by Kris_Tuttle on October 6, 2009
We’re listening to the latest economic and market analysis from the smart gents at GaveKal research and during the talk we were reminded of some conditions that existed during the most intense phase of the technology bubble of 1999 and 2000.
It’s obvious that China has been financing US consumption so that they could enjoy the growth that has helped to propel their economy. Equally true but less obvious is that Germany has been doing the same thing for weaker countries in Europe to the tune of a few percentage points of GDP.
Some may not remember that in 1999 we witnessed some extreme business practices. A startup company would accept a large investment from a larger company. At the same time the large company would be come a “marque customer” of the startup. On top of that cozy mutual reward system the startup would offer the larger company payment terms, basically financing their purchase.
In retrospect it is difficult to imagine that investors tolerated this type of activity. But tolerate they did and until the dam broke early in 2000 many embraced it with both arms.
Right now this same type of activity is going on with respect to China and the US and Germany and many of the EU countries. Of course the scale of these operations are vastly larger than what happened in the US technology sector back in 1999. But it has been going on for some time and there is no way to know how long it will continue. Some have speculated that the Germans tolerate it because the average man on the street doesn’t realize that it is going on and those that do realize it’s a bit like a fatal embrace. If Germany were to clamp down, their own economy would tank. The same situation vis a vis China has been discussed ad nauseam.
What should one make of this? In the short term there doesn’t appear to be much to do about it. The US and the global economy has stabilized and is recovering. All economic players are committed to maintain easy money for some time and the current worry is more deflation than inflation. Nearly all the players have a strong shared interest in maintaining this broadly faith-based system of measures to keep all the plates spinning.
We thought that a piece we published back in April of 2007 “What would Godel do?” was now very much out of date but it may come in handy again.
by Kris_Tuttle on January 6, 2009
Our friend Brian Bristol had an op-ed published over at the Orlando Sentinel that points out how powerful capital gains tax relief can be to spur investments and give the equity markets a boost in 2009 after a very rough period last year.
We’re a little surprised that there isn’t more effort being put into encouraging investors in these economic times given how beneficial real investments are for driving economic growth in the U.S. Some of the relief efforts (like allowing businesses to get retroactive tax relief going back five years based on losses in 2008) as of very limited use. Instead of handing out money and hoping that something good comes of it why not just provide relief from future tax burdens for those private sources of capital that are looking for places to invest?
We’d go much further than having a declaring a long-term capital gains holiday for investments made this year. We’d certainly be happy to see it but it would be more of a short-term boost than a long-term engine.
Part of the problem is that for many Americans "investments" have increasingly looked more like financial engineering and restructuring antics rather than that which builds productive capacity, creates durable economic value and adds to job growth and quality of life.
We’re involved in a number of private financing projects right now and they all have very strong merit. Many stand to get done or at least get enough financing to keep developing. But what would really excited investors is not only relief from any long-term gains taxes but also a credit for investments that create jobs and/or productive capacity in the U.S.
Tax credits like these are not a new idea at all which is why we’re surprised not to see them more featured as part of the rumored $300B stimulus package. They could also be used to offset interest payments on debt which would further enhance the attractiveness of building economic growth.
Although we are not fiscal or economic experts we KNOW that this will lead to much more real growth than sending out $300 checks to consumers or handing businesses tax refunds to spend as they wish.
Providing incentives to invest in new capacity, fund companies that are ready to hire staff to ramp up operations are the best ways to use tax payer funds to fuel growth. Why aren’t we doing more of it?
by Kris_Tuttle on December 26, 2008
Bill did Charlie Rose which gives one a 55 minute view into what he thinks about where MSFT is now and where they are going. Given the size and importance of the company we thought we should review it.
Bill’s outside MSFT now but he clearly still cares about the company as well as some "special projects" like search.
The odd disconnect between what Bill believes and what the reality is in software today. The visions are fairly mainstream including thoughts about mobile computing, reading devices, video, screen technologies and so on. (Strangely enough Bill didn’t have much to say about what we see as the medium-term future of visual computing and RealVR.)
There’s clearly big opportunity in having Bill and his resources figure out some solutions to normal world problems like how to keep vaccines viable without refrigeration and many other areas.
Having the energy and intellectual interest, combined with the financial resources of a Gates/Buffett+ is a pretty big deal. The world isn’t rational because of dysfunctional incentive systems and it needs organizations like the Bill and Melinda Gates Foundation to address obvious problems.
Technology will play a big roll in delivering the best education effectively. Also technology will help with problems like water and cooling in emerging economies. At the same time technology plays a generally positive role in figuring out ways to spur development.
Go after some core problems like AIDS and Malaria are a major focus. Gates focuses mostly on developing new solutions and then relies on governments and other organizations to fund large-scale implementations.
On the surface having these guys go after solutions for the 10M children who die every year is obviously pretty awesome stuff.
Lots of the major cycles are 15 years in duration when it comes to new vaccines and crops which is a major factor in limiting advances.
The idea of taking 4-5% of the "innovation power" of large companies and directing it towards special needs of the world and the poor is a good one. [The fact is that taking 1c out of every dollar and focusing the right way will go a along way to solving these problems.]
Bureaucrats don’t get a wake up call from customers or markets. Same can be said in many ways about some non-profits. The ability to prioritize and understand real business scale issues are the core of what needs to be in place to solve some of these problems.
Overall a fairly grounded and noble presentation from Bill on what he is doing and how he still feels technology will play a major role. At the same time he hasn’t totally let go of technology projects at Microsoft but much remains to be seen about how they will do in software, search and so on.
by Kris_Tuttle on August 29, 2007
There are plenty of good posts out there arguing for weakness in real estate. The listings we get every week tell the same story. At least in the Boston area we see numerous price reductions and most sales below offering prices.
Lately however a number of new listings and price reductions made us realize that at least in the North East we might see additional pressure to unload properties that are especially old and inefficient when it comes to energy use. We’ve seen some listings we might have jumped at two years ago but now won’t even look at them because they would cost a small fortune to heat and power.
For those around during the NYC real estate crunch in the late-80’s it was the high monthly maintenance charges on some apartments that made them almost impossible to sell.
Energy prices are already high and if you believe forecasts from people like Goldman Sachs they will go higher this winter (oil at $95 according to them.)
Bulls might say that this would also increase demand for newer, more efficient properties which is a valid point. However the overall impact is likely to be driven more by the increase in supply and the greater incentive for sellers to reduce prices and unload these properties.
We don’t think anyone can really forecast the economy or the real estate market but having lived through the NYC experience we think time is on the side of the buyer these days and should remain the case for another year or so. Unless super-low interest rates reappear soon the scenario should play out as many expect.
Tags: Real Estate, Energy