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Monthly Archives: January 2010
After a couple humiliating years of being behind the curve on protecting investors, and despite being still short of manpower, the SEC has nonetheless found the time to address one of the most alarming deficiencies in corporate disclosures that exists today: the absence of boilerplate in every 10-K addressing the problem of global warming.
A better idea: let investors know that “legislation concerning global warming” (as opposed to global warming itself) poses a risk to business. But given that 10Ks can’t possibly be long enough to encompass all the bad potential legislation out there, maybe companies just need to disclose that “Your government poses a myriad of potentially devastating threats to our and all businesses. Please call your Congressman if this worries you.”
UPDATE: this video from 1/29 at WSJ’s News Hub makes our points and even steals our opening quip:
UPDATE II: (4/13/10)
AFL-CIO President Richard Trumka doesn’t like the restructuring that sometimes occurs when a company is purchased by “Wall Street,” and believes “It’s Time to Restrict Private Equity.”
Under current law, private investment vehicles—hedge funds, leveraged-buyout and venture-capital funds—function with virtually no oversight. Despite managing trillions of dollars and employing millions of Americans, they operate as a shadow financial system—in secret, free to take on out-sized risks, and make huge bets with no outside supervision.
Since the SEC is very busy worrying about global warming, wouldn’t it just be easier to legislate that businesses can’t fire workers? It’s done wonders for job growth in Europe.
Well, to really get control of it all someone would have to explain to Mr. Trumka the difference between hedge funds, leveraged-buyout firms, and venture capital: hedge funds invest in already public companies, leveraged-buyout funds use financial engineering to drive their investment return, while venture capital funds invest in small private growth companies that hire new workers – companies that produce most of the new jobs in this country.
A recent study in Science magazine indicates that states with the highest taxes also have the least happy residents. The Wall Street Journal, reporting on the study, argues that the causation is high taxes = unhappiness. While we are certainly sympathetic to that point of view, we also have to wonder if it runs vice-versa, or at least cuts both ways: unhappy people like to raise taxes.
We are… happy. And happy to report that’s true for our region as well. Here is a *totally random* sample of states’ rankings on the happiness of their residents. See below the jump for the entire story.
12. North Carolina
51. New York
VC Dispatch says that to pitch correctly requires not one but 7 cocktail napkins, one for each of the following:
Pitch, People, Pain, Product, Players, Projections, Proposition
The monetary base is exploding, but so far Wall Street is betting against a resurgence of inflation. The consensus seems to be that banks are sitting on their new reserves instead of lending, and the Fed can remove that cash from circulation at the right time and avoid inflation.
One of our favorite sources on economic thinking is Greg Mankiw’s blog. Professor Mankiw (of Harvard) recently argued that when banks’ reserves earn risk-free interest, they’re virtually identical to Treasurys, and so the monetary base as a statistic loses its predictive value. The issue for Mankiw isn’t technical, but the time-honored political one: will the Fed have enough strength and independence to do the right thing and “take away the punch bowl” at the right time.
Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University and author of this article on inflation in Reason, responds to Mankiw here. She counters that it would indeed be a remarkable achievement if the Fed had discovered a new method to increase the money supply without creating inflation; instead it is more likely to have simply replaced one asset bubble (housing) with another (Treasurys).
An anonymous reader replied to de Rugy that an asset bubble is not the same thing as a rise in the general price level, and that the money supply – properly understood – has not, in fact, dramatically increased because the money multiplier remains low. In other words, feel free to worry about asset bubbles but not inflation.
We assumed that we weren’t the only ones fascinated by this puzzle, and turned to one of our personal favorite thinkers to help solve it: Will Harrell, founding partner of Capco Asset Management here in Tampa. Will’s email response, below, qualifies him as Navigating Venture’s first guest blogger. (We also link to Will’s thoughts on the topic of risk here.)
The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.
“It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
“It doesn’t mean that [Senator Max] Baucus [chair of the Senate Committee on Finance] and [Representative Charlie] Rangel [chair of the House Ways and Means Committee] won’t hold exploratory hearings, hoping that in 2011 they can push on tax reform,” says Heesen. “We’ve seen a number of hearings on carry; there could be others. Those building blocks could be put in motion again.”
Still, says Heesen, asking Congress whether it “wants to hit this area of the economy when everything else has been in decline in terms of job creation and technologies that the administration says are important — life sciences, IT, education, healthcare,” appears to have worked — for now.
“We’re not out of the woods, but that argument is winning a lot of converts,” says Heesen.
We’d like to thank all the VCs and entrepreneurs who wrote their senators and congressmen – and ask you to keep your powder dry.
One of our favorite documentaries is Land of Sunshine, State of Dreams: A Social History of Modern Florida by USF professor Gary R. Mormino. (See the Land of Sunshine link under ‘Sites of Interest’ on this blog’s main page.)
In this brief segment, Professor Mormino describes how America’s love affair with the automobile contributed to Florida’s growth in the Fifties. Those of a certain age can probably recall the mystical sounding names and exotic reptiles from the pop culture of their youth.
Jack Davis, a Florida environmental historian, echoes and elaborates on the theme, positing that a synergy between the automobile and air conditioning shaped the nature of that post-WWII growth.
Before we loved cars, though, we loved trains – and it was the Florida East Coast Railway which led to the first great wave of growth in Florida.
Henry Flagler has not been immortalized in pop culture but he bulit a railroad all the way to Key West and punctuated it with hotels, establishing the tourism and agriculture industries in the process.
When the city of Miami incorporated in 1896, its citizens wanted to honor Flagler by naming the town after him – he declined the offer. (With our thanks… The Flagler Dolphins? CSI:Flagler? Flagler Vice?)