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Anthony J. Alfidi is the founder and CEO of Alfidi Capital, an investment research firm in San Francisco, California. Alfidi Capital publishes free investment research with honesty and humor. Mr. Alfidi holds a Bachelor's degree in human resource management from the University of Notre Dame... More
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  • Treasury Secretary Jack Lew In California And Australia

    I attended US Treasury Secretary Jack Lew's talk last week at the World Affairs Council. I like hearing from top public officials firsthand. They're going to hear from me eventually once my reputation achieves critical mass, so they might as well get used to seeing me at their public appearances. I held back from publishing my comments on Secretary Lew's remarks because I wanted to compare his San Francisco talk to comments at the G20 ministerial summit in Australia. He stopped in San Francisco on his way to that summit and I assumed he would stay on message.

    I agree with Secretary Lew that resolving the debt limit conflict in Congress is a positive development. The long history of the debt limit proves that it has never actually limited the growth of the national debt. Eliminating it completely will end the hypocrisy of pretending to be serious about reducing the national debt. His comments on international relations were more circumscribed, endorsing Iran's oil and financial sanctions and advocating IMF-style reforms in Ukraine. Most Americans probably don't know that the US Department of the Treasury has a significant international portfolio. Treasury has extensive guidelines for implementing the sanctions against Iran.

    Secretary Lew addressed Bitcoin obliquely, leaving open the possibility that existing regulation and settlement systems could adapt to digital currencies. He did not say whether Bitcoin would satisfy any legal tender requirement, which in the eyes of common law is really the most important test for settling transactions. The IRS has not yet ruled on how gains realized in Bitcoin transactions may be taxed. I'm guessing they'll be taxed as capital gains because Bitcoin acts like an asset when investors take positions. If it quacks like a duck . . . it's probably not a swan.

    I do not agree with the Secretary's belief that raising the minimum wage will raise significant numbers of Americans out of poverty. His office should read the CBO's report from last week that projects large job losses from an increase in the minimum wage. The Treasury's own data shows that most minimum wage earners are young and not heads of households. They have the rest of their careers to seek wage gains.

    I was very shocked to hear the Secretary refer to the cash reserves many large US corporations maintain as "retained earnings." Oh wow, that is just so wrong. Retained earnings is an accounting classification for the excess shareholder's equity built up from many profitable reporting periods. It is not at all the same thing as holding cash! The retained earnings accumulated in a year may not precisely match the cash committed to capex or other functions. I can't believe this guy was COO of Citigroup's wealth management unit. He learned nothing about corporate reporting if he thinks cash on hand equals retained earnings. I couldn't forgive that misstatement after he said he wanted corporations to spend that cash pursuing growth. I assess corporate America's huge cash hoard as a hedge against another financial market crisis. The hoarding reflects the rational belief that Washington has not resolved the underlying causes of the 2008 crisis. The US Treasury Secretary has a role to play in doing the right thing, and jawboning doesn't cut it. It's nice that he's listening to corporate executives talk about workforce skills training, infrastructure, and immigration reform. Here are some other things he needs to hear, straight from the CEO of Alfidi Capital. Bring us real stress tests for banks, the resurrection of Glass-Steagall, and the prosecution of fraudster financial executives if you want us all to get serious about risking cash on growth.

    I would have preferred to hear Secretary Lew discuss the financial condition of the US government in more detail. The evidence of mounting problems has been in the public domain for years. The Federal Reserve's balance sheet is larger than ever and is extremely sensitive to rising interest rates. Any potential losses would end its remittances to the Treasury. The Foreign Credit Reporting System tables reveal the US government's small exposure to foreign debtors. That is a huge change from much of the 20th Century when the US was the world's largest creditor, and US development aid opened new markets for American exports. The annual trustees' report for Social Security and Medicare made it clear in 2013 that some of the funds' programs were facing imminent depletion. Secretary Lew's signature is on those reports.

    Here's the postscript from the G20 meeting. The assembled finance ministers agreed on a two percent GDP growth target for this year. They do not seem to know how to meet that target. No one wants to talk about austerity anymore after riots in Greece and Spain spooked the European troika away from policy reforms. Secretary Lew's advocacy of IMF-type monetary reforms was reserved for the home audience at the World Affairs Council. The IMF prepared a report for this G20 meeting with notable changes in rhetoric. The old advocacy of shock therapy through free market reforms is less visible now. The new tone embraces indefinite monetary stimulus and infrastructure investment. The Keynesian revolution is complete among the world's policy elite.

    Secretary Lew talks a good game. I like the guy. His staff needs to prep him some more on financial terminology so that he doesn't appear to be a fish out of water with offhand references to "retained earnings." This year's G20 action items will be judged by their success or failure in any future crisis. The Secretary upheld his office's traditional reluctance to comment on the Federal Reserve's monetary policy. That's a wise choice. The hard part today is that so much of the G20's agenda is hostage to continued central bank monetary stimulus. Specifics on just how the Secretary and his counterparts intend to realize two percent global growth are extremely relevant. The Secretary's case for recovery so far rests on ARRA and Dodd-Frank. He owes America a stronger case.

    (Note: The original version of this article appeared on the Alfidi Capital Blog on February 23, 2014.)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Feb 23 10:33 PM | Link | Comment!
  • Really Dumb Alternative Income Hedges

    I frequently gripe about the nearsightedness of fixed-income portfolio managers and their investors. It seems to me that the best they can do is eek out minimalist returns with ZIRP distorting credit markets. Hanging on at the top of a bond market is dangerous when the only place interest rates can go is up. Holding long-duration fixed income investments of any kind is suicidal on the cusp of hyperinflation. Money managers look for alternatives to conventional credit products, like in Index Universe's ETF Report article on alternatives in fixed-income for October 2013. They're not looking hard enough to impress me.

    No way will I look at bonds, loans or notes that float with Libor. That rate is still subject to manipulation and a few fines aren't fixing anything. The World Bank should give me a call if it ever takes note of my GIBOR concept and wants to implement it worldwide.

    I am sick and tired of hearing about variable demand rate obligations (VRDOs). Those instruments were among the first to freeze in value during the 2008 financial crisis and most investors sold out of them in frustration as soon as they could. I tried pitching them when I was a financial advisor in 2005-6 and none of the so-called fixed-income experts at my firm could ever give me consistent answers on how they were priced or how they paid interest. Brokerages were labeling them as "cash alternatives" simply because they were subject to auctions that had not failed . . . until 2008. The fine print of a VRDO prospectus mentions that the instruments' viability in auctions is backed by a credit facility known as a standby bond purchase agreement. If an investment bank is unwilling to lend in support of such an agreement, the VRDO auction fails and the investor is stuck holding what becomes de facto a long-term bond. That will be dangerous during the onset of hyperinflation.

    International bonds might work if they originate in countries that have a strong rule of law orientation, a significant hard asset sector, and a low propensity to hyperinflate. That rules out anything except bonds from Australia, Canada, New Zealand, and Switzerland (which lacks the hard assets of the other three, unless you consider Swiss chocolate). I tune out the remaining China bulls who think dim sum bonds are China's ticket to reserve currency status. That makes me LOL. Investors who ignore China's debt-laden shadow banking system deserve what's coming if they love dim sum bonds so much.

    I've blogged about BDCs before. They work great in normal times by providing asset-secured loans to companies that can't qualify for low-interest bank loans but aren't in such distress that they need investment banks to underwrite high-yield debt. These aren't normal times. Hyperinflation will enable debtor companies to repay BDCs with less valuable future currency. I expect the market value of BDCs to plummet in hyperinflation unless they supplement their loan portfolios with standby equity distribution agreements.

    Fixed-income investments remain a minefield for many reasons. Rising US interest rates will lower bond valuations. Hyperinflation will destroy bonds altogether. Fiscal cliff wrangling makes non-US institutional investors more likely to dump US dollar bonds at any moment. Very few coupon-based securities are going to tempt me to chase yield under these conditions.

    Final note: Here is the original version of this article.

    Oct 27 11:47 PM | Link | Comment!
  • MobileCON 2013 Addressed Privacy, Security, Commerce, And The Internet Of Things

    I attended the one and only MobileCON 2013 last week down in San Jose. You know those old song lyrics about whether you know the way to San Jose? Well, I sure know the way after several trips down there in search of ideas, wealth, and attractive women. I had to miss the first day of the conference because of commitments in San Francisco but the next two days were worth my while. Special kudos to whoever picked the alternative rock soundtrack for the wait prior to the morning keynotes. I'm quite fond of hearing The Jezabels and The Killers whenever possible.

    The CEO of CTIA introduced each of the keynoters on the second day. Christy Wyatt, CEO of Good, was absolutely the best speaker at this conference. My most important takeaway from her talk was the need to establish a valuation method for stored data that is compatible with the enterprise's balance sheet. She compared the dollar per user, dollar impact when lost, and dollar value to someone else (mainly data thieves on the black market). I plan to research these methods further because that's what finance types do but I need to find relevant references in FASB publications or CIO magazine that define data as an intangible asset. I also learned from Christy that forwarding an enterprise's proprietary information to a personal email account or device can easily result in data leakage. This is why enterprises set IT firewalls to disallow such forwarding and why they need firm BYOD policies.

    I keep hearing from tech marketing advocates that "the smartphone is your authentication" in e-commerce. Sure, that enables e-commerce but if your smartphone is stolen a thief can authenticate transactions using your identity. Christy advocated Good's containerization strategy for mobile security. She wants data isolated from encryption and an enterprise's security architecture. The enterprise must set policy, not the user. The other Wednesday keynoters pitched their enterprise-level perspectives and I definitely got the hint that enterprise-grade apps from the company's approved app store are the wave of the future. These senior IT execs realize that distributed solutions have left big Iron behind but the mentality of many IT managers has not caught up to the tech reality. The dude from CA Technologies said no amount of capex can buy management DNA that develops and controls IT architecture.

    I headed out to the expo floor for some seminar action. I also had to check out booth babes and score free candy. One of the public cloud advocates from Xively wanted us to grow and optimize our businesses with IoT. Sure, I'm down with that. I'm just not buying the hype that IoT is going to be the biggest market for goods in human history. That's what the IT and telecom sectors told us about the Internet, the cloud, and Big Data and nothing has ever lived up to its hype. Xively thinks the network effects of transforming Small Data into Big Data matter more than just pitching device capabilities. The analytics from consumption and delivery patterns will feed predictive analytics that allow supply chain optimization. Xively also expects to access use cases hidden in "dark data" on consumer behavior that is currently unavailable to conventional monitoring of engagement patterns. I heard a lot of this stuff before in the late 1990s and only now is tech sufficiently mature to even scratch the surface of intelligence hidden in data. I will add that using marketing data with real-time geolocation enables a retail distribution system that is truly optimized for geography. I heard a lot of optimism at MobileCON about crowdfunding and scalable load balancing that is probably too optimistic.

    I caught the last half of CTIA's Cybersecurity Summit, and I was mightily impressed with the extreme hotness of Nico Sell, co-founder of Wickr. I was also impressed with her knowledge of cybersecurity from the other side of the fence. I wonder whether Wickr's business model will survive a national security letter in this political climate. Perhaps the policy pendulum will swing back to pre-9/11 normality someday and national security letters will no longer be anyone's concern. Nico shared what she observed at the most recent Defcon about hackers gaining remote control of a vehicle enabled with mobile access. Automakers are proud of their in-vehicle mobile systems' ability to decelerate a stolen vehicle and avoid a life-endangering high-speed police chase, but the same system allows access from black hat hackers. Telecom carriers face a similar problem; they can turn off a stolen smartphone's network connectivity but its stored data still has black market value. Well, I say mobile device makers need to allow user-selected encryption for devices used outside of enterprise bulk purchases. Nico said she want to see "cybertime" expiration dates on personal data with knowledge of its stored locations. I'd be happy to discuss that concept with her in person, if you know what I mean. The panelists advised us to Stay Safe Online.

    I attended another seminar that was really a product pitch. It reinforced my growing belief that business intelligence applications need constant human intervention to be intelligent. Claims about leveraging crowd wisdom mean little if the crowd is misinformed. I say data must be streamed and sorted through channels with KM-defined decision rules so execs can take action. That is not identical to crowdsourced information from unfiltered "dirty data." Executives must clarify the KPIs they want the data streams to fill. I also discovered that MS Excel, as good as it is for working BI tools, does not translate visually into an effective mobile dashboard. Effective mobile apps translate data into icon-sized graphs and charts highlighting KPIs in real time. The funny part with all of this mobile stuff is that there's no way to make the desktop or notebook PC disappear. Some human somewhere has to crunch numbers into a spreadsheet before it becomes available for translation into a pie chart on the CEO's smartphone.

    I sat in the front row of the panel on public policy and capital in wireless because we finance types need to see investment trends. I did not know that devices configured to broadcast information needed the approval of telecom regulatory bodies (TRBs) before the FCC will grant its approval. Here's a handy map of NARUC's utility commissions in case you need to get a gizmo approved. The recent government shutdown delayed that final FCC step even though the private bodies do most of the certification. The panel wants the FCC to auction off more of the seldom-used parts of the spectrum but I'm pretty sure DoD and the FAA will push back. I read enough to know that DoD will have its own spectrum crunch from connecting multiple sensor suites between troops, UAVs, smart munitions, and vehicles on the battlefield. DoD supposedly has a plan to relocate its systems' use away from auction-eligible bands. The FAA wants to reduce its reliance on radar and adopt more GPS guidance for aircraft. Uncle Sam needs to figure out how to compress his bandwidth requirements pronto before the telecom industry starts lobbying for more spectrum auctions. The guy from a smaller telecom carrier on the panel was concerned that auctions open only for large geographic segments limit bidders to the largest telecoms shutting out smaller carriers.

    The policy panel clarified a few telecom investment parameters for its finance sector observers (okay, probably just me). The main investment inputs for wireless telecom are spectrum (considered a natural resource) and cell tower sites. The absence of available spectrum puts a premium on cell site management and fortunately laws encourage the co-location of new towers on existing sites. I think telecom carriers will run into expansion problems from delayed spectrum auctions and local zoning that inhibits new towers. They need to get creative if they want the finance sector to get bullish on their stocks. Broadband includes fiber optic cable as well as wireless, and monetizing underused "dark fiber" in a cable company's assets can bring capacity to underserved areas with little capex and no added spectrum needed. The FCC's incentive auctions are a policy innovation worth watching.

    I'll make one more observation on telecom policy as it pertains to finance. I've blogged about hard assets as an inflation hedge. It looks like broadband spectrum, rights of way for fiber optic cable, wireless towers, and the products of incentive auctions are the telecom equivalent of hard assets. I would seriously consider using these in a portfolio to hedge inflation if I had a way to invest in them. The downside to these hard assets is they require large amounts of capital and are illiquid, placing them out of the reach of most retail investors. Private equity fund could probably stomach the risk if they were sufficiently large. I recall reading stories in the 1990s about doctors and lawyers who formed limited partnerships just to buy portions of the electromagnetic spectrum the FCC auctioned off to support the boom in cell phone use. It must have been like the Oklahoma Land Rush of 1889.

    I just had to sit in the seminar on the positive economic impact of increased wireless infrastructure. Most people would be bored out of their minds in such a place but not Yours Truly. The guy from Joint Venture Silicon Valley mentioned a PCIA white paper on "Wireless Broadband Infrastructure" and how it helps generate economic activity. Investors should know that the FCC's "shot clock" ruling affects wireless access rights to utility pools. The stringent rules for approving temporary towers make me think there's room for disruption in wireless infrastructure. What alternatives exist besides temporary towers? I think tethered aerostats and drones can carry wireless transmitters but they may need FAA approval. There may be no way for wireless infrastructure investors to completely escape regulation.

    One seminar on mobile payment fraud from Kount mentioned the Merchant Risk Council, but I wonder about that body's effectiveness if mobile fraud is such a problem. Kount is counting on the large unbanked populations in developing nations to use mobile for transactions because their lack of legacy telecom infrastructure allows them to leapfrog ahead to wireless connectivity. Folks, I've been hearing about that for a decade and a half. Mobile transactions imply ability to pay and literacy, which a lot of people in developing countries don't have yet. It's obvious to me that more payment methods demand more fraud controls but the stats Kount cited indicate mobile commerce isn't posing additional risks. The biggest risks right now are the higher dollar purchases on iPads that trigger more manual reviews and disapprovals of transactions. That shows me there's still room for disruption on the back end of ERPs because vendors need automated solutions to high-dollar purchase fraud that will eliminate those manual interventions.

    The second day's keynotes were a roundtable for CIOs to tout their wonderful solutions to all of our problems. It's clear to me that BYOD policies give users too much leeway will tempt them to use apps that are incompatible with the enterprise's cloud protocols and approved interfaces. This is why enterprises must deploy virtualized desktops before initiating BYOD policies. These CIOs know there's a tradeoff between usability and security, and having more mobile access to internal functions degrades security. I was dumbfounded when one of the CIO panelists said his organization deployed a mobile device to a cubicle worker who already has a PC. His rationale was that it costs as much to send an IT staffer to re-image a $400 PC as it does to replace that PC. I don't believe that at all! IT pros know how to re-image remotely on networks now thanks to the cloud and it can be done overnight. The only incremental cost for replacing a PC is the cost of gas to get across town and if the IT department has a lifecycle management policy they can schedule regular replacement trips for several PCs. No way could IT leaders be so dumb as to put mobile in cubicles but a government agency would probably do that just to show senior leaders that "hey, we're going to the cloud, yo" for political reasons.

    There was a panel on privacy where anti-NSA grumbling once again set the tone for market demand. They said that trust has a higher correlation with willingness to pay than other monetization factors. I don't think people conflate trust with honesty. People trust service providers who share an affinity and they trust products that deliver value. That has nothing to do with telling the truth. Anyway, the panel thinks big businesses have an advantage in knowing the regulatory environment on privacy, presumably because they can pay a full-time staffer to watch regulatory moves. I'll credit this panel as my source for discovering the FTC corporate privacy policy guidelines that hold businesses legally responsible for upholding their codes of conduct. The Association for Competitive Technology supposedly has a templated short-form privacy notice that small businesses can use that will help them keep the know-your-customer advantage they have over large businesses. I asked the panel for their opinion on blind privacy services like Tor; they answered that consumer demand for such services exist. I didn't press them on that answer because I suspect that blind services like Tor pose too many legal problems to survive in the wake of Dread Pirate Roberts' takedown. I also think the Silk Road's end spells the beginning of the end for the very stupid currency experiment known as Bitcoin. At any rate, Alfidi Capital has no need for a privacy policy because it has no client data and no clients. The panel made me wonder whether privacy has a monetary value. IMHO one way to assess that is the cost avoidance of litigation or regulatory fines for privacy violations, data misuse, and identity theft. I will eventually compare this privacy valuation to the data valuation described near the beginning of this article. That is a topic for a future report, once I determine whether FASB guidance exists. I'll also review policies from IAPP, EPIC, EFF, and ISO 29100 to figure out where my analysis can add value. I probably ought to get something like out as a matter of record before the IoT revolution destroys privacy completely, making policy so impossibly atomized as to be unworkable.

    I couldn't sit through all of Sprint's advertainment pitch because the MobileCON lead sponsors were offering up free pizza and I had to get my fill. Sprint thinks machine-to-machine (M2M) tech will become IoT but I see it as just the initial gateway. True IoT requires human interaction and manipulation; machine learning is just a mediation method. Connecting the home, car, and all devices via telematics is going to overwhelm the average user unless these devices are very simple to use. I think there's a big future for usage based-insurance; i.e. policies where coverage and premiums are iterated by use case data collected from mobile feeds. Your car's driving history and your wearable medical devices will determine how much you pay your insurance company in real time.

    Thanks to the Telecom Council of Silicon Valley for the final panel on corporate VC action. I paid serious attention in this one but I have to add pithy commentary. Corporate VCs need far less capital to launch early stage tech. The Corporate Innovators Huddle has a Corporate Venture Forum that gets these folks together. I've heard before from corporate VCs who differentiate between pure-play investments and startups expected to generate business relationships. Well, they said it again at MobileCON. Okay, here's my pithy comment. I just don't see a corporate rationale for a pure-play investment that's unrelated to the enterprise's stated strategy. I noticed during the talk that one VC said that corporate venture arms aren't the most high-profile business units due to their non-core functions, and that means they are neither the first to get more resources nor the first to get cut back in hard times. Some old-time former telecom execs sitting around me in the audience laughed audibly at that observation, so I guess they've been there before. Let me get off this tangent and back into the panel's insights. The panelists said typical finance-only VCs (i.e., the big Silicon Valley named funds) can't be a startup's early customer and third party validator but a corporate VC can fill those roles. They can also help with non-local market penetration because of their global presence and can host their digital and physical infrastructure. I'll remember that the next time some startup asks me what to do if they can't find free servers at a co-working space. The panel said corporations make a mistake by assigning inexperienced execs to run their VC arms. Well, gee, that's what big enterprises do all the time. Selecting some fast-moving junior preppie whose only skill is kissing bee-hinds is exactly why corporate venture arms stray from strategic investments into pure-play boondoggles. Sheesh. I noted that the Telecom Council of SV has speaking opportunities in front of its corporate VC reps. That means I have a venue to run my mouth if they want free entertainment. The panelists think that the corporate VC decision cycle on making an investment has become as fast as financial VCs even if their internal business units (i.e., their real customers) don't move as fast. I still don't see how corporate VCs can justify leaping ahead of their internal business units just to chase ROI. No way is an annual corporate audit of a venture arm's failure to meet strategic goals going to make that VC exec look good if his pure-play risk destroyed the ROI in one year. The panelists did admit that the VC arm's ROI won't move the corporation's share price, but the C-suite often asks them to explore non-core markets.

    Well, CTIA, your MobileCON 2013 impressed me. Once I join the smartphone era I'll be tweeting #mobilecon and such all over the convention floor but that won't be this year. I'd like to thank the floor show exhibitors for insisting that I fill up on their extra candy on the way out so they didn't have to ship it back to headquarters. I'd also like to thank the attractive females who staffed the booths and flirted with me. I know they can't help themselves, and I can't blame them. I attended the one and only MobileCON 2013 last week down in San Jose. You know those old song lyrics about whether you know the way to San Jose? Well, I sure know the way after several trips down there in search of ideas, wealth, and attractive women. I had to miss the first day of the conference because of commitments in San Francisco but the next two days were worth my while. Special kudos to whoever picked the alternative rock soundtrack for the wait prior to the morning keynotes. I'm quite fond of hearing The Jezabels and The Killers whenever possible.

    (click to enlarge)

    The CEO of CTIA introduced each of the keynoters on the second day. Christy Wyatt, CEO of Good, was absolutely the best speaker at this conference. My most important takeaway from her talk was the need to establish a valuation method for stored data that is compatible with the enterprise's balance sheet. She compared the dollar per user, dollar impact when lost, and dollar value to someone else (mainly data thieves on the black market). I plan to research these methods further because that's what finance types do but I need to find relevant references in FASB publications or CIO magazine that define data as an intangible asset. I also learned from Christy that forwarding an enterprise's proprietary information to a personal email account or device can easily result in data leakage. This is why enterprises set IT firewalls to disallow such forwarding and why they need firm BYOD policies.

    I keep hearing from tech marketing advocates that "the smartphone is your authentication" in e-commerce. Sure, that enables e-commerce but if your smartphone is stolen a thief can authenticate transactions using your identity. Christy advocated Good's containerization strategy for mobile security. She wants data isolated from encryption and an enterprise's security architecture. The enterprise must set policy, not the user. The other Wednesday keynoters pitched their enterprise-level perspectives and I definitely got the hint that enterprise-grade apps from the company's approved app store are the wave of the future. These senior IT execs realize that distributed solutions have left big Iron behind but the mentality of many IT managers has not caught up to the tech reality. The dude from CA Technologies said no amount of capex can buy management DNA that develops and controls IT architecture.

    I headed out to the expo floor for some seminar action. I also had to check out booth babes and score free candy. One of the public cloud advocates from Xively wanted us to grow and optimize our businesses with IoT. Sure, I'm down with that. I'm just not buying the hype that IoT is going to be the biggest market for goods in human history. That's what the IT and telecom sectors told us about the Internet, the cloud, and Big Data and nothing has ever lived up to its hype. Xively thinks the network effects of transforming Small Data into Big Data matter more than just pitching device capabilities. The analytics from consumption and delivery patterns will feed predictive analytics that allow supply chain optimization. Xively also expects to access use cases hidden in "dark data" on consumer behavior that is currently unavailable to conventional monitoring of engagement patterns. I heard a lot of this stuff before in the late 1990s and only now is tech sufficiently mature to even scratch the surface of intelligence hidden in data. I will add that using marketing data with real-time geolocation enables a retail distribution system that is truly optimized for geography. I heard a lot of optimism at MobileCON about crowdfunding and scalable load balancing that is probably too optimistic.

    I caught the last half of CTIA's Cybersecurity Summit, and I was mightily impressed with the extreme hotness of Nico Sell, co-founder of Wickr. I was also impressed with her knowledge of cybersecurity from the other side of the fence. I wonder whether Wickr's business model will survive a national security letter in this political climate. Perhaps the policy pendulum will swing back to pre-9/11 normality someday and national security letters will no longer be anyone's concern. Nico shared what she observed at the most recent Defcon about hackers gaining remote control of a vehicle enabled with mobile access. Automakers are proud of their in-vehicle mobile systems' ability to decelerate a stolen vehicle and avoid a life-endangering high-speed police chase, but the same system allows access from black hat hackers. Telecom carriers face a similar problem; they can turn off a stolen smartphone's network connectivity but its stored data still has black market value. Well, I say mobile device makers need to allow user-selected encryption for devices used outside of enterprise bulk purchases. Nico said she want to see "cybertime" expiration dates on personal data with knowledge of its stored locations. I'd be happy to discuss that concept with her in person, if you know what I mean. The panelists advised us to Stay Safe Online.

    I attended another seminar that was really a product pitch. It reinforced my growing belief that business intelligence applications need constant human intervention to be intelligent. Claims about leveraging crowd wisdom mean little if the crowd is misinformed. I say data must be streamed and sorted through channels with KM-defined decision rules so execs can take action. That is not identical to crowdsourced information from unfiltered "dirty data." Executives must clarify the KPIs they want the data streams to fill. I also discovered that MS Excel, as good as it is for working BI tools, does not translate visually into an effective mobile dashboard. Effective mobile apps translate data into icon-sized graphs and charts highlighting KPIs in real time. The funny part with all of this mobile stuff is that there's no way to make the desktop or notebook PC disappear. Some human somewhere has to crunch numbers into a spreadsheet before it becomes available for translation into a pie chart on the CEO's smartphone.

    I sat in the front row of the panel on public policy and capital in wireless because we finance types need to see investment trends. I did not know that devices configured to broadcast information needed the approval of telecom regulatory bodies (TRBs) before the FCC will grant its approval. Here's a handy map of NARUC's utility commissions in case you need to get a gizmo approved. The recent government shutdown delayed that final FCC step even though the private bodies do most of the certification. The panel wants the FCC to auction off more of the seldom-used parts of the spectrum but I'm pretty sure DoD and the FAA will push back. I read enough to know that DoD will have its own spectrum crunch from connecting multiple sensor suites between troops, UAVs, smart munitions, and vehicles on the battlefield. DoD supposedly has a plan to relocate its systems' use away from auction-eligible bands. The FAA wants to reduce its reliance on radar and adopt more GPS guidance for aircraft. Uncle Sam needs to figure out how to compress his bandwidth requirements pronto before the telecom industry starts lobbying for more spectrum auctions. The guy from a smaller telecom carrier on the panel was concerned that auctions open only for large geographic segments limit bidders to the largest telecoms shutting out smaller carriers.

    The policy panel clarified a few telecom investment parameters for its finance sector observers (okay, probably just me). The main investment inputs for wireless telecom are spectrum (considered a natural resource) and cell tower sites. The absence of available spectrum puts a premium on cell site management and fortunately laws encourage the co-location of new towers on existing sites. I think telecom carriers will run into expansion problems from delayed spectrum auctions and local zoning that inhibits new towers. They need to get creative if they want the finance sector to get bullish on their stocks. Broadband includes fiber optic cable as well as wireless, and monetizing underused "dark fiber" in a cable company's assets can bring capacity to underserved areas with little capex and no added spectrum needed. The FCC's incentive auctions are a policy innovation worth watching.

    I'll make one more observation on telecom policy as it pertains to finance. I've blogged about hard assets as an inflation hedge. It looks like broadband spectrum, rights of way for fiber optic cable, wireless towers, and the products of incentive auctions are the telecom equivalent of hard assets. I would seriously consider using these in a portfolio to hedge inflation if I had a way to invest in them. The downside to these hard assets is they require large amounts of capital and are illiquid, placing them out of the reach of most retail investors. Private equity fund could probably stomach the risk if they were sufficiently large. I recall reading stories in the 1990s about doctors and lawyers who formed limited partnerships just to buy portions of the electromagnetic spectrum the FCC auctioned off to support the boom in cell phone use. It must have been like the Oklahoma Land Rush of 1889.

    I just had to sit in the seminar on the positive economic impact of increased wireless infrastructure. Most people would be bored out of their minds in such a place but not Yours Truly. The guy from Joint Venture Silicon Valley mentioned a PCIA white paper on "Wireless Broadband Infrastructure" and how it helps generate economic activity. Investors should know that the FCC's "shot clock" ruling affects wireless access rights to utility pools. The stringent rules for approving temporary towers make me think there's room for disruption in wireless infrastructure. What alternatives exist besides temporary towers? I think tethered aerostats and drones can carry wireless transmitters but they may need FAA approval. There may be no way for wireless infrastructure investors to completely escape regulation.

    One seminar on mobile payment fraud from Kount mentioned the Merchant Risk Council, but I wonder about that body's effectiveness if mobile fraud is such a problem. Kount is counting on the large unbanked populations in developing nations to use mobile for transactions because their lack of legacy telecom infrastructure allows them to leapfrog ahead to wireless connectivity. Folks, I've been hearing about that for a decade and a half. Mobile transactions imply ability to pay and literacy, which a lot of people in developing countries don't have yet. It's obvious to me that more payment methods demand more fraud controls but the stats Kount cited indicate mobile commerce isn't posing additional risks. The biggest risks right now are the higher dollar purchases on iPads that trigger more manual reviews and disapprovals of transactions. That shows me there's still room for disruption on the back end of ERPs because vendors need automated solutions to high-dollar purchase fraud that will eliminate those manual interventions.

    The second day's keynotes were a roundtable for CIOs to tout their wonderful solutions to all of our problems. It's clear to me that BYOD policies give users too much leeway will tempt them to use apps that are incompatible with the enterprise's cloud protocols and approved interfaces. This is why enterprises must deploy virtualized desktops before initiating BYOD policies. These CIOs know there's a tradeoff between usability and security, and having more mobile access to internal functions degrades security. I was dumbfounded when one of the CIO panelists said his organization deployed a mobile device to a cubicle worker who already has a PC. His rationale was that it costs as much to send an IT staffer to re-image a $400 PC as it does to replace that PC. I don't believe that at all! IT pros know how to re-image remotely on networks now thanks to the cloud and it can be done overnight. The only incremental cost for replacing a PC is the cost of gas to get across town and if the IT department has a lifecycle management policy they can schedule regular replacement trips for several PCs. No way could IT leaders be so dumb as to put mobile in cubicles but a government agency would probably do that just to show senior leaders that "hey, we're going to the cloud, yo" for political reasons.

    There was a panel on privacy where anti-NSA grumbling once again set the tone for market demand. They said that trust has a higher correlation with willingness to pay than other monetization factors. I don't think people conflate trust with honesty. People trust service providers who share an affinity and they trust products that deliver value. That has nothing to do with telling the truth. Anyway, the panel thinks big businesses have an advantage in knowing the regulatory environment on privacy, presumably because they can pay a full-time staffer to watch regulatory moves. I'll credit this panel as my source for discovering the FTC corporate privacy policy guidelines that hold businesses legally responsible for upholding their codes of conduct. The Association for Competitive Technology supposedly has a templated short-form privacy notice that small businesses can use that will help them keep the know-your-customer advantage they have over large businesses. I asked the panel for their opinion on blind privacy services like Tor; they answered that consumer demand for such services exist. I didn't press them on that answer because I suspect that blind services like Tor pose too many legal problems to survive in the wake of Dread Pirate Roberts' takedown. I also think the Silk Road's end spells the beginning of the end for the very stupid currency experiment known as Bitcoin. At any rate, Alfidi Capital has no need for a privacy policy because it has no client data and no clients. The panel made me wonder whether privacy has a monetary value. IMHO one way to assess that is the cost avoidance of litigation or regulatory fines for privacy violations, data misuse, and identity theft. I will eventually compare this privacy valuation to the data valuation described near the beginning of this article. That is a topic for a future report, once I determine whether FASB guidance exists. I'll also review policies from IAPP, EPIC, EFF, and ISO 29100 to figure out where my analysis can add value. I probably ought to get something like out as a matter of record before the IoT revolution destroys privacy completely, making policy so impossibly atomized as to be unworkable.

    I couldn't sit through all of Sprint's advertainment pitch because the MobileCON lead sponsors were offering up free pizza and I had to get my fill. Sprint thinks machine-to-machine (M2M) tech will become IoT but I see it as just the initial gateway. True IoT requires human interaction and manipulation; machine learning is just a mediation method. Connecting the home, car, and all devices via telematics is going to overwhelm the average user unless these devices are very simple to use. I think there's a big future for usage based-insurance; i.e. policies where coverage and premiums are iterated by use case data collected from mobile feeds. Your car's driving history and your wearable medical devices will determine how much you pay your insurance company in real time.

    Thanks to the Telecom Council of Silicon Valley for the final panel on corporate VC action. I paid serious attention in this one but I have to add pithy commentary. Corporate VCs need far less capital to launch early stage tech. The Corporate Innovators Huddle has a Corporate Venture Forum that gets these folks together. I've heard before from corporate VCs who differentiate between pure-play investments and startups expected to generate business relationships. Well, they said it again at MobileCON. Okay, here's my pithy comment. I just don't see a corporate rationale for a pure-play investment that's unrelated to the enterprise's stated strategy. I noticed during the talk that one VC said that corporate venture arms aren't the most high-profile business units due to their non-core functions, and that means they are neither the first to get more resources nor the first to get cut back in hard times. Some old-time former telecom execs sitting around me in the audience laughed audibly at that observation, so I guess they've been there before. Let me get off this tangent and back into the panel's insights. The panelists said typical finance-only VCs (i.e., the big Silicon Valley named funds) can't be a startup's early customer and third party validator but a corporate VC can fill those roles. They can also help with non-local market penetration because of their global presence and can host their digital and physical infrastructure. I'll remember that the next time some startup asks me what to do if they can't find free servers at a co-working space. The panel said corporations make a mistake by assigning inexperienced execs to run their VC arms. Well, gee, that's what big enterprises do all the time. Selecting some fast-moving junior preppie whose only skill is kissing bee-hinds is exactly why corporate venture arms stray from strategic investments into pure-play boondoggles. Sheesh. I noted that the Telecom Council of SV has speaking opportunities in front of its corporate VC reps. That means I have a venue to run my mouth if they want free entertainment. The panelists think that the corporate VC decision cycle on making an investment has become as fast as financial VCs even if their internal business units (i.e., their real customers) don't move as fast. I still don't see how corporate VCs can justify leaping ahead of their internal business units just to chase ROI. No way is an annual corporate audit of a venture arm's failure to meet strategic goals going to make that VC exec look good if his pure-play risk destroyed the ROI in one year. The panelists did admit that the VC arm's ROI won't move the corporation's share price, but the C-suite often asks them to explore non-core markets.

    Well, CTIA, your MobileCON 2013 impressed me. Once I join the smartphone era I'll be tweeting #mobilecon and such all over the convention floor but that won't be this year. I'd like to thank the floor show exhibitors for insisting that I fill up on their extra candy on the way out so they didn't have to ship it back to headquarters. I'd also like to thank the attractive females who staffed the booths and flirted with me. I know they can't help themselves, and I can't blame them.

    Final note: Here's my original blog article.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 24 7:40 PM | Link | Comment!
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