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Macroeconomic Trends

Brands are losing value as consumers trust social media more than brands and Amazon direct shipments reduce the value of shelf space

Oil is receding as the bottleneck commodity of the world now that electric cars are powered by electricity from natural gas-driven power stations. Natural gas is free for Permian oil drillers. Soon consumers will have a choice, gasoline or electric, on their favorite cars.  Oil has 5.8X the carbon of 1000 cubic feet of natural gas, implying a price equilibrium for oil of $17 per barrel assuming natural gas price of $3.

Bifurcation of the American consumer.  Rich man vs. poor man prevails and is reinforced by segmentation abetted by social media segmentation.

Inflation is dormant and likely to remain so as 1) Amazon’s market share of retail is small and rapidly growing, 2) Oil and natural gas prices are in long-term secular decline, 3) The mix of consumer purchases is tilting toward electronics goods whose prices are dictated by Moore’s law, 4) Discretionary income is suffering from low interest rates paid on savings, 5) Wages continue subdued despite employment gains as unionization recedes in a service economy and demand for unskilled work is falling.

Interest rates.  New solutions for achieving income are needed now that risk-free interest rates have gone to zero and will stay there.  Interest rates could de-couple from inflation as those who require a premium over inflation, i.e., the American consumer, is becoming a smaller part of the financial system as the rich get richer.

WeChat in China is about to go global, commoditizing the smartphone and its apps.

Telecom has the disadvantages of the automotive sector and more:  High fixed costs; undifferentiated product; highly competitive marketplace.  Worse, telecom marginal costs are zero.  Eventually P = MC.  There is no bottom to pricing in this industry.  Avoid.

Television and Disney have become irrelevant to children compared with Youtube and Instagram.  Mind-numbing TV is now offered by Netflix.  Disney Channel no longer the go-to content.  What happens to merchandizing, theme parks when these characters lose their pull on children?

Repeatable revenues.  Look for companies with high-priced but seldom purchased goods who can transform their business models into low-priced, more frequent purchases a la Adobe, Microsoft, Cadence Design Systems. 

Retail is in complete turmoil and should be handled with extreme care. 

AMD has modularized the microprocessor, eliminating the data-bus bottleneck that has held back computing performance since the rise of the PC.  For 40 years, as processors became more powerful, the circuit boards they were born with stayed the same.  Big changes afoot in this industry.

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