Nerdanomics

A nice diagram of which auto companies own others

From the New York Times "Two years ago, social marketing was at the heart of a scandal when it was revealed that the United States Agency for International Development, or USAid, which distributes foreign aid, was spending 95 percent of its malaria budget on consultants and 5 percent on goods like nets, drugs and insecticide. Under attack from several senators championing the fight against malaria, the agency later announced that it would spend at least half its budget on goods."

USAid could spend 95% on nets, drugs, and insecticide, have no Washington offices, and have field offices in Africa where they oversea the shipment and distribution of malaria nets from contract manufacturers, but then lots of people in Washington might loose their government jobs.

How can we create incentives for agencies to place their assigned tasks first, and their own self interests second? Perhaps we could pay the head a 50% regular salary, plus 1% for each percent of funding that went directly towards its intended purpose. At 95%, she'd make 145% the salary of a similar government worker.

Alas, those efficiency benchmarks just aren't part of the way business is done in Washington. Maybe we need to create incentives for Congress and the President to improve public/consumer satisfaction also.

Today's New York Times report on the $2,500 Indian car reminded me of something I did a while back.

The capacity (spreadsheet) of Cherry automotive to produce cars has historically doubled every 18 months. If we allow for every Chinese automaker to grow at the same rate, the Chinese alone can produce more vehicles than China, the US and Japan will consume in 2012.

This could, in theory, effectively wipe out both the domestic Japanese and American automotive industry in a few years. However, we know that's not going to happen, trucks versus cars, etc, but looking at how Chevy's low end cars are going to be produced in China, that part of the US and Japanese automotive production may already be partially or mostly lost to Chinese producers.

The miniature Earth video asks us to consider humanity as if it were 100 people. You may have seen this on chain mail.

I heard a Jeffery Sachs speech where he explained that for $5.00 they could make a malaria blanket that lasts for 5 years and can save someone's life, and he pointed to a web site where you could donate a malaria blanket for $10.00 and save a life. I think the extra $5.00 went for education. I'd rather donate 2 for the same price and count on the ingenuity of Africans to ensure that they set the beds up correctly, but it's still a good deal.

You won't get a thank you card. Perhaps that's what's needed. Some personal connection.

I should be excited that my 401k, which is heavily invested in an S&P 500 Index Fund, is up 14.3% over the past year.

However, the US dollars upon which the S&P 500 Index fund is based are down 10.9% against the Canadian Dollar, 10.1% against the Euro, and 6.2% against the British Pound.

The massive change in the Canadian Dollar should not be ignored, as Canada is America's most important trading partner. While some of the strength in the Canadian dollar has to do with the unique position of Canada as an exporter of timber, oil, and diamonds, Canada maintains a strong and growing automotive sector.

While the growing trade imbalance with China has weakened the dollar, when US dollars leave for a foreign destination, they're more likely to head directly north to Canada, where they buy less than they did before.

Given that before retire and perhaps get a chance to spend this money, import and export may encompass the majority of US economic activity, I have to ask, does it matter that I get 14% more of something that's worth 10% less next year, or 4% more of something that's worth 0% less?

As a long term investor, the deflation of the dollar is as much a concern to me as the increases in the S&P 500.

More good news from the thin film solar industry, as Applied Materials announces that it's modified its LCD production systems to produce thin film solar.

The amazing things are the numbers. One line can produce 50-75MWatts of electricity. Most US Nuclear Power Plants run at around or under 1200 MW.

If, starting in 2008, these guys have one line producing 50MW, and double the lines each subsequent year, they'll be making 1 Nuclear Power plant equivalent (1200MW) of PV every year in 2013 (requires 24 lines - they'd have 32). The US nuclear industry probably won't be able to work through the red tape of and bring another reactor online in that time frame.

And they're just one PV company among many. It seems that we're on the cusp of a solar revolution.

If you've been watching the news lately, you know that the S&P 500 fell at worst measurement about 3.9% this past week, and the Dow Jones Industrial Average fell at worst measurement about 3.6% this week.

Well, the DOW is still up about 18% over last year, and the S&P 500 is still up about 13% over the last year.

But are they really up that much? US Stock prices are measured in US dollars. The US dollar is worth 6% fewer Euros than it was last year.

However, it's not like the Euro is a magical entity. Like the US dollar, it suffers from inflation. Using a rough figure of 3% for both currencies, the argument can be made that we could discount the change US stock prices by the sum of both differences, or about 9%.

When Adam Smith was faced with the task of determining the real historical price of an object, he converted its price to bushels of corn, on the argument that the price of corn, averaged over several years, was a fixed amount of capital and labor. However, given modern automation and the ethanol boom, corn prices now seem more tied to gas prices than the cost of production.

I'm still looking for a good measure of the value of a dollar, but given that the British Pound gained about 8% against the US dollar last year, and that the British FTSE 100 is up about 5%, that's a total of 13% more US dollars an investor could have by investing in Britain. That's the same number of US dollars those same investors get in the US.

We definitely need better models to asses the true value of stocks in a world where the true value of the currencies via which we value them may also be questioned.

According to the Henry Kelly; Assistant Director of Technology; White House Office of Science and Technology Policy, who made the attached graph which appeared in Policy Statement on Renewable Hydrogen from ASES, about 90% of hydrogen will be produced using coal, oil and gas.

It's important to understand that just because a car is running on clean hydrogen; it doesn't mean the process via which that hydrogen was produced was itself clean.

Then again, if carbon sequestration technology improves, reforming oil, coal, and gas to make hydrogen may be a pretty good deal.

As a big fan of plug-in hybrids, I was excited to hear from the Detroit Free Press that Toyota is testing a plug in hybrid Prius with an 8 mile all electric range.

However, the numbers just don't add up for this plug-in Prius. The electric range is so small, and the Prius is such a fuel sipper, that the system is unlikely to be cost effective.

To get 100,000 miles out of a car during 5 years, a driver must average 54 miles per day. Assuming that she plugs in each morning, 8 of those can be electric.

Electric car costs per mile are about 2-4 cents. We'll call it 0.03.

Prius gets about 45-50 miles per US gallon. We'll use 45.

Current average USA price of regular gas is $2.96 per gallon.

Using a 100,000 miles and 5 years, we get:

Cost of fuel without plug-n:
gas: 100000/45*2.95 = $6,555.00
electricity: $0.00
total: $6,555.00

Cost of fuel with plug-in:
gas: (54-8)/54 = 0.852 or 85.2% gas. 6555.00 * 0.852 = $5583.89
electric: 5*356days * 8miles/day* $0.03/mile = $438.00
Total: $6021.89

Savings: $533.11

That's about an 8% savings, or the equivalent of having a combined 48.7MPG car, or an improvement of just 3.7MPG.

If the driver only drives 20 miles per day, then the she could save $1332.78, but it would take her 13.7 years to reach the 100,000 mile usable lifetime of the car. Given the pace of technology, such a low mileage driver is probably better off waiting for a 20 mile all electric plug-in hybrid.

As much as I like the idea of a plug-in hybrid vehicle, the battery technology really has to improve.

From an overall economic perspective, there is just too much low hanging fruit, including upgrading all new engines to continuously variable valve and lift timing which gives engines a 5-10% MPG boost and improves performance.

Then again, who doesn't like a faster car? That's an economic benefit too. Happy driving!

Dr. Richard Swanson gives a provocative talk on the solar power industry in this video at PARC.

In 1975, PV solar was $100 per watt. Industry has grown 41% annually 1997-2006 (43:30), and now makes 1.8 GWatts/year. Most customers are in Germany and Japan. There is a learning curve for most industries, and with PV, every time you double modules, you can reduce the cost 19% (38:00).

Photo voltaic road map projects manufacturing costs of $1.00/watt in 2012 (24:55), with current techniques. In 2023, the curve gets down to 65 cents per watt, but breakthroughs are required. (23:00)

Best reasonable limit for single junction solar cell efficiency is about 26% (13:40), but current research on multiple junction cells suggests that can be beat in a cost effective design.

If only 25% of production goes to USA, and the growth rate is maintained, US can get 50% of current power consumption in about 19 years.

The same type of projection below gives the US majority wind power in 18 years. Solar and wind are redundant systems for getting us off fossil fuels.

Plastic cells are not on this road map. They are both cheaper and less efficient than PV, and they are being studied.

While wind power is growing at about 25% per year, it's still only 11,600 MegaWatts. source

Compare this to the entire US electrical grid, which "In 2000, the existing capacity of U.S. electric utilities totaled 604,514 megawatts" source.

That's about 1.8%. It may be wind friendly source, so they may be craftily presenting peak capacity rather than the equivalent total Joules that a comparable wattage baseband plant, such as coal, can sustain.

Let's be conservative and go down to 1%.

Still, at this growth rate, the majority of US power will be wind power in about 18 years. ( 1*( 1.2518^18 ) = 55%

Windmills are bursty power sources, so technologies to store and move power around the country to compensate for weather patterns will have to improve.

However, should this exponential growth curve continue, it's going to blow Kyoto out of the water and send contentious political arguments about carbon emissions to the scrap heap of history.

Hybrids are a small but rapidly growing segment of the automobile market. If this growth continues, they will be the majority of the market in about a decade.

JD powers says:

"Despite rapid growth in hybrid-electric vehicle sales forecasted over the next few years, hybrid market share is expected to top out at 3 percent of the U.S. automotive market by 2010"

2006 hybrid market share was estimated at "1.53 percent".

Growth was 28% according to wired cars

At 28% per year growth, 1.53% becomes 50% in 10.4 years.

In other words, in 2017 the US market will have a hybrid majority auto market.

Compared to the JD Powers and Associates prediction of a maximum market share of 3%, based on:

"This is related primarily to the price premium of $3,000 to $4,000 that consumers must pay for a hybrid vehicle"

The limiting factor will be the additional price tag. If that shrinks from $4,000 to $1,000 over the course of 10 years, many people will choose a hybrid over the optional leather package.

Another year of $3.00 a gallon gasoline may put Toyota at the top of the US auto market. Projecting based on reported June 2007 sales and 2006-2007 changes, gives Toyota a slight lead over both GM and Ford. Then again, if we have a leading presidential candidate pushing for an end to the war in Iraq, the price of crude may collapse and give the domestic automakers a much needed reprieve from these brutal gas prices.

Company, June 2007 Sales, Change, June 2008 (Simple Estimation)

GM, 320668, -21%, 253328

Ford, 246415, -8.1%, 226455

Toyota, 245738, 10%, 270312

Chrysler, 183347, -1%, 181514

Nissan, 92213, 23%, 113422

• A long video of Amory Lovins speaking at MIT on how to win the oil endgame and the war on terror. He may be overly optimistic. Growing bananas in Colorado can do that to a guy.


• A short story of fable of the dragon tyrant, or how to treat aging as a disease and cure it. Perhaps we can.


• A brief video of the US Real estate roller coaster


• A short video Tales for the L33T (Romeo and Juliet) by Chris Coutts - just brilliant.
  

I've written a simple Google Spreadsheet to help you with your retirement planning. It's on Google documents, so you can play with it anonymously. Just key in basic information like your age, income, and savings rate and it will tell you when you can retire (Far right column). You can also adjust the inflation rate and the rate of return on your investments.

By the way, if you save 20% in a 401(k), you can retire in about 20-25 years with no starting assets, as long as you're at least 59.5 at that time. Otherwise, pat yourself on the back for being so smart and save some money in a cash account.

At 20 years, you will loose a bit of your capital every year. You can't live indefinitely without working, but you can live a long time (not calculated). If you factor in a house payment, paying off your home and not paying a mortgage will more than likely much cover the difference (not calculated).

At 25 years, you will never loose any capital to inflation over the long term. You can die with the same amount of money with which you retired, leaving all of your assets to your heirs. If you have only one child, he/she will never have to work after you die. If you have two, it'll take them about 8 years after you give them your money for them to both retire. Of course, that requires they have the ability to maintain and add to the working capital you left them.

This is compared to results from the simple dollar. However, I don't think that their numbers are correct. With a 4% inflation, I get much worse results. I use 3%. We both use 12%, based on previous S&P 500 returns.

Here you get to define the parameters and play with it yourself.

Warning: No returns are ever guaranteed. A 1% increase in inflation could cause you 5 years of extra work. Adjust it and see. Ask your elected representative about balancing the federal budget to reduce the inflation rate.

If you have any problems, just e-mail me DougDante1@yahoo.com, and I'll send you the original OpenOffice.org Calc file.

Enjoy!

Former Russian Prime Minister Yegor Gaidar explains that the Soviet Empire fell when they could no longer pay us to feed them, after the collapse of the price of oil. The question I have then is, given that oil prices were kept low by limited demand growth after the CAFE standard of the late 1970s, should we thank Jimmy Carter for ending the Cold War?

• "Michigan remains stuck in a one-state recession."
  
• "Michigan is rapidly becoming a relatively poor state." (down to 35th overall)
  
• "weakness was concentrated in just three industries: manufacturing, construction, and government."
  
• "Employment in autos in Michigan has fallen to 295,000, which is only 4 ½ percent of total nonfarm jobs in the state."
  
• "No sector in Michigan has been more distressed than homebuilding."
  
• "the Detroit car companies need to significantly slow the loss of their share of the light vehicle market."
  
• "The state is going through a difficult and protracted structural adjustment, not a short-lived cyclical downturn."
  

Then again, the name of the economist is: "Dana Johnson Marsha Halliburton"

As the Chinese economy expands, we look forward to a better life for the billion Chinese who live in relative poverty. The Chinese government passed an expanded labor law to protect citizens. This was on the heals of revelations of child slavery in brick making. The real news is that the Internet is making these crimes easier to find and verify. I wonder to what extent these crimes have simply continued from time immemorial.