A newer version of the Mega-Bears graph from dshort.com. It’s even spookier how similar the comparisons are.

Click here for a larger version.

Enjoyed reading Karen Blumenthal’s piece in the WSJ yesterday:

In this decade, we have had more than our share of big-time booms and busts: the tech bubble, the housing bubble and, this year, what Warren Buffett has called the Treasury bubble.

For some years now, I have been a student of these extreme financial cycles. In the 1980s, I witnessed firsthand the Texas real-estate bubble and covered companies crushed in the junk-bond bubble. I wrote a book about the crash of 1929. And to my terrific shame, at the top of an inflated market, I once paid $50 for a $5 Beanie Baby named Peace.

In studying what drives bubbles, I’ve come to believe that they follow fairly regular patterns. If we could learn to recognize these, we might be more astute in reacting and adjusting our own behavior. And even if we can’t see beyond the excitement they generate, there are underlying lessons for investors.

The lesson: sell when it’s on the way up.

The following video is becoming pretty timely again…Enjoy!

>

During the dot.com boom I learned first hand how buying stocks on margin could be a great leverage device for profit while a market is climbing. Unfortunately I also learned on the way back down that you need to get out of a margin position long before you “have” to because that same leverage starts to take your gains out faster than just a “regular” stock position would. Its called a “margin call” and you don’t want to receive one. Eh the great tech bubble…live and learn…

Fast forward to now.

Later in the decade when credit was cheap and easy to get, banks were doling it out as fast as they could. I talked to a friend late last year that was shocked to find that every time they paid their American Express balance down, AMEX would lower their available credit by about the same amount the next month. At the time I thought it was an isolated incident, but we found out later it wasn’t

I ran into a similar issue this year with Citibank and Discover but from a different angle. In my case I had large available credit limits and had never used the cards although I had had them for a number of years. In Discovers case they took a $10K credit line down to $500. Their explanation was that I had never used the card so they were cutting the limit down? Huh?

In Citi’s case they simply closed the card completely but for the same bogus reason.

Now I understand that both companies were under financial distress and needed to lower their exposure to risk. The problem I had was that in doing so they inadvertently triggered a similar scenario to that of the afore mentioned margin trading and subsequent margin call.

Since your credit score is also graded by the percentage of utilization at any given time, when Citi and Discover decided to lower their exposure to INCREASE their financial standing, they subsequently DECREASED my financial standing by making whaterver debt to available credit ratio I had increase overnight. This in turn made my personal credit score take a hit.

The real issue here though is that this was happening to someone with excellent credit and the damage was happening at a personal level, not a large corporate level.

During the decade there were more “cute” commercials on TV and radio about checking your credit for free etc. I really paid them no mind, but in retrospect I really can see now where they were going with things.

The credit score was once a closely guarded “secret”. I remember buying a car once and they were reluctant to let ME look at my OWN credit score. That was in the early 90’s, before sites such as truecredit.com and myfico.com.

Those sites turned your credit score into a “sport”. Webpage after webpage would beckon for you to check your score. (for a small fee of course, or enrollement in their monthly program). So in a little over a decade the industry had shifted from secrecy to embracing a credit score as something they could “sell”. Nice job.

In the end everyone wants to obtain and keep a great credit score, if for no other reason than having a good score. The part I find disturbing is how the idea of a score morphed into an object for sale, and how its possible for damage to be done to YOUR score when a bank or financial institution decides they need to lower their risk. To me, there is a major conflict of interest going on there….

Till next time.

Ah, yes, the global reserve currency…. the SDR! Special Drawing Right- a wiki history. Nigel Maund has written extensively about currency debasement on the metals site Kitco. One of his best is now three years old, but it makes two critical points: “We are in the midst of the largest FIAT money experiment ever witnessed by an entire order of magnitude, and the first FIAT money exercise to be put to the test on a truly global scale. To enable this required the presence of one hyper-economic power that also controlled a global currency and the velocity of capital movements made possible through modern communications technology. Another critical factor essential to enabling FIAT to be expanded without control was the destruction of the gold standard on which the value of all issued paper money was formerly based, and the strict financial discipline this exerted throughout the global financial system.”

Maund’s current article is more chilling: The market may be setting up for a considerable leg down in the USD over the next few months. Technically and fundamentally, the arguments for a lower USD seem to be aligning in the same direction for the first time since early 2008. While the world is concentrating on green shoots, a dollar-negative theme could easily creep back into the market. In a nutshell, here are a few of the rationales for a weaker USD I’m referring to:

• Friday, May 8th, 2009 was the first day the DXY Index closed below its 200-day moving average since August 7th, 2008, just before the start of the funding crisis. August 8th, (8/8/8) was the day the EURUSD completed its triple-top and fell nearly 400pips, as the DXY rallied 1.77% that day. This past Friday, the DXY fell 1.53%, signifying a clean break of the 200dma as the DXY is looking like it’s completing a Triple-Top. On top of this, many currencies have broken significant levels, including 200dmas, against the USD this week alone.

We're all in this boat together! Uh, oh!

• 3-month LIBOR has fallen in a straight line since the beginning of May over 25bps, finally breaking the sub-1.00% psychological barrier this week and looks like it could have little resistance getting to 50bps. This signifies that the need for the USD around the world is declining and banks are not hoarding their USD. On the DXY Index, this is clearly exemplified by the way the Index falls just around the time of the IMM dates. Without the need for the Dollars anymore, the fundamentals against the dollar should come back into play and the LIBORs dropping will serve as the catalyst.

Obama just delivered Heli Ben another one!

• The probabilities of the Fed increasing its “Quantitative Easing” purchases of Treasuries have probably surged this week as 10-year yields have blown 35bps through the 3.00% level and looks like it could easily get to 4.00%, even in a deflationary environment. The supply-demand dynamics of printing money and leveraging up the US Government, while the US Consumer de-leverages, is clearly coming into focus moreso than any inflation/deflation story would affect 10-year yields. The argument that Mortgage rates are not rising in conjunction with Treasuries may merit success to QE operations, but that’s simply because the TreasFed is the only player buying mortgages and they’re using money received from selling Treasuries to do so.

Ben claims he can unwind all the "extraordinary programs"

• The Deflation story is overplayed. Everybody is worried about it, but nobody is thinking past the falling prices to a world where runaway, rampant inflation comes back. At this time last year, Crude was hovering near $150, the ECB was hiking citing runaway commodity prices and the world was afoul with Inflation nightmares (cover of The Economist comes to mind). The one solution that reversed those inflation scares was a much stronger dollar – and a correction transpired. Now, the situation has flipped on its head and deflation runs amuck in strategy calls. The deflation scenario assumes the velocity of money will definitively slow down and the Fed’s printing of Money (M2) will only counteract this money multiplier decline. If the Fed really wants to combat inflation and get prices higher, what’s the easiest solution? That’s right, a weaker dollar (btw, where’s Hank Paulson and all his “Strong Dollar” rhetoric gone?).

Look at currencies from the Quantitative Easing Countries...SELL!

• Price Action on the USD says a lot. The ECB announced this week they would be purchasing covered bonds (pseudo-QE) but yet the EUR did not fall against the Dollar albeit for a brief second, but rather rose significantly and now is 4 big figures higher since that announcement. Price action in an environment where one would seem to think the announcement was EUR negative said a lot and the break of its 200dma was significant. In addition, on the same day, the BOE announced it’s intentions to increase Gilt purchases, but GBPUSD is a big figure higher from when they announced this. If it doesn’t go down, it must go up???

• From a fundamental perspective, the US still has a long way to go to correct the World’s Largest Trade Imbalance. Underpinning the entire basis for having a floating exchange rate is to align currency valuations with trade balance equilibriums. Setting aside other side factors that have exerted influence on the dollar’s direction, the most erroneously priced asset in the world is the value of the Yuan in relation to the dollar. With China increasingly commenting on their concerns of their USD-denominated holdings, the market should finally listen this time. This article details the multiple Chinese actions to diversify away from the dollar ASAP including doubling its gold reserves to 1054 tons.

The “China credit card” is slowly being revoked. From China’s perspective, they have been doing a lot to diversify their reserves primarily into hard commodities and attempt to introduce their currency via bilateral swap lines with various countries. With the US on their knees this time, China clearly has the upper hand to dictate where the golden USDCNY cross is going from here. Credit card losses are a $200B hole in U.S. banks…

• But if equities drop, then the USD should get a bid right? In short, this is still the case, but the argument has been deviating over the last couple months. A quick scan at the graph between S&P futures and the DXY Index shows this relationship diverging. Who knows, if this “bear rally” continues, it would be another reason to sell USD, but how much of the rally was actually spurred by the decline of the USD? Now that’s a thought the market hasn’t been thinking of.

• Positioning on USD has been light. With the speculative community, there haven’t been too many strong views either way on the USD in a while. However, over the past week or so, there have been some rather large and smart players that have been perma-quiet coming out of their caves to sell the USD. Whether it actually means anything is another story, but seeing institutional sponsorship act this way would only stoke the fans to the fire.

Someone in DC Better Figure This Out Quick!

• Tech Bubble, Housing Bubble, Credit Bubble, Commodity Bubble, the Strong Dollar Bubble. All of these Bubbles started with an insatiable appetite/demand for a particular asset that skyrocketed out of hand, deviating from the fundamentals of supply and demand. The charts are telling. In the Dollar’s case, the bubble was formed when the credit crisis started and funding pressures required foreign banks to hoard USD. While it’s too early to say that we’re completely out of the wood yet, its safe to say the worst may be behind us and a reversal of the Dollar Bubble is on hand. Over the last decade, the norm has been in order to fight one bubble by starting another. While the market may have failed to notice this Strong Dollar Bubble emerging over the last year or so to fight the Commodity and Credit Bubbles, the signs were there.

It may be that in the future economic historians will look back on the two or three decades surrounding the turn of the century as the period of “bubble economics.” Essentially poorly regulated or predicted markets created a number of false derived investment bubbles that spurred and then crashed the economy. We’re past the tech bubble bursting and right in the middle of the painful housing bubble burst and because we sooooo clearly already have this economic crisis figured out, we might as well start looking forward towards the next one.

The trade surplus bubble, a truly global bubble.

It’s hard to boil down, but the best explanation I can provide is that the huge trade surpluses in China and India, allowed because of our own willingness to play superconsumer to the rest of the world, has created tons of excess capital in the developing world. Because investments in the developing world tend to be somewhat of a crap shoot, that capital gets turned around and invested in the speculative markets in the developed world, such as tech stocks and real estate, hence the global effects of our bubbles bursting.

Because of the relative strength of our dollar (yes, due to the global slowdown, we’re strong again) the new investment has been in U.S. Treasury bonds. Investment will increase, of course, far past the dollars value because the value of the dollar refuses to take much of a fall and it is considered a safe investment, much like housing was in the past. That is until some extraordinary economic situation creates doubt in the dollar, some investors withdraw, and the market stampedes, crashing the value of our dollar and the global economy with it.

With the hypothetical future economic recession already diagnosed the experts who have foreseen this crisis (some of the same who foresaw the current one) haven’t got a clue what do about it.

Brad Delong:

If it weren’t for the fact that the furshlugginer dollar refuses to fall in value, the answer would be obvious: we will have a boom in import-competing manufacturing (and exports). But then the rest of the world has a long-run problem: if we decide to no longer be the world’s importer of last resort, than what serves as a locomotive to keep it near full employment?

But if the dollar doesn’t fall, then we have a long-run problem. The only answer I can think of is for the U.S. to then become the world’s largest private-equity fund: they lend us their money, and we then invest the money back in their economies–in industries and companies that then have a very high demand for U.S. high-tech goods and for U.S. services exports.

Paul Krugman:

So what offset the consumer/housing boom? A vastly increased trade deficit. And that suggests that a return to normalcy would involve getting savings up, housing spending down, and a combination of more exports and less imports.

That’s where things get complicated: a lower US trade deficit means lower surpluses and/or higher deficits elsewhere. Who’s the counterpart to our adjustment? OK, the Middle East, which no longer has its oil windfall. But China is having its own slowdown, as is Japan.

In other words, trying to figure out where we go from here is a sort of global jigsaw puzzle — and I haven’t managed to solve it yet.

Mark Thomas:

In the past, the Fed has taken an approach to asset price bubbles that is part of what Brad calls Greenspanism. Under Greenspanism, the Fed does not try to prevent asset bubbles from forming, the argument is that it is too hard to identify bubbles as they are developing and you are more likely to make a mistake and stifle important technological innovation than you are to deflate an asset bubble. So the best thing to do is to take a hands off approach, and then, should a bubble occur (which would be a rare event since markets ought to be robust to bubbles), clean up the mess after the bubble pops.

and the final word from Yglesias:

I’ve heard some economists argue that we’re pursuing some kind of misguided strong dollar policy that’s responsible for our currency’s refusal to devalue, but I don’t actually see what policy that might be. We appear to be doing everything you would do to shake investor confidence in U.S. public finances and spark a decline in our currency

For right now we’ve gained a breather on treasury bonds because of deflation, but that’s not likely to continue forever. What we need to do is get back to our essential Keynes, which is to regulate run-away markets so they don’t drive off a cliff and provide fiscal stimulus in the case of crashes. Our problem isn’t necessarily a strong dollar, its the trade deficit, which is complicated by a strong dollar which� makes imports more likely than exports.

If export nations getting rich off American fat are reinvesting in a few American bubbles than we need to reign in investment on those bubbles. Over the last decade the only real big gainers in the American economy have been the overgassed finance industry (now crashing), superfirms like Wal-Mart and Exxon, and the military contractors. The next bubble market may be green technology (shot in the dark). Diversity is strength, and we need to recognize that those industries putting our GDP on the rise, if they become to large a portion of our growth (the finance industry comprised nearly 40% of the DOW right before the crisis) need to be reigned in to head off an even bigger fall.

It may hurt our growth a little now, but if we’re smart we can reinvest some of that diverted growth into dormant sectors (say our infrastructure?) and put in for long-term strength in the economy.

-Marc-

Remember Dr. Seuss’s book Yertle the Turtle?  It was one of my favorite stories when I was young.  I still have a copy. 

“On the far-away Island of Sala-ma-Sond, Yertle the Turtle was king of the pond.”  From the perch of his rock, he ruled all that he could see: “But I don’t see enough.  That’s the trouble with me.”  So one day he decided to build a tall throne out of his fellow turtles so that he could see more.  

And it worked.  “I’m Yertle the Turtle!  Oh, marvelous me!  For I am the ruler of all that I see!”

Never satisfied with his growing empire, King Yertle kept demanding more and more turtles so he could get higher and higher.  “Turtles!  More turtles!  He bellowed and brayed.”  And one after another, they came.  “They obeyed.”

Until finally the small turtle on the bottom named Mack had enough.  “Your Majesty, please…I don’t like to complain, But down here below, we are feeling great pain.  I know, up on top you are seeing great sights, But down at the bottom we, too, should have rights.” 

“You hush up your mouth!” howled the mighty King Yertle.  “You’ve no right to talk to the world’s highest turtle.”

Then, Yertle the Turtle King started to give the command for more turtles, but this time: “That plain little turtle below in the stack, That plain little turtle whose name was just Mack, Decided he’d taken enough.  And he had.  And that plain little lad got a little bit mad.  And that plain little Mack did a plain little thing.  He burped!  And his burp shook the throne of the king!”

Then “Yertle, the King of all Sala-ma-Sond, Fell off his high throne and fell Plunk! in the pond!” J

Ha!  I still love this story.  Maybe that’s why I can’t help thinking of it whenever I read somebody once again crowing about how many friends they have on Twitter or MySpace or Facebook or FriendFeed.   “I have almost 2,000 friends!”…”I have over 13,000 friends!”  It’s as if they are building thrones for themselves out of fellow human beings.

I believe Yertle-the-Turtle-type social networking, and the social networks themselves that rely on it, will start falling from grace in 2009.  Here’s why:

1) Time and usage are naturally maturing social networking and this kind of “I have more friends than you!” status climbing smacks too much like “My dad is bigger than your dad!”  People (and networks themselves) who cling to old standards of prestige are going to look increasingly pathetic.

2) Most of these connections are totally meaningless, often brought about because somebody befriended you and you felt compelled to do the same in return (or it was done automatically for you), without so much as even looking at his or her profile. 

Face it, if you are but one of thousands of “friends” what’s the likelihood that this person will ever respond to you?  Now that the economy is in decline and people’s stress level is correspondingly rising, real friendships with consistent interaction will increase in value.  Fake friendships will be discarded as noisy distractions that only waste time and feed irritability.  Our increased sensitivity to betrayal and intolerance for things we can’t count on will demand that we shed false friendships and house-of-cards networks. “Scaling back” will happen psychologically as it happens economically.

The good news is that a growing appreciation for true connection will have the benefit of increasing our social fabric’s thread count.  Today’s Web mesh is largely held together by widely separated Yertle Kings who gather eyeballs but don’t generate much genuine discussion, and thereby little bottom-up connection.  Tomorrow’s social fabric will have a much tighter weave, and hence be softer, more satisfying and stronger.  Luxury brought forth from hardship.  Ahhhhh.

 3) The number of Macks who are brave enough to burp will begin exploding soon because of the increasingly bad economy that will make them ever more cognizant of (and desperate for) this truth: authentic and lasting social networks are simultaneously economic networks serving the material good of all members – as it’s been for 200,000 years.

Lane Hartwell was the first “Mack” that caught my attention.  It was exactly a year ago this week that we had the blow up regarding the Richter Scales video about the tech bubble.  (Awww, the good ol’ days!! J )  It’s a fabulous video, and we need to foster more mashups like this, not fewer.  But all creators in the value chain must be paid.

Why should Michael Arrington, who is making millions of dollars from TechCrunch, be able to run such a video for free?  Newspapers and magazines pay creators for content.  As blogging moves closer to “real” media, bloggers will inevitably start having to pay their fair share, too.  The technology is now available to make it all workable as a win-win for all concerned.  (See my video on Saving Digital Artists if you want to learn my own approach.)

So far, social networks have been designed to enrich nobody but the owners, too often, off the backs of others.  For example, how much of the $1.65 billion that YouTube fetched was shared with the creators of all those videos that made the site successful?  Answer: Not one dime. 

4)  Belching Macks won’t be limited to artists.  Network members themselves, who are feeling the collapsing economy’s weight on their own backs, are going to increasingly become resentful of business models that drown pages they create in ads that earn other people money but nothing for themselves.  King Yertle can link to your brilliant web post, just as he can feed his own readers with your comments and reactions, but unless you’re a Yertle yourself who is big enough to have your own revenue model in place, you’ll get nothing out of it except maybe a few comments in return. 

In social networking, monetization models, if they exist at all, are not distributive.  How much ad revenue does billionaire Mark Zuckerberg share with the users of Facebook who create all that advertising inventory in the first place?  Answer: $0.00.  Resentment already exists and will build in 2009.

Please don’t misunderstand me.  There’s nothing inherently wrong with having thousands, even tens of thousands of followers.  More power to you!  But don’t call them “friends” and don’t gather people like baseball cards just to feed your ego.  Being at the top of your social network shouldn’t demand treating it as a throne.  You should be mindful to serve your network as much as it serves you, and you should be provided the tools to do so.

The bottom line is, 2009 is going to prove that social networking is far from being a won space.  If you want to build a different kind of social network, don’t be intimidated by naysayers who think it’s too late.  No, the window won’t be open forever, but it is still open now. 

Remember, kingmakers like FriendFeed and even that “oh, marvelous” Facebook – which acts as oblivious to the risks of their own fevered climb as Yertle was to his – are all vulnerable to falling Plunk! in the mud.  Design something better.  I am.  You can, too.   Nobody is the Google of Social Networking.  Not yet. (See my post on “The Next Calvin and Hobbes vs. the Next Google: 5 Tips” )

Sharp VCs will listen to us and take advantage of the new opportunities that this recession brings, mindful that nobody is chained to any existing social network.  As Dr. Seuss says:

And the turtles, of course…all the turtles are free

As turtles and, maybe, all creatures should be.

http://cspanjunkie.org/
December 10, 2008 C-SPAN

As a card-carrying member of the tech bubble, I thought this song, re-written and performed to the tune of Billy Joel’s best song ever, “We Didn’t Start the Fire,” seemed to sum up the next bubble to burst quite nicely. Trying to come up with the next killer app or business idea generated solely to be sold seems to be the fad these days, and this songs nails it all pretty squarely on the head.

Extra credit to the writer(s) for a generally accurate description of the entire start-up culture (although, we’re in Madison, not Palo Alto).

Financial Crisis Caused By U.S. Mortgage Woes

James Bailey Brislin
The Carpet City Chronicle

The Enfield Press, October 2, 2008

“Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex. But really, it isn’t. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.“
—Kevin Hassett

“What went wrong? The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation… Government budget discipline was not appropriate because it was always emphasized that they were “private companies.” But market discipline was nearly nonexistent given the general perception — now validated — that their debt was government backed. Little wonder… that the enterprises have gambled their way into financial catastrophe.“
—Lawrence Summers

For many Americans, recent weeks have been a sobering period. Fannie Mae and Freddie Mac have been taken over by the federal government. Lehman Brothers is embroiled in bankruptcy proceedings. To avert crisis, the federal government took an 80% stake in AIG, in return for an $85 billion bridge loan. The remaining investment banks are looking into or completing deals to merge with commercial banks. In the wake of imminent collapse, the FDIC brokered the sale of Washington Mutual to J.P. Morgan Chase. Citi is expected to buy troubled Wachovia. Meanwhile, Congress is considering a $700 billion bailout program to purchase distressed securities.

The rapid unfolding of the financial crisis and the complexity of issues at stake have made it a daunting story to follow. Low-quality media coverage has contributed to the confusion. In this column, I hope to explain how we ended up in the financial crisis, where we currently stand, and what it takes to exit the current mess.

The story of the current economic mess begins during the Clinton Administration. In 1995, Community Reinvestment Act regulations were amended to allow sub-prime mortgages. The authorization of sub-prime mortgages were supposed to make it easier for banks to lend to people who otherwise couldn’t get a loan. However, these measures glossed over a basic reality… people with bad credit, few assets, and low income are terrible credit risks and have a high likelihood of default. The Community Reinvestment Act required banks to make these sub-prime loans, in spite of the facts.

In turn, Fannie Mae and Freddie Mac would buy these sub-prime mortgages, package them as securities, and sell them on the bond market. Throughout their lifespans, these Government Sponsored Entities (GSEs) would spend millions of dollars on lobbyists, successfully fending off challenges to regulate them and bring them under control. On multiple occasions, both John McCain and the Bush administration proposed bills that would have restricted the power of Fannie and Freddie. Always, they found themselves outgunned by Fannie and Freddie’s K Street lobbyists.

Opposing measures to increase regulation of Fannie and Freddie were Sen. Chris Dodd and Rep. Barney Frank- who The Wall Street Journal dubbed “Fannie Mae’s Patron Saint”. At the time, Dodd and Frank expressed concerns that regulation of Fannie and Freddie would restrict access to “affordable housing.” We now know that was nothing more than a smokescreen. Rep. Barney Frank’s former gay lover, Herb Moses, had worked for Fannie Mae. Ethically challenged Sen. Chris Dodd shook down Fannie, Freddie, and many others for presidential campaign contributions.

The Community Reinvestment Act and the activities of Fannie and Freddie increased demand for sub-prime mortgages. Increases in the supply of sub-prime mortgages resulted from the policies of an unlikely agency – the Federal Reserve. Following the collapse of the tech bubble and 9/11, Alan Greenspan’s Federal Reserve left interest rates at historic lows for an extended period of time. This created an unprecedented lending bonanza, which fueled a consumer goods boom. The supply of easy money eroded lending standards. At one point, the situation got so out of hand that that Washington, DC area banks were actually writing mortgages for penniless illegal immigrants!

Together the CRA, the practices of Fannie and Freddie, and Greenspan’s loose money policy fueled the real estate bubble. Before the Clinton era modifications to the CRA housing increased at the same value of inflation. Beginning in 1995, home prices began to rise at rates faster than inflation.

Ultimately, Lehmann and AIG were all casualties to Fannie and Freddie’s mismanagement. As leading bond firms, Lehmann and Bear owned too much sub-prime debt. AIG sold “credit default swaps,” a product that made AIG responsible for discharging Lehmann’s debt in the case of default. The problem with the credit default swaps and the mortgage backed security is that they are not easily liquidated… they are hard to price… and thus hard to sell.

Where do we stand now? We are on the edge of a very serious banking crisis. Banks are caught in a “liquidity trap”. They find themselves having to liquidate assets at fire-sale prices to obtain the cash necessary to cover their losses. Inter-bank lending has all but dried up. In the wake of rumors that is was on the skids, Wachovia sold itself to Citi. Congress is on the verge of approving a $700 billion “cash for trash” bailout.

I remain opposed to the bailout package under consideration. Any sensible bailout package needs to (a) protect the taxpayers and (b) protect the dollar.

I do not believe that the bailout adequately protects the taxpayers. The chief problem with these mortgage-backed securities is that they have become impossible to price. It does the taxpayers no service to buy worthless bonds at exorbitant prices, even if they will eventually make money.

The $700 billion bailout package does not adequately protect the dollar. One of the provisions of the bailout is to increase the federal debt ceiling. This would increase the maximum amount that the federal government is able to borrow by $1.3 trillion!

The problem is that the government does not have $700 billion to hand off to Wall Street. That means that the government is going to finance the bailout by borrowing the money and printing debt- a measure that would likely contribute to inflation. Basic economics has it that if a central bank dumps additional currency into the market without a commensurate GDP increase, inflation ensues. That’s exactly what would happen with this bailout. A strong dollar policy needs to be a cornerstone of any long-term recovery plan. The current bailout package would undermine that policy.

No bailout package can fix the fundamental problem- which is that home values are declining, here in Enfield, and across the country. As baby boomers retire and Generation X moves into middle age, demand for housing will ease. That means that it may take a long time for homes to return to their bubble-height levels.

Last, the issue of moral hazard looms large. A bailout would reward those who took bad risks in the mortgage market. In the marketplace, there must be consequences for failure. There are bottom-feeders ready to scoop up sub-prime securities. They just are not willing to pay the exorbitant prices offered by the federal government.

For these reasons, I remain opposed to the bailout package.

As asked for in the vid, I’ll post this. Yeah, it’s from Dec 2007 (probably even older) but it only has about 315k views…

Saw this first when I was at a Web 2.0 seminar…its really funny…make sure your sound is turned up!

Here’s a list of business bubbles you may / may not have heard of:

Tulip bubble – 1630’s tulip’s sold for more than houses!

South Sea Bubble – 1720

Bull market of 1920’s – resulted in the great depression

Japanese asset price bubble – Commercial real estate selling for US$1.5m per square meter!

Real estate bubble every 10 years or so… You’ve just lived through one!

Tech wreck (dot com)– Companies with negative cash flow valued over 1 billion!

Sub prime / hedge fund bubble 2008 – We’re yet to see all of this…

Green Marketing bubble ? – This one’s coming watch out!

Many business bubbles are focused in new industries where startups are abound.

Here’s when to get nervous. When you hear the words ’it’s different this time’, or people are overly focused on industry growth and the so called – revolution.

Here’s when there is no need to get nervous. When your business model based on basic business fundamentals like cashflow and growth in your net cash position. Startups take heed.

For 1000’s of years business and industries never grown much over 10% p.a. once compounded. Yes, there’ll be exceptions like Microsoft in the early 1980’s. But generally speaking when things are predicted to grow at rates above 20%, and valuations are more than 20 time earnings….get suspicious, very suspicious.

My first week blogging. There have been no comments yet on the content, so I don’t know how I’m doing… feedback appreciated. I can even take constructive criticism!

So far I’m just trying to start a range of topics and see if any grab peoples interest… let me know. Suggestions for topics welcome too. I’m still not sure where this blogging business will lead me, but only one way to find out.

This weeks posts:

• Intro – I briefly set out what I plan to blog about
• So where to start? My latest invention… – I introduce BoilingPoint™
• Smiling is good – semi-regular fun topic, song about a new tech-bubble
• The Pursuit of WOW! – semi-regular topic, I introduce a series of extracts from Tom Peters’ book
• I have an invention worth MILLIONS!! – start of a series on how to exploit your inventions
• The Pursuit of WOW! #69 – the first extract from Tom Peters’ book… why failing is good
• Week 10, 2008 – Reviewed – the first weekly round-up to help people scan my blog for intereseting posts

Dear Webpreneurs,

Click this. Study this. Understand this. Change this.

Thanks to Chris at rawstylus for the heads up!

There’s been a lot of talk lately about an ensuing second internet boom. With the billion dollar sales of many web 2.0 companies it’s easy to see why:

                          $15.1 billion

                                   $2.6 billion

                            $100 million

                         $6 billion

                       $3.1 billion

                                $1.7 billion

                                     $60 million

Among others…

To give a little perspective the Nasdaq composite index peaked in the year 2000 at 5132 points. Yesterday it closed at 2320, just under 8 years later.

If you invested $10,000 at the peak, today it would be worth $4521. Still a very bearish 55% capital loss.

Sure we’d have to question some of the valuations, but the market hasn’t started to value ‘ideas’ at over a billion – yet.

Start up lesson – your company is worth what someone is prepared to pay for it.

A few months ago, Fred Wilson blogged about fears of a coming downturn in technology. Then last month the hilarious tech bubble video began circulating throughout the Web. That tech stocks have plummeted early this year suggests we are heading for some stormy weather in techland. What’s going on?

Like a lot of folks, I’ve been wondering the same thing myself. But if you look at history, we’re probably not headed for a sustained downturn in technology. One of the things that struck while me researching my book was that there’s been a strong and clear technology cycle at work over the last 40 years or so. Typically, a disruptive technology is invented and commercialized, helping to drive a 6-8 year cycle of sustained growth.

The first high-tech boom happened in the 1960s, with the craze over “new issues” and “electronics”. The market went on a six-year run before it stalled. Then the commercialization of the integrated circuit and the dawn of the computer revolution sparked another boom from late 1966 to 1972. The blockbuster IPO of Digital Equipment Corporation in August 1966 was a seminal event. DEC came out at $22. By March of 1967 DEC shares topped $50, over the summer, they hit $80, and in September they crossed $100.

In 1973, the bottom fell out of the venture capital market and the economy at large. The twin economic evils of inflation and recession joined hands to create a new type of monetary demon dubbed “stagflation.” Then OPEC’s oil embargo in October of 1973 sent the booming economy over a cliff. Between 1973 and 1975, the Dow Jones index was nearly sliced in half.

All the while, entrepreneurs and technologists were working on a whole new range of innovations that would spark another boom starting around 1979 and lasting until the 1987 crash. In the late 1970s and early 1980s, venture capital helped finance the creation of four new industries that boosted the economy: microprocessors, video games, personal computers, and biotechnology.

Then we had a recession in the early 1990s, which didn’t end until 1994/1995–the same time that the Internet and Web browser were unleashed on the world. We know that story pretty well.

So where does that leave us now? Well, if you assume that today’s boom started in 2003/2004, we’re probably in the middle to late stages of the current cycle. Of course, history isn’t always a useful guide. But it feels right to me. The rebirth of the Web has driven the current boom. But there are still several groundbreaking technologies that haven’t reached escape velocity yet–I’m thinking of wireless computing, and green technology in particular. If those two areas fulfill their promise, it could help extend the current cycle for a few more years.

Now, don’t get me wrong. Even though I think there is no widespread tech bubble like there was back in 2000, I think there are mini-bubbles. The most obvious one is in social networking. Valueing Facebook at $15 billion–with a 500+ price-to-earnings ratio–is insane! That p/e surpasses even some of the ratios we saw with telecom companies in 2000. (I think JDSU boasted a 400+ p/e at one point.) So while we will probably see a pullback in certain areas, with some inevitable consolidation, I think the trendline for tech will be upwards for a few more years. Unless of course some new black swan (i.e. another major terrorist attack or financial crisis) appears out of nowhere and throws everyone for a loop.

What do you think?

HOW TO BUY CREATIVE CAPITAL: To pre-order Creative Capital, click here to go to Amazon.com.

Da ist was dran:

They still haven’t included Virtual Worlds… hmm But I had to put this video on APLINK…