I am blessed to have many good friends at MIT, in New England, Ohio, across the United States, and the world. In 2010 (and before) I have shared many happy times and beautiful moments with my friends and a few distant family members in Ohio.
Thursday, December 30, 2010
Wednesday, December 29, 2010
2011
I think that 2011 is going to be a very good year for me and for a few close friends.
I hope that 2011 is a good year for everyone!
I have some specific goals to achieve!
Tuesday, December 28, 2010
Big Investment in Civil Infrastructure Needed during the Next Five Years
America will experience the ramifications of ultra low interest rates (2001 - 2005) and the housing bubble for years to come. In many cases, local government officials were not prepared to deal with a deluge of building requests starting in 2001 and did not envision the effect on civil infrastructure. In addition, it is not clear if reasonable assumptions were made considering the wear and tear on existing assets over time ex the building boom.
According to an article published in the WSJ today, there will be an estimated $2.1 trillion needed to fix American infrastructure. This is the list (in billions of Dollars):
$930 Roads and bridges
$265 Transit
$255 Waste water (and drinking water)
$160 Schools
$87 Aviation
$85 Public parks and recreation
$77 Hazardous and solid waste
$75 Energy
$65 Rail
$50 Inland waterways
$50 Levees
$12.5 Dams
Dugan, Ianthe J., 2010. Strapped cities hit nonprofits with fees. The Wall Street Journal, Dec. 27.
Besides these costs there are other infrastructure issues that are probably not covered, namely how the US economy will adapt to rising energy costs.
As the price of petroleum increases, there will likely be radical changes needed to existing infrastructure. The above cost projections are perhaps just incremental maintenance and improvement for infrastructure designed under different assumptions regarding energy (transportation) costs.
For example, as energy prices increase it will become prohibitively expensive to ship food across the US unless there are significant changes to the nation's railway or ocean freight system (increased use of refrigeration). These costs are not captured above.
I also believe regional food systems will play a significant role in changing America's infrastructure as transportation costs increase. I do not think there are sufficient systems in place to deal with this anticipated change.
Monday, December 27, 2010
The Rekindling of Speculation in the American Economy - Late 2010
These days, there seems to be a proclivity towards hot money flowing into financial markets. Though I do not have the statistics, ever since the .com boom America has had a speculative tendency that needs to be balanced against realities. My view is that speculation is good and it is necessary for markets to function. However, when there is too much speculation markets tend to become dis functional. The hope is that when markets decline, unsuccessful speculators are forced out creating a better investing balance. This process has not functioned as efficiently as in past economic cycles.
The hot money is coming from Quantitative Easing Part II (QEII). The Fed is attempting to keep the US economy from falling into a deflationary spiral through a massive bond purchasing program, yet the most immediate outcome is a rise in stock prices and increased derivative activity. This is not a good sign leading into 2011.
For a long time I have been writing about the price to earnings ratio, which remains one of the best indicators of over valuation for stocks. Folks keep maintaining that the US economy is moving into a new stage where P/E ratios are less relevant. I am not in this camp. P/E is still meaningful along with many other statistics.
The following blog post from earlier this year puts forth my opinions about the P/E ratio.
Alan Abelson's most recent article in Barron's is especially perceptive at raising the question of over valuation going into 2011.
Abelson, Alan, 2010. 'Tis the season to be wary. Baron's, Dec. 24.
He writes:
"Moreover, at 20 times this fading year's earnings, stocks hardly stack up as outrageously cheap. On that score, the latest calculation by Andrew Smithers, the smart Brit who runs the eponymous London-based investment firm Smithers & Co., is that U.S. equities are more than 70% overpriced, according to q, his favorite yardstick and essentially a measure based on replacement value."
The next paragraph from Abelson's article raises the prospect that current stock valuations are near historic highs:
"Just to put you at ease, we haven't quite lost our minds, nor Andrew his. The market, rest assured, isn't about to vanish into the void. And Andrew is quick to point out that by his reckoning, stocks are well below their valuation peaks of 1929 and 1999, but more or less even-steven with the highs of 1906, 1937 and 1968."
Of course during the Great Depression, 1937 was important year because the economy fell back from the recovery that began around 1933 thus extending a great deal of misery (see 1937).
With all of the money flowing into the U.S. economy from QEII, I do not think there will be a severe double dip recession in 2011. However, growth will be low and unemployment will remain high.
The big thing to watch in 2011 is level of speculative forces driving markets of all types. These forces seem strong and refuse to withdraw as the following three paragraphs from Abelson's article indicate:
"What we find especially disturbing, in any case, is the quickening of the speculative pulse, paced by wildly leveraging hedge funds."
"As Zero Hedge observes, margin debt on the Big Board in October swelled to $269 billion, a leap of $13 billion over the September figure, and the highest since September 2008, just before Lehman gave up the ghost."
"Any forced unwind, triggered by an unpleasant surprise (yes, Virginia, no matter what your daddy and mommy tell you, there are such things as unpleasant surprises in the stock market) could be very, very ugly."
In spite of a punishing recession, the American financial system continues to be venerable to excessive speculation. This is worry some. One of the unfavorable consequences of government (the Fed) intervention into markets is the possibility of supporting unreasonable speculation. It is hard to know where this will end.
Rather than speculation using cheap money, investors need to focus on start-ups that create genuine value. I very much believe that the path out of what appears to be a structural low-growth mode for the US economy is the creation of new businesses. This will take time.
I do not know what will happen that will focus investors away from excessive speculation toward tangible value.
Sunday, December 26, 2010
Progress in Language Translation via Computer?
This was a promising post that I made to ingehygd.blogspot.com in 2007:
Unfortunately, this approach has to my knowledge not progressed. It was a good idea, however, accurate disambiguation remains an obstacle. The research was from student seminars held at The Data Center Program.
Recently, we (Schuster, Lee, Ehsani, Allen & Rogers) wrote the following in a manuscript:
"... for many years researchers have employed various computer-based techniques such as Artificial Intelligence (AI) to infer the contextual meaning of words associated with a physical or abstract object, thus enabling machine understandable semantics. These approaches have largely failed in practice because the meaning of a word, a phrase, or a sentence depends on the semantics of each word, the syntax or order of usage, and the context in which the word(s) appear. The unique properties of the human mind can determine contextual relevance, and then figure out how several relevant variables are associated (Deacon, 1997). However, to date, Natural Language Processing has not duplicated this mental property.
In addition, most AI techniques rely upon deduction where general concepts are applied to determine meaning. This becomes difficult to do in practice, because most word meanings in every-day situations are inductive with a strong dependence on specific context. Hence AI fails to live up to early promise (Chandler, 2009)."
Deacon, T.W., 1998. The Symbolic Species. 1st Ed. W.W. Norton & Company.
Chandler, D.T., 2009. Rethinking artificial intelligence. MIT News Office, Dec. 8.
Net Neutrality - ingehygd.blogspot.com
It is interesting that even though this blog entry from ingehygd.blogspot.com ranks near the top when I do a google search on my full name (using Google), it does not rank in the top 10 (statistics compiled by Google) since July.
So much for net neutrality!
Blog Visits by Country - ingehygd.blogspot.com
Since July, these are the top 10 countries that visit my blog, ingehygd.blogspot.com:
10. Malaysia
9. Japan
8. Netherlands
7. Singapore
6. Russia
5. Canada
4. United Kingdom
3. S. Korea
2. Germany
1. United States of America
It is interesting that S. Korea beats out any other Asian country. This is perhaps because many copies of our book title Global RFID have been sold in the country. It is a bit of a surprise that Singapore and the Netherlands are in the top ten given the small population of these countries.
The ranking is distorted a bit because every hit to my blog is not recorded.
For those concerned about such matters, I only receive aggregate data about who visits my blog.
MIT Auto-ID Lab, MIT Field Intelligence Lab, MIT Laboratory for Manuacturing and Productivity
I would like to extend my best wishes for a happy and productive new year to all of my colleagues and friends at MIT Auto-ID Lab and MIT Field Intelligence Lab, both under the leadership of Prof. Sanjay Sarma; and all of the folks at the MIT Laboratory for Manufacturing and Productivity.
I work with a great group of people! All the best in 2011!
One of the Most Powerful Quotes in Western Literature
Though I have read William Shakespeare's famous play "Julies Caesar" many years ago, these words below that describe the absolute dictatorial power of the first Roman Caesar continue in my mind as perhaps the most chilling account of character in Western literature. The quote generates an instant and lasting visualization of the Caesar.
"Why, man, he doth bestride the narrow world
Like a Colossus; and we petty men
Walk under his huge legs, and peep about
To find ourselves dishonourable graves.
Men at some time are masters of their fates:
The fault, dear Brutus, is not in our stars,
But in ourselves, that we are underlings." (1.2.135)
Like a Colossus; and we petty men
Walk under his huge legs, and peep about
To find ourselves dishonourable graves.
Men at some time are masters of their fates:
The fault, dear Brutus, is not in our stars,
But in ourselves, that we are underlings." (1.2.135)
"Adam Smith: An Enlightened Life"
For many years, I have exchanged books for Christmas with a mentor and close friend.
This year I have received:
Adam Smith: An Enlightened Life
Nicholas Phillipson (Yale University Press, 2010)
The book is about Smith's seminal intellectual and philosophical work, and its emergence as economic science.
Perhaps more importantly, the book portrays the interaction between Smith and his close friend, the historian David Hume, and the quest to establish a grand "Science of Man."
I have read part of Hume's "History of England" and it is extremely well written, containing deep insights into human behavior, leadership, politics, and the fundamental aspects of organization, government, and freedom. One of my intellectual goals for 2011 is to finish all volumes.
Though I have a firm and unrelenting belief in technology as a means of advancement for civilization (with MIT as a leader), I very much believe in the insights provided by human history. Our life is much better for the work of authors and thinkers such as Adam Smith, David Hume, Edward Gibbon, John Locke, Edmund Burke, Samuel Adams, and Thomas Jefferson.
To ignore these and others means that our view of the technological world can only be partial. Often it is the lessons of history and human experience that give advances in science, engineering, and business their true meaning. So many forget this simple reality.
I have great admiration for the period of the 18th century Scottish Enlightenment.
Energy Prices going Up - Regional Agricultural Systems
Since being introduced to the topic at a 2008 USDA ARS meeting in Orono, Maine, I have been passionate about developing regional agricultural systems. Several months before the 2008 meeting, a National Program Leader from ARS had sent along some introductory ideas on the subject.
I think the base for my enthusiasm is a fundamental belief that land use issues are overlooked because America has such abundant natural resources and wealth. The building boom and subsequent speculative frenzy beginning in 2001 destroyed a great deal of usable farm land especially in areas like the East Coast Megalopolis spanning from Boston to Washington D.C. Long-term, it is in the best interests of America to find a more reasonable way for land-use planning that takes advantage of free market economics, the power of information, and the naturally occurring optimization from conditions of free choice.
There are many opportunities for regional agricultural systems. Though the economies of scale for concentrated growing areas such as California and Florida are impressive, the savings in terms of transportation cost (and energy) resulting from regional agricultural systems works against scale for specific crops. America is a big country. As transportation costs go up, there will be an inevitable shift toward increased local production. I believe that it is wise to begin planning for this outcome.
These are a few of the posts I have made on the topic during the past several years:
Even a modest uptick in global economic activity is almost certain to increase transportation cost.
The following quote from Alan Abelson's weekly column in Barron's forecasts that energy cost is in the rise. In turn, this helps to drive food costs higher.
"The upward spiral in crude to $91 a barrel is on its way, predicts the commodity bunch at Barclays Capital, to $100, so Jane and John are obviously going to feel the pinch all the more. Dave Rosenberg, Gluskin Sheff's chief economist and strategist (but a fine fellow nonetheless), estimates the run-up in energy prices is costing American consumers something like $60 billion a year. Toss in the rising cost of food, which like energy is conveniently omitted from the official tally of so-called core inflation, and pinch morphs into squeeze."
Abelson, Alan, 2010. 'Tis the season to be wary. Baron's, Dec. 24.
The time is now to find new ways to develop regional agricultural systems. I believe a business approach that focuses on ways to enhance the free market is the answer.
The Top Ten - ingehygd.blogspot.com
This is a list of my top 10 blog posts in terms of downloads since July:
I wish to send along a special word of thanks to the thousands
of people from around the world who have read my blog in 2010.
All the best in 2011!
Friday, December 24, 2010
Happy Holidays
Happy Holidays to everyone! I wish all of my blog readers the best during the end of 2010 and I look forward to 2011 with great enthusiasm and intensity.
Thursday, December 23, 2010
Ice Build-up on Surfaces such as Airplane Wings
This article, which appeared on MIT's homepage today, is a summary of extremely interesting research being conducted by Prof. Kripa K. Varanasi:
The APL article:
This is more information:
I see many applications in industry. This technology is potentially revolutionary.
GDP Growth and Prices
I think it is amazing that economic growth for Q3 was not revised higher and that inflation is so weak.
This quote tells the story (bold added):
"The revised 2.6 percent increase in gross domestic product compares with a 2.5 percent estimate issued last month and was less than the median forecast of a 2.8 percent in a Bloomberg News survey, a Commerce Department report showed today. Consumer costs for goods and services, excluding food and fuel, climbed at the slowest pace since records began in 1959."
Homan, Timothy R., 2010. U.S. economy: gdp grew less than forecast, inflation cooled. Bloomberg News, Dec. 22.
There is not enough growth to bring down the 9.8% unemployment rate in the U.S. If anything, unemployment could increase to over 10%. Wider measures of unemployment are close to 20%.
Tuesday, December 21, 2010
Heavy Rain in Australia and Future Prices for Commodities
I notice that heavy rains and flooding have hit Australia affecting crops. Wheat and sugar cane seem to be the most effected. This will drive the global price of commodities up.
Thurlow, Rebecca, Brindal, Ray, 2010. Australia grapples with heavy rains. The Wall Street Journal, Dec. 21.
Tensions in East Asia
It is good to read that tensions are relaxing between N. and S. Korea. An outbreak of attacks is not in the best interest of either country.
More Reports of Declining Profits in the Food Industry
In today's WSJ, I notice that ConAgra's Q2 fiscal year profit decreased by 16%, a huge amount. Further, margins declined from 27.2% to 24%.
Rising commodity costs and lack of pricing power are the causes for the profit and margin decline.
I think 2011 could be a very weak year for the food industry.
Global RFID - eBook Sales on Amazon
Below are recent Amazon statistics for e-book sales of Global RFID: the Value of the EPCglobal Network for Supply Chain Management published by Springer Verlag.
Our book seems to be selling well with a high ranking in the catagories Production & Operations (#23) and Management Science (#54).
The book is a great holiday gift!
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Echo Crisis in State and Local Government Financing
During the Summer of 2009, I made the following blog entry:
Following up on this issue, the WSJ published an article today about an increased level of derivative activity targeted toward taking advantage of the declining financial fortunes of city and states.
This is the article:
Burne, Katy, 2010. Banks look to profit on muni-bond fears. The Wall Street Journal, Dec. 20.
I think the increased activity is related to ultra low interest rates and the notion by speculators that there is a great deal of profit to earn on the prospects for failure of public financing.
This quote from the article summarizes the rising tensions in the muni bond market:
"After 17 consecutive weeks of inflows into U.S. muni-bond funds, including exchange-traded funds, the last five weeks saw $9.1 billion of outflows, according to data from Lipper, a Thomson Reuters unit."
"Risk premiums on triple-A-rated corporate debt over risk-free government debt have declined by 1.22% over the past month, according to Bank of America Merrill Lynch index data, but risk premiums have climbed 14.3% in the case of triple-A muni debt."
I think that in general, state and local taxes will increase.
Monday, December 20, 2010
The Cascading Effect of a Debt Crisis
I think the general public and sometimes government officials often forget the dangers of a cascading financial crisis.
For example, last week Moody's cut the rating on Ireland's debt by five notches to Baa1. Today Moody's cut ratings for Irish banks.
The financial crisis continues and perhaps will shift to Europe and Asia in 2011. Chances for an all out collapse are low. However, the financial drag of a debt crisis for both Asia and Europe will decrease GDP growth.
It is incredible that nearly three years after the 2008 financial crisis began to affect the US, other regions are still feeling the impact.
Chinese Equity Markets Drop
I notice what appears to be a sharp sell-off of Chinese stocks for Mon.
I am not sure of the reasons for the sell-off other than rising tensions between N. & S. Korea and the emerging bank solvency issue reported by Barron's during the weekend.
Another Banking Crisis (China) in 2011?
During the weekend I have read of more indications that 2011 will be a challenging year in terms of profit growth, particularly in Asia.
Though accounts are anecdotal, I think taken in total there are signs that China might face a period of reduced credit growth much like what happened in the US just after the 2008 financial crisis.
There is a widespread belief that the vast majority of Chinese companies operate on extremely thin profit margins. In the face of inflation, the Central government of China is perhaps reluctant to raise interest rates as a means of cooling accelerating prices because of the huge potential negative effect to low margin businesses in the country.
Raising interest rates means a higher cost for businesses to operate. In situations where profit margins are thin across a wide percentage of industry, a dangerous situation can develop as firms fight higher debt servicing costs and struggle to remain solvent.
Inflation complicates the need for credit. As prices increase, firms need more money to purchase raw materials. In an inflationary environment, the price increases for finished goods lag the price increases for raw materials, hence the additional requirements for credit.
Many raw materials that China needs for its manufacturing-oriented economy come from outside its boarders. To a large extent, the Central government can not control these prices directly. This is one reason that I believe China chooses a policy of pegging as a means of mitigating price increases from abroad (see China's Dangerous Path Toward Distorted Energy Pricing). Of course this is to the detriment of the Chinese people and debases their purchasing power, and amplifies the effect of inflation.
A potential banking crisis in the face of inflation will likely cause intense instability in Chinese society.
It is widely believed that for the same reasons (low profit margins), Beijing is reluctant to adopt free currency exchange policies for the Yuan and continues the practice of pegging to the Dollar, something that almost certainly will have disastrous consequences for the global economy and economic growth.
This is a key summary of the Chinese banking situation published by Alan Abelson in Barron's this week (it is the view of Harald Malmgren of the Malmgren Global Fund) bold added:
"Much of that huge mountain of loans [in China] has fallen into the nonperforming category, which translates from the polite banking parlance into delinquency, big time. To avoid a financial meltdown, Harald expects, Beijing will raise capital-adequacy requirements substantially during the first few months of 2011, conceivably in incremental steps to cushion the pain. Since he anticipates Chinese banks will have trouble raising capital, he expects a large-scale shrinkage in lending."
Abelson, Alan, 2010. Insolvency stalks china's banks. Barron's, Dec. 18.
Further, Malmgren projects that besides negative credit growth, Chinese banks will probably face widespread insolvency. In my view, the overpriced real estate market for urban areas adds to the risk.
If this scenario of negative credit growth plays out in 2011 and 2012, the causes probably link to the extremely large Chinese stimulus program combined with the pegging policy, a command economy, political uniformity, too much direct foreign investment, and a general lack of transparency. Just like in the US, if credit does not grow there will not be economic growth.
The wider implications of a banking crisis in China would have a particularly significant effect on the global economy. If anything, cause and effect might force prices higher in the US. This is an issue to watch closely.
In terms of ranking worldwide banking stability, Mr. Malmgren provides the following appraisal (summarized by Mr. Abelson):
"In the current lineup of problem banks around the world, he would rank Chinese banks as the most troubled, with European banks next, followed by U.S. banks and Japanese banks probably holding down fourth place."
My long-term concern is that in a society where openness and freedom are behind global norms and expectations, a banking crisis would probably cause widespread panic and massive economic disruption. The naturally occurring, economic repair mechanisms that are available to sovereign countries with open democracies and capitalistic systems have a great deal of value during times of crisis, specifically in the re-organization of industry. It is an open question if similar value exists in the Chinese system of government and business.
For more posts on the Chinese ForEx pegging issue, see:
Sunday, December 19, 2010
The U.S. Housing Industry - Searching for Good News
While I am always an optimistic and upbeat person when it comes to nearly all things in life, I remain concerned about the prospects for US economic growth in 2011. There continues to be the need for more time to repair the beleaguered American economy. GDP growth will happen in 2011, however, it will be below historical norms and what is needed to bring down unemployment.
This quote paraphrasing Harald Malmgren published today sums-up my concerns:
"For the U.S., he avers, the unrelenting deleveraging of household debt, the rise in the cost of fuel and food, the stagnation of income and the negative wealth effect of a continued decline in home values strongly suggest discretionary spending, which so many economic seers are counting on to spark a quickening of this slowpoke recovery, is more than likely to 'disappoint' in 2011.'"
Abelson, Alan, 2010. Insolvency stalks china's banks. Barron's, Dec. 18.
I think it is especially important to note that for many months the business press has put forth forecasts of a turn around in the housing industry. If anything, things have become worse.
The inability to forecast the bottom of the housing market infers that analysts and reporters are looking at the data in a biased way, or that perhaps no one really understands what is actually going on in the market. The deep involvement of the Federal government and a good dose of wishful thinking by analysts, banks, developers, government officials and others continue to confound the situation. Further, rants by local developers like the example below from Lorain County, Ohio are truly frightening in terms of how they perceive business, financial risk, and civil society in general.
As I was told, this article appeared in the Chronicle Telegram as a paid advertisement. It was not published as an editorial or letter-to-the-editor.
Alan Abelson of Barron's always has the special ability to pick out the meaningful information from the clutter and to write about it in a memorable way. In his article cited above, an insightful three paragraphs sum up the situation in the housing industry (prospects for increased housing starts) bold added:
"But, as Mark Hanson, who knows just about everything there is to know about housing, points out, on a seasonally unadjusted basis -- which frequently is much closer to the way things really are -- November starts were actually down 6.1% from October, 4.3% from November 2009 and some 35.4% from April."
"Far from signaling a sustainable turnaround, he envisages building permits and single-family housing starts double dipping, as the industry simply can't get hold of any stability in pricing power."
"He grants that starts obviously are closer to the bottom than ever before because 'the number can't go to zero.' But, he insists, there's nothing to suggest starts have to increase much, either, even were lagging household formation to suddenly shoot up. It's an open question, Mark believes, whether home builders will be able to construct houses cheaper than they can sell them, given the formidable overhang in supply and pressure on prices from foreclosures and short sales."
It seems clear that there will be little if any turnaround in the housing industry for 2011. Home prices, new and existing, will remain flat and perhaps will decline further. Along with several other things, this will be a major drag on the US economy as wealth locked in home equity remains stagnant and well below peaks recorded in 2007. Some believe that the housing industry will not recover before 2014.
If folks did not understand the decimating effects of an asset bubble (like what happened in housing) before the 2008 financial crisis, I certainly hope they understand now!
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