You're About to Drown in Streaming Subscriptions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

Imagine you just walked into a meeting with your banker.

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

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

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

You argue the point, and resolve the issue.

The wonders of technology, right?

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

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

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

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

Here’s my problem with all of this.

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

I think boring topics should be banned from meetings.

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

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

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

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

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

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OPEC September Production Data

The below charts were created with data from the OPEC Monthly Oil Market Report and the data through September 2018.

OPEC crude only was up 132,000 barrels per day in September to 32,761,000 bpd. That is still 650,000 barrels per day below their all-time high in October of 2016.

August production was revised up by 63,000 bpd so production was actually up 195,000 bpd from what was reported last month.

Iranian production was down 150,000 barrels per day in September. Sanctions are beginning to have an effect.

Iraqi production was up only slightly in September but they seem to be holding at their new all-time high.

Kuwait was also up slightly in September. I think they will be holding at this level for a while.

Libya was up 103,000 barrels per day in September.

Nigeria was up 26,000 barrels per day in September.

Saudi Arabia was up 108,000 barrels per day in September. They are now only 114,000 bpd below their high in December 2016.

The UAE was up 30,000 bpd in September. They are 86,000 barrels per day below their high in December 2006.

And Venezuela continues to plunge toward total collapse.

OPEC big 5 was flat in September. Declines from Iran was offset by gains from the other four.

The other 10 OPEC producers were up 130,000 barrels per day in September in addition to the 345,000 bpd it was up in August. The lion’s share of this increase came from Libya and Nigeria.

If OPEC’s data is correct then the world reached a new all-time high in total liquids production in September.

I have received data for all the world’s largest fields, created in 2013 by Mike Horn who is now deceased. He used the data of many of the great geologists who worked in the Middle East. His sources are listed below:

Al Shdidi, Saad, Gerard Thomas, and Jean Delfaud, 1995, Sedimentology, diagenesis, and oil habitat of Lower Cretaceous Qamchuqa Group, Northern Iraq: AAPG Bulletin, v. 79, p. 763-778.

Beydoun. Z. R., 1991, SG 33: Arabian Plate Hydrocarbon Geology and Potential-A Plate Tectonic Approach: AAPG Studies in Geology #33, 77p.

Carmalt, S.W., and Bill St. John, 1986, Giant oil and gas fields, in Future Petroleum Provinces of the World: AAPG Memoir 40, p.. 11-53, Table 1. Dunnington, H.V., 1958, Generation, migration, accumulation, and dissipation of oil in Northern Iraq, in Habitat of Oil: AAPG, p. 1194-1251.

El Zarka, Mohamed Hossny, Ain Zalah Field-Iraq Zagros folded zone, Northern Iraq, in Structural Traps VIII, AAPG Treatise of Petroleum Geology Atlas of Oil and Gas Fields, v. VIII, p. 57-68.

Halbouty, Michel T., A.A. Meyerhoff, Robert E. King, Robert H. Dott, Sr, H. Douglas Klemme, and Theodore Shabad, 1970, World’s giant oil and gas fields, geologic factors affecting their formation, and basin classification: Part I: Giant oil and gas fields, in Geology of Giant Petroleum Fields: AAPG Memoir 14, p. 502-528, Table 1.

Horn, M.K., 2003, Giant fields, 1868-2003 (databases), in Giant Oil and Gas Field of the Decade 1990-1999, AAPG Memoir (in press).

Ibrahim, M.W., 1983, Petroleum geology of Southern Iraq: AAPG Bulletin, v. 67, p. 97-130.

Konert, G., A.M. Afifi, S.A. Al-Hajri, K. de Groot, A.A. Al Naim, and H.J.Droste, Paleozoic stratigraphy and hydrocarbon habitat of the Arabian Plate, in Petroleum Provinces of the Twenty First Century: AAPG Memoir 74, p. 483-515.

Majid, A. Hamid, and Jan Veizer, 1986, Deposition and chemical diagenesis of Tertiary carbonates, Kirkuk oil field, Iraq: AAPG Bulletin, v. 70, p. 898-913.

St. John, Bill, A.W. Bally, H.Douglas Klemme, 1984, Sedimentary provinces of the world÷hydrocarbon productive and nonproductive: AAPG. map and booklet (35 p.).

Versfelt, Porter, L., Jr., 2001, Major hydrocarbon potential in Iran, in Petroleum Provinces of the Twenty First Century: AAPG Memoir 74, p. 417-427.

There are 1,048 fields listed in this index. They are sorted by country. I list below the Saudi fields and then the fifty largest fields. I will post other data in later posts.

All Saudi Arabia fields:

The Fifty largest fields in the world.

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Jetson Metro Electric Folding Bike Review: Weak Charge

You can futz around with electric skateboards and one-wheeled hoverboards, but for most people there is only one real contender for your complete car replacement. Whether they’re shared, electric, or folding, bikes relieve traffic pressure, produce fewer emissions, and get people moving.

If an electric bike can get you to work without sweating through your shirt, and a folding bike can fit in a car and get stored under a desk, why not…an electric folding bike? Jetson’s Metro electric folding bike fits a 250-watt CZJB motor cleverly hidden in the bike’s crossbar. At $800, it’s much more affordable than, say, a $3500 Tern Vektron or even a $1700 RadWagon RadMini.

But still: Is it worth it? I rode one around, going to lunch and running errands, to find out.

Nuts and Bolts

The Metro folding bike isn’t small. With the motor and an aluminum alloy frame, it weighs a total of 38 pounds. A magnet clasps the front and back wheels together when folded, but there’s nothing to latch the handlebars onto the frame. When you carry it, you have to hold it carefully to keep the handlebars from swinging around.

If you lower the quick-release seat, it is about 25 inches tall folded, 30 inches long, and 17 inches wide. It’s not as compact as you might expect, either, but it does fit under my work desk with the seat lowered. It also fits in the trunk of my Honda Element.

Jetson

It’s easy to figure out how to fold and unfold it. I put a stopwatch on myself and discovered that it usually takes under twenty seconds for me to take it apart or put it together. Of course, that’s not including the times when I couldn’t align the crossbar properly, or when it took extra grunt to close the clamp. I thought about loosening the nut to make it easier to clamp the crossbar together, but loosening parts on a bike that can go 16 mph didn’t seem like a great idea.

The components could probably be a little sturdier. The first time I put the bike together, I chipped off a small piece of metal on the clamp that hooks the cross-tube together, which was…worrying. Thankfully, the one-year factory warranty should cover any real issues you encounter with your Jetson.

It was easy to adjust the stem, handlebars, and seat level to fit my short height. Before I rode it, I charged it overnight. The bike’s range is 40 miles, which seemed to be accurate. I didn’t get that far, but ten miles of riding over several days drained the battery to 60 percent. It only took 40 minutes to charge back up to 100 percent.

Get Your Motor Runnin’

The Metro has three levels of pedal assist. Rather than computing how much torque you need to ride up hills or at a certain speed, the simple computer outputs a different wattage depending on which level you’ve selected—150, 200, or 250 watts, respectively.

On a flat stretch of road on the third level, it was easy to achieve the Metro’s max speed of 16 mph. Thanks to its rear suspension and fat, 16-inch wheels, 16 mph still felt stable and safe.

I loved the plush, comfortable seat and big, ergonomic grips. You can check your speed, your odometer, and your battery level on a small LCD, which is mounted on the handlebars. You can also turn on the integrated front light once it gets dark outside.

On the right grip, you will find a button to honk the horn (Wheee!) and a twist throttle. A horn or bell is crucial for city riding, where cars and pedestrians aren’t always keeping an eye out for bikers. I liked the throttle for passing people on narrow bike lanes, but I did learn that I have to be a little careful. One time, I wheeled the Metro down a driveway when it leaped out of my hands and onto the sidewalk—I’d twisted the throttle without even realizing it!

The Metro has front and rear disc brakes, and a guard to keep your pants from getting caught in the chain. It only has one gear, but it capably made its way up a 20-degree hill near my house on level 3 assist. The display measures how much battery you have left, depending on how hard the motor is working, but I found its accuracy suspect. It’s a little disconcerting to see the battery level fluctuate so rapidly. Wait, do I have 51 percent battery, or 14 percent? Only time will tell!

It’s also water-resistant, so you can ride it in the rain. Jetson does, however, caution you to avoid using water to wash it.

Basket Case

Both folding bicycles and electric ones are intended to let you take a bike where you might otherwise not have. There were a few times where I rode the Metro when I might have otherwise driven, knowing that I had plenty of juice to get me there and that I could always tuck it into a trunk for the ride home.

But as a commuter vehicle, the Metro just lacks a few crucial details. There are no eyelets to attach a rear or front rack, so your storage options are limited to racks that clamp onto the seat post, or baskets that attach to the handlebars. Both of these options have much lower weight limits than a traditional rear rack. Your options for fenders (a necessity for foul-weather commuters) are limited, too, since the wheel forks don’t have very much clearance.

I also found the 38-pound electric Jetson to be pretty heavy. I don’t think I’d want to carry it through a subway station; it was hard enough carrying it around my house and putting it in cars.

It’s hard to tell anyone to spend more money. But seriously—if you’re looking for a folding electric bike that can reliably replace your car, then it might be worth it to save up for a sturdier e-bike that can schlep just a little more. If you’re actually looking for a fun toy to get you from the subway to work without breaking a sweat, Jetson’s own Bolt is both lighter and cheaper, leaving the poor Metro between a rock and a hard place.

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Cryptocurrency theft hits nearly $1 billion in first nine months: report

NEW YORK (Reuters) – Theft of cryptocurrencies through hacking of exchanges and trading platforms soared to $927 million in the first nine months of the year, up nearly 250 percent from the level seen in 2017, according to a report from U.S.-based cyber security firm CipherTrace released on Wednesday.

A small toy figure is seen on representations of the Bitcoin virtual currency in this illustration picture, December 26, 2017. REUTERS/Dado Ruvic/Illustration

The report, which looks at criminal activity and money laundering in the digital currency market, also showed a steadily growing number of smaller thefts in the $20-60 million range, totaling $173 million in the third quarter.

Digital currencies stolen from exchanges in 2017 totaled just $266 million, according to a previous report from CipherTrace.

Bitcoin’s popularity and the emergence of more than 1,600 other digital coins or tokens have drawn more hackers into the cryptocurrency space, expanding opportunities for crime and fraud.

“The regulators are still a couple of years behind because there are only a few countries that have really applied strong anti-money laundering laws,” Dave Jevans, chief executive officer of CipherTrace, told Reuters in an interview.

Jevans is also the chairman of the Anti-Phishing Working Group, a global organization that aims to help solve cyber crime.

He said there are likely 50 percent more criminal transactions than those that were traced for this report. For instance, CipherTrace is aware of more than $60 million in cryptocurrency that was stolen but not reported.

The data also showed that the world’s top cryptocurrency exchanges from countries with weak anti-money laundering regulations (AML) have been used to launder $2.5 billion worth of bitcoins since 2009. The top 20 virtual currency exchanges in terms of volume were analyzed for the report.

The CipherTrace report declined to name those exchanges.

These money-laundered funds represent transactions that CipherTrace was able to directly monitor and designate as criminal or highly suspect.

In estimating the $2.5 billion, CipherTrace looked at about 350 million transactions from the 20 exchanges and found 100 million of those with counterparties. From there, the firm was able to cross-check the 100 million transactions with its own data on criminal activity.

At the same time, these exchanges have also been used to purchase 236,979 bitcoins worth of criminal services, equivalent to approximately $1.5 billion at current prices, the report showed.

“All exchanges get these money-laundered funds. You really can’t stop them,” said Jevans.

“And here’s the reason why. We learn about the criminal stuff often times after it actually happened. So there’s no way to know in real time. You can know 80-90 percent of the time, but it’s impossible to know 100 percent,” he added.

Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci

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WIRED TV: Our OTT Channel Just Got a Lot Bigger

You can find WIRED a lot of places these days. There’s the magazine, of course (which is celebrating its 25th anniversary this year!). There’s this website, which you might be reading on a laptop or tablet but are probably reading on your phone. There’s YouTube and Instagram and Facebook and Twitter and Snapchat and Glizznork, all but one of which are very real things. But starting today, there’s a new addition to that panoply of platforms: your television.

To be fair, WIRED has been on TV before—WIRED Science aired on PBS for one glorious season back in 2007. Television has changed a lot since then, though; a little thing called streaming, another little thing called on-demand, and a bunch of little sticks and boxes that bypass cable and beam video straight onto your sets. So here to harness the power of all those changes is the WIRED OTT Channel. (For those who don’t read trade publications, OTT stands for “over the top,” and just means a streaming media source that bypasses cable or broadcast providers.) The service officially launched in July, but today marks the premiere of a whole slew of titles and content that you can’t find anywhere else.

What does that include? So glad you asked! Well, there’s [De]constructed, a new show in which we break down the hardware used to build popular vehicles and gadgets—like a Harley Davidson motorcycle or a high-end watch—both literally and figuratively. (That’s the trailer above.) On WIRED Masterminds, experts in various fields let you inside the finer points of their work, from a CIA disguise master to a New York Times crossword puzzle constructor. We’ve also got 64 episodes of the BBC tech series Click, now available for the first time in North America. And soon, you’ll be able to watch exclusive content from the upcoming WIRED25 celebration in San Francisco, featuring footage and interviews with the most influential names in technology, including Bill Gates, Satya Nadella, Susan Wojcicki, Sundar Pichai, and more.

If you’re already a fan of our YouTube and web series—like Autocomplete Interviews, Tech Support, and Almost Impossible—you’ll be able to find those too. (And they look pretty damn good on a big screen.) There’s plenty more in the pipeline as well, so if you’ve got an Apple TV, Amazon Fire TV, Android TV, or a Roku, just look for WIRED. And grab a snack; you might be there for a while.


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Bionic Limbs 'Learn' to Open a Beer

Andrew Rubin sits with a Surface tablet, watching a white skeletal hand open and close on its screen. Rubin’s right hand was amputated a year ago, but he follows these motions with a special device fitted to his upper arm.

Electrodes on his arm connect to a box that records the patterns of nerve signals firing, allowing Rubin to train a prosthetic limb to act like a real hand. “When I think of closing a hand, it’s going to contract certain muscles in my forearm,” he says. “The software recognizes the patterns created when I flex or extend a hand that I do not have.”

The 49-year-old college professor from Washington, DC, drives several times a month to Infinite Biomedical Technologies, a Baltimore startup company that is using deep learning algorithms to recognize the signals in his upper arm that correspond with various hand movements.

Each year, more than 150,000 people have a limb amputated after an accident or for various medical reasons. Most people are then fitted with a prosthetic device that can recognize a limited number of signals to control a hand or foot, for example.

But Infinite and another firm are taking advantage of better signal processing, pattern recognition software and other engineering advances to build new prosthetic controllers that might give Rubin and others an easier life. The key is boosting the amount of data the prosthetic arm can receive, and helping it interpret that information. “The goal for most patients is to get more than two functions, say open or close, or a wrist turn. Pattern recognition allows us to do that,” says Rahul Kaliki, CEO of Infinite. “We are now capturing more activity across the limb.”

Kaliki’s team of 14 employees are building the electronics that go inside other companies’ prosthetic arms. Infinite’s electronic control system, called Sense, records data from up to eight electrodes on his upper arm. Through many hours of training on the company’s tablet app, the device can detect the intent encoded in Rubin’s nerve signals when he moves his upper arm in a certain way. Sense then instructs his prosthetic hand to assume the appropriate grip.

Last Friday, Infinite’s Kaliki received notice from FDA officials that Sense had been approved for sale in the United States. Kaliki says he expects to begin installing them in prosthetic limbs by the end of November. In 2017, FDA officials approved a similar system by Chicago-based Coapt. Today more than 400 people are using the system at home, according to CEO Blair Lock.

Coapt

Lock started as an engineer 13 years ago at the Rehabilitation Institute of Chicago, an affiliate of Northwestern University. He worked with surgeons who were repairing nerve damage in amputee patients. Over time, he realized that building better prosthetics would be easier if he could figure out a way to pick up better signals from the body, he says. “What’s new is providing a much more natural, more intuitive method of control using [bio-electronic] signals,” Lock says.

In earlier versions of prosthetic devices, electrodes recorded signal strengths “but it was like listening to an orchestra and only knowing how loud the instruments are playing,” Lock says. “It was a significant effort to learn the content and fidelity of the signals.” The Coapt system works inside an amputee’s prosthetic hand and costs about $10,000 to $15,000, depending on the amount of customization needed. Artificial limbs can costs anywhere from $10,000 to $150,000, according to Lock.

Nicole Kelly got a new prosthetic device with the Coapt control system about a year ago. Now the 28-year-old Chicagoan can grind fresh pepper into her food and hold playing cards with friends. She can also open a beer.

“For many things, it wasn’t that I couldn’t do them before, but suddenly I can do them much easier,” says Kelly, who was born without her lower left arm.nHer prosthetic “is not my body, and it’s not 100 percent natural,” she said. “There’s a learning curve of my body communicating with this technology. Even the process of the best way to hold the salt and pepper shakers, I am essentially doing it for the first time.”

The Coapt system includes a reset button that allows Kelly to reboot its pattern recognition system if the grips don’t seem to work the way she wants them to. “If at any time I feel like it is doing something funky, I can hit the reset button,” says Kelly, who was a former Miss America contestant and now a disability rights advocate. She says that retraining the hand currently takes about two minutes.

That’s not the only innovation. Engineers at Infinite Biomedical are handing out RFID tags to amputee patients so they can stick them on door knobs, kitchen utensils and other household objects—any useful item that requires a specific grip. The idea is that a controller in their prosthetic limbs will detect the RFID signal and automatically change the grip from, say, the one needed to turn a doorknob to the one that lets you pick up a newspaper. The project is underway with funding from the NIH, according to CEO Kaliki.

These technologies are still new and not available for everyone yet. Learning to use one takes a lot of training, and of course, not all insurance companies pay for the most sophisticated prosthetics or these new control systems. Yet patients like Andrew Rubin are hoping that many of these advances come soon. Right now, if he wants to pick up a cup and then open a door, he has to use a smartphone app every time he wants to change the grip on his prosthetic device.

“It’s a slow process, I think eventually we will figure out something that will enable me to not have to rely on my phone to change the grips,” he says. Rubin says he enjoys the weekly training sessions at Infinite in Baltimore, as well as at a Johns Hopkins University bioengineering lab that is developing a glove that can feel pain just like a real hand. But Rubin—who suffered a systemic sepsis infection and also had his leg amputated several years ago— would like get to the point where he could use his right hand to push the shutter on his SLR camera, balance a bowl or perhaps even write with a pen. As the first person to try out Infinite’s new pattern recognition system at home, he’s not too far away.


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As If Apple Needs a New Problem, Here's What's Wrong With Its New Bagel Emoji

We’ll get to the bagel emoji thing at the end of this column. First, here’s what else I’m reading today.

Maybe you should just buy out your investors

You’ve built a company you’re proud of, and taken on funding. Maybe you have investors. What happens when you realize you might be better off without the outside pressure to grow and provide a return?

One drastic solution that’s starting to emerge: Buy them out.

Inc.’s Kimberly Weisul explores the experience of companies like Wistia, a video-hosting company that took on $17.3 million in debt to buy out its investors, and Buffer, which used about $3.3 million to buy out the venture capitalists who had founded its Series A round.

The idea of building, say, a $10 million or $25 million or $50 million company, is likely to be viewed as a failure by big investors. When you don’t have much in the way of outside investment, the same number could mark a life-changing success.

And if it works, it gets you out of that misguided mindset where raising money is a goalpost, when it’s really the starting line.

Here’s a bit of what else I’m reading today.

Toys ‘R’ Us leaves a void

Last week, everyone saw that Toys ‘R’ Us is likely to stage a comeback. It won’t be soon enough for the 2018 holiday season, however, and toy brands are scrambling to fill a $2 billion hole–which is how much business Toys ‘R’ Us did in November and December last year. (Paul Ziobro, The Wall Street Journal)

He was one of the first engineers at SpaceX. Now he’s running his own rocket company.

Jim Cantrell quit working for SpaceX after Elon Musk “yelled at me one too many times,” he told Inc. recently. Now, he’s close to raising $90 million to build a competitor–while trying to avoid his past as an American working for the Soviet space program. (Kevin J. Ryan, Inc.com)

Target vs. the Dollar Store

If you think of Target’s main competition as Walmart and Amazon, there’s another front in the retail wars. Target is coming out with a new line of (mostly) under-$2 essentials and personal care products called Smartly, apparently designed to take on discount retailers like Dollar General and Dollar Tree. (Shelly Hagan, Bloomberg)

After #MeToo, federal sexual harassment cases are up

The  U.S. Equal Employment Opportunity Commission has filed 50 percent more sexual harassment cases on behalf of employees than it did a year ago. The big difference between 2017 and 2018? The #MeToo movement, which not only prompted alleged victims to speak out, but to take legal action. (Bill Murphy Jr., Inc.com)

Apple’s new bagel emoji is totally inedible

This daily report is made in New York (OK, technically “the New York City area”) where we know something about bagels. And the bagel emoji, one of 70 new ones in iOS 12, looks totally inedible. Granted, this is a first world problem, maybe even a New York-only problem. But I thought you should know. (Natasha Frost, Quartz)

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SpaceX Sticks Its Landing after a Showy California Launch

“The Falcon has landed.”

As SpaceX declared victory on its live webcast, cheers erupted on a southern California hilltop, where a group of watchers had gathered to witness the company’s latest rocket launch (and landing). SpaceX had just achieved another first: touching down a rocket on California soil. Until now, the company’s West Coast landings had all taken place on the deck of the company’s drone ship, Just Read the Instructions. But following its carefully choreographed orbital gymnastics, the Falcon 9’s first stage booster stuck its landing in the center of LZ-4, SpaceX’s new landing pad at Vandenberg Air Force Base.

Minutes earlier, the Falcon 9 rocket had leapt off the pad, tasked with delivering Argentina’s newest Earth-observing satellite—SAOCOMM-1A— into space. Without a single cloud in the night sky, the Falcon’s pyrotechnics were on full display. Exhaust from the rocket undulated through the atmosphere like ripples across a pond. Residents across the state caught sight of the unusual light show, as portions of the rocket’s flight were illuminated by the last bits of light lingering from a sun that had already set.

The rocket that starred in tonight’s spectacular launch was the second of SpaceX’s next-generation Falcon 9, dubbed the Block 5, to refly. The veteran flyer had first delivered 10 Iridium NEXT communications satellites into orbit on July 25. Following that flight, the booster had landed safely at sea, before getting hauled back to land. Now it stands tall atop LZ-4.

Following a rocket launch, the company has two options for recovering boosters: returning to land, using a specially constructed landing pad, or touching down at sea, on the deck of one of the company’s two drone ships. The option SpaceX picks depends largely on the rocket’s payload. Returning to land requires more fuel than lowering onto a drone ship, so launches that use up lots of propellant during ascent (typically larger, heavier payloads) usually have to land in the ocean. But lighter payloads, like this one bound for low-Earth orbit, have plenty of fuel reserves left to trek back to land.

Tonight’s flight marked the 30th landing for SpaceX out of 62 total launches—only 12 of which have been on land. This is the first time a rocket has landed on solid ground in California. Previously, SpaceX’s ground landings all occurred at the company’s busiest launch site: Cape Canaveral, Florida, where SpaceX has a pair of launch and landing pads.

But SpaceX has been wanting to do ground landings out of its Vandenberg facilities, dubbed Space Launch Complex 4 (SLC-4 for short). Originally home to Titan missiles, SLC-4 is actually two launch sites in one. Split up into two parts—east and west—SpaceX leases both and uses one for launching and one for landing. Though SpaceX appears to have mastered the art of booster landing, each attempt still presents a challenge, especially when the landing pad is mere feet away from the launch pad. If something were to go awry, it could be a very bad day for SpaceX. Despite the tricky landing, SpaceX made it look easy as the Falcon stuck its landing as planned.

With the success of tonight’s landing, SpaceX won’t have to rely solely on its drone ship to recover boosters shot from its West Coast facilities. Land landings reduce post-launch processing times, nudging SpaceX closer to its goal of sending a rocket back to space within 24 hours.

In addition to reusing first stage boosters, SpaceX has been working towards recovering and reusing the rocket’s nose cone. Unfortunately, any hopes of recovering a fairing tonight were thwarted by rough seas. The company’s fairing-retrieval vessel, Mr. Steven, was forced to warm the bench.

But the good news is that Mr. Steven won’t be sidelined for long. SpaceX still has a few more West Coast launches on the docket this year, and a few more chances for Mr. Steven to snag the ultimate prize: a fairing.


More Great WIRED Stories

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

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

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

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

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

From masterpiece to master pieces.

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?Red Hat Satellite integrated new, improved Ansible DevOps

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

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

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

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

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

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

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

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

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

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

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

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

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

In 2019, Ansible will include the following security features:

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

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

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

“Since

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

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

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Cloud misconfiguration: The security threat too often overlooked

A survey of 300 IT professionals by Fugue, a cloud infrastructure security provider, reveals that most enterprises are vulnerable to security events caused by cloud misconfiguration, including data breaches and system downtime events.

From the report:

  • Nine in ten have real concerns about security risks due to misconfiguration, and less than a third continuously monitor for them.
  • Teams report a frequency of 50 or more misconfigurations each day, yet half of the teams only review alerts and remediate issues on a daily—or longer—timeframe, leading to dangerously long infrastructure vulnerability periods.

Of course, this report (like any vendor-sponsored report) is self-serving. But the message reflects something that I’m seeing a lot today in the real world—and it’s scaring the hell out of me.

Misconfiguration means that the public cloud server instances, such as storage and compute, are configured in such a way that they are vulnerable to breaches. For example, the National Security Agency recently had an embarrassing moment when someone was able to access secure documents from its Amazon S3 instance with just a browser. It was a classic example of misconfiguration, defeating the default configurations that are secure be default.

While this seems like a “duh, dummy” moment, the reality is that public cloud configuration is complex, takes specialized training, and if not done right means any security systems you layer on top of your cloud can’t stop hackers running away with your data.

So, what are you to do? Do these three things, in this order:

  1. Understand that configurations are part of security. It’s often not considered.   Indeed, I’ve had to explain the importance of these 20 times to clients in the last six months, which means that they have not been practicing holistic security.
  2. Use a third-party security tool that can look at configurations constantly. That way, you are not dependent on what native cloud native is telling it; instead, it provides a constant independent check and alerts you when things are misconfigured.
  3. Engage outside security testers to ensure that everything is configured correctly. I’ve often found that these audits do find things that a client missed.

The complexities of cloud computing, and the chance of human error, will bite you in the butt. So don’t skimp on security planning before deployment nor on security validation after deployment.

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Shares in Chinese tech firms tumble, Lenovo plunges over 20 percent

HONG KONG (Reuters) – Shares in Lenovo Group Ltd and ZTE Corp plunged on Friday, hurt by concerns their sales could suffer in the wake of a Bloomberg report that U.S. companies’ systems had been infiltrated by malicious computer chips inserted by Chinese spies.

The Lenovo logo is seen in this illustration photo January 22, 2018. REUTERS/Thomas White/Illustration

Bloomberg Businessweek cited 17 unidentified sources from intelligence agencies and business that Chinese spies had placed computer chips inside equipment used by about 30 companies and multiple U.S. government agencies, which would give Beijing secret access to internal networks.

Apple Inc and Amazon.com Inc, cited as U.S. companies that had been subject to the attack, denied the report. Super Micro Computer Inc, which Bloomberg said was the supplier of server boards that contained the malicious chips, also denied the report.

The report did not say any Chinese tech firms were involved in the attack.

But Lenovo shares tumbled 18 percent while Hong Kong-listed shares of Chinese telecommunications equipment maker ZTE Corp fell 11 percent in what analysts and market participants said was response to fears that consumers and businesses may become reluctant to buy Chinese tech goods.

FILE PHOTO: The logo of Chinese telecommunications equipment maker ZTE is seen outside the ZTE R&D building in Shenzhen, China April 27, 2016. REUTERS/Bobby Yip/File Photo

Lenovo said in a statement: “SuperMicro is not a supplier to Lenovo in any capacity. Furthermore, as a global company we take extensive steps to protect the ongoing integrity of our supply chain.”

ZTE declined to comment.

“Lenovo has fallen more than others because the United States represents a significant chunk of their business,” said Linus Yip, chief strategist at First Shanghai Securities.

“The stock had also risen a lot in recent months… so the price is at a relative high point, the news of uncertainty may prompt some to sell and profit.”

The IT hardware sector subindex on the Hong Kong stock exchange was down 5.5 percent, underperforming a 0.4 percent dip in the benchmark Hang Seng index.

The Bloomberg report said that a unit of the Chinese People’s Liberation Army infiltrated the supply chain of Super Micro Computer to plant the malicious chips.

China’s Ministry of Foreign Affairs did not respond to a written request for comment. Beijing has previously denied allegations of orchestrating cyber attacks against Western companies.

Reporting by Sijia Jiang and Donny Kwok in HONG KONG and Yimou Lee and Jess Macy Yu in TAIPEI; Editing by Miyoung Kim and Edwina Gibbs

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Lenovo shares tumble, investors fret over impact of chip hack report

HONG KONG (Reuters) – Shares in Lenovo Group Ltd and ZTE Corp plunged on Friday, hurt by concerns their sales could suffer in the wake of a Bloomberg report that U.S. companies’ systems had been infiltrated by malicious computer chips inserted by Chinese spies.

The Lenovo logo is seen in this illustration photo January 22, 2018. REUTERS/Thomas White/Illustration

Bloomberg Businessweek cited 17 unidentified sources from intelligence agencies and business that Chinese spies had placed computer chips inside equipment used by about 30 companies and multiple U.S. government agencies, which would give Beijing secret access to internal networks.

Apple Inc and Amazon.com Inc, cited as U.S. companies that had been subject to the attack, denied the report. Super Micro Computer Inc, which Bloomberg said was the supplier of server boards that contained the malicious chips, also denied the report.

The report did not say any Chinese tech firms were involved in the attack.

But Lenovo shares tumbled 18 percent while Hong Kong-listed shares of Chinese telecommunications equipment maker ZTE Corp fell 11 percent in what analysts and market participants said was response to fears that consumers and businesses may become reluctant to buy Chinese tech goods.

FILE PHOTO: The logo of Chinese telecommunications equipment maker ZTE is seen outside the ZTE R&D building in Shenzhen, China April 27, 2016. REUTERS/Bobby Yip/File Photo

Lenovo said in a statement: “SuperMicro is not a supplier to Lenovo in any capacity. Furthermore, as a global company we take extensive steps to protect the ongoing integrity of our supply chain.”

ZTE declined to comment.

“Lenovo has fallen more than others because the United States represents a significant chunk of their business,” said Linus Yip, chief strategist at First Shanghai Securities.

“The stock had also risen a lot in recent months… so the price is at a relative high point, the news of uncertainty may prompt some to sell and profit.”

The IT hardware sector subindex on the Hong Kong stock exchange was down 5.5 percent, underperforming a 0.4 percent dip in the benchmark Hang Seng index.

The Bloomberg report said that a unit of the Chinese People’s Liberation Army infiltrated the supply chain of Super Micro Computer to plant the malicious chips.

China’s Ministry of Foreign Affairs did not respond to a written request for comment. Beijing has previously denied allegations of orchestrating cyber attacks against Western companies.

Reporting by Sijia Jiang and Donny Kwok in HONG KONG and Yimou Lee and Jess Macy Yu in TAIPEI; Editing by Miyoung Kim and Edwina Gibbs

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

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

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

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

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

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

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

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

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Aurora Cannabis: Immense Growth At Reasonable Price?

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

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

Source: Pixabay

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

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

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

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

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

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

Aurora’s potential

Chart

ACBFF Revenue (Annual) data by YCharts

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

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

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

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

Valuation

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

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

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

Legal Weed Stocks Price-to-Sales Ratio

As of Sept 29th 2018

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

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

Final Thoughts

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

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

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

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

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

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

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Aurora Cannabis May Be About To Go Ballistic

source: Seeking Alpha

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

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

Latest numbers

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

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

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

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

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

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

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

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

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

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

Cost per gram

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

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

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

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

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

Implications of major listing and recreational pot

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

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

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

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

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

Conclusion

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

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

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

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

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

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

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

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

Disclosure: I am/we are long ACBFF.

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

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

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5 Things You Must Do Before Taking Investment Money

In 19 years as an entrepreneur, I’ve yet to have investors.

But, I’ve been a casual investor. I’ve bought equity, and I’ve earned sweat equity. I’ve been a minority partner and a majority partner. And recently, I’ve been hanging around more well-funded startups and watching their rockets prepare for liftoff. 

Through these experiences, I’ve built some habits that my newly funded friends are just getting used to and I’ve realized that you don’t need to have investors to treat your business like the investment that it is. 

So, whether you plan to take funding or now, here are five things you should do ASAP. 

1. Understand your personal compensation — all of it.

As a small business owner, you’ve probably been trained to run every personal expense that you (legally) can through the business. But, what saves you a few dollars on deductions can actually become quite the headache if you aren’t tracking it right. 

Add up your salary, distributions, and everything you’re charging on a company card that really supports you more than the business. This includes date nights, gym memberships, cell phones, car payments — all of it. 

You should always know the true expenses and profit margins of your business, and not just the ones that are burdened with your expensive lifestyle. Then, if you decide to bring on investors or sell the business, removing these expenses can drive up the valuation on your company.

2. Start keeping a weekly scorecard.

Investors will want to understand the metrics of your business. But, a snapshot of those metrics today is much less impressive than a regular history of statistics.

I keep a simple weekly scorecard with my team on Google Sheets. We track things like weekly ad spend, traffic to our website, trial sign-ups and cost per lead. As the business evolves, these weekly metrics help us measure our success. 

In your business, metrics tell a story about the results that your actions created. The earlier you start documenting that story, the more confidence your investors will have.

3. Review your monthly financials with at least one other person.

First, and this almost goes without saying, you should be running monthly financial statements — at minimum, a Profit & Loss statement.

If this sounds foreign to you, QuickBooks and Xero make it easy to do it yourself, or you can use a service like Bench to outsource the work. 

Schedule monthly sessions to review your numbers with someone else — a bookkeeper, mentor, advisor, business coach or key employee — to evaluate your progress and challenge your thinking. Get in the habit of explaining what happened each month, and how you’re course correcting as needed. Both skills will be important if you decide to involve an investor. 

4. Run full-day quarterly and annual planning sessions.

Strategic planning sessions aren’t just for big companies. Even if you’re a company of one, schedule a full day outside of the office four times per year to think big picture. 

Already have partners or investors? Putting planning days on the calendar is a great way to batch your updates into an expected timeline to avoid impromptu strategic calls.

If you’re alone at the helm, set time every three months to set new quarterly goals and review your annual goals. Then, take the time to write them down and communicate them to your employees. Investors would expect these updates, so you should expect no less of yourself. 

5. Make one and five year projections for your business.

I used to joke that no entrepreneur could fathom what they would be doing in five years — we’re too addicted to shiny objects. But, we’re also driven to hit the crazy goals that we set. 

When you take the time to imagine what your company will be doing in five years, you give yourself permission to think bigger than what’s possible with your current resources. 

Start making one and five year projections for your business, and forecast some simple metrics. How many customers will you have? How many locations will you open? How many employees will work for you? What will your business do in revenue? How much will you personally take home?

Any investor will ask to see these projections, so build a track record of setting goals and trending toward them.

For most of us, our businesses are our biggest investments. They take up all of the time we have in hopes of generating all of the money we’ll need. 

Whether you have partners today or not, remember that you are the company’s largest investor. Build these habits first for you, and if you decide to take on investment in the future, it will be much easier.

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UK could go it alone on digital services tax: finance minister

BIRMINGHAM, England (Reuters) – Britain will unilaterally implement a digital service tax if there is no international agreement soon on how to tax big internet companies, finance minister Philip Hammond said on Monday, blaming U.S. tax reforms for slow multilateral progress.

Britain’s Chancellor of the Exchequer Philip Hammond delivers his keynote address at the Conservative Party Conference in Birmingham, Britain, October 1, 2018. REUTERS/Toby Melville

“The best way to tax international companies is through international agreements but the time for talking is coming to an end and the stalling has to stop,” Hammond told the Conservative Party conference in the English city of Birmingham.

“If we cannot reach agreement, the UK will go it alone with a Digital Services Tax of its own,” he said.

Britain has previously said it was considering taxing the revenues of internet firms such as Facebook and Google until international tax rules are changed to cope with digital firms that can shift sales and profits between jurisdictions.

Speaking at a later event, Hammond said the tax would only apply to firms above a “quite substantial” size threshold and would involve putting a value on the content and data of British consumers as a share of the firms’ overall value and calculating what proportion of the business is based in the UK.

He said talks at an international level had been stalled by U.S. tax reforms aimed at ensuring internet firms pay their taxes there.

“I have to say my prognosis is that it is quite unlikely that we will be able to achieve international agreement in anything like a sensible time scale because the U.S. isn’t frankly onside with this agenda,” he said.

Hammond said Britain was also looking at ways to update its competition policy in response to the power of major companies.

“The expansion of the global tech giants and digital platforms, while of course bringing huge benefits to consumers, raises new questions about whether too much power is being concentrated in too few global technology businesses,” he said.

Hammond has appointed President Barack Obama’s former chief economist, Jason Furman, to lead a review of Britain’s competition regime, to ensure it is fit for the digital era.

The Confederation of British Industry warned that any tax moves should not damage the UK’s global competitiveness.

“All businesses are increasingly digital. Any new approach must be built on evidence from enterprise or it risks being blunt and counterproductive,” Carolyn Fairbairn, the CBI’s Director-General, said in a statement.

Reporting by William James, Writing by Guy Faulconbridge and William Schomberg; editing by Michael Holden, Richard Balmforth

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This Startup Is Using AI to Help Nonprofits Raise More Money

Nonprofit organizations live on fundraising. Spreadsheets and CRM systems have helped fundraisers track, sort, and reach out to potential donors. But fundraising is a high-touch, people-intensive activity. 

Donor outreach may start out with mass mailings and email blasts, but effectively engaging with the biggest and most frequent donors usually requires a high degree of customization and personalization. For resource-constrained non-profit organizations, then, one of the biggest barriers to reaching out to more high-potential donors?–?and more frequently?–?is the need to tailor outreach. 

This is one lesson Adam Martel learned firsthand as a fundraiser for Babson College, widely considered one of the world’s leading institutions for the study of entrepreneurship. Martel’s quest to solve this issue for himself and his team eventually became the kernel of an idea for an entirely new business he founded while studying for his MBA, which he pursued part-time while he helped Babson build its endowment.

Gravyty Technologies, which he co-founded in 2016 with Babson classmate Rich Palmer, draws on the power of AI to make data-backed predictions about the giving potential of donors and even help automatically write first drafts of personalized outreach emails. 

Gravyty is acquiring new nonprofit customers, raising fresh funding, and earning accolades for its AI-based technology. Earlier this year, Gravyty successfully completed its second round of funding, raising $2 million by a group of investors led by Boston’s NXT Ventures and Launchpad Venture Group.

In 2017, The Chronicle of Philanthropy selected Gravyty as the first among fifteen “New Fundraising Ideas that Worked” for the role their artificial intelligence technology played in helping increase major donor retention for the Cure Alzheimer’s Fund. The Fund increased fundraising by 49 percent, or nearly $2 million, in the first year they used Gravyty’s applications.

I spoke with Adam recently about his advice for aspiring entrepreneurs. 

1. Find a partner.

“Be on the search for somebody you can go through the journey with. Being an entrepreneur alone is not very much fun. I’ve done it. Rich has done it. It’s too hard to do by yourself. Have the humility to understand and know that you need other people. Having a partner that you go through these journeys with, makes the journey more worthwhile….To have a co-founder that goes with the same speed and has the same passion…is unique.”

2. Be prepared for the highs and the lows.

“Every day, we have high highs and low lows. There’s not a day that’s gone by where I haven’t felt like I was on top of the world and haven’t felt like I was at the bottom of the ocean…We use the phrase ‘ride a flat rollercoaster.’ Don’t try to get too excited. Don’t try to get too down. Just try to do your job to the best of your ability every single day.”

3. Find something that you truly want to do.

“Find something that you truly want to do. Find a problem that you truly want to solve. I’m compelled to be an entrepreneur because I want to provide my family with the life that I want to live with them. Working at a job that I love makes me a better father and a better husband. I’ve tried to do other things and I can’t. What drives me to be an entrepreneur isn’t anxiety or anything other than the fact that I love doing it. I wake up every day excited to do it.”

4. Find investors who are also mentors.

“I think the best investors not only give money, but give time. Raymond Chang, our investor at NXT Ventures, didn’t just give us money?–he sat down with me and spent hours with me, trying to explain things and work through challenges that I was facing. To have somebody that’s gone through this so many times, who is on your side and really mentoring you, is very useful.”

(Note: Gravyty Technologies is not a client of mine, nor do I have any other business dealings with the company.)

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Google to Pay Apple $12 Billion to Remain Safari’s Default Search Engine in 2019: Report

Google’s search engine dominance can seem invincible, but that doesn’t mean the search giant isn’t willing to pay billions to ensure it stays that way.

Google will reportedly pay Apple $9 billion in 2018 and $12 billion in 2019 to remain as Safari’s default search engine, according to Business Insider. The report comes courtesy of Goldman Sachs analyst Rod Hall. It seems like a hefty price to pay, but with Safari being the default browser on iPhone, iPads, and Macs—and Google continuing to generate a great deal of revenue from its original search engine business—the Goldman Sachs report finds the payments to be a fraction of the money it ends up making.

“We believe Apple is one of the biggest channels of traffic acquisition for Google,” the report said, according to Business Insider.

Bernstein analyst Toni Sacconaghi additionally revealed in 2017 that Google previously paid Apple an estimated $3 billion. However, the only real number available is from 2014, due to court filings, which revealed Google paid Apple $1 billion for its search engine spot. Considering $9 and $12 billion are big jumps in four and five years, respectively, and that Google and Apple won’t actually disclose the figure, it’s unclear how accurate the Goldman Sachs estimate really is.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But when will the specialty coffee market cool down?

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

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50 Habits That Will Make You a Millionaire

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

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

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

1. Save 40 to 50 percent of your paycheck.

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

2. Invest.

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

3. Diversify.

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

4. Start small.

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

5. Mix in long-term investments.

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

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

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

7. … and your annual IRA contributions.

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

8. Take part in an IPO.

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

9. Don’t waste money.

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

10. Embrace minimalism.

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

11. Sell your stuff.

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

12. At the very least, trim the fat.

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

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

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

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

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

14. Avoid debt.

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

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

15. Don’t be house poor …

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

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

16. … but do try to buy a home.

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

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

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

18. Properly insure your stuff …

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

19. … and yourself.

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

20. Keep your credit shiny.

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

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

21. Renegotiate everything.

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

22. Actually, negotiate everything.

Just saying.

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

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

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

And, listen, if even that gets tricky …

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

“No matter what happens,” he said.

25. Automate your savings.

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

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

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

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

27. Avoid the hotspots.

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

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

28. Bank your windfalls.

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

29. Early to bed, early to rise.

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

30. Get a side hustle.

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

31. Provide short-term lodging.

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

32. Start a business.

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

33. Go full-fledged landlord.

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

34. Become an influencer.

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

35. Never relax …

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

36. … like, ever.

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

37. Exercise.

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

38. Lean in.

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

39. Earn your bonus.

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

40. Ask for a bonus.

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

41. Avoid lifestyle creep.

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

42. Think like a hacker.

This one comes courtesy of Facebook CEO Mark Zuckerberg.

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

43. Go on a game show.

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

44. Catch up.

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

45. Hold off on taking Social Security.

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

46. Work all the tax breaks.

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

47. Get some help.

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

48. Stick with it.

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

49. Believe in yourself.

Because you can make $1 million.

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

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

50. Win the lottery.

It could happen.

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Singapore's Grab in talks to sell Thai unit stake to Central Group: sources

BANGKOK (Reuters) – Singapore-based ride-hailing firm Grab is in talks to sell “a decent-sized stake” in its Thai business to Thailand’s largest retailer, Central Group, people with direct knowledge of the matter told Reuters on Thursday.

A Grab motorbike helmet is displayed during Grab’s fifth anniversary news conference in Singapore June 6, 2017. REUTERS/Edgar Su

The talks are taking place as Grab faces intensifying competition from Indonesia’s Go-Jek, which has plans for a $500 million investment to enter Thailand and other countries in the region.

If the deal with Central Group goes ahead, it will expand Grab’s existing tie-up with the retailer beyond food delivery to areas such as digital payment and e-commerce, the people said.

“There’s a natural synergy with Central,” said one, citing Grab’s current food delivery service from Central restaurants.

Grab is interested in doing business with JD Central, a $500 million e-commerce joint venture that Central launched earlier this year with China’s e-commerce giant JD.com, said the person, who declined to be identified as the matter was private.

The size of the deal is yet to be determined, though discussions have been ongoing for some time, said the people.

Grab, which counts Uber Technologies, Japan’s SoftBank Group Corp, Toyota Motor, and China’s ride-hailing firm Didi Chuxing among its backers, said it would not comment on “rumors and speculation”. Central did not respond to a request for comment.

“Aligning itself with the Central Group could help Grab get faster approvals in developing its ride-hailing and digital payments businesses,” said Nattabhorn Juengsanguansit, Director at Asia Group Advisors, a government relations advisory.

“The deal represents potential synergies for both sides, for example in lowering transportation costs for Central’s food and e-commerce businesses,” she added.

Central Group, owned by the billionaire Chirathivat family, also manages shopping centers and hotels across Thailand.

The deal could also help Grab navigate required new regulatory standards, said Jay Harriman, senior director at BowerGroupAsia.

Reporting by Chayut Setboonsarng; Editing by Christopher Cushing and Kirsten Donovan

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AMD: Breathe In Your Fears

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

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

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

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

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

Overheated?

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

Immediate Concern

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

The Great Mining Flood of 2018

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

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

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

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

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

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

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

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

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

Rebates/Price cuts

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

AMD 580, AMD, Radeon, AMD price cuts

AMD Sale, AMD rebate, AMD Newegg, Newegg sale

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

CPU Shortage

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

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

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

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

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

AMD Response

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

Updated Polaris 3.0

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

How We Are Playing Fear/Hype

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

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

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

Disclaimer

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

Disclosure: I am/we are short AMD.

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

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

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Capital Product Partners: Nearly 12% Yield With Growing Coverage And No K-1

CPLP Overview – 11.5% Yield, Conservative Posture

Image Credit: CPLP, Q2-18 Earnings Presentation

Capital Product Partners LP (NASDAQ:CPLP) is a shipping holding company specializing in vessels with medium and long-term charter contracts, primarily in the product tanker and container sectors. CPLP has superior forward revenue visibility due to the nature of its contracts and staggered roll-offs. This allows it to appeal to more income-focused investors versus direct rate speculators. Despite this strength and a very strong balance sheet, the stock has been trading terribly towards the end of summer 2018.

This report will examine current asset values, cash flow potential and long-term sustainable payout levels. Current NAV is over $4/unit, even with underlying asset values near record lows.

CPLP currently trades at $2.79 with approximately 130 million common units outstanding, for a current market capitalization of just over $360 million. It also has nearly 13 million convertible preferred units (privately held), with a par value and conversion at $9/unit. CPLP common units currently offer a quarterly distribution of $0.08 for a current yield of 11.5%.

Fleet and Employment Overview

CPLP has a fleet of 37 vessels, primarily made up of product tankers and containerships on medium- and long-term charters. The majority of these vessels are on fixed charters to top-tier counter-parties, with current employment shown below.

Source: Capital Product Partners, Q2-18 Presentation, Slide 8

The primary exceptions are its 4 Suezmax crude tankers, of which 3 are on weak spot rates and 1 is on a weaker short-term charter. These weaker rates have been holding back cash flows, but spot rates have recently improved, and I expect significantly better performance by Q4-18.

Fleet Values and Balance Sheet

Although income vehicles are traditionally valued on yield, the underlying asset values are important to intrinsic value. Most high-yield companies have unsustainable payouts backed by weak assets. That’s not the case at CPLP.

We can calculate CPLP’s “intrinsic worth” by figuring out net asset value (“NAV”), which is similar to tangible book value. For shipping firms, this is essentially fleet valuations minus net debt.

According to VesselsValue, our preferred source of live valuations, the current fleet is worth $914 million. Additionally, CPLP has above-market charters (very lucrative charters on 8 containerships and 1 dry bulk vessel), which I value at $208 million using a 10% discount rate to EBITDA, adjusted for vessel depreciation.

Source: VesselsValue, CPLP Fleet Overview

For the liabilities side of the house, as of Q2-18, CPLP reported net debt (6-K, page 2) of roughly $449 million. It also had $117 million in par value of preferred equity. Altogether, the company’s NAV is about $556 million ($1.12 billion in assets minus $566 million in liabilities).

With 129.7 million units outstanding (127.25 million common and 2.44 million GP), current adj. NAV at CPLP is about $4.30/unit, which means the current units trade at a huge 36% discount to intrinsic value. Unlike the vast majority of high-yield plays, CPLP’s yield is simply high due to a weak price, not because of weak assets or unsustainable payouts.

Significant Asset and Yield Upside

CPLP’s current NAV is based on underlying asset values that are near all-time adjusted lows. Sentiment has been terrible after several rough market years, and ship prices reflect this.

If product tanker markets recover substantially by 2020, I anticipate that as earnings increase, the company’s underlying fleet values could surge by $200-300 million and NAV could easily surpass $6/unit. In such a market environment, which I believe is very likely prior to 2020, CPLP’s payout could see significant increases. If an eventual refinancing is achieved, a doubling is possible.

Regulation Tailwind

The IMO 2020 regulations, which limit the use of high-sulfur fuel to a maximum of 0.5%, go into effect in just over 15 months. This new regime will force shipowners to pursue regulation-compliant blends and is poised to add significant demand to the product tanker sector. This is CPLP’s primary exposure, and almost all of its containerships are also on long-term contracts (which means CPLP doesn’t pay for rising fuel costs), so unlike many other shipping companies, its net impact is clearly skewed positive.

On its Q2-18 conference call, Ardmore Shipping (NYSE:ASC), a product tanker peer, shared the following guidance:

… IMO 2020 sulphur regulations are expected to have an impact from mid-2019. The initial estimates suggest that approximately 2 million barrels a day of refined products will display high sulphur fuel oil, with the majority of this moving at sea and over longer distances, with some analysts calling for a 10%-plus increase in product tanker demand.

This surge will likely occur right as CPLP begins to roll over lots of its contracts. It is very possible we could see a surge in DCF, which further strengthens CPLP’s hand towards longer-term deals and potential refinancing.

Stable Results and Long-Term Coverage Capacity

CPLP recently produced steady Q2-18 results, demonstrating strong cash flow even as all other product tanker peers have struggled due to weak spot markets. The company was able to secure strong employment for eight of its product tanker vessels by offering 2-3 year contracts to Petrobras (NYSE:PBR).

Despite arguably strong results, CPLP investors have grown concerned with reported distribution coverage, with the company announcing 1.0x coverage for Q1-18 and 0.9x coverage for Q2-18. The most recent breakdown is shown below. Pay close attention to the line items “capital reserve” and “decrease in recommended reserves.”

Source: Capital Product Partners, Q2-18 Presentation, Slide 5

Why was coverage lower? Suezmax Crude and LIBOR Rise

The primary reason CPLP’s coverage was weaker is due to the very weak Suezmax tanker markets (as noted earlier), where the company has had 4 vessels roll off from $21-26k/day charters into a spot market with Q2 performance around $10k. Three of these vessels are currently operating in the spot markets and 1 vessel is employed with an $18k/day contract.

This impact alone is set to drop cash flow by nearly $4 million a quarter, around 3-4 cents per share. This was slightly offset by a new Aframax dropdown and improved containership rolls, but challenging product tanker markets have left CPLP’s core fleet mostly treading water. The good news is that Suezmax spot rates have stabilized and are set to increase into Q4.

Interest expenses are set to decrease q/q going forward from Q2; however, the y/y comps are difficult because the credit facility is tied to LIBOR, specifically L+325 basis points (3.25%). As the chart below shows, LIBOR shot up in early 2018, but has now stabilized. Assuming $450 million of long-term debt, the increase in LIBOR by roughly 100 basis points (1%) since last year adds nearly $5 million in annual costs, or about 1 cent per quarter.

Source: St. Louis Fed, 3-month LIBOR Chart

The combination of these two negative impacts have been the primary reason why CPLP’s coverage has been reduced. Operating performance has generally been quite strong, but these are difficult markets.

Forward Challenges? Slight Dip in Product Tankers

Product tanker markets are difficult, but medium and long-term charter rates have been mostly stable for the past two years. CPLP has a few challenging forward rolls, such as the 5 product tankers shown below, but with my current market estimate at around $15k/day, we’re looking at roughly a 1 cent impact per quarter, easily offset by just the recent improvements in Suezmax conditions alone.

Source: Capital Product Partners, Q2-18 Presentation, Slide 9

Forward Coverage?

With all of the facts described above, I expect overall reported coverage for both 2018 on average, and most of 2019, to be very close to 1x. The 4 Suezmax crude tankers offer a chance for higher coverage if CPLP can improve those charters. There will also be a natural improvement in reported coverage, as debt loads are reduced and LIBOR rates seem to have plateaued for now.

The rest of the report will discuss how the company’s current reported coverage is incredibly conservative and long-term sustainable levels are actually much higher.

CPLP’s Current Credit Facilities and Repayments

Under its current financing structure, announced in October 2017, and also disclosed in its annual report (20-F, page 92), CPLP must repay $12.9 million per quarter, split into two primary tranches. (Note: Originally it was $13.2 million/qtr, but now it is $12.9 million following the 25th April, 2018, sale of the 2013-built Aristotelis for $29.4 million and the associated $14.4 million debt repayment.)

The full amortization split is also disclosed in its most recent quarterly filings, which shows the impact of these payments.

Source: CPLP Q2-18 SEC Filings, Page 8

As can be seen, the 2015-built “Amor,” the 2016-built “Anikitos” and the 2017-built “Aristaios” each have their own credit facilities of $15.8 million, $15.6 million and $28.3 million respectively. Compared to recent valuations, these three facilities carry leverage of 59%, 56% and 71% respectively, all of which are very typical levels for modern assets. (Note: The Aristaios is on a lucrative 4-year charter, so banks allow slightly higher leverage.)

2017 Credit Facility – Assets and Coverage

Setting those 3 minor facilities aside, we are left with $419 million of debt ($406 million after the July 2018 payment), attached to 34 vessels worth $822 million, and around $200 million worth of above-market charters. Total leverage is a fairly paltry 40%, or a moderate 49% even if charters are excluded.

This facility is split into two parts: Tranche A, covered by 10 modern vessels, and Tranche B, covered by 24 middle-aged vessels.

Tranche A: 54% Leverage, 10 Modern Assets

Tranche A currently carries an estimated $231 million balance and will be repaid through 2023 ($187 million due in 2023). As shown below, the current fleet values for this basket of assets is about $427 million, and leverage is 54%.

Source: VesselsValue, CPLP Fleet Valuations

Tranche B: 44% Leverage, 24 Middle-Aged Assets

Tranche B has an estimated balance of $176 million and will be 100% repaid by Q4-2023 (repaid in 24 equal quarterly installments of $8.4 million). As shown below, the combined fleet valuations are about $395 million. Based on the rigorous amortization schedule, demolition values alone will surpass the corresponding debt by mid-2019, but only one vessel (“Amore Mio”) is even remotely a demolition candidate until at least 2026. This is an unprecedentedly conservative financing facility.

Source: VesselsValue, CPLP Fleet Valuations

Tranche B Amortization: A Major Short-Term Drag

I walked through each of the financing facilities to give a clear fleet picture for CPLP, but the newest 13 vessels all have pretty traditional financing and there’s not much to discuss.

The significant disconnect is related to the 24 older vessels secured by the “Tranche B,” which is so incredibly conservative that demolition values will surpass total debt by April 2019. Based on the current draconian debt paydown structure, CPLP’s core fleet will be entirely debt free by late 2023, but the majority of the fleet has significant life remaining.

A normal expectancy for a product tanker and dry bulk carrier is 20-25 years depending on markets, and containerships should easily do 25-30 years of service. This means that even in heavily bearish outcomes, CPLP doesn’t need to replace much of its fleet until 2026. The sole exception is the 2001-built “Amore Mio,” which is likely to be scrapped in the next few years. This vessel is currently valued at $10.4 million and is likely to generate nearly $10 million from demolition, so there’s virtually no risk here.

Why is this facility a “drag?”

The Tranche B results in distorted reported coverage levels because it forces CPLP to funnel cash to the banks instead of either investing in more growth (dropdowns) or shareholder returns (distributions). Obviously, older vessels need more conservative financing, but to be unable to borrow in excess of demolition levels is more extreme than common sense would dictate.

I believe that once market levels stabilize, rates improve and CPLP locks many of these vessels on medium-term and long-term employment, there is a clear path to a refinancing that could easily result in a $100 million or larger cash-out. Unfortunately, in 2017, spot rates were terrible and the company wasn’t bargaining from a position of strength, so it got stuck with this stinker for now…

If rates improve in 2019-2020, I expect CPLP will be able to easily secured an enhanced financing deal with both lower amortization and a higher overall balance (i.e., enough to pull fresh cash out).

Credit Facilities vs. Long-Term Coverage

Recall earlier, when I highlighted CPLP’s sort of odd distribution coverage chart. We’re now going to dive into the calculations and illustrate how the company is presenting overly conservative numbers, effectively sandbagging its own results.

“Capital Reserve” – What is This?

Virtually every other MLP or LP structure utilizes line items called “maintenance capital reserves” and “replacement capital expenditure reserves.” They are often combined into one line. This is how KNOT Offshore Partners (NYSE:KNOP), Hoegh LNG Partners (NYSE:HMLP), GasLog Partners (NYSE:GLOP), Golar LNG Partners (NASDAQ:GMLP) and Dynagas LNG Partners (NYSE:DLNG) all report their results.

These levels are based on calculations describing what it costs to maintain and what it costs to replace assets down the road. Maintenance is relatively simple: it comes down primarily to drydocking and special surveys. Replacement is the annual allotment required for CPLP or others to set aside to buy a new product tanker in 25 years, a new containership in 30 years, etc.

CPLP does something different: the company reports real-time bank amortization, presenting a sort of “free cash flow” instead of “distributable cash flow.” The difference might appear subtle or meaningless, but it makes a legitimate huge long-term difference. DCF should, in theory, showcase exactly what is a sustainable long-term payout level. Whereas CPLP’s method of FCF only shows what is payable based on that exact quarter of results and debt structure.

Current bank amortization shouldn’t be relevant to long-term DCF. Otherwise, a company can simply buy modern assets, sign a goofy financing deal with almost zero upfront debt payments, and then tout a blatantly bloated number as its DCF. Conversely, if bank amortization is draconian, the reported DCF is sandbagged, because it under-reports the true long-term payout potential. Simply put, CPLP reports these coverage metrics differently than virtually every single peer out there.

In the long term, I believe this is because the company is hopeful it can refinance down the road and secure enough “friendly” bank facilities that its DCF and coverage ratios will soar; however, in the immediate term, the net result is that CPLP drastically under-reports its DCF compared to peers.

“Decrease in Recommended Reserves” – What is This?

When CPLP reports an amount here, it is showing the cost of the distribution in excess of quarterly generated cash flow. Therefore, the company was $1.5 million short during Q2-18. Its immediate FCF supported a 7 cent payout, whereas 1 cent came straight off balance sheet cash.

CPLP had $51 million in cash as of 30th June, so a $1.5 million draw is almost insignificant, but it’s still worth keeping an eye on. Bearish folks would point to this as a major weakness of CPLP, but what these folks are ignoring is the massive underlying asset values and conservative debt structures.

“True DCF”

Without full access to CPLP’s internal calculations, it is difficult to calculate a 100% accurate “correct DCF,” but if we utilize a 20-year replacement curve for crude tankers (4x Suezmax – $55 million, 1x Aframax – $45 million), a 25-year replacement curve for bulkers (1x Capesize – $45 million), 25-year for product tankers (6x MR1 – $30 million, 15x MR2 – $35 million) and a 30-year replacement curve for containers (10x – $50-80 million), then we come up with a replacement valuation of nearly $1.7 billion, or about $1.4 billion net of demolition recoveries.

I’ve designed a spreadsheet that calculates each vessel’s annual replacement reserve against the above inputs, and we reach a required replacement reserve of $54 million. However, this is an overly simplistic calculation which does not discount back for retained fund investment.

Investment of Retained Funds

When you keep a replacement reserve, these funds are not simply stuck on a shelf or hidden in a mattress. They are instead continually invested into new assets. MLPs must use a calculation for the expectation of investment returns beyond general inflation – a general benchmark is to use a 5% annual return placeholder.

When we utilize this same system for CPLP, we reach an annual requirement of $24.5 million in retained funds. Therefore, the “true” replacement reserve calculation is about $6.1 million per quarter.

What About Maintenance Reserves?

This is an important calculation as well. CPLP must include a reserve to fund dry docks, special surveys and regulation compliance (i.e., ballast water treatment). These requirements differ by asset type, but I estimate them to range from about $200k/year for the smallest MR1 assets to about $500k/year for the larger tankers and containerships. Using these assumptions, the company must retain close to $12 million per year. Therefore, the “true” maintenance reserve calculation is about $2.9 million per quarter.

Bringing Them Together – Adjusted Coverage Ratio (1.26x)

When these two buckets are combined ($6.1 million replacement reserve + $2.9 million maintenance reserve), we realize CPLP needs to retain about $9 million per quarter, which is significantly less than the $13.2 million currently earmarked for “capital reserve.” Altogether, this means its long-run DCF capacity is at least $0.03/qtr higher than currently suggested.

Source: Capital Product Partners, Q2-18 Presentation, Edits by Author

Downside Risk?

CPLP is inherently safer than most of its peers due to the strong NAV levels and contract fixtures; however, the company isn’t totally immune from a prolonged market downturn. If the current trade war concerns lead to a major global slowdown or recession, CPLP’s fleet values would likely drop by at least another 10-20%.

As product tankers contracts roll off into this potential weaker market, DCF would also drop, and in the absolute worst case, $0.08/qtr might not be covered in the short term. To model such an impact, we need to consider what happens to fleet values with a 20% haircut, which would reduce NAV by around $183 million ($914 million down to $731 million). That’s a haircut of about $1.40 per units, which brings CPLP’s NAV down from $4.30 to $2.90.

If we add another 25% discount onto the $2.90 NAV to account for market uncertainty and general pessimism, that gets us to about $2.20, which is what I would use as a bear-case terrible market target.

Conclusion: Solid Long-Term DCF and Underlying Value

We’ve approached CPLP both from long-term yield potential and underlying asset values. Our yield analysis shows that the current annual payout of $0.32 is covered by nearly 1.3x under current market conditions, leading to a current DCF yield of nearly 15%. Obviously if market conditions improve, I expect this number to increase significantly.

Our value-based analysis demonstrates that CPLP is worth about $4.30, which is substantially higher than the current pricing. In a full bear scenario, our target price is about $2.20, based off a projected NAV of $2.90. Therefore, we see over 50% upside potential versus about 20% of downside risk.

Bottom line: CPLP is cheap, the balance sheets and payouts are conservative, and I believe there’s around 50% upside potential to base-case markets. My target price is $4.30, which is based on current NAV.

J Mintzmyer collaborates with James Catlin and Michael Boyd on his Marketplace service.

We’re currently working on our quarterly income review, which covers over 50 opportunities including partnerships, preferred equities, and bonds. Please consider joining the discussion at Value Investor’s Edge. Send a private message at any time for more info. I look forward to sharing new ideas soon!

Disclosure: I am/we are long CPLP.

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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Avoid the Perils of Overpromising

Promises always come with the peril of non-performance. It’s a bad plan in life as well as business to promise more than you can deliver. If you expect people to believe your promises tomorrow, it helps a great deal if you kept them yesterday. This probably sounds like old news to most of you since we’ve all been lectured from birth by our parents, teachers and preachers about the necessity and difficulty of always trying to live up to your commitments.

But this is how life works. I certainly support the basic concept and agree that it makes all the sense in the world, but the difference today is that technological advances have radically changed the nature of the conversation.  The problem now isn’t so much about arrogance or baseless bragging as it is about how and when to deal realistically and effectively with the truth. Because the truth today is a lot stranger in some ways than the fiction of yesterday.  

Given the powerful technologies we now have at our disposal and the actual and concrete results that new businesses can deliver, there’s a somewhat novel sales problem that I’m seeing. Too many startups are so excited about the powerful possibilities and the real wonders their solutions can work that, in their eagerness and enthusiasm, they’re losing sight of who they’re selling to, and what kinds of solutions those buyers are looking for.

In the old days, we used to say that the main difference between a car salesman and a computer salesman was that the car guy knew he was lying to you whereas the computer guy was just deluded. Today, telling your prospects and customers too much about what your products and services can do is more likely to confuse them than to convince them.

Instead of offering simple initial implementations and step-by-step measured solutions –basically addressing and resolving the lowest and most obvious hanging fruit first– what I’m seeing and hearing too often in these kinds of conversations are broad claims and bold statements.  “Our software can do anything – just tell us what you need.” Even if that were true, which in some cases is almost certainly the case, it absolutely doesn’t matter to the buyers.  And, worse yet, it’s totally off-putting because it shifts the onus of specifying the problems that need to be solved on to the buyers.  Here’s the issue: they may know what end results they need (cost economies, productivity enhancements, etc.), but they likely have no real idea of what your products can do or how your solutions would be introduced and incorporated into their specific operations. So, their natural reaction is to take two steps backwards rather than buying your pitch.

That’s why it makes so much sense to start by sandbagging a little bit instead of bragging. Under promise and then over deliver. Let me give you a real life and slightly sneaky example that you’ll be seeing practically every night on TV – if you ever watch TV. I say “sneaky” because this is a situation dictated mainly by marketing considerations, but it might also be to get around certain regulatory requirements about diet claims. If you watch the latest ads for several of the wonder drugs (no names please)– after they make all the over-the-top basic benefit claims and after they list the 4 million side effects – you’ll hear a little announcer aside that goes like this: “and you might just lose a little weight too.” No promises. No guarantees. But, as good Samaritans, we thought you just might want to know. Right. That’s under promising to a “T.”

And, in your own business and sales approach, you need to be thinking the same way when you present your new products and services. Tone it down – don’t go for the gold from the get-go. Prove your product a little bit at a time.  “New” is a nasty word to millions of procurement officers, buyers and other decision makers. “Novel” and “innovative” are right up there as well. Change is always hard to implement, but when it represents new costs, retraining and upskilling commitments, the risks of errors and mistakes, etc., it’s an even harder sale. And it’s no easier when the impact and the benefits aren’t immediately demonstrable.

In the real world, no one is looking for a miracle. They want risk-free, middle-of-the-road, mundane improvements that might save their companies some money, but will certainly save their jobs. They want immediate solutions, not ultimate salvation. This is in part because they’re not sure that they’ll even be around for the big, long-awaited payoff. So you need to plan, sell, and act accordingly.

Even if you can eventually move the moon, start with something that you can get done by next Monday.

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The Post-It Note System To Achieve Your Dreams

Is there really something to the notion that, if we hold a thought in our mind over time, we can eventually, almost magically, bring it to life? This has been called the “Law of Attraction” and people like the author Richard Bach and his book, Illusions, which helped popularize it.

There is certainly something to this idea, but it isn’t magic.  And it actually predated Richard Bach, going back as far as Think and Grow Rich by Napoleon Hill.

The way it really works is that we are constantly making decisions in our lives, day in and day out, about how to spend our time and energy. When something is top of mind for us–when the thought is always right there–you will inevitably make decisions that bring you closer to making that thought a reality. No matter what you might want to achieve–a happy marriage, losing weight, more money in the bank, or running a PR in a marathon–the more you think about that thing, the closer you come to achieving it, because every little decision you make is in the right direction.

This approach is incredibly powerful and I’m happy to share a simple trick I learned from my friend Dave Lindsey, Founder of Defenders, to help you harness this power and help achieve your dreams.

Goal setting with Post-It Notes

Go to your desk and open the drawer. Chances are you might have an unused stack of Post-It Notes in there. If not, go out to our local office supply store and buy a pack. Take care of them because they can help make your dreams come true.

To do that, make a list of the three to five big goals you want to achieve. While I’ve seen people have lists of goals that stretch to more than 20 items, I encourage you to stick to a manageable number. Now the key is that they are specific and based in time.  While the picture above says lose weight, a better goal is lose 20 pounds by the end of the year.

Write each of those goals down on Post-It Notes and then, when you get home, stick each of them to your bathroom mirror.  So, three goals means three Post-It notes.

Now, every day when you wake up and right before you go to bed, you’ll be staring at those three to give goals–which will keep them at the top of your mind and help you make decisions to bring you closer to achieving them.

After you wake up, for instance, and brush your teeth, you’ll already be thinking about what you need to do that day to make progress toward your goals. Then, later on at night, you will think about what you did that day–and what you can do tomorrow–to keep making progress.

You’ll be absolutely amazed at how effective you’ll become at chasing down your dreams. And I would wager that you will accomplish at least a few of them in less than 12 months.  There is nothing like the feeling of accomplishment when you peel off a Post-It note from you mirror because you have achieved a long-term goal.

And you don’t have to believe just me: there are thousands of people who will vouch for this technique in helping them achieve their goals and change their lives. All thanks to a few simple Post-It Notes.

So what do you have to lose? Grab some Post-It notes and make today the first day in your journey to making your dreams–no matter what they are–come true.

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Home modems, routers hit by U.S. China tariffs as 'smart' tech goods escape

WASHINGTON (Reuters) – U.S. tariffs that hit some $200 billion worth of Chinese products on Monday spare many high-profile consumer technology items such as “smart” watches and speakers, but the less flashy home modems, routers and internet gateways that make them work weren’t so lucky.

FILE PHOTO: U.S. President Donald Trump delivers his speech next to U.S. and Chinese flags as he and Chinese President Xi Jinping meet business leaders at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj/File Photo

Consumer tech industry officials and the U.S. Customs and Border Protection agency say they expect billions of dollars worth of these products, including those designed for home use, will be subject to the 10 percent tariffs activated on Monday.

The move will effectively create a two-tiered tariff structure for consumer internet, with many products, such as Fitbit (FIT.N) fitness trackers, Apple Inc’s (AAPL.O) watch and Amazon.com Inc’s (AMZN.O) Echo smart speaker being favored over routers and internet gateways from Arris International (ARRS.O), Netgear (NTGR.O), D-Link (2332.TW) and others.

“We’re operating under the assumption that the tens of millions of devices that deliver high-speed internet into consumers’ homes will be impacted by these tariffs,” said Jim Brennan, Arris’ senior vice president of supply chain, quality and operations.

“It feels anti-consumer because our devices are what enables the core of consumer tech,” Brennan told Reuters.

The modems, routers, switching and networking gear that keep the internet functioning were not included in a newly created U.S. tariff code that was exempted from the latest China tariffs, a spokesperson for the U.S. Customs and Border Protection agency said.

The agency has made no distinction between consumer-use modems and routers and the commercial network equipment used by data centers and broadband internet providers.

Most new internet-connected devices had been lumped into a broad category in the U.S. Harmonized Tariff Schedule, 85176200, “Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus.”

The catch-all category saw $23 billion in U.S. imports from China and $47.6 billion from the world last year. It was the largest component of U.S. President Donald Trump’s latest tariffs targeting Chinese goods.

The U.S. Trade Representative’s office had said it was breaking out items such as smart watches, fitness trackers, Bluetooth audio streaming devices and smart speakers into a new subcategory that would be exempted, but it gave few details.

According to a notice posted by the U.S. International Trade Commission, computer modems would stay in a separate sub-category, while “switching and routing apparatus” would be put into a new sub-category. Neither of these sub-categories were granted exemptions from the tariffs.

“Although we have not had occasion to issue rulings on the scope of a provision for ‘switching and routing apparatus,’ we agree that as a general matter, modems, routers, and networking equipment will be subject to the remedy,” a Customs and Border Protection spokesperson said late on Friday, referring to the 10 percent tariff.

It was not clear how much of the $23 billion in Chinese imports within the catch-all category could escape tariffs, but a Reuters review of industry data suggests the share could be small.

U.S. Census Bureau data has not yet captured the volume of annual imports from China — or any country — of the goods that will be exempt.

But the Consumer Technology Association estimates that the U.S. market for fitness trackers, smart watches, smart speakers and wireless earbuds and headphones was $8.2 billion in 2017, with forecast sales of $11.6 billion for 2019.

Even if China produced a majority of those goods, exemptions would only apply to a fraction of the $23 billion category.

CTA has forecast direct sales of modems and routers to consumers at $2.3 billion for 2019, up from $2 billion in 2017, excluding the products supplied directly by cable and broadband internet providers and equipment used in data centers and other infrastructure outside the home.

But the group argues that consumers will bear the costs of the tariffs, even if their service provider buys the modems.

“Overall, access to the internet will get more expensive, mobile plans will get more expensive, and connected devices that go to your smart phones will get more expensive because everything speaks to each other,” said Izzy Santa, director of strategic communications for CTA.

Additional reporting by Jason Lange in Washington and Stephen Nellis in San Francisco; Editing by Michael Perry

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The night a Chinese billionaire was accused of rape in Minnesota

MINNEAPOLIS/NEW YORK (Reuters) – With the Chinese billionaire Richard Liu at her Minneapolis area apartment, a 21-year-old University of Minnesota student sent a WeChat message to a friend in the middle of the night. She wrote that Liu had forced her to have sex with him.

JD.com founder Richard Liu, also known as Qiang Dong Liu, is pictured in this undated handout photo released by Hennepin County Sheriff’s Office, obtained by Reuters September 23, 2018. Hennepin County Sheriff’s Office/Handout via REUTERS

“I was not willing,” she wrote in Chinese on the messaging application around 2 a.m. on August 31. “Tomorrow I will think of a way to escape,” she wrote, as she begged the friend not to call police.

“He will suppress it,” she wrote, referring to Liu. “You underestimate his power.”

This WeChat exchange and another one reviewed by Reuters have not been previously reported. One of the woman’s lawyers, Wil Florin, verified that the text messages came from her.

Liu, the founder of Chinese ecommerce giant JD.com Inc, was arrested later that day on suspicion of rape, according to a police report. He was released without being charged and has denied any wrongdoing through a lawyer. He has since returned to China and has pledged to cooperate with Minneapolis police.

Jill Brisbois, a lawyer for Liu, said he maintains his innocence and has cooperated fully with the investigation.

“These allegations are inconsistent with evidence that we hope will be disclosed to the public once the case is closed,” Brisbois wrote in an email response to detailed questions from Reuters.

Loretta Chao, a spokeswoman for JD.com, said that when more information becomes available, “it will become apparent that the information in this note doesn’t tell the full story.” She was responding to detailed questions from Reuters laying out the allegations in the woman’s WeChat messages and other findings.

Florin Roebig and Hang & Associates, the law firms representing the woman, said in an email that their client had “fully cooperated” with police and was also prepared to assist prosecutors. Florin, asked if his client planned to file a civil suit against Liu, said, “Our legal intentions with regard to Mr. Liu and others will be revealed at the appropriate time.”

Representatives for both Liu and the student declined requests from Reuters to interview their clients.

The police department has turned over the findings of its initial investigation into the matter to local prosecutors for a decision on whether to bring charges against Liu. There is no deadline for making that decision, according to the Hennepin County Attorney’s Office.

The Minneapolis police and the county attorney declined to comment on detailed questions from Reuters.

Reuters has not been able to determine the identity of the woman, which has not been made public. But her WeChat messages to two friends, and interviews with half a dozen people with knowledge of the events that unfolded over a two-day period provide new information about the interactions between Liu and the woman, a student from China attending the University.

JD.com founder Richard Liu, also known as Qiang Dong Liu, is pictured in this undated handout photo released by Hennepin County Sheriff’s Office, obtained by Reuters September 23, 2018. Hennepin County Sheriff’s Office/Handout via REUTERS

The case has drawn intense scrutiny globally and in China, where the tycoon, also known as Liu Qiangdong, is celebrated for his rags-to-riches story. Liu, 45, is married to Zhang Zetian, described by Chinese media as 24-years old, who has become a celebrity in China and works to promote JD.com.

As the second-largest ecommerce website in the country after Alibaba Group Holding Ltd, the company has attracted investors such as Walmart Inc, Alphabet Inc’s Google and China’s Tencent Holdings.

Liu holds nearly 80 percent of the voting rights in JD.com. Shares in the company have fallen about 15 percent since Liu’s arrest and are down about 36 percent for the year.

“IT WAS A TRAP”

Liu was in Minneapolis briefly to attend a business doctoral program run jointly by the University of Minnesota’s Carlson School of Management and China’s elite Tsinghua University, according to the University of Minnesota. The doctoral program is “directed at high-level executives” from China.

Liu threw a dinner party on August 30 for about two dozen people, including around 20 men, at Origami Uptown, a Japanese restaurant in Minneapolis where wine, sake and beer flowed freely, according to restaurant staff and closed circuit video footage reviewed by Reuters.

Liu, who Forbes estimates is worth about $6.7 billion, ordered sashimi by pointing his finger at the first item on the menu and sweeping it all the way down to indicate he wanted everything, one restaurant employee said. The group brought in at least one case of wine from an outside liquor store to drink along with the dinner, according to the restaurant staff.

Security video footage from the restaurant shows the group toasted each other throughout the night.

Later the woman told a second friend in one of the messages that she felt pressured to drink that evening.

“It was a trap,” she wrote, later adding “I was really drunk.”

The party ended around 9:30 p.m. The tab: $2,200, the receipt shows. One inebriated guest was helped out of the restaurant by three of his associates, according to the restaurant security video footage.

Liu and the woman then headed to a house in Minneapolis, according to one person familiar with the matter. Another source said that the house had been rented by one of Liu’s classmates in the academic program to give the class a place to network, smoke, drink whiskey and have Chinese food every night.

But they did not go in. Liu and the student were seen outside the house before Liu pulled her into his hired car, a person with knowledge of the incident said.

In the WeChat message to one of her friends sent hours later, the student said Liu “started to touch me in the car.”

Slideshow (2 Images)

“Then I begged him not to… but he did not listen,” she wrote.

They ended up back at her apartment, according to sources with knowledge of the matter.

Reuters could not determine what happened over the next two hours. According to the police report, the alleged rape occurred at around 1 a.m.

The woman subsequently reached a fellow University of Minnesota student who notified the police, according to two sources and her WeChat messages.

Minneapolis police came to her apartment early that morning while Liu was there, but made no arrests, another source familiar with the situation said. Reuters could not determine exactly what occurred during the police visit, but the source said the woman declined to press charges in Liu’s presence.

In a WeChat message with one of her friends, she asked her friend why the billionaire would be interested in “an ordinary girl” like her.

“If it was just me, I could commit suicide immediately,” she wrote. “But I’m afraid that my parents will suffer.”

By Friday morning, she also wrote to one of her two friends that she had told several people about what had happened, including the police, a few friends and at least one teacher. She wrote that she would keep her bed sheets. “Evidence cannot be thrown away,” she wrote.

On Friday afternoon, the student went to a hospital to have a sexual assault forensic test, the source said.

Police officers arrived at a University of Minnesota office shortly after an emergency call around 9 p.m that night. The student was present at the office, alongside school representatives, and accused Liu of rape, the source said.

Representatives for the University of Minnesota declined to comment on detailed questions from Reuters.

Liu came to the university office around 11 p.m. while police were there, according to the person familiar with the matter. As an officer handcuffed him, Liu showed no emotion. “I need an interpreter,” he said, according to the source.

Liu was released about 17 hours later. Minneapolis police have said previously that they can only hold a person without charges for 36 hours.  

Within days, Liu was back in China, which has no extradition treaty with the United States.

“Liu has returned to work in Beijing and he continues to lead the company. There is no interruption to JD.com’s day-to-day business operations,” Loretta Chao, the JD.com spokeswoman, told Reuters.

Additional reporting by Blake Morrison and Christine Chan in New York, Adam Jourdan and Engen Tham in Shanghai, and Cate Cadell in Beijing; Editing by Paritosh Bansal and Edward Tobin

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