2019年9月30日星期一

Combatting the Fundamental Scarcity: Time-Prices Reign Supreme

Gilder's Daily Prophecy

September 30, 2019

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[Publisher's Note:] Today marks the last day of our three-day "Featured Prophecies" series, which can be found at the bottom of today's Gilder's Daily Prophecy issue.

Be sure to read all the way to the bottom for some unique investment insights from our special guest.

Combatting the Fundamental Scarcity: Time-Prices Reign Supreme

George GilderDear Daily Prophecy Reader,

What do money as time, and time-prices as metrics, have to do with inequality? 

Time after all is distributed more or less equally to everyone. Though Tom Brady may get more than Andrew Luck on the football field, and lifespans differ, but we all have 24 hours in a day.

In the information theory of economics, wealth is knowledge, growth is learning, and money is time. The physical law of the conservation of matter shows that physical resources do not change, only knowledge about them and how to use them, always within the constraints of time and space.

Time is the fundamental scarcity in economics and in the universe. It conditions every economic decision and outcome. The scarcity of money translates the scarcity of time fungible into economic decisions just as the speed of light translates the scarcity of time through the cosmos.

The Hypertrophy of Finance

In Life After Google and The Scandal of Money, I discussed the increasing ascendancy of "flash boys" and quants in investment, and the boom in computerized index funds and Exchange Traded Funds (ETFs). These investments fail to reflect any new knowledge of significance — any discrete new facts or insights that bear on the success or failure of companies.

At the same time, I wrote of the $5.1 trillion a day of currency trading, some 70 times all trade in goods and services, as the epitome of the "scandal of money." All this trading of currencies fails even to mitigate trade wars and monetary conflicts. To trade actual goods and services across borders still entails constant hedging of transactions.

What the computerization of investment chiefly does is manipulate time. Quants enable investors to front-run legally. By multiplying trades, they convert minutes of computer time into what would represent months of time for ordinary investors. They create an artificially static world where they can trade thousands of times before prices can change.

This hypertrophy of finance has not seemed to fuel increased levels of real economic activity and accomplishment. If anything, it has been associated with an apparent slowdown in world economic growth.

Human investors operate on the same timescale as the enterprises they support. Computational nanoseconds create an artificial derivative world of trading that relieves the realm of trading from the constraints of real investing.

Apparently boundless money from Central Banks separates the creation of money from the development of investment projects. Governing and constraining money creation is no longer the willingness of entrepreneurs to borrow it for real investments. Scores of trillions of dollars-worth of derivatives foster the breakaway of finance from the constraints of time and enterprise.

In recent years the hypertrophy of finance has led to a politically toxic increase in inequality, as measured by "Gini coefficients" (where zero signifies perfect equality and one signifies that all the wealth or income is held by one entity).

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Time-Price and Gini Coefficients

When some people are confined to an economy of hourly wages and monthly salaries, while others escape into a realm of microseconds and milliseconds of computer trading, the result may be a hypertrophy of finance and invidious inequality.

Gale Pooley of time-price fame, however, believes that time prices offer a new way to interpret the global data on income distribution. Measuring the change in time-prices for rice against the change in time prices for wheat, he compares poor Asians with relatively rich Westerners. In Pooley's calculus, the inverse of time prices is abundance: commodities that take less time to earn are effectively more abundant.

According to World Bank data, from 1960 to 2018, time-price abundance for rice increased by a multiple of 7.32 and abundance for wheat increased by a multiple of 8.06. With wheat growing abundant faster than rice, rich Westerners seem to be benefiting from agricultural progress faster than poorer Asians. Inequality seems to be increasing. But Pooley offers a new perspective:

"Let's consider Raj in India and Ray in Indiana.

In 1960 Raj in India spent 7 hours a day earning the money to buy rice for his meals. By 2018, the time price of rice had fallen 86.2 percent. Now Raj's grandson only spends 58 minutes working to buy his rice. Rai's grandson has six hours and two minutes now to do something else.

In 1960 Ray in Indiana only spent one hour a day earning the money to buy wheat for his meals. By 2018 the time price of wheat had fallen 87.6 percent. Now Ray's grandson spends 7.5 minutes working to buy his wheat. Ray's grandson has 52 minutes now to do something else.

In 1960 Raj spent 7 times more time than Ray working to buy his food. By 2018 Raj's grandson was spending 7.73 times more time than Ray's grandson [to earn his food]. From this perspective it looks like inequality is increasing.

Let's look at the situation from a different perspective. From 1960 to 2018 Ray's family gained 52 minutes but Raj's family gained 362 minutes. The Raj family has gained 6.9 times more time than Ray's family. Time inequality has been reduced dramatically.

When basic things get more abundant, it's the poor who benefit the most. This is not captured in Gini coefficients."

Used everywhere to measure inequality, Gini coefficients are a static measure. They show a distribution at a particular point in time. 

Today's Prophecy

Time-prices capture the dynamics of income and wealth creation. In one number, they convey progress both through the rise in incomes and the drop in costs.

Breaking free of human time-scales, though, quants and flash boys turn investment into an artificial game divorced from the real-world economy of knowledge, learning, and time. This form of increasing inequality fails to yield increasing knowledge and learning for the society. It finds no compensation in increasing opportunity for others.

Nonetheless, time-prices show that innovation and learning has continued robustly throughout this period of rising inequality, financial hypertrophy, government abuses, central bank prodigality and other excesses. The excesses are real and will have serious consequences. But the world has recovered often from financial turbulence.

Treated as a bizarrely disordered economic environment, with negative interest rates and unsustainable debts, egregious inequality and "extreme climate," the current era remains a time of huge opportunities. Drucker's rule remains valid: Don't solve problems. Pursue opportunities.

That the rule of these prophecies too.

Regards,

George Gilder

George Gilder
Editor, Gilder's Daily Prophecy

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Featured Prophecy

The Best Private Companies Have
These FOUR Qualities

Kevin HarringtonHi, I'm Kevin Harrington.

I'm the original shark from the hit TV show, Shark Tank.

People call me the inventor of the modern infomercial.

I've heard over 50,000 product or company pitches in my life.

I've only ever put my own money on the line on a few hundred.

Every time I find a new deal, I put it up against these four criteria.

I only ever invest my own money if it passes each point. There is no wiggle room here.

I'm sharing my checklist with you today because I want you to be absolutely certain I have already done the legwork on the deal I like so much and will share with you coming up tomorrow, right at 1:00pm Eastern.

Criteria #1:

The Company Must Have a Product People Love

Think about Apple and the iPhone.

Apple was on the verge of collapse back in the late '90s. They were just another hardware company.

Then, Apple released the breakthrough product of a generation… the iPhone.

It was a magical transformation. It started a love affair with consumers that continues to this day.

Apple roared back to life as millions and millions of iPhones flew off shelves all over the world.

In 2018 alone, for instance, Apple sold more than 217 million iPhones, generating billions in profits for the company.

Simply put…

An innovative, customer-friendly product people love is the surest way to grow a business like wildfire.

When I invest, I need to see a product that could have mass appeal. A product people are going to use, talk about, love and keep for a long time. 

I want to see something with that "magical transformation" potential.

That's Step 1.

Criteria #2:

The Company Must Solve a Real Problem Shared by Millions of People

The product itself is just Step 1. That product has to solve a problem real people have.

Funny story — I was once pitched a startup that was an alarm clock and toaster oven in one.

OK concept, but how many people would replace both those items in their house with one item that did both things? There was just no demand for it.

Meanwhile, look at a company like Walmart. Why is Walmart everywhere, and so successful?

Walmart solves a problem shared by EVERY person: the desire for quality products at affordable prices.

Because of Walmart's ability to meet REAL demand, they were able to become one of the most powerful companies in America. They do hundreds of billions in sales every year.

That's Step 2.

Criteria #3:

The Company Must Be Led by an Experienced Team

Starting a business isn't easy.

Building a business to hundreds of millions in sales is even harder.

That's why you want to invest in companies led by folks who have either done it before or have access to experienced advisors who can help them.

Think about the Roku story. Roku makes that device that lets people stream live TV anywhere.

Most folks don't know this…

But the founder of that company, Anthony, was actually the inventor of the DVR.

The DVR… I mean… was in EVERY single home in America.

It was clear that Anthony had the experience, the moxie and the vision to do the same thing with Roku. 

Since he launched Roku, the company has grown to about $16 billion today.

When I put my own money on the line, I want to be buying talent like Anthony. 

Or, if it's some young kid with a breakthrough idea, I want someone like Anthony somewhere in the business so I know for certain there's experience on the team.

That's Step 3.

Now, this last step could be the most important of all…

Criteria #4:

The Company Must Have a Real Advantage Over the Competition

This is what Warren Buffett calls a "moat"… a company must have truly unique positioning.

It's an advantage that protects a business and makes it hard for others to copy it.

As an example, think about Marvel Studios, which is owned by Disney.

No one, and I mean NO ONE, is going to make superhero movies that big and that expensive to compete with the latest Marvel movie.

Marvel owns the rights to the stories, the characters, the merchandising, you name it. No other company on earth is going to release a superhero movie that can compete.

The moat advantage can come in all shapes and forms — sometimes it's a unique patent. Sometimes it's a production process. Or legal rights to a name or a specific material.

Like I mentioned, if and only if a private deal I'm weighing meets all four of these criteria do I continue.

Two out of four is no good. There's too much that can go wrong.

I only ever keep working on a private deal if the company goes 4-for-4 on this checklist.

Tomorrow at 1:00pm Eastern, I'll reveal the private deal could turn every $50 into thousands of dollars.

I'm going to show you how to get in on this deal before I puts thousands of my own money in

Plus, you'll see how you'll book a GUARANTEED gain if you get in before me, AND how you can do this with just $50, right from home, in two minutes, with no paperwork or hassles.

The deal I'll share with you went 4-for-4 on the list above with flying colors.

I can't wait to reveal everything TOMORROW at 1:00pm Eastern. As a Gilder's Daily Prophecy reader, all you have to do is check your email at 1:00pm Eastern tomorrow... See you then.

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Editor's Note: See George Gilder speak at The Money Show in Dallas October 13! Click here to sign up.

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