Dana Blankenhorn

Dawn is Coming

We’re approaching one of the biggest snap back rallies Wall Street has ever seen.

Once Putin’s War is over, everything’s going up. How much depends on the result.

Right now, signs are good. Israel has joined the sanctions regime. China is only going to sell stuff to Putin for cash. But China is in worse trouble than we are. They’re still fighting COVID with lockdowns. Their stock market is a mess. Their property magnates are collapsing. Hong Kong has created a brain drain. Shared prosperity is becoming shared misery. I expect a slow policy readjustment.

Once the war is over inflation will decline. Not magically. Prices are always sticky downward. You don’t cut your price based on costs. You do it when your rival cuts theirs.

Technology remains our best weapon against inflation. My long-term concern remains deflation, and how the gains of technology are apportioned. Fortunately, all those forces who sided with Russia, including our worst oligarchs, are being discredited by events. No one in Washington can see this because they only see today.

The Electric Car Bowl

While after-action stories about Super Bowl ads focused on cryptocurrency exchanges, electric car ads got more minutes.

That’s important because, if anything, electric cars are more imaginary than Bitcoin.

General Motors, Ford, Volkswagen, and a host of start-ups in the U.S. and China are all rolling out electric cars for 2022. They’re going after Tesla, now worth more than the rest of the industry despite representing less than 10% of the U.S. car market.

But while crypto is garbage, electric cars are real. And important.

On TV just now, I just heard someone ask why Russia is attacking Ukraine now, for the first time since 2014. The reason is the same. Oil and gas prices are near record highs. Russia is a huge exporter. The more Putin can control the market and scare the West that he might cut off supplies, the more money he makes. Ukraine isn’t costing him money. He’s making money on it.

But there’s a sell-by date, as the electric car ads show. The more we can drop demand for oil, by using electricity for cars, and devices like windmills and solar panels to generate it, the bigger the thumb we have on the price. U.S. shale oil producers cut production in response to falling prices, and banks aren’t backing any play to use debt to increase it, because they know what’s coming.

The next oil crash will be the last one.

Putin and the Saud family have no incentive to cut America a break, and every reason to boost the price. American producers have every reason to produce what they can now, but no incentive to invest in their long-term future.

The reason was all over your TV yesterday. Electric cars already dominate the luxury market. They’re headed directly for the mass market. Orders for electric vans and delivery vehicles continue to pour in. None of yesterday’s advertisers think things will be any different for them. Make all you can, make it today, and make money. Demand looks unlimited.

This is the most hopeful thing I can write for Valentine’s Day. Today’s crisis is going to pass. The war won’t be won on the battlefield, or at the negotiating table. It will be won as all wars are won, on the production line.

Real vs. Real

Analysts, and investors, are always fighting the last war.

The last war was the asset bubbles of the 1990s and 2000s. The first was in tech. The second was in housing.

Both fell after the bubble hit. Both times the government responded by juicing demand, first with the “forever wars,” then with a domestic stimulus and helicopter money.

Both times, this worked because the problem wasn’t related to what happened during the 1970s. Back then, resource inflation was to be feared. There was no substitute for oil. Now it’s just speculation and its aftermath.

The same kind of blow-off is happening now. There’s a fear that money will cost money, so speculators are pulling back, selling everything else to raise cash. (Cash is doing fine.) So far, it’s not nearly as bad as what came before. But fear is gripping the market because, this time, it’s accompanied by inflation.

A Non-Standard Story of Solar Shingles

When I first covered renewable energy a decade ago, solar shingles were the Holy Grail. It was what everyone said they wanted to make. A solar shingle would be as efficient at creating electricity as a solar panel but would go on just like a regular roof, with a nail gun.

A lot of people tried and failed to create the product. Home Depot tried selling homeowner-installed solar panels. Elon Musk built a billion dollar “Gigafactory” in Buffalo, New York, supposedly to make solar shingles.

But at the truncated Consumer Electronics Show (CES) in Las Vegas this year, a game-changing solar shingle finally debuted. Its story is almost as interesting as the technology.

The shingle is called Timberline. Sandia Labs helped develop it. The manufacturer is GAF Energy.

The shingles are slightly bigger and much heavier than conventional roof shingles, but they go on the same way, with a nail gun. GAF says it has invested $1 billion into the product, which converts 22.3% of solar energy hitting it into electricity. 

GAF itself may be more interesting than its shingle. It was once the U.S. arm of I.G. Farben, the Nazi chemical company seized after World War II.  Under Jesse Werner, it became a big roofing company in the 1980s. This included an outfit called Rubberoid, which owned an asbestos mine in Vermont. (Oops.) Under the name G.I. Holdings, it went bankrupt in 2001 but was still paying out to victims in 2011.

Creativity Economy to the Rescue

It really is the best of times, and the worst of times. At the exact same time.

In one reality, stocks trade at record levels, homes are worth their weight in gold, and fortunes head for the stratosphere.

In the other reality inflation is rampant, people can’t afford to retire, and millions are losing confidence in the future.

The fact that all these things are true is a political choice, one Washington pundits insist will be reinforced in 2022 and beyond. The pundit class is driving Democrats crazy, and the seeming passivity of the Biden Administration has them hopping mad.

But a lot of things are going to happen next year, and most of them aren’t bad.

For starters, we have it relatively easy. Chinese consumers who pre-paid for homes now find they’re not being built. Turkish consumers are finding their money is becoming worthless. Britain is going broke thanks to Brexit. Inflation and COVID are much worse in South America and Africa than they are here.

Most countries across the world are sleepwalking toward crisis while the bill for climate inaction is coming due.

There’s only one force that can take decisive action against the crisis, the Creativity Economy.

Technology Can Whip Inflation Now

Bankers, reporters, and politicians are all focused on inflation right now.

Markets know better.

It’s true prices are rising. Wages are rising, too. Working conditions are even improving. I fail to see a problem here.

But just as some prices rise, other prices fall. Lumber prices have already rolled over. As electric cars begin to roll off lots next year, gas prices should ease.

A generation ago, it was hard to counteract rising commodity prices. Macro analysts are still locked into that mindset.

But now there’s software. Software scales. Software fights inflation with productivity. Clouds also fight inflation, helping scientists and engineers create substitutes for resources.

The Inflation Opportunity

A lot of people are complaining about inflation right now.

In our technology age, this is nonsense.

Consider energy prices. Oil and gas prices are rising fast. But this creates an enormous incentive for anyone building solar panels or wind turbines. It blows through political objections to their installation. It brings capital to start-ups with new ideas that will dramatically increase harvesting efficiency. Harvesting energy, and increasing efficiency in our use of electricity, drive down demand and, thus, prices. The end of oil is one of the decade’s great opportunities and now is the time to seize it.

What the Futurists Got Wrong

Futurists anticipated a lot of important things. They imagined space before we got there. They saw the environmental disaster of this century from a long way away.

But there are two things they got very, very wrong. Computing and resources.

Look at Star Trek. The communicators and tricorders used in the 1960s version of the show were primitive by early 21^st century standards. As one cartoon put it, “all it does is make phone calls?”

I don’t know of a single SciFi author of any renown who saw Moore’s Law coming. Most defined progress through manufacturing automation, which only improves arithmetically. Even those seeing improvements in computing didn’t see how Moore’s Law would take off in every direction computing touched. They didn’t see the iPhone and didn’t see the cloud.

William Gibson came closest. In Neuromancer he imagined something called “cyberspace.” But it was strangely primitive next to the modern Internet. He has since watched throughout his career as history caught up with him. His later novels seemed to take place in the present. His latest, Agency, is alt-history.

As wrong as futurists were on computing, they’re even more wrong on resources. Most writers, like Allen Steele, saw today’s Near Space era as a battle for resources. We would be running out of heavy metals, the thinking went, and ways to generate electricity. We would need to mine the asteroids.

The Downside of Energy Abundance

The first half of the last decade was marked by an energy gold rush.

Fracking made the USA energy independent for the first time in decades. Outside its impact on the environment, the boom was short-lived.

By 2014 demand was beating supply, and the boom has now turned to dust.

It wasn’t solar and wind power that killed the boom. It was efficiency and technology. LEDs require a lot less power than fluorescent bulbs. Intelligence added to warehouses and stores reduces the need still further. Insulation means you need less electricity for heating. New appliances are more energy efficient. The cloud is super-efficient, and the excess energy can be recycled. Laptop technology means this took less power to write than it would have then.

The oilpatch did its bit to kill the boom, too. There are now huge oilfields off South America and Africa that we didn’t know about before. The eastern Mediterranean gas fields have made Israel independent of Arab energy. Things like fracking and boiling the Alberta tar sands aren’t just environmentally destructive. They’re economically worthless.

All these things have put a thumb down on energy prices. That thumb is getting bigger over time. As I predicted in 2010 (based on Department of Energy research) we have now achieved “crossover,” the point where renewable energy costs less to exploit than fossil fuels. It’s hard today to justify a new natural gas plant. Soon, solar will cost less than gas fired in an existing burner.

The result is going to be another energy boom, this time a renewable energy boom.

But this one, too, has a sell-by date.

Resources and the New Era: What the Best Futurists Got Wrong

This coming year represents the start of a new era.

It’s an era defined by technology, as much as the previous era was defined by resources.

I’ve written here many times that the gating factor for technology is human capital. The more trained, empowered, and willing human minds you can bring to bear, the more you can grow. Contrast this to the resource era, where the key to growth was control, over the land and what lay on or beneath it.

The politics of 2020 were defined by the clash of these two economies. It was expressed throughout the culture. But the market made its verdict clear, and it was a true landslide.