Centrally Planned Entrepreneurship, More Anecdotal Deflation

On Thursday, I gave a pitch for my startup (Chrometa, auto time capture) at a business innovation showcase here in Sacramento.

A traditional business plan pitch is fairly formulaic – you talk about the pain point you’re addressing, your solution, your market, why your team can get it done, etc. Big focus on the market in something like this – how big is it, how can you reach and sell to it.

What really struck and nauseated me on Thursday were the number of companies that talked about their alignment with current government initiatives. At least half. One presentation even had a head shot and quote from Obama about his push for green energy or some crap like that.

I’m not knocking the entrepreneurs…they can run their companies how they choose. What bothers me is the free market taking a back seat to centrally planned government initiatives.

Why not build a product that people or businesses want and sell it to them? That is SO 20th century. This day in age, you pick out an important federal initiative – green, clean, healthcare, etc – and step on up to the trough of stimulus hand outs.

Dear reader, this is not healthy economic behavior. This, I’d imagine, is how you’d run a startup in the old Soviet Union.

This is not the first time, of course, that I’ve noticed this pandering going on in startup circles – which are traditionally more or less bastions of pure capitalism – but this is the most extreme I’ve seen it to date. Seems like everyone wants to get their hands on stimulus funds or grants.

When in Rome, I guess…or maybe when in Moscow.

Bulls who are waiting for small businesses to innovate and lead us out of the recession may be waiting longer than usual. There’s a lot of effort being wasted in chasing these centrally planned initiatives.

To say that I was wiping the egg off my face this week after this bearish post from last Sunday would be an understatement. Lately I have been forecasting less often, as I try to weigh different positions, and ultimately use the charts to see if they support a hypothesis. Perhaps you should take my forecasts and start trading against them!

For what it’s worth, I do remain bearish on nearly everything in the medium term here. We still have not seen commodities decouple from stocks and currencies – hence if you believe the market is ultimately heading lower, than caution should also be exercised when looking at these other markets as well.

Uncorrelated markets suddenly traded in perfect harmony when the Great Deleveraging hit – and if we see another bout of it, I can’t see a reason why anything will be spared, at least in the short term.

Yes, people will still need to eat, and we’ll keep an eye on the food complex in particular – but caution is still the order of the day for me.

Our office in downtown Sacramento gives us a bird’s eye view of the continuing unfolding

disaster here in the People’s Republic of California. It is fascinating, amusing, and sad, all at the same time.

While intriguing to see a socialist experiment blow up right before my very eyes, with helpless government officials continuing to turn a bad situation worse, there are real people and businesses affected, which is not so cool…at least in the short term.

The state recently added a 3rd furlough day – so state workers now have been handed a forced 15% pay cut, in return for 3 Fridays off a month. Most would not make that trade if given the choice themselves.

The effects on the city economy are very real. Shop owners and employees I’ve spoken with on “Furlough Fridays” are bummed out – the coffee shop guy next door to my office described yesterday morning as “very slow”. My favorite tea shop in town has also experienced a notable drop off on Fridays – half of their customers are state workers, the owner told me.

This is deflation, no doubt about it. Wages are cut. Businesses are hit. They keep prices steady or lower then to lure in bargain shoppers, who have less money to spend.

In a case like the one I’m seeing unwind right before my eyes, the inflation scenario sounds like an academic exercise.

While the state goverment has its hands tied, because it cannot print money, the Federal government is the only entity that could reverse this trend. I suppose if they printed money, restored workers full pay, and made up the different with the newly minted currency, that would eventually be inflationary.

That’s the only way I can see the Fed getting this new money into the system. Banks will not lend it, and that doesn’t seem likely to change anytime soon. Only public works projects that are paid with newly minted money seem like the only option.

Still, can they print it fast enough to stave off the credit deflation we’re seeing left and right? I’m starting to think not.