I'm Not a "Linkfest" Kind of Guy, But...

Here are some articles I've seen over the last few days that warrant a read:

1. Bagehot's Lessons For The Fed, Wall Street Journal, 4/25/2008. Stanford University's Ronald McKinnon shares some pearls of wisdom from the legendary UK economist and scholar Walter Bagehot's  body of work.

Bagehot called a seizing up of internal markets "a domestic drain" (of gold), and the flight of capital abroad "an external drain." He wrote that "The two maladies – an external drain and an internal – often attack the money market at once." And what, he asked, should be done when this happens?

"We must look first to the foreign drain, and raise the rate of interest as high as may be necessary. Unless you can stop the foreign export, you cannot allay the domestic alarm. . . . And at the rate of interest so raised, the holders – one or more – of the final bank reserve must lend freely.

"Very large (domestic) loans at very high rates," Bagehot advised, "are the best remedy for the worst malady of the money market when a foreign drain is added to a domestic drain. Any notion that money is not to be had, or that it may not be had at any price, only raises alarm to panic and enhances panic to madness. But though the rule is clear, the greatest delicacy, the finest and best skilled judgment, are needed to deal at once with such great and contrary evils."

The punch line:

To repeat Bagehot's Rule: "very large (domestic) loans at very high rates are the best remedy for the worst malady of the money market when a foreign drain is added to a domestic drain." The Fed, and the U.S. government more generally, have so far got it only half right.

Here was a lead-in to a post I had written back in December of last year:

I've been one of those on the stagflation bandwagon, deeply concerned about the weakness of the dollar, the likelihood of the Fed continuing to reduce rates in the face of locked-up credit markets, rising food and energy prices and persistent and rising deficits. This is a toxic macroeconomic cocktail I've written about and which has been the source of much worry.

I'm firmly in Walt's camp. We'll see if the Fed and the Treasury are listening.

2. Horatio Alger Multiplied by 1.3 Billion, New York Times, 4/26/2008. Joe Nocera penned a very interesting and informative article about the spirit of entrepreneurship that has been released in China, chronicling the rapidity of its impact on both China and the world. It reminded me a bit of yesterday's post on entrepreneurship in the U.S. These are the words of a very successful Chinese entrepreneur who started with $31 and now runs a large consumer electronics company:

“My mother and father went through the Cultural Revolution,” Mr. Feng said. “They had no chance.”

He continued: “When I was in grammar school, the Cultural Revolution ended. When I graduated from university in 1992, that was the year of real reform. Deng Xiaoping encouraged students to go into business and become entrepreneurs. Before then, if you wanted to be an entrepreneur, you would sink like a stone. But after that, anyone could be an entrepreneur.”

Joe made the following observation during his recent trip to China:

But look at what else happened: motivated by the prospect of wealth, people started companies. And as those companies succeeded, millions of new jobs were created. In Shanghai — a place with more entrepreneurial energy than any place I’ve ever visited, including Silicon Valley in the 1990s and Houston during the 1980s oil boom — you can practically see wealth being created before your very eyes. If Shanghai doesn’t make you a believer in the power of capitalism to improve lives, nothing will.

We are just at the beginning of a massive, global entrepreneurial wave. And amidst all of the fear, confusion and uncertainty, the prospects are bright for a better world created by the passionate, the driven, the risk-taking entrepreneurs in every corner of the globe.

3. The Best Game Ever, Sports Illustrated, 4/25/2008 issue. This is an excerpt from a new book by Mark Bowden of the same title. While the book is a chronicle of the great 1958 Super Bowl championship game between the Colts and the Giants, there is a powerful vignette about one of the stars of the game, Raymond Berry. It is a story of passion, raw intensity, brutal focus, self-motivation and unparalleled drive in the face of huge obstacles that ultimately culminates in legendary success. It is an inspirational tale for anyone who thinks they aren't good enough, big enough, fast enough or something else that others deem as important. It is about the refusal to accept one's perceived limitations. It is really a story about succeeding, regardless of context. Trying out for a team, interviewing with a company, building a start-up; anyone pursuing these goals would benefit from the lessons of Raymond Berry. I think I'll have my son's read this one.

Enjoy.

The Halcyon Days of Entrepreneurship

The economy isn't so hot. The credit crisis has caused mass layoffs across Wall Street and related industries. Mortgage defaults are skyrocketing, causing panic in many communities across the U.S. The geopolitical environment hasn't been this lousy in a generation. All pretty depressing stuff. But I see a silver lining in all this chaos: the rise of entrepreneurship, a wave that can help spur innovation, solve seemingly intractable problems and help energize the economy both today and tomorrow.

Here are a list of catalysts that I see contributing to the entrepreneurial phenomenon:

• The boredom of big companies. Whether one is talking about Ford, IBM, P&G or even Google, big companies eventually stunt the entrepreneurial growth of many talented people. If you have an idea, a really good idea that you want to own and run with, there precious few companies where you can do this without a whole lot of b.s. that makes the whole experience unsatisfying. So if you are successful, self-confident, have a network of smart people and the drive to do your own thing, leaving the mother ship to pursue your passion is both a rational and a logical thing to do. I can't tell you how many people I personally know that have left Google, AOL, every major media company and Wall Street firm to do something entrepreneurial, whether it is to become an angel investor or to start their own company. This is a powerful catalyst for change that will drive great ideas and companies for a generation - or more.

• The mass layoffs across Corporate America. Lots of smart, mature professionals are finding themselves without jobs, and without good prospects for finding similar jobs in other companies or industries. This doesn't mean these people aren't good, only that they were left standing when the music stopped playing. I personally know several people this has happened to that are - yes - taking some of their capital and all of their creative energies to develop business ideas they've had but never had the time to pursue. And these people have lots of practical experience that can be used to either start companies of their own or to take operational roles within young companies that can benefit from their knowledge. Hundreds of thousands of professionals are going to have to re-invent themselves. There is no choice. But these are not the types of people who curl up in a ball and wish things were different. They'll feel compelled to figure it out. And that can only inure to the benefit of the small, rapidly growing companies in need of such skills and wisdom.

• The asymptotic nature of technology costs. As technology costs approach zero, barriers to starting a company are simply fading away. If the talent and a little operating capital is there, what is stopping anyone from pursuing their idea? Not much, except guts. It has never been cheaper to hack together an alpha prototype and test the market. I'd argue that while costs will continue to fall, they've already fallen to such a low level that they really don't represent much of an obstacle any more. Get started and get to market early and often. Because now you can.

• The availability of both angel and venture capital. Even if the corporate refugees don't have as much operating capital as they need to completely self-fund a start-up, there is plenty of angel capital around to help bridge the gap between personal monies and an institutional round (if needed). There simply aren't any excuses. It is hard to walk into a Starbucks in any major city and order your venti skim latte without bumping into someone who does angel investing. We're everywhere. There is no place to hide. So unless you are living under a rock or so inept that you can't find a nearby business accelerator, angel group or high net worth individual who likes seed investing, hacking together a little money for a really good idea should not be viewed as a mountain to be scaled. It is doable and it is done ever single day.

• The presence of clear problems that need solutions. There are so many things I see in my own life that could be done better it is truly mind-boggling, whether they are on the macro level (clean fuel technology, water purification) or the micro level (job search, ad targeting, basically all that stuff I invest in). I buy into the Peter Lynch ethos - "Invest in what you know" -  but applied to early-stage investing and entrepreneurship: put money in stuff/start companies that addresses a problem or need you have. So I don't see a dearth of opportunities for smart, entrepreneurial people to come up with commercially compelling, bankable ideas. You only need look as far as our own life for investment ideas. Not everyone needs to start a nanotech, biotechnology or social networking company. But if you feel like you have an edge, go for it.

New business ideas and experienced management for helping young companies are two clear positives coming out of the current business and economic environment. High-impact start-ups is an area where the U.S. has long excelled. Now we have an opportunity to leverage all those highly knowledgeable, experienced, displaced professionals into both new and young, rapid-growth businesses. Maybe local groups of professionals in transition can be established to brainstorm around new business ideas (see Meetup.com), and to bring in successful entrepreneurs and venture capitalists to provide guidance on how to turn their ideas into real businesses. It could be a win-win by helping entrepreneurs identify possible senior talent for their companies, and helping the venture guys source new business ideas and entrepreneurs to fund. All I know is that we can turn what looks like a negative into a big positive by thinking outside-the-box, providing some education and support and presenting both start-up and small business opportunities to those used to thinking only about big companies. What they may find is a life and a challenge that is different, challenging and possibly even more rewarding than what they've gotten accustomed to. Now that is what I call a silver lining.

Growing Older is Hard

This is not a post about vanity, the loss of hair, the newly-formed wrinkles, the sore muscles, the need for a mid-day siesta. It is about the loss of life and of love, the passing of an era. A few night ago my wife's grandmother died, the last of our grandparents to go. She was a tough, feisty, bright woman, an independent and free spirit who was ahead of her time. She traveled abroad as a young woman, falling in love with France in general and Paris in particular. This ultimately led her to become a French teacher, speaking the language that became her favorite tongue until the end. We always thought that if she cognitively lost it and resorted to a single language, French would be the language she'd speak.

I met her in France when I connected with my then-girlfriend during a trip with a couple of my college buddies after graduation from Michigan. My now-wife was on a trip to France and Israel with her "petit grand mere," diminutive in stature but large in spirit, for a little grandmother/granddaughter bonding. I took a four day diversion to spend time with my new girlfriend, and had the pleasure of spending some time with her beloved grammy while in Paris. I brought grammy flowers at her hotel, had lunch together in the Jardin de Luxembourg and dinner together at a wonderful restaurant called Le Petit Zinc. Though this was over 20 years ago it feels like it was yesterday.

Grammy's speech at our engagement dinner over 15 years ago was very memorable, a time at which she said such beautiful things about my then-fiancee it made me smile a mile wide. She also really loved me, which was a special gift since I never had that kind of a relationship with my grandparents. She doted on my wife, providing her with another source of love and emotional support beyond her parents. It was a beautiful thing to see, the mutual love between my wife and her grandmother. Such a special, priceless gift.

She was 91 when she finally gave up. The last years of her life weren't particularly pleasant, being confined to a wheelchair and losing the mobility and active lifestyle that characterized the lion's share of her full and rich life. In my mind's eye I don't see her in the nursing home but sitting at the piano, playing silly songs at Thanksgiving that had all the grandchildren, both by blood and by marriage, dancing around and acting like little kids. I see her playing Trivial Pursuit and Scrabble with the family and with my sons, displaying her powerful memory and language skills for all to see. To be sure she was far from perfect; everybody is. But she had an array of positive qualities that left a strong imprint on me, my wife and my children. And I will always be thankful that she had a place in our life. This is the first relative that my children have lost in their lives, and it will not be the last. I wish I could be more at peace with the passage of time and its consequences, but it is very, very hard.

Experienced Sales Hunters Wanted: Monitor110

Monitor110 is currently in the market for winning, results-oriented sales professionals to join their dynamic team. The New Business Sales job specification is provided below.

Representing the intersection of Wall Street, high technology and innovation, Monitor110 creates intuitive and powerful tools to help Hedge Funds and institutional investors monetize the Internet and alternative data. Monitor110 is revolutionizing the world of financial services information. Progressive institutional investors use Monitor110’s premium subscription services to access, analyze and monetize Internet and alternative information in a manner previously impossible.

We are looking for New Business Sales professionals who have working knowledge of the investment management industry and investment research process. This opportunity is perfect for the person who has successfully sold financial technology and thrives in a high-impact position. The primary role of New Business Sales is to drive new client acquisition. The New Business Sales professional is responsible for managing their own sales opportunity pipeline, negotiations and closing new business.

Responsibilities

• Effectively drive new client acquisition.
• Run the full sales cycle, working collaboratively with others.
• Present best-fit solutions to address clients’ needs.
• Consistently use Salesforce to track sales activity and manage sales opportunities.
• Clearly communicate client / market requirements to Product Management.
• Bring high energy, focus and enthusiasm to the job every day!

Requirements

• Minimum of 3-5 years of Sales hunting experience in the Financial Services Industry.
• Consultative sales expertise, with ability to convey compelling value to the prospect.
• Demonstrated ability working in a start-up environment.
• Existing buy-side and/or sell-side relationships preferred.
• Experience selling to Research Analysts or Portfolio Managers is a plus.
• Series 7 certification is a plus.
• Some travel required.

Additional Desired Skills

• Deep knowledge of the investment management research process and the automated tools in this space.
• Strong organizational, time management and leadership skills.

In exchange for your talents and commitment, we are proud to offer an exceptional benefits package, including:

• Competitive compensation (salary + commission + stock options.)
• Benefits (including medical, dental and vision,) 401(k) Plan.
• Being part of a dynamic team focused on nothing less than success!

If you are ready for the challenge, please send a cover letter and CV to Elyse Tenzer, Head of Recruiting, at elyse@monitor110.com.

From Analysis to Experience: I'm Apple-fying

In my post about moving I left out one important detail: myself and my entire family are shifting from PC to Apple. We've been living in transition for a few years so we held off on making a platform switch, and I wanted to integrate changing computer and music environments until we moved into our new place. And tomorrow is the day.

We're getting an iMac with a giant screen for family use in the kitchen. MacBooks for my wife and boys. A MacPRO for my office and a MacBook Air for travel. An AppleTV for the family room. An Apple Time Capsule and AirPort Extreme for storage. We've gotten a taste of Apple as my older son got a MacBook last year, and I've seen first-hand how incredibly easy it is to operate in an Apple environment. I've spent so much time analyzing Apple from a competitive perspective that it's hard to believe I haven't been a user. But now I'm converting talk into action. I am totally pumped.

I am also excited to really begin using some of the cool applications that have come out since we moved into our temporary digs, like Rhapsody and Sonus. While I know some stuff about edgy consumer technology (a lot of it learned from reading blogs, with perhaps Fred being my principle teacher), my home environment has been decidedly 20th century. As I get to use all this fun stuff, experiment and try new things, I'll be sure to report back on my experiences.

Moving Sucks a/k/a Living in NYC Ain't Easy

My family loves living in New York City. That said, our lives are constantly contorted by the fact that we live in this alternately weird and fascinating place. This is exemplified by our different living situations over the past 12 years or so. We owned a nice loft in the West Village, need more space, wanted to combine units and tried to work out a deal. We made a highly attractive offer to a neighbor who was prepared to move but wanted to constantly extort more money from us. No go. So we moved.

We then did a renovation of a place in the Central Village. Took a year of our life, a lot of planning and a nice chunk of cash to create a really special living situation. We loved it and would still be there right now if not for an absolutely horrid neighbor who didn't appreciate my childrens' existence. Most New Yorkers understand that by living here, you are not entitled to live in tomb-like silence. People walk. Kids play. Music plays. This couple, a childless couple in their 50s from down south, didn't feel that way. So they chose to torment us so much that after a year we decided to leave. Life is too short to have that kind of stress on an everyday basis. Constantly telling our kids to quiet down, sit down, essentially, not to be kids. Wrong. We decide to sell the place and buy another place, this time in West Chelsea. A project. A big, big project.

We rented back in our old West Village neighborhood for what we expected was 12-18 months. Well, we are moving out next Thursday after nearly three years. And during the renovation of the new (well, it is actually an 1846 landmark building) place we had countless unforeseen problems, disputes with one of our neighbors that subsequently led to litigation, crumbling walls, flaky subcontractors, skyrocketing commodities prices, power-hungry Landmarks inspectors, prior permits that had never been received and needed to be gotten before work could start, etc. You just can't make this stuff up. Tom Hanks' depiction of such problems in The Money Pit doesn't begin to approach what we've dealt with. Oh, well. That's truly life in the big City.

So after all this we have the privilege of going through three years of accumulated junk in our apartment, not to mention going through all those boxes we had stored on an "interim" basis. And worse, we've gotten really attached to our interim place. It has great views, is close to the kids' school and where they play sports. And to think, if the person in our first place had only been cool we'd still be living around the corner right now. What we've experienced is New York in a microcosm. It just happens. You need to roll with it or get the hell out. And we're staying.

Just Add Liquidity, Wait a Few Days: Claim Victory

The stock market has risen the last three days and commodities prices have fallen sharply, all in the wake of the rescue of Bear Stearns. Prior to that, equities had plummeted, commodities had skyrocketed, the dollar completely cratered and a powerful flight-to-quality had ensued. I mean, a snap-back in the wake of hundreds of billions of Fed intervention was not particularly surprising, no? But read some headlines today and it is as if the Fed and Bernanke have won. Won what? A three-day reprieve from a long-term problem that is necessarily exacerbated by the Fed's historic injection of liquidity to avert crisis? I mean come on. Can't we even wait a few months before knighting Sir Ben and anointing him "Slayer of the Evil Commodities Bubble?"

Even by journalistic terms these headlines are hopeful if not outright fanciful. Oil drops to $102? Gold to only $910? Wow, happy days are here again! How about this formula: have a deadline, need a headline, look at data in the absence of context, stir for 2 minutes, write a story. This from Bloomberg in a story titled Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke:

     March 21 (Bloomberg) -- The biggest commodity collapse in at least five decades may signal Federal Reserve Chairman Ben S. Bernanke has revived confidence in U.S. financial firms.

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``Bernanke took care of the commodity bubble,'' said Ron Goodis, the retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Commodities are coming back to earth. The stock market looks OK, and Bernanke is starting to look a little better.''

********************

Gold had its biggest weekly loss since August 1990 after reaching a record $1,033.90 an ounce on March 17. Oil plunged almost $10 over three days, after rallying to $111.80 a barrel, the highest ever. Corn dropped more than 9 percent for the week, the most since July.    

Until this week, commodities had outperformed stocks and bonds as the Fed reduced its benchmark rate five times since September, eroding the value of the dollar and fueling concern that inflation would accelerate. This week's rate cut brought the Fed's target for overnight loans among banks down to 2.25 percent.

********************

Oil, soybeans, platinum and wheat all jumped to records this year. The weighted UBS Bloomberg Constant Maturity Commodity Index of 26 futures has gained more than 20 percent every year since 2001. The index is up 10 percent this year.    

Gold had rallied as much as 43 percent since Sept. 18, when the policy makers began lowering the federal-funds rate for the first time in four years.

Has confidence been revived in U.S. financial firms? Nobody I know, myself included, feels this way. Did Bernanke take care of the commodity bubble? Commodities are coming back to earth? Really? Relative to their highs over the past week? And have commodities simply outperformed stocks and bonds during the Fed's easing? What about the data in the article that discusses price of the UBS/Bloomberg commodities index rising more than 20% per year for the last six years and is up over 10% this year? This isn't called outperformance; this is called a trend.

There were a few professionals quoted in the article that take a more balanced view of the proceedings, and their comments are nicely stashed at the very end of the article:

``He has taken extraordinary measures, things that we haven't seen since the Great Depression,'' said former Fed vice chairman Alan Blinder, a Princeton University professor. ``He's working overtime, literally and figuratively, to get this panic under control. But so far, it's not under control.''   

********************    

``This is all about money,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois, who has been trading gold since 1973. ``The Fed can control the price of money but the banks still don't want to lend.''

Only time will tell, but in any case a declaration of victory for anything other addressing this week's crisis is months if not years away. Let's not lose sight of this fact, because the minute those in positions to make large policy decisions stop using their brains and begin thinking the worst is over, watch out. Because their overconfidence will only sow the seeds of turmoil.

Living in a Bifurcated Market

New York City is a decidedly odd place right now. During 2004-07, Wall Street was a powerful engine that propelled growth and good fortune across a vast swath of the city, creating massive wealth, buoying an already heady real estate market with concomitant knock-on effects in retail, restaurants and entertainment and big-ticket consumer durables (e.g., cars and other high-priced toys). Today, it seems as if every days brings news of more large-scale layoffs on Wall Street, be it Citigroup, Lehman, Morgan Stanley, whomever. The unwinding is happening fast and furious, putting people on the Street with no clear prospects for employment. Because all firms are in the same position. Superstars will always have a home, but what about the merely good? They're currently out of luck. Will Wall Street come back? Of course it will. But when? Not for some time. Nobody knows.

On the flip side, the technology, media and advertising communities are doing ok. Advertising will certainly suffer in an economic downturn, but there is so much more to do in technology that has a clear path to monetization and the media industry is in the midst of massive disruption, creating opportunities for smart, nimble, creative early-stage companies. The entrepreneurial vibe in NYC hasn't been better during my four years as an active participant, and based upon the deals I'm seeing the performance of my portfolio companies I see little slowdown in this part of the NYC business ecosystem.

So how does one reconcile the troubles of old-line Wall Street with the promise of new-age digital media (and financial technology and other areas ripe for disruption)? Quite simply that by having a seemingly endless bankroll courtesy of the credit bubble, Wall Street has grown undisciplined and gotten distracted from managing risk. This explains the lions' share of the problems we've witnessed over the past 6-9 months. Young start-up companies, however, attract and have available only a fraction of the resources open to large Wall Street and private equity firms. Even when venture capital investing gets crazy it doesn't compare in size or scale to the Wall Street bankroll, not by a long shot. This keeps small companies hungry, disciplined and focus on winning. It also makes them easy to adjust to changed economic circumstances by deferring new hires, selectively laying off staff and intensely focusing on managing cash. Not quite so easy at large Wall Street firms, I'll tell you from experience.

While sales at Manolo Blahnik and other hoity-toity boutiques will eventually get hit by the big-money Wall Street slow-down, restaurants and kitschy stores on the Lower East Side and in Tribeca are likely to keep on humming due to the vibrant small company scene. While this birfurcated existence can't go on forever, my handicapping is that it will continue much, much longer than people expect. Contrary to the alleged statement of Charles Duell, that "Everything that can be invented has been invented," we are in the midst of a time when innovation and idea generation appear to be at an all-time high. And it is imperative that we continue to provide incentives and opportunities for young companies to be formed and to bring their intellectual property into the marketplace. They are our future, and will serve as a counterbalance to the problems being experienced in the more established parts of our economy.

Boing, Boing, Boing... And So It Goes

What we saw today is yet another example of the "dead cat bounce."  And I believe this baby is going to be bouncing for a little while, after which in all likelihood the rally will cease, fear will return and the market will continue its march downward in the face of massive de-leveraging. There is no choice; it is the case of the irresistible force (investors hoping and wishing for the bad times to be over, courtesy of the Fed) meeting the immovable object (the disastrous fiscal and financial market realities facing the U.S.). The Fed can lower rates to 0% - but that in and of itself doesn't create jobs, make banks more willing to lend and stimulate economic activity. What it will do, of course, is cause a massive capital flight out of the U.S. and its debased currency, fueling a downward spiral of economic activity in tandem with upward pressure on prices that will hit with devastating effect. Not a scenario I am looking forward to.

Remember what I said back on November 28th, in my post Did I Just See a Dead Cat Bounce?

The Fed is scared, that's for sure. They see the dislocation in the credit market persisting, and perhaps getting worse. All we need is the failure of a single monoline insurer or (another) 10-figure write-down by a major bank to toss the financial markets into a complete panic, which would be good for precisely nobody (except perhaps Bill Ackman, Jim Chanos and a few others). So in light of these risks, they may well tilt towards an accomodative stance. However, if they do this, will this really stimulate growth in the real economy and meaningfully loosen up tight credit markets? Debatable. There are likely more direct steps they could take to provide banks and other financial intermediaries with the liquidity to bridge the gap and to address the tightness in the mortgage markets, steps that maybe wouldn't have such an adverse effect upon the dollar. And what if they continue to push down short term rates, and the real economy doesn't react as hoped? In the absence of real growth and in light of lower rates, the dollar will fall further, only exacerbating an already difficult situation. This could have the effect of causing foreign capital to flee and long rates to rise, making it more costly for firms to raise stable, long-term capital (not to mention the US Government).

I could have written this yesterday; I believe my words are as applicable now as they were then. For those who are playing, the SPY closed at 147.13 on that day, after having rallied from 140.95 on November 26th. It bounced as high as 150.94, reached on December 10th, after which it dropped all the way down to 130.72 on January 22nd. Today we sit at 133.63, down from the October 9th high of 156.48. For a non-economist I think I nailed the situation pretty well.

So my point isn't that rallies can't happen, but that one needs to take a big step back from the headlines and ask: how is this going to change the fundamental outlook for the real economy, consumer confidence, purchasing power, the health of our financial institutions and the vitality of the credit markets? Oh yes, and trivial matters like the dollar, inflation and profligate spending on non-value creating activities like wars. As it stands today, I am not convinced the Fed, the U.S. Treasury or our President have the answers. What I do know is that a lot of investors who are breathing a sigh of relief today are going to be shedding tears of disappointment in the not-too-distant future. Because I just saw a dead cat bounce. Again.

Just an FYI...8 Mega Themes for the Future

Here are some current headlines from three of the premier mainstream media publications dealing with business and the economy:

The Wall Street Journal

March May Be Quite Cruel
Top Bankers Defend Pay Packages
MBIA Dislikes Fitch's Ratings Models
Markets End Week With A Slide
Margin Calls Throttle Thornburg
U.S. Payrolls Shrink Dramatically
MTV Reveals Computer Breach

The New York Times

In California, A Generational Tale Of Real Estate Boom And Bankruptcy
As Foreclosures Rise, Investors Pull Back
Aversion to Risk Deepens Credit Woes
Apple To Encourage iPhone Programmers
Alabama County Facing Deadline On Sewer Debt
Discounters Led Retailers Last Month

The Financial Times

Fed Expands Lending To Attack Liquidity Crisis
Chips Are Down As Las Vegas Feels Pinch
Fickle Investors Shun Debt-Laden Stocks
Malaysian Stock Market Reforms

My sense is that we are going to see almost exactly these same headlines again and again and again for the next 2-3 years. They capture what I consider to be a representative mix of short- and long-term trends, trends about which investors and all citizens should be aware when trying to get a grip on what the future holds.

1. The economy sucks now, and will continue to do so well into 2009 and perhaps beyond. This isn't because I'm a bear; it's because I'm a pragmatist. The types of deeply embedded problems facing the U.S. economy (and, therefore, impacting economies the world over) don't resolve themselves in a matter of months. We're talking years.

2. The real estate bust is a major reason for our despair. While the problems in California are acute and perhaps among the worst in the country, they are indicative of problems across the U.S. and the stories we are hearing and being played out in dozens of markets. Further, the ripple effect on Wall Street and Main Street are not only hitting the banks and investment banks, but the bond insurers, investors, employers and the broader economy.

3. Fears across the financial sector will make things worse, thereby fueling more fear and making things worse, and on and on. This negative feedback loop will continue until the excesses are stripped out of the system, excesses of such a magnitude that it will easily take 2-3 years before the depths of despair have been wrung out of the myriad toxic portfolios and balance sheets out there. It is what it is, and what it is really, really sucks.

4. Municipalities will be hurting, placing tremendous financial strains on states and the Federal government just as tax revenues are declining. Increasing funding costs and reduced tax receipts will threaten cities that overspent while times were good, leaving them with difficult debts to service when times are bad. And with an economy encountering general malaise, its not as if state coffers have the resources to help out much. That leaves our already debt-stretched Federal government. Terrific. Just what we needed. Not.

5. Computer security will continue to be a pressing issue. As more of our lives move online, and as richer and richer data is out there to be used appropriately or by bad actors, we'll see more and more examples of data theft and security breaches. It is somewhat analogous to the steroids users and steroid testing; the labs coming up with designer drugs are always at least one step ahead of the testers. Similarly, the bad guys, their resources and impressive collaboration represent a real and present danger to our data security now and in the future.

6. Previously closed systems will become increasingly open. Apple's release of an SDK for the iPhone is only one example of formerly proprietary, "walled gardens" becoming open, seeking to leverage the collective intelligence and creativity of developers everywhere. Facebook is doing it. MySpace is doing it. Microsoft is starting to do it. It is a megatrend that will not be stopped.

7. Seemingly recession-proof sectors prove not to be recession-proof. When things are going badly the "vice stocks" do great, right? Well, maybe not. Casino expansion has occurred at a break-neck pace, with stock prices and market caps rising in parallel. My guess is that the casino business will fall on hard times, as all those marginal gamblers will stay away while the merely wealthy (versus the mega-wealthy) gamblers will cut back their "leisure gambling." Conversely, discounters should outperform retailers as consumers pare back spending to deal with their lack of job security and high debt levels.

8. Emerging markets will continue to progress, driving convergence with the developed markets. This is a megatrend that has moved in fits and starts, but seems to me to be moving forward at an inexorable pace. It is just not stopping, and this is good for the global financial markets and investors everywhere.

There are certainly others to be mentioned but I think these eight are pretty good. I feel like I don't need to read the paper until after 2010. I'm pretty confident of what it will be saying between now and then.

Are (Most) Economists Out to Lunch?

I think it is high time that the pragmatists rule and the economists step aside. Now, certainly some economists are pragmatists, though they appear to be few and far between. Self-interested commentators abound, particularly among Wall Street and hedge fund denizens, who are itching for the Federal Reserve and Congress to bail them out (or to provide the means by which they can make the U.S. taxpayer, kind of like those opportunists around the S&L bailout two decades ago). And all too many economists are making the same pronouncements, encouraging the continued reduction in short-term rates to "unlock" the credit markets. Further, we continue to witness a U.S. citizenry who has little tolerance for pain, U.S. legislators who have little tolerance for declines in their popularity ratings, and an Executive branch that refuses to make the hard, long-term decisions that may be unpopular but get the U.S. on the road to fiscal prudence. It is a sickening game to be watching from the sidelines and one which I am sure my fellow pragmatists can relate to.

If unlocking the credit markets were the only thing we had to worry about. There is plenty of liquidity out there; it is only that few are willing to part with it while market conditions are so uncertain. When can we expect to see the last of the portfolio write-downs (CDOs, CBOs, leveraged loans and loan commitments, residential and commercial real estate loans, and so on) held by our banks, investment banks and insurance companies? It was once $100 billion, then $200 billion, now $400-$600 billion. Let's call it a trillion. And the problem is that as these losses are announced quarter after quarter, it casts a pall over the entire market, delaying the healing process. I guarantee you that more (sustainable) fortunes are made in times like these than in boom times, as it takes a certain inner strength and steely resolve to wait until maximum pain is being experienced and then to swoop in and pick up the assets at fire-sale prices. But we're not there yet. Many, if not most economists see a pick-up in the second half of 2008; I'll wager that 2009 is even worse than 2008 for the overall market. But again, I'm not an economist. Please pay no attention to me.

One economist who was vilified and then vindicated is Jan Hatzius, the gentleman from Goldman Sachs who was so rudely taken to task by the twin geniuses, Messrs. Ben Stein and Charles Gasparino. Talking the book? Lacking independent thought? Yeah, right. The only problem with Mr. Hatzius' prognostications is that as negative as they were, they likely weren't negative enough. It is kind of like Nassim Taleb's discussion of black swans. People have a hard time thinking beyond their own experience, beyond their own frame of reference. Who could have predicted the credit bubble would pop as it has and with all the related repercussions? Precious few in the final analysis. And those that did made fortunes off their insight. And more great fortunes will be made in the next few years.

So what to do about today's climate? If I'm Mr. Bernanke I'm turning a deaf ear to all those looking for a bailout and to stop dropping short-term rates. Get some credibility. Defend the dollar. Lowering rates won't help anybody right now except for banks, who won't use the subsidy for credit creation but to slowly rebuild their balance sheets; they will hold term Treasuries and fund short, exactly as they did in the late 1980s/early 1990s. But if the Federal Reserve pursues such a path they'll further damage the dollar, further tarnish the U.S.'s reputation as a financial policy leader, fuel the rise of structural inflation and damage our growth prospects for the future.

But this is just a blip when it comes ot the larger policy issues at hand. That commodities inflation is a megatrend that shows no signs of abating for decades. China and India want their turn to enjoy the lifestyle and the growth we in the U.S. and Western Europe have been experiencing for a century. And they won't be stopped. And this places a huge burden on our supplies of clean water and energy, which have huge environmental implications that are hitting us today and will do so at an increasing rate over the next century. That U.S. equities are at risk if we don't continue to innovate which means changing our backwards and damaging immigration policies. We are keeping out those whom we most need, the best and brightest that the world has to offer that want to make a home in the U.S. And then there are the mother of all entitlement programs, Social Security and Medicare, which no politician with any brains will take a legitimate crack at solving, preferring to punt the issue to the next generation and the next. Because once you've made it to Congress or the White House you kind of don't want to leave, right? Who cares that without major structural changes the U.S. will cement its role as debtor to the world with little chance of digging ourselves out? Certainly not those of capped teeth, slick talk and fancy Washington addresses.

We've got to get tough and we've got to work together. Everyone needs to sacrifice. This is how the Allies won World War II and this is what we'll need to beat the most insidious of opponents - complacency.

The Money Column

Whew. This week was like a tornado. Tons of meetings, conference calls, closing some investments, monetizing others and then the Money:Tech conference. Where to start...

Money:Tech 2008

First, the conference. Tim O'Reilly's brainchild, hosted and facilitated in grand fashion by Paul Kedrosky, the conference brought together an eclectic group of people from the spheres of investment management, technology, entrepreneurship, venture capital and media. This human mash-up made for a series of very interesting dialogs, both inside and outside the formal sessions. I was proud and thankful to have been asked pretty early on to chip in my ideas about the conference, possible speakers, etc., and hopefully I ended up helping out Paul a little bit, at least. Paul wrote a nice post while on an airplane summarizing his thoughts on the conference, and you should take a look. I'd also like to thank the friends who were on my panel including Stewart Alsop of Alsop Louie Partners (who gave me a bunch of crap; it was great), Bruce Golden of Accel (way too nice to be a such a good VC, no?), Cary Davis of Warburg Pincus (who gave Paul a lot of crap; it was great) and Salil Deshpande of Bay Partners (an amalgam of nice, giving crap and a VC; a potent mix). In any event, a worthwhile expenditure of time. Thanks to all who participated.

Money and Mytrade

Next, it was announced that one of my portfolio investments for which I had helped run the deal and sat on the Board was acquired. Mytrade, founded by Andy and Landon Swan, was acquired by Investools after less than half a year. It is a testament to the vision of the founders, the quality of the business model and recognition of the value of integrating a highly flexible, lightweight multimedia consumer platform with brokerage and order execution. Andy wrote an informative post on the birth, growth and sale of Mytrade. Check it out to get more info. Suffice it to say, it was great working with Andy, Lando, Howard Lindzon and Kenny Finkelstein on the deal. Great entrepreneurs and great partners make for great outcomes. I was proud and pleased to be a part of it.

Deploying New Money

During the insanity I also managed to close an investment in Charlie O'Donnell's innovative career discovery start-up Path 101. This is an area I've gotten to know pretty well through my (quite successful) vintage 2004 investment in TheLadders.com. TheLadders was my first early-stage investment - what the hell did I know about online business models having spent the prior 17 years in M&A, derivatives and trading? Not much, I'll tell you. But what I did manage to extract after so many years on Wall Street managing high-performance teams was how to assess talent and how to evaluate business models. Clearly I am not holding my judgment out to be unimpeachable, but time has shown that it's pretty good. And when TheLadders.com founder and CEO Marc Cenedella sat in my office, pulled out a visually bland but highly informative deck and took me through the business, I got it immediately. And I liked Marc a lot. I had been introduced to Marc through a friend, so the personal reference was strong, but his sheer intellect, drive and passion made it easy for me to write a check. Fast-forward to today. I've made 20 investments since that fine day in 2004, co-founded and built a venture-backed financial technology company and have some investment wins under my belt, so I feel somewhat more confident about my ability to pick em'. And in the immortal words of Larry David, I'm feeling pretty, pretty good about Charlie and Path 101. And I'll be right there to support him along the way. Good stuff.

I continue to see fantastic businesses across both financial technology and digital media spectrums and will be putting more money to work shortly. These are very, very exciting times in these spaces. Notwithstanding the economic maladies afflicting those both inside and outside the U.S., early-stage investment opportunities remain both abundant and attractive.

Leveraging Existing Money

I am also actively working with some of my portfolio companies like Buddy Media (which is taking off like a moon-shot) and Clear Asset Management (finding strategic partners to leverage the firm's high-performance algorithms). One of the reasons why I've focused my investments in financial technology and digital media is because they are areas that I understand and where I can add value. But this only works if the entrepreneurs are great and open to input, and in these cases both Mike Lazerow and Andrew Corn fit the bill to a T. It is great to be helpful and to be involved in the growth, development and success of these and the rest of my companies. I am confident that Mike and Andy can make it big and that I can be part of the value-creation equation.

How do I Want to Make Money?

Raise a fund? Run an alternative asset management firm? Coming to terms with my professional identity at this point is challenging. My roots are in Wall Street and hedge fund management but my last 3.5 years have been spent in the worlds of entrepreneurship and investment. I miss the markets, but have become very entrenched in the early-stage community from both entrepreneur deal-flow and venture capital perspectives. I have also become quite wedded to blogging, which has given me a public persona that generally runs counter to Wall Street and asset management's practices of keeping a low, private profile. So I am in the process of figuring it out. It should be a very interesting and exciting 2008.

The Pier 40 Debate: Getting the Facts Straight

There was an important meeting of the Hudson River Park Trust (HRPT) Board on Thursday the 31st. An open meeting (where members of the community can attend but cannot speak from the floor) that usually attracts 20-30 people was attended by at least a few hundred, at 4pm on a Thursday afternoon down in Batter Park City (at neither a convenient time nor a convenient venue). My fellow colleagues from the Pier 40 Partnership (P40P) group were there en masse. We were riding high, feeling great about the attendance at Sunday's Pier 40 rally as well as the support our efforts had received from the entire community, the public and independent schools, the elected officials and virtually every other local constituency.

It was a powerful wave that led up to Thursday's meeting, at which the HRPT could have chosen to designate either of the two RFP respondents (Related and People's Pier), close out the RFP entirely and follow P40P's "third way forward" or punt. At the end of the day they punted, buying time between now and the March HRPT Board meeting to gather more information about the P40P feasibility study and to see if a compromise among the three parties can be reached. The outcome was not unexpected. A statement from P40P is shared below:

********************

Statement from Pier 40 Partnership – February 1, 2008

Yesterday, the board of directors of Hudson River Park postponed a decision on
redevelopment of Pier 40 until their March 27 meeting.

The events of the last few days have been mixed. We were exceedingly pleased that all
six of our local elected officials* wrote letters to the Trust to affirm there will be no
amendment to the Hudson River Park Act to allow a 49-year lease for a project the
community rejects. We were delighted that they all expressed openness to the idea of
non-profit stewardship of the pier and the use of IDA bonds to finance its redevelopment,
in keeping with concepts developed in the feasibility study prepared by HR&A Advisors.
We were glad that the Trust has again withheld support from a Related Companies’s
mega-entertainment proposal that at one time seemed to have the inside track. We were
proud that the selection of Related has been prevented by the unified stand of our entire
community. However, we were somewhat disappointed that the Trust was not persuaded
that the time has come to close down the RFP.

The Trust said that neither developer has met the basic requirements to be designated to
develop the pier. We agree. Related has stated it cannot provide the pro forma for a 30-
year lease required by the RFP and the Park Act. We think now is a moment of
opportunity to move the Pier 40 project forward, and that the effort would have been
better served by creating an even playing field for all participants. Whatever path
forward the Trust chooses, we believe it will be best served by first closing out the RFP,
thereby enabling all concerned to engage fully in the enterprise.

We are pleased that the Trust understands there will be no change in the Park Act to
accommodate a proposal that has no community support. But we are still concerned that
some on the Trust board see this as a debate between "people who want no change on the
one side and people who understand the park needs income on the other." To the
contrary the community clearly understands that there will be commercial activities on
Pier 40 to pay for repairs and support the Trust. Criticism of the Related plan has focused
on the impacts of the intensive nighttime entertainment uses. In fact, the study prepared
for the Partnership by HR&A pragmatically addresses the need for revenue while the
Related plan depends on a fantasy: an amendment of the Act that has no support among
legislators. A closer look at the community's concerns and the concepts proposed by the
Partnership will ultimately help the Trust overcome the difficult challenges ahead.
We are hopeful that the time between now and the next Trust board meeting can be used
productively and that we can continue to work together to craft a plan to redevelop the
pier in a way that benefits the park and the community.

* A joint letter from Congressman Jerrold Nadler, Assemblymembers Deborah J. Glick
Richard N. Gottfried, and State Senators Martin Connor and Tom Duane is available at
pier40.org/downloads/letter1.pdf A letter from Council Speaker Christine C. Quinn is
available at pier40.org/downloads/letter2.pdf

********************

So we're in the game, continuing our efforts and working to catalyze the right answer for the community and the entire city. The one bothersome thing is the spin, politics and positioning that go into a battle like this, one which characterizes our efforts as from "those who don't want change" versus those who are "pragmatic and realize that people are needed to pay for the Pier." This is simply garbage and not reflective of the feasibility study put forth by P40P by HR&A or any of the objective facts known by the HRPT Board. It is spin, pure and simple. Clearly I'm not a very good politician because this kind of disingenuous banter makes me red hot. Bottom line, we are pressing the issue and looking to make it a war of facts, not spin, and we've got the facts on our side. The facts, the community, the heart. It's about doing the right thing and paying for it. And it's possible. We've proved it.

The Pier 40 Rally: You, the Community, Made it Happen

So today was the rally. At least 1,500 people made it out on a winters day to celebrate the Pier, its place in our community and the amazing people and institutions that make up Downtown NYC. We had incredible, supportive politicians representing our district - Assemblywoman Deborah Glick and State Senator Marty Connor. We had Mario Batali, a downtown fixture, a world-famous chef and restauranteur but, most importantly, a super-active and engaged father and a person devoted to preserving and enhancing the quality of community life. And we had 1,500 of you out there with us today showing the Hudson River Park Trust, the elected and appointed officials, and the Related Companies that we mean business. United as one our community cannot be stopped. Because we know for what we stand. And we have right on our side. Check out today's events on this well-done video. We will win together. A park forever. Pier 40.

And here are some pics from the event:

Molto Mario doing his thing.

Assemblywoman Deborah Glick saying it like it is. Pier 40 should be about low-impact, community-driven uses.

State Senator Marty Connor sharing his love and vision for a community-centric Pier 40, not Disneyworld on the Hudson.

One of Pier 40 Partnership's own, Chris McGinnis, getting the crowd energized around the vision of a "third way forward" - the roadmap outlined in the feasibility study presented to the HPRT board by the Pier 40 Partnership.

Me and my boys cheering on the speakers at today's magical event.

Saving Pier 40: The Power of Community Activism

Almost nine months ago, over 1500 people of all ages came to PS 41 in Greenwich Village to hear about plans for repairing and rebuilding Pier 40. And tomorrow, hundreds of people are going to show up on a winter day to celebrate Pier 40 and rally around a cause that has served to further bond an already tightly-knit community, keeping Pier 40 as a park - forever.

The Event

This rally will be held at the Pier 40 courtyard fields from 12-12:45pm, with speakers ranging from Assembly Member Deborah Glick and State Senator Marty Connor to the master chef and all-around cool dude Mario Batali (a fellow downtown denizen whose kids go to the same school as my children). Hot chocolate, bagels and other surprises are in store for all attendees. If you are in town I urge you to stop by.

The Background

Pier 40 is a 15-acre jewel on the Hudson River that currently serves as a place for affordable parking and, more importantly, a place where children and adults can play and relax safely. It is used by both child and adult sports leagues, schools, boaters and others who simply want to be close to the water and chill out. Park space is rapidly being eroded in Manhattan as real estate prices skyrocket, and the West Village, in particular, has been plagued by this phenomenon. It ranks 47th out of 51 districts in New York using the metric of park space per person, and without Pier 40 this already awful ranking would drop further. As some of you know, more and more families are joining the downtown community, attracted by the high-quality public and independent schools, the low-key atmosphere, less population density and shorter buildings that let you see the sky from wherever you are. In short, we could use another Pier 40 - not lose the one we've got to yet more commercial development.

The Problem

But the fact is that Pier 40 has fallen into disrepair after years of neglect. It needs help - big help - to the tune of around $125 million. And this is just to fix it. Toss in another $150 million or so to make it ready for additional uses that fit with the mission and guidelines established by the Hudson River Park Trust (HRPT) and you've got one big bill that needs to be paid - yes, around $275 million. Now where is this money going to come from? The HRPT Act of 1998 clearly established the ways in which Pier 40 could and should be used, and to this end ran an RFP (request for proposal) to get ideas for fixing and developing the space. The RFP yielded overly-commercial uses that caused huge backlash in the community, and the RFP was terminated and the proposals tossed out. Fast forward to today - a second RFP was initiated with two formal proposals submitted, one of which was essentially discredited (pretty unfairly, I might add) at the beginning of the process and the second from one of the titans of commercial development, The Related Companies.

The Wrong Answer

The Related Proposal would turn Pier 40 into an entertainment complex. A permanent installation of Cirque du Soleil. A giant movie complex. A banquet hall. A music hall. A Disneyland-esque extension of Houston Street onto Pier 40, with big and small retail shops, restaurants and the like. Oh, and their will be fields, too. On the roof. So, rather than Pier 40 being a park with some alternative uses, it would become an entertainment center with a park on the roof. Now, for those who know and use Pier 40, it is a safe, relaxing place to go. It needs to be fixed and it would benefit from additional uses that support the community, but can you imagine sending your children into a crowded entertainment complex slated to attract 2.7 million visitors to play ball? Oh, and what about the increase in traffic volume in an area that is already choked with cars? And what about the joggers, cyclists, bladers, and walkers who stroll along the water? Can you imagine cars cutting across this in order to park in the complex? Clearly this construct would turn Pier 40 into a destination location and not a park. Yet another mall, not really what we need. The Related folks aren't bad people, they are just trying to apply a private market solution that requires private returns on capital to a situation that is better suited to a not-for-profit construct. And this is just what a group of which I am a member has suggested to the HRPT and the entire community.

The Right Answer

And now we get to the punch line of my story. After the outpouring of community support following the May gathering, a group of us got together to figure out how to channel this energy, passion and enthusiasm in a way that could help alter the dialog around the Pier 40 issue. Since the RFP was formally closed, and therefore no new proposals were being accepted, our group, the Pier 40 Partnership (Partnership), needed to figure out another way to influence the process and to ensure that the community's voice was being heard. So we started with the grass-roots approach of setting meetings with every elected official, every appointed official, every community board, block association and community constituency that wanted to figure out a community-centric plan of use that was bankable. Remember, we need $275 million, remember? But we didn't have that data point at the time. We just knew that we wanted to get involved, get smart and figure out how to effect the outcome of the RFP process.

At the end of the day the Partnership's solution was to hire a top consulting firm, HR&A (the group that worked on the High Line project), to conduct a feasibility that took into account our community-driven uses and establish a "third way" forward. And the HRPT only gave us five weeks to do this. And we did it. And we came up with a conservancy-based approach that eliminates the friction of returns on private capital and creates a bankable entity for which to raise financing against the cash flows of parking revenues. The plan also includes private donations, and only asks the state and city for a measure of tax capacity to issue tax-exempt bonds. Ours in an innovative solution that has garnered the support of entire community - community boards, block associations, public and independent schools, buildings, and myriad downtown affinity groups. Our study was basically like the Doug Flutie-to-Gerald Phelan "Hail Mary" pass at the end of the BC/Miami game, coming up with a viable solution that arose from the energy and creativity of the community as catalyzed by the Partnership. It is a model for community involvement and how enormous, seemingly intractable problems can be solved.

The Reality

But even with all of this work and near-unanimous support for our plan, politics and short-sightedness might work to quash the voice of the community. And this is why we are having the rally on Sunday, a mere four days before the HPRT is likely to vote on the Pier 40 issue. Click here for more information. I hope to see you there on Sunday. The future of our park depends on it.

Read Fred Wilson's recent post on Pier 40.

Tuesday's Investment (and Life) Advice: Stop, Breathe, THINK.

People are freaked. Asia's been smashed. Europe is in the toilet. And the US recovered from an early morning swan dive thanks to the Fed's 75 bp easing, yet the credit markets aren't exactly buying it (I mean, has anything really changed in the wake of more accomodative Fed policy except to telegraph their deep concern over the state of the economy?). In short, the "deep crap" scenario I've written about many times is now clearly playing out (notwithstanding my friend Mr. Kedrosky's missive about the excessive bearishness of financial stock bloggers), and it is at times like these when some clear and powerful messages need to be repeated to keep those among us from doing colossally stupid things (like selling low and buying high, which is part and parcel of the human condition).

And if there is one message I'd like to suggest, three particularly sage words that are sufficient to guide our actions during the most difficult of times, I'd like to share the following wisdom uttered by Steve from that fine kids show, Blue's Clues:

Stop. Breathe. THINK.

Seriously, is anything more complicated needed for most of us right now? I don't think so. So let the elephants stomp and the angels cry and celestial bodies spin backwards on their axes for a while. It's just not worth getting all in a froth about things. If you are diversified, that is. If you have all your money in a high vol stock which is exhibiting tremendous downside volatility at the moment, well, you haven't been reading this blog and I can't help you. But if you do have a modicum of diversification, some stocks, some bonds, some cash, some real estate, a little gold and energy ETFs here and there, and if your time horizon is more than a month or two, you'll be ok. And by all means lay off the CNBC and Fox News for a bit - it will give you an ulcer. Even give the business page a rest for a few weeks. Or maybe a few months. Or more.

Pull out the New York Times crossword, sharpen your skills, read a good book and hold on. Because the financial markets won't be in turmoil forever. And your portfolio will benefit from listening to that prophet Steve that has been telling your kids the exact same thing. Whether you are trying to cope with anger and frustration towards a friend, a parent, a sibling or the financial markets it is all essentially the same. Staying cool and resisting your negative impulses will set you free.

(Economic) Reality Bites

I generally write about the economy and the markets from my little ivory tower, throwing stones, feeling frustrated and getting critical even though I am largely immune from the day-to-day impacts. Gas at $3.50 a gallon? It sucks, but I can handle it. A carton of orange juice that costs me $5 bucks? Irritating, but it's not going to change my life. Even a domestic stock market that is down more than 10% from its high isn't going to materially impact my existence. I am very lucky and I am acutely aware of my good fortune. Sadly, my stagflation hypothesis appears to be playing out, and this is likely to have a material impact upon many in my community and beyond.

This really hit home today when discussing financial forecasting in the context of my children's school. I have sat on the Finance Committee for around four years and have largely lived through the good times; I am only now seeing the bad times. Those high gas prices, those rising food prices, the increases in daily living costs even in the face of a weakening stock market, lower short-term interest rates and crimped access to liquidity? These economic realities hurt people, honest, hard-working people, who want the best for their children and their families. And in the context of planning for the next fiscal year, we are coming to grips with several adverse circumstances: the likely spike in bad debt expense (tuition payable that simply can't be paid on time), as job losses and tighter credit markets make it harder to make ends meet, which causes us to think about increasing tuition assistance; skyrocketing insurance costs, which means that staff benefits cost more to both the insured and the school; financing for school construction projects, and on and on. In sum, this simply isn't a pretty picture.

It is easy to get hyper-intellectual about economic circumstances when I read about it in the Wall Street Journal, The Economist, Barron's and online sources. But sitting in a meeting and talking about real people with real children living in my community and anticipating the struggles they're likely to endure in 2008 and for some years in the future, it feels bad. Really, really bad. To those who happen to be fortunate like me, all I can say is be charitable, be prudent and be mindful of exactly how lucky you are. Because you, my friend, are in the minority.

Healthy Blogging in 2008, Ok?

Hi, everyone. It has been a much needed hiatus from blogging, hanging on my PC, and just generally thinking about business, deals and staying current much of the time. Not that I didn't check my Blackberry, take some calls, and read the Wall Street Journal and the New York Times on occasion, but I was operating at about 20% of my normal fevered pitch. I thought it might kill me. But it didn't. All that quality time with my family and friends, reading non-business books (The Alchemist and The Blind Side were both enjoyable reads) and both running and playing endless games of football with my boys kept me well-occupied and in fine spirits. Oh, and let's not forget Michigan's stirring victory against the Florida Gators on New Year's Day. That didn't hurt my psyche, either. Did I miss the deals, the writing, the intensity? Sure. But this was far outweighed by my intense need - not just the desire, but the need - to chill out. Ahhh.

Then I open today's NYT and see a story about the pressure of blogging and Om's (thankfully) early and self-detected heart attack. My friend and uber-blogger Paul Kedrosky was also quoted in the article. He talked about the stress of blogging in fairly stark terms:

“The trouble with a personal brand is, you’re yoked to a machine,” said Paul Kedrosky, a friend of Mr. Malik’s who runs the Infectious Greed blog. “You feel huge pressure to not just do a lot, but to do a lot with your name on it. You have pressure to not just be the C.E.O., but at the same time to write, and to do it all on a shoestring. Put it all together, and it’s a recipe for stress through the roof.”

Mr. Malik has 12 employees, including a chief operating officer, and editors run some of his blogs, Yet, “It’s his name on the door,” Mr. Kedrosky said. “People want to know what Om Malik thinks. People want to see posts with Om Malik’s byline.”

Now this is the nice thing about not being as prolific as Messrs. Malik or Kedrosky, and not having the expectations to match. Fact is, I do sometimes feel pressure to write. I like to post 4-5 times a week. If I had the time and the mental bandwidth I would write more frequently, but this is simply impossible given my other interests and obligations. Sometimes 4-5 times is impossible as well, and this is when I feel stressed. Why? Because I like to read blogs that post 4-5 times a week, and I like to write stuff that is fairly substantial. That is my idea of a blog. The 1-2 sentence "thought-let" isn't really my gig. Post less, you get stale. Post more, then the pressure is unacceptable, at least to me. And if I feel pressure with my own puny output, I can't imagine what either Om or Paul must feel. Now Om, though a terribly nice and deeply talented person, admittedly hasn't been the cleanest living fellow (though he seems to be turning over a new leaf based upon the NYT article), while Mr. Kedrosky is a lean, mean, running machine. Running on trails, through airports, onto and off of stages, etc. If he doesn't slow down I just may have to confiscate his Macbook just as he has threatened Om.

Om is a brand. Paul is a brand. I'll admit it, I like being respected and somewhat known for my blog, but my blog brand is not something upon which my business life is built. I have the utmost respect and admiration for those whose blogs and business lives are inextricably linked, because let me tell you: it's serious business. My one hope for those who are regularly under this kind of stress, the kind that eats at your gut and makes you feel down, is to take a step back. A big step back. And to look at the big picture. You're good, you know you are, but you can only do what you can do. And if those people in the blogosphere get a little pissy that you're not posting more, I have just two words for you: f*ck them.

From the Mailbag: When Was I The Happiest in My Life?

Just as I was pondering an end-of-year post, I received the following email from one of my readers:

For quite a long time, I have followed your blog. It has become a habit for me to read your articles for Wallstreet and tech issues. I can almost feel your enthusiasm radiating from my screen. There is a question that I want to ask you.

When were