MIT

MIT is 150. The Buzz’s oldest brother is an MIT grad where he played soccer. The Buzz thought that by osmosis this might qualify for admission to the patent bar but no such luck. The Commonwealth of Massachusetts approved a charter in 1861 for the “Massachusetts Institute of Technology and Boston Society of Natural History.” The name was subsequently shortened. MIT grads founded over 26,000 companies including everything from publisher of Guitar Hero and Bose to Intel and HP, and those companies collectively would constitute the 17^th largest economy in the world. Grads include everyone from Click and Clack of NPR’s CarTalk to Buzz [no, no relation] Aldrin to Benjamin Netanyahu to I.M. Pei. Its first woman instructor was Ellen Henrietta Swallow Richards, the first American woman to earn a degree in chemistry, who also studied at MIT in 1870. A founder of the American Association of University Women, Richards died almost exactly 100 year ago. There is no truth to the rumor that MIT has no Division I football team because other schools protested that MIT’s student’s ability to work calculations on the fly concerning ballistics would be unfair to other schools. We say, when visiting, watch out for smart attacks!

-- Paul Marotta

Hold ‘Em

Since its inception, the Internet has been shaking things up due to its global reach. We predict that it will continue to do so in stronger and stronger ways. Beware repressive governments; your people see freedom across the border. The latest example is the unfortunate indictment of the founders of three leading gambling websites. These are legal businesses located in other countries, but which take bets from US citizens. The US has seized their domain names and bank accounts, charged them with wire fraud, and sued them in a civil action for $3,000,000,000, all for conducting a legal business in the country in which they are located. The US is in a minority of countries that have made online gambling illegal. As the Buzz’s father used to say, “The Government prosecutes the Mafia because it hates competition.” The regressive tax on people bad at math called the lottery is OK but not online gambling. The US has even gone so far as to arrest gambling site execs as they visit the US. We guess multiculturalism is bad only when it involves things you decided to make illegal.

-- Paul Marotta

The Face Book

We were glad to see the Winklevoss’ lose, finally, in their second battle against Facebook, after settling once for tens of millions of dollars and then changing their minds about how much they got. Raw ideas are cheap while good execution is critical, and rare. An unpatented idea is worth very little. But Facebook faces another suit from an alleged investor who bought half “The Face Book” for $1,000. He might be late to the party since he waited seven years to bring suit. He claims that he forgot about the deal, but with Facebook and its value broadcast across the globe you’d think he would have paid more attention, earlier, had the deal been real. Facebook claims it is a fraud, but Paul Ceglia, the Plaintiff, is back with new and improved lawyers who claim they’ve vetted his claims and who, we are sure, are on a contingency. You can read the amended complaint here. This time Ceglia has produced emails between Zuckerberg and himself. At one point Zuckerberg complains that a provision giving Ceglia an additional 1% ownership for each day delay in launching the site is unfair because Ceglia could have an ownership stake of over 80%. This battle may last a while due to the amount at issue.
-- Paul Marotta

Signs Of The Times

If we knew what was going to happen, we’d likely be trading whatever it was we knew about. So we wear our ignorance of the future proudly. But we were interested recently in two events that might point in the same direction, and not a good one for business. First, the Pimco Total Return fund cut its holdings of US government debt to zero. The largest bond fund in the world at $237 billion has no US government debt in its portfolio any more. In a March investment outlook letter Pimco said that it thought the Fed was buying 70% of government debt since QE2 was sprung, which it likened last year to a Ponzi scheme. The Fed is now buying treasuries at $100 billion a month. Pimco said rates may have to go much higher in order to attract buyers. Second, Carl Icahn is returning investor money and said he is unwilling to manage money through another downturn. He is apparently joining Chris Shumway who is returning $8 billion of investor cash and Oaktree Capital which is returning $3 billion of $10 billion it raised. In a letter to investors Icahn said that he did not wish to be responsible to limited partners through another possible market crisis. “While it may sound ‘corny’ to some, the losses that were incurred by investors in our funds in 2008 bothered me a great deal more, in many respects, than my own losses.” We say bully!
-- Paul Marotta

Whoops!

Everyone has sent emails to the wrong person, and if you are sending your email to the people you intend to sue beware. But more surprisingly you need to beware if you read the email sent by your future nemesis. In Terraphase Engineering, Inc. v. Arcadis, the court actually disqualified the layers who read a wrongly sent email message. The former employer of a group of departing employees believed the employees had stolen trade secrets and the departing employees thought the employer was interfering with their customers. The former employees sue first. But in preparation for that suit, their lawyer sent an email to an old email address at the defendant. The defendant’s in-house and outside counsel read the email and an attachment discussing their strategy. When the employees complained, the court took their side disqualifying the employer’s lawyers who read the email message, citing a lawyer’s ethical obligation to not read privileged documents. We think there is some moral hazard created here, and the opinion went too far protecting a sloppy lawyer. The message: If you want to disqualify opposing counsel, send them a bunch of secret emails and hope they read one. We say, “Boo.” -- Paul Marotta

“People’s IPO’s”

Former Soviet satellite Kazakhstan is planning some People’s IPO’s, as state owned firms are sold off and the wealth shared. In part to fight claims of a corrupt ruling elite (pardon our cynicism, but which country doesn't have one of those?), and in part to benefit its citizens, certain state owned companies are to be floated. For example, the production subsidiary of the state owned oil company will float 5% of the company on the Kazakh stock exchange. It is already listed on the London exchange. Said Kazakhstan president Nursultan Nazarbayev, “This is an event of paramount importance to the state...the whole world is earning money on stock markets and citizens of Kazakhstan should also learn how.” The actual wealth comes from hard work, smart decisions, good business, and a good investment climate, but a stock exchange certainly has a part to play in wealth creation. Although we find it ironic that we have yet another politician trumpeting the sale of the people’s asset to the people who already supposedly own it. Maybe another way to do this could have been for the state to divest itself he oil company in favor of the Kazakh citizens who then could have sold or kept their shares as they saw fit and elect professional management rather than politicians to make these business decisions. We won’t hold our breath.
-- Paul Marotta

Profits

Those not ignorant about things economic know that profits are what are left over after business is conducted. We hear a lot about “obscene” profits and that “now is not the time for profits.” And we wonder why we are in an economic stew? Profits are the return on capital like wages are the return on labor. Without profits we would have no risk capital, no equity, and no funds to start businesses. Higher profits encourage more savings and investment. Without profits the only capital available would be bank loans, and those would be looking for collateral. If now is not the time for profits, then it must be the time for stagnation, huge start up costs, lower employment, lower wages, lower economic activity, and third world status. Without profits there are no 401K’s, no IRA’s, no college funds, and no retirement accounts. And what are profits? They are either used to hire more people (good), buy more goods (good), or distribute dividends to investors (good). And profits come from those who voluntarily engage in business. Think GM’s profits are grossly obscene, don’t buy their cars; think Blacked Eye Pea’s concert profits are grossly obscene, don’t go to their concerts; think Walt Disney’s profits are grossly obscene, don’t see their movies or visit their theme parks. Think an insurance company’s profits are grossly obscene, don’t buy their insurance or, better yet, buy some of their stock and get some profits for yourself. Until massively huge, grossly obscene, gargantuan profits are encouraged from every source possible, we’re economically doomed as financial illiterates.
-- Paul Marotta