Monday, April 21, 2008

Doing my part to combat Global Warming

Oh well, I am taking a small break from my usual tech-rants to rant about something else today. Today's blog is about doing my part to combat global warming. Last Thursday night, I picked up a box full of tree saplings that I had ordered about 2 weeks ago. I had ordered about 80 saplings of various tree types. They range in variety from dogwoods, oak, lilacs and some evergreens. I am doing this as part of my contribution to Earth Day (4/22/08) and “Arbor Day” (4/25/08). My goal with this sapling planting project is to drive carbon sequestration. I sincerely believe that many of the existing methods to fight “global warming” do not really address how to increase the utilization of Carbon-dioxide (CO2). Excessive CO2 levels in the atmosphere is one of the reasons often cited for global warming.

Yes, there are actually 80 saplings in this picture.
Each little stick will grow up to be a tree (aided by some serious TLC)

Let’s face it. We are massively dependent on oil as our main energy source. The alternate fuels market (ethanol etc) currently requires the use of precious resources such as clean water and arable land and therefore is not a truly viable substitute for oil. Wind and Solar are the main source of renewable energy which do not have substantial natural resources requirements. However, the input materials cost and maintenance costs for these energy sources are still high and these power sources are still out of the reach of most people as the end product is expensive. Many local zoning requirements (U.S) also prohibit or have controls on these installations as some people view them as an eyesore. Moreover, all of these alternate energy sources put together do not even come close to meeting our future requirements for energy.

As for me, I believe that it would not be prudent to suddenly change all our daily activities to accommodate a reduction in consumption of energy. Any temporary band-aid solution only goes so far and may in fact harm the environment in the long term while seemingly providing a short term remedy. I will try to reduce my carbon footprint, but however that will require a lot more thought than some random action that results in other kinds of environmental issues.

So, I have decided that from this year on, I will plant as many tree saplings as I can, so that in very near future, they will help in the generation of O
2 and utilization of CO2. My aim at a minimum is to somehow balance my carbon output by planting enough trees that create oxygen. I truly believe that, by doing so I have acted in a way that provides a solution for the long term. So with this in mind, over the next week or two I will be planting these saplings. While we cannot change our methods in one day, we can certainly take small steps toward doing our part for the environment and for the future of our planet. I hope you do your part. Go plant a tree.

Sunday, April 6, 2008

Cash is King. Cash-Like is Not

I am writing this article in an effort to refocus the blame on who is really responsible for the recent write downs and charges that companies have been forced to take due to the drop in demand for auction rate securities.

There have been posts by many VC's recently on this issue including one by Fred Wilson Our Run In With Auction Rates And What It Taught Me About Markets where he explained what actions he personally took on his holdings in such debt-instruments to avoid such write downs or losses. He was prudent and also his investment advisors called him in a timely manner so that he could act on it. I am sure there were others who understood the potential risk of "cash-like" financial instruments and took timely action to mitigate the risks.

It is absolutely important to understand the complete risk and the liquidity situation of all your finances and investments. I am sure if the right questions had been asked and answered, and if the papers signed at the onset of the agreement stated that there are certain inherent risks associated with these arcane debt instruments, then the people who signed them bear the ultimate responsibility. One can't blame an institution for writing down the auction rate debt instrument and hence a loss on the value of the original cash investment, unless a fraud has been committed.

Late Last year after, after some of the initial shudders in some of the banks and brokerages, I re-evaluated all my accounts that I hold at various institutions, verified that they met the FDIC insurance limits (for MMAs) and that all the other accounts were under the SIPC limits as well. I called the various institutions, asked them to reconfirm the federal insurance amounts that they had taken on accounts, asken them what extra insurance they carried and how I was protected in case of a bank failure. Basically I did a complete "risk assessment". I did this to fully understand my "risk picture" - so that I knew what was "SAFE" and what was risky.

This is the same mentality that should be exhibited by a start-up company. The management along with the investors must assess and fully understand the risks associated with different kind of debt instruments. Past safe practices of such instruments does not necessarily mean continued safety. If someone made a suggestion to put in the company's cash originally acquired through Venture Funding, into auction rate securities, here are the questions that I would have asked.

1: how different is this from a money market account or a CD?
2: Are these deposits insured by the government if the bank failed or there was a "run on the bank"?
3: I understand that this has been done for the last X number of years, but can you tell me what are the possible scenarios under which this so called "cash-equivalent" can lose its value? Please give me the scenario however remote it may be. If you can't give me a scenario, then you the "bank" has to give me in writing that this is truly "cash" and is fully convertible to cash equivalent at a minimum of the original deposit.

The bottom line is, if the debt-instrument cannot be federally insured, then the accounts are not the same as "cash". Hopefully the investment professionals who advice on the portfolio construction for the cash that a company is sitting on, are astute regarding the risks associated with these debt-instruments. Its more important for you to ascertain if "cash-like-investments" is "cash".

You need to have an investment policy which you should review and question constantly. Ask those questions regarding risk freely without hesitation at the risk of appearing stupid. After all it the money with which you plan to build your company. You should always assume that no investment is risk free and the higher the apparent return the higher the risk.

Cash is King. Cash-Like is Not

Saturday, April 5, 2008

Are We done yet?

Recession (the "R" word) is a word easily bandied about these days by everybody. It seems that it has become the most used word for Q1-08 already. With job losses in the US, the sub-prime slime, and the recent Bear Stearns Circus, we seem to have our hands full with financial news on a daily basis. Some have started to use the other "R" word, Recovery and have predicted that we have hit the bottom and that Q2 and the second half of 2008 will lead to a recovery. As i thought about this, I just wanted to take a quick snapshot of how our markets have fared over the last 6 months v/s other major markets. So I did a quick computation of percentage drops of
1: % drop 52 week highs v/s the closing numbers for 4/4/08 and
2: % drop of index value at open on Jan 08 v/s closing numbers for 4/4/08.

Here's a rolling snapshot from East to west of some major market indices. Note the numbers are approximate. (All graphs & Numbers from Yahoo Finance)

The worst preforming index:
Shanghai Composite down almost 44% since its 52 week high and down 34.5% YTD

The best (of the Worst)
Dow Jones Industrial Average down 11.7% since its 52 week high and down 7.13% YTD

You decide if US markets have reached the bottom. I know there is no sense in comparing some of these indices directly, but still I thought it was interesting to show the difference in the percentage drops between the majors.

(JAPAN) NIKKEI 225 Index Value: 13,292.22 @ close on 4/4/2008

52wk Range: 11,691.00 - 18,297.00 [% total drop = 27.35%]

Year open at 15,155.73: [% drop YTD 2008 = 12.29%]

(CHINA) SSE Composite Index Value: 3,446.24 @ close on 4/4/2008

52wk Range: 3,271.29 - 6,124.04 [% total drop = 43.72%]

Year open at 5265: [% drop YTD 2008 = 34.5%]

(HONG KONG) HANG SENG Index Value: 24,264.63 @ close on 4/4/2008

52wk Range: 19,386.70 - 31,958.40 [% total drop = 24.07%]

Year open at 27,632.19: [% drop YTD 2008 = 12.18%]

(INDIA) BSE SENSEX Index Value: 15,343.12 @ close on 4/4/2008

52wk Range: 12,904.80 - 21,206.80 [% total drop = 27.64%]

Year open at 20,393: [% drop YTD 2008 = 24.76%]

(GERMANY) DAX Index Value: 6,763.39 @ close on 4/4/2008

52wk Range: 6,167.82 - 8,151.57 [% total drop = 17.02%]

Year open at 8,045.97: [% drop YTD 2008 = 15.93%]

(U.K.) FTSE 100 Index Value: 5,947.10 @ close on 4/4/2008

52wk Range: 5,338.70 - 6,754.10 [% total drop = 11.94%]

Year open at 6,456.89: [% drop from start of 2008 = 7.88%]

(U.S.A.) DJIA Index Value: 12,609.42 @close on 4/4/2008

52wk Range: 11,508.70 - 14,280.00 [% total drop = 11.70%]

Year open at 13,261.82: [% drop from start of 2008 = 7.13%]

(U.S.A.) NASDAQ COMPOSITE Value: 2,370.98 @close on 4/4/2008

52wk Range: 2,155.42 - 2,861.51 [% total drop = 17.16%]

Year open at 2653.91: [% drop from start of 2008 = 10.67%]

Well I sincerely hope that we have reached a bottom in some sense here. I say this because if U.S. markets continue to fall further to be more in line with India and China we have a long way to go to the bottom. Well is the economy in a recession? I was at an Apple store today and the place was humming. Kids and parents buying more gadgets. Heck I myself bought a few items.

As for India, Food Prices Drive India Inflation., rapid inflationary pressures recently forced the government to stop the export of all non-basmati rice. The finance minister even lashed out at western nations regarding the use of corn for ethanol production when the world's poorer countries were going hungry. The rise in food prices is not just in India, it's a worldwide phenomenon. Q&A Rising World Food Prices.

While the inflationary pressures are not so high in the U.S, the prices of wheat and other staples have increased in the past few months. Americans only seem to relate to prices of fuel with increasing urgency, but respond with the "Boiling Frog Syndrome" mentality with respect to the rise in the cost of food.

But some do notice and it's not the poor. It is real surprising that the ones who do notice are the real wealthy. One such person recently came back home after a long vacation and complained about the increased cost of a bagel (from a micro blog post that I follow). Maybe that's why they get wealthy in the first place.

Wednesday, April 2, 2008

Social Isolation - Physically present but mentally absent

The best laid schemes of mice and men often go astray
– Robert Burns

I sat down the other day reminiscing of a class during my MBA days. The Professor gave an analogy comparing the IT industry to the plumbing industry. He talked about a time when people became more absorbed in the details of the fitting and pipes, but forgot about the water. It made me think of how the world has built up network infrastructure for information without actually stopping to think of how much of the data that traverses it is actually relevant. The arrival of new gadgets and gizmos that utilize both the infrastructure of the wired and the wireless world are giving way to a new social isolation phenomenon sweeping the planet; Physically present, but mentally absent. Anywhere I go these days, in the city, at airports, restaurants, and malls, people are either peering into a mobile device or its hugging their ears. Even among groups of people there’s always one or more distracted by a device. As I pondered for a bit, Clint Eastwood’s “The Good, The Bad and The Ugly” came to mind.

The Good: One of the areas that availability of the network infrastructure is really making a difference is in the area of education. You can now have virtual class rooms half way across the world where students from distant countries join in via an interactive video conferencing classroom. An individual student or a classroom full of them can interact with the professor and other students who are hundreds of miles away as if every one of them were physically in the same room. Information delivered through this technology has made distance ignorable, while creating a highly productive educational session. The existence of the network infrastructure has also helped other industries such as healthcare, pharmaceuticals and many others.

The Bad: These days most everyone has a cell phone, and a personal laptop computer. I have personally seen instances when people are replying to text messages, talking on their phones and looking into their laptops while driving in vehicles at highway speeds. Does this “instant-gratification” world we now live in really make us that much more productive? I believe that the existence of these technologies have cut down the intrinsic delay that used to allow people to think over a query and respond in an astute manner. The perceived expectation of responses in real time has really cut down on the quality of the interaction between people. We have to question ourselves if technology has really increased productivity or caused more disruption? It is sad to note that the very same people who benefit from the education at virtual classrooms are also affected by the high tech distraction of texting and email while the class is in session.

The Ugly: One recent afternoon, as I came to the end of the running trail at a local park, I happened to notice a family setup on a bench near the tot-lot. The father was working on his portable computer with one child by his side playing a portable videogame. The mother was talking on a cell phone while minding the other child that played on the swing set. Each to their own space; Is social isolation the future we are building for our kids? The next generation of kids are going to be mere “Talking Heads”.

Conclusion: There are significant benefits and some bad side effects to society from technology. It is up to the people to control how technology will not become a disruption in their lives. Etiquette coach Colette Swan says that, "We are becoming an internalized society. We are living in our laptops, our cell phones, and in our texting". See Michael Parekh's blog Gadget Etiquette in meetings. Dan Saffer of Adaptive path coined the phrase topless, where companies and universities are forcing meeting or classroom participants to ditch laptops and phones. Some of the participants swear that their productivity has increased by leaving behind their electronic gadgets to such meetings. I am sure some other die hard tech fans will argue that Text messaging, emails and cell phones have not distracted the prioritization of activities.