Digital Media and the Global Scramble for Yield

We are in an inevitable and extended period of low yields. The bubble's legacy is global over-capacity in manufacturing. The opening up of India and China has dumped an incredible over-capacity of workers. Why are we surprised about a 'jobless recovery'?  The US is borrowing the world's savings and spending it, rather than investing it. This is living on borrowed time, and will soon end, reducing the engine of global demand. The West is suffering declining birth rates, and the predictable demographic demise of the young in Western economies will depress growth rates - it is the 20-somethings who buy new stuff; the 30-somethings and up tend to trade up - further depressing demand. All this has already resulted in low returns in almost any asset class worldwide, and this condition is expected to last for decades, until global demand catches up with supply of workers. The only high-yielding asset class is real estate. Where will hot money go after real estate cools?

The quick answer is back to tech stocks, in particular digital media, but not quite yet.  Read on for more detail on why tech.  In the Technik blog I will run a series on digital media opportunities, and encourage your comments and guestblogs.

History is only a partial guide. When bubbles and stock crashes have happened in the past, fast money rolls into other sectors. After 1929, real estate kept booming for two more years. It is curious how it has continued to grow five years after the crash this time, and globally not locally. (Real estate bubbles are normally local phenomena.) How long can it continue? Australia and China are already suffering drops off the peak, although both seem in soft landings. The fear that a real estate bubble bursts like a stock bubble is misleading. That people were thrown out of their homes in the Great Depression and dumped into Hoovervilles of cheap housing was more due to 25% unemployment and lack of a safety net - they couldn't pay rent - than due to real estate problems per se. James Fallows' Countdown to a Meltdown in The Atlantic is a clever backwards look from 2016 of the financial history of the next ten years in which he predicts a deflationary depression like the '30s, complete with millions thrown out of their homes, but this seems to miss the current situation. Today, if real estate plummets, the speculators will walk away, and the homeless will turn around and rent at much lower monthly costs than their mortgages (as long as they hold their jobs!). This is especially easy with no-down-payment, non-recourse loans. The mortgage lenders should hold the risk, but they have securitized it off into a myriad of financial speculators, Ford, GM and GE among the largest. The homes will be sold at a discount or turned into rental property. So not a people disaster so much as massive financial fiasco across many industrial firms that have been tempted too deeply into financial services, and another chance for Greenspan to re-liquify the economy to bridge across the crisis ... which will continue to depress yields even more.

(You wonder if the only way to pay back the continual re-liquification by Greenspan, meaning the massive liability assumed by US agencies, is a serious bout of inflation to wipe out the value all those creditors think they are holding, but that too seems unlikely. First, this is not an economic environment conducive to inflation. Second, the US has been in worse debt conditions in the past (after major wars). Third, the US is the creditor of much of the debt - especially the Social Security system - and cheapening it would make it harder to live up to the unfunded future retirement and medical obligations for all those Baby Boomers, especially when the demographic demise results in many fewer of those 20-somethings to pay for their grandparents' retirement burden.)

The money will flow somewhere, and the best candidate might be back to tech stocks. Tech bubbles follow a different rhythm than the types of debt-fueled speculative bubbles that lead to a following deflationary depression. As noted in Double Bubble - a cotemporaneous post in the companion Technik blog - tech bubbles are driven by the underlying pace of technical improvement called Moore's Law, and can happen during bad economic times as well as good. Moore's law is due for an order of magnitude improvement within the next few years. Coinciding with that will be the the second wave of the Internet Bubble. It seems that after the buildout of a new network technology such as the Internet, a second bubble emerges to take advantage of the new network technology. First bubble builds the rails, second bubble rides the goods.

This coming bubble might be called the Digital Media Bubble, as it is digital media which is soon to ride the rails of the Internet at scale. Apple's iPod/iTunes combo is showing the way. Real Networks and Starz/Encore just announced digital download of first-run films, legitimately. The Treo 650 is the envy toy of choice among the digerati, superseding the Blackberry, and commencing a wave of email phones into the mass market that will turn the Cellphone into the New PC. Jamdat is the first of the coming Digital Media Bubble Darlings, riding the mobile broadband rails with simple causal games to a 10x multiple of revenues. This is ahead of us, but not by much.

Comments

[Jim Arthur]

I think the next BIG revelution will be biomedical/robotic interface. I mean how many computers does somebody really need? If you boil down digital media, it is really nothing more than a fancy phone/e-mail/music player and word processor. There comes a point when the consumer is just too bombarded with gimmicks to want to upgrade. There is no reason why anybody should need more than an e-mail, internet browser and phone on their person at all times. There is no reason why anybody should need anymore than 64 Gigabytes. If there is, what is it? What more?

The next CISCO is going to a be a company that figures out how to transfer a person's mind from their ailing human body to a robotic body. Ya, just wear a helmet with electrodes in your brain for a few weeks and download the recordings into a good looking robot. Then the US will REALLY have a problem with Old Age Security!

[Robert Sibley]

I don't think we will be waiting a bit for an economically feasable biomedical/robotic interface. But I think Jim has got the idea right. I would be cautious about putting limits on how much computing/storage capacity anyone needs. Wasn't it Bill Gates who stated no one would need more than ??k, which limited MSDOS and early Windows capabilities for years?

In general, IT has expanded exponentially our capacity to communicate, store, locate and retrieve information and process data. While advances have also been made in helping us to find the right information and more importantly to cognatively process much greater amounts of data these have not kept pace.

This human interface area is where I believe "digital media" can and will progress in significant and valuable ways. There arte in fact many places to go beyond email and Web browsers and cell phones. To some extent this boils down to information representation, and the advances that are in process and in research depend as much on understanding the human brain and senses as they do on the technologies that will exploit this knowledge. Technologies like Tele-immersion which combines 3-d virtual reality and internet based video conferencing is one example. This Internet-2 project requires enormous bandwidth with ultra low latency and substantial computational power to render data from multiple video cameras at the source and spacial knowledge of where the "viewer" is in rlation to the sender to render realistic real time 3-d images, both of people and of objects. The next stage is to allow multiple particpants to manipulate shared virtual objects.

While this will "only" allow multiple parties to feel and act like they are in the same room together, this is a very different type of communication than email, cell phone or current video conferenceing, in part, because it incorporates the ability of humans to receive and process subtle visual/aural cues now only possible face to face.

to make this kind of virtual experience authentic requires substantial knowledge of what is known as presence: ie. fooling the brain into thinking someone/something is actually physically present.

The technology Tom Cruise used in Minority Report, where he used his hands ot pull and push data around on a screen, is another example of someone's view of enhanced human information processing. In some ways this is just an extension of the google Desktop. both are conceptually similar simple ideas. But imagine the economic value of a 100% speed increase/learning curve decrease in your ability for locate, drill down into, manuipulate (perform computations on) and fully understand (in your current brain in your current body) any information you wanted/needed.

In my view there are a lot of "opportunities" in this digirtal media technologyy space, some of which we will look back five or ten years from know and wonder how we got along without. And they may require terebites. but that will seem trivial.

[EN]

The teleimersion technology would be great if it helps cut down on the amount of time people spend traveling in and out of cities to go to work. With the internet and video conferencing many employers are allowing employees to "telework" but the main limitation is that one does not have the face to face contact which is vital for certain work such as negotations, etc.

I am a little surprised society has not developed better transportation methods over the last century. The automobile is basically the same now as it was when it was invented. It burns fossil fuels, pollutes and clogs the roadways, wasting hours and hours per week of worker time. Every year it gets worse with more traffic on the roads and bigger more gas hungry cars and trucks. The plane is still basically slow unless one is going long distances, what with cloged airports and usual delays. Light rail is good within cities but somewhat limited too. In 1975, I saw the personal jetpack on TV and I thought that might be the future (I was six).

The Star Trek transporter would be the answer but a scientist I know has assured me that it is not possible with what is presently known.

So are we going to spend the next century choking ourselves to death on exhaust fumes? Apparently so.

World economic depression, pollution, war . . . I am enjoying all this wonderful life has to offer!

[Robert Sibley]

EN you bring up an essential point in understanding whhich technologies get deployed and which wither. Again it is the human factor, in this instance it's (at least partly) politics. Ove the last 50 years autos, airlines and the Internet have benefitted greatly from governenment support, especially in building costly infrastructure (as was the case with the railroads 150 years ago). And once industries reach a certain critical mass (like the combo of auto manufactures, road builders and oil industry) they often have the political clout to maintain the status quo to their liking, at least for a while(50-100 years?)

Of course it's not just government money. while the initial Internet was funded primarilly by DAPRA and NSF, the hughe buildout of fiberoptic cable in the late 90's was funded almost entirely by private capital, much to their short term chigrin, but to the long term benefit of all of us. It is this already installed (and paid for) fiver infrastructure, far beyond our current need, that will allow, encourage and make economically feasable technologies like tele-immersion. Just as massive overbuilding of rail networks in the 19th century first led to massive railroad bankrupcy and then to inexpensive freight and passenger rail service nationwided that greatly facilitatd economic expansion.

The telecom industry is in the process of working out the last mile issue ( how to get high speed/high bandwidth to your home/office cheaply) the electronics industry has made the shift to digital rather than analog technologies and large format digital displays are on a steep cost slide (just go to costco and see).

To me this means that meaningful advances in "digital media". Ones that enhance productivity and human capability, not just entertainment value, can be introduced and deployed broadly very rpaidly. This means shorter payback periods, less risk and more potential for priofitability.

From a narrow constant paradime business perspective, I would bet on these kinds of technologies before I would bet on a hydrogen economy. In fact even if oil goes to $600 a barrel these technologies wil probably fare as well as hydrocarbon replacement technologies.

Anyone for sensory enhanced virtual excursions to the grand canyon, the great wall, etc.? You can even meet and hang out with the natives.

[EN]

Virtual vacations would probably go over pretty big. Remember that movie "Total Recall"? It is an awesome concept.

Some of the experiments done decades ago with various mammals showed that they would press a lever to electically stimulate their hypothalamus' to the exclusion of the lever that delivered food.

If virtual reality gets good enough, it might make sex workers, drug brokers and tourism obsolete.