The Finances of Space

[JoeSchmuckatelli]

Don't exactly know where to put this: but Isaacman (of the 'Buy a few flights on SX' fame) comments about the investment environment and the rising cost of money as interest rates go up.

 

Quote

 

“We’ve just come off 15 years of a near-zero interest rate environment that encouraged risk taking,” said Jared Isaacman, the billionaire founder of payments company Shift4, during a Washington Post webinar Oct. 3. Isaacman is best known in the space industry for leading the Inspiration4 private astronaut mission on a Crew Dragon last year and backing the Polaris Program of private missions with SpaceX.

“A lot of industries and a lot of companies were formed that, in more challenging times, would never have been able to survive. That’s not exclusive to space,” he said. “The space industry received a lot of capital, and I am definitely concerned they don’t continue to receive it.”

He predicted that many space startups, as well as those in other technology sectors, will struggle to raise money. “A lot will go away, just like I think across tech and other industries. You’re going to see a lot of business failures as interest rates are now essentially going through the roof,” he said. “In that environment, you have to pick your battles as to where you deploy your capital from an investor’s perspective.”

 

Space companies face difficult investment environment - SpaceNews

 

[Codraroll]

Space always has the fundamental hurdle that it's far away and there's nothing there. That's great for communications, which aren't too fussed about the distances involved, but sending anything other than electromagnetic waves through space is quite expensive. I guess some industries can take advantage of the "nothing there" bit, but the "far away" thing becomes such a cost driver it's probably not worth the bother. 

We can always hope that costs are one day driven low enough to overcome the fundamental hurdle in at least some cases, but a lot of money has to be invested until then. It'll be interesting to see if we get there in my lifetime.

Edited October 12, 2022 by Codraroll

[DDE]

Allow me to repost this one as well

https://medium.com/prime-movers-lab/2023-will-be-the-year-that-the-new-space-bubble-pops-21f228db355f

[DDE]

16 hours ago, JoeSchmuckatelli said:

"We’ve just come off 15 years of a near-zero interest rate environment that encouraged risk taking"

* 14 years, it would seem. Or maybe a bit less. It seems that COVID and the Ukrainian not-war happened as grand sendaway to the crest of the post-2008 economic cycle.

Welcome to inflationworld, everyone, where a guaranteed interest rate of 2% isn't enough for a consumer like me to even pick my phone up... at some point, the way lendings constantly lose value has to knock out at least some mechanisms of capitalism, and thus prevent someone from simply raising money through debt rather than direct investment. The whole start-up culture really was a product of people looking to shove money into something...

[StarStreak2109]

The problem to me seems to be that there is not yet sufficient return on investment in going to space. Financing your space ventures will not be a problem, even with higher interest rates, if there is a robust business case.

In the meantime, working on reusability and generally bringing down the launch costs is key to further developing the space industry.

[JoeSchmuckatelli]

3 hours ago, DDE said:

Allow me to repost this one as well

https://medium.com/prime-movers-lab/2023-will-be-the-year-that-the-new-space-bubble-pops-21f228db355f

That was a good read.  Thanks! 

[tater]

There were already too many startups for a very limited market. As has been said in other threads, the existing commercial space market is chump change, even if a company was able to secure 100% of it.

From a technical standpoint, the move to small and micro-sats is largely because of cost pressure on launch. As that decreases (<cough>SpaceX</cough>), that already small dollar value market shrinks.

The elephant in the room being Starship. If they make it work, it obviated everything else, and we end up with no reason for smaller payloads at all. The pivot to larger, reusable launchers (Rocket Lab, Relativity, etc) is showing that smarter companies have already seen this.

[JoeSchmuckatelli]

2 hours ago, DDE said:

* 14 years, it would seem. Or maybe a bit less. It seems that COVID and the Ukrainian not-war happened as grand sendaway to the crest of the post-2008 economic cycle.

Welcome to inflationworld, everyone, where a guaranteed interest rate of 2% isn't enough for a consumer like me to even pick my phone up... at some point, the way lendings constantly lose value has to knock out at least some mechanisms of capitalism, and thus prevent someone from simply raising money through debt rather than direct investment. The whole start-up culture really was a product of people looking to shove money into something...

I remember a time when interest rates (for home loans) were like 13%.  While I wasn't quite aware of the overall picture back then, I'd be thrilled if the money I have in the bank made anything, today.  Back then (at least in the US) people kept about 10% of their after-tax dollars in savings.  By 2012 that was down to 4% - and it has remained relatively flat since then. 

Somewhere along the way governments became convinced that the best thing for an economy was hyper liquidity - where it made zero sense to allow people to have their money sitting in a bank, earning interest through the traditional savings and loan metrics (not "Savings and Loan") of bank lending.  They wanted people's money in the market - where different players could allocate investments and the big players might invest their (or others') money in Interesting and speculative ways free from the regulation of banking. 

Maybe that's a good thing - maybe.  We've certainly seen some good industries getting capital, but we've also seen bursting bubbles.  The financial crisis in China (Evergrande) certainly has echoes of past US failures... And I'm betting most of the individuals who 'shoved their money' into the only something that could make them a profit wish they could have kept more in the bank (which, yeah...). 

It will be interesting to see what the next decade brings.

I'm not sure that the economy requires 'virtually free money' which we've seen through the last decade.  Even if we go back to a 4% lending rate - that's actually quite low - but the handwringing about 1/4 percent interest hikes by the central banks trying to get ahead of inflation seems to be pearl clutching rather than a real crisis. 

Interest rates were in the 4% range when SX got funding.  In fact there were a lot of successful startups back then that are still going strong today.  Yeah I know that the 2000s is called 'the Lost Decade' but my point is that even when interest rates are high enough to make keeping some money in the bank 'worth it', there's usually enough extra capital floating around for some people to be looking for something to shove their money into for hopes of making more than they will by saving or gambling in the Markets. 

[farmerben]

I think the lottery should be used to raise money for research or any other tax funded project.  In the US most lotteries are stupid tax run by the state governments.  People who understand probability never buy lottery tickets.  But I would buy a low utility ticket if I knew the profits were all going to space research.  Similar schemes could raise money for cancer research etc.  It's sort of a voluntary tax scheme.  

[StrandedonEarth]

16 minutes ago, farmerben said:

I think the lottery should be used to raise money for research or any other tax funded project.  In the US most lotteries are stupid tax run by the state governments.  People who understand probability never buy lottery tickets.  But I would buy a low utility ticket if I knew the profits were all going to space research.  Similar schemes could raise money for cancer research etc.  It's sort of a voluntary tax scheme.  

Lotteries could be looked at as an investment: insanely high risk but equally insanely high potential return. However, the return does not scale with the amount invested, so while spending more infinitesimally increases your odds, it won’t increase your return (some exceptions apply depending on ticket buying pattern)

[sevenperforce]

Obligatory.

[tater]

40 minutes ago, farmerben said:

I think the lottery should be used to raise money for research or any other tax funded project.  In the US most lotteries are stupid tax run by the state governments.  People who understand probability never buy lottery tickets.  But I would buy a low utility ticket if I knew the profits were all going to space research.  Similar schemes could raise money for cancer research etc.  It's sort of a voluntary tax scheme.  

Skewism/skewness is powerful. A neighbor of mine used to work for the local Sandia Pueblo casino. He's a mathematician, and worked on the settings/etc for the games. From how many decks of cards in the shoe, to the settings on the slot machines. At a party someone asked him about what to play there. He got a funny look on his face, then said, "Nothing. Gambling is a tax on people who can't do math."

I'm glad I had not just sipped my drink.

Edited October 12, 2022 by tater

[SunlitZelkova]

2 hours ago, farmerben said:

I think the lottery should be used to raise money for research or any other tax funded project.  In the US most lotteries are stupid tax run by the state governments.  People who understand probability never buy lottery tickets.  But I would buy a low utility ticket if I knew the profits were all going to space research.  Similar schemes could raise money for cancer research etc.  It's sort of a voluntary tax scheme.  

Here in Oregon the lottery is used to fund forestry work.

Not sure to what extent, but that is what the commercials say.

Edited October 12, 2022 by SunlitZelkova

[kerbiloid]

Spice. They need spice. For both navigation and sales.

It's the basics, the classics.

Spice must flow.

Edited October 12, 2022 by kerbiloid

[magnemoe]

8 hours ago, DDE said:

* 14 years, it would seem. Or maybe a bit less. It seems that COVID and the Ukrainian not-war happened as grand sendaway to the crest of the post-2008 economic cycle.

Welcome to inflationworld, everyone, where a guaranteed interest rate of 2% isn't enough for a consumer like me to even pick my phone up... at some point, the way lendings constantly lose value has to knock out at least some mechanisms of capitalism, and thus prevent someone from simply raising money through debt rather than direct investment. The whole start-up culture really was a product of people looking to shove money into something...

I think the inflation is because the money presses went WRrrrrr during COVID to prop up the economy, yes you get inflation later but getting the regression during COVID would be much worse. 
Europe obviously did not think the Russian gas would go away. China looks like painted themselves into an corner fighting COVID while its mostly over int the rest of the world. 
Yes the war affect food prices who hit poorer countries hardest this is likely to generate more instability more so as all focus is on Ukraine. 

[JoeSchmuckatelli]

3 hours ago, SunlitZelkova said:

Here in Oregon the lottery is used to fund forestry work.

Not sure to what extent, but that is what the commercials say.

Finally getting rid of the damn owls? 

[DDE]

1 hour ago, magnemoe said:

I think the inflation is because the money presses went WRrrrrr during COVID to prop up the economy, yes you get inflation later but getting the regression during COVID would be much worse. 
Europe obviously did not think the Russian gas would go away. China looks like painted themselves into an corner fighting COVID while its mostly over int the rest of the world. 
Yes the war affect food prices who hit poorer countries hardest this is likely to generate more instability more so as all focus is on Ukraine. 

That wasn't entirely my point. In a lot of places, a steady, noticeable level of inflation is the norm, to the point where the entire monetary policy is contructed around inflation targeting. Countries with prominent, internationally used currencies are usually reasonably protected against these same effects, and the current burst is at least partly a product of various QE schemes, yes, as well as energy prices.

This non-negligable inflation massively affects investment habits, making the Anglosphere venture capitalist market - and hence the Soace Bubble - hard to replicate.

[JoeSchmuckatelli]

2 hours ago, DDE said:

,... the current burst is at least partly a product of various QE schemes, yes, as well as energy prices.

This non-negligable inflation massively affects investment habits, making the Anglosphere venture capitalist market - and hence the Soace Bubble - hard to replicate.

The thing is - a lot of the immediate problems are not systemic... They're reactions to the artificial shocks caused by the pandemic and the responses to it.

Spoiler

Well... With the exception of the international logistics system - the pandemic exposed just how wild a ride we'd been enjoying.  Once things started slowing down or shutting down, the whole system shook.  It's taking a while to get it back on track (for lots of reasons). 

Even the Russian war in Ukraine and the sanctions in response should be absorbable by the rest of the world

. 

But what bothers me is the talk of the problems being related to the very low unemployment.  (This resulted in employers offering more competitive terms to employees than they have in a while... But it's hardly been universal) 

The idea that increases in the cost of labor are the source of inflation - and the best response is to make the money more expensive, to cause layoffs and increase the liquidity of the labor pool is just wrong. 

The problem I have with it is how bloody cynical it is.  Labor wages have not gone up for decades.  In the same time, the spending power of the middle class has shrunk and all the capital is held by smaller and smaller percentages of a percentage of the population. 

Case in point: in 1985 I made $6/hr working construction.  The first 3 hours would bank me enough to fill the gas tank on my truck, the next hour would cover lunch and then I needed the next 20 hours to pay rent - plus another 2 for the lunches.  Half a week gone and I'm still grinding towards bills and not even close to banking anything, much less the cost of 6-packs. 

The guys making $20/hr on a site are in the same place today as I was then. 

The cost of labor should go up.  And not be 'inflationary'. 

 

I go back to the point I made above.  Some economist decided that citizens saving their money in banks was bad, and that the best thing for an economy was hyper liquidity... And in many ways was right - but if they were right: the only way way it stays right is to get the money into the millions of hands waiting to spend it on lots and lots of small purchases - not a very few hands who will buy mega-yachts and Caribbean Islands. 

Edited October 13, 2022 by JoeSchmuckatelli

[kerbiloid]

4 hours ago, JoeSchmuckatelli said:

millions of hands waiting to spend it on lots and lots of small purchases

Got it. That's why they add microtransactions in games.

[DDE]

5 hours ago, JoeSchmuckatelli said:

The cost of labor should go up.  And not be 'inflationary'. 

It wouldn't be inflationary if it's associated with an increase in productivity. Which in theory would be the inevitable result of automation and the whole IT revolution.

Instead,

Some have tried to attact the notion that the present degree of automation increases productivity, but I doubt it holds water.

5 hours ago, JoeSchmuckatelli said:

I go back to the point I made above.  Some economist decided that citizens saving their money in banks was bad, and that the best thing for an economy was hyper liquidity... And in many ways was right - but if they were right: the only way way it stays right is to get the money into the millions of hands waiting to spend it on lots and lots of small purchases - not a very few hands who will buy mega-yachts and Caribbean Islands. 

Yeah, that makes sense in the, ahem, consumerist economy. Interesting way to supercharge the system to demonstrate GDP growth.

[kerbiloid]

That's why the most progressive countries are tending to replace the volatile money with solid objective basis.

And when in the near future the total automation had flushed down everyone's salary, and "95%" of people will have no money to pay for something beyond the basic income, while "5%" will have useless tons of money, the money will be replaced with social score and granted privileges.

 

Of course, not blindly copypasted, but creatively designed out of the local ideas.

[SunlitZelkova]

After many forays into the slippery slope of space *not politics but policy*, I must say I am enjoying reading this space economics discussion 

Economics is a science, right, right? 

9 hours ago, JoeSchmuckatelli said:

Finally getting rid of the damn owls? 

I was thinking this was some inside joke I didn’t understand, but then I had a flash of memory. The barred owl is quite a problem here and in Washington. It is a major danger to the northern spotted owl, which is endangered. Doing a little searching just now it sounds like “NorCal” (or whatever it is called) has it too.

The article came from this January and said WA and OR’s culling programs are “on hold pending federal guidance”. Planning was still ongoing in OR as of the end of August, couldn’t find any info on it since then.

So no, unfortunately.

What lottery money does do though is help prevent this from happening again.

 

Spoiler

Not to go too OT but this is the biggest evidence nuclear winter and autumn theories are bogus IMO.

If concentrated fires of this scale couldn’t cause global cooling, spread out fires of a combined similar scale in cities spread across multiple continents won’t either.

 

[JoeSchmuckatelli]

7 hours ago, SunlitZelkova said:

some inside joke I didn’t understand

Apparently an InTime joke! 

So... Way back in the day, when I lived in NorCal and Washington there was a lot of grousing about some of the environmental restrictions on logging, as people tried to preserve the Spotted Owl. 

https://www.google.com/search?q=save+the+forest+wipe+ass+with+owl&client=ms-android-samsung-ss&prmd=isvn&source=lnms&tbm=isch&sa=X&ved=2ahUKEwj_nZO0nN36AhVnFTQIHQO_BvAQ_AUoAXoECAIQAQ&biw=412&bih=718&dpr=3.5#imgrc=QcACoKG1Fa_2eM

... 

https://o-matic.com/blog/blog/2009/09/08/you-cant-wipe-your-ass-with-a-spotted-owl/

... 

Actually - here's an article:

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.pacificrivers.org/uploads/1/1/9/9/119981094/pacific-rivers-winter-2016.pdf&ved=2ahUKEwjEvM7Knd36AhW0AzQIHWb5DI04ChAWegQICBAB&usg=AOvVaw1TFZu1B9ve_WeEj9bmCOEY

Turns out it WAS an inside joke... Unintentionally. 

Preserved in time.  Or rather to the time.  A no kidding '90s joke. 

I guess it's no longer a thing!

7 hours ago, SunlitZelkova said:

Not to go too OT but

Yup. 

Fires and Smoke in Russia (nasa.gov)

Edited October 13, 2022 by JoeSchmuckatelli

[JoeSchmuckatelli]

"Big wild card: The job market — Low unemployment and steadily rising wages run the risk that consumers will keep supporting higher and higher prices, particularly for services"

https://www.politico.com/newsletters/morning-money/2022/10/13/what-the-fed-isnt-saying-about-inflation-00061596

FWIW - Disney keeps raising prices 

https://www.cnbc.com/2022/10/12/disneys-us-theme-park-price-hikes-point-to-continued-strong-demand-and-pricing-power.html

...and they keep filling the parks

"attendance has surged by millions of guests per year, and pretty much every single day of 2022 is significantly more crowded than 2012. Similarly, 2022 is much busier than 2020 and 2021."

https://www.disneytouristblog.com/fall-off-season-over-disney-world/

[JoeSchmuckatelli]

Back to the finance of space...  I do like the kind of thing that pops up in these wild investment environments.  The 'throw everything against the wall and see what sticks' approach ain't bad. 

This group is distinguishing themselves by going green with their rockets: https://www.cnn.com/videos/business/2022/10/06/blushift-aerospace-biofuel-space-rocket-jg-orig.cnn-business

"edible" rocket fuel. 

(Note how quickly the CEO regrets bragging to the Blonde Reporter!)