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Cheap Oil: Why Is It Bad News?

By Shlomo Maital

 cheap oil


   All too often, economic analysis seems to many like a good news/bad news joke. No economic news is ever completely happy, is it?   Take for instance oil prices. The price of oil has fallen below $30, and with Iran about to add millions of barrels to the excess supply every day, it looks like the price of oil will remain low for some time.  

   So this is good news, right? Cheaper gasoline, more discretionary income to spend, cheaper energy prices, and indirectly, cheaper goods and services… all good news. Because, when the past oil shocks (1973/4, 1978/9) zapped oil prices way up, the result was recession. So the opposite should cause…boom?   Right?

   If so, then why have global financial markets reacted very negatively to the oil price fall. Why is the rule of thumb – a 10 % fall in oil prices boosts GDP growth by 0.1 to 0.5 points – not longer true?   Why have global stocks fallen sharply?

   Note that the cause of the current oil glut is clear – Saudi Arabia. Its Minister of Oil (acting under the aegis of King Salman, young and highly pro-active) chose to take on Saudi’s enemies, Iran and to some degree Russia, by engaging in an oil price war and bashing prices down. Saudi Arabia can do this, because it is by far the world’s low cost oil producer. It can still make money when oil is $30, unlike Russia, Iran and most other nations. And $30 oil can kill a lot of American oil production, through fracking, and reduce competition in the long run.  Saudi Arabia though is suffering too, and the Oil Minister may yet lose his job.

   Collapsing oil prices seem to be taken by the world as bad news, not good, because: * they will increase instability in an already unstable world, in countries like Venezuela and the Gulf States; * oil producers are slashing their spending and investment, especially Russia, as oil revenues collapse; * many investment projects involving energy exploration are now on hold; * emerging market corporate debt of an added $650 billion was in oil and commodity industries; that debt is now much more risky; * Higher risk aversion to energy firms has spread to other parts of the market and other industries as well. * real interest rates are at near zero and there is no room to slash them lower.

     There are some winners. E.g., India, China, South Korea. But, notes The Economist, with the world still trying to dig itself out of the 2008 financial crisis hole, “the world could yet be laid low by an oil monster on the prowl.”

The most distressing aspect of the fall in global equities, due to cheap oil, is that it signals who really matters in the world. Big Oil, big capital, tycoons, the 0.01 per cent…THEY matter and they are the ones who are hurting. The rest of us 99.99?  Well, we benefit from lower oil prices… but since we are not players in global money, we don’t really count. 

Can You Focus On This – for 8 Seconds?

 attention span

By Shlomo Maital

   Technology is changed and adapted by human thought. But the process is circular — technology also changes human thought and behavior.   For instance, the rapid-fire images of MTV music videos, which change several times a second, caught on with young people. Same with smartphones – texting, without verbs and nouns, with emojis. Instant. Fast.

     A study of Canadian media consumption by Microsoft, quoted in Timothy Egan’s New York Times Op-Ed (Jan 23-24/2016) found that the average attention span (“the amount of concentrated time on a task without becoming distracted) has declined from 12 seconds in the year 2000, to 8 seconds in 2015. “We now have a shorter attention span than goldfish”, Egan quotes the study.

   Here at my university Technion, Sarah Katzir, who interacts with students daily, recently spoke about this ever-shorter attention span as a major problem for university instructors. Students simply are not able to stay focused for an entire 50 – minute class. And when instructors ban their use of smartphones in class, there is an outcry heard throughout my country.

     “Our devices have rewired our brains,” Egan notes. “The trash flows, unfiltered, along with the relevant stuff, in an eternal stream. And the last hit of dopamine only accelerates the need for another one.”   In other words – our ever-shorter attention spans are actually a kind of addiction, a need for a shot of ‘dopamine’ at ever-shorter intervals, from some new stimulus.

     Antidotes?  Egan has two. First, gardening. “Working the ground, there is no instant gratification”. Planting, he notes, forces you to think in half-year increments, at least. Second, deep reading. Curl up with an 800-page tome. Try, Gibbon’s history of the Roman empire. Will Durant’s history of the world. Or, Egan’s choice, William Manchester’s massive biography of Winston Churchill.   Each of us can fight that short attention span, and at the least, become as focused as… goldfish.

Read This Blog — Tomorrow

 By Shlomo Maital


   There are two personality styles, for dealing with pressing tasks.   One – reduce the tension, stress and anxiety they cause, by getting them done, now and quickly, and end the source of the stress. Two – reduce the tension, by putting off the task, “I’ll do it tomorrow”, procrastinate, and basically shove the task under the carpet.

     Which one is you?   Me? I’m the first. I do things now, quickly, often rather poorly, just to get rid of that nagging tension, that something HAS to be done, often something not pleasant. I think of myself as a creative person. But it turns out, according to U. of Pennsylvania Wharton School Professor Adam Grant, writing in The New York Times, procrastination may HELP creativity, not hinder it.   Here is his argument:

     So Jihae, now a professor at the University of Wisconsin, designed some experiments. She asked people to come up with new business ideas. Some were randomly assigned to start right away. Others were given five minutes to first play Minesweeper or Solitaire. Everyone submitted their ideas, and independent raters rated how original they were. The procrastinators’ ideas were 28 percent more creative. Minesweeper is awesome, but it wasn’t the driver of the effect. When people played games before being told about the task, there was no increase in creativity. It was only when they first learned about the task and then put it off that they considered more novel ideas. It turned out that procrastination encouraged divergent thinking.

     Our first ideas, after all, are usually our most conventional. My senior thesis in college ended up replicating a bunch of existing ideas instead of introducing new ones. When you procrastinate, you’re more likely to let your mind wander. That gives you a better chance of stumbling onto the unusual and spotting unexpected patterns. Nearly a century ago, the psychologist Bluma Zeigarnik found that people had a better memory for incomplete tasks than for complete ones. When we finish a project, we file it away. But when it’s in limbo, it stays active in our minds.

    So, hey!   Why do today what you can do tomorrow? Tomorrow – you may have far better ideas for doing it.   If you’re already a procrastinator…   enjoy! You’re on the right track.

p.s. faithful Timnovate readers: the long silence, since Jan. 9, is not because I procrastinated. My wife and I have practiced what we preach, and have innovated in our personal lives – we’ve moved our household lock stock and barrel from Haifa, from the house we lived in for 35 years, to a community south of Haifa, where we found new friends and new adventure. So far, the leap of faith is proving to be wonderful….


2016: Two Key Inflection Points

By Shlomo Maital


Two key inflection points (points implying major change) will occur in 2016, according to The Economist’s very interesting graphic. (see above).

       First, for the first time, in a very long time, the world’s wealthiest one percent will hold a larger share of total world wealth than the bottom poorest 99 percent, and by 2020, that share of the wealthy will grow rapidly, to 55 per cent!   This is a key ‘inflection point’ (point at which major changes occur), because I cannot imagine that it will bring anything but unrest and instability in the world, as the wealthy leverage their wealth to tilt political decisions and policies in their favor. Indeed the graph’s sub-text is precisely that – wealth perpetuates itself.

     Second, also for the first time,   crowdfunding, as a source of funds for startups and new ventures, will catch and exceed conventional venture capital. This is a major disruptive change for the large VC industry, and it is a change that has happened with incredible rapidity – from zero crowdfunding, essentially, in 2010, to $35 billion in 2015. It implies a different business model for startups, which now must tailor their messages more toward “crowds” than toward perspicacious (and sometimes, supercilious) venture investors.   Along with the rise in crowd-funding comes the rise in angel investments, funded by wealthy people who are willing to take bigger risks with their money (and achieve higher returns) than with conventional financial assets.

     These two changes have each occurred with great rapidity and will change our world, one perhaps for the better, one for the worse.   They are worth watching closely.

     What other inflection points have you noticed in 2016?  

McKinsey: Testing for Innovation

By Shlomo Maital

 McKinsey innovate

     McKinsey Global Research April 2015 has circulated a lovely article on Innovation: “The eight essentials of innovation” by Marc de Jong, Nathan Marston, and Erik Roth. It includes a short self-test for you and your organization. Their key point: (often repeated in this space): “Since innovation is a complex, company-wide endeavor, it requires a set of crosscutting [and at times paradoxical] practices and processes to structure, organize, and encourage it.”

     Here are the eight questions you should ask:

  • ASPIRE   Do you regard innovation-led growth as critical and do you have cascaded targets that reflect this? Yes/No
  • CHOOSE   Do you invest in a coherent time- and risk-balanced portfolio of intiatives with sufficient resources to win?       Yes/No
  • DISCOVER         Do you have differentiated business, market and technology insights that translate into winning value propositions? Yes/No
  • EVOLVE         Do you create new business models that provide defensible and scalable profit sources? Yes/No
  • ACCELERATE       Do you beat the competition by developing and launching innovations quickly and effectively? Yes/No
  • SCALE   Do you launch innovations at the right scale in the relevant markets and segments? Yes/No
  • EXTEND         Do you win by creating and capitalizing on external networks?
  • MOBILIZE       Are your people motivated, rewarded, and organized to innovate repeatedly?


     Score yourself and your organization.   Six out of 8 or above? You’re an innovator.   Five and below – you need to make some urgent changes.



Global Uncertainty: Lifting the Fog?

By Shlomo Maital


Bilahari Kausikan

      When I want some help in understanding what in the world is going on, I turn to my friend Bilahari Kausikan, Ambassador at Large in the Singapore Foreign Ministry, and until recently Permanent Secretary. Bilahari has met world leaders in person, and is an independent thinker.  Here is Bilahari’s ‘take’ on the global fog, in an essay for Nikkei Asian Review:

   The problem: “The 21st century global order is becoming more uncertain. The Cold War of the last century had one virtue: structure. The threat of nuclear annihilation focused that structure with stark clarity. Today, we still have danger — although of a lesser magnitude — but without structure or clarity.   No one really knows what will replace the Cold War as a frame of reference. More than a quarter of a century has passed since the Berlin Wall was torn down, but we still call that period the “post-Cold War era.” Ours is an age without definition. Without a global structure, there can be no leadership. Without leadership, many urgent issues will be left unresolved or dealt with unsatisfactorily, exacerbating uncertainties.”

     What made it worse: “There was a brief post-Cold War unipolar moment, during which the West seemed to define the world alone. The illusions that flourished in this short period were immensely damaging, particularly in the Middle East, where the interventions that destroyed the existing regional order were justified by the illusion of the universality of certain interpretations of democracy and human rights.   The disintegration of first Iraq and then Syria shattered the regional balance. Chaos in the Middle East has global ramifications that will play out for many years to come. But the illusion of universality has not yet been discredited and still contributes to the difficulties of establishing a new, stable global order. Notwithstanding loose talk about multipolarity, the U.S. is still dominant in most indices of power. But the U.S. clearly needs help to exercise leadership, as it did during the Cold War.”

   So who will step up to help the U.S.? Europe? Forget it. “The region is tangled in knots of its own making” (the worst kind!). BRICS? “Not much unites the BRICS except a vague dissatisfaction with the existing order and the desire for greater recognition of their status. But they are not all equally dissatisfied, and the sources of their discontent are not identical.” China? “China has neither the capacity nor the interest to do so, even in East Asia, its backyard, where Beijing is assertively pursuing a role that is in accordance with what it believes was its historical position and what it believes are its territorial rights. President Xi Jinping’s “One Belt, One Road” strategy is an ambitious vision of a Sino-centric transcontinental order. Can the vision be fully realized? Can China be “contained”? Should it? Does the vision require the U.S. to be displaced from East Asia? There are as yet no clear answers.    The fact is that neither the U.S. nor China really know what they want from each other, even as they each seek a new modus vivendi. The strategic mistrust that permeates the Sino-U.S. relationship, which is rooted in the universalist illusions of the U.S. on the one hand and Beijing’s triumphalist nationalism on the other, do not make the search for accommodation any easier.”

     Confusing? Ambiguous? Uncertain? Even, dangerous? Indeed. But at least, Kausikan helps us understand why.   And who will do best in this confusion?

   “The successful will be those who have best learned to live with uncertainty.” And that uncertainty, globally, will be with us for a very very long time.


Blog entries written by Prof. Shlomo Maital

Shlomo Maital
January 2016