Trump fundraiser launches subpoena blitz in Qatar legal fight- sources

(Reuters) – Lawyers for Elliott Broidy, a top fundraiser for U.S. President Donald Trump, have sent out more than 40 subpoenas to internet service providers, lobbying firms and others in an escalating legal fight against Qatar for allegedly hacking into his emails, two people with knowledge of the matter said.

The subpoenas, issued in recent weeks as part of a civil suit filed by Broidy in a Los Angeles federal court in March, come as Qatar and its rivals wage a multi-million dollar battle for influence in Washington over the Trump administration’s policies toward the Gulf region.

The lawsuit accuses Qatar of orchestrating the theft and leaking of Broidy’s emails as retribution for his support of the United Arab Emirates and Saudi Arabia, which along with Egypt and Bahrain levied economic sanctions against Qatar last June.

The emails were distributed to various media outlets, leading to weeks of damaging stories about Broidy.

Nicolas Muzin and his lobbying firm Stonington Strategies LLC are also named as defendants in the case. Both Qatar and Muzin have denied involvement in any hacking.

Broidy is scheduled to file an amended complaint on Thursday to the Los Angeles federal court. His lawyers will expand the list of defendants, adding people suspected of carrying out the hack or disseminating material, a third person with knowledge of the matter said.

One subpoena seen by Reuters asked the recipient to hand over documentation of any communications related to Broidy with more than a dozen lobbying and public relation firms, some of which are registered as foreign agents for Qatar.

Another recipient of a subpoena was Avenue Strategies Global LLC, a lobbying firm founded by former Trump campaign manager Corey Lewandowski and Barry Bennett, according to two sources with knowledge of the subpoena.

Lewandowski had left Avenue Strategies by the time it was hired by the Qatari embassy as a client. Bennett, who was an adviser to the Trump campaign, did not respond to a request for comment.

It was not clear whether the subpoenas would prove effective. One source said he believed most of the lobbying firms would at least initially decline to provide information and contest the matter in court.

Reporting by Nathan Layne and Karen Freifeld in NEW YORK; Editing by Paul Tait

After Meltdown and Spectre, Another Scary Chip Flaw Emerges

At the beginning of the year, everyone was talking about processor vulnerabilities called “Meltdown” and “Spectre” that potentially exposed data in everything from servers and desktops to tablets and smartphones. The flaws, which impacted the chips in many popular devices, allowed hackers to inconspicuously manipulate a common efficiency technique used to speed data processing. As a result, chip manufacturers and software makers scrambled to issue patches and work out the performance sluggishness that came along with blocking the risky optimizations.

At the same time, though, a larger concern was also looming: Spectre and Meltdown represented a whole new class of attack, and researchers anticipated they would eventually discover other, similar flaws. Now, one has arrived.

On Monday, researchers from Microsoft and Google’s Project Zero disclosed a new, related vulnerability known as Speculative Store Bypass Variant 4 (Meltdown and Spectre collectively make up variants 1-3) that impacts Intel, AMD, and ARM processors. If exploited, an attacker could abuse the bug to access data that is meant to be stored out of reach. It particularly could expose certain components often used in web browsing that are meant to be isolated, for example, a JavaScript module that shows ads.

Microsoft says that the risk to users from this bug is “low,” and Intel notes that there is no evidence that the flaw is already being used by hackers. Some systems, particularly browsers, already have some protection against Speculative Store Bypass attacks just from the initial Meltdown and Spectre patches. But as was the case before, chip manufacturers and software developers are now working to release tailored fixes—and SSB raises the same types of performance problems that emerged before.

“We know that new categories of security exploits often follow a predictable lifecycle, which can include new derivatives of the original exploit,” Leslie Culbertson, Intel’s executive vice president and general manager of product assurance and security, wrote in a statement on Monday. She explains that once they are generally available, some SSB protections will be off by default, requiring users to opt into protection. “If enabled, we’ve observed a performance impact of approximately 2 to 8 percent based on overall scores for benchmarks.”

Modern processors use a technique called “speculative execution” to make educated guesses about what data to work with as they complete tasks instead of waiting to have perfect information about what to do. Meltdown, Spectre, and Speculative Store Bypass flaws are all part of a category of “speculative execution side channels” in which attackers can potentially take advantage of flaws in how processors protect data during this speculative processing to grab information that leaks out in various ways. Systems can rein this in through relatively simple software and firmware (lower level coordinating software) patches. But some updates need to be changes to a processor’s “microcode” that tweak the fundamental behavior of how a chip operates, and most software developers will be depending on chip manufacturers to first release microcode updates.

Once companies push all the various types of updates, though, users will decide case by case whether to install them, since bypassing processing efficiencies to neuter potential attacks can also slow systems down. Some Meltdown and Spectre updates caused real problems for businesses and consumers. For SSB—which seems like it may be a less dangerous bug—some users may consider the pros and cons of patching rather than immediately moving forward.

Microsoft says it began researching SSB in November, after Spectre and Meltdown were already being researched, but before the flaws were publicly disclosed in January. In March, Microsoft also began offering a $250,000 reward for information about new variants of “speculative execution” attacks. Google’s Project Zero, Intel, and numerous other security researchers in the industry have all also been working to understand and discover other similar attacks since last year. Given how complicated it is to distribute fixes for these types of flaws, and how much of that process hinges on what manufacturers release, analysts say that the work that went into pushing patches for Meltdown and Spectre will make things a bit more streamlined when addressing the new SSB flaw.

“We all just started digging in and saying ‘that uses speculation, that uses speculation, what could be wrong there?'” says Jon Masters, chief ARM architect at the open source enterprise IT services group Red Hat, which had early access to the SSB research findings as part of industry defense collaboration. “Unfortunately but also fortunately there was a last time this happened, so as a result of Meltdown and Spectre lots of effort was put in to make sure the update process would be easier.”

Researchers also say that more time to investigate this general type of attack means there’s more confidence now that other speculative execution flaws won’t crop up all the time. And observers are relieved that today’s SSB revelation isn’t related to a more dire attack. But the danger in this class of bugs is the sheer number of devices they impact and how persistent they will be over time. Full protection can only come from replacing vulnerable equipment with new devices that contain fundamentally more secure chips. This replacement process will take years, and in the meantime lots of devices will remain exposed to these niche, but potentially effective attacks.

Retirement: Should You Buy These Beaten-Down Stocks Now?

The markets have generally been volatile since the end of January 2018. The S&P 500 has touched its 200-day moving average a few times, however, bounced back each time. It does appear that the current turbulence may well continue for some more time. However, in spite of recent uneasiness in the market, the broad indexes are only about 5% away from their all-time high achieved during the last week of January 2018.

However, it is altogether another story with some of the sectors of S&P 500. For example, one of them is Consumer Staples and Packaged Foods (Consumer Defensive Sector). Most investors are probably aware how bad the downturn is in Consumer Staples industry. Some of the well-known dividend-paying companies in the Consumer Staple sector are Procter & Gamble (PG), Colgate-Palmolive (CL), General Mills (GIS), Unilever PLC (UL), Nestlé S.A.(OTCPK:NSRGY), Kraft Heinz Co (KHC), and some others. Most of these companies are down by double-digits. Some of the reasons that have caused this downturn are:

  1. Competition from ‘House Brands’ causing stagnant or declining revenues for the brand name products.
  2. Commodity prices have been on the rise.
  3. Rising threat and challenges from e-commerce.

Some of the above fears may truly be valid. But the bigger question is if these trends are permanent or just a passing phase. Even if they are permanent, are some of these companies well positioned to challenge the status quo and come out stronger?

Here is a table that shows the performance of the above stocks since the beginning of this year. You will notice that not all have declined; actually, the European companies are doing much better than their American counterparts.

Symbol

Current Price

(As on 05/11/2018)

Price on 01/02/2018

% Return

(since Jan 2nd, 2018)

PG

73.37

90.65

-19.06%

CL

62.71

75.14

-16.54%

GIS

42.66

59.04

-27.74%

UL

55.92

54.85

+1.95%

NSRGY

77.41

85.63

-9.60%

KHC

59.24

77.02

-23.08%

SPY (S&P 500)

272.85

268.77

+1.51%

Many of the above stocks have been the favorites of the DGI investors (Dividend Growth Investors). A few of them are dividend champions, meaning they have paid and raised the dividends for more than 25 years. Their dividend yields were already attractive before this downturn, but some of them are offering mouth-watering yields off late. Below are the current yields for the six stocks.

Symbol

Current Price

(As on 05/11/2018)

Current Dividend

Yield

Forward Dividend Yield

PG

$73.37

3.80%

3.96%

CL

$62.71

2.58%

2.64%

GIS

$42.66

4.59%

4.61%

UL

$55.92

3.15%

3.44%

NSRGY

$77.41

3.27%

3.31%

KHC

$59.24

4.18%

4.31%

Who Should Buy Now?

Certainly, almost all of these stocks are at attractive valuation right now. However, it does not mean they can’t fall even further. They certainly can and more likely will, especially if the broader market takes a hit. However, there are other factors that need to be looked into:

  • Do you own some of them already? If so, how are they weighted in your overall portfolio? As a general rule, you should not have more than 15% in one sector, after all, there are 11 sectors of the economy. Also, you should not have more than 5% in one single stock, assuming you have a minimum of 20 stocks in your portfolio,
  • If you are already over-weighted in the sector or a stock, you should not get tempted to buy the current dip. We should remember the folks who were overweight in the financial sector just before the 2008-2009 financial-crisis and the damage it must have done to their portfolios.
  • What are your income needs? If you need high income, investing at the current yields into these generally conservative stocks would make more sense compared to someone who is in the accumulation phase and does not care about the current income.
  • Do these stocks fit your risk-profile? We would generally think these should fit even the most conservative stock investors. However, the stock market is at an all-time high, in spite of the recent turbulence. If the broader markets were to take a big hit, the above stocks would take a hit as well, irrespective of how low they may already be. However, they are likely to go down less compared to the broader market. Do you have the tolerance to see another 10% or 20% dip after you have taken a position? If your investment horizon is longer than 10 years, and you are prepared to look at the income component rather than the market price, then these may be suitable investments.
  • If you were to buy now, how much should you buy? The answer to this question is same as the point # 1. You should follow your rules regarding position-weight of any one security and any one sector. Also, you should decide if you are going to buy in one lot or in more than one lot, meaning in a deferred fashion. A deferred approach will take advantage of dollar-cost-average in case they were to dip further.

If We Are Going To Buy The Dip, Which One Is the Best?

Okay, let’s say you have taken the first decision that you would want to buy one or more of these stocks and take advantage of the lower prices and significantly higher yield compared to just a few months ago.

To help with the decision as to how these stocks rank compared to each other, we will compare them to several factors. The six companies that are being compared are:

PG, CL, GIS, UL, NSRGY, KHC

We will compare them on the basis of following metrics:

  • Size and economic moat
  • Dividend Yield
  • Dividend growth
  • Dividend safety
  • Valuation
  • Long-term debt
  • Revenue growth
  • EPS growth
  • Future growth estimates

Note: On each of the above metrics, we will provide a relative “Rating” to each company (except KHC). Please note that the rating is un-scientific and subjective, in this case, based on our opinion. It should not be used for buy/sell decisions, rather only as a starting point for further research.

Size and Economic Moat:

All of our companies in the select-list are well known and large-cap companies, with leading positions in some of their product categories. Even though some of them are larger than others, but we will consider them on equal footing and award them the same rating under this category.

Dividend Yield:

The current yield of a company’s stock will depend upon the market price at the time of buy. So, when the market price declines, the yield will go up. Ideally, we should buy when the current yield is at least higher or equal to the stock’s 5-year average yield.

Currently, many of these companies are yielding higher than their 5-year average, because of the recent decline in prices.

Symbol

Current Price

(As on 05/11/2018)

Current Dividend

Yield

Forward Dividend Yield

5-yr Trailing Yield

RATING

PG

$73.37

3.80%

3.96%

3.14%

1.5

CL

$62.71

2.58%

2.64%

2.18%

1.0

GIS

$42.66

4.59%

4.61%

3.11%

1.5

UL

$55.92

3.15%

3.44%

3.14%

1.25

NSRGY

$77.41

3.27%

3.31%

3.03%

1.25

KHC

$59.24

4.18%

4.31%

NA*

NR**

**NR – Not Rated, *NA – Not Available

Dividend Growth:

For DGI investors, both the current yield and the growth of the divided are important. Obviously, as investors, we want both to be high enough. If the current yield is low, but the faster dividend growth may compensate for low current yield. Alternatively, a high current yield may compensate for low dividend growth.

In this regard, Chowder-number comes quite handy. Chowder – number is the sum-total of current yield and past 5-year dividend growth. Generally, we would want the chowder-number to be at least 8 or higher.

Below is a table that provides an idea how much time it takes for a high dividend-growth but current low yield stock to catch up (provide the same or higher dividend amount) to another stock which yields high but provides low growth.

As you can see, in terms of YOC (yield on cost), it would take company-A 14 years to surpass company-B. That too provided company-A maintains its high dividend growth rate all these years. However, if the company-A is also growing its earnings faster, it is likely that the stock price of company-A would rise faster due to higher growth.

Here is the comparison of previous 3-year and 5-year dividend growth for our selected companies:

Symbol

FWD Dividend

Yield

3-Year

Dividend Growth

5-Year

Dividend Growth

RATING

PG

3.96%

3.30%

4.90%

1.0

CL

2.64%

3.80%

5.40%

1.0

GIS

4.61%

7.40%

9.70%

1.25

UL

3.54%

11.80%

8.90%

1.5

NSRGY

3.31%

2.30%

3.30%

0.75

KHC

4.31%

NA

NA

NR

Dividend Safety:

Dividend safety is actually more important than either the current yield or the dividend growth. After all, what good is the yield or growth, if that gets cut after a year. Investors in General Electric (GE) have learned that lesson twice in the last decade, unfortunately.

At the same time, it is also more difficult to know the dividend-safety factor, than say dividend-growth. It is often said that safest dividend is the one that just got raised. The past growth of the dividend, especially the very recent growth tells a lot about safety. But there are other factors like cash-flow and payout-ratio that the investors need to look at very carefully. The income of a company can be dressed up to look good by crafty management, but cash-flow will provide a true picture of how well the dividend is covered.

Payout-ratio = Total dividend paid for the year/ Total cash-flow generated for the year.

So, for dividend safety, we should look for:

Previous three year or 5-year dividend growth Current Payout ratio versus past 5-years payout ratios.

Symbol

FWD Dividend

Yield

5-Year

Dividend Growth

Payout-Ratio

5-Year

Payout-Ratio

RATING

PG

3.96%

4.90%

72.49%

71.31%

1.0

CL

2.64%

5.40%

61.00%

66.17%

1.25

GIS

4.61%

9.70%

71.06%

64.34%

1.0

UL

3.54%

8.90%

64.79%

65.07%

1.25

NSRGY

3.31%

3.30%

76.44%

68.52%

1.0

KHC

4.31%

NA

75.78%

NA

NR

Valuation:

.

All things equal, when the stock price of a company declines, its valuation improves. For example, PG has declined roughly 20% in the recent past, if its future EPS does not decline, the company has become much cheaper. P/E (or the forward P/E) is the most common metric that is used to judge the valuation. We should also compare the current P/E with the last 5-years average P/E to judge relative valuation.

As Warren Buffett said, “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” So, we should not look at the valuation alone. It is important that the fundamentals and the future prospects of the company are solid as well. That is why valuation is just one of the nine factors in our analysis.

Symbol

Current P/E

Forward P/E

5-Yr

P/E

Price/Book

Price/Sales

RATING

PG

19.51

16.16

22.99

3.46

2.96

1.5

CL

26.57

20.08

30.81

NA

3.54

1.0

GIS

11.25

13.64

21.43

4.90

1.59

1.5

UL

21.83

20.88

21.69

4.24

2.46

0.50

NSRGY

28.15

19.92

23.10

3.86

2.67

0.75

KHC

6.56

15.34

NA

1.09

2.77

NR

Long-term Debt:

The long-term debt of a company and its ability to service those debts are important to know. We should look at the interest expense versus the income to get an idea if the debt load is going to be too much for the company. We can also look at the credit rating of the company provided by various credit agencies.

Symbol

Long-Term Debt

S&P Credit Rating (L.T.)

Debt/Equity Ratio

Debt/Total Asset ratio

RATING

PG

$18.0 Billion

AA-

0.65

0.18

1.25

CL

$6.5 Billion

AA-

NA

0.50

1.00

GIS

$7.6 Billion

BBB

1.94

0.32

0.75

UL

$19.08 Billion

A+

1.75

0.27

0.75

NSRGY

$16.14 Billion

AA-

0.43

0.12

1.50

KHC

$28.3 Billion

BBB

0.49

0.25

NR

Revenue Growth:

Revenue growth will tell us if the company is growing its top line. As you can see below, the only company that has performed much better recently is Unilever, and that shows in its share price, which has not declined much in-spite of the downward pressure.

Symbol

Previous 3-yrs Growth

Previous 5-yrs Growth

Previous 10-yrs Growth

RATING

PG

-2.50%

-3.80%

-0.10%

0

CL

-0.40%

-1.10%

2.90%

0

GIS

-2.00%

0.80%

4.60%

0.50

UL

8.40%

-14.50%

3.70%

1.00

NSRGY

0.40%

0.50%

0.70%

0.50

KHC

NA

NA

NA

NR

EPS Growth:

As the earnings of a company grow, so will the share price.

Symbol

Previous 3-yrs

EPS Growth

Previous 5-yrs

EPS Growth

RATING

PG

0.50%

1.50%

0.50

CL

14.50%

1.40%

1.50

GIS

-0.70%

1.30%

0.25

UL

10.40%

7.10%

1.50

NSRGY

-19.90%

-15.60%

0

KHC

NA

NA

NR

Future Growth Estimates:

The recent past history of EPS growth can tell a lot about how the company has been growing. But it still can’t tell about the future. However, we can use the EPS growth estimates for this purpose. Below are the EPS growth estimates from Nasdaq.com and Morningstar.com.

Symbol

Next-year

Growth Est.

Next 5-yrs

Growth Est.

RATING

PG

6.60%

7.37%

1.0

CL

9.68%

8.49%

1.25

GIS

6.62%

8.18%

1.0

UL

10.41%

5.46%

1.0

NSRGY

11.5%

16.2%

1.50

KHC

8.08%

23.29%

NR

Overall Rating:

We summarize the category-wise ratings for the five stocks and calculate the overall ratings.

PG

CL

GIS

UL

NSRGY

Size and economic moat

1.00

1.0

1.0

1.0

1.0

Dividend Yield

1.5

1.0

1.5

1.25

1.25

Dividend growth

1.0

1.0

1.25

1.50

0.75

Dividend safety

1.0

1.25

1.0

1.25

1.0

Valuation

1.5

1.0

1.5

0.50

0.75

Long-term debt

1.25

1.00

0.75

0.75

1.50

Revenue growth

0

0

0.50

1.00

0.50

EPS growth

0.50

1.50

0.25

1.5

0

Future growth estimates

1.0

1.25

1.0

1.0

1.50

RATING

TOTAL

8.75

9.0

8.75

9.75

8.25

Conclusion:

All the above companies that have been analyzed are relatively safe DGI companies. As you can see from our analysis that there are only marginal differences in the net rating that we have derived. Though this rating method is un-scientific and subjective to some extent, we still find it helpful.

If we are price-conscious and rather go for the cheapest company in this sector, probably PG would be our choice. However, if we want to buy a company that has been going strong in the recent years, we could buy Unilever, which is trading at a fair price (but not cheap). In terms of future prospects and growth, it is difficult to see which company will grow faster than others. The EPS growth estimates suggest higher growth for Nestle and KHC going forward, but these are only Wall-street estimates at this point and should be taken with a grain of salt.

As we stated earlier in the article, you should pay attention to the position weight to this sector. If you are already overweight the sector, you should probably skip the temptation to buy. On the other hand, if you are underweight, it will be okay to nibble on a couple of names like PG and Nestle.

Disclaimer: The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Please always do further research and do your own due diligence before making any investments. Every effort has been made to present the data/information accurately; however, the author does not claim 100% accuracy. Any stock portfolio or strategy presented here is only for demonstration purposes.

Disclosure: I am/we are long ABT, ABBV, JNJ, PFE, NVS, NVO, CL, CLX, GIS, UL, NSRGY, PG, MON, ADM, MO, PM, KO, DEO, MCD, WMT, WBA, CVS, LOW, CSCO, MSFT, INTC, T, VZ, VTR, CVX, XOM, VLO, HCP, O, OHI, NNN, STAG, WPC, MAIN, NLY, PCI, PDI, PFF, RFI, RNP, UTF, EVT, FFC, KYN, NMZ, NBB, HQH, JPC, JRI, TLT, DAE , ARCC, JPS.

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.

Regretting It Already

Last Sunday, I wrote a fun little something for this platform called “Jerome Powell May Live To Regret These Statements“, in which I flagged a series of comments the newly appointed Fed chair made at an IMF/SNB event earlier this month.

Here, for anyone who missed it, is what Powell said about the likely resilience of emerging markets (EEM) as the Fed normalizes policy:

Monetary stimulus by the Fed and other advanced economies played a relatively limited role in the surge of capital flows to (emerging market economies) in recent years.

There is good reason to think that the normalization of monetary policy in advanced economies should continue to prove manageable for EMEs. Markets should not be surprised by our actions if the economy evolves in line with expectations.

In the first piece linked above, I gently suggested that while rising U.S. rates and the ongoing rally in the dollar (UUP) needn’t necessarily lead to a broad-based unwind in EM, past a certain point it won’t be possible to contend that the only real issues here are a recalcitrant Erdogan in Turkey and a crisis of confidence with regard to the Argentine peso.

In other words, there’s only so long you can lean on the idiosyncratic, country-specific stories excuse when the pain is spilling over to other locales amid a continual rise in U.S. rates and still more dollar strength. Although it’s really only possible to know this in hindsight, often (and this doesn’t just apply to emerging markets) we discover that what we thought were “idiosyncratic” stories were in fact coal mine canaries or, to mix metaphors, the wobbliest dominoes.

As I noted last Sunday, “what you’ve seen recently in the Brazilian real and also in Indonesia is evidence of contagion.” I started talking at length about the Indonesia story weeks ago and around the same time, BofAML’s Michael Hartnett (he’s the guy who told you to sell based on his “perfect” indicator back on January 26, a week before things got dicey), said this about the Brazilian real:

EM FX never lies and a plunge in Brazilian real toward 4 versus US dollar is likely to cause deleveraging and contagion across credit portfolios.

Well, this week, Indonesia hiked rates for the first time since 2014 and Brazil’s central bank eschewed what would have been a 13th consecutive rate cut in an effort to put the brakes on the currency pressure.

Neither effort was effective. In Indonesia’s case, the rupiah plunged to its lowest since October 2015 on Friday:

(Heisenberg)

Have a look at the selloff in bonds (benchmark yields for Indonesia are up some 65 bps this quarter, that would be the largest quarterly jump since late 2016):

(Heisenberg)

In short, the rate hike is not going to be enough. Capital flight is accelerating.

As for Brazil, the “hawkish” decision to forgo another rate cut similarly failed to assuage concerns and worse, it deep-sixed Brazilian equities. The real continued to fall, hitting a two-year low on Friday and I think you’ll agree that what you see in the following chart looks like trouble:

(Heisenberg)

And look, if you’re in the camp that’s predisposed to suggesting none of this matters until it spills over into developed markets, do your friends who hold the popular iShares MSCI Brazil Capped ETF (EWZ) a favor and don’t feed them that line, ok? Have a heart. Empathize. Because they just had their worst week since the circuit breakers were tripping last May:

(Heisenberg)

When it comes to Brazil there’s probably no need to panic just yet. There’s some electoral uncertainty, but nothing that should justify what you see in the currency.

“BRL is slightly weak but not too devalued. This is not an overshooting,” Goldman’s Alberto Ramos told Bloomberg in an e-mail, adding that this is a reflection of external shocks (think: stronger dollar and rising U.S. rates) that “are common to other EM currencies.”

He did go on to note that we could see 4.00 on the BRL, but that “would require the intensification of global EM FX pressures and more concern about the October election.”

Right. Well when it comes to “the intensification of global EM FX pressures” (i.e., when it comes to the kind of 30,000 foot view), the MSCI EM FX index has fallen for six of the past seven weeks:

(Heisenberg)

It was down every day this week.

The iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has also fallen for six of the last seven weeks:

(Heisenberg)

And how about the iShares JP Morgan EM Local Government Bond UCITS ETF? Well, it’s down handily, has seen some $550 million in outflows this month alone, and as Bloomberg notes, hasn’t seen a net inflow since March:

(Heisenberg, Bloomberg)

Look at the slide in its market cap just over the past two months:

(Bloomberg)

Now, let me take a moment to remind you that I have been persistently warning about Turkish President Recep Tayyip Erdoğan’s penchant for pushing a laughably unorthodox “theory” about how higher interest rates cause inflation and currency depreciation. If you follow Turkey, you know all about this. Here’s what I said in the post linked here at the outset:

In case you were under the impression that Erdoğan is going to be inclined to moderating his stance on interest rates (which, in his bizarre version of economics, cause inflation if they’re too high), he is going out of his way to ratchet up the rhetoric and disabuse you of that idea on a daily basis.

Well, do you know what he did this week? He went on Bloomberg TV and all but confirmed that once next month’s election is out of the way, he’s going to effectively commandeer monetary policy. You can watch that interview for yourself here and/or read my longer commentary here, but suffice to say it pushed the beleaguered lira to a fresh all-time low and confirmed everyone’s worst fears about what’s going to happen once he officially consolidates power:

(Heisenberg)

As an amusing aside, if you’re following along on Twitter, you knew that Bloomberg interview was bound to cause trouble:

All of this played out in a week that saw 10Y yields (TLT) in the U.S. hit their highest since 2011 and 30Y yields touch 3.25%.

Oh, and remember how the dollar rally stalled last week? Yeah, well it resumed this week, rising for the fourth week in five:

(Heisenberg)

What you’re seeing here is not only notable, but extremely important for what it says about how the environment is shifting as the Fed normalizes. As I’ve been keen on noting for at least a year, everything became one trade as QE drove everyone down the quality ladder in a relentless hunt for yield and as dovish forward guidance kept rates vol. anchored. That’s now reversing.

How violent that reversal will ultimately be is debatable. Some folks think it wouldn’t be the worst thing to just let emerging markets go. The following excerpts are from the latest by former trader turned Bloomberg columnist Richard Breslow:

These positions can be put to the test without necessarily having negative implications for the broader asset classes. In fact, it may represent a very positive development. A big chunk of these trades weren’t originally done because people were feeling chuffed. They were just desperately searching for yield and following the bidding of the central banks.

But if you’re fascinated by big names, then you might note that Carmen Reinhart is concerned. Here’s what she said this week about emerging markets:

The overall shape they’re in has a lot more cracks now than it did five years ago and certainly at the time of the global financial crisis. It’s both external and internal conditions. This is not gloom-and-doom, but there are a lot of internal and external vulnerabilities now that were not there during the taper tantrum.

And then there was this from El-Erian (via Twitter):

Now look, if what you want to do is pretend as though this is all immaterial for developed market investors, then by all means, but just know that this is one of those scenarios where the old adage about being “entitled to your own opinions but not your own facts” applies. As Heisenberg readers know, I generally despise old adages, but that one is apt here.

This is absolutely material for all investors and the whole point of documenting the spillover from Turkey and Argentina into other locales and charting the decline in various indices and funds is to demonstrate that rising U.S. rates and the stronger dollar are the proximate cause of the problem.

This is all a consequence of the buildup of imbalances in the QE era. It was always a matter of how smoothly the unwind of all the trades that are part and parcel of the global hunt for yield would be and the verdict from emerging markets right now is: “not smoothly”.

Trade accordingly. Or don’t. It’s up to you. But don’t say you don’t have the information you need to make an informed decision.

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.

Elon Musk brings technology charm offensive to Los Angeles tunnel plan

LOS ANGELES (Reuters) – Billionaire entrepreneur Elon Musk is bringing his technology charm offensive to an attempt at digging a tunnel beneath part of Los Angeles to test designs for a high-speed subterranean transportation network he envisions for the city.

Elon Musk arrives to speak at Boring Company community meeting in Bel Air, Los Angeles, California, U.S. May 17, 2018. REUTERS/Lucy Nicholson

Musk, the Silicon Valley high-tech tycoon best known for his Tesla Inc electric car manufacturer, planned to make a rare personal appearance at a public event in Los Angeles on Thursday night to answer questions from residents about his tunneling plans.

Efforts by Musk’s aptly named underground transit venture, the Boring Company, to win fast-track city approval of the proposed tunnel has drawn a court challenge from two neighborhood organizations.

The venue for his town hall-style meeting is the Leo Baeck Temple, a synagogue in the city’s affluent Bel-Air district, where Musk owns a residence, about 10 miles (16 km) north of the would-be tunnel site.

Elon Musk (L) speaks at Boring Company community meeting in Bel Air, Los Angeles, California, U.S. May 17, 2018. REUTERS/Lucy Nicholson

Plans call for excavating a 2.7-mile (4.4-km) passage below a stretch of the congested Sepulveda Boulevard corridor on the West Side of Los Angeles and the adjacent town of Culver City.

The Los Angeles City Council’s public works committee last month approved Boring’s request to exempt the tunnel from a lengthy environmental impact review that would otherwise be required under state law.

Slideshow (2 Images)

Boring says the tunnel would serve as an experimental proof-of-concept site to demonstrate ideas for a traffic-easing system Musk wants to build to rapidly whisk individual cars and small groups of pedestrians from place to place beneath the surface.

But two neighborhood advocacy groups have filed suit to block the excavation, arguing the project is really intended as the first segment for a much larger tunnel system planned by Musk. They say he is trying to obtain a waiver to evade environmental regulations that forbid piecemeal fast-track permitting of big-scope projects.

Musk launched his foray into public transit after complaining on Twitter in December 2016 that clogged traffic was “driving me nuts,” vowing to “build a boring machine and just start digging.”

The Boring expansion comes as Musk wrestles with production problems for the rollout of the Model 3 sedan at Tesla, his electric car and energy-storage business. He also is chief executive of rocket builder Space Exploration Technologies, or SpaceX, and the profusion of leadership roles has concerned some investors that he is spread too thin.

The West L.A. tunnel is the latest project Boring has undertaken after quietly digging a slightly shorter tunnel underneath tiny neighboring municipality of Hawthorne, where SpaceX and Boring are both headquartered.

Reporting by Steve Gorman; Editing by Peter Cooney

Amazon cuts Whole Foods prices for Prime members in new grocery showdown

(Reuters) – Amazon.com Inc and Whole Foods Market are making a surgical strike in the already brutal grocery price war.

FILE PICTURE – The logo of the web service Amazon is pictured in this June 8, 2017 illustration photo. REUTERS/Carlos Jasso/Illustration/File Photo

On Wednesday, Whole Foods debuted a much-anticipated loyalty program that offers special discounts to Prime customers, including 10 percent off hundreds of sale items and rotating weekly specials such as $10 per pound off wild-caught halibut steaks.

Those perks are available now in Florida and will roll out to all other stores starting this summer. Amazon previously announced free two-hour delivery from Whole Foods stores for members of Prime, its subscription club with fast shipping and video streaming.

The new loyalty strategy will test whether Amazon’s $13.7 billion deal for Whole Foods brings much-feared disruption and an intensified price war to the $800 billion U.S. grocery industry dominated by Walmart Inc and Kroger Co.

Whole Foods, with 463 U.S. stores and roughly 1 percent share of the fragmented U.S. grocery market, has gained momentum since the Amazon merger last summer, Whole Foods co-founder and Chief Executive John Mackey told Reuters.

Closely watched basket size – the number of items purchased per transaction – has grown since the merger, said Mackey. He declined to offer specifics.

Mackey is betting on Prime to convince shoppers wary of its “Whole Paycheck” reputation that it is an affordable option for more of their purchases.

The new perks could make Whole Foods cheaper than conventional grocers for about 8 million of its customers who already subscribe to Amazon Prime, according to Morgan Stanley analysts.

Prime members scan an app or input their phone numbers at checkout to receive the discounts.

Still, Philadelphia-area Whole Foods shopper and Prime member Heather Kincade, 46, is going to need convincing.

While Whole Foods’ prices on staples like rotisserie chicken, bananas and avocados have come down, she still thinks some every day items are prohibitively expensive. “If I start buying dish soap and other things there, I will have hit the big time,” she said.

LOWER MARGINS

In Amazon, Whole Foods has found an owner that is famously comfortable spending away profits on new businesses or on lower prices.

“Given how important it is for Amazon to provide value for their customers, and customers value lower prices, I would think they’d be comfortable operating Whole Foods at a lower margin while experimenting with the operating model,” said Tom Furphy, former vice president of consumables and AmazonFresh, and now chief executive of Consumer Equity Partners.

Mackey said more rounds of cuts are in the cards.

“Whole Foods is going to become more and more and more competitive,” said Mackey, who declined to detail how much of a haircut its suppliers will take.

Hain Celestial Group, one of Whole Foods’ biggest suppliers, says a lower profit margin may be worth it.

“I never mind giving up margin for growth,” Hain CEO Irwin Simon told Reuters.

Small grocers, who still control a hefty portion of U.S. sales, typically have razor-thin margins. They are under increasing pressure as German discounters Aldi and Lidl lower prices, too.

Walmart said it will keep offering everyday low prices to all shoppers at its more than 5,000 U.S. stores.

Kroger Co, the largest U.S. supermarket operator with roughly 2,800 stores, uses shopper data to personalize loyalty discounts.

CEO Rodney McMullen told Reuters earlier this month that the chain’s prices will “absolutely” be lower than Whole Foods on the typical shopper’s basket of about 50 items per week.

“It’s easy to beat somebody on four or five items,” said McMullen.

Kroger tested an annual grocery delivery subscription but tabled it due to insufficient demand, he added.

Reporting by Lisa Baertlein in Los Angeles and Jeffrey Dastin in San Francisco; Editing by Greg Mitchell

Bank Of America: Don't Let $30 Slip Away

The financials including Bank of America (BAC) have recently paused after a strong rally in the prior 18 months. A consolidation for the stock can be healthy and offers another opportunity to own the large financial as the regulatory environment continues to improve.

Source: Bank of America website

Operating Leverage Is Key

The market likes to stress out over the interest rate impact on financials and whether the economic activity will drive loan growth, but the goal of an established business should be on simple financial math: Revenues growing faster than expenses.

Over the last few years, BoA has done an exceptional job of generating leverage in the system. Watching sales fall, but pushing expenses down lower or generating revenue growth while still barely cutting expenses. The resulting impact is that the large financial generates leverage each and every quarter due to the current ability of the bank to control costs regardless of the revenue landscape. BoA has achieved at least 5% operating leverage in all but three quarters over the three years.

Source: Bank of America Q1’18 presentation

In a lot of ways, this scenario is better than growing at any cost while expenses soar just as fast. Clearly though, it doesn’t hurt that BoA is positioned for the rising rate environment. A forecast of a $3 billion benefit over the next year on a 100 basis point shift up in rates is nice, but the bank is still getting higher net interest income from higher deposits and not a higher yield.

Source: Bank of America Q1’18 presentation

The bigger key remains a management group able to manage the rate environment and mirror that with the cost structure to improve leverage in the system.

Decent Valuation

This discussion leads to why not own a financial with those impressive results trading at a meager 10x EPS estimates. The trend remains one’s friend in this scenario with the stock near $30.

The combination of a cheap stock and billions of cash flow generation on a quarterly basis allows for a compelling capital return program that will help boost the EPS in the future on top of the operating leverage boost. The large financial has closed the gap with JPMorgan Chase (JPM) and Wells Fargo (WFC) in the last year. The net payout yield that combines the dividend yield and net stock buyback yield is now virtually equal to that of the other large financials.

Chart

BAC Net Common Payout Yield (TTM) data by YCharts

The bank continues to ramp up capital returns, having returned $6.1 billion to shareholders in Q1 alone, a rate that would offer a 7.8% annualized net payout yield. A prime reason to close this gap is that BoA still trades at a discount to Wells Fargo that remains on the radar of regulators due to fraud issues.

Chart

BAC Price to Tangible Book Value data by YCharts

The general financial sector should get a boost from the Attorney General of New York stepping down. AG Eric Schneiderman led the charge on pushing for tougher fraud settlements with large banks over illegal foreclosure practices stemming from the financial crisis after taking over the position in 2010.

A replacement has to be more friendly to large financials based in New York now that the financial crisis is a decade old and the narrative has changed.

Takeaway

The key investor takeaway is that BoA remains a bargain despite the large rally since mid-2016. The large financial has sold off from the recent highs near $35 providing an opportunity to own the stock following consolidation and still trading at reasonable valuations and a discount to peers.

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.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

What your provider won’t tell you about cloud security

Everyone loves insider tips. In the case of cloud computing, the tips that matter are mostly about cloud security approaches and technology.

Here are three cloud security tips that your cloud provider won’t want to tell you. But I will.

Tip 1: Cloud security should be decoupled from specific cloud providers

While the cloud-native security services are handy and work well, you limit yourself when your security services come from a single provider.

It’s a multicloud world, and security needs to rise above the cloud providers you use now or in the future. If you use cloud-native security services from each provider, you’ll have security around a single cloud instance, but you won’t get holistic cloud security. That means your security services will be much more complex, which increases cost and the risk of a gap or that a cloud security service will fail.

The Top 5 Tech Products Moms Want for Mother’s Day

With Mother’s Day right around the corner, children everywhere are trying to figure out what to buy mom. And this year, tech products might sit towards the top of the list.

The Consumer Technology Association (CTA) this week released the results of a survey that found 20% of moms are hoping to get a tech device for Mother’s Day. According to the organization, which represents the consumer technology industry, 93% of mothers want a device in the “non-emerging” tech category and 76% want something in the “emerging” category. Non-emerging technology are products that have been around for quite some time, like smartphones. Emerging technology includes newer products, like voice-activated smart speakers.

But what tech gifts might moms want more than any other?

Here’s a list of the top five most-wanted tech gifts based on the CTA’s data. And we’ve even included some options for each category:

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5. Headphones

Headphones are among the most sought-after gifts for moms this year. Of course, you can pick up both wired or wireless headphones, but wireless might be a better bet. If you’re looking for a nice pair, consider Apple’s AirPods. If you don’t mind spending a bit more, pick up the Beats Studio3.

4. Tablet

In the world of tablets, there’s the iPad and then every other option. If mom wants a tablet this year, choose between the iPad Mini, iPad, or iPad Pro. She’ll love any of them.

3. Wearable

Wearables come in all shapes and sizes and can be categorized generally as full-on smartwatches that can double as a smartphone and health trackers. If mom wants a smartwatch, the Apple Watch is a nice option. You can also find a variety of Android-based options over on Google’s website.

If it’s a health tracker mom wants, Fitbit is the brand for you.

2. Notebook

The notebook market is filled with outstanding devices from Dell, HP, Lenovo, Samsung, and Apple. Before you buy one, ask mom what size screen she’ll want and what she plans to do with it. Also ask her if she’d prefer a traditional notebook with a clamshell design or would rather have a convertible that can be used both as a notebook and tablet.

I’m a long-time Apple MacBook user, but I’ve tested a variety of notebooks and convertibles from Dell, HP, Lenovo, and others. And as long as they’re running Windows 10, they all work well.

1. Smartphone

The sheer number of smartphones with great designs and powerful components might surprise you. But if you’re looking to get mom the very best smartphone available, you really only need to focus on devices from two companies: Apple and Samsung.

On the Apple side, consider an iPhone 8, iPhone 8 Plus, or iPhone X, depending on how much you want to spend and how big of a screen mom wants. A Samsung Galaxy S9 or Galaxy S9+ would also be an outstanding option on the Android side.

U.S. drone program taps Apple, passes over Amazon, China's DJI

WASHINGTON/SAN FRANCISCO (Reuters) – Apple Inc soon will be capturing images of North Carolina by drone; a 1,500-pound, unmanned aircraft will look for mosquitoes in Florida; and startup Flirtey will fly medical equipment on drones to heart-attack victims in Nevada.

The projects are among 10 announced by the U.S. Transportation Department on Wednesday that will help it assess how to regulate drones and integrate them safely into U.S. air space. The United States has lagged other countries in experimentation with drones, something the program hopes to correct.

Missing from the projects are Amazon.com Inc, the world’s largest online retailer, and China’s DJI, the world’s largest maker of non-military drones. About a dozen applications that included DJI were rejected. An application that would have seen Amazon deliver goods by drone to shoppers in New York City was also declined, a person familiar with the matter said.

Among the winners were microchip maker Intel Corp, plane maker Airbus SE, ride services company Uber Technologies Inc [UBER.UL], delivery company FedEx Corp and software maker Microsoft Corp.

The contest drew 149 bids from locales looking to host flights at night, flights over people and other drone operations that U.S. rules prohibit. The applicants listed companies they would partner with in the experiments, and the winners may have a head start at the billions of dollars and tens of thousands of jobs the young industry expects to create.

U.S. Transportation Secretary Elaine Chao said dozens more projects could be approved in coming months, either with new waivers or under existing rules. Asked about Amazon’s absence, Deputy Transportation Secretary Jeff Rosen cited a rigorous process and said there were “no losers.”

The wide interest in the U.S. initiative, launched by President Donald Trump last year, underscores the desire of a broad range of companies to have a say in how the fledgling industry is regulated and ultimately win authority to operate drones for purposes ranging from package delivery to crop inspection.

FLYING BURGERS

One clear winner was Nevada-based Flirtey, a drone delivery startup. It said it was a partner on four of the winning applications and expects the U.S. Federal Aviation Administration programs to jump-start growth.

“This gives it the ability to move into any geography in the United States and move out of test mode into full operation,” said Mark Siegel, a partner at Menlo Ventures, an investor in Flirtey.

The startup will have to hire more people, ramp up its testing and add more features to its drones — all of which will require more money, and Flirtey will complete another financing round this year, Siegel said.

FILE PHOTO: Intel CEO Brian Krzanich talks about the new Yuneec Typhoon H drone, which he said was the first consumer drone equipped with Intel’s RealSense sense and avoid technology, during his keynote address at the Consumer Electronics Show in Las Vegas, U.S., January 5, 2016. REUTERS/Rick Wilking/File Photo

AirMap, an airspace management company for drones, said it was on six winning applications.

Winner Virginia Tech said that Alphabet’s Project Wing, AT&T Inc, Intel, Airbus and Dominion Energy Inc are among the partners for its pilot program that will explore emergency management, package delivery and infrastructure inspection.

Despite being sidelined for now, Amazon and China’s SZ DJI Technology Co Ltd both offered support for the program. DJI’s widely used products may play a role in some projects, even if the company does not formally take part.

Amazon, which has worked with the FAA on policy as it has tested drone technology around the world, said the fate of its applications was unfortunate, but it was focused on developing safe operations for drones.

Uber is working on air-taxi technology and will deliver food by drone in San Diego, California.

“We need flying burgers,” Chief Executive Officer Dara Khosrowshahi joked at a conference.

FedEx will use drones to inspect aircraft at its hub in Tennessee, as well as for aircraft parts shipments and some package deliveries between the airport and other Memphis locations, Memphis Airport Authority Chief Executive Scott Brockman told Reuters. General Electric Co is also a partner, he said.

The FAA has said regulations are necessary to protect the public and the National Airspace System from bad actors or errant hobbyists. Several incidents around major airports have involved drones getting close to aircraft.

Earlier, the agency confirmed it had sent two planned rules to the White House to regulate the increased use of unmanned aerial vehicles.

FILE PHOTO: An Amazon Prime Air Flying Drone is displayed during the ‘Drones: Is the Sky the Limit?’ exhibition at the Intrepid Sea, Air & Space Museum in New York City, U.S., May 9, 2017. REUTERS/Brendan McDermid/File Photo

One would allow drones to fly over people while another proposal submitted would allow for remote identification and tracking of unmanned aircraft in flight. After both are formally proposed, it could take months before they are finalized.

Reporting by David Shepardson and Jeffrey Dastin; Additional reporting by Stephen Nellis and Heather Somerville; Editing by Peter Henderson and Lisa Shumaker

Tencent's WeDoctor raises $500 million, values firm at $5.5 billion pre-IPO

SHANGHAI (Reuters) – Chinese online healthcare solutions platform WeDoctor, which is backed by tech giant Tencent Holdings Ltd (0700.HK), said on Wednesday it had raised $500 million from several investors, valuing the firm at $5.5 billion ahead of a listing this year.

The investment round was led by AIA Company Ltd, part of Hong Kong-listed insurer AIA Group Ltd (1299.HK), and infrastructure and services group NWS Holdings Ltd (0659.HK).

WeDoctor is among a spate of technology-driven firms looking to shake up China’s overburdened public healthcare market, with increasingly affluent consumers willing to pay for ways to get more convenient access to doctors and health services.

Founded in 2010, WeDoctor provides diagnosis and online appointment booking, an issue in China where patients often queue outside hospitals from early morning to get an appointment. Users can also consult doctors via the platform.

The pre-IPO fund raising comes after rival Ping An Good Doctor, formally known as Ping An Healthcare and Technology Co Ltd (1833.HK), raised $1.1 billion in an IPO this month but saw its shares tumble soon after as investors worried about its high valuation.

The firm said it would use the funds to accelerate its expansion plans, helping it better tap into the country’s “flourishing and enormous market”.

AIA said it had made a “minority equity investment” in WeDoctor and had an agreement to be its “preferred provider” of life and health insurance, a boost as insurers race to tap into China’s life insurance market, the world’s third largest.

Chinese healthcare spending is set to hit $1 trillion by 2020, up from $357 billion in 2011, according to consultancy McKinsey & Co, with private healthcare providers and insurers looking to take a larger slice of the market.

WeDoctor, which has four main units focused on healthcare, cloud, insurance and pharmaceuticals, said it has on its platform over 2,700 hospitals, 220,000 doctors, 15,000 pharmacies and 27 million monthly active users.

Deutsche Bank advised AIA and WeDoctor on the transaction.

Reporting by Adam Jourdan; Additional reporting by Sumeet Chatterjee; Editing by Edwina Gibbs and Kim Coghill

Chinese-American Elites Lament a Brewing Trade War

It’s not easy to promote closer US-China ties these days. The countries are moving toward a trade war; a US delegation left Beijing Friday reporting little progress on resolving disputes. US executives accuse China of stealing their intellectual property. The US government is imposing ever tighter restrictions on Chinese telecommunications firms.

That made an uncomfortable backdrop for the annual conference of the Committee of 100, a group of influential Chinese-Americans, in Silicon Valley over the weekend. The group billed the event as a “Bridge Between the US and China.” But speakers and attendees lamented deteriorating relations, heaped scorn on the Trump administration, and expressed concern that nativism could lead to discrimination against Chinese-Americans.

“It does not take a very stable genius to understand that the US relationship with China is now under severe stress,” Chas Freeman, a senior fellow at Brown University’s Watson Institute, told several hundred guests. In 1972, Freeman was an interpreter for President Nixon during his first visit to China. More than four decades later, Freeman noted the growing hostility between the leaders of the world’s two largest economies, even as their nations remain interdependent. “The US and China are each too globalized, too successful, and entangled to divorce,” he said.

Freeman and others said Trump administration policies risk weakening the US or exacerbating tensions between the countries. The tax cut approved by Congress last year will lead the government to issue more debt, much of which will be bought by the Chinese, he said. Blocking Chinese telecom company ZTE from buying US-made components could backfire by encouraging China to buttress its domestic suppliers; those firms could eventually displace US components in other products.

Not all the blame went toward Washington. Susan Shirk, chair of the 21st Century China Center at the University of California, San Diego, said China is engaged in a “massive government-organized and lavishly funded drive to acquire foreign technology to make itself into a high-tech superpower.” After decades of movement toward a market-based economy, Shirk said the Chinese government is increasing its involvement in the economy, and re-emphasizing its socialist ideology. “What’s happening in China is not your normal industrial policy,” Shirk said. “These are efforts to reduce integration with the rest of the global economy.”

Shirk said executives and political leaders in other developed economies share concerns about China’s path. “This is a much broader and deeper concern than just Trump,” she said. Gary Locke, a former US ambassador to China, echoed that sentiment, saying China limits foreign ownership of Chinese businesses, prodding many US firms into uncomfortable joint ventures with Chinese companies that are, or could be, rivals.

Technology executives find the growing tensions unsettling. “As a tech person, I love to think that technology has no boundaries,” said Paul Yeh, who runs a Palo Alto, California venture capital fund that invests in both the US and China. But Yeh said he’s not naive, and thinks the tech industry ultimately will suffer from the hostility. One potential warning sign: Three-fourths of respondents to a recent survey by the American Chamber of Commerce in China said foreign businesses are less welcome in China than previously.

Beneath the rhetoric, China has emerged as a legitimate tech power. Locke, the former ambassador, noted that Chinese inventors filed more patents than those from any other nation last year, and the country is home to the world’s fastest supercomputer. China has been particularly aggressive in artificial intelligence, with a national goal to catch the US by 2020. China’s SenseTime, which makes image-analysis software, is now the world’s most valuable AI startup.

Fei-Fei Li, Google’s chief scientist for artificial intelligence and machine learning, offered a more personal perspective on the rivalry between the two countries. Li was born in China and came to the US during high school. She earned a bachelor’s degree in physics before moving into computer science and ultimately, AI. She noted that the discoveries that revolutionized physics in the early 20th century came from scientists in several countries. “No company or country owned modern physics,” she said, drawing a parallel to artificial intelligence. “We all benefit.”

In some areas, the two countries are so interconnected that it’s hard to distinguish what is American and what is Chinese. Several startups pursuing self-driving technology include people from both countries and technology from both countries, said Jonathan Woetzel, the Asia-based director of the McKinsey Global Institute. “Business is what happens while politicians are talking,” he said.

Rising Tension

How to secure SaaS: Understanding the cloud’s security layers

When you address security in the cloud for your enterprise use, you need to think of it in several layers:

  • Layer 0 is the primary IaaS cloud on which everything else runs; typically, Amazon Web Services, Microsoft Azure, Google Cloud Platform, IBM Cloud, or Alibaba.
  • Layer 1 is the SaaS provider for your applications and servers. The SaaS offerings typically run on (someone else’s) Layer 0 provider, or come from a Layer 0 provider that also offers SaaS. Your own cloud-delivered apps are in this layer as well.
  • Layer 2 is the specific application and its user.

What can be confusing is understanding what layers reside where. For example, there are more than 3,000 SaaS providers out there—CRM and accounting systems, health care portals, bail-bond management, you name it—that run on someone else’s IaaS cloud, such as AWS. You often won’t know what IaaS Layer 0 providers they use, or if they use several.

Furthernore, within the SaaS Layer 1, SaaS providers group users into “macrotenants,” which typically typically are composed of users (more importantly, departments) from the same enterprise customer. 

Then there’s the user in Layer 2, who has credentials to specific applications and services and is using computers, browsers, and network typically not managed by either the IaaS or SaaS provider. In other words, Layer 0 is within the IaaS provider’s cotrol, and Layer 1 is within the SaaS provider’s control. Layer 2 is not.

Using a private cloud? Admit your error and go public instead

Amazon Web Services has announced that Oath, the former Yahoo, has selected AWS as its preferred public cloud provider. Sounds like another routine “win” announcement from a cloud vendor, doesn’t it? But this one is far from routine.

Just last year, InfoWorld’s editor in chief, Eric Knorr, wrote about Yahoo’s grand plans to create a giant private cloud. Not even a year later, Yahoo (now Oath) has switched gears and is moving to the public cloud instead.

Why changing its cloud course was a very smart decision for Oath

This reversal is smart. Other companies with their own private clouds have dug in their heels, and I suspect they will wait until the market makes a decision for them. At least Oath is being proactive after clearly seeing the writing on the wall around private clouds. (Ironically, Oath’s owner, Verizon, once had ambitions of being a major cloud provider itself. It too correctly read the tea leaves and abandoned those plans.)

Proactive enterprises are shutting down their private clouds and migrating to the main public cloud providers: AWS, Microsoft, Google, and Alibaba.

Apple surprises with solid iPhone sales, announces $100 billion buyback

(Reuters) – Apple Inc on Tuesday reported resilient iPhone sales in the face of waning global demand and promised $100 billion in additional stock buybacks, reassuring investors that its decade-old smartphone invention had life in it yet.

Apple’s quarterly results topped Wall Street forecasts, which dropped ahead of the report on growing concern over the iPhone. The Cupertino, California-based company also was more optimistic about the current quarter than most financial analysts, driving shares up 3.6 percent to $175.25 after hours.

Suppliers around the globe had warned of smartphone weakness, playing into fears that the company known for popularizing personal computers, tablets and smartphones had become too reliant on the iPhone.

Sales of 52.2 million iPhones against a Wall Street target of 52.3 million was a comfort and up from 50.7 million last year, according to data from Thomson Reuters I/B/E/S.

Apple bought $23.5 billion of stock in the March quarter, and said it planned to hike its dividend 16 percent, compared with a 10.5 percent increase last year. Analysts believe the heavy emphasis on buybacks will bolster share prices, but some investors wished Apple had found different uses for the cash.

“I’d hoped for more on the dividend side or maybe a strategic investment,” said Hal Eddins, chief economist for Apple shareholder Capital Investment Counsel. “I assume Apple can’t find a strategic investment at the current prices that will move the needle for them. The $100 billion buyback is good for right now but it’s not exactly looking to the future.”

The cash Apple earmarked for stock buybacks is about twice the $50 billion market capitalization of electric car maker Tesla Inc.

Apple posted revenue for its March quarter of $61.1 billion, up from $52.9 billion last year. Wall Street expected $60.8 billion, according to Thomson Reuters I/B/E/S.

Average selling prices for iPhones were $728, compared with Wall Street expectations of $742. The figure is up more than 10 percent from $655 a year ago, suggesting Apple’s iPhone X, which starts at $999, has helped boost prices.

Analysts had feared the high price was muting demand for the iPhone X, but Apple Chief Executive Tim Cook said it was the most popular iPhone model every week in the March quarter.

“This is the first cycle that we’ve ever had where the top of the line iPhone model has also been the most popular,” Cook said during the company’s earnings call.

“It’s one of those things like when a team wins the Super Bowl, maybe you want them to win by a few more points. But it’s a Super Bowl winner and that’s how we feel about it.”

The iPhone X has shaped up to be “a good, not a great product. There was a time prior to its introduction that investors expected it to be a great product,” said Thomas Forte, an analyst with D.A. Davidson Companies.

“Now that we know it is a good product, as investors have lowered expectations, that is enough, in my view, for shares to go higher from current levels.”

Positive iPhone news boosted shares of chip suppliers.

Skyworks Solutions Inc rose 2.9 percent, Broadcom Inc was up 2 percent, while Cirrus Logic gained 4.3 percent.

Apple also predicted revenue of $51.5 billion to $53.5 billion in the June quarter, ahead of the $51.6 billion Wall Street expected as of Monday evening, and the share repurchases in the March quarter drove Apple’s cash net of debt down slightly to $145 billion.

“We are returning the cash to investors as we have promised,” Chief Financial Officer Luca Maestri told Reuters in an interview.

Silhouette of mobile user is seen next to a screen projection of Apple logo in this picture illustration taken March 28, 2018. REUTERS/Dado Ruvic/Illustration

Profits were $2.73 per share versus expectations of $2.68 per share, as of Monday, and up from $2.10 a year ago.

Apple’s services business, which includes Apple Music, the App Store and iCloud, posted $9.1 billion in revenue compared with expectations of $8.3 billion. Heading into earnings, investors were hopeful that growth in that segment could help offset the cooling global smartphone market.

Julie Ask, an analyst with Forrester, said Apple’s services segment results were positive but warned that Apple needed to continue to boost subscriptions on its platforms, which reached 270 million users in the March quarter and includes people who subscribe to third-party apps on the iPhone as well as Apple’s own services like iCloud.

“Apps are carrying most (services revenue) right now, but Apple needs to get to a place where it’s mostly subscriptions and monthly fees and not just one-off downloads,” Ask said.

Apple traditionally updates its share buyback and dividend program each spring, and the $100 billion it added this year compares with an increase of $50 billion last year. (Graphic: Apple Buys Back Shares – reut.rs/2JIjkgo)

In February, Apple said it planned to draw down its excess cash, although Cook had downplayed the possibility of a special dividend.

But investors have had concerns around Apple because of brewing trade tensions with China.

Greater China sales rose 21 percent from a year earlier, Apple’s best growth rate there in 10 quarters, to $13.0 billion. While there has not yet been a tariff on devices such as Apple’s iPhone, Cook traveled last week to Washington to meet with U.S. President Donald Trump at the White House to discuss trade matters.

“China only wins if the U.S. wins and the U.S. only wins if China wins,” Cook said on the call, when asked about a possible trade war. “I’m a big believer that the two countries together can both win and grow the pie, not just allocate it differently,” he said.

FILE PHOTO: Apple iPhone X samples are displayed during a product launch event in Cupertino, California, U.S. September 12, 2017. REUTERS/Stephen Lam/File Photo

Apple has been emphasizing its contributions to the U.S. economy in recent months, outlining a $30 billion U.S. spending plan and highlighting the tens of billions of dollars it spends each year with U.S.-based suppliers.

In recent months, Apple has been emphasizing the size of its overall user base, which includes used iPhones, rather than focusing strictly on new device sales, a sign of the increasing importance of making money off users without selling them new hardware.

Reporting by Stephen Nellis in San Francisco; Editing by Peter Henderson, Lisa Shumaker and Peter Cooney

How Creative Marketers Use Artificial Intelligence to Deliver a Better Experience

We are in the midst of an AI arms race. Amazon, Facebook, Google, IBM and Microsoft have all have made significant investments in artificial intelligence. The world of marketing has also changed rapidly–with AI and machine learning now offering brands a plethora of ways to tailor campaigns and deliver content and experiences based on consumer intent in the moment.

According to Fjuri CEO Thom Gruhler, former CMO of Microsoft Windows, the companies that are the most successful today obsess over product and customer experience.

“Winning as a marketer today takes both art and science,” shares Gruhler. “With AI, marketers now have an opportunity to deliver smarter content and experiences in the moment.”

Here are three ways brands and marketers can leverage AI to improve customer experience:

1. Understanding the customer journey through AI.

According to a recent study by Adobe, consumers spend nearly eight hours per day consuming digital content across multiple devices.

“By tapping into real-time location data, coupled with AI and machine learning, marketers can now spot patterns to better understand the consumer’s mindset, and where, when and how to reach them most effectively,” said Ben Billups, CEO of Billups, a leading Out-of -home advertising agency.

2. Personalizing content at scale.

There is incredible potential to make the work of creating content more efficient through the use of natural-language processing and AI. In fact, Gartner estimates 20 percent of all business content this year will be authored by machines.  

AI can take the process of making creative decisions from long and painstaking, to near instantaneous. What’s more, artificial intelligence can also help create more relevant and personalized experiences for customers in real time.

“With AI and machine learning, marketers are able to design experiences and more effectively experiment at scale,” says Fjuri CEO Thom Gruhler.” “You can now pull real-time experience data and use it to develop and deliver the best creative concept, image or content to the consumer in the moment.”

3. Boost content performance with AI.

Today’s marketers need to take an omni-channel approach to understanding the customer journey, from start to finish, including which content formats, platforms and channels will get your content in front of the right customer at just the right moment.

Ultimately, you want to provide a fully custom tailored solution down to the individual level. The challenge, however, is the shear amount of data marketers collect every day.

Olly Downs, Founder and Chief Scientist at AI Marketing company, Amplero says marketers are overwhelmed by the task of testing and optimizing millions of possible customer interactions.

“We currently make 24 billion marketing decisions a week, helping large consumer brands to get the right message to the right customer at the right time,” said Downs. “For example, we’ve been able to help Sprint reduce the number of messages they send to their customers, while improving their base marketing return by 6.5 times in a 10-month period.”

The future of AI may yet be uncertain, but smart marketers are already finding creative ways to tap into its potential. From improving your understanding of the customer, to enhancing and personalizing the customer experiences with your brand, the possibilities with AI are endless. Whatever happens with AI, one thing is certain: companies and marketers that don’t embrace it now could miss out on an important strategic advantage and risk losing their competitive market edge for the future.  

Outrage breaks out after Whole Foods partners with Yellow Fever eatery

LOS ANGELES (Reuters) – Amazon.com’s Whole Foods Market sparked social media outrage after its newest store in its 365 grocery chain partnered with an Asian restaurant with the racially charged name of Yellow Fever.

A Whole Foods Market store is seen in Santa Monica, California, U.S. March 19, 2018. REUTERS/Lucy Nicholson

The independently owned and operated eatery – whose name is taken from the slang term for a white man’s sexual attraction to Asian women – is located in the 365 store that opened in Long Beach, California, on Wednesday.

“An Asian ‘bowl’ resto called YELLOW FEVER in the middle of whitest Whole Foods — is this taking back of a racist image or colonized mind?” Columbia University professor and author Marie Myung-Ok Lee, wrote on Twitter.

Whole Foods, which has eight stores in its 365 chain that was launched with a no-frills concept to win over millennials, declined comment.

“Yellow Fever celebrates all things Asian: the food, the culture and the people and our menu reflects that featuring cuisine from Korea, Japan, China, Vietnam, Thailand and Hawaii,” said Kelly Kim, executive chef and co-founder of Yellow Fever, which also operates two Los Angeles-area restaurants.

“We have been a proud Asian, female-owned business since our founding over four and a half years ago in Torrance, California.”

Kim, who is Korean-American, in previous interviews said she was aware that the name choice would be attention-getting and controversial.

“One night, we just said ‘Yellow Fever!’ and it worked. It’s tongue-in-cheek, kind of shocking, and it’s not exclusive — you can fit all Asian cultures under one roof with a name like this. We just decided to go for it,” Kim told Asian American news site NextShark six months ago.

A year ago she told the Argonaut, a local Los Angeles news outlet, that Yellow Fever means “love of all things Asian” and that public push back over the name had not been as drastic as expected.

Some people on social media defended the news of the partnership with Whole Foods as part of a broader cultural trend.

“This is no more offensive than @abc naming an Asian sitcom Fresh of the Boat or FOB- which is considered racists [sic],” wrote Lorin Hart, who uses the Twitter handle @CubeProMH.

Reporting by Lisa Baertlein in Los Angeles; Editing by Marguerita Choy

Amazon delivers dazzling profits, as well as $20 Prime hike and NFL games

(Reuters) – Amazon.com Inc (AMZN.O) more than doubled its profit on Thursday and predicted strong spring results as the world’s biggest online retailer raised the price for U.S. Prime subscribers, added U.S. football games and touted its cloud services for business.

The results showed the broad strength of the company, which has been expanding far beyond shipping packages, the business that has drawn the ire of U.S. President Donald Trump.

The forecast beat expectations on Wall Street, sending shares up 7 percent to a new record high in after-hours trade and adding $8 billion to the net worth of Jeff Bezos, Amazon’s chief executive and largest shareholder.

Seattle-based Amazon is winning business from older, big box rivals by delivering virtually any product to customers at a low cost, and at times faster than it takes to buy goods from a physical store. It is expanding across industries, too, striking a $130 million deal to stream Thursday night games for the U.S. National Football League online and working to ship groceries to doorsteps from Whole Foods stores nationwide.

Sales jumped 43 percent to $51.0 billion in the quarter, topping estimates of $49.8 billion, according to Thomson Reuters I/B/E/S. (Graphic: tmsnrt.rs/24gibla)

Amazon’s fast ascent has made it a lightning rod for the ire of Trump. Bezos privately owns the Washington Post, which Trump has described as Amazon’s “chief lobbyist.” Bezos has no involvement in news coverage, the paper’s top editor has said. Trump has also claimed without evidence that Amazon is costing the U.S. Postal Service money and ordered a task force to investigate.

Success is “the best revenge that Bezos can get against the administration for its veiled threats about sales taxes and not paying its fair share,” said Wedbush Securities analyst Michael Pachter.

Prime, Amazon’s loyalty club that includes fast shipping, video streaming and other benefits, has been key to Amazon’s strategy. Its more than 100 million members globally spend above average on Amazon.

The company announced Thursday it will increase the yearly price of Prime to $119 from $99 for U.S. members this spring. The fee hike is expected to add a windfall to Amazon’s subscription revenue, already up 60 percent in the first quarter at $3.1 billion.

“We do feel it’s still the best deal in retail,” Brian Olsavsky, Amazon’s chief financial officer, said on a call with analysts. He said the number of items Prime members can get within two days had grown fivefold since the last price increase four years ago.

Despite the surge in shopping, Olsavsky gave credit for Amazon’s $1.6 billion profit last quarter to two younger businesses: advertising and Amazon Web Services.

Revenue from third-party sellers paying to promote their products on Amazon.com was an unusually large bright spot during the quarter, with sales in the category, which includes some other items, growing 139 percent to $2.03 billion. This included $560 million from an accounting change.

FILE PHOTO: The logo of Amazon is pictured inside the company’s office in Bengaluru, India, April 20, 2018. REUTERS/Abhishek N. Chinnappa/File Photo

“Advertising is an important and very profitable bucket of revenue for Amazon and is also growing at a fast rate,” said D.A. Davidson analyst Tom Forte. “They are just getting started here.”

Amazon said it expects operating profit this quarter between $1.1 billion and $1.9 billion, up from $628 million a year earlier. Analysts were expecting $1.01 billion, according to analytics firm FactSet.

SPENDING ON VIDEO, INTERNATIONALLY

Amazon Web Services (AWS), which handles data and computing for large enterprises in the cloud, won new business and saw its profit margin expand. It posted a 49 percent rise in sales from a year earlier to $5.44 billion, beating estimates.

Amazon remains the biggest in the space by revenue, and its stock trades at a significant premium to cloud-computing rival Microsoft Corp (MSFT.O).

Amazon’s shares have also outperformed the S&P 500 .SPX, rising 30 percent this year as of Thursday’s market close, compared with the S&P’s less than 1 percent decline.

Notorious for running on a low profit margin, Amazon has still reaped rewards for shareholders as it has bet on new services like voice-controlled computing and has expanded across continents and industries.

Global headcount was up 60 percent from a year earlier at 563,100 full-time and part-time employees, thanks to a hiring spree and an influx of workers from Whole Foods Market.

The company plans to increase its video content spending this year, Amazon’s Olsavsky said, with a prequel to “The Lord of the Rings” in the works. The third quarter will also see extra spending to prepare for the busy holiday season.

Amazon is working with JPMorgan Chase & Co (JPM.N) and Berkshire Hathaway Inc (BRKa.N) to determine how to cut health costs for hundreds of thousands of their employees.

And it is expanding its retail footprint outside the United States, particularly in India. Amazon’s international operating loss grew 29 percent to $622 million in the first quarter.

Reporting by Jeffrey Dastin in San Francisco and Arjun Panchadar in Bengaluru; Editing by Peter Henderson and Lisa Shumaker

Microsoft Becomes Second Most Valuable Company For First Time Since 2015

Microsoft may not be a favorite in the race to a becoming the country’s first trillion-dollar public company. But recently, after its younger tech peers whizzed past in valuation, Microsoft has become the second most valuable firm—albeit intermittently—for the first time since 2015.

On Tuesday, Microsoft was valued at $714 billion, about $3 billion above Alphabet and Amazon. Only Apple, valued at $838 billion, is higher.

Microsoft had briefly ascended to No. 2 on April 12 and then again on April 16. But it hasn’t been able to maintain its position for long.

On Tuesday, amid worries about higher U.S. Treasury yields and disappointing earnings by other companies that sent the S&P 500 down1.3%, Microsoft rose to No. 2 by virtue of its shares falling less—2.3%—than those of its rivals.

Shares in Google parent company Alphabet closed down nearly 5% on Tuesday, amid concerns about the earnings it reported a day earlier. Meanwhile shares of e-commerce giant Amazon sank 3.8%.

Investors are concerned that tech company earnings over the next couple of weeks will fail to meet lofty expectations. Tech firms were among the best performers of 2017, but they have hit a wall this year as investors rethink their enthusiasm.

Microsoft’s stock has gained momentum under CEO Satya Nadella, who has beefed up the company’s corporate-focused business. The uptick harkens back to a time when the software giant was the most valuable company. At the height of the dot-com boom in 2000, Microsoft was valued at $533.4 billion—about $777 billion in today’s dollars—followed by firms like Cisco Systems and General Electric. But when the bubble burst, Microsoft’s shares took a beating.

The distraction of an antitrust lawsuit by the Justice Department along with missed opportunities in search and mobile didn’t help.

Is Amazon Slipping? Uncovering a Dirty Secret About Their Seller Policy (by Accident)

Every month, I have a ‘what I need to re-stock on from Amazon’ day. This month, it was time to replace my water filter, so off to Amazon I went. I searched for ‘water filter’, scanned through the first page of results (because who goes to the second page … seriously) and found what appeared to be a winner. 

Amazon Best Seller: Check

Amazon Prime: Check 

Price Point: Surprisingly low (but how?)

Usually, the lower the price, the happier I am. However, ever since I wrote about price gauging and what seemed to be suspicious Amazon activity, I’ve been particularly interested in exploring anything that raised an eyebrow, even if the price was favorable to a consumer. So, I loaded up on the coffee and got to work. 

It might sound like a conspiracy theory worthy of Chinatown, but don’t break out your tinfoil hats just yet. Look at the Waterdrop water filter. It’s a hot product from an Amazon Top 500 seller, a company called EcoLife Technologies LLC. But, it’s totally going against Amazon’s rules.

The Epic Policy Contradiction

Last year, Amazon added strict requirements for water filters sold on its platform. The e-tailer said it would suppress any item listings that didn’t fulfill its standards. Any suppressed item Fulfilled by Amazon (FBA) was liable to be destroyed or returned at the seller’s expense. 

Each product “must be certified to at least the NSF/ANSI-42 standard (including Material Safety, Structural Integrity, and System Performance).” The key point here is “System Performance.”

Here’s where things get interesting. If you look at the NSF’s website, you’ll find that EcoLife’s products don’t adhere to Amazon’s System Performance standards. As quoted on the NSF’s site:

“Conforms to the material and structural integrity requirements only.”

Does this mean that Amazon is selling us water filters that are underperforming? Not necessarily, no, but I do know that Amazon apparently let this company slip through their filter (pun intended).

Oh, but the fun doesn’t end there. I did a little more research and found some surprising facts. First. EcoLife Technologies LLC is registered in both California and Colorado (the official website says they are in California). 

Okay, not a big deal — but I also found out that EcoLife gets their water filters imported from China through a company called Qingdao Ecopure Filter Co., which produces EcoAqua filters. Further, there’s a UK company called Waterdrop Filters whose website is registered to someone at VYAIR, another manufacturer which sells EcoAqua filters on Amazon.

Hmmm…curious

What’s going on here? Well, it’s a possibility that EcoLife isn’t from the US and is just using the system for their own gain. The NSF site shows that EcoLife has a Nevada area code, a Colorado address, but that the facility is in China. It’s also likely that EcoLife is both the manufacturer and seller as there’s not enough markup to indicate reselling.

Don’t get me wrong. I love Amazon and all its great deals. But I think criticism should be given when it’s due and such curious behavior shouldn’t go unnoticed. It’s not the first time, either. Last year, I chastised Amazon for blaming its algorithm when it allowed sellers to hike up water prices during Hurricane Irma.

Others have criticized the platform for wooing Chinese vendors which produced counterfeit goods. A t-shirt designer named Matthew Snow found that 15-20 sellers in Hong Kong and China were duplicating his products. To fight this, Snow was required to “test buy” all 1,500 counterfeited items and send them, along with his legitimate items, to Amazon for testing – something which would’ve cost him $40,000.

What I’m trying to say is this:

A company as big as Amazon needs to enforce their protocol better. They need to make sure all sellers are playing fair and adhering to the same standards. They can no longer turn a blind eye to such offenses. Both consumers and sellers should be aware of the policy and what is being done to actionably reinforce collective best & fair practice.  

I’ve reached out for an official comment from Amazon and will keep this post updated with their response accordingly.

An American Airlines Passenger Was Stuck Next to a 'Screaming and Kicking' Toddler. His Stunning Reaction Went Viral

Imagine your happy place. Now, imagine that in order to get to your happy place, you first have to sit next to a screaming toddler in economy on American Airlines for a few hours.

(Related: We Took Our 2-Year-Old on United and JetBlue. Here’s What We Learned)

We’ve seen this kind of thing happen a lot lately–with bad results and viral videos. There’s the New York state employee who reportedly yelled at a baby on a Delta flight and lost her job (at least temporarily) as a result. There’s the flight attendant who simply kicked a passenger and a fussy toddler off a plane.

And there’s the guy whose response was to record a video of a screaming child on a flightpost it to YouTube, and bask in the social media notoriety.

But perhaps there’s another way to respond. And a passenger on American Airlines who made that choice recently, went viral himself as a result.

Meet Todd Walker, a father of two who just celebrated 30 years with his employer, and who flies as often as four times a month from Kansas City to North Carolina for work.

He’d boarded an American Airlines flight recently on that route, getting seat 33A toward the back of the plane, only to find that the passengers sitting next to him were a mom named Jessica Rudeen, and her two kids: four-month-old Alexander on her lap, and three-year-old Caroline.  

After some chaos in the boarding area, Rudeen hadn’t had a chance to feed the four-month-old–and he started reacting the way hungry four-year-olds are known to do. Then, her three-year-old daughter changed her mind about the whole idea of flying.

That meant Walker was about to get what we might call, “whole toddler experience.” I’ll let Rudeen herself describe the maelstrom, as she did in a post (embedded at the end of this article):

My 3 year old, who was excited before boarding the plane, lost her nerve and began screaming and kicking, ‘I want to get off the plane! I don’t want to go!’ I honestly thought we’d get kicked off the plane. So with two kids losing their minds, I was desperately trying to calm the situation. 

Walker responded in a way that seemed completely unremarkable to him, he told me in a phone conversation this weekend. He just decided to help. As Rudeen explained further, Walker…

reached for the baby and held him while I forced a seatbelt on Caroline, got her tablet and started her movie. Once she was settled and relatively calmed, he distracted her so that I could feed Alexander. Finally, while we were taxiing, the back of the plane no longer had screams. During the flight, he colored and watched a movie with Caroline, he engaged in conversation and showed her all the things outside.

By the end of the flight, he was Caroline’s best friend. I’m not sure if he caught the kiss she landed on his shoulder while they were looking out the window.

Walker also was on the same connecting flight in Charlotte that Rudeen planned to take. He walked her daughter through the terminal to the new gate, and then asked to have his seat reassigned to he could sit next to the family and help out on the second flight, too.

I talked with both Walker and Rudeen this weekend, after Rudeen’s Instagram/Facebook post–which she originally put up because she hadn’t gotten Walker’s last name or contact information, and wanted to connect with him again–got so much traction. As of this writing it has more than 5,000 shares, and it’s been featured in media around the world.

The Walker and Rudeen families say they think their meeting was a result of divine intervention, and that they plan to meet again next month.

“I wasn’t expecting it to get to places like Brazil or Ireland or Australia or the U.K.,” Rudeen told me. “I’m just a stay-at-home mom in northwest Arkansas. But, I’m glad that it highlights the importance of what it means to be kind.”

Walker said he hadn’t thought his conduct had been a big deal, either, and but he welcomed the attention if it inspires other people to offer help, or to notice kindness around them.

“When I walked away in Wilmington, I never thought I’d hear from or see them again,” he said, reiterating that it hadn’t seemed like a big deal to him to respond to the family with kindness.

He also praised Rudeen for being willing to admit she could use the assistance, even in a world where people often have good reason to be wary of strangers. “Part of the reason this worked is that Jessica was willing to accept the help. That’s not always the case today, and I get it.” 

Here’s Jessica Rudeen’s Facebook post:

How Some New College Graduates Are Pulling Over $1 Million a Year (Courtesy of Elon Musk)

Artificial intelligence experts can command huge salaries and bonuses–even at a nonprofit.

OpenAI, a nonprofit research lab started by Tesla founder and CEO Elon Musk released the salary details of it’s employees–and they are striking. The organization’s top researcher was paid more than $1.9 million in 2016, and another leading researcher who was only recruited in March was paid $800,000 that year, according to a recent article in the New York Times.

Salaries for top A.I. researchers have skyrocketed because there is high demand for the skills–thousands of companies want to work with the technology–and few people have them. So even researchers at a nonprofit can make big money.

It likely has more to do with competition than interest in the field itself, however. The Times points out that both of the researchers employed by OpenAI used to work at Google. At DeepMind, a Google-owned A.I. lab in London, $138 million was spent on the salaries of 400 employees, translating to $345,000 per employee including researchers and other staff, the Times reports. 

OpenAI was started by Musk who recruited several engineers from Google and Facebook, two companies pushing the industry into artificial intelligence. People who work at major companies told the Times that while top names can expect compensation packages in the millions, even A.I. specialists with no industry experience can expect to make between $300,000 and $500,000 in salary and stock as demand for the skills continues to outstrip supply. 

Exclusive: Facebook to put 1.5 billion users out of reach of new EU privacy law

SAN FRANCISCO (Reuters) – If a new European law restricting what companies can do with people’s online data went into effect tomorrow, almost 1.9 billion Facebook Inc users around the world would be protected by it. The online social network is making changes that ensure the number will be much smaller.

Facebook members outside the United States and Canada, whether they know it or not, are currently governed by terms of service agreed with the company’s international headquarters in Ireland.

Next month, Facebook is planning to make that the case for only European users, meaning 1.5 billion members in Africa, Asia, Australia and Latin America will not fall under the European Union’s General Data Protection Regulation (GDPR), which takes effect on May 25.

The previously unreported move, which Facebook confirmed to Reuters on Tuesday, shows the world’s largest online social network is keen to reduce its exposure to GDPR, which allows European regulators to fine companies for collecting or using personal data without users’ consent.

That removes a huge potential liability for Facebook, as the new EU law allows for fines of up to 4 percent of global annual revenue for infractions, which in Facebook’s case could mean billions of dollars.

The change comes as Facebook is under scrutiny from regulators and lawmakers around the world since disclosing last month that the personal information of millions of users wrongly ended up in the hands of political consultancy Cambridge Analytica, setting off wider concerns about how it handles user data.

The change affects more than 70 percent of Facebook’s 2 billion-plus members. As of December, Facebook had 239 million users in the United States and Canada, 370 million in Europe and 1.52 billion users elsewhere.

Facebook, like many other U.S. technology companies, established an Irish subsidiary in 2008 and took advantage of the country’s low corporate tax rates, routing through it revenue from some advertisers outside North America. The unit is subject to regulations applied by the 28-nation European Union.

Facebook said the latest change does not have tax implications.

‘IN SPIRIT’

In a statement given to Reuters, Facebook played down the importance of the terms of service change, saying it plans to make the privacy controls and settings that Europe will get under GDPR available to the rest of the world.

“We apply the same privacy protections everywhere, regardless of whether your agreement is with Facebook Inc or Facebook Ireland,” the company said.

Earlier this month, Facebook Chief Executive Mark Zuckerberg told Reuters in an interview that his company would apply the EU law globally “in spirit,” but stopped short of committing to it as the standard for the social network across the world.

In practice, the change means the 1.5 billion affected users will not be able to file complaints with Ireland’s Data Protection Commissioner or in Irish courts. Instead they will be governed by more lenient U.S. privacy laws, said Michael Veale, a technology policy researcher at University College London.

Facebook will have more leeway in how it handles data about those users, Veale said. Certain types of data such as browsing history, for instance, are considered personal data under EU law but are not as protected in the United States, he said.

The company said its rationale for the change was related to the European Union’s mandated privacy notices, “because EU law requires specific language.” For example, the company said, the new EU law requires specific legal terminology about the legal basis for processing data which does not exist in U.S. law.

NO WARNING

Ireland was unaware of the change. One Irish official, speaking on condition of anonymity, said he did not know of any plans by Facebook to transfer responsibilities wholesale to the United States or to decrease Facebook’s presence in Ireland, where the social network is seeking to recruit more than 100 new staff.

Facebook released a revised terms of service in draft form two weeks ago, and they are scheduled to take effect next month.

Other multinational companies are also planning changes. LinkedIn, a unit of Microsoft Corp, tells users in its existing terms of service that if they are outside the United States, they have a contract with LinkedIn Ireland. New terms that take effect May 8 move non-Europeans to contracts with U.S.-based LinkedIn Corp.

LinkedIn said in a statement on Wednesday that all users are entitled to the same privacy protections. “We’ve simply streamlined the contract location to ensure all members understand the LinkedIn entity responsible for their personal data,” the company said.

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/Illustration/File photo

Reporting by David Ingram in San Francisco; Additional reporting by Joseph Menn in San Francisco, Padraic Halpin and Conor Humphries in Dublin and Douglas Busvine in Frankfurt; Editing by Greg Mitchell and Bill Rigby

Amazon Has Over 100 Million Prime Members

Amazon Prime has over 100 million subscribers worldwide, Amazon CEO Jeff Bezos said on Wednesday, marking the first time that the company has disclosed such detailed information about its increasingly important subscription service.

The online retail giant debuted Prime 13 years ago as a way for people to get free two-day shipping and access to the company’s video streaming library.

In the past, Amazon has only disclosed vague information about the number of Prime subscribers, such as it having “tens of millions of members.” The updated number highlights the growth of the company’s subscription service, which Amazon has pushed heavily over the years as a way to retain customers that in turn fuel its core retail business with each purchase. Still, Amazon stopped short of full disclosure of its Prime subscriber service, like how much revenue it generates.

In addition to membership numbers, Bezos said in a letter to shareholders that the company had shipped over 5 billion items in 2017 as part of its Prime service and that “more new members joined Prime than in any previous year.” However, he didn’t say how many people signed up in past years.

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Bezos also bragged about Amazon’s recent marketing campaigns, including its Prime Day event in July. He said that the company’s Prime Day for 2017 was its “biggest global shopping event ever” until it was soon eclipsed by Cyber Monday, the day of online shopping deals following the Thanksgiving holiday weekend.

“Prime Day 2017 was our biggest global shopping event ever (until surpassed by Cyber Monday), with more new Prime members joining Prime than any other day in our history,” he said.

As for sales of some of Amazon’s other heavily promoted products and services, Bezos remained typically vague.

Amazon sold “tens of millions” of its Internet-connected Echo speaker; its online streaming music service “Amazon Music” now “has tens of millions of paid customers;” and its “Amazon Fashion” online retail portal now “has become the destination for tens of millions of customers.”

From Bezos’ shareholder letter:

Congratulations and thank you to the now over 560,000 Amazonians who come to work every day with unrelenting customer obsession, ingenuity, and commitment to operational excellence. And on behalf of Amazonians everywhere, I want to extend a huge thank you to customers. It’s incredibly energizing for us to see your responses to these surveys.

One thing I love about customers is that they are divinely discontent. Their expectations are never static – they go up. It’s human nature. We didn’t ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’. I see that cycle of improvement happening at a faster rate than ever before. It may be because customers have such easy access to more information than ever before – in only a few seconds and with a couple taps on their phones, customers can read reviews, compare prices from multiple retailers, see whether something’s in stock, find out how fast it will ship or be available for pick-up, and more. These examples are from retail, but I sense that the same customer empowerment phenomenon is happening broadly across everything we do at Amazon and most other industries as well. You cannot rest on your laurels in this world. Customers won’t have it.

Why Netflix Stock Jumped as Much as 8% to an (Almost) All-Time High

Growth at big companies chasing mature markets is supposed to slow down. Think about wireless phones or cable TV. But that rule doesn’t seem to apply to Netflix, at least not yet.

Even after more than 20 years in business, the world’s biggest streaming video service experienced some of its fastest growth ever in the first quarter, helping to give its stock a big lift.

Netflix shares, which hit an all-time high of $333.98 last month before selling off in the recent stock market decline, jumped as much as 8% in after hours trading on Monday. That put the stock price just pennies below the all-time high. But as CEO Reed Hastings and other executives answered an analysts’ questions on one of Netflix’s famously dull quarterly calls for investors, the after hours gain shrunk to a 5% gain to $324.32.

Netflix’s overall revenue increased 40% to $3.7 billion in the quarter, but excluding the aging DVD rental business, streaming video service revenue rose 43% to $3.6 billion, the company’s fastest quarterly growth rate ever, Netflix said. That was due to the combination of adding 7.4 million new subscribers, the most ever for Netflix in a first quarter, plus the price hikes the company pushed through last year, leading to a 14% increase in the average monthly subscription price.

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Investors and analysts were most impressed by the subscriber gains, which came in well ahead of the company’s own forecasts. Netflix added 1.96 million new members in the United States, after forecasting a gain of 1.45 million, and another 5.46 million in other countries, after forecasting 4.9 million. Netflix’s forecasts for the second quarter for subscriber and revenue growth were also better than analysts expected.

“We think investors will likely push NFLX stock higher after this earnings report,” UBS analyst Eric Sheridan wrote after the results came out. “We see investors focused on the widening moat that NFLX is creating with its business (faster subscriber growth on the back of original content push).”

Netflix’s head of programming, Ted Sarandos, did use the call Monday evening to shoot down one frequent rumor about the company, while declining to address another.

“Our move into news has been misreported over and over again and we’re not looking to expand into news beyond the work that we’re doing in short form and long form feature documentaries,” he said, when asked about rumors of a bigger push into news.

Recent talk shows from the likes of David Letterman should be considered entertainment, not news, he stressed. “David Letterman is a great talk show host—not a newscaster,” Sarandos said.

And about those rumors that former president Barack Obama or his wife Michelle is in talks to host such a show?

“I can’t comment on the Obamas or any other deals that would be in various states of negotiation right now,” he replied.

CEO Hastings was also asked whether the data privacy problems hounding Facebook (fb) and other tech companies could hurt Netflix (nflx), particularly if new laws limited data collection. Last week, some members of Congress raised the possibility during hearings in which Facebook CEO Mark Zuckerberg testified about his company’s data collection and data sharing practices.

“Well, I’m very glad that we built the business not to be ad-supported,” he said. “I think we’re substantially inoculated from the other issues that are happening in the industry…Just objectively, we’re much more of a media company in that way than pure tech. Of course we want to be great at both but, again, we’re really pretty different from the pure tech companies.”

The White House Warns on Russian Router Hacking, But Muddles the Message

For its first year in office, the Trump administration seemed soft on Russia’s hyper-aggressive hackers, reluctant even to point out they’d brazenly meddled in the US election. Then, just two months ago, the White House suddenly came out swinging, calling out Russia for its massively disruptive NotPetya malware and intrusions into the US power grid, and imposing new sanctions in response. Now, in its latest warning to Russia over its hacking bonanza, the White House may have confused the message again, this time in the other direction: By scolding Russia not for its uniquely destructive hacking activities, but by all appearances for the kind of cyberespionage many governments do—including the US.

An alert issued jointly by the Department of Homeland Security, the White House, the FBI and the UK’s National Cyber Security Center on Monday warned that hackers tied to the Russian government have attempted to compromise millions of routers and firewalls across the internet, from enterprise-focused network equipment to the humble routers in homes and small businesses across the world. The report warns that the attacks “enable espionage and intellectual property [theft] that supports the Russian Federation’s national security and economic goals,” and offers technical advice about how to detect and stop those attacks.

“When we see malicious cyberactivity, whether Kremlin or other nation state actors, we are going to push back,” said White House cybersecurity coordinator Rob Joyce in a call with reporters. (The call came just hours before reports surfaced that Joyce is resigning his White House position.) “We condemn this latest activity in the strongest possible terms,” added senior DHS official Jeanette Manfra.

But those weighty statements, for some in the intelligence and security community, actually muddy the message to Russia. After all, US government hackers—and particularly those in NSA—perform broad intrusions across the world for espionage, too. Often they even hack routers like the ones mentioned in Monday’s alert, based on classified leaks and cybersecurity researchers’ findings. And calling out Russia for the same sort of spying the US routinely does as well only blurs the red lines that Western governments have demanded Russia and other nations respect—prohibitions like disruptive attacks on civilian infrastructure or meddling in elections.

“It’s weird. Why are they making such a fuss about something that even the US must be engaged in?” asks Thomas Rid, a professor of strategic studies at Johns Hopkins’ School of Advanced International Study. “This is the dirty secret of infosec, that everyone’s doing it.”

Just last month, for instance, researchers at Russian security firm Kaspersky revealed a hacking campaign known as Slingshot that spied on more than a hundred targets around the world, in many cases by infecting MicroTik routers. That operation was later revealed to be a US Special Operations Command effort to monitor members of ISIS using internet cafes across Africa and Middle East. “So, that Slingshot APT was Russian?” quipped Kaspersky researcher Aleks Gostev in a tweet responding to Monday’s DHS alert. Previous classified leaks have shown that the NSA and CIA hack routers too, both big and small.

Former NSA hacker Jake Williams points in particular to the DHS alert’s warning that Russian hackers hijack home routers when their owners don’t change the default password—a form of hacking he considers almost laughably mundane, performed by even unskilled cybercriminals. “Everybody hacks routers,” Williams says. “Saying that home routers with default passwords are getting owned is like saying that thieves are picking up unattended money in a public area.”

Rather than a serious warning of a new line-crossing cyberattack by the Russian government, Williams says he sees the latest alert as part of a larger geopolitical message. After all, the Trump administration’s relations with the Kremlin have been cooling, due in part to opposing interests in the ongoing war in Syria. “I don’t see why we’re making such a big deal of this, other than politics,” Williams says.

Meanwhile, Russia has repeatedly crossed red lines with its cyberattacks over the last few years, from its blackout-inducing cyberwar in Ukraine to its leaks of stolen Clinton campaign documents in the 2016 presidential election to the NotPetya outbreak that paralyzed civilian infrastructure and companies around the world, now believed to be the most costly cyberattack in history. Lumping in routine router-hacking with those misdeeds seems to confuse the stakes.

In fairness, Monday’s DHS alert does hint that Russia’s router hacking could be part of a similarly disruptive hacking campaign rather than espionage alone; it warns that the router attacks “potentially lay a foundation for future offensive operations.” That could mean anything from data-destroying malware to disruption of physical infrastructure like oil and gas facilities or power grids.

As for the message it sends, Robert Lee, a former NSA analyst focused on threats to critical infrastructure says the joint statement on the attacks suggests that there may be another, more dangerous element to the router-hacking campaign that’s not spelled out in the alert. “The US government is signaling to the Russian government it knows what it’s doing and that it’s something they’re not happy about,” Lee says. “They’re calling out that routers are being hacked with follow-on activity that’s concerning.”

Lee points out that the attacks the alert calls out have been documented for months, including in an attack against the Pyeongchang Olympic Games.

Exactly why the US and UK government chose to put out a joint statement about them now—along with some heated rhetoric—isn’t so clear. “Have they seen something that looks more like planning for disruption and sabotage?” asks Johns Hopkins’ Rid. “Is it enough that Russia has a track record of breaking things?” Until Western countries spell out the definition of that bad behavior consistently, the rules they want to set for civilized behavior online will remain frustratingly inscrutable.

Router Issues

Singapore seeks feedback on proposal to allow Airbnb-style rentals

SINGAPORE (Reuters) – Singapore began seeking public feedback on proposals to allow short-term rentals of private homes such as those on Airbnb.

FILE PHOTO: A woman talks on the phone at the Airbnb office headquarters in the SOMA district of San Francisco, California, U.S., August 2, 2016. REUTERS/Gabrielle Lurie/File Photo

The government is seeking feedback on issues such as what homes should qualify and the responsibilities of short-term accommodation platforms, the Urban Redevelopment Authority said on Monday.

The proposed rules require that a significant majority of owners in a condominium agree to the presence of short-term rentals in their development. The agency also proposed an annual rental cap of 90 days that a property can be used for short-term rentals.

Earlier this month, a Singapore court fined two Airbnb hosts a total of S$60,000 ($45,800) each for unauthorized short-term letting.

Reporting by Aradhana Aravindan; Editing by Stephen Coates

Weibo to ban gay, violent content from platform

SHANGHAI (Reuters) – China’s Sina Weibo will remove gay and violent content, including pictures, cartoons and text posts, during a three-month clean-up campaign, the microblogging platform said.

FILE PHOTO – A man holds an iPhone as he visits Sina’s Weibo microblogging site in Shanghai May 29, 2012. REUTERS/Carlos Barria

Friday’s announcement comes amid a clampdown targeting content across social media platforms as China’s leaders look to tighten their grip on a huge and diverse cultural scene popular with the young.

Weibo announced the move on its official administrator’s account, saying the action aimed to comply with China’s new cyber security law that calls for strict data surveillance.

The post drew more than 24,000 comments, was forwarded more than 110,000 times, and prompted users to protest against the decision, using the hashtag “I am gay”.

“I am gay and I’m proud, even if I get taken down there are tens of millions like me!,” said one poster, who used the handle “rou wan xiong xiong xiong xiong” and posted a photo of himself.

Some posts were quickly blocked by the platform, with the message displayed that they contained “illegal content”.

This week, news and online content portal Toutiao, which is luring investors, was forced to pull a joke sharing app after a watchdog denounced its “vulgar and improper content”.

Award-winning gay romance “Call Me By Your Name” was also dropped from a Chinese film festival last month. Homosexuality is not illegal in China, but activists say the conservative attitudes of some parts of society have prompted occasional government clampdowns.

Weibo has so far cleared 56,243 pieces of content, shut 108 user accounts and removed 62 topics considered to have violated its standards, it added.

Reporting by Brenda Goh; Editing by Clarence Fernandez

Within Facebook, a Sense of Relief Over the Zuckerberg Hearings

About two hours, or 20 percent, into Mark Zuckerberg’s marathon testimony before Congress this week, the Facebook CEO had a slightly awkward exchange with senator John Cornyn (R-Texas). Cornyn wanted to know what happens to people’s data when they delete their accounts. Zuckerberg responded that Facebook deletes their data. But Cornyn continued, “How about third parties that you have contracted with to use some of that underlying information, perhaps to target advertising for themselves?”

To Zuckerberg, this must have been exasperating. As he has said over and over, Facebook doesn’t sell data to advertisers. Doing so could allow outsiders to build competitive ad-targeting products that would undermine Facebook’s business. And so Zuckerberg patiently explained, yet again, how Facebook works. “We do not sell data to advertisers. We don’t sell data to anyone.”

Before the hearings, Zuckerberg’s colleagues in Menlo Park had been nervous. The company had been battered, insulted, and mocked for weeks. The stock price had collapsed. And now Zuckerberg, who isn’t known for his charisma or quick-witted stage presence, would be grilled by professional grillers. The whole thing felt to Facebook roughly like watching the father of the bride at a tense wedding, refilled glass of chardonnay in hand, slide up to the microphone to give a toast. It could go OK. It should go OK. But it might also go horribly wrong.

Once the hearings started, though, according to numerous Facebook employees asked about their reactions, everyone at headquarters started to calm down. For one, it became immediately clear that many of the senators didn’t actually know what Facebook does. “I was personally surprised by how ill-prepared the members were,” one Facebook executive told me. “Once it was clear how bad it was and how mismatched they were, everybody had this awakening: We have made some mistakes, but these guys know even less.” Numerous people at the company passed around a meme in which Chuck Grassley (R-Iowa) putatively asked Zuckerberg, “Mr. Zuckerberg, a magazine I recently opened came with a floppy disk offering me 30 free hours of something called America On-Line. Is that the same as Facebook?”

After Zuckerberg finished his session with Cornyn, John Thune (R-South Dakota) interjected that it was time to take a break. Thune may have had the most power over Facebook in the room—he oversees the Senate Commerce Committee, which in turn helps oversee the Federal Trade Commission—and he may also have the best jawbone. But Zuckerberg responded that, actually, no, he was fine to keep going. “You can do a few more,” Zuckerberg said. He wasn’t worn down.

In Menlo Park, there were cheers from some employees. According to one who was watching a TV nearby, “It was like magic.” At another spot in Facebook’s offices where senior executives had gathered, people started laughing and smiling. The toast was going just fine. Nothing was going to go horribly wrong. Meanwhile, employees had their eyes on the stock ticker, which, for the first time in a while, had started to turn upward.

Shortly thereafter, Dean Heller (R-Nevada) asked a question without an easy answer. “Do you believe you’re more responsible with millions of Americans’ personal data than the federal government would be?”

Zuckerberg had a choice: He could weasel his way out and say the answer is hard. He could throw out something patriotic and muddled. But he decided to do something simple. He just said, “Yes.” Then he paused and moved on to talking about something else.

It was another moment of magic, a Facebook employee said. “The mood totally changed internally.”

Some Bad Reviews

Zuckerberg didn’t impress everyone this week. The New York Post dubbed him “The Social Nitwit.” At the TED conference, Facebook was hammered repeatedly, and one speaker, Jaron Lanier, declared, “I don’t think our species can survive unless we fix this.” People made fun of him for sitting on what was dubbed a booster seat. Those perhaps seeing Zuckerberg for the first time were surprised that he can appear like a humanoid. Trevor Noah said Zuckerberg must “have sent a robot version of himself.” Jimmy Kimmel declared that he “almost even managed to replicate a human smile.”

It’s unlikely, though, that Zuckerberg cared much about the cheap shots and the jokes. He surely noticed that the value of the company rose by about $17 billion during the hearings, making him more than $2.5 billion richer. And in some ways, the most important part of the hearings was to calm his restive employees. In recent weeks, working at Facebook has come to seem a bit like working at Goldman Sachs in 2008. The most important challenge for Facebook is employee retention: Despite the billions the company makes and the kombucha shots it serves on the corporate roof, competition for engineers in Silicon Valley is severe. In recent weeks, Facebook has seemed weak and easy to raid. One employee even boasted publicly of quitting.

And if your metric is employee morale, Zuckerberg’s testimony was a success. Early in the Senate hearings, Orrin Hatch (R-Utah) pushed Zuckerberg on why the company doesn’t have a subscription model. Zuckerberg responded carefully and cautiously. Hatch then asked, “Well, if so, how do you sustain a business model in which users don’t pay for your service?”

Zuckerberg responded, again, with a smile: “Senator, we run ads.”

Since then, in Menlo Park, numerous Facebook employees have repeated the mantra in meetings, joking, “Senator, we run ads.”

How the Ad Business Works

That isn’t to say the hearings went over perfectly, even at home. One mystifying thing to employees was that Zuckerberg frequently seemed to come up short when asked for details about the advertising business. When pressed by Roy Blunt (R-Missouri)—who, Zuckerberg restrained himself from pointing out, was a client of Cambridge Analytica—Facebook’s CEO couldn’t specify whether Facebook tracks users across their computing devices or tracks offline activity. He seemed similarly mystified about some of the details about the data Facebook collects about people. In total, Zuckerberg promised to follow up on 43 issues; many of the most straight-ahead ones were details on how the ad business works. It’s possible, of course, that Zuckerberg dodged the questions because he didn’t want to talk about Facebook’s tracking on national TV. It seemed more likely to some people on the inside, however, that he genuinely didn’t know.

Why was this? Inside Facebook it was simply seen of a sign of something that many of his colleagues know: Zuckerberg is much more interested in product and engineering than he is in the business. His former speechwriter Kate Losse told me that she thinks he did well. But she too was struck by his inability to answer questions about the details of the way Facebook makes most of its money. “I genuinely believe that he doesn’t care about ads.”

Zuckerberg’s marathon testimony also didn’t close out questions about some of his company’s biggest threats. Zuckerberg did not give thorough answers (and the congressmembers did not ask thorough questions) about the extent of Russian operations on the platform. It is still entirely possible that we will, in due course, see the threads of the Cambridge Analytica and Russia stories converge. If that happens, the company will have to deal with something much darker than even the mess of the past few weeks. It will mean, in short, that the data—and even the private messages—of trusting Facebook users ended up in the hands of a foreign adversary trying to manipulate a presidential election.

And there is still the looming issue of the 2011 FTC consent decree, and whether Facebook violated its terms by not acting reasonably to protect people’s privacy after it learned about Cambridge Analytica’s data gathering. An investigation is ongoing, which Zuckerberg did little to put to rest. It could cost the company billions.

Still, back at home, the troops were happy. On Thursday, the day after the hearings ended, Sheryl Sandberg was supposed to address the staff in a company-wide Q&A. Instead, Zuckerberg returned to Menlo Park and answered questions in person. “It was a Mark lovefest,” one employee said.

Facing Up

​Linux is under your hood

Way back in 2004, Jonathan Schwartz, then Sun’s chief operating officer, suggested that cars could become software platforms the same way feature phones were. He was right. But, it’s Linux, not Java, which is making the most of “smart cars”.

That’s because Linux and open-source software are flexible enough to bring a complete software stack to any hardware, be it supercomputer, smartphone, or a car. There are other contenders, such as Blackberry’s QNX and Microsoft IoT Connected Vehicles, but both have lost ground to Linux. Audi is moving to Linux-based Android and Microsoft lost is biggest car customer, Ford, years ago.

Today, as Dustin Kirkland, then Canonical product VP and now Google Cloud product manager, told me recently, “Ubuntu is in the Tesla and we support support auto manufacturers, but Tesla has gone on its own way. Tesla was so far ahead of the curve it doesn’t surprise me that they did their own thing. But, Canonical expects most car manufacturers will work with Linux distributors to build operating systems that scale out for cars for the masses.”

Much of that work is done via the Automotive Grade Linux (AGL). This Linux Foundation-based organization is a who’s who of Linux-friendly car manufacturers. Its membership includes Ford, Honda, Mazda, Nissan, Mercedes, Suzuki, and the world’s largest automobile company: Toyota.

“Automakers are becoming software companies, and just like in the tech industry, they are realizing that open source is the way forward,” said Dan Cauchy, AGL’s executive director, in a statement. Car companies know that while horsepower still sells, customers also want smart infotainment systems, automated safe drive features, and, eventually, self-driving cars.

I have two young grandsons. I seriously wonder if they’ll learn to drive. Just like many people who no longer know how to drive a stick-shift, I can see people in the next 20 years never bothering with driving classes.

The AGL is helping this next generation of smart cars arrive with its infotainment source code and software development kit (SDK) AGL Unified Code Base (UCB) 4.0.

UCB, in turn, is based on Yocto 2.2, a set of tools for creating images for embedded Linux systems. AGL is expanding beyond infotainment to develop software profiles using the UCB for telematics, instrument cluster, and heads-up-display (HUD).

To support these new projects, AGL has formed a new Virtualization Expert Group (EG-VIRT) to identify a hypervisor and develop an AGL virtualization architecture that will speed up Linux car time-to-market, reduce costs, and increase security.

The ASL is also now working on car Speech Recognition and Vehicle-to-Cloud connectivity. Led by Amazon Alexa, Nuance and Voicebox, the Speech Expert Group will provide guidance for voice technologies including natural language, grammar development tools, on-board vs cloud based speech, and signal processing for noise reduction and echo cancellation.

Tesla, however, continues to go its own way. That said, under the hood, Tesla is moving forward. With the 8.1 update (17.24.30), Tesla upgraded its Linux kernel from the archaic 2.6.36 to 4.4.35.

The AGL isn’t the only group working to integrate Linux and cars. The SmartDeviceLink (SDL) Consortium, which includes Ford, Toyota, Mazda, and Suzuki, is working on Linux-based open-source software for getting smartphones and cars to work together smoothly.

At the same time, Google has its own Linux for cars: Android Auto. Google is supporting this with the Open Automotive Alliance. Google is hoping to recapture the Open Handset Alliance magic, which led Android to smartphone dominance, in smart cars. This new alliance supporters include Acura, Audi, Cadillac, Ford, GMC, Honda, Hyundai, and many other car manufacturers.

And it’s not just cars running on Linux. Lyft, the ride-sharing service, has been “running Ubuntu since day one across the board from server to desktop to cloud,” said Kirkland. The company is also using Ubuntu in its autonomous vehicle team.

Kirkland added, “Top car equipment manufacturers, like Bosch and Continental Auto Parts, increasingly use Ubuntu IoT in their components.” In addition, the GPS device company “TomTom uses Ubuntu on its back end.”

Looking ahead, Kirkland can see a world where bitheads instead of gearheads will be modifying their car’s software. But, “How much can you legally modify it? Gearheads have been molding for cars for years, but it still has to be street legal. I don’t think we have the infrastructure for a shade-tree software engineer to pass inspection.” Not yet anyway.

So, whether you’re driving a car, riding in one, or working on its software, Linux is in your automotive future.

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