U.S. online sales surge, shoppers throng stores on Thanksgiving evening

(Reuters) – U.S. shoppers had splurged more than $1.52 billion online by Thanksgiving evening, and more bargain hunters turned up at stores this year after two weak holiday seasons as retailers opened their doors early on the eve of Black Friday.

A customer loads her shopping cart during the Black Friday sales event on Thanksgiving Day at Target in Chicago, Illinois, U.S. November 23, 2017. REUTERS/Kamil Krzaczynski

At the start of the holiday season consumer spending rose 16.8 percent year-over-year until 5 p.m. ET on Thursday, according to Adobe Analytics, which tracked 80 percent of online transactions at the top 100 U.S. retailers.

Surging online sales and a shift away from store shopping have thinned the crowds typically seen at stores on Thanksgiving evening and the day after, Black Friday, for the past two years. But a strong labor market, rising home prices and stock markets at record highs have improved shopper appetite this year.

Crowds at stores in many locations around the country were reported to be strong, according to analysts and retail consultants monitoring shopper traffic across the U.S.

“The turnout is clearly better than the last couple of years,” said Craig Johnson, president of Customer Growth Partners. “The parking lots are full and the outlet malls are busy.”

The retail consultancy has 20 members studying customer traffic in different parts of the country.

Moody’s retail analyst Charlie O’ Shea, who was in Bucks County, Pennsylvania, reported healthy traffic at local stores including consumer electronics chain Best Buy, clothing store Old Navy and retailer Kohl’s Corp.

“The weather is cooperating and people here are out,” he said.

Customers shop during the Black Friday sales event on Thanksgiving Day at Target in Chicago, Illinois, U.S., November 23, 2017. REUTERS/Kamil Krzaczynski

The National Retail Federation is projecting that sales for November and December will rise 3.6 percent to 4 percent this year, versus a 4 percent increase last year. Non-store sales, which include online sales and those from kiosks, are expected to rise 11 percent-15 percent to about $140 billion.

In New Jersey, around 50 people lined up a Macy’s at the Westfield Garden State Plaza mall before it opened and around 200 people stood outside the Best Buy store, many to pick up their online orders.

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“Me and my husband have a bigger place and we need a bigger TV for the living room,” said Jenipher Gomes, who bought a 50-inch Samsung TV at Best Buy for $399.99. Shopper Hammad Farooq said he waited at the store for an hour to shop for laptops and monitors.

In Chicago, shoppers appeared to be slightly less enthusiastic to emerge from their turkey slumber and crowds were thin along the city’s popular shopping destination, State Street.

“There’s a few more people than normal but I wouldn’t call this crowded at all,” Deloitte auditor Eugenia Liew said as she shopped at discount retailer Target. “I expected a lot more people.”

The holiday season spanning November and December is crucial for retailers because it can account for as much as 40 percent of annual sales. Retailers try to attract shoppers with deep discounts.

Average discounts ranged between 10 and 16 percent with the best deals online on Thanksgiving evening available for computers, sporting goods, apparel and video games, according to date from Adobe.

The number of customers shopping on their smartphones surged, accounting for 46 percent of the traffic on retail websites, while traffic from desktop and laptop computers declined 11 percent and nearly 6 percent respectively, according to the data.

Reporting by Richa Naidu in Chicago and Nandita Bose in West Hartford, Connecticut; Additional reporting by Jenna Zucker in New Jersey; Editing by Susan Thomas

Our Standards:The Thomson Reuters Trust Principles.

Miramax, Weinstein, Hollywood and Sexual Harassment The number one way to gut-check your company's culture.

The flood of women coming forward in recent weeks to tell their stories of “Me Too” has shed a light on the fact that it’s not only Miramax, Harvey Weinstein, and Hollywood but our country at large that has created a culture of mindlessness when it comes to sexual harassment.

These revelations are raising awareness across the business sector as companies try to make sure they and their employees do not fall prey to a mindless culture.

Brenda’s story.

Brenda was a newly minted VP on her first business trip with Miramax. She had turned in early after dinner as to make a good impression on her boss and fellow employees leaving them in the bar downstairs.

When she woke up to a knock on her hotel room door, the voice on the other side was a familiar one, so she opened it.  

Before she knew what was happening, her boss pushed the door open and threw her on the bed. He pinned her down but was drunk and she managed to wriggle away, locking herself in the adjoining room.

Weeks later her boss had not spoken a word to her about that night. No conversations, no “I’m sorry,” it was business as usual.

When she mustered up the courage to confide in her boss’ boss, he apologized for the unfortunate incident, but he let her know that if she went public, he would deny their conversation ever happened.

I asked Brenda if the fear of it happening again stayed with her while she was at Miramax. She said, “Oh yeah, it wasn’t if, in my mind, it was when. I learned that’s how it was there.”

In business, we talk about culture. It’s a buzzword. How do you create a good, a healthy, a positive, a winning–the adjectives abound followed by the 4, 5 or 6 steps you need to create that culture.

But the culture of your business doesn’t live in your mission statement or in your HR manuals, it’s a living breathing thing. It lives in the decisions you make and in the way you handle people, especially those who have less power.

A culture is a set of set of norms, values, and behaviors of a group. One definition says it’s the way we do things around here. However, if those ideals are left to collect dust in the pages of your mission statement, your mission will get lost.

The biggest reason the culture of a business will fail is mindlessness. When a group or a company of people go mindless, they begin to accept things they would not normally accept under the banner of this is the way it’s done around here, regardless of what it says in the manuals.

In a mindless culture, all manner of bad, unsafe and repugnant behavior can become part of a company’s tacit traditions, including sexual harassment. These behaviors infect and redefine a group’s stated core values.

Mindlessness can become systemic, as employees old and new become acceptant of the prevailing culture that is practiced, not preached.

Brenda experienced the real values held at Miramax. At minimum, her bosses were supporting a culture of mindlessness with respect to women and they expected Brenda to drink the Kool-aid.

The systemic mindlessness of Hollywood is being exposed as scores of actresses are coming forward with remarkably similar stories of sexual abuse.

Many of these women, like Rachel Mcadams, were sent to hotel meetings with predators by their own agents, some of whom were also women, aware of the danger but gave no warning.

In order to weed out systemic mindlessness and any accepted norms that go against their core values, companies need to gut-check their culture.

Introducing mindfulness, the practice of being present and attuning to the people around us can help employers better monitor the direction their company’s culture has taken.

Employees trained in mindfulness are not as susceptible to the priming of a culture, especially if it is wrought with questionable values. Mindfulness practitioners are proving to be more compassionate toward others and are prone to make moral choices.

One surprising study showed that mindful people are less likely to fall prey to the “bystander-effect” and are more likely to speak up when confronted with the suffering of others or injustice.

Some of the old guard in Hollywood has admitted to knowing about the sexual misconduct of Weinstein and others but did nothing. The “bystander-effect” was a key reason so many in Hollywood stayed quiet for so long.

Creating a space that is safe and supportive for employees to speak openly and honestly about their experiences goes a long way toward maintaining a company’s integrity.

While sensitivity training is important, it falls short of creating a culture that is aware, compassionate and attuned to others.

We have an opportunity in this moment to become mindful of how power is wielded and lorded over others. It’s time for a gut-check, not only of our business culture but the culture of our country at large.

Uber Hid 57-Million User Data Breach For Over a Year

By now, the name Uber has become practically synonymous with scandal. But this time the company has outdone itself, building a Jenga-style tower of scandals on top of scandals that has only now come crashing down. Not only did the ridesharing service lose control of 57 million people’s private information, it also hid that massive breach for more than a year, a cover-up that potentially defied data breach disclosure laws. Uber may have even actively deceived Federal Trade Commission investigators who were already looking into the company for distinct, earlier data breach.

On Tuesday, Uber revealed in a statement from newly installed CEO Dara Khosrowshahi that hackers stole a trover of personal data from the company’s network in October 2016, including the names and driver’s license information of 600,000 drivers, and worse, the names, email addresses, and phone numbers of 57 million Uber users.

As bad as that data debacle sounds, Uber’s response may end up doing the most damage to the company’s relationship with users, and perhaps even exposed it to criminal charges against executives, according to those who have followed the company’s ongoing FTC woes. According to Bloomberg, which originally broke the news of the breach, Uber paid a $100,000 ransom to its hackers to keep the breach quiet and delete the data they’d stolen. It then failed to disclose the attack to the public—potentially violating breach disclosure laws in many of the states where its users reside—and also kept the data theft secret from the FTC.

“If Uber knew and covered it up and didn’t tell the FTC, that leads to all kinds of problems, including even potentially criminal liability,” says Williams McGeveran, a data-privacy focused law professor at the University of Minnesota Law School. “If that’s all true, and that’s a bunch of ifs, that could mean false statements to investigators. You cannot lie to investigators in the process of reaching a settlement with them.”

The Hack

According to Bloomberg, Uber’s 2016 breach occurred when hackers discovered that the company’s developers had published code that included their usernames and passwords on a private account of the software repository Github. Those credentials gave the hackers immediate access to the developers’ privileged accounts on Uber’s network, and with it, access to sensitive Uber servers hosted on Amazon’s servers, including the rider and driver data they stole.

While it’s not clear how the hackers accessed the private Github account, the initial mistake of sharing credentials in Github code is hardly unique, says Jeremiah Grossman, a web security researcher and chief security strategist at security firm SentinelOne. Programmers frequently add credentials to code to allow it automated access to privileged data or services, and then fail to restrict how and where they share that credential-laden software.

“This is all too common on Github. It’s not a forgiving environment,” says Grossman. He’s far more shocked by the reports of Uber’s subsequent coverup. “Everyone makes mistakes. It’s how you respond to those mistakes that gets you in trouble.”

Who’s Affected

Uber’s count of 57 million users covers a significant swath of its total user base, which reached 40 million monthly users last year. The company hasn’t notified affected users, writing in its statement that it’s “seen no evidence of fraud or misuse tied to the incident,” and that it’s flagged the affected accounts for additional protection. As for the 600,000 drivers whose information was included in the breach, Uber says it’s contacting them now, and offering free credit monitoring and identity theft protection.

How Serious Is This?

Mass spills of names, phone numbers, and email addresses represent valuable data for scammers and spammers, who can combine those data points with other data leaks for identity theft, or use them immediately for phishing. The even more sensitive driver data that leaked may offer even more useful private information for fraudsters to exploit. All of it contributes to the dreary, steady erosion of the average person’s control of their personal information.

But it’s Uber, not the average user whose data it spilled, that may face the most severe and immediate consequences. The company has already fired its chief security officer, Joe Sullivan, who previously led security at Facebook, and before that worked as a federal prosecutor. By failing to publicly disclose the breach for over a year, the company has likely violated breach disclosure laws, and should be bracing for hefty fines in many states where its users live, as well as its home state of California, says the University of Minneapolis Law School’s McGeveran. (In statements on Twitter embedded above, former FTC attorney Whitney Merrill echoed that interpretation of those breach disclosure laws.) “I would not be surprised to see states pursuing Uber on that basis,” McGeveran says.

Former FTC attorney Whitney Merrill echoed that interpretation Tuesday on Twitter:

If the cover-up included making false statements to the FTC during its investigation of the 2014 breach—even though it was a separate incident—that could have even more dire consequences. Making false statements to the commission’s investigators, McGeveran points out, is a federal criminal offense. “This is not just a casual chat over a cup of tea. it’s a formalized investigative procedure,” McGeveran says. “They’re already being asked investigative questions by a government official. They not only know about the breach, but they’re allegedly paying hackers to cover it up. They presumably omit this 57 million person breach from their disclosure to the FTC.”

“If all of that is true,” McGeveran reiterates, “that’s huge.”

Canadian Cannabis Stocks: What To Do Now

The Canadian cannabis stocks have rallied sharply in recent weeks. There was another 5.4% advance in the Let’s Toke Business Composite Index by November 15, 2017. The following chart illustrates this advance. While it may not appear that significant, it is an average gain of over 10% in a week and one-half. If you held some of the bigger movers, it has been much more than that.

This has left many investors wondering what to do now. Those who are in, ask whether they should get out. Those who aren’t in, ask whether it’s too late to get in. In the markets, such decisions never get easier. And we have to consider that whenever someone is buying a stock, someone else is selling it. It’s hard for both parties to the trade to be correct.

Some Signs To Think About

There are a few worrisome signs for cannabis stocks out there. The most troublesome is the unanimity of belief that the Canadian cannabis stocks are going to roar ahead to July 1, 2018, the widely accepted legalization date in Canada. I was taught many years ago that in the stock market, the majority is eventually wrong. The Art of Contrary Thinking by Humphrey B. Neill is an outstanding read for those who want to understand how the market works. After reading the book, it was simply a case of watching markets with contrary opinion in mind. I have done for many decades. At the present time, there is a little too much consensus in favor of the cannabis group for my liking. So I’m not panicking, but I am feeling a little less comfortable.

Another recent development is the re-emergence of the single stock circuit breaker (SSCB). Similar mechanisms exist in stock markets around the globe. The Investment Industry Regulatory Organization of Canada (IIROC) can order a five-minute trading halt for a stock it deems has been or is too volatile. The idea is a trading halt will draw attention to the stock and enable investors to respond in the expectation saner heads will prevail. They often do.

The last time we had a series of SSCB trading halts in the cannabis stocks was November 16, 2016, when there were six involving Aphria (OTCQB:APHQF), Aurora Cannabis (OTCQX:ACBFF), Canopy Growth (OTCPK:TWMJF), Mettrum Health now owned by Canopy, Organigram (OTCQB:OGRMF), and Supreme Pharmaceuticals (OTCPK:SPRWF). These were SSCBs resulting from upside volatility. In the 2016 instance, the markets continued to rally for another few months but then went into a gentle swoon for most of 2017.

On November 14, 2017, after a brief rally in the cannabis stocks following the Canopy Growth – Constellation Brands (NYSE:STZ) transaction (Can/Con), there was an upside SSCB on ACBFF. One swallow does not a summer make, so this is not a red flag. Maybe a pink flag that will turn red if more SSCBs come down the road.

Of course, one thing I have learned from watching contrary opinion at work is majority opinion can rule for a long time. So, before running for the exits, I want to refer to the best example of contrary opinion being right but very wrong is what I call the case of “irrational exuberance.” I worked in the investment business through the “dot-com bubble” in the second half of the 1990s, and I remember the day after the Federal Reserve Chairman said the stock market was exhibiting “irrational exuberance.” We all thought this meant Alan Greenspan was saying the stock market was too high and about to turn down.

But it isn’t easy to tell when there is too much speculation, and the market is about head lower. For example, in that dot-com cycle, the market began rising in the early 1990s and was well into a full blown hi-tech driven bull market by early December 1996 when Chairman Greenspan made his famous “irrational exuberance” comment to describe the stock market he saw at that time in a televised speech to the American Enterprise Institute. Here is the sound bite from that speech that has been enshrined in stock market history:

“… how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”

On October 14, 1996, the Dow Jones had closed above 6,000 for the first time. Greenspan gave this speech less than two months later on December 5, 1996, with the Dow at 6,437. A little over two months after that, the Dow crossed 7,000, and five months later, it cruised past 8,000. By May 6, 1998, it surpassed 9,000, it topped 10,000 for the first time on March 29, 1999, and went over 11,000 less than two months later. In other words, Alan Greenspan with access to the best and most current financial information in the world was led to the right conclusion over two years too early. Do you know what they call a correct stock market call that is two years early? They call it wrong! The message is cannabis stocks can exhibit “irrational exuberance” for a long time.

2017 Tax Loss Selling

This seems to be a perfect year for a tax loss selling cycle. As the following charts illustrate, both the Dow Jones Average and the Toronto Stock Exchange Index are at or near all-time highs. (Charts courtesy of Big Charts)

This is a strong indication that American and Canadian investors have net realized taxable capital gains this year. All other things equal, there will be capital gains taxes payable on this income in the current year. The one way to defer the income taxes payable is to offset some or all of those gains by crystallizing net taxable capital losses for settlement in the current calendar year.

As the chart above shows, the Canadian marijuana stocks are a potential source of losses. To date, the Let’s Toke Business Marijuana Composite Index is down over 12% year to date. At the same time, the U.S. Marijuana Index, calculated by The Marijuana Index, is down almost 35% year to date. So, starting in December 2017, and accelerating from the middle of the month through Christmas, the cannabis stocks, especially the U.S. stocks, could come under selling pressure.

In the shorter term, the data I rely on has been pointing to an upturn in cannabis stock prices for a few weeks. I called for an upturn in my Let’s Toke Business newsletter in the September 30, 2017, edition, and I am sticking with that expectation for the time being.

The explosive events of the past few weeks, following Can/Con, has resulted in a tumultuous trading pattern. As we said at the time of Can/Con, we expect similar transactions to take place. This week, ACBFF announced it will take a run at Cannimed Therapeutics Inc. (OTC:CMMDF) a Licensed Producer. I use the words “…take a run at…” advisedly because CMED said the first it heard of an offer was when ACBFF announced it publicly. At a value of $582 million, this transaction is potentially larger than the previous record set when TWMJF acquired Mettrum for $430 million. The other difference of course is TWMJF and Mettrum had agreed to terms before an announcement was made. There are other acquisition/merger rumors on the street.

Here are some thoughts meant to guide investors in a market dominated by this kind of uncertainty.

Portfolio Rebalancing

Many individuals began investing in cannabis stocks by allocating a part of their existing portfolio to this relatively new sector. A normal allocation under such circumstances might have been 10% for the more cautious and up to 25% for the more aggressive. Due to market dynamics, however, you now find your cannabis stocks have grown to represent a greater and perhaps much greater part of your total holdings. Rebalancing means selling enough of your cannabis stocks to get the allocation back to where you started.

Leveraged Portfolios

Some individuals might have borrowed money to invest in the cannabis group. Leverage can greatly accelerate returns on an investor’s equity. It is wonderful when prices are rising. If you did this with cannabis stocks, you have probably experienced the best that leverage has to offer. But like many things in life, there are two edges to leverage sword, and in a down market, it can destroy rates of return and incinerate portfolios. So, if you are in a profit position in your leveraged portfolio, sell some individual stocks to reduce or eliminate debt.

Stock Rebalancing

In a typical portfolio, an individual stock holding might be somewhere between 2.5% and 5% of the portfolio. Because of the changes in individual stock prices, you may now find these percentages have moved higher. A big winner that started at 5% might now be 15% or more. But even a moderate gainer in the cannabis group will be up. Rebalancing means simply selling enough of an individual stock to get back to your original percentage allocation.

Non-portfolio Rebalancing

Some investors saw cannabis as an opportunity and began to invest some capital into common stocks for the first time. Non-portfolio investors are more likely to be speculators taking higher risk positions in lower quality stocks to maximize growth. Here are some thoughts for the hyper-aggressive or speculator group:

  1. Play with house money: If you are lucky enough to double your money at the casino, the pros will tell you to take out your original stake and set it aside. That means you are using your profits (house money), and if you lose it all, the worst case is you will break even.
  2. Take some money off the table: A variation of the first point is take some gains and set them aside. You may not have doubled up, or you may not want to sell as much. But as long as you sell some, it means if the tide turns, you have limited your losses, and you will have cash to take advantage of lower prices.
  3. Go for broke: Depending on your risk tolerance, you decide this is your once in a lifetime opportunity to pay your money and take your chances. If you know your personal risk tolerances, this is fine. After all, Bill Gates didn’t become the world’s wealthiest man by diversifying his portfolio. He owned Microsoft (NASDAQ:MSFT) that now has a tiny interest in cannabis due to an investment MSFT made last year.

Dollar-Cost-Averaging (DCA) is a method of investing that tends to drive your average cost of a stock down. The idea is you invest a set amount of money on a regular date, say, the first trading day of each month. If you do this, sometimes, you will buy when prices are higher and sometimes, you will buy when prices are lower. But because you invest the same amount of money each time, when prices are higher, you buy fewer shares, and when prices are lower, you buy more shares. This creates the lower average cost effect.

You can do a similar thing when selling. You don’t have to think of selling a particular stock as a one decision event that might be better or might be worse. You can split up that one major decision into several smaller decisions and reduce your holdings over time.

Don’t Chase Stocks Up Or Dump Them Down

As regular readers know, I do not advocate bidding prices up when buying, and I don’t encourage knocking prices lower when selling. Generally, this goes against the grain of most people’s emotional profiles. A simple stock market axiom is buy low and sell high. But it is surprising how hard this is for the average person. It means you have to buy when prices are low or falling and sell when prices are high or rising. So, if you decide to put some of my thoughts into action, keep this in mind as you proceed.


These are practical policies you should use wherever the cannabis stocks trend from here. They are tried and true methods designed to guide investors. They apply whether you are investing a few thousand or hundreds of thousands of dollars. Remember, in the stock market, no one is right all the time. So, if you try something and it doesn’t work out in the short run, don’t fret about it. If you keep trying to do the right thing, over time, things will work out.

What Is Next?

If you follow one or more of the ideas above, you will accumulate some cash. But having a little cash never hurts in a volatile market. I am on the lookout for another good idea at the present time, and I am sure one will turn up shortly. It may even be that one of the stocks I am recommending that drops in price and creates an opportunity. Anyway, you don’t have to catch every train leaving the station. So, hang on to the cash and stay tuned.

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

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

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

Marvell Technology clinches roughly $6 billion deal to buy Cavium: sources

(Reuters) – Chipmaker Marvell Technology Group Ltd (MRVL.O) has agreed to acquire smaller peer Cavium Inc (CAVM.O) for around $6 billion, as it seeks to expand in the networking equipment sector, people familiar with the matter said on Sunday.

The deal will allow Marvell to diversify away from its traditional storage devices business following an agreement with Starboard Value LP last year to accept three new directors nominated by the activist hedge fund to its board.

Marvell plans to announce its cash-and-stock acquisition of Cavium on Monday, the sources said, asking not to be identified ahead of an official announcement. Marvell and Cavium did not immediately respond to requests for comment.

Marvell CEO Matt Murphy, who took the reins of the chipmaker last year, has embarked on a restructuring of the company, slashing jobs and seeking to add offerings in areas such as data centers and wireless communications.

Based in San Jose, California, Cavium produces network, security, server, and switching processors and systems. Last year it acquired QLogic Corp, a manufacturer of interface devices for storage area networks, for about $1.3 billion.

Marvell has a market capitalization of $10 billion while Cavium, whose shares have risen more than 10 percent since the Wall Street Journal reported earlier this month that the companies were in advanced talks, has a market capitalization of $5.2 billion.

Mergers and acquisitions activity in the semiconductor sector has been picking up. Earlier this month, chipmaker Qualcomm Inc (QCOM.O) rejected rival Broadcom Ltd’s (AVGO.O) $103 billion takeover bid, one of the biggest ever in technology dealmaking, saying the offer undervalued the company and would face regulatory hurdles.

Reporting by Liana B. Baker in New York; Editing by Cynthia Osterman

Our Standards:The Thomson Reuters Trust Principles.

China's Yixin Group rises 32 percent in Hong Kong debut

HONG KONG (Reuters) – Shares in Yixin Group Ltd (2858.HK), China’s largest online car retailer, gained as much as 32 percent on their trading debut in Hong Kong on Thursday, benefiting from rising enthusiasm for technology stocks in the Asian financial hub.

Yixin’s debut is the latest in a string of technology share offerings in Hong Kong, which have been generating strong retail investor demand.

Backed by internet giants Tencent Holdings (0700.HK) and JD.com (JD.O), Yixin raised HK$6.77 billion ($867 million) after pricing its initial public offering (IPO) at the top of the indicative range of HK$6.60–HK$7.70.

The shares opened at around HK$10 and extended gains to HK$10.18 in early trade, posting a 32 percent gain over the initial offering price of HK$7.70 and giving the firm a market value of HK$64.1 billion ($8.21 billion).

By 0205 GMT, the stock was trading at HK$8.70.

Spun off from New York-listed online automobile marketplace Bitauto Holdings (BITA.N) in 2014, Yixin has gradually grown into a large online firm for trading new and second-hand cars, as well as providing auto-related financing services.

It posted a loss of 6.11 billion yuan ($16.62 million) in the first half of 2017, compared to a loss of 647,000 yuan a year earlier. Its revenue more than tripled to 1.55 billion yuan over the same period.

Chinese internet giant Tencent owns 24.3 percent of Yixin, while JD Financial Investment, a unit of JD.com, controls 12.7 percent and Chinese search engine Baidu (BIDU.O) holds 3.5 percent of the company.

On Monday, shares in gaming firm Razer Inc (1337.HK), backed by Intel Corp (INTC.O) and Hong Kong billionaire Li Ka-shing, surged 18 percent in its Hong Kong stock market debut, after raising about $500 million in an IPO.

That came a week after China Literature Ltd (0772.HK), the e-book unit of Tencent, saw its shares surge more than 80 percent in their debut, marking the biggest first-day gain for a large IPO globally this year.

Reporting by Julie Zhu; additional reporting by Donny Kwok; Writing by Sumeet Chatterjee; Editing by Stephen Coates and Joseph Radford

Our Standards:The Thomson Reuters Trust Principles.

Google Is Removing More Extremist YouTube Videos Amid Increasing Government Pressure

Alphabet Inc’s Google (goog) in the last few months has begun removing from YouTube extremist videos that do not depict violence or preach hate, YouTube said on Monday, a major policy shift as social media companies face increasing pressure from governments.

The new policy affects videos that feature people and groups that have been designated as terrorist by the U.S. or British governments but lack the gory violence or hateful speech that were already barred by YouTube.

A YouTube spokesperson, who asked not be named for security reasons, confirmed the policy in response to questions. The company would not specify when the policy went into effect.

As YouTube terms already barred “terrorists” from using the service, the new policy keeps out videos uploaded by others that militants likely would try to distribute if they could have accounts, according to the spokesperson.

Hundreds of videos of slain al Qaeda recruiter Anwar al-Awlaki lecturing on the history of Islam, recorded long before he advocated violence against the United States, were among those removed under the new policy, the spokesperson said.

Governments and human rights groups have pressed YouTube for years to crack down on extremist videos. They argue that the propaganda radicalized viewers and contributed to deadly terror attacks.

British Home Secretary Amber Rudd amplified the pressure during visits with tech companies in Silicon Valley in July and a speech in Washington, D.C. last week. European Union and U.S. lawmakers this year have threatened consequences for tech companies if concerns are not addressed.

Legislation could resemble a German law approved in June to fine social media companies 50 million euros ($57 million) if hateful postings are not promptly removed.

YouTube said discussions with outside experts prompted the new policy, but it was unclear why the company decided to act only recently. In June, the company announced that “inflammatory religious or supremacist content” that did not violate its policies would be allowed with warning labels and a restriction making them ineligible for ad revenue.

At the time, Google General Counsel Kent Walker said in a blog post, “We think this strikes the right balance between free expression and access to information without promoting extremely offensive viewpoints.”

The latest step goes farther and was praised by critics such as Paul Barrett, deputy director of the New York University Stern Center for Business and Human Rights.

“If the terrorist is in the business of recruiting and inciting people to make violent attacks, you’ve got to the draw the line” against any of their content, Barrett said.

The new policy does not affect news clips or educational videos about terrorism. But YouTube will not always have an easy time distinguishing, experts said, pointing to tactics such as overlaying extremist commentary on news footage to get around censors.

YouTube has resisted imposing more editorial control because it fears making it harder for important videos to get a wide audience, Juniper Downs, YouTube’s global director of public policy, told a San Francisco conference sponsored by the Anti-Defamation League on Monday.

“We will lose something very valuable if we completely transform the way these platforms work,” she said during a panel discussion.

Internet freedom advocates such as the Electronic Frontier Foundation have urged tech companies to be cautious and transparent in responding to government pressure.

YouTube is relying on government lists of terrorists and terrorist groups for enforcement. Content moderators check the listings and make removal decisions after fielding reports from an automated system, users or partner organizations such as the Anti-Defamation League and The Institute for Strategic Dialogue.

Al-Awlaki, whom the U.S. killed in a 2011 drone strike, was designated a terrorist by the U.S. Treasury the year prior.

The New York Times first reported the removal of al-Awlaki videos.

On The Death Of Value Investing

During the past several months, some prominent Wall Street players have questioned the enduring legacy of value investing or have outright declared its imminent death. And why not as we are enjoying a bull market for the ages where non-dividend paying growth stocks (FANGs), momentum trading, trend following, and high yield dividend equity (HYDiS) among other speculative portfolio strategies, are outperforming the more risk averse value approach.

But we think that investing in quality, dividend-paying companies at reasonable prices — whether from a growth or value perspective — endures well beyond the scrap heap where this market may ultimately dump the portfolios of investors that are chasing fast money in the euphoria of a post-Great Recession boom.

Thus, we believe value investing will survive as the superior investing strategy along with dividend growth investing not called HYDiS. Value investing is not dead. It is just camouflaged, with die-hard practitioners waiting in the bushes ready to pounce on the falling stock prices of otherwise enduring enterprises.

Here is Main Street Value Investor’s argument that value matters in all markets.

From Bust to Boom

American writer and humorist Mark Twain (C. Stovall for Pixabay)

Remember the junk bond-fueled 80’s that led to the 1987 stock market crash? How about the dot-com craze of the late 1990’s that ended with the tech crash and subsequent bear market at the turn of this century? Perhaps we are all young enough to recall the housing boom that led to the capitulation of the stock market in 2008 and the ensuing Great Recession, the worse economic downturn since the Great Depression of the 1930’s.

If Benjamin Graham, the father of value investing, and Mark Twain, the legendary writer and humorist spoke from their graves with words of wisdom on today’s bull market, Graham would be screaming “where’s the margin of safety” as Twain reminds us that history does not necessarily repeat but certainly rhymes.

Well, high yield junk equity rhymes with high yield junk bonds, expensive internet growth stocks rhyme with dot-coms, central bank quantitative easing rhymes with savings and loan deregulation, and forever ascending stock prices rhyme with perpetually climbing home prices.

Trends are just that, trends which, by definition, always come to an end.

Nobody knows precisely when, but this end cycle will leave a secondary, more palatable heap of quality enterprises on sale for a limited time with a wide margin of safety or discount to perceived intrinsic value.

Grantham On Investors’ Preference for Extreme Comfort

Jeremy Grantham, the famed deep value co-founder of the Boston-based investment firm, Grantham, Mayo, & van Otterloo [GMO] started the latest debate on the virtues of value investing in GMO’s Q2 2017 letter to shareholders. Grantham’s argument was not about predicting the death of value investing as much as a narrative on why current stock market prices are trading beyond a reasonable margin of safety.

Investors’ extreme preference for comfort, like human nature, has never changed (tested back to 1925.) This is unlike financial and economic conditions, which have very substantially changed in the last 20 years.

The ebb and flow of these variables explain previous market peaks and troughs. These comfort factors, for example, have been at an extremely high average level for 20 years (as have P/Es) and remain so today. Thus today’s high priced market is the completely usual response from investors.

Any shift back to a lower P/E regime must therefore be accompanied by a major sustained fall in margins or a sustained rise in inflation (or both).

And, yes, I do believe these comfort variables will move to be less favorable. But probably not quickly.

Grantham correctly called and positioned his portfolios for the dot-com and housing bubbles, but has seen a negative outflow of GMO funds from clients as his bearish view of the current bull market is challenged daily by ever-rising indices.

Nonetheless, we believe that neither GMO clients’ performance chasing nor Grantham’s penchant for predicting market crashes is a sustainable investment strategy.

On a long enough timeline the survival rate for everyone drops to zero.

-Chuck Palahniuk from his best-selling satirical novel and movie, Fight Club

We agree with investment site, Zero Hedge that Fight Club’s sarcastic, although eerily truthful anthem also applies to the markets. As such, life expectancy, whether human or markets, is mostly unpredictable in the context of exact time frames.

Goldman Sachs: there isn’t much value in investing these days

At about the same time as Grantham’s narrative, Wall Street staple Goldman Sachs Group (GS), in a widely-covered report, argued that buying stocks with the lowest valuations and selling those with highest is not working in this bull market. According to Goldman, the pure play value strategy, known as Fama-French, has resulted in a cumulative loss of 15% over the last decade following a 70-year cumulative positive return for the same investment approach. We argue that investing solely on value is as speculative as trading non-dividend growth FANGs, i.e., Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google parent, Alphabet (GOOG) (GOOGL), among others. As is an over-reliance on HYDiS to leverage a retirement portfolio (read my article: High Yield Dividend Stocks Are Equity Junk Bonds); or the reemerging craze of trend following to quench an insatiable investor thirst for fast money.

At Main Street Value Investor (MSVI), we define value investing as a commitment to both price and quality. Our investment objective:

Buy and hold U.S. exchange-traded, dividend-paying, well managed, financially sound businesses, or funds of companies that produce easy to understand products or services, have enduring competitive advantages from wide economic moats, enjoy steady free cash flow, and are trading at a discount to our perceived intrinsic value at the time of purchase. Then, of utmost importance and perhaps the biggest challenge, practice patience in waiting for our investment thesis to play out as projected over a long-term horizon.

MSVI’s investment objective enthusiastically follows the rational wisdom of legendary value investor, Warren Buffett. As reiterated in the excellent HBO documentary, Becoming Warren Buffett, he endured a transformation from buying cheap companies, regardless of quality, and unlocking value through corporate events, i.e., dump the stock when the price increased to a profitable level; to buying and holding wonderful companies at fair prices and taking advantage of the magic of compounding.

Buffett acknowledges that it was under the tutelage of his partner Charlie Munger that he made this career makeover from a stock trader to a company investor.

As influenced by Buffett and Munger, we prefer investing in quality, enduring companies as opposed to trading in speculative, faceless stocks.

David Einhorn: FANGs are killing value investing

Another household name from Wall Street, famed long and short value investor and founder of hedge fund Greenlight Capital, David Einhorn, thinks the popularity of non-dividend paying, ultra-growth FANG stocks, are redefining how shares are valued. In October, Einhorn wrote the following passage in an investment letter to Greenlight clients:

Given the performance of certain stocks, we wonder if the market has adopted an alternative paradigm for calculating equity value.

We think Einhorn’s banter is relevant in the current trend of ever-rising stock prices without regard to valuation multiples and underlying fundamentals. But we also believe that his presumption of the death of value investing as we know it is a trend in of itself.

Such a vogue paradigm will likely fade as most trends do, and the argument will revert to the mean that all things bought and sold are valued based on the correlation between quality and price. This fundamental economic reality may vary in reasonable or unreasonable ways but will never change because theoretically, valuation cannot deviate from the buyer and seller’s independent perceptions of the actual price relative to perceived worth.

Perhaps a return to the basic tenets of value investing is in order.

Value Investing 101


Value investing is a simple strategy in an otherwise superfluously complex financial services industry.

At Main Street Value Investor, our definition of value investing is steadfast to the word value as it applies to all aspects of our consuming lives, including investments.

“Value” as defined by Miriam-Webster:

Amount of money that something is worth.

Price or cost of something.

Something that can be bought for a low or fair price.

Usefulness or importance of something.

Our research and analysis of stocks and funds are quite similar to the purchase considerations in other aspects of our lives:

What is the product or service worth to us? What is the quoted price? What is the difference and will it be available for a lower or fairer price at some point in the future? Put another way, is it mispriced based on the inherent value we place on the product or service? And, just as important, why buy an attractively priced product or service unless we see usefulness or importance in owning the product or service?

Now substitute “stock and fund investment” for “product or service” and re-read the same paragraph based on our formal definition of value:

What is the company or fund of businesses worth to us? What is the quoted price? What is the difference and will it be available for a lower or fairer price at some point in the future? Put another way, is it mispriced based on the inherent worth we place on the company or fund? And, just as important, why buy an attractively priced stock or fund unless we see usefulness or importance in owning a slice of the business or fund?

Next, we apply the above formal definition of value to our investment philosophy repeated for reader convenience.

Investment Objective: Buy and hold U.S. exchange-traded, dividend-paying, well managed, financially sound businesses, or funds of companies that produce easy to understand products or services, have enduring competitive advantages from wide economic moats, enjoy steady free cash flow, and are trading at a discount to our perceived intrinsic value at the time of purchase. Then, of utmost importance and perhaps the biggest challenge, practice patience in waiting for our investment thesis to play out as projected over a long-term horizon.

The above mission statement or investment philosophy is short, to the point, and focused on quality products and services with built-in barriers to competition that are produced and sold by financially sound companies or funds of those companies. The representative securities are purchased at fair, reasonable, or cheap prices, and held for as long as our conviction remains intact or improves as demonstrated by the overall performance of the company stock or stock fund.

So how do we measure the quality of a company’s product or services, its competitive advantages, financial strength, and intrinsic value or perceived enduring value relative to current price?

First, we give our portfolio a K.I.S.S., i.e., Keep Investing Super Simple, by limiting our measurement and analysis to a handful of essential metrics in each key area of the company or fund. Our due diligence involves profile, value proposition, fundamentals, valuation, and margin of safety; with a counter understanding and acceptance of the downside risk, should our thesis or perception of intrinsic value misfire.

Modern methods of measurement utilized by momentum investors and day traders such as technical analysis, or the in-depth study of past price behavior, are avoided.

The legendary value investor, money manager, and author, Howard Marks, writes in his must-read book, The Most Important Thing (New York: Columbia University Press, 2011):

Moving away from Ouija boards, along with all other forms of investing that eschew intelligent analysis, we are left with two approaches, both driven by fundamentals: value investing and growth investing.

As does Howard Marks, we focus on value investing in our fundamentals driven analysis of equities.

In essence, we research the company and then tell a story of why or why not the stock is worthy of ownership. Intelligent investors own risk-averse slices of wonderful companies. We leave the trading of stocks to risk-defying speculators.

Instead, the MSVI model portfolio invests in companies producing worthwhile and profitable products or services that assist consumers worldwide in solving personal and business problems, wants, or needs. The portfolio represents a collection of owned slices of companies producing high quality, in-demand products and services with enduring competitive advantages.

We leave the crystal ball to market speculators as ours cracked years ago.

Trying to Predict Market Events is a Fool’s Game


Value investors buy financially stable companies with strong fundamentals when macroeconomic events produce attractive valuations. Then sell or reduce the holding on weaker fundamentals or inflated valuations when microeconomic events erode the company’s financial strength or the demand for its products and services.

In his bestselling nonfiction book, The Black Swan: The Impact of the Highly Improbable (New York: Random House, 2007), Nassim Nicholas Taleb presents his black swan theory or the extreme impact from certain kinds of rare and unpredictable events or outliers. He explores the human tendency to find simplistic explanations for the occurrence in retrospect. This rationalization is in spite of the individual or group taking a beating as a result of the surprise episode.

From an investment perspective, the timing of the book was profound as the Black Swan event that became known as the sub-prime mortgage crisis that led to the Great Recession occurred one year after the publishing of Taleb’s book.

However, Taleb writes that he does not attempt to predict Black Swan events. To the contrary, he proposes that being aptly prepared for these surprise macro events, should one occur, is more prudent than attempting to forecast the anomaly. He illustrates by suggesting a Black Swan event is a “surprise for the turkey but not the butcher.”

An obvious translation of his theory is the typical Wall Street philosophy of trying to predict market fluctuations, i.e., the market timer as the turkey, versus manipulating the market’s ebb and flow to your advantage after they unexpectedly occur, i.e., the value investor as the butcher.

If the Wall Street market timer is wrong in predicting a Black Swan event, granted incorrectness is often the more likely outcome, he or she may lose substantial assets from being too long or too short.

On the other side of the trade, the value investor is already prepared to take advantage of any surprise Black Swan macroeconomic event by allocating planned cash reserves to take new or increased positions in the stocks or funds of fundamentally strong companies. He or she takes advantage of indiscriminately depressed prices from the macro event. These incidents, any tragedies notwithstanding, are the value investor’s white swan.

For example, investors that held, added, or initiated quality positions immediately following the market crash of 1987, during the dot-com bear market of 2000-2002, or in the early run-up after the Great Recession of 2007-08 invariably profited from subsequent booming portfolios.

To be sure, a few lucky speculators predicted these events and perhaps benefited from them, but many investors reacted after the fact by foolishly selling-off already depressed securities. I imagine more than a few of these Black Swan victimized portfolios have yet to recover.

I have observed that investors who successfully predict a Black Swan event often become intoxicated by the lucky call and begin to base his or her investing philosophy on the sudden perceived ability to predict future events. Such inebriation of financial intellect induces proverbial gazing into the crystal ball that magically filters a false state of being. What is predictable is that the luck soon runs out as does the principal on his or her investments.

Unless, of course, you have the seemingly magical instincts of Warren Buffett.

Fear and Greed are Pricing Mechanisms for Value Investors

Warren Buffett (Reuters)

The value investment theory of buy when the Black Swan flies, a surprise event affecting an entire economy or sector; and sell when the swan comes home to roost, a surprise event affecting only a company or industry also appears in a metaphor from the most famous value investor of all time.

I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful. -Warren Buffett

What Nassim Taleb wrote so eloquently in a 400-page book, Buffett independently coined in a brief passage. The lessons of Howard Marks, Taleb, and Buffett for value investors are to stop market timing or stock trading and start investing or divesting as actual macro and microeconomic conditions dictate. In most cases, that means being contradictory to the crowd.

As such, the value investor sticks to the tried and true approach of researching a company’s fundamentals to determine the level of ownership worthiness; then, if warranted, measures the stock’s valuation multiples to decide whether to buy, add, maintain, reduce, or sell the holding.

Value investors are steadfastly patient in waiting for Taleb’s random Black Swan macroeconomic event, or Buffett’s fearful retreat from stocks on Wall Street. As prices drop to attractive valuations, we will sift our watchlist for superb, fundamentally sound companies trading at appealing valuations that offer what we perceive as reasonable margins of safety.

Alternatively, we may just add to our current positions, as our first, seventh, and twelve ideas are probably better values than the 20th opportunity presented by the Mr. Market.

And whenever the swan comes home to roost, and Wall Street traders get greedy, thereby negatively affecting the fundamentals, valuation, or margin of safety of a single holding, we will consider reducing or eliminating our ownership in that position. Conversely, if trader reaction to the micro event renders attractive valuations with wide margins of safety, we will purchase a new stake or add to the position.

Another reminder that value investors are contrarian by nature.

Is There Further Downside to Value in this Bull Market?

DIA data by YCharts

The inherent risk to the value investing model is the non-value investors that permeate this and most market cycles.

Chasing the dragon has been a cornerstone of investing for Wall Street professionals and Main Street do-it-yourselfers since, well, market trading began. Human nature dictates that once we outsmart Mr. Market and successfully predict this swing or that trend, or go beautifully long or short on a stock or sector, it is “off to the races” as they say at the horse track. We begin the hamster roll of predicting and trading with abandon because we are self-convinced that we have this thing figured out.

As validation, there is always a perceived reputable assist to our sudden crystal ball accuracy. Lately, that has been in the form of the current U.S. president — who despite claiming he is not invested in the stock market, although apparently he is — takes credit for igniting it to its present record levels as well as fueling speculation of more upside from deregulation, trade renegotiation, and tax reform.

Of course, before November 2016, there was an assist from the Federal Reserve in keeping interests rates artificially low. Before that the hand-off came from government deregulation of the housing market allowing most anyone to buy a home and for unscrupulous investment banks to package the mortgages into marketable securities, thus creating more mortgage dollars.

Before the highly rated — despite no doc and no income — mortgages, there was an assist from the capital markets of free-flowing investment into dot-com ideas that were just that, ideas. And before that, there was the contribution from junk bonds that creatively financed otherwise impossible mergers and acquisitions.

Yes, the most significant threat to a value investor is the market itself. But Mr. Market is also our friend as he can be counted on to deliver individual company or entire market value opportunities. Dedicated value investors stay self-disciplined and patient as we do not know when or how those opportunities will present themselves. Nevertheless, make an appearance they will and when least expected.

We prepare for the pending downside with dry powder in the form of FDIC-insured cash to ride the ensuing upside in the stocks of quality companies that are temporarily value-priced by the sudden extreme preference for discomfort among investors.

Because as value investors, the market or targeted company’s downturn is our workday while the upturn is our payday.

Value Matters

Jeremy Grantham’s note to clients on the extreme preference for comfort by the market’s likely future victims, aka the perma bulls and market timers, reminds us that the day of reckoning is inevitable, although not pinpoint predictable.

Instead of chasing the dragon, value investors prefer the long-term benefit of partnering with a company that supports its customers with in-demand, useful products or services, rewards its employees with sustainable career opportunities, and compensates its shareholders with positive returns protected by world-class internal financial controls.

As individual value investors, we never stress over failed short positions, diminishing assets under management from departing performance chasers, or useless self-doubt fueled by the 20/20 hindsight of missing out on the FANGs and HYDiS when they were trending upwards. We remind ourselves that for every speculative winner, there are several Enrons, Blockbusters, and Valeants (VRX).

Ultimately, we take extreme comfort in knowing that as long as there are financial markets or farmers markets, value investing will prevail.

Main Street Value Investor on Marketplace

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Comments are strongly encouraged and always welcomed. Please read the important accompanying disclosures.

Main Street Value Investor is a trademark, and Main Street Value Investor Model Portfolio (MSVI) and Main Street 20 Watchlist are service marks of David J. Waldron.

Data Sources: Seeking Alpha, Goldman Sachs, and YCharts.

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: Data is for illustrative purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs or intended for portfolio construction beyond the contributor’s model portfolio which is presented solely for educational purposes. David J. Waldron is an individual investor and author, not an investment adviser. Readers should always engage in further research and consider (as appropriate) consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or qualified attorney before making any investment, income tax, or estate planning decisions.

Valeant Surges Post-Q3: A Reassessment

Why Valeant may have been treading water for months

As a bear on Seeking Alpha about Valeant (VRX) since October 2015, when the stock was around $100, I modified my views some months ago subsequent to the stock falling below $10, after which several positives emerged. These positives included:

  • Removal of the Ackman overhang,
  • pending or actual launch of Siliq,
  • expectations that Vyzulta would finally launch, and
  • rescheduling of the debt.

The modified trading views were to expect VRX to trade in a range rather than collapse immediately. After all, a 95% bear market since the Q3 2015 highs is plenty. Furthermore, the psychology of speculators gets very interesting when a stock with about a $5 B market cap has $25 B of net debt. In this situation, the enterprise value may be viewed as the $5 B value of shares outstanding X price, plus $25 B or $30 B. This is the amount the company needs to earn to pay back the debt and earn the value of the stated market cap. Thus, if the company can earn not just $30 B but $35 B, subtracting the same $25 B debt means that the equity is suddenly worth $10 B. This implies that the stock price doubles. From there, one can imagine an “up, up and away” move as Bausch & Lomb strengthens and new products succeed, one after the other. Meanwhile, interest costs decline as debt gets paid down, etc. So then one can think of a triple to, say, $40. All this upside, and the worst is that the stock can go to zero – but the usual speculator psychology is that one can limit one’s loss by selling at some predetermined point, such as $10.

Thus there is a pool of buying power that likes the reward:risk ratio. At the same time, there is a large pool of stockholders that is down on the stock and is perhaps grimly determined to wait for better times.

So the combination of the company offering hope from new products and receiving breathing space from its creditors led me to think of a range-bound stock price, but within a bearish big picture setting where I believed and said the major trend for the stock was probably still down, possibly to or near zero.

However, with VRX having rallied post-earnings to close the week at $15.38, this article explains why the earnings release, slide presentation, and conference call continue to support a bearish long term view

A personal note: I’ve never been long or short VRX, and am a long-only investor. I am not working with or in any other way aligned with a short seller, put buyer, etc.

As far as analysis of companies that have lots of debt and little cash, and which emphasize non-GAAP “earnings,” I look at them two ways to see if they correlate. If they point in the same direction, both bearish, then I can think about them bearishly and explain it both ways in an article. The two ways that cover the bases with VRX are GAAP EPS and balance sheet/cash flow analysis. It is the latter that allows me to join the bulls and ignore amortization charges, goodwill writedowns, etc. But because stock prices basically rise with earnings, I will begin first with earnings and ask if the core of VRX is, or is not, profitable, using generally accepted accounting principles that prevail in the United States of America.

Another complicated quarter for VRX, but at the core, VRX is unprofitable (and this may worsen)

As VRX’s CFO explained in his prepared remarks in the conference call, VRX showed a GAAP profit due to a very large tax benefit. There were also significant one-time events, which I will try to exclude. I will just try to get to a recurring core of the P&L. Thus I am excluding negatives that some other perma-bears on VRX mention, such as writedowns goodwill/intangibles/in-process R&D, and legal risk (I have never worried much about legal risk for VRX, though the legal fees are significant). I do this to try to accurately uncover the true story.

Now to my P&L analysis.

From the first table in the earnings release, we learn of $2.2 B in revenues for Q3. Here are the expenses I list as reasonably recurring, in millions of USD:

  • 659 = cost of goods and revenues
  • 623 = SG&A
  • 81 = R&D
  • 657 = amortization of intangibles
  • 456 = net interest expense.

Total recurring expenses: $2.48 B.

Loss from continuing operations, excluding tax expenses or benefits, about $300 MM.

So, VRX is unprofitable even after excluding writedowns and the like, and excluding one-time tax benefits.

The next question is whether this will change in future years. Only time will tell, of course. I discuss this later and explain why I have a point of view that is negative for VRX’s chances.

Why amortization charges are included in measuring profitability (or, “a false construct”)

Some VRX bulls dispute amortization as a continuing cost when doing a profit and loss analysis. I disagree: it is a real cost when doing P&L analysis. In addition, unlike writedowns, amortization charges are recurring; they end on schedule, or when changing conditions change or eliminate the amortization charges. All the amortization does is measure money previously spent that never entered the P&L as the loss that it was. This accounting convention was done to benefit shareholders. Then it got misused by aggressive managements and their allies/enablers in the financial community. The reasoning in a little more detail:

A purchase costs money, with the operative word being “costs.” That cost has to either be put in the P&L line when the money is spent (cash basis) or spread out over time (amortized). This basic insight led me to correctly diagnose VRX going back to my first article, written when VRX was around $100:

Basic Problems With Valeant’s Valuation, With Comments On Recent News

One of the overlooked aspects of the stock is a conventional analysis of its operations based on generally accepted accounting principles…

The conclusion is that VRX was grossly overpriced simply based on GAAP EPS and a very weak balance sheet.

That article also correctly estimated that VRX was probably worth $10 per share or less (at least a 90% haircut) even if the allegations then hitting the news from short sellers such as Andrew Left were false.

This helps to show the value of paying attention to GAAP profits or losses. The media was propounding the idea that VRX was highly profitable (even the previously conservative Value Line joined in), but that was using fake non-GAAP “earnings.” These numbers omitted such key points as bringing the cost of the acquisitions into the ongoing P&L statements via amortization charges. There were other evasions in the non-GAAP numbers, but ignoring amortization was the largest. Because VRX’s tens of billions of dollars expended on acquisition was funded entirely, or almost entirely, with debt, the importance of thinking through underlying profitability was much more important than with a company that spent its own cash in the bank on a deal. In that case, GAAP continues to be the right way to measure whether the deal is working out, but the company’s solvency is not at stake as it is when the deals bring in mounds and mounds of debt.

As it happened, within mere months of my article, VRX was on the brink of having to default on its debt, which I think would probably have destroyed the share price, until lenders saved it. Undoubtedly saving it was to benefit the lenders, not shareholders, and this led to the lenders coming into control of the company’s goals. Debt repayment rather than growth and gambling suddenly took priority.

The theme of the importance of GAAP was just then coming into public consciousness. About a week after my article was published, the New York Times achieved much greater awareness of the same issue I was pointing to in a Sunday article by the well-known realist on financial affairs, Gretchen Morgenson. The title of her piece was clear: Valeant Shows the Perils of Fantasy Numbers. Two paragraphs from her article show the validity of our arguments:

Valeant is among a growing number of companies that regularly present two types of financial results: those that adhere to generally accepted accounting principles, and those that help executives put the best spin on their operations.

In accounting parlance, such adjusted figures — which exclude certain costs from calculations of a company’s earnings — are known as pro forma or non-GAAP numbers. But let’s call them what they really are: a false construct.

In case you still disagree, just look at all the pharma roll-ups that have emphasized non-GAAP numbers always trying to get investors to ignore those pesky amortization charges. These worthies include Teva (TEVA), Mallinckrodt (MNK), Endo (ENDP), etc. All of them are huge losers in one of America’s great bull markets. Even Allergan (AGN), a stronger contender, has done as well as it has done only because it made a huge capital gain by dumping its large rolled-up generic division (Actavis) to TEVA. But as I have pointed out in my AGN articles, I have always resolutely refused to turn fundamentally bullish on AGN even when the stock was down, because using GAAP, profitability remained absent despite the stronger assets and strong management.

Moving on, the next section discusses a cash flow method, not the P&L method, of looking at VRX. This is the proper way to ignore amortization charges.

This method allows us to think about whether VRX is ultimately solvent based on free cash flows: is it generating more than enough cash to meet its ongoing interest and, beginning in 2020, its debt repayment obligations? What are the trends for cash flow from operations going forward?

Cash flow is not good enough now, and it looks worse for next year

The trend in cash flows this year is poor, mostly but not exclusively reflecting ongoing problems in VRX’s dermatology division, the sale of FCF-positive assets, and ongoing losses of exclusivity. From the CFO’s prepared remarks (see Slide 16):

We generated $490 million of cash from operations in the quarter, and year to date we generated more than $1.7 billion.

This sentence calls for analysis. Cash flow from operations, or CFFO, for nine months was $1.71 B. Subtract $0.49 B for Q3’s contribution and you see that H1 had CFFO of $1.22 B, which is $0.61 B on average per quarter. Thus:

CFFO in Q3 saw a drop of about 20% from the H1 average.

How is that a justification for this debt-ridden company’s stock to have surged? Just because, just maybe, the bear market in generic pricing is winding down (no guarantees)? VRX has only a small generic division, which has low profitability. VRX is a combination of B&L and specialty branded pharma, with a small generic business as well.

Now let’s look at the debt set-up to see if likely forward CFFO run rates are adequate to meet the upcoming obligations. I think this shows that there is no reason for any fundamentally-based investor to go long this stock anywhere near the current price.

VRX’s debt maturity schedule requires huge cash flows

As shown on slide 16 of the presentation linked to above, VRX must repay about $20 B by 2023 to meet its debt obligations. Clearly, $2 B per year X 6 years is only $12 B, so it’s $8 B short by that quick calculation. (Perhaps $20 B shrank to $19 B or so after the quarter ended, due to debt repayments the company made, so maybe it would be $7 B short using this simple calculation).

This multi-billion-dollar shortfall is much more than VRX’s entire market cap, so good luck getting the money from the sale of equity.

But it looks worse than that to yours truly just looking forward to next year.

There are at least two ongoing problems with attaining that number, discussed next.

Ongoing losses of exclusivity (slides 31-32)

From Slide 32, we see that two ophtho drugs, Lotemax and Istalol, are anticipated both to go generic this quarter. Their estimated 2017 sales apparently will be around $111 MM. Critically, the pre-tax profit from these sales is $106 MM (Not all sales are equal. B&L has much lower gross margins than these old cash cows).

That point is important in assessing VRX. Old drugs getting near end of life lose marketing support and thus represent almost pure profit. Whereas, new drugs are expensive to introduce to the market and tend to be cash flow negative for some time.

Two other drugs, Mephyton and Syprine, likely both lose exclusivity in Q4. Finally, Isuprel has lost exclusivity in Q3, and unless that occurred early in July, the full impact of that was not seen in CFFO last quarter.

The 2016 Annual Report shows that Mephyton and Syprine together achieved $144 MM in sales. Isuprel did $188 MM in 2016 sales. Per slide 40, Mephyton and Syprine together had $32 MM in Q3 sales. I assume that translated to around $120 MM annualized in FCF for these two brands. Isuprel did $30 MM in Q3 2016, $30 MM in Q2 2017, and $23 MM in Q3 2017.

The five drugs discussed above may cost VRX $300 MM annualized as soon as next year, according to my calculations.

Thus CFFO at VRX has a serious structural problem: it looks ready to get worse.

Also, based on p. 148 of the annual report which shows the decline in annual amortization for several years hence, significant additional losses of exclusivity are likely in 2018 and beyond. As one example, Apriso, with sales annualizing around $160 MM, may go generic in April next year. Others, possibly a relatively major product called Uceris, are anticipated to go generic in the next several years. Again, many of these are not being promoted much, so that their pre-tax profit margins can easily exceed 90%. Thus if their sales drop to near-zero, the hit to profits is proportionally greater than the sales that remain, which generally have much lower all-in pre-tax margins.

All this creates continuing headwinds. In addition…

Recent divestitures hurt CFFO

Per slide 33, the sale of iNova at the end of Q3 did not materially affect cash flow, but beginning this quarter, its annualized $100 MM EBITDA will be gone. Then, this quarter, Obagi, with EBITDA around $20 MM will have flown out the door.

The divestiture of two divisions alone will cost around $120 MM in FCCO next year.


Putting things together, VRX looks to me to likely run about $400 MM less in CFFO annualized next year versus this. So, instead of CFFO annualizing at $2 B per year, I propose $1.6 B. Multiply that by the six years from 2018 to 2023, inclusive, and you get $9.6 B in cumulative CFFO.

This is inadequate compared to $19-20 B in debt maturities by 2023. I doubt that anything that VRX is launching, or anything arising from its shrunken pipeline, can make up the approximate $9 B gap.

In addition, remember the $5-6 B in long-term debt due after 2023. Even if Xifaxan retains patent protection for a long time, eventually it too will go generic.

So, the cash flow method of looking at VRX makes it mandatory for massive profits and free cash flows to be generated from new products, plus hoped-for growth of Xifaxan and other products such as Relistor, and from B&L. Everybody is, of course, free to be as optimistic as they want on the above. To keep this article from becoming a whale, I will focus on three new or expected products, where perhaps the Street does not have as clear a view of what they may achieve than for the known quantities of Xifaxan et al and B&L.

Brief analysis Of Siliq, Vyzulta and IDP-118


Sales were nominal in Q3. Competition is fierce in psoriasis. Even the leading oral entry, Otezla from Celgene (CELG) faced both pricing and volume pressure in Q3. Siliq is thus a “show me” story, because of its black box warning and because of newer, also highly effective antibodies that lack that black box warning. Also, the innovator, AstraZeneca (AZN), is VRX’s partner, splitting profits, if any, and also in line for another lump sum payout if sales reach a certain level. Right now and perhaps permanently, Siliq uses cash.

It is difficult for me to be optimistic about Siliq’s cash generation ability for VRX knowing that before Siliq is prescribed, patients must be advised that this drug may make them suddenly want to kill themselves. The black box warning may be removed at some point, but A) the clock is ticking and B) competition is tough and growing in the psoriasis space. So I am very cautious about Siliq.


This is an eyedrop for glaucoma. The active ingredient is related to the heavily genericized glaucoma drug Xalatan, the dominant force in the market. The leading brand of this type of glaucoma treated is Travatan Z, is an improved formulation of Travatan. The active ingredient is the same in both Travatan and Travatan Z, but the latter is easier on the eyes.

Travatan Z’s marketer is Alcon, the powerful eye care division of the giant Novartis (NVS).

Comparing the Vyzulta P.I. to the P.I. of Travatan Z, similar levels of therapeutic effect were demonstrated, even though the VRX drug, Vyzulta, may work by two mechanisms within the eye whereas Travatan Z may work by one mechanism. The P.I. of Travatan Z also mentions results of its effects as monotherapy as well as its use as add-on therapy to a beta-blocker eye drop. However, the following is the entirety of the clinical results listed for Vyzulta:


In clinical studies up to 12 months duration, patients with open-angle glaucoma or ocular hypertension with average baseline intraocular pressures (IOPs) of 26.7 mmHg, the IOP-lowering effect of VYZULTA™ (latanoprostene bunod ophthalmic solution) 0.024% once daily (in the evening) was up to 7 to 9 mmHg.

This FDA-approved language stands in contrast to all the studies listed in VRX’s press release announcing FDA approval of Vyzulta, which mention other clinical trials results. These may have been Phase 2 results that the FDA did not consider scientifically strong enough to allow mention of them in the label.

There is also competition in the branded space from Lumigan, an Allergan (AGN) product; AGN is also very strong in ophtho.

So, this again is a “show me” story. The incumbent brands will fight hard for every percentage point of market share (and fractions of points). They may be able to bundle products, and they will likely do what it takes on price as well to withstand Vyzulta. For VRX to make a lot of profit from this eyedrop is not going to be easy, in my humble opinion.


This pipeline candidate is a combination of two generic topical agents for psoriasis. An NDA was submitted in September. Assuming FDA approval, which I expect next year, there are obvious problems with the prospects for this. Psoriasis topicals comprise a crowded field with numerous generics. The two drugs in IDP-118 are each available generically. In the press release linked to above, VRX makes this statement on that topic:

Both [drugs] approved to treat plaque psoriasis, halobetasol propionate and tazarotene, when used separately, are limited to a four-week or less duration of use. Based on existing data from clinical studies, the combination of these ingredients in IDP-118 with a dual mechanism of action, potentially allows for expanded duration of use, with reduced adverse events.

The first point within this first problem is that four weeks of treatment are often enough.

A second problem is that once the combination is approved for a longer period, then it may be logical for the doctor to try each drug individually, and if treatment needs to go longer than four weeks, continue them individually.

The basic question on sales is why insurers will not create major financial incentives for each drug to be dispensed individually if a prescription for the combo is written.

In the linked press release, VRX references a Phase 2 study that it says shows that IDP-118 was superior to each drug given separately. Let us see if that sort of language is included in the P.I. I am skeptical at this point of this.

Finally, there are the twin questions of what intellectual property VRX will have to protect this combination, and the related question that if this idea is so good, and VRX has been talking about it for some time, how much similar competition from other combinations will also come to market?

Putting it together, I look at IDP-118 the way I look at Siliq and Vyzulta, namely a “show me” product with uncertain commercial prospects.

Other products

VRX does have some other projects, including several “IDP-” type dermatologics. It is implausible in my view that all of them collectively will move the needle given the massive scale of VRX’s net debt load. VRX spends about 4% of revenues on R&D, which is on the downswing. With no platform technology or discovery engine, structurally VRX is not much of a drug company in my eyes. Rather, it is primarily a bunch of old brands, in-licensed products such as Siliq, and B&L.

Upside potential

Since I have disclosed no confidential information in writing this article, the information I have analyzed can be known by all. So, whether for technical reasons or because I am missing something, VRX can rise, perhaps leaving its lows behind permanently.

If all the above new products do well, and if B&L can break out in Asia and elsewhere, then the leverage inherent in VRX shares may work for shareholders.


As usual, I write this article from the neutral standpoint of myself or other investor who has cash and is looking to invest it.

My view remains that VRX is de facto under the control of its creditors. I think it has been that way ever since it avoided a forced liquidation about 1 1/2 years ago. Looked at through this prism, the company’s behavior and comments in the conference call make sense. The lenders want the company to repay debt as the priority. In the meantime, cutting R&D and other costs and generating CFFO allow interest payments to be paid easily. Eventually, if some of the principal cannot be repaid, creditors are maximizing their recovery.

Joseph Papa, the new CEO, is not a magician. His history and that of the VRX team suggests there will not be the sort of magic that Steve Jobs accomplished when he rejoined a trouble Apple (AAPL) in 1997. It would appear doubtful that there would even be the turnaround of the sort that Howard Schultz led when he stepped back into the CEO role at Starbucks (SBUX) several years ago. Mr. Papa tried to relaunch Addyi, the “female Viagra,” but now the Sprout deal that brought Addyi to VRX with some fanfare has been acknowledged as a near-total failure.

If my fundamental analysis is mostly correct, then while I do not short stocks and provide no advice, I will comment that this may be a reasonable set-up for traders who do short stocks to think that VRX may be set for a more sustainable drop once again. Reasons that come to mind include:

  • Rally to a difficult level (near recent highs of the prior rally),
  • Siliq Rx data will be rolling in and may disappoint,
  • rotation to pharma/biotechs that have dropped recently while VRX has surged, such as Merck (MRK) and Regeneron (REGN), and
  • debt-heavy companies tend to falter when the Fed is tightening.

While it would be nice to see VRX succeed, producing wealth rather than disclosing all the wealth that prior management failed to crease, I continue to doubt that the stock ultimately has much if any value given the massive debt load.

Thanks for reading and sharing any comments you wish to contribute.

Disclosure: I am/we are long CELG, REGN, AAPL.

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: Not investment advice. I am not an investment adviser.

Rupert Murdoch Discussed CNN with AT&T’s CEO

Rupert Murdoch telephoned AT&T CEO Randall Stephenson twice in the last six months and talked about cable network CNN, sources briefed on the matter told Reuters on Friday.

According to one of the sources, the 86-year-old executive chairman of Twenty-First Century Fox offered to buy CNN in both conversations.

Another source said Murdoch had “zero interest” in owning CNN.

Representatives of Twenty-First Century Fox, AT&T and Time Warner, CNN’s parent, declined comment.

CNN has become the focal point in antitrust approval of AT&T’s $85.4 billion deal to buy Time Warner, hatched in October 2016.

U.S. Department of Justice staff have recommended that AT&T sell either its DirecTV unit or Time Warner’s Turner Broadcasting unit – which includes CNN – a government official told Reuters on Thursday, in order to gain antitrust approval.

On Thursday Stephenson said he had no interest in selling CNN and that he was ready to defend the deal in court if necessary.

According to one of the sources on Friday, Murdoch called Stephenson twice, unprompted, on May 16 and Aug. 8 and on both occasions asked if CNN was for sale. Stephenson replied both times that it was not, according to the source.

Trump comments weigh

The fate of CNN has broader political significance. U.S. President Donald Trump has repeatedly attacked the network for its coverage of his campaign and his administration, while he has publicly praised Murdoch’s Fox News.

In the run-up to last year’s election he vowed that as president his Justice Department would block AT&T’s purchase of Time Warner. He has not commented on the transaction since taking office in January.

Trump’s comments have provoked concern that he may improperly influence the U.S. Department of Justice to block the deal. The White House has said Trump has not spoken to the attorney general about the matter.

Nevertheless, a group of eight Democratic U.S. senators on Friday wrote to Makan Delrahim, head of the Justice Department’s antitrust division, urging the department “to oppose any attempt by the White House to interfere with antitrust law enforcement decisions, particularly for political reasons.”

Delrahim said he had not had any contact with the White House or the attorney general on the matter, speaking at an event at the USC Gould School of Law in Los Angeles later in the day.

“I’ve got to keep my nose down and be a law enforcer and do what’s good and what I’ve committed to doing to the American people,” said Delrahim.

But he appeared to voice doubts about AT&T’s reasoning that the purchase of Time Warner would not result in a company with too much power because the combined company would have to compete with powerful new online rivals such as Amazon.com Inc , Netflix Inc and Facebook Inc.

Delrahim referred to a comment by former President Ronald Reagan that “the nine most terrifying words in the English language are: I’m from the government and I’m here to help.”

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“I’d say you should be equally terrified when someone in an incumbent company, whatever industry, comes to you and says I’m here to help you against the evils of Netflix, Amazon, Google and Facebook,” said Delrahim. “Some of these pro-competitive comments and justifications remind me of that quote strongly.”

‘No sense’

It would not be the first time Murdoch has attempted to take control of CNN.

His Twenty-First Century Fox made an $80 billion offer for Time Warner in 2014 but abandoned the plan in the face of Time Warner’s resistance. At that time, Fox had planned to divest CNN – which competes with Fox News – in order to avoid antitrust issues.

There is no law against a company owning two cable networks, but there is a Federal Communications Commission prohibition on owning two broadcast networks. A Fox deal with CNN could also raise antitrust concerns because of the market share that a combined company would have among cable news viewers.

“I have been called and asked if I would sell CNN by numerous people,” Stephenson told the New York Times DealBook conference on Thursday. But he added: “Selling CNN makes no sense.”

Fox has held talks in the last few weeks to sell most of its film and television assets to Walt Disney, CNBC reported this week, which would leave the company with its Fox News, sports programming and broadcasting stations. .

Twenty-First Century Fox would sell its stake in European satellite broadcaster Sky in a deal with Disney, according to CNBC’s report. Fox is trying to buy the 61% of Sky it does not already own but the bid is strongly opposed by some lawmakers and has been subject to lengthy regulatory scrutiny.

Time Warner shares closed up 4% at $90.60.

Toshiba considering $5.3 billion capital injection: source

TOKYO (Reuters) – Toshiba Corp, desperate for cash to avoid a possible delisting, is considering raising about 600 billion yen ($5.3 billion) by offering new shares in a third-party allotment, a person briefed on the matter said on Friday.

FILE PHOTO: Shoppers look at Toshiba Corp’s Regza television at an electronics store in Yokohama, south of Tokyo, June 25, 2013. REUTERS/Toru Hanai/File Photo

The Japanese conglomerate has received proposals from several domestic and overseas brokerages for plans to raise money through a public offering or third-party allotment, and is looking into the option of allocating shares mainly to overseas investors, the person said.

In early trade, shares of Toshiba fell as much as 8 percent on the capital injection plan, first reported by public broadcaster NHK. They were down 4.5 percent by mid-morning, underperforming the benchmark Nikkei average’s 1 percent fall.

Strapped with liabilities arising from its bankrupt U.S. nuclear unit, Toshiba agreed in September to sell its prized chip unit, Toshiba Memory, to a group led by Bain Capital for $18 billion. It needs to beef up its balance sheet by the end of the fiscal year in end-March to avoid a possible delisting.

The source told Reuters that Toshiba wants to finalize the capital injection plan by year-end because it would need shareholder approval depending on the offering price and scope of share dilution. The person declined to be identified because the plan is not public.

In a statement, Toshiba repeated its stance that it was aiming to close the deal to sell its chip business by the end of March, saying in response to the NHK report that nothing specific had been decided regarding any funding plans.

Announcing half-year results a day earlier, Chief Financial Officer Masayoshi Hirata said Toshiba had launched a working group to consider various options to raise capital in case the deal did not close in time. He offered no specifics.

Toshiba reported robust second-quarter results with a 76 percent jump in operating profit driven almost entirely by a strong performance from its memory chip unit.

If Toshiba fails to close the sale in time, that could keep Toshiba in negative net worth for a second year in a row, putting pressure on the Tokyo Stock Exchange to delist it.

Reporting by Taro Fuse; Writing by Chang-Ran Kim; Editing by Stephen Coates

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Google supports U.S. efforts to disclose buyers of online political ads

SAN FRANCISCO (Reuters) – Alphabet Inc’s Google unit told U.S. election regulators in a letter seen by Reuters on Thursday that it “strongly supports” tightening rules on online political advertising as part of efforts to curtail “foreign abuse and influence” in elections.

FILE PHOTO – The Google logo is pictured atop an office building in Irvine, California, U.S. August 7, 2017. REUTERS/Mike Blake/File Photo

Federal lawmakers have criticized Google, Facebook Inc and Twitter Inc for not doing enough to identify and block Russian agents from buying ads on their services. U.S. authorities say the ads were intended to influence voters during the 2016 presidential election.

U.S. law permits foreign entities to advertise about certain issues if they disclose such spending, but it is unlawful for them to interfere in elections.

In September, the Federal Election Commission, which sets campaign finance rules, voted to consider ensuring that those disclosure rules apply to online activity. It opened a public comment period that is set to expire Monday.

In the letter, Google on Thursday offered its formal response to the FEC’s deliberation.

“Now more than ever, we must work together to improve transparency, enhance disclosures and reduce foreign abuse and influence in U.S. elections,” the company wrote.

The stance marks an about-face from 2010 when Google sought an affirmative exemption from a requirement that an ad should state who purchased it. The commission did not reach a consensus on the exemption at the time.

Google now is calling on the commission to extend disclosure rules that apply to TV and print ads to the Web.

“Google strongly supports the commission’s proposal to proceed with a rulemaking so that the commission can provide the clarity that campaigns and other political advertisers need to determine what disclaimers they are required to include.”

The company, which is the world’s top seller of online ads, also asked federal regulators and lawmakers to expand restrictions on foreign participation in elections to cover content distributed and advertised on the Internet.

Ratifying such provisions could give tech companies guidance on how to treat soft influence, or content from organizations such as RT, a Russian news outlet that has drawn concerns from lawmakers for peddling propaganda on Facebook and Google’s YouTube service.

In its letter, Google also reiterated plans to offer the public a database of election ads purchased through its service. In addition, the company has said information about buyers would be more accessible.

Technology news website Recode first reported the Google letter.

Reporting by Paresh Dave; Editing by Lisa Shumaker

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Rise of the machines: Philippine outsourcing industry braces for AI

MANILA (Reuters) – The outsourcing industry in the Philippines, which has dethroned India as the country with the most call centers in the world, is worried that the rise of artificial intelligence (AI) will eat into the $23 billion sector.

FILE PHOTO: Call center agents wait for calls from their United States clients as they work overnight in Manila’s Makati financial district February 6, 2012. REUTERS/Erik De Castro/File Photo

AI-powered translators could dilute the biggest advantage the Philippines has, the wide use of English, an industry meeting was told this week. Other AI applications could take over process-driven jobs.

The Philippines’ business process outsourcing (BPO) industry is an economic lifeline for the Southeast Asian nation of 100 million people. It employs about 1.15 million people and, along with remittances from overseas workers, remains one of the top two earners of foreign exchange.

“I don’t think our excellent command of spoken English is going to really be a protection five, 10 years from now. It really will not matter,” said Rajneesh Tiwary, chief delivery officer at Sutherland Global Services.

The Philippines, which was an American colony in the first half of the 20th century, overtook India in 2011 with the largest number of voice-based BPO services in the world.

“There’s definitely reasons to be concerned because technology may be able to replace some of what could happen in voice,” Eric Simonson, managing partner of research at Everest Group, a management consulting and research firm, told Reuters.

AI, which combs through large troves of raw data to predict outcomes and recognize patterns, is expected to replace 40,000 to 50,000 “low-skilled” or process-driven BPO jobs in the next five years, said Rey Untal, president and chief executive officer of the IT & Business Process Association of the Philippines (IBPAP).

Contact centers make up four-fifths of the Philippines’ total BPO industry, which accounts for 12.6 percent of the global market for BPO, according to IBPAP.

FILE PHOTO: A call center agent talks to a client in the U.S. as she works the overnight shift in Manila’s Makati financial district February 6, 2012. REUTERS/Erik De Castro/File Photo

BPO firms in the Philippines list Citibank, JPMorgan, Verizon, Convergys and Genpact <G. n> among their clients. While the United States remain the biggest customers for the industry, demand for BPO services from Europe, Australia and New Zealand is also growing.

The Philippines’ share of the global outsourcing pie, estimated to reach about $250 billion by 2022, is forecast by the industry to reach 15 percent by that year.

To get there however, the Southeast Asian nation must prove to the world it has more to offer than just a pool of English-speaking talent. BPO executives said the country has to take on high-value outsourcing jobs in research and analytics and turn the headwinds from Artificial Intelligence into an opportunity.

The key to stay relevant and ahead of the competition, they said, is to ensure workers are trained in areas like data analytics, machine learning and data mining.

“You will see in the next few years more automation coming in the way we do things in IT and BPO industry, robotic processing, the use of chat bots,” Luis Pined, president of IBM Philippines told Reuters.

“If we are ahead of the game, we will be at an advantage where people will give us more work, because we are cheaper and productive,” Pined said.

IBM Philippines divested its voice business in 2013.

IBPAP has projected a rise in the number of mid- and high-skilled jobs or those that require abstract thinking and specialized expertise which should bring overall headcount in the BPO sector to 1.8 million by 2022.

Augmenting the English language skills of the Philippines with technology will be a “game changer,” said Untal, the head of the association. “Who else can compete with us?”

Reporting by Karen Lema; Editing by Raju Gopalakrishnan

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Self-Driving Bus Crashes on its First Day in Las Vegas

A big public debut for a self-driving bus in Las Vegas turned out to be trouble.

An autonomous shuttle bus collided with a semi-truck just a few hours after Las Vegas city officials held a ceremony to celebrate its first day as part of a larger city-wide test.

There were no injuries reported, and the shuttle didn’t suffer any major damage, according to a report by a local Fox news station.

Las Vegas city officials said in blog post that the self-driving shuttle, built by the French automobile company Navya, was not at fault. Although a delivery truck “grazed” the shuttle, the post said, the ”shuttle did what it was supposed to do, in that its sensors registered the truck and the shuttle stopped to avoid the accident.”

“Unfortunately the delivery truck did not stop and grazed the front fender of the shuttle,” the officials wrote. “Had the truck had the same sensing equipment that the shuttle has the accident would have been avoided.”

The shuttle, called Arma, can carry up to 12 passengers. It is built without a steering wheel or brake pedals for human drivers, according to the Fox report.

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The accident occurred on the first day of the Arma shuttle’s 12-month long test in downtown Las Vegas over a half-mile route near the city’s strip. Las Vegas city officials said that the city would continue to test the shuttle despite the accident. The delivery truck driver was given a citation, the officials added.

Lyft COO Rex Tibbens to quit by year end

(Reuters) – U.S. ride-hailing service Lyft Inc’s Chief Operating Officer Rex Tibbens plans to step down by the end of the year, according to an internal memo seen by Reuters.

FILE PHOTO: An illuminated sign appears in a Lyft ride-hailing car in Los Angeles, California, U.S. September 21, 2017. Picture taken September 21, 2017. REUTERS/Chris Helgren

Tibbens’ move comes at a time when Lyft is close to hiring an advisory firm for it’s proposed initial public offering and it is crucial for the company to have these roles filled as it’s going public.

A Lyft spokesman confirmed the departure of Tibbens when contacted by Reuters.

Lyft has started looking for Rex’s successor, the memo said.

Axios website earlier reported Tibbens’ move to step down.

Reporting by Bhanu Pratap in Bengaluru and Heather Somerville in San Francisco; Editing by Gopakumar Warrier

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Bargaining chip? China seen closely scrutinizing Qualcomm, Broadcom deal

SHANGHAI (Reuters) – A potential mega-merger between chipmaker Broadcom Ltd (AVGO.O) and U.S. rival Qualcomm Inc (QCOM.O) is likely to face stern scrutiny in China, antitrust lawyers say, amid a strategic push by Beijing into semiconductors.

A sign to the campus offices of chip maker Broadcom Ltd, who announced on Monday an unsolicited bid to buy peer Qualcomm Inc for $103 billion, is shown in Irvine, California, U.S., November 6, 2017. REUTERS/Mike Blake

Broadcom made an unsolicited $103 billion bid for Qualcomm on Monday, aimed at creating a $200-billion-plus behemoth that could reshape the industry at the heart of mobile phone hardware.

But Chinese regulatory approval could be a hold-up. Beijing and Washington have sparred over technology deals, including in chips, with the Committee on Foreign Investment in the United States (CFIUS) knocking back a number of takeovers involving Chinese firms this year.

The thorny topic is likely to come up when U.S. President Donald Trump visits China this week – with Qualcomm executives in tow.

The merger would face a lengthy review from the anti-monopoly unit of China’s commerce ministry, due to strategic concerns, the huge size of the deal and because Qualcomm has come under fire before in the country over competition concerns.

“This is a critical industry for China and Qualcomm has been fined by the Ministry of Commerce (Mofcom) before so it’s on its radar,” said Wendy Yan, Shanghai-based partner at law firm Faegre Baker Daniels.

Qualcomm agreed to pay a record fine of $975 million in China in 2015 to end a probe into anti-competitive practices related to so-called “double dipping” by billing Chinese customers patent royalty fees in addition to charging for the chips.

China is making a major push to develop its own semiconductor industry under local champions such as Tsinghua Unigroup and Fujian Grand Chip Investment to help cut reliance on global operators including Qualcomm, Samsung Electronics Co Ltd (005930.KS) and Intel Corp (INTC.O).

Beijing’s push adds a political edge to the case.

“(Mofcom) will consider industry security for the whole country, as the semi-conductor industry has strategic importance to China,” a second Shanghai-based antitrust lawyer said, asking not to be named because Qualcomm was a client of his firm.

China chipmaker rivals could also raise concerns about the deal, he added, putting pressure on Mofcom’s Anti-Monopoly Bureau to act. The most likely outcome would be restrictions on the deal rather than it being blocked, he said.

Firms pursuing major takeovers must notify China before closing a deal if the merging companies’ combined global turnover in the previous year exceeded 10 billion yuan ($1.5 billion) or their combined China income exceeds 2 billion yuan – both easily hit in this case.

Mofcom did not immediately respond to a faxed request for comment.

A sign on the Qualcomm campus is seen, as chip maker Broadcom Ltd announced an unsolicited bid to buy peer Qualcomm Inc for $103 billion, in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake


The Shanghai-based antitrust lawyer said the size and complexity of the deal – and potential sensitivities – meant it would likely have to go through all three phases of Mofcom’s merger approval, on paper a 180-day process.

While Broadcom and Qualcomm have little overlap, the firms are looking to complete a $5.5 billion purchase of Brocade Communications Systems Inc (BRCD.O) and a $38 billion acquisition of NXP Semiconductors NV (NXPI.O) respectively.

Mofcom approved the Brocade acquisition with conditions earlier this year with after a five-month investigation.

FILE PHOTO: A sign on the Qualcomm campus is seen, as chip maker Broadcom Ltd announced an unsolicited bid to buy peer Qualcomm Inc for $103 billion, in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake/File Photo

Qualcomm declined to comment.

“We expect China, as with other countries, will welcome this deal as a solution to the double-dipping issue, and will find there are no significant issues beyond this,” a Broadcom spokeswoman said, referring to the patent charging issue.

Last week, Broadcom CEO Hock Tan said the company would move its headquarters to the United States from Singapore, citing Trump’s efforts to improve business conditions and reforming tax. Trump praised the move, calling Broadcom “one of the really great, great companies.”

“Mofcom will be motivated by the government to look very closely not just from a competition perspective but also from a broader industrial policy perspective,” said another Beijing-based antitrust lawyer involved in similar transactions.

The lawyer, who asked not to be named due to the sensitivity of the matter, said Beijing had been making a big push in the area including with deals to buy international firms – some successfully and some which had hit obstruction.

“You should expect Mofcom will take a very, very close look at this transaction,” he said.

Mofcom has been flexing its muscle more on global deals over the last few years, lawyers say, including putting restrictions on a deal between Dow Chemical and DuPont earlier this year.

However, blocking deals outright was a rare step for Mofcom, especially when Chinese companies were not directly involved, several Chinese lawyers said. Instead, the firms may be asked to sell certain business units or make pledges to Chinese partners as conditions for it going ahead.

“This case will be subject to more scrutiny from the Chinese authorities (than normal),” said Faegre Baker Daniels’ Yan. “I think it’s quite likely the deal will be subject to some restrictions from Mofcom.”

Reporting by Adam Jourdan in SHANGHAI; Additional reporting by Liana Baker in SAN FRANCISCO and Yawen Chen in BEIJING; Editing by Lincoln Feast

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Retirement Strategy:  Should Shares Of Omega Healthcare Be Dumped Now?

There is no getting around the fact that Omega Healthcare (OHI) had a rough quarter and is facing fairly serious tenant reliability issues. There has been a flood of articles about OHI this week, but I’ve waited a few days to crystallize my own opinions. You know how I like to get right to the point, so for my readers I will list the negatives and the positives, and then my own opinion:


  • 2 important tenants have not been paying their rent, causing revenue and cash flow problems for OHI.
  • The 2 tenants account for about 11% of OHI leases.
  • If a satisfactory resolution is not agreed to in the near future, the result will be a blow to future earnings, revenue, and FFO for OHI.
  • The payout ratio based on AFFO will rise which could impact the dividends paid in the future.
  • The longer it takes to resolve the tenant issues, could negatively impact the share price.
OHI data by YCharts

Obviously a 15%+ price drop is not pretty to watch, especially if you made your purchase of shares close to $32/share. That being said, dividend growth investors for retirement might be viewing this as a buying opportunity.


  • The current yield is now well over 9%+.
  • The share price drop is a double edged sword because dividend income seekers might see this as a chance to buy secure income at a cheap price.
  • While the payout ratio has risen (based on FFO) it is still below 83%, and keep in mind that REITs are mandated to pay at least 90% of earnings to shareholders, as dividends, to maintain REIT status.
  • If worse comes to worse, OHI can either sell the property that is under duress, or find new tenants, or work out a favorable arrangement with the current tenants.
  • Even though forward guidance has been reduced (as per the earnings conference call), there is still enough cash flow, revenues and earnings to maintain the current dividend.
  • As proof, OHI just announced yet another dividend increase for its next dividend payment (21 consecutive years!). It probably would not have done that if the situation was dire.

My Opinion

As a shareholder of OHI I would not add shares to a position, nor would I simply dump shares because of these business issues. As far as investors seeking to open a new position in OHI, it might be a good idea to layer into a position with an allocation of no greater than 2-4% right now since there could be further price erosion and a chance to pick up income at an even cheaper price.

The Bottom Line

It is never fun to face headwinds and bad news, and every investor needs to do what they feel is right for them. Panic selling does not help and if you are inclined to sell, then sell into strength, not the current weakness, if you can. That requires a gut check for your own personal risk tolerance.

Perhaps reducing an over allocated position makes sense rather than running away from an entire position.

All of this being said, my opinion is that I would be prudent, and just not do anything until I have a clearer picture of how the tenant issues pan out, OR if the company gives any indication of cutting its dividend. If OHI cuts its dividend, I will probably sell. As of now, OHI seems committed to continuing paying and increasing its dividend and that is what I personally will keep an eye on.

For dividend growth investors, its all about the income and growing a reliable stream of income for a more secure financial future.

What are YOUR thoughts? Inquiring minds want to know!

Not To Bore You, But…

Knowledge is power and many folks shy away from the investing world because that very world makes it more confusing each and every day in an effort to sell you something: stock picks, technical strategies, books, videos, subscriptions with “secret ideas,” gadgets, and even snake oil.

My promise to you is that my work here will remain free to all of my followers, with the hope of giving to you some of the things that took years for me to learn myself. That being said, let me reach out to you with my usual ending:

**One final note: The only favor I ask is that you click the “Follow” button so I can grow my Seeking Alpha friendships. That is my personal blessing in doing this and how I can offer my experiences to as many regular folks as possible, who might not otherwise receive it.

Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance. The long positions held are based upon what the model portfolio holds and I personally could have held all of the stocks noted at one time or another.

Disclosure: I am/we are long ohi.

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 portfolio is for educational purposes only, and not an actual portfolio. The long positions are based on the model portfolio.

Amazon plans new corporate office in Vancouver, to double headcount

VANCOUVER (Reuters) – Amazon.com Inc (AMZN.O) said on Friday that it will a open second corporate office in Vancouver, doubling its staff in the western Canadian city by early 2020 as it looks to tap into a burgeoning local tech workforce.

FILE PHOTO: Morning fog blankets the Lions Gate Bridge and parts of the downtown just before dawn in Vancouver, British Columbia January 26, 2007. REUTERS/Andy Clark/File Photo

The Seattle-based company said the Vancouver expansion has been in the works for some time and is not related to the hotly contested race by cities across North America to land the e-commerce company’s $5 billion HQ2.

“These will be largely software engineering, tech and non-tech jobs, and they’ll be contributing to products that are used globally,” Jesse Dougherty, general manager for the Vancouver office, told reporters.

The Vancouver expansion comes as companies in the United States have struggled to secure visas in a timely fashion to import foreign workers to fill highly skilled and technical jobs.

President Donald Trump’s administration has made it tougher for skilled foreigners to work in the United States, challenging visa applications more regularly than at nearly any point under former U.S. President Barack Obama.

FILE PHOTO: A jogger runs along the seawall in Stanley Park with the city skyline in the background in Vancouver, British Columbia, Canada June 24, 2003. REUTERS/Andy Clark/File Photo

Tech companies have come to rely on such visas to fill many highly specialized jobs.

FILE PHOTO: A boat owner tries to dig out his keel on Kitsilano Beach after a heavy wind storm blew into the area and stranded his boat in Vancouver, British Columbia, Canada April 8, 2010. REUTERS/Andy Clark/File Photo

Amazon officials did not answer questions on whether the new office was in response to difficulties bringing foreign talent to its U.S. offices.

“Amazon likes to hire the smartest people we can find, and so Vancouver certainly is a place where we like to get that growth,” said Dougherty.

Canada launched a fast-track visa program for highly skilled workers in June, as it seeks to take advantage of a tougher immigration environment in the United States.

The expansion will see Amazon double its workforce in Vancouver to 2,000 by early 2020. The company currently employees about 4,400 people full time in Canada. Amazon employs more than 380,000 globally, with around 150,000 working outside of the United States.

Reporting by Julie Gordon; Editing by Phil Berlowitz

Our Standards:The Thomson Reuters Trust Principles.

Apple CEO Cook breathes new life into old iPhones

(Reuters) – By delivering solid financial results that beat Wall Street’s expectations for both revenues and profits on Thursday, Apple Inc’s CEO Tim Cook put to rest concerns that the company’s flagship device, the iPhone X, wouldn’t be ready in time for the holiday shopping season.

FILE PHOTO: Tim Cook, CEO of Apple, speaks about the iPhone X during a launch event in Cupertino, California, U.S. September 12, 2017. REUTERS/Stephen Lam/File Photo

But beneath the headline revenue and profit figures, Cook also seemed to have solved two of Apple’s longest-standing problems: its heavy reliance on the latest flagship iPhone to buoy its profits, and its lack of affordable offerings to help budget-minded buyers see the benefits of joining Apple’s ecosystem of hardware and software.

And all Cook had to do was stop Apple’s unusual Steve Jobs-era policy of ruthlessly killing off old products when better ones came along.

To see the effect of the Cook Doctrine, look no further than Apple’s current, unprecedented line-up of five different iPhones. The flagship iPhone X, priced at $999, has drawn most of the media attention for the holiday shopping season.

But far from the limelight is the humble iPhone SE – essentially an updated iPhone 5, which came out five years ago. It retails for only $349 and appears to have played a major role in Apple doubling its revenue in India, an important emerging market.

Cook told investors on a conference call discussing Thursday’s financial results that “a majority” of the iPhone SEs the company sold in India were also manufactured there, a critical component of Apple’s negotiations with the Indian government for market access.

There’s good reason to believe former Apple CEO Jobs would never have kept a product like the SE around. Jobs co-founded Apple and oversaw its dramatic rise in the late 1970s and early 1980s, including the introduction of the Macintosh in 1984. But he was pushed out of the company in a conflict with then-CEO John Sculley over the company’s direction in 1985.

Over the next decade, Apple lost its dominant position in the personal computer market as devices powered by Microsoft Corp’s Windows gained market share. In an attempt to regain market share, Apple expanded its product line up but found little success. After Apple purchased Jobs’ company and rehired him as CEO in 1997, he famously pared down the company’s product line to just a handful of offerings where he believed Apple could offer the best.

And even after the company regained its financial footing in the early 2000s, Jobs had no compunction about killing an old product for something better. The iPod Mini, a svelte version of what was then Apple’s flagship gadget, lasted just a year and a half. Jobs killed that product and replaced it with the iPad Nano, which was even smaller.

That approach left Apple with a small product line-up that was profitable but pricey. Analysts nagged the company about when it would offer lower-priced products, and it made a few stabs. The iPad Mini, released in 2013, temporarily boosted iPad sales, but the plastic-backed iPhone 5C was viewed by analysts as a flop.

But the Cook Doctrine of letting older models linger and drop in price appears to be working. Apple hit analyst expectations by shipping 46.6 million iPhones in its fiscal fourth quarter, though with lower average selling prices.

That doesn’t mean Apple is leaving profit on the table. On the contrary, more phones – whatever the price – help boost the services business, which includes Apple Music and the App Store. Services brought in $8.5 billion in revenue in the quarter compared with analyst estimates of $7.5 billion, though that included a favorable $640 million adjustment.

More phones also helps boost sales of emerging Apple products such as the Watch, the Airpod wireless headphones and Beats headphones. Executives said sales of those products now rival the size of a “Fortune 400” company, implying they’ll reach sales of about $6.7 billion over the next year.

The bet Cook seems to be making is that if Apple lowers the price of entry for getting a taste of its flagship iOS operating system, its customers will want to spend more money in Apple’s ecosystem, even if they do not spring for its most expensive devices. So far, that bet is paying off.

Graphic – iPhone comparison: here

Graphic – Apple vs the S&P 500 since the first iPhone: here

Graphic – Apple earnings: here

Reporting by Stephen Nellis; Editing by Jonathan Weber and Christopher Cushing

Our Standards:The Thomson Reuters Trust Principles.

Ivanka Trump Says Women Need a Step Up in STEM

Ivanka Trump, U.S. President Donald Trump’s daughter and informal adviser, told a summit in Tokyo on Friday that the world must boost women and minority participation in the fields of science, technology, engineering and maths (STEM).

Ivanka Trump, seen as an important influence on her father, has made women’s issues one of her signature policy areas since beginning her role at the White House. Her comments came ahead of her father’s trip to Asia – his first since taking office in January – that begins in Japan on Sunday.

“Female and minority participation in STEM fields is moving in the wrong direction,” she said at the World Assembly for Women summit. “We must create equal participation in these traditionally male-dominated sectors of our economy.”

For more on Ivanka Trump, watch Fortune’s video:

She said her father’s tax reforms – unveiled by Republicans in the U.S. House of Representatives on Thursday – would benefit American families.

“We are seeking to simplify the tax code, lower rates, expand the child tax credit, eliminate the marriage penalty, and put more money back in the pockets of hard-working Americans,” she told a meeting room in a Tokyo hotel that had a number of empty seats.

Japanese Prime Minister Shinzo Abe said his government was aiming to mobilize women in Japan’s workforce and boost economic growth, launching policies such as improved childcare in his “Womenomics” program.

“We’ve put our full strength into creating an environment where it’s easy for women to work,” Abe said in an opening address to the conference.

“I really feel that Japan has come a long way,” he said.

Japan’s gender gap remains wide despite such efforts, with little progress made since Abe vowed at the United Nations in 2013 to create “a society where women can shine”.

Japan ranked 114 out of 144 in the World Economic Forum’s 2017 Global Gender Gap report – sandwiched between Guinea and Ethiopia and down 13 places since Abe took power.

Abe appointed only two women to ministerial posts in a Cabinet reshuffle in August, down from three and five respectively in his previous two cabinets. Only 14% of Japan’s lawmakers are women.

Men also dominate decision-making in business in Japan. Only 3.7% of Japanese-listed company executives were women at the end of July, according to the Cabinet Office, barely changed from 3.4% a year earlier.

Microsoft Browser Fails During Microsoft Cloud Demo–So Presenter Downloads Google Chrome

What would you do if you were an exec at a major tech company doing a demo on the Web, and your company’s browser kept crashing? If you’re Microsoft director Michael Leworthy you remain calm–and download Google Chrome instead.

That’s what happened during a recent demo of how to migrate data to Azure, Microsoft’s cloud offering and Leworthy’s reaction is a lesson in maintaining grace under pressure, even when things go very wrong in front of a very large audience.

About 37 minutes into a 73-minute presentation, Leworthy attempted to demonstrate how to do a data migration to Azure using Microsoft’s Edge browser. “You’ve discovered a bunch of virtual machines and we can go look at these machines and what they are…” he said but as he tried to type the words into the Edge browser window it simply…froze. A lot of presenters might have lost their cool at that point but Leworthy merely apended “…maybe,” to the end of his previous sentence. “I always love it when demos break,” he added.

When it continued not working, he apparently remembered that the security settings might not allow him to perform the operation, saying, “I know, I know, I forgot.” Then without missing a beat, he continued: “So, while we’re talking here, I’m going to go install Chrome.” That drew a few chuckles from the audience and Leworthy giggled as well, especially as Chrome’s “Browse Faster” slogan appeared on the screen.

Let’s not improve Google.

“We’re going to not help make Google Chrome better,” he added, unchecking the box on installation that would have sent usage statistics back to Google and getting even more laughter.

“The Edge on these machines is locked down a little bit and there are some things that just don’t work,” he explained. Then he calmly chatted to the audience about their evening plans as the software finished downloading and installed. Moments later, he was back on the Azure site and getting on with the demo.

Leworthy’s reaction was a great example of how to stay calm and simply deal with a problem if things go wrong while you’re onstage–the fact that he treated the whole thing like no big deal meant that the audience could also quickly forget it and go back to focusing on how to use Azure.

Microsoft, apparently unperturbed by the incident, posted the entire presentation to YouTube, Chrome installation and all, where members of the tech press picked up on the glitch and started passing it around. By the way, YouTube is also a Google product.

Here it is, so you can hear for yourself how Leworthy handled a potentially embarrassing moment:

Still Trying To Demystify AI? Here's A Simple Analogy That Even A 10-Year-Old Can Follow.

Look Ma…No Hands!

In the first column of this two-part series I talked about how leading-edge AI, such as DeepMind’s AlphaGo Zero, can train itself without human intervention. In this second column I’ll share a simply analogy that helps demystify AI and differentiates human intelligence from artificial intelligence.

Think back to when you first learned to ride a bike. Recall the feeling of being overwhelmed by all of the things you needed to keep in mind in order to achieve the simple goal of staying upright and in control? I’d bet that you’d have a hard time listing even a fraction of the rules that went into achieving that goal.

There were rules for how, when, and at what speed to pedal, what to do with your many body parts in order to maintain balance, observing your surroundings, the type of road you were on, its contours, was it wet or sandy, were there obstacles in your way, what was the likelihood of a car coming around the next bend in the road, was it light or dark out, cloudy or sunny, calm or windy, all of this and so much more that went into the simple act of staying upright long enough to allow the gyroscopic effect of your wheels to keep you from falling.

You’re thinking that you weren’t really aware of any of that, right? That’s because your brain does a wonderful job of observing much more than you are consciously aware of. It knows that certain repetitive behaviors, in a specific context, are empirically correct–they achieve the goal of staying upright. You don’t really keep track of every behavior and contextual input. You’d never be able to respond in time if you did. Ultimately, intelligence (real or artificial) is being able to behave in a way that achieves the right results without necessarily knowing all the details of why; it just worked.

Years passed and then something very frustrating happened. One day you had to take all of this knowledge and transfer it to your own child, niece, nephew, or grandchild. Did you give them the list of the hundreds, perhaps thousands, of individual rules that you’d learned to follow? Of course not! You couldn’t if you wanted to because there were just too many and most of them you weren’t even aware of. So, how did they learn? The same way you did, by gathering hundreds of experiences and thousands of minute actions and inputs that were all measured against the goal of staying upright.

AI Is All About The “How”

That’s all that AI is, a really good student that learns over time how behaviors and contextual inputs result in progress towards a goal. In your case, with the bike, you did that by falling down and scraping your knees over and over. In the case of AI it’s done by running millions upon millions of simulations.

While that can make AI very good at a particular task, running a simulation of Chess or Go has no context outside of the two-dimensional board and the finite number of legal moves that can be made (the king on a chess board can’t leave the board and go into the refrigerator to hide from a checkmate). In other words, AI can only get good at what you tell it to get good at.

This is where so many conversations about AI get sensationalized. The complexity of how AI makes a decision doesn’t make the decision conscious, sentient, or magic; it just makes it very difficult to understand; in the same way that you can’t list all of the things that go into riding a bike.

It also doesn’t mean that AI can somehow start making decisions about things outside of what it was trained for. Using the bicycle analogy, just because you’ve mastered riding a bike doesn’t mean you can now drive a car or fly an airplane. In fact, you couldn’t even go from two wheels to a unicycle without having to learn an entirely new set of rules.

The same applies to AI. AlphaGo Zero uses narrow AI that is exceptional at Go, but AlphaGo Zero is not suddenly going to start making decisions about anything other than black and white stones on a Go board. Each area that AI is applied to is one that we choose to apply it to. AI is all about “how” to do something better, faster, more accurately.

And this is where the paths of human intelligence and artificial intelligence come to a fork in the road. While AI can learn the “how” to just about anything better than a human, it does not have the curiosity to ask “why.”

In the final analysis, if such a finality exists when talking about sentient conscious beings, it may not be intelligence or even intuition that accounts for the unique value of the 100-billion neurons that make us human, but rather the simple act of curiosity.

My advice? When a computer asks, unprompted, “Why should I play Go?” Then start to worry. 

Samsung Electronics to boost returns after record third-quarter profit

SEOUL (Reuters) – South Korean technology giant Samsung Electronics Co Ltd (005930.KS) promised to return $26 billion to shareholders over the next three years as it reported record third-quarter profit on the back of the global boom in memory chips.

FILE PHOTO: The logo of Samsung Electronics is seen at its office building in Seoul, South Korea, August 25, 2017. REUTERS/Kim Hong-Ji/File Photo

The world’s biggest maker of semiconductors, televisions and smartphones said it would double dividends next year to 9.6 trillion won and keep them at that level until 2020, as it responds to investor pressure to share its vast cash reserves and catch up with some of its more generous peers.

It also said 2017 capital expenditure would be its biggest ever, climbing 81 percent to 46.2 trillion won ($41 billion) as it builds new chip factories and clean-rooms to stay ahead of demand for servers and devices with ever greater memory.

“The current record earnings are born out of such massive investments in the past, and the outsized capex is a sign that Samsung will continue investing for future results,” said Greg Roh, analyst at HMC Investment & Securities.

“Next year’s capex could be similar for Samsung to keep this momentum.”

Operating profit nearly tripled in the third quarter from the same period a year earlier, to 14.5 trillion won ($12.91 billion), Samsung said in a regulatory filing, matching its earlier estimate.

Revenue jumped 29.8 percent to 62 trillion won, also in line with its earlier estimate.

The shareholder return policy for the next three years ramped up guidance to a level higher than its current range of 30-50 percent of free cash flow to 50 percent over three years.

Samsung’s holdings of cash and cash equivalent stood at 76 trillion won at the end of September, eight percent higher than the previous quarter thanks largely to strong earnings that have more than paid for massive capital expenditure.

While the dividend policy builds on the investor-friendly trend Samsung started in 2015, it was not as generous as some investors had hoped, analysts said.

Apple Inc (AAPL.O) has paid nearly 22 cents for every dollar it earned over the past five years, while Microsoft Corp (MSFT.O) has shared 53 cents. Meanwhile Samsung has paid just 11 cents, according to Reuters data.

South Korean family-run business empires like Samsung Group have a reputation for low dividend payouts and other governance practices that favor controlling shareholders at the expense of ordinary investors.

In a bid to change that perception, Samsung Electronics is one of about 70 listed firms that has promised to adhere to a governance code adopted by the Korea Stock Exchange this year.

Its shares were up 1.3 percent, while the Kospi benchmark share price index .KS11 rose 0.4 percent. The stock has risen 67 percent over the past 12 months.


Samsung said the earnings outlook was positive thanks mainly to the chip business, with conditions in that market likely to “remain favourable” in 2018. It also forecast greater sales of flexible OLED screens used in smartphones.

The chip business was Samsung’s top earner in the third quarter as it booked a record 10 trillion won operating profit, from 3.4 trillion won from the previous corresponding period.

Profits from mobile devices jumped to 3.3 trillion won compared with just 100 billion won at the same time last year, when the company booked the costs of the withdrawal of its fire-prone Note 7 gadget.

The record earnings come amid ongoing management upheaval at the company following the arrest of group heir apparent Jay Y. Lee on bribery charges.

CEO and Vice Chairman Kwon Oh-hyun announced on Oct. 13 that he planned to step down from management, leaving several key roles vacant including head of the components business.

Reporting by Joyce Lee; Editing by Stephen Coates

Our Standards:The Thomson Reuters Trust Principles.

Tech firms must do more on extremism: World Economic Forum

WASHINGTON (Reuters) – U.S. tech firms such as Facebook Inc and Twitter Inc should be more aggressive in tackling extremism and political misinformation if they want to avoid government action, a report from the World Economic Forum said on Monday.

A 3D-printed Facebook logo is displayed in front of the Twitter logo, in this illustration taken October 25, 2017. REUTERS/Dado Ruvic/Illustration –

The study from the Swiss nonprofit organization adds to a chorus of calls for Silicon Valley to stem the spread of violent material from Islamic State militants and the use of their services by alleged Russian propagandists.

Facebook, Twitter and Alphabet Inc’s Google will go under the microscope of U.S. lawmakers on Tuesday and Wednesday when their general counsels will testify before three U.S. congressional committees on alleged Russian interference in the 2016 U.S. presidential election.

The report from the World Economic Forum’s human rights council warns that tech companies risk government regulation that would limit freedom of speech unless they “assume a more active self-governance role.”

It recommends that the companies conduct more thorough internal reviews of how their services can be misused and that they put in place more human oversight of content.

The German parliament in June approved a plan to fine social media networks up to 50 million euros if they fail to remove hateful postings promptly, a law that Monday’s study said could potentially lead to the takedown of massive amounts of content.

Reporting by David Ingram; Editing by Sandra Maler

Our Standards:The Thomson Reuters Trust Principles.


Facebook Friends With Your Co-Workers? Survey Shows Your Boss Probably Disapproves

You and your colleagues pitch in together on difficult projects, lunch together, and have drinks together after work. You probably think it’s the most natural thing in the world to friend them on Facebook or follow them on Twitter or Instagram. Your boss, though, probably thinks you shouldn’t.

That’s the surprising result of a survey of 1,006 employees and 307 senior managers conducted by staffing company OfficeTeam. Survey respondents were asked how appropriate it was to connect with co-workers on various social media platforms. It turns out that bosses and their employees have very different answers to this question.

When it comes to Facebook, 77 percent of employees thought it was either “very appropriate” or “somewhat appropriate” to be Facebook friends with your work colleagues, but only 49 percent of senior managers agreed. That disagreement carries over to other social media platforms. Sixty-one percent of employees thought it was fine to follow a co-worker on Twitter, but only 34 percent of bosses agreed. With Instagram, 56 percent of employees, but only 30 percent of bosses thought following a co-worker was appropriate. Interestingly, the one social platform bosses and employees seem to almost agree about is Snapchat, with 34 percent of employees thinking it was fine to connect with colleagues, and 26 percent of bosses thinking so too.

What should you do if you want to connect with a colleague on social media–if you get a connection request from a colleague? Here are a few options:

1. Use LinkedIn.

LinkedIn was not included in the OfficeTeam survey, but because it’s a professional networking tool, few bosses will object to you connecting with coworkers there. And LinkedIn has many of the same features as Facebook–you can even send instant messages to your contacts.

2. Keep your social media connections secret.

Most social networks give users the option to limit who can see what they post and who their other connections are. You can use this option to keep your social media interactions limited to the people you choose. If that doesn’t include your boss, he or she may never know that you and your co-workers are connected.

3. Talk to your boss.

He or she may not agree with the surveyed bosses who said connecting on social media was inappropriate, in which case there’s no problem. And if your boss does object, he or she may have some good reasons you hadn’t thought of to keep your professional life separate from your social media one. The only way to find out is to ask.

4. Consider the future.

It may be perfectly fine to connect with your co-workers on social media when you’re colleagues. But what happens if you get promoted to a leadership position? You may regret giving your former co-workers access to all the thoughts you share on Facebook or Twitter. So if a colleague sends you a social media request, or you want to make one yourself, take a moment to think it through. Will you be sorry one day–when you’re the boss yourself?


This Common Speaking Habit Is Draining All Your Negotiating Power

“John – we are receiving some feedback about the team and their presentation style. In particular we get comments about the inflection of their voice going up at the end. Can you work on this with folks on the team?”

Uncertain Language vs. Command Language 

This is something I see a lot. I call it “uncertain language,” vs. “command language.” Let me explain. The problem with using voice inflection at the end of a sentence when it is not a question is that it makes your statement sound like a question, even though it isn’t, and you come across as uncertain. That dramatically reduces the perception of your status and power.

Saying your statement isn’t a question isn’t the complete truth. Often, when your voice tone goes up at the end of a statement there is an implied question. It’s usually something like “do you agree?” “Am I being understandable?” “Are you okay with this?” “Can we just all get along?” or some desire for approval and connection. It can makes you sound like you’re uncertain, and/or lower status than you actually are. 

When you’re speaking; when you’re the host, or tour leader, or speaking to groups of people, your listeners want to believe that you know what you’re talking about. They like to know that you’re in charge and that you’ve got things handled. Going up at the end of your sentences robs you of that.

Lower, Slower and Louder

There is a discipline called Neuro Linguistic Programming (NLP). Pseudo-science? Maybe so, but I’ll take things that work from wherever they may come. NLP has something to offer here.

One of the ways you can be more effective and persuasive is to begin consciously using embedded commands. Embedded commands allow you to make powerful suggestions by embedding them indirectly within longer statements.  One key step to doing this is making your voice subtly lower, slower and louder when you embed the command.

NLP calls this technique analog marking. In NLP analog communication is nonverbal communication, while words are referred to in NLP as digital communication. Analog communication goes back to our earliest communication; pre-language communication. Sound and movement. 

When you use analog marking to communicate some part of what you’re saying, the unconscious mind notices and understands your communication differently than the conscious mind does. And, when you use sounds and movement the unconscious mind pays special attention. Body language, movement, voice tone, volume, speed and so on. And, you’re always using analog marking. The question I ask myself is whether it’s supporting my message, or my insecurity.

Commands vs Questions

The difference between “you’re going now.” and “you’re going now?” is pretty obvious. What is less obvious is that when you go up at the end of something you do not intend to be a question it sends a very strong signal to the unconscious mind of the listener and has as big an impact on your credibility as the question mark vs. the period has in the sentences above.

Here are a few examples of embedded commands.

  • “I’m here to talk with you and I want you to feel good about yourself”- I might mark “feel good” by saying it slightly louder, slower and with a downward pitch to my voice.
  • “You definitely don’t have to accept what I’m saying if you don’t want to.” “Accept what I’m saying” could be marked by making an open hand gesture.
  • “Would you tell me your story sometime?” I could mark “tell me your story” with a subtle body movement closer to the person. 

To be effective your statements must be statements, not questions. We understand a rising tone at the end of a sentence to be the marker of a question. Going up at the end of a non-question sentence sends the message that you have a question. If the sentence isn’t actually a question then the non-language message is still that there is a question, and it becomes a question about your credibility, or status or knowledge, or some other factor that you don’t intend to call into question!  

The Bottom Line

A question has a rising tone; the inflection goes up at the end of the sentence. A statement has no change in inflection at the end; it is flat. And, a command (this can be a subtle command) goes down at the end of the sentence; it has a downward inflection at the end. And, command language is very powerful. Going down at the end of your sentences gives them extra impact. You can’t do it all the time or you’ll sound silly, but if you take on speaking in command language you will avoid unsure language. And, that will have you sounding more powerful everywhere in your life. 


Want to Change Your Culture? Start By Redefining "Manager"

What do you think of when you hear the word “manager”? If you’re like many employees, the words that pop into your head could include zookeeper, cog-driver, or dictator or characteristics like outdated or out of touch. The typical definition of the word “manager” is simply a person who manages others. In many cases in the media and in real life, managers are portrayed as being aloof, arrogant, or simply incompetent and just there to do less work than their employees but make more money. It’s no surprise that many companies are turning away from the term manager because it can be viewed so negatively and seen as old fashioned.

On the other hand, what do you think of when you hear the word “leader”? For most people, it invokes thoughts of being inspired, led somewhere new, and gathered as a team. A leader is someone you can turn to who can transform your work into something more meaningful and help you reach a far-off goal. For many people, a leader isn’t an assigned or promoted position, but rather a characteristic that someone naturally possesses.

Over time, our language has shifted so that managers and leaders have taken on completely different definitions. One is generally considered negatively and viewed as outdated, while the other is positive and forward-thinking. The simple rift between two similar words may not seem important in the long run, but it has actually created two dichotomies inside organizations that have a large effect on how things are run. Even without realizing it, employees may have hard feelings towards a manager or not like their methods because of their title, while managers may subconsciously fill their roles with a commanding presence instead of leading a team of employees to greater success. If someone has naturally leadership abilities, they may be viewed more positively by employees than a manager, even though their responsibilities might be different.

But what would happen if we focused on redefining the term manager and equated the position with leader so that the words were interchangeable? That simple change could have huge impacts within organizations, both for employees and managers. Instead of feeling simply like cogs in the machine, employees could feel empowered and like there was someone they could go to for help, inspiration, and connectivity. Managers would feel empowered and have the tools to inspire workers instead of simply passing on information from executives and driving simple tasks. Instead of feeling locked into the corporate rules, leader managers can have more creativity to get the job done and help their employees reach new heights.

Organizations that consider managers as leaders tend to be more forward-thinking and have replaced the outdated idea that managers sit on pedestals to boss around employees. This is especially important in the future of work where most employees don’t simply work their way up the corporate ladder anymore. By changing how organizations think about leadership and management, organizations can make sure they are hiring people who inspire and lead others no matter their position in the company. Changing the definition of the word manager also changes how companies reward and promote employees, which could resonate especially well with a new generation of workers. Over time, we would likely see the negative connotation for the word manager decrease and empowerment and interaction between managers and employees increase as those imaginary walls come down.

It may seem like a simple change, but redefining the term manager can have a huge impact on a company and lead to a changed mindset for everyone within its walls.

Learn more about redefining managers here. 


AT&T: You Were Warned

Despite ongoing weakness in the stock, AT&T (T) is down following Q3 results. Investors were warned that the wireless giant has no answer to the overly competitive situation that will place the stock price under pressure despite the now substantial 5.8% dividend yield.

AT&T presentation

The stock trades down at $ 33.50 and at yearly lows. The question now is whether AT&T has taken enough of a hit considering the bundling of crucial services following the DirecTV merger aren’t apparently working.

The Q3 results were a big shock considering the wireless and video giant missed on both EPS and revenue estimates. More importantly, the company saw revenues plunge $ 1.2 billion and the only saving grace was that operating expenses declined by a nearly equal amount to produce a similar EPS total of last year at $ 0.74.

As the previous article highlighted, a primary area of weakness is the video business where cord cutters are at least shifting to the DirecTV Now service. Either way, the point of the DirecTV deal was to add pay-TV service to wireless consumers that used competitor offerings. Instead, AT&T lost 89,000 video subscribers last quarter and saw nearly 300,000 shift to the lower priced OTT service.

Source: AT&T Q3’17 Investor Briefing

Possibly even worse were the crucial post-paid phone net losses. The industry grew during Q3 so the weakness shows that AT&T is failing on marketing fronts while others are exploiting the situation. Walk Piecyk of BTIG tweeted these Q3 numbers by wireless provider showing an industry where AT&T is the only one shrinking.

These numbers really call into question the ability of management to select a merger target and execute on the integration. The upcoming Time Warner (TWX) merger should cast serious doubts on investors.

The company will turn focus to wrapping up regulatory concerns and deciding on content plans, instead of focusing on building the 5G wireless network or solving why bundling of wireless and pay-TV isn’t leading to industry leading customer additions.

For most investors, the question comes down to whether AT&T can continue paying the dividend. This isn’t always the most important question, but the market will focus on this issue.

The company pays a $ 0.49 quarterly dividend and earned $ 0.74 so the dividend appears to have decent coverage. AT&T spends about $ 3.0 billion in quarterly dividend payouts and the free cash flow is above that total YTD. The wireless giant has paid out $ 9.0 billion in dividends and generated $ 12.8 billion in free cash flow. The dividend payout ratio is up to 70.5% for the first nine months of 2017.

With annualized net EBITDA at over $ 52 billion and net debt at around $ 115 billion, AT&T doesn’t have any major leverage issues. The bigger concern is the dividend coverage if the competitive situation in the market gets worse. The 5.8% dividend appears more of a warning sign than an opportunity from that stand point.

The key investor takeaway is that industry consolidation such as a merger between Sprint (S) and T-Mobile (TMUS) could help alleviate the downside risk, but the merger with Time Warner just adds additional risk, debt and distraction. Until the competitive situation in the industry improves, AT&T remains a stock to avoid despite the high dividend yield.

Disclosure: I am/we are long TWX.

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

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.


Watch Andy Serkis Give You a History of Performance-Capture Technology

For more than 15 years, Andy Serkis has been Hollywood’s go-to performance-capture guy, playing such digitally enhanced characters as Gollum in the Lord of the Rings series, Caesar in the recent Planet of the Apes films, and even King Kong himself. But the 53-year-old actor—whose directorial debut, Breathe, hit theaters earlier this month—believes there are still plenty of misconceptions about one of filmmaking’s most crucial innovations. “It’s not just about mimicking behavior,” Serkis says. “This is about creating a character.”

And if anyone could tell people a thing or two about performance-capture tech, it’s Serkis. In fact, he could teach a master class. In the video above he traces the history of the technology, from its early days as a videogame innovation to the glory days of Gollum to this summer’s stunning War for the Planet of the Apes, perhaps the most impressive merger yet between high-end technology and big-hearted performance. In the early motion-capture days, he says, playing a creature like Gollum—which required him to watch his virtual performance in real time on a monitor—was “like being a puppeteer and a marionette at the same time.” By the time of 2005’s King Kong, he had moved into the realm of performance-capture, allowing him to craft detailed facial expressions: “It’s almost like looking at a costume that you’re going to put on [or] choose as an actor,” he says. “And you find a relationship between yourself and the avatar.”

Later films like Tintin and the Planet of the Apes, made with the help of head-mounted cameras, gave him greater mobility—though they’d also require him to work in all sorts of challenging environments. (You think your job’s tough? Try wearing a full body suit in 100 percent Louisiana humidity, as Serkis did during 2015’s Dawn of the Planet of the Apes.) Ultimately, he says, working with the technology “[is] no different than any process you go through to create a role, whether you’re on a stage, or in front of a screen in a more conventional sense. The actor’s performance is the actor’s performance.” Sounds like he captured it perfectly.


Toshiba says considering measures in case chip unit sale uncompleted by March

Chiba, JAPAN (Reuters) – Toshiba Corp is considering various measures in case it will not be able to complete the $ 18 billion sale of its prized chip unit by the end of March, its chief executive said on Tuesday.

FILE PHOTO: The logo of Toshiba is seen as a shareholder arrives at Toshiba’s extraordinary shareholders meeting in Chiba, Japan March 30, 2017. REUTERS/Toru Hanai/File Photo

The sale, which still needs to clear antitrust reviews, needs to close by the end of the financial year in March or it will likely report negative net worth, or liabilities exceeding assets, for a second year running. If it does, that could trigger an automatic delisting from the Tokyo Stock Exchange.

“We must think about various measures in accordance with changes in circumstances,” Toshiba CEO Satoshi Tsunakawa said at an extraordinary general meeting. “Nothing has been decided, but it’s true that we are considering potential measures.”

Reporting by Makiko Yamazaki; Editing by Edwina Gibbs

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