Tuesday, August 11, 2015
Alphabet Will Soup Up Google
I would argue no. Alphabet brings new excitement into the Google workforce and its recruiting department. Of course, this is just speculation on my part. There are probably 40 to 50 companies that exist within Alphabet that won't be part of Google. The new structure will allow each unit to have it's own stock like a startup and recruiting can now consist of offering equity in each of these units or emerging companies. If one is interested in working for Nest, they can now have Nest stock or if Drones is your thing, there is a startup for you. Each new entity can attract the best talent, some of which may come from Google, but also from Apple or Facebook or other emerging tech companies. The talent pool has just expanded to include any rising star in tech because the opportunities within Alphabet are endless. Perhaps Google Ventures will now seed a bunch of new startups within Alphabet or will there be a new Alphabet Incubator created to compete with Y Combinator?
Many commentators can't understand why Google's stock is up dramatically today as nothing has changed except transparency. I think time will make it apparent that Google and Alphabet are different. Yes, the Google entity has the same value but the optionality for the Big Ideas has just added tons of value to the whole entity.
Tuesday, October 11, 2011
What Steve Jobs Will Do: The Future of Apple
Wednesday, July 13, 2011
The United States will Follow in Europe's Path
I am in Washington DC and decided to see the Newseum. One of the great exhibits they have is on a daily basis they post the front page of 800 newspapers from the U.S. and abroad. All the papers cover local news but every paper in this country today mentioned the debt fiasco going on in Congress. The Republicans have proposed to take away Congress's ability to raise the debt ceiling and leave the decision in the President's hands. This is just another political game.
The Republicans want to cut this country's debt load by at least $4 trillion over 10 years strictly though cost cutting measures while the President is willing to also have the same level of debt reduction as long as we increase taxes. This battle is at a stalemate and the Republican suggestion to try and pass a $2 trillion bill will not be sufficient.
The United States is a bankrupt nation but nobody in Government wants to admit it. Last year Ireland needed to be rescued and today Greece is spewing debt and facing a possible default. This week Italy's financial condition caused the markets to tumble. Portugal and Spain could be next in line. If the United States were a member of the EU, the financial gurus would be pounding on their debt and yields on treasuries would be much higher. Nobody would be as concerned with the technical default of our debt limit because the true worry would be too much debt and not enough revenues. Sound familiar?
The U.S. has been a financial powerhouse for the last 70 years and we have been the world's lender of last resort. Times have changed and we need to clean up our own fiscal mess. We can't pay our current bills and our kids won't be able to pay the future bills. Congress needs to wake up and forget politics before the United States becomes Greece. Social Security is broken and so is Medicare and Medicaid. We can no longer afford to protect the world so let's cut defense. Let's re-examine subsidies like ethanol and other farm subsidies. In this light, oil tax preferences may also have to be chopped. With our economy floundering and Bernanke discussing QE3, it might not make sense to raise tax rates but moving to a flat tax could clearly generate more revenues.
Washington needs to change and somebody needs to sit Nancy Pelosi down and teach her basic economics. Today's headlines have her fighting with her own party by telling the President that she won't cut any of the entitlement programs. Where does she think the money is coming to pay Social Security? Can someone possibly be so blind to reality or just so self-serving that it is worth sacrificing her own country's future?
The United States looks like one of those troubled European countries and unless Congress gets it's act together, the dollar will crash, treasury prices will plummet, a default will be in the cards, and the next financial crises will be upon us.
Wednesday, December 22, 2010
The Internet Leads to Disintermediation
Where do we go from here? I suspect the old trends will continue but mobile and video will become a bigger focus. In 2008, the United States and much of the rest of the world suffered through a financial crisis not seen since the Great Depression. The psychology of the consumer has been damaged for many years to come. No longer are people frivolously spending money and most consumers are looking for a bargain. This should propel the internet to become the driving force behind the "disintermediation of business". Traditional business has a supply chain that moves from manufacturing floor, to shipper, to wholesaler, to retailer, to consumer. 2011 will lead to the squashing of the supply chain and new fears will develop among the brick and mortar crowd. Entrepreneurs will develop ventures that either eliminate some of the supply chain or they will look to fill a need for lower prices for the consumer. In some cases, lower prices could result in expanding the customer base of a retailer so that overall their revenues rise as excess inventory gets depleted.
We recently have seen a trend of disintermiediation where some interesting businesses are starting to pop up. The combination of couponing and location based services may become a normal offering for every retailer if it wants to remain competitive. On the other hand, we find a company like http://www.jhilburn.com/ recognizing a niche to eliminate the supply chain for expensive men's shirts and using multi-level marketing to drive growth. The result is custom-made clothes at 1/3 the price of the retail store's off the rack designer shirts. It sounds crazy but how can a retailer compete? How about http://www.hbloom.com/? Many individuals order flowers weekly for their homes while businesses like to display flowers in their lobbies or reception areas. For those who buy flowers on a regular basis, this is not a cheap proposition. H Bloom has figured that out and they offer a weekly subscription for flowers. As a large buyer of flowers, they can offer customers this service cheaper than the local florist while guaranteeing fresh peddles conveniently delivered to your door. What is going to happen to the local florist? How about http://www.amazon.com/ and its new bar code App? Go to a store, scan the bar code, and Amazon will show you their price for that item which you can order immediately on-line, IF the price is cheaper. My guess is there is no IF. Amazon is likely using location based services in combination with their price optimization algorithm to guarantee they always have a compelling offer. Lookout retail?
The above three companies represent a new trend to displace or at least steal plenty of business from the good old brick and mortar retailer. We expect to see many more emerging companies that will cater to the thrifty consumer. Nobody wants lower quality goods but if one can use technology or remove the supply chain to lower prices, the move towards the disinetmediation of old line businesses will continue well into this new decade.
Thursday, May 6, 2010
The Cayneing of Jimmy
Tuesday, April 27, 2010
What Congress Doesn't Know About Wall Street
In aggregate, institutional investors looking at a deal will come to a consensus as to whether they like a deal or not. On the other hand, there is a wide range of buyers along the risk spectrum. Some investors are very conservative in the way they manage money and will only buy high quality securities in an extremely diverse portfolio. Others take a high risk, high reward approach. Such investors might only buy the riskiest securities that might produce out sized returns.
The approach Wall Street takes is to find the group of investors that is most appropriate for the risk of each specific transaction. In this light, the role of the institutional salesperson has been to provide his/her client with product that fits its strategy. As Congress pointedly asks the Goldman employees if their job is to look out for the interests of their clients, the Goldman response has been blank stares while not answering the question. The true answer is their responsibility is to provide product that meets the risk posture of each client as long as they knowingly are not selling them financial instruments that were created with fraudulent intent.
Congress wants Goldman and all other Wall Street firms to have their institutional traders and salesmen to act in a similar manner as they do with retail mom and pop clients. Many times institutional investors have differing opinions from Wall Street firms. As such, they are happy to buy securities being shorted by Wall Street. In the heyday of the mortgage market as well as in the heyday of the LBO frenzy, many institutional investors were aggressively trying to invest hordes of cash in their portfolios. In these situations, investors may have increased their risk tolerance and bought many securities that ultimately decreased in value or became worthless. Does such behavior and desires of sophisticated investors mean that Wall Street misled their clients?
Monday, April 26, 2010
The Misguided Financial Reform Bill
We are quite troubled with the provisions in the Bill which relate to Angel investing. For 20 years we have been active Angel investors in start-up companies. Some of those enterprises failed but many have grown and flourished. Our small universe of investments have resulted in thousands of new jobs as well as some new technologies that have driven commerce in the United States. Each of the thirty or so companies we have financed started as business plans and ideas for a business of the future. These fledgling businesses have no sales and certainly no earnings. As such, banks do not give loans to such enterprises. The entrepreneurs only hope is to find wealthy individuals (using the Obama definition) to supply venture money to fund the initial stages of their businesses. Typically an entrepreneur writes a business plan and sets out to find some individuals to give him/her some money to get this business off the ground. It could take a year or two in some cases until capital is raised to buy computers, rent space, and hire a few emplyees to test the new business idea. The good news is that small businesses under five years of age generated all new job growth between 1980 and 2005.
Given these facts, how could the Dodd Bill create new restrictions on Angel Investing? The Wall Street Journal recently had an Opinion similar to ours on this topic. Amazon, Facebook, Twitter, and Google were products of Angel investors. Does anyone believe these companies have created problems during the Financial Crisis? Start-up businesses beg to find any capital and take the money when an investor offers it to them. The new restrictions in the Bill would require an SEC review of these angel investments and delay the start of the funding for 120 days. This is ludicrous and will likely cause many of those companies to fail before they get off the ground. The ignorant policy makers need to understand that the U.S. economy is driven by small business and employment depends on the success of entrepreneurs' dreams. The Bill also wants start-ups to be regulated by all 50 states and for the angel investors' financial means to be increased. Congress should stick to the real problems facing the stability of the financial system. Whoever gave Senator Dodd the idea to restrict Angel investing needs to understand the facts of entrepreneurialism. Hopefully, Mr Dodd and Congress will come to their senses and allow fresh ideas to become the technologies and business ideas of the future.