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The DVD may have died this week.

Walmart is now selling Blu-Ray high-definition optical disk players for $68 in the U. S. Sure, plain old DVD players are cheaper still, but why would you buy one? Blu-Ray players can be used with your old DVD collection just fine and will line-double and up-shift your old disks a bit so they’ll look nice (but not as nice as 1080p Blu-Ray) on your new LCD or plasma TV. So unless the Blu-Ray can’t connect to your old TV for some reason, I can’t imagine why anyone would buy the old standard.

These things happen: Moore’s Law, remember? But in this case it feels to me like the transition is happening a little earlier than I expected it would. For that I blame the economy.

DVD sales have dropped 30 percent in the current recession, which was a big surprise to the major movie studios. They expected sales to go up because movies played at home (where the popcorn is cheaper and the butter is real) are supposed to be a bargain during a recession. In a sense it seemed a perfect time to introduce Blu-Ray and get people to upgrade their movie collections just as they had upgraded their VHS tape collections for DVDs a decade ago.

That VHS-to-DVD transition was the Golden Age of home video, when old flicks earned their weight in rhinestones all over again simply because people liked the prettier pictures and random access to slo-mo nude scenes offered by DVD. So everybody happily bought all their favorite movies all over again, home video revenue became bigger for the movie industry than box office revenue. And like all participants in an unsustainable economic bubble, the movie producers and backers told themselves it would go on forever.

It couldn’t last forever because eventually all the people who wanted to buy DVD’s of old movies had bought them and the industry could only bring out new movies at a certain rate — a rate that was nothing compared to that total library conversion. What was needed, they realized, was another VHS-to-DVD experience, though in this case to a high definition standard like Blu-Ray, or its competitor, HD-DVD.

Except it didn’t work out quite that way. Both Blue-Ray and HD-DVD were late. Like Betamax and VHS, they fought it out in the market, creating buyer confusion (and movie studio confusion too). By the time Sony and Blu-Ray had defeated Toshiba and HD-DVD the DVD business was in decline (movie-related game sales were, too) and there were signs of an impending recession, which brings us to today.

The movie studio fantasy was that we’d pay $20-$40 per Blu-Ray disk, but then Daddy was laid-off and that Blu-Ray copy of 8 Mile suddenly wasn’t THAT much better than the DVD version for half the price. Some people decided to wait while others gave up completely, leading to that $68 Blu-Ray player down at WalMart. Remember WalMart is the largest seller of DVD’s (and presumably Blu-Ray disks) in America and possibly the world. WalMart is such a Big Kahuna in the home video business that they can dictate prices pretty much to the rest of the market. I predict, therefore, that after Christmas Blu-Ray prices will crash to only marginally more than DVDs and maybe even the same.

This is — like short-selling your dream house – just an acceptance of reality by the major players. They missed their chance to make big money but are fairly confident we’ll all finally switch to Blu-Ray if the price difference isn’t very much.

Think about that. It means we’re going to buy all new disks yet again, Hollywood will return to normal, and again we’ll probably be happy about it.

Lucky us.

We’ll get back to health care tomorrow, but first I have several video clips to share.

Adam Smith is a best-selling author and for 14 years had a weekly show on PBS called Adam Smith’s Money World that won four Emmys and a Peabody Award.  He’s a very smart guy.  Smith was Tom Wolfe’s editor at Esquire, founded Institutional Investor and New York magazines, and somewhere in there about 25 years ago became a friend of mine.  I try to collect heroes and this guy is definitely one of mine.

Smith lives in Princeton, NJ, next-door to Paul Krugman, Princeton professor, New York Times Op-Ed columnist and oh, by-the-way, winner of the 2009 Nobel Prize in Economics.

I wonder how he invested that money?

On July 8th Smith and Krugman put on a little show for fewer than 100 folks at a meeting in Princeton of New Jersey Common Cause. Someone was there to take bad video of the event which I have here and intend to share with you over three posts today and tomorrow then we can get back to health care.

Krugman is a very smart economist working at the top of his game and explains things pretty well.  In these clips (there are 17 in all) he presents what could easily be the contents of a dozen or more columns.  And what I like is it is presented colloquially with us getting a much better sense of the man than from his very polished work in the Times.

I am not saying Krugman is right about everything, but I think these clips are very worth watching for a sense of our time and current thinking about it.  And it is odd how little it has to do, really, with economics and how much with government and just the way things do and don’t get done in our culture.

I look forward to reading your comments.

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Headed this week to the Grand Canyon in our old Winnebago RV (now minus mice, we think) Mary Alyce, the boys and I stopped outside Kingman, Arizona at this place, freshjerky.com, managed by Gus, whom you’ll find pictured below, handsome devil that he is.  And that’s Mary Alyce taking pictures of the boys in the Freshjerky parking lot at left.

Just as the sign says, Freshjerky has a limited product selection — various kinds of meat jerky including buffalo; honey (minus “expanders,” whatever those are); olives; nuts, and cold drinks.  Everything is very good for what it is and nothing is particularly cheap.  Nobody goes to Freshjerky, for example, to buy cheap jerky.  That’s why God invented truck stops.

But Freshjerky is a terrific example of American enterprise and how easy it can be to find a niche in our enormous and varied consumer economy.  I found it hard to believe at first that people would really be drawn to such a place (Mary Alyce is the jerky fan in our family). And from one look at Gus, handing out tiny bites of cowboy jerky to lure customers, they aren’t drawn by his innate sex appeal.

So how is the company doing?  Just fine, thanks, though most of the sales are online — about $2 million per year.  The recession has had no significant impact yet on Freshjerky sales, according to Gus.

This is, in a way, a story similar to Parrot Secrets, which caused such a furor in this space a few months ago.  Freshjerky is perfectly mundane. There is nothing Gus does that any of us couldn’t do as well — nothing.  But he’s the guy selling $2 million per year online from a quarter acre beside the highway outside Kingman, Arizona, and we aren’t.

Heck, if Gus can do it why can’t we all?

Well we can.  And in the current recession, as more jobs are lost and people become desperate for work, more of us should try channeling our internal Gus.  We could make our own declarations of indendence by coming up with our own something good to sell.

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Friday I was in Kansas City for a meeting of economics bloggers held at the Kauffman Foundation.  My claim to being an economics blogger is slim, I know, but it was a chance to hang with some interesting people and learn something so I went for it.  And in honor of that event, then, I’m making this column entirely about how we can tell when the economy is finally turning.  There’s a strong argument that time is right now.

Yet the economy doesn’t feel any better to me.  Does it feel better to you?  Probably not.  But what we’re looking for is the bottom, or rather that moment just past the bottom when things start to head north again.  The question on every investor’s mind, then, is “have we hit bottom?”

What we are looking for is a leading economic indicator, something we can easily measure that reliably rises in advance of the overall economy.  That’s easy, you say, just wait for the stock market.  And it’s true that the market always leads the economy by six months or more at the end of every recession.  So economists look for that unambiguous turn in the market indices to guide their own predictions that the overall economy is about to improve.

But what if you are an investor and aren’t interested so much in the economy, itself, but in the markets, where you want to make some money? I keep reading that the market is so over-sold that this is going to be one of the great long-term buying opportunities ever, that trillions of investment dollars are waiting, stuffed in money market funds, ready to buy-up depressed shares ONCE THE MARKET TURNS.

That’s the problem: the investors don’t want to buy now in case the market drops another 10 percent.  See how stupid even Warren Buffet is looking this week.  Remember Warren was the guy telling us all to buy stocks (and leading with his company’s money) last fall when the market was 30 percent higher than it is today.

What we want, then, is not just a leading economic indicator but an indicator that LEADS the traditional leading indicator – the stock market.  Well George Morton thinks he has one.

George is a double Cisco Certified Internetwork Expert or CCIE.  In the world of network techs earning a CCIE is as high as you can go and being a multiple CCIE (more than one subspecialty, like routing and switching, security, storage, voice, etc.) is like being an MD-PhD or, in Germany, a “doctor-doctor.” It’s a big deal and George is a smart cookie.

Just as an aside, notice that the “E” in CCIE stands for “expert,” not “engineer.”  Cisco learned a lesson from Novell’s Certified Netware Engineer program that ran afoul of licensing boards in several states that said only they could declare anyone to be an engineer.  So while nearly all CCIE’s are engineers, they only claim to be experts.

Cisco has taken to publishing statistics on how many CCIE’s of what type there are in various countries and regions and George pays attention to this stuff and sees wisdom in it where others see only Cisco PR.  It was George who suggested to me a couple years ago that CCIE’s were a good proxy for 21^st century economic leadership – that the nations showing the most CCIE growth were likely to be the most powerful for their size moving forward.  If that’s true, and I have no reason to doubt it, then China will be a LOT more powerful than India this century and Singapore will be a technology power to be reckoned with.

George’s new idea is to look for flux in CCIE numbers to use as a leading economic indicator.  Specifically the number of CCIEs in the U.S. has lately been going DOWN and the number of new CCIEs has stagnated.  This could be for many reasons and Cisco in its statistics makes no effort to educate us.  By the way, you can see George’s compiled numbers on the effect here.

The numbers may have dropped because companies aren’t willing to spend the money to send their people for CCIE training, because CCIEs who aren’t U.S. nationals may be going home, because CCIE’s who ARE U.S. nationals may have been recruited overseas — any number of reasons.  George doesn’t try to figure that out, he just sees the change in CCIEs as a leading indicator of sorts that suggests the market is about to turn.

 “An interesting event took place this month (when) the number of CCIEs grew at a greater pace than any time over the last six months,” said George.  “The six month average has been running around 300 a month, this period the number jumped to 460.  Now, we know that we are not counting month to month, but the sudden spike is refreshing for a number of reasons.”

George looks to the early work of Charles Dow, founder of Dow Jones, the Wall Street Journal, and author of the long-forgotten Dow Theory, which was intended to help investors understand what was going to happen next in the economy and the stock market.

Among the many rules that constituted the Dow Theory was that Railroads stocks would lead any market rally or decline.  That was because Dow figured that businesses would start (or stop) shipping items before the revenue from those sales hit their bottom-line. 

George’s theory is that IP networks are to the 21^st century what railroads were to the 19^th.

Over the last six months the CCIE numbers have been steadily going down.  Last August the U.S. CCIE number went down by one. The last report in January the number of U.S. CCIE’s grew by eight.  Over the last 50 or so days the number has grown by 83 new CCIEs in the U.S.

Is this a change in trend?  Are the markets starting to bottom?  With all of the bad news in the press, you have to want to be a contrarianIf this were the Dow Theory, then the prediction would be that companies are creating more CCIE’s in anticipation of expansion and adding new networks. 

Is George Morton correct?  I say “yes,” but wearing my economics blogger hat I’ll endorse his conclusion for what might be a surprising reason: it doesn’t matter.

The market will eventually bottom and turn.  It always does.  Those trillions of dollars parked in money market funds are real and will emerge when the market turns.  This CCIE number might indeed indicate that the market is turning for exactly the reasons George postulates, though the numbers are so small that it could really be for any number of reasons.  AT&T could simply have noticed, for example, that its top network folks aren’t CCIE’s and should be, so they sent them all in to take the test.  It could be that slim.

But investors are optimists, remember, or they wouldn’t invest.  That bit about the market turning followed by the overall economy is important.  I can argue that the economy turns BECAUSE of the market and the market turns IN ANTICIPATION of the economy, which means it’s all voodoo economics and always has been.

No matter.  If the market makes that bold turn in the next 30-60 days George will be shown to be the genius I always knew him to be, the market will in turn lead the economy (though because of the huge housing inventory I expect this to be a bumpy recovery and you should, too) and we’ll all be eventually prosperous again. 

It always happens, you know.  All we need is a sign.