The report said that a $5.4 billion portion of the $10.5 billion owed by Chrysler is “highly unlikely” to be repaid, while full recovery of the $50 billion sunk into GM would require the company’s stock to reach unprecedented heights.

via U.S. ‘Unlikely’ to Recoup Auto Outlay, Panel Finds – washingtonpost.com.

Like…DUH! I said this back as soon as it happened.  Obama said he would get a 19,000%+ return on his funds (in five years).  As an expert investor myself who knows how to get above average returns I knew that Obama was lying through his teeth and called him on it here.  Foolishness and more foolishness from those that believed the auto bailout was a good thing!  I wonder how much more money will be sunk here when GM is unable to recover even from with the $50 billion?  It’s no surprise when the government spends money usually bad things happen.

The president has committed $100 billion in new money to the nation’s public school systems, and required that states accepting the funds promise not to reduce their own k-12 spending. The official argument for this measure is that higher school spending will accelerate U.S. economic growth. But a July 2008 study in the Journal of Policy Sciences finds that, to the authors’ own surprise, higher spending on public schooling is associated with lower subsequent economic growth. Spending more on public schools hurts the U.S. economy.

Ouch! Pretty painful stuff there.  It seems it’s not all about school but more about achievement (something our schooling systems are doing less and less of). Read it all here!  Obama has to be the biggest pork barrel spending, lobby loving, irresonsible, wasteful spender of all time!

Could it possibly be that those behind the current individuals in power are operating under “a doctrine of post-sovereign globalism in which America is seen as owing its principal allegiance to the international legal order rather than to our own Constitution and national interests”? According to the National Review Online that is exactly what is going on here.

Recall that the president chose to install former Yale Law School dean Harold Koh as his State Department’s legal adviser. Koh is the country’s leading proponent of transnationalism. He is now a major player in the administration’s deliberations over international law and cooperation. Naturally, membership in the International Criminal Court, which the United States has resisted joining, is high on Koh’s agenda. The ICC claims worldwide jurisdiction, even over nations that do not ratify its enabling treaty, notwithstanding that sovereign consent to jurisdiction is a bedrock principle of international law.

As the Republic draws to an end over the coming decades so does the sovereignty of our nation as the progressives push our Constitution aside for more international concerns.   The moral relativism of today slowly eats away at the freedom and justice of tomorrow in barely perceptable ways.   Tomorrow perhaps Rumsfeld and Bush can’t travel outside the country for fear of arrest.  The next day our soldiers returning from the battlefield are arrested by the a U.N. police force stationed in America.   Will it take 100 years, 50, or 20? Only time will tell.

Personally I fear it may be worse then sluggish.

Not only are there issues with “failing” banks some of which like AIG that should have already failed but weren’t allowed to and still need to fail (only now fail with taxpayer dollars). There is this issue regarding the commercial retail market that is in the midst of serious deterioration. And also there is the bubble in treasuries which Buffet has been warning about created by our government. Then on top of that there is the mortgage backed securities market which is up over 40% while at the same time defaults are approaching 10%. This is a government created bubble still being pushed by Frannie and Freddie.

Add to this “sluggish” economic recovery a monstrous health care spending and taxes coupled with energy taxes and control under the guises of health care reform and cap-n-trade and “our economy being sluggish” may be quite an understated.

Occam’s Razor and the current state of venture

I have made many posts in the past about focus and doing more with less, and as I continued on this path it reminded me of Occam’s Razor, the idea that the simplest explanation to any problem is the best explanation.  Of course Occam’s Razor can get more complex but over the years it has been associated with the idea that “less is more.”  And when I apply this philosophy to the current state of venture, I can see many applications of this theory.

From a VC fund perspective, there has been much discussion about how venture funds have become too large to deliver outsized returns.  First with the lack of an IPO market it is much harder to generate $1.5b for investors on a $500mm fund then it is to deliver $300mm on a $100mm fund.  Secondly having too large a pool forces VCs to invest much larger amounts of capital into companies pushing up valuations and also exit hurdles for success.  Finally, as I have written in the past, I have learned firsthand the problem of giving companies too much money too early.  It can lead to a growth at all costs mentality, a lack of focus which means chasing too many opportunities at once, and a lax attitude on how to generate revenue. Enter Occam’s Razor as it seems that the new trend is for smaller groups of GPs to form smaller funds to be able to invest in earlier stage companies.  With the new operating model of capital efficiency, a little amount of money can go a long way and help VCs generate excellent returns at much lower valuations.  Having a smaller fund allows VCs to write smaller checks and take advantage of the current market.

From an entrepreneur’s perspective, Occam’s Razor can be applied to many different avenues. As we all know, a great entrepreneur must be able to effectively allocate his scarce resources of time and money to fulfill a market need.  The longer it takes to develop a product that the market wants means that it will cost more money and that it also opens the door for a competitor to step in before you.  If you look at the current Internet and SAAS market, the idea of “release early and release often” certainly fulfills the Occam vision.  Rather than spend cycles creating the perfect product with every bell and whistle, many nimble startups have focused on a more reductionist theory of releasing an often simpler product quickly with the idea of getting market feedback for the next iteration. 

Occam’s Razor also applies to how an entrepreneur should operate his business.  Don’t pursue too many markets at once, focus on what is delivering the most return for the dollars invested, and hire people and scale your business when you absolutely have a repeatable revenue model.  I have been burned like many others by aggressively building out a sales team too early without a repeatable sales model.  In addition, from a sales and marketing perspective, we have seen a movement to more of a frictionless sales model where there is less hands-on interaction with customers selling and delivering a product.  This would include customers being able to go online and sign up for free trials or download software versus having an expensive direct sales force sell million dollar licenses and one month of professional services to install a product.  Finally and most importantly, the idea of less is more certainly applies to raising capital. With the rise of open source software and cloud computing, companies can now get started with less dollars and scale more cheaply and efficiently than before.  As all entrepreneurs know, raising less capital means retaining more ownership.

In summary, it is becoming increasingly clear that Occam’s Razor and the idea of less is more will continue to spread as the cost of technology continues to decrease, as entrepreneurs get even more efficient in building businesses, and as a non-existent IPO market and the factors above lead more VCs to create smaller more nimble funds to capitalize on the new market realities.

via BeyondVC: Occam’s Razor and the current state of venture.

Last month, many banks reported strong earnings. Market sentiment has changed substantially. Only a few months ago, the collapse of the whole US banking industry threatened to bring the whole global economy down. Now, suddenly, the picture looks rosier than ever and this financial crisis seems to be over. Or is it?

With very limited transparency of bank earnings, there are several so-called earnings areas investors should question whether they are sustainable, and a few other areas investors should ask whether they are even real. They are as follows:

1) The sudden increase of financing activities on residential mortgages. Thanks to the historically low mortgage rates at Q1, some home owners have been refinancing their mortgages, resulting in both spread and fees contributing to bank’s earnings. This trend could spill into Q2, but unlikely further. About one out of 5 home owners in this country are under water, meaning their home value falling below their mortgages, which in turn means they are unable to refinance. I also believe real estate has another three years to fall, until 2012, at the national basis (see my previous article “The Real Estate Apocalypse” here), further discouraging any new home buying and sending more home owners under water. I expect this part of the bank earnings is temporary and short-lived.

2) Bank analyst, Michael Mayo said last month, “Mortgage-related losses are about halfway to their peak, while credit-card and consumer losses are only a third of the way to their expected highest levels. While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class”. He also estimated for the whole US banking industry, the total bad loans could be at the range of $7 – $11 trillion, or 3.5 – 5.5% of all loans, worse than the 3.4% peak at the great depression. We have written off only about 2% so far, about the 4th inning of a 9 inning game. There will still be a very long and dark night ahead. Same as real estate, I believe it won’t be until 2012 that banks would be getting close to the end of the asset write-off process.

3) Banks postponing charges to earnings for their loan and credit losses. Write-off due to their loan and credit losses by banks is a very discretionary, arbitrary and dedicated process. Most importantly, it is a delayed process. When rates fall, their portfolio rise in value immediately which they reflect in their Q1 financial statement, but they delay to mark down the value of the credit losses until they can’t hide them anymore. They realize if they really reflect the real and true losses, their equities, including the huge investment by US government bailout money, will show up as a negative number. In other words, all the taxpayers’ money disappears from this money pit of the banking industr

via Safe Haven | How Much of Banks’ Earnings Are Real?.

 

• How is Goldman influencing US Policy?
• Why is Goldman allowed to play fuzzy math in the financial statements?
• Is Goldman manupulating the stock market?
• How is Goldman working to silence dissent?
• Has Goldman been scanning the system?
• Has Goldman been honest?

As an aside I’m not so sure whether it’s Goldman influencing US policy or US policy influencing Goldman.  These executives are in the pockets of politicians for sure.  And either way you look at it it’s not good for us the citizens.