Facebook users unite! 'Data Labour Union' launches in Netherlands

AMSTERDAM (Reuters) – Activists in Amsterdam on Wednesday launched the ‘Datavakbond’ or “data labor union”, which hopes to elect leaders to negotiate directly with Facebook and Google over what they do with users’ data.

FILE PHOTO: Silhouettes of mobile users are seen next to a screen projection of Facebook logo in this picture illustration taken March 28, 2018. REUTERS/Dado Ruvic/File Photo

Possible demands could include payment for the data users supply to the companies, more information about how the data is used, and a direct channel for communicating grievances.

“Right now, we work for Google and Facebook producing data, and we’re getting feathers and beads in exchange,” said Paul Tang, a member of European Parliament from the Dutch Labour party, at the union’s establishment in Amsterdam.

“What we want…is to get across the table from Google and Facebook to talk about reasonable compensation, or at least better working conditions.”

Tang said that although governments have a role in regulating the internet giants, users should also organize themselves and seek to influence the companies directly.

The Union’s founding chairman Bas van der Gaag, a high school maths teacher, said that although it is based in the Netherlands, it hopes to win members internationally.

Membership is free, and those that join will be encouraged to help craft the organization. Later they may vote on specific demands, for instance for the company to provide a paid, but advertising-free, version of Facebook. Within the first hour of its launch, 250 people joined.

Van der Gaag said volunteers are working on tools to make it possible for the union to organize a ‘strike’, which would involve temporarily depriving the companies of some of the most valuable information they sell to advertisers, such as location data.

Facebook CEO Mark Zuckerberg testified in European Parliament on Tuesday to answer questions about how political consultancy Cambridge Analytica improperly got hold of the personal data of 87 million Facebook users, including up to 2.7 million in the EU.

Facebook did not immediately respond on Wednesday to a request for comment on the establishment of the union.

Reporting by Toby Sterling; Editing by Alexandra Hudson

Cyber researchers, Ukraine warn of possible Russian attack

TORONTO/KIEV (Reuters) – Hackers have infected at least 500,000 routers and storage devices in dozens of countries, some of the world’s biggest cyber security firms warned on Wednesday, in a campaign that Ukraine said was preparation for a future Russian cyber attack.

The U.S. Department of Homeland Security said it was investigating the malware, which targets devices from Linksys, MikroTik, Netgear Inc (NTGR.O), TP-Link and QNAP, advising users to install security updates.

Ukraine’s SBU state security service said the activity showed Russia was readying a large-scale cyber attack ahead of the Champions League soccer final, due to be held in Kiev on Saturday.

“Security Service experts believe the infection of hardware on the territory of Ukraine is preparation for another act of cyber-aggression by the Russian Federation aimed at destabilising the situation during the Champions League final,” it said in a statement.

Cisco Systems Inc (CSCO.O), which has been investigating the threat for several months, has high confidence that the Russian government is behind the campaign, according to Cisco researcher Craig Williams. He cited the overlap of hacking code with malware used in previous cyber attacks that the U.S. government have attributed to Moscow.

Cisco, which uncovered the campaign several months ago, alerted authorities in Ukraine and the United States before going public with its findings about the malware it dubbed VPNFilter.

It also shared technical details with rivals who sell security software, hardware and services so they could issue alerts to their customers and protect against the threat.

Cisco described the mechanisms that the malware uses to hide communications with hackers and a module that targets industrial networks like ones that operate electric grids, said Michael Daniel, chief executive officer of Cyber Threat Alliance, a nonprofit group.

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“We should be taking this pretty seriously,” said Daniel, whose group’s 17 members include Cisco, Check Point Software Technologies Ltd (CHKP.O), Palo Alto Networks Inc (PANW.N) and Symantec Corp (SYMC.O).

Cyber security firms, governments and corporate security teams closely monitor events in Ukraine, where some of the world’s most costly and destructive cyber attacks have been launched.

They include the first documented cases where hacks have caused power outages and the June 2017 NotPetya cyber attack that quickly spread around the world, causing network outages that lasted weeks at some companies. Victims included Beiersdorf AG (BEIG.DE), FedEx Corp (FDX.N), Merck & Co Inc (MRK.N), Mondelez International Inc (MDLZ.O) and Reckitt Benckiser Group Plc (RB.L).

Cisco said it does not know what the hackers have planned. The malware could be used for espionage, to interfere with internet communications or launch a destructive attack like NotPetya, according to Williams.

The Kremlin did not immediately respond to a request for comment. Russia has denied assertions by nations including Ukraine and Western cyber-security firms that it is behind a massive global hacking program that has included attempts to harm Ukraine’s economy and interfering in the 2016 U.S. presidential election.

VPNFilter has infected devices in at least 54 countries, but by far the largest number is in Ukraine, according to Cisco.

Netgear representative Nathan Papadopulos said the company was looking into the matter. He advised customers to make sure their routers are patched with the latest version of its firmware, disable remote management and make sure they have changed default passwords shipped with the device.

A Linksys spokeswoman had no immediate comment. MikroTik, TP-Link and QNAP could not be reached.

Reporting by Jim Finkle in Toron to and Pavel Polityuk in Live; Writing by Jim Finkle and Jack Stubbs; Editing by Mark Heinrich and Jeffrey Benkoe

Never Get Lost Again, Promises Google. Here's How They're Using AI To Deliver.

You step out of a Lyft or Uber, looking for which building your appointment is in. You can’t tell which way to go. You might be running late now. This happens to millions of people millions of times a day. Google knows–they see you jogging back and forth on the block trying to self-orient. If the blue dot problem has ever enraged you, you’re going to like what Google’s changing this summer.

All that frustration is ending, promised Anna (Aparna) Chennapradaga, VP of Product for AR and VR. She addressed the crowd at Google I/O, sharing that the new Google Maps, shipping with new Android phones this summer, will use your phone’s camera to orient for you.

Google AI focuses on vision

“Vision is a fundamental shift in computing for us, and it’s a multi-year journey,” she shared. It’s certainly a deepening of Google’s mission to be an artificial intelligence-centered company, which CEO Sundar Pichai announced a year ago at the previous I/O developer conference. He said Alphabet is betting the company on AI. Looks like no lie. Google has made incredible progress, including Duplex, which wants to book appointments for you with the world’s most human-sounding artificial intelligence known to phones. They have an entire arm devoted to AI investments, too. Alphabet’s progress on artificial intelligence vision is also impressive.

The new Google Lens does three things that can save you serious time:

1)    Orienting you faster. Google has solved what’s referred to as the “blue dot problem.” You know, you’re in an urban environment, and you get directions through Maps, but you don’t know if you need to turn right or left first on the grid to start the pattern. See how Google Lens has made this a snap in the video below:

2)    Recognizing words.

Snap a photo of a menu, a sign or a document. Now you can highlight text on the image to get Google to translate or look up information. “Lens is not just understanding the shape of characters and the letter visually–it’s actually trying to get at the meaning and context of these words,” says Anna.

3)   Making personal recommendations. The Maps will also use your history across the Google platform to suggest information you may care about right where you are. As in, “Hey, surprise! Your old boyfriend lives here now!”–just kidding. Seriously, a new tab called “For You” tells you about places and events in your area, tailored to Google’s knowledge of you (which is vast). For example, a feature called “Match Score” gives you recommendations for restaurants predicting how much you’ll love the food.

Coming soon, Google Lens helps find gear

The new Google Lens can help you find similar products, too. Want a cheaper version of that high-end coffee mug you just spotted? No problem–Google Lens can bring you options.

“Sometimes your question is not ‘what’s that thing’–instead it’s, what’s like that?” Anna pointed out at I/O.  Lens is able to match similar couches, similar crackers, and similar cars. “Lens has to search through millions and millions and items, and we kinda know how to do that–search,” she said with a smile. “We’re using on-device intelligence and cloud TPUs. We want to overlay the live results directly on top of things like concerts, street signs, even a concert poster . . . This is an example of not just how the camera answers questions but putting the answers right where the questions are.”

Artificial intelligence that understands the relevance of what it sees

Google’s new suite of vision artificial intelligence capabilities is fueled by a desire to help computers see the world more like we do. Google continues to launch and test products that mine that idea, like VR Tours:

One of the most powerful uses of VR I see is as a tool for empathy — to look at the world through another person’s eyes, to see and share your story. Now you can easily create and share VR Tours that do just that. #TourCreator #googleio2018 https://t.co/miHJl0LtU2

— Aparna Chennapragada (@aparnacd) May 10, 2018

There’s no question we are highly visual creatures. Human vision is an extension of our brain. By integrating vision with meaning in these early products, Google’s artificial intelligence is taking a major step forward. This new paradigm has implications for literally everything you rely on your eyes for. And with Google’s developer integrations, visual positioning and integrated meaning will become a layer that developers and entrepreneurs will find ways to use for all sorts of new products. Get ready to see a whole new world a whole new way.

Will 'Public Shaming' Sink Celgene?

Source: NPR

To stave off generic competition drug makers often get creative. They seek new uses for old drugs, seek patent extensions and refuse to provide samples to generic rivals. Allergan (AGN) even sold Restasis (dry eye) patents to the St. Regis Mohawks in order to rent their sovereign immunity. Last week the FDA posted a list of drug companies who have been targets of complaints by generic drug makers. The FDA wants to provide transparency over prices. The “public shaming” could prompt certain drug makers to finally provide samples to generic rivals. Celgene (CELG) topped the list with 31 inquiries pursuant to three different drugs.

Last week I highlighted the company’s refusal to provide Mylan (MYL) with samples of its top-selling cancer drug Revlimid. While Mylan pointed out Celgene charged dying patients $20,000 per month for the drug, Celgene suggested that “it had no obligation to help a potential competitor.” Now that the FDA’s shame list has been published Celgene could have a change of heart.

Shaming Celgene Won’t Lower The Price Of Revlimid …

CELG hit a 52-week low last week and the stock is currently down over 30% Y/Y. I believe negative sentiment over having made the FDA’s “shame list” and negative publicity over double-digit price increases helped spur the decline. According to Jonathan Gardner of EP Advantage, shaming the company will not lower prices for Revlimid:

Celgene’s recent corporate troubles have more to do with clinical and regulatory setbacks than the negative public relations surrounding its commercial tactics, so the latest furore will give investors something new to worry about. Shareholders would be dismayed if the company were pressured into cutting the price of Revlimid, certainly giving the executive team some incentive to hold fast on pricing.

The $9bn in Revlimid sales forecast this year accounts for most of Celgene’s valuation. While this could make the company vulnerable to any attack on its flagship product, its domination of the multiple myeloma space makes it difficult to put the group under payer pressure.

In my opinion, Gardner stated a fact that had nothing to do with the issue of Celgene not providing drug samples to generic rivals. Without access to the samples generic drug makers cannot show that a generic copy is equivalent to the original. It begs the question, “What is Celgene hiding?” If Revlimid is under patent protection until the early 2020s then why not provide the samples? It brings unnecessary attention to the company’s dependence on the drug, in my opinion.

Dr. Reddy’s has already sought FDA approval for five patents pursuant to Revlimid. If Mylan also challenges the patents it could create another issue for investors to worry about. Such worries over whether generic Revlimid will enter the market earlier than expected could cause CELG to sell off even further. That said, this may be unnecessary drama of Celgene’s own making.

… But It Could Tamp Down Additional Price Increases

Like Gilead (GILD), in the past Celgene had cultivated an image that had a strong R&D pipeline and an ability to successfully acquire companies in late-stage clinical trials. Its robust R&D pipeline may have been proven a myth after the company discontinued clinical trials for Mongerson (Chrohn’s disease) in the second half of 2017. The recent refusal to file letter from the FDA pursuant to ozanimod (relapsing multiple sclerosis) didn’t help matters.

Celgene hiked prices for Revlimid and Pomalyst after it missed on Q3 revenue and gave disappointing guidance; the move brought price increases on the drugs to about 20% in 2017. Revenue growth for Revlimid and Otezla was slowing and could have potentially jeopardized CELG’s double-digit EBITDA multiple. Management intimated the price hikes were needed to help fund future R&D. However, the company had over $12 billion of cash and securities on hand, and robust cash flow. In February Celgene announced an additional $5 billion share repurchase program – another ploy to support the stock.

In my opinion, such large price hikes made Celgene look desperate. It exposed the company as no different from Valeant (VRX) or Retrophin (RTRX) – willing to hike prices on the backs of sick patients to support the stock or service debt. Now that regulators and lawmakers have tried to make the company’s pricing more transparent, it could be difficult to pass through additional price increases.

Celgene’s revenue will likely grow by double-digits in the first half of 2018 due to price hikes alone. What happens in the second half of the year when those increases wear off? Are CELG longs willing to rely solely on organic growth to justify its $57 billion market capitalization? After CELG hit a 52-week low last week the answer appears to be “No.”

Conclusion

Double-digit price hikes and shenanigans designed to protect Revlimid from generic competition make Celgene look desperate. Its nearly 13x EBITDA multiple does not reflect that desperation. A multiple in the single-digits would seem more appropriate, in my opinion. Sell CELG.

Disclosure: I am/we are short CELG.

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.

Taiwan exports orders beat forecast as tech sector growth picks up

TAIPEI (Reuters) – Taiwan’s export orders growth beat forecasts in April, as the island’s technology sector recovered from a weak first quarter, with goods such as auto electronics driving growth although communications products remained a soft patch.

FILE PHOTO: People fish in front of an Orient Overseas Container Line container ship, at Kaohsiung Port, Taiwan August 7, 2017. REUTERS/Tyrone Siu/File Photo

Orders for the trade-reliant economy rose 9.8 percent to $39.1 billion from the same period a year earlier, data from the Ministry of Economic Affairs showed on Monday. That was stronger than more modest growth of 3.1 percent in March and higher than the median forecast of 8.85 percent growth for April in a Reuters poll.

From the previous month, export orders declined 7.7 percent.

The overall on-year growth was driven by a 12.1 percent increase in electronics orders and an 18.6 percent increase in machinery orders. Information and communications products, which includes smartphones and PCs, declined 0.3 percent.

The ministry said in a statement orders for information and communications products were hit by “the weak season for smartphones and computers, and weak market demand”.

However, economists said strong growth in traditional industries outside of technology offset some of the weakness in the information and communications products.

“If you look at the breakdown, the electronics exports in addition to the traditional export orders, for example base metals and plastic products and machinery, all grew by double digits,” said Betty Wang, an economist at ANZ in Hong Kong.

“I think that helped to offset weakness in the ICT sector which still contracted for the third consecutive month,” she said.

Looking to May, the ministry said it projects the on-month change in value of export orders to range between a 0.3 percent contraction to 2.3 percent growth.

Orders from the United States, where Apple Inc (AAPL.O) is a major customer for major Taiwanese technology component makers, rose 9.6 percent in April from a year earlier.

Orders from China, the island’s biggest trading partner, rose 13.6 percent last month compared with the same period a year ago.

April orders from the European Union and Japan climbed 4.9 percent and 4.6 percent, respectively.

The ministry expects the softness in smartphone demand to be mitigated by firmer growth in products such as for the internet of things, auto electronics and artificial intelligence.

Reporting by Roger Tung; Writing by Jess Macy Yu; Editing by Sam Holmes

Weighing The Week Ahead: Will Higher Interest Rates Lead To Lower Stock Prices?

The economic calendar is light, and the market week will be shortened. There is no holiday this week, but expect many participants to take off early for a long weekend. If interest remain above 3% on the ten-year note, that will be the focus. Pundits will be asking:

Will higher interest rates lead to lower stock prices?

Last Week Recap

In my last edition of WTWA I suggested that the week lacked a dominant theme. That part was right. I took the occasion to discuss which stocks might benefit from Trump policy changes. While few pundits took up the topic, it was still a useful exercise for me, and I hope for my readers as well.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. I especially like the version updated each week by Jill Mislinski. She includes a lot of valuable information in a single visual. The full post has even more charts and analysis, including commentary on volume. Check it out.

A screenshot of a cell phone Description generated with very high confidence

The market declined about 0.6% with a trading range of only 1.5%. This is the quietest week we have seen in a long time. I summarize actual and implied volatility each week in our Indicator Snapshot section below. As you can see, volatility has been moving lower, and is back into the long-term range.

Personal Note

Mrs. OldProf and I will be enjoying an extended holiday next weekend, so there will not be the regular WTWA installment. I’ll try to update indicators if possible. She is in withdrawal in the absence of football of any sort. She was watching some wedding on TV when I asked her for a comment.

Thanks to the Intelligent Economist for once again including me among the Top 100 Economics Blogs. Most readers know that my labor of love is fueled by the knowledge that people find the work useful.

Noteworthy

From the Visual Capitalist, where you can also see prior years for comparison.

And, some updated information on debt from the NY Fed (HT GEI). The report also has information about various types of debt levels over time along with related credit scores.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

Feel free to add items that I have missed. Please keep in mind that we are looking for current news, especially from the last week or so. WTWA is not about long-term concerns like debt. These are important, of course, but not our weekly subject unless there has been some major change.

The overall picture remains positive. Economic strength is reasonable, and inflation is low. New Deal Democrat’s analysis of high-frequency indicators shows some deterioration but retains the overall outlook.

Both the nowcast remains and the short term forecast remain positive.

The long term forecast has deteriorated further, with interest rates and money supply now both generally negative. Only the continued strength in housing and credit are keeping me from switching this from positive to neutral or even negative.

The Good

  • The rail traffic growth cycle continues. Steven Hansen (GEI) does the best deep dive into this series, using his “intuitive sector” approach, rolling averages, and year-over-year comparisons. Here is just one of his summary tables and charts.

  • Industrial production increased 0.7% in April slightly beating expectations and matching the upwardly-revised report from March. See Calculated Risk for charts and analysis.
  • Initial jobless claims while rising somewhat to 222K, continued lower on the less-noisy four-week moving average. Bespoke observes, “With this week’s reading of 222K, the four-week moving average dropped to 213.25K. That’s a new low for the cycle, the century, and all the way back to December 1969!”

  • Leading indicators matched expectations of 0.4% and the upwardly revised 0.4% from March. (Jill Mislinski)

  • Port traffic improves on both imports and exports. Steven Hansen’s (GEI) analysis suggests that the implications are stronger for global economic growth than for the U.S.
  • Improvement in the US/China trade talks? Politico covers the progress, described as “positive, constructive, and fruitful” by the Chinese government. World-Grain.com reports that China has dropped sanctions against U.S. sorghum. China is the largest destination for U.S. sorghum exports. It remains difficult to get an accurate read on the progress.
  • NAHB index registered 70, a slight gain over April and beating expectations of 69. (Bespoke)

The Bad

  • Oil and gasoline prices move higher. The WSJ quotes Morgan Stanley estimates that gasoline at $2.96 would take an annualized $38 billion from spending elsewhere. That is about a third of the additional take-home pay from the tax cuts.

  • Housing starts declined to a SAAR of 1287K, down 3.7% and missing expectations of 1325K. Building permits were in line with expectations. Calculated Risk provides analysis and charts. Bill also notes the volatility in multi-family and the continuing “wide bottom” in single-family starts. This long-standing prediction has been quite accurate.
  • Mortgage rates reached a seven-year high. (Calculated Risk)

The Ugly

Santa Fe, Texas. I understand that more people die from other causes, including terrorism around the world. These high school massacres are different. Senseless. Innocent young people. A familiar environment that we all expect to be safe.

The Week Ahead

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.

The Calendar

The economic calendar is light. Home sales data are most important, and many will pay careful attention to the FOMC minutes. Many participants will be taking off early to extend their holiday weekend.

Briefing.com has a good U.S. economic calendar for the week (and many other good features which I monitor each day). Here are the main U.S. releases.

A screenshot of a cell phone Description generated with very high confidence

Next Week’s Theme

Without much news and a quiet week on tap, it is an open field for the punditry. Home sales and the FOMC minutes will get some attention. If interest rates do not move any lower I expect many to be asking:

Do higher interest rates imply lower stock prices?

There are a few clear-cut positions.

  • Interest rates have broken to new levels and may move much higher. Brian Gilmartin covers this angle.

  • Don’t fight the Fed!
  • Interest rates will lead to a strong dollar and lower earnings.
  • Three steps and a stumble.
  • It is just a return to normalcy. (Eddy Elfenbein)

As usual, I’ll save my overall personal conclusions for today’s Final Thought.

Quant Corner

We follow some regular featured sources and the best other quant news from the week.

Risk Analysis

I have a rule for my investment clients. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update.

The Indicator Snapshot

A screenshot of a cell phone Description generated with very high confidence

Short-term trading conditions improved dramatically. Despite the recent borderline ratings suggesting “bad weather” it was not quite enough to take us out of the market. A strength of our modeling approach (Thanks, Vince!) is a touch more patience than shown by many technical systems. This has a mild cost, and can reap great rewards, as it has in the last few weeks.

A notable feature of the chart is that we recently increased the nine-month recession odds to a chance of 25%. While this is significantly higher than it has been during the long stock rally, it does not yet represent a real threat. Instead of thinking of the odds as higher than before, we must keep in mind the continuing evidence that a near-term recession is unlikely. The odds are only slightly higher than the long term average.

That said, we watch this quite closely and plan to reduce position sizes if the risk grows much larger.

The Featured Sources:

Bob Dieli: Business cycle analysis via the “C Score.

RecessionAlert: Strong quantitative indicators for both economic and market analysis.

Brian Gilmartin: All things earnings, for the overall market as well as many individual companies.

Georg Vrba: Business cycle indicator and market timing tools. None of Georg’s indicators signal recession.

Doug Short and Jill Mislinski: Regular updating of an array of indicators. Great charts and analysis. With some crucial updates on the most important indicators, it is time for an update of their extremely helpful Big Four.

A close up of a map Description generated with high confidence

The post-January sea of green is impressive. If only we could highlight this for all the individual investors bombarded with the incessant flow of perma-bear negativity. These are not forecasts; they are facts from an objective source.

Guests:
Like us, James Picerno tracks the market-implied inflation expectation.

The Daily Shot takes note of consumer inflation expectations from the University of Michigan sentiment survey, a bit higher than the market verdict.

Bill McBride explains the importance of seasonal adjustments for employment data.

The Dallas Fed (via GEI) reports that consumers respond more to negative news than positive info. This is a nice analysis of the asymmetric reaction to shocks, with a discussion of policy implications.

When do recessions accompany stock market corrections? David Rice has both an interesting approach and some useful conclusions.

Insight for Traders

Check out our weekly Stock Exchange post. We combine links to important posts about trading, themes of current interest, and ideas from our trading models. This week we asked fellow traders if their rules were too rigid.

As usual, we included varying expert opinions and a comparison with our trading models. We also discussed some stock ideas and updated the ratings lists for Felix and Oscar, this week featuring the Russell 2000. With Blue Harbinger on a European jaunt (business, he insists) we were delighted that earnings expert and investment manager Brian Gilmartin was able to offer his view of the various ideas.

While I emphasize trading in the Stock Exchange series, it often has implications for long-term investors. It is worth a visit.

Insight for Investors

Investors should have a long-term horizon. They can often exploit trading volatility.

Best of the Week

If I had to pick a single most important source for investors to read this week it would be Lloyd Clucas’s colorful and accurate description of the current investment landscape. To get the setting, please consider some facts from this week’s Barron’s cover story about Jack Bogle. The story covers a lot of interesting and controversial ground, but I was drawn to this factual statement:

Bogle fears that ETFs are purely speculative, encouraging selling at the bottom and buying at the top. Bogle shared his analysis of dollar-weighted investor returns, which accounts for money flows, with Barron’s. The research shows that from 2005 to 2017, the average investor return from “Traditional Index Funds” was 8.4%. For actively managed funds, it was 7.2%. For ETFs, it was 5.5%, even worse than actively managed funds. That contains the seeds of the category’s demise. “How long are investors going to be happy with that? Sure if you double your money, why would you complain? But you could have tripled it. I am glad we continue to be primarily on the TIF horse, and not the ETF horse.” He also foresees that growth in ETFs will slow because “an awful lot of [market] niches have been populated.” Next up, “a lot of ETFs will go out of business along the way.”

The key takeaway is that individual investors do worse than they would by merely holding some asset. How could this happen?

I cannot do justice to Lloyd’s article with one quote, but here is a taste:

The media-driven issue of the day is virtually always misleading. Ignore all of them. If you insist on watching CNBC, be sure to leave the sound off. Leave it off unless you actually know the person is worth listening to. Of course that usually requires years of experience – not just your emotional preferences. Leave the latter to your evening cable show watching. And leave it entirely out of your investment decision-making.

There is no euphoria or even complacency in the U.S. equity market today. Rather, it is clear to me that investors are scared. The VIX doesn’t tell you what you might think it does. If it explodes over 40, it is worth looking at in conjunction with other psychological indicators. Recent public interpretations of it are preposterous. Bond funds have drawn ridiculous sums from individual investors. The Wall of Worry is huge.

As one who watches financial television with TIVO and mute, and who knows the players, I fully understand this description.

Please read the rest of the post for more valuable insights.

Stock Ideas

Individual investors seeking high-quality research on their stock holdings and ideas already use the many resources at Seeking Alpha. Just in case you are not following the Today’s Editors’ Picks series, take a look. You will definitely find ideas that you would otherwise have missed.

Chuck Carnevale discusses blue chip Johnson & Johnson (NYSE:JNJ), asking “What can I expect to make if I invest today?” As usual, he combines a lesson about how to analyze a stock with a specific idea and conclusion. Take time to watch his video.

Blue Harbinger has a good record trading Prospect Capital (NASDAQ:PSEC) and he has a new call.

Energy stocks? Kirk Spano has had some winning ideas in the sector and still sees room to run. He suggests a “New Golden Age” for oil stocks. Check out his post for the full discussion and some ideas for how to play possible strength.

Target (NYSE:TGT) might be at an attractive value point. D.M. Martins Research argues that the top line growth will be fine, although year-over-year comparisons will remain tough for a few quarters.

Consumer staples bargains? Barron’s takes a look.

Airline stocks? Southwest or others? Stone Fox Capital analyzes the choices. You probably cannot guess which is cheapest on a forward PE basis.

Chip stocks? Peter F. Way applies his unique methods to consider the risk and reward for the entire sector. We own one of the stocks listed, and I was quite eager to see where it was in his chart.

Aerospace and defense stocks? Peter F. Way takes on this sector as well. I am considering some candidates, and my own methods yield similar results.

Closed-end funds? Stanford Chemist has a first-rate method and covers this space carefully. Many buyers merely look for discounts without considering the risks. He provides an interesting list of choices, using various important criteria.

A high-potential REIT? Dividend Sensei has a pick that has both yield and upside.

Stone Fox Capital makes the case for Baidu – “Another Gift.”

Market Outlook

Avondale Asset Management covers earnings calls by reviewing transcripts and presentations. This is an excellent source for those of us wondering whether economic growth is reflected in corporate profits. This week’s report highlights overall optimism, solid growth, a strong labor market, and a CEO expectation that the business cycle could continue for several more years. They love tax reform but are feeling pricing pressures from capacity limits and oil price increases.

Personal Finance

Seeking Alpha Senior Editor Gil Weinreich has expanded his excellent series for financial advisors (and serious individual investors) to include some podcasts. This week I especially enjoyed his thoughtful and kind commentary on the last installment of WTWA. Gil adds his own valuable insights and points to some great posts from other contributors. He also continued his podcast series with his take on behavioral finance questions.

Abnormal Returns is always worth reading, with many links on an array of interesting topics. Wednesday the focus is on personal finance. Among many good choices, I especially appreciated the honest account of an advisor who “botched her own RMD.” There are plenty of lessons in this post. More important for most investors is the discussion from Mullooly Asset Management, Inc on why it so often right to “do nothing.”

Watch out for…

Investments in direct general-obligation bonds from the State of Illinois. David Kotok of Cumberland Advisors explains the reasons. They are all familiar to those of us who call Illinois “home.”

Non-GAAP adjustments. Paulo Santos analyzes Symantec with the earnings controversy in mind. [Jeff – I understand the value of adjusting for one-time effects in an effort to gauge a stock’s future performance. This demonstrates why it is important to do solid research on individual stocks, with this question in mind.]

Cisco Systems? (NASDAQ:CSCO). A good company with a valuation that is too high? (D.M. Martins)

Legalized sports betting is an interesting news story. There was the typical rush to find stocks that might benefit. Vince Martin provides an interesting contrarian analysis, the reason to measure your optimism.

Zillow? Marc Gerstein has an interesting story explaining what might go wrong with the business model.

Final Thoughts

I had the great honor and privilege last week to share my thoughts with a group of top executives and financial experts from Chicago and southern Wisconsin. They were very sharp both in conversation and in their questions. My comments were centered on the noise from financial news and how to make sound decisions in that environment. It was a great audience and they even laughed at the right times.

Astute investors like this are already looking beyond the noise, but maybe I helped a little and provided examples for their own clients. The current interest rate story is mostly noise. The same sources that criticized the Fed for “punishing savers” with low rates are now worried about the gentle and gradual increase. There are so many who are selling something – and therefore on a mission!

Dale Roberts hits these same themes in his post, Fear Sells. But Why Are You Buying It? He has an entertaining list of attention-grabbing headlines from the past. Apparently credible at the time, but costly to the readers.

A few simple facts will help us all keep perspective on the increase in rates.

  • There is no magic point where things suddenly turn negative. Markets represent a distribution of participants with widely differing needs. A slightly higher rate will be marginally attractive to some investors. It is not like a light switch.
  • It is completely normal for the ten-year note to yield 4 to 5%. This is a healthy range, consistent with solid economic growth and corporate earnings. Stocks normally move higher as rates increase into this range.
  • The Fed is cognizant of the incipient inflation pressures. Their patient attitude is “at last.” They may react too late, but for investors that is a problem for some future time. Owning stocks is not “fighting” their policy shift.

And most importantly —

Do not base your investment decisions on slogans!

The pundit parrots are relying upon a handful of cases that are not really like our current market. A little more analysis is needed.

It is easy to get lost in the noise of the news, distracted from your goals and how to reach them. If that sounds familiar, send for my free paper on the Top Investor Pitfalls. Whether you are trying to preserve wealth or to build your assets, there are some great opportunities right now. If you are having trouble pulling the trigger, organizing your thoughts, or finding attractive stocks, send a note to main at newarc dot com. I have written papers on each of these topics. We will happily send some free resources and provide a consultation if you wish.

I’m more worried about:

  • North Korea. The prospects for a constructive agreement fluctuates with the wind.
  • Over-reaction to higher interest rates. It so easy to be seduced by catchy slogans.

I’m less worried about:

  • China. While I understand the skepticism surrounding the talks, there are indications of progress.
  • Technical market concerns. Those watching charts got further relief last week.

Disclosure: I am/we are long OHI, PG.

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

Additional disclosure: PG versus short calls.

Britain to tackle 'Wild West' internet with new laws

LONDON (Reuters) – Britain will tackle “the Wild West elements” on the internet from cyberbullying to online child exploitation by introducing new laws for social media companies, digital minister Matt Hancock said on Sunday.

Britain’s Secretary of State for Digital, Culture, Media and Sport, Matt Hancock, appears on the BBC’s Marr Show in London, Britain, May 20, 2018. Jeff Overs/BBC/Handout via REUTERS

Launching a consultation on what measures should be used to ensure the safety of those using the internet, Hancock said the government would publish a white paper – a policy document that sets out proposals for future legislation – later this year and aim to bring in new laws “in the next couple of years”.

Better regulating social media companies has long been an aim of a government that has struggled to carry out its agenda with Britain’s departure from the European Union taking up much of ministers’ time.

“Digital technology is overwhelmingly a force for good across the world and we must always champion innovation and change for the better,” Hancock said in a statement.

“At the same time I have been clear that we have to address the Wild West elements of the Internet through legislation, in a way that supports innovation. We strongly support technology companies to start up and grow, and we want to work with them to keep our citizens safe.”

There was little detail on what kind of regulation should be used to protect those using the internet, but Hancock told the BBC that as part of the data protection bill now in parliament, firms could be fined up to 4 percent of their global turnover.

But when asked whether the government would stop companies from allowing children to spend hours on the internet, Hancock told ITV television: “We want to have a broad consultation.”

In his statement, Hancock said the ministry for digital, culture, media and sport and the interior ministry would work with regulators, platforms and advertising companies to settle on legislation that tackles “both legal and illegal harms”.

“I don’t want the trolls to win,” Hancock said.

Reporting by Elizabeth Piper; Editing by Mark Potter

Enbridge Simplification: A Slap In The Face To Shareholders

The simplification transaction announced by Enbridge (ENB) on Thursday, May 17, is a massive one, a nearly $10 billion deal in what will be all-stock consideration. It is also turning out to be a harsh lesson for shareholders of the company’s sponsored vehicles: Enbridge Energy Partners (EEP), Enbridge Energy Management (EEQ), Enbridge Income Fund (OTC:EBGUF), and Spectra Energy Partners (SEP). Such simplification transactions are getting more commonplace within the master limited partnership (MLP) space recently, and some parts of this deal were widely expected to occur over the next several years.

What was not expected was just how harsh the deal terms are for shareholders and the highly aggressive language taken toward its daughter firms. The reasons for the deal rationale represent a complete turn from statements made just a few months prior. While this deal certainly benefits Enbridge, it cripples any good will with shareholders of daughter firms. I suspect there are going to be some very irate shareholders sitting on large tax bills and shareholder lawsuits are probably inevitable. For those of us that avoided the firm, the proposal unfortunately might drive investor capital away from the subsector when it needs it most.

Management’s Take on Simplification

For Enbridge, management touted the transaction’s ability to simplify the corporate and capital structure, allowing Enbridge to have full ownership of core strategic assets. That’s a true statement. However, the tone toward its daughter firms was incredibly negative and is a complete turnaround from statements made recently. For perspective, within its presentation of deal economics, Enbridge stated it should see its own credit profile enhanced by “eliminating sponsored vehicle public distributions” (I’m sure Seeking Alpha income investors love that part) and that “sponsored vehicles are ineffective and unreliable standalone financing vehicles.”

The blame for this has been pinned on a weak market for public valuations of midstream firms, the change in FERC policy on cost recovery, and lasting impact from U.S. tax reform. This broad blanket statement on the MLP structure is an ignorant one in my opinion. There are more than a few MLPs out there – correctly run – that have very low costs of capital, even in this environment: MPLX (MPLX), Shell Midstream (SHLX), and Phillips 66 Partners (PSXP) are all examples. Instead of taking responsibility for its own poor decisions in building out the capital structure and getting itself into this mess in the first place, management has decided to shirk responsibility and cast blame elsewhere.

Source: Enbridge Partners Simplification Transaction, Slide 6

Some Seeking Alpha readers often chide me (or other contributors for that matter) for not listening to management guidance or taking statements made on conference calls as gospel. In other words, “management knows best.” For every company I research, I form my own opinion before reading or listening to a single sentence on a conference call. This Enbridge saga is yet another opportunity to show why shareholders need to do their own due diligence and come to their conclusions. Let us wind back the clock and see what Chief Financial Officer of Enbridge John Whelen had to say just two months ago on the Q4 conference call (paywall):

With respect to our sponsored vehicles, the good news is that the legislation maintained the competitive tax advantages of our MLPs relative to corporate structures through at least 2025.

This was followed by a statement, picked up by other Seeking Alpha contributors, that the losses faced at Enbridge Energy Partners would be balanced out by gains for Enbridge Income Fund. In other words, neutral to earnings across the firms.

Looking forward, on balance, the Fund Group will actually benefit modestly from tax reform. As I noted earlier, EEP’s FSM tolls will be reduced as a result of the reduction in U.S. tax rates. To the extent the EEP tolls go down, ENF will see a corresponding uptick in its Canadian Mainline toll revenue under the existing International Joint Tolling framework.

Just two months ago, the competitive tax advantage of MLPs had been maintained and the FERC policy change would have no real change on dollars flowing to the Enbridge family due to the Joint Tolling Framework. Compare those statements with the ones made as part of this deal announcement. It is startling. Make no mistake, nothing has materially changed in the past two months. Was the tone on the Q1 conference call a little more negative? Sure, but management was just one week out from dropping this bombshell on investors. In short, management was happy to assuage investor concerns before pulling the rug out from under them.

Premium? What Premium?

If a company is going to roll up assets that are not being valued correctly in the public market, the least most of these firms do is throw a bone to shareholders. Slap a 10, 15, or 20% premium on the deal and the acquirer is still getting a steal on the assets versus replacement cost. Further, this placates shareholders a bit who have undergone quite a bit of pain and helps aid the transaction in getting past the conflicts committee. As a result, hopefully the general partner avoids getting sued in the process. What did Enbridge offer shareholders?

  • SEP unitholders will receive 1.0123 common shares of Enbridge per SEP unit, representing a value of US$33.10 per SEP unit based on the closing price of Enbridge common shares on the NYSE on May 16, 2018 – equivalent to the closing price of SEP’s common units on the NYSE on such date.
  • EEP unitholders will receive 0.3083 common shares of Enbridge per EEP unit, representing a value of US$10.08 per EEP unit based on the closing price of Enbridge common shares on the NYSE on May 16, 2018 – equivalent to the closing price of EEP’s common units on the NYSE on such date.
  • EEQ shareholders will receive 0.2887 common shares of Enbridge per EEQ share, representing a value of US$9.44 per EEQ share based on the closing price of Enbridge common shares on the NYSE on May 16, 2018 – equivalent to the closing price of EEQ’s common shares on the NYSE on such date.

Investors won’t find that here. Not even a dollar. And that whole “EEQ shares are equivalent to EEP shares” thesis? The 10-K might say that they are equivalent, but management has certainly taken the stance that 1:1 does not mean 1:1. For all their trouble of forming an investor base for Enbridge to fund dropdowns, these investors will be locking in a massive loss, eating a major tax bill made worse by return of capital lowering their basis, and are being rewarded with Enbridge common stock and not cash.

While I’m sure some will try to spin this positively, even as a non-shareholder and someone who recommended against buying any of these companies in the past, it just leaves a sour taste in my mouth. Enbridge is a massive entity and the actions it takes have broad implications across the entire MLP space. Management teams that would never dream of trying to pull off a transaction like this due some sense of fiduciary duty will unfortunately have to deal with the consequences of an impaired investor base that might never invest a dollar in these types of assets again.

Disclosure: I am/we are long MPLS, SHLX.

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.

Elon Musk Presents His Tunnel Vision to the People of LA

One day, if Elon Musk gets his way, the Leo Baeck Temple in Los Angeles’ tony Bel Air neighborhood will be just a hop, skip and a quick walk from the nearest Loop station.

The “Loop,” for the uninitiated, is what Musk calls his latest idea for moving people and things from one place to another. In his telling, you would bike or walk into a 16-passenger pod, or drive your car onto a street level elevator, which would ferry you onto an underground electric platform. For a measly $1, you’d be shot at 150 mph through a city-wide network of tunnels, until you reached whichever of the hundreds or thousands of stations fell closest to your destination, where another elevator would raise you back to the surface. This is different from the hyperloop, which would clock near supersonic speeds, and be used for long distances. But the goal is the same: no waiting, no gasoline, no traffic.

Elon Musk laid out his grand vision for a network of tunnels to a rapt crowd in Los Angeles, and promised a grand celebration when it’s all done. “I think a party in a tunnel would be kind of fun,” he said.

The Boring Company

Today, though, getting to the temple, where Musk hosted the Boring Company’s first public informational meeting, requires crawling through miles of hideous 405 rush hour traffic. Or an even longer ride on the public bus, the only accessible public transit option, which tortuously wends its way through the Los Angeles hills.

Still, an hour and a half before the event’s scheduled start, a small crowd of people were pressing against the yellow tape holding them back from the main entrance. The few hundred folks who managed to score a ticket fell into two camps: local residents, typically older couples living in this wealthy neighborhood, and Elon fans, most of them young men in their Boring Company hats and SpaceX hoodies. They waited patiently for the CEO, who took the stage thirty minutes late. Guess why. “We were stuck on the damn 405,” Musk said.

During the 45 minutes he spent on stage, Musk laid out out engineering details, talked specs, fielded carefully moderated questions, and defended his plan to build a 2.1-mile test tunnel adjacent to the 405 freeway. That project, he says, will allow the Boring Company to determine the specific challenges of tunneling in this part of LA’s soil and bedrock.

“Highways are at the outer limit of their capacity,” he said as Gary the snail, his company’s mascot, silently inched across its pineapple-shaped terrarium, sitting next to the CEO. (Musk wants his tunnel boring machine to beat Gary in a race.) “For tunnels, you can have hundreds of lanes. There’s no real limit.”

Musk says he wants to give rides in the new tunnel, to get public feedback, and to feed into plans for a much larger system under the city. “It’ll be like a weird little Disney ride in the middle of LA. Bring your flamethrower,” he said, to laughs and whoops from the very friendly crowd.

Tunnel Vision

Six months after Musk went on a Twitter tirade about LA traffic in December 2016, he had created the Boring Company, and was digging a tunnel under the parking lot at SpaceX’s headquarters in Hawthorne, California. The internet payment maven-turned-carmaker-turned-space enthusiast-turned-infrastructure baron has promised to completely change the way humanity bores tunnels, pledging make boring as much as 15 times faster, and reduce its cost by a factor of ten.

Thus far, the Boring Company is leaning on two used tunnel boring machines, and has yet to unveil any novel tech. But Musk did recently show off a completed, 2-mile proof-of-concept tunnel in Hawthorne, which begins in the parking lot of SpaceX’s headquarters.

Now, Musk wants to build this new, 2.1-mile tunnel, near LA’s Sepulveda pass. It’s all part of his broader vision of a sprawling network that could take riders from Sherman Oaks in the north to Long Beach Airport in the south, Santa Monica in the west to Dodger Stadium in the east—without all that troublesome traffic.

Boring has applied for a environmental review exemption for this tunnel, arguing no one will actually use it for transit. And while the LA City Council’s Public Works committee did approve the exemption late last month, it will need full approval from the entire council before the project can move forward.

Meanwhile, two neighborhood groups have sued the city over the exemption, arguing that it’s an illegal, piecemeal approval for the Boring Company’s larger ambitions—that whole network thing. (The Boring Company has pledged to cover any legal costs stemming from the project.) Culver City, to LA’s west, is mulling its own lawsuit, says Vice Mayor Meghan Sahli-Wells, even if the tunnel does not enter its territory. She decided against attending the event, however. “I don’t even think I’m going to try to bear the traffic,” she said Thursday afternoon.

Musk insisted the Boring Company is playing the good partner. “Sometimes people just wonder, ‘Are they just going and building this crazy tunnel, and seeking exemption from all oversight?’” he said. He insisted that isn’t the case, saying the company will have to fill out “something like 600 pages of permits” and complete a full environmental review before building a larger network.

Digging Deep

Musk took time to reassure people that they wouldn’t feel the tunnelling process beneath them, and that the trucks hauling dirt away would be limited to daytime hours. As for earthquakes, he explained that tunnels are actually quite safe, and built to endure seismic rumblings.

Still, mass transit and boring experts have pooh-poohed the project. They wonder if the layers of tunnels might run into the same induced demand quandary as lane-widening projects. They wonder if money and time wouldn’t be better spent on proven mass transit systems, like Bus Rapid Transit. They wonder how Musk intends to improve the speed of tunneling so dramatically. They wonder if the Boring Company intends to connect its stations with other forms of public transit. (Yes, Musk said on stage. He said the project will solve induced demand issues by tunneling layers upon layers deep underground.)

The Boring Company has at least one important ally in its corner. On Thursday evening, LA’s Metro said in a statement that it had agreed to a “partnership” with the Musk venture. Metro did not respond to WIRED’s requests for clarification Thursday evening.

The final question Musk faced concerned whether he’d celebrate when the Boring Company’s system launches. “Of course,” he said. “I think a party in a tunnel would be kind of fun.”

Then he left the stage to a standing ovation, cheered on by a roomful of people just waiting for him go and build the thing.


More Great WIRED Stories

Uber chief product officer to leave in latest executive departure

(Reuters) – Uber Technologies Inc [UBER.UL] Chief Product Officer Jeff Holden is leaving the ride-hailing company, an Uber spokesman told Reuters on Thursday, the latest of more than a dozen senior executives to depart since last year.

FILE PHOTO: The Uber logo is displayed on a screen during the Women In The World Summit in New York City, U.S., April 12, 2018. REUTERS/Brendan McDermid/File Photo

Holden oversaw Uber Elevate, the company’s flying car operation, which is now headed by Eric Allison, the spokesman said, but declined to elaborate on the reason for his departure.

New Chief Executive Officer Dara Khosrowshahi has been shaking up the company since taking over Last August aiming to improve Uber’s reputation after a string of scandals.

Uber, along with Lyft Inc, scrapped mandatory arbitration to settle sexual harassment or assault claims earlier this week, giving victims several options to pursue their claims including public lawsuits.

Uber also launched a new app for its drivers last month, in an effort to improve an often contentious relationship.

Uber’s chief legal officer, Salle Yoo, and head of external affairs Dave Clark left the company in September.

Uber is also searching for a chief financial officer who can help take the company public in 2019. The CFO position has been vacant since 2015.

The Wall Street Journal earlier reported that Holden, who was hired by former Uber Chief Executive Officer Travis Kalanick from Groupon Inc (GRPN.O), told colleagues that Thursday was his last day with the company.

Reporting by Kanishka Singh and Abinaya Vijayaraghavan in Bengaluru; Editing by Peter Cooney and Gopakumar Warrier