Paul Erdman, the economy and Silicon Valley.
I recently heard a talk by Paul E. Erdman at a writers' conference in San Francisco. Erdman is the fellow who, while working for the United California Bank in Basel, Switzerland, was caught with his hands in the cookie jar and served time in a Swiss jail, convicted in a banking scandal.
While in jail, he launched a writing career. His The Crash Of '79 became a best-seller and was acclaimed for its prophetic accuracy and for the way it made complex international monetary matters simple and understandable. Erdman has been labeled "America's most audacious oracle" with "a crystal ball of his own."
Among Erdman's uncannily predictive books are:
* The Billion Dollar Sure Thing, a novel which deals with gold and the dollar. In the book, gold goes way up, and the dollar goes way down (it was written before gold soared to around $800 per ounce several years ago).
* The Silver Bears, a story about several speculators who try to corner the silver market. The attempt ends in disaster. The Silver Bears was also prophetic; it was written before the Hunt Brothers silver debacle.
While Erdman's talk focused on the U.S. economy in general, he had some interesting insights into the computer industry.
Erdman recently completed his first non-fiction work in which he predicts how the U.S. economy might evolve over the next two to five years. He presents both pessimistic and optimistic scenarios:
Pessimistic: The Third World debt (they owe about $700 billion to the International Monetary Fund) and immense U.S. budget deficits will force interest rates back up to the $20% level of 1980. By 1984-5, we will be in the same mess we were in 1980.
Optimistic: GNP will continue to increase by 6% annually (as it is now), swelling U.S. tax receipts and decreasting the deficit. Demand for product will increase, and the economically imperiled Third World nations (such as Brazil, Mexico, and Costa Rica) will pull out of their current crises. (An aside: Mexico is solving part of their problem by exporting unemployment. Guess to whom?) We will see a dramatic economic recovery and return to the prosperity of the Eisenhowever 50's.
Erdman doesn't think what either of these scenarios will actually occur. The future, he feels, lies somewhere in between. He predicts that interest rates will rise a little bit (they have, in fact, been rising slowly since May) and stabilize, certainly at least until the 1984 election. His investment advice: stay with "financial assets" (e.g., stocks and bonds) a year and a half or so. Then watch carefully and be prepared to shift into hard assets (e.g., gold and silver).
Erdman also noted "Problems In Paradise" as he called the trouble in Silicon Valley. He sees two problem companies: Atari and Texas Instruments (the speech was made after the TI loss was announced, but before the $300 million Atari deficit).
"But," he adds, "that ain't high tech; that's low tech. A lot of 18-year-olds could bluid Ataris in their garages."
Erdman assesses TI as a component company that got greedy and went into equipment. "Silicon Valley (the computer industry in general) is by no means dead," Erdman states, "and could be as alive now as it was when it started 20 years ago. I hope so, because its growth is critical to the U.S. economy."
Erdman predicts that the U.S. will win the race with Japan to develop the 256K chip despite many ominous forcasts to the contrary. This is due, he feels, to two factors:
* Much innovation and creativity is occurring in homes, attics, and garages around the country "as Steve Jobs did with the Apple. You can't do this in Germany--you'll get arrested for espionage--or in Japan."
* The availability of venture capital gives the U.S. a significant advantage. Germany and Japan are dominated by universal banks; they have no concept of venture capital.
Erdman believes that Silicon Valley will constitute the country's key growth industry during the 1980's. "In 1990," he goes on, "the industry will be genetic engineering; companies such as Genentec will blossom in about 10 years."
Erdman predicts the U.S. will also prevail against Japan in this race and assume a leadership role.