Cluster$%#@ to Power

This is the worst possible scenario.  Amidst the most severe economic turmoil since the Great Depression, Canadian politics got interesting.  Not good.  Of course, I hope no one is under the impression that the concerns of the guerrilla faction, namely the leaders of the opposition parties, is entirely concerned with the absence of a stimulus package.  The plans for this coup were put in place weeks ago by Jack Layton and the Separatists; and there could not be a worst time to be getting politically creative, it will be the economy that suffers.

Canada's economy, still regarded by many as a bastion of stability amidst the world's other large economies, actually exceeded analysts' expectations last month while others continue to falter.  The country's gross domestic product expanded by an annualized rate of 1.3%, the fastest in a year, last month, a month which saw some of the most volatile stock market movements in 20 years.  While Britain and the U.S. wane under the pressure of the crushing lack of credit, Canada's approach has squeezed stability and modest growth from our industry.  Obviously, it is unlikely that this will continue with exports declining as they are (1.4% last quarter, the fifth straight decline), but a rash, emotional approach to this situation will destabilize confidence and certainly create uncertainty.  The wherewithal of a coalition government, one led by Dion and backed by socialists and separatists, is, though historic, an unlikely, unproven, and confusing alternative to what is in place now.  

The Canadian dollar will certainly depreciate as a result of this politically driven turmoil, and considering the fall in commodity prices and weakened American demand, will not prove advantageous to the Canadian manufacturing and resource industry.  Interest rates will rise in pursuit of fleeing capital, which will make credit even less accessible, making investment in infrastructure and development less productive and less profitable.  

A stimulus package from a coalition will undoubtedly be influenced considerably by the NDP, preying upon the acquiescence of the Liberals, desperately clinging to power.  A socialist stimulus package would likely be focused on consumers rather than industry.  Rather than corporate tax breaks and subsidies to provide incentive and support for investment in infrastructure to support sustainable growth, for example, the coalition would benefit most from a package that pacifies voters with consumer focused incentives, such as Bush's tax rebate that delved out about $1,200 to each citizen in the U.S. last February.  As Bush's example showed this type of incentive program would prove ineffectual, even disastrous, since consumers are free to spend as they wish.  The $1,200 that Bush dished out went, in large part, to foreign exports, which is no help to the domestic market, some even stashed the money in the bank for darker days, like today.  The Liberals do have some economic heavyweights that seem poised to act as advisers, if a coalition is to take over governing, who would likely see the impracticality of this approach.  The issues are that the Liberals may have no choice in the matter and as a result, no one knows what is in store or who would be involved or in which capacity.  

The point is that the very economy that the coalition says it's protecting will suffer on account of their actions, certainly in the near-term, likely in the long.  The cornucopia of potential quagmires we are headed towards if we are led by a coalition government of liberals, socialists, and separatists is a distasteful, abhorrent, godless thing to behold.  Of course, the Conservatives are not without blame in this mess, and there are points in their fiscal update that definitely deserves vilification, but to usurp the government as its walks a tight rope through these volatile times is hypocritical to the very cause the coalition seems committed to resolve.  In the long-term, this may prove as politically disastrous for the liberals, NDP, and Separatists, as it will prove to the economy in the short-term.

Why Hank Paulson Let Lehman Brothers Go

The reason Hank Paulson let Lehman Brothers fail, according to a Wall Street insider, is because he hated the CEO, Richard Fuld – the man who got punched in the face while exercising at his company gym. Seems Paulson was not alone in those feelings. Paulson, who rose up the ranks to run Goldman Sachs, is leading the government program to get the American stock market back to its punching weight.
“Thank heavens Paulson’s doing it,” says this leading investment banker, as we chatted at the St Andrew’s Ball, waiting for the next Scottish dance, Strip the Willow, to get going.
“He knows what he’s doing and this is a situation we have never seen before. He's not going to let Goldman Sachs go because it's the centre of capitalism. If that goes, the very essence of capitalism goes too.”
The banker went on to explain that in the USA, if a business person joins government, they get a once-in-a-life-time chance to sell off all of their business interests tax free. For Paulson, this was reportedly about $600M in tax free savings as he made the switch from Wall Street to the government. Apparently this is a great incentive to get top quality brains working for the government.
Agreed.
It does show you that even in melt downs, who you know and who likes you still counts.

Confused by the Credit Crunch?

Having a hard time understanding collateralized debt obligations? Those financial instruments that got us into this financial mess are confusing many investors.
Marketplace Senior Editor Paddy Hirsch gives a superb lesson on how this credit crisis started and may give you a sense of when it may end.
Check it out:
http://www.youtube.com/watch?v=eb_R1-PqRrw

Someone to Watch Over You

I listened to a speech while lunching at Bay Street's secret handshake club last week where the guest speaker was Tom Hockin.
He told us not to tell anyone else, but since the finance industry was in such a crisis, now was the time to stop the madness of 13 separate regulatory bodies and merge into one.
Mr Hockin had travelled across Canada, putting together legislation that everyone - except Quebec - agreed to support.
Appears that The National Post got the story a few days later:

Canadian businesses would no longer have to file securities filings with 13
different provincial and territorial regulators, as they have for decades, and
brings to an end a much-criticized regulatory system described as "convoluted",
"unwieldy" and "Byzantine".
Instead, stock and bond-issuing institutions
would have to file prospectuses and other regulatory documents with only two
regulators -- a national body and its Quebec counterpart.

I'm Quiet and Thoughtful - Really!

Let’s talk about the real stars of Dragons’ Den – the brave entrepreneurs pitching their stories.
Did you know you can find past Dragons’ Den some of these people blogging on the CBC website, commenting on the deals and the Dragons?
It’s all very impressive.
In another reality show, The Bachelor, the girls who compete to win the heart of the single male return for one episode to confront the poor fellow.
Unlike The Bachelor, Dragons’ Den does not dedicate a show to the entrepreneurs returning to roast the Dragons - Arlene, Brett, Kevin, Jim and Robert.
To give the CBC credit, it lets fans know how the entrepreneurs and their businesses progressed and gives past winners, like Trent Kitsch of SAXX, their own blog too. But here’s the thing: participants can get in their two cents about their deal by blogging on the Forum just like TomChalker of dataSentinel who helpfully answered other bloggers’ questions. If you are expecting mildly depressed, dejected entrepreneurs who harbour ill will, forget that.
There are the budding armchair venture capitalists, like Dannolin and Pinebox, rating the merits of each business or venting about their own Den experience. Reading the past contestants and their often provocative takes on current pitches is fascinating because these guys know their stuff. It’s as if they’ve been through the miracle of entering the Dragons’ Den as innocents and emerging as venture capitalists (with tougher comments than Jim or Arlene would ever utter.)
The leader of the blogger pack is Ralfcis – he of the “sharpened keyboard” – was an engineer at Nortel. With his quirky wit and prolific writing, Rolfcis could make a career change from engineer drop-out to ad copy writer. Ralfcis describes his experience on a previous season of Dragons’ Den and as I read, it all came flooding back. Rolfcis was expecting a display table where he could spread out his samples. Instead, he had to stand up and pull out each item from the bag. Needless to say, things did not go well.
Rolfcis blogs about the good natured reaction to the pitch by Dragon Laurence Lewin, who sadly has just lost his battle with cancer.
Allison of Ariel Angels blogged all the way from Dubai to recommend a book called What Makes Things Stick. At first I was dubious and thought she just wanted to make Kevin O’Leary stick to the wall. In fact, the book’s inspired by Malcom Gladwell’s best seller book, Tipping Point and is a must read for anyone selling a product.
Maybe the bloggers could run a book list?
My happy browsing came to an abrupt halt when I read the name of a blogger called Darryl Koster. Hang on a mo. Isn’t he the pleasant CEO of Buster Rhino, that delicious sauce signed on with Brett Wilson and Robert Herjavec?
In the CBC Forum, Darryl Koster, the CEO, reveals to us that he turned down Brett and Robert’s deal. When I read that I went oooh nooo!
Where was the spoiler alert, Darryl?
I know there’s that six month delay from filming to the airing of the show but think about it, if you found out before season end of The Bachelor that the final girl has split and is living cheerfully with someone else, wouldn’t that be a huge let down? Darryl does make up for it by giving great website and technology advice to other presenters which may mean I have to vote him the season winner. Darryl, can you check out my website and give me some feedback?
There are many financiers who build their careers from the engineering profession and one of those people is the Big Kahuna blogger, Dragon W. Brett Wilson. How great is that to have a Dragon cruise around the Forum and drop in to blog?
Brett does not do much chit chat on the TV show except when he revves at warp drive to do a deal. Fasten your seat belts, ladies and gentlemen. The bloggers do appreciate how Brett shows up on the chat forums explaining why he made decisions and answering issues raised. He also says that he is not as the CBC portrays him – quiet and thoughtful.
Are you kidding, Brett?
That’s like describing Clint Eastwood as quiet and thoughtful. You are in the entertainment industry for a reason; it’s not because of your bookish ways. But don’t worry, your secret’s safe with us.
The bloggers do spend a great deal of time debating whether the show is better or worse with Kevin’s dramatics. One blogger calls Kevin a troll hiding under the bridge waiting to trap entrepreneurs which is a gross insult and unfair to trolls worldwide. Yet, I do believe Kevin really does the fairest exchange on Dragons’ Den as he teaches while he makes his decisions. After going through the hour meeting with Kevin, not one entrepreneur could possibly say, “I do not know why he did not invest with me, why my business needs to be changed, how my revenues might not reach the amount I expect or what I need to do.”
Not one Angel investor out in the real world would give anywhere near that much information for an entrepreneur to take away. In fact, investors say, “I like your plan but could you give us a call in a year?” That translates into au revoir. Most entrepreneurs would prefer to get more feedback than that.
I notice many bloggers have picked up Kevin’s key phrases too – the sign of a great teacher:
Let me use my time machine, slash, crystal ball and visit the future to imagine how the business revenues go.
Here comes Kevin and his bus.
How do we make moneeeeeeey.
Brett on the other hand chooses to share his investment strategies after the fact on the blogs. Either way, I think this sharing of knowledge is a fair swap between presenters and Dragons.
There is the trade theory that when people show each other their goods, it creates more perceived value, even though money may not have exchanged hands. The Dragons’ Den has entrepreneurs show their businesses and Dragons give their analysis and, sometimes, cash. Maybe this does create good will.
Several bloggers, like sslondon, liked the Dragons giving away cash in cheap loans because they had sympathy for someone’s situation. Brett Wilson and Robert Herjovec have done this so far and the Forums fans eat it up. I hate to rain on the parade, but if venture capitalists and Angels practiced this style of investing, they would be bankrupt within the year. Most businesses have their investing rules and deal structures. Doing venture capital and then veering abruptly to the left to give a loan or two means way too much complication for your average VC to manage.
Firms tend to do their philanthropy separately and for good reason. Maybe a philanthropy option should be built into the Dragons’ Den rules as a life line to be given once during the season, but Kevin O’Leary is right: feeling for a business owner is generally not the way the prickly world of investing works.
Kevin is teaching entrepreneurs how to fish; actually, he’s teaching how to spear gun and he doesn’t just hand over the darn fish.
For all you past contestant bloggers – here’s an idea for you:
What about a road show? You could call it, Lessons Learnt in Dragons’ Den. (Ralfcis, I’m sure you could come up with a catchier title). Maybe the sponsors like Profit magazine or EDC would be interested in supporting an event? Perhaps the School Boards may like you speaking to their high school students taking business classes. There are many entrepreneurs out in Canuckland who would benefit from hearing more from your side. I know I did.
Just a thought.