Mid-Life MBA: The Art of Business

In his state of the union address, President Bush outlined plans to boost use of renewable and alternate fuels to 35 billions gallons by 2017, a replacement for 15% of estimated gasoline consumption in the same time-frame. With a current demand of 10 billion gallons for blending purposes, the current 5 billion gallons of production capacity plus the 6.1 billion gallons of capacity in development would push supply well past demand without the measure.

To add insult to injury, ethanol production is at least momentarily reliant on federal subsidies that contribute an estimated 51 cents for every gallon of ethanol, an important incentive as ethanol trends downward in price with gasoline.

Under consideration is a measure to boost ethanol production to 60 billion gallons by 2030.

Currently, according to Forbes, “Net of the tax subsidy, the price of ethanol is $2.04 a gallon, which is 70 cents more than the $1.34 wholesale price of gasoline. And the energy content of ethanol is only two-thirds that of gasoline.”

The picture above shows the delightful kit that more than 1.6 million, American subscribers have purchased to link up with Vonage, VOIP service.  Drawn by the concept of unlimited long distance calling at a price point of $25.00 a month and a starter package that was typically available for free after rebates, there was little disincentive at the front end to “giving it a try.”

My family did.  Unlike other VOIP offerings, Vonage is do it yourself.  The picture below shows one type of outdoor telephone box that any neophyte attempting to install Vonage service must decipher and modify in order to hook up more than just one phone. 

Online forums found by searching for Vonage in conjunction with a variety of pejorative terms suggests that the company’s subscriber base is far from stable.  Googling “Vonage” and “sucks,” for example, turns up over 200,000 hits.  A quick read of just a few of the stories would have been more than sufficient to discourage even the most risk tolerant of speculators to pass on last week’s Vonage IPO.

As it stands, Vonage stock is off 30% from its initial price of $17.00.  “Going public,” is not a panacea for company ills. A fundamental axiom for a successful IPO is that a company must offer a product that creates customer value. High subscriber turnover suggests dissatisfaction and the dissatisfied multitudes that have disappeared out Vongage’s back door would unanimously agree regarding this IPO, “I told you so.”

In this week’s Barrons, James Turk, founder of goldmoney.com talked about the rising price of gold.  Correct in his predictions so far he asserted that a reasonable ceiling in the near-future was $1300.00 per ounce with a potential for $2000.00 to $8000.00

Turk said that the price of gold wasn’t so much going higher as the dollar was going lower and compared $500.00/oz gold in 2006 with $42.00/oz gold in 1971 as a function of inflation.  He cited with some measure of incredulity and regret that the government no longer compiled M-3 statistics on dollars in circulation.  He speculated that the elimination of M-3 measurement was not so much to save the $1 million budget as it was a cautionary step to control inflationary expectations, a misstep in the long run.  At the cessation of M-3 measurement, said Turk, the number of dollars in circulation was increasing by 8% annually but with an overall upward trend. 

There do exist of course, other-than conspiratorial views regarding the elimination of M3-watching by the fed. For a well reasoned explanation of the relative insignificance of M3 to most economists visit www.econobrowser.com. Professors Hamilton and Chinn suggest that it conveys little useful information about liquidity in the economy and they assert that inflation can be assessed without it.

Quote: “There are problems with the dollar, and that’s being reflected in a higher gold price. So, truth be told, it’s not that gold is going higher — it’s that the dollar is going lower. An ounce of gold still purchases as much crude oil, essentially as it did 50 years ago, but that can’t be said about dollars.”

reference: www.Barrons.com