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““Whoever is careless with the truth in small matters cannot be trusted with important matters.”
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- Albert Einstein
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For the better part of this past quarter, every single newspaper headline has highlighted the Bernie Madoff Fraud which just recently came to light. In the State of New York, where Wellfleet Partners, Inc. is headquartered, we have been acutely affected by the vast fraud. Not a day goes by without some development and new information comes to light as to how he perpetrated this enormous Ponzi Scheme over the course of decades or his new criminal status. On Friday, March 13, 2009, the Wall Street Journal’s Headline, with associated pictures of the criminal and some of his victims, screamed out “Madoff Jailed After Admitting Epic Scam”. Yet on the bottom of the same front page, there was also an amusing story about a baby Hippopotamus in Basel, Switzerland that has attracted international attention. Farasi, a two hundred and twenty pound, three month old hippo, has become the Basel Zoo’s biggest attraction and was even named “Swiss of the Year” beating out world class tennis star Roger Federer. Unfortunately, due to the indigenous nature of the beast, there can only be one alpha male hippo per zoo and thus unless Swiss Zookeepers can find another home, Farasi will either become food for the lions or animal research. The Swiss, who are particularly known for loving animals and even known for knocking out their gold fish before flushing them down the toilet, have adopted Farasi as one of their own. After an age of one, a hippo’s father may consider his son a rival and has been known to kill its own kind. The Swiss have been partitioning the zoo on the beast’s behalf and animal rights activist want him sent to Africa to live wild and free. Unfortunately shipping animals over long distances is expensive and the stress often kills the beast in travel. So, Farasi remains on a list for other zoo’s to consider and while the world worries about a financial meltdown, a two hundred and twenty pound, three month old “riverhorse”, awaits his fate as a country holds its breath.
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“If everybody is thinking alike, then somebody isn’t thinking.” |
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- Gen. George S. Patton
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Over the past quarter we have seen wild fluctuations in the market. At its low, the market broke 7,000, over 50% below its all time high of 14,164. It is the lowest the DOW closed in over a decade and an estimated $12 Trillion in wealth vaporized. All parts of the market were affected from the hardest hit-banks and financial service companies, to technology companies and even makers of basic commodities. It was a growing sentiment that the economy was not going to improve quickly and the malaise was reflective of a very pessimistic national mood. Unemployment levels reached crisis percentages and many economists spoke of an eerie resemblance to the onset of the Depression that rocked our nation eighty years ago. Many bearish prognosticators believed the DOW had the potential to drop an additional 2,000 points. Subsequently, President Obama’s $787 Billion Stimulus Package and recent new legislation has helped the market recover dramatically. Towards the end of the quarter the mood seems to be shifting and many of us hope that we have seen the worst. In one day alone (March 23, 2009), the market was up close to 500 points. Should lending open again and a broader market rebound occur, with a modest recovery in the real estate market it could be a signal that we have indeed seen the worse.
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“Do not wait to strike till the iron is hot, but make it hot by striking.” |
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- William Butler Yeats
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With venture capitalists’ core businesses in shambles, many have switched gears and are becoming investors in distressed assets and public companies. Once again, “registered directs” and “private investments in public equities”, or “PIPES” as they are well known, are becoming popular. These venture capitalist have little choice but to become more creative as we are in uncharthered territory with initial public offerings backed by venture capitalist firms at its lowest level in decades. Venture investors are now looking for new exit strategies such as lengthening the time in which a sale is anticipated from 3 to perhaps 7 years. In addition, many venture capitalists are seeking to sell minority positions to larger institutions. As the old adage goes, “necessity is the mother of invention”, thus financial professionals need to become creative.
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““The young fulfill the revolutions that the old prepare” |
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- Napoleon
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This past quarter, we have added the following corporate clients to our stable of advisory and consulting companies and continue to assist them in navigating through the current volatile financial markets: Hercules Network Corporation (New York, NY); All American Pet Company, Inc. #2 (Beverly Hills, CA); Hestia Financial, Inc. (Dallas, TX); Stem Cell Cardiology Corporation (Georgetown, Cayman Islands); SWK Technologies Inc. (Livingston, NJ); Northtown Bank (Chicago, IL); Personal Web Systems, Inc. (Palo Alto, CA); and La Polla Industries Inc. (Houston, TX). I would like to thank three particular members of our Investment Banking staff for their invaluable help this past quarter: Gilbert Raker, Axel Mehrle and our new associate, Olga Slobadova. In addition, in conjunction with MRM Finance, LLC in Beijing, China, they are currently in the process of writing or have written due diligence reports on several additional potential target companies: Tianjin New Highland Science and Technology Development Co., Ltd (Tianjin, China); Beijing Jipingmi Technology, Inc. (Beijing, China) and Moqizone Holdings Limited (Hong Kong). Copies are available upon request and again, we acknowledge the efforts of Steve Vago and MRM’s Beijing based Chinese investment bankers, Li Shan and Blingli Cui. Finally, several of our prior portfolio companies made material announcements this past quarter: First, China Broadband, Inc. (“CBBD”) announced the acquisition of AdNet China, a Beijing based multimedia advertising and content delivery company for Internet Cafes in China; and Second, NIVS Intellmedia Technology Group, Inc. (Amex “NIV”) became a publicly traded company on March 20, 2009. Our hats off to our former brokerage affiliate, WestPark Capital, Inc. for completing a WRASP IPO in a very difficult market.
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“We need enthusiasm, imagination, and the ability to face facts, even unpleasant ones, bravely.” |
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- Franklin Roosevelt
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As WPs enters its eleventh year in business, we can look back upon our first decade with pride and over the past year have learned a valuable lesson from the great volatility, political and financial unrest. There is a great need to go back to several basic virtues in the financial community that appears to have been lost: simplicity and honesty. Wall Street on the East Coast and Silicon Valley on the West Coast have developed a passion for complexity and electronic technology has made it extremely easy to indulge in that passion. This complexity concealed “…bad judgment, incompetence, unconscious able risk-taking and sheer dishonesty.” Forbes, March 16, 2009. The complexity of the new financial instruments such as CDO’s and new technology made it close to impossible for the investor to understand these new financial markets. Even the financial regulatory bodies failed to protect us from banks, financial institutions and hedge funds that ran a muck causing the world to loose almost half of its wealth over the past six months. A simple investment axiom has always been and should remain “trust what is simple and can be understood at a glance; if it is too convoluted for you or your financial advisors to understand, pass” (Levism).
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“People might not get all they work for in this world, but they must certainly work for all they get.” |
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- Frederick Douglasst
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