The Lambda Factor
Computers are everywhere.
Even the ticket clerk in the little Montmorillon train station uses a computer to write tickets. He punches keys slowly, carefully, deliberately. He waits. He watches. He peers at the screen over his reading glasses…and occasionally hits another button. He twitches his long, bristling mustache. Minutes go by. Customers, on the rare occasion when the plural is appropriate, begin to get restless. They look at the clock. They look at their watches. They wonder if the train will arrive before the ticket.
Finally, the ticket clerk lifts up an ancient dog-earned manual from under the table. His fingers find the right page and then trace the city of destination, Paris, over to the little city of departure…Montmorillon. He taps a few more keys. Then, after another couple of minutes, just when you think the ticket machine is finally ready to give birth…the phone rings. The ticket clerk takes off his hat, and answers the phone.
Thanks to the Lambda Factor, this time-wasting will soon be history. At least, that is the promise of Jim Davidson’s latest article.
“Within a few years, you’ll have essentially free telephone service across the planet as well as across the street. You’ll have the equivalent of 80,000 channels of television from which to choose. You’ll be able to listen to any radio station in the world…See any sports event, anywhere, with interactive, three-dimensional viewing capability which will give you the choice of turning third person spectator events into first person challenges…”
But the benefits of the Lambda Factor do not stop there. “You’ll be able to talk to your appliances.” I already talk to my tools, such as when I hit my thumb with the hammer. But Jim has something else in mind: “Tell the stove when to bake a loaf of bread or heat up your stew; tell the vacuum cleaner to dust the antique books in the library…”
I set myself too modest a goal in these Daily Reckoning readers: chronicling the most thundering examples of human lunacy. My targets are too easy: people who pay hundreds of thousands of dollars for a doodle by a sensationalist artist…or those who buy Big Tech stocks selling at such high prices they will have to wait until the polar ice caps melt to get their money back (if all goes well). The bar is so low, I don’t have to jump over it…I trip over it without trying.
Jim Davidson, Porter Stansberry and George Gilder, by contrast, are doing the dangerous work. Like interviewing the detainees in an asylum, they try to figure out which of the lunatics might actually be an unrecognized genius…rather than merely stark, raving mad.
“A new economy is emerging,” says Gilder in his book, Telecosm, “based on a new sphere of cornucopian radiance – reality unmassed and unmasked, leaving only the promethean light.”
That sentence may mean something; I don’t know. But I can find nothing in my personal experience to make sense of it. So…I will just push on…
Moore’s law – the insight, or prediction, that computer power would double every 18 years – is old news. Cheap, abundant microprocessing has changed the way the world does business. Even the train station in Montmorillon is hip to computers.
Metcalfe’s law is the recognition that each node in a collective system becomes more valuable as the system expands. The simplest illustration of this is the telephone. One phone has no value. As more and more people get phones…each one becomes more useful.
And now the Lambda Factor offers to throw both of these laws ahead a warp speed.
Lambda is “a measure of a unit of wavelength,” writes Davidson, “which will be key to the next optical phase of the Technology Revolution. If you missed the opportunity to ride Moore’s Laqw to riches in the early day of the personal computer, stay tuned. The Lambda Factor gives you another chance to capture gaudy wealth by betting on an ascendant technology in an ascendant market.”
The Lambda Factor refers to the exponential growth of bandwidth, made possible by advances in photonic data transmission. When you download a photograph on your computer, it takes times. But when the Lambda Factor gets limbered up, it will be possible for you to have almost instantaneous access to any data you want, anytime. “You will be able to watch any movie ever made at any time you want,” Davidson reports.
If I had three magic wishes, “being able to watch any movie I want at any time I want” or “being able to talk to my refrigerator” would not be one of them. But perhaps among the people who will cast ballots in this fall’s election there are millions who will jump at this kind of service – and pay good money for it. I don’t know.
But Davidson and Gilder see this innovation in an entirely different, well…promethean, light. Davidson likens it to the Industrial Revolution, which “made an anachronism of Malthusian economics.” Or, perhaps it is more like “the huge volcanic eruption in the Krakatoa region of the Sunda Straights of Indonesia in February 535,” he says. “That explosion darkened the sky as far away as Beijing and created a close approximation of nuclear winter which destroyed the political remnants of the ancient world by dimming the sun for 18 months.”
Again, nothing in my personal experience…and nothing that I can infer from the experiences of others…helps me to understand how an explosion of data, information and entertainment would be anything more than a minor convenience. But then, I think small…
“The answer is that only faith enables us to make this kind of leap,” says Gilder.
Yes, I thought so.
Paris, France October 3, 2000
P.S. I’m on my way to Las Vegas this afternoon. I’ll be sure to write, but I don’t know how our schedule will work out.
*** Nothing special about yesterday. The smart money left the Nasdaq and moved over to the Dow. The Dow rose 49 points. The Nasdaq fell 104; it is now at its lowest point since May 31.
*** Remember, this is the Autumn of Anxiety. And you don’t have to look very far to find a reason for jitters. There are still the 4 E’s to worry about, for example – and none of them improved yesterday.
*** After Apple, Intel, Kodak and others…along came Xerox last night and announced that it would lose money this quarter. The confession was made after closing time on Wall Street. But stocks in the Far East were hit by selling this morning. In Japan, for example, stocks fell on “tech weakness,” according to the Financial Times, even though the Tankan report of business sentiment revealed the highest level of confidence in 3 years.
*** The euro went down a little yesterday. But not much. It is still about 88 cents.
*** Oil rose in price – by $1.28/bl. This was blamed on “tension” in the Mid-east.
*** And, finally, the economy didn’t look any better at the close of business than it did when the doors opened. In fact, it looked a bit worse. People are beginning to notice the gap between the abstract, collective knowledge given to us by the Bureau of Labor Statistics – and their real, first-hand experiences. The BLS admitted an error last week and adjusted its inflation rate estimate to 3.4%. But when you go to buy something – a house, a gallon of gas, for example – you discover that the price is 20% to 50% higher than it was a year ago.
*** At the least, people are beginning to suspect that the BLS inflation rate is understated. Perhaps that is why the Treasury’s inflation indexed bonds rose against the non-indexed bonds yesterday…
*** Alan Abelson in Barrons, refers to Charles Peabody of Mitchell Securities:
“For openers, he says, it means that…real rates of interest are thus are not as high as thought. Monetary policy, in other words, may be even more accommodative than it has seemed. More to the point, it reinforces Charlie’s view that inflation is running at over a 4% rate, which implies that P/E multiples…will come under severe pressure.”
*** P/Es will come under pressure, most likely, where pressure is now least apparent – in the high altitudes of the Big Techs. Yesterday, for example, Intel and Apple both lost about a buck and a half.
*** “Given the recent campaign rhetoric in which both major parties are advocating legislative programs that would tap into the ever-growing budget surplus,” comments William V. Sullivan Jr, money-market economist at Morgan Stanley Dean Witter, “most voters would no doubt be surprised to find out that the federal government’s overall debt loan continues to expand. Indeed, despite huge liquidations of outstanding securities in the secondary market, total indebtedness remains on an upward trajectory as non-marketable issuance continues to soar.”
*** The passage above is from a column in the Financial Times, written by James Grant. “The facts are in the public domain,” Grant continues. “The big government trust funds – notably, the social security trust fund – currently take in more than they pay out. However, the government relieves them of this surplus and spends it, courteously leaving behind a marker, the aforementioned non-marketables. As these claims are not negotiable outside government channels, they constitute no visible burden on the public markets. Out of sight, out of mind.”
*** Investors regard, or rather fail to regard, these invisible federal borrowings much in the same way that they fail to regard Cisco’s deteriorating operating margins…that is, rather like a French woman regards her husband’s mistress: she would rather not know.
*** Yet, sooner or later, the man is dead and the other woman shows up at the funeral – as happened when ex- president Mitterand was officially cast off on his one- way voyage to eternity. The woman was there – dressed in black and making the appropriate sobs. At some point in the future – Grant believes it may be during the next presidential administration – a curious scene may take place in the twin theatres of Congress. While the politicians are strutting and puffing with pride over their budget surpluses, they may be forced to take notice of a huge figure dressed in black…lurking among the federal books of account, and feeding herself continuously to assuage her grief. Like a freakishly fat person who has let herself go to the point where she is unable to make it out of her bedroom door… it may be necessary to raise the legal debt ceiling to accommodate her.
*** As you may have gathered, from my frequent citations, I am a fan of Grant’s work. So, I’m especially pleased that we were able to make a deal with Grant’s Interest Rate Observer to carry some of its articles on our Daily Reckoning website.
*** “Thirty-seven Wall Street analysts rate Ariba Inc. a ‘buy’,” writes Grant’s colleague Eric Fry. “But to judge from the actions of company insiders and numerous other investors close to this ‘Interprise’ software company, Ariba is an outright sell. Everyone seems to love this thing, except the guys who run the show. Consider the numbers. Since Ariba became a public company on June 23, 1999, insiders have filed to unload about 13.2 million shares of stock, to realize about $1.8 billion.”
*** “The Semiconductor Industry Association says the latest ‘integrated circuits’ have as many as 21 million transistors on a single wafer of silicon,” writes Dan Ferris. “They run at a speed of 400 megahertz on 90 watts of power. Within 10 years, those chips will run at 1,800 megahertz and contain 1,400 million transistors. Instead of 90 watts, they’ll draw 175 watts, almost double the power. Bigger chips, more juice.” And potential profits for investors in electricity producers.
*** The nice thing about democracy, most would say, is that it eliminates the need for coup d’etats or even civil wars to remove one hand from the public till and replace it with another. The Great Debates…and the ballot box…have replaced the guillotine in the public square or the grenade lobbed into the presidential palace. But reading about the upcoming contest between Bush and Gore makes me wonder if it was a good bargain. The two contestants will flail away at each other with clich?s and slogans…desperately trying to draw blood to delight the mob of viewers. Bloody force has been replaced by a bloody farce.
*** Cheryl Lee Terry, who must be the official ELLE magazine astrologer, is credited – at least by herself – with having “called the crashes of ’87 and ’89.” I don’t recall that there was a crash in 1989. But perhaps she called the crashes of 1998, 1999 and 2000 too – as I did. Anyway, she recently announced that Bush would win the November election. “Gore’s planet, Saturn, is in retrograde.”