Thursday, December 30, 2010

Making Money Internet

There are probably 10 events equivalent or larger than Le Web throughout the year, as well as smaller events every day. We regularly ran into Robert Scoble and other major blogs, and they were very keen on listening to us. Local event organizers were even eager to help make a Finnish Angry Birds event happen and to introduce us to hundreds of people!

Readjustment of Expectations

These elements fit with each other and form the ground for growth business to happen. The old continent often looks up to the Valley as a sort of Eldorado of IT. Countries such as the UK, Russia and Finland are trying to replicate its ecosystem, to stimulate their local industries. Silicon Valley is a hub. Its value lies in two generations of people with unique know-how that are given all the tools necessary to create growth. No amount of EU or taxpayer money is going to recreate this perfect storm.

Not Businessmen, Entrepreneurs

We Europeans think of entrepreneurs as businessmen. This might be valid for lifestyle, predictable businesses, but the job of a startup entrepreneur is different: to test assumptions, to learn, and to create something new.

A trader on Wall St. can make money circulate without ever creating anything of value. In contrast with a startup such as Kiva, the drive to fix real problems, make and impact and give to the community makes traditional business feel vain, and startups all the more inspiring.

Down to Earth

Hearing and meeting thought leaders such as Eric Schmidt, Paul Buchheit or Steve Blank gave me a lot of food for thought. I have yet to see a Nokia executive at a startup event; these people on the other hand were approachable, down to earth, and relaxed. The pursuit of quality people makes this a meritocracy. Quite the contrast with our local successes who tend to behave like suits. Talent takes precedence over nationality or title, which would explain why Loic Le Meur and Om Malik are so well integrated, and Carol Bartz isn’t.

Cultural Edge

We received better customer service from Taco Bell and the police department than from Stockmann, the top tier department store in Finland! One time, a bus driver was more comfortable at speaking than most startups I’ve heard pitching. It seems they are more comfortable with small talk with the customer.

This tendency to be more outspoken could also be seen in networking and pitching, where there was much less awkwardness than with Europeans. Though it rarely feels genuine, it certainly is more effective.

Bigger is Better

More events, money and startups, means more competition, making it all the more necessary to stand out by hiring outstanding people, being more ambitious, more risk-taking. Unsurprisingly, this seems to weed out the less passionate people, while encouraging others to put in sweat equity in their own ideas.

This is something I feel we Europeans aren’t very good at. It’s compelling to start in your home country rather than aiming big, because it feels safer. The last thing you want when you launch is to tailor to several languages, cultural differences, distribution channels and small blogs and other media. You can easily get complacent when you succeed in your own country, but if we mitigate risk, we place the odds against us from the start.

Access to Finance

The most striking difference was to see a fully fleshed out capital market, where hobbyist and professional angels, superangels, top tier VCs and smaller firms compete for the more attractive deals. This makes for a more fluid deal flow, with more standardized and competitive terms, with more contacts and experience on top.

It wouldn’t surprise me if there were more angels and VCs in the region than on the entire European continent. In 2009, business angels invested 160 times more than their counterparts in continental Europe. It is also unclear whether we have any superangels (e.g. we don’t). Like our startups, our VCs tend to aim locally or regionally. Many of them aren’t reviewed on TheFunded, so there is little track record to refer to. With major exits being few and far between, the amounts of money reinvested as well at the experience offered is less.

Still Insular

At times, the Valley feels like a bubble, its inhabitants sheltered from the real world. Foreign markets seem to be an afterthought, space for local startups and copycats. It is unclear whether foreign companies can realistically raise money from where they're at: though Accel invested in the Lithuanian company GetJar, and more recently Esther Dyson invested in Finnish Valkee, I was also told that some VCs would only invest in startups within a short drive.

U.S. legislation is not on the foreign entrepreneur’s side. For some odd reason, it is easier to get a visa by being hired, than by establishing a U.S. company and creating jobs. Hopefully, the Startup Visa can correct this in the near future. This process should be streamlined, as I believe many European startups have a lot to offer.

3 Choices

Silicon Valley is an unfair advantage for startups. Its ecosystem serves as an accelerator for world-class growth business. In comparison with Europe, lesser teams with lesser technology have access to more resources and will get further, faster. Ambitious European entrepreneurs face three choices: should we aim smaller and within our comfort zone, take greater risks in the Valley, or try the hard way in the old continent?

Photo by luigig

...hopelessly outgunned presidential campaign as if it was a business, not even spending more money than he had in hand. C'mon now, how laughable is that in this day and age in modern America that someone who wants to run the federal government should live within his own campaign means? Just like normal people who live on a real budget with no ability to vote themselves a pay raise and a higher debt ceiling when no one is watching C-SPAN!

When the ultimate Democratic winner, in league with the extraordinary gentleman Harry Reid and the tough-talking San Francisco grandma who's House speaker, has decided to spend a gazillion more dollars than any non-federal calculator has digits to display.

These people, for Nancy's sake, are already spending the income taxes of the unborn grandchildren of those 4,000 babies that Paul delivered. A shocking realization that may be helping to fuel the recent re-examination of Ron Paul, who never met a federal dollar that needed spending -- unless it was going back to his district near Houston.

Ron Paul came within something like 1,000 delegates of catching John McCain for the Republican nomination in St. Paul. But when he finally gave up, Paul still had about $5 million left over. He's been investing it traveling around the country to speak and helping like-minded RFR's (Republicans For Real) organize all over. And, who knows, maybe sell a few books.

But now, just as his fierce supporters fearlessly predicted all along, many in American politics are coming around to think that maybe RP's crazy ideas, for example, of auditing and controlling the Federal Reserve, are maybe not quite so crazy.

Our news colleague in Washington, Don Lee, details the sea-change in opinion in a comprehensive look at the old guy's rebirth for weekend print editions, which we're sharing here this morning as a distinguished guest post for Ticket readers around the world.

And for any surviving Ron Paulites, who won't dare leave their typically snippy comments below because that would require them acknowledging that their favorite fiction about a MSM conspiracy to ignore the old guy is fiction.

-- Andrew Malcolm

Because no federal funds are involved, Ron Paul would want you to click here for Twitter alerts of each new Ticket item. Or follow us @latimestot. Or join us over here on The Ticket's new Facebook FAN page.

Here's Lee's reported news item:

For three decades, Texas congressman and former presidential candidate Ron Paul's extreme brand of libertarian economics consigned him to the far fringes even among conservatives. Not a few times, his views put him on the losing end of 434-1 votes on Capitol Hill.

No longer. With the economy still struggling and political divisions deepening, Paul's ideas not only are gaining a wider audience but also are helping to shape a potentially historic battle over economic policy -- a struggle that will affect everything including jobs, growth and the nation's place in the global economy.

Already, Paul's long-derided proposal to give Congress supervisory power over the traditionally independent Federal Reserve appears to be on its way to becoming law.

His warnings on deficits and inflation are now Republican mantras.

And with this year's congressional election campaign looming, the Texas congressman's deep-seated distrust of activist government has helped fuel protests such as the tea-party movement, harden partisan divisions in Washington and stoke public fears about federal spending and the deficit.

"People are wondering what went wrong. And they're not happy with what the....

....government is offering up," said James Grant, editor of Grant's Interest Rate Observer, offering an explanation for why seemingly wonkish arguments over interest rate policy and the money supply are spilling over onto ordinary Americans.

Some of Paul's most extreme views are still beyond the pale for most economists. Despite the eroding value of the dollar, no one expects the U.S. to return to the gold standard, as Paul advocates; most economists think that could wreck the economy.

In their less drastic forms, however, Paul's ideas are being welcomed by conservatives and viewed with foreboding by liberals. For conservatives, runaway inflation constitutes the biggest potential threat to the nation's future. Liberals worry that cutting back stimulus efforts too soon could slow or even halt the current recovery.

The debate over that question -- what the basic thrust of U.S. economic policy should be -- is likely to dominate the coming elections and Washington policymaking.

And so far, Paul and his fellow conservatives are on the offensive. President Obama and congressional Democrats are repeatedly pledging not to increase the deficit and to begin cutting back soon.

"I think we're going to be in for more revival of fiscal responsibility," said William Niskanen of the Cato Institute, who headed the Council of Economic Advisors under President Reagan.

Niskanen sees the Texas Republican's increasing influence as stemming from the continued economic weakness. "To this extent, Ron Paul gains voice," he said.

Paul would go a lot further in cutting back the government's role than even free-marketers like Niskanen support. If Paul had it his way, for instance, he would do away with the Fed entirely. In his bestselling book "End the Fed," he lambasted the central bank as an "immoral, unconstitutional . . . tool of tyrannical government."

Such rhetoric might once have been dismissed as extremism.

But Paul's anti-Fed message has drawn broad support because of the central bank's failure to restrain the flood of cheap money and excessive risk-taking in the years leading up to the financial crisis.

It has stirred rallies on college campuses and supportive commentaries from Wall Street pundits. More than 300 representatives in Congress have embraced Paul's ideas for reining in the Fed.

The response "is even more than I ever dreamed," Paul said in an interview, reminiscing about one evening during his 2008 White House run when University of Michigan students chanted "End the Fed" and burned dollar bills.

Paul, a skinny 74-year-old with a hangdog expression, understands that historical circumstances have thrust his ideas to the fore. "An intellectual fight is going on," he said.

Paul traces his economic views to his frugal upbringing in Pittsburgh at the tail end of the Depression. He saved pennies from delivering newspapers and helping out his father's small dairy business.

And his first economics class at Gettysburg College was an eye-opener, Paul said. When a professor explained how banks keep only a tiny part of their deposits on hand and earn money by lending out the rest, Paul discovered one of the "tricks" of the financial system.

Beyond that, Paul's ideas are grounded in the work of economic thinkers from an earlier era who focused on problems similar to those besetting the U.S. today.

In particular, Paul is a disciple of Ludwig von Mises, an Austrian theorist born at the end of the 19th century who contended that government intervention in an economy would fail because free markets were better at allocating resources and fueling growth.

Having lived through Germany's devastating hyperinflation in the early 1920s, which helped pave the way for Hitler, Mises wrote long before the Great Depression that over-generous credit policies would encourage excessive borrowing, creating a boom and then a bust.

Mises' ideas became central to what is known as the Austrian School of economics, which emphasized tight controls on credit and money supply, a strategy that discouraged financial ups and downs but tended to slow growth.

By 1940, when Mises arrived in America, most Western economists had embraced the competing theories of Britain's John Maynard Keynes, who called for government to stimulate the economy by spending on infrastructure and cutting interest rates.

Obama has largely followed the Keynesian script, as President George W. Bush did when the economic crisis broke.

Paul's once-lonely espousal of the Austrian School's ideas has gotten new impetus from conservative economists and Republican political strategists.

"A lot of good ideas were shoved aside because of the Depression and the rise of the Keynesian view of the world," said George Selgin, an economics professor at the University of Georgia.

Paul contends that Austrian economics explains the most recent financial meltdown: "It says if you inflate too much, if you have no restraint on monetary authorities, you're going to bring on a crisis." Now, Paul says, administration policies are leading the country toward disaster.

Selgin and many mainstream economists agree that pumping too much money into the economy can lead to trouble, but they say Paul goes too far.

In the 1930s, say Selgin and many other economists, including Fed Chairman Ben Bernanke, the U.S. economy began pulling out of the Depression thanks to federal easing of monetary policy.

The economy tipped back into depression after the reins were tightened too soon.

"In this aspect of the monetary system, he's just blown it," Selgin said of Paul.

However, like Mises, whose portrait hangs on his Washington office wall, Paul is intransigent, and that has earned him an ardent following.

"His views are strong and hardheaded, but you've got to stand firm or you'll get blown over in this world," said Mark Skousen, editor of the newsletter Forecasts & Strategies and a former economics professor at Columbia University.

-- Don Lee

Photo: Larry Downing / Reuters; Orlin Wagner / Associated Press; Associated Press (Paul argues with Mike Huckabee in a GOP primary debate).

Geraldine Hoff Doyle, Inspiration Behind 'We Can Do It!' Poster ...

Geraldine Hoff Doyle, the woman whose face inspired the famous.

Great news: Careerist RINO certified as winner of Alaska Senate ...

Great news: Careerist RINO certified as winner of Alaska Senate race.

Larry Kramer: This Is Why Fox News Continues To Roll

People are getting lazy about forming their own opinions.

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Tuesday, December 28, 2010

Companies Making Money

The result is a bunch of excess inventory and poorly thought-out construction projects which have no means of recouping the initial investment needed to repay the bank loans.

This practice is similar to Spain`s situation now where they have entire uninhabited building complexes that have yet to be marked to market, and will probably ultimately be demolished. But at least in Spain, even though it was a construction boom, it was engineered by developers in Spain, and not by some manufacturing outfits like those in China.

So, multiply the bad business project factor by ten and you get an understanding of the magnitude of bad loans on the books of Chinese banks. The problem is being further exacerbated by the practice similar to Spain`s of banks making additional loans to the businesses just so that they can then turnaround and pay back the interest owed on the original loans.

The only way this would work out is if these projects magically develop revenue streams. Unfortunately, in the case of Spain, a 20% unemployment rate, coupled with a still overvalued housing market in which prices still need to come down significantly, would suggest that by the time the Spanish economy recovers enough to support the excess inventory, the abandoned projects are run down and uninhabitable.

A similar scenario could play out in China as well.

True Smart Money Wary of the Write-off Domino

Furthermore, China`s practice of overbuilding at the height of real estate valuations makes even haircuts on loan write-offs an untenable practice for banks, and by further throwing good money after bad, the ultimate mark- to-market effect could be catastrophic for Chinese Banks.

This is the main reason all the major Chinese banks have gone to the market in 2010 to raise more capital before investors wise up to the underlying deficits these banks face, as these bad loans eventually would need to be written off the books.

Victor Shih, a Northwestern University professor estimates that Chinese local governments borrowed some 11.4 trillion renminbi at the end of 2009, and that local government financing loans to be roughly one-third of China's 2009 GDP.

Shih reckons the most likely scenario over the next few years is that there would be increases of non-performing loans ratio from local governments. This would require a large scale of recapitalization of the Chinese banking system, which would eat up a large share of China's foreign exchange reserves and possibly slow down growth.

I do believe Beijing is quite capable of a few bailouts and surviving a widespread banking crisis, but this most definitely will not bode well for the financial markets. That's most likely why you see insiders removing capital from direct exposure to the inevitable re-pricing that will happen throughout Chinese markets from real estate to the stock market.

This can be seen at this early stage by the underperformance of the Chinese stock market compared to other global markets. Remember, foreigners cannot invest directly in these markets, so these capital outflows are truly the smart money.

Logistic Gridlock Crimping the Middle Class

Next let`s look at the recent news regarding a severe cutback in automobile registrations in Beijing to 240,000 in 2011 from 700,000 registered in 2010 by the municipal government. Other large cities in China are bound to follow. This is most likely related to the reported 9-day traffic jam on the Beijing-Tibet expressway in August, and other extended traffic jams throughout China in 2010.

China is trying to build infrastructure projects after the fact; whereas with proper central planning these should have been established far ahead of the massive transition from a rural, agricultural based populous to that of a modern, large city based business and manufacturing concentration.

Simply put, it is impossible for all the Chinese citizens who want and can afford automobiles to be able to own and utilize this form of transport without a total breakdown in the transportation system. We are seeing the early stages of complete and counterproductive gridlock in the transportation system of China, and it is only going to get worse over the next decade.

No Jobs for College Grads

For all the talk about how China graduates more engineers each year, and other college educated young people who have strong backgrounds in the hard sciences than most developed nations combined, this is actually another sign of problems to come over the next decade in China.

China`s wealth and emergence into the second largest business economy hasn`t been built around the need for these types of mind and skill set. So literally you have a large mismatch between the types of available jobs in China, that are supported by the heavy manufacturing and construction intensive focus of the past twenty years, to that of the recently educated pool of graduates who have grown in sizable numbers over the past five years.

The Mind Is A Terrible Thing To Waste

This results in a large human asset class that China is currently wasting, as most of the newly educated workforce is working in jobs which require little or no advanced education at the university level. So you have highly educated university graduates in areas like engineering and accounting working low level service and sales jobs that pay less than many manufacturing jobs.

In short, there are too many highly educated Chinese citizens graduating each year for the number of jobs available needing their skill set because China`s economic model isn`t built around these type of jobs. This type of misaligned employment outcomes never ends well; it usually manifests itself in increased civil and social unrest.

8% Inflation in 2011

The next major challenge for China is a skyrocketing inflation, which at its root is the fact that there are too many people chasing too few resources. This fundamental flaw in population dynamics underpins many of the problems that China faces going forward.

Recent CPI data for November illustrates the inflation problem in China with a reading of 5.1% from a year ago comparison, this is up from a 4.4% reading for the previous month. Couple this with the latest 4% hike in fuel prices in China because of rising oil prices, you could expect future CPI and PPI reports to reflect even higher rates of inflation.

For now, most of the year over year spike has revolved around higher food prices as energy has mainly been flat for 2010 thanks mostly to government subsidies. Now that energy prices have entered the picture, China will start to experience even more inflation pressures in 2011.

Furthermore, with the undervalued yuan pegged to the dollar, it is only getting worse for China in 2011 due to Fed's QE2 pressures on the dollar. The real inflation rate for Chinese citizens for 2011 will probably approach 8% next year.

An Asian Contagion by China?

This escalating inflation concern is further compounded by Beijing's lack of decisive action to combat the problem by delaying a much needed currency appreciation, and hiking interest rates in a timely fashion. There is no getting around the fact that these two things need to occur as soon as possible.

By the time the Chinese government is forced to implement these tightening tools, the damage to the economy is most likely already done. The longer China delays the inevitable serious tightening measures, the harder the economic crash that will occur in the aftermath of these policy changes. And it is unlikely to end well. The resultant impact will probably take the rest of the Asian economies down with it – an Asian Contagion scenario.

History Repeats Itself

Eventually central planners and finance ministers around the world might start to understand that policies which lead to bubbles being formed in the first place are counterproductive in the long run. But until that lesson is learned, it seems like we are doomed to repeat the same mistakes over and over again.

Right now, there are more and more signs coming out of China that all is not well with its economy, and the likelihood of a more severe downturn in the future is a distinct possibility, unless its policy makers take decisive and prudent actions to minimize the damage of a hard landing.

Dian L. Chu, Dec. 25, 2010 | Mobile Reader, Website | Google Profile

President Obama spent much of Wednesday huddled with a group of business executives, an effort The New York Times said afterward "went a long way to reset the tone of the relationship between Mr. Obama and corporate America" in the eyes of the corporate chieftains who attended.

That's all well and good, if the problems with today's economy were rooted in a lack of warmth and fuzziness between President Obama and corporate CEOs. But they aren't. For decades, the interests of corporate lobbyists—the people acting on behalf of many of the executives at the White House meeting—have been at odds with the interests of working people. The White House "making peace" with corporate CEOs, to use The Washington Post's description of the meeting, is one thing. But Wall Street needs to make peace with those of us who have been forced, as a result of the conservative policies they promoted, to live through a decade of stagnant wages, unemployment and underemployment. Wall Street needs a reset with working America.

Unfortunately, it's not at all clear that this meeting delivered much for working-class people. The Post reported that "after the meeting, several chief executives said their conversation with the president was constructive and open as they discussed education, trade, taxes and jobs. But the executives and Obama remained vague about specific outcomes they expected from the meeting."

And one of the few specifics reported from the meeting is highly disturbing. Bloomberg reported that the CEOs had their hands out for yet another tax cut:

While Obama has called on the CEOs to spend the $2 trillion in cash their companies have accumulated on job creation, the executives said much of that is earnings from overseas sales that are retained abroad to avoid paying U.S. corporate income tax. U.S.-based multinational corporations pay corporate income tax on earnings when they are brought back to the U.S. If the revenue remains abroad, either in cash or investment in overseas facilities, the money isn’t taxed.

Obama said he would consider the issue and asked what the executives would be willing to give up in other corporate tax rates to make sure it remains revenue neutral.

Actually, in many cases the earnings involved are not necessarily from "overseas sales." Many multinational corporations have created elaborate schemes to ensure that domestic sales are credited as foreign ones in order to avoid paying corporate income tax. It's how Google avoids paying billions in corporate income taxes to the United States and the United Kingdom.

President Obama has rightly pledged to go after this tax dodge and sent some proposals to Congress last year that Citizens for Tax Justice said were "steps in the right direction." Businesses have countered with demands for a "tax holiday," The Financial Times reported in October. Again, at least until now, the Obama administration has resisted. One reason, as the FT notes, is that there is no guarantee that the money coaxed back into the U.S. will actually be used for investment and job creation.

We've been here before. In 2004 the Bush administration and the Republican Congress gave corporations a tax amnesty on profits sheltered overseas. The benefits for workers were negligible. Gannett News Service reported earlier this year in a story about Sen. Barbara Boxer's support for an offshore tax break:

A Congressional Research Service analysis published in January 2009 found that 10 of the top dozen companies that took advantage of the 2004 break cut jobs. Hewlett-Packard repatriated $14.5 billion and laid off 14,500. Pfizer repatriated $37 billion and cut 9,000 jobs in 2005.

California-based Oracle and Intel also repatriated foreign earnings. The money helped Oracle acquire two U.S. companies and helped Intel build a new factory

The Business Roundtable, a champion of the tax amnesty idea, says of the money that came back to the U.S. as a result of 2004 holiday, 25 percent went to capital investments and 23 percent to hiring and training new workers. Even that positive spin suggests the country doesn't get very much for coaxing businesses to do less than what they should be dong as corporate citizens.

Corporations succeed in the United States not simply because of what they do on their own. Their success depends on the quality of public schools that prepare their workers, transportation networks that move goods and people, agencies that help keep people healthy and safe, and efforts to ensure that each American is able to maintain at least a minimal standard of living. All of these are government functions that corporations undercut when they engage in schemes to avoid paying taxes, leaving the rest of us to struggle with the consequences.

The businesses that profit as a result of the public commons that We the People provide should not have to be given special inducements to pay their fair share toward supporting that commons. (As it stands now, contrary to conservative claims to the contrary, the truth is U.S. corporations pay some of the lowest tax rates of major industrial powers.) That is the starting point from which President Obama should begin in building a new tax framework in which businesses and Main Street can profit together in a new economy.

Even as corporations are seeking a tax holiday, these same corporations spent hundreds of millions of dollars electing congressional candidates opposed to government initiatives that would stimulate the economy and stoke the demand that would coax their hoarded cash off the sidelines. Instead of egging on, tacitly or otherwise, the anti-spending crowd, these CEOs could still choose to back a real economic stimulus—not just cross-your-fingers-and-hope-they-trickle-down tax cuts, but real investment in the economy's future.

Lew Prince, a small business owner in St. Louis, recently penned an op-ed that offered a more Main Street perspective on what businesses need to prosper:

We shouldn’t borrow billions more dollars from China and Saudi Arabia to give to the wealthy. Instead the wealthy should pay their fair share. We need adequate tax revenue to invest in our economy. More tax cuts at the top won’t create jobs. But we will create jobs and strengthen our economy by rebuilding our crumbling roads, bridges, public transit, levees and water and gas pipelines. We will save and create jobs by investing in education and clean energy research and manufacturing now growing much more rapidly in other countries.

Now that Obama has met with business executives, his next step should be a summit meeting with the unemployed. And then let's have a real debate in which business executives and their conservative benefactors are called to account on whether they are really interested in the fates of American workers or just in their own balance sheets.

Thursday, December 30, 2010

Readjustment of Expectations

Not Businessmen, Entrepreneurs

Down to Earth

Cultural Edge

Bigger is Better

Access to Finance

Still Insular

3 Choices

Tuesday, December 28, 2010

Thursday, December 23, 2010

Wednesday, December 22, 2010

Automate Your Finances to Spend Less Time Managing Your Accounts

Consumerist Budget Spreadsheet Balances Your Money, Encourages Your Nest Egg

Thursday, December 9, 2010