There are two Americas. One needs drastic measures to stay alive a little longer and the other is ignored.
Last Friday the Treasury Department and the Federal Reserve teamed up like doctors to save a terminal patient – the US market system. The prescription is heavy doses of… sugar. You see, they have no idea how to make someone live forever, so while they can’t stop death they can make it sweeter.
Meanwhile, there are millions of freshmen boys and girls in the US right now that could care less. This financial meltdown means nothing to them. Is it on Facebook, Twitter, or their iPod? Nope.
Here are some facts:
- The price of oil is above $100 for varied reasons like a weak US dollar and demand from developing countries.
- The price of gold, copper, iron, and other commodities are near all time highs.
- In August of last year Russia planted a titanium flag in an area of the arctic that effectively redraws their border in the area. The area is said to have natural gas and oil – lots of it.
- Apple now is selling an iPod for $149 with a 8 gigabyte hard drive. It comes in 9 different colors.
- Google will release the first version of its phone platform on a phone called the G1 for T-Mobile. It will cost $179.
The theme? Something that just came out of the ground is increasing in value while items that use those resources and applies science, creativity, and innovation to them are decreasing in cost. A good article by Geoff Colvin called Brains vs. Brawn helps explain why that is the current situation. But at the conclusion of the article Colvin states:
A smart investor can make money by playing once-a-generation trends in commodities. But a smart businessperson can always innovate, create a new brand, build a better product. The game never stands still, but neither does it lead to an inevitable conclusion. That’s why I’m still betting on brainpower.
I couldn’t agree more. So let’s look at Apple. The iPod is dropping in price even though it is adding more features, functions, and styles. But these are iPods seven years removed from the original or about 150 million units later. The genius behind Apple isn’t the hardware. They weren’t the first to offer this functionality. They were the first to do it eloquently. Apple sells a user interface – the relationship between the user and the device. That is why Apple is very profitable. Similarly, Nintendo is reportedly one of the most profitable companies in the world. They make games. It is the same reason Google often tinkers with their search algorithm. There is an art to this behavioral science.
So why are commodities doing so well? Buyers and sellers are focused on the dying part of America. The bailout guys. The ones protecting their bank accounts by scratching each other’s backs. This is the bad side of creativity and innovation. It doesn’t always work out*. So although I’m gravely concerned about a domino effect making matters worse, I also don’t agree with delaying the inevitable – the US market system is not functioning with sound methodologies. Concepts like hard work, productivity gains, branding, and experience have been devalued for risk structures that imply can’t miss opportunities. Or like the President said “Wall Street got drunk.”
But there is another whole generation ready to replace this dying generation. I wish I could describe what they do or are capable of, but I can’t. What I do know is that the rules for them are different. Facebook, Twitter, iPods, the internet, globalization, and green energy are built in. And so are diabetes, autism, hurricanes, droughts, Alzheimer’s, and on and on.
And you know what, as impressive as this current situation is in terms of sheer magnitude and potential financial destruction, it is nothing compared to the change, for the good of the US, which is ahead. Just ask a freshman.
*Strangely, I don’t see bailouts happening for the small business owner
that is dependent on a major road to open but the state cuts funding
for the road pushing back its opening by over a year? But that rant is
for another day.