GDC 2018: Who Is This Event For Anymore?

San Francisco is a little bit more crowded than usual today, thanks to the 2018 Game Developers Conference. For a week each March, developers from all over the world come to learn, play new games, and hopefully get a job—while journalists congregate to report on the activity of said developers (and also to get jobs). GDC is possibly the most important event of the year for the army of engineers, artists, and businesspeople who make up the commercial videogame industry: a hub of networking, showcases, and creative reflection, a place for both announcements and edification.

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Yet, like videogames itself, the conference seems to be at a crossroads. As the event has continued to grow, and its profile in the industry has increased, its purpose has begun to shift. The usual excitement still exists among those in the professional gaming (not to be confused with esports) community, who change their Twitter names to include variations “at GDC” and who populate the conference’s scheduling app with selfies and meeting requests, but it seems more than ever to be undercut with restlessness: Who is this conference even for, anyway? More than ever, huge platforms are taking a huge share of the show floor and speaking schedule. Facebook, Oculus, and even Magic Leap are all hosting multiple sessions this year.

It’s not just that the industry-wide muddling of the lines between indie and triple-A creator has hit GDC, though that’s part of it. The games ecosystem is home to a complex variety of types of developers, and the intense divide between indie and major is both fuzzier and more important than it’s felt like in the past. Mid-tier titles like PlayerUnknown’s BattleGrounds or the free-to-play Fortnite can become dizzyingly popular in a relatively short amount of time (just look to this past weekend’s record-breaking result when Drake joined forces with a popular Twitch streamer to play Fortnite‘s battle-royale mode) while the difference in costs and resources between small and big games continues to balloon. This year, at least for me, it’s not quite clear what sort of games GDC is meant to showcase, and even less clarity about what sort of developers are meant to attend—and what they’re supposed to take away from their time.

GDC is considered by many in the industry to be an essential event, the core platform for connecting with colleagues, scouting new recruits, and taking stock of the industry. But it’s become increasingly clear in recent years how limited this event really is. Taking place in one of the most expensive cities in America, it’s a stretch simply to afford accommodations for the week of the conference—and that’s not counting expo passes, travel, and any extracurricular activities. For poor or disabled American developers, and especially for international developers, GDC represents a sizable, and difficult, investment. (Meanwhile, foreign developers now have to contend with the increasing risks of entering the country in the first place, particularly if they’re from Muslim or non-white countries.)

So now, in 2018, discontent is running higher than normal, as many in the industry are wondering out loud if the Game Developer’s Conference, once lauded as the Mecca of the industry, is really the event we need.

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'Socially responsible' investors reassess Facebook ownership

NEW YORK (Reuters) – With European and U.S. lawmakers calling for investigations into reports that Facebook user data was accessed by UK based consultancy Cambridge Analytica to help President Donald Trump win the 2016 election, investors are asking even more questions about the social media company’s operations.

A Facebook sign is displayed at the Conservative Political Action Conference (CPAC) at National Harbor, Maryland, U.S., February 23, 2018. REUTERS/Joshua Roberts

An increasingly vocal base of investors who put their money where their values are had already started to sour on Facebook, one of the market’s tech darlings.

Facebook’s shares closed down nearly 7.0 percent on Monday, wiping nearly $40 billion off its market value as investors worried that potential legislation could damage the company’s advertising business.

Facebook Inc Chief Executive Mark Zuckerberg is facing calls from lawmakers to explain how the political consultancy gained improper access to data on 50 million Facebook users.

Cambridge Analytica said it strongly denies the media claims and said it deleted all Facebook data it obtained from a third-party application in 2014 after learning the information did not adhere to data protection rules.

“The lid is being opened on the black box of Facebook’s data practices, and the picture is not pretty,” said Frank Pasquale, a University of Maryland law professor who has written about Silicon Valley’s use of data.

The scrutiny presents a fresh threat to Facebook’s reputation, which is already under attack over Russia’s alleged use of Facebook tools to sway U.S. voters with divisive and false news posts before and after the 2016 election.

“We do have some concerns,” said Ron Bates, portfolio manager on the $131 million 1919 Socially Responsive Balanced Fund, a Facebook shareholder.

“The big issue of the day around customer incidents and data is something that has been discussed among ESG (environmental, social and corporate governance) investors for some time and has been a concern.”

Bates said he is encouraged by the fact that the company has acknowledged the privacy issues and is responding, and thinks it remains an appropriate investment for now.

Facebook said on Monday it had hired digital forensics firm Stroz Friedberg to carry out a comprehensive audit of Cambridge Analytica and the company had agreed to comply and give the forensics firm complete access to their servers and systems.

“What would be a deal-breaker for us would be if we saw this recurring and we saw significant risk to the consumer around privacy,” said Bates.

More than $20 trillion globally is allocated toward “responsible” investment strategies in 2016, a figure that grew by a quarter from just two years prior, according to Global Sustainable Investment Alliance, an advocacy group.

New York City Comptroller Scott Stringer, who oversees $193 billion in city pension fund assets, said in a statement to Reuters on Monday that, “as investors in Facebook, we’re closely following what are very alarming reports.”

Sustainalytics BV, a widely used research service that rates companies on their ESG performance for investors, told Reuters on Monday it is reviewing its Facebook rating, which is currently “average.”

“We’re definitely taking a look at it to see if there should be some change,” said Matthew Barg, research manager at Sustainalytics.

“Their business model is so closely tied to having access to consumer data and building off that access. You want to see that they understand that and care about that.”

ESG investors had already expressed concerns about Facebook before media reports that Cambridge Analytica harvested the private data on Facebook users to develop techniques to support Trump’s presidential campaign.

Wall Street investors, including ESG funds, have ridden the tech sector to record highs in recent months, betting on further outsized returns from stocks including Facebook, Apple Inc and Google parent Alphabet Inc.

Jennifer Sireklove, director of responsible investing at Seattle-based Parametric, a money manager with $200 billion in assets, said an increasing number of ethics-focused investors were avoiding Facebook and other social media companies, even before the most recent reports about privacy breaches.

Parametric held a call with clients on Friday to discuss concerns about investing in social media companies overall, including Google.

“More investors are starting to question whether these companies are contributing to a fair and well-informed public marketplace, or are we becoming all the more fragmented because of the ways in which these companies are operating,” she said.

Reporting by Trevor Hunnicutt and David Randall; Additional reporting by Kate Duguid in New York and Noel Randewich in San Francisco; Editing by Jennifer Ablan and Clive McKeef

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Lithium-Silicon Batteries Could Give Your Phone 30% More Power

A new battery technology could increase the power packed into phones, cars, and smartwatches by 30% or more within the next few years. The new lithium-silicon batteries, nearing production-ready status thanks to startups including Sila Technologies and Angstron Materials, will leapfrog marginal improvements in existing lithium-ion batteries.

Recent promises of breakthrough battery technology have often amounted to little, but veteran Wall Street Journal tech reporter Christopher Mims believes lithium-silicon is the real thing. So do BMW, Intel, and Qualcomm, all of of which are backing the development of the new batteries.

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The core innovation is building anodes, one of the main components of any battery, primarily from silicon. Silicon anodes hold more power than today’s graphite-based versions, but are often delicate or short-lived in real-world applications. Sila Technologies has built prototypes that solve the problem by using silicon and graphene nanoparticles to make the technology more durable, and says its design can store 20% to 40% more energy than today’s lithium-ions. Several startups are competing to build the best lithium-silicon batteries, though, and one —Enovix, backed by Intel and Qualcomm — says its approach could pack as much as 50% more energy into a smartphone.

One of the major battery suppliers for both Apple and Samsung is Amperex Technology, which has a strategic investment partnership with Sila. That could point to much more long-lasting mobile devices on the way. The new batteries, Amperex Chief Operating Officer Joe Kit Chu Lam told the Journal, will probably be announced in a consumer device within the next two years. BMW also says it aims to incorporate the technology in an electric car by 2023, increasing power capacity by 10% to 15% over lithium-ion batteries.

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China Will Block Travel for Those With Bad ‘Social Credit’

Chinese authorities will begin revoking the travel privileges of those with low scores on its so-called “social credit system,” which ranks Chinese citizens based on comprehensive monitoring of their behavior. Those who fall afoul of the system could be blocked from rail and air travel for up to a year.

China’s National Development and Reform Commission released announcements on Friday saying that the restrictions could be triggered by a broad range of offenses. According to Reuters, those include acts from spreading false information about terrorism to using expired tickets or smoking on trains.

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The Chinese government publicized its plans to create a social credit system in 2014. There is some evidence that the government’s system is entwined with China’s private credit scoring systems, such as Alibaba’s Zhima Credit, which tracks users of the AliPay smartphone payment system. It evaluates not only individuals’ financial history (which has proven problematic enough in the U.S.), but consumption patterns, education, and even social connections.

A Wired report last year found that a user with a low Zhima Credit score had to pay more to rent a bicycle, hotel room, or even an umbrella. Zhima Credit’s CEO has said, in an eerie prefiguring of the new travel restrictions, that the system “will ensure that the bad people in society don’t have a place to go, while good people can move freely and without obstruction.”

Though the policy has only now become public, Reuters says it may have come into effect earlier — in a press conference last year, an official said 6.15 million Chinese citizens had already been blocked from air travel for social misdeeds.

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Electronic Arts Will Not Sell ‘Loot Crates’ in Star Wars: Battlefront II

Video game maker Electronic Arts announced Friday that it will overhaul the progression system in the game Star Wars: Battlefront II, and that all player upgrades will be earned through gameplay. EA’s plans to sell in-game upgrades for real money, in randomized packages known in the industry as ‘loot boxes’ or ‘loot crates,’ produced a massive outcry last Fall, severely damaging the game’s financial performance.

The backlash came from both gamers and, eventually, regulators and legislators. For players, upgrades purchasable for real money seemed certain to destroy the sense of healthy competition in the primarily multiplayer game. Lawmakers and activists saw an even bigger problem, comparing the purchasable loot boxes, in a game likely to have a large audience of minors, as akin to encouraging children to gamble.

EA initially responded by hastily removing the in-game loot system, but it was unclear whether it might return, and in what form. Now EA says that items impacting gameplay “will not be available for purchase” at all, instead being rewarded to players through in-game accomplishments. Other items which don’t impact gameplay, such as character costumes, will still be purchasable with real money, and those purchases will be direct rather than randomized.

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EA’s pullback may have been influenced as much by lawmakers as consumers. Authorities in Belgium, for instance, have reportedly considered classifying video games with purchasable loot crates as forms of gambling. One Hawaii state legislator began pushing for a ban on such systems. EA’s removal of gambling-like elements will likely take some steam out of those regulatory efforts, despite less egregious versions of the idea being widespread.

Gamers’ rage, though, has already had a devastating impact. Battlefront II fell dramatically short of its sales targets, selling less than half of the 1.72 million units it was expected to in its first month. Even before that dismal performance was clear, the controversy had chopped more than $3 billion from EA’s market value.

Battlefront II’s overhauled progression system will be released on March 21st.

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YouTube Kids Has Been Promoting Conspiracy-Theory Videos

YouTube Kids, an app that is purportedly more well-policed than YouTube’s own website, contains videos promoting debunked and frightening conspiracy theories. Business Insider discovered that the app, whose users are presumably mostly children, has been suggesting the videos based on otherwise innocuous search terms.

For instance, searches for “moon landing” returned videos arguing that NASA had faked that event. A search for “UFO” led to videos by David Icke, a veteran conspiracist who claims that the Earth is ruled by a secret race of “lizard people.”

The potentially devastating impacts of showing such material to young children were illustrated back in 2009, when conspiracy theorists began circulating the idea that an invisible planet called “Nibiru” would collide with the Earth in 2012, and destroy it. A NASA astrobiologist reported receiving multiple inquiries from young people who were so terrified by the theories that they were contemplating suicide.

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According to Business Insider, YouTube, which is owned by Google, removed specific videos that it highlighted to them, but many similar videos remain accessible through the app. In a statement, YouTube said that “sometimes we miss the mark” on content curation.

But in fact, YouTube Kids seems to quite faithfully following the well-worn path by which YouTube itself has grown. A recent study found that the content-suggestion system on YouTube’s main site consistently promoted more extreme takes on topics users searched for, often including conspiracy theories and fabricated stories.

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6 Signs You're About to Be Fired

?No matter how hard you work, there’s a possibility you may someday be laid off or fired, often without much warning. However, after your boss has delivered the bad news, chances are you’ll be able to look back and think of a few warning signs.

But what if you could know in advance that the hammer was about to fall? Those who have been fired multiple times often report similar experiences in the hours, days, and even weeks before they were let go.

Here are a few signs that you may need to dust off your resume.

1. Your boss warns you.

Your boss likely won’t give you an exact date and time of your firing in advance, but many employees do get warnings. The first indication is likely your performance review, which will contain valuable insights into how your boss thinks you’re doing.

Beyond that, you may receive verbal or written warnings about certain behaviors that could put your job at risk. If you ignore those warnings and refuse to make changes, your supervisor may feel there’s no other choice but to terminate.

2. You commit fireable offenses.

Not every fired employee is guilty of an offense, but there are things you can do that will increase your risk. If you’re chronically late, for instance, you could end up on the chopping block.

In fact, in a 2017 CareerBuilder survey, a whopping 41 percent of employers said they’ve fired an employee for being late. You’ll also put a target on your back by having an affair with a coworker or client, blabbing about your company on social media, or behaving inappropriately.

3. The job is a bad fit.

When you landed the job, it may have been the right fit at the time. Or perhaps it was always a bad match, but you needed the money. Whatever the situation, if your job is no longer right for you, you may not be the only one noticing it.

Consider edging your way back into the job market by networking and keeping an eye out for opportunities that are a good fit. Otherwise, you’re not only risking termination, but you’re wasting time in a job that won’t further your career.

4. You’ve been ostracized.

It usually takes a while for employers to fire someone, especially if HR brings pressure to document everything to avoid legal issues. During that time period, any employees who know the termination is imminent can tend to distance themselves from the person. You may notice people have difficulty making eye contact or you are shut out of important meetings. If you start to feel as though people are avoiding you, it might be time to get your resume ready.

5. Your boss’s behavior has changed.

In the months leading up to a termination, an employee often finds his or her boss has a sudden change in behavior. I’ve seen this run in extremes. At one job years ago, not too long before I was let go, my boss began clamping down on me, micromanaging my every move. I’ve also seen it where a soon-to-be-fired colleague found themselves completely abandoned by the boss. Either way, this type of sudden behavior change isn’t usually good news.

6. Your company has changed.

Layoffs and terminations often occur as a result of a company-wide change. It could be something as simple as losing a big client, cutting the business’s income. Mergers and acquisitions also prompt unexpected staff changes, sometimes impacting large groups of people at once.

It’s important to realize that not every company change will result in terminations. However, employers will usually expend a great deal of effort reassuring employees nothing will change, only to turn around and make changes soon after.

As a journalist and employee of television and radio stations, I saw this situation repeatedly because of the ever-changing media landscape and the layoffs that came with it over the years. You sometimes get a little too familiar with that feeling of dread that pops up before an expected layoff. The best remedy for this is to always keep your resume up to date.

Firings often catch people by surprise, even if there were warning signs. But if you begin to feel uncomfortable with your work situation, you can always meet with a recruiter or begin networking in your industry to make valuable connections. Once you are ready to begin looking for a job, you’ll be in a position to quickly move on to something else.

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The VR Metaverse of 'Ready Player One' Is Just Beyond Our Grasp

Virtual reality, as it’s been promised to us by science fiction, is a singular realm of infinite possibility. Star Trek’s Holodeck, Yu-Gi-Oh!’s Virtual World, Snow Crash’s Metaverse: Each is the all-powerful experience generator of its world, able to accommodate a character’s any desire. Novelist Ernest Cline sharpened this vision in his 2011 debut, Ready Player One, which hits theaters in March courtesy of Steven Spielberg. While the story is set in the strife-torn meatspace of 2045, most of its action unfolds in a vast network of artificial worlds called the OASIS. And in the tradition of reality playing catch-up to sci-fi, the OASIS has become the endgame for real-world VR developers, many of whom are actively trying to replicate its promise. Are they making progress? Absolutely. Are they doing it right? Absolutely not.

The OASIS is saddled with a terrible acronym—hopefully Spielberg never lets one of his characters say “Ontologically Anthropocentric Sensory Immersive Simulation”—but it offers something attractive: breadth. Some of the environments contained in the OASIS are created by users, others by government agencies; they range from educational to recreational (reconstructions of ’80s fantasy novels are popular), nonprofit to commercial.

Today’s real-life multiuser VR experiences, by contrast, are less OASIS and more ­PUDDLE (Provisionally Usable Demonstration of Dazz­ling Lucid Environments). Some of the constraints are aesthetic: In AltspaceVR, users are limited to a narrow range of expressionless human and robot avatars, while the goofy up-with-people charm of Against Gravity’s Rec Room hinges on you not caring that avatars lack noses. Other constraints are experiential: Facebook’s Spaces lets you hang out only with people you’re already Friends with. Startups with OASIS-size ambitions are hampered by still other issues, whether that’s a noob-unfriendly world-building system (Sansar) or a dark-side-of-Reddit vibe that invites trollery (VRchat).

The problem, though, isn’t such metaphorical boundaries—it’s literal ones. None of these PUDDLEs touch. You can’t hop from Rec Room to VRchat; you’re stuck where you started. That’s why it’s hard to feel truly immersed. To reach Cline’s 2045, developers need to start laying the foundation now for an infrastructure that links each of these worlds. If that sounds idealistic, or even dangerous, it’s not. Think of the days before the internet, when various institutions ran their own walled-off networks. Only when computer scientists came together to standardize protocols did the idea of a single network become possible. Now imagine applying that notion to VR—a metaverse in which users can flit between domains without losing their identity or their bearings as they travel.

The OASIS works because it feels like it has no owners, no urgent needs. It’s a utility, a toolkit available for artisans and corporations alike. If we want to realize this potential ourselves—universal freedom and possibility—let’s start thinking about VR the way Cline does: not as a first-to-market commodity, but as an internet all its own.

Peter Rubin (@provenself) is the author of the upcoming book Future Presence.

This article appears in the March issue. Subscribe now.

All photo references by Getty Images

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Bitcoin exchange reaches deal with Barclays for UK transactions

LONDON (Reuters) – One of the biggest bitcoin exchanges has struck a rare deal which will allow it to open a bank account with Britain’s Barclays, making it easier for UK customers of the exchange to buy and sell cryptocurrencies, the UK boss of the exchange said on Wednesday.

Workers are seen in at Barclays bank offices in the Canary Wharf financial district in London, Britain, November 17, 2017. Picture taken November 17, 2017. REUTERS/Toby Melville

Large global banks have been reluctant to do business with companies that handle bitcoin and other digital coins because of concerns they are used by criminals to launder money and that regulators will soon crack down on them.

San Francisco-based exchange, Coinbase, said its UK subsidiary was the first to be granted an e-money license by the UK’s financial watchdog, a precursor to getting the banking relationship with Barclays.

The Barclays account will make it easier for British customers. Previously, they had to transfer pounds into euros and go through an Estonian bank.

“Having domestic GBP payments with Barclays reduces the cost, improves the customer experience…and makes the transaction faster,” said Zeeshan Feroz, Coinbase’s UK CEO.

The UK is the largest market for Coinbase in Europe, and the exchange said its customer base in the region was growing at twice the rate of elsewhere.

A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration taken December 8, 2017. REUTERS/Benoit Tessier/Illustration

Feroz said that it took considerable time to get a UK bank on board, partly because Barclays needed to be sure that Coinbase had the right systems in place to prevent money laundering.

Regulators across the globe have warned that cryptocurrencies are used by criminals to launder money, and some exchanges have been shut down.

“It’s a completely brand new industry. There’s a lot of understanding and risk management that’s needed,” Feroz said.

Despite growing interest in both digital currencies and the technology behind them, some big lenders have limited their customers ability to buy cryptocurrencies, fearing a plunge in their value will leave customers unable to repay debts.

In February, British banks Lloyds and Virgin Money said they would ban credit card customers from buying cryptocurrencies, following the lead of JP Morgan and Citigroup. [nL8N1PU10Y]

Coinbase said it had also become the first crypto exchange to use Britain’s Faster Payments Scheme, a network used by the traditional financial industry.

Reporting by Tommy Wilkes and Emma Rumney; Editing by Elaine Hardcastle

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Hybrid cloud file and object pushes the frontiers of storage

Use of public cloud services have been widely adopted by IT departments around the world. But it has become clear hybrid solutions that span on- and off-premises deployment are often superior, and seem to be on the rise.

However, to get data in and out of the public cloud can be tricky from a performance and consistency point of view. So, could a new wave of distributed file systems and object stores hold the answer?

Hybrid cloud operations require the ability to move data between private and public datacentres. Without data mobility, public and private cloud are nothing more than two separate environments that can’t exploit the benefits of data and application portability.

Looking at the storage that underpins public and private cloud, there are potentially three options available.

Block storage, traditionally used for high-performance input/output (I/O), doesn’t offer practical mobility features. The technology is great on-premise, or across locations operated by the same organisation.

That’s because block access storage depends on the use of a file system above the block level to organise data and provide functionality. For example, snapshots and replication depend on the maintenance of strict consistency between data instances.

Meanwhile, object storage provides high scalability and ubiquitous access, but can lag in terms of data integrity and performance capabilities required by modern applications.

Last writer wins

There’s also no concept of object locking – it’s simply a case of last writer wins. This is great for relatively static content, but not practical for database applications or analytics that need to do partial content reads and updates.

But, object storage is a method of choice for some hybrid cloud storage distributed environments. It can work to provide a single object/file environment across locations with S3 almost a de facto standard for access between sites.

File storage sits between the two extremes. It offers high scalability, data integrity and security and file systems have locking that protect against concurrent updates either locally or globally, depending on how lock management is implemented. Often, file system data security permissions integrate with existing credentials management systems like Active Directory.

File systems, like object storage, implement a single global name space that abstracts from the underlying hardware and provide consistency in accessing content, wherever it is located. Some object storage-based systems also provide file access via network file system (NFS) and server message block protocol (SMB).

In some ways what we’re looking at here are a development of the parallel file system, or its key functionality, for hybrid cloud operations.

Distributed and parallel file systems have been on the market for years. Dell EMC is a market leader with its Isilon hardware platform. Also, DDN offers a hardware solution called Gridscaler and there are also a range of other software solutions like Lustre, Ceph and IBM’s Spectrum Scale (GPFS).

But these are not built for hybrid cloud operations. So, what do new solutions offer over the traditional suppliers?

Distributed file systems 2.0

The new wave of distributed file systems and object stores are built to operate in hybrid cloud environments. In other words, they are designed to work across private and public environments.

Key to this is support for public cloud and the capability to deploy a scale-out file/object cluster in the public cloud and span on/off-premise operations with a hybrid solution.

Native support for public cloud means much more than simply running a software instance in a cloud VM. Solutions need to be deployable with automation, understand the performance characteristics of storage in cloud instances and be lightweight and efficient to reduce costs as much as possible.

New distributed file systems in particular are designed to cover applications that require very low latency to operate efficiently. These include traditional databases, high-performance analytics, financial trading and general high-performance computing applications, such as life sciences and media/entertainment.

By providing data mobility, these new distributed file systems allow end users and IT organisations to take advantage of cheap compute in public cloud, while maintaining data consistency across geographic boundaries.

Supplier roundup

WekaIO was founded in 2013 and has spent almost five years developing a scale-out parallel file system solution called Matrix. Matrix is a POSIX-compliant file system that was specifically designed for NVMe storage.

As a scale-out storage offering, Matrix runs across a cluster of commodity storage servers or can be deployed in the public cloud and run on standard compute instances using local SSD block storage. It also claims hybrid operations are possible, with the ability to tier to public cloud services. WekaIO publishes latency figures as low as 200µs and I/O throughput of 20,000 to 50,000 IOPS per CPU core.

Elastifile was founded in 2014 and has a team with a range of successful storage product developments behind it, including XtremIO and XIV. The Elastifile Cloud File System (ECFS) is a software solution built to scale across thousands of compute nodes, offering file, block and object storage.

ECFS is designed to support heterogeneous environments, including public and private cloud environments under a single global name space. Today, this is achieved using a feature called CloudConnect, which bridges the gap between on-premise and cloud deployments.

Qumulo was founded in 2012 by a team that previously worked on developing the Isilon scale-out NAS platform. The Qumulo File Fabric (QF2) is a scale-out software solution that can be deployed on commodity hardware or in the public cloud.

Cross-platform capabilities are provided through the ability to replicate file shares between physical locations using a feature called Continuous Replication. Although primarily a software solution, QF2 is available as an appliance with a throughput of 4GBps per node (minimum four nodes), although no latency figures are quoted.

Object storage maker Cloudian announced an upgrade in January 2018 to its Hyperstore product which brings true hybrid cloud operations across Microsoft, Amazon and Google cloud environments with data portability between them. Cloudian is based on the Apache Cassandra open source distributed database.

It can come as storage software that customers deploy on commodity hardware, in cloud software format or in hardware appliance form. Hyperfile file access – which is Posix/Windows compliant – can also be deployed on-premise and in the cloud to provide file access.

Multi-cloud data controller

Another object storage specialist, Scality, will release a commercially supported version of its “multi-cloud data controller” Zenko at the end of March. The product promises to allow customers hybrid cloud functionality; to move, replicate, tier, migrate and search data across on-premise, private cloud locations and public cloud, although it’s not that clear how seamless those operations will be.

Zenko is based on Scality’s 2016 launch of its S3 server, which provided S3 access to Scality Ring object storage. The key concept behind Zenko is to allow customers to mix and match Scality on-site storage with storage from different cloud providers, initially Amazon Web Services, Google Cloud Platform and Microsoft Azure.

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Microsoft women filed 238 discrimination and harassment complaints

SAN FRANCISCO (Reuters) – Women at Microsoft Corp working in U.S.-based technical jobs filed 238 internal complaints about gender discrimination or sexual harassment between 2010 and 2016, according to court filings made public on Monday.

FILE PHOTO: The Microsoft logo is shown on the Microsoft Theatre in Los Angeles, California, U.S., June 13, 2017. REUTERS/Mike Blake/File Photo – RC177D20CF10

The figure was cited by plaintiffs suing Microsoft for systematically denying pay raises or promotions to women at the world’s largest software company. Microsoft denies it had any such policy.

The lawsuit, filed in Seattle federal court in 2015, is attracting wider attention after a series of powerful men have left or been fired from their jobs in entertainment, the media and politics for sexual misconduct.

Plaintiffs’ attorneys are pushing to proceed as a class action lawsuit, which could cover more than 8,000 women.

More details about Microsoft’s human resources practices were made public on Monday in legal filings submitted as part of that process.

The two sides are exchanging documents ahead of trial, which has not been scheduled.

Out of 118 gender discrimination complaints filed by women at Microsoft, only one was deemed“founded” by the company, according to the unsealed court filings.

Attorneys for the women described the number of complaints as“shocking” in the court filings, and said the response by Microsoft’s investigations team was“lackluster.”

Companies generally keep information about internal discrimination complaints private, making it unclear how the number of complaints at Microsoft compares to those at its competitors.

In a statement on Tuesday, Microsoft said it had a robust system to investigate concerns raised by its employees, and that it wanted them to speak up.

Microsoft budgets more than $55 million a year to promote diversity and inclusion, it said in court filings. The company had about 74,000 U.S. employees at the end of 2017.

Microsoft said the plaintiffs cannot cite one example of a pay or promotion problem in which Microsoft’s investigations team should have found a violation of company policy but did not.

U.S. District Judge James Robart has not yet ruled on the plaintiffs’ request for class action status.

A Reuters review of federal lawsuits filed between 2006 and 2016 revealed hundreds containing sexual harassment allegations where companies used common civil litigation tactics to keep potentially damning information under wraps.

Microsoft had argued that the number of womens’ human resources complaints should be secret because publicizing the outcomes could deter employees from reporting future abuses.

A court-appointed official found that scenario“far too remote a competitive or business harm” to justify keeping the information sealed.

Reporting by Dan Levine; Additional reporting by Salvador Rodriguez; Editing by Bill Rigby, Edwina Gibbs and Bernadette Baum

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AT&T & Time Warner: Prepare For The Worst

When news broke that AT&T (T) was purchasing Time Warner (TWX) in a cash and stock deal valued at $107.50 for Time Warner holders I felt very confident that the move would improve AT&T’s profitability and widen its moat. AT&T was (and remains) one of my largest positions, so the news was welcome as I previewed the prospective ecosystem where premium original content and provider flowed seamlessly together permitting AT&T to leverage both as a compelling consumer package.

AT&T has a lucrative history marketing ‘bundle deals’ via DirecTV/U-verse, phone and internet. Adding Time Warner’s content to the mix was like adding another weapon to their arsenal. The move would fortify their position in an era where content is king and the average American residence has nearly 3 TVs per household.

With more and more customers embracing OTT services like Netflix (NFLX) and ditching cable, AT&T recognized the writing on the wall and (potentially) acquired Time Warner to help mitigate the impact and diversify them away from their reliance on legacy telecom services.

Perhaps it was not only adding a weapon to their arsenal but adding a shield to insulate them from the evolving landscape. I credit the management team led by CEO Randall Stephenson for their proactive approach getting ahead of the curve.

Obviously Time Warner’s stock popped immediately on the news while AT&T’s gyrated as investors digested the antitrust risks and whether or not AT&T overpaid.

Let’s take a look at those risks now.

Did AT&T Overpay?

The buyout offer did not come cheap ($85B) and some analysts groaned that while Time Warner was a nice asset, it came at too high a cost. But obtaining regulatory approval would be no walk in the park and AT&T knew they were in for protracted litigation. Let’s look at the EPS and Revenue numbers for the last two FYs for Time Warner:


You will note that on an EPS basis, Time Warner jumped about 9% year over year from $5.86 to $6.41. Time Warner grew EPS over 20% the year before that. When the $107.5 price tag was initially applied to the prior 4 quarters of earnings in October 2016, the P/E ratio stood at approximately 21.

That did look a bit steep.

However, the deal has not closed and when applying today’s earnings to the buyout price, the P/E ratio dips to 16.7. That looks much healthier. You have to tip your hat to AT&T’s management here since they had the prescience to realize that while the initial premium to Warner shareholders seemed lofty, it allowed them to garner unanimous approval from both boards by offering a rich enough premium to Warner holders while not seeming reckless to AT&T holders.

Stephenson and company knew earnings would continue to rise for the content king and before (IF) the deal closes, they will look like geniuses as earning would have grown into the multiple applied at the time of the offer.

Regulatory Risk

And that brings us to the elephant in the room: whether AT&T can out-litigate the DOJ in their pending antitrust case. President Trump has been vocal in his opposition to the buyout and may see it as fulfilling a campaign promise to defeat the deal. But Trump will not have the final word, it will be adjudicated in the courtroom not the political arena, however you would be naïve to believe that those worlds don’t intersect despite our system of checks and balances.

In the interim, AT&T has tried to curry favor with the Trump Administration by announcing bonuses to its employees and lauding the President for the tax bill. Nevertheless, the antitrust team is pushing ahead with bluster and bravado to paint the government as underdogs thwarting corporate strong-arming.

In November of last year I penned a post in the immediate aftermath of DOJ filing suit recommending purchasing shares of Time Warner during the turmoil called, “Time Warner: Heads I Win, Tails You Lose”. In just two days TWX share price plummeted from $95 to below $87. I quickly logged into my brokerage account to pick up shares of Time Warner in the $80’s.

In the post I explained why the volatility generated a perfect arbitrage opportunity, in summary:

This remains mostly true today, however Time Warner’s share price has since rebounded near $95 thereby shrinking some of the potential returns if the buyout is approved. While I have contacts within the antitrust division of the DOJ from my Washington days, they are not at liberty to speak about the case and therefore I know only as much as the public announcements trickling out on a daily basis.

And it is my opinion that the deal looks less likely to succeed now than it did 4 months ago when I wrote that post. But that reminds me of a saying by Clive Davis:


Prepare To Take Action:

During the previous dip, I was on vacation with my wife refilling the gas tank when I checked the market news to find out that Time Warner was selling off. We waited at that pit stop probably longer than she preferred so I could buy shares since I knew that the dip was an overreaction and would not last.

This time, I am planning ahead by placing limit buy orders at $85 and below that are good-til-cancelled in the scenario where the DOJ wins and/or impactful news hits the stock causing a knee-jerk reaction. In essence the hypothetical case looks like this:


In the portion of the chart above circled, you will see a red candlestick where news adversely impacted a stock sending it cascading into free-fall. But you will also notice the rapid rebound where the stock recovered quickly above that price.

The window to pounce and take advantage of the dip was small. That is why I am preparing to maximize the opportunity if it presents itself again. I believe that owning Time Warner shares at $85 and below provides a margin of safety if the two parties are forced to go their separate ways.

Time Warner Flying Solo?

Will I be saddled with overvalued shares of Time Warner purchased at $85? I doubt it. Here’s why:

Growth for Time Warner shows no signs of abatement as each operating division increased revenue and profits in the latest quarter (yet again). HBO’s subscription revenues increased 11% and its unparalleled show Game of Thrones is not due back until 2019. I expect an even larger increase in the months building up to the premiere.

Additionally, on the heels (pun intended) of Wonder Woman’s success, and in the backdrop of the #metoo movement, I believe Warner Bros. has incentive to continue to produce content with powerful heroines. HBO produced an amazing women focused hit with Big Little Lies and it’s due back for a second season featuring Meryl Streep. HBO made a savvy move by riding the coattails of Reese Witherspoon’s success.

On the cable news front, CNN was rated the #1 network in primetime and total day viewership among young adults and tops in digital news as well (from their 4Q earnings release). Whether you believe the treatment of the Trump Administration is favorable or not, it has been favorable to the bottom line of CNN.

And those are just a few samples of the many reasons why I remain bullish on Time Warner.

No one knows for certain how the trial will shake out, but I am positioning myself for success no matter the outcome.

Disclosure: I am/we are long T, TWX.

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.

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After a Century of Daylight Saving Time, Its Benefits Are Still Unclear

Some tonight, you will either manually set your clocks ahead an hour, or (more likely) your various smartphones, tablets, and computing devices will adjust themselves for you. Those devices will be carrying forward a practice that dates to March of 1918, when the U.S. — following Germany and Great Britain – implemented a plan for Daylight Saving Time.

The initial justification for the policy, implemented by Woodrow Wilson, was that it would save energy that could go towards helping fight World War I. The same rationale would be used for the expansion of Daylight Saving in later decades, including its national formalization in the 1960s.

Following World War I, though, a different rationale surfaced. According to Smithsonian Magazine, department store owners pushed for the policy to continue, since more people shopped after work when it was light out later. The policy has also benefited sports like golf.

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Those motives haven’t proven entirely durable. One study found that Daylight Savings actually increased home energy consumption and emissions, though a conflicting Department of Energy study found a small but significant decline. More damning was a 2016 J.P. Morgan study finding that, while there’s some boost to spending when Daylight Savings Time goes into effect, it’s offset by a substantial drop when clocks are switched back.

And Daylight Saving does not, contrary to widespread myth, particularly benefit farmers. In fact, farmers lobbied against it for decades.

So the commercial motives for Daylight Saving Time may not be all they’re cracked up to be. Some subtler positive effects have been measured, including declines in robberies – but so have increases in heart attacks and workplace accidents, thanks to the effects of sleep disruption.

On balance, the objective evidence against Daylight Saving Time seems to outweigh arguments in its favor. But groups lobbying to eliminate it have an uphill battle – polls in recent years show a majority of Americans still support the policy, even if it costs them sleep once a year.

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‘Black Panther’ Should Become Marvel’s Latest Billion-Dollar Movie This Weekend

Black Panther is already the biggest movie of 2018, and now the latest superhero blockbuster from Marvel and Walt Disney is on the precipice of cracking $1 billion in worldwide box-office revenue.

Entering its fourth weekend in movie theaters, the movie still has its claws dug into the top spot at the box office as it debuts in China, the world’s second-largest movie market, for this first time. Black Panther should climb past the $1 billion mark this weekend, having reached $940 million in global grosses during the week, including $22.7 million in its opening-day haul in China on Friday. That gave Black Panther the best opening day gross in China for a Marvel movie since 2016’s Captain America: Civil War, which took in over $30 million on its first day in Chinese theaters on its way to grossing a whopping $180 million in that country overall.

Black Panther would also be the first Marvel movie to reach $1 billion since Civil War cleared $1.15 billion two years ago, and the fifth so far from Disney’s Marvel Cinematic Universe. The movie is already the second highest-grossing Marvel film domestically, with its $520 million haul in North America trailing only 2012’s The Avengers, at $623 million domestically ($1.5 billion worldwide), according to Box Office Mojo.

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Black Panther only needs roughly $60 million worldwide at this weekend’s box office to reach $1 billion after pulling in roughly $122 million globally last weekend. Barring a larger-than-expected drop-off, the film should coast past that milestone.

However, Black Panther could still lose its box-office crown this weekend to newcomer (and fellow Disney film) A Wrinkle in Time. Director Ava DuVernay‘s adaptation of the popular young-adult novel of the same name has been highly-anticipated since Disney made her the first-ever black woman to direct a movie with a budget over $100 million. Disney has been promoting the film heavily for months, though its recent mixed reviews from critics could dampen A Wrinkle in Time‘s opening weekend box-office performance. Variety reports that the film is forecasted to gross roughly $35 million domestically this weekend, which may not quite be enough to stop Black Panther from a fourth weekend of dominance.

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raceAhead: New Research From Accenture For A More Equitable Workplace

To prime your mind, sorry, your soul, for International Women’s Day 2018, I thought I’d flag some research we’ll be discussing tomorrow at Accenture’s IWD Event.

In Getting to Equal, Accenture surveyed more than 22,000 working people with a university education in 34 countries to better understand how they feel about their company’s culture.

As a result, they’ve found 40 distinct factors that they say are statistically shown to lead to happier employees who are more likely to stick around, and where marginalized groups are more likely to reach parity.

Since 40 is a lot for a breezy newsletter, here are 14 of the practices their research suggests are statistically likely to be most meaningful.


  • Gender diversity is a priority for management.
  • A diversity target or goal is shared outside the organization.
  • The organization clearly states gender pay-gap goals and ambitions.


  • Progress has been made in attracting, retaining and progressing women.
  • The company has a women’s network.
  • The company has a women’s network open to men.
  • Men are encouraged to take parental leave.


  • Employees have never been asked to change their appearance to conform to company culture.
  • Employees have the freedom to be creative and innovative.
  • Virtual/remote working is widely available and is common practice.
  • The organization provides training to keep its employees’ skills relevant.
  • Employees can avoid overseas or long-distance travel via virtual meetings.
  • Employees can work from home on a day when they have a personal commitment.
  • Employees are comfortable reporting sex discrimination/sexual harassment incident(s) to the company.

Now, none of these sound groundbreaking until you realize how few companies do any of them with real transparency, accountability or commitment, and how much of an impact these changes can have.

According to Ellyn Shook, Accenture’s human resources chief, female employees of companies who take this stuff seriously are four times as likely to reach senior manager and director levels, and see an average pay increase of 51%.

In a world where women have to have two degrees to get the same salary as a man with one, this would be a pretty big boost.

Says Shook, the commitment must come from the top, but the work falls to everyone. “When we commit as individuals to make change, collectively we lift each other up, paving the way for workplace equality.”

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A Former Apple Security Engineer’s Company Will Unlock Your iPhone X—for $15,000

A new company has emerged that claims to be able to unlock any iPhone. And this one might be run by a former Apple security engineer.

The company, called Grayshift, has released marketing materials to police and forensics organizations promising to unlock iPhones with its GrayKey tool, according to Forbes, which obtained a copy of those materials. GrayKey will cost law enforcement $15,000 for 300 uses. Those that want to be able to unlock iPhones an unlimited number of times will need to pay $30,000.

After receiving the documents, Forbes dug into the people behind Grayshift. Although it was difficult to arrive at conclusions, since the company has remained silent and its employees kept as secretive as possible, the publication believes that at least one former Apple security engineer works at the company. In fact, two former security engineers are listed as principals at Grayshift—a title often used to describe owners.

Shadowy companies are standard fare in the security world, where hacking—for both good and bad purposes—requires significant behind-the-scenes work. Apple’s iPhones are notoriously difficult to crack and have become a source of complication and concern for law enforcement agencies attempting to investigate a case.

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Since a user’s iPhone data is safeguarded by a variety of protections and encryption, law enforcement will often need the subject of an investigation to cooperate and give them access to his or her data. When that doesn’t happen, law enforcement can often times be left in the dark if officials don’t have a way to break into an iPhone to spy on data. Law enforcement officials have decried the security protections in iPhones and other handsets, but Apple and rights advocates argue every individual has a right to privacy.

Companies that can crack iPhones and sell their techniques to law enforcement, however, stand to make a significant sum. If Grayshift has indeed found a way to unlock iPhones, the company could stand to generate significant revenue selling the exploit to law enforcement.

According to Forbes‘ investigation, Grayshift has designed ads that promise to unlock iPhones running iOS 10 and iOS 11, the latest two mobile Apple operating systems. The company is promising to be able to crack iPhones running iOS 9 in the near future. On the hardware front, Grayshift said that its GrayKey technology will work on every major iPhone release, including the iPhone 8 and iPhone X Apple released last year. The publication’s unidentified source also said that he or she had seen GrayKey in action and was able to unlock a locked iPhone X.

The revelation comes just days after another security company, Cellebrite, announced that it could unlock the latest Apple handsets, including iPhone X.

Apple did not immediately respond to a Fortune request for comment on the report.

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YouTube Shows How Not to Do Diversity

You want a diverse workforce, but discriminating against any single group is still illegal. A lawsuit filed by Arne Wilberg, who worked as a recruiter at YouTube for four years (and five years in other positions), claims that YouTube set quotas, and told recruiters to cancel interviews with candidates that didn’t mean the company’s diversity goals. This meant that white and Asian males were rejected on the basis of their race and gender alone.

Sometimes people think that only minorities and women are in a “protected” class, but the reality is that every human on the planet is in a “protected class” according to US law. The law prohibits discrimination on the basis of sex and race, period. It doesn’t just protect people of certain races.

The Wall Street Journal reports that Google (who owns YouTube) will “vigorously” defend it’s hiring practices. A Google spokeswoman said: 

“We have a clear policy to hire candidates based on their merit, not their identity. At the same time, we unapologetically try to find a diverse pool of qualified candidates for open roles, as this helps us hire the best people, improve our culture, and build better products.”

Whether or not Wilberg’s allegations are true is up in the air, as it is with all lawsuits at the beginning, but his allegations are serious. Refusing to consider a candidate because of race or gender (regardless of what that race and gender are), is a violation of Title VII. 

Under Title VII, employers are allowed to make efforts to expand their applicant pool by promoting diversity, but the actual candidates have to be considered on their merit, and not their skin color. 

The Wall Street Journal says that Wilberg’s allegations are corroborated by others at Youtube. They write:

The lawsuit filed by Mr. Wilberg and people familiar with the hiring practices allege that since at least 2016, YouTube recruiters had hiring quotas or targets for “diversity candidates,” including black, Hispanic and female candidates. For example, in the first quarter of 2016, recruiters were expected to hire five new employees each, all of them from underrepresented groups, the lawsuit alleges.

This isn’t the only diversity lawsuit against YouTube’s parent company, Google. James Damore claimed that the company discriminated against white males and conservatives. (Political views are protected in California but not according to federal law.) And in September 2017, three women filed a class-action lawsuit claiming gender and pay bias against women

One plaintiffs, Kelly Ellis, alleged that she was assigned to a lower level than her similarly qualified male counterparts when she was hired as a software engineer on the Google Photos team in 2010. In the complaint, Ms. Ellis claimed she was brought in at a level typically given to new college graduates, despite her four years of engineering experience. She asked for a promotion after learning that she had equal or better qualifications than male engineers in a higher level, and after receiving “excellent performance reviews.” She said she was denied. According to the complaint, Ms. Ellis resigned from Google around July 2014 due to “the sexist culture.”

Regardless of what the truth is–and it’s possible that Google simultaneously removes white and Asian men from the candidate pool and underpays female employees–it’s clear that many people believe Google has a problem with how it treats employees and job candidates.

Remember, if you want to implement a diversity initiative, you certainly can do that, but you need to pay people fairly and hire the best candidate for every job, regardless of what the person looks like. If you don’t, you’re guilty of illegal discrimination. 

These lawsuits will be interesting to watch, whatever happens. 

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With a Single, Insulting Tweet, Uber's CEO Just Destroyed Months of Hard Work

I’m a fan of Uber CEO Dara Khosrowshahi. In a few months, he’s worked hard to transform Uber’s image from a company known for bad behavior to one that is eager to learn from its mistakes and play nice with others.

But a recent tweet from Khosrowshahi threatens to destroy the image he’s worked so hard to establish. In response to a critical study by MIT’s Center for Energy and Environmental Policy Research (CEEPR), Khosrowshahi mocked the famed research university, tweeting that: “MIT = Mathematically Incompetent Theories (at least as it pertains to ride-sharing).”


The fact is, Khosrowshahi may be correct in his assertion that the study is basically flawed. But the mocking tone of this tweet demonstrates a lack of emotional intelligence. Before I explain why, let’s take a closer look at the context.

The (potential) problem with MIT’s study

It all began when MIT recently published a study that shared some alarming numbers in the ridesharing industry.

The study, entitled The Economics of Ride-Hailing: Driver Revenue, Expenses and Taxes, was carried out by the MIT Center for Energy and Environmental Policy Research. The team paired survey data of more than 1,100 drivers working for Uber and Lyft with information regarding the current costs of operating a vehicle (e.g., fuel, insurance, maintenance, and repairs) to help determine driver wages per hour.

Initially, researchers found that:

  • median profit from driving is $3.37/hour before taxes;
  • 74% of drivers earn less than the minimum wage in their state; and, 
  • 30% of drivers are actually losing money once vehicle expenses are included.

Uber was quick to respond to these claims.

Jonathan Hall, the company’s chief economist, published a lengthy and thoughtful criticism of the study on Medium. Hall believes that drivers’ hourly earnings should be listed as much higher. He estimates the problem comes down to the authors’ methodology, which he believes demonstrates inconsistent logic and a possible misinterpretation of the data. According to Hall, this error led to findings that “[differ] markedly from previous academic studies on the topic of driver earnings.”

Actually, Hall makes some good points. In fact, the MIT study’s lead author, Stephen Zoepf, admitted as much in a statement he made to Reuters via email. “I can see how the question on revenue might have been interpreted differently by respondents,” wrote Zoepf. “I’m re-running the analysis this weekend using Uber’s more optimistic assumptions and should have new results and a public response acknowledging the discrepancy by Monday.”

What emotional intelligence has to do with it

I praise Hall’s rebuttal as not only thoughtful, but also respectful. Hall strikes a conciliatory tone when he shares that his team has “reached out to the paper’s authors to share [their] concerns and to suggest ways we might work together to refine their approach.” Hall also acknowledges he has no issue with how the MIT researchers estimate the costs of operating a car; in doing so, he implies there may be problems that need to be addressed.

In contrast, Khosrowshahi’s sarcastic, attacking tweet is not only disrespectful, it shows a lack of ability to benefit from criticism. It brings back memories of “the old Uber,” which was marked by hubris and a “fight-picking” mentality.

To be clear, the researchers only released a brief on the study; the full results haven’t yet been published. But the questions being risen are by no means new. For example, are ridesharing drivers grossly underestimating their profits, failing to factor in costs for additional fuel, maintenance, and repairs for their cars? How will tax and insurance laws need to change to accommodate the ridesharing economy? These are questions that Uber will eventually be forced to answer.

Of course, nobody’s perfect, and Khosrowshahi will continue to make his share of mistakes. But while I continue to applaud his efforts to improve Uber’s culture and image, this tweet reminds us that there is still a long, difficult road ahead.

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Two 11%+ Yielders To Buy After Earnings Reports (REITs/MLPs)

This research report was jointly produced with High Dividend Opportunities co-author Jussi Askola.

We are currently in a raging bull market, and since November 2016, “growth and momentum stocks” have strongly outperformed “value stocks”. Many high-yield sectors, notably Property REITs, BDCs, and Midstream MLPs, were out of favor and became value sectors.

There is plenty of good news that income investors should take into account:

  1. High Dividend Sectors are Cheap! The good news is that today, several high-yield sectors are trading at their lowest valuations in years and currently offer investors a unique entry point.

  2. Value Stocks outperform growth stocks over the long term: Investors should note that over the long term, “value stocks” tend to outperform “growth stocks”. Based on a study by Bank of America/Merrill Lynch over a 90-year period, growth stocks returned an average of 12.6% annually since 1926. At the same time, value stocks generated an average return of 17% per year over the same time frame. “Value has outperformed Growth in roughly three out of every five years over this period”.

  3. Downside Risk is Limited: In a world where equity markets keep trading at “all-time highs” and looking “expensive”, value dividend stocks, such as REITs, MLPs, and BDCs, still trade at very cheap valuations. Therefore, in case of any market turbulence or market correction, the downside potential should be very limited.

Currently, the high yield space is offering some unique buying opportunities. At “High Dividend Opportunities“, we focus on stocks trading at low valuations, or in other words “value stocks”. Today, we highlight two cheap stocks that investors should consider after they reported their 4th quarter earnings – with yields above 11%.

ETP Earnings Report: A Stellar Quarter – Yield 11.8%

Energy Transfer Partners (NYSE:ETP), a stock we recently covered on Seeking Alpha, reported its 4th quarter earnings, swinging to huge profits.

  • Revenue came in at $8.61 billion, up 32% year over year.
  • Adjusted EBITDA totaled $1.94 billion for the 4th quarter, up more than 30%.
  • Distributable cash flow increased by $240 million to $1.2 billion, or 25% higher compared to the same quarter a year ago.
  • The dividend coverage ratio soared to 130% for the quarter and 120% for the year.

In addition, the company raised nearly $2 billion in two transactions that significantly increased parent liquidity. These two transactions included the sale of Sunoco LP common units for $540 million and the sale of the compression business to USA Compression Partners LP (NYSE:USAC) for $1.7 billion (of which $1.3 billion was in cash and the rest in equity). In the meantime, these shares will demonstrate to the market that ETP, as the new partner, is aligned with the limited partner interests of USA Compression Partners LP.

Investors can look forward to more good news this year. Many capital projects have come on-line. That once-ambitious schedule of growth will now result in a lot of cash flow. The acquisition of the general partnership of USA Compression Partners by ETP’s parent company Energy Transfer Equity (NYSE:ETE) opens another avenue of growth. There is great chance that more good earning news is on the way this next fiscal year. ETP’s credit line with the banks now has about $4 billion unused. This could provide an excellent way to acquire more assets and grow in the future.


Source: Q4 ETP Presentation

In order to conduct an accurate valuation (using full-year numbers), it is best to back out any “distribution incentive rights” (including relinquishment) and any general partner interest from the “distributable cash flows” (“DCF”). DCF for the 12 months was at $3,494 million; less IDR relinquishment and GP interest of $672 million, we get $2,822 million in DCF.

At the most recent price of $19.21 per share, we get a valuation of 8.0 times DCF, which is a real bargain considering that ETP is one of the largest and fastest-growing midstream MLPs.

The outlook of the midstream sector seems to be solid, with many midstream MLPs having reported solid quarters, including Enterprise Products Partners (NYSE:EPD) and Buckeye Partners (BPL). This can be attributed to record crude oil and natural gas production in the United States.

The future looks bright for the midstream sector. At the current cheap price and yield of 11.8%, ETP is one of our favorite midstream MLPs to own for the year 2018.


WPG Earnings Report: Operational Resilience vs. Strategic Challenges – Yield 14.6%

Washington Prime Group (NYSE:WPG), a Retail Property REIT, reported its 4th-quarter and full-year 2017 results, and while the market keeps focusing on strategic challenges, we are encouraged to see continued resilience in operational figures.

To give a little bit of context here, we need to keep in mind that we are discussing about a firm that is trading at 4.0x its cash flow, which is extremely cheap in today’s market place. In this sense, the expectations of the market are very negative and the sentiment very low. WPG, just like CBL, is a class B mall owner, and as such, it is widely expected to eventually become obsolete due to the growth of e-commerce.

The perception is that no one goes to class B malls anymore; and yet, the NOI went down by just 1%, the average sales per square foot remains at close to all-time-highs, and the leasing performance suggests strong demand for space by retailers.

A 1% drop in NOI is really nothing for a firm selling at such a ridiculously low valuation, and shows once again that class B malls remain relevant even in today’s highly digitalized marketplace. What the market seems to ignore is that unlike CBL, WPG owns on average higher-quality properties. In fact, Tier One and Open Air properties accounted for as much as 81.2% of the NOI in 2017, and these properties even showed a 0.9% increase in NOI for the year! It is the remaining 18.8% which are causing the temporary dilution in FFO, but clearly, the large majority of the portfolio has great value which is highly sustainable.

This was the main news to us: Operationally, the great majority of the properties are performing just fine. Therefore, the reason why the FFO is dropping year over year is not due to problems at the property level, but rather, strategic decisions such as dispositions and continued deleveraging.

As the CEO notes:

“Very simply, the $0.12 of annual dilution was attributable to our unsecured notes offering, the second joint venture with O’Connor Capital Partners and the disposition of six noncore assets. As the result was an overall reduction in indebtedness of approximately $400 million, it’s silly to question the prudency of such actions.”

Put in other words, the company is improving its portfolio and balance sheet quality to lower its risk profile at the expense of some short-term dilution in FFO figures. Short term-oriented investors may not like it, but this is the best approach to maximize and sustain long-term value. Eventually, as WPG ends its disposition and deleveraging plan, the FFO will stabilize and the market will realize the progress made and reward the firm with a higher FFO multiple. Given that it stands currently at 4.0 times FFO (using 12-month adjusted FFO of $1.63), even a small bump would result in material upside.

Other relevant highlights

  • WPG is making a new acquisition, which was rather unexpected! It suggests that we are approaching the end of the deleveraging plan. Moreover, the property appears to be an attractive investment as a dominant hybrid format retail venue situated in Missoula, Montana. The asset features a Lucky’s Market and a nine-screen dine-in AMC Theater – both newly built – and yields about 10%.
  • The dividend is maintained and remains well-covered.
  • Redevelopments continue, with 36 projects underway ranging between $1 million and $60 million with an average estimated yield of 10%.
  • Property NOI is expected to continue show resilience in 2018.

Bottom Line

Overall, we are happy with the news and glad that the market seems to, for once, agree with us – rewarding WPG with a huge bump after earnings. This is the story of short-term dilution versus long-term potential reward to patient investors. Just like in the case of CBL, we remain optimistic long-term holders and are happy to keep cashing a yield of 14.6% while we wait for upside to materialize.

If you enjoyed this article and wish to receive updates on our latest research, click “Follow” next to my name at the top of this article.

Disclosure: I am/we are long ETP, WPG, CBL, EPD, BPL.

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.

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6 Things Smart People Do to Have Really Interesting Conversations

Next time you go to a traditional ‘networking’ event, a cocktail party or dinner, do us all a favor: lose the elevator pitch. That approach is quickly losing relevancy in making authentic connections that could open up doors for you.

Instead, your first order of priority is to take the attention off of yourself and put it squarely on the other person sitting or standing across from you. You start by asking the right questions and listening more than you speak (more on that below). And, of course, always be conscious of having open and positive body language.

Try any of these useful tactics to keep you on track to having exceptional conversations. Now you’re off to the races. 

1. Become genuinely interested in the other person. 

George Mason University psychologist Todd Kashdan, author of Curious? determined that being interested in others is more important than being interesting yourself. “It’s the secret juice of relationships,” stated Kashdan. So, whatever you do, talk in terms of the other person’s interest. You’ll be surprised by the outcome.

2. Show those pearly whites.  

According to Psychology Today, research has determined that smiling can make us appear more attractive to others. It also lifts our mood as well as the moods of those around us. Most of us aren’t fully aware of when we’re not smiling. Make a habit of it and start smiling.

3. Give the gift of a ‘five-minute favor.’

Five-minute favors are selfless giving acts, without asking for anything in return from the person whom you’re offering help. Examples of five-minute favors include: sharing knowledge; making an introduction; serving as a reference for a person, product, or service; or recommending someone on LinkedIn, Yelp, or another social place.

4. Listen more. Speak less. 

Want to create a great first impression? Let the other person speak without interruption. Yes, I’m talking about parking your thoughts and avoiding jumping in and finishing the other person’s sentence or waiting impatiently for your chance to respond. When you actively listen, it will draw the other person to you with equal or greater interest. So go ahead, give the other person your full attention. What you’re communicating is “I am interested in what you have to say.” 

5. Make the other person feel important–and do it sincerely.

The best conversations with someone you just met are initiated by wanting to learn about the other person: What they do, how they do it, and why they do it. This goes back to having a high curiosity quotient. By wanting to learn from someone — even someone younger and less experienced than you — you will garner an immediate and positive first impression.

6. Tell a good story.

So now that you’ve captivated their attention, they probably want to know about you, so it’s your turn to shine. Rather than boring them with work or business related lingo (that will come later), it’s good to have a few go-to stories you can pull out of your hat to keep the momentum going. Have stories you can share that have been tested with other audiences and found to be reliably funny, entertaining, informative, or engaging. Scott Adams, author of How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Lifesuggests putting your focus on stories about other people, rather than things, because most of us find human behavior fascinating.

Closing thought.

If you haven’t caught on yet, the key for your new social approach is this: you take the initiative and make the conversation about the other person. People love to talk about themselves–if they have something worth talking about that adds value to the conversation. Once they know you’re not a wacko, by asking a genuine question first (try “what’s your story?”), they’ll appreciate your showing interest. This selfless act of putting the spotlight on someone else makes you the more interesting person in the room.

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Oil Bulls: What To Think When Reality Bites

We see a lot of hand-wringing lately and baggy eyes. Tired energy bulls with tired portfolios, people who are crying in unison. What just happened? How did an incredible December and January turn into a frightening February? Why aren’t our stocks moving higher when the bulk of the oil data is telling us that the oil glut is disappearing (or has disappeared), or that our companies are posting “great” earnings results and paying at least lip service to shareholder returns? Why have the market gods forsaken oil bulls?

Amidst the pleas and rhetorical questions, we have to chuckle – not because we enjoy watching the consternation and psychological pain of other investors, but because we believe this is the process. This is one of the most challenging parts of being a contrarian investor; having to personally reconcile what you see in the fundamental data with what you’re seeing in your portfolios. That chasm can not only confound, but most importantly it can frustrate and tax investors because it’s the difference between your expectations and reality. When those two don’t meet, pain always follows (just take a look at the relative underperformance of the ETF XOP relative to the overall market and US oil prices).

Collectively, the market currently believes that energy is an uninvestable sector. We could show you charts, but what’s the point when we know it accounts for one of the smallest % of all time in the S&P. Moreover, why shouldn’t it when compared to the glittering narratives of today’s technology, social media, and “platform” companies, where free cash flow rains down like manna. Why even bother with a dying industry like fossil fuels when obviously, electric vehicles and renewable energy will eventually displace such backward energy sources? Hence investors stubbornly refuse to even consider it.

That intransigence, perhaps even caused by earlier traumatic portfolio losses, isn’t easy to overcome, and can’t be in today’s environment. E&P stocks and their earnings have to be compelling before they become compelling, meaning there’s nothing magical about $60/barrel. Who told you that $60/barrel was the magical price that would sprinkle gobs of free cash flow on our beleaguered oil companies? It’s just not true. Those $60/barrel bulls are just as wrong as those who claimed that $45/barrel was the shale break-even price.

It’s not, and it wasn’t. $60/barrel oil is really subsistence living. It’s the minimum daily caloric intake for most E&Ps, nothing more and nothing less. When you ripple $60/barrel through various E&P financial models, it’s akin to getting those calories by eating oatmeal; you may be full, but certainly not fulfilled. Here’s an example, the difference between $60 oil vs. $75 oil for a company like California Resources Corporation (CRC) is the difference between $0 free cash flow and over $450M, and we’ve assumed no production growth and mid-point guidance for expenses. $450M in free cash flow for a company whose market cap stands at $630M. So you see, at $60/barrel oil, you survive but never thrive, and no investor is willing to take market risks on an industry that just “maintains.”

So what does THIS mean?? Are we really doomed to wander this forest of lackluster performance and value traps? No, no because as they said in the Matrix, there is no spoon. $60/barrel is an illusion. It’s a way station on our journey to higher oil prices. It’s where we’re hibernating for the winter, but it’s by no means where we stop.

We’ve said all along that oil won’t stay at $40/barrel (few people believed), then we said it won’t be at $45, $50, $55, and now $60 (and still few people believed), but it doesn’t matter. It doesn’t matter what the investment community believes right now, nor that we think oil prices should already be at $70-80/barrel today. If oil inventories are drawing today at a time when they’re supposed to build, just imagine what happens when oil demand recovers from the seasonal lull. What really matters is that oil is heading higher whether you believe it or not, and as it continues its climb, our caravan will begin to attract attention. As we cross from $60-65/barrel on higher we cross from the current “zombie company thesis” to “whoa that’s what operating leverage looks like thesis.”

It’s only then, when we cross that threshold in price and continue higher will investors be forced to recalibrate their models with… wait for it… higher oil prices, to finally see that magical free cash flow rain down like manna from the heavens. When they do, they’ll finally grab their buckets to get their fill, only to see us standing there already.

So worry oil bulls if you must, but do so rationally and in a measured way. Stay the course and stay patient, if things continue the way they have, your time will come.

As always, we welcome your comments. If you would like to read more of our articles, please be sure to hit the “Follow” button above.


Disclosure: I am/we are long CRC.

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.

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Why Waiting on Money Will Block Your True Success

Lists ranking the world’s wealthiest people are delusional. At best, they provide estimates of financial net worth. At worst, they don’t provide the proper framework to understand wealth.

True wealth isn’t just based on dollar amount. It is based on the resources necessary to make things happen.

Money is only one dimension

Financial wealth is a source of power, but only one of many – something that is terribly important to remember as you bootstrap companies, deal with bank and VC rejections and sacrifice money opportunities for future growth. I shared some of these ideas in a recent keynote at the American Society of Journalists and Authors conference in Austin, Texas.

For instance, socialite Kylie Jenner’s one brief social media post criticizing Snapchat’s new design sent Snap’s stock down 6 percent. Her infamous family may have money, but what people often marvel at is their social wealth. It is an entirely different kind of strength.

In another example, Black Girls Code is creating a pipeline of young women able to imagine, found and, yes, program their own future startups. They are building the wealth of independence. It is a generation that won’t have to be dependent on outside (and often overpriced) coders to make their entrepreneurial dreams real.

Figure out your wealth areas

As you take your business to the next phase, let go of the financial wealth you may lack and focus on the other wealth you already have on hand. Is it a powerful network? A variety of skills? A unique background?

Money provides only one dimension of power. The wealth you already have, the one you take for granted, should be where you plant your foundation. Then the money will come.

Ready to take your ideas to the next level? Join Damon’s priority-empowering discussions at and get free, exclusive business guides and access to the big idea boot camp.

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Elon Musk Is Putting Wireless Service on the Moon (So If You Go There, You Can Watch Netflix)

It’s been 50 years since humans first landed on the Moon and we haven’t done much there since. But Elon Musk is hoping that will change very soon. He already believes there should be a base on the Moon to fire up public interest in space exploration. Then in December, President Donald Trump announced that he wanted to send astronauts back to the moon as a first step toward more distant objectives, such as Mars, where Musk is already planning to land humans sometime within the coming decade.

Musk has also said that his company SpaceX would not build a moon base although it might ferry people and materials there from Earth. But it apparently is ready to help with something else every lunar visitor needs: a way to contact people at home, communicate with other lunar visitors–and watch Netflix during off hours.

So SpaceX, along with mobile network company Vodafone, Nokia, and Audi, will be building a 4G network on the moon in 2019. Even though 5G networks are being built here on Earth, the partners chose 4G because its technology is both more stable and more able to withstand space travel. 

OK, but why build a wireless network on the Moon so soon, when nobody lives there? It’s true that Musk has said he would take space tourists to the moon in late 2018, and indeed had already collected large deposits from two wealthy individuals for the first such trip. But the planned trip is only a Moon fly-by with no landing, so the lunar tourists won’t get much of a chance to use the Moon’s wireless network. And they won’t need it, having the ship’s communication system at their’ disposal. Besides, the pricey lunar fly-by was meant to take place using a Crew Dragon capsule carried by a Falcon Heavy rocket, the same rocket that spectacularly took off earlier this month with a red Tesla Roadster and mannequin dubbed “Starman.” But Musk has said SpaceX is now focusing its attention on its BFR Rocket (for Big Fucking Rocket) and he indicated it may not do much more testing on the Falcon Heavy after all, possibly leaving Moon tourism in limbo. 

According to one report, the purpose of lunar 4G would be to support future lunar missions. Without it, humans and vehicles (such as the lunar rovers Audi is building) could only communicate by beaming signals down to the Earth and back up again. The fact that the planned network will have enough bandwidth to support video streaming raises the appealing prospect of a lunar webcam all of us could watch over the Internet. 

And of course, it’ll come in very handy for space tourists visiting the lunar surface or astronauts working to build a Moon base or on other projects. Maybe someday soon.

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China startup Nio hires eight banks for up to $2 billion U.S. IPO: sources

HONG KONG (Reuters) – Chinese electric vehicle startup Nio has hired eight banks including Morgan Stanley (MS.N) and Goldman Sachs (GS.N) to work on a planned U.S. stock market listing this year worth up to $2 billion, people with knowledge of the matter told Reuters.

Other banks are Bank of America Merrill Lynch (BAC.N), Credit Suisse (CSGN.S), Citigroup (C.N), Deutsche Bank (DBKGn.DE), JPMorgan (JPM.N) and UBS (UBSG.S), said the people, declining to be identified as the deal details are not public.

Nio’s proposed IPO of $1 billion-$2 billion comes as the firm, founded by Chinese internet entrepreneur William Li in 2014, seeks fresh capital to finance its expansion and investments in areas including autonomous driving and battery technologies, one of them said.

At the top end of the potential offering size, Nio’s IPO would become the biggest Chinese listing in America since the $25 billion public float of e-commerce giant Alibaba Group Holding Ltd (BABA.N) in 2014. In October 2016, Chinese logistics company ZTO Express raised $1.41 billion from an IPO in New York.

FILE PHOTO: The logo of electric car startup NIO is seen at a new NIO House “brand-experience” store, in Beijing, China November 25, 2017. REUTERS/Norihiko Shirouzu/File Photo

Nio declined to comment on its IPO plans. UBS, Citigroup and Goldman declined comment while the other banks did not immediately respond to Reuters emailed request for comment.

Shanghai-based Nio, formerly known as NextEV, is among the first of a raft of Chinese electric vehicle firms to launch a production vehicle, with many so far only showing concept cars.

It launched sales of its first mass production car – the ES8 pure-electric, seven-seat sport-utility vehicle in December, at about half the price of American peer Tesla’s Model X. It has also vowed to bring an autonomous electric car to the U.S. market by 2020.

Nio counts Asian tech behemoth Tencent Holdings Ltd (0700.HK) as its main backer alongside investment firms Hillhouse Capital Group and Sequoia Capital.

Last November, the firm raised more than $1 billion in its latest fundraising round, led by existing investor Tencent, valuing the firm at about $5 billion.

Reporting by Fiona Lau of IFR and Julie Zhu; Editing by Sumeet Chatterjee and Stephen Coates

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Microsoft clashes with Justice Department at U.S. Supreme Court

WASHINGTON (Reuters) – The U.S. Supreme Court on Tuesday wades into a major privacy rights fight between Microsoft Corp(MSFT.O) and the Justice Department, weighing whether U.S. law allows prosecutors to compel technology companies to hand over data stored overseas.

The nine justices will hear arguments in a case that pits the interests of tech companies and privacy advocates in safeguarding customer data against the demands of law enforcement in obtaining information crucial to criminal and counterterrorism investigations.

The case began with a 2013 warrant obtained by prosecutors for emails of a suspect in a drug trafficking investigation that were stored in Microsoft computer servers in Dublin. The company challenged whether a domestic warrant covered data stored abroad. The Justice Department said because Microsoft is based in the United States, prosecutors were entitled to the data.

A ruling is due by the end of June.

A 2016 decision by the New York-based 2nd U.S. Court of Appeals siding with Microsoft marked a victory for tech firms that increasingly offer cloud computing services in which data is stored remotely. President Donald Trump’s administration appealed that ruling to the Supreme Court.

The appeals court said the emails were beyond the reach of domestic search warrants obtained under a 1986 U.S. law called the Stored Communications Act.

Globally dominant American tech companies have expressed concern that customers will go elsewhere if they think the U.S. government’s reach extends to data centers all around the world without changes being made to the law.

Microsoft, which has 100 data centers in 40 countries, was the first American company to challenge a domestic search warrant seeking data held outside the United States.

Bipartisan legislation has been introduced in Congress to update the statute, a move backed by both Microsoft and the administration. If Congress were to pass the bill before the Supreme Court rules, the case would likely become moot.

The Microsoft customer whose emails were sought told the company he was based in Ireland when he signed up for his account.

Other companies including IBM Corp(IBM.N), Inc(AMZN.O), Apple Inc(AAPL.O), Verizon Communications Inc(VZ.N) and Alphabet Inc‘s(GOOGL.O) Google filed court papers backing Microsoft.

The administration has the support of 35 states led by Vermont.

Reporting by Lawrence Hurley; Editing by Will Dunham

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Crypto 'noobs' learn to cope with wild swings in digital coins

NEW YORK (Reuters) – After researching digital currencies for work last year, personal finance writer J.R. Duren hopped on his own crypto-rollercoaster.

Duren bought $5 worth of litecoin in November, and eventually purchased $400 more, mostly with his credit card. In just a few months, he experienced a rally, a crash and a recovery, with the adrenaline highs and lows that come along.

“At first, I was freaking out,” Duren said about watching his portfolio plunge 40 percent at one point. “The precipitous drop came as a shock.”

The 39-year-old Floridian is part of the new class of crypto-investors who do not necessarily think bitcoin will replace the U.S. dollar, or that blockchain will revolutionize modern finance or that dentists should have their own currency.

Dubbed by longtime crypto-investors as “the noobs”– online lingo for “newbies” – they are ordinary investors hopping onto the latest trend, often with little understanding of how cryptocurrencies work or why they exist.

“There has been a big shift in the type of investors we have seen in crypto over the past year,” said Angela Walch, a fellow at the UCL Centre for Blockchain Technologies. “It’s shifted from a small group of techies to average Joes. I overhear conversations about cryptocurrencies everywhere, in coffee shops and airports.”

Walch and other experts cited parallels to the late-1990s, when retail investors jumped into stocks like, a short-lived online seller of pet supplies, only to watch their wealth evaporate when the dot-com bubble burst.

Bitcoin is the best-known virtual currency but there are now more than 1,500 to choose from, according to market data website CoinMarketCap, ranging from popular coins like ether and ripple to obscure coins like dentacoin, the one intended for dentists.

Exactly how many “noobs” bought into the craze last year is unclear because each transaction is pseudonymous, meaning it is linked to a unique digital address, and few exchanges collect or share detailed information about their users.

A variety of consumer-friendly websites have made investing much easier, and online forums are now filled with posts from ordinary retail investors who were rarely spotted on the cryptocurrency pages of social news hub Reddit before.

Reuters interviewed eight people who recently made their first foray into digital currency investing. Many were motivated by a fear of missing out on profits during what seemed like a never-ending rally last year.

One bitcoin was worth almost $20,000 in December, up around 1,900 percent from the start of 2017. As of Friday afternoon it was worth about $10,000 after having fallen as much as 70 percent from its peak. Other coins made even bigger gains and experienced equally dizzying drops over that time frame.

“There was that two-month period last year where all the virtual currencies kept going and up and I had a couple of friends that had invested and they had made five-figure returns,” said Michael Brown, a research analyst in New Jersey, who said he bought around $1,000 worth of ether in December.

“I got swept by the media frenzy,” he said. “You never hear stories of people losing money.”

In the weeks after Brown invested, his holdings soared as much as 75 percent and tumbled as much as 59 percent.


Investors who got into bitcoin before its 2013 crash like to refer to themselves as “OGs,” short for “original gangsters.” They tend to shrug off the recent downturn, arguing that cryptocurrencies will be worth much more in the future.

“As crashes go, this is one of the biggest,” said Xavier Levenfiche, who first invested in cryptocurrencies in 2011. “But, in the grand scheme of things, it’s a hiccup on the road to greatness.”

Spooked by the sudden fall but not willing to book a loss, many investors are embracing a mantra known as “HODL.” The term stems from a misspelled post on an online forum during the cryptocurrency crash in 2013, when a user wrote he was “hodling” his bitcoin, instead of “holding.”

Mike Gnitecki, for instance, bought one bitcoin at around $18,000 in December and was sitting on a 43 percent decline as of Friday, waiting for a recovery.

“I view it as having been a fun side investment similar to a gamble,” said Gnitecki, a paramedic from Texas. “Clearly I lost some money on this particular gamble.”

Duren, the personal finance writer, is also holding onto his litecoin for now, though he regrets having spent $33 on credit card and exchange fees for a $405 investment.

Some retail investors who went big into cryptocurrencies for the first time during the rally last year remain positive.

Didi Taihuttu announced in October that he and his family had sold everything they owned — including their business, home, cars and toys — to move to a “digital nomad” camp in Thailand.

In an interview, Taihuttu said he has no regrets. The crypto-day-trader’s portfolio is in the black, and he predicts one bitcoin will be worth between $30,000 and $50,000 by year-end.

His backup plan is to write a book and perhaps make a movie about his family’s experience.

“We are not it in it to become bitcoin millionaires,” Taihuttu said.

Reporting by Anna Irrera; Editing by Steve Orlofsky; Editing by Lauren Tara LaCapra

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?Docker has a business plan headache

Video: Microservices and containers: Eight challenges to this approach

Read this

What is Docker and why is it so darn popular?

What is Docker and why is it so darn popular?

Docker is hotter than hot because it makes it possible to get far more apps running on the same old servers and it also makes it very easy to package and ship programs. Here’s what you need to know about it.

Read More

We love containers. And, for most of us, containers means Docker. As RightScale observed in its RightScale 2018 State of the Cloud report, Docker’s adoption by the industry has increased to 49 percent from 35 percent in 2017.

All’s not well in Docker-land

There’s only one problem with this: While Docker, the technology, is going great guns, Docker, the business, isn’t doing half as well.

For users, this isn’t that much of a problem. Whatever Docker the business’ future, Docker the technology is both open source and a standard. Docker could close up shop today, and you’d still be using Docker containers tomorrow.

Read also: Weak Docker security could lead to magnified vulnerabilities due to efficiency of containers

Of course, it’s a different story if you have a contract with Docker. But, while that would prove annoying — not to mention an ugly mark on the balance sheet — it shouldn’t impact your business flow. Containers are now a well-known technology. Securing and managing them continue to be troublesome, but deploying and running them? Not so much.

Still, you should be aware that all’s not well in Docker-land.

What’s the business plan?

Docker’s problem is simple: It doesn’t have a viable business plan.

It’s not the market. According to 451 Research, “the application container market will explode over the next five years. Annual revenue is expected to increase by 4x, growing from $749 million in 2016 to more than $3.4 billon by 2021, representing a compound annual growth rate (CAGR) of 35 percent.”

Read also: Top cloud providers 2018: How AWS, Microsoft, Google Cloud Platform, IBM Cloud, Oracle, Alibaba stack up

But to make that revenue, you need a business that can exploit containers. So, Google, Microsoft, Amazon Web Services (AWS), and all the rest of the big public cloud companies, earn their dollars from customers eager to make the most of their server resources. Others, like Red Hat/CoreOS, Canonical, and Mirantis, provide easy-to-use container approaches for private clouds.

Docker? It provides the open-source framework for the most popular container format. That’s great, but it’s not a business plan.

Confusion is not what you want

Docker’s plan had been, according to former CEO Ben Golub, to build up a subscription business model. The driver behind its Enterprise Edition, with its three levels of service and functionality, was container orchestration using Docker Engine’s swarm mode. Docker, the company, also rebranded Docker, the open-source software, to Moby while continuing to use Docker as the name for its commercial software products.

Read also: Docker appoints industry veteran as new CEO

This led to more than a little confusion. Quick! How many of you knew Moby was now the “official” name for Docker the program? Confusion is not what you want in sales.

Mere weeks later, Golub was out, and Steve Singh, from SAP, was in.

Docker has never explained why Singh was brought in from outside to become the leader, but it doesn’t take a genius to see that core container technologies were becoming commoditized. The Cloud Native Computing Foundation (CNCF)‘s Open Container Initiative (OCI) standard turned today’s container fundamentals, including Docker containers themselves, into open standards. There wasn’t much value-add that Docker could offer its enterprise customers.

As Dave Bartoletti, a Forrester analyst, told The Register at the time: “The poor guy has to figure out how to make money at Docker. That’s not easy when a lot of people in the community just bristle at anyone trying to make money.”

The rise of Kubernetes

Making matters much harder for Docker’s business plans is that Docker swarm and all other orchestration programs have found themselves overwhelmed by the rise of Kubernetes.

Read also: Docker LinuxKit: Secure Linux containers for Windows, macOS, and clouds

Today, Kubernetes — whether it’s a grand Google plan to create a Google cloud stack or notdominates cloud orchestration. Even Docker adopted Kubernetes because of customer demand in October 2017.

When your main value-add is container orchestration and everyone and their uncle has adopted another container orchestration program, what can you offer customers? Good question.

Docker has also been dealing with internal changes. Solomon Hykes, a co-founder and former CTO, was kicked upstairs to vice chairman of the board of directors and chief architect. Hykes, a controversy lightning rod, was also the public face of the company. He’s been far more quiet lately.

Red Hat’s answer was to buy Docker’s chief rival, CoreOS. That gave Red Hat not only its own container platform, but its own enterprise Kubernetes platform: Tectonic.

Docker really needs cash from customers

So, what should you do if you depend on Docker the company’s support? I’d look to my operating system and cloud vendors for help. After all, most of them, Red Hat, AWS, Google Cloud Platform, Microsoft Azure, SUSE, VMware, etc., already incorporate Docker.

Read also: Docker, IBM expand partnership

In the last few months, Docker raised another $75 million in venture capital. This brings the total capitalization of Docker to a rather amazing $250 million from ME Cloud Ventures, Benchmark, Coatue Management, Goldman Sachs, and Greylock Partners. That’s a lot of money, but I still don’t see how Docker will pay out.

Cash from investors is great, but what Docker really needs is cash from customers.

For most enterprise users, there are no real worries here. Docker or Moby, the container standard is both open source and an open standard. For Docker investors, well, that’s another story.

Related stories

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Beware This Incredibly Silly—But Still Effective—Tax Scam

It’s almost Tax Day, which also means it’s peak tax fraud season. The Internal Revenue Service has played some epic games of cat-and-mouse with phone and online scammers over the past 10 years, but the latest scamming trend for 2018 has a particularly devious twist.

Here’s how it works: Attackers use a taxpayer’s stolen identity information to fraudulently file their returns for a refund. They allow that refund to direct deposit into the victim’s actual bank account. Then the real fun starts. The scammers—posing as the IRS—call the victim, demanding that they return the wrongfully allocated refunds. Since the victim presumably hasn’t yet filed their own taxes, it’s easy for them to assume a mistake was made—and send their money to the crook.

That’s right. They give you the money, and hope they can trick you into voluntarily passing it along to them.

“It is definitely a nationwide problem,” says IRS spokesperson Cecilia Barreda. “When people get this phone call and then they go and look at their bank account and actually do see the money there, that lends a greater credibility to what the person is hearing on the other end of the phone.”

Scammers steal the personal information to file for refunds from tax preparers, accounting firms, corporate data breaches, and other identity-theft schemes. The IRS first warned tax professionals about the rise of the new “erroneous refunds” scam at the beginning of February, and released a followup alert for the general public last week.

So far victims have been hit by at least two different versions of the hustle. In one, attackers pretend to be debt collection agents contracted by the IRS to recover fraudulent or mistakenly issued refunds. They instruct the victim how to repay the money to the “collection agency,” and capitalize on the perceived urgency of receiving a call from a collection bureau. In the other scenario, victims receive an automated call claiming to be from the IRS, in which a voice recording claims that the victim could be charged with fraud and arrested for failing to return the money. The recordings also threaten that the victim’s Social Security numbers will be “blacklisted,” whatever that means. Finally, the recording shares a case number and phone number for the victim to call to “return” the erroneous refund.

“One of the reasons this scam has been successful is because it deviates from other scams in the initial victim contact,” says Crane Hassold, a threat intelligence manager at the security firm PhishLabs, who previously worked as a digital behavior analyst for the FBI. “Most scams like this start with an initial communication that evokes fear or anxiety. This scam, though, starts with a somewhat plausible action—the ‘erroneous refund’—then follows that up with the fear and anxiety tactics. Because the initial contact is unexpected and could be interpreted as a simple mistake, it likely makes the usual fear and anxiety tactics more effective.”

As with other types of tax scams, the crucial thing to remember is that the IRS will basically never call you on the phone, and certainly not to demand payment. A call to discuss taxes owed would always be preceded by multiple paper bills, and the opportunity to appeal the amount owed. The IRS also never requires one specific payment method, and doesn’t ask for credit/debit card numbers on the phone. Finally, the bureau never threatens to bring in law enforcement during a phone conversation.

Knowing that should help people discredit virtually all IRS phone scams. If you do receive an erroneous refund, threatening calls are “not an approach that the IRS would take” to resolving the situation, Barreda says. “If you get a call, hang up and always contact the IRS directly and verify what your tax situation is,” she adds. Your bank can return a direct deposit to the IRS while you contact the bureau to explain the reimbursement, and potentially initiate identity theft protections.

Analysts see at least some good in these scam evolutions, because they mean that the steps the IRS has taken to reduce fraud are working, forcing criminals to find new hustles. Then again, that’s not so reassuring for the millions of taxpayers at risk of facing these threats head on.

The Tax Man Scammeth

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Gadget Lab Podcast: A Deep Dive on Apple's HomePod

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Now Is The Time To Buy These 2 Undervalued, High-Yield Stocks

Source: imgflip

The goal of my high-yield retirement portfolio is to build a highly diversified mix of companies in all sectors and industries, including those with very strong growth characteristics. Industrial REITs fit that bill well, thanks to the strong tailwinds created by an expanding US economy.

Source: Monmouth Investor Presentation

In addition the rise of e-commerce is fueling rapid demand growth for warehousing space for distribution centers, further putting the wind in the sails of industrial REITs such as STAG Industrial (STAG), and Monmouth Real Estate Investment Corp. (MNR).

Let’s take a closer look at why these two high-yielding REITs represent a great mix of generous, secure, and growing income potential that might be just what your diversified dividend portfolio is looking for. That’s especially true at today’s attractive prices, made possible by the current REIT bear market.

In addition, learn what risks these REITs face in the coming years. And more importantly whether or not these could derail their enticing investment cases.

STAG Industrial: Fast Growing Niche Empire

STAG Industrial got its start in 2003 when STAG Capital partners was formed to own free-standing and single tenant warehouses and light industrial facilities. It IPOd as a publicly-traded REIT in 2011 and ever since has been on an impressive growth streak (goal of 25% portfolio growth each year).

Source: STAG earnings supplement

Today STAG owns 356 properties in 37 states, in over 60 cities, and leases its buildings to 312 tenants. The REIT is highly diversified in terms of geography, industry, and tenant. In fact, the single largest occupant representing just 2.6% of rent. And keep in mind that this tenant, the General Services Administration, is a federal agency, and thus represents a highly reliable income source.

Source: STAG earnings supplement

What sets STAG apart from most of its rivals is that it long ago concluded that Wall Street’s perceptions about the industrial sector were wrong. Specifically that the secondary market (cities with 25 million to 200 million of rentable areas) were being mispriced.

This was out of a belief that primary and super primary markets (big cities) have higher and more stable occupancy rates over economic cycles. This is why it was thought that they maintain stronger pricing power during economic downturns.

Source: STAG investor presentation

However, during the last recession (far more severe than most) this didn’t prove to be the case. In fact, occupancy rates for secondary markets held up better than primary markets, and rental rates fell less severely.

Management believes this is because in smaller cities there is less competitive industrial real estate. This means that tenants have less pricing power because of higher switching costs. In other words, secondary markets are more of a “sellers’ market.”

In addition, because most investment dollars have been focused on primary and super primary markets in recent years, there is less competition for acquiring new properties. Thus, STAG can buy quality properties for less, resulting in higher cap rates (cash yields), and achieve more profitable growth.

The key to STAG’s long-term investment thesis is management’s ability to strike a fine balance between very fast growth, but also remain disciplined in what it buys. This is possible thanks to its deep and experienced bench. For example, CEO Benjamin Butcher, who has been with STAG Capital since 2003, has 24 years of commercial real estate investment experience.

This explains why STAG is so selective about its purchases, usually only buying about 1% of properties it considers each year.

STAG 2016 Acquisition Selectivity

Source: STAG investor presentation

In 2017, the REIT closed on a record 53 property acquisitions, with an average lease term of 7.5 years and a cap rate of 7.4% (1.9% above industry average).

This helped drive very strong growth in revenue and core FFO/share.


2017 Growth (Except Payout Ratio)

Core FFO




Shares Outstanding


Core FFO/Share






AFFO Payout Ratio


Source: STAG earnings release

However, that didn’t translate into better bottom line results. Owing to the older nature of its buildings and a lack of economies of scale, its adjusted funds from operation (REIT equivalent of free cash flow and what funds the dividend) grew slower than its core FFO. Also due to the large number of shares issued to fund its growth last year, AFFO/share growth was mostly flat. This explains the tepid dividend growth in 2017.

The good news is that in 2018, management expects to rely less on equity markets because the share price has taken a hit recently due to rising rate concerns. Instead, it plans to fund its growth plans with modest amounts of cheap debt.

Source: STAG earnings supplement

Fortunately, management has been disciplined with its use of debt in the past. When shares were high it used equity to grow, allowing it to achieve a below average leverage ratio.

Today the REIT is safely capable of borrowing more and in fact, management intends to take leverage from 5.0 to about 5.5 in 2018. But this won’t risk breaching its debt covenants, which the REIT is nowhere near violating. The strong balance sheet is why STAG is rated BBB by Fitch, and enjoys access to very low-cost borrowing (average interest rate 3.5%).

This means that going forward, STAG should be able to achieve stronger AFFO/share growth, and raise its payout at a quicker pace. Currently, analysts estimate this to be about 5% over the long term.

To help drive that growth is STAG’s impressive $1.9 billion growth pipeline, consisting of 144 properties that total 32.4 million square feet. This is notable because right now STAG only owns 20 million square feet of leasable space. This means that the properties it plans to buy are larger, and likely to generate more rent per building than its existing property base.

Source: STAG investor presentation

And that $1.9 billion growth pipeline is just a drop in the bucket when it comes to STAG’s growth potential. Management estimates that STAG has 1% market share in the $250 billion industrial property markets it’s targeting. Or to put another way, STAG has potentially decades of strong growth ahead of it.

Monmouth Real Estate: A Fast-Growing Dividend Aristocrat With A Bright Future

Monmouth is one of the oldest REITs in the world, having been founded in 1968. Over that time it’s built up a property portfolio of 109 properties in 30 states. Almost all of its rent (85%) is from strong investment grade blue chips such as: FedEx (FDX), International Paper (IP), Coca-Cola (KO), and United Technologies (UTX).

Source: Monmouth Investor Presentation

While its property base is very small, it’s also the highest quality in the industry. That’s because Monmouth’s portfolio has: the youngest buildings (less maintenance cost, higher rents), the longest leases, and the highest occupancy.

Source: Monmouth Investor Presentation

This means that MNR’s rent roll (leases expiring in the next three years) is also the smallest, which gives it excellent cash flow predictability. Combined with a below average payout ratio (77% vs. industry average 83%) this makes this REIT’s dividend highly secure.

Source: Monmouth Investor Presentation

In 2017, Monmouth had a record year of growth, thanks to $287 million in new property acquisitions. All of these were effectively brand new facilities, with 10 to 15-year leases. This boosted its property count by 10%, and led to massive growth in its top and bottom line.


Fiscal Q1 2018 Growth







Shares Outstanding






AFFO Payout Ratio


Source: Monmouth Earnings Release

Note that Monmouth, despite its tiny size, was able to show signs of strong operational leverage, meaning that AFFO grew faster than revenue. This is a sign that management runs a tight and efficient ship, despite lacking the economies of scale of its larger peers. It’s also due in part to the very young nature of its buildings, which have very low maintenance costs.

Strong growth is nothing new to Monmouth, which has been growing at a quick pace for years.

Source: Monmouth Investor Presentation

This has helped it to generate some of the industry’s best total returns.

Source: Monmouth Investor Presentation

Monmouth has a $135 million growth pipeline to drive growth in 2018. When combined with the long-term industry tailwinds, including the continued exponential growth of e-Commerce, MNR is expected to remain one of the fastest growing industrial REITs in America.

Source: Monmouth Investor Presentation

Industrial REIT FFO/Share Growth Projections

Source: Brad Thomas

This bodes well for its future dividend growth prospects, which combined with a generous yield, mean that it could easily prove to be a market beater.

Dividend Profiles Point To Excellent Total Return Potential



AFFO Payout Ratio

Projected 10-Year Dividend Growth

10-Year Potential Annual Total Return

STAG Industrial



4% to 5%

10% to 11%

Monmouth Real Estate



6% to 7%

10.8% to 11.8%

S&P 500





Sources: earnings releases, FastGraphs,, CSImarketing

The primary reason for owning any REIT is the dividend. This is why I look at every stock’s dividend profile, which consists of: yield, payout safety, and long-term growth potential.

Both STAG and Monmouth offer attractive current yields, especially compared to the market’s paltry payout. More importantly, those dividends are well covered by AFFO.

Now there’s more to dividend safety than just a good payout ratio. The balance sheet is also important, because too much debt cannot just put a dividend at risk, but also decrease a REIT’s growth potential.


Debt/Adjusted EBITDA

Interest Coverage Ratio

Fixed-Charge Coverage Ratio

Credit Rating

STAG Industrial




BBB (Fitch)

Monmouth Real Estate





Industry Average





Sources: Gurufocus, earnings supplements

Here we see that Monmouth has the weaker balance sheet, though not one that should put the dividend at risk. Its leverage ratio is only just above the industry average. However, I would prefer if the fixed-charge coverage ratio (EBITDA minus unfunded capital expenditures and distributions divided by total debt service costs), were higher.

That being said, Monmouth’s access to low cost capital doesn’t seem to be impaired. For example, in the last quarter it was able to refinance its very long duration (11.5 year) fixed debt down to an average rate of 4.2%. This indicates the bond markets have confidence in: management’s long-term abilities, its very strong counter parties, and its long leases.

Meanwhile STAG industrial enjoys a leverage ratio right at the bottom of management’s long-term 5.0 to 6.0 target. And thanks to its very strong fixed charge coverage ratio it sports a strong BBB credit rating that allows it to borrow very cheaply and generate one of the highest interest coverage ratios in the industry.

All told I (and most analysts) expect STAG and MNR to be capable of strong long-term dividend growth. That’s courtesy of their small sizes and very long growth runways (industrial real estate is a $1 trillion market). Specifically that means 4% to 5% payout growth for STAG, and 6% to 7% for MNR, over the next decade.

Combined with their current yields, that should allow both REITs to easily beat the returns generated by the overheated S&P 500.

Valuations: Worth Buying Today


STAG Total Return Price data by YCharts

Ever since tax reform passed fears of an overheating economy stoking rising inflation have sent long-term interest rates up sharply. This has battered REITs, including STAG and MNR.

However, where some see this as a reason to stay away, I view it as a potentially good buying opportunity.


2018 P/AFFO

Historical P/AFFO


Historical Yield

STAG Industrial





Monmouth Real Estate





Sources: FastGraphs, Gurufocus

There are numerous ways to value a REIT, both in terms of historical valuation metrics, and forward looking ones. Today STAG and MNR are both trading at historically low price/AFFO (REIT equivalent of a PE ratio).

In addition STAG is trading slightly higher than its historical (since IPO) median yield. Monmouth, however, is not. But that doesn’t mean it’s not a good buy. Remember that over the long-term a dividend stock’s total return will usually follow the formula yield + dividend growth. So this is where a forward looking discounted dividend model comes in handy.

That’s because we can estimate the fair value of a dividend stock by the net present value of its future payouts.


Forward Dividend

Projected 10-Year Dividend Growth

Projected Dividend Growth Years 11-20

Fair Value Estimate

Dividend Growth Baked In

Margin Of Safety

STAG Industrial


3% (conservative case)





4% (likely case)




5% (bullish case, analyst consensus)




Monmouth Real Estate


5% (conservative case)





6% (likely case)




7% (bullish case, analyst consensus)




Sources: FastGraphs, Gurufocus

Since 1871 a low cost S&P 500 ETF (if it existed) would have generated a 9.1% total return, net of expenses. Since this is the default investment option for most investors (and what most people benchmark off), I consider this the opportunity cost of money, and a good discount rate.

Now of course there is a lot of uncertainty with any forward looking valuation model, especially one that uses a 20 year time frame. This requires smoothed out growth assumptions that aim to isolate long-term growth potential based on an industry’s fundamentals, and the capabilities of its management team.

This is why I use a range of conservative to bullish growth cases to try to estimate the intrinsic value of a dividend stock. In this case, based on the most likely growth scenarios, I estimate that STAG and MNR are 12%, and 13% undervalued, respectively.

This means that the market is assuming lower dividend growth than what they are likely to generate. Or to put another way, both REITs have a low bar to clear, and thus the opportunity to outperform. This seems to confirm my earlier estimates of their market beating total return potentials, and makes both stocks a good buy right now.

Risks To Consider

There are two kinds of risks to consider with industrial REITs. The first are company specific.

For example, two things potentially concern me about STAG Industrial. These are why I consider it a medium risk stock (5% max position size in my portfolio). First, the REIT’s historical focus on shorter-duration leases in secondary markets (and with older buildings) have caused it to see far lower retention rates than many of its peers.

Now in fairness to STAG this has largely been by design. That’s because the long economic expansion has meant that overall industrial rental rates have been climbing. This means that all industrial REITs have pretty strong pricing power, and thus have more incentive to not offer price breaks to retain older tenants.

For example, according to Monmouth CEO Michael Landy, the average asking price (per square foot) went up 5.3% in 2017. And while STAG has a lower quality portfolio ($4.09 per square foot vs. $5.96 for Monmouth), the point is that current retention rates are low for a reason. And in 2018 STAG does expect retention to climb to about 75%, as it focuses more on longer-term leases, and more primary market properties.

In other words, STAG is likely preparing itself for the next recession, by trying to increase its cash flow stability. That’s a smart long-term move since STAG hasn’t publicly been through a recession, and STAG Capital has been through just one. This means that the “secondary market occupancy and rent will hold up better than primary” theory hasn’t been fully tested yet across multiple downturns. At least not enough for me to call it a low risk dividend stock.

With an AFFO payout ratio of 81% STAG doesn’t seem like its dividend might be put in peril during the next downturn. However, its lower quality portfolio does mean that management might want to create a larger safety buffer before raising the dividend at the 4% to 5% that it’s likely capable of.

Basically this means that STAG Industrial shareholders may end up waiting several more years, and potentially until after the next recession, before they see more than token dividend increases.

As for Monmouth, there are two potential concerns I have. First, it has a very high concentration of its rent coming from just one company, FedEx.

Recently Amazon (NASDAQ:AMZN) announced it was launching its own competing delivery service. The good news is that JPMorgan (JPM) expects this to hurt the USPS far more than FedEx. This means that Monmouth’s most important tenant isn’t likely to fail anytime soon.

In addition in the last quarter the REIT acquired a 300,000-square foot distribution center in Oklahoma City leased for 10 years to Amazon. This indicates that even if Amazon ends up disrupting package delivery, (which is far from certain), Monmouth should be able to adapt as it has successfully done since 1968. After all, plenty of tenants have failed over that time period.

Still given its rental concentration, such a worst case scenario would likely take a few years to overcome in a slow growth turnaround period. During which we might see Monmouth return to previous nasty habit of several years with no dividend growth.

Source: Simply Safe Dividends

The other worry I have about Monmouth is the slightly over-leveraged balance sheet. The industrial REIT industry is facing a potentially challenging year or two. That’s thanks to rising interest rates and falling cap rates on new properties.

Source: Monmouth Investor Presentation

Monmouth’s relatively higher debt levels are not dangerous as of now. But they might limit its future borrowing ability, making it more dependent on fickle (and currently bearish) equity markets to fund its growth.

The problem here is that industrial property cap rates have been declining for years due to rising property values. If they fall too low it can be harder for all industrial REITs to grow profitably. That’s especially true for smaller ones that lack massive scale and large access to cheap growth capital.

Industrial Property Cap Rates

Source: Monmouth Investor Presentation

As you can see, cap rates for industrial properties are cyclical, rising and falling with the economic environment. During recessions, when vacancies rise and the industry struggles, cap rates increase. This makes it easier for REITs to invest profitably.

The second longest US economic expansion in history, (which will hit 10 years in June of 2019), has also seen interest rates near zero for much of the decade. This has led to rising property values and declining cash yields.

For example, back in 2010 STAG Capital was able to acquire properties for cap rates as high as 9.2%. By 2016 that had fallen to 7.9%, by 2017 7.4%, and now in 2018 management is guiding for 7.0%. And keep in mind these are mostly secondary markets, which have lower prices and higher cap rates.

Monmouth on the other hand, has historically targeted prime market properties, specifically: brand new buildings, with the strongest tenants, and the longest leases. While this gives it the best property portfolio in the industry, it also means the REIT has to pay more for growth. For example, in 2017 the average cap rate for its 10 acquired properties was 5.9%.

The concern here is that because they are small REITs, STAG and MNR might lack the scale to keep their cost of capital low enough. At least low enough to generate the kinds of strong gross cash yields on investment (cash yield on new property minus cost of capital) to fuel their projected growth rates.

STAG Industrial

Estimated Cash Cost Of Capital


2018 Cap Rate


Approximate Gross Cash Yield On New Investment


Sources: earnings releases, FastGraphs, Gurufocus, management guidance

In 2017 STAG’s higher share price allowed it to enjoy a lower cost of equity. When combined with higher cap rates this generated a gross cash yield on acquisitions of about 3.0%. That is expected to decline to 2.3% this year, due to a lower share price, and management’s focus on more prime market properties with longer lease durations (which cost more to buy).

Monmouth Real Estate

Estimated Cash Cost Of Capital


2017 Cap Rate


Approximate Gross Cash Yield On New Investment


Sources: earnings releases, FastGraphs, Gurufocus, management guidance

And while Monmouth enjoys a slightly lower cost of capital due to its slightly higher share premium, the gross cash yield on new properties was rather low in 2017.

The good news is that according to STAG higher long-term rates will EVENTUALLY drive cap rates up, thus preventing a liquidity growth trap in which industrial REITs are unable to grow profitably.

However, this might not be for several months or even a year or more. It depends on the rate at which long-term rates rise, as well as numerous other factors.

But there are reasons for optimism. Monmouth says that in their latest quarter (Q1 of Fiscal 2018) they were able to acquire two new properties for $52.1 million. These were leased to FedEx and Amazon for 15 and 10 years, respectively. The cap rate on these buildings was 6.1%, 0.2% higher than last year. This potentially indicates that perhaps the prices for top grade industrial properties may be near its top and set to start falling relatively soon.

Still we can’t forget that there are two parts to the profitability formula, cap rates, but also cost of capital. STAG and Monmouth have enjoyed the lowest interest rates in history, which has allowed even small REITs like these to still borrow very cheaply. For example STAG’s average borrowing costs are 3.5% while Monmouth’s longer duration bonds, (average of 11.5 years), have an average interest rate of just 4.2%.

With long-term rates now rising it’s unlikely that either REIT can expect to see borrowing costs fall any lower, but rather start drifting higher. This could largely offset any near-term increase in cap rates caused by higher interest rates.

So if cap rates move up a bit, and borrowing costs move up by the same amount, doesn’t that mean that the profitability of new properties will remain the same? Not necessarily, at least not in the short to medium-term.

This is because REITs have been incorrectly used as a “bond proxy” by yield-starved income investors for so long, the sector is currently highly rate sensitive. This means that when 10-year yields rise, so do REIT yields, indicating falling share prices, and thus higher costs of equity.

Source: Hoya Capital Real Estate

The amount of sensitivity is determined in part by the duration of a REIT’s leases. This is because the longer the lease, the more inflation sensitive a REIT’s cash flows are thought to be. In reality, rental escalators usually have inflation baked into their formula. But in the short term, perception is reality, at least on Wall Street.

The good news is that industrial REITs have below average rate sensitivity, at least compared to other kinds of REITs. However, Monmouth’s very long lease durations mean that its sensitivity may be the highest among its peers.

This indicates that, at least until industrial cap rates start moving higher, and REIT rate sensitivity declines, (it’s cyclical and mean reverting), both STAG and Monmouth might see slower than expected growth.

For example, STAG industrial is guiding for about $450 million in net acquisitions in 2018, down from $545 million in 2017. For a REIT with a goal of growing its portfolio 25% a year, this slowdown is a potentially troubling sign. Management says that the slower growth will be mainly from growing dispositions as lower cap rates mean it can recycle capital very profitably, (12% unlevered returns on property sales in 2017).

Monmouth too is likely to not repeat 2017’s record year of growth, because its current growth pipeline is just $135 million. That’s compared to $287 million in acquisitions last year.

The good news is that over the long term, interest rates don’t actually hurt: REIT growth, dividend safety or total returns. In fact, because rates usually rise during times of economic prosperity, REIT fundamentals tend to do best in a rising rate environment. And both STAG and Monmouth have long histories (since 2003 and 1968, respectively) of growing during all manner of economic and interest rate environments. Thus, I have full confidence that these quality management teams will be able to keep growing and generating: generous, secure, and rising dividends over time.

But until the market starts focusing on those positive economic, industry, and individual REIT fundamentals, investors need to brace for a potentially painful year. Both in terms of share price, and potentially slower than expected growth rates for these REITs.

Bottom Line: These 2 Undervalued, Fast-Growing Industrial REITs Make Potentially Great Long-Term Buys At Today’s Prices

Don’t get me wrong, I’m not calling a bottom for REITs. For all we know, the sector might end up lagging the broader market for the next year or more, due to rising rate concerns.

What I do know is that industrial REITs like STAG and Monmouth have a bright future, and strong long-term total return potential. I have full confidence in their skilled management teams to continue adapting to various challenges, as they have successfully done in the past.

Which means that at today’s prices, long term, high-yield income growth investors are likely to do well adding these two stocks to their diversified income portfolios.

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.

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