Thursday, February 25, 2016

The Haiku of Finance for 02/25/16

Growth or value stocks
False choice ignores true metrics
Style funds get it wrong

Wednesday, February 24, 2016

Tuesday, February 23, 2016

The Haiku of Finance for 02/23/16

Phony crowdfunder
"Angel" faking his background
Dumb founders get fooled

Monday, February 22, 2016

The Haiku of Finance for 02/22/16

Supply chain genius
Unstick every bottleneck
Six Sigma route plan

Early Political Donors Face Diminishing Primary 2016 Expectations

The early shakeouts of the 2016 US presidential campaign have done more than dash the hopes of some long-shot candidates. The financial backers who committed piles of money to the early efforts of doomed campaigns also face major disappointments. Any expectation that money could transform this election are gone.

The Jeb Bush campaign was one of the largest wastes of money in American political history. The biggest Bush donors got badly burned and they now face candidates who are unlikely to consider their business interests. The current Republican front-runner has spent little on direct media or ground organizations compared to the other serious candidates. One of the cheapest modern GOP campaigns, in both popular votes and party delegates acquired, is possible with celebrity-powered free media that reads the cultural zeitgeist correctly.

The Anglophile Establishment in America has always had a bias in favor of large enterprises. Big sectors employ lots of unionized voters and are easier to protect with trade rules and tax breaks. The remaining Establishment hopes in either major political party lack popular appeal precisely because their longstanding ties to big business are so obvious.

The business community must now face the prospect of a future administration that owes them nothing. A progressive Senator promising unlimited free benefits and a real estate tycoon promising a free border wall will feel no loyalty to Wall Street or subsidized sectors, assuming they get their party nominations. America is on the cusp of a political transformation that may break the rule of an oligarchy unable to fathom its own shortcomings. Money could not buy political cover this time. Political "investors" must recalibrate what it means to earn ROI without political influence, if their fortunes even survive the next recession.

Sunday, February 21, 2016

The Haiku of Finance for 02/21/16

No post-crash learning
Theses built on fakery
Soon to feel the burn

Awaiting Some Tumultuous Market Tumble

It has been a long time since the 2008 financial crisis. Everyone who bet on a market recovery since then has been rewarded. Professional money managers think they have the recovery all figured out. Endless monetary and fiscal stimulus in the developed world made even the worst investment theses prosper. The experts have no idea how wrong they are about so much of the economy.

It is impossible to fairly value any publicly traded financial security when interest rates are permanently at zero. It is difficult to invest in fixed income securities when sovereign defaults in Greece, Puerto Rico, and elsewhere invalidate distressed debt investing. It is hard to buy real estate in desirable locations when credit-impaired mortgage borrowers drive up prices after putting no money down. It is ludicrous to endorse some nation's economic potential if its government statisticians falsify important data.

Painful lessons recede from memory when shamans apply fake salves to real wounds. The snake oil feels good for a while if the patient does not catch on to the placebo effect. Witch doctors on Wall Street have run away with investors' money since 2008. The cleverest and luckiest players have already left the game. Suckers remain, awaiting their chance to hold an empty bag while Wall Street's knaves clean them out.

The post-2008 economic recovery is mostly a mirage in Europe and the United States. China's growth miracle has been a mirage for some time. The BRICS were a cute marketing concept as long as investors never figured out that those countries had weak legal climates for investing. Privately funded unicorn startups are deflating, flushing their employees' stock options down the Silicon Valley drain. Investment concepts that looked great when capital had no cost were suitable only for fantasies. The market tumble that will snap people back to reality will be one heck of a tumult.

Saturday, February 20, 2016

The Haiku of Finance for 02/20/16

Apple theater
Pretend to protect data
Convince amateurs

Financial Sarcasm Roundup for 02/20/16

It's always a great day at Alfidi Capital. It's even greater when I'm throwing sarcasm at the financial world.

China replaced its stock market regulator with a bank economist. Trading one type of loser for another will not repair foreign investors' lost confidence. The symbolism of a former central bank official watching stock movements is that capital markets must do the state's bidding. They could try putting a panda bear in charge. It would be more fun to watch than a human regulator and just as effective given the system's pervasive corruption.

US law enforcement and Apple are testing each other's legal patience. It looks like so much theater to me. Apple has cooperated with data subpoenas before. It's fairly easy to unlock iPhone data anyway. It's so easy, a caveman could do it. The latest case should not be such a big deal but Apple has to at least go through a few hysterical motions to please Silicon Valley's hard-core libertarians and data geeks. The data privacy crowd simply does not grok the "layer cake" messaging methods that federal regulators often employ with the finance sector, and now with the tech sector. I do not expect the data crowd of Star Wars fans and Bitcoin nut jobs to uncover such subtle public performances.

The heart of Yahoo's operation is going to the highest bidder. The board should fire the CEO for dragging this decision out so long. I would have kept the core business and sold off everything else, but the Yahoo board never asked me to become CEO. It's their loss. I will LOL if Microsoft emerges as the ultimate buyer, getting a bargain for what they should have acquired in 2008. Silicon Valley's smartest people sometimes do some really dumb things. It took a series of geniuses over a decade to destroy Yahoo when it could have been saved under Microsoft.

I still use Yahoo Finance because I like the details. It enhances my net worth. Dumb people in the Valley continue to dump capital into doomed tech startups. Laughing at them all will enhance my well-being.

Friday, February 19, 2016

Wednesday, February 17, 2016

Tuesday, February 16, 2016

The Haiku of Finance for 02/16/16

Startup gets a prize
Not about earning profit
Just for looking good

Alfidi Capital Visits DeveloperWeek 2016

I did not have time for either the full CTO World Congress or DeveloperWeek in 2016. I had to make an appearance at DeveloperWeek's VIP reception at Galvanize SF because I am a VIP after many appearances at tech events in Silicon Valley. I avoided the sticky badge and went straight for the food and beverages, along with the snazzy brand icon photo below.

I sat for the brief awards ceremony in between my rounds of booze. Several well-funded startups have made a big splash among the media portals tracking software developers. I have always believed that the ultimate success milestone in monetization is actually making a profit rather than impressing tech writers. I hold a minority view as long as VC-backed startups can afford PR in tech media.

Any reception at Galvanize brings out a crowd of people who play at having tech careers but aren't really serious. They were mostly downstairs tonight for another tech reception. These people are usually in the second or third round of hires at VC-backed startups because they enjoy riding the freebie gravy train. The permanent adolescents in The City never grow up. They will still have roommates into their late 40s and will always complain that dating apps never have a match for their personalities. If someone could create a matchmaking app for total losers, the app would find a boatload of beta testers in San Francisco.

Congratulations to the DevOps people who won prizes at DeveloperWeek and other conferences. The hiring mixers are brimming with developers jumping into their prize-winning startups. I can drink any of them under the table if I have free food before social hour begins. Winning at drinking is easy for me even with an empty stomach but I have to let the public think that I at least make an effort.

Monday, February 15, 2016

The Haiku of Finance for 02/15/16

Rush to recession
Consumers ignore macros
Ask to be wiped out

Financial Sarcasm Roundup for 02/15/16

Happy Presidents Day, America. George Washington and Abraham Lincoln never imagined that the Internet would carry their noble messages to the far reaches of the globe. It also carries my sarcasm to those places.

Oil traders are getting more bullish. The bulls may have read my recent writings, or they may be figuring out that bankrupt oil producers can't pump forever before turning off wells. Oklahoma is drowning in liquid black gold and drillers are drowning in red ink. Consolidation this year means fewer slick operators selling flimflam and dry holes next year.

US consumers are spending again. People who went broke during the holidays are now counting pennies saved on lower gasoline prices. They spend those pennies with abandon. Watch your neighbors who aren't saving; they won't survive the onrushing recession. Their homes will be for sale upon foreclosure and I might be waiting with a check in hand.

Franklin Resources' Mark Mobius likes Chinese stock bargains. He misreads garbage as a bargain. Western investors who aren't from Asian bloodlines will never understand the false fronts that Asian financial markets present. Dopey fund managers are born to get clobbered after they buy Chinese state-sponsored Ponzi schemes.

Oil ministers will talk through their mutual pain. Expect lots of crying, wailing, and whining about an oil market that is out of control. Emerging markets got more than they expected when Saudi pumping wrecked their capital accounts. The major oil producers could have used their dollar reserves to diversify away from oil production in the face of UN COP21's coming wealth redistribution scheme. Instead they chose to maintain kleptocratic rentier states and defend their currencies. No one in the developed West should cry for the oil countries that proved too weak to stand up to the Saudis and make their own production cuts.

Presidents Day sales don't apply to political campaign contributions. A dollar for your favorite candidate does not go farther over a holiday weekend.

Saturday, February 13, 2016

The Haiku of Finance for 02/13/16

Rig a floating rate
Dumb banks get caught and punished
Fix Libor worldwide

Financial Sarcasm Roundup for 02/13/16

Most people go out for fun on Saturday nights. Staying home to publish sarcasm is my idea of fun.

Apple is about to throw new versions of its hottest products at consumers. I believe Apple's most fervent customers are the same kinds of too-rich, too-dumb people I meet at San Francisco VIP events. Only a moron pays a premium every 18 months for an updated product with only incremental capability upgrades. Young urban trendies have to show off shiny gadgets because they live for today. They will have no retirement portfolio for tomorrow.

More banks will face Libor manipulation action. The ones that were too dumb or too greedy to settle early with regulators are going to bite the bullet. Only dummies and crooks try to rig markets anyway. The lack of Libor transparency cries out for an international regulatory solution. The World Bank and IMF are welcome to call me anytime if they want my help.

Greece's weak pension plan jeopardizes its chance for more bailouts. The story never ends. Greece ran out of game theory options last year and is now prostrate. Angry farmers who don't like contributing more to their pension funds will be even angrier when their future pensions won't even buy a gyro. I don't mind making jokes about gyros because the rest of the world makes fun of American hot dogs and hamburgers.

Sunday may shape up to be even more sarcastic than Saturday.

Friday, February 12, 2016

The Haiku of Finance for 02/12/16

Report revenue
Recognize the period
Record on sale date

Financial Sarcasm Roundup for 02/12/16

I had a busy day today. Important things demanded my attention. I read a whole bunch of very interesting material. I barely have time for sarcasm right now, but I make time.

The Federal Reserve's chair does not wish to be blamed for stock market turmoil. What a bunch of hooey. The Fed's ZIRP has done more to misprice securities valuation than anything else it has done in its history. Normalizing rates sooner would have depressurized the stock market without all of this pain from unsustainable gains. Other central banks took off with variations of the Fed's approach and now we see China's collapse hurting other markets. Way to go, banker gnomes.

Europe's sovereign debt market is seriously stressed. I wouldn't be surprised if some random announcement from one of the PIIGS' finance ministers makes the whole tamale implode. Suckers bought European government bonds and will soon eat their losses. The ECB's dollar swap line agreements with the Federal Reserve were an open secret among Transatlantic bankers in the last crisis. The rest of us won't find out for years just how much credit the Fed has given the ECB to support its bond purchases now.

I just did a Google search of "leveraged ETF" to see that these stupid products are more popular than ever. Investors chasing these things and advisers pushing them obviously can't do the math on daily leverage calculations. The best hope for sanity is a market crash that wipes out the 2x-3x bullish ETFs combined with a credit crisis that destroys the liquidity of bearish ETF sponsors. Brokerages programming their robo-advisers use passive ETFs without leverage for darn good reasons.

I should be busy tomorrow. I continue to ignore losers who demand my attention because I only have room on my calendar for winners.

Thursday, February 11, 2016

Wednesday, February 10, 2016

The Haiku of Finance for 02/10/16

Gold back on the rise
Dollar tension lights up price
Bricks flow back to vaults

Financial Sarcasm Roundup for 02/10/16

Today is Ash Wednesday in the Roman Catholic Church. I am no longer a member of any religion so I don't need to attend church services. My sarcasm never went over well during prayers anyway.

Europe wants the G20 to target growth. Got it. One continent's finance people want the world's leading finance people to decouple global growth from China as quickly as possible. Panic is not yet in the air. The real panic comes when the world's bifurcated economies - one for financial flows, one for real goods - trend down together. The rest of the world (ROW, in money manager parlance) can't get China off its balance sheet fast enough.

Coal power plant cleanliness gets a breather, so to speak. The charred, hard carbon miners have taken a beating for years thanks to the world's zeal for lower emissions. I don't see how the world can substitute for metallurgical coal and coke in making steel. China's crashing demand has put the lid on steel demand anyway, so even coal's industrial use faces dark days. It would take a lot more backyard barbecues for charcoal demand to make up for declining coal power.

Gold prices respond positively to the Federal Reserve's interest rate hints. Gold traders and retail investors view the Fed's experiment as a mistake, proving they are a reactive audience. The Fed's "layer cake" message tastes bitter to gold bugs stuck in old views of monetary tightening. The new era of a ginormous Fed balance sheet that constricts traditional stimulus means gold traders missed the news about what normal interest rates now mean. A normal situation is where the FOMC makes any change, in any direction other to zero.

Tesla Motors lost money again but its shares kept rising. The more cars they sell, the more money they lose. Investors are really stupid to think that a money-losing car company will be worth more. There is something very wrong with Tesla's inability to control both its fixed costs and variable costs. Software entrepreneurs need a whole new set of skills before jumping over to hardware.

I would like to start a religion that celebrates Cash Wednesday. It would be an opportunity for me to stand up and wave cash around to the applause of my congregation.

Tuesday, February 09, 2016

The Haiku of Finance for 02/09/16

All cash real estate
Great plan for lifetime homestead
No mortgage needed

Financial Sarcasm Roundup for 02/09/16

New Hampshire voters have made up their minds tonight, mostly in favor of outsiders. I have made up my mind in favor of myself, because I can fix all of America's problems with sarcasm.

Silicon Valley startups aren't happy anymore. Unicorn employees are taking off their party hats, realizing that the unicorn they were riding to riches was a donkey in its own party hat all along. Employees who were counting on their stock options to pay for a McMansion are watching those dreams evaporate. Liquidation preferences are the well-connected VCs' way of walking away laughing at everyone who worked hard from the start. BTW, I have never seen the point of the Crunchies awards. A corporation's performance is not like a movie or pop song. The only performance that matters is the bottom line. Net income is the only award that pays bills.

Germany is lining up praise for Deutsche Bank. I recall hearing the same things from Bear Stearns and Lehman Brothers before they fell apart. It's too bad the ECB's bank stress tests weren't really stressful. Examiners could have looked under the hood at Deutsche Bank and figured out what needs fixing. Now investors need to take a look at the entire European banking sector's exposure and figure out who's sitting on powder kegs. Greek sovereign debt is the obvious first place to look, then Chinese sovereign debt, then other emerging market debt, then any rotten bananas stored in these banks' break room refrigerators.

San Francisco property owners are sitting on big bubble values. No one saw this coming, of course, after the dot-com bubble and housing bubble of the last decade. I love the mention of all-cash buyers looking for investment properties. The clueless private equity funds and assorted rich people who bought homes in The City sealed their own fates. I will buy what they abandon at bargain prices.

Voting is awesome. Medieval peasants would rebel against their lords when they didn't like working conditions. Today we have the bloodless option called elections to voice displeasure with Establishment elites. I would seriously consider voting for a candidate who formally adopts sarcasm as a campaign platform.

Monday, February 08, 2016

Sunday, February 07, 2016

The Haiku of Finance for 02/07/16

Random stock movement
Meaningless in the short term
Can't forecast long term

The Limerick of Finance for 02/07/16

Wells Fargo's big mortgage fraud due
Resolved after folks went to sue
Now they're clear for new scams
Ignore credit exams
Underwriters must still get a clue

Saturday, February 06, 2016

The Haiku of Finance for 02/06/16

Pointless gathering
Startup marketing wasted
Low maturity

Clueless Tech Scene Partying Away Super Bowl 50

You may have heard that Super Bowl 50 is playing in the San Francisco Bay Area this year. I still think the football team that used to call San Francisco its home should change its name to the Silicon Valley 49ers, but that can wait.  The weekend build-up to our nation's prime secular festival transformed part of downtown San Francisco into something resembling a clean, normal city. I had very little to do with the festivities other than accept an invitation to a pre-party. The tech startup sponsoring the party had a chance to display competence and blew it.

The startup's app is completely dependent on data feeds and user interactions from another well-known tech company. The relationship resembles Zynga's early dependence on Facebook but even more tenuous and economically unjustifiable. I asked this particular startup's marketing person if they could survive without being parasitically attached to their host body. The person had no idea. I asked about their monetization strategy. They had none. I offered my observation that startups devoid of monetization paths typically disappear rather quickly. The twenty-something marketing person had no concern at all, as if the capital entrusted to their startup by early-stage investors was a lifestyle gift.

Ladies and gentlemen, the entire second wave of dot-coms that are about to crash and burn is populated by the kinds of people I meet at these tech mixers. Many of them have no business expertise, no planning ability, no marketing sense, and nothing besides some mediocre tech skill they extrapolate into a flashy single-purpose app. I did not see any point to this particular pre-party other than to have a good time on someone else's dime. I can even assess the startup team's immaturity by how ready they are to start their sponsored party. Chips and booze are not hard to come by but their late arrival reveals a startup founding team that has never performed basic logistics tasks. Hey kids, throwing a party for partners, analysts, and investors is not as easy as pulling a beer out of your parents' fridge.

Super Bowl money really cleaned up this town. The City finally found someplace to put the homeless this weekend besides in the way of tourists. Many of the tech people "working" their way through Silicon Valley startups stand a good chance of becoming homeless themselves in the next couple of years. Their lack of business acumen gives me short-sale opportunities, plus open social events where I consume free food and booze. I can eat and drink any of them under the table.

Financial Sarcasm Roundup for 02/06/16

We are well into 2016 and it doesn't feel much different from 2015. This situation cries out for remedy.

The tech stock crumble continues to drive the NASDAQ down. The whole enchilada is headed to its intrinsic value, which is somewhere north of zero. We can soon party like it's 1999 all over again, except valuations will be more like 2001. Pink slip parties will soon replace Silicon Valley's ubiquitous tech mixers. Come to think of it, those two kinds of parties are indistinguishable.

China wants to throw it down with the EU at the WTO. It's a bluff, like a male gorilla charging in the jungle. China has no intention of addressing any traded disputes in the WTO. It sees the TPP coming and wants no part of multilateral dispute resolution. Making noise at the WTO distracts is lip service to international norms that suckers in Western financial institutions will buy.

Twitter teases its users with a possible new algorithm. It won't matter whether Twitter make sits tweets more relevant, or longer, or more colorful. The horse named Medium has already left the barn. Ordinary schmucks who self-publish have multiple options now besides Twitter. I could go into a ton of reasons about why Twitter makes little sense but the biggest one is its inability to make a profit. It will make a good blog article later on, so stay tuned.

The 50th Super Bowl is tomorrow. Makers of snack chips, hot dogs, and chicken wings have probably had great sales for the past week. Americans should enjoy this while it lasts. Living beyond one's means makes overindulgence possible. I will probably stay home and get work done unless someone offers me free food and booze.

It would feel more like 2016 if we had a real market crash and recessions. That would really differentiate this year from 2015. I have waited so long for this to happen.

Friday, February 05, 2016

The Haiku of Finance for 02/05/16

Chinese Chicago
Small stock exchange selling out
Deep dish dim sum mix

Financial Sarcasm Roundup for 02/05/16

I avoid watching politicians debate each other on TV because I have more important business tasks to accomplish. I realize I'm giving up a huge source of inspiration for sarcasm. Oh well, we can't have it all in life.

Here comes a new oil barrel tax to fund green technologies. The UN COP21 architects would be proud. I have no problem with this fee. It will destroy part of the US shale industry, but that's to be expected after years of overinvestment in wells that are only economically viable at higher oil prices. Kermit the Frog once said that it's not easy being green, but he didn't mean green energy.

The IMF lectures China on getting into better financial shape. Good luck with that one. China is flailing around for a workable economic policy. Beijing cannot admit that its Ponzi scheme is unraveling because it can't afford to frighten away the Western investors who were dumb enough to start trading the yuan onshore. The IMF can't afford to look bad after adding the yuan to its reserve basket. It all looks like two poker players in a televised tournament who know they can't bluff each other anymore but are still bluffing the audience.

The mortgage bond market just isn't much fun anymore. Taking the punch bowl away is good news for responsible homeowners because there will be fewer secondary bids for mortgage products that should not exist. Issuing paper backed by other paper is usually pretty dumb. Of course, if the Federal Reserve ever had to sell a big chunk of its MBS holdings, the banks would have to hire back MBS traders in a hurry. Catching a falling knife is usually pretty dumb.

More political debates are ahead. They won't mention any of the issues I blogged about here. That's too bad.

Thursday, February 04, 2016

The Haiku of Finance for 02/04/16

One more penny stock
No need to waste time looking
Just note poor earnings

IGEN Networks Defies Explanation

About five years ago, someone who does not deserve mention told me and a few other people in the vicinity about some hot idea. It had something to do with IGEN Networks (ticker IGEN). I could not figure out the opportunity at the time, which is why I ignored it. Five years later, the market can't figure it out either.

The stock has traded in the pennies for something like several years. The retained earnings deficit is -$7M and growing with every quarterly loss. I cannot recall the last time I have seen such a severely negative profit margin, operating margin, or ROE even in a penny stock. The business model has something to do with cloud, M2M, and wireless. I hear that all the time from Silicon Valley companies with serious experience and solid partnerships. I don't have to waste my time with anything else.

I do not feel sorry for the investors who bought the stock from January to March 2009, before that year's 1:100 reverse stock split. I don't know why I held onto this reference for so long. I should clean out my archives more thoroughly. There is nothing else worth saying about IGEN Networks.

Full disclosure: No position in IGEN, ever. I am too smart to do that, ever.

Financial Sarcasm Roundup for 02/04/16

The US Congress does not feel like rushing through a review of the Trans-Pacific Partnership. It is unusual to see lawmakers take their time with important legislation. They typically pass major lobby-backed items in record time, like the Affordable Care Act. "We have to pass the bill so we can see what's in it," or something like that. There's no time to lose when there's money on the table gathering dust.

Vanguard can now buy a bigger block of Chinese A-shares than ever before. Suckers! If you don't know who the mark is in a group of people, it means you are the mark. Western investors keep falling for any China story, whether it was the bull market everyone thought they could ride to planetary dominance or distressed-value bargain investing. Investors raised in Anglo-West cultures, where anti-corruption auditing and property rights are norms, simply cannot fathom that those traits do not characterize the Chinese economy.

The corporate bond market's signals have analysts scratching their heads. Dumb analysts don't realize that the US economy has been truly stagnant since the 2008 financial crisis, with overstated GDP growth and understated unemployment and inflation. National policies to avoid mortgage defaults and backstop corporate credit have only postponed the inevitable crack-up. No one on Wall Street wants to admit that the bond market is toast because that would have investors running for the exits. A whole bunch of careers and firms are bound to implode.

Wednesday, February 03, 2016

The Haiku of Finance for 02/03/16

Small cloud service scale
Scaling cost trailing leaders
Cloud needs rainmaker

Fusion Telecommunications International In Cloud Services

Fusion Telecommunications International (ticker FSNN) is a small player in cloud services. The management team has experience in previous telecommunication and networked communications enterprises, which is part of the cloud computing spectrum but not the whole enchilada. Their current CTO at least has data center experience. Big companies like Google, Amazon, and Salesforce dominate the cloud sector. Anyone muscling into their market share must bring serious computing power.

A simple rundown of this company's summary statistics from Yahoo Finance reveals their present condition.

Profit Margin (ttm): -11.88%
Operating Margin (ttm): -6.41%
Return on Assets (ttm): -5.89% 
Return on Equity (ttm): -138.70% 

Those annual numbers are discouraging. It's even more discouraging to search FSNN on Reuters and find long-term financial highlights. Fusion's 5yr sales growth exceeds the industry's average but they are still not profitable. Revenue and net income per employee both underperform the industry. The company's 5yr ROA, ROI, and ROE are all negative. The management team has its work cut out.

One simple math comparison illustrates the competitive disadvantage Fusion faces. Customer acquisition cost, or CAC, is a make-or-break metric in cloud computing. Analysts can approximate a company's aggregate CAC without even knowing its detailed product pricing or the seat count of the solutions it sells. We can divide the cost of revenue by gross revenue to find a rough CAC percentage. It's really the inverse of gross profit, but it's worth finding to see whether other expenses are contributing to a problem. Let's use the numbers in Yahoo Finance for the most recent quarter to show current conditions.

Fusion's rough CAC percentage in this method is $13.5M/$24.5M, or 55.10% for the quarter ending September 30, 2015. Compare this rough CAC to the figures for Oracle (ticker ORCL) and Salesforce (ticker CRM). Oracle came in at $1.85B/$8.99B, or 20.58% for the quarter ending November 30, 2015. Salesforce clocked in at $0.42B/$1.71B, or 24.56%. Fusion thus spends twice as much for a dollar of revenue as its larger competitors. What's really hurting the company is that SGA expenses have remained stubbornly high as a percentage of revenue even while revenue increased for several years. Oracle's SGA is usually a smaller percentage of its revenue than Salesforce's comparable numbers, which is partly why it is more consistently profitable than Salesforce. Mitigating both SGA and the cost of revenue will be a challenge for Fusion while growing its revenue.

Data storage is now a commodified supply chain input where the low-cost providers are market winners. I do not know whether Fusion can scale its services to the point where it mitigates its cost disadvantage. The company's retained earnings deficit of -$172M has grown year by year, quarter by quarter. It is not obvious how a smaller cloud provider can compete against larger companies without maintaining a cost advantage. Any investor who bought into FSNN in late March 2015 when it was over $4/share, only to see it close under $2/share in early February 2016, learned that the hard way.

Full disclosure: No position in FSNN at this time.

Financial Sarcasm Roundup for 02/03/16

Groundhog Day came and went without any animals feeling Jungian existential angst. Climate change has more impact than a rodent's shadow on winter's length.

The ECB lowers expectations for more monetary stimulus. It could mean anything, or nothing. The ECB now mimics the Fed as it discovers it has the ability to move stock markets and resolve bad banks' balance sheets. Central banks don't make policy errors anymore. They send "layer cake" messages in a bifurcated economy. Retail investors will hear something about selling bonds that may have peaked in value. European bond fund managers will hear something about not expecting support for their asset valuations. Crying then begins in earnest in bond fund boardrooms.

The UK must wonder if the BOE plans for negative interest rates. "I say, Jeeves, is that a minus sign in your savings account? Why yes, it is indeed, old bean. Good God, man, such poppycock used to be confined to less dignified countries like our former colonies. Oh, fiddlesticks. This calls for a shot of brandy." BTW folks, anyone who wants to pull another George Soros move and attack the British pound should watch how far the BOE tries to push this NIRP speculation.

China will keep cutting banks' reserve ratios. It's just like getting a haircut every month until you're forced to go bald, and then the barber scalps you. Forget about responsible bank stewardship. That just flew out the window in a desperate search for capital to prop up China's failing stock and property markets. I guess Beijing couldn't entice enough Western banks to launch onshore yuan trading branches. There are plenty of suckers in both the West and China who will try to catch falling knives behind a bamboo curtain.

Your average groundhog does not follow the financial markets as closely as I do. That's another bragging point for Alfidi Capital.

Tuesday, February 02, 2016

The Haiku of Finance for 02/02/16

Drugs for rare disease
Very hard to develop
Lucrative per dose

Soligenix And Rare Diseases

Soligenix (ticker SNGX) pursues several treatments for rare diseases and other critical problems. It is always intriguing to watch new drugs develop in the hope they can make life easier for pain sufferers. The management team has the requisite background in drug development to make this company worthy of serious analysis.

The company's SGX942 drug for oral mucositis is one of their leading products. Research for the oral mucositis treatment market from 2014 showed a significant number of competitors with treatments in their development pipelines. The Oral Cancer Foundation notes that Amifostine and palifermin are currently used in limited treatment of OM's effects. The National Cancer Institute's most recent coverage of OM also mentions Amifostine and palifermin. Amifostine is widely available from a subsidiary of AstraZeneca. The NCBI PubMed cites research on how clinical trials have established Amifostine's cost savings potential. A drug that beats Amifostine must generate mean per patient supportive care costs savings of at least $1472 (based on the cost difference in that PubMed article) if Medicare and health insurance reimbursement mechanisms are to find such an alternative compelling.

Several US government research agreements support Soligenix's development of biodefense products. Using federal research funds is a good move if it keeps the rest of an enterprise moving toward its larger business goals. The government's defense needs typically include drug stockpiles for emergency use. These stockpiles are not frequently consumed and typically need replenishment only when batches expire. Investors should note that the small government market and its infrequent demand will limit a drug maker's quality of earnings.

I reviewed Soligenix's most recent 10-Q filing dated November 12, 2015. The company had cash on hand of US$4M on September 30 that year. Their quarterly net income of almost $2.8M was largely due to a positive change in the fair value of their warrant liability. They continued to incur losses from operations of almost -$1.3M, although that is an improvement from the comparable 2014 quarter's loss from operations of over -$5.1M. Soligenix's success at raising non-dilutive funding keeps it in the game until its drugs can find large markets.

The good news for Soligenix is that it has many product options that have advanced through several trial phases. The risks for any drug company include some of the health care sector's structural problems I identified as ultimate lessons from the JP Morgan Healthcare Conference in 2016. Headwinds facing the health care sector can affect every company's valuation. Insurance affordability and the solvency of payment intermediaries can challenge companies like Soligenix that do everything they can to be successful.

Full disclosure: No position in SNGX at this time.

Financial Sarcasm Roundup for 02/02/16

There are always voters in an election year who think a politician can make the stock market go up. There's always a politician ready to pander to those voters. They are all stupid.

Bond yields are tanking in Japan. The two-year yield dropping to -0.11, even less than the BOJ's -0.10 rate for excess reserves, is totally crazy. How can they be profitable on any product with a duration of less than two years? This totally scrambles overnight lending to businesses. I want every hedge fund manager who jumped on the Japan bandwagon to be blown out of the water. Forcing the dumbest fund managers out of business will be a shock to the really dumb investors who trusted in non-existent genius.

Now the Federal Reserve is thinking about negative rates. The rest of the world sometimes laughs at America for the dumb things we often do here. Now we have the chance to be as dumb as the rest of the world in monetary policy. The shock of initiating NIRP may lift the US stock market as investors leave cash and enter riskier equities. The rush should last for about six months, the typical duration of monetary policy's lagged effects. After that, the deflationary death spiral across multiple asset classes will be impossible to prevent. Lethargic Americans will wonder what happened.

Leading financiers want better public company shareholder relations. Anything with Warren Buffett's approval will probably work. JP Morgan's involvement indicates confidence that its balance sheet will survive long-term turmoil. Better corporate governance is an imaginary prophylactic against corporate raiders. Private equity firms will target well-run firms anyway if they're undervalued. The best corporate governance policy would be an electric shock device attached to a board member's chair, activated if they fall asleep during a quarterly meeting.

Vote for panderers and they will do absolutely nothing for you. I promise. You can't vote for me because I work for myself.

Monday, February 01, 2016

The Haiku of Finance for 02/01/16

Iowa voter
Likes farming and ethanol
Vote for subsidies

Financial Sarcasm Roundup for 02/01/16

It's time for caucuses in Iowa. If sarcasm were a Presidential qualifier, I'm certain that my name would be at the top of the ballot.

JP Morgan is jumping on the blockchain bandwagon. All aboard! You all know I've trashed Bitcoin many times but the blockchain tech that succeeds it may be worth a look. The SIFI banks doing this will have to completely own their particular blockchain tech and disallow developers from forking it. They will also have to reserve a significant amount of data center space in case the hashes get out of hand. I suspect the world's central banks will have to standardize some part of a blockchain's code for money transfers. The whole movement risks turning into spaghetti code if central banks don't get involved.

China wants more foreign banks to trade its currency. It's a fun way to celebrate the yuan's new IMF reserve currency status. More importantly, it's a clever way to entice foreign banks to pump fresh currency into China so the PBOC can postpone the economy's day of reckoning. A stronger yuan means less PBOC money printing and less immediate stress on China's currency reserves. Have fun while it lasts, Beijing. The game will be up pretty soon. Foreign banks won't be happy to find out that empty real estate developments and shadow wealth management products are their currency trading counterparties' collateral.

The OMB is ready to review the US DOL's fiduciary rule for retirement advisers. Well, that sure took long enough. I blogged about this proposed rule in 2015 and I am all in favor of tighter controls. The industry's claimed concerns about stronger rules forcing them to drop smaller, less profitable clients are baloney. Automation is reducing the cost of servicing small clients to zero. Robo-advisers can implement fiduciary rules automatically. I want OMB and the rest of the administration to turn the screws on the retirement plan sector and make greedy brokerages howl with the pain of fiduciary compliance. That will force them to fire more humans and accelerate the automation shift.

May the most sarcastic candidate win. That would be me, of course, in any election year. Always vote your conscience, America.