Treat the disease not the symptoms

One of the things that I have been frustrated with over the last year is that we tend to spend a lot of time talking about the economic crisis and the various government actions without realizing that what we are talking about are symptoms to a disease and the treatments of said symptoms, while we ignore the disease. The economic crisis is simply a symptom of the disease that is the lack of *financial literacy* in the country.

Walk into a room of highly educated home owners and ask them what percentage of their gross income should be spent on housing, and I am willing to bet that less than 10% will have any clue. Ask the average American about interest rates, how much debt they should carry given their income, the costs of credit card debt, etc. and they will look at you like you are their HS math teacher asking them about trigonometry. Yet, these are the practical life financial decisions people make every day.

I had the privilege of going to some great schools and I didn't take a single course that focused on any aspect of financial literacy. We have college students graduating with a mountain of credit card debit, and they don't even understand the hole they are in because they aren't financially literate. How many people who are carrying credit card debt run around passing along hot stock tips? Their financial ignorance results in them not knowing that the best return on investment for them would be to pay off their credit cards.

I believe that financial ignorance + greed is what fuels speculative bubbles and the logical crashes that follow. If the government wants to truly address the financial problems of the country they should put in place policies and programs to address the financial literacy disease that faces our country. After all, it was financial ignorance + greed that took us from one bubble (internet stocks) to the next (homes).

If don't improve our financial literacy today's financial crisis will feel like a walk in the park compared to the decades ahead of us when we will have millions entering their retirement years without the cushion of a pension and social security.

Finally, the lack of financial literacy makes it impossible for our elected officials to make the right financial decisions for our future, because their constituencies don't understand the problems we are headed for with respect to entitlements & our twin deficits.

Until I see action in this area I am going to continue to buy gold, because the worst will be ahead of us, rather than behind us.

Standard vs. Necessary

I am going to test out a new approach to blogging. In the past I wanted to make sure what I had to say was really insightful, well I am going to switch to posting whenever I think what I am going to write *might* be insightful... so here we go.

In the course of starting a new venture co-founders are faced with innumerable decisions in areas they really don't have expertise. The vast majority of these decisions land in the legal arena where the "legaleze" is astonishing - making the decisions harder. I am fortunate in the fact that I have founded a company in the past, so I am able to read through the documents pretty efficiently and comprehend the material well. But I have found that the most important question to ask yourself and your legal counsel when faced with "legaleze" is the following: Is this standard or is this necessary?

Agreeing to terms simply because they are standard is something that I am not a fan of. It results in a situation where you don't really understand what you are agreeing to and why it is important (b/c your lawyer will constantly say "that is standard" and you will just nod and move on, rather than really understanding what is going on). So probe when you are reading through legaleze and understand what is going on and only accept a term if it is necessary, not because it is standard.

It's been a year, and what a year it has been....

It has been over a year since I have posted, and I want to give a quick update to all of you about what has happened in the last year to me personally, and a little bit about what is ahead. Here is a quick run down on what has happened:

- Shortly after my last post in November of 2007, Tara and I had our second child - Samantha Williamson. She came 6 weeks early, but is doing great!

- Last March I had the great fortune to play a role in launching the Dash Express. I never expected to be briefing Walt Mossberg of the WSJ, doing an interview for the ABC Nightly News and the CBS Morning Show, but I had the great pleasure to take on those responsibilities and the launch went well.

- In June I decided it was time to get back in shape, so I applied management and economic theory to weight loss and lost 32 pounds in 90 days, and a total of about 41 pounds since June 1st. (I will post more on this later)

- August was a crazy month with the sale of Shelfari to Amazon and me leaving Dash to start a new venture. (I will post more on my new venture later)

- In September while spending time thinking about new business opportunities I had the chance to spend a lot of time observing the market meltdown (more on this in a later post).

- In Oct / Nov / Dec we formed our new company (Inquisitive Minds), raised a seed round of capital, and are executing on our product & vision (more on this later).

I will be posting much more frequently in 2009 on some of the topics mentioned above as well as on what it is like to launch a new venture in the midst of an economic meltdown.

Shelfari & Open Social

The Shelfari team has been hard at work for while building on the Open Social platform, and last week they taped a video while at Google... here it is:



Great work guys!

what a week!

Last week was crazy! I had a chance to present at the Web2.0 Summit with Rob Currie for Dash. It was a great experience and the presentation went off without a hitch. It really is easy to present when "things just work" and fortunately the hard work of our engineering staff made that happen, so I had the pleasure of showing off all their hard work. Here is a cool blog post from Tim O'Reilly that was written during and after our presentation.

Additionally, Shelfari has been doing GREAT lately. The site is gaining traction, the team is growing, and there was even an short mention in the Wall Street Journal this weekend. This is just another case of a great team doing great work!

Not all weeks are like last week, but I am hell-bent on making weeks like last week more frequent!

Getting ready for Web2.0 summit

I am headed up to SF this week for the Web2.0 summit. I am going to be presenting with Rob Currie (President / COO of Dash) and we will be unveiling some cool new Dash features. If you are attending and want to get sync-up let me know: mark.williamson AT Gmail [dot] com.

Who wants to catch this falling knife?

Click to see full sized picture:

More bad news for housing

So the markets sold off today on the news that housing prices are dropping, and fast. I was happy to see that the data discussed today was the Case-Schiller Home Price Index, because after reading about many methodologies, I think that this is the best methodology out there. This past weekend I read the entire methodology document and I came across the following nugget of information:

The monthly indices use a three-month moving average algorithm. Home sales pairs are accumulated in rolling three-month periods, on which the repeat sales methodology is applied. The index point for each reporting month is based on sales pairs found for that month and the preceding two months. For example, the December 2005 index point is based on repeat sales data for October, November and December of 2005. This averaging methodology is used to offset delays that can occur in the flow of sales price data from county deed recorders and to keep sample sizes large enough to create meaningful price change averages.

YIKES... This methodology means that in times of fairly rapid movement the index can really get behind the actual changes since it is a moving average. I know there is a futures market based on this methodology... next step is to delve into that market and understand where people are putting their money. If I was a betting man I would say that the year-over-year declines are going to accelerate in a significant way over the coming months.

Best Baseball Game Ever!

Last Tuesday night I had one of the best days of my life. My wife (Tara) and daughter (Abbie) bought me Cubs vs. Giants tickets for Fathers Day... and last Tuesday was our night to go. Abbie had so much fun! She sat there for the entire game routing for the Cubs and making friends with all the Cubs fans in the stands. Check out these pictures!

On Intelligence...

I can't get the concepts I am learning from On Intelligence (the book I am currently reading), out of my head. The author is Jeff Hawkins, who is best known for starting Palm (of Palm Pilot fame) and Handspring (of Treo fame). Jeff's theories on how the brain works are fascinating, and the implications of his work, if correct, will be astonishing. A friend of mine named Phil Shoemaker works at Jeff's current start-up Numenta, and I am very glad that he turned me onto the book.

I HIGHLY recommend that new product developers, the intellectually curios, product designers, AI developers, parents, teachers, heck... basically everyone should read this book.

Why it will get worse - the data

MarketWatch has an article today entitled "Western states went exotic with mortgages" where they layout data from First American LoanPerformance on the types of mortgages that were taken out across the country, and specifically here in California. If this data doesn't scare you about the near term housing market, I don't know what will. So here it is:

"Payment-option ARMs" (AKA - negative amortization loans... this is where you pay LESS than the interest on the loan and the difference between your payment and the interest due is added to the principle of the loan! Your payments will reset to a much higher amount 2 or 3 years later and will be set by the new interest rates at that time)

California - 24% of all refinanced and first mortgages in 2006
Nation wide - 11% of all refinanced and first mortgages in 2006

To give some perspective, in California, payment-option ARMs made up just 0.8% of all loans in 2003 before jumping to 7.5% in 2004 and more than 18% in 2005.

Interst Only (you pay just the interest, and no principle for the first couple of years, and then your payments reset to new market based interest rates, typically after 2 or 3 years)

California - 32% of refinanced and first mortgages in 2006
Nation wide - 22% of refinanced and first mortgages in 2006

This means that 33% (1 in 3) mortgages across the country last year were either negative amortization loans or interest only. In California, more than 1 in 2 were either negative amortization loans or interest only. Let me say it again... 1 in 3 nation wide and 1 in 2 in California!!!!!!! So if you think you have seen downturn, wait for the 2 to 3 years after these ARMs reset (2008 / 2009) and see how many people default.

Credit markets...

About 2 weeks ago I wrote a post entitled "Back end of housing bust..." where I wrote about how it would be rough for consumers when wall street finally lost their appetite for mortgage backed securities. We that happened this past week. Banks can no longer package up some of their exotic mortgages and sell them off, so guess what... they aren't going to offer them any more. Read this story at MarketWatch that talks about some banks cutting WAY back on the products they offer.

It took far to long for this to happen. It will be very interesting to see what the fed does this week, if anything. I for one hope that they don't step in and clean this up for everyone. We need to get the housing market back to fundamentals... the norm needs to be 20% down payments on a 30 year fixed mortgages, not 0% down, interest only ARM. For that to occur there needs to be a lot pain distributed across the market (Hedge Funds, Wall Street Banks, Mortgage Companies, and Consumers).

The worst is yet to come...

The median household income of silicon valley is ~50% higher than average, yet the median home price is ~3.5x... this will get straightened out over time, and it will get ugly for many people.

Foreclosures explode in CA

As expected, foreclosures are going through the roof here in CA, and the Bay Area isn't immune. I had a great conversation with some business school friends last night about the housing market, and my point of view is that things will actually continue to get worse before they get better.

Here is the story from the SF Chronicle that details the most recent stats.

Here is the image from the story... it goes without saying that this picture is worth more than a thousand words:

Back end of housing bust...

Up and down the economic value chain of the housing market there has been pain recently. I am clearly a housing bear, and having friends working on wall street, specifically in CDOs, gives me a little insight into how they are viewing paper these days.

Here is a must watch video if you want to understand why the worst is probably still to come with respect to the housing market. Remember, when wall street loses it's appetite for mortgage backed securities there will be a huge trickle down effect to consumers:

Can we move on now???

I am a tech news junkie, and I am SOOO glad the iPhone launch is over with. We need to move on. Yes this is a game changing device, for a bunch of reasons. Other cell phone makers will have to raise their game and innovate in areas they have ignored. Probably most importantly, every carrier not named "AT&T" will need to reexamine their "closed platform" philosophy.

Techmeme....

Years ago, I would start every hour by quickly pinging News.com to see if there was any breaking tech news. That was quickly replaced by bloglines, which became the hub of all my news. Today, I subscribe to 200+ feeds, so I can't jump into my feed reader and get a quick snapshot of the pulse of the tech world... that's where Techmeme comes in. I visit techmeme about 10 - 15 times a day to find out if any stories are breaking and to see what is happening in the world of tech news. Check it out if you are a tech news junkie like I am.

What Henry Said...

I have been a bear for so long on housing that I now know what the Nasdaq bears felt during '98 - 2000. Henry Blodget (yes, that Henry Blodget) perfectly summed up my feelings on the housing market with this post:

NAR: Don't Worry, Housing Prosperity Just Around Corner

HousingcrashOff topic, but I can't help but note the similarities between the dotcom-crash rhetoric/predictions back in 2000 and the housing-crash rhetoric/predictions in the last 12 months.

Those of you who had the misfortune to live through the dotcom crash will recall that I and other analysts correctly predicted that there would be a slowdown and shakeout, but drastically underestimated its severity and duration. All the way down, we kept revising forecasts (read: cutting estimates) to previously inconceivable levels, and each time we cut them, we reiterated our expectation that the inevitable trough and upturn was about six months away. It wasn't until two years after the shakeout began, when half of online advertising revenue had evaporated and more than 75% of the companies in the sector had keeled over that the downturn finally ended... And by that time, most of us were so demoralized that we'd stopped predicting that there would ever be an upturn.

Housing obviously won't experience as deep a correction as the dotcoms did, but I haven't heard a single persuasive argument explaining why this downturn won't look like every previous housing downturn: i.e., will last a lot longer and drop much farther than most people think--until price/rent and price/income ratios return to or below their long-term trend. Instead, all I hear are arguments like this one, which are based not on long-term historical trends, but on short-term bubble-year pricing and price trends (arguments I am very familiar with, having made similar ones in late 2000 and early 2001):

WASHINGTON -- The National Association of Realtors again lowered its U.S. housing market forecast for this year, saying the market remains "soft." In its latest forecast for the real estate market, NAR projected that existing home sales will fall 4.6% this year to 6.18 million, compared with its previous forecast of a 2.9% decline. New home sales are expected to plummet even further. The NAR said new home sales are likely to fall 18.2% to 860,000, compared with the prior forecast of a 17.8% drop. While near-term prospects for housing remain fairly grim, NAR said sales should pick up toward the end of the year.

"Overall housing levels are historically strong, but sales remain sluggish compared to the recent boom," said Lawrence Yun, NAR senior economist, in a statement. "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year," Yun added. Existing home sales are projected to rise 3.7% in 2008, to 6.41 million, according to NAR's forecast.

Talking at Where 2.0 this week

While Bill & Steve debate at D, I will be talking at Where 2.0 on Wednesday. The topic... "Getting into the Car : Geo-located Information Breaks Free". It should be a fun session.

Facebook platform will be HUGE

I have spent the day thinking about and researching the new Facebook Platform. I am convinced that this is going to be HUGE, and that within 18 months Facebook will surpass MySpace as the #1 social networking site on the web. I also believe that dozens of start-ups will survive solely based on this platform. Big, Big, Big...