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August 16, 2012

August 16, 2012

Innovation is Alive & Well…And Still the Key to Economic Recovery

A harsh economic environment can squash dreams, but there are plenty of encouraging signs that the American innovative spirit is still going strong. Sometimes a harsh economy can unleash the entrepreneurial spirit, but it runs even deeper than that.  Some of the creative cultural and institutional characteristics that comprise the “killer apps” of Western success are the same ones that foster the innovative spirit that drives people lucky enough to experience that freedom, towards success.

A prime example is Sebastian Thrun, who is preparing to ratchet down his role at Google X.  Before arriving at Google’s Headquarters for Creative Insanity, he was educated in Germany, where he chafed under the hierarchical authority of traditional German learning institutions.  He came to the United States and found a more freewheeling environment at Carnegie Mellon, where he worked on artificial intelligence.  Throughout his career there, and later at Stanford, he pursued an orientation in which students were free to question everything in their quest for effective solutions.  While winning a DARPA (Defense Advanced Research Projects Agency) challenge to build an autonomous robotic vehicle, he met Google’s Larry Page, who quickly snapped him up and put him to work bringing outlandish visions of the future to life.

At Google X, Thrun worked on a self-driving car, and achieved milestones with a shoestring enterprise (by Detroit’s standards).  Someday we may be riding in such cars and reaping the benefits of improved safety and efficiency.  Here’s a link where you can read about it:
http://finance.yahoo.com/news/googles-self-driving-cars-300-162956782.html

Thrun is one of the pioneers of the new wave of largely de-institutionalized online education.  His first online course, offered through Stanford, garnered 160,000 students; he has recently founded a company called Udacity to help optimize delivery and learning experiences for nontraditional online learners.  His take on the financial or entrepreneurial angle?  “Never once did we talk about how this would make money for Google,” he told the Wall Street Journal.  It is this kind of innovation — one progressively breaking free from hidebound institutions and hierarchical models of authority — that is precisely what will enable the continued future creation of wealth...

Making Personalized Medicine Affordable

Cheap custom DNA sequencing will make personalized medicine available at the laptop level…

Other Innovations discussed in this week’s premium edition are:

  • New Advances in Solar Power will Shatter Previous Levels of Efficiency…
  • Facebook’s “Timeline” — the Greatest Mass of Consumer Data…
  • Transistors will Become Three-Dimensional

The above are just a few examples that show that the creative spirit is still very much alive in America and in general in the West — which no longer refers to a geographic, but rather to a cultural reality.  Wherever the Western culture of innovation and openness is present, and people are freed, or free themselves, from traditional institutional restraints on their creative activity, opportunities will abound.

If the West wants to work its way out of its economic morass, this creative spirit needs to be unleashed.  Innovation is the key to generating the kind of economic progress — and tax receipts — needed to get the standard of living moving in an upward trajectory again.


Thailand — After the Flood

Thailand is an emerging and industrializing economy, recently having entered the ranks of upper-middle income countries.  Thailand has long provided cheap labor and convenient port access for automobile manufacturers, particularly Honda and Toyota, and has a large service sector concentrating on tourism.  Exports account for about two thirds of Thailand’s nearly 360 billion U.S. dollars in economic output.

The monsoon floods of 2011 were devastating to the Thai economy, with total damage estimated at $46 billion and a deep cascade of effects throughout many regional supply chains.  Among the most affected were automobile production and electronics.  Honda’s plant north of Bangkok was shut down, stalling its annual production of a quarter of a million vehicles; parts production was disrupted for Toyota and Nissan.  Western Digital, a major manufacturer of hard drives, was also badly hit, shutting down both of its Thai factories.

2011 Bangkok flood — The Chao Phraya River Runneth Over…Way Over

Thailand Flood.jpg
Source: www.thaivisual.com

After a GDP contraction of almost 9 percent in the last quarter of 2011, however, the Thai economy began a steep v-shaped recovery, and should grow about 5.5 to 6 percent in 2012.  After a quick comeback, the Thais are doing well, but they face a few internal and external difficulties that make the overall picture less than perfect.

So what’s curbing the vibrant post-flood recovery and expansion?  To some degree, the ghosts of the past still haunt Thailand’s monetary authorities.  After being the fastest-growing economy in the world from 1985 to 1996, external pressures forced the authorities to float the value of their currency, the Thai baht, in 1997.  The Asian crisis started with a collapse in the value of the baht in the fall of that year.  Concerned about external economic pressures, the Thai Monetary Policy Committee (MPC) looks less likely to favor stimulus by interest-rate cuts, especially in the face of downside economic risk to Europe and the United States.  They know that as long as Europe continues to face its ongoing crisis, and the U.S. is facing its fiscal cliff, the likelihood of more monetary intervention (QE or some other form) would likely result in increased commodity prices.  The Thai population is particularly exposed to risk from increased costs for commodities, especially energy — something it had to fight hard to protect itself from in 2008 and after the U.S. Fed’s QE2 program.  The MPC has some flexibility, and serious external economic forces could lead it to take action, but they are going to be cautious…

Searching for Stability in Bangkok

Investing in Thailand (or anywhere, for that matter) requires monitoring the political situation there.  To say there has been instability within Thailand’s government would be sugar-coating reality…

Thailand offers some unique growth opportunities, and we are looking at it closely, but the political situation requires that we factor the country’s tenuous leadership into our reward/risk assessment…

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The Cost of Eating is Headed Higher — But You Will Probably See it at the Checkout Stand Before You See it in the CPI Data

Drought, bad crop data, and rising grain prices around the globe have put food inflation on the front pages, raising alarm in many circles.  Consumers are concerned, food producers are concerned, businesses are concerned, and governments are concerned.  While food may not be a huge percentage of the daily budget for those in the developed world, it is in the lesser developed countries.  Food inflation can erode the standard of living in the emerging economics rapidly and when food prices go up too much, governments fall.


The price of a bushel of Corn over the past year 

Bushel of Corn Chart.jpg

The price of a bushel of Wheat over the past year
Bushel of Wheat Chart.jpg

The price of a bushel of Soybeans over the past year
Bushel of Soybeans.jpg

 

No Inflation in the U.S. — Says the BLS

Even though we have seen huge moves in grain prices recently, thus far the increase has failed to show up in the U.S. government’s inflation data.  This week, the U.S. Bureau of Labor Statistics released its July Consumer Price Index (CPI) inflation data, saying that prices were unchanged in July.  The CPI is designed to track prices based on consumer spending patterns.  In our opinion, it is not a good gauge of whether the cost of living is rising or falling.  The Guild Basic Needs IndexTM focuses on certain food, clothing, shelter, and energy (used for cooking, heating, cooling, and transportation) components to give a truer measure of where the underlying costs of living in America are headed.  

As expected, recent moves in certain commodities are pushing our GBNI higher. The unique aspects of the GBNI are that it is not seasonally adjusted, and the components within the index (and their weightings) are not managed or manipulated.  The GBNI monitors the cost of the basic necessities of life. It ignores the cost of electronics, video games, computers, grooming services, and other non-basic items. The GBNI is designed to reflect the underlying prices of four basic items that one needs: food, shelter, clothing, and energy (for heating, cooling, and transportation).  

Today, the index is putting us on notice by flashing a yellow light that higher prices are on the horizon.  The cost of food, energy, clothing, and shelter are beginning once again to move upward after a hiatus created by the melt down in housing prices, the decline in energy prices, the fall in the price of certain fabrics used to make clothes, and the moderation the cost of food as a result of the economic crisis that began in 2008.  

After the banking crisis and global economic slowdown that began in 2008, the price of basic needs declined for a few years.  Now, we are seeing the effects of the money printing by many countries in order to stimulate the value of assets and counteract the deflationary effects of the crisis.  This effect, combined with increasing demand from China, Brazil, Eastern Europe, India, and other countries where standards of living are rising is increasing the prices of basic needs.

Today, the raw costs are increasing. Over the next few weeks and months and continuing into the future you will see higher prices at the checkout stand as these costs filter into the prices of the goods that you and your fellow consumers purchase.

Inflation in basic needs is coming.

July saw a jump in the prices of certain basic needs.  When will we see it at the checkout counter?

GBNI
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Click Image to Enlarge

Track the Price of Basic Needswww.gbni.info


Summary


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