Tito's Blog

Peg Me Baby

Check out this Google Finance Graph of USD / CNY exchange ratio vs USD / EUR

The last 18 months peg might actually be not far away from market price …

More Statistical Recovery From Japan

David Rosenberg says that, actually, Japan GDP was more or less flat nominally while deflation boosted real GDP 4.8% …

Speaking of Japan, while many pundits waxed over the “real” GDP expansion of 4.8% at an annual rate in Q3, the entire increase was due to the negative deflator. In fact, the economy continues to deflate at such an extent that GDP in nominal terms contracted at a 0.3% annual rate — the sixth quarter in a row of decline.

Riding Giants

At an HBS event tonight in Milan, the managing director of McKinsey Mediterrenean Complex Vittorio Terzi said that drivers for growth are 65% momentum (or riding the right wave), 5% excellence (or being better at executing than your competitors) and 30% M&A.

How good you are impacts the final outcome only at 5%! So you’d better pick the right wave to ride …

A Wall Of Debt Coming Due, And Equity Too

The effects of the booming years of the credit bubble 2003-2007 will take a long time to work through the system. Issuance of leveraged loans and commercial real estate mortages increased 2x and 4x respectively during the bubble, and are now coming due.

From the Financial Times Wall of US maturing debt threatens to extend crunch article on November 12:

About $2,700bn of commercial mortgages comes due in the next five years, peaking in 2011, and $1,500bn of leveraged finance debt comes due, peaking in 2014. The pattern of contractual debt maturities is front-end loaded for commercial real estate and back-end loaded for leveraged finance debt.

After the leverage buy-out frenzy of 2003-2007, even the equity market will face a wall of “equity coming due”. Since private equity funds have a life of 10 years, that can usually extended by 1-2 years, management teams will have to divest their companies and wind down their funds. A market with many sellers and fewer buyers (because private equity fund raising tumbled and will not go back to pre-bubble levels for a long time) will put pressure on valuation multiples and bring a lot of investments in negative equity territory, as leveraged loans and mezzanine financing weighing at 5-6x EBITDA at entry are still there, on poor cash generation and lower EBITDA.

Building Things

Chris Dixon adds more thoughts to the idea vs execution debate:

The reality is ideas don’t matter that much. First of all, in almost all startups, the idea changes – often dramatically – over time. Secondly, ideas are relatively abundant. For every decent idea there are very likely other people who’ve also thought of it, and, surprisingly often, are also actively pitching investors. At an early stage, ideas matter less for their own sake and more insofar as they reflect the creativity and thoughtfulness of the team.

Entrepreneurship is about execution, about building things, and that’s what venture capitalists are looking for in a pitch. I couldn’t agree more.

Hence the most important aspect of your backgrounds is not the names of the schools you attended or companies you worked at – it’s what you’ve built. This could mean coding a video game, creating a non-profit organization, designing a website, writing a book, bootstrapping a company – whatever.