Business World Blog

Have you ever wondered about some of the ways in which monetarily wealthy people manage their funds in manners which may be generally unconventional and historically uncommon among the general populace? One of the interesting things about governments is that they are sadly, all too often, started by monetarily wealthy people as a way to maintain their wealth and control those who are perhaps not as wealthy at the time. It is a way to establish national standards which often to the benefit of the wealthier few and conveniently not openly share the ways in which those standards are actually used to actually perpetuate the wealth of those in the know. While a system may appear democratic, it is likely far from truly democratic until everyone is walking around with a “yes or no” button and voting on every measure passing through their government. Democracy in its common form is often a way to make people feel free and actually promote peaceful servitude. One of the vehicles which has supported this structure in better ensuring the protection of wealth is the concept of a corporation.

The classic concept of a corporation that most people in the US would likely think of when they hear the word is the kind that tends to have an executive structure and is able to publically offer shares of stock at some point if so desired. This is actually known as a “C Corporation” or “C Corp” for short. There are other corporate structures for other types of corporations. In this article we will be focusing on a C Corp because it has a historical purpose of discreetly shielding wealth and also serving as a tax haven and a legal liability shield. As soon as someone examines the structure of a C Corporation and realizes what the financially wealthy essentially invented it for, one may be slightly amazed that it has been sitting there this entire time without their knowing about it. One may also be amazed that it was ever actually approved without the masses fully understanding it. It is a tool for wealth production and protection.

A corporation of this kind is legally basically the same as a person, but without any actual accountability if created in a legally skillful way. This means it has most legal rights granted to a person, but totally different accountability. Basically in different states there are different standards for protecting those who establish a corporation from actually being publically exposed or legally liable for anything the corporation does. This includes anything happening on the premises of corporately owned properties or involving corporate assets such as company vehicles. You may be surprised to find that many apparently wealthy people actually own very little that is in their own name compared to how much they actually own through their corporations. You may also be amazed to find that many wealthy C Corporations, which may include some of the largest corporations in the US, actually pay no taxes as they have more annual expenses than they do profit. Even more surprising may be that their annual expenses from one year can carry over to protect them from taxation the next year. Expenses include things like oil fields and factories and just about anything else you can imagine. Think “expense accounts” and you will begin to have a general idea of just how big business actually functions. The life of a “business” man is all business, right? Meetings over dinner and golf, company jet, company limousine, all of these are legitimate company “expenses” and are considered tax write-offs in the corporate realm.

Starting your own C Corporation is actually much easier than you may expect. One person can start it and play all legal roles. It is also relatively inexpensive to file all of the papers. In some states you can establish a corporation online in less than an hour for less than $100. There is a wealth of information online to get you started, so make sure you do your research and start the best corporation you can.

So Nancy Pelosi and Barack Obama officially have themselves a car company now. There’s a lot of speculation going on about what will happen. Personally, I think there’s a lot of overreaction.

I do believe GM is going to overdue it on the small car front. When I think of any reason to buy a GM car, I generally think of a cadillac, camaro, or perhaps a truck. Basically, something that’s a specialty vehicle that’s cool. I don’t think of small and efficient. Apparently, GM is going full board on that front…to the point of probably overdoing it.

Right now, that Chevy Volt looks like a flop in the making. The car will likely cost between $30-$40k.  No one has that type of money, and if you do, you don’t mind gas prices, even if they are $5 a gallon by then.

I also don’t think the federal government will be able to subsidize GM into profitability. Obama’s approval rating is already deteriorating. He is also using a lot of political capital for projects such as health insurance, green standards, and education issues. They won’t have the leverage to push us into a full-scale protectionist trade war to save GM (and destroy the economy), so tariffs on foreign operators are likely out. Massive government discounts will likely be out as well. Not only as a political capital issue, but with the budget deficit exploding, both Republicans and blue dog democrats are going to turn a deaf ear to pleas to give out money to car buyers.

In short, I don’t see GM really doing that much. I just think it’ll shrink. It’ll continue to lose market share since it won’ t deliver what people actually want. I don’t think the government will be able to force us into buying GM cars…I just see a slow bleed. By 2016, GM will be taken over by a competitor or a private capital firm will take it over and shake things up.

It is generally near the end of an economic peak that you see asinine business ideas that get funding.  Near the end of the dot com bubble, we saw some truly great flops. A good one was flooz.com, which tried to have some sort of alternative currency people could use online…I mean, I know people may be losing faith in the dollar but cmon! There was, of course, the infamous pets.com, which in its nature doesn’t seem like a terrible idea. Some people after all may buy pet stuff online. But advertising multi-million dollar commercials during the super bowl probably isn’t a good idea.

Our recent recession saw a host of exotic credit and mortgage related products and companies that have since gone belly up. But one thing we have missed out on are some truly terrible ideas that people will invest millions into.

Along comes Pet Airways. This is an airline exclusive for pets. Yes, only for pets, no humans allowed. No, it’s not Southwest and you can take your dog on too. It’s only for your dog.

In the current economic climate, people are cutting back on vacations and staying at home. Last thing they’re going to do is shell out a few hundred bucks to send Fido first class. This is a business idea likely spawned by a bunch of people with large inheritances and too much fondness for their dogs. If people really wanted this, the commercial airlines would probably have special ‘dog flights’ where you you can fly with your dog…the last three rows are taken out and cages for animals are put in or something.

Too bad it’s not a public company, since that would be one fun short.

If you’re an investor in Facebook and Twitter, stamp sucker on your face.

Well, sell if you possibly can but if you can’t, you’ll likely see your investment is worth 80% less in five years.

I don’t think social networking is going away. In fact, I think Facebook at least will maintain its activity levels.I don’t see it growing exponentially. Those who do are buying into the same hype that tech investors did in 1999 and look where it got them.

If you look at Facebook’s revenues, you’ll get a little cautious. First, their revenues were around $265 million last year, not exactly amazing for a $4 billion valuation. Let’s spot them a $100 million profit after revenues EBITDA (and that’s some massive depreciation expenses we’re not taking into account). Throw 10 X EBITDA for a site that’s going to have difficulty generating more revenue and that’s a $1 billion valuation, a 75% haircut.

But it gets worse. I estimate that advertisers are drastically overpaying for ads on facebook. I estimate the average facebook eCPM to be around $.40. I made this guess on 2 methods:

1.  There are conflicting sources, but it seems facebook gets about 50 billion pageviews a month. At 600 billion pageviews a year, that would make the CPM $.475

2. Through facebook’s advertising method, your minimum CPM is $.10-$.15. There are generally about 3 ads per page, making the CPM at least $.40. Also, they seem to suggest a CPC of $.50-$.60 to get any amount of exposure. Even a horrible CTR of 1/1000 would make a CPM of $.50 or more.

What’s so bad about  a $.47 CPM? Well, that’s extremely, extremely high for a bunch of college kids that are just shifting around blowing off time and not really paying attention to your untargeted ads. If Facebook had Adsense on the site, it’s eCPM would probably be $.02 (I say this based on having websites with traffic similar to facebook’s type of traffic). That’s about 20X overperformance.

If there’s one thing I’ve learned through this economic crisis, it’s how greatly inefficient the business world is. PPC and CPM advertising is often reliant on dumb advertisers overpaying. This often will occur on a fad website like facebook. As advertisers gradually realize how bad of an investment facebook advertising is, they will pull back and prices will fall. I certainly can’t see facebook sustaining this sort of advertising long-term.

And if Facebook is a buble, Twitter, which is just a bunch of 19 year olds talking about what they ate for lunch and complaining that it’s cold outside, can’t expect to make much revenue off of that sort of traffic.

During trying economic times, it is ultimately the successful small business that helps the economy get out of trouble. Large businesses have often become too large for their own good. When large companies attempt to scale back, it is often too difficult for them to spot inefficiencies in their organizations. Their layoffs are untargeted and just designed to cut overall costs. In short, they are not able to trim the fat and focus on promising new areas because they are so large and beaurocratic.

Small businesses are  nimble and can react quickly to change. It is the small tech companies that paved the way for innovation in the 90’s. Small service-based companies have also done well in the past decade.

Unfortunately, I do not think we can rely on small business to save us this time around. While everyone likes to say they aim to help small business, the truth is the Obama administration is hurting it.

First, by raising tax rates on successful individuals, they are raising taxes on small business. Backers of the tax rates say only a small percentage of small businesses are affected, but these are the successful small businesses. Prosperity and employment is not created by small companies that are losing or making miniscule amount of money. They are made from highly productive, highly profitable companies. By increasing taxes, Obama is taking away more money from the owner to be able to reinvest in his or her business, as well as discouraging owners from making capital purchases. The owner must pay the cash up front, but amortize the cost over a decade, while retaining a smaller amount of the revenues for reinvestment purposes. Why expand?

Second, by borrowing large amounts of money for entitlements, the government will crowd out small business from the credit markets. Why should banks that are strapped for cash lend to small business when the government is in demand for large amounts of money? As t-bill rates increase, the cost of borrowing for small business will increase too.

Finally, by increasing capital gains taxes, Obama discourages venture capital into small business. In fairness, I think this is by far the smallest reason of the three. Even 20% is low enough to make a tidy sum off of a good investment into a small business. Of course, this number may well go up, as our deficits and national debt increase.