Calling for a “Magna Carta for the Internet”- Thanks Tim!

In my last post I was bold and earnest in calling the Internet the center of gravity of human rights in the world. It was for me, a dangerous post. It is not the kind of strong opinion that someone looking for a job in a small technology company is counseled to post in social media. However, I wanted to be honest and candid on my thoughts and who I am. (frankly, I see individual authenticity as perhaps the only true competitive advantage there is for people.)

I was exhaling a sigh of relief this morning when I saw the fabulous article by the Guardian about Tim Berners-Lee (inventor of the world wide web). In it, he calls for a “Magna Carta” for the Internet. I want to highlight it here and state that it does reinforce my initial thoughts from a highly credible and insightful source. The Internet is constantly in flux and I continue to maintain that it is the central focus of human rights. This is gaining momentum and companies and investors and governments can adapt or … well you get the picture. Thanks for the voice Tim!

*note- for some reason, WordPress was not able to insert a link into my post of the article which can be found here: http://www.theguardian.com/technology/2014/mar/12/online-magna-carta-berners-lee-web

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Energy 3.0 – “At the Cusp or on the Brink” Part 1

Introduction to Energy 3.0

I am introducing a new series of posts that are a distillation of my views on the energy market. I recently spent two years working in the energy efficiency industry and formed my perspectives during this time. My understanding of this sector is nascent, dynamic and subject to change. Two years is an incomplete introduction to one of the world’s largest industries and there is much to learn.

Having worked previously in technology, investment research and venture capital, I approach markets with a world view that is a combination of these lenses which are very different than the typical energy industry perspective. At the time I began working in energy I was mildly curious. However, as I learned more about this critical sector, I found my interest growing. As a student of changes and trends from humankind’s interaction with technology, it’s impossible to ignore energy. An examination of the energy industry, its role in our world and economic impact suggest its past and future history is inextricably intertwined with that humankind’s growth and development. Join me in this series and I invite your comments and challenges to my views– I am a data driven analyst and welcome skeptics as friends that ultimately serve to hone my views.

Energy is as Old as Humankind

Energy = Civilization = Population Growth = Economic Growth = Life. While this is a large statement, I believe it is a logical conclusion upon examining the data. It seems hard to ignore that our progress as a species has marched hand in hand with our energy consumption and economic output. Which led? I am not sure, but the data appear reasonably correlated and so I will recognize the relationship and the co-dependency of population, economic growth, technological progress, quality (and quantity) of life and our ability to harness and use energy. Regardless of which developed first, it’s true that our civilization at this time depends upon an abundance of inexpensive energy.

Table 1. The Evolution of Civilization

Source: Chris Montaño; Human Race

I have divided the history of energy into 3 distinct eras and called them Energy 1.0, Energy 2.0 and yes, Energy 3.0. Each era is defined by the energy sources available to humankind during that time. While none of these dates are crisp, they serve as markers where a trend in a new energy source was well established.

Our early history as a civilization was essentially driven by burning things- mostly wood and toward the end of the era, coal. Fire was our first source of energy and it brought us quite far by heating us, providing cooking and eventually leading to the steam engine. However, most work done during Energy 1.0 was performed by muscles- human or livestock. Once we understood hydrocarbons and leveraged them, we were into Energy 2.0 which saw the advent of industrial society, the modern city and work performed mostly by mechanical motors and engines. The ability to change the form factor by which work was delivered and tailor it to specific jobs gave rise to manufacturing and general availability of goods on an unprecedented scale. Motors also changed transportation and introduced autos and airplanes and ships driven by motors rather than wind. This era saw the global economy evolve into the trillions.

Table 1 illustrates the parallel development of energy and humankind. On virtually all measures of civilization’s advances, humankind’s economic growth and energy consumption and population growth have been in lockstep. It is also clear that progress and consumption have been non-linear and exponential. Population grew from ~800M to 2,400M from 1759 to 1944, a period of 185 years but required only another 77 years to reach add more than 4,500M people and reach a global population of 7,000M

Energy 3.0- “On the Cusp or on the Brink”

I am naming this series Energy 3.0 – “At the Cusp… or on the Brink.” As I have looked at energy demands and economic forecasts along with projected population growth through this century, it seems clear that the next era requires significant increases of energy supplies. In essence we are at the “Cusp” of a new wave of demand in energy based upon population, economic and technological growth. However, if we fail to identify significant new supplies or extend current ones, then perhaps we are “on the brink” of deeper, more unpleasant changes for our civilization.

Our growth as a species has been spectacular and I wonder how long it can continue at its current pace. The implication is that we are ultimately hurtling toward some envelope of sustainability in our planet’s ability to provide food, water, and energy for everyone and natural resources for the technology needed for continued growth. Given the exponential growth of all biological populations, I cannot help thinking about the asymptotic limits of what our planet can sustain. Realizing that we have faced similar questions of sustainability in the past yet managed to navigate our way to continued growth and progress as a civilization, I think it’s possible that we will yet again thread the needle. However, I cannot help having the feeling that somehow this time, it is different and the scale is greater than what we have ever faced and the rate of change is ever accelerating.

Driving this situation are a couple of billion people in the developing world that are headed toward middle class economics- and energy consumption in the next 50 years. The World Energy Outlook for 2011 forecasts a 1/3 increase in energy demand between 2010-2035 and 50% of that demand growth coming from India and China. As their consumption patterns match those of the developed nations, it seems reasonable that our resources and infrastructure to meet energy demands will be taxed severely. Economics 101 suggests that increased scarcity of a resource goes lockstep with increase in prices. Of chief concern is the fact that virtually all energy supplies are currently delivered by natural, non-renewable resources. While this is not necessarily a problem in itself, logically there is a limit on what we can expect to extract and use. It seems a prudent step begin developing renewable sources of energy and ensure what energy we do have is developed as economically efficiently as possible.

While renewables have been around since the first wind powered mill was built, modern society has been built upon the energy density of hydrocarbons. There is simply nothing that packs as much energy into a compact form, easily transportable and with an infrastructure that can rapidly translate hydrocarbons into usable energy. There exists no solar or wind powered motor that can drive a container ship across the globe or power an intercontinental flight. The fact remains that the primary drivers of our economy remain gas turbines and diesel motors. These motors power our jets, shipping trucks, container ships and most passenger and military vehicles around the globe.

Renewables electricity generation is at its beginning in being explored in earnest. In fact, in its current state of development it appears to me an economic experiment. It is borne from our reasonable concerns regarding projected energy demands coupled with resource constraints and the nagging worry that we may have already pushed past the tipping point of global climate balance. How this experiment unfolds and the data that it bears will have a profound impact upon our way of life.

Business is War… or the War of Business?

Even the pentagon is getting into the financial business now. Perhaps they will be more successful than the bankers have been? There was a recent “war game” involving an economic attack against the U.S. We did not fare too well according to this article.

Glad to see that our national security apparatus is on the case… but it does make me wonder a couple of things…

  1. If there is a linkage between national security and economic security, what are the implications for those that cost the U.S. $12.8 trillion and thereby weakened our national security?
  2. If there has been reckless profiteering (a polite way of saying piracy), then why do institutions and people get a free pass?

… seems that there needs to be some careful thought on this. But there probably will not be. It seems that the Obama administration is inclined toward the policy of incrementalism from the base the Bush administration left. Too bad. The more things change, the more they stay the same…

This Time it Really is Different

How often have we heard this in the markets? In my tenure in stock research I recall it during the Internet run-up in 1997-2000. Then I heard it during the housing bubble from some real estate chums.

Now, I am hearing it again… this time from Mohamed El-Erian. One individual that serves on my own personal ‘council of thought leaders’, (which is simply a small group of analysts and thinkers that I listen to very carefully.)

What sets El-Erian’s call apart from the others is that he is not delivering a message of unconstrained growth and a new era of unprecedented prosperity. No. He is in fact quite the opposite and serious in calling this time a pivot point in history that will be noted by forthcoming generations. In fact the words he uses are, ‘… a massive cyclical dislocation in the context of a massive secular realignment.’ (see the video here- his prepared remarks are quite sobering)

Let me see if I can translate his words from ‘econo-ligua.’ Secular changes are large, usually permanent changes that occur while cyclical changes are temporary fluctuations due to the business cycle of expansion, stagnation and contraction. So I am understanding El-Erian to say that we are undergoing a global, permanent re-balancing. So what are we ‘realigning’ or re-balancing? If I understand him correctly, we are realigning the fact that since World War 2, the USA has been the de facto leader of the world economy. Driven by an unstoppable consumer, the USA has been an economic powerhouse and the engine of world economic growth. Apparently this is changing permanently.

If that wasn’t rosy enough, his initial phrase is suggesting that this global shift in economic power is simultaneous with a global economic downturn that he calls a ‘dislocation.’ What is dislocated? Lotsa people, jobs, industries and standards of living. Well, there you have it, listen to the vid yourself and draw your own conclusions.

Trillion with a “T”

Bloomberg article stating that the US has spent or committed $9.7 trillion in the last 24 months in order to bail out the nation from its economic malaise. (FYI- the link is here but I cannot vouch for the Bloomberg site. http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aGq2B3XeGKok)

$9.7 trillion. Wow. That is a lot of money. To give some perspective, this amount is equal to:

  • 90% of the TOTAL mortgages outstanding in the US (the article cites the $10.5 trillion in mortgages as coming from the Federal Reserve)
  • $1,430 for every person in the world.
  • $31,721.57 for each person in the US.
  • A sample of 158 financial services firms over the period from March 2004 through December 2008 yielded Revenue net of interest expense of $3.5 trillion and net profits of $636.7 billion USD. (data courtesy of Gridstone Research.)

It really is stunning how much it has cost us thus far to clean up the mess. Frankly, I think it is tragic, especially when you consider the opportunity cost embedded in this. What could we have accomplished with $9.7 trillion in capital expenditures? It boggles the mind to think of it.

Remember, there is no metric or gauge to tell us that we have contained the financial contagion. Far better economic minds than mine suggest that we have far more significant problems ahead of us as we turn over the rocks on the balance sheets of banks. How many additional trillions of dollars are lost and yet undeclared as the assets are held in off balance sheet special purpose entities? Could it be $2 trillion? or $5 trillion, or $10 trillion?

The fact is that we simply do not have the exact figures. And apparently, obtaining exact figures on where the money has gone is not permitted even though we are financing this bailout. The same article states that the Federal Reserve is refusing to disclose what banks received money, how much these banks have individually got and what type of collateral we the taxpayer have got for our children’s children’s children’s futures.