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.

Changes in the Israeli financial landscape from a complete freezing of the start-up IPOS, to the steady growth of the luxury real estate sector, to a fast growth of the commercial bond market. Some of the shifts in Israeli investment preferences is driven by growth in cash at retirement accounts. While Europe and the US have seen their economies slow down, employment down and probably less contribution into private retirement funds, in Israel the opposite is true. Israeli job market is almost at full employment. Add to this steady flow of cash, the desire of Israelis to copy every financial scheme Americans have ever invented. So the commercial bond market has taken a life of it’s own (the last five years.) But the party is over. Nochi Dankner’s IDB empire seems to be the first to crash under debt from bonds issued to banks and insurance companies. Other companies have cut down their dividends and are even cutting down on the principal (they will pay back LESS than they borrowed.) With all that unsecured debt, any time the economy slows down, someone is going to run out of money to pay back bonds.

Back to the Tel Aviv stock market. The trend to move away from common stocks is probably going to reverse itself. I wouldn’t hold my breath, it could take a few years. With all the new start-ups in tech, some will eventually go public and raise money with stock. The more established companies, especially these dual listed on Tel Aviv and on foreign exchanges, will also yield good profits and will attract new investment. Maybe even the Israeli regulators will ease on their tight policies and may even reduce taxes on long term capital gains (ownership of common stock for mor than 2 years.) In Israel, changes happen quickly and affect markets dramatically. It is just that the spotlight is off the stock market and we have to wait, this will also change. In the mean time, maybe fresh young faces will take up senior positions at the Tel Aviv stock exchange, and that will be a nice change for everyone.  


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.

But Israeli regulators and politicians
seem to take financial shenanigans too lightly. As in other countries
facing financial collapse, which presumed separation between the
financial and the business worlds, Israeli regulators seem to think
the same. Unfortunately, no such isolation exists. Actually, for
Israelis with above average agitated behavior, minor bad news ripples
quickly through the economy. Hidden behind the slick exterior,
Israel’s economy is slowly slowing down. Supermarket and retail
chains are already reporting drops in sales not seen in a decade.
With losses predicted for the next six months. Some retailers are not
waiting for losses to show up at end of year reports. They are
closing shops and laying off workers. Manufacturers, from giants like
Straus and Tnuva (dairy products) to Willi foods (canned goods and
staples) to microbreweries, are striking back with sales and deep discounts, also some
products are discontinued. In today’s complex – interdependent economy,
nothing happens without ripples in other sectors.
On the good news side. Looks like the
technology sector, especially the mobile and internet fields are
starting to show growth. Big and small deals, selling companies and
products to foreign investors are starting to gather speed. The last
big deal, Google buying Waze for $1.1 billion, was a sign of positive
life in the Israeli economy. In Israel, there is nothing to bring
positive attitude like money and success. Yet, these positive signs
do not fix the losses and mistakes made by speculation when the
financial market was hot. On Tel Aviv streets, the story of
speculators losing control of their companies to creditors is old
news. Old news, tends not to impress anyone. Nochi Dankner and his type, are mostly
ignored today. Old heroes, even in the business world, just fade

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 sounds
all the same. You get the feeling, that this news clip will be used
over and over when we look back on today as history. It brings back
the coffee house talks on who is leading and who is following here in
Israel. Netanyahu’s first term five years ago seems like a new
chapter in Israeli politics. The right wing Netanyahu with Lieberman
had the solution for the Palestinian problem: go tough, don’t give
in, make security the top issue. But the Palestinians didn’t play the
game. 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

So who is leading here? Do we really
need a politician who leads? Maybe just listening to the voters is
the best policy with important issues. But it seems that there
are too many comments about Netanyahu’s none-leadership posture when
it comes to the Palestinians. Israelis seem to think of Kerry as a
Johnny comes lately who is not exactly knowledgeable enough. In general, it seems like most Israelis see outside
intervention in the Israeli-Palestinian issue not useful in the long
run. There have been many famous hand shakes, speeches, and Nobel
prize winners on every side. Yet, the situation today is not much
different than it was a decade or two ago. As a matter of fact, it
seems like Israelis are simply tired of the situation. They just want
to get on with the next big issue of the state, as if the
Palestinian problem is unsolvable. So is Kerry fighting the last war?
Is Netanyahu right in ignoring the big news highlights and taking a
“I’ll follow the people” attitude the right approach? for him? and
the state as a whole?
Israelis like strong leadership where
it counts. It made Itzhak Rabin and Ariel Sharon who they are. Even
Menachem Begin was respected for strong leadership decisions at
crucial moments in history. So maybe we are not at a
crucial moment. Maybe Netanyahu, Bennette, Lieberman and a host of
right wing politicians are right. Maybe the Palestinian issue is no
longer crucial for the state. Maybe it is the “last war”.
Even if the issue can be resolved, maybe the economic, social, and
legal issues the state faces today are more useful in directing where
leadership should be going. Maybe Netanyahu wants to leave a legacy
of what can be solved, even on a smaller scale. Maybe Netanyahu does
not want a Nobel prize hanging on the wall, and snickering visitors
saying: “he really did solve the Palestinian issue, oh sure he did”
two decades from now… when the issue is still festering…

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 the wide socioeconomic gap. The gap,
seem to be widening every day, is more visible in the upper middle
classes. There are many more luxury apartments going up, more new
luxury cars on the street, and many more shops with items not seen
here before. But there are also difficulties to some which are
surprise to some. 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

On a recent visit to Jerusalem, I met a
woman marketing new apartments in Jerusalem. Working with small
builders, she sells on her own hundreds of apartments each year,
pocketing a small commission on each sale. With steady construction
the last decade, she with a small number of builders, architects,
investors, and independent realtors, are making a small fortune. The
business in certain niche locations and social segments (i.e. new
orthodox Jews in Jerusalem) seems like a small club. Israelis are
used small clubby cliques controlling a company or a government
department. That part is not strange, although there are critics from
the outside. The new development is how many of these “new
are seen spending money in public. All this
spending is also pushing up the inflation in basic consumer goods.
These price changes are affecting everyone else, primarily the ones
not benefiting from the fast economic growth. There are other fast
growing market segments with their own particular flavor. The last
five years, financial “gambling” sites, gaming sites, and related
services have taken hold in a big way. The organization of these
groups tend to be around business related functions. A more hidden
group of companies is military equipment and services related to new
technology developed in Israel. The biggest area today is drones
(robotic / unmanned aircraft). In this sector, Israel is a major international supplier, primarily selling to second tear countries, competing mostly with
the US suppliers. Another new area, is active air-to-air command and control
using technologies developed for Iron Dome. The systems, developed in
collaboration with American suppliers is expected to be the next
large technology upgrade in military deployment. There are more small
military technology segments which are hidden, yet bring strong
economic vitality to the Israel.
 All these changes are showing up in
strange, and sometimes difficult to understand places. In other
countries (US) economic growth is measured by the price of a major
stock index (i.e. NASDAQ, Dow Jones Industrial Average), or the
consumer spending index. But in Israel these measures are not that
useful. The difference between Israel and other places, may be in the
small size and densely of the population. There is also difference in
how Israelis tend to be familiar with their surroundings and
comfortable in poking into their neighbor’s “business”.
The closeness of Israeli society makes for very little privacy. The
only relief from prying eyes is to declare a company’s work military
secret. This is the state of Iron Dome and military drone products.
When a company’s business details are hidden, their success is mostly
visible through the money its executives spend. This brings the cycle
of economic visibility back to the luxury apartments and cars. And
here we are again at the beginning of the story. This story is just
starting to develop. So we are going to see more noise somewhere in
Israeli society. Eventually Israeli society will figure out how to
handle economic growth (and success.) It seems like most Israelis
will choose a middle ground, somewhere between pure market driven
capitalism of the US and UK and Scandinavian socialism. Its nice to
see more new Maseratis on Tel Aviv streets, yet there is no reason to
leave the less unfortunate behind (economically.)

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.  

Success in new product development
depends on many key factors. One is the ease-of-use or simplicity and
intuitive design of a product. In the technology world, design for
the common user is not always the a priority. The race to make use of
new technologies, to create new applications, and to get to market
first seems more important. The problem with Israelis comes when the
race seems close to the finish line, but in reality it’s just getting
started. Experienced domain experts know that cutting corners and
getting out first is not always the only key component to satisfying
the typical user. What Israeli domain experts just started with, is
introduction to the greater technology public of their specific
capability. This is what Barak Danin was doing last night. Like any
domain expert, Danin tended to cover a wide range of ideas. He also
covered many specific topics with more depth than was necessary. Yet
the packed room did not complain. A few tired and bored listeners
left early, yet most stayed the two plus hours, a little past nine.
My overall impression is a bit mixed.
While Israeli technology development is small and in comparison
immature, development is steady. As the world of technology products
becomes more sophisticated and complex, so do developers need to keep
up. The Israeli entrepreneurs will eventually figure out how to
compete and how to get products out successfully the first time. This
will help the overall market. Eventually, developers may specialize
in more narrow fields, such as internet applications or mobile
applications. This strategy is a bit risky, since specializations
inevitably ends up crashing as sharp changes catches even the most
nimble unprepared. But that’s the nature of keeping at the edge of
innovation. Which is what Israelis love to do (and risk), almost at a
daily basis. Stay tuned, this topic is interesting and there are
certainly more things to write about…
To be continued …  

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.

The question we hear in the press is:
“Can this kind of event happen to me? Can it happen to
To answer the question, psychiatrists, “super
, judges, past events parents (with children that died
and lived), and child care experts are solicited for their opinion.
Some say it’s as common as forgetting your sunglasses or keys in the
car. Some say it’s disturbing and indicative of negligence and demand
punishment of the highest order. But there are no real questions into
the state of the parents. Are these parents which tend to forget
things in general? We all know of people who lose their keys or lock
themselves out of the car “all the time”. Are these
parents experiencing high stress at this point in time? Do these
parents happen not to be the ones responsible for taking the kids on
a regular basis? Did something out of the ordinary distract them on
this day? The big questions on what makes people forget kids in
general are not debated at all. Maybe it’s too soon to get into the
hard issues and that will take some time.
A question that we don’t hear is what
makes the parents so stressed? What will create so much pressure on a
man to completely forget a child? Israelis may not have a wide
perspective to ask this question. Yet, I see this as a sign of daily
stress over and above ones ability to function well. Life in Israel
is stressful to many people. Stresses come from all directions, to some its simply the stressful environment. The press is full of
fear monger stories: Iranians are planning to annihilate the state
with nuclear bombs, the Palestinians are going to ruin the security
and economy, African refugees are taking over the state… just pick
something and you will find a stressful angle. Then there is the true
rat race stress which seems to be zooming faster every day. The life
in Israel has an incredible amount of “keeping up with the
jealousy and racing forward to keep up with the
developing western world standard of living. But the question
everyone is afraid to ask, is why is this happening to some people
but not to others? Well, there is going to be more on this in the
press, so stay tuned.

To be continued … 

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.

Insiders in the Israeli start-up field
are used to watching the wins and losses. Just like a busy commercial
street, you have to expect shops and pizza parlors to go out of
business. You also have to expect new managers and owners to try
their luck with new businesses. It tuns out to be a good analogy
between retail business and start-ups success. Retail businesses and
high-tech start-ups have the image versus reality in common. While
their business may look simple from the outside, running and
profiting day in and day out is not that simple. There is also the
element of experience, which is crucial if you start getting into
difficulties. Add to these elements, almost constant changes in the
market and competition, and what you really end up having is a game
of sports. Here comes the comparison to a slow baseball game. I guess
if you are a baseball fan, the start-up field, from venture capital
investor, to technology entrepreneur, is for you.
Besides the small odds of success in
the start-up world, Israelis are still at it. On a regular basis,
even on a daily basis, you will find an interest group, a training or
discussion on start-up topics. There is a split between “how
to really get funded”
, which is classified as business and
technical topics, mostly recent development in programming languages
or upcoming technologies. A good way of gaging the meeting activity
is looking at and groups. Just search for
“Israel start-up” or “Israel entrepreneurship” and dozens of
groups and meetings will pop up. On a recent financial technology
meetup session, start-ups of all kind were represented. Some more
mature and now appended to a large international company, some just
getting their product out to the world, and some just getting
started, with a gleam in one or two man’s eyes. Each has their story
and exciting dream for a successful future, and obviously, a stellar
‘exit’. So if you are visiting Israel, come to a
start-up interest meeting. It’s a new experience you will never