Dear Reader,
When it was first suggested that we turn my weekly missive, The Room, as it was then called, into Casey’s Daily Dispatch – the key word being “Daily” – I was concerned it might be a struggle to find enough material.
Surprisingly, at least to me, the exact opposite has been true. There is an axiom, “Work fills the amount of time available,” but I think each passing day confirms that we as a species have entered into a new paradigm whose driving feature is the accelerated access to information.
Ponder for a moment how profoundly different the world is today from when merchants would have to wait a month or more to find out if their ships had arrived safely. Now such information travels at the speed of an email to a smartphone.
And that’s just a very small tip of a very large technology-driven iceberg that touches everything – from stock trades done 1/3 of a second faster than the next guy, to videos of congresswomen at a town hall meeting making a phone call mid-question traveling around the nation at the speed of light.
Everything is changing, and the pace of change is accelerating.
Which is why we have decided to convert this service into a Twitter. Starting two seconds from now, it will be called Casey’s Message-a-Minute.
I am, of course, just kidding… I may be crazy enough to try to keep up on fast-moving developments on a daily basis, but nary a Tweet shall chirp from these quarters.
But a surprising number of people do use Twitter – about 40 million worldwide. And it would be very naïve to think that Twitter is humanity’s last shot, or highest and best use, in the instant dissemination of information. I do sometimes wonder if it’s a waste of time to teach the kids any sort of rote information – a category into which I would put math. Not when it is a dead certainty that, going forward, any conceivable need one might have for a calculation or some fact will be met near instantly just by asking for it.
Instead, I think it will be the lost arts of critical thinking and rhetoric – not the ability to use a slide rule – that will determine an individual’s ability to succeed in the world of the day after tomorrow. That’s because there will be so much information coming at us that the crucial skills will be those related to seeing the tree in the forest.
With that long-winded wind-up, I want to share with you a quick piece thrown together by “Adrian Veidt,” the new editor of our Casey’s Extraordinary Technology service. He wrote it in response to an email questioning him on GM’s announcement this week that the Volt will earn a mileage rating in excess of 200 mpg. Adrian, for those of you new to these waters, is the nom de plume we’ll be using for another week or two for the technology strategist now transitioning from his post with one of the world’s largest tech companies to head up our new tech research division.
So, we have the information that the Volt will revolutionize gas mileage… but what’s the truth?
by Adrian Veidt
Earlier this week, Government Motors dropped a public relations bomb when new chief Fritz Henderson announced that the forthcoming Chevy Volt would get an astonishing 230 miles per gallon (that's 98 kilometers per liter, for our metric-system friends). For those of you not yet familiar, the Volt is a plug-in hybrid car. The car runs primarily on electric power, with batteries charged overnight by simply plugging the car into an electrical outlet like a cell phone. Its gasoline engine is used only to charge the battery and supplement the power when the batteries run low.Due in late 2010 at the earliest, GM is pinning the company's hopes in large part on the new technology and the associated PR bump of having the most fuel-efficient car offered by a mainstream company.
So, how about that 230 mpg claim?We'll stop short of calling it a fabrication and instead chalk it up to a classic apples-to-oranges comparison.After all, the Volt will be powered more by coal than by oil. You see, the mileage claim is based in part on the idea that the average driver puts less than 40 miles per day on their car, and that because the Volt is plugged in overnight, it has enough juice to make it back and forth to work having barely sipped a drop of gasoline. But hop on the highway for a 230-mile ride to visit a client or take a vacation, and you're likely to use quite a bit more gas than your window sticker would have you think.Probably by an order of magnitude.
United States EPA mileage guidelines are based on a bunch of hypothetical “typical” driving patterns. And the makers of conventional and plug-in hybrid cars are lobbying hard to change those patterns to reflect well on the broad range of possible outcomes these funky two-mode drive trains could have, with their on-again-off-again relationship with the gas tank. And the GM announcement of 230 mpg is based on some unpublished, unverified agreement the carmaker claims to have reached with its government sibling, the EPA, on how to judge the car's performance in the "City."
However, if GM's claims prove true that operating the car off the electric grid costs about 1/3rd of what it costs on gasoline at today's prices, it won't matter what formula the EPA uses. There are sure to be many more PR moments between now and when Volts are a common sight on the road, including years of arguments about the environmental impact of moving the burden of powering a car from oil to a predominantly coal-powered electrical grid. But more electric cars are coming, one way or another, and the impact will be major on the economy and the environment.
GM is by no means the only car company working on a mostly electric or all-electric vehicle. In our inaugural issue of Casey’s Extraordinary Technology, we covered the Fisker Karma, a high-end sports car plug-in that is part of a class of flashy racers based on similar technologies, including the Ronn Scorpion and Tesla Roadster.On the more affordable front, virtually every major car company from Nissan to Ford has announced plans to add or expand their electric line-up.And many of them will have the jump on GM in timing, so it remains to be seen how much the Volt will actually help GM in the long run.But for now, it makes for some good headlines – even if they don't make a lot of sense on closer examination.
And the race is only beginning.Car companies are in a scramble to buy and build the components that will power tomorrow's cars. They are building so furiously that the cars are often announced before all the parts have even been invented.Tesla Motors notoriously sold out their entire first year's volume of cars well before developing a transmission able to withstand the incredible torque these electric motors can put out, and delayed the initial shipments by months as a result.And according to recent statements from GM, some parts of the Volt are not yet fully baked, and there is a risk they won't all be complete by the currently scheduled launch date.
Despite GM's struggles to bring the Volt to market, there’s no doubt that technology is changing the automotive industry forever and that mpg will soon be a wholly inadequate metric on which to judge the efficiency of a car.You can expect GM's inflated claims to be reduced when the Volt finally hits showroom floors in a few years. But you can also expect shockwaves to run through the industry and the economy as virtually every component of the car, shy of the seats, is rethought over the next decade.Fortunes will be made and lost in a way that has not been seen in the automotive industry in half a century or more.
[Editor’s Note: The inaugural edition of Casey’s Extraordinary Technology debuted in July. One early subscriber wrote in, “FYI, just made my subscription fees -- flipped my Sierra Wireless shares and made a nice 28% in what, a bit over 2 weeks? Nice start to this newsletter & kudos to the author.”
If you like tech, or more to the point, the money that is to be made from tech – now the single largest sector of the U.S. economy by a wide margin, click here.]
Over the course of the current crisis, investors have had their vocabularies enhanced with terms such as “credit default derivatives,” “quantitative easing,” and the “Baltic Dry Index,” terms that previously were used only by a very small cadre of cognoscenti.
The latter, which takes measure of global shipping activity, is viewed as a quick way to gauge the robustness of global economic health. Logically, as empty ships don’t wander the world like Flying Dutchmen looking for a load, they remain parked when business is bad. On the other hand, if the pistons of global commerce are pumping madly, then so will the engines of the multitude of ships on the Seven Seas.
Today, we‘re assured that the world’s business is on the mend and that all is well. Someone might want to pass that information on to Germany’s Hapag-Lloyd, a 160-year-old shipping firm considered to be one of the world’s most efficient. Unfortunately, even their acknowledged management skills are unable to protect the company from the collapse in shipping prices: it costs about $800 to ship a container from Asia to Europe, but excess capacity in the face of plummeting international commerce has driven the going rate to just $300.
Kinda hard to make up a $500 shortfall per container on volume, eh?
So dire is the situation, according to an excellent article in Spiegel Online, that the company hemorrhaged 220 million euros in the first quarter of this year alone and is headed for an inglorious end of its long and storied history if it can’t come up with $1.7 billion euros pronto.
A snippet from the Spiegel article…
Leading shipping line operators are on the verge of bankruptcy, as are shipping banks and charter shipping companies. The industry, once one of the biggest beneficiaries of globalization, now threatens to turn into one of its chief casualties.
"There has never been a crisis like this before," says Reinhard Lange, the CEO of Kühne + Nagel, the world's largest sea-freight forwarder. Shipping line operators alone are expected to suffer combined losses of $20 billion in 2009.
Drewry Shipping Consultants, the world's top consultant to the industry, warns: "The industry is looking at the edge of a deep abyss."
How will you know the crisis is really over? Well, for starters, watch shipping rates. Because as long as they remain in Mr. Jones’ proverbial locker, well below the cost of actually shipping the goods, it’s a pretty clear signal that the sailing is anything but clear.
You can read the entire article here.
http://www.spiegel.de/international/business/0,1518,641513,00.html
Since we’re link-jumping, here’s another link you might want to check out: go to www.businessinsider.com, scroll down to the “Popular” section, and click on “Taleb: You Fools Don’t Understand That We’re Doomed.” (Sorry to make it so complicated, but the direct link to the page doesn’t seem to work for some reason.) ((http://www.businessinsider.com/henry-blodget-taleb-you-fools-dont-understand-that-were-doomed-2009-8 )) It will transport you to a video featuring Nicholas Taleb of Black Swans fame, who shares our less-than-cheery views on where things are headed. The video runs about for 11 minutes, so for the time-pressed among you, here’s the summary of his key points…
On the topic of banks, the following excerpt from an article out of the Independent Institute sheds some useful light…
Although several U.S. banks recently posted impressive second-quarter earnings, the banking sector still faces tremendous obstacles that will continue to hamper economic growth, according toAlvaro Vargas Llosa, Senior Fellow at the Independent Institute. Banks recorded earnings due not to the recovery of their core business, but to one-time sale of big assets, the collapse of their competitors, the raising of money from issuing debt and securities, and a rise in long-term bonds due to inflation fears.
Further, the banking system has not yet purged its excess of bad loans -- especially those whose losses will not be recorded until the loans come due and the borrowers default. McKinsey & Co. estimates that $2 trillion in credit losses will be realized by the end of 2010.
"It is widely believed that government intervention has kept the financial system afloat. But there are signs that it may have actually postponed the recovery," Vargas Llosa writes in his latest syndicated column. "The aforementioned [McKinsey] report indicates that even in the midst of this crisis the banks have irresponsibly increased their expenses rather than cut their costs, as they should have done if they were serious about getting back into shape. And because the Federal Reserve has maintained low interest rates, they have benefited from the rising difference between the interest they pay on money that they owe and the interest they receive from money owed to them. That won't last forever."
In fact, as I write, a Bloomberg story has flashed across the screens that toxic loans tied to degrading real estate and credit card portfolios are pushing over 150 publicly traded U.S. banks toward collapse, a year-over-year doubling. You can read the article here.
How will the government react to an acceleration in bank failures?
Our own Bud Conrad is fond of the old truism that a “picture tells a thousand words.” So, here’s just one picture suitable for framing as one ponders the current economic situation – or, more correctly – the U.S. government’s response to it.
(In honor of the passing of guitarist Les Paul, and because the title is appropriate to the above chart, check out “How High the Moon” here http://www.youtube.com/watch?v=CEHJ1RtDElc)
What’s to be done? Well, Ron Paul has an idea. Tie the bureaucrats up in the same red tape they are so fond of spinning when it comes to the rest of us. His stunningly short but quite clever bill, HR 3396, the Congressional Responsibility and Accountability Act, would basically require government to use a financial yardstick before they could legally implement any new legislation, and kill any legislation that subsequently, in review, is found to have exceeded the yardstick. You can read his entire bill in about 30 seconds by following the link below. As you do, it will quickly become apparent how this would completely change government as we know it.
http://thomas.loc.gov/home/gpoxmlc111/h3396_ih.xml
Of course, it has exactly no chance of passing, but it’s fun to contemplate the sheer misery of being a government employee if it did pass. From that point forward, they would have to do the hard work required to estimate the financial impact of every new regulation, then regularly review those numbers and kill any legislation or regulations if they were later found to have surpassed the estimates.
Absolutely outlandish!
Except, when you think about it, that’s pretty much the process undertaken by any well-run business.
If nothing else, it’s nice to see at least one voice of reason trying to hold back the rising flood of government.
Did you see this? Brian Hunt of the Daily Crux sent it along to me, from the National Review. It’s funny and tragic at the same time.
Sen. Debbie Stabenow, Energy Leader
Detroit, Mich. – Michigan just experienced its coldest July on record; global temperatures haven't risen in more than a decade; Great Lakes water levels have resumed their 30-year cyclical rise (contrary to a decade of media scare stories that they were drying up due to global warming), and polls show that climate change doesn't even make a list of Michigan voters' top-ten concerns.
Yet in an interview with the Detroit News Monday, Senator Debbie Stabenow (D., Mich.) – recently appointed to the Senate Energy Committee – made clear that fighting the climate crisis is her top priority.
"Climate change is very real," she confessed as she embraced cap and trade's massive tax increase on Michigan industry – at the same time claiming, against all the evidence, that it would not lead to an increase in manufacturing costs or energy prices. "Global warming creates volatility. I feel it when I'm flying. The storms are more volatile. We are paying the price in more hurricanes and tornadoes."
Speaking of global non-warming, there’s this just in from the NOAA’s National Climatic Data Center:
The July 2009 temperature for the contiguous United States was below the long-term average, based on records going back to 1895, according to a preliminary analysis by NOAA’s National Climatic Data Center in Asheville, N.C.
The average July temperature of 73.5 degrees F was 0.8 degrees F below the 20th century average. Precipitation across the contiguous United States in July averaged 2.90 inches, which is 0.14 inches above the 1901-2000 average.
In fact, the weather here in New England has been generally abysmal this summer, so I am going to take advantage of a very nice day to duck out. But before I run, I’d like to introduce a new feature…
In the entertainment business, comedians have a saying, “Leave them laughing” – and will even cut short a performance if they have the audience rolling in the aisles. So, I figure I’d try the same thing here, sharing one of my favorite viral emails.
Today, for your pleasure, I am happy to share with you the…
Husband of the Year Awards!
3rd Place goes to: Greece
2nd Place goes to: Poland
And the winner of the husband of the year is: Ireland
The Irish are true romantics. Look, he's even holding her hand.
HONORABLE mentions... USA
MEXICO
And with that, dear readers, I will bid you a happy weekend, noting as I do that the DJIA is off by 123 points. (Quick, Tim, get the Plunge Protection Team on the line!)
Gold is holding up well, at $956.
Big changes are afoot.
Until next Monday, thanks for reading and for subscribing to a Casey Research service. And don’t forget, the charter subscription price of Casey’s Extraordinary Technology expires in just a couple of weeks, on August 31. There’s no time like the present to take us up on our three-month, no-risk trial. Click here for more.
David Galland
Managing Director
Casey Research