Category: Science and Technology

On the overall tech industry from an investment perspective

Posted on by fqzhang

In this blog, I will focus on some of the recent trends in the tech industry and where I think it is headed to in the future.

  • Prospective future growth: there is still a lot of inefficiencies in different industries. For instance, the media industries, with bundled products, will face increasing challenges from pay-per-view medias. Internet will be applied to more and more company. We can save people a lot of time. Another area filled with inefficiencies is in healthcare; however, the risk in this category lies in government regulation.
  • The current tech boom: One key reason for the current boom is the result of Infrastructure costs have dramatically cut down. The bandwidth, processer, storage cost, down 25% each year. Fundamentally deflationary trend over time.
  • The competitive landscape: More competitor. The business models have all been working, unlike 1999, when so many business models do not work at all. Management team and competitive risks will be the most important as we go forward and analyze a company. This is also in part due to the lessening of the costs over time.
  • Buzzword of 2015, a “unicorn bubble”. Unicorns are defined as private companies valued at over $1 billion, and currently there are over 150 such companies in existence. The market has been generating tons of free cash flows.

 

Money generating models:

  • Ad, subscription, and retail models
    • The models are very important:

Who are the winners over the past few years?

  • The “FANGs” – Facebook , Amazon, Netflix, and Google

Who might be prospective buys in the future?

  • Top picks: Amazon, LinkedIn, Priceline , Expedia, Google
  • Negative outlooks: Twitter, Groupon, Yahoo

How to identify great value?

Successes:

  • Google and Facebook accounts for over 50% of all online advertising revenues around the world. Adverting model can be declining due to saturation. Can you come with a great advertising proposition for the company?
  • You have to catch the trend right. Google is like a tax on all internet usage, since searches are powered by Google. They need to get everything and anything they can put it online.
    • Strategic acquisitions and developments are important. Even though Motorola seemed odd, but it actually give Google significant patent protection. Google’s android development is great.
  • As identified before, we need to look at: advertising, retail, travel (revenue generating model).
  • Companies need to be willing to make long-term bets. Yahoo failed to make a long term bet while Google did. For instance, Yahoo did not jump on the train for mobile software, for social media, and a number of other things.
  • Study in failure: Ebay did not significantly innovate instead. Ebay, the only reason that the stock prices are staying high is because they are buying back shares and using other accounting tricks to boost their earnings (of course, this cannot last). Look at the company’s acquisition, Ebay made a certain number of acquisitions that are not related to its core business (they were owners of Skype at one point, what does Skype have to do with selling things online).
  • Amazon has super thin margins, but it is able to consistently generate growth to make itself bigger and more important. For Amazon, market share is key.

 

On Tesla specifically:

The unknowns about what a stock like tesla can do is enormous, and what the firm’s potentials are somewhat questionable. It generates a lot of optional value in the sense that we aren’t sure what they are doing. High volatility expected.

 

Companies that are not yet public but have interesting prospects:

  • Snapchat: key question is in how to expand snapchat, user base?
  • Airbnb: we are still looking at broad range of model.

 

Analyzing a company using the 4M framework:

  • Management team, (have to meet them face to face).
  • Business Model (social media is beautiful business model, 90% margin business).
  • Moats can also change over time (Ebay, competitive advantages are not very sustainable for too long, because they miss the next coming trend). Yahoo missed a lot of these new trends (video, social media). A lot of moats are based on the network effect. Network businesses can be undermined, but they can create a good moat for a couple of years. Are they global moats or are they local moats? Important to determine if they can be undermined.
  • Market opportunity. The greater the end opportunity the better it is. Google generated a large amount of TAMs (total addressable market). The market that Google enters contains huge amounts of end values.

 

Some specific things to be aware of when looking at these stocks:

  • Remember that each publication may have some sort of bias to them; for instance. Barron’s has more of a value bend to the articles they write, so they might exhibit bias against high growth tech companies.
  • Financial practices of companies: The management teams increasingly make up their own Adjusted Ebitda, rather than using standard GAAP measures
  • Specific example of a risk: Alibaba, it is possible that they are over-stating their numbers? Can we trust the financials? The average Alibaba user spends more with Alibaba than with the Amazon user spends with Amazon, even though incomes per person in China is about 1/3 of the US. Perhaps this goes back to the idea of the inefficiency in China? Perhaps there are simply no other choices (brick and mortar stores simply aren’t on par with online products)
  • We must also look at the industry in more detail as well:
    • Why is music a much more lousy business? There are only like 4 major labels, power is with the record labels. For instance, Pandora have gross margins of around 17%. Not much room to spend in r and d really.
    • Contrast this to the Netflix. Netflix faces significantly more players in the movie making landscape.

 

 

 

 

Another look on Valeant Pharmaceuticals (VRX)

Posted on by fqzhang

Given the latest scrutiny over Valeant Pharmaceuticals, I would like to point to some of the inferences that I had drawn over this issue based on the facts; and the facts does not add much confidence for investors in this company.

The bombshell: Citron Research’s report[1]

Much of the recent decline in prices can be attributed to the publication of a negative report by Citron Research on Tuesday, October 21st, an online newsletter that has exposed many corporate frauds of recent years. Citron Research is fairly credible as a research group; based on a recent Wall Street Journal analysis[2], out of the 111 stocks that Citron has wrote about since the website was founded in 2001 (including its predecessor, StockLemon), 90 were lower one year later, and experienced an average stock price decline of 42%.

The main issue, as pointed out by the report, revolves around the issue of Philidor, which appears as a distributor of Valeant Pharmaceuticals that most sell-side analysts were unaware of until early last week. Citron reached out to the Philidor’s founders and key people that are associated with its operations; but they refused to talk about the company and its relationship with Valeant. However, as it turns out, Philidor is actually an exclusive distributor of Valeant’s products. Another issue came up when a company by the name of R&O Pharmacy filed a lawsuit claiming payment from Valeant in the amount of $69 million; however, based on Citron’s investigations, it appears that Philidor OWNS R&O pharmaceuticals. Moreover, it also appears that Valeant also have a network of other pharmacies, including westwilshirepharma, safexpharma, orbitpharmacy, that only does business with Valeant.

Before we delve into what these facts meant, we need to dispel several misconceptions regarding Citron Research. Many have made the argument that Mr. Left, the editor in charge of Citron Research, is a short-seller, and therefore have every incentive to beat the stock price down, and that this report is nothing more than a “bear raid”. However, before we start criticizing the short-sellers, investors should understand the enormous risks that Mr. Left had taken on by publishing this report. If it turns out that Mr. Left is wrong, the lawsuits that he will face will no doubt force him into serious financial distress. This report is not written without thoughts to its consequences. As Mr. Left himself have stated, he had been more right than wrong, and this is how he remain active.

The question that we have to ask ourselves is what exactly is the purpose of Philidor? It is simply very difficult to understand what is the purpose of these subsidiaries when a company like Valeant can distribute their products more directly. Philidor, as far as anyone can tell, is a secret distributor that Valeant tries not to publicize. Philidor ONLY distributes Valeant’s products and nothing else, and it appears that Valeant is selling to an off-balance sheet entity that buys only from Valeant.

Let’s assume that the intentions of Valeant are benign, and in this best case scenario, they have created a complicated financial structure and is simply making the accounting more opaque. If the intentions of the Company are more malicious, they have created a fairly convenient venue for them to conduct fraud and create fictitious transactions and sales (this is what Citron alleges). Next Monday, October 26th, the company will discuss Philidor and respond to criticisms; how the management explains the purpose of Philidor will be an issue of great importance.

Before moving on, I would like to point out on October 19th, the famed investigative reporter Roddy Boyd, had also discussed Valeant Pharmaceuticals in his article with the Southern Investigative Reporting Foundation[3] (SIRF) the extent to with Valeant Pharmaceuticals tried to obfuscate the relationships between the two companies.

Here are other issues of concern in addition to those that are brought up in Citron’s report:

Flawed business model:

Valeant operates by buying smaller drug companies and then raise the prices of those drugs to make a profit. The company does not really engage in original R&D and acts more as a marketer of pharmaceuticals. The company, therefore, was able to enormous margins on the drugs that they are selling. Hedge Funds, Bill Ackman’s Pershing Square Capital included, are absolutely in love with this model as shown by some of the largest holders of Valeant[4] as of Q2 2015,

  1. Pershing Square (Bill Ackman): 19,472,993 shares, 5.71%
  2. ValueAct Holdings (Jeff Ubben): 14,994,261 shares, 4.39% (sold 4.39 million shares in Q2)
  3. Paulson and Co. (John Paulson): 9 million shares, 2.64% (added 6.95 million shares in Q2)
  4. Lone Pine Capital (Steven Mandel): 5,310,143 shares, 1.56% (sold 259,317 shares in Q2)
  5. Viking Global (Andreas Halvorsen): 4,616,738 shares, 1.35% (added 558,395 shares in Q2)

In fact, at the annual Sohn Investment conference, Bill Ackman even claimed that Valeant could be the next Berkshire Hathaway due to its strategy of acquiring diverse companies in the pharmaceutical space[5].

Last year, Valeant attempted to take over Allergan in a much publicized deal. Valeant offered a tremendous sum to purchase the company using shareholders and lenders money. In many ways, this deal resembled the AOL-Time Warner deal in which an overvalued company attempts to take over another company with a more well-developed network of product and services. The deal failed and called into question the model that the company had been operating under. The company aims to grow through acquisitions at all costs and it is highly doubtful that they will be able to grow through outside purchases alone. In fact, the Company’s CEO stated that soon the Company would start having to produce their own drugs, as the prospective markets for future acquisitions have lessened[6], Valeant is running out of smaller drug companies and drugs to acquire. The market was not expecting this, and the stock traded down a bit on the news. To put it quite simply, Valeant’s model of growth up until this point is unlikely to continue forever.

Here is partial list of acquisitions that the company has made in the last couple of years[7]:

2014

PreCision Dermatology, Inc. (“PreCision”). July 2014

Solta Medical, Inc. (“Solta Medical”). January 2014

2013

B&L August 2013

Obagi Medical Products, Inc. (“Obagi”). April 2013

Natur Produkt International, JSC (“Natur Produkt”). February 2013

2012

Medicis. December 2012

OraPharma Topco Holdings, Inc. (“OraPharma”). June 2012

Certain assets of Gerot Lannach. March 2012

Divestiture

2014

Facial aesthetic fillers and toxins. July 2014

Metronidazole 1.3%. July 2014

Tretin-X® (tretinoin) cream and generic tretinoin gel and cream products. July 2014

2013

Divestiture of certain skincare products sold in Australia. October 2013

2012

Divestitures of 1% clindamycin and 5% benzoyl peroxide gel (“IDP-111”) and 5% fluorouracil cream (“5-FU”). February 2012

In addition, the company’s way of raising the price of the drugs (sometimes by over 1000%) had also faced serious scrutiny. Currently the company is facing a Congressional investigation on the price increases of two medications[8]: Isuprel, which is used to treat cardiac arrest, was raised from $215 to $1,346; while Nitropress, a medication used to treat congestive heart failure and life-threatening high blood pressure (hypertension), was raised from $257.80 to $805.61 a vial. As the New York Times have put it, “Valeant’s Drug Price Strategy Enriches It, but Infuriates Patients and Lawmakers”[9]. On October 14th of this year, the company issued a press release stating that the CEO, Michael Pearson, is now responding to these allegations and talked about Valeant’s reasoning “underlying Valeant’s pricing decisions, and Valeant’s programs designed to improve patient access, among other topics.”[10] As the regulators continue to scrutinize the company’s pricing decisions, we can expect certain regulatory actions that can impact the firm’s margins.

Aggressive and questionable sales techniques:

Valeant is aggressive when it comes to generating sales for its products, and they offer a number of incentives for the patients to purchase the company’s medications. For example, for several of the medications that the Company sells, Valeant’s venders offers to pay for the patient’s copay and to essentially give it off free of charge for the customer. Neither the doctors nor the patients have asked for it. The patients, of course, do not mind this as long as they need to pay nothing, and the patients end up having more medications than they possibly need. For Valeant, however, they are able to increase their sales volume and revenue tremendously. Moreover, the margins on those products are tremendous, and paying for the copays of the customers if it meant more sales made economic sense for Valeant.

However, the Company itself believes that their ability to generate sales is all due to organic growth. In the Q3 earning held by the company on Monday, October 19th, the company’s CEO, in response to a question regarding how Valeant was able to recognize revenue of about $460 million after initial projections of around $300 million, stated, “… again, there’s no sales incentive, I think it’s all growth. The products continue to grow above what we had forecasted in our deal model…”[11] The company insists that sales incentives are not the cause of their product sales, and that the Company’s products are extremely popular among users. This argument appears shaky at best.

In addition, the company received subpoenas from the U.S. Attorney’s Office for the District of Massachusetts and a subpoena from the U.S. Attorney’s Office for the Southern District of New York. Both are now requesting “documents with respect to our [Valeant’s] patient assistance programs, and also include requests relating to financial support provided by the company for patients, distribution of the company’s products, information provided to the Centers for Medicare and Medicaid Services, and pricing decisions.”[12] These “patients assistance programs” are highly problematic, and is one of the key drivers of sales for the company and what enables it to have such high sales growths year-on-year.

As can be imagined, insurance companies are the ones that are cheated by this deal. While the strict legality of these actions are questionable; in the past, several insurance companies have filed lawsuits against surgeons who waived copays for patients and who instead charge enormous fees on the insurance companies. It remains to be seen in court whether or not it is legal for drug distributors paying the copays of the patients[13].

Other new developments since Tuesday, 10/20:

Earlier in the week (10/21), the company halted the trading of the company’s stocks and called Citron’s report “erroneous”[14]. At that time, the stock was down 40%. On Friday, October 23rd, the stock rallied for a bit as many hedge funds, including Pershing, reiterated their commitment in going long on the stock, as well as Valeant’s announcement that they will address these issues at Monday’s conference call[15]. Other pharmaceutical companies – Akron, Allergan, Endo – all issued statements stating that they do not own other pharmacies for distribution and attempts to distance themselves from Valeant.

Finally, investors in this company should be aware of the fact that Valeant now have to face new lawsuits coming their way, such as Morganti Legal’s lawsuits[16] alleging that the company issued “materially misleading business information to the investing public including potentially inflating revenues by recording intercompany sales in its revenue figures” and many others; in addition, on Thursday October 22nd, a class-action lawsuits was filed against the company accusing the company of creating phantom accounts aimed at defrauding investors[17].

It remains to be seen after Valeant responds to these allegations on Monday what the market will do. Until then, investors beware.

[1] The full report can be found here: http://www.valuewalk.com/2015/10/valeant-pharmaceuticals-vrx-citron/

[2] http://www.wsj.com/articles/the-short-who-sank-valeant-stock-1445557157

[3] http://sirf-online.org/2015/10/19/hidden-in-plain-sight-valeants-big-crazy-sort-of-secret-story/

[4] http://www.businessinsider.com/hedge-funds-that-own-valeant-2015-10

[5] http://fortune.com/2015/05/04/bill-ackman-valeant-could-be-next-berkshire-hathaway/

[6] http://www.fiercepharma.com/story/valeant-changes-its-spots-promises-limit-price-hikes-spend-more-rd/2015-10-20

[7] Company’s 2015 10-K

[8] http://www.mccaskill.senate.gov/imo/media/doc/20150923McCaskilllettertoValeant.pdf

[9] http://www.nytimes.com/2015/10/05/business/valeants-drug-price-strategy-enriches-it-but-infuriates-patients-and-lawmakers.html?_r=0

[10] http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Provides-Update-Regarding-Government-Inquiries/default.aspx

[11] Earnings Transcript,

[12] http://ir.valeant.com/investor-relations/news-releases/news-release-details/2015/Valeant-Provides-Update-Regarding-Government-Inquiries/default.aspx  Emphasis are mine.

[13] http://www.bloomberg.com/news/articles/2012-07-19/silicon-valley-surgeons-risk-moral-authority-for-200-returns

[14] http://www.zerohedge.com/news/2015-10-21/vrx-halted-down-40-news-pending

[15] http://www.thestreet.com/story/13336555/1/valeant-pharmaceuticals-vrx-stock-rebounds-ahead-of-call-to-address-allegations.html?puc=yahoo&cm_ven=YAHOO

[16] http://finance.yahoo.com/news/shareholder-alert-morganti-legal-announces-155700510.html

[17] http://www.usatoday.com/story/money/2015/10/23/valeant-class-action-lawsuits/74457788/

Agricultural innovations in Israel: reasons and impacts

Posted on by fqzhang

Israel is a land of many innovations and the birthplace of many progressive technologies. Here in this blog, I would like to discuss one of the areas that Israel has excelled: the agricultural sector. We often speak of necessity as the mother of all inventions and this is the absolutely true with regard to Israel. The nation is covered over 50% by desert, most of which is in the Negev desert to the south. The amount of land that is agriculturally productive is extremely limited, and whatever land that is suitable for growing crops faced the perennial problem of irrigation. Massive water projects in diverting the water from the Jordan River has been successful, but nevertheless, water conservation is key.

Many companies in Israel is currently working on developing new technologies that relates to water conservation. The most direct way to conserve water is to shorten the growing period for food crops. Many multinationals – Flextronics, Dupont, and even Google[1] – is interested in how to apply the Israeli technologies to market it to the world. The aim of these partnerships is to link up many Israeli startup firms with other large multinationals (most of which is based here in the US) and to leverage off the larger company’s capital, labor pools, counseling, coaching, etc, to develop the products or services that these Israeli companies need to market its product overseas and to ensure its survival in the face of global competition.

Many Israeli partnerships with firms in California is already very well known. The regions (the interiors of both California and Israel) both faces water shortages that disrupts the growing season, despite the strong amount of available sunshine and other factors that are conducive to productive agriculture. Israeli products found a strong demand in these regions of California. What is perhaps less known is the fact that many Israeli companies and technicians also involve themselves extensively with other countries around the world, such as China and India, which desires help to make its agriculture more productive. As world population increases and the amount of land available for crop growing decreases (due to urban sprawl, pollution, etc), there is now more of a demand for more efficient agriculture. Israel can capitalize on this trend of growing global demand and expand its market positions around the world.

We often speak of Israel as a startup nation that encourages innovation, in large part due to compensate for its lack of natural resources and other means of economic growth. While this is true to some extent, the impact of Israeli companies and their innovations are far more than simply economical. In many ways, it is also beneficial for Israel as a nation on the international stage. By encouraging partnerships between Israel and other nations in the form of business and technological exchanges, Israel can also inspire a feeling of goodwill from other nations around the world, which will benefit it diplomatically. In international diplomacy, we often speak of a “hard” versus “soft” power, and the combination of these two is what makes a nation strong. While Israel certainly already has plenty of “hard” power, defined as absolute military or economic clout, it can also increase its soft power, which is defined as cultural or scientific/technological prestige. Israel, through its networks of businesses that assist other nations around the world with their respective agricultural projects, can increase its global influence in areas that might never have anything else to do with Israel. This increase in Israel’s soft power will no doubt last longer in the long run, since respect for a country for what they are and what they do will outweigh any other form of diplomatic tools on the world stage.

As we can see from this discussion, something as small as having a small start-up focusing on agricultural innovations can go a long way in helping a nation to succeed on the international stage. The current path of encouraging innovation as pursued by the government and society of Israel will benefit the nation and the world in the long run.

[1] Google Shows Interest in Israeli Agritech Companies; http://www.israelagri.com/?CategoryID=482&ArticleID=1039

Human exploration of space: a controversial debate (Part 2)

Posted on by fqzhang

For part 1, click here.

A second key contentious point is the role of private companies and national governments in space. The drive for space exploration was mostly led by governmental agencies since the very beginning, and currently a “virtual government space monopoly” exists.  In the US, National Aeronautics and Space Administration was created in 1958 to coordinate the government’s efforts to explore space.  The exploration itself is also closely linked to military endeavors, with intelligence gathering as one of the early reasons for the launching of satellites. Some argue that we should limit the role of governments and private interests in space and place exploration under the firm control of national governments, while others believed that we should open up space for commercial endeavors and to utilize space as much as possible.Edward-Hopper-s-Nighthawks-in-Space

Anti-Space liberalization groups based their arguments on several points: first, private companies would only be willing to undertake space exploration if and only if immediate and short term economic prospects are possible, and therefore they have no long range exploration goals that can serve public interests. According to pro-space advocates, private interests cannot utilize space efficiently because space exploration requires a large amount of initial capital investments that few companies can or are wiling to afford, and the fact that any ventures in space would require years to generate any results doesn’t favor private investments either.  Furthermore, there is an incentive for company to not do any original research at all and to instead rely on imitating others by doing what others have already began or done. This is not an issue when the government is the major source of research; however, with the privatization of Space R&D, company will sought to improve on their existing research than to build new ones, since the costs will be lower. According to the anti-privatization groups, only the government can sponsor basic research, without direct considerations for profitability.

Secondly, the exploration of space also brought up the points of who owns what in space, and how can governments regulate such claims of property or intellectual property. On land, the issues of property is quite simple, like in the American West in the 19th century, where the first ones to find the area and to use it to its full commercial potential can often obtain permission from the national government to gain ownership. However, no clear international agreements have been reached on using resources in space by each nation. The Outer Space Treaty of 1967 is an international agreement that guaranteed “outer space and celestial bodies are free for exploration” and under Article VI, signatory nations “bear international responsibility for national activities in outer space… whether such activities are carried on by governmental agencies or by non-governmental entities…”  In effect, the treaty defines that space is open to all and activities in space are the responsibilities of the government. This works in the days when commercial development of space seemed so far away, however, now with humans on the moon and potentially on the asteroids or Mars, the resources on those planets can have great implications.  For instance, asteroids are known to have rare-earth minerals which are commercially valuable even given the high cost of exploration.  The question therefore is who should own these resources or if they should be exploited.space shuttle leaving earth

Anti-privatization people believed that giving up space and celestial bodies, such as the moon and asteroids, to private interests is irresponsible. Indeed, if we fully privatize space among the large companies, they can effectively dominate space and create a private monopoly and close it off to future exploration, or having power concentrated in the hands of too few people. In addition, unlike governmental research where any research generated can be shared with the public, private company’s research and the technology spillovers from R&D would not be shared with others, to the detriment of society.

On the other hand, many pro-privatization advocates argue handing over certain aspects of space exploration to the emerging Space Industry will be beneficial to society at large. Among their arguments include the cheaper ways that private companies can get humans/robots to space and to utilize space resources. For instance, recently, the SpaceX Falcon Heavy launcher can in theory deliver about 50 metric tons of payload to low earth orbit at a price of $120 million, averaging to about $1000 per pound, much less than the tens of thousands of dollars per pound that NASA’s technology can deliver.  Currently, advocates of private interests in space argue, the government’s effective monopoly on space is encouraging waste, and if more company like Elon Musk’s SpaceX can be introduced to the competition, the costs of going to space will likely decline further as a result in refinement of space technology.

space vehiclesMoreover, private property rights in space should be established because only private companies can use the resources to its greatest effect. Many pro-privatization advocates pointed to the difference between the usage of Arctic (which are fully utilized economically) and the Antarctic, which have no development; whereas the Arctic’s property rights are well-defined, the Antarctic’s is highly ambiguous. Similarly, if the resources in outer space is well-defined, many people here on earth can reap its economic benefits through the efforts of private organizations.

Finally, the third main point of contention in the space debate is the effect of space exploration on long term human health, both mentally and physically. Many people cite the facts that prolonged exposure to space is fundamentally unhealthy for human beings and long term stays are simply unfeasible. However, pro-space advocates argue that we must adjust to living in space through technological means and that in order for us to survive as a race, we must look to the solar system as a source of survival.

Ever since the first human flight to space, scientists have been carefully observing the effects of space environments on the human body. For example, scientists noticed that astronauts can develop a greater “risk of getting a kidney stone as a result of space travel since the body quickly dumps a lot of fluid when gravity is no longer drawing blood down into the legs and the elastic vessels squeeze it upward”.  In addition, the body can lose large amounts of proteins, by up to 45 percent decrease in protein synthesis. In large part this is due to microgravity environment which results in a lack of muscular activity.  Other long-term health effect includes bone loss, cellular organization and radiation.liftoff1

Given these detrimental effects on human health, many argued that human travels to space should be limited in scope and argued that human settlement in space is impossible in the long run. Therefore, we as human beings should still focus our development on our only habitable planet as our bodies are physiologically adapted to life on Earth.

However, others believed that human beings should began to adopt to space. Some talk of an “astro-civilization” , where just like humans have moved from a nomadic to an agricultural then to an industrial society, our next logical step to expand to a space-based civilization. According to the pro-space advocates, the earth’s expanding millions required more and more resources to sustain itself.  Therefore, it is necessary for us to develop technologies to enable us survive in space and to produce habitats similar to those on earth in near-earth orbit. Some have outlined strategies for monitoring human reactions in space step by step, such as Edgar Mitchell, who was an Apollo 14 Lunar module pilot. He argued that humans should first continue space exploration by landing on Mars and later establish a scientific laboratory on the Moon.  This laboratory can be used to test how to adapt humans to the hostile environments in space. Once that is accomplished, we can then consider the establishment of more permanent bases with the eventual goal of settler colonies on Mars/Moon, or near earth space.

For part 1, click here.

Human exploration of space: a controversial debate (Part 1)

Posted on by fqzhang

I wrote about this topic of human space exploration a while back, somehow, I never bothered to post on my blog. But here it is, and divided up into two parts to make it easier to read. For the second part, click here.

The question of whether or not we should sponsor human space missions had been controversial ever since the modern exploration of space began in the 1950s. A variety of arguments have been made either in favor or against the exploration, and two opposing sides developed in this debate.  My thesis for this essay is that the human exploration of space is a controversial issue since the costs of sponsoring space exploration is extremely high and the money can be better spent elsewhere, the unclear role of government and the power of private (commercial) interests in space, and the long-term and unknown health effects that traveling to space have on human beings. Key questions like property rights in space and the extent of government funding has been debated, and while some supports the private funding of space, others are more reserved.  Moreover, the possibility of human settlement of space is hotly debated as well, with some believing in the future destiny of mankind laying in space, while others believed we should focus more on planet earth, using some of the technologies we gained from space exploration. space-exploration

Firstly, the costs of going to space is enormous, and specific criticisms includes the national funding for space exploration, the real scientific need for such funding and the alternative good that the money can be used for. Many criticize the decisions by national and private organizations to sponsor such an endeavor to space. It has been estimated that the launch of a space shuttle costs about 450 million, and there have been over 130 launches from 1982 to 2011.  Not to mention the 140 billion plus that the space station has been spending. Such costs indeed add up to astronomical numbers. Currently, the vast amount of the space exploration is funded by governments of various countries. Here in the US, the federal budget funds 17.7 billion for fiscal year 2014 to NASA . The federal governments reached this number after vigorous debate and many wanted NASA to focus on more tangible results in the near-earth orbit instead of pursuing large projects that have no direct results. In today’s world, where the fight for national budget is increasingly acrimonious, spending such a sum of money on science that have little practical values is useless according to many critics. The bottom line is simple: our national economy simply do not have the necessary resources to continue the space program on a regular basis.

Regarding the amount of money being spent in human space explorations, many critics also pointed out alternatives to human exploration for the advancement of science. Chiefly, they argued that many of things that require human presence can also be carried out by robots. Robots can reach far more different places than humans, and can conduct research in a variety of different (often hostile) environments. The Curiosity spacecraft currently exploring Mars is a great example of having robots do the exploration for humans, where it has continuously been sending back data for scientists based here on planet earth, without the need for humans to travel.  The costs of these development in space is cheaper and can achieve more scientific results. In addition, critics attack the argument that scientists can use the opportunity in space to perform experiments otherwise not available on Earth. Many simulated laboratory conditions achieve the microgravity and other conditions of space, without the need to send scientists into space to perform the experiment itself. Critics argue that it will make more sense to fund laboratory facilities than to build ones in space and requires travels to space to perform the experiment.Space-EXploration-Puzzle-900x1600

Finally the money being spent in space, many argue, can be best spent here on Earth. With food and water shortages in Africa, a global environmental crisis, a lack of healthy standards of living in many places, many argue that the billions spent in space can be used to directly improve life and living conditions on earth. As the CBS news anchor Katie Couric stated in October of 2006, “NASA’s requested budget for 2007 is nearly $17 billion. There are some who argue that money would be better spent on solid ground, for medical research, social programs or in finding solutions to poverty, hunger and homelessness… I can’t help but wonder what all that money could do for people right here on planet Earth.”  Money spent in space, some argue, is a long-term discretionary spending that can be eliminated to provide money here on earth.

In contrast, pro-space organizations argued that such costs are justifiable and can be brought down to more affordable levels as our investments in space R&D and infrastructures pays off in the future, and that our investments in space can bring tangible economic benefits to planet earth. Currently, the annual budget for NASA which amount to about 17 billion every year, is indeed a tiny fraction of the overall public spending. Indeed, “For every $1 the federal government spends on NASA, it spends $98 on social programs. In other words, if we cut spending on social programs by a mere one percent, we could very nearly double NASA’s budget”.  The costs of space exploration, when put in perspective is indeed not that great, and the 16.143 billion spent on NASA in 2007 is merely 0.58 percent of the total federal budget. Pro-space exploration advocates argue that even if all the money spent on space is allocated to other spending, the differences on our society would negligible. In addition, a key role of government, many felt, is to promote the arts and sciences and NASA argues that it is fulfilling this role. NASA provided an enormous amount of scientific knowledge about space and scientific endeavors in general, and helped to educated millions of students on science.  The scientific and educational value of space exploration can never be truly quantified, for such an investment in our nation’s scientific future and the education of the youths is something that goes a long way.satellites

Moreover, many scientists argue that the investments in space can bring tangible technological and economic benefits to here on earth, many of it in the forms of spin-offs from the products initially intended for space use, or as a result of space research. Some examples include cell phone cameras based on space cameras, memory-foam mattresses, aircraft de-icing, etc.  These new technologies spurred new industries, improved the quality of life and encouraged economic growth.  “A number of studies conclude that about 90 percent of the long-term increase in output per capita in the U.S. has been attributable to technological change, increasing educational achievements…”  The spin-offs from NASA research contributed enormously to economic growth in the US and the world in general.

For part 2, click here.