Continuations

At the moment I am writing about why I think the industrial system is breaking down as its main components are no longer functioning properly and sustaining each other. In particular I wrote about the growth and increased concentration of wealth and its relationship to our present day democracy. Today I want to suggest another aspect of the changes in wealth and how it relates to the allocation of capital. Let us start with a look at what the components of the financial asset side of private ...

The stock market indices are above their pre financial crisis highs. One interpretation of this is that the financial crisis was just that: a crisis of the financial sector that left the rest of the economy largely untouched. Another interpretation is that we are simply looking at the results of way too much cheap money provided by the Fed. The latter is supported by a chart that I saw yesterday for the first time which shows the Dow divided by the price of gold. That chart is essentially fla...

I am supportive of the #occupywallstreet protest as an exercise of First Amendment rights. I too am frustrated with a financial and economic system that has made the rich richer, has hollowed out the middle class and has ever more American families living in poverty. I am, however, skeptical about the protests’ long term impact. While the protests may draw more media attention to the problematic role of very large banks, they are unlikely to contribute meaningfully to change given overall ins...

The IPO process is pre-Internet and that needs to change ASAP. With the tech IPO window open we are once again being treated to the maddening spectacle of the opening pop in which the first trade price is massively above the IPO price. All sorts of theories are proffered for why that is rational and the right thing to do. It isn’t. In the year 2016 here is how a company should go public. The company, with the help of banks, brokers and the exchange should build a complete buy and sell order b...

Europe had three elections on the weekend: presidential in France, parliamentary in Greece and regional in Germany. The results are strongly anti-incumbent across he board. In France, Sarkozy is out and Hollande is in. In Greece, the PASOK party went from 160 to 41 seats and no longer has a majority together with New Democracy the other incumbent. And in Germany in the regional elections in Schleswig Holstein, Angela Merkel’s CDU had the worst results since 1950. The results are also strongly...

Facebook goes public and its stock declines. Commentators write that investors should have known it was overpriced. Twitter goes public and its stock pops. Commentators write that the company left money on the table. Not nearly enough people though remark on how crazy it is that companies still go public the way they do. Three years ago I wrote a post saying that I was hoping we would see IPO 2.0 and unfortunately I am still waiting. What do I mean? Building a complete order book upfront and ...

I have presented a bunch of data on household debt, corporate debt, financial sector debt and government debt. But what does it all mean? First, the economic situation is bad. We had economic growth driven by unsustainable levels of consumer spending which was the result of a housing bubble that made consumers feel richer than they were. At the same time corporations and especially financial companies operated with too much leverage. Now consumer spending is dropping off a cliff and corporati...

It is 2010 and while we don’t have jetpacks, it doesn’t seem too much to ask to not have to deal with paper stock certificates. Yet most early stage deals that I see still wind up sending out physical paper certificates. While it may seem like a convenient way to push out the expense of keeping track of certificates to holders, that is not really the case. Whenever a transaction takes place that requires the certificates, such as a secondary sale or an exit, there are people who can’t find th...

A good friend of mine was one of the early practitioners in Europe of complex financial engineering for large corporate clients. I vividly remember a conversation with him on a vacation some 20 years ago, when he told me about a deal that was meant to remove energy cost risk from a company and sell that risk off separately. At the time he made the argument that this allowed for better hedging on part of the company and allowed investors to take a position in this risk alone. I took the positi...

Start with what seems like a good idea: assets and liabilities on a company’s balance sheet should be adjusted to reflect their fair value. For instance for assets, fair value would not be the price the company paid when it bought the asset (or the cost it incurred in building the asset), but the value it could realize if it sold the asset. A similar concept applies to liabilities. For a long time the rules governing what constitutes fair value were different on a case by case basis resulting...