Even Keeled

A coworker and I bet that gas prices in the San Francisco Bay Area will average $6/gallon by 8/1/2008. The irony is only in the when, not the if (loser fills the winners tank with Gas). I’m taking the over. I strongly believe we’ve smashed through whatever theoretical barrier kept oil prices in check for the last 8-10 years and have now entered a period of compounding price increases.

There is actually a fairly well known theory that predicted the inflection point, Hubbert’s Peak, or Peak Oil.

Peak oil as a proper noun, or “Hubbert’s peak” applied more generally, refers to a singular event in history: the peak of the entire planet’s oil production. After Peak Oil, according to the Hubbert Peak Theory, the rate of oil production on Earth will enter a terminal decline. Based on his theory, in a paper he presented to the American Petroleum Institute in 1956, Hubbert predicted that production of oil from conventional sources would peak in the continental United States around 1965-1970 (actual peak was 1970). Hubbert further predicted a worldwide peak at “about half a century” from publication and approximately 12 gigabarrels (GB) a year in magnitude.

Turns out Hubbert was fairly accurate. The doomsday-ers have co-opted the theory and started a website called, smartly enough, PeakOil. There was an article recently in the NYTimes about survivalists moving off the grid and becoming self-sufficient driven by the fear that roving droves of gas seekers will storm their homes.. (Guns! Wack Jobs! Wacko Texas Revisited!). What I find interesting is the similarities with many green movements: locally grown foods, reduction in carbon footprint, reduced use of motor-vehicles, etc. In other words, the fringe is less fringy these days.

Below are a few charts which highlight the recent rapid rise of gas, along with an interesting chart that compares with crude oil prices. If I had the time, and honestly the aptitude, I’d like to pull apart the annual high/low delta. It seems there are three key price points: 1) ~mid-December which is the yearly low point, 2) early May which is the pre-summer peak, 3) early August which is the summer high before a run towards the December valley.

Chart with just gas (5 year)

With crude oil:

What is really interesting (scary?) is the fact crude prices appear to be increasing faster than gas at the pump. To me, this indicates there is the potential for gas prices to increase even more if they were to keep their historical correlation to crude. I won’t go into the whole “oil companies are evil and stealing from the public”. They are stockpiling profits. To do any less would be irresponsible to their shareholders. They claim this is required to fund present and future investments in alternative fuels. Lets all hope this is true. In the the meantime, public transportation and other forms of getting to around are now much more viable. A positive and natural outcome.

There are tons of ways to start cutting this data and looking at correlations, both obvious and obtuse. From a purely intellectual perspective, the (recent) oil crisis may be one of the more interesting challenges to surface in the last 50 years. (Passion! Profits! Hippies! More at 11!)

The New York Times had a very interesting piece on innovation, specifically how looking at existing habits and adapting new ones helps creativity and problem solving. By forcing change into our lives, we become more effective at overcoming the challenges we face on a daily basis. Successful problem solving results in breaking through barriers and opening up new ideas. A virtuous cycle which keeps the brain from atrophying, literally.

Not all “new thinking” leads to success, sometimes the failures are catastrophic and long lingering in our collective memory. Today is the 71st anniversary of the Hindenburg disaster, a frequent reference for any project that is not well planned and poorly executed with a very public collapse. However, it is also the anniversary of the 4 minute mile barrier being broken by Roger Bannister. Bannister initially faced failure during the 1952 Olympics and considered quiting competitive running entirely. But, he instead he looked the the 4 minute mile as a challenge, something to retrain his mind and body to overcome. Success followed. Bannister looked at this as just one milestone in his life however, and now looks at his achievements in the area of medicine and neurology as more important than any timed race.

My boss Omar posted a very thoughtful and comprehensive review of the current mobile landscape on the AdMob blog last week. Basically a fundamental shift has occurred in mobile where engineering and technology solutions are now the primary components of success for any product (and company). Previously business development skills, specifically negotiating carrier relationships, were the key criteria for mobile tech companies.

For me, this is really what signals the onset of Mobile 2.0. Innovation can now be put directly in front of users/customers. The feedback loop for making incremental, or wholesale improvements is near frictionless; technologic Darwinism is now in play.

The broader Internet went through a very similar transformation albeit on the engineering side. Web 2.0 was about having the tools and infrastructure to enable rapid development of ideas into services. Good ones thrived; bad ones were either modified or tossed by the wayside. Of course there are still huge challenges facing mobile developers, entrepreneurs, users, etc, but those challenges can now be translated into solutions.

Lots of bloggers and industry folks are continually talking about a ‘bubble’ in Silicon Valley tech (venture funded private companies). Personally, I don’t think anything could be further from the truth. The people I know involved in mobile companies have a passion for innovation and a pretty good understanding of how to succeed. Nearly all have worked both start-ups and the ones who are moving here bring a similar mindset. Show me the problem, let’s figure out a good way to solve it and than get shit done. That’s not a recipe for a bubble; it’s the foundation of practically every society around the world.

As I read about Microsoft’s decision to abandon their acquisition of Yahoo!, I couldn’t help but think how solid a choice that will turn out to be. Microsoft wasn’t buying technology, innovation or engineers; most good ones already left and those that remain will find no shortage of opportunities. They were buying reach and visitors, fools gold in today’s web application space. Yahoo! never understand how to foster innovation, at least during the time I worked there.

I wrote but never posted a long piece on why Y! lost their way. Thinking about it now, it’s not necessary. Res ipsa loquitor. While they might have the number one property in various categories (i.e. Web email), that hasn’t translated into a successful business model. Nor were the products they released ever revolutionary. Compounded by a corporate culture that rewarded sycophant behavior rather than effective problem solving and teamwork, the death spiral began long ago and cannot be reversed. My guess is their stock will get hammered Monday morning, followed by another round of layoffs leading to a further retraction in product originality.

They’ll be talk of future upside, organizational improvements and a unrealistic grasping to the straws of the ideals of the past. But all that’s moot. A friends father once told me an interesting parable in high school. I don’t think I ever really understood it, till recently.

A farmer kept his sheep in a pasture for years. There was plenty of grass, water and a shaded area for the sheep to hide from the mid-day sun. One day, someone accidentally left the gate open and all the sheep ran out. The farmer herded them all back into the pasture and closed the gate, now secured with a lock. The next morning the farmer went outside and realized the sheep had all jumped the fence and taken off, no where to be found.

Nameste.

Surprised this hasn’t been picked up more broadly, but REI stopped selling any water bottles made with BPA (a common ingredient in many plastic items).  All were pulled from the shelves as of last week.   Moro info directly from their website:

Due to the concerns recently voiced by many REI customers, REI no longer offers (as of April 19, 2008) polycarbonate water bottles. Polycarbonate is a tough, translucent plastic that includes bisphenol A (BPA). Ongoing scientific debate about the appropriateness of polycarbonate for beverage containers has resulted in REI offering many BPA-free water bottle alternatives (described above), which have replaced the demand for polycarbonate.

Recent findings by a government agency were the key driver for the decision, as well as growing customer preference:

The National Toxicology Program said two weeks ago there is “some concern” about BPA from experiments on rats that linked the chemical to changes in behavior and the brain, early puberty and possibly precancerous changes in the prostate and breast. While such animal studies only provide “limited evidence” of risk, the draft report said a possible effect on humans “cannot be dismissed.”

In fact Nalgene, one of the most common brands, stopped manufacturing BPA based items entirely.   Wow.   Aluminum appears to be the container of preference now, which should benefit Sigg substantially.   Could be an over reaction, who knows.  I’m going to create a flask from sheep intestine just to be safe. 

Spring is here.  (Well, it should be anyway.  Nagging cool weather on the West coast).  While I enjoy late summer - early fall more, spring carries the most anticipation.  The days become longer, plants respond to their winter pruning with a rapid growth spurt and the decision to plant summer vegetables looms large. 

I’ve always been obsessed with plants that ‘produce’.  A great flower doesn’t really do it for me, but an edible, flowering herb seems so much more efficient.  I also place a premium on plants that produce vegetables that can be stored and used for the rest of the year…my favorite by far is peppers.  Each year I grow between 15-20 pepper plants, everything from Italian sweets to Jalapenos to Thai Dragons. 

This year I’m also going to try producing more “daily” foods.  The locavore movement has so many tertiary benefits that growing more tomatoes, a few onions and other common vegetables we’d ordinarily get at the store really can make an impact.    Also, nothing tastes better than fresh culinary herbs in simple backyard grown salad. 

Farming, more salacious employment not withstanding, is indeed the oldest profession.  

I came aross an old CNET article from Dec ‘03 that predicted Google would most likely go public ’soon’ due to an obscure SEC rule.  

Securities law requires private companies that exceed a certain level of stock distribution to file quarterly financial data with federal regulators. If the law is applied to the popular search engine, Google executives would have to disclose the company’s closely guarded financial information, and it could ultimately play into the decision on whether or when to take the company public.

A private company must report its finances once it has more than 500 common shareholders–or stock-option holders–and $10 million in assets, according to section XII(g) of the Securities and Exchange Act of 1934. That means a private company must file quarterly forms with the Securities and Exchange Commission (SEC) that disclose operating expenses, profits, partnerships, shareholders and many other details–a laborious process that can cost as much as $2 million annually. ..

SEC standards require that qualifying private companies report within four months of the end of their calendar year, which in Google’s case is April.

If I were to fashion a guess, considering Facebook’s aggressive hiring rate, I’d say they’ll cross the 500 mark this year (2008).  Seems reasonable that ~450 employees will have vested some amount of stock options by 12/31.  Adding to that number other investors, outside shareholders, etc, the 500 threshold is very likely to be exceeded. 

The biggest question then becomes when is Facebook’s fiscal year end?  If set to the calendar year, and they do indeed exceed the shareholder minimum, an IPO filing before May 1st 2009 would be very, very likely.  Of course a company in this situation isn’t required to go public, they just have to report quarterly financials and comply with many of the same guidelines as public companies.   It’s very unlikely Facebook, or anyone else, would carry that burden without getting the potential reward a public offering would provide. 

Certainly will be interesting to watch.

Another article in the growing corpus of “food prices are out of control” stories, now sourdough bread is skyrocketing due to drastic increases in flour expense.  One baker claims flour has spiked 300% (from $2k to $6k/day).  Even the “complimentary” bread at the start of most meals when dining out must now be requested at many restaurants.  Guess my pizza idea is probably out of the window now…

What’s frustrating is yet again, there is no real investigative journalism associated with the sensationalistic “you won’t be able to even buy bread soon because it will cost so much” thread.

Here are the potential reasons flour costs have spiked offered in the story:

• Tight supply
• Gas prices
• Poor weather
• Small(er) harvests
• Replacement of wheat crops with corn or soybeans
• Chinese and Indian consumption of bread products
• Global increase in beef consumption (grain goes to feed the beasts)

The article closes with an uplifting chart detailing not only the year-over-year 37% increase in flour, but the 35% increase for eggs, 23% increase for milk and 19% increase for pasta.   Comments to the article run the typical gambit of republican and ethanol bashing rants. 

Know what would be fantastic?  If the author turns this into an ongoing, weekly thread exploring the cause of these price increases!  Maybe then newspapers wouldn’t be on the verge of collapse.  Here’s a recipe full of ingredients that could be used to prepare a wonderful, fresh, hot-out-the-oven story on the connecting elements driving food out of reach.

Did you know there is company, Corn Products International (CPO) that focuses exclusive on corn production worldwide?  That’s interesting…how has their stock done?  Pretty good, up more than 15% this year alone.  

What about actually researching corn production?  Total bushels produced has steadily declined from 2004 to 2006, according to the corn refiners association:

“Corn for grain production in 2007 is estimated at 13.1 billion
bushels, down 1 percent from the November forecast but 24 percent
above 2006.  The 2007 yield estimate is the second
highest on record, behind 2004, while production is the largest on
record as producers harvested the most corn acres for grain since
1933.”

Ah, but wait…corn for grain increased in 2007 (USDA).  Sinister corn at work!  Lets look at (total) wheat production,

Here’s a great breakdown by crop type over the last 3 years, again from the USDA:

                Wheat:  Production by Class, United States, 2005-2007
              ———————————————————————————-
Winter
            :   Hard      :   Soft   :   Hard       :   Soft          :    All
            :   Red       :   Red    :   White     :   White       :   White
            :———————————————————————————–
2005   : 929,820    309,021     25,279      235,009     260,288
2006   : 682,079    390,165     13,284      212,553     225,837
2007   : 961,588    357,897     21,460      175,044     196,504

            :————————————————————————————
Spring                                       
            :   Hard   :   Hard    :   Soft      :      All     :                :     Total
            :   Red     :  White   :   White   :   White  :   Durum   :
            :————————————————————————————  
2005   : 466,587     4,530      33,339      37,869      101,105     2,104,690
2006   : 432,339     6,226      21,915      28,141      53,475       1,812,036
2007   : 448,904     5,589      24,554      30,143      71,686       2,066,722

So, wheat isn’t really vanishing from farms?  WTF?  Durum wheat (used for pasta and bread) is down from 2005 levels, but up substantially from last year.  So shouldn’t there have been an increase in prices last year with a corrosponding decrease this year?  The USDA has a fantastic website with tons of data on global production and consumption of almost every agricultural good worldwide.  You can even have a report emailed to you weekly (I signed up!)

A very complex and multi-faceted issue.  The point is there needs to be thoughtful, documented understanding of why prices for the very essentials of our diet are suddenly skyrocketing in cost.    Not panic inducing headlines that don’t do anything more than create worry and offer no constructive dialogue.

While we tend to celebrate the victory, July 4th, today is actually the day the American Revolution STARTED in 1775.  In the true spirit of “win the battle, lose the war” the BBC notes:

“The American War of Independence begins with the Battles of Lexington and Concord.   The British won both.”

Jolly good, thanks for the reminder Mr. Chips.

A favorite short story that I remember, at least the title, vividly is The Pugilist at Rest by Thom Jones.  The basic premise is the return of a Vietnam vet to civilian life and the struggle encountered in turning off the brutal instincts honed during war.   At the most basic, a story of a nihilist Boxer who struggles to see the good in the world, no final rest or satisfaction, just a determined acceptance to the way things are.  A significantly more eloquent and subtle parable of the now in vogue “it is what it is”.

The tension in the four word title is palpable and carries a forbading tone.  Can a pugilist, a warrior, ever be truly at rest?  The angry machine, once started can it ever be turned off?  This duality is a common theme in history, and in life, Jones is merely the latest to place allegorically in prose.  Another slightly less explicit theme is the lack of trust in those around him, friend or foe. 

For most in the technology industry, both concepts are constants though hardly discussed: there is always another improvement, a better way, a product to be improved, satisfaction is never achieved, when it is, you’ve become complacent and should move on.  Likewise, people are inefficient,  computers don’t do want you want them to, but what you program them to do.

However, just as a pugilist questions what good he has brought to the world from each battle, everyone in technology must ask themselves, at some point, am I enriching people’s lives?  If not, what satisfaction am I able to realize?  When you cannot point to something tangible, perhaps its time to move on.   More directly, are you a producer or a consumer? 

I wound up in tech mostly by accident.  I didn’t study computer science, engineering or anything related remotely to what I do on a daily basis.  What started as a summer job to escape the drudgery of working in a law office and returning to law school became a career.  However, I continually find myself asking “am I really enriching people’s lives.”  I solve problems, which over time increasingly are those manufactured by circumstances unrelated to my longer term objectives. 

I find my interests increasingly drawn to food related concepts. Whether starting a Pizza restaurant or understanding why the global price of grain is illogical rising, the notion of directly, and literally, enriching peoples lives (or stomachs) is something I ultimately want to focus my energy.   In other words, I want to produce, in mass quantity, rather than relentlessly consume.

The food crisis meme will get gobs of attention the closer we get to election day.  Sadly, I think mainly because a worldwide food shortage engenders a state of “panic and fear” akin to every other pseudo-epidemic.  Tailor made for the 6 o’clock news…Riots! Global Chaos!  Nothing you can do! Only this one may actually be real.

The CNN article really doesn’t provide answers or detail “why” and “what can be done”.  They do passively debunk the often quoted ethanol excuse:

“The contrived food vs. fuel debate has reared its ugly head once again,” the Renewable Fuels Association says on its Web site, adding that “numerous statistical analyses have demonstrated that the price of oil — not corn prices or ethanol production — has the greatest impact on consumer food prices because it is integral to virtually every phase of food production, from processing to packaging to transportation.”

I don’t believe shifting crop production is the cause.    Just recently, there were numerous reports of a drop in overall corn production, not an increase with the focus going to ethanol.  Something still doesn’t add up.