This Business Charged White People More Than Twice As Much As Minorities. Here's How Customers Reacted

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

Many businesses are being drawn into socio-politics.

Some have been there for a while but always wanting to operate behind the scenes. (Translation: buying politicians.)

Recently, though, public neutrality has been hard to achieve. 

Just ask Delta Air Lines.

A business in New Orleans, however, took its public stance on socio-politics one step further.

The owner of Saartj, a food stall in New Orleans, decided to charge white people two-and-a-half times the amount he charged minorities.

Tunde Way explained to NPR that the price difference accurately reflected the income disparity between African-Americans and whites in the city.

It’s not as if Way just charges the disparate amounts and doesn’t say why.

There’s a board outside that raises the issue. 

Moreover, when people come up to his stall, Way engages them in conversation and explains why the requested price is $12 for minorities and $30 for those who identify as white.

The price for white people sn’t compulsory. Way explains that if they choose to pay it, he will redistribute the difference among the minorities who come to his stall.

Surely, though, he’s had to face outrage from white people who think this discrimination.

“Some of them are enthusiastic, some of them are bamboozled a bit by it. But the majority of white folks, nearly 80 percent, decided to pay,” he told NPR.

This wasn’t just Way’s way of seeing what would happen. 

His partner in the experiment was Anjali Prasertong, a graduate student in public health at Tulane University.

She said she was surprised at how people reacted and how many white people paid the inflated price.

And not just by how white people reacted.

The vast majority of the Latino, African-American and Asian people who were offered the redistributed money declined.

Prasertong suspects this is because most of the customers were from relatively higher income brackets.

The experiment does, though, underline how strongly some businesses might choose to respond to socio-political issues that they — or, perhaps more importantly — their customers and employees care deeply about. (Enormous legal issues notwithstanding, of course.)

Both customers and employees have come to increasingly examine companies’ ethical and social stances. 

Whether it be on the subject of climate change or racial and gender equality, they want to know what a company’s management believes and what they’re prepared to do about it.

In Way’s case, he was very upfront about what he wanted to do about it and at least some people understood and, it seems, even appreciated his stance.

It was just an experiment. 

But society is in something of an experimental phase these days. 

Old certainties are dissolving. New questions are being asked. 

How much this will change the way companies do business will be fascinating to watch.

After all, one of the main reasons they’re being dragged into these issues is that many have lost faith in governments. 

Some see corporations as harboring more social common sense than those who have been elected to do sensible things.

It’s quite a burden for managements whose heart has, for the longest time, just been in making as much money as they can. 

Two 11%+ Yielders To Buy After Earnings Reports (REITs/MLPs)

This research report was jointly produced with High Dividend Opportunities co-author Jussi Askola.

We are currently in a raging bull market, and since November 2016, “growth and momentum stocks” have strongly outperformed “value stocks”. Many high-yield sectors, notably Property REITs, BDCs, and Midstream MLPs, were out of favor and became value sectors.

There is plenty of good news that income investors should take into account:

  1. High Dividend Sectors are Cheap! The good news is that today, several high-yield sectors are trading at their lowest valuations in years and currently offer investors a unique entry point.

  2. Value Stocks outperform growth stocks over the long term: Investors should note that over the long term, “value stocks” tend to outperform “growth stocks”. Based on a study by Bank of America/Merrill Lynch over a 90-year period, growth stocks returned an average of 12.6% annually since 1926. At the same time, value stocks generated an average return of 17% per year over the same time frame. “Value has outperformed Growth in roughly three out of every five years over this period”.

  3. Downside Risk is Limited: In a world where equity markets keep trading at “all-time highs” and looking “expensive”, value dividend stocks, such as REITs, MLPs, and BDCs, still trade at very cheap valuations. Therefore, in case of any market turbulence or market correction, the downside potential should be very limited.

Currently, the high yield space is offering some unique buying opportunities. At “High Dividend Opportunities“, we focus on stocks trading at low valuations, or in other words “value stocks”. Today, we highlight two cheap stocks that investors should consider after they reported their 4th quarter earnings – with yields above 11%.

ETP Earnings Report: A Stellar Quarter – Yield 11.8%

Energy Transfer Partners (NYSE:ETP), a stock we recently covered on Seeking Alpha, reported its 4th quarter earnings, swinging to huge profits.

  • Revenue came in at $8.61 billion, up 32% year over year.
  • Adjusted EBITDA totaled $1.94 billion for the 4th quarter, up more than 30%.
  • Distributable cash flow increased by $240 million to $1.2 billion, or 25% higher compared to the same quarter a year ago.
  • The dividend coverage ratio soared to 130% for the quarter and 120% for the year.

In addition, the company raised nearly $2 billion in two transactions that significantly increased parent liquidity. These two transactions included the sale of Sunoco LP common units for $540 million and the sale of the compression business to USA Compression Partners LP (NYSE:USAC) for $1.7 billion (of which $1.3 billion was in cash and the rest in equity). In the meantime, these shares will demonstrate to the market that ETP, as the new partner, is aligned with the limited partner interests of USA Compression Partners LP.

Investors can look forward to more good news this year. Many capital projects have come on-line. That once-ambitious schedule of growth will now result in a lot of cash flow. The acquisition of the general partnership of USA Compression Partners by ETP’s parent company Energy Transfer Equity (NYSE:ETE) opens another avenue of growth. There is great chance that more good earning news is on the way this next fiscal year. ETP’s credit line with the banks now has about $4 billion unused. This could provide an excellent way to acquire more assets and grow in the future.

Valuation

Source: Q4 ETP Presentation

In order to conduct an accurate valuation (using full-year numbers), it is best to back out any “distribution incentive rights” (including relinquishment) and any general partner interest from the “distributable cash flows” (“DCF”). DCF for the 12 months was at $3,494 million; less IDR relinquishment and GP interest of $672 million, we get $2,822 million in DCF.

At the most recent price of $19.21 per share, we get a valuation of 8.0 times DCF, which is a real bargain considering that ETP is one of the largest and fastest-growing midstream MLPs.

The outlook of the midstream sector seems to be solid, with many midstream MLPs having reported solid quarters, including Enterprise Products Partners (NYSE:EPD) and Buckeye Partners (BPL). This can be attributed to record crude oil and natural gas production in the United States.

The future looks bright for the midstream sector. At the current cheap price and yield of 11.8%, ETP is one of our favorite midstream MLPs to own for the year 2018.

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WPG Earnings Report: Operational Resilience vs. Strategic Challenges – Yield 14.6%

Washington Prime Group (NYSE:WPG), a Retail Property REIT, reported its 4th-quarter and full-year 2017 results, and while the market keeps focusing on strategic challenges, we are encouraged to see continued resilience in operational figures.

To give a little bit of context here, we need to keep in mind that we are discussing about a firm that is trading at 4.0x its cash flow, which is extremely cheap in today’s market place. In this sense, the expectations of the market are very negative and the sentiment very low. WPG, just like CBL, is a class B mall owner, and as such, it is widely expected to eventually become obsolete due to the growth of e-commerce.

The perception is that no one goes to class B malls anymore; and yet, the NOI went down by just 1%, the average sales per square foot remains at close to all-time-highs, and the leasing performance suggests strong demand for space by retailers.

A 1% drop in NOI is really nothing for a firm selling at such a ridiculously low valuation, and shows once again that class B malls remain relevant even in today’s highly digitalized marketplace. What the market seems to ignore is that unlike CBL, WPG owns on average higher-quality properties. In fact, Tier One and Open Air properties accounted for as much as 81.2% of the NOI in 2017, and these properties even showed a 0.9% increase in NOI for the year! It is the remaining 18.8% which are causing the temporary dilution in FFO, but clearly, the large majority of the portfolio has great value which is highly sustainable.

This was the main news to us: Operationally, the great majority of the properties are performing just fine. Therefore, the reason why the FFO is dropping year over year is not due to problems at the property level, but rather, strategic decisions such as dispositions and continued deleveraging.

As the CEO notes:

“Very simply, the $0.12 of annual dilution was attributable to our unsecured notes offering, the second joint venture with O’Connor Capital Partners and the disposition of six noncore assets. As the result was an overall reduction in indebtedness of approximately $400 million, it’s silly to question the prudency of such actions.”

Put in other words, the company is improving its portfolio and balance sheet quality to lower its risk profile at the expense of some short-term dilution in FFO figures. Short term-oriented investors may not like it, but this is the best approach to maximize and sustain long-term value. Eventually, as WPG ends its disposition and deleveraging plan, the FFO will stabilize and the market will realize the progress made and reward the firm with a higher FFO multiple. Given that it stands currently at 4.0 times FFO (using 12-month adjusted FFO of $1.63), even a small bump would result in material upside.

Other relevant highlights

  • WPG is making a new acquisition, which was rather unexpected! It suggests that we are approaching the end of the deleveraging plan. Moreover, the property appears to be an attractive investment as a dominant hybrid format retail venue situated in Missoula, Montana. The asset features a Lucky’s Market and a nine-screen dine-in AMC Theater – both newly built – and yields about 10%.
  • The dividend is maintained and remains well-covered.
  • Redevelopments continue, with 36 projects underway ranging between $1 million and $60 million with an average estimated yield of 10%.
  • Property NOI is expected to continue show resilience in 2018.

Bottom Line

Overall, we are happy with the news and glad that the market seems to, for once, agree with us – rewarding WPG with a huge bump after earnings. This is the story of short-term dilution versus long-term potential reward to patient investors. Just like in the case of CBL, we remain optimistic long-term holders and are happy to keep cashing a yield of 14.6% while we wait for upside to materialize.

If you enjoyed this article and wish to receive updates on our latest research, click “Follow” next to my name at the top of this article.

Disclosure: I am/we are long ETP, WPG, CBL, EPD, BPL.

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.

Here's the Story of the Stanford PhD Who Allegedly Gamed the Texas Lottery (and Won $20 Million)

I wrote recently about the husband and wife team out of Michigan who figured out how to game the lottery, and walked away with almost $27 million over the course of nine years.

But it turns out there’s a greater mystery in the world of lottery watchers. 

Her name is Joan Ginther, and she won the Texas Lottery at least four times in 10 years, while apparently buying thousands if not millions of dollars wroth of tickets.

Oh, did we mention she has a Stanford PhD in statistics, lives in Las Vegas, and yet repeatedly made the trip to a single store in rural Texas to make many of her purchases?

Yes, the plot thickens. And so far at least, nobody knows exactly how she did it.

There are several differences between Ginther’s lucrative story in Texas and that of Marge and Jerry Selbee in Michigan and Massachusetts.

For starters, there’s the fact that while the Selbees are now very upfront about how they made their millions, and were the subject of a very well written report recently on HuffPost, Ginther apparently went underground.

At last report, she lives in Las Vegas, but I can’t find that she’s ever given an interview. My attempts to track her down for this story amounted to nothing.

So, we’re left with reverse-engineering and speculation. 

By far the best attempt to decipher her strategy that I can find came from the work of Peter Murca, a reporter with Philly.com, who wrote about her at length in 2014.

As Murca tells the story, Ginther likely won her first jackpot in Texas the traditional way: blind, dumb luck, walking away with a $5.4 million jackpot in 1993, payable in annual installments over 20 years.

But Murca’s report suggests the experience led her to turn her Stanford training toward the goal of winning the lottery over and over.

And, after spending a considerable amount of time trying to unpack what she did, he comes to several conclusions.

First, he says, she figured out that while the lottery is ultimately a game of chance, logistics made it possible to ease the odds.

In sum, the fact that the Texas lottery had to ship thousands of scratch off cards to stores all over the state, made it possible for people who pay close attention to track how many tickets had shipped, how many prizes were left, and in which stores the likely winners might wind up.

Second, she may have had help. As Murca wrote:

Anna Morales, a worker in the local water department, filed claims for 23 prizes worth $1,000 to $10,000 in seven games from 2009 through 2012 — about as many as Ginther claimed but in half the time. Another $1,000 ticket was cashed by Morales’ husband, Noe, in 2011.

Pure coincidence seems implausible.

Since neither woman consented to be interviewed, and records don’t show who physically bought each winning ticket, let alone whose money was used, explanations for both women claiming so many winners range from generosity to imitation to teamwork.

Third, she apparently played the game of large numbers.

Meaning that over time, Murca concludes she bought a total of $3.3 million worth of tickets in order to win her total $20 million in winnings.

To be clear, that’s an amazing margin, if she figured this out. But it suggests she had figured out a statistical truth that required scale to come to fruition.

And, Murca says, she likely bit hard into her cost of goods, because many of those $3.3 million worth of lottery tickets were winners– just not for the massive multimillion dollar prizes that make headlines.

A few dollars here, a few hundred there, even a few thousand now and again–and Murca concluded the $3.3 million in tickets might have cost her only about $1 million.

To be clear, we don’t know exactly what happened.

The frustrating part about Ginther’s story is that we can’t wrap it up with a nice bow the way we can with the Selbees, or with the MIT students who also figured out how to game the Massachusetts lottery.

Ginther apparently hasn’t given interviews. (If you change your mind, Ms. Ginther, contact me!)

But I think there’s a lesson, even if it’s one I’d never put into personally with something like the lottery.

In every successful business, the founders either have unique access to private information, or else a unique application that can be executed with public information.

The question for any of us in business is: which strategy works best for you?
 

Twitter Seeks Health Metrics To Help It Improve Its Platform

Twitter launched a new initiative Thursday to find out exactly what it means to be a healthy social network in 2018. The company, which has been plagued by a number of election-meddling, harassment, bot, and scam-related scandals since the 2016 presidential election, announced that it was looking to partner with outside experts to help “identify how we measure the health of Twitter.” The company said it was looking to find new ways to fight abuse and spam, and to encourage “healthy” debates and conversations.

In a series of tweets, Twitter CEO Jack Dorsey acknowledged that his company didn’t “fully predict or understand the real-world negative consequences” of how the platform was designed, like harassment, trolls, bots, and other forms of abuse. “We aren’t proud of how people have taken advantage of our service, or our inability to address it fast enough,” he wrote.

Twitter is now inviting experts to help define “what health means for Twitter” by submitting proposals for studies. The company will provide grant winners, who need to apply by April 13, both “meaningful funding” of an unspecified amount and access to its vast trove of user data. It’s uncommon for a social network to ask outside experts to help it define a new metric, but the resulting “Twitter health” studies certainly won’t represent the first time academics have tried to quantify the quality of interactions online.

“Often when I see graduate students present on this topic they act as though they’ve just discovered something that was a topic of great discussion for 20 years,” says Susan Catherine Herring, a professor of Information Science at Indiana University who has studied online behavior since the 1990s. Herring teaches Computer-Mediated Network Analysis, or the study of how to analyze conversations in online communities. Which is to say, Twitter has literally decades of existing research it could potentially lean on to help inform its new study of health.

Twitter’s size and specific problems, though, may benefit from a fresh look. This may also be one of the first times that a social network has pointedly compared itself to a living, breathing body. And yet both Dorsey’s tweets and the official Twitter blog about the new project disclose that the company doesn’t know what “health” exactly means in this context. What would a healthy Twitter look like? What even is health for a non-sentient website?

It might mean curbing abuse entirely, or eradicating bots. Or health might look more like symptom management, curtailing things like harassment and propaganda without completely curing them. No one really knows. But Twitter does focus on four key metrics in its call for proposals: shared attention, shared reality, variety of opinion, and receptivity. Which boils down to: Are people talking about the same things using the same facts? Are they crafting a variety of arguments, and are people open to listening to new ones?

The social network borrowed the four “indicators” from Cortico, a non-profit research organization affiliated with the MIT Media Lab. Dorsey said on Twitter that these indicators weren’t necessarily the ones Twitter would end up using to measure the platform’s health, but they demonstrate one possibly approach.

Herring says that most of Cortico’s indicators are reasonable, and that it would be possible to craft an empirical study in which they could be measured. For example, one group of researchers could craft a simple study to test whether people are generally talking about the same things by analyzing the key words they use. Researching other questions, like whether users are open to hearing new ideas, might be more difficult to quantify. Herring acknowledged that the social network would need to eventually be more specific in scope, but that it was fine to start with fairly broad questions. She did say, though, that one indicator might present problems: “shared reality.”

“Are we using the same facts? There’s already a bias in that perspective because we assume we know what the facts are,” says Herring. “What other groups consider facts might not be the same. You’re approaching that from a biased perspective.”

Another thing to consider is exactly whose health Twitter will measure. “When they refer to it in terms of a bodily metaphor, the health of what body? The health of Twitter’s body?” asks Whitney Phillips, a professor at Mercer College who focuses on online culture. “I don’t think as a corporation Twitter necessarily has my health in mind.”

Twitter also hasn’t yet mentioned how the project will factor into its broader business goals. Traditionally, calling a company “healthy” means that it’s profitable—but that’s not necessarily the case when it comes to Twitter’s new initiative, and it’s not clear that steps to advance one definition would necessarily benefit the other. Other social media platforms, like Facebook, have acknowledged that making decisions based on users well-being may impact metrics that help lure advertisers, like time spent. What happens if Twitter finds a way to make itself less toxic, but shareholders reject it?

“Developing forms of measurement that deviate from engagement and growth is important for the industry, but what will determine the power of a move like this is how it will factor into Twitter’s business objectives,” says Katherine Lo, an online community researcher at University of California Irvine. “Many anti-harassment initiatives by social media platforms have become effectively toothless because factors like growth metrics, or commitment to advertisers, ultimately trump safety and health in day-to-day product decisions.”

Twitter’s effort to evaluate its health seems like an earnest effort to combat that trend. But identifying the right metrics is only half the battle. The hard part will come when Twitter tries to translate the results of an empirical study into a meaningful change for users. “I wish them luck, because they may discover a lot of information, but to try and implement change and create a healthy environment, that’s much more challenging,” says Herring.

For now, no one really knows what, exactly, a healthy Twitter would look like. There’s at least a consensus, though, that the social platform is certainly not there yet. Twitter asking outsiders for help could improve its platform for millions of people. Alternatively, it might be a sign of just how bad things have gotten. “We are in deep shit on the internet in so many ways,” says Mercer College’s Phillips. “This is an example of the depth of that shit pile.”

Social Circles

Microsoft to buy solar power in Singapore in first renewable deal in Asia

SINGAPORE (Reuters) – Microsoft Corp said on Thursday it will buy solar power from the Sunseap Group in Singapore, the technology company’s first renewable energy deal in Asia.

Microsoft will purchase 100 percent of the electricity generated from Sunseap’s 60 megawatt-peak solar power project for 20 years for its Singapore data operations, the software company said in a statement. Sunseap’s project consists of an array of solar panels on hundreds of rooftops across the city-state.

“This deal is Microsoft’s first renewable energy deal in Asia, and is our third international clean energy announcement, following two wind deals announced in Ireland and the Netherlands in 2017,” said Christian Belady, general manager, cloud infrastructure strategy and architecture at Microsoft.

Microsoft said it is on track to exceed its goal of powering 50 percent of its global datacenter load with renewable energy this year.

“Once operational, the new solar project will bring Microsoft’s total global direct procurement in renewable energy projects to 860 megawatts,” Belady said.

The solar project is under construction and will be operational by the end of the year, the companies said.

Reporting by Florence Tan; Editing by Christian Schmollinger

Singapore looking at investor protection rules for cryptocurrencies

SINGAPORE (Reuters) – Singapore’s central bank is assessing whether additional regulations are required to protect investors in cryptocurrencies, an official said in a speech on Thursday.

The city-state – which is aiming to be a hub for financial technology and so-called initial coin offerings in Asia – does not regulate virtual currencies and last year called for the public to exercise “extreme caution” over investment in cryptocurrencies.

Its central bank does regulate activities involving virtual currencies if they pose specific risks. For example, it imposes anti-money laundering requirements on intermediaries providing virtual currency services.

“We are assessing if additional regulations are required in the area of investor protection,” Ong Chong Tee, deputy managing director (Financial Supervision), Monetary Authority of Singapore said.

Other countries like South Korea, where trading in cryptocurrencies is more popular, are looking at ways to regulate that activity.

Reporting by Aradhana Aravindan and John Geddie; Editing by Kim Coghill

Elon Musk Is Putting Wireless Service on the Moon (So If You Go There, You Can Watch Netflix)

It’s been 50 years since humans first landed on the Moon and we haven’t done much there since. But Elon Musk is hoping that will change very soon. He already believes there should be a base on the Moon to fire up public interest in space exploration. Then in December, President Donald Trump announced that he wanted to send astronauts back to the moon as a first step toward more distant objectives, such as Mars, where Musk is already planning to land humans sometime within the coming decade.

Musk has also said that his company SpaceX would not build a moon base although it might ferry people and materials there from Earth. But it apparently is ready to help with something else every lunar visitor needs: a way to contact people at home, communicate with other lunar visitors–and watch Netflix during off hours.

So SpaceX, along with mobile network company Vodafone, Nokia, and Audi, will be building a 4G network on the moon in 2019. Even though 5G networks are being built here on Earth, the partners chose 4G because its technology is both more stable and more able to withstand space travel. 

OK, but why build a wireless network on the Moon so soon, when nobody lives there? It’s true that Musk has said he would take space tourists to the moon in late 2018, and indeed had already collected large deposits from two wealthy individuals for the first such trip. But the planned trip is only a Moon fly-by with no landing, so the lunar tourists won’t get much of a chance to use the Moon’s wireless network. And they won’t need it, having the ship’s communication system at their’ disposal. Besides, the pricey lunar fly-by was meant to take place using a Crew Dragon capsule carried by a Falcon Heavy rocket, the same rocket that spectacularly took off earlier this month with a red Tesla Roadster and mannequin dubbed “Starman.” But Musk has said SpaceX is now focusing its attention on its BFR Rocket (for Big Fucking Rocket) and he indicated it may not do much more testing on the Falcon Heavy after all, possibly leaving Moon tourism in limbo. 

According to one report, the purpose of lunar 4G would be to support future lunar missions. Without it, humans and vehicles (such as the lunar rovers Audi is building) could only communicate by beaming signals down to the Earth and back up again. The fact that the planned network will have enough bandwidth to support video streaming raises the appealing prospect of a lunar webcam all of us could watch over the Internet. 

And of course, it’ll come in very handy for space tourists visiting the lunar surface or astronauts working to build a Moon base or on other projects. Maybe someday soon.

Exclusive: Secretive U.S. security panel discussing Broadcom's Qualcomm bid – sources

WASHINGTON (Reuters) – A national security panel that can stop mergers that could harm U.S. security has begun looking at Singapore-based chipmaker Broadcom Ltd’s plan to take over rival Qualcomm Inc, according to three sources familiar with the matter.

CFIUS, an opaque inter-agency panel, has been in touch with at least one of the companies in the proposed merger, one source said, and met last month to discuss the potential merger of the two big semiconductor companies, according to two sources familiar with the matter.

Senator John Cornyn, the No. 2 Republican in the Senate, urged Treasury Secretary Steven Mnuchin on Monday to have the Committee on Foreign Investment in the United States, or CFIUS, officially review the proposed transaction before a key shareholder vote expected on March 6, according to a letter seen by Reuters.

The pre-deal discussions by CFIUS — which are extremely rare — suggest Broadcom’s plans to move its headquarters to the United States before it completes its proposed purchase of Qualcomm may not be enough to sidestep a national security review that could threaten the deal.

Part of the CFIUS’ current concern, which is echoed in Cornyn’s letter, could lie in the fact that Broadcom has failed to strike a deal with Qualcomm and has resorted to what is essentially a hostile takeover by putting forward a slate of six Broadcom nominees for Qualcomm’s 11-member board.

If the six are elected on March 6, the vote would give control of Qualcomm to Broadcom’s nominees. That would happen before a CFIUS review or antitrust review is complete.

“I urge CFIUS to promptly review Broadcom’s proposed acquisition of control of Qualcomm’s board, and to act prior to the March 6 Qualcomm meeting to address any national security concerns that may be identified,” Cornyn wrote to Secretary Mnuchin, according to the letter, a copy of which was seen by Reuters.

FILE PHOTO: A sign on the Qualcomm campus is seen in San Diego, California, U.S. November 6, 2017. REUTERS/Mike Blake/File Photo

A spokesman for CFIUS declined to comment. Representatives for Cornyn were not immediately available for comment.

A CFIUS review in itself does not mean a deal will be halted. CFIUS, under former President Barack Obama and current President Donald Trump, has soured on high tech deals, particularly involving semiconductors, or involving sensitive information about American citizens.

Microprocessor expert Linley Gwennap, of the Linley Group, noted that Qualcomm had world-leading chips in several areas.

“Qualcomm is a crown jewel of the American semiconductor industry,” he said. “I would think that CFIUS would be very protective of that. … Singapore is nominally a friendly country but it still seems dangerous for that level of technology to go overseas.”

Broadcom, which is based in Singapore, struggled to win CFIUS approval to buy Brocade Communications Systems late last year. In the end, that approval came just weeks after Broadcom CEO Hock Tan announced in an Oval Office ceremony with Trump that Broadcom would return its headquarters to the United States.

Broadcom declined to comment on the CFIUS process for this deal but reiterated that it intends to move forward with its move to the United States after receiving approval to do so, which is expected on May 6.

Lawyers who take deals to CFIUS and know how the panel thinks said that it was unusual, if not unprecedented, for a company to move to the United States to avoid CFIUS scrutiny. But they also said that the strategy could work.

“Broadcom could very well establish its position as a U.S. person,” one expert said privately to protect business relationships. “Would CFIUS want to look at it? They would want to be comfortable that Broadcom is actually a U.S. person within the meaning of the statute.”

Others cautioned that CFIUS could also look at the make-up of Broadcom’s board and who the major shareholders are as a way to determine if control of the company resides outside the United States.

Reporting by Diane Bartz; Editing by Chris Sanders and Lisa Shumaker

Two Singapore Airbnb hosts plead guilty to unauthorized short-term rentals

SINGAPORE (Reuters) – Two Singaporeans on trial for unauthorized short-term rentals posted on Airbnb pleaded guilty in court on Tuesday in the first such cases under the city-state’s rules on short-term property letting introduced last year.

The two men were charged for letting four units in a condominium for less than six months without permission from Singapore’s Urban Redevelopment Authority and face a fine of up to S$200,000 ($152,000) per offense.

Prosecutors however requested fines of S$20,000 per charge for a total of S$80,000 for each of the two defendants, who spoke in court to plead guilty to the charges. Defense lawyers sought fines of $5,000 per charge.

The Singapore government has pledged to seek public feedback on a regulatory framework covering such rentals after the cases of the two hosts prompted a plea from Airbnb that the existing framework was “untenable”.

Airbnb, founded in 2008 in San Francisco, matches people wishing to rent out all or part of their homes to temporary guests.

The firm has clashed with hoteliers and authorities in cities including New York, Amsterdam, Berlin and Paris, which are limiting short-term rentals in some cases.

Critics blame Airbnb for exacerbating housing shortages and driving out lower-income residents.

Writing by Jack Kim; Editing by Paul Tait

Few phone makers will survive industry's brutal economics: Huawei

BARCELONA (Reuters) – The smartphone industry is bound to consolidate as the heavy investments required to remain competitive mean that, in the long-run, only a handful of firms can make money, the consumer chief of China’s Huawei Technologies [HWT.UL] said on Sunday.

Richard Yu, chief executive of Huawei’s consumer business group, said anyone at this stage in the decade-old industry’s history that had less than 10 percent market share was losing money.

Huawei is the world’s third biggest smartphone maker, trailing leaders Samsung and Apple, with a 10.2 percent market share in the fourth quarter, according to market surveys from IDC and Strategy Analytics.

“In the future, only three to four vendors can survive, maybe only less than four,” Yu told reporters following a product launch event held ahead of the Mobile World Congress.

He said other, smaller Chinese vendors were consolidating, and most would disappear, as they did not have enough resources to invest in the same levels of research and development, marketing and branding needed to gain global scale.

Richard Yu, CEO of the Huawei Consumer Business Group, presents the new “Huawei 5G CPE” router before the Mobile World Congress in Barcelona, Spain, February 25, 2018. REUTERS/Albert Gea

“If your market share is less than 10 percent you cannot be profitable. Over at 10 percent, at least, you can break even (and) over 15 percent you can make money,” he said.

He said Huawei’s smartphone business grew by around 30 percent in the last year, and would grow even faster this year, with strong growth in both January and so far this month.

Richard Yu, CEO of the Huawei Consumer Business Group, shows their 5G chip “Balong 5G01” before the Mobile World Congress in Barcelona, Spain, February 25, 2018. REUTERS/Albert Gea

Huawei could become the second biggest smartphone maker this year or next, and sooner or later could be No.1, he said, speaking after his company unveiled a new notebook PC and two Android tablets.

It declined to launch a new flagship smartphone as it has done in the past at the Mobile World conference in Barcelona. Instead, it is set to launch its new flagship P20 smartphone at a standalone event in Paris next month, where Yu said Huawei would showcase “big and bold” innovation in camera technology.

The device will compete head-to-head with Samsung’s new Galaxy S9 – launched here on Sunday – and Apple’s iPhone X.

Looking ahead to next generation mobile networks set to roll out starting later this year in several major markets, Huawei also unveiled 5G versions of a consumer network router, its own chipset for phones.

Yu said Huawei will launch its first 5G-ready smartphone either in the third- or fourth-quarter, most likely in its Mate line of devices.

Reporting by Paul Sandle; Editing by Eric Auchard and Daniel Wallis

V Is For 'V-Shaped'

I get questions from time to time both from readers and from at least two of my friends on the buyside asking what my “process” is for writing.

Obviously, I’m aware that I write a lot. And sure, sometimes when I step back at the end of the month and take stock of the total number of posts I’ve penned between my site, this platform and one other outlet where I’m a contributing editor, I think “gee, that’s a lot of posts.”

But none of it is really based on a “process” where that means having some kind of template and/or starting out on any given day with a list of posts I want to write and a schedule for writing them. That seems to be what people are looking for when they ask me about “process” and with apologies to anyone who has asked me that question and ends up reading this, that sounds like something akin to torture. If that’s what “process” is, well then you can count me out.

I mean I guess technically I do “work” for myself, but when I say (as I did in my Friday evening missive) that I’m a “slave” to the keyboard, you’ll note that the “slave” characterization was accompanied by the adjective “willing”, and as anyone who has followed me since I adopted the Heisenberg moniker in early 2016 is acutely aware, this has been an evolving transformation that has more to do with circumstance than it does to do with anything else. Mandatory lifestyle changes conspired with my geographical location to put me in a position where all there is to do is write and happily, what I like to write about is a subject that is constantly evolving (markets) and presents new narratives and new twists and turns on a daily basis. So basically, I just freestyle it as the mood strikes. That’s the “process” and I probably don’t deserve as much credit as I get from readers on this platform for being coherent. You’re getting polished Heisenberg here. Over on my site, you get off-the-cuff Heisenberg who is considerably less “procedural” about things.

Anyway, this post is a great example of how these pieces come together. Here it is, Saturday morning, and I was playing with the color scheme on one of my SPX charts to see how different shades of navy blue look on my 4K monitor versus my 1080p monitor while wondering (aloud, unfortunately) what percentage of readers use 4K monitors versus 1080p. Well that S&P chart was zoomed in on February so of course it’s V-shaped. As it happens, that chart window was overlapping a BofAML note pulled up as a .pdf and the title of the BofAML note is: “Post-shock hedges in case V-shaped recovery falters.”

So, I thought the following: “I’ll write something about V-shaped recoveries and I’ll use this anecdote about relying on happenstance rather than ‘process’ as an introduction.” And now here we are, 495 words in and talking about February’s V-shaped recovery. So let’s get to it without further ado. Here’s the chart:

(Heisenberg)

As you can see, the buy-the-dip mentality is not dead.

What accounts for that? Well obviously it’s not possible to answer that question definitively unless you just want to go with something amorphous like: “some people were buying.”

But it is possible to talk about some of the factors that are likely at play and also to think about it in the context of the post-crisis market regime.

For one thing, there’s buybacks. You might recall that two Fridays ago, Goldman noted that on Monday, February 5, the bank’s buyback desk saw the notional value of repurchases on behalf of corporate clients surge to the highest level since the market turmoil that accompanied the August 2015 yuan devaluation. Ultimately, the worst week for stocks in two years ended up being the biggest week on record for Goldman’s buyback desk:

(Goldman)

This week, the bank was out with an update on that and here’s what they had to say:

The Goldman Sachs Corporate Trading Desk recently completed the two most active weeks in its history and the desk’s executions have increased by almost 80% YTD vs. 2017.

They attribute this both to the correction and to the tax cuts. All told, Goldman expects a 23% jump in buybacks in 2018, which means that once again, the corporate bid will be the single largest source of U.S. equity demand.

Some people characterize buybacks as a synthetic short vol. position. I’m not sure I love that characterization, but what’s indisputable is that when you’re explicitly short vol., it helps that the largest source of demand for equities is to a great extent price insensitive (as the corporate bid is). More to the point, there is no question that buybacks have helped to underwrite the buy-the-dip mentality over the past several years. There is both an explicit element (they are actually buying shares) and an implicit element (the corporate bid makes other investors more confident in their own decision to stay long risk) to this dynamic.

In addition to that, the systematic deleveraging (or, more directly, the forced de-risking) catalyzed by the quick surge in volatility reversed itself. Although analysts who monitor flows from risk parity, vol.-targeting strats, CTAs, etc. are generally balanced in their assessment, there’s a rather unfortunate propensity for journalists and some bloggers to only talk about the downside. That is, they’ll be happy to warn you about the forced deleveraging, but then they aren’t so keen on telling you that once that’s run its course, there will be an inevitable releveraging unless conditions continue to deteriorate and this time, things have not in fact continued to deteriorate. As JPMorgan’s Marko Kolanovic wrote on Thursday, “in terms of systematic selling, this is largely over [and] in fact our models show that volatility targeting strategies may now start very slowly rebuilding their equity positions.”

Meanwhile, I’m not entirely sure that hedge funds were forced out of their positions. I’m just kind of winging it here (so as Jeremy Irons put it in Margin Call, “give me some rope“), but note what else Kolanovic says in the same note:

Let’s look at the positioning of investors and expected flows. First, we note that the Hedge Fund beta to equities experienced an unprecedented drop over the market sell-off. This de-risking (and in some cases shorting) happened largely via buying of downside options (and selling of index products) and might not be entirely captured by prime brokerage data. For instance, open interest on index put options rose by ~$500bn shortly after the sell-off. Hedge funds went from a near-record-high equity beta, to a near-record-low equity beta.

Now look at this chart from Goldman that shows you the most prevalent hedge fund positions as of the end of Q4:

(Goldman)

Finally, consider one more chart and the accompanying color from Goldman:

As the S&P 500 suffered its first 10% decline in two years, our Hedge Fund VIP basket declined in absolute terms but outperformed both the broad market and the largest short positions.

VIP

It kind of seems like no one was forced out of these positions and a lot of the stocks in that table are the names that have helped carry the market.

Again, that’s kind of piecemeal and isn’t meant to do anything other than perhaps spark some debate and make you think, but there’s enough in there to support the contention that this was a technical selloff and when it abated, the fundamental backdrop reasserted itself. You’re reminded that on the fundamentals front, Q4 earnings season has seen the highest percentage of bottom-line beats since 2010, with 80% of companies reporting. That’s pretty solid.

But operating in the background here is the same dynamic that’s been effectively running the show for at least three years. I’ve described this at length over on my site and rather than try and paraphrase myself, I’ll just excerpt one recent discussion:

Part and parcel of that dynamic is the idea that the central bank put has become self-sustaining – it runs on autopilot. Why wait on dovish forward guidance (or any other signal from the monetary gods) to buy the dip when you know with absolute certainty that in the unlikely event a drawdown proves to be some semblance of sustainable, policymakers will calm markets? If you know it’s coming, well then you should buy the dip now. This becomes a recursive exercise as everyone tries to frontrun everyone else and before you know it, dips and vol. spikes are mean reverting at a record pace as the prevailing dynamic optimizes around itself.

That right there is how “BTD” morphed from a disparaging meme about retail investors to an viable strategy. It’s a play on everyone else’s expectations about forward guidance. The ultimate irony of the last several years is that the only “alpha” opportunities are to be found in fleeting risk-off episodes at the index level. When benchmarks only go one direction (up) and when the pace of the acceleration is as frantic as it was in say, January, the quest for alpha is largely fruitless. The only “alpha” is buying whatever dip you manage to get from the headline risk surrounding Mueller, North Korea, an errant central banker comment, or [fill in the blank with your favorite tape bomb]. That mentality, once it becomes ingrained, feeds on itself and becomes more efficient over time.

The problem with this (well, besides the fact that stocks won’t always go up) is that thanks to modern market structure, it leads to imbalances or, more poignantly, it makes the market more fragile. We saw this on full display on February 5. The reason for that VIX spike and the subsequent systematic unwind was that thanks to the continual reengagement of the vol. sellers/dip-buyers, vol.-sensitive strats were running record equity exposure and the rebalance risk on those VIX ETPs was sitting at a record high. That scenario was a consequence of the dynamic described above. That’s the thing about self-feeding loops – they’re great on the way up, but they are harrowing when they reverse.

Have a look at this chart from BofAML:

shatteredrecords

(BofAML)

The footnote there explains the methodology, but suffice to say the concentration of what they deem “fragility events” is a direct consequence of everything said above about the intersection of dovish forward guidance from central banks, the dip-buying mentality that predictable forward guidance fosters, and the market structure evolutions that are effectively levered to that mentality.

Implicit in that chart is the fact that the we have already retraced much of the vol. spike. Here’s a brief excerpt from the BofAML note that chart is from:

With US equity volatility retracing at record speed and contagion across assets remaining so far contained, the S&P recorded its largest gain in 5yrs last week. However, concerns that a rapid V-shaped recovery and return to “pre-shock normal” may not be a given, investors are searching for cheap hedges to bolt-on to long positions to gain confidence.

Of course, “searching for cheap hedges” is hardly synonymous with panic.

So while we’re still not there yet in terms of recouping the entirety of the drawdown experienced earlier this month, investors’ propensity to buy the dip and thus to facilitate a V-shaped recovery is clearly still intact.

The issue going forward is that this propensity will almost invariably engender more and more fragility, presaging even more dramatic fragility events. Eventually, it stands to reason that one of these shocks is going to be traumatic enough to short-circuit the dynamic outlined above or, at the very least, to make it far less efficient.

In that scenario, the only thing that would restore the market’s faith would be explicit and forceful jawboning from the Fed, the ECB and the BoJ. In other words, they would need to actually move in and repair the mechanism that makes dip-buying a viable “strategy.”

But therein lies the problem. They desperately need to normalize policy because eventually, they’re going to need some room on rates and on the balance sheet to combat the next natural downturn. Freeing up some countercyclical breathing room (or, more colloquially, “replenishing the ammo”) may very well mean ignoring technical corrections attributable to market structure breakdowns no matter how acute they are.

Because if it comes down to a choice between letting the market experience harrowing bouts of volatility in the short term or stepping in by postponing rate hikes or slowing balance sheet rundown at the possible risk of leaving themselves hamstrung when the cycle turns (i.e. when they’ll really need some ammo), they’re probably going to leave you on your own at this point.

If only to ensure they can save you later.

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.

Yes, Uber Really Is Killing the Parking Business

An email from the CEO of a national parking operator has added some detail to the impact ride-hailing services like Uber and Lyft are having on demand for parking. The picture, at least for those trying to rent you a parking spot, is bleak.

In the email, unearthed from a company report by the San Diego Union-Tribune, Ace Parking CEO John Baumgardner says that demand for parking at hotels in San Diego has dropped by 5 to 10%, while restaurant valet demand is down 25%. The biggest drop, unsurprisingly, has been at nightclubs, where demand for valet parking has dropped a whopping 50%.

The numbers appear to be estimates, and Baumgardner doesn’t describe a timeframe for the declines. The assessment, written in September of last year, is also limited to San Diego, though an Ace Parking executive told the Union-Tribune that it has seen “similar” declines at its 750 parking operations around the United States. The company is focused on using technology, including better parking scheduling and booking options, to remain healthy.

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But much more is at stake than the revenues of the parking business – cities stand to benefit immensely as demand for parking drops. Parking spaces and lots generate relatively little tax revenue or economic activity relative to commercial operations, and by increasing sprawl may actually harm the economy of cities like Los Angeles.

Even back in 2015, cities were already relaxing zoning requirements that set minimum parking allotments, and there are now even more signs that city planners are thinking differently about parking. Perhaps most dramatically, a new Major League Soccer stadium being planned for David Beckham’s Miami expansion team may include no new parking at all – but will have designated pickup zones for Uber and Lyft.

The decline of parking will only be accelerated if and when autonomous vehicles become widespread. That sea-change which will make it easier to locate parking at a distance from urban destinations, and could further reduce car ownership. That will be bad news for the Ace Parkings of the world – but everyone else should welcome the decline of the urban parking lot.

Delta Just Made a Mess of a Wonderful PR Opportunity With the Victorious U.S. Curling Team (Can United Take Advantage?)

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

For most of their lives, Americans don’t care about curling.

On Friday night, however, many were riveted to heavy kettles sliding down the ice, as grown men manically swept away like cleaners on cocaine.

They were even shrieking in Hoboken when they should have been in bed. 

And then the U.S. Curling team won.

The same U.S. Curling team that, four years ago, had their captain John Shuster described by Deadspin as “the choking captain of our choking team of choking curlers.”

Some Americans just can’t bear losing.

You might imagine that the victorious U.S Curling Team is in a good mood.

So its governing body took to Twitter to make a small request of Delta Air Lines.

Perhaps they were joking. Perhaps they were hoping.

I’m a little of both when I occasionally try to incite the sympathy of an airline check-in agent.

Oh, but look how Delta replied.

Oh, no, no, no. 

Ten tons of no.

There aren’t enough no’s to sufficiently express quite what a no response this is.

Naturally, I can see that some might praise the airline for its deep-seated lurch toward equality. 

But the administrative neutrality of the tone was desperately inappropriate.

Delta surely had alternatives.

These men are folk heroes. At least for this weekend. 

Give them something and you’ll get lovely PR from it.

The airline could, for example, have teased U.S.A. Curling to switch to Direct Message and worked something out that would have delighted the team and made Delta look good.

That’s what often happens when a passenger has a complaint. The airline immediately asks them to switch to private communication.

Delta could have worked out a promotional deal. It could have agreed to ferry the team on some sort of goodwill tour around the chillier, snowier parts of America. 

It could have created a special celebration for the team when it got home.

Instead, oh, this. Ugh, this.

The tweet didn’t even say whether the flight was full and therefore its hands were tied.

I contacted the airline to ask if this was the case and will update, should I get wind.

So now United Airlines, it’s for you to knock that Delta kettle out of the airline PR circle thingy and score a fiver. (This is curling terminology, of course.)

United, you’re an Olympic sponsor, after all.

Lay on a special plane, one in which the team can actual curl down the aisle.

The PR would be worth millions.

Beware This Incredibly Silly—But Still Effective—Tax Scam

It’s almost Tax Day, which also means it’s peak tax fraud season. The Internal Revenue Service has played some epic games of cat-and-mouse with phone and online scammers over the past 10 years, but the latest scamming trend for 2018 has a particularly devious twist.

Here’s how it works: Attackers use a taxpayer’s stolen identity information to fraudulently file their returns for a refund. They allow that refund to direct deposit into the victim’s actual bank account. Then the real fun starts. The scammers—posing as the IRS—call the victim, demanding that they return the wrongfully allocated refunds. Since the victim presumably hasn’t yet filed their own taxes, it’s easy for them to assume a mistake was made—and send their money to the crook.

That’s right. They give you the money, and hope they can trick you into voluntarily passing it along to them.

“It is definitely a nationwide problem,” says IRS spokesperson Cecilia Barreda. “When people get this phone call and then they go and look at their bank account and actually do see the money there, that lends a greater credibility to what the person is hearing on the other end of the phone.”

Scammers steal the personal information to file for refunds from tax preparers, accounting firms, corporate data breaches, and other identity-theft schemes. The IRS first warned tax professionals about the rise of the new “erroneous refunds” scam at the beginning of February, and released a followup alert for the general public last week.

So far victims have been hit by at least two different versions of the hustle. In one, attackers pretend to be debt collection agents contracted by the IRS to recover fraudulent or mistakenly issued refunds. They instruct the victim how to repay the money to the “collection agency,” and capitalize on the perceived urgency of receiving a call from a collection bureau. In the other scenario, victims receive an automated call claiming to be from the IRS, in which a voice recording claims that the victim could be charged with fraud and arrested for failing to return the money. The recordings also threaten that the victim’s Social Security numbers will be “blacklisted,” whatever that means. Finally, the recording shares a case number and phone number for the victim to call to “return” the erroneous refund.

“One of the reasons this scam has been successful is because it deviates from other scams in the initial victim contact,” says Crane Hassold, a threat intelligence manager at the security firm PhishLabs, who previously worked as a digital behavior analyst for the FBI. “Most scams like this start with an initial communication that evokes fear or anxiety. This scam, though, starts with a somewhat plausible action—the ‘erroneous refund’—then follows that up with the fear and anxiety tactics. Because the initial contact is unexpected and could be interpreted as a simple mistake, it likely makes the usual fear and anxiety tactics more effective.”

As with other types of tax scams, the crucial thing to remember is that the IRS will basically never call you on the phone, and certainly not to demand payment. A call to discuss taxes owed would always be preceded by multiple paper bills, and the opportunity to appeal the amount owed. The IRS also never requires one specific payment method, and doesn’t ask for credit/debit card numbers on the phone. Finally, the bureau never threatens to bring in law enforcement during a phone conversation.

Knowing that should help people discredit virtually all IRS phone scams. If you do receive an erroneous refund, threatening calls are “not an approach that the IRS would take” to resolving the situation, Barreda says. “If you get a call, hang up and always contact the IRS directly and verify what your tax situation is,” she adds. Your bank can return a direct deposit to the IRS while you contact the bureau to explain the reimbursement, and potentially initiate identity theft protections.

Analysts see at least some good in these scam evolutions, because they mean that the steps the IRS has taken to reduce fraud are working, forcing criminals to find new hustles. Then again, that’s not so reassuring for the millions of taxpayers at risk of facing these threats head on.

The Tax Man Scammeth

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