Tag Archives: trends

Visual overlay will be very cool

I’m not making any forecasts about when this is going to happen, but visual overlay will be very cool.

We will still see the world as it is, of course.  But we will be able to add layers.  Layers can give us information like the ratings of a restaurant we see or night vision or heat vision, or little flying arrows showing the direction and speed of the wind.  Layers can also give us controls like interacting with vending machines or unlocking your car, or saving a good bottle of wine.

It will be very cool.

Things have changed since I wrote about this in 2002, but I wasn’t completely wrong: The Etherface


Wikipedia anything you see.  Add people you meet to your contact list with context.  Users generate content.  API lets developers add controls.

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The future is not here yet (Google)

I love this line from William Gibson:

The future is already here – it’s just unevenly distributed

To me, it is a reminder that the things we imagine the future to be are already taking shape in the labs and garages around the world.  It’s also a good reminder that we’re creating our future – that it is up to us – and that our work is what gives the future its trajectory and shape.

Then there is Google.  Their incredible position reflects their inspired work, but the next steps seem so obvious and painfully lacking.  Their  future feels so clear, but the present is terribly clunky.

I got a voice mail using Google Voice.  A transcript and link was sent to my e-mail.  I click on the link and listen to the message.  So far, great.  Now I want to save the message, but there are no links.  I click the “Google Voice” logo, but no dice – not even the logo is linked.  The message mentioned a meeting, so I want to add the meeting to my calendar.  No link for that either, of course.  The page doesn’t even have the standard Google header bar.  Failure to integrate.  Failure to provide basic navigation.  Great functionality hidden in a tangle of stand-alone services that make it hard for users.

The internet giant has everything going for it – the important things at least – but regularly delivers a disappointing user experience.  They have sufficient users, capital, and talent to enter and dominate just about any market they want, but many projects fail because of the easy stuff.  Economies of scale in every corner of the business should give Google a powerful advantage as they enter and grow into new markets, but most times Google trips.

Their typical process appears from the outside to follow a pattern like:

  1. Somebody likes a “20% time” project
  2. Project enters “Google Labs”
  3. APIs launch in Google Code and Google Apps
  4. Failure to integrate among related services
  5. New services must survive alone or they are abandoned

This last piece is important.  Just because you build it doesn’t mean people will come.  Integration with existing services is probably the best way to introduce new services to existing users and maximize value to consumers.

Integration and navigation among Google services is terrible.  I hope this will not be mirrored in Chrome OS and Google TV – these are 2 new business lines that will depend critically on good user experiences.

The idea of Google Labs is great on it’s surface: give new services a place to be refined while  gaining traction and validation.  But don’t sacrifice the vision of leadership.  Performance as individual lab experiments ignores the value these services gain when they are integrated.  Google Wave should have been integrated with Docs and Gmail as early as possible;  instead it was not integrated and cancelled.  Also, dropping the real estate layer from Maps instead of integrating with real estate ad sales … so disappointing.

I hope that lack of integration is not an intentional strategy to avoid becoming evil monopolists.  I know the culture of resentment for what Microsoft did in the operating system and browser markets has left Google feeling careful not to unfairly exploit their position of power.  Actually, I respect them a lot for that.  But integrating among services is not evil; instead, it is exactly what you hope for when you offer an API.  Every Google service should have an incentive to integrate other Google services.  They should also be encouraged to integrate non-Google services.  If Buzz played friendlier with Twitter, I think it’s adoption would have been a couple orders of magnitude better, and instead of Twitter growing essentially alone, there could have been a diversity of integrated messaging services.  Maybe next time…

Management:

There is another problem when Google fails to integrate across services:  incentives.  Because newer projects do not add value to existing services, they are perceived as expensive speculation.   Existing business lines only want to subsidize new business lines if they will add value.  Services in Google Labs that work in isolation or require opt-in for integration add little value to existing services.  I attribute many of the failed launches to this problem.

The future is clear.  Google can become a beautifully integrated suite of services that satisfy all the major demands of modern information-age consumers, including business customers and developers.  It can avoid being evil by opening as many APIs as possible to promote competition – enabling other companies to integrate all the services consumers are growing to expect.

But it’s not there yet.  Time to get back on track.

US Housing Market is Still Collapsing

The Economic Collapse has put together a stupendous list of 20 startling facts about the US housing market:

1. According to Zillow, 28.4% of all single-family homes with a mortgage in the United States are now underwater.

2. Zillow has announced that the average price of a home in the U.S. is about 8% lower than it was a year ago;

3. U.S. home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.

4. During the first quarter of 2011, home values declined at the fastest rate since late 2008.

5. According to Zillow, more than 55% of all single-family homes with a mortgage in Atlanta have negative equity and more than 68% of all single-family homes with a mortgage in Phoenix have negative equity.

6. U.S. home values have fallen an astounding 6.3 trillion dollars since the housing crisis first began.

7. In February, U.S. housing starts experienced their largest decline in 27 years.

8. New home sales in the United States are now down 80% from the peak in July 2005.

9. Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5 percent. Today, it is up around 4.5 percent.

10. According to RealtyTrac, foreclosure filings in the United States are projected to increase by another 20 percent in 2011.

11. It is estimated that 25% of all mortgages in Miami-Dade County are “in serious distress and headed for either foreclosure or short sale“.

12. Two years ago, the average U.S. homeowner that was being foreclosed upon had not made a mortgage payment in 11 months. Today, the average U.S. homeowner that is being foreclosed upon has not made a mortgage payment in 17 months.

13. Sales of foreclosed homes now represent an all-time record 23.7% of the market.

14. 4.5 million home loans are now either in some stage of foreclosure or are at least 90 days delinquent.

15. According to the Mortgage Bankers Association, at least 8 million Americans are currently at least one month behind on their mortgage payments.

16. In September 2008, 33% of Americans knew someone who had been foreclosed upon or who was facing the threat of foreclosure. Today that number has risen to 48 percent.

17. During the first quarter of 2011, less new homes were sold in the U.S. than in any three month period ever recorded.

18According to a recent census report, 13% of all homes in the United States are currently sitting empty.

19. In 1996, 89% of Americans believed that it was better to own a home than to rent one. Today that number has fallen to 63 percent.

20. According to Zillow, the United States has been in a “housing recession” for 57 straight months without an end in sight.

Source: The Economic Collapse: :”Don’t Buy A House In 2011 Before You Read These 20 Wacky Statistics About The U.S. Real Estate Crisis

Long term investment strategy blather

“The FED has been daring us, effectively, to go out and buy risky assets for the last 2 years”

“It will be the creditor that tightens global liquidity.  Not the debtor.”

I don’t agree with Russell Napier’s ultimate conclusion about S&P hitting 400, but this interview is full of gems:

http://video.ft.com/v/946244201001/Long-View-Historian-sees-S-P-fall-to-400

(it’s part of a series: http://video.ft.com/v/940727417001/Long-View-A-gathering-storm)

The reason that I don’t agree with his conclusion is that I think emerging market credit expansion will be harder to control.  I think credit expansion will be highly private, opaque, poorly regulated, and broadly accepted by the population.  Expansion of credit is an expansion of the money supply.  During which, emerging market consumption and inflation will be higher than expected.  Corporate profit growth would likely rise faster in that scenario, so downside risk should be protected to some extent by strong corporate balance sheets.

Or of course it could go the other way.  🙂

The Credit Crunch and the Market

[Download the complete article in PDF format, with charts and better formatting]

The past month has been a roller-coaster in the financial markets.

At the first hints of falling prices in the mortgage backed securities markets, Bear Sterns announced the bankruptcy of two large hedge funds, and 90% losses in a third fund which had $850 million invested in highly rated mortgage-backed securities. In the following weeks, other major funds also announced losses. Goldman Sachs’ Global Alpha hedge fund fell 27% this year through Aug. 13, prompting clients to ask for $1.6 billion in redemptions, investors told Bloomberg. DE Shaw, a pioneer of quantitative investing based on complex mathematical and computer techniques, has been hit hard in August. DE Shaw’s Valence fund is down more than 20% through August 24th, according to a fund of hedge fund manager.

These high-profile losses are prompting redemptions, and as cash flows out of hedge funds, managers must sell. Around the world, leveraged funds anticipate redemptions and are deleveraging (selling).

“When you can’t sell what you want, you sell what you can.”

Because the markets for mortgage-backed securities dried up so completely and so quickly, managers began selling positions that remained liquid and well-priced. In a sense, they had to sell good investments because they couldn’t sell the bad ones. What started as a series of collapsing mortgage strategies has spread into just about every other market that hedge funds touch. Prices fell in investments ranging from emerging market bonds to the price of hogs. In all, more than $1 trillion in value has been lost in US stock markets, alone. Many foreign markets and alternative asset classes suffered worse declines.

The trigger event is a credit tightening: mortgage issuers extended too much credit, were too loose with their lending standards, and may not have adequately communicated their loan terms. In response, lending standards have been increased and credit is tighter. US consumers might slow their spending, which might trigger a broader slowdown in the US economy, which might have implications for global growth. Uncertainty and fear prevail.

We view this fear as primarily psychological, wildly overestimated, and only loosely related to market fundamentals (See Figure 1). But that may not matter.

Contagion

The pricing of risk is driven by psychology. Investors require compensation for the possibility of loss and also for the inconvenience of uncertainty. So rising risk can cause capital to become scarce, lending rates to go up, and spending to slow. In this sense, the psychology can impact the fundamentals in what is sometimes called a “contagion”.

The “Greenspan put” was like a safety net, providing the comfort that credit would be made available on those occasions when it was needed. Bernanke has reiterated this strategy, but it remains to be seen if he has the same appreciation for what Keynes called the “animal spirits” of the market. Contagion is a real phenomenon, generally starting with a crisis in one market or a large fund, then spreading to other asset classes as volatility rises and investors require higher premiums for risky investments.

In our view, the excessive lending in the mortgage industry could trigger a contagion in a variety of ways, such as:

  • Rising rates and tightening lending standards leads to a contraction in home prices, reducing consumer spending and slowing economic growth.
  • A new awareness for the risk of debt investments causes borrowing costs for corporations and governments to rise, reducing investment and slowing economic growth.

These risks can be self-reinforcing, and could change the fundamental characteristics of the economy. These are the type of events that could change our investment strategies if they appear to develop out of control.

So far, these contagions have not caused a significant slowdown in economic activity. Volatility triggered by major hedge fund failures is different; it generally causes sharp declines in recently popular asset classes followed by recovery. These declines can proceed in unexpected ways, and can continue for some time because each price shock runs the risk of triggering another failure. It is surprising how many hedge funds use leverage sufficient to make them incompatible with price shocks. As months pass, however, these shocks can be a blessing because they offer rare value opportunities.

We should all hope that a full-fledged contagion does not develop, and be thankful that the world’s central banks are standing guard.

The Federal Reserve

It is important for the government to intervene if a contagion might damage the economy in fundamental ways, but also important for the government to avoid interfering otherwise. The Federal Reserve and foreign central banks play an important role in managing the stability of economic growth by changing the availability of capital at money-center banks, but interventions can also cause distortions in currency exchange rates, changes in the money supply affect inflation expectations, and reliance upon government intervention can lead investors take excessive risks.

On the 17th, the Federal Reserve followed several foreign central banks (European Central Bank, Australia, Japan, and others) by pumping capital into their nations’ banking systems in response to the recent volatility. This intervention increases the monetary supply, but the psychology of selling is still driving down many market prices as global investors reduce their exposure to risk and shift their portfolios to hold more cash and US Treasury Bonds.

Credit tightening is a reasonable response to excessive lending, but the signal from global central banks is that they are ready to smooth the volatility, even if it means increasing the money supply. This indicates that they may intend to inflate their way out of potential economic pain. As a result, we are less concerned about a recession, but our long-term expectations for inflation have risen. This combination makes stocks and real assets more attractive because they are better hedges against inflation, and reduces the value of fixed income instruments (such as US Treasury Bonds). Meanwhile, the global investor crowd has been doing the opposite. If higher inflation will be the ultimate outcome of this recent roller coaster, then the massive global shift toward cash and fixed income may ultimately be reversed.

Media megatrends

Flat to Down to Way Down:

Up:

Exerpt from: The Long Tail
See also: Telecom Watchlist / Industrial Evolution

Telecom Watchlist / Industrial Evolution

There are clear innovations and implementations of current technology that can be safely called inevitable. One of these is ubiquitous wireless. We will be surrounded by secure broadband available by subscription, and compatible with wireless devices. Wireless devices compatible with broadband will include laptops, PDAs, phones, and electronics built into vehicles, etc.

If this is true, then some industries will join the buggy-whip industry:

Phone companies: why pay for phone service if your wireless phone is a tiny part of a cheap broadband service. Internet traffic incurred by telephone quality duplex audio is a drop in the bucket.

Cable providers: If I have access to streaming video straight from the media companies, why pay a cable company for anything? I might pay HBO for access to their channel, but there is no room for Comcast. The old line between broadcast and cable TV will be irrelevant.

Traditional and Satellite Radio: Internet radio is already catching on. When devices and wireless grow to maturity, there is no need for radio. Your music preferences will be targeted much more specifically than a set of 20 FM stations can satisfy, making the listening experience far better. The 2-way directionality of streaming radio (broadcasters know what IP addresses are listening, and when) make the value proposition for advertisers far better. Finally, the global nature of IP eliminates the problems of range and signal quality.

I don’t mean to sound gloomy, in fact, this is not a gloomy forecast. Leaving horse drawn buggies for cars was a major milestone in economic advancement. So too, leaving single-application wires for IP-based wireless broadband is going to be a great milestone. Communications technology is the lubricant of innovation and trade. I would expect global growth to accelerate into these advancements, and remain at a generally accelerated pace thereafter.

In this speculative possible state of the world, investors might benefit from:

underweight companies with revenues largely based on phone, cable, and radio

underweight traditional-radio advertising companies

overweight equities

overweight internet advertisers and IP-intelligence aggregators

overweight internet applications providers