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Posts Tagged ‘wsj online’

Here is an interesting post by Arhtur Laffer at Wall Street Journal.

“The unprecedented expansion of the money supply could make the ’70s look benign.

Rahm Emanuel was only giving voice to widespread political wisdom when he said that a crisis should never be “wasted.” Crises enable vastly accelerated political agendas and initiatives scarcely conceivable under calmer circumstances. So it goes now.

Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That’s more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers’ expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries.

With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs — such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid — are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.”

The story concludes…

“Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury’s planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.

In addition, a rapid contraction of the monetary base as I propose would cause a contraction in bank lending, or at best limited expansion. This is exactly what happened in 2000 and 2001 when the Fed contracted the monetary base the last time. The economy quickly dipped into recession. While the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating. For Fed Chairman Ben Bernanke it’s a Hobson’s choice. For me the issue is how to protect assets for my grandchildren.”

Read the full article here.

Others covering this story include: NCPA, Market Guardian, Bully Pulpit.

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Here is some interesting viewpoints from Venture Capital Dispatch – a WSJ Online blog written by Scott Austin.

“Last August, Hewlett-Packard Co. signed a letter of intent to pay $360 million cash for LeftHand Networks Inc., a venture-backed provider of storage systems. A few weeks later, Wall Street’s collapse sent the economy in a tailspin and threatened to knock the screws out of the deal.

But after a two-week pause the two sides got back together and in November closed the acquisition on the same terms.”

The article continues…

“LeftHand was able to hold its ground because it had proven itself valuable well before Hewlett-Packard offered to buy it. H-P had been reselling LeftHand’s software on some of its servers for nearly three years, and realized it couldn’t do without it.

The deal signifies the importance of setting up strategic relationships with possible acquirers, especially in this environment, said the aforementioned investor, Matthew McCall, a managing director with Draper Fisher Jurvetson Portage Venture Partners.

“When your hair’s on fire as a corporation, you’ll try anything to make the pain go away,” he said. “Now’s a great opportunity [for start-ups] to enter partnerships, distribution agreements, and dialogues with larger corporations.”

Matthew McCall´s advice continues:

  • Form a strategic relationship with a potential buyer,
  • Look at it from the acquirer’s perspective,
  • Identify the alternatives,
  • Finally, make sure at least two mortal enemies are bidding on your start-up.

Read the full article here.

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Widely covered, this story may actually indicate something big – Social Networking sites are in for some changes. The big buy out may be the goal for many, but is likely to provide stagnation or decline.  While Facebook has grp1-ap606_myspac_ns_20090423002610own rapidly the last few years, MySpace have stagnated.

Here are some good tidbits from Wall Street Journals coverage.

“People familiar with the situation said News Corp., was completing a deal to name former Facebook Chief Operating Officer Owen Van Natta as chief executive to succeed Mr. DeWolfe. He would report to Jon Miller, the former AOL chief executive who was recruited to join News Corp. this month in a newly created position of chief digital officer. Charged with all News Corp.’s stand-alone digital properties, he was particularly given the mission of shoring up MySpace.”

“More broadly, MySpace, like other social-networking sites, still must overcome doubts about the medium’s viability. Advertisers, for one, remain leery. “Advertising doesn’t fit so neatly into a conversation that people are having among themselves,” says Tom Bedecarre, chief executive of independent digital-ad firm AKQA. “The interruptive model of advertising hasn’t been successful.””

“Three top MySpace executives, including Amit Kapur, former chief operating officer, left the company in March to work on a start-up. MySpace has yet to name successors for those positions. Mr. Miller began discussing the job with potential candidates including Mr. Van Natta, but hadn’t finalized anything when the news of the talks leaked, according to people familiar with the situation. Mr. Van Natta helped expand Facebook but stepped into a less prominent role as chief revenue officer as the site grew, ultimately leaving the company in February 2008. At MySpace, he could serve as a bridge between Silicon Valley and MySpace, which has struggled to match Facebook’s technology prowess. Hearing of the talks, Mr. DeWolfe offered to resign, these people said.”

Its most often not a pretty site when things hit the fan. As far as MySpace goes, one may only wonder if the corporate culture of News Corp. will be able to uphold the indie status that draw traffic in the first place.

Read the full WSJ Online article here.

Comprehensive coverage can be found at these sites: Stephen Laughlin, Tech Blorge , SoCal Tech ,

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Big customers, a top-flight engineering staff and $110 million in venture backing was not enough to save Hammerhead Systems Inc., a data-switching company that closed its doors on Thursday.

“We were in a Catch-22 situation, and we are a casualty of the economy,” said Rob Keil, the Mountain View, Calif.-based company’s chief executive.

Hammerhead planned to sell its Ethernet aggregation switches to major telecom carriers and had inked major deals with two of them, Keil said. But to continue, the company needed to enlist more carriers as customers, something that proved tricky in the current economic climate.

“We had them excited about our technology,” Keil said, “but they wanted to get the financial viability issue off the table. The carriers liked the product and the team, but they needed us to have a partner…for financial stability. It just wasn’t possible to get the carriers comfortable.”

Partnering with a name-brand networking hardware company might have catapulted Hammerhead to success, he said. “But as the economy melted down, the prospective partners became risk-averse,” Keil said.

Keil could not disclose which hardware companies Hammerhead approached, or which two carriers had agreed to buy the company’s switches.

Hammerhead made a data switch that routs information for carriers. The switches collect data circuits from the carriers’ customers, aggregate them, and rout them back to the operators’ core networks. This process, said company spokeswoman Mari Mineta Clapp, enables carriers to use much of their aging equipment to keep up with the demands of today’s smart phone traffic, including backhaul and Ethernet functionality needs.

Read the full WSJ article from By Timothy Hay here

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Here is a good article by Scott Austin at WSJ Online on a subject we brought up last week.

“Start-up companies appear to be giving into investor demands of a harsher funding deal term that gained notoriety after the tech bubble burst in the early part of the decade.

According to two separate quarterly reports issued last week from law firms Fenwick & West and Cooley Godward Kronish, venture capital firms are more frequently receiving multiple liquidation preferences that protect them from losing out on investments.

Venture capital firms almost always receive preferred stock when they invest in companies, giving them certain rights over common stock holders, usually the founders and executives. One of these standard rights is a liquidation preference, which gives preferred stock holders the right to get their money back from a company before other common stock holders in an unfavorable sale or liquidation.

But with more companies in trouble, investors are inserting multiple liquidation preferences into term sheets, meaning they could get two times or more the amount of capital they invested. That can create nightmarish capital structures for companies but give them more incentive for them to become successful.”

Read the full article here.

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