China gives Baidu go-ahead for self-driving tests after U.S. crash

SHANGHAI/BEIJING (Reuters) – China’s capital city has given the green light to tech giant Baidu Inc to test self-driving cars on city streets, indicating strong support for the budding sector even as the industry reels from a fatal accident in the United States.

A Baidu’s Apollo autonomous car is seen during a public road test for self-driving vehicles in Beijing, China March 22, 2018. REUTERS/Stringer

Beijing’s move is an important step as China looks to bolster its position in the global race for autonomous vehicles, where regulatory concerns have come into the spotlight since the crash earlier this month.

The accident in Tempe, Arizona, involving an Uber self-driving car, was the first death attributed to a self-driving car operating in autonomous mode, and has ramped up pressure on the industry to prove its software and sensors are safe.

Beijing has given Baidu, best known as China’s version of search engine Google, a permit to test its autonomous vehicles on 33 roads spanning around 105 kilometers (65 miles) in the city’s less-populated suburbs, the firm said in a statement.

Baidu is leading China’s push in driverless technology, with Beijing keen to keep up with global rivals such as Waymo, the self-driving arm of Google parent Alphabet and Tesla. It has a major self-driving project called Apollo.

“With supportive policies, we believe that Beijing will become a rising hub for the autonomous driving industry,” Baidu Vice-President Zhao Cheng said in the statement.

Baidu’s Apollo autonomous cars are seen during a public road test for self-driving vehicles in Beijing, China March 22, 2018. REUTERS/Stringer

Two people close to DiDi Chuxing, China’s dominant ride-hailing company which is also working on self-driving, said earlier this week firms developing autonomous vehicles were not likely to slow down plans for testing and developing

“I am quite positive on the potential of the technology because autonomous technology makes vehicles far less prone to accidents than human drivers,” one of the people said.

Didi declined to comment.

Earlier this month China issued licenses to auto makers allowing self-driving vehicles to be road tested in Shanghai, which included Shanghai-based SAIC Motor Corp Ltd and electric vehicle start-up NIO.

Regulations in the sector are, however, still catching up with fast growth and increasing numbers of firms wanting to carry out tests on public roads.

Baidu Chief Executive Robin Li tested his firm’s driverless car on Beijing’s roads last July, stirring controversy as there were no rules for such a test at the time. The firm hopes to get self-driving cars onto the roads in China by 2019.

Baidu said that before conducting tests on public roads, autonomous vehicles using its Apollo system would go through simulation tests as well as trials on closed courses.

Reporting by Adam Jourdan and Norihiko Shirouzu; Editing by Stephen Coates

Facebook dropped from Australian Ethical ETF after data breach

(Reuters) – Facebook Inc will be removed from the Australia-based BetaShares Global Sustainability Leaders Exchange Traded Fund (ETHI) due to recent “controversies”, its Responsible Investment Committee (RIC) said on Friday.

A figurine is seen in front of the Facebook logo in this illustration taken March 20, 2018. REUTERS/Dado Ruvic

“The company has in recent times been the subject of a number of controversies and reputational issues,” the committee said in a statement here

The world’s largest social media network, with more than 2 billion monthly active users, is under scrutiny following allegations that British political consultancy Cambridge Analytica improperly accessed users’ data and helped influence the 2016 U.S. presidential election.

Facebook Chief Executive Mark Zuckerberg apologized on Wednesday, five days after the scandal broke, and promised to restrict developers’ access to such information.

The company, which has lost more than $50 billion in market value since allegations this week, ended over 2.6 percent lower on Thursday.

Facebook comprises 3.9 percent of the ETHI portfolio, the Australian ethical fund that has $170 million in funds under management.

Reporting by Vishal Sridhar in Bengaluru; Editing by Stephen Coates

AT&T Faces Murderer's Row

Murderer’s Row

Photo Credit

Murderers’ Row was the nickname given to the first six hitters in the 1927 Yankees team lineup for their formidable batting averages.

What happened?

Opening arguments begin tomorrow in the AT&T (T)/Time Warner (TWX) antitrust trial. Reports show that the DOJ intends to call an all-star line-up of AT&T’s rival firms to testify, starting with Cox Communications’ Suzanne Fenwick.

According to the New York Post, Fenwick works in Cox’s content acquisition team and the company is concerned about “potential access to exclusive content” by a giant AT&T/Time Warner combination.

Furthermore, the Post states the DOJ will call AT&T Entertainment Chief Content Officer Dan York and question him regarding alleged moves made while running DirecTV content to discourage rivals from signing carriage deals with a Los Angeles Dodgers channel. Sources tell the Post the government’s star witness will be controversial.

According to Judge Richard Leon, companies expected to testify include: Comcast-NBCUniversal (CMCSA), Charter Communications (CHTR), CenturyLink (CTL), YouTube (GOOG) (GOOGL), Cable One (CABO) and Sony (SNE).

The stocks of AT&T and Time Warner seem unaffected by the news.



The news in no way, shape, or form shook my conviction regarding my AT&T holdings. In fact, I would be a buyer of any dip at this juncture. Here is why.

AT&T Positives

I have been in the market for nearly 25 years. Managing my portfolio through two major bubbles and corrections has taught me one thing. AT&T can weather any storm better than most. What’s more, the company’s dividend payouts have remained consistent and sure. Further, the payouts are backed by solid and predictable cash flows.

In fact, history has shown that AT&T does more than twice as well as the market on the whole during times of turmoil. That is why the Beta is 0.37. T is a solid safe haven play. This is why the risk level is low. The fact of the matter is AT&T held up much better than most during both times the bubble burst. On top of this, the company never cut the dividend even with the tremendous pressure placed upon them when the 2008 and 2000 bubbles burst.


I see the recent sell-off as short-sighted. The stock is a buying opportunity at present. Here is why.

Characteristics Of A Solid Investment

While performing extensive due diligence in search of a new opportunity, I am looking for four major factors. The company or security must have:

  • Solid long-term growth story
  • History of solid cash flow generation, dividend payouts, and a high yield with adequate coverage
  • Opportunity for capital gains as well as increased dividend income based on valuation upside and future growth
  • A positive risk/reward profile

AT&T’s stock covers all these bases very well. Let me explain.

Solid Long-Term Growth Story

AT&T has a very precise vision, albeit an extremely bold one. AT&T is transforming itself from a boring, commoditized telecom company to the world’s premiere Technology, Media, and Telecom (TMT) provider. AT&T’s objective is to capture revenue streams from top to bottom regarding the explosive growth in the TMT sector and increase their margins with the many hidden synergies those writing negative articles on the name not familiar with the business to be unaware of.

I believe many people are vastly underestimating AT&T’s prospects for growth. The fact of the matter is AT&T is and has always been at the forefront of most new communications systems and they still own the last mile in most markets places. I submit the two combined will be highly synergistic and provide an immediate boost to the bottom line.

Nonetheless, don’t expect any big upward moves in the stock price until AT&T puts the Time Warner acquisition behind it and proves they can make money. I believe they will be victorious in their legal battle. If the case does not go their way and the stock sells off on the news, I would buy more. The fact is AT&T’s growth prospects are shooting through the roof right now. The company is a fantastic dividend growth total return opportunity.

Dividend Aristocrat Status

AT&T is a Dividend Aristocrat that has grown its dividend for 33 years straight. A hefty 5.41% yield makes it an ideal investment for dividend growth and income investors alike. The company’s solid track record of paying and increasing its dividend essentially acts as a put against the stock price.

Whenever the dividend has begun to climb above 5.5%, investors have swooped in and bought up shares, which appears to be happening as we speak. Another thing I would like to point out is the payout ratio is more than adequate at 66%.

Valuation Upside

AT&T’ stock currently has a Forward P/E ratio of 10.54, a dividend yield of 5.41%, and an EPS growth rate expected to be nearly 10% over the next five years. When compared to its telecommunications peers as well as the top S&P 500 mega cap stocks, AT&T comes out on top.

AT&T vs. Telecoms

AT&T vs. S&P 500 mega caps


AT&T is current trading for well below its competitors and its peers. I posit the stock has conservatively 10% upside potential over the next 12 months. This implies a total return potential of greater than 15%. This is a highly satisfactory return for a Low risk stock.

The Bottom Line

I expect AT&T to win their court battle vs. the DOJ. I do not believe the DOJ has a solid case. AT&T no shrinking violet! I believe they will come to an agreement and the deal will go through. Even if AT&T does not come out on top, they are not going anywhere. Smart phones are now a basic utility for most at this time.

AT&T is the 800-pound gorilla of the telecom sector. During times of market volatility, blue chip mega-cap stocks like AT&T tend to hold up better than the rest of the market. The company is involved in a steadily-growing business and has proven by the test of time it has the attributes to weather any storm. AT&T managed to navigate the Great Recession of 2008 and bust of 2000 without cutting the dividend. I have complete confidence the dividend is safe.

What’s more, AT&T is investing in its future by creating an entire ecosystem wrapped around the company’s wireless network. The acquisition of Time Warner and recent integration of DirecTV will allow AT&T to not only survive the wireless wars, but thrive in a post-war environment. Furthermore, the current best-in-class yield will buoy the stock.

AT&T’s dividend yield stands at 5.41% and provides many investors with income today. For retired baby boomers, this superior yield of AT&T and the opportunity for capital gains should be reason enough alone to own the stock.

I maintain the stock is a solid buy right now. I’m hoping for a further pullback in the short-term in order to complete my position with shares accretive to my basis. Investors looking to lock in the superior yield should take any opportunity created by a sell-off to start a position. AT&T will overcome the current competitive obstacles.

The competitive environment in the telecom sector has always been fierce. The unlimited price wars won’t last forever. On top of this, 5G should be coming soon which will completely change the competitive landscape once again. And AT&T has a leg up on the competition in this regard.

With a current yield 5.41%, 33 years of dividend growth, and a forward P/E ratio of 10.54 offering the opportunity for valuation upside, now is an optimal time to initiate a position. Those are my thoughts on the subject. I look forward to reading yours. Please use this information as a starting point for your own due diligence.

Disclosure: I am/we are long T.

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.

General Electric's Gem Should Be Sold

One of the largest and most significant assets on the books of General Electric (NYSE:GE) is the company’s Healthcare segment. The operation was founded in 1994, but its roots trace back to the late 1800s under the name Victor Electric Company. Over the years, the segment has grown to be a real powerhouse for the conglomerate, generating several billions of dollars in sales and profits annually. Undoubtedly, this adds value to General Electric and is a bright spot for the company in this time of investor pessimism.

A major player in the healthcare space

By almost every measure, GE Healthcare is a force to be reckoned with. In a prior article, I highlighted the company’s ultrasound operations, but I have yet to piece together the segment as a whole. According to management, and shown in the image below, the segment’s largest source of revenue comes from diagnostic imaging and related services, with sales at about $8 billion per year. However, the segment’s $5 billion in sales from life sciences, followed closely by mobile diagnostics and monitoring at $4 billion, is large as well.

*Taken from General Electric

In all, this major footprint has allowed the company to amass a sizable chunk of its markets. Over 1 million imaging and mobile diagnostics devices that are under the GE Healthcare banner are estimated to be installed globally today. They perform in excess of 16 thousand scans every minute and in aggregate they have over 230 million exams of varying natures under their belts. As you can see in the image below, management has utilized its position to create partnerships with players like Amazon’s (NASDAQ:AMZN) AWS, as well as other prominent names like Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC).

*Taken from General Electric

What’s more, management isn’t done trying to grow GE Healthcare. Last year, the firm launched 26 products and through GE Additive and Stryker Corp (NYSE:SYK) it has more than 50 active projects in its pipeline. Another area (though management hasn’t provided any meaningful detail of it) that has been entered into is providing cloud-related services. This could be a material player for the segment in the future, but until we see evidence that management can compete in what has become a very crowded (but high-growth) space, I can’t warrant putting too much stock into that bet.

Performance has been robust but growth is slow

GE Healthcare has a history of being a great source of profit for its parent company. As you can see in the chart below, sales have slowly risen over at least the past five years, rising from $18.20 billion in 2013 to $19.17 billion in 2017. As you can see in the same graph, despite seeing a tick down from 2013 to 2014, sales of the segment have been pretty flat as a percentage of General Electric’s total industrial revenue.

*Created by Author

In recent years, international exposure has become more relevant for GE Healthcare. Today, the segment employs around 52 thousand employees spread across more than 140 countries and management has listed China as an attractive growth prospect moving forward. In fact, non-US sales for the segment totaled 55.5% of aggregate segment sales for it in 2017. This represents an increase from the 53.6% of sales that came from outside of the US just one year earlier.

As revenue has risen for the segment, so too has backlog. In 2013, this figure totaled $16.1 billion, but it has since risen to $18.1 billion. Without any doubt, this metric has benefited from a growth in orders over time. In 2017, total orders for the segment amounted to $20.4 billion. This represents an increase over the $19.2 billion seen in 2013 and 2016. According to Reuters, the imaging industry is likely to see significant growth over the next few years. In 2016, total industry sales were $29.8 billion, but that number is expected to balloon to $45.1 billion in 2022. That implies an annual sales growth for this space of around 10.9% per annum. Assuming this or anything close to this comes to fruition, backlog will grow over time for the segment.

*Created by Author

From a profitability perspective, the figures over time have been even better. After seeing segment profits decline from $3.05 billion in 2013 to $2.88 billion in 2015, we saw a nice rebound over the past two years that brought profits up to $3.45 billion for 2017. That’s the highest figure I saw on record for GE Healthcare and it accounted for 23.4% of General Electric’s Industrial segment profits, which was also a record high that I could see.

*Created by Author

Based on the numbers provided, this growth in profits, driven not only by higher sales but by cost reductions (according to management) has led to GE Healthcare’s profit margin expanding as well. Over the past five years, GE Healthcare’s segment profit margin grew from 16.7% to 18% (dipping as low at one point as 16.3%). A similar trend can be seen in the graph below, which shows that the return on assets for the segment has grown over time, rising from 10.9% to 12% today.

*Created by Author

Strong growth prospects, combined with attractive and improving margins has led to the formation of a thought in my mind. At this point in time, General Electric is stuck between a rock and a hard place. On one hand, the firm has been slammed by insurance reserves, SEC investigations, and other issues in recent months. This has resulted in shares of the business declining by around 54% from their 52-week high, effectively erasing $143 billion worth of market value from the firm.

As concerns grow that cash flow may not be enough to meet spending needs (especially now that GE Capital has cut off its distribution to its parent) and the company’s dividend to shareholders, now might be the time to consider selling off GE Healthcare. It’s difficult to tell what kind of value exists here for shareholders, but one good estimate might be derived from looking at Danaher (NYSE:DHR).

According to the management team at Danaher, 63% of the company’s revenue is split between life sciences and diagnostics operations. These are essentially the same kinds of operations that GE Healthcare engages in. Another 15% of Danaher’s revenue is attributable to the dental space, which isn’t too dissimilar to make the case that Danaher is largely a proxy for GE Healthcare.

*Taken from Danaher

Like GE Healthcare, total segment profits (I’m excluding “other” that shows up as a $170 million loss), carry with them nice margins. Using 2017’s figures, the profit margin for Danaher was 17.4%. With revenue of $18.33 billion, the company is just a bit smaller than GE Healthcare as well. When you consider that Danaher’s market cap is $69.97 billion as of the time of this writing, you come to the conclusion that the firm is trading for 3.82 times revenue and 21.9 times segment profits. Applying the same figures to GE Healthcare would imply a value on the business of between $73.02 billion and $75.51 billion. Such a sale, at the high end, would be enough to reduce General Electric’s debt from $136.21 billion to $60.70 billion if management so desired.


GE Healthcare is a great business. Despite seeing sales grow slowly, margins associated with the segment are attractive and the industry’s upside is material. Additional value would probably be realized from having the company be separated from the conglomerate since a new management team could place a more concerted effort toward growing the enterprise. The value of Danaher suggests that management could also solve a lot of its issues regarding liabilities if it were to decide part ways with the segment, perhaps even freeing up capital to reinvest toward higher-growth prospects like Aviation, Renewables, and Oil & Gas.

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.

Exclusive: Kaspersky Lab plans Swiss data center to combat spying allegations – documents

MOSCOW/TORONTO (Reuters) – Moscow-based Kaspersky Lab plans to open a data center in Switzerland to address Western government concerns that Russia exploits its anti-virus software to spy on customers, according to internal documents seen by Reuters.

FILE PHOTO: The logo of Russia’s Kaspersky Lab is displayed at the company’s office in Moscow, Russia October 27, 2017. REUTERS/Maxim Shemetov/File Picture

Kaspersky is setting up the center in response to actions in the United States, Britain and Lithuania last year to stop using the company’s products, according to the documents, which were confirmed by a person with direct knowledge of the matter.

The action is the latest effort by Kaspersky, a global leader in anti-virus software, to parry accusations by the U.S. government and others that the company spies on customers at the behest of Russian intelligence. The U.S. last year ordered civilian government agencies to remove the Kaspersky software from their networks.

Kaspersky has strongly rejected the accusations and filed a lawsuit against the U.S. ban.

The U.S. allegations were the “trigger” for setting up the Swiss data center, said the person familiar with Kapersky’s Switzerland plans, but not the only factor.

“The world is changing,” they said, speaking on condition of anonymity when discussing internal company business. “There is more balkanisation and protectionism.”

The person declined to provide further details on the new project, but added: “This is not just a PR stunt. We are really changing our R&D infrastructure.”

A Kaspersky spokeswoman declined to comment on the documents reviewed by Reuters.

In a statement, Kaspersky Lab said: “To further deliver on the promises of our Global Transparency Initiative, we are finalizing plans for the opening of the company’s first transparency center this year, which will be located in Europe.”

“We understand that during a time of geopolitical tension, mirrored by an increasingly complex cyber-threat landscape, people may have questions and we want to address them.”

Kaspersky Lab launched a campaign in October to dispel concerns about possible collusion with the Russian government by promising to let independent experts scrutinize its software for security vulnerabilities and “back doors” that governments could exploit to spy on its customers.

The company also said at the time that it would open “transparency centers” in Asia, Europe and the United States but did not provide details. The new Swiss facility is dubbed the Swiss Transparency Centre, according to the documents.


Work in Switzerland is due to begin “within weeks” and be completed by early 2020, said the person with knowledge of the matter.

The plans have been approved by Kaspersky Lab CEO and founder Eugene Kaspersky, who owns a majority of the privately held company, and will be announced publicly in the coming months, according to the source.

“Eugene is upset. He would rather spend the money elsewhere. But he knows this is necessary,” the person said.

It is possible the move could be derailed by the Russian security services, who might resist moving the data center outside of their jurisdiction, people familiar with Kaspersky and its relations with the government said.

Western security officials said Russia’s FSB Federal Security Service, successor to the Soviet-era KGB, exerts influence over Kaspersky management decisions, though the company has repeatedly denied those allegations.

The Swiss center will collect and analyze files identified as suspicious on the computers of tens of millions of Kaspersky customers in the United States and European Union, according to the documents reviewed by Reuters. Data from other customers will continue to be sent to a Moscow data center for review and analysis.

Files would only be transmitted from Switzerland to Moscow in cases when anomalies are detected that require manual review, the person said, adding that about 99.6 percent of such samples do not currently undergo this process.

A third party will review the center’s operations to make sure that all requests for such files are properly signed, stored and available for review by outsiders including foreign governments, the person said.

Moving operations to Switzerland will address concerns about laws that enable Russian security services to monitor data transmissions inside Russia and force companies to assist law enforcement agencies, according to the documents describing the plan.

The company will also move the department which builds its anti-virus software using code written in Moscow to Switzerland, the documents showed.

Kaspersky has received “solid support” from the Swiss government, said the source, who did not identify specific officials who have endorsed the plan.

Reporting by Jack Stubbs in Moscow and Jim Finkle in Toronto; Editing by Jonathan Weber

The Noisy Fallacies of Psychographic Targeting

At this point in the deafening media cycle around the story, it’s probably unnecessary to summarize the going Facebook/Cambridge Analytica scandal, but briefly and just in case: Facebook recently announced the suspension of a marketing data company called Cambridge Analytica from its platform after a whistleblower confirmed it had misused ill-gotten Facebook data to construct so-called “psychographic” models and help Trump win the presidency.

For the impatient, my fundamental thesis is this: Cambridge Analytica’s data theft and targeting efforts probably didn’t even work, but Facebook should be embarrassed anyhow.

For the more patient: What on earth is the sinister-sound “psychographics” about, and how is your Facebook data involved?

Antonio García Martínez (@antoniogm) is an Ideas contributor for WIRED. Before turning to writing, he dropped out of a doctoral program in physics to work on Goldman Sachs’ credit trading desk, then joined the Silicon Valley startup world, where he founded his own startup (acquired by Twitter in 2011) and finally joined Facebook’s early monetization team, where he headed their targeting efforts. His 2016 memoir, Chaos Monkeys, was a New York Times best seller and NPR Best Book of the Year, and his writing has appeared in Vanity Fair, The Guardian, and The Washington Post. He splits his time between a sailboat on the SF Bay and a yurt in Washington’s San Juan Islands.

The awkward portmanteau coinage of “psychographics” is meant to be a riff on the “demographics” (i.e. age, gender, geography), which are the usual parameters of how marketers talk about advertising audiences. The difference here is that the marketer attempts to capture some essential psychological state, or some particular combination of values and lifestyle, that imply a proclivity for the product in question. If it sounds nebulous, not to say somewhat astrological, it is. As a great example of the type of cartoonish zodiac that emerges from this approach, take the age-old classic, the Claritas PRIZM segments (now owned and marketed by Nielsen), which have been around since the 90s. One sample segment:

Kids & Cul-de-Sacs:  Upscale, suburban, married couples with children – that’s the skinny on Kids & Cul-de-Sacs, an enviable lifestyle of large families in recently built subdivisions. […] Their nexus of education, affluence and children translates into large outlays for child-centered products and services.

This sort of caricature of a consumer segment was created as much for potential targeting as for populating ad agency pitches to clients. It took a complex and bewildering world of consumer data and preferences and reduced them to a neat mythology of just-so stories that got ad budgets approved. (“Aspirational Annie wants a starter car!” “Gregarious Greg spends over $400 per month on entertainment!”)

With the rise of programmatic, software-driven advertising in the late aughts, these truthy marketing fairy tales have taken a more quantitative tinge. Which, in the context of Facebook and Cambridge Analytics, is where the psychometricians at Cambridge University come in. Two researchers at the Department of Psychology there, Michal Kosinksi and David Stillwell, had endeavored to craft completely algorithmic approaches to human psychological evaluation. Those efforts included a popular 2007 Facebook app called myPersonality that allowed Facebook users to take a psychometric test and see themselves ranked against the ‘Big Five’ personality traits of openness, conscientiousness, extraversion, agreeableness, and neuroticism (often shortened to OCEAN). According to the report in The Guardian,which first ran the whistleblower’s claims, Cambridge Analytica had approached the authors of the myPersonality app for help with its ads targeting campaign. On being rebuffed, another researcher associated with Cambridge’s psychology faculty, Aleksandr Kogan, offered to step in and reproduce the model.

(Interestingly, you can still take some of their psychometric personality tests here. Don’t worry! No Facebook login required!)

Academic research centers with experimental volunteers and small sample sizes are one thing, but how do you do the study psychographics at Facebook scale? With an app, of course. Kogan wrote a Facebook app that asked Facebook users to walk through their computer-driven rating criteria with the specific view of ranking their ‘OCEAN’ characteristics, plus political inclinations.

Here is where the skullduggery comes in: Let’s assume you build a model that can actually predict a voter’s likelihood of voting for Trump or Brexit based on some set of polled psychological traits. For it to be more than a research paper, you need to somehow exploit the model for actual ads targeting. But the problem is that Facebook doesn’t actually give you the tools to target a psychological state of mind (not yet, anyway)—it only offers pieces of user data such as Likes. To effectively target an ad, Kogan would need to peg diffuse characteristics like neuroticism and openness to a series of probable Facebook Likes, and for Cambridge Analytics, he had to do it at a large scale.

Whether Kogan’s subjects realized it or not when they opted-in to his Facebook app, they allowed him to read some of their Facebook profile data. And for his collaboration with Cambridge Analytica, Kogan then hoovered in those users’ data, plus their friends’ data as well. (Facebook’s platform rules allowed this until mid-2015). That’s how the number of compromised users got as high as a reported 50 million. Kogan and Cambridge Analytica didn’t lure that many test subjects. They simply paid for or attracted hundreds of thousands, and pulling data from their subjects’ friends got them something like a third of the US electorate.

With the Facebook police asleep, and data theft pulled off, what was Cambridge Analytica’s next step?

They had to train a predictive model that guessed what sorts of Likes or Facebook profile data their targeted political archetypes possessed. In other words, now that Cambridge had a test set of people likely to vote for Trump, and knowing their profile data, how do they turn around and create a set of profile data the Trump campaign can input to the Facebook targeting system to reach more people like them?

Note that the aspiring psychograficist (if that’s even a thing) is now making two predictive leaps to arrive at a voter target: guessing about individual political inclinations based on rather metaphysical properties like “conscientiousness;” and predicting what sort of Facebook user behaviors are also common among people with that same psychological quality. It’s two noisy predictors chained together, which is why psychographics have never been used much for Facebook ads targeting, though people have tried.

While these conclusions are hard to make categorically even with the data in hand (and impossible to make without), a straw poll among my friends in the industry reveal near-unanimous skepticism about the effectiveness of psychographic targeting. One of the real macro stories about this election and Facebook’s involvement is how many of the direct-response advertising techniques (such as online retargeting) that are commonplace in commercial advertising are now making their way into political advertising. It seems the same products that can sell you soap and shoes can also sell you on a political candidate.

Conversely, if this psychographics business is so effective, why isn’t it commonly used by smart e-commerce players like Amazon, or anyone else beyond the brand advertisers who like keeping old marketing folklore alive?

One of the ironies of this most recent Facebook brouhaha is the differing reactions between the digital marketing professionals who’ve spent a career turning money into advertising pixels and a concerned public otherwise innocent to the realities of digital advertising. Most ad insiders express skepticism about Cambridge Analytica’s claims of having influenced the election, and stress the real-world difficulty of changing anyone’s mind about anything with mere Facebook ads, least of all deeply ingrained political views.

The public, with no small help from the media sniffing a great story, is ready to believe in the supernatural powers of a mostly unproven targeting strategy. What they don’t realize is what every ads practitioner, including no doubt Cambridge Analytica itself, knows subconsciously: in the ads world, just because a product doesn’t work doesn’t mean you can’t sell it. Before this most recent leak, and its subsquent ban on Facebook, Cambridge Analytica was quite happy to sell its purported skills, no matter how dubious they might really be.

More Cambridge Analytica

Photograph by WIRED/Getty Images

Lithium-Silicon Batteries Could Give Your Phone 30% More Power

A new battery technology could increase the power packed into phones, cars, and smartwatches by 30% or more within the next few years. The new lithium-silicon batteries, nearing production-ready status thanks to startups including Sila Technologies and Angstron Materials, will leapfrog marginal improvements in existing lithium-ion batteries.

Recent promises of breakthrough battery technology have often amounted to little, but veteran Wall Street Journal tech reporter Christopher Mims believes lithium-silicon is the real thing. So do BMW, Intel, and Qualcomm, all of of which are backing the development of the new batteries.

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The core innovation is building anodes, one of the main components of any battery, primarily from silicon. Silicon anodes hold more power than today’s graphite-based versions, but are often delicate or short-lived in real-world applications. Sila Technologies has built prototypes that solve the problem by using silicon and graphene nanoparticles to make the technology more durable, and says its design can store 20% to 40% more energy than today’s lithium-ions. Several startups are competing to build the best lithium-silicon batteries, though, and one —Enovix, backed by Intel and Qualcomm — says its approach could pack as much as 50% more energy into a smartphone.

One of the major battery suppliers for both Apple and Samsung is Amperex Technology, which has a strategic investment partnership with Sila. That could point to much more long-lasting mobile devices on the way. The new batteries, Amperex Chief Operating Officer Joe Kit Chu Lam told the Journal, will probably be announced in a consumer device within the next two years. BMW also says it aims to incorporate the technology in an electric car by 2023, increasing power capacity by 10% to 15% over lithium-ion batteries.

China Will Block Travel for Those With Bad ‘Social Credit’

Chinese authorities will begin revoking the travel privileges of those with low scores on its so-called “social credit system,” which ranks Chinese citizens based on comprehensive monitoring of their behavior. Those who fall afoul of the system could be blocked from rail and air travel for up to a year.

China’s National Development and Reform Commission released announcements on Friday saying that the restrictions could be triggered by a broad range of offenses. According to Reuters, those include acts from spreading false information about terrorism to using expired tickets or smoking on trains.

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The Chinese government publicized its plans to create a social credit system in 2014. There is some evidence that the government’s system is entwined with China’s private credit scoring systems, such as Alibaba’s Zhima Credit, which tracks users of the AliPay smartphone payment system. It evaluates not only individuals’ financial history (which has proven problematic enough in the U.S.), but consumption patterns, education, and even social connections.

A Wired report last year found that a user with a low Zhima Credit score had to pay more to rent a bicycle, hotel room, or even an umbrella. Zhima Credit’s CEO has said, in an eerie prefiguring of the new travel restrictions, that the system “will ensure that the bad people in society don’t have a place to go, while good people can move freely and without obstruction.”

Though the policy has only now become public, Reuters says it may have come into effect earlier — in a press conference last year, an official said 6.15 million Chinese citizens had already been blocked from air travel for social misdeeds.

Green Energy Stock Yields 10%, Opportunistic Buy With 50% Return Potential

This research report was jointly produced with Seeking Alpha Author Long Player.

Pattern Energy (PEGI) is a renewable energy company that generates a fair amount of cash and is growing. The stock recently traded at $17.2/share and its most recent dividend was $0.422 which provides an annualized yield of 9.8%.

Understanding the Business

PEGI is in the business of owning and operating renewable energy projects. So far, these projects are dominantly wind farms. This involves a number of advanced wind turbines located in a desirable area to harvest wind energy. The projects all have long-term Power Supply Agreements (PSAs) – typically with local utilities. The counterparties to such agreements have, in almost every case, very solid credit ratings. There is, thus, very little market risk or price risk associated with the projects. The main variables are the wind itself and downtime due to malfunction or other factors. The relatively low level of risk provides a strong basis for a yield-oriented investment.

PEGI operates its projects (some of which are partially owned by other companies) as somewhat independent entities. Each project is a separate limited liability corporation (‘LLC’), and has substantial debt financing but almost all of the debt is non-recourse (some of it is partial recourse). Thus, the impact of a failure at any one project is limited. PEGI’s 25 existing consolidated projects are in the United States, Canada, Chile, and Japan. PEGI’s PSA contracts average a term of 14+ years with 90% using Siemens and GE equipment. Its fleet of wind turbines is relatively young and has an average age of less than four years. Counterparties to PSA agreements include utilities like PG&E (NYSE:PCG), SDG&E, and Westar (NYSE:WR) and non-utility entities like Morgan Stanley (NYSE:MS), Citigroup Energy, and Amazon (NASDAQ:AMZN).

A Defensive Stock

PEGI provides electricity, which is a basic necessity. Therefore, the company is unlikely to be affected by economic cycles. As an alternative or “green” electric producer, that company stands out for its profitability as well as the growth of that profitability. PEGI is also part of a group of companies that is trying to bring more “green” electricity to the world. As costs for this technology continue to drop, they may succeed with this wind technology far more than many would have foreseen.

Source: PEGI December 2017 Presentation

The company has invested in countries that are relatively stable and value renewable energy sources. As such, political upheaval is generally not a concern. Successful ventures in Japan could yield some long-term competitive advantages. Japan tends to be a notoriously hard market to penetrate. Therefore, the information shown above is a big deal. Japan would like to avoid importing oil and gas to some extent. Wind technology promises the hope of reducing the energy import bills.

Above all, this technology is not dangerous should a volcano erupt or a major earthquake hit the area. A few years back a major earthquake caused all kinds of problems with a nuclear reactor. The cleanup from that earthquake continues. The nuclear reactor may never go back into service. Wind technology has no such issues. In some ways, wind technology to generate electricity is a blessing in a land where mother nature is very active.

A Beaten Down Stock

The stock has tanked recently for two main reasons:

  1. Investors’ fears that U.S. Tax Credits for renewable energy will expire in a few years.
  2. The stock got beaten down some more (down by another 10%) after the company declared that its quarterly dividend will not increase. As a reminder, PEGI had hiked its distribution every quarter for the past 16 quarters prior to this announcement.

Based on 2018 “Cash Available for Distribution” (or CAFD) guidance, PEGI’s is currently trading at just 10 times CAFD (using midpoint CAFD guidance of $166 million and 95.1 million shares outstanding). The yield is now close to 10%. These valuations are bargains for a growing cash flow and distribution. Mr. Market appears to have tossed away everything but a select group of companies. Companies not in that select group keep getting cheaper.

Interestingly, the company is far larger now and has a better yield than at the time of its initial public offering in September 2013 when the stock was trading at $22/share.

Today, the stock is trading at $17.2/share and the distributions have grown by 35% since the IPO, making it a very attractive investment.

Yet, Mr. Market couldn’t care less. Mr. Market is busy sending the stock to new lows. Sooner or later the growth should outweigh the market disdain. The investor is being paid nearly a 10% distribution to wait for that attitude change.

Source: PEGI December, 2017 Presentation

As long as management continues to make only accretive acquisitions, this company should continue to be an attractive investment.

Risks of ‘tax credit’ expiration are overblown

The finalization of the tax bill last December brought greater clarity to Pattern Energy’s future as it has preserved the critical credits for wind and solar for the time being. Still, this did not calm investors’ fear that tax incentives remain at risk in the longer term. Here is our take on this:

  1. A great deal of PEGI’s planned expansion is outside the US and will be completely unaffected by any potential future change in tax benefits.
  2. Within the United States, should tax credits expire, the effects would be primarily on the development side of the business rather than on existing facilities on the operational side. PEGI is primarily an operating company although it has now some participation on the development side. The point to note here is that the profitability of the existing facilities of PEGI in the United States should not be impacted.
  3. In the U.S.A., most states now have renewable portfolio requirements (and in some cases targets) for their utilities which require that certain percentages of power be generated by renewable sources by certain deadlines. So with or without subsidies, wind farms have to be built. They will just cost more to the end user, but they will still have to be built and to operate to meet the minimum required targets.
  4. Renewable energy is growing rapidly, and the cost of producing wind and solar technology is dropping every year. So in a few years, renewable energy operators will be able to compete with other forms of energy without the need of any subsidies.

2018 Guidance

While PEGI did not raise its distribution in the last quarter, a very important aspect is the analysis of next year’s guidance that management has provided:

  • PEGI is expecting a very strong year in 2018 with “Cash Available for Distribution” (or CAFD) to be in the range of $151 million to $181 million, or 14% higher than the 2017 CAFD using the midpoint of the range.
  • During the year 2017, PEGI agreed to acquire 206 MW of owned capacity in 5 Japanese projects which represent the company’s entry into one of the most robust renewable markets in the world. PEGI is now expanding internationally and the income from these projects will kick in during the year 2018.
  • The 2018 guidance includes 24 projects expected to be operating and contributing during 2018, including 4 new projects in Japan and Canada which were not operational during the year 2017. This is encouraging, as we have been saying all along that the growth in PEGI’s earnings will come from outside of the United States.

Price Target

As of March 11, 2018, there are 15 banks and analysts who cover the stock with a consensus rating of “Overweight” on the stock, and an average consensus price target of $24.67, suggesting a ~43% potential upside from the current price (source:

At $24.67/share, this would put the valuation of PEGI at 14 times cash flow, which is very reasonable. We should note that PEGI traded well above $24.67/share in September 2017, just a few months ago.


The shares of this company are in the bargain bin. With a solid outlook and cash flow growth for 2018, combined with a very low valuation, PEGI is set to greatly outperform within the next 12 months. With a 9.8% yield and +40% upside potential, PEGI could very well generate returns of over 50% in the next 12 months. The pullback provides a unique buying opportunity.

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Disclosure: I am/we are long PEGI.

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.

Technology Meant to Make Bitcoin Money Again Just Went Live

A version of the technology that’s meant to make cryptocurrency payments faster and cheaper went live Thursday.

The software, called Lightning Network, can now be used for Bitcoin payments after more than a year in which thousands of developers tested it. Lightning Labs, one of the firms developing the technology, released this initial version, which is compatible with networks being developed by other groups, such as Blockstream and Acinq.

Bitcoin has become digital gold — or a viable investment alternative — to many, but it has been harder for it to fulfill its original purpose of becoming digital money, as transaction fees have skyrocketed to as high as $50, while confirmation times took as long as a week at their peak. Enthusiasts say the Lightning Network will solve these problems with fees at a fraction of a cent and instantaneous transactions.

The Lightning Network rolls out, another technology meant to speed up transactions, Segregated Witness, gains traction, with the number of transactions using it doubling to more than 30 percent of total Bitcoin transactions in the past month. Bitcoin transaction fees have plummeted in part thanks to this, but the total number of transactions has also declined. Lightning Network is also meant to help lower fees on the main Bitcoin network.

The Lightning Network allows Bitcoin users to open payment channels between each other. The parties can than conduct transactions without having to post them to the Bitcoin blockchain, avoiding delays and costs that result from recording those transactions each time. Once the channel is closed, only the resulting balances are recorded on the blockchain, not the full transaction history of the channel, and only then are Bitcoin fees paid. There is no required time or transaction limit required to close a payment channel, so they can potentially remain open for months of years.

Elizabeth Stark, Lightning Labs founder and chief executive officer, says merchants and especially online businesses will be the most likely users as it facilitates a high volume of payments and its near-zero fees allow for micropayments. Cryptocurrency exchanges could also use the software to accelerate deposit and withdrawal of funds, she said.

The network is currently able to process transactions in the low thousands per second, according to Stark, which is still far from Visa Inc.’s maximum of 56,000, but an improvement on Bitcoin’s five transactions per second. More than 4,000 payment channels have been opened since the technology was released in January 2017, and even though it was in testing, some merchants already started using it. Block & Jerry’s, an online ice-cream store playing on American ice-cream brand Ben & Jerry’s, is one.

“Bitcoin enthusiasts have gotten excited about this, merchants are excited about this,” Stark said. “It feels like we’re right on the edge of mass cryptocurrency adoption.”