If Scott Pruitt Leaves, Will EPA Science Change Course?

EPA administrator Scott Pruitt heads to Capitol Hill Thursday for two separate hearings, ostensibly to answer questions about his agency’s budget. But House lawmakers—both Republican and Democrat—will instead focus on a series of scandals that have turned the agency upside down. From his paranoia about personal security and that $43,000 soundproof telephone booth to sweetheart lodging deals with lobbyists and big pay raises for young aides, Pruitt will be answering some skeptical House members.

At last count, Pruitt faces 10 investigations by the Government Accountability Office, Office of Inspector General, and congressional committees. And while the administrator defends himself against allegations of misconduct and ethics missteps, environmental advocates and some EPA employees are focused on what federal environmental and climate policies could look like in a possible post-Pruitt era.

“It would be great for morale if he were to get the axe,” says an EPA employee who asked not to use his name for fear of losing his job. “That said, we don’t really know him. He’s a shadowy figure, a kind of boogieman.” The employee, a life scientist in an EPA regional office, said he and his colleagues don’t receive much information from EPA headquarters about Pruitt’s policies, agenda, or even his visits. Employees there get most of their information about Pruitt’s agenda from TV news. “[Pruitt] was here last week, but nobody told us,” the scientist said.

Pruitt’s presence was strongly felt this week, though, when he proposed a new rule that would change how the EPA uses science to protect public health. The rule would restrict the EPA from using scientific studies whose data are not made publicly available online “in a manner that is sufficient for independent analysis and substantial reproduction of research results.” This language was initially part of legislation sponsored by Rep. Lamar Smith, a Texas Republican who pushed his “Secret Science Reform Act” while serving as chairman of the House Science Committee. It never passed.

Smith, and now Pruitt, argued that the EPA rule would increase transparency. But scientists say it would burden researchers and lead the best science to be ignored. Under the rule, epidemiological studies linking air pollution to early death, or contaminated drinking water to cancer, for example, could be tossed out because they relied on confidential medical records of people who were in the study.

“If you don’t publish the data, you only publish the conclusions … that’s simply wrongheaded,” Pruitt said Tuesday.

This kind of transparency has been sought by polluting industries who have fought EPA regulations in court in the past. But scientists are pushing back against Pruitt’s proposed rule, which now will undergo a 30-day comment period.

“The [EPA] administrator’s latest attempt to reject valid scientific evidence fundamentally mischaracterizes the way science is conducted and made available for decision-making,” said Rush Holt, chief executive officer of the American Association for the Advancement of Science, in a statement. “If put into practice, EPA could prohibit, or make it incredibly costly, for the agency to use a wide swath of high-quality scientific research.”

Which is in keeping with Pruitt’s agenda. Pruitt has upheld the Trump administration’s promise to overturn existing environmental regulations and promote closer ties with industries the EPA regulates. One of Pruitt’s goals is to cut federal funding for EPA’s Science and Technology account by 36 percent to $449 million. Congress held the account flat at $724 million in final appropriations for fiscal year 2018, despite the Trump administration’s request for similarly deep cuts last year.

Pruitt’s fate ultimately rests with President Trump, who has tweeted previously that he supports Pruitt’s deregulation efforts. But if allegations of Pruitt’s unethical conduct lead to his dismissal, it’s unlikely that those policies write large would change. “We have to remember that the root of the problem here is the president’s determination to dismantle the EPA,” says Jeremy Symons, vice president for political affairs at the Environmental Defense Fund. “Whoever he puts in charge is going to be pursuing that agenda.”

In Pruitt’s absence, the number two at EPA is Andrew Wheeler, a coal industry lobbyist who was just confirmed to his post earlier this month. In addition to representing coal and energy firms, Wheeler was also a campaign advisor on environmental issues to Marco Rubio, and staffer to Sen. Inhofe, a longtime denier of climate change and the science behind it.

Still, environmental advocacy groups say Wheeler would be a step up. “How could it be worse than Pruitt?” says Eric Schaeffer, executive director of the Environmental Integrity Project, an advocacy group that has been suing the EPA for information about Pruitt’s expenses, travel, and private meetings with industry representatives to discuss government regulations.

“It doesn’t means the sun will come out and people will be singing, it will still be gloomy,” says Schaeffer, who was EPA chief of enforcement in the Clinton administration. Schaeffer says Pruitt’s departure could give a lift to EPA employees, and the environmental movement in general.

“But what it will do is feel like a victory that this is a bad guy who got run out of town. That will make them readier for the next fight. You take your victories as they come. If he’s knocked out, we’ll feel like we got a round now.”


Betsy Southerland worked at the EPA for 33 years until resigning in August 2017, she says, because of Pruitt’s determination to remove regulations that protect public health and the environment. “I don’t think there is any way that a new administrator will not continue to pursue the repeal of health and safety rules,” says Southerland, the former director of science and technology in the EPA’s Office of Water. “That won’t stop, but I hope at least the fleecing of the American taxpayer will stop.”

Two current EPA employees who spoke to WIRED say they might watch the webcast of Pruitt’s congressional testimony, but probably on their personal smartphone rather than their work computer. The EPA administrator is scheduled to appear before the House Energy and Commerce Committee at 10 a.m., followed by the House Appropriations Committee at 2 p.m.

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BMW's Self-Driving Cars Get Lidars From Israel's Innoviz

Building a self-driving car, it turns out, is a bit like planning a wedding. No matter how much time you give yourself, you risk being overwhelmed by the sheer number of things that need doing. Find a venue. Design the interior. Pick your signature music. Rebuild a global supply chain.

In 2016, when BMW said it would deliver fully self-driving cars, as part of a ride-hailing service, by 2021, it seemed to have plenty of time. But now it has just three years left; in an industry where developing a new car can take seven years, it’s a good thing the automaker has gotten around to picking its lidar supplier.

Today, BMW struck a deal with industry supplier Magna, and Magna’s partner Innoviz, to provide the lidar laser scanners for its self-driving cars. The companies provided scant details on the deal, so it’s not clear how BMW plans to use the sensor, but you can expect to see it in the German giant’s full-on robo-cars, as well as in the semi-autonomous features it’s developing to compete with systems like Tesla’s Autopilot and Cadillac’s Super Cruise.

This announcement underlines the importance of lidar in this space, and adds to a growing list of automaker-lasermaker couplings. General Motors bought a lidar startup called Strobe. Argo AI, which is making an autonomous system for Ford, scooped up Princeton Lightwave. Toyota has signed on with Luminar, run by 23-year-old photonics whiz Austin Russell. And Velodyne, the first company to make lidar for robo-cars, is still a major player, putting out 10,000 units a year. Google’s sister company Waymo has poured years and millions of dollars into developing its own proprietary system.

All lidar systems read the world around them by shooting out pulses of light and measuring how long they take to bounce back after hitting nearby objects. They all aim for a range of at least 200 meters, far enough for a car to spot an obstacle and hit the brakes, even at highway speeds. That’s about it for similarities. Some move those lasers around by spinning, others use no moving parts at all. The number of lasers ranges from one, to four, to 128. Some say their units cost less than $1,000, other units approach six figures.

Any given lidar system has a particular combination of range, reliability, scalability, and cost. And it’s the cost that has proved the hardest obstacle to overcome. Velodyne’s top-of-the-line unit, which uses 128 lasers, costs $75,000. In a robo-taxi service, you might be able to amortize that cost over time. In a car you’re selling to people, that’s impossibly expensive.

Innoviz says its lidar will cost “cost in the hundreds of dollars” thanks to its solid state design, an increasingly popular approach among the dozens of lidar companies that have popped up in recent years.

“It has to be low cost,” says Innoviz founder and CEO Omer Keilaf. “There’s no way around it.” The Innoviz lidar uses a tiny mirror (just a few millimeters across) to move the laser beam this way and that, instead of the more mechanically complicated spinning setup pioneered by Velodyne. That makes it simpler and cheaper to build, and easier to make robust enough for life on a bumpy road.

And where Luminar, for example, uses lasers at the 1550 nanometer wavelength, Innoviz stuck to the more conventional 905 nanometers. That limits the distance it can see, but allows Innoviz to use components made of silicon, rather than the far more expensive indium gallium arsenide. Still, Innoviz can spot items that reflect just 10 percent of light (think someone wearing all black) from 200 meters away. Keilaf says that’s possible thanks to improvements to the detection system, which measures the beams of light as they bounce back to the sensor.

Innoviz also does the work of translating that data into what the car needs to know about the world—that this cluster of points is a cyclist, and that one over there is a tree. Technology companies like Waymo and startup Aurora may have no problem doing that kind of work themselves, but Keilaf says it’s a value add for automakers suddenly dealing with reams of laser data. “They don’t know what to do with it otherwise.”

Innoviz now has a bigtime customer and a validation of a product it has spent two years building. BMW now has just one less item to take care of before the big day.

Pew! Pew!

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Reuters Top 100: Europe's Most Innovative Universities – 2018

For the third year running KU Leuven tops Reuters ranking of Europe’s most innovative universities, a list that identifies and ranks the educational institutions doing the most to advance science, invent new technologies and power new markets and industries. A Dutch-speaking school based in Belgium’s Flanders region KU Leuven was founded in 1425 by Pope Martin V and continually produces a high volume of influential inventions. Patents filed by KU scientists are frequently cited by other researchers in academia and in private industry. That’s one of the key criteria in Reuters’ ranking, which was compiled in partnership with Clarivate Analytics, and is based on proprietary data and analysis of patent filings and research paper citations.

1. The library of the university KU Leuven “Katholieke Universiteit Leuven” is pictured in Leuven, Belgium, June 8, 2016. REUTERS/Francois Lenoir

Overall, the most elite ranks of Europe’s Most Innovative Universities have held steady from last year, with the UK’s Imperial College London (#2) and University of Cambridge (#3) holding onto their top spots for the third straight year. Other leading institutions simply traded a few spaces, like the Federal Polytechnic School of Lausanne (#4, up one), University of Erlangen Nuremberg (#5, up one), and the Technical University of Munich (#6, down two). The remainder of the universities in the top 10 moved up from the teens: The University of Manchester (#7, up nine), University of Munich (#8, up four), Technical University of Denmark (#9, up five), and ETH Zurich (#10, up one).

But even though the usual suspects continue to dominate Europe’s Most Innovative Universities, political uncertainty may be causing a big swing in where innovation happens. The trend is most clear if you consider the sum of changes in rank for each country’s institutions: The 23 German universities on this year’s list cumulatively rose 23 spots, more than any other country. Switzerland was second, with five universities up a total of 8 spots. And in contrast, the list’s 21 UK-based universities dropped a cumulative 35 spots.

2. Students walk out of a faculty building of Imperial College London, Britain, May 27, 2016. REUTERS/Toby Melville/File Photo

Why is this shift occurring? The United Kingdom’s “Brexit” from the European Union is almost a year away, but Europe’s scientific community may already be leaving the UK in favor of research institutions on the continent. A February 2018 study published by the UK-based Centre for Global Higher Education reports that many German academics view Brexit as an “advantage,” and hope to use it to attract UK researchers to German universities; in turn, UK academics report that their own postdocs aren’t seeking positions in the UK and are looking at the EU or United States instead. And as Brexit actually unfolds, it could get worse: A November 2017 study performed by the School of International Futures for the UK’s Royal Society describes a possible post-secession United Kingdom where universities compete for a shrinking pool of skilled workers, projects that used to receive EU funding wither, researchers receive fewer invites to join consortia and attend conferences, and overseas collaboration is limited. Similarly, EU-based businesses that fund research at universities may prefer to keep their investments within the region in order to avoid the tax and regulatory headaches of working with post-Brexit UK institutions.

The government of Germany has also established itself as notably pro-science, increasing federal research budgets and encouraging growth in emerging industries such as renewable energy. (German Chancellor Angela Merkel actually holds a doctorate in quantum chemistry, and worked as a research scientist before she entered politics.) According to a 2017 analysis published in the science journal “Nature,” researchers are “flocking to the country,” in part due to the country’s €4.6-billion “Excellence Initiative,” which has helped to attract at least 4,000 foreign scientists to Germany since 2005. And in 2016, the German Research Foundation (Deutsche Forschungsgemeinschaft, or DFG), the country’s main funding agency, allocated a record €2.9 billion in grants, posting a success rate for individual grant proposals higher than comparable UK rates.

Slideshow (8 Images)

This year’s university ranking also shows how smaller countries can have an outsized presence in the world of innovation. Belgium has seven schools on the list, but with a population of only 11 million people, it can boast more top 100 innovative universities per capita than any other country in Europe. On the same per capita basis, the second most innovative country on the list is Switzerland, followed by Denmark, the Netherlands, and the Republic of Ireland. And some large countries underperform despite bigger populations and economies. Russia is Europe’s most populous country and boasts the region’s fifth largest economy, yet none of its universities count among the top 100.

To compile the ranking of Europe’s most innovative universities, Clarivate Analytics (formerly the Intellectual Property & Science business of Thomson Reuters) began by identifying more than 600 global organizations that published the most articles in academic journals, including educational institutions, nonprofit charities, and government-funded institutions. That list was reduced to institutions that filed at least 50 patents with the World Intellectual Property Organization in the period between 2011 and 2016. Then they evaluated each candidate on 10 different metrics, focusing on academic papers (which indicate basic research) and patent filings (which point to an institution’s ability to apply research and commercialize its discoveries). Finally, they trimmed the list so that it only included European universities, and then ranked them based on their performance.

Of course, the relative ranking of any university does not provide a complete picture of whether its researchers are doing important, innovative work. Since the ranking measures innovation on an institutional level, it may overlook particularly innovative departments or programs: a university might rank low for overall innovation but still operate one of the world’s most innovative oncology research centers, for instance. And it’s important to remember that whether a university ranks at the top or the bottom of the list, it’s still within the top 100 on the continent: All of these universities produce original research, create useful technology and stimulate the global economy.

To see the full methodology, click here.

(Editing by Arlyn Gajilan and Alessandra Rafferty)

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SAP, gaining market share, raises outlook

FRANKFURT/LONDON (Reuters) – Germany’s SAP (SAPG.DE) announced upbeat results in the seasonally tough first quarter, saying it was gaining ground on its main competitors Salesforce (CRM.N) and Oracle (ORCL.N) in the cloud and that its margin recovery was firmly on track.

SAP logo at SAP headquarters in Walldorf, Germany, January 24, 2017. REUTERS/Ralph Orlowski

SAP, Europe’s largest tech company by stock market valuation, also raised its sales and profits guidance for 2018 to take into account the $2.4 billion acquisition of U.S. sales software firm Callidus that was announced in January.

“We’re gaining share fast and we’re outpacing our toughest competitors pretty handily,” Chief Executive Bill McDermott told reporters on a conference call, calling the results strong at the top and bottom line.

SAP now expects total non-IFRS revenues at constant currencies this year of 24.8-25.3 billion euros ($30.28-$30.89 billion), representing growth of 5.5-7.5 percent, up from an earlier expectation of 5-7 percent growth.

Non-IFRS operating profits rose 14 percent in constant currency to 1.235 billion euros, compared to the average forecast of 1.19 billion euros in a Reuters poll of 15 analysts.

SAP headquarters in Walldorf, Germany, January 24, 2017. REUTERS/Ralph Orlowski

Cloud subscription and support revenues, SAP’s growth driver, grew by 18 percent to exceed 1 billion euros for the first time. At constant currencies they rose 31 percent, to which McDermott said: “Wow.”

Cloud growth accelerated outside the United States and grew faster than any of SAP’s major rivals, including Oracle, Salesforce and Workday (WDAY.O), he added SAP has faced currency headwinds due to the strong euro, and both the company and analysts focus on key metrics after adjustment for currency effects to get an underlying picture of performance.

Had SAP reported in U.S. dollars, like its competitors, the growth numbers would have turned out even better, said Chief Financial Officer Luca Mucic. Cloud subscriptions, for example, would have shown year-over-year growth in the first quarter of 37 percent in U.S. dollar terms, he said.

“We grew faster than every ‘best-of-breed’ cloud (competitor) out there,” McDermott said. “Faster than Workday, a lot faster than Salesforce, and a lot faster than Oracle.”

Mucic said that an expansion of 1.1 percentage points in operating margins in the first quarter boded well for SAP after a strong showing in the same quarter a year ago.

($1 = 0.8191 euros)

Reporting by Douglas Busvine and Eric Auchard; Editing by Tom Sims

Our Standards:The Thomson Reuters Trust Principles.
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Is Amazon Slipping? Uncovering a Dirty Secret About Their Seller Policy (by Accident)

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

Amazon Best Seller: Check

Amazon Prime: Check 

Price Point: Surprisingly low (but how?)

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

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

The Epic Policy Contradiction

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

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

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

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

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

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

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


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

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

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

What I’m trying to say is this:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here’s Jessica Rudeen’s Facebook post:

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A 15% Yield With A Discounted Buyout Backdoor

We went wandering down the back alleyways of MLP land this week and came across another very interesting buyout deal.

Southcross Energy Partners LP (SXE), a smaller midstream LP, is being acquired by American Midstream Partners LP (AMID). The deal is supposed to close in Q2 ’18, relatively soon. The buyout already has been approved by SXE’s common unitholders.

“Public unitholders of SXE will receive 0.160 AMID common units for each SXE common unit in a unit-for-unit merger, which is anticipated to have minimal, if any, tax recognition for such unitholders.” (Source: AMID site)

There’s currently a discount available for AMID via buying SXE units, which have a conversion factor of 6.25X into AMID units, post buyout.

At today’s price of $1.72 for SXE, this equals a $10.75 price for AMID, which is 7.33% discount:

This $10.75 discount current conversion price gives you a whopper of a yield, at 15.35%, and some upside potential. However, you won’t receive the upcoming distribution from AMID, unless the deal somehow gets closed by next Friday, 4/27/18, AMID’s next ex-dividend date.

AMID pays in the usual MLP Feb/May/Aug/Nov cycle, so, as an SXE converted AMID unitholder, your first payout wouldn’t be until ~8/3/18. AMID’S management is targeting 1.1x distribution coverage post-buyout. Unitholders get a K-1 at tax time.


Deal highlights – Among many other positive attributes, AMID’s management sees this deal as being immediately accretive to AMID’s distributable cash flow.

(Source: AMID site)

This makes sense – SXE used to pay $.40/unit quarterly but eliminated its payout in February 2016. However, SXE generated $2.39/unit in DCF in 2017. Add this to AMID’s $1.75/unit generated in 2017, and it gives you $4.14/unit vs. AMID’s total distributions/unit of $1.65 in 2017.

These numbers won’t be exactly the same in 2018, but that big cushion certainly gives management a lot of leeway moving forward and makes us believe that AMID should be able to at least maintain its current $.4125 quarterly payout and ultimately increase it, if the market rewards the company’s transformation efforts and bids up AMID’s price/unit.

AMID’s management has been selling off non-core assets but has made a series of acquisitions in order to transform the company into a more stable cash flow model.

(Source: AMID site)

The downside to this is that, as with any ongoing divestiture and acquisition process, the company will experience negative growth for a certain period, as it loses the earnings of sold assets, before the new assets start contributing to earnings. This is what happened in 2017:


Take a look at SXE’s current valuations – they’re the lowest we’ve ever seen in the midstream space – a price/DCF of just .72, a price/book of .17, and a price/sales of just .13.

It’s easy to see why AMID management went after this deal:

Analysts’ Targets:

The other plus about buying SXE at ~$1.72 (which equals a post-buyout conversion discounted price of $10.75) is that your cost is under analysts’ lowest price target for AMID, of $11.00. AMID is currently 26.47% below analysts’ average price target of $14.67.


Debt Leverage: AMID’s 2017 10K states that, as of 12/31/17, AMID’s total leverage ratio was 5.23X. However, we came up with a higher figure of 6.8X. One of the distinctions that management makes is not counting non-recourse debt in its presentations – they refer to “compliance leverage”:

(Source: AMID 2017 10-K)

We put together a table which compares our figures with AMID’s post-buyout projections. Management is targeting 4.5X debt leverage and $300M in EBITDA after the buyout, with a goal of reaching 3.5X within 18 months. This implies that they won’t be taking on more debt, and that EBITDA should ramp up to ~$385M within 18 months.


We rate SXE a buy, based upon the current buyout discount price, its very low valuations, and the upcoming, post-buyout yield, which will be well-covered. An additional plus is that a veteran energy investing firm with deep pockets, Arclight Partners, owns a ~27% of AMID’s units.

(Source: NASDAQ)

(All images by Double Dividend Stocks, unless otherwise noted.)

Disclosure: I am/we are long SXE.

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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Cyber Saturday—How Facebook and GDPR Propelled an Underdog to Victory at RSA Conference

Happy Saturday, dear readers.

Earlier this year I noted that Europe’s General Data Protection Regulation, or GDPR, would be a big topic of conversation at this year’s RSA Conference, the biggest hobnobbing affair in the cybersecurity industry. I could not have foreseen how scandal after data privacy scandal at Facebook would intensify the discussion.

At this year’s ever entertaining “innovation sandbox contest,” a startup competition and hallmark of the conference, a little-known, New York City-based concern called BigID capitalized on the zeitgeist. The company, which had just eight employees as recently as December (mostly engineers in Israel), pitched itself differently than the typical cybersecurity marketing spiel. There was nary a mention of “detection,” “defense,” or “artificial intelligence.”

“I’m with BigID and our big idea is that privacy matters,” said Dimitri Sirota, CEO and cofounder of the firm, taking the stage. He explained that his company’s technology indexes business’s private data, maps out the inter-relationships between databases, and helps identify what companies need to do to comply with data regulations in different parts of the world.

“Ours was understandable,” Sirota told me later on a call. “You didn’t have to have a PhD in computer science to get what we did. It was accessible to the audience and judges.”

Sirota’s clarity of thinking was apparent to me years ago, back when he was heading up the security business at CA Technologies. In 2014, he livened up a panel I moderated at an enterprise security summit. A couple years later, Sirota strolled into Fortune’s offices clad in a black leather jacket and told me his plan to build a business around data privacy and compliance. Looks like he had the right idea at exactly the right time.

“Big data is almost like this atomic collider—smash all this data together to get value from it,” as Sirota put it on our recent call. “No one has been thinking of stewardship or custody or management of that information.”

Now everyone is thinking about it. With British officials raiding the offices of embattled political consultancy Cambridge Analytica, Mark Zuckerberg bending the knee before congress, and GDPR set to go into effect next month, no story holds greater sway in techland. It’s no surprise BigID took home the crown.

Dream big and have a great weekend.

Robert Hackett


[email protected]

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’sdaily tech newsletter. Fortune reporter Robert Hackett here. You may reach Robert Hackett via Twitter, Cryptocat, Jabber (see OTR fingerprint on my about.me), PGP encrypted email (see public key on my Keybase.io), Wickr, Signal, or however you (securely) prefer. Feedback welcome.

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DNC Lawsuit Against Russia Reveals New Details About 2016 Hack

The Democratic National Committee Friday filed a lawsuit against a broad slate of people and entities allegedly responsible for the 2016 hack of its email, phone calls, and more. But while the suit claims involvement from a host of headliners—Wikileaks, Julian Assange, Donald Trump, Jr., and Russia among them—its immediate importance lies in the previously unreported timeline it lays out.

While a rough outline of the DNC hack that rocked the 2016 election had previously been established, the 66-page lawsuit, first reported by The Washington Post gives exact dates for the first time. It also asserts coordination among a web of characters affiliated with the Trump campaign, Russia’s GRU intelligence service, and WikiLeaks.

“No one is above the law,” the suit begins. “In the run-up to the 2016 election, Russia mounted a brazen attack on American Democracy.”

The details of when and how that attack occurred, though, are more clear than ever—and may indicate that Russia’s plan to interfere in the US election predated its DNC intrusion.

According to the DNC lawsuit, Russian intelligence group Cozy Bear—the GRU-affiliated hacker group, also known as APT29—infiltrated the DNC network as far back as July 27, 2015, nearly a year before the leaks of the pilfered material began. The suit says that a second Russian group—Fancy Bear, the outfit that has recently tormented the International Olympic Committee as well—hacked the DNC’s systems on April 18, 2016. The DNC wouldn’t notice the presence of either until April 28, 2016, at which point it called in security firm CrowdStrike to help analyze and mitigate the damage.

The remedy was costly. The suit details the necessary fixes; the DNC had to “decommission more than 140 servers, remove and reinstall all software, including the operating systems, for more than 180 computers, and rebuild least 11 servers.” Between repairing and replacing equipment and hiring experts to manage the fallout, the bill came out to over a million dollars.

By then, of course, the worst damage had already been done. The DNC had been devastatingly compromised. The Russians had gained access not only to email systems but also to backup servers, VOIP calls, and chats. They were prepared to make off with “several gigabytes of data,” the suit says, a little over a week before the DNC even knew they were there.

The timeline from there has been a matter of public record. On June 14, the DNC first disclosed the hack. The following day, a persona going by Guccifer 2.0—only recently confirmed to be a Russian intelligence agent—claimed responsibility, leaking a 237-page opposition research report on Donald Trump in the process.

The leaks continued steadily from there, as the suit details. Guccifer 2.0 struck again on June 27, June 30, and July 6. On July 22, WikiLeaks took the wheel, releasing nearly 20,000 internal DNC emails. The following day, according to the suit, multiple DNC employees received an email that said: “I hope your children get raped and murdered. I hope your family knows nothing but suffering, torture, and death.”

The rest of the suit rehashes the connections that have played out in the press over the last several months, alleging Roger Stone, Paul Manafort, George Papadopoulos, and a host of Russians as ingredients in a collusive soup. But for close observers of Russia’s hacking efforts against the US in 2015 and beyond, it’s the timeline that provides the most valuable information.

That’s in part because of how it aligns with two incidents not mentioned in the suit. Many of the early leaks appeared on a site called DCLeaks, which went live in June 2016 but was registered on April 19, which the suit confirms was a day after Fancy Bear broke into the DNC. But the same group that registered DCLeaks had attempted but failed to register ElectionLeaks.com on April 12, nearly a week before the Fancy Bear hack.

The timeline strongly implies that Russia’s aim was to disrupt the election from the start, rather than a reconnaissance mission that rapidly escalated.

“They had already carried out the Podesta intrusion in March, and carried out a pretty large scale attempt to target the campaigns,” says John Hultquist, director of threat intelligence at security firm FireEye, referring to the emails of Hillary Clinton campaign chairman John Podesta, which were ultimately leaked a month before the 2016 election. That, combined with registering ElectionLeaks before the Fancy Bear break-in, “suggests they had this plan prior to even compromising the organization.”

It’s unclear how likely the DNC lawsuit is to succeed, especially in its efforts to hold Russia accountable in a US court. But its revelations shed light on one of the most impactful hacks of recent memory—and maybe the intentions of the country behind it.

Russian Hacks

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TSMC's smartphone warning points squarely at Apple: analysts

(Reuters) – Shares in Apple Inc (AAPL.O) and its suppliers fell on Thursday after a raft of analysts read a prediction of softer smartphone sales from Taiwan Semiconductor Manufacturing Co Ltd (2330.TW) as driven chiefly by concern about demand for iPhones.

FILE PHOTO: A logo of Taiwan Semiconductor Manufacturing Co (TSMC) is seen at its headquarters in Hsinchu, Taiwan October 5, 2017. REUTERS/Eason Lam/File Photo

TSMC, the world’s largest contract chipmaker and a major Apple supplier, revised its full-year revenue target to the low end of its earlier forecast.

“Apple represents nearly 20 percent of TSMC’s revenue so the outlook potentially points to weaker-than-anticipated iPhone demand,” Atlantic Equities analyst James Cordwell told Reuters.

Others, some asking not to be quoted, said baldly that the warning was “exactly” about Apple.

Mizuho Securities USA said in a client note that its checks continue to point to soft demand for iPhone X, the Cupertino-based firm’s tenth anniversary phone released last November, in addition to a steady fall in iPhone 8 and 8 Plus orders.

Apple’s shares were last down 2.5 percent and were the biggest drag on the tech-heavy Nasdaq index.

Shares of Apple suppliers including Qualcomm Inc (QCOM.O), Intel Corp (INTC.O), Qorvo Inc (QRVO.O), Skyworks Solutions Inc (SWKS.O) and Broadcom Inc (AVGO.O) fell by 2 percent to 5 percent.

“Until the new iPhones in the Fall start driving the production food chain in Q3, mobile’s going to be weak,” Elazar Advisors analyst Chaim Siegel said.

TSMC, also a supplier to Qualcomm and Nvidia Corp (NVDA.O), said it expects growth this year of 5 percent for the global semiconductor industry, weaker than an earlier forecast of 5-7 percent.

Data provider TrendForce had earlier estimated 2018 global smartphone production at around 1.5 billion units, 2.8 percent up on 2017 but down from a previously expected 5 percent.

TSMC on Thursday estimated 8 percent growth for contract chipmakers, compared with its previous forecast of 9-10 percent.

U.S.-listed shares of TSMC (TSM.N) were down 6 percent, while other chip equipment makers such as Applied Materials Inc (AMAT.O) and Lam Research Corp (LRCX.O) fell about 5 percent and ASML Holding NV (ASML.O) lost 3.6 percent.

Another big industry bellwether, chip equipment maker Lam Research, said on Wednesday its shipments missed consensus estimates for the first time in five years.

Chipmakers Analog Devices Inc (ADI.O), Micron Technology (MU.O) and Xilinx Inc (XLNX.O) were also down by 3 percent to 4 percent.

Reporting by Sonam Rai in Bengaluru; Editing by Maju Samuel and Patrick Graham

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German lawmakers to grill Facebook manager on data privacy

BERLIN (Reuters) – German lawmakers will question a senior Facebook Inc manager about data privacy in the wake of revelations that the personal information of millions of users wrongly ended up in the hands of political consultancy Cambridge Analytica.

FILE PHOTO: A 3D-printed Facebook logo is seen in front of displayed stock graph in this illustration photo, March 20, 2018. REUTERS/Dado Ruvic/File Photo

Lawmakers in the Bundestag lower house of parliament will grill Joel Kaplan, Facebook’s vice president for global public policy, during a closed-door session on Friday morning.

The meeting mirrors the appearance of Facebook’s Chief Executive Mark Zuckerberg before a U.S. Congressional joint hearing on April 10-11 over the scandal engulfing the world’s largest social network.

The 87 million Facebook users affected included nearly three million Europeans and Zuckerberg is also under pressure from EU lawmakers to come to Europe to shed light on the data breach.

“Facebook needs to show more openness and transparency when dealing with user data,” said Nadine Schoen, deputy leader of Chancellor Angela Merkel’s conservative bloc in the Bundestag.

She said Facebook needed to do more than just pay lip service and it remained to be seen how serious the company was about really improving user rights.

“It is not enough to exchange the gray T-shirt and jeans for suit and tie,” she said in reference to Zuckerberg’s appearance in the U.S. Congress.

The senior lawmaker said that Facebook so far was giving the impression that it only wanted to save its business model.

“For example, the company is already rowing back in the supposedly world-wide announced implementation of the General Data Protection Regulation,” Schoen warned, referring to privacy rules that will enter force in the European Union next month.

“We no longer need excuses, but facts,” she said.

German Justice Minister Katarina Barley last month summoned executives of the firm, including European public affairs chief Richard Allan.

Misuse of data by Facebook means it will in future be bound by stricter regulations and the threat of tougher penalties for further privacy violations, Barley said after the meeting.

Reporting by Michael Nienaber; Editing by Douglas Busvine

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'Trustjacking' Could Expose iPhones to Attack

Have you used a friend’s laptop to charge your iPhone and gotten a prompt that says, “Trust This Computer?” Say yes, and the computer will be able to access your phone settings and data while they’re connected. And while it doesn’t feel like your answer really matters—your phone will charge either way—researchers from Symantec warn that this seemingly minor decision has much higher stakes than you’d think.

In fact, the Symantec team has found that hacks exploiting that misplaced “Trust” comprise a whole class of iOS attacks they call “trustjacking.” Once a user authorizes a device, they open themselves to serious and persistent attacks while their phone is connected to the same Wi-Fi network as a hacker, or even remote attacks when the devices are separated.

Adi Sharabani, Symantec’s senior vice president of modern operating system security, and Roy Iarchy, the modern operating system research team leader, will make that case Wednesday, in a presentation at the RSA security conference in San Francisco.

“Once this trust is established, everything is possible,” Sharabani told WIRED last week. “It introduces a new vector of attack.”

Sharabani and Iarchy’s presentation focuses largely on a feature known as iTunes Wi-Fi Sync, the tool that lets iOS devices sync with desktop iTunes over Wi-Fi. For this process you physically connect a mobile device to a computer once, indicate that the iOS device can trust the computer going forward, and then enable iTunes Wi-Fi Sync from the PC. After that the two devices can sync and communicate whenever they are on the same Wi-Fi network without any further approval from the iPhone or iPad.

It’s a reasonable and useful feature when used as intended. But an attacker could also plant a malicious computer—perhaps one shaped like a charging station or external battery—and trick people into connecting their devices and granting trust out of confusion or disinterest.

Once a trusted Wi-Fi Sync connection is established, attackers can not only do basic syncing, but also take advantage of controls meant for developers to manipulate the victim iOS device. A hacker could work quickly to install malware on the phone, or initiate a backup to gather data like a victim’s photos, app information, and SMS/iMessage chats. Attackers with trust privileges could also start watching a target device’s screen in real-time by initiating screenshots on the phone and then syncing them to the attack computer. Or they could play a long game, silently retaining their trusted status until it is long forgotten, for a future attack.

“We discovered this by mistake actually,” Sharabani says. “Roy was doing research and he connected his own iPhone to his own computer to access it. But accidentally he realized that he was not actually connected to his own phone. He was connected to one of his team members’ phones who had connected their mobile device to Roy’s desktop a few weeks before. So Roy started to dig into what exactly he could do and find out if he were an attacker.”

You can imagine a number of scenarios where this could work as a targeted attack. Everyone has places they visit regularly: an office, a coffee shop, the local library. Attackers could anticipate that a victim iOS device would regularly connect to the same Wi-Fi network as the trusted attacker computer—enabling clandestine, malicious backups with iTunes Wi-Fi Sync. The researchers point out that an attacker wouldn’t necessarily be geographically limited; after gaining a foothold, they could combine trustjacking with a type of attack called “malicious profiles,” which takes advantage of how iOS manages configuration packages for apps to get around access restrictions, establish continuous remote access. Beginning in iOS 10, though, Apple started making it harder for hackers to carry out malicious profile attacks.

It’s tempting to put the onus on the iPhone owner here; you shouldn’t, after all, connect with sketchy computers an trust them in the first place. And Apple, which declined to comment for this story, seems to agree. When Sharabani and Iarchy disclosed their findings to the company, it did add a second prompt in iOS 11 to require a device’s passcode as part of authorizing a new computer as trusted. This makes it more difficult for anyone other than the device owner to establish trust.

But Sharabani and Iarchy argue that it’s unreasonable to put it entirely on the user to make the correct choice about trusting a device, especially since the authorization persists indefinitely once it’s established. There’s also currently no way to see a list of devices that have outstanding trusted status.

In these transactions, iOS’s wording is also unhelpful. The prompts say, “Trust this computer? Your settings and data will be accessible from this computer when connected,” which might seem to mean that nothing will be exposed when the devices are no longer physically connected. In fact, given that Wi-Fi sync can be enabled in desktop iTunes without any involvement of the mobile device, there’s much more potential for long-term connection than users may realize.

Consider, too, that an attacker who successfully infects a target’s PC with malware can exploit the trust a victim grants his own computer. A user will obviously trust their own computer, and their phone and PC will frequently be on the same Wi-Fi network. So an attacker who has infected a target’s computer can get a two-for-one of also having regular access to the victim’s iOS devices.

“Apple took the very quick act of adding the passcode,” Sharabani notes. “With that said, this is a design problem. They could better design the future behavior of the features, but it will take them time to implement. That’s why it’s so important to alert users and raise awareness. Users need to understand the implications.”

Sharabani and Iarchy say they haven’t seen trustjacking attacks in the wild so far, but that doesn’t mean they aren’t out there or coming. And though Apple doesn’t offer a list of the computers an iOS device trusts, it is possible to scrub the trusted computers list entirely. In iOS 11 users can go to Settings > General > Reset > Reset Location & Privacy to get a clean slate, after which people can start to be more cognizant of which computers they authorize. (Note that doing this reset also revokes all specially granted app permissions.) Another helpful defense for users is to encrypt iOS device backups with a strong password. With this turned on, an attacker abusing Wi-Fi Sync can still make their own backups of a victim device, but they will be encrypted with whatever password the target chose.

The researchers see iOS’s authorization prompts as a single point of failure, where the operating system could provide a few more prompts in exchange for more layers of defense against trustjacking. No one wants one seemingly insignificant mistake to blow up in their face weeks or months later. But while users wait for Apple to architect long-term solutions, their best defense is to become discerning and extremely selective about doling out trust.

Smartphone Safety

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Exclusive: Amazon in talks with airline Azul for shipping in Brazil – sources

SAO PAULO (Reuters) – Amazon.com Inc (AMZN.O) is in talks with Brazilian airline Azul SA (AZUL.N) on shipping goods in the country, two sources with knowledge of the matter told Reuters, in the latest sign of the retailer’s big plans in Latin America’s largest economy.

FILE PHOTO: The logo of Amazon.com Inc is seen in Sao Paulo, Brazil October 17, 2017. REUTERS/Paulo Whitaker/File Photo

The talks with Azul, which serves over 50 percent more Brazilian airports than its nearest rival, are the strongest signal yet that Amazon is lining up distribution to sell products directly to consumers throughout the country.

It also shows that the U.S. e-commerce company is serious about overcoming the nation’s notorious logistical challenges, including shoddy roads, security problems and a national territory greater than the continental United States.

Representatives for Azul declined to comment on the talks.

Amazon said it did not comment on “rumors or speculation.”

The Seattle-based online retailer has so far waded slowly into Brazil’s highly competitive e-commerce market, starting with e-book sales in 2012, adding physical books two years later and offering third-party sales of electronics in October.

E-commerce accounts for around 5 percent of Brazil’s roughly $300 billion retail market, about half its share in the United States. Yet Brazil’s online sales have doubled in four years and are expected to grow at a double-digit pace in coming years.

Currently, Amazon relies on third-party vendors to ship their own goods sold on its Brazilian website, but that appears to be changing.

In February, Reuters reported that Amazon was looking to lease a 50,000-square-meter warehouse just outside Sao Paulo, in a sign the retailer may bring storage and distribution in-house.

In March, Reuters reported that the company met with an array of manufacturers in Sao Paulo to discuss plans to stock and sell products directly.

Both developments drove down shares in Brazilian e-commerce competitors, such as Magazine Luiza SA (MGLU3.SA) and B2W Companhia Digital SA (BTOW3.SA). MercadoLibre Inc (MELI.O) has also fought Amazon tooth-and-nail in Mexico and Brazil.

By partnering with Azul, Amazon would immediately gain access to a network of more than 100 airports in Brazil, implying its ambitions go far beyond metropolitan Sao Paulo.

Azul has built up an 18 percent share of Brazil’s domestic air travel market over the past decade by flying regional jets and turboprop planes into second- and third-tier cities underserved by other carriers.

Azul’s cargo unit, Azul Cargo Express, takes advantage of excess cargo capacity in its passenger flights to offer rapid delivery to locations ranging from far-flung Amazonian outposts to Brazil’s major metropolitan centers.

The company offers shipping to more than 3,200 municipalities, as well as a specialized e-commerce service known as Azul Cargo E-Commerce. Azul’s hub, Viracopos International Airport, is about a 45-minute drive from the warehouse Amazon has been eyeing northwest of Sao Paulo.

The sources, who requested anonymity as the negotiations are confidential, did not specify how advanced conversations were, nor did they say if the retailer has also engaged Azul’s rivals.

Competing airlines with Brazilian cargo operations include Latam Airlines Group SA LTM.SN and Gol Linhas Aereas Inteligentes SA (GOLL4.SA). Neither responded immediately to requests for comment.

Last week, Azul announced it has leased two Boeing Co (BA.N) freight aircraft “to support the rapid growth of its cargo business unit.”

Reporting by Gram Slattery; Additional reporting by Flavia Bohone, Gabriela Mello, and Tatiana Bautzer in Sao Paulo and Felipe Iturrieta in Santiago; Editing by Brad Haynes and Cynthia Osterman

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Mapping startup Mapbox hires head of product from Google

SAN FRANCISCO (Reuters) – Digital maps startup Mapbox Inc told Reuters on Tuesday that it has hired a lead product manager from the local search unit of Alphabet Inc’s Google to serve as head of product for maps and search.

Andrew Chen is charged with helping engineers at Mapbox, which licenses maps to software developers, better understand consumer desires, Mapbox Chief Executive Officer Eric Gundersen said.

“Any engineering-heavy company is constantly wanting the perspective of the users, and we’re looking to people who can help illustrate how maps are being used,” Gundersen said.

Mapbox competes with Google, OpenStreetMap and other firms to license maps to software makers. The data have become a bedrock of thousands of mobile apps, with Mapbox customers including social media company Snap Inc, food delivery service DoorDash and credit card giant MasterCard Inc.

Mapbox has less live traffic information and fewer details on “social” places such as bars than Google, Gundersen said.

But Mapbox’s system, an amalgamation of 130 data sources, is appealing to some developers because it allows greater customization, Chen said. Google’s emphasis remains on its consumer Maps app, he said, while Mapbox exclusively focuses on developer tools.

Google did not respond to a request for comment.

Chen said he spent more than five years at Google overseeing development of Google Maps features including estimated wait times at restaurants and a question-and-answer system for users to learn more about businesses.

SoftBank Vision Fund led a $164 million financing of Mapbox in October.

Reporting by Paresh Dave; Editing by Leslie Adler

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Gilead: Yescarta Faces Unforeseen Hurdles

Former Kite CEO Arie Belldegrun

Gilead (GILD) bulls were euphoric last August after the company pulled the trigger on its $12 billion acquisition of Kite Pharma. The clinical stage biotech company was expected to energy growth with its breakthrough immunotherapy technology. Now Yescarta, its CAR-T treatment for lymphoma, is facing unforeseen hurdles:

Well, now CMS has determined how it’s going to pay for Yescarta, and its decision may not do much to help Gilead spur sales of the product. CMS will pay $395,380 for Yescarta when it’s used on an outpatient basis, with a minimum co-payment charged to patients of $79,076, a spokesperson for the agency confirmed in an email to FiercePharma. The out-of-pocket burden won’t be that high—it is capped under law at the inpatient deductible amount, plus the Part B deductible if that has not yet been met.

Many patients will receive Yescarta in the hospital, however, so they can be monitored for dangerous side effects. The cost of that, estimated by some analysts to run as high as $1 million, will be bundled into CMS’s payment for hospital stays. A spokeswoman for Gilead declined to estimate what proportion of patients would receive Yescarta on an outpatient vs. inpatient basis and said the decision would be “at the discretion of the treating physician and center.”

Yescarta still has the chance to save lives and become the breakthrough we once thought. Its success could be delayed, however. I will explain below.

Initial Costs For Treatment Could Be Astronomical

Kite’s breakthrough therapy helps patients fight cancer by harnessing the power of their immune systems. Kite received FDA approval for Yescarta, which treats B-cell non-Hodgkin lymphoma, within months of the deal. Centers for Medicare & Medicaid Services (“CMS”) indicated it would pay the full price of $395,380 for Yescarta when used on an outpatient basis, with a minimum co-payment of around $79,000. Compared to the $94,000 initial cost for Gilead’s HCV blockbuster Harvoni, a $79,000 co-pay appears in the range for a breakthrough drug.

Secondly, Yescarta is expected to be used for the most critical care cancer patients for whom other treatments may not have worked. The rub is that for patients who receive Yescarta treatment in the hospital the cost could run as high as $1 million. I would imagine it would be prudent for patients, Gilead and the healthcare community to have initial treatments done in the hospital to monitor any potential dangerous side effects. There would be a limited number of people who could afford this high cost; the number of patients Gilead could treat initially would then be limited and so would Yescarta revenue.

Per Cowen up to 5,300 relapsed/refractory patients would be candidates to be treated by Kite’s Yescarta. Gilead was anticipated to treat bout 1,000 patients in 2018, which could have equated to over $350 million in revenue. Given new information from CMS that figure seems extremely high. The 5,300 relapsed/refractory patients that could have equated generated peak revenue of over $2 billion also appears overstated. The number of patients that can be realistically treated at CMS’s $1 million cost estimate needs to be firmed up by Gilead’s management.

The Bottleneck Could Be New Technology Add On Payment

Capacity constraints at certain hospitals were expected to create a bottleneck pursuant to the number of patients that could be treated. The major constraint now appears to be cost of in hospital treatment. Gilead and Novartis (NVS) have a new technology add-on payment (“NTAP”):

In an effort to ease the cost burden for hospitals, Gilead has filed for a new technology add-on payment (NASDAQ:NTAP), which the agency sometimes provides for new treatments that are deemed to be breakthroughs. Novartis, which launched its $475,000 CAR-T Kymriah last year, has also requested the additional CMS reimbursement for inpatient treatments.

Given the potential for Yescarta to save lives the treatment could meet the requirements for NTAP, which could reduce the costs for the treatment. Not only could NTAP reduce costs, but CMS could also serve as a model for how private insurers reimburse new treatments. Until CMS decides Gilead’s NTAP filing new treatments for Yescarta could be in a holding pattern.

That does not bode well for Gilead. Its Kite deal was a masterstroke because of the technology the company acquired, and the fact that it received FDA approval shortly after the deal was approved. The first to market advantage it and Novartis enjoyed could have been insurmountable. Since, Celgene (CELG) has acquired Juno Therapeutics (JUNO), and announced a strategic partnership with BlueBird Bio (BLUE) in the area of CAR-T therapy. The longer it takes for CMS to make Yescarta more affordable the more Gilead’s first to market advantage dissipates.

What’s Next For Gilead?

Pursuant to Yescarta it could be prudent to move previous estimates for the treatment out a year. For instance, if 1,000 people were expected to be treated in 2018 then the expectation could extend into 2019. Gilead’s HCV revenue is continues to run off. Total Q4 2017 revenue was down 9% sequentially, while HCV fell 36%. HCV has an annual run-rate of $5.3 billion in revenue. Even at peak sales of about $2 billion Yescarta would not be able to replace lost HCV revenue.

The company has $37 billion of cash on hand. It can use this as a currency to make future acquisitions to offset the HCV run-off. If financial markets continue to decline Gilead’s cash has more value and its buying power increases. GILD is up over 13% Y/Y, despite its massive earnings slide. Earnings will likely slide further as Q4 EBITDA margins fell to 45% when they had been above 60% historically. If financial markets falter then GILD could be a long-term by and hold play. For now sell the stock.

Disclosure: I am/we are short CELG.

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

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Philippines complains Facebook fact-checkers are biased

MANILA (Reuters) – The Philippines government criticized on Monday Facebook’s (FB.O) choice of two independent online news platforms to help fight the spread of fake news, saying they are biased against President Rodrigo Duterte.

FILE PHOTO: A 3D-printed Facebook logo is seen in front of displayed stock graph in this illustration photo, March 20, 2018. REUTERS/Dado Ruvic/File Photo

Facebook said last week it would partner with VERA Files and Rappler IQ to launch a third-party, fact-checking program aimed at preventing the spread of false news on the social media platform in the Philippines.

But Duterte has accused Rappler, which has a reputation for its investigative reporting and its tough questioning, of trying to undermine his government, perhaps with the help of U.S. spies, and the Securities and Exchange Commission has rescinded its operating license for violating foreign ownership rules.

Rappler continues to operate pending an appeal.

“We would also like to register our protest at the choice of fact-checkers by Facebook and this will be on the agenda when we finally get to sit with them soon,” Loraine Badoy, assistant secretary at the Presidential Communications Operations Office, said in a statement.

Research has shown Filipinos to be among the most active social media users in the world, spending on average more than four hours a day on platforms like Facebook.

Duterte, a former mayor from outside of the sphere of national politics, tapped into social media to help him win a 2016 election by a huge margin.

Last year, lawmakers began an inquiry into the proliferation of what they saw as fake news on the internet.

Duterte spokesman Harry Roque welcomed Facebook’s desire to counter fake news, but he noted some people had complained that “the chosen police of the truth are sometimes partisan themselves”.

A Facebook spokeswoman did not comment on the government’s protest and referred Reuters to a statement last week announcing the partnership with Rappler and VERA Files.

“Partnering with third-party fact-checking organizations, is one of the ways we hope to better identify and reduce the reach of false news that people share on our platform,” Clair Deevy, Facebook’s director for community affairs for Asia Pacific, said last week.

There was no immediate comment from Rappler.

Ellen Tordesillas, president of VERA Files, said “non-partisanship and fairness are among the requirements for an international fact-checking network accreditation”.

VERA Files and Rappler IQ are the only two Philippine-based members of an international fact-checking network at the Poynter Institute, a journalism school in the United States.

Privacy concerns have swamped Facebook since it acknowledged last month that information about millions of users wrongly ended up in the hands of political consultancy Cambridge Analytica, a firm that has counted U.S. President Donald Trump’s 2016 electoral campaign among its clients.

Reporting By Manuel Mogato; Editing by Darren Schuettler

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The Airline Whose Planes Are Said to Break Down In Mid-Air More Often Than Anyone's Is About To Have a Big PR Problem

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

They say you should get out ahead of a bad story.

Present your version before the story hits, so that people can have good feelings about you before aspersions are cast.

I wonder, therefore, what Allegiant Air might do this weekend.

I wrote about this airline a couple of years ago, after it had been accused of having planes that break down four times more often than those of other airlines.

In mid-air, that is.

Of the airline’s 86 planes, it was said that 42 of them had broken down in mid-air the previous year.

The airline fought back and claimed that the accusations were “incendiary.” Indeed, its stock went up 24 percent soon after the original Tampa Bay Times article was published.

Now, though, Allegiant might have a bigger PR problem. 

On Sunday, it’ll be featured in a 60 Minutes segment, one that CBS teases will be twice the usual length.

Here’s the teaser.

Just those 48 seconds suggest that Allegiant should brace for something of calm, considered skewering.

I asked the budget airline what it thought of the upcoming exposé. A spokeswoman told me Allegiant would wait until the segment airs before offering a rebuttal.

One of the main issues with Allegiant’s record of breakdowns is that it flies old planes. Very old planes, some 22 years of age.

Recently, though, it has begun to replace these planes with Airbuses. Indeed, last May was the first time that Allegiant enjoyed the experience of fitting out a new(ish) plane.

The question, then, is how much Sunday’s 60 Minutes piece will reflect the whole current scenario.

The problem for the airline’s PR department, though, is that Allegiant will surely come out looking not so good on one of the most respected news programs in America, one that’s watched by 12 million people.

It’s inevitable, then, that it will instantly be associated with the sort of bad reputation that plagued United Airlines over the last year. 

Worse, perhaps, is the idea that instead of a brutal lack of customer sensitivity — as in the United case — Allegiant might be tarred with the notion that it’s simply an unsafe airline.

On Friday, the airline’s stock began to drop. What might happen to it on Monday?

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5 Tough Questions to Ask Yourself to Become a Better Leader

To be effective in today’s rapidly evolving business world, leadership development is a critical investment for us to make. As leaders, we need to stay on top of marketplace changes — and have the traits, skills and agility to adapt to those changes — to remain competitive.

My company, Vistage, recently conducted research showing that CEOs from small and midsize businesses (SMBs) are focused on decisions and investments related to business optimization. To fully capitalize on these investments, a CEO also needs to make leadership development a priority.

In the Q4 2017 Vistage CEO Confidence Index survey, which captured data from 1,377 SMB CEOs, leadership development was only ranked fifth in planned investments for 2018. That’s after investments in talent, infrastructure, technology and customer growth.

If, like our survey participants, you’re a CEO who might prioritize business optimization efforts over your own leadership development, here are the top five questions you need to ask yourself:

1. Are you developing your skills across a broad range of functional areas? 

CEOs are at the center of business decisions that cross multiple functions — from IT and finance to marketing and sales to operations and management. Staying at the forefront of each of these disciplines is an enormous task, which is why leaders must constantly find small ways to broaden their capabilities in diverse areas.

Consider training opportunities that give you access to the latest insights about issues such as building a strong culture, making strategic investments, executing on a strategy and communicating effectively with teams.

2. Do you meet the criteria of a “good leader” or a “great leader?” 

Good leaders tend to focus on others before themselves. Great leaders recognize they must continue to work on their own development while also developing the capabilities of their teams. This creates alignment and focus among departments and instills a culture of excellence across the entire organization. 

3. Can you effectively execute your strategic vision?

Leadership is the art of execution. It’s the art of getting things done. In other words, leadership isn’t just about setting a direction or vision for a business, it’s about executing on that vision. Execution is how a leader translates their vision into a method for managing talent, connecting with customers, optimizing operations and managing the financials that calibrate the business. 

4. What are your priority areas as a leader?

High-performing CEOs tend to focus on five areas in particular:

  • Strategic planning
  • Organizational culture and values
  • Communication and alignment
  • Mission, vision and purpose
  • Innovation

If this list doesn’t align with your own priorities, ask what you’re substituting for these areas. You might need to make some adjustments.

5. Do you have the competencies to identify and address pressing workplace issues?

Today’s CEOs need to be equipped to manage a variety of difficult issues such as sexual misconduct in the workplace, diversity and inclusion practices and sustainability policies. Very few leaders can do this effectively without the right leadership development.

Focus on developing skills that will improve, for example, how you evaluate workplace policies for social events, reduce your environmental footprint, recruit a more diverse workforce or establish a culture of transparency. This will make your organization stronger, and it’ll make you a better CEO.

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Facebook CEO's compensation jumps to $8.9 million as security costs soar

(Reuters) – Facebook Inc (FB.O) Chief Executive Mark Zuckerberg’s compensation rose 53.5 percent to $8.9 million in 2017, a regulatory filing showed on Friday, largely due to higher costs related to the 33-year old billionaire’s personal security.

FILE PHOTO: Facebook CEO Mark Zuckerberg testifies before a House Energy and Commerce Committee hearing regarding the company’s use and protection of user data on Capitol Hill in Washington, U.S., April 11, 2018. REUTERS/Aaron P. Bernstein

About 83 percent of the compensation represented security-related expenses, while most of the rest were tied to Zuckerberg’s personal usage of private aircraft.

Zuckerberg spent much of last year traveling after he pledged to visit all the U.S. states that he had not previously been to.

His security expenses climbed to $7.3 million in 2017 from $4.9 million a year earlier.

Menlo Park, California-based Facebook paid to buy, install and maintain security measures for Zuckerberg’s personal residences, which include properties in San Francisco and Palo Alto, the filing showed.

The Facebook board’s compensation committee authorized Zuckerberg’s security program, the filing said, “to address safety concerns due to specific threats to his safety arising directly as a result of his position as our founder, Chairman, and CEO.”

Zuckerberg’s base salary was unchanged at $1, while his total voting power at Facebook rose marginally to 59.9 percent.

Facebook, which has consistently reported stronger-than-expected earnings over the past two years, has faced public outcry over its role in Russia’s alleged influence over the 2016 U.S. presidential election.

Earlier this week, Zuckerberg emerged largely unscathed after facing hours of questioning from U.S. lawmakers on how the personal information of several million Facebook users might have been improperly shared with political consultancy Cambridge Analytica.

Reporting by Munsif Vengattil in Bengaluru and David Ingram in San Francisco; Editing by Sai Sachin Ravikumar and Richard Chang

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Tesla Fights the NTSB Over Its Latest Autopilot Death

Tesla loves a good fight. CEO Elon Musk has battled car dealers, President Trump, and more than a few reporters. Now he has found a new opponent, in the National Transportation Safety Board. The agency is investigating the crash of a Model X that was running with Autopilot engaged when it slammed into a highway divider in Northern California last month, killing the driver. Today, the NTSB announced it kicked Tesla off the team looking into what happened, and how to stop it recurring.

On the surface, the disagreement is over when and how to make public information about the crash. The NTSB, which investigates all major transportation accidents, is a cards-to-the-vest operation. It often shares facts as it finds them, but rarely draws conclusions about things like causality or remedies until it’s ready to release a thorough, detailed, and considered report. That usually takes at least a year, sometimes two.


Tesla argues the safest thing to do is make whatever it knows public as soon as possible. A week after the March 23 crash, Tesla announced Walter Huang, the driver of the Model X had turned on Autopilot, putting the car’s computer in charge of staying between the lane lines and a safe distance from other vehicles. The driver’s supposed to keep their eyes on the road and hands on the wheel, to monitor the fallible system. Tesla said Huang’s hands were not detected on the wheel for the six seconds prior to the crash, and that he should have had about five seconds of unobstructed view of the concrete lane divider he slammed into, but the vehicle logs show no action was taken.

In revealing those details—and effectively blaming the driver when the investigation has barely begun—Tesla violated its agreement with the NTSB, which requires all parties to keep quiet and let it do the talking. Last night, Tesla released a statement saying it’s pulling out of that agreement:

“Today, Tesla withdrew from the party agreement with the NTSB because it requires that we not release information about Autopilot to the public, a requirement which we believe fundamentally affects public safety negatively,” it said in a statement. “We believe in transparency, so an agreement that prevents public release of information for over a year is unacceptable.”

This morning, the NTSB disputed that account, saying it called Musk last night to give Tesla the boot:

“Releases of incomplete information often lead to speculation and incorrect assumptions about the probable cause of a crash, which does a disservice to the investigative process and the traveling public,” it said in a statement.

Tesla, never one to let a good scrap go to waste, fired back this afternoon. It reiterated that it broke up with the NTSB, not the other way around. “It’s been clear in our conversations with the NTSB that they’re more concerned with press headlines that actually promoting safety,” it said in [a statement. “Among other things, they repeatedly released partial bits of incomplete information to the media in violation of their own rules, at the same time that they were trying to prevent us from telling all the facts.” Tesla also said it plans to complain to Congress.

Musk has previously griped about the NTSB’s involvement, saying it’s up to the National Highway Traffic Safety Administration (NHTSA), not the NTSB, to regulate the auto industry. Indeed, the NTSB has no regulatory power. Its mission is to investigate accidents and make safety recommendations to the relevant government body. (NHTSA is also looking into the crash, and says it will “take action as appropriate.”)

As far as this NTSB investigation goes, Tesla’s departure is unlikely to change much. The automaker says it will still provide whatever technical help the NTSB needs, to recover and interpret data from the vehicle’s sensors leading up to and during the crash. Even if it refuses, the NTSB can subpoena the info.

But to properly understand Tesla’s seething anger at a government body widely seen as even-keeled and impartial, you need a quick dive into the past. In May 2016, a Tesla Model S running Autopilot crashed into a truck turning across its path, killing its driver, Josh Brown. NHTSA pinned the crash on driver error, saying the system wasn’t defective. A few months later, the NTSB issued its own report, saying Tesla bears some blame for Brown’s death, because its car didn’t do enough to ensure he watched the road. “The combined effects of human error and the lack of sufficient system controls resulted in a fatal collision that should not have happened,” NTSB chief Robert Sumwalt said at the time. It was the first substantive rebuke of one of Tesla’s hallmark features, a serious blow to an automaker that trades on innovation.

After Brown’s death, Tesla updated its software, escalating the warnings the car issues to inattentive drivers. But the basic premise of the system remains: The car works the steering and speed, the human monitors and intervenes as needed. And there’s plenty of reason to think humans are just no good at that sort of thing. So it’s easy to imagine the NTSB will come to a similar conclusion once it’s done investigating Huang’s death, painting Tesla’s innovative system in a damning light. It’s also easy to guess that Musk and Tesla are trying to spin things in their favor before the feds tell that kind of tale the second time in two years.

Along with Tesla, Cadillac, Nissan, Mercedes-Benz, Audi, and others already, or soon will offer this sort of semi-autonomous system, requiring the human behind the wheel remain attentive. Cadillac’s Super Cruise is especially sophisticated. It allows hands-free driving, using a camera to track the driver’s head and make sure he’s looking at the road. It stuck bright green and red LEDs in the top steering wheel to grab the driver’s attention when needed, and can vibrate the seat.

These systems make highway driving more pleasant, and likely safer. Most of the time, they work well, and probably prevent many crashes inattentive humans would cause in regular cars. Tesla claims you are 3.7 times less likely to be involved in a fatal accident if you’ve got Autopilot (which it sells as a $5,000 option). “It unequivocally makes the world safer for the vehicle occupants, pedestrians and cyclists,” the company said in a recent blog post. “The consequences of the public not using Autopilot, because of an inaccurate belief that it is less safe, would be extremely severe.”

That’s fair. Humans cause 40,000 deaths on US roads every year. But it’s also fair to say that Tesla’s Autopilot system isn’t perfect, and could be made even safer. For the official word on how to do that, we’ll have to wait for the NTSB to finish its work—even without Tesla’s help.

Self-Driving Quandaries

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Uber still believes autonomous vehicles have a future, says CEO

WASHINGTON (Reuters) – Uber Chief Executive Dara Khosrowshahi said on Wednesday that the ride-sharing company still believes in the prospects for autonomous transport after one of its self-driving vehicles was involved in a fatal crash in Arizona last month.

FILE PHOTO – Dara Khosrowshahi, Chief Executive Officer of Uber Technologies, attends the World Economic Forum (WEF) annual meeting in Davos, Switzerland, January 23, 2018. REUTERS/Denis Balibouse/File Picture

A 49-year-old woman was killed after being hit by an Uber self-driving sports utility vehicle while walking across a street in Phoenix, leading the company to suspend testing of autonomous vehicles.

Khosrowshahi declined to say when the company might resume testing or what might have gone wrong. He said the company was cooperating with federal investigators and dealing with the incident “very seriously.”

The accident has raised questions about the lack of clear safety standards for such vehicles.

But, speaking at a transport forum, Khosrowshahi said Uber was still betting on the technology in the long-term.

“We believe in it,” he said, adding that Uber considered autonomous vehicles “part of the solution” and in the long-term key to eliminating individual car ownership.

“Autonomous (vehicles) at maturity will be safer,” he said.

The company’s interest in investing in bike sharing and public transit should not be interpreted as a move away from self-driving cars, he added.

The U.S. National Highway Traffic Safety Administration and the National Transportation Safety Board (NTSB) are investigating the incident.

“They are a neutral party,” said Khosrowshahi. “They understand this.”

“We’ll figure out what we do afterwards.”

Arizona’s governor suspended Uber’s ability to test self-driving cars on public roads in the state following the crash. Arizona had been a key hub for Uber’s autonomous project, with about half of the company’s 200 self-driving cars and a staff of hundreds.

Governor Doug Ducey last month called a video of the incident “disturbing and alarming” and the crash “an unquestionable failure.”

NTSB chairman Robert Sumwalt on Tuesday told Reuters he had no update on the investigation.

Reporting by David Shepardson; Editing by Susan Thomas and Rosalba O’Brien

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Apple Music appoints new head, hits 48 million subscribers

(Reuters) – Apple Inc on Wednesday appointed a new executive to oversee its Apple Music streaming business and hit 48 million subscribers, the company said.

Apple said it had appointed Oliver Schusser as vice president of Apple Music and international content. Schusser, who joined Apple 14 years ago, will report directly to Apple senior vice president Eddy Cue and will also oversee Apple’s services outside the United States, including the App Store and iTunes.

Apple’s top streaming music rival Spotify Technology SA has 71 million so-called premium subscribers, a figure that includes users who have given the company a credit card number for a free trial. Spotify became a public company earlier this month after holding a so-called direct listing on the New York Stock Exchange.

On a comparable basis, the Apple Music service has 48 million subscribers, 40 million of whom are paying subscribers and 8 million of whom are on a free trial, Apple said. Both firms charge $9.99 a month for streaming music but provide discounts for student and family plans.

Variety magazine earlier reported the new subscriber figures and Schusser’s promotion. He previously built up Apple’s services businesses outside the U.S. in 155 markets, including China, Japan and Latin America, Apple said.

Apple’s services business, which includes Apple Music, the App Store and iCloud, is becoming increasingly important to the Apple’s financial outlook because the smart phone market has matured and iPhone sales growth has slowed. In its most recent quarter, Apple’s services business grew 18 percent to $8.4 billion, missing analyst expectations of $8.6 billion.

(This version of the story corrects paragraph 1 to Wednesday instead of Thursday)

Reporting by Stephen Nellis; Editing by Bernadette Baum

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China's SenseTime valued at $4.5 billion after Alibaba-led funding: sources

HONG KONG (Reuters) – Chinese facial recognition technology developer SenseTime Group Ltd has tripled its worth in less than a year after a funding round, led by Alibaba Group Holding Ltd, valued it at about $4.5 billion, people with knowledge of the matter said.

FILE PHOTO: SenseTime surveillance software identifying details about people and vehicles runs as a demonstration at the company’s office in Beijing, China, October 11, 2017. REUTERS/Thomas Peter/File Photo

The fundraising comes during a government push to make China an international leader in artificial intelligence (AI) by 2025, by which time it aims to grow core AI industries’ value to 400 billion yuan ($63.33 billion).

SenseTime raised $600 million in its series-C funding round having attracted investors including Chinese e-commerce company Suning.Com Co Ltd and Singapore state fund Temasek Holdings (Private) Ltd [TEM.UL], it said in a statement on Monday.

The company did not disclose its valuation, but said it is now the world’s most valuable AI platform. It also said it set a world record for the amount raised in a single funding round by an AI firm.

SenseTime was valued at $1.5 billion in July after it raised $410 million in its series-B funding round, led by China’s CDH Investments and state-backed fund Sailing Capital.

The two people who disclosed the current valuation declined to be identified as the matter was private. A SenseTime spokeswoman declined to comment on the valuation as the firm has moved into the series-C+ round of fundraising.

Dual-based in Beijing and Hong Kong, SenseTime develops applications for facial recognition, video analysis and other areas including autonomous driving. Existing investors include U.S. chipmaker Qualcomm Inc.

It is enjoying fast growth as both the private and public sectors upgrade to advanced technologies. It is engaged in as many as 14 sectors, and lists various police departments across China as major clients.

Alibaba Executive Vice Chairman Joe Tsai said in the statement, “We are especially impressed by their R&D capabilities in deep learning and visual computing. Our business at Alibaba is already seeing tangible benefits from our investments in AI and we are committed to further investment.”

Reporting by Sijia Jiang and Julie ZhuEditing by Christopher Cushing

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S&P 500 Weekly Update: The Bull Market Is Over? Think Again

Things done well and with a care, exempt themselves from fear.

…… William Shakespeare

According to the pundits, the big story of the day this past week was the S&P closing below the 200 day moving average The streak of 442 days is over. When an index’s price crosses below its 200-day moving average, it is generally thought to have “broken” its long-term uptrend. This is considered a negative trading pattern, some technicians would tell you it’s a sell signal. History shows that this typical knee jerk reaction isn’t the way to proceed.

What we do know, is that past breaks below the 200 day moving average for the S&P 500 after long periods above it have not necessarily been bearish. As shown in the table below, one week returns after these breaks are somewhat weak, but after that the market normally bounces back.

Source: Bespoke

Contrary to popular belief, when the index closes below this level, it does not mean the long term trend has ended. The August 2015, and the January/February 2016 time frame saw the S&P seesaw below, then back above the support level numerous times. The bull market remained in place. This latest breach of the 200 day moving average lasted one day. That doesn’t mean the index can’t go back and retest that level once again, but the quick retake of that support is a positive.

I also take that sign along with the intraday reversal on Wednesday as more evidence to support the idea that we are likely getting closer to the end, or at least through the worst of the bottoming process that has been in place. No, this isn’t the beginning of a bear market.

We find ourselves in a negative feedback loop now. One issue after another is highlighted, then regurgitated. If anyone is wondering why they feel like a punching bag these days watching the markets, here is an observation that explains why. Jack Bogle the legendary founder of Vanguard, says this is the most volatility he has seen in the markets during his 66 years in the business. That is saying something. He then goes on to say, its all “noise” related.

U S economy.jpg


U.S. construction spending increased 0.1% in February versus the unchanged reading from January, while December was revised sharply higher to 1.6% (doubling the prior 0.8% gain). Spending on residential projected edged up 0.1% from 0.1% (revised from 0.2%, with December boosted to 1.5% from -0.5%). Nonresidential spending was up 0.1% too, from -0.1% (December was nudged down to 1.7% from 1.8%).

March ISM Manufacturing Index is on target as it comes in at 59.3 vs. consensus of 60.0.

ISM non-manufacturing index fell 0.7 points to 58.8 in March after slipping 0.4 points to 59.5 in February. These are down from the 59.9 reading in January which was a 12-year high.

Markit manufacturing PMI rose 0.3 points to 55.6 for the final March reading, versus the 55.3 in February. Highest reading since March 2015.

Chris Williamson, Chief Business Economist at IHS Markit;

“US factories reported a strong end to the first quarter, with the PMI advancing to a three-year high. The goods producing sector should therefore make a positive contribution to economic growth in the first quarter, as rising demand fueled further improvements in factory production. Optimism about the year ahead has meanwhile also risen to its highest for three years, generating yet another solid payroll gain and suggesting strong growth momentum will be sustained in the second quarter. Companies cited rising demand at home and abroad plus recent government policy announcements as helping shore up confidence in terms of their future production levels.”

Markit final services PMI dropped 1.9 points to 54 after rising 2.6 points to 55.9 in February, and compares to the 54.1 in the preliminary March print. Nevertheless, the index continues to point to a strong expansion in the service sector as it’s not far from the 56.0 print from August, which was the highest going back to November 2015. The index was 52.8 last year.

U.S. Factory orders increased 1.2% in February, largely erasing the 1.3% January drop. Durable goods orders were revised down slightly to a 3.0% gain from the 3.1% jump in the Advance report. Transportation orders climbed 7% after the 9.8% January decline (revised from -10.0%).

Liz Ann Sonders posted this graphic during the week. It shows GDP rebounding from the first quarter to the second quarter during this recovery.

Source: Factset, Federal Reserve Bank of Atlanta


March non farm payrolls increased 103k, with earnings up 0.3% and the unemployment rate at 4.1%. The 313k February jobs surge was revised higher to 326k, but January’s 239k knocked down to 176k for a net 50k decline. Analysts were “disappointed”. They shouldn’t be, Job growth was a paltry 73k back in March of last year.

U.S. vehicle sales totaled 17.48 M in March on an annualized basis, according to seasonally adjusted numbers, compared to 17.08 M in February. This report surprised analysts, and might be another indication that consumers are in good financial shape.


Cyclical housing peaks usually arrive when they reach the 800,000 level, The recent data stands at around a 500,000 pace, so there is plenty of runway left for expansion. This adds credibility to my views that the present recovery is not ‘overdue” for a recession. The recent results for one of the nation’s largest home builders, Lennar (LEN) seems to confirm that view.

The current Job, Housing and Auto Sales reports do not reflect a slowing economy.

Global Economy.jpg

Global Economy

J.P.Morgan Global Manufacturing PMI now sits at a five month low, coming in at 53.4 in March. The February reading was 54.1.


Eurozone manufacturing PMI came in at 56.6 down from the prior month report of 58.6, an eight month low. Chris Williamson, Chief Business Economist at IHS Markit;

“March saw the biggest fall in the manufacturing PMI since June 2011 and the third successive slowing in the pace of expansion. We should not be too worried by the fall in the PMI as some moderation in the pace of growth from the surge seen at the turn of the year was inevitable, not least because short-term capacity constraints limit the economy’s ability to grow so quickly for long periods. This has been clearly evident in the recent lengthening of supply delivery times. Some of the slowdown has also been attributable to temporary factors such as bad weather.”


Caixin China General Manufacturing PMI slipped to a four month low with a reading of 51, down form the February reading of 51.6. Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group;

“The Caixin China General Manufacturing PMI fell to 51.0 in March. The sub-indices of output and employment both fell from the previous month, while new orders increased at a slightly slower rate, highlighting that the deceleration in the manufacturing sector was mainly driven by the supply side and that demand has remained relatively stable. Output prices rose at a faster pace in March than in the previous month while the increase in input costs weakened markedly, which will help shore up manufacturers’ profits.”

Caixin China General Services PMI also fell from the February reading of 54.2 to 52.3 in March. Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group;

“ Both new business and employment grew at a slower rate last month, pointing to cooling demand. However, the ability of service providers to make a profit improved as input costs increased at a weaker pace while output prices edged up. The sub-index gauging service company’s expectations towards business activity over the next 12 months declined to the lowest reading since September, suggesting that weakening demand has affected firm’s confidence.”

“The headline Caixin China Composite PMI dropped to 51.8 in March, the lowest reading in four months but remaining in expansionary territory. The slowdown of output growth in the services sector was faster than that in the manufacturing industry. The increase in input costs slowed while that in output prices picked up, improving chances for companies to gain a profit. Overall, the growth momentum of the Chinese economy weakened in March.”


Nikkei Japan Manufacturing PMI showed to a reading of 53.1 in March down from the february report of 54.1.Joe Hayes, Economist at IHS Markit;

“Latest survey data presented a second successive decline in the Manufacturing PMI for Japan. That said, the overall picture remains upbeat. The reading of 53.1 still indicates a fairly solid pace of improvement in business conditions. Moreover, the average across Q1 is consistent with a robust growth rate and bodes well for official data. On a further positive note, new orders have now expanded in each of the last 18 survey months. This sustained upturn in demand has appeared to impact supply chains, with delivery times slowing to the sharpest extent since the aftermath of the 2011 earthquake. This could create headwinds for the manufacturing economy if further capacity pressures begin to impact production capabilities.”

Nikkei Japan Services PMI declined to 50.9 in March from 51.7 in February, a 17 month low. Joe Hayes, Economist at IHS Markit, which compiles the survey;

“The Japanese service sector lost further momentum during March, with overall business activity growing at the weakest pace since October 2016. New order receipts rose, albeit only slightly and at the softest rate in a year-and-a-half. That said, despite PMI data signalling disappointing output and demand conditions, prospects appear upbeat. Incoming new business has grown for 20 successive survey periods, and firms expect this trend to continue, as indicated by a solid degree of optimism towards future activity. This sustained upturn in demand led to capacity pressures however, with backlogs of work rising for a third month running. In turn, recruitment picked up, further suggesting confidence among firms that new sales will continue to be secured over the coming months.”


Canadian Manufacturing remained steady at 55.7 , up slightly from the 55.6 reading in the prior month.

Clearly the global data has leveled off in the last 3- 4 months. The growth spurt and trajectory that we saw in the latter half of last year was unsustainable. I believe the stock market has recognized that and this is a contributing factor to the overall market weakness lately. This should come as no surprise, I spoke to this very situation when I published my outlook for 2018;

“One issue that could help answer how long we might expect the fundamental data to provide support to the equity market is perception. How the investment community perceives the economic data going forward. There exists a possibility that the Macro data will under perform expectations. Why? Positive data is now the norm, it is expected. Some of the recent reports have indices at multi year highs, at some point there has to be a leveling off.

“When that does take place, it could also usher in a pause in the uptrend. The key will be to watch and see if a pause is just that, or the leading edge of a more serious issue, a downturn in growth. I always advise anyone to forget about trying to position for something like that; it can turn out to be a huge mistake. Watch, wait, then act.”

I see no reason to overreact now. Of the 30 countries which Markit reports a manufacturing PMI for, 21 declined month over month. However, let’s not jump to conclusions. It is important to keep in mind that 90% (27) of the PMI’s are above 50; in other words, the level of activity is rising almost everywhere. It’s also worth noting that only 12 of 30 Manufacturing PMI’s are down versus a year ago. So while PMI’s are starting to move lower from recent highs, they’re still indicating a relatively healthy global economy. That’s evidenced by an average reading for all 30 countries above 53. Remember any reading above 50 is considered expansionary.

Earnings Observations and Valuations

The chart posted below shows five sectors in the S&P 500 Index are trading with PEG ratios below 1.0, even the S&P 500 Index itself has a PEG less than 1.0. In July of last year, only one sector had a PEG ratio less than 1.0 and that was the Energy sector.

Ok, so the PEG ratio is not the “be all and end all’ measure, but it does provide a quick and dirty yardstick for identifying potentially under or overvalued securities. When only looking at earnings growth, vis-à-vis valuations or the P/E ratio, stocks broadly appear more attractive today than they did as recently as mid year last year. I also have noted the S&P forward P/E multiple has fallen to its lowest point since Brexit.

Factset Research weekly update;

  • Earnings Growth: For Q1 2018, the estimated earnings growth rate for the S&P 500 is 17.1%. If 17.1% is the actual growth rate for the quarter, it will mark the highest earnings growth since Q1 2011 (19.5%).

  • The estimated year-over-year revenue growth rate for Q1 2018 is 7.3%. All eleven sectors are expected to report year-over-year growth in revenues. Three sectors are predicted to report double-digit growth in revenues: Materials, Energy, and Information Technology.

  • Valuation: The forward 12-month P/E ratio for the S&P 500 is 16.5. This P/E ratio is above the 5-year average (16.1) and above the 10-year average (14.3).

  • Of the 105 companies that have issued EPS guidance for the first quarter, 52 have issued negative EPS guidance and 53 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 50%, which is well below the 5-year average of 74%. If 53 is the final number of companies issuing positive EPS guidance for the first quarter, it will mark the highest number of S&P 500 companies issuing positive EPS guidance for a quarter since FactSet began tracking EPS guidance in Q2 2006.

  • The number of companies issuing positive EPS guidance in the Information Technology sector for Q1 2018 is 26, which is well above the 5-year average (11) for the sector.

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The Political Scene

Stock traders woke up on Wednesday, read the headlines and hit the sell button. The U.S. announced plans for new tariffs on Chinese goods was met with a swift response from China as they announced tariffs of their own. These trade proposals may be opening salvos and are generally seen as leading to negotiations at some point. Well, that one way to look at it , the other way is to act, then put some thought into what you just did.

Friday saw a repeat of that action when it was announced that the U.S was going to look into another 100 billion in tariffs on China. That was the headline, here is the message.

Source: Chris Ciovacco

It’s always better to see the message and take in some of the details before acting. As an example, Bloomberg columnists David Fickling and Shuli Ren:

Boeing planes largely excluded from China’s tariffs.

“Details of China’s latest list of countervailing duties suggest a more moderate approach than at first glance. The duties on aircraft exclude all planes with an operating empty weight above 45 metric tons, a provision that “looks to spare every aircraft that matters”

Perhaps its better to quantify what the ENTIRE tariff situation means before making any portfolio decisions. You might be surprised what you are going to find. I suggest it will be more of what you just read regarding the Boeing situation.

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The Fed and Interest Rates

Ryan Detrick, Senior Market Strategist;

“One of the bigger conundrums we have seen during this recent cycle of higher rates is how both stocks and rates can trend higher at the same time. As we illustrated in a recent Weekly Market Commentary, bond yields and stocks tend to trade together until the 10-year Treasury yield gets up around 5%. Going back to the early 1960s shows that when the 10-year Treasury yield goes higher, stocks tend to follow along. In fact, out of 23 periods of rising rates, the S&P 500 Index gained 19 of those times. Things were even more pronounced recently. Since 1996, stocks gained all 11 times we saw higher rates.”

Cut and paste that, keep it near your keyboard the next time you hear someone tell you it’s time to lighten up on stocks because of rising interest rates.

I will now add, the current period of higher rates began in September 2017 and the S&P 500 is up another 11% since then. History suggests higher rates may be a good thing and should the 10 year Treasury yield break about the critical 3% area, this could be further support for the bull market.

The Fed made clear that it remains on a gradual course. So as long as core inflation does not pick up, the Fed should not be an issue for stocks. For those obsessed with the 10 year treasury yield, I maintain it is not signaling the end of the bull market.

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A recent post on twitter – April 3rd.

The AAII surveys individual investors on a weekly basis, and this week the bullish sentiment reading took a very small dip to 31.9%. At the same time, the AAII bearish sentiment ticked up very slightly to 36.64%. Given that sentiment readings are generally viewed as contrarian, it’s bullish to see more bears than bulls.


Crude Oil

Crude Oil inventories saw a decline of 4.6 million barrels in the past week. The report also revealed that Gasoline inventories also dropped by 1.1 million barrels. The price of WTI drifted with the wind. On the days where traders thought the globe was going to stop rotating because of a potential trade war, the price of crude dropped to a fresh two week low in the $62 range. On the other days the price rallied to the $64 range. As long as the earth doesn’t stop revolving on its axis, we may see more consolidation before a run back to $70. WTI closed out the week at $62.05, down $2.86.

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The Technical Picture

We take a look at the daily chart to once again review the bottoming process and a search for a low that is occurring.

Chart courtesy of FreeStockCharts.com

Notice that the index broke the 200 day moving average (pink line) this week. Contrary to popular belief, when the index closes below this level, it does not mean the long term trend has ended. The August 2015, and the January/February 2016 time frame saw the S&P seesaw below, then back above the support level numerous times. The bull market remained in place. Could this time be different? Of course, but the preponderance of evidence, suggests that this time will not be different.

This latest breach of the 200 day moving average lasted one day. A quick retake of that support was a positive development. The index went right back and tested that level (2593) on Friday, and we can’t rule out that a retest of the February lows (2533) might also be in the cards.

It is all about S&P 2553 now, Monday’s S&P low. That is THE area that I will be watching. That level held on the subsequent tests this week. For the bulls its will be important for that “higher” low to hold. First resistance is around the 2700 level. If volatility wasn’t so high I might conclude that we could be caught in a range between the 100 and 200 day moving averages. S&P 2590- 2690. However, 100 point moves on the S&P can be achieved in two days now.

Forget the noise and watch the price action, it is telling us what to do now. The analysts are telling us that the market is saying there will be a trade war, interest rates are ready to spike. I suggest if one really steps back and looks at the price action, the market is telling us something very different. It tells me this is a simple bottoming process, during a corrective period. A period that has come after we saw the S&P increase from 2135 to 2870 in a matter of 15 months.

Ii is always best to keep an open mind. In a time where fear and emotion are calling the market moves, I remain open to the possibility that the February lows may not hold. In that event it could open the door to another 5% move lower. A decline that still would not violate the Long term trend. One day, one week at a time. We watch, assess, then reassess.


Market Skeptics

Guggenheim is the latest to announce a stock market crash. They join what is now becoming a good sized marching band trumpeting the end of the bull market. Are they all going to be right ?

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Individual Stocks and Sectors

What is going on with Energy stocks? The S&P 500 Energy sector has diverged from the price of oil recently. In general they haven’t performed in line with the price of crude oil. For the year WTI is up 8%, the broad based Select Energy ETF (XLE) is down 7%.

Below is a chart that highlights price trends for the Energy sector (oil stocks) versus oil. Up until the stock market correction started at the end of January, the two were tracking relatively closely. Since the correction, though, oil stock prices have sold off hard and haven’t recovered, while the price of oil has bounced back to the very top end of its 52-week range.

Source: Bespoke

Major explorers and producer’s profits are now in line with what they were when oil was trading for $100 a barrel and more.

Does that mean the beaten down Energy sector is a buy? In select E&P companies with solid balance sheets and strong presence in productive areas here in the U.S., a resounding YES.

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There’s just not much positive news to help balance out the daily onslaught of fear-producing headlines about trade wars and Technology crises, especially since we are still currently in between earnings seasons. That starts to change next week. We see plenty of issues that concern investors, providing fodder for the naysayer arguments. When I look around now, the one issue that has been resolved in favor of more market appreciation is the valuation argument. Ironically anyone putting together a bearish thesis now conveniently forgets to mention this issue. Why? It blows up their narrative, and trumps a lot of their negatives.

I do not believe corporate growth is peaking here. Companies are just at the beginning of loosening purse strings. So on one hand we have issues that might occur, and maybe impact the economy and the stock market. The other hand holds corporate earnings which to date have shown real improvement. They are expected to be very strong. This entire issue was put on the shelf as investors grappled with the “noise” of the day. Now it gets resurfaced. The S&P is trading at P/E multiples of 16 and 15 on 2018 and 2019 forward earnings, respectively.

Economic data here in the U.S. has changed little from the Goldilocks scenario that has supported and maintained this bull market. Furthermore, the U.S. economy is doing better by growing more slowly but with greater stability. It is also has become much more diverse over time which has reduced its dependency on any specific industry.

With all of the headlines about financial Armageddon, the S&P was off 1.3% this week. That recent price action is telling me to remain in the camp that says the risk/reward continues to be to the upside. It has to be understood that will come with frustration and will require patience. The next few months will likely contain multiple “ups and downs”, as volatility remains in place. Each bump will feel like the fundamental backdrop is at risk, and if one looks around they will again realize that the tailwinds still exist.

I will follow the advice of Shakespeare. When we view the situation looking at all of the moving parts, and formulate a plan using common sense and care, that plan is exempt from fear.

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to all of the readers that contribute to this forum to make these articles a better experience for all.

Best of Luck to All !

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

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

Additional disclosure: This article contain my views of the equity market and what positioning is comfortable for me. Of course, it is not suited for everyone, there are far too many variables. Hopefully it sparks ideas, adds some common sense to the intricate investing process, and makes investors feel more calm, putting them in control. The opinions rendered here, are just that – opinions – and along with positions can change at any time. As always I encourage readers to use common sense when it comes to managing any ideas that I decide to share with the community. Nowhere is it implied that any stock should be bought and put away until you die. Periodic reviews are mandatory to adjust to changes in the macro backdrop that will take place over time.

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Weighing The Week Ahead: Has The Trump Trade Reached The Tipping Point?

The economic calendar is normal, with an emphasis on inflation data and the Fed. The increased intra-day volatility, often driven by overnight comments in China news or a Presidential tweet, has everyone’s attention. Even Fed punditry will take a back seat. With an increased sense of urgency, many will be wondering:

Has the Trump Trade reached the tipping point?

Last Week Recap

In my last edition of WTWA I asked whether stock prices had veered from the fundamentals. That was a good guess, since the topic was popular in discussions all week.

The Story in One Chart

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

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The loss this week was only 1.4%, but the dramatic daily moves made it seem like more. The trading range was 4.8% including 3% in a single day. I summarize actual and implied volatility each week in the Indicator Snapshot.

The News

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

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

The Good

  • High-frequency indicators, although softening a bit, remain solidly strong. Check out New Deal Democrat’s valuable weekly report.
  • March Auto sales were strong, especially at GM. (Automobilemag).
  • Earnings guidance has been strong, especially in tech. (FactSet).

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  • ADP private payrolls gained 241K, about the same as last month, but beating expectations of 203K.
  • February Factory orders rebounded to a gain of 1.2% from January’s 1.4% decline. This was still a little below expectations.
  • Rail traffic is up 5% year-over-year. (Steven Hansen, GEI). Truck shipments are also improving on a year-over-year basis.
  • Sentiment remains bearish, a contrarian indicator. Bespoke.

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The Bad

  • ISM index for March registered 59.3 declining from the prior 60.8 and missing expectations of 60.0. Scott Grannis takes a deeper look and sees strong numbers.
  • ISM services for March registered 58.8 narrowly missing expectations of 59.
  • Construction spending for February gained only 0.1% v expectations of 0.5%.
  • Initial jobless claims spiked to 242K from last week’s 218K.
  • Nonfarm payroll employment increased by only 102K net jobs, missing expectations of 175K. The prior two months were revised lower by 50K. The Household survey was also weaker than expected, although other metrics were unchanged. James Picerno combines the headline data in this chart:

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The Ugly

An unwanted Korean war? Foreign Affairs explains how it could happen. Secret direct talks suggest that there is some progress in mitigating this threat. The planned summit between President Donald Trump and North Korea leader Kim Jong Un should be watched closely. Stratfor (via GEI) has a deeper look about why the current

The Week Ahead

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

The Calendar

We have a normal economic calendar, featuring inflation data and the FOMC minutes. The JOLTs report will also contribute to the normal tendency for a focus on the Fed.

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

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Next Week’s Theme

The economic calendar includes the FOMC minutes, inflation data, and the JOLTs report. All of these are of interest to Fed-watchers. Normally that would be our theme for the week.

Instead, there is a sense of unease among many. Those closely following stocks are observing wild daily swings – as much as 1000 Dow points in slightly over one trading day. The trading swings are not driven by “real” news about earnings or the economy. Instead we get a statement from China affecting futures trading while US markets are closed. Then there are surprise tweets and announcements during the trading day.

When a surprise hits the wire, algorithms apply recent computer learning, human traders react, support and resistance levels are hit, and moves can become larger. My younger blogging colleagues would say, “What the heck (TM OldProf euphemism) is going on?”

For the punditry, the volatility combined with the loss of the early gains for the year has them wondering. I expect many to be asking:

Is this the tipping point for the Trump Trade?

Usually I offer a range of viewpoints in this section. There are certainly many who expect an imminent market decline, and some expect a large one. Others question the underpinnings of the “Trump Trade.”

You can find such viewpoints easily enough. In doing my research this week I was struck by how many colleagues whom I respect shared my current attitude: Solid fundamentals for stocks, but continuing, unsettling threats. Here is a review of some experts and thought leaders.

I can list a number of additional potential negative issues with any single one being a headwind for the equity market: rising interest rates and consequent flattening yield curve, growth in deficit spending out of Washington and more. All but the interest rate factor are mainly political events and I would say business fundamentals and economic fundamentals remain more important variables for the market right now. Given some of the negative factors cited, just maybe the market will climb the proverbial wall of worry.

  • Urban Camel, The Fat Pitch, does a comprehensive summary of indicators, concluding as follows:

In summary, the major macro data so far suggest positive but modest growth. This is consistent with corporate sales growth. SPX sales growth in 2018 is expected to only be about 6-7% (nominal).

Valuations are back their 25 year average. The consensus expects earnings to grow about 18% in 2018 and 10% in 2019. Equity appreciation can therefore be driven by both corporate growth as well as valuation expansion (chart from JPM).

FANG issues are responsible for most of the current correction. Investors typically sell other issues a little lower as well. Seeking Alpha published a note on new FANG futures last fall. The chart of this group is below.

Economic activity continues to be strong. Once the FANG correction is over, I expect markets to rise to new highs.

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  • Eddy Elfenbein notes the decline below the 200-day moving average of the S&P 500. He uses the ratio of the equal-weighted S&P 500 to the cap weighted version as a measure of the opportunity for stock picking. Read the entire post for his typically clear explanation of how the rotation from high-fliers provides opportunity.

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  • Dr. Ed Yardeni sees no slowdown in global economic stats. Check out his thorough review.

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

Quant Corner

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

Risk Analysis

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

The Indicator Snapshot

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Short-term trading conditions worsened this week. In mildly bearish conditions our trading approaches can still be profitable, but that might not be true for everyone. We continue to monitor the technical health measures on a daily basis. If this indicator goes to fullish bearish, we liquidate trading (not investment) positions. We are not quite at that point, but I have rounded the result to “5.” This is not a forecast that the market will decline. It indicates increased difficulty in trading profitably.

The long-term fundamentals and outlook are little changed. Based upon historical data for this indicator, I have increased the 9-month recession probability to the 18% range. I am monitoring, but not yet especially worried. The long-term technical health is 1.5, but I rounded it up to reflect the change.

The Featured Sources:

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

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

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

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

Doug Short: Regular updating of an array of indicators. Great charts and analysis.

Insight for Traders

Our discussion of trading ideas has moved to the weekly Stock Exchange post. The coverage is bigger and better than ever. We combine links to trading articles, topical themes, and ideas from our trading models. Each week we explore a topic of current interest, drawing upon trading experts. This week we asked, “Are you a contrarian trend follower?” As usual, we discussed some stock ideas and updated the ratings lists for Felix and Oscar, this week featuring midcap stocks. Blue Harbinger has taken the lead role on this post, using information both from me and from the models. He is doing a great job, presenting a wealth of new ideas and information each week.

While my intent is to focus on traders, long-term investors may also benefit. That was especially true in this week’s post.

Insight for Investors

Investors should have a long-term horizon. They can often exploit trading volatility! I remind investors of this each week, but now is the time to pay attention.

Best of the Week

If I had to pick a single most important source for investors to read this week it would be Scott Grannis’s review of Fed policy, the QE effects, and where things stand now. This misunderstood topic serves to prevent many financial analysts from a clear view of the fundamentals. The charts and explanations can help you avoid this trap.

To this day there are still legions of observers who argue that what the Fed did starting in late 2008 was simply a massive amount of money-printing, a desperate monetary stimulus that was necessary to avoid a depression, and the economy has been running on fumes ever since.

Others, myself included, believe that what the Fed did was not monetary stimulus at all. It was simply a rational response to an unprecedented increase in the public’s demand for money and money equivalents, which in turn was the result of the near-collapse of the global financial system and the worst global recession in modern memory. The world was running very scared, so the demand for safe monetary assets was nearly insatiable. Unfortunately, there were not enough T-bills (the classic monetary safe haven) to go around. By deciding to pay interest on bank reserves, the Fed effectively made bank reserves equivalent to T-bills, and that was exactly what the world wanted: trillions more of safe, default-free, interest-bearing assets, and the Fed had the ability to create bank reserves with abandon if need be.

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Stock Ideas

Chuck Carnevale combines the key elements of interest for many investors: Dividend growth and reasonable valuations. He has 50 (count ‘em) ideas! As usual, the candidates come with a video lesson. You can learn while you earn.

General Motors (NYSE:GM)? Valentum highlights the attractions.

Artificial intelligence stocks? Barron’s has a cover story on this theme.

Personal Finance

Seeking Alpha Senior Editor Gil Weinreich is taking some well-deserved time off, as is Abnormal Returns. Tadas invited a group of financial bloggers to comment on a series of interesting questions. This sparked everyone, including me, to consider some topics we might not have mentioned otherwise. I especially liked the post on what we have learned in the last ten years, but the whole series is valuable.

Final Thoughts

When confronted with an economic threat, it is always wise to consider the worst-case possibility. You can then modify the possible outcomes a bit, changing with the evidence. I have reached the following conclusions:

  • Expected earnings are at attractive levels and growing quickly.
  • The near-term recession odds are very low.
  • The investing alternatives remain relatively unattractive.
  • Market volatility has increased, back to normal historic levels or even a little above.
  • The volatility centers on the every-changing trade war story.

What is the worst case from a trade war? Estimates suggest it would lower world GDP growth from about 3.5% to 2.5% in China and the US – a reasonable level, but not the fuel for a big rally in stocks.

Since none of the US or China proposals will take effect for two months, there is plenty of time to negotiate and modify positions. On the US side there is evidence that this is already happening with close allies.

But there is a reason for additional worry – the loss of business confidence. And also, the question about how much earnings growth is already anticipated. (Brian Gilmartin).

One can be more philosophical about the worst case when it is happening to someone else!

The loss of confidence for expansion and investment could be more of a tipping point than the trade war itself. This earnings season is important beyond the numbers. What will companies say about trade effects on their future plans?

I’m more worried about:

  • Escalating trade rhetoric. This issue rises and falls on the worry list with greater and greater frequency.
  • Trader frustration. It is not so much the higher volatility, but the causes. Market participants always have surprises from Washington, but usually it is possible to follow the issues. That reduces the chance of being caught “offsides.”

I’m less worried about:

  • North Korea. There are signs of some real progress.
  • The Fed. There is no reason to expect accelerated action that would worry markets.

[Do the economic challenges seem complicated and threatening? You might find help in my paper on getting back in the market, the top investor pitfalls, or my suggestions about managing risk. Just write for our free information on these topics. While they describe what I am doing, the do-it-yourself investor can apply the same principles. These are available for free from main at newarc dot com].

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.

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Feds Seize Backpage.com, Site Linked to Sex Trafficking

Federal and state authorities Friday seized Backpage.com, an online classifieds site frequently accused of facilitating sex trafficking, and reportedly indicted seven people. A notice on Backpage’s website said the site had been seized by the FBI and other agencies.

Nicole Navas Oxman, a spokesperson for the Department of Justice, said Friday afternoon that the agency would issue a press release after charges are unsealed, but things did not go as expected. “The Court has ruled that the case remains sealed and we have nothing to report today,” she wrote in an email Friday evening.

The banner states that the enforcement action was a collaborative effort between the FBI, US Postal Inspection Service, the criminal division of the IRS, the Department of Justice’s child exploitation and obscenity division, as well as attorneys general from Arizona, California, and Texas.

CBS News reported that an indictment had been unsealed against seven people allegedly involved in running Backpage, containing 93 criminal counts including money laundering and running a website to facilitate prostitution. The indictment, which was filed in Arizona where Backpage is maintained, names 17 victims, both adults and children, who were allegedly trafficked, according to CBS News.

On Friday morning, the FBI raided the home of Backpage cofounder Michael Lacey, and there was some activity at the home of cofounder Jim Larkin as well, according to the The Republic, a newspaper in Arizona. A year ago, the paper reported that a federal grand jury had been convened in Arizona to hear evidence against Backpage.

The move against Backpage came just days before President Trump is expected to sign a new anti-sex-trafficking bill that passed both houses of Congress with overwhelming support. The bill initially was controversial because it alters a key internet law that protects tech companies from liability for user-generated content on their platforms.

Previous criminal and civil charges against Backpage had mostly been derailed by that law, the Communications Decency Act. The bill Trump is expected to sign creates an exception for sites that “knowingly” facilitate or support online sex trafficking and explicitly grants states and victims the right to bring criminal and civil action against websites like Backpage. The bill faced opposition from tech companies, free speech advocates, and sex workers, and has already prompted online forums like Craigslist’s personal section and Reddit sections like Escorts and Sugar Daddies to shut down, rather than risk liability. Advocates for sex workers say the closures will endanger those workers, who relied on the sites to share bad date lists and verify clients.

It’s unclear why the federal agencies acted now. The Communications Decency Act did not apply to federal law enforcement agencies, said Eric Goldman, a law professor at Santa Clara University who testified against the recently passed bill. “The question is why today and why not two weeks ago before the Senate voted?” Goldman said. “The DOJ can’t turn on or off a federal prosecution on a dime, so that seems unlikely, but still the timing is so perplexing.” On Twitter, Goldman said, “It’s almost as if the government is trying to prove that all the anti-Backpage rhetoric fueling #SESTA & #FOSTA was just political theater.” (SESTA and FOSTA are acronyms for versions of the anti-sex-trafficking bill.)

Senator Richard Blumenthal (D-Conn.), who cosponsored the bill, called the DOJ’s action to shut down Backpage “long overdue.”

A January 2017 Senate report accused Backpage of facilitating online sex trafficking by stripping words like “lolita,” “little girl,” and “amber alert” from ads in order to hide illegal activity before publishing the ad, as well as coaching customers on how to post “clean” ads for illegal transactions. Judges in California and Massachusetts previously cited Section 230 in dismissing cases against Backpage.

Still, some sex workers said the seizure could endanger them. “If the people who run Backpage have knowingly harmed people, they deserve to be held accountable, but the most immediate impact of the seizure of an entire website will be felt by independent consensual sex workers,” Liara Roux, a sex worker, political organizer, and adult-media producer and director, wrote to WIRED. “Without safe online advertising, which studies seem to show reduced female homicide rates nationally by 17 percent, sex workers are unable to screen clients based on emails and decide who is safe to see.”

Backpage was invoked frequently in the debate around SESTA and FOSTA. Members of the Senate were particularly moved by testimony from Yvonne Ambrose, whose 16-year-old daughter, Desiree Robinson, was killed after she was repeatedly advertised for sex on Backpage. Last year, Ambrose sued Backpage for facilitating child sex trafficking. The documentary “I Am Jane Doe,” followed families in their quest to hold Backpage accountable.

Berin Szóka, president of TechFreedom, a nonprofit that has received funding from Google, says, the timing of the enforcement shows that the vetting process for the bill was rushed. “The argument for SESTA was a sham all along.”

Free Speech or Human Trafficking?

  • Within days of the bill’s passage, Craigslist, Reddit, and others shut personals forums, as sex workers had feared.
  • The bill could have encourage tech companies to either stop moderating or censor content, opening the door to further attacks on Section 230.
  • The backlash against big tech played a role in the passage of the bill.
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Japan's cryptocurrency exchanges face shortage of engineers

TOKYO (Reuters) – When cryptocurrency exchange Coincheck Inc explained how hackers made off with $530 million in digital money, it said part of the problem was beyond its control: Japan’s lack of software engineers.

Ryo Fukuda, a software engineer at Next Currency Inc, a company seeking to launch a cryptocurrency exchange, poses for a photo after an interview with Reuters at the company’s headquarters in Tokyo, Japan, March 30, 2018. REUTERS/Toru Hanai

Coincheck said that no matter how hard it tried, it simply couldn’t hire workers with the skills to seal gaps in security.

“We were aware we didn’t have enough people working on internal checks, management and system risk,” chief executive Koichiro Wada told reporters last month. “We strived to expand using headhunters and agencies, but ended up in this situation.”

Coincheck isn’t alone. Companies across Japan’s booming cryptocurrency industry are scrambling to hire engineers, including cybersecurity experts and specialists in blockchain, the computer code that underpins bitcoin.

Financial regulators are pressing exchanges to tighten security after the Coincheck heist even as a host of companies try to enter the booming market.

The resulting shortage risks blunting Japanese exchanges’ competitive edge as the country’s cryptocurrency industry matures, experts say. And it could leave the industry exposed to more thefts.

“It could put the brakes on everything,” said Alexander Jenner, a headhunter at Computer Futures in Tokyo. “The sector’s growing so quickly, and the better exchanges are surviving. But many of them will fail.”


There are 32 exchanges operating in Japan. About 100 other companies have approached the watchdog that oversees the sector about applying for a license, a senior Financial Services Agency official told Reuters.

Demand is particularly high for engineers with skills that could help growth, from designing user-friendly interfaces to writing code that helps withdrawals of digital coins, as well as the security expertise needed to better protect consumers.

A man stands near an advertisement of a cryptocurrency exchange in Tokyo, Japan March 30, 2018. REUTERS/Toru Hanai

“The FSA is breathing down necks on security, compliance and risk,” said Mike Kayamori, chief executive of cryptocurrency exchange Quoine. “And if you don’t hire, you won’t be able to survive.”

Japan doesn’t compile data on blockchain or software engineers. In 2016, though, there was a shortfall of more than 15,000 workers in big data and artificial intelligence, which rely on software engineers, according to the Ministry of Economy, Trade and Industry. That number will rise to 50,000 by 2020, the ministry projects.

Headhunters specializing in cryptocurrency and blockchain say the supply of labor can’t keep up with demand. Hiring in the sector accounted for nearly six in ten placements at information technology recruiter Descartes Search in the year to March, company director Pascal Hideki Hamonic said, up from 15 percent a year earlier.

And exchanges are prepared to pay. Many are ramping up salaries and offering guaranteed bonuses to poach engineers from other businesses, two recruiters said. Base pay is up 20 to 30 percent from last year, they said, pushing salaries for engineers with five years’ experience to 11 million yen ($102,720).

“Exchanges are looking for people who can do the creative, thinking work – to create the architecture, not just do basic tasks,” said Mark Pink, founder of topmoneyjobs.com.


One such engineer is Ryo Fukuda. A 21-year-old who taught himself how to code via YouTube, Fukuda in July joined Next Currency, a unit of online content and financial firm DMM.com that is seeking a cryptocurrency exchange license.

“I’d been doing nothing but crypto and my own projects, so I had the experience other engineers and companies couldn’t get,” he told Reuters. “Now the market has really taken off and there’s a shortage of engineers. That was when my value to the market soared.”

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Fukuda said he got “many, many offers” before opting for Next Currency, where he develops web applications.

To be sure, Japan isn’t alone in lacking workers like Fukuda. Demand is high across the world, industry insiders say, as exchanges slug it out with financial firms to recruit skilled engineers.

In Hong Kong, for example, a spate of banks and insurance companies are looking at how to put blockchain to use in their own businesses, said Lawrence Ma, president of the Hong Kong Blockchain Society.

But structural factors elsewhere have helped exchanges secure the talent they need.

In Britain, cryptocurrency-related companies said a strong research sector produces enough specialists in fields central to blockchain like cryptography, while an ample supply of international workers also helps.

“The UK has quite a good environment for research, so we were able to pull people from universities,” said Nick Gregory, chief executive of London-based blockchain firm Commerceblock.

Other major cryptocurrency centers like San Francisco and New York have been able to hire from major concentrations of engineers well-versed in blockchain, said Jonathan Underwood of Tokyo cryptocurrency exchange Bitbank Inc.

Complicating matters in Japan is a culturally rigid labor market, where mid-career moves are rare, recruiters and exchanges said.

“The majority of Japanese that do understand blockchain and cryptocurrency already work for companies as lifetime employment, and have never considered the thought of changing jobs,” said Underwood, who is also head dean of Blockchain Daigakko, a firm that trains engineers.

Until that changes, the skills crunch will most likely deepen, recruiters say.

“It’s going to get worse before it gets better,” said Jenner of Computer Futures. “It’s a land grab – whoever comes out ascendant in the next year will win the market.”

Reporting by Thomas Wilson; Additional reporting by Taiga Uranaka in Tokyo and Fanny Potkin in London; Editing by Gerry Doyle

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Spotify shares attract all ages, not just Millennials

NEW YORK (Reuters) – The buzzy debut of Spotify Technology SA (SPOT.N) on the New York Stock Exchange on Tuesday drew retail investors across generations, not just the Millennials who make up the largest proportion of the music streaming service’s customer base, retail brokerages said on Wednesday.

FILE PHOTO: The Spotify logo is displayed after the stock began selling as a direct listing on the floor of the New York Stock Exchange in New York, U.S., April 3, 2018. REUTERS/Lucas Jackson

Spotify’s listing was hotly followed, as it went public via the unusual method of a direct listing, without selling new shares. There was demand for the stock, and shares ended up 12.9 percent on their first day of trade on the New York Stock Exchange. On Wednesday, the shares ended the day’s session at $145.87, down 2.1 percent from Tuesday’s close.

Social media platform Snap Inc’s (SNAP.N) high-profile IPO last year had been notable for being popular with Millennials, the primary user base for the company’s mobile app Snapchat. But though Millennials are also a key demographic for Spotify, the Swedish company’s listing did not draw disproportionate interest from that generation.

Demand was seen across age groups, according to brokerages Fidelity and TD Ameritrade.

“There’s good interest in it,” said J.J. Kinahan, TD Ameritrade’s chief market strategist, who is based in Chicago. “It’s pretty well split across age groups.”

Fidelity said among its customers, baby boomers were slightly more active in trading Spotify shares than Millennials or members of Generation X. Baby boomers made nearly one-third more trades than Millennials and 20 percent more trades than members of Generation X. A similar pattern holds for other tech IPOs, a Fidelity spokesman said.

Retail investor behavior indicated some caution about jumping in.

On StockTwits, a social media platform whose users are mostly retail investors, only 40 percent of members were bullish on Spotify ahead of the debut. Negative sentiment toward the IPO rose as the date approached and the expected trading price climbed, said Pierce Crosby, StockTwits director of business development, based in New York.

“Our community is as bearish as they’ve ever been (about Spotify),” Crosby said.

On the site, users posted messages expressing concerns about Spotify’s lack of profits and competition from companies such as Apple Inc (AAPL.O).

High-profile IPOs of companies associated with the tech sector have had a mixed track record in the past year. Shares of MuleSoft Inc (MULE.N) and Roku Inc (ROKU.O), which went public in March 2017 and September 2017, respectively, have climbed more than 100 percent since those companies’ IPOs. On the other hand, shares of Snap and Blue Apron Holdings Inc (APRN.N) have fallen below their IPO prices.

Individual investors who spoke with Reuters similarly expressed reservations about buying Spotify shares.

“I think a lot of similarly situated retail investors still view many of the VC-backed, marketplace tech companies as destined IPO flops,” said Layla Tabatabaie, an entrepreneur and advisor to tech startups who lives in New York.

Others said they would only consider buying the stock at a lower price.

“It’s certainly a strong company in regards to the service it offers,” said Jonathan Johnson, a relationship banker in Portland, Oregon. “I’d consider buying it but not at these (price) levels.”

Reporting by April Joyner; additional reporting by Sinéad Carew in New York; Editing by David Gregorio

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YouTube Shooting Spree Injures 4, Kills 1

At least one person was killed and four others wounded following a shooting at YouTube’s headquarters Tuesday afternoon. Four victims were being transported to local hospitals, though the extent of their injuries was unknown. San Bruno police say one woman was found with what appeared to be a self-inflicted gunshot wound, and is believed to be the shooter.

In a press conference Tuesday afternoon, San Bruno Police Chief Ed Barberini said police arrived at YouTube’s headquarters at 12:48 pm PDT and found employees fleeing the building. They encountered one victim outside the building, one near the entrance and two more at adjacent businesses.

Zuckerberg San Francisco General Hospital spokesperson Brent Andrew told a local ABC affiliate that the hospital is treating a 36-year-old male in critical condition, a 32-year-old female in serious condition, and a 27-year-old female in fair condition. At a later press conference at the hospital, Andre Campbell, a trauma surgeon, said the patients all are awake and aware of what happened.

On an unusually warm spring afternoon, YouTube employees, most with their badges hanging from belt loops, walked away from the company’s headquarters in handfuls or clusters, quiet and looking slightly dazed, as helicopters buzzed overhead. YouTube CEO Susan Wojcicki, in an oversize, thin down coat, was flanked by fellow employees who gestured reporters away. The group walked into another YouTube office nearby. Black shuttle buses lined up five in a row outside the office but stood empty for more than an hour; ride-sharing cars arrived to take many employees home.

Dianna Arnspiger, who works in YouTube media operations, said she saw the shooter from a patio on the building’s second floor. Arnspiger said she had never seen the woman before and did not believe she worked at YouTube. “It was a big gun. I know guns, because my father was in law enforcement,” she said. Arnspiger heard a couple of shots before she saw the woman and then heard a couple more. Arnspiger said she was “doing OK, doing alright, feeling fortunate to make it out and that everyone I know is safe.”

Reports of the shooting appeared on Twitter shortly before 1 pm. The San Bruno Police Department urged people to stay away from YouTube’s address at 901 Cherry Avenue. Several YouTube employees also took to Twitter to recount what they had seen and heard.

According to one account, workers barricaded themselves inside their office space.

Another product manager described a rumbling coming from the floor that felt like an earthquake and saw blood in the hallway.

Live footage showed police storming the building and YouTube employees filing out of the building with their hands up.

Misinformation spread wildly on social media in the immediate aftermath of the shooting, when reports of the shooter’s identity were still unclear. The shooter was alternately described by some media as a 30-year-old white woman and by other eyewitness accounts as a man in full body armor.

YouTube is owned by Google, part of Alphabet.

UPDATED: April 3, 2018, 7PM EDT: This article has been updated to include information from a surgeon at Zuckerberg San Francisco General Hospital.

UPDATED: April 3, 2018, 7:10PM EDT: This article has been updated to include details of the scene.

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Exclusive: Facebook CEO says no plans to extend all of European privacy law globally

SAN FRANCISCO (Reuters) – Facebook Inc (FB.O) Chief Executive Mark Zuckerberg said on Tuesday the social network had no immediate plans to apply a strict new European Union law on data privacy in its entirety to the rest of the world, as the company reels from a scandal over its handling of personal information of millions of its users.

FILE PHOTO: Facebook Founder and CEO Mark Zuckerberg speaks on stage during the annual Facebook F8 developers conference in San Jose, California, U.S., April 18, 2017. REUTERS/Stephen Lam/File Photo

Zuckerberg told Reuters in a phone interview that Facebook already complies with many parts of the law ahead of its implementation in May. He said the company wanted to extend privacy guarantees worldwide in spirit, but would make exceptions, which he declined to describe.

“We’re still nailing down details on this, but it should directionally be, in spirit, the whole thing,” said Zuckerberg. He did not elaborate.

His comments signal that U.S. Facebook users, many of them still angry over the company’s admission that political consultancy Cambridge Analytica got hold of Facebook data on 50 million members, may soon find themselves in a worse position than Europeans.

The European law, called the General Data Protection Regulation (GDPR), is the biggest overhaul of online privacy since the birth of the internet, giving Europeans the right to know what data is stored on them and the right to have it deleted.

Apple Inc (AAPL.O) and some other tech firms have said they do plan to give people in the United States and elsewhere the same protections and rights that Europeans will gain.

Shares of Facebook closed up 0.5 percent on Tuesday at $156.11. They are down more than 15 percent since March 16, when the scandal broke over Cambridge Analytica.


Privacy advocacy groups have been urging Facebook and its Silicon Valley competitors such as Alphabet Inc’s (GOOGL.O) Google to apply EU data laws worldwide, largely without success.

“We want Facebook and Google and all the other companies to immediately adopt in the United States and worldwide any new protections that they implement in Europe,” said Jeff Chester, executive director of the Center for Digital Democracy, an advocacy group in Washington.

Google and Facebook are the global leaders in internet ad revenue. Both based in California, they possess enormous amounts of data on billions of people.

Google has declined to comment on its plans.

Zuckerberg said many of the tools that are part of the law, such as the ability of users to delete all their data, are already available for people on Facebook.

“We think that this is a good opportunity to take that moment across the rest of the world,” he said. “The vast majority of what is required here are things that we’ve already had for years across the world for everyone.”

When GDPR takes effect on May 25, people in EU countries will gain the right to transfer their data to other social networks, for example. Facebook and its competitors will also need to be much more specific about how they plan to use people’s data, and they will need to get explicit consent.

GDPR is likely to hurt profit at Facebook because it could reduce the value of ads if the company cannot use personal information as freely and the added expense of hiring lawyers to ensure compliance with the new law.

Failure to comply with the law carries a maximum penalty of up to 4 percent of annual revenue.

It should not be difficult for companies to extend EU practices and policies elsewhere because they already have systems in place, said Nicole Ozer, director of technology and civil liberties at the American Civil Liberties Union of California.

Companies’ promises are less reassuring than laws, she said: “If user privacy is going to be properly protected, the law has to require it.”

Reporting by David Ingram and Joseph Menn in San Francisco; Additional reporting by Salvador Rodriguez; Editing by Peter Henderson and Bill Rigby

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