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Archive for December, 2008

In the fine print of a  jobs report published today is some mixed news for Silicon Valley.
For the first time in this downturn, the region lost jobs; it has 4,000 fewer jobs than it did a year ago at this time, and its unemployment rate is 7 percent, according to the Center for the Continuing Study of the California Economy, which analyzed the California Bureau of Labor jobs data.

That rate compares favorably to California over all, which has an 8.4 percent unemployment rate, the research firm reported.  “California is following the nation into the longest and deepest national recession since the 1980s and, possibly, since the Great Depression,” writes Steve Levy, the firm’s research director.

As for Silicon Valley, he asserts the fundamental economic strengths of the region put it in a relatively good position, but a vulnerable one nonetheless. “Silicon Valley will enter the recession from a stronger position and be in a stronger position when the recession ends BUT the next 12 months will bring recession to the Valley — more job losses and rising unemployment,” he wrote in an e-mail message.

At this point, that sounds like a far cry from the technology-centric implosion of 2000 when unemployment hit 9.2 percent. Perhaps, even, the valley will benefit from stimulus and infrastructure spending by an Obama administration that favors the green technology that Silicon Valley’s venture investors — and big compa nies too — have banked on heavily.

Meantime, company executives and workers here say this downturn feels different from the dot-com bust. Then, the downturn felt more specific to the region. Not just tech companies, but commercial and residential real estate brokers, restaurant owners, hairdressers — everyone in the region — felt the pain of the bust, directly or indirectly. As one tech industry worker told me the other day, “When the bubble burst in 2000, it felt very personal to those working in the Web world.”

This time is less scary for some here because the pain is less concentrated and localized. On the other hand, there is a sense that this downturn has less of a simple explanation, and thus the factors behind it fell more out of control. The person I spoke to, a manager at a Web design firm, said: “It’s different because it’s everyone.”

By Matt Richtel

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When i was growing up in New York City, during the holiday season of Hanukah and Christmas, we always used to watch the Bob Hope specials. They were entertaining, funny, poignant, but most of all they focused on the “Troops”.

Let us not forget the lessons of history. This nation was founded, grew and maintains our freedoms of democracy today on the courage, selflessness, blood and guts of young men and woman.

On this holiday season, if you see a serviceman or servicewoman, go over to them and say “Thank You”.

In June of 1968, while I was completing basic training, a couple came over to me, handed me a $ 20 bill and said “thank you for your service and go out and enjoy yourself”. Well a $ 20 bill is not what it used to be, but I will never forget that thoughtfullness.

So, on this Holiday Season, acknowledge our military personnel. You will feel better as an American and a person.

May your families be healthy, be safe and enjoy.

Steve Gerbsman

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Sales of video game software grew far less rapidly in November than they did in October, according to a report published Thursday by the NPD Group, a market research firm.

The data suggests that the video game market, which industry executives and analysts have characterized as relatively recession-proof, is feeling the pinch of consumer caution.

For the month of November, software sales in the United States were $1.45 billion, up 11 percent from the same month a year earlier. But that growth rate is down sharply from October, when sales were up 35 percent over a year ago.

More broadly, sales in the video game market over all — which includes software, hardware and accessories — rose 10 percent in November as compared with a year ago. In October, the increase was 18 percent.

Click here to read the full article at NY Times.com

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We also say “thank you” to our clients, advisors, business partners and all the people the team has been involved with. Gerbsman Partners’ goals have been and always will be, to “Earn the Trust and Confidence” of our clients, and to maintain the highest standards of “Ethics and Integrity”.

As we enter this New Year, we are living in challenging times that our generation has not seen before. The economy, jobs, financial concerns, the security of our nation and the concern regarding the health care system support for our families. However, we look to the New Year with “Hope for the Future” and with the belief that the heritage of our nation and its leaders will continue to demonstrate the values of life, liberty and the pursuit of goodness.

Please accept our appreciation for your past support, confidence and continued trust. May 2009 be a successful, stable and profitable year for you and more importantly, provide a gateway and foundation to a bright and prosperous future.

May you and your family be healthy, stay safe and enjoy.

Best Regards,

Steven R. Gerbsman
Principal, Gerbsman Partners

Gerbsman Partners
211 Laurel Grove Avenue, Kentfield, CA 94904
Phone: +1.415.456.0628, Fax: +1.415.459.2278
Email: Steve@GerbsmanPartners.com
Web: www.gerbsmanpartners.com
BLOG of Intellectual Capital: www.boic.wordpress.com

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During the dot-com bust, as the online advertising market dried up and the Web companies that had been buying most of the ad space went bankrupt, the people who start and fund companies in Silicon Valley began questioning whether Web sites could survive on advertising alone.

That moment of doubt didn’t last. The ad market revived and free Web services blossomed. But now, as advertising shrinks once again, entrepreneurs and venture capitalists are desperately seeking new sources of revenue.

Does this mean the advertising model is no longer a viable one for new Web start-ups?

Advertising requires an audience, and that takes a few years to build. Web start-ups struggle with the question of whether to sacrifice revenue for several years, build a huge audience and then sell them ads, as YouTube did, or find an alternative revenue stream that will bring in money from Day One.

The venture capitalists that back those start-ups have different philosophies, but as a group they have grown much more cautious about backing companies that have no immediate way to bring in some revenue.

Roger Lee, a general partner at Battery Ventures, said he looks for Web companies with multiple revenue streams. Even if some of a site’s services are free, most of the start-ups in his portfolio also have subscription products, premium services or an e-commerce element.

Read the full article here

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Here is an excellent article from Andrew at Mixergy.com

Guy Kawasaki, the investor, entrepreneur and best selling author, just wrote a new book called Reality Check. The book is a collection of practical ideas for building a successful business. With the book in mind, I asked him for a few reality checks for Mashable readers. Here are seven:

Reality Check #1: Do one thing well

If your startup tries to do too much, you’ll lose. Guy told me, “I meet companies every day who say, ‘well we’re software services, and we’re also consulting. And we are a social networking site, but we also do white labeling in case you want to use our technology to do your own social network.’ And you know what, it’s hard to do any one of those things, try doing four.”

Reality Check #2: Court your thunder lizards

Quit pretending that you’re smarter than your community. Find ways to act on the energy of your “thunder lizards,” Guy’s term for your most passionate community members. Guy does that at Alltop, his RSS aggregation site.

“There are some people who not only suggest topics for Alltop, they send us their OPML files with all the feeds that should be in those topics. All we had to do there is have an open mind to having other people contribute to the community and to the quality of Alltop. But many, many companies will refuse that help. They’ll say, ‘NO. We know better.’”

Reality Check #3: Be crappy

Stop working on making your product perfectly perfect before you launch it. “You need to ship something that’s truly different and valuable and all that, but version 1 doesn’t have to be perfect,” says Guy. “Version 1 of Alltop had only 12 topics. We didn’t exactly have critical mass. If we had waited till we had 500, we’d still be waiting today. Once you have an idea…you ship it and then you test as you go.”

Reality Check #4: Learn to steal

You don’t have to invent your best business ideas. Guy has said many times that he created Alltop by copying popurls, an aggregations site that focused on a narrow set of subjects.

“Popurls was sending Truemors [a site Guy launched previously] so much traffic. And so we looked at what the hell is this popurls thing sending us as much traffic as Google. And then I got to know the creator of popurls and I asked him if he was going to do anything besides tech and business. And he said, ‘no.’ So I said, alright, I’m going to do them all.”

Reality Check #5: Hire “blindly”

Without realizing it, employers bring biases into job interviews. To hire smarter, Guy suggests doing your interviews over the phone–without seeing applicants. ”When you do things in person,” he said, “because of the person’s physical nature–attractive/unattractive, sloppy/not sloppy, fashionable/not fashionable–you make these judgment and it changes the interview. Where if you didn’t see the person and didn’t know what he/she looked like or smelled like or dressed like, I think it’s a much more objective interview.”

Reality Check #6: Just build it already

This is a tough market for raising money. Before you waste your time trying to raise money, work on building your product. “I think now, you truly have to show up with a prototype and even better a working site,” he told me. “You can no longer say, ‘give me a few million bucks and trust me I’ll build it.’ Now you have to show up with something that’s done.” After doing that, you might find that you don’t even need investors’ money.

Reality Check #7: Be honest

How’s this for openness? I asked Guy about his crowning achievement as a venture capital investor. “I don’t have a crowning touch,” he told me. “I believe I am still not proven as a VC. … I haven’t picked a Google, Yahoo, Apple or Cisco. I want to, but I haven’t.”

Have you heard another VC admit that? I haven’t. But it’s the kind of openness that helped Guy’s readers trust his honesty.

Now it’s your turn to hit us with a reality check. What do you think startups need to know about building companies in this environment?

More on this article, visit Mashable here

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By David Rosenberg, North American Economist, Merrill Lynch

1) Expect the worst recession in the post-WWII era
First, this is going to be the worst recession in the post-World War II era, in our view. The ECRI leading indicator hit a record low for the fifth week in a row ˆ down to – 29.2 as of the November 21st week versus -28.2 the week before. This index, which leads real GDP by two quarters with a 70% historical correlation, is getting further and further away from the prior all-time low of -19.8 that defined the worst recession of the post-WWII era and saw a six-quarter consumer recession coincide with a 45% peak-to-trough decline in the stock market. Perhaps the fact that this bear market is proving to be even more severe is symptomatic of an economic downturn that will also prove to be deeper and more prolonged. After the flurry of data released just before Thanksgiving, we are now tracking close to a 4.5% QoQ annualized fall in real GDP in 4Q. This would be the largest pullback since the 1982 recession, and we see a similar contraction in the first quarter of 2009.

2) Capex is in a steep decline
Second, capex is in a very steep decline right now. Durable goods orders dropped 6.2% in October, the third decline in a row. Over that time frame, orders have plunged at a 39% annual rate, which is unprecedented. The retrenchment has spread to the tech sector, where order books were expanding at a 7% annualized rate over the three months to June. Currently, that same three-month trend has swung to a negative 13% annualized rate.

3) Consumer spending down sharply; savings rate is soaring
Third, consumer spending fell 1% in October, which was a near-record decline. This, in fact, was the fourth straight monthly decline, which is unprecedented. The savings rate is soaring; it leapt to 2.4% from 1.0% in September, in a sign of heightened risk aversion and cash preservation, and is a shift that we believe should be seen as secular, not merely cyclical. This was a conclusion that came through loud and clear in the Conference Board’s Consumer Confidence Index, principally in the spending intention components of the survey. Auto buying plans dropped for the third month in a row to a record low in October while home-buying plans fell to their lowest level since the 1982 recession. Consumer plans to buy a major appliance fell to a 14-year low as well ˆ down for three months in a row. During this four-month period of unprecedented consumer retrenchment from July to October, spending on discretionary items collapsed at an average annual rate of 18%. Even spending on groceries has declined 6%, toiletries are off by 6% and utilities are down 3%. So, even some of the classic staples are being curtailed. The only areas that have posted increases in spending over this unprecedented four-month decline in spending have been pharmaceuticals (+7%), telecom services (+3%), medical care services (+5%) and mass transit (+26%) ˆ all other forms of transportation, from rail to bus to air fell at a 19% annual rate.

4) Obama planning a $700 billion fiscal package
Fourth, we learned this week that President-elect Obama’s economics team is planning a fiscal package as big as $700 billion over the next two years. We are going to wait for the details to see how this is going to impact our base case macro forecast. Suffice it to say that the cornerstone of the stimulus this time around will likely be infrastructure, not tax rebates. The key for investors is where these outlays will be concentrated, which, in turn, means identifying the areas of the capital stock that have been the most underinvested in recent years. After sifting through the data, we believe that the prime candidates will be hospitals, waste management services and passenger transit.

5) Housing market is not close to bottoming out
Fifth, we learned that the housing market is nowhere close to bottoming out. New home sales dropped 5.3% in November to a 433k annualized rate ˆ the worst since the 1982 recession. Even though sales are now down 69% from the July 2005 bubble peak of 1.39 million units, we believe builders have not been aggressive enough in curbing production because the most critical variable of all, the unsold inventory backlog, rose to 11.1 months’ supply from 10.9 in September. Need to see inventory backlog drop to 8 months’ supply The reality is that even though single-family starts have dropped to 26-year lows of 531,000, they are still running 23% above the prevailing level of new home sales. The worst the inventory-sales ratio ever got in the early 1990s real estate meltdown was 9.4 months’ supply. We are currently 18% above that level and almost 40% higher than the 8 months’ supply we would need to see before calling an end to the housing deflation phase. Another 15-20% decline in home prices likely from here As we saw last week, the Case-Shiller index fell 1.85% MoM or at a 20% annual rate. All 20 cities were down both sequentially and YoY. Home prices are now down a remarkable 22% from the 2007 peaks. With the unsold inventory sitting at the third highest level of the past three decades and mortgage approvals for new home purchases falling to their lowest level in nine years, we believe the laws of supply and demand point to a further 15-20% decline from here. So, of all the things that happened last week in the market, retailing stocks up 17%, the bank stocks up 26%, tech up 9%, the one development that probably has the greatest chance of being reversed is the 60% surge we saw in the homebuilding group.

6) Fed has switched December meeting to a two-day affair
Sixth, we learned that the Fed is going to make the December FOMC meeting a two-day affair instead of one (December 15-16). The market is already sniffing out a 50 basis point rate cut. However, now that the Fed has de facto embarked on the process of quantitative easing, perhaps the need for a two day meeting is to iron out a more aggressive plan to revive the credit markets and the economy. The only areas that have posted increases in spending over this unprecedented four-month decline in spending have been pharmaceuticals (+7%), telecom services (+3%), medical care services (+5%) and mass transit (+26%) ˆ all other forms of transportation, from rail to bus to air fell at a 19% annual rate. As Chairman Bernanke suggested in several speeches he gave back in 2002 and 2003, one of the deflation-fighting strategies would likely involve Fed action to nurture lower rates at the longer end of the yield curve. Perhaps this prospect is behind the rally in the 10-year note yield and long bond to cycle lows. This would fit in very well with our ongoing strategy of focusing on equity sectors that have income-generating characteristics like utilities, health care and telecom services; these sectors also screen very well in a negative nominal GDP growth environment.

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