Remember the Saturday Night Live sketch with actor Christopher Walken portraying a music producer who prods a rock band to use more Cowbell?  Quite comical.  

Now, replace Cowbell with Education, and we get a sense of the laments of many highly educated, motivated and personable people.  Two blogs at Mish’s Global Economic Trend Analysis expose the proverbial elephant in the room.  The topics relate to a structural economic shift and the educational system.  

The broad theme is the U.S. has an oversupply of highly educated and experienced professionals and an undersupply of employment opportunities that align with said talent.   

The current economic environment accentuates this point, yet it has been an undercurrent for more than a decade.  The subtext of the topics highlights the rampant inflation of the cost of higher education and a preference for mediocrity, or worse, at many organizations.

Perhaps an outcome to these dynamics will be a resurgence of individual creativity and innovation, which doesn't necessarily equate to earning college degrees.

For those interested in strategy, adapting to a changing environment, consumer behavioral trends, and, well, outright mismanagement, then analyzing the newspaper and print media industry provides a real-world, in-progress case study.

Although headlines of the death of the newspaper might be an exaggeration at the moment, there is clear and present danger.  The business model of newspapers depends on advertising revenue, which comprises about 80% of its total revenue.  In 2008, advertising revenue dropped 16.5%, according to the Newspaper Association of America.  Barclays Capital projects a 22.0% decline in advertising revenue in 2009 (see Mint.com below).  Startling, but also mirroring the economic recession.

Nonetheless, organizations that will most likely survive the economic challenges and thrive will create a new business model, with digital media being more prominent.  The extinction of the traditional daily is not likely in the near term, although it will probably play a more niche role.  Similar dynamics are occurring with telephones, internet connections, software, music and movies, to name a few.

Mint.com presents a concise one-page visual of key metrics of the top 25 U.S. newspapers.  Many others have written about the struggles of print media; Slate.com highlights the strategic and mismanagement aspects of this topic.

Well, that’s all for now, as I need to check my favorite news and entertainment blogs.

Say it ain’t so.  How many more obscure, undercapitalized financial institutions are lurking in the midst?  According to a New York Times investigative article, and summarized here, Customer Asset Protection Company (Capco), based in Burlington, Vermont, may be at risk.

Capco provides catastrophic insurance to wealthy clients in the event their brokerage firm collapses.  Basically, it provides coverage above the $500,000 offered by the Securities Investor Protection Corporation (SIPC).

The concern with Capco sounds eerily similar to the abuses regarding credit default swaps in which some firms, including AIG, sold protection without having adequate reserve capital.  In Capco’s case, the article indicates that it might have only $150 million of capital to support an estimated $11 billion of potential claims.

It is prudent for investors and customers to hedge their hedges.  One example is to retain a public company as a hedge provider and then create a hedge on that hedge-providing company via puts/calls, short position, or both.  

There are two software tracking applications of the federal government stimulus package (formally known as the American Recovery and Reinvestment Act).  One is the government’s, found at recovery.gov, which is oriented towards taxpayers who want to know how their tax dollars are being allocated. 

The other is provided by Onvia (ticker: ONVI), a Seattle-based public company.  Its application, found at recovery.org, is directed at businesses interested in bidding on projects, before it’s too late to do so.  An Onvia representative stated the application is free to use, since it's a means to attract incremental customers to the company’s subscription based data.  Fair enough, in our opinion.

Read more about it on GreenBiz.com’s blog by Marc Gunther or listen to an interview with the CEO on reason.tv. 

To many Clevelanders and Ohioans, the economy never recovered from the last recession, or several prior to it, for that matter.   Today’s headlines and stories in the Cleveland Plain Dealer highlighted the state’s 10.2% unemployment rate in April, exceeding the nation’s 8.9% rate.  Even worse, foreclosures and Sheriff’s sales in Cleveland have pummeled the median sales price of existing homes, down 73%, from $62,000 in 1Q 2007 to $17,000 in 1Q 2009.

Understandably, citizens have looked to a sports figure - in this case, the prodigy of Akron and Fighting Irish alumnus, King James - to deliver temporary relief in the form of an NBA Championship.  It was not to be.  Instead, fans were brokenhearted witnesses of the importance of team composition, despite the immense talents and leadership qualities of one member. 

Accordingly, it’s a timely reminder to all, whether it’s a business or a sports team such as the Cavaliers, that to compete and succeed among the best, appropriate and complementary team members are vital.

That said, it’s not all gloom-and-doom.  Today’s headlines also mentioned that the Cleveland area has become the U.S. leader in Alpaca farming, and will host the Second Annual World Alpaca Conference this week, where Alpaca Farmgirl will be blogging and tweeting.

And, if that doesn’t adequately lift one’s spirits, then those “At Least We Are Not Michigan, err, California” bumper stickers might deliver some sort of consolation.

In a Wall Street Journal opinion article published last month, former high-yield corporate bond salesman and trader, Michael Milken, who has his share of detractors, penned an opinion titled Why Capital Structure Matters.  He commented on this theme previously, including in a Forbes cover story titled My Story (March 16, 1992). 

Milken stresses that an appropriate capital structure evolves and corporate leaders must consider various factors in managing it.  Likewise, he provides recent examples (Alcoa and Johnson Controls) that deleveraging the capital structure of companies with uneven revenue streams can positively affect a company’s valuation, contrary to conventional financial theory.

He describes market signals that may prompt a CFO to consider modifying the capital structure.  For instance, when equity market values surpass replacement value of assets, then deleveraging should occur, when practical.

According to the article, there were unwise modifications to the capital structures of AIG, Merrill Lynch, Washington Mutual, Home Depot and CBS, among others.  What was the alleged error?  They borrowed a lot of money to repurchase expensive common equity – some at peak 2007 values – equity that was more valuable than the underlying corporate assets. 

Shoestring Venture and Sramana Mitra provide related articles, among several others.  Nevertheless, as Milken states, “It doesn't matter whether a company is big or small. Capital structure matters. It always has and always will.”

As mentioned in our previous blog, there is an article in today’s New York Times Magazine titled My Personal Credit Crisis, summarized here, which relates to the topics discussed previously.  The subtext of the article touches upon universal themes of human nature, on a personal basis and within a corporate environment.

Given the number of recent business mishaps and mortgage foreclosures, several people might relate to the author’s circumstances.  The experiences he recounts demonstrate psychological elements relating to materialism and insatiability that contributed to the unwise use of liar loans, credit cards, and home equity advances. 

Yahoo! Finance's TechTicker dubbed the story a subprime borrowing nightmare.

Well, perhaps Yogi Berra can best summarize the financial and housing crisis: “We made too many wrong mistakes.”

There is a resounding truth to the cliché “easier said than done,” whether it relates to losing weight, managing a budget, or beating the market.  Most laypersons and professionals understand the actions needed to achieve these goals (consume fewer calories than one burns; spend less money than one generates; buy assets below intrinsic value), but find it exceedingly difficult to master the psychological aspects often required to advance on the path of progress.

To this point, The New Yorker published an interesting article by Jonah Lehrer titled The Secret of Self Control, which highlights a study conducted at Stanford University about children’s ability to exercise self-control.   The study concluded that approximately 30% of participants demonstrated an ability to delay immediate gratification.  The others couldn’t quite control themselves, some even displayed binge behavior and deliberate rule-breaking.

It’s likely the results mirror our own adult self-control abilities, from corporate CEOs perpetuating moral hazards to suburban neighbors “keeping up with the Joneses”…which is a nice prelude to our next blog... 

Entrepreneurs often are known for being self-reliant, so it was not surprising to learn that Wilson, Sonsini, Goodrich & Rosati, a Silicon Valley law firm, released a free, online term-sheet generator for venture financing. 

It is a savvy marketing effort by the law firm, and an instructive exercise for inquiring minds seeking venture funding.  By the way, if you have not heard of WSGR, it is likely you have heard of some of its current and former clients, including Dolby Laboratories, Apple, Google and YouTube.

Essentially, the tool enables a prospective entrepreneur to generate a preferred equity term sheet by answering a series of questions about the amount and tentative terms of a funding. 

As quoted on WSGR's website:

This tool will generate a venture financing term sheet based on your responses to an online questionnaire. It also has an informational component, with basic tutorials and annotations on financing terms.

In addition, the firm provides market data, highlighting private market financing trends for the past two years.  A sample draft term sheet can be viewed on scribd.com, too.

Several bloggers and media have presented overviews, including TechCrunch, Reuters and a related good article by Paul Johnson at StartupSD about 'Participating Preferred' term sheets.