TradecoHoldco

Killing it like a hooker in Hong Kong

Macro: Resource Bounded Expansion

I don’t often go into monologues about macro, about which I know very little, so this is a departure from my usual specific thoughts.

An article which I keep going back to is Jared Diamond’s 2008 Op Ed in the NYT, What’s Your Consumption Factor?

TO mathematicians, 32 is an interesting number: it’s 2 raised to the fifth power, 2 times 2 times 2 times 2 times 2. To economists, 32 is even more special, because it measures the difference in lifestyles between the first world and the developing world. The average rates at which people consume resources like oil and metals, and produce wastes like plastics and greenhouse gases, are about 32 times higher in North America, Western Europe, Japan and Australia than they are in the developing world. That factor of 32 has big consequence

Of course this is no different from Goldman’s emerging middle class consumption hockey stick, or any number of other theories in the market to justify the commodities boom.

Over the roller coaster course of the last 3 years, I’ve watched as the oil price peaked at 150, dropped down to 40 and now is back up at 80. The resources guys have been talking their book about the commodity super cycle, the China bulls theirs on how China is going to rule the world.

But again, I go back to Jared Diamond’s  consumption factor argument. What has basically happened with the advances in telecommunications and the internet, is that technological advances are now being communicated more or less instantly across the world. It took 60 years for the radio to become widespread around the world, 40 for the television, 20 for the Internet, and less than 5 years for the Iphone. This increase in the pace of technological advance basically means that technology derived competitive advantage has become a highly temporary phenomenon.

This also ties in with the “golden straitjacket” argument of Thomas Friedman, that policy choices between political parties has narrowed in all countries as a result of globalization.

The confluence of these factors implies that all nations, and all the middle classes of those nations, are reaching for the same goods that the West has enjoyed in the post WWII era.

This is what I am willing to believe will drive the commodity story over the next 20 years. It’s going to take a lot of coal, oil and copper to satisfy those masses.

Advertisements

July 16, 2010 Posted by | Uncategorized | , | 1 Comment