TechAgility

Chris Anderson from Wired first postulated the “Long Tail” phenomenon back in October 2004 and it was updated again in Wired on 2006 Tiny slice, Big Market (the concept of a MegaNiche?)

Wiki on Long Tail:

The phrase The Long Tail (as a proper noun with capitalized letters) was first coined by Chris Anderson in an October 2004 Wired magazine article ^[1] to describe the niche strategy of certain business such as Amazon.com or Netflix. The distribution and inventory costs of those business allow them to realize significant profit out of selling small volumes of hard-to-find items to many customers, instead of only selling large volumes of a reduced number of popular items. The group of persons that buy the hard-to-find or "non-hit" items is the customer demographic called the Long Tail.

Given a large enough availability of choice and a large population of customers, and negligible stocking and distribution costs, the selection and buying pattern of the population results in a power law distribution curve, or Pareto distribution, instead of the expected normal distribution curve. This suggests that a market with a high freedom of choice will create a certain degree of inequality by favoring the upper 20% of the items ("hits" or "head") against the other 80% ("non-hits" or "long tail"). ^[2]

My take on a Long Tail
In essence one of the easiest analogies is the difference between a Music Store and an iTunes. A physical store has a finite limit on the amount of stock it can display on it’s shelves, so as a consequence of this limit it needs to stock and display the most popular music to ensure a decent turnover and revenue - whereas with an on-line store with little restriction on it’s stock (add more HDD’s?) and a very cheap and scalable distribution system (the internet) that the customer actually pays for can not only stock a huge amount of titles but it also needs to only hold one of each.

His latest missive was about the way everything on the Web is free…  or getting there?

Everything get’s cheaper in digital format?
Essentially this distills down to the trend that once anything gravitates from physical to silicon/software it appears that there is an almost unstoppable force that will place the price of that commodity under a constant downward pressure due to what might be described as the “Economics of IT” and the way the cost accelerates downward under the sheer weight of scalability, it almost seems to be the nature of Technology?

Appendix at the bottom for example of how cheap hardware is getting

This can also be demonstrated very clearly with the news of Google’s new App Engine being released today? Google Jumps Head First Into Web Services With Google App Engine  - It’s free for the first 10,000 developers who get in the door, and even though there are restrictions on its capabilities (at the moment) I think it’s all quite reasonable to expect that this will build from here and still be listed as Beta in a couple of years when it’s still free and got millions of users?

In an aside as to how Google manages to provide it’s service for free, I was recently chatting to a colleague, and he told me that Google don’t buy Servers or even Desktops – they just buy the motherboards and hang them in the racks – the maintenance cycle simply consists of a tech going around the Data Centre and replacing the failed systems once a week. Apparently they are looking at moving to newer DC supplied M/B’s so that it’s safer, but other than that it just keeps ticking. (Please let me know if this is correct? I’d consider this info to be anecdotal and not confirmed)

So from my perspective the one shining ray of light that shouts about being free is Music via MP3.

On the one hand, now that it has been absorbed in to Silicon (i.e. Digitized) the price is in an ever downwards spiral, and yet on the other hand it perfectly validates Chris’s Long Tail theory that people can still make money in fulfilling a niche demand?

This is also demonstrated somewhat by the more popular artists who have branched out beyond just providing the musical content and now diversified into clothes, designer accessories, perfumes, etc.

Video
The main issue looming on the horizon here is what is going to happen to the Motion Picture Industry (isn’t that a quaint way of phrasing it?) if they don’t pull their collective finger out? Just in case they haven’t been paying attention during the last decade we have moved from traditional TV (I’m not counting VCR’s) to Tivo for the US (1999) and Sky+ for the UK (2001) so that for most people who do enjoy TV they have had it on demand for some time now.

In some ways TV and Video have stagnated in development since the launch of these devices, I’m sure there will be folks carrying on about BluRay etc. but once the commodity has been digitized it’s game over – from that point on the ONLY medium that we all want to use is whatever we have to hand – iPod, PSP, Portable HDD, SD Card, iPhone, Laptop, etc. Who cares if you can or can’t burn it on to a plastic disk? What I’m trying to point out here is that once the product or service has been turned in to a string or stream of bits then the Studio has effectively given up control, and the sooner that they can understand this from the recent history of the Music Business the better off they will be.

There are other ways to make money from content, and clearly the biggest one going at the moment is advertising where we would appear to be in the midst of a titanic fundamental shift where advertising that was normally placed with traditional media is now moving steadfastly in the direction of the Wired World, be it YouTube, whatever. I seriously think the Studios have had a coffee or two and are up to speed on this, but at the moment they don’t see a way out and so they are watching the dwindling revenues and hoping for a miracle?

TV Shows and Movies
So what’s going to happen to Video? If we take it that we are now entering an age where Video is something that by default is now stored, transmitted and received in digital format it becomes pretty simple to hit the "Forward 30 secs" button and pass the Advertising completely - and this is what is scaring the pants of the Studio and TV execs.

After all this is the fundamental difference between Movies/PayTV and Free to air TV (FTA), the advertising segments on FTA broadcasts are what pays for the whole model, now if people are recording the TV series, episodes etc and retransmitting via bittorrent (with or without stripping the ads) to other folks then this is effectively curtailing the Broadcasters revenue stream?

My take on this (please feel free to comment if you disagree?) is that the Movie and TV players have always kept a keen eye on trying to make as much money out of the content as is possible, and rightly so in a free market economy, and this has been possible while the distribution system was tightly controlled by them. So Movies typically play to large cinema complex’s first (that presumably pay a premium to premier?), then a wider number of cinema and distribution houses, then DVD release, then DVD Rentals, TV Premiere’s and then finally TV reruns? And in this way they try to maximize the return on the original investment of making the content in the first place.

Now unfortunately this cosy state of affairs that was all very nice for the content creators but what they didn’t quite anticipate was that they had effectively "let the genie out of the bottle" when they decided to go along with changing over from VHS tapes to DVD’s, once this was agreed to and they had conceded to move from Analogue to Digital then this is the moment they lost control of the content. By 2000 the DeCCS code for the DVD was broken, the AACS for HD content was broken in early 2007, and since then the only real impediments to holding back the masses from going ahead and sharing this wildly across P2P sites has been the size of the files and the corresponding bandwidth as well as the threats of lawsuits from the Studios and TV Stations.

So once we started to get to around 2005/2006 and bandwidth was becoming a bit faster, XViD and DiVX codecs were becoming commonplace in consumer DVD players, DVD Recorders were getting cheaper and before you know it entire TV shows and full episodes were appearing on the internet within hours of them being aired in the US - now the Exec’s were really starting to get worried…

Advertising
So what are they going to do? I would say that the distribution system that we now take for granted for Audio (MP3 files) and Video (AVI files) via the internet is so efficient and personal that it is here to stay unless something better comes along - what they need to do do is stop thinking of how they can stop it, it’s like King Canute trying to stop the tide, it is nigh on impossible. I would think they are better off trying to follow the lead of what most people are turning their hands to on the Web and embrace the concept that once it’s turned digital and it’s in the silicon it’s as cheap as can be - but you get it with advertising!

The old model of advertising in video was to stop what the customer is watching and force them to watch something that you want to advertise but only for a short time and then go back to the original material that the customer wanted. Typically people would tend to ignore this, so advertisers manage to pack more sound effects in to "pump" the volume without the volume changing - we just muted the set. With modern technology it’s getting easier to bypass the advertising all together, and if you are watching recorded shows on a DVR you can just skip 3 minutes in a heart beat.

So it would appear to me that the old method of TV advertising is almost at it’s use by date anyway? I think what we will be seeing soon is ads that appear along the edge of the screen (left, right, top or bottom depending on the action?) during the actual program and these will be akin to the banner ads were are used to seeing on web pages.

One example of what this might look like is here: Overlay.tv Adds Links and Easter Eggs to Music Videos
The key to this will be getting ALL the TV signals being broadcast in digital otherwise it wouldn’t work, so there is still a window of opportunity on a number of fronts, so in the meantime you’ll have to keep trolling the bittorrent sites for the episodes of the show you *were* watching before the local station decided to move that show to a 3am time slot on Monday morning?

Appendix: Examples of Hardware costs from days gone by….

The Macintosh II, introduced in 1987 for US$5,500
http://arstechnica.com/articles/culture/total-share.ars/6

Try this for size, anyone with an iPhone has more power at their disposal than this server from 10 years ago:
The Hewlett-Packard NetServer E50 is a case in point. The unit I tested (street price: $2589) had a 333-MHz Pentium II CPU, 64MB of RAM, and a 4GB Wide Ultra SCSI hard drive; the 4GB SCSI tape backup is a nice enhancement. Like many bargain-basement desktop PCs, the E50 comes without a monitor. More important, it lacks an operating system:
http://www.pcworld.com/article/id,3992-page,3-c,servers/article.html
And….  that’s without a display or an O/S? now you can get the equivalent from AT&T…. 

written by dcaddick

So this is an interesting development where the technique of creating a Mashup of different information sources helps create a stark and frightening visual perspective of just how deep this Credit Crisis has hit?

As you can see in the images below it’s almost scary how it shows that foreclosures are starting to bite at almost every level?   

Foreclosures Shown On Scary, Encroaching Heat Maps

Erick Schonfeld at TechCrunch

18 comments »

If you want to see in stark colors exactly how the mortgage credit crisis is spreading across the country, go to real estate search site HotPads and look at the foreclosure heat maps in your area. These are map mashups that take foreclosure data from RealtyTrac and overlay them on a color-coded map. Red indicates a high rate of property foreclosures per capita, and blue indicates a low level. Since foreclosures are now hitting record rates, there is a lot of red on these maps. In Silicon Valley, for instance, only a few pockets like Palo Alto and Sunnyvale remain in the blue.
A view of New York City shows the foreclosures beginning to close in on Manhattan from the outer boroughs.

In addition to the 500,000 foreclosures you can find on HotPads, the site also lists 1.2 million homes for sale and 130,000 active rentals (which co-founder Douglas Pope claims is the second-largest rental listings after Craigslist). These are culled from real estate broker sites and submitted directly by property owners.

Foreclosures Shown On Scary, Encroaching Heat Maps

written by dcaddick

Just the US? I’d say this was across the board globally, there is a general decline in Newspaper and Magazine advertising that is heading to on-line substitutes, and those that don’t get their head around this will be left as dinosaurs?  

Decline Of US Newspapers Accelerating

Duncan Riley

32 comments »

Figures released by the Newspaper Association of America show that the decline of newspapers is more rapid than previously thought, with total print advertising revenue in 2007 plunging 9.4% to $42 billion compared to 2006, the biggest drop in revenue since 1950, the year they started tracking annual revenue.

Online provides some solace for the dead-tree business, with internet ad revenue growing 18.8% to $3.2 billion compared to 2006, but a rate significantly lower than the 31.4% growth the year before, and not even close to replacing the losses from print. Online revenue now represents 7.5% of total newspaper ad revenues.

Newspapers do have a future, but as I wrote in November, we are yet to see a major consolidation of print in the United States. Declining revenues will ultimately force consolidation across print media in the United States, and many of those that fail to embrace change will be on borrowed time.

Decline Of US Newspapers Accelerating

written by dcaddick

So the Feds have staved off the "Running of the Bulls Bears"?

Well it would appear that they have for today at least.

Until of course everyone wakes up tomorrow and recovers from the hangover and notices that they are only just back where they started? Today’s *massive* rally has simply clawed back the gains from last Wed. and I can’t help thinking that it’s not a good idea to add more and easier access to money when we are seeing a worldwide credit squeeze? Surely this is like pouring petrol on an already lit fire? Is this some neat way to make it burn bigger and brighter so that it consumes things faster?

So what are the Feds going to do next week or month when they see a drop of 6 - 800 points over a week? add another couple of hundred billion to the pile?

If anyone has a bright suggestions of what to do with Cash (apart from give it away) please drop me a line - but it’s getting scary out there.

U.S. Stocks Advance Most in Five Years on Fed’s Liquidity Plans

By Eric Martin

March 11 (Bloomberg) — U.S. stocks rallied the most in five years after the Federal Reserve said it will pump $200 billion into the financial system to shore up banks battered by mortgage- related losses.

Citigroup Inc., Bank of America Corp. and Fannie Mae led the Standard & Poor’s 500 Financials Index to its biggest gain in eight years on expectations the Fed’s move will spur lending. Washington Mutual Inc. climbed the most since 2000 on speculation the largest savings and loan will get a cash infusion from an outside investor. All 10 industry groups in the S&P 500 rose except for health-care companies, which fell after WellPoint Inc. cut its earnings forecast.

The S&P 500 added 47.28 points, or 3.7 percent, to 1,320.65, climbing the most since October 2002 and trimming its decline for the year to 10 percent. The Dow Jones Industrial Average surged 416.66, or 3.6 percent, to 12,156.81. The Nasdaq Composite Index increased 86.42, or 4 percent, to 2,255.76. Almost 11 stocks gained for every one that fell on the New York Stock Exchange.

“It’s like they’re putting jumper cables onto a battery to kick-start the credit market,” said Nick Raich, who helps manage $34 billion at National City Private Client Group in Cleveland. “They’re doing their best to try to restore confidence.”

Bloomberg.com: Worldwide

written by dcaddick

So it looks like the gloss is coming off the VMware IPO? now that we are back down to the $70 mark I wonder how many people will stop and remember that this was an IPO of only $29?

Let’s be honest here, regardless of the hype surrounding the stock and the IPO, most companies and advisors do not normally release a stock for IPO and price it at 30% or 50% of value? It was priced at $29 for a reason and now we are starting to come back to that.

If anything I feel sorry for those that are not intimately familiar with IT and VMware and bought in above $100 - but in all fairness we are in turbulent times and with the credit squeeze from the sub-prime issue hanging over this and this has clearly exasperated the issue.

Market Scan
Storm Clouds Ahead For VMware

When VMware unveiled the second generation of its virtualization software two weeks ago, the company seemed to be building on the foundation investors have gone wild for since its initial public offering in August. But now, with more competitors cropping up that are adding their own virtualization software to their products, the question is whether VMware shares can continue to soar.

The answer on Monday seemed to be “no,” as the stock tumbled 9.4%, or $7.40, to $71.44 at the close. To be fair most business technology companies fell Monday, but none took a beating quite like VMware (nyse: VMW - news - people ). International Business Machines (nyse: IBM - news - people ) fell 2.0%, or $2.08, to $101.97; Microsoft (nasdaq: MSFT - news - people ) slid 3.3%, or $1.14, to $32.97; and Oracle (nasdaq: ORCL - news - people ) tumbled 3.0%, or 61 cents, to $19.70. One of the few bright spots in the sector was Sun Microsystems (nasdaq: JAVA - news - people ), whose shares jumped 1.4%, or 27 cents, to $19.43.

VMware’s "virtualization" software lets a single computer function like multiple machines, allowing companies to spend less on equipment and energy in their data centers. Right now VMware is the only company which concentrates solely on server virtualization, whereas its rivals bundle virtualization software with their products.

When it first had its IPO, VMware had near-exclusive claim on the idea of virtualization, but once its competitors caught on, investors realized the firm was going to be just one player in the larger virtualization market. Now virtualization software is being duplicated for free by Xen hypervisor and being added as a feature of products sold by Citrix and Oracle.

Canaccord Adams analyst Mark Kelleher said that the risk for VMware is that Microsoft decides to add virtualization as a feature for free in its products. “What you’ve seen is just some realization of where VMware fits in the world,” Kelleher said. “There’s a lot of competition coming into the market right now and I think some of that competition put a little more reality around VMware.”

….

Chowdhry says VMware is on borrowed time for one or two more quarters. “Then it will probably tank,” he said.

Storm Clouds Ahead For VMware - Forbes.com

written by dcaddick

So how bad can it get? I’d suggest you hold on to your seats and buckle up, things could get bumpy from here in? Do check out Jim Rogers comments at the bottom of the post.

“This is worse than the S&L crisis. This is the first time – this is the worst credit bubble we’ve ever had in American history. No – never in American history have people been able to buy a house with no money down…never. That’s never happened anytime in the world. So, we have the worst credit bubble. It’s going to take a long time to work its way out. You don’t cure a bubble in five or six months… It takes five or six years.”

Sure as an investor in residential property I have been able to buy a House with no money down, but only by providing additional security from another investment property, so this is an entirely new issue and much more serious. So now that the US has woken up to the fact that Credit was way too easy then how long will it be (or how far south with the Dow Jones go?) before it get’s better?

Interestingly enough we have a Federal Election here in Australia this weekend and with John Howard banging on about how well the Liberals have been looking after the economy over the last 11 years if the US hadn’t had a holiday today and the NYSE was open with the Dow Jones going further south then that would have probably paid into his hands? But as it is it would appear the Polls are sharply divided on whether it will be a photo finish or a landslide…

Emergency US Interest Rate Cut Rumoured as Freddie Mac Posts $5b Loss

Posted by Bill Bonner on Nov 22nd, 2007

Poor Freddie (NYSE:FRE). The federally-chartered lender announced a loss of nearly US$5 billion. You’d think it had lit up a cigarette in a sushi joint. Suddenly, everyone was jumping all over it. Investors spanked the company…the shares fell 30% after the firm announced a cut of as much as 50% in the dividend. Sister Fannie (NYSE:FNM) didn’t get away either. Her shares went down 22%.

Meanwhile, the US dollar went down again – hitting another record low against the euro. Years ago, we guessed it would drop to US$1.50 per euro. Today, it is at US$1.48.

Yesterday, a rumour made the rounds…that the Fed was getting ready for an emergency cut. “The Fed will keep its options open,” said Neil Mellor of the Bank of New York Mellon. But an emergency cut seems unlikely. Instead, the futures market is giving a 90% probability of another cut at the Fed’s regular meeting on December 11th.

….

“We aren’t happy about this,” he told a conference call. Then, he went on to describe what it was he wasn’t happy about. As the Financial Times put it:

“Mr. Styron blamed the meltdown in the US mortgage market and the attendant decline in the value of mortgage-related shares.”

Who could have seen that coming, he seemed to ask?

….

Not the rating agencies. Last month, Fitch said it was caught off guard by “the unprecedented reversal in home prices”. What’s the matter with these people? What’s unprecedented about house prices going down? Funny how no one took these guys aside and whispered in their ear:

“Pssst…markets go up AND down. And by the way, when you lend out money recklessly…you gotta expect trouble.”

Apparently, no one said a thing. It is as if these guys had come to Wall Street on the back of a turnip truck…and signed up for work the next day.

….

And this from our old friend Jim Rogers:

“This is worse than the S&L crisis. This is the first time – this is the worst credit bubble we’ve ever had in American history. No – never in American history have people been able to buy a house with no money down…never. That’s never happened anytime in the world. So, we have the worst credit bubble. It’s going to take a long time to work its way out. You don’t cure a bubble in five or six months… It takes five or six years.”

Bill Bonner
The Daily Reckoning Australia

P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Emergency US Interest Rate Cut Rumoured as Freddie Mac Posts $5b Loss

written by dcaddick

Well for those of us that are interested and have been following the US Dollars performance this is hardly a surprise? Is this the beginning of the end for the US Dollar? is it past it’s use by date?

Weak US Dollar May Lead OPEC to Price Oil in Basket of Currencies

Posted by Dan Denning on Nov 19th, 2007

Well it finally happened. Behind closed doors, at a meeting closed to the public, OPEC’s ministers discussed whether to price oil in a basket of currencies instead of the late, great US dollar.

The conversation was supposed to be private. But audio and video from the conference room were left on. The media had a chance to hear Saudi foreign minister Saudi Al Faisal say, “Just indicating that we have charged finance ministers with studying this issue … would mean a decision taken by OPEC would have the opposite effect and the media would pick up on this point.”

Boy was he right. The media had a field day reporting about the feud between OPEC’s largest producer (Saudi Arabia) and OPEC’s largest provocateurs (Hugo Chavez of Venezuela and Mahmoud Adhmadinejad for Iran). This is better than reality TV. And there’s a lot more at stake!

Al Faisal, according to the Reuters’ translation, said that making public OPEC’s concerns about a weak dollar would have a negative affect. “And then perhaps we would find that the dollar had collapsed, instead of us having done something in the interest of our countries.”

“They get our oil and give us a worthless piece of paper,’” said Iranian President Mahmoud Ahmadinejad in public. “The dollar has no economic value.” And his sidekick Hugo Chavez, the lumbering socialist buffoon from Venezuela who’s expertly monopolised his country’s oil wealth and turned it into a political war chest added that OPEC should, “set itself up as an active geopolitical agent”.

Note to Chavez: OPEC has always been an active geopolitical agent, you moron. Oil wealth has turned the nomadic tribes of the desert in Saudi Arabia into accumulators of massive wealth and leverage over the global economy. Saudi King Abdullah realizes that what is good for global growth is good for OPEC. And that US$200 oil would not be good for global growth, thus, not good for OPEC.

more at source…  Weak US Dollar May Lead OPEC to Price Oil in Basket of Currencies

written by dcaddick

Question:
As the US Dollar starts to unwind and loose intrinsic value compared to all other currencies is it still reasonable to claim shock at "Record" high values of Gold and Oil if these prices are in US Dollars?

Even if the value of Gold or Oil didn’t change over the last 12 months it would have appeared to have risen being based on US Dollar price? right?

Why the Euro is Garbage and Only Gold is Absolute

Posted by Dan Denning on Nov 16th, 2007

How about the gold market? Nature’s currency, gold, fell over US$27 in New York trading and is back under US$800 at US$787.30. Uh oh. What gives?

Another point we made last night is to underscore the fundamental structural change in the currency markets. The US dollar has fallen…and it cannot get up. There will be rallies. But even if the dollar rallies against the euro, so what?

The euro is also garbage, we pointed out. It’s simply another currency not backed by anything tangible. It’s risen by virtue of the fact that it is not the US dollar. But it too, is un-backed paper liability. And it’s not even backed by a real country! It’s backed by 12 member nations whose various economic fortunes may one day force them to abandon the common currency in order to set interest rates that are more appropriate than those set in Brussels. Europe has a North-South divide.

But back to gold. In a world of paper money relativity, gold is a physical absolute. That is why people have been treating it as money for thousands of years. That alone makes it compelling. But as we said, the bear market in the US dollar is a terminal bear market.

The US government will either have to greatly devalue the currency to pay off its debts, or default on those debts. Neither is good for confidence in the currency. In the meantime, things priced in dollars (commodities) will continue to go up as the supply of dollars increases faster than the supply of tangible goods.

Dan Denning
The Daily Reckoning Australia

Why the Euro is Garbage and Only Gold is Absolute

written by dcaddick

Reading through the weekend paper I caught this article and it was the first three paragraphs that took my breath away by very clearly defining and making personal the size and extant of China’s appetite for Steel and resources. Enough Iron Ore to build a Sydney Harbour Bridge coming through the port every 12 hours? and this port represents just one-sixteenth of China’s iron ore imports?

To put this another way, China is importing enough iron ore to build a Sydney Harbour bridge in just 45 minutes, and they do this around the clock. (OK, for the Empire State Building it would be 50 mins.)

To put the second paragraph in context for non-Australians, Brisbane’s population is around the 1.8 million mark, so build a city of 1.8 million people each month, ever month.

Regardless of how you slice and dice it this is a hell of a lot of iron ore - and when you appreciate that Coal is one of the other main components that goes to making Steel it becomes a lot more apparent why John Howard has been reluctant to tie Australia to the Kyoto Agreement as we might then become liable for the Carbon Footprint created by the amount of Coal we export.

How much Coal does Australia export? 
Source: IEA Key World Energy Statistics - 2004 and 2005 editions.

The big steel (from SMH.com.au)

October 6, 2007

Spot prices for gold and iron ore have shot up on the back of China’s construction boom, challenging the tradition of price benchmarking, writes John Garnaut.

Huangdao was once a forgotten fishing village, a short ferry ride from the beer and beach town of Qingdao. Now, a dozen years later, it is Australia’s entry point to the world’s largest and fastest industrial revolution. Every 12 hours, Huangdao’s waterside workers handle enough iron ore to make the steel coat hanger and support beams for the Sydney Harbour Bridge. That’s 50 million tonnes of ore - 625 harbour bridges passing each year through the world’s largest and most efficient iron ore unloading terminal. And yet Huangdao accounts for just one-sixteenth of China’s total iron ore use.

This year China will need enough ore to make enough steel to build high-rise apartments for 19 million new urban migrants, produce 8.5 million cars, complete 17 major city airports and roll out tens of thousands of kilometres of railways, tunnels, bridges and elevated highways. As Phil Mitchell, Rio Tinto’s iron ore development manager, likes to put it: "China is building from scratch a city the size of Brisbane every month."

And yet this country of 1.3 billion people is only now entering the most resource-intensive phase of its urbanisation and industrialisation - a revolution that could keep rolling on for another three decades. Car production is rising 46 per cent a year. Fixed-asset investments (such as factories and bridges) account for nearly half of China’s GDP and are growing at 26 per cent.

Figures such as these explain why spot (non-contract) prices for iron ore and coal - the two core ingredients of steel - have risen 71 per cent and 38 per cent respectively this year. China’s iron ore imports have risen eight-fold in just eight years. China has doubled coal consumption in five years, turning it from exporting to importing and pushing up prices paid by Australia’s key coal customers in Japan and Korea.

As luck would have it, Australia exports more coal and iron ore than any other country. The resulting improvement in our export prices has added an extra percentage point of national income in each of the past four years (and will probably do the same this financial year) - without us having to do a thing. It explains why Australia’s sharemarket is booming and the country is enjoying the greatest and longest stretch of prosperity it has known. "Australia has never seen a terms-of-trade boom of this magnitude for this length of time," says David Rumbens, a director of Access Economics.

China’s extreme appetite and Australia’s generous endowments also explain why China’s President, Hu Jintao, recently spent a week touring Western Australia, Sydney and Canberra despite preparing for his most important political showdown in five years - the 17th Communist Party Congress. If there’s anything that could force China’s engineer-president to focus his mind here, it is that China desperately needs Australian resources as cheaply as it can get it.

The upcoming iron ore contract price negotiations between Australia and China will be a showdown between the world’s most efficient miner and its greatest manufacturer. It is a contest of national pride, executive ego and billions upon billions of dollars. "It will be compelling viewing," says one participant.

…

Benchmark contract prices from Australia and Brazil jumped by 9 per cent in 2003 then 18.6 per cent, 71.5 per cent, 19 per cent and 9.5 per cent this year. On top of this, spot market freight costs from Brazil have risen to exceed the cost of the cargo this year because ship builders have not kept up with the huge rise in iron ore and coal exports.

…

And then the steel makers still have to get the ore to their inland blast furnaces. Trucking prices to central Shandong province have jumped by 40 per cent this year, as truck drivers navigate a government road safety crackdown.

Trucks that once carried 90 or even 100 tonnes are now forced to carry just 40. Another proprietor, who would not give her name, said there were 15 police checkpoints on the 90 kilometre road from Zibo, central Shandong, to the provincial capital of Jinan.

"Now we have to use three trucks to do what one used to do," says the boss of a small freight broking company called Zibo Tongshun. "So much to move but so few trucks," says another freight broker.

One truck driver says police were pulling overloaded trucks off the road - until drivers paid bribes to have them released. Another, from a Jinan trucking company, says he got through the checkpoints with little fuss because his company had centralised bribe payments through the local police station. "The police just look at the company name and wave me on," he says.

…

Last month, Xinhua reported figures from Zhang’s own association showing China’s 77 biggest steel makers increased their sales revenue by one-third to 1.1 trillion yuan in the first seven months of this year compared with the year before. Incredibly, after-tax profits were reported to have risen by 91.5 per cent.

Away from the heat being generated in China and Australia, analysts seem to think China’s steel revolution has a long way to run. Jae Jun, head of research at Franklin Templeton Korea, said the world’s steel makers still had pricing power and were simply passing higher costs onto downstream manufactures.

"Demand for steel products is strong due to the increasing demand for infrastructure and construction in Asia, Middle East and other emerging markets," he says. "The supply for steel is also increasing but not fast enough to catch demand growth."

Steel and iron ore supply may be increasing, but demand is shooting through the roof. The good money is being put on a price rise in the vicinity of 50 per cent this year - enough to almost guarantee that Australia sails through any American economic downturn.

much more at source…
The big steel - smh.com.au

written by dcaddick

I freely admit that sometimes (my wife would say a lot of the time) I am easily distracted - and this must surely double when I’m on the web but there are times when you just stumble on a little nugget of gold?

I have picked up on TED from a post my mate Dave Oliver regarding new developments on graphics and a truly mind blowing video and as a consequence I signed up for updates via email, and so today I was simply skimming through the headlines and ready to move on, and on a whim really, clicked on a link to John Maeda and the laws of simplicity.

The first page was OK and kind of interesting, but then on the second page, I found this little nugget of advice regarding Investment Advice. It is so simple and clear it is a wonder it doesn’t get more attention as something that should be listed under “Top Ten Pieces of Financial Advice”?

Simplified Investing

Last week in Bologna I met an investment banker and we got on the topic of ING Direct and their incredible success with a strategy centered around simplicity. The banker told me something interesting I hadn’t heard before that I couldn’t find online. Something to the effect that ING Direct tells their customers that to determine how much of their money they should put into high-risk investments versus low-risk ones, just take your age up to 100 years old. However old you are, that is the percentage that you should invest in the low-risk stuff; then take the number 100 and subtract your age from it and invest that percentage in the high-risk stuff. I was impressed with the simple elegance of the thought.

Making it even simpler (with apologies to John )

In any Investment Portfolio your age is the ideal percentage you should focus towards Low-Risk as opposed to High-Risk

written by dcaddick