Netflix crosses $100 billion market cap as subscribers surge

(Reuters) – Netflix Inc (NFLX.O) snagged 2 million more subscribers than Wall Street expected in the final three months of last year, tripling profits at the online video service that is burning money on new programming to dominate internet television around the world.

The results drove Netflix to a market capitalization of more than $100 billion for the first time. Shares jumped 9 percent to a new high over $248 in after-hours trading on Monday after rallying throughout the month and rising 53 percent last year.

After signing up more than half of all U.S. broadband households, Netflix is building its customer base in 190 countries by spending billions on programming.

Netflix picked up 6.36 million subscribers in international markets from October through December, when it released new seasons of critically acclaimed shows “Stranger Things” and “The Crown” as well as Will Smith action movie “Bright.” That topped Wall Street expectations of 5.1 million, according to FactSet.

Along with 1.98 million customer additions in the United States, the company ended the year with 117.58 million streaming subscribers around the globe, a sharp uptick even after price increases in October.

“Netflix is pouring more and more money into making content, and it is directly translating into more subscribers,” BTIG analyst Richard Greenfield said. “They see a huge opportunity and they are moving as fast as they can to attack it.”

The company also said it took a $39 million non-cash charge for “unreleased content we’ve decided not to move forward with.” A source familiar with the matter said the charge was related to content starring Kevin Spacey, with whom Netflix cut ties after he was accused of sexual misconduct.

Netflix temporarily halted production of “House of Cards” to write out Spacey’s character and decided not to release the film “Gore,” which starred Spacey as Gore Vidal.

Spacey has apologized to one of his accusers, and according to his representatives is seeking unspecified treatment.

The charge is one of the first signs of costs faced by companies in the wake of a widespread campaign against sexual harassment.

FILE PHOTO: The Netflix logo is pictured on a television in this illustration photograph taken in Encinitas, California, U.S., on January 18, 2017. REUTERS/Mike Blake/File Photo

Netflix turned a DVD-by-mail business into an online competitor of movie channel HBO. As it grew it began licensing its own original shows to ensure a stream of new offerings if studio suppliers ended deals.

In fact, Walt Disney Co (DIS.N) is making a major push into online streaming and will pull its first-run shows and movies from Netflix in 2019 as Hollywood fights for audiences.

Netflix plans to spend up to $8 billion this year on TV shows and movies to fend off Disney, Amazon.com Inc (AMZN.O), studios-owned Hulu and local competitors that are jumping into online video.

In 2017, Netflix recorded its first full-year profit in international markets. The company has said it is aiming for steady improvements in profitability overseas this year.

“We believe our big investments in content are paying off,” Netflix said in a quarterly letter to shareholders.

Netflix is raising its marketing budget faster than revenue is growing and expects negative cash flow in 2018 of $3 billion to $4 billion, up from $2 billion in 2017.

Last October, Netflix raised prices for two of its three main subscription plans to help fund the substantial content investment, helping to drive revenue higher.

For the December quarter, Netflix reported diluted earnings-per-share of 41 cents, even with the expectations of analysts polled by Thomson Reuters I/B/E/S.

Revenue for the three months totaled $3.286 billion, in line with forecasts.

Looking ahead, Netflix forecast streaming customer additions of 6.35 million for the first quarter, above analysts’ expectation of 5.01 million, according to FactSet.

Investors appear confident in Netflix’s ability to grow. Netflix recently traded at 91 times expected earnings for the next 12 months, versus Amazon at 152 times earnings and Disney at 17 times earnings, according to Thomson Reuters data.

Reporting by Lisa Richwine in Los Angeles and Aishwarya Venugopal in Bengaluru; Editing by Peter Henderson and Lisa Shumaker

Bitcoin’s Lightning Network Upgrade Gets Some Hands-On Testing

Lightning Network, a technology that many hope will make the Bitcoin payment network substantially more efficient, is becoming a reality. Standards have been adopted, Lightning transactions were first demonstrated in early December, and late last week, the VPN service TorGuard touted what might have been the first purchase of physical goods using Lightning.

For the many still trying to figure out exactly what Bitcoin itself is, understanding why Lightning matters might be tough. At the bottom is Bitcoin’s scaling challenge, which has kept it from fulfilling its promise of rapid, cheap money transmission. The search for a solution has led to major personal and technical schisms in the open-source, democratically governed project. Lightning Network is regarded by many as the most promising long-term answer to the scaling issue, though in a sense it solves the problem by not solving it at all.

Get Data Sheet, Fortune’s technology newsletter.

Blockchains like Bitcoin are inherently inefficient, trading speed for decentralization, reach and security. To get around that fundamental challenge, Lightning conducts transactions on private channels outside of the main network, then settles them to the primary blockchain in batches. That makes transactions much faster and much cheaper, while theoretically keeping most of the security advantages of a blockchain. A simple way to think of it is that Lightning transactions are equivalent to gold-backed paper money, while the main Bitcoin blockchain is the gold. If that metaphor isn’t quite satisfying, Wired last week released an excellent deep dive into Lightning’s history and technical details.

Like most elements of Bitcoin, the rollout of Lightning is entirely decentralized, and actors have to specifically choose to deal with Lightning-based payments. For now, only the very bold are taking that risk, and the various implementations of the protocol are officially still being tested (TorGuard promised to reimburse customers if anything went wrong). But even with a gradual rollout, there’s hope that offloading a portion of payments to Lightning will reduce load on the main Bitcoin network.

Despite early-adopter feedback that occasionally borders on euphoric, global cryptocurrency markets don’t seem to have taken much notice of Lightning’s progress. Since peaking and crashing in mid-December, Bitcoin’s price has been in a gradual slump in lockstep with most other cryptocurrencies. That arguably demonstrates just how far 2017’s crypto-mania divorced speculation from fundamentals.

Space Startup Rocket Lab Has Reached Orbit For the First Time

The six-year-old startup Rocket Lab has successfully put a rocket into orbit, and deployed a payload of three satellites. The launch started from New Zealand at 2:43 Sunday afternoon, or 8:43 p.m. Saturday U.S. Eastern Time. The mission, dubbed “Still Testing,” was the second using the company’s lightweight Electron rocket.

Rocket Lab streamed its launch live, and it can still be viewed on YouTube, complete with informative commentary.

Rocket Lab aims to lower the cost of access to space, in a way parallel to, but distinct from, the mission of Elon Musk’s SpaceX. Where SpaceX seems near mastering the art of landing and reusing large rockets, Rocket Lab wants to produce smaller ones, using lower-cost methods like 3-D printing.

Get Data Sheet, Fortune’s technology newsletter.

Those smaller rockets — including the current Electron model — are meant to serve the growing demand for deployment of small satellites known as microsats or cubesats. According to the Wall Street Journal, Rocket Lab is aiming to double its rocket production by this summer to meet that demand.

The payload for the launch, according to SpaceNews, included two cubesats for the data company Spire and one for Planet Labs. Rocket Lab CEO Peter Beck told SpaceNews that the succesful launch meant the company would move forward with commercial missions.

Snap Needed Emotional Intelligence This Week but Didn't Have Any

Snap, parent corporation of social network Snapchat, has faced a number of recent leaks about the business, including a new round of layoffs. But the company’s reaction, a threat to sue or imprison employees who might talk to the press, was the second time in a week the company showed a disturbing lack of emotional intelligence.

Snap has made some bad moves in the past, like the initial fight among the co-founders. Turning down $3 billion for an acquisition by Facebook and the fall stock plunge. But the biggest problem of late has been the attitudes toward employees that management clumsily communicated.

Patience is understandably running thing. Over the last six months, Snap has faced the following:

  • Expenses raced ahead of income, increasing fiscal pressures as user growth has not kept pace with expectations. (When Fortune writes, “Its first trick was making selfies disappear. Its latest is sending gargantuan piles of cash into the ether,” you know the coverage will be ugly.)
  • The company saw two big stock drops immediately after earnings announcements in August and November.
  • The current stock price of about $14 remains far below the $17 IPO figure.
  • Layoffs this week and October after a September restructuring suggest the level of problem and money pressures Snap faces.

Snap has been like a sieve for insider news getting out to the press, which has made the company irate, as reported by Cheddar’s Alex Heath. This resulted in a harsh memo that in part said the following:

As a result, all employees must keep our information strictly confidential until disclosed by Snap. We have a zero-tolerance policy for those who leak Snap Inc. confidential information. This applies to outright leaks and any informal “off the record” conversations with reporters, as well as any confidential information you let slip to people who are not authorized to know that information.

If you leak Snap Inc. information, you will lose your job and we will pursue any and all legal remedies against you. And that’s just the start. You can face personal financial liability even if you yourself did not benefit from the leaked information. The government, our investors, and other third parties can also seek their own remedies against you for what you disclosed. The government can even put you in jail.

Not that anyone should minimize the need for a basic level of confidentiality. Leaking information from a public company, particularly if some people have a chance to trade on the insights before others do, can be a significant legal risk. But there are different ways to communicate, and Snap management opted for as heavy-handed a one as might be imagined. If they wished an effective deterrent, internal training and emphasis would have been far more effective.

Instead, this move is almost guaranteed to scare employees not into knowing compliance with right actions but further into psychological bunkers and out of the company as soon as possible.

What can you expect when a culture of secrecy reportedly makes many employees feel isolated and in danger? This is like entrepreneurs who are so intent on protecting their “brilliant” ideas that they never learn how limited or flawed the concepts are because they won’t listen. If you regularly divide employees, you miss the communication and collaboration necessary for innovation and solving problems.

And speaking of innovation, as the hammer comes down in this way, it also strikes in another. In the memo released at the time of the most recent layoffs, via Cheddar, CEO Evan Spiegel discussed the need to create a “highly scalable business model” and an “organization that scales internally.” He wrote, “This means that we must become exponentially more productive as we add additional resources and team members.”

To many, that translates as “your life should be ours.” There is only so productive people can be. They aren’t machines, and if you continually expect more and more, even with additional tools and resources (but likely not), you burn people out. That may work if you think everyone but yourself is replaceable and you want to use individuals as tools to make money — but, on second thought, no, it probably won’t. Some have pulled it off, but far more often these attitudes have limited success at most.

Then that memo ended as follows:

Lastly, I’d like to make it very clear that our team is not here to win 2nd place. The journey is long, the work is hard, but we have and we will consistently, systematically, out-innovate our competitors with substantially few resources and in far less time. And we will have a blast doing it.

Put differently: You won’t have the resources you need but you will succeed and work faster and harder because you are order to, and you will enjoy the process whether you want to or not.

The communications style of Snap in these two instances betrays a remarkable degree of emotional tone deafness. Even though the people responsible are likely sure they are motivating employees while helping select for the types of people who will do well by them, they transmit subtexts that are off-putting to many who could be of immense help but are unwilling to submerge themselves into the drive to enhance the financial well being of a tiny group.

The people at Snap could have avoided the problem with a few steps:

  • Clarify and be honest with yourself about what you really want to achieve. Have someone from the outside look at materials, interview people, and offer a disinterested observation of the situation.
  • Look at things from an employee’s viewpoint and put yourself in their shoes. Given the general atmosphere, if you heard this as an employee, how might you react?
  • Recognize that how you feel personally and what you want to accomplish may not work well together. Focus on approaches most likely to produce the needed results, not something that makes you feel vindicated.
  • Get expert help. If you pride yourself on an engineering culture, as Snap seems to, don’t assume you’re also a master of psychology and motivation. Chances are that you aren’t.

Google CEO Has No Regrets About Firing Author of Anti-Diversity Memo

Google CEO Sundar Pichai on Friday expressed no regret over the firing of James Damore, author of an infamous memo criticizing Google’s pro-diversity policies and culture.

During an appearance with YouTube CEO Susan Wojcicki, Pichai said, “I don’t regret it,” when asked about Damore’s firing by Recode head Kara Swisher. He insisted that the firing was primarily a strategic decision for Google. “The last thing we do when we make decisions like this is look at it with a political lens,” Pichai said, according to TechCrunch.

Google has been working to increase its hiring of women. Damore’s memo, which became public in August, argued in part that women might not be biologically suited for careers in engineering or technology. Many commentators felt that retaining Damore after the memo’s distribution would make Google a hostile work environment for women.

Wojcicki also described the firing as “the right decision.”

Get Data Sheet, Fortune’s technology newsletter.

Though Google’s priority was internal cohesion, Damore’s memo was broadly criticized by many in the tech sector and beyond, including for faulty interpretations of biological science. Damore quickly revised inaccurate representations that he had completed a Harvard PhD in biology.

At the same time, reports did indicate that Damore’s views were quietly widespread in the lower ranks of Google.

Damore earlier this month initiated a lawsuit against Google, alleging that the company discriminates against white men. That case seems difficult to make on its face, since its most recent diversity report found that the company is 69% male and 91% white or Asian, with black or Hispanic people making up only 3% and 4% of new hires, respectively.

Canada's Hydro Quebec unable to meet demand from digital currency miners

MONTREAL (Reuters) – Canada’s largest utility, Hydro Quebec, is reviewing its commercial energy strategy after being inundated with demand from global digital currency miners rushing to the province to benefit from political stability and low energy prices.

Hydro Quebec will not have the long-term capacity to meet all the anticipated demand, a company spokesman said, after the utility’s potential mining projects more than doubled in a week to 70.

Bitcoin mining consumes large quantities of energy because it uses computers to solve complex math puzzles to validate transactions in the cryptocurrency, which are written to the blockchain, or digital ledger.

The first miner to solve the problem is rewarded in bitcoin and the transaction is added to the blockchain.

Expectations of a crackdown in China, one of the world’s biggest sources of cryptocurrency mining, on the sector has made energy-rich Quebec an attractive site for companies, and its chief executive is now receiving queries on his Linkedin profile.

Bitmain Technologies, operator of some of the largest mining farms in China, is among the companies searching for sites in Quebec. Others include Japan’s GMO Internet Inc (9449.T), but it has not yet taken a decision on whether to start operations in the province, a source familiar with the matter said. A GMO company spokeswoman declined to comment.

“We are receiving dozens of demands each day. This context is prompting us to clearly define our strategy,” said Hydro Quebec spokesman Marc-Antoine Pouliot by phone.

“We won’t be able to power all the projects that we’re receiving,” he said, while stressing that Hydro Quebec is not automatically refusing entrepreneurs. “This is evolving very rapidly so we have to be prudent.”

Hydro is also keen on attracting data centers, which generate more employment than bitcoin mines.

According to Hydro Quebec, the province estimates it will have an energy surplus equivalent to 100 terawatt hours over the next 10 years. One terawatt hour powers 60,000 homes in Quebec during a year.

A shortage of sites in Quebec with the necessary electric capacity has prompted several entrepreneurs to break down their projects into smaller investments, said Laurent Feral-Pierssens, executive director, emerging technologies at KPMG Canada.

“This is the tip of the iceberg, as only a fraction of the initiatives have reached out to Hydro Quebec yet,” said Feral-Pierssens, who works with digital currency miners that want to open operations in the province.

Reporting By Allison Lampert; Additional reporting by Hideyuki Sano in Tokyo; Editing by Denny Thomas and Susan Thomas

Amazon Joins Growing List of Employers That Won’t Ask About Your Salary History

Will this be the year we finally make progress in closing the gender pay gap?

It’s only the middle of January, but 2018 has already seen the implementation of new laws and policies that have the potential to boost women’s paychecks. The latest news comes from Amazon, which this week banned its hiring managers from asking prospective hires about their salary histories, according to BuzzFeed.

The tech giant follows in the footsteps of companies like Google, Facebook, and Cisco, which earlier this month were legally banned from posing the question to potential employees in California, thanks to a new law that took effect on Jan. 1. Though the law technically applies only to those who work in the Golden State, most have proactively applied the law to all of their U.S. hires. Massachusetts, Oregon, Philadelphia, New York City, and San Francisco have passed similar laws over the past couple of years—though Amazon’s home state of Washington has yet to do so.

Also this week, New Jersey Gov. Phil Murphy signed an executive order banning state agencies—though not private companies—from asking the controversial question. (The rule takes effect on Feb. 1). New York, Delaware, New Orleans, Pittsburg, and Albany already have similar laws in effect.

While such laws technically apply to a specific jurisdiction, they may have a broader effect. Rather than creating a different set of policies for various cities and states, some companies simply use the strictest set of employment laws as the benchmark for the entire company’s human resources policies. This may explain why major employers like Amazon, which has half a million workers across the country, are opting to embrace a blanket rule.

Many of the policy changes are being positioned as efforts to fight the pay gap that plagues women and people of color. In Gov. Murphy’s statement accompanying the executive order, he called the policy, “the first meaningful step towards gender equity and fighting the gender pay gap.”

In 2016, women made about 80 cents on a man’s dollar, a number that has remained mostly stagnant. The gap is wider for women of color and has been growing for Millennial women. One of the reasons for this, says Andrea Johnson, senior counsel for state policy at the National Women’s Law Center (NWLC), is the salary history question, which “forces women to carry pay discrimination with them from job to job.”

Johnson calls the efforts to ban the question “exciting,” but notes that such laws are just one piece of the puzzle. Her organization is currently focused on pushing for pay transparency laws, which have already gone into effect in Iceland and the U.K. An Obama-era effort to collect salary information via EEO-1 forms—which must be filled out by any company with 100 or more—has been rolled back under the current administration. The NWLC is one of the dozens of civil rights groups challenging that decision.

Without the support of the federal government, companies’ embrace of policies that advance fair pay—such as Amazon’s move to ban the salary history question and Citigroup’s recent decision to share pay data—are especially important and powerful. Says Johnson: “It’s harder to de-bias minds and easier to de-bias processes.”

Twitter may notify users exposed to Russian propaganda during 2016 election

WASHINGTON (Reuters) – Twitter may notify users whether they were exposed to content generated by a suspected Russian propaganda service, a company executive told U.S. lawmakers on Wednesday.

The social media company is “working to identify and inform individually” its users who saw tweets during the 2016 U.S. presidential election produced by accounts tied to the Kremlin-linked Internet Research Army, Carlos Monje, Twitter’s director of public policy, told the U.S. Senate Commerce, Science and Transportation Committee.

A Twitter spokeswoman did not immediately respond to a request for comment about plans to notify its users.

Facebook Inc in December created a portal where its users could learn whether they had liked or followed accounts created by the Internet Research Agency.

Both companies and Alphabet’s YouTube appeared before the Senate committee on Wednesday to answer lawmaker questions about how their efforts to combat the use of their platforms by violent extremists, such as the Islamic State.

But the hearing often turned its focus to questions of Russian propaganda, a vexing issue for internet firms who spent most of the past year responding to a backlash that they did too little to deter Russians from using their services to anonymously spread divisive messages among Americans in the run-up to the 2016 U.S. elections.

U.S. intelligence agencies concluded Russia sought to interfere in the election through a variety of cyber-enabled means to sow political discord and help President Donald Trump win. Russia has repeatedly denied the allegations.

The three social media companies faced a wide array of questions related to how they police different varieties of content on their services, including extremist recruitment, gun sales, automated spam accounts, intentionally fake news stories and Russian propaganda.

Monje said Twitter had improved its ability to detect and remove “maliciously automated” accounts, and now challenged up to 4 million per week – up from 2 million per week last year.

Facebook’s head of global policy, Monika Bickert, said the company was deploying a mix of technology and human review to “disrupt false news and help (users) connect with authentic news.”

Most attempts to spread disinformation on Facebook were financially motivated, Bickert said.

The companies repeatedly touted increasing success in using algorithms and artificial intelligence to catch content not suitable for their services.

Juniper Downs, YouTube’s director of public policy, said algorithms quickly catch and remove 98 percent of videos flagged for extremism. But the company still deploys some 10,000 human reviewers to monitor videos, Downs said.

Reporting by Dustin Volz; Editing by Nick Zieminski

Science Says These Factors Determine Good Leadership

For a company to evolve and grow, entrepreneurs must develop into good leaders.

But what are the factors that determine good leadership? Do good leaders share common traits? Are there secrets to becoming a great leader?  What is the impact of gender in regards to leadership? 

The development of sound leaders is a complicated process that is both dependent on the individual, his or her team, and the industry in which they work. But working to become a good leader is essential, especially in today’s business environment, where studies have shown that over 80% of people don’t trust their boss. Eventually, employees leave jobs where they don’t respect their boss. Good leadership is imperative to employee retention and creating long-term organizational success.

There are a variety of skills that provide a solid foundation for good leadership. However, science says that some people are pre-disposed to be better leaders than others.

Inherent traits play a role in leadership potential.

Scientific studies reveal that good leaders are ambitious, curious, and sociable. By having these characteristics you have a better chance to grow within your discipline or company and become a leader. Another critical aspect of leadership is integrity. By having integrity, you can build trusting, supportive teams, with positive work cultures where people feel valued and supported. While a high IQ does have an impact on leadership potential, the correlation is extremely small, less than 5%, when compared to these broader positive traits.   

Are some people born leaders?

Personality traits and intelligence levels are impacted by genetics, which means some people are born with stronger pre-disposition to take on roles in leadership. In fact, estimates suggest that 30-60% of leadership is heritable. However, if you don’t naturally have the traits listed above – sociability, curiosity, ambition, and integrity – it doesn’t mean you won’t become a leader. Through training and coaching, it’s possible to develop the competencies necessary to stand at the helm of a project or company.

Does gender play a role in leadership?

From a leadership potential perspective, gender has little impact. In fact, data has shown that women can be extremely successful as leaders. Over an eight-year study of publicly traded companies, it was discovered that organizations with female CEO’s or female Director’s of Boards produced a better annual return when compared to male counterparts. We don’t have fewer women leaders because of a lack of female leadership potential or a propensity for business. In truth, the number of leaders is currently skewed in favor of males because of social factors such as gender biases, lack of fairness in hiring opportunities, and a history of male dominance in business.

Being in a position of leadership may not feel comfortable for everyone, and that’s okay. As individuals, we engage with the world in different ways, and we have innate strengths that should be utilized to our advantage. Specific traits may lead to a higher propensity toward taking on leadership roles, while other factors such as gender play a much smaller role.

But let me be clear. If you want to become a leader, don’t let scientific studies, your family, or any article convince you that goal is unattainable. You can learn, grow, and evolve, becoming the leader you want to be.

.

Lesson Learned: Don't Short A Blue Chip REIT

There seems to be more articles on Seeking Alpha in which authors recommend shorting Blue Chip REITs. A few days ago there was a short thesis on Tanger Factory Outlet (SKT) and the author explained,

“I have a hard time convincing myself that the good results will continue into the future. I personally am not comfortable with the sales per square foot metrics at these properties… the current stellar portfolio performance may possibly suddenly see itself deteriorate in the next 5 years without warning.”

I have already provided my counter to that article (HERE), and most of my followers know that I’m not a market timer who picks tops or bottoms.

Instead, I am a value investor and I have found that it’s simply better to be in the market invested in stocks that offer the highest potential returns than play the timing game.

Many of you know that I’m generally a buy-and-hold investor and that means that I like to invest in REITs that I can own for the long haul. It’s rare that I bet against securities that will fall in price… that’s like gambling that my plants will die. I prefer to plant my seeds firmly in the ground and wait for my crops to grow.

Occasionally, I run across a few plants (stocks) that seem to be deteriorating and, as a result, I seek to avoid the companies all together. I’m not a proponent of shorting REITs, that’s just RISKY!

Photo Credit

Why Short a REIT?

I find it amazing that some of the wealthiest REIT investors – the hedge funds – claim to have a vast knowledge and understanding as to the nature of their complex strategies, yet the funds’ overall performance often turns into Fool’s Gold.

We all know that hedge funds by nature are opportunistic as they are designed to pool people’s money to invest in a diverse range of assets. Because hedge funds are lightly regulated (and are not sold to retail investors), they typically buy riskier positions and they often employ the use of short selling and leverage.

Although it is difficult to evaluate hedge fund performance compared with other investments (because the risk/return characteristics are unique), I remain baffled as to why so many hedge fund managers cross into my sweet spot – REITs – trying to short a particular stock that is anything but distressed or even showing signs of weakness.

You can see why the $12 billion hedge fund Pershing Square took advantage of the falling value in General Growth Properties (NYSE:GGP) back in 2009. That was a wise bet for William Ackman (who runs Pershing Square) who has a history of investing in distressed real estate. But history has also shown that there is little opportunity for the short sellers who pursue high-quality blue chips.

For example, in 2009, Ackman waged a battle against Realty Income (O) on the thesis that the “monthly dividend company” had poor credit quality. Ackman argued that Realty Income was suffering from mispriced risk since the REIT was paying a dividend of around 7.5% while the private market cap rate values were closer to 10.5% – a 40% premium. Ackman was suggesting that Realty Income’s fundamentals could not support the dividend and that a cut was imminent. Boy was he wrong!

A close up of a logoDescription generated with high confidence

Think about it like this, the outcome of a short sale is basically the opposite of a regular buy transaction, but the mechanics behind the short sale result in extremely volatile risks.

In fact, it’s somewhat like the law of gravity as the law of investing is inflation (instead of gravity) and that means that betting against the upward momentum is inherently risky. That means that when you bet against the momentum and you keep a short position for a long period of time, your odds get worse.

Also, when you short sell, you don’t enjoy the same infinite returns you get as a long buyer would. A short sale loses when the stock price rises and a stock is (theoretically, at least) not limited in how high it can go.

In other words, you can lose more than you initially invest, but the best you can earn is a 100% gain if a company goes out of business and the stock loses its entire value.

Finally, and the most concerning risk is leverage or margin trading. When short selling, you open a margin account, which allows you to borrow money from the brokerage firm using your investment as security. Just as when you go long on margin, it’s easy for losses to get out of hand because you must meet the minimum maintenance requirement of 25%. If your account slips below this, you’ll be subject to a margin call, and you’ll be forced to put in more cash or liquidate your position.

For all of these reasons, I’m not willing to risk hard earning capital to short a REIT. Plain and simple, it’s just way too risky and I believe that by patiently taking advantage of the margin of safety, my portfolio will hold more winners than losers.

Regardless of my risk tolerance level, the short sellers haven’t stopped betting against REITs and when that feeding frenzy becomes a catalyst, the “squeeze” ensues (as more and more of the short investors buy shares to cover their positions, share prices skyrocket).

This Blue Chip Bet Paid Off Handsomely

In May 2013, Highfields Capital decided to short shares of Digital Realty (DLR) based on the premise that shares were too expensive and should be trading for around $20.00 per share. Jonathon Jacobson stated (at the 18th Ira Sohn Investment Conference last week) that “pricing is going lower, competition is increasing, and the company (Digital) is tapping into capital markets as aggressively as they can.”

At the time, Digital was trading at $65.50 per share with a total capitalization of around $14 billion.

A close up of a logoDescription generated with high confidence

Highfields claimed at the time that Digital’s fundamentals were deteriorating and that the REIT was a commodity business with no barriers-to-entry. Simply put, Highfields was speculating that the stock would fall, without any true catalyst supporting the short, other than manipulating prices for personal gain.

Simply said, Highfields is shorting Digital because they think they know something others don’t know. They are plain and simple: speculators, obsessed with dangerously manipulating prices and driving down prices for their own personal gain. In an article, I offered my “back up the truck” commentary,

“ …it’s time to jump on this cloud. Digital has a most attractive valuation of 13.6x and I consider the fundamentals sound. Driven by growing world-wide demand and a very high-quality tenant base, Digital has evolved into a best-in-class global data center platform. Digital’s “first mover advantage” has allowed the REIT to build a commanding barrier-to-entry model in which its mere scale provides access to capital and strong expertise in the global cloud supply chain.”

A close up of a mapDescription generated with high confidence

Over the years, I have continued accumulating shares in Digital Realty as this Blue Chip has been one of the best picks in my Durable Income Portfolio. As evidenced below, Digital has returned an average of 16% annually since I began purchasing shares in May 2013.

A screenshot of a cell phoneDescription generated with very high confidence

The “D” in DAVOS

Last week I provided a summary of my All-American DAVOS portfolio that consists of Digital Realty, American Tower (AMT), Ventas, Inc. (VTR), Realty Income, and Simon Property (SPG). These 5 REITs returned 9.2% since December 31, 2016, and Digital returned over 23%.

A screenshot of a cell phoneDescription generated with very high confidence

In Q2-17, Digital announced that it was merging with DuPont Fabros in a transaction consistent with Digital’s strategy of offering a comprehensive set of data center solution from single-cabinet colocation and interconnection, all the way up to multi-megawatt deployments.

At the far end of the spectrum, this combination expands Digital’s hyperscale product offering and enhances the company’s ability to meet the rapidly growing needs of the leading cloud service providers. The DFT merger is also consistent with Digital’s stated investment criteria and mission statement:

A screenshot of a cell phoneDescription generated with high confidence

The DuPont transaction expanded Digital’s presence in strategic U.S. data center metros and the two portfolios are highly complementary. The transaction was expected to be roughly 2% accretive to core FFO per share of 2018 and roughly 4% accretive to 2018 AFFO per share. The combination also enhanced the overall strength of the balance sheet. DuPont Fabros portfolio consists of high-quality purpose-built data centers, as you can see below:

A close up of a mapDescription generated with high confidence

The merger also bolstered Digital’s presence and expanding footprint in its product offering in three top tier metro areas, while DuPont realized significant benefits of diversification from the combination with Digital’s existing footprint in 145 properties across 33 global metropolitan areas.

A picture containing text, mapDescription generated with very high confidence

Digital closed on the acquisition of DuPont during the third quarter and the integration is well underway… but the blue chip REIT is not slowing down…

In October, Digital announced a 50/50 joint venture with Mitsubishi Corporation to enhance its ability to provide data center solutions in Japan. Digital is contributing a recently completed project in Osaka and Mitsubishi is contributing two existing data centers in Tokyo. Although the venture is non-exclusive, the expectation is that this will be both partners primary data center investment vehicle in Japan.

A picture containing text, person, sky, photoDescription generated with high confidence

According to Digital’s CEO, Bill Stein, “Japan is a highly strategic market (with) tremendous opportunity for growth over the next several years. This joint venture establishes Digital’s presence in Tokyo, which has been a longtime target market.”

In addition, Digital expects this joint venture will significantly enhance the company’s ability to serve its customers data center needs in Japan. In particular, Digital expects that Mitsubishi’s global brand recognition and local enterprise expertise will meaningfully improve the ability to penetrate local demand.

Also, in the US, Digital entered into an agreement to acquire a data center in Chicago from a private REIT for $315 million. This value add-play offers a healthy going in yield along with shell capacity that gives Digital an opportunity to boost the unleveraged return into the high single digits. This investment represents an expansion in Digital’s core market and is occupied by existing customers with whom Digital has been independently working to meet their expansion requirements.

Also, during the third quarter, Digital announced that it was breaking ground on a new 14 megawatt data center in Sydney, Australia, adjacent to an existing facility. Digital also expanded its Silicon Valley Connected Campus with a 6 megawatt facility at 3205 Alfred Street in Santa Clara, California (scheduled for delivery in the first quarter of 2018).

A picture containing screenshotDescription generated with very high confidence

The Improved Balance Sheet

In order to continue to scale its global footprint, Digital continues to demonstrate a disciplined balance sheet.

In July 2017, Digital issued two tranches of Sterling denominated bonds with a weighted average maturity of 10 years, and a blended coupon of just over 3% raising gross proceeds of approximately $780 million.

In early August, the company pre-funded a portion of the DuPont acquisition with the issuance of $1.35 billion of U.S. dollar bonds with a weighted average maturity of nine years, and a blended coupon of 3.45%. (This was only the sixth time an investment grade U.S. listed REIT has issued a $1 billion or more in a single tranche of bonds).

The transaction was well oversubscribed and priced 10 bps inside of where Digital’s existing bonds were trading on the secondary market prior to the transaction. Digital also raised $200 million of perpetual preferred equity at 5.25%, an all-time low coupon for Digital and the lowest rate ever achieved on a REIT preferred offering with a crossover rating.

In mid-September, Digital closed on the DuPont acquisition and exchanged all the outstanding DFT common shares and units for approximately 43 million shares of DLR common stock and 6 million OP units. Also, in conjunction with the DuPont acquisition, Digital exchanged the DFT 6.625% Series C Preferred for a new Digital Realty Series C Preferred with a liquidation value of $201 million.

The company also tendered for the DFT 5.875% high-yield notes due 2021, settled nearly 80% of the $600 million outstanding at closing in mid-September and redeemed the remainder within a few days post closing. After quarter-end, Digital redeemed all $250 million of the DFT 5.625% high-yield notes due 2023 and a blended 106.3% of par or a total cost of $270.5 million, including accrued interest and the make-whole premium.

When the dust settled at the end of Q3-17, Digital’s debt-to-EBITDA stood at 6x and fixed charge coverage was just under 4x, as you can see below:

After adjusting for a full-quarter contribution, the balance sheet actually improves as a result of the DuPont acquisition and debt-to-EBITDA dips down below 5x and fixed charge coverage remains above 4x, as you can see on the right-hand side of the chart.

As you can see from the left side (chart below), Digital has a clear runway with nominal debt maturities before 2020. The balance sheet remains well-positioned for growth consistent with our long-term financing strategy.

A screenshot of a cell phoneDescription generated with very high confidence

The Fundamentals

Construction activity remains elevated across the primary data center metros, but leasing velocity remains robust and industry participants are mostly adhering to a just in time inventory management approach, helping to keep new supply largely in check.

A screenshot of a cell phoneDescription generated with very high confidence

Demand is outpacing supply in most major markets. The near-term funnel remains healthy and demand seems to be picking up as we head into the end of the year.

In addition, vacancy rates remain tight across the board prompting Digital to bring on measured amounts of capacity to meet demand in select metro areas like Sydney, Silicon Valley and Chicago. The company has seen a flurry of recent land deals in core markets and the number of new competitors is on the rise, although Digital believes its global platform, scale and operational track record represent key competitive advantages.

As Digital’s CEO, Bill Stein, explains:

“Given the sector’s recent history, any prospect of an uptick in speculative new supply bears watching. However, we remain encouraged by the depth and breadth of demand for our scale, co-location and interconnection solutions. We expect the demand will continue to outstrip supply, while barriers to entry are beginning to grow in select metros, which we believe bodes well for long-term rent growth, as well as the enduring value of infill portfolios such as ours.”

Stein adds:

“…we are well-positioned to connect workloads to data on our global connected campus network and through our Service Exchange offering. Enterprise architectures are going through a transformation and workloads are transitioning from on-premise to a hybrid multi-cloud environment. Our comprehensive product offering is critical to capturing this shift.

Cloud demand continues to grow at a rapid clip, but future growth in the data center sector will come from artificial intelligence. The power, cooling and interconnection requirements for AI applications are drastically different than traditional workloads, and Digital Realty is well-positioned to support the unique requirements and tremendous growth potential of this next-generation technology suite.”

The Latest Results

Digital signed total bookings for the third quarter of $58 million, including an $8 million contribution from interconnection. The company signed new leases for space and power, totaling $50 million during the third quarter, including a $6 million co-location contribution. The weighted average lease term on space and power leases signed during the third quarter was nine years. Digital’s management team explains,

“Our third quarter wins showcase the strengths of our combined organization as the bulk of our activity was concentrated on our collective campuses in Ashburn, which is not only the largest and fastest growing data center market in the world, but also the combined company’s largest metro area in terms of existing capacity and ability to support our customers growth.”

A screenshot of a cell phoneDescription generated with very high confidence

In Q3-17, Digital’s current backlog of leases signed but not yet commenced stands at $106 million. The step up from $64 million last quarter reflects the $50 million of space and power leases signed, along with the $59 million backlog inherited from the DuPont acquisition offset by $67 million of commencements. The weighted average lag between third-quarter signings and commencements improved to four months.

A screenshot of a cell phoneDescription generated with very high confidence

Digital retained 86% of third-quarter lease expirations, and signed $66 million of renewals during the third quarter, in addition to new leases signed. The weighted average lease term on renewals was over six years, and cash rents on renewal leases rolled down 3.8%, primarily due to two sizable above market leases that were renewed during the third quarter, one on the East Coast and one in Phoenix. Digital expects cash re-leasing spreads will be positive for the fourth quarter, as well as for the full year 2017.

A screenshot of a cell phoneDescription generated with very high confidence

As you can see from the bridge chart below, Digital’s primary driver is a full quarter with the higher share count outstanding following the close of the DFT acquisition late in the third quarter. Digital still expects to realize approximately $18 million of annualized overhead synergies and expects the transaction will be roughly 2% accretive to core FFO per share in 2018 and roughly 4% accretive to 2018 AFFO per share.

However, these synergies will not fully be realized until 2018 and the quarterly run rate is expected to spring load in the fourth quarter before bouncing back in 2018.

A picture containing displayDescription generated with high confidence

As you can see below, Digital’s non-cash straight-line rental revenue has come down from a run rate of $23 million in the fourth quarter of 2013, all the way down to less than $2 million in the third quarter.

Over that same time, quarterly revenue has grown by 60% from $380 million to more than $600 million. This trend reflects several years of consistent improvement in data center market fundamentals, as well as the impact of tighter underwriting discipline, which has driven steady growth in cash flows and sustained improvement in the quality of earnings.

A screenshot of a cell phoneDescription generated with very high confidence

Buy This Blue Chip?

First off, I am not selling this BLUE CHIP REIT. I am confident with my overweight exposure and I will continue to add more shares in price weakness. Let’s take a look at the dividend yield, compared with the peers below:

A screenshot of a cell phoneDescription generated with very high confidence

Let’s take a closer look at Digital’s dividend history, and specifically the FFO Payout history…

A screenshot of a cell phoneDescription generated with very high confidence

As you can see, Digital has continued to widen the margin of safety related to the Payout Ratio (helps me SWAN)…

Now, let’s examine the P/FFO multiple, compared to the peers:

A screenshot of a cell phoneDescription generated with very high confidence

As you can see, Digital is cheaper (based on P/FFO) than the peers. Let’s examine the FFO/share growth chart below…

A screenshot of a cell phoneDescription generated with very high confidence

As you can see, Digital is not growing as robustly as the peers; however, the company has continued to generate ~8% FFO/share growth and this powerful pattern of predictability is the primary reason I own shares in this REIT. Take a look at this FFO per share history…

A screenshot of a cell phoneDescription generated with very high confidence

The average FFO/share growth since 2014 has been around 7.6%… now take a look at the P/AFFO/share chart below…

A screenshot of a cell phoneDescription generated with very high confidence

This suggests that Digital is easily positioned to continue to grow its dividend by at least 5% annually, possibly a tad better in 2018.

In summary, Digital has been one of my best BLUE CHIP buys since I commenced the Durable Income Portfolio (in 2013). I consider the shares soundly valued today (nibbling); however, I would recommend buying closer to $100/share. As Ben Graham famously explained, “a stock does not become a sound investment merely because it can be bought at close to its asset value.”

Selecting securities with a significant margin of safety remains that value investor’s definitive precautionary measure. I consider Tanger Factory Outlet to be the best BLUE CHIP buy today, as any value investor knows – “it pays to wait patiently for the storm to subside, knowing that a sunnier and more plentiful time is bound, as a law of nature, to resume in due course.”

A screenshot of a computerDescription generated with very high confidence

Note: Brad Thomas is a Wall Street writer, and that means he is not always right with his predictions or recommendations. That also applies to his grammar. Please excuse any typos, and be assured that he will do his best to correct any errors if they are overlooked.

Finally, this article is free, and the sole purpose for writing it is to assist with research, while also providing a forum for second-level thinking. If you have not followed him, please take five seconds and click his name above (top of the page).

Other REITs mentioned: (COR), (QTS), (CONE), and (EQIX).

Sources: FAST Graphs and DLR Investor Presentation.

Disclosure: I am/we are long APTS, ARI, BRX, BXMT, CCI, CHCT, CIO, CLDT, CONE, CORR, CUBE, DDR, DEA, DLR, DOC, EPR, EXR, FPI, FRT, GEO, GMRE, GPT, HASI, HTA, IRET, IRM, JCAP, KIM, LADR, LAND, LMRK, LTC, MNR, NXRT, O, OFC, OHI, OUT, PEB, PEI, PK, QTS, REG, RHP, ROIC, SKT, SPG, STAG, STOR, STWD, TCO, UBA, UMH, UNIT, VER, VTR, WPC.

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.

I'd Buy General Electric At The Right Price Too

In a recent interview, Warren Buffett told CNBC’s Becky Quick that he would buy General Electric (GE) at the “right number”, which led to speculation that Berkshire Hathaway (BRK.A)(BRK.B) may currently be looking to get back into a GE position. Let’s remember that it was only a few short months ago that Berkshire disclosed that it sold a small GE position and build its stake in Synchrony Financial (SYF) [a 2014 spin-off from GE]. Since this announcement, GE shares are down over 20% while SYF shares are up over 30%.

Source: Nasdaq

Talk about great timing, right? After a rough 2017 (GE shares were down ~45% compared to the S&P 500 being up ~20%), the company’s stock has actually performed pretty well in the new year. So, what should investors do now? I believe that the “right number” for this industrial conglomerate depends on many factors, including your time horizon, but, in my opinion, you will not get burned if you layer into a GE position at current levels.

My 12-month Price Target

Before the recent run-up for GE shares, I am on record for saying that my 12-month price target was $19 per share. This target still holds true today, even with shares trading slightly below this mark ($18.76 as of January 12, 2018). Some may be asking why a person that is so bullish on GE long-term is standing firm with a price target of $19 but, in my opinion, it is important to note that the real tests (i.e., quarterly earnings reports and management commentary) are still yet to come.

Management already guided for adjusted EPS to be in the range of $1.00-$1.07 for full-year 2018, so, even after the 2017 blood bath, GE shares are not as cheap as what you would expect.

Chart
GE PE Ratio (Forward) data by YCharts

While I believe that Mr. Flannery low balled the 2018 guidance, which is a smart approach given the moving pieces that he will have to contend with, it is still too early to say that GE is a must own at today’s price. GE is trading below the average forward P/E ratio of its peer group but, in my opinion, GE’s management team has a lot to prove before the conglomerate can make the argument that it warrants a valuation that is in line with the likes of Honeywell (HON) or 3M (MMM).

So, at the end of the day, I am sticking with the 12-month price target of $19 for GE because there is definitely going to be concerns (i.e., cash flows metrics, growing debt balance, Power struggles) that the bears will run with in 2018. GE’s 2018 stock performance will largely depend on how management is able to fend off the bears, in my opinion. If successful, $19 per share will be way too low of a price target but it is still too early to tell.

But, on the other hand, there have definitely been some positive developments for GE over the last few months that could result in this company eventually warranting a higher price target later in the year.

Positive Developments

The backdrop for GE has improved since management provided the 2018 outlook in November 2017 but I believe that the two items mentioned below have the potential to be significant tailwinds in 2018.

(1) Oil Prices

The rise in crude oil prices has resulted in a great deal of attention for GE, and rightfully so, as this company is highly levered to the commodity.

Source: CNBC

Remember, GE merged its oil & gas business with Baker Hughes in 2017 to create Baker Hughes, a GE Company (BHGE). No one really knows what will happen with oil and/or gas prices in 2018 or 2019, but it is hard to deny that it has been a great start for these commodities in the new year. And, BHGE has been a direct beneficiary.

Chart
BHGE Market Cap data by YCharts

As shown, BHGE’s market cap has increased by over 20% since late 2016 but it has meant nothing for GE shares, as the company’s stock is down by almost the same percentage over this time period. Let’s think about this, GE still owns a majority stake in BHGE (62.5%) so the industrial conglomerate’s holding is now worth over $26B, or ~16% of GE’s current market cap, and the recent rise has had no bearing on GE’s stock price. BHGE alone is not enough to move the needle for GE, but a rising BHGE stock price will bode well for GE and its shareholders in 2018.

There are rumors that GE may look to spin-off BHGE at some point over the next few quarters (an approach that I prefer), as BHGE’a structure gives Mr. Flannery a lot of optionality, but I would not be surprised if GE retained the majority stake well into the 2020’s.

(2) Promising Policies

GE may not directly benefit from the tax reform bill, as many pundits believe to be the case (a thought that I do not necessarily agree with), but, in my opinion, the downstream impact of this business-friendly policy will have a significant impact on GE. For example, a JPMorgan analyst predicts that the new bill will be extremely positive for the companies of the S&P 500:

“The upcoming reduction of US corporate tax rates may be one of the biggest positive catalysts for US equities this cycle,” [Marko] Kolanovic, who serves as JPMorgan’s global head of quantitative and derivatives strategy, wrote in a client note. “We think that little is priced into the market and hence there is potential for market upside. Clients are not repositioning portfolios until they see the reform passed.”

The importance of tax reform to that call can be seen in the breakdown of JPMorgan’s earnings growth forecast for next year. The firm projects that half of earnings upside — or roughly $10 a share for the S&P 500 — will be due to a successful GOP tax bill.”

Joe Ciolli, JPMorgan’s quant guru says traders are waiting for tax cuts to unleash more stock market gains, Dec. 15, 2017

The tax bill has already started to have an impact, as analysts’ EPS estimates for 2018 have increased by 2.2% (to $150.12 from $146.83) from December 20, 2017 to January 11, 2018.

Source: FactSet

Full Disclosure: the 2018 bottom-up EPS estimate is an aggregation of the median 2018 EPS estimates for all of the companies in the index.

The 2.2% may not sound like much but it is the largest move over this specific period of time since FactSet began tracking this data in 1996.

Additionally, analysts are bullish on several sectors that GE operates in.

Let’s just remember that this industrial conglomerate operates in industries that are critical to the U.S. economy so GE will benefit as other industrial companies benefit from the tax bill, of course in my opinion.

And a Trump infrastructure bill in 2018 would simply be icing on the cake.

Risks

The main risk for investing in General Electric starts with management. There is no guarantee that Mr. Flannery is the right man to turn around a company that is widely viewed as a directionless, complex industrial conglomerate. Sentiment is the number one factor for GE shares being down by almost 50% in 2017 so shareholders are putting a lot of faith in a largely unproven leader, at least on this type of stage.

Another risk factor is the Power operating unit. Any additional downward pressure for this unit will not bode well for the consolidated results in 2018 or 2019. Management has big plans for Power over the next 24 months so investors should be paying close attention to the progress that is being made toward rightsizing and reshaping this unit for the future.

Bottom Line

The market is flying at (or near) all-time highs and many stocks, including GE shares, have enjoyed a nice ride so far in 2018. I believe that there is a lot to like about GE as we head into 2018 and beyond, but this company’s new management team has a lot of prove over the next 12-18 months. Therefore, investors that think that they missed the boat when shares were trading at (or below) $18 per share will likely get another opportunity at some point in the first half of 2018.

However, looking out, I believe that this industrial conglomerate is attractively valued if you are willing (and able) to hold onto shares for at least the next three-to-five years. Investor sentiment is the main culprit for the poor performance for GE shares in 2017 and I believe that shares will rocket higher if Mr. Flannery is able to sell the market on his “plans” for this industrial conglomerate. That is why I, a person that plans to hold GE for many years, will not sell my GE shares now and try to get back in under $18 because timing the market is hard to do (or should I say impossible?). As such, investors with a long-term perspective should consider layering into a position at today’s levels because, in my opinion, GE shares have the potential to be trading significantly higher in the years ahead.

Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.

Disclosure: I am/we are long GE, BHGE, BRK.B.

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.

GLD: Is 'It' Happening?

Introduction

On Friday, the dollar index fell to a low not seen since late 2014. Continued weakness in the dollar will lead to inflation in all dollar-based commodities like gold, crude oil and agricultural products.

Next week, the U.S. financial markets will have a shortened holiday week. There are big political issues looming, like a potential shutdown of the U.S. government, and an ongoing battle over immigration reform. As a result, the week ahead could see continued volatility in the U.S. dollar – either up or down. These moves in the dollar will likely affect gold, crude oil and other commodities – one way or another.

Is IT Happening?

Is this the beginning of the dollar collapse? Is that why Bitcoin and other cryptocurrencies have risen so far, so fast? Does the pending yuan-based oil futures contract lead to the end of the petro-dollar? Is that why oil has risen so far, so fast? Is IT happening??

Will the U.S. government shutdown close its doors amid political posturing and theater? Will the political climate in Washington, D.C. get even worse? Will the Democrats invoke articles of impeachment on Donald Trump? Will the U.S. and its allies attack Iran?

Should I go “all in” on the SPDR Gold Trust (GLD) to profit from all of these potential events? Or will all of these storylines get resolved, and leave the gold bulls, once again, kicking air instead of a football – and landing flat on their backs?

Gold Divergence from Real Interest Rates

The price of gold has historically had a close correlation with real interest rates. Since the beginning of 2017, however, gold and real interest rates have seen increasing divergence. Is this a sign that we have entered a new era where the old correlations are no longer valid? Possibly.

For the price of gold and real rates to converge again, 5-year real rates would need to fall precipitously below zero. Or gold would need to fall below the 2016 lows. Or, some combination of the two. We can see that real interest rates have hit a peak in late December of every year since 2013 before correcting lower.

Gold is money. However, it is currently traded as a paper derivative. I can’t (and won’t attempt to) predict the day when gold will be set free from its paper chains. I view physical precious metals as a store of value and an insurance policy to protect against macro market risks.

Meanwhile, since I closely track gold and silver, I also swing trade “paper” gold and silver on a short term basis – both long and short – with an eye on several traditional and proprietary indicators.

GLD Charts

The weekly gold chart continues to look bullish, although is nearing an over-bought RSI signal. On a purely technical basis, I would expect at least a pull-back to the uptrend line and/or $124 at some point.

On the daily chart, we can see that GLD came back into a prior uptrend channel. If GLD continues upward, then in hindsight we might describe the drop below the channel as a “bullish under-throw.” GLD is over-bought on the daily RSI.

Gold COT Report

I view the gold COT to be neutral, perhaps slightly cautionary. In the week ending January 9th, the net commercial short interest increased by 23%. When price increases, the commercial banks tend to create paper gold to satisfy paper gold demand.

Peaks in net commercial short interest have almost always coincided with nearby sell-offs, and valleys in commercial short interest have almost always coincided with nearby rises in price. One should be careful when trying to “time” tops or bottoms based upon the COT report, for at least two reasons: 1) the COT report is published on Fridays with Tuesday’s data, so it is three trading days old, and 2) the bullion banks have demonstrated patience in covering their shorts, and it could take many weeks for the COT data to look meaningful in hindsight.

While the gold commercial short interest has increased rapidly from its recent low, it only recently crossed over its 3-year average. And net commercial interest is below recent highs.

Gold OPEX Price Magnet

I closely track the options market for gold, crude oil and natural gas and have created a program to calculate OPEX price magnets for these commodities. Here is a recent history of the gold futures price versus the calculated OPEX magnets.

Since June 2017, the futures and OPEX price magnets have tended to converge onr or before the options expiration date. The next option expiration date for COMEX gold is January 25th, 2018.

The OPEX price magnets that I have developed are related to the “max pain” theory. This Youtube video does a good job at describing the “max pain” theory. There are free max pain calculators online for publicly traded stocks; however, the OPEX price magnets are in my view more relevant and are calculated on futures contracts.

Conclusion

Rising gold prices, a weakening U.S. dollar and divergent real interest rates may provide evidence that gold is regaining its luster as a unique “safe haven” asset. Historically important correlations appear to be broken, and the dollar is setting multi-year lows. Add to this mix increasing political and geo-political risks, and we may have a formula for “IT” to happen. Gold could soon be free of its paper chains, and ETFs like GLD could continue to rise in value – and perhaps move sharply higher.

On the other hand, we might be witnessing beginning-of-the-year allocations and adjustments that become an eventual “nothing burger” for GLD and other gold-related investments. If we continue in the old paradigm, then I see reasons to be cautious for paper gold investments like GLD. GLD is over-bought on its daily RSI, and real interests rates could drag lower. Moreover, the nearby gold OPEX magnet suggests that gold could pull back before the end of January.

I wish all of you the best of luck navigating this interesting market.

Disclaimer

This article was written for information purposes, and is not a recommendation to buy or sell any securities. I never intend to give personal financial advice in any of my articles. All my articles are subject to the disclaimer found here.

I am currently offering a two week free trial.  In addition to my daily content, I also have good input from my subscribers in the chat section.  Come and check it out.

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.

Additional disclosure: I am always net long precious metals in various forms, and currently hold out-of-the-money GLD puts as a hedge.

Trump's 'Shithole Countries' Comment Tops This Week's Internet News

Last week Facebook decided that maybe it should make some changes to the information people see on the platform; also, a lot of people got very interested in the pay discrepancies between Mark Wahlberg and Michelle Williams. But, beyond that, it was also a week where everyone learned that a school kid could play the Cantina Band song from Star Wars with a pencil.

Yes, it was yet another strange, wonderful week on the internet. But what else happened? Here we go.

President Trump’s Unsavory Comments

What Happened: President Trump reportedly referred to Haiti, El Salvador, and some African nations as “shithole countries.” The internet responded in kind.

What Really Happened: There is absolutely no denying that Trump has had an impressively full week, declaring himself a stable genius, denying the possibility that he might be deposed as part of the Russia investigation, and avoiding Kendrick Lamar. But it was his comments reported Thursday that will likely have the longest-lasting impact.

Oh.

Some were concerned about journalistic standards…

…but many more were concerned about presidential standards, instead.

Naturally, media reports came fast, furious, and horrified. As the fallout from the comments continued, perhaps the most surprising reaction was the fact that the White House didn’t even try to deny it initially.

And they weren’t the only ones failing to denounce Trump’s crude language.

Still, at least one prominent conservative was willing to correct Trump.

As some of the countries mentioned started asking for comment on the comments, Trump said this:

Well, that’s what he said publicly, at least…

The Takeaway: Twitter?

Breitbart Says Goodbye to Bannon

What Happened: Apparently, when shadow presidents fall, it happens quickly and they even lose their satellite radio shows. Sorry, Steve Bannon.

What Really Happened: As those reading Michael Wolff’s Fire and Fury book know, there is one figure that looms arguably even larger throughout the entire thing than Trump himself: self-proclaimed genius (hey, another one!) Steve Bannon. Turns out, the ego-stroking he might have gotten from the book was likely a farewell gift, considering how the rest of his week went.

Yes, Bannon has lost the Breitbart job he swiftly returned to after leaving the White House back in August, despite releasing a full-throated walk-back of his comments in the Wolff book. So, what happened?

That’d do it. Sure enough, Breitbart was tweeting about his departure.

But it wasn’t just Breitbart that dumped him, it turned out.

(Bannon lost his Sirius show because it was a Breitbart-related venture, for those wondering; it wasn’t a coincidence, just cause and effect.) As would only be expected, news of his departure was everywhere in the media, but how did the rest of the internet respond?

It wasn’t only glee at Bannon’s misfortune, of course; some were also wondering just who could replace him at the outlet. Or maybe that should be, “what.”

The Takeaway: If only there was some kind of lesson to be learned from the swift rise and fall of Steve Bannon. Maybe it’s this?

The Leak of the Week

What Happened: In a political environment consumed with the concept of leaking, a surprise release of previously secret testimony to Congress took the internet by storm.

What Really Happened: Despite what certain POTUSes might have you believe, the investigations into potential collusion between the Trump campaign and Russia are ongoing, although at least one—the one being carried out by the Senate Judiciary Committee—is running aground thanks to internal strife between Republicans and Democrats on the committee. At the start of the week, one of the topics causing the most upset was the testimony of Fusion GPS co-founder Glenn Simpson over the origins of the company’s infamous “Russian dossier.”

Simpson testified in a closed session in August, but faced new calls from Republican committee chairman Chuck Grassley last week to testify again, publicly. Simpson and co-founder Peter Fritsch, in an op-ed that appeared in the New York Times, argued that Congress should simply release the transcript of his earlier testimony. Things seemed at an impasse… and then they didn’t. What changed?

People were surprised at how hardcore the move was…

…especially after Senator Feinstein responded to questions about why she did it.

This kind of thing is, well, unusual to say the least, so of course it was everywhere almost immediately. The 312 page document was, unsurprisingly, very enlightening.

This was, in other words, a really, really big deal. Although what kind of a big deal apparently depended on which side of the ideological spectrum you were on.

Expect this one to run and run.

The Takeaway: Actually, wait, we never checked in on how Trump responded to this news. Mr. President?

She Is Spartacus

What Happened: When it looked as if a news story was going to out the creator of a secret list of crappy men, the internet took it upon itself to handle the situation first.

What Really Happened: Perhaps you heard of the “Shitty Media Men” list before last week; it was a Google spreadsheet shared and edited anonymously that listed more than 70 men who were accused of being, to some degree, abusive towards women, whether it was creepy DMs or physical and sexual abuse. Since its creation in October of last year, it’s been the topic of much speculation and discussion, not least of all because no one actually knew where and how the list got started. And then, last week, that all changed.

It all started with a thread from n+1 editor Dayne Tortorici.

There’s much more in that thread, but those are the most salient points. Tortorici’s comments prompted a response from journalist Nicole Cliffe, and follow-ups from other journalists and editors.

It turned out that the writer of the piece, Katie Roiphe, was willing to comment that she was not about name anyone involved in the list.

Maybe the creator(s) of the list wouldn’t be named, and there was no need to worry about doxing! Well, OK, that was unlikely (for reasons we’ll soon get to). But then, something wonderful happened.

Indeed, so many women came forward to claim responsibility that a hashtag was created, #IWroteTheList, to share collective responsibility:

And then, the real author stepped forward.

Donegan’s piece for The Cut had an immediate impact.

The Takeaway: Nicole Cliffe, want to wrap this one up?

The (Flagging) Power of CES

What Happened: Someone at CES 2018 took the idea of “lights out” a little too literally.

What Really Happened: What would be the most unfortunate thing to happen at a trade show where electricity is kind of important?

Yes, the 2018 Consumer Electronics Show was hit by a twohour power outage last week. Before the cause was known—apparently, it was just rain—some people had some… special theories about what was happening.

Others were just philosophical about it all.

Some were even wondering who “won” the blackout. To be fair, a couple of brands definitely tried their best to claim the crown.

Ultimately, though, the answer to who won is fairly obvious, surely.

Some people at the show really seemed to enjoy the darkness, even if they didn’t make off with any free gifts. Hell, some went to so far as to hope it wasn’t a one-off.

The Takeaway: Of course, it’s worth keeping some sense of perspective about things…

Cryptocurrency Vibe Jumps 400% in 24 Hours

Even in the fast-paced and fast-changing world of cryptocurrency, the rise of Vibe in the last 24 hours is astonishing.

The live music-centric digital currency has seen its value explode 400% in the last day to $2.34, as of mid-morning Wednesday. That puts the price per coin above Ripple, though the overall market cap is still notably lower.

Vibe currently has a market cap of $405 million, according to CoinMarketCap. That’s low in the big picture, but the coins just began trading in October. Not familiar with the platform? Here’s a quick primer.

What is a Vibe token?

Vibe tokens tie in with Viberate, a platform that acts as an IMDB of sorts for live music. Performers are ranked based on their online popularity. Tokens can be used to purchase merchandise or get access to music industry contacts. Eventually, they are expected to be accepted for ticket purchases.

What’s the buzz?

Vibe’s initial coin offering (ICO) made history by selling out in less than 5 minutes, raising $10 million in the process. Among its backers is Charlie Shrem, one of the most visible members of the Bitcoin community.

What caused the surge?

The Binance exchange added Vibe to its trading options, giving the cryptocurrency an added dose of credibility. Buyers jumped in, pushing Vibe into the Top 100 of all digital coins being traded.

Toyota unveils self-driving concept vehicle for rides, deliveries

LAS VEGAS (Reuters) – Toyota Motor Corp announced on Monday a self-driving electric concept vehicle that it will tailor for companies to use for tasks like ride hailing and package delivery, underscoring how automakers are no longer simply building cars but also providing services to go with them.

The world’s second-biggest carmaker said it plans to begin testing the e‐Palette concept vehicle in various regions, including the United States, in the early 2020s. It will come in three sizes: a bus-sized vehicle, a shuttle and a small delivery vehicle sized to run on sidewalks.

Toyota said at the CES global technology conference in Las Vegas that it will work with companies including Amazon.com Inc, Chinese ride-hailing company Didi Chuxing Technology Co, Pizza Hut, Mazda Motor Corp and Uber Technologies Inc[UBER.UL] to build the vehicle and its hardware and software support and develop connected mobility products.

After intense research and development in self-driving technology, automakers are beginning to unveil clearly defined autonomous vehicle strategies and looking to apply the technology to uses like ride services, shuttle services and package deliveries.

Toyota took longer than rivals to warm to the idea of autonomous vehicles, but has committed $1 billion through 2020 to develop advanced automated driving and artificial intelligence technology. It plans to begin testing cars that can drive themselves on highways around 2020.

“This announcement marks a major step forward in our evolution towards sustainable mobility, demonstrating our continued expansion beyond traditional cars and trucks to the creation of new values including services for customers,” said Toyota President Akio Toyoda in a statement.

The vehicle features an open control interface enabling Toyota’s partner companies to install their own automated driving system. Toyota’s so-called “guardian” technology will then act as a safety net, the company said.

Carmakers, tech companies and other service providers have partnered on self-driving projects over past two years, due to the difficulty and high cost of developing such technology alone.

Reporting By Alexandria Sage; Editing by Meredith Mazzilli

Does This 'Black Mirror' Fan Theory Mean We're Finally Ready For the Singularity?

When Black Mirror first hit the air in 2011, it drew invariable comparisons to The Twilight Zone. Understandably so: Both shows dealt with elements of science fiction and psychological horror, and both functioned as anthology shows, with episodes so distinct from one another that an uninitiated viewer could plunge in at random and be as familiar with a given episode’s premise as a seasoned fan. It was a selling point; it made the show easy to recommend to people who might be wary of committing to a complex, serialized narrative.

But since its purchase by Netflix in 2015, Black Mirror has begun to chip away at its episodic edges. Technologies introduced in one installation reappear in another; news tickers on characters’ TV screens chronicle events from previous episodes; musical cues repeat again and again. Call them Easter eggs, or call them clues to piecing together a shared universe—one that creator Charlie Brooker, after years of denying, has finally admitted does, indeed, exist.

The new episodes, released last Friday, are more thematically cohesive than any batch that’s preceded them. They grapple obsessively with the notion of the human mind: uploading it; infiltrating it; probing its memories; preserving it after death. Though the show has flirted with digital consciousness in the past, most notably with its mind-bending “White Christmas” special and the series three darling, “San Junipero,” the new season takes up the thought experiment with zeal. Black Mirror’s episodes still stand well enough on their own, but after this latest installation, it’s possible to zoom out and see a cohesive rumination on the implications of digital immortality.

(Spoiler alert: spoilers for multiple Black Mirror episodes follow.)

Viewers were first introduced to the “cookie,” Black Mirror’s term for a carbon-copied consciousness, in 2014’s “White Christmas,” which followed Jon Hamm as he coerced digital souls into acting as hyper-personalized home assistants and confessing to crimes. But there were hints of this manifestation of the singularity even back in the show’s first few episodes. Take, for example, “Be Right Back,” in which a woman named Martha, mourning her dead boyfriend, signs up for a service that promises to harvest the traces of his online presence to recreate him as a chatbot—and, later, place that AI in a synthetic body.

The uncanny process is flawed, naturally: The android “Ash” can only mimic what he’s been taught, and his lack of human traits (like the need for sleep) is off-putting. But Martha’s desire to resurrect her dead loved one stands as a precursor to the digital rebirth we see later in the series. Her experience is remarkably similar to that of Jack, who we meet in “Black Museum,” the final episode of Black Mirror’s latest season. When his wife Carrie falls into an irreversible coma, he’s offered the chance to implant her consciousness in his own mind, using the technology that we learn was initially developed to help diagnose disease—and, much like in “Be Right Back,” that decision goes terribly wrong.

That casts a new light on the 2013 episode. What if we see it not only as a warning against meddling with death, but also as an early attempt by technologists in the Black Mirror-verse to digitize consciousness? Android Ash lacks a true sense of self; he doesn’t have memories from his previous life in the same way that Carrie does. But, at least for a little while, he passes his girlfriend’s Turing test. It’s a failed experiment, for sure—but maybe a necessary, realistic stumble on the path to true digital reincarnation.

From that first seed of cloud-based immortality planted in “Be Right Back,” we jump to “White Christmas,” where the technology, too, has leapt ahead—and has even more sinister implications. Sure, your cloned assistant might streamline life for the true “you,” but what about the “you” that’s then forced to live out eternity trapped in a Google Home-esque device? And Hamm’s ability to torture cookies by speeding up their timelines, subjecting them to months or years of insanity-inducing boredom, certainly hints at the “human rights for cookies” that “Black Museum” tells us were later enacted. In both “White Christmas” and this season’s “USS Callister,” digital cloning appears largely unregulated: Tech companies like the one that employs Hamm’s character are able to turn cookies into slaves for their “real” selves, while bad actors like Callister’s Robert Daly are able to get their hands on the technology to enact sadistic punishment on those who have “wronged” them—and no one steps in to stop them.

It’s clear that at this moment in the technology’s lifetime, the ACLU hasn’t yet seized upon cookies’ cause, and the mass protests mentioned in “Black Museum” have yet to have any effect. And by the end of “Black Museum,” it’s still not apparent whether those human rights for cookies are actually enforced: The museum’s proprietor is still torturing Clayton Leigh’s cookie, seemingly unhampered by pesky regulations, though his own karmic blowback returns that favor in kind. It also seems at this point that no one has given any real thought to the ethical and psychological implications of what they’ve created: How do you ensure that your cookie doesn’t spend eternity being driven mad by boredom—hell dressed up as limbo?

That brings us to “San Junipero.” No more creepily submissive androids, stimulation-starved home assistants, or uploaded minds trapped in other people’s skulls or teddy bears: Now, upon death, residents of the universe can choose to live forever in a simulated utopia, seemingly without any real drawbacks. It’s the best possible outcome of mind-uploading technology: that we use it not to service our real-world selves or punish criminals, but rather to guarantee life—a good life—after death. There are nods to a similarly happy outcome in “Hang the DJ,” this season’s heart-wrenching, dating app-inspired episode in which hundreds of thousands of cookies form a data set for real-world singles (and though that app makes a sneaky cameo on a phone in “USS Callister,” it’s arguably an earlier, less cookie-dependent iteration, given that cookie technology doesn’t appear known to most of that episode’s characters).

You can take the shared-cookie-timeline theory even further, if you don’t mind some attenuation. Perhaps the memory-capturing technology to which we’re first introduced in season 1’s “Entire History of You”—and which resurfaces in this season’s “Arkangel” and “Crocodile”—helped facilitate mind uploading, creating an easily downloadable reel of a life’s worth of data. Maybe the hyperrealistic augmented reality flaunted in “Playtest” was ultimately adapted to create the virtual paradise of “San Junipero.”

Some fans have seen even more hints of the cookie-verse in “Playtest”: As Redditors SplurgyA and sailormooncake speculate, the character of Sonja in Playtest might well be the real-world version of Selma, played by the same actress in season 1’s “Fifteen Million Merits.” Look closely in “Playtest,” and you’ll notice that her apartment sports a book on the singularity—and because she’s so enamored with game development, Redditors hypothesize, she might well have been one of the first to cookie-ify herself. Which, in turn, might mean that the world of “Fifteen Million Merits” is a reality show or form of punishment for cookies. And speaking of punishment, still others have suggested, the protagonist of series two’s “White Bear” might well be a cookie herself, sentenced to eternal, repetitive punishment. The speculative possibilities are endless.

The idea of digitally replicating a human mind is a much-loved trope of sci-fi novels that’s been seeing renewed enthusiasm recently. Altered Carbon, a novel in which characters are able to upload and download their personalities into new bodies, will be reborn as a Netflix series next month. The Canadian TV show Travelers, which premiered in 2016, imagines a world in which humans send their consciousnesses back in time to prevent an apocalypse. And in Cory Doctorow’s Walkaway, published last spring, self-appointed outcasts discover how to evade death by “backing themselves up” to the the cloud. The trend is perhaps reflective of Silicon Valley’s own obsession with digitizing the human mind. From technologies like brain-machine interfaces to the pipe dreams of futurists like Ray Kurzweil, many see this as the holy grail of AI—and one that some project might be attainable by 2045. So as we interpret Black Mirror as a cautionary tale about online dating and robot guard dogs and myriad technologies, let’s not lose sight of its larger message: A reminder to center our humanity as we speed toward a world in which that becomes harder and harder to define.

December Jobs Report: Late Cycle Mediocre Growth Reasserts Itself

By New Deal Democrat

Headlines

  • +143,000 jobs added
  • U3 unemployment rate unchanged at 4.1%
  • U6 underemployment rate rose +0.1% from 8.0% to 8.1%

Here are the headlines on wages and the chronic heightened underemployment:

Wages and participation rates

  • Not in Labor Force but Want a Job Now: Rose +43,000 from 5.265 million to 5.308 million
  • Part Time for Economic Reasons: Rose +64,000 from 4.851 million to 4.915 million
  • Employment/Population Ratio ages 25-54: Rose +0.1% from 79.0% to 79.1%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: Rose $.0.07 from $22.23 to $22.30, up +2.3% YoY. (Note: You may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel to come closer to the situation for ordinary workers).

Holding Trump accountable on manufacturing and mining jobs

Trump specifically campaigned on bringing back manufacturing and mining jobs. Is he keeping this promise?

  • Manufacturing jobs rose by +25,000 for an average of +17,500 a month vs. the last seven years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs fell -400 for an average of -63 a month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month.

October was revised downward by -33,000. November was revised upward by +24,000, for a net change of -9,000.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed.

  • The average manufacturing workweek fell -0.1 hour from 40.9 hours to 40.8 hours. This is one of the 10 components of the LEI.
  • Construction jobs increased by +30,000. YoY construction jobs are up +210,000.
  • Temporary jobs increased by +7,000.
  • The number of people unemployed for five weeks or less decreased by -18,000 from 2,253,000 to 2,235,000. The post-recession low was set over two years ago at 2,095,000.

Other important coincident indicators help us paint a more complete picture of the present:

  • Overtime was unchanged at 3.5 hours.
  • Professional and business employment (generally higher-paying jobs) increased by +19,000 and is up +488,000 YoY.
  • The index of aggregate hours worked in the economy rose by 0.1% from 115.9 to 116.0.
  • The index of aggregate payrolls rose by 0.7% from 172.2 to 172.9.

Other news included:

  • The alternate jobs number contained in the more volatile household survey increased by +104,000 jobs. This represents an increase of 1,267,000 jobs YoY vs. 2,055,000 in the establishment survey.
  • Government jobs rose by 2,000.
  • The overall employment to population ratio for all ages 16 and up was unchanged at 60.1 m/m and is up + 0.3% YoY.
  • The labor force participation rate was unchanged m/m and is also unchanged YoY at 62.7%

Summary

This was a mediocre but not bad report. There was growth in almost all sectors of employment. Participation measures were positive. Aggregate payrolls and hours increased.

But there were concerning signs of late cycle deceleration as well. The underemployment rate increased for the second month in a row, and the unemployment rate is up from two months ago. Involuntary part-time employment and those outside of the workforce who want a job now both increased. And wage growth is actually declining.

Bottom line: After several months of post-hurricane bounces, we are back to a late cycle dynamic.

Enterprise IoT threatens to undermine cloud and IT security

The internet of things, or IoT, is pervasive these days in your personal life. However, this technology is just getting into the Global 2000 companies. Yet most of the Global 2000 companies are unaware of the risks that they are bringing to IT and cloud security with their IoT adoption.

How did this happen? Well, for example, as thermostats and sensor fail in buildings’ HVAC systems, they are often replaced with smart devices, which can process information at the device. These new IoT sensor devices often are computers unto themselves; many have their own operating systems and maintain internal data storage. IT is largely unaware that they exist in the company, and they are often placed on the company’s networks without IT’s knowledge.

Besides the devices that IT is unaware of, there are devices that it does know about but are just as risky. Upgrades to printers, copiers, Wi-Fi hubs, factory robots, etc. all come with systems that are light-years more sophisticated in intelligence and capabilities than what came before, but they also have the potential of being turned against you—including attacking the cloud-based systems where your data now resides.

Worse, many of these IoT devices are easily hacked, and so can easily become agents for the hackers lying in wait to grab network data and passwords, andeven breach cloud-based systems that may not have security systems that take into account access from within the company firewall.

And don’t let price be a proxy for secrity level: I’m finding that the more specialized and expensive that the devices are, the more they are likely to have crappy security.

This is going to be a huge issue in 2018 and 2019; many companies will need to get burned before they take corrective action.

The corrective action for this is obvious: If the IoT device—no matter what it is—cannot provide the same level of security as your public cloud provider or have security systems enabled that you trust, it should not be used.

Most IoT companies are improving their security, even supporting security management by some public clouds. However, such secure IoT devices are very slow to appear, so most companies deploy what is available in the market: IoT devices without the proper security systems bundled in.

Sadly, I suspect that IoT security will be mostly a game of Whack-a-Mole over the next several years, as these things pop up on the corporate network regularly.

That’s really too bad. We finally just got cloud security right, and now we’re screwing it up with new thermostats and copiers that make all that good security worthless.

Apple, researchers eye patches to solve Intel chip flaws

(Reuters) – Intel Corp (INTC.O) said fixes for security issues in its microchips would not slow down computers, rebuffing concerns that the flaws found in microprocessors would significantly reduce performance.

The performance impact of the recent security updates should not be significant and will be mitigated over time, Intel said late on Thursday, adding that Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O), Google (GOOGL.O) and Microsoft Corp (MSFT.O) reported little to no performance impact from the security updates. intel.ly/2CHQ89E

Intel shares fell nearly 2 percent on Thursday as investors were worried about the potential financial liability and reputational damage from the recently disclosed security issues.

The largest chipmaker confirmed earlier this week that the security issues reported by researchers in the company’s widely used microprocessors could allow hackers to steal sensitive information from computers, phones and other devices.

Security researchers had disclosed two security flaws exposing vulnerability of nearly every modern computing device containing chips from Intel, Advanced Micro Devices Inc (AMD.O) and ARM Holdings.

The first, called Meltdown, affects Intel chips and lets hackers bypass the hardware barrier between applications run by users and the computer’s memory, potentially letting hackers read a computer’s memory and steal passwords. The second, called Spectre, affects chips from Intel, AMD and ARM and lets hackers potentially trick otherwise error-free applications into giving up secret information.

Intel had said the issues were not caused by a design flaw and asked users to download a patch and update their operating system.

Intel may be on the hook for costs stemming from lawsuits claiming that the patches would slow computers and effectively force consumers to buy new hardware, and big customers will likely seek compensation from Intel for any software or hardware fixes they make, security experts said.

Reporting by Kanishka Singh in Bengaluru; Editing by Amrutha Gayathri

3 Strategies That Beat Willpower for Keeping Your Resolutions

It’s not news to most people that the vast majority of New Year’s Resolutions fail. Many of us respond to this reality by vowing to try harder. ‘I’ll really buckle down this year’ we tell ourselves, or we swear that, ‘this time they’re really going to give it my all.’

And then what happens? Usually, despite your determination to throw all of our willpower into your goals, you still fall short. Is it just that you lack the backbone to accomplish your goals? Nope, suggests a fascinating post by Jeff Wise on The Cut blog. The problem is your approach.

Science shows that the harder you try at a New York Resolution, the more likely you’ll be to fail. The counterintuitive truth is that the easier you make things, the more likely you’ll be to succeed.

Willpower is a terrible way to reach your goals.

How can this be so? The short answer is that willpower is a terrible way to accomplish change. While the science on the subject is still a bit muddled, it’s clear from both research and personal experience that relying on self-control to force yourself to meet your goals is pretty much doomed to long-term failure.

Here, for instance, is the money sentence from a recent paper that looked at whether college students were able to stick with their stated goals over a semester: “contrary to conventional wisdom, self-control was unimportant in accomplishing one’s goals.” And this isn’t the only research that came to this conclusion. “Better self-control is, paradoxically, associated with less inhibition of immediately available temptation,” another pair of psychologists concluded.

3 better alternatives

So what should you do instead of white knuckling through temptation and berating yourself to do better? Rather than assume that keeping a resolution has to be hard work, science shows that the people who actually meet their goals do so by making things as easy for themselves as possible. Wise breaks down how to do this into three simple suggestions:

  1. Avoid temptation. Want to quit smoking or eat fewer donuts? Don’t rely on willpower to overcome temptation. Instead, avoid temptation. You’ll do a lot better if you change your route so you don’t go past the Krispy Kreme than if you expect to be able to see that deliciousness every day and never go through the door.

  2. Swap behaviors. Of course, as Wise points out, it’s not always possible to avoid running into the things you’re trying to stay away from. In addition to steering clear of naughtiness, you need another strategy: plan ahead what you’ll do when faced with temptation and work to make these reactions as automatic as possible. “Maybe you’ve set a rule for yourself that every time you find yourself wanting to eat something sweet, you have a piece of fruit instead, or if you’re tempted to have a cigarette, you chew a piece of gum,” writes Wise.

  3. Start small and build momentum. Straining to keep your promises to yourself isn’t a sign you’re doing well, it’s a sign you don’t understand how to achieve difficult goals. Instead of sweating and struggling, “carve out small, manageable areas of good behavior and gradually build trust in our ability to hold fast,” he recommends. “First, find a rule that will bring you a little bit closer to your self-control goal, but will be so easy that you have no doubt you’ll be able to stick to it. Then, each day keep track of whether you’ve done it or not. That’s all.” Don’t worry about the big goal. Instead, focus on the incremental process.

Check out Wise’s complete post for more specifics on how he’s personally put this program to use to learn languages, eat healthier, and achieve a variety of other goals. It can work for whatever change you want to make in life, he insists. All you have to do is try way less hard and make things easier for yourself. It sounds like some seriously doable advice.

This Is the Single Greatest Gift You Can Give Yourself As A Leader

Everyone and their mother has their secret to leadership and there’s no shortage of articles on leadership lessons extracted from virtually everything.

I’m waiting for Omarosa’s Book on Leadership–which I will promptly not buy. 

Anyhow, it’s difficult to find leadership approaches that are universally applicable. Or so I thought before I interviewed executive coaches and faculty members Ray Luther and Eric Johnson of Indiana University’s Kelley School of Business.

Luther and Johnson have been advancing the concept of Self-Observant Leadership, which centers around a universal truth:

You can’t effectively lead others until you know how to lead yourself.

That happens through Self-Observant Leadership: when you deeply understand your identity, compare it to your reputation (how others experience you) and then make meaning of the observations and choose to adapt.

As Harvard’s Ronald Heifetz describes it, it’s the ability to simultaneously stand on the balcony and observe yourself on the dance floor.

It’s what separates great leaders from the mediocre, and it’s the rare universal truth in leadership development because it starts with who you are/want to be.

While we’re speaking truth, few leaders are skilled at Self-Observant Leadership because it’s oh-so-painful to practice.

I remember receiving 360-degree feedback; ignoring all the good and beating myself up over corrective feedback. Learning that how you’re perceived doesn’t always match up with the identity you want is truly painful.

But as Luther and Johnson put it:

“The greatest gift you can give yourself is honesty”. 

Which makes self-observable moments the biggest present under the tree.

Interestingly, this isn’t authentic leadership we’re talking about here as commonly discussed, i.e. understanding and remaining true to yourself as you are today. This is a refined definition of authenticity–understanding who you are and how you’re perceived, then making behavioral changes to become the leader you want to be, even if it means operating outside the identity you’re comfortable with. 

It’s authenticity via self-awareness and adjustment. And it requires focused attention to your internal (our identity) and external (our reputation) channels of feedback. 

Executive coach Johnson cited the example of a high-level client to illustrate. The coachee realized (through guided self-observation) that he needed to learn to give people difficult feedback if he wanted to progress up the ranks. Doing so didn’t represent his authentic-self today, but to be the leader he wanted to become, he had to adapt.

That said, Self-Observational Leadership is also about self-congruence. Luther described another coaching client who was already an effective leader but was perceived as a hard-nosed person, which couldn’t have been farther from how he wanted to be perceived. His internal and external feedback mechanisms were providing conflicting data. He had to make behavioral adjustments too, but in this case to align with how he wanted to be known.

So with all this in mind, how do you deliberately practice Self-Observant Leadership?  Luther and Johnson shared these 6 steps:

1. Live your values.

This starts with taking time to truly know your values–which Johnson says surprisingly few people really know. Your identity is grounded in your values, and in your purpose, which brings us to the next item.

2. Move towards purpose.

Understanding your Profound Why (Why are you working so hard? For what higher order reason?) is the other half of your identity. With a clear understanding of values and purpose in tow, you then compare your identity to how you’re perceived, which happens in the next step.

3. Learn.

Pay attention to feedback, both internal and external, to learn how you’re perceived and be ready to accept some things you don’t want to hear. 

4. Be present.

Part of learning is to always be present in the moment, so you can be aware of how you’re moving on the dance floor and are better able to view yourself from the balcony.  Which leads to step 5.

5. Reflect.

This separates the good from the great. Now you must reflect on the gap between your desired identity and how you’re perceived. Journaling is a powerful tool here–taking 5 minutes in the beginning of the day to reflect on the values and purpose you want to exemplify, then reviewing it for 5 minutes at the end of the day to see how you did.

6. Adjust.

Self-Observant Leadership culminates in action (self-adjustment). Without it you’re passively observing, and passing-by the opportunity to be a significantly better leader.

No matter what leadership philosophy you subscribe too, it’s hard to argue with the need for self-observance–especially given today’s rightfully sensitive workplace.

I should point out that there are those that can game the system for a while–acting exactly as the system needs them too without consideration to their authentic selves, all in the effort to rise up the ladder. 

But it always catches up with them in the end. At some point, raw performance intersects with potential. 

And those with the greatest potential for advancement see the potential in being honest with themselves.

In 6 Words, Elon Musk Explained Why So Many People Are Afraid to Take Risks and Achieve Greatness

This series examines the stories behind some of the best inspiring quotes of all time. Check out the full list: the best inspirational quotes for 2018.

The most powerful threat to greatness isn’t evil. It’s mediocrity.

Of all the colorful ways to articulate that truth, one of the best is what Elon Musk told Chris Anderson of Wired magazine, back in 2012.

They were talking about Musk’s space exploration company, SpaceX, which grew out of Musk’s “crazy idea to spur the national will” to travel to Mars–by first sending a private rocket to the red planet.

He tried to to slash the cost of his quixotic dream by buying Cold War Russian missiles to turn into interplanetary rockets. While negotiating that deal, he realized that it wasn’t lack of “national will” that held the U.S. back from exploring space.

Instead, it was a lack of affordable technology–and the high cost, he told Anderson, was the result of some “pretty silly things” in the aerospace industry, like using legacy rocket technology from the 1960s. 

Anderson: I’ve heard that the attitude is essentially that you can’t fly a component that hasn’t already flown.

Musk: Right, which is obviously a catch-22, right? There should be a Groucho Marx joke about that. So, yeah, there’s a tremendous bias against taking risks. Everyone is trying to optimize their ass-covering.

That’s the quote that I liked so much, especially those last six words: a “bias against risk,” because everyone is “trying to optimize their ass-covering.”

It’s funny–but also poignant. And, of course, it applies to a lot more than space exploration.

It applies to the vast majority of successful companies that get stuck producing legacy products–because they can’t risk that innovation might upset their own profit models.

It applies to the service providers that make a mockery of the word “service” (say for example, big airlines and utility companies)–because cost-cutting with crappy service maximizes shareholder value.

It applies also to temptations in our personal lives, and in the lives of those around us.

Think of the colleagues you know who hold onto uninspiring jobs for fear of going after the careers or entrepreneurial dreams they really want.

Or think of the friend you might have (I think most of us do), who stays in a lousy relationship because he or she is more afraid of being alone than of living with less than they deserve.

We’re all a little bit afraid of risk. Yet, each day represents a new chance and a new beginning. At the start of the year, that sense is especially acute. 

And sometimes we need a little inspiration to take the leap.

Whatever is the thing you’re afraid of trying–a new business, a new adventure, a new relationship–maybe now is the time to give it a try.

Cast aside your risk aversion. Be uncomfortable for a while as you try something new. Accept the chance that you’ll fail.

Don’t optimize your ass-covering. Instead, optimize your opportunities. And find your own mission to Mars.

Blockchain Takes a Shot at Redefining the Sports Betting Experience

In 2018, hundreds of sports betting sites and apps allow bettors to gamble discretely from just about anywhere through their smartphones. This convenience has attracted more users to participate in the action.

Traditional payment services like banks and digital wallets have been wary of supporting online gambling, leaving room for specialized payments gateways to facilitate bankroll funding and payouts. There’s also no shortage of handicapper sites and services that offer paid analyses to less savvy gamblers.

Unfortunately, the involvement of these parties brings enhanced risk of fraud and failure. Gambling payment gateways are constantly under threat from cyber-criminals. Handicappers also don’t quite produce the wins that they promise to bettors. As such, there are opportunities for blockchain – a technology that promotes shared trust – to address these issues.

Several blockchain efforts have set their sights on bettors’ needs. For example, emerging digital currency Electroneum envisions its token to be used by online gambling services. BlitzPredict provides bettors trustworthy insights through its aggregation service. Platforms like HEROcoin even aim to decentralize sports betting.

Success of these efforts could all help create better betting experiences. Here are three ways how these blockchain services can accomplish that goal.

1 – Easier Funding and Payouts

Payments using blockchain can be completed quicker compared to traditional means. Tokens do not have to be routed through different financial institutions and clearing houses. Winnings can either be readily credited to the user’s bankroll or to a token wallet. Since tokens are now fungible assets, bettors also have the option to transfer tokens to exchanges and trade them for other crypto or fiat currencies.

However, crypto tokens aren’t without their quirks. For instance, it can be hard to tell how much a bet made in Bitcoin is actually worth in fiat currency. For ordinary people, it’s easier to discern the value of “$50” compared to “0.003 BTC.” Interestingly, Electroneum addresses this by limiting its token to two decimal places just like fiat currencies. This way, users could have an easier time estimating or converting mentally making use of crypto tokens for gambling more bettor friendly.

2 – Trustworthy Insights

Blockchain startup BlitzPredict aims to provide insights by aggregating sportsbooks and prediction markets much like a stock market ticker. This helps bettors determine which sportsbook provides them with the best possible outcomes for a given bet. The platform also enables bettors to use blockchain smart contracts to automatically place bets when certain conditions are met.

Alternatively, bettors can subscribe to handicapper services that could supposedly point them to better odds. However, the credibility of many of these so-called sports “experts” have been called to question. Many offer tips and promise sure wins for a fee even if they don’t have the credentials to back their “expertise” or the data to support their picks.

In order to promote quality insights, BlitzPredict also allows analytics enthusiasts to share their prediction models to other users. High-performing models are rewarded with the platform’s own token which could then be used to place bets using the platform. Such a rewards mechanism encourages bettors to make data-driven decisions rather than settle for hunches or bad advice.

3 – Transparent Betting

Sportsbooks are often set up so that the house always wins. Even the reputable ones will have to make money by taking a cut from transactions. Without aggregation and advanced analytics, bettors are not only likely to lose in the long term, but they may also have to absorb the cost of these cuts and fees for all the transactions they conduct.

Platforms such as HEROcoin challenge this system by offering decentralized peer-to-peer betting. Through smart contracts, bettors are free to define the conditions of wagers. Blockchain’s transparency lets users trace the flow of money and the terms.

Fair Wagers

Sports betting is still a growing market and the expansion of betting to other segments such as esports is bringing in new participants. In esports alone, studies predict that more than $23 billion will be wagered by 2020. New services should strive to create easier and more positive experiences for the benefit of these new bettors joining the scene.

Fortunately, blockchain startups are already bringing transparency and trust into such activities. The use of crypto tokens could help address the lengthy and costly funding and payout processes. Better analytics and aggregation could also aid discerning bettors in making effective picks. Smart contracts can provide secure mechanisms for parties to enter and execute wagers.

This 5-Star Hotel Just Ruined Its Online Reputation By Getting the Police to Help Kick Out a Guest (He's Famous)

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek.

You’d think that five-star hotels would be used to catering to the famous.

You’d even think that they research their guests beforehand to make sure they can surprise them with personal touches.

But then there were the peculiarly personal touches offered by the Boca Raton Resort, a Waldorf Collection Hotel to one of its New Year guests.

Vitaly Zdorovetskiy is a very well-known YouTube star. He makes prank videos. People like them.

However, once the Boca Raton Resort discovered who he is, it decided it didn’t like him after all.

All we currently have is Zdorovetskiy’s explanation. 

Well, that and the video, in which hotel personnel arrive with two police officers to have him removed on New Year’s Eve. 

It seems, though, unclear what he’d done wrong, other than be who he is. 

He says he wasn’t going to film anything in the hotel. Indeed, he had his girlfriend with him, rather than his equipment.

Still, watch and listen to his story and see what you think. (Warning: His language isn’t pristine.)

[embedded content]

It seems that it all started with a phone call from the hotel to his room, which Zdorovetskiy didn’t want to take.

But can it be that the next step was for management knock on his door to check whether he intends to make prank videos in the hotel?

Now YouTube stars aren’t like you and me. Zdorovetskiy’s own admission is that he may have told the manager to go away in a rather rude-imentary manner because he wanted to sleep.

Within the hour, though, he says a manager broke into his room with a couple of police officers to have him removed.

He claims they ordered him and his girlfriend, who was naked at the time, to get dressed in front of them.

A man who appears to be a manager accuses him of posting a prank video the day before — but not one at the hotel.

The manager seems, indeed, to have no idea what the video was. 

Still, some might wonder whether the hotel thought through its strategy as thoroughly as it might have done. 

Naturally, being a YouTube star, Zdorovetskiy encouraged his 9 million followers to post poor reviews of the hotel. 

He encouraged them to go to Expedia, Hotels.com and Priceline. These weren’t affected.

He also encouraged them to go on Yelp.

At the time or writing, the Boca Raton Resort has sunk to a one-and-a-half star rating on Yelp.

Perhaps Yelp doesn’t matter — it certainly doesn’t to me — but a general flow of online ill-will toward a hotel is rarely a good thing.

And, in this case, surely it could have been avoided.

The senior manager explained to Zdorovetskiy that “due to the nature of your postings, we reserve the right as a private company to have you removed from the property and not do business with you.” 

Some might find this explanation odd, as the very same manager admitted he had no idea what Zdorovetskiy had posted.

Worse, he then told him that he’s being “trespassed” for one year. This means that if he returns in that time, he’ll be arrested. 

And all for, well, what?

I contacted the Waldorf Astoria to wonder what it thought of its staff’s behavior and will update, should a response be forthcoming.

Zdorovetskiy does have something of a reputation. 

He was arrested last year after climbing the HOLLYWOOD sign. 

He was also charged with criminal trespass after streaking during the World Series.

I can’t say I warm to his public charm at all.

But some famous people are very different in private.

It’s odd that the hotel didn’t seem to know who he was when it accepted his booking.

Moreover, if the manager had told him he’d done something — behaved rudely toward a member of staff, for example — it would have been entirely understandable that he’d be removed.

Yet to expressly look a guest in the face and say they’re being kicked out and banned for a year — just because of the videos they make — seems exactly like the haughty half-wittery many might expect from one or two snooty establishments.

But only one or two, surely. 

Some will say that the mere chance that the hotel might suffer damage of some sort justifies its stance.

To which I wonder: So how do rock stars ever get into a hotel?

Now, what are the chances that members of Zdorovetskiy’s team will pay a secret visit to the Boca Raton Resort and really have a good time?

High, I’d say.

How to Watch the 2018 New Year’s Countdown and Ball Drop for Free

It’s New Year’s Eve 2017, and people are saying, “Out with the old and in with the new.” If you’re one of the millions who cut the cord on their cable television this past year, you might find yourself unable to watch the 2018 countdown. But you don’t need cable to watch the ball drop in New York City or to see Mariah Carey make her ‘New Year’s Rockin’ Eve’ comeback on ABC. That’s because 2017 was finally the year streaming television arrived. Here’s how to live stream the New Year’s Eve countdown and ball drop for free — for auld lang syne.

DirecTV Now

You can watch Ryan Seacrest host ‘New Year’s Rockin’ Eve’ — and a whole lot more — using DirecTV Now‘s free seven-day free trial. The service costs $35 per month for a package of at least 60 live channels after the trial ends, but that stretch can get you in on should help you through the holiday and more. DirecTV Now’s basic-level plan packs local affiliates for CBS, FOX, and NBC. But before you sign up, check your local channel availability here, because not every market includes every station.

Hulu with Live TV

FOX’s New Year’s Eve coverage is hosted by Steve Harvey this year, and you can catch it on Hulu with Live TV which also offers CBS and NBC. The service also packs a big on-demand library, which could be good if you get bored of all that confetti and kissing and you just want to binge, instead. Like DirecTV Now, Hulu with Live TV is free for a week, but it runs $39 per month after the trial is up. One nice thing about Hulu’s offering is that it has an option to add on a cloud DVR service, which might be a smart long-run investment if you want to keep the service for 2018 and beyond.

Sling TV

Depending upon which television channel you want to ring in the new year with, Sling TV might be the choice for you. The service also offers a seven-day free preview as well as Univision and FOX, but you can only get those channels in select markets and on its higher-tiered “Blue” plan, which costs $25 per month after the trial. If you want to watch CNN’s Anderson Cooper count it down, Sling’s lower tiered “Orange” plan costs just $20 per month, and offers the cable news giant, but it doesn’t have the local networks. But while Sling TV Blue does have the NFL Network, so it might be a worthwhile investment, if you’re going to watch all the games on Sunday before the festivities begin.

PlayStation Vue

If you’ve got a PlayStation 4 under your TV, PlayStation Vue might be a good choice for you. The live streaming television service offers a five-day free trial and starts at $39 per month after the promotional period ends. The base plan caters to popular live programming (other packages focus on sports and movies), so that’s probably a safe bet for streaming New Year’s programming. But like the others, channels vary by zip code, so check their availability before you sign up.

YouTube TV

Google’s YouTube TV isn’t just a portal to its popular video-hosting website. It is also a live streaming television service that offers a seven-day free trial with 40 channels and cloud DVR capability for $35 per month (once the promotion ends). YouTube TV includes all the major networks, including CBS, FOX, and NBC — where host Carson Daly does his yearly thing — but the catch the service only available in select markets (though, there are quite a few).

Dividend Sensei's Portfolio Update 16: Ignore All Market Predictions

Source: AZ quotes

First, let me be very clear that this is my personal portfolio tailored to my specific financial situation, risk profile, time horizon, and personality traits. I am not recommending anyone mirror this portfolio, which is merely designed to show my unique, rule-based, methodical approach to value-focused, long-term, dividend growth investing.

My situation is unique, as, though only 31, I’m already retired (medical retirement from the Army), thus making this portfolio an income-focused retirement portfolio (though in a taxable account). I’m also working full time (self-employed) and thus have an external source of income to continually add to this portfolio. I do not plan to actually tap the portfolio’s income stream for 20-25 years, when I plan to move my family (and help support my parents) to the promised land of my people: Sarasota, Florida.

What this portfolio can be used for is investing ideas; however, this portfolio includes high-, low-, as well as medium-risk stocks, so it’s up to each individual to do their own individual research and decide which, if any, of my holdings are right for you.

For a detailed explanation of my methodology, please read my introductory article to the EDDGE 3.0 portfolio.

What Happened This Week

It’s been one heck of a year for Wall Street. All three major indexes soaring on strong optimism about tax reform and accelerating economic growth.

Chart
^SPXTR data by YCharts

Of course, many are now worried that the market is in a bubble, and that’s understandable. After all, based on the S&P 500’s trailing 12-month earnings, stocks are trading at some of their loftiest valuations in history.

S&P 500 Trailing 12 Month PE

Source: Multpl.com

And looking at the popular (though far less useful than most people think) Shiller CAPE, things look even scarier.

S&P 10 Year Cyclically Adjusted PE Ratio (CAPE)

Source: Multpl.com

Even more amazing? This year’s strong rally has occurred with record low volatility. In fact, the biggest drawdown for the S&P this year was an astonishingly low 3%! You have to go back to 1994 to find a year with better returns with volatility this low.

This kind of freakishly high risk-adjusted total returns is likely why there is a bubble in people calling market bubbles. And since it’s natural to crave certainty in a deeply uncertain world, analysts and various “experts” are quick to offer predictions about the next year. But there’s a major problem with this: they are basically guesses plucked from thin air.

100% Guaranteed That The Market Will Rise In 2018… Or Fall… Or Stay Flat

Whether it’s economists predicting interest rates, or analysts predicting where the market will go next year, the track record is so bad as to make all predictions essentially useless.

For example, since Bloomberg began tabulating analyst consensus guesses for the next year’s market performance (in 2000), Wall Street’s very well paid best and brightest have predicted the market would rise every single year. This means that they completely missed the four negative years we’ve had in the last 17 years (when factoring in dividends).

This is due to two main factors. First, the stock market generally rises over time. In fact, on an annual basis, the S&P 500 rises about 80% of the time. And that trend has been especially strong recently. For example, in the past 31 years, the market’s total return has only been negative five times: in 1990, 2000, 2001, 2002, and 2008.

In other words, with the market rising 84% of the time in the past three decades, the safest bet for any analyst is to predict the market will go up next year.

This is likely why Mike Wilson, the chief US equity strategist at Morgan Stanley (MS), who offered the most bullish 2017 prediction in late 2016, is now predicting “just” a 2.6% rise (to 2,750) in the S&P 500 in 2018.

That’s despite predictions that: interest rates, increased volatility, and poorer than expected credit and economic data, will all roil the markets next year.

Even John Hussman, the famous permabear who is predicting a 65% market crash, is hedging his bets and saying that the market could continue rising for the foreseeable future.

In other words, every analyst making any kind of short- to medium-term prediction is basically pulling numbers out of thin air while making sure to cover their buts in case they are wrong.

This is why I don’t bother ever predicting what the market, or any given stock, will do over the next year.

“…in the short run, the market is like a voting machine – tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine – assessing the substance of a company.” – Benjamin Graham

As Ben Graham, the father of modern value investing (and Buffett’s professor at Columbia University), explains, short-term prices are totally unpredictable. They are governed by “animal spirits” as millions of investors experience often inexplicable, and volatile, swings in emotions.

Source: Slideplayer

However, the fact is that this precise return of volatility and negative returns that everyone is worried about doesn’t matter. In fact, if you play your cards right, you can turn it to your advantage and use it to achieve the kind of financial independence that most people only dream of.

Markets Always Climb A Wall Of Worry

Source: A Few Dollars More

The US stock market, and the global economy that ultimately drives it, is incredibly complex. There are always some collection of threats and risks that could cause stocks to drop in the short term. This has always been the case, and will continue as long as there is a stock market.

This can lead to large crashes, and long bear markets, in which stocks stagnate or decline for years on end. However, this is where true opportunities lie. In fact, market crashes are where the biggest fortunes are made.

Source: Kapitalust

After all, Warren Buffett has made his fortune by being a value focused contrarian. Which is why I too have adopted this strategy for my own portfolio.

Of course, “being greedy when others are fearful” and being a buy and hold investor is easier said than done. That’s because, while great fortunes are made over decades, we live in a short-term world. One in where the media is constantly bombarding us with speculative, but plausible sounding reasons to churn our portfolios.

This is why the average investor does so terribly when actively managing his/her investments. In fact, between 1996 and 2015, JPMorgan (JPM) found that retail investors underperformed every single asset class, and even inflation.

This also explains the rise of passive investing, aka index funds. Warren Buffett, Mark Cuban, John Bogle (founder of Vanguard), and numerous other successful investors have called a low cost market ETF the best default option for almost everyone.

In other words, what all the historical market data (the examples of the top investors in history) shows, is that time in the market is what matters. That’s opposed to timing the market, in hopes of avoiding the big crashes.

This is why I personally love Steven Bavaria’s “income factory” theory of investing. Basically, Mr. Bavaria thinks of his high-yield retirement portfolio like a cash flow based business.

Each holding is a money minting machine that sits in his income factory. The market prices of those holdings, and the portfolio in general, are the market’s current valuation of his factory.

However, rather than concern himself with the short-term swings of the factory’s value, he only cares about growing the income over time. After all, dividends are what pay the bills, and as long as they rise over time, the factory’s valuation is irrelevant.

In fact, if prices crash, this high-yield investing strategy works even better. That’s because the income it generates can then be invested into even more income producing machines, and lock in a higher yield on each one.

Eventually, a diversified collection of quality income producing assets will naturally appreciate in value, and you will get your capital gains. This is born out by market studies that show that over the long term, the total return of a dividend portfolio follows the formula: yield + long-term dividend growth.

This makes intuitive sense, because current dividends require strong and consistent cash flow from which to pay them. Meanwhile, dividend growth is a good proxy for cash flow growth, since over the long term, payouts must track with earnings and cash flow per share increases. And since a stock’s ultimate value is based on its per share cash flow, rising dividends generally mean rising share prices over time.

All of which means that you don’t need to choose between high income and total returns. Because if you build a quality portfolio that, say yields 5%, and has long-term dividend growth of 5%, then over time, you’ll get about 10% total returns. That’s compared to the market’s historical 9.1% total return since 1871.

Basically, this is why I love dividend investing, because it is literally the easiest and highest probability way for regular people to build an exponentially growing stream of passive income. Not only does this allow you to retire early, and live life on your terms, but it also is the most likely way to beat the market over time. It’s also the best option for potentially become rich enough to do anything you want (such as become a philanthropist which is my ultimate end game).

Basically, by turning your portfolio into a cash flow based business, you can counteract all the dangerous, short-term speculative emotions that cause so many investors to do poorly over time.

Dip Buy List

This list represents quality blue chip dividend stocks that are worth owning, but whose yields are just a tad (15% or less) under my target yield. However, a combination of company specific dip plus a dividend increase could cause them to reach my target yield which would mean that I would snatch them up (get in while the getting’s good).

  1. Bank Of Nova Scotia (BNS) – low risk, 4% target yield, current yield 3.9%
  2. NextEra Energy (NEE)- low risk, target yield 3.0%, current yield 2.5%
  3. NextEra Energy Partners (NEP):- low risk, target yield 4.0%, current yield 3.8%
  4. Altria (MO) – low risk, target yield 4.0%, current yield 3.6%
  5. Pfizer (PFE) – low risk, target yield 4.0%, current yield 3.7%
  6. Crown Castle (CCI): – low risk, target yield 4.0%, current yield 3.8%
  7. Genuine Parts Company (GPC): – low risk (dividend king), 3% target yield, current yield 2.8%

Correction Buy List (in order of priority)

The correction list is the top five quality dividend stocks I want to own, that are between 15% and 20% away from their target yields. This means that it would likely require a broader correction before I can buy them.

  1. Main Street Capital (MAIN) low risk, target 8% yield, current yield 7.1%
  2. STAG Industrial (STAG) medium risk (unproven in recession), target 6% yield, current yield 5.2%
  3. AbbVie (ABBV) – low risk (fast growing dividend aristocrat), target 3.5% yield, current yield 2.9%
  4. Texas Instruments (TXN) – low risk, 3% target yield, current yield 2.4%
  5. Royal Bank of Canada (RY) – low risk, 4% target yield, current yield 3.5%

Because corrections usually only last one to three months, I have decided that I will only maintain a list of five correction buy list stocks. Any more would be pointless since I likely won’t have time to buy them before the downturn ends.

Everything that doesn’t make the correction list is thus shifted to the bear market/crash list.

Bear Market/Crash Buy List

Stocks whose yields are all 20+% away from my target yields.

Bear markets (20% to 39.9% declines from all-time highs) and crashes (40+% decline from all time high) usually only occur during recessions and last from one to three years. Thus, they offer longer and stronger chances to load up on Grade A blue chips and dividend aristocrats/kings that are currently at frothy valuations.

My goal during a bull market is to buy stocks yielding only 4% or higher. This might sound counterintuitive, but it’s actually not. That’s because there is always something of quality on sale in some beaten down industry, such as retail REITs, or pipeline MLPs. Only during a market crash will I allow myself to go as low (but no lower) than 3% yield.

That will allow me to pick up some truly high-quality and legendary dividend growth stocks – those in other sectors that are now closed to me due to high market valuations and low yields.

My current crash list, in order of priority, and target yield, is:

  1. Boeing (BA) – low risk, 3% target yield, current yield 2.3%
  2. Johnson & Johnson (JNJ) – low risk, 3% target yield, current yield 2.4%
  3. 3M (MMM) – low risk, 3% target yield, current yield 2.0%
  4. Home Depot (HD) -low risk, 3% target yield, current yield 1.9%
  5. Microsoft (MSFT) – low risk, 3% target yield, current yield 2.0%
  6. Amgen (AMGN) -low risk, 4% target yield, current yield 3.0%
  7. Apple (AAPL) – low risk, 3% target yield, current yield 1.5%
  8. Toronto Dominion Bank (TD) – low risk, target yield 4.0%, current yield 3.2%
  9. Digital Realty Trust (DLR): -low risk, 4% target yield, current yield 3.3%
  10. Target (TGT) – low risk, target 5% yield, current yield 3.8%

This week I was doing extensive research on some top pharma stocks, and it reminded me that Amgen is one of the few stocks in this complex but defensive industry that I want to own.

Meanwhile, the decision to forgo ETFs entirely due to the variable nature of their payouts means that the PowerShares S&P 500 High Dividend Low Volatility Portfolio ETF (SPHD) has been removed from my crash list.

However, I also realized that I need to ultimately diversify the high-yield REIT portion of my portfolio. This is why I’ll be gradually adding faster growing REITs to my crash list. For this week, I’ve added Digital Realty Trust to the crash list and Crown Castle to the dip buy list.

I’ve also added Genuine Parts Company to the dip list, as it’s one of my favorite fast growing dividend kings (with 10+% total return potential).

Finally, a reader pointed out that I had the current yield on Royal Bank of Canada incorrectly listed as 2.4%, when in fact it’s 3.5%. That means that it’s only about 15% away from my target yield and thus deserves a spot on my correction list. This was made possible by this week’s purchase of, and thus removal from my correction list, of STORE Capital.

Buys And Sells Of The Week

Sold $6,200 of iShares Global REIT ETF (REET)

Bought $1,000 Algonquin Power & Utilities (AQN)

Bought $6,000 of STORE Capital (STOR)

This past week, iShares Global REIT ETF announced its next dividends, and they were way down from Q4 of 2016. While this is normal for an ETF, due to the very large and diversified nature of the portfolio (275 stocks), I’ve decided that ETFs just don’t work for me.

After all, my most sacred rule is that I’m looking for safe, and steadily growing dividends, which means that the variable nature of ETFs, and CEFs, makes them unsuitable for my needs.

The biggest reason I had owned REET was the 1/3 exposure to global blue chips. However, since Interactive Brokers allows me to trade on dozens of foreign exchanges, I can pick and choose the best names. This allows me to avoid paying an expense ratio, while better targeting foreign dividend stocks that best meet my needs.

The capital from the REET sale also presented me an opportunity to buy one of my all time favorite, fast growing SWAN REITs; STORE Capital. Arguably STORE Capital is the highest-quality, (and one of the fastest growing) triple net lease REITs.

And as Brad Thomas just pointed out, it’s currently trading at a fair price and likely to generate strong market beating total returns. So under the Buffett Principle of “better to buy a wonderful company at a fair price, than a fair company at a wonderful price”, I decided to swap my REET (fair investment) for a wonderful company at a reasonable price (STOR).

Meanwhile, the Algonquin purchase I had planned was larger than expected. That was thanks to a very nice surprise Christmas gift (of cash) that allowed me to buy double what I had initially anticipated.

The Tentative Plan Going Forward

In the past week, I came across another awesome Canadian utility with impressive yield, matched by industry leading dividend growth. This would be Emera (OTCPK:EMRAF), which currently yields 4.8% and plans to raise its dividend by 8% annually through 2020.

I love Emera’s huge regulated (and thus highly defensive and predictable) business and diversified asset base (US, Canada, and the Caribbean). The only iffy thing about them is the rather high debt levels they took on to acquire TECO (Tampa Electric Company). However, Moody’s has looked at their current leverage and judged them still worthy of a Baa3 rating (equivalent to S&P BBB-) which is investment grade.

Management plans to deleverage over time, while still aggressively investing in growth. So due to the highly diversified, and low risk business model, I consider it a worthy addition to the utility portion of my portfolio.

This means that in the coming weeks, I will finish trimming 75% of Uniti Group (UNIT) and New Residential Investment Corp. (NRZ) and put the capital to work:

  • Paying down $2,000 more of margin debt (with another $2,000 to be paid off through net dividends through February).
  • Finish off my position in Crius Energy Trust (OTC:CRIUF) – about $5,100.
  • Buy a full position in Brookfield Real Estate Services (OTCPK:BREUF) – about $9,200.
  • Buy a full position in NorthWest Healthcare Properties REIT (OTC:NWHUF) – about $8,000.
  • Finish off my AQN position ($4,000).
  • Buy an 80% position in Canadian Imperial Bank of Commerce (CM) with the remaining $4,100.

This tentative two-week plan serves several purposes. First, it completes the right sizing of all my positions by dividend risk. It also continues to “crash proof” my portfolio through deleveraging. Finally, it adds some much needed diversification via:

  • my first hospital REIT;
  • my first bank;
  • more utilities to act as the third pillar of my portfolio (along with REITs and pipeline MLPs); and
  • more Canadian companies, the best I can do in terms of international diversification given my need for non-variable dividends

Beyond these next 2 weeks, the plan is to finish off my CM position (which will take 2 weeks). Then get started on Telus (TU), the AT&T of Canada, but with much faster dividend growth.

As for Emera? Well, that is going to be tricky. This is because Interactive Brokers requires that I buy foreign stocks in round lots of 100. With Emera current trading at $37.49, that means I need to buy it $3,750 at a time.

That means that I would either have to buy it on margin and then pay it back, or wait until the first week of February or March (I receive the majority of my pay at the end of the month).

Since my goal is to crash proof my portfolio (thus paying down $36,000 in margin debt in a few months), I’ll have to wait to add Emera. I’ll also likely have to buy it over 2 months. This means that acquiring CM, TU, and EMRAF will basically eat up the first third of 2018.

However, remember that this is a “tentative plan” because my dip list takes priority in case any of those blue chips hits my target yields. Whether or not I’m able to build out a full position is uncertain, so in the future I may end up with several stocks with partial positions. These I’ll add to opportunistically until each position is full.

The Portfolio Today

Source: Morningstar

Dividend Risk Ratings

  • Ultra low risk: (Limited to ETFs with proven histories of steadily growing dividends over time); max portfolio size 15% (core holding).
  • Low risk: High dividend safety and predictable growth for 5+ years, max portfolio size 10% (core holding).
  • Medium risk: Dividend safe and potentially growing for next two to three years, max portfolio size 5%.
  • High risk: Dividend safe and predictable for one year, max portfolio size 2.5%.

High-Risk Stocks

  • Uniti Group
  • New Residential Investment Corp.

Medium-Risk Stocks

  • Pattern Energy Group (PEGI): Will be upgraded when payout ratio declines under 85%.
  • Iron Mountain (IRM): Will be upgraded when dividend is maintained/grown during next recession.
  • Macquarie Infrastructure Corp. (MIC)
  • Crius Energy Trust: Due to cyclical nature of part of its cash flow.
  • CONE Midstream Partners (CNNX): Due to its small size.
  • Omega Healthcare Investors: Due to ongoing downturn in SNF industry.

Low-Risk Stocks

  • Enterprise Products Partners (EPD)
  • MPLX (MPLX)
  • AT&T (T)
  • Tanger Factory Outlet Centers (SKT)
  • EQT Midstream Partners (EQM)
  • Brookfield Property Partners (BPY)
  • TransAlta Renewables (OTC:TRSWF)
  • Simon Property Group (SPG)
  • Enbridge (ENB)
  • Realty Income (O)
  • EQT GP Holdings (EQGP)
  • Brookfield Infrastructure Partners (BIP)
  • Dominion Energy (D)
  • STORE Capital

The diversification continues to proceed steadily. I wasn’t able to trim UNIT or NRZ this week, as my sell plan involves capturing the full January dividends to help pay down $2,000 in margin debt.

My portfolio began with five stocks, all medium to high risk, in two sectors. Right now I’m up to 23 stocks, mostly low to medium risk, in four sectors. By January 8th, I estimate I’ll be up to 26 stocks in five sectors. The goal for the end of 2018 is 30-35 stocks in six sectors. The Morningstar holding graphic is capable of showing my top 34 holdings.

Dividend Sources

  1. Uniti Group: 18.7%
  2. New Residential Investment Corp: 14.2%
  3. Omega Healthcare Investors: 6.9%
  4. Macquarie Infrastructure Corp: 5.8%
  5. Pattern Energy Group: 5.3%
  6. CONE Midstream Partners: 4.7%
  7. TransAlta Renewables: 4.4%
  8. Enterprise Products Partners: 4.3%
  9. MPLX: 4.3%
  10. Iron Mountain: 3.4%
  11. Everything Else: 34.9%

This week I’ve gone to a new format for dividend income mix. The previous pie chart was from the version of Simply Safe Dividends wasn’t capable of tracking Canadian stocks, of which I own many. Thus, I’ve gone to a manual income mix breakdown, generated from the newest version of the software that includes my foreign holdings.

The portfolio remains dominated by my top two positions, which will be corrected within the next two weeks. After that, about three stocks will still represent over 5% of my annual income (OHI, MIC, and PEGI). The goal is to get that under 5% (and much lower over time). This ensures strong portfolio income diversification and security. I estimate that it will take me until Q2 2018 before my additional savings and acquisitions dilute these three medium risk stocks to their target levels.

Source: Morningstar

The portfolio has become far more diversified by stock style, especially compared to the early days when it was pretty much 100% small cap value. In fact, today almost none of it is small cap value but far more spread out over market cap and style.

Over time, I plan to use Trapping Value, the Canadian high-yield guru, as a source for lots of Canadian high-yield investments. Combined with some quality Canadian banks, I will have plenty of exposure to non-US holdings, whose representation in my portfolio is down from 15% to 14% this week. This is due to the sale of REET, which had one third exposure to international blue chip REITs.

In the coming months, the additions of CRIUF, BREUF, NWHUF, AQN, CM, TU, and likely BNS will raise that my Canadian exposure substantially. As for non-Canadian international stocks? I’m always on the lookout for international dividend stocks, but I likely won’t be finding too many that meet my steady dividend growth needs. That’s because foreign companies (like British Telecom (BT) or Vodafone (NASDAQ:VOD)) generally pay less frequent and variable dividends.

And since I’m no longer owning any ETFs, it’s unlikely that my portfolio will journey out beyond North America. That being said, my portfolio does have exposure to foreign cash flow. That’s because many of the blue chips I’ll be adding are themselves multi-nationals. For example, my 3% Asia exposure is due to BPY’s global portfolio of properties.

Source: Morningstar

While the market is dominated by cyclical companies, my need for steady and growing dividends requires more consistent cash flow. Thus, the large presence of hard assets (REITs and pipelines), high-yield (telecoms), and slow growth (utilities).

Source: Morningstar

Remember that Morningstar classifies some MLPs as energy and some as industrial. In reality, my portfolio is currently about:

  • 44% REITs
  • 33% Pipeline MLPs
  • 18% Utilities
  • 5% telecom

In the coming weeks, my utility positions will grow substantially. In addition, REITs, being one of the best sources of low risk, high-yield dividend growth, will likely always remain the largest sector in my portfolio. Pipeline MLPs are the other cornerstone of my portfolio. Utilities, while great, are generally too slow growing for me to add more than the few names I have currently planned. I may be able to find more later, but utilities will likely peak soon.

Source: Morningstar

With no more ETFs, my expense ratio is now zero. More importantly, thanks to my equity now surpassing $100K, I will no longer be at risk of Interactive Broker’s monthly maintenance fees.

This is $10/month minus any commissions. Once I’m done de-risking the portfolio, my average monthly commissions will likely fall to $2 or so, which means that my larger portfolio will avoid about $8/month in fees.

Rising interest rates are a major concern of course, with the Fed planning on at least three more hikes in 2018. Goldman Sachs (GS) expects the actual number to be four, with the first coming in March. My margin rate is the Fed Funds rate + 1.5%, so each hike raises my annual interest cost by $166.41 at present.

Currently, I anticipate that by the end of 2018, my margin debt will decline to about $50,000 which would have a single rate hike sensitivity of $125 per year. By the end of 2019 (assuming no correction by then), margin should be down to $35,000 or less. This would create rate sensitivity of $87.5 per rate hike.

During the next recession, the Fed is likely to take rates back to zero which would lower my margin rate to 1.625%. However, my actual future margin rates will depend on how much I borrow. Margin amounts over $100,000 have an interest rate of Fed Fund rate + 1.0%, so as the portfolio grows in the coming years, I’ll get substantial price breaks. However, the plan is to only add margin during corrections/bear markets. During bull markets, I’ll be deleveraging, both with capital gains as well as allowing net dividends to pay down margin debt.

Source: Morningstar

I no longer believe my lower risk approach (avoiding most BDCs, mREITs, refiner and tanker MLPs) will allow me to hit a 7% total portfolio yield. However, I’m confident that 6% is doable, so that’s my new long-term goal.

The current profitability metrics for the portfolio are lower than the market average owing to the highly capital intensive nature of REITs, MLPs, and utilities. As I diversify in the future into higher margin and return on capital industries (pharma and tech especially), these figures will improve. As will the overall growth rate of the portfolio.

Of course, given the high-yield focus I have, there are limits to how high the earnings, cash flow and dividend growth can realistically climb.

Source: Simply Safe Dividends

Note that the longer-term growth figures are incorrect. They don’t take into account that some of my holdings (such as NRZ, UNIT, and MPLX) didn’t exist five or 10 years ago, and thus they make the dividend growth appear much faster than it really is. However, the organic dividend growth of the past year is factual and represents the most recent annual payout hikes provided by my holdings.

The 1-year organic growth rate is down to 9.4% from 10.6% last week. However, this is still a fantastic annual payout growth rate and up substantially from the 4.2% that this portfolio started with.

Of course, going forward, that will likely fall off as I continue to diversify my portfolio. That’s partially because the version of Simply Safe Dividend Portfolio tracking software I’m using isn’t able to track Canadian stocks. A different version is, but it only offers five-year average growth figures. The problem with that is that it doesn’t account for new stocks that went public during that time. However, in the future, I may include those figures as well, because once the portfolio is diversified with more mature blue chips, those figures will become more accurate and thus representative of actual historical (and future) results.

Source: Simply Safe Dividends

Keep in mind that this projection table only indicates how much the current holdings would be paying if I didn’t add any cash to the portfolio or didn’t reinvest the dividends. In other words, it’s a highly static, non-compounding figure – one, however, that still shows the awesome cash-minting power of the business empire I’m building here.

Also note that the above estimate assumes I maintain the current portfolio, with no changes. In reality, I’m still in the process of de-risking the portfolio with planned trimmings of my UNIT and NRZ holdings in early January. Owing to the relatively slow dividend growth rates of those companies (relative to the blue chips I’ll be adding in the future), the dividend growth rate should hold up rather well, or even increase slightly in the future.

Thanks to my high savings rate, I estimate that within 10 years, my portfolio should be generating about $130,000 in net inflation adjusted dividends.

That’s because, despite a very broadly diversified portfolio, I estimate the long-term portfolio dividend growth rate will be around 7%. So assuming I can maintain an annual savings rate of about $72K (once all my divorce debt is paid off), my 6% yielding portfolio should, within a decade, have an inflation adjusted value of about $2.2 million.

In perspective, the S&P 500’s 20-year median annual dividend growth rate has been 6.1%. So the goal is triple the market’s yield, with 1% faster dividend growth. That should result in approximately 13% unlevered total returns compared to an S&P 500 ETF’s historical (since 1871) total net return of 9.0%.

Portfolio Stats

  • Holdings: 23
  • Portfolio Size: $178,101
  • Equity: $100,160
  • Leverage Ratio (portfolio/equity): 1.78 (compared to max of 2.25 in week 5)
  • Debt/Equity: 0.66 (compared to a max of 1.25 in week 5)
  • Distance to Margin Call (portfolio wide drop): 36.9% (compared to a minimum of 20% in week 5)
  • Margin Cost: 2.91%
  • Margin Debt: $66,572 (compared to max of $98,000 in week 5)
  • Remaining Buying Power: $206,592
  • Dividends/Interest: 6.63
  • Yield: 7.2%
  • Yield On Cost: 7.5%
  • Net Yield On Equity: 10.9%
  • Total Return Since Inception (through Dec. 28th, 2017): 2.87%
  • Total Annualized Unlevered Return Since Inception: 1.82%
  • Unrealized Capital Gains (Current Holdings): $7,124(+4.6%)
  • Cumulative Dividends Received (including accrued dividends):$5,235
  • Annual Dividends: $12,837
  • Annual Interest: $1,937
  • Annual Net Dividends: $10,900
  • Monthly Average Net Dividends: $908
  • Daily Average Net Dividends (my business empire never sleeps): $29.86

Source: Simply Safe Dividends

  • Portfolio Beta (volatility relative to S&P 500): 0.70
  • Projected Long-Term Dividend Growth: 7% to 8%
  • Projected Unlevered Total Return: 14.5% to 15.5%
  • Projected Net Levered Total Return: 23.5% to 25.3%

Worst-Performing Positions

  • Macquarie Infrastructure Corp: -8.0% (cost basis $69.85)
  • Omega Healthcare Investors: -1.5% (cost basis $28.04)
  • Crius Energy Trust: -0.6% (cost basis $7.19)
  • STORE Capital: -0.2% (cost basis $26.04)
  • Iron Mountain: 0.2% (cost basis $37.64)
  • Dominion Energy: 0.2% (cost basis $80.85)
  • Pattern Energy Group: 0.5% (cost basis $21.39)
  • Algonquin Power & Utilities: 1.0% (cost basis $11.08)
  • Brookfield Property Partners: 1.4% (cost basis $21.73)
  • MPLX: 2.2% (cost basis $34.60)

The strong rally in high-yield value stocks has helped to turn my previous losers into winners, with only four of my 23 positions being in the red.

Best-Performing Positions

  • Tanger Factory Outlet Centers: 16.9% (cost basis $22.76)
  • AT&T: 15.8% (cost basis $33.71)
  • Simon Property Group: 10.4% (cost basis $155.79)
  • New Residential Investment Corp: 8.8% (cost basis $16.44)
  • Brookfield Infrastructure Partners: 8.0% (cost basis $41.75)
  • Enterprise Products Partners: 7.7% (cost basis $24.49)
  • EQT GP Holdings: 6.1% (cost basis $25.46)
  • EQT Midstream Partners: 5.9% (cost basis) $68.77
  • Enbridge Inc: 4.5% (cost basis $37.53)
  • Uniti Group: 3.7% (cost basis $17.21)

It was a great week for high-yield value stocks. Last week’s post tax reform freakout ended and REITs, MLPs, and high-yield blue chips all rose sharply. Tanger was the biggest winner, popping 6% in the past week.

Undervalued Dividend Stocks On My Radar (And Buy List)

While I may be tapped out of additional buying power, that doesn’t mean I’m not always on the hunt for quality, undervalued dividend growth stocks.

So, here are the ones I recommend you check out. They are all near 52-week lows, and I would buy them (if I had the capital) at this time because I am confident they can generate long-term 10+% (unlevered) total returns.

Note: Buy indicates I believe a stock is a good investment right now, while Strong Buy means I consider the company to be a Grade A industry leader (and a safer company) trading at particularly excellent levels.

I also include the dividend risk ratings for each stock:

  • Ultra-low risk: (Limited to ETFs with proven histories of steadily growing dividends over time), max portfolio size 15% (core holding)
  • Low risk: High dividend safety and predictable growth for 5+ years, max portfolio size 10% (core holding)
  • Medium risk: Dividend safe and potentially growing for next two to three years, max portfolio size 5%
  • High risk: Dividend safe and predictable for one year, max portfolio size 2.5%

The stocks are in order of highest to lowest yield:

  • Crius Energy Trust: 8.8% yielding, monthly paying Canadian utility with very low payout ratio (53% after its latest acquisition), and a rock solid balance sheet. Medium risk, (due to somewhat volatile cash flow), buy.
  • Starwood Property Trust (STWD) – 8.8% yield, Grade A commercial mREIT. High risk, buy.
  • Brookfield Real Estate Services (OTCPK:BREUF): 8.2% yield, paid monthly, Canada’s top real estate service provider, managed by one of the top asset managers on earth, Brookfield Asset Management (BAM). Highly undervalued due to imminent demise of premium fees, but even with that payout ratio will be about 75%, meaning a safe, and likely growing dividend. Medium risk(housing market will cool eventually), buy.
  • Pattern Energy Group: 7.7% yield, one of America’s top yieldCos (renewable utilities). Solid plan in place to double wind capacity by 2020 which should boost dividend growth from 2% a year to 10% to 11% (post 2020). Medium risk (payout ratio guidance 96% for 2017), buy.
  • TransAlta Renewables: 7.0% yield, paid monthly. An excellent Canadian yieldCo with strong balance sheet, low payout ratio, and excellent growth prospects (5% to 6% long-term distribution growth). Low risk, Strong Buy.
  • EPR Properties (EPR): 6.1% yield: Badly misunderstood REIT specializing in entertainment properties. Dividend protected by 81% AFFO payout ratio, strong balance sheet, and 6-7% long-term growth. 5-6% long-term dividend growth likely for 11-12% total return. Medium risk, buy.
  • Brookfield Property Partners: 5.5% yield, this real estate LP is run by Brookfield Asset Management, the world’s top name in hard assets. Concerns over potentially overpaying for GGP have caused it to fall to 52-week lows. However, with 5% to 8% long-term dividend growth (guidance), today is a great time to take a contrarian approach and pick up this low risk, Grade A Strong Buy.
  • American Campus Communities (ACC): 4.1% yield, safe dividend, strong long-term growth prospects of 6-7%. Buy, medium risk

Bottom Line: Don’t Lose Sight Of What Really Matters

2017 was a wild year, in a good way. What will 2018 bring? I have no idea, but I’m reasonably confident that the economy will continue accelerating, as will corporate profits. This means that dividends will keep rising, and income portfolios will likely keep generating exponentially more income for patient, long-term investors.

Which means that there is absolutely no reason to concern yourself with what arbitrary figures the market hits or doesn’t hit in 2018. Just focus on the fundamentals, specifically of building a diversified, high-quality portfolio of dividend stocks that meet your long-term goals.

Best of all? Since there is always some good dividend stock on sale, you can continue to build your portfolio, no matter how crazy overvalued the broader market gets. And when the inevitable correction and or bear market hits? Well, that’s when things really get exciting for value dividend investors. While the media may freak out and Wall Street might be running red with the blood of speculators’ shattered dreams, smart long-term income investors will be sitting pretty in our crash proof bunker portfolios.

Not only will we be counting our generous, safe, and exponentially growing dividends, but we’ll also be able to snap up the best quality dividend growth stocks at fire sale prices.

A very happy New Year to all my readers and followers. May peace, joy and health bless you and yours in 2018, no matter what the market does.

Disclosure: I am/we are long UNIT, NRZ, PEGI, EPD, CNNX, MIC, TRSWF, SKT, MPLX, T, OHI, EQM, BPY, SPG, IRM, ENB, O, STOR, BIP, EQGP, D, CRIUF, AQN.

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.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

3 New Year’s resolutions for the cloud in 2018

I’m one of those people who takes time at the new year to define personal objectives for the forthcoming year, some of which I actually achieve. Enterprise IT should be doing the same thing for cloud computing.

Here are my three suggestions for IT’s cloud resolutions for 2018.

2018 cloud resolution No. 1:
Look at your cloud security approach and technology

When I find issues with enterprise cloud deployments in my consulting work, it’s most often around security. Clients often leave aspects of their cloud deployments unprotected or underprotected, and things that should be encrypted are not, while things that should not be encrypted are.  

While I’m not recommending that you gut your cloud security and replace it with what’s cool and new, I am recommending that you take some time to walk through the security solution architecture and ask yourself about where you can improve. Moreover, consider all the security technology in place, what needs to be updated?   What should be replaced?

2018 cloud resolution No. 2:
Look at your cloud training plan

There are two categories of cloud training:

  • Provider training that’s focused on a specific provider such as Amazon Web Services, Microsoft, or Google.
  • General training that provides a good overview of how to make cloud work in enterprises, and all that is involved with that.

You should have a mix of both, as well as some paths for your staff defined to get the skills of a cloud architect, cloud developer, cloud operations specialist, and cloud devops specialist, just to name a few roles. There should be training paths through both vendor and nonvendor  courses to get your staff members the skills they need to perform their duties (which of course must be clearly defined). 

2018 cloud resolution No. 3:
Evaluate your databases

Databases are sticky, and once enterprises have used a specific database, they are not likely to change it. Indeed, what many enterprises have done is just rehost their data on public clouds using the same database they used on premises.

Today we have many options in the cloud, including SQL and non-SQL databases. While there are native databases in public clouds such as AWS’s RedShift and DynamoDB, there are many other options from databases providers that support the public cloud and traditional platforms. Are you using the optimal solution?  

These are just a few suggestions; I suspect that you can name more. Whatever they are, pick a few and follow up. Have a great new year!

General Electric: The Crazy Ex-Girlfriend I'm Now About To Marry

I hate loving General Electric (GE), its like an ex boyfriend/girlfriend that broke your heart.

Each time you go back, you tell yourself it will be different… they have changed! Yet every time you go back, they break your heart again.

This has now happened to me twice with GE. In 2008, I was riding high, having bought GE in the mid 20’s in 2004, with the promise of an industrial revolution. The finance division was booming and I was up a cool 50% and thought I had found the one!

Then I found out they were cheating on me with someone named subprime! It nearly bankrupted the company, and Uncle Warren had to come to the rescue to save it.

I was frankly, lucky to get out when I did, selling mid panic in the low 20’s. The end result was a 4 year investment that returned roughly negative 20%. I vowed to never make that mistake again…

In early 2015, it was as if GE sent me a text saying… “I miss you… lets get lunch to catch up?” and unfortunately for me, I hit reply. And just like that, we were back together.

The stock had been consolidating all year, and Jeff Immelt had on his shiniest used car salesmen hat, singing sweet nothings into my ear of buybacks, the disposal of the finance assets and refocusing on core industrial operations.

Blah, blah, blah! Next thing I know, this pretty little stock I re bought at 24 and had me sitting on 35% gains, gets cut in half… Apparently the company had a nasty secret spending habit they hid for years and years.

Chart
GE data by YCharts

So I had a decision to make mid 2017, do I bail again and take another 20%+ loss? Is this stock destined to break my heart again and again until nothing is left?

I did some soul searching… deep in the woods. And had decided again to leave, never to return.

But as I was leaving the door, with my bags packed, and my prized, signed picture of the Jamaican bobsled team in toe, an event made me hit the pause button.

Jeff Immelt had decided to “step down.”

This left me in a holding pattern for months, until Nov 13th. When new CEO John Flannery issued 2018 guidance that was, lets be kind and just say disastrous. Lowering even the lowest of bars for 2018 to EPS of $1-$1.07.

So, why am I still a holder of GE stock?

To squeeze some more juice out of my “ex” metaphor, GE just checked itself into rehab!

It now realizes it has a serious problem, it has overspent and or had disastrous timing on virtually every major deal it has done in the last 10-15 years. Alstrom, check. Oil assets, check. Finance disposal, check. Buyback, check.

Mr Flannery appears to not need a second corporate jet to follow him around “just in case” unlike Mr Immelt. He also seems to be dead set on costs, which with GE in its current structure will keep him busy for a while.

Why not close your position?

You think I am crazy don’t you, why in the world would I consider keeping or perhaps doubling my position in a stock that has done nothing but hurt me?

The reason is pretty simple, all of the dirty laundry appears to be in the open now. No more secret spending accounts or ill researched / timed acquisitions (for now). Mr Flannery has all but told anyone that will listen that the rest of 2017 and all of 2018 will suck, and to not invest.

He didn’t “kitchen sink” an earnings report, he lit the whole house on fire.

Source: Meme Generator | Create Your Own Meme

Mr Flannery has called for a new approach to doing business at GE and more importantly to transparency, apparently not subscribing to Immelt’s pyramid scheme like approach to GE’s cash flow. He has acknowledged the pension shortfall, which I am sure will come up in the comments section of this article. Also shrinking the board from a frat house of 18 to a GE focused 12, preaching honesty (imagine that) and accountability in the new GE.

So far I am digging the new CEO and currently am in tacit agreement with his broad outline.

What was the new CEO given to work with?

I’m glad you asked! GE in my opinion has a very strong set of business’s to work with, below I have outlined the 6 major divisions it currently operates.

Power- GE’s power business is huge, with an installed base in every major country in the world. They claim to produce 1/3rd of the worlds electricity through gas, steam and nuclear turbines. This is a core division for GE, and one that recently has helped drive them directly into a ditch, as overcapacity, technical issues and in my view an ill timed Alstrom acquisition weigh on earnings at the division.

However, GE power does have many redeeming qualities. They are a technology leader in the industry whilst having deep relationships with customers in a field that honestly does not have all that many options. Near term however, look for deep cuts in expectations at the unit until the smoke clears.

Aviation- The companies Aviation segment has been a bright spot in recent results, with continued wins and new product introductions, for example LEAP, its new narrow body engine that from what I can find is truly state of the art, with a 15% fuel improvement, increased reliability, weighs 500 lbs less and is 3D printed (which, lets face it, is just cool!)

This division looks set to continue to preform well in the near term and may be looked at as an example for the rest of the company.

Transportation- The transportation segment is mostly composed of GE’s rail assets and is thought to perhaps be on the chopping block for divestiture. They build locomotives with a large portion of revenue coming from the services side of the business, which is something I like to see. They are a global leader in the industry and the mix of technology and services is impressive.

However the division has been lackluster of late and the strategic fit is questionable and thus may not make sense for them to keep. They did just win a 200 locomotive order from Canadian National Railway (CNI) but it may be prudent to offload this asset to focus on core business.

I sort of hate to see this business go, as it truly is world class. However GE hopefully will use proceeds here to either reduce debt or shore up the oft cited pension shortfall.

Healthcare- GE has a broad and diverse set of healthcare assets, providing imaging, healthcare cloud, cardiology, orthopedics and anesthesia equipment, among multiple other products and services.

This has been a strong performer for the company and what I would consider another core holding of GE, this division looks to be a good fit with its digital offerings and will likely continue to buoy the company during this current slump.

BHGE- This is a division that really makes me mad, and I struggle to remain calm in my writing. Jeff Immelts timing was so bad that it feels like it was on purpose. Immelt decided to buy a bunch of oil services companies, seemingly at the absolute top of the oil market. Grrr.

Anyways, GE Baker Hughes as it is now called is the 2nd largest oil services company in the world and to be fair is actually a very good company, and is a technology leader in the industry along side Halliburton (HAL). So basically it is the second prettiest girl in a leper colony.

Oil services, seem in my opinion to be stuck in a pretty serious long term rut and GE, I believe will look to dispose of this asset likely through a spin off off or divestiture of its stake rather quickly. Perhaps GE could offer Immelt a stake in this spin off in return for the GE stock he so graciously awarded himself during his charade.

Renewables- The renewables division is home to a world class wind energy turbine manufacturer, along with in my opinion is the most valuable part, its services segment. GE has established itself as the worlds number 2 wind turbine company behind Vestas Wind Energy (OTCPK:VWDRY). The company also has an emerging offshore wind and hydro power segment that are lacking scale currently, but hold long term promise.

The wind market this year has suffered from intense competitive pressures thus dragging results, however this also looks to be a core division for GE in the future.

So why am I sticking with GE this time – and may be looking to “pop the question” soon?

The companies potential is just so damn pretty! GE lines up well with my vision of the mega trends of the future.

In my mind, a company must both show an ability for growth, while possessing a solid balance sheet with operating discipline from which to build. Under Mr Immelt, GE, in hindsight obviously stood much closer to the crazy side of Mr Barney Stinson’s famed graph below.

Source: FANDOM

Mr Flannery seems to be dead set on adjusting the results of the above graph.

After the dust settles from the recent house fire Mr Flannery has set ablaze, I am envisioning 4 major divisions of GE remaining. Power, Aviation, Healthcare & Renewables.

All 4 remaining divisions fit into my vision- with 3 qualifying in my mind as mega trends. Power, Aviation & Renewables.

Healthcare I view as a great business as well but does not fit as a mega trend in my book with so many unknowns as to the future in the industry.

Power- Power is (obviously) a key need for the future as more and more countries look to move to gas powered plants and away from coal. With the world estimated to need an additional 50% more electricity in the next 20 years, perhaps adding dramatically to that if the electric car revolution is indeed realized.

GE is in great shape position wise in the industry and once the fat has been cut, along with a renewed focus on execution, this division should prove to be a key driver of profits for decades to come.

The below graph shows an estimate of the worlds need for energy into 2035.

Source: Breaking Energy

Aviation- This division looks to be in the midst of a multi decade run, as the world continues to be more interconnected. Importantly the Asian travel market is in the early innings of what looks to be a spectacular expansion. GE I believe is in the drivers seat in this industry, both in technology and services.

My one worry is the Chinese looking to enter this market with “homegrown technology” which I believe is code for stealing IP and re packaging it. However manufacturing jet engines is an entirely different animal from copying an iPhone and progress on a Chinese engine that is both safe and accepted is likely a few decades off.

Source: Airbus Home

Healthcare- This industry as a whole, especially preventative medicine in my view will swell massively in the next few decades. I am going to lose a few followers over this i’m certain but I believe universal healthcare in the United States is pretty much a sure bet sometime in the next 20 years. Which would be good news for GE!

Keeping costs down will likely be a key requirement of any future health system, and with GE’s expertise in imaging for preventative medicine and its emerging analytics and software offerings, it may be able to play an important role in the health systems future, however uncertainties do exist as to the nature of cost controls and the potential for margin compression in all things health related.

Committee for a Responsible Federal Budget

Renewables- I am firmly on the alternative energy bandwagon and GE’s positioning in this industry appears very ideal. Wind energy by most measures is already roughly equal in cost per MWh to current fossil fuel plants, this will likely get better with time, and with offshore wind and hydro picking up steam in both efficiency and scale for GE, will open further avenues of growth for this division.

Alternative energy is here to stay, and GE looks to be on a path that requires no subsidies, a major pitfall to solar currently. The downside to wind energy could be the commoditization of wind turbines, however I believe that GE has the technology and service capability to differentiate themselves in this rapidly growing industry for decades to come.

Source: U.S. Energy Information Administration (NYSEMKT:EIA)

So will I say “I do”?

GE has burned me… Badly in the past, and I must say I am rather gun shy about committing to a perhaps multi decade long marriage to the stock.

But she is so damn pretty!

Source: Meme Generator | Create Your Own Meme

My plan “as of today” is to keep my current position, roughly 2.2% of my equity portfolio in GE for the first half of 2018, to test the waters, if you will, of the new CEO. If I continue to like what I am seeing and the valuation seems fair, which I view it to be currently (a forward PE of 17ish) I may step up to the plate and double my position in the company.

Or maybe I won’t, and I will just run like heck and never come back!

GE: “Hey you, what’s up”

Me: …

Author’s note: If you enjoyed this article and would like to be notified of my future articles, please hit “follow” next to my name at the top of the article to receive notification of future articles I publish.

Disclosure: I am/we are long VWDRY, GE.

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.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

India's Reliance Jio to buy RCom's wireless assets in $3.75 billion deal: sources

MUMBAI (Reuters) – Debt-laden Reliance Communications has signed a deal to sell its wireless assets to Reliance Jio Infocomm, for a total value of nearly 240 billion rupees ($3.75 billion), two sources familiar with the matter told Reuters on Friday.

The two companies had announced late on Thursday that Reliance Communications, backed by businessman Anil Ambani, would sell all its spectrum, tower, fiber optic and other telecom infrastructure assets to Jio, which is owned by Reliance Industries and is controlled by Anil Ambani’s elder brother Mukesh Ambani, India’s richest person. They did not give the value of the deal.

The sale, if finalised, would mark a big step in Reliance Communication’s quest to cut down its debt, which had sent its shares to record lows and led creditors such as China Development Bank (CDB) to start insolvency proceedings over missed payments.

CDB said earlier on Friday it is in talks with Reliance Communications, or RCom as it is called.

RCom shares rose as much as 29.9 percent on Friday while Reliance Industries rose as much as 0.9 percent.

The sale would also mark the return of the telecom operations back into the fold of Reliance Industries, which forayed into telecoms in 2002, spearheaded by the elder Ambani, under the name of Reliance Infocomm Ltd.

A feud between the two brothers in 2005 led to the split of Reliance Industries, with Mukesh Ambani keeping the cash cow oil and gas business and Anil Ambani walking away with telecoms and power.

But Mukesh Ambani has re-entered the telecoms space with the launch of Jio in September 2016, upending the sector with cut-price data and free voice service and pushing RCom into a debt spiral.

RCom has said it is retreating from the consumer telecom space to focus on its enterprise business, and on Tuesday announced a new plan to slash its debt pile by 390 billion rupees ($6.09 billion) without any haircut by the banks, leaving it with only around 60 billion rupees in debt.

Morgan Stanley analysts said the deal would allow Jio to further expand into India’s telecom space, though it would also add to its debt.

“Acquisition of RCom’s telecom infrastructure should bring synergies and lower costs while raising clarity on growth capex. The deal could potentially raise balance sheet leverage by 10-12 percent near term,” Morgan Stanley wrote in a note on Friday.

Reliance Jio is India’s fastest growing telecoms company with a subscriber base of close to 140 million. Through the deal, Jio gets access to four bands of spectrum and 43,000 telecom towers and a countrywide fiber optic network.

Reporting by Devidutta Tripathy and Promit Mukherjee; Editing by Rafael Nam and Muralikumar Anantharaman

These are Google Android 8.1's five best features

I’ve been using Android 8.1 for several weeks now on my Pixel 2 smartphone, and I’m impressed.

It’s not so much that Android 8.1 is a big jump forward for most end-users. It’s not. Google’s major 2017 Android improvements came with Android 8.0. With a smartphone containing a Pixel Visual Core chip, it’s a dramatically different story.

1) Visual Core

The Visual Core is Google’s first custom-designed consumer processor. It’s a dedicated image processing chip. Today, it’s only in the new Pixel 2 and Pixel 2 XL. Tomorrow, it may be appearing in other smartphones.

CNET: Google Pixel 2 XL review: Promising phone with new caveats

With Android 8.1, the Visual Core chip has been activated and the results are dramatically better photos. First, it takes much faster High Dynamic Range (HDR) photos. By taking a series of photographs in micro-seconds, HDR-enhanced cameras do a much better job of capturing the full range of darkest blacks and lightest whites than older digital cameras.

With Google’s HDR+, your smartphone camera takes a rapid burst of pictures. The Visual Core chip then combines them five times faster than previous generation of processors into one superior picture. You may not notice the speed, but what you will notice is how much more detail you’ll get from low-light photographs.

You used to only be able to take HDR+ photos using the Google photo app. Now, third-party camera apps, which use the Android Camera application programming interface (API), such as Instagram and Snapchat, can also take advantage of HDR+’s superior processing for better photos.

2) Neural Network API

Any device which can upgrade to Android 8.1, which for now are the Pixel 2 and 2 XL, the Pixel 1 and 1 XL, the Pixel C tablet, and the Nexus 6P and 5X, can make use of Google’s Neural Networks API (NNAPI). While as a user you won’t notice anything immediately from this improvement, Android developers will. NNAPI is designed to make it possible to run machine-learning (ML) on mobile devices. This API provides a base layer, higher-level, ML framework. This, in turn, can be used by Google’s TensorFlow Lite.

What this means for you as a user is you can expect to see some very interesting smart applications coming your way soon. For example, by this time next year, you can expect speech recognition and language translation apps, which will approach Star Trek-levels of coolness.

3) Bluetooth battery levels measurements

Do you get sick and tired of not knowing if your Bluetooth earphones or headset are about to die on you? I know I do. With Android 8.1, you’ll find a Bluetooth battery display in the Bluetooth settings. I’d still rather have it on the top status bar, but this is a lot better than fumbling with my Bluetooth gadgets.

4) Better screen management

On some smartphones, notably the Pixel 2 XL, some people were seeing screen burn-in. If you don’t recall this ugly blast from old style CRT display’s past, screen burn happens when the same screen elements — such as the navigation icons or the clock — are always on. After time, these elements are “burned” into the display so their ghostly presence remains even when they should be gone.

With Android 8.1, smartphones now vary how these are displayed. The result? The end of screen burn.

5) New look

There aren’t any major changes to the interface, but there are some useful ones. These include the Pixel Launcher. This makes it easier than ever to access Google search functions and installed apps. Android’s quick settings are transparent now so you can still see a hint of the main screen beneath it. There are also new launcher themes.

All-in-all, Android 8.1 is a good step forward. What I’m really looking forward to though is seeing more smartphone vendors bringing it to their flagship phones. Thanks to Google’s Project Treble.

TechRepublic: Android Oreo rollback protection prevents hackers from exploiting past vulnerabilities

Before Treble, which first appears in Android 8.0, when Google launched a new Android version, the chip OEMs, such as Mediatek and Qualcomm, had to add drivers so their silicon could run it. Then the device vendors added their customizations. Finally, the carriers had to bless the update. Then, and only then, could you get a new version of Android on your old phone. What a mess!

Project Treble has redesigned Android to make it easier, faster, and cheaper for manufacturers to update devices to a new version of Android. It does this by separating the device-specific, lower-level software — written mostly by the silicon manufacturers — from the Android OS Framework.

By working with the chipset OEMs, the vendor interface is validated by a Vendor Test Suite (VTS). In short, Google is cutting out some of the fat, which makes Android updates so slow.

If the phone vendors cooperate by not adding too much of their own spice to the stew, many of you may finally see Android 8 and 8.1 on your phones before I’m writing about the release of Android 9.

Related Stories: