What Amazon’s Latest Job Listing Says About Its Health Care Ambitions

Signs emerged last year that Amazon may be preparing an entry into the pharmaceuticals distribution business, but it seems the online giant’s plans may get more personal than that.

As first reported by CNBC, Amazon is looking to hire someone to head up compliance with U.S. health security and privacy requirements.

Specifically, the firm wants someone experienced in handling aspects of the Health Insurance Portability and Accountability Act, or HIPAA. This law covers personal health information, so it suggests that Amazon is looking further than the drug wholesaling business.

The job ad mentions “HIPAA Business Associate Agreement” requirements, which points to partnerships with other players, such as health care and health plan providers.

According to the Department of Health and Human Services, a provider covered by the HIPAA rules can only transfer protected health information to a business associate “to help the [provider] carry out its health care functions—not for the business associate’s independent use or purposes, except as needed for the proper management and administration of the business associate.”

In other words, if Amazon is the business associate in this scenario, it will face limitations on how it can use the confidential health information that it receives. It will also be obliged to keep that data safe.

What is Amazon actually planning to do? According to CNBC, it might want to bring its Alexa personal assistant technology—which is not yet HIPAA-compliant—into the health care environment.

Fortune has asked Amazon what sort of initiative it’s planning, and will update this article if and when an answer arrives.

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Android Surveillance Tool Can Steal WhatsApp Messages, Kaspersky Warns

Security researchers have identified a sophisticated piece of software that has been used to gain full control of people’s Android phones and steal information.

The “Skygofree” spyware implant has been in use since 2014, according to researchers at Russia’s Kaspersky Lab. The team noted that it had interesting functionality that has not been seen before, such as the ability to automatically record audio when the target’s phone enters a specific location.

The tool, which is “spread through web pages mimicking leading mobile network operators,” can also be used to steal WhatsApp messages, Kaspersky Lab said. The researchers added that Skygofree was “also capable of taking pictures and videos, seizing call records, SMS, geolocation, calendar events and business-related information stored in the device’s memory.”

This appears to be a high-end piece of spyware. With the victims so far all appearing to be in Italy, Kaspersky Lab suggested that whoever created the surveillance tool was likely Italian as well.

“Given the artefacts we discovered in the malware code and our analysis of the infrastructure, we have a high level of confidence that the developer behind the Skygofree implants is an Italian IT company that offers surveillance solutions, rather like Hacking Team,” Kaspersky Lab malware analyst Alexey Firsh said in a statement.

Italy’s Hacking Team security firm hit the headlines a few years back when the company was itself hacked, revealing how it had provided surveillance tools to a variety of foreign governments. These included the human-rights-violating regimes of countries such as Egypt, Uzbekistan, and Sudan, and in 2016 the Italian government responded by revoking Hacking Team’s export license.

Although Skygofree seems to have been most widely distributed in 2015, Kaspersky Lab said its surveillance campaign was still ongoing.

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JD.com widens Southeast Asia presence by investing in Vietnam's Tiki.vn

BEIJING (Reuters) – Chinese online retailer JD.com Inc has made an investment in Vietnamese e-commerce firm Tiki.vn, expanding its Southeast Asia business amid growing competition in the region from Alibaba Group Holding Ltd and Amazon.com Inc.

JD.com co-led the financing with Vietnamese entertainment and social media firm VNG Corp, which is an existing investor, China’s second-biggest e-commerce firm behind Alibaba said in a statement on Tuesday.

The firm did not disclose the size of the funding but said that JD.com will become one of Tiki’s largest shareholders alongside VNG following the deal.

Vietnamese media had reported in November that the round was worth roughly 1 trillion dong ($44.04 million). JD.com declined to give a dollar number for the investment, when contacted by Reuters.

“With JD’s expertise in leveraging social media for e-commerce, Tiki.vn’s partnership with VNG in social network and mobile payments is a natural fit,” Winston Cheng, president of JD.com’s international business, said in the statement.

Vietnam is the latest focal point in JD.com’s strategic push into Southeast Asia, where Alibaba and Amazon have also made significant investments in the past year.

JD.com will tap Tiki.vn’s warehousing and delivery system, as well as its technology and payments capabilities.

Tiki.vn and VNG’s tie-up has similarities to the partnership between JD.com Inc and internet giant Tencent Holdings Ltd, which is an investor in JD.com and Asia’s largest tech firm by market cap.

JD.com leverages data and payments from Tencent’s WeChat, China’s most popular social media app, and will seek to build similar capabilities with VNG and Tiki.vn, Cheng told Reuters.

While Southeast Asia’s e-commerce market is still nascent compared to the China‘s, improvement in internet services and an increase in mobile-based payments have attracted large international e-commerce firms to the region.

Alibaba has invested heavily in payment and e-commerce ventures in Thailand, Singapore, Indonesia and Malaysia. U.S. retailer Amazon also launched its subscription-based Prime service in Singapore last month in a bid to challenge Alibaba-backed online retailer Lazada Group in Southeast Asia.

JD.com launched a local online retail business in Indonesia two years ago, and now claims to be the country’ largest retailer by revenue. It also formed a $500 million e-commerce venture with Thai retailer Central Group.

Besides VNG, Tiki.vn’s previous investors include Seedcom, Sumitomo Corp and CyberAgent Ventures.

($1 = 22,709.0000 dong)

Reporting by Cate Cadell; Editing by Edwina Gibbs and Muralikumar Anantharaman

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Ford plans $11 billion investment, 40 electrified vehicles by 2022

DETROIT (Reuters) – Ford Motor Co (F.N) will significantly increase its planned investments in electric vehicles to $11 billion by 2022 and have 40 hybrid and fully electric vehicles in its model lineup, Chairman Bill Ford said on Sunday at the Detroit auto show.

The investment figure is sharply higher than a previously announced target of $4.5 billion by 2020, Ford executives said, and includes the costs of developing dedicated electric vehicle architectures. Ford’s engineering, research and development expenses for 2016, the last full year available, were $7.3 billion, up from $6.7 billion in 2015.

Ford Chief Executive Jim Hackett told investors in October the automaker would slash $14 billion in costs over the next five years and shift capital investment away from sedans and internal combustion engines to develop more trucks and electric and hybrid cars.

Of the 40 electrified vehicles Ford plans for its global lineup by 2022, 16 will be fully electric and the rest will be plug-in hybrids, executives said.

“We’re all in on this and we’re taking our mainstream vehicles, our most iconic vehicles, and we’re electrifying them,” Ford told reporters. “If we want to be successful with electrification, we have to do it with vehicles that are already popular.”

General Motors Co (GM.N), Toyota Motor Corp (7203.T) and Volkswagen AG (VOWG_p.DE) have already outlined aggressive plans to expand their electric vehicle offerings and target consumers who want luxury, performance and an SUV body style – or all three attributes in the same vehicle.

Mainstream auto makers are reacting in part to pressure from regulators in China, Europe and California to slash carbon emissions from fossil fuels. They also are under pressure from

Tesla Inc (TSLA.O)’s success in creating electric sedans and SUVs that inspire would-be owners to line up outside showrooms and flood the company with orders.

GM said last year it would add 20 new battery electric and fuel cell vehicles to its global lineup by 2023, financed by robust profits from traditional internal combustion engine vehicles in the United States and China.

GM Chief Executive Mary Barra has promised investors the Detroit automaker will make money selling electric cars by 2021.

Slideshow (4 Images)

Volkswagen said in November it would spend $40 billion on electric cars, autonomous driving and new mobility services by the end of 2022 – significantly more than when it announced two months earlier it would invest more than 20 billion euros on electric and self-driving cars through 2030.

Toyota is racing to commercialize a breakthrough battery technology during the first half of the 2020s with the potential to cut the cost of making electric cars.

Ford’s additional investments in electric vehicles contrasted with many of the vehicle launches at the Detroit show which featured trucks and SUVs. On Sunday evening, Daimler AG (DAIGn.DE) unveiled its new G-class SUV, a bulky off roader, in an abandoned movie theater in downtown Detroit once used as a set for the movie “8 Mile.”

Daimler CEO Dieter Zetsche hinted to Former California Gov. Arnold Schwarzenegger during an exchange on stage next to the G-class that Daimler would someday have an electric version of the vehicle.

SUVs figured in Ford’s electric vehicle presentation. The automaker’s president of global markets, Jim Farley, said on Sunday that Ford would bring a high-performance electric utility vehicle to market by 2020. The company will begin production of a hybrid version of its popular F-150 truck at a plant in Dearborn, Michigan, in 2020.

“What we learned from this first cycle of electrification is people want really nice products,” Farley said.


Ford’s shift to the electric vehicle strategy has been more than six months in the making after Hackett replaced former Chief Executive Mark Fields in May.

The plan was finalized in recent months after an extensive review, a person familiar with the process said. In October, Ford disclosed it had formed a team to accelerate global development of electric vehicles, whose mission is to “think big” and “make quicker decisions.”

Some of the electric vehicles will be produced with Ford’s JV in China aimed at the Chinese market. One aim of Ford’s “Team Edison” is to identify and develop electric-vehicle partnerships with other companies, including suppliers, in some markets, according to Sherif Marakby, vice president of autonomous vehicles and electrification.

China, India, France and the United Kingdom all have announced plans to phase out vehicles powered by combustion engines and fossil fuels between 2030 and 2040.

Reporting by Nick Carey and Joseph White; Additional reporting by David Shepardson in Detroit; Editing by Peter Cooney and Muralikumar Anantharaman

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SoftBank considers IPO for Japan wireless unit, said to seek $18 billion

TOKYO (Reuters) – SoftBank Group Corp (9984.T) said on Monday it was considering listing its Japanese wireless business, seeking to raise a reported $18 billion in a move that would accelerate the conglomerate’s transformation into one of the world’s biggest tech investors.

A spin-off – potentially the biggest IPO by a Japanese company in nearly two decades – would also give the unit more autonomy as well as help investors with valuing the business and its parent.

SoftBank Group, which saw its shares climb 4 percent on the news, has a vast range of holdings including stakes in British chip designer ARM Holdings ARM.L, struggling U.S. wireless service provider Sprint Corp (S.N) as well as Alibaba Group Holding Ltd (BABA.N).

It has with other investors also set up a $93 billion Vision Fund, that is investing in range of firms to capitalize on a tech future expected to be driven by artificial intelligence, robotics and interconnected devices.

SoftBank Group plans to sell some 30 percent of SoftBank Corp, raising around 2 trillion yen ($18 billion) that would go towards investments in growth, such as buying into foreign information-technology companies, the Nikkei newspaper said without citing sources.

It plans to seek approval from the Tokyo Stock Exchange as early as spring and aims to debut in Tokyo as well as overseas, possibly London, around autumn, the business daily said.

SoftBank Group said in a statement that a listing of the business was one option for its capital strategy but that no such decision had been made.

A 2 trillion yen ($18 billion) IPO would be one of the biggest listings by a Japanese company, rivaling the 2.2 trillion yen 1986 offering of Nippon Telegraph and Telephone Corp (9432.T) as well as a 2.1 trillion yen listing by NTT DoCoMo Inc (9437.T) a decade later.

“It makes sense to spin off the mobile-phone business using a public offering that would leave SoftBank in control and provide SoftBank with more cash to pursue its strategy of investing in companies with potentially high growth prospects,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

“It is a way of obtaining capital without adding debt or diluting SoftBank’s equity interests in the growth companies.”

The domestic telecoms unit, Japan’s No. 3 wireless carrier, posted a 4.5 percent rise in operating profit to 720 billion yen in the year ended March on sales of 3.2 trillion yen.

SoftBank Group’s complicated structure and constant stream of new investments have left many investors struggling to value the company with analysts often noting that its market value does not accurately reflect the value of its massive holdings.

SoftBank’s market value currently stands at around $92 billion. By contrast, its near 30 percent stake in Alibaba is worth around $140 billion.

Large companies seeking to list in Tokyo are required to float at least 35 percent of their shares although these rules can be eased when the company is also listing overseas.

Reporting by Yoshiyasu Shida and Sam Nussey; Additional reporting by Chris Gallagher and Minami Funakoshi; Writing by William Mallard; Editing by Edwina Gibbs

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Don't Stop at the Close: Selling Across the Full Customer Lifecycle

Recently, I went through the process of choosing a new SaaS product for my agency (out of respect for all involved, I’m keeping the name of the company and the kind of product they sell confidential).

I researched several providers and talked to sales reps from each – this was a big-ticket purchase, so I wanted to be sure I had as much information as possible. After a few weeks, I thought I’d made the right decision.

The problems started shortly after. My support tickets took an average of 3-5 days to get a response. I couldn’t get emails back from my “dedicated” account rep (who then bailed on one of our two hour-long onboarding calls and never responded to my requests for an update).

I felt let down. The product itself may have been the right solution for our needs, but the poor onboarding support I received left me with so much post-purchase regret that I wound up cancelling the contract and moving to a different provider.

The sale was lost, and it had nothing to do with the salespeople involved.

Why Selling Shouldn’t Stop at the Close

To be clear, I’m not talking about the trap of overselling – of continuing to pitch your product’s features and benefits after your prospect has agreed to buy. As Nick Kane of the Janek Performance Group notes on overselling:

“What this tells your customer is that you don’t ‘get’ them. Not only is this sales mentality out of date, it’s also one of the easiest ways to turn off your customer – and worse yet – risk losing any future sales opportunities.”

Instead, what I’m arguing is that, after the close, customer relationships shouldn’t be thought of as “done.” Closing a sale doesn’t guarantee a happy customer – let alone one who’s going to go on to refer your company to others.

A full lifecycle program of sales needs to take two factors into consideration: proper onboarding, and the conversion of customers into advocates.

Onboarding As Sales

I’d argue that onboarding – the activities taken after a purchase to get new customers up to speed – should be treated as part of the sales process.

Too many salespeople “pass the buck” after the deal is done, assuming that account reps, customer service or other pre-established funnels will help customers get from the point of purchase to the initial “aha moment.”

This ignores the fact that, during the post-purchase period, new customers are – consciously and subconsciously – evaluating whether or not they made the right choice. Research by Seung Hwan Lee and June Cotte of the University of Western Ontario, Canada, published by the Association for Consumer Research, suggests that there are actually four distinct types of post-purchase consumer regret:

  • Regret due to foregone alternatives (e.g. regret that one alternative was chosen over another)
  • Regret due to a change in significance (e.g. regret that the impact of the chosen solution isn’t as significant as expected)
  • Regret due to under-consideration (e.g. regret that too little time was invested in choosing between alternatives)
  • Regret due to over-consideration (e.g. regret that too much time was put into the decision-making process)

A poor onboarding experience can contribute to the first two types of post-purchase regret, which Lee and Cotte describe as “outcome regret” (versus “process regret”).

  • If customers aren’t trained appropriately or brought up to speed quickly, they may believe that a different alternative would have led to better results.
  • Similarly, if they aren’t shown how to quickly get value from their purchase, they may view its overall significance as being less than its actual potential.

If post-purchase regret is left unaddressed, both of these scenarios can lead to cancellations and refund requests (as in the case of the SaaS purchase I described earlier). Even if money isn’t lost as the result of poor onboarding, it’s missed indirectly when would-be happy customers aren’t converted into advocates for your company.

Selling the Referral

Brian Williams Ph.D. of The Brevet Group shares the following two statistics:

  • Salespeople who actively seek out and exploit referrals earn 4 to 5 times more than those who don’t.
  • 91% of customers say they’d give referrals. Only 11% of salespeople ask for referrals.

Basically, salespeople and the companies they work for benefit financially from referrals. But while most people are willing to give them, they’re rarely asked to. That’s an even bigger problem when you consider that Nielsen research has found that “people are 4 times more likely to buy when referred by a friend.”

“Referrals” can take a number of different forms, including everything from asking satisfied customers for referrals to others who would benefit, to a formally-structured peer-to-peer referral program like RewardStream or ReferralSaaSquatch.

The specifics of the program you put in place will vary based on your company’s needs, but at a minimum should include:

  • Sufficient onboarding to ensure new customers are happy with their purchases
  • A mechanism for separating out happy customers from those who aren’t likely to make referrals (this can be done with a simple NPS survey)
  • An incentive for customers to initiate a referral, which can be altruistic (as in, “If you know anybody else we could help…”) or benefits-driven (for example, “Refer a customer and save 20% off your next purchase…”) in nature
  • A process baked into sales to ensure referrals are asked for, and the specific elements of the referral process are evaluated often

Simply put, sales can’t be hands-off after the deal is done. Without attention paid to customers’ needs in the post-purchase phase of their lifecycle, the financial risk of returns, cancellations and missed referrals can be significant. Treating onboarding as part of the sales process and implementing a referral-driving workflow leads to happier customers and better results for your company.

Does your sales process stop at the close? If so, share your ideas for extending sales throughout the full customer lifecycle by leaving me a note below:

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Bitcoin Miners on Track to Use More Electricity Than All of Argentina

The global power needed to create cryptocurrencies this year could rival the entire electricity consumption of Argentina and be a growth driver for renewable energy producers from the U.S. to China.

Miners of bitcoin and other cryptocurrencies could require up to 140 terawatt-hours of electricity in 2018, about 0.6 percent of the global total, Morgan Stanley analysts led by Nicholas Ashworth wrote in a note Wednesday. That’s more than expected power demand from electric vehicles in 2025.

“If cryptocurrencies continue to appreciate we expect global mining power consumption to increase,” Ashworth wrote in the note.

While the figure is too small to be a major driver of global utility shares, it represents an important growth story for companies investing in wind and solar power combined with energy storage — a list that includes NextEra Energy Inc., Iberdrola SA and Enel SpA, according to the note. Other potential beneficiaries include big oil companies that are investing in renewable energy and green-power developers that are backed by initial-coin-offering capital raises.

Miners will probably concentrate in low-cost power regions, including China and the U.S. Midwest and Pacific Northwest. Miners earn bitcoin-denominated rewards for performing the complex calculations needed to confirm transactions in the cryptocurrency.

The report did, however, offer some caution.

“There are plenty of uncertainties which means energy consumption could inflect in either direction,” Ashworth wrote. “This is clearly not an exact science.”

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Bitcoin Mania Just Made Kodak $431 Million More Valuable

Bitcoin mania continued to feed the fire fueling Eastman Kodak’s stock Wednesday, after the one-time camera maker revealed a day earlier that it too was jumping into blockchain and launching its own cryptocurrency: the KodakCoin.

Shares of the struggling 130-year-old company rose as much as 90% Wednesday, giving it a valuation of $565 million. That represented a gain of roughly $431 million or 321% since the company said it would use the technology underlying cryptocurrencies, blockchain, to help photographers manage their images rights.

As part of the initiative, Kodak also announced plans to launch the KodakCoin, a “photo-centric cryptocurrency” intended to be used as payment for photographs. The initial coin offering will open Jan. 31.

Kodak’s news follows a string of similar announcements from companies seeking to enter the blockchain world, a move that has been accompanied by an upswing in their respective stock prices. Late last year, Long Island Ice Tea changed its name to Long Blockchain, sending its stock price up six fold. A biotech firm renamed itself Riot Blockchain—resulting in similar gains. A Hooters restaurant investor, meanwhile, said earlier this month that it would use Blockchain for its loyalty program, giving its stock price a 50% jump at the time.

Autonomous Research estimates that about 31 public companies have jumped on the “crypto bandwagon.” And if history is to be followed, more are expected to either add blockchain to their names or announce a blockchain strategy. Autonomous predicts that more than 100 companies will follow this trend in 2018. It compared the recent run in Bitcoin to the DotCom boom. Back then, about 126 companies added dot.com to their names at the height of the bubble.

And similarly, after the bubble popped between 2000 to 2001, 57 companies also deleted dot.com from their names.

Kodak’s stock pared some of its gains by the end of regular trading hours Wednesday, up roughly 57% since a day earlier, valuing the company at $456 million.

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7 Essentials for Any 2018 Digital Marketing Strategy

In today’s tech landscape, a solid digital marketing strategy has become the CMO’s new bread and butter; the only question now is how to best serve it up. Your business’s success depends on the right type of strategy, and the right type of strategy can in turn lead to higher sales, new customers, and long-term growth.

Traditional online advertising is a thing of the past. Why? Bottom line, it’s more annoying than effective. One study found that 18- to 34-year-olds are likely to ignore online banner and digital ads more than those on TV and radio or in newspapers. What’s more, 54 percent of internet users don’t click on banner ads simply because they don’t trust them.

It’s now a CMO’s job to stay ahead of the digital marketing curve, keep up-to-date on trends, and break through the clutter. Here are seven tips to optimize your digital marketing strategy.

1. Prioritize customer needs over bells and whistles.

While your team is consumed with building your web presence and developing your product or service, it’s easy to lose sight of the customer you want to target. “When building a brand online, too many people rush to buy ads and acquire traffic to drive revenues by brute force,” says Tony Delmercado, co-founder and COO of Hawke Media. “Small efficiency improvements in conversion rates, email capture, and retargeting can pay huge dividends — tighten up the mouse trap first, then buy eyeballs. You’ll acquire and retain customers more cost-efficiently and keep money in your coffers for higher-risk marketing strategies.”

2. Audit and update your SEO more frequently. 

You may know your product or service is great, but is it reaching all the people it could be? Search engine optimization can significantly help your brand reach the people who want what you’re offering. Industry experts recommend updating your SEO once a quarter; after all, Google updates its algorithm more than 500 times a year. Find the keywords that are making your business gain or lose traction in the search engine cycle in order to make your brand as discoverable and searchable as possible.

3. Prioritize blogging as a lead generation tool. 

Speaking of SEO: Posting relevant and valuable content drives traffic to your website and social media pages, while also increasing your ranking in search engines. In fact, marketers who blog are 13 times more likely to experience positive return on investment, and companies that blog generate 67 percent more leads than those who don’t.

Each post you create is one more indexed page on your website, making it more likely customers will find you when searching online. It also indicates to search engines that your website is active, which will help surface your content to the top of search engine results. Further, blogging gives your brand a voice, and 91 percent of consumers say they are more likely to buy from a brand that is authentic rather than generic.

4. Host high-quality webinars and live events. 

There are a variety of digital marketing resources you can use to engage with your audience, including webinars, podcasts, and online promotion of live events. To streamline the process of event promotion, try using a third party to make the process seamless. Event technology platforms like Eventbrite help brands create and market an event, as well as promote ticket sales and manage their audience. By getting some external help with the details, you can focus on the big picture and create an experience your customers will remember long after it’s over.

5. Expand and refine your email distribution efforts. 

Email marketing is still one of the best ways to reach your audience, and the fact that it costs nearly nothing to execute makes it one of the best tools to add to your toolkit. Email open rates have increased 180 percent on mobile devices since 2014, and more than half of all U.S. cellphone owners access their email on their phone rather than a desktop.

Email works better than other mobile forms of notifications (like text messages) because they don’t cost the consumer anything, can be accessed on devices other than phones, and have more space to deliver a message. Emails keep your audience engaged across platforms, which in turn helps keep your brand top of mind.

6. Don’t give social media short shrift. 

Social media has become one of the biggest tools for marketing any brand. By first finding out what platforms your audience uses, you can then target your posts to the best times and dates to share. Engage with your audience on social media by starting conversations and responding to both praise and grievances. Sixty-seven percent of consumers use social media for customer service inquiries, so make sure that you become a part of that narrative so that you can direct it to a positive outcome.

7. Make your marketing mobile. 

Even if a desktop version of your marketing content looks great, be sure to check that it translates across devices. Consumers expect cohesion across platforms, and the better accessibility you provide your audience, the more likely they are to purchase.

Remember that authenticity reigns supreme in any of these strategies. Once you have that, an online presence allows you to connect with your audience in ways previously unknown and build a brand that they’ll continuously want to engage with.

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Toyota unveils self-driving concept vehicle for rides, deliveries

LAS VEGAS (Reuters) – Toyota Motor Corp announced on Monday a self-driving electric concept vehicle that it will tailor for companies to use for tasks like ride hailing and package delivery, underscoring how automakers are no longer simply building cars but also providing services to go with them.

The world’s second-biggest carmaker said it plans to begin testing the e‐Palette concept vehicle in various regions, including the United States, in the early 2020s. It will come in three sizes: a bus-sized vehicle, a shuttle and a small delivery vehicle sized to run on sidewalks.

Toyota said at the CES global technology conference in Las Vegas that it will work with companies including Amazon.com Inc, Chinese ride-hailing company Didi Chuxing Technology Co, Pizza Hut, Mazda Motor Corp and Uber Technologies Inc[UBER.UL] to build the vehicle and its hardware and software support and develop connected mobility products.

After intense research and development in self-driving technology, automakers are beginning to unveil clearly defined autonomous vehicle strategies and looking to apply the technology to uses like ride services, shuttle services and package deliveries.

Toyota took longer than rivals to warm to the idea of autonomous vehicles, but has committed $1 billion through 2020 to develop advanced automated driving and artificial intelligence technology. It plans to begin testing cars that can drive themselves on highways around 2020.

“This announcement marks a major step forward in our evolution towards sustainable mobility, demonstrating our continued expansion beyond traditional cars and trucks to the creation of new values including services for customers,” said Toyota President Akio Toyoda in a statement.

The vehicle features an open control interface enabling Toyota’s partner companies to install their own automated driving system. Toyota’s so-called “guardian” technology will then act as a safety net, the company said.

Carmakers, tech companies and other service providers have partnered on self-driving projects over past two years, due to the difficulty and high cost of developing such technology alone.

Reporting By Alexandria Sage; Editing by Meredith Mazzilli

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This Mega Merger Is A Huge Win For Dividend Lovers

Source: imgflip

Regulated utilities are often a cornerstone of low-risk, high-yield portfolios because of their wide moats, and highly stable, recession resistant cash flows. However, the downside is that these government sanctioned monopolies are usually very slow growing. Dominion Energy (D) is a rare exception, and thus one of my favorite regulated utilities. In fact, I own it in my high-yield, retirement portfolio.

Dominion just announced that it was purchasing SCANA Corp. (SCG) in a $14.6 billion all-stock deal. After carefully analyzing what this means for investors in both companies, I’m happy to give my blessing to this corporate union. This is because not only is this deal great for SCANA’s customers (and thus likely to receive regulatory approval) and investors, but most importantly, it makes Dominion Energy an even more powerful dividend growth machine.

Best of all? The news of the deal has caused Dominion’s share price to drop to a level that makes now the perfect time to add it to your low-risk, high-yield dividend portfolio.

Merger Is A Big Win For Troubled SCANA

On January 3rd, Dominion announced it was buying SCANA in a $14.6 billion, all stock deal. This valued the South Carolina based utility at a 38% premium to its previous closing price. The merger is expected to close in Q3 2018, and SCANA shareholders will receive 0.669 Dominion Energy shares for each share of SCANA they own.

The reason this merger is such a great deal is because all parties involved, Dominion investors, SCANA shareholders, and SCANA customers, will benefit.

Source: Dominion/SCANA merger presentation

For example, SCANA has recently been caught in a huge scandal involving the utter failure and abandonment of its VC Summer nuclear project. The $12.8 billion plant expansion has seen long delays that causes costs to soar to $20 billion, resulting in massive rate increases for customers over the last several years.

And with the bankruptcy of Westinghouse Electric, SCANA finally made the smart decision to fully abandon the project after having spent about $9 billion so far. The anticipated write down SCANA was facing was $2.0 billion much of which the utility wanted to make customers pay for under the 2007 South Carolina Base Load Review Act. This law allows a utility to pass on financing and capex costs to customers even for abandoned projects.

However, SCANA customers, as well as South Carolina lawmakers and regulators, are understandably up in arms over this debacle and considering a lawsuit to suspend the rate increases. In addition, SCANA’s partner on the project (45% stakeholder), Santee Cooper, has lobbied for the state to force SCANA to not abandon the two reactors but rather continue paying to maintain them for possible future completion or sale. The problem is that if SCANA did sink more money into this black hole by maintaining the reactors, it would be unable to take its write down, which cuts its ultimate loss on the project in half.

In addition, the SEC has recently launched an investigation into whether or not SCANA “failed to disclose information that should have been disclosed” pertaining to rate increases. Things got so bad that Jay Lucas, speaker of the South Carolina House of Representatives, called for Kevin Marsh, SCANA’s CEO, to resign saying, “Neither South Carolina ratepayers nor the South Carolina House of Representatives can have faith in Scana under Marsh’s leadership.” On October 31st, Marsh did in fact announce an unexpected early retirement, with COO Jimmy Addison replacing him on January 1st, 2018.

The bottom line is that SCANA’s nuclear disaster was a huge albatross around the neck of both its customers and its shareholders. Now, however, Dominion is swooping in to save the day and giving everyone an easy out. SCANA customers will get an average rebate of $1,000, 5% lower electric rates, and Dominion will take a $1.7 billion write down on the VC Summer plant project.

So it’s clear that SCANA and its customers are big winners. But why exactly is Dominion being so generous, both in terms of paying a 38% premium and bailing out this terribly mismanaged utility? Because despite the high premium, Dominion is actually getting a great deal.

Deal Is Even Better For Dominion

Morningstar utilities analyst Travis Miller estimates that based on its fundamentals, SCANA shareholders should have gotten an exchange rate of 0.69 shares of Dominion Energy. This means that it’s possible that Dominion actually underpaid by about 3%.

Source: Dominion/SCANA merger presentation

The reason is that the SCANA acquisition greatly expands Dominion’s regulated gas and electric business. In fact, with a total of 6.5 million gas & electric customers, Dominion will now be a dominant utility in five states, three of which benefit from fast growing economies and populations.

Source: Dominion/SCANA merger presentation

And despite the scandal surrounding the VC Summer expansion, SCANA still benefits from a generally friendly regulatory environment with above average return on equity that is in line with Dominion’s own approved ROE.

Source: Dominion Energy investor presentation

Better yet? With the end of SCANA’s ill conceived nuclear project, the company is expected to double down on gas fired plants. Dominion’s large and fast growing midstream provides it with abundant access to the very low cost, and hyper prolific Marcellus and Utica shale gas formations of Pennsylvania, Ohio, and West Virginia.

In other words, by acquiring SCANA, Dominion can become an even larger, and more integrated regulated utility giant. One that also benefits from strong growth catalysts in the electrical transmission and midstream industries.

But best of all, because SCANA has fallen so hard in the past year (about 35%), the deal is immediately 11% accretive to Dominion’s EPS.

Utility Revenue Net Income Shares Outstanding TTM EPS Forward EPS Tax Cut Adjusted Forward EPS
Dominion Energy $12.462 billion $2.278 billion 632 million $3.38 $4.04 $4.74
SCANA $4.305 billion $0.45 billion 143 million $3.15 $3.06 $4.04
Dominion + SCANA $16.767 billion $2.728 billion 728 million $3.75 $4.30 $4.90

Sources: press release, Morningstar

And with the added benefits of the recently passed tax cuts, Dominion’s earnings are likely to soar in the coming years. That’s because Dominion’s effective tax rate over the past year is just 25.4%, compared to SCANA’s 31.0%. This means that SCANA will benefit from the tax cut almost twice as much, with a permanent one-time EPS boost of 32.3% in 2018 compared to Dominion’s 17.3%. All of which means that if the deal closes as planned, then factoring in the new 21% corporate tax rate, Dominion’s EPS is potentially set to expand 45% to $4.90 for 2018.

However, the benefits of this merger extend far beyond just a one-time bump in EPS. SCANA’s plans for about $750 million a year in capex spending will also add to Dominion’s already massive growth pipeline.

Source: Dominion Energy investor presentation

In fact, with the addition of SCANA, Dominion’s growth spending will rise to about $4.25 billion through 2020, and about $4.75 billion per year over the long term. This would likely continue to make Dominion Energy one of the fastest growing utilities in the country, with 8% to 10% EPS growth in the short term supporting its planned 10% annual dividend increases through 2020.

Source: Dominion/SCANA merger presentation

Even beyond that, Dominion’s fast growing presence in midstream and electrical transmission (a key component of renewable energy expansion) should allow it to maintain one of the best long-term payout growth rates in the industry.

Dividend Lovers Win Most Of All

Utility Yield TTM EPS Payout Ratio 2018 Payout Ratio 10 Year Projected Dividend Growth 10 Year Potential Total Return
Dominion Energy 4.4% 91% 71% 6.5% to 7% 10.9% to 11.4%
SCANA 5.4% 78% 61% -2.1% 3.3%
S&P 500 1.8% 50% NA 6.1% 7.9%

Sources: Morningstar, Gurufocus, FastGraphs, CSImarketing, Multpl.com

Some SCANA shareholders may be upset that they will be replacing one of the highest-yielding utilities with shares of a utility that yields 1% less. However, keep in mind that what truly matters isn’t just yield, but the overall dividend profile. That means you need to look at three things: yield, dividend safety, and long-term growth potential.

At a 4.4% yield, Dominion is still one of the top yielding utilities (industry median yield 3.3%), and one that has a very safe dividend. This is because its forward payout ratio is expected to fall to 71% thanks to the lower corporate tax rate and several midstream projects coming online this year.

As importantly, Dominion has a very strong balance sheet, which is the other part of the dividend safety puzzle.

Utility Debt/EBITDA EBITDA/Interest Debt/Capital S&P Credit Rating Average Interest Rate
Dominion Energy 5.5 5.36 55% BBB+ 3.4%
SCANA 5.1 4.08 48% BBB 4.8%
Dominion + SCANA 5.4 5.06 54% BBB+ 3.7%
Industry Average 7.8 5.17 61% NA NA

Sources: Morningstar, FastGraphs, CSImarketing

Now it is true that Dominion’s large investments into big midstream projects and acquisitions over the years has caused its leverage ratio to rise over time. However, in the coming years, management expects cash flows generated by projects coming into service to reduce its leverage ratio.

Meanwhile, because SCANA’s debt levels are slightly below that of Dominion, the $6.7 billion in debt it is assuming to buy SCANA isn’t likely to put it at risk of a credit downgrade. In fact, Dominion’s balance sheet will get slightly stronger as a result, though its overall interest rate will rise slightly due to higher-yielding SCANA bonds.

However, the bottom line is that by buying SCANA under these terms, Dominion is becoming an even better dividend growth stock, and one that will raise its payout much faster than SCANA ever could. This means that Dominion is likely to not just outperform most other utilities but also the S&P 500 over the coming decade.

That’s especially true given that the recent decline in Dominion’s share price means that its valuation is looking particularly attractive right now.

Valuation: Dominion Is A Great Buy Right Now

D Total Return Price data by YCharts

SCANA’s nuclear nightmare has made for a terrible year, which is why Dominion is buying them now at a great price. However, the combination of general utility weakness (over concerns of rising interest rates), and the news of the merger, has meant that Dominion has itself vastly underperformed the S&P 500 in the past year. But while some see that as a bad thing, I think of it as a great buying opportunity.

Utility Forward PE Historical PE Yield Historical Yield Percentage Of Time In Last 22 Years Yield Has Been Higher
Dominion Energy 19.0 22.0 4.4% 3.7% 34.9%
Industry Median 17.1 NA 3.3% NA NA

Sources: Gurufocus, YieldCharts

This is because Dominion’s forward PE is currently far below its historical average. And when you factor in both the SCANA merger and the profit boosting effects of a 21% corporate tax rate, Dominion’s forward PE falls to just 15.7.

Source: Ycharts

More importantly, the current yield is much greater than the stock’s historical norm. In fact, in the past 22 years, Dominion has only offered a higher yield about 35% of the time. This means that today is the best time to buy Dominion in seven years.

Then again, backwards looking valuation metrics are not the be all and end all when it comes to a decision about whether or not to buy a stock. After all, profits and dividends come from the future, not the past. This is why I like to use a long-term forward looking valuation model to make sure that a stock is trading at a fair price or better.

Forward Dividend 10 Year Dividend Growth Rate Terminal Dividend Growth Rate Fair Value Estimate Growth Baked Into Current Share Price Discount To Fair Value
$3.34 5.5% (worst case scenario) 3% $83.42 2.8% 8%
6.0% (conservative case) 3% $86.06 11%
6.5% (likely case) 4% $97.7 21%
7.0% (bullish case) 4% $100.98 24%

Sources: management guidance, Gurufocus, FastGraphs

Specifically, I use a discounted dividend model, which uses a 9.1% discount rate. The reason for this is that a S&P 500 ETF has historically (since 1871) generated a 9.1% total return, net of expense ratio. Since a low cost index ETF is the best default investment option, I consider 9.1% to be the opportunity cost of money.

Now understand that any long-term growth model is far from perfect, and should never be used as the sole reason for buying any stock. This is because such models require assumed, smoothed out growth rates which can be hard to predict.

This is why I use several growth scenarios to estimate the net present value of Dominions future dividend payments and help generate a fair value estimate for the stock. Under all realistic scenarios, it appears that the market is vastly underestimating Dominion’s true worth. That’s because the price is baking in a pessimistic 2.8% dividend growth rate.

Maybe you don’t believe that Dominion will be able to maintain its double-digit dividend growth beyond 2020. That’s a smart and conservative approach to take. But right now Dominion is priced as if its dividend growth rate beyond 2020 will be just 1.1%, which is absurd given its industry leading long-term growth project pipeline.

The bottom line is that thanks to this merger, corporate tax cuts, and one of the best long-term growth runways in the utility industry, Dominion Energy is a strong buy right now.

Risks To Consider

While I’m very happy with the terms of this deal, there are nonetheless several risks to keep in mind.

First, Dominion investors need to expect a small decline in overall profitability. This is because SCANA is a less profitable and well run utility.

Utility Operating Margin Net Margin Return On Assets Return On Equity Return On Invested Capital
Dominion Energy 31.7% 17.2% 3.0% 13.7% 5.6%
SCANA 21.8% 10.5% 2.3% 7.9% 5.0%

Sources: Gurufocus, Morningstar

However, keep in mind three things. The overall decline in margins and returns on capital are likely to be small since this Dominion’s highly lucrative businesses will still remain the vast majority of revenue and earnings.

Second, a big reason for SCANA’s low profitability is the massive bungling of the VC Summer nuclear plant. On the other hand, Dominion Energy’s management team has shown excellent capital allocation skills in recent years when it decided to sell off its volatile and non-core oil & gas production, and merchant power units.

D Operating Margin (TTM) data by YCharts

Since that time, Dominion’s smart focus on expanding into midstream gas and power transmission has led to substantial growth in its profitability. Hopefully, Dominion’s far superior management can avoid the kind of disastrous decisions SCANA has made, and thus boost the returns on capital of its new assets.

Finally, remember that dividends aren’t paid with margins but earnings and cash flow. So even if Dominion’s new assets end up being permanently less profitable than its existing ones, the accretive nature of this deal still helps support faster dividend growth in the future.

Of course, all of this assumes that the merger is approved by numerous regulators in three states, which isn’t guaranteed.

Source: Dominion Energy/SCANA Merger Presentation

The good news is that Dominion has experience with South Carolina regulators, having bought part of SCANA’s gas business in 2014. Analysts anticipate governor Henry McMaster’s support and an overall highly favorable regulatory view of the deal meaning a 75% chance the merger closes.

But even if the deal is consummated as expected, there is always the risk that the SCANA’s nuclear debacle might end up hurting its long-term relationship with regulators. That in turn might mean that future ROE might not be as great as the relatively generous (compared to other states) 10.25%.

Or to put another way, SCANA is a bride that has a lot of baggage, and Dominion shareholders are now going to be responsible for cleaning up SCANA’s mess. While I am confident that Dominion’s top shelf team can clear the wreckage eventually, it might take longer, and potentially cost more than expected.

Finally, we can’t forget about the risk of rising interest rates. The Federal Reserve has indicated that it plans to raise rates three times in 2018, but some analysts think the accelerating economy means we might get four.

Now it’s important to note that the Fed fund rate doesn’t directly affect long-term rates at which Dominion borrows. Those are set by credit markets, which are usually benchmarked off long-term US Treasury rates. However, over the long term, rising short-term rates generally do coincide with rising long-term rates which can raise borrowing costs for capital intensive industries like this.

That being said, Dominion has successfully grown for decades, including times when long-term rates were much higher than we’re likely to ever see again.

10 Year Treasury Rate data by YCharts

In other words, Dominion’s overall growth, and its dividend aren’t likely to be at much risk from rising rates. However, the share price might take a short to medium-term hit should rates spike higher. That’s because utilities have become bond alternatives in recent years, and so should long-term US Treasury yields rise high enough, demand for all high-yield stocks might fall.

While that would be a potentially great thing for new investors who could lock in higher yields on Dominion shares, it would also hurt price sensitive investors such as retirees living off the 4% rule. This means that if your portfolio isn’t large enough to fully live off dividends, you need to potentially prepare for a short-term decline.

One approach is to sell stocks now in order to maintain a one- to two-year cash reserve to minimize the risk of having to sell your holdings during a market or high-yield stock downturn.

Bottom Line: One Of America’s Best Utilities Just Keeps Getting Better And Is A Strong Buy Right Now

Large scale M&A is like a marriage, fraught with both great risk and opportunity. Undoubtedly, there will be some bumps in the road for both Dominion and SCANA.

However, given Dominion’s excellent capital allocation track record in the last few years, and the highly favorable and immediately accretive nature of this deal, I think investors on both sides of this corporate marriage have reason to cheer and be optimistic about the future.

Most importantly of all, the new bigger and better Dominion Energy will be an even better high-yield dividend growth stock. And with its shares now very attractively priced, I consider today to be an excellent time to add this Grade A utility to any diversified dividend portfolio.


Studies show that most investors have underperformed the stock market by about 80% over the past 20 years due to a large number of mistakes including: market timing, improper portfolio structure, and poor stock selection.

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Disclosure: I am/we are long D.

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

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Does This 'Black Mirror' Fan Theory Mean We're Finally Ready For the Singularity?

When Black Mirror first hit the air in 2011, it drew invariable comparisons to The Twilight Zone. Understandably so: Both shows dealt with elements of science fiction and psychological horror, and both functioned as anthology shows, with episodes so distinct from one another that an uninitiated viewer could plunge in at random and be as familiar with a given episode’s premise as a seasoned fan. It was a selling point; it made the show easy to recommend to people who might be wary of committing to a complex, serialized narrative.

But since its purchase by Netflix in 2015, Black Mirror has begun to chip away at its episodic edges. Technologies introduced in one installation reappear in another; news tickers on characters’ TV screens chronicle events from previous episodes; musical cues repeat again and again. Call them Easter eggs, or call them clues to piecing together a shared universe—one that creator Charlie Brooker, after years of denying, has finally admitted does, indeed, exist.

The new episodes, released last Friday, are more thematically cohesive than any batch that’s preceded them. They grapple obsessively with the notion of the human mind: uploading it; infiltrating it; probing its memories; preserving it after death. Though the show has flirted with digital consciousness in the past, most notably with its mind-bending “White Christmas” special and the series three darling, “San Junipero,” the new season takes up the thought experiment with zeal. Black Mirror’s episodes still stand well enough on their own, but after this latest installation, it’s possible to zoom out and see a cohesive rumination on the implications of digital immortality.

(Spoiler alert: spoilers for multiple Black Mirror episodes follow.)

Viewers were first introduced to the “cookie,” Black Mirror’s term for a carbon-copied consciousness, in 2014’s “White Christmas,” which followed Jon Hamm as he coerced digital souls into acting as hyper-personalized home assistants and confessing to crimes. But there were hints of this manifestation of the singularity even back in the show’s first few episodes. Take, for example, “Be Right Back,” in which a woman named Martha, mourning her dead boyfriend, signs up for a service that promises to harvest the traces of his online presence to recreate him as a chatbot—and, later, place that AI in a synthetic body.

The uncanny process is flawed, naturally: The android “Ash” can only mimic what he’s been taught, and his lack of human traits (like the need for sleep) is off-putting. But Martha’s desire to resurrect her dead loved one stands as a precursor to the digital rebirth we see later in the series. Her experience is remarkably similar to that of Jack, who we meet in “Black Museum,” the final episode of Black Mirror’s latest season. When his wife Carrie falls into an irreversible coma, he’s offered the chance to implant her consciousness in his own mind, using the technology that we learn was initially developed to help diagnose disease—and, much like in “Be Right Back,” that decision goes terribly wrong.

That casts a new light on the 2013 episode. What if we see it not only as a warning against meddling with death, but also as an early attempt by technologists in the Black Mirror-verse to digitize consciousness? Android Ash lacks a true sense of self; he doesn’t have memories from his previous life in the same way that Carrie does. But, at least for a little while, he passes his girlfriend’s Turing test. It’s a failed experiment, for sure—but maybe a necessary, realistic stumble on the path to true digital reincarnation.

From that first seed of cloud-based immortality planted in “Be Right Back,” we jump to “White Christmas,” where the technology, too, has leapt ahead—and has even more sinister implications. Sure, your cloned assistant might streamline life for the true “you,” but what about the “you” that’s then forced to live out eternity trapped in a Google Home-esque device? And Hamm’s ability to torture cookies by speeding up their timelines, subjecting them to months or years of insanity-inducing boredom, certainly hints at the “human rights for cookies” that “Black Museum” tells us were later enacted. In both “White Christmas” and this season’s “USS Callister,” digital cloning appears largely unregulated: Tech companies like the one that employs Hamm’s character are able to turn cookies into slaves for their “real” selves, while bad actors like Callister’s Robert Daly are able to get their hands on the technology to enact sadistic punishment on those who have “wronged” them—and no one steps in to stop them.

It’s clear that at this moment in the technology’s lifetime, the ACLU hasn’t yet seized upon cookies’ cause, and the mass protests mentioned in “Black Museum” have yet to have any effect. And by the end of “Black Museum,” it’s still not apparent whether those human rights for cookies are actually enforced: The museum’s proprietor is still torturing Clayton Leigh’s cookie, seemingly unhampered by pesky regulations, though his own karmic blowback returns that favor in kind. It also seems at this point that no one has given any real thought to the ethical and psychological implications of what they’ve created: How do you ensure that your cookie doesn’t spend eternity being driven mad by boredom—hell dressed up as limbo?

That brings us to “San Junipero.” No more creepily submissive androids, stimulation-starved home assistants, or uploaded minds trapped in other people’s skulls or teddy bears: Now, upon death, residents of the universe can choose to live forever in a simulated utopia, seemingly without any real drawbacks. It’s the best possible outcome of mind-uploading technology: that we use it not to service our real-world selves or punish criminals, but rather to guarantee life—a good life—after death. There are nods to a similarly happy outcome in “Hang the DJ,” this season’s heart-wrenching, dating app-inspired episode in which hundreds of thousands of cookies form a data set for real-world singles (and though that app makes a sneaky cameo on a phone in “USS Callister,” it’s arguably an earlier, less cookie-dependent iteration, given that cookie technology doesn’t appear known to most of that episode’s characters).

You can take the shared-cookie-timeline theory even further, if you don’t mind some attenuation. Perhaps the memory-capturing technology to which we’re first introduced in season 1’s “Entire History of You”—and which resurfaces in this season’s “Arkangel” and “Crocodile”—helped facilitate mind uploading, creating an easily downloadable reel of a life’s worth of data. Maybe the hyperrealistic augmented reality flaunted in “Playtest” was ultimately adapted to create the virtual paradise of “San Junipero.”

Some fans have seen even more hints of the cookie-verse in “Playtest”: As Redditors SplurgyA and sailormooncake speculate, the character of Sonja in Playtest might well be the real-world version of Selma, played by the same actress in season 1’s “Fifteen Million Merits.” Look closely in “Playtest,” and you’ll notice that her apartment sports a book on the singularity—and because she’s so enamored with game development, Redditors hypothesize, she might well have been one of the first to cookie-ify herself. Which, in turn, might mean that the world of “Fifteen Million Merits” is a reality show or form of punishment for cookies. And speaking of punishment, still others have suggested, the protagonist of series two’s “White Bear” might well be a cookie herself, sentenced to eternal, repetitive punishment. The speculative possibilities are endless.

The idea of digitally replicating a human mind is a much-loved trope of sci-fi novels that’s been seeing renewed enthusiasm recently. Altered Carbon, a novel in which characters are able to upload and download their personalities into new bodies, will be reborn as a Netflix series next month. The Canadian TV show Travelers, which premiered in 2016, imagines a world in which humans send their consciousnesses back in time to prevent an apocalypse. And in Cory Doctorow’s Walkaway, published last spring, self-appointed outcasts discover how to evade death by “backing themselves up” to the the cloud. The trend is perhaps reflective of Silicon Valley’s own obsession with digitizing the human mind. From technologies like brain-machine interfaces to the pipe dreams of futurists like Ray Kurzweil, many see this as the holy grail of AI—and one that some project might be attainable by 2045. So as we interpret Black Mirror as a cautionary tale about online dating and robot guard dogs and myriad technologies, let’s not lose sight of its larger message: A reminder to center our humanity as we speed toward a world in which that becomes harder and harder to define.

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White House Staffers Can't Use Personal Smartphones Anymore, and More Security News This Week

It’s not every week that you have a once-in-a-generation security disaster. You know, definitionally. So let’s lead off with Meltdown and Spectre, a pair of attacks that impacts the processors inside most computers today. It’s quite a mess!

While technically complicated, Meltdown and Spectre are best understood in terms of scale. Every Intel processor since 1995 is impacted, along with AMD and ARM-based chips. Fixes have started rolling out slowly, so keep updating that software, but it’ll be years before these hardware vulnerabilities are fully addressed—if ever.

Speaking of things a long time coming, if you haven’t started using a password manager yet, the fact that adtech companies are pulling info from browser autofill fields should absolutely be the last straw. Logan Paul’s video of a suicide victim in Japan should have been a last straw for YouTube, but almost certainly won’t be. And if you’re antsy about Russian submarines hanging around undersea internet cables, relax! Or, you know, don’t relax, there’s plenty to worry about generally. Just not that.

Ever wonder what a sinkhole is? (The digital kind, not the ones that open up in Florida suburbs.) We’ve got you covered. Ever wonder if being good at Call of Duty translates to real-world battlefield skills? It doesn’t. Ever wonder when pro-Russia trolls would get around to trying to discredit special counsel Robert Mueller? Right about now!

But, wait, there’s more! As always, we’ve rounded up all the news we didn’t break or cover in depth this week. Click on the headlines to read the full stories. And stay safe out there.

White House Staffers Have to Keep Personal Smartphones at Home

Thursday, White House press secretary Sarah Huckabee confirmed that White House staff will no longer be allowed to bring their smartphones into the West Wing, Bloomberg reports. The move, instituted by chief of staff John Kelly is presumably intended to tamp down on leaks—though it’s unclear if it also applies to the president himself. And while hardened government-issued smartphones are certainly more secure than whatever Huawei phablet a White House staffer might be toting, those affected are reportedly (and understandably) concerned about being able to get in touch with loved ones in an emergency.

Republicans Suggest Dossier Author Christopher Steele Should Face Charges

If you were waiting for recommended charges related to the Senate investigation of Russia’s influence on the 2016 presidential campaign, congrats! They’re here. They’re also targeted not at any member of the Trump organization, but at Christopher Steele, the former spy who assembled a jaw-dropping dossier on Trump’s alleged ties to Russia. Senators Chuck Grassley and Lindsey Graham have informed the Justice Department that they believe Steele lied to the feds over his interactions with reporters concerning the dossier’s contents. Among other oddities inherent in the move: The politicians appear to be telling the FBI something it would presumably already know about its own interviews with Steele.

Amazon Hands Over More Info to Feds Than Ever

Amazon’s latest transparency report shows an uptick in subpoenas, ZDNet reports. The company received 1,618 in all, of which it complied with 42 percent. That’s in addition to 229 search warrants, 44 percent of which it honored, and 89 other court orders, of which it complied with 52 percent. All of the requests relate to Amazon Web Services, which makes it hard to infer what exactly may have been requested, given that Amazon’s cloud is by far the dominant player in a crowded field.

A Fake Uber App Wants to Steal Credentials

It looks like the Uber app, and (almost) acts like the Uber app, but it’s really just malware. That’s the story behind malware discovered by Symantec, an app that spoofs Uber’s UI in an attempt to fool users into coughing up their user names and passwords. It takes its deceit one step further, though, using deep linking to next show an actual Uber app screen that shows the user’s location. Tricky! The good news, rare as it is these days, is that the fake app never made it into the Google Play store, and has only so far targeted a small number of Russian-language users. Still, the technique should set off alarms—and give you something else to look out for.

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Apple, researchers eye patches to solve Intel chip flaws

(Reuters) – Intel Corp (INTC.O) said fixes for security issues in its microchips would not slow down computers, rebuffing concerns that the flaws found in microprocessors would significantly reduce performance.

The performance impact of the recent security updates should not be significant and will be mitigated over time, Intel said late on Thursday, adding that Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O), Google (GOOGL.O) and Microsoft Corp (MSFT.O) reported little to no performance impact from the security updates. intel.ly/2CHQ89E

Intel shares fell nearly 2 percent on Thursday as investors were worried about the potential financial liability and reputational damage from the recently disclosed security issues.

The largest chipmaker confirmed earlier this week that the security issues reported by researchers in the company’s widely used microprocessors could allow hackers to steal sensitive information from computers, phones and other devices.

Security researchers had disclosed two security flaws exposing vulnerability of nearly every modern computing device containing chips from Intel, Advanced Micro Devices Inc (AMD.O) and ARM Holdings.

The first, called Meltdown, affects Intel chips and lets hackers bypass the hardware barrier between applications run by users and the computer’s memory, potentially letting hackers read a computer’s memory and steal passwords. The second, called Spectre, affects chips from Intel, AMD and ARM and lets hackers potentially trick otherwise error-free applications into giving up secret information.

Intel had said the issues were not caused by a design flaw and asked users to download a patch and update their operating system.

Intel may be on the hook for costs stemming from lawsuits claiming that the patches would slow computers and effectively force consumers to buy new hardware, and big customers will likely seek compensation from Intel for any software or hardware fixes they make, security experts said.

Reporting by Kanishka Singh in Bengaluru; Editing by Amrutha Gayathri

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This 1 Simple Habit Is the Only Financial Resolution You'll Need to Save Money in 2018

Let’s face it. New Year’s resolutions generally don’t work. We are motivated for a couple weeks and then life gets in the way. We go back to our old habits.

I am a fan of establishing big, audacious goals. But when it comes to New Year’s resolutions, we are typically setting ourselves up for failure.

Money is stressful.

It’s no wonder that many New Year’s resolutions are financial related. Money is a major cause of stress for Americans and a big cause of divorce. Poor financial habits are a big cause for concern.

But when we speak of improving our finances, we speak in terms of things we need to do. Just consider the following typical New Year’s resolutions:

  1. Cut up our credit cards (and make a commitment to not using them again)
  2. Get a new higher paying job
  3. Save money and build an emergency fund
  4. Pay down consumer debt
  5. Buy a house
  6. Start a business

While these may be great accomplishments, they are all actions you must take. But I am not talking about actions. I am looking to change your mindset. That’s why your only financial goal for the new year should be to — live below your means.

You see as a nation we have a spending problem. In my decades as a CPA, I have advised people from all income levels. One thing is for sure, we tend to spend what we make. The client who makes $1 million a year tends to spend all of it, just like the client who makes $50,000 a year.

In fact, I have a client who makes over $1 million a year and always complains to me that she can’t put food on the table. I know that she is exaggerating a bit, but you get my point.

So how far is enough?

How far below your means should you live? I recommend starting with 10 percent, but I have clients that save in excess of 50 percent. Whatever your goal is, you must make that commitment. Make sure that after you pay your bills you have this minimum amount left over.

This one rule will address all the other financial resolutions. For example, this extra amount may allow you to pay off credit cards, start an emergency fund, buy a rental home, build your investments, start a business, etc.

Unfortunately, we often believe that if our income goes up our spending should go up as well. If we get a raise at work or our business is doing well then we should turn around and buy a new car or a larger house. I, for example, have been living in my house for almost 16 years even though my income has increased over that period of time. Should I have bought a larger home because I “deserved” it? I think not.

Focus on your net worth.

We focus too much on our income and expenses and too little on our assets and liabilities. Net worth is what really matters. Assets are all of the things that you own (your home, furniture, investments, retirement accounts, etc) and your liabilities are what you owe (student loans, mortgage, credit cards, etc.). Subtract your assets from your liabilities and hopefully this is a positive number. If it’s not, living below your means will help.

I admit it. Changing your financial mindset can be really tough. But in order to accomplish what you want financially it is critical. If you live below your means the rest will take care of itself. Make it your one and only financial resolution.

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Science Says Celebrating These Five Holidays In January Will Make You More Successful (Hint: They Probably Aren't On Your Calendar)

The holiday season has come and gone. We’ve eaten too much, overspent, and grown tired of old Uncle Tim’s relentless rants about the good ‘ole days.

But this doesn’t mean the time for celebrating has passed. There are five more holidays you should be celebrating in January. 

None of them will cause you to gain the Freshman 15. They won’t cause your bank account to take a nose dive. And they won’t cause you to quietly utter curse words under your breath at Uncle Tim (you love him, really).

Instead, they’ll prime you for success. Sound indulging? 

Note: The inspiration for these holidays came courtesy of keepincalendar.com and timeanddate.com. If you miss out celebrating any of these holidays in January, fear not. Similar holidays are speckled throughout the year. Public Sleeping Day on February 28 and World Sleep Day on March 16, for example, will afford you other valuable opportunities to catch up on lost sleep.

January 3: Festival of Sleep Day 

According to a McKinsey report, sleep deficiencies impair the performance of corporate executives. They undermine several important leadership behaviors. Studies have found that there are neurocognitive consequences of sleep deprivation. When we miss a few too many zzz’s, our cognitive reasoning and decision making abilities are impaired. 

Start the month of fresh and schedule in a few hours of additional sleep to your schedule. You’ll be better for it. So too will your co-workers.  

January 9: Clean Off Your Desk Day 

Disorganization can be crippling. A survey by OfficeMax found that 77 percent of executives believe that clutter damages their productivity. Cluttered desks cause us to waste time scouring for information and cause us to become distracted.

Before you leave work on January 9th, set aside an hour for cleaning off your desk. A clutter free desk can be liberating.

January 16: Nothing Day 

Counterintuitive, perhaps. But doing nothing can be one of the most effective ways to boost creativity. According to Manfred Ket De Vries, a distinguished professor at INSEAD, doing nothing can trigger our imagination and creativity. When we do nothing, we’re more susceptible to boredom, a state that can compel us to “seek the unfamiliar” and become more creative.

This month, clear up some white space on your calendar and schedule in some time to do nothing.  

January 23: Handwriting Day

Perhaps as a result of cleaning off your desk, you’ll uncover a pen or pencil. I suggest gripping it and engaging in some long overdo handwriting. Remember, the kind you did in elementary school? According to a paper published in Psychological Science, when we opt to take notes by pen or pencil (rather than via a laptop), we gain a better grasp of the subject matter.

On January 23rd, try taking all your Monday meeting notes by hand. (Stay strong. I know it’s a novel concept.) 

January 24: Compliment Day 

When was the last time you complimented a coworker? Bueller? Anyone? A recent study found that all it takes is a single compliment to cause people tend to become more effective at performing a task. 

On January 24th, forget repetitive twisting of the wrist. Instead, give a genuine compliment to every member of your team. You’ll boost productivity. I bet you even get a compliment or two back. 

Keep the holiday spirit going this January. Pencil these dates on your calendar and embrace them with a jolly festive cheer.  

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In 6 Words, Elon Musk Explained Why So Many People Are Afraid to Take Risks and Achieve Greatness

This series examines the stories behind some of the best inspiring quotes of all time. Check out the full list: the best inspirational quotes for 2018.

The most powerful threat to greatness isn’t evil. It’s mediocrity.

Of all the colorful ways to articulate that truth, one of the best is what Elon Musk told Chris Anderson of Wired magazine, back in 2012.

They were talking about Musk’s space exploration company, SpaceX, which grew out of Musk’s “crazy idea to spur the national will” to travel to Mars–by first sending a private rocket to the red planet.

He tried to to slash the cost of his quixotic dream by buying Cold War Russian missiles to turn into interplanetary rockets. While negotiating that deal, he realized that it wasn’t lack of “national will” that held the U.S. back from exploring space.

Instead, it was a lack of affordable technology–and the high cost, he told Anderson, was the result of some “pretty silly things” in the aerospace industry, like using legacy rocket technology from the 1960s. 

Anderson: I’ve heard that the attitude is essentially that you can’t fly a component that hasn’t already flown.

Musk: Right, which is obviously a catch-22, right? There should be a Groucho Marx joke about that. So, yeah, there’s a tremendous bias against taking risks. Everyone is trying to optimize their ass-covering.

That’s the quote that I liked so much, especially those last six words: a “bias against risk,” because everyone is “trying to optimize their ass-covering.”

It’s funny–but also poignant. And, of course, it applies to a lot more than space exploration.

It applies to the vast majority of successful companies that get stuck producing legacy products–because they can’t risk that innovation might upset their own profit models.

It applies to the service providers that make a mockery of the word “service” (say for example, big airlines and utility companies)–because cost-cutting with crappy service maximizes shareholder value.

It applies also to temptations in our personal lives, and in the lives of those around us.

Think of the colleagues you know who hold onto uninspiring jobs for fear of going after the careers or entrepreneurial dreams they really want.

Or think of the friend you might have (I think most of us do), who stays in a lousy relationship because he or she is more afraid of being alone than of living with less than they deserve.

We’re all a little bit afraid of risk. Yet, each day represents a new chance and a new beginning. At the start of the year, that sense is especially acute. 

And sometimes we need a little inspiration to take the leap.

Whatever is the thing you’re afraid of trying–a new business, a new adventure, a new relationship–maybe now is the time to give it a try.

Cast aside your risk aversion. Be uncomfortable for a while as you try something new. Accept the chance that you’ll fail.

Don’t optimize your ass-covering. Instead, optimize your opportunities. And find your own mission to Mars.

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Finding The Value Of Bitcoin: A New Model Places It At $29,000

My recent search to find the intrinsic, or fair, value of Bitcoin via the internet was not really proving to be very useful. True investment professionals really don’t find any value in Bitcoin and will tell you it has no value whatsoever. They liken it to a commodity and compare it to tulip bulb mania. Some Bitcoin mavens will blurt out an inflated value – such as between $50,000 to $100,000 – without providing the reasoning for these numbers. Still others predict a value of $1 million! One day, I decided to figure out such a value on my own by taking a scientific-based approach rather than one based on irrational exuberance.

The initial approach I took was a rather simple one. Figuring that holders of Bitcoin will be most likely to spend their Bitcoin in a retail setting (at places such as Microsoft (NASDAQ:MSFT), Expedia (NASDAQ:EXPE), Newegg, etc.), I took to the internet to find the dollar value of worldwide retail sales in 2017. It turns out that this number is around $27 trillion. Surmising that worldwide only 1 percent of all people currently hold Bitcoin, finding 1 percent of $27 trillion yields $270 billion. This means we can expect a maximum of $270 billion to be transacted with the cryptocurrency. Taking things one step further and dividing this number by the current number of bitcoins in circulation (16,769,000), one arrives at a fair value of Bitcoin of around $16,000.

However, this approach is rather rudimentary. What it fails to recognize is that while 1% of the population holds Bitcoin worldwide, in the US it is more like 15%. In technologically progressive countries like Japan, it is much more – in fact, one can go about his or her daily business and pay for things in Bitcoin (with perhaps a majority of the population paying for things in Bitcoin!).

Taking a similar approach to my worldwide, back-of-the-envelope calculation, I set out to find the fair value of Bitcoin in the US only, using 15% of the value of retail sales in the US and again divided by the total number of Bitcoin, which yields a value of $46,156.60. Why such a high number? Well, it’s because a higher proportion of the US population holds Bitcoin (and is thus more likely to transact in it) than does the worldwide population, where emerging markets countries are likely to drag the number down. Think of it – people with little access to computers or venues to spend Bitcoin aren’t as likely to value it as much as people living in highly developed, computerized societies (i.e., ones in which Bitcoin is more likely to be used). Some repressive countries have also taken to the unfortunate extreme of banning the use of cryptocurrencies entirely (perhaps saving its citizens from burned-out motherboards and prohibitively expensive video cards).

Taking thing further, I backed into an ex-US fair value of Bitcoin by taking worldwide retail sales and subtracting out the value of US-based sales, then taking 1% of that number and dividing by the total number of Bitcoin. This yields a value of $11,721.63. The reason why I did this is because referring to the MSCI ACWI Index, one will see that the weight of companies in the index worldwide is heavily tilted in favor of the US at around 52%. Calculating a weighted average of values (taking 52% of the US value of $46,156.60 and adding it to 48% of the ex-US value of $11,721) yields a value of $29,627.81.

As a further experiment, reducing the ex-US value of retail sales by 10% to account for countries that have banned or frown upon Bitcoin for payments (China, India, South Korea, etc.), I arrived at a number that is very close to $29,000.

As with everything, the model I used is subject to scrutiny. It would have been more correct to use my weighted average method with the proportion of people in the US who hold Bitcoin versus those that hold it worldwide; however, we will never know this number, as owners of Bitcoin are kept private (thank you, blockchain!). If we were to base things on a proportion of the number of people worldwide who live in the US as a proxy, one would arrive at a final value of Bitcoin of almost $500,000 (making absolutely no sense and invalidating this exercise in the process)! Another aspect that is subject to criticism is that my method takes US holders of Bitcoin and compares it to everyone else as one lump – as mentioned before, Japan and other technologically savvy countries are more likely to use Bitcoin in a proportion that is higher than just 1% of their populations! It would be more correct to figure out what these proportions are and have used a weighted average approach that accounts for every country in the MSCI ACWI Index (not just a US versus every other country approach!). But again, estimates of these proportions would be just that – highly subjective estimates, as blockchain technology keeps Bitcoin holders hidden.

In conclusion, an attempt to find an intrinsic, or fair, value of Bitcoin grossly overvalues it compared to today’s prices – $29,000 versus its current trading value of around $14,000. One can argue that the true value of Bitcoin lies not in the fact that some think of it as a commodity, but in the fact that it is a currency or payment system that is more adaptable in some technologically progressive countries than in others.

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. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author is a holder of Bitcoin and a believer in the cryptocurrency movement as a developing currency/form of payment.

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Bitcoin Is Already Having a Bad Year

Bitcoin is already having a bad year.

For the first time since 2015, the cryptocurrency began a new year by tumbling, extending its slide from a record $19,511 reached on Dec. 18.

The virtual coin traded at $13,440 as of 3:55 p.m. in New York, down 6.1 percent from Friday, according to data compiled by Bloomberg. That’s also a fall from the $14,156 it hit Sunday, according to coinmarketcap.com, which tracks daily prices.

Bitcoin got off to a much stronger start last year, and then kept that momentum going, eventually creating a global frenzy for cryptocurrencies. In a sign of its phenomenal price gain in 2017, it rose 3.6 percent on the first day of 2017 to $998, data from coinmarketcap.com show. It ended the year up more than 1,300 percent.

That rally drew a growing number of competitors and last month brought bitcoin to Wall Street in the form of futures contracts. It reached the Dec. 18 peak hours after CME Group Inc. debuted its derivatives agreements, which some traders said would encourage short position-taking.

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WIRED'S 12 Most-Read Opinion Pieces in 2017

Privacy, Facebook, surveillance, net neutrality, gender issues, climate change, hacking: The list of opinion topics that most attracted attention from WIRED readers in 2017 doubles as a list of Things That Gave Us Angst This Year. Here are the dozen most-read Opinion pieces of 2017.

FCC Wants to Kill Net Neutrality. Congress Will Pay the Price

The Federal Communications Commission’s vote to kill net neutrality provisions drew derision from all corners of WIRED, including our opinion section, which ran several op-eds on the topic. In December Ryan Singel, a former WIRED editor who’s now a media and strategy fellow at the Center for Internet and Society, argued that ending the open internet will have profound effects on the re-election efforts of Congressional Republicans in 2018.

Why Men Don’t Believe the Data on Gender Bias in Science

In August, shortly after Google engineer James Damore posted a diatribe about gender differences on an internal company message board, UC San Diego physics professor Alison Coil explained why male scientists devalue research that identifies gender bias in the field. Academics should believe the research showing discrimination, but, Coil asserted, “What this extensive literature shows is, in fact, scientists are people, subject to the same cultural norms and beliefs as the rest of society.”

A Wet Year Won’t Beat California’s Never-Ending Drought

Last January, as California was saturated with rain and snow, the Pacific Institute’s Peter Gleick, a hydroclimatologist, explained why a wet year didn’t mean the golden state’s drought was over. Nearly a year later, as the state has been incinerated by historically terrible wildfires, it’s all too clear that Gleick was right.

Equifax Deserves the Corporate Death Penalty

What should government do when a company fails to protect the personal data of 143 million people? Give it the corporate version of the death penalty, argued Ron Fein, the legal director of Free Speech for People. Fein’s October essay explained that in Georgia—Equifax’s home state—authorities can file suit to dissolve a corporation if it has abused the authority conveyed upon it by the state.

How Social Media Endangers Knowledge

Hossein Derakhshan, an Iranian-Canadian media analyst, wrote that the rise of social media is reducing humans’ curiosity, as people strive for Likes rather than the pursuit of knowledge. Social media, Derakhshan argued, “engages us in an endless zest for instant approval from an audience, for which we are constantly but unconsciously performing.”

Potential Trump Science Adviser Says Climate Change Is Great

In February Benjamin Sanderson, a climate scientist at the National Center for Atmospheric Research, warned that a top candidate to be Donald Trump’s science advisor, William Happer, was a climate change enthusiast. Ultimately, Happer didn’t get the job, but the position is still vacant.

Hey, Computer Scientists! Stop Hating on the Humanities

Not every question can be answered with code, Emma Pierson, a physics PhD candidate at Stanford, wrote in April. When ethical questions arise in, say, artificial intelligence applications, sound knowledge of other fields—literature, sociology, or ethics, for example—will help uncover solutions that algorithms alone cannot.

A Blackjack Pro Explains How Ignoring the Odds Cost the Falcons the Super Bowl

February’s match-up between the New England Patriots and Atlanta Falcons ended with a killer comeback for the Patriots. Jeff Ma, the leader of the MIT blackjack team that inspired the book Bringing Down the House, explained that the Falcons lost because the team didn’t follow basic probability rules commonly employed at a blackjack table.

Trump’s Taxes Have Probably Already Been Hacked

Given the tremendous amount of attention given to Donald Trump’s tax returns, it’s almost inconceivable that they haven’t already been hacked, wrote John Powers, who runs a New York-based investigative firm, in November.

Facebook’s Not Listening Through Your Phone. It Doesn’t Have To

In November Antonio García Martínez, who was the first ads targeting product manager on Facebook’s ads team, wrote that Facebook isn’t eavesdropping on its users through their smartphones’ microphones. That’s in part because the social network tracks users so many other ways, it doesn’t need to snoop.

Courts Are Using AI to Sentence Criminals. That Must Stop Now

Writer and technologist Jason Tashea explained how algorithms pervade our everyday lives, from our credit scores to the route Waze suggests we take to the airport. Tashea argued that applying algorithms in criminal cases, with no clear oversight or transparency, could result in overly punitive sentences.

A Murder Case Tests Alexa’s Devotion to Your Privacy

As WIRED editors have explained at length, devices like Amazon’s Echo and Google Home series listen to our conversations, eagerly awaiting a “wake” word to command them to turn on some Miriam Makeba or calculate how many tablespoons are in a cup (16). But, as civil attorney Gerald Sauer explained in a February piece, smart home devices’ microphones can also effectively collect evidence that can be used against their owners in court.

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Serial SWAT Hoaxer Arrested in Deadly Call of Duty-Linked Police Shooting

Twenty-eight-year-old Andrew Finch was shot and killed by police in Wichita late Thursday, after a fraudulent emergency call drew police to his family’s residence with their weapons drawn. The hoax call — an instance of what’s known as “swatting” — was placed after an argument in the online game Call of Duty.

Wichita police received a 911 call on Thursday purporting to be from an armed man holding his own family hostage. When they arrived at the address, there was no hostage situation, but Finch was shot and killed after opening the door to the house and, according to police, reaching for his waistband several times. According to Finch’s family, he didn’t play video games. He was unarmed.

The swatting call was reportedly made after an online match in the wargame Call of Duty, with a bet of $1.50 on the line.

The alleged perpetrator, who responded to news about the swatting live on twitter, has been arrested in Los Angeles. Tyler Raj Barriss, 25, known online as “SWAuTistic,” has been previously arrested for making hoax calls to police, including two bomb threats in 2015. More recently, he may have been responsible for a bomb threat that disrupted the FCC’s vote to repeal net neutrality rules.

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Security researcher Brian Krebs, himself a former swatting victim, tracked down what appear to be tweets by the perpetrator of the attack. After the fatality was reported, the swatter tweeted: “I DIDNT GET ANYONE KILLED BECAUSE I DIDNT DISCHARGE A WEAPON AND BEING A SWAT MEMBER ISNT MY PROFESSION.”

Krebs also managed to briefly interview the apparent perpetrator via Twitter before Barriss’ arrest. He told Krebs that he had been paid for previous swattings. While he said he felt remorse for the death, he was “too scared” to turn himself in to police.

According to an interview with a man claiming to be the perpetrator on the YouTube channel DramaAlert before the arrest, Barriss was not involved in the inciting online match. Instead, one of the involved players contacted him and asked him to make the fake call.

The phenomenon of swatting has been on the rise in recent years, particularly among online gamers and hackers. According to Krebs, many perpetrators are minors and receive token punishments for their false reports. In some jurisdictions, filing a false police report is a misdemeanor, making it less likely that a swatter could be charged with murder for a resulting death.

Police had not disclosed the charges against Barriss as of this morning.

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5 Fun Team-Building Activities for Competitive Businesses

Company culture is critically important for employers and employees alike — yet the prospect of business-led team-building exercises can be a bit chilling for some. The longer one’s career, the better the chance that they’ve endured a particularly cheesy or mirthless afternoon of “mandatory fun” at some point along the way.

Taking a break from the daily routine can pay big dividends, whether it comes in the form of departmental offsites or company-wide activity days. To be clear, team-building exercises won’t magically fix a toxic workplace, or create a sense of culture from scratch. But when done correctly, they can work wonders in strengthening existing bonds, and encouraging serendipitous collaboration between people/teams that don’t typically work together. 

Assuming your team tends to be a competitive bunch, here are a few fun group activities to try.

To start, consider recruiting some volunteer referees and judges to make sure the competition stays fair, and that the teams understand the various rules. Divide the teams in a way that deliberately breaks up any departmental or personal cliques — it’s always fun to pit top executives against each other, of course — but also consider ensuring that very new employees have at least one familiar face on their teams.

The toy car race

A timed engineering challenge is a great way to test a team’s grace and creativity under pressure. There are lots of variants to this activity, but an easy one to pull off is to distribute a small amount of materials — e.g. rubber bands, straws, a paper towel tube — to each team and instruct them to build a ramp for a toy car.

The team that gets their car to go the furthest distance from the starting point is the big winner. 

Pro tip: make sure every team gets the exact same kind of car — or even have one official “judge’s car” that is used on every ramp, in the name of fairness.

The stock photo challenge

The organizers of the 2nd annual “Workpop Olympics” — a day-long competition / team-building activity — decided they were tired of sifting through cheesy stock photography and instead commissioned their colleagues to try creating unique imagery that corresponded to some key phrases in the hiring and HR technology world: candidate experience, mobile-friendly, AI, user adoption, workflow, and more.

Photos were judged on three criteria: whether they were creative, whether they’d pop out of a crowded social media feed, and whether they actually seemed connected to the assigned word. 

This unique exercise definitely produced unique results — and while not all of the photos will be in circulation on Shutterstock or Getty Images any time soon, the event produced a lot of laughs and some impressive outside-the-box thinking. 

The sales pitch

If a team had to take out an advertisement or make a commercial to sell their services, what would they say? This exercise encourages teammates to get to know one another outside of job descriptions, as hidden talents and crazy life experiences rise to the surface. It’s important that the pitches stay authentic; players won’t learn as much about their colleagues if their pitch is that they’re all experienced slayers of White Walkers. 

The maze (or minefield)

After flexing their muscle with feats of ingenuity, creativity and performance, it’s time for the teams to show how well they can focus and follow someone else’s lead.

Tape out a grid on the floor; depending on your space and your available time, you can adjust the size of the grid accordingly. Have the teams line up in single-file on one side of the grid, and then proceed to attempt to walk through the grid, one square at a time. The catch: the grid is strewn with invisible bombs, seen only by the judges. If a bomb is activated, the player goes to the back of the line. No coaching is allowed; each player must make it through on the strength of memory. 

Pro tip: while it can be fun to time this exercise, and thus add some pressure, this may result in teams just quickly rushing through the course, heedless of making mistakes. If they’re instead scored on how many bombs they trigger as a team, they’ll approach the game more carefully. 

Lip sync for glory

Lip sync battles have perhaps jumped the shark a bit, but it’s hard to argue against the comedic value of seeing coworkers leave their hearts on their stage after a passionate albeit silent rendition of a song close to their hearts. Of course, devious event organizers may allow rival teams to assign songs to one another, upping the difficultly. Make sure someone has a camera ready.

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The Top 10 New Years Resolutions And Why Only 9 Percent Achieve Them

It’s an exciting time of year. You’re in the process of closing out 2017 while simultaneously gearing up for a successful 2018. If you’re like me, you’ve already started to draft a list of New Year’s resolutions and have tons of ideas on things you want to accomplish to make 2018 your best year yet.

In 2017, these were the Top 10 New Years resolutions from Statistic Brain

  1. Lose Weight/Healthier Eating 
  2. Life/Self Improvement 
  3. Better Financial Decisions 
  4. Quit Smoking 
  5. Do More Exciting Things 
  6. Spend More Time with Family/Close Friends 
  7. Work Out More Often 
  8. Learn Something New On My Own 
  9. Do More Good Deeds For Others 
  10. Find The Love Of My Life

I don’t want to crush your hopes, but statistically speaking, only 9.2 percent of us will actually achieve our wishes. 

The reasons behind the loss of good intentions are vast. But, I am willing to bet that they all boil down to one thing — a lack of sustainable motivation. 

One of my go-to resources on the subject is Jen Shirkani’s book Choose Resilience: Break Out of Your Comfort Zone Using the Power of Emotional Intelligence. In it, Shirkani (EQ expert) talks about the hurdles she’s overcome throughout her life and the best practices that helped her choose resilience when everything seemed to be taking a turn for the worse. 

Shirkani encourages everyone to find “the spark to move” (a source of sustainable energy). Through her experience, Shirkani has found that “the best way to cultivate that energy is to better understand why you desire the particular change in the first place.” 

Here are the eight common motivators that Shirkani says can help you choose resilience in the face of adversity: 

1. Recognition

“You are energized by public acknowledgment and by being praised and valued for the things you do.” 

If this is the case, then a good strategy is to find an accountability partner or to tell others that you’re working towards a specific goal. In my case, the fear of letting someone else down (other than myself) motivates me to push forward.  

2. Challenge

“The high you get from fixing things that others can’t, you specialize in creative solutions for difficult situations.” 

If you feel a great sense of accomplishment after tackling a colossal feat, then it’s a good sign that you’re motivated by challenging work. To set yourself up for success, make sure to identify goals that allow you to take interpersonal risks and think creatively. 

3. Opportunity for growth

“You feel most alive when you are learning, so you take opportunities to develop yourself…”

If this is you, then make sure that you set aside frequent opportunities through 2018 to work on developing your abilities. Most companies have budgets for this that no one even knows about. Make sure to voice your interest and map out a plan of attack to ensure you acquire the skills necessary for progression. 

4. Career advancement

“You derive satisfaction from building your responsibilities at work and progressing up the organizational chart…” 

More than likely, your organization has a succession plan that they can share with you if you’re interested in moving up the ladder. The important things is to uncover those competencies early and start practicing them now. 

5. Money

“You feel jazzed about working hard to earn bonuses, commissions, or financial rewards…” 

If that’s the case, then figure out your earning potential (merit increases, bonuses, and commissions) and post them everywhere you look. More importantly, develop a plan to ensure you hit your targets. 

6. Making a difference

“You experience a sense of peace, happiness, and meaning when you work to improve the lives of others or contribute to society.” 

All this usually takes is a perspective change. Every day, all around us, are opportunities to serve others. Instead of dreading your work or the process of achieving your goals, envision that you’re doing it for someone else, i.e., your manager, family, or in service for the greater good.  

7. Incentives

“You love the thrill of competitive activities and enjoy earning prizes associated with success…” 

Whether it’s salesman of the year, rookie of the year, or most improved, if you’re motivated by recognition or contests, then ensure you frame your resolutions for 2018 around an incentive that is worth making sacrifices for. 

8. Work-life balance 

” You have more energy for participating or leading when you have flexibility in your schedule…” 

For some of us, our most reliable sources of motivation are our families, friends, or hobbies. It’s having the balance between goals and the people/things that inspire us. Totally immersing yourself in your aspirations can lead to early fatigue and burnout. It’s counterintuitive, but sometimes the best way to push forward is to take a break and enjoy the things in life that energize us. 

If you’ve had a hard time keeping your resolutions, then maybe it’s time for a gut-check. Tapping into one of these motivators could be the key to helping you achieve something never before possible.

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Apple Is Now Facing Eight Lawsuits After Admitting to Slowing Down Old iPhones

Apple (aapl) defrauded iPhone users by slowing devices without warning to compensate for poor battery performance, according to eight lawsuits filed in various federal courts in the week since the company opened up about the year-old software change.

The tweak may have led iPhone owners to misguided attempts to resolve issues over the last year, the lawsuits contend.

All the lawsuits—filed in U.S. District Courts in California, New York and Illinois—seek class-action to represent potentially millions of iPhone owners nationwide.

A similar case was lodged in an Israeli court on Monday, the newspaper Haaretz reported.

Apple did not respond to an email seeking comment on the filings.

The company acknowledged last week for the first time in detail that operating system updates released since “last year” for the iPhone 6, iPhone 6s, iPhone SE and iPhone 7 included a feature “to smooth out” power supply from batteries that are cold, old or low on charge.

Phones without the adjustment would shut down abruptly because of a precaution designed to prevent components from getting fried, Apple said.

The disclosure followed a Dec. 18 analysis by Primate Labs, which develops an iPhone performance measuring app, that identified blips in processing speed and concluded that a software change had to be behind them.

One of the lawsuits, filed Thursday in San Francisco, said that “the batteries’ inability to handle the demand created by processor speeds” without the software patch was a defect.

“Rather than curing the battery defect by providing a free battery replacement for all affected iPhones, Apple sought to mask the battery defect,” according to the complaint.

For more about Apple, watch Fortune’s video:

The plaintiff in that case is represented by attorney Jeffrey Fazio, who represented plaintiffs in a $53-million settlement with Apple in 2013 over its handling of iPhone warranty claims.

The problem now seen is that users over the last year could have blamed an aging computer processor for app crashes and sluggish performance – and chose to buy a new phone – when the true cause may have been a weak battery that could have been replaced for a fraction of the cost, some of the lawsuits state.

“If it turns out that consumers would have replaced their battery instead of buying new iPhones had they known the true nature of Apple’s upgrades, you might start to have a better case for some sort of misrepresentation or fraud,” said Rory Van Loo, a Boston University professor specializing in consumer technology law.

But Chris Hoofnagle, faculty director for the Berkeley Center for Law & Technology, said in an email that Apple may not have done wrong.

“We still haven’t come to consumer protection norms” around aging products, Hoofnagle said. Pointing to a device with a security flaw as an example, he said, “the ethical approach could include degrading or even disabling functionality.”

The lawsuits seek unspecified damages in addition to, in some cases, reimbursement. A couple of the complaints seek court orders barring Apple from throttling iPhone computer speeds or requiring notification in future instances.

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Mark Hibben Positions For 2018: Old Paradigm Vs. New Paradigm

It continues to be old vs. new.

That’s according to Seeking Alpha contributor and tech expert Mark Hibben, at least when it comes to the semiconductor sector. His take: As investors assess their holdings, especially among semiconductor stocks, they should steer clear of companies stuck in the old paradigm.

As part of Seeking Alpha’s 2018 Outlook series, editor Michael Hopkins caught up with Hibben to get his take on what’s next within the semiconductor space, what investors can expect from Apple (NASDAQ:AAPL), and how he assesses investment opportunities.

Michael Hopkins (NYSEMKT:SA): Let’s start with Apple (AAPL). There are the new iPhones, focus on Services, and ongoing pushes with iPad, Macs, etc. Could there be something else with Apple in 2018 that will surprise investors?

Mark Hibben (MH): 2018 will probably not see any completely new products from Apple. Apple is reportedly working on “smart glasses,” which would feature AR capability and possibly substitute for a smartphone or tablet. However, those are thought to be about two years away.

That leaves new versions of existing products which may or may not surprise. The most prominent product makeover known to be in the works is the next gen Mac Pro. As I discuss in a recent article, the iMac Pro is a more powerful iMac, but doesn’t meet the need for PCIE expandability that many professionals need. The next Mac Pro has been advertised as a “modular” system, but it’s not clear that it will include PCIE slots.

The Apple Watch Series 3 with LTE may surprise with greatly expanded unit sales. A report from Digitimes claims that Watch sales could hit 23-35 million units next year, which would be about double calendar 2017 sales.

Although Digitimes often passes along specious rumors, I also expect significant growth in Watch sales. I have written about the potential for LTE connected smartwatches to take over voice and text communications functions, and the Watch Series 3 is blazing that trail for Apple.

The Series 3 with LTE actually arrived earlier than I expected, but now that it’s here, Apple will continue to develop its capabilities, especially in the areas of increased talk time.

I also expect Apple to expand its use of 3D sensing to include iPad and other iPhone models. Apple’s recent $390 million award to Finisar (NASDAQ:FNSR) should pave the way for expanded functionality for 3D sensing beyond FaceID. We may see 3D sensors mounted on the backs of iPhones and iPads to support advanced augmented reality features.

Finally, Apple’s autonomous vehicle efforts may see their first public trials in a driverless shuttle service known as Palo Alto Infinite Loop or PAIL. It’s not known when this could get started but 2018 seems likely.

(SA): You recently wrote about the ongoing litigation between Qualcomm (NASDAQ:QCOM) and Apple. Your thoughts on where the litigation is going? And why should investors pay attention to this battle?

(MH): Since both companies are in the Rethink Technology Portfolio, I try to update members regularly (the most recent being on November 29) and so I’ve been following the legal developments fairly closely. Despite the fact that Qualcomm has been on the defensive regarding its business practices, I consider Qualcomm to have the edge in its legal battle with Apple.

Let me first give a conceptual overview of the battle. One way to think about it is that this is a battle between the new paradigm in semiconductors, represented by Apple, and the old paradigm, represented by Qualcomm. In the new paradigm, mobile device makers design their own processors rather than purchase them from a commodity processor supplier like Intel (NASDAQ:INTC) or Qualcomm. The old paradigm is the PC model where computer makers bought commodity processors and had very little influence on their design.

In mobile devices, the new paradigm has pretty much conquered the middle and high price tiers. Apple, Samsung (OTC:SSNLF), Huawei and soon LG design and market their own processors. In lower priced smartphones, the old paradigm predominates, represented by Qualcomm and other chip vendors such as MediaTek.

But Qualcomm has been able to hang onto a piece of the higher-end smartphone market through its cellular modems. Apple’s going after Qualcomm can be thought of as Apple trying to free itself of this last vestige of the old paradigm.

Technically, Apple’s need to do this was becoming increasingly pressing, since most non-Apple smartphones have the cellular modem incorporated into the system on chip (SoC). Apple needed to incorporate LTE modems into its A series processors, which meant it needed to license patents, especially standard essential patents, (SEPs) from Qualcomm.

Leading up to the outbreak of hostilities, there had been ongoing licensing discussions between Apple and Qualcomm. It was the failure to reach a licensing agreement that set things off. Apple apparently reached the conclusion that Qualcomm was behaving as a “monopolist” and that the withholding of licenses on its terms was a wrongful act on Qualcomm’s part.

To some degree, Apple probably did what Qualcomm alleges, specifically, going around to various competition regulatory agencies and complaining about Qualcomm. Qualcomm however miscalculated. Qualcomm retaliated against Apple by suspending partial reimbursement of royalties paid by Apple’s contract manufacturers (CMs). This led to the Apple suit filed earlier this year to recover the balance of the payments under the reimbursement agreement, as well as all the rest of the legal actions between the two companies.

Apple has subsequently expanded its suit to raise fundamental issues of patent licensing and what it claims are Qualcomm’s wrongful monopolistic business practices. Apple has among other things sought “disgorgement” of all royalties ever paid by its CMs on its behalf and encouraged cessation of royalty payments by the CMs.

Here, Apple committed its own miscalculation. Apple had been focused exclusively on SEPs, for which it felt it was paying too much money, since the royalty was assessed as a percentage of the CMs’ – revenue per device. But the licensing contracts that the CMs had signed with Qualcomm covered a broad portfolio of patents both SEP and not. In encouraging the breaching of the licensing contracts, Apple left itself open to patent infringement lawsuits by Qualcomm for any and all applicable patents in the bundle covered by the CM agreements.

This has provided Qualcomm with its principal vehicle for legal retaliation against Apple. Qualcomm has sued Apple for patent infringement of non-SEPs. In the case of non-SEPs, Qualcomm is entitled to charge whatever the market will bear in licensing fees, so this negated Apple’s complaint that it was being gouged on SEPs. Qualcomm has also used the same patents as the basis for a US International Trade Commission (ITC) complaint that seeks to block the importation of certain iPhone models.

I don’t think there’s any question based on prior actions by the Chinese National Development and Reform Commission (NDRC), the Korean Fair Trade Commission (KFTC), and the Taiwan Fair Trade Commission (TFTC) that some of Qualcomm’s business practices have been abusive and anticompetitive. Qualcomm was able to settle with the NDRC and pursue its business in China with little fundamental change to its business model, however.

Specifically, although there have been complaints about Qualcomm’s bundling of patents, no jurisdiction has been willing to ban the practice outright. Broad portfolio licensing is not uncommon, and there would be really no basis to outlaw the practice. Therefore, it’s likely that the licensing contracts with Apple’s CMs will be found to be valid and enforceable. This leaves Apple severely vulnerable to the legal actions that Qualcomm launched against both Apple and the CMs.

On the broader issue of Qualcomm’s business practices, there seems to be no end to regulatory scrutiny, with actions by the US FTC and the EU yet to be resolved. Most likely, Qualcomm will face further fines and “corrective actions.” However, I don’t expect that the above agencies will be able to negate Qualcomm’s right to license its patent portfolio in “bundles” of SEPs and non-SEPs.

Apple will probably be required to repay royalties withheld by its CMs. This leaves the matter of direct patent licensing still unresolved. Ultimately, Apple needs to reach an agreement with Qualcomm for direct licensing. When the dust from all the litigation finally settles, I expect that a patent licensing agreement between the two companies will emerge, with terms favorable to Qualcomm.

(SA): Digging deeper into the semiconductor space, there’s Nvidia’s meteoric rise. Despite recent tumbles in stock price, is there any stopping Nvidia (stock was up 84% year-to- date as of Nov. 30)?

(MH): This one’s pretty easy. I don’t think there is any stopping Nvidia, as I wrote recently.

Nvidia has managed to do what few other commodity semiconductor companies have done, which is adapt to the new paradigm. Nvidia made a conscious decision to deemphasize commodity OEM sales in favor of providing integrated hardware/software platforms.

This has led to one of its largest sources of growth, machine learning. It was Nvidia that pioneered deep learning on the GPU, and invested billions to develop machine learning APIs under its CUDA development platform. CUDA allows programmers, scientists and engineers to use the Nvidia GPU as a computational engine via standard programming languages such as C.

The development of CUDA has made Nvidia dominant in GPU-based machine learning and in GPU-based supercomputing. Nvidia has become a force in the broader cloud computing market as a result. Every major cloud services provider now offers Nvidia GPUs for AI and accelerated computation.

Nvidia also embraces certain elements of the new paradigm in its ARM-based mobile processors. In addition to creating custom ARM cpu cores, Nvidia can endow its processors with GPU sections based on its latest generation GPU architecture.

Nvidia then goes further by offering these processors bundled with its software to support machine learning and autonomous vehicles. Nvidia has found the perfect market for its ARM processors in the autonomous vehicle market, and numerous manufacturers are using Nvidia hardware in autonomous vehicle systems. These include Toyota (NYSE:TM), Daimler, and of course, Tesla (NASDAQ:TSLA).

The potential markets for machine learning in robotics, cloud, and automotive are rather staggering, and despite Nvidia’s rise this year, I don’t consider it overvalued. Nvidia does face competitive pressure, but I regard Nvidia’s competition as weak.

Despite expectations that ASICs would come to dominate machine learning, that simply hasn’t been the case. Nvidia’s Volta architecture anticipated this challenge and built in special hardware called Tensor Cores to enable ASIC-like performance. Combined with the advantage of being fully programmable, I believe that Nvidia’s GPUs represent the best balance of cost and performance.

(SA): And your thoughts on another stellar Wall Street performer, Micron (NASDAQ:MU)? And what about other semiconductor companies on the climb, such as Intel?

(MH): Generally, I avoid companies that I regard as “old paradigm,” which includes both Micron and Intel. Micron’s business is perhaps the most commoditized of any semiconductor manufacturer.

I looked at Micron earlier this year for inclusion into the Rethink Technology Portfolio and ultimately decided against it. Micron failed to make the cut based on a scoring system that I use that looks at five key criteria: Business model, financial strength, price target, innovation, and relative competitive strength.

I realize that Micron’s stock has done well this year, but I don’t regret my decision. The Portfolio is intended for stocks that have high growth potential over a long 5-10 year timeline. The cyclical character of the memory business argued against that long-term growth potential, along with stiff competition from Samsung and SK Hynix.

Intel is kind of my worst old paradigm nightmare. Intel has adapted poorly to the new paradigm, and despite efforts to muscle its way into mobile devices, has fundamentally failed in mobile. Intel inside didn’t turn out to work at all for mobile.

I have almost no faith in Intel’s management. I get the impression they still don’t understand why they failed in mobile. ARM processors seem to have a fundamental advantage in that a physically smaller ARM processor can do the work of a larger Intel processor.

Assuming equivalent manufacturing processes (which is never quite true), it appears that this areal advantage translates into a cost advantage as well as a power efficiency advantage. It was these advantages that allowed ARM to defeat Intel in mobile.

And it is these advantages that will ultimately allow ARM architecture to make inroads in Intel’s other bastions of the PC and the datacenter. Qualcomm is leading the charge in both fronts. It is supplying its ARM processors for Microsoft (NASDAQ:MSFT) Windows 10 “always connected” PCs. Qualcomm has also started selling the Centriq ARM server processor, which also seems to have cost and energy efficiency advantages.

I wouldn’t touch Intel no matter how attractive the valuation.

(SA): You’ve been less enthusiastic about AMD. Your thoughts on this battleground stock as we head into 2018?

(MH): I’ve always been down on AMD, fundamentally because it’s an old paradigm processor maker that has, like Intel, shown very little inclination or ability to adapt to the new paradigm. Unlike Intel, AMD has far less in the way of resources and profitability.

AMD has been rather resourceful in making use of its limited R&D budget, but its limits still show. Ryzen, Threadripper and EPYC are all based on the same 8 core silicon slice. AMD managed a significant improvement by introducing multi-threading with Ryzen, but even then, couldn’t catch up to Intel’s single core performance.

Next year, I expect Intel to introduce processors on its new 10 nm node, and when it does that, AMD is once again going to be non-competitive. I expect Nvidia to introduce new GPUs based on TSMC’s (NYSE:TSM) 10 nm process, with the same result.

AMD is down about 9% YTD, and I consider it all down hill from here.

(SA): What will drive these companies in the new year and beyond? Opportunities in PCs, data center and/or GPU?

(MH): The x86 PC market has been trending down for years, due to the impact of ARM-based mobile devices. I expect that trend to continue and accelerate, as ARM devices become ever more powerful. Apple is leading this trend with its A11 Bionic processor in the latest iPhones, with Nvidia and Qualcomm hot on its heels.

Ultimately, I see ARM architecture taking over for Intel architecture, in the datacenter and in personal computing, which is why I avoid Intel and AMD. Nvidia’s GPUs will continue to perform more of the “heavy lifting” in the datacenter, in supercomputing, and in AI in general.

(SA): Overall, what are the broad trends, opportunities and challenges tech investors should look for in 2018?

(MH): I think the broad trend that I identified several years ago (new paradigm vs. old paradigm) continues to be relevant. I look for companies that are a better fit for the new paradigm. I try to avoid commodity semiconductor companies, unless they have unique differentiating technology, as in the case of Qualcomm.

I consider photonics semiconductors to be an area of opportunity. I’ve branched out this year into photonics companies such as IPG Photonics (NASDAQ:IPGP) and Finisar (FNSR). Generally, I still look for tie-ins to the new paradigm, and Finisar, as an Apple supplier, is a good example of this.

The semiconductor industry is going to continue to consolidate as more and more functions are pulled into the SoC, leaving less market for discrete semiconductors. The new paradigm has driven consolidation and will continue to do so. This is the major challenge for semiconductor company investors.

(SA): Tech has seen a recent decline in sentiment among investors. Nonetheless, tech is up big this year on Wall Street. The SOXX semiconductor ETF is up nearly 42% year-to- date, the XLK tech ETF is up 33%, and the broader Nasdaq QQQ ETF has jumped nearly 32%. Can the momentum continue in 2018?

(MH): Probably not, except for selected companies. I don’t expect the broad semiconductor industry to perform as well as the Rethink Technology Portfolio companies in 2018.

Disclosure: I am/we are long AAPL, NVDA, QCOM, FNSR, IPGP.

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

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Bitcoin Valuation: $4 Million

I was recently asked about the value of bitcoin.

“What is it backed by,” he asked. To which I replied,

“Currency. Your dollar.”

“So how can I buy shares,” he asked.

“You can just buy bitcoin. You invest by buying and using it.”

“But what is it backed by,” he asked again.

I wasn’t getting through. This post is my attempt at a better argument.

Bitcoin’s Value

Bitcoin can’t be valued by traditional valuation methods like cash flow or P/E (I’ll be publishing an article comparing bitcoin P/E to other cryptos shortly). Bitcoin has a unique business model. There is no CGS, SG&A, EBIT or EPS. There is no bottom line. The work has been fully automated and the process of creating these automated digital systems is done by the “bitcoin miners”.

So what makes the value of bitcoin go up? What drives the value of bitcoin? When people use their local fiat currency to purchase bitcoin the value of bitcoin goes up. The more people that buy and use it, the more the value goes up, which means bitcoin’s value is directly connected to its utility over fiat currency.

Bitcoin: The Value Proposition

Bitcoin’s value proposition depends on the person. I see it as a way to improve the flow of resources around the world. I think of my investments in bitcoin as an investment in the front-runner of an emergent technology. For me, bitcoin is revolutionary and invaluable.

I have heard bitcoin described in many ways. It is many things to many people. For some, it is a global, decentralized banking system. It has no borders or nationality. It serves as a store of value, a digital currency, an off-shore banking account, a peer-to-peer payment system and a payment processor (back- and front-end). To investors, it is the world’s fastest growing asset class. It also serves as a natural hedge against almost all other assets and is available, like gold, in limited supply.

Let’s discuss how the sum of bitcoin’s parts adds up.

Value Proposition #1: Global, Decentralized Banking System, Peer-to-Peer Payment System and Processor

When you swipe your Visa card or iPhone, the data in the magnetic strip is sent to a “front-end processor” (intermediary/checkpoint #1). The front-end processor forwards your information to the “card association” like Mastercard (MA), Visa (NYSE:V) or American Express (NYSE:AXP) (intermediary/checkpoint #2). Your information is sent to the “issuing bank” to verify the balance (intermediary/checkpoint #3). Approval is issued and that approval flows back to the front-end processor as a confirmation. Each intermediary or broker gets a cut. Bitcoin, by contrast, is a transaction from A to B, which greatly reduces the cost of the transaction.

The reduction of costs is a very powerful value proposition. That and ease of use are the hallmarks of disruptive automation technology and it’s about time this kind of technology entered our system of payments. Bitcoin has automated the payments process, from one end of the globe to the other. All you need is a cell phone.

What is this worth? People often compare Visa to bitcoin, suggesting that bitcoin should have the same value. This is like comparing Netflix (NFLX) to Amazon (AMZN). Netflix is a digital powerhouse, but digital content is just one source of revenue for Amazon.

Translation: Bitcoin is a dynamic peer-to-peer payment system, but this is only one piece of the bitcoin value pie.

How do we go about valuing the entire pie? Before I get to that, let’s look at a few other drivers.

Value Proposition #2: Limited Supply

When you increase the supply of an asset with a strong value proposition, the demand goes down, along with price.

When you decrease or limit the supply of an asset with a strong value proposition, the demand goes up, along with price.

You don’t need a degree in economics to understand this relationship. The amount of currency on the market today is not in limited supply – it is created out of thin air when banks make loans. With $2 trillion in excess reserves (courtesy of quantitative easing), banks no longer have to worry about capital requirements.

Unlike our dollars, the supply of bitcoin is limited. The creator of bitcoin placed a cap on the number of bitcoin that can be created at 21 million and we are fast approaching that number. The current number of bitcoin stands at 16.7 million. What happens when we reach 21 million?

Translation: When bitcoin reaches its upper limit, the value will spike.

Limited supply is a powerful value proposition in a market economy.

BRK.A data by YCharts

Value Proposition #3: Currency & Store of Value (Bitcoin is Better Than Gold)

Technically, nations are supposed to pay all debts in gold (GLD). Thanks to the Bretton Woods agreement, dollars (^DXY) became the medium of exchange used to settle debts between nations, which strengthened this relationship and increased the dollar’s supply around the world. The system was only made possible because of a guarantee by the US Treasury to redeem all dollars for gold. If foreign nations wanted to exchange dollars for gold, they could do so through the US Treasury. When this arrangement became inconvenient, the government reneged on its promise and the dollar crashed.

In August of 1971, with dwindled gold reserves, and a long line of budget deficits, President Richard Nixon terminated the convertibility of gold which turned the dollar into a fiat currency. Foreigners held nearly three times as many dollars as the US could redeem and were demanding gold because of lack of confidence in the US economy. The result, foreigners had to sell dollars in money markets at a discount.

When this happened, the US budget deficit was $11.6 billion. Nixon was worried the deficit would climb to $23 billion by year’s end and he felt the need for drastic measures. Today, by comparison, the current budget deficit is $666 billion. The Trump Administration just passed tax cuts that will decrease revenues and push the deficit up even higher.

What we are about to experience is part of an inevitable cycle. This time instead of hoarding gold, people will buy bitcoin as both a store of value and a form of currency. It shares a few attributes with gold in that it is rare and available in limited supply. It is also highly useful in many different applications and you can find a market for it almost anywhere in the world. Unlike bitcoin, gold is heavy and requires a physical custodian so the cost of storage is high. It also doesn’t come with its own payment system.

Translation: Bitcoin is superior to gold and the dollar in many ways which is why bitcoin topped the price of gold per ounce in March of 2017, closing at $1,268.

^NYB data by YCharts

Value Proposition #4: Natural Hedge Against Inflated Assets & Off-Shore Banking Services

As bitcoin gains in popularity, especially as a “first-to-market” technology, banks will lose customers. Bank profitability will decline as the world “unbanks” by switching to a faster, cheaper, autonomous, automated, peer-to-peer payment system. Investors and hedge fund managers are already looking for other places to invest because everything is overvalued. Hedge funds would rather pour billions into bitcoin than over-leveraged, inflated assets. Here’s a video of one hedge fund manager explaining how he values bitcoin:

Perhaps the most salient point to his argument is that institutional buying has just begun. I disagree with him on one point, however. Endowments and pensions are only about six months out from investing heavily in bitcoin, not 18 – a qualified custodian of bitcoin will likely emerge in this space by the end of March 2018.

Translation: Not only is the value of bitcoin going up around the world, but the value of the dollar (and all assets pegged to it) is going down. Investing in bitcoin poses little risk when used as a hedge in a portfolio full of assets that are highly correlated and overvalued.

Bitcoin’s Potential Value: $4 Million/coin

The value proposition is clear and strong, but what is that value? Can we put a number to it?

Imagine we’re sitting in a room together. On my laptop, I pull up the following chart (please go here to view the chart). This is the best illustration of asset values on the web. More specifically, it helps to put bitcoin and the entire crypto-universe into perspective against the world’s assets.

Start at the top with Silver and Cryptocurrency, then work your way down to Derivatives. If that doesn’t make you put bitcoin’s potential value into perspective, I don’t know what will.

How can you quantify this potential?

Bitcoin could take value away from silver and gold valued at $17 billion and $7.7 trillion, respectively. It may take value away from the global stock market (banks in particular) which has a market capitalization of $72 trillion. It may suck up all the world’s currency (coin and bank notes) valued at $7.6 trillion, but this is only 8% of the world’s total money supply. The true money supply, referred to as ‘broad money’, includes coins, bank notes, money market accounts, savings, checking and time deposits. It’s all the money we “think” we have access to. The total amount of broad money in the world is $90 trillion.

It’s hard to say which asset class bitcoin will impact the most. I think the drain will be felt by all, but the global money supply is the most vulnerable. In order to use bitcoin’s other features, you need to convert your local currency, whatever it is, to bitcoin.

In addition to being a store of value, bitcoin also represents a way for people to hide money and protect it against asset seizure. Today, it is estimated that roughly $21 trillion sits in off-shore accounts.

Translation: Bitcoin has a value potential of at least $90 trillion, which we’ll assume includes $21 trillion sitting in off-shore accounts.

We also know that the maximum number of bitcoin available is 21 million, which allows us to calculate the potential value of 1 bitcoin by dividing the total amount of broad money by the total number of bitcoin.

The calculation is $90 trillion divided by 21 million, which is approximately $4.3 million per bitcoin.

After you stop laughing I’ll explain why I think this is an ultra-conservative estimate.

  1. All the money in the world does not capture the value of total assets.
  2. While bitcoin’s volume is capped, the value is unlimited. The more it grows, the more money central banks will print fiat currency, which will be used to buy bitcoin.
  3. Bitcoin production is capped at 21 million, but studies show that 4 million have been lost forever so the true base may be closer to 17 million.

Final Thoughts

One thing is clear, if the rise of bitcoin can tell us anything, it is that people are losing trust in fiat money and other traditional measures of wealth. This is the mark of inflation.

We aren’t seeing a rise in inflation with inflation statistics due to the rise in income disparity. As a result, there are two economies – one is hyper-inflated, the other is stagnant. Stagnant wages guarantees low inflation statistics even in a time when all assets are clearly inflated. It may not be that bitcoin is going up, but that all other assets are locked in an inflationary collapse and bitcoin is capturing that value. Meanwhile, the smartest minds in the world are on board Train Bitcoin. They’re doing everything they can to make this open-sourced technology work. And, it’s working.

Disclosure: I am/we are long BTC.

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 covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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UPS Office Staff Called Up to Deliver Packages In Last-Minute Christmas Rush

Faced with unexpected holiday volume in some areas, UPS this year had to draft hundreds of office workers to deliver packages at the last minute.

According to the Wall Street Journal, the staffers included accountants and marketers, who suddenly found themselves hefting boxes. Such switches aren’t uncommon during the company’s hectic holiday season, but they’re usually voluntary and coordinated well in advance.

A UPS spokesman confirmed to the Journal that several hundred office employees have been called on to deliver packages. Some of them reportedly used personal vehicles. Most of the reassignments, according to the spokesman, are now wrapped up.

At least part of the problem was the tight labor market across the U.S., which made it harder for UPS to hire its usual bevy of seasonal workers. Another factor is online shopping, which has grown every year for more than a decade, and peaks sharply in the days before Christmas. This year, in certain locations, the number of packages exceeded even UPS’s projections.

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The unpredictability of that volume has been a challenge for UPS and other delivery services for years, and they’ve experimented with various solutions. Temporary staffing can increase throughout, but expensive overexpansion during the 2014 holiday season highlighted its downside risk.

On the other side of the equation, UPS has floated various approaches to raising prices during the holidays, in part to encourage customers to send packages earlier and spread out demand. This year, the shipper added peak surcharges, mostly under a dollar per package.

Those modest surcharges don’t appear to have done much to encourage customers to plan ahead this year. UPS could make them higher, but then the problem becomes competition — FedEx didn’t implement a holiday surcharge for most packages this year.

That leaves a nearly insoluble problem, as the delivery industry searches for ways to scale massively for a short period every year. Calling up the accountants doesn’t seem like a very sustainable solution.

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Even A Cloudy Crystal Ball Comes Into Focus Twice A Year

Subscribers to “Retirement: One Dividend At A Time” got an early, in-depth look at this material via free instant text message trade alert and email alert.

Users of crystal balls are usually concerned with the ability to foretell the future. “Will I marry?” “Will I grow old?” “Will I be rich?” Most of us would admit having interest in the first two questions. All of us, as investors, would certainly have great interest in the third.

It is with this in mind, as an income investor, that I concern myself with discovering historical patterns that can be used in conjunction with important metrics like free cash flow, earnings growth, and especially dividend growth. When interpreted correctly, many ingredients can be combined in a way that will lead us to investments that help bring us closer to our goals, to reach retirement with a continuing stream of growing income that outstrips inflation.

It was just a few days ago that I postulated that our core holding, AT&T (T), was on the cusp of raising its dividend, by another penny per quarter. This, I said, would bring the annual dividend payment up from $1.96 to $2.00 per share.

Photo source

I readily admit it: This fortune teller is much easier on the eyes than my old puss. However, even my rusty crystal ball is on the money sometimes.

AT&T Declares An Increased Dividend

On Friday, December 15th, AT&T declared a $0.50/share quarterly dividend, which is a 2% increase from the prior dividend of $0.49.

Forward yield 5.24%.

Payable Feb. 1; for shareholders of record Jan. 10; ex-div Jan. 9.

34 Consecutive Years of Dividend Increases Reflects Strong Cash Flows

Not many companies can boast of such a long period of increasing their dividends to shareholders. A company that increases its dividend for 25 consecutive years is referred to as a dividend aristocrat. AT&T has superseded this designation by nine years, to date.

The board of directors of AT&T Inc., doing what it’s done for 34 consecutive years, approved yet another in a long series of increases in the company’s quarterly dividend.

The annual dividend will in fact increase from $1.96 to $2.00 per share.

Randall Stephenson, chairman and CEO, said:

Our strong cash flows and outlook for the business allow us to raise our dividend for the 34th consecutive year. We’re committed to returning value to our shareholders, and we’re pleased to deliver yet again.

Source: about.att.com

About AT&T

Photo source

AT&T Inc. is a holding company. It is the largest telecommunications company in the U.S. AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information about AT&T Inc. is available at about.att.com.

Source: Business Wire

Crystal Ball Prediction

That prediction of mine was based on the aforesaid history of 34 consecutive years of dividend increases. It was also based on the fact that free cash flows have been increasing, and that is what supports a growing dividend. It was also based on recent history indicating AT&T has been raising the dividend by this same amount the last several years – nine years in fact.

AT&T Recent Dividend History

Going back 9 years, penny a quarter increases have been the norm (4 cents per year).

Source: Yahoo Finance

Fed Having Difficulty Getting Inflation Off The Ground

Though the Fed just raised the fed funds rate another 1/4 point recently, and three more hikes are expected for 2018, the Fed continues having difficulty getting the economy to produce inflation above its target rate of 2%. In fact, it’s been running below this target range for quite some time, confounding many economists and the Fed chair herself.

This Is What Winning Is

As long as AT&T keeps delivering dividend increases to shareholders like this one, running at a 2.04% increase while inflation runs below 2%, stakeholders like us continue to run ahead of the game and preserve our purchasing power. For us, that’s the name of this game we call dividend growth investing.

We Are Not Unhappy With The Capital Gains, Either

Our recent purchases In AT&T to expand our core positions further, for both the RODAT Subscriber Portfolio and the Fill-The-Gap Portfolio, have paid off quickly and handsomely.

On November 6, while most investors were down on AT&T because of all the confusion surrounding the merger with Time Warner (TWX) and the worries about how much debt T would take on to accomplish the marriage, we stepped into the morass and bought more shares for both portfolios at $32.60 per share.

We based our analysis, among other data, on the fact that T’s dividend yield normally flies in the 4.5% to 5% range, as discussed in “AT&T’s Downward Spiral: What, Me Worry?”. We secured a 6.01% dividend yield at that $32.60 price. As soon as the $2.00 annual increase takes effect on February 1st, our effective yield will rise to 6.13%. This amounts to capturing 36% more income from our shares than investors who bought at much higher prices and obtained the much lower 4.5% yield.

If you translated this type of extra income to a total portfolio, you could easily visualize the difference in income produced by making well-timed investments like this:

$100,000 portfolio yielding 4.5% generates $4500 in annual income.

$100,000 portfolio yielding 6.13% generates $6130 in annual income.

For investors fortunate to have accumulated a higher portfolio amount:

$500,000 portfolio yielding 4.5% generates $22,500 in annual income.

$500,000 portfolio yielding 6.13% generates $30,650 in annual income.

The $64,421.38 Question

Here’s a rhetorical question for you: Which of the above annual dividend supplemental incomes would you choose for your retirement to supplement your Social Security benefit, $22,500.00 or $30,650.00?

There’s Always A Sale, Somewhere

Waiting for your watch list candidates to suffer undeserved beat-downs can lead to much higher income in retirement. If you make your watch-list bench deep enough, you’ll find there’s always a sale, somewhere in the markets that you can take advantage of.

With shares selling for $38.50 as I write this, we have bought ourselves, our followers, and subscribers an early Christmas present: capital appreciation of 18.1%. We can buy a whole lot of Xmas presents with that, not to mention those hefty dividend payments.

Photo source

Our Payoff

The Fill-The-Gap Portfolio holds 1,530 shares of AT&T. Our annual income from this name has now climbed to $3060.00 and $765.00 will flow to our accounts on February 1, 2018.

Please adjust your digital tracking tools to reflect this new dividend amount of $2.00 per year.

New Net Neutrality Rules

The changes in the rules will have various outcomes to all parties concerned, including consumers of internet services, the providers of those services, and the investors who look to profit from ownership in those providers. Included among them are these:

Consumer Impact:

The FCC’s recent decision to free up internet service providers, allowing them to charge higher prices to whomever they choose and to slow down speeds for sites they desire, or speed up others, or charge for faster speeds may harm some of us as consumers.

ISP Impact

As an internet service provider, or ISP, this change in rules will certainly benefit companies like AT&T which provide the pipes and now will have more control over how the internet flows through those pipes.

Investor Impact

As investors, higher charges should flow through to higher free cash flow, thereby enabling a sustaining of the dividend at a minimum, and a faster dividend growth rate at the maximum.

By this time next year, the results of this rule change and the ultimate decision as to whether the merger with Time Warner is allowed to proceed should come further into focus, and we will see if the thesis for a higher dividend growth rate pans out as I believe it will.

Free Cash Flow Picture Brightening

The company has projected free cash flow of $18 billion for the full year.

Because of a decrease in investment activity, free cash flow was substantially higher year to date than was expected. Thus, the $18 billion target seems attainable.

Because the $18 billion is achievable, this casts even better light on the payout ratio.

The last five years, the payout ratio (dividends/free cash flow per share) has ranged from about 65% to 75%. This year, the company is on track to sport a dividend/free cash flow payout ratio near 50%.

What does this mean? For one, it means that AT&T will have no difficulty paying its dividend obligations to shareholders. For another, it means that the dividend is covered by a factor of two. The dividend is not only safe and sustainable, but also a dividend increase is to be expected for shareholders again next February 2019. If they conform to the pattern of the last several years, investors should expect another penny per quarter increase going forward, or greater if free cash flow is positively impacted by the new net neutrality rules and the proposed TWX merger.

The Fill-The-Gap Portfolio

The FTG Portfolio contains a good helping of dividend growth stocks, like AT&T. It was built with the express purpose of benefiting from this and other strategies.

Two and a half years ago, I began writing a series of articles on December 24, 2014, to demonstrate the real-life construction and management of a portfolio dedicated to growing income to close a yawning gap that so many millions of seniors and near-retirees face today between their Social Security benefit and retirement expenses.

The beginning article was entitled, “This Is Not Your Father’s Retirement Plan.” This project began with $411,600 in capital that was deployed in such a way that each of the portfolio constituents yielded approximately equal amounts of yearly income.

The FTG Portfolio Constituents

Constructed beginning on 12/24/14, this portfolio now consists of 21 companies, including AT&T Inc., Altria Group, Inc. (MO), Consolidated Edison, Inc. (ED), Verizon Communications (NYSE:VZ), CenturyLink, Inc. (NYSE:CTL), Main Street Capital (MAIN), Ares Capital (ARCC), British American Tobacco (BTI), Vector Group Ltd. (VGR), EPR Properties (EPR), Realty Income Corporation (O), Sun Communities, Inc. (SUI), Omega Healthcare Investors (OHI), W.P. Carey, Inc. (WPC), Government Properties Income Trust (GOV), The GEO Group (GEO), The RMR Group (RMR), Southern Company (SO), Chatham Lodging Trust (CLDT), DineEquity (DIN), and Iron Mountain, Inc. (IRM).

Because we bought most of these equities at cheaper prices since the inception of the portfolio and because most of our stocks have increased their dividends regularly, the yield on cost that we have achieved is 7.67% since launch on December 24, 2014. Current portfolio income, including recent dividend raises by AT&T and Realty Income, and our newest addition of AT&T shares, now totals $31,573.30, which is $505.36 more annual income than the previous month. This represents a 1.64% annual income increase for the portfolio.

When added to the average couple’s Social Security benefit of $32,848.08, this $31,573.30 of additional supplemental income brings this couple annual income of $64,421.38. This far surpasses the original goal set to achieve a total of $50,000.00, which is accepted as a fairly comfortable retirement income in many parts of the country. That being said, this average couple now has the means to splurge now and then on vacation travel, dinners out, travel to see the kids and grandkids and whatever else they deem interesting.

Taken all together, this is how the FTG Portfolio generates its annual income.

FTG Annual Dividend Income

Chart source: the author

Your Takeaway

An investor could get whiplash watching the stock price gyrations of some stocks. The sentiment on AT&T has turned from decidedly negative to positively positive the last five weeks. Dividend investors who initially abandoned the stock have rushed back with a vengeance, pushing down its yield from 6.01% to just 5.09% today. This dividend aristocrat that has come through for dividend investors for decades has once again returned to favor.

We can’t normally predict with much accuracy what a stock’s price will be from one day to the next, no matter how clear our crystal ball might be. However, if we use history as a guide and take present data like free cash flow growth into account, we can sometimes come to a decent projection of where the dividend is headed.

In this instance, my crystal ball, cloudy though it may be, was just clear enough to make a prognostication of AT&T’s dividend growth that was right on the money. I don’t doubt that some other investors may have come to the same conclusion, and they joined the march back with me to this solid stalwart that provides dependable and reliable dividend income to retirees and others for decades.

In fact, it is my contention that a steady decline in stock price lopping off 22% of market value is right about the time investors should start contemplating adding to their current stakes or starting a new position. Opportunities like this to enhance yield and income do not come along often. But when they do, the opportunities usually evaporate almost as quickly as they appear. In this case, it took only 5 weeks for the dividend yield to revert back close to the mean.

If you missed this opportunity that I presented weeks ago, don’t fret. There will always be others. There’s always a sale somewhere in the market.

Holiday Wishes

Over the past five weeks, these recent gains in both capital appreciation and dividend growth couldn’t be more timely and beneficial.

Total portfolio dividend income has now risen to $31,573.30, providing plenty of manna with which to share our bounty this Chanukah, Christmas, and Kwanzaa.

From our family to yours, we wish you the best of the holiday season.

As always, I look forward to your comments, discussion, and questions. Did you view AT&T’s price deterioration in real time as a loss or an opportunity? do you still harbor doubts whether the dividend from this name is sustainable? Are contemplating taking a quick profit or will you hold for continued, future dividend growth? Please let me know how you approach these situations in your own portfolio and how you arrive at your decisions.

Author’s note: Should you be interested in reading any of my other articles detailing various strategies to enhance your returns on a dividend growth portfolio, you will find them here.

If you’d like to receive immediate notification whenever I write new content, simply click the “follow” button at the top of this article next to my picture or at the bottom of the article, then click “Follow in real time.”

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My promise to you: With every exclusive article, email, instant text and chat, I’ll help guide you to:

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Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.

If you’re interested in learning how to construct a portfolio to build, grow and protect YOUR dividend income in this way for your retirement, let’s celebrate new milestones together! We’ve been helping many hundreds of investors reach their goals for over 2 years now with our exclusive newsletter on Seeking Alpha. Our following is growing by more than 1000 per month and now over 20,700 readers have chosen to follow my work.

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Have a prosperous day!


George Schneider

Disclosure: I am/we are long ALL FTG PORTFOLIO STOCKS.

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

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Assured Guaranty At 52-Week Low Should Be Bought

One of the wonderful things about investing is that ultimately you will find out if you are right or if you are wrong. There really isn’t ambiguity over the long term, as the results will speak for themselves. Over the short term, things can be much murkier, as the voting machine of Mr. Market can take precedent over the weighing machine, in the terms of Benjamin Graham. Currently, voters are saying Assured Guaranty (AGO) is worth far less than any reasonable proxy of liquidation value, despite a track record of exceptional performance. I disagree with this assessment based on an examination of the facts. For long-term investors, this might be one of the great opportunities in today’s market, which I’ll attempt to describe in this article.

Source: AGO 3rd Quarter 2017 Investor Presentation

It seems sensible to start the discussion with a breakdown of past performance. As you can discern from the slide above, book value per share and adjusted book value per share have risen from $18.73 and $24.51 at the time of its IPO in 2004, respectively, to $58.32 and $74.78 in the most recent quarter. This growth has occurred despite the Great Recession, which annihilated most of Assured’s financial guaranty competitors. It has occurred despite the defaults of Detroit, Jefferson County, Stockton, etc. Lastly, it has occurred despite the train wreck that is Puerto Rico.

There seems to always be at least one or two troubled municipalities that dominate the headlines, but it is important to look at the complete picture. The economy has seen steady growth since the Great Recession and growth seems to be accelerating due to a more positive regulatory environment, in addition to the potential for tax reform. Municipalities have taken advantage of historically low interest rates, but there are certainly cities such as Chicago and Hartford that are showing some structural weaknesses. One of the key things to understand though is that Assured Guaranty has seen major amortization of its insured portfolio over the last 8 years, as net par outstanding has declined by 57%. The more capital-intensive structured finance insured exposure has declined by 91% over the same period, from $142.2 billion to $13.1 billion. Meanwhile, AGO’s claims-paying resources has stayed constant at around $12 billion. Assured has never been in a stronger financial situation than it is right now.

CEO Dominic Frederico has done a stellar job in managing the company. One of the best testaments to AGO’s efficiency is the fact that its annual investment income, net of interest and operating expenses, provides a steady and profitable earnings stream. For 2017, this cushion should be around $90MM, which means that 100% of the earned premium can be used to offset any loss developments in the insured portfolio or to generate profits. The other ways that Assured creates value is through buying runoff financial guaranty companies, commutating previously ceded business or reinsuring other portfolios. Major acquisitions have been FSA, CIFG, Radian Assurance, and MBIA’s UK business. AGO has been commutating previously ceded business as it recently did with FGIC, for example, where it takes on the risk but gets back the unearned premium reserve and a premium based on the risk of the portfolio. There are still some very big potential deals out there where AGO can create value.

The biggest opportunity in my opinion is an acquisition of MBIA’s (MBI) National insurance division. This deal would be exceptionally sensible for both parties in that National has a large insured portfolio in runoff, so its priority is really on freeing up capital to its holding company where it can invest long-term to monetize NOLs, while of course making sure the insured portfolio is protected. Assured should be able to buy the subsidiary at a reasonable discount to book value and consolidate it with its operations, in a deal that would bring massive synergies. I think you’d see both stocks rally aggressively if such a deal were to occur. The biggest concern for this type of deal would be MBI’s Puerto Rico exposure of around $3.5 billion, which AGO might not want to add to its existing exposure given the uncertainty on the island. We should get a great deal more clarity in 2018, making the deal path easier. The other option would be for AGO to take the rest of National except for Puerto Rico and maybe Chicago, via a reinsurance transaction. This would really come down to price and what level of capital could be freed up in such a transaction. Another exciting option for purchase would be Ambac’s (AMBC) insured portfolio once it completes the rehabilitation of the Segregated account. Ambac really has the same goals as MBI and the company has done an excellent job in reducing its Puerto Rico risk via buying back large parts of its insured exposures at a discount.

The clear majority of Assured’s insured portfolio will generate no losses whatsoever. As of the 3rd quarter, $13.226 billion of the $275.8 billion of net par exposure is categorized as below investment grade or 4.8%. $5.2 billion of that shows sufficient deterioration to make future losses possible but for which none are currently expected. Nearly $3 billion of the claims, which are expected to or already have generated losses, are in structured finance with much of it covered by R&W agreements. The biggest concern is the nearly $5 billion in net par related to Puerto Rico.

Municipal bonds are generally very safe investments and are usually split into GOs and revenue bonds. They have strong protections, which is why defaults are infrequent and severities are low. Over the last decade, we have seen defaults in Vallejo, Stockton, Detroit, and Jefferson County, etc. These municipalities were in terrible financial condition with dismal prospects for short-term improvement. Puerto Rico’s debt-to-GDP ratios at the time of its bankruptcy put it in a stronger position than many of these other defaults. Since Hurricane Maria, however, Puerto Rico bonds have been devastated with prices reflecting unheard of severities.

I’d argue that we are in the period of peak uncertainty as it relates to Puerto Rico. The Oversight Board and government of PR have done everything they can to hide the actual finances of the Commonwealth. On December 18th, it was revealed that they have discovered 8000 bank accounts holding $6.8 billion in cash, although $1.7 billion is restricted by bankruptcy proceedings. This was after the governor said that they would have no money by December. I discussed the pathetic track the Oversight Board has taken things down in my recent article; Puerto Rico’s Oversight Board is Failing At Its Duties.

AGO’s Puerto Rico credits are generally quite adequately protected. $1.419 billion of the exposure is to GO bonds. As you can see from the graphic that was included in Manal Mehta’s terrific MBI article, debt service on GOs is supposed to come before all other expenses. While current prices don’t reflect that reality, I do believe that in court the constitutions on the United States and Puerto Rico will indeed matter!

$853MM of net par relates to PREPA where creditors have a perpetual lien on the net revenues of the utility. Similar protections are involved with the $373MM PRASA exposure. Probably the most worrisome credits are the $1.377 billion of exposure to the Puerto Rico Highway and Transportation Authority. This is another revenue bond that wouldn’t worry me except for the “clawback” feature. This feature says that if there is not enough revenue to cover the debt service on the GOs, revenue can be diverted from these bonds only to pay GOs. Obviously, those aren’t being paid either, which is just another blatantly illegal act perpetrated by the government of Puerto Rico and the Oversight Board. Ultimately, these issues will be worked out in court or via a settlement. Remember that much of the interest and principal payments on Puerto Rico debt is 15-30 years out. This means that you must present value of the actual losses to get a real feel for how significant of a hit it would be to the company. Any increases in interest rates that bolster investment income would go a long way to mitigating losses.

Assured easily has the financial capacity to fight it out as long as it needs to via appeals, etc. The company generates enough investment income to cover its annual Puerto Rico payments, so it isn’t like Puerto Rico alone is enough to put the company in any financial duress or that there will even be a sniff of a liquidity problem. In past bankruptcies, AGO has assisted the defaulted municipality with obtaining access to capital markets via its insurance. There is the potential debt for equity swaps and a whole swath of options, which should reduce projected severities. As the situation clears up, I believe it will be very manageable, in direct contrast with what the current market is pricing in. I believe a big reason for the disconnect is that the likelihood of news getting worse in the short term is higher than it getting good, just by the nature of the bankruptcy process and the political environment we are in. As facts come into focus, the long-term potential undeniably outweighs the bad.

While it is impossible to tell you exactly what AGO has reserved for Puerto Rico, the net expected loss to be paid in U.S. public finance is now $1.046 billion and obviously most of that relates to PR. The balance sheet has a $1.326 billion loss and LAE reserve. RMBS and structured losses have been more favorable than expected due to home price appreciation, so AGO’s reserves have thus far proven to be conservative. On the asset side, there is a $497MM salvage and subrogation recoverable, which will probably keep going up in the short term, but AGO will eventually get a lot of this money it is paying to cover Puerto Rico debt service back once the restructuring is finalized. Lastly, the largest liability on the balance sheet is a $3.597 billion unearned premium reserve. This money is already on the balance sheet and is being invested to generate income, which ultimately can be used to pay any claims.

Currently, AGO trades around $33.62, a 52-week low despite stellar year-to-date financial results. Non-GAAP operating shareholders’ equity per share is $55.87 and adjusted book value per share is $74.78. That means that AGO is trading at a 40% and 55% discount to these metrics, respectively. Based on 118 MM shares outstanding and using a 21% tax rate, a staggeringly large and unlikely $2 billion increase to losses would result in a $13.38 loss per share. This would put operating book value per share and adjusted book value per share at $42.49 and $61.40, respectively, in this extreme scenario. Keep in mind that AGO has been generating roughly $200MM a quarter in operating income despite reserving aggressively for PR, so the actual losses would be far more gradual. I believe the company should trade around operating book value, given that its new business production is accelerating and its path to continue creating value.

AGO has been buying around $500MM in stock per year over the last few years and that is its stated goal. If the company were to buy $500MM in stock at $33.62, it would reduce shares outstanding by 14.87MM, so that would reduce the share count to 103.13. The adjusted book value of $8.820 billion would be reduced by the cash amount to $8.320 billion. The new adjusted book value per share would be $80.67 per share and operating book value per share would be $57.07. As an AGO bull, I don’t mind the decline in the stock as it allows the company to materially increase intrinsic value because it is in a strong position to buy back stock. Also, I’m able to add to my position for my clients and I, which I assure you I’ve been doing.

Recent stock and bond pressure relating to Puerto Rico reflects maximum panic. The OB and government of PR have been doing everything in their power to make things look as bad as can be for the Commonwealth, to enhance their negotiating leverage with creditors. As more data comes out and as we get to court, creditors will be able to utilize the leverage on their strong legal protections and the calculus is going to change materially. In Detroit’s bankruptcy, the initial offer for UTGO bonds was 20 cents and then later that was reduced to 10 cents. Ultimately, it settled for 74 cents. There is nothing inherent to PR that makes its situation that much worse than previously struggling municipalities. No matter what happens, AGO is prepared and should see at least 50% stock returns over the next 3 years in my estimation, and would still not be overvalued.

Disclosure: I am/we are long AGO, MBI, AMBC.

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

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The Best Games of 2017, From 'Nier: Automata' to 'Legend of Zelda'

2017 was an incredible year for videogames—a mixed bag of genre, style, and mood. The best titles ranged from sweeping adventures to tense shooters to meditations on the existential burden of life. Some of the games released this year will go on to be lauded as the most important, profound videogames of this generation. If you don’t know how to dive into videogames in the coming days, here is where to start.

10. Lone Echo

Virtual reality’s great promise has always been that of escape, and nowhere has that been put to better use than in Ready At Dawn’s captivating, compelling space adventure. Half puzzle-heavy exploration, half zero-G playground, Lone Echo delivers what traditional gaming cannot: a truly embodied adventure. Most of that is due to an ingenious locomotion mechanic, which eschews the all-but-default teleportation to lets you move through the game via combination of thrusters and pushing off solid surfaces. The disc-golf-in-space multiplayer companion, Echo Arena, has become a fan favorite, but it’s Lone Echo that will be remembered as a singular, medium-defining game.

System: Oculus Rift

  1. Everything

You might begin life as a polar bear. Or a kangaroo. Or a twig. Maybe a mitochondria. Then you might grow and reach with your mind and perception until you’re a galaxy, or the sun, or the magic of consciousness itself. In David O’Reilly’s meditative masterpiece, you can be, literally, everything. Everything derives power from a logic of interconnectedness, weaving a philosophical fable about the nature of objects while teaching the player a mechanical dance that surprises and stir. You ever wondered what the world looked like from the perspective of a soda can? Now’s the time to find out.

System: PlayStation 4, Microsoft Windows

  1. Resident Evil 7

In Resident Evil 7, you open doors by pressing into them, face first. It’s a neat little metaphor: the act of moving forward is an act of dogged, perhaps irrational, persistence. In this brilliant revival of one of gaming’s originary survival horror franchises, it’s the sort of subtle touch that goes a long way. And Resident Evil 7 is full of subtle touches: the scattered trash in the derelict rural manor your hero is trapped in; the unsettling, flowing, almost oil-y design of the game’s monsters; the way videotapes are used to create a hallucinatory alternate reality experience while also playing with found footage horror tropes. Resident Evil 7 is two-thirds a brilliant horror adventure, and one-third a solid action game. It’ll undoubtedly be frustrating when the horror starts to run dry, but every step taken on the way is more than worth it, if you have the courage to get that far. Play in VR at your own risk.

System: PlayStation 4, PlayStation VR, Xbox One, Microsoft Windows

  1. Yakuza 0

Taking place in Tokyo’s Red Lights District during the late 80s and early 90s, Yakuza 0 is one of the most riveting, carefully crafted dramas ever put in front of a videogame controller. It’s also a game where one of your main characters uses Street Fighter moves and random objects on the street to fight vengeful clowns. Yakuza 0 manages an impossible alchemy, merging a self-serious crime drama largely about real estate with some of the goofiest and off-beat supporting material the creators at Sega could come up with. It feels, on the whole, like a love letter to what videogames are capable of. Games are places where powerful, fascinating drama can happen. They’re also places where a giant dude named Mr. Shakedown will chase you through the streets of Tokyo and try to steal your cash until you learn how to beat him up with a baseball bat. Yakuza 0 sees the dissonance, and it loves it. And you’ll love it, too.

System: PlayStation 4

  1. Splatoon 2

Splatoon 2 is the rare multiplayer shooter that has the power to reach beyond the core “gamer” marketplace that those games usually cater to. Part of that is the platform: the Nintendo Switch is a console built for people who hate the nonsense of modern videogame consoles, and that gives any game on it an allure it might not otherwise have. But more than that, it’s in the design. The squid-kid world of Splatoon is bright and playful, awash in colorful ink, aquatic pop stars, and Harajuku high fashion. And cleverly, the designers use this aesthetic to create a shooter that actually doesn’t employ violence at all. Victory is a matter of covering as many surfaces and enemies with ink as possible. Nobody gets hurt. Splatoon 2 is a marginal refinement of the original game, and that might make it less compelling for returning players, but the core of the experience remains so solid and wholesome that not changing enough can hardly be considered a flaw.

System: Nintendo Switch

  1. Hellblade: Senua’s Sacrifice

Hellblade: Senua’s Sacrifice is a controversial game, largely because of a single page of text that appears before the experience even begins, claiming that Hellblade is a story about mental illness, specifically psychosis, and that care has been taken to make that representation thoughtful and accurate. Whether or not that’s true, or to what extent telling that kind of story is appropriate in a game mostly about obscure puzzles and hack-and-slash combat, is a question worth debating. But Hellblade is, at its heart, a game that rises above those conversations, and above the sum of its own components. The story of Senua, a warrior journeying into the land of death in search of her lost love, is an uncanny screaming death knell of pain and perseverance. It’s held together by the brilliant work of Melina Juergens, whose motion capture and vocal acting as Senua is possibly the best performance in the entire medium. Hellblade is flawed, sometimes monotonous and sometimes infuriating, but it’s unlike anything else I’ve played this year, and its imagery and sound will stay with me for a long, long time.

System: PlayStation 4, Microsoft Windows

  1. Super Mario Odyssey

At its best moments, Nintendo’s flagship Mario title for the Nintendo Switch feels like Super Mario at his best. His most surreal, his most silly, his most unpretentiously fun. Operating out of an effortless dream logic, Super Mario Odyssey is the story of Mario Mario (that’s his real name, I swear) travelling across the multiverse to crash a wedding party with the help of his friend, a cap that has the power to possess anything in the world that doesn’t have its own hat. The cap’s name is Cappy. This premise doesn’t require you to understand or accept it. You just have to follow it, jumping, flipping, and wah-wah-wah-hoo-ing to whatever unlikely, unpredictable turn it offers next. If it had Luigi, and left some of its insensitive cultural tendencies behind (Mario, take off that sombrero, please), Super Mario Odyssey would be perfect.

System: Nintendo Switch

  1. PlayerUnknown Battlegrounds

I have spent roughly half my time with PlayerUnknown Battlegrounds hiding in a shed. Surprisingly, that’s not a complaint. PlayerUnknown Battlegrounds has a simple premise, one with surprising power. Take a large map, a derelict Eastern European city, perhaps. Fill it with a hundred players. Litter weapons around, some vehicles, some traps for funsies. Last player alive wins. This straightforward idea, literally cribbed from a movie, imbues every single moment of Battlegrounds with tension. Every movement in the grass, every shadow out of the corner of your eye, could be one of 99 other players with you in the crosshairs. Under that kind of scrutiny, every single microdecision becomes terrifying. Which is how I find myself hiding in a shed, over and over and over again, aiming a shotgun at a door that may never open. But let me tell you: hiding has never been so riveting.

System: Xbox One, Microsoft Windows

  1. The Legend of Zelda: Breath of the Wild

The commanding image of Breath of the Wild is a sweeping vista. Encountered roughly five minutes into the game, this vista–a wide shot of a whole continent’s worth of wilderness, open and ready to be explored–is a promise. Lots of videogames offer this promise, of freedom, of unfettered and truly organic exploration, but most fail. So many game worlds feel empty, and dead, and basically constructed. Which, in a very real sense, they all inevitably are. But some special games have enough of their creators in them that their worlds feel real, and beautiful, and are able to pass off the illusion that you’re not just running through handcrafted levels but through a full, living place. Breath of the Wild is one of those games, and it uses such a place to deconstruct and resurrect the mythology and ideas of The Legend of Zelda, a game that was originally very simple: a story of a boy, and a big, scary place, and the promise of someone he loves at the end of the journey. No sequel in this series’ thirty years has so captured the elegance and joy of that story. And now it’s hard to imagine how any other game after it could.

System: Nintendo Switch

  1. Nier: Automata

WIRED made one significant mistake with its gaming coverage in 2017: we never reviewed Nier: Automata. This is my fault. I came to the game a month or two late, and there was no room for coverage in our calendar. And yet Nier: Automata is so excellent, such a significant contribution to the medium of gaming and to my own life that I cannot in good conscience place any other game in the #1 spot. It’s the story of two androids caught in an ancient, horrible war, but that explanation doesn’t do Nier: Automata justice. It is a genre-hopping, brilliantly written, intricately crafted magnum opus about persistence, and love, and hope in the face of absolute loss. Game director Yoko Taro has famously said he makes “weird games for weird people,” but Nier: Automata might be for everyone.

System: PlayStation 4, Microsoft Windows

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