Uber says cyber breach compromised data of 57 million users, drivers

(Reuters) – Uber Technologies Inc [UBER.UL] failed to disclose a massive breach last year that exposed the data of some 57 million users of the ride-sharing service, the company’s new chief executive officer said on Tuesday.

FILE PHOTO: Uber CEO Travis Kalanick speaks to students during an interaction at the Indian Institute of Technology (IIT) campus in Mumbai, India, January 19, 2016. REUTERS/Danish Siddiqui

Discovery of the company’s handling of the incident led to the departure of two employees who led Uber’s response to the incident, said Dara Khosrowshahi, who was named CEO in August following the departure of founder Travis Kalanick.

Khosrowshahi said he had only recently learned of the matter himself.

The company’s admission that it failed to disclose the breach comes as Uber is seeking to recover from a series of crises that culminated in the Kalanick’s ouster in June.

FILE PHOTO: The logo of Uber is seen on an iPad, during a news conference to announce Uber resumes ride-hailing service, in Taipei, Taiwan April 13, 2017. REUTERS/Tyrone Siu/File Photo –

According to the company’s account, two individuals downloaded data from a third-party cloud server used by Uber, which contained names, email addresses and mobile phone numbers of some 57 million Uber users around the world. They also downloaded names and driver’s license numbers of some 600,000 of the company’s U.S. drivers, Khosrowshahi said in a blog post.

He said he had hired Matt Olsen, former general counsel of the U.S. National Security Agency, to help him figure out how to best guide and structure the company’s security teams and processes.

The chief executive of Uber Technologies Inc, Dara Khosrowshahi attends a meeting with Brazilian Finance Minister Henrique Meirelles (not pictured) in Brasilia, Brazil October 31, 2017. REUTERS/Adriano Machado

“None of this should have happened, and I will not make excuses for it,” Khosrowshahi said in the blog post.

“While I can’t erase the past, I can commit on behalf of every Uber employee that we will learn from our mistakes,” he said. “We are changing the way we do business, putting integrity at the core of every decision we make and working hard to earn the trust of our customers.”

(Corrects paragraph 1 to data instead of date)

Reporting by Jim Finkle in Toronto; Editing by Tom Brown

Our Standards:The Thomson Reuters Trust Principles.

Uber CEO says company failed to disclose massive breach in 2016

(Reuters) – Uber Technologies Inc [UBER.UL] failed to disclose a massive breach last year that exposed the data of some 57 million users of the ride-sharing service, the company’s new chief executive officer said on Tuesday.

FILE PHOTO: Uber CEO Travis Kalanick speaks to students during an interaction at the Indian Institute of Technology (IIT) campus in Mumbai, India, January 19, 2016. REUTERS/Danish Siddiqui

Discovery of the company’s handling of the incident led to the departure of two employees who led Uber’s response to the incident, said Dara Khosrowshahi, who was named CEO in August following the departure of founder Travis Kalanick.

Khosrowshahi said he had only recently learned of the matter himself.

The company’s admission that it failed to disclose the breach comes as Uber is seeking to recover from a series of crises that culminated in the Kalanick’s ouster in June.

FILE PHOTO: The logo of Uber is seen on an iPad, during a news conference to announce Uber resumes ride-hailing service, in Taipei, Taiwan April 13, 2017. REUTERS/Tyrone Siu/File Photo –

According to the company’s account, two individuals downloaded data from a third-party cloud server used by Uber, which contained names, email addresses and mobile phone numbers of some 57 million Uber users around the world. They also downloaded names and driver’s license numbers of some 600,000 of the company’s U.S. drivers, Khosrowshahi said in a blog post.

He said he had hired Matt Olsen, former general counsel of the U.S. National Security Agency, to help him figure out how to best guide and structure the company’s security teams and processes.

The chief executive of Uber Technologies Inc, Dara Khosrowshahi attends a meeting with Brazilian Finance Minister Henrique Meirelles (not pictured) in Brasilia, Brazil October 31, 2017. REUTERS/Adriano Machado

“None of this should have happened, and I will not make excuses for it,” Khosrowshahi said in the blog post.

“While I can’t erase the past, I can commit on behalf of every Uber employee that we will learn from our mistakes,” he said. “We are changing the way we do business, putting integrity at the core of every decision we make and working hard to earn the trust of our customers.”

(Corrects paragraph 1 to data instead of date)

Reporting by Jim Finkle in Toronto; Editing by Tom Brown

Our Standards:The Thomson Reuters Trust Principles.

Whether They’re Calling It A Fraud, Bubble Or World Changer, A Lot of Companies Are Talking About Cryptocurrency

J.P. Morgan CEO Jamie Dimon thinks bitcoin is a “fraud.” Investor Mark Cuban called it “a bubble.” Goldman Sachs CEO Lloyd Blankfein is still undecided. But whether or not executives believe in the potential of bitcoin, ethereum or blockchain technology, they and their companies can’t avoid talking about cryptocurrencies.

Mentions of “cryptocurrency” (digital currencies not tied to any country’s legal tender) and related terms including “bitcoin” and “ethereum” (the two most popular cryptocurrencies), “blockchain” (the technology underlying these currencies), and “initial coin offering” (or ICO, which lets companies raise capital through the creation of a new cryptocurrency) have skyrocketed over the last seven years, according to data from Sentieo, a financial research firm.

In total, 1,200 publicly traded companies have generated over 12,000 mentions of digital currency during the past 14 years.

With another month left to go in 2017, references to cryptocurrency in corporate communications are already double what they were in all of 2016, according to a Fortune analysis of the Sentieo data. And they’re up more than 7,000% since 2010, when admittedly only a handful of companies had talked about “digital currency” during earnings calls or presentations.

It began with ‘digital currency’ … and getting bitcoin’s name wrong

From 2009 through 2012, most of the mentions only referenced “digital currency,” which includes cryptocurrencies, along with other money recorded electronically or stored in another device. Players in the digital currency space, like PayPal and Square, had to address cryptocurrencies earlier than most.

In a March 2014 statement to eBay shareholders about PayPal’s IPO, Carl Icahn calls bitcoin “the digital currency Mr. [Marc] Andreessen cheerleads for.”

Amusingly enough, bitcoin was actually misidentified in its first actual mention by name during Discover’s 2013 annual meeting.

“One of the questions I’ve put down, the subject is bio coin,” a shareholder began to say.

Discover CEO David Nelms course-corrected. “You mean bitcoins?”

“Yes, bitcoins. You’re a good listener,” the shareholder said. “You picked it up. ”

Fortune analyzed Sentieo data from earnings call transcripts, press releases, presentations, and SEC filings — 8Ks and 10Ks. Cryptocurrency and related terms pop up in press releases most often, followed by SEC filings and presentations. And that’s to be expected. Most companies publish press releases a lot more frequently than they submit SEC filings or hold earnings calls.

A lot of financial institutions mention it only to say it’s irrelevant, or deny its ability to disrupt their industry

Less than 20% of the S&P 500 appear among the 1,200 companies talking about cryptocurrencies, and only 65 hail from the 2017 Fortune 500 list. Information technology and finance companies, unsurprisingly, have discussed the topic more fervently than other industries.

Many times, large financial institutions have brought up cryptocurrency because they’re denying its importance or expressing disinterest in bitcoin. But some companies in the consumer-facing fintech subset have been talking about it because they’re planning to adopt parts of the new technology.

“Cryptocurrency will be almost a gimmick at first,” Benjamin Jessel, managing principal at Capco, told Fortune. “Institutional investment will come later.”

He leads a variety of digital risk, compliance and strategy projects and programs for financial services clients.

It’ll be a while before anyone can say cryptocurrencies have truly disrupted financial institutions, he said. But there’s signs it could come to pass. Companies like Square and American Express have been working on allowing consumers the option to pay with cryptocurrencies.

Overstock.com has embraced cryptocurrencies more than any of its peers

Of the 1,200 companies that Fortune analyzed, Overstock.com stood out. It has talked about cryptocurrencies and blockchain technology more than any other firm.

The retailer has allowed customers to buy products with bitcoin since January 2014 and recently expanded payment options to include Ethereum and about 40 other major digital currencies.

“We think that at some point there will be … Bitcoin will hit a tipping point and like it took time for people to adopt PCs and the Internet, at some point there is a tipping point and this could become … Bitcoin could become as ubiquitous as PCs and the Internet are now,” said Jonathan Johnson, Overstock.com executive Vice Chairman Jonathan in January 2014.

Overstock.com’s CEO Patrick Byrne was an early believer in the importance of cryptocurrencies, too. It doesn’t just show in earnings calls and SEC filings. One of Overstock’s subsidiaries, tZero, has made it possible to trade tokens using blockchain technology in a regulatory-free environment.

“Three years ago I stood up in front of an audience for the opening keynote speech at Bitcoin 2014, in Amsterdam, and told the world that the main event of Bitcoin is not Bitcoin, it is the Blockchain, and it would change the world,” Byrne said at the Money 20/20 conference last month.

But Overstock.com executives were the outliers. There’s been heated debate about whether there is a bitcoin bubble.

“We’re certainly in something that resembles a bubble,” Jessel said.

He points to the sheer amount of capital invested in a short time period — more than $2 billion in initial coin offerings (ICOs) in 2017— along with the low sophistication of investors. More and more people are buying tokens like Bitcoin and Ethereum, but very few are using them for anything other than trading.

The infrastructure for cryptocurrencies is growing very rapidly and generating lots of conversation, like what’s been captured in the Sentieo data. But the truth is very few companies are making money from using the technology.

“It’s like a whole industry building roads,” Jessel said, “and they haven’t discovered cars yet.”

raceAhead: Three Podcasts to Help You Understand Things, Charles Manson’s Race War, Life in North Korea

If one thing has become clear during the two years of working the race beat at Fortune is this: Everything has a backstory. Our ability to understand and embrace these hidden histories can help us all become more curious, aware, empathetic and informed.

Here are three podcasts that I’ve recently enjoyed that brought a fresh perspective to something I already thought I knew a bit about. Turns out, I was missing more than just some interesting facts. Enjoy.

Good Muslim, Bad Muslim is a delightful podcast, and ordinarily a breezy conversation between two friends, Tanzila ‘Taz’ Ahmed and Zahra Noorbakhsh, about their complicated modern relationship with faith, love, social justice and American life. They took a break from their usual dish to join an annual pilgrimage to Manzanar, a Japanese American internment camp just north of Los Angeles. This year’s visit commemorated the 75th anniversary of Executive Order 9066, which ordered the incarceration of more than 110,000 Japanese Americans and was signed by President Franklin D. Roosevelt. (Executive orders matter, yo.) The trip was organized by the Vigilant Love Coalition and their Bridging Communities program, which draws parallels between the Japanese experience post-Pearl Harbor and the experience of Muslim Americans today. “Today we are retracing the humanity of a group of people who our country shamelessly mistreated,” the tour guide begins. While Taz and Zahra continually hand the mic to other pilgrims and survivors to make sure their stories are heard, the bigger message is clear. “Your citizenship will not protect you,” one woman tells them.

Every installment of Second Wave is a revelation and a thoughtful exploration of the experiences of Vietnamese Americans in the aftermath of a war that hasn’t ended for everyone. One delicious example is Pho, part savory noodle-dish, part iconic comfort food born in a faraway land and now, a dish ripe for cultural appropriation. Seemingly out of the blue, the dish has been embraced by hipster chefs in the U.S. and turned into a barely recognizable version of itself, with pho experts everywhere making fancy derivations like pho dumplings, pho salads, even rolling “phorritos.” Host Thanh Tan sits with two women who have made their own careers with the noodle dish, writer Andrea Nguyen and chef Yenvy Pham, owner of Pho Bac in Seattle, and have a fascinating conversation about what the soup meant to both the working class and elites in Vietnam, and the uncomfortable peace they’re making with its gentrification stateside. And then the talk turns to a scandal you may have missed — the recent Pho-gate, and their ultimate defense against the ultimate erasure.

I’ve fallen hard for Uncivil, a new Gimlet podcast about the Civil War that explores the stories that have been left out of history if you get my drift. Again, there are no wrong choices, but for the purposes of digging into a juicy backstory, start with their eye-opening exploration of the true origins of Dixie, the unofficial and still beloved anthem of the Confederacy. The common knowledge was this: Dixie was a Confederate anthem, written by a Southerner, during the dark days of the Civil War. As usual, the common knowledge is completely wrong. There are a couple of twists before we get to the painful truth, an erasure so profound that it’ll get you whistling Dixie yourself. Hosts Chenjerai Kumanyika and Jack Hitt are both excellent. But later in this episode, Kumanyika talks about “coon spaces,” a framing for performative blackness for the benefit of white audiences. It yields one of the richest conversations I’ve heard in ages. In this instance, it’s with a musician named Justin Robinson, who both understands the true roots of the song and has performed it with a sense of dignity and restorative justice. It didn’t quite work. “They invite you to dehumanize yourself for profit, for their pleasure, to deepen their sense of identity,” says Kumanyika of the “coon space” dynamic. “You’re sort of hitting on the head what it means to be black in America or indigenous in America,” Robinson begins.

On Point

Cult leader Charles Manson dies having failed to achieve his dream of a full-on race war
It’s an element of his cultish control over his “hippie” followers that often gets the short shrift. His murderous rampage was not just an attack on the Hollywood elite. It was a full-throated attempt to incite a race war that would – insert magical thinking here – end with him running the world. The Root has a great explainer here. I’d also point you to another podcast, currently in production called Young Charlie. It unfolds as the breathless true crime it actually was, but also gives rich context to the person Manson was and the country he was planning to overtake. Not only did he fall through every possible crack in his young life, he was monstrously smart and profoundly cynical, fully prepared to leverage a racist country for his own benefit.
Wondery
How rapper Meek Mill has come to personify criminal justice reform
Rapper Meek Mill is back in prison for a parole violation stemming from various criminal charges he faced over a decade ago. And now, the Philadelphia home town hero has become a flashpoint in a long overdue conversation about reform and judicial overreach. If you haven’t been following the story, then this explainer from the Washington Post will get you up to speed. But don’t stop there. Read this op-ed from Jay-Z, whose Roc Nation reps Mill, but who has also become increasingly outspoken on justice reform issues. “On the surface, this may look like the story of yet another criminal rapper who didn’t smarten up and is back where he started,” he begins. But Mill was nineteen when he was sent to jail for drug and gun possession and served an eight month sentence. “For about a decade, he’s been stalked by a system that considers the slightest infraction a justification for locking him back inside.”
Washington Post
Lena Dunham under fire for siding with friend accused of sexual assault
The man in question is Girls writer Murray Miller, and he was accused by actor Aurora Perrineau. While the backlash was swift and followed by a penned apology, writer Zinzi Clemmons has decided enough is enough. In a statement posted to Twitter, she announced that she will no longer be contributing to Lenny Letter, Dunham’s online feminist newsletter. “She cannot have our words if she cannot respect us,” she writes. She also describes the casual racism, and worse, that she believes defines Dunham’s circle, many of whom she was acquainted with in college. “It is time for women of color — black women in particular — to divest from Lena Dunham,” she says.
Twitter
What it’s like to live in North Korea
The Washington Post has interviewed 25 North Koreans who have lived, in some capacity, in the country under Kim Jong Un. Their tales are uniformly grim and disappointing. They all thought that the millennial leader would bring fresh ideas and much-needed change to a country crippled by generational dictatorship. Instead, things got worse, as the state broke down and the economy crumbled. The only way to survive is the constant hustle of dealing in bribes and the illegal/informal economy. The threat of state violence, they say, is ever-present. “I once went for six months without getting any salary at all. We lived in a shipping container at the construction site… Once I didn’t bathe for two months,” said one construction worker who escaped in 2015.
The Washington Post

The Woke Leader

Princeton University comes clean on race
Here’s just one example: Researchers have recently found evidence that Samuel Finley, the school’s fifth president, sold his slaves in front of his stately 18th century clapboard home, once a popular stop on the campus tour. That is just one of many stories being brought to light as the institution works to reconcile it’s complex past. To that end, it’s worth spending time with the Princeton and Slavery Project, an evolving work of depth and honesty that includes primary documents and articles highlighting the university’s long history of slavery-related funding and racial violence.
New York Times
The bleak and poignant history of black NASCAR drivers
After a 46 year dry spell, a black rookie driver is set to become the first full-time black driver since Wendell Scott stopped driving in 1971. Darrell “Bubba” Wallace, Jr., is set to drive car number 43 for Richard Petty Motorsports next season. “There’s only 1 driver from an African-American background at the top level of our sport … I am the one,” he said on Twitter. “You’re not gonna stop hearing about ‘the Black driver’ for years. Embrace it, accept it and enjoy the journey.” But it’s worth remembering Scott, the very first black driver, who braved Jim Crow laws and death threats to persist in the sport. He won money and acclaim, but never the traditional post-race kiss from the white beauty queen. Click through for the real deal history.
Atlanta Blackstar
Take a jazz lesson with Wynton Marsalis and Jon Batiste
Batiste, the less-well-known of the two jazz greats, is the leader of the “The Late Show with Stephen Colbert” band, and absolutely holds his own with Marsalis, during this hour-long segment on the genius of jazz from The Aspen Institute. The conversation includes plenty of music and technical talk, like how pentatonic scales originally came from Africa. It also weaves in discussions of painful elements of life under the English plantation system, which also exploited Irish people. The strange mix of race, culture, and oppression found its way into the alchemy known as blues and jazz.
YouTube

Thanksgiving Hack: Cook Your Turkey Sous Vide

Maybe you like your Thanksgiving turkey dry and bland. I get it. There’s something deeply traditional about leaving the bird in the oven for hours and hours. Maybe you like the symbolism of the turkey taking up oven space, or maybe overcooked poultry gives you an excuse to overload it with gravy. Maybe you’ve given up on bird altogether (one year, my mom served lobster for Thanksgiving. “No one likes the turkey anyway!”). If you have beloved turkey-cooking traditions, that’s totally cool. But consider this: You can have a platter of turkey that’s juicy, flavorful, and delicious. You just have to cook it sous vide.

It seems counterintuitive, I know. Sous vide—a cooking method that involves sealing food inside a plastic bag and then cooking it in a water bath—seems ill suited for something as cumbersome as a Thanksgiving turkey. It seems too fancy and too French for a holiday that celebrates America. And for those who aren’t used to wielding a sous vide wand in the kitchen, the technique can seem intimidating, even overly precious.

Let me assure you: There is nothing easier or more foolproof than sealing your turkey into a plastic baggie, dropping it into a pot of water, and walking away. Really. That’s it. And when you return, you’ll have the best damn turkey you’ve ever tasted.

High-Tech Turkey

Sous vide is a fancy French way of saying “cooked in a vacuum.” You take some food, put it in a vacuum-sealed baggie (or, for the less pretentious chef, Ziploc works too), and leave it to slow cook in a bath of warm water until it’s tantalizingly tender. Unlike cooking by oven or grill, the bath method distributes heat evenly from edge to center, and the vacuum bag seals in moisture. You can cook everything from poultry to lobster to eggs to corn on the cob sous vide. But the method is especially well suited for turkey.

ChefSteps

“Turkey breasts are actually really tough muscle, so they’re a perfect candidate for sous vide,” says Grant Crilly, the head chef and co-founder of food and technology company ChefSteps. “Even as a chef, I used to hate turkey breasts. They’re just tough and a pain to cook. Ever since I’ve been cooking them sous vide, I’ve turned into a turkey breast man.”

Learning to cook sous vide is easy. You can find all sorts of sous vide immersion wands that connect with an app on your phone and simplify the method to pressing a button on your screen. (ChefSteps makes one such wand called Joule.) These sous vide wands, which contain a thermometer and a heating element, clamp onto the side of any pot filled with water and heat it to a precise temperature for a precise amount of time. All you have to do is bag the food, fill the pot with water, place the wand inside, and select the correct recipe in the app on your phone.

ChefSteps offers step-by-step instructions on how to prepare your turkey sous vide. Anova and Sansaire, which each make sous vide wands, also have dedicated guides. Whichever sous vide circulator you use, the basic concept remains the same: Quarter the turkey (if you’re doing this yourself, make sure to remove the ribs from the breast; otherwise, the sharp bones could poke a hole and rip the bag open). Place the legs in a large vacuum-sealed baggie, and cook those first. Then add the breasts in a separate baggie. Time and temperature will vary depending on your individual preferences, but Crilly recommends setting the temperature nice and low and cooking the bird overnight.

The sous vide method gives you a juicier turkey, because none of the moisture evaporates. You also get a more flavorful turkey, since you can marinate the meat for hours inside of the bag. (One pro tip from Chef Crilly: “Take a little pot of butter on the stove—this is before you cook the turkey—throw in thyme, garlic; fresh, beautiful herbs; peppercorns. Roast that and make this epic brown butter to dump in the bag with the bird while it cooks.”) Sous vide cooking gives you more control over the texture of each piece of meat: breasts and legs can cook at different temperature for different amounts of time, which ensures that everything comes out beautifully tender. Best of all, cooking your turkey in a countertop water bath frees up oven space for all the other Thanksgiving accoutrements: potatoes, casseroles, and pies. You can start the sous vide turkey the night before and focus on all the side dishes on Thanksgiving day.

One drawback: Poultry cooked sous vide often comes out looking pale and kind of gross. That’s no way to start your Thanksgiving feast. So, to get that nice, golden brown look, you can crisp up the outside in a number of ways: broil it, fry it, torch it, sear it in a pan, sprinkle on a little rub and pop it in the oven. You can crisp up the outside in whichever method you like without sacrificing that moist, tender meat inside.

I can understand that this method requires sacrifices by way of presentation. For some families, the very essence of Thanksgiving is bringing the whole turkey to the table and carving it right there. So if quartering the bird and cooking the hind legs separately from the breasts seems like some sort of savagery, I get it. But! You can also sous vide a whole turkey, provided you have a humongous pot to create a big enough water bath. (Chef Bruno Goussault has great step-by-step instructions here.) You can’t achieve quite the same cooking precision with this method, and it requires some oven time to brown the outside, but it does allow you to preserve the whole turkey without serving something dry, boring, and bland.

Omega Healthcare Investors: 'You Won The Month'

Image via Twitter.Some of the money you lost holding OHI since July. Image via Twitter

“Hey, Professor!” Charles turns around to see a very short, very wide man stamping and scraping his feet on the cinders. His blunt, wide head is lowered beneath his mountainous shoulders, and a massive nose ring loops between his snorting nostrils. “Who are you? asks Charles. “I’m a real angel,” says the man. “Then where are your wings?” “Don’t be stupid! That’s just a cliche.” Even before these words are out of his mouth, the man has begun running toward Charles, ramming his blunt forehead into Charles’s solar plexus and knocking him onto his bewinged back. It is a moment before Charles can catch his breath. He sits up and asks, “What did you do that for?” “To teach you a lesson.” “What kind of lesson is that?” “What other kind of lesson is there?”

– Stephen O’Connor, “Here Comes Another Lesson”

Man must suffer to be wise.

– Aeschylus, “Agamemnon”

“You Won The Month”

That was one of the dismissive comments we received on our recent article pointing out that our top names from early October had outperformed Omega Healthcare Investors (OHI) by 20% since we wrote that OHI was still not healthy enough for us last month. Here we respond to that and a few other points brought up by readers.

This Isn’t Hindsight; It’s Foresight

The top-rated comment on our OHI article on Thursday suggested we had conducted an exercise in hindsight (“It’s too bad none of us have the luxury of retrospective investing”):

Image via SA.

This wasn’t hindsight though: we wrote about our system rejecting OHI before its drop, and we had shared our top names with our Bulletproof Investing subscribers the day before.

We Didn’t Just Win The Month

Here’s a simple way to demonstrate that our top names beating OHI since early October wasn’t a fluke. We also wrote an article in early July saying OHI was not healthy enough for one of our portfolios. That article was published on Monday, July 10th, using data as of Friday, July 7th. We shared our top names as of July 7th in this Marketplace post at the time. They were: Align Technology (ALGN), Activision Blizzard (ATVI), ServiceNow (NOW), Brinks Company (BCO), IPG Photonics (IPGP), HDFC Bank (HDB), CSX (CSX), ILG (ILG), Regeneron (REGN), and Bob Evans (BOBE).

Here’s how they have done since July 7th:

Chart via YChartsHere’s how OHI has done since July 7th:

Chart via YChartsCongratulations, OHI longs: you outperformed the worst of our top names from July 7th, Regeneron, which is down 20.5% since. But, on average, our top 10 names from July 7th are up 16.4%, while OHI is down 13.1%. So our top names have outperformed OHI by 29.5% since July 7th.

We Don’t Own Our Top Names Or Hedged Portfolios

That’s correct. We don’t own them because we have been reinvesting all of our free cash in the Portfolio Armor system that generates them. Our software development, financial data, and other costs are considerable. At some point, we expect our revenues to outstrip our costs, and at that point, we’ll be thrilled to invest in our hedged portfolios. We certainly won’t be buying falling knife REITs.

“Do It Again”

A few commenters asked us to repeat the trick a third time, to give you our analysis of OHI as of now and our top names that we expect will, on average, outperform it over the next several months. Our current analysis of OHI is the same as it was in early October: it fails our first screen and so would not be included in any portfolios generated by our system. Below is a screen capture from our site’s admin panel illustrating this.

Image via Portfolio ArmorThe “Long Term Return” there represents OHI’s total return (including dividends) over the average 6-month period over the last ten years. The “Short Term Return” is OHI’s total return over the most recent 6-month period. Our first screen is that the mean of these two figures, labeled “6m Exp Return” above, must be positive. As you can see above, it’s not. Because OHI fails our first screen it’s excluded from consideration in any of our portfolios now.

Essentially, our system assumes that security returns will begin a process of mean reversion over the next several months. If the mean of the short and long term returns is positive, it then applies a second screen as a “sanity check” on whether mean reversion is too optimistic a scenario in the case of a particular security.

If you’re curious what our second screen is, it’s a gauge of option sentiment. Since OHI fails our first screen now, we don’t apply it here, but we did apply it to OHI in our July article, since OHI passed our first screen then. OHI passed our second screen as well in July, but it failed our third test for inclusion in one of our portfolios, as its hedging cost exceeded its our potential return estimate for it. Hence we described it as “not healthy enough” for us in July.

As for our top names as of now, we posted them here for our Marketplace subscribers Thursday night.

Our Top Stocks Don’t Have High Dividend Yields

This may have been the second-most liked comment, despite us conceding the point in our article:

Here again, we’d ask readers to think in terms of total returns, which include income as well as capital gains, instead of income alone. You can create your own income stream by selling shares if you have capital gains. Thinking about income alone is dangerous for two reasons. The first is that you may end up with negative total returns if your stocks drop significantly. The second reason is that extended share price declines are often due to issues that may lead to dividend cuts in the future. A recent example of that, one mentioned in the comments of our previous OHI article, is General Electric (GE), which just halved its dividend.

We Make Mistakes Too

Another commenter asked us to turn our criticism inward:

We’ve made plenty of investing mistakes. Here are a few that come to mind:

  • Buying 3Com instead of Cisco (CSCO) in the late 1990s because 3Com looked cheaper according to common valuation metrics.
  • Selling Priceline (PCLN) in the teens after buying it in the 80s after its IPO. Our 200 shares would be worth nearly $350,000 today. And we may have had more than 200 shares.
  • Buying dogs like New Frontier Media (NOOF) because they appeared on Joel Greenblatt’s backward-looking “Magic Formula” screener.
  • Buying other “Magic Formula” dogs, e.g., Heely’s (HLYS).

It was those mistakes that led us to develop a better approach to portfolio construction, one that seemed counterintuitive to us at first as well.

Our security selection method still makes mistakes, such as picking Regeneron in July. But since every position in one of our portfolios is hedged, an investor’s downside risk is strictly limited. You can see an example of this here, where we describe how one of our hedged portfolios generated a positive return despite holding another stock that turned out to be a bad pick, Sinclair Broadcasting (SBGI).

Everyone Makes Mistakes

Everyone makes mistakes. How we grow is by acknowledging them and learning from them. If you are open to a different approach to investing, one that enables you to strictly limit your risk while maximizing your potential return, we invite you to read our recent article on how much risk you need to take to have a chance at market-beating returns.

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Exclusive: Qualcomm set to win conditional Japanese antitrust okay for NXP deal – source

BRUSSELS (Reuters) – U.S. smartphone chipmaker Qualcomm is set to win “imminent” Japanese antitrust clearance for its $38-billion bid for NXP Semiconductors and gain Europe’s approval by the end of the year with slight tweaks to its concessions, a person familiar with the matter said.

FILE PHOTO: A sign on the Qualcomm campus is seen, as chip maker Broadcom Ltd announced an unsolicited bid to buy peer Qualcomm Inc for $103 billion, in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake/File Photo

Winning the green light from both competition authorities would take Qualcomm a major step forward to closing the deal and reinforce its fight against an unsolicited $103-billion takeover bid from Broadcom.

The Japan Fair Trade Commission (JFTC) “is expected to clear Qualcomm’s acquisition of NXP imminently,” the source said.

“The European Commission is expected to follow soon.”

The JFTC did not respond to emailed requests for comments sent during out of office hours. The EU competition enforcer, which has set a March 15 deadline to rule on the deal, declined to comment while Qualcomm was not available for comment.

Qualcomm, which supplies chips to Android smartphone makers and Apple, wants to become the leading supplier to the fast-growing automotive chips market via the NXP purchase, the biggest-ever in the semiconductor industry.

To address competition concerns, the company has agreed not to purchase NXP’s standard essential patents and not to take legal action against third parties related to NXP’s near field communication (NFC) patents except for defensive purposes.

It also offered an interoperability pledge which will allow rival products to function with NXP’s products.

NXP co-invented NFC chips which enable mobile phones to be used to pay for goods and store and exchange data.

Qualcomm will make incremental changes to concessions offered to the EU authority last month, the person said.

A similar proposal was also proposed to the JFTC.

Broadcom made its move last week in an effort to become the dominant supplier of chips used in the 1.5 billion or so smartphones expected to be sold around the world this year. Qualcomm has dismissed the offer, saying it undervalues the company.

Broadcom, Qualcomm and NXP together would have control over modems, Wi-Fi, GPS and near-field communications chips, a strong position that could concern customers such as Apple and Samsung Electronics Co Ltd because of the bargaining power such a combined company could have to raise prices.

However, a combined company would also likely have a lower cost base and the flexibility to cut prices.

Editing by Toby Chopra

Our Standards:The Thomson Reuters Trust Principles.

raceAhead: Apple’s Diversity Chief Leaves, Homeland Security Official Resigns After Racist Comments, We’re All Nigerian Now

Your week in review, in haiku

1.

Dear public servants:

No touching. Stop race-baiting.

Be welcome at malls.

2.

The sexiest man?

At Cracker Barrel, maybe.

“If that,” sniffs Twitter.

3.

Got any Russian

backdoor overtures lying

around? Just asking.

4.

One leaky Keystone.

Two hundred thousand problems.

No Native respect.

5.

Kicking the tires:

Wherefore art thou Koch brothers?

Reclaiming our Time.

Reclaim your weekend, everyone.

On Point

Apple’s diversity chief is leaving her post after six months
Denise Young Smith, the company’s most recent vice president of diversity and inclusion, is leaving her post and the company. The 20-year Apple veteran will be replaced by Christie Smith, a longtime Deloitte human resources executive. While Denise Young Smith reported directly to CEO Tim Cook, Christie Smith will report to Deirdre O’Brien, Apple’s human resources officer.
Fortune
Department of Homeland Security official resigns after racist comments come to light
Jamie Johnson, director of the Center for Faith-Based & Neighborhood Partnerships at the Department of Homeland Security (DHS), resigned last night after a CNN report revealed public comments he made disparaging African Americans and Muslims during numerous talk radio appearances. On one occasion, Johnson blamed black people for turning “major cities into slums because of laziness, drug use and sexual promiscuity.” During another appearance he said, “all that Islam has ever given us is oil and dead bodies over the last millennia and a half.” Johnson, who is a pastor, apologized on his way out. “I regret the manner in which those thoughts were expressed in the past, but can say unequivocally that they do not represent my views personally or professionally,” he said.
The Hill
Some DACA applications were lost in the mail and rejected, despite meeting a crucial deadline
Though the administration now says it will reconsider some applications that it processed incorrectly, it’s not clear how they’ll be able to keep that promise. At least 4,000 out of more than 130,000 renewal applications were rejected for barely missing the deadline, but advocates think the true number could be much higher. The Trump administration plans to end the Deferred Action for Childhood Arrivals, which protects nearly 700,000 young immigrants from deportation, in 2018.
NPR
The Nigerian women’s bobsled team is going to compete in the Olympics
The three women, Seun Adigun, Ngozi Onwumere and Akuoma Omeoga finished their fifth and qualifying race yesterday, and are officially heading for the Winter Olympics in Pyeongchang next February. They are the first African bobsled team in Olympic history, and their remarkable quest has already delighted an exhausted and cynical world. We are all Nigerian now, o.
Deadspin

The Woke Leader

For your weekend viewing pleasure: Mudbound
Mudbound, an extraordinary film by Dee Rees with co-writer, Virgil Williams, debuts today on Netflix. The film was adapted from Hillary Jordan’s 2008 first novel, “Mudbound” and is the story of two families during World War II, one black and one white, whose lives are intertwined on the same dusty, brown patch of farmland. It also features a resplendently bare Mary J. Blige, in a performance that is sure to generate buzz. Even the reviews are epic: “The radicalism of “Mudbound” thus lies in its inherently democratic sensibility, its humble, unapologetic insistence on granting its black and white characters the same moral and dramatic weight,” says film critic Justin Chang. “In a film industry that has only begun to correct its default position of presenting black suffering almost exclusively through a white gaze, this is no small achievement.”
LA Times
What sexual harassment looks like
The Washington Post has collected stories from women who were harassed at work and then reported the incident. The employers are not named, and the women are identified by first name and age only. But what becomes quickly apparent is how diverse and widespread the behavior is, and how economically vulnerable female employees often are. If you were a person who laughed off or misunderstood the meaning of “hostile workplace” in the past, consider this a painful primer. Oh, and the kicker? When women report, things often get far worse.
Washington Post
On the meaning of macaroni and cheese
If you think of mac and cheese as an easy, weeknight side dish that starts in a blue box, then you’re probably white. But if you think of macaroni and cheese as a made-from-scratch culinary event, then you’re probably black. And that’s part of the fascinating difference between a black and white Thanksgiving celebration.  “In black culture, for the most part, macaroni & cheese is the pinnacle, the highest culinary accolade. Who makes it, how it’s made and who’s allowed to bring it to a gathering involves negotiation, tradition and tacit understanding.” A delightful look at how a “simple” dish defines a culture.
Charlotte Observer

Watch SpaceX's Top Secret Zuma Mission Launch Today

Usually, when a SpaceX thing unexpectedly goes boom, it grounds the company for months and raises questions about safety and reliability. On Sunday, November 5, SpaceX was preparing for an experimental engine test at its facility in McGregor, Texas when a propellant leak ignited, damaging the test stand.

But despite the explosion, Elon Musk’s spaceflight company will push on with its planned launches uninterrupted. The first mission following the failure will fire off on Thursday night from Kennedy Space Center during a two-hour window opening at 8pm Eastern time—and it’s a notable one. The payload, codenamed Zuma, is yet another covert mission for the US government. And this one is even more hush-hush than before, squeezed into the end of SpaceX’s 2017 launch slate with just a month’s public notice.

Veteran aerospace manufacturer Northrop Grumman built the payload, according to a document obtained by WIRED and later confirmed by the company. The company says it built Zuma for the US government, and it’s also providing an adapter to mate Zuma with SpaceX’s Falcon 9 rocket. But that’s where information starts tapering off. A typical SpaceX mission on the manifest would tell you exactly what the payload is and where it’s being delivered. Northrop Grumman simply says Zuma is bound for low-Earth orbit—or a destination between 100 and 1,200 miles above Earth’s surface.

[embedded content]

At NASA’s Kennedy Space Center, mission payloads have three levels of security restrictions for pre-launch processing. Zuma is categorized at the highest level, sharing the designation with two other SpaceX payloads this year: the secretive X-37B spaceplane, launched for the Air Force, and a clandestine surveillance satellite for the National Reconnaissance Office. Northrop Grumman acknowledges that its payload—the documents obtained by WIRED mention that it is a satellite—was built for the government, but it did not specify which branch.

Weirdly, Northrop Grumman will be a direct competitor to SpaceX come July, when the company will complete the acquisition of spaceflight company Orbital ATK, which also delivers cargo to the International Space Station for NASA. Regardless, Northrop praises SpaceX’s prices and reliability; Zuma’s launch date was crucial to the success of the payload, and while the public acknowledgement only came in October, Northrop established a rigid November launch slot with SpaceX earlier this year. “This event represents a cost-effective approach to space access for government missions,” says Lon Rains, communications director for Northrop Grumman. “As a company, Northrop Grumman realizes that this is a monumental responsibility and has taken great care to ensure the most affordable and lowest risk scenario for Zuma.” Such praise from an old-school space systems company (and especially a future competitor) is pretty rare, especially for SpaceX.

Increasingly, SpaceX’s future is tied up in the success of federal contracts, regardless of their provenance. Having the ability to launch space missions is so important to the Air Force that it pays companies like SpaceX to develop new launch systems—anything to keep them from relying on the Russian-built RD-180 engine, the main power behind orbital military missions over the last few years.

Right now, the Air Force is sharing costs with SpaceX as it develops its Raptor engine, which was test-fired last year days before Elon Musk gave a talk at the International Astronautical Congress in Mexico where he presented how the Raptor would enable deep space missions to Mars. The original agreement allocated nearly $33.6 million to SpaceX under the conditions that they will provide double that amount for the Raptor development. Following an update on SpaceX’s plans for interplanetary travel at this year’s IAC in Australia, the Air Force awarded the company an additional $40.7 million.

SpaceX’s model of accepting development cash and completing contracts that lead to bigger ones has been a lucrative business model. Before it was a serious launch provider, the company was awarded almost $400 million to develop the Falcon 9 rocket and Dragon cargo capsule. After SpaceX spent nearly $450 million of its own cash to complete the vehicles and reach developmental milestones, they were awarded a $1.6 billion contract by NASA to deliver cargo to the ISS.

With so much riding on the success of those partnerships, last week’s explosion—the first after 16 non-problematic launches—was a justified scare. The engine failure originally reported by the Washington Post was actually a failure of the test stand, and sources familiar with the incident tell WIRED the explosion occurred before SpaceX actually fired the engine. A report published in NASASpaceflight points to a leak of liquid oxygen which was then ignited by a still-unknown source.

Housed on that test stand was an experimental Merlin engine, similar to the ones used to power the current fleet of Falcon 9 rockets. But this one in particular is a qualification unit for the upcoming Block 5 Falcon 9—a meaty upgrade that will increase the rocket’s thrust and cut down on refurbishment time between launches. SpaceX hopes to use the Block 5 Falcon 9 achieve its next big goal: flight to reflight of a single booster in 24 hours.

While that explosion doesn’t affect any federal contracts directly, it does call operations at the McGregor testing facility into question. When SpaceX wraps up its investigation, it may need to make upgrades to the test stands to avoid future problems—especially in the months leading up to human spaceflight returning to American soil. The Block 5 Falcon 9 rockets and accompanying Merlin engines will be used to lift humans safely to low-Earth orbit. Any incidents involving that hardware will raise serious questions.

Any further incidents, given SpaceX’s twin disasters in 2015 and 2016, will undoubtedly cause delays when the FAA and NASA require full investigations. Questions about SpaceX’s fueling procedures have been raised before, especially after the 2016 explosion that took out an entire rocket, an expensive customer satellite, and a launch pad. That, too, happened before a test fire and involved the ignition of leaked propellant.

This final version of the Falcon 9, the Block 5, will make its debut in late 2018 in time to fly astronauts to the ISS. SpaceX is still investigating the McGregor explosion to find its “root cause” and says it will stick to the upcoming launch schedule, including a resupply mission to the ISS, an Iridium satellite delivery, and—in the final days of 2017—the much-anticipated test flight of the Falcon Heavy, the linchpin in SpaceX’s crewed and interplanetary ambitions.

Elon Musk has casually floated the idea of a spectacular explosion during the Falcon Heavy test flight, and acknowledges the complexities of test-firing 27 of the Heavy’s Merlin engines. As the company gets closer to actually sending humans on the top of that rocket, you can bet that attitude will change.

Five Things You Should Know About Ross 128, A New (Potentially Habitable) Planet

If we screw up this Earth, we may have found a backup.

Scientists say they’ve discovered a new planet called Ross 128 b that could possibly sustain life. And it’s right around the corner — well, cosmically speaking.

Located just 11 light-years away, Ross 128 b is a temperate planet that orbits a ‘quiet star,’ which gets its name from the fact that it doesn’t spew out life-threatening bursts of radiation. But before you pack your bags and rush out the door, there are a few things you might want to know.

How’s the atmosphere on Ross 128?

Scientists in the journal Astronomy and Astrophysics say they’re not sure about Ross 128’s atmosphere at this time. It could be Earth-like, with water and even oxygen. Or it could be more like Venus, full of poisons.

How’s the weather on Ross 128?

Let’s say Ross 128 does have an Earth-like atmosphere, just for the sake of argument. Given its proximity to the red dwarf star it orbits, it will receive roughly 38% more radiation than Earth does. That’s what gives it its temperate climate, which ranges between -76 and 68 degrees Fahrenheit. So, the winters will be lousy, but summers could be amazing.

What’s an average year like on Ross 128?

Short. Real short. Because of its proximity to that red dwarf, the average year on the planet lasts just 9.9 days. So, we’re probably going to have to adjust the legal age of a few things. (The average 21 year old on Earth would be 774 on Ross 128.)

Does it fall within the Goldilocks region?

That’s one of the big questions. The Goldilocks region contains planets that are warm enough for liquid water to exist on the surface. Planets that fit those criteria are both pretty rare and pretty essential for us. While Ross 128 is considered a temperate planet, astronomers say they’re still not sure if it’s capable of being habitable — and they won’t be able to find out until at least 2024, when a new, more powerful telescope comes online that can better analyze the planet.

When do we leave?

Well, we don’t have to, really. Ross 128 is so excited to meet us that it’s coming our way. The orbit has the exoplanet and its parent star moving closer to us and in the blink of a cosmic eye (that’s 79,000 Earth years, technically), it will be our nearest stellar neighbor. That gives us time to speed up our rockets (and maybe invent Star Trek’s warp drive). Ross 128, again, is 11 light years away. For the sake of context, the moon — currently reachable by way of a three-day trip — is just 1.3 light seconds away.

Why Mobile Carriers Want to Cover Your Netflix, HBO, or Hulu Bill So Badly

Sprint confirmed rumors from earlier in the week and on Wednesday announced it would give its unlimited data plan customers a free subscription to the popular Internet video service Hulu.

That makes Sprint the third major mobile carrier bundling a free Internet video service. AT&T gives away HBO and T-Mobile customers get Netflix. And it’s only a matter of time until Verizon joins the party, as CEO Lowell McAdam was hinting a few weeks ago.

The carriers already got into a fierce price war over unlimited data plans last winter. Now the battle has moved to add-on freebies. An HBO Now subscription usually costs $15 a month, the Netflix standard HD plan costs $10 (soon going to $11), and Hulu’s limited ad plan is $8.

Why have the wireless carriers become so eager to pick up customer’s video bills? In some ways, as customers have shifted their viewing habits from TV sets to mobile phones, they’ve created an opening for an update of the classic cable TV bundle.

Bundling is a common strategy in markets where customers can easily switch among competitors. By combining multiple services on one bill, often with a discount, a customer may be more likely to stick with the provider than defect, lowering the provider’s annual churn rate.

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And that seems to be exactly what’s happening in wireless, where millions of customers a year typically switch carriers in search of a free phone or better deal on monthly rates. AT&T (t) CEO Randall Stephenson explained a few months ago why his company was giving away HBO and deeply discounting its DirecTV Now service for wireless customers. “The whole point of this is multi-product households churn dramatically lower than single-product households,” he said.

AT&T got the party started back in April, giving free HBO to customers on its higher-end unlimited plan, then expanding the offer to customers on its lower-priced unlimited plan in September, just after T-Mobile (tmus) unveiled its free Netflix deal. While an HBO Now subscription is the most valuable among the freebie offers, AT&T is also on the cusp of acquiring HBO’s parent company Time Warner (twx).

For consumers, “their video and wireless bills are likely two of the most important monthly subscriptions in their lives, so bundling them together and offering discounts makes for a compelling value proposition,” says Jan Dawson, chief analyst at Jackdaw Research. “The video providers are very willing partners because customer acquisition costs and churn can be high and both will be much lower through a partnership like this,” Dawson adds.

Hulu is the third-largest subscription Internet video service after Netflix (nflx) and Amazon’s (amzn) Prime Video, analysts say. It is owned by major TV producers Disney (dis), 21st Century Fox (fox), Comcast (cmcsa), and Time Warner.

Hidden downside

Of course, each wireless carrier is only offering one service free. That’s a great deal if the service is of interest. But it also complicates making a free choice among video and wireless services. A customer who prefers, say, Sprint (s) wireless service and Netflix programming is out of luck at getting that bundle.

Internet video services aren’t interchangeable. Each of the major Internet video services has tried to stand out with original (and exclusive) programming. Stranger Things fans have to pay for Netflix, The Handmaid’s Tale is only on Hulu and HBO has a bevy of well known shows, from Sex in the City to Westworld to Larry David’s Curb Your Enthusiasm.

And wireless service isn’t really a commodity, either. Verizon (vz) and AT&T have broader national network coverage, but surveys have shown that coverage in any particular metro area can vary greatly, as can average download speeds.

So the Internet video free offers can be a great deal—if they coincide with a customer’s viewing preferences and wireless needs.

Work And Play…With Your Phone

This content was produced by WMG Brand Lab in partnership with Samsung Knox

Professional life has a funny way of asking us to behave like different people. We use different vocabulary and body language when we disagree with a coworker versus a friend. The tone for the simplest questions –– “Can I get you anything?” –– changes, if ever-so-slightly, when put to a manager compared to a partner. We might even laugh differently with the same coworker, depending whether we’re at the office or getting coffee. Most of us hope for a job where those divisions are the narrowest, where we’re able to feel like ourselves in either environment. And only recently have phones helped to narrow that gap.

The balance between work and life is as old as, well, work. In 1968, happiness was described as the smallest gap between a job and everything else. But phones have caused an unexpected bridge between the two. We now want phones that feel personalized so we can live two lives through one device. Every week we see new lists for keeping the two worlds separate –– what are the best practices? Phones still ding and ring at inopportune times, causing people to shift from child-care to client-care mentalities in seconds. That changes the way we operate with our families and jobs.

But the device itself is the best place to start looking for help. A recent survey from Frost & Sullivan showed that almost forty percent of respondents felt pressure to stay connected to the office during their free time. A third of respondents said that their phone caused a major impact on their work-life balance.

This has generated a huge mentality shift in which people are reaching for the power button to create division. In May, The New Yorker parodied the trend with story about a faux-unplugging retreat. “You’ll be assigned a locker for your phone and any other electronics upon your arrival,” Diana Vilibert’s satire read. “They’ll be returned to you immediately before your departure—your Candy Crush score a little higher than you remember.”

As mobile devices began spreading into the workplace in the early 2000s, employees had to balance their personal phone with the one from IT. Many of us remember (or still deal with) the added weight in our pockets and purses of two devices –– the stress of remembering either for dinner, assessing whether you only need one, or worrying you’re going to grab the wrong one. It was like having two wallets with different currencies and credit card accounts, and you couldn’t mix expenses.

So what features help keep the separation just right?

There has always been one obvious fusion point between the two lives: the calendar. Managing your life from separate calendars invariably causes catastrophic omissions, whether missing a client call or your turn to grab the kids. Now any worthwhile calendar app can integrate the two, automatically pull in details from email and even integrate with maps for the next appointment.

Then there’s the fusion between files accessed on the phone. IT departments typically put their core focus around security. What policies will ensure people have the easiest access to company data without jeopardizing business strategy or information? Operating systems now leverage containers that let employees split access to their work and personal life from the same device –– without either overlapping or giving an employer access to an employee’s life. And yet, people still need to text pictures of the kids or arrange a weekend away. But attach the wrong file and you could be sending proprietary data to a friend, giving the IT manager a heart attack.

Devices are also becoming modern day journals. Users easily capture notes, ideas or doodles –– it’s important not to lose those little moments of inspiration or insight, whether about the band’s next gig or a better engineering strategy. Phones have been moving into bigger screens, too. That means greater detail in watching hi-def movies but it also means not getting out the hammock when someone emails you a new slide deck. Pause the movie, mark some feedback, check your email at the same time from split screens –– from the back yard not a computer in the office upstairs.

Even though it’s “just a phone” we all recognize how these small features add to bigger improvements. The balance of partitions and overlap allow us better focus, in either life. It’s a fast-paced world. Healthy balances become imperative for navigating it.

Lyft to drive into Canada in first international foray

(Reuters) – Ride-hailing firm Lyft Inc said on Monday it would launch its service in Toronto, marking the first international expansion for the U.S.-based rival of Uber Technologies Inc [UBER.UL].

An illuminated sign appears in a Lyft ride-hailing car in Los Angeles, California, U.S. September 21, 2017. Picture taken September 21, 2017. REUTERS/Chris Helgren

“Before you know it, Lyft will be coming to you live in Toronto,” the company said in a blogpost, without giving a launch date. lft.to/2AFQ5at

Lyft is crossing into Canada at a time when rival Uber has opted out of operating in Quebec, Canada’s second-most populous province, to avoid following tough new regulations for drivers.

Lyft raised $1 billion in October, in a financing round led by CapitalG, the growth investment fund of Alphabet Inc and had in September hired an initial public offering advisory firm.

Reporting by Munsif Vengattil in Bengaluru; Editing by Arun Koyyur

Our Standards:The Thomson Reuters Trust Principles.

China's JD.com swings to third-quarter profit, lifting shares

BEIJING (Reuters) – China’s second biggest e-commerce company, JD.com, reported an unexpected profit in the third quarter, though it lost about 100 merchants to fierce competition in the run-up to this month’s Singles’ Day shopping extravaganza.

A sign of China’s e-commerce company JD.com is seen during the third annual World Internet Conference in Wuzhen town of Jiaxing, Zhejiang province, China November 16, 2016. REUTERS/Aly Song

JD (JD.O) posted net earnings of 1 billion yuan ($151 million), its highest ever quarterly profit, in the three months to Sept. 30, far above an analyst consensus forecast of a 213 million yuan loss.

The unexpected profit and a 39 percent rise in revenue boosted the company’s shares, which were 5 percent higher at 1554 GMT. The company reported a net loss of 807.9 million yuan in the third quarter last year.

More recently, JD said it had lost roughly 100 merchants to competition during the promotion period for “Singles’ Day”, China’s biggest online sales event which ended on Saturday.

Chief Financial Officer Sidney Huang said the brands that left the platform were all major Chinese clothing brands, and that the company expected apparel growth to remain stagnant for the next two quarters before recovering.

JD accused its main competitor, Alibaba, of engaging in “coercive” tactics, saying its rival obliged merchants to choose between online platforms.

“Based on the feedback we received from these merchants, the move was mainly due to the coercive tactics from our competitor,” Huang said on a call with analysts.

Alibaba said JD’s allegations were false, and that merchants were free to choose which platforms they use.

“Merchants make their own choices. Alibaba’s scale and technological advantages make it the preferred partner for the world’s top brands,” an Alibaba spokeswoman told Reuters.

JD.com booked $19 billion in total sales over the Singles’ Day festival, which will be reflected in fourth-quarter earnings. Alibaba recorded over $25 billion in revenue during the event’s peak on Saturday.

Once a celebration for China’s lonely hearts, Singles’ Day has become an annual 24-hour buying frenzy that exceeds the combined sales for Black Friday and Cyber Monday in the United States, and acts as a barometer for China’s consumers.

Competition between JD and Alibaba Group Holdings Ltd (BABA.N) has become increasingly heated as the companies invest heavily in overlapping markets.

While JD traditionally leads in online retail sales, backed by extensive infrastructure, Alibaba has sought to win over merchants to its own growing retail platform, underpinned by new investments in logistics this year.

JD’s revenue for the third quarter was 83.8 billion yuan, just above analysts’ mean estimate of 83.6 billion, according to Thomson Reuters I/B/E/S.

Despite strong bottom-line results, gross merchandise volume (GMV) growth still dropped to its lowest rate in a year, reflecting a seasonal lull in sales before Singles’ Day.

Chinese e-commerce giants increasingly experience competitive peaks around bonanza sales events in June and November, interspersed with sluggish interim periods.

“[Sales of appliances and mobile phones] both were dragged by weaker growth in September … mainly due to competition and slow seasonality,” said TH Data Capital analyst Tian Hou in a research note ahead of the earnings.

JD expects revenue for the quarter ending in December to be 107-110 billion yuan, a rise of 35-39 percent, roughly in line with analyst expectations. However, marketing costs related to the November sales, which ran for over a month, are expected to cut into its bottom line.

This year, JD is investing in logistics infrastructure in Southeast Asia, expanding from existing commitments in Indonesia. At home, JD is hoping to tap big spenders with new “white glove” platforms which feature imported food, fashion and electronics.

Last week during a visit to China by U.S. President Donald Trump, JD said it would buy $2 billion in U.S. goods, including $1.2 billion in beef, over the next three years.

($1 = 6.6395 Chinese yuan renminbi)

Reporting by Cate Cadell in Beijing and Munsif Vengattil in Bengaluru; Editing by Bernard Orr, Mark Potter and Adrian Croft

Our Standards:The Thomson Reuters Trust Principles.

What Protects Elephants from Cancer?

Elephants and other large animals have a lower incidence of cancer than would be expected statistically, suggesting that they have evolved ways to protect themselves against the disease. A new study reveals how elephants do it: An old gene that was no longer functional was recycled from the vast “genome junkyard” to increase the sensitivity of elephant cells to DNA damage, enabling them to cull potentially cancerous cells early.

Quanta Magazine


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Original story reprinted with permission from Quanta Magazine, an editorially independent publication of the Simons Foundation whose mission is to enhance public understanding of science by covering research developments and trends in mathematics and the physical and life sciences.

In multicellular animals, cells go through many cycles of growth and division. At each division, cells copy their entire genome, and inevitably a few mistakes creep in. Some of those mutations can lead to cancer. One might think that animals with larger bodies and longer lives would therefore have a greater risk of developing cancer. But that’s not what researchers see when they compare species across a wide range of body sizes: The incidence of cancer does not appear to correlate with the number of cells in an organism or its lifespan. In fact, researchers find that larger, longer-lived mammals have fewer cases of cancer. In the 1970s, the cancer epidemiologist Richard Peto, now a professor of medical statistics and epidemiology at the University of Oxford, articulated this surprising phenomenon, which has come to be known as Peto’s paradox.

The fact that larger animals like elephants do not have high rates of cancer suggests that they have evolved special cancer suppression mechanisms. In 2015, Joshua Schiffman at the University of Utah School of Medicine and Carlo Maley at Arizona State University headed a team of researchers who showed that the elephant genome has about 20 extra duplicates of p53, a canonical tumor suppressor gene. They went on to suggest that these extra copies of p53 could account, at least in part, for the elephants’ enhanced cancer suppression capabilities. Currently, Lisa M. Abegglen, a cell biologist at the Utah School of Medicine who contributed to the study, is leading a project to find out whether the copies of p53 have different functions.

Vincent Lynch, a geneticist at the University of Chicago, has shown that part of what enabled elephants to grow so big was that one of their pseudogenes—a broken duplicate of an ancestral gene—suddenly acquired a new function.

Courtesy of Vincent J. Lynch

Yet extra copies of p53 are not the elephants’ only source of protection. New work led by Vincent Lynch, a geneticist at the University of Chicago, shows that elephants and their smaller-bodied relatives (such as hyraxes, armadillos and aardvarks) also have duplicate copies of the LIF gene, which encodes for leukemia inhibitory factor. This signaling protein is normally involved in fertility and reproduction and also stimulates the growth of embryonic stem cells. Lynch presented his work at the Pan-American Society for Evolutionary Developmental Biology meeting in Calgary in August 2017, and it is currently posted on biorxiv.org.

Lynch found that the 11 duplicates of LIF differ from one another but are all incomplete: At a minimum they all lack the initial block of protein-encoding information as well as a promoter sequence to regulate the activity of the gene. These deficiencies suggested to Lynch that none of the duplicates should be able to perform the normal functions of a LIF gene, or even be expressed by cells.

The eminent biologist Richard Peto, now at the University of Oxford, pointed out in the 1970s that elephants and other large-bodied animals ought to be at great statistical risk for cancer.

Cathy Harwood

But when Lynch looked in cells, he found RNA transcripts from at least one of the duplicates, LIF6, which indicated that it must have a promoter sequence somewhere to turn it on. Indeed, a few thousand bases upstream of LIF6 in the genome, Lynch and his collaborators discovered a sequence of DNA that looked like a binding site for p53 protein. It suggested to them that p53 (but not any of the p53 duplicates) might be regulating the expression of LIF6. Subsequent experiments on elephant cells confirmed this hunch.

To discover what LIF6 was doing, the researchers blocked the gene’s activity and subjected the cells to DNA-damaging conditions. The result was that the cells became less likely to destroy themselves through a process called apoptosis (programmed cell death), which organisms often use as a kind of quality control system for eliminating defective tissue. LIF6 therefore seems to help eradicate potentially malignant cells. Further experiments indicated that LIF6 triggers cell death by creating leaks in the membranes around mitochondria, the vital energy-producing organelles of cells.

To find out more about the evolutionary history of LIF and its duplicates, Lynch found their counterparts in the genomes of closely related species: manatees, hyraxes and extinct mammoths and mastodons. His analysis suggested that the LIF gene was duplicated 17 times and lost 14 times during the evolution of the elephant’s lineage. Hyraxes and manatees have LIF duplicates, but the p53 duplicates appear only in living and extinct elephants, which suggests that the LIF duplications happened earlier in evolution.

Elephants are closely related to large animals such as manatees (left), but also to smaller ones like hyraxes (right), aardvarks and armadillos. Elephants only began to develop their immense size about 30 million years ago.

Jim P. Reid, USFWS / Bjørn Christian Tørrissen

Lynch found that most duplicates of the LIF gene are pseudogenes—old, mutated, useless copies of genes that survive in the genome by chance. The exception, however, is the LIF6 gene sequence, which unlike the others has not accumulated random mutations, implying that natural selection is preserving it.

“We think that LIF6 is a refunctionalized pseudogene,” Lynch said. That is, the elephant LIF6 re-evolved into a functional gene from a pseudogene ancestor. Because it came back from the dead and plays a role in cell death, Lynch called it a “zombie gene.”

Although manatees and hyraxes also have extra copies of LIF, only modern and extinct elephants have LIF6, which suggests that it evolved only after the elephants branched away from those related species. And when Lynch’s group dated the origin of LIF6 by molecular clock methods, they found that the pseudogene regained a function about 30 million years ago, when the fossil record indicates that elephants were evolving large body sizes.

Lucy Reading-Ikkanda/Quanta Magazine

“Refunctionalizing a pseudogene is not something that happens every day,” explained Stephen Stearns, an evolutionary biologist at Yale University, in an email to Quanta. Being able to show that it happened at roughly the same time that elephants evolved a large body, he wrote, “supports, but does not prove, that the refunctionalizing of the gene was a precondition for the evolution of large body size.”

Evolving protections against cancer would seem to be in the interest of all animals, so why don’t they all have a refunctionalized LIF6 gene? According to the researchers, it’s because this protection comes with risks. LIF6 suppresses cancer, but extra copies of LIF6 would kill the cell if they accidentally turned on. “There’s a bunch of toxic pseudogenes sitting there” in the genome, Lynch explained in an email. “If they get inappropriately expressed, it’s basically game over.”

There also appears to be a trade-off between cancer suppression mechanisms and fertility. A study published in 2009 suggested that LIF is critical for implantation of the embryo in the uterus. Because LIF activity is controlled by p53, LIF and p53 jointly regulate the efficiency of reproduction. When the same set of genes has two functions (such as reproduction and cancer suppression), it is possible that those functions will be in direct conflict—a phenomenon that geneticists call antagonistic pleiotropy.

The elephants may have solved the problem of antagonistic pleiotropy by duplicating p53 and LIF and splitting up those functions, according to Maley. “Some copies of p53 and LIF are doing what’s necessary for fertility, while other pairs of LIF and p53 are doing what’s necessary for cancer suppression,” he said. Maley speculated that the gene duplicates “allowed the elephants to get better at cancer suppression and still maintain their fertility, which would allow them to grow a larger body.” That hypothesis, however, still needs to be tested, he said.

Bats are not large animals, but some species live for decades. Scientists are investigating whether they have their own protective adaptations against cancer.

Ann Froschauer, USFWS

Evolving extra copies of p53 and LIF may have helped elephants overcome Peto’s paradox, but that can’t be the only solution: Other large animals like whales have only one copy of p53 and one version of LIF. Lynch and his team are currently exploring how whales and bats solve Peto’s paradox. Although not large-bodied, some bat species live up to 30 years, and the longer-lived ones might have evolved cancer suppression mechanisms that the shorter-lived ones lack.

Maley is also working on how whales solve Peto’s paradox. Even though whales don’t have extra copies of p53, he said, “we do think there has been a lot of selection and evolution on genes in the p53 pathway.” Maley believes that understanding how diverse large-bodied animals solve Peto’s paradox may have applications in human health. “That is the end goal,” he said. “The hope is that by seeing how evolution has found a way to prevent cancer, we could translate that into better cancer prevention in humans.”

“Every organism that evolved large body size probably has a different solution to Peto’s paradox,” Maley said. “There’s a bunch of discoveries that are just waiting for us out there in nature, where nature is showing us the way to prevent cancer.”

Original story reprinted with permission from Quanta Magazine, an editorially independent publication of the Simons Foundation whose mission is to enhance public understanding of science by covering research developments and trends in mathematics and the physical and life sciences.

Goldman Sachs BDC Continues To Deliver A Well-Covered 8.2% Dividend Yield

The information in this article discussing Goldman Sachs BDC (GSBD) was previously made available to subscribers of Sustainable Dividends, along with target prices and buying points, real-time changes to my personal BDC positions, updated rankings and risk profile, real-time announcement of changes to dividend coverage and worst-case scenarios and suggested BDC portfolio.

Does Lower Yield = Lower Risk?

Typically, lower yield implies lower risk, but this is not always the case, especially when it comes to business development companies (“BDCs”). Listed below are the BDCs with yields below 9% after taking into account semiannual and special dividends for Main Street Capital (MAIN), Gladstone Investment (GAIN) and TPG Specialty Lending (TSLX).

Oaktree Specialty Lending (OCSL) and Oaktree Strategic Income (OCSI) have recently been taken over by Oaktree Capital (OAK), and there is a good chance that OCSL will cut its dividend in 2018 due to the reduced hurdle rate with the new management agreement as discussed in “Oaktree Management Fees Driving Upcoming Dividend Cuts“.

Source: BDC Buzz

Previous articles on lower yield BDCs:

Quotes from management: All quotes from management in this article can be found at “GSBD Transcripts” on SA.

Dividend Coverage Update

GSBD reported results (for the quarter ended September 30, 2017) earlier this week between my base- and best-case projections covering its dividend by 105%.

Source: GSBD September 30, 2017, Investor Presentation

The overall portfolio yield decreased to 10.3% on portfolio cost (compared to 10.8% the previous quarter) primarily due to placing its investment in Bolttech Mannings on non-accrual status (discussed next).

Is Senior Credit Fund (“SCF”) currently has a 12.7% return on investment compared to 14.2% the previous quarter. The overall size of the SCF portfolio declined by about 6.1% but continues to be the company’s largest investment at 8.1% of total investments at fair value.

Source: GSBD September 30, 2017, Investor Presentation

Risk Profile Update

Non-accruals increased to 1.5% and 3.4% of the portfolio fair value and cost, respectively (previously 0.2% and 0.7%), due to Bolttech Mannings, Inc. being added to non-accrual status with a cost and fair value of $40 million and $17 million, respectively. This investment was discussed on the recent call:

“We did place our investment in Bolttech Mannings on non-accrual during the quarter. As you’ll recall, you’ll recall this is an investment we have discussed extensively on prior conference calls as we have previously [marked] lower in the face of the company’s underperformance. Bolttech provides maintenance and other services to a variety of industries including petrochemical, refinery and power producers. And the company’s underperformance has been driven by a softer market environment, particularly for its Canadian operations. At this juncture, based on the current facts and circumstances, we have decided to place this investment on non-accrual and work toward restructuring in the near future. We are currently actively engaged with the company and its sponsor on this initiative and are highly focused on preserving value for our investment. At the end of the quarter, we have Bolttech marked at [$17 million] and represents 1.5% of the portfolio at fair value.”

Previously, GSBD’s position in Bolttech had been amortized down giving it voting control and recently invested a small amount of additional support capital. Management discussed Bolttech on the previous call and did not expect “any change to the status in the near term” which might have been optimistic.

From previous quarter: “One other investment to note is our loan to Bolttech Mannings, which we marked down by 10 points this quarter, resulting in a $4.2 million of unrealized loss. During the quarter, with the benefit of new capital provided by us and the active sponsor, the company showed progress on new initiatives, resulting in modest revenue gains. However, EBITDA margins remained under pressure, and well below historical averages. Bolttech continues to remain current on its cash interest and principal obligations, we don’t anticipate any change to that status in the near term.”

Previously, Kawa Solar Holdings Limited was on non-accrual but mostly written off during the recent quarter.

Source: GSBD September 30, 2017, Investor Presentation

The portfolio remains heavily invested in first-lien debt including its SCF as shown below:

Source: GSBD September 30, 2017, Investor Presentation

As you can see below, NAV per share was stable due to over-earning the dividend offset by changes in unrealized/realized depreciation.

Source: GSBD September 30, 2017, Investor Presentation

Quality of Management & Fee Agreement

I consider GSBD to have a higher quality management for many reasons including independent Board of Directors, the previously discussed income incentive fees that take into account capital losses, including Bolttech Mannings, NTS Communications, Hunter Defense Technologies, Inc. and Washington Inventory Service during the previous quarters, its 10b5-1 purchase plan that automatically purchases shares under NAV of up to $25 million that uses GS capital to purchase up to 19.9% (see below). Additionally, there is a $35 million share repurchase program, at prices below NAV, once the 10b5-1 plan is exhausted. GSBD has conservative accounting policies including amortization of fee income rather than taken upfront (onetime lumpy results) as well as very little PIK (non-cash, less than 1%). The Board of Directors recently renewed the company’s stock repurchase plan to extend the expiration from March 18, 2017, to March 18, 2018, to repurchase up to $25 million of its common stock if the market price falls below its NAV per share.

Additional Upcoming Earnings Announcements

As mentioned in “Q3 2017 Earnings Season Preview For BDCs,” BDCs have begun reporting calendar Q3 2017. Please subscribe to Sustainable Dividends if you would like updates on the following as each company reports:

  • Target prices and buying points.
  • Real-time changes to my personal BDC positions.
  • Updated rankings and risk profile.
  • Real-time announcement of changes to dividend coverage and worst-case scenarios.
  • BDC portfolios.

“A” denotes after the market closes, “B” is for before the markets open, and “Est” is estimated reporting date.

Disclosure: I am/we are long GSBD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Did General Electric Just Bottom

General Electric (NYSE:GE) has been the dog of the Dow for 2017; any long-term investor or fund manager holding the stock has taken a good old-fashioned whipping out at the woodshed. In a year that has seen 74 record-high closes for the Dow, GE has been on a long, painful trip to purgatory. The share price is down 36% for the year.

GE recently reported 3Q results that were a disaster in the energy division with sales down double digits. The company reported earnings of $0.29 per share on revenue of $33.5 billion, a beat of $1.6B. The consensus earnings estimate was $0.49 per share on revenue of $31.9 billion. The Earnings Whisper number was $0.52 per share, reflecting a huge miss. Revenue grew 14.4% on a year-over-year basis.

The company said in its supplemental earnings report it now expects 2017 earnings of $1.05 to $1.10 per share. The company’s previous guidance was and the current consensus earnings estimate is $1.53 per share for the year ending December 31, 2017.

Kitchen Sink Earnings?

Many pundits have come on various finance shows stating that GE kitchen-sinked earnings to give the new CEO, John Flannery, some room to operate and implement his vision for the company.

I feel like the jury is still out on that. Next week all investors interested in GE will gain some insight into the company’s path going forward.

It makes no sense to me to dismantle the company, and I do not think that is the plan. Flannery has signaled to the market that he is looking to shed $20B of assets over the next 24 months. I believe that can be done without gutting the company, and I hope he can convince the markets as I am long the stock.

Double Whammy with Baker Hughes’ Weak Results

To exasperate GE’s issues, its new merger with Baker Hughes is not paying off at the present. Baker Hughes, a GE Co. (NYSE:BHGE) reported third-quarter September 2017 earnings of $0.05 per share on revenue of $5.4 billion.

The consensus earnings estimate was $0.12 per share on revenue of $5.5 billion. A big miss on the bottom line and a slight miss on revenue was not a good signal to the market. Interested parties can click here to view the Whisper numbers.

Negative sentiment is reaching a fevered pitch with one analyst after another calling for GE’s demise and a drop to the mid teens. Next week could signal a turning point with wild swings possible as investors digest the new information.

Behavioral Finance

Most all stocks that are in a multi-year capitulation share some of the same tendencies:

1. Multiple analysts and news stories predicting the doom of the stock with ultra low price targets.

2. Large percentage price swings even in large cap stocks.

3. Debt structure fears of BK.

4. Respected analysts cutting price targets after multi-year lows.

5. Hopes of a recovery years away.

These are a few conditions I look for when buying capitulation fear trade stocks.

Stuart Varney’s show on Fox Business which I watch every morning has been asking multiple people for weeks about GE and if it is a buy; time and time again the analysts are not interested and say no.

I find it fascinating how when a stock is plumbing new lows fundamentals suddenly mean everything. Anyone that trades knows fundamentals have very little to do with where a stock trades. If you don’t believe that, just look at a company like Autodesk (NASDAQ:ADSK) that has rallied nearly 200% after multiple quarters of substantial losses over the last 18 months.

Nothing needs to make sense in the markets; it is about surviving the trade.

Buying the Dow’s biggest loser at a multi-year low is not an easy thing to do. One of the things I consider is what the deep pockets are doing, the billionaires of the world. Is Warren Buffett taking a bite at this price? When no one is interested and sentiment is really ugly, I start buying.

Capitulation?

Look at this three-year chart:

How does one keep their confidence in a stock that is wiping out? Fear takes over and weak investors get margined out of a stock or throw in the towel. The bottoming process is painful, it can take months or years and it can take you out of the game right when you would rather be buying. I believe this is the situation investors are faced with this moment.

Finding the bottom is a process that one must endure if you’re going to play the contrarian. One must have patience and not be afraid to trade around a position. As I write this, GE is making a mini run back to the $20.40 level; is this a head fake to the upside or the beginning of a long-term rally with the bottom in?

The simple answer is I don’t KNOW. I would like it to be the bottom but who cares what I think. It has been my belief that the stock would bottom before the investor meeting next week, but time will tell this story.

Expect Volatility

Anything can happen next week. Flannery will lay out his plan and the markets will respond accordingly. I would not be surprised to see GE trade to $17.50 or rally to $24, or both. One thing is certain, everyone will have their opinion on where this one is heading.

I would encourage some type of hedging for those long either through some puts or covered calls.

JPMorgan (NYSE:JPM) analyst Stephen Tusa has been a bear lowering price targets on GE throughout the year. He recently put a $17 target on the stock in October which I believe is overdone.

Sometimes these big houses like JPMorgan and others will try to help create capitulation freaking out investors so they can buy up all the stock possible at a bargain.

These types of calls are worst case nightmare scenarios that would actually be the major buy zone. In short, if investors wake up and see a 15% down day in GE, they will know that it is time to back up the truck.

Positive Developments Being Ignored

The market is ignoring all the benefits that global growth, US tax cuts and rebuilding of the infrastructure will do to help GE’s bottom line. This is an enormous company that is making a profit; this is not some pie-in-the-sky business. There are exciting things happening in our country right now, and I see GE having a tremendous benefit in the coming quarters and years from policies going into effect now. In short it’s not all that bad.

Cost cutting will go a very long way to alleviating pressure on GE and the dividend. I personally don’t care if the company cuts it 50% or not; I believe it is already priced in, and the stock will close significantly higher next week. That is why I have $150k of my own money invested.

One more 10-yr monthly chart for more perspective

This monthly chart makes it a little easier to see why these lower price targets get set. It doesn’t take a rocket scientist to see the flash crash low of $19.37 which could have been one erroneous trade that happened at 6.30 AM on August 24th.

Here is the deal, the US economy is far stronger than it was in 2011, there is a business-friendly White House and the future is looking very bright. This chart looks very scary, and frankly in some circumstances, I look for these opportunities to buy.

Conclusion

GE is in a precarious position with its stock price at six-year lows and the ability to pay the dividend is in question. Next week’s conference call for investors will likely shed light on GE’s future for growth and increasing cash flow through cost cutting.

I believe that any large drop will be bought by activist investors and deep pockets looking to make a long-term investment in a storied American company. The stock may have bottomed but we will have to see what happens next week.

I am long the stock and looking for a rally next week on cost cutting and the new path forward. I truly believe the stock has better days ahead and John Flannery has the knowledge, experience and deal-making ability to right the ship.

When the stock hits $24, all the analysts who have been buying in silent will come out of the woodwork and share their timely trades. I encourage investors to do their own research and always have an exit strategy in place before making any trade.

Disclosure: I am/we are long GE, GSK, LYG, CHK.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Google Just Revealed What They Do to Select, Train, and Develop Their Successful Managers

In a recent podcast at Google’s Re:work, Sarah Calderon, a manager at Google who oversees Google’s Manager Development curriculum, revealed some nifty secrets about how they train and develop great managers.

She shares five lessons that will give your organization an edge in management training and development.

1. High-performing employees don’t necessarily make good managers. 

It’s a mistake to think that a high-performing individual contributor should be promoted to management; it’s often a different skillset to lead people that so many are unfit or unqualified to do.

Calderon says to find great managers, you should look at how someone works with others and how they get things done. Do they adjust their style to work with others? Do they clarify roles and responsibilities for team members? Can they provide feedback in a meaningful way?

But equally important is to determine whether they enjoy managing. Do they actually like the relational aspects of dealing with different people and personalities, and meeting the needs of employees? If an existing manager is miserable in his job wishing he had his old job back, it’s time to cut him loose from that role.

2. The best time to train new managers is a few months into the job. 

Companies often make the mistake of identifying high potentials to place into management roles, then put these people into a management training program before they get their “noses bloodied” by becoming actual managers in a real world setting.

Calderon says the best thing to do is to give them a few basic resources that they can find when they need them during the first few months on the job, and then wait until they’ve been managing for a couple months before you put them through a formalized management training.

And don’t wait too long — too much time may allow for too many mistakes to be made and bad habits to form — but wait long enough so they actually start to understand what the job is and get through some real life challenges, otherwise it becomes a theoretical exercise. At Google, it’s usually three months.

3. Don’t overwhelm new managers. 

The last thing Google wants to see is new managers experiencing burnout. The approach, says Calderon, is to think about what new managers need in those first six months on the job and give them just enough so that they can remember what they learned and go back and practice and build on it later. At Google, training focuses on four specific areas:

  • Providing feedback
  • Being a good coach.
  • Developing a growth mindset (a culture of learning for the individual manager and for their teams)
  • Developing emotional intelligence (and more specifically, self awareness and awareness of your team). One of the features of training related to EQ has to do with helping managers know their own triggers so that they can take on challenging situations with self-awareness. An example Calderon gave is how uncomfortable it can be to give someone feedback; in order to do that well, managers have to know how to manage themselves and their emotions first.

4. Training isn’t the only way to support your managers. 

Don’t make the mistake of assuming that your managers have to learn from experts. At Google, managers learn from each other, a lot. They are encouraged to conduct peer coaching, helping each other get feedback and find ways to improve on their day to day activities.

Calderon emphasizes the importance of creating a “culture of learning, practice, feedback and reflection” so managers continuously know what they’re doing well and what they need to do to get better. 

From an organizational standpoint, it’s important for senior leaders to encourage their managers to talk to each other to solve their own challenges; they need to invest in the systems and processes, such as tools for collecting feedback, that support their managers.

5. Give managers the feedback they need to get better. 

Once a year, “Googlers” fill out a survey on their manager’s performance to provide them feedback. Their performance is measured against what Google scientifically found to be the eight management behaviors that consistently produced happier teams, better results, higher retention and the best teams

But what works for Google managers doesn’t necessarily mean it will work for any organization. To determine what makes managers great in your establishment, consider these questions:

  • Do managers matter at your organization? 
  • If managers matter, whom do you need to convince and how? 
  • What makes a great manager at your organization? 

Conclusion

I found that there’s a redeeming quality to Google’s approach to training their managers. Calderon was asked: What happens if someone doesn’t pass the management training? Maybe they excel in some areas but struggle on emotional intelligence. How do you handle that?

Her response gave me a clear indication that empathy is not only a strong value at Google, but upon further investigation, it’s a manager behavior expected of all managers. Calderon said:

Its important to know that somebody is not going to walk out of training and be a great manager right away. Sometimes when you learn a new skill, it actually gets harder before it gets easier. The most important thing is to be open, supportive, and create a learning environment; be specific about how that manager can improve and give them resources to get better; and then measure that over time. If progress isn’t made, have a conversation about whether or not this is the right role, the right team, but again have some empathy for your managers as they go through some growing pains. 

Bitcoin Series #2 – Usage

This article is part of a series on bitcoin. This series started with:

And will be followed by articles on:

  • Bitcoin Series #3 – Security
  • Bitcoin Series #4 – The Bitcoin Arms Race
  • Bitcoin Series #5 – Altcoins And Forks
  • Bitcoin Series #6 – Other Considerations
  • Bitcoin Series #7 – The Endgame

The present article will delve into bitcoin usage. This is a very important theme, because:

  • Usage will be a measure of bitcoin’s adoption. Bitcoin can only fulfill its investors’ dreams if it becomes widely used and thus becomes a widely accepted “currency”.
  • Usage will also determine whether it can be a “store of value”. Bitcoin fans’ fallback position to the possibility that bitcoin won’t be widely accepted, is that it doesn’t matter anyway. That it will become a “store of value” instead.

Furthermore, bitcoin usage data doesn’t come up all that often. This article will both aggregate existing data and try to estimate its actual usage. This will be an extremely long article – I expect other articles in this series to be shorter, so bear with me.

Actual Usage

Bitcoin transactions will happen, broadly, for two reasons:

  • Speculative trading.
  • Actual usage in commerce.

When I talk about “usage” in this article, I mean actual usage – in commerce.

Bitcoin then presents another difficulty. We can separate actual usage in:

  • Licit usage in regular commerce. This is ultimately what concerns us, as for bitcoin to establish itself as a currency/means of exchange, it needs wide adoption in licit activities.
  • Usage for illicit activities. Bitcoin’s (and other cryptocurrencies’) anonymization and difficulty in tracking who spent what and who got what payment from whom, as well as the ability to easily cross borders, makes it alluring for usage in illicit activities ranging from crime to tax evasion. Were bitcoin to find its usage mostly in illicit activities, and over time it would be regulated and shut down into irrelevance.

On Illicit Usage

It’s very hard to come up with statistics regarding illicit bitcoin usage. However:

  • Blockchain Intelligence Group estimated that from more than 50% of usage, illicit usage fell to ~20% during 2016, and is now a lot lower than that.
  • Europol conservatively estimated that $1 billion was transacted through AlphaBay since its launch back in 2014, until it was shut down on July 20, 2017. AlphaBay was the “largest criminal marketplace on the Dark Web”.

What we can say here, is that initially bitcoin really found its mojo serving as a currency for illegal activity.

However, over time the usage mix has shifted towards more legitimate commerce. This has happened both because legitimate uses have expanded and because other cryptocurrencies like Monero or Ethereum have been adopted by criminals as “being safer” (for them).

Usage On Regular Commerce

The first thing I should note here is that bitcoin isn’t really accepted by commerce. That is, nearly no actual commercial endeavor actually accepts bitcoin. It just seems that way.

So how can you find so many businesses which accept bitcoin? The answer is “bitcoin payment processors”. These are companies which provide merchants with the ability to accept bitcoin. When a merchant decides to work with one of these companies and provides a bitcoin payment option, what happens is the bitcoin payment processor guarantees the merchant is instantly (when the transaction is validated) paid on regular currency (dollars, euros) into his bank account.

As a result, the merchant neither has to worry with all of bitcoin’s technical arcana, nor with its massive volatility. He doesn’t really accept bitcoin, he just sees “dollars and euros”. For the merchant, accepting bitcoin turns into the same thing as accepting PayPal.

So who are the largest of these payment processors? As of early 2016, and as estimated by Cubit’s blog based on several sources, the main were:

  • BitPay, with around 40-49% of the market.
  • Coinbase, with around 28-34% of the market.
  • And a plethora of others, including Coinify (which has acquired several bitcoin payment processors), representing the rest.

As we can see, BitPay is the largest bitcoin payment processor by far. And we’re pretty lucky, as it’s also a company that often puts out interesting statistics (which we are about to use).

Estimating Usage Through Transactions

If we assume BitPay has roughly kept its market share, then we can take a stab at estimating current usage as a percentage of total bitcoin trading activity (which is entirely dominated by speculative trading).

Blockchain Transactions

Looking at transactions committed to the blockchain, bitcoin has been bumping against the theoretical limit of ~288,000 transactions/day.

This limit results from the 1MB block limit which allows ~2,000 transactions per block. So, with 1 block per each ~10 minutes, 144 blocks per day, we get 2,000 x 144 = 288,000 a transactions/day limit. Since there’s some variability in both block size, timing and transactions per block, the limit varies but we can say the system is working at capacity.

Source: Blockchain.info

Indeed, a measure of the system being at capacity is the mempool size – which represents the size of the waiting transaction queue. Here we can see how the mempool size has behaved in terms of number of transactions waiting for confirmation:

Source: Blockchain.info

There is something interesting here. While the system is still at capacity, things were much worse back in May-July. Right now there are 25,000-50,000 transactions waiting, whereas during that period there were as many as 175,000. Transaction volume isn’t that different now versus then, so what might have changed?

Exchange Transactions

While it’s easy to establish how many transactions were committed to the bitcoin blockchain, it’s harder to establish exactly how many bitcoin transactions actually existed. The largest sources of such transactions are the bitcoin exchanges.

In terms of transactions, bitcoinity.org puts the trading volume at around 250-400 trades per minute over the most important bitcoin exchanges. This comes to 360,000-576,000 transactions per day.

Of note already, the estimated transaction volume on the bitcoin exchanges exceeds the number of transactions committed to the blockchain. And these transactions represent merely speculative/investment trading volume. How can that be?

The reason is simple. Exchanges internalize a lot of the volume, so that many bitcoin trades are settled internally and never committed to the blockchain. From time to time, exchanges will issue transactions to the blockchain settling net amounts due to wallets not under their control, etc. The internalization practice goes by the name of off-chain transactions, and improves both the speed and cost of those transactions subjected to it. However, as we’ll see in the next chapter dedicated to security, that’s not all off-chain transactions do.

Payment Processor Transactions

As of December 2016, BitPay crossed 200,000 transactions per month:

Source: TheAtlas.com, BitPay

It’s fair to say that it might now be processing as many as 250,000 transactions per month, though the company has reported transactions are slowing down versus payment volume, as more B2B activity (higher dollar amount per transaction) is taking place:

“We’ve seen a smaller than normal increase in the number of transactions from last year. We’ve also seen a large increase in [business-to-business] transactions, which are around $200,000 per transaction.”

Source: Coindesk.com

These 250,000 transactions/month represent actual commerce use. These come to about 8,333 per day.

Now, BitPay represents only 40-49% of the total market coverage when it comes to bitcoin payment processors. If we assume transactions are proportional to market share, then this would mean the actual usage for all payment processors would be around 17,000-20,800 transactions/day.

Actual Usage Estimate, Based On Transactions

Given the above we can say:

  • Based on blockchain-committed transactions, actual commerce usage would represent 5.9%-7.2% of all transactions. Not a shabby number at all, but there will be more on this later.
  • Based on exchange transactions, which exceed blockchain-committed transactions because of off-chain transactions, then actual commerce usage would represent 2.9-5.5% of all (exchange+payment processor) transactions.

However, here’s the thing:

  • Investment/Speculative trades are intrinsically higher value than commerce transactions.

As a result, we should also look at usage from a (dollar) volume perspective.

Estimating Usage Through Volume

Again, we follow the same process.

Blockchain Estimated Volume

Here things are made easy for us. Blockchain.info estimates the 7-day daily average dollar volume is running ~$1.4 billion/day. This is the same as a ~$42 billion/monthly volume.

Source: Blockchain.info

Exchange Estimated Volume

As for the exchanges, Coinmarketcap.com estimates 30-day dollar volume at ~$68.2 billion, which comes to roughly $2.27 billion/day.

Payment Processor Volume

Again, BitPay comes to our help. Very recently, BitPay disclosed that its annualized volume is now on pace for $1 billion/year. If we optimistically use a $1.2 billion run rate/year, then we get a payments volume of ~$100 million/month.

Again, applying BitPay’s market share, this translates to $204-$250 million/month volume for all payment processors. It also translates to an yearly volume run rate of $2.45-$3.0 billion for all bitcoin payment processors.

Actual Usage Estimate, Based On Volume

With the numbers above, we can estimate:

  • Based on blockchain estimated volume, actual commerce usage would represent 0.5%-0.6% of all bitcoin dollar volume transactions.
  • Based on exchange estimated volume, which again exceeds blockchain-committed volume because of off-chain transactions, actual commerce usage would represent 0.3%-0.4% of all exchange volume.

These are much lower figures than those derived from transaction numbers. This, though, is to be expected. The average ticket in commerce is certainly much lower than the average speculative transaction. Therein, as we’ll see, lies another problem.

How Does Bitcoin Compare?

To put things in context, we can compare the above-estimated bitcoin payment processing transactions and dollar volume (all of the bitcoin payment processors put together) with those of another well-known digital payments processor … alone. I’m talking about PayPal (PYPL).

So here’s what we know about PayPal:

  • In its latest quarter, it processed 1.9 billion payment transactions. If we just annualize this on a straight line, it would come to ~7.6 billion payment transactions/year (this likely greatly under-represents PayPal volume, since we’re not including Q4 seasonality).
  • Also in its latest quarter, it processed $114 billion in payments volume. Again annualizing this on a straight line would come to $456 billion (this would again under-represent actual PayPal volume due to Q4 seasonality).

As a result of these numbers we can say all bitcoin payment processing represents:

  • Less than 0.1% of the payment transactions handled by PayPal.
  • 0.5-0.7% of the payment volume handled by PayPal.

Of course, PayPal is just one of many payment processors, though arguably the most representative one of the new digital generation. Bitcoin payment processing pales in comparison.

It gets worse, though:

  • PayPal currently has ~$89 billion in market capitalization.
  • Bitcoin has ~$125 billion in market capitalization.

But here’s the thing, these two market capitalizations aren’t really comparable. Here’s why:

  • When you buy PYPL stock, you’re buying a share of its economic activity. This includes the internal tokens to represent accounts and account balances (which are represented digitally) and are arguably comparable to bitcoin (though they don’t change in price). But it also includes a share on all the economic activity and commissions deriving from that economic activity. Which, after costs, represents profit. PayPal profits amount to ~$2.25 billion per year.
  • Indeed, if you were to compare PYPL to the Bitcoin ecosystem, buying PYPL shares would amount to buying an economic interest in the entire Bitcoin ecosystem. That is, it would amount to owning not just bitcoin, but also a share of all bitcoin exchanges, payment processors and miners. And thus, a share on all their profits.
  • Now, here’s the problem. When you buy bitcoin, you buy nothing of that sort. You just buy an interest on the bitcoin token. A token which, on the PayPal side, is basically worthless – since all the value is in the economic activity. As a result of this, when you buy bitcoin you are not buying a share of any bitcoin economic activity.
  • As a corollary, a bitcoin success would theoretically not need bitcoin itself to be worth tens or hundreds of billions of dollars. Bitcoin could easily fulfill the currency function even with bitcoin just being worth a fraction of that. As we see, PayPal tokens are basically worthless yet the payments scheme works anyway. This is, of course, conceptually. There are structural barriers to this being so because of how bitcoin is structured (and because of who gets paid on the generated economic activity).

Now think about it:

  • When you buy bitcoin you don’t buy a share of any economic activity and any resulting profits.
  • When you buy bitcoin you’re buying a tiny otherwise-worthless slice of a payments system that’s 200-1000x smaller than PayPal.
  • And yet, when you buy bitcoin (for speculative purposes), you’re paying a market capitalization that’s 40% higher than PayPal’s!! And this for a token which gives no right to any underlying economic activity.

From here alone, we already know that bitcoin cannot but be mispriced. However, there’s a lot more to say, both on this article and the following ones.

A Problem – Not Growing Sustainably

When talking about transactions and volume above, I could also add that BitPay is seeing tremendous growth. Its transaction payments volume is up 328% year-on-year.

Had I said as much, and you’d quickly scream “growth”, and excuse any and all possible valuation arguments (up to and including you not sharing on any economic benefits from the possible success of the Bitcoin ecosystem).

However, there’s more to this growth which most people don’t know. We know, from past history, that this growth is tied to the massive increase in the bitcoin price.

How do we know this? Again, because of BitPay. Here are two charts depicting what happened during and after the previous bitcoin bubble (annotations are mine):

Source: TheAtlas.com, BitPay

Source: TheAtlas.com, BitPay

As you can see, the tremendous increase in usage was a function of the bitcoin bubble itself. Then as bitcoin prices crashed and stagnated, usage also decreased. This is unlike a truly sustainable payments system which, when presenting obvious advantages to its users, sees consistent increases in adoption (at least barring a large recession).

Moreover, the declines above understate the actual organic declines in usage. This is so because BitPay spent the period expanding its reach.

As a result of the above, we can expect bitcoin usage to again drop significantly just as soon as the bitcoin price crashes. This will make it rather obvious that bitcoin is not seeing widespread adoption for commerce.

Bitcoin, though, might still have a niche where it might see wider adoption. We’ll see that later.

Another Problem – Cost And Time

For bitcoin to see wide adoption it needs to have clear advantages over existing digital currencies. It needs to have these advantages for those planning on using bitcoin for licit commerce.

Of course, we know that for those trying to pull off illegal activities, bitcoin’s anonymization, difficulty in tracking payers/receivers, easy crossing of borders and the impossibility to roll back transactions are major attractions.

However, for non-paranoid regular users, these are hardly factors at all. Instead, to see wider adoption, bitcoin would need advantages on things like convenience, safety, speed or cost. But as it turns out, not only doesn’t bitcoin have advantages there but it instead often has disadvantages. Worse still, some of the disadvantages are structural. Let’s see.

Speed

As we’ve seen in my prior “Basics” article, bitcoin transactions are validated by being committed to the blockchain, as new blocks are mined (found).

The thing is, bitcoin is structured so that the average time to find a block approaches 10 minutes. As a result, in the best of cases any transaction can take up to 10 minutes to be validated, versus “instantaneous” for regular digital currencies.

It’s not a coincidence that the average time to confirm a transaction sits slightly above 10 minutes:

Source: Blockchain.info, for transactions with fees only. A transaction without fees could theoretically sit un-confirmed forever.

Of course, there are off-chain alternatives to make this speedier. Someone is going to take the risk of the confirmation ultimately not happening. But then again, “off-chain” is another way of saying “no longer bitcoin”.

Cost

When it comes to bitcoin, the cost of transacting is deeply tied with the time it takes for a transaction to be validated.

As we’ve seen in the prior “Basics” article, when each block is found by the miners, the miners include transactions into it. Obviously, the miners will include transactions paying the highest fees first. So as a user, if you want a quick confirmation, you have to pay up.

Even in the best of times, paying so as to be sure your transaction gets included quickly, can mean a “quickly” up to 10 minutes. As for the cost “to be sure it’s confirmed quickly”, it floats all the time. Currently it sits around $5 to make sure your transaction is validated within 10-30 minutes (the next block to the next 3). Average transaction costs, though, are all over the place and have been rising rapidly:

Source: Bitcoininfocharts.com

Now, those fees are just the most basic, underlying, marginal cost which needs to be paid to a miner for him to include (and thus confirm) the transaction in a blockchain block. These fees ignore all other possible costs including:

  • Overhead at the payments processor.
  • Margin required by the payments processor.
  • Further costs to convert to and from regular currency.

Why are those costs exploding? As we saw earlier, the Bitcoin network is operating at capacity when it comes to transactional capacity. Increased demand – for speculative or commerce reasons, both of which are inflated by bitcoin rallying – versus limited supply (to validate transactions) necessarily leads to scarcity pricing.

Already, you should see that the whole promise of widespread bitcoin adoption is dead on arrival. Micropayments, or even regular payments, cannot cope with an underlying $5 cost before all overheads and margins. For instance, the average ecommerce ticket should be between $80-$100 (Amazon.com had a $84 average during 2015). At those levels, $5 would be 5-6.25% of the whole ticket before all other payment overheads and margins. Those are already levels at which it basically cannot compete with any other payments system.

Even BitPay is already saying as much, by:

  • Claiming it doesn’t make sense to make transactions below $20.

Talking to Singh, though, it seems the company would love to be able to help both, but, with transaction fees currently rising, it’s just not practical to make transactions under $20, he said.

  • Adding a network fee to the 1% commission paid by the merchant.
  • Having users pay the transaction (miner) fee (which basically insulates BitPay from the horrendous cost but makes it uneconomic to use bitcoin for small payments).

There are ways to minimize these costs. They consist in:

  • Internalizing payments where possible (but then it’s no longer bitcoin).
  • Use lower fee amounts in hopes of getting confirmed, only later. Of course, this basically extends how long it will take to confirm the transaction and makes it uncertain. It could be hours. It could be days. It’s not a way to run a business. It’s also not a coincidence that the transactions waiting for confirmation are all bunched up trying to pay less (remember, the mempool represents transactions waiting to be confirmed):

Source: Blockchain.info

From time and cost, we also know that bitcoin lags in convenience. These are things that both need to be economic for any transaction size, and which the user does not want to be bothered with – the user just wants to pay and have it be instantaneous. So does the merchant.

A Niche

There is, however, one niche where bitcoin might still be viable over and beyond illegal activity. That’s the field of larger international payments.

Here, both the time constraint and the cost constraint are removed. Here’s why:

  • Since cost is fixed no matter what the size of the transaction, the user can pay more to have the transaction confirm quickly – and still have that cost be an incredibly small portion of a large transaction.
  • As a result, a large international transaction can be expected to confirm within 10 minutes (which is much more competitive than a wire transfer, though still slower than PayPal) and at a low cost.

Given this, competitive solutions for international transfers can indeed be built upon bitcoin. However, those can’t be remunerated as a % of value, as their competitors (wire transfers, mostly) aren’t priced that way either. Moreover, the ultimate cost will have to include currency to bitcoin and bitcoin to currency costs, which might again level the field versus traditional transfer methods.

Still, while we can say that bitcoin is structurally in trouble when trying to penetrate regular commerce, the same cannot be said for large international transfersespecially those between different currencies (where the bitcoin to currency conversions might compete well with currency to currency conversions, at least for small/medium customers not having access to currency market spreads).

The True Cost

There’s yet another problem, which is harder to portray. We already saw above that the marginal cost to validate a single transaction is now sitting at $5-$7. However, this actually isn’t the true cost. Let me explain:

  • The transaction fee (which was the cost we talked about) is just part of the miner compensation.
  • The value of the new bitcoins found (the block reward) is the other part.

The two taken together are the true cost (per transaction) needed to keep the network running. This is more evident because over time the block reward will trend to zero. Hence, over time the entire miner revenue will have to come from transaction fees … so to keep current revenues the transaction fees would have to trend to the sum of the block reward plus current transaction fees. This sum looks like this:

Source: Blockchain.info

As we can see, the true cost per transaction now hovers around $50. This is incredibly high and, again, would invalidate most commerce uses other than for buying big ticket items. This would also beg the question of why one would go to the trouble of buying bitcoins just to then buy the big ticket items (thus incurring currency to bitcoin conversion fees on the user side and bitcoin to currency conversion fees on the merchant side).

An Aside

Some might think that just increasing the blockchain capacity to handle transactions, by increasing the block size, will solve most problems. Alas, it won’t for a very obvious reason:

  • As we saw, the transaction fee is close to 1/10th of the actual cost to transact in bitcoin (which includes all miner revenue).

An increase in block size would likely collapse transaction fees. However, the total revenue wouldn’t collapse (the block reward is basically a function of time and the bitcoin price).

As a result, over time as the block reward got lower, again the same cost per transaction would have to come from somewhere. A panacea would be greatly increased transaction volumes (in terms of number of transactions, not value) … but how would that happen if clearly the allure to hold bitcoin comes from its increasing quote, and not from using it in commerce?

In commerce, bitcoin will always be slower or not be bitcoin at all (off-chain trade). That’s even if the cost converges with regular digital currencies and the intricacies of dealing with bitcoin are all solved transparently.

Conclusion

There are many conclusions we can draw here:

  • Bitcoin’s usage for commerce is a tiny fraction of the usage for speculation. This is especially evident when it comes to transaction value.
  • Bitcoin usage for commerce has been growing rapidly, but so did it during the previous bubble. Bitcoin usage depends on the bitcoin price, so clearly wealth effects are playing a role that’s more relevant than the underlying attractiveness of using bitcoin for commerce. Bitcoin usage for commerce will likely collapse as soon as the bitcoin price also collapses.
  • It’s easy to see why wealth effects are more alluring that any underlying attractiveness for commerce. Bitcoin takes more time to confirm and is too expensive (in terms of transaction fees) to use as a regular currency for online commerce other than for more expensive purchases.
  • This is even more evident when considering the true, total cost implied in transacting with bitcoin, instead of just the transaction fees.
  • Arguably, bitcoin can find a niche in international transfers by small/medium customers between two different currencies. Under those conditions, it looks to be cost and time competitive as the fixed fees are diluted. The requirement of it being between two different currencies comes from the added cost of currency/currency conversion on regular payment systems. Under bitcoin, these conversions are replaced by currency/bitcoin and bitcoin/currency conversions which are likely to be cheaper for small/medium customers.
  • Bitcoin/currency and currency/bitcoin conversions can be cheaper for small/medium users because they’ll be more easily exposed to (bitcoin) market spreads than foreign exchange spreads. For a larger corporation, which will have closer-to-market foreign exchange spreads, bitcoin is likely not competitive even on the “international transfer between two currencies” scenario. This is so because bitcoin spreads are larger than say, EUR/USD, USD/GBP, etc., forex pair spreads. This can be turned on its head when working with exotic pairs, though, like USD/CNY.
  • For regular commerce usage, bitcoin is at a cost and time disadvantage versus typical digital payment systems like PayPal. Both are structural. The time disadvantage comes from the block generation time (~10 minutes). The cost disadvantage comes from the total revenues enjoyed by miners. Even if the transaction fee problem is solved by a bitcoin fork or upgrade, the actual cost to transact will always come to the fore with time (as less bitcoins are awarded per block).
  • We’ve seen the problems bitcoin has in becoming widely accepted as a currency for commerce. It faces an even worse uphill battle to become a “store of value”. The reason is simple: The entire trading taking place on-blockchain (and which also supports the off-blockchain trade) has to support the whole Bitcoin system. The cost to support the whole Bitcoin system is running at a ~$5 billion/year pace (~$14 million/day, 9/10ths of which come from the “disappearing over time” block rewards and 1/10th of which comes from transaction fees) or ~4% of the entire bitcoin market capitalization. An asset which has intrinsic costs of 4%/year even before other system costs, overheads and margins is an intrinsically poor store of value.
  • Finally, bitcoin is wildly overvalued in relative terms. When someone buys bitcoin he only buys a token used in a much larger system (miners, exchanges, payment processors). The token confers no rights to economic returns enjoyed within that system. Compare that to PayPal: When you buy a PayPal share you get the right to economic returns from the entire similar system – a system which is 200-1000x larger, and growing consistently (as opposed to bitcoin’s reliance on bubbles to propel activity). Yet, in spite of representing a fraction (of the economic system, arguably zero) of a fraction (of the actual payments activity) of PayPal, bitcoin trades for 40% more than PayPal’s market capitalization.

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Snapchat's Stock Plunge Should End Insane Tech Funding, but It Won't

Four years ago, almost to the day, it was obvious that Snapchat should have taken the money: $3 billion Facebook offered to acquire it. But, no, the company’s founders insisted that it would be a bad move. Co-founder and CEO Evan Spiegel and, presumably, others were sure it was worth more. Not according to the earnings release today by parent Snap Inc.

Snap’s 2017 third quarter results were egregious. It was like watching the Coyote in a Road Runner Cartoon stop off the edge of a cliff and keep moving for a bit until, looking down, it realized the situation.

Revenue was up by 62%, which is wonderful. Only, analysts expected nearly $237 million in revenue instead of the $207.9 million the company had. There was little change in the number of users, and when you depend on advertising revenue to grow the business, that’s really bad. The quarter’s net loss of $443,159,000 was more than 3.5 times larger than the same period last year.

The company uses the non-standard measure of “adjusted EBITDA” to measure its, uh, success. Net income or loss excluding interest income and expense, other income or expense, depreciation, amortization, stock-based compensation and the related payroll tax expense, and “certain other non-cash or non-recurring items impacting” the bottom line. Even with that twisting, there was a $178,901,000 loss, which tells you just how many contortions it takes to massage the real loss.

Wall Street is not happy and Snap’s stock price dropped by 20 percent inside an hour. Spiegel and his co-founder, Bobby Murphy, are probably not happy either: Between them, their stock holdings lost $1 billion in value before the Coyote could finish the long drop with that soft pooft at the end.

If only Snap were an aberration on the West Coast tech scene. But it’s not. There’s billions of investment money in Uber, which is in the red a couple of billion dollars a year at this point. Juciero and its crazy-expensive juicers and juice packs finally packed it in a couple of months ago when it was clear few people were crazy enough to spend many hundreds on a machine and then $140 to $200 a month on juice. Heck, you could invest the cash and start your own small juice bar at that rate. And Juciero had only $118.5 million in venture money.

There’s an old saying: owe the bank $100 dollars and it owns you; owe it $100 million and you own the bank. This is what Silicon Valley and U.S.-style tech investing has come to. Forget a Microsoft of Apple or even a Facebook, where the companies went public after they were making real money. They build businesses that understand the profit concept, not almost eternal indebtedness that was supposed to turn the corner one day.

Here’s the difference: Snap’s founders lost a lot in paper worth on a company that, if you took away all the venture money, would be out of business. Microsoft launched Bill Gates who, back in 1986 when he was 30, was “probably one of the 100 richest Americans,” according to Fortune. Now he’s the richest man in the world.

Investors have been entranced by companies that seem like they should be worth billions and billions because they have scalable architecture and, doggonit, people like them. But it’s not enough to have a likeable business. Attention isn’t enough. Do VCs and money people not know the history of the dot com bubble? “Eyeballs,” a former crazy measure of success, don’t count for squat unless you have a solid business model that can create revenue and, eventually, profit.

Entrepreneurs would be better off to forget the nonsense that has passed for business acumen all too often and instead focus on the three basic questions: What needs to people have, what can you do to solve them, and how will you get paid? If you can’t answer all three, better keep working on the idea.

But, too many investors will keep hoping for the magical company that will make their fortunes, and too many entrepreneurs will want to be the mighty captain of industry. Things won’t change until a couple of these unicorns go spiraling into the desert floor so hard and fast that it makes a Coyote landing look like a short drop to a fluffy mattress.

New to Sales? Doing These 5 Things Can Fast-Track Your Career

Some of the most talented salespeople don’t come from a business background, or even start out in that profession.

Take Alice Heiman. She trains some of the largest sales teams in America, but for 13 years she was an elementary school teacher. After deciding it was time for a career change, she didn’t go back to school. Instead, she learned the business of sales with companies like Coca-Cola, John Deere and Fidelity. Now, she helps companies juggle the many aspects of running a business, including hiring and training sales employees.

Alice Heiman

CREDIT: Frank Haxton, Digiman Studio

Though it may seem like a huge career change to go from classroom to boardroom, in reality, Heiman’s still teaching–just to salespeople instead of children.

When we spoke, she had lots of advice for anyone wanting to break into the sales world, regardless of their age or experience. Here are her top five tips.

1. Work for a company with a great sales culture.

Your first sales job should be at a company that invests a lot into its salespeople. They should provide sales coaching and training to help their employees constantly improve how they present themselves and the product or service. And because of their investments, these companies tend to have a low turnover rate for sales reps.

You should also look for a company driven by honesty, openness, and data. Everyone on the sales team should be able to see the numbers and understand which parts of the sales cycle are working and where they need to improve. This kind of transparency can go far in empowering people to creatively fix problems. And as Heiman says, sales is all about problem solving.

2. Read everything you can on sales.

There are many stages of the sales process to consider. How do you write email campaigns for hundreds of inbound leads versus hundreds of outbound ones? How long do you wait to follow up if there isn’t a response? How much does it cost to acquire a lead versus a customer?

To help answer those questions, and to give you a competitive edge in sales, you should stay informed on the the industry’s latest strategies and techniques, and take the time to read success stories you find online. Blogs like Salesforce and Hubspot offer a range of stories and advice for all levels of salespeople.

3. Make your job about helping customers, not selling to them.

In sales, it’s important to ask yourself something like, “If I were the buyer, would I want to work with the kinds of sales values this company teaches? Would doing this feel awkward or wrong?” It’s usually pretty obvious when something goes against ethical practices or your own moral standards.

And in any sales job, selling should never be the end goal. True sales professionals, whether entrepreneurs or corporate suits, know that the heart of their jobs is about about helping other humans solve pain points. So stop and ask yourself if the training you’re getting would actually help someone and make a difference to their business.

4. Listen to your customers, then practice empathy.

The best salespeople do a lot of research on the potential customer’s business needs before they even try to sell anything. And once in a meeting, they practice being empathetic, which includes listening to the other person and understanding when it is and is not a good time to purchase your product, and how to proceed. If budget is a problem, you might suggest a payment plan or some other alternative deal. Empathetic salespeople are also patient in their follow up process to close the deal.

Rather than rushing for the sale, treat every conversation with a potential customer like a practice session for compassion and empathy. Ultimately, those things will be what helps customers reach their goals.

5. Read How to Win Friends and Influence People by Dale Carnegie.

As a new sales person, you can learn how to quickly gain rapport with anyone you meet through this book. It teaches you six ways you can get anyone to like you, and 12 ways to win people over with your way of thinking. With the examples in the book, you’ll be able to handle any sales conversation smoothly.

Putting Heiman’s tips into practice can give just about anyone a good head start in of sales. For more of her tips, head over to her website.

A Contrarian View of Invention

I’ll start by pointing out that I have several patents to my name. I conceived of the inventions and wrote the patents. I have advanced degrees in science. I started several ventures.

I’m not writing to brag or put patents or innovation down, just that I think I hold my own on innovation and invention.

Now that I write about and teach leadership and entrepreneurship, I look more at relationships, emotions, and motivations. I look at culture, inside and outside companies.

I recently combined two concepts to realize what our inventive culture says about us.

Neediness

First, speaking of relationships and emotions, consider neediness.

Many people rank it among the most repulsive characteristics someone can have. But don’t take my word for it. Here are two sentences from the first page returned when I searched on “neediness”:

Neediness is a highly toxic mindset and it immediately makes your point of attraction to be rooted in lack

and

neediness is so toxic that it can easily attract negativity in all aspects of your life.

Quora has 73 responses to “Why is neediness such a repulsive characteristic?”

Necessity and Invention

Now consider necessity, not far from neediness. They say that necessity is the mother of invention.

If so, then our culture being inventive implies we’re needy–“a highly toxic mindset”–on a cultural level.

You could say the most inventive people are the most needy. If the inventors aren’t needy themselves, then typical sales and marketing strategy is to make potential buyers feel needy.

We create and value neediness.

Alternative Views and Values

A book, Affluence Without Abundance, about hunter-gatherers living in Africa prompted these thoughts. It says that Bushmen societies seem not to have changed over tens, maybe hundreds of thousands of years–longer than most societies have existed.

The author, James Suzman, writes about a Bushman,

if necessity is the mother of invention, my sense is that his ancestors had found something within this place to banish necessity from their lives.

An interesting alternative–to value needing less instead of inventing more. I’ve only started reading the book, but it implies the Bushmen live richer in many ways than we do. There seems to be something to their non-inventive way of living.

Pollution, resource depletion, extinctions, global warming, and other problems with our inventive, needy culture implies we may have based our culture on counterproductive values.

As Suzman said to the New York Times,

If we judge a civilization’s success by its endurance over time, then the Bushmen are the most successful society in human history. Their experience of modernity offers insight into many aspects of our lives, and clues as to how we might address some big sustainability questions for the future.

I wonder how much more we can learn from them than we can expect.

Altice to sell wireless service on Sprint's network

(Reuters) – U.S. cable operator Altice USA will sell mobile service on wireless carrier Sprint Corp’s network under a new multi-year agreement announced on Sunday, becoming the latest firm to enter the wireless market in a bid to retain customers.

FILE PHOTO: A Sprint store logo is pictured on a building in Boca Raton, Florida, U.S. on March 19, 2016. REUTERS/Carlo Allegri/File Photo

The companies announced the agreement a day after Sprint and T-Mobile US Inc ended merger talks.

Under the terms of the agreement, Altice, the fourth-largest U.S. cable operator, will use Sprint’s network to provide voice and data services in the United States. It gave no time line on when it will introduce such services.

The deal will allow Sprint to use Altice’s cable infrastructure to transmit cellular data and develop a next-generation network, or 5G.

Sprint and T-Mobile on Saturday called off merger talks to create a bigger U.S. wireless company to rival market leaders. That has left Sprint, the No. 4 U.S. wireless carrier, to engineer a turnaround on its own.

Japan’s SoftBank Group Corp, Sprint’s majority owner, said in a separate announcement on Sunday that it intended to increase its stake in Sprint but that it would keep ownership of outstanding common stock under 85 percent, a move that avoids triggering a tender offer for the remaining shares. SoftBank currently owns roughly 82 percent of Sprint.

U.S. cable companies have begun venturing into the wireless market as a way to bundle more services to reduce churn, or customer defections, at a time when more consumers are canceling cable subscriptions.

Comcast Corp started selling wireless service this year on Verizon Communications Inc’s network, and Charter Communications Inc plans to launch service next year.

Reporting by Parikshit Mishra in Bengaluru and Anjali Athavaley in New York; Editing by Paul Simao and Peter Cooney

Our Standards:The Thomson Reuters Trust Principles.

Altice USA, Sprint agree to wireless partnership agreement

(Reuters) – U.S. cable operator Altice USA will sell mobile service on wireless carrier Sprint Corp’s network under a new multi-year agreement announced on Sunday, becoming the latest firm to enter the wireless market in a bid to retain customers.

FILE PHOTO: A Sprint store logo is pictured on a building in Boca Raton, Florida, U.S. on March 19, 2016. REUTERS/Carlo Allegri/File Photo

The companies announced the agreement a day after Sprint and T-Mobile US Inc ended merger talks.

Under the terms of the agreement, Altice, the fourth-largest U.S. cable operator, will use Sprint’s network to provide voice and data services in the United States. It gave no time line on when it will introduce such services.

The deal will allow Sprint to use Altice’s cable infrastructure to transmit cellular data and develop a next-generation network, or 5G.

Sprint and T-Mobile on Saturday called off merger talks to create a bigger U.S. wireless company to rival market leaders. That has left Sprint, the No. 4 U.S. wireless carrier, to engineer a turnaround on its own.

Japan’s SoftBank Group Corp, Sprint’s majority owner, said in a separate announcement on Sunday that it intended to increase its stake in Sprint but that it would keep ownership of outstanding common stock under 85 percent, a move that avoids triggering a tender offer for the remaining shares. SoftBank currently owns roughly 82 percent of Sprint.

U.S. cable companies have begun venturing into the wireless market as a way to bundle more services to reduce churn, or customer defections, at a time when more consumers are canceling cable subscriptions.

Comcast Corp started selling wireless service this year on Verizon Communications Inc’s network, and Charter Communications Inc plans to launch service next year.

Reporting by Parikshit Mishra in Bengaluru and Anjali Athavaley in New York; Editing by Paul Simao and Peter Cooney

Our Standards:The Thomson Reuters Trust Principles.

Sprint Ends T-Mobile Merger Talks. Here’s the Winners and Losers

The longest running soap opera in the telecommunications world came to an end on Saturday afternoon when T-Mobile and Sprint finally ended their on again, off again merger talks. Sprint majority owner and SoftBank CEO Masayoshi Son couldn’t convince T-Mobile’s owner, Deutsche Telekom, to either give him enough say over the combined carrier to agree to a deal or enough money to make him go away happy.

Son was facing the ugly prospect that he might be getting little or no more value per share for SoftBank and other shareholders than the $7.65 he paid back in 2013 when he acquired almost 80% of struggling Sprint for $22 billion. And since T-Mobile, resurgent under CEO John Legere, had surpassed Sprint in stock market value, Son also was looking at having a minority stake with little influence in the combined carrier.

But Son’s loss—which could grow quite large when trading opens in Sprint’s stock on Monday—is a huge win for wireless consumers. With four major players remaining in the wireless market, consumers should continue to benefit from competition that has lowered prices, eliminated two-year contracts, and done away with all sorts of annoying fees and extra charges. Had the market consolidated down to three, competition would likely have waned.

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In fact, antitrust regulators twice before prevented T-Mobile from being acquired (by AT&T in 2011 and by Son in 2014). It was only the surprise election of Donald Trump and his pro-business agenda that revived hopes that a deal could get done. And Trump’s appointees seemed to be meeting those expectations. Under Trump-appointed chairman Ajit Pai, the Federal Communications Commission declared the wireless market had “effective competition” for the first time in eight years. Ironically, when the legal barriers to a merger were lowered, it was the economics of the deal that couldn’t be worked out.

Other big winners are the workforces of the two carriers. One major rationale of combining the two companies was to drastically reduce expenses. Analysts estimated that 20,000 to 30,000 workers could have been laid off and thousands of retail store locations closed.

The two dominant carriers, AT&T


t

and Verizon


vz

, will probably be sad to see the deal die, however. They have been competing harder this year, making some progress with new unlimited data plans, but getting whacked by investors. Shares of AT&T have lost 22% so far this year and Verizon is off 11%. Consolidation could have eased the pressure from the two smaller carriers, which have led the way on lower prices and better deals.

Son now faces the daunting task of continuing to bolster Sprint, already weighed down by more than $30 billion of debt, or find another merger partner. It doesn’t help that Son promised Saturday that SoftBank would buy another 5% or so of Sprint’s outstanding shares that it doesn’t already own. That may prop up Sprint’s stock price a bit in the short run, but it also diverts more than $1 billion that could have been used for improving the carrier’s network, attracting more customers or other uses with more of a long-term payoff.

The heavy debt load and mixed operating record may have been a large part of what torpedoed the deal in the first place. Long-time telecom analyst Craig Moffett, of MoffettNathanson Research, had been warning for months that Sprint’s


s

rising stock price, largely due to merger speculation, couldn’t be supported by the carrier’s financial results. T-Mobile


tmus

and Deutsche Telekom would be unlikely to pay a premium to what he saw as an inflated valuation, Moffett had warned.

“We’re not saying it can’t be done, but we are saying that the odds being assigned to success are simply too high,” the analyst noted back in December.

In the end, the odds of completing a deal turned out to be zero.

Facebook and Google Are Actually 'Net States.' And They Rule the World

“We reject: kings, presidents, and voting. We believe in: rough consensus and running code.” So declared MIT professor David D. Clark in 1992. Twenty-five years later, this sentiment mirrors the global zeitgeist more than ever. The American public distrusts government in record numbers. Other nation-states disdain the US to world-historical degrees. A non-nation-state, Facebook, just topped 2 billion users—more than a quarter of the world’s population, surpassing even China’s population by almost 40 percent. In short, nation-states are not the only game in town anymore.

WIRED OPINION

ABOUT

Alexis Wichowski (@awichowski) teaches technology, media, and government at Columbia University’s School of International and Public Affairs. She is also the press secretary for the City of New York’s department of veterans’ services. Views expressed here are her own.

It is time to name this new landscape. The world is no longer dominated by nation-states alone. We have moved into a non-state, net-state era.

Why “net-states”? Because the world is no longer neatly divided into states (countries like the US, France, and India) and non-states (terrorist organizations like ISIS and al Qaeda). Ever since Barbara Ehrenreich’s 2011 article “Coming to a Theater Near You: War Without Humans” described the “emergence of a new kind of enemy, so-called non-state actors,” the term transformed into a fancy way of saying “bad guy.” Now we need new language to describe the non-state, non-bad-guys. I propose “net-states.”

Net-states are digital non-state actors, without the violence. Like nation-states, they’re a wildly diverse bunch. Some are the equivalent to global superpowers: the Googles, the Facebooks, the Twitters. Others are mere gatherings of pranksters, like Lulzsec (whose sole purpose for action is “for the lulz”—the laughs). Others still are paramilitary operations, such as GhostSec, an invite-only cyberarmy specifically created to target ISIS. There are also hacktivist collectives like Anonymous and Wikileaks.

Regardless of their differences in size and raison d’etre, net-states of all stripes share three key qualities: They exist largely online, enjoy international devotees, and advance belief-driven agendas that they pursue separate from, and at times, above, the law.

Take Google, for instance. In 2013, the company launched an anti-censorship initiative called Project Shield, a sort of online safe haven for news sites censored by their national governments. Democratic countries like the US may laud such efforts, but in countries where Project Shield has been deployed across Asia and Africa—where free speech is not necessarily protected—those governments would be well within their rights to see Google’s actions as both disruptive and illegal. While Project Shield may be branded a business practice that generates good PR for the company, it also embodies Google’s fundamental doctrine to bring about positive change in the world. As co-founder Sergey Brin put it in a 2014 interview, “the societal goal is our primary goal.”

Anonymous—the hackers and pranksters most famous for the Operation Chanology protest movement against Scientology—occupies a very different role from Google among net-states. It’s not a business; it’s not even an official, card-carrying membership organization.

But Anonymous, too, dabbles in actions traditionally in the domain of government. For instance, after the terrorist attacks in Paris in November 2015, Anonymous disabled between 5,500 and 20,000 ISIS-backed Twitter accounts within 48 hours. Governments have their own official channels to shut down terrorist social media accounts too, but doing so legally at such a large scale likely generates a tad more paperwork than can be processed in just two days.

It’s worth pausing for a moment to consider the point of all this. With deaths by terrorism steadily rising each year, does placing a new name on our already extant world order do anything to actually make us safer?

I argue that it does, because nation-states need a wake-up call: The world needs net-states in order to defeat the non-states. We’re not beating them on our own. To win information-era wars, countries need to recognize the power of the net-states, not as an ancillary locale of assembly in the cyberspace, but as critical entities wielding the kind of power and influence necessary to go toe-to-toe with non-state actors.

The world needs net-states, because they occupy the same territory as the non-states: the digital sphere. As such, they understand their norms and tactics far more than a land-war, Cold-War era strategist ever could. Major General Michael K. Nagata, commander of American special operations forces in the Middle East, circled this idea back in 2014, in a leaked confidential conversation about ISIS. He said, “We do not understand the movement, and until we do, we are not going to defeat it. We have not defeated the idea. We do not even understand the idea.”

Failure to understand the idea is part of why the US continues to be stuck in the war on terror. And the US is indeed stuck: Secretary of defense James Mattis confirmed that in June, saying in a briefing to Congress, “We are not winning in Afghanistan,” His commanders have classified the 16 years of war a “stalemate.” And without the net-states, the war will likely continue to be one.

The US airstrikes acolytes by the thousands as if they were Old World beasts they can hunt to extinction. But deploying traditional military tactics in battles of belief are the equivalent of setting bear traps for ghosts: They’re not going to work. They’re not relying on the wrong weapons; they’re relying on the wrong worldview. And even purportedly innovative tactics, like government-generated counter-terrorism messaging, while logical in theory, relies on the same outdated perspective (see “Think Again Turn Away,” the State Department’s failed attempt at targeting ISIS Twitter accounts with direct rebuttals). It’s like hearing your parents tell you that drugs are bad. What we need are the cool kids to say it. We need the net-states to say it.

So, nation-states, adapt. And don’t just acknowledge net-states; work with them. Incorporate information-era savvy alongside military campaigns. The risk of not doing so is to lose the faith of the people. Worse, failure to adapt to the information age unwittingly nudges the population ever closer to “reject kings and voting”, to instead embrace “rough consensus and running code.” In other words, forget the anointed powers—put your faith in the general approval of the people and whoever’s actually getting things done. Honestly, when faced with the question of who gets the will of the people today, how many of us would really say “the United States” over “Google”?

In sum, the US can’t keep just shooting terrorists; ideas are the gun in this knife fight. And the keepers of ideas—the places people turn to set them free and watch them spread—are the net-states; not the nation-states. Nation-states ignore our non-state, net-state world order at all our peril.

WIRED Opinion publishes pieces written by outside contributors and represents a wide range of viewpoints. Read more opinions here.

Equifax clears executives who sold shares after hack

(Reuters) – Equifax Inc (EFX.N) said on Friday four of its executives who sold shares before the credit-reporting firm disclosed a massive data breach that wiped out billions from its market value were not aware of the incident when they made the trades.

FILE PHOTO: Credit reporting company Equifax Inc. corporate offices are pictured in Atlanta, Georgia, U.S., September 8, 2017. REUTERS/Tami Chappell/File Photo

A special committee set up by Equifax’s board to investigate the trades concluded that no insider trading took place and that pre-clearance for the trades was appropriately obtained. (reut.rs/2habhk9)

The company’s shares were up 0.2 percent at $109.10 on Friday at midday, around 24 percent lower than on Sept. 7 when Equifax disclosed that cyber criminals had breached its systems and accessed sensitive information on 145.5 million consumers.

The shares slumped as much as 37 percent in the days after the disclosure.

Atlanta-based Equifax had been aware of the breach since July 29, days before some of its senior executives, including its chief financial officer, sold $1.8 million in shares.

After an investigation that included 62 interviews and a review of over 55,000 documents, including emails, text messages, phone logs, and other records, Equifax said the executives had no knowledge of the breach when they sold the stock.

“The conclusion that the Company executives in question traded appropriately is an extremely important finding and very reassuring,” non-executive Chairman Mark Feidler said in a statement.

Former Equifax Chief Executive Officer Richard Smith, who stepped down in September and agreed to forgo his annual bonus, told lawmakers last month that the executives would not have known of the breach because suspicious incidents are detected every day at the firm and take days or weeks to confirm.

The U.S. Justice Department is conducting its own criminal investigation into the share sales.

The hack, among the largest ever recorded, exposed information that included names, birthdays, addresses and Social Security and driver’s license numbers.

It has also prompted investigations by multiple federal and state agencies as well as scores of class action lawsuits.

The exact financial toll on Equifax is still unknown, and as of early Friday, the company said it still had not set a date to release its third quarter financial results. If the company does not release the results by Nov. 9, it will have to seek an extension from the U.S. Securities and Exchange Commission, which gives large companies 40 days after the close of a quarter to report their financials to investors.

Equifax is also still searching for a replacement for former CEO Smith.

Credit monitoring services such as Equifax collect vast amounts of financial information from consumers, working with banks and other lenders, for example, to track the creditworthiness of individuals.

Reporting by John McCrank in New York and Aparajita Saxena in Bengaluru; Editing by Saumyadeb Chakrabarty and Frances Kerry

Our Standards:The Thomson Reuters Trust Principles.

Just Another Day In Paradise For Omega Healthcare

Yesterday was a tough day for Omega Healthcare Investors (NYSE:OHI), as shares fell more than 7% after the company’s third-quarter results and earnings call. The day-long trading volume (~13 million shares) resulted in a market cap erosion of some ~$2.50 per share, or around $500 million in market value (~197 million shares outstanding).

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Combined with Q1 and Q2, Omega’s Q3 results were just another “day in paradise” for the nation’s largest skilled nursing REIT. So far this year, shares have declined by almost 8%.

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Here’s how Omega’s YTD performance (Total Returns) compares with that of other healthcare REIT peers:

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So where’s the love? Or shall I say lack of love for this prized divided payer?

What Happened?

The drama has been unfolding for months as operator pressure within the skilled nursing sector has escalated. In a recent article, I explained:

“some of the negative news regarding the reliability of future rents and the ability to continue to deliver dividend growth to shareholders significantly overstate the issues that operators are managing through and ignores the enormous demographic wave that seniors that will have greatly expanded healthcare needs over the next 5 years.”

Several skilled nursing operators have experienced pressure, and Omega has three of them in the Top 10:

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On the Q2-17 earnings call, Taylor Pickett, Omega’s CEO, explained:

“3 top 10 operators are responding to information requests made by the DoJ (Department of Justice) 1 top 10 operator is ongoing discussion for the DoJ with respect to potential settlement. At this time, it’s too early to determine the outcome of this operator’s settlement discussions or any of the other DoJ inquiries.”

As you can see (on the Top 10 list), a new name appears, Orianna, a 42-property operator that was previously referred to as Ark. In a recent article, I explained, “this operator has continued to experience quarterly pressures, despite finally showing signs of operations improvements. As I explained in another article, “My back-of-the-napkin analysis suggests that the worst case for Omega is to reposition all of the Ark properties and rent them out for $35 to $38 million. At the midpoint this re-trade would cost Omega around $.01/share in quarterly FFO.”

Guess what? My “back of the napkin” estimate was spot on! Here’s what Omega said yesterday on its earnings call:

“In the second quarter of 2017, we recorded approximately $16 million of cash and straight line revenue related to Orianna. Placing them on a cash basis and initiating the process of transitioning some or all of their portfolio to new operators required us to test the assets for impairment.

During the quarter, we recorded approximately $204 million of impairments related to our Orianna portfolio, $195 million was to reduce our capital lease assets to their fair value of which $40 million of that change related to writing off the lease amortization or straight-line rent equivalent on the capital lease.

We also recorded $8.2 million in provision for uncollectible accounts to fully reserve Orianna’s outstanding contractual receivables and $1.3 million to write-off straight line receivables related to their operating lease. It’s important to note that Orianna impairment is a subjective estimate and is subject to change based on the final outcome of the transition.

We believe our estimate is conservative based on our current portfolio analysis. The impairment test for a capital lease is different than that of an operating lease.”

In plain English, Omega has stopped paying rent, and the company is transitioning its assets. This means it is negotiating with Orianna, and it could be either a “friendly” resolution or “not-so-friendly” resolution.

The friendly alternative means the landlord and tenant will be able to work out a new master lease, which includes a rent reduction to $32-38 million (an $8-14 million hair cut). Using my back-of-the-napkin math, and using $11 million as the rent reduction, the new “friendly” deal means Omega’s portfolio leased to Orianna is worth around $120 million less now (using a 9% Cap Rate).

If Omega and Orianna are unable to strike a new deal, the “not-so-friendly” alternative is that Orianna ends up in bankruptcy court, at which time the company will eventually take legal possession of the portfolio and find a new operator. Of course, this will take more time to transition, and the process could take up to a year.

Mitigating Risk Is What Separates the Best from the Rest

As mentioned, Orianna operates 42 properties spread across the southeastern U.S. Several of the properties are located in my hometown of Greenville, SC. Click here for the locations.

I have not visited these properties, but it appears that many of the locations are high quality. Here’s an example of one property in close proximity to my office:

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While the Orianna news is not good, it was certainly not unexpected. I am surprised to see the pullback yesterday, given the fact that Omega had already telegraphed the problems on previous earnings calls. But we all know that a “knee jerk” can often lead to opportunity.

Remember, Omega owns a portfolio that includes 1,004 investments (907 operating properties and 90,949 beds):

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In addition to the US properties (around 850 in US), the company also has holdings in the U.K. that consists of 53 care homes across central London and the southern and eastern regions of England.

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As you can see below, Omega’s portfolio generates around $900 million in annual rental income, and the Orianna “hiccup” is around $11 million (as per above), meaning that the loss of income associated with this “transition” is approximately 1.2%.

See what I mean by “knee-jerk” reaction? Shares slide 7%, and the loss of income is just 1.2%.

Also remember, skilled nursing is not the same as net lease. There’s a reason that Omega acquires properties at cap rates of 9-9.5%. It’s a function of risk and return, and when you buy properties to higher-risk tenants, there will always be operators that get into trouble. At the end of the day, the best risk mitigation tool for Omega is summed up in one word: diversification.

Is the Dividend Safe?

As most know, Omega has an exceptional history of earnings and dividend growth. Just take a look at its dividend history below:

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Clearly, Mr. Market is concerned that the operator issues within Omega’s portfolio could lead to a tightening of the payout ratio. Let’s examine the history of the dividends/share:

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As you see, the company has generated very steady and reliable dividend growth, averaging 9.6% annual growth since 2009. On the recent earnings call, Omega’s CEO, Taylor Pickett, said he “remains confident in our ability to pay our dividend, increasing our quarterly common dividend by $0.01 to $0.65 per share.

We’ve now increased the dividend 21 consecutive quarters. Our dividend payout ratio remains conservative at 82% of adjusted FFO and 89% of FAD, and we expect these percentages will improve as the Orianna facilities return to paying rent.”

Omega’s revised 2017 guidance reflects the impact of Orianna’s cash accounting and the anticipation that no cash will be received for the balance of the year. Yesterday, Omega said it had lowered 2017 adjusted FFO guidance to $3.27-3.28 per share.

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While this news will impact the dividend cushion, the REIT has been reducing its Payout Ratio for many years in anticipation of a hiccup.

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Omega generates approximately $150 million of cash flow after dividends, and even if the company lost all of the Orianna rental income (~47 million), it is well positioned to weather the storm, and it would have another $100 million of cash flow after dividends.

So What About the Other Operators?

In addition to Orianna, Omega continues to experience specific operator performance issues, as discussed in the last several calls, including Signature Healthcare, another top 10 operator. Similar to Orianna, liquidity issues are impacting the ability of these operators to pay rent on a timely basis.

Signature Healthcare has also fallen further behind on rent in the third quarter, predominantly as a result of anticipated tightening restrictions upon its borrowing base by its working capital lender, thus reducing availability. The vast majority of Signature’s past due rent balance is covered by a letter of credit in excess of $9 million.

Keep in mind, Omega is continuing to grow its platform. The company said it had completed two new investments totaling $202 million, plus an additional $36 million of capital expenditures. Specifically, it completed $190 million purchase lease transaction for 15 skilled nursing facilities in Indiana, and as part of that same transaction, simultaneously completed a $9.4 million loan for the purchase of the leasehold interest in one skilled nursing facility with an existing Omega operator.

Omega is well positioned to grow, as the company has approximately $910 million of combined cash and revolver availability to fund future investments and provide capital funds to the existing tenant base. The balance sheet remains exceptionally strong. For the three months ended September 30, 2017, net debt-to-adjusted annualized EBITDA was 5.46x and the fixed charge coverage ratio was 4.2x.

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As noted above, diversification matters, and Omega is in excellent shape to continue to diversify its holdings. I consider the strength of the balance sheet and exceptional diversification to be the biggest risk mitigators for the company to insure the safety of the dividend and to protect the future profits of the enterprise.

OHI can still make accretive investments today (~9% cost of equity / ~5% cost of debt), which, at 60/40 (equity/debt), generates 100 to 150 bp spread to acquisition yields. Combined accretive investments and active portfolio recycling could mitigate skilled nursing industry pressures on earnings.

I’m Maintaining a Buy

Yesterday, I spoke with Omega’s CEO, and I’ll provide you with a few of his comments:

“This is the beauty of a big portfolio, you can sustain”.

“The dividend is completely secure with room to grow it”.

“The dividend is pretty attractive as you want on demographics”.

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He’s right – 8.4% is a decent dividend yield to get while you’re waiting.

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There’s no question shares are cheap…

Could they get cheaper?

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Sure. But it simply boils down to managing risk, and the primary reason that I am hanging onto my shares in Omega is because I believe in the management team. Companies aren’t going to bat 400 every quarter, and when I see a “knee jerk” like I saw yesterday, I am reminded that there is always a silver lining. That’s what the other Buffett (Jimmy) means when he sings, “It’s just another day in paradise.”

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Sources: F.A.S.T. Graphs and Omega Investor Presentation.

Other REITs mentioned: LTC Properties (NYSE:LTC), Ventas, Inc. (NYSE:VTR), Welltower, Inc. (NYSE:HCN), National Health Investors, Inc. (NYSE:NHI), HCP, Inc. (NYSE:HCP), Senior Housing Properties Trust (NYSE:SNH), Global Medical REIT, Inc. (OTC:GMRE), Medical Properties Trust (NYSE:MPW), Healthcare Trust of America (NYSE:HTA), Healthcare Realty Trust (NYSE:HR), Physicians Realty Trust (NYSE:DOC), New Senior Investment Group (NYSE:SNR), Sabra Health Care REIT (NASDAQ:SBRA), OHI, Community Healthcare Trust (NYSE:CHCT).

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Short-seller Muddy Waters seeks to unmask Google Gmail fraudster

NEW YORK (Reuters) – Muddy Waters, the investment firm run by prominent short-seller Carson Block, on Wednesday asked a New York court to force Google to help it identify someone who impersonated a Wall Street Journal reporter to uncover its strategy toward a French retailer it was betting against.

FILE PHOTO: Carson Block of Muddy Waters Capital LLC., speaks at the Sohn Investment Conference in New York City, U.S. May 4, 2016. REUTERS/Brendan McDermid/File Photo

The unusual petition filed with the state Supreme Court in Manhattan seeks the identity of “John Does 1-5,” who Block said admitted to misusing Gmail accounts to learn his thoughts about the retailer, supermarket operator Casino Guichard-Perrachon SA (CASP.PA), and his whereabouts.

Google, a unit of Mountain View, California-based Alphabet Inc (GOOGL.O), had no immediate comment, because it was reviewing the legal papers.

In a statement, Block said he pursued the matter following “numerous attempts at surveilling me for over a year.”

Block made his mark in the $3 trillion hedge fund industry by challenging accounting practices of Chinese companies such as Sino-Forest Corp, once backed by billionaire John Paulson, and then shorting their stocks, betting the prices would fall.

He began targeting Casino’s accounting practices and use of leverage in December 2015, prompting the operator of Monoprix and Geant stores to accuse him of issuing misleading research for his own benefit. Standard & Poor’s nonetheless downgraded Casino to “junk” status three months later.

According to the petition, “John Does 1-5” from September 2016 to October 2017 frequently sent emails and made phone calls to Muddy Waters falsely claiming to be Journal reporter William Horobin, an investigator at French securities regulator Autorite des Marches Financiers and an employee at a Paris private bank.

Muddy Waters said these communications sought information on its Casino research, Block’s speaking schedule and whether the regulator was investigating the firm.

On Oct. 30, according to the petition, “John Does 1-5” admitted to Block at a meeting at a Manhattan hotel to having lied by assuming Horobin’s identity, believing Muddy Waters would not have communicated with him otherwise.

But when Block asked “John Does 1-5” for his real identity and whether Casino had hired him, “the individual quickly left the hotel,” the petition said.

Muddy Waters said it wants information from Google on whoever controls two Gmail accounts used in the surveillance. It said Horobin has confirmed he does not control the account bearing his name.

Casino and News Corp (NWSA.O), which owns The Wall Street Journal, did not immediately respond to requests for comment. Neither is a target of the petition.

The case is In re: Muddy Waters Capital LLC for an order pursuant to section 3102(c) of the Civil Practice Law and Rules to compel pre-action disclosure from Google Inc, New York State Supreme Court, New York County, No. 159730/2017.

Reporting by Jennifer Ablan and Jonathan Stempel in New York; Additional reporting by Matthias Blamont in Paris; Editing by Jonathan Oatis and Cynthia Osterman

Our Standards:The Thomson Reuters Trust Principles.

Renesas to provide chips for Toyota's self-driving cars

DETROIT (Reuters) – Renesas Electronics Corp said on Tuesday it will provide semiconductors for self-driving cars that Japanese automaker Toyota Motor Corp plans to bring to market in 2020.

FILE PHOTO: Renesas Electronics Corp’s logo is seen on its product at the company’s conference in Tokyo, Japan, April 11, 2017. REUTERS/Toru Hanai/File Photo

Automakers are racing to be the first to market with commercially viable self-driving vehicles.

Renesas said it will provide a chip to Toyota – the R-Car system-on-chip – that will serve as an “electronic brain” or as advanced driver-assistance systems. The company will provide a separate chip for automotive control.

The first chip will provide “highly accurate intelligence on the vehicle’s position within its environment” and will also make “real-time decisions on vehicle control and active safety maneuvers based on sensor data,” Renesas said.

The second chip, called RH850, will “control driving, steering, and braking functions based on the judgments” made by the R-Car system-on-chip.

Fully self-driving vehicles are expected to hit the market in a limited form by around 2020. U.S. automakers General Motors Co and rival Ford Motor Co have both publicly stated that they aim to have fully self-driving cars on sale by 2021.

Renesas’ chips will be used with an engine control unit that will be provided by Denso Corp, Toyota’s largest supplier.

“We are partnering with Denso and Renesas, who bring superior technology and expertise to this project, with the aim to accelerate the development of autonomous-driving vehicles and encourage early adoption,” Ken Koibuchi, Executive General Manager at Toyota Motor Corporation, said in a statement.

Reporting By Nick Carey; Editing by David Gregorio

Our Standards:The Thomson Reuters Trust Principles.

Imagination investors approve sale to China-backed fund

LONDON (Reuters) – Imagination Technologies shareholders approved a 550 million pound ($730 million) cash takeover by China-backed Canyon Bridge on Tuesday, a day after the buyout firm’s founder was charged by U.S. authorities with insider trading.

The headquarters of technology company Imagination Technologies is seen on the outskirts of London, Britain, June 22, 2017. REUTERS/Hannah McKay

Canyon Bridge’s offer to buy the British chip designer was announced on Sept. 22, a week after its bid to buy Lattice Semiconductor Corp was blocked by U.S. President Donald Trump over national security concerns.

Canyon’s founder Benjamin Chow was charged on Monday with insider trading in a case related to the attempted U.S. deal.

However, a spokeswoman for Canyon said on Tuesday that the Imagination deal would not be jeopardized by the allegations, adding that Chow denies wrongdoing and intends to defend the case in court..

Canyon’s takeover bid values the troubled company at 182 pence per share, a near 42 percent premium to Imagination’s closing price on Sept. 22. It was put up for sale after its shares fell 70 percent in April when Apple, its biggest customer, said it would stop using its graphics technology.

A court hearing to approve the Imagination takeover, which was agreed only days after the Committee on Foreign Investment in the United States rejected Canyon’s proposed $1.3 billion acquisition of Lattice, is expected to be held on Nov. 6.

Following Trump’s decision to bar Canyon Bridge from buying Lattice, the British government said it wanted more say over deals in the military and technology sectors, making proposals to tighten Britain’s existing takeover rules.

Canyon Bridge was founded by Chow with capital originating from China’s central government and had indirect links to Beijing’s space program.

The Acting United States Attorney for the Southern District of New York and the Federal Bureau of Investigation alleged on Monday that Chow had conspired to commit securities fraud by sending information regarding the Lattice bid to an unnamed friend and former colleague.

($1 = 0.7534 pounds)

Reporting by Ben Martin and Pamela Barbaglia; Editing by Greg Mahlich and Alexander Smith

Our Standards:The Thomson Reuters Trust Principles.