Marcus Cake

We need to build the Web 3.0 online social, industry and political networks on the critical path to Web 4.0 and pull in the next stage of financial markets, economic development, environmental sustainability, awareness, life, work and global governance. We need five online networks to solve the worlds problems by 2012 or we decline into conflict for generations. A global community could transform the world in 365 days by building the Web 3.0 online networks on the critical path to Web 4.0.

Regulated capitalism is the last man standing. We have no choice but to make it work. We must, however, acknowledge that regulated capitalism has failed its citizens comprehensively. The failure of regulated capitalism is equal to the collapse of central planning. The communists recognised their system had failed and chose to implement something else. Will capitalists do the same? Or will we try to save the status quo at any price? Will bailouts move on to other “too big too let fail” activities that prevent the operation of creative destruction?

Harry Dent recently released two Youtube videos providing some quick thoughts on the impact of the credit (and now financial) crisis on his depression scenario. In essence, there will be a period of optimism in 2009, but the demography underlying the depression will begin to bite and lead into depression. He recommends that people hold cash while the value of assets fall. Investors with cash will be presented with a buying opportunity that only occurs once in an 80 year new economy cycle. I recommend you watch the videos below.

This presentation was given by Sequoia Capital to their portfolio companies. It provides a visual and graphical insight into the causes of the current financial crisis and how the US became bankrupt. I thought I would embed it in a post for your convenience. Highly recommended!

The US system has collapsed. Failed financial firms are trying to convince the government to invest in them. The selling proposition? - “too big to let fail!” Understandably, the US congress are making further enquiries before writing a cheque for US$800 billion dollars. The US already terminally insolvent - even with unprecedented growth it can not repay its debts. Another US$800 billion won’t push it over the edge. It passed the edge a while back. A private receivership committee may have been formed in international markets. It will operate in “opaque channels”. A private online political network would be essential coordinate timely international activities amongst US creditors. The aspirations of the average American remain the same. They can be sold a “story” by mainstream media that permits further avoidance of debt repayments or justifies activities that acquire international “leverage”. An E-democracy online network and/or a US insolvency online network could be used to inform the US public. Maybe, they will assume responsibility, or maybe they would prefer not to know.

The 2009 demographic depression will be exacerbated by a food and energy crisis, the decline of the USD dollar in value, the decline of the USD as the world’s reserve currency, a global credit crisis, the world’s central banks pursuing inconsistent policies, competing interests in the Middle East and other challenges now confront the world at a singular point.

HSDent.com is offering a free sample of its research to the public. The latest free sample outlines the “12 Steps to the Next Great Depression (an excerpt from their January 2008 HS Dent Forecast monthly newsletter). I recommend you download the report and review.

We need to deploy five online political, industrial and social networks to avert disaster by 2012. Existing structures that rely on proprietary ownership of information, distribution channels, institutions and regional approaches are unable to solve our most pressing problems. Even if they could solve the problems, they are simply unable to coordinate a global endeavour in a rapidly closing timeframe. I had previously written that online networks could be delayed for up to 50 years by three epic battles. In some aspects of our global community, we can wait 50 years (and there is only an opportunity cost). However, for some specific problems, online networks need to be built, acquire a significant audience, and achieve their objective by 2012.

The Centre for Freedom and Prosperity Foundation has released a paper which seeks to clarify the myth versus reality of tax havens. An extract from the paper is provided below.

Amazon web services are pioneering essential building blocks for economic development. These blocks will provide a foundation for the next phase of online networks which will pioneer new structures. They reduce processing power and information storage to basic utilities, just like telephone, gas and electric supply. The storage service (S3) and web hosting service (EC2) cost less than 50% of traditional approaches and are more flexible and simpler to use.

Hackers can design their online network at home and simply drag and drop it onto the Amazon cloud. The conventional approach would require a large number of employees or consultants to deliver equivalent functionality. Ofcourse, a significant amount of time was required to raise capital from investors to pay for it. Today, a hacker can create an application on the (free) Linux desktop and an open source development platform. A major ebusiness could be built by a hacker with less than US25k in external development. If you are not a hacker, then you will need to raise some serious capital because you will need significant support to navigate unfamiliar ground and achieve your outcomes.

At different points in history, either economic development or geostrategy prevail. The proportions of time that our history has spent in one or the other is debatable. Few would debate that we are in a period dominated by geostrategy. The battle may be even narrowly defined. It is a battle by an insolvent superpower to maintain its supremacy, preserve its industries and maintain access to global resources. There have been many superpowers throughout history. At this point, it is the United States. In 1900, it was Great Britain. There will be another superpower in 2100.

The objectives of open source will change over time. As open source evolves and proves its capability, it will move beyond technology, beyond specific industries, to all other aspects of our society. This has been suggested in the past. However, existing organisations are not sufficiently motivated to apply advances in technology to promote development. Business, social and political entrepreneurs that establish online networks are likely to be the primary force for change.

This article outlines the first four stages of the development of online networks and the .Net boom. The objective of the online network in each stage is identified.

The US consumer has driven much of the world economy for decades. It has been the perceived centre of the world for many industries. This is shifting. The primary source of global growth is likely to be Asia and Europe. This is a demographic reality as hundreds of millions of people in Asia enter the middle class. We only need to survive the shift from US centric to global.

Global capital will need to be looking for investment opportunities in Asia and Europe. Some markets are too small or have insufficient experience to deliver efficiency. The internet is likely to play a greater role in making the global capital market more efficient. Online industry networks will have an essential role to play in improving the allocation and efficiency of the capital allocation process.

Industrial use of the internet is at an early stage. Existing corporates have used the internet to reduce costs by distributing information in a lower cost means. However, there are few examples of industries that have been completely transformed. The primary purpose of some major industries is distribution of information between market participants. They have significant economic rents for taking information from one market participant, mildly transforming it and delivering it to another market participant. The internet offers free (almost) distribution and the ability to find other market participants. These significant economic rents for distribution seem redundant in an age of the internet.

The next wave of internet companies are likely to target the distribution of information with a commercial value. These are Online Industry Networks. These networks will simply break down existing labour intensive interactions and coordinate them in the internet. They will rely significantly on user generated content and each user assuming responsibility for the distribution of that information. The current intermediaries are unwilling to sacrifice the high economic rents for distribution by adopting new business models. Only new entrants will apply new business models to take advantage of the internet to deliver products and services at significantly less cost, in less time and without needing to visit a specific retail location. These businesses will facilitate the exchange of information from people to business. Freelancers from all around the world will manufacture the information and deliver it directly to the end user. An online industry network promote products and services of the community. Service providers can find customers and customers can search for service providers. The consumers of the information may have access to products and services previously denied by closed distribution channels.

Demographic shifts are the primary force that drive fundamental change. One billion consumers of US standards are to emerge. The United States will be an important market, but not the primary consumer or financial market in the world. Fiscal mismanagement by the United States will exacerbate the decline of the United States, but it is demography that will result in a more global market. The world will be “better” if the world can evolve from unsustainable debt funded consumption for the benefit of one country to global markets which share the benefits of economic development.

There have been a few acquisitions of internet or technology companies at conventionally unjustifiable valuations. These have been the prominant aspect of a narrow technology boom (see .Net boom category). The price of oil and speculation in the oil market has, however, acted as a dampener on the extent of the technology boom. Higher oil prices have raised global growth concerns generally and speculative capital has been focussed on oil and resources. Speculation in oil has rewarded investors until recently. The recent “crash” in crude oil prices may reduce concerns about growth and speculative capital may look beyond oil investments. The technology boom is likely to gain further momentum as a result. I have extracted a few quotes to provide an insight the recent price decline and the delicate geostrategic and political balances in the market for oil. I encourage you to read the original article.

An understanding of history and economic development can assist in identifying valuable business opportunities. I enjoy reading geostrategy and following industry trends. Effort should be devoted to pursuing an immediate valuable market opportunity. An understanding of future trends can refine existing business models, but should not define them. The realities of the present will determine revenue, success or failure. I have extracted a few key points from a number of articles below. I encourage you to read the originals.

Google has acquired Youtube, an online video sharing service, for US$1.65B in Google stock. Youtube has approximately 45% of the online video sharing market. Youtube has 100 million videos available to view and 20 million unique visitors a month. As far a I know, YouTube does not earn revenue. Youtube was established less than two years ago and has received US$11.5m in venture capital funding to date. The sale price price provides an exceptional return on investment.

When world oil production peaks, there will still be large reserves remaining. Peaking means that the rate of world oil production cannot increase; it also means that production will thereafter decrease with time. “When world oil peaking will occur is not known with certainty. Some experts believe peaking may occur soon … within 20 years.” It may occur as early as 2010. World oil demand is expected to grow 50 percent by 2025. “Peaking will result in dramatically higher oil prices, which will cause protracted economic hardship in the United States and the world. However, the problems are not insoluble. Timely, aggressive mitigation initiatives addressing both the supply and the demand sides of the issue will be required.” North America has 5% of global oil reserves, a declining 17% share of global oil production and consumes 30% of the worlds oil. The Middle East has 62% of global proven oil reserves, produces 31% and consumes 7% of the worlds oil.

“The Semantic Web (or Web 3.0) promises to organize the world’s information in a dramatically more logical way than Google can ever achieve with their current engine design.” The lack of metadata around information and closed information systems ensure financial markets remain a highly profitable industry. In Web 2.0, the information could be organised into structured databases from a single location made available over the internet. Web 3.0 must still be organised, but intelligent distributed agents could answer your question - “Which corporate adviser should I use to list my Web 3.0 company in Bermuda?” and “What are my chances of getting liquidity?”. It will be very interesting to see what type of answers Web 3.0 gives us?

“Of course, it’s been a 20-year bull market because of the victory of the world’s central banks over inflation following the Paul Volcker, post oil shock recession of 1982. The previous 20 years produced a long-term sharemarket return of about 7.5%, which was a real return after inflation of zero (the real return of past 20 years has been about 8%): Alan Kohler”. I believe the recent correction is a “Tipping point” that will usher in an era of investing in a rising inflation environment. This will have a dramatic effect on portfolio weightings, share price valuations and drive greater interest in private equity. “The best strategy is to build a small portfolio of high-quality, 20-year stocks and not try to time the market”: Alan Kohler

Ebay has formed an alliane with Yahoo to counter initiatives by Google. The pace of change has always been fast. I get the feeling that the pace of change is accelerating. Perhaps, the prediction that B2B Ecommerce will penetrate/change 90% of industries by 2010 will come true.

Web 2.0 was a phrase to describe new web companies that emerged over the last year. I could not understand how many of them were going to make money. Crash 2.0 may become the reference to the failure of these companies over the coming year. Companies will always fail as a result of poor execution. Investors that fund companies with bad ideas, non-existant revenue strategies or in unattractive markets may also fail. It is all part of the capitalist system which ultimately moves capital from those that pick losers, to those that can pick winners. The coming .NET, or Nextnet, boom is likely to based upon greater substance than the .COM boom. Crash 2.0 may be one of the early chapters in the .NET boom, or could it be the final chapter?

I recently read a series of articles by Paul B. Farrell at Marketwatch.com . I will extract a paragraph from each article to encourage you to read them. “The Planet of the Apes is a perfect metaphor for the way America’s 95 million investors are being psychologically manipulated and controlled by a small cartel of less than one million people in and around Wall Street. For both that 95 million and the one million the stakes are huge, because $8.6 trillion is invested in mutual funds alone.” “Research from critics like Vanguard’s Jack Bogle have longed warn that Wall Street and the financial-services industry are “skimming” one-third off the top of investors returns, substantially reducing your retirement assets. Some critics like Boston research firm Dalbar go further: Most investors make less than inflation, but are clueless because they’re brainwashed to think otherwise.”

With high broadband penetration to empower consumers, open software to empower entrepreneurs, we may be on the verge of the .NET technology boom. The .NET technology boom is likely to be different from the .COM boom. Investment capital is likely to be allocated more efficiently and less investment capital will achieve quality outcomes.

“Power will shift from the traders who have benefited from merely facilitating transactions to the buyers and sellers who take positions on either end of the trade, and that which is most highly prized in financial markets – the ability to create value – is likely to experience a renaissance as transformational as anything the industry has ever witnessed.” - IBM report. The opportunity for online social networks in financial markets is becoming clear.

Online social networks will drive a significant lift in productivity over the next decade. The internet will be essential to coordinating these networks. Online social networks are likely to be more efficient at manufacturing and distributing information. Consumers may be offered more convenient means to purchase, at lower cost using open source philosophies that may deliver greater customer satisfaction. Government can allow people to benefit from economic development, although some industries may perish or need to evolve in the short term.

Author HS Dent provides an update on the status of the potential technology boom through to 2010.

Author Harry S Dent suggests “Large and small cap growth stocks, especially technology, are going to take the stage again and lead the next bubble driven by the second stage, or maturity boom, of the S-Curve technology cycle in Internet, wireless, broadband and digital devices. ”

I am sure that you have heard about the acqusition of Skype by EBay. There is extensive commentary on the internet and I do not plan to reproduce that content here. I would like to highlight the valuation paid for this company. Is this the start of a technology boom?