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―  THE FRIDAY LETTER  ―

(emailed weekly, from Gilder Publishing,
for friends and subscribers)

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 | http://www.gilder.com/ | Issue 256.0/July 21, 2006

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HEADLINES:

▪ The Week / Can Intel Gain Back Lost Ground?
▪ Friday Feature / The Art of Navigating Arteries
▪ Friday Blogger Bonus / Inflation Remains a Real Threat
▪ Readings /

Gilder/Forbes TELECOSM Conference October 4 – October 6, 2006 The Resort at Squaw Creek | Lake Tahoe Don’t miss: - STEVE FORBES, Editor in Chief, Forbes magazine - GEORGE GILDER, Editor in Chief, Gilder Technology Report - PETER HUBER, Senior Fellow, Manhattan Institute - ANDY KESSLER, Wall St. Meat, Running Money, The End of Medicine - MICHAEL MILKEN, Chairman, Milken Institute; Chairman, FasterCures - ROBERT MUNDELL, Nobel Laureate & International Economist - JOHN RUTLEDGE, Global Economist, Rutledge Capital - AND dozens of today’s top high-tech thought and business leaders TIME IS RUNNING OUT: You Must Register BEFORE JULY 31 to SAVE OVER ½- OFF the Forbes.com Registration Fee

 

The Week / Can Intel Gain Back Lost Ground?
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GTR Tech Analyst Charlie Burger (7/20/06): It’s show time for Intel (INTC). Can Mr. Microprocessor gain back lost ground on its feisty foe? We don’t know the answer yet, since yesterday’s second-quarter sales were based almost exclusively on the older architectures that got Intel into trouble in the first place. In a hurry to prove itself, the company has introduced some of its new products ahead of schedule. The industry’s first 90-nm chipsets for desktops began shipping in early June with “healthy yields,” and launching next week will be Conroe, the dual-core microprocessor for desktops based on Intel’s new Core architecture. The first quad-core processors for servers and desktops will ship later this year, ahead of the planned 2007 launch.

 

As for the next year, the wafer is cast, and now we must watch for uptake from the new lines of power saving chips and new processes. Technologically, Intel is on the right track. Conroe, for example, offers 40% more performance and 40% lower power than Intel’s previous best. Microprocessors based on Core have generated the largest number of design wins at launch in Intel history. While refocusing on power savings, Intel has not dropped the ball on process shrinks, also critical for portable devices. The company now manufactures most of its microprocessors at 65 nm, where it’s getting high yields on 300mm wafers. Look for 45 nm production to begin by the end of next year, and tri-gate transistors to follow at 32 nm in 2009.

 

With its new Core architecture at the high-end, Intel is taking a broad, three-tier market approach that includes Pentium at the mid-range and Celeron at the low end. Based on that groundwork, it’s hard to imagine the company not booming back next year and beyond ….

Excerpted from posts on the www.Gildertech.com subscriber-only message board. To find out why Charlie Burger’s not entirely enthusiastic about Intel, visit www.Gildertech.com and login with your GTR subscriber ID.

The End of Medicine, by Andy Kessler Meet Andy Kessler at the Gilder/Forbes Telecosm 2006 speaker book signing, October 4, at the Resort at Squaw Creek in Lake Tahoe, California. (Learn More) Purchase The End of Medicine in the Gildertech.com bookstore: http://www.gildertech.com/bookstore.html

Friday Feature / The Art of Navigating Arteries
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Health care has always been the White Whale to Silicon Valley entrepreneurs. Recall "The New, New Thing" (1999), in which Michael Lewis chronicled venture capitalist Jim Clark's efforts to upend the status quo with Healtheon (now part of WebMD). Mr. Clark hoped that his new company would smooth down the rough inefficiencies in health care by digitizing medical records and joining doctors, patients and payers in a streamlined--and online--system. The verdict is still out; the results, so far, have been modest.

Andy Kessler has similarly grand ambitions, although without the venture-capital part. "Why," he asks, "can't medicine scale the way computers do?" In information technology everything can be reduced to chips, which keep getting smaller and cheaper, making costs go down. In medicine, everything works in the opposite way. Costs keep going up. Why?

To answer the question, Mr. Kessler sets out on an odyssey that takes him from Stanford to Harvard to Memorial Sloan-Kettering in New York to the Fred Hutchinson Cancer Research Center in Seattle, with a lot of stops in between. A former financial analyst who chronicled his Wall Street adventures in "Running Money," Mr. Kessler has the spirit of an inquisitive iconoclast and the manners of a standup comedian. His investigation is conducted in a bumptious first-person style that can be entertaining, if a little exhausting. By the time he is finished, though, he has made a serious point: Even discounting for hyperbole, we may eventually be able to imagine the "end of medicine."

 

problem right now, as Mr. Kessler sees it, is that we fight the "big three"--cancer, stroke and heart attack--with treatment rather than early detection. Cancer cells and blood-vessel plaque can be handled much more easily in the early stages, but we spend most of our money on the later ones. More than 80% of health-care dollars are paid by insurance companies and the government, and neither is especially interested in detecting disease when it first appears. Doctors, regulators, researchers and payers of all kinds are locked into what Mr. Kessler calls--a bit ungenerously--the "cholesterol and cancer conspiracies."

 

A complicated system of mutual dependency distorts the incentives. "The FDA is like the FCC and Big Pharma is like the regional Bells" is what Mr. Kessler hears from Don Listwin, a former Cisco executive who now heads the Canary Foundation, a Silicon Valley-based effort to promote preventive medicine. In other words, in medicine as in telecom, the big players end up exploiting regulations more than opposing them, if only to preserve their monopolies.

Read William Tucker’s entire Wall Street Journal review of The End of Medicine:
http://www.andykessler.com/andy_kessler/2006/07/wall_street_jou.html#more

Read an excerpt of Andy Kessler’s The End of Medicine:

http://www.andykessler.com/andy_kessler/2006/07/excerpt_ct_anxi.html#more

A N N O U N C I N G :  The Gildertech Blog Logon to http://blog.gildertech.com/ to see what’s new.

Friday Blogger Bonus / Inflation Remains a Real Threat
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 Look at these charts of commodity prices:

-- Five-Year Corn

-- Five-Year Oil

-- Three-Year Aluminum

-- Three-Year Gold

-- Three-Year Copper

All are up. The price pop for each could be explained by unique market conditions. For example, droughts have pushed up corn prices. Oil is driven by Middle East war. Gold by ETF volatility. And so on. But when ALL COMMODITIES march up at the same time, something larger is going on.

 

That would be inflation. There are too many dollars in circulation. Even after 17 straight rate hikes.

 

Our friend David Malpass of Bear Stearns thinks inflation remains a real threat, and we agree. The good news, says Malpass, is that the U.S. economy is robust enough to absorb another full point of hikes. But the Fed needs to do this sooner rather later. Here is Malpass:

 

"Fed Chairman Ben Bernanke's July 19-20 testimony conveyed the Fed's view that 'the economy should continue to expand at a solid and sustainable pace and core inflation should decline from its recent level over the medium term.' We liked several aspects of Dr. Bernanke's presentation, though we are skeptical of the Fed's economic outlook and the market's latest assessment that the Fed will soon pause and then cut rates. We think the Fed is underestimating growth and inflation and the market is underestimating the coming rate hikes.

 

“Looking at the Fed’s economic outlook, we observe:

"1. The Fed has real growth of 3.25%-3.5% in 2006. To get there, growth would have to slow to 2%-2.5% in the second half of 2006. This seems inconsistent with recent data on profits, income, weekly jobless claims, ISM readings, record low inventories relative to sales and solid consumption growth into July. It's also inconsistent with the Blue Chip and Bloomberg consensus estimates of second-half growth at 2.85%.

 

"2. The Fed has unemployment rising to a 4.75%-5% fourth-quarter average rate from the current 4.6%. Job growth would have to be below 85,000 per month to reach that. 

 

"3. The Fed has the core PCE deflator at 2.25% to 2.5% year-over-year in the fourth quarter of 2006. Assuming no upward revisions on July 28, the monthly deflators would need to stay at 0.2% through December, the same pace as January-May. We don’t think this is consistent with the rise in the core CPI basket and with other signs of inflation in the economy."