33:00.001-07:00

This is a very long term issue, but as government is increasingly tempted to crack down on the fun side of motoring there will be less incentive to own a car.

Firstly, speed cameras are making it harder to enjoy driving quickly, as does increasing congestion. Within ten years, you should expect that engine speed will be electronically limited as you enter speed-restricted zones. The justification will be safety and climate change, and it seems inevitable that government will enforce such a move.

Secondly, there will eventually be a move towards electronically driven cars on electronic highways, caused by the need to tackle congestion by taking driving out of the hands of people with poor driving skill, who cause most of it.

With these pressures, the personal emotional attachment of a driver to a car will reduce greatly. With all the ego and emotion taken away from car ownership, there will be much less need to buy a car, and much more susceptibility to fleet ownership.

In fact, fleet managed, electronically driven cars would be an ideal substtute for public transport, increasing social inclusivity, greatly helping the environment, reducing congestion and helping the economy. Win win win!

So, private car sales might well fall, with far less choice and variety of cars, simply because there will be far less personal involvement with cars. Good news for fleet managers in the 10 year plus time frame.

Ian

Risers and fallers - content industry

2008-03-09T04:53:00.000-07:00

This blog will list reasons why various industries will go up or down in the future, so may be of assistance in long term investment thinking. However, this should only be one tiny input to your investment strategy. Although I will give my best opinion, it is only an opinion and I cannot accept any responsibility for any consequences. You should read my arguments and then make your own decisions.

Anyway, to start off with something obvious, I will consider The Music Industry.

The music industry is going to struggle even more than today. They have taken almost the exact opposite strategy to what they should have done. They have alienated almost their entire customer base by treating everyone as criminals, while still doing their best to fleece honest customers with ludicrously high prices and often selling padding in place of decent content. They have squandered their customer good will and few will miss the big players when they die.

The simple fact is that music no longer needs the big providers. Music is something that most people have some capability to create and in which very many people are extremely competent, and often want no more reward than a round of applause. Whereas aspiring bands and singers once had to go to the music producer companies to be heard, they can easily do so today on the net. Youtube is just one site, but is easily the place to publish new music for amateurs and small bands. Recording equipment is mostly just IT so is falling in cost exponentially.
Hiring a quiet room and decent equipment and getting a good recording on-line is now well within the means of most bands. Who needs the big players any more?

As for quality, the bands in the charts are not very different from many you have never heard of. If you hear a song you like, you can easily find others in similar style using music search engines. Why pay a fortune for a couple of decent tracks and a lot of padding on a CD in a plastic case, when you can download many hours of high quality free stuff that sounds similar?

And the music business model is evolving. Giving music away for free is a good way to get rich. The more people that hear it and like it, the more will buy tickets for the next concert, and T-shirt and whatever. The track download is becoming just an advert for the real thing. So what if most people never pay anything? If a few thousand buy concert tickets, there is still enough potential reward to justify production.

So, the music industry is fighting hard in the courts and trying to force regulators to protect it, but no-one needs it any more and even if they haven't noticed yet, they soon will. It can roar and even bite a few more heads off, but it is dying. Disinvest.