Yield Curve

A steep positive yield curve is not necessarily a good predictor of the strength of the economy.  As seen in the chart below, the yield curve was positive and above the 80 year average throughout the 1930s and this did not portend strong economic growth.

(Source: http://seekingalpha.com/article/23870-an-80-year-yield-curve-history-and-its-implications (12/24/09), An 80-Year Yield Curve and its Implications, Shaw, Richard, “Seeking Alpha.”

In the 1970s, the yield curve was positive and above the 80 year average for much of the decade and this did not portend strong economic growth.  The 60s saw the yield curve below the 80 year average and negative twice, which did not signal weak economic growth. 

A steep positive yield curve in a free market would indicate that banks and investors are bullish on the economic prospects for the future.  This would result in banks being willing to invest in businesses.  However, in the present case the weakness of the bank’s balance sheets will make them reluctant to loan money to small businesses.  In addition, I do not believe that the steep yield curve is indicative of investors’ willingness to put money into start-up companies, but the product of the Federal Reserves manipulation of the money supply. 

Stock Market

The recent run up in the stock market is highly correlated with the falling dollar.  For most foreign investors there has been no increase in value of U.S. equities denominated in their currencies.  The rise in the stock market is not a vote of confidence in the economy of the U.S., but a product of the weak dollar. 

Uncertainty

The passage of the heath care bill, the potential passage of the cap and trade bill, and never ending series of tax, spending, and regulatory proposals by the Obama administration are creating uncertainty.  This uncertainty is significantly hampering investment in the U.S.  A historical parallel is the 1930s under FDR, which had a steep positive yield curve and uncertainty produced by a president who tried to micromanage every aspect of the economy. 

 Invention & Investment

 Since 2000 we have significantly weakened our patent laws and there are proposals in front of Congress and cases in front of the Supreme Court that may further weaken them.  This has significantly reduced the investment in technology start-up companies in the U.S.  Technology innovation is the only way to increase real per capita income.  In addition, Sarbanes Oxley continues to make it almost impossible for a technology start-up company to go public in the U.S.  This significantly reduces the potential returns for investing in these types of companies.  Without policies that promote entrepreneurial  innovation, the U.S. will see anemic economic growth at best.   

 Conclusion

While the U.S. may see a bump in economic growth due to inventory rebuilding, it is unlikely to see a vigorous V shaped recover in 2010.  In order for the U.S. to have strong sustained economic growth, we will need to strengthen the value of investing in technology start-up companies.  

 Dale B. Halling is the author of The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation.  The book, now available on Amazon, discusses how technological innovation is the key to increasing real per capita incomes and how we have crippled this engine of economic growth with little known laws since 2000. 

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Venture Capital is built on technology start-up companies whose main assets are inventions.  The value of these inventions is determined not just by their technical merit, but the strength of title to the invention.  If legal title to the invention is weak, then a great technical invention provides a very limited opportunity for the start-up company or its investors.  This clearly reduces the value of the company and the chances of return for it investors.  Since 2000 the U.S. has significantly weakened inventors’ title to their inventions.

A thriving Venture Capital ecosystem requires a viable exit market for start-up companies.  This provides returns for the Venture Capital investors, founders, and key employees.  While mergers and acquisition are one exit market, a viable public market is critical for start-ups to obtain reasonable valuations in M&A market.  As discussed above, the public market is essentially closed to start-up companies.  

The book, The Decline and Fall of the American Entrepreneur, by Dale B. Halling,  explains:

How we have weakened inventors’ and start-up companies’ rights to their inventions;

How the capital markets have been foreclosed to technology start-up companies;

How the accounting rules have changed to limit start-up companies access to human talent; and

How these changes to our laws are killing the Venture Capital market.

Get you copy of The Decline and Fall of the American Entrepreneur today.  Available on Amazon.com. 

i-Newswire

Dec 18, 2009 – The U.S. of the ‘90’s was a dynamic society filled with promise, high quality jobs, and the economic envy of the world.
Now the U.S. is a static corporatist society filled with political groveling worthy of a Dostoyevsky novel.
What has happened?  How did the U.S. go from endless possibilities to endless nightmares?

How did the U.S. go from endless possibilities to endless nightmares?   The book The Decline and Fall of the American Entrepreneur: How Little Known Laws and Regulations are Killing Innovation, by Dale B. Hallling, will clearly explain-

That the 90s were more innovative than the decade of 2000-2009;

That innovation is the key to real per capita increases in income;

Why the venture capital model is defunct;

How little known laws have undermined the three pillars on which the innovation of the 90s was built; and

How the U.S. can regain its preeminence as the most successful and dynamic economy in the World.

This long overdue book is now available for $21.95 on Amazon.com.

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Dale B. Halling is a patent attorney, founder of several start-ups and author of the book “The Decline and Fall of the American Entrepreneur.”