It is that time of year again: we've just returned from our annual Predictions Dinner in New York, and I'd like to share my predictions for the coming year with our members . 

As always, before I do, I'll add a few ideas about the high and low points in the economic and technology landscape, since these not only help determine the reasons for our Top Ten, but also may be helpful to you in many other questions you may have relating to your own (or your company's) plans for 2014.

We will also be releasing video material of this evening talk during the next week or two, for those who wish to see the entire presentation. 

The Economic Landscape

China:

This year, in looking at the economy, and in the wake of China's newly announced Air Defense ID Zones (ADIZ), I decided to add a look at "Interpreting China's Threats," to understand China's increasing use of threats against companies and countries in its foreign and domestic policies.

Without going into detail here, I suggest that there are two primary drivers behind this ramping-up of aggressive behavior.

First, there is the national business model (which we have termed InfoMercantilist II) and how it forces a dictatorship into aggressive behavior in order to maintain Communist Party control, in an era when Marxist economics is dead.

Second is the question of defining what Xi Jinping called his "China Dream" during his rise to power, which certainly carries historic and nationalist overtones, but which remains poorly defined, inside and outside China. I would suggest that getting a better understanding of this vision, for outside companies and countries, is a first-order requirement if understanding these and other moves by China are to fall into understandable patterns.

Does the "Dream" include retaking all territory ever controlled by China, including Mongolia, Taiwan, Macau, and the entire East and South China seas? Does it include some larger version of triumphalism, win/lose, "our turn," on the economic, political, and/or military stages?

To some degree, we already know the answer is Yes to all of the above; now, we need to understand exactly how far this personal vision of China's future extends. I will note that, although no one has written about it yet to my knowledge, the real impact of the new ADIZ is likely to be on Taiwan, which is much more threatened by its proximity than Japan, South Korea, or others.

The EU:

With per-nation productivity now driving essentially everything political inside the Monetary Union, the most recent view seems to be that Italy is in deep financial trouble, while Germany outpaces other EMU members, and the Northwest outpaces the Southeast.

The US:

This country continues to walk a path between great prospects and self-inflicted wounds.

Under the latter category, the sooner we can convince politicians they will be kicked out if they don't govern, the better. The world thinks we are nuts, and they're right. Perhaps the recent budget deal between Sens. Murray and Ryan will set a new tone; if so, the national and global economy will be more stable.

We also have to reduce lobby controls of Congress of all kinds, but particularly by banks. To that degree, the apparent future passage of the Volcker Rule is an early shoot, a first good sign that we might be moving away from Banks Owning DC. Both of these recent turns are cause for cautious optimism. 

Finally, it seems to me that something bad happened in the September / October timeframe: even as Wall Street was heading further north into uncharted territories, Main Street was taking a dive. Was this real? Is it the front end of something much deeper?

I will admit to being concerned. And Wall Street will be the last to "get it."

Given all this, the US has great prospects. Among them are:

Japan:

I remain convinced that Japan is keeping two sets of books, only one of which (onshore) shows up in GDP and related national economic figures. Given this, Abe seems now to be in a predictable trough, on his way to higher consumer taxes but losing support for reform as the nuclear industry - his third stool leg, goes completely dark.

Japan will not grow as fast this year as others had hoped.

Russia:

I believe this is a hopeless case, and the people of Ukraine seem to agree, gathering by the hundred thousands in the streets to protest Putin's threats and their result: the seeming cancellation of the Ukraine/EU agreements. 

I would ask how Putin must feel to see so many free people in record-setting protests at the thought of remaining related to Russia, but I don't think I have to.

The UK's China Pivot: 

This has gone from last year's commentary about the UK not having an obvious future economic strategy to suddenly seeing what it is: losing sovereign control in favor of Chinese cash. 

I don't call that a strategy; rather, it's a tragedy. Trading off the security of the national infrastructure, having the PM fawn in public over a check for $1B+, and seeing Cameron and his team doing kiddie photo ops in China, even as Biden was trying to discuss military aggression and crown jewel IP theft by the Chinese state -

How very, very embarrassing. If you're British, I'm sorry. This is going to get worse before it gets better.

India: 

Even as it seems endlessly stuck in a mire of corruption and caste issues, India will manage a decent GDP this year, remaining an upbeat part of the global story.

Iran: 

Ok, I don't get it. I think Iran already has the bomb, and tested it in North Korea in the last test there (which was far beyond the prior test in quality), and the North Korean nuclear scientists in Iran were very helpful in putting it together. Why test at home and get bombed when you can test in NK?

The Middle East and Africa:

Forget al Qaeda - they are so Yesterday. The global battle now is between Shia and Sunni, and everyone else should likely stay out of the way. On to the next thousand years of religious bloodletting -

South Korea:

The ultimate Infomercantilist I model state is just getting richer. Where does Samsung end and South Korea begin? Does anyone care?

The real question this year is not Will Samsung Korea (no, that was not a typo) make money, but how PM Park will balance her distaste for Japan with her new fear of top trading partner China. She's having a very bad week, even as the nut-job up in NK dumps the wise uncle and starts building more batteries on its southwest coast.

And here are some of the high points that will define the Technology Landscape in 2014:

The Technology Landscape

Predictions Accuracy

As SNS members can see, we have had a slight bump down this year (2013) in accuracy predictions, caused primarily by e-books failing to overtake adult trade paperbacks in sales by dollar by year's end. On the other hand, an early analysis last week that showed a stumble on the issue of how many homes in the US now using streaming for TV has been upgraded, after replacing bad data on the smaller figure for changeovers to data on all streaming. Our thanks to Chet Dagit, a past Comcast executive, for the information.

Here is our history to date:

Past predictions accuracy tabulations:

   2005-2011, Seven-Year Average: 94.6%

   2012 Year Score: 93%

   Total Average since 2005, including 2012 Predictions:  94.4 %

 Given the above landscapes and issues, here are my predictions for the coming year:

Top Ten Predictions for 2014:

I hope that this picture of 2014 provides all of our members with useful information and planning guideposts. Together with all of the other predictions from our weekly Reports, it promises to be a year full of challenges, with more craters available than usual.

Your comments are always welcome.

Sincerely,

Mark R. Anderson

Quotes of the Week

   "Setting up such airspace unilaterally escalates the situation surrounding the Senkaku islands and has the risk of leading to an unexpected situation." - Japan's Foreign Ministry, in a press statement after China announced its new Air Defense ID Zone.

   "The new Chinese rules mean aircraft have to report flight plans to China's Foreign Ministry or civil aviation administration, maintain radio contact and reply promptly to identification inquiries, keep radar transponders turned on, and bear clear markings of their nationality and registration." - Xinhua News, on the Chinese ADIZ.

   "It is a necessary measure in China's exercise of self-defence rights. It has no particular target and will not affect the freedom of flight in relevant airspace." - Chinese Defense Ministry spokesman Yang Yujun, in an interview carried byXinhua.

   "We have continued to follow our normal procedures, which include not filing flight plans, not radioing ahead and not registering our frequencies." - US Colonel Steve Warren of the Pentagon; on the BBC News.

   "We did not see an immediate threat coming from the housing market, but we are concerned about the evolution of the housing market." - Bank of England Governor Mark Carney, on backing off from the Funding for Lending mortgage scheme.

 Mr. Carney appears to be wisely afraid of the British housing bubble.

   "What makes a man-in-the-middle routing attack different from a simple route hijack? Simply put, the traffic keeps flowing and everything looks fine to the recipient." - Renesys, in a blog post from the company on recent diversions of Net traffic through Belarus and Iceland by unknown actors.

   "The world is quickly being divided into companies that are secure and companies that are not." - Bhaskar Chakravorti, Dean of International Business and Finance at the Fletcher School at Tufts University; quoted in the New York Times.

    "The idea that the government may be hacking into corporate data centers was a bit like an earthquake, sending shock waves across the tech sector.  We concluded that we better assume that there might be such an attempt at Microsoft, or has already been." - Brad Smith, Microsoft general counsel; on Forbes.com.

   "The worst is yet to come." - An unnamed US official, on the Snowden leaks yet to be published; quoted in Reuters.

   "Security experts have uncovered attacks exploiting a zero day vulnerability in Japan's most popular word processing software, bearing all the hallmarks of a Chinese group blamed for last year's New York Times hack." -  The Register.

    "It is very dangerous for us as a society - I'm speaking of America - to focus on blaming others, because what you do then is you don't focus on your own practices." - Mayor Michael Bloomberg, just before it was discovered that his company was self-censoring by killing major stories on Chinese corruption, in apparent response to Chinese non-renewals of permits and visas; quoted in the New York Times.

   "He said, 'If we run the story, we'll be kicked out of China.'" - An unnamed Bloomberg employee, describing an internal call with editor Matthew Winkler; quoted in the New York Times.
 

   "It's a very real concern of these countries to keep their currencies weak." - Axel Merk, Merk Investments forex manager; on Bloomberg BusinessWeek.com.

Yes, that's why we re-awakened the term "'Currency Wars."'

   "It's really outrageous that the NSA was looking between the Google data centers, if that's true. The steps that the organization was willing to do without good judgment to pursue its mission and potentially violate people's privacy, it's revelations have assisted us in understanding that it's perfectly possible that there are more revelations to come." - Google Chairman Eric Schmidt; quoted in the Wall Street Journal.

   "If we want to build 500,000 [cars], we need cell capacity commensurate with that. That might be more, or at least on par with, all lithium ion production in the world today. We're in the process of figuring that out. There might need to be some giga-factory built." - Elon Musk, SNS member and CEO of Tesla Motors.

Upgrades

» The First Carbon Nanotube Computer

Two Stanford scientists recently announced the creation of the first carbon nanotube-based computer, complete with operating system, applications software, and 178 transistors. 

To those who are used to numbers in the millions, 178 may not sound like much, but given the difficulties based on carbon often being too fast a conductor to allow it a manageable switching role in transistors, it's a breakthrough.

The announcement by Subhasish Mitra and Phillip Wong follows in the technical footsteps of the first development of carbon transistors 15 years ago by Cees Dekker at Delft University, and was heralded by Dekker as a major step forward.

The basic conflicts offered with this material are improved internal conduction speed and efficiency vs. a more difficult current technical toolkit for moving and assembling the tubes in exact locations.

One solution to stray tubes that might have shorted out the system? Sending a massive current into the device, literally burning out unwanted connections. 

Welcome to the new world.

The current computer system runs at about 1KHz, a tiny fraction of the GHz speeds of major silicon processors today. It can count and sort - two basic functions of all processors - and can flip between these applications.

While performance is meager to date, this achievement is not about clock speed. We should all be glad to see a new, workable technology coming of age which uses carbon, promises increased performance as it matures, and offers a door to a technical world beyond that of silicon.

Nice work, guys.

Takeout Window

» Chip Wars

 Looking at units of chips shipped and forecast gives a very clear view of the SNS Big Shift - in geographies, device types, and pricing:

» The Now-Famous Path of Uncleared US B52 Flights through China's Air Defense ID Zone

Ethermail

Re: "SNS: MALT: A New Killer Category"

Mark. 

Fascinating. There are also huge public safety implications here. Thanks, as always.

Brenda Cooper

CIO, City of Kirkland, WA, and
Sci-Fi Author

Mark,

Great note, thanks.

Minor point, but there is a fairly serious kind of cancer called MALT Lymphoma. Not well known, but the combination of MALT and "killer" may be something you want to know about. (I used to be a biotech investor, specialising in oncology treatments.)

Best regards, and keep up the good work,

Duncan Stewart

Deloitte Canada

Subject: Cisco vs. Huawei report

Mark,

I think you'll like the below Reuters report since it is more in-depth than most other like media articles I have read and also includes candid insights from ex-Cisco executives:

<https://news.yahoo.com/insight-cisco-huawei-bruising-rivalry-reaches-stalemate-152427113--finance.html>

Looks like Chambers' long-term infatuation with China blinded him to what reality was/is -- even to the point where he gave a deaf ear to stark warnings issues by his trusted executive team.

Maybe Chambers, who, I believe, did a phenomenal job as CEO for nearly two decades, has lost touch with the newest game-changing realities of the global market place. If so, time to pull a Ballmer and hand-off the baton to a younger, more up-with-the-times, successor. 

John Petote

CEO, CIO Solutions
SNS Ambassador for Angel Investing
Santa Barbara, CA

Re: "SNS: Special Alert: China Ramps Threats Into Military Options"

Mark,

It's front page news in Japan, and in the Asian Wall St. Journal and International NY Times.

Great. Anschluss in the Pacific.

An immediate problem for Abe, but [it] plays right into his hands regarding military buildup and constitutional revision.

China is making 100 million enemies in Japan and 600 million friends for Japan in SE Asia. And making the US military welcome in both places.

Scott Foster

Private Equity Analyst and

SNS Ambassador for Asia Research

Tokyo


Mark,

I really hope it doesn't happen but this crazy move by China could represent the seeding of WWIII. At the very least, Japan can be expected to accelerate the rebuilding of their military and advanced weapons. One scenario way worse than the other, but both bad ones.
 
I can only wonder if China would have made this move if the U.S. didn't publicly announce that it was supporting Japan militarily over these islands or perhaps the NSA picked up on China's inattentions beforehand and thus is the catalyst for the U.S. announcement?? If the former, we made a stupid move. If the latter, that strategy didn't seem to work out so well.
 
John Petote

            Scott Foster responds:

John,

The Japanese press shows a map of the area in China's no fly zone. It's much bigger than the Senkaku Islands and appears to cross the midpoint line between China and Japan. You're absolutely right that this will cause Abe to accelerate Japan's military build-up, not back down. In addition, as I mentioned in my note to Mark this morning, China has made 100 million or more enemies in Japan, and 600 or so friends for Japan in Southeast Asia. Combined with China's claim to most of the South China Sea, and to Taiwan, and its statements that Okinawa is not Japanese territory, we now have Anschluss in the Pacific, courtesy of national socialism with Chinese characteristics.

If the U.S. had not declared that the Senkakus are covered by the Japan-U.S. Security Treaty, China might have occupied them already. As for China's intentions, they have been announced repeatedly by government officials and academics. It doesn't stop with the South and East China Seas. Mongolia and the Russian Far East are also targets. The goal is to regain China's maximum territorial expansion, and maybe then some. We should - but few do - recall the Communist insurgencies in Malaysia and Indonesia. Many if not most of those Communists were ethnic Chinese. This goes way back.

Discussing this subject at the office today, one of my colleagues recalled a similar conversation with a Russian fund manager we all know:

"China has a huge population."

"Yes, but it can go down very quickly."

Scott Foster

Mark,

[You are] dead right about this one. If anything [you] understate the danger. China, likely taking advantage of a weak and enfeebled U.S. President and dysfunctional government, has just marched into the Sudetenland. 

Far more threatening and dangerous to America than anything in the Mid East.

Bill Budinger
Rodel Foundation
Aspen, CO

Subject: Hey, at least they have a sense of humor

Mark,

In America, we're used to our government, our industry and our media putting a spin on events to make the world seem a brighter, better place than it really is. But China is showing some impressive spin talent of its own, with a rationalization for pollution that is, quite literally, breathtaking.

Much of China has been suffering through choking smog in recent weeks, which has hampered daily activities and forced the closure of schools. In response, the government published a list of reasons documenting the benefits of smog. Yes, benefits.

A Time magazine translator indicated that Global Times offered up the following rationalizations for smog:

1. It unifies the Chinese people. 
2. It makes China more equal. 
3. It raises citizen awareness of the cost of China's economic development. 
4. It makes people funnier. 
5. It makes people more knowledgeable (of things like meteorology and the English word 'haze').

William Lohse

Founder, Pivot Conferences
NYC

Bill, 

What kind of prior brainwashing would it take to make the above spin seem in any way reasonable?

That's the scary part.

Mark Anderson