Sunday, September 13, 2009

San Fran and SOCAP09

I was in San Francisco last week to attend SOCAP09, the second edition of an annual conference focusing on social capital markets. Social investing is the fastest growing segment in the broader social sector, the boundaries of which keeps expanding by the way. Pure-play VC firms doing clean tech or PE firms focusing on emerging markets with no particular social emphasis in their mission are arguably part of this ever-bigger social sector.

The place was bustling last week and there seem to be so many new initiatives – I try to keep informed on what is going on in that space but I was blown away by the number of projects that I did not know about. The level of excitement and activity made me feel that social investing is on the cusp of a tipping point. Maybe it is a fad and nothing much will happen, in that social capital will remain marginal in the greater investment community – but it has the potential to become really big.

My sense is that the size of the socially-conscious investment community is going to grow, mainly through institutions or individuals that may not have that sole focus but 1) are under some obligation to be perceived as more socially-focused, 2) are interested to diversity their asset base and as such, view investing in emerging countries or focusing on clean tech as potential big wins.

The labor market in terms of number of folks, and particularly recent MBA grads, anxious to enter the sector is going to explode for sure. It is one of the hottest areas for MBA students right now and a lot of them seem to be ready to do anything to intern in the sector for free... Now, they won’t work full-time for free for long, thus the sector will have to grow and hire for that enormous interest to be fulfilled.

But this whole sector of social investing could become humongous… It will be fun to be involved and follow its progress.

On the by the way mode – and yes, I like making digressions - the conference took place at the Fort Mason Center in San Francisco, a very cool place by the water that houses a number of local nonprofits. The view of the Golden Gate from where we were was to die for – what a gorgeous city in general, wow!! Who is moving there with me??

Wednesday, September 9, 2009

If Puzzled, Play it Cold…

Alright, folks, I am going to be honest with you, I am puzzled… The stock market is going up and down: it had a strong summer since early July and fears of catastrophe (the DJ index hitting 6000 or even 5000) that went around in March have totally vanished, so it seems. However, the index took a hit last week and I have also read a number of comments to the effect that the stock market with its sharp rebound since March and a good performance in 2009 (about a 10% increase overall) is getting ahead of itself and is showing too much confidence in the soundness of our economic system and the strength and imminence of the economic recovery.

It almost felt good when I heard several folks on CNBC last week say that they had no idea where the stock market was heading… I still have a hard time reconciling the couple of apparently very solid explanations that I got in March about the possibility of the Dow hitting rock bottom (way below 7000) and the current seemingly widespread feeling that a Dow below 9000 seems rather unlikely. How did we get from one to the other so quickly?

Also, the question of the US public debt is an interesting one… Some numbers came out in the past 2 weeks, to the order of 7 to 10 trillion (depending on whether you count the free espressos in or out I guess…) as the US public debt total by the end of the next decade. Those are astounding numbers, aren’t they? But obviously, you have to look at what they represent relative to the US economy and to the country’s ability to sustain debt over the long run. On those two aspects, NYT columnist and Nobel Prize Winner R. Krugman says that we should not worry. In his blog entry The burden of debt, he mentions the examples of the Belgian and Italian economies as having taken on much more public debt as a % of their GDP than the US is currently and also draws a lesson from US history as the country had a huge debt after WWII that went down gradually as a % of GDP (despite the arm race with Russia) because the economy grew so much during those years. His point is that you don’t have to repay your debt as long as you stabilize it over time.

Warren Buffett in another NYT column, The Greenback Effect, argues that as long as there are folks out there who are willing to buy US Treasury bonds, the US economy is good to go. However, he does point out that this lifeline is the country’s very danger because once the Chinese and other sovereign funds stop buying those US Treasuries, guess who will be in major trouble. What that means is that the dollar should continue to be viewed as a currency of reference and the US economy has to be perceived as having reasonably strong prospects.

I find all of this a bit unnerving though - both Krugman and even Buffett seem quite optimistic to me. With the country having a huge amount of private debt ($13.8 trillion or 120% of the US annual income in 2008) as well - though the financial meltdown has prompted lots of folks to start to repay some of what they owe and to engage in saving, I am not sure I see how the “fundamentals of our economy are strong”, as McCain famously said amid the meltdown last year. The Obama administration is arguably not saying that exactly – nor is Krugman – but they are not that far.

I’d like someone to explain to me how a system can sustain itself and remain the anchor of the global economy over time with so much private and public debt – how about some serious systemic risk? Anyone?

PS. By the way, and let me go on a tangent here, I was just in San Francisco last week and on my way back I listened to Coldplay’s Viva la Vida album on the plane. I knew the main song only and I really liked Cemeteries of London and also Lovers in Japan. I’ve missed Coldplay a couple of times in concert in my area but good news - after my wife Anne and I saw a piece about Chris Martin on 60 Minutes some time ago, I think I finally convinced her to go and see them in concert… well, now they have to come back to the States…