I had to attend the MoneyShow San Francisco
2017 because it has long been one of my favorite conferences. It has never lost its appeal since the first time I attended back in 2001 (or maybe it was 2002, I can't remember). I have my favorite speakers picked out weeks in advance but I try to learn something new every time I attend. Those of you who did not attend are about to get my full blast of recollections.
Kim Githler was as optimistic as ever in her welcome address. She has been running this conference for three decades and I don't think she ever gets tired. The webcast attendees now far exceed the live attendees. The future has arrived and my fellow Gen-Xers are the last generation to fully experience live trade conferences before they all completely migrate to AR/VR webcasts. Ms. Githler noted that her investing success factors included luck, something no analyst can ever quantify. Analysts will also never fathom the sheer greatness that my badge selfie below represents.
|Alfidi Capital at the MoneyShow San Francisco 2017.|
I picked up some useless knowledge right away from people I won't mention, and I put it down right away. The culprits shall remain nameless but their specious wisdom will become infamous. There is no way to determine whether trades in dark pools appear in NASDAQ Level 2 block trade quotes, or whether they indicate something directional for a ticker symbol. I had never heard of "stupid spreads" in options but apparently they're a periodic thing with professional traders who have worked in the big exchanges' trading pits. I had also never heard of a "double diagonal" spread, a much more frequently executed options play.
Other introductory speakers had more interesting things to say. I have my own thoughts about their theories in the next few paragraphs. Cash flow return on investment (CFROI)
is an alternative to valuing equities by earnings. I think it's more reliable than venture investors' EBITDA method but less reliable than Buffettologists' earnings-based method. I can evaluate these methods by their real-world results. Venture investors lose a lot of money relying on EBITDA and Warren Buffett made a lot of money focusing on on earnings. The CFROI comparison to IRR and hurdle rate metrics reveals its limits, as those things fell out of favor with academics long ago when the CAPM came along.
Institutional investors are using more than a "periodic table of country returns" to allocate their portfolios among emerging markets. They are really counting on middle class growth in emerging markets to drive international stock returns, while they totally ignore geopolitical and country risk. It's the new BRICS-like fad. The whole BRICS concept was a Goldman Sachs marketing gimmick and the BRICS countries themselves fell for it by holding BRICS Summits. I am less interested in who the CCP Congress invites as its annual guest speakers. I am more interested in China's rank in highly credible indexes for economic freedom and development.
Advocates who say we have entered a new era in investing remind me of the Internet apologists common during the dot-com boom's terminal stage in 1999. People now totally ignore the tech unicorn bubble, the commercial real estate debt bubble, the high yield debt bubble, and the corporate debt bubble driving stock buybacks. The same people totally dismiss the ongoing retail collapse. Journalists are as guilty of this behavior as economists and analysts.
There is no obvious secret to investing success. Purveyors of said secrets totally ignore the Federal Reserve's ZIRP role in pushing stock market gains after the 2008 financial crisis. One such purveyor is a "Sovereign Investor" service, which I recognized as total baloney long ago for its non-stop hawking of extreme fear and greed. More conventional publishers ignore the hazards of extreme debt levels. Corporate balance sheets are more laden with debt than ever, and rising interest rates will increase interest expenses hardest for those companies with high short-term debt burdens, thus hurting earnings. A good basic thesis is to find undervalued stocks paying dividends, which is hard to do with the S+P 500 P/E ratio at an all-time high.
thought there's life after Google. I think there's life after George Gilder. He still likes Bitcoin and gold, for crying out loud, a disappointment for me since I've actually studied the efficacy of hyperinflation hedges. He made no sense discussing IPOs, bizarrely comparing Bitcoin to the FANG stocks by saying Bitcoin's growth outperformed Google since that stock's IPO. Dude, Bitcoin is in a huge mania-driven bubble. The guy says free product giveaways prevent companies from learning; I say that's baloney. He should know that Google's main products are free (Search, Docs, Maps, etc.) yet obviously they are learning to make money selling ads and data. Sheesh, George. I think he's finally exhausted my patience by comparing Bitcoin and copycat ICOs to FANG companies with real earnings.
The featured artificial intelligence (AI) advocate mentioned The Innovator's Dilemma
in the context of large companies pushing AI development. If his claim that 10.5% of Fortune 500 companies mentioned AI in their most recent conference calls is true (and I have no way to verify it), then he should not limit his picks of AI winners to the typical FANG stocks.
I had never heard of the US Regulatory Information Service Center
, a GSA project tracking growth in economically significant regulations. One speaker mentioned it as a tracking tool for regulation acting as a drag on the economy. His stock picks for an era in which Ponzi-like government entitlement programs degrade GDP included water, energy, agriculture, and infrastructure, plus VIX volatility call options. I generally concur with that thesis, but timing is everything.
had a lot to say about the current administration in Washington. I disagree with his critique of mark-to-market accounting rules, which IMHO are necessary for transparency. It was hard to listen to yet another dismissal of geopolitical risk, assuming away any big wars. It gets tiresome to hear continual Pollyanna-like views that assume indefinitely low inflation.
Peter Schiff led the next introductory panel. I still like the guy even though he's been premature (just like me) on the next likely crisis for the financial markets. I agree with these particular experts that it's hard to find stocks at decent prices with indexes at all-time highs. I look forward to less blind worship of unfulfilled political promises and more attention to how a weaker US dollar will make commodities and emerging markets more attractive. Mr. Schiff is probably correct that excessive automobile loans are driving (no pun intended) the automotive sector's valuations. He appeared again later to reiterate his expectations of the next big market crash, a collapse in consumer spending, a debt default that destroys bonds, and a boon for dividend stocks paying out from earnings in stable currencies. I have had a similar thesis for quite some time. It is difficult to be patient while so many less observant people make money through complacency.
I did not need to see another walk-through of a trading platform but sponsors pay for the prime time they get. The best options trading platform must display Greeks. I learned a new options tactic called a "risk reversal
," buying an OTM call spread and selling an OTM put spread. I suspect options will be very useful plays in advance of earnings announcements. Watching options with weekly expirations prior to a highly volatile stock's earnings announcement, along with the option's implied volatility, is probably worth my time.
We are all smarter thanks to the joint FINRA and SEC panel on outsmarting investment fraud. Check out FINRA's The Alert Investor
, the SEC's Investor page
, FINRA BrokerCheck
, and the CFTC RED (Registration Deficient) List
to see if someone pitching you a deal is legitimate. The regulators let us know that they have emerging concerns about cryptocoin ICOs
, simple agreements for future equity (SAFEs)
, and binary options
. I will be on the lookout for shady operators in those areas so I can turn them in to law enforcement for prosecution.
Another options broker showcased some revolutionary trading system that promised to do everything except vacuum the floor. The dude argued that high frequency trading (HFT) can compress risk premia and lower volatility, but I think it actually magnifies those conditions. I need to see the dude's evidence. I did agree with him that all of the information available on very expensive Bloomberg terminals is freely available elsewhere. There is no way that volatility measurements will tell investors whether a stock is overvalued, undervalued, or fairly priced. Current data on corporate earnings and P/E ratios at all-time highs tell us more abut valuation than options volatility ever will. I mentioned above that watching volatile options in advance of earnings announcements was worthwhile; I put that activity in the context of making short-term profits from options trades, not in the context of long-term growth from finding undervalued stocks.
Utilities and REITs are still the favorites of experts who want the best of both world in dividends and growth. It's important to assess the predictability of dividends by finding the payout ratio, leverage ratios, and funds from operations (FFO). Higher interest rates will probably hit these stocks' valuations, making their yields more attractive. On the other hand, higher rates will hurt the balance sheets of the most highly leveraged stocks in these categories. Increasing consumer preference for online shopping over retail shopping will hurt REIT retail holdings. I did not believe one person's claim that REITs trading at premium valuations have a lower cost of capital. Commercial lenders are smart enough to distinguish market exuberance from underlying assets and earnings. I finally found good descriptions of the "genco" utility investment I heard about years ago. One MoneyShow expert described them as "merchant generators" where utilities build and operate plants without an exclusive geographic franchise. They are unregulated and risky.
One metric for evaluating an investment manager's track record is the upside capture / downside capture (UC/DC) ratio. A higher UC/DC ratio proves better performance. Most active managers have terrible UC/DC ratios over periods longer than ten years. They also have higher fees than passive investments. Active managers need to get out of financial market careers and do something more productive, like day labor or subsistence farming.
American investors seeking growth opportunities in Canada need to watch out for Canadian rules on something called a passive foreign investment company (PFIC), a designation that incurs an ordinary income tax liability for companies that don't even have income. It's another condition afflicting Canadian junior mining companies that still have difficulty raising capital.
Interest rates govern all yield plays. Martin Zweig
's maxim "don't fight the Fed" does not hold for every market all of the time. Central banks must unwind their engorged balance sheets and interest rates are going to rise until those balance sheets return to normal. Watch the US Federal Reserve's bond roll off rate. Track the Fed's monthly "dot plot" interest rate model projections. Know the Atlanta Fed's GDPNow
forecasting model. The Fed's political sensibilities determine the length of an interest rate cycle in months and the magnitude of its changes in basis points. The only Fed-proof bond substitutes are those dividend-paying stocks, MLPs, BDCs, and REITs with strong balance sheets, limited long-term fixed-rate debt, and no short-term debt or floating-rate debt.
I had never heard of one very prominently featured speaker in this year's lineup. I had to look him up to discover that he had been some kind of broker for most of his career. Now he produces a bunch of content. His talk reminded me of an old adage I heard about commodities many years ago, that the only people who made regular money trading the most volatile instruments were the brokers, not the traders or investors. He did make one interesting point about society's decline in risk-taking, which coincides with data I've seen on declines in new business formation. The rest of what he said was flat-out bizarre. I had no idea what he meant when he said liquidity providers must improve something or other, like order flow, maybe. Why did he throw disrespect at passive investing just because markets crashed in 1987, 2000, and 2007? They all came back. Oh yeah, it's because he makes money off of active traders who react with extreme panic. His next argument was that managers should show how they reduce the basis cost of their services. Well dude, that's what passive management does. Sheesh.
The star speaker above really tested the limits of my patience. He riffed one non sequitur after another, spouting "mechanics, strategy, repeatable, scalable" in word salads tossed into the air. He invented a new phrase called "economic bias" which seems to be an awkward interpretation of behavioral economics, and it underlies his claim that eBay "trades" improve decision making in business and finance. He cited zero sources for any of his quotes and stats, followed up with pedestrian observations about how important it is for successful people to demonstrate know-how and skill. No kidding, dude. I thought the guy was seriously stupid, or at least addicted to making stupid statements that played to the limited knowledge of his audience. I could not find one single observation he shared that's worth repeating in full, let alone adopting as a guiding mantra. Who knows what his new gig means. Warren Buffett doesn't make a fraction of the trades this guy's archetypal "decision-making skill builder" active trader makes, unless you count the times he says "no" to bad decisions, and he's the most successful investor ever.
Marilyn Cohen is still my favorite fixed income speaker. Check out the data on outstanding US Treasury maturity distributions; it's all free online. There's so much debt out there that it doesn't change Ms. Cohen's investment philosophy. Municipal bond investors will hear a lot more about "dark store theory" as the commercial real estate sector, already under pressure from online commerce, lobbies for reduced property taxes that will lower the revenue available to pay off muni bonds. One key insight she shared was to compare REIT yields to those REITs' bonds' YTMs. Some bonds will pay better yields given REIT share price gains. I attend Ms. Cohen's appearances at the MoneyShow just to appreciate such excellent knowledge.
There was some more nonsense going around another seminar about blockchain tech and crypto-currencies. One person claimed the blockchain's blocks and layers are encrypted, but hackers have proven that's not true for Bitcoin. The same person repeated the commonly accepted falsehood that Bitcoin is untraceable. That is totally stupid!
I walked out of another seminar when the speaker claimed he could outperform Warren Buffett with market timing. The guy made really unrealistic claims about his methodology. It's really dumb to think he can time market entry and exit points based on directional indicators. I could not stand to listen to some totally stupid nonsense about using a 200-day moving average with some standard deviation of volatility to measure the market's natural range.
There's a cottage industry of publishers and custodians pushing "self-directed IRAs" as some kind of magical machine that can process everything but the kitchen sink into a tax-free deal. I have always said these things are a misuse of tax-advantaged retirement accounts. People at this MoneyShow wanted to take it to a whole new level of nonsense by putting real estate into 529 college savings plan accounts and health savings accounts! That is stupid, risky, and possibly fraudulent! One guy who thinks this is a legitimate way to earn a living wasted half of his allotted time on nothing. He offered private "hard money" lending solutions that charged higher mortgage rates to their properties' borrowers than banks, so I guess those small lot home buyers are all poor, stupid, or bad credit risks. Folks, please listen to me very closely now. Self-directed IRAs are the classic baloney shell game for people doing dumb things with real estate.
One of the major wealth management firms made me LOL to myself during their presentation on consumer trends. I just LOL that they thought Nigeria is a growth market for consumers and that every emerging market will follow South Korea's path to a developed market. More investment firms are publishing research on "Peak Auto" to describe the end of growth in the automobile market. IMHO future electric vehicle growth must cannibalize market share from internal combustion engine cars. I will make one other important point about consumer spending that the rest of you should know. Household net worth versus personal debt (as a percentage of disposable income) is an important way to assess consumers' actual capacity to spend, especially compared to consumer confidence.
I always win at the MoneyShow San Francisco. I win by absorbing information and spewing wisdom to the entire world. I also win by exposing stupidity. Alfidi Capital is all about winning. You can be a winner too if you think exactly like me. You'll be winning so much you'll get bored with it. I never get bored with winning. I look forward to attending another MoneyShow to continue my winning. I am willing to speak at the show again (as I did in 2013) to show others what a winner I am. The MoneyShow is for winners.