Michael Ewens

Will the recent uptick in oil prices undermine prospects for recovery from the recession?  Retail gasoline prices have risen about 50 cents a gallon from their low in December.  That takes away about $70 billion from consumers’ annual spending power, which is hardly helpful for the broader challenge of restoring household balance sheets to a level where spending could be expected to pick back up.  But let me emphasize that although I believe that the initial spike in oil prices was an important element of the process that produced our current difficulties, we are currently at a point at which the multipliers and spillovers associated with the recession dynamic itself have become far more important factors than the price of oil.  The problems faced by U.S. automakers at the moment– and those problems are very, very daunting– are not caused by the price of gasoline.  What is needed to restore U.S. vehicle sales now is not lower gas prices but instead more income, jobs, and confidence on the part of consumers.

 Notwithstanding, the recent rise in oil prices again underscores the present reality of the long-run challenges.  Even if we see significant short-run gains in global oil production capabilities, if demand from China and elsewhere returns to its previous rate of growth, it will not be too long before the same calculus that produced the oil price spike of 2007-08 will be back to haunt us again.

James Hamilton explains that the increases in oil prices from 2006 – 2007 go a long way towards explaining our current recession.

Major limited partners (LPs), or investors in funds, asked their private equity (PE) partners to slow down investing and reduce the number of capital calls. Various LPs had engaged in a popular strategy of accumulating debt, and they did not have the cash on hand to honor every investment commitment after both the equity and debt markets collapsed. The number of first time investments fell by 65 percent from Q1 08 to Q1 09 as venture firms stopped making capital calls in order to preserve relationships with the LPs.

This fact can go a long way towards explaining why VC investments were down do dramatically over the last few quarters. Remember: in the end, VCs just want to raised their next fund. Thus, they want to preserve relationships with the investors that can make that happen. Combine this with an above-average investment horizon for most VC investments and the situation does not seem so dire.

In March, Italy’s intelligence services warned in a report that rising unemployment and the credit crunch could help crime syndicates tighten their tentacles around vast swaths of the nation’s business sector, including supermarkets, real estate and tourism.

A main engine of the mob’s recent strength — the age-old practice of loan-sharking — is thriving as banks hoard cash, allowing the Mafia to elbow in on legitimate businesses.

The mobsters are poised to “acquire control of businesses in difficulty, especially through their consolidated practice of loan-sharking,” as well as to “snap up assets put on the market by enterprises experiencing liquidity crises,” the intelligence report said.

One consequence of the credit crunch….

Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market.

Gap Inc.’s founding family sold $45 million of shares in the largest U.S. clothing retailer this month, according to Securities and Exchange Commission filings compiled by Bloomberg. Daniel Warmenhoven, the chief executive officer at NetApp Inc., liquidated the most stock of the storage-computer maker in more than six years. Sales by the co-founders of Bed Bath & Beyond Inc. were the highest since at least 2001.

This could also be because the owners have lost wealth elsewhere and needed cash. However, I know few people that “need” $45 million immediately.

What if they had another option? SecondMarket, which operates markets for trading illiquid assets online, is creating a marketplace for trading shares of private companies. It puts investors together with shareholders and collects a fee, which will be 2 percent from each side for the private company market.

Typically, venture-backed start-ups are sold or go public within five to seven years, but lately it is taking longer. As the exits are delayed, venture capitalists who are unable to cash out cannot return money to their investors or devote time and money to new companies. Some employees inside the start-ups, being paid low salaries, get impatient for a payday.

The first real hurdle to setting up such a marketplace is the SEC. There are tons of restrictions regarding equity in private firms. One easy way around one of the rules is to put a middle man between the new owners and the current equity holders. The other substantial problem is transparency. When a VC invests in a entrepreneurial firm, they get to see the books. I am not sure that existing (non-selling) equity holders will want the books opened to secondary firms so that potential buyers can properly price shares. It would be interesting to see how this is handled.

I love Mechanical Turk. We used it at my agency where we were having a big problem with time clock fraud (a.k.a. people were asking their friends to punch them out and then leaving hours early)

So I built a very simple add on to our timeclock (which is essentially an ELO touch screen and a PC) and had it use a web cam to take a picture of each person punching. Then we created a program that showed turk users a person’s badge picture and then the picture taken at the punch and asked “Is this the same person?” (with answers of Yes/No/Maybe) Doing that virtually eliminated the problem overnight.

I agree with the author that M.T. won’t completely change the market. But what it will do is allow people to monitize their spare seconds and in doing so make a lot of the “no-brainer” grunt work that companies have to do a lot cheaper

This is a fascinating way to use Mechanical Turk. See my take on using it for research.

This desire to hit a home run will often cause a VC to manage their portfolio contrary to the best interests of the entrepreneur or their company. In other words, if you are one of the three most promising companies in a batch of ten, the VC may encourage (or force) you to take big risks and swing for the home run, even when a base hit or double is a smarter move. By forcing companies to take inappropriate risks, they do create the occasional home run, but they create many more failures along the way.

This gives me another research idea: follow venture capitalist portfolios over time to see if you can identify this effect.

Dr Marti’s research team analysed 4,358 runners in the Bern Grand Prix, a 9.6-mile road race. All the runners filled out an extensive questionnaire that detailed their training habits and footwear for the previous year; as it turned out, 45 per cent had been hurt during that time. But what surprised Dr Marti was the fact that the most common variable among the casualties wasn’t training surface, running speed, weekly mileage or ‘competitive training motivation’.

It wasn’t even body weight or a history of previous injury. It was the price of the shoe. Runners in shoes that cost more than $95 were more than twice as likely to get hurt as runners in shoes that cost less than $40.

This has got to be a selection problem: the average person that purchases a really expensive running shoe is probably a poor runner that jumps into it too fast. They think that the shoe is the best way to get themselves in shape. Rather than picking a shoe based on feel and fit, they pick the most expensive one. These types of consumers and probably more likely to be runners that don’t train properly. The best runners that I know do not have the most expensive shoe on the rack; they have the shoe that feels the best.