1 + 1 = 3, The Concept is Called Synergy

In recent years, well meaning people, politicians and environmentalist, have pushed antagonistic policies. Policies that result in 1 + 1 = 1.5. On the other hand, Google is making a big 1 + 1 = 3 push. Google appreciates the benefits of synergy.

The Google Android development kit has been downloaded in record numbers. The kit is free and the software will be distributed free. This means the new Android based phones, coming to market in a few weeks, will sell for less than iPhones which are sold with built-in software license fees. Google has also made its Google Apps software open and free. This software includes all sorts of free services including email, instant messaging, photo albums, and office productivity programs such as spread sheets, word processing and presentation programs. The free package is certainly a lot more than free web pages and email with 6 gigabytes of free storage, but 6 gigabytes of free web space and off site, backed up, storage is nothing to sneeze at. Enterprises, everything from schools, to businesses, to churches, should consider getting rid of in-house servers and using the free hosting provided by Google. The savings are substantial. The Google deal this week that will connect Google Talk with the Yahoo Instant Messaging program will dramatically expand the usefulness of yet another free service.


On another front, it appears that the market is going to move toward free wireless Internet connections and free basic service but metered cost for heavy users. It is becoming clear that those who constantly consume huge quantities of bandwidth in activities such as transmitting videos, should pay a higher price than someone who surfs the net a little and sends a few emails. Google is an advocate of totally free basic connections.

The Mobility Factor

The big leap forward is the mobility of a slew of free services. The cell phone company practice of finding the way to sneak in an extra charge has always been frustrating. Companies that charge extra for text messaging is a prime example. Text messages cost less than phone calls to deliver but consumers are often stuck with an add on rate or with per message charges. Mobil WiFi devices can access the Internet and be used for unlimited phone calls, unlimited browsing and unlimited instant messages, for un-metered service and very low fees for metered service.

Produce a letter or spread sheet or presentation on Google and share it with whom ever you want. Edit the document from any computer, allow others to edit or have an online jam session about what the document should say. Who needs a desk top computer or a server? Put the whole enterprise online and do your work with a laptop on the beach.

Our politicians are in antagonistic mode. They are looking for ways to take money away from the most efficient and most productive ventures in order to subsidize their pet but unproductive ventures. Politicians are often willing to shrink the economic pie if they or their friends can be given a larger piece. The Google program is designed to grow the pie greatly but to get a very small piece of this very large pie.

International Shrinking Pie

High energy prices are acting like a tax increase on the economy. The difference in the US economy and other economies is that our interest rates have come down (while the recent trend is back up). In the USA lower interest rates are the antagonist to higher energy prices, 1.5 -1 = .5, the result has been slow growth but no recession. Higher interest rates in emerging economies are working in synergy with higher food and energy prices. The combination is striking a blow to these economies. Several of the formerly fastest growing economies are slowing down rapidly. The result is demand destruction. The pressure on commodity prices is subsiding. The reduced pressure on commodity prices has given the "5+1" support for tighter sanctions against Iran. Iran is no longer holding all the aces. The "news" has made it to prime time. This morning a guest on CNBC talked about the oil backing up in in storage tankers. Just yesterday, European leaders joined Bush in saying sanctions against oil and gas production will follow the financial sanctions that have been in effect. The pressure on Iran has been increased by making the announcement after the program has already produced results. When questions are asked, the answers are already available.

Not Effected

Lots of businesses are either not effected by higher fuel prices or even supported by higher fuel prices. An example of a non effected business is the research lab that just came up with a method for regrowing bones. While it will take years to bring this to market, it will ultimately make a dramatic difference in heath and health care. Many older women are very healthy with the exception of weakened bones. Take a pill, regrow bones and live a better life! It makes sense to fund this research no matter what happens to the price of oil. It makes sense for the government not to subsidize the project. The constant mistake made by politicians is for them to assume they can pick which project by which researcher should be funded. The result is that the politically connected research gets priority over what will prove to be the best research.

The research going into new sources of energy or reduced consumption has been encouraged by higher fuel prices. The money being spent is incredible. We already have a lot more than the "Manhattan Project" proposed by politicians. Take the break trough in brewing beer as an example. Researchers have developed a process that will cut a half hour off the time required to brew beer and it will cut the energy consumption by 10%! Many an industrial process is worth retooling for a 1% reduction in costs; new construction will automatically include the new process. Another interesting example is the power plant to be buried in a remote village in Alaska. Toshiba has developed a sodium bromide cooled nuclear "battery". Toshiba will dig a hole in Alaska, deposit the battery and leave it to produce electricity for the next 30 years. The cost of electricity in the village will be cut by more than half!

Small no maintenance nuclear "batteries" will ultimately be used to power commercial ships and "unique" situations. The heat generated by nuclear plants will help liquefy tar sands and shale oil.

The Bakken Formation is progressing well. In February, North Dakota reported production at the annual rate of 50 million barrels. By May, the annual rate had increased to 54 million barrels. Over on the Canadian side, producers are gearing up to develop Bakken. Iraq appears to be headed for a 400,000 barrel per day increase by year end. The IEA reports that total liquid production has increased from the average rate of 85.4 million barrels per day in 2007 to 86.8 million barrels per day in 2008. Demand is down in the USA by more than the increase in world wide production. When demand goes down and supply goes up, the price is likely to fall. My friend keeps telling me that Goldman says that oil is going to $200 per barrel but he has not been able to answer my question, "Is Goldman buying or selling"?

Airline Capacity Cuts

LCC made additional capacity cuts this week and the prospects for major carrier profits increased, again. Airline stocks are benefiting from the capacity cuts in that the demand for jet fuel has been cut at the same time that demand for the remaining seats has been increased. Higher seat prices and lower cost will lead to major profits. I am waiting for someone to give me another example of companies with positive cash flow which shares are selling for less than their "cash on the books value".