The Haiku of Finance for 01/31/15

Dreaming is lazy
Action beats a worthless wish
Get off the lame meme

Achievement Requires Action Beyond Sharing Lame Memes

It's cute to see people spread motivational sayings around as social media memes.  Toms of Twitter feeds are devoted to squeezing out daily dozens of comforting aphorisms.  It takes zero effort to click a like button.  Unfortunately, real accomplishment always requires far more work than passing a quote around among bots.

Modern Americans have gotten fat, lazy and stupid.  Three generations of expanding middle class entitlement programs got the ball rolling.  Dumbing down public education to the lowest common denominator of what a unionized teacher finds palatable helped move it along.  Cultural worship of self-esteem over the stress of working toward a goal was the coup de grace.  Politicians and popular entertainers who pander to emotionally needy "tall adolescents" put the final nail in the coffin.

Cheap capital and energy make life easy.  Life throughout much of human history has rarely been easy.  Lazy Americans are in for a world of hurt when the the Federal Reserve can no longer accommodate their coddled lifestyles with costless credit.  I expect social media memes during the second half of this decade to reflect the bitterness of many newly impoverished Americans.  Lots of people are going to learn the hard way just how hard life can get.

Wishing on a star does take the wisher to the star.  The star does not care what a wisher thinks.  Goals are great to have.  Making a goal manifest in reality means work, focus, resilience, and perpetual repeats of a grinding cycle with no assurance of success.  Belief is not enough.  Achievement requires action.

The Haiku of Finance for 01/30/15

Hedge fund planning phase
Cook up cute name for algo
Pretend it makes sense

The Haiku of Finance for 01/29/15

Managing some fund
Go along with Wall Street herd
No added value

Extraordinary Fund Manager Myopia

I answered a survey today from a major consulting firm that canvasses senior people in portfolio management and investment analysis.  I won't reveal the firm's name but I will get a copy of the survey upon publication.  The questions addressed investment professionals' expectations to see in the markets over the near term.  I expect a bunch of bad news, unlike many pros who manage serious money.

A whole bunch of obvious risks have not deterred asset managers from seeking safe havens.  Teachers' pension funds are piling into US residential real estate investments at all-time high prices.  Currency arbitrageurs have not been deterred by several trading firms' blowups after the Swiss repriced their currency.  Corporate earnings and P/E ratios at generational high points eventually revert to their historic means.  I could go on about these things but the only people paying attention are on the fringes of the finance sector.  Mainstream thinking among portfolio managers still encourages chasing yield.  The Wall Street crowd assumes central bank puts under asset markets can never fail.

Geopolitical risks should compound any sane money manager's planning.  Russia's diversion of reserve funds from infrastructure investment to bank backstops should signal a low-growth future.  Emerging market stocks that sold dollar-denominated debt will struggle to make higher interest payments while the dollar stays strong.  The enormous potential for instability in Venezuela, Argentina, and Saudi Arabia should throw cold water on any bullish case for those countries in 2015.  Money managers plow ahead anyway, oblivious to contrarian cases.

The hard asset hedge crowd has enough myopia of its own.  Perpetual fans of precious metals don't think about the impracticality of bullion bars in daily transactions.  Stocks in the natural resource sector have cratered since 2014 and will stay low as long as currencies of hard asset producing countries stay weak.  The oil sector shakeout means a lot of so-called bargain buys among junior producers will instead become bankrupt buys as major producers buy out their nonproducing assets.

Watching supposedly smart money managers make increasingly dumb bets is a fun pastime.  I like it when dumb people lose millions after greed and hubris destroy their judgment.  A penultimate day of reckoning awaits investment professionals who assume central banks will never lose control of currencies or yield curves.  Hedge fund managers will learn the hard way how to write farewell letters to their formerly wealthy clients.  I will relish bottom-fishing for cheap assets once myopic fund managers are wiped out.

The Haiku of Finance for 01/28/15

Huckster baloney
Mass pitch event for suckers
Picking some pockets

Dog-Gone Pitch Strikes Again With Real Estate Private Pre-Auction Baloney

My faithful readers may be familiar with my contempt for some dog-gone hucksters and their perpetual real estate seminars.  I blogged about this stuff almost five years ago.  Some organization obviously read my review of the seminar shortly after I published it and disliked it enough to have a flunkie respond.  They never bothered to remove my name from their mailing list.  So many employees are even dumber than I had estimated.

The result of someone's administrative oversight still arrive in my mailbox to this day.  I sometimes receive special invitations to attend a "private pre-auction real estate event" at hotels in San Francisco.  The group upgrades the venue sometimes, getting away from the airport hotels for more touristy spots.  The fold-out postcard always promises introductions to dealmakers hand-selected by a guru himself.  If they're anything like the hand-selected bums and losers I met at the original free seminar, the quality of their deals is likely to be zero.

Serious real estate investors can find real deals at local real estate clubs.  Your local bank can give you a heads up on any foreclosed properties from their REO portfolio they want to unload quickly.  Don't even bother hanging out with the bottom-feeders and shills that are likely to populate a mass-pitched event.

Reprising a Real Estate Festival of Baloney

This is a repost of an article I originally published in April 2010.  I took it down when the people I exposed threatened me with a lawsuit, and I did not wish to fight some deep pocketed operation in court.  I have since removed all references to this person's enterprise and to other real people who were connected to this promotion.

I love free stuff but hate wasting time.  Today I came up FAIL on both counts.

I was recently cold-called by some real estate seminar promoters.  These people probably got my phone number from the usual lists.  They were pitching a free seminar that I knew would be a tease for some huge rip-off.  This free seminar came with a twist:  A free book and digital camera, plus an appearance by a TV business personality, were part of the deal.

Who's the TV personality?  He won the first season of a reality TV competition and spent a couple of years under contract with the network as a shill for a blowhard real estate developer and his charities.  Now he's married to another entertainment talking head, completing his transformation from legitimate entrepreneur into soulless media package.

I wanted the free stuff, so I said yes, plus I really needed to amuse myself.  A week later their call center followed up by pitching me a "VIP seating" package that I politely turned down.  No way was I paying one stinking penny for what I consider to be free entertainment.  I hadn't even walked in the door and they were already trying to find a way to get my money.  They later sent me a confirmation email stating that the TV personality would appear by "remote linkup," and the real presenter was someone else.  Boy, was I in for a treat.

The momentous day of the seminar was today (actually, it was a day in April 2010, but remember this is a repost) at an airport hotel near San Francisco.  This particular hotel has been the scene of a few other free seminars I've attended, with the likes of two other shills pitching their garbage.

Who's one of those shills?  He's a self-promoting personal improvement guru whose amateurish sweat lodge retreat caused the deaths of three participants in October 2009.  His company can't pay any legal claims because it spent every penny customers had prepaid for future events that are now cancelled.  Brilliant!

Who's the other shill?  You know him as the author of one series of books about a rich parent who probably never existed.  I'll let you read what others say about the person's real estate knowledge so you don't waste your own time or money.

The time I spent waiting for the registration table to open gave me some entertainment.  A disheveled man carrying a ratty bookbag and wearing a shirt that looked like it hadn't been changed since 1979 asked me if this was the right place for the seminar.  I said yes, but I didn't want to break his heart by breaking the news that the TV celebrity would only be present electronically.  "My relatives all think I'm crazy for coming here," he said.  I wasn't about to argue with him.  During the seminar he actually started talking to himself.  I guess I didn't have to argue with him at all, since he was doing it for me.

I sat in the back of the seminar room because I suspected I might be making a quick exit, free stuff or not.  I asked one of the speaker-dudes if I could get my free digital camera now.  Unsurprisingly, he said "No, I have some things to teach you first."  Some young chick I crossed paths with asked me if we were supposed to do anything with the registration letter we got in the mail.  She chuckled when I said, "Of course not."  The suckers who were dumb enough to pay for VIP seating were sitting up in the front two rows, sectioned off with . . . wait for it . . . masking tape.  There were at least eleven of these idiots up there, soon to be separated from more of their money by the shysters running this carnival.

The guy next to me admitted he only wanted the free camera too.  "I have to get my wife a birthday present, and this looked like the best way since I'm unemployed and have no savings."  Wow.  I was mentally going through the items I remembered from a publicly available Real Estate Artist B.S. Checklist and all of the signs were appearing as predicted.  The audience members were all definitely the dregs of society, sloppily dressed and ugly.  Two guys even came wearing slippers.

The main event started.  The TV personality appeared all right, not via "remote linkup," but by a digital recording that looked like it had been edited from a Skype session.  He gave a generic introduction that mentioned no target audience, so it was obviously designed to be used repeatedly on the road.  I honestly believe that most of the people in the room were dumb enough to think he was speaking to them live.  Mr. TV Dude, I'll tell you right now, being associated with this promotional scheme is going to come back to haunt you when the whole thing collapses from lawsuits.

The main pitchman leading off was some guy I had never seen before.  He's pitched similar seminars for the blowhard real estate developer; the TV personality's recorded intro mentioned him as a former blowhard associate and triathlete.  I only knew him as the guy who told me I had to "learn something from him" to get a free camera at the end.  Both learning something and getting that free camera were looking increasingly unlikely.

The first 30 minutes of the seminar told me everything I needed to know about what the promoters thought of their audience's intelligence.  More signs from the B.S. checklist appeared.  The pitchman dropped hints at a luxurious lifestyle by showing pics of a huge development he claimed to have some part in finishing.  The rubes in the VIP seats must have been suitably impressed.

I decided to leave after two slides insulted my intelligence.  The first was a chart that looked like a standard distribution of real estate foreclosures.  The obvious problem (to my MBA-trained mind anyway) was that the timeline on the graph ran from 2007-2012 but a box imposed on the chart - split down the middle - said the bulge of foreclosures would be 2010-2011.  In other words, a two-year timeline was symmetrically imposed on a six-year timeline even though they both had different midpoints.  It was also a perfectly symmetrical distribution, which for a timeline makes no sense at all.  The statistically illiterate people in the audience probably missed that one.

The next insult was too much to bear.  The platform pitchman said that banks don't like holding foreclosed properties because they don't want to manage real estate.  Fair enough.  Then he said this whopper:  "When the bank forecloses on a mortgaged property, it's no longer an asset for the bank.  It becomes a LIABILITY."  That's complete BALONEY.  A home owned by a bank is still an asset; it's just not producing any income, from mortgages, rents, or otherwise.  It does not move from one column of a balance sheet to another, although it does change asset categories and can be written down in value significantly.  Analysts like yours truly know this; idiots and suckers wearing slippers to seminars will never know it.

I couldn't take any more.  I left after exactly 40 minutes of this circus.  I wasn't going to wait around for another six hours in the hope of getting the TV personality's free book, some free digital camera that was probably junk, and whatever free lunch they mentioned.  It was probably going to be a baloney sandwich.  I'd had my fill of free baloney for the day.

I hope you all enjoyed this blast from the past.  It's almost five years old and I still think it's funny.  All that I have read about this particular real estate promotion since I wrote this article in April 2010 convinces me that they have not changed their ways.  I will not name names because I don't need a reprise of the legal liability they threatened to throw at me a few years ago.  The reprise of the article, stripped of identifying information, is enough.  

The Haiku of Finance for 01/27/15

Greek debt in standoff
Europe knows cost of outcomes
All will harm euro

Greek Debt Game Theory

Greece's new leaders run a nation whose sovereign debt is about 175% of its GDP.  Most of the Syriza party's cabinet are untested in senior leadership roles.  Entering negotiations with ambit claims is probably beyond their ability.  The European troika should take them at their word when they say that Greece cannot afford to pay its debts in full.  This understanding sketches out the boundaries of a high-stakes Prisoner's Dilemma.  Game theory can help us understand the dilemma's probable outcomes.

The probable end state of most Prisoner's Dilemmas is the defection of the party who first realizes the advantage of abandoning a compromise solution.  The first to defect maximizes their own self-interest.  The classic formulation of this dilemma presumes that the two primary parties do not know each others' intentions.  The European troika and Greece's Syriza know each other's intentions exactly, so an immediate defection from a negotiated solution is not likely.  The problem is that Syriza's absolutist campaign rhetoric leaves little room for a negotiated solution.  Electing amateurs who have never strategized or negotiated beyond a marketing campaign places a crisis-riddled nation at a distinct negotiating disadvantage.

The troika's bankers and economists have obviously considered several scenarios, including a Greek debt default and exit from the euro.  Their negotiating position includes consideration of the cost to Europe of Greece's untenable positions.  Greek Prime Minister Alexis Tsipras has until the Feb. 12 EU summit in Brussels to telegraph any softening of his demands for lifting austerity.  He has stated a willingness to "negotiate" but has not budged on his commitment to reinvigorate the Greek welfare state.

Game theory indicates several possible outcomes if we assume the Greek position is fixed.  One set of scenarios should include some form of renewed European generosity that is insufficient to meet Greek demands.  Another should include hard European demands that Greece adhere to its debt covenants if it wants a loan lifeline after Feb. 28.  The least likely scenario is Greek capitulation to any demand, even a temporary one, to secure said lifeline.  A turnabout acceptance of austerity would shatter Syriza's governing coalition and prompt snap elections again.

The likely range of outcomes under game theory is thus some sort of Greek default that prompts the country's withdrawal from the euro.  Europe's leaders have calculated this cost and believe it to be manageable, but they are tempting fate by inviting Greece to negotiate.  The public statements of both EU and Greek leaders indicate that this is the full range of policy outcomes, yet one outcome is also a possibility.  Systemic stability has emerged as an overriding policy consideration on both sides of the Atlantic since the 2008 financial crisis.  Printing euros to maintain a unified eurozone is the most powerful option available to Continental leaders committed to a unified currency.

The negotiations may be mere political theater if the troika is sufficiently confident that ECB monetary stimulus can paper over Greece's problems long enough for a renewed bailout to push the country into growth.  The math gets complicated depending on how enthusiastic economists are for the effects of debt on growth, but the philosophy is not complicated at all.  The ECB quantitative easing timetable can immediately shift to accommodate bond purchases that support further Greek bailouts,  The cost of that option is the decimation of the euro's buying power against the US dollar.  Brussels has yet to indicate whether the cost of the euro's dismemberment or the cost of its devaluation is more tolerable.  Mr. Tsipras' conduct in Brussels will trigger Europe's choice.  Alfidi Capital judges a Grexit to be just as likely as a quantitative easing bailout.

Full disclosure:  Bearish on the euro; long put position against FXE.  

The Haiku of Finance for 01/26/15

Potato crop yield
Enhance harvest with data
A lot more French fries

Financial Sarcasm Roundup for 01/26/15

The final week of January requires a final blast of sarcasm.

Wall Street is launching its business continuity plans as winter storm Juno hits the Northeast.  The world won't miss a few hundred useless Wall Street relationship managers if they froze in place for a couple of days.  I'm pretty sure a few hamsters running in miniature plastic wheels could keep the financial sector humming.  Automation is making most of these humans redundant anyway.  The storm is the perfect test case for AIs.

Some OPEC big cheese is now warning about much higher oil prices.  Well, dude, blame Saudi Arabia and the other Gulf sheikhdoms for flooding the market with oil to protect their market share.  Driving more expensive shale producers out of business is a surefire way to frighten capital away from exploration and production.  Analysts underestimate the long lead times needed for new infrastructure.  Capped wells can be turned on quickly but many gas pipelines to shale fields and tar sands are still in the planning stages.  The smaller servicing companies that are about to go bankrupt won't be able to keep their fleets of trucks and portable rigs in storage, so those will be sold for scrap or converted to something else.

China's brokerage firms are going nuts with margin accounts and ignoring regulators.  This blatant juicing of Chinese equities is going to end very badly for the retail investors who get suckered in at the very end.  I hope the traders involved have lots of dried noodles stored up for the lean times awaiting them after the inevitable crash.

In other news, I am now the proud owner of a bag of potatoes.  They don't last as long as canned food but they are quite tasty with salt.

The Limerick of Finance for 01/25/15

Greek leftists have won their big prize
Euro watchers cannot feign surprise
Throw doubt onto debts
Bond shorts will place bets
Pricing yield for some time won't be wise

The Haiku of Finance for 01/24/15

Automate advice
Cut out brokers from clients
Obsolete selling

Automation Will Destroy Financial Advisers

Way back in the day, financial advisers were hard-working sales people who matched investors with products they needed.  The profession morphed into a refuge for trust fund babies who needed a real job on their resumes to meet their multi-generational trust's inheritance requirements.  The brokerage infrastructure grew into a multi-headed hydra, mixing an investment bank's cute ideas into proprietary products.  The age of Big Data and artificial intelligence (AI) is about to turn this whole enchilada inside out.

The virtual financial adviser is an interim step toward full automation.  A new generation of financial salespeople are managing relationships via Skype and Google Hangout, all without ever meeting their clients in person.  Tech-savvy investors want a personal touch but don't have time to trek to meetings.  The brokerages with the most tech-savvy compliance architectures have approved social media channels for marketing.  The firms' other IT challenge is grafting on archiving systems that allow firms to record client contacts in social media.

Human advisers working remotely are a bridge to the wave of full automation about to break over anyone in finance who manages client relationships.  A full stable of fully digital wealth management firms deploy AI interfaces that cut out human advisers completely.  Machine learning teaches cloud-based AI algorithms how to behave when a human client asks financial questions.  Fully automating client relations cuts out the layers of back office people who processed client orders and designed financial products.

The end of overhead in wealth management means a drastically lower headcount.  Employee compensation is the single greatest expense in the finance sector.  Eliminating the lazy idiots kicking back and counting their bonuses will save money for clients.  Part of the cost avoidance will undoubtedly leave more earnings on the table for the shareholders of automated brokerage firms.  The SEC should breathe a sigh of relief at the dramatic reduction in broker misconduct complaints.  Fewer human operators of any system mean fewer human-caused errors.

The creative destruction that the cloud / AI / Big Data paradigm brings to finance will change Wall Street for the better.  Branch managers won't have to act in loco parentis for trust fund baby brokers because neither will be needed anymore.  Client decisions aggregated into Big Data packages will arbitrage away the investment products that cost too much and deliver too little alpha.  I suspect index funds and ETFs will be the biggest product winners because they are simple to build, cheap to operate, and easy to distribute to AIs from wholesale channels.

I wish tech had been this mature when I was a financial adviser from 2005-2006.  I could have blasted out emails, scored social media followers, and closed accounts electronically.  Tech has finally caught up to the needs of sophisticated clients.

Nota bene:  Alfidi Capital is not a registered investment adviser (RIA).  Anthony J. Alfidi is not a financial adviser.

The Haiku of Finance for 01/23/15

Amazon bull case
Morgan Stanley smoking stuff
LOL at free shipping

The Haiku of Finance for 01/22/15

Central bank nonsense
Claiming fear of deflation
Come to your senses

Everyone Who Does It Can Still Be Wrong

I recently had a very unpleasant conversation with someone who thinks that brazenly unethical actions in business are somehow excusable because "everyone does them."  Her moral lapse was breathtaking for someone who claimed to possess more than one advanced degree.  I might as well describe what's wrong with this mentality.  Some of you will benefit.

If you had good parents, they probably told you at some point that you shouldn't do some dumb thing just because all of your idiot friends were doing it too.  Phrasing it for a pre-teen goes something like this:  "If everyone jumped off the Golden Gate Bridge, would you do it too?"  The pre-teens who don't listen become adults like the young woman I mentioned at the top of the article.  Lots of dumb kids grow up to be idiot adults.

Entrepreneurs often find the temptation to embellish their backgrounds irresistible.  Those who give in to temptation invite disappointment when investors complete their due diligence and find no corroboration.  Investors check out people's educational backgrounds.  Alluding to a nonexistent degree in a pitch is cringe worthy behavior.  Attending a couple of seminars at Stanford doesn't count as an educational qualification.  People should know this, but they don't and they pitch anyway.

Lying early and often about something leads down a slippery slope.  Misrepresenting product capabilities, warranty commitments, or the legal fine print of a contract is usually actionable in civil litigation.  Pitching lies to a lot of very stupid people is often a quick way to riches and a long road to court problems.  The court then forces disgorgement of said riches, with other penalties piled on top.  Check out case histories at the FTC and SEC for businesses that tried to get away with making false claims.

Even grown-ups need reminders that the lowest common denominator behavior of crowds is not an acceptable substitute for ethical reasoning.  Adults who can't take the hint need to stay far away from me forever.  Business people who lie cannot be leaders.

The Haiku of Finance for 01/21/15

Self-proclaimed angel
No skill, knowledge, or background
Please get off the stage

The Wrong Ways to Fund a Dream

The perpetual merry-go-round of entrepreneurs and investors is full of wondrous sights.  I wade through the chaff so my readers don't waste their time.  I run down blind alleys far enough to know when to run back out.  I recently ran down one such alley with a group I used to think was reputable.  I shall correct that misjudgment right here in this article.

Raising capital requires hard thinking about proven methods.  Appeals to faith don't hold water.  It's not enough to tell people they've gotta believe in a capital raising system.  The system has to actually work.  If it is designed with a hidden agenda in mind, such as funneling deal flow to asset managers who do not have relevant expertise in helping startups, then the system does not deserve to be considered angel investing.

Introducing angel group team members begs questions about why they are on the team.  Are they experienced investors?  Are they entrepreneurs with successful exits?  If those don't apply, and they're just good technicians, then they are probably in over their heads as mentors to entrepreneurs.

People who want to inflate themselves will sometimes drop names of prominent people they've met casually, or who were early into deals when they themselves came in late.  That does not imply any formal business relationship between the big shot and the braggart.  I have been in the same room with tons of Silicon Valley's biggest names and none of them cared about me at all.  There is no way I can claim those billionaires as business partners.  Anyone can photograph a casual encounter with a business or political celebrity.  So-called investors who run their mouths about phantom partners should either publish proof of their claimed relationships or shut up.

I have never heard of waiting to the end of a receiving line to maximize face time with a VIP.  Think about it, people.  All VIPs are busy and waiting to be last in line risks missing them altogether when they have to pick up and leave for their next event.  Waiting around is never an effective tactic in my experience; being first in line for anything is much more likely to bring success.

In a similar vein, I have never heard of mapping out a wealthy prospect's personal network of gardeners and gold partners as a means of planting a venture pitch in their ear.  That is just plain ludicrous.  Every effective prospector knows the importance of getting past gatekeepers, not converting them into an unpaid sales force.

Angel investors are supposed to know certain things about technology startups.  They should know that a provisional patent offers some IP protection for a pre-revenue stage startup.  They should know that traction means sales, and nothing else.  They should know that metrics like CAC and LTV are ways to measure a marketing campaign.  They should not have to lean on an audience member to explain widely adopted concepts like the Lean Startup method.  They should know how funding rounds are linked to achieving operational milestones.  They should understand that VCs expectations are partly driven by a need to return capital to their investors, and that VC funds' stated lifetimes affect a startup's path to its exit event.  Finally, angel investors should know that an early expectation of an X-multiple ROI works backwards from the exit's terminal valuation, adjusted for dilution by terms offered to different investors.  I cannot take an "angel investor" seriously when they demonstrate obvious ignorance of these concepts.

Business fakers should be grateful that I am in solid control of my blood pressure.  Otherwise, I would be blowing up when I see self-described business leaders pull amateurish stunts.  I dislike watching an entrepreneur tell minions to adjust event admission prices at the door based on whether an attendee looks like they can afford to pay.  Doing that with real products or services leads to FTC complaints.  I also dislike watching a featured speaker adjust their presentation slides 20 minutes prior to showtime, wing it through the presentation, allow audience questions to go unanswered, and otherwise show a total disregard for people's time.  All of these things are very bad signs.  I run away from this behavior when I see it.

I cannot take seriously any claimed expert who engages in the bizarre tactics I described above.  Anyone who approaches early-stage venture investing in this manner will never figure out how to get their dream funded.

The Haiku of Finance for 01/20/15

Speaking union's state
More taxes for more handouts
Same old pandering

The Haiku of Finance for 01/19/15

Global outlook cut
Big countries looking weaker
De-couple from growth

Presidential Campaigns for 2016 Begin in Jan. 2015

The party out of power has begun its 2016 positioning with a wide open field.  The contender from 2012 has clearly been in the running since the day after he lost the election, protestations of disinterest notwithstanding.  His private investment firm and annual policy conference in Utah were clearly proxies for a permanent campaign.  The other leading GOP contender, from a family that has sent two members of its bloodline to the White House, did not take the hint to stay out of the race.  The Democratic heir apparent's ambitions are the worst-kept secret in America.  It's up to the financial establishment and deep state elite to decide which one of these leading choices is the most marketable; the other fringe contenders only count as entertainment.  Alfidi Capital offers an initial handicap of the environment the obvious leaders face.

Comparing the 2016 race to the political comebacks of Richard Nixon and Ronald Reagan overstates the obstacles facing a contender who lost elections.  Nixon prevailed during a very unpopular war with a promise of a secret peace plan.  The incumbent party could not escape the specter of Vietnam in 1968.  Reagan prevailed during heavy stagflation in the economy, with the inadvertent help of an independent candidate who split the vote in 1980.  Public concerns over war and economic prosperity trump any other consideration in voters' minds when electing a President.

Elections in times of peace and prosperity can turn more on the personal characteristics of candidates but Americans still have strong preferences for incumbents.  Charisma matters to voters who want a candidate they think will be just like themselves.  Successful Presidential candidates are of course nothing like commoners, and their charm in appearing so is a useful mask.  Ronald Reagan was everyone's favorite uncle or grandfather in 1984, depending on one's age group.  The two former governors leading the GOP pack in 2015 remind a lot of working class Americans of their supervisors at work.  The former First Lady on the Democratic side reminds a lot of Gen-X and Boomer professional women of themselves.  I'm pretty sure that whichever party nominee picks a Hispanic running mate will lock up a lot of newly minted Nuevos Americanos who want someone just like themselves.

John Williams' Shadow Government Statistics published its Commentary #442 on May 12, 2012.  It is noteworthy for its discussion of how real disposable income growth affects presidential elections.  This figure was less than +3.0% in 2012 and yet the incumbent won reelection, bucking the historical trend since 1932.  The substitution of large government entitlement programs for personal income is a recent phenomenon.  Its power to mask weak income growth is phenomenal.  Food assistance (EBT/SNAP), free cell phones, and SSI disability payments do not count as earned income but represent hidden purchasing power for low-income voters.  The mentality of a candidate who tells private businesses "you didn't build that" reveals the attractiveness of handouts as an election year ploy.

The leading candidates of both parties at this stage of the 2016 campaign are notable for their bland public personas.  The two former GOP governors who worked in finance appear stiff when they try to affect a common touch.  Their private sector accomplishments are less impressive to low-information voters than how they might look wearing a plaid shirt and denim jeans.  The leading Democrat offers  the novelty of breaking the gender glass ceiling.  Her fans are willing to overlook her lack of accomplishments in national office.  It is fair to ask how many bills she authored in the US Senate and how many diplomatic problems she resolved as Secretary of State.  Most people won't care about the answers, but history will note our indifference.

The two leading center-right Republicans share the same donor base; the one that raises the most money will probably win the nomination.  The leading Democratic contender has a ready-made donor base in her husband's non-profit foundation.  All three of them have longstanding friends on Wall Street.  Whoever wins the fundraising race by mid-summer 2016 will own the messaging through November.  The state of the economy in the summer and fall of 2016 will be the primary factor driving the electorate's final choice but funded messaging will matter only in swing states.  Commitment to a large new war is unlikely between now and then, so that controversy will probably not be present in the race.

The GOP nominee from 2012 came close but got no cigar thanks to the incumbent's gifts to his base in swing states.  Organizing for Action's (OFA) permanent campaign is a template for operatives who want to win.  There is little indication in open sources that the GOP has mastered the geolocated Big Data that drove the 2012 policy handouts in swing states.  The only outcome in doubt for the 2016 election cycle, in the absence of an economic crisis or difficult war, is whether the obvious front-runners assemble OFA-style campaigns.

Full disclosure:  I voted for Mitt Romney in 2012, and I would like to do so again.  His career experiences made him the best-qualified choice in 2012.  

The Limerick of Finance for 01/18/15

One half trillion euros for bonds

We'll see how the market responds

Swiss bankers checked out

Avoiding a rout

Sinking reserves into swampy ponds

The Haiku of Finance for 01/17/15

Propose new rich tax
Free transfer to college kids
Middle class will pay

The Haiku of Finance for 01/16/15

Russia rating cut
Moscow bonds headed for junk
Good luck pumping oil

The Haiku of Finance for 01/15/15

Schlumberger makes cuts
Slash jobs and future spending
End of oil love fest

The Haiku of Finance for 01/14/15

Europe court on bonds
Approval to stimulate
Draghi set to smile

The Haiku of Finance for 01/13/15

Homebuilders lagging
Inventory overhang
Buyers have choices

The Haiku of Finance for 01/12/15

Losers at luncheons
Lying and stealing for fun
Get out of finance

Financial Sarcasm Roundup for 01/12/15

I'm devoting this week's Financial Sarcasm Roundup to a rant against some of the idiots populating the San Francisco investor relations audience.  I attend a ton of investor relations events and most of them do a good job presenting companies that want attention.  The people who attend these things are sometimes a problem.  They are supposed to be finance professionals.  A minority of them don't belong in finance.

Some kind of rivalry developed between two different local investor relations promoters.  They both claimed credit for a specific entrepreneurial idea.  It evolved into proxy shouting matches that played out through private channels and public events.  I asked representatives of each party about a year ago if they had documentation of whatever it was they accused each other of doing.  Neither faction bothered to send me any hard proof.  I now have a low opinion of both parties, especially since they started using my name in vain when I asked for factual answers.  They can all go to Hades.  I'm unwelcome at their events due to my honesty.  I love it when corrupt people tell me I'm banned from something.  It means I did something right.

I still witness some real losers in attendance at the reputable investor relations meetings I attend.  One lady I met today thought it was okay to take cloth napkins from a high-end restaurant, right in front of the assigned server.  I raised my voice in objection, loud enough for the server to hear me.  This woman's "sweet grandma" act doesn't fool me at all if she thinks petty unethical behavior is okay.  She has never given me a business card or a straight answer about her alleged career as a stockbroker.  I guess she's just a former brokerage secretary who finagles invitations to business lunches because she gets a kick out of mooching free meals.  Get lost, bee-yatch.

Another woman today demanded to know when I would publish my opinion of whatever company I happened to be studying.  I told her she should read my blog to find out.  She then asked me if she could call me to find out my opinion.  I guess she went deaf when I told her the first time to read my blog.  Hey dingbat, I'm not giving one precious second of my time to someone who demands special attention from me with zero chance of compensation.  I had enough of that abuse when I was a financial adviser from 2005-2006 and I don't put up with it anymore.  She can bat her eyelashes all she wants, because I don't let users into my life.  I'm glad she wasted a business card on me, which is one less card she'll have to give to another sucker.  It's in the recycling pile now.  Take that, loser woman.

Today's luncheon was not a complete waste.  I got some good insights into a pharmaceutical company that warrants further research.  I also got to fantasize about the hot cougar-type woman who presented the company.  Her fit figure was quite captivating.  I visually compared her Italian body to the Persian babe at my table, another athletic cougar.  I'm in my 40s now so I need to be around age-appropriate cougars.  I should have invited them both back to my place where they could give me some additional business insights into what was under their clothes.

Attending events with other humans is sometimes a necessary evil.  I get ideas for my commentaries from tons of public sources.  The fools and liars who attend the same public events are often obstacles to my success.  I cannot suffer fools.  The cougars are welcome to admire my extreme genius and manliness as long as they don't get in the way of my analysis.

The Limerick of Finance for 01/11/15

Cuban bonds are not ready to trade
There is doubt about how they'll be paid
Embargo remains
Capital flow constrains
Havana's not investment grade

The Haiku of Finance for 01/10/15

Oil price arbitrage
Trade it with two currencies
Split the triangle

Hemisphere Energy Corp. Pumping Alberta's Liquid Oil

Hemisphere Energy Corp. (HME.V) drills for liquid oil in Canada.  They are fortunate that Canada is such a friendly place for extractive enterprise.  Canada remains favorably ranked in both the Transparency International Corruption Perceptions Index (10th out of 175) and the Heritage Foundation Index of Economic Freedom (6th out of 178).  Their CEO is a geologist, which I like to see in a junior exploration company.

The company develops two projects in Alberta and one in British Columbia.  Attlee Buffalo and Jenner have somewhat different economics, as far as I can tell from their corporate statements.  It looks like Atlee Buffalo is the more attractive property, so they must preserve their flexibility to adjust production for each well.  I reviewed their annual statement dated April 14, 2014 (found in SEDAR) for some interesting tidbits.  Part of Note 8 on page 43 described an impairment charge of over $5.6M in 2012 for assets whose estimated reserves declined past the threshold of economic recovery.  It stands to reason that announcements of land package deals in the junior exploration space mean less than geological estimates of OOIP.

Hemisphere's most recent financial statements for Q3 2014 describe favorable netbacks and positive net income.  The company achieved these results before the price of WTI crude crashed to below $50/bbl.  I noticed that the line in their financial statement for "Average realized prices for crude" as of Sept. 30, 2014 was $77.97, when the average benchmark WTI for that quarter was $97.17.  The weaker Canadian dollar is a boon for Canadian producers like Hemisphere because Canadian exported oil is cheaper for US refineries even as the WTI price for US-produced oil continues to fall.  Nonetheless, Hemisphere and other juniors will continue to find it challenging to sell at competitive prices in this weak market for oil.

The company's current liabilities were almost eight times as large as their current assets as of Sept. 30.  That is very worrisome given their positive net earnings of only $833K for the quarter.  I do not see how they will be able to cover their liabilities into 2015 without raising significant amounts of new cash.  Raising more capital will dilute existing shareholders.

I will take a pass on this particular company.  Hemisphere's high costs negate its attractive netbacks in an era when WTI is crashing.  The Canadian dollar's weakness against the US dollar won't last forever, so Canadian juniors have a very limited window in which to build either a cash hoard or production growth that will sustain them in the difficult months ahead.

Full disclosure:  No position in Hemisphere Energy at this time.  

The Haiku of Finance for 01/09/15

Supply chain finance
Generous vendor credit
Costly way to shp

The Haiku of Finance for 01/08/15

Massive divorce check
Rich guy keeps his company
Next time, sign pre-nup

The Haiku of Finance for 01/07/15

Euro drop alarm
Bankers speed up Greece end game
All crossing fingers

Euro Drop Brings Woe to Europe

The euro's precipitous decline reflects more than financial market nervousness over Greece's political stability.  Persistent structural weaknesses in much of Europe's constituents feed the euro's fragility.

The European Central Bank (ECB) watches the euro's unfolding crisis with alarm.  Its most recent reforms allow it to act more decisively in setting monetary policy, much like the US's Federal Reserve.  It can now move swiftly to unleash quantitative easing that can flood the Continent with new credit that supports the euro's nominal value.  The deluge remains a simple-minded central banking solution to a complex problem that only the liquidation of bankrupt debtors has ever solved.

The national economies of Spain, Greece, Italy, and even France continue to suffer from severe competitive deficiencies.  All are saddled with high taxes and complex regulations that make their economies less competitive.  Their exports would suffer without Germany's willingness to allow its creditworthiness to support their profligate borrowing.  That profligacy partly drives the ECB's plan to buy European sovereign debt.  It also leads to a vicious feedback cycle of debt-driven sovereign spending, credit-enhanced consumer spending, and currency inflation that will demand still more quantitative easing.

European banks have unfortunately started down the road of paying negative interest rates on deposits.  Charging depositors for the privilege of holding savings in cash accounts feeds the euro's deflationary trend by slowly taking the most liquid form of money out of circulation.  Deflation gets a bad rap from central bankers, but the eurozone's high level of indebtedness means a deflationary spiral makes it harder for private-sector debtors to pay their bondholders.  The ECB knows that European corporations can't afford to be sanguine about deflation, hence the increasingly loud financial sector chatter for a more inflationary monetary policy.

The European unity experiment is under more stress now than at any time in its history.  Lithuania's entry into the currency union is in no way a counterbalance to Greece's potential exit; the difference is measured in hundreds of billions of euro-denominated debt that could instantly evaporate.  The ECB would be well advised to delay its planned QE past this month's Greek elections.  It would otherwise swallow worthless Greek bonds whole.

Full disclosure:  Long put against FXE.

Oil Price Drop Affects Real Economies

The price of oil has fallen by more than half since its 2014 high over $100/barrel.  The crash has been a boon to consumers and sectors heavily dependent on fuel, such as airlines and trucking.  It has not been so kind to developing countries with economies heavily oriented towards natural resource extraction.

The US is still the world's largest consumer of oil, both in gross volumes and per capita use.  American consumers will be tempted to drive more in advance of their traditional summer driving season with gasoline so cheap.  Trucking companies can afford to fit more less-than-truckload (LTL) cargo configurations into their daily delivery cycles because economizing on fuel is not such a strong concern.  Airlines should be more profitable in 2015 as they will not need to purchase expensive forward contracts that hedge the cost of aviation fuel.

The global supply glut in petroleum means ocean-going shippers can keep their supertanker fleets active.  Time-charter equivalents (TCEs) for shipping contracts should remain strong.  Carriers with weak balance sheets have a rare opportunity to bank some cash and pay down debts they incurred in recent years' shipbuilding booms.

Oil exporters that cannot reduce their production costs are in for a very rough ride.  The oil supply glut is forcing high-cost producers to pump at rates higher than normal just to maintain national revenues.  Russia, Iran, and Venezuela will see their oil-dependent economies significantly hobbled in 2015.  Investors betting on rebounds in those countries' equity markets or currencies will have their patience severely tested.

Institutional investors domiciled in the US may be the most sorely affected by oil's collapse.  Hedge funds and their institutional funders bet heavily on high-yield debt from shale oil explorers and oil field servicing companies.  The Federal Reserve's determination to keep its interest rate target at zero forced yield-hungry funds to take on significantly more risk.  The deteriorating financial positions of US oil sector companies will severely strain their ability to fulfill debt repayment commitments in 2015.  Turning points in the high-yield debt market often presage broader turning points in the bond and stock markets.  Weaker companies collapse as they fail to make debt payments, lay off employees, and abandon their suppliers.  These effects can quickly ripple through the US economy and financially healthy companies will not be immune.

Gasoline demand continues to soften as Europe and other developed world economies enter recession.  The end of oil's drop is nowhere in sight.  A car driver's gain is an energy investor's pain.  

The Haiku of Finance for 01/06/15

Finance confidence
Little knowledge or money
Destined to go broke

Financial Sarcasm Roundup for 01/05/15

I launch the first sarcastic blast of 2015 with full enthusiasm.  Morons continue to drag down the human race in the new year.  They remain prominent in financial services and the sector has failed to develop a vaccine.  Here comes my antidote.

A former Morgan Stanley financial adviser grabbed a bunch of confidential client data.  Way to go, Morgan Stanley.  The firm has long been rumored to have some of the weakest internal controls of the major brokerages.  Regressing a couple of tech generations back to punch card data records might be an improvement.  The only thing dumber than trying to openly sell an employer's proprietary data would be to sell it for Bitcoin.

JPMorgan Chase threw in the towel early when investors sued them for currency manipulation.  I expect the other banks to follow JPM.  It gives regulators a signal that settling their other probes into banks' bad behavior is the cool thing to do.  Institutional investors can live with a given amount of wrongdoing as long as they get a payoff.  Bank traders learn that anti-trust manipulation has no real consequence other than a slightly higher cost of doing business.  The whole charade is pretty sick.

Many high-cost oilfields are about to turn off their pumps.  The US rig count is turning into a downward spiral.  The oil shale boom was fun while it lasted.  The rookie wildcatters will take it on the chin because they aren't moving quickly enough to lay off workers and shut down wells.  The drillers who have survived prior bear markets will hunker down as their dumber competitors disintegrate under the weight of high yield bonds they can't pay back.  The biggest winners will be the oil supermajors who can shift production to their lower cost wells.  I expect the majors to buy failed shale projects cheaply in 2015 just to book increases in their proven reserves.

I promised on New Year's Day that Alfidi Capital would continue its sarcastic tone.  I shall not disappoint my readers.  

The Haiku of Finance for 01/05/15

Hedge funds run from oil
Crude crash hits futures contracts
Energy bears grin

The Limerick of Finance for 01/04/15

Minneapolis Fed boss on rules
Dislikes them as permanent tools
Next crisis demands
Flexible banking hands
Rapid actions were not taught in schools

The Haiku of Finance for 01/03/15

Network marketing
Stuff channel with sucker sales
Recruits are losers

Some People Never Wake Up

There's a new game in town called Wake Up Now.  I have no intention of playing.  Listen to NPR's "This American Life" broadcast #543 from December 26, 2014 for sad tales of desperate fools.  There is no need to review every network marketing enterprise on the block.  It is enough to present a handy guide for aspiring network market founders, in the spirit of eternal sarcasm.

Design for stupidity.  P.T. Barnum said something about suckers and how frequently they are born.  Network marketers plan their enterprise with low-information participants in mind.  Images of the good life conjure mental addictions in recruits' minds.  Playing on insecurities breaks down resistance.  Triggering greed and fear makes empty promises of easy riches believable.

Appeal to emotion.  Recruiting events have atmospheres like tent revivals.  Speakers obviously practice their neuro-linguistic programming techniques.  Ecstatic responses to trigger words indicate success.  Planting cheerleaders in the audience breaks down losers' inhibitions.  The end result of the pitch meeting is a horde of imbeciles signing up for expensive training sessions and overpriced products.  Mission accomplished.

Ensure recruits are the customers.  All networks sales plans are built the same way.  Compensation for the first people in the pipeline builds from suckers recruited later.  The suckers need not make any sales themselves.  Their fees for membership, training, and other useless things are enough to keep the founders at the top of the income pyramid.

Own the fine print.  Recruits never read the contracts they sign.  They think a recruiting pitch is a promise.  The small type describes how the promoters promise absolutely nothing.  One long exercise in making excuses keeps attorneys paid.  Faith trumps reason.

Ignore competition.  The Internet abounds with sites for coupons and discounts.  Building an exclusive distribution channel for such things is pointless, but suckers don't need to worry about that.  Weak-willed joiners don't perform due diligence.

Proactively distract critics.  Real estate hucksters like this tactic.  Setting up dummy websites filled with clickbait text like "scam" attracts skeptical people who would otherwise click on thoroughly vetted warning reports.  The dummy websites redirect to positive endorsements of the membership network, in a brilliant judo move.

I wrote all of this in jest.  No one who truly wants to succeed in business will execute such a plan.  The ones who do will earn themselves a heap of legal trouble.  I do not know how they live with themselves.  The FTC has good references on multilevel marketing and pyramid schemes.  Common sense checklists separate winners from losers.  Real winners don't exploit people who can't think critically.

The Haiku of Finance for 01/02/15

Petrobras trouble
State-run oil payoff charges
Carnival gone bad

The Haiku of Finance for 01/01/15

Start the new year right
Max out tax-favored account
Compounding power

Alfidi Capital Headed In New Directions For 2015

New Year's Day brings the perfect excuse to announce business changes.  I have carefully reviewed my activities in 2014 and I am about to make my business even more compelling than ever.  

The first change is the discontinuation of the monthly Alpha-D portfolio updates I've published for several years.  They have increasingly become a waste of effort.  I've made very few portfolio changes in recent years other than writing covered options.  The financial markets remain impossible to evaluate fairly.  Central bank intervention has ruined price discovery.  I will continue writing about individual stocks, and I will always disclose whether I have a position in anything I cover.  I just don't plan on actually taking any new positions until central bank intervention ends.  I can only hedge my existing positions until some market breakdown provides me with bargain purchases.  

The next major change is a planned redesign to the Alfidi Capital main site.  I planned a new design in 2014 but I did not execute it because it had to be perfect.  I now have the perfect layout in mind.  I take my time because I have high standards.  Expect to see a snazzy cosmetic update soon enough.  The number of site pages will remain the same and the links to my previously published reports will remain active.  

Some things will never change.  I will be as sarcastic as ever.  I will keep hurling obnoxious insults at fools who deserve opprobrium.  I will keep writing haiku and limericks.  I will continue to max out whatever investment opportunities exist in these heavily manipulated markets.  In fact, I made the maximum annual IRA contribution for 2015 of $5500 today.  The money will grow until I am an old fogey, provided I can find worthwhile investments in this year.  I will of course remain irresistible to attractive women, who cannot help but throw themselves at me in public.  The new year 2015 brings new chances for yours truly to score big in so many ways.