Tag Archives: software

War, Peace, Inflation, and Software

Is inflation dead?

Source: Morguefile

Growing up in the ‘70s, inflation was a fact of life. Sometimes we would see prices rise four or five percent in a single month. Persistent, high inflation was a problem, economically. The purchasing power of our savings was depleting at a rapid rate. Federal regulations kept interest rates low; banks couldn’t pay more than 4.25%, even while inflation was running at 10% per year. Gerald Ford declared a war on inflation.

Annual change in CPI. Source: St. Louis Federal Reserve

But those days seem as remote to us today as buggy whips and livery stables did to folks back then. What happened? The most important change happened in the early ‘80s, with monetary policy. The Fed reduced the growth of the aggregate money supply, and since the velocity of money in the economy was fairly steady, slowing money’s growth also slowed the rate of price increases.

But since 1990 – well after Paul Volker’s monetarism was implemented – inflation has fallen even more: from about 5% then to only 2% now. The most current measures indicate that it might run at only 1.5% going forward. And low inflation is a fact of life everywhere, not just in the United States. To answer this, we need to go a little further back.

Source: Ed Yardeni

The answer may have to do with war and peace. Dr. Ed Yardeni has written that during times of war, labor is in short supply, markets don’t work, commodities get requisitioned, and the Government prints money to finance the war effort. It’s inevitable that for prices to rise, often dramatically. During peace-time, the opposite happens: markets expand and trade flourishes, competition comes back, and prices fall. War is inflationary, peace is deflationary. Note that in the past this happened whether or not we had a gold standard. Congress determines the basis of all weights, measures, and standards, including our monetary base.

In 1989 the Cold War ended with the fall of the Berlin wall. The last 28 years has seen the greatest expansion of markets, trade, and capitalism that the world has ever known. The influx of supply has been met with an influx of demand as well, as billions of producers and consumers have entered the global marketplace. In addition, the nature of demand is changing: In the past, we needed raw commodities; as economies developed we needed finished goods. Increasingly, we need knowledge: knowledge about our work, our environment, our finances, even our own bodies. Increasingly, this knowledge is provided by software, readily available via computers we carry in our pockets. That’s why software is eating the world. And the marginal cost of software is virtually zero.

Software costs money to develop, but once it’s in place, it costs almost nothing to replicate. That’s one reason software companies that provide free products have done so well: Google provides free search, Facebook provides free networking, Amazon provides free streaming, storage, and shipping, if you’re a Prime member. Of course, nothing is truly free. These companies make money on your browsing and buying behavior. But the marginal cost of providing software is practically nothing, and they’re passing those savings on to consumers.

This is why inflation is dead. Peace killed it. And software.

Douglas R. Tengdin, CFA

Autonomous Autos?

Are self-driving cars in our future?

Photo: Steve Jurvetson. Source: Wikipedia

I sure seems like it. Self-driving cars have been in the news. Honda, Toyota, and Nissan all recently announced that they plan to sell cars with automated highway driving functions by the year 2020–the year of the Tokyo Olympics. Traditional automakers are trying to get ahead of tech firms like Google, which has been testing a prototype. There are also reports that Apple is studying the technology.

Inventors have been experimenting with autonomous vehicles since the 1920s—when radio controls and servo-motors allowed a remote operator to direct a car through the thick of New York City traffic, up and down Fifth Avenue. In the 1990s an Italian Lancia traveled over 1,000 miles in northern Italy in fully autonomous mode. Now there are dozens of projects around the world, with governments, universities, and corporations holding competitions and offering prize money.

Photo: Steve Jurvetson. Source: Wikipedia

The potential benefits are huge: increased energy-efficiency, fewer accidents, less demand for parking, increased car-sharing—even reduced law-enforcement, since the cars would naturally be programmed to follow all traffic regulations. Of course, a lot of other issues would need to be worked out: liability, privacy concerns, and software security. Hacking could be a serious problem. On the other hand, hot-wiring will be pretty hard. Passwords and cryptography will become even more important.

Still, for all these concerns, self-driving cars seem inevitable. Transportation is a basic human need. And once we build a machine, we want it to go somewhere. We just need to be sure it goes where it’s told.

Douglas R. Tengdin, CFA

Chief Investment Officer

Getting Updated

Why does software need to be updated all the time?

Source: Sellmymobile.com

I recently went through another update on my iPhone and it was excruciating. After it was done—and you never know how long that will take—it wouldn’t synch properly with my computer. It would sit connected by its little white cord and stay on the step six of six forever, never finishing. After trying all the interim options—checking message boards, rebooting the phone, rebooting my computer—I succumbed to the inevitable, and restored my iPhone from its backup.

Continue reading Getting Updated

Hard and Soft

Hardware makes it possible. Software brings it.

That’s what I thought when I read about the robotics innovations that are poised to change our lives: drones, driverless cars, virtual assistants. These technologies are build around things we already know pretty well—the car, the helicopter, and the PDA. But by adding sophisticated software, they are about to make a big difference in the world.

Take driverless cars. I had a driver once, and loved it. I had broken both of my elbows in a bicycle accident, so my employer hired someone to drive and type for me. I could read and talk on the phone, though. It was great to just get into the car and tell my driver where to go. She figured out how to get there, while I concentrated on business.

That’s what many top executives have already: personal assistants to take care of minor issues, while they focus on the big stuff. In the future, just having a smartphone will mean you have an assistant. And advances in programming just make it cheaper.

The hardware’s been around. But improvements in software are about to change the way we live. The future is already here. It just isn’t evenly distributed.

Douglas R. Tengdin, CFA

Chief Investment Officer