We are always complaining that prices that we pay for goods and services are always going up. Listen to the news and you will hear that the price of bread is going up, as is the price of gasoline. In addition, in order to escape the economic slowdown that has gripped the world, the US and almost every other country, is printing money 24 hours a day, 7 days a week to meet the trillions in new government spending.

We hear the term “Inflation” thrown around but what is it and how does it impact our investments?

Definition

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys a smaller percentage of a good or service.

The value of a dollar does not stay constant when there is inflation. The value of a dollar is observed in terms of purchasing power, which is the real, tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation, your dollar can’t buy the same goods it could beforehand.

Inflation and Investment

With little in the way of economic growth in sight, the threat of inflation seems mild. Many analysts say that it could take months before we need to worry about inflation. With all due respect to those analysts, we have actual data that shows the economy is inflating. Data just released in the US showed higher consumer prices, and in Israel, we have had 4 consecutive increases in the CPI (Madad).

If it appears that we are going to enter a period of high inflation, and what we said above is true that inflation erodes the purchasing power of your money, the question for investors is how to protect your portfolio against a spike in inflation?

There are 3 traditional inflation hedges that investors use to protect their portfolios. The general principal is to buy something now and sell it later, after inflation has increased the price of the product.

The most popular hedge against inflation is to buy gold. According to Blanchard Economic Research, “Gold is renowned as a hedge against inflation. The most consistent factor determining the price of gold has been inflation - as inflation goes up, the price of gold goes up along with it. Since the end of World War II, the 5 years in which U.S. inflation was at its highest were 1946, 1974, 1975, 1979, and 1980. During those 5 years, the average real return on stocks, as measured by the Dow, was -12.33%; the average real return on gold was 130.4%.”

In recent times the use of commodities aside from gold has gained in popularity. Corn and wheat are just some of other base commodities that increase in price during inflationary periods.

The problem with gold and other commodities is that they are not very liquid. For those investors who require a high level of liquidity, government bonds linked to the inflation rate may be the way to go. In the US these bonds are called TIPS (Treasury Inflation Protected Securities). TIPS come with the same guarantee as other US government bonds, and investors will see an increase in interest paid if inflation increases. While in the US, CPI-linked bonds are rather new, in Israel (where we have seen hyperinflation) inflation linked bonds are very popular.

Don’t wait for inflation to arrive to start thinking about protecting your portfolio, because by then it may be too late. Get a head start now and protect the value and purchasing power of your money.

Aaron Katsman is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. a registered broker dealer, Member FINRA, SIPC, MSRB, NFA, SIFMA. For more information, call (02) 624-0995 or email aaron@lighthousecapital.co.il.

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With all this great news Barclays said that they expect an Israeli Shekel/USD exchange rate of 3.65 buy the end of the year. That’s a big move from the 3.93 area that the currency is trading at now.

According to Globes: “Barclays sees a less severe recession in Israel, and relatively quick growth recovery. The investment house bases its optimism on the fact that about 75% of Israeli exports are high-tech goods, and Barclays says that a rise in the Tech-Pulse Index - showing a US high-tech recovery - points to stronger Israeli exports. The Tech-Pulse Index, measured by the San Francisco branch of the US Federal Reserve, tracks the US information technology sector.”

It looks like we have started to see this happen. As Tech has led the stock market turnaround in the US, Israeli stocks that trade in the US have been flying, up over 33% this year. Keep in mind that, like it or no, President Obama’s push for alternative energy sources will be huge for Israel, as Israel is one of the big global players in cleantech and water technology. If this trend of a ‘tech led recovery’ continues, look for the Israeli hi-tech scene, from small and mid-cap tech plays on the NASDAQ to M&A to Israeli VC, to have a very strong 2nd half of ‘09, and lights out for 2010.

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Who does this guy think he is? According to a Ynet article: “Channel 2 reported Monday that during Netanyahu’s meeting with Sarkozy in Paris the latter said the prime minister should appoint Opposition chairwoman Tzipi Livni in Lieberman’s place. “With her and (Defense Minister Ehud) Barak you can make history”, he was quoted as saying. “I have always accepted Israeli foreign ministers, and I loved to have Tzipi Livni here at the Elysee, but with (Lieberman) I can’t,” he was reported as saying with a wave of his hand.”

Pardoner Mois! We don’t tell you how to run your foreign affairs so what gives you the right to tell Israel how to conduct domestic politics?

The reporting of this despicable act was met with a brilliant response from PM Avigdor Lieberman.  ” Speaking to Ynet, the official said “France has meddled in another democracy’s affairs. This is intolerable. We don’t plan on asking for clarifications from Paris, but rather intend to ignore the matter entirely. I am certain that if you ask Israel’s citizens who they want in charge of appointing their foreign minister, the answer will not be the French.”

Amen.

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Please tell us about your background.
Shai Wininger, Developer of Kotel Notes: I am a so called “serial entrepreneur” born and raised in Israel, married with two children and living in Haifa.

I then started to focus on the emerging mobile computing industry and started Handsmart (www.handsmart.com). Handsmart offered the first Adobe Flash generation platform for Pocket PC and Windows Mobile.  From there I joined forces with a leading mobile software company called Mobideo (www.mobideo.com) with which I co-founded a spin off for developing mobile software for the Aerospace Industry - “Mobideo Aerospace” (air.mobideo.com).

What is PushTuck and why Kotel Notes?

SW: Nowadays, along with my wife (who is a talented, highly-creative graphic designer), I’ve started a new venture called PushTuck.  PushTuck (which has a double meaning in Hebrew and English) is a family business aimed at developing innovative software for Apple’s iPhone and iPod Touch platforms. I think that in our case the words “family business” is literally the case (my kids do the quality assurance :)…

What’s the business model?
SW: I love simple things and I love easy-to-use software. I think that the basis for success in this competitive business is your ability to create compelling, clear, and low cost applications and then sell them to a mass market. That way you can make your revenues without being a financial burden for the home user. Apple’s software ecosystem allows us to do just that.

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Can you tell us a bit about your background?
Yaron Galai, Co-Founder, Outbrain: I’ve been an entrepreneur since I can remember myself working… Actually realized recently that I have never in my life sent my resume applying for a job. I am now working on my 4th company called Outbrain. My first company, in which I was more or less the only employee…, was called NetWorks. It was one of the first web design shops in Israel. I started doing that around 1995 or 96 when the first Netscape browsers just came out. I ended up developing about 30 or 40 websites for companies in Israel. Doing this alone, I had to figure out all aspects of launching a website – HTML, hosting, design, SEO, etc. In retrospect I guess that was slightly insane, but it did give me some decent insight into the whole internet thing, as well as into running a business. I ran NetWorks for about 3 years, and all while studying product design at the Holon Institute of TEchnology (www.hit.ac.il), so it was pretty much all done on a moonlighting/weekend basis. This might have been part of the reason that I had failed to graduate and have never received an academic degree…http://www.outbrain.com/get/

After NetWorks I co-founded another company called Ad4ever which was a rich media ad serving platform. That company was later sold to Atlas, which was later acquired by Microsoft, but that sale happened way after I left the company so I can claim 0 credit for that happening.

I left Ad4ever because I had this idea for serving people on the web with interesting and contextually relevant links. I joined forces with my co-founder – Oded Itzhak – and we merged both of our ideas to one company which we called Quigo. After a couple of years of iterations, our product evolved into a contextual ad network. We ended up serving contextually relevant text ads on top-tier publishers, such as ESPN, ABC, FOX News, etc. That business grew quite nicely and we eventually sold it in 2007 to AOL.

Tell us about Outbrain.
YG: Outbrain’s goal is very simple – To serve readers of blogs and news sites with interesting and relevant links to other stories. I love reading blogs, magazines and newspapers, but I always feel overwhelmed with the amount of content that’s available. Blogs specifically create this massive flooding of content that’s impossible to sift through today. With Outbrain we wanted to help readers to easily find great articles or blog posts in an easy, quick and automated way. We offer bloggers and publishers a free service that they can place under each story they publish. Our system then automatically places highly interesting and contextually relevant links to other stories on each of those pages. For the blogger/publisher, this service provides a great user experience, it generates more traffic for them, and it gives some feedback on the content they produce. Again – the service is completely free, and can be installed in less than 2 minute on all major blogging platforms such as Blogger, TypePad, WordPress, etc:

We believe that good recommended links have to be personalized for each individual reader, and so over time, as our algorithm learns of the reader’s reading taste, our recommendations become increasingly personalized.

Have companies using Outbrain, seen an increase in traffic?
YG: Yes – all bloggers/publishers who install Outbrain see an increase in traffic. And as our service is completely free to the blogger, that increased traffic can be fully monetized by them with ads.

But that’s not the only way we let bloggers/publishers make money. We’ve also recently introduced an advertising program which we call Sponsored, But Good™. The idea here is to apply our same principals of serving interesting stories to our advertising. Advertisers pay us to drive traffic to interesting stories, reviews and blog posts written about their company. We put a lot of emphasis on ensuring that the stories submitted by advertisers are both authentic and interesting. We then share the revenue generated with the bigger bloggers/publishers, and let the smaller ones donate some of the revenues to a charity of their choice. More information about our Sponsored, But Good™ program is available here: http://blog.outbrain.com/2009/02/sponsored-but-good.html

So when a blogger installs our service, they don’t only improve their site and user experience, but can also make money in two ways – increased traffic that they can monetize via ads, and revenues from our sponsored link service.

What are the risks to your business? Is there any competition?
YG: Yes – there are quite a few companies that provide related link functionality to publishers and bloggers. Some charge money for the service, some offer contextual links without personalization, etc. We like keeping an eye open on competition, but don’t pay too much attention to it as we found it is much more important to listen to our customers (bloggers specifically). We’re pretty obsessive about supporting our bloggers and helping them be successful using the Outbrain service.

As far as risks go – I think our biggest risk is of losing focus on what we do best – serving readers with highly interesting, relevant links to other stories. As a startup it is very easy to get tempted with “opportunities” and spend lots of resources on things that seem important for the company for a moment, but don’t really matter to the customer. That is the silent killer of most startups. We put a lot of effort to remind everyone on our team that we have to focus on providing our bloggers a great widget and terrific customer support, and provide the readers with great links. Losing that focus is likely our #1 risk.

Thanks.

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Most recently Benzi was Vice President of Product Management and User Experience at SAP. Prior to SAP, he co-founded and was CEO of Octago Inc. based in San Francisco. He was a product manager at both Microsoft (Redmond) and Netscape (Mountain View) and completed an MBA at the University of Michigan and a BA in Sociology and Anthropology at Tel-Aviv University. He met his business partner, Yossi Pik, at SAP where they had a chance to work together and realize that their skills and passions were complementary.  Yossi was VP of Research and Development where he led a team of 70 people.  You can read more about Benzi’s “Journey of an Entrepreneur” via his blog at http://benzironen.wordpress.com

Give us the elevator pitch about BuddyRunner
Benzi Ronen, co-founder, Buddy Runner: Buddy Runner provides the capabilities of an expensive GPS enabled personal trainer on your Android phone. Buddy Runner allows you to monitor each run by recording your distance, pace, time, elevation, and route. A personal dashboard is created for viewing, analyzing and sharing your progress. With over 10,000 downloads during the first 4 weeks of our launch as well as  being one of the highest ranked applications within the Android Market, we are much better positioned to place our next big bet.

Our premise for Buddy Runner is that smart phones will become our personal assistants for different aspects of our lives. Examples include; help with administration, managing our social lives, shopping assistance, and the area we are focused on which is a person trainer to get you fit and live a healthier life.

The convergence between a cellphone in everyone’s pocket , computing power on small devices, and mobile high speed Internet access created the perfect storm for the next technological gold rush.   Smart phones are in their infancy but became top of mind when Apple released the iPhone.  Why was this a significant transitional event and what makes a smart phone different from the phones we have seen to date?

• Smart phones provide a technology platform that enable developers to easily develop applications and make use of the different functionality of the phone.
• Smart Phone providers succeeded in circumventing the telecommunication companies that had a lock on what could run on the phone by delivering a market place where developers could freely upload their applications and consumers could easily download them.  In addition, there is a payment scheme on the store which provides incentives for developers to let their imaginations lose.
• iPhone’s slick user experience and savvy marketing quickly turned a geeky concept into a must have consumer electronics device for everyone.

Given the openness of Google Android, is there a technical barrier to entry?  How will you differentiate?
BR: Yossi and I selected the Google Android platform as our beachhead before broadening to other smart phone platforms. Our rationale was driven by Google’s open platform approach which provided us with the ability to rapidly build, experiment, and iterate our technology development. This approach worked well since today we are able to leverage most of our technology investment (server side) as we traverse to additional smart phone devices.

The tsunami of smart phone applications (already over 25,000 for the iPhone) make it difficult to gain market attention. Most of the applications being offered involve relatively little development (less than 30 days of development), don’t have any technological patents and have a short shelf life since their cache wears off quickly. As a result, the application demand behaves similar to movie box office hits. There is a short window of opportunity to materialize a big hit and the general public’s attention quickly moves on to the next new thing.

With Buddy Runner we have focused on a lifestyle category. We don’t expect to appeal to the masses but are rather focused on gaining the attention of a homogeneous segment of users that run at least once a week outdoors, are interested in tracking their results, and are willing to run with their cellphone which they often also use as their music player. This group becomes a diehard segment since the application becomes more meaningful as it contains more of your personal workout data.

What is the next step for BuddyRunner?  Risks?
BR: Since we are bootstrapping the company, we need to quickly determine the best way to monetize our success without challenging our popularity among users. We are constantly debating our long term vision with the need to generate revenue in the short term.

The fitness category has a many large gorillas which have a big interest in securing their positions. Nike and Apple released a joint offering (Nike Plus) which includes a pedometer within the shoe that communicates with the iPod.  Garmin, Polar, Suunto each have their version of high end fitness watches. Each company is trying to leverage their strength (brand, market traction, technology) in order to become the leader in this category.
It is clear to us that we will not be able to become a significant contender by playing by the same rules. Our product roadmap depends on utilizing the unique benefits of a smart phone and incorporating them into your workout in a way that none of our competitors are capable of doing. In addition, we need to ensure we differentiate ourselves among other fitness application running on smart phones so that we can justify charging a fee that will provide us the gas to bootstrap our way to the future.

Enjoy your Run!

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When will all of this nonsense stop? After all why should these banks have to prove that they can raise money? I thought that the results of the ’stress test’ was proof in the pudding as to the financial situation of individual banks?

If this isn’t further proof of the dangers of government intervention, I don’t know what is. Anyone notice a pattern? Government gets involved in an industry, taxpayers have to foot the bill as billions of dollars are thrown into a black hole, and then the government sets another rule that ends up diluting or in the case of the auto’s, completely wiping out any value that shareholders had.

As usual it’s the little guy that gets screwed!

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Last time I looked out at the parking lot behind my office I saw no cars attacking anyone. Alert: People who drive cars kill people! I also wonder how many people have been saved or born because of cars? Millions of pregnant women in labor were brought to hospitals in cars, and delivered babies. A lot more than were killed by unnatural deaths since WWII. I can see it now, some woman with contractions 5 minutes apart, and her husband sticks her in a wagon ties to his 10-speed and starts peddling to the hospital. Oh, I forgot, I am sure that the author only allows home-births.

In another truly compelling argument, Goldstein says, “By the way, there is no certainty that a car truly improves the quality of life of all motorists.” Uh Huh. So we need a 100% satisfaction guarantee in order to have any convenience?

After all, without vehicles, how are we to get all of Goldstein’s organic fruits and vegetables to market?

Finally for the finale, “Yet life is not a communist utopia, and the pleasures of life will never be divided fairly. Residents of peripheral towns will be inconvenienced to a greater extent.” No need to even respond to that gem.

Regarding peripheral towns, I think that without cars, they will be a thing of the past. How are these residents going to be able to get anywhere without a car? If Goldstein had his way, everyone would need to move to a big city. That does not sound so ‘environmental”, does it?

The fact is that automobiles are one of the greatest sources of freedom for individuals, and source of commerce the economy. By wanting to limit their use, he is trying to create a ‘Communist utopia”.

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Can you say 3.89???? Giddy up. The Shekel, like most other currencies continue to soar as President Obama continues to print money. We have seen a 7% fall in the USD/NIS rate in less than a month. Didn’t Obama say that he wanted a strong greenback?

It’s not exactly like the Israeli economy is on fire. This is clearly a USD story and doesn’t have much to do with the Shekel. As long as we continue to see businesses become nationalized, and the US Mint working 24/7, this has the potential to become a bigger and longer trend.

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According to Globes: “The economic uncertainty has caused Israelis to defer dreams of buying a first apartment or moving to a new one. In April, 6.6% of Israelis said that they planned to buy a new or second-hand apartment in the next six months, compared with 7% of Israelis in March, according to the Consumer Confidence Index, compiled by Globes Research and Kesselman and Kesselman - PricewaterhouseCoopers Israel. This is the lowest level since January 2009, and before that - in January 2006.

The low level of planned home purchases in April is unexpected, since the Consumer Confidence Index jumped in April to 76.1 points, its level before the collapse of Lehman Brothers in September 2008.”

Let’s see if this lower demand will translate into lower home prices.

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