Thursday, April 30, 2015

The Haiku of Finance for 04/30/15

Oil producers crash
Capacity must shrink more
Hunt for bargain wells

Wednesday, April 29, 2015

The Haiku of Finance for 04/29/15

Founder daily life
Pick great team and work all night
Drive it to profit

Alfidi Capital at BoxDev 2015

I've followed Box periodically since I attended their first-ever developers' conference last year.  I had to check what has changed since then at BoxDev 2015.  Check out my awesome badge photo below, and my even more awesome commentary farther down.  I had a front row seat for almost all of the major talks.

I need to make something really clear right off the bat.  The app Box published specifically for this conference was absolutely atrocious.  The different theme tracks were laid out horizontally for swiping, but the talks that were specific to each track were not lined up chronologically in the vertical view.  I stuck with the Innovate track full of CEOs and other big shots.  The fireside chat with Marc Benioff, for example, was listed way down the page after the closing happy hour.  What's up with that?  A lot of the Innovate talks also lacked detailed descriptions of the participants.  I deleted this app immediately after the conference, but I would have been better off if I had never downloaded it in the first place because it was so useless.

Box executives announced a lot of new products, which I don't use because my enterprise document management needs are very small.  The biggest news from CEO Aaron Levie was their IPO earlier this year (ticker BOX at Yahoo Finance).  A quick look at the stock's progression shows why it got so little attention at BoxDev.  The stock debuted at $22.60 in January and closed at $18.29 on April 22, the day of BoxDev.  It's dropping because Box is still losing money with EPS at -$11.48/share.  This company has been around for a decade and still can't find a profitable niche despite its flashy conferences.  If you leave a cake in an oven for that long, it will probably turn into something resembling a small meteorite.  Do not ever try that yourself.  It's just a thought experiment.

The Innovate talks themselves were much more useful than the app.  Eric Schmidt from Google came out to praise Box for their work with Google Docs.  The latest canard among Silicon Valley tech giants is that their higher standards for encryption are frustrating the US intelligence community's surveillance efforts.  Yeah, right, whatever; the public is really gullible.  Dr. Schmidt is still fond of small businesses as job creators, which is great for those small businesses Google acquires.  I liked his phrasing of IoT as "Instrumentation of Everything."  His insight that small and medium-sized businesses represent and underserved market for affordable enterprise solutions is useful for startup founders trying to enter an established market.  I was privileged to witness firsthand the value of an experienced tech hand mentoring a young striver.  Aaron Levie joked about selling Box software to North Korea, and Dr. Schmidt pulled him back by remarking that most trade with North Korea is illegal due to US government sanctions.  Dr. Schmidt may have learned his own lesson when he visited North Korea in January 2013.  Entrepreneurs should all seek out such a seasoned mentor.

Box set out a pretty ambitious goal of bringing enterprise-level security to apps.  Great for them if they succeed.  One of their developer people praised some app that allows cats to take selfies.  DevOps people may have too much time on their hands.  I was impressed at Box's claim to have a full-time compliance team building compliance guidelines for health care, finance, and other verticals.  I am not that easily impressed, so I may be slowing down as I get older.  It's cool that two prominent VC firms are committing serious money to companies built on the Box platform.  I'll tell my fellow veteran tech entrepreneurs to go chase it.

Marc Benioff came out to share some bromance moments with Aaron Levie.  These dudes kept poking each other on stage.  I was surprised at Marc's admission that he had only recently started meeting CEOs when touring Salesforce's customers in major cities.  I thought a guy like him would go straight to the CEO every time, but he prefers to meet line of business leaders and CIOs.  Marc laid out his three dimensions of great companies:  align with the next tech (cloud, mobile, metadata); shift from subscription revenue to a deferred revenue model; adopt a philanthropic model like Salesforce's 1/1/1 idea.  Box has made its own philanthropic effort a more prominent part of its public story.

I admire Marc's boldness for wanting to build a corporate culture of philanthropy.  All I can say about the corporate do-gooder philosophy is that it should reflect bottom-line business strength.  Salesforce and Box have both had trouble earning profits over the years.  A company can't do any good if it's broke.  I did not know that Salesforce had invested in Box.  That makes this younger company part of Marc's ecosystem.  Marc is big on ecosystem thinking; he discussed how electing a US president brings that person's entire "ecosystem" of supporters into office.

I always pay attention to the VC panels at tech events.  Box's VC people noted that billionaires became angel investors in the '90s dot-com final blowoff phase, and now they're seeing it again.  D'oh!  I think one of the VCs was skeptical of the phrase "VCs are the new NASDAQ" because it implies VCs know something the public markets don't.  I agree with the panelists that this ignores the huge bubble risk today.  I am not as familiar as these VCs with the nuances of driving a company from late-stage private to early-stage public.  Even these VCs are admitting how late-stage private firms are seeing fictional valuations driven by non-VC institutional investors.  Hedge funds need to quit playing games with late-stage finance just to get the pop from an IPO that they're not getting from the rest of their baloney strategies.

The VCs' revelations make me want to get on my soapbox.  Here it comes, people.  When smart, early-stage investors like these start warning the public about what they see, the bubble game in multiple asset classes is in serious trouble.  The easy availability of capital (thanks, Federal Reserve, for nothing) and anomalous late-stage funding events have skewed many founders' expectations.  This easy money environment for high-risk businesses is very unhealthy.  A cohort of the Valley's hottest Generation Y engineers have been spoiled into thinking this bubble is their birthright.  My Gen-X cohorts learned the hard way back in the '90s how this story ends.

The single best panel comment I heard at BoxDev was from the security panel.  Someone said startups should pick their founding team with care when applying to big accelerators like Y Combinator.  The big idea is to map out everyone's skill sets as a Venn diagram to cover as much surface area as possible.  Wow, that is mind-blowing.  I'll have to try that with the next bunch of floundering founders I meet in my favorite accelerator, the Cleantech Open.

The founder panel was almost as enlightening.  One founder said that good advisers spend seed time with their startups to earn their stock options.  The best example offered was one adviser who came in several days a week, for several weeks.  He brought lengthy checklists of things to accomplish and descriptions of jobs the startup hadn't even thought of hiring to fill.  Here comes another key lesson for any potential founder who wants to grow something big.  The single most commonly cited method from this panel for acquiring early customers quickly was the early hire of a sales or business development person who had an extensive, longstanding network within the startup's target vertical.  The next most effective business development tactic was cold calls to CIOs (with LinkedIn as a good source) using an effective one-line pitch hitting pain points in cost and volume.  I am seriously going to make that part of the repertoire I impart to founders who seek my wisdom.  I knew there was a reason I needed to be at BoxDev.

The final Q+A with Aaron Levie showcased his rapid-fire humor and decision making style.  The dude is just irrepressible.  He revealed a brutal daily schedule of handling people tasks in the morning and afternoon, with admin and strategy tasks lasting through the evening.  His typical 16-hour day at the office ends at 2:00AM.  Founders, that's your life for several years when you grow a startup.  Hey Aaron, if you read this, I'm the guy who sneezed in the front row toward the end of your session, and thank you for saying "Bless you."  Common courtesy matters.

BoxDev 2015 was worth the time I spent just for the insights in the three paragraphs immediately above.  Knowing the secrets of early team design, business development, and founder work ethic gives entrepreneurs a big advantage.  Box also had a lot more food trucks on hand this year compared to 2014.  That honey waffle sandwich with fried chicken, egg, and bacon was unforgettable.  BoxDev keeps inviting the right experts; their wisdom is also unforgettable.

Full disclosure:  No investment position in Box at this time.

Tuesday, April 28, 2015

The Haiku of Finance for 04/28/15

Content management
Spread throughout the enterprise
Structuring searches

Inspiration At IBM Content 2015 In San Francisco

I scored a seat at last week's IBM Content 2015 conference at San Francisco's Palace Hotel.  I expected heavy product pitches because IBM is one of the sector leaders in enterprise content management.  Knowledge managers are drawn to this stuff because both structured and unstructured records end up in unsearchable archives without some architecture to sort them out.  I had to wonder how my own US Army knowledge management experience (Iraq 2009, been there, got the campaign decoration) would have been different if I had stronger search and archive tools.

Former NBA basketball player Mark Eaton was the morning keynote.  I was impressed at how he translated sports lessons into articulate business lessons.  He forever changed my perception of retired pro athletes.  There's a lesson there for military veterans making transitions to civilian careers.  The dude had four basic principles for functioning on a team:  know your job; do what you're asked to do; make people look good; protect others.  I guess pro athletes have something in common with retired military leaders, because both groups could riff those topics for hours.  What made Mr. Eaton's approach different was his storytelling ability that put each lesson into a narrative.  It was more than a rehash of old sports triumphs that made him likeable.  I detected elements of Joseph Campbell's mythological "hero's journey" in his narrative.  Storytelling through archetypes matters in enterprise sales.  It also matters to knowledge managers who have to construct corporate narratives (you know, like product positioning strategies) out of chaotically arranged enterprise content.

The IBM keynote immediately afterwards was another riff on storytelling as a business function.  I did not know that Kurt Vonnegut had three favorite story arcs:  man in a hole; boy meets girl; from bad to worse.  Searching the web reveals both written and video testimony for Mr. Vonnegut's theses.  Right on, narratives rule.  IBM's favorite story arc is "better and better," something we will all presumably hear customers say if we have the right enterprise content management systems.  I don't need to recap the rest of the IBM product seminars and partner pitches.  My business isn't the right addressable market for them anyway and my own content management needs are easily met with desktop solutions.

The final enterprise content management (ECM) keynote was more pitching, with enough "content" to provoke my thinking.  I learned from experience with MS SharePoint that enterprise search results can be either fast or relevant, but rarely both.  There's usually a tradeoff.  Search systems will improve as machine learning habituates them to the needs of a particular enterprise.  IBM sure is proud of its position in Gartner's Magic Quadrant schema of wonder charts.  The hive mind known as IBM's Watson supercomputer will absorb all of the actions IBM's clients take in their systems.  I have no idea how IBM is going to safeguard all of that proprietary information, unless they're only tracking the metadata from actions.  Knowing how frequently users query, share, store, translate, delete, and do other things with documents is enough for Watson to see without peering into things that would destroy a client's competitive advantage if hacked.  I keep hearing the catch phrase "move document capture to the edge of the enterprise" but it's not a cliche yet.  The payment processing sector has that one covered and now the rest of the economy can learn how to convert dirty data from imperfect image captures.  Any vendor that isn't scanning documents at transaction points right now is way behind their competition.

Chief knowledge officers and their chief information officer friends will either earn their pay or get themselves fired once they commit to branded ECM software.  It's all going to the cloud even if Watson didn't exist.  Building a hybrid cloud and keeping key developmental projects under wraps will be hard for anyone who hasn't learned about Cloudonomics.  The ongoing fight in ECM won't be pretty.

I'll close with one more lesson from Mark Eaton.  He said that if enough people tell you you're suited to do something, you should listen.  That's how he got back into basketball and found his optimal position on the court.  Well, you know something, a whole bunch of people have told me over the years that I have a natural voice for narration, and they ask me if I've worked in radio.  I'll take that as a pretty strong hint that I should add voice work or webcasting to the Alfidi Capital tradition of excellence.

Full disclosure:  No position in IBM at this time.

Financial Sarcasm Roundup for 04/27/15

This particular burst of sarcasm draws inspiration from the Commonwealth Club's "Week to Week" political panel.  I attended because I had some rare white space on my calendar.  Yeah, folks, I really have been that busy lately and that's why I only had time to blast out haikus last week.  Anyway, the Club panel covered the topics below and the usual brain-dead losers in the audience thankfully remained silent.

The Trans-Pacific Partnership trade agreement is still controversial among people on the far Left and Right who flunked both math and economics.  Knitting our largest trading partners together is a no-brainer.  Two decades of economic data from the success of NAFTA ought to convince naysayers but some people just prefer illiteracy.  President Obama remains well-liked among his base and probably has the political capital to spend on fast-track approval authority if he so desires.  I concur with the Club's panelists that he was never as progressive as his early rhetoric led some to believe.  He has governed like a center-right President for most of his tenure (much like Ike or JFK in their time).

The Club's panelists are political junkies and watch every turn in the 2016 Presidential race as if it matters.  Folks, nothing matters at this stage except fundraising and the "invisible primary" of early party endorsements.  The serious candidates are obvious, and the unserious ones are usually corporate executives who have never spent time in Washington, DC.  Launching a Presidential campaign as a stalking horse for a Cabinet position makes no sense.  Presidential transition teams have their own vetting process for those jobs, and said process has everything to do with sending a message about governance priorities.  It has nothing to do with rewarding primary season opponents.

It makes little sense for our local pundits to lament the influence of money in politics.  America has always been a stealth plutocracy and the Founders were the wealthiest people of their time.  Billionaires don't always get what they want out of elections.  Gambling mogul Sheldon Adelson backed Mitt Romney in 2012 and got nothing for the money he spent.  The Koch brothers' influence is similarly overblown.  I can't take the Kochs seriously when their family patriarch's first political project was the John Birch Society.

Local ballot measures promoting bond issues for BART and school districts are in danger of stepping all over each other.  Voters can never remember how much they approved in previous bond issues.  Read what I wrote about some recent transit studies that debuted at the Commonwealth Club to see just how much voters need to know before they pull the lever for more bonds.  I see no solution to the funding problems facing Bay Area public schools that does not involve eventually winding them down.  The various gifted programs for Sacramento public school students worked fine for me, but that was the 1980s.  The public school era in our nation's history is probably closing as MOOCs offer vast course arrays free of charge.

Finally, someone mentioned a new local initiative that landlords have launched to give military veterans a break on market rents.  These breaks are supposed to go where they do the most good.  Homeless veterans should be first in line.  I need to remind my readers that not all veterans are homeless.  I am a veteran, and I pay my rent and taxes just like the rest of you.  I was never issued a begging bowl in the Army.

Have fun next time, Commonwealth Club kiddos, and don't forget to play my "Commonwealth Club Matching Game" available on the Special Reports page of my Alfidi Capital website.

Monday, April 27, 2015

The Haiku of Finance for 04/27/15

Greek uncertainty
Hard to pick Grexit timing
Many still pretend

Mobile Monday's Geospatial Big Data In Silicon Valley

I trekked down to Silicon Valley last week for my regular taste of Mobile Monday.  The Silicon Valley campus playing host to this particular event had one of these post-modern water sculptures out front.  I see these things so frequently now on such "campuses" that I'm pretty sure the big tech firms are trying to subtly outdo each other with understated water installations.  The drought is still on in California but these displays all claim to use recycled water.  Okay, whatever.  I did not take any photos of the water display or its sponsor.  You'll just have to believe me when I say I was there.

Anyway, geospatial is shaping up to be another next big thing now that all the other next big things - Web 2.0. cleantech, social/mobile/local - have run their course.  The leading geospatial player on my radar is DigitalGlobe.  You may have seen their work cited in open sources when US military officials with NATO used DigitalGlobe photos to bolster their argument that Russia was using military force in Ukraine.  The DigitalGlobe rep who spoke at Mobile Monday made a clear case for mining geo-linked data sets.  Making those data sets available to retail users in real time will take a lot of bandwidth.  Fortunately for DigitalGlobe, plenty of users love playing with high-resolution maps.

The experts on hand discussed geotagging as a user engagement strategy.  The good news for them is that incentivizing users to tag images is easy with some gamification experience.  Users who score can unlock "expert geoanalyst" badges and build their reputations in open-source imagery analysis.  Geodata startups should pay attention to exploiting all the free labor they can get in finding a mass audience for their analytical solutions.  The best freelance analysts will eventually demand to be paid premiums, much like programmers who become repeat hackathon winners.  You heard it here first at Alfidi Capital.

I am not aware of any accelerators specifically focused on geospatial startups.  I expect that to change as companies like DigitalGlobe succeed in monetizing crowdsourced geodata.  One of the expert panelists mentioned how years of map data add context to whatever users do with a download.  I would add that years of embedded links from news articles and social media feeds can add more searchable context if the download sets were amenable to enterprise knowledge management solutions.  The difference between layering and filtering data matters little to retail users but becomes more salient for knowledge managers farther up in a large enterprise.

It's time for some personal stories that add color to the geospatial sector.  My own experience with geotagged image data dates to 1996, when I was on active duty in the US Army.  In the '90s I worked with systems that used scanned 2D maps overlaid with crude geotags.  The geotags did not connect to embedded data and the maps were poor simulations of 3D terrain features like elevation changes.  The military systems I worked with since 2008 showed vast improvements in both 3D rendering and embedded links.  I know from experience how enterprise search offers a compelling way for geodata to add value.  In other words, I know what right looks like.

Here come my predictions for the geospatial sector.  I expect crowdsourced geotags will be worth more if they are segmented by user competence.  Data providers should ask taggers to initially self-identify their expertise in recognizing image anomalies or data elements.  It's worth investigating to see if gamifying mass involvement will truly identify skilled analysts.  I expect data purveyors to pursue bifurcated pricing models, with one payment track for enterprises and a much cheaper track for individuals.  It will look like software pricing strategies that chase seat counts, but the winning startups will know how to cover the variable costs of processing and storage.  Geodata startup founders must read Cloudonomics if they want to win.

I would not be surprised to see the emerging relationships between geospatial sector firms and Big Data firms to lead to mergers.  The VCs chasing geospatial startups are going to be disappointed once they discover the very high costs of putting satellites into orbit.  The only possible entrepreneurial disruption available there would be from some space launch technology that does not use a traditional multistage booster to escape earth orbit.  Rocket sled launch technology would be great if it relied upon a railgun for its initial propulsion.  I respect SpaceX for getting the conversation started but I don't understand why they still seem stuck on rocket boosters as their tech mainstay.

Geospatial enterprises will be fun to watch in the next few years.  Lots of startups will jump into it thinking they have some app that DigitialGlobe or Google would love to acquire.  If said app reduces the cost and speed of processing embedded map data, they just might have a chance.  A bunch of VCs will throw money at any startup with "geo-something" in the first line of their business plan because chasing fads is in Silicon Valley's DNA.  I'll be around to laugh at the VCs who fund the worst ideas first, and to congratulate the best ones that win.

Full disclosure:  No position in DigitalGlobe (ticker DGI) at this time.

Sunday, April 26, 2015

The Limerick of Finance for 04/26/15

Central banks will continue to meet
Policy is no longer discreet
Growth cannot be pumped
Hyping stocks to be dumped
Stimulus only helping Wall Street

Friday, April 24, 2015

Thursday, April 23, 2015

Wednesday, April 22, 2015

Monday, April 20, 2015

Sunday, April 19, 2015

The Limerick of Finance for 04/19/15

China makes a reserve ratio cut
Swap rates drop to their deepest rut
They keep easing hard
Playing Beijing's last card
Shadow banking rests on a weak strut

Saturday, April 18, 2015

Friday, April 17, 2015

Thursday, April 16, 2015

Wednesday, April 15, 2015

Tuesday, April 14, 2015

The Haiku of Finance for 04/14/15

Conflicted advice
Client duty still comes first
Bring on robo-plans

DOL Fiduciary Rule Brings Tougher Times for Financial Advisers

The US Department of Labor's EBSA proposed a new fiduciary standard today for financial advisers giving advice on retirement plans.  Read the proposed rule on EBSA's site for the large amount of background material.  Prohibitions of conflicting interests will be tougher.  Disclosure will be more thorough.  The bottom line for advisers is a higher standard of care for the clients paying their fees.  Many advisers will not prove themselves up to the task despite the exemptions available.

Most wirehouse advisers push retirement plans populated with actively managed mutual funds.  These funds are more expensive than passive index funds and tend to underperform their benchmarks.  These same funds pay 12b-1 fees to advisers and their branch offices.  Fiduciaries have built-in conflicts tied to the financial products with the largest market share in retirement planning.  The SEC has recently placed 12b-1 fees under close scrutiny.  Any regulatory change that discourages 12b-1 fees will reduce product selection in retirement planning.  Less profitable products and tighter fiduciary standards will deter many advisers from offering retirement advice.

Clients seeking retirement solutions in this changing landscape have reason for optimism.  Robo-advisers are coming.  The AIs at automated brokerages work non-stop for zero pay.  Automated advisers can accommodate dirt-cheap, plain vanilla index funds in tax-advantaged retirement plans.  They also have negligible potential for fiduciary conflicts because they are programmed to do precisely what the client wants.  Coding DOL rule changes into an AI is much cheaper than retraining human advisers and funding a human compliance function.

Human beings always seek the path of least resistance.  Advisers are only human and plenty of them will get out of the retirement planning lane if reduced fees and more regulation make it unattractive.  Clients still need advice and they will not have the patience for human relationship managers who must explain conflicts before deciding what role they may play in a transaction.  Fiduciary rule changes are one more force pushing humans out of finance.  Automated advisory programs will fill the gap.

Monday, April 13, 2015

The Haiku of Finance for 04/13/15

Singapore growing
No need to add easing there
Stop waiting for Fed

Financial Sarcasm Roundup for 04/13/15

It is time once again to refresh the pile of sarcasm that I have built up since my last missive.  I just can't quit.  No one else in the financial sector is capable of picking up the sarcasm slack if I'm not around.

The Trans-Pacific Partnership trade talks are back in play.  It was never really dead because Anglo-Western elites and their friends in places like Japan never give up on something they truly want.  Congress needs to get its act together and put the TPP on the fast track.  Capitol Hill staffers who were around when NAFTA was ready in 1993 should remember how to get a deal done.  Versailles on the Potomac must tap its best operatives.  Institutional memory lies within the Deep State.

Companies are salivating over more hot M+A action.  Corporate development officers must be getting dumber by the day if they think they can acquire their way to success in this environment.  Global macro indicators are heading down and consumer demand is imploding in the largest regional economies.  Executives addicted to cheap borrowing see M+A as a substitute for real growth.  Paying premiums for high-earning targets in low-growth markets will hurt in the coming downturn.

Ukraine is headed onto S+P's default list.  A basket case economy run by kleptocratic cronies for decades should surprise no one when it turns into a black hole for capital.  Whoever was dumb enough to buy Ukrainian government bonds last year expecting a bailout should not run a hedge fund, yet these idiots always start another "emerging market debt" fund after they fail.  Oh yeah, the US government dumped billions into Ukraine in the 1990s and will never see a return on that foreign aid.  The amnesiac, inbred trust fund babies running large investment funds and US government bureaucracies need some kind of public flogging and a lifetime ban from any and all occupations that involve handling money.

Stupidity never ends when stupid people hand down leadership positions to their offspring.  The failures noted above rest on the stooped shoulders of enfeebled aristocrats who are finally in water over their heads.  They know where to reach me if they need real solutions, provided they step out of the way.

Sunday, April 12, 2015

The Limerick of Finance for 04/12/15

Strong dollar impacting world trade
Exporters find they have it made
Domestic growth lags
Year's forecast now sags
American profits shall fade

Saturday, April 11, 2015

Friday, April 10, 2015

The Haiku of Finance for 04/10/15

Presenting report
Boss asking budget impact
Wait until last slide

Writing For Dollars And Credibility

I heard a talk from a "writing coach" today about how business owners can raise their profile by publishing a book.  I got the distinct impression that the profitability of the book itself is less valuable  for that coach than the free media and lead generation from a book tour.  That approach may have been fine in days gone by when getting a book published was more difficult than today.  Writing for money is easier than ever in a digital world, but everyone is doing it now that entry barriers are so low.

Amazon has driven down the prices of both paper books and ebooks with its anti-competitive tactics.  Defining a simple distribution channel for ebooks though its Kindle platform was even smarter.  The industry recognizes the counterintuitive discovery of ebook profitability.  Hugh Howey's article "Two Important Publishing Facts Everyone Gets Wrong" covers ebooks' financial appeal quite well.  The Association of American Publishers' resources page now reports on the solid success of ebooks.

A cottage industry of enablers stands by to separate aspiring writers from their money.  Transcribing services will convert a writer's audio interviews into a printed record.  The San Francisco Bay Area in particular seems to be spilling over with freelance editors and proofreaders who will do for pay what more competent writers should do for themselves.  Business professionals looking to crank out a vanity book just to launch a speaking tour have money to burn.  They may be competent in their verticals, but stepping outside makes them suckers and invites the publishing world's parasites to view them as prey.  I'm pretty sure the automation trend that's about to sweep through financial services could just as easily set its sights on publishing.  All those cottage industry liberal arts grads can be digitized away once AI editors are launched.

Publishers Weekly tracks its own "Publishers Weekly Stock Index" in regular monthly articles.  PW also publishes a "Facts and Figures" section covering book sales and a "Financial Reporting" regular feature tracking recent sales figures at selected publishers.  I am disappointed that PW publishes those articles in long-form narrative with no downloadable CSV data sets.  They think like writers over there, not analysts.  The serious analyst could construct a "PWSI" portfolio for that stock index in lieu of publishing their own book.  That actually gives me an idea for a future blog article.

If there's a book in me somewhere, it won't be some crude promotional tool.  My permanent products on the Alfidi Capital main site are pretty serious even if they do look humorous.  If I ever change my policy about having nothing for sale, the first thing I would ever consider selling would be my own book.

Wednesday, April 08, 2015

The Haiku of Finance for 04/08/15

YouTube ad-free plan
Pay to avoid those pitches
Premium viewing

Getting Finance Right By Automating Lying Humans Out

Financial people do many things wrong.  Sales people are generally the worst and their managers are right behind them.  Saying anything to close a deal is a typical bad habit.  Lying is hard to stop once it's financially rewarded.  The best way to stop it is to never start in the first place.  The next best way to stop it is by automating the functions that lying humans used to perform.

Brokers who lie to clients cause more than missed performance expectations when clients get wise.  They cause legal liabilities that bring lawsuits for misrepresentation.  Compensation on Wall Street has long been a colossal expense for firm that feel driven to pay top dollar for "talent."  The talented liars running brokerages and investment banks are about to meet the new digital world.  Automated sales processes will reduce Wall Street's highly paid sales forces to a handful of domain experts and their DevOps partners.  Everyone else will be obsolete.  The liars' legal problems will be gone when they are gone.

Public companies that send financial statements to the SEC are supposed to make them truthful.  It's hard to discover financial fraud but dedicated forensics examinations can uncover egregious frauds.  Most auditors aren't so dedicated because they just want to make it through the day.  Catching the more commonplace fudging is quite difficult.  Modern accounting rules give CFOs plenty of leeway to report odd things.  Outside auditors that keep teams embedded with large clients are prone to capture.  Enron got away with fraud thanks to its cozy relationship with Arthur Andersen.  Both companies no longer exist except as legal fictions needed to unwind assets on behalf of angry creditors.  Automated auditing is coming next after automated relationship management.  The botnets will share no sentiments for human buddies across the aisle.

Doing the right thing in finance always means reporting results honestly.  Many humans are not up to this task but somehow mask their deficiencies.  Very talented liars can fool a lot of dimwits for a long time.  Hardly anyone can be fooled forever.  Getting finance right will be much easier when automation drives lying humans out of the corner offices.

Monday, April 06, 2015

The Haiku of Finance for 04/06/15

Education plan
Disrupt traditional school
Obsolete teachers

Education Startups Have A Path To Disruption

I kicked around some ideas a few months ago with some fellow entrepreneurs.  We were searching for a startup concept that would disrupt the educational establishment.  The persistence of No Child Left Behind and Common Core standards leaves little room in the future for educational enterprises that don't meet very clear goals.  There is a way forward that can generate wealth for the ambitious.

Every startup should begin with the Business Model Canvas.  They will refine this template as they go through the Lean Startup process and get their first Customer Development results.  It is no longer optional for tech startups in any sector to use these concepts.  They simply must apply them if they want to reduce their risk of failure.  Steve Blank and Paul Graham have written extensively on how startups succeed.  Reading their bodies of work saves founders a tremendous amount of time.

Accelerators now proliferate and some cater to specific verticals.  Education startups have their choice of Kaplan EdTech Accelerator, Pearson Catalyst, Imagine K12, or DeVry's DV X Labs.  Aspiring entrepreneurs should look at the track records of the startups coming out of those programs to see which one offers the best steroid power.

Workable education tech models need not be limited to MOOCs.  Online education models are easily scalable but the barrier to entry is extremely low.  The MOOC sector is already crowded and I believe the winners will be those that join established brands (i.e., the highest-quality private universities) to leverage accredited curricula.  Other verticals may present higher entry barriers, and will thus offer durable competitive advantages to the first entrants.

I think physical hackerspace franchises like TechShop are extremely flexible by providing a la carte hardware capabilities.  MOOCs are valuable because they make advanced academic knowledge universally available, but they cannot replicate physical laboratories.  Let's say some MOOC partners with a hackerspace network to offer accredited courses in the physical sciences under an Ivy League brand.  That market player would have incredible durability.

Identifying tools is easy.  Finding an addressable market is harder.  Education professionals who find their jobs frustrating are welcome to fight bureaucrats for the rest of their careers.  The obvious shortcut is to escape from the ivory tower or bunker schoolhouse and launch a game-changing startup.

Sunday, April 05, 2015

The Limerick of Finance for 04/05/15

The sharing economy plan
Rent large goods as much as you can
Just download the app
Order stuff in one tap
Cheap service in a short time span

Friday, April 03, 2015

The Haiku of Finance for 04/03/15

Record margin debt
Business loans pump enterprise
Pain on reversal

Debt For C+I And Margins Equals Pain In Recessions

Charts and data make investing simple.  I don't mean the point-and-figure kinds of charts that technical analysts take as gospel.  I'm talking about the macroeconomic charts that show how messed up the US economy is going to be in a recession.

The FRED data series BUSLOANS shows the commercial and industrial loans from all commercial banks.  Business loan volume grew steadily up until about 1975, turned up significantly through the 1980s, and then absolutely exploded after 1993.  The prosperity of the Clinton years wasn't just a function of PCs and the Internet making business more productive.  It was also a function of debt-fueled business spending on IT infrastructure, physical plant, and even M+A activity.  Loan volume has almost matched its late 2008 peak.

The raw data from the NYSE is just as stark.  Dig deep for "securities market credit" and note how margin debt has exploded since 2010.  Hedge funds at the big end and retail investors at the small end are leveraging their accounts and trading like mad.  The explosion in C+I debt above is fueling traders' madness.  Corporations use debt for stock buybacks, special dividends, and poorly chosen M+A deals that inflate their enterprise values.  Investors chase these phantom growth drivers at their peril.

The growth in business loans and securities market credit is unsustainable.  Both figures have outstripped GDP growth and population growth at least since the 2008 crisis.  Corporations carrying huge loans and investors carrying huge margins will all feel enormous pain when the market reverses course.  People going nuts about perpetual economic expansions need to get sober.  They definitely need schooling on how excess debt kills the thrill of investing when downturns hit.

Thursday, April 02, 2015

The Haiku of Finance for 04/02/15

Updating theory
Inflation changes assets
Same risk assumption

Modern Portfolio Theory Before Hyperinflation

Modern portfolio theory (MPT) has been around since Ike was in the White House.  It's old enough to be Generation X's cranky parent, yelling at the neighborhood kids to get off the lawn.  It's also old enough to deserve some improvements.

The authors of MPT and related investment strategies were old enough to have lived through the Great Depression.  Images of people who lost everything from overconcentration in one stock, style, or sector made lasting impressions.  MPT's emphasis on diversification is a natural result.  Most investment theorists in the Anglo-West have not lived through a hyperinflating economy.  Using MPT to rebalance portfolios during hyperinflation poses hidden risks.

Fixed income investments comprise a significant allocation of many MPT models in the real world.  Bonds, notes, cash instruments, and other things denominated in a face amount of currency will rapidly turn worthless in a hyperinflationary economy.  Ask anyone who invested in Zimbabwe, Argentina, or Venezuela in the last decade.  MPT investors in those countries could be heard howling all the way across the Atlantic, if anyone listened.

Hyperinflation turns MPT inside out.  Asset allocations that include hard assets are far more likely to survive a hyperinflating economy than anything with fixed income.  Hard asset sectors like energy, agriculture, mining, and now infrastructure as an emerging theme will hold their worth through inflation because they produce output that can be valued in any currency.  They may even experience strong valuation growth during hyperinflation as investors rush to convert the declining power of their currencies into hard goods that will retain utility.  The end of hyperinflation will also end such rushed growth, but a productive farm will still be a farm.  A bond won't be the same at all.

Updating MPT for a highly inflationary economy does not require adjustments in risk-return calculations.  It does require the inclusion of other asset classes that do not behave like fixed income.  Consider that oil drillers and metal miners have been hit particularly hard in recent months by oversupply and declining world prices.  Consider also that lengthy monetary stimulus has pumped an unsustainable global bond market bubble.  Rebalancing means a rotation away from overconcentration in fixed income is due any time.  Underpriced hard assets are ready for any MPT-based portfolio manager with enough foresight to prepare for inflation.

Wednesday, April 01, 2015

The Haiku of Finance for 04/01/15

Gaining momentum
Fintech startup vertical
Tall regulation

Momentum Blasts Off Fintech Founders Lab In April 2015

I blogged last year about Momentum's fireside chats in downtown San Francisco.  Momentum has broadened its focus beyond mobile, as one can tell from their portfolio.  The latest Momentum initiative is the Fintech Founders Lab, which I attended tonight.  Venture investors and startup founders shared their experiences in tech land with those of us curious enough to learn.  My comments below represent what I learned.

Many hurdles trip up fintech projects.  Building relationships with regulators helps only if you can get out in front of potential problems by asking an agency to issue a "no-action letter" or its equivalent.  Firms with dominant market size can crush competitors with marketing spending, but that won't be enough to destroy a startup that truly hits pay dirt and builds a large market.  The big firms will then try intimidation through lawfare.  Charles Schwab built his brokerage the old fashioned way and the big wirehouse firms hit him with lawsuits.  Schwab survived legal challenges because the firm built undeniable financial strength.  Poorly financed startups today would fold at the first "cease and desist" letter from a large competitor's in-house counsel.  Regulatory arbitrage is an advantage for those fintech startups that pick only one jurisdiction.  Competing in multiple geographic markets or in more than one vertical means getting approval from multiple regulatory regimes.  Founders must think about how much insurance and how many securities licenses they will need before starting their roadshows.

Fintech founders have figured out Customer Development.  The data they get from the first 100 conversations within their target market gives them a better business plan.  Investors have also figured out fintech founders.  I have reviewed the template due diligence checklists found on the leading VC and angel associations' websites.  The checklists don't prioritize intangibles like founders' personal integrity or problem solving ability.  Evidence for those qualities is always anecdotal but frequently on display in due diligence conversations.  Conjuring a phantom pain point by making easily disprovable claims about merchant problems will make investors check the NO block on character.

Someone brought up Bitcoin, of course.  The panelists showed maturity by putting the concept in its place.  The earliest Bitcoin exchanges have flamed out after massive fraud and security breaches.  VCs are getting smarter about looking past Bitcoin's "store of value" fallacy.  Pivoting to a transaction framework makes the most of Bitcoin's open source ability.  It also means more regulation is coming.  I would like to see Bitcoin fans addresses the protocol's irreversibility.  Consider that a fraudulent charge executed in Bitcoin after identity theft will leave the victim permanently damaged if a payment processor cannot cancel it.

Financial startups are not like gaming or messenger app startups.  Business plan homework starts with regulatory research.  Payment processing fintech must start with the FTC or CFPB.  Banking fintech must start with the FDIC and Federal Reserve.  Brokerage fintech must start with the SEC and FINRA.  Startup teams will need a Chief Compliance Officer very early in their formation.

Heavy disruption is taking its sweet time in coming to finance.  I concur with the expert panelists that personal creditworthiness metrics need a 21st century makeover.  FICO scores are ripe for disruption with all of the Big Data the credit bureaus can access.  The financial crisis of 2008 proved that mortgage origination and institutional credit rating agencies also deserve disruption.  The biggest disruptions getting traction right now aren't in the heavily populated spaces like payment processing, where coders seem to land once their gaming startups flame out.  The real winners now are the AI brokerages that will eventually eliminate the highly compensated salespeople and relationship managers earning the bulk of the compensation in finance.

All of these other "disruptive" ideas are great within finance verticals but they must ultimately be linked to the IoT revolution.  A new POS terminal developed in isolation risks failure if merchants can't connect it to in-store IoT tools like beacons and video tracking.  Merchants want a whole suite of software and hardware that will tell them in detail where their same-store sales came from down to the minute, dollar, and square foot.  The systems integration opportunity will be enormous for vendors who can plug compatible IoT things together.

I have spent several years mentoring startups both on my own and through a couple of California-based accelerators.  I want to see what a Business Model Canvas looks like for a finance startup.  Fintech accelerators know where to reach me if their companies need mentoring.  Alfidi Capital is all about hot finance action.