Friday, May 31, 2013

Crowdfunding for Decentralized Wealth

I attended a Commonwealth Club lecture today by Gar Alperovitz, author of What Then Must We Do?  I won't spoil the book for you, but he contends that the concentration of the control of wealth among a small elite and a handful of corporations make America's systemic problems unsolvable.  Labor unions are no longer powerful enough to serve as a countervailing power to corporate control of wealth and state socialism is an unsatisfactory alternative to free markets.  His solution lies in democratic, decentralized ownership of wealth.  I think he'd really like the concept of resilient communities but he touched on older concepts that already work.  He mentioned some models; I'll mention others.

The Democracy Collaborative's Community Wealth project is a clearinghouse for models that share access to capital.  The National Cooperative Business Association is a home for co-ops that have been around forever.  The Bank of North Dakota is the only state-owned bank in America and it's been successful for almost a century in providing capital to private enterprise.  Many of us have seen NCUA's credit unions in our communities.  Entrepreneurs who sell their companies to their workers' own ESOPs can reap very attractive tax benefits.  Real estate investors can use land trusts to limit liability and expand their options.  The Mondragon Corporation is an example of how a cooperative ownership structure can adapt to a complex enterprise.  The University of Wisconsin Center for Cooperatives studies, well, what else but co-ops.  The Hub is a global network-cum-movement for microenterprises with a Bay Area presence.  B-corporations are not-for-profit corporations that are chartered to serve a public interest.  CiviCRM is an open-source platform for fundraising and contact management; I regret that I missed CiviCon 2013.  I also regret that I'm missing the Public Banking Institute's  Public Banking 2013 conference this weekend, but I've already got plenty to do.

Some of these models may seem a bit touchy-feely and environmentally green for die-hard free market fans but I hope they get over that knee-jerk reaction.  I'd like to see an ecosystem of these types of grass-roots financing and organizing tools grow up as alternatives to the unstable model of TBTF megabanks that are wrecking the economy.  There's enough room for profit in these enterprise structures for conservatives to like.  The New America Foundation's Asset Building Program sure looks a lot like George W. Bush's call for an "ownership society."

The hodge-podge list of tools above begs a return to the author's question about what we must do now.  I got a chance to ask a question of my own when I asked Mr. Alperovitz how the crowdfunding phenomenon can contribute to the growth of these concepts.  He was optimistic about the potential of crowdfunding but didn't have specific data on hand.  There's my window of entrepreneurial opportunity.  I'll get specific right now.

B-corps are already using crowdfunding platforms like Kickstarter and Indiegogo to raise donations.  Once FINRA finally completes its SEC-mandated certification of crowdfunding portals for JOBS Act compliance, they can raise equity capital.  I think public banks operating in each of the fifty states could operate their own crowdfunding portals.  Anyone who wants to start a co-op or credit union could step on up and launch fundraising from the public bank's portal.  Companies that sponsor ESOPs could borrow directly from the public banks so the ESOP can buy the company's shares.  REITs that organize as land trusts could use the public bank for 1031 exchanges and trust services.  Makers, here's your chance to grow new organizations making brand new things.

The ecosystem I just described above will probably require legal changes that will enable public banks and crowdfunding portals to work together in the ways I've imagined.  State governments can perform their traditional role as public policy laboratories by experimenting with different forms of governance for this co-op ecosystem.  Resilient communities will need a myriad of management structures and funding mechanisms. Entrepreneurs should educate policymakers on how to make this happen.  That is what we must do, answering the question above.

Wednesday, May 29, 2013

The Haiku of Finance for 05/29/13

Intangible stuff
Patents lead to new products
Innovation pays

Innovation Premium Metrics Go Beyond Guesswork

I'm all about new metrics in business, so long as they're based on solid criteria.  I welcome discussions of the "innovation premium" for companies that create great solutions.  I must suggest that using NPV based on forecasts of future project cash flows is probably not valid for more than a year or two.  The future of any product line is unknowable outside of those few sectors with strong barriers to entry and high switching costs.  The unique thing about innovation is that it springs from a pool of intellectual capital that a company has spent time cultivating.

I believe other metrics are more appropriate factors for inclusion in an innovation premium.  I'll name a few.

Number of patents filed.  The US Patent and Trademark Office has a searchable database of patents filed by year.  The search results offer breakdowns by organizations.  Find the top patent-generating corporations in America to see who's serious about committing capital to applied research.

Size of IP portfolio.  This is related to the number of patents filed, but some companies can build their IP portfolios through acquisitions.  IP portfolio management is a cottage industry serving companies who elect to outsource the tracking and fulfillment of things like trademark registration payments.  Some companies may wish to keep the size and nature of their portfolios close to the vest.

Size of R&D budget.  Good luck getting a company to discuss its hottest research openly.  Read a public company's financial statements to get a glimpse of how seriously they take R&D.  No way is a privately held company going to reveal their budget.  Reverse engineering their budget by reviewing their appearances at conferences may lead to a wild guess.

Number of new innovations launched.  This is probably the real bottom line for a company aspiring to the top ranks of innovation.  The total number of new products announced in a year is not the only metric.  Old products can get new features.  Counting this category means separate weights for the number of new products, number of upgrades, and number of new features for existing products.  Innovation gets stale if it doesn't get to the market.

There's my criteria rundown for an innovation premium.  In each factor, a larger number (more patents, bigger budget) means more innovative power.  I do agree that an innovation premium is not necessarily a valuation premium.  Railroads rarely innovate but Warren Buffett prefers them to technology stocks.  Investors who paid a valuation premium for the most innovative dot-com stocks in the '90s learned the hard way that innovation is not the only requirement for successful execution.

Intangible Asset ROI Needs Clear Attribution

I recently read a proposed calculation method for the ROI of a public company's intangible assets.  It advocated simple division of net income into the sum of goodwill and other intangibles to find "intangible asset ROI."  I've seen variations of this calculation elsewhere, so I wonder if it's gaining traction.  It looks easy, but my gut tells me nothing in business should be that easy.

I disagree with that method for two reasons.  First, the entire net income of a corporation is attributable to the application of all of its assets.  Calculating ROI means breaking out how much of the income from all business segments is directly attributable to intangible assets.  Using the brute-force method above will lead to wild conclusions.  Consider a fast-food conglomerate whose intangible assets consist of the brand and menu recipes.  If it acquires another chain of restaurants, the new goodwill from the acquisition will push the "intangible asset ROI" down for the year.  Faulty decision-making will follow if executives decide that intangible assets aren't delivering value.  A company with little IP but lots of plant and equipment would portray an absolutely whopping intangible asset ROI by using this method.  Furthermore, goodwill can be impaired, which would invalidate any assignation to intangible assets until the impairment is resolved.

Even companies that are presumably heavy on intangibles can't deliver value without fixed assets.  Social media companies need server farms.  Entertainment companies need video production facilities and broadcast studios.  Analysts and executives looking to unlock value need to probe financial statements to see just how much income is attributable directly to intangible assets.  Not every reporting company breaks down revenue attribution to asset categories the way they do for strategic business units.  That's why finding the ROI for intangibles is just so dog-gone intangible.

Tuesday, May 28, 2013

Saturday, May 25, 2013

Wednesday, May 22, 2013

Monday, May 20, 2013

Hanging Out at Maker Faire Bay Area 2013

I made my inaugural visit to the Maker Faire this year.  This is a well-attended festival for innovators, hobbyists, tinkerers, inventors, and anyone else who is into DIY creativity.  There was too much going on here for me to do the faire justice with a single review.  I learned so much that I'll be seeding many future blog posts with maker concepts that I think will apply to business.  I normally take notes at conferences but here I'll concentrate on the exhibits that stood out as relevant to my own priorities.

I attended several of the talks given at the Center Stage and elsewhere.  The Center Stage talks were all recorded to appear on, so I don't need to repeat them here.  I will display some illustrated summaries that a visual artist rendered during each talk.  She was cute and I wish I had her contact info.  If she sees this blog article, I hope she contacts me because I really admire her work.  My impressions follow each artistic rendering.

This talk on the use of drones to perform aerial crop surveys illustrates a tremendous opportunity for agribusiness.  Farmers can program a drone to follow GPS waypoints for surveys of crop damage and irrigation distribution.  Farmers can optimize pesticide and herbicide application with details on crop damage.  I've read a lot recently about thieves who scavenge farms in Central California for metal they can sell as scrap.  I believe drones and remote sensors can also play a role in wide-area security for agribusiness.  I asked a drone operator over at the faire's Drone Games pavilion about programming drone movements; he said drones can be set to track moving objects on the ground automatically.  If I were a farmer, I'd program remote cameras and sensors (magnetic, acoustic, and seismic) to monitor my farm's perimeter and have a drone on standby to launch at any intrusion point.  The drone would track a fleeing suspect long enough to get a video recording of their facial features, gait, and vehicle license plate for use by law enforcement.  Imagine how the widespread use of privately-owned drones as security tools would support law and order in rural areas.

Going from zero to maker is easy.  You don't have to know everything.  You do have to try and try again because making mistakes and improving prototypes is a normal part of discovery.  Crowdfunding a cool project can really help its visibility.

I only caught part of the NASA astronaut's talk.  The best thing I learned from him was that NASA's interest in developing a fusion-powered spacecraft will eventually accelerate the development of fusion energy for commercial use on Earth.

This is one talk I'm glad I did NOT attend.  PBS and NPR have lots of good programming but sometimes they showcase some naive people doing ineffective things.  One case in point is the Violins for Veterans idea noted on the card above.  I heard about that giveaway from my friends in the San Francisco veterans' community.  It was a disaster.  First of all, the veterans never asked for the violins in the first place.  Hardly any of them have ever even learned music, let alone this instrument.  When some destitute veterans found out they could pawn their donated violins for cash, that's exactly what they did.  Well-meaning people need to do some market research before they launch a giveaway program.  Veterans need stable employment before they can afford the luxury of learning a musical instrument.

This is a talk I wish I had attended.  Chickens popping out plants sounds like something out of science fiction but serious scientists and philanthropists are working on it.  Would you like some arugula in your omelette?  No problem, just crack open an egg that comes pre-loaded.

This was probably the most unique talk of the entire faire.  The founder of the Maker Faire, Dale Dougherty, interviewed Charles Hull, founder of 3D Systems.  3D printing has been around for three decades and evolved from stereolithography.  There are only two big manufacturers of heavy-duty 3D printing devices.  If I were running one of those two big players, I'd have my corporate development team scouring the expo floor for new product ideas.  Real business gets done at the Maker Faire, in many ways.

I had the distinct privilege of hearing Nolan Bushnell, founder of Atari, describe the reasons he hired Steve Jobs before the world knew about Steve Jobs.  You can watch the video on FORA.  He said there were probably another twenty Steve Jobs in the room with him.  He had no idea that I'm one of them.  His criteria for hiring and team building were truly radical and that's why most Fortune 500 HR departments will never adopt them.  Large employers are more worried about liability from failure than success from creativity, so let's leave radical hiring to entrepreneurs.  His point about hiring people who've been bullied is intriguing.  Mr. Bushnell argues that bullied people tend to be creative.  Maybe the harsh reality of human behavior prompts them to escape into fantasy realms where they can find comfort and success.  Think about the stereotypical people who attend comic book shows, sci-fi conventions, Burning Man, and even Maker Faire.  They're the oddballs who don't fit in.  More power to them.

I wish I had attended this talk.  Arduino is an open-source electronics standard that was all over the Maker Faire expo floor.  One theme among several other platform speakers scattered around the expo floor's stages is that there's tremendous room for innovation in small-scale hardware and software, probably more so in software.  Makezine has tons of Arduino tutorials for amateur users who want to make their own control systems.

I missed this talk but it sure looks like a revolution from where I'm sitting.  No one knows where any of this is going and that's great.  Where it all goes is up to you, reader.

The expo floor was geek heaven with something for everyone.  I saw some practical uses for concepts I've only heard about in talks.  Mechatronics designers were showcasing their applications.  A lot of mechatronics borrowed heavily from traditional robotics but the field cries out for more than a hobbyist perspective.  I think combining autonomous mechatronics robots with Arduino-based SCADA devices will enable an armada of reprogrammable arrays.  I can think of some military applications, but I won't discuss them here.

Fleets of devices and control nodes are giving rise to ubiquitous computing (UBICOMP) and the Internet of things (IOT).  Those autonomous devices will be linked via UBICOMP/IOT to clouds full of Big Data audit trails that can be mined for patterns and behavioral preferences.  The Brave New World of all-encompassing  monitoring kind of snuck up on civilization without any notice or popular debate.  There's no going back.

I noticed flyers for SupplyBetter, a comparison shopping portal that brings 3D printing into a customer's logistics chain.  I've been involved in logistics for two decades and the movement toward outsourcing of third-party logistics services was settled years ago.  The customization of logistics is the next step.

The maker movement isn't just about mechanical devices and computer software.  Biohacking is another vector in the movement and a small number of practitioners are working on biological innovation under the radar.  I won't mention the connections and ideas I discovered here because I need to use them to launch something proprietary in stealth mode.  I'll just have to say that splicing genes isn't just for big labs anymore.

The expo floor wasn't the only place where I acquired wisdom applicable to biology.  The homegrown movement had a whole barn to themselves, with talks for aspiring micro-farmers.  The UC Master Gardener Program was there and they're looking for volunteer participants.  I think they could benefit from experts in aquaponics and permaculture.

There were tons of hot women at Maker Faire.  The steampunk chicks were not always my type but some were cute.  I was particularly pleased to see lots of attractive women manning the exhibit booths in the main expo hall.  STEM chicks are hot and I'm really fond of nerdy women.  I was disappointed that they weren't all over me but I can understand that they needed to stay focused on their faire duties.  I find women who combine intelligence and creativity to be irresistable, especially on a hot summer day in the Bay Area when they're wearing tank tops and cutoff shorts.

Maker Faire was totally awesome. I've been looking for something like this all of my life.  I will definitely return next year.

Full disclosure:  No positions in any companies mentioned.  

Addendum:  The company that performed the graphic recording at the Center Stage is ImageThink in New York City.  They do great work at many events.  All of their graphic art from Maker Faire Bay Area 2013 is displayed on their Facebook page.  

Sunday, May 19, 2013

Saturday, May 18, 2013

Friday, May 17, 2013

The Haiku of Finance for 05/17/13

Silly steel beam art
Giant litter on the field
Take this junk away

SFMOMA Deposits Mark di Suvero’s Rusty Junk All Over Crissy Field

SFMOMA has gone and done it again.  They have installed artwork that boggles the mind.  Mark di Suvero is an artist who sticks big steel beams into the ground.  Sometimes he welds or rivets them together.  He even hangs giant steel balls on them that twist in the wind.  SFMOMA is paying for an exhibition of this art that runs until May 2014.  I had to see this for myself today, before crowds of know-nothing gawkers start playing "emperor's new clothes" just to look sophisticated.

I took the photo above while walking across Crissy Field from the southeast.  This scene looks like a bad industrial accident from a distance at a low angle.  It also looks like a junkyard from a high angle (when I drove in down Lincoln Blvd.).  A junkyard would be an improvement because junk can be crushed, recycled, and repurposed into useful objects.  This art installation allows for no such options; it is therefore less valuable than a junkyard.  Art should allow us to use our imaginations.  Here I go.  This array of random steel reminds me of the Czech hedgehogs the German army deployed on the beaches of Normandy to thwart an Allied landing.  These things are too big to stop tanks, so they must be intended to stop an invasion of Megatron and his Decepticons if the evil Transformers ever invade San Francisco.  I saw plenty of bulldozers and long-haul trucks around the Presidio today, so I will assume those are really Autobots clandestinely prepared to defend us.  The Presidio has long been a bulwark of the nation's defense system, after all.  "Autobots, roll out!"  My Ford Mustang would make a really cool Autobot.  I can imagine it vaporizing pointless art with some well-placed plasma beam shots, or something.

I took a second photo when I got close to this big red jumble of oversized pick-up sticks.  Remember that kid's game?  It was fun to play but this giant grown-up version is no fun at all.  I decided to liven things up by conducting a live-action interpretation of what this object reminded me of the most - a middle finger salute.  The artist has stated that his first memory of arriving in America was passing under the Golden Gate Bridge, and that his steel beams' color schemes pay homage to the bridge.  That's really funny.  The Golden Gate Bridge is a design classic and these beams are just beams.  The bridge serves a useful purpose and these beams serve to irritate.  The bridge is Art Deco.  These beams might as well be Art Yucko.  I truly believe that artists lacking in imagination deliberately create works that mock classical design and make fools out of patrons.  Speaking of the Golden Gate Bridge, the walking trail around the bridge toll center has a sample girder that was crushed to test engineering tolerances.  Maybe that bent steel could be part of this art installation.  Think about it:  One single steel column that performed a useful role alongside numerous steel beams that are totally useless.

I took this final photo of a big brown thing that reminded me of space junk displayed in the background scenes of the Star Wars films.  Maybe the Jawas decided this was too big to cut up and put into their Sandcrawler, so they left it here to scare Tusken Raiders away from their scavenging grounds.  I'm displaying the thumbs-down gesture as disapproval of the Jawas' poor business sense.  They could have scrapped this thing and sold it for at least a buck fifty.

This exhibit runs for a year.  A whole stinking, miserable year during which visitors to The City will scoff at our civic taste and locals will have their vision assaulted by eyesores.  I shake my head whenever our distinguished city leaders make our town the object of national ridicule.  It's even worse when "artists" exploit our lack of common sense to laugh all the way to the bank.  I received an invitation to the kick-off party that SFMOMA will hold for big shots tomorrow, May 18, at Crissy Field.  I have chosen not to attend.  I cannot stomach the sight of these monstrosities.  Instead I'll attend the Maker Faire this weekend, where real artisans make things worth seeing.

American Legion District 8 in SF is Totally Worthless

The American Legion's District 8 in San Francisco is not worth the time or effort of any productive veteran.  Anyone who tries to get involved here will waste a tremendous amount of energy with no positive result.  The American Legion in San Francisco is too far gone to be responsive to a salvage effort.  I have learned this from personal experience.

District 8 has reinstated a fraudulent post and allowed that post's corrupt leadership to once again assume positions of trust and responsibility.  The District has learned nothing after seeing the good name of veterans dragged through the mud by a Stolen Valor fraud.  Other post commanders have included a convicted felon running an illegal bingo parlor and a renegade attorney who was disbarred in California.

The San Francisco veterans' community seeks to retain use of the War Memorial Veterans Building but cannot even utilize the space they are currently allotted.  The SFWMPAC Board of Trustees is charged with fully utilizing this City-owned space to deliver full value to taxpayers.  I say let the San Francisco Opera and the arts community have the entire building.  They have a solid plan to utilize every square inch of space and can commit money and expertise to fulfill that plan.

Veterans don't deserve the building anymore.  The veterans' presence inside the WMVB is nothing more than a magnet for an endless parade of addicts, vagrants, lunatics, and scam-artist "commanders" whose greatest ambition in life is to rub two government benefit checks together.  Each derelict who stumbles through the front door degrades the veterans' community and the dignity of the building.  The Trust Agreement governing use of the building grants veterans the right to use space but IMHO this commitment can be met with a minimalist allocation.  Veterans can claim a shoebox under the desk of the WMVB's Managing Director, which is all they can productively utilize anyway.  Evicted veterans' organizations can reconvene off-site in a suitable alternate locale, such as the nearest junkyard or toxic waste dump.

District 8 is a waste of everything and then some.

Full disclosure:  I am a veteran.

Thursday, May 16, 2013

The Haiku of Finance for 05/16/13

New Google Wallet
Send Gmail cash instantly
This is real money

Social Implications of Integrating Google Wallet Into Gmail

In case you haven't heard, Google Wallet is now integrated into Gmail.  I believe this is a very disruptive development in finance.  Conventional analysis focuses on the convenience it offers to American users of Google's integrated platform.  This is only the beginning.  We can expect some far-reaching effects.

This will be terrific for expatriates who migrate between emerging market countries in search of work.  Expat laborers send portions of their earnings as remittances to family members in the home country.  The World Bank believes the remittance market is over US$440B per year.  The OECD says that international migrant remittances are a major source of capital for developing economies.  Workers who currently pay wire transfer fees to send money home will be thrilled to attach micropayments to their email messages at no charge.  Goodbye, Western Union. The flow of development capital among emerging markets is about to become frictionless.

It will also enable more fraud, because Nigerian scam emails will have one-click enabling links their victims will be tempted to use.  Scams work because stupid people believe false promises from anonymous liars.  Enabling a monetary transfer with email eliminates the delay between responding to a deceptive offer and completing a fraudulent transaction.  Hazard is one click away but so is legal help.  Filing an online complaint about email scams is easy with IC3.

Finally, this innovation will allow intelligence agencies to track hawala transfers to radical organizations.  The US Treasury has extensively documented the role hawala transfers play in money laundering for criminals and terrorists.  Some central banks are cracking down on hawala because unlicensed money transfer operations make their national economic climates less transparent for investors.  The growing resistance to hawala means non-state insurgent actors will turn to innovative methods of moving money.  Cybercrime components of US law enforcement agencies now have a golden opportunity to track and intercept hawala transfers from "persons of interest" to the Taliban's proprietary madrasas if jihadis use Gmail.  Google has given the US intelligence community a wonderful tool for justice.

There are no solutions, only changed problems.  Emailing money reminds me of the early days of the Internet boom when startups were pushing "digital cash."  The e-cash movement was stillborn when banks and brokerages built web portals that allowed customers to access their accounts from home.  The contemporary reinvention of the e-cash concept is Bitcoin, and it's not faring any better because the US government just shut down a major Bitcoin exchange.  New forms of money are not the future of finance.  Existing money  will simply flow to new means of transfer.

Full disclosure:  No positions in any companies mentioned.  BTW, I do not participate in Bitcoin.

Tuesday, May 14, 2013

The Haiku of Finance for 05/14/13

Pimco cuts its risk
No trust in global markets
Major disconnect

Open Questions for The City Club of San Francisco

The City Club of San Francisco is a renowned private club in this town.  I have attended many events there as a guest of other organizations that rented the club's event spaces.  I have considered becoming a member but I am concerned about how the club is handling a very serious case among its membership.  I would like to pose the following questions to the leadership of the City Club and its exclusive 155 Society.

Do you believe that City Club members should be of strong moral character?  If so, do you tolerate members who lack personal integrity?  I define personal integrity as the ability to distinguish right from wrong and to tell the truth.

Is there anyone in the City Club who habitually exhibits a lack of personal integrity?

Is there anyone in the City Club who wore falsified military decorations while on active duty with the US Army?  This is commonly called "Stolen Valor" among service members and veterans.

Is there anyone in the City Club who claims to have a background in business (most likely real estate) yet is unable to verify title records or transaction details from their alleged career?

Is there anyone in the City Club who has accepted charitable donations and spent them with no accountability or verifiable results?

Is there anyone in the City Club who has been expelled from the American Legion for fraud and misconduct?

My colleagues and I have tried to contact members of this club but they do not seem to be concerned about this matter at all.  I will raise the issue here for the general public to see.  I do not expect a response but City Club officials can reach me at (415) 317-9005 if they're so inclined.  I am morally obligated to ask these questions because Immanuel Kant's Categorical Imperative demands that I seek justice.

Monday, May 13, 2013

Financial Sarcasm Roundup for 05/13/13

Kick it off.  Sarcasm ahoy.

The G-7 is getting worried about Japan's devaluation experiment, though not in so many words.  They were the ones egging Japan on and now they feel guilty.  Great.  Central bankers play games with our livelihoods and only think about the consequences after they really get going.

Worry isn't the G-7's only job.  They also want bank rules that allow for swift resolution of bad banks before  they melt down everything.  The Cyprus dry run worked and the US/UK joint plan will now go global.  The idea is pretty close to what I and others advocated in 2008.  The policy elites should give credit where it is due.

Mexico's financial reform plan is winning plaudits.  I wonder if this plan is a bunch of eyewash like our own Dodd-Frank regime.  Transparency rules are nice but expanding credit is not a cure-all.  We learned that north of the border.  Expanding small business credit means more Mexicans can open Taco Bell franchises instead of fighting drug gangs.

IPOs are through the roof again.  I've noticed lots of market high-water marks in recent weeks.  Margin debt is back.  Junk bonds are at record valuations and volumes.  Now companies are grabbing IPO cash while they can.  I shake my head at the suckers who think this can go on forever.  No one wants to be the last one circling the chairs when the music stops but I'm already out the door.

Mickey still has no clue, nor do his apologists.

Sunday, May 12, 2013

The Limerick of Finance for 05/12/13

Gas exports have come into play
Energy sector joining the fray
Terminals to approve
Pipeline routes to improve
Producers will have a field day

Zenyatta Ventures Seeks Graphite in Canada

Zenyatta Ventures (ZENYF / ZEN.V) wants to dig up graphite in Ontario, Canada.  The CEO is a geologist - good news in my view.  There's nothing wrong with a background in project consulting for someone running an exploratory company.  They'll need to round out their team with people who have more operating experience if they want to make the project viable.

Their Ontario project has a few things going for it.  The site is fairly close to a nexus of energy and transportation lines but I'd like to see on-site photos of connecting links; that will reveal how much preparation the site will need for production.  Photos of drill hole samples don't reveal much without scientific analysis.  Zenyatta does not yet have a 43-101 report or PEA so we'll just have to wait and see what they've got.

I can't find any published financial statements from Zenyatta on their website or in the public domain.  One of my de-risking criteria for an exploration company is estimating their burn rate and then watching for success in raising capital.  USGS data for graphite shows Canada has little production and negligible reserves.  Zenyatta will have to find seriously large reserves to get attention.

Full disclosure:  No position in Zenyatta Ventures at this time.  

Saturday, May 11, 2013

The Haiku of Finance for 05/11/13

College is a waste
No degree can replace work
Any job will do

College Is Bad If You're Poor Or Stupid

I've read a spate of stories today on how pursuing a college education is increasingly one of the worst life decisions an American can make.  It's even worse for people too poor to afford full tuition at a four-year school or too dumb to complete a bachelor's degree.  The Brookings Institution has discovered that college dropout rates are higher than ever and 20% of colleges result in a negative ROI for those who do graduate.  I hope they included both of my schools, Notre Dame and USF, in that negative ROI calculation.  Tons of serious policy research shows that America's $1T student loan burden is destroying capital formation and preventing millions of graduates from raising their living standards.  I never had any debt at all and I started building my nest egg with my first paycheck.  Poor students who pay full tuition subsidize merit-based financial aid for affluent students.  I got merit-based financial aid for both my bachelor's and master's degrees, so I'm one of the anomalous few who slipped through multiple cracks in a system designed to benefit anyone but me.

Don't think that my claims of negative ROI and lack of debt contradict each other.  My brand-name degrees didn't help me build wealth because none of my employers ever cared about my education.  I've had many non-productive, low-income years since graduating near the top of my MBA class.  Being debt-free helped me build wealth more than any brand-name degree, because my meager earnings that would otherwise have gone to debt service instead went into my portfolio.  The power of compounding in my 20s and 30s sustained me through many professional disappointments.  My frugality built my wealth.  My education did nothing for me.

I don't want to read any more policy prescriptions advocating loan forgiveness, reduced borrowing costs, more subsidies, more remedial classes, or more of anything that hasn't worked at all.  The simple solution is that high school students who are too poor to pay for college or too stupid to succeed academically just shouldn't pursue higher education.  The poor kid who's smart enough to qualify for full-ride merit-based financial aid can still grab the brass ring but that breed is very rare.

Poor people who avoid college have plenty of options.  Trade schools and online learning offer credentials that lead to immediate entry into the workforce.  Living simply and staying debt-free preserves income that poor people can productively invest.

Don't go to college if you're poor or stupid.  You'll regret it for the rest of your life.  I'm neither poor nor stupid but I regret every single day I spent in college classrooms.  I should have been working and saving instead, and I'd be much wealthier today without a BBA or MBA to my name.

Friday, May 10, 2013

The Haiku of Finance for 05/10/13

Banking fix needed
Huge risk in repo market
Still out of control

Bernanke's Pangs Over TBTF Bank Capital Adequacy

Is the Fed Chairman having pangs of conscience over regulation of TBTF banks?  His latest remarks in Chicago indicate a willingness to implement tougher capital controls.  The Fed's much-ballyhooed stress tests of big banks were touted as assuring their survivability.  Either the banks have taken on more risk since then, or the stress tests were rigged.  Reporting on the Fed's balance sheet expansion emphasizes how the Fed has bought impaired securities (MBS and such) from banks while extending them no-cost loans to buy long-dated Treasuries.  We also know banks aren't lending, with the exception of government-backed home mortgages and student loans.  If bank risk has been reduced, then the stress tests were fixed.  The Fed has used up all of its balance sheet tricks to keep banks solvent.  Now banks are exposed to interest rate risk on their Treasuries.  When rates inevitably rise, those Treasuries will drop in value and banks' balance sheets will be crushed again.  The Fed enticed banks to trade one risk for another.

More detailed reporting of the Chairman's remarks reveals concern over a run on money-market funds.  The financial crisis of 2008 almost achieved critical mass when money-market funds threatened to break below $1 of NAV.  Nothing has changed and the money-market fund your bank says is as good as cash contains nothing more than IOUs from counterparties who can still go bust in a heartbeat.  The best decision is to prohibit money market funds from owning anything other than cash but that won't happen because the Fed would rather "assemble data on repos" as a fig leaf.

Maybe Helicopter Ben wants out when his term expires because he knows the Fed, owned by its member banks, will not tolerate any changes to money-market funds that reduce their usefulness as off-balance sheet funding tools.  Tighter capital controls mean less lending but banks are hardly lending anyway without government backstops.  The Chairman is having his moments of clarity long after the political will to force real changes on banks evaporated.  The next crisis will be upon us with no advance notice.  Federal Reserve officials concerned about their place in history won't want to be around when it hits.  "I'll be gone, you'll be gone."

Thursday, May 09, 2013

The Haiku of Finance for 05/09/13

Resource extraction
Good description of progress
Dig prosperity

"Extractivism" Becomes Radical Left's New Anti-Capitalist Canard

I recently learned a new word:  "extractivism."  The dictionary definition is specific to forestry but left-wing polemicists apply it to any mining, pumping, or harvesting activity.  I have no problem with governments assessing land use fees for resource extraction on publicly-owned common land.  The US federal government does this all the time in granting exploration rights to drillers when they prospect on federal land.  I do have a problem with radical political philosophies that demand exorbitant state control of all private resource production.

Hefty resource fees may sound nice in populist rhetoric.  In reality they lead to rentier states as private investors become priced out of an economy.  Resource nationalism turned Venezuela from a productive economy into a nightmare of repression.  Progressives who praise Hugo Chavez for snatching resources from "extractivist" multinational corporations are really to blame for that country's mounting problems.  The Heritage Foundation rates Venezuela as an exceedingly horrible place to engage in productive enterprise but leftists don't mind as long as extractivism is punished.  Socialists learned nothing from the fall of the Soviet Union.  Centrally planned economies do not deliver prosperity for people, and anti-extractivist resource policies destroy the private capital formation modern economies need.

It's time to reclaim this word for the thinking world.  I'm proud to be an extractivist.  It's great that large corporations go through the trouble of turning the planet's natural resources into goods that enhance our civilization.  I admire wildcatters and prospectors who brave wilderness to locate new sources of material wealth.  Extractivists of the world, unite.  We have nothing to lose but our Luddites.

Wednesday, May 08, 2013

The Haiku of Finance 05/08/13

South Asian markets
Need strong governance to win
Get more transparent

US-Bangladesh Tech Investment Summit at TiE

I'm really glad I attended part of yesterday's US-Bangladesh Tech Investment Summit down at TiE Silicon Valley.  I didn't do any networking because I don't do business in Bangladesh, but a bunch of other people do and they need to know what's going on.  I must say that Bangladeshis need to work on the editing of printed materials and Web content they distribute to an English-speaking audience.  The website for this summit had a few grammar and punctuation errors, as did the program booklet they handed out at the summit.

Sajeeb Wazed, the IT advisor to the Prime Minister of Bangladesh, spoke first during the evening session.  I also need to say that Bangladeshis need to polish their PowerPoint pitches.  This guy said he had a Master's degree from Harvard's Kennedy School but his slides were all text in small type.  He could benefit from watching a few Silicon Valley startup pitches.  He also didn't mention that he's the Prime Minister's son!  Westerners need to know things like that before they sign contracts to do business with Bangladeshi officials.  Some Asian countries have hereditary political aristocracies.  There's some Internet buzz about his potential for entering politics.  No wonder he admitted spending much of his time in Washington, DC.  He must be learning the ropes.  There's also some buzz about his personal history if you do a Web search of his name.  Reading some of the comments in other news articles is informative, with Bangladeshis complaining about his background.

Mr. Wazed made a pitch for foreign investment in Bangladesh as a turnaround story.  The latest fad in the investment world is the concept of "frontier markets."  These are the least-liquid of the emerging markets that are touted by investment banks as high-yield long-term bets.  They also come with a ton of risk.  My readers know that when I write about resource sector companies operating in emerging markets, I cite reliable international assessments of those markets' political and economic conditions.  Let's do that for Bangladesh.  Transparency International rates Bangladesh as 144 out of 174 in its Corruption Perceptions Index.  It's tied with the Central African Republic and Syria.  You're known by the company you keep.  The Heritage Foundation rates Bangladesh as 132 on its Economic Freedom Index.  Their score of 52.6 is below the world average score and the regional average score, but hey, at least they beat Cameroon.  One data element that should concern foreign investors is the very low score for financial freedom.  Note that the World Bank reports Bangladesh's debt/GDP ratio has dropped for 20 years and was 24.2% in 2011.  That's good news.

Mr. Wazed claimed that Bangladesh's sovereign debt ratings are second only to India's in the region.  The S&P rating is currently BB-.  Moody's rates it as Ba3.  That's nothing to crow about.  His point is that until recently Bangladesh had no sovereign debt rating at all because it was heavily dependent on donor aid, so getting established in the international bond market with a such a poor rating is better than no rating at all.  Bangladeshi sovereign debt with such medium to low ratings does pay investors a higher yield to compensate for perilous credit.  The country also wants to issue dollar bonds whose greater liquidity will make the country's sovereign debt more attractive to foreign investors.

He said Bangladesh has cellular coverage for 100% of its land mass, which is cool.  The government also funded information centers at the municipal level that function as cyber cafes for people who don't own computers.  That's cool too.  Bangladeshi expats remit money via cell phone transfers.  He also mentioned that energy shortages have precluded the establishment of data centers and that the government's desire to save money on its fuel subsidies have prompted regular blackouts.  He promised us that new power plants were almost ready to come online.  One blackout he did not mention was a Bengali blog blackout in protest of the government's crackdown on blog content that radical Muslims wanted to suppress.  That is not cool at all.

Speaking of energy, Mr. Wazed said that arbitration with Bangladesh's neighbors over UNCLOS demarcations would give his country block rights to prospective offshore drilling zones.  The competitive advantages he mentioned for Bangladesh include no restrictions on repatriation of invested capital and a cost arbitrage of 40% in overall business costs versus India or the Philippines.  My caveat is to read the Heritage Foundation's specific assessments of Bangladesh's economic conditions.  The country still has a lot of regulation for FDI projects despite the government's claims of liberalization.

The next speaker was Dr. Atiur Rahman, the Governor of the Bangladesh Bank.  In other words, he's their equivalent of Ben Bernanke but without the fixation on printing press technology.  I once aspired to be a central banker but eventually figured out that pursuing a PhD in economics would be a waste of time and money.  Dr. Rahman mentioned that Bangladeshi inflation closely follows Indian inflation due their long and porous border, which is why his central bank coordinates monetary policy with India's central bank.  I'll give you one guess as to which bank is the bigger kid on the block.

Dr. Rahman said the country's currency reserves had risen to $15B.  I wonder about the composition.  Their interest in issuing dollar bonds means they'll hold more US dollars, not a good move given the US's untenable monetary stimulus.  He also said the taka is a strong currency because of their current account surplus but the bank intends to keep it strong by managing the exchange rate.  Uh-oh, central bank intervention is not good at all.  He did add something to the World Bank figure of debt/GDP I mentioned above; including domestic debt brings the ratio up to 37%.  That's still pretty healthy.

He likes the country's liberal FDI policy and claimed simple registration with some government board is all you need to get started.  Uh, doc, read what the Heritage Foundation says about your country's simple process to see it through foreign eyes.  He mentioned that foreign companies like to reinvest their earnings in Bangladeshi government securities.  I can't blame them given the high interest rates but caution is warranted; Bangladesh has used capital controls during part of its modern history.  The country is serious about building out its IT infrastructure especially for the last mile of connectivity.  This is why they've exempted IT services from corporate taxes and do not impose import duties on servers.

The audience at TiE was very concerned about the Bangladeshi government's response to the collapse of a garment factory that killed hundreds of people.  The garment sector is still Bangladesh's biggest driver of GDP and export revenue despite the country's high-tech aspirations.  This accident is clearly the result of many years of lax safety standards, inadequate building codes, and a business culture of noncompliance with standards.  The panelists seemed to downplay the government's responsibility for requiring tougher construction standards.  The businessmen in the audience were particularly unimpressed with the Bangladeshi government's PR response, noting that Western media continues to excoriate the country.  The Hoover Institution suggests a way forward.  Bangladesh needs a comprehensive solution to a culture of greed that enables compliance shortcuts.

No one mentioned religious tension in the country.  Investors must note the paralyzing riots that have shut down the capital city of Dhaka in recent days.  A radical Islamic movement is agitating for the implementation of Sharia law.  Well, that's just great.

Oh BTW, one more tip from yours truly.  If you want to do business in South Asia, get familiar with that region's unique numbering system for large digits.  The origin of those figures is fascinating.  Some of these ancient Vedic number names like "ogho" for octodecillion are found in the Valmiki Ramayana.  Why would ancient writers need to work with numbers so large?  Does this mean there's some substance to the theory that ancient Indians had advanced technologies and even fought a prehistoric nuclear war?  Maybe I should go to South Asia and find out.  I just won't be visiting Bangladesh while its garment factories are collapsing and its radical imams are protesting.

Tuesday, May 07, 2013

Monday, May 06, 2013

The Haiku of Finance for 05/06/13

Buy the latest thing
Overpay for fancy junk
I could not care less

Financial Sarcasm Roundup for 05/06/13

There is a cure for nonsense in the business world.  My sarcasm makes everything better.  Central bankers need to hire me so I can liven up their currency-destroying meetings.

The EU's economics honcho is jawboning the French to get back on the austerity wagon.  Didn't he get the memo?  Austerity is so passe this season, what with the Reinhart-Rogoff thesis discredited after a couple of Excel errors.  This season's fashion trend is all about renewed profligacy.  Eurotrash are determined to paint the town some new shade of pastel before the euro is dissolved.

Warren Buffett assures us that all will be well after he steps down from running Berkshire Hathaway.  Making his son the chairman is a good way to ensure the culture he created continues for a few decades.  His rules for success are pretty simple:  stay with what you understand, figure out if something has a durable advantage, buy at a discount to its intrinsic value.  His managers seem to get this but most of Wall Street doesn't.  That's why Wall Street doesn't deliver value like Berkshire.

Bond investors must be seriously stupid if they think the Fed can unwind its bond purchases without hurting their investments.  That would require an even bigger fool than the Fed to buy all those junk securitizations, and I don't see any UFOs full of alien investors landing in Washington with cash in hand.  The simple math that expanded supply (once bonds are dumped on the market) leading to reduced prices if demand stays constant is the kind of thinking that many bond investors just can't handle.  Bond portfolio managers can't handle it either but they'd rather not spook their clients and lose their careers.

The headline screams "US unemployment rate down" but nobody reads the fine print.  The fastest growing job sectors are low-paying hospitality and retail.  People are working fewer hours and their take-home pay is shrinking.  We're becoming the "dollar nation" I alluded to in one of my recent posts.  Dude, where's my recovery?

Last week I got the chance to impress some people with my genius and wit at a San Francisco social event.  I shocked them with my recollections of Notre Dame alumni as snobs who refused to give me career advice.  I will continue to spread the word about the worthlessness of a Notre Dame diploma.  I'd be happy to discuss my views on NPR's Marketplace.

Sunday, May 05, 2013

The Limerick of Finance for 05/05/13

Warren Buffett expects a "big shot"
Once the Fed starts selling what it's got
Without QE things fall
Ultimate margin call
Stock and bond prices will drop a lot

Saturday, May 04, 2013

Friday, May 03, 2013

The Haiku of Finance for 05/03/13

Cheap junk and fast food
People lower their standards
Live a cheapened life

Dollar Menus, Dollar Stores, Dollar People

Taco Bell is working on a new dollar menu.  I wasn't aware they were test marketing one in California but I don't get down to Fresno very often.  The taco folks are going up against McDonald's tiny dollar burgers and the low-priced high-calorie stuff you can find most anywhere.  The proliferation of dollar menus says a lot about the shrinking wallets of people who aren't planning meals ahead.  Spending a dollar on a junior-size burger probably delivers less nutritional value per money spent than the same amount spent on a handful of vegetables but most obese Americans don't seem to notice.  I'd rather buy fresh produce, whole grains, and canned goods I can rotate for months.

Have you been to a dollar store lately?  Take your pick from Dollar Tree, Family Dollar, Dollar General, and other regional equivalents.  Junk-addicted consumers can get their fill of cheap plastic goods here after they've stuffed their faces on dollar food at the fast food franchise across the mall parking lot.  Dollar goods are just as low-quality as cheap junk food but Americans don't care.  Our nation seems to like the convenience of buying useless things that break easily.  I hate buying things and I have everything I need to live; the money I don't spend stays in my portfolio working for me.

The problem with catering to lowest common denominator tastes is that retailers can't lower prices to stimulate sales, and can't develop brand loyalty by guaranteeing quality.  McDonald's is learning the hard way  that the dollar menu adds little value to its top line.  Dollar stores have grown so quickly that they've saturated the low-income market and are probably cannibalizing each others' sales.  Fast food chains have learned to take EBT cards to keep their low-information, low-income market hooked.  Dollar stores don't work that way unless maybe they let people use their free government cell phones to swipe a credit card purchase.  Okay, that was a cheap shot (pun intended).  I'm usually pretty cheap but I spend money on things that last.

America is turning into a one dollar nation.  Plenty of people addicted to consumption will spend their last dollar on unhealthy food or unneeded goods.  The psychological barrier of spending "only" one dollar is about as low as you can go.  You are what you eat.  My life is worth more than a buck.

Full disclosure:  No positions in any of the companies mentioned.  I also haven't eaten from a dollar menu in years.  

Thursday, May 02, 2013

Wednesday, May 01, 2013

The Haiku of Finance for 05/01/13

Slick I-banker dude
Claim many deal flow conflicts
Call it a red flag

Imagining Hyperinflation Wonders

The Fed's indefinite QE of $85B/month gets me thinking about what life will be like for the average American in a hyperinflationary economy.  Ordinary living will quickly become prohibitively expensive.  We can all start wondering about the good aspects of hyperinflation to take our minds off the bad effects.  My imagination is about to run wild . . .

Americans will become much more comfortable with arithmetic.  Store clerks will be forced to recalculate the prices of goods several times each day.  Restaurateurs and their server staff will get to practice their math skills recalculating the daily prices of meals.  I think the baristas at your favorite coffee shop will get to use their overpriced college degrees after all.

Families will get a lot closer.  Retirees who didn't save any money will move in with their grown children once their indexed Social Security COLAs fall behind a rapidly inflating currency.  Three generations under one roof will be able to share cooking and cleaning chores more efficiently.  In low-income neighborhoods this could even mean four generations living together, what with all those unwed teenage baby mamas running around.

Household debts will magically disappear.  That $60K automobile loan your unemployed idiot brother took out to splurge on some high-end wheels will look like a pretty wise move.  He'll pay it off with a $100K swipe of his EBT card.

Daily life will be full of adventure.  Suburban dwellers can hone their survival skills by avoiding roving packs of unemployed youth on their way to the grocery store.  Once they arrive, they can haggle over barter prices for household goods they want to trade away for food while they stand in line waiting to buy rationed food at government-controlled prices.  Is there an app for that?  There will be soon but hardly anyone will be able to afford mobile plan subscriptions that charge by the second.

Becoming a landlord will be easier than ever.  Rent-controlled apartment complexes will go bankrupt as their owners discover they can't raise rents to keep up with inflating maintenance costs, while the residents stay put.  This means aspiring landlords will pick up multi-unit residential properties on the cheap.  They won't have to worry about run-down plumbing or wiring if tenants get fed up and pay for maintenance out of frustration.  What an adrenaline-pumping gamble to make for wanna-be Donald Trumps!

Our culture will blossom with waves of creativity and innovation.  People who can't afford cars or gasoline will stay home, dreaming of the nice things they used to own.  Artisans will create magnificent wallpaper and collages with dollar bills that have been hyperinflated down to nothing.  Entrepreneurs can convert abandoned malls and department stores into workhouses and barracks.

Oh, BTW, there will be one very wonderful outcome after hyperinflation ends.  I'll be sitting on a much larger portfolio after several years of preparation.  This sarcastic article is funny to read but it won't be funny for most people who live through it.  I may laugh all the way to the bank, or I may just snicker a little under my breath.