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Visiting neat startups. An amazing array.

It is easier, cheaper and faster  to start a company now than ever before. Talented labor is cheap and available part-time here or abroad. The Internet is the best delivery vehicle and is ubiquitous. Everyone can get to fast broadband WiFi. Everyone has a smartphone. And the world is desperate for simple, cheap solutions to making their lives easier.

I’m associated with a small investment bank called Wellfleet Partners that specializes in funding startups that are a little further along (but usually not cash-flow positive). Click here. I’m blown away with what we’re seeing — the variety of  ideas and their often high quality business plans. Funding startups ain’t easy. The key is twofold:

1. Don’t talk yourself into the opportunity. It’s easy to give the president your advice and your ideas.

2. Listen to the management.

It’s all about the management. Repeat five times. The management should be super-talented, super-motivated and super-impressive. And, hopefully have lots of their own money in the venture.

Don’t bet the house on startups. The failure rate is very high. Pick correctly. Your gains can be much higher than anything you’ll see in today’s miserable stockmarket.

For a flavor of today’s start-up craziness, visit ZephyrnetRocketHub and KickStarter.

Europe is killing us. It’s hard to see our markets going anywhere if Europe keeps getting worse and worse. I read that half our big banks have big exposure to Europe. Greece and, now, Italy, can’t pay their bills.

So, do something. Anything. The longer they delay the more political problems, the more strikes, the more civil unrest. Who knows where it will all end. Italy’s bonds are now yielding 7%. That doesn’t seem high to me. I’d want a lot more before I even considered them. But people are buying them… And the press is screaming that this is a disaster.

There’s a huge emotional attachment to the Euro. The whole idea of Europe coming together as one Europe was motivated by two devastating World Wars. We’re not going to have World War III any time soon.

It’s time to move on. Solve the economic debt crisis before it’s too late. Let Greece out of the Eurozone. Maybe let  Italy out also. Let them devalue and come back in later.

Will the politicians do this now? Or wait? They’ll wait. They’ll prolong our agony for eons. “What really ails Italy” is a big piece in the atest New Yorker magazine. Click here.

It’s hard to like equities in this uncertain world.

Please say no to on-line gambling and on-line FX trading. Israel banned on-line gambling not because they had moral convictions. But because it was crooked and run dishonestly. The operators were crooks and thieves. And the whole system was too open to being hacked by other crooks and thieves. Ditto for on-line foreign exchange trading by many of the operators you see heavily advertising on bubbleTV.

I could burble on with more stuff. Stories about how hackers can see your poker hand. And know when to bet against you and take all your money.

You get the message: On-line gambling and on-line FX trading are stacked against you, the  player. Don’t go near them.

My son Michael bitched to me last night. He said I should have taught him computer programming when he was a kid. He’s right. All kids should learn how to write  software. It will enhance their career. Whatever career they choose being able to program will make it better, easier, faster, more satisfying etc. Kids with programming skills will get jobs over those who don’t have them. Trust me on this one. You owe it to your kids. Buy them programming books. Send them to software school. Do whatever is necessary. But teach them programming. You owe it to them. Ditto for grandkids.

The 100 Best Com;puter Products of 2011. PC World has a list. Click here. This one intrigued —  the Maxthon browser. Click here.

There are two big ways to improve your computing “experience. ” (Don’t you hate that stupid word?) First, buy an SSD (solid state hard drive). I like the Kingston ones. OCZ makes faster ones, but they’re pricier. I can’t notice any difference in speed no matter which SSD I use. Simply having a SSD makes the difference.

Second, buy a large external computer monitor. They’ve become really cheap. Don’t buy anything at Best Buy — unless you’re desperate. Their selection is too limited, their prices often too high and they often charge sales tax. I prefer on-line places like Newegg.

Apricorn’s Aegis drive are no more, for now. Remember the external hard drive I love? It came from Apricorn and I featured it in the right hand column under “Favorite Tools.” It’s still a favorite tool. But the flooding in Thailand has hurt the supply of hard drives. Apricorn stopped making the external drive system because it simply can’t get sufficient drives. Give it a few more months.

AT&T sucks even more than you can imagine. You can be an AT&T Wireless customer for a lifetime. But you won’t get a penny off if you want to upgrade your iPhone4 to a 4S. You’ll still have to pay the standard price for the phone and commit to a two-year contract. Hence AT&T is offering absolutely no incentive for me NOT to switch to Verizon, which is exactly what I’m going to do. AT&T has horrible service, and is dumb. Maybe there’s a worse combination. I haven’t found it. Do not buy AT&T’s shares, despite their high 5.8% dividend yield.

The Deleveraging Myth, from a favorite author, James Surowiecki in the November 14 issue of the New Yorker:

When the government reported, last month, that the U.S. economy grew at an annualized rate of 2.5 per cent in the third quarter, it was a classic good-news, bad-news situation. The good news is that we aren’t falling back into recession (the dreaded “double-dip”), but the bad news is that, two and a half years after the recession ended, the economy is still just limping along. Many analysts casting about for an explanation of why this recovery has been so tepid have concluded that, as Paul Krugman has written, “it was debt what did it.” Between 2001 and 2007, Americans went on an incredible borrowing binge, nearly doubling their household debt. Now, the argument goes, consumers are focussed on paying off that debt instead of spending freely, and, as long as this process of “deleveraging” continues, the economy is going to stay stuck in the doldrums. Debt, in the words of The Atlantic, is the recovery’s “silent assassin.”

Americans certainly have lots of debt, but the evidence that it’s killing the recovery is surprisingly sketchy. For a start, American consumers are not actually keeping their wallets closed. Real consumer spending, after collapsing in 2009, has risen for nine straight quarters; this past quarter it was up at an annualized rate of 2.4 per cent. That looks anemic by the standard of past recoveries, but, with an unemployment rate near ten per cent and wages barely rising, that’s to be expected. More important, several things that you’d expect to see if the deleveraging thesis were correct haven’t happened. Personal consumption hasn’t shrunk as a share of the economy: in 2010, it accounted for more than seventy per cent of G.D.P., close to where it’s been for the past decade. And consumers aren’t saving at an unusually high rate; the savings rate during the recovery has hovered around five per cent, significantly lower than the postwar average. And although consumers did reduce their total amount of non-mortgage debt very slightly in 2009, in the two years since, that number has risen again. By historical standards, then, consumer spending is high, not low.

Of course, relative to the housing-bubble years, both spending and debt are down. But this is the wrong benchmark to use. Borrowing furiously against home equity to fuel a spending spree wasn’t sustainable, and we shouldn’t be looking to get the economy back to that state. Indeed, one simple reason Americans have been spending less on cars and durable goods is that, as the economist Robert Hall has shown, their spending on these things during the bubble was extraordinarily, unnaturally high. If we’ve been buying fewer cars and washing machines, it’s in part because we’ve been working off the overhang from the bubble years.

In any case, you don’t need to talk about deleveraging to explain sluggish consumer spending. The far likelier cause is what economists call the housing-wealth effect. It’s well established that when housing prices go up people feel richer and spend more: the rule of thumb is that they spend between five and seven per cent of the increase in housing wealth. But when housing prices go down people cut their spending by the same amount in response. Between 2006 and 2011, American homeowners saw the value of their homes drop by seven trillion dollars or so. That means that-even if consumers had no debt at all-we’d expect a dropoff in consumption of about four hundred billion dollars. Toss in the steep decline in the value of people’s retirement accounts and the sense of fear engendered by the near-meltdown of the global financial system, and it’s hardly shocking that consumers are cautious. Given how much wealth Americans lost and how weak the job market is, the real wonder is that spending has proved as resilient as it has.

There’s no need to posit a “silent assassin” to explain why the recovery is weak. You just need to look at what the bursting of the housing bubble did to the economy. As the economist Dean Baker has pointed out, if you couple the negative impact of the wealth effect due to the housing bubble bursting with the steep decline in residential investment once the bubble burst, you end up with a huge shortfall in demand. Debt exacerbates this, but the core problems are weak demand and the fact that our monetary and fiscal policies haven’t done enough to strengthen it. People are simply much less rich than they were-or thought they were. The average American household lost almost twenty-five per cent of its wealth during the crash. And incomes are not rising briskly enough to offset this. In fact, during the past decade median income fell in real terms.

This doesn’t mean that the piles of debt accumulated during the bubble aren’t a serious problem and incredibly onerous to the people who are struggling under them. But it does suggest that dealing with the debt problem, or the housing crisis, is not the panacea for the economy that many have made it out to be, especially as debt-servicing costs are already near a twenty-year low. Indeed, even if you could overcome the political obstacles to wiping out all of homeowners’ negative equity, the impact on consumer spending would be surprisingly small. The important lesson is that, if, after all, consumers aren’t keeping their spending unnaturally low, we can’t look to them to jump-start this recovery, even though they’ve been the engines of recovery in the past. This time around, business, export markets, and, especially, the government need to do what consumers can’t.

Favorite recent New Yorker cartoons.



Harry Newton who recommends you visit New York today. It’s gorgeous outside. Perfect biking, perfect tennis, perfect running and walking weather. If it’s nice where you are, go smell the roses or watch the leaves fall off the trees.

10 Comments

  1. Mile High says:

    Harry,

    Like you, I have been an AT&T customer when they used to be AT&T before they became Cingular, etc.  Anyway, as much as I don't like their customer service or their lack of customer appreciation, I plan to stay with them when I upgrade my iPhone 3GS to the new 4S because they have “grandfathered” me into their unlimited data plan.  With the exception of Sprint (whose coverage I don't much care for) you cannot get the unlimited data plan anymore.  That, and only that, will be the reason I plan to stay with AT&T.  Verizon declined to offer me unlimited data if I signed a two year contract with a new iPhone 4S.  You may want to look into seeing if they will let you keep your unlimited data plan, which has to be worth something.

  2. Tickersmart says:

    Harry – what are you talking about? Talented labor is not available and if you find some it ain”t cheap. The biggest complaint of every business (large and small) is that there is not enough talented labor. And I assume we are both talking about SKILLED labor. You are way off base with that statement.
    Your other questionable point is about ATT. The new IPHONE 4s is sold out and back ordered everywhere. Why should ATT (or anybody) discount a device so much in demand? It is obvious you have a problem with ATT but there reasonable decision not to give you a deal on the new IPHONE makes sense to me. While you tell readers to avoid ATT stock with its high 6% dividend you continue to recommend NLY and AGNC with its silly dividend which will certainly get cut again.

  3. RonaldReagan says:

    Harry,  Tell Michael that colleges offer degrees in computer science or computer engineering.  He'd get plenty of software exposure in either of those curriculums.  I'm sure he would also enjoy the associated math courses such as calculus l, calculus ll, calculus lll, differential equations and linear algebra along with some electrical and mechanical engineering and physics  courses (labs too!).  Oh what fun it would be for a genius like Michael.  Then don't forget to tell him that the guy who drank and partied his way through college getting a degree in finance, business or economics will end up being his boss and making 50 times more money than he will.  Tell him to go for it, I even herd Obama say that the U.S. needs to graduate more engineers.

  4. Glenn says:

    That is funny, I was talking to my wife yesterday how kids need to get into computer programming, I wish that I had.  Gone are the years of becoming a lawyer and doctor.  The issue with computer programming is that it can be outsourced so not sure where college grads will find work…

    • HarryNewton says:

      The idea is not to seek work as a computer programmer, but to use your software-writing skills to enhance your job — as a lawyer, doctor, engineer, businessman, etc.

      • Fderfler says:

        Certainly… I agree with that.  But, “programming” might be a little too broad a term.  Mostly, it's just coding.  Learning HTML is probably the first and best skill set.  THEN, when you run into a specific need, you'll probably have to learn some evolved proprietary “descriptive language” intrinsic in the program.  (e.g. “programming” a router).  Becoming a C++ hound is probably more than Michael meant.   Today, you can always use HTML.

        • Stephen Sparrow says:

          Programing would be useful, but I wish I had learned to touch type! I can only imagine what it's like to bang out 100 words per minute!

          Oh, and just my 2c…Why do they still force calculus on poor unsuspecting students. My business partner is one of the most talented engineers I have ever met, and can design anything from a tower crane to a table, but has never used calculus ONCE in his 35 year career. Maybe we'd have more engineers if 15 year olds didn't have to face it.

      • Michael Newton says:

        To reiterate my Dad's clarification, it is not about teaching your kids programming so they CAN BE programmers. It is that any executive / entrepreneur / politician / artist, etc. will all be better served to know how to seriously program. It expands their skill set and makes them super capable because they can go build whatever they need for their jobs as well as correctly oversee the programmers who will work for them and make their business fly. Jack Dorsey of Twitter and Square fame is the best example. He got there because his programming skills differentiate him and give him the ability to make great products quickly. Overall, programming provides freedom, flexibility and control. I wouldn't trade my MBA away for it but I'd love to be a solid programmer on top of it. That would be a dangerous combination.

        • Rgrigonis says:

          Programming is always allied with mathematics in most people's minds (since early computers were built and used by mathematicians) but in fact computer programming is a linguistic endeavor — you're giving a machine its orders using a formal language, the syntax of which follows a Type-2 grammar (context-free grammar) on the Chomsky hierarchy. Most programming departments have been shut down in this country (the work has been outsourced to cheaper programmers in places like India, etc.) and those few computer science departments remaining in this country are staffed and attended by foreigners. I am a naturally-talented programmer (did contract multimedia stuff for Bell Labs back in the early 1990s), but have never really made a living off of it. As Michael says, however, it does impose critical thinking and gives people the ability to investigate ideas on their own.