4/30/2016

China Investing in Venture Capital

China has set up a 338 billion dollar government backed venture fund for tech startups. The bulk of the capital comes from tax revenue and state backed loans. China opened 1,600 incubators for startups in order to ease its reliance on heavy industry and diversify into entrepreneurship and innovation. But this could induce higher than normal valuations and a boom bust cycle. Inexperienced or corrupt managers are likely to invest in dozens of regional copycats unable to get big enough to be profitable, this will result in catastrophic losses for the government. All this money could just be too much to handle because there aren’t enough experienced managers or quality startups to invest in. Venture capitalists typically fund a fraction of pitches they receive, yet investment managers in China who don’t deploy their money will risk getting a smaller allocation from the government the following year. It’s wrong to assume more money will drive innovation. Instead, the government should work on offering greater freedom of information and better education to promote entrepreneurship.

Wall Street Executive Pay Reform

Regulators are trying to change the way Wall Street executives are paid. Executives would make risky bets, which boost their pay. They then collect large bonuses before the fallout is clear. Under the proposed rule, if the bet doesn’t pay off, the bank can demand that the executive return his bonus. The bonus would be paid back in 4 years. People say the regulators aren’t going far enough because this wouldn’t of stopped the big bets leading up to the financial crisis. They can argue the executive decision was not responsible for losses and the government will just impute a fine on the company. Trump says that we should accept the fact that executives make a lot of money. JPMorgan Chase boosted the pay of its chief executive, Jamie Dimon, by 35 percent last year, to $27 million.

Verizon and Hearst Acquire Complex Media

Verizon and Hearst jointly acquired Complex media for $300 million. This shows mobile video is important to the digital media landscape. Verizon loves acquiring digital media companies like AOL and possibly Yahoo. We’re in the early days of Internet video channels. The decision to acquire Complex is a continuation of their media strategy, which is focused on disruption that is occurring in digital media and content distribution.

LinkedIn’s new App

LinkedIn made a new app specifically towards college students called “LinkedIn Students” The app helps students quickly create a profile (if they don’t already have one), find career paths and job postings that relate to their major, and connect with alumni who studied the same topic. All suggested jobs will be based on LinkedIn’s algorithm.

YouTube live streaming 360 video

YouTube introduced a new feature where they live stream 360 degree video. You can now sit courtside at a basketball game without being there. This YouTube feature can be the gateway drug towards the transition for people using VR. You just open the YouTube app on your mobile device or launch it on the web and you’re ready to go. This is cheaper than Facebook’s Oculus Rift, which offers cutting edge virtual reality, but retails for $599, not counting the $1,000 gaming PC that powers it.

360 video is not VR because it lacks space awareness and stereo. But it will be a useful stepping stone, something that will play a critical role in helping the fledgling VR industry get off the ground.

President Obama’s Plea for Britain to Stay in the EU

Obama spoke in Britain in order to convince them to stay within the EU. The UK provided a foundation for democracy, open markets, and the rule of law across Europe. But today we face tests to this order, which include, terrorism, migration and economic headwinds. Obama said that America needs the UK’s influence in the EU. When negotiating the Iran deal the EU’s seat at the table magnified the United Kingdom’s voice. When the climate agreement in Paris needed a push, it was the European Union, fortified by the United Kingdom, that ultimately helped make that agreement possible. In terms of trade, UK helped establish the Transatlantic Trade and Investment Partnership, which is to create a gigantic free-trade zone between the EU and the US. When it comes to creating jobs, trade, and economic growth, the UK has benefited from its membership in the EU – inside a single market extending across Europe that provides enormous opportunities for the British people.

China to Cut Lending to Zombie Companies

China’s banks have been told to stop lending to zombie steel and coal companies that cannot compete. The purpose is to cut industrial overcapacity and guide state run firms out of debt. The government is trying to drive out the companies on the verge of collapse. This will cut millions of steelmaking jobs and undermine social stability as workers struggle to learn skills demanded by the consumer led economy. China is responsible for half of the world’s steel production. And china consumed 46% of that. But demand is slowing.

Warren Buffet’s Advice

In Warren Buffet’s 2000 annual meeting he talks about his investing strategy when measuring competitive advantage. He says: “So we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesn't necessarily mean the profit will be more this year than it was last year because it won't be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat that's tenuous in any way — it's just too risky. We don't know how to evaluate that. And, therefore, we leave it alone. We think that all of our businesses — or virtually all of our businesses — have pretty darned good moats.” Buffet said at his 2016 shareholder meeting that “All you wanna do is figure out what makes sense. When you buy a stock, you wanna have the frame of mind that you're buying a business. You don't wanna to get into a stupid game just because it's available." “American business as a whole is going to do fine over time. A lot of problems are caused by envy. You don't want to get envious. Follow your own course."

Amazon Makes a Profit

Last quarter, Amazon delivered an all-time record high profit of $513 million, and on sales that grew 28% year-over-year. If you think it’s Amazon Prime powering the way, you’d actually be wrong. The real cash cow? Amazon Web Services, the company’s 10-year-old cloud computing business that rents computing capacity to all sorts of startups—and a number of large companies too. It has higher margins than Amazon’s e-retail business. Cloud data storage is all the rage these days. Investors were happy to see a positive in the earnings column, and shares jumped 12% after hours.

Health Care Industry Consolidation

Health care giant Abbott Laboratories has reached a deal to acquire medical device maker St. Jude Medical in a cash-and-stock deal valued at $25 billion. This would make Abbott a global medical device giant with specialties such as cardiovascular, diabetes and vision. The deal comes as medical device companies, hospitals and insurers are jockeying for pricing power in a rapidly shifting marketplace. Abbott CEO Miles White said on a conference call that St. Jude's "highly competitive" portfolio of devices will help the combined company reduce health care costs and improve outcomes for patients. St. Jude's products include catheters, heart valves and pacemakers. Abbott's wide range of products includes pharmaceuticals, nutritional items and contact lenses. The deal will require regulatory approvals in a year in which the Obama administration has closely scrutinized mergers and acquisitions.

AbbVie Acquires Biotech Startup

Pharmaceutical giant AbbVie said it would acquire a startup cancer drug developer Stemcentrx in a blockbuster deal that could be worth up to $10.2 billion. Not only would that make this one of the largest biotech acquisitions in recent memory, but also one of the five biggest sales ever of a venture capital-backed company. San Francisco-based Stemcentrx currently has five drug candidates in clinical trials, each focused on targeting and eliminating the cancer stem cells that are responsible for tumors. The furthest along is designed to treat small-cell lung cancer, which accounts for between 10% and 15% of all lung cancers, and is one of the most likely to return after initial treatment. AbbVie CEO said “The addition of Stemcentrx and its late-stage compound Rova-T provide AbbVie with a unique platform in solid tumor therapeutics and complement our leadership position in hematologic oncology,”