Lyft selects JPMorgan, Credit Suisse for IPO in 2019: source

(Reuters) – Ride-hailing company Lyft Inc has chosen JPMorgan Chase & Co, Credit Suisse and Jefferies as underwriters for its initial public offering, slated for the first half of 2019, according to a person familiar with the matter.

FILE PHOTO: An illuminated sign appears in a Lyft ride-hailing car in Los Angeles, California, U.S. September 21, 2017. REUTERS/Chris Helgren/File Photo

The source did not want to be identified because Lyft’s plans were still private.

Reuters had earlier reported that Lyft was in talks with JPMorgan to lead its IPO, after rivals Goldman Sachs and Morgan Stanley decided not to pursue such a role out of loyalty to another IPO hopeful and Lyft’s larger competitor, Uber Technologies Inc.

Earlier on Tuesday, the Wall Street Journal reported that Uber could be valued at $120 billion in its IPO, expected in 2019.

JPMorgan declined to comment. Credit Suisse did not immediately respond to Reuters’ request for comment, while Jefferies was not available for a comment.

Lyft also declined to comment.

The two IPOs are widely seen as a litmus test for investor tolerance for lack of profitability when it comes to iconic technology unicorns.

Uber and Lyft have taken hits to their bottom lines in order to attract drivers and enter new markets, although they have made strides in recent years in narrowing their losses.

Like Uber, Lyft offers an app that lets passengers request rides on their smartphones. It was founded in 2012 by technology entrepreneurs John Zimmer and Logan Green, three years after Uber.

Reporting By Aparajita Saxena in Bengaluru and Liana Baker in New York; Editing by Shailesh Kuber

3 Vanguard ETFs To Consider Right Now

I’m penning this article the evening of October 11, 2018. The market has just completed two of the most severe convulsions since early-February, when the Dow suffered a 600-point decline followed by two 1,000-point declines over a span of 4 trading days.

Over the past two days, the Dow has dropped 1,377 points, the Nasdaq 409 points, and the S&P 500 some 152 points, declines of 5.21%, 5.29%, and 5.28%, respectively. When you look at those 3 averages, you quickly sense that the decline was widespread.

Clearly, if one is looking to pick up some bargains, one could look to snap up any one of a number of ETFs. A good total-market ETF, for example, might not be a bad bet. Might you, though, be able to do even better than that? Might there be options that, viewed over the course of 2018 as a whole, present even better bargains?

I spent a little time looking at that question, and have come up with 3 ETFs I’d like to propose for your consideration. Here they are.

  1. Vanguard FTSE All-World ex-US ETF (VEU)
  2. Vanguard Consumer Staples ETF (VDC)
  3. Vanguard Real Estate ETF (VNQ)

First, here’s a quick peek at what our 3 candidates did over the past couple of days. You’ll notice a slight divergence. VEU slumped fairly consistently both days. VDC and VNQ held up decently on Day 1 of the decline, but then got hit hard on Day 2. Long story short, however, they fell hard just like pretty much everything else.

Chart

VEU Price

data by

YCharts

Next, though, let’s step back and take a look at how the 3 ETFs have performed year-to-date. In this graphic, I’ve overlaid the S&P 500 average to put things in perspective.

Chart

^SPX

data by

YCharts

The action in the S&P 500 is pretty dramatic. In two days, the average dropped from a YTD return of almost 7.5% to 2.05%. However, this is still between roughly 9% and 13% better than VEU, VDC, and VNQ.

One by one, let’s take a quick look at each of these 3 ETFs. I’ll briefly consider how each got to the point it is today, a little about the ETF itself, and the possibilities moving forward.

Vanguard Consumer Staples ETF

As you can quickly gather from its name, VDC focuses on the consumer staples sector. As it turns out, this sector is particularly helpful in protecting your portfolio in the event of a market downturn. In brief, Consumer Staples is the term given to products, and the companies which produce these, that are considered essential, such as food, beverages, household items, and tobacco. These are the sorts of items that people need to function each and every day, and therefore, are generally unable to cut out of their budget even in bad times.

Take a look at VDC’s Top-10 holdings.

VDC Top 10 Holdings

Source: VDC Profile Page

Just the other evening, I went to my local Costco (COST) and, among other items, picked up a multi-pack of Crest toothpaste, a Proctor & Gamble (PG) product. My neighbor is a huge Diet Coke fan, and I see empty cartons from cases of this Coca-Cola (KO) product in his garbage on a regular basis. Lastly, I recently got a great price on a few pairs of jeans at Walmart (WMT). And I am far from alone.

Why, then, have consumer staples stocks struggled in 2018? Analysts suggest several factors. Established companies are facing competition from smaller, nimbler upstarts. Energy costs are rising. Finally, ongoing trade wars may not be doing this segment any favors.

It may prove folly, however, to discount these established companies. Think, for example, about Coca-Cola’s massive and efficient distribution network. Think about things such as economies of scale. Lagging the overall S&P 500 by some 9% this year, this segment may deserve a second look.

VDC contains 93 stocks, and has Assets Under Management (AUM) of $4.6 billion. It carries an expense ratio of .10% and sports an SEC yield of 2.85% as of 9/30/18.

Vanguard Real Estate ETF

When I first featured VNQ in a comparison of 3 REIT ETFs, the name of the ETF was Vanguard REIT Index ETF. A REIT is a corporate entity that invests in real estate. You might be surprised to discover that much of the real estate you see as you move about your daily life is owned by REITs. This can include everything from downtown Manhattan office buildings to suburban outlet malls to high-quality apartment complexes to mobile home parks.

What makes REITs somewhat unique from other entities that might invest in real estate as part of their business is their tax status. To qualify as a REIT, a company must agree to distribute at least 90% of its earnings to its investors in the form of dividends. As a practical matter, many REITs distribute 100% of their income to investors such that they owe no corporate tax.

The change to its present name was no accident. Beginning in late-2017, Vanguard gradually transitioned the index tracked by this ETF to the MSCI US Investable Market Real Estate 25/50 Index. According to a statement from Vanguard, the sector “includes real estate management and development companies in addition to real estate investment trusts (REITs).”

So, for example, VNQ now counts American Tower Corporation (AMT) as one of its Top-10 holdings. As you might have guessed from the name, among other things American Tower owns and/or operates some 40,000 cellular towers in the United States.

Here’s a look at VNQ’s sector breakdown:

VNQ Sector Weightings

Source: VNQ Profile Page

Not surprisingly, since REITs tend to hold large amounts of debt, they are very interest-rate sensitive. In the current environment, this forms a large part of their relative underperformance. At the same time, they offer stability and, by their very charter, a solid stream of dividend income. VNQ’s yield currently stands at approximately 3.29%.

VNQ currently has AUM of some $33.0 billion and carries an expense ratio of .12%.

Vanguard FTSE All-World ex-US ETF

VEU is a venerable ETF in the international total-market asset class. With an inception date of 3/2/07 and AUM of $22.9 billion, it stands head and shoulders above the competition. No wonder it carries an enviable (for a foreign ETF) .02% average spread to go along with its competitive .11% expense ratio.

VEU tracks the FTSE All-World ex-US Index. This index focuses on large-cap and medium-cap companies outside the U.S., but shies away from small-cap companies. Its fact sheet lists the index as having 2,712 constituents covering 46 different countries, in both developed and emerging markets.

Here’s a quick peek at VEU’s Top 10 holdings.

VEU Top 10 Holdings

Source: VEU Profile Page

To give you some small sense of the sorts of companies that constitute the largest portions of the fund, here are extremely brief synopses of two of these companies, Nestle SA (OTCPK:NSRGY) and Novartis AG (NYSE:NVS):

  • Nestle SA – Nestle is the largest food company in the world, measured by revenues. Encompassing baby food, bottled water, coffee & tea, dairy products, frozen food, pet food, snacks and more. The list of brands is made up of legendary names that you will instantly recognize, and Wikipedia states that 29 of these brands each have annual sales of over $1 billion. The company operates in 189 countries.
  • Novartis AG – Novartis is the 6th-largest largest pharmaceutical company in the world, measured by revenues. According to its latest annual report, its R&D group received 16 major approvals, made 16 major submissions, and received six breakthrough therapy designations from the US Food and Drug Administration (FDA). Novartis’ products are available in more than 155 countries worldwide.

In a recent article on emerging markets, I briefly outlined some of the reasons for the underperformance of this asset class compared to the U.S. market. Developed international markets have also not been exempt from many of these factors, hence the roughly 13% YTD underperformance of VEU as compared to the S&P 500.

Summary and Conclusion

By the time you read this article, Friday’s market session will have likely come and gone. While, based on activity in futures, the expectation is that there will be a positive bounce, we’ll just have to wait and see.

However, I can all but promise that the YTD underperformance of these 3 ETFs will not be remedied in any one day. If you have been dutifully stashing some extra cash away, here are three possible places you can put some of it to work.

Bonus: A Peek Into ETF Monkey’s Personal Portfolio

In late 2016, after writing for Seeking Alpha for a little over a year, I for the first time offered readers a peek into my personal portfolio. It had been awhile since I had updated this, and a few things have changed. On my personal blog, I recently posted an update as of September 30, 2018. If you’re curious to see how I have allocated my own money, you’re welcome to take a peek!

Disclosure: I am/we are long VEU, VNQ.

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 not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult with their personal tax or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

Just As I Suspected, AT&T Did Not Crash And Burn

Back in May, I wrote a series of articles expressing my opinion that AT&T (T) remained a blue-chip, income-oriented stock and that investors were overreacting to the company’s negative price movement surrounding the Time Warner (NYSE:TWX) acquisition drama. At the time, shares were trading down in the $31/$32 area, which I said was essentially in line with a generational low valuation that would likely result in strong support. I also believed that the company’s dividend was safe, despite the high leverage on the balance sheet post the TWX purchase. While others disagreed, calling for calamity, my overarching message was this: focus on the fundamentals and ignore the noise. Well, now six months later, I wanted to re-visit AT&T while still voicing the same opinion.

AT&T is my largest, high-yielding exposure. The vast majority of my holdings leans more towards the “G” in DGI. While I love the passive income that my portfolio generates at the present, I don’t live off of the dividends that I receive, and I’m more interested in watching them compound over time, snowballing towards my long-term financial goals. However, I also like to maintain yield diversity and having a small portion of my portfolio dedicated towards high-yield plays like AT&T, which increases the defensive posture of my portfolio while increasing the purchasing power when it comes to selecting dividend re-investment. With this is mind, AT&T is meeting my expectations quite well. The stock continues to pay out its very high dividend yield, which I deem to be quite safe at the moment.

Now, unfortunately, even after Judge Leon’s decisive announcement, the AT&T/Time Warner saga is still ongoing. AT&T’s management seems confident that the legal system will side with it in the government’s appeals, yet I suppose anything could happen, and it’s never good to count one’s eggs before hatching. I certainly hope this works out in AT&T’s favor because I’ve been very bullish on the Time Warner purchase for years now, even in the face of record-setting debt loads. To me, Time Warner is one of the few blue-chip media/entertainment names. This space is consolidating quickly as the media environment changes, and I think AT&T picked up an absolute gem here. Time Warner’s growth and cash flows should help smooth out T’s balance sheet over time, as well as ensure that dividend growth is viable long-term.

However, I’ve already spoken enough about the benefits of the Time Warner acquisition. If you’re an avid reader of AT&T articles here on SA, I’m sure you’ve seen this discussed more times than you can count. Instead of speculating on the benefits of Time Warner’s assets and the evolution of AT&T’s distribution system, I’d rather take a step back, take a breath, and ignore all of that noise, focusing only on a few simple valuation metrics. I’m sure that some investors may find this approach to be overly simplistic, yet I’ve made good money in the past by focusing on these three things: current P/E, historical P/E, and forward EPS growth expectations. Obviously, my due diligence process covers much more than this, though at the end of the day, I think most of that work can be boiled down into the simple process that I’m about to discuss.

First of all, when it comes to steady-eddy, reliable companies with long profitable histories like AT&T, I like to see what types of premiums the market has assigned to shares historically. Looking at the F.A.S.T. Graphs below, you’ll see that other than the irrational period of exuberance during the dot.com bubble when AT&T traded up to ~26x earnings, during the last 20 years or so, T shares have traded in a fairly strict range between ~16x and ~9x earnings.

Source: F.A.S.T. Graphs

With this in mind, I like to see what sort of growth has supported that long-term average. I averaged out the company’s annual EPS gain/loss during the last 20 years and saw that T has averaged 3.25% growth.

Sure, there are some big up years and some big down years, but when they all evened out, I wasn’t surprised to see T averaging low-single-digit EPS growth. Why wasn’t I surprised? Because over this same period of time, the company’s dividend growth average was 3.9%. That’s pretty darn close to being in line, which is why T’s payout ratio has essentially hovered in the 60s and 70s for over a decade.

Then, I like to look ahead, to see how the foreseeable future compared to the past. Looking forward, analysts expect T’s EPS growth in 2019 and 2020 to be 3% and 2%, respectively.

So, this performance is expected to be slightly less than average, but not terribly so. To me, this means that T’s share price should also be “slightly less than average, but not terribly so.”

I suppose we could use math to come to a more scientific result. Stocks are priced in large part based upon future earnings expectations. T’s future earnings expectations (on average) are 23% below their long-term average. Taking out the artificially inflated dot.com years, we see that T’s long-term average P/E is 14.2x. 77% of 14.2 is 10.9. In other words, in an efficient market, using my admittedly basic P/E focused breakdown, T should trade for 10.9x earnings right now, and not 9.5x. 10.9x T’s TTM earnings of $3.28 is $35.75/share, or 10.86% higher than today’s $32.25 share price.

In other words, I think shares are ~10% undervalued at the moment, which is essentially in line with my prior statements made six months ago. It turns out that the $31/$32 area did serve as very strong support for T shares, yet it’s not magic that I predicted this during the beginning of this downturn. This level has served as support in the past and history tends to repeat itself (especially with regard to reliable companies). T bounced off of this fundamental support level in 2002, 2003, 2008, and thus far in 2018. Shares briefly crossed below 9.5x in 2009, but then again, there were fears that the western world’s financial system was going to crash and burn, and they didn’t trade that low for more than a couple of months during the spring of 2009.

Yes, T has more debt now than it ever had before, so I know the naysayers will say that the stock deserves a new low premium, but I think it’s absurd to say that T is in a worse operational shape now than it was back during the lows of the Great Recession. T’s debt is an issue, but this company has also posted free cash flow of nearly $20b during the TTM, so I can only imagine that management has the capacity to pay down debt over time. However, even though I think T is undervalued, I wouldn’t be surprised to see if it traded at the lows for a while (or at least until all of the TWX loose ends are tied up). Thankfully, even if that is the case, it’s actually not a terrible thing for income-oriented investors.

Since I believe T’s dividend is safe and, therefore, it will continue to meet my expectations as a high-yield/income-oriented investment, I’m totally fine if the debt concerns cause the stock to remain at the low for a while. This consolidation period in the low $30s is really beneficial to investors who’re re-investing their T dividends as it allows them to compound their share count at prices that are more than reasonable. My biggest gripe with automatic DRIPing is that it sometimes forces investors to buy shares of their favorite companies at expensive valuations that they otherwise wouldn’t; however, that certainly isn’t the case with T down here trading with a ~9.5x TTM P/E multiple. And, in this case, it means that every share purchased comes along with a 6.2% yield, which is well above T’s 5-year average yield of 5.32%.

My point with this article/recap is to simply highlight the importance of basic fundamentals in the market. I remember back in May when so many were calling for T to crash to $25/share and cut its dividend. There was fear in the market, so I penned a couple of pieces trying to draw attention to the fact that the market had likely already priced in the worst possible news and further fears were irrational. This piece is a validation of that sentiment. Oftentimes, I think it’s best to ignore a lot of the excess noise in the markets and focus the figures in front of you. That’s relevant right now as well, as the ides of October bring volatility back into the markets.

Keep calm, carry on, and collect your dividends.

Disclosure: I am/we are long T.

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.

You're About to Drown in Streaming Subscriptions

You’ve got your Netflix subscription and Amazon Prime. You’ve got HBO Now, at least when Game of Thrones is on, and maybe pay up for a more specialized service too, like Crunchyroll or the WWE Network. It’s already lot! Bad news: It’s about to get worse.

The notion that streaming services might someday totally supplant the monolithic cable package has glittered on the horizon for years now. But as that future becomes increasingly the present, an uncomfortable reality has set in: There’s too much. To Netflix, Amazon Prime, Hulu, and HBO Now, add WarnerMedia, Disney, and Apple as omnibus, general interest streaming destinations. Investors have poured a billion dollars into something called Quibi, which has an unfortunate name but exclusive Guillermo del Toro content. And the niche options continue to proliferate as well, whether it’s DC Universe or College Humor. If we’re not at the breaking point yet, we’re surely about to find it.

“Everybody wants to talk about how much money’s being spent on content. But as a consumer, don’t you already feel like you have enough content choices out there?” says Dan Rayburn, a streaming media analyst with Frost & Sullivan. “Our eyeballs and the time that we have to consume media of any kind is being challenged.”

There’s nothing wrong, of course, with choice. That’s especially true if your interests run more niche, outside the relatively anodyne confines of a cable package, or even the relatively mainstream offerings of Netflix and Amazon. “The abundance of programming and commercial viability of smaller audiences is making it possible for storytelling from a much wider range of experiences to finally be available,” says Amanda Lotz, a professor of media studies at the University of Michigan and author of Portals: A Treatise on Internet-Distributed Television.

But while tailored, a la carte services have long been the promise of streaming TV, it’s starting to look more like a series of pricey buffets. Competing megacorporations are all pumping billions into original content, much of it designed for mass appeal. (Apple has reportedly mandated no “gratuitous sex, profanity or violence” on its incoming streaming service.) And even if each also produces more experimental or idiosyncratic options, you’ll be hard pressed to access all or even most of them. The show that scratches your itch won’t necessarily be on a platform you can afford to pay for.

“Realistically you’re not going to have a consumer with more than two or three services per month,” says Rayburn. Especially when you consider that these streaming services still largely supplement, rather than replace, traditional cable packages. There’s only so much disposable income to go around, no matter how much you care for The Marvelous Mrs. Maisel.

“In a lot of ways it’s an extension of the narrowcasting that began in the 1980s, with cable,” says Jennifer Holt, a media studies professor at the University of California, Santa Barbara. But by advancing that trend, it also exacerbates the fragmentation of culture that came with it. Again, that has plenty of potential benefit, giving otherwise marginalized perspectives more opportunities for representation. But it paradoxically may also make those shows increasingly hard to find.

“There was a time, the ’70s or the ’80s, when you knew what channel your show was on,” says Holt. “That kind of got lost in a lot of ways, with certain streaming services. Now maybe the idea of branding this content will take on different dimensions. You’re going to have to know where to find it. It becomes more work.”

Meanwhile, the splintering of services also threatens to hasten the decay of a broader, shared cultural conversation. “It starts to evacuate the potential for any real communal, cultural touchstone when we’re all watching completely different services,” says Holt.

All else being equal, one might expect all of this to be a blip, a temporary flash of exuberance that will subside once good old fashioned market forces clear away the rabble. But the untimely death of net neutrality, along with a merger-friendly Justice Department, have left all else quite explicitly unequal.

“I think the bigger issue is what happens in the aftermath of net neutrality’s elimination,” says Lotz, who argues that allowing ISPs to enforce paid prioritization is “more likely to change the marketplace for the services in profound ways.”

AT&T owns WarnerMedia, for instance, and so can not only potentially offer its impending streaming service at a discount—or for free—to its mobile or cable customers, but could prioritize its performance on its network, and downgrade that of rivals. (WarnerMedia hasn’t announced pricing yet, but if any of this seems far-fetched, note that AT&T already offers DirecTV Now discounts for mobile customers, and doesn’t count DirecTV Now streaming against data caps.) Comcast, meanwhile owns NBCUniversal, which gives it a sizable stake in Hulu; it also recently acquired Sky, which operates Now TV, a popular streaming service internationally.

The cable-content hybrid companies, in fact, win no matter what. Even if you pass on their streaming service, they can always make up the difference by charging more for broadband.

And then there are the companies for whom a streaming platform is a means to a greater end. Apple isn’t an ISP, but it does want to sell iPhones and iPads and Apple TVs, and will reportedly make at least some aspects of its streaming service free for hardware customers—just as, Holt notes, the early radio programs only existed to help radio companies sell more radios. Likewise, Amazon attempting to drive Prime subscriptions. All of which is to say, the field will stay crowded for longer than you might expect.

There are some bright spots in all of this, especially when you think small. “The services that work very well are the niche services, the ones that are targeting a specific type of user with a specific type of content,” says Rayburn. Those more targeted services have also forged new business models; Rayburn points to CuriosityStream, which recently embraced sponsors to help lower prices for viewers.

And Holt notes that most popular streaming services currently have fairly liberal password-sharing policies; as long as that holds true, she says, piracy could be the tie that binds us.

As more megaservices fill the landscape, though, one wonders how long before the niche upstarts feel the squeeze. And as your streaming options continue to kaleidoscope, what’s coming next looks promising, sure, but also daunting. Especially given who it’s coming from.

“The combination of the digital distributor, whether it’s the mobile phone or the ISP, and the content delivery, to me that’s the bleak future we’re headed toward,” says Holt. “I don’t think it’s going to work out for consumers.”


More Great WIRED Stories

Forget Banning Phones and Laptops at Meetings. Here's What We Should Ban Instead

Imagine you just walked into a meeting with your banker.

The main goal: To figure out how to pay for a new house.

You’re a little nervous, and you know this meeting will determine your future. You sit down and listen intently to what the banker is saying as he or she covers all of the financial details. Obviously, you are clued in to the discussion, but at one point the banker mentions something a bit odd. It’s a minor point about capital gains tax, and the year the rule changed. So, you scratch your head and pull out your phone.

A quick Google search reveals that he’s wrong about that specific tax law.

You argue the point, and resolve the issue.

The wonders of technology, right?

Sadly, a new school of thought has emerged, likely propagated by people who did not grow up with phones or tend to stick with a desktop computer during work hours.

A few years ago, an expert on this topic suggested to me that no one would ever bring a phone to a meeting with a banker. You need to stay focused and intent.

I’ve pondered that discussion a few times over the years.

Initially, I agreed and it made sense. In fact, I’ve repeated the story several times. I’ve also repeated the word “phubbing” (e.g., to phone snub) and explained how it’s a bad, terrible, no good thing. A more technical phrase is “continuous partial attention” which is one of the scariest concepts of our age. It means people are always in a state of partial attention because they are either on a phone or thinking about being on a phone.

Here’s my problem with all of this.

I don’t think phones and laptops should be banned from meetings.

I think boring topics should be banned from meetings.

I once heard a phrase, attributed to the musician David Crowder, that you should do something so cool that you don’t need to look at your phone. The same concept should apply to meetings. As someone who frequently mentors college students, I know that the minute a meeting becomes boring and routine, people tend to pull out phones or mindlessly surf on a laptop–suddenly, Fortnite is more interesting. Who can blame them? It’s not the laptop’s fault. It’s the meeting topic and the meeting presenter.

My view is that gadgets can help us verify information, they can help us add to the conversation, to look up interesting facts. Distraction is a bad thing, but there are other ways to solve that problem instead of banning our devices altogether.

In my example of the mortgage meeting, of course you would never mindlessly surf Instagram during the chat. Should you ban phones? Not at all, because they can serve a purpose, especially if you stop someone in mid-sentence and ask politely if you can check on some details. In my meetings with college students, I rarely see people surfing or looking at cat videos because we tend to keep meetings short and lively. And, every meeting is a “working” meeting. Laptops help at meetings, they don’t hinder. No one ever focuses on a laptop or phone during a meeting that is lively and engaging.

If someone does start phubbing, it reveals a much deeper problem. If the meeting is important and the discussion is good, and someone still phone surfs, it’s a sign that maybe there’s a problem with engagement on a project. Sometimes, it’s a sign of depression or some other difficulty in life. Or, it’s a sign of an unruly employee revealing many other issues for you to worry about other than using a gadget instead of paying attention.

My view is simple: Let the devices stay, but figure out how to make them part of the meeting and not a distraction. Don’t use rules and dictums. Make the meeting incredibly worthwhile, engaging, and valuable. Gadgets won’t distract people for long.

S&P 500 Weekly Update: Irrationality Isn't Always Associated With 'Exuberance' And 'Euphoria'

Corrections only are considered “natural, normal, and healthy” until they actually happen. Tony Dwyer, Canaccord Genuity

Many like to take past economic and market environments and use them to forecast what will happen next. While I do employ past market seasonality and statistics to form an opinion, I also try to keep in mind that each economic cycle will have its own nuances and challenges.

The past can afford us an idea of the risks involved when investing in the markets, but it doesn’t tell you where and when those risks will come from going forward. Trying to predict the future is impossible. What is then left forces every investor to analyze the present, while understanding the past. You have to make high probability decisions in the face of uncertainty, but those probabilities aren’t etched in stone.

That sounds like a maddening challenge for market participants. Hence the wide spectrum of opinions that are handed out daily. This bull market cycle has perplexed many experienced investors. That is confirmed by the continued skepticism being shown for the better part of this cycle, and it continues today.

It is my conclusion that too many analysts have been trying to use their historical notes and theories for how they assumed the markets should react. Their signals and patterns haven’t worked as well as they once did in markets that have evolved in the past. Many are calling that this is the end of the bull market. In their view, it will coincide with the end of the business cycle.

What they have failed to see for years now is that there are no time limits imposed by these cycles. Ahh, but now they believe they have the Fed in their corner to deliver the knockout punch to the equity market. A rising rate environment. Maybe they do. The typical U.S. business cycle is ended by the Fed, which hikes rates to levels that are too high in response to inflation. Then again maybe these analysts are wrong again.

Seems to me the Fed is raising rates in response to an improving economy. While inflation may be lurking, it isn’t here to the point of concern just yet. Of course, those that have their minds set on the Fed spoiling the party will always tell us the Fed is already behind the curve. Problem is it was supposedly behind the curve in 2014!

The ability to remain flexible and evolve with the environment is key. I have concluded that the best way to do that is to follow what THIS market is telling you. Those who have been the most wrong seem to be the people or firms who are the most entrenched in their own views.

It might be better to take the view of how you would handle the market in the future than speaking to how you would have handled it in the past. Any issue that one wants to bring up and debate surely does matter, but only to the extent of what the stock market is telling us.

A PhD can write four pages on the negative aspects that can be seen now with the Fed, economy, interest rates and inflation, and if I see an uptrend that is firmly in place, I’ll put that article aside.

No matter how certain you are in your market views, no one really knows how things will play out. It is all about probabilities. In my experience, I can draw a profile and rate the probability of how a particular situation may or may not play out based on price action.

Now before any reader believes I have lost touch with reality and buried my head in the sand dismissing what is happening around me during the recent selling stampede, think again. In times of stress and irrationality, the place to look is the LONG-TERM trend. Otherwise you will be whipsawed just like many others who then let emotion rule the day.

Chart courtesy of FreeStockCharts.com

At the close of trading on Friday, the S&P closed 5% below its all-time high. I’m not sure what some pundits use to define a bear market, but that isn’t it. All we hear now is that it is the start of something more serious. There is ZERO evidence to support that claim. Drawing conclusions from any SHORT-TERM chart or any of the negative rhetoric is a fatal mistake.

Didn’t we just witness that at the beginning of this year? It’s easier to embrace that idea because it is based on fear. For most of this week, our fears were heightened because we are seeing the values of portfolios decline. When we are afraid, we act irrationally.

Remaining in control coincides nicely with the other important factor in forming my investment strategy. Keep it simple. Complex strategies may be fine for some, but the average Joe and Mary investor will have a hard time keeping it all together when the situation gets tumultuous.

After that is accomplished, you have to be willing to accept the old adage that it’s better to be roughly right than precisely wrong. Following the “fear” rhetoric has been a recipe for disaster.

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Economy

The economy clearly is performing at a higher level with the recent positive economic reports. In my view, that is the catalyst for the recent run-up in 10-year Treasury yields. With inflation stable, the bond market seems to be focused on re-rating U.S. economic growth higher. There is little credit risk present as high-yield spreads are making new cycle lows vs. Treasuries. Lower tax and regulatory burdens are also contributing to economic strength.

It’s all about what trade will do to everything we touch. It seems that many have already lost sight of the fact that a pro-growth business environment is very much in place here in the U.S.

The headline PPI decelerated again last month down to 2.73% year over year from 2.83% the month before. This continues a trend over the past few months of the headline measure surprising lower.

Core PPI which removes food and energy accelerated slightly to 2.48% year over year from 2.4%. A more refined measure of PPI excluding foods, energy, and trade services increased the most, up 3.02% year over year compared to 2.84% in August. This is the first time this measure of core PPI has been higher than the headline number since June 2017.

CPI rose 0.1% in September with the core rate up 0.1% too. CPI rose 0.059% and the core increased 0.116%. There were no revisions to August’s respective gains of 0.2% and 0.1%. The 12-month pace on the headline slowed to 2.3% y/y versus 2.7% y/y, and the core was steady at 2.2% y/y.

Michigan sentiment fell to 99 from 100.1 in September, but left the measure still above its 7-month low of 96.2 in August, and at an historically high level that lies below the 14-year high of 101.4 last March and the 100.7 peak in October of 2017, but above the peak before that of 98.5 in January of 2017.

A solid employment picture is removing a huge thorn on the side of the taxpayers.

Other programs like food stamps and welfare are also on the decline. These were issues that were not sustainable, and the reduction that we are seeing is a plus for the government, the average taxpayer and the economy. Funny how that doesn’t make the headlines.

Earnings Observations

The banks started off this earnings season, and as expected, there were positive reports. Consumer banking was solid at JPMorgan (JPM) as it beat on both the top and bottom line.

Citigroup (C) also reported a positive quarter as well. If investors want “value,” the banking sector represents the best value in the stock market today.

FactSet Research Weekly Earnings insight for Q3 2018:

  • Earnings Scorecard: With 6% of the companies in the S&P 500 reporting actual results for the quarter, 86% of S&P 500 companies have reported a positive EPS surprise and 68% have reported a positive sales surprise.

  • Earnings Growth: The blended earnings growth rate for the S&P 500 is 19.1%. If 19.1% is the actual growth rate for the quarter, it will mark the third highest earnings growth since Q1 2011 (19.5%).

  • Valuation: With the rout in stock prices this week, the forward 12-month P/E ratio for the S&P 500 is 15.7. This P/E ratio is below the 5-year average (16.3) but above the 10-year average (14.5).

Unless the earnings forecasts coming into this earnings season are totally wrong, corporations are making a lot of money because of the pro-growth backdrop that suddenly is being forgotten.

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The Political Scene

You wouldn’t know it with all of the focus on China these days, but in reality the tensions in the geopolitical environment have eased amid a reconfigured NAFTA. The EU negotiations are ongoing on the trade front with positives being reported. Analysts remain focused on the negatives, while dismissing the positives.

It fits nicely with the other negative commentary that is concerning investors.

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The Fed and Interest Rates

For those that think bond yields are “telling you something,” the same was said a month ago, when the UST 10-yr yield was declining to 2.8% and people were calling for disappointing data that could be a harbinger of economic weakness.

I have been adamant during this entre bull run that the bond market isn’t telling me anything at all. These comments are simply rolled out to fit the interest rate story of the day.

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Sentiment

From the AAII survey of individual investors, bullish sentiment had its largest one week drop since mid-November 2017, falling 15.05 percentage points. Bullish sentiment is now down to 30.6% from 45.66% last week. This is the lowest level for bullish sentiment since the first week of August, but it’s still pretty far from the lowest level on the year that we saw in April when it fell to 26.09%. Bull markets don’t end with this type of pessimism.

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Crude Oil

The EIA weekly inventory report posted a larger-than-expected build in inventories of 6 million barrels for the week. Two large increases in a row totaling 14 million barrels. At 410.0 million barrels, U.S. crude oil inventories are at the five-year average for this time of year. Total motor gasoline inventories also showed an increase. Rising by 1 million barrels last week and remaining about 7% above the five-year average for this time of year.

The five straight weeks of gains came to an end as WTI closed the week at $71.51, down $2.83. Profit taking, bearish inventory numbers, or the fear of a global slowdown are all reasons for the selling, take your pick. Then again, perhaps it is just normal trading activity after five weeks of gains.

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The Technical Picture

October has not started out like many had envisioned. Initially we saw plenty of carnage under the hood as the indices were holding their own. That is not the case anymore. The market has narrowed. Since late August, even the strongest of the market breadth measures, the NYSE Daily Advance/Decline Line, has failed to confirm highs, while the weakest, 52-week highs and lows, has continued to erode.

Meanwhile, all of the cumulative Advance/Decline (A/D) lines were negative on a short-term trading basis. As we have seen in other major selling events, key support levels were taken out as if they weren’t really there at all. There remains a lot of negative energy out there, and it still could be released on the downside.

However, we are at an oversold level that usually indicates the selling is about to abate. Of interest is that the NASDAQ’s A/D line closed last week below its 200-DMA, which historically has signaled a short-term trading bottom.

The DAILY chart shows just how much short-term damage has been done. It also reveals how scary the price action looks compared to the S&P WEEKLY chart displayed earlier.

Just look over to the left of this chart. We have been here before, a wicked selling stampede, and the 200-day moving average is once again in play. This one is more of a surprise to me because the market was NOT wildly overbought like it was in January. I added another point on the chart indicating a severely oversold condition. These are points in time where we have seen rebounds.

Friday’s close was a small victory for the Bulls, a retake of the 200-day moving average (2,866) right at the close. I suspect that will now be the battleground in the next few days. The low that the Bulls will be defending is S&P 2,710.

So depending on your time horizon and station in life, this is as good a time as any to dig out the watchlists and the lists of stocks that were tossed away in the wild selling. Companies that were showing solid earnings growth and raising guidance are the babies that were tossed out with the bathwater in the last few days.

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Individual Stocks and Sectors

One of the best places to start looking for that baby that has been tossed out with the bathwater is to look at those companies that just reported solid earnings results. Take note of any company that raised their guidance last quarter.

Good fundamentals and good earnings will trump all of the issues that the market faces when it runs into one of these emotional selling stampedes.

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We’re now close to one half of the way through October, which has historically been a good month for equities. Not so this year. After watching what developed during the summer, I did have a sense that many pundits had it backwards this year. Far too many were telling investors to get out of stocks for the summer, based on historical patterns. The idea was to sit out the summer and come back on board in October.

That didn’t work. June, July, and August saw the S&P gain 7.7% and the Dow 30 post a 9+% gain. So while October isn’t over, all that believed October HAD to be bullish are getting a nasty surprise.

This bull market has been in force for years, yet some continue to highlight that ONE issue calling it the Achilles’ heel for stocks. Not so today, this time around they have a slew of issues that point to the end of the bull market story.

Each time any or all of these issues surfaced, they presented OPPORTUNITIES. Remember, this is exactly what happens during a bull market. As long as that primary backdrop remains, it will continue to play out that way. Those that abandon the trend before it changes are ALWAYS left in a quandary.

Anyone remember something called Brexit? This isn’t a one trick pony market, no matter what the skeptics try to sell. There are far too many positives, and no need for panic just yet. Remember, just a few short weeks ago, ALL indices were making new highs in sync. A Dow Theory buy signal was just generated. In the past, these signs led to much higher stock prices down the road. It would be unprecedented to have that across the board strength just disappear. So for those telling me that is THE top, I ask where is the evidence when no primary, intermediate- or long-term trend has been broken. While its prudent to remain vigilant and proceed with an open mind, this appears to be just a pause in the primary trend.

There is no playbook for stock market corrections. Every correction doesn’t have to turn into a crash. However, that’s a tough sell to investors watching the violent swings we have seen in the equity markets lately. You could make the case that we are in a different market environment now where the bears have control. Every single trading day seems like we see extreme selling going on in the final hours of trading that takes the major indices out at the lows for the day.

Bouncing off the lows and remaining in a trading range isn’t the worst thing now. Earnings season is on tap, and the economic data is still positive. The earnings picture is the brightest we have seen in a few years.

Of course, it is best to keep all options on the table. No one can predict the future, believe it or not, that includes the naysayers. The game to play is simple. Ask yourself WHAT is the PROBABILITY of an event, or issue that is troubling you, actually occurring? Hanging your hat on pure speculation, supposition, or a hypothetical isn’t the way to manage money.

What I also hear are the retorts from analysts indicating that they are searching for reasons why the stock market can’t go higher. Trust me when they do find them, the market will be higher and may be headed down. Failure to look at ALL of the data, issues, and the investing environment that exists is a recipe for disaster.

The long-term underlying trend is still in control. When that isn’t the case, changes will be made. Strong corporate earnings, and at the moment, low investor expectations, add to the positive outlook. Despite all the turmoil around me, I see no reason to abandon the trend and the Bull market. Therefore I remain invested and adding stocks when I see an opportunity.

I would also like to take a moment and remind all of the readers of an important issue. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation. Please keep that in mind when forming your investment strategy.

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to all of the readers that contribute to this forum to make these articles a better experience for all.

Best of Luck to All!

Disclosure: I am/we are long JPM,C.

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: My portfolios are ALL positioned to take advantage of the bull market with NO hedges in place.

This article contains my views of the equity market and what strategy and positioning is comfortable for me. Of course, it is not suited for everyone, as there are far too many variables. Hopefully it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel more calm, putting them in control.

The opinions rendered here, are just that – opinions – and along with positions can change at any time.

As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die. Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time.

How to Leverage Reverse Mentoring to Increase Diversity in Your Organization

By Serenity Gibbons, local unit lead for NAACP

In my work for the NAACP, diversity is a key objective. I’m also aware of the importance of identifying new ways to help others increase diversity within their own organizations. One of these approaches for promoting diversity is known as reverse mentoring. Here’s what I have learned about this special mentorship relationship and how it could be an option for your startup or company.

What is reverse mentoring?

When I used to think of mentoring, it was always in the context of a relationship where someone older, with more experience, was providing guidance and shaping my professional and personal journey. But younger people can also provide insights and perspectives that would have otherwise been missed by more senior team members.

Reverse mentoring involves reaching out to your employees for guidance, feedback and direction. And it is not a new concept. In the late 1990s, GE CEO Jack Welch explained that he was leveraging reverse mentoring because his younger employees had a better understanding of how to use up-and-coming technology such as the internet.

How can reverse mentoring positively impact diversity?

It’s not just about understanding technology; reverse mentoring can also change ingrained perspectives that may be inhibiting true organizational diversity. For example, many older workers see younger employees as not as valuable, while younger workers believe that older workers are set in their ways and unable to grasp new technology. Meanwhile, millennials and Gen Zers are less concerned with race, ethnicity, sexual preference or identity and level of ability/disability. By having open conversations and taking the time to find common ground, younger employees can break down the beliefs held by older workers.

By having younger staff members teach older staff members, other benefits emerge that can aid the spread of a culture based on the value of diversity. When I participated in a reverse mentoring relationship, we both learned something valuable. For example, one big issue when it comes to diversity is differences in communication style — this can lead to many misunderstandings. However, in talking about certain phrases, tones of voice and body language, those misunderstandings were alleviated.

Reverse mentoring has opened up opportunities that may not have happened in terms of an honest and open environment to discuss ideas and perspectives. I have spent more time getting to know others in the workplace who I may not have engaged with otherwise. It made me realize that even when discussing the value of diversity in the workplace, I wasn’t doing as much as I could to understand others.

How can you add reverse mentoring to your organization?

Start slow. It’s important to move slowly with reverse mentoring. Offering it as a volunteer program at first may help more people within your organization work into the idea. If those in the organization feel forced, it won’t work well in helping to spread understanding and awareness.

Even when the reverse mentoring program is accepted, it is best to take a cautious approach to what can be a very complex relationship. There are long-held beliefs and emotions that go into looking at differences and moving past stereotypes that have been long-established and ingrained, whether consciously or unconsciously. Sensitivity is critical to how you approach adding and managing reverse mentoring.

Provide guidance and structure. To help mentors and mentees understand how this type of program works, provide some initial guidance, including suggested topic areas to get the process rolling. Have them focus on the business perspective and veer away from any topic that could be focused on social, cultural or political issues. The business perspective is an easy area to uncover the common ground necessary to put both people at ease.

Lastly, have someone oversee what should be a formal program with directions, timelines and metrics for review to determine how the relationships are working or what might be improved. Adding structure to reverse mentoring programs sends the message that it’s a priority to your organization. And when you clearly communicate the context and benefits for reverse mentoring, you may find more people are willing to try it.

Serenity Gibbons is the local unit lead for NAACP in Northern CA. She is a former assistant editor of the Wall Street Journal.

9 Brutal Truths About Getting Rich That Few People Are Willing to Admit

A friend of mine runs a startup that has yet to turn a profit. He’s cuts expenses, streamlines operations, maximizes efficiency… he works tirelessly to reduce the cost side of his business so it can become profitable.

That’s great, but he’s forgotten a basic principle of business. Unless spending is way out of control, it’s almost impossible to save your way to profitability. When fixed costs are high, when cash flow is poor, when labor makes up a major portion of your costs… the only way to become profitable is to increase sales.

Unfortunately, forgetting some simple truths happens to all of us, especially where our finances are concerned. We download the latest apps. We spend hours setting up a new web-based financial management system that will organize our finances.

But don’t actually help us change our behaviors. 

And we lose sight of the basic keys to making, and saving, money. 

In short, we make things too complicated — and in the process, we don’t see any results.

So if you’re looking for a way to build wealth and enjoy some measure of financial freedom, remember these simple truths about personal finance. And don’t say they don’t apply to your situation; while we’re all individuals, in most respects we’re basically much the same.

Which is a good thing, because it means embracing these approaches will help get you to where you want to be — and deserve to be.

1. The most important investment you make is in yourself.

You’ll get the biggest return from investing in yourself: Improving your skills, improving your connections, improving your health and fitness…

Consistently — relentlessly — investing in yourself will produce better long-term results than any other investment you can make.

And it’s the one investment outcome whose outcome you can almost totally control. 

2. Work for someone else and your income is always capped.

Sure, you might get salary increases, but you will never be paid more than someone else decides you’re worth. 

That’s why, in return for less freedom, less control, and less fulfillment, every day you work for someone else, your upside is always capped. And your downside is always unlimited, since at any moment someone else can take away your income.

Start a business, and your income is limited only by you.

Keep in mind you don’t have to quit your job to start a business; in fact, you probably shouldn’t. (One of the best ways to minimize your risk is to keep your full-time job while you build your foundation for success. Then you can quit.) Plus, the basics of starting a business are easy; you can do it in one day.

While the downside for entrepreneurs is also unlimited, in return, they enjoy the possibility of an unlimited financial upside — and an unlimited personal upside.

3. No one will ever care about your money (and your future) as much as you.

Especially not financial advisers. The nature of the business means they care more about making money from you, not for you.

Get help if you need it. Ask for advice. Ask for input. Enlist the aid of people smarter than you. But always — always — be the person who makes the final decisions. And who makes sure he or she truly understands why those decisions are the right ones.

Who is the best person to look out for your interests? You. Always you. 

4. Borrowing money takes minutes; paying it back seemingly takes forever.

If you have good credit and sufficient income, you can borrow $100k and buy a Porsche. If you have no credit and no income, you can borrow $100 or even $200k and buy a degree. If you have the right connections, you can borrow thousands to start your own business.

Borrowing money is easy.

But then you spend years paying that money back.

Borrowing money is an investment that should always provide a return. And not just a financial return — the key return is the benefit you receive. If you’re scrambling every month to make your student loan payment on a teacher’s salary — and it will take you 20 years to pay it off — was that investment a good one? Maybe not.

Don’t think about how long it takes to get a loan; think about how long it takes to pay it back the loan.  And think about the impact on your day-to-day life — or your business — for all the years it takes.

That’s the real cost of investment.

And while we’re talking about borrowing money…

5. Never borrow as much as someone will give you.

Take home mortgages: While the front-end and back-end ratios have definitely tightened, a mortgage broker will almost always lend you more than you can really afford.

As with many things in life, just because you can… doesn’t mean you should.

6. Only make investments you can explain to a 10 year-old. 

(And no, “Bitcoin is the next big thing!” doesn’t count.)

As Warren Buffett says, “The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”

That’s also true where analyzing investments is concerned. Like a unique selling proposition (USP), if with one or two sentences you can’t explain why you want to make a certain investment… don’t make it.

7. Spend money on things and you’re left with things, not money.

And not only does the value immediately start to depreciate, so does the “joy” of the initial purchase. That cool new jacket I just had to have? 

By next week, it was just a coat.

8. Failing to maxing out the employer 401(k) match is turning down free money.

Make sure you contribute whatever it takes to max out what your employer will match. Otherwise you’re saying, “Nah, I don’t want your money. You keep it.”

The same is true if you own your own business. (Especially if you’re the only employee; if you have employees you must extend them the same match level as you do yourself.) 

Set up a 401(k) and match 100 percent of your contributions. That way you’re contributing pre-tax dollars — and so is your business.

As an employee you can contribute $18,500 to a 401(k) this year ($24,500 if you’re over 50), and total contributions (employer match, profit sharing) can add up to $55,000. That’s a lot of money you can sock away.

Which is yet another reason to start your own business. Even if it’s just a side hustle designed purely to help you put away more money for retirement.

9. It’s your life. Live it your way.

Some of the time it pays to consider what other people think — but not if it stands in the way of living the life you really want to live.

Don’t buy a house just to impress other people; buy the house that’s right for you. Don’t buy a car just to impress other people; buy the car that’s right for you. 

Make spending choices that are right for you. Make investment choices that are right for you.

Pick your career, your school, your business — pick everything — because it’s right for you.

Not only will you make better decisions about your money and  finance, you’ll also be a lot happier, because you will get to live the life you want to lead.

Which ultimately is what money is really for.

How Tech Swagger Triggered the Era of Distrust in Government

Last month, I heard Jill Lepore give a talk about These Truths, her single-volume history of America from the 15th century through the 2016 presidential election. She got her biggest laugh when she made fun of WIRED for predicting in 2000 that the internet would both lead to the end of political division and be a place where government interference would be senseless.

There are many famous WIRED moments that also fit this description, including Jon Katz’s assertion in 1997 that Netizens had nothing but contempt for government, John Perry Barlow’s 1996 Declaration of the Independence of Cyberspace, or the Joshua Quittner profile of EFF in 1994 depicting Electronic Frontier Foundation co-founder Mitchell Kapor and the fabled Esther Dyson as people who “got it.” Their goal was to have the net be a wiring together of humanity that would restructure civilization. The EFF would “find a way of preserving the ideology of the ’60s,” Kapor told WIRED.

Much of that early libertarian net culture—white, rich, smart, and full of “let’s just geek around it” swagger when it came to government—has become mainstream in Western democracies in 2018. Paradoxically, that ideology came from a time when, in fact, government was doing a lot for people.

Those baby boomers being profiled by WIRED had known only a United States full of generous government support for education, a time of continuous upward mobility, and an America that could carry out enormous and inspiring public infrastructure projects—including requiring that phone companies permit competing internet service providers to use their lines. The voices in WIRED were those of a very secure bunch of people. And they were bored by it all; they saw government as a set of clueless, bland bureaucracies. Who needed that?

As it turns out, we all did. Today, globally interconnected changes in climate and widespread disdain for democratic institutions are the key titanic, messy trends that are likely to begin producing shocking results 25 years from now. At that point, with the globe dealing with punishing heat and alarming levels of water, it won’t be internet technology that will be doing the disrupting. There are signs that the internet will be fading from view as a distinctive “place” prompting political and social changes. Indeed, if we keep to our current course, communications capacity and what humans do online may be controlled by a few highly profitable actors who will be uninterested in the unpredictable. Given this context, there is a substantial risk that 25 years from now the breathlessly libertarian views trumpeted by WIRED’s early voices will have reached their unpleasant apotheosis.

I hope I am wrong.

Let’s start with the weather. Techies are good at positive feedback loops, and these days we’re seeing one operating at global scale. As the dynamics of air patterns change around the world in response to overall warming, melting ice in the Arctic is having an effect on distant lands. Weather is getting stuck in place, making both extreme dryness and extreme downpours routine. It’s a giant, resonating system of ever-increasing cataclysmic change.

We humans are a resilient, cheerful group, so presumably we’ll adapt. But it is probably already too late to carry out the large-scale planning that would have been necessary to move people comfortably and gradually away from the coasts and change the economics of places that are plunging into unending drought. Millions or billions of our fellow less-well-off beings will be forced into climate refugee status.

What’s particularly troubling is that even relatively rich countries may be losing the capacity to plan ahead for all of their citizens. And that’s the second messy force that will affect the next 25 years: increasing cynicism about the role of democratic government in people’s lives, particularly in Western Europe and the US.

Unless something changes, government at all levels will come to be viewed as a thin, under-resourced platform whose purpose is to help already-thriving people make even more money. The familiar drumbeat that will get us there will include fewer people voting, increasing talk about shrinking government, declining trust in most levels of government, and outright, unabashed disdain for “bureaucrats.” And so authoritarianism may increasingly fill the void, with countries like Hungary, Poland, and Brazil added in the years to come to a list that now includes places like Cuba, Russia, and China.

Into this swirl of depressing global trends steps WIRED, the internet, and those ’60s-culture voices. It turns out the pixie dust of digital did not remove the crushing economic and social truth that unrestrained moneymaking leads to chaos and despair. But the larger public caught the WIRED mystique and amplified the message of complete freedom from old-fashioned governmental constraints—not knowing that the message had implicitly assumed the ongoing presence of a functioning public sector. (For starters, absent government involvement and regulation—that dreaded word—the early net-heads would not have been able to use an internet protocol that elegantly allowed computers to speak to each other across heterogeneous networks.)

Take these trends to their extremes decades from now and you could have a hollowed-out public sector, growing affection for essentially private strongmen who might be able to protect your socioeconomic tribe from searing heat and punishing storm surge, and an online world that has, like electricity, faded into the background as a social change agent. Not only will all generations be used to “digital” (at varying levels depending on their wealth and location), but if we keep following the Barlow rhetorical path, life online may not be all that that interesting. Imagine a wholly oligopolistic, vertically integrated online ecosystem focused on entertainment and advertising—access to which is subject to neither competition nor oversight—and try to feel creative.

After the two world wars and the Great Depression, Americans and the citizens of every other developed country absolutely understood that it simply is not true that the incentives of unrestrained private gain are always aligned with or lead to public good. You would have been laughed off the stage in the early ’50s—under a Republican president, by the way—if you’d said anything like that.

Nothing happens quickly, and we may still see a return to a more balanced view of the role of government, particularly as rising waters and changing weather dynamics disastrously change human lives. But for now, and for the foreseeable future, we are increasingly on our own.


More Great WIRED Stories

The 7 Best Ways to Stop Micromanaging

1. Take a second look at recruiting, hiring and training.

Micromanaging often has a root in bringing someone into the company who wasn’t the best fit in terms of culture or skills. That can cause the worker to clash with you or have trouble following protocols or policies, which in turn might make you feel like you have to watch the employee like a hawk. Review how you describe positions and what you require of your recruiters to see if you can’t find more ideal candidates. Once you’ve hired, make sure that workers have access to resources they need to learn and complete the tasks you expect.

2. Keep your schedule full.

The idea here isn’t to work yourself into the ground. Rather, it’s to keep yourself just busy enough that you’re less tempted to constantly watch over everyone. Try to schedule activities with others for accountability and network expansion, and get yourself out of the office when it’s practical.

3. Take a 360 picture of your life and do more self-care.

While some individuals naturally are a little more prone to micromanaging because of their personalities, you might also do it if you feel like there are other areas of your life that you can’t control. In this case, micromanaging employees can be a way of trying to find balance and cope with personal stress. Consider making some lifestyle changes that can put you back in the driver’s seat outside of the office, and talk with people you trust about what you find challenging.

4. Improve your own skills and creativity.

Micromanaging can be a way to live vicariously–if you don’t feel like you have specific competencies or capabilities, you might want to control the people who do so you can feel connected to those positive traits and take credit for their outcomes. Take classes or find other opportunities to affirm your own talents. Always ask yourself whether your requirements satisfy you or whether they satisfy the interests of the business.

5. Improve your communication.

Good communication between you and your employees reassures you that the workers are progressing as you wanted, which alleviates the worry that can prompt you to micromanage. It also builds rapport and trust, which can make you more confident that the workers will follow your directions even when you’re not looking over their shoulders. Schedule regular check-ins and establish an open-door policy so your team knows they can come to you. Make sure your operational routines and protocols discourage siloing and allow time for interaction. Lastly, outline clear goals and constraints for each project so there isn’t any confusion as you delegate.

6. Get more data.

Just like a lack of control in personal areas of your life can make you tighten your grip on workers, a lack of data can make you scared that you’re missing something or will lose out. Instead of keeping tabs on how workers spend every minute, stay focused on the bigger picture. Get other facts and figures that can reassure you that you’re on target, or that can give you better insights about what your employees can and can’t control. Use that data to evaluate team and company goals and adjust processes or resources on a regular basis.

7. Let workers call you out.

Address the elephant in the room and tell your team outright that you’re trying to be better and eliminate the micromanaging habit. Ask them to let you know when they need some breathing space so you can learn about their needs and what typically triggers you to be most watchful. Most employees will be impressed at your willingness to address the fault and just need some reassurance that they won’t be punished for pointing out what you’re doing.

7 Strategies to Maximize Your Productivity While Traveling

Whether you hate the idea of traveling or you actually look forward to it, it’s hard to deny that travel can sabotage your productivity–at least temporarily. It takes hours of planning and coordination to prepare for some trips, and hours to navigate airports, not to mention the actual time you spend traveling.

It can make a full day of responsibilities feel like a waste, and put you behind on achieving your goals. Fortunately, there are some helpful strategies that can make you more productive–no matter how you’re traveling.

Try using these tactics to get more done when you’re setting course on a major trip:

1. Get used to a different sleep cycle.

One of the biggest sources of productivity disturbance while traveling is the disruption in your sleep cycle. Depending on where you travel to, you could be dealing with timezone changes and jet lag, and you may not be able to get a comfortable eight hours of sleep when you’re used to getting it.

Instead, you can try a biphasic cycle or an everyman cycle, which rely on split patterns to break up your time sleeping; that way, travel may not have as big of an impact on you. The caveat here is that it takes time to get used to a new sleep cycle, so it’s best for frequent travelers only.

2. Take a private jet.

One of the biggest sources of time delay while traveling is navigating the airport; going through customs, waiting to board the plane, dealing with delays, etc., can add several unnecessary hours to your trip.

Taking a private jet allows you to circumvent most of these problems–and it’s cheaper than you think. If a few hundred dollars can save you literally hours of time, and afford you a better workspace when you’re flying, it’s likely worth the extra money.

3. Look for coworking spaces when you arrive.

Coworking spaces are popping up everywhere, so you shouldn’t have trouble finding one at your destination. Instead of going straight to a hotel or meeting, check into one of these productivity hubs; you’ll be able to get coffee, work in a peaceful environment, and if you’re up for it, socialize with other people who may be in similar situations. It’s a great way to both decompress and get more work done, so take advantage of it.

4. Rely on audio.

While you’re driving, navigating the airport, or dealing with a lack of lighting or Wi-Fi, you won’t be able to work on your most important heads-down tasks–but that doesn’t mean you can’t be productive.

Try focusing on audio-specific tasks when you can, listening to recordings of old meetings to prepare for the future, catching up on your favorite industry podcasts, and listening to audiobooks that can improve your skills or expand your professional horizons. There’s no shortage of audio content to plunder, so make good use of it.

5. Prepare travel-specific tasks.

While traveling, you won’t be able to do tasks that require multiple monitors, or meet with your teammates in person. You’ll have limited space, and in some cases, limited Wi-Fi connectivity.

Prepare tasks that you can work on under these conditions, so you don’t run out of things to do. As long as you have a few days’ heads-up, you can handle your least travel-friendly tasks in advance, and set yourself up to work offline for the next several hours.

6. Say “no” and delegate.

New things are going to come to your attention before and during your travel; for example, you might get a client email requesting a change to a piece of work you submitted. If this is the type of work that can’t be done efficiently when traveling, don’t bend over backwards trying to do it; instead, tell them you’re traveling, and not able to do it right now.

If it’s an emergency, or if you won’t be able to get to it for a while, consider delegating it to someone who can handle it.

7. Rest (if you can).

To some people, sleeping may seem like the opposite of productivity. But in reality, sleeping is one of the best things you can do for your mental energy and cognitive capacity. It can even reduce your susceptibility to illness and improve your overall physical health.

Accordingly, if it’s possible for you to take a nap during a long flight or car ride, take advantage of the opportunity. Use a face mask, a neck pillow, or some comforting white noise from your headphones–whatever you need to get some extra shuteye when you’re between destinations. You’ll thank yourself later.

Finding Your Own Style

Not everyone is going to travel the same way. For example, some people may not be able to read while in a vehicle, and some may have trouble sleeping on airplanes. The goal isn’t to fall in line with a series of productive habits, but rather to craft your own habits to maximize your personal productivity. Learn which strategies and actions suit you best, and customize your own set of approaches.

These Parents Are Angry That American Airlines Wouldn't Let Their 5-Year-Old Boy with Autism Board a Flight

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

The disappointment was crushing. Especially after the preparation. 

Adam and Heather Halkuff have five children, two of whom have autism. 

They wanted to take the whole family on a trip to Kansas City. So the Texas family did all they could to make it happen.

As NBC 5 reports, they called American Airlines in advance. The airline has a program that helps kids, including those with autism, become familiar with all the trials and quirks of flying. 

Five-year-old Milo and two-year-old Ollie took part, on September 24, more than a week before their flight. 

Yet on the day of the flight, Milo became distressed — many call it a meltdown — during the boarding process at Dallas/Fort Worth airport.

A meltdown might involve screaming, crying and other expressions of feeling overwhelmed.

The Halkuffs say other passengers were kind, but an American Airlines gate agent was less so.

“Right away she goes, ‘He can’t get on the flight … he’s going to bother the other passengers and then he’ll still be upset during the flight and we’ll have to turn around and escort you off the plane,” Heather Halkuff told NBC.

Some might observe that they’ve seen all sorts of kids get on planes and express upset.

Sometimes, they calm down quickly. Surely everyone has at least once been on a flight when a child didn’t quieten at all. 

At times, ground crew and Flight Attendants can be sympathetic. At other times, not so much.

The Halkuffs depiction of this particular gate agent suggests that she was of the latter variety.

Worse, Heather Halkuff says that the whole family weren’t allowed to board. Even though Adam Halkuff offered to take Milo home, so that at least Heather and the other children could still take the trip.

I contacted American for its view and a spokesperson told me:  

We are concerned to hear about this situation. Our team has reached out to the Halkuff family to gather more information about what transpired at Dallas/Fort Worth. The American Airlines team is committed to providing a safe and pleasant travel experience for all of our customers.

Clearly, the fact that American provides a service to help children — including those with autism — get used to flying means that the airline isn’t insensitive to the potential issues.

Moreover, we have no idea of the level of distress Milo might have undergone.

Yet again, though, we’re in a customer service situation when individuals are involved and initial reactions matter.

If the Halkuffs’ story is accurate, then some might conjecture the gate agent reacted too quickly. 

There could, perhaps, have been an alternative solution. Could anyone really know if Milo might have calmed down, once on the plane?

Not allowing any of the family to fly, however, seems to be the sort of draconian decision still too often taken by airline staff. 

I recently wrote about a dad who says he called American to explain that his three-year-old had a burst appendix and please could the airline rebook their trip.

American, he says, insisted on still charging $200 change fees for both of them. Before, says dad, the decision gained some Twitter traction.

Then the airline made a “one time exception.”

When it comes to boarding passengers, airline employees are graded severely on so-called D0.

This is the measure of whether a plane departs at the very minute and second it’s supposed to.

It could be that thoughts of this may have played upon this particular gate agent’s mind.

Yet as long as customers still see airlines as being in the customer service business — perhaps erroneously — such stories are likely to reach the media and become examples of airline insensitivity.

Airlines employ enormous numbers of people and are therefore at the mercy of each of their employees’ behavior.

The Halkuffs hope that what happened doesn’t cause Milo’s older brothers to resent him.

Perhaps there’s some way that American might provide another attempt for Milo to fly with his family.

Indeed, American told me:

A few members of the American team have been in touch with the family, and yes, we are hopeful they will reschedule and try once again.

Walmart partners with MGM to boost video-on-demand service Vudu

NEW YORK (Reuters) – Walmart Inc (WMT.N) said on Monday it would partner with U.S. movie studio Metro Goldwyn Mayer to create content for its video-on-demand service, Vudu, which the retailer bought eight years ago.

FILE PHOTO: Walmart signage is displayed outside a company’s store in Chicago, Illinois, U.S. November 23, 2016. REUTERS/Kamil Krzaczynski

Walmart has been looking to prop up Vudu’s monthly viewership that remains well below that of competitors like Netflix Inc (NFLX.O) and Hulu LLC, which is controlled by Walt Disney Co (DIS.N), Comcast Corp (CMCSA.O) and Twenty-First Century Fox Inc (FOXA.O).

Media outlets had reported the Bentonville, Arkansas-based company was looking to launch a subscription streaming video service to rival that of Netflix and make a foray into producing TV shows to attract customers.

Walmart is not planning such a move, company sources have told Reuters. The retailer continues, however, to look for options to boost its video-on-demand business and offer programs that target customers who live outside of big cities.

Walmart and MGM will make the announcement at the NewFronts conference in Los Angeles on Wednesday. It will include the name of the first production under the partnership, which Walmart will license from MGM.

“Under this partnership, MGM will create exclusive content based on their extensive library of iconic IP (intellectual property), and that content will premiere exclusively on the Vudu platform,” Walmart spokesman Justin Rushing told Reuters.

The focus will be on family-friendly content that Walmart customers prefer, Rushing said.

The financial deals of the deal were not disclosed.

Licensing content is a cost-effective strategy at a time when producing original content has become a costly venture. As of July, Netflix said it was spending $8 billion a year on original and acquired content. Amazon.com Inc’s (AMZN.O) programming budget for Prime Video was more than $4 billion, while U.S. broadcaster HBO, owned by AT&T Inc (T.N), said it would spend $2.7 billion this year.

Walmart acquired Vudu in 2010 to safeguard against declining in-store sales of DVDs. Walmart bet that customers would continue to buy and rent movies and move their titles to a digital library, which Vudu would create and maintain for viewers.

But the video site has not posed a significant challenge to rivals that dominate the segment even though it is pre-loaded or can be downloaded to millions of smart televisions and video-game consoles.

Vudu offers 150,000 titles to buy or rent, while its free, ad-supported streaming service, called Movies On Us, includes 5,000 movies and TV shows.

There are currently more than 200 video services that bypass cable providers and stream content directly to a TV, laptop, phone or game console. That is up from 68 five years ago, according to market researcher Parks Associates.

Reporting by Nandita Bose in New York; Editing by Peter Cooney

Cyber Saturday—China’s Chip Hack, Amazon and Apple’s Denials, Google’s Trust Reversal

Rope-a-dope. The U.S. Justice Department charged seven Russian military intelligence officers with a number of hacking-related crimes on Thursday. The Russian spies allegedly ran a disinformation campaign—including wire fraud, identity theft, and money laundering—that targeted hundreds of athletes and anti-doping officials in retaliation for the exposure of a Russian state-sponsored doping program. “All of this was done to undermine those organizations’ efforts to ensure the integrity of the Olympic and other games,” said Assistant Attorney General for the National Security Division John Demers at a news conference.

A piece of the puzzle. Jigsaw, an Alphabet unit that builds security, privacy, and anti-censorship tools, has released a new app called Intra. The app is designed to block DNS manipulation attacks, a censorship tactic that certain nation-states, like Venezuela and Turkey, have used to intercept and block or redirect website visits by their populations. Jigsaw said the tool will be embedded by default into the next version of Google’s mobile operating system, Android Pie.

No fly zone. Google CEO Sundar Pichai paid a quiet visit to the Pentagon following the tech giant’s decision not to renew a contract supplying AI tech to a military program, The Washington Post reports. Pichai supposedly sought to smooth over tensions after his company backed out of the defense deal, which involved analyzing video captured by drones. Thousands of employees had objected to the program, dubbed Project Maven.

Please re-enter password. California has signed into a law a bill that will require manufacturers of Internet-connected devices to create unique passwords for each device made or sold in the state. In other words, manufacturers of said devices can no longer use generic, pre-programmed passwords like “admin” or “password” to secure their products. If they do, customers have the right to sue for damages.

From masterpiece to master pieces.

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​Red Hat Satellite integrated new, improved Ansible DevOps

When Linux’s sysadmin graybeards got their start, they all used the shell to manage systems. Years later, they also used system administration programs such as Red Hat Enterprise Linux (RHEL)‘s Red Hat Satellite and SUSE Linux Enterprise Server (SLES)‘s YaST. Then, DevOps programs, like Ansible, Chef, and Puppet, appeared so we can manage hundreds of servers at once. Now, Red Hat is bridging the gap between the old-style server management tools and DevOps with Red Hat Satellite 6.4.

This new management tool comes with a deeper integration with Red Hat Ansible Automation automation-centric approach to IT management. This enables sysadmins to use the Red Hat Satellite interface to manage RHEL with Ansible’s remote execution and desired state management. This integration will help identify critical risks, create enterprise change plans, and automatically generate Ansible playbooks.

Also: How Red Hat’s strategy helps CIOs take baby steps to the cloud TechRepublic

Red Hat claimed, “This exciting integration is designed to help not only identify critical risks but then create enterprise change plans and automatically generate Ansible playbooks to better remediate those risks.”

The updated Red Hat Satellite also comes with these new features:

  • Redesigned user interface for easier navigation and improved auditing of user events.
  • Increased supportability including the ability to provision in AWS GovCloud and custom configuration preservation.
  • Enhanced performance including RHEL Performance Co-Pilot integration and general stability fixes.

Red Hat Satellite 6.4 will be available later in October through the Red Hat Customer Portal.

But that’s only the start of Red Hat’s DevOps and sysadmin news. Red Hat is also introducing a Red Hat Ansible Automation Certification Program to deliver tested, trusted, and supported Ansible Playbooks.

These certified Playbooks, from Red Hat and its partners, will provide everything you need to automate your infrastructure, networks, containers, and deployments. Besides Red Hat’s offerings, Cisco, CyberArk, F5 Networks, Infoblox, NetApp, and Nokia will offer 275 Ansible modules in the initial release.

These Playbooks, Modules and Plugins are scanned against known vulnerabilities, checked for compatibility, and validated to work in production. These will have a similar lifecycle to Ansible Engine. They’ll also be regularly re-evaluated for certification qualification and are fully-backed with Red Hat’s support.

Also: From Linux to cloud, why Red Hat matters for every enterprise

If you’re using Ansible and RHEL and you don’t want to build your own Playbooks, this new offering is a must.

Looking ahead, Red Hat is adding automated security capabilities, such as enterprise firewalls, intrusion detection systems (IDS), and security information and event management (SIEM) to Ansible.

In 2019, Ansible will include the following security features:

  • Detection and triage of suspicious activities: Automatically configure logging across enterprise firewalls and IDS,
  • Threat hunting: Automatically create new IDS rules to investigate the origin of a firewall rule violation and whitelist non-threatening IP addresses.
  • Incident response: Ansible will be able to automatically validate a threat by verifying an IDS rule, trigger a remediation from the SIEM solution and create new enterprise firewall rules to blacklist the source of an attack.

It will do this, in part, by integrating Check Point Next Generation Firewall (NGFW); Splunk Enterprise Security; and Snort, the open-source IDS program.

Joe Fitzgerald, Red Hat Business Management VP, explained in a statement:

“Since

Red Hat acquired Ansible in 2015, we have been working to make the automated enterprise a reality by driving Ansible into new domains and expanding automation use cases. With the new Ansible security automation capabilities, we’re making it easier to manage one of enterprise IT’s most complex tasks: systems security. These new modules can help users take an automation-centric approach to IT security, integrating solutions that otherwise would not work together and helping to manage and orchestrate entire security operations with a single, familiar tool.”

It sounds good to me. We’ll see early next year how well Red Hat delivers on this promise.

Related stories:

When it Comes to Autonomous Cars, the Department of Transportation Says ‘Drivers’ Don’t Have to Be Human

The Department of Transportation is getting a little more creative about how it defines “driver,” Secretary Elaine Chao announced Thursday. In the third version of the department’s official stance on self-driving, the department said it would “adapt the definitions of ‘driver’ and ‘operator’ to recognize that such terms to not refer exclusively to a human, but may in fact include an automated system.” The computers have a ticket to drive now—at least where federal regulations are concerned.

And while this is good news for everyone working on building, and eventually deploying, self-driving vehicles, it’s especially welcome for the automated trucking crowd. Waymo, Daimler, Volvo, Embark Trucks, Kache.ai, Starsky and Kodiak Robotics, TuSimple, Ike: Automated trucking companies have boomed this year, even after Uber got out of the trucking race. And all these VC-funded people would one day like to use their robot vehicles to transport the 50 million tons of freight shipped on American highways each day.

To get there, though, the trucks have to be legal drivers, all by themselves. And they have to be able to drive everywhere freight goes. (So, everywhere.) This new guidance, which is the first to address automated trucks and buses specifically, looks to be the initial step in making that possible.

“We have a much clearer roadmap now,” says Jonny Morris, who heads up public policy at Embark. (Embark is shipping commercial loads with test trucks in California and Arizona, though drivers behind steering wheels monitor the technology during each drive.) “We’re starting from a point where the DOT is acknowledging that what we’re trying to do is generally allowable under existing regulations.”

The guidance is an especially handy thing for truck developers because trucks are much more likely than robotaxis to cross state lines. If there’s a single federal regulation for all highways, it will be much easier for these nascent companies to strike deals to ship goods all over the US. Today, different state rules create a patchwork of self-driving laws, where automated vehicles are welcomed enthusiastically in some states (Florida, Arizona) and require special licenses, permissions, permits, or testing parameters in others (California, Nevada, New York).

The DOT also announced in its guidance an “advanced notice of proposed rulemaking” for automated driving systems, both on passenger cars and trucks. Basically, that’s a heads up that the DOT will very soon start to solicit the public’s opinions on how the technology should be governed.

The goal here, the DOT says, is to guarantee road safety while ensuring that the federal government’s vehicle design standards don’t get in the way of self-driving vehicles. Today, anything on wheels is required by law to have features that won’t do much if the computer is driving the car: steering wheels, gas pedals, rear-view and side mirrors. Manufacturers have to apply for specialized exemptions if their vehicles don’t have those elements, and only a certain number of exemptions are available each year. As automated vehicle developers like Waymo and GM prepare to launch their own robotaxi services, they would love for those requirements to disappear—ASAP. (For now, DOT has pledged to “streamline” this exemption process, though it will need Congress to pass new legislation to hike the number of exemptions available each year.)

“These rulemakings could matter a lot, and the devil will be in the details,” says Bryant Walker Smith, a professor at the University of South Carolina School of Law who studies automated vehicle policy. In other words: A lot might be about to change in the world of vehicle regulation. We just don’t know what yet.

In the interim, though, the DOT Thursday strongly reasserted its authority to order any technology it finds unsafe off the road.

The DOT also announced today that it will work with the Departments of Labor, Commerce, and Health and Human Services to formally study how automated vehicle tech might affect the workforce—including truckers—and what sorts of skills the workforce will need to excel in a robotic future. A recent study by labor economists concluded that automated vehicles won’t begin to seriously displace workers until the mid-2040s, and that even the losses then will be relatively minimal. Still, the economists warned, now is the time to start preparing the workforce for the disappearance of some trucking jobs. And the federal government has begun to heed the call.

For now, Morris says Embark will wait to see how this new guidance document works in real life, meaning the company won’t start to test in place where lawmakers haven’t wanted them, yet. While the feds insist that they have the power to preempt state regulations of automated vehicle technology, expect states to at least have a voice in the testing process moving forward. At this point, everyone still wants to be on friendly terms as they welcome the robots.


More Great WIRED Stories

Tesla's Autopilot Report Makes Big Safety Claims With Little Context

Tesla has published its first voluntary “Vehicle Safety Report,” and the numbers seem to clearly back CEO Elon Musk’s assertion that drivers who use Tesla’s sort of self-driving Autopilot feature are involved in fewer crashes than those who turn it off, and far fewer crashes than the general driving population. But without more detail, the numbers mean little.

In the report, Tesla says that between July and September of this year, it “registered one accident or crash-like event for every 3.34 million miles driven in which drivers had Autopilot engaged.” Tesla drivers not using Autopilot went 1.92 million miles between incidents.

The company equates “crash-like events” with near misses but didn’t respond to a request for more detail on what that means. The report offers no insight into the severity of the crashes, whether anyone involved was injured, what may have caused the crashes, or where and when they happened.

Tesla’s Autopilot cleverly combines adaptive cruise control, which maintains a set distance from the car in front even if it slows down, and steering assistance, which keeps the car between painted lane markings. Tesla stresses both features are intended for use in limited circumstances. “Autosteer is intended for use only on highways and limited-access roads with a fully attentive driver,” the Model S’s manual says. Although the system can be engaged anywhere, that technically means drivers using Autopilot sticking to roads like freeways—routes free of intersections, pedestrians, cyclists, and other complicating factors. Drivers not using it might be on crowded city streets or twisty country roads, making a comparison useless without that extra information.

Since releasing Autopilot in 2014, Tesla has faced criticism that the system makes drivers overly confident in its abilities, lulling them into a dangerous sense of complacency. At least two people have died in crashes when Autopilot was engaged. Three have crashed into stopped fire trucks in 2018 alone (all survived without serious injury). Musk has tangled with the National Transportation Safety Board over its investigations into Autopilot crashes and attacked critics of the system during a May earnings call.

“It’s really incredibly irresponsible of any journalists with integrity to write an article that would lead people to believe that autonomy is less safe,” Musk said. “Because people might actually turn it off, and then die.” During that same call, he promised Tesla would start releasing these quarterly reports.

The safety report compares that 1.92 million miles per incident figure to data from the National Highway Traffic Safety Administration. It says NHTSA figures show “there is an automobile crash every 492,000 miles.” (Tesla apparently used the NHTSA’s public database to derive this number.) That indicates drivers in other manufacturers’ cars crash nearly seven times more often than drivers using Autopilot.

But again, a closer look raises questions. A broad comparison of Tesla with everyone else on the road doesn’t account for the type of car, or driver demographics, just for starters. A more rigorous statistical analysis could separate daytime versus nighttime crashes, drunk drivers versus sober, clear skies versus snow, new cars versus clunkers, and so on. More context, more insight.

“It’s silly to call it a vehicle safety report,” says David Friedman, a former NHTSA official who now directs advocacy for Consumer Reports. “It’s a couple of data points which are clearly being released in order to try to back up previous statements, but it’s missing all the context and detail that you need.”

Tesla’s one-page report comes the day after Consumer Reports published its comparison of “semiautonomous” systems that let drivers take their hands off the wheel but require them to keep their eyes on the road. That ranking put Cadillac’s Super Cruise in first place and Autopilot in second, followed by Nissan’s Pro Pilot Assist and Volvo’s Pilot Assist. It evaluated each on how it ensures the human is monitoring the car as well as its driving.

In response to those criticisms that Autopilot lulls users into trusting it too much, Tesla has recently used over-the-air software updates to ratchet up how often the human must touch the steering wheel to confirm they’re still alive and concentrating. Cadillac’s approach is more sophisticated: It uses an infrared camera to ensure the driver’s head is pointed at the road (instead of down at a phone), allowing for a truly hands-off system. (Audi’s Traffic Jam Pilot uses a gaze-tracking setup that allows a driver to look away in certain conditions, but it isn’t available in the US.)

Other safety-minded groups, including the IIHS and the UK’s Thatcham, are designing their own tests for these increasingly popular features, acknowledging they’re all flawed.

Tesla does have an excellent safety record when it comes to crash testing. In September the NHTSA awarded the Model 3, Tesla’s newest car, five stars in every category. The Model X SUV got the same commendation, and when the Model S sedan was tested in 2013, it proved so strong it broke the test equipment.

And it could be that its Autopilot system is making highway driving safer, perhaps by reducing driver fatigue or reducing rear-end collisions. But this report isn’t enough to show that. Friedman says he was hoping for more. He wants Tesla to give its data to an academic, who can do a rigorous, independent, statistical analysis. “If the data shows that Autopilot is delivering a safety benefit, then that’s great.”

Tesla is unique among automakers in releasing this type of data at all, and going forward it could expand on it to make it more useful. The company’s blog post with the latest statistics says it “introduced a completely new telemetry stream for our vehicles to facilitate these reports.”

And the size of its fleet is growing fast, as Tesla ramps up production of the Model 3. Its delivery numbers released on Tuesday show it put 83,500 cars in new driveways in the same quarter its safety figures cover. That means there’s going to be a lot more data to analyze in the future.

Tesla has always moved faster than the mainstream auto industry and deserves credit for acceleration the adoption of electric driving, software updates, and self-driving features. But if it wants to be congratulated for making roads safer, it has to cough up more data.


More Great WIRED Stories

Weeks Before His Passing, 10 Handwritten Secrets to Life Were Discovered–And They're Truly Remarkable

Today, there’s no shortage of inspirational material to help lift you through the day–heck, even the hour. Google ‘inspirational quotes’ and you get over 900M results. The difference, however, is what you do with that new-found inspiration and how you apply it–and not just in that moment, but to your life. Savas “Sam” Tsakiris was one of those remarkable entrepreneurs who embodied exactly that. 

Sam was from Rhodes, Greece, born in a small village called Kattavia. He immigrated from Rhodes in 1961 where Baltimore became his new home. Tsakiris’ family and roots were always at the forefront of his heart and when he immigrated, he brought soil from his village to always remind him of his humble beginnings–that same soil was to be buried with him. Sam tragically passed from a battle with pancreatic cancer a few months ago on July 21, 2018.  

Tsakiris was an entrepreneurial jack-of-all-trades. He was Proprietor of the acclaimed Boulevard Diner, infamous for its appearance on Diner’s Drive In’s and Dives, along with hosting Presidential Candidates. He was a dentist, philanthropist, and gardener. He was an adored father & grandfather (“papou” in Greek), and proud Greek Orthodox Christian where he served as President of the Parish Council at the Greek Orthodox Cathedral of the Annunciation. He made time for it all–seamlessly. 

Weeks before his passing, his son Marc found handwritten notes while cleaning out a drawer at his dental office–those notes were Sam’s ’10 rules to live by’. Where the origins of these rules are unknown, the magnitude is not and Sam kept these close as a reminder of how he should live his life.

1. “Life is not fair”

Sam is right and it’s sometimes easy to forget. Life simply isn’t fair. But any seeming injustice can be re-framed as an opportunity to grow. Somebody taking credit for your idea at work, for instance, really just means the idea was a good one and you’re on the right track. So keep going. On the other hand, unfairness can work in your favor, too, so don’t be too quick to complain.

2. “Life is too short to waste hating anyone”

Are you working with–or worse, for–someone you don’t really like? It happens to everybody. But putting your energy into those emotions is like giving away your hours for free. How much more productive could you be when that time is spent focused on your own goals instead? Reharnessing that energy could completely change your perspective.

3. “Your job will not take care of you when you are sick. Your friends and family will — so stay in touch”

“I wish I’d stayed in touch with my friends.”

According to one nurse, this is one of the most common regrets of people that are near-death. If you don’t take the time to stay connected, not only are you missing out on a support system in the present, you’re also setting yourself up for major loneliness down the road. And guess what? One of the other most common regrets is “I worked too hard”. Seems like these go hand in hand.

4. “Cry with someone — it’s more healing than crying alone”

This is a great rule for life, and looks to be especially true in the workplace as well. Don’t go at it alone–find someone to share with. It helps.

5. “Make peace with your past so it won’t screw up the present”

This comes back to our perspective on failure. If you have a win/lose mindset and see your past mistakes as losses, rather than opportunities to grow, then you’re less likely to learn from them, setting yourself up for more letdowns. In some instances, failure is actually preferable. Accept it, and deal with the moment at hand.

6. “Do not compare your life with others — you have no idea what their journey is all about”

7. “It’s never too late to have a happy childhood but the second one is up to you and no one else.”

Isn’t it funny how there’s such a big difference between saying that someone hasn’t grown up, and saying that they haven’t lost their inner child? It’s something that can be applied to your own life and that of your children–you have the power to ensure they have a happy childhood. Don’t be afraid to embrace your inner child, either.

8. “No one is in charge of your happiness but you”

External vs internal ‘locus of control‘ is Psychology 101 (check it out). Our tendency to fall on one side of the spectrum or the other is, to a certain degree, driven by our biology. But it’s also a gauge of something that’s less of a mouthful: resilience. If we can learn this one trait, we’re on the path to success in all aspects of life.

9. “Forgive everyone for everything”

This seems pretty similar to the second axiom, “life is too short to waste it on hating anyone.” Probably because it’s worth saying twice. At the end of the day, time is the most important currency that we’re trading. But forgiveness does more than just cut out dead weight; it also opens pathways to opportunity.

10. “All that matters at the end is that you loved and were loved”

“A rat race is a fierce, competitive way of life that involves pursuing goals in a repetitive, endless manner…and…may come from actual rat-racing sporting events held in the 1800s.”

We often use the phrase jokingly, but a long résumé, full bank accounts, public recognition–while nice–they don’t compare to firmly rooted, personal & professional relationships. Losing a partner, a child, or another loved one can leave someone in grief for a lifetime. You never see someone genuinely grieving over a job they lost ten years ago, a past bankruptcy, failed business, and the like. Science says life is about the journey, and what’s a journey if it isn’t shared?

After reading & absorbing Sam’s words, it provided me with priceless perspective. The perspective that with the right outlook, you truly can balance all the things you are passionate about in life, while still being happy and not be stretched too thin.

It brings me comfort knowing that such a powerful ‘legacy’ can be carried on through his words. And that is an honor.

Until we meet again, Uncle Sam.

IMG_8041

This article was written in memory of Savas “Sam” Tsakiris, October 29, 1951 – July 21, 2018. 

Cloudera, Hortonworks Stocks Soar as the Big-Data Rivals Announce a $5.2M Merger

Remember big data? The once unavoidable buzzword has become just another sector of the enterprise software industry that is already showing signs of maturing. Case in point, the $5.2 billion merger of Cloudera and Hortonworks.

The merger’s announcement put some needed life into the shares of both companies. Cloudera’s stock rose 26% in after-hours trading on the news, while Hortonworks rose 27%.

Both companies were pioneers in Hadoop, an open-source platform that could analyze data in ways that scaled up easily—a necessity during a time when the availability of data was increasing exponentially each year. Cloudera and Hortonworks were among the startups focused on Hadoop that found enough success early on to go public when the flow of tech IPOs had slowed down.

But while revenue from both companies have been growing—Cloudera’s 1,300 customers generated $411 million in the past year, while Hortonworks’ 1,400 clients brought in $309 million—losses at both have remained large.

Hortonworks debuted with an offering price of $16 a share in December 2014, while Cloudera went public at $15 a share in April 2017. Both stocks enjoyed initial rallies typical for tech IPOs as the trading desks of underwriters labor to ensure a smooth launch. But both have underperformed in 2018. At Wednesday’s close, Hortonworks up 4% this year and Cloudera down 2%, compared with a 15% gain in the Nasdaq Composite Index.

On a conference call to discuss the merger, Cloudera CFO Jim Frankola said the merged company will save $125 million in annual costs and generate more than $1 billion in revenue by the end of 2020. In addition, the companies said, the combined companies will be better positioned to serve their existing customers while competing for a bigger share of their market.

Cloudera shareholders will own about 60% of the merged company, while Hortonworks will own 40%. The combined value of the company as of Tuesday’s market close was $5.2 billion, they said.

Aurora Cannabis: Immense Growth At Reasonable Price?

It’s been a great time to be an investor in weed stocks for the past few years. If you bought nearly any pot stock in 2016, you’re probably sitting on some handsome gains right now. But the market is bracing for a shake-up in the next few years.

This month, Canada will become the first G7 nation to federally legalize the use of marijuana for recreational purposes. However, the Canadian government has decided to regulate the market tightly and offer licenses only to a handful of big players. With high barriers to entry, wide margins, and a product with centuries of proven demand, these few players are on a precipice of a drastic transformation of their balance sheet.

Source: Pixabay

In the hopes of sharing in the windfall, investors have poured billions into these stocks, sending some of them to absolutely ludicrous valuations (I’m looking at you Tilray). In a previous article, I mentioned that the gold-standard for the weed market is Canopy Growth Corp (CGC). With $4.6b in cash, a partnership with one of the world’s largest alcoholic beverage companies, branches abroad, and supply arrangements with various Canadian provinces, CGC is in a much better position than Tilray to dominate this market over the coming decade. In fact, some readers mentioned how silly it was to even consider comparing the two companies.

I guess with that in mind, it’s time to take a closer look at CGC’s closest rival – Aurora Cannabis (ACB, OTCQX:ACBFF). With a market cap of just over $9.1b and sales of over $42.6 million (year ended June, 2018), Aurora is most comparable to CGC.

Like Canopy, Aurora has supply arrangements with nearly all (9 out of 10) Canadian provinces and territories. This gives it access to over 98% of Canada’s population. With 63,000 kilograms in contracted volumes over the next year, the company has more contracted sales than its current production rate (45,000 kgs/year). By the end of 2018, operations are expected to be expanded to a production run rate of over 150,000 kgs/year.

The company has already funded a capacity boost that will bring the total number of production facilities to 11 and the total annual production capacity to 570,000 kgs/year by the end of 2019.

Unlike CGC, Aurora doesn’t have a blockbuster deal with a major consumer goods company like Constellation Brands, but there are rumors Coca Cola may be exploring a strategic deal. Through partnerships, joint ventures, and subsidiaries, the company has a presence in over 18 countries. Unlike CGC, it doesn’t have a consumer brand yet, although it does plan to launch one soon.

All these factors make Aurora one of the largest players in the global cannabis market. For investors, there are two key questions about Aurora that underlie the investment thesis – what’s the growth potential and is it already priced in?

Aurora’s potential

Chart

ACBFF Revenue (Annual) data by YCharts

Sales have been on a tear for the past two years. Since 2016, the revenue generated from selling medical cannabis across Canada has grown from $1.1m to 42.7m, an incredible rise of 39x over two years. It’s important to note that the company sells exclusively medical cannabis. Gross margin was a whopping 88% in 2017 and 78% in 2018.

Aurora’s net profit for this year is a one-off. The company admits that the profit can be attributed to the unrealized non-cash gains on derivatives and other marketable securities. Without these exceptional items, the net loss from operations this year was $74m, up from $8.67m a year ago. That means operational losses grew by 8.45x. In other words, losses are growing slower than sales.

The rise in production from 45k to 500k annual kgs is fully funded, while the company holds nearly as much cash and cash equivalents ($116m) as long-term debt ($154m). In fact, long-term debt is surprisingly low, at just 13% of equity. Aurora seems to have a strong balance sheet serving as a base for immense growth.

The company continues to power growth in three key ways – investing in production facilities, acquiring companies spread across the marijuana supply chain for vertical integration, and partnering with companies for wider reach. Only two of these are capital intensive. However, there is little doubt that Aurora has managed to ramp up production efficiently so far, and could cement its position as the second largest weed company in the world by 2019. With such a great position in the market, the only remaining hurdle for investors is the valuation.

Valuation

Trying to value a weed stock is often an exercise in futility. There’s simply a lot of known unknowns in the market, ranging from the eventual price per gram of legal weed to the fragmentation in the international market. But that doesn’t mean investors shouldn’t at least try to place Aurora’s valuation in context.

I think two reasonable ways to value the company is to compare it to other similarly-sized weed stocks and place a reasonable value on the growth potential of the company.

For the comparison, I’ve picked Aphria (OTCQB:APHQF) and Canopy Growth. Price-to-sales is the best metric considering none of them make a profit at the moment. Here’s how they compare:

Legal Weed Stocks Price-to-Sales Ratio

As of Sept 29th 2018

Aurora may be reasonably priced based on this comparison with its peers. If you assume the market will eventually level off at a price-to-sales ratio of 5x for market leaders (similar to the ratio offered to the world’s leading alcoholic beverage companies), Aurora will have to expand sales 20x to justify its valuation. Considering sales are up 39x in the past two years alone even before Canada has legalized recreational sales of marijuana, I think this is clearly possible. In fact, the increase in funded production capacity by the end of 2019 alone is 11x the current rate.

Another way to value Aurora is to calculate its justified PS ratio. According to an estimate by Grand View Research, the global medical marijuana market will be worth $55.8 billion by 2025. I’ll assume the market is at least 30% smaller than that by 2025 and that Aurora manages to capture only 15% of it despite its clear first-mover advantage at the moment. On that basis, the company is likely to have sales of nearly $6b by 2025, implying a CAGR of 102% from current levels.

Final Thoughts

The question I think any investor eyeing Aurora stock at the moment is whether it’s worth paying 100x last year’s revenue for a chance to experience an estimated sales compounding rate of 100% for the next five-seven years.

Doubling sales every year may seem preposterous for any other industry, but for a substance with proven demand and wide margins facing the end of a centuries-long prohibition, I don’t think it’s unreasonable.

However, there is one critical cloud hanging over Aurora’s prospects – the cash on Canopy’s books. Any company that wants to dominate the legal marijuana industry (medical or recreational) will need to either invest in production plants or acquire companies to fuel growth. Aurora has done both of these in recent years with considerable success. But going forward, the valuation of any small marijuana company it wishes to acquire will be considerably inflated. Meanwhile, the company only has roughly $200m in cash, compared to Canopy’s arsenal of over $4.5b. Without a major cash infusion or a strategic partnership with a major company like Coke, I think Aurora may struggle to keep up in the global marijuana arms race that is just getting started.

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.

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.

Aurora Cannabis May Be About To Go Ballistic

source: Seeking Alpha

Aurora Cannabis (OTCQX:ACBFF) has a lot going for it as the macro elements in the industry are favorable to the company, even as its strategy is paying off for shareholders, evidenced by its latest quarter, where it produced some great numbers.

With its large production capacity, the upcoming legalization of cannabis in Canada, the announcement it will soon be listed on a major U.S. exchange, its improved performance, and growing interest from large companies outside the sector, I believe Aurora Cannabis could at least double by the end of 2018.

Latest numbers

Revenue in the 2018 fiscal fourth quarter came in at $19.1 million, up 19 percent sequentially, and 223 percent year-over-year, beating the $18 million in revenue generated for all of fiscal 2017.

Full-year revenue was reported at $55.2 million, up over 200 percent over 2017, with revenue from cannabis accounting for $42.8 million of that, a gain of 169 percent.

Medical cannabis gross margin jumped to 74 percent, up from the 58 percent in the same reporting period last year. The company attributed that to higher dried cannabis prices and a improved product mix that included more oil products that enjoy higher prices. Oils sales accounted for over 31 percent of revenue in the reporting period, up 20 percent from the prior quarter.

The average net selling price of dried cannabis per gram for full-year 2018 increased from $6.47 last year to $7.65 per gram.

Cash costs of sales and production fell by 11 percent year-over-year.

The number of active registered patients soared by 164 percent from fiscal 2017.

Although the numbers didn’t include MedReleaf because it was acquired near the latter part of July, the company did add them in to give an idea of what overall results really were. Including MedReleaf, revenue would have surpassed $33.1 million.

Taking into account those numbers and the boost coming from recreational pot sales in Canada starting on October 17, it’s obvious the first quarter of fiscal 2019 is going to be a huge one for Aurora.

Also significant is the fact the company is starting to scale production at the most opportune time. Management said it has adequately prepared to supply the growing demand for medical and recreational marijuana.

Improved gross margins, lower costs, and increased demand are all coming together at a time the company is adding production capacity.

Cost per gram

The cost per gram in the latest quarter was a mixed bag primarily because of the weak results coming from CanniMed, which has had efficiency problems before it was acquired by Aurora.

Consequently, in the fourth quarter cost per gram for dried cannabis was up by $0.17. Even with that, on “a standalone basis, Aurora’s cash cost per gram declined to $1.35 from $1.53 in the prior quarter.”

Since taking over CanniMed, the company has continue to make improvements, stating in the first fiscal quarter of 2019 it has already increased yield at CanniMed by 30 percent. That will drive down cost per gram going forward.

The major catalyst for overall improvement on a standalone basis was its Mountain facility, which experienced lower utility costs during the cold months while boosting productivity.

The company guided for cash costs to produce a gram to drop “well below $1” once Aurora Sky comes online and is operating at full-scale.

Implications of major listing and recreational pot

In the short term almost all Canadian-based cannabis stocks are going to enjoy the benefit of the upcoming legalization of pot in the country. In the case of Aurora Cannabis, not only will it be a good investment for traders in the short term, but even a better one for the long term when considering falling costs and increased production capacity.

Add in the expected listing on a major stock exchange in the near future, and that should further leverage the results of the company in anticipation of a lot more interest from investors.

One other factor that deserves mention is the reported interest by Coca Cola in the infused drinks market. While it’s probable these were nothing more than early exploratory talks, the most important thing to take into account is the growing interest in large companies outside the cannabis sector.

Of the many cannabis companies, I see Aurora Cannabis being one of the most desirable partners sought after when considering its future production capacity and its growing global footprint. In the long term its international sales will probably far surpass Canadian sales. This is huge when considering the drink, tobacco and big pharma companies are looking for new market sectors to take a position in. Very few offer what Aurora Cannabis does in regard to potential scale or reach.

Once it lands some partnerships with big businesses, it’ll be another huge catalyst that isn’t priced in at this time. I expect as demand cannabis demand climbs, Aurora Cannabis will be on the top list of companies looking to enter the market and secure deals with reliable partners that can deliver product consistently at scale.

Conclusion

When taking into account listing on a major exchange, sales from increased demand from recreational pot in Canada, expanding global footprint, improved gross margins, soaring sales, declining costs, and interest from large companies to enter into partnerships with them, I see Aurora Cannabis having a lot of room to boost its share price in the near and long term.

The key is it has been able to position itself about as good as it can to take advantage of the market conditions presenting themselves to the company. Considering it has been able to perform so well while growing organically and via significant acquisitions, it’s impressive to see the results it’s starting to produce; they’re going to get a lot better.

As good as the short-term outcome will be as a result of increased sales from recreational pot in Canada, the real value of Aurora Cannabis is its transition to high-margin products, medical cannabis, and its strong entry into important international markets.

With capacity being built out and costs dropping, it’s positioned to win in almost any circumstance that presents itself to the company. It could take on partners, land more deals outside of Canada, rapidly scale production at some of its facilities, or make some more strategic acquisitions.

With its expected upcoming listing, legalization of recreational pot in Canada, and supply that is ready to meet its obligations, I believe the company could double its share price by the end of the year. If it lands some big partnerships during that time, it could even surpass that lofty potential in the near term.

Even so, the value of Aurora Cannabis is its long-term potential. It’s one of the few cannabis stocks that could be bought and held in my opinion, without fears of it plummeting in value.

I believe publicly traded cannabis companies have a lot more room to run, and Aurora Cannabis is one of a few of those companies that should be able to do so sustainably.

For the reasons mentioned above, I think it’s time to get into Aurora Cannabis before it soars higher. In the not-too-distant future I see $10 per share being far in its rear view mirror.

Disclosure: I am/we are long ACBFF.

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.

Is Disney Finally Breaking Out

After years of moving sideways, it appears that Disney (DIS) shares may be finally ready to break out. The company’s valuation is attractive, it offers a reliable dividend yield, and the broader sentiment around the company appears to be changing. CEO Bob Iger’s vision for Disney’s OTT streaming platforms is becoming a reality and I think it’s only a matter of time before analysts focus again on the success of the overall company, instead of just worrying about the cord cutting issues that face Disney’s media business.

Without a doubt, Disney has been in a slump for some time now. The company’s reliance on embattled ESPN and the media segment for a very large part of its sales/earnings has cast a shadow over Disney’s studio/theme part segment success in recent years as analysts focus on the cord cutting phenomena. However, throughout, I’ve been happy to beat the Disney drum.

A couple of years ago, DIS was my largest holding. Since then, it’s been surpassed by Apple (NASDAQ:AAPL) due to the outstanding performance of AAPL shares. Even so, I’ve never been tempted to sell my DIS shares. As a shareholder, I love partnering with an institution like Disney. I think it’s clear that the Mouse House is the king of content, and with a leader like Bob Iger, what more could you ask for? And now that the Fox (NASDAQ:FOX) deal has closed and the Comcast (CMCSA)/Sky related lose ends appear to be tied up, DIS shares are finally rallying back towards the 2015 highs.

Since peaking at ~$121/share in August of 2015, Disney’s shares have traded sideways. This has resulted in strong underperformance relative to the S&P 500, which is why many investors are so down on Disney’s stock.

However, it’s worth noting that during this period of time, Disney’s fundamentals have continued to improve.

DIS’s revenues in 2015 totaled $52.4B. During the trailing twelve months, DIS has generated nearly $58B. In 2015, DIS’s EPS totaled $4.90/share. During the trailing twelve months, DIS has generated $7.95/share in earnings. This means that DIS’s EPS is up ~62% since 2015.

While the market has focused on subscriber numbers and demand for cable content, DIS has continued to print outsized profits. Operational cash flows are up ~27% since 2015 and free cash flows are up ~48%. Disney continues to provide investors with reliable annual dividend growth and the company’s management team has effectively used stock buybacks to reduce the outstanding share count by ~10% since 2015.

Debt has increased, though I don’t blame management in the least for raising debt in pursuit of growth while rates remain low.

When I look at Disney’s fundamentals over the past 3 years, I find little to complain about. Sure, ~10% total revenue growth over a 3-year period isn’t stellar, but it also doesn’t point towards a failing operation. On the contrary, Disney’s operations are very solid, with the studio segment breaking records seemingly ever year with blockbuster after blockbuster, the parks/resorts full to the brim, and their content portfolio looking better than ever after the marriage with Fox.

Personally, I’m a huge fan of the Fox deal. I’ve gone over this before in more detail, but in general, I think bringing together more Marvel properties (I don’t think the comic book movie trend is going to end anytime soon) and adding Avatar (which already had synergies with Disney via Animal Kingdom at Disney World) is huge.

I also really liked the fact that the deal gave Disney exposure to Sky, and therefore, international expansion opportunities, but I’m also a fan of the price that Disney/Fox is getting from Comcast for its stake in Sky and that money will go a long way towards reducing the debt involved in the Fox acquisition. Reducing that burden on the balance sheet should allow Disney to make more moves in the more immediate future.

Personally, I’d really love to see Disney’s next target be a video game studio. I’ve been saying that Activision Blizzard (NASDAQ:ATVI) and its immense (and very well developed) IP portfolio of content would fit nicely into Disney’s current operations. Nintendo (NYDOY) would be an even better fit, in my opinion, with its exposure to the famous Mario characters/world, as well as Pokémon, but I realize that Nintendo is a national treasure in Japan and I highly doubt that it will be taken out by a foreign buyer.

Regardless, while I am a bit disappointed that Disney won’t be getting a major foothold into growth markets like India with the Fox deal, I am happy about the updated finances involved, and regardless, I’m never going to assume that a decision that Iger signs off on is the wrong one. To this point, he’s earned that benefit of the doubt (to say the least) and I have the utmost trust in his ability to run this company.

In the short term, the ~$15B that Comcast will be paying DIS/FOX should go a long way towards further developing Disney’s OTT platforms. DIS already has the best content, and once it has the distribution in place, I think it’s only a matter of time before it becomes a major player in the streaming space. The ESPN Plus app is already doing quite well, with the company having recently announced that it has surpassed 1M paying subscribers during the 5 months or so since being launched in April. I suspect that DIS will have similar success with its family friendly service, Disney Play, that it is supposed to launch sometime next fall. Disney Play is reportedly going to cost significantly less than Netflix and I imagine it will be a to-go service for cord cutting families.

Also, Disney retains a large stake in Hulu, and although that platform is not currently profitable, I like the upside it brings (in terms of either another distribution option for more mature oriented content and/or as a bargaining chip/sales piece in a potential M&A deal).

With all of this in mind, I think the market’s negative sentiment surrounding Disney that has lead to the company’s P/E multiple falling from 24x in 2015 to 17x today (prior to the recent run-up in share price, DIS’s multiple fell to as low as 15x earlier in the year) is unjustified.

I’ve always found it odd that investors have been willing to pay totally irrational prices for Netflix, whose profits are but a drop in the bucket compared to Disney’s. Sure, Disney’s media segment has lost subscribers, but even so, Netflix management would probably kill to have similar operational metrics associated with their business.

I know that Disney is no longer shiny and new in the market’s eyes and it’s easy to overlook old, stodgy, blue chip companies in favor of the exciting newcomer, but I’ve been happy to ignore the luster and focus on the financials, which have always been decidedly in Disney’s favor.

Historically, the market has placed a premium valuation on Disney. The company’s 20-year average P/E ratio is 21.3x, which is well above the ~16x multiple that the S&P 500 (SPY) has traded at historically. Right now, the SPY trades for approximately 23x TTM earnings. So, even though DIS has been on a nice run as of late, bouncing ~$15, from $100/share to $116/share during the last 3 months or so, shares are still relatively cheap (at least, based upon the historical valuation spread between DIS shares and the SPY).

Source: F.A.S.T. Graphs

What’s more, in a relatively expensive market, not only does Disney offer a relatively cheap valuation (though it’s worth noting that DIS still trades at a premium to its peers in the media space, so deep value investors are probably going to want to take a closer look at Comcast or CBS Corp. (CBS), which trade for 15x and 11.5x TTM earnings, respectively), but a dividend yield that is only 30 bps lower than the broader markets.

I believe that DIS has better long-term dividend growth prospects than the broader market and it’s worth noting that DIS is due to announce a dividend increase later in the year which could easily bump its yield up to par with the SPY’s. Disney isn’t a dividend aristocrat because it does freeze its dividend from time to time during bear markets, but it also hasn’t cut its dividend in decades, and even though there have been a handful of years that resulted in 0% annual dividend growth results, DIS has produced a dividend growth CAGR of ~11.5% over the last 20 years.

Source: F.A.S.T. Graphs

More recently, DIS’s increases have been in the high single digits. I wouldn’t be surprised to see that trend continue in the short term because of the investments that the company is making to broaden its moat and ensure its future as we move into the digital age. But, I suspect that over the long term, things will even out and DIS will maintain that low double-digit average. I’m not going to complain about a company pounding the passive income that it generates for me at a ~10% clip over the long term. I’ve done the math; assuming that keeps up for another couple of decades, that will result in my wife and I enjoying an early, comfortable retirement.

The Fox deal really changed the narrative around this company and I think the good new will continue to roll in as we near the launch of the Disney streaming platform in 2019. Disney’s studio segment is likely to have another record breaking year in 2019. The broader economy appears to be strong, and even though we’re late in a market cycle, there doesn’t appear to be major threats of a recession on the horizon (at least, in the very near term). Disney is a cyclical name due to relying heavily on discretionary spending, and that doesn’t typically bode well for the name during bear markets; however, I think the potential for the high margin streaming business can and will do wonders for the company’s multiple in a variety of markets, good and bad.

Needless to say, Disney has a lot going for it and I think investors and analysts alike are starting to catch on. I’m not rushing out of the door here to add to my Disney position at 52-week highs, but I am very excited about what the future holds for this company in the short term, and if you aren’t already long Disney and you’ve been purposely overlooking this name because you viewed it as a thing of the past, I think it’s time to look again. I’m never one to bet against a proven leader (which is why Disney makes up ~6.7% of my holdings), and if I had to guess, this company will be the leader in the entertainment space in the future, just as it had been in the past. In a world where big tech is increasingly coming under pressure, I wouldn’t be surprised to see the old guard like Disney regain a bit of leadership.

Disclosure: I am/we are long DIS, CMCSA.

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.

American Midstream: Remorseless ArcLight Goes For The Jugular

Sometimes shareholders just cannot trust other shareholders to stand with them. General partner ArcLight has a fair number of limited partnership shares of American Midstream (AMID). After some bad luck and a misstep or two, the limited partner unit now trades for about a third of the highest price just a couple of years back.

One would have thought that ArcLight would work to restore the luster of this once thriving partnership. But instead, ArcLight knows a great deal when it sees one. The end of the third quarter is “window dressing time” for institutional funds. Therefore, to the detriment of long-term unit holders, ArcLight would like to take the partnership private at the “bottom of the market”. In fact ArcLight even waited for the window dressing period to depress the unit price as much as possible when making its latest offer to buy the partnership.

The offer from ArcLight was for a whopping $6.10 per limited partner unit. The shares of course rallied above that price. But ArcLight knows Mr. Market pretty well. Long-term holders would probably get disgusted enough to sell their shares to traders who would be happy for a small short-term profit.

ArcLight can increase the offer another 10% to 15% down the road to assure market acceptance at a premium to what the units are trading. However, ArcLight typically does not go for small profits. The firm usually aims to make far more money than 15%. The actions of ArcLight actually give credence to the value arguments that American Midstream is probably worth about $10 to $12 per limited partner unit. ArcLight is probably betting that the market will not bid the unit price to anything close to full value. Then ArcLight can take American Midstream private and realize the value of the assets in other ways.

This ArcLight strategy takes advantage of the very poor market attitude towards this limited partnership. Normally, after a period of poor earnings and an over-extended capital structure, Mr. Market wants a growth track record before restoring a partnership to its full value. ArcLight appears to be impatient with Mr. Market. So the general partner has devised a way to speed up the return to full valuation.

A few years back an investor could hardly imagine this situation. American Midstream was growing and the unit prices were heading towards the high teens. Periodic distribution increases were the order of the day. Then came the merger with JP Energy Partners. The ballyhooed effects of that merger were definitely not apparent after one year. The unit price lagged severely as it often drifted towards $10.

Source: American Midstream Presentation At MLP & Energy Infrastructure Conference May 2018

ArcLight sold some under-performing divisions and then replaced those divisions with other divisions. But then a pipeline ruptured at the bottom of the sea and forced the general partner to contribute to the partnership while Delta House awaited the return of contracted volumes. Some commentators saw no progress between contributions from the general partner the year before for a warm winter.

Then came the disastrous offer for Southcross Energy Partners (SXE). That was it. Mr. Market had had enough of missed guidance and unfulfilled promises. A distribution cut to deleverage the balance sheet was the final nail in the coffin. The partnership units were left for dead.

But this is one general partner that is not about to leave a discount on the table. It matters not that ArcLight helped the partnership earn that discount to asset values. If the market would not value the partnership properly in the eyes of the general partner, then the general partner would buy the partnership. Later the partnership could be sold in pieces or repackaged and sold to the public at a later date. Profit is profit. ArcLight is not an organization that leaves spare change hanging around.

The Southcross merger termination came with an announcement that Moody’s upgraded the liquidity rating of the partnership. That was followed by the second-quarter report where management announced a lower leverage ratio and further progress towards forecast goals for the year. Still the progress made did not impress Mr. Market at all. After all, the distribution had been cut significantly. Therefore nothing else mattered but that distribution cut.

Obviously long-time shareholders would like to see the general partner make good on those long-term (great return) promises. Obviously, ArcLight never told the other shareholders that the bright future the general partner had in mind did not include the limited partner unit holders. Evidently the limited partners could bear the risk of failure without the rewards of success.

Hopefully the limited partners now realize that ArcLight managed the partnership for aggressive growth. Income, even speculative income was never the main goal. The generous distributions were a side benefit of a very aggressive growth strategy. More importantly, if the market punishes the partnership “too much,” then ArcLight as the general partner will take the partnership private to realize a second profit by obtaining full value for the partnership assets.

Maybe ethical behavior would dictate a public auction and sale of the limited partnership assets (or some sort of recapitalization followed by a return to growth). Clearly ArcLight went for the maximum profit plan and set the ethics part aside. This is something that potential long-term holders should keep in mind for any future ArcLight-led ventures that are potential investments. Clearly, ArcLight looked out for the interests of ArcLight first without worrying about the future consequences caused by unit holders taking a loss in their American Midstream investment.

Investors can vote no on the coming shareholder vote for the ArcLight offer. Probably the best that will happen is a 10% to 15% increase in the offering price. The conflicts committee clearly has proven to be a rubber stamp body that is worse than useless to the small shareholder. Lawyers may not be much help in this situation either. Probably the best thing to do is sell the investment and move on. Promise yourself that you will not support any ArcLight ventures in the future regardless of the profit potential. If enough investors shun ArcLight’s products, then maybe it would behave differently in the future. But definitely do not count on an overnight transformation in favor of the small investor.

Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of stock. Investors are advised to review all company documents and press releases to see if the company fits their own investment qualifications.

Disclosure: I am/we are long AMID.

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.

The Case Against Elon Musk Will Chill Innovation

Elon Musk has long established himself as a both a visionary CEO and a lightning rod for attention, good and bad. The bad reared its head dramatically this week as the Securities and Exchange Commission charged Musk with securities fraud for misleading investors with August tweets about taking Tesla private. The commission wants to bar Musk from serving as CEO of a public company, which would mean removing him as the head of Tesla and potentially imperil his leadership of SpaceX and other ventures, if they go public.

WIRED Opinion

About

Zachary Karabell is a WIRED contributor and president of River Twice Research.

That would cause immense harm, not because Musk’s companies are systemically vital or irreplaceable, but because the American economy needs more people like Musk if it is to survive and thrive. Musk certainly crossed a legal line. But barring him would be the market equivalent of executing someone for petty theft, and the damage will extend well beyond Musk himself.

To recap quickly, on August 7, Musk sent a tweet: “Am considering taking Tesla private at $420. Funding secured.” In subsequent tweets, he elaborated on what a deal would mean for current shareholders and how the transaction might proceed. The only problem, and it is a big one, was that no funding had been secured, although Musk claims that he had had explicit conversations with potential investors, including Saudi Arabia’s sovereign wealth fund. A little more than two weeks later, Musk said he would not move ahead with taking Tesla private.

According to the SEC, the tweets were misleading and fraudulent. Musk had not secured funding, had not had detailed conversations about pricing, and hence had tweeted false information that led to gyrations in the stock price and harmed investors.

On its face, it would seem a black-and-white case, which may be why it took the SEC only a little more than a month to file charges. Yet Musk has been saying questionable and outrageous things for years. Anyone who invests in his companies surely must recognize that Musk zooms from heady and inspiring to bizarre and potentially unhinged, and that to take any one thing he says as gospel is almost always a mistake.

In May, for instance, Musk tweeted that he had started a New York–to–Washington, DC, hyperloop and that he hopes to begin one early next year between Los Angeles and San Francisco. That tweet was misleading, and largely false. Yes, Musk did win approval to conduct a small test in DC and had a few conversations with regulators in California. But to characterize those as done deals and work underway is more than a stretch.

Musk has a long legacy of inflated statements verging on untruths. In 2009, he assured Tesla investors that the company was about to begin receiving funds from a Department of Energy loan program before the company had been granted a loan. He has routinely guaranteed profitability and production numbers at Tesla that have been so far off the mark that they could only represent aspirations rather than real projections. And while SpaceX has achieved more in terms of functional rockets and payloads than most thought possible, his promise of a first payload to Mars in 2022 is deeply detached from the company’s progress.

Yet each of Musk’s companies, including SolarCity, which is now part of Tesla, has achieved more than most ever do. Tesla has shown that you can build a car company from scratch, with its own battery technology and its own distribution. SpaceX has demonstrated the feasibility of private space companies. And the Boring Company could upend and improve city-to-city transport in a country that missed the high-speed-train revolution.

Musk’s strengths and weaknesses are of a piece. He dreams what many consider impossible and has been able to muster people and money to make some of those dreams real. He believes that he sees what others do not and that too many lack the will and the vision to make quantum leaps. The line between visionary and madman is sometimes fuzzy. Yet however one wishes that Musk were a bit more normal, he simply is not. Investing in him, therefore, should always be seen as high risk with the potential for high reward, and the potential for total failure.

The problem, of course, is that Tesla is a public company, with responsibilities to investors, and subject to a slew of regulations governing what executives can say and to whom. Musk’s absurd utterances as the CEO or chair of a private company wouldn’t carry the same legal risks. On the letter of the law, the SEC complaint is hard to refute.

But not everything should be prosecuted to the full extent of the law. Indeed, the SEC appears to have been willing to settle the complaint with a fine and an agreement by Musk to step down as chair for two years. He refused, and in response, the commission threw the proverbial book at him. For perspective, consider that the SEC didn’t seek to remove the heads of any of the banks that failed during the financial crisis until long after their companies had ceased to exist.

It’s a stretch to assert that investors in Tesla are unaware of Musk’s makeup or that anyone who took a gamble on Tesla’s stratospheric valuation and historically volatile shares would take Musk’s tweets as fact. To the contrary. Investors in Musk’s companies have learned to discount much of what he says in interviews and tweets precisely because so little of what he says has a one-to-one connection with fact and reality.

To take his August tweets about Tesla as fraud, therefore, is to detach them from a long legacy of Musk’s public speech that bends the truth and sometimes goes well beyond it. It is not necessary to change the rules to be selective about how rigorously to enforce them. Substantial fines are sometimes a cop-out, but in many instances they are precisely what’s warranted. Penalize Musk, for sure, but not to the point where those rare birds like him have no place in public companies. Regulations already are pushing some companies to stay private, which may be good for them but doesn’t help create robust and dynamic markets or enhance transparency for investors.

Justice is supposed to be blind, but it is not supposed to be indifferent. The SEC might succeed in removing Musk, but that doesn’t mean that it should. And while Musk might be served by yoga breaths before he tweets, attempting to tame his wild, creative energy may not only be futile but wrong. We need our crazy dreamers, and we need some rules. Finding the balance between them is never easy, but it is vital.


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Hurom H-AI Juicer Review: It's Too Expensive, and Juice Isn't All That Good for You Anyway

Driving across the border into Canada late this summer, the CBC anchor on the radio announced that a glut of blueberries had pushed their prices down to historic lows. Having brought a fancy new juicer with me, I sensed an opportunity.

The juicer in the back of the car was a Hurom H-AI, a sort of Maserati of juice machines, with a powerful motor that gives it a near-unflappable ability to liquefy whatever you throw in the hopper.

It is a very effective machine, but it had a lot of convincing to do if I was going to like it, as the damn thing costs $700—a number that created a hurdle I was worried I couldn’t clear.

I dropped off my wife Elisabeth and the juicer at my mother-in-law’s house and headed to the produce store, returning with a mammoth flat of blueberries and 50 loonies worth of other fruits and vegetables to throw in there.

A few years back, I reviewed one of the H-AI’s predecessors, the Hurom HH Elite, and was curious to see what changes were in store. The major differences turned out to be the streamlining of the machine, and an extra hopper, this one a basket-like “self-feeding” number, allowing you to dump food in there en masse. I also wondered if the “AI” in its name stood for “artificial intelligence,” but instead, a company rep told me that the letters have “no meaning.”

As I unpacked these parts and accessories—13 to 15 of them, depending on how you count them—they spread out far enough to cover an entire dishcloth, with enough bits and bobs that I started to wish the juicer came with its own pegboard.

Still, that new hopper was nice. I could chop up some fruit and dump it in there with abandon thanks, in part, to a multi-armed spindle that twirls around and keeps things moving toward the auger. For most foods, it’s a marked improvement over the traditional chute hopper.

This convenience does not mean less prep is involved. Unless it’s something like those blueberries which just need a quick rinse, most of what you juice will require prep—washing, scrubbing, removing pits from stone fruits, and sometimes peeling. You’ll also need to reduce your juice-ables down to what could be called “just bigger than bite size.” This all takes a while.

I set up the Hurom and got crushing, watching those blueberries wobble around in the hopper, then emerge as liquid through the strainer below, a lovely shade of violet. I was, however, surprised at the output—just a little more than half of the berries turned to juice while the rest became pulp. Isn’t pulp good for you? Curious, I tasted that pulp and imagined how it could be spread on toast and sprinkled with a little sugar, or—gasp!—thrown in a blender with the juice. Almost all of the juices I made were downright delicious, but the quantities it took to make each glass reminded me why juice is so expensive.

I, uh, pressed on, learning that I couldn’t cheat and put melon spears in the new hopper: cubes go down much faster. The juice was fantastic. I tossed in some figs, and perhaps due to their not-terribly-juicy nature, they were mostly squished out as pulp. I peeled and pitted a mango, juiced that and—apologies for cheating here—but I threw the juice and the pulp in the blender with some yogurt and called it a damn fine lassi. Later, I chopped up some tomatoes, threw them in and, while I hoped it would make something that I could turn into tomato sauce (alas, too thin!), it did make some lovely juice. Carrots went in next, and I combined their juice with the tomato, adding salt, pepper, and some of my mother-in-law’s Mrs. Dash seasoning, turning it all into a lovely blend that could be used as a base for a gazpacho, a Bloody Mary or, this being Canada, a Caesar.

Next, I switched gears and tried kale, watching the leaves get nudged around in the hopper, then slowly spun into juice with the auger, giving me the weird feeling like I had a front-row view of two stomachs of a cow.

One sip revealed an intensely bitter flavor reminiscent of grass clippings. Elisabeth demurred when I offered her a taste, saying, “Not after that face you made. You eat everything.”

I know people don’t drink kale juice straight, even if it is good for you, but stirring it into some other juice can only be a destructive process.

So, it was nagging at me … is juice good for you? And more importantly, am I ready for the flak that’ll come my way if I say anything bad about it? The answer to those questions has me putting on running shoes.

I started with a 2017 study from the Journal of the American College of Cardiology.

“…while the fruits and vegetables contained in juices are heart-healthy, the process of juicing concentrates calories, which makes it much easier to ingest too many. Eating whole fruits and vegetables is preferred, with juicing primarily reserved for situations when daily intake of vegetables and fruits is inadequate,” it reads. “Until comparative data become available, whole food consumption is preferred…Guidance should be provided to maintain optimal overall caloric intake and to avoid the addition of sugars (e.g., honey) to minimize caloric overconsumption.”

The study features an illustration with three columns: “Evidence of Harm,” “Inconclusive Evidence,” and “Evidence of Benefit.” Juicing only appears in the first two.

“We don’t have the evidence that says juice does something wonderful,” says Kevin Klatt, a PhD in molecular nutrition and a clinical trainee at the National Institutes of Health. “Across the board, juice is better than soda, but 16 to 20 ounces [an amount adults and kids often consume] is way too many calories and too much sugar.”

Comparing juice to soda is a pretty low bar, but even if it’s not a juice that runs on the sweeter side, you tend to run into trouble on most truth-seeking missions.

“There are very common claims that juices have magical properties,” says Klatt, “but outside of a few examples, there aren’t randomized control analyses comparing juice and most health outcomes.”

For fun, I picked a juice from Hurom’s recipe book at random to read it to Klatt, falling on the “Secret Woman” drink in a section called “Ladies Juice.” (Yes, really.) The Secret Woman headnote talks about “vegetable estrogen,” “essential fruits,” and the pomegranate’s apparent ability to delay menopause and maintain youthful skin.

“That just sounds made up,” Klatt said, “They’re using bad logic to make a triangulation that this could be good for you. It’s extremely indirect.”

The takeaway here seems to be: drink juice if you like juice, but there’s scant evidence that it’ll do you any good.

Add It Up

So here’s the part where the math and the practicalities of the Hurom get tricky. When I was talking earlier about all of those (mostly) yummy juices made in the Hurom, I didn’t mention all of the cleaning. If you’re making a mixed juice, you can fudge it a little and not do a full cleaning between different ingredients, but every time you use the juicer, plan on spending a good hunk of time afterward cleaning.

Once disassembled after a juicing, it took a solid five minutes to hand wash all of the parts, and hand wash you shall, as none of the parts except the auger can go in the dishwasher. Between setup, food prep, actual juicing, and cleanup, you’re in it for a good long while.

Also, let’s say it again because holy moly this is a lot to pay for a juicer, the H-AI costs $700. Hurom even offers a monthly installment payment plan, which sounds pretty nuts; if $700 isn’t chump change to you, maybe just don’t buy it. There are lots of capable juicers out there, including highly-praised offerings for less than half the price of the H-AI. You should give those a look if you’re still interested in making juice at home.

I also took a little tour of my neighborhood while writing this review, stopping by the Taproot Cafe, where their juices run between five and nine bucks. Nearby, at the grocery store, I could get an apple-shaped bottle of Martinelli’s apple juice for less than two bucks, a selection of Odwalla juices for three, and some really fancy brands for eight.

I get that it’s not exactly the same thing, but bear with me: you could go the cafe- or store-bought route and buy anywhere from about 100 to a few hundred juices for $700, and that’s ignoring the price of fruit and the time you invest in making your own juice.

That said, the Hurom is a well-built machine, a sort of luxury car in the world of juicers. If you do a lot of juicing, are unfazed by the price tag, and have room for a very capable belle objet on your countertop, knock yourself out. For me, though, I’m OK without one. If I get a craving for a nice, fresh juice, I’ll head down to the Taproot, or back up to Canada for a Caesar, enjoy my drink and let someone else deal with the cleanup.

Here's Why Venture Capitalists Are Pouring a Record $1 Billion Into Coffee Startups This Year

Continuing a trend that began roughly four years ago, investors are pouring a record amount of venture capital into the industry. Coffee startups raised $600 million in the first seven months of the year alone–more than four times the total amount raised in 2017, according to data from CB Insights. By the end of 2018, that total is expected to surpass $1 billion.

It helps that more Americans are picking up the caffeine habit. About 64 percent of U.S. adults have at least one cup of coffee every day, up from 57 percent in 2016, according to data from the National Coffee Association.

Investors continue to see huge potential upside in betting on coffee despite the fact that it has not traditionally been a venture capital-driven business. Coffee in the U.S. is a $12.9 billion market, so any company that can disrupt this industry with a new product has a massive opportunity to scale. 

“I think everyone can see the prize with coffee,” says Sam Lessin, a partner at Slow Ventures, which invested in coffee startups like Blue Bottle and Alpine Start. “Building an iconic brand in the space–can be a really big win.”

The entrepreneurs behind these coffee startups say the venture funding is crucial to going up against the major chains like Starbucks and Dunkin Donuts, not just so they can compete on the ground with brick-and-mortar locations but also to stay one step ahead on product innovation.

Matt Bachmann is a co-founder of the New York City-based cold brew company Wandering Bear Coffee. Wandering Bear has raised $10.5 million, according to Crunchbase, and sells boxed coffee on tap, designed for the home or office, along with ready-to-go containers.

Bachmann notes that startups like his were selling cold brew concoctions long before Starbucks and Dunkin Donuts adopted the trend and helped make it a wildly popular drink. Wandering Bear’s start at about $4 for an 11-ounce bottle and $29 for a 96-ounces on-tap container.

The trend moves from “bottom up, not top down,” says Bachmann. “It’s the startup that does something different at a small scale, proves to be popular, and then gets adopted more broadly.”

Refrigerated ready-to-drink coffee is one such trend driving the recent boost in investments. By 2024, the ready-to-drink coffee and tea industry is expected to reach sales of $116 billion, up from $71 billion in 2015, according to Grand View Research. The latest iteration of the trend involves coffee beverages with a healthy twist.

New York City-based KITU makes a ready-to-drink “super coffee” that is sugar-free, lactose-free, and includes 10 grams of protein in a 12-ounce bottle. CEO Jim DeCicco says the key to his company’s success is the ability to offer healthy coffee products without sacrificing taste. “If we are providing a better-for-you option, it has to be as delicious as the high-calorie products on the shelf,” says DeCicco. KITU is sold online and in retailers like ACME, Wawa and Whole Foods. 

Grant Gyesky, the co-founder of Rise Brewing, which sells a ready-to-cold cold brew infused with nitrogen to give the drink a creamy flavor, says adding the nitrogen gave the brand an identity in a crowded space. Gyesky says Rise’s products appeal to consumers’ growing preference for healthier food and drink products. Rise declined to share how much total funding it’s raised. Rise, which raised an undisclosed amount of VC, sell its products  online and in select Whole Foods and Safeway stores. 

And customers are willing to spend more on these specialty drinks: 48 percent of Millennials drink gourmet coffee beverages every day, according to National Coffee Drinking Trends. Blue Bottle sells Port of Mokha coffee from Yemen, and charges $16 per cup. 

There are people who like almost anything, you just have to find them and make sure you put the right experience in front of them,” says Lessin. “I don’t think its just price, it’s flavor profile and it’s experiences.”

Dan Scholnick, general partner at Trinity Ventures, which invested in Bulletproof Coffee–a line of coffee beans, ready-to-drink beverages, supplements, and oils–still sees plenty of room for innovation among coffee startups.

“When you see disruption like that in a market, it’s a signal it’s a good opportunity for startups to enter and fill the void created by changing consumer tastes,” Scholnick says. 

But when will the specialty coffee market cool down?

“The peak of artisanal coffee is not so black and white–consumers always need energy and coffee is addictive,” says KITU’s DeCicco, who suspects the next big acquisition will be La Colombe. “I think if we see a peak in cold brew it will just lead to innovation in enhanced coffee or other coffee categories.”

50 Habits That Will Make You a Millionaire

OK, so maybe a $1 million isn’t as cool as it used to be. Thanks, inflation, David Fincher’s “The Social Network” and Russ Hanneman!

Making the two-comma club is still a noble financial goal. And an attainable one, with a little luck and a whole lotta work. Or vice versa, depending on where you’re at in life and how much money is already sitting in your bank account.

With that caveat in mind, here are 50 ways that, taken collectively (more or less), could make you a millionaire.

1. Save 40 to 50 percent of your paycheck.

If you’re just starting out in the workforce, “keep living like a student,” Jeff White, a financial analyst with FitSmallBusiness.com, says. Which means, yes, try to set aside almost half of your income. Saving is important, but you’ll also want to …

2. Invest.

Because, let’s face it, these days, it’s pretty much impossible to nickel-and-dime your way to $1 million.

3. Diversify.

Take that 40 to 50 percent of your paycheck and “invest [it] into more than one source,” White says. That includes stocks, bonds, real estate and mutual funds. But if you’re already overwhelmed (we get it: investing is terrifying) …

4. Start small.

There are plenty of investing apps out there that can get you started. Some apps, like Betterment and Wealthfront, are robo-advisers, while others serve as online investment brokers. Think Robinhood and Stash. And then there’s Acorns, which lets you invest your spare change. You can find a rundown of how these apps work here.

5. Mix in long-term investments.

We’re talking IRAs and 401(k) plans. These funds are essential for a stable retirement. But the tax penalties associated with early withdrawals should dissuade you from tapping that money for non-emergencies. In other words, “you don’t feel the temptation of diving into those accounts just to go to Disney World,” White says.

6. Max out an employer-sponsored 401(k)…

If your employer matches up to a certain amount, well, that’s the amount you should deposit into the fund each paycheck. Otherwise, you’re basically leaving free money on the table.

7. … and your annual IRA contributions.

In 2017, for instance, your total contributions to all of your traditional and Roth individual retirement accounts can’t be over $5,500 ($6,500 if you’re 50 or older) or your taxable compensation for the year, assuming your compensation was under that limit.

8. Take part in an IPO.

Terrifying, we know, but think about how much Facebook stock originally sold for ($38 per share) and how much it’s worth now ($214.67 as of writing this.) Of course, be sure to consult a financial adviser before making any major investments.

9. Don’t waste money.

Sounds like a no brainer, sure, but people (ahem, Gen-Zers and Millennials) are into being extra these days. Don’t fall for it, Gen-Zers and Millennials: $400 pants are not an investment.

10. Embrace minimalism.

That’s the theory all those tiny house hunters you’re watching on HGTV subscribe to: Less is more … and great for your bank account.

11. Sell your stuff.

If you decide to downsize — or, maybe, when you decide to downsize — make some money from your still-salvageable stuff. There are plenty of sites and apps, like eBay and Poshmark, that’ll help you sell your gently used wares to the masses.

12. At the very least, trim the fat.

True minimalism isn’t for everyone. (Fumio Sasaki, a leading voice in the minimalism movement, only keeps a roll-up mattress, three shirts, four pairs of socks, a box that serves as a table, chair and desk, and a computer.)

But, even if your budget is already lean, there’s usually at least some place you can trim more fat. Common money-wasters? Avocado toast. Your morning coffee. $1,000 smartphones. You know, the usual.

“Millionaires are made by years of smart financial choices,” entrepreneur Tyler Douthitt says. “Make the cuts to your budget to make it work.”

13. Remember, you’re not cheap; you’re thrifty.

There are plenty of wealthy individuals who are unabashedly frugal. Consider Oracle of Omaha Warren Buffett, who once had a vanity license plate that said “thrifty.”

14. Avoid debt.

Notice we didn’t say “pay your debt down.” That’s certainly important, but also it’s own thing. Like, if you’re seriously in debt, focus more on paying it down and less on making your million, you know?

Future millionaires keep debt to an absolute minimum — even the good kind, which is essentially debt associated with an asset that’ll increase in value. Like a home. Speaking of which:

15. Don’t be house poor …

That’s a term used to describe someone who’s living in a home that’s essentially eating all of their income. So, yes, you might be paying your mortgage, but you’ve also got credit card debt and $0 in your emergency fund. If you can’t save three to six months’ worth of expenses, how are you going save $1 million?

“Only buy a house that fits your family, without feeling the need to be in the most expensive neighborhood,” White said. “You don’t need to build a home from scratch if you’re trying to save.”

16. … but do try to buy a home.

Because it’s an investment. Plus, depending on where you live and how much of a down payment you can put down, a monthly mortgage payment could be more affordable than the one you’re making to a landlord. If you must lease …

17. Keep rent well below 30 percent of your income.

That’s the general rule of thumb when it comes to the cost of housing, but, if you’re trying to hit a mil, you’ll need to aim higher. Or lower, in this case. Think 20 to 25 percent.

18. Properly insure your stuff …

Lest a fire, break-in, explosion, etc. drain your coffers and blow your master plan. And, yes, that goes for renters, too. You can learn more about renters insurance here.

19. … and yourself.

Disability insurance will replace some or most of your income if you’re suddenly unable to work for a period of time. Car insurance covers you if you cause an accident with your vehicle. And, as your wealth grows, umbrella liability insurance can cover anything in between. Bottom line: If you’re trying to build your net worth, you have to protect your assets.

20. Keep your credit shiny.

As anyone involved in the Equifax data breach undoubtedly knows by now, your credit affects everything: how much interest you pay on a loan, what apartments you can score, how high your car insurance premiums climb. The list goes on and on.

To keep good credit, pay all your bills on time (yes, every single one), keep your debt low (told you) and add new lines of credit organically over time.

21. Renegotiate everything.

It’s easy to get entrenched in a contract, but we’d be the first to tell you, it pays to shop around. Call up your current service providers — cable company, credit card issuer, etc. — to see if you can score a lower rate. If not (and your contract is set to expire), take your business elsewhere.

22. Actually, negotiate everything.

Just saying.

23. Doing life? Save less … just not too much less.

Once you get to spouse and 2.5 kids-mode, it gets a lot harder to bank nearly half of your paycheck. Aim instead to invest 20 percent-plus of your monthly income into a retirement account.

That way, “by the time you hit retirement, the compounding returns should easily make you worth much more than $1 million,” White says.

And, listen, if even that gets tricky …

24. Save a minimum of 10 percent of your income.

“No matter what happens,” he said.

25. Automate your savings.

There are ways to make saving a little bit easier. One method involves setting it and forgetting it.

“Every time you have a [paycheck] deposited, have your bank account setup to automatically put a certain amount in your savings account or investment portfolio,” Jay Labelle, owner of The Cover Guy, says.

26. Keep your emergency fund separate from your actual savings.

That way “you don’t dive into your savings or investment accounts if something unexpected happens, which it will with kids,” White says.

27. Avoid the hotspots.

Couples with kids are (probably) less inclined to throw down a bunch of money on $85 pet rocks. But there are certainly temptations prospective $1 million parents will need to negotiate.

“Find memorable, but affordable, vacations,” White says. “You can have a blast with your kids without spending $20K.” Here are some affordable family vacations to consider, if you’re in the market for a getaway.

28. Bank your windfalls.

Sure, you want to buy a new TV or Escalade, but you’ll reach a $1 million much faster if save that money for later.

29. Early to bed, early to rise.

Makes a person healthy, wealthy and wise, you know.

30. Get a side hustle.

If you can’t save more, make more. And, thanks to the gig economy, there are plenty of ways to bring in a little extra income on your nights and weekends.

31. Provide short-term lodging.

Thanks to sites like Airbnb and VRBO (Vacation Rentals by Owner), it’s also possible to make some extra money when you away. You just gotta be cool with renting out your place to strangers. 

32. Start a business.

Who knows? Your side hustle could turn into a full-time gig. Or maybe you’ve got an innovative idea venture capitalists will love. That might sound real pie-in-the-sky, but consider this stat, courtesy of the Cato Institute: Roughly one-third of first-generation millionaires are entrepreneurs or managers of nonfinancial businesses.

33. Go full-fledged landlord.

That could mean scooping up some investment/rental properties as your wealth grows. Or something as simple as renting out a room in your abode to help with your mortgage. We hear house hacks are all the rage these days.

34. Become an influencer.

Dirty word, we know, but, per Forbes, top influencers can take home about $187,000 per Facebook post and $150,000 per Instagram.

35. Never relax …

That’s according to Mark Cuban, and while it sounds … well, kind of terrible, we figured we’d pass it along.

36. … like, ever.

Not enjoying life is actually a theme among self-made millionaires. Earlier this year, VaynerMedia CEO Gary Vaynerchuk said Millennials were financial failures because they watch too much Netflix and play too much Madden. 

37. Exercise.

Studies have found wealthy people exercise more. Plus, you know, it’s good for your health.

38. Lean in.

Wage stagnation has let up at least a little bit since the recession, so you might find there’s more money to be made in your current position. Case in point: Senior executives who changed jobs in 2013 received compensation increases that topped 16 percent, according to a survey from Salveson Stetson Group.

39. Earn your bonus.

Don’t take any bonus options you have at work for granted — and, by that, we mean don’t assume you won’t net the full amount. It might require a mad dash to December, but you definitely won’t get the money if you don’t put in the work. Not already eligible for a bonus?

40. Ask for a bonus.

So long as you deliver on a certain goal, of course.

41. Avoid lifestyle creep.

If you want to make a million, you need to make sure your spending doesn’t increase alongside your income. Seriously. Lifestyle creep is a big problem that’s kept plenty of high earners from maximizing their money.

42. Think like a hacker.

This one comes courtesy of Facebook CEO Mark Zuckerberg.

“The Hacker Way is an approach to building that involves continuous improvement and iteration,” he wrote in a 2012 memo to Facebook shareholders. “Hackers believe that something can always be better, and that nothing is ever complete.”

43. Go on a game show.

I mean, the grand prize for Survivor and Who Wants to be a Millionaire is $1 million.

44. Catch up.

Remember, once you’re over the age of 50, you can make annual “catch up” contributions into certain retirement accounts, including 401(k) plans and IRAs. You can learn more about what amounts you can allot to each account on the IRS’ website.

45. Hold off on taking Social Security.

Also helpful for people who are older, but not quite at the $1 million mark, because, thanks to delayed retirement credits, your can receive larger (in fact, the largest) Social Security benefits by retiring at age 70.

46. Work all the tax breaks.

Flexible Spending or Health Savings Accounts. Commuter benefits. Property tax and mortgage interest deductions (told you it helped to own a home). Make sure you’re capitalizing on anything and everything Uncle Sam offers in terms of tax breaks.

47. Get some help.

The higher your income, the more complex your finances will be. (Case in points: all those tax breaks we just mentioned.) And, at a certain point, it’s a good idea to bring in the professional — a certified financial planner or certified public account — to help you manage your money.

48. Stick with it.

Because you can’t make amass a small fortune overnight. In fact, a 2016 study found it took the average self-made millionaire an average of 32 years to become rich.

49. Believe in yourself.

Because you can make $1 million.

“Confidence will get you through your moments of weakness when you want to pull money out of savings or your investment accounts,” White says. “Keep going, and before you know it you’ll hit your goal.”

Or, you know, you could just cross your fingers and hope you …

50. Win the lottery.

It could happen.

Uber, Cabify drivers strike in Madrid to protest against planned law changes

MADRID (Reuters) – Thousands of drivers for ride-hailing services Uber and Cabify, waving flags and chanting slogans such as “we want to work”, marched down Madrid’s central boulevard on Thursday ahead of plans by the government to tighten regulation.

Drivers from shared-ride services Uber and Cabify attend a demonstration in Madrid as part of a strike to protest a law that aims to regulate shared-ride services in Madrid, Spain, September 27, 2018. REUTERS/Juan Medina

Drivers from both companies, which have faced complaints from taxi drivers all over the world for allegedly providing unfair competition, offered free rides for 12 hours a day before the strike, business association Unauto said.

In Spain, there are almost 11,000 vehicles with ride-sharing licenses and more than 65,000 with taxi licenses, Public Works Ministry data shows, with more than 150,000 taxi drivers and 15,000 Uber and Cabify drivers operating throughout the country.

Cabify driver Juan Antonio Sastre, 57, who left the ranks of millions of long-term unemployed to join the company, said he feared for his job ahead of the new regulation to be passed on Friday.

“We don’t know what is going to happen next, our future is uncertain,” he said, while taking part in the march.

Full details of the new regulation have yet to be announced, though new laws are expected to include additional restrictions for non-taxi services offered by the companies.

Backed by investors including Goldman Sachs and BlackRock, and valued at more than $70 billion, Uber views Western Europe as an increasingly important market.

Uber has faced law suits in countries around the world, with London cab drivers planning a class action law suit and New York mulling capping the services after a spate of suicides by yellow cab drivers struggling to compete.

Taxi drivers, who staged their own six-day strike at the beginning of August to protest against licenses for Uber and Cabify, say the services, which are hailed via smartphone apps rather than on the street, are deliberately under charging.

“We cannot compete against corporations like Uber and Cabify, their prices are way too low,” Madrid taxi driver Jorge Gordillo, 33, said.

Reporting by Sabela Ojea; Editing by Paul Day and Mark Potter

Coinbase Wants To Be Too Big To Fail

THE NEW TITANS OF FINANCE prowl a glass fortress 3,000 miles from Wall Street. High above San Francisco’s Market Street, their headquarters take up three floors with sweeping views of the bay and city below. The reception desk bears jars brimming with chocolate coins near a jokey “Initial Chocolate Offering” sign. Beyond it, in an open space with no corner offices, big shots poached from Silicon Valley giants sit beside junior hires clutching free cans of LaCroix. This is the home base of Coinbase, the buzzy startup that wants to rewire the financial system around blockchains and digital currency.

But good luck finding it. There’s no logo outside the building or in the lobby. Nor is there any signage in the hallway outside that reception desk, just fortified metal doors and an intercom. Coinbase employees maintain a low profile, they explain, because most own virtual cryptocurrency, some 
in quantities that make them multimillionaires on paper.
 A kidnapper could capture someone and “pull out their fingernails,” a staffer says, to learn the location of their fortune—as if betting your career and well-being on a volatile, unproven financial technology weren’t stressful enough.

Such is life at Coinbase, a company where the mood alternates between upbeat and under siege. It was founded in 2012 as an exchange that lets individuals and companies easily buy and store digital currencies, most notably Bitcoin. And by 2017, when investor interest in those currencies moved to the mainstream, Coinbase was perfectly positioned to capitalize, becoming a 21st-century Wells Fargo for a new digital gold rush.

In short order, Coinbase became the first U.S. cryptocurrency startup to earn a $1 billion “unicorn” valuation from investors, and the first to bring in $1 billion in annual revenue. (The still-private company is profitable, according to regulatory filings, though it won’t disclose specific earnings.) Coinbase now claims 25 million customer accounts—a five- fold increase from two years ago—putting it on a par with traditional finance giants like Charles Schwab and the brokerage arm of Fidelity. The tech press is buzzing about new, higher-valuation funding rounds and a looming IPO. And the company’s first-mover status has made it something of a home planet for the universe of crypto-oriented business; a surprising number of top industry figures are connected, in one way or another, to Coinbase and its 35-year-old founder and CEO, Brian Armstrong.

Still, life at the top is tense. Coinbase owes its preeminence in part to last year’s unprecedented speculative surge in cryptocurrency investing. Today the buoyant Bitcoin runs of 2017 seem a distant memory, as more investors question the value of assets that have
yet to prove their staying power. Many of the most popular digital currencies trade 80% or even 90% lower than their peaks last December, and the popping of the bubble has erased a staggering $600 billion in market capitalization. The collapse has meant less trading and less commission revenue for Coinbase, even as new low-fee competitors threaten
 to turn the company’s core service into a commodity—and even as the company recovers from self-inflicted problems that alienated customers during the boom.

Presiding over all this is an introverted founder who sees the cryptomania of 2017 as just one chapter in a longer story. Armstrong belongs to a generation of evangelists who view digital currencies, and the blockchain technology on which they’re based, as tools that will make investing, borrowing, and saving money faster, cheaper, and more egalitarian. And he wants Coinbase to become the banking empire that brings those tools to the masses.

Armstrong and his colleagues have laid the groundwork for that future, carefully wooing regulators and investing in new technology. What he hasn’t done yet is convince the wider financial world that crypto is a must-have technology. If Armstrong can’t eventually make a compelling long-term case, it may be not just Coinbase that crumbles, but an entire industry.

THE IDEALIST: Brian Armstrong at Coinbase’s San Francisco headquarters. “I really want to see crypto be used by a billion people in the next five years,” he says.

THE IDEALIST: Brian Armstrong at Coinbase’s San Francisco headquarters. “I really want to see crypto be used by a billion people in the next five years,” he says.

Winni Wintermeyer for Fortune

GROWING UP IN SAN JOSE, Armstrong often felt bored and confined. His parents, both successful engineers, provided a comfortable upbringing and a brisk intellectual environment. But while Armstrong saw the Internet as a tool to change society—in the same way Apple’s Steve Jobs and Intel’s Andy Grove who built their empires minutes from his househad done with computers and chips, two decades earlier—he fretted that others had beat him to it. “By the time I graduated from college and I was starting to work, I felt maybe I was too late—this Internet revolution had happened,” he said.

Armstrong arrived early, however, for the genesis of a different revolution. While surfing the web at his parents’ house on Christmas of 2009, he encountered a nine-page paper written by a pseudonymous author named Satoshi Nakamoto. The idea it described—a global currency beyond the reach of banks or governments—was so compelling he began to read 
it again, tuning out his mother’s entreaties to join the holiday festivities downstairs.

Nakamoto’s paper is now famous for describing the architecture of Bitcoin—and the broader notion of using a global network of computers to maintain a common record 
of any kind of transaction. Like other early believers, Armstrong became enamored of the idea of a financial system that could minimize the influence of middlemen and politicians. His fixation grew after a trip to Argentina. He recalls sitting in restaurants in Buenos Aires where prices on menus were covered with stickers that changed almost daily—symptoms of rampant inflation that had wiped out the savings of ordinary people. Bitcoin, he thought, represented a way to store or transfer wealth beyond the control of rapacious states. It was digital gold.

Childhood photograph of Brian Armstrong. Armstrong says he saw the Internet as a tool to change society: “By the time I graduated from college and I was starting to work, I felt maybe I was too late—this Internet revolution had happened.”

Childhood photograph of Brian Armstrong. Armstrong says he saw the Internet as a tool to change society: “By the time I graduated from college and I was starting to work, I felt maybe I was too late—this Internet revolution had happened.”

Courtesy of Coinbase

For this vision to come to pass, though, ordinary people would have to use crypto- currency—and in its early days, that was wildly impractical. Would-be Bitcoiners had to engage in a recondite rigmarole of downloading “wallet” software and then funding the wallet with an offshore bank transfer or working with shadowy middlemen.

Armstrong’s vision was to make the process more akin to buying stock online. In 2012, he left his job as an engineer at Airbnb to make it a reality. He designed Coinbase to allow customers to use traditional bank accounts to purchase cryptocurrency. Whereas buying Bitcoin had once required serious tech chops, the Coinbase version was more like using PayPal or Venmo. And instead of requiring users to store currency using complicated cryptographic keys, Coinbase stored it on customers’ behalf.

There turned out to be plenty of demand for an easy-to-get Bitcoin service; barely a year after launching in late 2012, Coinbase reached the million-customer mark. At a time when concerns about drug dealing and money laundering hovered over the crypto world, Coinbase took pains to comply with know-your-customer laws and other strictures of U.S. banking law. And during last year’s mania, as hundreds of new crypto “coin” investments sprang up, the company—fearful of scams or trouble with the Securities and Exchange Commission—declined to sell the vast majority of them. (Today there are
15 cryptocurrencies with a market cap over
 $1 billion, but Coinbase offers trading in
 only five of them.) Fretting about compliance didn’t endear Armstrong to the crypto world’s self-styled renegades, whose tastes run towards cocaine, Lamborghinis and anti-government diatribes. But it has put Coinbase on the cusp of regulatory approval for a broker dealer license. It is also in talks to obtain a federal banking charter—a once unthinkable idea for any Bitcoin-related company.

“What matters in financial products is the first-mover advantage and who sets the standards,” says Christian Bolu, an analyst with Sanford C. Bernstein. “Coinbase is assuming that mantle and setting the regulatory agenda.”

Charts show price of Bitcoin and estimated number of Coinbase users

Charts show price of Bitcoin and estimated number of Coinbase users

The company is also a darling of blue-chip venture capital firms, including early investors Union Square Ventures and Andreessen Horowitz. The latter’s $25 million investment in 2013 came as the VC community’s first truly big bet on cryptocurrency. The young CEO, his backers say, quickly revealed an instinct for self-improvement. “Every meeting you have with him, he sends follow-up questions,” says Chris Dixon, a partner at Andreessen. “He’s constantly curious and looking for mentorship.” Armstrong’s bid to better himself is almost pathological. Last year, he obtained his pilot’s license but largely lost interest upon becoming satisfied he could fly a plane. At Coinbase, Armstrong will grill employees about what he, and they, could do better: He once emailed his performance review from HR to the entire staff in order to solicit tips.

He consumes large numbers of books, mostly by audio. His tastes include science and behavioral psychology, but lean to management bromides and great man biographies (Steve Jobs, the Wright Brothers, Dwight Eisenhower). Reading Michael Malone’s Bill and Dave, a history of Hewlett-Packard, prompted Armstrong
 to urge employees to approach him anytime with ideas, lest someone else snap them up. “Steve Wozniak, when he was an engineer at HP, brought them the Apple 1,” Armstrong recounts. “He’s like, ‘I built this, I think HP should manufacture it.’ And they said no. And, of course, then he left and created Apple Computer, right?” Armstrong’s nightmare, it seems, would be for success to elude him after being right under his nose.

BUT WHEN SUCCESS did arrive, Coinbase and Armstrong found they had a
lot to learn about managing it. In 2017, as Bitcoin and other digital currencies rose 20-fold or more in value, Coinbase made a killing on trading fees. During the height of the mania, Armstrong has said, Coinbase signed up more than 50,000 new customers a day. This led the company’s website to crash and sputter and leave the site’s engineers to feel like they were holding back an avalanche with Saran Wrap. For some Coinbase customers, the site became a hellish experience, as glitches reigned and orders went unfilled. Twitter and the website Reddit lit up with anguished accounts of money stuck in limbo and customer service tickets landing in black holes, unresolved for days. Dozens of other customers filed complaints with the Better Business Bureau and the SEC.

Hackers, meanwhile, began targeting customers with elaborate phishing and bank fraud scams; Coinbase was at one point spending 10% 
of its revenue on resolving fraud-related issues. Employees weren’t happy, either. The chaos left many engineers and customer service reps working 18-hour days, and some quit in exhaustion.

Another serious hiccup occurred on June 21, 2017, when a high-net-worth “whale” abruptly sold millions of dollars’ worth of the popular currency Ethereum. The result was a “flash crash,” as prices plunged from $320 to under 10¢ before shooting back up again, triggering automated sell orders that resulted in some unlucky investors ditching their whole position for a pittance. Unlike most big stock exchanges, Coinbase hadn’t built a trip wire to halt trading in the case of a panic selloff—a big technical blunder. Armstrong eventually decided to rescue the victims by canceling their side of the trades—a calm-restoring but costly proposition.

At the peak of the crypto boom, Coinbase took another hit to its credibility over its handling of Bitcoin Cash, a spinoff of Bitcoin. It initially declined to support the new cur- rency, then reversed its position after a wave of customer complaints. But in December, just before Coinbase announced the reversal, there was a sudden, unusual uptick in Bitcoin Cash’s price—sparking speculation that Coinbase employees had traded on inside information and bought the currency in anticipation of an influx of new money. According to a former employee, the outcry led Coinbase to abruptly delete two of its channels on the messaging app Slack, which employees used to discuss the crypto market and trading strategies.

Coinbase concluded after an internal investigation that its employees had not engaged in insider trading, and the company tells Fortune it closed the Slack channels out of an abundance of caution rather than any wrongdoing. Given the evolving regulatory regime around cryptocurrency, it’s not clear that trading the currencies based on inside information would even be illegal. Still, the controversy, combined with the site’s customer service woes, sent a message: Just as cryptocurrency was commanding a national spotlight, Coinbase seemed unready for primetime.

Its struggles didn’t scare away investors, however: In August 2017, the startup raised $100 million, giving it a $1.8 billion valuation. That provided Armstrong with the capital and clout to hire talent that could help him right the ship. Coinbase poached longtime Twitter operations executive Tina Bhatnagar to help repair its customer service shambles, and it brought on HP veteran Asiff Hirji as COO. Armstrong has also committed to hiring inclusively: Coinbase, by company rule, interviews three qualified people from underrepresented backgrounds for each open position, and 33% of leadership roles are held by women.

Employees give their boss high marks for staying on an even keel as the crises unfolded. Armstrong himself believes he found his footing as the company grew. At first, he recalls, “I thought [a CEO] had to be a military general, barking orders. But I feel I’ve embraced my own style of leadership, which is a little bit more collaborative. It’s seeking the truth, not trying to be right. I also realized you shouldn’t try to be something you’re not because that’s the worst kind of leadership.”

Coinbase has also doubled its headcount over the past year to nearly 1,000. The extra staffing has helped restore work/life balance and reduce the number of all-nighters. Arm- strong, for his part, is showing his staff that he too can chill out. This includes recapturing some of the vibe from the company’s early days. Back then, Armstrong and Coinbase’s third employee, Olaf Carlson-Wee (who today runs Polychain Capital, the largest U.S. crypto hedge-fund) would team up in epic Halo matches against business VP Fred Ehrsam, a former high school gaming champ. There was also a lot of ping-pong and rock-climbing. Today’s version of chilling out includes Armstrong indulging his penchant for belting Disney songs in the office and at off-site karaoke. One staffer (who calls Armstrong a “great singer”) described the CEO leading a recent Little Mermaid sing-along at a bar in San Francisco’s Castro District.

PART OF YOUR WORLD: Armstrong with staffers at Coinbase’s San Francisco headquarters. The CEO wants the company to eventually become the crypto equivalent of a global bank.

PART OF YOUR WORLD: Armstrong with staffers at Coinbase’s San Francisco headquarters. The CEO wants the company to eventually become the crypto equivalent of a global bank.

Jason Henry—The New York Times/Redux

Customer service, meanwhile, has improved dramatically under Bhatnagar, says Mike Dudas, a Google veteran who runs a crypto-news startup The Block. By mid-2018, Coinbase claimed to have eliminated 95% of its backlogs, and it says it responds to complaints within 10 hours—a far cry from the peak of the Bitcoin mania, when many tickets took a week or longer to resolve.

Of course, if complaints are a far cry from where they were, that’s because Bitcoin mania is too. Cryptocurrency prices have lost more ground since December in percentage terms than the Nasdaq did during the dotcom bust of 2000–02. The research firm Diar recently reported that Coinbase trading volume has dropped from over $20 billion in January to less than $5 billion a month this summer.
Since Coinbase charges commissions that range up to 1.99% of the value of each trade, the simultaneous plummeting of values and volumes is a double whammy. And its margins are under threat from new competition. Over the past year, fintech companies Robinhood and Square and European brokerage eToro have wooed crypto investors with low- or no-cost trading. That ominous drumbeat adds urgency to one of Armstrong’s biggest missions: converting Coinbase into a diversified blockchain-banking giant that isn’t solely dependent on trading revenue.

IT’S A SWELTERING EVENING in Washington, D.C. as Armstrong, clad in a tan suit, sits down for dinner. He and a small retinue are gathered in a hotel restaurant near Dupont Circle, where the food is both expensive and mediocre. Tucking into poached salmon, he reflects on his day meeting lawmakers and senior regulators. Armstrong, ever the Silicon Valley engineer, is not wowed by the political atmosphere. “I think my favorite part was the underground train,” he says, referring to the hidden monorail that whisks elected officials and elite visitors to and from the Capitol. Still, the CEO and his team have been persistent in educating the political class about cryptocurrency and blockchains. And these efforts are paying dividends, as more regulators see the technology as a useful tool rather than an inherently criminal threat—opening more opportunities for Coinbase and its competitors.

In addition to its impending broker-dealer license, Coinbase has won permission to provide custody services for big institutional customers that wish to own cryptocurrency assets. These services could prove lucrative if the company can lure more big players like mutual funds, pensions, and private equity funds to trade with it. There’s already some progress on this front: Earlier this year, its services aimed at professional traders and institutions—primarily wealthy “family offices” and cryptocurrency oriented hedge funds—surpassed its consumer platform as the company’s biggest source of trading volume.

“I don’t think it’s going to be easy,” cautions Richard Johnson, a financial technologies expert with consultancy Greenwich Associates. “The institutional market will be a different one for them to crack,” especially since mainstream fund managers are waiting for a stronger regulatory framework before investing.

Emilie Choi, vice president of corporate and business development. Choi, a veteran of LinkedIn, is a tech M&A specialist; she has helped Coinbase buy nearly a dozen smaller blockchain and finance firms to build out its own empire.

Emilie Choi, vice president of corporate and business development. Choi, a veteran of LinkedIn, is a tech M&A specialist; she has helped Coinbase buy nearly a dozen smaller blockchain and finance firms to build out its own empire.

Stefan Ruenzel—Fortune Video

But recent acquisitions could help Coinbase be ready when that framework emerges. One of its recent hires is Emilie Choi, VP of corporate and business development, who presided over 40 acquisitions at LinkedIn. Since signing on in March, Choi has helped Coinbase snap up nearly a dozen small blockchain and financial firms that could help it provide a broader range of services. Still, for a company that likes to style itself as “the Google of crypto,” Coinbase is still waiting for an encore hit to its trading platform, along the lines of Google adding Gmail or Maps or YouTube to its core search service.

Right now, Coinbase’s most promising project, say Johnson and others, involves a new class of investments known as security tokens, which represent investable assets as tokens on a blockchain. Armstrong has spoken of building an alternative investment market around such tokens, run by Coinbase. Supporters say tokens could be used to convert assets that are relatively illiquid and expensive—privately held companies, for example, or art and other collectibles—into units that are easy to trade.

Trying to understand security tokens and their implications is much like trying to grok the Internet in 1994. Just as people were puzzled by terms like “browser” two decades ago or “app” a decade ago, the vocabulary of blockchain—including “tokens” and “wallets”—is still baffling to many. One of the industry’s better explainers is Coinbase CTO Balaji Srinivasan, a charismatic 38-year-old with spiky hair, salt-and-pepper stubble and eyes that glisten. Srinivasan has written a series of influential essays on tokens’ potential to remake the venture capital industry.

“Blockchains are the most complicated piece of technology since browsers or operating systems,” he says, adding that only a handful of savants possess the expertise in a range of fields—including cryptography, game theory, networking, databases, and cyber-security—to wrangle them. But tokens are different, he explains. They can be built by a much broader class of engineers, while still taking advantage of blockchains’ powerful attributes, such as being tamper-proof and indestructible. And when used to securitize assets, they represent an efficient new way to recognize and distribute ownership.

Balaji Srinivasan, Chief Technology Officer. Srinivasan joined Coinbase this spring when it acquired Earn.com, a crypto startup he founded. He’s an expert on security tokens, tech that Coinbase thinks could be the foundation of a blockchain-based investment market.

Balaji Srinivasan, Chief Technology Officer. Srinivasan joined Coinbase this spring when it acquired Earn.com, a crypto startup he founded. He’s an expert on security tokens, tech that Coinbase thinks could be the foundation of a blockchain-based investment market.

Steve Jennings—Getty Images

David Sacks, the venture capitalist and founding COO of PayPal, sees U.S. real estate— a $7 trillion market that is highly illiquid—as particularly ripe to be subdivided and sold via tokens. “It’s like going from an analog to a digital system of ownership. Today, a deed or private security is a piece of paper in a file cabinet somewhere. A token digitizes it,” said Sacks, who is backing a company called Harbor that creates code to ensure tokens comply with security laws. The real estate idea is already moving from theory to reality: The owners of the upscale St. Regis in Aspen, for example, announced in August that they would sell a 19% stake in the hotel in the form of tokens.

Preston Byrne, a financial consultant and cryptocurrency lawyer, argues that the security tokens will make it easier for businesses 
to raise capital, by streamlining regulatory compliance and record-keeping—as information that currently occupies dozens of disparate files gets consolidated onto blockchains. Tokens could also make companies less reliant on investment banks and other middlemen, slashing the costs associated with mergers, acquisitions, and the issuance of equity or bonds. “Coinbase is in a very good position to leverage all that because they’ve got the tech,” Byrne says. “This is where the rubber hits the road, as tech startups start eating big banks’ business.”

The big banks, of course, may eat before they get eaten. Flush with cash and stocked with their own tech talent, financial monoliths like JPMorgan Chase and Citigroup are funding their own blockchain projects. And Coinbase hardly has a monopoly on crypto- currency trading technology; rivals including Circle and Gemini are also jockeying to build institutional trading platforms.

Still, Coinbase remains an investor favorite. Multiple sources confirmed to Fortune that the company is in the final stages of a hefty funding round. In April, when Coinbase acquired crypto company Earn.com, reports leaked that Coinbase projected its own value at about $8 billion. The company has not confirmed that figure but doesn’t dispute it.

As for the broader cryptocurrency revolution, Armstrong hasn’t lost sight of the ideal of a global payment system independent of banks and governments. To this end, Coinbase is building software called Coinbase Wallet to help ordinary investors navigate the world of tokens. And Armstrong remains even more ambitious than his investors. “I really want to see crypto be used by a billion people in the next five years,” he says.

This article originally appeared in the October 1, 2018 issue of Fortune.

AMD: Breathe In Your Fears

A shift in sentiment is occurring in AMD (AMD). Look and listen and you will see and hear various news organizations/authors starting to beat the fear drum that AMD has gotten ahead of itself and is overvalued. Maybe that’s true or maybe it is not. However, it’s reminiscent of the scene in “Batman Begins” where Ras’ al Ghul says “breathe in your fear” because that’s what successful investors/traders have to do. You have to acknowledge problems at a company, a.k.a. fears, and learn how to trade around it. We could also say “breathe in your hype” as analysts, for the most part, are upgrading AMD to sky-high levels without due diligence.

We also have daily “upgrading” to play catch up – with a few analysts posting lower price targets than the current share price – a.k.a. stealth downgrades.

Thus, we are looking at an upcoming earnings cycle of extremes.

Here’s our view and how we might play Q3 earnings for AMD given the fear and hype.

AMD Fear, AMD, Nvidia, Intel, Polaris, Vega, AMD Vega, AMD Polaris, AMD discount, Q3, AMD Q3, GPU

Overheated?

The question is this – Is AMD overheated? Maybe… it feels like a mixed bag when one looks at CPU/server sales and then the bearish GPU outlook. Sure, the long-term story is great (and I’m long term very bullish). But in the short term… let’s review the concerns.

Immediate Concern

Nvidia’s (NVDA) new GPU series reviews are in and it’s a mixed bag. On one hand, you have some interesting technology upgrades, i.e., hybrid ray tracing and new anti-aliasing methods for ultra high-end GPUs. On the other hand, you have very high prices (given the less-than-enthusiastic performance gains). If prices were lower, the masses would be a bit happier. Nevertheless, the real meat will be how Nvidia prices mid-range mass cards such as the 2050 and 2060. Those are the cards that will compete against the aging AMD Polaris GPU line (the 400-500 series).

The Great Mining Flood of 2018

Crypto miners are currently flooding the second-hand GPU market. One friend of mine recently sold his entire crypto operation of 70x Nvidia 1080 Ti cards on eBay to replace it with ASIC processors. Multiply that times millions of miners. The market is being flooded with GPUs. Expect to see more rebates and price cuts on the GPU side of the house.

Nvidia can (hopefully) swing users to the new 2000 series once the low-to-mid range cards arrive. At the moment, AMD has no new GPUs to push consumers to… though rumors point to a Polaris 3.0 refresh.

Breathe It In – That’s (AIB) Sales Fear

Our good friend, Akram’s Razor, covers the GPU demand in his article “Winter Is Here.” He goes into detail covering the lack of demand seen by the Asian add-in board GPU companies. It’s well worth the read. Here’s a small taste of GPU goodness from his article (copied with permission from the author).

The early evidence of the pressure on this business can be seen in dedicated AMD AIB TUL Corp.’s monthly revenue data.

AMD implosion, AMD, Polaris, Vega, GPU drop, GPU implosion, Q2 AMD, Q3 AMD, Q3 drop AMD

TUL is a small distributor, but there’s no getting around the hit here. Which should have AMD investors now asking themselves exactly what the GPU drag is going to be going forward. If AMD can hit their year-end goal of 5% share in datacenter, I still don’t think that will offset the 40% decline the GPU biz is facing from its Q1 peak. So, anyone looking for numbers to get excited about as far as reported results go will need to wait until Q1 2019 guidance to really see what weight CPU can carry in the face of a far softer GPU biz. Current consensus is calling for AMD to grow revenue 7.5% in 2019. If you consider GPU H2 vs. H1 2018 and the carry-over in that biz, this growth has to come with the GPU biz still shrinking over 2018. And if console is expected to be softer that’s another headwind.” – Source Akram’s Razor

Looking at the numbers he compiled, we can see a massive drop in GPU demand starting in July of -71.79%, followed by August at -68.44%.

fear, gpu, amd, q3 results, Polaris, Polaris 3.0, Polaris refresh, Vega, Navi

Rebates/Price cuts

Speaking of weak sales – just last week, the cheapest we could buy an AMD 580 8GB card was around $225 after rebates. This week you can get a brand new AMD 580 8GB MSI for $189.99 after rebate AND it comes with $150 of free PC games. Did we mention it ships free?

AMD 580, AMD, Radeon, AMD price cuts

AMD Sale, AMD rebate, AMD Newegg, Newegg sale

Let’s see the prices on Camelcamelcamel which tracks Amazon sales. Note, you can find prices higher or lower than the ones we are showing. We stuck with the 8GB AMD 580s as that is a good mid-range card consumers flocked to during the mining craze. Notice, the red used line is drifting down fast.
AMD, AMD price drops, Camel, Camelcamelcamel, AMD price cuts, Polaris, Vega

CPU Shortage

The bright note countering the mixed GPU outlook is Intel’s (NASDAQ:INTC) CPU shortage. Obviously, AMD can sell into the demand Intel is experiencing. Recent Nvidia reviews detail that the 2080/2080 TI are CPU bound. This bodes well for both Intel and AMD. If consumers are willing to fork out premium dollar for these high-end cards, then they should be pairing them with the high-margin solutions from both companies.

Expounding upon the CPU shortage, Micron (MU) CFO revealed in the Micron conference call on 9/20/18:

I don’t know exactly how long the CPU shortage will last. I think on the inventory correction side, it will be a couple of quarters before inventory gets reduced.”

Sanjay Mehrotra (Micron CEO) offered “I would just add that the CPU shortages, we expect it to be short term; it’s possible that it goes beyond Q1 as well.”

Obviously, AMD can benefit from Intel not being able to meet demand.

AMD Response

The Nvidia RTX price-to-performance is wanting, but by Nvidia at least getting the cards out the door (and the tech to developers), it’s a positive event for Nvidia. The huge die sizes of Nvidia cards mean that if AMD can move Navi’s release date forward and get it out pre-summer – AMD could bring some heat to Nvidia’s line of products. Navi is rumored to be a smaller part with high performance. If Navi does, in fact, have a smaller die size and bring good price to performance numbers… AMD could have a hit on their hands. Then again, that’s a lot of “coulds” and “if” statements for a product that is not even out to compete and not scheduled to arrive for quite some time. Furthermore, Nvidia will not be resting idle… expect a 7nm shrink on Turing with time using the same process AMD is using at TSMC (TSM).

Updated Polaris 3.0

Currently, updated rumors of a Polaris 3.0 refresh have surfaced, pointing toward a 10-15% speed bump. While not exactly exciting (Polaris architecture was introduced in 2016), the 500 series does offer good price-to-performance for the dollar. A refresh would help bulk up AMD’s GPU division and perhaps buy them much needed time (while giving gamers something new to covet). This would, in effect, redirect demand from “used” cards to AMD’s “new” cards.

How We Are Playing Fear/Hype

At this point, we are day and swing trading the January $29 and $30 puts. The daily follow-the-leader “upgrades” create nice entry points; the subsequent daily slumps in price in the evening offer nice exit points. As the old saying goes… “It works till it doesn’t.” As of now, it’s working but eventually, things change and we will adjust fire accordingly. We are keeping the positions rather small though as to avoid trouble if AMD blasts off to infinity and beyond. However, we are having a blast playing the ebb and flow of daily pops and drops.

As we approach earnings, we will explore putting a straddle in place to catch extreme movements when/if it makes sense.

Given the murky waters concerning earnings outlook (optimistic server and CPU expectations – very negative GPU outlook), we might see extreme movements that we are able to profit from. After Q3 earnings, we expect much-needed light to be shed on the stock. From this, we can adjust fire.

Disclaimer

Options can be dangerous: Tread with caution. Investors should not read this and mimic it, as the information will be out of date and stale. Investors or traders should view this simply as an idea and then adjust it to meet needs. If you need more help, please consult your broker. AMD at the current price and baked in expectations is obviously dangerous. Play safe. Have fun.

Disclosure: I am/we are short AMD.

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: We own $29 and $30 Jan 2019 puts. We may use a straddle as earnings approaches to capture extreme movement up or down.
We are long NVDA.
We wrote this using an Intel CPU and AMD GPU.