Trade show overload
Many talking points to note
Free wisdom on tap
Many talking points to note
Free wisdom on tap
Friday, July 31, 2015
Alfidi Capital Visits The MoneyShow San Francisco 2015
The annual pilgrimage to the MoneyShow San Francisco has been my ritual since graduate school. Experts keep my financial knowledge base refreshed. Times change and shows like this one will eventually be completely virtual. The highlights for 2015 covered the disruption of financial advising and health care. I don't need to repeat the most important talks because those will eventually be webcast. I do need to share my impressions from the MoneyShow.
A former Bear Stearns economist led off by describing our post-monetarist environment. I won't blame an economist for Bear Stearns' collapse. Executives have the right not to listen to their top advisers. I will blame those economists who think zero interest rates and low reserve requirements are a permanent condition. Low commodity prices are already here, so that horse has left the barn. Economists don't get paid to predict something that has already happened. I'm all on board with weaker countries heading for crisis and more negative trends for US corporate earnings.
Venerable tech guru George Gilder peered ahead into life after Google. If wealth is knowledge and growth is learning, then Mr. Gilder should be one of the richest people on the planet. I guess information theory doesn't always equate to investment theory if information ignores capex requirements. Bell's Law of computer classes describes a corollary of Moore's Law. Both are useful to determine the amount of capex to commit to enterprise development. Neither are useful in making personal investment decisions. I am not clear on Mr. Gilder's formulation of "bank assets ex cash" to describe the Fed's daily borrowing. A Web search of that phrase brings up legal discussions about dividing assets in a divorce. Adding the Federal Reserve to this Web search brings up the FRB's H.8 release, so I wonder if Mr. Gilder really meant to describe the assets and liabilities of commercial banks. He may have the big picture mostly correct about cloud layers but I still don't think blockchains will give him a magic currency.
The next panel in George Gilder's Telecosm Forum echoed the kind of stock picks he made 30 years ago when he said something about Intel. Bullish talk about SDN, cloud, and front-haul data processing for apps makes me think that data center REITs will do better than wireless telecom tower REITs if I had to choose between the two. Bring on the fog computing. Tech picks only go so far. Intel took off because it was tied to Microsoft Windows' desktop monopoly. These tech stocks only work as growth stories if they are tied to network effects that impose huge switching costs on millions of retail users.
I have sought a decent predictive model in life sciences for years. The finance community cannot rely upon the same old milestone drivers of stock price movements for drug development companies. I had a gentlemanly confrontation with another investor at the MoneyShow who became frustrated that one participating company did not mention its employee headcount, ticker symbol, annual revenue, target market, or other characteristics. Granted, those are details any analyst should ferret out in due diligence. The one valuable insight I did find was a computational algorithm that enabled better understanding of molecular-level biological processes. That one insight would be worth more to the finance sector than a stack of SEC filings. Financial analysts should read Isaiah Berlin's "The Hedgehog and the Fox" about the difference between divergent, multifaceted thinkers and singular, profound thinkers. Great investors can switch effortlessly between either perspective.
Silicon Valley is taking down Wall Street. New fin-tech concepts start with domain knowledge from human experts, then add machine learning. What if the human experts are flawed? Are they truly the best in their class? True finance experts are rare because their unique brain chemistry enables "six sigma" insights. Warren Buffet, Charles Munger, Burton Malkiel, Carl Icahn, Bill Gross, and John Bogle are true experts not because their methods are peer-reviewed, but because their intellects and temperaments combine for abnormal results. Obviously it is difficult but invaluable to tap them, so lesser experts are poor substitutes. The panel remarked that descriptive analytics give deep insights into a portfolio's geopolitical risks, like the probability of a regime change as a sell trigger. George Gilder just had to mouth off from the crowd during one Q+A. His complaint was that if every investor becomes a passive investor as robo-advisers herd them into low-cost index funds, they really become "parasitic investors" who mimic each other and deprive the market of growth and learning. All I could do is shake my head when I heard him blathering. Come on, George. Does he not understand index investing at all? The growth and learning happens within these stocks as they innovate, become more productive, and increase earnings. Developing new investing theories like modern portfolio theory and arbitrage pricing theory adds learning to a portfolio's efficient frontier. Index investing enables all of that growth and learning by minimizing the costs of wasteful active trading. I do not need Mr. Gilder to tell me how to invest.
Another biotech thesis was a pick and shovel play on specialized real estate for life science research campuses. That idea works as long as it rides the biotech bubble. I did not see any data on this particular idea's performance. Dropping brand names of top pharma companies' revenue is only relevant if they are tenants in such real estate.
I quietly LOL'd at a "tag cloud investing" slide covering cloud, China, wearables, and other trends completely out of context. More computing power, faster data transfer, cheaper data centers, app proliferation, and microbial engineering all have something to do with lifting the fog around innovation and change. Wireless capability has not yet caught up to storage or processing, so maybe there's some untapped opportunity in those wireless tower REITs after all.
Carver Mead invented Moore's Law. He wrapped up the Gilder Telecosm Forum with a peek into the basics of the universe. Quantum systems are so different from anything we understand in our daily reality. They have nothing to do with the thermal system disorder that gives time its one-way direction. I appreciated the reference to sci-fi author Robert Heinlein when he said we should "grok" quantum information exchanges intuitively. He concluded by predicting a revolution in science itself that would resemble technology's revolution. The guy was pure genius. I live for the chance to hear people like him speak in person.
After the telecosm comes the many microcosms of talks on specialized topics. I like business development companies (BDCs) as an idea but their fixed rate loan portfolios make them poor performers during high inflation. I would consider an ETF for BDCs but only in a normal economy with normal rates for growth, inflation, and debt interest. I am very skeptical about companies issuing debt just to pay extraordinary dividends or buy back stock, and some of them may end up in BDCs' portfolios.
I prefer options as hedges or yield enhancements, not as the "strategic" investment some brokerages want to pitch. Too many options specialists favor short term trading. They are gamblers rather than fundamental analysts. "Beta weighting" that ties options to equities sounds like an interesting concept. I will let others tie up the Greek letters they need to explain it.
The long march of ETFs into the fore brings passive investing to cheap robo-adviser platforms. These products have restored asset allocation as the primary driver of portfolio returns. Financial advisory relationships can now be valued in minuscule basis points as venture funding for robo-advisers makes cheap solutions more desirable. Cheap "core" portfolios mean the only "satellites" adding value must be extremely unique. I will remind myself not to trade any ETFs within one hour of the market's open or close, when bid/ask spreads are widest.
I an newly fascinated with farmland REITs. I wonder if the ROI of raw farmland correlates with agribusiness stocks or food commodity prices. Aqua farms and solar farms are boutique touches that may add value to farmland in some areas. Easements for pipelines, highways, and other infrastructure also add value. Farmland exposure is one more type of hard asset hedge. Such a REIT makes farmland liquid, and it retains pricing power during inflation if its owned farmland is leased to tenant farmers under short-term leases. Wow, I may have stumbled on a real game-changer.
One MLP expert said an MLP's distribution sustainability depends on where it operates in the energy chain: upstream, midstream, or downstream. Upstream MLP prices swing with the WTI crude oil price. Midstream MLPs are a larger, diverse sector. Downstream MLP refineries are tied to both crude and fuel prices. The crack spread of a low crude price and high fuel cost equals profitable refineries. Some MLPs issue bonds, so analysts should know how bond yields tie to issuers' credit ratings and distribution history.
Dividend paying companies became investors' little darlings as the Federal Reserve forced everyone to chase yield. I wonder about the typical payout ratio of a sustainable dividend. Are there valid REIT metrics too? How about lease length and type (i.e., triple net versus others), credit rating, and occupancy rates? I'm pretty sure any company whose dividend growth exceeds US GDP growth will outperform the market because it has some durable competitive advantage, unless they're taking on debt just to raise dividends. I would favor REITs with short term leases over long term leases because they have better pricing power during periods of high inflation.
Activist investing works for investors who have lots of money and can add value by directly advising company management over the long term. It's probably not suitable for the retail investor. The SEC's Form 13 series helps us follow the money trail, and I would add that Form 4 filings are also useful. Underperforming companies with clean balance sheets and low insider ownership may not stay so clean for long if they become activist targets, because bad management will lard them up with debt. I stay away from retail investment products that claim to use activist investing because they may not have the managerial acumen to fix what ails an underperforming company.
Marilyn Cohen of Envision Capital Management is always one of my favorite MoneyShow experts. Her approach to bold and brave bond investing acknowledges that many bond issues are rated in the BBB range. I bet calling it a "bold brave bonds" talk was a play on that BBB rating. She thinks investment grade bonds are the most overvalued part of the bond market because institutions have gravitated to them over Treasuries. Any investor can check SIFMA's Investing In Bonds and MSRB's EMMA for bond data but those sites don't give the whole picture for specialized bonds. Investors must track local factors affecting muni water bonds and prison bonds. I agree with Marilyn that the IMF and Federal Reserve obviously collaborate, and that Greece's problems will continue.
I made the mistake of sitting through one panel on a "high growth" subject that was really all about growing something that gets people high. Yes indeed, the hot trend of investing in a certain green plant has hit the retail investing mainstream. I have never used that plant, nor will I ever use it. The product remains illegal to cultivate or sell under current Federal law but that has not stopped states like California from experimenting with decriminalization. The sector's advocates need to stop putting the cart before the horse and outline a path to legalization that is consistent with the rule of law in a constitutional republic. Big Pharma and agribusiness lobbies can be this young sector's allies if they will work with the US Congress on drafting legalization bills. Once the President signs such a bill into law, then Warren Buffett and whoever else can buy all the land they want for cultivation. I wonder what the CFTC will do with futures contracts for this plant after legalization.
Disruptive tech investing now has a unique approach thanks to BDCs. Apparently some BDCs have startup exposure in their loan portfolios. Exit events generate special dividends. The BDC shares experience run-ups prior to a startup's IPO and can then be shorted after the IPO. I think one way to play a BDC in advance of such an IPO is to buy-write the BDC with at-the-money calls and let it be sold away. It could then be a short sell after the shares are called away. I may just try that at some point with my own money, if we ever have a normal stock market again.
I will not embarrass one finance professional who tracks emerging markets. Ignoring international indexes like Transparency for corruption and Heritage for economic governance carries huge risk. Anyone who thinks the Chinese government is the best in the world needs their head examined. That country's rush to urbanization was a huge malinvestment. Their top leaders can't be that bright if they think state intervention in the stock market will stop a selloff. It is delusional to think Chinese companies will add Westerners to their boards for better governance. Boards are always rubber stamps for executives. Westerners typically ignore the Asian "two faced" approach to business with the non-Asian world. The Chinese way of "getting things done" pollutes the environment, steals IP, and overbuilds infrastructure. I will not invest in instruments that follow that approach.
Marilyn Cohen returned for a second talk on nitty-gritty bond investing. I dislike bond ETFs as much as Carl Icahn. Bond ETFs add imperfections that negate the role individual bonds are supposed to play in portfolios. Marilyn thinks institutional selling could trigger a bond market crash, combined with broker/dealers who who are unwilling or unable to commit capital to trades. Detroit's bankruptcy destroyed the myth that governments will raise taxes to pay off general obligation bonds. The new world of muni bonds mean bondholders will get the bad end of any deal in restructuring. She thinks muni bond investors should track facts: balanced budgets, good reserves, accurate spending projections, days of cash on hand, timely financial statement filings, and statement footnotes that reveal promised benefits and unfunded liabilities. The opposite or absence of such factors would indicate poor municipal management, giving reason to avoid such bonds.
Some ideas are too bad to deserve attention. Hard targets for return on capital make sense in a normal environment, but not now. Fully-invested herd followers have no contrarian edge. Separately managed accounts are totally stupid. Index changes remove poorly performing companies for price reasons, not fundamentals, and that is why index arbitrage strategies generate alpha.
Investing for income that anticipates inflation means having something other than plain vanilla bonds. We all have our pick of mortgage REITs, BDCs, convertible debt ETFs, sector ETNs, specialty finance companies, and LNG shipping companies. I love the funny term "offensive assets" because I've never heard a non-defensive strategy with that label. Allow me to vent a frustration here. All of these freaking newsletter publishers love the bubble sectors! Finance, housing, biotech, and health care get plenty of attention. Hardly anyone at the MoneyShow sees stock or bond corrections coming. I had good returns in past years by writing covered calls on high-dividend securities. I just won't risk it while central banks are pumping everything.
Anyone who expected more detail from me should have attended the MoneyShow themselves. I have blogged only a fraction of the things I learned. The remainder is mine to keep until such time as the markets allow me decent entry points. Investment wisdom is only truly actionable when an investor thinks on their own. I invest only for myself, and the MoneyShow always helps make that easier.
A former Bear Stearns economist led off by describing our post-monetarist environment. I won't blame an economist for Bear Stearns' collapse. Executives have the right not to listen to their top advisers. I will blame those economists who think zero interest rates and low reserve requirements are a permanent condition. Low commodity prices are already here, so that horse has left the barn. Economists don't get paid to predict something that has already happened. I'm all on board with weaker countries heading for crisis and more negative trends for US corporate earnings.
Venerable tech guru George Gilder peered ahead into life after Google. If wealth is knowledge and growth is learning, then Mr. Gilder should be one of the richest people on the planet. I guess information theory doesn't always equate to investment theory if information ignores capex requirements. Bell's Law of computer classes describes a corollary of Moore's Law. Both are useful to determine the amount of capex to commit to enterprise development. Neither are useful in making personal investment decisions. I am not clear on Mr. Gilder's formulation of "bank assets ex cash" to describe the Fed's daily borrowing. A Web search of that phrase brings up legal discussions about dividing assets in a divorce. Adding the Federal Reserve to this Web search brings up the FRB's H.8 release, so I wonder if Mr. Gilder really meant to describe the assets and liabilities of commercial banks. He may have the big picture mostly correct about cloud layers but I still don't think blockchains will give him a magic currency.
The next panel in George Gilder's Telecosm Forum echoed the kind of stock picks he made 30 years ago when he said something about Intel. Bullish talk about SDN, cloud, and front-haul data processing for apps makes me think that data center REITs will do better than wireless telecom tower REITs if I had to choose between the two. Bring on the fog computing. Tech picks only go so far. Intel took off because it was tied to Microsoft Windows' desktop monopoly. These tech stocks only work as growth stories if they are tied to network effects that impose huge switching costs on millions of retail users.
I have sought a decent predictive model in life sciences for years. The finance community cannot rely upon the same old milestone drivers of stock price movements for drug development companies. I had a gentlemanly confrontation with another investor at the MoneyShow who became frustrated that one participating company did not mention its employee headcount, ticker symbol, annual revenue, target market, or other characteristics. Granted, those are details any analyst should ferret out in due diligence. The one valuable insight I did find was a computational algorithm that enabled better understanding of molecular-level biological processes. That one insight would be worth more to the finance sector than a stack of SEC filings. Financial analysts should read Isaiah Berlin's "The Hedgehog and the Fox" about the difference between divergent, multifaceted thinkers and singular, profound thinkers. Great investors can switch effortlessly between either perspective.
Silicon Valley is taking down Wall Street. New fin-tech concepts start with domain knowledge from human experts, then add machine learning. What if the human experts are flawed? Are they truly the best in their class? True finance experts are rare because their unique brain chemistry enables "six sigma" insights. Warren Buffet, Charles Munger, Burton Malkiel, Carl Icahn, Bill Gross, and John Bogle are true experts not because their methods are peer-reviewed, but because their intellects and temperaments combine for abnormal results. Obviously it is difficult but invaluable to tap them, so lesser experts are poor substitutes. The panel remarked that descriptive analytics give deep insights into a portfolio's geopolitical risks, like the probability of a regime change as a sell trigger. George Gilder just had to mouth off from the crowd during one Q+A. His complaint was that if every investor becomes a passive investor as robo-advisers herd them into low-cost index funds, they really become "parasitic investors" who mimic each other and deprive the market of growth and learning. All I could do is shake my head when I heard him blathering. Come on, George. Does he not understand index investing at all? The growth and learning happens within these stocks as they innovate, become more productive, and increase earnings. Developing new investing theories like modern portfolio theory and arbitrage pricing theory adds learning to a portfolio's efficient frontier. Index investing enables all of that growth and learning by minimizing the costs of wasteful active trading. I do not need Mr. Gilder to tell me how to invest.
Another biotech thesis was a pick and shovel play on specialized real estate for life science research campuses. That idea works as long as it rides the biotech bubble. I did not see any data on this particular idea's performance. Dropping brand names of top pharma companies' revenue is only relevant if they are tenants in such real estate.
I quietly LOL'd at a "tag cloud investing" slide covering cloud, China, wearables, and other trends completely out of context. More computing power, faster data transfer, cheaper data centers, app proliferation, and microbial engineering all have something to do with lifting the fog around innovation and change. Wireless capability has not yet caught up to storage or processing, so maybe there's some untapped opportunity in those wireless tower REITs after all.
Carver Mead invented Moore's Law. He wrapped up the Gilder Telecosm Forum with a peek into the basics of the universe. Quantum systems are so different from anything we understand in our daily reality. They have nothing to do with the thermal system disorder that gives time its one-way direction. I appreciated the reference to sci-fi author Robert Heinlein when he said we should "grok" quantum information exchanges intuitively. He concluded by predicting a revolution in science itself that would resemble technology's revolution. The guy was pure genius. I live for the chance to hear people like him speak in person.
After the telecosm comes the many microcosms of talks on specialized topics. I like business development companies (BDCs) as an idea but their fixed rate loan portfolios make them poor performers during high inflation. I would consider an ETF for BDCs but only in a normal economy with normal rates for growth, inflation, and debt interest. I am very skeptical about companies issuing debt just to pay extraordinary dividends or buy back stock, and some of them may end up in BDCs' portfolios.
I prefer options as hedges or yield enhancements, not as the "strategic" investment some brokerages want to pitch. Too many options specialists favor short term trading. They are gamblers rather than fundamental analysts. "Beta weighting" that ties options to equities sounds like an interesting concept. I will let others tie up the Greek letters they need to explain it.
The long march of ETFs into the fore brings passive investing to cheap robo-adviser platforms. These products have restored asset allocation as the primary driver of portfolio returns. Financial advisory relationships can now be valued in minuscule basis points as venture funding for robo-advisers makes cheap solutions more desirable. Cheap "core" portfolios mean the only "satellites" adding value must be extremely unique. I will remind myself not to trade any ETFs within one hour of the market's open or close, when bid/ask spreads are widest.
I an newly fascinated with farmland REITs. I wonder if the ROI of raw farmland correlates with agribusiness stocks or food commodity prices. Aqua farms and solar farms are boutique touches that may add value to farmland in some areas. Easements for pipelines, highways, and other infrastructure also add value. Farmland exposure is one more type of hard asset hedge. Such a REIT makes farmland liquid, and it retains pricing power during inflation if its owned farmland is leased to tenant farmers under short-term leases. Wow, I may have stumbled on a real game-changer.
One MLP expert said an MLP's distribution sustainability depends on where it operates in the energy chain: upstream, midstream, or downstream. Upstream MLP prices swing with the WTI crude oil price. Midstream MLPs are a larger, diverse sector. Downstream MLP refineries are tied to both crude and fuel prices. The crack spread of a low crude price and high fuel cost equals profitable refineries. Some MLPs issue bonds, so analysts should know how bond yields tie to issuers' credit ratings and distribution history.
Dividend paying companies became investors' little darlings as the Federal Reserve forced everyone to chase yield. I wonder about the typical payout ratio of a sustainable dividend. Are there valid REIT metrics too? How about lease length and type (i.e., triple net versus others), credit rating, and occupancy rates? I'm pretty sure any company whose dividend growth exceeds US GDP growth will outperform the market because it has some durable competitive advantage, unless they're taking on debt just to raise dividends. I would favor REITs with short term leases over long term leases because they have better pricing power during periods of high inflation.
Activist investing works for investors who have lots of money and can add value by directly advising company management over the long term. It's probably not suitable for the retail investor. The SEC's Form 13 series helps us follow the money trail, and I would add that Form 4 filings are also useful. Underperforming companies with clean balance sheets and low insider ownership may not stay so clean for long if they become activist targets, because bad management will lard them up with debt. I stay away from retail investment products that claim to use activist investing because they may not have the managerial acumen to fix what ails an underperforming company.
Marilyn Cohen of Envision Capital Management is always one of my favorite MoneyShow experts. Her approach to bold and brave bond investing acknowledges that many bond issues are rated in the BBB range. I bet calling it a "bold brave bonds" talk was a play on that BBB rating. She thinks investment grade bonds are the most overvalued part of the bond market because institutions have gravitated to them over Treasuries. Any investor can check SIFMA's Investing In Bonds and MSRB's EMMA for bond data but those sites don't give the whole picture for specialized bonds. Investors must track local factors affecting muni water bonds and prison bonds. I agree with Marilyn that the IMF and Federal Reserve obviously collaborate, and that Greece's problems will continue.
I made the mistake of sitting through one panel on a "high growth" subject that was really all about growing something that gets people high. Yes indeed, the hot trend of investing in a certain green plant has hit the retail investing mainstream. I have never used that plant, nor will I ever use it. The product remains illegal to cultivate or sell under current Federal law but that has not stopped states like California from experimenting with decriminalization. The sector's advocates need to stop putting the cart before the horse and outline a path to legalization that is consistent with the rule of law in a constitutional republic. Big Pharma and agribusiness lobbies can be this young sector's allies if they will work with the US Congress on drafting legalization bills. Once the President signs such a bill into law, then Warren Buffett and whoever else can buy all the land they want for cultivation. I wonder what the CFTC will do with futures contracts for this plant after legalization.
Disruptive tech investing now has a unique approach thanks to BDCs. Apparently some BDCs have startup exposure in their loan portfolios. Exit events generate special dividends. The BDC shares experience run-ups prior to a startup's IPO and can then be shorted after the IPO. I think one way to play a BDC in advance of such an IPO is to buy-write the BDC with at-the-money calls and let it be sold away. It could then be a short sell after the shares are called away. I may just try that at some point with my own money, if we ever have a normal stock market again.
I will not embarrass one finance professional who tracks emerging markets. Ignoring international indexes like Transparency for corruption and Heritage for economic governance carries huge risk. Anyone who thinks the Chinese government is the best in the world needs their head examined. That country's rush to urbanization was a huge malinvestment. Their top leaders can't be that bright if they think state intervention in the stock market will stop a selloff. It is delusional to think Chinese companies will add Westerners to their boards for better governance. Boards are always rubber stamps for executives. Westerners typically ignore the Asian "two faced" approach to business with the non-Asian world. The Chinese way of "getting things done" pollutes the environment, steals IP, and overbuilds infrastructure. I will not invest in instruments that follow that approach.
Marilyn Cohen returned for a second talk on nitty-gritty bond investing. I dislike bond ETFs as much as Carl Icahn. Bond ETFs add imperfections that negate the role individual bonds are supposed to play in portfolios. Marilyn thinks institutional selling could trigger a bond market crash, combined with broker/dealers who who are unwilling or unable to commit capital to trades. Detroit's bankruptcy destroyed the myth that governments will raise taxes to pay off general obligation bonds. The new world of muni bonds mean bondholders will get the bad end of any deal in restructuring. She thinks muni bond investors should track facts: balanced budgets, good reserves, accurate spending projections, days of cash on hand, timely financial statement filings, and statement footnotes that reveal promised benefits and unfunded liabilities. The opposite or absence of such factors would indicate poor municipal management, giving reason to avoid such bonds.
Some ideas are too bad to deserve attention. Hard targets for return on capital make sense in a normal environment, but not now. Fully-invested herd followers have no contrarian edge. Separately managed accounts are totally stupid. Index changes remove poorly performing companies for price reasons, not fundamentals, and that is why index arbitrage strategies generate alpha.
Investing for income that anticipates inflation means having something other than plain vanilla bonds. We all have our pick of mortgage REITs, BDCs, convertible debt ETFs, sector ETNs, specialty finance companies, and LNG shipping companies. I love the funny term "offensive assets" because I've never heard a non-defensive strategy with that label. Allow me to vent a frustration here. All of these freaking newsletter publishers love the bubble sectors! Finance, housing, biotech, and health care get plenty of attention. Hardly anyone at the MoneyShow sees stock or bond corrections coming. I had good returns in past years by writing covered calls on high-dividend securities. I just won't risk it while central banks are pumping everything.
Anyone who expected more detail from me should have attended the MoneyShow themselves. I have blogged only a fraction of the things I learned. The remainder is mine to keep until such time as the markets allow me decent entry points. Investment wisdom is only truly actionable when an investor thinks on their own. I invest only for myself, and the MoneyShow always helps make that easier.
Synopsis Of Intersolar North America And SEMICON West 2015
I attended Intersolar North America and SEMICON West once again. These shows are shaping up to be my favorite mega conference every year and they delivered the goods in 2015. Other meetings took me away from some of the symposia but I had the main events covered.
The Intersolar Opening Ceremony only had one politician this year. The local politicos couldn't make it so a New York state legislator talked about the Empire State's energy programs. No one can touch California, folks, so I don't know why these other states even try. They may as well just throw in the towel. I was shocked to hear one of the lead presenters state that multi-junction solar cells are now getting 46% conversion rates. That is about three times the long-term historical sunlight conversion rate that PV panels typically yielded for decades. Solar's levelized cost of electricity (LCOE) is also getting more competitive. In case anyone is curious, EIA describes LCOE for 2015 and NREL provides an LCOE calculator.
Tesla Motors' CTO and co-founder tied the Gigafactory's Li-ion battery tech to the pending launch of Tesla Energy. I believe cheap lithium producers will have a major advantage if materials costs truly have the storage sector concerned. Tesla's full rollout targets both home storage for Tesla car owners and microgrid buildouts for demand clusters in emerging markets. One big concern among Opening Ceremony attendees like CALSEIA is the continuance of pro-solar policies like net metering, the federal solar investment tax credit (ITC), and Renewable Portfolio Standards (RPS). Absorbing all that urgency was enough to give me an appetite for the free food at the Opening Ceremony's reception. I always get my fill of grilled turkey and vegetables.
SEMICON West held their opening press conference and analysts like yours truly are sure to be there. I grabbed my coffee and listened to SEMI's market outlook. Gartner and other sector analysts are lowering their revenue forecasts for the semiconductor industry. I noted how a weaker euro and yen are reducing billings reported in US dollars. SEMI is still forecasting decent growth in both material cycles and equipment.
The SEMICON keynote on sub-14nm manufacturing was pretty technical but I tried to follow it for investment insights. Physics allows innovation to march on and fixing bugs always means lots of manual work. I am not clear on the relationship between lower voltage and higher efficiency, especially if huge efficiency improvements are needed to get HPC capabilities into smaller form factors. I am much more clear on the need for databases to communicate in the same language.
The session on EES storage and large-scale grid integration reminded me of something I probably forgot from a previous Intersolar, namely that batteries are less efficient in high-temperature climates. Li-ion batteries have high efficiency and will charge for a large number of cycles, but they also have a higher cost per kWh than other storage technologies. They also have a safety disadvantage of "thermal runaway" if overcharged or crushed. The CAISO duck curve and NREL volatility chart show how storage adds to the capacity of PV systems. Feel free to look those up yourselves, as I suspect their URLs will change.
I went over to SEMICON's Silicon Innovation Forum (SIF) investor panel to learn that the National Science Foundation's (NSF) Industrial Innovation and Partnerships (IIP) office has SBIR funds available for startups. The investors had major takeaways for those of us who track these things. Corporate VCs have discovered they must provide more capital to semicon startups that need cleanroom work or data development. Huge capital requirements for new ventures will eventually deter startups from entering semicon. VCs' recent focus on unicorns further deters interest in startups that can more reliably deliver smaller returns for strategic investors. The corporate VCs would rather hit lots of singles and doubles than invest in one big successful home run.
GTM Research debuted their white paper on solar and the storage market. I like conferences that give me free stuff to read. Less than 0.1% of US solar assets have associated storage capacity, implying there's room for growth. Okay, I've been hearing about storage's huge potential for growth for three years now. It still hasn't grown. I guess Tesla Energy has its work cut out. Good luck selling storage with Tesla cars as a total package given Tesla's tiny share of the auto market. I guess utility incentives will have to drive home storage adoption; EVs can't move the needle until they become much cheaper. Combined savings in commercial costs over a storage product's lifetime are supposed to greatly exceed the initial investment outlay, but I wonder whether that factors in any periodic maintenance cost or insurance cost for the storage unit. One big claim for storage is that it should add a revenue stream to a household by feeding excess energy back to the grid for sale. I will review the sector's numbers to see how that works, and how storage adds value to a solar power purchase agreement (PPA). I also would like to find out whether solar and storage growth curves differ by regions covered by different independent system operators (ISOs).
The US Commercial Service was on hand to talk trade promotion. I have heard them talk before in Silicon Valley so I don't think I need to rehash their many services here. I do expect Congress to eventually reauthorize the Ex-Im Bank, because a big plank of our foreign policy depends on trade finance tied to development in emerging markets. Using "soft power" wisely means keeping US development commitments to Africa that will counter China's influence. The US should probably merge its Trade and Development Agency with its International Trade Administration so businesses have one less block to check when planning foreign trade partnerships. Kudos to the Obama Administration for using StopFakes to support American intellectual property.
One SEMICON keynote from Intel connected IoT to the next 50 years of Moore's Law. You just have to love corporate sponsorship for a keynote. I would do it too if I thought it would make me serious money. Intel is betting that its new module's IoT applications will solve problems in four megatrends: aging populations, carbon footprints in the environment, urbanization booms, and feeding the planet. I would tell any semicon startup to study the standards of the Industrial Internet Consortium and the Open Interconnect Consortium to ensure their IoT solutions are compatible with emerging norms.
I missed the SEMICON "Bulls and Bears" panel due to a schedule conflict, which is unfortunate because other financial firms track the semicon sector more closely than me. I will have to study the sector's capex, inventory, capacity utilization, supply chain, and technical challenges on my own.
The Joint Forces for Solar forum is always the highlight of Intersolar for me. The New York state politician was at it again, making good points about his state's energy market. I like the idea of a state Green Bank, and I wonder whether some of the state's models will work elsewhere. The California PV market review was more relevant to my interests. Rate differentials for high-end and low-end users will get more complex with the addition of a Super User Electricity (SUE) surcharge as a third rate tier. Net metering will be uncapped and unlimited. California's RPS goals don't include rooftop solar, which is just too darn bad. The sector lobby needs to fix that and push for its inclusion.
The final SEMICON SIF keynote was all about transformational innovation and market readiness. I literally did a "whoa" at the academic speaker dude's career history full of hundreds of patents and scientific articles. I take geniuses very seriously. He reminded his audience that there are no shortcuts to building a company and each day brings a "dragon" threat to be slain. I concur with his endorsement of a "sustainable innovation ecosystem" that successfully engage academics in commercializing their university research. Academics deserve better royalties and recognition when they do something entrepreneurial. The decline in US government research spending and the erosion of the US manufacturing base are not coincidences. I agree with our SIF speaker that US industry has a hard time tapping the leadership skills of government and military leaders if the public sector is isolated from industry. Well, duh, really? The finance sector sure kept my military expertise isolated by refusing to hire me and treating me badly. Anyway, our expert said he expects the electronics industry to consolidate as the end of Moore's Law approaches in a decade, but the coming quantum and optics tech will change the sector's economics all over again. He also expects entrepreneurs to lead this newly fragmented next-gen industry, with government and university research playing a critical role. I like that he ended with those optimistic predictions. I also liked the reception afterwards, with plenty of shrimp kabobs and cheeseburger sliders.
Intersolar and SEMICON West always blow my mind. I came away this year with plenty of data sources to use when mentoring startups. I even noted another incubator, the Silicon Catalyst, whose startups will likely need my wisdom. Startup founders who read the Alfidi Capital Blog have a natural advantage when building businesses in solar energy and semiconductors. The genius-level knowledge here literally flies off the page.
The Intersolar Opening Ceremony only had one politician this year. The local politicos couldn't make it so a New York state legislator talked about the Empire State's energy programs. No one can touch California, folks, so I don't know why these other states even try. They may as well just throw in the towel. I was shocked to hear one of the lead presenters state that multi-junction solar cells are now getting 46% conversion rates. That is about three times the long-term historical sunlight conversion rate that PV panels typically yielded for decades. Solar's levelized cost of electricity (LCOE) is also getting more competitive. In case anyone is curious, EIA describes LCOE for 2015 and NREL provides an LCOE calculator.
Tesla Motors' CTO and co-founder tied the Gigafactory's Li-ion battery tech to the pending launch of Tesla Energy. I believe cheap lithium producers will have a major advantage if materials costs truly have the storage sector concerned. Tesla's full rollout targets both home storage for Tesla car owners and microgrid buildouts for demand clusters in emerging markets. One big concern among Opening Ceremony attendees like CALSEIA is the continuance of pro-solar policies like net metering, the federal solar investment tax credit (ITC), and Renewable Portfolio Standards (RPS). Absorbing all that urgency was enough to give me an appetite for the free food at the Opening Ceremony's reception. I always get my fill of grilled turkey and vegetables.
SEMICON West held their opening press conference and analysts like yours truly are sure to be there. I grabbed my coffee and listened to SEMI's market outlook. Gartner and other sector analysts are lowering their revenue forecasts for the semiconductor industry. I noted how a weaker euro and yen are reducing billings reported in US dollars. SEMI is still forecasting decent growth in both material cycles and equipment.
The SEMICON keynote on sub-14nm manufacturing was pretty technical but I tried to follow it for investment insights. Physics allows innovation to march on and fixing bugs always means lots of manual work. I am not clear on the relationship between lower voltage and higher efficiency, especially if huge efficiency improvements are needed to get HPC capabilities into smaller form factors. I am much more clear on the need for databases to communicate in the same language.
The session on EES storage and large-scale grid integration reminded me of something I probably forgot from a previous Intersolar, namely that batteries are less efficient in high-temperature climates. Li-ion batteries have high efficiency and will charge for a large number of cycles, but they also have a higher cost per kWh than other storage technologies. They also have a safety disadvantage of "thermal runaway" if overcharged or crushed. The CAISO duck curve and NREL volatility chart show how storage adds to the capacity of PV systems. Feel free to look those up yourselves, as I suspect their URLs will change.
I went over to SEMICON's Silicon Innovation Forum (SIF) investor panel to learn that the National Science Foundation's (NSF) Industrial Innovation and Partnerships (IIP) office has SBIR funds available for startups. The investors had major takeaways for those of us who track these things. Corporate VCs have discovered they must provide more capital to semicon startups that need cleanroom work or data development. Huge capital requirements for new ventures will eventually deter startups from entering semicon. VCs' recent focus on unicorns further deters interest in startups that can more reliably deliver smaller returns for strategic investors. The corporate VCs would rather hit lots of singles and doubles than invest in one big successful home run.
GTM Research debuted their white paper on solar and the storage market. I like conferences that give me free stuff to read. Less than 0.1% of US solar assets have associated storage capacity, implying there's room for growth. Okay, I've been hearing about storage's huge potential for growth for three years now. It still hasn't grown. I guess Tesla Energy has its work cut out. Good luck selling storage with Tesla cars as a total package given Tesla's tiny share of the auto market. I guess utility incentives will have to drive home storage adoption; EVs can't move the needle until they become much cheaper. Combined savings in commercial costs over a storage product's lifetime are supposed to greatly exceed the initial investment outlay, but I wonder whether that factors in any periodic maintenance cost or insurance cost for the storage unit. One big claim for storage is that it should add a revenue stream to a household by feeding excess energy back to the grid for sale. I will review the sector's numbers to see how that works, and how storage adds value to a solar power purchase agreement (PPA). I also would like to find out whether solar and storage growth curves differ by regions covered by different independent system operators (ISOs).
The US Commercial Service was on hand to talk trade promotion. I have heard them talk before in Silicon Valley so I don't think I need to rehash their many services here. I do expect Congress to eventually reauthorize the Ex-Im Bank, because a big plank of our foreign policy depends on trade finance tied to development in emerging markets. Using "soft power" wisely means keeping US development commitments to Africa that will counter China's influence. The US should probably merge its Trade and Development Agency with its International Trade Administration so businesses have one less block to check when planning foreign trade partnerships. Kudos to the Obama Administration for using StopFakes to support American intellectual property.
One SEMICON keynote from Intel connected IoT to the next 50 years of Moore's Law. You just have to love corporate sponsorship for a keynote. I would do it too if I thought it would make me serious money. Intel is betting that its new module's IoT applications will solve problems in four megatrends: aging populations, carbon footprints in the environment, urbanization booms, and feeding the planet. I would tell any semicon startup to study the standards of the Industrial Internet Consortium and the Open Interconnect Consortium to ensure their IoT solutions are compatible with emerging norms.
I missed the SEMICON "Bulls and Bears" panel due to a schedule conflict, which is unfortunate because other financial firms track the semicon sector more closely than me. I will have to study the sector's capex, inventory, capacity utilization, supply chain, and technical challenges on my own.
The Joint Forces for Solar forum is always the highlight of Intersolar for me. The New York state politician was at it again, making good points about his state's energy market. I like the idea of a state Green Bank, and I wonder whether some of the state's models will work elsewhere. The California PV market review was more relevant to my interests. Rate differentials for high-end and low-end users will get more complex with the addition of a Super User Electricity (SUE) surcharge as a third rate tier. Net metering will be uncapped and unlimited. California's RPS goals don't include rooftop solar, which is just too darn bad. The sector lobby needs to fix that and push for its inclusion.
The final SEMICON SIF keynote was all about transformational innovation and market readiness. I literally did a "whoa" at the academic speaker dude's career history full of hundreds of patents and scientific articles. I take geniuses very seriously. He reminded his audience that there are no shortcuts to building a company and each day brings a "dragon" threat to be slain. I concur with his endorsement of a "sustainable innovation ecosystem" that successfully engage academics in commercializing their university research. Academics deserve better royalties and recognition when they do something entrepreneurial. The decline in US government research spending and the erosion of the US manufacturing base are not coincidences. I agree with our SIF speaker that US industry has a hard time tapping the leadership skills of government and military leaders if the public sector is isolated from industry. Well, duh, really? The finance sector sure kept my military expertise isolated by refusing to hire me and treating me badly. Anyway, our expert said he expects the electronics industry to consolidate as the end of Moore's Law approaches in a decade, but the coming quantum and optics tech will change the sector's economics all over again. He also expects entrepreneurs to lead this newly fragmented next-gen industry, with government and university research playing a critical role. I like that he ended with those optimistic predictions. I also liked the reception afterwards, with plenty of shrimp kabobs and cheeseburger sliders.
Intersolar and SEMICON West always blow my mind. I came away this year with plenty of data sources to use when mentoring startups. I even noted another incubator, the Silicon Catalyst, whose startups will likely need my wisdom. Startup founders who read the Alfidi Capital Blog have a natural advantage when building businesses in solar energy and semiconductors. The genius-level knowledge here literally flies off the page.
Thursday, July 30, 2015
The Haiku of Finance for 07/30/15
Pay down costly debt
Sinking fund for high yield bonds
Call junk bonds while cheap
Sinking fund for high yield bonds
Call junk bonds while cheap
Wednesday, July 29, 2015
Tuesday, July 28, 2015
The Haiku of Finance for 07/28/15
Startup cash burn plan
Spend it all, then ask for more
Investors just laugh
Spend it all, then ask for more
Investors just laugh
Monday, July 27, 2015
Sunday, July 26, 2015
The Limerick of Finance for 07/26/15
Greek faction had crazy bank plan
Parallel payments into a pan
Drachma would return
Greek savers would burn
No one in Brussels is a fan
Parallel payments into a pan
Drachma would return
Greek savers would burn
No one in Brussels is a fan
Saturday, July 25, 2015
The Haiku of Finance for 07/25/15
When stocks roll over
Central banks will try to pump
All to no avail
Central banks will try to pump
All to no avail
Friday, July 24, 2015
Thursday, July 23, 2015
The Haiku of Finance for 07/23/15
Find some real estate
No one needs a seminar
Cheaper ways to learn
No one needs a seminar
Cheaper ways to learn
Alternatives To Scott McGillivray's Real Estate System
I recently received an unsolicited postal mail invitation to attend a free Scott McGillivray real estate seminar in Burlingame. I have no intention of taking Mr. McGillivray up on his offer of free stuff in exchange for an entire morning of my precious time. I've been to enough free real estate seminars (okay, just a couple) to know how they work. I can think of other ways to break into DIY real estate.
If I were serious about fixing and flipping properties, my first stop would be my local big-box home and garden retailer. Those chains have free classes on rehabbing and they can help price out job materials. Your helpful hardware dealers are always there for you because they want repeat business.
My next stop would be my local public library. Have you ever heard of those? They still exist in the digital age and the ones in San Francisco have excellent collections marked "real estate." I would grab the most detailed tomes on home repair and maybe a book on appraising. Speaking of the digital age, Zillow and RealtyTrac have all of the local market info I need to price whatever I want to buy or sell.
Automation has not yet obliterated local bank branches. Every bank has lists of foreclosed properties they want to unload. Loan officers are dying to talk to bank customers who walk in the door ready to take problems off the bank's books. Federal agencies like HUD and the VA still have foreclosures available sometimes for those with the patience to navigate their systems. I love it when a ready-made source for deal flow is near at hand.
Live seminars used to be good for a laugh when I needed free entertainment. I don't need fast-pitch, high-pressure seminars to give me some negligible amount of real estate knowledge. I can learn a lot more on my own.
If I were serious about fixing and flipping properties, my first stop would be my local big-box home and garden retailer. Those chains have free classes on rehabbing and they can help price out job materials. Your helpful hardware dealers are always there for you because they want repeat business.
My next stop would be my local public library. Have you ever heard of those? They still exist in the digital age and the ones in San Francisco have excellent collections marked "real estate." I would grab the most detailed tomes on home repair and maybe a book on appraising. Speaking of the digital age, Zillow and RealtyTrac have all of the local market info I need to price whatever I want to buy or sell.
Automation has not yet obliterated local bank branches. Every bank has lists of foreclosed properties they want to unload. Loan officers are dying to talk to bank customers who walk in the door ready to take problems off the bank's books. Federal agencies like HUD and the VA still have foreclosures available sometimes for those with the patience to navigate their systems. I love it when a ready-made source for deal flow is near at hand.
Live seminars used to be good for a laugh when I needed free entertainment. I don't need fast-pitch, high-pressure seminars to give me some negligible amount of real estate knowledge. I can learn a lot more on my own.
Wednesday, July 22, 2015
Liberty And Engaged Citizens
Prosperity and liberty go together well in cultures that tolerate experimentation and respect for the individual. Writing about investment theories and market action is probably not enough to galvanize support for the enabling culture of economic prosperity. Two writers who may be able to help have recently crossed my radar. Charles Murray, author of By the People, and Larry Gerston, author of Reviving Citizen Engagement, recently spoke at the Commonwealth Club about how to re-energize Americans' concern for public life. I will offer my own thoughts below.
Mr. Murray approaches freedom from the conservative / libertarian right. Curtailing the intrusive power of government regulation would indeed be a boon to the US economy. I suggest he put his ideas to the free market test and crowdfund his proposed legal defense fund. I am generally not fond of those who thumb their noses at the rule of law, but Dr. Martin Luther King elevated it to a moral necessity in the face of unjust laws. Funding his legal defense while he contemplated action in Birmingham's jail would clearly have been a morally correct action. I must also caution those who think human history is an unbroken line of progress to higher states of maturity, freedom, and organization. Things do collapse sometimes despite the best efforts of well-meaning leaders.
Mr. Gerston arrives from the progressive left to critique Americans' disengagement. I agree with him that corporate tax loopholes and the erosion of economic security for workers are bad for prosperity and freedom. I would add that they are just as bad as over-regulation. I am totally on board with his idea for mandatory national service. A couple of years in the US military or a community service program would teach many otherwise entitled Americans that their rights come with civic obligations. Tax reform would work if it dramatically simplified the tax code but I doubt Mr. Gerston's proposed tax increase would pay for the unfunded GAAP liabilities of our entitlement programs. He would benefit from reading David Stockman's critiques of income inequality before he offers solutions emphasizing wealth redistribution.
I recently blogged about what a just society means. Real solutions throughout American history have come from both the right and the left at various times. Diagnosing social problems and working for solutions requires a citizenry engaged in guarding its own liberty. I would very much like to see my fellow citizens assume the task.
Mr. Murray approaches freedom from the conservative / libertarian right. Curtailing the intrusive power of government regulation would indeed be a boon to the US economy. I suggest he put his ideas to the free market test and crowdfund his proposed legal defense fund. I am generally not fond of those who thumb their noses at the rule of law, but Dr. Martin Luther King elevated it to a moral necessity in the face of unjust laws. Funding his legal defense while he contemplated action in Birmingham's jail would clearly have been a morally correct action. I must also caution those who think human history is an unbroken line of progress to higher states of maturity, freedom, and organization. Things do collapse sometimes despite the best efforts of well-meaning leaders.
Mr. Gerston arrives from the progressive left to critique Americans' disengagement. I agree with him that corporate tax loopholes and the erosion of economic security for workers are bad for prosperity and freedom. I would add that they are just as bad as over-regulation. I am totally on board with his idea for mandatory national service. A couple of years in the US military or a community service program would teach many otherwise entitled Americans that their rights come with civic obligations. Tax reform would work if it dramatically simplified the tax code but I doubt Mr. Gerston's proposed tax increase would pay for the unfunded GAAP liabilities of our entitlement programs. He would benefit from reading David Stockman's critiques of income inequality before he offers solutions emphasizing wealth redistribution.
I recently blogged about what a just society means. Real solutions throughout American history have come from both the right and the left at various times. Diagnosing social problems and working for solutions requires a citizenry engaged in guarding its own liberty. I would very much like to see my fellow citizens assume the task.
Tuesday, July 21, 2015
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