The price of everything

Dotcon

“We’ve all heard that a million monkeys banging on a million typewriters will eventually produce the entire works of Shakespeare. Now, thanks to the Internet, we know this is not true.”

 

-       Robert Wilensky (attributed).

 

It’s difficult to say precisely which was the most fatuous dotcom era business debacle. The turn of the millennium was a target-rich environment. The short-lived Webvan (online grocery) was pretty notorious, so it’s interesting to see some Goldman alumni attempting once again to push water back uphill with Ocado. Pets.com (online petfood delivery) was also pretty facile, and it had a talking sock puppet mascot to boot. Boo.com (online fashion) showed that Americans did not have a monopoly on torching easily raised venture capital. The era also gave rise to a particularly radical business model: lose money on every sale, but make up for it in volume. So the inexplicable popularity of LinkedIn’s recent IPO will prompt uncomfortable (or simply hysterical) memories on the part of those of us who lived through dotcom insanity the first time around. As far as this writer can tell, as a (free) user of the site, given the extent of unsolicited linking requests from complete strangers that it generates, the sole purpose of LinkedIn is to act as a rather grubby white-collar introduction service. Perhaps somebody, somewhere has gained commercial benefit from this lonely nerd referral tool, but one somehow doubts it.

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Unhinged

“New Starbucks Opens In Rest Room Of Existing Starbucks”

 

-       One of the finest ever headlines from ‘The Onion’.

 

“Eventually, Starbucks rest rooms everywhere will sell coffee,” [Starbucks CEO Howard] Schultz said. “In the meantime, we plan to open an additional location in this Starbucks’ ladies’ room within months, and are already drafting plans for a fourth restaurant along the corridor leading from the main seating area to the rest rooms. At some point a ‘Starbucks Express’ window will eventually open in the walk-in closet of the men’s room Starbucks.”

 

-       From the same story.

 

When this excellent satire on Starbucks’ expansionism first surfaced in June 1998, the markets were enjoying the fruits of a technology boom. (If you failed to participate in that comparatively short-lived opportunity to make reckless profits, you may, if you prefer, call it a bubble.) Back then, US policy rates stood at a now extraordinary-looking 8.5%. If we see their like again, any time soon, they will be rapidly en route to something closer to 1,000%. This time round, as Starbucks CEO Howard Schultz attacks speculators for pushing up the price of coffee – assuming this is a component of any product at Starbucks – US policy rates (more specifically, the target rate for fed funds) stand at 0 – 0.25%. Schultz was aiming at the wrong target. If he wanted to identify the real culprit, for dizzying volatility in commodity prices and much else besides, he should have lambasted the developed world’s central banks.

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Plain peaking

“Formula for success: rise early, work hard, strike oil.”

 

-       J. Paul Getty

 

Imagine bacteria growing steadily in a bottle. The bacteria double in number every minute (the so-called ‘doubling time’, in other words, is one minute). At 11 o’clock, there is just one bacterium in the bottle. At 12 o’clock, the bottle is full of bacteria.

Question 1: at what time was the bottle half full ?

Question 2: if you were one of the bacteria in the bottle [if any bankers are reading this, the question effectively goes beyond the hypothetical], at what time would you first realize that you were running out of space ?

Question 3: suppose that at 11.58, some of the more far-sighted and progressive bacteria [evidently not bacterial politicians] realize that they are running out of room. So they launch a great search for new bottles. They search offshore, on the outer continental shelf, and in the arctic, and in wildlife preserves, and they end up finding three new bottles – a “colossal new discovery”. How long can the bacterial growth continue as a result of the discovery of three new bottles (a quadrupling of the proven resource) ?

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Better dead than Fed

“Traders take heart from Fed comments”

 

-       Headline on the ft.com website.

 

“Stocks surge, gold at fresh high and dollar falls to lowest since 2008”

 

-       Subheadline on the ft.com website.

 

So it really depends what sort of traders were listening to Ben Bernanke’s inaugural press conference on behalf of the Federal Reserve Open Market Committee. Equity and gold traders evidently took heart; forex traders took flight. Bernanke respected tradition and conceded that the dollar was the domain of the US Treasury Secretary, but also respected tradition with the meaningless if not outright specious suggestion that a strong dollar was in the best interests of the US and global economy. The recent history of the trade weighted dollar (1985 – 2011) looks like this:

 

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