Trends I'm Watching

Construction Costs Suggest Low Inflation is a Myth

Trend: Demand for commodities is the primary driver of inflation.

Source: The Big Picture: Construction Costs Rising

... yet another category of goods that have been going up in price:  construction materials.

Ken Simonson, chief economist for The Associated General Contractors of America, issued an analysis this week that compared construction costs over a four-year period from 2001 to 2005 . . .

By September of 2004, steel and copper construction products had soared as much as 62 percent higher than a year earlier.

Overall, construction material cost climbed about 11 percent in the 12 months ended this past September.

What's on the construction list price increases?

Gypsum products were up 21 percent;
asphalt had climbed 12 percent;
insulation materials rose 11 percent;
lumber up 12 percent;
steel and copper construction products up 62  percent;
PVC plastic up "almost" 100%;
gypsum -- double-digit increase;
concrete prices: plus seven percent from 9/03 - 9/04; more than 12% 9/04 - 9/05;
Diesel fuel up more than 50 percent;
Cement: rising prices and spot shortages;

Futurists Pick Top Tech Trends

Source: Wired News: Futurists Pick Top Tech Trends.

Simplicity: Over the past couple of decades, gadget makers have toiled ceaselessly to add functionality. As a result, your cell phone can now play games, do math and sound off like a barking dog when your ex calls. Your digital camera can shoot extremely poor-quality video. And nearly every device you own with a screen also contains a clock. The problem, says Ian Pearson, futurist in residence at British Telecommunications, is that most people buy a device for a particular purpose. They neither want nor care about all the extra capabilities.

Mobile socialization: Already our cell phones and PDAs work well at both contributing to our social lives (i.e., getting in touch with friends) and spoiling them (i.e., meeting friends but ignoring them to answer cell-phone calls).

But according to futurists, we've only scratched the surface of figuring out how our portable communications devices can be of service.

R.I.P. combustion engine?: Gas-guzzling cars and trucks are such an integral part of the modern landscape that we practically take them for granted. When you think about it, that's a pretty amazing feat, considering the noise and smog they generate.

At some point, escalating fuel prices, surging global oil demand and a dwindling supply of easily accessible crude will take their toll, however. That point is closer than ever, says Jennifer Jarratt, a partner at Leading Futurists.

IT revolution of 2006: Even futurists sometimes prefer the short-term horizon. Pearson, for one, expects 2006 will bring one of the more fascinating inflection points in the evolution of digital technology.

"We see the convergence of a whole stack of IT trends," said Pearson, who's gearing up for what he calls "the 2006 IT explosion." Basically, the explosion will consist of a number of technologies: better screens, improved location technology and highly sophisticated gaming consoles that provide a hub for home entertainment.

via Emergic.org

Microsoft building a fully Web-based Office?

Trend: Most office software is difficult to install and too complex to use. There is a vacuum and an opportunity.

Microsoft changes direction very quickly for a large corporation. Making Office a hosted application will hurt their rich revenue stream from the Office Suite but will prevent other companies from stealing market share with a less expensive hosted solution.

Source: Microsoft building a fully Web-based Office? | Web 2.0 Explorer | ZDNet.com.

Microsoft is leaping into hosted applications big time. InformationWeek reports that Microsoft plans to offer hosted implementations of SharePoint, CRM and ERP applications. But the best quote in that article was left till last. A "Microsoft insider" was asked which other products and services Microsoft would host and the reply was: "Everything. Hosted Office. Everything hosted."

Ahem, can anyone say Web 2.0 Office? Exactly a month ago I wrote what turned out to be a very popular post entitled The Web-based Office will have its day. My main focus in that post was all of the small start-ups that are currently building web-based office apps. I forgot to mention that of course there's nothing stopping Microsoft from building their own Web 2.0 Office! Perhaps that's their only option to head off Google, because Google Office has been rumored to be around the corner for 1-2 years now.

The Global Big Three Auto Makers: DaimlerChrysler, Toyota and Hyundai Motor

Trend: Bad strategic decisions in the past are suffocating many large corporations.

Jim Jubak isn't optimistic about the future for Ford and GM.

Source: MSN Money - Just call Chrysler the Big One - Jubak's Journal.

The 19th-century methods that let the Big Three rule the world for a good part of the 20th century won't work anymore. In the 21st century, a manufacturing company can either become Dell (DELL, news, msgs) or Apple Computer (AAPL, news, msgs), or it can slide into decline punctuated by crises. The only U.S. auto company that seems to understand that is what used to be called Chrysler. DaimlerChrysler stands a chance of being one of the global Big Three 10 years from now. (My two other nominees would be Toyota and Korea's Hyundai Motor (HYMLF, news, msgs).)

The steps that General Motors and Ford Motor have reported recently certainly sound dramatic enough to turn those companies' fortunes around.

And the fixes -- even though GM's plan produced an impressive rally in its share price -- still don't fix the two automakers' biggest problem. Even when they cut prices to levels where the companies are losing money on every car they sell, they can't stop the steady erosion of their market share. GM's share of the global auto market fell to 14.6% in the third quarter, down 0.8 percentage points from the year-ago quarter. And its share of the U.S. domestic market fell to 25.6%, down almost 3 percentage points from the third quarter of 2004. And that's the good news: October sales have started off way down, and Wall Street is projecting that, at current rates, GM will see its share of the U.S. market shrink to just 20.5%, its lowest share of the market since 1980. October-to-date sales at Ford show an even bigger drop.

Fighting the last war
In their plans, the two auto companies don't recognize how much the world has changed for makers of commodity goods -- and, yes, I think automobiles are now commodity goods. No auto company has a significant proprietary technology that distinguishes the bulk of its fleet from that of any other company. Increasingly, individual auto companies buy a significant amount of the product content of their cars from the same suppliers. Lear (LEA, news, msgs), for example, sells its seat systems, door panels, instrument panels and overhead systems to GM, Ford, DaimlerChrysler, BMW, Hyundai, Toyota, Nissan and Volkswagen, among others.

Sound like any other industry you know? Try the PC industry. Except for Apple's computers, PCs all run on Intel (INTC, news, msgs) or Advanced Micro Devices (AMD, news, msgs) processors and process their graphics with chips from ATI Technologies (ATYT, news, msgs) or Nvidia (NVDA, news, msgs). The mother boards and subassemblies inside different brands may even be put together in the same factories.

Health Savings Accounts Part Of Major Shift

Trend: People will be forced to take more responsibility for their wellness (or lack thereof).

Source: Investor's Business Daily: Wal-Mart's Support Of Health Accounts Part Of Major Shift.

In the face of rising health care costs and steady criticism of its existing plans, the Bentonville, Ark.-based retail colossus is adopting a less expensive health benefits program. One reform is the creation of health savings accounts for employees.

The move by the world's largest private employer is the latest sign of HSAs' fast-growing popularity as a way to control health care costs. The federal government created HSAs just last year.

Only 7% of businesses surveyed last May by Buck Consultants had begun to offer HSAs. But 32% said they plan to start one by next year.

HSAs combine catastrophic health insurance with upfront deductibles. Workers divert part of their pay into a savings account; the money can be invested so it grows. That account also pays for a worker's medical expenses.

Basically, in return for higher deductibles, insurers aim to lower premiums.

That's a key incentive for corporations, whose profits are increasingly pinched by escalating costs for health care.

Ultrawideband Challenges Wi-Fi In Fight For Wireless Consumers

Trend: The totally networked home is coming: data (PCs), music (multiple devices), video (television) and voice (phones).

Link: Investor's Business Daily: Ultrawideband Challenges Wi-Fi In Fight For Wireless Consumers.

UWB has some advantages over Wi-Fi. UWB sends data twice as fast as Wi-Fi, guaranteeing quality for HDTV transmission, for example. For now, Wi-Fi can result in a jerky, lower-quality transmission for high-definition TV.

It's also, for several technical reasons, easier for users to set up UWB than Wi-Fi.

But UWB has limits. It doesn't work well in sending signals around corners or through dense material such as brick. Wi-Fi can handle corners and some material.

Also, a user's Internet-connected PC or other device must be within 80 feet or so of a UWB node, or the gear that provides the transmission. Wi-Fi's range is 300 feet.

As a result, UWB is pretty much a one-room product. Users won't be able to transport a movie from the living room to a den.

Plus, Wi-Fi is getting faster and easier to set up. In August, Intel (INTC) and Microsoft (MSFT) proposed what they call "Simple Config." With it, users would only have to push one button to connect their PC or other device to the Internet.

And a new version of Wi-Fi, known by the technical name 802.11n, is in the works. It's twice as fast as today's fastest Wi-Fi, 802.11g, and roughly comparable to UWB speed.

Recently, 27 companies banded together to offer a final 802.11n proposal to the technical standards body for wireless networking. The firms include Intel, Cisco Systems and Sony (SNE)

UWB is still mired in the standards process. Freescale supports one type of UWB standard. Intel, Hewlett-Packard, (HPQ) Philips Electronics (PHG) and Samsung support a different standard.

Executive Pay

Trend: Greed is not good.

Source: Worthwhile: The Pay Game.

Could it be that there is finally a voice of reason in the world of executive pay? The former CEO of DuPont, Edgar Woolard Jr., has begun to rant on the outrage of executive pay -- and how that is crippling the image of business leaders. "I honestly don't understand why more CEOs aren't concerned about the image of business leaders in general," Mr. Woolard said in an interview with the New York Times. "They don't seem to have the same perception I do that business leaders are beginning to be thought of as politicians and labor union leaders and other types of individuals who don't have the right respect."

Politicians and labor union leaders. Wow. That's a pretty scathing comment from a guy who used to run one of America's biggest companies.

Woolard will be speaking on the subject next week to a group in Chicago. But he has taped his presentation and you can watch it at:

www.compensationstandards.com/nonmember/EdWoolard_video.asp

Woolard lays out why the game is fixed (the comp consultants talk to the company's HR people, who feed back to the CEO, allowing him to influence his own pay), but then stops short of coming up true workable solutions. And, of course, being a retired exec gives him much less of a bully pulpit. That said, it's great to see a guy inside the club calling the club for what it is -- a demotivating scam.

Green Power Purchasing Up 1000% in Five Years

Trend: Support for green power is growing.

Source: Clean Edge - The Clean-Tech Market Authority - News

Renewable energy capacity in the United States supported by voluntary demand rather than regulatory requirements now tops 2,200 megawatts (MW) -- up more than 1000% in just five years, according to a new report from the U.S. Department of Energy.

The report notes that purchases by large businesses, institutions and governmental entities are driving the growth of the U.S. voluntary green power market.

Green power currently accounts for about 2% of America's electricity supply, but voluntary purchasing of renewable energy is accelerating development of new renewable energy sources. The report, from DOE’s National Renewable Energy Laboratory (NREL), Green Power Marketing in the United States: A Status Report, shows that renewable generating capacity in the United States installed to meet voluntary green power purchasing soared from 167 MW in 2000 to more than 2,200 MW by the end of 2004.

While the number of residential customers buying green power has more than doubled over the past 5 years, green energy purchases by large businesses and other U.S. organizations have increased dramatically. This is further illustrated by new data released by the U.S. Environmental Protection Agency’s Green Power Partnership. The partnership, a voluntary program that encourages large organizations to switch to green power for a specified minimum portion of their annual electric usage, has grown from 21 founding partners in 2001 to over 600 partners, including Fortune 500 companies, universities, trade associations, and local, state, and federal government agencies.

These green power partners are collectively purchasing over 3.1 billion kilowatt hours of green power annually, a figure which has doubled over the past 15 months. This represents a growth of 1000% since the partnership began in 2001, with founding partners purchasing 3.1 million kilowatt hours annually. Three billion kilowatt hours is enough electricity to power about 300,000 average American homes for a year, and is roughly equivalent to the annual output of a 1000 megawatt wind farm.

Three big trends will haunt Greenspan's successor

Source: MSN Money - 3 big trends will haunt Bernanke - Jubak's Journal.

Bernanke will inherit all the problems created by Greenspan's 18-year legacy of loose money, problems that are finally building toward some kind of crisis. But what he won't inherit is Wall Street's overwhelming faith that Greenspan will defuse any potential market bomb before it blows up. The financial markets, while wishing Bernanke success, will be nervously waiting for him to foul up. Nervous markets, of course, have a tendency to turn a minor blip into a major crisis of confidence.

I think we'll see the turning point of three long-term trends in the next 12 to 18 months:

• The era of rapidly rising housing prices that sustain consumer spending and economic growth seems to be ending, either with a whimper or a bang.
• The era of cheap money is ending: Not only the Federal Reserve, but also the Bank of Japan and the European Central Bank are likely to raise rates in 2006.
• And the era of controlled inflation seems to be ending: The annual inflation rate isn't really 4.7%, because September's numbers reflect a post-hurricane spike in oil, but higher energy prices are spilling over into higher prices for just about everything.

The timing of the end of these trends couldn't be much worse. The new guy at the Fed will be looking at an economy that has lost its growth driver: If the growth in housing prices simply tapers off with the gradual end of cheap money, that will cut consumers' ability to increase spending.

The maestro would have his hands full finding the right balance between growth and inflation. Raise rates too high to fight inflation, for example, and the Fed can tip the economy into recession. But in his juggling act, Greenspan would be able to draw upon almost two decades of respect and faith, invaluable commodities when the Fed is trying to keep consumers spending and CEOs investing.

Bernanke not only doesn't have that reservoir of faith, but he will take over Greenspan's chair with doubts about his inflation-fighting zeal circulating on Wall Street. The one major knock on Bernanke's nomination, amid otherwise favorable reviews from Wall Street, is that he was among the most dovish Federal Reserve governors on fighting inflation during his three years at the Federal Reserve. Bernanke stood out during that time for his advocacy of lowering interest rates to fight deflation.

New Web Software a Challenge to Microsoft

Trend: Easy-to-use web applications via a web browser can replace many traditional software applications.

Source: New Web Software a Challenge to Microsoft - Yahoo! News.

A quiet revolution is transforming life on the Internet: New, agile software now lets people quickly check flight options, see stock prices fluctuate and better manage their online photos and e-mail.

Such tools make computing less of a chore because they sit on distant Web servers and run over standard browsers. Users thus don't have to worry about installing software or moving data when they switch computers.

And that could bode ill for Microsoft Corp. and its flagship Office suite, which packs together word processing, spreadsheets and other applications.

The threat comes in large part from Ajax, a set of Web development tools that speeds up Web applications by summoning snippets of data as needed instead of pulling entire Web pages over and over.

"It definitely supports a Microsoft exit strategy," said Alexei White, a product manager at Ajax developer eBusiness Applications Ltd. "I don't think it can be a full replacement, but you could provide scaled-down alternatives to most Office products that will be sufficient for some users."

Ironically, Microsoft invented Ajax in the late 90s and has used it for years to power an online version of its popular Outlook e-mail program.

Ajax's resurgence in recent months is thanks partly to its innovative use by Google Inc. to fundamentally change online mapping.