Alfidi Capital Checks Out NASA Frontier Development Lab 2017 Wrap-Up Event

I recently examined the public presentations of teams participating in a NASA Frontier Development Lab exhibition. The teams were selected to present tech solutions for NASA's space exploration challenges. The FDL held its 2017 wrap-up event down at Intel's Santa Clara auditorium, so I drove on down and lucked out finding a parking space. I had to see what kinds of space-related innovations apply to private sector use.

The presenters were graduate-level statistical modelers and astrophysicists. Explaining comet tracking and solar storm prediction is beyond the scope of this blog. The salient lessons lie in the statistical models and data science methods the teams used that may be available to the rest of us. Teaching a neural network to recognize patterns requires feeding it large amounts of synthetic data "training sets." Experts design those networks, but the most user-friendly open source networks are available for business applications.

Deep learning methods in the teams' work applied long short-term memory, random forests, and convolutional neural networks to compare data sets derived from deep learning methods. They used t-distributed stochastic neighbor embedding (t-SNE) to reduce high-dimensional data into scatter plots and DBSCAN to separate data outliers from clusters. Experts apply principal component analysis to discover eigenvector centrality, useful in tracking clusters of nodes of influence. All of these advanced techniques are useful additions to more prosaic forecasting methods found in MBA curricula. Time series forecasting models, for example, are useful for establishing baseline trends in naturally occurring data, but they miss anomalies and outliers completely.

Those of us who don't have post-graduate data science credentials can still employ useful tools. Google's Kaggle platform enables crowdsourced data analysis solutions. The Keras API enables open source experimentation with deep neural networks, and now it extends the TensorFlow open source library. Google Search results for "open source deep learning platform" show a growing number of tools and libraries available for use.

The US government's technology outreach programs offer valid paths to bonanza. Space tech AI and machine learning designed for celestial data sets could easily adapt to commercial use in mining, energy, and environmental remediation. NASA FDL exhibitions attract very smart people whose advanced data science skills are very valuable to startups building commercial solutions that process vast amounts of volatile, unstructured data. Count on Alfidi Capital to discover tech expertise that is out of this world.

Venture Capital and Private Equity Around the Glorious Roundtable

I get invited to the most mind-blowing events.  My definition of "mind-blowing" is highly intellectual and does not involve anything illegal or unethical, so most human beings probably won't want to hang out with me.  That's okay.  They'd cramp my style anyway.  Check out how I roll.  Yo!  I attended a Silicon Valley roundtable event last Friday that must remain nameless because it was organized by private parties who do not seek publicity.  There wasn't even a round table in the room.  Several entrepreneurs and investors attended by invitation only and the organizer allowed me to attend as a guest.  Wonderful topics lined the agenda and I shall discuss them in oblique terms.  Prepare to be entertained.

Flying cars have been on the dream list of inventors since the Jetsons were on TV.  I got to examine real working prototypes of flying cars at the US Army Transportation Museum in 1995.  None of them ever had serious capabilities.  Entrepreneurs are now developing flying cars that convert from ground mode to airborne capability.  Modern contraptions remind me of the Bell-Boeing V-22 Osprey program with propellers to switch from VTOL to horizontal flight.  Rotary wing aircraft can autorotate into the ground in the event of a mechanical failure, which saves lives but isn't pretty to experience.  Twin-rotor aircraft have no such option if something fails while hovering during a VTOL event.  A ballistic parachute that deploys automatically upon engine failure may solve the problem.

I no longer believe the bull story for further miraculous economic growth in China.  Many others still do and that's okay.  Someone needs to be long in case I ever go short.  China joined the WTO in 2001 and is now inextricably linked to the world market.  Its role as the world's factory is ending because its increasing wages have priced it out of low-cost manufacturing.  China needs to pay more attention to WIPO if it wants credibility.  San Francisco may become the first renminbi trading hub in North America once China makes its currency fully convertible.  Western investment banks are opening offices in Shanghai and that city is the first in mainland China to have a free trade zone.  My MBA alma mater USF has a strong interest in China and it is hosting a conference on China's financial reform in a couple of weeks.  I have already registered to attend because I love learning stuff.  The conference is free to USF-affiliated people.  Stolen Valor frauds who prey on veterans will not be allowed to enter the event.  You know who you are, and so do I.

There are such things as credentials in business valuation.  NAVCA offers certification in business valuation and appraisal.  This knowledge comes in handy for business brokers who buy and sell privately owned businesses.  I think it also comes in handy for fraud investigators.  I'm not saying there's any fraud in Silicon Valley.  No sir-ee-bub, not me.

Santa Clara University has a Global Social Benefit Incubator (GSBI) that launches non-profits.  One such non-profit is Literacy Bridge.  They distribute single-touch audio books loaded with knowledge of agribusiness and sanitation in developing countries with low literacy levels.  The device is meant to be shared via a local subscription.  Literacy Bridge collects use case data on the number of activations, volume level, and playback times from each audio book.  This proves that big Data can reach rural areas that do not have WiFi or landline telecom infrastructure.  Societies with oral traditions have different connectivity speeds.

Executives from large publicly-traded companies will share their growth lessons with pre-revenue stage startups.  Non-dilutive financing options include licensing and royalties, but my readers have heard me mention that in other blog posts.  The caveat is that non-dilutive financing takes longer to grow a company.  The IPO must have a good rationale; it can't be just to return capital to early investors.  Entrepreneurs must tell early investors that growth takes a long time, to set their expectations for a realistic timeline.

Freedom House near San Francisco provides a refuge for victims of human trafficking.  Poverty is a supply-side problem driving women into servitude and exploitation.  California law now recognizes underage solicitors as victims rather than criminals.  Freedom House's aftercare referrals come from law enforcement.  They do important work.  I believe Somaly Mam would approve.

Space . . . the final frontier.  It won't be that way for long.  Space Tango is an incubator for space-oriented startups, although it's quite a ways from where I hang out in NorCal.  The Silicon Valley Space Center is hosting a conference on "Launching Commercial Space Enterprises" this coming weekend.  I can't attend due to prior commitments and I don't normally pay entrance costs higher than zero.  It's probably worth the time of some VCs.

I would like Venture Capital Journal to publish more stories on the unfulfilled promise of the mobile / Big Data / cloud trifecta.  If they don't, I certainly will.  My theory as of today is that the Holy Grail of Big Data remains unrealized because too few IT practitioners have applied ROI-type metrics to compare their investments in Big Iron and the cloud.  It's like my experience with portfolio managers in finance.  Almost all of them rely on folk wisdom, unguided guesswork, and rumor instead of applying the metrics I read in Buffettology books on Warren Buffett's deep value investing.  I think the IT crowd is the same way.  IT pros rely on their subjective preferences for technology instead of the hard metrics of Cloudonomics.  Buffettology and Cloudonomics are often cited, sometimes read, and rarely implemented.  That's why Wall Street holds as much unfulfilled promise as mobile Big Data in the cloud.  That's also why the few people who do read those books can win in life.

These topics appear to be unrelated.  Entrepreneurs and their investors can track them all and make sense out of unrelated matters.  That's just how we think.  Great minds are divergent and polyphasic.  Genius investors in venture capital and private equity discuss these things all the time, even when we're not around a glorious roundtable.  

The Haiku of Finance for 12/08/12

China bidding spree
Batteries and plane leasing
Beaten-down assets

Machinist Union Strike Bodes Poorly For Lockheed

The machinist union at Lockheed Martin has voted to strike.  The company's offer to line out the defined benefit pension for new hires was a red line the union couldn't cross.  That's too bad, because the future of defense companies like Lockheed depends very much on keeping pension liabilities down in the face of declining defense budgets.

This particular strike will very likely cause a work stoppage at the primary assembly facility for the F-35 fighter, Lockheed's bet-the-company cash cow for the next three decades.  This troubled program somehow survived a Nunn-McCurdy breach that should have caused dramatic changes to the platform.  The plane has already cost at least 50% more than originally planned and now work will be delayed for weeks by this strike.

Multirole fighters were affordable when their structural engineering and avionics were simpler.  Reconfiguring multiple systems several times for the same airframe, including for a VSTOL version, has not proven to be the cost-saving procurement method originally promised.  No one at DOD seems to care.  That's too bad, because the federal government's eventual budget cliff-dive will render it unable to pay for its most coveted legacy weapon systems or backstop the losses of its prime contractors.  The striking machinists need a plan B.

Full disclosure:  No position in LMT at this time.  

The Haiku of Finance for 04/10/12

New rare earth report
Disregards global supply
Unknown risk is high

The Haiku of Finance for 03/28/12

Hawker Beechcraft bust
Fewer rich folk flying planes
Sales did not take off

Pentagon Minimizes Rare-Earth Risks (Hopefully)

The U.S. Defense Department recognizes the implications of China's stranglehold on the rare-earth mineral market.  Officially, DOD believes the risks of Chinese dominance are minimal.  That's not reassuring.  Consider one very expensive example.  The Pratt and Whitney engines in Lockheed-Martin's F-35 fighter require a rhenium alloy.  Does United Technologies (Pratt and Whitney's parent) have long-term contracts lined up to supply the rhenium it needs?  The answer will prove crucial. 

The Pentagon study mentioned in the Bloomberg article admits that DOD's primary contractors don't track their use of rare-earths and consider them just another commodity to be obtained on the world market.  Planners in industry and government alike are just beginning to plan for politically-driven supply interruptions.  Sometimes security cannot be had at any price, as if it were available to any bidder in a free market. 

The F-35 STOVL variant just completed a high-temperature test.  Rhenium makes it possible for engines to perform at high temperatures without disintegrating.  DOD had better be sure that rare earth supplies won't be a problem.  Hope is not a method. 

Full disclosure:  Long put against LMT.  No position in UTX. 

Union Stupidity at Hawker Beechcraft

I've got to hand it to union workers.  No one does stupidity like they do:

Machinists at Hawker Beechcraft voted Saturday against a new seven-year contract that would have included a 10 percent pay cut and other concessions aimed at keeping the company from moving all its operations out of Kansas.

Way to go unions!  You've just driven your employer to Baton Rouge, Louisiana.  If you're not willing to relocate then you're out of a job.  Even though Hawker Beechcraft is privately held, their 10-Q filings and other financial statements provide enough confirmation of the company's challenges.  Quarterly gross sales of $603.7mm at the end of June 2010 are over $170mm less than what they were a year prior.  Year-over-year quarterly revenue for the same period plummeted from $172mm to a loss of almost $57mm. 

Numbers like that are a disaster heading into the next leg of a recession.  Hawker Beechcraft would be well-served to take Louisiana's offer.  Kansas' incentives mean nothing now that unions have rejected a deal. 

Full disclosure:  No positions in Hawker Beechcraft's joint owners, Goldman Sachs (GS) or Onex Corporation (OCX.TO).

Missing the Moon

America's technological edge through much of the 20th century owed a lot to its manned space program. The future of America's presence in space is now in doubt:

When the White House releases his budget proposal Monday, there will be no money for the Constellation program that was supposed to return humans to the moon by 2020. The troubled and expensive Ares I rocket that was to replace the space shuttle to ferry humans to space will be gone, along with money for its bigger brother, the Ares V cargo rocket that was to launch the fuel and supplies needed to take humans back to the moon.

There will be no lunar landers, no moon bases, no Constellation program at all.

The torch will soon pass to rising powers in the BRIC bloc:

India will launch its first manned space mission in 2016 in a bid to match space pioneers such as Russia and the United States, a top official said Wednesday.

The government had already approved plans for a human space flight project by the Indian Space Research Organisation (ISRO), and last year gave the go-ahead for funding of around 2.8 billion dollars.

Spacefaring nations demonstrate confidence in their own futures. The end of the American empire is lost among daily news items like this. Such is the sweep of history. I keep tabs on the defense industry for just this reason. Many defense contractors - Lockheed Martin, General Dynamics, L3, and others - derive a healthy chunk of their revenues from NASA and DOD space spending. Constellation in particular is supposed to be a big winner for LMT. Perhaps I should say it "was" supposed to be a winner, until Uncle Sam spent himself into a corner.

See what happens when you blow a stimulus package on union shop overtime and fences to nowhere? Now I'll have to look for some good Indian aerospace companies to review.

Nota bene: Anthony J. Alfidi is long one put against LMT as a hedge against a decline in defense and space spending by the U.S. government.