San Francisco Security Robot Fired After Public Outcry

A San Francisco animal shelter has announced it will no longer use a Knightscope security robot to patrol its office, after a widely-circulated report that described the robot being used to “deter” nearby homeless encampments and rising crime.

In a statement to Ars Technica, the San Francisco SPCA said it has “received hundreds of messages inciting violence and vandalism against our facility” after the story of the robot went viral. In response to that pressure, the organization will seek “a more fully informed, consensus-oriented, local approach” to the use of security robots. San Francisco authorities had already advised the SPCA to stop using the robot on sidewalks without proper approval.

Mountain View-based Knightscope has said in a statement that the robot “was not brought in to clear the area around the San Francisco SPCA of homeless individuals,” but only to “serve and protect the SPCA.”

The fracas reads as the latest installment in a long-running cultural and economic war over the present and future of San Francisco. The recent influx of tech companies and their high-paid employees has helped drive income inequality and make the onetime bohemian mecca the most expensive place to rent an apartment in the United States.

Get Data Sheet, Fortune’s technology newsletter.

Those underlying tensions have boiled over in protests against tech companies, including over private shuttles run by companies including Google. According to Ars Technica, the San Francisco SPCA facility is located in a rapidly-gentrifying neighborhood where inequality is particularly acute, contributing to the rise of homeless encampments on sidewalks. The SPCA reported a recent rise in vandalism and theft, which it has said declined after the security robot was put into service.

But in San Francisco’s current context, the optics of even a nonprofit using a high-tech robot to deter homeless people could hardly have been worse. In a further layer, the robot could be seen as taking a job from a human. SF SPCA President Jennifer Scarlett earlier told the San Francisco Business Times that the robot cost about $6 an hour to rent, while San Francisco’s minimum wage is $14 an hour. Scarlett said having humans perform the same duties would be “cost prohibitive,” though, suggesting no new workers will be hired to replace the laid-off robot.

Related Posts:

  • No Related Posts

The Hard Work and Hustle Before Crazy Valuations and Exits

In February of last year, Appcues – the user activation and onboarding tool developed by Jonathan Kim – closed a seed round of $2.5 million, thanks to investors like Brian Halligan and Dharmesh Shah. That’s on top of the company’s initial seed round of $1.2 million in 2014, bringing Appcues’s total funding to $3.7 million.

That’s a huge accomplishment for any company, but for me, it’s not the whole story. I’m every bit as interested in what got Appcues to this point – in the hard work and hustle that led to the company’s eventual success.

That’s why, after an introduction from our mutual friend, Appcues cofounder Jackson Noel, I jumped on a call with Jonathan to learn how the moves he made early on helped him bring Appcues to life. 

From Journalism Major to Startup Maker 

Jonathan doesn’t come from an entrepreneurial background. In fact, he has a journalism degree from Boston University – the cost of which he describes as having led him to work in computer science.

“I had to get a job to pay for school, and the highest-paying job I could find was in the computer lab,” he says. “I started toying around with computer programming, and I started getting better and better at it. I started working at a dev shop through my junior and senior year; when I graduated, I was looking at the prospect of going into the journalism job market. I decided not to do that. I was either going to do a startup or join an early stage company, and that’s how I wound up at Performable.” 

At Performable, Jonathan was employee #8 out of what would grow to 20 total before he left for Hubspot. Both experiences gave him exposure to the growing pains startups face – lessons he still takes to heart at Appcues.

“It was cool to see how the middle-stage culture starts to solidify and how processes start to break down,” he explains. “Then, going to Hubspot, it’s a totally different set of skills and people you need. We were 200-300 people when I joined, and I stayed with the company through about 700 people. It was neat to see what comes after that really early stage, and that perspective helps shape what’s really fundamental when you’re small.”

Leaving Hubspot to Launch Appcues

For Jonathan, entrepreneurship was always the goal. He explains, “I knew when I joined Performable that I was in that bridge between joining a startup or doing one on my own. It was always my plan to do that.”

And while he learned all he could working for Performable and Hubspot, Jonathan’s exposure to the challenges involved in onboarding and activating users within new tools and systems gave him the idea for the engagement processes that would drive Appcues. But before making the leap, Jonathan hustled hard to put himself in the best possible financial position.

“I paid off all my student loans and started saving money,” he shares. “By the time I left Hubspot, I had $20,000 saved up, and I invested all that into starting the company. I moved out of my expensive apartment in Central Square and into an attic with two roommates and my girlfriend, which took our rent down to like $500 each. I bought a bike on Craigslist for $100, and I biked everywhere because I was too cheap to buy a bus pass for $75 a month. 

(As a side note, Jonathan recommends that anyone thinking of going the same cheapskate route he did not start their companies in East Coast towns during the winter, as the bike commuting he experienced was brutal.)

Jonathan cut his costs in other ways, explaining, “I was eating steel-cut oats everyday and a good amount of ramen. I spent probably $100 per month on non-rent, non-utility expenses. When you’ve got $20,000 to last indefinitely, you really have to figure out how to make it stretch. Until we actually started paying ourselves after our seed round, I had $500 left in my bank account.” 

From 23 Customers to 23 Employees

Thanks in large part to Jonathan’s frugality and forward-thinking, Appcues took off quickly. One smart decision he made was to take on consulting opportunities shortly after leaving Hubspot that showed him exactly where his target consumers’ pain points lay with regards to user onboarding. Another early win was a listing on Product Hunt in 2014, which left him with 16 customers who’d promised to pay for his solution (once he finished developing it, of course).

A speaking gig led to a connection with Appcues’s cofounder Jackson, and the pair quickly brought on their first hire in John Sherer, Director of Sales. Jonathan noted that the move was unorthodox:

“The first person we hired was John, who was a salesperson. People are always surprised that we didn’t hire a developer first. But John was literally calling people asking why they weren’t buying and trying to get them to buy. The idea was that he’d learn so much more around the objections and the real must-haves for product that he actually became more effective for product than a developer would have.”

The team’s hard work, hustle and instincts paid off. Appcues, which started with three employees and 23 customers at the start of 2015 now boasts 23 employees and 530+ paying customers – none of which would have been possible without Jonathan grinding it out in the company’s early stages.

If you’re thinking about launching your own startup, Jonathan’s example is a great one to follow. Crazy valuations and flashy exits are fun to watch, but at the end of the day, it’s the kind of hard work and hustle he’s demonstrated that leads to real success.

To catch up with Jonathan, visit the Appcues website or follow him on LinkedIn. Or, for more info on our conversation, leave me a comment below with your follow-up questions:

Related Posts:

  • No Related Posts

Meet the Publicly Traded Company Paying Employees in Bitcoin

What if your paycheck for this December could be worth more than ten times its face amount next December? That’s the scenario that many employees of Japan’s GMO Internet Group who opt to be paid in Bitcoin will no doubt be hoping for when taking payment in the cryptocurrency becomes an option starting in March of 2018.

You may have seen some headlines flying around this week about the new company paying salaries in crypto bucks, but it’s not necessarily a sign that the Bit-revolution is swamping everything just yet. 

Getting paid in Bitcoin isn’t unheard of for employees in the Blockchain and crypto world, but GMO is a large, publicly traded company with thousands of employees. Some industry watchers see it as yet another sign Bitcoin is making baby steps into the mainstream. 

The problem, of course, is that Bitcoin’s stratospheric rise in value from less than $1,000 in 2016 to over $17,000 today is certainly not guaranteed to continue and could be a bubble ready to pop at any moment. Typically, you want employees with a stable and positive cashflow situation, so paying them in one of the most volatile currencies around can be problematic to say the least.

This is why it would be technically illegal if GMO employees were given no choice but to be paid via Bitcoin. The company’s program instead gives workers the option of having a portion of their pay deducted and used to purchase Bitcoin at current rates. Obviously, any worker could just as easily be paid in Japanese yen and exchange a portion of their salary for Bitcoin on their own; GMO is just offering to automate the process of investing in Bitcoin for workers.

It’s all a clever means of promoting a few of GMO Internet’s latest ventures in to Bitcoin trading, mining and mining hardware development. So getting paid in Bitcoin at GMO is really a way to show that you’re with the company program, not to mention that more circulating Bitcoin in the world is now also good for the company bottom line. 

When major companies not engaged with the Bitcoin universe in any other way start to conduct payroll and other big transactions with cryptocurrency, I’ll definitely take notice.

Until then, the bigger indicator of Bitcoin gaining mainstream acceptance is the steady stream of headlines about the currency during 2017 and the numerous new exchange accounts being opened everyday. 

However, this only indicates Bitcoin’s growing acceptance as a viable investment. Mainstream acceptance as an actual currency to purchase goods and services still seems a ways off, even for those working at GMO Internet.

Related Posts:

  • No Related Posts

New Evidence Could Blow Open the Uber/Waymo Self-Driving Lawsuit

Today, after three weeks of legal hemming and hawing, the Northern District of California finally made public a potentially key piece of evidence in the rollicking, roiling, rolling trade secrets lawsuit between self-driving Alphabet spinoff Waymo and ridehailing company Uber.

That evidence is the Jacobs Letter, a 37-page rundown of truly outrageous allegations about Uber’s business practices, put to paper by the lawyer for former Uber employee Ric Jacobs. Originally sent to Uber’s lawyers as part of a dispute between the company and Jacobs, it’s now at the center of Uber’s legal fight with Waymo. Whoops.

And while the letter’s contents most definitely have not been proven true, they include some tremendous new assertions: that former Uber CEO Travis Kalanick himself directed trade theft; that the company employed spies to trail competitors’ executives; that it illegally recorded a call with employees about sexual assault allegations; and that it used a meme-filled slideshow to teach employees how to hide implicating documents from nosy lawyers.

So we—like you, presumably—have a few questions.

Back up. What’s this whole Uber-Waymo thing anyway?

In February, Waymo sued Uber for trade secret theft. It alleged longtime Google engineer Anthony Levandowski secretly downloaded thousands of files, resigned, and used the ill-gotten intellectual property to start his own self-driving truck company, Otto. Uber bought Otto in August 2016 (for a reported $680 million) and put Levandowski in charge of all its autonomous driving efforts. Waymo argues that Uber knew Levandowski had stolen its IP, then used that info to accelerate its own R&D.

After months of discovery, the case was supposed to go to trial in early December, wrapping up in time for holiday hot chocolates and trips to European snow chalets (for the lawyers, probably). Instead, in late November, the US Attorney’s Office made the very unusual move of sending William Alsup, the judge overseeing this case, a new piece of evidence. (Legal experts speculate the government lawyers did this as a sort of courtesy, because Alsup had flagged the trade secrets theft case for them back in May—another unusual move. The US Attorney’s Office confirmed this week it’s investigating the case.)

How true is this letter?

Who knows? An Uber spokesperson writes: “While we haven’t substantiated all the claims in this letter—and, importantly, any related to Waymo—our new leadership has made clear that going forward we will compete honestly and fairly, on the strength of our ideas and technology.”

Earlier this month, new Uber head lawyer Tony West told the company security team there was “no place” for competitor surveillance at Uber, and that anyone involved in that kind of shady behavior should “stop it now.”

During pretrial hearings a few weeks ago, Jacobs took the stand and walked back some of the claims in the letter, including the allegation that an Uber team stole trade secrets from Waymo. “I don’t stand by that statement,” he said, explaining that his lawyer had written the letter, and that he had reviewed it in a rush while on vacation.

Who is Ric Jacobs?

Ric Jacobs is a former Uber global threat operations employee who left the company this spring, after telling top Uber execs he was uncomfortable with his team’s ethically and legally dubious practices. The document portrays him as a whistleblower.

Uber says that’s not true, and its employees testified Jacobs was demoted for performance issues, resigned after he was caught downloading documents, then used trumped-up charges to extract a big payout in “consulting fees” on his way out the door—$4.5 million, plus another $3 million for his lawyer. Is Jacobs an extortionist? Would Uber pay that much to a bad actor? The letter only tells his side of the story.

What did Uber’s shadowy Strategic Services Group and Marketplace Analytics team actually do?

The letter says the Strategic Services Group was made of spies who allegedly handled human intelligence collection and stole data and info from competitors. It says Market Analytics members acquired trade secrets, competitive intelligence, code, and details on the operations of competitors’ apps—sometimes directly at the behest of then-CEO Travis Kalanick.

The letter also recounts some very sketchy (and, remember, alleged) fraud-like espionage behavior. Jacobs’ lawyer writes that SSG infiltrated Facebook groups and WhatsApp group messages for anti-Uber protestors, Uber drivers, and taxi operators. It alleges the Market Analytics team remotely accessed confidential corporate communications from a competitor, impersonated rider and drivers on the competitors’ platforms, and used the competitors’ data to “steal” drivers and riders for its own service. This sounds like—but is not necessarily—a reference to Uber’s “Hell” project, which used secret software to track rival Lyft’s drivers. (That program is reportedly being investigated by the FBI). The letter also alleges Uber stole a taxi driver database containing 35,000 records.

Did Uber surveil competitors?

During a pretrial hearing this month, one Uber employee testified that a vendor had passed along a taped conversation between executives at Didi Chuxing and Grab (Uber competitors from China and Singapore, respectively). The letter describes a similar (but maybe not identical?) situation, wherein, at the personal direction of Kalanick, “multiple surveillance teams infiltrated private-event spaces at hotel and conference facilities” where executives were staying, to record private conversations.

Does Uber really have an active mole within a competitor’s ranks?

Quoth the letter: “To date, Jacobs is aware Uber still benefits from at least on well-place [sic] [human intelligence] source with access to [REDACTED] executives and their collective knowledge of [REDACTED] on-going business practices.” Yeesh.

Did Uber hide stuff from legal proceedings on purpose?

The Jacobs letter details a complex system of shielding documents from eventual lawsuits, using forwarding techniques and strategic marks on draft documents to assert attorney-client privilege. It also alleges Uber employees used non-attributable devices, wiped clean after each use, and ephemeral messaging apps like Wickr and Telegram to communicate about things they’d rather not have regulators and lawyers see. (Experts note there are perfectly good reasons to use such devices and anonymizing techniques.) The letter says one Uber official trained the company’s autonomous driving unit to “impede, obstruct or influence the investigation of several ongoing lawsuits against Uber.”

Is anyone here working pro bone-o?

The letter alleges an Uber employee “developed a training using innocuous legal examples and the ‘lawyer dog’ meme to produce a slide deck that taught the ThreatOps team how to utilize attorney-client privilege to impede discovery.”

Did Uber actually wiretap an employee?

Among the creepiest allegations: Uber did not tell employees it was recording them during a call about the sexual harassment allegations. Recording a phone call without the consent of all parties involved is illegal in California.

What did Uber have nailed to its wall?

“Like a ‘scalp’ collected, the Market Analytics team proudly has a [REDACTED] nailed to the wall in their workplace to signify their successful theft of [REDACTED] trade secrets,” the letter says. Twitter’s best guess: a pink Lyft mustache.

Does the Jacobs Letter even matter?

Again, it’s unclear whether any of these allegations are true, or why Jacobs had his lawyer write the letter in the first place. Still, Waymo will undoubtedly use the details here to argue Uber had established protocols to conceal its alleged trade secrets theft.

Whatever the truth, the letter will have an immediate effect: The court has found Uber should have definitely turned over this 37-pager during the discovery process. And that’s a problem.

“To use a legal term, Uber is in deep doo-doo,” says Peter Toren, a federal prosecutor who specializes in trade secret litigation. “Judge Alsup is not going to be pleased with this at all.”

Alsup already has already been very impatient with Uber’s lawyers. Now, he could impose monetary sanctions on Uber, charging them court costs and/or Waymo’s bills associated with the trial delay, which could add up to hundreds of thousands of dollars. He could also allow the Waymo team to draw “adverse inferences” from Uber’s omission—to argue that, because Uber couldn’t produce ephemeral messages and hid documents, it’s fair for the jury to assume that they were filled with nefarious dealings.

Finally, the Jacobs letter could be used to supplement other lawsuits in the galaxy of those filed against Uber—or to launch entirely new ones. “To the extent that somebody now has a cause of action they may not have had before, it gives them evidence,” says Toren. Waymo lawyers are not the only ones reading the Jacobs letter. And they won’t be the only ones with questions.

More Uber, Waymo Problems

Related Posts:

  • No Related Posts

Alphabet's X sells new wireless internet tech to Indian state

SAN FRANCISCO (Reuters) – Alphabet Inc’s X research division said on Thursday that India’s Andhra Pradesh state government would buy its newly developed technology that has the potential to provide high-speed wireless internet to millions of people without laying cable.

Terms of the deal were not disclosed, but the agreement, which begins next year, would see 2,000 boxes installed as far as 20 kilometers (12 miles) apart on posts and roofs to bring a fast internet connection to populated areas. The idea is to create a new backbone to supply service to cellphone towers and Wi-Fi hotspots, endpoints that users would then access.

The agreement is an outgrowth of X’s Project Loon, which on several occasions has beamed cellphone service to Earth from a network of large balloons. The balloons link directly to smartphones but are meant for rural areas with a low population density, according to X.

Alphabet, which owns Google, and other online service providers view increasing internet accessibility in developing countries as crucial to maintaining their fast-growing businesses.

Andhra Pradesh, a southeastern coastal state with 53 million people, had nearly 15 million high-speed internet subscribers as of last December, according to a report by India’s telecom regulator. The state wants to connect an additional 12 million households by 2019, Alphabet said.

X plans to deploy free space optical technology, which transmits data through light beams at up to 20 gigabits per second between the rooftop boxes. There would be enough bandwidth for thousands of people to browse the Web simultaneously through the same cellphone tower, X said.

Researchers have said such systems hold promise in areas where linking cellphone towers to a wired connection is expensive and difficult. But the technology has not taken off because poor weather or misalignment between the boxes can weaken the connection.

Baris Erkmen, who is leading the effort inside X, said his team is “piloting a new approach” to overcome the challenges, but he did not specify the software and hardware advancements.

X plans to have a small team based in Andhra Pradesh next year to help roll out the technology.

Reporting by Paresh Dave, Editing by Rosalba O’Brien

Related Posts:

  • No Related Posts

Rakuten eying entry into Japan's mobile carrier market: source

TOKYO (Reuters) – Japanese online retailer Rakuten Inc plans to join a government auction for wireless spectrum to be held in January, potentially becoming the country’s fourth major wireless carrier, a source briefed on the matter said on Thursday.

A woman pushing a pram walks in front of a Rakuten Cafe store at a shopping district in Tokyo August 4, 2014. REUTERS/Yuya Shino

The source declined to be identified because the talks are private.

Japan’s mobile carrier market is currently dominated by NTT Docomo Inc, KDDI Corp and SoftBank Group.

The Nikkei business daily, which reported on the plan on Thursday, said Rakuten would raise 600 billion yen ($5.3 billion) by 2025 to invest in base stations and other infrastructure.

Rakuten said in a statement that while it was true it is weighing entry into the mobile carrier market, media reports on the matter were not something announced by the company.

Rakuten shares were down 1.7 percent in early trade. The benchmark Nikkei average was flat.

($1 = 112.6300 yen)

Reporting by Yoshiyasu Shida and Thomas Wilson; Writing by Makiko Yamazaki; Editing by Stephen Coates

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts

Britain urged to prosecute social media firms over online abuse

LONDON (Reuters) – Social media companies should face prosecution for failing to remove racist and extremist material from their websites, according to a report by an influential committee.

FILE PHOTO – A picture illustration shows a Facebook logo reflected in a person’s eye, in Zenica, March 13, 2015.REUTERS/Dado Ruvic

Prime Minister Theresa May’s ethics watchdog recommends introducing laws to shift the liability for illegal content onto social media firms and calls for them to do more to take down intimidatory content.

Social media companies currently do not have liability for the content on their sites, even when it is illegal, the report by the Committee on Standards in Public Life said.

The recommendations form part of the conclusions of an inquiry into intimidation experienced by parliamentary candidates in an election campaign this year.

“The widespread use of social media has been the most significant factor accelerating and enabling intimidatory behavior in recent years,” the report said.

“The committee is deeply concerned about the limited engagement of the social media companies in tackling these issues.”

While the report said intimidation in public life is an old problem, the scale and intensity of intimidation is now posing a threat to Britain’s democracy.

FILE PHOTO – People holding mobile phones are silhouetted against a backdrop projected with the Twitter logo in this illustration picture taken September 27, 2013. REUTERS/Kacper Pempel/Illustration/File Photo

The report found that women, ethnic minorities and lesbian, gay, bisexual and transgender political candidates are disproportionately likely to be the targets of intimidation.

The committee heard how racist, sexist, homophobic, transphobic and anti-Semitic abuse is putting off some candidates from standing for public office.

Platforms such as Twitter, YouTube and Facebook are criticized for failing to remove abusive material posted online even after they were notified.

FILE PHOTO – A 3D-printed YouTube icon is seen in front of a displayed YouTube logo in this illustration taken October 25, 2017. REUTERS/Dado Ruvic/Ilustration

The committee said it was “surprised and concerned” Google, Facebook and Twitter do not collect data on the material they take down.

“The companies’ failure to collect this data seems extraordinary given that they thrive on data collection,” the report said. “It would appear to demonstrate that they do not prioritize addressing this issue of online intimidation.”

Twitter said in a statement it has announced several updates to its platform aimed at cutting down on abusive content and it is taking action on 10 times the number of abusive accounts every day compared to the same time last year.

YouTube declined to comment, while Facebook did not immediately respond to requests for comment.

Many politicians have become more vocal about the abuse they face after Labour’s Jo Cox, a 41-year-old mother of two young children, was shot and repeatedly stabbed a week before Britain’s Brexit referendum last year.

Reporting By Andrew MacAskill; editing by Stephen Addison

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts

Crispr Therapeutics Plans to Launch Its First Clinical Trial in 2018

In late 2012, French microbiologist Emmanuelle Charpentier approached a handful of American scientists about starting a company, a Crispr company. They included UC Berkeley’s Jennifer Doudna, George Church at Harvard University, and his former postdoc Feng Zhang of the Broad Institute—the brightest stars in the then-tiny field of Crispr research. Back then barely 100 papers had been published on the little-known guided DNA-cutting system. It certainly hadn’t attracted any money. But Charpentier thought that was about to change, and to simplify the process of intellectual property, she suggested the scientists team up.

It was a noble idea. But it wasn’t to be. Over the next year, as the science got stronger and VCs came sniffing, any hope of unity withered up and washed away, carried on a billion-dollar tide of investment. In the end, Crispr’s leading luminaries formed three companies—Caribou Biosciences, Editas Medicine, and Crispr Therapeutics—to take what they had done in their labs and use it to cure human disease. For nearly five years the “big three’ Crispr biotechs have been promising precise gene therapy solutions to inherited genetic conditions. And now, one of them says it’s ready to test the idea on people.

Last week, Charpentier’s company, Crispr Therapeutics, announced it has asked regulators in Europe for permission to trial a cure for the disease beta thalassemia. The study, testing a genetic tweak to the stem cells that make red blood cells, could begin as soon as next year. The company also plans to file an investigational new drug application with the Food and Drug Administration to treat sickle cell disease in the US within the first few months of 2018. The company, which is co-located in Zug, Switzerland and Cambridge, Massachusetts, said the timing is just a matter of bandwidth, as they file the same data with regulators on two different continents.

Both diseases stem from mutations in a single gene (HBB) that provides instructions for making a protein called beta-globin, a subunit of hemoglobin that binds oxygen and delivers it to tissues throughout the body via red blood cells. One kind of mutation leads to poor production of hemoglobin; another creates abnormal beta-globin structures, causing red blood cells to distort into a crescent or “sickle” shape. Both can cause anemia, repeated infections, and waves of pain. Crispr Therapeutics has developed a way to hit them both with a single treatment.

It works not by targeting HBB, but by boosting expression of a different gene—one that makes fetal hemoglobin. Everyone is born with fetal hemoglobin; it’s how cells transport oxygen between mother and child in the womb. But by six months your body puts the brakes on making fetal hemoglobin and switches over to the adult form. All Crispr Therapeutics’ treatment does is take the brakes off.

From a blood draw, scientists separate out a patient’s hematopoietic stem cells—the ones that make red blood cells. Then, in a petri dish, they zap ‘em with a bit of electricity, allowing the Crispr components to go into the cells and turn on the fetal hemoglobin gene. To make room for the new, edited stem cells, doctors destroy the patient’s existing bone marrow cells with radiation or high doses of chemo drugs. Within a week after infusion, the new cells find their way to their home in the bone marrow and start making red blood cells carrying fetal hemoglobin.

According to company data from human cell and animal studies presented at the American Society of Hematology Annual Meeting in Atlanta on Sunday, the treatment results in high editing efficiency, with more than 80 percent of the stem cells carrying at least one edited copy of the gene that turns on fetal hemoglobin production; enough to boost expression levels to 40 percent. Newly minted Crispr Therapeutics CEO Sam Kulkarni says that’s more than enough to ameliorate symptoms and reduce or even eliminate the need for transfusions for beta-thalassemia and sickle cell patients. Previous research has shown that even a small change in the percentage of stem cells that produce healthy red blood cells can have a positive effect on a person with sickle cell diseases.

“I think it’s a momentous occasion for us, but also for the field in general,” says Kulkarni. “Just three years ago we were talking about Crispr-based treatments as sci-fi fantasy, but here we are.”

It was around this time last year that Chinese scientists first used Crispr in humans—to treat an aggressive lung cancer as part of a clinical trial in Chengdu, in Sichuan province. Since then, immunologists at the University of Pennsylvania have begun enrolling terminal cancer patients in the first US Crispr trial—an attempt to turbo-charge T cells so they can better target tumors. But no one has yet used Crispr to fix a genetic disease.

Crispr Therapeutics rival Editas was once the frontrunner for correcting heritable mutations. The company had previously announced it would do gene editing in patients with a rare eye disorder called Leber congenital amaurosis as soon as this year. But executives decided in May to push back the study to mid-2018, after running into production problems for one of the elements it needs to deliver its gene-editing payload. Intellia Therapeutics—the company Caribou co-founded and provided an exclusive Crispr license to commercialize human gene and cell therapies—is still testing its lead therapy in primates and isn’t expecting its first foray into the clinic until at least 2019. All the jockeying to the clinic line isn’t just about bragging rights; being first could be a big boon to building out a business, and a proper pipeline.

Clinical Crispr applications have matured much faster than some of the other, older gene editing technologies. Sangamo Therapeutics has been working on DNA-cutting tool called zinc fingers since its founding in 1995. In November, more than two decades later, doctors finally injected the tool along with billions of copies of a corrective gene into a 44-year-old man named Brian Madeux, who suffers from a rare genetic disorder called Hunter syndrome. He was the first patient to receive the treatment in the first-ever in vivo human gene editing study. Despite the arrival of newer, more efficient tools like Crispr, Sangamo has stayed focused on zinc fingers because the company says they’re safer, with less likelihood of unwanted genetic consequences.

It’s true that Crispr has a bit of an “off-target” problem, though the extent of that problem is still up for debate. Just on Monday, a new study published in the Proceedings of the National Academy of Sciences suggested that genetic variation between patients may affect the efficacy and safety of Crispr-based treatments enough to warrant custom treatments. All of that means Crispr companies will have to work that much harder to prove to regulators that their treatments are safe enough to put in real people—and to prove to patients that participating in trials is worth the risk. Kulkarni says they looked at 6,000 sites in the genome and saw zero off-target effects. But it’ll be up to the FDA and the European Medicines Agency to say whether that’s good enough to send Crispr to the clinic.

Related Posts:

  • No Related Posts

As the Southern California Fires Rage, a Boeing 747 Joins the Fight

The largest and most destructive fire burning in California continues to grow, consuming dry brush as it races not just through but across the canyons north of Los Angeles. Strong winds and dry conditions mean flames can leap large distances, prompting thousands to evacuate their homes. The Thomas Fire has now spread from Ventura County into Santa Barbara County, burning up 230,000 acres—an area larger than New York City and Boston combined. The out of control blaze is on track to become one of the largest in California history.

So firefighters are using the largest tools they have to tackle it, including one that’s more than 200 feet long, and does its work from just 200 feet above the ground.

“We avoid flying through smoke at all costs, but you can smell the fire 200 miles out, even at 20,000 feet,” says Marcos Valdez, one of the pilots of the Global Supertanker, a Boeing 747 modified to fight the fiercest of fires. The jumbo jet can drop 19,200 gallons of fire retardant liquid per trip, nearly double the capacity of the next largest air tanker, a McDonnell Douglas DC-10. Fully stocked, the plane weighs in at 660,000 pounds, comfortably under its 870,000-pound max takeoff weight.

Step inside (which you can do in the interactive 3-D model below) and you’ll see that the upper floor looks pretty normal, with the cockpit and a few seats. Head down the stairs to the main floor, though, and you’ll see the key changes its owner, Global Supertanker LLC, made when it converted the Japan Airlines passenger plane to a firefighter in 2016: In what looks like the interior of a submarine, you’ll find eight cylindrical white tanks in two rows.

Holding the fire suppressant liquid in separate tanks means the 747, aka The Spirit of John Muir, can make up to eight segmented drops on multiple small fires, or put down a solid two miles of fire line, to try to protect property or contain a fire. The liquid drops through a big hose, through a series of manhole-cover-sized circular nozzles under the plane, near the back. (If you use the “Dollhouse” view on the 3-D model, you can see some of that detail on the very lower deck.)

The plane is based in Colorado Springs, but its owner contracts it out to fire agencies in need. This week it’s flying out of Sacramento, in the northern part of the state. That’s because it can carry so much flame retardant that picking it up in Southern California wouldn’t leave enough for the smaller aerial firefighters. Plus, with a 600-mph cruise speed, it can reach the perimeter of the Thomas fire in just 38 minutes.

The 747 and other fixed wing aircraft sat out the early days of the fight against these fires, because high wind speeds would have blown their liquid retardant unpredictably off course. Though the pink stuff won’t damage people or property (good news for this guy), pilots make an effort to avoid dumping it on firefighters on the ground. The 747 can actually lay such a long line of retardant that it can be used to draw a line to safety for people trapped in a “burn-over” situation, where flames threaten to engulf them.

When the Supertanker reaches a fire, it doesn’t just drop down and fire away. The whole operation is a carefully orchestrated affair. Valdez, the pilot, starts by flying at 1,000 feet up, watching a “show me” flight by a lead plane, usually a Rockwell OV-10 Bronco or Beechcraft King Air. That has likely been in the air for hours, and directs each tanker aircraft exactly where to make its drops, pointing out hazards like power lines or tall rocks over the radio. “They’re using signals like ‘Start at this tree that’s split,’ ‘Fly on the right flank of the fire,’ and ‘I want to you stop at this rock that looks like a bear,’” Valdez says.

Then Valdez pushes the yoke forward until he and his crew are flying 200 to 300 feet above the ground—in a jet whose wingspan is just over 200 feet. Valdez plays down the terror, comparing it to driving next to a concrete barrier down the center of a highway. You know it’s there, and that one wrong move could kill you, but you just keep your heading and your cool.

The whole drop is over in 10 minutes, and then it’s time to head back to Sacramento, making for a two-hour roundtrip. On Friday, the Supertanker performed three drops on the Thomas fire—each gratefully received by the firefighters trying to stop the flames reaching more property, and people.

Fire Storm

Related Posts:

  • No Related Posts

Private Providers Spent Nearly $1 Million to Fight Municipal Broadband in One Small Colorado City

New financial disclosures for a November ballot initiative show that a group backed by private internet providers spent just over $900,000 to try and block city-owned broadband service in Fort Collins, Colorado.

The big spenders were nonetheless defeated by a citizens’ group that spent only $15,000 to support the bond measure, which passed with 57% of the vote on Nov. 7, approving up to $150 million in financing for a city-run broadband utility.

Opposition to the measure was spearheaded by the group Priorities First Fort Collins, which according to filings, received most of its funding from the Colorado Cable Telecommunications Association. National telecom giant Comcast is a member of the group.

Get Data Sheet, Fortune’s technology newsletter.

Most of the group’s spending was on advertising, including a commercial that argued public spending on broadband would pre-empt spending on roads and public safety. That argument has been described as deceptive, though, since the bond would be repaid with subscriber fees and not from the city budget. Fort Collins Mayor Wade Troxell characterized efforts by the measure’s opponents as “misinformation.”

Analysis has shown that Comcast could lose as much as $23 million per year in Fort Collins alone if it faced competition from a city utility. But the stakes are much larger than that, as municipal broadband efforts spread from cities like Chattanooga to Seattle, Los Angeles and beyond.

Broadly, those projects are based on the argument that there’s insufficient competition in the private broadband market. Thanks in part to that lack of competition, broadband providers are among the most disliked companies in the entire U.S. economy — and Comcast is one of the least-liked broadband providers. Chattanooga’s network, which went online in 2010 over industry opposition, has turned a profit and helped finance upgrades to the city’s electrical grid, while forcing Comcast to improve its own service in that market.

Opponents have argued, though, that municipal systems have benefited from government subsidies. In addition to their public campaigns, private providers have worked to prevent government competition by seeking state-level legislation that takes away cities’ right to build their own services.

Related Posts:

  • No Related Posts

Deutsche Bank Economist Says a Bitcoin Crash Would Endanger Global Markets

An economist at Deutsche Bank thinks a crash in the price of bitcoin will be among the top risks to broader markets in 2018.

Torsten Slok, Deutsche’s Bank’s Chief International Economist, recently sent clients a list of 30 market risks which could impact growth next year. The list, shared with outlets including Bloomberg, ranks a bitcoin crash as the 13th-highest risk, behind various central banking challenges and overvaluation of U.S. equities.

It’s not hard to argue bitcoin is in a hype-fueled bubble, but Deutsche’s concern that it could impact the global economy still seems at least slightly overblown. According to Coinmarketcap, the total market value of all cryptocurrencies — including not just bitcoin, but Ethereum, Litecoin, and all the rest — is now swinging around $400 billion. For comparison, the total value of the U.S. housing market, which lay at the heart of the 2008 financial crisis, was estimated at $29.6 trillion in 2016 — or more than 70 times higher than cryptocurrencies’ current total value.

Get Data Sheet, Fortune’s technology newsletter.

That doesn’t mean a bitcoin bust couldn’t contribute to a broader meltdown, but it’s hard to see it as a systemic risk in itself. Aside from pure size considerations, bitcoin owners are spread across the entire globe, which would also spread any crash’s impact.

Despite that, Slok’s list ranks a bitcoin crash above both Robert Mueller’s investigation of Donald Trump, which could result in the impeachment or even indictment of a sitting U.S. President, and North Korea, whose missile testing could spark a full-blown war. The bitcoin bubble, it seems, isn’t just in its price, but in outsized assessments of its broader economic significance.

Related Posts:

  • No Related Posts

S&P 500 Weekly Update: Strong Price Action Amidst Sector Rotation Brings New Highs To The Major Indices

“Anything is possible, and the unexpected is inevitable. Proceed accordingly.” – Jason Zweig

In many ways, this bull market has behaved just like many others before it. However, that’s not how it is perceived by some. There are a few catch phrases that have been associated with this market, but lately there is one that stands out. The market doesn’t care is now a popular comment, and it’s worthy of discussion.

Really? That depends on how an individual perceives what is taking place in front of their eyes. There is a contingent that believes that every headline is dismissed, and stock prices rise no matter what. Of course they are talking about the negative headlines.

Stocks have persistently defied the skeptics, who have pointed to all of the negatives that can be dreamed up. Problem is what they refer to as news is just an extension of the myopic view that has been around the stock market for a while.

How can it be that this market is going up with so many controversial headlines out of D.C.? North Korea is talking nuclear and shooting missiles, the Fed is raising rates, reducing its balance sheet, yet the market rises. The yield curve is flattening, the bond market is sending signals, but the uptrend continues. The S&P 500 is like Teflon, no event seems to stick and so the conclusion is that all are complacent and the market doesn’t care.

Nonsense. The stock market and the individuals that are moving billions around each day definitely care, and they care about what really matters. So those making statements that the market doesn’t care are doing a great disservice to investors that are listening to that rhetoric. It paints a picture that is based on a narrative having one believe that no matter what comes up the market will keep rising, and there is little behind the market upswing. A deceptive message that couldn’t be further from the truth.

The S&P 500 is in its second longest bull market of all time, and there are reasons for that, reasons that the folks investing in this bull market care about.

Source: Bespoke

For anyone that hasn’t noticed, there has also been a ton of good news to fuel the rally. The global economy is strong and has been showing signs of acceleration; earnings growth has been surprising to the upside. Despite the negative headlines from the skeptics about the Fed, they remain very accommodative. Add to that an easier regulatory environment, and you have all the ingredients for a rally no matter what soap opera or drama is being played out or conjured up.

The backdrop for owning equities over the intermediate time frame (3 to 9 months out) is slanted to the upside, despite when the next chapter of what will derail the bull market comes out.

U S economy.jpg


U.S. Services PMI came in at 57.4. That was disappointing to some who were expecting a reading of 59. This report was down from the 60.1 reading in October, which was a 12-year high. It should be noted there have been only 3 readings of 60 or higher in the last few years. This past October, one in 2004, and the other in 2005. So, I wouldn’t be overly concerned about the drop to a very respectable level.

U.S. Q3 productivity growth held at the 3.0% pace, as it was in the preliminary report, and it compares to 1.5% in Q2 and 0.1% in Q1. Real output per hour of all persons rose 1.5% on an annualized basis. U.S. factory orders slipped 0.1% in October after an upwardly revised 1.7% gain in September; it was originally reported as a 1.4% increase.

Here is one economic indicator that hasn’t been mentioned in quite a while. The American Trucking Association Truck Tonnage report.

Source: Bespoke

It often can be a good indicator of the economy by simply telling us the total of goods moving around the country. That’s 9.9% year-over-year growth in 2017.

Global Economy.jpg

Global Economy

J.P. Morgan Global Services PMI was released, and the results show continued strength across the board. David Hensley, Director of Global Economic Coordination at J.P. Morgan:

“Global service sector activity continued to expand at a solid and steady pace in November, underpinned by rising new order intakes. Capacity is still being tested, despite rising employment. This is feeding into pipeline inflationary pressures at service providers, with both input costs and output charges rising at faster rates during the latest month.”


Eurozone Markit Composite PMI remains strong with a final read of 57.5 for November versus the October reading of 56. The Services Business Activity component rose to 56.2 in November from 55 in October. Chris Williamson, Chief Business Economist at IHS Markit:

“The eurozone enjoyed a bumper November, setting the scene for a buoyant end to the year. The PMI surveys signaled faster growth across the board, led by stronger expansions in France and Germany alongside a marked upturn in the pace of growth in Italy. Business conditions in Spain also remained encouragingly resilient in the face of heightened political uncertainty, albeit on course for the weakest quarter of the year.”

  • Germany saw a slight decrease in its Services PMI, falling to 54.3 from the October reading of 54.7. Retail PMI was reported at a 6-month high in November with a reading of 54.6. The prior month read was 51.2.
  • France picked up the slack as its employment growth is at a 16-year high. While its Services Index rose to 60.4 last month from the October report of 57.3, the sharpest expansion in service sector output since May 2011. Retail sales improved in November with a Retail PMI number that rolled in at 52.2 versus the October read of 51.5.
  • Italy also saw a nice increase in its Service sector results by hitting a 3-month high at 54.7. The prior month was recorded at 52.1. Retail PMI numbers showed a decline in sales for the month of November with a read of 49.2 compared to the October report of 50.3.


Agreement was reached on the Brexit round one issues this past week, setting the stage for further negotiations. I am certainly no expert on this matter. In my humble opinion, by its actions, the EU softened its tough talk stance announced at the onset of the Brexit vote.


Japan GDP rose more than expected coming in at 0.6% versus the expectations of 0.3%. Annualized growth has been raised to 2.5% as the recovery continues on track.

earnings growth 7-31-17.jpg

Earnings Observations and Valuation

There is little doubt that the proposed corporate tax rate of approximately 20% will push 2018 EPS estimates up sharply. Question is how much. Current 2018 estimates sit at around $145-146. A conservative approach to the improved picture could take that to $152 or so. While a more aggressive view takes earnings to the $155-156 level.

FactSet Research weekly report:

  • For Q4 2017, the estimated earnings growth rate for the S&P 500 is 10.6%. All 11 sectors are expected to report earnings growth for the quarter, led by the Energy sector.

  • The forward 12-month P/E ratio for the S&P 500 is 18.2. This P/E ratio is above the 5-year average (15.8) and above the 10-year average (14.2).

  • For 2018, the bottom-up EPS estimate for the S&P 500 is $146.17.

If there was no earnings boost due to the drop in corporate taxes, the stock market is fairly valued. Using multiple metrics, I then conclude the equity market is undervalued given the possible boost from this tax reform. Little if any of the benefits are priced into the S&P today.

Cornerstone Macro came out with a research note that I tend to agree with. It sees little evidence valuation plays any role in determining near term market returns. It’s a poor timing tool because the index composition changes so widely across time. In other words, is it really fair to compare today’s market P/E to that of 2007, 2000 or 1985? Each market had very different makeups in very different economic environments.

Political scene.gif

The Political Scene

The December 9th deadline to avoid a government shutdown will come and go with no drama as Congress passed a two-week spending bill to push the new deadline out to December 22nd.

The tax reform plan was passed, and analysts are now busy at their keyboards hammering out new estimates on what this could do to 2018 corporate earnings. In the next few days/weeks, investors will be inundated with all sorts of reports and forecasts.

The airwaves were filled with commentary about how hated this reform is. This tax reform bill is as unpopular (56% disapproval) now as ObamaCare was when it was signed into law (59% disapproval) in March 2010. In the meantime the stock market is taking everything in stride. What else is new. The equity market cares about what this means to corporate earnings and when it might become reality.

Another benefit may also be on its way. Repatriation of overseas monies might have some large corporate players wondering what to do with all of that money. That could lead to being more active on the M&A scene. Yet all the naysayers want to talk about is how horrible it will be if the money goes to stock buybacks and dividends. Perhaps they need to look up the definition of the word horrible.

As it pertains to equities, I see nothing bearish in this proposed tax reform package. Ned Davis Research agrees in part but also points to a possible unintended consequence. First, it estimates a boost of 0.1% to 0.9% of GDP in 2018 and 2019 from the tax bill, based on fiscal multipliers from the Congressional Budget Office. However, it brings up an interesting point:

“Given that the economy is in its eighth year of expansion, and the output and unemployment gaps have been practically eliminated, this could feed into higher inflation, prompting the Fed to accelerate its interest-rate increases and negating some of the stimulus impact.”

We will just have to see exactly how this will play out over time, using the same methodology employed during the entire bull market. Make no premature moves until concrete evidence appears. Leave the what if scenarios to others.

Federal reserve 2.jpg

The Fed

The next FOMC meeting is on tap during a two-day stint, December 12th and 13th. It is widely accepted that Janet Yellen and company will increase rates for the third time this year.

As detailed by the National Bureau of Economic Research, during the most rapid periods of growth, the yield curve was inverted: as unit growth and productivity soared, pushing short rates up, inflation dropped, creating a virtuous cycle that turbocharged the equity market.

A graphic presented below challenges the idea that rate increases will hurt market returns; in the early stages they tend to rise during rate hikes.

Chart courtesy of Liz Ann Sonders, Charles Schwab

It is only when we are at the end of the rate increase cycle where stocks struggle.

Sentiment negative.jpg


Bulls were in the majority once again, extending the record to 153 straight weeks. This week’s AAII survey showed little change in optimistic sentiment as bulls remained right near 36%. Bearish sentiment rose from 31.6% up to 34.2%, which is a three-week high.


Crude Oil

The price of WTI weakened after the weekly inventory report was published showing a decrease of 5.6 million barrels. The reason for the weakness however was tied to the large increase in gasoline inventories which rose by 6.8 million barrels. For this week of the year, crude inventories are below both 2015 and 2016 levels.

Source: Bespoke

That’s despite record production estimates on a weekly basis, thus implying there is also robust demand present. WTI drifted to a three-week low dropping below $56 during the week before closing Friday at $57.33, down $1.03 for the week.

Technical view.gif

The Technical Picture

The rotation theme continued on Monday as the Dow and S&P celebrated new highs while the Nasdaq was in the red. At the end of the day, the S&P reversed and closed in the red as well. A message from the market indicating that consolidation is now in order. Once thought to be an insurmountable lead, the Dow 30 has closed the performance gap as it is now up 24% for the year, while the Nasdaq, which has been the leader all year, is up 26%.

When all indices move to new highs in unison as they did in November, it is pretty obvious that market breadth is solid. Digging a little deeper confirms that big picture view. For those that look at issues that really matter, the technical picture looks very healthy now.

There is a large percentage of Industry Groups with rising 200-day moving averages. The only three with downward sloping 200 DMAs are still Energy, Media, and Telecom Services. We have seen 80%+ readings for over 18 months now.

Source: Bespoke

Looking at shorter-term moving averages, the picture has improved substantially. While the trend of lower highs remains in place, since the end of August, the percentage of Industry Groups with rising 50-day moving averages has increased by 50 percentage points to 83% from 33%!

Source: Bespoke

This type of data is what the market cares about. Federated Research chimes in with a note mentioning that year to date, the S&P is up roughly 15%, and more than 70% of stocks are positive. In 1999, the S&P was up nearly 20% but only 49% of issues were positive for the year.

That is all well and good as it solidifies the intermediate-term bullish view. Let’s take a look at the very short-term picture. The daily chart of the S&P shows the index remains above the 20-day moving average, sitting at a fresh new high. The green arrows depicted on the chart this week signify the time when all major indices were making new high in unison. It is important to note that November marked a new momentum high for the markets.

Chart courtesy of

Given the short-term overbought condition of the S&P, there comes the possibility that both the 20-day (green line) and the 50-day (blue line) can come into play at some point in time. That gives me a short-term downside target of around 2,570-2,575, coincident with the rising 50-day moving average. If the initial downside target of 2,570 does indeed come to pass and hold as support, there is a good chance that more new highs will follow.

If not, then it will be time to reassess the short term. A significant catalyst that adds more pressure to any downside move could very well bring the 100-point decline in the S&P that has been mentioned here before. That would make the downside target around 2,540-2,550. Much too early to make that talk anything than a possibility.

While that may be an issue for traders, I do not see it posing a problem for the long-term oriented. For the purposes of providing a meaningful forecast that does not infer a 20-30 year time frame but the next 6- to 9-month period. As in the past, one day, one week at a time. It pays to reassess the market movement during these quick short-term gyrations.

Short-term support is at the 2,632 pivot and S&P 2,609, with resistance at 2,656, then 2,665.

Buy-Sell logo.jpg

Individual Stocks and Sectors

Telecom, Banks, Industrials, and Energy stocks were the recipients of most of the money rotating out of the Technology sector once again. Stephanie Link posted a note saying there was $654 million of net buying in U.S. Financials. There has now been $2.3 billion of net new assets in U.S. Financials in the space of a week. Liz Ann Sonders drives the rotation point home with this excellent graphic from her latest research note.

The results in just the last few days solidify the theme that plays out in the markets over time. Reversion to the mean. The outperformers take a back seat for a period of time while the laggards attract money. There have been some other notable characteristics behind the rotations we’ve been seeing.

Through Thanksgiving this year, growth stocks paying little to no dividends with above average international revenue exposure have been the clear winners. On the other hand, value stocks with high dividend yields and low price/earnings (P/E) ratios had been the year’s worst performers. In the span of a few trading days, all of that has been reversed.

A rolling correction has sure hit the semiconductor index in the last week or so. This segment of technology has printed profits for anyone that has been long these stocks. Andrew Thrasher of posted the chart below and notes:

“For the first time since early 2016, the ratio between semiconductors and the S&P 500 is now seeing oversold momentum as the ratio tests the June high.”

Chart courtesy of

For myself, a key to picking entry points occurs on days where the market is weak, and selected stocks that have sold off, buck the trend and close with a gain. Such was the case on Tuesday. The S&P and Dow 30 trade down, semiconductor stocks Nvidia (NVDA), Monolithic Power (MPWR), a 2017 playbook stock, and Micron Technology (MU) just to name a few were positive. Also notable, the Philadelphia Semiconductor index (SOXX) itself was also green on the day.

Other momentum names following that trend were Facebook (FB) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). It still could be early on any reversal of the recent weakness, but the bulk of the selling may indeed be over.

CyrusOne (CONE), another 2017 playbook stock that gained 45% this year before running into profit taking, bucked the overall selling seen in the S&P on Tuesday. This data center REIT was taken down with the tech selloff despite the growth story continuing.

Biotech stocks in general are among the stocks that are under pressure in end of year positioning. Lipper/AMG Data Services reports:

“For the weekly period ending Wednesday, December 6, biotech saw net outflows of ~$85M, representing a 0.14% decrease in assets as reported by 100 funds. For the past four weeks, biotech saw ~$711M in outflows, and thus far, 4Q17 fund flows have remained negative with ~$1.3B in outflows and just two weeks of inflows for the quarter. Overall, the YTD figure remains positive (~$491M).”

Looking at the big picture, both the S&P Biotech ETF (XBI) and the Nasdaq Biotechnology Fund (IBB) remain in the bull market trend that started in February of this year.

summary #2.jpg

The commentary on the proposed tax reform goes on and on. It’s never wise to overthink any situation regarding equities, and now is a time to put that into practice. Energy, Retail, Healthcare, Financials and Telecom are at the top of the list of companies paying the highest tax rates. Caution is advised when using what a company pays in taxes as THE reason to get involved.

That list of market sectors also explains why present market psychology has abandoned growth for the time being as institutions rush to what is perceived as the winners after tax reform is enacted. One caveat to keep in mind. The Senate version of the proposed tax bill still has the effective date of these cuts to start in 2019. If that were to actually happen, it will surely change how 2018 will play out in the markets. At the moment that is still a huge what if.

History tells us that the latter half of December is when the market posts its gain for the month. The first part of the month started out with some much needed consolidation until new highs were forged on Friday. In the short term, the gains we have seen over the last several days have definitely pushed the market to short-term overbought levels. The S&P 500 has become quite extended at these levels as it is above the top end of its uptrend channel. As mentioned in last week’s summary:

“The short to intermediate term view now does lean to modest upside from these levels. That should come as no surprise given the virtual unstoppable run the market has been on.”

Source: Bespoke

With ALL of the major indices making new highs in unison, the broad participation tells us despite any short-term issues, the long-term view is decidedly positive. We have been here before. Selectivity is key as many solid fundamental growth stocks have sold off. This isn’t the time to go out and raise a huge amount of cash, unless you are calling it a career and moving to your own island.

Money rotation causing rolling corrective activity is positive for the overall health of the market. It stops all excesses in their tracks and offers solid opportunities along the way. No reason to push all the chips in here, but don’t knit pick over a small percent when buying for the intermediate term (3-9 months). If it is considered a core holding long-term purchase, one only needs to be in the ballpark with their entry point.

This cycle is different from others in that the exceptional fundamentals of the margin leadership and coincidentally the market leadership group are having noticeable effects. Companies in the top quintile of margins have a 15% margin advantage over the rest of the market. Most of these names reside in the Tech sector.

Empirical Research notes there has never been such a wide gap. Heavily represented by the tech and healthcare sectors, this group’s average revenue growth is more than double that of overall market. It is no wonder why these two sectors have outperformed, and it appears that growth isn’t ending tomorrow. When looking at the opportunities being presented right now, remember these aren’t falling knives where the fundamental story is also a falling knife. Quite the contrary. Believe me there is a HUGE difference in the two scenarios.

Focusing on the major indices can become a problem as the consensus story tells us that the equity market is overvalued and it’s time to be careful. As the rolling corrections continue while the indices consolidate, there is abundance of opportunities that can be found. A sign that we are indeed in a secular bull market. The underlying strength remains intact while weeding out the excesses before they become a problem.

Sure, as I write this, there will be a time when we go from a bullish backdrop, where the positive news is accentuated, to one where the bearish news is followed like a pied piper tune. That is the way markets work. It is why staying the course in a prevailing trend increases the chances of success. Positioning against the prevailing trend is a sure way to underperform.

Thank you #2.jpg

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 CONE, FB, GOOG, MPWR.

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: This article contain my views of the equity market and what positioning is comfortable for me. Of course, it can’t be for everyone, 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.

Related Posts:

  • No Related Posts

Retirement Security: Confessions Of A Serial Stock Predator

Subscribers to “Retirement: One Dividend At A Time” got an early look at this material via free instant text message trade alert and email alert.

Time was when a woman not interested in a man’s approaches might say, “Flattery will get you nowhere.” In today’s confusing world, flattery might get you somewhere; to the unemployment line, to the shame and approbation of the town square, or worse yet, to the confines of a cold, damp and lonely jail cell.

The recent revelations about men, from Bill Cosby to Roger Ailes, formerly at the Fox News Network, to Hollywood producer Harvey Weinstein, to comedian, actor and producer Louis C.K., to Senator Al Franken and now news personality Charlie Rose, to Senator wannabe Roy Moore, have forced us to confront some pretty ugly truths.

Like dominoes falling, pressure is building on representative John Conyers to resign in response to multiple accusations of harassment, while NBC host of the “Today” show, Matt Lauer, joined the parade of those fired for sexual harassment.

The nation seems on the precipice of a very important moment as more and more women are gaining courage and feeling empowered to tell their stories publicly.

Questions Asked

source Phobia Wiki

All types of men, of all descriptions, from various backgrounds are asking questions.

There’s the skittish colleague (“If I ask a woman out at work, am I going to be reported for harassment?”).

The nervous cad (“Will one unfortunate hookup land me on a public list of ‘sh*tty men’?”).

And the vexing question underneath it all: “If we get so worked up about sexual harassment and assault, what will happen to sex?”

Source: Washington Post

It’s entirely possible that as today’s climate intensifies, it could intimidate even the most confident male to dial back his expressions of interest in the stronger sex for fear that his interest be interpreted as sexual harassment. You might laugh at this, but today’s climate carries the real and present danger of freezing budding relationships in their tracks. Less frequent dating could morph into lesser numbers of marriages and fewer resulting births. There was a time that we worried about a world population explosion. Well, today we might have a population implosion in the making.

Here’s My Story

Source: iStock

Long time readers know that my artistic proclivities led me to form a rock band by age eleven. In this article, I described how every penny earned was deployed into the stock market when my love of investing blossomed right alongside my love of creating music and performing professionally. When college came a ‘calling at the age of sixteen, I studied toward my ultimate professional calling, which eventually led to a graduate degree in clinical psychology.

In my senior year of college, I had completed all of my requirements to graduate, freeing me up to take as many electives as my heart desired. I really let my hair down and explored more of the arts. I studied piano, classical guitar, photography, and bowling (30 years later I came awfully close to rolling a perfect 300 game).

Then, I took the opportunity to delve into modern dance. One of only two males in a class of thirty women, it seems I had my choice, as it were. One young woman in particular caught my eye from across the large gymnasium floor where we danced and practiced. I pitched her with the idea of teaming up for the choreography and performance we’d be expected to complete for our grades. She accepted my entreaty and our dance partnership flourished.

I became enamored with everything about her. She was very bright, intellectually curious and had opinions about everything. I wanted to know more about her and to explore our relationship further.

I Asked Her Out

It seemed only natural to me to ask her out for coffee so we could get to know each other better. She declined. I asked her again at the conclusion of our next dance class. Again, she politely declined.

Rejection Didn’t Stop Me


This went on, three times a week, after each class, for eight weeks. For anybody counting, this amounted to 24 separate attempts (or if you prefer, pestering). Today, this type of persistence might be labeled as sexual harassment. What eventually followed might never have happened had I not persisted. Thankfully, this lovely young woman did not regard my entreaties as harassment of any kind.

She saw it as an expression of my attraction to her and interest in getting to know her better. She finally relented, one fine day. She gave me her digits and said I could call. One thing led to another. As of today, we’ve been very happily married for over 43 years and we have experienced the joy of building a wonderful life and family together.

I’m A Serial Stock Predator

In the same fashion as I persisted in the pursuit of the young woman who would eventually be my bride, I am constantly on the prowl and in perpetual pursuit of stocks that have temporarily fallen out of grace. I’m a serial stock predator. When the crowd turns cautious on an otherwise fundamentally sound company, they sell and push the stock price down. As the price continues to fall, I lie in wait, placing limit orders at prices that will give me the yield and income that I demand from a position. I wait and I wait. And then I wait some more, until the stock simply falls into my lap.

I Like Cheap Dates And Cheap Stocks


I’m cheap. I didn’t much care for the young women who wished to be wined and dined in the fanciest of restaurants. I didn’t feel it necessary to prove my bona fides by ponying up huge sums for a bite to eat. $25.00 martinis at an upscale club was not my style. I didn’t even like alcohol, even though my dad owned a liquor store in those days.

I much preferred a cheap date. Dinner in a local joint, an entertaining movie, a local concert; these were more to my taste. I was always more interested in value than glitz.

In the same way, today I search for value in my stock selections. I’d much rather pay less for a dividend stock than pay more. Whenever I pay less, the dividend yield is higher. Always.

What Do You Prefer, Higher Or Lower?


Buying value in a dividend stock in the stock market always confers higher value in the dividend you receive. If a stock price is lower, you can either spend less than originally contemplated, or you can buy more shares. This correlation between lower price and higher yield is set in stone. It’s simple math. If followed religiously, the investor will ALWAYS be the beneficiary of higher yield and higher income, for life.

In the first case, you’d receive a higher yield on your invested money. In the second case, if you spent the same amount originally intended, you’d get more shares at the higher yield and even more income. Let me demonstrate.

The Case For Higher Yield


Remember, just a few weeks back, when AT&T (T) was selling for just $32.60 per share?

Source: YCharts

As discussed in “AT&T’s Downward Spiral; What, Me Worry?” T has been under a great deal of price pressure, selling lower all year long. Investors are concerned about the implications of the merger with Time Warner (TWX). Some feel that adding billions of debt to the balance sheet will eventually sink the company. For this and other reasons, they’ve been abandoning their positions.

Most analysts, including this one, regard the proposed merger to be a vertical merger, one that adds content to a distributor and one that will add value for consumers and hold prices in check. The Department of Justice holds another opinion. They view the merger as one that will be anti-competitive, one that will add costs for the consumer. The DOJ has sued to stop the merger, and Randall Stephenson, AT&T’s CEO has sued the DOJ in response.

Many believe the DOJ move was a political one. Reflect upon candidate Trump’s vow on the stump to never allow this merger to go through. His conviction surrounding this issue could be tied to his oft repeated statements that CNN is “fake news” and as part of the news media, “the enemy of the people.” AT&T has proposed a February 20, 2018 court date, while the DOJ is aiming for one on May 7th, which would come after the deadline for the merger agreement passes. Perhaps they’re playing a game to work down the clock here.

AT&T offered up a seven-year ban on blacking out distributors from Turner programming. CEO Stephenson says it demonstrates their willingness to concede in getting its $85B acquisition to a successful closing. In essence, AT&T is making it known to the Justice Department that they will not prevent other content distributors from distributing Turner content. Stephenson is hoping this will demonstrate the lack of anti-competitiveness of this deal.

As a result of all of these issues and the uncertainties they create, T’s stock price has been under pressure for quite some time now.

Source: YCharts

Paying an annual dividend of $1.96 per share, we’ve had our eye on buying more shares for the Fill-The-Gap Portfolio as well as our subscriber portfolio. We placed limit orders at $32.60 and let them sit. At that price, we’d obtain a yield of 6.01% on our investment.

A Picture Of Yield Opportunity

Source: YCharts

Note how, since the financial crisis and Great Recession back in 2008, each time AT&T’s price rose, it’s dividend yield compressed. And after each of six large yield compressions, there was yet another opportunity when the yield expanded. The baseline yield has been close to the 4.75% to 5.0% level. This clues us into the higher yield opportunities that exist each time the share price falls.

For investors with portfolios that are constantly accumulating dividends, and for investors still working that have extra monies available to buy new shares, this is a pattern that can be exploited for its higher yield and higher income possibilities.

AT&T’s average dividend yield over the past many years is closer to 5%. It’s 52 week high price is $43.03. Buyers who bought at that higher price received a much lower yield:

$1.96/ $43.03 = 4.55% yield

Our purchase on 11/6/17 bought us a much higher yield:

$1.96/ $32.60 = 6.01% yield

What A Difference A Few Weeks Makes

Only three weeks later, AT&T’s shares have popped. Shares, as I’m writing this, are changing hands at $36.53. What will today’s buyer receive in yield?

$1.96/ $36.53 = 5.36% yield

Not only have we and our followers and subscribers achieved a yield that is 12.13% higher than today’s buyer, we have also been the happy recipients of capital appreciation on the order of 12.05% in just three weeks time, or $393.00 on our latest 100 share purchase.

The Case For Additional Shares

Let’s now imagine that we had $3653.00 available to invest three weeks ago. At the price of $32.60 per share, our $3653.00 stake would have bought us:

$3653 / $32.60 = 112 shares

With that same stash available for investment, today’s buyer could buy just 100 shares:

$3653.00 / $36.53 = 100 shares

Buying three weeks ago when the price was very depressed, with the same amount of money could have bought 112 shares instead of just 100 shares today.

The Case For Greater Income

100 shares X $1.96 = $196.00 annual dividend income

112 shares X $1.96 = $219.52 annual dividend income

Patience, persistence and stalking of your prey could bring you $23.52 of additional income on the same amount of dollars invested. This is equivalent to 12% more income per year on this one small investment. Practice this religiously and you can look forward to 12%, 15%, even 20% more income than your impatient neighbor, friend or colleague at work who are constantly chasing prices higher in this bull market that sets new high records almost daily.

If you’re working with a $50,000 portfolio, all invested at an average 4.55% yield, you’d be generating $2275.00 in annual dividend income.

Invested at a 6.01% yield, you’d generate $3005.00 per year.

Have a $500,000 portfolio? Instead of taking down $22,750.00 per year, you could be bringing home $30,050.00 in annual dividend income.

Do you think it’s worth the wait, to plan your target entry prices in high-quality stocks in order to generate $7300.00 more income per year from your hard-earned savings?

The Icing On The Cake

Source: Theplasticsurgerychannel

Though our primary focus is always on the income we generate, we are not oblivious to the total return aspect of investing. It is my contention that high quality dividend companies that grow their earnings attract both types of investors; income investors for the dividend income they produce, and capital gain investors for the higher stock prices that higher earnings always confer over the long term. It is this relationship that allows us to have our cake and eat it too, along with that icing.

It is with high-quality companies such as these that we will continue to build, grow and protect dividend income for our retirements.

The Fill-The-Gap Portfolio

The FTG Portfolio contains a good helping of dividend growth stocks, like AT&T, which has been in the portfolio for a good length of time. It was built with the express purpose of benefiting from this and other strategies.

Two and a half years ago, I began writing a series of articles on December 24, 2014, to demonstrate the real-life construction and management of a portfolio dedicated to growing income to close a yawning gap that so many millions of seniors and near retirees face today between their Social Security benefit and retirement expenses.

The beginning article was entitled, “This Is Not Your Father’s Retirement Plan.” This project began with $411,600 in capital that was deployed in such a way that each of the portfolio constituents yielded approximately equal amounts of yearly income.

The FTG Portfolio Constituents

Constructed beginning on 12/24/14, this portfolio now consists of 21 companies, including AT&T Inc. (NYSE:T), Altria Group, Inc. (NYSE:MO), Consolidated Edison, Inc. (NYSE:ED), Verizon Communications (NYSE:VZ), CenturyLink, Inc. (NYSE:CTL), Main Street Capital (NYSE:MAIN), Ares Capital (NASDAQ:ARCC), British American Tobacco (NYSE:BTI), Vector Group Ltd. (NYSE:VGR), EPR Properties, Realty Income Corporation (NYSE:O), Sun Communities, Inc. (NYSE:SUI), Omega Healthcare Investors (NYSE:OHI), W.P. Carey, Inc. (NYSE:WPC), Government Properties Income Trust (NYSE:GOV), The GEO Group (NYSE:GEO), The RMR Group (NASDAQ:RMR), Southern Company (NYSE:SO), Chatham Lodging Trust (NYSE:CLDT), DineEquity (NYSE:DIN), and Iron Mountain, Inc. (NYSE:IRM).

Because we bought most of these equities at cheaper prices since the inception of the portfolio, the yield on cost that we have achieved is 7.57% since launch on December 24, 2014.

Due to our recent purchases of additional shares of AT&T at fire sale prices, current portfolio income now totals $31,502.46 annually, which is $392.00 more annual income than just last month. This represents a 1.95% annual income increase for the portfolio.

When added to the average couple’s Social Security benefit of $32,848.08, this $31,502.46 of additional supplemental income brings this couple annual income of $64,350.54. This far surpasses the original goal set to achieve a total of $50,000.00, which is accepted as a fairly comfortable retirement income in many parts of the country. That being said, this average couple now has the means to splurge now and then on vacation travel, dinners out, travel to see the kids and grandkids and whatever else they deem interesting.

Taken all together, this is how the FTG Portfolio generates its annual income.

FTG Annual Dividend Income

Source: author spreadsheet

Your Takeaway

Flattery is one thing. Sexual harassment is quite another.

Sublimation of certain proclivities and characteristics can be turned toward the good. The predatory characteristic exhibited by those in power can be sublimated in the world of investment into a trait that hurts no one, yet brings the investor great rewards.

Exercising discipline, aided by historical guidance, patience can be greatly rewarded by both long-term capital gains as well as increased yield and income.

Income investors should pay particular heed to this since, if practiced regularly throughout an investment career, it can have an enormously beneficial impact on ultimate income available in retirement.

Final Thoughts

Investors who dismiss the pernicious effects of inflation do so at their own peril. The pervasive loss of purchasing power that it inflicts can turn a comfortable $500,000.00 nest egg into a scrambled egg, just 20 or 30 years into the future. Monetizing your assets and investing to stay ahead of inflation will keep this bogeyman away.

Our subscriber portfolio uses these and many other strategies as we actively manage it on an ongoing basis to generate steadily growing, reliable income for retirement. In addition, subscribers get the benefit of instant free texts and receiving material days before the public in addition to many exclusive articles, updates, commentary and analysis throughout the week. If you’d like a taste of even better performance and faster dividend growth, before the free two-week trial offer expires, I encourage you to try it before you buy.

Author’s note: Should you be interested in reading any of my other articles detailing various strategies to enhance your returns on a dividend growth portfolio, you will find them here.

For a few more days, feel free to join hundreds of your fellow readers who have taken advantage of a free two-week trial to our premium newsletter subscription. Try before you buy, with no obligation.

To learn more about this highly rated premium service, click “Retirement: One Dividend At A Time.”

See what subscribers have to say in reviews they’ve written.

As part of our premium subscription program, all subscribers receive a free Portfolio Income Tracker to track income production in the subscriber portfolio and stay focused on income production in their own portfolio.

My promise to you: With every exclusive article, email, instant text and chat, I’ll help guide you to:

  • Increased income for retirement, one dividend at a time.
  • Under-valued stocks for a greater margin of error and higher capital appreciation.
  • Methods to safely diversify your portfolio.
  • Strategies to build, grow and protect your income for retirement.

As always, I look forward to your comments, discussion, and questions. Do you stay on the lookout for bargains like these? Are you able to recognize that different types of investors have different motivations that might lead them in the opposite direction than you? Are you able to run counter to the crowd to grab accidentally high yield opportunities? Please let me know how you approach these situations in your own portfolio and how you arrive at your decisions.

If you’d like to receive an immediate email whenever I write new content, simply click the follow” button at the top of this article next to my picture or at the bottom of the article, then click “Follow in real time.”

Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.

Disclosure: I am/we are long ALL FTG PORTFOLIO STOCKS.

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.

Related Posts:

  • No Related Posts

How Bitcoin Is Stolen: 5 Common Threats

A bitcoin mining service was hacked to the tune of $64 million this week, underscoring once again how the world of digital currency attracts scammers and thieves.

Such stories can scare off amateur investors who fear bitcoin isn’t just volatile, but that it’s insecure. This isn’t really fair to bitcoin. The reality is bitcoin is secure, and ordinary people can protect it without much effort. The real problem is not everyone understands how bitcoin works, which leads them to make choices that expose them to theft.

This will become clear in the examples below, which describe five common ways that thieves make off with other people’s bitcoin. But first there’s a short explanation of how bitcoin works and why it’s secure (skip this if you’re already familiar).

How Bitcoin’s Technology Protects Your Funds

You can think of bitcoin as money that comes wrapped in a safety deposit box. The question then becomes whether you want to operate that box yourself, or entrust a third party to do it for you.

Most ordinary investors choose the latter option, buying, and storing their bitcoin with a service like Coinbase. This is a sensible option since those services rely on the security features built into bitcoin—just like you would do if you hold the bitcoin yourself.

The other option is to acquire a bitcoin wallet for yourself. This entails keeping track of two strings of keyboard characters—known as a “public key” and a “private key.” You can think of the public key like a deposit slot for your safety deposit box where anyone can give you bitcoin, while the private key is a secret way to open the box that only you should know.

Bitcoin is designed so that it’s basically impossible to guess the private key, which means no one can hack or force themselves into your wallet/safety deposit box. (You can read about the math behind it here.)

All of this means that the only way bitcoin can be stolen is for a thief to trick you—or a third party you rely on—into giving access to it, or for the third party to get compromised. Here are the examples on how this happens, and advice on how to prevent it.

A Thief Obtains the Password for Your Account at a Storage Service

How it happens: If you use a service like Coinbase, you don’t have to go through the hassle of remembering a public and private key. Instead, it’s more like online banking where you use a user name (typically an email address) and a basic password.

This also makes it possible for thieves to rob you by obtaining your password. The most common way they do this is by breaking into customers’ email accounts, and then asking Coinbase (or whatever service you’re using) to reset their password. The password reset request is then sent to the compromised email account, allowing the thief access to the bitcoin funds.

How to prevent it: First, lock down your email account with two-factor authentication to keep the hackers out in the first place. You should also do the same with your bitcoin storage service. In the case of Coinbase, the company already requires a two-factor log-in process that consists of a password and an SMS text. But because texts can be intercepted, you should avail yourself of an app-based verification option such as Google Authenticator. (This may sound complicated, but it’s not. This is they same basic cyber hygiene you should use for any password-protected online service.)

You Expose Your Private Key

How it happens: Once again, this risk only exists if you’re not using a service like Coinbase but managing your own wallet. In this situation, someone else might obtain your private key by getting into your email (if that’s where you keep it) or even seeing the private key in the physical world. In one famous example, someone showed their private key on a TV show—and hackers promptly copied it and emptied the person’s wallet.

How to prevent it: Store your private key off-line on a piece of paper or on a USB stick, and put it somewhere safe—like a real world safety deposit box.

A Hacker Impersonates a Bitcoin Recipient

How it Happens: Some of the more notorious bitcoin-related hacking stories this year occurred when companies held so-called “initial coin offerings” (a form of fundraising) and asked investors to send them bitcoins. In certain cases, clever hackers impersonated the companies with a fake website and persuaded the investors to send millions of dollars worth of funds to a different bitcoin wallet. Once the bitcoin was sent, there was no recovering it, and both the companies and investors lost their bitcoin.

How to prevent it: When you go to transfer bitcoin funds to someone, confirm the wallet address is genuine.

You Rely on an Insecure Third Party

How it happens: This week’s $64 million theft at the bitcoin mining service, known as NiceHash, appears to have occurred because hackers compromised an employee’s laptop and got access to the company’s payment services. Once the hackers were inside, they gained access to one of the company’s bitcoin wallets—which included funds belonging to NiceHash customers—and emptied it.

These sort of incidents are a little bit like when hackers compromised Target’s payment system, and stole customers’ credit card information. In the case of bitcoin owners, they are doing business with companies that don’t have proper cybersecurity measures in place—and worse, unlike the Target breach, no one is likely to refund their money.

How to prevent it: Be careful of the bitcoin companies with which you choose to do business.

The Exit Scam

How it happens: A company offers a bitcoin-related service such as an exchange or a market where customers maintain an account in bitcoin. All of a sudden the company vanishes, often after claiming to have been hacked. In reality, the owners pulled an exit scam—vanishing from the Internet with their clients’ bitcoin.

How to prevent it: Exit scams are often associated with the darker corners of the web or with fly-by-night crypto investment ventures. If these are the sort of places you like to roll with you bitcoin, well, the only advice is “buyer beware.”

This is part of Fortune’s new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.

Related Posts:

  • No Related Posts

Instagram testing standalone Direct messaging app

(Reuters) – Facebook Inc’s Instagram said on Thursday it was testing a standalone messaging app called Direct, making it the company’s third chat tool alongside its hugely popular WhatsApp and Messenger.

The Instagram application is seen on a phone screen August 3, 2017. REUTERS/Thomas White

The move is similar to what Facebook did with its private messaging feature in 2014.

“With hundreds of millions of people using Instagram Direct, today we’re announcing a test of a standalone Direct app. It’s fast, visual and super fun. Only in six countries to start but can’t wait for you all to try it.” Instagram’s vice president of product, Kevin Weil, said in a tweet.

The Instagram Direct app will be available starting Thursday on Android and iOS in Chile, Israel, Italy, Portugal, Turkey, and Uruguay, according to technology news website the Verge.

Reporting by Arjun Panchadar in Bengaluru; Editing by Anil D’Silva

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts

A Textbook Catalyst That Should Move This REIT's Multiple

A catalyst refers to an event that has occurred in a company, typically within the last 12 months, that would significantly increase its valuation. The value of a company is based on its future ability to generate free cash flow.

Therefore, a catalyst usually improves free cash flow, resulting in a higher implied valuation both because of the better future performance and because of a better implied multiple.

According to Wikipedia, a catalyst is “in a simplified sense, good news or a press release to get people interested in the stock again. Stock catalysts often change investor sentiment and can mark the beginning or end of stock trends. They may affect the perception of a company’s discounted future cash flows.”

As a REIT analyst, I focus on fundamentals that could materially drive earnings and dividend growth. To be considered a true catalyst, there must be justification to validate the sentiment, not just a suspicion or wild guess.

No Guessing

Back in June I wrote that Investors Real Estate Trust (IRET) “has one last deal to do before the company becomes a “pure play” apartment REIT and that is to liquidate the MOB portfolio.

IRET’s MOB portfolio includes 30 properties; all high quality and the majority of which are on-campus, which will surely attract significant investor interest and HTA has SET THE BAR!”

Of course I was referring to IRET’s MOB portfolio – a textbook catalyst – that could serve as a tipping point for the REIT to begin to trade in-line with the peers. I explained in June that “based on my best guess (assumption), the Duke Realty (DRE) MOB portfolio traded at ~$450 per square foot, and while IRET’s MOB portfolio is more concentrated (90% MN-focused), the sub 5% cap rate (paid by HTA) provides some valuable clues.”

IRET’s MOB portfolio generates approximately $27 million of NOI (23% of NOI) and applying a 5.4% cap rate, the valuation is $500 million (mid-point of sales/SF estimate). Subtracting at ~$100 million of debt, the NAV for IRET’s MOB portfolio is ~$400 million, or $3.05 per share.

I added that that may be “too aggressive” and assuming a more conservative sales/SF comparison ($450 million), and after deducting $100 million, “I come up with $2.67/share”.

Last week, in a press release, IRET explained,

“IRET entered into an agreement to sell its medical office portfolio for $417.5 million. The properties, representing approximately 1.3 million square feet, include the Company’s entire healthcare portfolio, consisting of 28 healthcare properties and one other commercial property occupied by a healthcare tenant. The agreement is subject to the satisfaction of customary contingencies, and, if those contingencies are satisfied, the Company anticipates the sale to close by the end of January 2018.”

IRET’s president and CEO, Mark Decker Jr., commented,

“Closing on the sale of our medical office properties will mark a significant milestone for IRET and is the final component necessary to transform us into a focused multifamily company.”

Additionally, since the end of its fiscal first quarter in July, IRET sold 22 other non-core properties for an aggregate sale price of $98.8 million, which includes the company’s final two senior housing properties, marking IRET’s full exit from that segment, as well as three industrial assets and one healthcare asset located in the Twin Cities.

A screenshot of a cell phoneDescription generated with very high confidence

Once IRET closes on the MOB portfolio, the company should be considered a “pure play” apartment REIT and the confusion risk should dissipate. The company should be compared more favorably to the other apartment REIT peers:

A screenshot of a cell phoneDescription generated with very high confidence

Investors Real Estate Trust: 50-Years Old and Counting

Investors Real Estate Trust is a self-advised equity REIT that was organized under the laws of North Dakota. Since formation in 1970, the business has consisted of owning and operating various income-producing real estate properties. IRET listed on NASDAQ in 1997 and transferred to NYSE in 2012.

The company was previously a diversified REIT; however, its goal is to become a 100% pure-play multifamily REIT; proceeds of non-core asset sales are being re-deployed into multifamily assets and other capital allocation strategies. IRET has gone from 30% multifamily to over 70%, and in a few months closer to 100%.

A screenshot of a cell phoneDescription generated with very high confidence

IRET’s narrower focus on multifamily properties requires greater specialization from IRET leadership; as a result, the company has made recent additions to the board and management team. As you can see below, the management team brings deep knowledge into the multifamily sector.

A screenshot of a social media postDescription generated with very high confidence

IRET’s leadership team is fully committed to growing and transforming the company to be a recognized best-in-class apartment owner and operator. The leadership team expects to improve IRET’s portfolio by enhancing its operations, adding quality assets, ad strengthening its financial position.

A screenshot of a cell phoneDescription generated with very high confidence

As of July 31, 2017, IRET owned interests in 130 properties that were held for investment, including 88 multifamily properties consisting of 13,076 units and 42 commercial properties, which includes 29 healthcare properties, containing a total of approximately 2.6 million square feet of leasable space.

As illustrated below, the goal is to become a 100% pure-play Upper Midwest-focused multifamily REIT:

A picture containing text, mapDescription generated with very high confidence

In conjunction with its ongoing disposition of non-core assets and strategic goal of growing its multifamily asset base in Top-25 MSAs, IRET entered the Denver, Colorado, market by acquiring Dylan Apartments for $90.6 million.

The 274-unit apartment community, completed in 2016, is located in the fast-growing River North Art District and offers modern-style flats, which are designed with contemporary luxuries mixed with a tribute to the area’s industrial beginnings.

The Transformation, Almost Complete

Over the past three years, IRET has made monumental progress to transform the company by investing (through acquisition or development) more than $607 million in newer or brand new high-quality apartment communities.

IRET sold more than $756 million of non-core commercial and senior housing properties, and achieved good execution and pricing, utilizing proceeds to fund new investments and significantly de-lever the company.

A screenshot of a cell phoneDescription generated with high confidence

In regard to acquisitions, IRET continues to target newer, higher-quality apartment communities in the larger Midwestern MSAs. Markets remain competitive for these type of assets, and IRET is looking for situations that offer components to provide a more attractive stabilized return. On the latest earnings call, IRET’s CEO explained,

“We increased same store revenue and occupancy in our multifamily portfolio, both sequentially and year-over-year, and for the first time in our history pushed above $1,000 of average revenue per unit at our same store properties.”

Decker added,

“…early in the quarter we completed a six months strategic exercise to create a plan that serves as a reliable roadmap to guide IRET through its transformation and beyond to hold our team accountable for results. With the combination of research data and thoughtful discussion we concluded the deepening our presence in the Twin cities metro and growing into Denver and Chicago market provided the best prospects for rational and disciplined growth.

Each of these markets are Top 25 MSAs with diverse economies, deep and liquid investment markets, timely and reliable data, and submarket that contain strong, favorable dynamics for long-term apartment ownership.

We are confident that we can build a great business in these markets and be a valuable market participant. It’s also notable that these markets have relative lack of coverage by other multifamily REITs. So with thoughtful execution, we will have an outstanding business for our existing shareholders and appeal to a broader audience.”

The Balance Sheet

IRET is a small-cap REIT so the company is not going to attract investment grade ratings anytime soon; however, it has reduced liabilities and reduced leverage metrics. Long term, IRET’s goal is to achieve credit rating metrics in line with the peer group with an investment grade rating.

IRET recently expanded its unsecured, syndicated revolving credit facility with commitments now totaling $300 million, an increase of $50 million from prior commitments.

In addition, the company closed a $70 million unsecured term loan that matures in 2023. These financing activities come on the heels of IRET’s previously-announced issuance of 6.625% Series C preferred shares and redemption of 7.95% Series B preferred shares.

Together, these capital market transactions increase the strength and flexibility of IRET’s balance sheet and enhance its available liquidity.

A screenshot of a cell phoneDescription generated with very high confidence

At the end of the latest quarter, IRET had total debt of approximately $839 million. During the quarter, outstanding debt increased by $45 million related to the acquisition of Oxbo and at quarter end, the company had $24 million of cash and cash equivalents, and $94 million of availability on the line of credit.

A screenshot of a cell phoneDescription generated with very high confidence

A Textbook Catalyst That Should Move The Multiple

In Q1-18, IRET reported total revenue of $52.7 million for the quarter ending July 31, 2017, an increase of 6.3% from the fiscal first quarter of 2017. Core FFO was $13.7 million, or $0.10 per share for the quarter compared to $0.11 per share for the same period last year. FFO was $0.10 per share this quarter compared to $0.12 per share for the same period last year.

A screenshot of a cell phoneDescription generated with very high confidence

In the previous quarter, IRET reduced and tightened its guidance range to $0.41 to $0.43 per share from the previous guidance of $0.48 to $0.52 per share, which is an $0.08 adjustment at the midpoint.

The drivers of this change were, first, a $0.04 reduction from lower-than-expected multifamily portfolio operating results, partially offset by a reduction in expected G&A. Second, a $0.04 reduction due to prepayment penalties, and the write-off of unamortized fees related to the redemption of the Series A preferred stock, partially offset by lower interest costs.

As a REIT analyst, I focus on fundamentals that could materially drive earnings and dividend growth. To be considered a true catalyst, there must be justification to validate the sentiment, not just a suspicion or wild guess.

This transaction is a textbook catalyst that should remove some of the overhang.

A screenshot of a cell phoneDescription generated with very high confidence

Now take a look at IRET’s dividend yield compared with the peer group:

A screenshot of a cell phoneDescription generated with very high confidence

As you can see, IRET has seen a steady decline in FFO, and more recently, the company cut its dividend. In a recent article, I explained, “the dividend cut is a ‘done deal'” as IRET wanted a capex policy which is related to AFFO that is more consistent with the peers.

A screenshot of a cell phoneDescription generated with high confidence

IRET’s annual dividend is $0.28 per share and it is well-covered and in-line with sector peers:

A screenshot of a cell phoneDescription generated with very high confidence

Now take a look at the P/FFO multiple:

A screenshot of a cell phoneDescription generated with very high confidence

As you see, IRET is trading at the lowest multiple in the peer group. This is not rational in my opinion, as the market is providing IRET with no value for the MOB portfolio (~$2.50/share). Shares are now trading under $6.00 and there is no reason that IRET can’t narrow the valuation gap and trade in-line with IRT and APTS (target 14x).

Also, unlike Preferred Apartment (APTS) that has become a more complicated story (diversified portfolio with significant non-traded preferred shares) or NexPoint (NXRT) (an externally-managed REIT), IRET has one circle of competence, or it will soon…

I am targeting IRET to return 25% or more over the next 12 months. The MOB sell is the trigger (catalyst) that should simplify the business model while also providing improved financial flexibility. Another catalyst, albeit not as strong, is Tax Reform, and I believe that IRET’s customer base will benefit from rising wages and enhanced wealth creation, and of course now you know why I called this article,

Textbook Catalyst That Should Move This REIT Multiple.

A screenshot of a social media postDescription generated with very high confidence

From The Intelligent REIT Investor

As any portfolio manager recognizes, the key to building a successful portfolio is to maintain adequate diversification across property types. REITs have consistently outperformed many more widely known investments. Over the past 15-year period, for example, REITs returned an average of 11% per year, better than all other asset classes. By maintaining a tactical exposure in the brick-and-mortar asset class, investors should benefit from my REIT research.

Subscribe Today

The Intelligent REIT Investor is the #1 REIT Research site. We publish exclusive content on over 100 REITs, and our Durable Income Portfolio has returned over 12% YTD. We recently announced that the Small Cap REIT Portfolio has returned over 20% YTD. There is absolutely no reason to chase yield… let us do all of the heavy-lifting so you can “sleep well at night”.

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

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

REITs mentioned: (BRG), (APTS), (NXRT), (IRT), (AIV), (CPT), (UDR), (MAA), (ESS), (EQR), and (AVB).

Sources: FastGraphs and IRET Investor Presentation.


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.

Related Posts:

  • No Related Posts

How This Treatment Center is Tackling the Opioid Crisis in America (Especially Silicon Valley)

In late October, President Donald Trump declared the opioid crisis a public emergency, shining light on the need for substance abuse treatment options. The business community isn’t immune to that need, with an estimated 10 to 12 percent of employees using alcohol or illegal drugs while at work–and that figure doesn’t even include abuse of prescribed opiates.

The best and brightest at risk

Dan Manson, CEO of Elevate Addiction Services (EAS) in northern California, says Silicon Valley is suffering just like the rest of the nation.

“[In] Silicon Valley, you have some of the smartest people in the entire world. […] What I do see is burnout. Often, young people work extremely hard at their jobs and then want to go blow off steam. Alcohol is obviously an issue, but many turn to meth to stay awake and try to put in extra hours well into [the night]. In this area, there is a trend in “micro-dosing” […]. Some people believed [taking LSD or mushrooms in small amounts] was enhancing their creativity or improving cognitive function.”

Changing the way we help

Manson recognized that, to help these workers and other substance abusers, addiction recovery treatment itself needed some innovation. First, while Manson knows medications can be critical to safe detox, he insists that it’s not a substitute for therapy.

“A pill will never replace someone delving into themselves and working on their issues,” Manson says. “Unfortunately, many rehabs in the U.S. believe that putting someone in a sober house and giving them methadone or Suboxone is ‘treatment’–I disagree with that. […] Yes, the patient may experience thoughts, emotions and feelings that were being suppressed by the drugs [after detox], but that’s what is supposed to happen. Now that their personality is coming out, we can help them address their issues with a clearer head.”

A SMART-er approach

Second, instead of relying on a 12-step approach, EAS operates under Self-Management and Recovery Training (SMART) programs instead. SMART is evidence-based and uses elements of motivational interviewing and cognitive behavioral therapy.

“The main difference we see is that the 12-step program can be seen as very rigid in nature, whereas SMART recovery believes that each person finds their own path to recovery. This means they are not forced to believe principles like ‘once an addict, always an addict’ or that they are powerless to a disease called addiction.”

Generational Impact

Manson speculates that younger people respond well to the SMART-based curriculum versus the traditional 12-step method because millennials and Gen Zers believe they are in control of their own destiny and like the idea of having the power to make their own decisions.

Manson combines the SMART approach with other unique strategies, such as daily meditation sessions of up to 20 minutes, routine exercise like swimming, Yoga or Crossfit, and experiential therapy like adventure or art/music therapy. Clients use workbooks to learn about their behaviors, but they also work together in groups to solve addiction problems as a team.

These techniques give individuals the time they need to reflect and explore with solid support, and as they feel better physically and mentally, confidence and self-esteem go up. The staff at the center, Manson says, constantly evolve the curriculum, and Manson sees the positive culture as setting the center apart from traditional programs. Treating clients with dignity and respect when they are at their most frail, just treating them like people, makes a huge difference.

It’s never too late

Manson asserts the majority of graduates are doing very well in their sobriety up to a year down the road.

“I know I can’t save everyone,” Manson concludes. “[…] But I do know that an addict can turn their life around and that there is hope.”

Taking action is what is most important.

Related Posts:

  • No Related Posts

The Secret to Being a Better Writer, According to a 'New York Times' Best-Selling Author

Although he has written some of the most iconic books of his time, and sold millions of copies worldwide, New York Times best-selling author and serial entrepreneur Tim Ferriss didn’t actually enjoy writing until recent years. Maybe you can relate?

Whether you’re a founder, investor, middle manager or junior exec you probably find yourself writing on the job all the time: proposals to clients, memos to staff, emails, social media posts, etc. But maybe the act of writing feels tedious to you — or even downright difficult, especially if you’ve embarked on a big project like writing a book. You may struggle to articulate your thoughts clearly, concisely and with a bit of personality. 

Writing well is not for the faint of heart. But it’s a skill that can be learned and sharpened, as Ferriss discovered. Despite the runaway success of his New York Times best-sellers The 4-Hour Workweek and The 4-Hour Body, it wasn’t until his latest books, Tools of Titans: The Tactics, Routines, and Habits of Billionaires, Icons, and World-Class Performers (also a New York Times best-seller) and Tribe of Mentors: Short Life Advice from the Best in the World, that Ferriss hit his writing stride.

Here are four steps Ferris recommends to every would-be (and seasoned) writer.

Start with a question.

One of the biggest changes Ferriss made to his writing process was to start with a question. Instead of looking at writing as a grueling task, he now begins by simply asking: What might this look like, if it were easy?

“The only two books that I’ve enjoyed writing are the last two books, so I’ve changed my approach quite a bit,” Ferriss says in this interview with Marie Forleo.

Beneath that overarching question, Ferris layers several, often-outrageous and hypothetical questions that he answers by hand, freestyle, in a journal. The exercise forces him to devise creative solutions to possible problems. Some of these hypothetical questions include:

If I had to write this entire book in two weeks…gun to the head, what would I do?

If I had to hire a ghostwriter (which I wouldn’t do) to write this book, what instructions would I give them?

If I had to write this book with money, or dictate the whole thing – couldn’t touch a keyboard – what might I do?

“I start adding all these difficult constraints, and then answering in this stream-of-consciousness, longhand (way), and inevitably…there’s going to be something in there that you say, “Ok, that is interesting. That’s something we can use,” he says.

If his solutions works, “now you’ve cut hundreds of hours or hundreds of self-floggings out of the experience,” Ferriss says.

That simple exercise has allowed him to find hacks he might otherwise have ignored that makes writing easier and more enjoyable.

Have a routine.

Having a schedule that eliminates needless decision-making is a must for Ferriss. During Tribe of Mentors, he describes his daily routine as “boringly uniform.” It looked something like this: wake up, meditate, exercise, work, lunch, back to work, dinner, sleep, repeat. He’d drink the same tea, eat the same breakfast, order the same lunch at the same restaurants every day — day after day.

“A rock-solid, daily routine where you do not have to think about logistics” is key, he says.

Learn to write.

If you want to draw, you might use crayons, finger-paints, pencils or charcoal to create your oeuvre but, at the end of the day, you have to know how to draw. Similarly, if you want to create a best-selling book, you have to know how to write. Otherwise, you risk being a one-hit wonder, he says. If you don’t know how to string together sentences effectively, you may start by taking a class.

“Go find a continuing education class with a writing teacher,” Ferris suggests as one option. “It can be creative writing, it can be non-fiction; it does not matter. That is one of the best investments you can make.”

Write first, market later.

If you’re a professional looking to position yourself as a thought leader in your field, you might decide writing a book is an excellent way to garner attention for your ideas. No doubt, it’s a huge credibility booster. It’s also a huge commitment of time and resources. Before you get lost in the shiny world of marketing your book, focus on the writing first, Ferriss says.

“It is so much more appealing and so much shinier and sexier to think about all these incredible launch plans,” he says, “and writers will do anything to avoid writing.”

Don’t do it.  Before you get swept up in the details of a book launch, plant butt firmly in chair and don’t move (figuratively, not literally) until the writing’s done. The most effective marketing tool is a finished product, Ferriss says.

“At the end of the day, you can cheat or game any system in existence, but that’s going to be very short-lived if the product or service does not stand on its own two feet,” he says.

Related Posts:

  • No Related Posts

Even Robots Are Joining the Bitcoin Craze

Quant blended with cryptocurrency sounds like a cocktail poured in hell. But behind closed doors, a few intrepid souls in the investing world are starting to drink it.

Part academic exercise, part arranged marriage of Wall Street fads, a handful of theorists and traders are looking at what investment factors like momentum and value can tell you about — yep — the price of bitcoin. Factors, the wiring behind smart beta exchange-traded funds, already revolutionized equities, proving that groups of stocks with traits like cheapness and low volatility return more than the market as a whole.

That discovery was a gold mine, launching $700 billion in smart beta ETFs, so it’s no surprise people want to turn it loose elsewhere. A more abstract motive hearkens to the foundation of quantitative investing. It’s the idea that no matter where you look — stocks, bonds, ICO tokens — mental mistakes by investors cause the same trading opportunities to arise in every market.

In the theory camp is Stefan Hubrich, the director of asset allocation research at T. Rowe Price Group Inc., who set out to publish the first academic paper linking factor anomalies to blockchain assets. After building models and analyzing data, Hubrich says he can show that factor investing beats a simple buy-and-hold strategy in digital tokens.

“Our results should not be taken as an endorsement of cryptocurrencies as an asset class,” Hubrich wrote in his Oct. 28 research. “Instead, we view our findings as an intriguing confirmation of the efficacy of the underlying factors themselves.”

Too little bitcoin data

One reason bitcoin and its peers are a tempting laboratory for academic quants is how different they are from traditional assets. Stocks may bounce around, but they’ve got nothing on cryptocurrencies, where jarring price swings, flash crashes and cataclysmic exchange malfunctions happen regularly. If concepts like value and momentum stand in that jungle, researchers reasoned, it would help confirm that behavioral biases operate everywhere.

It’s been something of a cause for Cliff Asness, the founder of AQR Capital Management, to prove that factors aren’t just for the stock market. In 2013, long before the bitcoin craze, he published a paper that found tilts like value, momentum and carry work across asset classes, geographies and time periods. Asness said in November that while still early, it’s not unreasonable to apply the same logic to cryptocurrencies.

While it may not be unreasonable, at present too little data exists to prove tradable risk factors exist in bitcoin, says Campbell Harvey, an adviser at Research Affiliates and Man Group and professor at Duke University. It’s a little too convenient, Harvey says, to declare the momentum factor may be at work in bitcoin, something everyone knows has done nothing but rise in 2017.

‘Operational hurdles’ in predicting bitcoin

“I would not really call any of the factors applied to cryptos, factors,” Harvey said. “That said, given these are relatively young markets, it makes sense that there could be some inefficiency in the pricing.”

Doug Greenig has more concrete goals. The University of California-educated math doctorate and former chief risk officer at Man AHL, started his London-based CTA, a type of quantitative fund that bets on price patterns, called Florin Court Capital in January 2015. Then, in April, he converted his $522 million firm solely to exotic assets on April 17.

Why? Because unlike trendless, crowded and calm developed markets, Greenig saw value in chasing assets like European electricity and, yes, bitcoin.

“It just makes sense to be involved even though the operational hurdles for an institutional-grade fund are considerable,” Greenig said. “My perspective, in short, is that cryptocurrencies are an interesting asset class, with low correlations to the traditional asset classes and strong historical trending behavior.”

Bitcoin momentum strategy

The change seems to be working. From April through the end of October, Florin Court has returned 15.5 percent, compared with 0.2 percent for the Societe Generale AG CTA index.

Greenig says he’s one of the first CTAs to incorporate bitcoin. The strategy is momentum, adding bullish bets as the cryptocurrency picks up steam. His preferred method of obtaining exposure is Bitcoin Investment Trust, which trades over-the-counter.

Hurdles for investing in cryptocurrencies are like those in the other weird things Greenig trades, like finding counterparties, minimizing operational risk and keeping up fiduciary responsibility. But the beauty of bitcoin, he said, is that it’s so sentiment driven: Interest begets interest, making momentum a powerful strategy.

“The trending behavior of bitcoin has been strong in the past, and CTA momentum models seem to work as expected,” Greenig said. “The maturity of the market has grown, and we expect eventually to see more participation by systematic players.”

Three factors in predicting digital currency value

According to Hubrich, three factors work in the major digital currencies: value, carry and momentum. The philosophical challenge is finding a way to replicate those traits. They’re reasonably straightforward in stocks, say, measuring value through a company’s price-earnings ratio.

To find a crypto corollary, Hubrich gets creative. He translates value to mean the token’s market value versus the dollar volume of blockchain transactions. For momentum, Hubrich uses a four-week horizon because of limited historical data, rather than the 12 months typically used for equities.

“This is a very volatile and young asset class, and we’re bound to learn much more over time,” Hubrich said. “Momentum is more than 100 years old, but it’s very early days for cryptocurrencies.”

Though Hubrich’s study was an academic exercise, Michael Paritee of Serrada Capital uses a similar value ratio to invest in cryptocurrencies. Paritee founded Serrada in 2006, and launched the Digital Asset fund in September, which blends discretionary and systematic strategies to invest in cryptocurrencies. That includes evaluating a token’s market cap to transaction volume ratio, he said.

“We saw a lot of opportunity to trade something we love doing — volatility, because that’s how we like to make money and traditional markets have gotten harder and harder in the last couple years,” Paritee said. “There’s technical reasons to be involved in crypto, there’s idealogical reasons to be involved in crypto, but we see a real business opportunity for hedge funds and asset managers in this space.”

Related Posts:

  • No Related Posts

The Top 5 REITs For 2018

By Bob Ciura

Investors typically buy Real Estate Investment Trusts, or REITs, for dividend income. There is good reason for this. Interest rates remain low, which has suppressed bond yields, and the average dividend yield in the S&P 500 Index is a paltry 2%.

High investment income is hard to come by nowadays, which makes REITs relatively attractive. Many of the 171 dividend-paying REITs we track offer high yields of 5%+. You can see all 171 REITs here.

As 2017 nears its end, it is a good time for income investors to assess dividend investing opportunities for 2018. There are many high-quality REITs that offer a blend of high dividend yields, growth potential, and strong balance sheets.

This article will discuss the top 5 REITs for 2018, in no particular order.

Dividend REIT #5: Realty Income (O)

Dividend Yield: 4.6%

Realty Income is one of the highest-quality REITs out there. Since its IPO in 1994, Realty Income has delivered compound annual returns of 16.4%. It has increased its dividend for 80 quarters in a row.

And, Realty Income has an added bonus, which is that it pays its dividend each month, rather than the more typical quarterly schedule. Realty Income has paid 568 consecutive monthly dividends.

This makes Realty Income more attractive for investors who want dividend income each month. Realty Income is one of 41 stocks we have identified, that pays dividends each month. You can see all 41 monthly dividend stocks here.

Source: Third Quarter Investor Presentation, page 45

Realty Income’s portfolio is comprised mostly of retail properties, such as retail outlets, drug stores, movie theaters, and fitness gyms. This could be an area of concern, given the explosive growth of e-commerce, which threatens brick-and-mortar retail. However, Realty Income has mitigated this risk, with a strong tenant portfolio.

Realty Income utilizes triple-net leases, which is an advantageous structure that provides a steady stream of cash flow. Tenants are responsible for taxes, insurance, and maintenance. It has a diverse portfolio, consisting of more than 5,000 properties in 49 U.S. states and Puerto Rico. The tenant base includes many well-known companies with established business models.

Source: Third Quarter Investor Presentation, page 16

Realty Income’s adjusted funds from operation (FFO) rose 5.1% in 2016, thanks to rising rents and occupancy. The company ended last quarter with 98.3% occupancy, and has never had occupancy below 96%. It is off to a strong start to 2017. Over the first three quarters, adjusted FFO increased 15% from the same period last year. Adjusted FFO-per-share increased 7.5% over the first nine months.

Future growth will come from increasing rents at existing properties, as well as acquisitions of new properties. Same-store rents increased 1% over the first three quarters of 2017. In addition, Realty Income expects to complete approximately $1.5 billion in acquisitions in 2017. For 2017, Realty Income expects adjusted FFO-per-share of $3.03 to $3.07, representing growth of 5.2% to 6.6% for the full year.

Realty Income has a strong balance sheet. It has a credit rating of BBB+ from Standard & Poor’s, which is solidly investment-grade. Its debt-to-EBITDA ratio is 5.2, which is in-line with its peer group. It also currently has a fixed charge coverage ratio of 4.7, the highest in the company’s history.

Dividend REIT #4: Kimco Realty (KIM)

Dividend Yield: 6%

Kimco earns a place on the list, because of its high dividend yield of 6%. Its dividend yield is three times that of the average S&P 500 stock. Kimco is one of 402 dividend-paying stocks we have identified with a yield of 5% or more. You can see all 402 stocks with 5%+ yields here.

Like Realty Income, Kimco operates in retail properties, which are under pressure as consumers turn to e-commerce. Kimco owns an interest in more than 500 U.S. shopping centers. However, only a small portion of its tenant base has closed stores so far this year. New store openings have far outweighed store closures among Kimco’s tenants, so far in 2017.

Source: Third Quarter Presentation, page 8

Kimco’s properties are focused in high-density markets, with high household incomes. Traffic remains robust in these areas, and Kimco has a high-quality tenant portfolio. Some of its largest retail tenants are doing very well, such as TJX (TJX) and The Home Depot (HD).

Kimco’s portfolio has average lease term of 10 years. Portfolio occupancy was 95.8% at the end of last quarter, up 70 basis points from the same quarter last year. The fundamentals of Kimco’s market still remain healthy. For example, the company notes demand for retail space outweighs supply. As a result, over the past 10 years, Kimco’s average annual base rent per square foot rose more than 4% each year.

Source: Third Quarter Presentation, page 17

This has helped Kimco’s cash flow hold up well this year. Adjusted FFO-per-share increased 1% over the first three quarters of 2017. Helping to boost FFO were higher occupancy, and property acquisitions. Kimco management anticipates $300 million to $400 million of property acquisitions for 2017, which will help generate growth next year and beyond.

For 2017, management expects adjusted FFO-per-share of $1.51 to $1.52. Adjusted FFO-per-share was $1.50 in 2016, so this year will bring modest growth for Kimco. All things considered, this is a solid performance, given the turbulence in the retail industry right now.

Sustaining strong cash flow allows Kimco to continue raising its dividend. On October 25th, the company hiked its dividend by 3.7%. The new annualized dividend rate of $1.12 per share, represents a payout ratio of 74%, which is manageable.

Kimco is working to improve its balance sheet. It has a net-debt-to-EBITDA near 6.0, which is high for a REIT. However, the company has an investment grade credit rating of BBB+. By 2020, Kimco expects to improve its credit rating to A-, by accelerating debt repayments.

Dividend REIT #3: W.P. Carey (WPC)

Dividend Yield: 5.7%

W.P. Carey invests in commercial real estate. At the end of last quarter, the portfolio consisted of consisted of 890 net lease properties. The average lease term of the portfolio is 9.5 years, and occupancy stands at 99.8%. Properties are located in the U.S. and Europe, with approximately two-thirds of properties in the U.S.

W.P. Carey specializes in sale-leaseback transactions, in which a tenant sells a property to an outside investment firm, which then leases it back to the tenant. W.P. Carey also generates fee income, derived from management of assets.

Source: 2017 Investor Presentation, page 11

Approximately 95% of annual FFO comes from owned real estate, while the other 5% is derived from investment management activities. W.P. Carey’s investment management business ended the third quarter with assets under management of approximately $13.2 billion.

W.P. Carey has a strong portfolio, and also possesses an advantage. It has reduced its exposure to retail, thus shielding it from the retail downturn over the past few years. Less than 20% of W.P. Carey’s investment portfolio is comprised of retail store tenants.

FFO-per-share increased 3% in 2016, to $5.12, due to 2% rent increases. The company is off to a good start to 2017, with 2.6% adjusted FFO-per-share growth through the first three quarters. Going forward, growth will be fueled by continued rate increases, as approximately 99% of its leases have built-in rent increases. In addition, growth will come from new property acquisitions.

2016 was a year of particularly aggressive acquisitions for W.P. Carey. It placed over $500 million in acquisitions in North America, which will help generate growth in 2017 and beyond.

Source: 2017 Investor Presentation, page 16

For 2017, W.P. Carey management expects adjusted FFO-per-share of $5.25 to $5.35. At the midpoint of guidance, the company would grow FFO by 3.5% this year. This is not an overly exciting growth rate, but it should be enough to continue increasing the dividend. W.P. Carey has a habit of raising its dividend by a small amount each quarter. On September 20th, the company raised the dividend to $1.005 per share, a 2% increase from the same quarterly dividend last year.

W.P. Carey pays an annualized dividend of $4.02 per share. Using 2017 guidance, the company will likely have a payout ratio of 76%. This indicates the current dividend is sustainable. W.P. Carey also has solid credit metrics, with a fixed charge coverage ratio of 4.4, and an investment-grade credit rating of BBB.

Dividend REIT #2: Welltower (HCN)

Dividend Yield: 5.2%

Welltower a healthcare REIT. It invests in properties such as senior housing, post-acute communities, and outpatient medical properties. It has a diversified portfolio, with 1,334 properties spread across the U.S., Canada, and the U.K.

The company has restructured its portfolio in recent years. In 2010, 69% of Welltower’s operating profit was derived from private-pay sources. At that time, it had a heavy presence in long-term/post-acute care facilities. Today, it has more than halved its exposure to long-term/post-acute facilities, and now generates 93% of profit from private-pay sources.

The company decided to expand its presence in senior housing, which now accounts for 70% of operating income. Welltower’s strategy is to focus on property investments in densely-populated urban areas, with high barriers to entry.

Source: November 2017 Investor Presentation, page 15

Welltower’s portfolio restructuring has worked well for the company. In 2016, FFO increased 4%, due to higher rents on owned properties, as well as new property additions. It completed $3.0 billion of gross property investments in 2016.

The investment case for healthcare REITs like Welltower is simple. Life expectancies are rising in developed markets like the U.S. and U.K. Welltower expects the 85+ population will double over the next 20 years. Aging populations will result in high demand for healthcare properties. These demographic changes should give Welltower a sustained growth tailwind for many years.

Source: November 2017 Investor Presentation, page 6

In addition to aging demographics, healthcare spending is rising as a percentage of GDP. According to Welltower, per-capita spending in the 85+ age group is expected to exceed $34,000 per year. This is more than double the level of per-capita spending for the 65-84 age group.

The aging population trend is even more pronounced in the U.K., where Welltower has 105 facilities. Over the next 20 years, the company expects the 75+ population in the U.K. will grow at six times the rate of the general population.

Welltower has a secure dividend payout. The company currently pays an annualized dividend of $3.48 per share. This represents a payout ratio of 82% of projected 2017 FFO. Welltower has increased its dividend for over 10 years in a row, which makes it a Dividend Achiever. You can see all 264 Dividend Achievers here.

Importantly, the balance sheet is in good condition. Welltower has a credit rating of BBB+, and an average debt maturity exceeding 7 years. It also has a fixed charge coverage ratio of 3.7, and a manageable debt-to-EBITDA ratio of 5.2.

Dividend REIT #1: Federal Realty Investment Trust (FRT)

Dividend Yield: 3%

Federal Realty primarily owns shopping centers. It also operates in redevelopment of multi-purpose properties including retail, apartments, and condominiums.

At first glance, Federal Realty doesn’t seem to be an attractive dividend stock. It has a 3% dividend yield, which is fairly low for REIT standards. But there is much more to Federal Realty than meets the eye. The company has a lower dividend yield than many other REITs, but it earns a place on the list because of its long history of dividend growth.

Federal Realty has increased its dividend for 50 years in a row. It is a member of the Dividend Aristocrats, which have increased their dividends for 25+ consecutive years. You can see all 51 Dividend Aristocrats here.

Source: Third Quarter Presentation, page 49

This is a unique distinction, as Federal Realty is the only REIT on the Dividend Aristocrats list. Not only is it a Dividend Aristocrat, it is a Dividend King as well. Including Federal Realty, there are just 22 Dividend Kings. You can see all 22 Dividend Kings here.

Over the course of those 50 years, Federal Realty increased its dividend by 7% each year, compounded annually. Federal Realty’s long dividend growth streak is due to its operational strategy. It focuses on densely-populated, affluent communities, with high demand for commercial and residential real estate.

Source: Third Quarter Presentation, page 3

These qualities set it apart from the competition. According to the company, its cash rents are 60% above the industry average. Its strategy has led to strong growth rates in recent years. In 2016, Federal Realty grew its FFO by 12%, to a record of $5.65 per share. Over the first three quarters of 2017, FFO-per-share rose by 5.7%. Occupancy was 94.9% at the end of last quarter, up 60 basis points from the same quarter last year.

One potential risk factor is that Federal Realty has a fairly high amount of debt on its balance sheet, with a debt-to-EBIDTA ratio of 5.8 as of last quarter. However, the company expects to reduce its leverage ratio to 5.2 by the end of 2018.

And, this debt has a relatively low burden on the company’s financial position. Federal Realty’s debt has an average interest rate of 3.94%. And, 99% of debt is fixed-rate, which means the company is not at high risk of a sudden jump in interest expense if rates rise, as variable debt would. Federal Realty has a credit rating of ‘A-‘, which is high for a REIT.

Final Thoughts

REITs are popular investments for dividend income, and good reason. That said, in the search for strong REITs, investors should resist the urge to chase yield. There are many REITs with sky-high yields, but questionable fundamentals.

Instead, investors should favor REITs that offer a blend of dividend yield, growth, and balance sheet strength. The 5 REITs in this article have a mix of these qualities, which makes them attractive dividend stocks for 2018 and beyond.

Federal Realty is the only REIT on the list of Dividend Aristocrats. Find out if its valuation makes it a confirmed buy with our service Undervalued Aristocrats, which provides actionable buy and sell recommendations on some of the most undervalued dividend growth stocks around. Click here to learn more.

Disclosure: I am/we are long HCN.

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.

Related Posts:

  • No Related Posts

Hecla Mining Has Been Crushed – But There Are Still Better Options

Back in June, I stated that Hecla Mining (HL) would likely underperform as I just didn’t see the same appreciation potential and earnings leverage over the next year or two compared to other stocks in this sector. The reasons for my negative thesis were as follows:

  1. HL had held up significantly better than most gold and silver stocks since the August 2016 peak in the sector – as the shares were down about 20% compared to some of its peers which were down by 40-50%.
  2. Most investors didn’t understand the declining cash flow situation at San Sebastian. Hecla had been knocking it out of the park because of this mine, but over the next 2-4 quarters, the company would likely start to see San Sebastian’s OCF and FCF trail off even further.
  3. The slow pace of debt reduction would also weigh more on the stock if cash flow declines.

HL was basically being priced for perfection even though San Sebastian had likely peaked and Hecla’s balance sheet was still highly levered. The valuation simply wasn’t in line with the fundamentals (or the rest of the sector for that matter).

Since then the shares have declined by 26.3% compared to just a slight loss in the HUI and GDXJ during that time. Not all of this decline is because of San Sebastian – as the ongoing strike at the company’s Lucky Friday mine in Idaho is also impacting the shares (to a degree). The recent dive, though, did occur after earnings were released and seemed unrelated to the continuing labor issue at Lucky Friday.


HL data by YCharts

The question is are the shares now a buy given: 1. the almost 30% sell-off over the last 6 months, 2. its underperformance compared to the rest of the sector, and 3. the stock is now at strong support? As you can tell from the title of the article, the answer is “no,” as I still favor other producers at this point. Hecla could pop if the strike at Lucky Friday is resolved, but there are still underlying issues to deal with.

San Sebastian’s Decline Only Just Starting

My main concern about Hecla has centered around their San Sebastian mine in Mexico – which has been a highly profitable operation and is the second best cash flow producing asset for the company (even though it has only accounted for ~15% of the total revenue).

Revenue at San Sebastian in the first quarter of this year was $21.972 million, while income from the operation was $13.454 million. It generated basically the same amount of profits as the company’s Greens Creek mine – which has almost 3x the revenue and has been the money maker for Hecla for years now.

(Source: Hecla Mining)

However, I have been warning about how grade, production, and cash flow were all going to be declining at San Sebastian, as the mine just didn’t have the reserves to keep running at the rate it did last year.

The decline has already started, as San Sebastian had $92 million in free cash flow in 2016, and in the first half of 2017, it only generated $21 million in free cash flow. The issue? All of the easy gold and silver has been mined (i.e. the very high-grade open pit ore right below surface). Hecla is now going underground in 2018 and will be mining grade not nearly as robust. Even though they still expect to generate positive free cash flow next year at San Sebastian, it will likely be much lower than current levels.

Q3 revenue and profits at the mine only declined slightly year over year, so it might not seem like much of a dropoff is occurring. However, there were far more silver and gold ounces sold in the quarter than produced ($2.5-$3.0 million worth) as there was some unsold inventory that carried over from Q2. If you look at the results from the first three quarters of the year, you can see that revenue and profits are sharply lower compared to 2016 figures. The most important data below is the ore grade – more specifically the huge decline this year (23.71 ounces per ton silver in 2017 vs. 33.70 oz/t in 2016, and 0.18 oz/t gold in 2017 vs. 0.27 oz/t last year).

(Source: Hecla Mining)

Below was the reserve and resource at San Sebastian at the end of 2016 – which shows how this operation isn’t going to see a return to those grades anytime soon. In fact, mined grade is going to decline much further. As I mentioned above, I expect OCF and FCF at San Sebastian to trail off over the next 2-4 quarters. The worst is still yet to come.

Silver Gold Silver Gold
(oz/ton) (oz/ton) (000 oz) (000 oz)
Proven and Probable Reserves 17.2 0.11 5,600 37
M&I Resources 5.4 0.07 8,285 114
Inferred Resources 5.5 0.03 15,413 89

Even the company stated in the last conference call:

“At San Sebastian, we don’t have the incredible grade that we had with the Francine pit, but it’s still very good cyanide circuit grade.”

I agree, it is good grade, but the grade of the ore that remains is still only a fraction of the bonanza material that was being mined last year. As a result, cash flow will also be similarly impacted.

No Signs Of Major Exploration Success

As the company stated in the latest 10Q:

We have generated positive cash flows at San Sebastian since the start of production there, and we currently believe that will continue until early or mid-2020.

Hecla doesn’t need significant exploration success to keep this mine operating past 2020, and it’s likely that they will find additional “profitable” gold and silver ounces to mine at San Sebastian. However, to keep the mine running at the same levels as 2016, or even close to this year’s levels for that matter, will require much success via the drill bit. Which is why I have been paying close attention to the exploration results out of Hecla.

The latest update came in early November, but I didn’t see anything in the assay results that really stood out.

Hecla was in-fill drilling the west portion of the Middle Vein, and they also did some step-out drilling toward a “new zone of high-grade mineralization that is similar to the mineralization in the previously discovered Hugh Zone on the Francine Vein.” But assay results showed that these were very narrow width veins – the holes shown on the map below are just 1.7 to 5.4 feet (or roughly 0.5 to 1.5 meters). The gold and silver grade were also still well below the current reserve grade in 2 out of the 3 holes shown below. Having said that, these assay results did contain copper, lead, and zinc, which helps improve the economics of extracting these ounces. Overall though, not much high-value per ton ore is being discovered in the middle vein.

(Source: Hecla Mining)

On the Francine Vein, there was a new discovery 600 feet to the west of the Hugh Zone. Unfortunately, it’s the same problem here as the widths were only 1-2 meters. These are also polymetallic veins like the ones highlighted above. Silver grade was very good in a few holes, but the presence of gold wasn’t nearly as strong. There was a high % of base metals – which is one positive aspect – but more data is needed to determine how much of an impact these base metals will have. Another drill hole 2,500 feet to the west of the Hugh Zone also intersected a polymetallic vein (although with lower contained ore grade). This vein is open laterally in both directions and there is still some exploration drilling to be conducted in these gaps.

(Source: Hecla Mining)

What’s clear is San Sebastian does have pockets of high-grade ore deeper underground. But overall, I’m not seeing anything too continuous yet, and again, these are very narrow width veins (which means dilution could be an issue).

Unless Hecla has significant, near-term exploration success at San Sebastian, the mine will generate less and less cash flow going forward. In other words, this isn’t just a short-term problem for the company as it’s likely going to get worse. Eventually, the mined grade will bottom out but I don’t expect that to happen until sometime next year.

Still No Improvement In Net Debt

One other issue is the balance sheet of the company. 2016 was a very strong year for Hecla in terms of cash flow, yet they still didn’t reduce debt. Now OCF and FCF are on the decline and net debt has been on the rise again. Hecla is one of the few companies in the sector that hasn’t drastically improved its financial position over the last few years. This might come back to haunt them unless they execute well at all mines going forward.


HL Cash and Short Term Investments (Quarterly) data by YCharts

Current Outlook

The good news for Hecla is Greens Creek continues to perform very well, and their Casa Berardi mine in Quebec produced a record 44,141 ounces of gold in Q3 (although costs are still high for this operation). If the strike at Lucky Friday is resolved, it could partially offset the loss of cash flow next year from San Sebastian and provide a boost to the stock.

For now, I’m going to remain on the sidelines as the only thing that can cause this stock to rally over the next several weeks/months is a settlement at Lucky Friday and/or gold and silver take off. If there is no change in status for either of those, then HL might not have bottomed yet. Even if it has hit a low for this correction, I don’t believe it will outperform over the next 12-18 months.

Exploration success at San Sebastian could radically alter this outlook.

For now, I still see many better options in the gold and silver mining sector. There are several companies projecting increases in production and cash flow over the next year or two, and many have strong catalysts in place. Hecla still needs to fill this huge hole that San Sebastian is going to be leaving in the “Statement Of Cash Flows”.

As a side note, I would like to see HL make a small, strategic acquisition. I feel that the company made a mistake over the last year by not taking advantage of its lofty stock price.

If you would like to read more of my in-depth coverage of the gold sector, you can subscribe to The Gold Edge.

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.

Related Posts:

  • No Related Posts

India's Infosys names outsider Parekh as chief executive: statement

MUMBAI (Reuters) – Infosys, India’s No.2 IT services company, named Salil S Parekh as chief executive on Saturday, picking an outsider for the job a second time and handing him the twin challenges of reviving growth and making peace between its founders and board.

FILE PHOT: The Infosys logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren

Parekh, who will join from consultancy firm Capgemini where he is currently an executive, has been given a 5-year term effective Jan.2, an Infosys filing to exchanges showed.

U.B. Pravin Rao who was serving as the interim CEO has been re-designated as chief operating officer from Jan. 2, Infosys said.

“After a comprehensive global search effort, we are pleased to appoint Salil as the CEO & MD,” said Kiran Mazumdar-Shaw, chairperson of the nomination & remuneration committee at Infosys.

“He was the top choice from a pool of highly qualified candidates. With his strong track record and extensive experience, we believe, we have the right person to lead Infosys.”

Former CEO Vishal Sikka announced a sudden exit in August after a protracted public spat with the company’s founding executives, led by Narayana Murthy, over strategy and alleged corporate governance lapses.

Sikka, who joined from German software maker SAP SE in 2014, was the first outsider to be appointed CEO of the Bengaluru-headquartered company.

His exit and the prolonged public row led to a reshuffling of the Infosys’ board with Nandan Nilekani, a co-founder and former CEO, returning as non-executive chairman.

Nilekani, credited with four-fold growth in Infosys’ revenue to $2 billion during his tenure as CEO, had said at the time that cultural fit would be an important criteria for the top job, making internal candidates “very strong contenders”.

Reporting by Suvashree Dey Choudhury and Sankalp Phartiyal; editing by Rafael Nam and Jason Neely

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts

India's Infosys appoints outsider Parekh as CEO

MUMBAI (Reuters) – Infosys, India’s No.2 IT services company, named Salil S Parekh as chief executive on Saturday, picking an outsider for the job a second time and handing him the twin challenges of reviving growth and making peace between its founders and board.

FILE PHOT: The Infosys logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren

Parekh, who will join from consultancy firm Capgemini where he is currently an executive, has been given a 5-year term effective Jan.2, an Infosys filing to exchanges showed.

U.B. Pravin Rao who was serving as the interim CEO has been re-designated as chief operating officer from Jan. 2, Infosys said.

“After a comprehensive global search effort, we are pleased to appoint Salil as the CEO & MD,” said Kiran Mazumdar-Shaw, chairperson of the nomination & remuneration committee at Infosys.

“He was the top choice from a pool of highly qualified candidates. With his strong track record and extensive experience, we believe, we have the right person to lead Infosys.”

Former CEO Vishal Sikka announced a sudden exit in August after a protracted public spat with the company’s founding executives, led by Narayana Murthy, over strategy and alleged corporate governance lapses.

Sikka, who joined from German software maker SAP SE in 2014, was the first outsider to be appointed CEO of the Bengaluru-headquartered company.

His exit and the prolonged public row led to a reshuffling of the Infosys’ board with Nandan Nilekani, a co-founder and former CEO, returning as non-executive chairman.

Nilekani, credited with four-fold growth in Infosys’ revenue to $2 billion during his tenure as CEO, had said at the time that cultural fit would be an important criteria for the top job, making internal candidates “very strong contenders”.

Reporting by Suvashree Dey Choudhury and Sankalp Phartiyal; editing by Rafael Nam and Jason Neely

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts

Nutanix: Software Story Takes Center Stage

Nutanix (NASDAQ: NTNX), the leading provider of hyperconverged datacenter infrastructure, has kicked off its fiscal 2018 with a bang. Its Q1 earnings release smashed analyst expectations across all measures: revenue, billings, margins, and cash flow. The company’s record-setting $275.6 million in revenue this quarter also puts Nutanix at a $1.1 billion run rate, making it a huge player in the datacenter space relative to a few years back, when the company posted only a couple hundred million in sales.

Perhaps most importantly of all, it has cemented its strategy of pivoting to become a software-centric company. Though in its earlier years Nutanix was known primarily as a vendor of integrated hardware-software appliances, with the bulk of revenues deriving from hardware appliance sales (the same is still true today), the company has recently announced its intention to shift toward standalone software sales, with hardware only as an incidental revenue stream.

Investor excitement over Nutanix’s software shift has driven the stock into a phenomenal recovery in recent months, sending shares up to the mid-$30s from $15, levels not seen until immediately after the IPO in late 2016. For the majority of its life as a public company, Nutanix carried lower multiples of revenue due to its concentration in hardware – but as the company shifts to software-only billings, its gross margins can expand dramatically. Also think of how much more the company can scale as it looks to become the dominant OS for hyperconverged datacenters. Just as Microsoft’s (NASDAQ: MSFT) Windows gained prominence in the ’90s as a standalone OS compatible with multiple hardware form factors, so too can Nutanix achieve its next leg of growth by selling software that’s completely decoupled from hardware. Customers can still opt to buy the integrated appliances from Nutanix, but if they have a preferred hardware brand of choice, they can still buy Nutanix software – widely recognized as the “best-of-breed” in hyperconverged infrastructures.

As I wrote in a prior article, I was hoping for the company’s Q1 to boost the stock to $40, a price target that now represents a 4.85x EV/FY18 revenues multiple based on estimated FY18 revenue of $1.2 billion. As Nutanix transitions more toward software sales in FY18, this multiple has plenty of room for expansion, and given that the stock’s post-Q1 price reaction didn’t show the uplift I was looking for, I’m holding on for additional upside – especially with Nutanix’s fundamentals showing so well this quarter.

$40 is a minimum for the stock. As analysts digest this quarter’s results, Wall Street will be adjusting its price targets much higher.


NTNX data by YCharts

Phenomenal growth in Q1, accompanied by vast margin improvement

Nutanix posted record-setting revenues of $275.6 million this year, up 46% y/y. This was an $8.7 million beat over analyst consensus of $266.9 million, or +41% y/y. The chart below, taken from its Q1 earnings materials, shows the linearity in Nutanix’s growth since 2016. Note that the company had an accounting change to comply with software revenue recognition standards in ASC 606, and all figures are presented post change:

Figure 1. Nutanix revenue growth trajectory

Source: Nutanix Q1 earnings materials

Nutanix’s strong revenue growth was also supported by strong billings in the quarter. Total billings were $315 million in the quarter (+32% y/y), driving the company’s total deferred revenues to $409 million (+48% y/y). Effectively, the company is building its backlog as fast as (or faster than) it’s recognizing revenue, giving it a solid revenue base to draw from in future quarters and providing support to future earnings.

Other business metrics reported in the quarter trended strongly as well. Here are a couple of the highlights:

  • 7,813 total customers, +760 in the quarter and +75% y/y.
  • 49 deals in excess of $1 million, up +36% y/y, indicating strong traction for the company in the critical high-end enterprise market.
  • 75% of bookings came from repeat customers, indicating that even though Nutanix isn’t a subscription software company, customers behave as if their business is recurring and keep purchasing additional Nutanix nodes.

For a company like Nutanix, the hard part is becoming “mainstream.” Especially in the datacenter infrastructure space, where IT buyers are extremely inert and apt to keep buying from the vendors they already know, it’s a hard market to be a startup. With Nutanix’s run rate reaching well over $1 billion, however, the company is now hardly a startup – it has truly become as mainstream in backend infrastructure as VMware (NYSE: VMW) and Cisco (NASDAQ: CSCO). Hyperconverged infrastructures (NYSE:HCI) are now top of mind for enterprise CIOs, boasting reductions in total cost of ownership (as HCI requires less specialized human IT administration) as well as strong performance – and within HCI, the undisputed leader is Nutanix. VMware and HPE SimpliVity (NYSE: HPE) have competing offerings, but they are still a few years behind Nutanix’s traction in the market. And once Nutanix’s level of brand recognition and market acceptance has been achieved, its path to growth is more of an eventuality, a downhill ride.

As the company continues to scale, it’s also making vast improvements in the cost structure and slimming its losses. Nutanix once concerned Wall Street for its high (even for a Silicon Valley startup) net losses; now, the company’s loss margins have slimmed, and it’s even posting positive operating cash flow. The company posted an operating loss of $59.2 million in Q1 (representing a -21% operating margin), a huge improvement over a loss of $114.5 million in the prior-year quarter (a -61% margin).

The company’s pro forma EPS of -$0.16 is 10c above analyst consensus of -$0.26, as margins came in better than expected. Increased sales leverage, in particular, contributed a lot toward Nutanix’s slimmer losses – it increased sales spending only 13% y/y and achieved 46% y/y revenue growth in return, indicating the trend previously mentioned. As Nutanix becomes mainstream, more business will come knocking at its door without the company having to exert itself too much in field sales.

It also generated $10.2 million of operating cash flow in the quarter (a 4% margin), a 2.5x increase over just $4.2 million in 1Q17. Given the rapid advances in margins, coupled with strong top line growth, Nutanix is just on the cusp of expanding its cash flow, and in the longer run can probably achieve cash flow margins in the double digits. See the company’s cash flow margin trends in the chart below:

Figure 2. Nutanix cash flow margins

Implications of the software switch

Ever since it went public (in September 2016, at $16/share), Nutanix has been received with a bit of confusion by investors: is it a hardware company or a software company? It sells datacenter appliances, after all, built on commoditized Intel (NASDAQ: INTC) x86 servers, a cheap staple and modern workhorse for enterprise DCs. But the appliances are powered by Nutanix software – the “secret sauce” that controls the servers and binds together compute, storage, and networking resources into a single, cluster-computing unit – hence the term “hyperconverged.” So which is it – software or hardware?

The market treats it as both. Its revenue multiple – at times trading in the low 3s, now in the low 4s – is both higher than that of a typical hardware company but lower than a typical software company, where a 46% grower like Nutanix might traditionally be awarded with a 7x revenue multiple. In recent months, however, Nutanix has announced its intention of pivoting more toward software, jumpstarting the recovery in shares, as software businesses find more favor with investors and carry much higher multiples.

And it has much higher margins as well – so it’s no wonder that investors value software revenue streams much more than hardware. Nutanix estimates that its software and support revenues will carry 80%-plus gross margins (representing nearly pure profit for each incremental sale), versus hardware appliances which are basically sold at cost.

Going forward, as Nutanix includes its base OS as part of its software sales, the company expects hardware sales to be less than ~10% of total billings. As shown in the chart below, taken from Nutanix’s Q1 earnings deck, its hardware mix was 26% this quarter, eventually dropping down to 9% by year end and 5% the year after that.

With software eventually moving to become the dominant part of the company’s revenue base, it’s almost guaranteed that Wall Street and large institutional investors will shift their view on Nutanix and consider it more of a software play, attaching higher multiples to its revenue streams.

60-second summary

Investors are finally paying attention to the fact that the winds are blowing in the right direction for Nutanix – across the board. Recall that even though the stock has rallied this year, it has still yet to recover past the $37 high mark it saw immediately post IPO. With enthusiasm rekindling on the back of massive growth and a fresh software narrative, Nutanix is well-positioned to outperform in 2018.

I’m still waiting on a price target of $40 (4.85x EV/FTM revenues) to consider letting go of a portion of my holdings. With the software story becoming more prevalent, however, there’s a good chance of the company entering into a sustained phase of multiple expansion as it eases into a more software-normal revenue multiple of ~6x. Either way, with a strong Q1 under its belt and with Wall Street’s newfound confidence in the company, it seems the only way for Nutanix is up.

Disclosure: I am/we are long NTNX.

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.

Related Posts:

  • No Related Posts

8 Powerful Ways to Motivate and Inspire Your Employees This Week

Whether you’ve been promoted to management recently or have been at it for ten years or longer, one thing never changes: Human nature — as in that of your employees — is often unpredictable. Knowing how to motivate each person on a team can be so frustrating and challenging. 

But it can be done if managers have a basic understanding of human behavior — what makes people tick. What science has already found is that positive emotions (how work and culture make employees feel) are at the root of human motivation. We are wired for it in our creation design.

Therefore, managers must acquire the knowledge of what truly inspires loyal human beings to enthusiastically perform at a high level. 

Let me prescribe eight strategies to help managers create the right atmosphere for motivating others. 

1. Start with scheduling more one on one time.

Get off on the right track by making consistent clear goals and expectations an operational reality. You do that through the lost art of one-on-one conversations — a great motivational tool. Leaders thrive when they strengthen relationships with their people by spending more one-on-one time with them to hear their suggestions, ideas, problems and issues as well as talking about performance issues and their work. But first, you need to know how to structure these meetings so that it works to your advantage. 

2. Find out what motivates them.

Do you know what gets your team members out of bed in the morning? What they’re passionate about — their goals, aspirations, and interests? In other words, do you really know your team members? Great leaders show an interest in their people’s jobs and career aspirations in order to motivate them the right way. Once that’s been established, they look into the future to create learning and development opportunities for their people. They find out what motivates their best people by getting to know what desires will drive each team member. This is about emotional engagement.

3. Provide the resources they need to do their work exceptionally well.

It’s a simple question, but you’d be surprised how often it is not asked: What do you need right now to do your job better? You may be surprised, or even shocked at the answer; it could be that they need access to more information to make the right decisions, bettter equipment or even another work space. Acting on what you find out will be a huge motivational booster. 

4. Praise and compliment them often.

“I don’t like to be recognized,” said no human being, ever. Managers have to get into the habit of praising and complimenting their people for their good qualities and work. The companies in Gallup’s study with the highest engagement levels use recognition and praise as a powerful motivator to get their commitment. They found that employees who receive it on a regular basis increase their individual productivity, receive higher loyalty and satisfaction scores from customers, and are more likely to stay with their organization. How regular are we talking? Praise should be given once per week, according to Gallup.

5. Help co-create purposeful work.

People want meaning and purpose in their work. In the book Give and Take, Wharton professor Adam Grant says that when people find purpose in their work, it not only improves that person’s happiness, it also boosts productivity. One way to give employees that purpose, according to Grant, is to have them meet the very people they are helping and serving, even if just for a few minutes. Managers giving their people access to customers so they can see firsthand the human impact their work makes is the greatest human motivator, says Grant.

6. Help them develop new skills.

Although important, I’m not so much talking about putting them through another required technical or safety training program to keep them or the business compliant, but actually giving them meaningful new skills or knowledge in other areas that they can use to leverage their natural strengths for future roles, whether with their current company or another company. The point is to serve and value them so exceptionally well as people and workers that they have no reason to leave but use their newfound skills for new projects.

7. Actively involve them.

Great managers recognize that leadership doesn’t travel one way but is multi-directional. While it can come from the top down at critical times, the best scenario is allowing decisions, information, and delegation to travel from peer to peer or from the bottom up, where the collective wisdom and involvement of the whole team help solve real issues in real time on the frontlines.

8. Believe in them.

The best managers delegate often and give their employees responsibility for delivering challenging work. If this doesn’t happen in your workplace, consider two hard questions:

  • Do you trust your knowledge workers to do what they’ve been hired to do?
  • Do they have the right competence for the job to carry out the work with confidence?

So often managers underestimate the potential and ability of their employees to use their brains! If you answered yes to the questions above, be of the mindset to always accept that they can do the work. Then, give them the room to perform and support them with whatever they need to make them even better. This is how you motivate them to the rafters.

Related Posts:

  • No Related Posts

Report Says Robots Will Displace 800 Million Jobs in Next 12 Years: Here Are Winner/Loser Occupations

The AI debate/phenomenon rages on.

The McKinsey Global Institute just issued a report that signals a massive pending workforce transition on the same scale as the shift from agricultural to industrial jobs in the 1900’s.

Depending on the rate at which advanced and developing countries around the world embrace the surging reality of automation, McKinsey’s midpoint estimate was between 400 million and 800 million jobs could be lost to automation, with 75 million to 375 million among the displaced needing to switch occupational categories and learn new skills.  

Up to one-third of the workers in the United States and Germany and an astonishing 46 percent of workers in Japan may have to change occupations by 2030 according to the report.

First, the good news within all of this.

The report indicates that there will be enough jobs to go around for everyone:

“With sufficient economic growth, innovation, and investment, there can be enough new job creation to offset the impact of automation. We also note that if history is any guide, we could expect eight to nine percent of 2030 labor demand will be in new types of occupations that have not existed before.”

OK, so out with the old (jobs) and in with the new. But there’s a catch, again right from the report:

“Unlike earlier transitions, in which young people left farms and moved to cities for industrial jobs, the challenge, especially in advanced economies, will be to retrain mid-career workers. There are few precedents in which societies have successfully retrained such large numbers of people.”

So there you have it. 

Automation is coming like a steamroller–even conservative estimates spell a seismic shift in occupational realities. And the key to stopping massive unemployment and wage deflation is to retrain the global workforce–something there are few precedents for on this scale. 

Let’s look at the winners and losers in occupations and then we’ll come back to that retraining thorn. (By the way, most of us, regardless of occupation, aren’t off the hook as the report indicated that 60 percent of occupations have at least 30 percent of their work activities highly subject to being replaced by automation).

Occupations in the U.S. hit by automation by 2030 (percent change)

  • Predictable Physical Laborers -31percent (repair workers, dishwashers, food prep workers, gaming industry workers, general mechanics).  This shouldn’t come as a surprise.  For example, Walmart is already testing robots that clean and scrub floors in five of their stores.
  • Office support -20 percent (administrative assistants, IT workers, office support workers, data collecting and processing workers)

Occupations in the U.S. surging in the face of automation by 2030 (percent change)

  • Creatives +8 percent (artists, designers, entertainers, media workers)
  • Technology Specialists +34 percent (Computer engineers and specialists)
  • Teachers + 9 percent
  • Managers and executives +15 percent
  • Builders +35 percent (including engineers, architects, construction workers, etc.)
  • Care providers +30 percent (doctors, nurses, physicians assistants, pharmacists, etc.)
  • Professionals +11 percent (business professionals, lawyers, scientists, academics, etc.)
  • Unpredictable Physical Laborers +6 percent (specialized mechanics and repair, emergency first responders, maintenance workers, etc.)

By the way, anyone working in an occupation requiring customer interaction will be about flat in terms of percentage growth/decline. (Someone has to serve us our chicken parmigiana after all.)

The report indicates that automation will expand the labor market as long as displaced workers find work within a year. The key to that is the rate of innovation companies can muster and the quality of retraining offered. 

What will the workforce need to be retrained on to ensure rapid redeployment?

Things machines can’t do silly. Like managing people, applying expertise, and communicating with others. The workforce will also need to build social and emotional skills and more advanced thinking capabilities like logical reasoning and creativity.

What role will policymakers have to play? A massive one according to the report, which notes:

“During the agriculture to industrial shift, the United States made a major investment in expanding secondary education, and for the first time required all students to attend. Called the High School Movement, this raised the rate of high school enrollment of 14- to 17-year-olds from 18 percent in 1910 to 73 percent in 1940, making the US workforce among the best-educated and most productive in the world, and enabling the growth of a vibrant manufacturing sector.”

So it can be done. However, the report goes on to say that over the last few decades, public and corporate spending on labor force training has rapidly declined–a trend that must reverse with governments and corporations making workforce transitions and job creation a more urgent priority.

Net–a dramatic shift is coming. But will the Rise of the Robots mean we rise, or fall?

It’s in our (very human) hands now.

Related Posts:

  • No Related Posts

U.S. Supreme Court weighs major digital privacy case

WASHINGTON (Reuters) – The U.S. Supreme Court on Wednesday takes up a major test of privacy rights in the digital age as it weighs whether police must obtain warrants to get data on the past locations of criminal suspects using cellphone data from wireless providers.

FILE PHOTO: A woman uses her phone to photograph One World Trade Center tower in New York, NY, U.S. on August 27, 2015. REUTERS/Brendan McDermid/File Photo

The justices at 10 a.m. (1500 GMT) are due to hear an appeal by a man named Timothy Carpenter convicted in a series of armed robberies in Ohio and Michigan with the help of past cellphone location data that linked him to the crime locations. His American Civil Liberties Union lawyers argue that without a court-issued warrant such data amounts to an unreasonable search and seizure under the U.S. Constitution’s Fourth Amendment.

Law enforcement authorities routinely request and receive this information from wireless providers during criminal investigations as they try to link a suspect to a crime.

Police helped establish that Carpenter was near the scene of the robberies of Radio Shack and T-Mobile stores by securing from his cellphone carrier his past “cell site location information” tracking which cellphone towers had relayed his calls.

The legal fight has raised questions about the degree to which companies protect their customers’ privacy rights. The big four wireless carriers, Verizon Communications Inc, AT&T Inc, T-Mobile US Inc and Sprint Corp, receive tens of thousands of these requests annually from law enforcement.

Verizon was the only one of those four companies to tell the Supreme Court that it favors strong privacy protections for its customers, with the other three sitting on the sidelines.

There is growing scrutiny of the surveillance practices of U.S. law enforcement and intelligence agencies amid concern among lawmakers across the political spectrum about civil liberties and authorities evading warrant requirements.

The Supreme Court twice in recent years has ruled on major cases concerning how criminal law applies to new technology, both times ruling against law enforcement. In 2012, the court held that a warrant is required to place a GPS tracking device on a vehicle. Two years later, the court said police need a warrant to search a cellphone seized during an arrest.

Carpenter’s bid to suppress the evidence failed and he was convicted of six robbery counts. On appeal, the Cincinnati-based 6th U.S. Circuit Court of Appeals upheld his convictions, finding that no warrant was required for the cellphone data.

The ACLU said in court papers that police need “probable cause,” and therefore a warrant, in order to meet Fourth Amendment requirements.

Based on a provision of a 1986 federal law called the Stored Communications Act, the Justice Department said probable cause is not needed to obtain customer records. Instead, it argues, prosecutors must show only that there are “reasonable grounds” for the records to be provided and that they are “relevant and material” to an investigation.

President Donald Trump’s administration said in court papers the government has a “compelling interest” in acquiring the data without a warrant because the information is particularly useful at the early stages of a criminal investigation.

Civil liberties groups said the 1986 law did not anticipate the way mobile devices now contain a wealth of data on each user.

A ruling is due by the end of June.

Reporting by Lawrence Hurley; Editing by Will Dunham

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts

Build fast, fix later: speed hurts quality at Tesla, some workers say

SAN FRANCISCO (Reuters) – After Tesla’s Model S sedans and Model X SUVs roll off the company’s Fremont, California assembly line, the electric vehicles usually make another stop – for repairs, nine current and former employees have told Reuters.

FILE PHOTO: A Tesla Model S electric car is seen at its dealership in Seoul, South Korea July 6, 2017. REUTERS/Kim Hong-Ji/File Photo

The luxury cars regularly require fixes before they can leave the factory, according to the workers. Quality checks have routinely revealed defects in more than 90 percent of Model S and Model X vehicles inspected after assembly, these individuals said, citing figures from Tesla’s internal tracking system as recently as October. Some of these people told Reuters of seeing problems as far back as 2012.

Tesla Inc (TSLA.O) said its quality control process is unusually rigorous, designed to flag and correct the tiniest imperfections. It declined to provide post-assembly defect rates to Reuters or comment on those cited by employees.

The world’s most efficient automakers, such as Toyota (7203.T), average post-manufacturing fixes on fewer than 10 percent of their cars, according to industry experts. Getting quality right during initial assembly is crucial, they said, because repairs waste time and money.

At Tesla “so much goes into rework after the car is done … that’s where their money is being spent,” a former Tesla supervisor said.

The Silicon Valley automaker said the majority of its post-assembly defects are minor and resolved in a matter of minutes.

Tesla has enthralled consumers with sleek designs, clean technology and legendary acceleration on its pricey cars. A Consumer Reports survey found 91 percent of Tesla owners would buy again.

Still, the magazine and market researcher J.D. Power have dinged the company on quality, citing troubles such as faulty door handles and body panel gaps. Bernstein analyst A.M. (Toni) Sacconaghi, Jr. test-drove one of the company’s new Model 3 sedans earlier this month, writing that the fit and finish were “relatively poor.” Tesla owners have complained on web forums of annoying rattles, buggy software and poor seals that allow rainwater to seep into the interior or trunk.

Auto industry experts say the company’s survival now depends on its ability to crank out high-quality cars in volume as it begins to build its first mass-market car, the Model 3, which starts at $35,000.

Tesla has never turned an annual profit and is burning through $1 billion a quarter. That is unsustainable without fresh cash or a big increase in sales to mainstream customers who may prove less forgiving of potential defects.

“We’ve never doubted Tesla’s ability to make exciting products with top specifications, but there’s a difference between unveiling something and then actually making it perfectly in large volume. Tesla has not perfected the latter yet,” Morningstar analyst David Whiston wrote earlier this month.

Musk has vowed Tesla would become “the best manufacturer on Earth,” helped by a new, highly automated assembly line and a simpler design for the Model 3. However, production woes have slowed deliveries of the much-anticipated sedan.

Snags are normal with any new launch. But chronic defects with Tesla’s established Models S and X show a company still struggling to master basic manufacturing, workers said.

Known as “kickbacks” within Tesla, these vehicles have glitches as minor as dents and scratches to more complex troubles such as malfunctioning seats. Easy fixes are made swiftly on the factory floor, workers said.

Trickier cases head to one of Tesla’s outdoor parking lots to await repair. The backlog in one of those two lots, dubbed the “yard,” has exceeded 2,000 vehicles at times, workers told Reuters.

Tesla denied to Reuters that such “repair lots” exist.

FILE PHOTO: Robotic arms assemble Tesla’s Model S sedans at the company’s factory in Fremont, California, June 22, 2012. Tesla began delivering the electric sedan to customers on June 22. REUTERS/Noah Berger/File Photo

Reuters interviewed nine current and former Tesla employees, including a former senior manager, with experience in assembly, quality control and repairs on Model S and Model X. All requested anonymity because the company required them to sign non-disclosure agreements. Four of the people were fired for cause, including two last month as part of a mass dismissal of hundreds of workers for what Tesla said was poor performance. Sacked workers who spoke with Reuters denied they were poor performers.

People with knowledge of Tesla’s internal quality data shared those figures with Reuters. The news agency was unable to confirm the information independently.

Defects included “doors not closing, material trim, missing parts, all kinds of stuff. Loose objects, water leaks, you name it,” another former supervisor said. “We’ve been building a Model S since 2012. How do we still have water leaks?”

For a graphic on Tesla’s losses, click:


FILE PHOTO: A Tesla Model S electric car is seen at its dealership in Seoul, South Korea July 6, 2017. REUTERS/Kim Hong-Ji/File Photo

Tesla disputed workers’ portrayal of the automaker as struggling to produce defect-free vehicles. A spokesperson described a rigorous process that requires all cars to pass more than 500 inspections and tests. Any reworking of cars after assembly reflects the company’s commitment to quality, the spokesperson said.

“Our goal is to produce perfect cars for every customer,” Tesla said in a statement. “Therefore, we review every vehicle for even the smallest refinement. Most customers would never notice the work that is done post production, but we care about even a fraction of a millimeter body gap difference or a slight paint gloss texture. We then feed these improvements back to production in a pursuit of perfection.”

Employees who worked on Model S and Model X described pressure to keep the assembly line moving, even when problems emerged. Some told of batches of cars being sent through with parts missing – windshields in one case, bumpers in another – because there were none on hand. The understanding, they said, was that these and other flaws would be fixed later.

Quality inspectors would sometimes find more defects than those reported by workers in the internal tracking system when a car came off the line. “We’d see two issues, that’s pretty good. But then we’d dig in and there would be like 15 or 20,” one person said.

One persistently tricky area was alignment, where body parts had to be “muscled,” in the words of the senior manager, to a certain degree of flushness. Not every team follows the same rule book, workers said, resulting in gaps of different size.

Tesla denied that its quality control is inconsistent and said its “extensive” process for locating and fixing errors was “very successful.”

Some workers traced the challenges to Musk’s determination to launch vehicles faster than the industry norm by shortening the design process, skipping some pre-production testing, then making improvements on the fly. Such improvisation leads to high repair rates, employees said.

For a March report called “Beyond the Hype,” J.D. Power found creaks, scratches and poor door alignment on new Model S and Model X vehicles, issues it blamed on the company’s lack of manufacturing experience. The overall quality of Tesla vehicles, it concluded, was “not competitive” within the luxury segment, lacking “precision and attention to detail.”

Such sloppiness is a rarity in luxury brands such as Mercedes-Benz (DAIGn.DE) and BMW (BMWG.DE), said Kathleen Rizk, director of global automotive consulting at J.D. Power.

“Those companies have been manufacturing forever,” she said. “They have stopgaps.”

Tesla said its high customer satisfaction proves it is building the “safest and best-performing cars available today.”

Reporting By Alexandria Sage; Editing by Peter Henderson and Marla Dickerson

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts

Global crypto-currency crackdown sparks search for safe havens

NEW YORK (Reuters) – When U.S. entrepreneur Bharath Rao looked around for the best place to raise money for his crypto-currency derivatives trading business, the United States did not make his list. Instead he chose the East African island nation Seychelles to sell the trading platform’s tokens.

FILE PHOTO: Bitcoin (virtual currency) coins placed on Dollar banknotes, next to computer keyboard, are seen in this illustration picture, November 6, 2017. REUTERS/Dado Ruvic/Illustration/File Photo

Rao, a San Diego-based technology veteran who has worked for major Wall Street banks, is not alone.

Confronted with national regulators’ intensifying scrutiny of digital currency fund-raising, known as initial coin offerings, many entrepreneurs are moving businesses to locations more welcoming to crypto-currencies and known for low taxes.

Dozens of start-ups have flocked to Singapore, Switzerland, Eastern Europe and the Caribbean this year, according to interviews with entrepreneurs and company registration data made available to Reuters.

Like bitcoin, the best-known crypto-currency created in 2009, the coins use encryption and a blockchain transaction database enabling fast and anonymous transfer of funds without centralized payment systems.

The numbers compiled by crypto-currency research firm Smith + Crown show how national regulators’ attempts to curb coin sales may just shift business elsewhere.

The United States leads with 34 digital currency start-up registrations so far this year, but that reflects Silicon Valley’s role as a technology hub and the depth of U.S. financial markets rather than a welcoming regulatory climate.

Singapore registered 21 entities, up from one in 2016, followed by 19 in Switzerland, up from three last year, according to Smith + Crown. Central Europe saw 14 companies registered this year, compared with one in 2016 and the Caribbean hosted 10, up from two last year.

“The data affirms our sense that Switzerland and Singapore remain go-to locations, but the U.S. could remain for companies raising large amounts of money,” said Matt Chwierut, Smith + Crown’s research director.


Switzerland does not have specific rules on digital coin sales, but some parts of an offer may fall under existing regulations, the Swiss Financial Market Supervisory Authority (FINMA) said in September.

So far, four of the five largest token sales, raising a total of over $600 million, were carried out by firms registered in Zug, a low-tax region south of Zurich known as the “crypto-valley” of the world.

In contrast, China and South Korea banned digital coin sales this year and regulators in the United States, Malaysia, Dubai, United Kingdom and Germany warned investors that current scant oversight exposed them to risks of fraud, hacking or theft.

Soaring registrations in “friendly” jurisdictions show how hard it is for national watchdogs to regulate digital coin sales. It is a challenge regulators begin to recognize.

“We are talking to other regulators, and we know that there are a lot of bilateral discussions taking place,” the Dubai Financial Services Authority said in an email to Reuters.

The U.S. Securities Exchange Commission declined to comment about the migration of coin issuers to remote jurisdictions.

The United Kingdom’s Financial Conduct Authority and Securities Commission Malaysia reiterated their stance that digital coin sales are high-risk, speculative investments and that retail investors should be aware of that.

A spokesman for Germany’s Federal Financial Supervisory Authority (BaFin) told Reuters “hopping” within the European Union would be “largely futile” since the EU supervisory authority has adopted the same stance as BaFin on the issue.

The Dubai regulator pointed out that seeking out friendly jurisdictions was not unusual, but regulators still needed to warn about the inherent risks in digital coin sales.

FILE PHOTO: A bitcoin sign is seen during Riga Comm 2017, a business technology and innovation fair in Riga, Latvia November 9, 2017. REUTERS/Ints Kalnins/File Photo

Financial regulators from South Korea and China were not immediately available for comment.

In the United States, the SEC’s July 25 ruling that digital coins should be regulated as securities had a short-lived chilling effect on the crypto-currency market. Short-lived, because many U.S. startups thought they could avoid such scrutiny by selling “utility tokens,” which gave buyers access to products or services rather than a stake in the company.

Still, concerns that regulators’ views might evolve, have made potential U.S. coin issuers consider sales overseas.

“Our lawyers certainly think regulations on utility tokens could change. So for safety, the ICO should be done outside the U.S.,” said Arran Stewart, co-founder of U.S.-based, an online employment platform which plans a token offering in the Cayman Islands in February.

In fact, out of 15 start-ups interviewed by Reuters only one, Airfox, sold digital tokens in the United States, raising $15 million last month. Others have either carried out a coin sale overseas or are planning one.

Rao, who started Leverj, a decentralized crypto-currency futures trading platform, said he picked Seychelles for fund-raising because of its openness to crypto-currencies.

“It has not issued anything negative on crypto,” Rao said.


Digital coin sales soared to about $3.6 billion by mid-November, compared with just over $100 million in the whole of 2016, according to Autonomous NEXT, which tracks technology in the financial services industry.

Typically, issuers publish a “white paper” describing their business plan and the news of new coin sales spread via online forums and websites tracking new offers. Investors pay for them with bitcoins or ether – two most widely accepted crypto-currencies – via a company’s website.

The ease with which start-ups can raise millions of dollars with little scrutiny in as little as minutes, has alarmed regulators, but without unified approach they hold little sway over that new funding market.

“It’s very difficult for governments to work together in any organized fashion,” said Lewis Cohen, a partner at Hogan Lovells in New York, which has a team of lawyers specializing in blockchain.

“Different jurisdictions will look at token sales through different lenses and it would be very difficult to get on a completely harmonized place.”

Nimble and lightly-regulated crypto-currency companies can straddle borders with ease.

For example, BANKEX, which aims to convert illiquid assets into tokens to be traded on its crypto-currency platform, is registered in Delaware and plans a coin offering in the Cayman Islands this month, said the company’s CEO Igor Khmel.

Hogan Lovell’s Cohen said that while it would be foolish to shut token sales down, they should be regulated, or self-regulated.

“We may need to have some guard rails,” he said.

“I don’t think it’s really fair for legitimate platforms that are trying to create new and innovative business models to be thrown in with other less scrupulous parties who may see token sales as a way of making a fast buck.”

(For a graphic on blockchain the key, click here)

(For a graphic on ICO jurisdictions, click here)

Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Angela Moon in New York and Heekyong Yang in Seoul; Editing by Tomasz Janowski

Our Standards:The Thomson Reuters Trust Principles.

Related Posts:

  • No Related Posts