Saturday, September 30, 2017

Alfidi Capital at The MoneyShow San Francisco 2017

I had to attend the MoneyShow San Francisco 2017 because it has long been one of my favorite conferences. It has never lost its appeal since the first time I attended back in 2001 (or maybe it was 2002, I can't remember). I have my favorite speakers picked out weeks in advance but I try to learn something new every time I attend. Those of you who did not attend are about to get my full blast of recollections.

Kim Githler was as optimistic as ever in her welcome address. She has been running this conference for three decades and I don't think she ever gets tired. The webcast attendees now far exceed the live attendees. The future has arrived and my fellow Gen-Xers are the last generation to fully experience live trade conferences before they all completely migrate to AR/VR webcasts. Ms. Githler noted that her investing success factors included luck, something no analyst can ever quantify. Analysts will also never fathom the sheer greatness that my badge selfie below represents.

Alfidi Capital at the MoneyShow San Francisco 2017.

I picked up some useless knowledge right away from people I won't mention, and I put it down right away. The culprits shall remain nameless but their specious wisdom will become infamous. There is no way to determine whether trades in dark pools appear in NASDAQ Level 2 block trade quotes, or whether they indicate something directional for a ticker symbol. I had never heard of "stupid spreads" in options but apparently they're a periodic thing with professional traders who have worked in the big exchanges' trading pits. I had also never heard of a "double diagonal" spread, a much more frequently executed options play.

Other introductory speakers had more interesting things to say. I have my own thoughts about their theories in the next few paragraphs. Cash flow return on investment (CFROI) is an alternative to valuing equities by earnings. I think it's more reliable than venture investors' EBITDA method but less reliable than Buffettologists' earnings-based method. I can evaluate these methods by their real-world results. Venture investors lose a lot of money relying on EBITDA and Warren Buffett made a lot of money focusing on on earnings. The CFROI comparison to IRR and hurdle rate metrics reveals its limits, as those things fell out of favor with academics long ago when the CAPM came along.

Institutional investors are using more than a "periodic table of country returns" to allocate their portfolios among emerging markets. They are really counting on middle class growth in emerging markets to drive international stock returns, while they totally ignore geopolitical and country risk. It's the new BRICS-like fad. The whole BRICS concept was a Goldman Sachs marketing gimmick and the BRICS countries themselves fell for it by holding BRICS Summits. I am less interested in who the CCP Congress invites as its annual guest speakers. I am more interested in China's rank in highly credible indexes for economic freedom and development.

Advocates who say we have entered a new era in investing remind me of the Internet apologists common during the dot-com boom's terminal stage in 1999. People now totally ignore the tech unicorn bubble, the commercial real estate debt bubble, the high yield debt bubble, and the corporate debt bubble driving stock buybacks. The same people totally dismiss the ongoing retail collapse. Journalists are as guilty of this behavior as economists and analysts.

There is no obvious secret to investing success. Purveyors of said secrets totally ignore the Federal Reserve's ZIRP role in pushing stock market gains after the 2008 financial crisis. One such purveyor is a "Sovereign Investor" service, which I recognized as total baloney long ago for its non-stop hawking of extreme fear and greed. More conventional publishers ignore the hazards of extreme debt levels. Corporate balance sheets are more laden with debt than ever, and rising interest rates will increase interest expenses hardest for those companies with high short-term debt burdens, thus hurting earnings. A good basic thesis is to find undervalued stocks paying dividends, which is hard to do with the S+P 500 P/E ratio at an all-time high.

George Gilder thought there's life after Google. I think there's life after George Gilder. He still likes Bitcoin and gold, for crying out loud, a disappointment for me since I've actually studied the efficacy of hyperinflation hedges. He made no sense discussing IPOs, bizarrely comparing Bitcoin to the FANG stocks by saying Bitcoin's growth outperformed Google since that stock's IPO. Dude, Bitcoin is in a huge mania-driven bubble. The guy says free product giveaways prevent companies from learning; I say that's baloney. He should know that Google's main products are free (Search, Docs, Maps, etc.) yet obviously they are learning to make money selling ads and data. Sheesh, George. I think he's finally exhausted my patience by comparing Bitcoin and copycat ICOs to FANG companies with real earnings.

The featured artificial intelligence (AI) advocate mentioned The Innovator's Dilemma in the context of large companies pushing AI development. If his claim that 10.5% of Fortune 500 companies mentioned AI in their most recent conference calls is true (and I have no way to verify it), then he should not limit his picks of AI winners to the typical FANG stocks.

I had never heard of the US Regulatory Information Service Center, a GSA project tracking growth in economically significant regulations. One speaker mentioned it as a tracking tool for regulation acting as a drag on the economy. His stock picks for an era in which Ponzi-like government entitlement programs degrade GDP included water, energy, agriculture, and infrastructure, plus VIX volatility call options. I generally concur with that thesis, but timing is everything.

Ed Yardeni had a lot to say about the current administration in Washington. I disagree with his critique of mark-to-market accounting rules, which IMHO are necessary for transparency. It was hard to listen to yet another dismissal of geopolitical risk, assuming away any big wars. It gets tiresome to hear continual Pollyanna-like views that assume indefinitely low inflation.

Peter Schiff led the next introductory panel. I still like the guy even though he's been premature (just like me) on the next likely crisis for the financial markets. I agree with these particular experts that it's hard to find stocks at decent prices with indexes at all-time highs. I look forward to less blind worship of unfulfilled political promises and more attention to how a weaker US dollar will make commodities and emerging markets more attractive. Mr. Schiff is probably correct that excessive automobile loans are driving (no pun intended) the automotive sector's valuations. He appeared again later to reiterate his expectations of the next big market crash, a collapse in consumer spending, a debt default that destroys bonds, and a boon for dividend stocks paying out from earnings in stable currencies. I have had a similar thesis for quite some time. It is difficult to be patient while so many less observant people make money through complacency.

I did not need to see another walk-through of a trading platform but sponsors pay for the prime time they get. The best options trading platform must display Greeks. I learned a new options tactic called a "risk reversal," buying an OTM call spread and selling an OTM put spread. I suspect options will be very useful plays in advance of earnings announcements. Watching options with weekly expirations prior to a highly volatile stock's earnings announcement, along with the option's implied volatility, is probably worth my time.

We are all smarter thanks to the joint FINRA and SEC panel on outsmarting investment fraud. Check out FINRA's The Alert Investor, the SEC's Investor page, FINRA BrokerCheck, and the CFTC RED (Registration Deficient) List to see if someone pitching you a deal is legitimate. The regulators let us know that they have emerging concerns about cryptocoin ICOs, crowdfunding, simple agreements for future equity (SAFEs), and binary options. I will be on the lookout for shady operators in those areas so I can turn them in to law enforcement for prosecution.

Another options broker showcased some revolutionary trading system that promised to do everything except vacuum the floor. The dude argued that high frequency trading (HFT) can compress risk premia and lower volatility, but I think it actually magnifies those conditions. I need to see the dude's evidence. I did agree with him that all of the information available on very expensive Bloomberg terminals is freely available elsewhere. There is no way that volatility measurements will tell investors whether a stock is overvalued, undervalued, or fairly priced. Current data on corporate earnings and P/E ratios at all-time highs tell us more abut valuation than options volatility ever will. I mentioned above that watching volatile options in advance of earnings announcements was worthwhile; I put that activity in the context of making short-term profits from options trades, not in the context of long-term growth from finding undervalued stocks.

Utilities and REITs are still the favorites of experts who want the best of both world in dividends and growth. It's important to assess the predictability of dividends by finding the payout ratio, leverage ratios, and funds from operations (FFO). Higher interest rates will probably hit these stocks' valuations, making their yields more attractive. On the other hand, higher rates will hurt the balance sheets of the most highly leveraged stocks in these categories. Increasing consumer preference for online shopping over retail shopping will hurt REIT retail holdings. I did not believe one person's claim that REITs trading at premium valuations have a lower cost of capital. Commercial lenders are smart enough to distinguish market exuberance from underlying assets and earnings. I finally found good descriptions of the "genco" utility investment I heard about years ago. One MoneyShow expert described them as "merchant generators" where utilities build and operate plants without an exclusive geographic franchise. They are unregulated and risky.

One metric for evaluating an investment manager's track record is the upside capture / downside capture (UC/DC) ratio. A higher UC/DC ratio proves better performance. Most active managers have terrible UC/DC ratios over periods longer than ten years. They also have higher fees than passive investments. Active managers need to get out of financial market careers and do something more productive, like day labor or subsistence farming.

American investors seeking growth opportunities in Canada need to watch out for Canadian rules on something called a passive foreign investment company (PFIC), a designation that incurs an ordinary income tax liability for companies that don't even have income. It's another condition afflicting Canadian junior mining companies that still have difficulty raising capital.

Interest rates govern all yield plays. Martin Zweig's maxim "don't fight the Fed" does not hold for every market all of the time. Central banks must unwind their engorged balance sheets and interest rates are going to rise until those balance sheets return to normal. Watch the US Federal Reserve's bond roll off rate. Track the Fed's monthly "dot plot" interest rate model projections. Know the Atlanta Fed's GDPNow forecasting model. The Fed's political sensibilities determine the length of an interest rate cycle in months and the magnitude of its changes in basis points. The only Fed-proof bond substitutes are those dividend-paying stocks, MLPs, BDCs, and REITs with strong balance sheets, limited long-term fixed-rate debt, and no short-term debt or floating-rate debt.

I had never heard of one very prominently featured speaker in this year's lineup. I had to look him up to discover that he had been some kind of broker for most of his career. Now he produces a bunch of content. His talk reminded me of an old adage I heard about commodities many years ago, that the only people who made regular money trading the most volatile instruments were the brokers, not the traders or investors. He did make one interesting point about society's decline in risk-taking, which coincides with data I've seen on declines in new business formation. The rest of what he said was flat-out bizarre. I had no idea what he meant when he said liquidity providers must improve something or other, like order flow, maybe. Why did he throw disrespect at passive investing just because markets crashed in 1987, 2000, and 2007? They all came back. Oh yeah, it's because he makes money off of active traders who react with extreme panic. His next argument was that managers should show how they reduce the basis cost of their services. Well dude, that's what passive management does. Sheesh.

The star speaker above really tested the limits of my patience. He riffed one non sequitur after another, spouting "mechanics, strategy, repeatable, scalable" in word salads tossed into the air. He invented a new phrase called "economic bias" which seems to be an awkward interpretation of behavioral economics, and it underlies his claim that eBay "trades" improve decision making in business and finance. He cited zero sources for any of his quotes and stats, followed up with pedestrian observations about how important it is for successful people to demonstrate know-how and skill. No kidding, dude. I thought the guy was seriously stupid, or at least addicted to making stupid statements that played to the limited knowledge of his audience. I could not find one single observation he shared that's worth repeating in full, let alone adopting as a guiding mantra. Who knows what his new gig means. Warren Buffett doesn't make a fraction of the trades this guy's archetypal "decision-making skill builder" active trader makes, unless you count the times he says "no" to bad decisions, and he's the most successful investor ever.

Marilyn Cohen is still my favorite fixed income speaker. Check out the data on outstanding US Treasury maturity distributions; it's all free online. There's so much debt out there that it doesn't change Ms. Cohen's investment philosophy. Municipal bond investors will hear a lot more about "dark store theory" as the commercial real estate sector, already under pressure from online commerce, lobbies for reduced property taxes that will lower the revenue available to pay off muni bonds. One key insight she shared was to compare REIT yields to those REITs' bonds' YTMs. Some bonds will pay better yields given REIT share price gains. I attend Ms. Cohen's appearances at the MoneyShow just to appreciate such excellent knowledge.

There was some more nonsense going around another seminar about blockchain tech and crypto-currencies. One person claimed the blockchain's blocks and layers are encrypted, but hackers have proven that's not true for Bitcoin. The same person repeated the commonly accepted falsehood that Bitcoin is untraceable. That is totally stupid!

I walked out of another seminar when the speaker claimed he could outperform Warren Buffett with market timing. The guy made really unrealistic claims about his methodology. It's really dumb to think he can time market entry and exit points based on directional indicators. I could not stand to listen to some totally stupid nonsense about using a 200-day moving average with some standard deviation of volatility to measure the market's natural range.

There's a cottage industry of publishers and custodians pushing "self-directed IRAs" as some kind of magical machine that can process everything but the kitchen sink into a tax-free deal. I have always said these things are a misuse of tax-advantaged retirement accounts. People at this MoneyShow wanted to take it to a whole new level of nonsense by putting real estate into 529 college savings plan accounts and health savings accounts! That is stupid, risky, and possibly fraudulent! One guy who thinks this is a legitimate way to earn a living wasted half of his allotted time on nothing. He offered private "hard money" lending solutions that charged higher mortgage rates to their properties' borrowers than banks, so I guess those small lot home buyers are all poor, stupid, or bad credit risks. Folks, please listen to me very closely now. Self-directed IRAs are the classic baloney shell game for people doing dumb things with real estate.

One of the major wealth management firms made me LOL to myself during their presentation on consumer trends. I just LOL that they thought Nigeria is a growth market for consumers and that every emerging market will follow South Korea's path to a developed market. More investment firms are publishing research on "Peak Auto" to describe the end of growth in the automobile market. IMHO future electric vehicle growth must cannibalize market share from internal combustion engine cars. I will make one other important point about consumer spending that the rest of you should know. Household net worth versus personal debt (as a percentage of disposable income) is an important way to assess consumers' actual capacity to spend, especially compared to consumer confidence.

I always win at the MoneyShow San Francisco. I win by absorbing information and spewing wisdom to the entire world. I also win by exposing stupidity. Alfidi Capital is all about winning. You can be a winner too if you think exactly like me. You'll be winning so much you'll get bored with it. I never get bored with winning. I look forward to attending another MoneyShow to continue my winning. I am willing to speak at the show again (as I did in 2013) to show others what a winner I am. The MoneyShow is for winners.

Friday, September 29, 2017

Alfidi Capital Checks Out NASA Frontier Development Lab 2017 Wrap-Up Event

I recently examined the public presentations of teams participating in a NASA Frontier Development Lab exhibition. The teams were selected to present tech solutions for NASA's space exploration challenges. The FDL held its 2017 wrap-up event down at Intel's Santa Clara auditorium, so I drove on down and lucked out finding a parking space. I had to see what kinds of space-related innovations apply to private sector use.

The presenters were graduate-level statistical modelers and astrophysicists. Explaining comet tracking and solar storm prediction is beyond the scope of this blog. The salient lessons lie in the statistical models and data science methods the teams used that may be available to the rest of us. Teaching a neural network to recognize patterns requires feeding it large amounts of synthetic data "training sets." Experts design those networks, but the most user-friendly open source networks are available for business applications.

Deep learning methods in the teams' work applied long short-term memory, random forests, and convolutional neural networks to compare data sets derived from deep learning methods. They used t-distributed stochastic neighbor embedding (t-SNE) to reduce high-dimensional data into scatter plots and DBSCAN to separate data outliers from clusters. Experts apply principal component analysis to discover eigenvector centrality, useful in tracking clusters of nodes of influence. All of these advanced techniques are useful additions to more prosaic forecasting methods found in MBA curricula. Time series forecasting models, for example, are useful for establishing baseline trends in naturally occurring data, but they miss anomalies and outliers completely.

Those of us who don't have post-graduate data science credentials can still employ useful tools. Google's Kaggle platform enables crowdsourced data analysis solutions. The Keras API enables open source experimentation with deep neural networks, and now it extends the TensorFlow open source library. Google Search results for "open source deep learning platform" show a growing number of tools and libraries available for use.

The US government's technology outreach programs offer valid paths to bonanza. Space tech AI and machine learning designed for celestial data sets could easily adapt to commercial use in mining, energy, and environmental remediation. NASA FDL exhibitions attract very smart people whose advanced data science skills are very valuable to startups building commercial solutions that process vast amounts of volatile, unstructured data. Count on Alfidi Capital to discover tech expertise that is out of this world.

Wednesday, September 27, 2017

The Haiku of Finance for 09/27/17

Building DevOps tech
Loop it back to open source
Monetize each call

LoopBack Builds on OpenAPI

I recently added to my tech knowledge base after watching a programmer run a demo of LoopBack. It is an IBM API Connect project that provides one example of the OpenAPI Initiative. Open-source applications are quite common and offer enterprise developers a straightforward way to build internal apps. They also offer the foundation for a startup business model provided the API supports some kind of freemium monetization strategy.

One amazing thing about LoopBack is how it auto-creates multiple API end points with few code lines. That's a great tool for coding prototype APIs and enabling a rapid test cycle for deployment. The cost savings for enterprise DevOps efforts using LoopBack should be blindingly obvious in Cloudonomics. I am especially intrigued by LoopBack's utility in rule-based model validation. I blogged what I discovered at Decision Camp 2013 about how rule engines automate business processes, and now RESTful APIs running LoopBack can enable rapid validation of the rules' effectiveness.

There's probably more to LoopBack's usefulness than just finessing enterprise rule engines. Google Search results for "OpenAPI monetization" and "OpenAPI pricing strategy" show how programmers can charge for API access if they built something on a platform that processes API calls of open-source data. Google Search results for "LoopBack monetization" and "LoopBack pricing strategy" are less clear on how startups can build a stand-alone business model on this platform. I suspect the most likely path to success for a LoopBack-based startup is an analytics engine that pulls data from open government databases and packages it in a way that will support display ads.

I don't usually get technical since my blog has a finance focus. The whole point in studying the OpenAPI ecosystem is for venture investors to understand where an API-focused startup fits and how they plan to monetize their concept. LoopBack is just the latest way forward.

Alfidi Capital at DevTech Strategy Summit 2017

I attended the DevTech Strategy Summit in San Francisco. I don't recall ever seeing this event before so I couldn't miss it, especially because it's from the same organizers behind DeveloperWeek. The developers have their own show for practical tools, and this one was for executives bringing a bunch of enterprise functions together. Check out my badge selfie below and let's get to work.

Alfidi Capital at DevTech Strategy Summit 2017.

The dialogue between developers and executives got some needed attention. Developing mobile apps in a vacuum makes no sense if it ignores a market segment's pain points. Imagine how Customer Development works for a dev-focused product, then imagine engaging prospects at different levels of the marketing funnel. Use lots of imagination, or borrow someone else's imagination if you're left-brain dominant and can't compensate.

Developers still get hung up on designing the perfect product if they think budgets are unlimited, which happens when overly generous investors support weak managerial discipline. Project leads must show the Cloudonomics metrics demonstrating the lower cost and higher ROI of their preferred solution. My regular readers know that I have harped on Cloudonomics many times as a proof-of-concept guide, yet many developers dreaming of startup riches still don't take it seriously.

The CIO is still the ultimate purchase decision maker for tech not available in-house. They are especially important in minimizing buys of incompatible shadow IT. The key to their success is evangelizing developers who have the authority to recommend software buys. CIOs need Cloudonomics more than anyone but I suspect most don't even look for the metrics. Computer science programs need to start teaching a business-related elective covering the ROI of project development.

The DevTech panelists came with some best practices for executives. Using searches with Bayesian logic in Stack Overflow can measure developers' engagement with a topic by showing how quickly questions get answered. Tracking GitHub updates and following Hacker News are other ways to assess developers' engagement. Executives could also track my blog, for crying out loud, because I discuss the hottest tech sector developments ever.

The debate on open source versus closed source development got me thinking. I believe a freemium pricing and distribution model precludes a choice of closed-source architecture, but a 100% open-source solution is hard to monetize. Yeah, I know, open-source monetization must really be ad-based rather than fee-based.

The town hall toward the end reminded us that the big software companies carry the lobbying burden. Aspiring tech executives in the room should start building their lobbying expertise now by joining tech trade groups and tracking public testimony offered to regulators. Venture capitalists still don't understand devtech business models, which doesn't surprise me since I witnessed the cloud / mobile / Big Data convergence force multiple startups to pivot. The VCs are reluctant to invest in startups that often see little revenue traction from a large customer base. They do want to see KPIs like customer acquisition cost (CAC) and retention, which enables them to see how a prospective startup investment compares to known successes in their portfolios.

Guy Kawasaki always said sales fixes everything, so I can understand such VC reluctance to go for startups with nonexistent traction. The metrics in devtech also apply to other cloud/mobile app startups, so there's nothing surprising about a corporate VC asking devtech people to justify their CAC.

The DevTech Strategy Summit was a winner for any startup executive running a mature business. Anyone pursuing an acqui-hire as a specific strategy can probably find a niche in devtech. I am now such a regular fixture at Silicon Valley's biggest developer events that acqui-hire entrepreneurs are going to see me. Let me know what's working for you, tech community, and whether you benefit from my interpretations.

Monday, September 11, 2017

The Haiku of Finance for 09/11/17

Nonprofit solar
Scale for wide local impact
Link green site data

How to Scale Social Impact Investing Into Solar Energy

Social impact investing is undeniably becoming a major force in finance. It drives capital into triple bottom line projects that make investors' wallets fatter and ordinary people's lives better. It's time to drive more of this capital into alternative energy, particularly the solar power sector. We can do this right here in San Francisco.

The big hurdle in getting the nonprofit sector into the solar sector's pipeline is its inability to use the tax credits that for-profit companies use to buy solar power. Nonprofits trying to buy a solar installation would need a cost of capital close to zero. There are ways to get this done. RE-volv uses crowdfunded donations to purchase solar equipment for non-profits, enabling donors to realize the tax savings that are denied to non-profits. Angaza offers pay-as-you-go financing for solar installers in emerging markets.

I can think of some additional approaches to move adoption along. Any social impact outreach to emerging markets should include mobile payments, particularly mPeza in Africa. The UNFCCC Secretariat recognizes that vertically integrated solar providers using pay-as-you-go financing have an advantage in building off-grid energy systems.

The federal government does its part to help nonprofits afford solar energy. The NREL community solar policy analysis and downloadable scenario tool are useful for communities weighing their financial options. The DOE SunShot initiative now incorporates community and shared solar resources. The EPA's RE-Powering initiative designates repurposed sites a nonprofit can use for generation, and its Green Power Communities are obvious growth markets for solar power. Linking all of these data sources into a coherent business plan should be an imperative for any nonprofit pushing a solar energy installation.

The nonprofit sector is still a largely untapped market for renewable energy. Creative subsidies that push social capital into this sector expand the potential customer base for utilities and others seeking to build out distributed generation. A more resilient power grid is a very desirable goal for policymakers. Impact investing brings that goal closer.

Thursday, August 31, 2017

The Haiku of Finance for 08/31/17

Big three trade expo
Sun, silicon, and storage
Glue them together

Alfidi Capital at Intersolar ees SEMICON West 2017

I attended the mighty tripartite conference of Intersolar North America, ees North America, and SEMICON West 2017 at San Francisco's Moscone Center. The south hall of the convention center is undergoing a massive renovation, so the SEMICON folks had to cram into the west building with Intersolar. The reduced expo floor area was tolerable given the action-packed schedule. It's action-packed from my perspective, because I love sitting through long seminars and briefings that lesser mortals lack the fortitude to endure.

The Intersolar opening ceremony is always the first shin-dig on my calendar for this colossal conference. The main Intersolar conference has lots of finance seminars on the first day but I am too cheap to pay. These people had better invite me to speak someday. Anyway, CALSEIA and NREL celebrate their 40th anniversaries this year. I did not see any cake but that's okay, we all need to stick to our diets. Expect to hear more about behind-the-meter consumer-driven storage, because that's the industry term for how building owners are installing their own systems on-site. Everything in capitalism is of course consumer-driven, but the twist in renewable energy is that smaller storage systems give customers a lot more options than utilities have ever provided before. I wanted to hear from California politicians about how the state's proposed Energy Storage Initiative would affect the market but the usual big shots were not on hand. Maybe our mayor and governor had something better to do than promote solar energy, one of the Golden State's biggest growth industries.

It's the Alfidi Capital badge for Intersolar, ees, and SEMICON West 2017.

The opening ceremony left me with more questions than usual. Do solar energy companies really have thin profit margins (compared to, say, fossil fuel energy generators)? If PV costs keep dropping and PV panel volume GW installation keeps rising, why would solar companies have thinner margins than the broader energy sector? Will the solar sector shrink if the federal government cuts spending on solar R+D? If the energy grid evolves past net-metering to accommodate location-based price signals, will this drive demand for beacons and other IoT devices in the grid? Can blockchain tech really enable both on-grid energy trading and PPA investments? I mulled these questions while I was chomping on free food after the opening ceremony. They served roast beef this year, a step up from the usual turkey.

The SEMICON West welcome keynotes and opening ceremonies were next on my hit list. The hits just keep on coming. The assumed CAGR of 5-7% for the semiconductor sector through 2057 is a long forecast, but it seems reasonable if IoT adds to a mature sector. Anyone who thinks IoT won't drive the next wave of semiconductor volume growth needs to read everything I've ever blogged about both IoT and semiconductors. I keep hearing predictions about AI making the singularity either a decade or two away, but there's no consensus among gurus. We all get to learn some new buzz phrases: edge computing (now with IoT and AR/VR) and fog computing (I've heard that one before). The progression goes from edge to fog to cloud, and into your brain at some point once we hit that singularity. One brilliant executive shared his insights into "Neumann and Neuromorphic" innovation to create intelligence that reminded me of Transhumanism.

I came away from SEMICON's opening presentations with a few original insights. I would post them on SemiWiki but I don't work in the sector. I think that when gross payroll grows faster than headcount at semiconductor enterprises funded as public/private partnerships, it shows the creation of high-income, value-added jobs. The semiconductor sector now uses more elements of the periodic table than ever, so materials sourcing will soon become a crucial "table stakes" factor. The entire tech sector needs to take supply chain security seriously, and that means not taking single sources in the developing world for granted, especially if those sources rely upon transportation links that will be at risk during geopolitical instability. Check out the South China Sea tensions for a glimpse of near-term supply chain insecurity.

The ees people gave us a look at their market, regulatory environment, and some business policies. I would like them to explain why they don't capitalize themselves as EES, but I don't run their part of the show. It's their world of batteries and I just live in it. There should be little concern about backsliding if one speaker is correct about state governments doing 80% of the policy work in renewable energy. I just wonder how they measure that impact, and whether the remaining 20% is crucial stuff like the DOE SunShot Initiative. There is no policy initiative imaginable that will force solar power into the baseload category, because it is physically impossible for the sun to shine at night. Policies favoring storage linked to solar and wind power do not change nature. Power grid management with distributed storage will require revisions to the standard installed capacity (ICAP) the ISOs calculate for their markets. Adding BIPV and and other new tech to generation reduces the ICAP demand-related charges, thus adding value to a property owner's business model.

I want to throw some more red meat buzzwords out there to show the ees people that I paid attention. Electric energy storage used for load leveling is "energy arbitrage," using time shifting to make stored energy available during higher demand periods. Its corollary is "peak shaving," encouraging reduced energy consumption during high-demand periods. California and New York are among the states pushing "distributed resource tariffs" that enable utilities to install more generating capacity on their customers' sites. Virtual power plants will aggregate these distributed generation resources into a cloud-based management model. Anyone making or selling distributed generation or storage solutions must know the NERC critical infrastructure protection (CIP) standards and FERC guidance for CIP implementation. The US Midwest's wind corridor is an underserved market for storage solutions and grid connectivity. Cogeneration (CHP) and trigeneration (CCHP) present a wide array of product choices that storage solutions vendors can adapt into sales pitches.

The ees finance and bankability sessions built on the above policy topics. Vendors who get on a project finance company's pre-approved list of trustworthy service providers have a big leg up in getting customer referrals. Refer to my blog articles on previous Intersolar conferences for PACE explanations, and know that PACE applies to both residential (RPACE) and commercial (CPACE) properties. Storage systems with a useful life less than the typical PACE payback period are probably not worth selling. The bottom line from banks authorizing loans and leases for energy products is a provable revenue stream; no stream means the project developer must seek equity investors rather than issuing debt. Energy storage is now considered a "front of meter" function requiring new metrics for assessing charges, compared to "behind the meter" generation's demand charges.

One dude from a leading semiconductor equipment supplier had a free e-book for those of us attending his talk. I didn't sign up for his e-book because I have way too much stuff to read through already. Early concern among SEMI manufacturers that Moore's Law would stop at one micron no longer applies. He shared a few platitudes on good management and organizational culture. The dude needs to go work at Uber where those factors are deficient. SEMI held their annual awards presentation afterwards and someone mentioned the Hybrid Memory Cube Consortium pushing the next big thing in DRAM design. I'll have more to say about that consortium if they have events offering free food.

The SEMICON keynotes tend to be slick sales pitches from major sponsors, but once in a while some worthy tidbits appear. Leading IoT and cloud providers have latched onto autonomous vehicles as their next big cash cow target because those cars generate continuous large data streams. Expect services and advertising focused on consumers sitting passively in self-driving cars for hours. I expect these cars to converge with the sharing economy, whose consumers are too poor to own their own cars. Most ads they will see will probably be for other sharing services, like grocery coupons. You heard it here first at Alfidi Capital.

I went back to the ees stage to see what tech advancements are maximizing ROI. Track the GTM US Energy Storage Monitor for the latest industry developments. I mentioned peak shaving above, and storage capacity determines its flexibility. The industry claims that storage manufacturing costs have fallen in recent years, similar to PV manufacturers' cost trajectories, as delivered units have risen. Utility tariff structures and time of use (TOU) policies determine use cases that demonstrate demand charge management that storage system vendors can offer. Most states allow net metering of solar but not storage, so using storage means time shifting, peak shaving, and load balancing to manage power costs. Residential HVAC activation and EV charging are primary drivers of daily household power use spikes. It is clear to me that distributed generation and storage will severely threaten the business models of utilities that do not rapidly move to adapt. Utilities that survive should evolve to finance, install, and manage residential generation and storage, just to capture part of those revenue streams.

I enjoyed attending the Intersolar Orange Button Software Launch, and not just because they had free coffee. The SunSpec Alliance Open Solar Data Exchange (SunSpec oSDX) sponsored the launch because it is part of DOE's Orange Button initiative for standardizing solar bankability data. Getting Alfidi Capital into this program is a bonanza for name recognition. I don't offer financing or provide any other client services to program participants. My interests include knowing which tools programmers must use to be compatible with Orange Button APIs.

The SEMICON West Bulls and Bears Industry Outlook was something I could not miss. I would be perfectly willing to present my own sector views at this forum someday. I just don't want other analysts stealing my work. Gartner and other research purveyors still forecast semiconductor sector growth. There's a widespread expectation that IoT will be part of that growth; you know, maybe these analysts have been stealing that insight from me since I've blogged it for years. I believe the IoT automotive apps driving chip demand are also enabling other value-adding services like fleet management and stolen vehicle recovery (tied to insurance coverage). The semiconductor content in AI is hard to predict, with analysts uncertain about higher CAGR forecasts, and they have no idea which processing architecture will win AI. Hey analysts, I'll do you a favor and point you in the direction of the Hybrid Memory Cube Consortium I mentioned above. Now that I've said it, I will fight any lazy analysts who try to steal it. Fighting begins at a time and place of my choosing.

The last major conference event for me was the Joint Forces for Solar 16th PV Briefing. I learned a ton of stuff at past events thank to heavy participation from industry association leaders and DOE subject matter experts. This year was disappointing due to their absence. The solar market's dynamics show tons of solar installed here in California, not including municipal utilities. I asked a question about how geospatial analysis tools would be good sales prospect generators for installers, especially when used together with Orange Button financing data. Whoever answered me said that utilities are indeed building such tools to show customers where they can install distributed generation assets. I thus contributed some massive genius to the briefing that day. One final insight I gleaned from a presenter is that good accountants specializing in solar policies and incentives can add value to business customers installing large energy assets through off-balance sheet financing.

I did prowl all of the expo floors but I did not have time to query enough exhibitors on their business pain points. I did score an armload of free reading material, a handful of free candy, and a brain dump of interactive tech experiences. I even met a local steampunk enthusiast working for one of the exhibitors. Those folks must be all over the tech sector. They go into hibernation when they're not at the Maker Faire or big hackathons.

Intersolar and SEMICON West are always winners for me. I also like ees, and I would like them even more if they adopt proper capitalization. I shall return next year to see if that happens.

Monday, July 31, 2017

Alfidi Capital at 4th Annual Rosenman Symposium

I attended the 4th Annual Rosenman Symposium in my ceaseless quest to understand the health care sector. I arrived at the UCSF Mission Bay conference center too late to score the hot lunchtime snacks they laid out. If I had known there would be free food, I would have arrived much earlier for check-in. I had lunch before I got there, so it's not like I was starving, but I do kick myself whenever I miss a free meal. Here comes my bonanza of health care sector investing wisdom.

Alfidi Capital at the Rosenman Symposium 2017.

There are some universally acknowledged good things for health care startups to have. The good stuff includes royalty agreements with Big Pharma and grant support from big name institutes. The National Institute of Biomedical Imaging and Bioengineering (NIBIB) and UCSF Clinical and Translational Science Institute (CTSI) are undoubtedly among those big names.

Highway1 and Breakout Labs help incubate startups in biotech. I must inform the startup community that not all incubators are created equal. The ones run by serial entrepreneurs and advised by VCs who have realized returns are very selective but worth the effort to apply.

One conference speaker helpfully identified a 2x2 matrix that health care corporate development executives use to decide whether to develop a project internally or pursue an external acquisition. It reminded me of a similar matrix I saw years ago for corporate development in the telecom sector. Those corporate development types sure do get around. The corporate development approach to strategic M+A varies but does have some big common factors: synergy with existing product lines; de-risking regulatory approval; ways the target can add value or accelerate growth. Difficulty in getting reimbursements from big health care buyers like Medicare leaves incentives for corporate development to pursue startups that reduce costs. IMHO that reimbursement inefficiency is exactly why US health care is so expensive, before we even consider the costs of malpractice insurance and litigation.

The STEM pipeline for the highly skilled people needed to work in health care startups runs through multiple organizations. The ARCS Foundation pays top students to make new tech and the ARCS Foundation Northern California Chapter is their local presence. Research grants can turn a bright idea into something ready for further pre-market funding. Entrepreneurs should max out such non-dilutive investment wherever possible. Startups execs can also get non-financial inspiration from MedtechWomen, and the world certainly needs more women driving change in health care.

Medtech startups should segment their CustDev by patient type, i.e. old/young, male/female, etc. because drugs and devices will affect different sub-populations in different ways. Noting cost of delivery and value recovered by patient type will aid in establishing metrics that matter to large buyers' reimbursement plans, especially as the health care sector completes its transition away from fee-for-service and towards value-based health care. Corporate development people also want patient data that de-risks a potential startup investment even if it has not yet undergone clinical trials, so early CustDev validation really matters.

I don't have a perfect explanation for why medtech investing is trending down. I do not know if the ACA's rules or its tax on medical devices are affecting this trend. Whether federal government spending on health care will decline depends very much on whether the current Administration gets its wish for an ACA overhaul.

Consolidation among big medtech corporations may be one reason why medtech early stage funding for innovation is slowing down. On the other hand, health care is heavily regulated with big entry barriers, thus it's hard to innovate even if there's no consolidation trend. I could not discern a consensus answer on this topic from any of the conference's panelists.

The EU's medical device regulations (MDR) sets a higher bar for medical devices entering the EU market, forcing companies to revise their marketing strategies. Product development will be more costly, especially for startups. Market strategies for product launch are now likely to focus on the US market first thank to the MDR. Hey, I always knew America was number one.

I got to hear pitches from the 2017 Rosenman Innovators, a crop of promising medical device startups. The whole event reminded me to spend more time meeting people at the QB3 life science incubator in San Francisco. I have been there before and they serve decent coffee. I shall return to the Rosenman Institute's future symposiums as well, so don't forget that I was here in the first place.

Alfidi Capital at 8th Annual Mineta National Transportation Finance Summit

I showed up at the Commonwealth Club in June 2017 for the Mineta Transportation Institute's annual National Transportation Finance Summit. It's the eighth annual event but I lost count a couple of years back. Mr. Norman Mineta himself was absent this year so there must have been something more important on his calendar that day. Transportation addicts can get their fix of public policy downloads on the MTI website. You folks did not come to the Alfidi Capital Blog for any verbatim recaps of speaker comments. No way, you came here for my original free-form genius. Brace yourselves.

MTI 8th Annual finance summit 2017 in San Francisco.

The federal gasoline tax has not been raised since the Clinton Administration, so it has not kept up with inflation. The tax's funding for repair of federally-owned roadways has thus not kept pace with road repair needs. The coming onslaught of zero-emission vehicles (like that new model Tesla is rolling out so it can actually make a profit) will further strain roads with their heavier drive trains while their owners avoid paying the gas tax, so California is preparing to assess its own annual fee on these vehicles.

I agree with one of the summit's speakers that municipal bond issues should fund initial road construction (capex) and not regular repair (opex). The Federal Highway Administration has a helpful life-cycle cost analysis (LCCA) guide for road repair. States that spend public money wisely will do the math before asking voters to approve now bond issues. California's DOT has its own LCCA because we are the best state ever.

I wonder what the California state transportation sector thinks of Sacramento's cap-and-trade carbon control regime. It matters because the California EPA Air Resources Board has a slew of programs covering emissions from transportation activities. The transportation sector needs to check out the state's low carbon fuel standards.

One speaker mentioned some Harvard study supporting his idea that spending on transportation connectivity provides access to jobs. I'll guess that he meant this 2015 Harvard study "The Impacts of Neighborhoods on Intergenerational Mobility" because I couldn't find anything else in public sources that fit the description. The larger point is that public spending to promote employment also requires spending to enable people to get to their jobs.

The Federal Transit Administration has committed capital investment grants to help mass transit projects. It's a boon for Bay Area programs like BART that want to extend line service. We still don't know the full details of this Administration's infrastructure plan. If it remains focused on tax incentives for developers, it may change the scope of the federal government's grant programs or bypass them altogether. It will also force local funding programs like the Metropolitan Transportation Commission's (MTC) One Bay Area Grant (OBAG) to align with local developers' interests. Aligning public and private interests can be a good thing if transit spending is linked to development planning and job creation.

I went to this summit for the free snacks and stayed for the talks. You all know that I never let free food get in the way of acquiring financial knowledge. The free brochures go into my archives and the free thinking goes into my brain. The bottom line for the financial services sector is that demand for infrastructure, including public transportation linked to private development, is slated for multi-year growth. Bonds and other instruments funding infrastructure are coming down the road.

Alfidi Capital at Google Demo Day 2017

I had to check out Google Demo Day 2017. I'm getting quite accustomed to seeing brand new stuff at Google Developers Launchpad in San Francisco and the Demo Day was right up my alley. I don't need to repeat what the competing startups said in their pitches, because that's not why my readers are here. They're here for my original insights. Yes, I'm talking to you.

Google Launchpad gave out booklets on Demo Day 2017.

I took away some pretty clear lessons for startup founders based on the give and take between the judges and the pitching startups. Target your first vertical aggressively. Know your biggest competitors (how to position yourself, and how they'll counter you). Clearly explain your user experience (UX). Briefly walk through a successful use case from a paying customer. Know your capital requirements and how scaling up will affect both capex and opex. Explain how your solution shortens a customer's procurement decision cycle, which will be longer in some hardware-intensive verticals.

The implied tasking for entrepreneurs who need to forecast capex and opex is to either thoroughly know financial analysis prior to launch or bring on a CFO immediately after raising Series A. I have mentored a few startup founders through the basics of business finance. It is not child's play.

The VC judges picked a winner among the pitching candidates, and I was pleasantly surprised that it was the one I picked as a winner before they voted. See folks, I do think like a VC. The winner was a financial market application, so I admit my natural bias in seeking something in my sector, but a few other startup candidates had some decent ideas. One idea that I thought would go nowhere was too easy for established competitors to duplicate.

Hey Google developers, you're going to see me at the Launchpad a lot more now that I know its location. I really like the shiny, snazzy name badges they sometimes make for attendees. I should get a permanent one since I plan to be there so often.

Friday, June 30, 2017

Alfidi Capital at TiEcon 2017

I scored access to several sessions at TiEcon 2017. The TiE people are some seriously accomplished entrepreneurs and are among the most well-connected people in Silicon Valley. I had to go check out the scene, absorb startup wisdom, and maybe score some free coffee. My readers know I'm all about free stuff. I just can't turn down free access, freebies, and free knowledge.

I check out the action at TiEcon 2017.

The govtech track was a good fit for my background. More techies now know about how the US Digital Service is changing the federal government's cultural approach to deploying tech, but not everyone knows that FITARA is changing how the government's CIOs do business. The entire software sector has tried to move from waterfall development to agile development and Uncle Sam is finally following through. I sometimes wonder whether the entire US government lives in a "cone of uncertainty," but that's what the private sector calls a trial stage for govtech projects developed with lean startup methods. I betcha there's an app for Scrum contractors. Federal government contractors are accustomed to long sales cycles with more predictable revenues. I think the US can look to other countries for examples of successful govtech adoption. Governments most likely to adopt agile govtech, automated documents, knowledge management, mobile stuff, and whatnot will have similar factors. Francis Fukuyama's high-trust cultural traits (like in Scandinavia), a high degree of 4G coverage, and widespread mobile adoption are my picks for those success factors. The Digital 5 effects with e-Estonia are the kind of template the US needs.

The social impact track showcased concepts that are all the rage among business people who want to harmonize themselves with the universe, or something like that. Large banks and wealth management firms are developing their own philanthropic programs and encouraging employees to volunteer in the community. I have no idea whether their salespeople are smart enough to leverage those functions into referrals from donor-advised funds and family foundations. Impact investors are following the herd of VCs into agtech and are using the UN's Sustainable Development Goals. Here's the UN Sustainable Development Knowledge Platform if you need to get started. Rich people and corporate big shots can use the SDG Philanthropy Platform to select the SDGs that will most enhance their brand images or social standing. A non-profit executive at TiEcon mentioned that using a "network effect" of social peer pressure validates an impact investment pitch with well-heeled people. Yeah, it's all about elite peer acceptance of the latest cool idea they can brag about at social events.

One social impact expert thinks that four key cycles are out of balance: carbon, nitrogen, hydrogen, and Gini. Whacked-out cycles imply investors will favor environmental projects that will help the poor. I have no reason to think any of that is made up, because it sounds like it's all super-advanced science and smarty-pants stuff. I have every reason to think that microloans for 3D printers, Arduino boards, and other small assets can enable a tidal wave of artisanal tech for disadvantaged people, just like microloans for aquaponics in urban food deserts. Crowdfunding platforms could support microloans for lots of small-scale impact projects. It will be tough to pull these things off without US support for the UN SDGs and Paris Agreement on climate change. It will be even tougher without USAID programs for development abroad and US HUD programs for people at home. Deconstructing the US government in a nationalist fit of rage has an opportunity cost of foregone future development.

The TiEcon youth track had tons of stuff that even a middle-aged guy like yours truly could use. I thought I heard one guy at TiEcon say that some Indian regional government entity sponsored a hackathon with 900 participants. That is way more people than I've ever seen the biggest US tech conferences attract. India and China have huge populations and lots of students studying STEM. Quantity has a quality all its own. The US urgently needs crash STEM programs so lots of people can handle distributed processing in machine learning and analytics, just to catch up with our major strategic competitors. IMHO scalable models like Rethinking Engineering Design and Execution (REDX) would get mid-career non-STEM experts pushing youth into STEM projects that quickly solve real problems.

One VC addressing the youth track said successful entrepreneurs have five superpowers: passion, charisma, speed, focus, and "flight" (i.e., mental agility and constant pursuit of increased competence). He's Joseph Floyd, and you can check out his amazing comic book at Silicon Heroes. I read the book myself and it rings every bell for tech entrepreneurs striving to make their mark.

Athletes speak the entrepreneur's lingo. Former NFL player Anthony Trucks spoke about how he put tremendous work into the game he loved before he even knew he would be successful, a great lesson in hustling for entrepreneurs. Olympic table tennis player Lily Ann Zhang shared her humility and passion, and wanted us to enjoy our journey to success. Wow, I'm so glad I stuck around for the inspiration. It pays to be young at heart.

Anyone into biotech should check out Open Source Pharma Foundation and Nutrition International (formerly the Micronutrient Initiative). The impact investors pushing these concepts help enable simple innovations like universal iodized salt that become UN-led policies. One cool idea I heard from these advocates was for a "social DARPA" enabling giga-scale open innovation for billions of people.

TiEcon 2017 was well worth my time. I scored all the free stuff I could find so I came out ahead once again. The TiE people still haven't invited me to speak at their conference. They are really missing out because I have plenty to say about innovation. I also like Indian food even though I'm not Indian, so I will eat anything they put in front of me when I'm the star attraction at a future TiEcon.

Wednesday, June 28, 2017

The Haiku of Finance for 06/28/17

Automate paper
Sign everything in digits
No more ink in cloud

Alfidi Capital at DocuSign Momentum 2017

I attended DocuSign's annual Momentum conference for the first time ever in 2017. I had never heard of this firm but apparently they are doing really hot things by automating document management in the cloud. I had to see how they connect with their customers at this conference so I could score some knowledge in person.

Keynotes at these types of shindigs are always fun. I won't blindly repeat anyone's claims about how much customers save for every dollar spent on a DocuSign product. I could probably save less than a buck fifty by going completely paperless, but I score all of my paper note-taking products for free at conferences like Momentum. Hey, that means I'm saving money already thanks to DocuSign.

Alfidi Capital owns DocuSign Momentum 2017.

I have known about the US government's FedRAMP cloud product security standard for some time, but I learned at Momentum that a separate FIPS 140-2 standard applies to cryptographic security. Any service provider offering cloud solutions must be compliant with these standards or they will never get into Uncle Sam's procurement pipeline.

DocuSign's "Advisory Councils" sound like CustDev feedback channels for the firm's biggest verticals. I'll bet their data streams on who signs documents, how and when they sign, and the length of time for a transaction to close are a gold mine.

I mentally ran through a list of potential acquirers during the opening keynotes: Workday, Adobe, Google, Microsoft (if they want a SharePoint tie-in) . . . who did I miss? Salesforce? Nah, not them. I think Salesforce would rather acquire Box to build out its document automation and storage portfolio if it were so inclined, but hey, I don't run any of these companies, so I have no idea what they're doing.

Two special Momentum guests were contrasts in demeanor. I will not identify them so I can preserve an air of mystery. One overgrown frat-boy who somehow ended up as a financial service executive had more than one attendee swooning over his good looks and arrogance. He did not strike me as all that competent, so count me in the minority of people who weren't fooled. Another special guest was self-effacing and displayed technical competence on the speaking platform, but somehow came off poorly to the people sitting around me. I get it how physically attractive people, regardless of gender, get a big pass in life but I don't have to like it.

Experts on trust and digital transaction management said that clients now demand trust certifications like ISO 27001 and AICPA SOC. It's not my job to implement those certifications so I'll just trust that some people love doing the work for me. There's also an xDTM standard for digital transaction management and the EU GDPR standard for data protection in Europe. There should be plenty of jobs in document automation for people who know these standards. Real pros also know the difference between Representational State Transfer (REST) and Simple Object Access Protocol (SOAP) in an API's JSON response.

People here think they can accelerate your employer's digital adoption. Forrester's white papers will tell you to get buy-in at all levels for change management. I would tell Forrester that they had better not use any of my writing without attribution. Anyone who has more patience than typical Forrester readers can study the SPeRS standards. Prevailing wisdom holds that automated document processing adds value in mergers, because absorbing new business units is easier if forms and checklists are shared digitally.

The future of banking and wealth management is digital. Robo-advisors are coming to steal the jobs of Wall Street's cubicle dwellers and document automation will make the AI systems' data verification easier. I believe fintech's niche is data aggregation from financial service providers. Banks and brokerages say they are willing to "partner" with fintech providers but not necessarily acquire them. Fintech solutions give banks off-shelf added value they can't quickly build in-house. Even real estate is getting into document automation, although the sector's natural conservatism towards newfangled things is a barrier to adoption. Oh yeah, I had to tell the presiding wealth management experts here about how their sector has told me many times that my US military background is a disadvantage in wealth management. One executive advised me to move to Texas where that wouldn't be a problem. I don't think she's heard about how Texans dislike California transplants. Liars make me mad. Here's the truth: Maximizing a firm's Net Promoter Score (NPS) and minimizing "not in good order" (NIGO) data are popular approaches to assessing whether document automation enhances the customer experience.

The closing keynote revealed the litany of tools programmers need to succeed: DocuSign (of course), Python, Django, and Node.js. I was thrilled that a fellow military veteran led one of the winning hackathon teams. The free food at Momentum and its afterparty were good reasons to attend. The free insights into how companies like DocuSign are automating corporate back office processes are good reasons to come back next year.