_______________________________________________
- THE FRIDAY LETTER -
(emailed weekly,
from Gilder Publishing,
for friends and subscribers)
_______________________________________________
| http://www.gilder.com/ | Issue 350.0/August 8,
2008
SIGN-UP A FRIEND FOR FREE!
HEADLINES:
- The Week / The Case For Muddling Through
- Friday Feature / Lincoln and
Discoveries, Inventions & Improvements
- Friday Blogger Bonus / The Comeback
of Tech Banker Frank Quattrone
- Readings /
The
Week / The Case For Muddling
Through
Rich Karlgaard, Forbes.com “Digital Rules” (08/06/08):
im Michaels hated wishy-washy conclusions to Forbes stories. The late,
great editor of Forbes magazine called it “palm journalism” … on the
one hand this, on the other hand that. Such mushy stories lacked the courage of
conviction.
I can hear Jim’s scornful voice as I type these words, but I think America is
in a muddle-through economy right now. Sure, it would be more courageous to
stand back and pronounce: (1) financial Armageddon, widespread bank collapses,
economic depression and a further 20% drop in house prices and stocks; or (2) a
quick rebound to 3% growth fueled by $80 oil, $3 gas, strengthening house
prices, bankers who actually lent money and the widespread confidence instilled
by upside earnings surprises and a 14,000 Dow.
One could make the case for either extreme. But then one runs up
against the facts of the economy, which are conflicted and clouded:
Downside case
1. It’s a recession, duh! The last several quarters of gross domestic product
have failed to reflect the depth of the slowdown because the Commerce
Department has deliberately understated inflation.
2. As the recession lingers, unemployment will creep up.
3. More home owners will default. The spiraling effect will send house prices
down a further 10% to 20%.
4. As bankers watch events unravel, their arms will shrink and loans will cease.
This will hit small businesses hard. It already has, but things will get worse
before they get better. Creditworthy buyers of distressed properties also will
be unable to get loans. Thus, the market will be prevented from finding a firm
bottom.
5. Barack Obama will win the presidency, and his coattails will bring a
Democratic Senate majority of 56 votes. Taxes on dividends and capital gains
will double from 15% to 30%. Payroll taxes will go up. The combined marginal
tax rate for America’s small-business owners will go to 60%-plus. Consequently,
the people who create 70% of America’s new jobs will cease to create new jobs.
Upside case
1. It’s not a recession, as much as the media want you to believe otherwise.
The second-quarter GDP will be revised upward.
2. Unemployment, at 5.7%, is nowhere near recessionary levels. It is actually
near the post-World War II average.
3. Home prices are firming up. Nationally, the rate of decline has slowed. In
some regions, prices are on the rise.
4. Bank of America, which absorbed Countrywide Financial, the poster child of
bad paper, has seen its stock go up 80% in three weeks. This amazing rebound
demonstrates the underlying resilience of most American financial institutions.
5. The stock market has already discounted the likelihood of cap gains and
dividend taxes going up to 20%. Beyond that, the market doesn’t much care
whether Obama or McCain becomes the next president.
This is palm journalism at its worst, I must admit. I can hear Jim Michaels
saying, "Call it one way or the other, wimp!"
OK. Here’s the call. We’re going to muddle through. Sorry, Jim, but now I must
look to Ben Bernanke. On Tuesday the Federal Reserve decided to leave the
federal funds rate alone. Let’s call it “palm monetary policy.” One the one
hand, the Fed finally sees inflation as a greater threat than recession.
Yippee! On the other hand, it is not clear yet that the Fed is really
serious about fighting inflation. Boo!
Sorry, Jim!
Check our Rich’s “Digital Rules” blog:
http://blogs.forbes.com/digitalrules/2008/08/the-case-for-mu.html
|
The Gilder Telecosm Forum To
learn how to join this powerful network of talented, tech-savvy investors and
thinkers online daily to debate, discuss, and decode new and emerging
technologies and share valuable and actionable investment advice, visit www.Gildertech.com today. |
Friday Feature / Lincoln and Discoveries, Inventions & Improvements
Josh
Wolfe, Forbes/Wolfe “Emerging Tech” blog (08/04/08): The fuel of
interest to the fire of genius: Last week, July 31 marked a special
anniversary: a new nation had issued its first patent. The nation was ours and
the year 1790.
As Lincoln said bringing a speech about technology and entrepreneurs (without
using either words) in 1858: "Next came the Patent laws. These began in
England in 1624; and, in this country, with the adoption of our constitution.
Before then, any man might instantly use what another had invented; so that the
inventor had no special advantage from his own invention. The patent system
changed this; secured to the inventor, for a limited time, the exclusive use of
his invention; and thereby added the fuel of interest to the fire of genius, in
the discovery and production of new and useful things."
Now consider this excerpt from a speech Lincoln gave—pasted beneath—on
discoveries, inventions and improvements, in what the New York Times dubbed
"Lincoln Keeping Up With the Geeks":
"…The great difference between Young America and Old Fogy, is the result
of Discoveries, Inventions, and Improvements. These, in turn, are the result of
observation, reflection and experiment. For instance, it is quite certain that
ever since water has been boiled in covered vessels, men have seen the lids of
the vessels rise and fall a little, with a sort of fluttering motion, by force
of the steam; but so long as this was not specially observed, and reflected and
experimented upon, it came to nothing. At length however, after many thousand
years, some man observes this long-known effect of hot water lifting a pot-lid,
and begins a train of reflection upon it. He says "Why, to be sure, the
force that lifts the pot-lid, will lift any thing else, which is no heavier
than the pot-lid." "And, as man has much hard lifting to do, can not
this hot-water power be made to help him?" He has become a little excited
on the subject, and he fancies he hears a voice answering "Try me" He
does try it; and the observation, reflection, and trial gives to the world the
control of that tremendous, and now well known agent, called steam-power. This
is not the actual history in detail, but the general principle."
Now read the full version edited down
for relative brevity. Check out Josh’s “Emerging Tech” blog: http://www.forbeswolfe.com/
__________________________________________
Friday Blogger Bonus / The Comeback of Tech Banker Frank Quattrone
Edward Robinson, Bloomberg
News: On a cloudless day in May,
schoolchildren jam the Tech Museum of Innovation, a tangerine-colored structure
in San Jose, California, that showcases the computer revolution. Fifth-grade
girls in the Net Planet exhibit test their technology savvy on a flat-panel
display. "Who invented the World Wide Web?" it asks, listing five
names.
"Bill Gates!" the
three shout in unison.
The correct answer is British
computer scientist Tim Berners-Lee. Yet if the quiz were to ask who turned the
Web into a byword for unprecedented wealth and, ultimately, scandal, then the
answer would have to be the Tech Museum's biggest booster and chairman: Frank
Quattrone.
No other investment banker
did more to enrich Silicon Valley with hot initial public offerings in the
1990s. And no one came to symbolize dot-com excesses more than Quattrone.
A South Philadelphia native
armed with a master of business administration from Stanford University,
Quattrone ran Credit Suisse First Boston Corp.'s technology banking group from
1998 to 2003. That year, he faced a double-barreled legal salvo.
In March, the National
Association of Securities Dealers filed a complaint accusing him of giving out
IPO shares to favored executives to win investment banking business. In April,
federal prosecutors charged him with obstructing justice.
He was convicted in the
obstruction case in 2004 and sentenced to 18 months in prison. Two years later,
he won his appeal, authorities dropped both cases and he avoided jail.
"He became the poster
boy for the bubble," says Richard Kramlich, co-founder of New Enterprise
Associates, a Menlo Park, Calif.-based venture capital firm.
'Frank's vindication'
Now, after plummeting from
the pinnacle of West Coast investment banking and clawing back to beat federal
prosecutors, Quattrone, 52, is out to reclaim his professional life. On March
18, he unveiled his new firm, San Francisco-based Qatalyst Group, which plans
to advise companies on acquisitions and raising capital, underwrite equity
offerings and invest in deals alongside venture capitalists and buyout firms.
"This is about Frank's
vindication," says a former CSFB banker who has spoken with him about
Qatalyst's prospects. "He fell about as far as you can, and he wants to
prove to the world that he's not only innocent but that he's back."
At a time when Wall Street is
reeling from another round of financial scandals, Quattrone's career shows how
a driven man from humble origins won glory and riches with the right mix of
brains and ambition. Yet, at the top of his game amid the greatest bull market
in history, he blew through barriers designed to protect investors from
conflicts of interest, according to the 2003 NASD complaint.
"He was the smartest
banker I ever knew; he could make companies golden," says Andy Kessler, an
analyst who worked with Quattrone at Morgan Stanley in the 1980s and went on to
run Palo Alto, California-based hedge fund firm Velocity Capital Management
LLC. "But he controlled all aspects of the equity issuance business - and
this is where he ran into trouble."
The saga of Quattrone's
unprecedented clout - and his public downfall - is a reminder that eight years
after the dot-com collapse, Wall Street has yet to heed past lessons. During
the tech boom, Quattrone and other bankers took companies public that had no
profit, often using hyped-up research to make a market in the shares, according
to the NASD, which is now part of the Financial Industry Regulatory Authority,
an agency that oversees securities firms and professionals.
Investors were burned as more
than $5 trillion vaporized on the Nasdaq Composite Index from March 2000 to
October 2002. Today, amid the mortgage meltdown, $3.5 trillion in home-owner
equity has evaporated since the spring of 2006 and the housing market is in its
worst slump since the Great Depression.
Just as authorities sought to
force Quattrone to answer for alleged misdeeds, they're making arrests in the
mortgage mess. On June 19, a federal grand jury in Brooklyn, N.Y., indicted
Ralph Cioffi and Matthew Tannin, former Bear Stearns Cos. hedge fund managers
who made leveraged bets on collateralized-debt obligations backed by subprime
loans. Beginning in March 2007, Cioffi, 52, and Tannin, 46, allegedly deceived
clients by urging them to invest more while the funds were collapsing. Cioffi
and Tannin pleaded not guilty.
Once again, otherwise savvy
bankers left a paper trail of e- mails that prosecutors seized on. This time,
the electronic correspondence bemoaned the deterioration of funds the bankers
were touting, according to the indictment.
Read on: http://www.palmbeachpost.com/business/content/business/epaper/2008/08/03/sunbiz_quattrone_0803.html
__________________________________________
Readings
/
Nokia Optimistic On China Handset Market
http://online.wsj.com/article/SB121812598091721041.html?mod=2_1571_topbox
Rise of Open Source at LinuxWorld
http://www.wired.com/gadgets/miscellaneous/multimedia/2008/08/gallery_linux_expo
Vonage Narrows Loss, But
Turnover Remains High
http://online.wsj.com/article/SB121814662502922101.html?mod=2_1571_leftbox
Lenovo Profit Leaps on Growth in China
http://online.wsj.com/article/SB121813442675721279.html?mod=2_1571_leftbox
Shape Matters for Nanoparticles
http://www.technologyreview.com/Nanotech/21181/?a=f
Google
believes $1B investment in AOL is crumbling
http://www.boston.com/business/technology/articles/2008/08/07/google_believes_1b_investment_in_aol_is_crumbling/
__________________________________________
Friday Letter Editor: Mary Collins George / mcollins@gilder.com
ADVERTISING INFORMATION
The Friday Letter is mailed each week to more than 40,000-plus
subscribers and friends of Gilder Publishing, including industry leaders,
financial professionals and individual investors. For information about
advertising, contact Lauren Klopacs at lklopacs@forbes.com.
PLEASE NOTE: The appearance of an advertisement in the Friday Letter
does not indicate an endorsement for the product and/or service by George
Gilder, Gilder Publishing LLC, or the Friday Letter staff.
FEEDBACK AND PROBLEMS
For technical problems, or to send letters to the editor, please
e-mail info@gilder.com.
MAILING ADDRESS
Gilder Publishing, LLC
ATTN: Friday Letter
291A Main Street
Great Barrington, MA 01230
_______________________________________________
The Friday Letter is published weekly for subscribers and
friends of Gilder Publishing. If someone you know would enjoy it, please feel
free to forward a copy.
Gilder Publishing makes the Friday Letter available for free. To
help defray some of the costs of producing this information on a weekly basis,
we will from time to time be sending you offers from companies we think you'll
be interested in. These offers will not come more than once a week. If you do
not wish to receive this related information, please opt out of this process at
the link below and we will not share your name with companies outside of Gilder
Publishing.
To SUBSCRIBE please visit http://www.gilder.com/
To UNSUBSCRIBE please go to http://www.gilder.com/fridayletter/unsubscribe.php
Trouble subscribing or unsubscribing?
Email info@gilder.com
http://www.gilder.com/unsubscribe/specialproducts.php
To SUBSCRIBE please visit http://www.gilder.com/
To UNSUBSCRIBE please go to http://www.gilder.com/fridayletter/unsubscribe.php
Trouble subscribing or unsubscribing?
Email info@gilder.com
_______________________________________________
Copyright 2008 Gilder Publishing LLC