Thomas De Maesschalck’s blog

When I wake up and start working one of the first things I do is read some sites, forums and blogs to get up to date. One of the many things I check a couple of times a day is the EUR/USD currency exchange rate to see where it’s heading.

Over the last couple of weeks the dollar made a huge rally, it recovered from a low of around 1.6 dollar per EUR in April and Juli to 1.285 dollar per EUR right now – a gain of almost 25 percent in just 3-4 months time. I’m pretty happy about this as I earn most of my income in dollars and because I opened a savings account in dollars a half year ago. A lot of the income I earned then, when the dollar was trading between 1.5 and 1.6 dollar per EUR, remained on the dollar account as I was expecting a rebound of the dollar.

I was pretty surprised by how fast the dollar gained on the euro and as I didn’t know where it would be heading next I converted about half of my dollars to euros two weeks ago when the dollar was trading around 1.35 dollar per EUR.

Today the dollar reached one of its highest levels since late 2006, it was briefly trading at 1.2737 dollar per EUR.  The reason why the dollar is doing so much better now isn’t because the US is doing well – the economy in the US is slowing down, the trade deficit remains huge and the US government is adding billions to their debt everyday. The reason why the dollar is soaring seems to be a combination of the following points:

• The EU and the rest of the world (including the BRICs) are doing a lot worse then expected. Banks are getting bailed out everywhere and even some countries (Iceland being the most prominent example) are in deep shit.
• Large financial institutions are dumping euro assets to get more $ cash
• US Treasury Bonds are seen as a saveheaven by investors worldwide
• …

Here’s a chart of the US dollar to Euro currency exchange rate since 2000. It’s a bit out of date though, the chart misses data from Monday and Tuesday so the blue line should be even lower.

Ten months ago financial newspaper De Tijd published a list of the favorite Belgian stocks for 2008. The journalists contacted sixteen analysts and compiled a top ten list. The year is far from over but lets have some fun and see how bad (or well?) these ten stocks did since the start of the year (excl. the dividends):

1. GBL -36.54%
2. Dexia -72.43%
3. Fortis -95.11%
4. Omega Pharma: -39.51%
5. KBC: -64.48%
6. Umicore: -56.38%
7. Barco: -59.87%
8. Thrombogenics: -20.53%
9. Nyrstar: -84.92%
10. Agfa-Gevaert: -67.07%

Average performance (excl. dividends): -59.68%

Conclusion: If you had followed the advice from these analysts and bought these 10 stocks you would have lost almost 60% of your money. I forgot to include the dividends most of these stocks pay out, but even if you include these you would still have lost more than 50 percent of your money.

For comparison, the Bel20, which is the benchmark stock index of Euronext Brussels, lost 51.17% in the same timeframe. The Dow Jones lost only 33.27 percent since the start of the year, but losing a third of your money isn’t such a great performance either. Unless you were actively trading or shorting, one of the best investments of the year was probably cash.

I’m not sure how much interest banks pay around the globe but here in Belgium you could easily get 4-5 percent this year. It’s not great as the inflation spiked above those levels this year but it’s better than nothing. I’m mainly into cash right now but unfortunately I made the mistake of investing a portion of my money into the stock market in January and the months thereafter. I was too optimistic and didn’t expect the crisis would get this bad. I lost quite a bit of money but learned some valuable lessons in the process.

I’m not sure what the best investment of 2009 will be but I think those who start buying stocks of quality companies that offer value will be very happy within a couple of years. That’s unless you believe the financial system and the economy will totally crash. Then it’s probably best to stockpile food and buy as much gold and silver is you can. But I’m not that pessimistic

UPS stopped by a couple of hours ago to deliver another package. In it was a new 32GB USB drive from Kingston – a review of this device will follow within a couple of days at DV Hardware.

It’s pretty amazing how big these drives have become. I got my first USB drive five years ago and that one had a capacity of just 128MB – less than a fifth of a CD-R. This new drive from Kingston is not only around 256x bigger but also a lot faster. I believe the DataTraveler 150 retails for around $140.

CNET published an article about the state of online advertising with opinions from a couple of analysts.

Cowen analysts Jim Friedland and Kevin Kopelman lowered their estimates on several firms such as Google, Yahoo and Amazon because of the worsening economic climate. The two analysts expect search-advertising spending will be flat, and that graphical display ads might shrink:

“We continue to believe that paid search-ad budgets will remain intact, based on our previously published analysis on the historical experience of direct-mail budgets during recessions. However, we think the growth of paid-search budgets–and therefore Google’s revenues–will be lower than expected, as smaller overall ad budgets will limit the ability of advertisers to meaningfully increase search spend. We also believe that display advertising could experience negative growth (we are projecting mid-single-digit growth in 2009), which would weigh heavily on Yahoo,” the analysts said.

Analyst Colin Gillis from Canaccord  says display advertising, which is mainly used for branding, is under siege and suggests that Google might ‘squeeze’ its Google AdSense partners to keep its profits high. Gillis believes the search giant hit plenty of room to squeeze extra profits out of its partners because there’s little competition in the CPC advertising game:

Google also has the luxury of being able to squeeze commissions called traffic acquisition costs, or TACs, paid to partners that carry Google-supplied ads. “Google has plenty of room to squeeze TAC rates, given its market share and positioning. It is unlikely network publishers switch to other providers–and this provides the company with an additional lever that can be used to clamp down on expenses, in addition to headcount reductions (or hiring reductions) that would offset weakness,” he said.

It’s hard to predict the future but it’s a safe bet that it’s going to get harder to earn to get ad dollars. Personally, I’ve already seen my income decline quite a bit compared what I averaged last year and I don’t think there will be much improvement anytime soon.

The death of Web 2.0 has been predicted several times over the past couple of months and even years. Currently, it’s still alive and kicking but the current economic climate could have a severe impact on the industry. Cash and credit are becoming rarer these days and venture capitalists are focusing more on efficiency.

Here’s a snip from BusinessWeek from a new article about Web 2.0:

OK, that’s a little harsh, even if there may be a grain of truth there about the famously hard-nosed folks at Sequoia (and at other VC firms). But frankly, not to sound too cold, a lot of startups, especially Web startups that have driven the Valley’s recent boom, probably don’t deserve to survive. Many Web 2.0 startups are completely redundant or unnecessary, or both. I feel for the people working hard inside them, but we all knew in our hearts that the 47th social network or video sharing site, and at least 35 or 40 before them, really weren’t going to make it on their own.

And in other ways, their failures will be a good thing. The problem with those companies wasn’t so much wasted VC money, which still seems plentiful for now, but wasted talent. And the folks who are laid off or voluntarily bail from doomed startups—and again, I don’t mean to be cold about this—will probably be happy to work hard at a new place with more promise, even if they don’t get showered with so much stock option funny money. Mark Pincus, CEO of the casual games site Zynga, told me yesterday that he’s getting 30 to 40 resumes a day now, from people who suddenly aren’t so demanding. Up to now, getting talent has been the major bane of new startups’ existence. And ultimately, it’s better for these people that they’re working at a company with a solid user base and business model that has a better chance to succeed.

This time most Web 2.0 firms aren’t trading on the stock market at ridiculous high p/e rates but it can’t be denied that the business model of many popular Web 2.0 sites isn’t sound at all.

Just take a look at a list of some of the most popular sites, do some research on how they’re doing and you’ll discover that many of them aren’t making money. Google spend $1.65 billion on YouTube – and they have no clue on how to make this insanely popular video streaming site profitable. One of the more popular YouTube alternatives is French online video sharing site Dailymotion. More than 32 million euros have been pumped into this site but so far Dailymotion isn’t profitable, although the CEO expects they’ll be cash-positive in early 2009.

Another popular Web 2.0 site is Digg, the site generates lots of income for the sites it refers people to but isn’t profitable. While getting another $28.7 million in venture capital, Digg announced last month that while their ad revenue tripled this year, they’re still not profitable. Ouch.

Twitter is another great example of a bad business model. No doubt that it’s a killer app for millions of people but how could you make money with it without pissing off all your users?

The same is true for StumbleUpon, eBay put them for sale this month because the services’ popularity is fading and they don’t know what to do with it. The online auction giant also has Skype, this program was a hype a few years ago, eBay gobbled it up for $2.6 billion in 2005 but didn’t get the results it hoped for. While Skype is profitable, eBay said it didn’t get what it hoped for and plans to give Skype a year to prove its synergies.

Facebook could be another example. This social networking site is enormously popular but sites like ReadWriteWeb suggest the financial side isn’t that rosy. And the list probably goes on and on. I’m not saying all of the sites I mentioned will just disappear, but they’ll need to focus a lot more on efficiency if they want to survive. You can’t just keep burning capital to grow and hope that some day, out of the blue, your business will become profitable.