European Debt Agreement

Europe became a mess partly because of the Moral Hazard that resulted from the inefficient construction of the EU and the Euro. In simple terms, by being associated with Germany and France, countries such as Greece and Portugal had access to lower interest rates, compressed credit spreads and a sense that they could live their lives like the Germans.

This was sadly mistaken. As I read this week, Germany produces things that the Chinese buy.....Greece produces things that the Chinese sell! In short, the only area of competitive advantage was tourism, and since they no longer had the flexibility of cheapening their currency, they were constrained in promoting this.

So we ended up in a mess that has been well documented, but yesterday, the political leaders of the EU announced a breakthrough. The Euro rose and stock markets rallied. I think that this can readily be seen as being a relief rally.

Lets break this down in simple terms. Firstly, private sector banks will have to write off $100 billion or so in Greek loans and raise many billions in new capital....

Secondly, the EFSF will be extended to $1.4 trillion via an injection of equity and debt.

Onc this is done, everything will be rosy..........'ONCE' this is done......Of course, they have to raise the capital first......where is this going to come from??

Lets put it in context. $1.4 trillion is equivalent to over 30% of China's official reserves.

Now lets see who is going to be asked to contribute. The Japanese.....their economy is in a mess and they are faced with an earlier investment in the EFSF being devalued.....The Chinese.......What kind of influence are they going to demand......The Indians......How flattering to hand out the begging bowl to a country that can barely feed its own citizens.......

However, politics aside, on purely commercial terms, why would anyone invest (particularly debt) in the EFSF. Surely only because of confidence that France and Germany will stand behind it....It cant be an absolute guarantee....the electorate wont stand for that.....so it will have to be implied.......

Moral Hazard anyone??

Here we go again!! Will they get away with it??

Sadly, if they do it will be because they sell out to the Chinese and Indians. What a sad day for Europe...Our Grandchildren and their children and their children will all read about this in their history lessons.

Neverware

Continuing on my theme of the cloud helping developing countries gain more and better access to computer systems, I am interested to read of Neverware. This is a New York based start-up that has developed a way of taking an old PC and making it run as efficiently as a new PC as it accesses upgrades etc to its core systems via the cloud.

Specific details are sketchy, but it seems to be generating a lot of discussion amongst the tech community in the East Coast. Currently, the major application appears to be to permit schools to gain longer service from their PCs. However, it strikes me that there could also be an important developing country application for this.

Millions of PCs are thrown away every year. Some (but my guess is only a small minority) are sent to the developing world, but they are still old models with outdated solftware. If we could take the hardware and install the most recent software (via a Neverware connection to the Cloud), then we could really bring top level PC access to developing countries.

This may never happen through Neverware, but the principal is sound and I am sure has a future. More evidence of how developing countries are going to be offered a real chance to catch up!

Food and Agriculture

I am unsure when I started reading about the future of agriculture seriously, but it was a number of years ago. Since then, there have been regular episodes of excitement in the media. Daewoo being forced to cancel its land grab in Madagascar, China cancelling similar in Philippines, a new study on the dangers of biofuels and the continuing rising price of food.

However, I sense that coverage of the subject has recently moved to the next level. It seems that the mainstream media, not just economic, business or political journals are picking up the story and the more serious media is analysing this in a depth not seen before. I dont have statistics to prove this, but as an avid reader, I do believe that my instinct on this is pretty good.

I do believe that the world is facing an agricultural crisis, but the answer is very complex. It isn't just a case of ploughing money into biotechnology so that new seeds can be developed. It isn't just about land grabs, or water shortages or biofuels.

The problem is that it is about all of this and more. As such, it requires policy and application devised by individuals who have the capacity to cut across technical, process and political boundaries. It requires true 'big picture' thinking with detailed answers. Where are the people that have this capacity and the influence to make things happen?

I wish I knew?

Will the 'Cloud' help developing countries economic expansion

Apple's embrace of cloud computing and Steve Jobs comment about how this will change the nature of the PC brings up some interesting questions about the impact this may have on emerging countries.

Much has been written about the impact that access to the internet can have in helping developing countries' economic growth so there is no need to repeat it here other than to confirm that I believe this to be true. This is part of my enthusiasm for low cost smartphones and my continued support for a Chinese company, www.maxitech.cn which has exploited the opportunity of turning a very low cost phone powered by a low cost processor into the ultimate 'thin-client' from which functions not dissimilar to those found in a more expensive smartphone.

Unlike energy where I am an advocate for distributed power systems, it appears that there are genuine benefits to have computing power centralised and accessed via a thin client. This brings down the cost of the client which in turn makes computing accessible to more people. It may well render the sub-$100 computer, which received so much attention only a year or so ago, seem easy.

Of course, it is unlikely that the poor of Mali or Sierra Leone will be linking up to Apple Computer's servers anytime soon, but this technology is emerging very rapidly and I believe holds massive potential for continued acceleration in economic growth for developing and low income countries

A lesson in marketing

This morning I attended a tour of my childrens' school by an admissions officer. Whilst we are happy with the school, we learned that should we wish to change to another school for their secondary education, we had to decide soon. (pretty alarming given that they are 5 and 6 years old!). So my wife and I decided to check out both their current school and arguably its biggest competitor.

In both cases we were shown around by an admissions officer. Our first visit was to the competitor school. We left distinctly unimpressed. Sure it has plenty of facilities and the education sounded excellent, but there was no soul. It all felt very mechanical and process driven. Today we went to the secondary section of their current school.

The difference was alarming, but not because of fabric nor because of difference in approach to education. It really came down to the person taking us on the tour and explaining their approach. This lady was clearly passionate about the school. Her own children had been educated there but the key was the enthusiasm with which she presented the school and its approach.

If I could have recorded both experiences, I would be using them when counseling entrepreneurs or business people. This has to be the holy grail. Having employees who genuinely believe in the product (or service) they are selling and are proud to be carrying the business card and doing their job. I saw this in my father and I saw this today.

I am frankly rather jealous of people in this position. It has been sometime since I've had such belief but it is something I am seeking and something that I want to encourage. There are certainly some organisations that succeed in this. I have read articles about people who have the Nike swoosh tatoo'd on their ankle. However, my fear is that this is rare and becoming rarer.

Ever since I left the world of banking, I've striven to understand how to motivate people in ways other than money. Dont get me wrong, money is important as it should be, but as this lady showed this morning, it is possible to become an evangelist for one's employer without having to be motivated by money or position but simply because you genuinely believe in the quality of the product.

Trust

As I am finding to my cost, identifying who you can trust, is the most important aspect of business.

I wonder if business schools teach this? I will ask next month when I am assessing MBA students at INSEAD.

IPO Valuations

Whilst the world continues to look in fascination at the LinkedIn valuation and anticipates what wealth will be created for the founders of Facebook, Twitter, Groupon and their ilk, another company has announced a deal which may well outstrip them all.

Ceres is a seed manufacturer focusing on plants which are used for energy. Essentially, the plants grown from their seeds can either be burned as a fuel or generate oils which can be refined and used as fuel. Last year the company generated revenues of a few thousand bucks and losses of many millions.

The company has now announced an IPO on NASDAQ to raise $100 million. It is as yet unclear what market capitalisation this will generate, but it is easy to assume that the result will be a price to sales ratio in the stratosphere. Additionally, unlike Facebook or Twitter, whilst the company has spent plenty of private equity capital and Government grants, it clearly doesn't have many users of its products yet.

I haven't gone into the company in detail, but neither will many of the investors to whom this stock is promoted. I can hear the sales pitches about the multi-billion dollar opportunity. However, how many investors in this stock are really qualified to assess the risk of such an investment?

It strikes me that this is a capital raising that would be better done in the world of private equity until such time as the company has generated real commercial validation. However, I am equally sure that no PE firm would offer the valuation that they can secure courtesy of Goldmans and Barclays.

Clearly, it isn't just social media that is attracting excess at the moment.