By Allan Maurer
ATLANTA—The Southern Capital Conference at Lake Oconee last week presented a striking study in contrasting views of the U.S. economy, as well as insight into why entrepreneurs and venture funds may have to wait longer before they see a check.
Mark W. Yusko, president and chief investment officer of Morgan Creek Capital Management, gave an opening night dinner speech suggesting we are only at the beginning of an economic downturn that could stretch well into 2010.
“The housing market is down 18 percent and it isn’t even close to over,” he warned, predicting it will plunge “at least another 20 percent. Two million more families are going to lose their houses this year.”
Bank failures coming?
Also, he said, “Household networth is down by $2 trillion,” which he added, will lead people to “stop buying stuff.”
He also predicted coming bank failures. “People know Leman and Wachovia are out of business,” he said. “Thousands of banks will fail in the U.S. over the next two years.”
Showing a succession of slides and graphs to bolster his points, Yusko also said that because oil-hungry Asia, particularly China will need “A Saudi Arabia-sized oil reserve by 2020,” we must come up with new energy alternatives.
In the markets, he noted, “Buffet is down 18 percent. It’s rough out there.” For more detail on some of Yusko’s pessimistic take on the economy, see TechJournal South’s article: http://techjournalsouth.com/news/article.html?item_id=5928.
The conference also featured numerous panels in which the limited partners who invest university trust funds and money into venture and buyout funds and the general partners of those funds discussed trends, new frontiers, and numerous other topics.
Taking their time
One panel examining the limited partner view of the venture market provided some insight as to why it may be taking longer for both venture funds raising new money and entrepreneurs to see a check.
Catherine Burkett, principal with Camden Partners pointed out that “Investors are still on the cautious side.”
During a panel discussion of “Investing in a Down Economy,” a number of speakers said they were taking more time on their due diligence before committing money, whether to entrepreneurs or to venture funds.
Gephardt optimistic
Bookending the conference with a keynote luncheon speech, was former Rep. Richard Gephardt, twice a Presidential candidate, and currently president and CEO of The Gephardt Group.
Commenting on Yusko’s first day speech, Gephardt countered, “I have faith in the American system and the American economy. We have to get this real estate bubble clipped and move on.”
Gephardt says he is confident that whoever wins the upcoming Presidential election will “be pragmatic.”
Getting the national debt under control would help right the economy, he said, but noted that it cost the democrats dearly when they raised taxes and cut services to balance the budget during Clinton’s first term. “It’s all pain and no gain politically,” he said.
Gephardt said that “Energy is the most important economic, environmental and security issue today.”
“The Saudis are drug dealers with a hypo in our wrist,” he said, adding that when the U.S. prepared to “pull it out,” in the 1970s and three other times they pumped more oil and re-addicted us.
No handle on energy
“We never seem to be able to get a handle on this,” he said.
While he said the best way to handle would be a gas tax, he added, “It’s not going to happen.” Instead, he suggested, “We need to use carrots to get people to change how we use energy. People have to be sold on it for it to happen.”
On the country as a whole and the adversarial politics of recent years, he said, “I’ve seen all the missteps of a democracy but I also see the majesty of what we do. I’m more optimistic about the country today than when I started.”
Southeast Venture Conference, February 29 – March 1, 2012 at the Ritz Carlton in Tysons Corner, VA – Where Smart Money Meets Smart People.
www.seventure.org
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