It must have been heartening this week for the world’s orthodox economists to see that the most basic conception of rational expectations theory borne out in Russian domestic “demand.” At its heart, the economics profession views “inflation” as somewhat synonymous with economic growth because of this adherence to “aggregate demand.” Thus, as the thinking goes, if inflation expectations were to rise, economic agents would act upon those expectations today by purchasing or building before costs actually do rise.
The Russian example this week was likely more toward an extreme than any…

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Economic cycles were first recorded in 1349 in Florence, Italy. Sir Isaac Newton (as in “gravity”) lost his fortune when he failed to recognize the 1720 South Sea Company financial bubble. There have been over 300 asset bubbles since 1720. But you don’t need to be a genius to avoid getting caught up in an economic cycle. By always being aware of where you are in the economic cycle, you can both protect and grow your savings in the new year.
Economic cycles, often referred to as “booms and busts,” are recurring macroeconomic events with high and low inflection points triggered by a change in…

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It sometimes seems that in the Valley that everyone is an angel investor and the streets are paved with gold. Building a startup there is, of course, still an enormously hard thing to do, but there are lots that have made it big enough to create scores of millionaires through their option schemes. Many of those newly minted millionaires go on to invest in startups themselves, which fuels the ecosystem and makes them role models for the next generation of startup employees that are hoping for a big payday from their options. That’s great for the startups because option holders are often happy to work for lower salaries.

Here in the UK the ecosystem is young and hence not yet so well developed. The good news is that just about every startup gives options to it’s employees these days, and many of our options schemes are similar to those in the US. However, my experience across over 100 portfolio companies and my colleagues experience in hiring getting on for 1,000 people is that employees often don’t understand or value those options very highly.

I think the difference comes because on this side of the pond we haven’t yet seen enough companies having enough success that their options schemes have made large numbers of people wealthy. Most people don’t know anyone who has made it big through options and that makes it hard to see value in their options.

The other factor at play is that startups here in London are often competing with banks who are offering large bonuses in the first year. That cash promise is more real and present than an option scheme.

The good news is that the situation is improving. Startup ecosystems take time to build and perceptions of options is one aspect of many that has been headed in the right direction here for sometime now. Crucially, billion dollar exits are coming through at an increasing rate – this year we have already seen King.com, Just-eat, Zoopla and Appliances Online enjoy £1bn + IPOs, and that’s just a few of the big names. Once these businesses and others come out of their lock-up periods many of their option holders will cash in, more people will know somebody whose options have worked for them, and startup employees will place more value on those options. We shouldn’t expect big overnight changes, but continuous improvement at an accelerating rate is very much on the cards.



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During most of my career as a financial market economist, I made it a holiday tradition to write a “review and outlook” for the economy in the style of Clement Moore’s classic, “A Visit from St. Nicholas.” I have continued this tradition since I retired more two years ago. In this year’s rendition, I encounter a Santa who seems more than a bit peeved by the frustratingly slow pace of economic recovery, which he attributes to overly intrusive and ineffectual policies. ‘Twas the night before Christmas, the year of fourteenAnd signs of the season could be everywhere seen.While…

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The Federal Communications Commission is actively considering turning the internet access industry into a public utility by classifying it as a “Title II” service under the Communications Act of 1934. Proponents of the idea, including President Obama, argue that doing so is necessary to protect “the open Internet” and all the benefits it has produced.Everyone is for preserving an open Internet, but replacing a competitive industry with a regulated utility is not the way to do it. Broadband competition has produced a remarkably innovative, dynamic market in which output and performance…

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Last week, the California Department of Finance announced that California’s population grew to 38.5 million, an increase of 335,000 (or 0.9%) between July 1, 2013 and July 1, 2014. More problematic for the Golden State is that since 1999-2000, on average, the state has seen less than 1 percent growth per year.
To understand why, we have to look at population growth’s main two components: natural increases (i.e. the difference between births and deaths) and net migration (the sum of California’s net immigration and net domestic migration). Here we a find troubling trend: stagnation.
These…

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It is amazing how often people see an obvious use case for a piece of technology and assume that means there will be a big market.

Benedict Evans wrote about it recently in his post asking How many people really care about Google services?. In his post he says that he and others like him (including me) make a mistake by assuming that:

maps and calendars and email and so on are very important, because we use them all day, and that the tight integration of Google services is a good reason to buy an Android phone and their absence would make it unsalable.

Whilst in practice, Google services aren’t that important to most people, because most people don’t use them very often. Most people don’t go to places they don’t know very often and they don’t have lots of meetings. To whit, Google Maps only has 100m active users on iOS out of 400m iPhones and 250m other iOS devices and the average Gmail user only gets five emails per day (most of which are ‘commercial’).

I first thought this back at the dawn of location based services when any number of startups built apps and infrastructure to help us find the nearest cashpoint, petrol station or just about anything else. I probably find myself in more places I don’t know than average and I doubt if I have trouble with this problem more than once a month, and then when I do it is rarely difficult to find what I’m looking for. That was obvious to me at the time.

News aggregation and personalisation services are another good example. This is another one I’ve fallen for myself, becoming highly enamoured with various feedreader businesses over the years, but the truth is that only a small number of news obsessed technophiles have a daily problem with finding gems in an overwhelming torrent of newsflow. Most people just have a site or two that they like to monitor.

In all these examples the service in question is incredibly useful to those who value it, and because the users are held in high regard by the media and other areas of society it’s easy for them to falsely believe that many many others share their problems, or aspire to be like them, and therefore overestimate the market size.



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In the course of 24 hours, the ruble dropped more than 10% against the dollar. This sudden collapse comes on the heels of a six-month period in which the ruble has lost 55% of its value. Unsurprisingly, many of the resulting headlines are self-congratulatory, describing a Western victory over Russia. But the collapse of the ruble owes far more to other factors - primarily the dramatic drop in the price of oil - than it does to sanctions, and may not help to solve the Ukraine crisis.
Although the ruble has been floundering for some time, the last two days have seen a sharp and unexpected drop…

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The Washington post just published a chart showing the most popular sites on the internet over the last eighteen years. It’s too big to reproduce here, but the striking thing about it is how little movement there’s been in the top. Only 14 companies are represented in the top 5 slots over those years, and the top slot has been held by only three companies (AOL, Yahoo, and Google).

This stability is partly down to the top companies acquiring the ones further down, but it’s remarkable given how much turmoil there is in the internet world more generally.



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When Dodd-Frank became law more than four years ago, even its proponents acknowledged that the law needed some tweaks. After all, remaking the financial markets in the wee hours of the night fueled by cold pizza and too much caffeine is a risky undertaking. Despite acknowledged problems, the law has remained largely untouched until this month. Fixes look like capitulation to Wall Street. It took emergences unrelated to Dodd-Frank-the need to get a spending bill done and the impending expiration of the Terrorism Risk Insurance Act-to drive changes in recent weeks. Concern that fixing errors…

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Where in the world do authorities decide who is eligible to vote after the vote is counted, and then discard the ballots of voters who are deemed ineligible? Plus, these authorities limit free speech before the election. Not Cuba. Not Russia. The answer, sadly, is the United States of America, at least with respect to union elections.That is the essence of the new union election rules, called Representation-Case Procedures, issued by the National Labor Relations Board, now dominated by Obama appointees. The new rules were published in the Federal Register on December 15.These rules govern…

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The sharp decline in world oil prices during the last half of this year has become the defining economic event of 2014. It has been hailed as a timely stimulus to global demand because it adds to the purchasing power of consumers. Lower gas prices have already strengthened the U.S. expansion and supported the still-fragile recoveries in much of Europe, Japan and the emerging economies. These demand side effects are still growing, but they are only the most immediate impacts. Depending on how the tumultuous events in the oil market play out, they will have important effects through many…

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Screen Shot 2014-12-15 at 12.26.58I took this chart from Criteo’s recently published Mobile Commerce Report. It’s amazing to see how fast mobile is taking share from desktop and great to see the UK leading other western markets, as we do in just about all areas of ecommerce.

Other interesting points from the report include:

  • Smartphones now account for a greater share of mobile transactions than tablets (although not in the UK)
  • Android and iOS convert similarly, although Android transaction volume is about 65% of iOS
  • mCommerce works for high value as well as low value goods – fashion is a key vertical for mobile

 

 



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Immediately after the 114th Congress is sworn in, the Republicans will face a battle that will determine whether they will be able to deliver for the voters, who have just given them sizeable majorities in both the House and the Senate. The battle in question will be the fight over how the Congressional Budget Office (CBO) will “score” tax bills for budget purposes.
The CBO has long employed “static scoring,” which assumes that tax changes have no impact upon economic growth. The liberals will fight to retain static scoring, because they know that static scoring is their first and best line…

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There’s no doubt what the received wisdom is these days. All year the financial press has been echoing the theme that emerging markets are toast. The Fed, we’re told will shortly be initiating a period of monetary tightening and rising rates. This, we are told, will suction vast quantities of capital out of the global economic periphery towards the havens of the developed world. The dollar will soar in value and emerging market currencies will plummet. Tough economic times will drive global investors towards ‘safety’.
Dr. Jerome Booth disagrees. He recently retired as Director of…

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