The Week That Wasn't

The On-Demand Economy

Consumers want what they want – and they want it now.  Technology drives visual discovery sales platforms offering instant gratification to consumers, one-click sales for producers, and higher advertising fees in the form of targeted electronic campaigns.  Big business is succumbing to the pressure as well –- just this week CBS announced an extension of its deal with Netflix, having already bolstered its video deal with Amazon. On-demand economy / collaborative economy / crowd-sourced economy — whatever you want to call –- it’s a large piece of the overall business landscape today, and a key area of focus for early stage companies.

 The Week that Wasn’t

In the public markets, this week was more about what didn’t happen. Alibaba’s grand IPO was planned for 8/8 – those numbers being such lucky numbers in China. But the company decided it better not upset Wall Street by delaying the Hamptons pilgrimage on a Friday in August (banking fees not representing adequate compensation for that hardship). Both Fox and Sprint decided to take their toys and play elsewhere, thank you very much.  It seems odd that a little resistance from Time Warner and the FCC would be enough to squash the likes of Rupert Murdoch and M&A bankers in hot pursuit of lofty fees. Oh — and one more thing left undone –- the US stock market failed to collapse. Despite all the hand wringing, we couldn’t even manage a third consecutive down week for the S&P 500.  Disappointing.

The Great Bull Run is Over

That’s right, you missed it. Not the stampede to higher prices in stocks and bonds, but the running of the bulls. And not Pamplona, Spain — we’re talking East Bay. Yes, on July 26th Californians payed up to $75 each to run in front of the brutish creatures. It reckons of demo day –- when stampeding young enthusiasts with disruptive business plans use loud music and wild theatrics to woo potential Angels and VC backers. Would you rather be gorged by a practically domesticated bull, or hit by rubber ball hurled from a t-shirt and sports coat wearing accelerator guru — isn’t there a better way??

But wait — what was the date of this bull running — July 26th? That’s about the last time the S&P 500 sat an all-time closing high of 1987 (ominous in itself). Ah, the good old days. Since then it’s been straight down — or so the media would have you believe — to the tune of 3.5%. For all the talk of cratering equities, collapsing junk bond markets, Argentine default, war in the Gaza Strip and renewed American military activity in Iraq — a 3.5% correction and a reading of 17 on the VIX (CBOE Market Volatility Index) do not a crisis make.

Relative Value

The search for attractive investment opportunities at a reasonable price – now that’s enough to get one a little agitated. The two obvious choices are the S&P 500 at 19 times earnings and the US 10-year Treasury note yield at 2.4% — a mere 33 years into its current bull market. Yes, it’s been 33 years since yields peaked out near 16% and everybody hated them, to the extent that US bonds were lovingly referred to on Wall Street as “certificates of confiscation”. If the current two-and-a-half percent annual payout isn’t enough to get you excited, you can always reach for a little more yield in bastions of stability such as Mexico or Iraq. Bond yields in these countries don’t appear to be adequately compensating you for holding onto your hard earned cash:

Japan             0.5%

France          1.5%

Spain             2.5%

Mexico          3.4%

Iraq               7.4%

7.4% in Iraq – and that’s after a 100 basis point sell-off. I would rather give my money to carefully vetted entrepreneurs with interesting products, thoughtful business plans, existing customers, and highly scalable sales models. Sure, it’s a certainty that many of these will fail, but some will generate substantial multiples on the dollar values invested. Versus the Iraqi 14-year bond, which after all the tribal warfare, foreign military intervention, and burgeoning refugee crisis, has a chance at returning, well –- a little more than what you invested in the first place.