Flostock News #14 Industrial Production

Oscillations continue only if energy is added, according to Flostock’s 14th Law of Demand

Continued oscillation

We know that if you drop a golf ball on concrete it will bounce a few times, then lay still. Now suppose a golf ball is bouncing down a long downhill road with a stable slope and the extra energy from going downhill (mgΔh) is just enough to compensate for friction and elastic energy dissipation: the bouncing may continue for as long as the slope allows. When the angle of the road steepens, the bounces become higher, and can escalate to extremes. When the road levels off, the bounces become smaller and can disappear completely. Suppose in a second scenario that a ball is rolling, not bouncing, down the same downhill road, so the ball is not in oscillation. When the ball hits a small stone or crack in the surface it may start to oscillate and depending again on the slope, it may continue bouncing for a long time. The same applies to oscillations in the economy and the supply chains, including the hog cycle, and the IC industry.

Alternative 5 to the Flostock method: Naïve forecasting

Predict no evil, see no evil.

The naïve forecasting method is also the simplest. In effect it means that you assume that tomorrow is today. Forecast by doing nothing. Thirty years ago the best weather forecast was by looking out of the window. If one said that tomorrow would give the same weather as today, your accuracy was higher than that of the weather channel.  Advantages are of course that it is cheap, fast and simple. And it does not give a false sense of sophistication and wisdom. It forces the organization to be flexible and adaptive. And in some situations it can work, e.g. if all alternatives fail, or if a company is monopolist, or so rich it does not matter, or if the business is very stable. That means that for most companies in the real world it is not good enough. Call Flostock if you want to change.  

The relations between Retail, Construction and Industrial Production

Since early 2013 the so-called Key Economic Indicators called Retail, Construction and Industrial Production all three are going up in Europe, as you can see in above graphs, which is great for the economy. If you want to understand the connection between these seemingly unrelated graphs you have to look at the supply chains that connect them: Retail and Construction are “True End Markets”, and spending in these end markets drives Industrial Production. Only when products are taken out of the long supply chains, the manufacturers can enter new products into the beginnings of the chains. With good modeling, including the Lehman Wave, these relations can be quantified, as Flostock has published on www.mejudice.nl (in Dutch), platform for economic discussions, and in Chemistry Today.


Industrial Production

Electricity is a Flow, while Oil, Gas, and Coal are Stock energy sources.

Electricity meter.

If you see electricity as a flow, it is immediately clear what the problem is with wind and solar electricity: these are also just flows, without storage, thus without buffer and thus  without backup. The word renewable is confusing because it suggests that it refers to a stock, which it isn’t.  Fossil fuels are renewable, that is if you can wait 300 million year. Wood and biofuel are renewable. Wind and solar energy should be called Derivables, because they are derived at the spot, in a continuous process, from natural flows.  Flows cannot be renewed, because they happen. You cannot renew something that happened in the past. The light of the sun that shone yesterday, cannot be retrieved today. But you can derive electricity today from sunlight arriving today.

If the Derivable flow is interrupted on a cloudy, windless day, there is NO current coming.  This makes it essential to have a back-up capacity based on Stock sources, with a buffer, like coal, nuclear and gas-fired power plants. Modeling the European electricity situation should include the multiyear power plant capacity cycle, demand growth, e-driving, governmental and EU politics around renewables, subsidies, CO2-credits, nuclear, desired level of security of oil & gas supply, the learning curve in solar panels, improved batteries, household production, transport net capacity, etc , etc .