Thursday, March 31, 2011

Technology – Making Stuff Redundant Since the Dawn of Time

We were pleased to see the feelings we expressed yesterday backed up by this, our "Quote of the Day".
The boss of electricals group Dixons said that government cuts were having a "chilling effect" on consumers as wilting high street demand for flatscreen TVs, sofas, jewellery and even takeaway pizzas pointed to deteriorating confidence.

As long as retailers continue to believe that the UK economy runs on sales of TVs, sofas, bling and takeaway pizza, the UK is doomed. It was being hooked on that stuff (+ houses) that got the UK into the mess it’s in and those comments hark of a drug dealer moaning that his clients are dying of overdoses and the methadone they are on is killing trade.

TMM’s translation: “where is my bailout?”. The issue of course is not the government policy, its Dixon’s. Much of Amazon’s international segment is and look at the comparison between revenues for the two:



Its not the economy, stupid, it’s a redundant business model.

With Eurozone inflation printing higher, people getting thoroughly terrified of sticker shock at the pump and all those other things that tend to terrify consumers TMM would like to remind ourselves and our readers that inflation shocks tend to sow the seeds of their own destruction by inspiring people do do the same thing cheaper and better and ultimately eat the commodity rentier’s lunch, much as Amazon et al have eaten Dixon’s. For example – everyone is terrified of oil prices at the moment and assumes they are going up forever. While TMM are still pretty bullish crude we are seeing some technological developments that make one think that 5 years from now one could go to the local car dealer and ensure that you don’t use any oil to travel anymore. Tesla and the likes of this awesome toy are all well and good but nobody likes having to charge a car for a long time. Thankfully, some very clever people have come up with a solution that is commercially viable for fast charging and uses some fairly standard tech outlined here in the economist. Peak oil? Maybe, but we might also reach the peak of caring about oil prices sooner rather than later. We might also find the auto industry becomes consolidated at the auto parts level and very diffuse at the end car assembly and design level as things like this come into play when drive trains are standardized… but that is a post for another day.

This EV trend is not just about oil but also other things that are conventional internal combustion dependent – platinum groups metals as we noted previously here, and lead which is pretty inefficient for batteries and has no use in a car which already has a whopping big battery pack. (TMM cannot work out what is giving the lead the bid right now given how weak demand is looking from Chinese Ebikes – anyone who has an answer do let us know). No doubt there are more implications of this but human history is rich with stories of people myopically not developing resources, getting gouged, and then innovating them out of relevance.

It is hard to pick the turn in these things and trading the short side of commodities based upon long term trends is generally a good way to get taken to the woodshed but TMM find that valuations in mining equities are now reflecting some serious long term scarcity which just might not be there when all is said and done even assuming all is well on the demand side.


abee crombie said...

i was just reading that economist article on the fast charging battery last night... that would be amazing if it could come into production.. a real game changer (not just for the VC firm that back it but for the world)

funny, if you look at the history of oil (and previous to that, whale oil) the whaling industry went out of business pretty quickly as well

but there's one thing that cant be replaced... GOLD (lol)

Anonymous said...

Another good article. I think the value of macro in this sense is it keeps your feet anchored.When the bullishness over existing energy needs is sweeping the market as it is then the macro ensures you remember not to overlook the "amazon" style game changer.

Anonymous said...

I live in the UK and buy something on Amazon almost every week. TV's, computers, books, music, etc.
Also, I see more and more delivery trucks in our neigbourhood (which is not exclusive) to provide some anecdotal support to the thesis.

Anonymous said...

Glencore IPOing in HK (the paragon of exchanges for shareholder transparency) may also be an omen for the commodities market. Anyone have any color on why they are doing it? Market timing? Permanent capital? 'Liquidity' for partners?

Nemo Incognito said...

To be honest Glencore reminds me of being at one of the first hedge fund sponsors.... senior guys cashing out at the top and mid-high level guys furious at their equity entitlement.

Nemo Incognito said...

Sponsors that went public that is...

Anonymous said...

Lead is not predominantly used in electric bicycle batteries because of a variety of issues -- cycle life, voltage sag, etc.

Lithium polymer(LiMn2O4/LiCoO2) and LiFePO4 are more common chemistries. Mine came from Hong Kong and Tianjin...

Nemo Incognito said...

Anon I am afraid you are wrong there -the new ones are Lithium (and most of those sold in US/Europe) but most demand still is in China and they are still buying el crappo lead acid. All industy indicators suggest that that is coming to an end but it has not shown up in the front end contract as yet.

Anonymous said...

"TMM cannot work out what is giving the lead the bid right now"

Could be something to do with silver being an important co-product of lead production


FX said...

NFP week,TMM , I thought I'd assess the formguide leading into our favorite variable.

The QE,Perception,Jobs trade.

I've noted on the chart key points.

2010 Fed purchases as expected peaked in June

April 19th last weekly high after a previous three consecutive weekly lower closes.

Ref was rising in between our re-coupling zone 82.5-79 (mainly due EZ relativity)

April macro robust

NOW 2011

2011 Fed purchases expected to end in June.

Ref now falling well below our re-coupling support 79

April macro GDP downward bias

Commodity inflation starting to set in.

Baring an inside week , the Dow is coming out of a three weekly lower closes.

April 2010 NFP week/w-after bullish

10yr-yld appx 4.00-3.80

QE live forever!

Anonymous said...

RE lead

Small scale "rebel" war?

Anonymous said...

Fast charging batteries still need electricity produced from something. Ideally not buring coal or oil. What we need is Nuclear. So instead of saying Kushiwhatsit is a disaster for the nuclear industry we should be saying it is bloody brilliant.

A 9 earthquake and 20m tsunami hit a 20 year old plant and still the bastard struggles on. Compare that to the Deep Water Horizon where a fire dosed the whole of the western seaboard in oil.