Archive for the ‘ Economics ’ Category

« Older Entries

Why you probably might not have what you think you have

Friday, December 9th, 2011
Why you probably might not have what you think you have

The November 2011 bankruptcy of MF Global and the subsequent global search for the million $1+ billion in customer deposits is looking increasingly like the tip of the iceberg. There is a much larger risk scenario that is beginning to unfold.  Pay attention now or suffer the consequences later.

Hypothecation is far more prevalent than you might think
At first blush, you might think that the bankruptcy of MF Global was an isolated situation where a rogue company acted outside of the boundaries of their contracted fiduciary duties to customers.  And you would be wrong. The reason why Corzine will almost certainly not get the Madoff treatment — at least in the judicial sense — is because his customer agreements have authorized the company to hypothecate and re-hypothecate anything on deposit.

So, earlier today I took a look at my TD Ameritrade account agreement and low and behold we have the following on page 6 of the customer agreement, apparently last modified in November 2011:

In other words, property on deposit — including cash — is not required to be segregated. It can be pledged, re-pledged, hypothecated and re-hypothecated at their sole description, without notice and without recourse.  If those hypothecated trades go great, the house keeps 100% of the upside. If those house trades fail catastrophically, the depositors have been exposed to the potential risk that they will suffer without recourse if the company were to become insolvent or bankrupt.  This is counter-party risk.  Is it legal? Apparently yes. Is it ethical? Personally, I don’t think so.  Will it end happily? I fear possibly not. That is why I don’t invest in hedge funds, fund of funds, or derivatives.  The opportunity of obfuscation of ownership just too great.  I would rather own something outright — like investment-grade domain names.

For more perspective on the issue of hypothecation of custodial assets, I strongly encourage you to read the excellent piece from earlier today on Zerohedge, which you can find here.  It was one of the most useful things I read during 2011.  If nothing else, it should serve to make any investor more highly conscious of the true counter-party risk for any investment.  Otherwise you just might end up with the proverbial:

 

Why you probably might not have what you think you have

Tags: , ,
Posted in Economics, Life, Uncategorized | 4 Comments »

Labor is getting a raw deal. Deal with it.

Saturday, June 4th, 2011
Labor is getting a raw deal. Deal with it.

Back in February 2011, I stated that the Double Dip had arrived. That was a somewhat bold statement in February. However in June 2011, that assessment would appear to be indisputable. These 2 charts tell the story of life in uncharted territory.

The Macro Story in just 2 charts
There are many economic charts — housing starts, average home prices, food stamp consumption, etc.  They are all symptoms of the larger structural problem, and that is the rapidly increasing percentage of the population that is unemployed or underemployed, and likely to remain that way for a long time to come.


Over the last 20 years, a vast Human Resources infrastructure was created in order for companies to become great at hiring and retaining the dwindling supply of non-retired talent in the “Baby Bust” when the Boomers started to retire. It turns out that we did not need all that labor after all.  Much of those jobs simply went away.

On the one hand, long-term/permanent unemployment is soaring stratospherically. On the other hand, loss-making GroupOn is on track for a valuation of $20+ billion in their IPO while hedge Fund manager David Tepper bulldozed his $44 million house in the Hamptons.

So, what to do about it?

 

Entrepreneurs create Capital
Capital is winning.  You can win too.  If you start a company, you own 100% of the capital. You can assign a fair value on that capital, and sell some or all of that capital to investors who expect that investment to deliver a higher risk-adjusted return than they are earning on their bank deposits. Does that sound hard? It really isn’t.

Despite all of America’s enormous challenges, this is what makes America great: Entrepreneurs who create something from nothing.  As a serial entrepreneur and past full-time angel investor, I have a lot of opportunities to interact with entrepreneurs.  Here are just a couple of recent examples:

  • GiftBasketsPlus.com: Last week, I had a chance to catch up with Rome Dhanani of zqStores, an eCommerce startup. Rome now has a network of 15 eCommerce sites including his flagship site, GiftBasketsPlus.com which he founded last August. Rome is using open-source eCommerce software from Magento for which he paid nothing. For payment clearing, he uses PayPal Pro which costs him $30 for an unlimited number of stores.  His traffic comes entirely from organic search. He dropships product and clears an awesome margin. With no full-time employees, GiftBasketsPlus is doing multiple six figures in annualized revenues even before the seasonal busy season which starts in October.
  • EZRoam.com:  Over the Memorial Day weekend, I was visiting beautiful San Diego. While there, I had a meeting with startup telecom company EZRoam.  Founder Connan Twomey has bootstrapped a global mobile roaming company that sells you a cell phone which works in 170 countries. The calling rate per minute is far lower than you will pay your regular mobile carrier.  The solution is popular with exchange students and leisure travelers. After less than a year, he has a proven product and is just about breaking even. He has no debt, and his total investment was $15,000, most of which is in the form of physical inventory.
  • Candida.com: Kathy Kalaf depleted much of her life savings battling candida — a medical condition that often goes undiagnosed.  After a successful recovery from debilitating illness, Kathy made a bold investment in the domain name Candida.com. Although Kathy did not have enough capital to launch the business, she approached Epik about turning her dream into a reality through a development partnership that gave both Epik and Kathy a shared interest in future success.  Epik launched her new site 2 weeks ago.

The Bottom Line
Without question, these are challenging times. However, individuals can still maintain control of their own destiny by creating compelling businesses. And for the foreseeable future, I can’t think of a better platform for doing that than on the Internet.

Labor is getting a raw deal. Deal with it.

Posted in eCommerce, Economics, Startups | 8 Comments »

Crackup Booms, Boiling Frogs and Reclaiming Economic Sovereignty

Saturday, February 26th, 2011
Crackup Booms, Boiling Frogs and Reclaiming Economic Sovereignty

A Crackup Boom is a term you may hear more often in the next 18 months. The concept refers to what happens when the “velocity of money” suddenly accelerates as money goes to work to escape the impact of currency debasement through massive purchases of alternate stores of value.  Smart money has already figured this out and is moving fast to deploy capital into assets. Although precious metals and commodities have gotten a lot of media attention lately, farmland is a long-time high-roller favorite. Although outdoing Ted Turner’s 2 million acres may well prove to be a challenge, Online real estate is still a wide-open market ripe for large-scale rollups into significant defendable niches.

Boiling Frogs
It is said that if you gradually turn up the temperature, you can boil a frog alive.   That is actually a myth, which has been debunked scientifically — the frog figures out the “hot tub” thing is not working out so great for them and then attempts to escape.  In the world of consumer finance, the frog is getting pretty hot — underemployed, indebted, living paycheck to paycheck, and now enduring rising costs. On February 22, I declared that the **** is hitting the fan. I stand by that call. The boiling frogs around the world woke up from their “relaxing hot tub”.

What about the Dollar and Fiat Currencies in general?
I have talked previously at length about currency risks, here, here, and here. As the following graphic depicts, the tectonic forces are far from done realigning the economic landscape.  The process “ends” in a currency crisis, followed by chaos, followed (theoretically) by a successor currency regime. Along the way, a lot more businesses close, and a lot more folks lose their economic sovereignty — that is to the extent they have not already lost it.

The Mainstream media would have you believe we are in the midst of a nascent economic recovery and that QE1 and QE2 were good things that accomplished their intended mission of averting a double-dip recession. Not only do I believe we are already in the double-dip, I would submit that we actually never stopped dipping since 2001.  The wealth effect of rising housing prices in the early 2000′s and a stock market recovery were/are an illusion based on currency debasement through loose monetary policy. These distortions in the economic reality have also allowed a portion of the population to become (fabulously) wealthier at the expense of the masses. Mortgage-backed Securities are only one prime example.

GDP adjusted for true inflation — Introducing the Epik GDP-Gold Deflator
The below chart took way too long to create. It is worth a look.  I was searching on the web for any prior analysis that adjusted US National GDP with a deflator based on the price of gold.  I was surprised that such a chart was not easy to find. After all, a Gold-deflated GDP would be a logical way to get a truer gauge of economic health adjusted for the impact of currency debasement.

As you can see from this chart, the economy enjoyed a relatively steady upwards trajectory from the 1930′s through 1971. This was then followed by a precipitous fall from 1971-1974 when Nixon took the US off the gold standard in the wake of a global run on US currency redemption into gold.  After a decade of economic pain, it was “Morning in America”, and we experienced the Reagan boom from 1981 through 2001.

Most people on Main Street would agree that it has been dog eat dog since 2001. Consumers have been working longer, harder and smarter (perhaps not!?!) in order to maintain their standard of living. Those folks who did not — or could not — up their game have seen their standard of living drop since 2001.  Of course there is no shortage of economic success stories (e.g. Apple, Facebook, GroupOn, etc.)  but — in the aggregate — it has been a tougher fight for what has actually been a shrinking pie.  Large companies like Wal-Mart, Microsoft and Oracle got bigger which is why it is still possible to have a rising stock market in a shrinking economy but even that is an illusion as demonstrated by the Dow-Gold ratio which shows that we have been in free-fall since 2001.

Put down the Kool-Aid and Reclaim your Economic Sovereignty
I would submit that is high time to put down the Kool-Aid, switch off the television, and Reclaim your Economic Sovereignty.  I am 100% convinced that individuals can reclaim their economic sovereignty by building globally competitive businesses.  I know of no better way to do this than developing web-based businesses that focus on highly specific “defendable niches” about which the business owner is knowledgeable and passionate. I am also 100% convinced that large corporations have zero competitive advantage in highly specific markets. As we saw from the recent trashing of JC Penney and Overstock search engine ranking on Google, large companies have no advantages in building sustainable ranking in the search engines.  Pick one “defendable niche” and go dominate it.

Crackup Booms, Boiling Frogs and Reclaiming Economic Sovereignty

Tags: , , ,
Posted in Economics | 6 Comments »

The **** is hitting the fan – Hedge Accordingly

Tuesday, February 22nd, 2011
The **** is hitting the fan – Hedge Accordingly

As predicted, the price of silver has continued to rocket.   The story is being chronicled in near real-time by ZeroHedge, Max Keiser and Turd Ferguson.   Silver is up a whopping 22% in the last 30 days. A massive short squeeze appears to be under way and picking up a head of steam into the March delivery month with record futures contracts setting up to stand for delivery in volumes that may well far exceed available supply. This is symptomatic of a larger issue — the synchronized collapse of fiat currency regimes around the world.

Why is the **** hitting the fan?
Massive amounts of printed currency is heading for the exits. Although the house of cards started collapsing in earnest with the failure of Lehman Brothers in September 2008, I believe the real problem traces it roots all the way back to Nixon’s decision to take the US Dollar off the gold standard in 1971. With no gold standard to put a collar on fomenting of more debt-based currency, the US government proceeded to run up the credit card — initially with petrodollars and treasury debt, and now with blatant debt monetization by the Federal Reserve.

I fully expect the situation on Main Street will not improve.  Not helping the situation on Main Street, the synchronized collapse of decades of dictatorial rule in the Middle East provides more air cover for currency debasement. The price of oil shot up a ridiculous $7-8 today. The **** is definitely hitting the fan folks. All of a sudden, my February 14 forecast of $200 oil is not sounding quite so crazy.

Hedge Now
One of the most popular hedges against currency collapse is physical commodities, notably silver which crossed $34 per ounce earlier today and has more than doubled over the past year.

Without question, the case for physical silver is strong. By all means, feel free to own some. However, for serious amounts of money, it has significant  challenges as an asset class. In particular, here are a few considerations before going big-time on delivery of any physical commodity. I will use silver as a case study:

Taking Delivery is a weighty issue
A single futures contract is a whopping 5,000 ounces, or 312 pounds. In other words, that stuff is heavy. Mathematically, a $1 million investment is going to mean taking delivery on ~2,000 pounds of cargo.  Good luck transporting it securely over any sort of distance!

Taking delivery means storing it securely
Physical delivery is not without risk. Earlier this month, a Canadian resident reported having $750,000 in physical silver stolen from his home in a violent robbery.  His life savings in silver bars is apparently missing and untraceable.

Taking Delivery means accepting Confiscation Risk
In 1933, the US Federal Government imposed mandatory redemption of precious metals.   This is spelled out in Executive Order 6102 which could be invoked in one or more variants in order to stop the dollar from completely collapsing.

Domain Leasing as Inflation Hedge
Epik’s domain portfolio has grown steadily over the past year and is now more than 17,000 Development-grade domains.  For a number of reasons discussed at length elsewhere, I consider domains to be an excellent hedge against a number of economic scenarios. For investors looking for a versatile hedge, one area we are experimenting with is the notion of a domain lease with a fixed-price purchase option. This program will be available for any Epik-powered domains, including domains owned by network partners. We’ll be announcing details of this Domain Leasing program next month as part of continued commitment to developing domain names as a thriving Alternative Investment category for individual and institutional investors.

The **** is hitting the fan – Hedge Accordingly

Tags: , , ,
Posted in Domain Investing, Economics, Uncategorized | 5 Comments »

Inflation has arrived — Specifically Food Inflation

Monday, February 14th, 2011
Inflation has arrived — Specifically Food Inflation

In Epik’s 2011 Outlook, we said to expect inflation this year. Well, that did not take long. The headlines these days are  full of news of inflation — specifically inflation in the things you need (food, fuel, clothing) and deflation in the things you don’t (a larger house or a new boat).  To date, this inflation hit has mostly been observed in producer prices but not in consumer prices. That could well change soon, particularly once excess inventories are liquidated.

In the meantime:

  • The supply of things you need is potentially shrinking:  I don’t want to sound excessively Malthusian but for the first time in my life, I am sensing that there is a risk risk of widespread famine.  The group most at risk is the nominally 1 billion people living on less than $2 a day.  However, if the 2011 harvests are as bad as they look like they might be, the pain will quickly expand to those living on $10 a day and quite possibly higher. For calibration, something like 80% of humanity lives on less than $10 a day.
  • The Inflation catapult is locked and loaded: Inflation is largely a monetary phenomenon.  For inflation to occur, you either need (1) more money chasing the same amount of product, or (2) equal money chasing less product. In the case of food inflation, we may have the worst possible combination: more money chasing less product.  The below chart explains perfectly why I think the inflation catapult is primed for blast-off. It awaits a triggering event.

You may not care about the money supply, and may well not know your M1, M2 and M3. Now would be a good time to get up to speed — before the velocity of money returns to trend.  It is also a good time to diversify into assets that have finite supply and that have global appeal.  Personally, I like premium domain names as an asset class for reasons discussed prior.

The Chinese need to eat too — and with $2.65 Trillion in ForEx reserves they can afford to!
The big macroeconomic development to watch in the coming months is Chinese food inflation. Month over month, the official number is that it is running a TRIPLE DIGIT annualized growth rate. I have an ongoing Skype dialog with a business partner in Fuzhou, China, who has confirmed that rapidly increasing food prices in late 2010 is now accelerating in 2011. Due to ongoing drought, China’s domestic harvest could take a large hit in 2011.  However, keep in mind that China also has the world’s largest foreign exchange reserves, now above $2.65 Trillion.   In other words, in a global market with free trade, their government should be able to import what they need from willing exporters. Interesting to note though that Russia has banned grained exports in the wake of their own failed harvest.

I goes to follow then that China is the X-Factor in global pricing of food — they would have the greatest need and also the greatest capacity to pay for it. Although drought conditions are not new in China, 2011 is looking particularly severe.  This is the first time that I can recall when the world’s most populous nation can also afford to outbid the world’s wealthiest nations for a good that is classically price inelastic.

Guess who has the largest supply of exportable grain?
As you can see in the below info-graphic, far and away the US is the leading exporters of food.

At a time when food will be much more expensive, let’s see if the US crop holds up. It just might, and almost certainly on a relative basis.  The (geopolitical) implications are significant as there is mounting evidence that instability in places like Egypt have their origin in rising food prices.  Said another way, a government would spend as much as needed to maintain control of its population. With 43 million Americans on food stamps at a time of record budget deficits, the writing is on the wall that more debasement of the currency can be expected as the global trends towards income equality and wealth concentration continues. Hedge accordingly.

Inflation has arrived — Specifically Food Inflation

Tags: ,
Posted in Economics | 4 Comments »

Physical retail is on the wrong side of history … and what to do about it.

Friday, December 31st, 2010
Physical retail is on the wrong side of history … and what to do about it.

In case you missed it, Bloomberg’s Pimm Fox did a worthwhile interview today on the outlook for US retail with veteran retail industry analyst Howard Davidovitz.  In this insightful interview, Davidovitz throws cold water on the notion of a sustainable recovery for physical world retail.  Just as we are seeing a hollowing out of the middle class — as described at length in a post-Thanksgiving blog post –  mid-market retail is also having a tough go of it. One key reason: online retail is eating a lot of what remains of offline retail’s shrinking lunch.

Implications for Retailers
With the exception of businesses that deal mainly in perishable goods (e.g. Whole Foods) and high-end retail (Tiffanys, etc), physical world stores with no integrated online strategy look to me like sitting ducks.  Slowly but surely, they will have to contend with the mounting array of forces that are going to squeeze their bottom lines:

Static or Falling Revenues

  • Shrinking median consumer discretionary household income
  • Rising competition from online competitors
  • Mobile applications for in-store price comparison

Rising Cost of Goods

  • Rising producer prices
  • Rising fuel prices (oil just crossed $90/barrel again)

Fixed costs for rent, core labor, and business compliance

In theory, commercial rents should come down to prices where they would attract new tenants who then invest in tenant improvements and marketing. However the  economics of those properties make it unattractive to enter into long-term leases at the lower lease rates where the market will clear.

How local retailers can compete nationally and globally
The outlook for local economies remains challenging at a time that state and local government budgets are stretched. For many businesses this is what I call a “deer in the headlights moment”. The deer — or business owner — either adapts quickly or gets run over.  A lot of local businesses are not adapting. After depleting the owners’  savings, and/or trashing their credit, many of them will get run over.

Online retail is no panacea for the simple reason that online sales is not easy. To win, online businesses need competitive advantages.  This is one of the main reasons why Epik has pursued a strategy of developing segmented retail stores that are built on category-defining domain names for that specific category.  The domain name, when combined with useful content, is a significant competitive advantage.

The reality is that there are still a tremendous number of offline businesses that have yet to execute a viable online strategy.  This is where a great domain with an integrated eCommerce solution makes a great deal of sense.   By integrating product domains with a fulfillment solution, domain owners are well-positioned to help local businesses to become more effective at selling nationally and globally.

Case Study: Combining Physical presence with Online Sales
My wife’s business, NaturoMedica.com, is having a record December and a record year.   Their core business is serving (mostly affluent) consumers with personalized medical care.  They are finishing their third year of very robust growth at a time when most peer companies in medical services are struggling.  They also sell a lot of products — medical-grade supplements — which are usually sold to these same consumers who come into the medical clinic.

During 2011, Natromedica will also launch an online presence utilizing two strategies: (1) an online business to be called Naturologie.com, and (2) a dropship network that supplies sites that are built on category-defining domain names.  What is worth noting is that (1) the physical store, the online store and the dropship network will all utilize the same inventory, and (2) the online retail operations are built on the same technology as Epik eCommerce.

Epik eCommerce is a core growth engine for 2011
What is unique about Epik’s eCommerce platform is that it is truly turn-key for the owner.  For businesses that are already established offline but need to make the leap to online, it really does not get any easier.

For domain owners who don’t have a supply strategy worked out, Epik offers a turn-key solution based on dropshipping.  With dropshipping, there is no inventory and customer returns. The margins are not as high as sales from inventory, but with dropshipping it is possible to have a large selection from day one. As revenues grow,  owners can choose whether to begin inventorying products, or sell to (or partner with) an established offline supplier.

To learn more about Epik eCommerce, visit our detailed information site here.

Physical retail is on the wrong side of history … and what to do about it.

Tags: , , , ,
Posted in eCommerce, Economics | No Comments »

Innovating in a land of Giants

Tuesday, November 9th, 2010
Innovating in a land of Giants

Recent news and developments are a reminder that we walk among Giants — and by this I do not mean the World Series Champion San Francisco Giants. I am talking about corporate behemoths like Amazon, Apple, Google, and Microsoft whose treasuries are overflowing with cash and who are systematically reinforcing market dominance through a combination of methods.  And now, as expected, the biggest giant of them all, the US Federal Reserve has added fuel to the monetary fire through a massive round of monetization.  How should internet entrepreneurs respond?

But first – a word on Google
As has been extensively covered in the Domain industry blogosphere, a minority percentage of Epik Product Portals were removed from Google’s index 2 weeks ago.  Since that time, daily network traffic and revenues have fully recovered to their prior levels. Although there is still work to be done, sites are being re-indexed — even with better rankings. Nevertheless, the de-indexing incident was a reminder of the degree to which many people in our industry believe that Google IS the Internet.

Although I disagree with the broad characterization of Google as “judge,  jury and arbiter” about the merits of a site, I do agree that Developers have to take into consideration that if a business model has a primary long-term dependence on organic traffic from Google, this does come at a cost.  That cost can be measured in the form of compliance with Google’s Terms of Service, and/or can be measured in the form of investment in development of organic content and authoritative links.

Search remains a significant source of traffic.  That said, we have always viewed search volumes and CPC prices as a useful indicator of a site’s potential rather than viewing traffic from search as being the end unto itself. By developing on keyword domains, we are giving consumers what they want and delivering it on a domain that is easy to remember. I believe the merits of this development strategy are 100% in tact, with or without an abundance of Google traffic — which we thankfully still have and appreciate.

I would like to think the Epik Developer network for their enthusiastic support. This is a very unique group of individuals.  We kept the Developer network closely apprised about our findings, action plans and progress.  Rather than blog, I chose to do this entirely via email and phone. I am very pleased with the progress made and know that we did right by our Developers.  The Product Portal platform is stronger than ever and will continue to actively improved in parallel to the rollout of full eCommerce.


We walk among Giants
The Google incident caused me to step back and take a macro view of our strategy and operating environment. This happened to overlap with a planned 2 day visit last week to our Sandpoint, Idaho operations center for the purposes of working on the 2011 operating strategy and plan.  Although setbacks are never good, it helps when they occur right before key planning milestones.  So, here is the bottom line: in spite of very rapid growth, Epik –  and indeed the entire Domain industry — is still small relative to the Giants that dominate the Internet economy. A few more illustrative examples:

  • The news this week of Diapers.com parent company, Quidsi, being acquired for $540 million, is illustrative of the alchemy of great strategy, solid execution and a category-defining domain name.  What was not broadly reported is that Amazon allegedly undercut Diapers.com via a price war that ultimately served to bomb Quidsi to the bargaining table. I for one believe that Quidsi, in time, like Zappos before it, would have been a material threat to Amazon.
  • Apple Computer, Microsoft and Google are swimming in cash with liquidity hoards, of $51 billion, $44 billion and $33 billion respectively.  These are enormous sums, particularly when compared to something as small as the Domain industry.  These are also enormous sum in terms of the implied ability to acquire small operating companies that represent a future threat to these would-be monopolists.
  • Yet, as impressive as these balance sheets are, these companies store the vast majority of their wealth in the form of a currency that is being rapidly debased by the US Federal Reserve, who, as predicted, launched QE2, the next phase of central bank monetization.  The official number of $600 billion is just another tranche of money-for-nothing that are systematically debasing the world’s main reserve currency.  That is more than all of the profits of the Fortune 500 — combined. Gotcha!

The Implications for Domain Investors and Internet Entrepreneurs
So, what does this mean for Domain Investors and Internet Entrepreneurs?  Since I have been right about a number of other predictions over the past year, I will offer two more:

  • Here comes the next wave of Corporate M&A:   The single biggest issue for US monetary policy has been the absence of monetary velocity.  In response, I believe the Fed has decided to play chicken with anyone that chooses to keep idle cash on the sidelines.  Commodity prices are telegraphing in no uncertain terms: inflation is here.  Whether or not that translates into hyperinflation is subject of debate.  There are plenty of smart people that still believe that the Fed can put the inflation genie back in the bottle before it is too late. In the meantime, the message from the Federal Reserve is very clear to holders of cash: use it or lose it.  I expect corporate executive teams will have a mandate to put their warchests to work – ASAP.  The near-term result will almost certainly be that the Giants will become more giant.
  • The Dollar as reserve currency is toast: Whether by design or by incompetence, The Federal Reserve has crossed the Rubicon.  The Federal Reserve’s mandate is to preserve the integrity of the currency yet is now openly debasing the world’s main reserve fiat currency. Even inflation-protected TIPS are not a counter-measure against monetization since (1) the CPI index has little to no correlation to real world inflation, and (2) proceeds are payable in US Dollars. Gotcha! The rocketing prices of precious metals — and the retail scarcity of actual physical metal — are a clear indicator that the monetization bluff is being called.  Where this ends up nobody knows, but, tragically, I don’t see a happy ending for the US Dollar as reserve currency.

The bottom line for Internet entrepreneurs:  Although these are perilous economic times, I know of no better investment strategy than a diversified and capital-efficient portfolio of income-producing websites that can be operated from anywhere, and sold to anyone, either stand-alone, or as a portfolio.

The bottom line for Epik:  Epik’s model is already proven: we are building online businesses.  What makes Epik truly special is that these businesses are leveraging a unified architecture that aligns the interests of a network of Development Partners in building an Internet that we believe will be better than the one that preceded it.

Onwards!

Sincerely,

Robert W. Monster
Founder, Chairman and CEO
Epik.com

Innovating in a land of Giants

Tags: , , , ,
Posted in Domain Development, Economics | 4 Comments »

Is November 3 the planned kick-off day for QE2?

Sunday, October 24th, 2010
Is November 3 the planned kick-off day for QE2?

There was an interesting read on ZeroHedge a few weeks ago. The article made the case for announcement of a $3 trillion wave of Quantitative Easing starting on November 3 — the day after the US mid-term elections, and also the date of the next meeting of the Federal Reserve Board Governors. Since this provocative article was published, other estimates for “QE2″ have been as high as $4 trillion and even $7 trillion. In other words, the public policy debate appears to no longer be about “whether“, but now entirely about “how much“. Shocking.

Here is the distilled digest:

  • Quantitative Easing is where the Federal Reserve buys the debt of a central bank.  However, when banks can borrow money at zero percent, and there is still insufficient liquidity in the economy to foment sustained economic growth, Plan B is to inject even more liquidity, only this time the theory is that a large portion of the money will go right into buying assets, e.g. equities in publicly traded companies, as some believe has recently been the case.
  • In theory, the stock market goes up. As a result, people feel wealthier and spend more. In the process, the increase in nominal income also gets taxed which is good for under-reserved state and federal coffers that have seen their tax base get hit hard since 2008.  The risk with this strategy is that the world calls into question the integrity of the US dollar as reserve currency.  After all, Zimbabwe has had the best performing stock market in 2010 but unfortunately the Zim dollar is effectively worthless.

To be clear, the US is no Zimbabwe. The comparison is relative, not absolute.  However, even so, the risk of holding large amounts of currency-based savings would rise considerably if QE2 is activated on the indicated scale.  For calibration, here is one visual rendering of what a $3 trillion Quantitative Easing might look like in terms of the Fed’s balance sheet:

Sooner or later, something has got to give. There are two major schools of economic thought on stimulus.  Someone once summarized them this way:

  • Keynesian economics = over the long-term, everyone can have a free lunch.
  • Austrian economics = over the long-term, there are no free lunches.

I personally subscribe to the latter view and believe that deficits do matter and that 40 million people on welfare and 17% U6 unemployment is a train wreck.  The great global reset is coming one way or another.

So what exactly are we stimulating anyway?
Last week, the Daily Beast conducted their Innovators Summit.  There was a panel discussion with economist-journalist Niall Ferguson where the panelists discussed the implications of fiscal and monetary stimulus. Here is a salient clip:

The gist is this: in a global economy, QE2 will not only stimulate the US economy, but rather capital flows will be felt all over the world and would be likely to manifest themselves in emerging economies and rising prices for commodities.  I could not agree more.

The G-20 meeting did not exactly end in harmony
One important development to watch has been the G20 discussions.  In the meantime, the G20 meetings in South Korea wrapped up over the weekend and published a communique.  Read literally, one would conclude that there is consensus and that the central bankers are in alignment on the game plan.  Unfortunately, coming out of the G20, there is one quote from German Finance Minister Rainer Bruderle, that seems to suggest polar opposite views on the merits of QE2:

“I tried to make clear that I regard that (QE-2) as the wrong way to go. An excessive, permanent increase in money is, in my view, an indirect manipulation of the exchange rate.”

The UK and Germany appear to have opted for the path of austerity and fiscal control. France is on a similar trajectory in spite of massive strikes.  The US, by contrast, appears to be heading in the opposite direction.

Implications for Domain Investors
In summary here is where I think we stand:

  • The stage is being set for QE2 — probably right after the mid-term elections. It may involve trillions of dollars in newly-minted currency — backed by nothing and borrowed from the Federal Reserve.  Austerity could likely still save the US Dollar but this does not appear to the chosen path of US policy makers.
  • If QE2 is launched, the fuse would be lit. Inflation would come back with a vengeance as speculators and emerging markets secure real assets.  In this case, the dollar — which is already down sharply — gets hammered.  Watch agricultural prices, oil prices and precious metals prices for clues.
  • QE2 will almost inevitably stimulate the Internet economy. I strongly believe that in this next phase of global economic integration, the Internet will become more important not less important, and national boundaries will become less important not more important.

And while here is no perfect hedge for the risks associated with US policy-makers executing QE2, I remain convinced that development-grade domain names are a logical store of wealth comparable to physical precious metals and other commodities that are sufficiently rare and finite, that no amount of currency printing will dramatically reduce their relative value .

Is November 3 the planned kick-off day for QE2?

Tags: , , , , ,
Posted in Economics | 5 Comments »

Our latest custom development project: ETF.com

Sunday, September 5th, 2010
Our latest custom development project: ETF.com

When it comes to domain names, the cream of the crop are known as “category-defining domain names”, a domain name that exactly describes the type of business or subject the site is about. To be sure, having such a domain name is not in itself sufficient for success, but the odds are greatly improved, particularly in a world where direct navigation is becoming more popular.

Epik owns, or is in partnership with, quite a number of such names, some of which have been built out, and some of which are awaiting the right partner to turn the domain name into a category killer.

Epik’s newest entry into our portfolio of category-defining domain names is ETF.com.

Those of you versed in finance are now nodding your heads, while the rest of you are rubbing your eyes. ETF.com? What is that?

Investopedia describes an Exchange-Traded Fund (ETF) as “a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold. By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund.”

In short, ETFs combine the best aspects of stocks and mutual funds. They’re a dessert topping and a floor wax.

ETFs have become a hugely attractive investment instrument because of their low costs, tax efficiency, and stock-like features, and now make up over 50% of the trading volume on the New York Stock Exchange, truly amazing for something so new and so little understood by most investors.

And that’s where ETF.com comes in. As a comprehensive repository of information about ETFs, it is well positioned to become the go-to site for anyone looking to learn about ETFs in general, as well as the daily results of that day’s trading.

But recall my earlier comment that a great, category defining domain name like ETF.com is not in itself sufficient for success. You need only look at mutualfunds.com and stocks.com, two parked sites that are wasting the value of those domain names. The owners of ETF.com had built the foundation of a strong site, but it wasn’t resolving properly, some of its features were incomplete, and it needed a refreshed design.

And so, enter Epik. We’ve entered into a development partnership in which we will lead the ongoing development of new features as well as an improved design. We’ve only been at it a week, but the results so far are strong.

Over the coming weeks we will be further improving the site’s looks and feel while adding even more compelling new features. Of particular note will be the creation of the ETF.com Advisor Network, a directory of financial institutions and experts who can provide advice on how ETFs might fit into one’s investment portfolio. And for those who prefer to do it themselves, we have implemented the first iteration of the ETF Screener, which allows you to search for ETFs based on a wide variety of characteristics and investment goals.

Our development work on ETF.com is a excellent example of the breadth of Epik’s development capabilities. While the bulk of our efforts revolve around the creation of the technology platforms that power our online stores and directories, we also do custom development when the right name comes along.

We are very excited about the prospects for ETF.com. It is an excellent example of the value (and valuation!) that can be generated when a category-defining domain name is matched up with a custom developed web site, and how development projects such as this can help turn a category-defining domain name into a “category killer” business.

It should also be noted that ETF.com will be available as part of the domain auction being held on September 16th during the Epik Developers Conference. It would make an ideal acquisition for any brokerage or private equity firm.

Our latest custom development project: ETF.com

Tags: , ,
Posted in Domain Development, Domain Names, Economics | 5 Comments »

Called it: Sell stocks and bonds. Buy domains and websites!

Friday, August 20th, 2010
Called it: Sell stocks and bonds. Buy domains and websites!

During a brief visit to New York City, I had a chance to visit with a number of Epik partners and clients.  Power-Developer, Kenny Hartog, kindly opened up his home for a late night visit following DomainFest.  During a far-ranging discussion, Kenny asked me about stocks.   He was surprised to learn that I own no stock and no bonds in any public company.

Exactly one week ago, I posted in my blog that I detected an “inflection point” in the economic outlook. I further stated that the Double Dip in the US economy was already under way.   Looking at Thursday’s trading activity on the equity markets, I would say I got that one right — all 30 of the Dow Industrials were down.

The fundamental economic story is weak and getting weaker.  The available policy levers are not addressing the structural problem of unemployment in the Western economies. Beyond the troubling fundamentals, it is perhaps the technical story that is even more curious — something called the Hindenburg Omen.

To be clear, I am not categorically against stocks or bonds. In fact, I started trading equities when I was 12 years old.  However, from a market timing perspective, I find it difficult to make a case for why anyone would want to be long on public equities right now.

If your investment strategy requires you to continue to hold stocks, I recommend selling banks, insurance and consumer durables, and keeping energy, mining, consumer package goods, agriculture and telecom.  As for bonds, I don’t see how they go up materially from here.

So, with that, I offer my free and unsolicited advice: 

Sell stocks and bonds in August, and buy domains and websites in September!

Check out some of these confirmed low reserves for the September 16 live auction for income-producing websites:

Also, low reserves for developed premium sites that combine great domains with turn-key websites that are ready for entrepreneurial owners to take the businesses to a whole new level:

This is just a small sampling. There will be a total of 100 live auction assets, and 200 extended auction assets. Pre-bidding starts August 31, and the live event starts on September 16 at 1:30 pm PST.  More details at the Epik Developer Conference website.    Look for more news in the coming weeks as we gear up for this exciting event.

Called it: Sell stocks and bonds. Buy domains and websites!

Posted in Domain Names, Domain valuation, Economics | 13 Comments »

« Older Entries