Monday, September 29, 2008


A few good reads I stumbled upon today:
  • A visit with Bank of American CEO, Ken Lewis (CNN)
  • Living in a leverage free world (Deal)
  • 10 Things that will change (Kiplinger)
I'm a big fan of point number two in the last article. Enjoy!

Shana Tova for everyone celebrating! Its going to be a great year!

Monday, September 22, 2008

Who's next?...

[updated numbers below]Read a post this morning regarding European banks getting too large to rescue. They talked about the leverage in some of the banks in Europe as compared to the US banks and how in some cases the banks liabilities were close to the size of the entire GDP of the country they were HQ'ed in.

Let's compare, these are the leveraged ratios:

US Investment Banks:

Goldman Sachs: 25x
Morgan Stanley: 32x
Merrill Lynch: 27x

US Commercial Banks:

Bank of America: 10x
Citigroup: 14x
Wells Fargo: 12x
Wachovia: 10x
JP Morgan: 12x

European Banks:
Barclays: 60x
UBS: 46x
Deutsche: 61x
Credit Suisse: 32x

Maybe someone with a better financial background could please explain to me and readers of this blog as to how the European banks will be able to get through this financial situation unscathed. To me its not looking its pretty, especially considering the liabilities of some of those banks comes close to the entire GDP of a country if not outweighing it.

Tuesday, September 16, 2008

Wall Street to Startup

Josh Kopelman is trying to find some people jobs.

Maybe I should have added that in my previous post. Rough economic times are a good time to start a business, if you can make it through this time..then your business will really flourish!

Cycles, Jobs, Finance

This is going to be a bit long, I have a lot built up in my head.

What happened over this past weekend is nothing new. It occurred at the end of the 1980's. It occurred to a much lesser degree at the end of 1990's. In general its happened a few times and made these recessions. The problem is that moving forward, we as a society and country won't learn from our mistakes. We will repeat them again and again. What's crazy is that I don't think there is a single person out there that can tell us the ultimate consequence of all of these bubbles and crashes. We seem to bounce back every time and find a new place to invest dollars and create economic 'stability' for the short term. So in other words this is just another cycle. Sure, this is a simplification, telling someone in banking who has lost their job over this is not going to make them feel all warm and gooey inside.

We are also in another cycle of United States economics. The US over the course of its existence has on six occassions pushed into moves of nationalization or privatization. As it started with airport security in 2001 and followed by Fannie Mae and Freddie Mac in recent weeks, we are in a point of our cycle where our government will nationalize a few of the major businesses thus creating a more socialist view from an outside perspective. Considering we already have a Democratic House and Senate, expect a potential for more moves in this direction with higher taxes. But again, just like previous times its simply a cycle. We will recover, our balance sheets will stabilize, regulations will be put in place and privatization will occur again in the coming years (maybe a decade or two).

If additional regulation is created in Congress, then a tremendous amount of oversight for the financial industry will occur. This for starters will mean less wiggle room, which means less creativity, which in turn allows for less risk. There is going to be a lot of layoffs and downsizing in the financial securities industry to start with. Take a look at the following graph and notice the trend of the annual securities employment in this country:

[courtesy of Paul]

The increase in this field alone in the last 16 years is pushing over 40%. You can see the decrease show in 2003 from the 2000 bubble burst. How far down will it go this time around and for how long? This is also just the securities market, the entire financial industry has become too large of a part of our GDP. To date about 8.3% of our GDP is brought together by finance, this is all-time high, almost a full percentage point about the 1990 levels. Lets for a second imagine that we return to the 1990 levels of finance in our economy, that is essentially suggesting that $120B needs to be redistributed from finance in form of wages and profits into other industries. The gentlemen who wrote the article that I got this information from believes that engineering may be on the rise again. It is well known that hedge funds employ lots of PhDs. Take for example James Simmon's Renaissance Hedge Fund that has 200 employees over a third of whom are PhDs. These guys write the software programs to figure out the best times to buy into companies so they maximize their profit. Its a complex system of algorithms and quantitative mathematics that is put together by individuals with PhDs in Math and Computer Science. Do we really believe that these individuals are going to turn around and get back into basic engineering work.. I have a hard time seeing that. What you will see in the future is young graduates from MIT, CalTech, and GaTech (had to throw the plug) that will not be moved by financial engineering and find work in other facets of industry.

The article misses the point that most of the individuals that have their experience in finance (not to mention their paydays), will not get back into engineering just because thats what their degree is in. Realisitcally we can hope that moving forward more students around the country will pursue engineering as an college major and move the US back into the direction of positive growth of bachelors in engineering, since we have been on a downward slide for a few years now. This in turn will allow us to have a breadth of future IP in this country that is ready to create new technology (hopefully in the CleanTech space!).

I'm going to finish this post off with a quick recap. Finance party is over. Government regulation is back. Expect engineering degrees awarded to rise. Most important though, we are just riding another part of this crazy economic cycle, history will repeat itself in the future :)

Tuesday, September 9, 2008

I am not my own customer

Here's a problem that I have entailed often and maybe some of you can sympathize with me.

I'll be sitting around one day and think of what I believe to be a good business idea. Lets just pretend its B2C. I will then spend the next few hours or days trying to poke holes in it and massage it into something that I would be a customer of.

Therein lies the problem. I am a really bad customer. I ignore as many advertisements as I can (unless they are humorous!). I tend to do extensive research before making a purchase I am interested in or consult close friends who have expertise in the area, say cars or certain tech products. I have rarely, if ever, clicked on one of those Google advertisement links and will generally comb the internet to find exactly what I am looking for. I have used eBay all of two maybe three times in my life. I am, however, a loyal customer. Believe me, once I have used your services and you were exceptional in the service that you provided, you better believe that I will do what I can in my power to make sure people around me all know about you/your company.

So I tend to end up in one of two holes, either the idea or business is great and I may not use it myself or I will change it up so much to what I think will work and no one else will use it! I guess the question of the day is how in love with your product or idea do you have to be to go after it? Full blown blinding passion? Or more logical execution with a great understanding of the market?

Blog look..

I am going to be messing with the look of this blog for a few days to find one that I like, so bear with me if it bothers you. Also, any comments about the look would be appreciated :)

Tuesday, September 2, 2008

Obama vs. McCain

I know, I know...politics.

During the election process voters go back and forth amongst each other on why each candidate would be more appropriate to hold the position of President then the other. It's a never ending debate that for the most part has no positive outcome. The realistic nature is that you will vote for who you'll vote for and from there you must accept the fact that the candidate elected is your President for the next four years.

My point here is not related to why one candidate is better than the other, its actually to find something beneficial that each candidate can bring to the table for the business environment (I'm choosing business simply because its in the theme of this blog topic).

Growing up [and still today] I heard countless stories from friends, family, colleagues and random strangers on how so and so was such a great President and because of him we have [fill in the blank]. Some Presidents allowed us to get into this country, other created peace, some a booming economy, whatever it is you can always find a President that did something fantastic or was at least in office while something great happened.

This brings me to my point, I was recently going through a comparison of issues between Obama and McCain. I came across their views regarding Taxing Business. Without a doubt from a corporate perspective, McCain wins in his want of decreasing the corporate tax rate from 35% to 25%. However, Obama had something that I really wanted to mention from the standpoint of a budding entrepreneur:
Exempt investors from the capital gains tax on their investments in small businesses and startups if they made their investment when a small company was valued below a certain threshold. That threshold has yet to be defined.
Now this is clearly more beneficial in the early stages of a business (whereas McCain is more geared to profitable corporations). Lets say you as an Angel are investing $100,000 into a business that is valued at $1M (for argument's sake lets say the threshold is $1M in valuation for your capital gains to be tax exempt). Lets again pretend that in a matter of five years the said company sells for $15M. You've made yourself a tidy $1.5M on a $100K investment, better yet, you pay no taxes on your $1.4M in capital gains! Depending on the state this can be a savings of $300k-$500K (rough estimate). Not to mention there are some states that will allow you to have tax credits or deduction for investing in such early stage deals. Unfortunately Texas and Georgia are not included in those states.

Morale of the story is, if your candidate does not win the election there may always be a benefit to you in one or more the different initiatives the other candidate is trying to push. As always look for niches and work your way hard into them!

Anything in particular that draws your attention to a candidate for one particular reason or another? Lets stick to business topics for the time being...