• Economist: Global Heroes, A special report on entrepreneurship

This special report will argue that the entrepreneurial idea has gone mainstream, supported by political leaders on the left as well as on the right, championed by powerful pressure groups, reinforced by a growing infrastructure of universities and venture capitalists and embodied by wildly popular business heroes such as Oprah Winfrey, Richard Branson and India’s software kings. The report will also contend that entrepreneurialism needs to be rethought: in almost all instances it involves not creative destruction but creative creation.

… the threat to entrepreneurship, both practical and ideological, can be exaggerated. The downturn has advantages as well as drawbacks. Talented staff are easier to find and office space is cheaper to rent. Harder times will eliminate the also-rans and, in the long run, could make it easier for the survivors to grow. As Schumpeter pointed out, downturns can act as a “good cold shower for the economic system”, releasing capital and labour from dying sectors and allowing newcomers to recombine in imaginative new ways.

• Morgan Stanley: Trouble Zone and Debt Rollover Risks

The Trouble Zone is now facing the challenge of external debt repayment-related capital outflows. Indeed, in 4Q08, capital outflows from debt repayments not rolled over have probably been higher than portfolio equity outflows in Korea and India. These three countries have the highest ratio of external debt to FX reserves. They also have the highest ratio of short-term debt to FX reserves. Korea and Indonesia stand out on this measure, leaving India a distant third in the ranking.

The Eastern European credit turmoil has aggravated the problems for the Trouble Zone in AXJ. Deleveraging in the European banking system is indeed more concerning for the Trouble Zone than the deleveraging in the US banking system. According to the BIS, as of September 2008, about 52% of foreign debt claims on these countries were by European banks. While some of the large, decent-quality companies should be able to roll over their external debt (albeit at higher rates), the small and mid-sized companies are likely to find it hard to get their debt rolled over. In Korea and India, small and medium-sized companies had raised a significant amount of external debt over the last few years.

• Mint: Yield on 9-year bonds top 7% on oversupply

Bond dealers now fear that yields will touch and even cross its July 2008 highs of 9.5% in early next fiscal year beginning 1 April, if the government does not sell its bonds directly to the Reserve Bank of India (RBI). The government is estimated to borrow Rs3.62 trillion next year. It is raising Rs2.6 trillion from the market this year.

Banks will not be able to book treasury profits this quarter and may even have to book losses to show their bond holdings at the current market price rather than at the price these bonds were bought.

Remember those gung-ho articles from December/January - “bonds are the next great investment” ? The fast & furious drop in yields to nearly 5% was a sure sign of retail money flooding into debt funds. Now that most of them have taken a bath, we are getting closer to a good entry point to go long bonds - perhaps in May?

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• Bloomberg: Ghost Towns Dot Finland as Forestry Collapse Threatens Growth

Increased use of the Internet is cutting demand for pulp and paper, which account for about two-thirds of industry revenue, according to the Finnish Forest Research Institute. This has helped drive down the price of newsprint in Europe by 19 percent to 495 euros ($639) per ton in the seven years since December 2001. In addition, companies including Metso Oyj, the world’s biggest manufacturer of papermaking machines and rock crushers, are moving production to countries where labor and other costs are lower.

As paper mills close, a growing number of young people are moving to cities from northern rural areas to find work. Kemijaervi has shrunk a third to 8,600 residents since 1981, while Helsinki has grown 17 percent to 563,000 inhabitants. The shift has left roads, bridges and other infrastructure unused in smaller towns, while new highways and homes now need to be built in the cities.

• EconompicData: Ready to Ride the Golden Bubble

• Traders Narrative: Revisiting The Long Term Bullish Case For Stocks

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• Jim Walker @ DNA: ‘Brace for 10 years of insipid global growth’

… people are still very sanguine about China. And that’s probably going to be the next phase, where people realise that China has problems as well. And along with China, commodity-exporting countries will be very adversely affected.

It’s becoming hard to ignore the chatter about the ‘imminent death of the dollar’, with the trillions of debt that the US is piling up. What’s your outlook on the dollar?

I can’t remember which comedian it was, but his response to the fairly standard question — “How’s your wife?” — was “In comparison with whom?” It’s the same with the dollar. Yeah, the dollar has problems, and we’ve seen the response of the central bank and the government, but tell me which government is not doing the same thing? Which other currency is more attractive than the dollar?

• Hussman Funds: Market Valuations During U.S. Recessions

We can calculate the levels of the S&P where valuations would appear very compelling, even given an economy in recession. If the price to smoothed earnings ratio falls to the 25 th percentile (a Shiller P/E ratio of about 9.7), that implies the S&P at about a level of 560. If the ratio falls to its 10 th percentile, that implies the S&P at 450.

If we run the same analysis by applying the level of the 25 th and 10 th percentile of the price to sales ratio to the current per share sales of the S&P, the implied S&P 500 levels are 520 and 470, respectively. If we treat each of these equally, it would imply a level of 500 for the S&P. At this level, the S&P would be generally in the lowest fifth of its range of valuations that typically occur during recessions, without relying on expectations of a quick recovery in profit margins to the levels of recent years.

• New Yorker: Is Warren Buffett Crazy?

Today’s crisis is different in some important respects (in the earlier crisis, banks were able to make easy profits by investing in government debt, while today the profits on such an investment would be quite small). And there are some banks today which may be carrying so many bad loans that even their increased earnings power won’t save them. At the very least, though, history suggests that Buffett has not gone around the bend, and that it’s a mistake to think that nationalization is the only plausible solution to our current banking crisis.

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There’s no shortage of commentary on the ridiculous bailouts of banks, the obscene bonuses handed out in the financial industry and the moral / ethical bankruptcy in Wall Street, excuse the pun.

Umair Haque adds his two cents to the topic: The Bailout We Need

“Have they no shame, have they no sense of responsibility to American taxpayers? . . . Have they no sense of decency?”

Oh, the humanity. Of course they don’t; if they did, they would have found “banking” repugnant in the first place.

Today’s banks and businesses have given rise to a kind of adverse mega-selection: they select and empower the worst and dumbest among us.

Yes, you read that right. No, investment banks quants weren’t the brightest. As Nassim Taleb has pointed out, the models they built relied on statistics flawed at the most basic logical level.

The worst and dumbest. And, what’s perhaps worse, the guys supposed to be reining them in are drinking the banking lobby’s snake oil, hook, line, and sinker.

No punches pulled, thank you very much.

But that is how today’s financial industry is - like it or not. Whether it’s New York, London or Mumbai - when the downsides are limited (non-existent?) and the upside huge, all it takes is a slightly loose moral code and off you go into the money ‘management’ business.

From there on, it’s a vicious cycle of 2 and 20 -> AUM / OPM -> Big bonuses & expensive lifestyles -> 2 and 20, … Meanwhile, the regulators are ‘managed’, as is the government, the media and the public.

As for India, look no further than the latest piece from Le Grand Fromage @ First Global: The Azhar Syndrome

Exposure to real estate alone was 175% of Net Worth for ICICI Bank, 180% for Axis Bank and 88% for HDFC Bank…and this was after the serial fund-raisings by all of them..…plus there was significant exposure to other cyclicals like steel, textiles, et al.

Unsecured loans were (and probably still are) are between 112-165% of tangible networth.

Total Sensitive Sector exposure + Unsecured lending, of these banks is: 305% of Tangible Net Worth for ICICI Bank; Axis Bank has the same ratio at 316% of Tangible Net Worth; and HDFC Bank, 292% of Tangible Net Worth.

Whoa. Anyone still think the credit crisis and bad lending practices won’t affect India?

What happened? Just a case of MBAs, private bankers & promoters gone wild. Growth at any cost. NPAs - what’s that? Overvalued - of course not. Leverage - now that’s a beautiful thing. Profitability - haha!

It’s all about the Indian growth story, baby. (And how much I can milk it for.)

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• A VC: Bonuses

I prefer bonuses that are based on ebitda. My thinking is that value creation in companies comes from earnings growth. The more ebitda you have, and the faster it is growing, the more value you are creating for stockholders. But I don’t like the idea that management is incented to maximize ebitda in the short run to create bigger bonuses for themselves while starving the business of needed investment.

So I’ve become fond of an approach where the company pays management bonuses on “incremental year ove year ebitda.” The way this works is you pick a base year and for the next year you pay management a bonus of x% of the incremental ebitda they generate. The best way to do this is a five year plan with a goal of obtaining a significant increase in ebitda so management has time to make the investments needed to get there.

• CrossingWallStreet: Why Do People Make Market Forecasts?

The dirty secret is that stock market forecasts are fun.

It’s odd that people ignore this basic insight. Markets are a lot of fun. Sure, every serious person is seriously concerned over market forecasts because they’re not serious. Still, people do it anyway. Why? It’s damn fun.

The worst moment of Stewart V Cramer was Stewart saying that finance isn’t a “game.” Oh please! Cramer may deliver his advice in a clownish way, but the advice is serious (in his mind). The thing I hate about Jon Stewart is that he combines too much self-righteousness while being too little informed. The two reinforce each other. Stewartism is really an invitation to ignorance. As long as you have that smug, knowing attitude, who needs to actually understand the issues?

• FT: Hedge funds seek redemption with pay-outs

Hedge funds that locked up clients’ money last year have started paying out cash earlier than many had planned, in a move that could free tens of billions of dollars – and threatens another wave of hedge fund share and bond sales.

The repayments follow anger from many investors at the decision of hundreds, perhaps thousands, of hedge funds to suspend withdrawals, impose “gates” limiting withdrawals or create “side pockets”, which pay out only when assets can be sold.

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