16 December 2008

Tech predictions for 2009

Here are my predictions for the technology industry and the economy in 2009.

Almost all of my predictions stem from one thing: 2009 will be the year when the global recession bites hard, and all companies begin to see major sustained impacts from the resulting severe economic slow-down.
  • Emerging markets will see an even bigger decrease in electronics/technology consumption than developed ones. (e.g. China and India will each see actual negative economic growth by the 4th quarter, not just a slow-down in over-all growth)
  • Mobile phone sales around the world will be very sluggish for the first half the year and actually wind up in contraction by year end, making 2009 the first year in over 20 years with over-all flat sales.
  • The fastest (and perhaps only) growth area in mobile phones will be in pre-paid plans, and dirt-cheap handsets lacking any smart-phone features. This will largely occur as consumers try to save money by jettisoning expensive phone and data contracts.
  • Apple will report significant contraction in sales (particularly iPhones and iPods) as consumers cut-back in spending, and will see its stock in the $40 range.
  • Google growth will continue to slow in the first and second quarters and will report an outright contraction in business by the third quarter as advertising revenue gets hammered. Google stock will be in the $150 range by year end.
  • RIMM will see a contraction in revenue, and see its stock in the $20 range.
  • Virtually every tech firm there is will see contractions in business in 2009, and almost everyone will have hiring freezes if not actual lay-offs.
  • Not one tech firm will go public in 2009. VC funding of start-ups will be 90% lower than in 2008.
  • 2009 will be the year of tactical IT spending. Unless there is a provable 6 month ROI, or the existing systems are literally breaking, many companies will opt to conserve cash and forego any kind of up-grades, or long-term efficiency improvements. The products that succeed will be ones that show the customer will realize a benefit very quickly.
  • Paradoxically, companies become less efficient when faced with economic business uncertainty. It is only during prosperous times that most organizations are willing to consider significant investments to improve over-all productivity.
  • There will be a huge increase in sales of outsourced IT services, which allow customers to pay for usage. Companies will be very eager to control their costs as business changes in an unpredictable economic environment. Instead of hosting e-mail servers internally, just use an outside e-mail service that allows you to easily ramp up, or down, as your needs dictate. Why pay for unneeded capacity if you don’t have any orders next month and need to lay-off half your staff? This is not to say that every software service will succeed, but those that are tailored well (with the right pricing models) will see a big jump-start as more and more companies opt for pay-for-usage pricing models.
  • Hardware prices (e.g. memory, displays, storage, PCs) will fall faster than they have in decades, as all tech firms find that they are over-producing when demand slackens dramatically, forcing them to slash prices to unload inventory.
  • Investment in hardware R&D spending, and new product introduction will slow substantially. There will be far fewer new hardware standards, or technologies, emerging (e.g. wireless USB has almost stopped, now that most of the start-ups that were its driving force are finished). This will wind up having a knock-on effect of having fewer reasons for people to upgrade to new systems (i.e. because the technology isn’t improving as quickly as in the past).
  • The portion of sales of “value” tech products (i.e. products targeted at the lowest price-points) will become a far bigger portion of over-all sales, with a dramatic contraction in “premium” products.
  • The US dollar will defy all expectations and appreciate significantly against most other currencies. The Euro will see a significant loss in value as fractures begin to appear amongst EMU member states (e.g. with nations like Greece, Spain, and Italy spending profligately angering Germany and other “rich” nations). Emerging market currencies will be eviscerated, losing 50% of value vs the dollar or more.
  • Interest rates will remain extremely low, but it will be hard for businesses to get any credit since the private credit markets will remain frozen and chartered banks will be unable to make up the difference.
  • Oil will drop to the $30 dollar a barrel range by year end.
  • Global stock markets will close be 40% lower at the end of 2009 than they were at the beginning of the year.
  • Global stock markets will see incredible volatility throughout 2009 with rallies and crashes that break records. We will see at least one rally (that lasts more than 1 month) that sees the Dow Jones rise over 30% (only to lose it all again in a big crash).

12 December 2008

Altruism v. Benevolence

At a Liberty Fund conference this last weekend, the discussion touched upon the role of informal institutions on cultural behaviour and, separately, why there seems to be a decline in honesty among the youth. After some thought, I postulated that the two subjects might be linked.

As our society increasingly emphasizes, both in theory and in practice, that one person's need implies an obligation of others to share. If somebody has less food, we should feel guilty that we have more and donate. If somebody has less money, we should pay higher taxes so that they can have a minimum of comfort. We use euphemisms for our guilt, like "paying it forward," or "giving back to society," when really we simply mean a morally mandatory redistribution of wealth.

Worse yet, we downplay greatness and achievement. Many of our schools, even private ones, offer financial aid on the basis of need alone while even their top students of any given year receive not a farthing in scholarships. Bill Gates, Rockefeller, and Carnegie, rather than being praised for realizing the American Dream by producing incessantly better products that improve the lives of millions at steadily declining prices, we vilify them. Instead, we worship volunteerism and pop stars who ask us to ask our government to help poor Africans.

Among this orgy of selflessness, is it surprising that students have less and less respect for the answers and property of others? If those who have less of anything have almost a right to receive from those who have more, why is copying wrong? Why is stealing wrong? If the government is morally justified in taking from the wealthy and giving to the poor, why shouldn't the private redistribution of wealth be equally justified? What if Johnny has a better brain than Jane, shouldn't Johnny have to share his intellectual wealth with the less endowed?

We have replaced benevolence, the voluntary, discriminate giving by one person to another whom he finds deserving, with a cultural obligation to engage in indiscriminate giving by all who have more to all who have less. Whereas benevolence engenders profound satisfaction on the part of the giver and gratitude on the part of the receiver, institutional altruism engenders resentment in the giver and entitlement in the recipient. Where weakness is rewarded and achievement scorned, we should expect life to once again become nasty, brutish and short.

02 December 2008

Commodities tell the story

These charts are some of the best I have seen which illustrate how our current economic contraction compares to past eras. The chart comparing the Dow to commodities is particularly interesting, showing that massive drops in commodity prices have accompanied every major depression since the 1700s. The charts inverting commodity prices are also very intriguing, by illustrating quite graphically that what has really been happening lately is an appreciation of the dollar.

Since the summer of 2008 we have seen one of the most severe crashes in commodity prices ever. These charts show how big price corrections in commodities have an uncanny correlation to downturns in stocks, and the economy.

By the way, Elliott Wave International (the group that put this data together) is my favourite bunch of analysts anywhere. They have been about the only ones out there calling for a deflationary bust, even during the height of the bubble.