Thursday, February 28, 2013

The Haiku of Finance for 02/28/13

Sequester coming
Bipartisan agreement
Won't happen on time

ADVENTRX Pharmaceuticals (ANX) to Mast Therapeutics (MSTX)

I wrote about ADVENTRX Pharmaceuticals (ANX) in November 2011 when they first caught my attention.  They were having problems getting traction with their main drug offering, ANX-530, but they seem to have pushed it to the back burner.  That's not the only major change they've undertaken.  They are completely changing their name and ticker symbol to Mast Therapeutics (MSTX) in March 2013.  I'm not sure what prompted this change, but other changes since my first article are noticeable.

Their remaining drugs, ANX-188 and ANX-514, are still around.  They have managed their cash burn very well but will need more than the $26M in cash they had on hand last September to get ANX-188 through the two years of a Phase 3 trial.  It's a treatment for sickle-cell vaso-occlusive crises; the Mayo Clinic notes that hydroxyurea is the leading treatment on the market at this time.  Bristol-Myers Squibb is the maker of hydroxyurea's two brand names, Droxia and Hydrea.

The NIH determined that the cost-effectiveness of hydroxyurea (measured in hospital cost avoidance) is $5210 per patient.  This is the most relevant metric that ANX-188 must outperform if it is to gain acceptance as a prescription drug after its Phase 3 trials.  Hydroxyurea is a prescription-only drug available now in generic form, and a quick web search shows per-pill prices of US$0.55 to $1.42 depending on the pharmacy.

ANX-188 needs to be both a qualitatively superior treatment and competitively priced to have a shot at taking on hydroxyurea.  It's hospitalization cost avoidance must be greater than $5210 per patient and the dosage should cost less than a buck at retail.  This company's name change is the beginning of a new story for their drugs.  There's nothing like a clean break with the past if you want to focus on the future.  Let's see what the future holds for ANX-188.

Full disclosure:  No position in ANX / MSTX at this time.  

Wednesday, February 27, 2013

The Haiku of Finance for 02/27/13

Groupon drop on loss
Gross up but bottom line miss
Low margin, high cost

J.C. Penney Heads Even Farther Down the Tubes Along With the Middle Class

J.C. Penney used to be one of those anchor stores that could reliably draw suburban shoppers out to big malls.  Now it's just another fading monument to the dying purchasing power of middle class Americans.  This formerly venerable department store chain has been bleeding losses for several years with no turnaround in sight.  The store's business model is a symptom of a massive change in the structure of American society.

The retail market in our country is permanently splitting into two camps.  One end of the barbell, in the bad neighborhood across the abandoned railroad tracks,  is for deep discount chains like Target, Walmart / Sam's Club, Costco, and the various dollar stores.  They cater to those lumpen Americans living paycheck to paycheck and buying groceries with SNAP EBT cards.  At the other end of the street, behind the coded gate and security guard shack, are the high-end retailers like Neiman Marcus, Bloomingdale's, Nordstrom, and other brand names where only our ruling elite and their henchpersons can afford to spend money.

The evaporating middle ground is occupied by those traditional middle class icons - Sears, Macy's, and now Penney's - that cannot adapt to the bifurcation of American society into haves and have-nots.  Their products are too expensive for the large numbers of Americans who have difficulty affording the latest appliances and brand-name clothing.  Their branding and service are too downscale to attract affluent consumers whose politically empowered employers write their paychecks.  Those Americans who remain in the shrinking middle class have figured out that Internet retailers like Amazon offer better value and convenience for many of life's goodies.  The mid-range retailers can't compete.  Montgomery Ward learned this the hard way ten years ago, and the brand is now re-born as the online discount portal Wards.

The fate of mid-tier retailers like J.C. Penney is obvious to me.  Survival options include closing underperforming stores, rebranding into deep discount chains, or following Wards into bankruptcy and online rebirth.  The deep discount chains will have plenty of competition at the bottom of the food chain because many Americans will keep getting poorer.  The elite chains will do well because their clientele in the finance, pharma, and energy sectors own our planet anyway.  I'll wait my turn on the courthouse steps to bid on the bankrupt shopping malls formerly anchored by Penney's.  The vacated sites will make excellent permaculture installations and their former shoppers will make dedicated subsistence workers.

I've chosen sides in the class war.  Jeeves, pass the Grey Poupon.  Smithers, release the hounds.  Conchita, make mine a double (*wink*).  God bless America, the land of opportunity.

Full disclosure:  No positions in any companies mentioned.  

Tuesday, February 26, 2013

The Haiku of Finance for 02/26/13

Penny stock collapse
No value added ever
Morons still invest

International PBX Ventures (PBX.V) in Chile

There's more to Chile than Salvador Allende and Augusto Pinochet.  The country has a few mining concessions for prospectors to explore.  International PBX Ventures (PBX.V / IPBXF) is one such explorer.  Let's see what they have to offer the market.

The CEO is not a geologist and has a lot of experience unrelated to operating a junior mining company.  He's also CEO of another company called Relief Gold,  which seems to have a website offering no real info.  I usually stay away from companies whose executives divide their time between running several different companies.  The rest of the team is pretty lean on early-stage mining experience.

They have one active project in Chile, primarily for copper.  The MII grades for Cu are below world averages for new discoveries.  It's still a low concentration even after adjusting for the presence of secondary minerals.  I'm not impressed.  They also have a 100% owned subsidiary called Chilean Metals, with some properties in the early stages of sampling and surveying.  That's too early to interest me.

The price history of this stock on Yahoo Finance shows that it's been a penny stock since 1997.  It trades at a whopping six cents right now.  Shareholders who have invested in this company at any time have seen their stake pretty much destroyed by now.  That's why I'm not an investor.

Full disclosure:  No position in International PBX Ventures at this time.  

Monday, February 25, 2013

Alfidi Capital Sarcasm Proven Correct Twice

My weekly Financial Sarcasm Roundup is starting to gain predictive power.  Here are two recent examples of my prescience.

Just today I said that a muddled electoral result would be bad news for Italy and the eurozone.  Today a CNBC news item confirms that Italy's inconclusive election has indeed hurt the euro.  I totally called it.

Earlier this month I noted that a "GS account" was an obvious hint to the SEC as to where they should look for insider trading in Heinz options.  The WSJ has since reported that a private wealth client of Goldman Sachs is under scrutiny.  I called this one too, even more precisely than the Italy thing.

I told you so!  My analytical methods and original insights are amazing predictors of future developments.  Those of you who read my Financial Sarcasm Roundups are the elite few who stay well-informed in finance.  Anyone who does not read my sarcasm is a stupid loser.  I am a genius and only really smart people can understand what I say.  For my next trick, I predict the sun will come up tomorrow.  Just you wait and see!

The Haiku of Finance for 02/25/13

Conserve a cash hoard
Measure project NPV
Attract acquirers

Financial Sarcasm Roundup for 02/25/13

I didn't watch the Oscars last night because I'm not interested in Hollywood's self-congratulations.  Hollywood should congratulate me for being such a good writer.  Maybe they will someday.  Until that day comes, I have the web traffic of my faithful readers - all three of them - to provide me with accolades.

The Brits are keeping their stiff upper lip rather than bemoan the loss of their AAA credit rating.  Good for them.  The UK can keep up its special relationship with the US as our credit ratings are downgraded together.  Don't expect to hear similar expressions of resolve on this side of the pond.  Americans will wail in pain as our declining credit rating forces real interest rates up.  We are the world's indispensable nation, after all.

Italian voters might get their act together someday but I won't count on it.  Multiple contenders in their national election today portend a muddled result.  The eurozone countries in default are probably better off with Eurocrat carpetbaggers imposed on their systems but that experiment just wasn't palatable to voters who won't accept austerity.  Whoever wins will have to renege on many campaign promises and handle Italy's insolvency, which I believe will require the country to leave the euro and immediately hyperinflate the new lira.  I may still have relatives living in that country but I have nothing in common with them at all.

State governors know the federal sequester will tip some of their economies back into recession.  I say bring it on. The states have relied on federal matching funds for too long and they need to break the addiction.  Funding social services should be decided at the local level anyway, so people can see the impact of taxing and spending decisions in their own communities.  I don't feel sorry for states like Maryland and Virginia that have benefited from exploding federal spending on defense and homeland security since 9/11.  They could learn from California's experience in the early 1990s when defense cuts at the end of the Cold War forced many communities to diversify their economies.  The sequester will probably look a lot like the fiscal cliff debate two months ago, with lots of posturing and last-minute concessions on future spending so deficit spending can go on as usual this year.  The bond market gets the final say on this one.

Strong auto sales?  Yeah right.  Read what I blogged yesterday about the questionable underpinnings of the auto sector's revival.  Look at how fleet sales make up 21% of this month's demand, then look at my paragraph just above this one about what a sequester will do to state budgets.  In case you can't make the connection, the simple math is thus:  Sequester risk + bond market run = end of strong government sales in automobile sector.

The European Commission expects the eurozone recession to continue in 2013.  This is despite unprecedented central bank support for credit markets to stimulate demand.  The Economist notes that central banks are determined to continue the substance of their experiments with finer language as a cloak.  In summary, no one has learned anything, nor is anyone capable of learning anything.  Stupid people are in charge of the developed world and will use their enormous power to ruin life for everyone else.

I am not stupid but I am not in charge.  Someday I will be in charge of something.  It would make a great Hollywood story and I'll bet I'd win an Oscar for writing it.

Sunday, February 24, 2013

The Limerick of Finance for 02/24/13

Most financial experts are dumb
Their brains are the size of my thumb
They act but don't think
Deceive clients and wink
I won't do business with a bum

Fed Inflates Auto and Housing Double Bubble

You've got to be kidding me, Bloomberg, if you think the Fed's ZIRP is a job stimulus.  The Federal Reserve's record low interest rates encourage reckless borrowing but you wouldn't know it from reading conventional media.  I look past cursory forecasts of job creation in the automobile and housing sectors.

Read the Federal Reserve's G.19 series data on consumer credit.  Pay particular attention to note #6 on new car loan data:

6.The statistical foundation for these series has deteriorated. Therefore, publication of these series is temporarily being suspended. The statistical foundation is in the process of being improved, and publication will resume as soon as possible.

Even if you ignore the Fed's own admission that its data on automobile loans is worthless for analysis, you can see from previous years' data that new car loans peaked in 2009 and have declined since then.  Any surge in loans since then is statistically questionable.  Auto sector executives who base their hiring forecasts on hope for loan growth are asking for trouble.

Purported growth in home mortgage lending is also questionable.  Read the Federal Reserve's Mortgage Debt Outstanding data; I selected December 2012, the most recent month available as of this writing.  Outstanding mortgages have been declining for "all holders" and "one- to four-family residences," the main categories that matter for homebuilders who want to forecast demand for new developments.

I ignore happy talk touting job growth from new bubbles.  I strongly suspect that whatever growth in demand automakers report is the result of subprime lending that pulls forward their future quarters' sales at unsustainably low financing costs.  I do web searches of phrases like "all cash buyers" for housing demand and get a similar feeling.  Home loan demand is collapsing across sectors for many reasons.  Banks have tightened credit standards and cash buyers are looking to flip properties rather than build equity.  These are not real sources of future job growth in two of the economy's biggest sectors.

The Fed's desperate ZIRP has not spurred overall lending but what little activity it does encourage is unhealthy.  Things look like 2007 all over again.

Friday, February 22, 2013

Harmonic Energy (ASUV) Burns Tires And Investors

The Simpsons cartoon show has a long-running gag about some tire pile that's been burning for years.  If only Homer Simpson could figure out how to harness that pile's energy, he could present a business plan to Montgomery Burns that would make the old man some extra money.  There are such tire-burning businesses in the real world and Harmonic Energy (ASUV) is one of them.  I got a pumper mailer from John Myers' operation touting this one.  Here we go again.

I shouldn't have bothered looking at the key execs' bios.  I can't find the CEO's previous venture, ProSource International, on the Web.  Their chairman claims to be a fairly accomplished dude.  Where's this Woolton Group that he runs as CEO?  I can't find it either except on CorporationWiki.  I wonder how much he got paid to sit on the Harmonic Energy board and give the company credibility.  I wish someone would pay me to sit on a board all day and do nothing but impress gullible people with my sarcasm.

Harmonic Energy has a YouTube channel.  They've got a video of equipment at some plant they don't own, but the phrase "Tire Remanufacturing Plant" at the beginning under Harmonic's logo gives uninformed viewers the impression they own the plant.  Their press release says they're investigating someone else's technology.  Come on already!

Their 10-Q for December 14, 2012 shows that they have no revenue, no operating plants, and a couple of agreements which they have no money to fund.  I feel sorry for the investors who were stupid enough to give this company $500K in 2012.

A brilliant analyst at Seeking Alpha did some background digging on this company's administrative history and control changes.  Another analyst notes its lack of financial success and negligible operational capability. The stock trades under a buck and any investor who bought in since last December has lost money.  There isn't much I can add to this litany other than wondering whether Homer Simpson does in fact have a role with this company.  D'oh!

Thursday, February 21, 2013

The Haiku of Finance for 02/21/13

Oil and gas pitch man
Ought to be an engineer
Make it credible

Fed Bond Buying Raises Hackles Inside

The institutional buy side of the stock market gets nervous when it hears about anything that could cut the props from underneath bull sentiment.  The main thing sustaining this market's unsustainable upward trajectory is the Fed's bond purchase program.  Dissenters from the Fed Chair's QE ideology have hardened their stance in favor of an end to the nonsense.  An early end would IMHO restore market sanity at much lower valuations.  The dissidents have not won converts and will not carry their argument farther in the face of insolvent federal entitlement programs.

The bond buying will continue.  The stock market's cheerleaders will continue to spout their "buy" memes to their retail advisory branches and media sympathizers.  The QE-fueled rally isn't over just yet.  The next chapter won't be pretty and the Fed's brakes won't be effective.  I will continue to keep my cash on the sidelines until I hear a fever pitch of lamentation.

Wednesday, February 20, 2013

Tuesday, February 19, 2013

The Haiku of Finance for 02/19/13

Play a waiting game
Money pros go bust, wash out
I buy the remnant

Alpha-D Updates for 02/19/13

My short options from last month expired unexercised.  The dramatic decline in the value of my GDX holdings offered me the opportunity to buy more, so I did.  I can't ignore a P/E of 10, which is more than a 25% discount from the P/E of 14 that represents the long-run average for U.S. equities.  I continued to write covered calls on my GDX and even wrote some cash-covered puts underneath this holding.  I will continue to hold GDX as a hard asset hedge against the onset of hyperinflation in the U.S.

I did not change my holdings of FXA, FXC, or FXF.  I executed no options plays for those tickers.  I will continue to hold those three currency ETFs as hedges against the likely future devaluation of the U.S. dollar.

I continue to maintain cash reserves to deploy in any major market dislocation.  I do not know when this will occur but anything could be a trigger.

I do not feel sorry for professional portfolio managers who believe they must be long something or other in this market.  They can always do the ethical thing and resign to pursue other interests and prepare their families for the times that come.  I know they won't change.  I'll still be around when they're gone.

Monday, February 18, 2013

The Haiku of Finance for 02/18/13

Office Max Depot
Could merger challenge Staples?
Too much "Office Space"

Financial Sarcasm Roundup for 02/18/13

The U.S. stock markets were closed today for President's Day.  Why do finance professionals think they deserve the day off?  It's not like they're federal workers.  You know, maybe I should take that back.  Plenty of their institutions got bailouts and partial government ownership to make them the moral equivalent of federal workers.

The G-20 says it is committed to market-determined exchange rates but I can't take them at their word.  The major exporting countries are going to really start panicking once Japan's devaluation drives up the prices of their goods.  I wonder which country will be first to break with this statement and devalue in kind.  China?  Europe?  It won't be the U.S. as long as other currencies look relatively weak.  The U.S. was the last to leave the gold standard in the 1930s and it prolonged our experience in the Great Depression.  We'll probably be the last to leave the world's fiat currency regime this time around.  Oh, BTW, the devaluation of other countries' currencies will also hurt U.S. exporters, pushing us further into recession.

The SEC wants to know who spiked the call spread options on Heinz from a Swiss bank account.  Office betting pools in various investment banks' capital markets groups are probably buzzing over the identity of the traders who may have front-run the H.J. Heinz Co. buyout.  This one's simple enough for a ten-year old to figure out but the SEC has to make a big show of trying to find the culprit.  The Swiss account was named the "GS Account" for crying out loud.  It's worth noting that Goldman Sachs was not an adviser to the Buffet-3G-Heinz transaction, but word could have leaked through insiders who use GS for wealth management.  The presumption of innocence always applies, of course.  This is America, by golly, not some crony kleptocracy where plutocrats wreck whole sectors at the public's expense.

Future retirees won't be getting squat thanks to their reliance on overpromised entitlement programs.  I don't like the slant of the article against defined-contribution retirement accounts.  Whatever good intentions went into the creation of Social Security and Medicare are about to disappear into a black hole as seniors move in with their children.  Three generations under one roof was the American norm up until the 1950s or so and it will be again very soon.

Online gambling is about to make a comeback in the U.S. as states gradually change their laws.  Expect objections from Donald Trump, Indian tribes, and organized crime's front organizations.  We should welcome legalized gaming because there's no reason Las Vegas and Atlantic City should have all the fun.  This is the ultimate in gamification and I hope California doesn't miss its chance to get out in front.  I always wanted to figure out online poker but I have to wait for my state's lawmakers to figure it out first.

Here's a final note related to gambling and the law.  A certain Stolen Valor dude is gambling that he can keep breaking the law.  His luck is going to run out, as it does for all unethical gamblers.

Sunday, February 17, 2013

The Haiku of Finance for 02/17/13

Your carbon footprint
Made up of how you spend cash
Must adjust to less

Clothing Carbon Footprints and the Future of Capitalism

I recently got to hear firsthand from clothing manufacturers about how they have reduced the carbon footprints of their signature products.  They didn't reveal the secret sauce behind their methods, but I didn't expect them to reveal any trade secrets and I certainly wouldn't reveal such things myself.  The common approaches to reducing the carbon footprint of clothing involve more natural dyes, less artificial fibers, simpler patterns, and fewer choices.  One of the clothing honchos did ask a very interesting rhetorical question:  "What does capitalism look like without growth?"  I think I know the answer.

Capitalism requires three basic inputs:  labor, natural resources, and capital goods.  Those capital goods are a fairly broad term and can include intellectual capital, i.e. the know-how to make a process work.  Intellectual capital is potentially unlimited because it springs from human imagination.  Labor and natural resources are ultimately limited by the carrying capacity of this planet's biosphere and its existing stock of energy and minerals.

A perpetual growth model runs out of steam when populations cease to grow and the quality of natural resources hits a peak.  The Club of Rome's most dire predictions haven't come true yet because technological advances in the use of materials continue to extend the peak of this planet's various production curves.  The mining sector is well aware that ore grades of new discoveries continue to decline.  Some kind of downward adjustment to lifestyles is probably inevitable but the timing is unknowable.

The Western world already has experience with an economic model that could produce a steady-state economy:  feudalism.  This model was sustainable partly because it was coupled to environmental conditions that suppressed population growth:  high infant mortality and short adult life expectancies.  Its natural resource base was less clear (to me, anyway, as I'm not a medieval historian) but the relevance for our time is that a wide array of environmentally invasive activity wasn't needed to meet a population's basic material needs.

I'm not endorsing a switch from capitalism to feudalism as a solution to the impossibility of perpetual growth on a finite planet.  I do advocate a deeper look at what drives the satisfaction of material demand.  Imposing carbon constraints on manufacturing is one way to gradually habituate a population into accepting the impossibility of unlimited growth.  Another method is to incentivize hot-looking women to wear skimpier clothing in warmer weather.  I'm all in favor of that transition.

The Limerick of Finance for 02/17/13

Japan has devalued the yen
The Nikkei has risen again
Devaluation's a race
Currencies will keep pace
Until they all crash in some pen

Saturday, February 16, 2013

The Haiku of Finance for 02/16/13

Improve cognition
Re-frame your thinking non-stop
Draw connecting nodes

Expanded Consciousness and Entrepreneurship

It's genius time once again here at Alfidi Capital.  I shine the spotlight on innovation whenever I can and some really bright folks are doing stellar work on how innovators can maximize their cognitive abilities.

The Expanded Consciousness Institute is mathematician Tom McCabe's project for showing entrepreneurs how they shift effortlessly between six different perspectives.  The basic principle is that a human's thought process reflects a dihedral group governed by mathematical relationships.  Each perspective contains a portion of the information needed to solve a problem, but the best innovators can integrate them all.

Tom McCabe developed the cyclomatic complexity metric for measuring the complexity of software code.  I think the logical subsequent application of his Expanded Consciousness work is to develop a control flow graph for entrepreneurial decision-making.  What would be the analogies between the graph's elements and real-life startup operations?

Reachability:  Any task not directly related to a milestone in fundraising, technology development, or marketing can be aborted.

Infinite loop:  The "paralysis of analysis" that leads to endless meetings with no problem resolution.

Dominator:  A decision point requiring a yes/no decision from the CEO.

You know something, I'm starting to think that computer scientists and mathematicians would make excellent business process consultants and project managers.  They already have an intellectual structure that lends itself to business processes.  Hand them a PERT/CPM chart and they'll probably grasp it intuitively.

Friday, February 15, 2013

The Haiku of Finance for 02/15/13

Create the green bank
Sell green bonds for green projects
Watch out for green fraud

Can Crowdsourcing Limit Algorithimic Trading?

The Gold Report has John Kaiser's interesting take on the TSX Venture Exchange.  The exchange is at risk because the inevitable collapse of nonviable junior resource companies will deter more successful juniors from listing on the exchange.  Crowdsourcing opinions on junior stock valuation may be a way out.

The discrete information provided by NI 43-101 reports leaves wide gaps in time that algorithmic traders can explore.  Mr. Kaiser argues that adding crowdsourced estimates of mining project NPV and IRR would add market information that arbitrageurs strip away from share prices.  I think that's a neat idea and I'd like to see it work.  Let me throw out some hurdle questions.

How would you protect the integrity of the crowdsourced ratings from manipulation?  Adapting Yelp's model works if the crowdsource platform uses a project's 43-101 data.  The real problem is ensuring the identity of the crowdsource participants.  Software that can create and manage multiple identities in real time exists.  Unscrupulous parties could use multiple identities to game the project ratings on a portal.  We'll need more than CAPTCHAs to fix it.

What is a sufficient critical mass of crowdsource ratings for a project?  Hedge funds can execute millions of trades per day in deeply liquid markets.  Crowdsourcers can render ratings on dozens of stocks several times per day.  Measuring impact by frequency of execution leaves hedge funds the clear winners.  The discrete number of crowdsourcers who publish project ratings would have to be numerous enough that their combined ratings approach the daily average traded volume of the project's associated ticker symbol.  That is hard enough to do for large-cap stocks with huge volumes on major exchanges.  The smaller daily volumes for thin issues on the TSX-V are an easier hurdle to leap for crowdsourcers.  There's probably a shortcut to creating meaningful data, with an entrepreneurial opportunity for a portal that can build in the statistical corrections Mr. Kaiser suggests.

I think an existing equity crowdfunding portal could easily build out the tech that would enable such crowdsourced opinions.  The portal that gets there first will have a value-adding service built for non-accredited investors who will soon be allowed to invest in private placements under the JOBS Act.

Thursday, February 14, 2013

The Haiku of Finance for 02/14/13

Invest in romance
Flowers for your Valentine
True love costs nothing

Adding a Few Analytical Tools

The financial analyst must have tools.  I search far and wide for the data sources that make this blog worth reading.  Check out the widget to the right that says "Favorite Analytical Tools" to see the latest additions to my toolbox.

The World Bank Logistics Performance Index ranks countries on the quality and efficiency of their logistics infrastructure.  In a macro sense, it's useful for evaluating whether trade flows for a given country will have structural friction, i.e., a country with poor infrastructure will have a hard time growing its exports.  In a micro sense, I can use it in conjunction with the Transparency International corruption index and Heritage Foundation economic freedom index to assess the risk of a company's investment in a resource play.  I will stay away from hard asset prospectors in countries that score poorly in all three data sets.

The OECD Statistics are an analyst's dream.  I first used them in my MBA program to compare regional business conditions.  The data sets can be mixed and matched in endless combinations.  For example, compare the inflows and outflows of foreign direct investment to see the world market's snap judgement on which countries are considered to be hot investments.  Once again, the multiple reports on transportation infrastructure investment show me which countries are serious about making their economies attractive.

The Federal Reserve's economic research and data is useful for those patient enough to wade through it.  The most relevant basic data for analysts is the "Z-series" Flow of Funds Accounts report, which summarizes changes in U.S. credit markets.  I've also been subscribed to the San Francisco Fed's regular email announcements of published reports for over a decade.  The Fed's longer reports aren't as boring as what you'll find in most academic journals.  Then again, they're not romance novels either.  Maybe the Fed could spice up its reports with some hot action.

The ICI Research and Statistics pages show us what investors are doing in the public capital markets.  The most instructive data for me is in the Weekly Estimated Long-Term Mutual Fund Flows (on the Statistics page).  The downloadable data set says it all.  Retail investors have been pulling money out of actively managed mutual funds and piling into bond funds for quite some time.

I've used these sites and others intermittently over the years but sticking them in a widget makes it official.  Delving into these types of portals is how I spend my time here at Alfidi Capital.  I don't expect professional portfolio managers to keep up with me because I'm so much smarter than them.  They pretend to use hard data to make decisions but they really just copy other firms that succeed in selling hot ideas.

Wednesday, February 13, 2013

The Haiku of Finance for 02/13/13

Con-man at breakfast
Smiling, lying, and praying
Phony and grifter

SAC Deleted Emails Stymie SEC Probe

Leave it to some hedge fund managers to avoid accountability with technological accidents.  SAC Capital Advisors automatically deleted emails that described transactions the SEC is probing for insider trading.  Smart firms save all of their client and analyst emails.  Not every hedge fund is that smart.  SAC changed their record-keeping policy before the SEC launched its investigation, so it will be hard for the government to argue that lack of records was a mask for wrongdoing.

If the SEC has enough information to probe SAC's subsidiary and its portfolio manager without subpoenaing emails or recording phone calls, then I wonder what source they used if all they publicly reveal are hints and snippets.  Did some disgruntled inside rival of the accused spill the beans in exchange for immunity?

Questions for the San Francisco Prayer Breakfast

The local supporters of the national Prayer Breakfast phenomenon held their annual breakfast today at the City Club.  I have open questions for them.

Do you believe that a Christian should possess personal integrity?  I define "personal integrity" very broadly as the general ability to distinguish right from wrong and the ability to tell the truth.

If so, do you tolerate members of your group who do not possess personal integrity?

Do you know anyone who has willfully and repeatedly worn unearned military decorations and has been expelled from the American Legion for misconduct?

Do you believe that military veterans who engage in fraud and misconduct after leaving the service should be held to account in a court of law?

I do not expect this group to answer me but I had to publish this article to put my concerns on the record.  My colleagues already know how I would answer these questions.

Tuesday, February 12, 2013

The Haiku of Finance for 02/12/13

Traders in the pit
Thrive on action and loud noise
Finance bar-room brawl

Fed's High-Yield Warning to Go Unheeded

The story of America's gravity-defying bond market is getting sad.  A Federal Reserve governor is warning that his own institution's policies have placed high-yield bond investors at risk.  Even Bloomberg can't hide its disdain anymore.  I do not expect anyone in the markets to listen.

I remember the headlines so clearly from 2007 as the high-yield bond market started to hiccup.  The rest of the bond market started to hit rough patches in the summer of 2007 and that was my signal to convert my entire portfolio to cash.  I preserved my wealth and I have stayed very liquid since then.

I laugh at stupid hedge fund managers who are chasing this action.  If they all pile in even harder then my eventual wealth will be even greater once I pick over their assets when they're in bankruptcy.  Come on, hedgies, don't let me down now. Show me how dumb you are by throwing your client's money into junk bonds at the height of another credit bubble.

Monday, February 11, 2013

The Haiku of Finance for 02/11/13

Dummies cannot read
My blog says, "no advice here"
Quit asking for it

Financial Sarcasm Roundup for 02/11/13

The funny stuff crosses my desktop like prune juice through a senior citizen - fast, furious, and sometimes messy.  I deal with it.  You can too.

The top baloney item of the day is from the EU's Ollie Rehn, who wants France and Germany to make nice and get behind a stronger pro-euro stance.  That's a thinly veiled threat to France and I'll bet Mr. Hollande doesn't listen.  It may also have been a mild threat to Japan but Tokyo is determined not to listen.  Japan has launched a currency war and pretty soon Europe will realize it can't print euros fast enough to win.  Mr. Rehn, read my articles on how a Holy Roman Euro is the only way France, Germany, and Benelux can save themselves from a competitive currency devaluation.

Venezuela is wasting no time firing its own salvos in the widening currency war, devaluing its bolivar by a third against the dollar.  That would be good news if I wanted to go down to Venezuela and pick up some hot chicks because it would be cheaper to wine and dine them.  I have my hands full with hot women here in San Francisco so the Latina honeys can wait.  It's bad news for President Hugo Chavez because he'll have to pay more for whatever imported cancer drugs he's taking.

I did a double take when China announced it had become the world's largest trading nation given their history of questionable economic figures.  The article notes the low value added from China's existing finished goods sectors.  Their strategy of enticing value-added manufacturing to the mainland isn't mature enough to have contributed measurably to this result.  Recall that they've been shutting down rare earth mines and total rare earth metal production has not reached the upper bound of its annual export quota.  Something doesn't smell right here, and I don't mean the won ton soup.

BTW, you don't need me to tell you that the Fed never intended to stop QE if it meets its macroeconomic targets.  If you planned on stocking up on stored food to avoid panicked buying when the dollar collapses, you may be too late.  Food and beverage makers are reducing the quality and volume of items they sell.  Fresh fruits and vegetables are a different story as they can't be reduced in volume, but they may be sporadically unavailable if spiking energy prices make long-haul trucking less viable.  Thanks a lot, Federal Reserve.

My final sarcasm is for a very stupid person who reads what I've published elsewhere on a different topic.  Dude, you're wasting your time by calling me names.  You'd be more productive if you prepare to confess your frauds in court.  I'll see you there.

Sunday, February 10, 2013

The Limerick of Finance for 02/10/13

The analyst strives to impress
Write "bull" reports under duress
Companies expect lies
Best to leave and cut ties
Pumping bad stocks is not worth the stress

Friday, February 08, 2013

Thursday, February 07, 2013

Wednesday, February 06, 2013

Tuesday, February 05, 2013

The Haiku of Finance for 02/05/13

Inflation trap set
No exit as prices rise
See scarce hard asset

Continuing Lawsuits Against Credit Ratings Agencies

Lawsuits are no fun when you're a target.  Ask the credit ratings agencies like S&P; the federal government is suing them for damages from ratings on subprime mortgage investments.  Reading past the article's discussion of conflicts of interest and the housing debacle is a necessary task in seeing through a smokescreen.  

The government has little interest in recovering real damages.  It has a very strong interest in pressuring rating agencies not to downgrade their ratings of Treasuries.  Lawmakers have decided to ignore the legal debt ceiling, tempting rating agencies to downgrade Uncle Sam's credit.  Moody's hinted that a ratings downgrade was an option after the fiscal cliff standoff but so far has not followed through with action.  I believe it will continue to hold its current rating and "negative outlook" admonishment to avoid being sued by the government.  Moody's has little to fear as long as Berkshire Hathaway is a major shareholder and Warren Buffett remains a top political campaign bundler.

BTW, Europe goes through similar motions about stopping conflicts of interest at credit ratings agencies.  Nothing real will change as long as rating agencies know they must support strong ratings for weak sovereign debt, otherwise legal action would indeed be serious.  

Monday, February 04, 2013

The Haiku of Finance for 02/04/13

Stupid questioner
Clueless but running their mouth
I don't suffer fools

Financial Sarcasm Roundup for 02/04/13

America survived another Super Bowl weekend and we can all get back to work on Monday.  Some people probably have hangovers after watching the big game at their favorite neighborhood pub.  I'm sober when I'm blogging but that has no effect on my sarcasm.

Closing tax loopholes is a no-brainer budget fix, says everyone who's anyone in Washington.  That means it's nothing more than the first card to play in future negotiations.  There won't be many changes in loopholes or deductions if lawmakers agree to tax increases.  The best loopholes are for the ultra-rich and the biggest tax increases are meant for the middle class.  We'll find out by the end of the summer just how correct I am.

I may have to withhold sarcasm from this next item.  One SEC advisory group recommends the creation of an exchange allowing small businesses to go IPO.  Wow.  First the JOBS Act, then this idea.  I swear to the Almighty Flying Spaghetti Monster, someone in the U.S. government is really determined to make America friendly to business.

Treasury yields are rising.  Slowly but surely, the long of the yield curve creeps up as the federal government's outstanding bonds become a largely short-duration affair.  The Fed's ZIRP target means rates can't go any lower, so any change upward forces bond prices down.  The so-called rebound in the housing market is done once mortgage rates start climbing.

I'll stop right there for today.

Sunday, February 03, 2013

The Limerick of Finance for 02/03/13

The 'Niners did not win the Bowl
That prize is still a worthy goal
Some commercials did score
Halftime did not bore
Local vendors made cash from their role

Super Bowl Economics and Sarcasm

I'm not watching Super Bowl XLVII today even though I'd like to see the San Francisco 49ers win.  I'm a casual fan of my hometown sports teams because they make The City look good.  Anyway, instead of watching the big game, I'd rather blog about its economic effects.

Consider the impact on the city that hosts the game.  One economist uses very odd reasoning to argue that the host city suffers economically from a Super Bowl.  Common sense tells me he's wrong, and hard evidence shows local businesses reaping windfall profits after months of preparation.  The Super Bowl crowds out conventions?  Yes, but all of the hotels are filled with people who came to see the Super Bowl!  Locals don't come downtown because it's crowded?  Yes, but all those huge pressing crowds are spending money in bars and restaurants!  I think some economists just don't like big success stories.  They'd prefer we all downsize to medieval hamlets.  They're free to do so while the rest of us enjoy economies of scale.

TV ad spending is another big financial story with this super sports event.  You can get a 30-second spot for about $3.75M.  The buyers are almost all consumer products makers or downscale automotive brands.  Seeing Mercedes-Benz is a surprise, so I guess they're going for the aspirational demographic.  The record numbers of women who now watch the game pay more attention to the ads than men do.  Ladies, if you want to understand men, you need to at least try to follow the game.  Super Bowl ad spending has a demonstrated ability to drive increases in web traffic.  The best ads generate high Ace Scores for effectively connecting consumers with a brand.  The ultimate purpose of ads is to drive top-line revenue.  Surveying consumers on their predictions of Super Bowl ad impact is less useful than actual sales.  Companies probably keep their real tracking data private, so it's worth revisiting the next quarter's income statements of Super Bowl advertisers to see whether their sales increased.

What about the game's players?  Do Super Bowl athletes get a payoff from more lucrative team contracts or endorsement deals?  The players get a nice five-figure bonus whether they win or lose.  If the winner's payout in 2013 is $83,000, it amounts to 4.4% of the average NFL salary of $1.9M.  That average is skewed much higher than the $770K median because the superstar player salaries are huge outliers, like quarterbacks making eight figures.  The big winners from post-Bowl endorsement deals seem to be the few players who went into the game with existing superstar status, and the NFL is the big winner from ticket sales and television broadcast rights.

The people who benefit financially from the Super Bowl are the shareholders of the most effective advertisers, the world's largest ad agencies, the superstar athletes, the League and its franchise owners, and many local concessionaires.  Have fun watching the game.

Saturday, February 02, 2013

The Haiku of Finance for 02/02/13

Finance data set
Present it the way you like
Numbers must add up

IMF Smacks Argentina on Economic Data

When you play with fire, you're bound to get burned.  The IMF has put Argentina on official notice that its fraudulent economic data places its standing with the organization at risk.  It's nice to see an international body enforcing rules for rogue players.  The funny part is the hypocrisy of the IMF's main sponsor - the United States.

Argentina underreports its annual inflation by 14% or so by private estimates.  Compare that to ShadowStats' estimate of the U.S.'s CPI, which is underreported by about 4% right now.  America has a ways to go to catch up to Argentina's statistical flights of fancy.  Don't expect the IMF to enforce any kind of action against the U.S. once our economy starts hyperinflating.

Friday, February 01, 2013

The Haiku of Finance for 02/01/13

Put no money down
Get worse deal on a mortgage
Such a clear trade-off

No-Money-Down Mortgages Can Destroy Affluent

Here comes another lame idea in finance, made especially for affluent investors with little sense.  Banks are offering no-money-down mortgages secured by portions of an investor's portfolio.  Maybe this is a sign of how desperate high-end homebuilders have become to move new inventory.  It's definitely a sign that parties to mortgages are once again throwing common sense out the window.

Limiting the stock portion of the mortgage's collateral to 50% means little in the event of a stock market decline.  Let's say a flash crash hits the market and the investor's stock portfolio takes a 5% hit.  Now the stock collateral is (0.95 x 50) is at 47.5% of the loan's original balance.  The servicing financial institution can presumably see the investor's portfolio if it's been pledged as collateral, and is most likely custodied with the servicer if it's a TBTF bank.  If less than 2.5% of the loan's principal has been amortized with principal payments up to that point, the homeowner will face the equivalent of a margin call to put in cash that will restore the value of the collateral.  The danger here is that affluent investor pledged securities because they didn't have the cash or were unwilling to sell securities to raise cash.  Forcing a margin call would be the equivalent of an unpayable balloon payment and probably put the home into foreclosure.

Collateralizing 80% of the mortgage's value with bonds is likewise no sure thing.  High inflation could reduce the real value of that fixed-income collateral faster than it reduces the real value of the loan's balance.  It's an unpredictable relationship because this country has gone so long without serious inflation.

Securing a mortgage with liquid securities rather than cold cash is a dangerous "innovation" in an extremely unstable macroeconomic environment.  I've blogged before about the risks of an equity market crash and  hyperinflation in the U.S.  A sudden reversal of fortune for the economy would jeopardize a mortgage whose down payment is secured with anything other than a large cash payment at the beginning.  Some affluent people will go for this anyway.  I'll quietly await their distressed asset sales.

Nota bene:  This is not any kind of advice to either use such a mortgage or avoid one.  I'm sketching out a possible scenario and I risk nothing by watching to see what happens with these instruments.