Napkin calculations about the Dropbox

bubbleDid you see the headline? “Dropbox raises $250 million based on $10 billion valuation by the BlackRock investment fund.”

Back in 2011, Dropbox also raised $250 million, but on a $4 billion valuation by investors which included Goldman Sachs.

So BlackRock believes that Dropbox is 2.5 times more valuable 3 years later. Which means that Dropbox shareholders gave up 6.25% of their shares to raise $250 million in 2011 and only had to give up 2.5% of their shares to raise an additional $250 million 3 years later.

Could both valuations have been accurate? No. If this proves to be an example of a vastly overvalued company, it will all appear obvious after the fact. Tech bubble or latest greatest? Right now, no outside investor can tell.

25 key documents your family will need

The financial consequences of not having your documents in order can be significant. State treasurers hold about $33 billion in unclaimed bank accounts.

Most experts recommend creating a comprehensive folder of documents that one’s family can access in case of an emergency. I have a workable and deeply unoriginal idea to help your family do just that.

That idea involves breaking the project into various steps with just enough accountability built in.

My recommended 1st step is for you to send me an email — jorge@2thinkgood.com

Idea to revive real estate market

The most read article posted on Real Clear Markets recently was one from Forbes with an idea about how to move capital trapped in the real estate market into more productive sectors of our economy.

Here’s an outline of the article:

  • Problem:  Underwater loans for commercial properties that are either overbuilt or vacant.
  • Goal:  Convert ‘in the red’ properties into green space and hold for development.
  • Solution:  Permit banks to deposit some of their excess real estate securities with the Fed, remove those properties from the market, convert to green space, and hold until the market recovers. A $200 billion land bank fund, provided by the banking system and backed by the Federal Reserve, would be established to help finance this conversion.
  • Effect on Fed:  The Fed would be shifting some of its Mortgage Backed Securities (MBS) purchases to new Land Backed Securities (LBS) – long-term assets backed by the eventual redevelopment of most of the green space. This would be a straightforward way to redirect capital out of bad investments and eye sores like dead-end malls, empty stores, and vacant factories, so that the capital can be redeployed into our new asset-light economy.
  • How this differs from TARP: The stimulus money changed nothing. Jobs were protected but not stimulated. No one gets anyplace faster, no new productivity improvements were generated like the Interstate Highways did. Stimulus projects were not transformational.  Converting real estate to green space and freeing that capital would have three positive effects.
  1. Direct job creation for demolition and green space conversion.
  2. Strengthening the banking system by removing bad real estate loans so banks can make new loans.
  3. Real estate owners will spend and invest more, knowing their properties have stabilized in value.

The article by Michael Messner — who runs a hedge fund, Seminole Capital Partners — is copied in full at end of post. Continue reading

Why GM earnings are not what they appear

Perception: GM’s recent profits means that the federal bailout worked.

Reality: The bulk of the profits came from the sale of two divisions. GM’s stock is still trading below the IPO price paid by the government.

Economist brainiac Megan McArdle makes her usual impressive points. The highlights:

  • GM sold off big stakes in companies to generate the bulk of their profit.
  • GM still excessively dependent on big incentives and fleet sales to move cars.
  • GM’s most profitable sales are heavily dependent on gas guzzling SUVs and trucks, not the best position to be in when gas prices are exploding.
  • Even though GM’s largest competitors just had their supply chain badly damaged by an earthquake/nuclear meltdown, GM’s stock is trading below the IPO price.

The entire McArdle column is copied at end of post. Continue reading

Why Wi-Fi is not free, for now

Perception: Free Wi-Fi should be part of the benefits of staying at higher priced hotels.

Reality: Hotel companies offer free Wi-Fi [Wireless Fidelity?] at lower-cost properties because those hotels are generally newer which means the infrastructure was built to accommodate wireless access. They also usually have fewer rooms, so bandwidth needs are smaller.

A Wall Street Journal article examines how and why those policies are changing. Article is copied at end of post.
Continue reading

Warren Buffett gets a pass

Perception: Warren Buffett is a business icon and media favorite. There is no appetite to hold him to the same ethical standard as, for example, oil executives, let alone those espoused by his own company.

Reality: True. Being an elderly white Midwestern supporter of the first African-American president buys you a lot of understanding.

A James Stewart column details how Buffett blatantly ignored his own company’s ethical standards and possibly insider trading laws. The column is copied at end of post. Continue reading

Don’t carp about TARP

Perception: The Troubled Assets Relief Program [TARP], created in October 2008 at the height of the financial crisis, was a disaster and cost the taxpayers $700 billion.

Reality: Out of the $700 billion authorized, only $410 billion was used. All but $19 billion of that amount has been recuperated. TARP basically worked as intended.

The economist Robert Samuelson examines how and why the TARP Federal program cost much less than initially feared. Key points:

  • TARP invested $245 billion in banks [99% recovered].
  • TARP invested $165 billion in other programs.
  • Perception remains that TARP creates a problem economists refer to as a moral hazard.
  • Moral hazard defined – The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

The entire Samuelson column is copied at end of post.
Continue reading