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| Tue Jun 24 22:04:19 2008 Gas Prices |
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| Sun Jun 15 22:23:08 2008 Sasquatch 2008 |
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| Tue Jun 3 22:38:01 2008 Fooled By Randomness |
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| Tue Jun 24 22:04:19 2008 Gas Prices They will just get worse... |
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| In
The Great Stagflation of 2008 I made the amazing prediction that gas prices would reach $4.50 per gallon
"before 2010." Well, I was right! Although I wasn't expecting it to happen
so quickly.
Today, I read a story on Yahoo that claimed we should start seeing lower gasoline prices "someday." In particular, they noted that high prices were causing a drop in demand in the US and China, Saudi Arabia was increasing supply, and Iraq was also beginning to increase supply. Great! But I still don't think we'll see lower gas prices anytime soon. For one thing, it does take a while for supply to come down. I predict US gasoline consumption will drop by around 20% between 2006 levels and 2010. But it will probably take 2 more years, since that's how long it took in the late 70's and early 80's for people to change cars, housing, and habits after the 1970 oil shocks. For another thing, gasoline prices still haven't caught up to oil prices. Crude oil prices have risen from around $11 per barrel in June 1998 to over $130 per barrel in June 2008 (see the historical prices at the US Energy Information Administration). That's a 12x increase in 10 years. Meanwhile, US gasoline prices have jumped from $1.10 per gallon in June 1998 to $4.13 per gallon in June 2008. That's a bad 4x increase, but only 4x. Gas prices haven't caught up to crude oil prices! Partly that is because crude oil is only part of the price of gas. But it is also partly because gasoline retailers aren't passing along the full costs of the gas. Even with the higher prices, many retailers are still selling at a loss! So I think it is reasonable to expect gas prices to rise another 25-30% in 2008. I'll make a new prediction: gas prices will reach $6 per gallon in the US before the end of 2008. And I think we'll never see gas prices below $5 per gallon again. There is a chance I'll be proven wrong in a year or so, as demand comes down temporarily. But once production declines begin, gas prices will really skyrocket. Comments |
Related: > economics < predictions energy Unrelated: books environment geopolitics lists mathematics science |
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| Sun Jun 15 22:23:08 2008 Sasquatch 2008 A geek's report on the music festival. |
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| Yes, I'm late! I was at the Sasquatch 2008 Music Festival over Memorial Day weekend (24 - 25 May), but I'm just now getting to writing it up. The weather varied between beautiful and bad. When beautiful, you remembered why you went to The Gorge--a dramatic landscape with beautiful skies. When bad, you were treated to cold and relentless rain. Another Sasquatch 2008 reviewer mentioned "fans put up with sideways rain," because of the wind. 
There was a great lineup (you can see for yourself). They had several great headlining bands, such as R.E.M. and The Cure. But I was most excited to see some of the other bands that I hadn't seen in concert before, such as Death Cab for Cutie and Modest Mouse.
Between bands, I would marvel at the crowds. From our vantage point (almost directly back from the center of the stage both days), we could see the thousands of people moving back and forth. It was a great example of emergent phenomena, watching all the invidivuals combine into an overall flow of people that could probably be well-modeled by fluid dynamics. In general, a band would play, and then there would be net outflow of people towards the bathrooms, food areas, and other stages. Towards the beginning of a set, the flow would reverse. As popular (and direct) routes got busy, people would naturally choose less congested routes.
A beer cost $8 (more for "premium" beers). The economics of food pricing at festivals is interesting. Of course, as a captive audience, you know you'll be charged an arm and a leg for average food--it's the same as the movie theater. In fact, this phenomenon (high price of popcorn at movie theaters) is well-known and studied by economists a lot. This recent blog entry has a long discussion on it! But the short answer is that the high prices are probably close to the real value--after all, thousands of people pay the prices that are charged! It's just that the real price of the item isn't usually related to the cost of the ingredients: instead, most of the price is the labor of making the item, and (most importantly) the convenience to the consumer. I brought my own food, but occasionally I wanted something hot. For the occasional hot snack, why not pay a bit more? The convenience factor was high. For beer, the choice was between their prices or no beer at all. So they picked a price point to maximize return, where higher prices would drive more people away, and lower prices would mean selling too cheaply. Of course, there is another cost that means festivals will charge more: drunk patrons are a pain to manage. But if you're going to talk about the economics of music, it's more than beer and food prices. It is the disintegration of the standard music distribution business (see this article from Fox News or this article from The Week). CD sales are plummeting, and digital revenue isn't coming close to replacing it. I'm not sure I care about the music distribution companies--their industry may disappear, and them with it. Today we don't cry about the disappearance of coopers (barrel makers), even though their industry long since collapsed (although did not disappear entirely). No, the danger is to bands themselves. How will bands make money in the future? Probably by a combination of live performances (which accounted for most of their revenue under the old system anyway) and their own direct digital sales of their music (like what Radiohead did). For a great summary, see this report, commissioned by the Department of Canadian Heritage. For an American, it's weird to see governments funding this sort of thing, but it is an interesting report.
Top 3 bands? This is my list, although I was only there for 2 days, and only at the Main Stage:
I hadn't heard of Tegan and Sarah before, but I thought they were excellent. I've since added a bunch of their tracks to my collection. Don't get me wrong: there were a lot of great bands there, and the Presidents rocked. But those are my top 3.
As much as I studied the crowd behavior and economics of festival food prices, I was also impressed by the selection of bands at the festival. The lineup was well-done, for the quality of (most) bands and especially for the variability. I guess putting together a festival lineup is a bit like making a good mix tape (or CD or playlist...), only much larger in scale. Comments |
Related: mathematics > economics < lists Unrelated: books energy environment geopolitics predictions science |
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| Tue Jun 3 22:38:01 2008 Fooled By Randomness A book report. |
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| I recently read (well, re-read) Nassim Taleb's
Fooled By Randomness, subtitled "The Hidden Role of Chance in Life and the Markets."
It is an excellent book, well-worth reading for two reasons:
I had two main take-aways. The first take-away was a deeper appreciation for the Survivor Bias, which occurs when a supposedly statistical study fails to include all data properly. In finance, it is common to compare only long-lived mutual funds (for example) and ignore all of those that have failed. It is very sobering to realize that if you put a bunch of people and funds into place, had them guess randomly about investments and tracked them over time, you would see many fail and a few survive for a long time (by chance)--exactly the same situation we observe today! Only we don't say long-lived or successful funds are random survivors. We say the fund managers are geniuses, and expect them to repeat their successes. (Again, soberingly, most don't). The second take-away was people's poor appreciation for probability. Even in his world of trading, where people with scientific and mathematics backgrounds were working on algorithmic strategies, there was a disconnect with simple statistics. Even basic concepts such as Expected Value were often missed! Nassim's main point was that a person well-versed in basic probability, and aware of the large role of randomness in the world, could avoid many common mistakes and maybe even make money off other peoples' ignorance. Certainly that's true in his profession. It isn't a perfect book. He extended some of the survivorship bias to good people management. I think enough of us have had good (and bad!) managers to know that good managers often aren't survivors--they are actually good managers. I see Nassim's point that sometimes managers get lucky (due to happening to manage an organization during a moment of critical success or riding a market bubble, etc.), so a few "star" CEOs may actually be just average managers who happened to be at the right place at the right time. But some of his arguments here felt a bit jaded. Still, an overall enjoyable read, and a good reminder while the markets are in their current volatile state. I don't know how Mr. Taleb did in the subprime mortgage crash, but given his stated preference for targeting large crashes, I suspect he did quite well. Comments |
Related: > economics < mathematics books Unrelated: energy environment geopolitics lists predictions science |
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