Street Food in San Francisco

There has been a lot of excitement generated by the publicity from the emerging "gourmet roach coach" thing in San Francisco and the Bay area. But as a mobile food vendor, entrepreneur, investor and partner in this business here's my take:

My immediate reaction to the explosion in popularity of what is essentially an underground food economy is: its great but unsustainable. The reasons for this are simple: the money associated with the legal operation of a food cart in San Francisco is (very purposely, I believe by the city) an impractical one for a continuing or start-up venture. And, while it makes sense that Twitter has empowered mobile vendors to connect with their audience, at the end of the day you can't individually contact every patron you might seek and you have to be publicly open in order to sell something. It costs 100,000 easily to purchase a mobile food truck. Add in an additional 20,000 for permitting and (a little bit) of marketing and you have yourself quite an investment; too much of an investment for the vast majority of would be vendors to risk on an unstable location, and routes that are at the will of the police (not to mention the climate). Carts cost less, but you can't legally cook raw food on them (at least in San Francisco), nor legally sell it (as vendors are beginning to find out).

There a lot of ways to encourage street food in this city, and hopefully the unlicensed vendors will persevere successfully. Ironically, it has been the power of social media to connect to a large audience that has brought attention to an economy that has existed in the city (especially the Mission) virtually unbothered by the police for a very long time. It would be a shame to loose the momentum that has built up over the summer for quality, diverse street food; so here is my suggestion: Look to the bars.

The only way that the city will reach mass adoption of this medium is going to be in partnership with brick and mortar businesses that are willing to sponsor these vendors with vocal support (along with their tax base) ala, the Tamale Lady. Bars, off hours for restaurants, and mixed use store fronts are a natural fit for these vendors to work in partnership with, and cross promote each other. It would give customers consistency. It would allow the vendors to build a tax base. These locations have the bathrooms and sinks that mobile vendors need; Some of them even have full kitchens and food quotas for service asscociated with their liquor licenses.

There's a movement here worth saving, but the way to preserve its vibrancy isn't to take it more underground.

Bellagio and MGM Grand Schnanegans

The wires are reporting that Kirk Kerkorian is making a bid to purchase the Bellagio from... well, himself (as he owns 56% of the MGM Mirage). Interesting timing with the WSJ reporting yesterday that the MGM is making an international play to build and manage branded luxury hotel properties around the world (which won't be casinos). When I read the article yesterday, it seemed to oddly contrarian for the company to make a play like this in an industry that is battling a horrible business travel climate and uncertain luxury leisure travel. But, upon hearing this, it makes a little more sense; if Kerkorian buys the crown jewels of MGM, than the company needs some other reason to exist.

I suppose, this is just a long way of saying that I wouldn't bet on Kerkorian buying the whole company and taking it private.

Michael Lewis Review of Warren Buffett Book

Mike Lewis reviewed a new book about Warren Buffett for Powell's books. The review itself is typically awesome writing but, of course, it helps that the subject is so interesting. Here's a small piece from a quite thoughtful review:

By the time he was sixteen, Buffett had accumulated the equivalent in today's dollars of $53,000, and hardly saw the point of taking the spot he had been offered at the Wharton School. He knew what he wanted to do for a living -- live in Omaha and invest in stocks -- but his parents prevailed and off he went to college. He lasted three years before he returned and finished at the University of Nebraska.

Interesting that he wrote the review for Powell's rather than Amazon. I wonder if they paid him?...

Fund Rasing

There is a good article in the Times today about what sacrifices should an entrepreneur make when pursuing capital:

“We had a fairly solid vision of what we wanted this company to be,” he said, adding that he had built a previous start-up by selling software to small businesses and knew he could find strong demand in that market. But the investors did not agree. “Many V. C.’s just follow the leader, and for a time it was in vogue to just fund consumer-based plays.”

Unproductive Productivity

There is an interesting story in Sunday's NY Times about looking busy (even if you're not) at work:

A lawyer at the New York office of an international firm wanted to give the impression he was working late at night — but he was stymied by office lighting that would dim when he left the room. So he brought in an oscillating fan, which tricked the motion detectors into keeping the lights on long after he’d departed.

Productivity is a strange thing; less people theoretically doing more in less time. Productivity in hotels was (at best) a rough science calculated on the amount of guests actually in house, but failing to account for the increased work demands associated with more guests checking in and out. Productivity in creative fields? Forget about it, right. Who knows? Midweek internet surfing could produce the next great ad campaign (Might not be suitable for work):



Productivity is so often reported as a flat number, but it is so obviously not a flat idea. Does merely being "present" for 18 hour days constitute productive? The Japanese may think so (just don't ask for overtime worked vs overtime paid statistics). In retail or service industries where customers might come in waves, how to do businesses staff and stay lean without sacrificing customer experience when people do arrive in mass? It begs the contradictory question: Should customers expect to spend their increasingly scarce dollars on goods that are provided through poorer service?

It seems, though, that often we are all engaged in a happy farce. From the NY Piece:

“You don’t want anyone from corporate to walk in and see you doing nothing,” Ms. Bailey said. “You’ve got to keep busy for them and the clients. You have to be proactive —” she broke off to reposition a handsome pair of boots, “so we’ll do a lot of refolding and dusting. Hey, I might just mop!”

Wonder if they'll get rid of the janitor next? Like everything thing in business it is a balancing act, but it leaves one to wonder if, eventually, there will be anyone left at all?

Credit Default Swap Resolution

The NY Times has an article on Credit Default Swaps and what should happen with them. Probably the most interesting quote is:

Mr. Raynes’s resolution is more radical: unwinding all outstanding credit-default swaps through a process he calls inversion.

Under this plan, insurance premiums would be refunded to buyers of credit protection from the entity that wrote the initial contract. And the seller would no longer be under any obligation to pay if a default occurred.

The premium repayments would be made over the same period and at the same rate that they were paid out. If a contract was struck three years ago and charged quarterly premiums, the premiums would then be refunded quarterly over the next three years.

Wouldn't this also create a reverse market as well? They'd be like 3 year bonds that could be traded and rated based on the health of the originator of the swap...

One of the funny things about the CDS market is that everyone gets so worked up about it because of the size of the market (Est: 30 Trillion $US). But the chances of payment on even a fraction of this is extremely remote. The larger problem with them is the psychological risk associated with the currently interwoven global economy; should an institution go bankrupt the carnage would not be contained to their own poor choices, but would be magnified (many times possibly) by forfeitures by CDS issuers, and then again by CDS insurers on Swaps in the orginal issuer, etc.. Seems like a freeze would help, but what is really needed is a new major bank that is decoupled from the other entities in this market and is able to operate freely without these liabilities. Hmmmm...

Yet another reason to keep on the lookout for the rise of community banks in your neighborhood. VC opportunities? We all know that there is some cash out there.

Michael Lewis Interview

On Journalism:

When I write a long magazine piece that gets attention I feel like it's more widely read now than it was ten years ago, by a long way. In fact, it feels excessively well read. Twenty years ago I might get a couple of notes in the mail and I'd hear about it maybe at a dinner party. And that would be the end of it, and it would go away very quickly. Ten years ago it would get passed around by email, and it would seem to have a life to me that would go on a little longer. Now the blogosphere picks it up and it becomes almost like a book: it lives for months. I'm getting responses to it for months. And I don't think the journalism has gotten any better.

Focusing on Value at Risk:

Lets take a bond, let's say a General Electric bond. A General Electric bond trades at some spread over treasuries. So let's say you get, I dunno, in normal times, 75 basis points over treasuries, or 100 basis points over Treasuries, over the equivalent maturity in Treasury bonds. So you get paid more investing in GE. And what does that represent? You get paid more because you're taking the risk that GE is going welsh on its debts. That the GE bond is going to default. So the bond market is already pricing the risk of owning General Electric bonds. So then these credit default swaps come along. Someone will sell you a credit default swap -- what enables the market is that it's cheaper than that 75 basis point spread -- and he's saying that in doing this he knows GE is less likely default than the bond market believes.

Why does he know that? Well, he doesn't know that. What really happened was that traders on Wall Street have the risk on their books measured by their bosses, by an abstruse formula called Value at Risk. And if you're a trader on Wall Street you will be paid more if your VaR is lower -- if you are supposedly taking less risk for any given level of profit that you generate. The firm will reward you for that.

And, turns out I don't agree with him on everything:

You know, I have yet to have a financial person persuade me that there's a really useful reason for a credit default swap. I know why they exist and I know why they're used. They're mostly used as speculative instruments. And the people who are selling the insurance are mostly selling it because they don't pay a price for it until everything goes bad. They weren't judged as taking any particular risk. But I have yet to have anybody explain to me why these things are terribly useful. They might have some good use and I just haven't heard it yet, but I'm dubious.

Default Swaps certainly are difficult to understand, and there is definitely risk associated with them. But they are instruments to enable investors to act on information or hedge other risks in their portfolio in a more effective and targeted way. The problems with them come from lack of accounting in risks and leverage/oversight by the people/markets who create them.