Blog
Observations
The Middle East and Us
March 11, 2011
The best case scenario for an American economic recovery, avoidance of inflation, and $6 gasoline? Moderation. Ghadifi quietly leaves Libya. A compromise between the separatists and the former cabinet and military. Eqypt remains somewhat quiet and their military fulfills promises of Mubarak crony removals and elections.
But those two possibilities are far less than certain. I’d give them less than 40% probability right now. Libya’s important production of light sweet crude oil will come offline for some time. Today I passed my first sign for $5.00 gasoline in San Diego, CA.
The more troubling events could occur in Saudi Arabia. The mere fact that government troops are firing rubber bullets at crowds is chilling. Despite the royal family throwing billions at the less advantaged citizens the groundswell from the educated population could destabilize the largest exporter of oil in the world. Crux facts: there is a huge concentration of the Shia minority around the Saudi’s oil production and shipping locations. Just like Benghazi in Libya, it’s strategic.
So what?
Think 1979.
Oil prices spike to $200 or perhaps beyond.
Oh yeah, you might not have been born then or you are too young to remember. Lines around blocks at gas stations (and there were almost 3 times as many as we have today with a population half the size). Declaration of a national crisis. Rationing. Price controls. Gas cans in auto trunks. Third world stuff.
Then, in the years that followed, runaway inflation coupled with a recession and double-digit interest rates. I was running a business in a market with real resistance to price increases when my operating line of credit went to 22%. It’s one reason I never, ever again want to make payroll for more than 40 people.
Worse, the US government can’t absorb a huge spike in what it pays to service the debt. The dollar will be wiped away as the world’s reserve currency, capital will leave the country, and the 1930’s will repeat and potentially be even more catastrophic.
I’m not saying the scenario is likely. I think it is still less than 30% probable but that probability increases daily to the point where we want to think through implications and actions.
In a recent Twitter post I pointed out a NY Times article on a fellow who’s gone “off the grid” in Texas by living in the desert on solar and wind power and capturing rainfall for water. Funny thing is that it’s both one of the most read and most e-mailed articles on the publication at this writing.
More in the days and weeks ahead. Hope for moderation in the Middle East and some leadership in our country. This could become a perfect catalyst for us to take steps to begin resolving our financial, energy, and world dominance issues.
The Race for Sustainability
February 28, 2011
The signs were obvious. In manufacturing, energy, and agriculture the shift had been underway for some time. But the “s-word” was popping up in unanticipated fields like financial services, municipal government, hospitality, and healthcare.
The driver: consumer attitude. When people are asked whether they want a product that’s “green” or “organic” they hesitate. Experience tells them it’s going to be somehow a sacrifice of quality and higher priced to boot. Not a great choice unless you’re in the minority of the market that wants to save the planet at any cost.
But the term “sustainable” refers to the concept of renewable or the ability to be perpetual. A UN commission in 1987 established a definition that holds today, “meet the needs of the present without compromising the ability of future generations to meet their own needs.” Consumers sign on to that thinking readily. So readily, in fact, that the future is going to be full of battles over the ability to use the term.
A conflict in an active segment of my practice is a good example. Organic food producers would like to claim the sustainable term as their own. An organization called the Leopold Academy applied to the American National Standards Institute a few years ago to establish a standard, a definition, of “sustainable agriculture.” When forming the group that would put forward the criteria they pointedly omitted the largest food producers in the US – production agriculture. You know, the farmers that use chemicals and genetics to be the most productive on the planet and which account for well over 80% of the food production in our country.
The US Department of Agriculture intervened and the Leopold Academy agreed to put 11 production ag representatives on the committee where they were outnumbered 3-1 by organic producers and environmental group representatives. The new participants tried to turn the standards to what’s known as the “triple bottom line” – defining sustainable as not only environmental but based on economic and human capital issues as well. The short version is people – planet – profit. The discussions continued for some months but last fall the production agriculture reps pulled out of the talks.
Today it may be impossible to establish a standard until two sides of the debate can sit down in more equitable numbers to reach consensus on the definition. It’s a huge issue that could lead to more than standards and labeling. With a political overlay the standards would eventually translate to regulations.
Look for many more debates, discussions, and organizations positioning themselves as “sustainable” in the years ahead. Look for them to use the triple bottom line as the standard. In your own industry or field, no matter the level of environmental sensitivity, look for sustainability to be a major issue in the future.
The Oil Forecast
February 25, 2011
My logic: the recession reduces demand but only temporarily. Recovery from recessions is uneven globally. Some regions recover months, perhaps even years before others. A robust economy in Asia and to a lesser extent in Latin America will create demand that will drive prices up despite a slight fall in use in the U.S. and the EU.
Speculation or unexpected geopolitical events – “triggers” – will create volatility. Speculators will enter the market on supply shortages. No regulating body can keep them away from the opportunity to make money.
My forecast from mid-2008 forward: 75 to 85% confidence that an oil price spike and permanent plateau above $100/barrel will come sometime in the 2011-2014 time frame.
It’s been of interest to clients in, well, almost every field. Because as one CEO said to me on being asked what energy prices affect, “Everything!”
As the economic recovery has forged ahead strongly almost everywhere except the North Atlantic the price of a barrel of oil has risen back through the $50, $70, then $90 levels. Now the unprecedented events in the Middle East have taken Brent futures over $111. West Texas will follow.
Will it stay there? Of course it depends on a complex array of factors. Economic effects, how high the price spikes, volatility, whether the Saudi’s can really make up most of the shortfalls, refining bottlenecks, and more. In the weeks ahead I’ll place more information here on the implications of this important trend.
In the meantime I’m getting a lot of queries from clients who quickly remember my forecasts and are running through their Plan B strategies to react to the development or are confident because they planned for the high probability of this years ago.
The Consumer Christmas 2010
December 23, 2010
Don’t get me wrong. The store was busy but large areas were deserted. A store that stays open 24 hours a day is a phenomenon in itself but those wandering the aisles were being attracted to sale racks and less-spendy areas of the store.
It was interesting that many of the fur-bedecked matriarchs leading families very slowly and deliberately through the store’s luxury departments were speaking other languages. A lot of Russian and many Asian languages filled the air as we steered around them.
It’s not surprising. Almost all surveys of consumer behavior in the U.S. show a concentration on reducing debt that is unprecedented. Spenders are coming to grips with the fact that jobs are not multiplying, they’ve got to make do with what they have, and the smartest thing they can do is get out from under credit card and other debt as quickly as possible.
Where was shopping intense in Manhattan? Jack’s Dollar Store located just a few blocks from our hotel. Wall to wall shoppers all the way up to the closing hour.
The most likely scenario for the economy, in my opinion, is a long slow recovery. What I observed falls in line with that. I think a GDP growth near 3% in 2011 will enable the unemployment rate to drop below 9%. Spending will return cautiously. It won’t be for big-ticket items but will begin to bolster support for more indulgent food, some travel, culture, entertainment, and family involvement.
We attended sold-out Broadway shows but there were half-priced tickets available up to curtain time at almost all shows. Movies that you would have to buy tickets for days in advance at prime viewing times were walk-up purchases. Top-rated restaurants were busy but not overwhelmed. On the eve of the Christmas rush I’ve been getting discount and free-shipping (even of the rapid variety) offers on a regular basis.
We’ve moved into an era of moderation and introspection. May we emerge more sober and wiser.
The E-Reader Killer
July 15, 2010
Those of you who know me or follow this site know I’m a Mac convert. I switched from what the Apple cognoscenti refer to as the “dark side” seven years ago. It’s been a very good experience. Frankly, the Windows world has improved much since I left. But there’s a bigger issue here.
I believe I held the device that will kill the e-readers. Convergence is coming.
When I sit next to a Kindle or Sony user on airplanes I hear rave reviews. Convenience, long charge life, portability are the things they mention. But they also acknowledge it’s another gadget in the bag along with the laptop, smartphone, and various accoutrements of the business traveler today.
With the iPad – and what will be a shrinking horde of imitators over the next few years – you get much more than the reader. It’s really a true lap companion that does much more than just show you a replicated black and white page. It’s a full color, multi-tasking, e-mail and word processing handler – at the minimum. Some power users make them much more.
And the price is just a little more than double the e-reader. Why not spend the little more and get something that does way more than twice the lower priced gadget?
Key indicator – the dropping cost of e-readers. http://nyti.ms/afXw0u A price war has already begun. Developers see an adoption disruption early. Amazon bumps up its advertising.
The Wild Card Weeks
May 05, 2010
A volcano erupts and ash plus extreme caution by air travel regulators paralyzes a system we take for granted. Millions are stranded. Millions, by any currency measure, are lost. Alternative transportation comes into short-term vogue and overloads. Normalcy returns and we forget. But that volcano is still smoking and just because it’s not page 1 news we relax.
An oil platform explodes and lives are lost. Initial concerns about leaks are downplayed by company executives. Days pass and a slick surfaces. There’s action but no results. Now we’re staring into one of the great environmental disasters of our generation.
Initial reports of an over-reliance on a “blowout preventer” will be examined in hearings and investigations for the next 3-4 years. Recriminations from environmentalists take on stronger weight. A decision to open more offshore drilling could not have been worse timed. We realize that we’re totally unprepared for the scale of the problem, contingencies for stopping the gusher of oil on the bottom, and we’re unenlightened or purposefully ignorant about the risks of the technology.
A car bomb fails to detonate in New York’s Times Square. If it had a fireball would have killed dozens, perhaps more. Vehicles nearby would have burned and exploded. The ensuing panic would have injured hundreds. Midtown Manhattan would have emptied as reports of the notifying phone call leaked out. The caller said it was only a diversion for a larger device. Transportation would have slammed to a standstill. Offices remained empty for Monday morning. Absenteeism spiked. Broadway theaters cancelled performances. And the world’s biggest financial center would have stopped for days. The economic after-effect would have climbed into the hundreds of millions for a devices that cost only a few hundred dollars.
When the alleged bomber is arrested within 53 hours we relax. Investigations of the origin, connection to terrorist groups, evaluation of police response will come. There will be criticism of no-fly lists, airport security, even Craigslist. But when the crisis is over our thinking returns to the mundane.
Therein lies the problem. Extraordinary events like these should prompt contingency thinking and action. They should trigger better preparation, encouragement of public involvement, and planning for the next inevitable event. Too often we don’t look at the next event, only the last event.
I’m hoping the wild-cards of the past few weeks result in serious contemplation and preparation for:
- Disruptions of air travel for substantial periods of time on the part of industry and government.
- Development of even better alternatives to face-to-face communication to back up or reduce long distance travel.
- Better technology and layered backup systems for the next generation of deepwater drilling like that necessary for tapping the even deeper oilfields off the coast of Brazil.
- An acceleration of alternative energy sources and, most importantly, conservation.
- A renewed recognition that many man-made systems have Faustian consequences that should be contemplated before adoption, not after.
- Higher levels of vigilance among all peoples in all places for those that would indiscriminately destroy life.
- Smooth transitions to pre-thought Plans B, C, D, and Z when the worst happens.
Eyjafjöll
April 16, 2010
This is a classic situation of ripple effects that I discuss in presentations and help clients prepare for in consulting engagements and strategy sessions. Let’s take a look at just a few of the potential consequences:
- No air travel in and out of one of the world’s most crucial centers of commerce. Potentially for not just days but possibly weeks or months.
- Right now the volcano is erupting through hundreds of feet of glacier ice. As that ice melts the eruption might be less explosive but it could also launch finer ash even higher into the stratosphere. The effects of the ash on air travel might extend worldwide.
- The effects on air travel are in the UK, Scandinavia, and major airports in Central Europe. There are closures and delays in Rome, Moscow, and Eastern Europe. The airports affected handle hundreds of millions of passengers and millions of tons of cargo yearly.
- If the delays continue for weeks it will take weeks to clear the backlogs and return to any normal operation. Some of the slack will come from positioning larger aircraft to the routes but this will affect other air travel.
- Some passengers will crowd onto rail and ferry transportation to get to Spain, Turkey, perhaps even Moscow to get to airports still open and operating.
- Many passengers are stranded on other continents, notably the US, and face tough choices for getting back to their homes. Ocean crossings by boat may come back into favor if this continues for weeks.
- Airlines, especially those in the EU market, have been financially stressed by the economy and fuel costs. Expect this event to take down up to a dozen carriers. Even the low cost carriers in the EU will see significant effects. Losses per airline run between 3 and 20 million dollars per day.
- There will be pressure to fly through the ash. Some governments and airlines will begin to weigh the risks and consequences.
- The behavior of the volcano is unpredictable. New fissures might open. It may subside unexpectedly.
- We’ll see another spike in usage of telecommunication alternatives to travel. Probably with long term future effect. Telepresence will get specific attention and fiber optic advantages will come even more to the fore.
- Disruptions to supply chains, lowering of petroleum demands, economic effects, scarcity of air-freighted luxury products, changes in air travel routes, long term climate changes, and many other after-effects will arise.
Tracking, April 2010
April 01, 2010
Some recent updates and additions to items we’re tracking:
Water issues – it’s the next oil. With studies now emerging from non-politicized sources like the American Chemical Society that’s measuring how much water is consumed by industries or common products like a pound of sugar, the world is going to pay more attention to this vital resource. Sub-track: Desalination is gaining rapidly in efficiency and might provide a long-term answer. Look for a doubling of capacity in the next 5 years. Particular attention: agriculture (astounding figures on cotton production), municipalities (running out of water resources), manufacturing (might come out looking better), greentech (it’s not just about carbon).
Unintended Consequences of Healthcare Reform – the bill is law of the land but in the months ahead we’ll see the unintended effects of a major legislative course change. I’ve got an enlightened client company with 140 staffers that self-insures and provides a family practice doctor free of charge to any employee on their premises for a half day every week. Under the new law? Not permitted. Menu reprinting at restaurant changes? Coming. More insureds for America’s for-profit healthcare insurers? Well, we already know about that one. Watch for more.
Detroit as Harbinger – yep, that’s right, the most challenged city in America is going to be interesting to track as it attempts to drag itself out of the canyon of economic collapse. This is a classic case of reset and resurge. Things are so bad in Detroit that we may see large portions of the city converted to agriculture in the form of a garden meant to contribute affordable food and a tourist attraction. Motown may also host some of the more interesting developments in green technology. And it’s got almost nowhere else to go but up. A canary in the economic recovery coal mine.
Water issues – it’s the next oil. With studies now emerging from non-politicized sources like the American Chemical Society that’s measuring how much water is consumed by industries or common products like a pound of sugar, the world is going to pay more attention to this vital resource. Sub-track: Desalination is gaining rapidly in efficiency and might provide a long-term answer. Look for a doubling of capacity in the next 5 years. Particular attention: agriculture (astounding figures on cotton production), municipalities (running out of water resources), manufacturing (might come out looking better), greentech (it’s not just about carbon).
Unintended Consequences of Healthcare Reform – the bill is law of the land but in the months ahead we’ll see the unintended effects of a major legislative course change. I’ve got an enlightened client company with 140 staffers that self-insures and provides a family practice doctor free of charge to any employee on their premises for a half day every week. Under the new law? Not permitted. Menu reprinting at restaurant changes? Coming. More insureds for America’s for-profit healthcare insurers? Well, we already know about that one. Watch for more.
Detroit as Harbinger – yep, that’s right, the most challenged city in America is going to be interesting to track as it attempts to drag itself out of the canyon of economic collapse. This is a classic case of reset and resurge. Things are so bad in Detroit that we may see large portions of the city converted to agriculture in the form of a garden meant to contribute affordable food and a tourist attraction. Motown may also host some of the more interesting developments in green technology. And it’s got almost nowhere else to go but up. A canary in the economic recovery coal mine.
Your Major is What?
September 30, 2009
A while back I observed that the most e-mailed story from the New York Times online edition was about the popularity of philosophy as a major at Rutgers and other universities. Philosophy majors and graduates doubled over the past five years. It’s a trend that is evident at other colleges and universities according to Winnie Hu, an education writer for the Times.
There are more colleges than ever before offering philosophy majors. In schools with well-known programs like UMass, Notre Dame, Pittsburgh, and Texas A&M the number of majors has doubled just like Rutgers.
The attraction? Surprisingly pragmatic. Students say the major is equips them with tools for success.
David Schrader, executive director of the American Philosophical Association says, “It’s a major that helps them become quick learners and gives them strong skills in writing, analysis and critical thinking.”
That gets my attention as a futurist and it’s a parallel with the courses I teach in executive education sessions that target leaders at large companies. It identifies two of the most common shortcomings I see in those executives:
1. The lack of perspective for the big picture. Myopic expertise and a lack of awareness of how major forces are affecting their own functions, teams, and organization is too often present.
2. An obsession with quick and often reckless problem solutions and especially fast action when confronted with a challenge. An emphasis on speed over contemplation is a bad practice. But I see it again and again in corporate America and, too often recently, in our political decision-making.
We can all use a better grounding in the principles from philosophy.
Philosophy programs have changed over last couple of decades. Today the major is less about old texts and more about cutting edge, interdisciplinary fields like cognitive science. It’s often followed as a double major by students planning on careers in the law, medicine, finance, and even investments.
Students say philosophy has a couple of other attractions. It helps them make sense of the big questions that face society like globalization, the environment, war, and technological adoption. Even more pragmatically, it is a field that helps them with a set of skills that can be applied in the range of uncertainty that faces many graduates.
Want to be more valuable to your organization, your colleagues, your family, yourself? Build skills that help you make excellent decisions in uncertainty.
The attraction? Surprisingly pragmatic. Students say the major is equips them with tools for success.
David Schrader, executive director of the American Philosophical Association says, “It’s a major that helps them become quick learners and gives them strong skills in writing, analysis and critical thinking.”
That gets my attention as a futurist and it’s a parallel with the courses I teach in executive education sessions that target leaders at large companies. It identifies two of the most common shortcomings I see in those executives:
1. The lack of perspective for the big picture. Myopic expertise and a lack of awareness of how major forces are affecting their own functions, teams, and organization is too often present.
2. An obsession with quick and often reckless problem solutions and especially fast action when confronted with a challenge. An emphasis on speed over contemplation is a bad practice. But I see it again and again in corporate America and, too often recently, in our political decision-making.
We can all use a better grounding in the principles from philosophy.
Philosophy programs have changed over last couple of decades. Today the major is less about old texts and more about cutting edge, interdisciplinary fields like cognitive science. It’s often followed as a double major by students planning on careers in the law, medicine, finance, and even investments.
Students say philosophy has a couple of other attractions. It helps them make sense of the big questions that face society like globalization, the environment, war, and technological adoption. Even more pragmatically, it is a field that helps them with a set of skills that can be applied in the range of uncertainty that faces many graduates.
Want to be more valuable to your organization, your colleagues, your family, yourself? Build skills that help you make excellent decisions in uncertainty.