April 12, 2022
The War in Ukraine was a shock to the global system that is stalling, even reversing the deflationary forces such globalization strengthened. Will the world make up with each other? It all depends on what happens next. If Putin is replaced by a leader who sues for peace, things could change.
That isn't looking imminent.
The other force is a little more alarming. Putin can be replaced and the new world order can be reinforced, we might have control over this one. What we don't have control over is productivity. Technological advances has made every worker consistently more productive. This results in a cheaper cost of labor for everything the workers produce.
This has been underwritten by an ongoing revolution in technology, which has been the primary source of prices staying stable since Pearl Jam.
Times have changed. Where technology was leading the world to lower prices, that trend has stopped.
The labor shortage started with programmers. In Israel, the cost of a developer has tripled, crippling its vibrant start-up industry. A few years ago, a dream and Wi-Fi was all you needed. Today, to get a few programmers on board, you need funding.
Larger companies boast cash balances larger than countries, like Google's current cash balance being larger than the national economy of Kuwait, or Microsoft having more money in their pocket than Hungary. They can keep bidding up the salaries. It's good if you are a programmer, not so good if you want to buy anything they are programming.
The recent war in Ukraine renders Russian hackers a level 1 threat to the entire world. Innovations like AI, Metaverse, and the cloud only add to the surge in demand, and salaries, for programmers.
This wage push inflation is taking the centrifugal force of worldwide deflation, high tech, and inverting it into a source of inflation.
There is one hope for the world . . .
There is still one place where deflation can be found. One location where costs can stay put, even continue to recede.
It's the cloud.
The cloud is where everyone shares costs for computers, developers, security, and lots of other overhead. Instead of a single company paying for all of this, a cloud platform buys millions of servers, computers, and security options to spread the aggregate cost among all of its customers.
It's a win-win situation.
The company doesn't have to hire too many developers, whose cost is rising. They don't have to buy hardware; they can outsource them to the platforms.
They also don't have the problems of ordering too much or too little. Traditionally, they would pay 15% higher for hardware so they would have the ability to scale out as their application grew. This would bloat out company budgets. Now, they only buy what they need on the cloud. If they need more resources, they can buy it on the fly.
They can also upgrade to newer servers without any major investment. Just tell the cloud to move all your stuff to the newest XY500 and that's that. If a company upgrades and needs less computing power or resources, they can scale back immediately.
These are gains in productivity and cost that can keep the pace of high-tech inflation in check.
For larger companies, the savings are significant. For small businesses, it's a matter of survival. Not having to hire as many developers, computers, even footing the electric bill is a time and money saver.
Sure, there will be inflation on the cloud as well. Amazon, Microsoft, Oracle, and Google are also paying for these computers, and they are the ones hiring the developers. But since the costs are spread out among millions of machines, and hundreds of thousands of clients, they can be spread out more evenly.
This is a nice hedge against inflation. It will attract even more companies, especially new ones to put all their IT infrastructure on the cloud.
It is a good upward momentum to the cloud providers, and it is also a promising career path for anyone trying to navigate what the bond market is telling us might be a recession.
If you learn to program on the cloud, or develop security solutions, you have a future. Even if you aren't at that level, there are so many cloud focused career paths, you can seize tons of opportunity.
What's interesting to note is that the security firms that focus on securing cloud platforms are rising at double the pace of broad cybersecurity ETFs and quadruple the pace of the S & P 500 since the Russian invasion began. That's where you want to be, cybersecurity companies that specialize in securing applications on the cloud and the cloud platforms themselves.
The demand for developers, cloud experts, and cybersecurity ninjas will contribute to wage inflation which will push prices higher inside technology, and the broader economy.
But to keep these increases from eating up too much profit margin, especially of medium size and smaller companies, using the cloud platforms to spread such cost increases around will be a bare minimum for doing business in the 20s.
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