Trends I'm Watching

Virtual Gold Farms

Trend: 3D virtual games are becoming a global marketplace that transcend culture and language.

GigaOM describes a MTV documentary about virtual gold farms, gray market companies which collect and sell virtual gold (primarily from World of Warcraft) to wealthier gamers in the developed world.

Link: GigaOM » Inside World of Warcraft Gold Farm, Future of Work

Drawing from an fascinating upcoming documentary⁵ by UC San Diego grad student Ge Jin (YouTube clip from his film here⁶), the MTV segment features interviews with workers and managers of several gold farms, which resemble a cross between a 24 hour LAN party and a very shabby college dorm. By the segment’s estimate, an astounding half million Chinese now make a living - about $100 a month - from the acquisition and sale of WoW gold to US and EU gamers. Why is this is the future of work online? Consider the numbers, youth, and low wages of the gold farmers, and the growing interest in outsourcing tasks online.

In Second Life, a Hollywood production company is outsourcing its Second Life projects to its Vietnamese branch⁸, where highly-skilled workers can create professional 3D environments for a fraction of the cost, were it done here. It’s easy to see how the Chinese farmers of Warcraft might evolve into the blue collar workers of the 3D Internet.

MTV producer Matt Sunbulli put us in touch with Ge Jin, and we asked him about this phenomenon, and sought his own thoughts on its relation to the future of work online.

I think these gold farms indicate that the game platform has the potential to engage more people in Internet-driven economy. The gaming workers in China don’t have skills like English, software or graphic design to participate in other forms of Internet-driven work, but they can communicate and navigate in a 3D game world whose tools and routines they are familiar with… So if more social and economic activities happen in an accessible 3D game world, people who don’t have access to other culture capital but gaming knowledge will be more likely to be included in global interaction.

City-states are the Future?

Trend: Nation-states may be losing power to smaller entities as globalization sorts cultures into regions based on city-states.

VC Confidential describes a dinner talk by futurist Paul Saffo. Excerpts below.

Link: VC Confidential: A Global Evening with Paul Saffo

...our world is moving from one of nation-states to one of city-states. Rather than the future being one of the US versus China, it is going to be Silicon Valley vs Beijing or Chicago vs. Paris. Each dominant city will define its region. With the globalization of trade and the impact of the internet, people will identify both with the culture established by their city/region as well as with global, cross-border influences/factors such as Islam. With the “flattening” of the world, Chicago is no longer vying with US cities like New York for influence, commerce and jobs, but other major cities in the world.

He defined three specific flavors of capitalism: American capitalism (emphasizes the individual), European (capitalism that focuses on community and preserves continuity) and Asian capitalism (Confucian capitalism that emphasizes networks and the extended family). The US has to realize it is not the only model. Americans (or other foreigners) get rolled in Asia if they don't have or realize the role of extended networks. Global network models listen to regional voices and tie it all together. There will be new forms of failure and capitalism forming in the coming 20 years, which we will need to be aware of and to monitor.

In short, we are all part of the global scene now...not just the politicians and Fortune 500 firms.  We will be dealing with an increasingly complex competitive landscape, requiring an increasingly global perspective.

via Emergic.org

Smart Air Conditioners

Trend: Energy-saving designs leveraging sensors and intelligent adjustments are starting to appear in the marketplace.

In the hot, humid South, air conditioners are essential and power hungry. Treehugger highlights a new line of air conditioners than incorporate sensors and memory to save energy. Excerpts below.

Link: Treehugger: New Line of Highly Efficient Air Conditioners Know Where You Sleep#perma.

Mitsubishi is releasing a new line of air conditioners called the ZW series. These new wall mounted AC units have a few innovations that could have them using up to 50% less power than today's average air conditioner.... the real innovation here is addition of the "Human Sensor Move Eye" (quoting a Mitsubishi press release,) which tracks the location and habits of the living things it encounters, and conditions the air accordingly. It can point itself directly at any hot object, cooling it down, it will also automatically go into power-save mode when all living things leave the room. The unit can track and condition air for one or two people in any given room and isn't fooled by non-moving heat sources, like kitchen appliances. It will, however blow air on pets as well as people.

... the the unit will log the activities of moving heat sources and adjust accordingly. For example, if it registers a heat source every week day at five o'clock for a couple of weeks, it will start blowing at around 4:30, every weekday, of its own accord, in order to most effectively please its master.

The Wilshire 5000 moves up for the week ending 11/24/2006

Trend: This week the daily line continued the up trend, setting a 52-week high on Wednesday. The 50-day moving average continues to move above the rising 200-day moving average. Friday's close is 615 points below the all-time high for this index of 14,751, set in late-March 2000.

Here's a 12-month chart of the Wilshire 5000* (a proxy for the stock market as a whole), showing the 50 and 200 day moving averages.

*The Wilshire 5000 is sometimes called the "total stock market index" or "total market index" because it includes more than 7,000 of the 10,000-plus securities that are publicly traded in the United States. All publicly-traded companies with headquarters in the U.S. that have readily available price data are included in the Wilshire 5000. Finalized in 1974, this index is extremely diverse, including stocks from every industry. Although it's a near-perfect measure of the entire U.S. market, the Wilshire 5000 is referred to less often than the less comprehensive S&P 500 when people talk about the entire market.

MIT’s smart flying drones

Trend: The market for unmanned aerial vehicles (UAVs), which can reduce casualties and costs in many martial environments, may see significant growth in the next few years.

Emerging Technology Trends at ZDNet.com describes unmanned aerial vehicles (UAVs) being developed at MIT. Excerpts below.

Link: » MIT’s smart flying drones | Emerging Technology Trends | ZDNet.com

MIT researchers have developed a multiple-UAV test platform which can be operated by anyone with a high-speed Internet connection. And these small and inexpensive helicopters could soon stay in the air for a week, automatically coming back to their base and landing to recharge their batteries.

Here are additional details provided by Lauren Clark, who wrote an article about MIT's intelligent aircraft for MIT News (September 26, 2006).

The test platform consists of five miniature "quadrotor" aircraft — helicopters with four whirling blades instead of one — each a little smaller than a seagull. It also includes an indoor positioning system, as well as several miniature autonomous ground vehicles that the UAVs can track from the air.

Each UAV [, costing only about $700,] is networked with a PC. The setup allows a single operator to command the entire system, flying multiple UAVs simultaneously. Moreover, it requires no piloting skills; software flies the vehicles from takeoff to landing.

If you think that the UAV business is small, you're wrong. According to the Boston Globe, it "will represent a $55 billion worldwide market over the next 10 years. Annual spending on flying drone systems could triple, to $8.3 billion in 2016 from $2.7 billion now."

Google Moving On Up in Market Cap

Trend: Google, a company less than a decade old, now has a larger market cap than IBM, Intel, and HP.

Ticker Sense shows a list of the current market cap of top S&P 500 companies, featuring Google.

Link: Ticker Sense: Moving On Up

Pursuing the Green in Clean Energy

Trend: Many politicicans are seeing energy independence and preventing climate change as viable strategies for the future of the US.

Brett Steenbarger at TraderFeed describes reasons for investing in clean energy and an ETF that provides a good vehicle for investors.

Link: TraderFeed: Pursuing the Green in Clean Energy

Several forces have come together recently to support the pursuit of alternative, clean energy:

1) On the heels of the Iraq experience, the U.S. will look to energy independence as a response to national security that will supplant the recent paradigm of unilateral interventionism.

2) Clean energy is a natural response to concerns over global warming that will help us re-establish ties with ecologically concerned allies abroad.

3) Clean energy is no longer a pipe dream, as the average consumer is now familiar with ethanol and hybrid engines--not to mention higher fuel prices.

4) Energy independence is increasingly seen as a way of taking us out of thorny competitions for resources with Russia, China, India, and developing nations.

5) Most important of all, clean energy has become as American as apple pie. Republicans are looking to launch a large initiative and Democrats are ready to make global warming a national priority.

Bottom line? We're going to see an increasing share of resources devoted to clean energy, which could bring some green to investors in that sector.

The problem, however, is that the sector is highly fragmented. Where do you place your bets: Renewable energy, such as solar? Power conservation? Clean fuels? Power storage? Fuel cell technology?

The best play I can find in the field is the diversified one: the PowerShares WilderHill Clean Energy Fund (symbol PBW). The fund holds 42 stocks across the green spectrum and allots no more than 4% of the portfolio to any single stock.

It may be a while before these stocks generate meaningful profits, and it will take Congress and the President a while to hammer out any clean energy initiatives. It is difficult to imagine, however, that the two parties, struggling for a popular response to problems with terrorism and global warming, won't try to outdo each other by wrapping themselves in the mantle of clean.

And that could mean green for investors with a longer-term horizon.

Disclosure: I own shares of PBW.

The Wilshire 5000 moves up for the week ending 11/17/2006

Trend: This week the daily line continued the up trend, moving above the 52-week high set in late October. The 50-day moving average continues to move above the rising 200-day moving average. The daily line remains well above the previous 52-week high set in early May.

Here's a 12-month chart of the Wilshire 5000* (a proxy for the stock market as a whole), showing the 50 and 200 day moving averages.

*The Wilshire 5000 is sometimes called the "total stock market index" or "total market index" because it includes more than 7,000 of the 10,000-plus securities that are publicly traded in the United States. All publicly-traded companies with headquarters in the U.S. that have readily available price data are included in the Wilshire 5000. Finalized in 1974, this index is extremely diverse, including stocks from every industry. Although it's a near-perfect measure of the entire U.S. market, the Wilshire 5000 is referred to less often than the less comprehensive S&P 500 when people talk about the entire market.

ROI Forecasts

Predictions:  Compounded expected returns: 7.5% for U.S. equities, 7.2% for non-US stocks, 5.6% for bonds, and 6.5% for real estate.

James Picerno interviews Armand Yambao, who heads up financial modeling at EnnisKnupp. EnnisKnupp & Associates (EnnisKnupp.com), a Chicago institutional-investment consultancy that oversees $700-billion-plus in assets for the likes of pension funds and foundations. The 25-year-old firm is a respected force in the business of advising big money, and so it has learned much about making forecasts that are prudent yet practical for clients.

Link: Archive of Wealth Manager stories by James Picerno

EnnisKnupp’s latest semi-annual outlook, published midway in 2006, has a forecast for compounded expected return for U.S. equities at 7.5 percent a year. How does that compare with history? If you just look at historical equity returns, you’ll come up with something like a 10 percent to 11 percent annual return, and so our 7.5 percent forecast for U.S. equities is less than what backwardlooking expectations suggest.

The market’s implied outlook for inflation for the next 10 to 30 years was recently around 2.5 percent based on inflation-indexed Treasuries. Another data point comes from the Blue Chip Economic Indicators newsletter, which also had a forecast of 2.5 percent inflation.

We’re expecting a 5.6 percent compounded annual return for bonds over time.

For non-U.S. stocks, our long-term expectation is a compounded annual return of about 7.2 percent, or a bit lower than the 7.5 percent for U.S. equities. The reason for the slightly lower performance forecast is higher volatility.

For a generic real estate investment, the outlook is in the range of 6.5 percent on a long-term basis. Our long-term return expectation for real estate is somewhere between U.S. bonds and U.S. equities, and that’s how we come up with a 6.5 percent compounded return that’s between those two asset classes.

Historical returns aren’t a very good predictor of future returns. If you did a back test and relied only on history, you’d do a poor job. Let’s say that equity performance skyrockets in 2007.

Q: What’s the bottom line?

A: Investors shouldn’t blindly rely on equities to satisfy investment goals. We’re not saying avoid equities; it’s more about understanding the risks.

The Wilshire 5000 moves up for the week ending 11/10/2006

Trend: This week the daily line moved up dramatically, with one down day on Thursday, almost reaching the 52-week high set in late October. The 50-day moving average continues to move above the rising 200-day moving average. The daily line remains well above the previous 52-week high set in early May.

Here's a 12-month chart of the Wilshire 5000* (a proxy for the stock market as a whole), showing the 50 and 200 day moving averages.

*The Wilshire 5000 is sometimes called the "total stock market index" or "total market index" because it includes more than 7,000 of the 10,000-plus securities that are publicly traded in the United States. All publicly-traded companies with headquarters in the U.S. that have readily available price data are included in the Wilshire 5000. Finalized in 1974, this index is extremely diverse, including stocks from every industry. Although it's a near-perfect measure of the entire U.S. market, the Wilshire 5000 is referred to less often than the less comprehensive S&P 500 when people talk about the entire market.