California digitizing textbooks?

In what maybe a decent move to usher in some semblance of fiscal management of the California Budget with its gaping hole, as wide as the recently discovered Borealis Basin on Mars, Gov. Schwarzenegger is talking about introducing digitized textbooks in schools - K1-K12. By some estimates, California Government's share of the textbooks comes to around $300 million (smaller than the cost of building a B2 bomber) but large enough to warrant discussions to reduce it. It is pertinent to note that digitized textbooks have already been introduced in some schools in China and other parts of the world. One of my clients is a leading promotor of digital education services in China and the company was able to profit rapidly from the Chinese government's deregulation of the Chinese education industry. Tons of paper is saved as well, which will net the California Government a large amount of carbon credits that can be further off loaded and traded in the green exchanges. Finally, information can be updated on the fly so that students do know that the Borealis Basin in the Northern Martian Hemisphere has replaced the Hellas Basin in the Southern Martian Hemisphere as the largest impact crater in the worlds we know of or that Pluto is no longer a planet in our solar system. Wait! How would the creationists react to the digitized era? That's a question best left to anyone's imagination.

Pressures on the dollar as a reserve currency

Recently, Brazil and Russia announced that they will be parking about 5 to 10% of their foreign exchange reserves in IMF bonds whose underlying currency is the Special Drawing Rights (SDRs). The amount is expected to be $10 billion each. China is expected to contribute about $50 billion and India about the same as Brazil or Russia. The BRIC (Brazil, Russia, India, China) countries seem to want to start exploring alternatives to the US dollar as a reserve currency for global trade. While it is very premature to consider whether the US dollar will be ultimately replaced by the IMF's SDRs as the world's reserve currency, we can speculate that the BRIC countries want a bigger voice in global affairs and would probably contribute to IMF programs only based on how the value of their vote grows. More the say these countries get in the IMF financing process, the more they will contribute. While China holds the world's largest foreign exchange reserves, India holds the third largest and Russia the seventh. Together, these countries can make a significant impact on how the dollar continues to be used as the world's reserve countries. What that means for most of us is that, as the long-term US treasury yields inch up when the treasuries get dumped in the market, the mortgage rates which track LT treasury yields will spiral upwards. For people who refinance in a declining home value market, this is awful news as they'd have to pay higher monthly payments on a declining home value market. For new buyers, the price reduction of homes has to be steep enough to allow them to be able to afford the monthly payments. The US mortgage market will work only as long as the LT yields are in control. Do we see another crisis here? 

A wealth of search

There appears to be momentum gaining for newer types of search engines - engines that pay people for how much their words have been looked at and/or used as a reference by other folks. The more the attention you get, the more you get paid. Topsy (www.topsy.com), a search engine, that is focused on redefining search by not only looking at how many times your pages are linked but also who is linking it and how it is linked, may be trying to usher in an Internet version of getting paid for the influence one commands among a community. While the scale of such search engines may not match the generic engines such as Google or the redesign MSN engine Bing, there exists a reasonable business case for such engines to coexist with or within large search engines. The question is how far will this paradigm be extended? Will we see a day where search results are returned based on precisely how the author of the content wants it to be shown - to the most relevant community and to the persons commanding the higher influences within it?

IP Valuations - a tricky issue

My prediction is that buying and selling IPs is an area where America may still lead the world. We live in a new America where there is price pressures on everything from private jets and yachts to a bar of soap. So, we need to ask ourselves, in which sector would there be better price discovery, a good real return and a marketplace where smart investors can make money. I am not so sure about trading in the green energy certificates as I still dont know where the spread would come from, but I am more optimistic on buying and selling intellectual property (IP). IP is a tricky area - unlike commodities, it does not have a form or a shape - it is an idea and essentially we are looking at how much an idea is worth now and how much will it be worth a few years from now. We trade on those premises. While IP trading is not exactly new, valuation methods that help value these intangible assets are subject to plenty of government and legal interference -  a trend that should be avoided but nevertheless exists. In an IP world, a new IP that is patentable is always substantially different from anything existing right now. Ergo, by its very nature, the new IP poses a valuation issue. In the absence of public and financially deep trading markets, there is no market pricing to use. We, at Accuserve, think a lot on how to use various techniques to narrow in on a range but we've seen that calculation methods return a wide range of results. How does one determine that an IP right now will be useful, say, 10 years down the line? That is the tricky question. 

Small business M&A transactions drop precipitously

According to the State of the M&A Markets, First Quarter 2009 Update, compared to 4Q08, transaction levels decreased in all valuation segments except deals with values above $250 million. The most dramatic decrease was in the $50 to $100 million-valuation range, which dropped 52.1%. When 1Q09 is compared to 1Q08, deal activity is down at all levels, with the most significant decrease [again] taking place in the $50 to $100 million-valuation segment. During this period, the number of transactions dropped by 70.4%. 

Health Care reforms - cuts in R&D budget?

We are entering a very interesting phase in the history of governance in America. The democratic federal government is all set to usher in health care reforms - the core of which is offering a public option for insurance and playing an increased role in setting price limits for various medical services ala the NHS of the UK or the services in Japan. How will all this affect the flow of dollars to R&D grants for small companies? I believe that small companies will have to compete harder to get government grants and will have to operate under significantly reduced R&D budgets to achieve even break even revenue models. Generally speaking, despite active price controls in the Switzerland, their drug companies still lead the world in innovation. But, this was largely financed by revenues from markets such as the US. Will we see an outsourcing of R&D to places outside of the US and more outsourcing of clinical studies to outside the country? Time will tell but all indications are that a public option for health insurance will put a serious dent in the R&D budgets of the small drug discovery and biomedical devices companies. We for one will increase the discount rates when valuing such companies as there is a greater risk of achieving break even cash flows.

Wi-Fi in Virgin America planes

I am traveling from NYC to San Francisco right now and I wanted to test the Wi-Fi service that Virgin offers on its planes. My idea is to stream a movie - Red Rock starring Nicholas Cage -  from Netflix that I have been wanting to watch for some time now on my laptop. Everything started out hunky dory as we hovered over JFK and I actually got to watch about 15 minutes of the movie at regular speeds. But after a while, the speed started to dive. I had just finished telling a steward that the speeds were good enough for me to stream movies. That jinxed it I guess. I am going around the plane and seeing that plenty of people are on their lap tops. I can bet that a significant portion of them are accessing the Internet through the onboard Wi-Fi service. The onboard Wi-Fi service, called GoGo, costs $12.50 and hopefully will go down as the technology matures. I wonder if there just isnt enough bandwidth for all of us to access the Wi-Fi or its just that the W-Fi is faster when passing over cities and drops as we fly over unpopulated areas. But I believe the days are not far off when steady Internet speeds onboard a plane are a reality.