After half a decade of Federal Reserve monetary expansion, interest rate markets are in a state of flux. Bernanke has telegraphed his punch – the party is not going to go on forever. And that is a very good thing. The trick to managing any crisis is to ensure that the emergency measures do not outlast the emergency. So while many an analyst would suggest that economic data do not support a complete suspension of QE, the analysis cannot be merely based on unemployment, housing starts, and durable goods orders, but also on an evaluation of what the incremental impact is on the economy of each additional dollar of expansion of the Fed’s balance sheet. I am sure that everyone would have hoped for more than 2% GDP growth given the TRILLIONS of dollars that our government has effectively lent to itself, but the reality is that the efficacy of the “program” is waning dramatically. So it’s getting to that point in the process where it’s time to start planning for the end of free money, for better or worse. Bernanke has given us that warning.
But if US Treasury Bonds reclamation of market driven equilibrium price discovery wasn’t going to be volatile if not painful enough on it’s own, we have an added layer of complexity to deal with. Chairman Bernanke is tired and he’s ready to write a book and start teaching Econ 101 again. The man has been fighting a war for the last 5 years and he is toast. So on top of the over-televised, over-blogged, over-discussed issue of where the 10 year bond is going relative to the strength of the economy, we have to hear and read on a daily basis about the Yellen vs. Summers debate. Who’s good for equities? Who’s bad for bonds? Who’s a better leader? Would it be cronyism to hire Summers? Would it be too much of the same to give it to Yellen? It’s enough to make you want to crawl under a rock, never watch Bloomberg or CNBC again, and cancel your Twitter account. And in my opinion, it is exacerbating the already difficult process of the bond markets finding their new levels given the Fed’s eggression.
So who is to blame for this added and wholly unnecessary volatility in bonds? Speculators? Seeking Alpha bloggers? CNBC talking heads? Hedge funds? The answer is “E” – NONE OF THE ABOVE. The responsibility for this nonsense is none other than the White House. The President has told the world from his vacation in Martha’s Vineyard that he needs some “space” to make his decision about the new Fed ChairPERSON. He needs space. What is this? A college girlfriend he doesn’t have the courage to break up with? I get it…He’s tired and needs to play some golf, hang with the kids before school starts, have a beer on the beach with his wife. We all need that once in a while. But while President Obama is an amazing communicator from the stage of a political rally with adoring fans cheering for him, when it comes to managing his “business”, it’s not really his strong suit. Markets have been climbing the wall of worry for the last 5 years despite Obama’s opacity throughout. And while of course there needs to be a rigorous and through process for these kinds of major decisions, and they cannot be dictated or rushed by hyper-sensationalism on social media and journalism outlets, sometimes pragmatism has to prevail. I believe now is one of those times. There is no need to perpetuate the added drama of this debate and its exacerbation of already challenged credit markets, despite the fact that the President needs a vacation. Markets, homebuyers, and businesses need some visibility. They need some communication on this issue. They deserve it just as much the President deserves a vacation.
Out of deference to my favorite Einstein quote and business mantra above, I feel compelled to post this Natasha Lomas blog post that appeared in TechCrunch earlier this week. My first boss back in 1994 managed his firm on the KISS model (Keep It Simple, Stupid), and it has stuck with me since (Thanks Dad). My big takeaway is that startups must understand that simplicity is not just about messaging, but about their business models in general. It may feel like a conundrum as today’s investors all seem to be looking for the 50X exit, but the longest of journeys begin with a single step. Solve a problem. Be agile. And remember that Johnson & Johnson was founded with a first aid kit as its first product.
20 years ago I played Key To The Highway at Maggie’s in Atlanta with the Bruck Brothers — it was the first time I had ever played in public and many a person there would have bet it would be the last. Well Glenzo and the Bruck Brothers reunited tonight on Miami Beach with a much refined sound and a broader vocabulary of blues covers. Click here for a nice little Before You Accuse Me jam, Clapton Unplugged style. This one was for you Greg. (Not a bad recording done on the voice memo app on my iPhone).
Analysis of the #FiscalCliff abounds. The issues are distilled into the categories of taxes versus austerity. Revenues and spending cuts. Who, if anyone, should pay more taxes? What happens to investment related taxes? What happens to social security? What is the impact on entitlements in general? Should we tackle Medicare reimbursements? Is Obamacare in the deal? You get the picture.
To me, however, there is a lot more at stake here that transcends economics. The fiscal cliff was a steamroller that we saw coming a mile away. There are crises that emanate from various sources that we cannot anticipate or prepare for — hurricanes that decimate Staten Island and New Jersey, grotesque acts of violence on school children, attacks on New York City, etc. There are few, however, that we can prepare for, and, hence mitigate or avert altogether. This crisis was one of the latter. And in this era of great cynicism about what America has become and our position on the world stage, the fiscal cliff (a right hook to our economy was telegraphed for all to see) presented an extraordinary opportunity. Yes, that’s right, an OPPORTUNITY.
I am a well documented two time voter of Barack Obama. The first time I pulled the lever I did so with great enthusiasm and hope. The second time I did so much more reluctantly, but still confident that he was the better man. But what I have learned over the years is that leadership is defined by many a quality, with intelligence and integrity only being a couple of them. Leadership is about consensus building, inspiration, and, unfortunately, salesmanship. And so while I am of the opinion that Obama is faced with a great deck stacked against him, and that those named McConnell, Cantor, and Boehner are playing a binary game of “we win if Obama loses”, I am disheartened nonetheless at the lack of ability to get in front of the problems, bring unique viewpoints to the table, and show that we can act in the greater good.
So what was the opportunity? The opportunity was for our leaders to let pragmatism prevail over dogmatism to show America’s citizens and the world that when it really counts we can get it done. As Doris Kearns Goodwin stated after the election, we tend to glorify the “good old days.” We may long for the days of the Whigs and Tories, but they used to beat each other up on the House floor. Maybe I am being naive, but that feels a lot more honest than what goes on these days. In a media age it all seems so disingenuous and petty. To watch Obama on Meet the Press this morning was painful. “The Republicans can’t say yes.” “I am fighting for the middle class.” “I am not a liberal.” Rhetoric, rhetoric, and more rhetoric. He builds consensus with business leaders to do his bidding for him, but when did he invite the Republican leadership (a new oxymoron) to the White House, put a pot of coffee (or bourbon) on the table, and say “no one is leaving without a deal”? And while they are all saving face on the Sunday morning news shows, Americans (like me) are fighting the anxiety over the fate of their small businesses, their earnings power, and their children’s prospects in a country whose government is ALWAYS behind the issues and NEVER in front of them. Choose a topic, any topic — energy, education, social security, diabetes — each one a steamroller crisis. Where is the pro-active leadership on these? And to think that one day, when it’s too late, we will say that we saw it coming but didin’t have the will or leadership to get at it.
So here we are on a Sunday night in the 11th hour before our nation faces a self-imposed calamity at a most fragile point in our economic history. And that is awful. But the true tragedy is that we let it happen. To me, that is what keeps me up at night. That we are so dysfunctional, inept, and dogmatic is the real issue that makes me most fearful. When it really hits the fan we need leadership, not politicians who are more concerned with protecting their legacies or placating special interests. Naive perhaps, but if it was going to happen, now was the time for everyone to check their egos at the door and recognize what was a stake. No matter the outcome of a vote that may or may not happen before midnight tomorrow night, our leadership blew it–a squandered opportunity whose wake will perpetuate a crisis of confidence that long outlasts its economic ramifications. So sad.
Fantastic piece from Kenneth Rogoff on Project Syndicate dissecting our current (and future?) economic malaise into its component parts. I would argue that the financial crisis was the tipping point into the trough, but I agree that there is a tremendous innovation gap that will keep us at below trend growth for years to come. Lack of credit to small businesses despite the flood in liquidity from central banks will only perpetuate the problem.
There are multiple ways to manage stress, some healthier than others. Nearly a year into my career as a startup entrepreneur, I got to a point where I needed the stress management solutions to be on the healthier side of the spectrum. After years of thwarting friends’ attempts to get me to join CrossFit, I decided to give it a try. CrossFitNMB is about a block away from Bookigee’s offices — so the guilt felt when passing it every day was a driver of the decision, but I digress. Without rambling on about the gory details of my initial path to fitness over the first three months that I have been there, I will just get to the point of this posting. I owe a huge debt of gratitude to Jonas Grabarnick, who runs CFNMB.
We all know the explicit benefits of exercise – heart health, positive self-image, endorphins, physical strength, etc. I have gotten something above and beyond that from training with Jonas and his team, however. Best way to describe it would be a great sense of accomplishment that has translated into benefits far outside the gym. At CFNMB they teach you how to overcome adversity and meet challenges that you otherwise would not think possible. So while the tangible results have been great, the intangibles are what I am amazed by and grateful for. The ability to get through their workouts, push myself to do things I would have never thought I was capable of, and adjust my mindset to believe that I will surmount the seemingly insurmountable has transcended the gym. Startups are a battle, but the work done with Jonas is now evidencing itself on the business playing field in many ways: greater attention to detail, confidence, a willingness to go at the problems rather than around them, physical and emotional stamina, and a positive attitude — to name a few. Entrepreneurship requires a lot of strength across the physical, mental, and emotional spectrums. Thanks to Jonas for all the work you are doing with us to improve all of these components — both I and the company are growing from it.