Wednesday, April 30, 2014

The Haiku of Finance for 04/30/14

Seeking long term gain
Only buy and never sell
Ride out all cycles

Tuesday, April 29, 2014

The Haiku of Finance for 04/29/14

Big bank bad bond bet
Exposure to inflation
No hard asset hedge

SIFIs Make Double-Dumb Bet On Fixed Income

The biggest investment banks prove they are willing to follow the bond market to oblivion.  They have just doubled-down on reorganizations that commit to even more bond underwriting.  The comment at the end of that article shows some rare sanity in a financial sector gone mad.  These dumb banks are betting that huge sovereign debt issuance will continue as interest rates rise, and that said rising rates will entice investors back into fixed income.

I won't restate my long-held contention that central bank stimulus has driven global bond markets far past their natural equilibrium points.  Go read some of the World Bank's regular reports from 2013.  I sure did.  The end of this historic coordinated stimulus means the end of excess profits in bond underwriting.

It's even more amazing to see the SIFIs unwind their commodity operations to make room for bond desks.  Commodities are useful hedges in hyperinflationary periods.  Going long in fixed income with no commodity exposure was the kiss of death for investors who lived through hyperinflation in Weimar Germany.  I will not feel one ounce of pity for the spoiled preppie bond traders who are going to lose their shirts.  They all have it coming to them.  A run on the US dollar will not treat Wall Street kindly if this is what passes for strategy.  

Monday, April 28, 2014

Financial Sarcasm Roundup for 04/28/14

I found exactly one item that deserves sarcasm today.  There are undoubtedly others but this one shall be mine.  The multinational energy sector is starting to freak out over the West's sanctions against Russia.  They haven't reached complete screaming mode yet because their stress is confined to legal counsel and risk managers.  The worry really begins when Russia makes its next move.

Ukraine's oil drilling concessions to Western supermajors and its gas pipelines to Europe are very attractive assets.  Russian forces are likely to seize those assets if they enter Ukraine under the guise of peacekeeping.  Russia's state-sponsored energy companies act as arms of its national grand strategy.  President Putin and his allies in the Russian deep state desire more than a recreation of the 18th Century Novorossiya.  They covet Ukraine's assets as compensation for the payments Ukraine has been unable to make on its debts.  Ukraine's own deep state elites, aka its nationalist oligarchs, got a little too greedy after many years.  Now it's time to pay the piper.

Nation-states don't look like debt-collection rackets in history books but Americans never had the patience to read much history.  That's why Russia's aggression in the Donbas takes so many Americans by surprise.  Lower-class Americans only experience the repo man when he comes for their automobile after they can't make car loan payments anymore.  Transnational repossessions happen when strong nations want their weaker neighbors to pay their debts.  

Sunday, April 27, 2014

The Limerick of Finance 04/27/14

Investors are totally lame
Their mistakes will all turn out the same
Paying a premium
Is exceedingly dumb
Watching them fail is one funny game

Saturday, April 26, 2014

Friday, April 25, 2014

Castle Mountain Mining Wants To Dig San Bernardino

Castle Mountain Mining (CMM.V) has a plan to reopen an older San Bernardino open pit gold mine.  San Bernardino County isn't the first place I would look for a junior gold play unless its geology is like the Carlin Trend in Nevada.  Their CEO has a pretty serious track record in mining.  I had to look up Baffinland Iron Mines, his past project, just to see if it was the real deal.  The team does not need to be distracted by holding outside director positions in Probe Mines and Touchstone Gold.  I do cock my head quizzically when I see junior mining executives who are also directors in other junior exploration companies.  I prefer that a startup team stay focused on its own business model.

This company's San Bernardino project is still in the early stage of restarting a previously producing mine.  The NI 43-101 report dated December 6, 2013 reveals a large but low-grade resource estimate.  The reported average Au grades, both indicated and inferred, are far below typical discoveries that later prove economical.  The size of an ore body can make up for lack of grade if the market price of a metal remains high.  Assuming a long term gold price of $1300/oz is a far higher estimate than gold's long term historical average price.  That is a serious risk.

The 43-101 report estimates a drill program for further exploration will cost CAD$3.32M.  Always remember that a company has to fully fund its estimated drill program to have any chance of establishing an enterprise valuation.  Searching SEDAR reveals Castle Mountain Mining's annual financial report for the years ended December 31, 2013 and 2012 (publication date April 17, 2014).  That report showed they had cash on hand of CAD$4.76M at the end of 2013.  How about that, they had the cash to fund the program, even after subtracting current liabilities.  The bad news is that their annual loss in 2013 was -CAD$9.4M.  I'm guessing that burn rate can sustain their drill program for less than half a year; they will need to stay focused and keep other expenses down to further de-risk their project.  This means no side projects or financial engineering.

The company's stock has been trading on the Toronto exchange for almost four years.  Anyone who bought in at $0.45 back in April 2010 is still ahead, with the shares trading at $0.86 today.  I cannot rule out the possibility that they will have to raise more capital and dilute existing shareholders.  It is too early in the life of Castle Mountain Mining for me to invest but their chances for success will increase if they focus their burn on their Phase I drill program.

Full disclosure:  No position in CMM.V at this time.

Tuesday, April 22, 2014

IRS Pays Premium For Tax Inefficiency

Oh, this is just rich (pun intended.  The IRS paid performance bonuses to underperforming employees.  I am quite familiar with the entitlement mentality of many federal government employees, especially the ones in unions.  These people wouldn't last a day in the private sector yet the government coddles them all the way to their retirement.  The quoted sums from that article work out to less than $1000 per IRS employee, which is a pittance when you consider that performance-based bonuses make up the lion's share of compensation for most financial sector employees.  Any self-respecting financial adviser or floor trader who was offered such a tiny bonus would probably quit in disgust on the spot.

Clueless tax experts should read my past articles on taxation.  I come out swinging in favor of a flat tax on all income, earned or unearned, with no deductions or other exceptions at all.  This is fair and it will stop all sorts of economic leeches from gaming the system.  The federal government typically collects somewhere between 17% and 20% of the nation's GDP as tax revenue, and making it harder over time with a more complex tax code has not raised that figure.  Simplifying things with a flat tax will make it easier for businesses to plan for growth.

Machine learning is on the verge of automating every routine business function.  Uncle Sam is slow to catch on to everything so I give the federal government a couple of decades to figure out how to automate its revenue collection.  Doing it automatically with a much simpler tax code means firing all of the IRS problem children and returning their bonuses to the Treasury.  

Monday, April 21, 2014

Financial Sarcasm Roundup for 04/21/14

This week's sarcasm combines a few seemingly unrelated items in one brute force face-smash.  First, insider trading may get a lot harder to convict if prosecutors must prove foreknowledge of benefits.  The modern surveillance state doesn't cover telepathy.  Second, IMF research shows just how much the Fed's bond buying has boosted bond prices by lowering yields.  The World Bank noticed the relationship almost a year ago in one of their papers, so maybe it takes the IMF longer to do math.  I should be fair to the IMF since they've been busy bailing out Europe and other deadbeat regions.  Finally, there is now documented proof that Silicon Valley's biggest tech firms colluded in hiring practices to hold down tech compensation.  It reminds me of the greed I witnessed in financial institutions.  I feel badly for the nerds who thought they'd be raking in dough working for tech titans.

I threw these three news items together because they all make me think of how elite privilege is becoming entrenched in America.  Preppies can risk more insider trading and the more pedigreed traders at hedge funds will probably get away with it.  The biggest banks get first run at borrowing low to fund their carry trades under the Fed's pumped buying programs.  Even tech firms resist legal challenges to their unfair competitive practices.

This ominous trend in favor of elite privilege is antithetical to free enterprise.  Retail investors can't compete against insiders who routinely access non-public information at little risk.  Small firms can't compete against big banks skimming carry trades or big firms cherry-picking talent.  Challenging this atmosphere in court requires expensive class action lawsuits that extract a pinprick in damages from giant firms.  Those firms continue to earn monopoly rents.  The more likely solution is a massive market crash that flushes many bad actors out of C-suites and into bankruptcy.  That outcome is the only corrective mechanism the free market has left.  

Updating the Alpha-D Portfolio for 04/21/14

This is the regular portfolio update I had planned to make, even though I made an unplanned update last week.  I did not do anything else today with FXA other than what I described last week.  My covered calls on FXC were assigned and the shares were sold away.  I bought them back in a wash sale and renewed the covered calls.  My covered calls on all of my GDX holdings expired unexercised, so I renewed those again.  My covered calls on FXF expired unexercised, and I renewed them.

Nothing else has changed.  I still have a pile of cash and a long put position against FXE.  I am still hedging for the possibility of hyperinflation.  It is a long, lonely wait and I couldn't care less.  There is no penalty for being early when the alternative is to ride a panic wave down with everyone else.  I would rather be long hard assets and stable currencies while other fools chase artificially pumped returns in conventional stocks and bonds.

I need to remind all of you idiots once again that none of this commentary constitutes financial advice.  I disclose my actions as a favor to the general public because you people should admire my genius.  I am not the least bit interested in what other people do with their own money.  

Sunday, April 20, 2014

The Limerick of Finance for 04/20/14

Beating HFT systems is hard
Quant algos can play hidden card
Routing orders so fast
Other trades come in last
Giant block trade cut by a small shard

Saturday, April 19, 2014

The Haiku of Finance for 04/19/14

Wisdom of a fool
Keep making the same mistake
Lose cash every time

Recent Wisdom From Financial Fools

I have learned about as much from watching stupid people do dumb things in finance as I have from formal education and autodidaction.  Fools are better teachers than they will ever realize.

Leveraged funds continue to use high-frequency trading strategies even though large institutions increasingly route their orders to negate the HFT advantage.  All of the computational horsepower devoted to HFT will gradually lose its reason to exist as large block trades in dark pools go elsewhere.  Math wizards earning huge sums in hedge funds will wonder where it all went.  Hedge fund fools are not prepared for the next financial crisis.

Crypto-nerds still love Bitcoin even though its exchanges are collapsing.  The myth of anonymity dies hard but the magical thinking of child-like Bitcoin fans is an impenetrable shield against real-world hardship.  I really think a lot of these people live with their parents or have marginal careers.  There is no other way they could have the free time to jerry-rig video cards that mine Bitcoins.  Digital currency fools are not prepared for the real-world consequences of shady financial dealings.

Retail investors still love actively managed mutual funds.  They ignore the preponderance of evidence for the advantages of low-cost index funds.  The siren song of outperformance dies hard in the minds of people disinclined to think critically.  Investing fools don't mind throwing money away on costly, underperforming financial products.

A handful of prominent San Franciscans still find the phony tales of a Stolen Valor con artist to be enthralling.  Evidence and facts count for less than emotions when naive people commit their prestige to a charlatan's schemes.  Google searches make due diligence easy but some business "leaders" would rather not take the time.  I guess keeping up appearances at the City Club matters more than integrity.  Elite fools will be blindsided by subpoenas even though they had plenty of warning.

I laugh at fools and I avoid making their mistakes.  I love it when humans who have learned nothing make the same mistakes over again.  It is too easy to outperform investors who play weak hands.  

Thursday, April 17, 2014

Wednesday, April 16, 2014

Unexpected Update to Alpha-D Portfolio for 04/16/14

I was surprised to see that my in-the-money covered calls on FXA were exercised this week, prior to their expiration date this month.  They were only slightly in-the-money, so whoever had their brokerage assign them must have been desperate for a tiny gain and unwilling to roll their hedge forward.

I repurchased the exact number of FXA shares that had been sold away, and renewed the covered calls on those shares for another month.  I remain committed to the Australian dollar as a hedge against US hyperinflation and I don't mind the tiny transaction cost of this wash sale.  The cash I've received from FXA's dividends and covered call premiums more than cover these rare costs.  This is just one of those things that happens to investors like me who use options in a hedging strategy.

Monday, April 14, 2014

The Haiku of Finance for 04/14/14

Forecasting guesswork
Try building scenarios
At least one may fit

Financial Sarcasm Roundup for 04/14/14

I am seriously pressed for time this week.  Someday you'll find out why but I don't care to disclose it today.  Suffice it to say that I'm doing something very important in the short term.  I can still make a minimally sarcastic effort.

Japan hints that Europe should follow its example in fighting deflation.  I say Japan is nuts for saying this and Europe is nuts for taking it seriously.  Deflation isn't so bad if it forces indebted businesses into bankruptcy so more efficient businesses can take charge.  The generation that comes of age in a hyperinflationary Japan or Europe will never forgive the modern leaders who destroyed their national currencies.

American shareholders are demanding that their companies acquire for growth.  They do this because they are stupid.  They should instead ask for huge special dividends to get that cash back.  The few hundred corporate CFOs in the country who sit on trillions of dollars of uncommitted cash know how insanely high any NPV would have to be in these pumped markets to justify any acquisitions.

I've read a bunch of brief news items lately about what nouveau riche twentysomethings want from a financial adviser.  It's all really impressionistic and contradictory stuff, but the general sense is that today's young rich enjoy throwing money away and want advisers to praise them for throwing even more away.  The cleverest and most dishonest advisers will step up and take as much as they can in fees while praising these young idiots for their nonexistent brilliance.  I will enjoy watching these preppies and their advisers starve in the gutter.

The most sarcastic thing I can say today is that people in Japan, Europe, and America are all getting a lot dumber about money.  I am living on the wrong planet, or the wrong time period on the right planet.  

Saturday, April 12, 2014

Friday, April 11, 2014

Pure Internet Gold From The Minds Of Reddit Bitcoiners

I check out Reddit once in a while for random inspiration.  It's a jungle out there and I like cutting through it with the brute force digital machete that is Alfidi Capital.  I never know whether I'll find pearls of wisdom or juvenile ramblings.  It's usually more of the latter but that's okay.  Arrested development adolescents need to let their primal screams out somewhere.  Better that they spew to Reddit threads than deface a bathroom stall.

The Reddit community on Bitcoin must be oodles of fun for people with no lives.  It is the only corner of the financial world where overgrown infants, naive dreamers, and other cutting-edge crybabies can congratulate themselves for knowing nothing about money.  They find a worshipful audience on Reddit.  I've selected some of the best recent comments from the Bitcoin subreddit below in italics.  Errors in spelling, capitalization, and other fundamentals of intelligible communication remain as their authors intended.  I will not identify the perps because they may want to grow up someday.  My own comments always follow.

So i should recommend to my 70 year old grandma to put all her savings into bitcoin (what's the easiest way to teach her bitcoin? took me years to teach her email/skype... think she might be dead before she's able to transfer funds on her own)? How will this stop the government from taking her tax refunds which are not in bitcoin? What happens if the price drops under the current 400$? I love bitcoin and what it stands for but you needa stop drinking the Kool-aid.

Stop right there, dude.  The apple didn't fall too far from the tree if grandma's tech learning curve is indicative of this Bitcoiner's abilities.  Oh BTW, the government can and will assess the value of your Bitcoin for tax purposes since the blockchain is publicly available.  I think the easiest way to learn Bitcoin is to watch a video of 1990s teens playing with "Magic:  The Gathering" cards.  That's kind of how the Mt. Gox Bitcoin exchange got started anyway.  Kids using cards to pretend to be wizards is just like grown adults playing with digits and pretending to be bankers.  See, it's really easy for granny and her quilting bee.  

I bought about $1,000 worth just for the sake of holding on to it long term. It's a decent chunk of change for me but it's also an amount I'm comfortable losing.  But this is exactly why I'm not discouraged over "losing" almost half of my $1k investment. There will be another spike at some point and I will either hang on until that happens or until I lose it all.

What was your cost basis for tax purposes?  Can you prove it?  The IRS will want to know and federal tax returns are due in four days.  Oh, wait, I'm talking about a bunch of people who think they don't have to pay taxes.  Never mind, idiots.  Just hang on until you lose it all.  It's funny that this person conflates "long term" with some point where they may "lose it all."  This person is definitely not Warren Buffett.  

Long term speculators don't create as much instability.  

Say what?  What exactly is a "long term speculator" anyway?  That might be a conventional investor like me who performs a valuation analysis before committing to an investment, but to Bitcoiners I'm just another gambler.  Moral equivalency is great when you don't have to account for cognitive deficiencies.  

Bitcoin is way more influential than Dogecoin is. Marketing does matter, or else our dog-based coin wouldn't have gotten this far. DOGE is honestly a lot more style over substance but obviously style is important to people. I hope that Dogecoin will teach Bitcoin about style in the same way that I hope that our community looks towards Bitcoin for substance.

Dogecoin teaching style . . . means Bitcoin will need an animal mascot.  Somebody already picked the honey badger.  Bitcoin teaching substance . . . means Dogecoin will be based on nothing.  Oh, that already happened.  Maybe these Reddit people aren't as cutting-edge as I had assumed.

This sort of thing is baffling to me on the altcoins. A new business shows up and because it has an address, and an office there is immediate trust in them. We have seen large scale operations fail time and time again.  We need businesses involved in the currency but we also need healthy skepticism when it comes to verification. 

The above comment might be the all-time winner for far-out fantasy.  It deserves a prize of some sort but Alfidi Capital has no prizes to give.  Follow this one down the rabbit hole.  A business with a known physical office and identifiable employees is somehow less trustworthy than a bunch of random hashes floating through cyberspace that hackers can steal and duplicate.  Yeah, ooookaaaayyyy.  This implies that the only thing more trustworthy than Bitcoin would be something completely unverifiable, like a fantasy land of fairies and unicorns.  Wait a minute . . . that takes us right back to "Magic:  The Gathering" again!  Brilliant.  

I just can't believe people would run scams as public figures, when it's so easy to do it in the Bitcoin crowd as anonymous figures. People around here are very trusting of anonymous figures.

OMG!  OMG!  Just when I thought there was an all-time winner, another gem falls out of the sky!  Here's a Bitcoin fan admitting the ease of scamming the rest of the community.  Anonymity is some kind of holy grail on Reddit.  It allows emotional cripples and shut-ins to pretend to be knowledgeable.  Anglo-Saxon cultures have long recognized anonymous communication as a form of free speech because it can shield unpopular authors from abuse.  The downside is that the rest of us have to wade through Bitcoin garbage to find comedy.  

In the bitcoin world embezzlement is indistinguishable from a hacker attack.

Exactly.  They both come with criminal penalties in the real world.  In the Bitcoin underworld, these things confer street cred.  I expect the next crypto-coin fork to allow graffiti artist tags.  

I still believe that bitcoin is the most regulated currency in the world. Criminals are way too vulnerable when using bitcoin.

This is awesome.  Precisely one IRS decision covers Bitcoin, and that was all anyone needed to move Bitcoin into the "asset" column of a balance sheet.  Calling it the "most regulated currency" ignores the wire transfer protocols, bullion holdings, transfer pricing agreements, and other facts that govern real currencies.  Calling criminals "vulnerable" in Bitcoin insults the abilities of the thieves who busted Mt. Gox out of millions.  They still haven't been caught.  I know, Bitcoiners, facts are hard to understand.  It's so much more fun just to make things up.

The bottom line on all of these Reddit commenters is that they are dumber than dumb.  There may be some pseudo-intellectuals in there to give the Bitcoin community a natural ruling elite but they function much like wooden decoys on a duck hunt.  They make it easier to identify the fowl that respond to hunting calls.  Reddit brings out the worst in people who are too immature to be trusted with adult responsibility.  Bitcoin will never be a currency but its advocates' stupidity is pure Internet gold.  

Thursday, April 10, 2014

Wednesday, April 09, 2014

Tuesday, April 08, 2014

Monday, April 07, 2014

Financial Sarcasm Roundup for 04/07/14

I may have once seen a scientific study where nine of out of ten doctors recommended a daily dose of sarcasm.  Okay, I didn't really see that, but making it up sounded cute.  I needed an intro for this week's dose of sarcasm.

Multiple law enforcement agencies are investigating high-frequency trading (HFT).  The bureaucratic imperative to "do something" is in high gear even though I'm certain it will lead to nothing.  Entrepreneurs have already solved the HFT's exploitative anomaly by creating a new trading system that slows orders down so algorithms can't exploit time differences in routing.  Investigating "HFT" as a phenomenon makes perfect sense if the political objective is to avoid indicting Wall Street campaign donors while giving the public the appearance of action.  It's a lot like declaring war on "terrorism" rather than some specific state or organization.

Research shows that G20 meetings don't move financial markets.  That's a big slap in the face to big-shots from the developed world who like to see their names in headlines.  Why are all these organizations having "summits" anyway?  World leaders lose at least a day in travel to attend meetings where sub-ministerial functionaries have already solved everything substantive.  They should cancel the G20 and other consultative bodies that do little besides provide photo-ops.

China voices its concern about capital flows.  The intended audience for this message is the Federal Reserve, not big financial institutions.  The big Western banks already know that they are limited to buying and selling the renminbi within limited bands inside the Shanghai FTZ.  China is making it clear that it is willing to defend the yuan's value if the Fed's curtailment of ZIRP roils emerging markets again.  There's a difference between willingness and ability.  The PBOC may find its ability to intervene severely limited by blowups in the shadow banking system.

There's nothing scientific about sarcasm.  I just make it happen.  

Sunday, April 06, 2014

The Limerick of Finance for 04/06/14

Lending firms in a quest for high yield
Loan to Europe and spots far afield
Borrow dollars so cheap
Mighty profits to reap
Term sheet covenants set legal shield

US Lenders Seek Interest Rate Arbitrage With Europe SMEs

This WSJ article on US lending to European small and medium-size enterprises (SMEs) caught my eye today.  US funds are exporting the business development company (BDC) model of asset-based lending to the continentals.  These funds are combining a carry trade with interest rate arbitrage.  Hedge funds do that instantaneously but these private funds are lending with much longer durations.

The carry trade is easy money right about now while US interest rates are still at historic lows.  Borrowing in US dollars from US institutions and lending to European businesses that are hungry for capital is a lender's dream.  The euro is lower right now than it's been since late February, so US lenders who need to buy it just to loan it out are getting a decent deal.

It's no mystery why European banks can't fill the lending gap themselves.  Their balance sheets are overstretched with bad debt from the PIIGS and whoever else couldn't figure out how to run a healthy national economy.  European banks applying Basel capital tests have discovered to their chagrin that they can't afford to make more high-risk loans.  Those banks haven't figured out the US trick of moving bad assets into off-balance sheet entities and securitizing their cash flows.

I'm not interested in the details of these trans-Atlantic BDC clones.  They do not appear to be publicly traded (except KKR) so I can't evaluate them.  The news item is noteworthy as a bellwether for the US financial sector.  Funds that chase returns by making loans to European SMEs at double-digit annual interest rates are pretty desperate for yield.  Their investors may be running out of high-yield alternatives here in the US.  I still recall the headlines I read back in 2007 about how a collapse in the US high-yield debt market preceded the collapse of US equities by several months.  I watched it all from the sidelines, in cash.  

Saturday, April 05, 2014

The Haiku of Finance for 04/05/14

Ethical career
Hard to tell truth in big firm
People like to lie

Ethical Half-Lives In Finance

The few conversations I've had with people younger than me who aspired to finance careers always covered personal integrity.  I could not ignore this subject because it is the ultimate litmus test of whether someone belongs in a large corporation.  I use the term "belong" in a somewhat pejorative sense, as you'll see below.

I worked for three very large financial sector firms at various points in my career.  They all publicly held themselves out as putting the client's interests ahead of their own.  I observed their employees honoring this commitment more as an exception to general practices behind the corporate veil.  It is possible to make a decent living by genuinely caring for a client, meeting their expectations, and charging them reasonable fees.  Managers in large corporations often discount that objective by pushing their revenue producers (brokers, advisors, traders, loan officers, etc.) to make their department's growth numbers look good.  That's how managers get promoted.

The competition for promotions in finance is fierce and unforgiving.  A fast and loose approach to ethics is an easy ticket to the big time.  It is very difficult to have a long career in a large organization without resorting to unethical behavior.  The outsized rewards in finance tempt normal people to stray over to the dark side.  The ones who cross over often enough will never look back, and never realize where they went wrong.  Those rare people who climb ladders ethically and build business honestly deserve respect.  The rest of these people are clawing, grasping, vicious vipers who masquerade as humans to deceive clients.  They "belong" in a large corporation in the same sense that criminals belong in prison.  Society must keep its sociopathic predators under positive control.

I care more about my personal integrity than my career.  I performed very poorly when I worked in large financial institutions because I told the truth, followed rules, and executed my duties correctly.  My supervisors marked me for elimination after observing my behavior.  I wasn't fit for employment in their eyes because I would not lie or manipulate people.  I stand out as an oddball and I couldn't care less.  I dislike unethical people as much as they dislike me.

The half-lives of financial careers may be longest in corporate finance because incidences of temptation occur least frequently there.  It's always possible to falsify payment invoices but internal auditors can catch those instantly, especially if they're tied to the enterprise's supply chain.  There may very well be plenty of honest CFOs and treasurers around, and maybe this is why so many of them are sitting on piles of corporate cash rather than investing in overpriced assets.

Career half-lives are probably shortest in the financial sector's customer-facing roles.  I specifically envision retail brokerage, institutional sales, and investment banking rainmakers as the career paths that winnow out honest people very quickly.  The pressures to meet performance goals and earn bonuses are largest in those fields.  Opportunities to deceive investors appear daily.  The biggest liars and laziest trust fund babies win the retail production games.

Anyone who considers a career in finance should think very hard about the choice they will face soon after they begin work.  Personal integrity and career success in a large enterprise become mutually exclusive at some point during upward career progression.  Employees will choose one path over another.  Choosing personal integrity usually leads to unemployment.  Choosing career success usually means making ethical compromises.  Those compromises come with severe legal risks that cannot stay buried forever in an era of pervasive surveillance.  Having both integrity and success is possible with self-employment.  I have extended my career's half-life by working for myself.  

Friday, April 04, 2014

The Haiku of Finance for 04/04/14

Cost effectiveness
Measure outcome improvement
Divide by expense

HR Community Owns Training ROI Calculation

I have not thought much about the HR community ever since I completed my undergraduate major in that subject.  I washed my hands of the profession in 1995 after concluding it was not a path to high corporate achievement.  I have a newfound respect for HR right now after discovering that they can contribute to the bottom line.

Check out SHRM's ROI methodology for assessing training.  ASTD also publishes material on the ROI from learning.  The equations for ROI are pretty simple, just like many other concepts in finance.  The hard part is assembling the data measuring use cases to make "before and after" comparisons.  In other words, comparing error rates, message delays, etc. after training a workforce should show cost savings that exceed the cost of that workforce's training.

Assembling the data in pre-enterprise computing days would have required some Cheaper By The Dozen type of efficiency expert timing workers with a stopwatch and collating their misplaced records.  Enterprise computing makes it all so easy today.  Knowledge management reps can track workflows in MS SharePoint or Evernote suites.  Tally up the missing files and misdirected workflows for those post-training comparisons.  Even the training itself can be almost costless with self-directed modules requiring little downtime.

I'm glad I never worked in HR.  Executives still see it as a cost center because most HR people don't think in ROI terms.  Maybe that's why I never belonged in that field.  I changed course with an MBA in finance.  I would rather invest in faceless corporations than live human beings.  Knowing the ROI for human effort takes some of the risk out of dealing with people.

Thursday, April 03, 2014

The Haiku of Finance for 04/03/14

Urban building boom
Banks lend to developers
Stack credit sky high

EE Live! 2014 Comes Alive With Engineering Innovation

I attended EE Live! 2014 this week, another in a long string of UBM-promoted technology events that feed my addiction for knowledge.  The technical sessions were appropriate for software engineers and electrical engineers who turn circuit board materials into full systems.  I was there to understand how disruptive startups can make piles of money in systems engineering.

The first keynote on "killer apps" addresses safety failures of the US Army's Patriot missile, the Therac-25 anti-cancer radiation system, and a leading automaker's vehicle systems.  Testing for errors in accuracy, calibration, and control must cover continuous use rather than brief iterations of activity.  Turning something on briefly does not constitute a use case.  Design engineers too often assume that thousands of hours of iterative laboratory testing are substitutes for real-world use that continually stresses tolerances.  I was not surprised to learn that some government regulators lack the in-house software expertise to evaluate control system failures.

I talked my way into the International Engineering Consortium (IEC) Management Summit because frankly I'm the kind of guy who belongs at summits.  Much of what the high-level participants discussed was off the record but my own opinions about system engineering are very much on the record.  Get ready; here it comes.  My vision of the Internet of things (IoT) is a biosphere of multiple ecosystems optimizing human processes that have never before been analyzed or controlled.  Engineers shouldn't dream up IoT devices without input from their marketing team to determine whether some IoT-enabled thing will sell.  There is a huge IoT opportunity in legacy pre-Internet physical infrastructure whose industrial control systems were never designed to use networks and embedded sensors.  Young software engineers (20-30yo punks and whipper snappers) must converse with the retired mechanical and electrical engineers (60-70yo fogies and geezers) who designed those legacy systems.  Intergenerational knowledge transfer will enable IoT systems to address those legacy facilities' gaps in performance and security.

I really liked Max "The Magnificent" Maxfield's morning session on the possibility of a robot uprising.  This is what serious engineers spend their time preparing to handle.  I said yes to the free breakfast (the program guide said so) but I didn't put on a tinfoil hat.  Plenty of conference alumni wore their tinfoil hats, as you can see below.

I have no idea what the screenshot of giant singing jellybeans had to do with the topics of AI self-awareness and pervasive automation.  The engineers present had no consensus on design protocols that could mitigate a spontaneous robot uprising.  Isaac Asimov's Three Laws of Robotics should be the obvious solution given the attendees' penchant for revisiting their favorite science fiction stories.

The second keynote on open source hardware and embedded systems was from an MIT PhD nicknamed "bunnie."  I didn't know genius hackers could have innocent nicknames but when you're Dr. Andrew "bunnie" Huang you can do anything you like.  He discusses reverse engineering of common hardware on his blog.  His insight into the slowing of Moore's Law opens longer product development windows for hardware.  The last node of Moore's Law will not allow for further reductions in computing cost.  We should welcome the end of planned obsolescence if it leads to bunnie's vision of repair and recycle cultures for legacy hardware.  Open-source hardware enthusiasts like bunnie have as much fun cracking their own homemade PCs as open-source software developers have with free products like LibreOffice.  Gearheads in tech can crowdfund their latest hardware hacks at Crowd Supply because the world needs more DIY solutions.  It makes sense for bunnie to be a leader in the maker movement.  I think makers should prepare for the coming of quantum computing, which will blow away the Moore's Law limiting nodes.

I spent much of day two at the Silicon Valley Open Innovation Summit.  A lot of the presentations were sales pitches from larger firms and debut pitches from startups.  It was enough for me to see new tech like flexible batteries.  The lead sponsor proposed that common building blocks for innovation in a few key areas will cross all product lines.  Okay, but please find academic support for that contention.  MIT's Sloan Management Review found that innovation has more to do with human cultural attitudes than specific technologies. 

I learned a bunch of new terms at this innovation summit.  Metadesign should make collaboration easier.  Someone mentioned "technology arbitrage" but I am unable to locate a definition; I take it to be the temporary advantage a niche maker possesses before competitors flood into a market with cheaper processes.  IoT device makers and service providers are segmenting their markets into "brownfield" and "greenfield" parts, and the legacy infrastructure I mentioned above falls into the brownfield category.  The sectors that have little coverage in research literature, like flexible and printable batteries, appear to offer first-mover advantages for startups.

The best show on the expo floor was the Fantastical Theatre of Engineering Innovation.  The prevalence of cotton candy and popcorn enhanced the circus-sideshow approach of several exhibitors.  Some of them were more performers than exhibitors, with crawling robots and flashing thingies scampering all over the place.

Max Maxfield's "beer and bacon" talk stole the show.  I missed the bacon and I didn't need the beer.  He's making progress on a prognostication engine that predicts women's emotions based on inputs from environmental influences and a man's decision points.  Giver her flowers and a dial moves.  Some dial lights up during a blue moon.  Wow.  This is how hard-core engineers spend their spare time.  Max loves tinkering with Arduino, antique parts, and lighting fixtures.  He'd be a cool guy to have as a hardware startup's technical advisor if entrepreneurs can get his attention.

I took away several conclusions from this show that are relevant to the financial sector.  Concurrent hardware and software development should be an obvious practice, especially with Moore's Law slowing down.  Synch those waterfall charts and show the C-suite how the capex budget accommodates both development cycles.  Rapid prototyping requires embedded design, so firms that don't have a metadesign culture need to get cracking on building one.  Failing to catch development errors quickly hurts product development.  The new product development window (at least for the semiconductor sector) is three to four months long while Moore's Law still holds.  Missing this window means losing the chance to deploy an entire product family.  Finally, knowing your sector's product life cycle means knowing how to disrupt it, sort of like knowing how to disrupt a competitor's OODA loop.  This stuff is pure genius.  I'll share it with startups that deserve my early stage investments.  

Wednesday, April 02, 2014