07-07-2008, 11:51 PM
VentureSource did a study last year showing that more than 1,400 companies funded during the hectic years of 1999 and 2000 still existed in venture firm's portfolios. A majority of these companies -- which received a total of about $50 billion in venture capital and employ more than 150,000 thousand people -- will have to shut down or sell on the cheap. Venture capitalists can't hold onto them forever. Read related column.
The crisis isn't here yet. But it's coming. End of Story
LINK
THE FED<b>
Yellen warns U.S. could hit another rough patch
S.F. Fed president says central bank on watch for 'wage-price spiral'</b>
By Laura Mandaro, MarketWatch
SAN FRANCISCO (MarketWatch) -- The fragility of the U.S. housing and bank system could further throw a kink into financial markets before an anticipated recovery in 2009, said San Francisco Federal Reserve President Janet Yellen on Monday, with commodities presenting their own set of troubles.
Though Yellen anticipates "market functioning" to greatly improve by next year, balance-sheet pressures on financial institutions and other problems dogging the financial system could stick around "for some time."
"Things could get worse before they get better," Yellen said in remarks prepared for delivery to University of California, San Diego's Economics Roundtable.
Yellen, who is not a voting member of the Federal Open Market Committee this year, is seen as one of the Fed policymakers who is more likely to advocate measures to stimulate growth rather than beat down inflation.
For that reason, her concerns on inflation, articulated in May before the last FOMC meeting, contributed to market sentiment that the Fed was likely to start raising interest rates in the second half of this year. See earlier story.
"Yellen seems to have competition at the dovish extreme of the FOMC spectrum only from Boston Fed President [Eric] Rosengren, but she is a long-time Fed team player who refrains from bombastic comments," said analysts at Decision Economics Inc., in a note before the speech.
Yellen said she anticipated overall inflation is likely to remain much higher than she would like over the next few quarters until commodities prices level off, a forecast on commodities she called her "best guess."
[ADDs this graf:] On Monday, oil prices plunged nearly $6 a barrel, leading a broad retreat in commodities. Despite the day's sell-off, near-term oil futures have nearly doubled to about $140 a barrel in the past year. See Futures Movers.
Inflation excluding food and energy is also likely to run "modestly higher" before moderating early next year, she predicted.
"I still see inflation expectations as reasonably well anchored and I anticipate that consumer survey measures will come down once oil and food prices stop rising," she said.
Still, she said the Fed is doing its utmost to prevent the same kind of spiraling wages and broader price acceleration that followed a jump in oil prices in the 1970s.
"The risks to inflation ... have definitely increased," she said. "We cannot and will not allow a wage-price spiral to develop."
[ADDS next 5 grafs] Yields on Treasury bonds, which often respond to Fed policymakers' comments, barely budged after the speech released mid-morning, New York time. Yields on the 10-year Treasury note (UST10Y:
UST10Y 3.98, 0.00, 0.0%) tumbled later Monday after falling stock indexes sent investors into safe-haven Treasurys. See Bond Report.
Analysts saw little new in Yellen's outlook.
"The generally dovish Yellen did not deviate from the [Federal Open Market] Committee's description of economic risks," noted J.P. Morgan economist Michael Feroli, in emailed comments.
Traders in the futures market are now projecting a 14% chance the Fed will start raising rates in early August, to 2.25%. By November, futures traders have priced in a 46% likelihood the central bank will increase rates to 2.5%.
Since last September, the Fed has cut its benchmark lending rate 7 times to the current 2%.
Double, double, toil and trouble
Comparing the situation in housing, financial markets and commodity prices to the three witches that set the stage for subsequent mayhem in Shakespeare's "MacBeth," Yellen said it "seems likely" that housing prices and construction prices will continue to fall well into next year.
Plus, financial markets remain very fragile, a variety of indicators show. She noted spreads on credit default swaps, a type of insurance against a company defaulting on its debt, are rising -- a sign of more perceived risk that companies will renege on their creditors. It's tough to sell even high-quality mortgages in the secondary market, she said. And stock prices for financial institutions have plummeted.
And there is little monetary policy can do about rising commodities prices, she said.
"If rising commodity prices reflect supply and demand fundamentals, then the situation is not likely to turn around any time soon," she said.
Despite the risk that businesses, faced with higher energy costs, will try to raise prices and prompt workers to ask for raises, she said anecdotes and forecasting surveys show the market still believes the Fed can prevent spiraling wages and prices.
"My contacts uniformly report that they see no signs of general wage pressures," she said. End of Story
Laura Mandaro is a reporter for MarketWatch in San Francisco.
The crisis isn't here yet. But it's coming. End of Story
LINK
THE FED<b>
Yellen warns U.S. could hit another rough patch
S.F. Fed president says central bank on watch for 'wage-price spiral'</b>
By Laura Mandaro, MarketWatch
SAN FRANCISCO (MarketWatch) -- The fragility of the U.S. housing and bank system could further throw a kink into financial markets before an anticipated recovery in 2009, said San Francisco Federal Reserve President Janet Yellen on Monday, with commodities presenting their own set of troubles.
Though Yellen anticipates "market functioning" to greatly improve by next year, balance-sheet pressures on financial institutions and other problems dogging the financial system could stick around "for some time."
"Things could get worse before they get better," Yellen said in remarks prepared for delivery to University of California, San Diego's Economics Roundtable.
Yellen, who is not a voting member of the Federal Open Market Committee this year, is seen as one of the Fed policymakers who is more likely to advocate measures to stimulate growth rather than beat down inflation.
For that reason, her concerns on inflation, articulated in May before the last FOMC meeting, contributed to market sentiment that the Fed was likely to start raising interest rates in the second half of this year. See earlier story.
"Yellen seems to have competition at the dovish extreme of the FOMC spectrum only from Boston Fed President [Eric] Rosengren, but she is a long-time Fed team player who refrains from bombastic comments," said analysts at Decision Economics Inc., in a note before the speech.
Yellen said she anticipated overall inflation is likely to remain much higher than she would like over the next few quarters until commodities prices level off, a forecast on commodities she called her "best guess."
[ADDs this graf:] On Monday, oil prices plunged nearly $6 a barrel, leading a broad retreat in commodities. Despite the day's sell-off, near-term oil futures have nearly doubled to about $140 a barrel in the past year. See Futures Movers.
Inflation excluding food and energy is also likely to run "modestly higher" before moderating early next year, she predicted.
"I still see inflation expectations as reasonably well anchored and I anticipate that consumer survey measures will come down once oil and food prices stop rising," she said.
Still, she said the Fed is doing its utmost to prevent the same kind of spiraling wages and broader price acceleration that followed a jump in oil prices in the 1970s.
"The risks to inflation ... have definitely increased," she said. "We cannot and will not allow a wage-price spiral to develop."
[ADDS next 5 grafs] Yields on Treasury bonds, which often respond to Fed policymakers' comments, barely budged after the speech released mid-morning, New York time. Yields on the 10-year Treasury note (UST10Y:
UST10Y 3.98, 0.00, 0.0%) tumbled later Monday after falling stock indexes sent investors into safe-haven Treasurys. See Bond Report.
Analysts saw little new in Yellen's outlook.
"The generally dovish Yellen did not deviate from the [Federal Open Market] Committee's description of economic risks," noted J.P. Morgan economist Michael Feroli, in emailed comments.
Traders in the futures market are now projecting a 14% chance the Fed will start raising rates in early August, to 2.25%. By November, futures traders have priced in a 46% likelihood the central bank will increase rates to 2.5%.
Since last September, the Fed has cut its benchmark lending rate 7 times to the current 2%.
Double, double, toil and trouble
Comparing the situation in housing, financial markets and commodity prices to the three witches that set the stage for subsequent mayhem in Shakespeare's "MacBeth," Yellen said it "seems likely" that housing prices and construction prices will continue to fall well into next year.
Plus, financial markets remain very fragile, a variety of indicators show. She noted spreads on credit default swaps, a type of insurance against a company defaulting on its debt, are rising -- a sign of more perceived risk that companies will renege on their creditors. It's tough to sell even high-quality mortgages in the secondary market, she said. And stock prices for financial institutions have plummeted.
And there is little monetary policy can do about rising commodities prices, she said.
"If rising commodity prices reflect supply and demand fundamentals, then the situation is not likely to turn around any time soon," she said.
Despite the risk that businesses, faced with higher energy costs, will try to raise prices and prompt workers to ask for raises, she said anecdotes and forecasting surveys show the market still believes the Fed can prevent spiraling wages and prices.
"My contacts uniformly report that they see no signs of general wage pressures," she said. End of Story
Laura Mandaro is a reporter for MarketWatch in San Francisco.