Venture Capital Investments Plunge 61% Amid Frozen IPO Market - Bloomberg.com

Venture Capital Investments Plunge 61% Amid Frozen IPO Market - Bloomberg.com:

"U.S. venture capital investments fell 61 percent to $3 billion in the first quarter, the lowest level in 12 years, as the financial crisis chased away funding for technology and clean-energy deals.

Funding of clean technology -- coming off a surge of investments in 2007 and 2008 -- plunged 87 percent, the National Venture Capital Association said today. Total venture investments dropped 47 percent from the previous three months.

The freeze in initial public offerings kept startups from getting funding because investors weren’t sure how they would earn a return,"

New sentiment indicator? Forget Skirt lengths, watch collars?

Trying to gauge market sentiment is a challenge. But that does not mean people don't keep trying. From measurements based off of skirt lengths, to closed end fund discounts, to the VIX we just keep trying. The newest candidate is Credit Suisse's so-called "Fear Barometer" out which is based on collars (as in the option position not what is at the top of a shirt).

From Fear of a Recovery - Barrons.com:

"...the Credit Suisse Fear Barometer, which measures fear by pricing a zero-cost collar -- selling a 10% out-of-the-money Standard & Poor's 500 index call that expires in three months and spending the entire proceeds to buy an index call -- helps prove the point.

The Credit Suisse barometer recently registered 13.67, suggesting that upside call premiums are rather expensive."

Writing at SeekingAlpha "Babak" questions is usefulness suggesting its small range is not informative and then more tellingly showing charts (from Bloomberg) of the VIX, the S&P, and the new CS Fear Index which seemingly have little relation, he concludes:

"Useless sentiment indicators abound out there and they keep being calculated and disseminated like zombies. Looks to me like the CSFB is a prime candidate for the round filing cabinet - even before it arrived! - which is some kind of record"

Madoff's Mets tickets being sold on eBay | News for Dallas, Texas | Dallas Morning News | Dallas Business News

Madoff's Mets tickets being sold on eBay | News for Dallas, Texas | Dallas Morning News | Dallas Business News:

"The trustee liquidating Bernard L. Madoff Investment Securities LLC won court approval to sell New York Mets season tickets held by the defunct money management firm in an online auction.

Irving Picard has already begun selling the tickets for April Mets games, and the two tickets for the first home game Monday sold for $7,500 on eBay Inc.'s auction site.

U.S. Bankruptcy Judge Burton Lifland in New York said Tuesday that he would sign an order allowing the sale of the remaining season tickets."

While it does not identify then, I guess these are the seats?

Who would have thought returns to investors in the Madoff case being tied to whether the Mets won games or not? And of course the Mets owners who amoung those who lost money with Madoff.

IPOs back in the news.

Are IPOs back? Rosetta Stone continued its IPO which is just the fourth of the year and THIRD this month! Heat wave.

Rosetta Stone: IPO Market Continues Activity -- Seeking Alpha:

"Rosetta Stone (RST) IPO pricing at $18, above the expected range of $15 - 17, raising $112.5 million."

From the WSJ:

"Foreign language software specialist Rosetta Stone Inc. (RST) sold its initial public offering at $18 a share Wednesday, the first IPO to price above its expected range in nearly a year.

The company, scheduled to begin trading Thursday on the New York Stock Exchange under the symbol RST....

It's the first IPO to price above its range since industrial pump and valve company Colfax Corp. went public in May 2008.....

Rosetta's pricing makes April the busiest month for IPOs in the U.S. since July, when three deals hit the market. Since August, there have only been five IPOs, with three so far in April.

Just for perspective, from 1960 to 2005, April averaged 26 IPOs (median 23) according to Jay Ritter's Data.

Corporate Governance: Separating the CEO and the Chairman Roles

The D & O Diary does a great tackles the issue of separating the CEO and Chairman positions. Corporate Governance: Separating the CEO and the Chairman Roles : The D & O Diary:

"A growing chorus of voices is calling for public companies to make the separation of the Chairman and CEO functions the default governance structure. This movement, which may have the support of the new SEC Chair, appears likely to lead to some type of 'adapt or explain' approach. Increasing evidence that the companies where the CEOs also act as board Chair are likelier to have 'certain troubling governance characteristics' will likely encourage shareholder interest in the initiative as well."

"The Millstein Center’s March 30, 2009 press release (here) reports that while in the U.k. only 5% of the FTSE 350 companies combine the chairman and CEO roles, over 60% of the S&P 500 companies have boards that are chaired by their CEOs"

"....as noted by the Chairmen’s Forum report, that "the overwhelming majority of financial institutions had combined roles before the current crisis erupted" – including, among others, Bear Stearns, Lehman Brothers, Citigroup, Washington Mutual and Wachovia.

On the other hand, there may be limits to how much can be expected or discerned from this single governance trait. As the Chairmen’s Forum’s report also notes, "splitting the role of chairman and CEO does not guarantee the application of independent oversight,"

The piece does cite research from the Corporate Library that argues that separation of the two positions is good for a number of reasons (but noticeably absent is stock performance).

From the Corporate Library press release:

"March 25, 2009 – A new study from The Corporate Library, an independent corporate governance and executive compensation research firm, found that companies whose chief executive officers (CEOs) also serve as Chair of the Board are more likely to have certain troubling governance characteristics than companies where the roles are separated. The study is the result of an analysis of the board leadership structure at more than 3,000 North American companies.

The governance features in question, all of which have been associated with board entrenchment
or lessened oversight of management, include:
• relatively long CEO tenures;
• fewer board meetings per year;
• classified board structures; and
• the presence of executive committees, which are typically given the power to act on
behalf of the entire board, potentially allowing for a concentration of power among a few
board members."

While there are obvious conflicts with having the same person perform each role, there may be good reasons for having a single CEO/Chair. But before the baby is thrown out with the bath water, it is important to see both sides.

The separation of CEO and Board Chair has been an issue for over a decade (see this 1996 paper by Dahya, Loni, and Power finding that separation results in positive stock price reaction).

Both sides agree that incentive conflicts can exist when the same person is the both the CEO and Chairman of the board, but there what the sides disagree with are whether these conflicts are enough to outweigh potential benefits of the roles each being played by same person.

For instance from the FinanceProfessor summary of a 2004 paper paper by Brickley, Coles, and Jarrell,

"Notably the paper posits the view that the CEO has valuable inside information and he may be better able to use that in both roles. Further that firms use the multiple title to phase in and phase out new CEOs. Conclude that there are good points of having a single person in charge of both positions."

and from a Knowledge@Wharton 2004 article entitled "Splitting up the Roles of CEO and Chairman: Reform or Red Herring?

"...Michael Useem, director of Wharton’s Center for Leadership and Change Management, says a few statistical studies have compared companies where two persons hold the CEO and chair positions with companies where one person holds both posts. This research, which also took into account other factors that can affect financial performance, shows that whether a company does or does not separate the CEO and chairperson titles “has no bearing on corporate financial performance,” he notes."

And while clearly these papers are 5 years old now and the trend is noticeably towards separation, the evidence is still not so overwhelming in either direction as to be certain. Would I encourage separation? Yes. But making it mandatory (or even making firms explain why they are not separating the two) seems to be a case of regulation going too far.

Quote of the day

Quote of the day:

Economist.com | NEW YORK

"If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy.

- Yu Yongding, one of the Chinese government's top monetary economists, discussing why China took the rare step of selling US Treasuries in the first two months of the year. The saying is originally attributed to John Maynard Keynes."

Thanks to @Lura_Forcum for originally tweeting this.

The Unbearable Lightness of Nassim Taleb —A Response To Taleb’s 10 Item List | Simoleon Sense

Ok, I confess, I am a fan of Taleb. But that said, seeing his flaws is valuable as well so it was with special interest I read the following from Simoleon Sense:

The Unbearable Lightness of Nassim Taleb —A Response To Taleb’s 10 Item List | Simoleon Sense: "

Davi writes an interesting article titled “The Unbearable Lightness Of Nassim Taleb”. So, in the spirit of intellectual debate I present you with this counterpoint to Taleb’s 10 principles for a black swan proof world."

And from the Brave New World by Charles Davi (that Simoleon Sense points to) comes one of the funniest lines I have heard in a while.:

"Taleb fails to meet even the lowest of standard for a statement on regulatory policy. "Counter-balance complexity with simplicity" might be an acceptable policy position for Deepak Chopra. But it is certainly unacceptable for an economist."

Video on the 1929 Stock Market Crash

Good video on the 1929 Stock market crash.





BTW just showed the Trillion Dollar bet in class last week. The audio of this and that are very similar!

Treasury Is Said to Warn G.M. of Bankruptcy Risk - NYTimes.com

Treasury Is Said to Warn G.M. of Bankruptcy Risk - NYTimes.com:

"The Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by a June 1 deadline, despite G.M.’s public contention that it could still reorganize outside court, people with knowledge of the plans said during the weekend"

and later:

"The preparations are aimed at assuring a G.M. bankruptcy filing is ready should the company be unable to reach agreement with bondholders to exchange roughly $28 billion in debt into equity in G.M. and with the United Automobile Workers union, which has balked at granting concessions without sacrifices from bondholders."

and one last look in:

"....one potential outcome in which the “good G.M.” enters and exits bankruptcy protection in as little as two weeks, using $5 billion to $7 billion in federal financing...The rest of G.M. may require as much as $70 billion in government financing, and possibly more to resolve the health care obligations and the liquidation of the factories.... "

The question we have been talking about in class is why is it that GM has any equity value? WIth its bonds trading at less than 20 cents on the dollar, its pensioners in line to get paid, and bankruptcy looking more and more likely, we could see zero on this one.

With Finance Disgraced, Which Career Will Be King? - NYTimes.com

With Finance Disgraced, Which Career Will Be King? - NYTimes.com:

"Big shifts in the flow of talent can ripple through the nation and the economy for decades with lasting effect. The engineers of the Depression built everything from inter-city roads to the Hoover Dam, while the Sputnik-inspired scientists would go on, often with research funding from the Pentagon, to create the building-block innovations behind modern computing and the Internet. Today, the financial crisis and the economic downturn are likely to alter drastically the career paths of future years. The contours of the shift are still in flux.....

What will the new map of talent flow look like? It’s early, but based on graduate school applications this spring, enrollment in undergraduate courses, preliminary job-placement results at schools, and the anecdotal accounts of students and professors, a new pattern of occupational choice seems to be emerging. Public service, government, the sciences and even teaching look to be winners, while fewer shiny, young minds are embarking on careers in finance and business consulting."

It will be interesting to see how this plays out. Will finance remain on top? My guess is yes. but it will take a few years. Very anecdotally, finance seems to be getting more majors for next year at SBU.

Mutual Funds: 10 questions to test your IQ

AZCentral (The Arizona Republic) has a pretty good mutual fund quiz.

Mutual Funds: 10 questions to test your IQ:

"...mutual funds remain a cornerstone of retirement planning. But they're widely misunderstood, and investing ignorance can really cost you. So can you tell a fund expense ratio from a turnover ratio? What about an open-end fund from a closed-end? Try this quiz, and check out the answers at bottom:"

Top 50 Economics Blogs — Bankling

The new rankings from Bankling.com are out (not exactly the BCS, but....) and FinanceProfessor.com's blog is #24!!!

Top 50 Economics Blogs — Bankling:

"A light-hearted perspective on economics from an assistant professor at the St. Bonaventure University School of Business."

Well technically I teach finance and am an associate now, but who cares? Yeah I know, top 24 is not the best but I will take it and say THANKS!!


BTW look at the whole list. Some very good ones are included. I am honored to be included in their company.

Wall Street's Highest Earners - Forbes.com

Wall Street's Highest Earners - Forbes.com:

A look at hedge fund pay. It staggers my imagination.

"The $10.3 billion in pay for the 20 highest earners was down 45% from 2007 and 22% from 2006"

But not all were down. Take for instance James Simons:

"James Simons, who runs Renaissance Technologies..., tops our list with earnings of $2.8 billion in 2008, even though two of his three funds were down for the year. The exception was his Medallion fund, which grew a staggering 84%, even after deducting its steep fees--44% of profits and 5% of assets (the industry standards are 20% and 2%)....

Simons, a former Defense Department code-breaker and mathematics professor at the State University of New York at Stony Brook, uses complex quantitative models to identify companies that are misvalued. He made $1.3 billion from his estimated 40% share of the company's fees and $1.6 billion on the appreciation of his own investments within the funds he manages"

US finance pundit Cramer a 'buffoon' says leading economist Roubini | Business | guardian.co.uk

Fresh off his "battle" with Jon Stewart, Jim Cramer is now "fighting" with Nouriel Roubini.

US finance pundit Cramer a 'buffoon' says leading economist Roubini | Business | guardian.co.uk:

"Roubini, a New York University professor who famously forecast a dire world recession as far back as 2006, has taken exception to remarks on a blog by Cramer that he is 'intoxicated' with his own 'prescience and vision' and is refusing to see green shoots of recovery in the financial markets.

'Cramer is a buffoon,' said Roubini. 'He was one of those who called six times in a row for this bear market rally to be a bull market rally and he got it wrong.'

The confrontation pits two of the financial world's biggest egos against each other...."