I’ve read a lot of articles about the financial meltdown in the United States and elsewhere, about the credit collapse and the rise of systemic risk, etc. — but few of them have contained a paragraph that is as telling as the one below, which is from a New York Times front-page feature on the crisis and its origins, and how the damage has spread:
On a snowy day two years ago, the school board in Whitefish Bay, Wis., gathered to discuss a looming problem: how to plug a gaping hole in the teachersâ€™ retirement plan.
It turned to David W. Noack, a trusted local investment banker, who proposed that the district borrow from overseas and use the money for a complex investment that offered big profits.
â€œEvery three months youâ€™re going to get a payment,â€ he promised, according to a tape of the meeting. But would it be risky? â€œThere would need to be 15 Enronsâ€ for the district to lose money, he said.
The board and four other nearby districts ultimately invested $200 million in the deal, most of it borrowed from an Irish bank.
How on earth did we get to a point where a school board in small-town Wisconsin comes to the conclusion that in order to bolster its retirement plan, it should borrow tens of millions of dollars from an Irish (but really German) bank and then invest it in a complex, hedge-fund style investment? In what kind of world does that sound like a sensible thing to do?
This may seem like an odd time to be launching something related to stock-trading, but when you think about it, the kind of turmoil we’ve seen lately — with indexes plummeting by thousands of points, only to rebound again the next day — is the perfect environment for some traders. All you have to do, of course, is pick the right spot to get in and out. Will the newly launched StockTwits.com help you do that? I honestly have no idea. But it couldn’t be any worse than listening to some of the “professional” investors and money managers who got us into this mess.
StockTwits comes from the occasionally fevered brain of my friend Howard Lindzon, a Toronto and Arizona-based venture capitalist who was also instrumental in creating the stock video show Wallstrip. While many people continue to be puzzled by the purpose of Twitter, a small but growing group of traders and analysts like Howard and his partner Soren Macbeth have turned it into a kind of instant-messaging version of the banter that goes on between traders: stock symbols, news tips, rumour and innuendo — all laced with a hefty helping of profanities and off-colour jokes.
If that’s your cup of tea, then I encourage you to sign up with StockTwits.com and start following — and even debating with — Howard, Soren and some other smart people like @wood83, @infoarbitrage, @gregormacdonald and @pkedrosky.
It’s nice that the smart folks at Sequoia Capital are ringing the “good times are over” bell for their portfolio companies, as my friend Om Malik is reporting on his blog (other venture capitalists are sounding a similar warning, says Mike Arrington). My only question would be: Why the hell did they wait until now? The meltdown of the banking sector and the collapse of global credit markets is undoubtedly worse than many people (including me) expected, but it’s not as though it was a lightning stroke out of a clear blue sky. The U.S. has likely been in a recession for most of the past year, if not longer, and plenty of people have noticed. What were Sequoia’s portfolio companies doing up until now?
Seriously, though — isn’t it a little late (not to mention ironic) to be telling companies that they should cut their burn rate, refocus, etc.? They arguably should have been doing all of those things for the past six months, if not longer. Venture capitalist and entrepreneur Howard Lindzon has a good take on things on his blog, where he says the savvy players have already become as small and nimble as they can, and are preparing to look for opportunities. “Too Small to Fail” is Howard’s new motto. Silicon Valley’s venture firms may be just coming to that realization, but by the time you get one of those letters from Ron Conway, it’s probably too late. If you’re a Canadian startup and are feeling nervous, Jevon has some good advice worth reading.
Om has posted more details on the Sequoia meeting, with comments from several of the senior partners, including Mike Moritz and Eric Upin.
I don’t write about the stock market much any more — mostly because I wrote about it every day for about 15 years and kind of got sick of it, to tell you the honest truth — but today was one of those days where it’s hard to pay attention to anything else. Like many people, I spent much of the day hitting the refresh button on my browser to see how low the Dow and the Toronto stock indexes were going to go. I never imagined that some day I would watch the TSX come within a hair of a 1,000-point drop in a single day, or the Dow plummet more than 750 points.
On days like today, it’s tempting to use terms like “bloodbath” and “catastrophe,” and all those muscular-sounding adjectives that headline writers use to really pump up the hype, and plenty of media outlets were doing just that. Others were trumpeting the fact that this was the biggest-ever drop on the Dow and other indexes — but of course, that only applies if you’re looking at the number of points that they fell. If you look at it in terms of the market’s percentage decline, then it was definitely a bad day, but a long way from the worst ever. In 1987, the Dow fell by more than 23 per cent, while yesterday it fell by less than 7 per cent.
The micro-cap, sub-angel type of financing practiced by Paul Graham’s Y Combinator isn’t for everyone, and there are some who believe that it’s virtually impossible to do successfully — but Y Comb seems to be pulling it off regardless. I have no idea how much they put into Omnisio, but to sell it to Google for a rumoured $15-million in cash about four months after it launched has to be some kind of record (and becomes the latest in what is a surprisingly large list of Google acquisitions). Congrats to them and the three Aussies who started the video-annotation tool.
Chris Sacca, former Google head of Special Initiatives turned angel investor, has some thoughts about his investment in Omnisio (hat tip to MG Siegler at VentureBeat for that link), and Rashmi Sinha of Slideshare has some thoughts about the deal as well.