Friday, July 31, 2009

Some Good News And Some Scary Scenarios

This post will be pretty brief. First the good news.

By some indications, the recession may be starting to ease a little. GDP (for various reasons) is down only 1% for the 2nd quarter, manufacturers are starting to add inventory and the government's "cash for clunkers" program has been a huge success. Employment is still anemic and will remain so for a long time to come, so we can't really crow about a jobless recovery, can we? Corporate profits are getting obliterated, but at least there are some profits to be had. The stock market obviously believes we've hit bottom as is reflected in a stellar performance in July. Even housing (although not commercial real estate) looks like it is picking up. So cross your fingers, hold your breath, throw salt over your shoulder in the hope that the favorable data isn't a false positive.

Better yet, Congress is finally getting serious about all this egregious pay being handed out on Wall Street. Last year, firms that didn't even earn a profit handed out $billion$, and even those that did make some money, paid more in bonuses than what they took to the bottom line. Congress, the American Public and even foreign officials are sickened by all this. Well, let's hope that the government really comes down hard on these financial parasites.

Scary Scenario #1

China decides to stop buying US Treasuries. They appear to be already balking at the recent auctions (see WSJ link below) and the Chinese have so much leverage on our economy right now that there is little we can do to mitigate their actions. Some argue that there the US and China have a symbiotic relationship and that if they hurt us, they will hurt themselves. But if we inflate things and devalue our currency, the Chinese will already be damaged. Here's the link:

Scary Scenario #2

AIG appears to be in as much trouble now as it was before. Because this is a giant company with thousands of subsidiaries, they apparently have been playing the intra-company asset/liability transfer game. The original problem with AIG, which necessitated giving them $10s of billions in bailout money, wasn't that it is too big to fail, but rather, it is too complex to unwind. I fear that this is still the issue and you can read the full story by following the NY Times link below.

Scary Scenario #3

While we may have somehow managed to muddle our way through the deep crisis we faced just months ago, there are repercussions and consequences that follow from all the actions the government took. Being at heart, a skeptic, I am fearing that the backlash will be more joblessness, rampant inflation, and all sorts of nasty things that I don't even want to think about. For now we can take the good with the bad, and hope that the worst scenarios are merely science fiction.


John A.

Thursday, July 23, 2009

California, WTF? Redux

I have been noodling the consequences that attend a self-destructed California, and that led me to do some numerical analysis. Much has been made about the fact that California is the eighth largest economy on the planet. My partner asked me about other states; I became intrigued, so I did the research. Here is a table that lays out the Gross State Product for all 50, plus the District of Columbia (these are 2008 figures (in millions) according to Wikipedia):

1 California 1,846,757
2 Texas 1,223,511
3 New York 1,144,481
4 Florida 744,120
5 Illinois 633,697
6 Pennsylvania 553,301
7 New Jersey 474,936
8 Ohio 471,508
9 NC 400,192
10 Georgia 397,756
11 Virginia 382,964
12 Michigan 381,963
13 Mass 351,514
14 Washington 311,270
15 Maryland 268,685
16 Minnesota 254,970
17 Arizona 247,028
18 Indiana 246,439
19 Tennessee 243,869
20 Colorado 236,324
21 Wisconsin 232,293
22 Missouri 229,470
23 Connecticut 216,266
24 Louisiana 216,146
25 Alabama 165,796
26 Oregon 158,223
27 Kentucky 154,184
28 South Car 152,830
29 Oklahoma 139,323
30 Iowa 129,026
31 Nevada 127,213
32 Kansas 117,305
33 Utah 105,658
34 Arkansas 95,371
DC 93,819
35 Mississippi 88,546
36 Nebraska 80,093
37 New Mexico 76,178
38 Hawaii 61,532
39 Delaware 60,118
40 West V 57,711
41 New Hamp 57,341
42 Idaho 51,149
43 Maine 48,108
44 Rhode Island 46,900
45 Alaska 44,517
46 Montana 34,253
47 South Dakota 33,934
48 Wyoming 31,514
49 North Dakota 27,725
50 Vermont 24,543

Thanks to Wiki, I can also detail the international GDP by country:

1 United States 14,264,600
2 Japan 4,923,761
3 PR China 4,401,614
4 Germany 3,667,513
5 France 2,865,737
6 United Kingdom 2,674,085
7 Italy 2,313,893
8 Russia 1,676,586
9 Spain 1,611,767
10 Brazil 1,572,839
11 Canada 1,510,957
12 India 1,209,686
13 Mexico 1,088,128
14 Australia 1,010,699
15 South Korea 947,010
16 Netherlands 868,940

Playing around, here are some fun facts that one can deduce from the above data.

California has 13.22% of GDP in the United States, and its output is larger than all states and every country starting with Russia and below. It is 37% of Japan's economy, 42% of China's, 50% of Germany's, 64% of France's, 69% of Britain's, 80% of Italy's and 110% of Russia's.

California, Texas and (an increasingly diminished) New York account for 30% of the US economy. The bottom 23 states (plus DC) nearly equal California's output. In other words, California, Texas and New York combined are slightly below China in world economic rankings. Just for laughs, let's throw in New Jersey and Pennsylvania and you now have the world's second largest economy. But California is certainly the linchpin here; without it I would have to add several more states to reach second place in the world.

So here's a frightening thought. What would happen to the world's economy if China collapsed? Or for that matter, if Japan went under? Of course, neither situation is presently plausible. Yet, the world's eighth largest economy is already reeling, with no permanent solution in sight. Every politician and commentator around thinks that the recent (almost passed) budget legislation is merely a band-aid for a wound that will fester long into the future. So I think it is safe to say that California (and maybe soon Texas, New York et al will follow in her footsteps) is toast. Jobs there are evaporating faster than a puddle on a hot summer day. People are exiting the state in alarming and increasing numbers. A public primary school system that was already bad is about to get worse. Higher education, once considered the best in the nation is taking it in the chops. Real estate is depressed and foreclosures are continuing on a torrid pace. As I have said in the past, you can bail out Citigroup once, and hope for the best...but what can you do about a state that has ongoing systemic problems? Is California too big to fail?

I think the answer to the last question is yes. As much as I hate to say it, if the government really wants to stimulate a national economic recovery, they had better move "saving California" to the top of the list. Instead of building "bridges to nowhere" and their ilk in areas like Alaska, Montana and Wyoming, why not devote ALL the stimulus money to states like California, that, from an economic standpoint, really matter.

Of course, politics being what it is, my suggestion will never be implemented. This means that we are, from my perspective, doomed to have a stagnated economy for decades to come.

California WTF? Ouch!?

Health Care--Whip Inflation Now

I had a scary experience recently. In my April 15th, 2009 blog post I detailed that I had been in the hospital for an extended stay (3 weeks,), I underwent major (successful) surgery and I extolled the virtues that attend the American health care system as well as the particular institution and their staff that provided my care.

Last week, I received a bill from the hospital for $102,000 (plus change) netted from a $182,000 bill. The (excellent) insurance company had already paid $80,000. Now let me tell you that every penny, in my opinion, from the doctor's and hospital's end was well spent...I am alive, they took superb care of me, I will inevitably be worth well more than $182,000 to the American economy during my productive life, and my employers and I have paid far more than that during my prior working tenure.

Nevertheless, I was in shock. When I called the insurance company, they immediately said "there must me a mistake somewhere here and we will investigate." Less than one week later, they approved all my claims, except for a $250 co-pay which I will gladly remit.

Let's face it...the system is expensive and what drives the costs up are the waste, fraud and abuse that are endemic to health care. Not to mention that if I had been an indigent person, with no insurance, I have no doubt that the medical facilities would have administered identical treatment and would have "eaten" the invoice.

So all the assholes in Washington, including our oratorical President are running around trying to fix this thing, and sure, it isn't perfect. But I have never heard about someone who was refused care, or who didn't get what they could reasonably expect.

Yes, health care is a big problem in this country but I have never seen an enigma where government was the best "solver" and the vast issue here is that that Washington has been the greatest "waste sponsor" on Earth. Let's not put this one one the providers, the doctors and the FAT American public. We should just assume that Medicare and its counterparts are so fricking bloated that they can't deliver any efficiency at all.

Obama speaks well, but he also has the "forked tongue." If we follow all these political prescriptions, we are headed for socialistic medicine.

Here's a link to ponder:


John A.

Let's Revisit Some Ongoing Themes--Part I

Las Vegas

In my blog posted on June 15th, 2009, I described what my family and I observed when we recently visited there...huge uncompleted projects, relatively empty casinos and shows, and great bargains everywhere, except in the vacant high-priced boutiques. Well in a Wall Street Journal article by Tamara Audi, we get a much more comprehensive look that reasonably confirms the intuitions that my family and I had when we were "fearing and loathing," so to speak. Here's the link:

Commercial Loan Failures

I predicted as early as last January, and have repeated the message that the next financial mess will involve commercial real estate failures. In a WSJ article by Lingling Wei and Maurice Tammon the press seems now to be catching on to this unfortunate but inevitable new trend.

Follow the story by chasing the link below:

Global Warming And China/India

A recent NY Times editorial seems to confirm the May 25th blog post entitled, "A Dirty Little Secret..." which suggests that until and unless we can get these two countries to conform to clean air practices, that all other efforts are not only futile, but also, are confiscatory on those countries that are attempting to assist the environment. Here's the article:

The Stimulus Trap

On April 28th, 2009 and July 14th, 2009 I detailed why the jobless situation in America has gone into condition red. I have repeated this assertion throughout this blog series. Now Paul Krugman from the NY Times is on the same bandwagon and he expresses his opinion as follows:

The Human Equation

Bob Herbert at the NY Times writes a most eloquent explanation about why there are no "jobless recoveries" as I have written many times, on April 28th, June 26th and July 14th, 2009. Please read Bob's wonderful analysis by going to:

I'll have more for you later this evening and tomorrow, but this should get you started.


John A.

Tuesday, July 14, 2009

Thinking About Puking

I have been dying to write this piece, but have approached the subject with some trepidation. As we go through what we are going through, and despite any other physical impairments (of which I now have many), I have the urge to regurgitate more often than I have ever in the past. Why is this? (1) I constantly read bullshit blogs that say nothing about the raw facts that the worldwide society is confronting. (2) I see self-congratulatory crap that comes from my own community (the VC industry.) (3) When I read junk about Washington, all I can discern is posturing, oratory and dissembling. (4) When I scan reader commentary, it is obvious to me that they (the readers) are living in a fantasy world along with the writers. (5) The "American Dream" is broken, and this breaks my heart. (6) My children and yours will live in a world that has much less opportunity than what I had when I was 21 years old. (7) Morals and ethics (notwithstanding the recent MBA initiatives) have sunk to a new low so that even the Pope has to scold us. (8) The nuclear proliferation scene is at at it hottest point in 50 years. (9) We are building debt so fast that for the first time in my life, I hope that I don't live very long. (10) I am actually considering moving to Switzerland but I don't think they will have me. (I don't have a Marc Rich/Pinky Greene unlimited funds to contribute to that country.) (11) Our constitutional rights (ie. second amendment et al) are under extreme attack, though it may be fatal for those that attack them.

So I am very sorry to have to write this, and it may be the last thing that I do write. Maybe if you read several blogs that lead up to this you will understand...or read many previous blogs. But I am about to give up on American progress and will, as you will too, sink into the abyss that puts us into that infernal middle-of-the-road.


John A.

We Are Such Stupid Sheep

I have written many times about global social comments are largely ignored, I don't mind that, but the facts present themselves no matter what. In a recent article linked to below, it is becoming increasingly obvious that the vaunted Chinese economy and their citizens are becoming restive...the government is paying people off to try to quell the unease. Here's the link:

In this country we are so fat (physically, really FAT) dumb and happy that we don't have the gumption to express ourselves in a political fashion as eloquently as the Chinese middle class. But the time is coming when the government will no longer be able to stifle all the misery that is out there.

In a separate note, Mort Zuckerman, publisher of US News & World Report (in full disclosure, my brother-in-law is a senior publishing executive there, but we have not discussed these subjects) is apparently paraphrasing (inadvertently) my blogs with respect to the problems with employment in this country. In an article entitled "The Economy Is Worse Than You Think," reported recently in the Wall Street Journal, Zuckerman picks up on ALL the items that I have been reporting on for months now (just go down the blog list, and you'll see that evidence.)


Thanks Mort.

Here's the link:

Thursday, July 9, 2009

Arrowpoint In The News

In the event you haven't seen these articles in the recent press, I am including links if you would like to visit the stories which are pretty favorable to Arrowpoint. The Wall Street Journal interview is I think very accurate and complete.


John A.

The Wall Street Journal--June 11, 2009

Mass High Tech Journal--June 5, 2009 (You may need to copy and paste the following link into your browser.)

Tuesday, July 7, 2009

You Heard It Here First (If You Are Listening)...VC Is Shrinking

Please read this and weep!? Another scoop for the blog.

Monday, July 6, 2009

California, WTF?

I am just sitting here waiting for the other shoe to drop. I confess that I have never understood the famous New Yorker cartoon, probably because having grown up in the Midwest, I am at heart a centrist. For the uninitiated, or those too young to remember, here's the famous image from 1976.

I spent nearly the entire 1990's decade working in and around California. First I helped acquire a company and converted it into a research laboratory for the new parent. Next I helped turn around a major software company which was later sold for more than 30X ($1B+) the price that it was trading at when I went there and finally, I was CEO at a thin-film (organic polymers) display company whose technology is finally seeing the light, (literally and figuratively) with products like the Kindle.

I came to cherish California as a wonderful place to ride my motorcycle on the weekends, and I suppose that I covered more than 8,000 miles around the state from top to bottom during accumulated weekends. I have never been on serious hikes better than what you find in the Ventana Wilderness, way up above Big Sur, and at the time, my little twin boys were there with me too (in tow with an experienced friend of course.) I made lifelong friends in California, and the business environment in the 90's was many talented people and innovative companies were stationed there.

I never felt that I could permanently move to California because, back then, a young guy like me might have to shift about (which proved true) many times and I wanted my family to find its roots somewhere...and that happened to be New Jersey. But we all had a very wonderful encounter with California, and I will never forget that.

Having said all this, it is utterly bewildering to me that the most populous state in America, its third largest geographically, and the eighth largest economy in the world (in GDP) is in very serious trouble right now. The eastern press isn't giving this story much play, perhaps leading some credence to that New Yorker cover, and California is now issuing IOUs to public employees, cutting basic services and candidly, has no concrete plan to move away from this terrible thing. The problem is that you can bail out Citigroup one time and hope for the best, but when a state, which is legally required to balance its annual budget goes belly up, then you need to deal with the issue year after year.

The federal government has thus far kept hands off, and I agree with that to an extent...after all, if you help California, then why not Pennsylvania which is also having some difficulties, as are other states. But the repercussions from this are enormous...and somewhat unfathomable. If California in whatever form, fails, and you can count among other things, unemployment, basic service disruption and such in that category, the impact on the so-called economic recovery will be immense.

So now I wish that I had an answer here, but I don't. There will be no tax increases, government employee furloughs are in full swing, tax revenues are in a shambles, companies are still laying off workers, real estate values have plummeted, loans are in default and properties are in foreclosure.

Particularly painful to me is that the innovative, vibrant California that I knew from the past has been mauled by an enormous bear, largely not of its own making (stupid politicians (who are always stupid) notwithstanding.)

So I just think we have to try to cycle through this thing and take our lumps in the meantime.


John A.