June 17. FOMC meeting and a few notes on start-up tech companies

–Fed meeting this afternoon with its Summary of Economic Projections.  Almost certainly the dots will move slightly lower and the 2015 economic growth forecast will be trimmed as well.  Yields yesterday drifted lower, with tens down another 4.5 bps to 231.3.  2/10 flattened by 3.2 to 162.8.

–At the last SEP, the difference between the dot average for the end of 2015 and the end of 2016 was around 125 bps.  If one simply looks at the core cluster of about 10 dots, ignoring the high and low outliers, then the difference narrows to about 100 bps.  But the market still has the EDZ15/EDZ16 spread at just 86.5 bps.

–Interesting article on Business Insider yesterday about VC’s and start-up tech firms.  http://www.businessinsider.com/whats-a-dry-bubble-from-bill-gurleys-tweet-2015-6
The gist of the post is that the gap between unrealized valuations and ‘cash-out’ to limited partners is at a historic high.  Firms are being valued at sky high levels, but until there are buyouts or IPOs, the “value” remains unlocked.  From the article, “So for now at least — it’s a roach motel. All this money is going in at higher, all time higher, valuations — but very little is coming back out.”  If you go to the link, embedded in the post is a power point from Andreesen Horowitz outlining several aspects of funding for tech start-ups, and it shows mostly moderate levels of funding, i.e. scant evidence of froth.  However, there are a couple of rather interesting panels: “As IPOs are delayed, returns move from public to private investors.  Thus, traditional public market investors and buyout funds, who would not typically invest in companies at this stage, have moved into the private markets.” And…”The collapse in the cost of creating tech companies in the last two decades means many more are being created.  With each needing less money to get started there are a lot more small [funding] rounds.”

–It seems to me that if the cost to get in has collapsed, i.e. barriers to entry are low, and “new” investors are jumping in, then many of the pre-IPO valuations are probably too high.  Which could have negative implications for listed firms as well.

Posted on June 17, 2015 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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