The #1 Lesson Cryptocurrency Investors Can Learn from the Dot-com Bubble

Life as we once knew it drastically changed in the mid-90s. The Internet’s popularity was on the rise, and many savvy businesses and companies saw the potential of a hyper-connected, digital world. This lead to the dot-com bubble–a sharp rise, and fall, in stock prices that was fueled by investments in Internet-based companies.

With experts predicting we are now in a cryptocurrency bubble, it seems as if history is at risk of repeating itself.  

While we’ve moved far past the early stages of Internet start-ups and e-commerce companies, digital is continuing to change our everyday lives–from how we work, live, and play to the future of money itself. Interest in cryptocurrency, similar to the frenzy we saw in the early days of the dot-com bubble, is reaching a crescendo–yet many experts are already predicting its demise.

Warren Buffet has gone on the record saying that crypto will come to a bad ending. Jamie Dimon, J.P. Morgan’s CEO, called Bitcoin a fraud before later admitting that he regretted making that statement.

Meanwhile, other big-name investors and companies are going out of their way to invest in crypto–from Richard Branson to Microsoft .

But are the naysayers right? Are we headed toward a catastrophic implosion of dot-com level proportions?

Yes, the crypto market is volatile. There are too many unknowns to be certain, but if we look at the histories of companies like Amazon, eBay, Priceline, and Shutterfly, then maybe we can gain some clarity.

These e-commerce companies were born during the dot-com era, and they weathered the storm and emerged as some of the most successful and stable companies in history. The dot-com crash didn’t destroy the concept of e-commerce or the fact that consumers want to buy airline tickets, antiques, or pet food online–there was simply a gold rush in the early development stages. Once the dust settled, however, the strong survived.  

Don’t call it a comeback

In the end, the dot-com bubble was a movement. Smart investors saw the future of digital-based commerce and, as they invested, the movement snowballed into madness. Many of the companies that popped up during that time were run by people who were in over their heads, or they didn’t have the technology to keep up with the demand. When the crash happened, it thinned the herd.

Mona El Isa, the chief executive and co-founder of Melonport, summed this notion up at a recent TechCrunch conference when she said, “The dot-com bubble was messy, but if we look at some of the largest companies that exist today they are a result of the dot-com bubble and they are part of our everyday lives.”

Which leads us back to what we’re seeing with cryptocurrency today. Even if this bubble bursts, the concept of digital currency will not go away. It may wipe out 90% of today’s existing startup currencies, but the strong will survive. Companies, like Kodak, who try to create a currency without providing real customer value may see efforts go to waste. And this will pave the way for the Amazon of cryptocurrency to make its mark on the world.

To further the power of this movement, it’s important to remember that cryptocurrency isn’t a company. It doesn’t have shareholders. It isn’t VC-backed. Which means this movement extends beyond any other economic bubble we’ve seen–it’s happening in an arena that’s removed from the stock markets. So, when, and if, the bubble bursts, it won’t go quietly into that good night. The parameters may change drastically from what we are seeing today, but digital currency–in one form or another–is the future.

How to invest in a movement

So, if cryptocurrency is the future–how do you invest? From a business standpoint, it’s important to look at crypto through a risk-management lens. Business leaders and board members should be learning everything they can about this new trend so they can determine how, where, and why it might affect or fit into the business. Is there a way to offer customers value through cryptocurrency? Is the time right to execute? Is there a long-term strategy in place that will take advantage of the crypto movement when the stormy waters calm down?

These are the types of questions you need to consider. Do what’s best for your business and what’s best for your customer. As with any digital movement, you need to be aware of the trends and aware of how it could change your business. This is the only way to defend your company from possible disruption.

Final word

For anyone who is considering investing in cryptocurrency, it’s important to remember that this is a long-term movement. Our world is becoming increasingly smaller and more reliant on digital means–currency transformation is inevitable.

It’s the smart investors who understand that this isn’t a fragile economic trend. Digital currency will continue to adapt and change over the next few years–and the companies and entrepreneurs who pay close attention now will have the best chance at deftly navigating the troubled waters.

Ford Dividend Stock Analysis

Ever wonder what type of dividend players there are in the automotive field? What about a company that is based in your backyard, right in the wonderful automotive state we call Michigan. During the financial crisis, auto makers based in the US were a taboo, asking for bailouts, struggling mightily with lopsided balance sheets, thinking everything was always going to keep going in the right direction. In the last 5+ years, auto makers have been making a ROARING come back, and one of those makers is the legacy company started by good old Henry. That company is Ford (NYSE:F). How did Ford do in 2017, and what does it have on the horizon, now that 2018 has started?

Ford reported earnings earlier last week and guess what? The company reported some of the best earnings it has ever reported. Top line revenue at $156B was over 3% better than 2016, with revenue increasing in both major categories – automotive and financial services. Net income, with the help of the Tax Act, was $7.6B, or 65% better than prior year. The CFO, in the same linked article above, reported over $3B to be distributed to shareholders this year. From the cash flow statement, the company sent dividends out at $2.5B and purchased back stock to the tune of $131M, therefore, one shareholder could only expect more in both categories in 2018!

How about the balance sheet at year end? The current ratio (current assets over current liabilities) calculated to be 1.23 (better than 2016’s 1.20), which I like, as 1 is usually a baseline for me. The quick ratio (current assets less inventory over current liabilities) is 1.12 (better than 2016’s 1.10), even better for me, and above the 1.0 safety zone here. In conclusion, the balance sheet has gotten better since last year from this brief review, with more cash and less long-term liabilities. Further, what could improve the income statement and balance is its new development and forward outlook on mobile technology and adding that as a primary service for customers and to create their own “eco” system. In order to accomplish this, the company acquired a start-up technology company – Autonomic – which specializes in architecture and leverage for the automotive industry. The primary focus will be to support its mobility cloud platform, Chariot (Ride-based program), and a medical/non-emergency platform. It didn’t stop there, either, as Ford also announced the acquisition of TransLoc, allowing it to leverage its operational expertise and network of city relationships.

Now, being the Dividend Diplomats, we must run it through our Dividend Diplomat Stock Screener! Here, I’ll break down its price to earnings (P/E) ratio, dividend yield, dividend growth rate, and payout ratio. These metrics when combined together – along with the assessment of the additional investments it’s made and its financial performance – help form a conclusion on whether or not to invest in this company in conjunction. Let’s go through each factor below.

1) Dividend Yield: The current dividend at $0.15 per quarter or $0.60 per share equates to a 5.15% incredible dividend yield and well over the S&P 500 on average. However, if you add the (typically) special dividend during the year, the yield gets better. This year the company announced an extra $0.13 per share on top of the $0.60. Therefore, at $0.73 for the year, this equates to 6.27% yield! Staggering. This is all based on the recent price of $11.65. I love what I’m seeing, so far, from Ford.

2) Payout Ratio: Typically, we use a 60% payout ratio threshold for stocks to pass our screener. At $1.91 reported earnings per share, the $0.60 dividend being paid, the payout ratio equals 31%. Now, if we take in the special dividend into consideration, this equates to 38%. Still extremely low and is very intriguing. Why is this important? The chance of cut is not likely, and the chance of future dividend growth is more than likely. Fitting, as that’s the next point to look at.

3) Dividend Growth Rate & History: This is where it gets tough. Ford has not increased its baseline quarterly dividend since January of 2015, when it went to 10 cents to 15 cents per share per quarter. 2016 is the year the company introduced the special dividend once per year, so 2018 makes the third year in a row for that. As a dividend growth investor, this is a downside, and I can see the company trying to manage the capital better and then having the option in the form of a special dividend to give more back. This is interesting and something I need to keep in mind.

4) Price to earnings (P/E) ratio: For this metric, we look for the company’s P/E ratio to be lower than the broader market’s ratio to assess the current valuation of the company. Currently, the S&P 500’s P/E ratio is in the mid-20s area. At the price of $11.65, the price to earnings ratio is 6.10 when using $1.91 earnings per share. Per analysts’ expectations, though, for 2018, they are expecting only $1.61. Therefore, this is 7.23, which is still insanely low… hmm… what am I missing here? I like what I’m seeing.

Ford Dividend Stock Analysis Conclusion

Ah, Ford! I love that this is the first deep automaker dividend stock analysis in what feels like a long time. At well over $150B in annual revenue, it is definitely the massive player here in the States. The balance sheet is strong, it is solvent and liquid, with an improvement in balance sheet to boot. Earnings were strong on all fronts, with top line revenue increasing on a go-forward basis over the last few years. Additionally, I like what the company is doing from a technology and mobility aspect, and thinking ahead. I assume it is competing intensely with the other automakers and the game-changer Tesla (NASDAQ:TSLA).

Now, being a dividend growth investor, there are many things I like, and many things I don’t like. I love the dividend yield, the gifts of special dividends each year, the payout ratio and the price to earnings ratio. It’s hard being a dividend growth investor without that second key word – growth. Without increasing the dividend in the last two full years (2016, 2017), that’s a hard pill to swallow. I understand Ford pays the special dividends, but you want to see a consistent track record in increasing the standard dividend. However, I will say that I expect it to increase that dividend this year, even if it is $0.02 per share to $0.17 per share. This would, with the special dividend of $0.13, be 50% based on the forward EPS projections of $1.61. This still is a safe zone and is smack dead in the middle of 0-100% on the payout ratio standpoint.

What do you think? What are your thoughts on the analysis above and the automaker arena currently? Anything I am missing or not seeing from the financial statements? Currently, I am on hold and will monitor prices at this time. Thank you for stopping by. Good luck and happy investing!

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.

Spillover Risk: Cryptocurrencies May Pose A Very Real Threat To Stocks And The Economy

Last month in “It’s A Mad, Mad, Mad World”, I took a stab at explaining how and why cryptocurrencies represent a systemic risk.

Over the last year, I’ve developed a pretty solid understanding of Bitcoin, blockchain, and the cryptosphere in general. But if you’re a regular Heisenberg reader, you know that my definition of “solid understanding” is a bit different from most people’s definition.

Being able to talk intelligently about something isn’t even close to what I would consider sufficient when it comes to putting digital pen to digital paper. That’s why everything I’ve written about cryptocurrencies and Bitcoin over at Heisenberg Report revolves around price action, psychology, the reasons why cryptocurrencies aren’t viable as “money” and the possible knock-on effects for other assets and/or the broader economy (i.e. systemic risk).

I feel comfortable discussing those aspects of the cryptocurrency phenomenon because those discussions lean heavily on things I am extremely qualified to talk about. That is, when it comes to price action, investor psychology, what it means for something to be a currency (or to be “money”, so to speak) and systemic risk, I have much more than a “solid understanding”. In those matters, I’m a walking encyclopedia. What I do not posses encyclopedic knowledge of are the technological underpinnings of digital currencies. Again, I have a solid understanding of the technological points, but you’re not going to see me penning manifestos about why blockchain is or isn’t going to change the world or why Ripple can or can’t upend SWIFT.

Just to be clear, I don’t think developing that depth of understanding when it comes to the technology is important right now for anyone other than the people who are behind this movement and maybe a handful of academics who can perhaps help discern how the technology can actually be applied in a way that has some utility outside of speculation and/or outside of providing what Nassim Taleb has called “an insurance policy that will remind governments that the last object establishment could control, namely, the currency, is no longer their monopoly.”

The reason I don’t think it’s necessary for the rest of us to get too bogged down in it is precisely because by the time it matters, something bad will have happened that will ultimately force governments to regulate cryptocurrencies so heavily that they will cease to be objects of public fascination and thus vehicles for speculation.

There are a number of things that can go wrong here, some of which obviously have to do with the potential for cryptocurrencies to serve ostensibly nefarious purposes, but what I try to zoom in on are the possible knock-on effects for traditional markets and also for the economy more generally.

One particularly disconcerting development is that according to a LendEDU poll published the day after Bitcoin peaked in December, nearly 20% of people were using a credit card to get in on the craze:


Hilariously (or not, depending on your penchant for dark humor), that actually coincided with a spike in Google searches for “can you buy Bitcoin with a credit card?”:

(Google Trends)

Correlation doesn’t equal causation, but it seems like some coincidence that the publication of the poll cited above, the peak in that Google Trends chart, and Bitcoin’s high at roughly $20,000 all came within the same 48-hour window.

The risk there is clear. That effectively represents a high interest loan collateralized by an “asset” that’s depreciated by roughly 50% over the ensuing month. The chances that ends up showing up in, for instance, banks’ losses on credit cards are probably low, but you can’t rule it out.

On top of that, at least one bank recently “went there” by trying to estimate what the “wealth effect” (i.e. an increase in consumers’ propensity to spend based on unrealized gains in financial assets) might be from Bitcoin trading in Japan. The fact that anyone is even talking about that is unnerving. If, for instance, consumers did in fact end up spending more based on gains in their cryptocurrency accounts and that was reflected in high level economic data, the sugar high from that could evaporate in the event those unrealized crypto gains disappear. That could create noise in the data and make q/q and m/m compares more difficult, complicating policymaker reaction functions.

But beyond all of that, it’s becoming increasingly likely that traditional risk assets will begin to take their cues from the crypto market. Deutsche Bank was out with a great note this week describing how, far from the “safe haven” status crypto proponents often ascribe to Bitcoin, cryptocurrencies in fact represent exactly the opposite. That is, they represent the new frontier in risk-taking, replacing short vol. as the proxy for risk sentiment. Here’s the bank’s Masao Muraki:

The current ‘triple-low environment’ of low interest rates, low spreads, and low volatility has given birth to new asset classes like implied volatility (ETFs selling volatility), and cryptocurrencies. The prices of both asset classes have plummeted and rebounded simultaneously and in 2018, correlation between Bitcoin and VIX has increased dramatically.

The problem here is that just as the proliferation of strategies that explicitly or implicitly rely on the low-volatility environment continuing has the potential to create a “tail wagging the dog” dynamic whereby vol. spikes force selling in the underlying, if cryptocurrencies are increasingly viewed by larger investors as a proxy for risk sentiment, sharp moves have the potential to spill over. Here’s Deutsche again:

Cryptocurrencies are closely watched by retail investors, affecting their risk preferences for stocks and other risk assets. Although institutional investors recognize that stocks and other asset valuations may have entered bubble territory (US equities’ average P/E is around 20x), they cannot help but continue their risk-taking. Now, a growing number of institutional investors are watching cryptocurrencies as the frontier of risk-taking to evaluate the sustainability of asset prices. The result is that institutional investors, who are supposed to value assets using their sophisticated financial literacy, analysis, and information-gathering strengths, are actually seeking feedback about the market from cryptocurrency prices (which are mainly formed by retail investors). We believe the correlation between Bitcoin and VIX can increase as more institutional investors begin trading Bitcoin futures.

Underscoring that is a new piece out in the Wall Street Journal that documents the extent to which retail brokerages are seeing an avalanche of inflows from what they say are first-time investors (millennials are specifically named) attempting to capitalize off the gains in crypto-related stocks and, when they’re allowed to trade them, Bitcoin futures. Here’s the Journal:

Discount brokerages TD Ameritrade Holdings Corp., E*Trade Financial Corp. and Charles Schwab Corp. reported surges in client activity at the end of 2017 that have accelerated in January. The firms attributed much of the activity to retail, or individual, investors who are opening brokerage accounts for the first time, some of them lured by the boom in cryptocurrency and cannabis investments.


“Crypto and cannabis…volumes have been up big,” E*Trade Chief Executive Karl Roessner said Friday on the firm’s fourth-quarter earnings call with analysts and investors. Despite the bitcoin-futures offering not being “a material offering,” Mr. Roessner said about a 10th of daily average revenue trades—a key metric for brokerages—has so far this month been blockchain- or pot-related.

Keep in mind that the obvious risks in inherent in all of that come on top of the risk associated with clearing crypto derivatives with other assets. Those risks were laid out in an open letter to the CFTC penned by Thomas Peterffy, the billionaire founder and chairman of Interactive Brokers, back in November.

Earlier this month, the Cboe’s suggested that futures on other cryptocurrencies could eventually be in the cards. To wit, from comments Chris Concannon, Cboe’s president and chief operating officer, made at a press briefing in New York:

You look at the entire crypto space and you look at what other products have the liquidity and the notional size, a derivative makes sense.

I guess that depends on your definition of “makes sense”. For now, crypto ETFs are still getting quite a bit of pushback from the SEC, but it’s probably just a matter of time before we cross that bridge as well.

But irrespective of how this develops, crypto risk is already embedded in markets and to a lesser extent in the broader economy as detailed above. And I could give you a long list of other arguments to support the same contention.

To be clear, more and more people are starting to voice concerns about spillover effects. For instance, Wells Fargo’s Chris Harvey has been very vocal about the risk to stocks over the past couple of months. Here’s what he told CNBC in his latest appearance on the network:

We see a lot of froth in that market. If and when it comes out, it will spill over to equities. I don’t think people are really ready for that.

No, people are probably not “ready for that”. And part of the reason no one is ready is because it’s not clear that everyone understands the points Deutsche Bank made in the note cited and excerpted above.

What all of this suggests for investors is that you’re going to have to start watching cryptocurrencies the same way you might watch the VIX. If it’s true that larger investors are going to start using cryptocurrencies as a proxy for risk sentiment, well then you might want to start asking yourself what that might mean in terms of the potential for a large drawdown in the space to impact what you previously assumed were unrelated assets.

I’m not saying you should obsess over every tick in Ripple, but when you see things like that $400 million theft from Coincheck on Friday, you should consider that fair warning about how unstable that market really is.

One last thing: I’m not sure the flipside of everything said above is ever going to be true. That is, even if Bitcoin and other cryptocurrencies have another year like 2017, you’re never going to be able to reliably extrapolate anything from that about a positive wealth effect for the economy or for increased risk appetite in equities. Why? Simple: because cryptocurrencies are so volatile that any of the positive externalities from a sharp rally have to be discounted because they can all be negated virtually overnight. You cannot extrapolate anything on the positive side from appreciation in an asset that, like Bitcoin, is 15-25x as volatile as the S&P, 20x-40x as volatile as gold, and 5x-11x as volatile as oil (according to Barclays and as measured by the coefficient of variation):


Nothing further. For now.

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

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

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

Ford Paves a Path From Big Automaker to Big Operating System

In its 114-year history, Ford has been many kinds of automaker. A manufacturing innovator, a hawker of Mustang muscle, a pickup powerhouse. Now the company that helped put a car (or two) in every garage wants to be something else altogether: an operating system.

“With the power of AI and the rise of autonomous and connected vehicles, for the first time in a century, we have mobility technology that won’t just incrementally improve the old system but can completely disrupt it,” CEO Jim Hackett said in a keynote address at this year’s Consumer Electronics Show, trumpeting the pivot. “A total redesign of the surface transportation system with humans and community at the center.”

As Ford executives move to execute the plan, they unveiled yesterday a reorganization of the automaker’s young mobility business, with two acquisitions to help it along. It’s all in service of a new, very 21st century goal. Ford will put less effort into convincing people to plunk down their credit cards for personal cars (though that’s still important) and more into moving them from A to B, with a little Ford badge tacked onto whatever gets them there.

It’s a turbulent time for traditional automakers, which have to keep making money today while aggressively prepping for the market changes—carshare, ridehailing, self-driving—that will happen tomorrow. Ford’s news comes eight months after the company dismissed CEO Mark Fields in favor of Hackett, a former furniture exec who oversaw the formation of Ford’s mobility subsidiary—and promised a greater vision for the future. Earlier this week, the Detroit automaker posted disappointing quarterly profits. Ford blamed rising metal prices while CFO Bob Shanks said, “We have to be far fitter than we are.”

In lean times, every expenditure merits extra scrutiny. And while Ford Mobility President Marcy Klevorn did not disclose how much it spent on its new companies, she says they’re important steps on Ford’s path to becoming more than a big ol’ automaker. “We did an assessment of our strategy and what our gaps were and the speed we wanted to go,” she says. “We looked at where we thought we needed a really fast infusion of help.”

Still, it’s all a little woolly. The thing about being a platform that connects the world is that others have to agree to come aboard. So while Ford tries to woo partners—other carmakers, mobility companies like Uber or Lyft, carsharing companies, bikesharing providers, entire cities—the carmaking continues. Make money now, prep for tomorrow.

OK, let’s look at the details of this new arrangement for tomorrow. Acquisition A is Autonomic, a Palo Alto–based company with a cloud-based platform called … wait for it … the Transportation Mobility Cloud. Autonomic seeks to build a kind of iOS for cities, managing data and transactions between city-dwellers and agencies and companies that provide payment processing, route mapping, mass transit, and city infrastructure services. That sounds vague, because it is.

“By making all these different services available we have no idea what’s going to come so we’re super excited,” Autonomic CEO Sunny Madra told Fortune Thursday. Autonomic seeks to be the go-to platform for other car manufacturers, too, and Klevorn indicated Ford hopes to monetize its cloud service quickly. Somehow.

Acquisition B is TransLoc, a 14-year-old Durham, North Carolina–based company that makes software to help cities, corporate campuses, and universities manage their transportation systems, from traditional fixed-route service to on-demand ridehailing apps like Uber and Lyft. “Ford is interested in taking the streets back in the city, and getting more people out of single occupancy cars,” says CEO Doug Kaufman. “I think one of the reasons that we ended up with Ford and not some other suitor is because our missions are so aligned.” Ford’s execs said they would lean on TransLoc’s existing sales relationships with hundreds of cities and transit agencies to accelerate its platform plan.

Meanwhile, the company is restructuring its Ford Mobility subsidiary. Autonomic is moving into a new accelerator section called Ford X. The Mobility Business Group will handle microtranist service Chariot, car services app FordPass, and digital services. Mobility Platforms and Products will cover autonomous vehicle partnerships and transportation as a service. And a new mobility marketing group will sell it all to the world. (Argo AI, the autonomous vehicle developer that Ford plunked $1 billion into last year, is still technically an independent company.)

It’s close to a throw-it-all-see-what-sticks move, but it does show Ford is charting a different path into this new world than its great rival. General Motors, which acquired startup Cruise Automation in 2016, is all about the autonomous and electric vehicle, with self-driving Chevy Bolts testing on roads in Phoenix and San Francisco. It’s even starting to think about making actual, honest-to-goodness driverless vehicles, this month showing off a design for a steering wheel– and pedal-free EV, and touting plans to get the thing on the road by 2019. The company’s Maven service, which provides car rental and sharing in 11 American cities, could be a great, data-hoovering starting point for a delivery and ridesharing service. And GM employees in San Francisco are using Cruise Anywhere, an Uber-like platform, to catch rides in self-driving testing vehicles. But GM hasn’t as overtly attempted to partner with cities yet, and its broader mobility strategy is hazy. Will GM provide transportation services and not just an excellent autonomous, electric car? Can any American automaker do that?

Ford has been pretty consistent about its admittedly hazy vision for the future of mobility. (At least, consistent with its messaging.) “The bigger risk is doing nothing,” executive chairman Bill Ford told WIRED back in 2015, as he outlined a future where a single, digital ticket could buy you a ride on a car, taxi, subway, bus, or bicycle. “I am very confident that we can compete and morph into something quite different.” Now it’s time to deliver.

Pivot! Pivot!

Did Mnuchin Signal A Policy Shift Today?

Did US Treasury Secretary Mnuchin signal a change in the US dollar policy? Probably not. As Mnuchin and President Trump have done before, a distinction was drawn between short- and longer-term perspectives. In the short-term, Mnuchin says weaker dollar is good for US trade and “other opportunities”. In the longer term, Mnuchin explicitly acknowledged, “The strength of the dollar is a reflection of the strength of the US economy.”

The market chose to focus on the first part of the comment because it was already selling dollars and this offered justification at an important inflection point. The dollar has strung together a 4-5 week slide despite macroeconomic conditions, including strong growth, tax cuts, the relative and absolute increase in interest rates, and the anticipation of additional Fed tightening, usually associated with a stronger dollar.

Mnuchin unknowingly pushed on an open door. “Unknowingly” because it did not break new ground, and Commerce Secretary Ross tried clarifying the statement relatively quickly. Mnuchin may have been the most surprised by the impact of his comments. One gets a sense that he is still learning the nuances of his position and, perhaps, the disdain with which the administration holds mainstream media, obscured by how the media and markets hang on every word of the Treasury Secretary, especially regarding the dollar.

In some ways, Mnuchin’s precise meaning is unimportant. The point is that they were said within an important context. The Trump administration just levied protective tariffs on solar panels and washing machines. It is expected to decide soon on steel and aluminum. President Trump has threatened action on China’s intellectual property rights violations as well.

The US is blocking the appointment of judges for WTO panels, which will jeopardize the conflict resolution mechanism (the teeth) of trade practices. Although President Trump has suggested that the NAFTA talks are progressing, many still fear that the talks will collapse due to US demands or withdrawal, as the president has threatened.

Through the mid-1990s, the US and other countries habitually wanted to directly influence the foreign exchange market. Countries sought competitive advantage. However, beginning with Rubin’s “strong dollar policy,” best practices evolved toward letting markets determine exchange rates. This is now the official position of the G7 and G20. In effect, the foreign exchange market was de-weaponized.

That is the real meaning of the much-maligned strong dollar policy. The US would not use the dollar’s exchange rate to secure some trade or policy concession or purposely seek to depreciate the dollar to reduce its debt burden. With the disruption potential of the US administration, investors and allies are rightfully and genuinely concern that this is another part of the modern liberal global order that may be abandoned. It may be abandoned, but it is not being abandoned today.

As we noted, the dollar has been falling persistently since the middle of December. It looked as if there may have been a window of opportunity for it to stabilize this week. The technical conditions were stretched, market positioning extreme, and the Bank of Japan and European Central Bank would likely push against speculation of a near-term change in their respective policies.

Perhaps, concerned about triggering the ire of the mercurial US administration, European and Japanese officials have been particularly circumspect in their remarks about their currencies strength. The new head of the Eurogroup (eurozone finance ministers) Centeno did not express concern about the euro’s strong appreciation. The ECB’s Constancio’s remarks were a bit more pointed but simply noted that premature tightening would jeopardize the inflation target. Japan’s Finance Minister Aso saw no problem with the dollar approaching JPY110 but sought a gradual adjustment.

There is another reason that Mnuchin most likely did not announce a weak dollar policy today. A week from now, the US Treasury will announce its quarterly refunding plans. Mnuchin has previously acknowledged that there will be a substantial increase in Treasury issuance this year. Last year’s net sales were around $550 bln. This year, net issuance is likely to be double that if not a bit more. A third or so will be T-bills when the debt ceiling is eventually lifted.

The increased supply meets unknown demand in the sense that the Federal Reserve will be buying progressively less as it does not reinvest the full amount of maturing paper. In the first half, the Fed will not replace $150 bln, and in the second half, it will not replace $270 bln.

China and Japan, the two largest holders of US Treasuries, were net sellers in November, the latest TIC data showed. As the dollar falls, other central banks in Asia appear to be inclined to buy Treasuries. Europe seems cool to Treasuries. Germany still offers negative yields out six years and France out four years, but investors seem to be more attracted to the periphery of Europe than the US bond market.

The point is that it beggar’s belief that Mnuchin was talking the dollar down, introducing new currency risk, ahead of the quarterly refunding and a significant increase in the supply of Treasuries in the months ahead. Understanding what Mnuchin really said will not stop the dollar from falling. Many momentum players have their sights set on $1.25-1.26 for the euro, $1.45 for sterling, and JPY108.

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

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

Intel Says the Patch Designed to Fix Flawed Chips Is Faulty

Intel Corp (intc) said on Monday that patches it released to address two high-profile security vulnerabilities in its chips are faulty, advising customers, computer makers and cloud providers to stop installing them.

Intel Executive Vice President Navin Shenoy disclosed the problem in a statement on the chipmaker’s website, saying that patches released after months of development caused computers to reboot more often than normal and other “unpredictable” behavior.

“I apologize for any disruption this change in guidance may cause,” Shenoy said. “I assure you we are working around the clock to ensure we are addressing these issues.”

The issue of the faulty patches is separate from complaints by customers for weeks that the patches slow computer performance. Intel has said a typical home and business PC user should not see significant slowdowns.

Intel‘s failure to provide a usable patch could cause businesses to postpone purchasing new computers, said IDC analyst Mario Morales.

Intel is “still trying to get a handle on what’s really happening. They haven’t resolved the matter,” he said.

Intel asked technology providers to start testing a new version of the patches, which it began distributing on Saturday.

For more on the chip security flaw, watch Fortune’s video:

The warning came nearly three weeks after Intel confirmed on Jan. 3 that its chips were impacted by vulnerabilities known as Spectre and Meltdown, which make data on affected computers vulnerable to espionage.

Meltdown was specific to chips from Intel, as well as one from SoftBank Group’s ARM Holdings. Spectre affected nearly every modern computing device, including ones with chips fromIntel, ARM and Advanced Micro Devices.

Problems with the patches have been growing since Intel on Jan. 11 said they were causing higher reboot rates in its older chips and then last week that the problem was affecting newer processors.

The Wall Street Journal first reported Intel asking customers to halt using the patches.

Infrastructure Play Yields 12.2%, 25% Upside, Insiders Buying This MLP

This research report was jointly produced with High Dividend Opportunities co-author Philip Mause.

SunCoke Energy Partners, L.P. (SXCP) closed recently at $19.45 per unit. It currently pays a distribution of $2.376 per unit per annum for an annual yield of 12.2%. At its current price, SXCP is a big bargain in a market in which attractive risk/reward trade offs are becoming more and more difficult to find.

The Businesses – SXCP’s primary business is the production of coke for steelmaking facilities. Coke is produced by “baking” metallurgical coal at high temperatures. SXCP has four large facilities – each of which serves a large steelmaker under a long term take or pay contract. These contracts also provide for the pass through of SXCP’s costs. SXCP’s facilities are the most modern and environmentally advanced in the industry. Most of the industry is still using older facilities which are likely to be scrapped over the next several decades. SXCP’s 4 contracts expire in 2020, 2022, 2025 and 2032. It is important to note that the coke business is not dependent upon the various factors which affect the demand for thermal coal (used primarily to generate electricity). Thus, the long term decline in the use of thermal coal in the United States due to competition from natural gas and renewables has no effect on SXCP’s coke business.

SXCP also has a growing coal logistics business. This business involves the shipping of coal primarily but not exclusively for export markets. Some of SXCP’s facilities can be (and likely will be) used for other dry or wet bulk shipping functions in the future. Since the election of President Trump, coal production has increased somewhat in the United States according to Energy Information Administration (“EIA”) data. However, domestic consumption of coal has not increased. The variable that has increased enormously in 2017 is coal exports. These exports have nearly doubled in one year and the increase for 2017 in comparison with 2016 will probably amount to some 50-60 million tons of coal. President Trump’s commitment to revive the coal industry depends very very heavily on the continued increase in coal exports and SXCP is well positioned to benefit from that development.

Financial Performance – SXCP has consistently performed well financially. Its long term take or pay contracts provide it with revenue stability. That said, it achieved banner results in Q3 2017. 2017 nine month numbers are up sharply from 2016. Revenue is up by 9% and adjusted EBITDA is up by 13% for the first nine months of 2017 compared with the comparable period in 2016. Trailing twelve month (“TTM”) adjusted EBITDA is now $227.2 million and TTM distributable cash flow (DCF) is $126.6 million. SXCP issued guidance for full year 2017 with its third quarter financial report and now guides to adjusted EBITDA of between $210 and $220 million. Guidance DCF for full year 2017 is now between $119 and $130 million. Using TTM DCF, the per unit DCF is $2.74 (SXCP has a very stable unit count of 46.2 million) which – at the current unit price – produces a dirt cheap price/DCF ratio of 7 times for a company with very stable revenue under long term contracts.

Leverage – SXCP has gross debt at $818.9 million and net debt (debt minus cash) of $792.0 million. Using the mid-point of 2017 adjusted EBITDA guidance ($215 million) this produces a debt/adjusted EBITDA ratio of 3.7. Arguably, this should be somewhat offset by an excess of inventory and accounts receivable ($131.3 million) over accounts payable ($69.5 million) but, even without such an adjustment, leverage is not unreasonable for a company with a stable stream of revenue. SXCP has announced a goal of reducing leverage to a ratio of 3.5 but the need to do this is not pressing.

Distributions – SXCP pays distributions of 59.4 cents per quarter or $2.376 per year for a yield of 12.2%. It has paid at this level since June 2016. Given the current DCF level, there shouldn’t be any pressure to cut the distribution but, given the desire to reduce leverage, there probably won’t be any sizable increase in the near term either. Incentive distribution rights for SXCP’s parent, SunCoke Energy (SXC) kick in at 47.4375 cents per quarter (15%) increasing to 25% at 51.5625 cents per quarter and 50% at 61.875 cents per quarter which tends to make a large scale distribution increase from the current level rather expensive.

Unit Ownership – SXCP’s parent, SXC has been acquiring units at a rapid pace. In the one year between 9/30/2016 and 9/30/2017, SXC’s ownership of SXCP units increased from 25.4 million to 27.4 million while the number of publicly owned units declined from 20.8 million to 18.8 million. SXC attempted a merger in the past and may be setting the stage for a consolidation by buying up more and more SXCP units. SXC recently attempted a consolidation which was rejected by SXCP as being insufficiently remunerative to SXCP unit holders. By buying more and more SXCP stock, SXC will be able to offer more attractive terms for the smaller and smaller number of publicly held units. Below is a list of share purchases by parent SXC over the past month. If we go back 1 year, the list is enormous!


We can note that the most recent purchases by SXC were at $17.90/share for each SXCP share. SXC still has unused authorizations to purchase up to $64 million worth of SXCP units (more than 3 million units) and will likely use these authorizations on an opportunistic basis.

Risk Factors – The first major risk is a possible disruptive consolidation attempt. The risk is that when the deal is announced the two stocks could decline in tandem. Part of the reason for this is that it could be too complex for retail investors to determine exactly what the combined entity would be worth in the aggregate as well as on a per-share basis. Furthermore, many income investors could drop the shares of SXCP due to a possibly lower dividend yield for the combined entity.

The other major risk factor is a large scale collapse of the domestic steel industry leading to either defaults on current contracts or much less attractive terms when contracts come up for renewal. Because SXCP’s facilities are the best in the industry they would likely be the last ones to be shut down in a pull back. It would also be a blow to the Trump Administration for the US steel industry to incur a major downturn and public policy will probably be mobilized to prevent this result. Even after Trump leaves office, politicians are now aware of political risks in steel country states (Pennsylvania, Ohio, etc.) and will try to avoid negative outcomes for the industry.

SXCP will be a big beneficiary from new “infrastructure spending”

The domestic steel industry would be a big beneficiary of the activation of the long-awaiting federal “infrastructure” program. Infrastructure investment would involve large scale use of steel in airports, harbors, bridges, and highways. There would almost certainly be provisions designed to assure that domestic steel would be used or at a minimum would receive a preference for use in the infrastructure program.

Bottom Line – Trading at 7 times trailing twelve month DCF, SXCP is a bargain. Its parent has been buying up the stock voraciously. Its sources of revenue are stable and there is reason to believe that there is some growth potential. SXCP is probably disfavored because it is viewed as a “coal stock” by investors who don’t know the difference between coke and thermal coal. The consolidation issue is a real one but it is likely that investors now will wind up in good shape even after a consolidation although it is possible that they may have to endure a temporary dip. SXCP is probably one of the safer double digit yield stocks now available and is a very very strong buy at this price level. A fair price for SXCP should be 9 times TTM DCF or $24.66 (or 26% higher from here); this would produce a still attractive yield of nearly 10%.

Disclosure: I am/we are long SXCP.

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.

Rocket Lab Test Flight Launches Three CubeSats to Orbit

The launch company Rocket Lab has amusing names for its missions. The first, in May, was called “It’s a Test” (it was). When the staff debated what to call the second launch of their diminutive Electron rocket, so sized (and priced) specifically to carry small satellites to space, they said, “Well, we’re still testing, aren’t we?”

They were. And so “Still Testing” became the name of Rocket Lab’s second launch, which took place on January 20, at around 8:45 pm Eastern Standard Time. In December, the company canceled multiple attempts before rescheduling the launch window for 2018. The livestreamed rocket lifted off from the Mahia Peninsula in New Zealand, headed for someplace with an even better view.

Despite the uncertainty surrounding the launch (or any test launch, for that matter), the rocket was carrying real payloads for real customers: three small satellites, one for a company that images Earth and two for one that monitors weather and ship traffic. But why on Earth would a satellite company choose a rocket-in-progress when there are so many reliable launchers out there? After all, even established rockets blow up sometimes.

Rocket Lab

The short answer is that smallsats—which the Electron was built to transport, exclusively—are by nature expendable. Smallsat makers like Planet and Spire, the two clients on this mission, have ever-growing, genetically similar populations of orbiters. So losing one or two in a less-than-successful test flight? Probably worth the risk. Smallsat companies are willing to put their hardware on this particular liftoff line because the Electron is poised to be the first commercially bookable rocket built specifically for small payloads, which typically have to piggyback on big, expensive rockets with big, expensive payloads that don’t launch often enough and aren’t always headed to their orbit of choice. In the next decade, 3,483 small satellites (between 1 and 100 kilograms) will go to space, generating just over $2 billion of launch revenue, according to the Small Satellite Markets, 4th edition report, which research and consulting firm Northern Sky Research released last month. In this future world where thousands more smallsats provide environmental, economic, and even political intelligence, as well as Earth-covering internet, the test-steps necessary to get on up to space quickly, cheaply, and precisely seem worth the risk not just to Planet and Spire but, perhaps, to you and me.

But boy, was there risk. While Rocket Lab’s first Electron didn’t explode and did reach space—and so gets at least an A- for its first attempt—“It’s a Test” didn’t quite get to orbit. After an investigation, Rocket Lab determined that, four minutes post-blastoff, ground equipment (provided by a third party) temporarily stopped talking to the rocket. When communication breaks down, Official Procedures demand that safety officials stop the flight. And so they did..

But the rocket itself, according to the same investigation, was sound—so the company moved on to a test delivery. “It’s really the next logical step,” says Peter Beck, Rocket Lab’s founder.

Beck seems uncannily logical about the risks his young company is taking. When asked about his feelings about launching actual stuff on “Still Testing,” he replied that doing so certainly involved extra actual tasks. “I’m not sure if you can become extra nervous or extra excited,” he said. That sentiment fits with the launches’ pragmatic names. And those fit with New Zealanders’ general pragmatic streak, says Beck (he cites some of the country’s names for flowing water: “River One,” “River Two,” “River Three”).

For their part, Planet and Spire are here for that no-nonsense-ness. Planet already has around 200 satellites in orbit, so adding one to its flock of so-called “Doves” would be good but not critical. Besides, says Mike Safyan, Planet’s director of launch, “we picked one we wouldn’t miss too much”: a sat named Pioneer. It’s a double meaning, says Safyan. First, it’s an homage to NASA’s old missions, on whose shoulders they stand.

Second meaning: They are pioneers. “There is this New Space wave that Planet is very much at the forefront of and Rocket Lab is very much at the forefront of,” says Safyan.

This is what the forefront looks like, by the way: You can book space on an Electron rocket online—just click the size of your smallsat!—the same basic way you’d book a bunk on Airbnb.

Spire, too, is into it. Jenny Barna met Peter Beck before she had her current job, as the director of launch at Spire, whose satellites aim to keep track of aeronautical and nautical-nautical traffic, as well as weather. Back in her days at SSL, which makes spacecraft and communications systems, a coworker invited her to a presentation Beck was giving on-site. She listened to Beck describe Rocket Lab’s technology, and his vision for a vehicle that provided frequent, affordable launches just for little guys—in an industry that caters to huge sats, and makes smallsats second-class passengers—and she was intrigued. “I remember sitting there thinking how lucky I am to be working at this industry at this time,” she says. And after she moved to Spire, she led the company to sign on as one of Rocket Lab’s first customers. It’s currently contracted for up to 12 launches.

That’s a lot! But Spire has to launch a lot. The company wants access to space every month, so they can produce their satellites in small batches, send them up, iterate, and launch the next generation. So far, counting today, Spire has launched 541 satellites. They’ve done it on the rockets of Russia (Soyuz and Dnepr), Japan (H-IIB), and India (PSLV), and the rockets of the US’s Orbital (Antares) and ULA (Atlas V). And now, they’ll ride with Rocket Lab, picking on a rocket of their own satellites’ size.

But that doesn’t mean they’ll ever only use Rocket Lab. Or Orbital. Or ULA. They plan to keep their eggs distributed—partly because even when it’s not just a test, rockets still blow up, the eggs breaking along with them. “It’s just part of the industry,” says Barna.

When Barna spoke of “Still Testing” a few days before the initial launch window, she was straight-up about the possibility that this particular rocket wouldn’t carry the eggs safely to space. “We know that a million things have to go perfectly for this to be successful,” she said. “We hope they make history.”

They did, and deployed the three-satellite payload into orbit. And pending analysis of this seemingly successful test, Rocket Lab will skip its planned third test and jump straight into official operations, in early 2018. “We’ve got a lot of customers that need to get on orbit,” says Beck.

Suggestion for the third flight’s name: “This Is Not a Test.”

1UPDATE 12:08 AM EST 1/21/2018: This story has been updated to include new satellites Rocket Lab launched recently.

​Google moves to Debian for in-house Linux desktop

Video: Supercomputing has an undisputed champion — Linux

Google has officially confirmed the company is shifting its in-house Linux desktop from the Ubuntu-based Goobuntu to a new Linux distro, the DebianTesting-based gLinux.

Margarita Manterola, a Google Engineer, quietly announced Google would move from Ubuntu to Debian-testing for its desktop Linux at DebConf17 in a lightning talk. Manterola explained that Google was moving to gLinux, a rolling release based on Debian Testing.

This move isn’t as surprising as it first looks. Ubuntu is based on Debian. In addition, Google has long been a strong Debian supporter. In 2017, Debian credited Google for making [sic] “possible our annual conference, and directly supports the progress of Debian and Free Software.”

Debian Testing is the beta for the next stable version of Debian. With gLinux, that means it’s based on the Debian 10 “Buster” test operating system.

Google takes each Debian Testing package, rebuilds it, tests it, files and fixes bugs, and once those are resolved, integrates it into the gLinux release candidate. GLinux went into beta on Aug. 16, 2017.

Don’t bother looking for this new Linux distro. You won’t be able to find it. GLinux, like Goobuntu before it, is strictly for internal Google use.

Linux is not Google’s only desktop operating system. Google also uses macOS, Windows, and the Linux-based Chrome OS across its fleet of nearly a quarter-million workstations and laptops. Google isn’t using its mysterious Fuchsia operating system in production.

To manage its desktop operating systems, Google uses the Puppet DevOps tool. Specifically, Google works with the Standalone (Masterless) Puppet mode.

Google’s IT staff uses Pupper’s Standalone approach for two reasons. Standalone doesn’t require a large infrastructure of Puppet configuration servers. Instead, the desktops pull the cryptographically verified configuration files from a web host, then verifies the data locally, and applies the configurations. In addition, by not using a server-client model, this enables the company to commit to its BeyondCorp access model, which does away with using internal networks for corporate access.

BeyondCorp is Google’s enterprise security model, which uses the concept of zero trust networks. It works by shifting access controls from the network perimeter to individual devices and users. This enables employees to work securely from any location without a traditional virtual private network (VPN).

For Goobuntu, and now gLinux, Google uses PXE to netboot the standard Linux desktop installer image. These new Linux images are automatically built in the form of compressed tar-format archives. These images are then placed on an HTTPS server alongside Debian pre-seed files that automate the host setup portion of the installation. This installation process is integrated with Puppet and host update infrastructure to ensure every desktop is configured as intended at install. This allows Google to reinstall gLinux from the network in about 30 minutes.

Google wouldn’t say what desktop environment gLinux will be using. It’s believed, however, that it will use GNOME, backed by the Wayland display server.

Google wouldn’t officially comment on when the changeover from Goobuntu to gLinux would be completed. Sources say it should be well under its way by this summer.

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Microsoft tops Thomson Reuters top 100 global tech leaders list

(Reuters – Thomson Reuters Corp (TRI.TO) on Wednesday published its debut “Top 100 Global Technology Leaders” list with Microsoft Corp (MSFT.O) in the no. 1 spot, followed by chipmaker Intel Corp (INTC.O) and network gear maker Cisco Systems Inc (CSCO.O).

The list, which aims to identify the industry’s top financially successful and organizationally sound organizations, features U.S. tech giants such as Apple Inc (AAPL.O) , Alphabet Inc (GOOGL.O) , International Business Machines Corp (IBM.N) and Texas Instruments Inc (TXN.O), among its top 10.

Microchip maker Taiwan Semiconductor Manufacturing (2330.TW), German business software giant SAP (SAPG.DE) and Dublin-based consultant Accenture (ACN.N) round out the top 10.

The remaining 90 companies are not ranked, but the list also includes the world’s largest online retailer Inc (AMZN.O) and social media giant Facebook Inc (FB.O). ( )

The results are based on a 28-factor algorithm that measures performance across eight benchmarks: financial, management and investor confidence, risk and resilience, legal compliance, innovation, people and social responsibility, environmental impact, and reputation.

The assessment tracks patent activity for technological innovation and sentiment in news and selected social media as the reflection of a company’s public reputation.

The set of tech companies is restricted to those that have at least $1 billion in annual revenue.

According to the list, 45 percent of these 100 tech companies are headquartered in the United States. Japan and Taiwan are tied for second place with 13 companies each, followed by India with five tech leaders on the list.

By continent, North America leads with 47, followed by Asia with 38, Europe with 14 and Australia with one.

The strength of Asia highlights the growth of companies such as Tencent Holdings Ltd (0700.HK), which became the first Asian firm to enter the club of companies worth more than $500 billion, and surpassed Facebook in market value in November.

Reuters is the news and media division of Thomson Reuters, which produced the list.

Reporting by Sonam Rai in Bengaluru, editing by Peter Henderson