John, that is an interesting point about the relationship of networking bandwidth to the speed/bandwidth of innovation. The Internet is just making baby steps at this time, and it's frustrating to see the capital markets completely step away from funding it's adolescence, even as we are on the cusp of true mass market adoption of the technologies. I would also agree that this time, it is different, simply because we can do what we are doing here.
I think we can all agree we are in the throes of great change. Not to beat an example to death, but the parallels with the adoption of the automobile/electricity are quite apt. I think it's safe to say that when we look at the current telecommunications infrastructure made largely of copper hanging out on all those poles outside and state that it's all going to be substituted with optics and semiconductors. And that Si/optics telecommunications, like the auto compared to the horse-drawn cart, is going to be much, much, better at it's job. And to stretch an example further, Si will give us "always on", ubiquitous communication, much like the auto gave us "always on", ubiquitous transportation. For us investors, however, it may be a bit too simplistic to say, "here's the change agent, I'll invest in that", and have good returns.
Investors in the last change agent, the auto industry, especially machine tools (capital equipment for the auto industry) took an incredible beating during the last depression. This is even truer for those that invested in all those auto manufacturers that are no longer with us. There wasn't any reason for it, because, as we can all see, the automobile business was a roaring success (perhaps too successful). However, the changes engendered by the automobile were the true paradigm change. Levittown was the first suburb, and investors buying that potato farm outside of NY City, and subsequent farms formerly too distant from the cities would have made a killing.
What are going to be the changes engendered by a always on, essentially unlimited bandwidth, incredibly cheap (by today’s standards) World-Wide Communications Infrastructure? (Let’s call it WWCI for short, OK?) Probably first, is the death of distance for quite a few business transactions. What falls out of that is that real estate in the suburbs/cities, the past store of wealth for an largely non-mobile American middle class, sheltered against competition from the rest of the world by distance, regulation, and destruction of competitors capital and equipment from WWII, may not be the stellar investment it once was. (Warning all those rushing back to Mama RE to escape the insanity of Wall Street.) However, certain places, attractive in their own right, what I call the “last, best places”, may benefit from WWCI.
The new, highly mobile American (World?) middle class, moving always from job to job will not store their wealth in RE, but rather in portable means. (Gold! Ha!) This new middle class will compete in a world where almost all pink collar jobs (accounting, back office) are outsourced to the third world, just like manufacturing today, and many of the white collar jobs will be in a furiously competitive global market. (This has already happened, the H1B visa is a temporary coping mechanism until WWCI is complete.)
Right now, and for the last couple of decades, the play of choice is the arbitraging the differential between Third World production costs, and First World pricing. WWCI will accelerate the collapse of that differential. The American middle class is/will be a casualty of that collapse. The global middle class will benefit. This change will be the center of the new paradigm.
Job #1 for us investors is determining the new store of wealth. I believe that this new store of wealth is none other than the global capital markets, and that nation-states and local govts, staggering from their loss of a taxable middle class, will not be able to back bonds to the extent that they once did. That leaves stocks, yielding no dividend, probably due to the lack of market pressure from dividend alternatives like bonds. And which industries will be able to make money in this environment?
As a first shot on industries, who is going to own WWCI? It’s not like the government built freeway systems of the 40’s-70’s, this one is currently privately owned. Those that build parts for WWCI may benefit, but it’s pretty damn easy to set up a plant almost anywhere to produce parts. (It’s just darn expensive.) And unlike automobiles, which really haven’t changed all that much since 1940, making the parts to WWCI into a fashion statement is going to be difficult (Nokia’s cell phones?). So, once it’s built…. But what if you own WWCI under the oceans like GX does? All that pink collar and white collar job volume roaring through those optics would likely to produce some revenue. Who else will benefit? Any takers? |
