Tuesday, March 31, 2009

Google Ventures Stalks Start Ups

Here we go.. total world domination. Google announced on Monday that it is creating a venture fund. 'Google Ventures' is expected to invest up to $100mn over the next twelve months, according to the New York Times. The guy in charge will be David Drummond, investments will be vetted by William Maris and Rich Milner, a co-founder of Android who Google acquired in 2005.

The fund is looking at clean tech, life sciences and, of course, Internet related entities.

“Economically, times are tough, but great ideas come when they will,” Google said in its announcement of the new venture fund on its official company blog. “If anything, we think the current downturn is an ideal time to invest in nascent companies that have the chance to be the “next big thing,” and we’ll be working hard to find them.”

Google Ventures has already made two investments: Silver Spring Networks, a company that makes technology to help manage electric grids, and Pixazza, which links online images with related products that can be purchased. Google declined to say how much it invested in those companies.

As much as this is news it is just a formalisation of Google's investing role which has seen it hoover up many companies over the 10 years it has been in business.

It is bizzare to think that Google has only been around for the last ten years. My son who, like any other teenager, is an Internet whizz, said to me yesterday "if you had invested in Google when you were my age, you would very rich now". When I explained that Google had been around only since 1999, he chortled (you know, that laugh when your kids are really saying 'man you are so old and out of touch') and said "Dad, listen.. Google is the Internet, I think it has been around a lot longer than that"...

He is factually incorrect of course, but the addition of this venture fund is just the next step in the total domination of the Net that is Google.

Good or bad you have to admire them for their flawless execution of being branded in the minds of kids as a company that is the Internet.

Friday, March 27, 2009

Swiss Under Fire - Is It Wise To Poke The Cuckoo?

Alastair Darling called the situation a 'mood change' and German Finance Minister, Peer Steinbruck, has defended himself against comments that he is 'Nazi stooge' when Swiss Parliamentarian, Thomas Muller, said Steinbruck reminded him of a "generation of Germans who marched through the streets in leather coats, boots and armbands".

I have to say the 'Nazi' slur was a bit strong, but you can understand why some in Switzerland are annoyed at the bully-boy tactics aimed at their banking secrecy.

I live in Switzerland and I can tell you that most people here are not happy. Whether they agree or disagree with Switzerland's banking secrecy rules, (many in Switzerland have been campaigning for change for years.. see the vote in the Canton of Zurich to strip tax breaks for the wealthy) the Swiss are unhappy about what amounts to an attack on their sovereignty.

In a case of 'kick them while they are down' Darling and his co-conspirators in Germany and the US have used the fragile world economic environment to get concessions from other countries, such as Switzerland and Monaco, to take down a central pillar of their competitive advantage over the 'world powers'.

Darling even said "I think there are things that are now possible, ironically, in the face of a crisis like this that simply weren't possible even a short time ago".

What else does he believe is 'possible' in this 'crisis'?

Ah regulatory overhaul, excellent! That will deal with the bankers, the public will love that. Increase the tax on the rich, super! Let's get back to the days of 95% tax for the super wealthy (they will have no place to hide it now that we have dealt with Switzerland). Unionisation, perfect! The Yanks are getting rid of the secret ballot... we can do that too!

Oh, it's happy days for the ego maniacs in government now. I can see the Scottish Army of Darling and Brown doing a little Scottish jig at the thought of using the suffering of unemployed people and businesses throughout the world as an excuse to implement their version of the new world order.

The thing is that the UK and others should be aware that when you start down this path you open yourself up for many a retaliatory strike. For example a Swiss Euro2bn order for Euro Fighters made in Germany is 'on hold' and calls for a reduction of German imports is rumoured. One minster said "We have no problem with the German people, but they may have to choose between their current government or jobs". There is also over Euro300 billion in fiduciary accounts throughout European banks, withdrawing that and bringing it back to Switzerland, could cause a few problems.

The Swiss Finance Minister also gave up his German Mercedes for a French Renault. This may sound like grandstanding, with no real value to it but you only have to look at the cars on the road here. I would guestimate that 50% of the cars are German; BMW's, Mercs and VW's. The Swiss are great for the 'people power' aspect of their society, if there was any sort of German backlash we may find such cars a little less popular here.

Couldn't happen? Don't be so sure. Much of this newly found governmental 'power' is because of the underlying social unrest at the current economic environment. It is fueling controversial policies 'that would not have been possible even a short time ago'. Switzerland is no different, actually I lie, Switzerland is different. If pressures that are being put on this Alpine fortress start to cause unemployment and economic discomfort for the masses and this pressure is seen as the route cause, there could be trouble.

A referendum on law changes only requires 50,000 signatures to be put forward to have it voted upon. Darling et al, may talk a good game about democracy etc, but true democracy is practiced here and could be used by the public to make a point.

The UK, in a precarious position with its convoluted tax 'reforms' for fund managers, should be a little careful. A couple of switches in the Swiss regulatory and tax laws (that would be in line with MiFid rules.. how is that for 'ironic') would see an exodus of wealthy fund managers from UK shores to the shores of Lake Geneva, where there is less crime, a better standard of living, better schools, great skiing and... well... good fondue.

You can bet that certain elements in the Swiss government are sitting down, as you read this, talking about how they can make up for the inevitable job losses that will be felt in the banking sector due to this latest attack. Tax and regulatory changes could be implemented quickly and efficiently and before you know it our ski slopes would be teeming with hedge fund managers taking a lunch break twenty minutes away from their lake front offices while dumping their tiny overpriced London homes via their Blackberries.

I don't mean to have a go at the UK, I am English and proud, but I am exasperated at the way that this government especially, brow beats the general public with populist policies aimed at deflecting the blame for their incompetence on countries such as Switzerland. For goodness sake, we only have 7.5mn people, thats just a little more than London!

Remember, Switzerland is not some second world backward country, it is at the heart of Europe with a highly educated, work-efficient, multi-lingual population and the country has a public infrastructure that makes the UK look like a former soviet country, straight after the collapse.

If Switzerland decided it needed to compete with the UK directly for the title as 'financial capital of Europe' in order to boost its economy I am afraid the UK would be the Goliath to Switzerland’s David.

If I was in this fight, I wouldn’t be watching the stumbling giant; I would be watching the little guy, loading up his sling.

Wednesday, March 25, 2009

AngelSift - A Winner for Investors?

I am very fortunate to have been asked to work with a new business angel/business networking site called AngelSift.com. The site is aimed at business angels and sophisticated investors that are looking for investment ideas for, generally, Internet based businesses.

Having looked at many sites that offer a similar service the founders of the company saw that some sites charge relatively high fees to become members and upload deals, even charging on funds raised. While, as a traditional corporate finance model, this works, on the Internet people are not used to having to pay huge sums for information that, with a little work and research, could be found for free.

AngelSift, therefore, has a free membership level where members can view the site and find out if it is for them. If an investor would like to interact the fee is a mere £20 for a year’s membership or, for a limited time, £120 for life membership.

Entrepreneurs who are seeking funding can upload one deal per month for an annual payment of £20 and multiple deals for a £60 annual payment.

The site is primarily aimed at web entrepreneurs seeking funding and the investors who would be interested in this area, but it also will be encouraging web entrepreneurs who wish to sell there web based businesses.

From our own research, and from some of the businesses we have bought online, we know that there are literally thousands of small web businesses making a profit for very little work, through advertising. There are other marketplaces but most are US based, AngelSift, although welcoming all investors and entrepreneurs, is targeted at the European market.

The first site should go live in a few weeks and the team has promised to furiously add functionality as the site grows. The concentration initially is building up the database of users and the resources available to those users.

Next stage development is being kept hush, hush but I can say that they have an ambitious business valuation project to implement and a variety of data gathering tools that will enhance membership and the information available to that membership.

The great thing that we have found is that the guys putting it together are not taking themselves too seriously. One of the backers, who has been in corporate finance for 20 years and is funding the site, says, "The approach is not like some of the big angel networks who have turned the space into a boring science project. Angelsift, and the guys behind it, are looking at it from a low cost base for users and a genuine desire to fit angels with investors, but in a hands-off, none meddling way"

Looking at the people they have got as initial members (I won't steal their thunder), the founders may not take themselves too seriously but the users of the site certainly should.

Monday, March 23, 2009

Madoff Case - You Have To Read About This Mess-Up

I have followed the Madoff case with a growning sense of anger at regulators and the very people who should have protected investors. I went to the CNBC site recently for an update and found a section that detailed letters having being submitted from victims who wanted to be heard at the meetings.

Now you would have thought that that Department Of Justice, The SEC and everybody else involved would be on the ball now, afraid to let the slightest thing pass without scrutiny. The slightest slip in the investigation, an oversight from some investigating officer or a miniture mistake could through more egg on the faces of embarrassed government officials.

Couldn't happen right? Too much at stake right?


Have a look at this link before it gets taken down.
Go to page thirty six. You will see an email that has been included in the heart rendering responses from Madoff Victims. That email goes something like this:

"My Name is ********* but my origins are from the Republic of Congo. I have inherited fund I want to invest in a business in your country....

Beggining to sound familiar?

It goes on:

"If you can assist, I am willing to give you 10% of the funds that is US$3.5 Million......"

Yes, you guessed it. On court submitted documents on the headed paper of the Department of Jutsice, someone, somewhere submitted a Nigeria scam email to the Judge in the Madoff case. Now, I don't know about you, but is this not indicative of the whole mess? A scam letter, submitted to a Judge in the case of the biggest scamster in history.

Surely they have people looking over these documents. Highly paid and highly skilled regulatory bodies and lawyers scouring every detail? If this evidence is anything to go by, is it any wonder Madoff got away with it for years?

Thursday, March 19, 2009

New Shiny Regulations Lined Up By FSA

I had to have a chuckle today when I read the statement from the FSA Chairman Lord Turner, when he said "We are not going to fall into the trap that we did in the past of trying to get a minor competitive advantage by making regulation a little lighter than elsewhere. The disadvantages of getting it wrong are hugely bigger"

Er.. did I miss something? Lord Turner may believe that regulators have been 'lighter' for his buddies at the big banks and powerful broking companies, but those of us who have been in the trenches for the last 10 years would not describe regulations as 'light'.

Costs have escalated out of control and the richest guy in any small brokerage is the compliance manager.

I suppose this is all good news. For a long time we have said that the banks are too big and out of control, squeezing smaller operators out of business. We recently reiterated our belief that this was, consciously or unconsciously, the will of the regulators. It is easier to manage a few huge companies, n'est pas?

Clearly that strategy has been seen to be a huge.. well.. cock-up.

So what are the solutions being put forward? As we have being saying for a year now, the changes will be stringent for the big banks.

In a reversal of MiFid (and, dare I say the word 'protectionism') Lord Turner said there would be major changes for foreign banks with subsidiaries in the UK. The system of allowing foreigners to "passport" so that branches in Britain are overseen by their home regulator will be curtailed. The FSA could force the local entity to hold a specific level of capital, or may insist it accepts direct FSA regulation, Lord Turner said.

He warned hedge funds that if the FSA believes they are a systemic risk, it will either squeeze the UK-based part of their business, or will put pressure on their offshore domain for information.

If the FSA deems something unacceptably risky in any financial institution, it will force it to hold so much capital that it makes the action prohibitively expensive. The FSA will also pay far more attention to the "macro prudential" big picture risks when looking at individual companies, Lord Turner said.

Basically all the things MiFid was supposed to do, ease cross boarder business etc, will be stripped away. He didn't say it, but I bet that is what happens.

So we enter another round of regulatory upheaval which, if it was to be aimed solely at the banks, would be a timely and well-needed thing. Only problem is, and you and I both know it, that these regulatory changes will impact everyone in our business.

No doubt we will see a hastily crafted and badly timed new set of regulations rushed through with the merest splattering of feedback from those it will affect down the financial food chain.

I am sorry to be so cynical, but when regulators start talking tough, you just know there going to be massive cost involved for those who never caused the problems in the first place.

Oh... and who gets to decide whether an investment strategy is 'unacceptably risky'? I think we all better get used to the phrase 'nanny state'.

Friday, March 13, 2009

The Daily Show Slams CNBC

The media is blamed more and more for deepening the fear of the general public. We mentioned this in an article we wrote in September. We were talking about who was to blame for the whole thing and some of our conclusions were not particularly popular.

It seems that Jon Stewart, from The Daily Show, didn't apprecaite a rant along similar lines by Rick Santelli of CNBC. Rick was not pleased at Obama's plans to bail out home owners who couldn't afford to pay their mortgages and, of course, Stewart jumped on this. I guess Rick was a bit over the top, but Stewart and the rest of the media are happy to side with everyone who took out mortgages and blame it on the bankers for offering all this money 'educate yourselves' he mocks.

Problem is, Jon, that the general, populist media doesn't have the balls to actually say how it is, people over extended themselves, Wall Street, foolishly, provided the money for this, but now all we hear is how Wall Street is to blame for eveything and the trucker on $20,000 per year who bought 20 houses with 'no money down', is totally blameless.

Come on Jon, you seriously do not believe that the American people are stupid enough to borrow beyond their means because a banker/mortage broker told them it was OK?

Where does the personal responsibility of the individual come into this? Is the US 'The land of the free, home of the brave' or 'The land of the free, home of the brave (as long as we are told what we can do, when we can do it, and not given any free rain, because if we do we can't help ourselves)'.

Having said all this I happen to agree with the thrust of the video below. Stewart is bringing to book those that make a living from reporting financial news. I think there is always going to be a problem when people like Cramer make actual recommendations on TV, he is always going to blamed somewhere along the line because all of his calls cannot be right.

I think some of the criticism of CNBC's shows are unfair. I watch them everyday and they offer a balanced rounded view of what is going on. The thing is though, CNBC is like everyone else in the industry, we try to take a look at the information we have and make sense of it in relation to the market. Taking as fact eveything that is said by commentators and contributors on CNBC is about as stupid as taking The Daily Show news seriously.

Regardless of it's simplistic view and the fact that Stewart is on the 'beat-up Wall Street band wagon' in the search for higher ratings, it is a fabulously funny bit of TV.

Monday, March 02, 2009

The Trap Of Globalisation

I took delivery at the weekend of 'The Trap' by James Goldsmith. I must say it is a fabulous read in these times and a bizarre peak into the mind of a man who saw it all coming.

The front page has a description of what is in the book, bearing in mind it was written in 1993, it says;

"Rising long-term unemployment, increasing violence, growing poverty in urban slums, environmental deterioration and a general realization that something fundamental has gone wrong...."

Catchy, and all the more scary when you take a look at these words in the current environment.

I also bought 'The Response'. This was a book written to answer criticism from the media and 'professional' economists. This is a shining example of one of the arguments against Goldsmiths negative stance on global free trade:

-European Commission - 1994

'Outflows will, over time, match in flows. If the countries of Asia export more than they import, the excess cash will be invested abroad and ultimately the inflow will equal the outflow suffered by those with a trade deficit'

Norman Macrae, Sunday Times, 12 December 1994

'Suppose (in fun not in realism) that ... all present world-tradable manufactures and services fled to {low-wage countries}.... {They} could then do three things with their export surplus... Either (a) hoard it in foreign exchange; or (b) use it to buy everybody’s ICI's and other principal industries; or (c) buy new goods and services from the West.

Course (a) would be the loveliest for us. {The low-wage countries} would put all their hugely expanded export earnings in America and British and other foreign bonds.... We could then import their nice cheap goods (much reducing our cost of living) at near-nil net foreign exchange drain, and expand our budget deficits.... to create internal jobs and live the life of Riley'

Goldsmith gets this 'lesson in economics' from people who must now be feeling a little silly. His response in 'The Response' was:

'The idea that accounts must balance, and that inflows must ultimately match outflows, is an accountants idea.

But there is a fundamental misunderstanding here. If you make a loss, perhaps because you own a business that is trading unprofitably or because you have made a bad investment, you will not get rid of the loss by borrowing the amount needed to pay for it. You will have avoided or postponed a personal liquidity crisis, but you will still be poorer by the amount of the loss. You will also have to pay interest on the loan.

Alternatively, you might sell your house and rent somewhere else to live. You will have used the proceeds of the sale to pay your debts, but you will remain poorer by the value of your house. And in future, you will have to pay rent.

When the Asian counties, as mentioned by the European Commission, invest their 'excess cash' abroad, normally they do so by buying into businesses or by lending money. The latter normally takes the form either of buying governments debt or of deposits, say in sterling or dollars, in the banking system. Now consider the position of the nations which, unlike the Asian countries, import more than they export and which, as a result, have a deficit as opposed to an excess of cash.

To finance their deficit, businesses or other assets are sold and debt is issued. This puts them in exactly the same position as an individual who sells his house or borrows money to cover his debts. Such a hemorrhage can last only a limited time before ending in bankruptcy....

... The ability to borrow will depend on its (a country's) credit-worthiness, as it does for an individual. And the credit-worthiness of the West is extremely doubtful...

... Far from the 'life of Riley' it is increasing unemployment and impoverishment that the West has to look forward to - unless it changes course, and in time.'

Put simply, Goldsmith's objection to global free trade was, essentially, what has come to pass. He believed that the West was exporting jobs abroad, that the export of these jobs would lead to lower wages and higher unemployment.

What he didn't predict with any great force was that individuals would stave off the consequences of lower earnings by borrowing to invest in the stock market and property as well as increasing traditional credit card and overdraft debt. The increase in markets and property values gave the veneer that the utopia of good returns on investments and low price goods could go on forever.

Such debt was part of the biggest Ponzi scheme of all time, making Madoff look like a cheeky pickpocket from the musical Oliver.

Let’s face it, between 2003 and end of 2007, anyone could get credit for pretty much anything. TV shows in the UK such as 'Bank of Mum and dad' showed wayward kids, sometimes unemployed, who had wracked up £20,000 plus in debts on credit cards and overdrafts, and now were being helped to manage the situation. Adverts in the US showed big SUV's and cars could be bought on leases in the low hundreds of dollars.

Need a mortgage? Don't have good credit, or even the money to put down as a deposit? No problem self-certification 125% mortgage on its way for you sir. Spend the extra 25% on home improvements...

Really, how long did we think this would last? The housing market was the start, we know that.. bankers could securitize no more loans, house prices were getting silly and people could not borrow any more money to keep the merry-go-round spinning.

That is what has exposed the problems that Goldsmith warned of 16 years ago. The credit markets got clogged up and it came to a point where the system ground to a halt. Basically new money stopped entering the Ponzi scheme and those left holding the assets when the music stopped got severely burned, in stocks, houses, bonds even some bank accounts (Landsbanki as an example).

Goldsmith agrees that protectionism is not the antidote to globalisation, but it is simple math to understand that companies will not bring jobs back to high salary and unionized countries when they can have non-unionized cheap labour elsewhere.

The basic tenet of the start of Goldsmith's book, The Trap, is that we have lost site of what science, technology and the economy is there for. These three have been treated as an ends in themselves rather than a tool to enhance the lives of the society they serve and as such this inversion of values is back firing on society as a whole.

If protectionism is not the answer, and global free trade is here to stay, then we must get used to a lower standard of living.

Although the wages earned by those in the West have been won by hundreds of years of negotiation, unionization and civil rights law, our governments, at a stroke, allowed businesses to by pass the cost of these issues and export the jobs they were designed to protect to low-wage economies.

I am coming over all socialist... I think I need to sit down...