Sunday, July 28, 2013

Tel Aviv Stock Exchange: Stagnant & Reeling

Tel Aviv 100 Stock Index: Stagnant? Or Irrelevant? What's Next?
All the top management of the Tel Aviv Stock Exchange has resigned. According to "Yediot Achronot" business section (Mamon), the top brass has been at odds with the government's top regulator. It seems like reality is a bit more complicated. The Israeli stock market has been experiencing a slow stagnation for the last three years. Not necessarily because of the underlying business condition, business has been good in Israel. Most of the blame goes to the commercial bond market. The last five years, Israeli companies preferred issuing bonds rather than stocks. Partly a consequence of heavy regulation on common stocks, reflecting a change in policy of encouraging more competitive (individual) stock ownership. Israel, with almost an oligarchy economy, ended up with a stock exchange dominated by a small number of "ownership groups". Another factor in the drop of trading volume on the Tel Aviv stock exchange is the steady drop of foreign investors. Foreign funds prefer larger exchanges with deeper trading. When things go sour, it's easier to get out.

Wednesday, July 24, 2013

Cleaning Up Financial Speculation Mess: Will It Affect Israel's Sound Business?

Nochi Dankner is today's financial shenanigan villain
If you follow the Israeli business papers, it seems like every week, some banker or fund manager is accused of some wrongdoing. There was a case of the “Israeli Madoff”, a broker who swindled about a hundred investors of millions. There is a case of Bank Leumi, Israel's oldest bank, announcing a write-down of a three billion shekel loan to Nochi Dankner's IDB companies. There are questions of sudden loss of value in the most conservative private retirement accounts in most Israel's biggest companies. In general, it seems like strange things are happening, yet regulators and senior executives are vague about what exactly happened. Israelis react in a wide range of responses. There are the angry and vindictive type, asking to prosecute finance executives as common criminals. Others are more philosophical, essentially accepting the losses as part of the risk of investing in any retirement fund involves in market speculation.

Monday, July 22, 2013

Netanyahu and Kerry: Do Israeli Leaders Lead? or Follow? Does Israeli Public Opinion Push Politics?

Israeli Cabinet 2013 / Are we following leaders? or LEADING them??
News of John Kerry's accomplishment in bringing Netanyahu and Abbas to negotiate again comes dry over the radio. Today it almost sounds like a war breaking out or another suicide attack. Somehow, certain political news sound all the same. You get the feeling, that this news clip will be used over and over again when we look back on today as history. It brings back the coffee house banter I hear on Tel Aviv streets on who is leading and who is following. Netanyahu's first term four years ago seems like a new chapter in Israeli politics. The right wing Netanyahu with Lieberman, the side kick, had the solution for the Palestinian problem: go tough, don't give in, make security the top issue. But the Palestinians didn't play along. They went under, attacked from Gaza, and got world opinion to swing in their direction. That didn't work out so well for Netanyahu. The last elections, Netanyahu did not promise easy solutions. He followed Lapid and Bennette with a different message. The idea is to listen to the people and have them determine what is important in politics. Now Netanyahu is offering a referendum to decide.

Saturday, July 20, 2013

Trouble With Fast Economic Growth: Growing Socioeconomic Gap

Iron Dome military system has implication well beyond a security system
The last two years, Israel's educated middle class started protesting a widening socioeconomic gap. This gap, seem to be widening every day, is more visible in the upper middle classes. Upper classes brought about by strong economic growth in a few small sectors. There are many more luxury apartments going up, more new luxury cars on the street (new Ferrari and Maserati dealerships), and many more shops with items not seen here before. But there are also difficulties to some which are also a new surprise to many. College educated and well trained professionals are no longer assured a well paying job and a comfortable middle class lifestyle. As the number of luxury high-rise apartments is going up at alarming rate, it seems like everybody is enjoying this great economic growth. But as you look more carefully, that's not the whole story. In market segments where the economic growth is concentrated, like construction, high-tech, finance, and luxury retail, the benefactors are not necessarily “yeled tov Yerushalayim” (a good boy from Jerusalem), well educated middle class professionals.

Thursday, July 18, 2013

Israeli Start-Ups Get an Edge With UI/UX Expertise

Last night, at The Hub, Barak Danin ( ), a UI/UX expert gave an introduction talk to a sold out crowd. Sometimes we forget how enthusiasm does not completely make up for experience. Israel has a desperate shortage of specialized skills expert. With a strong technology start-up field, UI/UX is a crucial specialty needed to produce successful product the first time out. Yet, as with many key specialties, not many technology entrepreneurs are familiar with UI/UX in product design. The good new comes from seeing Barak Danin spreads his message with ease which only comes with 17 years of experience.  

Wednesday, July 17, 2013

Hot Weather Kills Babies 3 Days In A Row

Cover page of dead overheated baby story - Israel Ha'yom - 16-July-2013
The last three days, three babies were found dead in their family car. They died from suffocation inside a closed car left in the sun. The number of incidents is so high, it is in the front pages. Is it hard to understand how a father can forget his one year daughter in the car? Then it's harder to understand how three fathers forget three days in a row. These kind of deaths are not new in Israel. It has happened in the past. Death of babies by parent negligence is jarring. Death by forgetting a baby in the car on the way to daycare is even more revolting. One is not sure if to blame the parent, and charge him with the child's death. Or to commiserate and feel a parent's anguish. The police does not recommend to prosecute a parent in these cases. The though is, a parent losing a child in this kind of event is punished enough.

Tuesday, July 16, 2013

Start-up Attraction: ScaleIO and Alvarion: Two Different Tech Exits

ScaleIO was sold recently for $200 million, giving it's founders, owners of 30%, $60 million. Not a bad exit for a new start up. On the opposite side, Alvarion, a publicly traded wireless equipment company is breathing it's last gasps: a bank is taking the company into receivership. Exits in tech start-ups are like watching a slow baseball game. Sometimes they turn exciting, the rest of the time the game is slow and sleepy. ScaleIO is a software only company. This is the kind of bet most Israeli entrepreneurs like to make. Most of the effort is in the code and the marketing. Building real hardware takes more time and usually much more money. Selling something that requires samples and stock is also more complicated. Software is easier to sell from Israel, especially if the target markets are Europe and the US. To contrast, Alvarion is almost completely a hardware company. They are also in a highly competitive networking sector. To add to this, Alvarion put their effort into Wi/MAX, a new format of wireless networking supposedly covering a wide area and solving some problems in WiFi we use today. I don't want to go as far as saying that software only start-ups have a better chance of success than hardware only. It is much more complicated than this.

Monday, July 15, 2013

Can Central Moderate Politics Save Israeli Frustration?

The current Israeli political coalition was elected on serving the “average Israeli”. A kind of answer to the extremist views of the right and left politics of Netanyahu's previous term. But with this central view, come mostly moderate politics. This seems to be the “modus operandi” of the current Lapid/Bennette coalition. The last few elections, Israelis were told to go extreme. Either right or left, the only solutions to the hard problems: Palestinians, economics, equality, and socialism versus capitalism was in strong single minded policies. So came the Netanyahu/Lieberman coalition. While they took extreme right wing policy direction, the really hard issues were not dealt with at all. Palestinian related issues were simply ignored (maybe that was the policy), the economy slowly spiraled downward (maybe the was the fault of international economic dependence), equality in many areas went out the window (an the trickle down theory with it), and the idea that capitalism can save the day no matter what, turned out not such a great idea (even the rich can lose their money and wisdom). So came Lapid and Bennette (together with Livni and Yechimovich) and offered the middle class what seemed to be the right things. The argument was, right wing politics takes care of the fringe population: the orthodox and the settlers. So the “new” middle ground will take care of the majority in the middle.

Sunday, July 14, 2013

High Cost Tel Aviv Properties: A Continuing Trend

NOT Tel Aviv, city of Mt. Maunganui, Not the expensive real estate of Tel Aviv (from
Tel Aviv is one of the most expensive city in the world to buy a property. This has been the story until 2008, when many of the world's economies collapsed and comparison costs stopped coming out. The economy here also slowed down, not exactly a collapse. What makes Israeli properties so valuable? One explanation is supply and demand. Tel Aviv central zone was built quickly in the 1920s and 1930s. Small apartment buildings, four stories high with two bedroom apartments was the standard. Then in the 1950s, the rest of Tel Aviv, to it's borders was filled in. Flash forward to the 1980s and 90s and demand (and available money) is pushing apartment prices up. This drives steady new luxury construction. Since Tel Aviv does not have readily available open land for construction, whatever land is available is expensive. An alternative to open land, replacing old buildings with new one. This technique is called “clearing / building” (pinui / binui): clearing existing property, building new one.

Thursday, July 11, 2013

Who Buys Apartments in Israel?

The Israeli real estate market is an attractive investment. It's been that way for at least a decade, some say even longer. Foreign individual investment is so prominent, it's been blamed for the shortage of rental apartments in Jerusalem, the high price of apartments in Natanya, and the shortage of low cost apartments all over Israel. Putting blame aside, let's look at who buys apartments in Israel and what it means to their owners. From a quick, unofficial (personal) survey, I see foreign apartments buyers in these categories:
  • High income individuals interested in Israel
  • Zionist and Jews (a few Christians) which travel often and support Israel
  • Jews in areas of stress interested in immigrating to Israel (French recently)
  • Individuals familiar with Israel and with international investment aptitude

Wednesday, July 10, 2013

The Noisy Israeli: Shouting and Screaming In Daily Life

If you just got to Israel, your first big surprise may be shouting and screaming on the street. Yet, Israelis seem to feel perfectly fine in carrying a conversation in excited high volume levels, and bordering on the violent. Sometimes you may see two perfectly normal adults screaming at each other as if they are ready to duke it out, just to turn completely calm minutes later. The ability to “take it” and “dish it out”, accept screaming and scream back, is something that most foreigners never gain. It is also something that separates some Israelis from others. This conduct is not for everyone. There are plenty of native Israelis who choose not to partake in this practice. Yet, there is still plenty to go around, so keep your ears (and eyes) open and be careful not to take it personally.

Tuesday, July 9, 2013

Soldiers' Stories: Exciting-Normal Life Revealed

One of Israel's unique life is the military service. Almost everyone serves in the military. Not many in elite front-line units. Military life is not at all what foreigners imagine. For the most part it breaks down to training in everything from shooting guns to fixing airplane electronics to painting tanks to training others how to obey orders, take responsibility and march in formation. One way to learn about Israeli life is to read diaries and blogs of soldiers. Even on Facebook and Twitter you can find daily updates of soldiers' life. It is interesting how “normal” these stories turn out to be. While learning how to be a sniper is not that normal in an eighteen year old's life, still, Sarah Drill (see: My Life in Israel ) blog reveals many of the hopes and dreams of an American girl doing military duty in Israel. Hint: she becomes a sniper and a sniper instructor (probably not what her mother imagined her life to be as a “good Jewish girl” from America).

Monday, July 8, 2013

Buying Luxury Apartments in A Group Project: Bavli Project Offer

To reduce the cost of luxury apartments, a scheme of building and financing with a group is an alternative to buying from a traditinal builder. A general contractor organizes a construction “project”. The organizer, finds land, hires an architect and selects a builder. Then they offer apartments for sale in the project. In the early stages, before many units are sold, the project organizer does not spend a great deal of money, until she is sure the project will actually be done. For the buyers, the apartments cost less, up to 20% less than equivalent units in the same area sold by traditional construction companies. In general, it has been claimed that building using contractor projects are slower to be finished and sometimes are not as luxurious as ones built by traditional builders. Usually, construction groups raise money for each unit gradually as the project progresses. This may help buyers pay or raise money for a more expensive unit. In Israel, this scheme is still not a large part of new construction,  yet it is a good laternative to some buyers.

Sunday, July 7, 2013

Israel's Arduous Socialism to Capitalism Saga: IAI Baharav leaves

Israel started out as a socialist state. Without going too much into history, Israel, as it was first settled by European Zionists, was organized around independent organizations. From buying land, organizing settlements, providing medical services, to the general organization of the labor in the community, all were based or influenced by the socialist movements of Europe. At the early years of the immigration, from 1880s to the 1920s, the socialist organization structure worked well. It was also appreciated by many of the immigrants, mostly because it seemed to succeed. The community was growing and quickly evolving into a cohesive culture. But the socialist dream was not everyone's. While settlements in the kibbutz movements were pure socialist manifestation, Tel Aviv and other small settlements were growing as well. These were traditional western structured settlements. Some were cities (Haifa, Jerusalem) while others were agricultural settlements (moshavim). Essentially early on, Israel was built on two economic structures: socialism and capitalism.

Saturday, July 6, 2013

Two Start-Ups, Different Fortunes (Money and Passion)

“The Globes” (Israel's Business Newspaper) ran a story about “Boxee”, a start-up purchase (see: Globes story ). In this case, Boxee has not returned any profit to it's investors or employees. It seems a little wasteful to work for six year (the company was founded in 2007) and in the end have value of the invested capital as the sale price. Yet in the world of high-technology start-ups, this is not the worst outcome. Actually, this is probably one of the good stories to be told. Since most start-ups do not produce more than one generation of product and close without selling their intellectual property or operations. Contrast this with the large, $1.1 Billion purchase of Waze to Google just a few weeks ago (see: Ha'aretz story or Time Story). Here, the $67 Million investment, returned 16 times to it's investors. These are the fortunes of Israeli start-ups. While the amount of ingenuity and industry ends up as unique and innovative products, their fortunes differ widely. Israeli entrepreneurs are well aware of the risk involved in starting a company and taking millions of dollars from investors, especially in the venture capital market.

Friday, July 5, 2013

Europeans and Americans in Israel (moving here)

One of Tel Aviv's hidden secrets is the number of foreigners living here. Despite the image of dangerous and racist spewed by international media channels, people somehow find the more moderate view of a vibrant and friendly city. Europeans and Americans are seen and heard on Tel Aviv streets, and are obviously here to stay and not cameras toting tourists. A few conversations with these foreigners reveals the reasons they come and live here. My quick unofficial survey revealed the following reasons to live in Tel Aviv:
  1. Love for Israel or Tel Aviv (with or without previous experience).
  2. Attracted by a family member, a romantic someone, or a close friend.
  3. Attracted by nationalism (Zionism), spirituality (Judaism, Christianity), or idealism.
  4. Attracted by a job, climate, or culture (multiple visits or a friend's recommendation).

Wednesday, July 3, 2013

Luxury High Up: High Rise Towers (in and around Tel Aviv)

Tel Aviv skyline is still pocked with tall construction cranes, even after two decades. Yet developers seem to find a few open lots to build large buildings. The latest large construction area, just north of the main train station (Sovidor / Central station), is at it's final phase of construction. An extension to one of Tel Aviv's old upscale neighborhood (Bavli.) Also, in other areas of Tel Aviv and surrounding towns (Givatay'im, Ramat Gan, Petach Tikva) high rise luxury apartments are being built at a steady pace. These buildings are typically 20 stories or more high (up to 39 stories.) In these new towers 2 to 3 bedroom apartments, on average, sell between 2 to 3 million shekel ($550 to $830 thousand.) Design is similar: finished in glass and white stone exterior. Interior is modern in an open floor plan unique to Israeli design.