Friday, February 28, 2014

The Haiku of Finance for 02/28/14

Media dashboard
Tracking multiple channels
Real-time market reach

Checking Out HootSuite During RSA Conference USA 2014

I didn't have time for the RSA Conference USA 2014 this week, or the dissident TrustyCon that sprang up as a reaction to the IT security sector's problems.  The only RSA-related event I was able to squeeze into my calendar was a "Connect" event from HootSuite.  I first noticed HootSuite thanks to their URL shortener but they have other free tools I plan to check out.  You can all check out this awesome action shot I took at the event.

HootSuite is serious enough about building its ecosystem that it offers its own tutorials at HootSuite University and is sponsoring a certification program through the Newhouse School at Syracuse University.  I expect a lot more social media marketing companies to start partnering with brand name universities.  It will be the only way traditional universities can compete with the MOOC onslaught that is revolutionizing education.

I like the concept of a social media dashboard that integrates multiple channel feeds.  The linkbait theme of this HootSuite event was that "social media managers are dead," so companies offering integrated dashboards make social media marketing everyone's business.  Anecdotes about CEOs engaging their audience through social media make for good PR but the ROI of solving one person's problem is hard to measure.

Social media marketers have said that social media should be at the top of an enterprise's purchase funnel.  I never saw a purchase funnel depicted in my MBA marketing class.  That means I got a worthless MBA, but I realized that long ago.  I should have learned from free sources instead, like this McKinsey Quarterly article from 2009 on how messaging must move outside the purchasing funnel.  McKinsey has also discovered that the networked enterprise has a clear payoff.

I had to look up a few new terms I heard at this event.  Dashboard like HootSuite's are useful in "social media audits."  A Google search of that term leads to bunch of marketing offers and this ISACA definition of a social media audit that is probably the most objective view on the subject.  The audit's use of a people / process / technology paradigm mirrors a common definition of knowledge management.  Take heed, KM folks, because you need to work with the marketing department's social media team to make sure everyone is tracking the right channels.  Someone else mentioned "social DNA" but my search results returned more stuff like a proprietary plug-in than a broad new concept.  Lo and behold, KMWorld discussed social DNA in 2013.  I like that the KM community puts its fingerprints all over these social media concepts.  The whole social DNA scheme needs a clearer definition, and I suspect it describes the extent to which enterprise search and other sharing tools have permeated both an enterprise's internal IT architecture and its corporate culture.  Every marketer should know how to measure "effective reach" and social media now extends that reach to multiple new channels.  

Forrester has a succinct discussion of the three types of social media strategies.  I had never heard of the "hub and spoke" strategy but a Google search reveals plenty of opinions on its execution.  Once again, the obvious requirement for KM integration jumps out at me from the hub and spoke model.  I think a social media dashboard that integrates well with a KM suite (namely MS SharePoint) would be awesome in an enterprise.

I had an epiphany after listening to HootSuite's executives and clients discuss the metrics they use to assess audience engagement.  Recent reports on fraudulent likes and followers in leading social media platforms have been a hard wake-up for marketers committed to effective ad spending.  I suspect that shares and retweets are far less prone to dishonesty than likes and follows, because they require users to engage with content instead of with a static social media presence.  In other words, it's easier for a paid liker in some "like farm" in a developing country's Internet cafe to like a whole bunch of Facebook pages than it is for them to share a message from that page.  It's similarly easier for a paid shill to follow a Twitter account than to retweet useful content.  That's my original insight, fellow Web denizens.  Measure your audience engagement with metrics focusing on shared content and not some static page's artificially inflated reach.  Sharing quality content really works.

The folks in attendance were mostly in their mid-20s to early 30s.  Now I know who buys all of the overpriced denim wear I see at hip clothing boutiques all over the Bay Area.  It's these young techies working for mobile startups and social media marketing companies, and they have disposable income for expensive but trashy clothing.  I filled up on free food and drink, and chatted up a bunch of attractive women.  Those are my own personal audience engagement metrics.

Full disclosure:  I have no business connection to HootSuite.  No one paid me anything to write this article.  I may use HootSuite's free tools at some point in the future.  I like free things because I'm a cheapskate.  

Thursday, February 27, 2014

The Haiku of Finance for 02/27/14

Working analyst
Describe fact with opinion
First Amendment job

Alfidi Capital Is All About Analysis

I socialize extensively in the San Francisco Bay Area.  In the last couple of years I've had a hard time explaining myself when people walk up to me in person and ask me what I'm all about.  I often default to saying "I'm a blogger," but I've realized lately that's a suboptimal answer.

I blog a lot but that's not all that I do.  My two blogs are a means for communicating my original thinking.  I publish longer research pieces, most of which are pretty darn hilarious.  Most bloggers shy away from longer reports, so "blogging" can't be my only professional function.

I hesitate to call myself a "writer" because that begs a categorization that may not be appropriate.  Writing is the main thing that I do, and I'd like to make it the only thing I do at some point.  I just need to get away from people more often once networking ceases to be useful to me.

I do not believe I can call myself a "journalist" because that profession is supposed to be objective.  Journalists aren't normally supposed to take sides or inject their personal opinions, but I do that all the time. Journalists also don't publish graphics, presentations, or spreadsheets.  I publish those tools to illustrate my thinking about serious subjects.  I approach my work from an academic perspective because I like developing new theoretical approaches.  Journalists typically don't publish frameworks for experiments.

I am definitely an "investor" but saying that as an introduction sometimes prompts people to ask me whether I work with other investors.  I then have to reiterate the things I disclose in my FAQ and legal disclaimers.  I don't work with anyone, except when I invest my own money and time in a private company.  I don't take on outside investments from clients.  I don't arrange deals or take pieces of transactions.  I don't make any recommendations.  Once I convince people that I invest only for myself, some hustler will usually try to sell me something.  That kind of irritation is why I want to do less networking and more writing.

One more intriguing description I could adopt is "content curator," but I think that's premature.  This new profession applies to people who curate content for other organizations that become their clients.  Large enterprises employ content curators along with their webmasters to ensure their brand story is consistent across multiple product lines and geographies.  I only curate content that I generate myself.  I retain complete ownership of everything I create.  My storage needs are limited; my branding is straightforward.  Content curation gets the Alfidi Capital message out but I cannot and will not perform that role for anyone else.  I have a strict no-client business model.  I will never curate someone else's content.

I think the best description for what I do is "analyst."  That word encompasses blogging, writing, journalistic editorializing, investing, and content curation.  I do some aspects of all of those things and mix them up as I please.  Identifying as an analyst also does not preclude public speaking engagements.  I like being on stage in front of a crowd and more professional events are asking me to speak than ever before.

Analysts who work for enterprises that sell regulated financial products must hold securities registrations.  My analytical work does not sell any securities products at all.  Any representations on behalf of Alfidi Capital are my own thinking about where my own money belongs in the world.  Other investors' situations are of no interest to me because no one can invest with me.  The great thing about proprietary analytical work is that it doesn't have to be useful to anyone but myself.  The public cannot regard my analytical work as financial advice because I don't sell securities or maintain fiduciary relationships.   Others may find my work intriguing, and thanks to the First Amendment they are free to read it.

My Twitter header now leads with "analyst" instead of "blogger" and I'll make more such changes to my social media presence as I see fit.  I liked getting straight A's in school and I succeeded at that much of the time.  Just call me triple-A . . . Anthony "Analyst" Alfidi.  I'll try that line out at cocktail parties to see if people grok it faster than the other terms I mentioned above.  

Wednesday, February 26, 2014

The Haiku of Finance for 02/26/14

Internet magic
Turn digits into Bitcoin
Pretend money store

Ukraine's Financial Viability In The Midst Of Instability

Ukraine is in a tough spot.  Changing a government's top leaders under conditions of duress is never easy.  Regional divisions along ethnic lines make things obviously more complicated.  The international community stands ready to help keep Ukraine stable.  Let's examine the price of stability.

The World Bank reports that Ukraine's GDP was US$176.3B in 2012.  That's little more than 1% of the US's GDP.  This is a poor country.  The one other World Bank statistic I think is most relevant is Ukraine's current account deficit of -8.1% of GDP in 2013.  I'd need a 2013 GDP figure to make an apples-to-apples estimate of how big that deficit was last year.  The best I can do is review the IMF's first Post Program Monitoring Review for Ukraine dated December 19, 2013, which concluded that Ukraine's economy is under severe stress.

Transparency International ranks Ukraine 144th out of 175 in its Corruption Perceptions Index. That's really bad.  The Heritage Foundation ranks Ukraine 155th out of 178 in its Index of Economic Freedom.  That's really bad, once again.  Throwing relief money into the Ukrainian economy without serious structural reforms along the IMF's guidelines will be a waste of effort.  I believe the finance ministers of the G20 and other global bodies know this and will push for reforms along with their aid packages.

Here's a Cbonds snapshot of Ukraine's macro-level credit status in real time.  Its yield curve is inverted; in the US economy that is usually a sign of an imminent recession.  Contrast that with the prime borrowing rate, which absolutely explodes from single digits to over 20% in less than a month.  Lenders are seriously bidding up the price of capital in Ukraine.  Look at how the US dollar (USD) is appreciating against the Ukrainian hryvnia (UAH); that currency is at a 10-year low.  Any relief package from the US, the EU, and/or Russia needs to move fast to keep this economy on life support.  Reuters reports that Ukraine's foreign reserves have dropped to US$15B.  Contrast this with the IMF's data showing reserves of $20B in December 2013.  The National Bank of Ukraine appears to report currency exchange and interest rate numbers consistent with the open-source data I located above.  Good for them.

The world faces a tough choice in helping Ukraine.  The country is obviously in dire straits and needs foreign cash now to stop the bleeding.  Its governance is so weak that much aid will be wasted unless international monitors are on hand to directly supervise the country's financial management.  I hope the Ukrainian government's finance folks are used to working long hours and weekends.  They'll be busy making sure any aid the country receives is spent well.  

Tuesday, February 25, 2014

The Haiku of Finance for 02/25/14

Chinese accounting
More than one set of records
Auditing challenge

An Open Message To The Financial Technology Community About Bitcoin

The financial technology community sometimes abbreviates its identity as "fin-tech," which is too similar to existing firms selling fishing tackle, retail payment systems, and other forms of industrial support.  That's a small area of confusion.  A larger area of confusion is the tech community's support for crypto-currencies.  The metastasizing problems surrounding Bitcoin should be a wake-up call for developers and finance entrepreneurs.  Here's my open appeal for the financial tech community to abandon its flirtation with Bitcoin.

Building startups that enable ecosystems is a waste if Bitcoin's fundamental flaws cannot be addressed.  Mt. Gox has gone offline and Web rumors are swirling about what is going on inside that troubled exchange.  The central problem in this drama is "transaction malleability," a flaw in a Bitcoin digital signature that fails to hash all of the transaction's data.  This allows a malicious party to invalidate a hash and render a transaction incomplete even though a transaction record exists in the blockchain.  This gaping flaw would never be possible in normal transaction processes that use conventional currencies but it is endemic to crypto-currencies.  Validating an incomplete Bitcoin transaction makes the Bitcoins subject to theft.  This is a critical vulnerability of crypto-exchanges that rely on separate "hot" and "cold" wallets with public and private keys.  Of course, Bitcoin transactions aren't reversible, so when someone steals Bitcoins and masks them with an invalid transaction record in this manner, they are gone forever.

Another huge flaw in Bitcoin is the inexorable growth of the blockchain.  That consolidated transaction record gets longer as more participants grow the market for Bitcoin.  This is the only financial market where further adoption of the technology makes the technology more unwieldy.  The computing power needed to process a single transaction grows with each transaction.  Eventually, with enough participants, the blockchain will become too large for a user's single computer to process and unlocking a private wallet won't be worth the time it takes.

Bitcoin miners have ignored the potential for mining duplication built into the algorithm.  Ignorance is bliss, until another miner claims the Bitcoins someone else already mined.  Claim jumping happened in the California Gold Rush days.  Disputes were settled in court if a court existed, or they were settled with violence.  Bitcoin miners running huge server farms in cold climates have a huge advantage over smaller miners if they ever wanted to artificially duplicate someone's existing claim to Bitcoins.  Read once more about transaction malleability to see just how easy it is to fool the blockchain, and then realize how easy it is to duplicate mining.  Changing Bitcoin's source code with open hacks won't solve the duplication problem; it just forks the code into a new currency even weaker than Bitcoin (i.e., the joke called Dogecoin).

Anything goes in the absence of regulation.  The US Treasury may or may not tolerate Bitcoin, based on what I heard Treasury Secretary Jack Lew say last week at the World Affairs Council.  Bitcoiners are counting on regulators to write rules around whatever precedents they set themselves.  What hubris!  Real precedents matter when trade associations adopt industry standards and lobby for regulatory acceptance.  No way is the IRS or SEC going to take Bitcoin seriously if a bunch of hackers can't even clean up a blockchain.  None of the established industry associations from the banking or brokerage sector will take up the Bitcoin cause where a bunch of developers can't get the job done.

Google Wallet is easier to use than any crypto-currency and works within existing regulatory regimes for finance and telecom.  Regulating Bitcoin may create more problems for its users than it would solve.  Bitcoin's promoters in the venture investing community have admitted in public that government regulation of Bitcoin as an asset subject to capital gains tax means users would have to record its dollar value in a separate ledger.  They would have to maintain this record at the beginning and end of each Bitcoin transaction.  In other words, the blockchain is insufficient to establish valuation for tax purposes.  The tautology of using a ledger to track another ledger is unbelievably stupid, but that's what legitimization of Bitcoin requires.  The whole thing is such a Rube Goldberg mechanism, but techno-idiots and crypto-losers insist on playing around with it.

People who still take Bitcoin seriously after all of its exposed problems don't have to listen to me.  They can check out this awesome LOLpic instead.  I'll quote Oliver Cromwell:  "I beseech you, in the bowels of Christ, think it possible you may be mistaken."

(Image credit:  Caspar de Crayer [Public domain], via Wikimedia Commons)

The amorphous group of developers in transit through San Francisco's hackathons and tech gabfests should find something better to do than work on crypto-currencies.  Stick a fork in this one because it's done, and don't fork it into some new crypto-coin.  It is time for the fin-tech community to wake up.  It is time to abandon the Bitcoin fantasy.  

Monday, February 24, 2014

The Haiku of Finance for 02/24/14

Disrupting the farm
Sustainable ranching tech
More profit in meat

Financial Disruption Opportunities In Meatonomics

The Commonwealth Club presented one of its awesome Climate One shows today on meat.  The author of Meatonomics and the head of the California Cattlemen's Association discussed the meat industry's effects on our climate.  The science behind the contribution of livestock to global warming has been contentious ever since the UN FAO's 2006 report "Livestock's Long Shadow."  The existence of a baseline of methane production from livestock is more important to the public than the amount of production.  This invites regulation, which in turn opens the possibility of entrepreneurial disruption.

The livestock industry has tried to criminalize whistleblowing exposures of its dirtier practices by lobbying for ag-gag laws.  When these laws succeed, our democracy is poorer for the lack of informed consent in what we consume.  The Pew Commission on Industrial Farm Animal Production notes that the concentration of food processing in the hands of a few large companies creates unique food supply stresses that are a departure from much of American history.  This evolution of the livestock industry invites entrepreneurial disruption from food producers who transparently display their livestock processing.

Organically raised meat is fashionable in places like the San Francisco Bay Area.  This says little about its advantages in profitability or even sustainability.  Like anything else dependent on cold chain logistics, the financial viability of organically raised meat may vary by geography and the cost of energy.  The American Grassfed Association won't want to hear the Meatonomics evidence that grassfed cattle contribute measurably more methane to the atmosphere than cattle that are corn-fed in commercial breeding programs.  This implies that innovations to capture methane and other greenhouse gases from cattle production, and convert them into energy that brings ranches close to net-zero energy use, will find a ready market in the organic sector.  The rural land experts at the American Society of Farm Managers and Rural Appraisers (ASFMRA) have a large body of knowledge for types of land suited for agricultural production.  Food entrepreneurs don't have to reinvent the wheel.  The USDA-funded Agricultural Marketing Resource Center describes grants and data available to agribusiness entrepreneurs.  Anyone going whole hog (pun intended) into organic production should do their market research first.

Sometimes Uncle Sam helps out agricultural innovation in small ways.  The USDA's NRCS maintains an Environmental Quality Incentives Program (EQIP) that provides grants for producers' conservation projects.  A truly free market approach would eliminate federal crop insurance, price support programs, and insurance for floodplain habitation.  Those reforms would be much more appropriate targets for the livestock industry's lobbying than more ag-gag laws.  One area that probably will not see reform is the existence of commodity checkoff programs that fund sector-wide promotions.  Entrepreneurial producers of sustainable foods may as well use checkoffs to their advantage while they exist.

Meatonomics may not succeed in convincing Americans to reduce meat consumption, but cattle ranchers are amenable to arguments for more sustainable production.  This allows room for ag-tech entrepreneurs.  Understanding where to begin means knowing USDA's AWIC farm animal standards.  Launching disruption means mastering USDA's AFSIC organic production practices.  It takes more than a fortnight to connect the market data from the Economic Research Service and the National Agricultural Statistics Service but farmers and the American Farm Bureau Federation do it all the time.  Food technology startups are the new darlings in the VC sector's eyes.  They can attract funding if they disrupt the unsustainable practices of industrial farm animal production.  

Financial Sarcasm Roundup for 02/24/14

I can't imagine a life without sarcasm.  Maybe other people can manage that but I can't relate to them.  I don't write for the inattentive or unimaginative parts of the human race.  This blog of mine isn't their cup of tea.

The SEC is studying whether changing the tick size of trades will improve liquidity for small cap companies.  Tick sizes are a non-issue.  Changing a trading increment doesn't add liquidity; only attracting more participants to a market adds liquidity.  I can't believe the SEC hasn't figured this out.  I need to lower my expectations even further.  These people must have nothing better to do.  Oh wait, I know, they could prosecute all of those financial executives who falsified mortgage documentation prior to the 2008 crisis.  They could also go after Libor and currency traders who colluded to fix the market.  Nah, that's not as rewarding as changing tick sizes.

Deutsche Bank thinks the Australian dollar is headed for a price collapse.  Well, that's just great, since I'm using that currency to hedge the US dollar.  Actually I don't care much for what Deutsche Bank thinks.  Their derivative exposures to European markets are so bad that they could easily collapse themselves before the Australian dollar hits bottom.  A cheaper Aussie dollar just means I'll buy more FXA.  I can't say the same about any European banks.

The NAR notes that existing home sales are at 18-month lows.  The real estate sales pros never let facts get in the way of their sales pitch.  It's always a great time to buy a house, even in their mushy heads.  I don't expect them to connect the decline in home sales with the Fed's reduced commitment to purchase mortgage-backed securities.  The math on higher real interest rates is inevitably a negative for people who borrow to buy a house.  Note further that I've said "house" and not "home."  People who missed out on the flipping craze ten years ago jumped back in, and I'm pretty sure it will end the same way.  Private equity shops borrowing to buy existing homes in all-cash offers are going to get flushed.

I've got a pretty busy week ahead with a few meetings and social events.  This gives me several audiences to entertain, live and in person, with my sarcasm.  I expect attractive women to swoon with every sarcastic financial utterance I generate in San Francisco.  

Alpha-D Updates for 02/24/14

The first trading day after an options expiration weekend is my usual opportunity to make changes in my portfolio.  My covered calls on GDX and FXF were exercised against me when the share prices of those two securities rose through the strike prices.  I repurchased all of my previous holdings in those two securities and renewed the covered calls for another month, in both my taxable account and my IRA.

My covered calls on FXA and FXC in my taxable account expired unexercised.  I renewed them both and made no changes to my underlying holdings in those securities.  I remain long a put position on FXE, in anticipation of the euro's nonviability.  I still consider the currencies of Australia, Canada, and Switzerland to be suitable hedges to the US dollar for my purposes.  I have to live with GDX as a proxy for the gold mining sector, and I anticipate adding other hard assets as their valuations become attractive to me.

My regular readers may have caught the Venn diagram I recently published as a special report over on the Alfidi Capital main site.  My philosophy of hedging the broader markets with exposure to hard assets and currencies still holds.  The past few years of remaining mostly on the sidelines while central banks inflated stock and bond markets have been frustrating for value investors like me.  Lots of idiots now think they're geniuses by owning big swaths of assets that owe their valuations to cheap credit.  Anyone who is happy to ride the Federal Reserve's coattails through monetary stimulus had better be happy with the end result when it occurs.  I'll be happy to watch a bunch of idiots burn themselves running for the door.  

Sunday, February 23, 2014

The Limerick of Finance for 02/23/14

The improper use of a hedge
Puts volatile assets on edge
Such approach to risk
Deserves a good fisk
Options should steer clear of the ledge

Treasury Secretary Jack Lew In California And Australia

I attended US Treasury Secretary Jack Lew's talk last week at the World Affairs Council.  I like hearing from top public officials firsthand.  They're going to hear from me eventually once my reputation achieves critical mass, so they might as well get used to seeing me at their public appearances.  I held back from publishing my comments on Secretary Lew's remarks because I wanted to compare his San Francisco talk to comments at the G20 ministerial summit in Australia.  He stopped in San Francisco on his way to that summit and I assumed he would stay on message.

I agree with Secretary Lew that resolving the debt limit conflict in Congress is a positive development.  The long history of the debt limit proves that it has never actually limited the growth of the national debt.  Eliminating it completely will end the hypocrisy of pretending to be serious about reducing the national debt.  His comments on international relations were more circumscribed, endorsing Iran's oil and financial sanctions and advocating IMF-style reforms in Ukraine.  Most Americans probably don't know that the US Department of the Treasury has a significant international portfolio.  Treasury has extensive guidelines for implementing the sanctions against Iran.

Secretary Lew addressed Bitcoin obliquely, leaving open the possibility that existing regulation and settlement systems could adapt to digital currencies.  He did not say whether Bitcoin would satisfy any legal tender requirement, which in the eyes of common law is really the most important test for settling transactions.  The IRS has not yet ruled on how gains realized in Bitcoin transactions may be taxed.  I'm guessing they'll be taxed as capital gains because Bitcoin acts like an asset when investors take positions.  If it quacks like a duck . . . it's probably not a swan.

I do not agree with the Secretary's belief that raising the minimum wage will raise significant numbers of Americans out of poverty.  His office should read the CBO's report from last week that projects large job losses from an increase in the minimum wage.  The Treasury's own data shows that most minimum wage earners are young and not heads of households.  They have the rest of their careers to seek wage gains.

I was very shocked to hear the Secretary refer to the cash reserves many large US corporations maintain as "retained earnings."  Oh wow, that is just so wrong.  Retained earnings is an accounting classification for the excess shareholder's equity built up from many profitable reporting periods.  It is not at all the same thing as holding cash!  The retained earnings accumulated in a year may not precisely match the cash committed to capex or other functions.  I can't believe this guy was COO of Citigroup's wealth management unit.  He learned nothing about corporate reporting if he thinks cash on hand equals retained earnings.  I couldn't forgive that misstatement after he said he wanted corporations to spend that cash pursuing growth.  I assess corporate America's huge cash hoard as a hedge against another financial market crisis.  The hoarding reflects the rational belief that Washington has not resolved the underlying causes of the 2008 crisis.  The US Treasury Secretary has a role to play in doing the right thing.  It's nice that he's listening to corporate executives talk about workforce skills training, infrastructure, and immigration reform.  Here are some other things he needs to hear, straight from the CEO of Alfidi Capital.  Bring us real stress tests for banks, the resurrection of Glass-Steagall, and the prosecution of fraudster financial executives if you want us all to get serious about risking cash on growth.

I would have preferred to hear Secretary Lew discuss the financial condition of the US government in more detail.  The evidence of mounting problems has been in the public domain for years.  The Federal Reserve's balance sheet is larger than ever and is extremely sensitive to rising interest rates.  Any potential losses would end its remittances to the Treasury.  The Foreign Credit Reporting System tables reveal the US government's small exposure to foreign debtors.  That is a huge change from much of the 20th Century when the US was the world's largest creditor, and US development aid opened new markets for American exports.  The annual trustees' report for Social Security and Medicare made it clear in 2013 that some of the funds' programs were facing imminent depletion.  Secretary Lew's signature is on those reports.

Here's the postscript from the G20 meeting.  The assembled finance ministers agreed on a two percent GDP growth target for this year.  They do not seem to know how to meet that target.  No one wants to talk about austerity anymore after riots in Greece and Spain spooked the European troika away from policy reforms.  Secretary Lew's advocacy of IMF-type monetary reforms was reserved for the home audience at the World Affairs Council.  The IMF prepared a report for this G20 meeting with notable changes in rhetoric.  The old advocacy of shock therapy through free market reforms is less visible now.  The new tone embraces indefinite monetary stimulus and infrastructure investment.  The Keynesian revolution is complete among the world's policy elite.

Secretary Lew talks a good game.  I like the guy.  His staff needs to prep him some more on financial terminology so that he doesn't appear to be a fish out of water with offhand references to "retained earnings."  This year's G20 action items will be judged by their success or failure in any future crisis.  The Secretary upheld his office's traditional reluctance to comment on the Federal Reserve's monetary policy.  That's a wise choice.  The hard part today is that so much of the G20's agenda is hostage to continued central bank monetary stimulus.  Specifics on just how the Secretary and his counterparts intend to realize two percent global growth are extremely relevant.  The Secretary's case for recovery so far rests on ARRA and Dodd-Frank.  He owes America a stronger case.  

Saturday, February 22, 2014

Friday, February 21, 2014

G20 Leaders Go Nuts In Australia With Insane Growth Targets

The G20 finance honchos meeting in Australia are targeting insane economic growth rates.  I mean, like, wow, Jesus H. Christ wearing a cardigan sweater in a chicken basket, they have gone absolutely nuts.  Allow me to spell out for these lunatics exactly why their targets are unattainable.

Europe has not solved its problems.  Accounting fictions allow the PIIGS economies to pretend that they are climbing out of their holes.  Political naivete among Eurocrats puts lipstick on these pigs, or PIIGS if you prefer.  The ECB's bank stress tests did not even touch worst-case scenarios.  Don't even get me started on the derivative exposures of Europe's biggest banks.

China can only bail out so many wealth management products (WMPs).  The one that breaks the bank will be the one no one among the world's top commercial bankers saw coming.  I saw this situation coming but top bankers don't listen to me.  That's too darn bad.

The US continues to add to its national debt, remove low-income earners from its taxpaying rolls, and eliminate frustrated job-seekers from its unemployment statistics.  These are all growth headwinds.

The G-20 people want to convince us all that the above problems don't matter.  Good luck to those of you who agree.  I'll take my chances betting that unsustainable financial arrangements lead to a day of reckoning.

Wednesday, February 19, 2014

Tuesday, February 18, 2014

Monday, February 17, 2014

The Haiku of Finance for 02/17/14

India tax cut
Business sector is happy
Prop short-term demand

Profiting From Drought

The California drought is real.  The US Drought Monitor presently shows an alarming concentration of red in the Golden State.  The US cattle herd count is at its lowest since 1951 and drought-impacted ranchers will probably overwhelm the USDA Farm Service Agency with disaster requests under the Livestock Forage Disaster Program (LFP) and other forms of disaster assistance.  The US Drought Portal is going to stay busy for a while.  Exogenous shocks that make markets unstable provide opportunities for entrepreneurs to solve problems.  The shock from drought can force transformations in agribusiness.

The USDA Agricultural Research Service (ARS) operates an Office of Technology Transfer.  Entrepreneurs should start there and cherry-pick (pun intended) innovations from the USDA National Agricultural Library that apply directly to agriculture.  The USDA Agricultural Technology Innovation Partnership (ATIP) is an umbrella initiative to share the government's technical knowledge with multiple private sector partners.

Resources for tech startups in the food sector are rapidly proliferating.  Kitchen incubators are all over the place, like La Cocina in San Francisco.  I like niche incubators because their focus attracts industry-specific expertise.  Incubators serving the broader tech sector have become victims of their own success.  Attracting applicants from mobile, social media, and gaming means the most popular incubators have quickly lost focus.  Maintain the niche focus means food incubators have the luxury of dealing only with food technologies.

Large enterprises can also jump on the drought mitigation bandwagon.  California's drought may lead to significant shortages of popular fruits and vegetables, so agribusiness from the rest of the country now has the opportunity of a lifetime to capture market share.  Activists will have to rethink their opposition to genetically modified crops if drought resistant crops can prevent food shortages in North America.  Desalination is a long-term pipe dream (again, pun intended) for solving California's water problems but it will consume billions of dollars in capital.  Water utility stocks may finally get their time to shine.

None of these options will go anywhere without backing from investors.  The persistence of drought from climate change means a persistent need for market-based solutions.  Investors focusing in the water-energy-food security nexus will find tons of opportunities to make a buck.  They may also find a ton of risk if they focus exclusively on backwardation in the commodity futures markets.   Profiting from drought is a moral good if it drives capital into technological innovations that enhance human quality of life during resource scarcity.

Financial Sarcasm Roundup for 02/17/14

I'm actually having a hard time getting sarcastic this week.  Nah, just kidding.  Sarcasm comes naturally to me after years of practice.  I barely have to try anymore.

The G-20 claims to have a newfound concern for financial market turbulence.  Yeah, sure.  Don't expect them to own up to the years of misapplied monetary and fiscal stimulus that contributed to the growing risk of market collapse.  It's really funny to think the US will lecture Europeans on fixing their banking system when we haven't even fixed our own.  Those of us in the know about the US-UK bank resolution plan, which IMHO is a much better concept than anything policymakers did in 2008, can ignore the hot air from the G-20.

The G-20's FSB is just now getting around to examining foreign currency benchmarks.  They sure took their sweet time.  It's been like, what, months since this scandal broke?  Regulators are not serious at all about stopping market manipulation.  The multiple ongoing investigations would duplicate effort without the FSB's oversight, but maybe that was the plan until someone decided the FSB could lend the whole mess a veneer of credibility.  Developing countries who complain about being left out of this action would be better off starting their own economic bloc.

If you need more evidence that the developed economies aren't serious about solving problems, note that the EU is delaying action on a new law to curb financial benchmark abuse.  The need for more study is a silly excuse.  The law's authors have plenty of data from the Libor probe.  The lessons for investors are clear.  Nothing is fixed and no one is serious about fixing anything.

If you miss the LOLcats I used to put in here for a few roundups, I don't want to hear about it.  Make your own LOLcat blog if you're upset.  

Sunday, February 16, 2014

The Haiku of Finance for 02/16/14

Bitcoin collapsing
Only fools left to "invest"
Big crypto-zero

Top Challenges Facing Crowdfunding In 2014

Crowdfunding is here to stay.  We can thank a nimble small business lobby and some hardworking people in Congress and the SEC for getting the ball rolling.  Okay, maybe more private groups than just the small business lobby work hard, because it sure takes a long time for the policy framework to accommodate reality.  Here's my rundown of where policy needs more work right now.

The SEC must finalize Reg A+.  This proposed regulation allows a hybrid public/private securities offering beneath a specified cap.  I think this helps get around the difficulties small companies will face if they present pitches at public events.  Offering the securities under Reg A+ will alleviate some of the heartburn investors like me feel at pitchfests when a startup shows ignorance of offering circulars and blue sky requirements.

Reduce market barriers to SPOs.  I'm painting with a broad brush here because there isn't just one fix.  OECD Corporate Governance Working Paper No. 10 addresses the decline in IPOs on US exchanges.  Venture-backed startups with large addressable markets have no problem going IPO once they've crossed the chasm to market adoption.  They know there will be a large demand for aftermarket trading.  There is little such aftermarket for those small companies that go IPO under the gradations of the JOBS Act and its supporting regulations like Reg A+.  I do not agree with some analysts who think the decimalization of tick size is deterring IPOs.  I like decimalization because it makes prices less sticky in the market and allows for more accurate price discovery.  My preferred solution is to allow companies that go IPO to continue to issue secondary shares under the JOBS Act.  I see resource companies presenting PIPEs all the time.  Tech companies should be able to do that with an SPO that works the same way as a direct public offering (DPO).  Crowdfunding portals associated with FINRA broker-dealers can easily handle DPO and SPO volume, and can develop aftermarkets that encourage more IPOs.  Portals like SecondMarket are already out in front.

Stick with the changes to Reg D.  The investor community has had enough time to adjust to the SEC's repeal of the ban on advertising and general solicitation of Reg D offerings.  Some critics still haven't made the adjustment.  Tough luck.  There shouldn't be any going back now and the SEC should stick to its guns.

Bring policy innovation to Canada.  Our friends in the Great White North should share in the new era of blessings that crowdfunding brings to investing.  Canada already has a robust reporting regime that allows for nuanced classifications of mineral and energy deposits.  This allows young companies to report results that can help them raise capital.  It's time the capital raising regime caught up to the mineral classification regime.  Canada's Venture Capital Markets Association (VCMA) is trying to move that country in the right direction.

Simplify restricted stock rules.  Rule 144 still contains minefields for investors holding restricted stock.  I believe the SEC should simply the processes available for owners to remove the "restricted" legend from a stock.  If I could wave a magic wand, I would eliminate the one year minimum that shell companies must wait after filing Form 10.  I also see no reason why the SEC requires an attorney's opinion prior to lifting a Rule 144 restrictive legend.  I do not expect the SEC to move on these matters until it is done wrangling with more pressing JOBS Act rules.

Publicize "reasonable steps" and "bad actor" provisions.  The startup community is still woefully unprepared to take the SEC's "reasonable steps" to verify an investor's accredited status.  They may also not know that getting involved with "bad actors" can destroy their ability to raise capital if the SEC discovers such a relationship and imposes a sanction.  The SEC could make it easier by publishing description of those two concepts in big, bold letters on its JOBS Act pages.  I don't expect that to happen, so these subjects will remain lucrative practice areas for law firms that pitch services to startups.

Clarification on Edgar filings.  The SEC requires publicly traded companies to file their financial statements on Edgar.  Startups who migrate entirely to capital raising via crowdfunding portals will IMHO become de facto publicly traded companies.  I do not know whether this means they will have to file on Edgar.  The SEC should get ahead of this now and issue some regulatory guidance.  It shouldn't have to wait until investors start suing small companies for not publishing on Edgar if they are supposed to be exempt.

The SEC has a small business guide and IMHO it should clarify the topics I discussed above.  Crowdfunding is the latest policy innovation that follows naturally from the success of the Small Corporate Offering Registration (SCOR) regime.  The NASAA guidelines on SCOR are far simpler than anything the SEC has put in place for the JOBS Act.  It would be nice if everything in finance were so simple.  

Saturday, February 15, 2014

The Haiku of Finance for 02/15/14

"Triple Package" drive
Success has many faces
Anyone can win

Two Tiger Parents Bring The Triple Package To San Francisco

Yesterday I had the distinct privilege of hearing Yale law professors Amy Chua and Jed Rubenfeld discuss their new book Triple Package at the Commonwealth Club.  I'll have to get Triple Package at my local library because I'm cheap.  Reading the knee-jerk criticisms of this work online are not sufficient to get the whole story.  This sort-of sequel to Ms. Chua's Battle Hymn of the Tiger Mother traces valuable connections between culture and the forces that build personal character.

These two geniuses tell it like it is about the profound effect of cultural traits on economic behavior.  They mentioned in passing that children immersed in non-judgmental environments often feel profound unhappiness in their later years.  The pride from earning a sense of self-worth is a stinging rebuke to the nonsensical childrearing garbage that erupted from "Mr. Rogers' Neighborhood" for decades.  I can see why critics unfairly paint Triple Package as racist, because it's a stinging rebuke to feel-good nonsense and lame excuses.  It's also a very useful counterpart to The Bell Curve, another misunderstood landmark work about precursors for success.  Triple Package finds that IQ isn't enough for success, and that success transcends race.

Jed Rubenfeld mentioned the classic sociological experiment of the Stanford marshmallow experiment to illustrate how self-control correlated very strongly with life success.  He also mentioned a follow-up experiment where the controllers broke their promises and every kid responded by immediately grabbing their marshmallow.  The point is that a broken social contract induces even a strong character to abandon impulse control.  Mr. Rubenfeld hinted at how broken expectations induce dysfunctional behavior in society at large when we witness huge transgressions go unpunished.  I've blogged before about the financial sector's egregious transgressions in the 2008 financial crisis and how few top executives have gone to jail.  I'm still waiting for Jon Corzine's indictment for destroying MF Global.  Critics who cry racism should know that the Triple Package authors offer another warning on how the rule of law is weakening in America.  We have common cause here, people.

I'm all about the authors' three main success factors of superiority, insecurity, and impulse control.  I've felt pretty darn superior to the neo-Neanderthals who've surrounded me my whole life.  I can be insecure about whether some jerk wants to steal from me or some lazy trust fund baby gets handed an advantage denied to me.  I'm also pretty good at controlling my impulses; I purchased my first car with cash after saving for years, and I did the same with my second car.  Folks, Anthony J. Alfidi is indeed the ultimate triple package.  They often substituted "exceptionality" for superiority during their talk but the effect is the same.

They admit that their most important conclusion is how later generations reinterpret the three success factors after experiencing mainstream American culture.  Redefining success recognizes other intangibles.  I was pleased to hear them value a mature understanding of success that balances money and status with honesty and fidelity.  I'm pretty sure that classically educated people like these authors would recognize the wisdom of living a good life that originated with classical philosophers.  The ancient words of Marcus Aurelius, Lao-Tsu, and Omar Khayyam showed us the way.  The modern words of Khalil Gibran, Lewis H. Lapham, and Leo Buscaglia close the circle.

My readers may wonder why I diverge from business topics to discuss culture, education, and politics.  Folks, I'm a financial analyst despite the Web 2.0 mechanics and media reach of the Alfidi Capital brand.  Many factors affect the competitiveness of the American economy.  Education and parenting shape the personal character of America's future professional classes.  More of America's first-generation strivers should thank Ms. Chua and Mr. Rubenfeld for becoming their substitute parents.  I first wrote about Ms. Chua's philosophy in 2011 when I was more bullish on China.  I changed my mind on China but I haven't changed my mind on the importance of discipline.  The new line of thinking on business success should make room for culture.

Friday, February 14, 2014

The Haiku of Finance for 02/14/14

The rich love to vote
They want to buy even more
Republic for sale

Two Plutocrats No Longer Hide Contempt For America

Some of the wealthiest among us have taken the gloves off.  They have just declared war on the right of a free people to govern themselves and the promise of upward mobility.  Tom Perkins told the Commonwealth Club that voting rights in a democracy should be apportioned by tax burden, commensurate with personal wealth.  I would have agreed with his criticisms of the welfare state up until he lost me with that one comment.  Bud Konheim over at luxury clothing maker Nicole Miller thinks Americans making $35K/year would be okay living in India.  Hey dude, if they move to India they definitely won't be making $35K anymore.  

The Yahoo Daily Ticker crew did a good job deconstructing both statements.  They did this without saying the word "plutocracy," which still frightens mainstream media players.  We can fear something less once we name it.  I have criticized plutocracy on my blog for the imbalance it brings to our systems of justice and politics.  I have also recognized the stabilizing function that hereditary elites play in the stewardship of important cultural institutions and unifying symbols.  Our nation's Founders were largely plutocratic and wrote a balanced Constitution that would prevent factions from appropriating wealth.  The rule of law mattered back then.  Today's plutocrats appear to be inching away from the Founders' consensus on governance.  

A minority opinion is emerging among the top 1% that democracy and upward mobility are no longer a fitting vision for uniting Americans.  Mr. Perkins and Mr. Konheim appear to have made unscripted remarks, so I can't qualify these comments as deliberate trial balloons that elite institutions have vetted.  I'll wait for the formal policy papers to sneak out of the usual think tanks.  The comments' spontaneity makes them all the more genuine as deeply held beliefs.  I don't know if a Rockefeller or Carnegie of days gone by would have made such comments in public or kept them confined to the gentlemen's club humidor room.  Perhaps the indiscipline of their release shows a decline in the quality of our elite from the time when WASPs ruled America.  The new meritocratic elite is learning to have contempt for America.  

Democracy and upward mobility have largely been myths in America.  They were useful myths as long as a WASP elite could point to successful exemplars of each as proof that America worked as a nation.  Joseph Campbell knew that myths have power.  These myths, and the flexibility of public institutions, enabled America to maximize its amazing gifts of geography and natural resources.  Viable myths combined with free markets and expansive elections to generate prosperity.  The obvious displeasure our elite now shows with these myths implies they are searching for new unifying myths, in the service of a new definition of prosperity.  Most Americans will not be comfortable being left out of that definition.  There are at least two plutocrats among us who are betting that we won't care.  

Alfidi Capital Publishes Special Report: Commonwealth Club Matching Game

I have just published a new report at Alfidi Capital.  This new one is the "Commonwealth Club Matching Game" on the page for Free Special Reports.  Go take a look at it right now.  It does not relate directly to the financial markets but it is a way to keep score on the intellectual life of San Franciscans.

My regular readers know that I sometimes bemoan the lack of intellectual capacity among the audience members at Commonwealth Club events.  I have decided to do something about this sad state of affairs.  I cannot intervene directly in the Club because I do not donate enough money to rank with big shots.  I therefore cannot enforce decorum during Club events by demanding that audience members refrain from pontificating.  These people must stick to asking intelligent questions and my satirical little game can help make that point.

If I can make this game go viral among pseudo-intellectuals in San Francisco, it may shame them into displaying less self-absorption when they open their mouths at the Club.  That's a lot to ask of these people but someone has to get the ball rolling.  It might as well be me.  I set the game rules to make myself the ultimate winner every time because I am by definition the answer to stupid losers in American society.  It's my game, for crying out loud.

I believe this game will become quite popular among critical thinkers who really do want to learn from the Commonwealth Club's distinguished guests.  It may annoy some people but that's okay.  I don't mind annoying people for a good cause.  

Thursday, February 13, 2014

Wednesday, February 12, 2014

The Haiku of Finance for 02/12/14

Risky endowment
Overweight stupid sectors
Insult to donors

Smart Grid Alternative Action

I read a fascinating paper at "Getting Smart About The Smart Grid" that brings an interdisciplinary approach to new developments in energy infrastructure.  I missed the paper's public debut at the Commonwealth Club last month due to schedule conflicts but this topic will only become more important in the future.

One of the paper's basic ideas is that a decentralized energy grid is more amenable to renewable energy installation.  Renewable power typically economizes at a lower scale than fossil fuel power sources.  I learned many years ago that anyone who claims that a renewable technology can scale up is barking up the wrong tree.  Hydroelectric and geothermal energy are significant baseload providers but even those sources are limited by the geographic footprint of their inputs.  In other words, Hoover Dam is already at its most efficient size and it isn't going to scale up.

Alternative voices like "Getting Smart" deserve traction.  The establishment approach from DOE's smart grid programs and other federal initiatives need input to make the next generation grid stronger.  DOE's approach is responsive to political pressures from dominant infrastructure builders.  This marginalizes the potential for renewable sources to contribute materially to the grid.  The government funded the Renewable and Distributed Systems Integration (RDSI) Program as a series of pilot studies under ARRA.  I believe it falls to the private sector to determine whether those pilot technologies are workable.

The finance community should track alternative voices.  Investing in DOE-backed technologies is the easy answer but disruptive innovation always comes from the fringes.  I would like to see some radical ideas for small-scale storage.  Community microgrids should ideally transform excess power from renewables into stored energy for use as a baseload during the off-peak hours when renewable sources are less reliable.  Storage is the key to changing the sine-wave appearance of renewable generation patterns into a steady-state source.  I look forward to seeing storage covered in Smart Grid News.  

Tuesday, February 11, 2014

The Haiku of Finance for 02/11/14

Basic Thinking In Life Sciences Transactions

I spent some time perusing a few materials I picked up at the JP Morgan 32nd Annual Healthcare Conference last month in San Francisco.  Understanding the life science sector is not high on my priorities list.  Checking out hot single women, for example, is a much higher priority.  I noted a few things unique to deal flow in the sector that deserve a mention.

Some investment banks present a range of possible deal structures to a corporate client looking to sell.  My impression of contingent price purchase payments that are tied to specific milestones is that they reflect events that drive share prices higher.  FDA approvals for medical devices and successful drug trials spring to mind.

I listen to plenty of investor relations pitches from small-cap drug companies trying to get through Phase 2 trials.  I now suspect a lot of them would be better off if a Big Pharma player came along and gathered them into rollup transactions.  This would achieve economies of scale in capex for research even if the acquired targets outsourced a lot to CROs.  The single-drug small caps that don't get acquired have very slim chances of succeeding on their own.  If they don't make it, some kind of distressed acquisition or Section 363 sale probably awaits if they're lucky enough to get DIP financing.

Plenty of law firms have published white papers on freedom-to-operate (FTO) studies they perform as part of a client's IP strategy.  I still think these kinds of tactics are little more than full employment programs for attorneys.  Life science startups can do their own patent searches cheaply.  I think startups should search the World Intellectual Property Organization (WIPO) before hiring a potentially expensive attorney for an IP strategy.  Free research at the start can save money by forgoing unneeded expenses.

If my career had taken a different turn after graduate school, I may very well have become fluent in these kinds of investment banking transactions.  It was not meant to be, as investment banks would not consider my resume because of my non-elite background.  The investment bankers I've met personally just sneer at me and tell me to get lost.  I'm not an investment banker or attorney, so don't ask me how to structure any transactions.  I don't handle mergers, spinoffs, divestitures, distressed sales, or any other such deals.  I am a mere spectator to corporate finance action in life sciences.  Any arbitrage opportunities from announced transactions in publicly traded firms are always available to every other retail investor watching this sector.  I buy and sell things that are right for me.  

Monday, February 10, 2014

The Haiku of Finance for 02/10/14

Supreme rule of law
Protection from plutocrats
Ultimate fairness

Supreme Rule Of Law From The High Court

Tonight's Commonwealth Club talk on the Supreme Court by the publisher of SCOTUSblog was an excellent inside view into the mechanics and personalities of jurisprudence.  I am no legal scholar, so I can't weigh in on how to define concepts like the doctrine of privacy and personal autonomy.  I analyze text and data before I make intuitive leaps, and legal doctrine without a textual confirmation is beyond my ability to define.  The historical observation that the SCOTUS likes executive authority, and defers to it when national survival is at stake, deserves its own cultural context.

Two recent Supreme Court decisions influence the financial subject matter I address on this blog.  The first is Citizens United v. Federal Election Commission, which removed any restrictions on corporations' independent political expenditures.  The second is National Federation of Independent Business v. Sebelius, which upheld the individual mandate for health insurance as a constitutional tax.  These two decisions have handed large corporations an enormous amount of power of the lives of individual Americans.   Private citizens cannot outspend a business lobby on campaigns.  Private citizens can be legally compelled to purchase goods and services.  

The two cases above are different in specifics from the Court's traditional deference to executive prerogatives but they are cut from the same cultural cloth.  Corporate capture of the executive's regulatory structure is so obvious as to be unremarkable.  The individual citizen is now subject to the whims of plutocracy in potentially any aspect of life.  Persistent surveillance programs make this control more pervasive than ever.  I do not know the SCOTUS's role in reviewing mass digital surveillance, so it will be interesting to watch them deliberate in the event a case is ever on the docket.  Sen. Rand Paul wants to get them a case ASAP.  

The inside baseball on the SCOTUS justices' conviviality was remarkable.  The justices get along despite their ideological differences.  They all share common cultural outlooks that easily fit urbane, cosmopolitan habits.  Their universal lack of rural roots explains their reluctance to embrace an expansive interpretation of the Second Amendment.  That is a small symptom of the gulf between the urban elite and the rural proletariat.  Our national fascination with "Duck Dynasty" notwithstanding, the coastal media elites just can't grok the culture of flyover country.  The Supremes' outlook reflects this plutocratic sensibility.  

I must remind my readers that the US ranks 19th on Transparency International's Corruption Perceptions Index and 12th on the Heritage Foundation's Index of Economic Freedom.  The world's largest economy in GDP is not number one in the rule of law.  Supreme Court rulings that entrench the power of elite economic institutions will likely further erode these US rankings.  Americans don't seem to mind as long as a redistributive tax system supports entitlement programs.  Readers of the Alfidi Capital Blog know that those entitlements cannot count on indefinite funding.  Supreme Court deliberations may not be sufficiently expansive to consider the socioeconomic effects of legal precedents that allow elite entrenchment.

The Founding Fathers were plutocrats themselves but they never envisioned government as an agent of wealth redistribution.  They did envision the Supreme Court as a balance to executive and legislative power.  They also envisioned the Bill of Rights as a popular balance to the government's power.  The balance tips in favor of the executive and its captured bureaucracies with every deference to executive power and its corporate support.  An indefinite crisis atmosphere makes for indefinite deference.  Today's plutocracy is not as wise as our original Founders but has more complete control mechanisms.  Americans should know the role of today's Supreme Court but that asks too much of a supine people.  

Financial Sarcasm Roundup for 02/10/14

It's time once again for sarcasm but I think I'll leave out the LOLcats.  Putting those images together is a lot of work and it may not be worth my time if it prevents me from writing more articles.  I may revisit the concept in the future.

Here comes another empty threat of a US Treasury default.  We've all heard this alarmism before.  A default isn't going to happen as long as the US can roll its short term debt to pay interest, and it can do so as long as the Fed is buying Treasuries.  The only threat to this dysfunctional status quo is a spike in real interest rates that crashes the assets on the Fed's balance sheet.  Lawmakers' decreased willingness to risk brinksmanship reveal the precariousness of this untenable situation.

The PBOC is telling us to get used to volatility in the yuan money market interest rate.  Really?  Gee, ya don't say.  My last few sarcasm roundups have dealt with the likelihood that the PBOC is losing control of China's own yield curve.  The first possible WMP default deadline came and went without incident, but future problems are unavoidable.  This is a preview of what will happen in the US when our own central bank is unable to contain interest rates.

Wages are not moving up, and neither is hiring.  The macroeconomic reason is simple but largely unreported.   Real unemployment is much higher than the official BLS figure.  This slack labor market is known to hiring managers who receive thousands of resumes for a handful of job vacancies.   High-income earners are doing just fine while health care mandates are about to hollow out middle class employment.  Everyone below the top 1% should prepare to get a lot poorer.

The SEC is cracking down on financial advisers who make bold claims in social media.  I'm not an adviser, so any claims I make at Alfidi Capital about my tremendous genius or charisma fall outside the SEC's jurisdiction.  I do not guarantee or promise anything at all, although I try my very best to ridicule stupidity.  I do not sell any products or do anything for clients.  Advisers who claim they can guarantee any investment result deserve scrutiny, and a lot of advisers don't deserve to be in business at all.

If you miss the LOLcats, I don't ever want to hear about it.  

Sunday, February 09, 2014

The Limerick of Finance for 02/09/14

Abenomics is hurting Japan
Their trade surplus went down the can
Devalue the yen
With stroke of a pen
Collapse wasn't part of that plan

Revelations Of Apps World North America 2014

I attended Apps World North America 2014 last week in my continual quest for technology market insights.  If there's something in the mobile app world that deserves an investment, I'm destined to find it.  I actually didn't find anything I'd want to invest in at the conference but I did come away a bit smarter about how the sector is maturing.

The legendary Steve Wozniak was the lead keynote speaker right at the beginning.  The more I hear technology leaders talk live, the more I see the common elements of their personalities.  The guru known as Woz was highly improvisational, weaving stories from Apple's early days into the tech news of today.  The most brilliant tech minds express themselves like jazz musicians by riffing through multiple topics that have common connections.  That kind of thinking is probably hard-wired at birth but the rest of us can adopt some of their techniques.

Woz says an intrinsic motivation for innovation comes from an emotional source, and is much more powerful than extrinsic motivations from rewards like stock options.  His favored roadmap for innovators leverages affordability and using existing building blocks.  I take that as a smack to VC-funded tech companies that spend millions on development when open source coding tools are readily available.  I also took something away from his description of Steve Jobs' understanding of product design aesthetics and his talent for reading people.  Startup team members should complement each others' strengths.  Woz's engineering knowledge and Jobs' design aptitude made Apple successful.  It probably wouldn't have succeeded if all of their early employees were clones of each other.

I like his cute equation:  H = S - F, or Happiness = Smiles - Frowns.  That's his shorthand for not looking back or second-guessing decisions.  I promise to smile more when I write insulting things about stupid people, because that will make them frown.  My smiles minus their frowns equals total happiness for humanity.  Woz is a genius.

He seems resigned to the end of privacy in the age of mass surveillance, and to the end of the Moore's Law increases in computing power.  Woz would like to see the dawn of intuitive AIs that replicate the human brain, but truly understanding brain science is hard and the end pf progressively more powerful computers means we may never reach the intuitive AI singularity.  I dunno, Woz, quantum computing may surprise us to the upside.  I was dumbfounded when he praised Bitcoin.  I think a computer genius would be more cautious about the computational limits of crypto-nonsense, although he did mention the risk of Bitcoin mining duplication.

He flicked his wrist to show off a cool high-tech watch hand-built from old parts but I didn't get his explanation of how it allowed his brain to do less work when he checks the time.  Maybe he knows more about brain science than me.  I'll give him the benefit of the doubt, but if he really likes Bitcoin then he's subject to the same cognitive limits as the rest of us.  BTW Woz, if you want a language where people can write their own scripts to interrogate IoT devices, check out HTML5.

Woz took tons of questions from the audience.  He thought Blackberry could have saved itself by making Droid phones and that TV subscriptions should be portable via mobile anywhere.  He looks forward to specialized mini-robots and realistic holographic projections.  He likes Siri enough to want it to manage other apps, but IMHO he'll need to get his wish for AI fulfilled.  I liked Woz enough to photograph him for my blog but I'm not enough of a fan to talk to him personally.  The hangers-on in the audience mobbed him for personal glory while I turned my attention to other talks at the conference.  There he is below, less than two meters away from the greatness that is Alfidi Capital.

Some of the speakers tried to differentiate between an app's user experience (UX) and customer experience (CX).  That's a distinction without a difference.  I do not believe app developers can draw such a clear line for any app other than premium ones that charge a download fee up front.  Other revenue models - freemium, in-app ads, in-app purchases - blur the line.  App developers who apply Forrester's Customer Experience Index metrics to their UX/CX concepts stand a better chance of adoption because they bothered to learn something about how people use tech.

I will hereby announce my disagreement with people who say "tech drives innovation."  Tech is actually the result of innovation, and like Woz said above that comes from a human motivation to make something better / faster / cheaper.  Techies who love tech for its own sake join startups all the time, and they never succeed because they don't solve problems that meet market demand.  I saw lots of that among the gamers' pavilion.

Here's new tech buzzword that makes me LOL:  mind share.  It's so nebulous that it could mean anything in brand acceptance without any underlying data from Forrester or elsewhere.  This makes it fodder for tech charlatans and pseudo-visionaries who can throw it around and impress clueless tech executives.  I'd like to ask the next app developer who claims traction in "mind share" exactly how they measured that in their CustDev process.  Market share counts for more than mind share.  Sales fixes everything.

I saw one really cool slide on an "ROI pyramid."  It linked CRM data to customer LTV in a way that enabled managers to compare the NPVs of capex spent on tech projects.  A Google search for "ROI pyramid" shows a bunch of these models, all of them starting from radically different premises than what seems to be the original version circa 2010.  That original model looks cool but this is evolving in weird ways.  We may have another "mind share" type of concept on our hands here with this pyramid.  I think enough of these ideas strung together will make a convenient checklist for any tech charlatans who want to bamboozle old-school executives.  Mind share?  Check.  ROI pyramid?  Check.  Don't forget your web design wire frame for those startups with no internal HTML developers.  See folks, this tech stuff is easy.

I take experts seriously when they provide how-to roadmaps with verifiable data underlying their claims.  One of the best panels at Apps World 2014 was on boosting app downloads, presumably with such verifiable techniques.  They advocated A/B testing of ad tag lines with a target market in mind.  I've heard tech advocates endorse video walk-throughs of an app in use to aid users but these folks advocated a slideshow.  Okay, but that requires more click-through work than a video.  Truly successful tech appeals to post-modern human laziness.  Good luck getting repeat use after a single activation with a slideshow visual aid; maybe it works best for more complex apps.  I sure would like to see some data on the claims of customer LTV for different app revenue models.  I'd also like to see some data comparing the drop off ratio (i.e., app users who never return after the first activation) of different revenue models.

The dude who spoke on the evolution of mobility in the enterprise was cool.  Big enterprises went through brochureware, limited apps, the mobilization of full business processes, to the fully mobile enterprise of today.  I think that full transformation is still out of reach for enterprises tied to large physical plants; the energy and petrochemical sectors spring to mind.  The mentality that any and all companies can become fully mobile reflects just how limited in scope the prototypical Silicon Valley vision has become.  These app innovators all operate in a universe where games, messaging, and media feeds are the entire economy.  Show me a railroad or construction company that is going full mobile, please.  I did pick up on the need for an enterprise-level "mobile center of excellence" that can push mobile adoption across functional silos.  That one very important C-level insight will get lost among the jungle of developers' tech jargon.

Addressing MDM is getting more difficult as BYOD policies allow device brands to proliferate in the enterprise.  IT departments are belatedly learning the value of app security that ignores device specifics.  They're also learning that VPN is not a panacea because it fails on speed and battery life, crucial things in a mobile UX.  The panelists making these claims all referred to policy limitations rather than tech limitations.  I can read between the lines.  It means enterprise users who bring their own tech to the enterprise risk violating MDM and BYOD policies even if their tech is effective.  Policy exists to protect the enterprise from employees, not the other way around.  The insider threat is too big to ignore.  Employees who think outside the box are welcome to request policy modifications, or start their own enterprises.

There's still tension between developers of Web APIs and developers who prefer a mobile enterprise application platform (MEAP).  IMHO the MEAP isn't yet obsolete because it is still good at applying security protocols.  Gartner's Top Ten Strategic Technology Trends for 2014 still favors MEAP in the rise of HTML5.

The case study from 8tracks was as action-packed as a case study can get.  I learned another new phrase:  cohort retention.  A Google search tells me that a cohort is a group of app users who clustered their adoptions within a certain time.  If I were running an app startup, I'd synchronize my SDLC waterfall chart to these cohorts and measure what each iterative CustDev effort tells me about how I should update the app.  The point is to find some sweet spot that makes the graph of customer adoption rates go asymptotic.  The 8tracks guy was big on assigning success metrics to each group of responsible actors within the enterprise.  I would know what those metrics are if I worked in a large enterprise, but I don't do that anymore because I do not like working with other human beings.  My only success metric is the daily Web traffic I drive, which in turn flows from the number of people I can arouse to anger with my insults.

Some panelists discussed founding an app business because they had done that before.  Their passion for ideation came from the desire to improve something that touched their personal interests.  Hey, me too.  My creativity comes from observing the stupidest aspects of finance - hedge funds, bailouts, preppies - and imagining the opposite conditions.  The opposite of stupidity is the genius of Alfidi Capital.  These founders say leveraging popular keywords in app store searches will reveal ways to raise an app's ranking.  Got it.  The "TechCrunch spike" from a prominent tech media story no longer drives as many app downloads as it used to drive, so PR needs a re-think.  I had to re-think the wisdom of what these people presented when they dropped buzzwords like "concentric marketing," "building communities," and other techno-babble.  Hey folks, there are only a few ways to make an idea go viral and they all pretty much depend on emotional connections.  We all heard this stuff about connecting communities back in the first dot-com boom and none of it was cost-effective.  Virality works because it bypasses community gateways, and there's no way I'm dealing with dot-bomb startups or tech charlatans who pitch community solutions.  Nonetheless, they did close out with a good reference.  Bill Baker's tips on startup fundraising are worth a look.

One other presenter emphasized the aesthetics of design, because the human brain processes info quickly.  Got it.  Steve Jobs got it too.  No wonder adult images are such popular web search topics.  I'll think I'll check out a few images of hot women once I'm done writing this article.  Oh BTW, this presenter also mentioned using excellent economics, which I interpret as capex that achieves intended milestones and variable costs that don't get out of control.  Lining up all the right steps first in product development and CustDev means a crowdfunding campaign will make sense.

One panel on monetization showed me how to take the hard work out of segmenting your target market by demographics and location.  Ad networks gather much of this info, so reading their results is probably a decent shortcut that points the way to CustDev.  The experts say ad placement for in-app ads should be a consideration during the design phase, not an afterthought, because different ad concepts lead to different UXs.  Interstitial ads, for example, have fewer impressions but better overall results in conversion rates.  Banner ads have more accidental clicks so they may not give accurate CTRs even though they run continuously throughout an app's activation.

Another monetization guru mentioned the importance of using collaborative filtering to track and predict the adopting audience's preferred UX.  This requires app marketers to graph the longitudinal expressions of an audience's preferences to see changes.  Like I said above, ad networks and other social media tools have plenty of data on the audience.

One of the final presenters displayed another awesome chart . . . the Gartner Hype Cycle.  There's a hype cycle for just about every sector Gartner tracks.  It sure would be nice if someone could track a meta-hype cycle for the volumes of research that Gartner and Forrester have published on tech since the mid-90s.  I'll bet the peaks in the hype cycles of their publications have driven the peaks in VC funding for baloney startups.  Here's another new tech idea that deserves hype cycle tracking:  mobile backend as a service (MBaaS).  How much you wanna bet that it drives the next round of VC funding once VCs see the huge gaps in enterprise IT?  Yeah, you know it's coming.  I also see the resurgence of "middleware," another popular term at Apps World 2014.  You heard it here first.

The Hackfest sponsored a hackathon and awarded some prizes at the end of the conference.  Hackathons should ideally produce marketable ideas but I got the feeling that some of the participating coders do this to burnish their reputations.  Maybe these prizes are resume builders for techies.  There's nothing wrong with that at all.  I would trust a coder who had a competitive spirit.

I have not yet reached the point of diminishing returns from attending these tech conferences.  The cute new terms amuse me to no end, and once in a while a speaker impresses me with data-driven analysis that can be used to develop strategic business options.  I now have much more robust baloney detection filters that can detect a tech charlatan from across the Interwebs.  My desire to make simple, free apps to show off the Alfidi Capital flair for genius is stronger than ever.  I don't even have to worry about privacy or security as long as my apps don't collect personal data.  Stand by for more genius, at a time of my choosing.  

The Magic Of URL Shorteners

Here's a minor policy change for Alfidi Capital.  I've been using TinyURL to shorten the links I've posted to Twitter and other social media sites.  I'm changing that to Google's URL shortener as of today.  Google's tool economizes on text; it has much shorter character length than Tiny URL and only a few other tools are shorter (like Hootsuite's

The more important reason to change is the advantage delivers for integration with the rest of my social media presence.  It offers tracking tools that should indicate which of my links gain the most traction.  It is designed to work with the other Google tools I use, specifically Blogger and AdSense.  Other URL shorteners may eventually run into integration problems with Google's products.  

Even the US government is getting into the URL shortening act with  The links to energy market data from DOE can get unwieldy but I don't plan on using this particular government product.  I don't get the rationale for creating a new government site instead of using existing private sector solutions like  Google's search tools already power plenty of government databases, so using that company's free shortening tool would be a natural way to track traffic.  I can't count on government solutions to follow some common sense path.  

URL shorteners are part of the magic of the Interwebs.