Last Spring we cut our burn rate at Fon. We reduced our head count from close to 100 to 60. It was painful. It was sad. But it had to be done. Since then Fon has grown faster than ever. Not because the people we let go were not doing anything. Quite the contrary, they had been doing a lot. But many times a start up is about first building a platform and then managing it. And just as it takes hundreds of people to build an office building but less to run it it also takes less people to run a platform like Fon than it took to build it. Bottom line is that when we went from 100 people to 60 we managed to grow revenues faster than ever before and to cut losses from over 1 million euros per month to 350 thousand. We also grew to one million foneros around the world. Our revenues grew from 20K euros per week to 50K and the good news is that these sales are mostly cash into the company (Fon is like a telco without capex or opex). What we also achieved is to stretch our investor´s money into 09 and to need a very small round to break even.

Looking back I am very pleased we did our adjustments in the Spring because if we had had to be raising money this October we would be in serious trouble. The markets simply suck right now and even though VCs tell you that they are in this for the long run with Google, Yahoo, Apple down over 50% and no exit horizon believe me, either they will pass or ask for a 50% or more haircut in valuation themselves.

My advice to CEOs of start ups then it´s tough, really tough, but it is to do what we did at Fon. We cut our burn rate by 70% mainly by reducing headcount, raising revenues, raising margins, and particularily by raising margins on the sale of the foneras themselves which we used to give away practically for free. In our case we discovered that the free mentality of the internet was not especially good for a wireless community as most people who got their routers for free did not connect them while those who paid were more serious about the whole thing. Moreover we are now about to raise the rates we charge Aliens who connect to Fon. Partly because we need the money but also again to show the value of becoming a fonero and share and never have to pay. We only charge $2 per day while other WiFi companies charge way over $10. Plus the value of our passes increases as we have more hotspots. Fon now has 10 times more hotspots around the world than our second closest rival. In the UK and Japan our coverage is especially good. With this crisis Fon cannot think of deep pocketed investors continuing to cover high burn rates, regardless of the fact that our investors are BT, Google, eBay, Itochu, and some of the largest VCs in the world. eBay for example today announced that they are letting go 10% of their workforce and this is probably the beginning of many job reduction programs that will happen in the next 12 months at the big companies.

I know it´s hard to tell a start up CEO to fire half of the people he or she has in the company because in a start up environment groups are small and strong emotional bonds develop. But the way I see things, we are on to a period similar to 2001-2005 and it´s either half, or all. And maybe it´s first half and then all but it´s worth the try.

Considering how the markets are moving today I think it´s time Forbes puts all the net worth data that they have on the richest people in the world and create the moving Forbes 400. I just read that Carlos Slim is down $34bn. There´s probably a lot of other movements around the list. While the accumulated wealth of the wealthiest people in the world is down a lot the relative positions in the list must be changing by the hour. The moving Forbes 400 would be accurate on all the publicly traded securities the richest people have and only a guess on their private stock and real estate, but it would still be a good indication. Other than the cruelty value of the average person that watches that insofar as they still have their job their own net worth is much less volatile than that of the very wealthy I believe this chart would have academic value as it would be a quick look at how all the sectors of the global economy are doing vis a vis each other. As I write this I can imagine that members of the list who have cashed out and gone liquid are rapidly gaining positions over those who are still in the game.

Nouriel Roubini is an academic at New York University, but he is also in the business of doom. Roubini was mostly unknown until he became a star in the States for predicting the current mess we are in. Now, as many others sink, he is world famous and making more money than ever. Not a day goes by without some friend of mine who runs a top bank or top hedge fund sending me another Roubini article about how everyone in Wall Street and in government is an idiot and he is so smart and proves us all wrong.

But while I believe that Nouriel Roubini has been proven right til now as stocks and the economy sink. I also think that when stocks turn around, and turn around they will, it won’t be Nouriel Roubini who will be the one who will let you know. All good things come to an end, but so do bad things. In my view those who go long next week and stop looking at their portfolio for the next few months until the new administration is in place, will not be sorry they bought two years from now. That’s what I will do at least.

I had been out of stocks for 5 years. I started buying some this summer as I said in this blog. I now have 5% of my net worth in stocks. I will increase that. I dont know what the bottom will be. But if we are not there now we will soon be and as a non trader, but a person who rides long trends, I know I will never get it just right.

What would I buy? Big banks (yes big banks like C, BAC, JPM that are trading at near death), big tech companies like AAPL and Nokia, alternative energy companies like Iberdrola Renovables, big Chinese stocks, some stocks from my native Argentina like TEO (now so depressed). In short a collection of 30 global stocks which are now down 50% or more, but have a bright future after this recession.

I just found this video ap palin g.

September sales at Ford are down 34% and the industry as a whole is down an incredible 26%. Interestingly luxury cars are being hurt the most with Porsche sales down 45%. Layoffs will be massive. What I wonder here is the chicken and egg question. Did sales collapse because people have no money or because they have no credit? Because so far sales of things that people normally don´t buy on credit are not down nearly as much.

Image via CrunchBase

This October 13th at 7pm Fon will host the second Developer Garage for Facebook. We were happy to see that the first one was such a big success that the folks at Facebook wanted an encore. The two major differences since February are that Facebook did not exist in Spanish until that Developer´s Garage and that Mark Zuckerberg was not there (although Javier Olivan did a great job explaining Facebook apps to all of us). But this time developers joining us at the Teatro Lara of Madrid will get a chance to hear Facebook´s founder present his own vision of the role that Facebook apps play in Facebook. To attend this garage(theater) please reserve here.

We live in a strange world now. A world in which Western democracies are broke and totalitarian regimes are flooded with cash. Examples of people with cash, the Saudis, the Chinese, the Russians. Example of people without cash. The Americans. So how can we make the people with cash give to the people without cash without dealing with their totalitarian regimes? Well USA has been doing a lot of that already by selling them US government debt. But these are desperate times. USA now needs another $700bn to shore up its financial institutions. How could it possibly get this money. Now here is an idea. USA should give nationality to those who invest over $1 million in equity in US real estate.

We know that most wealthy people in China live double lives. On one side praising their government and on the other side worrying that one day privileged lives will end. And same is true with oligarchs in Russia, and wealthy people in Iran, princes in Saudi Arabia. I am not saying they live in fear everyday but if US offered a passport to be used in case of need I think millions around the world would pay for the insurance. Let´s remember that there are 6.5bn people in the planet and 6.3bn are not American and tens of millions of those are pretty well off. At the same time we all know that USA real estate prices are on a free fall and that is the reason why mortgages are defaulting. So how about combining greed and fear in one package that gives foreigners first access to US real estate at bargain prices and secondly the US nationality?

To me the math is compelling. If one million foreigners invest one million dollars that is the trillion that America needs. Moreover America will not need the trillion because real estate prices will go up and mortgages will be backed. And if eventually those million very rich people end up moving to America more investment will follow. There are already many countries that give you residence and eventually nationality if you invest with them. I think it´s time for USA to do the same.

Spanish banks are now among the most valuable banks in the world. Santander and BBVA have market caps simiar to those of Bank of America and Citigroup. Telefonica in the meantime has valuations similar to those of AT&T or Verizon. What is so wrong with America? Or is Spain living in a fantasy and stocks will collapse here as well?

How can the Republicans be so much better than the Dems at managing their communications? Yesterdays Dems voted for the bail out bill, Republicans voted against it defying their own President, their own administration, and still McCain gets away with blaming Pelosi for the defeat. Either Republicans are communication geniuses or Dems are communications morons.

Why doesn´t Obama speak more as a representative of the Democratic Party and not as himself? Why didn´t he in the whole debate with McCain speak of what the Dems did for America in the 90s and what the Republicans did to screw America in the 00s? Doesn´t he understand that on a one to one with McCain on experience he loses? He has to stop the me, me, me rethoric and go for the us in the democratic party rethoric.

Is the Paulson plan the best plan to stop US banks from disappearing? Wouldn´t it be better to have a plan by which the US government inject equity in the banks like Buffet did with GS?

How can the Republicans, who inherit the country with a budget surplus and are leaving it with a financial black hole campaign on Reagan Bush Bush platform that the problems should not be fixed by the government but that government is the problem? How can a huge part of the American electorate believe this and not go for the more responsible public/private mix that Dems are proposing? We now know that the only formula that works for modern democracies is a balanced mix of government, NGOs, independant universities, private enterprise. Why can´t the Dems sell this message in the face of the obvious collapse of the unregulated markets doctrine?

Is there a possibility that the world is not as globalized as we all think and that while all markets fall these months USA falls more and harder? For example yesterday US stocks went down a $1.2 trillion in value but Asian and European stocks are flat today. This means that in one day the relative market caps of the Asian, European and American markets have shifted tremendously against the US markets. This has already happened with the collapsing dollar. When the dollar went from $1 equal 1 euros to $1.43 to the euro in dollar terms Europe´s GDP grew proportionately. So if we measure global gdp in dollars the proportion that USA represents has been shrinking as well even if euro economies grew slightly slower than USA´s economy in this decade. So my view is that we had the Latin American crisis in the 80s, the Asian crisis in the 90s and this is the decade of the American crisis.

What is going to happen next in this crisis? Will the Fed ease credit? Will the Fed take failing banks over? If the Fed keeps giving bad banks to better banks, will they all become bad banks? Will the Senate send a bill to the President? Will the Representatives reconsider the bill they just voted against as the markets keep falling? Will the markets keep falling?

Is this a buy or a sell opportunity? Like the Apple meltdown of yesterday. Apple went from $200 to $100 a share in less than a year while all of us in technology know that more and more people are using iPhones and Macs. Are the markets over reacting or are they predicting a severe recession? Are we losing the opportunity of a decade not to buy shares now?

Should we all take our life savings away from banks? I did. I took all my money away from banks in Europe and USA last week and put them into government bonds of different governments. I know this is almost paranoiac but then these are my life savings. How can I trust banks these days when I am only insured by the FDIC or euro equivalents for a tiny portion of my funds? But following the Categorical Imperative I know that I can´t wish for everyone else to do what I did because banks would disappear. But it doesn´t cost anything to move your funds from bank deposits to bonds that the banks cannot lend. Why not do it in this chaos? I think these days they only safe thing to own is stocks, bonds, and real estate all unleveraged so your net worth goes up or down 10%, 20% but not 50%, or 100% and you are wiped out.

How can the militaristic rethoric of McCain still sell in America? Are Americans so out of it? Don´t they see that what happened to the soviets is happening to them? That they are spending their way to oblivion? Why do they need to spend half of what the whole world spends in the military? How can McCain go to Columbia University and say that the military should be allowed to recruit on campus and think he can win votes saying that? Why do Americans mistrust so many people around the world they could work with? If America pulled out of Iraq it could save $10 billion per month. America simply needs the money. What America should do is protect itself from terrorism in collaboration with other nations, not try to run the Middle East nor the world.

Former communist nations pile up cash. USA bleeds cash. China owns so many US securities that they alone could do the $700bn bail out and end up owning all the biggest American banks. How long will the “i own your debt but keep my mouth shut as to how you run your country” policy go on? Don´t the Americans know that security starts with financial security? They Chinese learned their lessons and started piling up cash not debt. America has do delever big time to continue to be a super power.

When is America going to realize that high oil prices are actually good for America because it will force conservation, resizing of the transportation fleet, investment in alternative energy… America does not have oil period. Why be so resistant to change? Why have the Europeans adapt, the Japanese adapt and the “US Americans” haven´t? An American who changes an SUV for a Prius will cut its gasoline consumption by 70% more than making up for the gas price increases. Many started doing that but now that oil prices are collapsing its the time to tax gasoline so habit changes continue.

Well that´s all folks….

Pity the Germans. They did everything right vis a vis finance and things went wrong. They did not go into consumer debt like the Americans, they did not have a real estate boom and bust like the Americans, unlike the Americans their savings rate was high…but the problem is that as a result German banks piled money and did not know what to do with it. So they lent it to Americans. So eager in fact were they to lend money to US institutions that even when Lehman was under they sent Lehman 300 million euros. And the paradox is that if Paulson can´t get a package through to save US banks I can´t imagine he will get a package to save German banks. So German banks will have to be helped by the German taxpayer who….did everything right. This btw is a prelude to what could happen in a much bigger scale to the Chinese who are now the biggest creditors of the US government. If Americans don´t learn to live within their means the next ones to be stuck with huge amount of worthless paper will be the hard working Chinese. But then, who said life was fair?