New Phony Fed Stimulus Financial Paradigm = Deflation Not Inflation

Fed Stimulus = Long-Term Deflation Not Inflation 

The Fed has created another bubble that will likely pop but this time all the hedge funds are all long the market and not short.  Is the business environment REALLY getting any better with all the Fed Stimulus, QE1, QE2, or QE3?  Not really if you ask me and it has created a phony sense of reality with the over-inflated equity markets.  Historically, investors would value buying stocks based on that company making money.  Today, investors are making stock purchasing decisions based on liquidity, yield, and price action.  The Fed wants investors to chase equities and bonds higher so we feel wealthy and spend more.  But their intentions to create inflation could have the opposite effect on those who actually create the jobs and invest.  

Obama's Views About Business

Translation on Obama's Views About Business

Prop up all big crappy businesses (ie. Auto Industry & AIG) to protect middle-class jobs that will crush all disruptive and innovative start-ups. Bigger businesses are better than free market innovation and smaller more volatile companies. Free market capitalism does not work so let the Government call all the shots about what businesses succeed.

Obama's business plan for the USA might as well have been written by a 5th grader.  His vision is incredibly short term, thinking that roads, bridges, and now runways (ooooh) will somehow create sustainable jobs?  This is ridiculous since that was our business plan from the 1930s and has nothing do with wealth creation or capitalism.  How does this help the United State create jobs and new companies that compete with China, Brazil, and Russia in a global economy?  It does not and has nothing to do with technology, education, healthcare, or environmental innovation.

There is a huge disconnect and this is why IPO's, venture capital, start-up acquisitions are at its lowest levels in decades.  The Democratic National convention should be a rude awakening for all start-ups and investors.  Put your money and checkbooks away if Obama gets elected because it will be a market of big businesses getting bigger.  Protecting middle-class jobs will be more important than letting start-ups innovate that create sustainable jobs and long-lasting companies.

The problem is capitalism is happening 100x faster than ever before and many Democrats are too stupid to get out of the way.  What would the auto industry look like today if we let GM go bankrupt?  We might have fewer jobs but better & cheaper cars?  Companies like Tesla might actually be an industry leader.  Think about all the companies that wanted GM to fail?  That's capitalism and preventing capitalism goes against American ideals.  Democrats call it a "zero-sum" game.  But no . . . the Government decided that GM is better.

Failure is good for business so they can be restructured.  GM was a huge shareholder cram down without restructuring by a shareholder (aka Gov't) with unlimited money. Some call this a Ponzi scheme because the cram down shareholder (Gov't) can print unlimited money and prop up the stock in the free market. GM has the same union problems and will ultimately fail soon as smaller companies slowly catch up to compete.  Obama just delayed innovation in another decade. Slower change is better? F that.

This goes without mentioning that the capital cycle needed to start new companies is broken because of faulty taxation assumptions.  Millionaires and billionaires (limited partners in VC, Private Equity, and Hedge Funds) need to be incentivized more to invest more.  Raising taxes on capital gains will kill the capital cycle flow back into companies drastically.  Making the pie bigger is a far better solution than redistributing money through higher taxes.  Mediocrity will soon become the middle name of the USA. 

Our Government is too big and needs to be restructured as well.

Intuit SiteBuilder Desktop & SiteBuilder Lite Problems

I have been a loyal customer of Homestead for over 12 years and something is very screwed up with the software and tech support at the company.  Ever since Intuit purchased Homestead recently the support and software has gone way down hill.  Ever since the update with the bug I have been unable to edit my sites and feel like I am being held hostage.

I run a few web sites that have heavy traffic and very tech saavy about how to use the software.  I have been trying for 3 months to inform Intuit Homestead that their recent SiteBuilder updates have bugs in them.  After numerous phone calls, emails and chat support nothing has been done to fix the problem.  My problem is very simple and its frustrating that no one at this huge company is aware of the bug or has been able to fix it.  

Intuit SiteBuilder desktop recently did an update to their software 3 months which is preventing me from uploading any lengthy html code.  The Homestead SiteBuilder software freezes and does not allow me to upload or change any of the code.  I have tried uploading 500 to 2000 lines of code into the html snippet and it does not work.

I tried using the SiteBuilder lite hosted version and this does not work either.  Whenever, I try and upload my code to the site it inserts footer code into my page even though the boxes below are unchecked.  The footer code that is mysteriously inserted into my pages creates formatting issues.  The correct format for my site is here (correct page I haven't changed this page in 3 months) and see the footer code that Intuit screws up the formatting of my test page here. 

The solution I was told by a customer support representative was to upload the page directly using the file manager.  However, all my pages are indexed in the search engines under HTML and uploading an HTM file is the only way to do this.   Why can I not create and HTML page and only an HTM page?

Another solution that an Intuit representative told me was to do a clean install of the software.  I did this on two computers and even went to the store to buy a new $1,500 Samsung Series 9 Ultrabook with Windows 7.  Same problem still exists and Intuit can't find a solution.  They can't even let me use an old version of the software which works correctly.   Very bummed and will likely be leaving the company soon.

Vertical Incubators vs Startup Accelerators

What is the difference between a vertical incubator and a start-up accelerator?  First, let me preface my opinions by stating that, most entrepreneurs and investors don't have a clue about how much competition exists or have any appreciation for how long it takes to build a business.  Every entrepreneur and investor should always assume that 1,000 companies are doing the exact same thing and assume it will take five to ten years before the business reaches critical mass.

How to Be Smarter Than The News Media

Financial & Political News Media

Most smart people know that the mainstream media is controlled by huge companies at the highest level and they are simply puppets and not news reporters any longer.  The majority of what we hear is not news but simply filtered PR and sensation stories that have filtered their way to the top of the pile in social media. If you take the time to read these blogs daily below, it will guarantee you to become smarter about interpreting the mainstream liberal news.

Social media is merely a representation of what is popular and not necessarily what is important.  This drives news reports to talk about stupid things that any normal intelligent person would just ignore as a waste of time.  Bloggers have taken over the role of reporting the news in finance, economics and  politics.  Bloggers do the best job of dissecting and interpreting the mainstream liberal media news, which is very hard to do.  Some bloggers are reckless about not checking facts but information does have a way of getting filtered out eventually.  

Here are the best blogger news sources I read that help support my conservative views about politics, economy and finance.  I read them daily because the mainstream news is typically old, non-original and derived from blogger sources.  At the same time it is virtually impossible in depth coverage of to get quality news coverage from NBC, CBS, ABC and even Fox.   You can also follow this list on Twitter at Smarter Political News.  Here are two other Twitter lists I am building that do a good job of interpreting the biased financial press and technology news. Smarter Tech News Smarter Financial News

Facebook's IPO Valuation Should Be $25B

I would like to take you through a simple math equation for determining the fair value of Facebook before its IPO filing tomorrow without comparing growth metrics.  Here are my assumptions when comparing Facebook, while using Google as the benchmark.  Google's annual revenue is $37 billion with a market capitalization of $188 billion currently as of January 31, 2012.

Google's annual display ad revenue from Double Click is only $5 billion + they have $32 billion of additional revenue sources.  That means if Google only had the display ad business similar to Facebook their valuation would be 1/8 or less or around $25B.  Here is the scary part when you start to look at Facebook's proposed IPO valuation of $100B with 88% of its revenue coming from one source.

Facebook simple valuation equation based on current estimates:

Google Market Cap = $188B at $580 per share
Google Total Annual Revenue = $37B
Google Display Ad Revenue = $5B

Facebook Market Cap = $100B
Facebook Total Annual Revenue = $5
Facebook Display Ad Revenue = $4.8
Facebook Fair Value Equation = ($37 / $5 = .135) x $188 = $25B

The latest news sources reported that Facebook's annual display ad revenues were around $3.8B in 2011 and so I will assume this revenue number has grown to $5B in 2012.  $5B in annual revenue for Facebook is 1/8 the size of Google's at $37B.  Facebook has 88% of its revenue coming from display ads only which is not very diversified if you ask me.  Keep in mind this does not factor in growth rates but they cannot be that dramatic to change my valuation estimates. 

S&P Low 666 (2009) x 2 = High 1332 (2012)

S&P Low in 2009 of 666 x 2 = 1332 High in 2012

The rigged stock market will undoubtedly become a key issue in the 2012 Presidential race.  The Obama administration will promote the fact that the stock market is up almost 100% since he took office in 2008.  Mitt Romney is going to attack the fact that the market is up 100% but so is the unemployment rate, which went from 5% to 10%.  Pick your poison.  The Federal Reserve's balance sheet is bloated and helped to rig the stock and bond market game.  How will it end in the next few years and what is the best path to long-term free market prosperity and organic economic growth in the U.S.?

The stock market has become a rigged game in the last few years.  It is being propped up by the Federal Reserve and Ben Bernanke's team by printing unlimited dollars to buy futures and bonds in the open market.  Bond prices are artificially low in order to encourage people to spend and not save.  However, the smart people running big corporations are sitting on hoards of cash earning 0%.  Its because the market has been propped up in a phony way and there is no organic growth.  Executives are expecting a stock market crash of grand proportions that will wipe out all of the Government businesses that have been propped up.  Cash will be king in the future and there will be no safe havens.  It's just a matter of time before the huge "House of Cards" bonds and stocks all fall at the same tim,e wiping out the wealth that has been artificially created.

Yes, the United States can print endless amounts of money in order to create inflation and promote growth.  The experts think we can grow our way out of the debt crisis and reduce the current 100% debt-to-GDP ratio that has doubled under the Obama administration.  However, the austerity in Europe is nothing compared to what we might see in the U.S. if Mitt Romney gets elected and the Federal Reserve money printing press is halted.  It will be painful in the short term but the long term gain for my kids and grandchildren will be tremendous.   The U.S. Government must feel the pain of overspending and let the free markets take over their bloated and egregious spending habits.   Don't forget Mitt Romney has been a private equity / restructuring guy in the private sector and will have the biggest turnaround project of all time on his hands once he pulls the Fed plug.

Mitt Romney knows that a healthy economy will grow through organic investment and capitalism at the local level.  In healthy economies, the Venture Capital & Private Equity industries thrive and so do quality IPO's that foster the cycle of wealth that has built the foundation of the United States.  However, the recent financial crisis has led the Government to step in and act as the market "Big Brother" to prevent big investors from losing money.  The VC industry and private equity industries are shrinking drastically because large LP's (limited partners) have no incentive to invest with below 0% annual returns due to overbearing Government regulations.  We all know in healthy free markets there are winners and losers.  However, now the losers are being prevented from losing and this is not capitalism.  Bailouts have been preventing huge bankruptcies and progress towards creating new and more efficient businesses.  

Thousands of banks should have gone out of business and so should have many of the auto companies like General Motors.  Restructuring and bankruptcies are all part of the free market cycle and we have yet to go through it on a large scale downturn.  The 2009 downturn was prevented by the Government by double its debt load in the trillions and now the next recession could be even worse and deeper.

In summary the only thing that is going to help the economy in the long run build a foundation of growth that is sustainable is if the Government simply gets out of the way.  We investors are all "Big Boys" and taking loses is part of the game.   Trying to impose regulations on the financial services industry to prevent loses only restricts the free market capital flows and prevents investors from doing anything.  We need investors to be excited about investing and now restricted.  These two bills / laws need to be repealed by the next President and then you will see healthy organic investment growth come back to the private sector.

1)  Repeal Sarbanes Oxley
2)  Repeal Dodd Frank Bill  

Should US Government Spending Crash Like the Stock Market?

Thanks to Marry Meeker for putting out this slide on her latest Awesome Web 2.0 presentation about the "State of the Web".  This slide struck me the most as a concern for investing in the future of technology.  Until the US Government cuts spending by 50% and gets out of the private sector way we are going to be in stagnant economy for a long time.  This slide is telling me a few things need to happen before our economy has even a chance of turning around.  In Wallstreet terms, I think we need the great capitulation of Government spending in order to right the private sector economy.   I will not get too excited about private sector investing until the following questions are answered . . .

1. Should US Government spending crash like the stock market? 
2. Will industries that rely on Government spending be crushed?
3. Has the Federal Reserve lost all credibility with the markets? 
4. The VC industry shrunk by 80% in the last decade so why not the Government? 
5. Rising interest rates might actually be good for the "real economy"?
6. Are currency wars are going to get even more intense? 
7. Is the US the new emerging market carrying highest investment risk?  
8. Where & when will the next tech industry boom (ie jobs) come from?
9. Is the Obama administration trying to kill capitalism vs government spending?
10. When will kicking the Government debt can down the road STOP? 

Should US Government Spending Crash Like the Stock Market?

In recent years, discussions around government spending in the United States have often been juxtaposed with the volatility seen in the stock market. The notion of a “crash” in government spending, akin to the dramatic drops experienced by stocks, has sparked considerable debate among economists, policymakers, and the public alike. But should government spending, a critical component of national economic stability and growth, be subject to such volatility?

The Nature of Government Spending

Government spending encompasses a wide range of activities, including public services, infrastructure development, defense, and social welfare programs. Unlike the stock market, where investments are traded with the hope of capital gains or losses based on market conditions, government spending is typically designed to support economic stability, promote growth, and address societal needs.

A “crash” in government spending could mean a sudden, drastic reduction in expenditure. Such a scenario could have profound implications, potentially leading to economic contraction, increased unemployment, and diminished public services. In contrast, the stock market's fluctuations, though significant, do not usually have the same broad, direct impact on the daily lives of citizens.

Economic Stability and Growth

One of the key roles of government spending is to act as an economic stabilizer. During economic downturns, increased government spending can help stimulate demand by funding infrastructure projects, providing unemployment benefits, and supporting businesses through subsidies or loans. This fiscal policy tool is crucial in mitigating the effects of recessions, making a sudden crash in spending counterproductive to maintaining economic stability.

In the stock market, investors often react to a variety of factors including corporate earnings, geopolitical events, and economic indicators. These reactions can lead to market volatility, which, while sometimes alarming, does not typically affect the broader economy in the same immediate and comprehensive manner as a sudden reduction in government spending might.

The Risks of Drastic Cuts

A crash in government spending could lead to several negative outcomes. First, it could undermine public confidence in economic stability. Consumers and businesses might cut back on spending, leading to a slowdown in economic activity. Second, critical services such as healthcare, education, and infrastructure development could suffer, exacerbating social inequalities and reducing quality of life for many citizens.

Moreover, a sudden reduction in spending could also impact the stock market negatively. Investors might fear that reduced government expenditure could lead to lower economic growth and profitability for businesses, potentially leading to a decline in stock prices. This interconnection underscores the importance of stable and predictable government spending policies.

The Balance Between Fiscal Responsibility and Economic Support

While the idea of a crash in government spending is concerning, it is also essential to consider the need for fiscal responsibility. Excessive government spending without corresponding economic growth can lead to unsustainable debt levels, potentially causing long-term economic challenges. Therefore, a balanced approach is necessary, where government spending is sufficient to support economic growth and stability, while also being mindful of long-term fiscal health.

Conclusion

In conclusion, while the stock market's volatility can be a source of short-term concern, the concept of a “crash” in government spending is fundamentally different and potentially far more damaging to the economy and society at large. Instead of aiming for a drastic reduction in spending, a more prudent approach would be to ensure that government expenditures are aligned with economic needs and fiscal sustainability. By striking a balance between stimulating growth and maintaining fiscal responsibility, the US can better navigate the complexities of economic management and ensure a stable and prosperous future for all its citizens.

How Much Treasury Debt Does Japan Own?

Japan Owns 20% of the US Treasury Debt or $885 Billion

Why is no one inf the financial press talking about Japan being the 2nd largest holder of Treasury debt as a problem?   Is this the stock Black Swan the market did not see coming?  Will the US Government be able to issue enough treasury debt at current yields and continue the ponzi scheme it has been running for the last few years.  The next few treasury auctions are going to be very interesting to see if the US government can fill the demand and at what price.  If one of the largest investors Japan needs to pull back its contribution of over $885 billion?  Isn't a red flag that one of the largest treasury bond holders funds Pimco has sold their entire portfolio?  Will we see US treasury bond yields spike to 7-12% like Greece and Ireland?    They are currently between .05 and 4.5% depending on the duration.

I happen to be one of the few people that believe the market has been artificially propped up by the Fed buying bonds in the open market.  This cash gets invested back in the markets in order to prop up equity prices.  I am all for capitalism and organic growth but the current run up in bond and equity prices have not been commensurate with the level of growth and unemployment.

Why am I worried about this as an early stage investor? Well, because I don't believe that our growth has been created organically by capital formation and venture capital.  Our industry is still shrinking drastically.  The day that the VC industry starts to expand in the US I will be the first person to claim we are in a real bull market for an extended period of time.  However, for the time being I am bearish until the government can get out of way with regards to financial regulation and the government restructures their balance sheets to fit the private sector drop in wealth.  

Are Groupon Coupons Getting Spammy?

The latest Groupon coupon fad reminds me of the mailing list spam days back in 1999.  Back in the day companies like Yahoo couldn't get their hands on enough lists of emails and would use these lists to pump out advertising offers left and right.  Eventually consumers got smart and had to use spam blockers and finally the Government required companies to offer opt-in email programs.  Groupon is not much different, however, this time they give you a sense of urgency by saying that inventory is limited.  Not only do most offers claim to limit the inventory but they often give you 50% off for a limited time.  Yes, it seems like a good short term promotional tool but how long will it last and what will it do for customer loyalty?

Will Groupon become a victim of their own success always chasing the next deal and lose customer support?  I think coupons should be scare commodity and not available to everyone.  If everyone has a coupon it defeats the purpose of pricing anything and creates a sense of dishonesty amongst your loyal customer base.  I think at the end of the day when this local coupon bubble pops the winners will simply be just good at local display advertising.  I think Google gets this as well and will will likely start see display ads targeted on mobile phones that show offers like this.

Groupon turned down an offer from Google to buy them for $6 billion dollars apparently and it looks like they are headed for an IPO.  I think this is a blessing in disguise for Google and they should be thankful that this did not work out.  The competition in the coupon space is furious and there are literary thousands of Groupon clones that do the same thing.   When Groupon first received funding and their valuation was north of $100M I said it was a great investor ponzi scheme and still think this.  Its a big house of hards that is only held up by the huge pile of cash they have been able to raise.  Its also not surprising to see them acquiring several companies in order to try and consolidate their competition.  I also wouldn't be surprise to see some more controversy surrounding this company get publicized before it tries to go public.  Groupon has lots of "skeletons in the closet" that will come out and at the end of the day the winners will ultimately be small niche local companies like Boomstreet who will be successful.