​Meet the Scarlett Johansson PostgreSQL malware attack

More security news

It’s not the first time an image has been used to give a victim malware, but it may be the first time it’s been used so narrowly. According to the security firm Imperva, their StickyDB database management system (DBMS) honeypot has uncovered an attack that places malware, which cryptomines Monero, on PostgreSQL DBMS servers. Its attack vector? An image of Hollywood star Scarlett Johansson.

Now, you might ask, “How many PostgreSQL DBMS servers are out there on the internet to be attacked?” The answer: “More than you’d expect.” A Shodan search revealed almost 710,000 PostgreSQL servers ready to be hacked. It appears there are so many of them because it’s way too easy, especially on Amazon Web Services (AWS), to set up PostgreSQL servers without security.

Cryptocurrency malware attacks are becoming increasingly more common. Why not? They’re profitable. The Smominru miner alone has infected at least half a million machines, mostly Windows servers, and has made at least $3.6 million.

While Smominru used the relatively sophisticated EternalBlue exploit to speak, this method of attack, steganography, the hiding of data or malware in an image, is older than the hills. In this attack, what appears to be a G-rated image of Scarlett has a malware payload.

Once a victim downloads the image it tries to brute force its way into your DBMS. Since a PostgreSQL instance shouldn’t be simply sitting on the internet in the first place, chances are good that it hasn’t been secured in other ways either. A compromised system then uses PostgreSQL to run invoke Linux or Unix shell commands to install a Monero cryptocurrency miner.

Besides trying to spread itself to other targets and hide itself, the program starts looking to see if your server has access to a GPU. Without one of those, your server, whether bare-metal or virtual, is going to be doing a cryptominer much good.

If it is successful, the first thing you’ll know about it is when your monthly cloud bill is far higher than expected. According to Impervia, most antivirus programs fail to detect this attack.

So, what can you do? Impervia recommends:

  • Watch out of direct PostgreSQL calls to lo_export or indirect calls through entries in pg_proc.
  • Beware of PostgreSQL functions calling to C-language binaries.
  • Use a firewall to block outgoing network traffic from your database to the internet.
  • Make sure your database is not assigned with public IP address. If it is, restrict access only to the hosts that interact with it (application server or clients owned by DBAs).

In other words, once more the best security recommendation is to practice server security 101, and you should be immune to such attacks. And, if you must ogle the lovely Ms. Johansson, make sure you only look at safe pictures.

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Elon Musk Doesn't Need a Business Plan. Do You?

In a recent appearance at SWSX, Elon Musk explained that he’s not a big fan of business plans. Instead, he works at the visionary level and leaves the operational details to others.

I’ve known other successful entrepreneurs who work that way. Their motto is “if you build it, they (the customers) will come,” rather than “failing to plan is planning to fail.”

Such entrepreneurs see building a company as more like improvising jazz (start with an idea and run with it) than playing a symphony (disseminate a plan and follow it). To them, a business plan is burdensome overhead.

Does this mean that you don’t need to write a business plan when you launch your first business? Absolutely not.

Musk (and similar serial entrepreneurs) don’t create business plans for their projects because they’ve transcended the need for them, not because they don’t believe that plans are unnecessary. Let me explain:

In the early stages of a startup, a business plan performs two functions, one external, the other internal:

  1. It is a recruiting tool that convinces prospective investors, employees and customers that the company will be successful. (External.)
  2. It provides structure and direction so that everyone on the team can work together to achieve measurable goals and milestones. (Internal.)

Musk doesn’t need a business plan as a recruiting tool because he has more than enough credibility to attract investors, employees and customers.

Similarly, Musk has already built enough businesses that he no longer needs guide rails to tell him whether a project is where it needs to be.

There’s a larger truth here about mastering skills. When you start learning a skill (in this case creating startups) you must follow the rules to become successful at it. However, once you’ve reached mastery of a skill, you can break those rules. Indeed, it is only through breaking those rules that you can achieve the highest level of mastery.

Take computer programming, for example. One of the most important rules for writing clear, supportable code is that the code should be structured into blocks, subroutines and conditional loops rather than “spaghetti code” that jumps all over the place. However, some programmers are so talented that they can break that rule. To quote the Tao of Programming:

“There once was a Master Programmer who wrote unstructured programs. A novice programmer, seeking to imitate him, also began to write unstructured programs. When the novice asked the Master to evaluate his progress, the Master criticized him for writing unstructured programs, saying, “What is appropriate for the Master is not appropriate for the novice. You must understand Tao before transcending structure.”

Writing is like that, too.  An experienced writer can intentionally break a grammatical or stylistic rule in order to get an idea across more succinctly and vividly

For example, the previous sentence has two adverbs. As a general rule, adverbs (like adjectives) tend to weaken your writing. Thus, had I been writing this same column when I first started writing professionally, I would have found a way to write around those adverbs.

Today, however, I’m experienced enough as a writer to know that, in this particular case, the sentence does the job better (i.e. communicates more effectively) with adverbs, placed at the end of the sentence in order to suggest emphasis.

The same thing is true with business plans and entrepreneurs. In the beginning, you need a business plan but, over time, business plans become both less useful and less necessary. 

Just to be clear, though, I’m NOT recommending that anybody write a complicated document based upon the many “business plan” templates downloadable on the web. As I explained in “The Secret to a Great Business Plan: Don’t Write One,” what’s needed and wanted in today’s ADHD business climate are ten slide that hit the main points.

But after you’ve founded a few companies and made them successful, you’ll no longer need even this minimal plan in order to move your business successfully forward.

Going back to the  jazz vs. symphony analogy at the beginning of this column, the best jazz musicians–the ones who can improvise great music–usually have decades of experience playing music that’s less free-form.

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Are You Thinking Of Buying Berkshire Hathaway? Consider Baby Berkshire Instead

Source: Berkshire’s annual letter

A few days ago, Berkshire Hathaway (NYSE:BRK.A) (BRK.B) released its annual report. Markel Corporation (MKL) has not published it yet, but it released its full year results.

As the readers of Warren Buffet’s letters already know, in 2015, he decided to slightly change the comparison criteria he had been using to evaluate Berkshire’s performance. He had always just compared BH’s book value appreciation against S&P 500 appreciation.

Since 2015, he has been taking into account also Berkshire stock price appreciation. The official reason for the change was that book value could not completely reflect the intrinsic value of the company (arguably, when we also consider good will and intangibles), but the real reason was that, for the first time in history, S&P 500 total return in the previous 5 years had surpassed Berkshire’s book value total return, whereas its stock price delta still performed better.

What is remarkable now is that, in the course of the last 10 years, as reported in its last annual report, even Berkshire stock price total return was beaten by S&P 500, a milestone in the company’s history.


Annual percentage change Berkshire

Annual percentage change S&P 500































Compounded annual gain



Source: Berkshire’s annual letter

The reason is quite clear: Berkshire is too big!

Why Berkshire’s best years are not in sight

That’s right. Berkshire is too big; its huge capitalization of about half trillion dollars makes it what I usually call an index company. Its stocks are good for index ETFs and funds, but not so good for individual investments.

In fact, there is a sort of physical limit to stock growth. If a company is very big, it could be hard to find substantial space for business growth. It could be even harder to do it against the will of the anti-trust entities.

Personally, I rarely own shares of companies exceeding a double digit billion-dollar cap. I would prefer to buy an ETF to avoid risks as well as hours of due diligence, therefore, saving time and energy.

With Berkshire we have an additional problem, which is not solvable, because it is linked to the inner structure of the company.

Berkshire is basically an insurance company that uses its float to invest in the equity market

Since Warren Buffett credo is value investing, he never owns more than a dozen companies for 90% of his publicly quoted companies’ portfolio. Now, this is where it gets tough: let’s say you have a $100B budget and you are committed to using no less than 10% of that budget for each purchase, then your hunting territory will be limited to a tiny fraction of the companies that are listed in the public stock exchanges. If you don’t want to overpay your shares, on average, you will need to only bet on the very fat guys. It could be hard to find value out there.

The same goes with acquisitions. It is increasingly difficult for Berkshire to find private companies to buy. I think that, in the near future, we will witness Berkshire implementing the same suggestion W. Buffett gave individual investors several times: 10% bonds and 90% cheap index ETF.

Ten years from now, Berkshire Hathaway will be a huge holding company, with some insurance companies in its pocket, no more and no less. Its biggest competitive advantage will eventually vanish. Given the lack of investment opportunities, it will most likely even start to pay dividends in order to deploy its enormous cash.

This last option could sound good for some investors, but it is drastically against Buffettology itself.

Now let’s talk about Markel

Although Berkshire is likely to be on the path of giving up its terrific long-term performance in the years to come, there is another company that will continue to grow at the same pace, using the same business model structure as Berkshire’s, but enjoying a relatively low capitalization. I am talking about the so-called baby-Berkshire: Markel Corp.

Markel’s intent is not a secret to anyone and that is to copy the Berkshire Hathaway business model. In other words, using the float of a solid insurance business (which yields an underwriting profit 80% of the time) to acquire private companies or to invest in securities. They even hold their annual meeting at the Omaha Hilton Hotel, just a day or two after Berkshire Hathaway’s annual shareholders meeting in the same town.

The company is co-managed by Tom Gayner: a Buffett fan and smart disciple.

Actually, for being a copycat, Markel performed very well. Here is a direct comparison between the two companies during the course of the last 10 years:

Source: Yahoo Finance

Berkshire vs. Markel

In this table, I put some key figures for the two companies, data in billion dollars, collected as of Dec. 2017:






Equity Securities



Fixed Inc Maturity Securities



Cash and Short Term T-notes



Intangibles and Goodwill



Total Assets



Source: Berkshire Hathaway and Markel official filings, Author’s elaboration

We can note that Markel’s float is about 28% of total assets, compared to 16% for Berkshire. That reveals Markel’s bigger exposure to its insurance business.

I like that, because insurance is the key of the two companies’ business model. They are not simply holding companies, but rather insurance companies that invest their float on equities and acquisitions.

Cash and short-term T-notes, compared with equity securities, are more or less the same for both companies, but fixed maturity securities are much bigger for Markel (170% vs. 13% of equity securities for Berkshire).

This reflects Markel’s more conservative approach and it is also partly due to the recent acquisitions of Alterra and State National, which had numerous bonds and treasuries in their investment baskets.

This over-exposure to bonds could lead to a better performance in the future, as management will eventually shift a bigger part of its portfolio to equity stocks.

Goodwill and intangibles, as percentage of total assets, are much bigger for Berkshire (16% vs. 9.5%). Today, this difference can be explained with Buffett and Munger being in charge, but I cannot guarantee that this would be a realistic scenario when they retire.

The bottom line is that Markel is well-positioned for future growth in all respects. Its business is well balanced and strong. Even during a difficult year, like the last one for insurance companies, due to several dramatic catastrophes, Markel managed to deliver an excellent profit for its shareholders. The net unrealized investment gain of more than $760M together with the income of the fast-growing Markel Ventures operation, which exceeded $100M in 2017, easily offset the net loss brought by the insurance segment.

On the other hand, by comparison, Berkshire appears to be scrambling a little bit after Markel.

Even the P/B value ratio, which is cheaper for Berkshire, does not differ that much, if we consider only the tangible assets. Markel is only 12% more expensive than Berkshire according to this metric.


Berkshire Hathaway has been a legend for all investors. Due to its terrific performance, it earned the well-deserved fame of a modern institution in the financial environment.

Nevertheless, several signs are telling us that its future performance will not be as good as the past ones.

If you are as intrigued as I am by the Berkshire’s business model, you should buy Markel instead, a company that shares the same investment philosophy, but without the size-problems of its larger twin.

After all, a Markel’s buy-out would not be that extravagant for Berkshire in the future. Maybe it is already on Mr. Buffett’s to do list.

Disclosure: I am/we are long MKL.

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

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The Kinder Morgan Dividend Story Is About To Resume

By the Sure Dividend staff

Kinder Morgan (KMI) has been a favorite dividend growth investment for many retail investors, until the company cut its payout by three quarters two years ago. After two years of low payouts, during which the company focused on reducing debt levels and finishing projects, things are about to change soon. Kinder Morgan is one of 294 dividend stocks in the energy sector. You can see all 294 dividend-paying energy stocks here.

Kinder Morgan has aggressive dividend growth plans for the coming years, but unlike in the past, this time they look very achievable. The company is about to increase its dividend meaningfully soon, and investors will very likely benefit from ongoing strong dividend growth rates over the coming years.

Since Kinder Morgan is not trading at an expensive valuation at all, shares of the pipeline giant are worthy of a closer look right here.

Company Overview

Kinder Morgan is proud of its huge asset base, and rightfully so:

(company presentation)

The company operates a giant pipeline network spanning North America, with the focus being put on natural gas pipelines. Kinder Morgan also owns terminals, pipelines and oil production assets on top of its natural gas pipeline network.

(company presentation)

The vast majority of Kinder Morgan’s revenues are fee-based, which means that there is very low commodity price risk. The company’s revenues, earnings and cash flows do not depend highly on the price of oil and natural gas. The only segment with a bigger exposure to the price of oil is Kinder Morgan’s CO2 business. Kinder Morgan is hedging its revenues from that segment, though, thus the short-term price swings for WTI do not matter very much.

Due to the fact that Kinder Morgan is much less impacted by commodity price swings than other companies in the oil & gas industry, its cash flows are not cyclical at all.

(company presentation)

During 2018 Kinder Morgan plans to increase its EBITDA as well as its distributable cash flows slightly. Distributable cash flows are operating cash flows minus the portion of capex that is needed to keep the assets intact (maintenance capex). Distributable cash flows are thus the portion of the company’s cash flows that are not needed to maintain the business, those can be spend in several ways:

– Growth capex, which expand Kinder Morgan’s asset base and lead to higher earnings / cash flows in the future.

– Shareholder returns via dividends & share repurchases.

– Debt reduction, which leads to lower interest expenses and thereby positively impacts the company’s earnings and cash flows.

A couple of years ago Kinder Morgan has paid out almost all of its DCF in dividends and financed growth capex by issuing new shares and debt. That did not work very well once its share price collapsed, which was the reason for the dividend cut, as Kinder Morgan had to finance its growth projects organically from that point.

Right now Kinder Morgan is using its DCF for a combination of growth capex, dividends and share repurchases. The company has brought down its debt levels meaningfully already, but doesn’t plan to reduce its leverage further this year.

Kinder Morgan Has Announced Aggressive Dividend Growth Plans Through 2020

In the last two years Kinder Morgan has produced about $2.00 per share in distributable cash flows, but paid out only $0.50 each year. This has allowed the company to finance billions in growth projects with excess cash flows whilst also paying down debt.

The company has stated that it wants to increase the dividend meaningfully this year as well as in 2019 and 2020:

– The dividend will be $0.80 for 2018 (which means a 60% raise year over year)

– The dividend will be $1.00 for 2019 (which means a 25% raise yoy)

– The dividend will be $1.25 for 2020 (which means a 25% raise yoy, again)

This looks like a very compelling dividend growth rate, especially when we factor in that Kinder Morgan’s current dividend yield is not low at all: Based on a share price of $16.10, Kinder Morgan’s shares yield about 3.1% right now. The forward dividend yields are thus 5.0%, 6.2% and 7.8% for 2018, 2019 and 2020, respectively.

A closer look at the company’s dividend growth plans and cash flow generation shows that those plans are not unrealistic at all:


DCF per share


Payout ratio

Excess DCF after dividend payments





$2.8 billion





$2.4 billion





$2.0 billion

Assumption: DCF grows by two percent a year

Even in a rather conservative scenario where distributable cash flows grow by only two percent annually, Kinder Morgan’s payout ratio stays below 60% through 2020. At the same time the company would generate $7.2 billion in cash flows that are not needed to pay the dividends. Those cash flows could thus be utilized for growth capex, share repurchases or for paying down debt.

Kinder Morgan Has Significant Growth Potential

The scenario laid out above (2% annual DCF growth) is rather conservative due to the fact that Kinder Morgan plans to invest heavily into new assets over the coming years:

(company presentation)

Management has identified $12 billion of potential investments which fit the company’s strategy and which promise attractive returns. The company could complete a meaningful amount of these projects in the coming years, as high after-dividend cash flows allow the company to spend on growth investments heavily.

According to management these assets could add $1.6 billion to the company’s EBITDA, which means a 21% increase over 2017’s level. When we assume that distributable cash flows would grow by 21% as well, Kinder Morgan’s DCF per share could hit $2.40 in 2022. This calculation does not yet include the positive impact share repurchases would have on the DCF per share growth rate.

Kinder Morgan has recently started a $2 billion share repurchase program and has already bought back more than 27 million shares since December. At that pace Kinder Morgan’s share count would drop by almost five percent a year, this alone would drive DCF per share up by mid-single digits each year, without any underlying organic growth.

Due to its focus on natural gas pipelines Kinder Morgan is well positioned for the future. Natural gas consumption will, according to most analysts, continue to grow for decades, as natural gas combines several positives: The commodity is significantly more environmentally friendly than oil and coal, it is inexpensive and it is available in North America in large quantities. Through LNG terminals natural gas can even be exported to other markets (primarily in Asia).

All the natural gas that gets used in the US or exported to foreign countries needs to be transported through the US by pipelines. Kinder Morgan as the provider of the vastest pipeline network should benefit from that trend, which will lead to ample cash flows for decades.


The US Energy Information Administration expects that global consumption of natural gas will grow from 130 quadrillion Btu to 190 quadrillion Btu through 2040. Since proved reserves of natural gas in the US are growing, it seems opportune to assume that the US will remain a major producer of natural gas going forward. This, in turn, means that Kinder Morgan’s asset base will not only exist for a very long time, but will remain very profitable through the coming decades.

Kinder Morgan Is Trading At A Discount Price

KMI EV to EBITDA (Forward) data by YCharts

Kinder Morgan is trading at the lowest valuation the company’s shares have traded for over the last couple of years right now. With a forward EV to EBITDA multiple of about ten Kinder Morgan is also not looking expensive at all on an absolute basis.

When we focus on the cash flows the company generates, we see that Kinder Morgan trades at eight times trailing DCF and at slightly less than eight times forward distributable cash flows. This means that shares can be bought with a distributable cash flow yield of 12.7% right now. Kinder Morgan is a non-cyclical company which has a solid growth outlook, and at the same time its size and diversified asset base mean that there isn’t a lot of risk. Based on those facts the current valuation looks pretty low.

Investors can currently acquire shares of the company with a forward dividend yield of 5.0% (the dividend increase announcement should come next month) at a DCF multiple of slightly below 8. For long term focused investors who seek an investment that provides a growing income stream that looks like an attractive investment case.

Final Thoughts

Kinder Morgan’s failed dividend growth plans hurt many retail investors in the past, but management has learned from its mistakes. This time the dividend growth plans are well thought out and look very achievable.

Thanks to high cash flows and a big growth project backlog Kinder Morgan should be able to provide a steadily growing income stream over the coming years. This, combined with a low valuation, makes shares of the pipeline giant worthy of a closer look right here.

Disclosure: I am/we are long KMI.

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

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Japan auto parts giant Denso raises stake in chip maker Renesas

TOKYO (Reuters) – Japanese auto parts supplier Denso Corp (6902.T) is buying an additional 4.5 percent stake in chipmaker Renesas Electronics (6723.T) in a deal worth $800 million based on market prices, as car makers accelerate the adoption of self-driving and other technologies.

FILE PHOTO: Renesas Electronics Corp’s logo is seen on its product at the company’s conference in Tokyo, Japan, April 11, 2017. REUTERS/Toru Hanai/File Photo

Denso is an affiliate of and supplier to Japan’s biggest automaker Toyota Motor Corp (7203.T). It has been ramping up spending on research and development of new technologies including “connected cars”. In February, Denso announced an investment in California cybersecurity startup Dellfer.

It is acquiring the stake from Innovation Network Corp of Japan (INCJ), a state-backed fund that owns 50.1 percent in the chipmaker, INCJ said in a statement. The terms of the deal were not disclosed, but the transaction is worth about 85 billion yen ($796.9 million) based on Renesas’ share price.

As a result of the deal, Denso’s stake in Renesas will rise to 5 percent, while INCJ’s will fall to 45.6.

Renesas Electronics Corp’s logo is seen on its substrate at the company’s conference in Tokyo, Japan, April 11, 2017. REUTERS/Toru Hanai

Renesas shares rose almost 9 percent on Friday after the news, before giving back some of the gains to be up 5 percent. Denso shares were down 0.1 percent. The benchmark Nikkei 225 index .N225 was up 0.2 percent in afternoon trade.

Automakers and auto parts makers have been racing to develop new technologies as the sector shifts to electronic cars and automated driving, boosting the role of chips and software in cars.

In a statement, Denso said it is “essential to further enhance collaboration with semiconductor manufacturers that have profound experience and expertise” to develop vehicle control systems in automated driving and other new fields.

Last week, Toyota said it would establish a new venture with Denso and another group supplier Aisin Seiki Co (7259.T), which would invest more than $2.8 billion to develop automated-driving software.

Reporting by Taiga Uranaka and Minami Funakoshi; Editing by Stephen Coates and Muralikumar Anantharaman

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Toyota affiliate Denso buying stake worth $800 million in chipmaker Renesas

TOKYO (Reuters) – Japanese auto parts supplier Denso Corp (6902.T) is buying an additional 4.5 percent stake in chipmaker Renesas Electronics (6723.T) in a deal worth $800 million based on market prices, as car makers accelerate the adoption of self-driving and other technologies.

FILE PHOTO: Renesas Electronics Corp’s logo is seen on its product at the company’s conference in Tokyo, Japan, April 11, 2017. REUTERS/Toru Hanai/File Photo

Denso is an affiliate of and supplier to Japan’s biggest automaker Toyota Motor Corp (7203.T). It has been ramping up spending on research and development of new technologies including “connected cars”. In February, Denso announced an investment in California cybersecurity startup Dellfer.

It is acquiring the stake from Innovation Network Corp of Japan (INCJ), a state-backed fund that owns 50.1 percent in the chipmaker, INCJ said in a statement. The terms of the deal were not disclosed, but the transaction is worth about 85 billion yen ($796.9 million) based on Renesas’ share price.

As a result of the deal, Denso’s stake in Renesas will rise to 5 percent, while INCJ’s will fall to 45.6.

Renesas Electronics Corp’s logo is seen on its substrate at the company’s conference in Tokyo, Japan, April 11, 2017. REUTERS/Toru Hanai

Renesas shares rose almost 9 percent on Friday after the news, before giving back some of the gains to be up 5 percent. Denso shares were down 0.1 percent. The benchmark Nikkei 225 index .N225 was up 0.2 percent in afternoon trade.

Automakers and auto parts makers have been racing to develop new technologies as the sector shifts to electronic cars and automated driving, boosting the role of chips and software in cars.

In a statement, Denso said it is “essential to further enhance collaboration with semiconductor manufacturers that have profound experience and expertise” to develop vehicle control systems in automated driving and other new fields.

Last week, Toyota said it would establish a new venture with Denso and another group supplier Aisin Seiki Co (7259.T), which would invest more than $2.8 billion to develop automated-driving software.

Reporting by Taiga Uranaka and Minami Funakoshi; Editing by Stephen Coates and Muralikumar Anantharaman

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Qualcomm: Thank You, CFIUS

Rethink Technology business briefs for March 6, 2018.

The CFIUS letter makes clear that security concerns are not “theater”

Broadcom CEO Hock Tan, source: Broadcom.

Broadcom (AVGO) has characterized the delay in the Qualcomm (QCOM) shareholder meeting as

…a blatant, desperate act by Qualcomm to entrench its incumbent board of directors and prevent its own stockholders from voting for Broadcom’s independent director nominees.

Broadcom also has criticized the secrecy surrounding Qualcomm’s request for a Committee on Foreign Investment in the U.S. (CFIUS) review:

Broadcom reiterates that Qualcomm failed to disclose to its own stockholders and to Broadcom that it secretly filed a voluntary unilateral request for CFIUS review on January 29, 2018. Broadcom’s only correspondence with CFIUS was in response to CFIUS inquiries about Broadcom’s nomination of directors to the Qualcomm board of directors, and such requests did not reveal that Qualcomm filed to initiate the CFIUS review on January 29, 2018.

Although Broadcom clearly wants to portray Qualcomm’s management as going behind the backs of its shareholders, I doubt that the secrecy can be considered a failing.

The Wall Street Journal has published a letter by the Treasury Department’s Deputy Assistant Secretary Aimen N. Mir explaining the investigation that was sent to both parties on March 5. Mir divulges some information about Qualcomm that, while not classified, is probably not generally known:

U.S. national security also benefits from Qualcomm’s capabilities as a supplier of products. For example, Department of Defense national security programs rely on continued access to Qualcomm products. Qualcomm holds a facility security clearance and performs on a range of contracts for the United States government customers with national security responsibilities. Qualcomm currently holds active sole source classified prime contracts with DOD.

In my past life in the defense industry, I probably worked for many of those same government customers, and I can attest to their sensitivity regarding security matters. They would expect Qualcomm to proceed with the utmost discretion.

It was entirely appropriate for Qualcomm to alert CFIUS to the national security implications of the Broadcom takeover. The only thing that’s mildly surprising is that Qualcomm even needed to do this. But it’s probably symptomatic of the “compartmentalization” of so many of these types of classified programs.

Personnel in these programs often can’t even acknowledge their existence. Probably, Qualcomm did first alert its customers, who then “suggested” that Qualcomm inform CFIUS since the customers themselves would be precluded from doing so.

The letter’s unintended irony

The Mir letter also describes a broad range of concerns about the impact of weakening Qualcomm’s competitiveness, especially in the emergent technology of 5G:

Reduction in Qualcomm’s long-term technological competitiveness and influence in standard setting would significantly impact U.S. national security. This is in large part because a weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process.

Also, a concern is what Broadcom will change post acquisition:

CFIUS, during the investigation period, will continue to assess the likelihood that acquisition of Qualcomm by Broadcom could result in a weakening of Qualcomm’s position in maintaining its long-term technological competitiveness. Specifically, Broadcom’s statements indicate that it is looking to take a “private equity” style direction if it acquires Qualcomm, which means reducing long-term investment, such as R&D, and focusing on short-term profitability.

Almost certainly, this would be the case, especially considering the $106 billion in debt financing the Broadcom intends to use. The letter is refreshingly complimentary of Qualcomm, especially in light of the vilification of Qualcomm as an abusive monopolist at the hands of the Federal Trade Commission.

After applauding Qualcomm’s technological leadership and R&D investments, the letter takes a somewhat different view of Qualcomm’s licensing business than the FTC:

Qualcomm’s current business model is based upon licensing of patented Qualcomm technologies; Qualcomm believes that Broadcom will change that licensing methodology. Broadcom’s CEO Hock Tan recently criticized Qualcomm’s licensing structure, saying he would reset the business model, which he called “broken.” However, Mr. Tan did not elaborate on how he would change the existing model, which currently relies on the licensing business to fund the company’s large R&D expenditures. Changes to Qualcomm’s business model would likely negatively impact the core R&D expenditures of national security concern.

The letter rightly characterizes Qualcomm as a national technological resource, yet it is the very actions of the government in the form of the FTC suit that have contributed to the weakening of Qualcomm and its vulnerability to takeover.

Why I voted the White Card

The impending proxy fight involves voting between competing slates of directors. Shareholders have been mailed proxy ballots, a “white card” for Qualcomm incumbents and a “blue card” for the Broadcom candidates. I voted (online, because it’s easier than mailing in the ballot) for the Qualcomm incumbents.

I’ve often been critical of Qualcomm’s management for its cluelessness regarding its regulatory issues. I firmly believe that reform of Qualcomm’s business practices is necessary. However, I’ve never believed that Qualcomm should or would be required to dismantle its fundamental licensing practices.

Apple (AAPL) has complained about being “taxed” on every iPhone its contract manufacturers make as if the $10 or $15 of added cost is an onerous financial burden. Apple claims, as the FTC has claimed, that Qualcomm has no right to charge royalties at the handset level.

Qualcomm has every right to do so. Qualcomm reached an agreement with the contract manufacturers to license not one or two patents but a large portfolio of patents that might or might not be applicable to a given handset (and not just Apple’s). For simplicity and convenience, the fees were to be paid on a handset basis.

It’s a perfectly enforceable and reasonable licensing contract, and Apple and the FTC will be proved wrong in challenging it. Licensing of patent bundles is a common practice that neither Apple nor the FTC is empowered to overturn. In every successful anti-competition action that has been taken so far anywhere in the world against Qualcomm, not once has Qualcomm been required to abandon the practice.

Convinced as I am that Qualcomm will ultimately prevail against Apple and the FTC, I was surprised to learn in the days before the planned (and now delayed) shareholder meeting that the proxy vote was going to be close. And some are now convinced that Qualcomm would have lost the vote.

Qualcomm’s institutional investors, which own 79% of outstanding shares, seem to have lost their nerve to stay the course. It’s hard to blame them. Given that Qualcomm’s growth opportunities are from certain, while anti-competition actions, such as the recent EU fine of $1.2 billion, seem very certain, the $82/share Broadcom offer must seem like a great way cash out with a net gain.

I continue to believe that the best interests of Qualcomm’s shareholders are served by Qualcomm moving forward with the NXP (NXPI) acquisition. On February 20, Qualcomm upped its bid by 16% for NXP to $127.50/share cash, while lowering the minimum tender threshold to 70% from 80%.

More importantly, Qualcomm reached an agreement to buy the shares of major institutional holders of NXP who together own 28% of the company. Among them was Elliott Advisors, who had vocally opposed the deal until now. Having mollified Elliott probably paves the way for broad-based acceptance of the tender offer and conclusion of the deal.

My investment case for Qualcomm has always been predicated on the NXP acquisition. In announcing the amended offer, Qualcomm pointed out that $1.50 of its non-GAAP EPS target for 2019 of $6.75-7.50 would come from NXP. NXP has been the one sure thing in the Qualcomm growth strategy.

With the acquisition of NXP, its 5G leadership, its brilliant ARM processor design, its innovation in mobile communications, Qualcomm deserves to remain an independent, and most importantly, American, enterprise.

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

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

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Will Tesla Have To Pre-Announce A 42% Q1 Sales Miss?

We all know that Tesla’s (TSLA) Model 3 sales have already fallen way behind Tesla’s guidance this quarter. Its guidance has been for 400,000 Model 3 units in 2018, for a total of 500,000 units when adding 100,000 from the Model S and X columns.

With 1,875 Model 3 units in January and 2,485 in February, the Model 3 already is looking like an epic miss of Olympian proportions. At 2,500 per month, that would be a measly 30,000 a year, or more than a 90% shortfall from the 400,000 per year guidance. Adding insult to injury, Tesla admitted in its February 7 financial report that the Model 3 has negative gross margin even at a selling price that’s currently starting at $50,000. One certainly understands the company’s reluctance to start selling the $36,000 version.

But enough about the Model 3 for a change. Seeing as the Model 3 is suffering from an amazing inability to enter proper volume production, Tesla is left with selling its existing models – Model S and X. So, how are they doing?

Let’s start with the six countries in Europe that as of the time of this writing (Saturday) have reported February month numbers to their respective government registration authorities:

Model S+X

Jan-Feb 2017

Oct-Nov 2017

Jan-Feb 2018













































As you can see in the table above, it’s a massacre. No matter whether you compare the two first months of this quarter with the first two months of the previous quarter, or the one a year ago, sales are down by epic proportions. Down 45% from last year, and down 67% from last quarter.

Alright, I know from geography class that Europe consists of more countries than just six. While these six countries are among Tesla’s top dozen countries in Europe, they are unfortunately the only ones who reported February numbers as of this writing.

Therefore, in the interest of fairness and as a “double-check” on these numbers, let’s look at the other six top Tesla European countries for the January-only comparisons. These comparisons are vs. January a year ago, and the first month in the previous quarter – October 2017:

Model S+X

Jan 2017

Oct 2017

Jan 2018













































As you can see in the table above, the situation is remarkably similar to the one for the other six countries for whom we have not only January numbers, but also February. These are down 65% vs. 67% for the other half-dozen countries. Year over year, these are down 55% vs.45% for the other. Split the difference, and we’re at a nice round 50% year-over-year decline.

Just like Europe doesn’t consist of six countries, the world doesn’t consist of only Europe either. Let’s add Tesla’s home market, the U.S., to this analysis. We do this by virtue of getting the January and February Model S and X numbers from Insideevs, the agreed-to-by-all-parties most accurate estimator of Tesla monthly U.S. sales numbers: here.

Tesla USA

Jan-Feb 2017

Oct-Nov 2017

Jan-Feb 2018



Model S






Model X












As you can see in the table above, Tesla’s Model S and X sales in the U.S. are down this year, but not as much as they are in Europe. They are down 32% sequentially and 17% year over year. Those are horrible numbers, but not as bad as the declines in Europe that are more than twice as bad.

So what if we aggregate Tesla’s top six countries in Europe that have reported February numbers, with the U.S. estimates from Insideevs? What’s the combined result?

Tesla US+E

Jan-Feb 2017

Oct-Nov 2017

Jan-Feb 2018





















As you can see in the table above, Tesla’s combined Model S and X sales so far this year, between the U.S. and six of Tesla’s top countries in Europe, are down 42% sequentially from the first two months of the previous quarter, and down 23% from a year ago.

So which of these two numbers – a 42% sequential decline and a 23% year-over-year decline – is most relevant? Frankly, I don’t care. Argue it as you wish. Pick your favorite plague and compare it with your favorite cholera. Tesla is trading at a hyper-valuation, based on a hyper-multiple, and is therefore supposed to be a hyper-growth company. If the product was extremely profitable and there were no balance sheet issues or any other “hair” on the story, year-over-year growth of 50% or 100% or something like that, might be considered acceptable for a hyper-growth company.

But not a decline of 42% or a decline of 23%.

Of course, there are at least two factors that we do not know in order to complete the picture for the quarter:

  1. Sales outside Europe and the U.S.

  2. Sales in the month of March.

It’s entirely possible that the Model S and X are able to dig themselves out of the massive hole created by a 42% decline thus far from last quarter, in Europe and the U.S. combined. For starters, Tesla sells to some other countries. Maybe China is having a monster quarter? Perhaps Zimbabwe or Uzbekistan are coming to the rescue? I’m sure some eccentric billionaires in Iceland and New Zealand can pitch in for a few cars.

I have not found reliable February numbers from China. For January, the Tesla China numbers were a disaster: here.

Basically, the Tesla Model X sold only 500 units in China, putting it behind not only one, but two, Trumpchi models (no, I kid you not), as the two Trumpchis sold a collective 1,043 units. Year over year, the Tesla Model X number was down from 624 last year: here. That’s a decline of 20%.

Adding insult to injury, the Tesla Model S sold only 330 units in China in January, bumping it off the top-20 best-selling plug-in list. Cadillac’s (GM) plug-in luxury sedan, the CT6, outsold it with 451 units. Yes, Cadillac.

All that said, the situation in China is simple and most brutal: The top 15 best-selling plug-in cars are domestic Chinese brands that we never see here in the West. In this context, Tesla is going from being an already tiny player in China to somewhere way to the right of the decimal point. It’s simply not a factor, and the 20% decline in the Model X this year suggests confirmation of that tailspin.

Now of course, we are on the lookout for reliable February numbers from China. Perhaps January was a fluke, and Tesla turns it around the second half of the quarter. An update to this article will be due, at some point within the next few weeks.

More generally, we know that Tesla’s quarters always are extremely back-end loaded. Looking historically, almost regardless of geography, the last month in the quarter tends to be by far the biggest.

I have no reason to believe that pattern won’t repeat itself yet again this quarter. However, that also raises the hurdle for what Tesla needs to accomplish in the month of March. With the sequential and year-over-year comps being so high for the final month of the quarter in the past, that leaves precious little room for error this time around March 2018.

Does Tesla have to pre-announce a 42% March quarter sales miss?

We are now four weeks away from the end of the March quarter. Given shipment times to overseas markets, Tesla’s direct sales model, and 3-6 week delivery time for its tiny rate of Model 3 units leaving the factory, Tesla’s management knows right now with some relative precision what its March quarter deliveries will be. Tesla cannot claim to be surprised, in the last week of the quarter, as to what the number turned out to be. That’s simply not a valid excuse for a company which should know this number with a high degree of accuracy at least a month in advance.

For that reason, and with the background of 1Q looking like a 42% miss based on all available numbers, Tesla had better “know” already now, that it can overcome this sales deficit, in order to avoid having to pre-announce a sales miss, before its usual reporting schedule. Remember, Tesla’s policy is to announce a quarter’s deliveries at some point within the first five days of the quarter’s end. We would normally expect Tesla to report the quarterly number right around April 3.

This would be the right thing to do under any normal circumstance, in any quarter. However, this quarter Tesla may have raised the bar on its reporting requirement for any potential shortfall. Why? Because it told one media outlet – BusinessInsider – apparently on February 21 or shortly before, that “Tesla confirmed to Business Insider that the Model S and X delays are due to an increase in demand…”: here.

So what Tesla said – or at least implied to anyone understanding plain English – at that stage of the quarter, was basically that business was not only good, but improving. Given that every single Tesla sales number, from every single geography, that I showed above, was not only bad, but an outright catastrophe, how could Tesla’s statement to BusinessInsider be even remotely true?

I suppose that there is only one way out. Tesla’s statement could, perhaps, be interpreted to have had some accuracy if it knew at the time, based on backlog and shipment schedules, that the month of March was going to redeem itself to the point where there would be massive sales increases beyond the market’s expectations.

If Tesla did not know that at the time, then the clock is now urgently ticking for Tesla to pre-announce what its expected March quarter sales number is expected to be. Tesla knows what the Wall Street consensus number is. Does it have reason to believe it will fall short, despite telling BusinessInsider on February 21 that it is experiencing “an increase in demand?”

Let’s add it all up, where Telsa stands two-thirds through the March quarter (all lines not saying “Model 3” are of course Model S and X only, for Model 3 is sold only in North America thus far):

Europe top 6 countries Jan-Feb


Europe other 6 countries Jan


Europe other 6 countries Feb (est)


Other Europe Jan-Feb (est)


North America Jan-Feb


China Jan


China Feb (est)


Rest of World Jan-Feb (est)


Model 3




As you can see in the table above, based on the best available data to date, plus some estimates to fill the remaining gaps, Tesla sold 11,548 cars in January and February. What is the Wall Street consensus for the March quarter? It’s somewhere around 40,000 units, right? 25,000 Model S and X, plus 15,000 Model 3.

If Tesla knows that it did approximately 11,548 units in January and February combined, and it knows at this point that getting to approximately 40,000 for the March quarter as a whole is all but impossible, is it required to let the investing public know as soon as possible, right now, or is it permissible to wait until after the quarter has ended?

Let’s assume that Tesla magically manages to sell as many cars in March as it did in January and February combined. That means it would end the quarter at 23,096 units (2 x 11,548). Divide by 40,000 and you have 58%. In other words, a 42% shortfall. If you lock in the combined US plus Europe table above, that also yielded a 42% sales decline from the previous quarter.

Amazing coincidence, right? A 42% March quarter sales shortfall, either way.

So when will Tesla pre-announce the number? Will it wait until April 3, plus or minus a couple of days, or will it first try to raise money before it ends up disclosing a material shortfall in sales?

Disclosure: I am/we are short TSLA.

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

Additional disclosure: At the time of submitting this article for publication, the author was short TSLA and long GM. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.

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Chinese Startups See Latin America as a Land of Opportunity

Two years ago, Tang Xin had never set foot in Mexico and didn’t know a word of Spanish. While his grasp of the language hasn’t improved much since then, he has built one of the country’s hottest apps.

Noticias Aguila, which translates as News Eagle, now has 20 million users and became the No. 1 news app in Google Play’s Mexico store late last year, according to App Annie. That has come as Tang and his development team remain based in Shenzhen, the Chinese technology hub just across the border from Hong Kong.

Tang, who worked for Tencent Holdings (tctzf) before striking out on his own, is among an emerging group of Chinese developers and investors betting the next technology gold rush will come from Latin America and its 600 million-plus people. Fueled by deep-pocketed mainland venture capitalists and success at home, the 40-year-old and his peers are exporting a formula honed in China of pursuing rapid expansion over profitability.

Chinese venture capital investment in Latin America jumped to $1 billion since the start of 2017, compared with about $30 million in 2015, according to data collected by Preqin.

“China used to copy from overseas, but now we see more opportunities by helping replicate business models that’ve taken off and exporting them,” said Tang, who now spends a quarter of his time in Mexico. “Competition is so fierce in China that smaller companies feel it makes sense to look for opportunities elsewhere.”

Chinese startups pushing into the region include Hangzhou-based Tian Ge Interactive Holdings, which wants to build an internet finance platform in Mexico. Phonemaker Transsion Holdings is preparing to set up operations in Colombia. China Mobile Games & Entertainment Group plans to distribute mobile games in Mexico. Ofo, the Beijing-based bicycle sharing service, is preparing to make its first Latin America foray by entering Mexico, said Chris Taylor, who runs its U.S. operations.

The push by the tech sector piggybacks on years of state-driven Chinese investments in infrastructure in Latin America, with a pool of 2,000 companies pouring more than $200 billion in the region as of January.

When the startups arrive in Latin America they don’t exactly have the place to themselves. MercadoLibre and Despegar.com, both of which are based in Buenos Aires, have become major players in e-commerce and online travel respectively.

For more on Chinese startups, watch Fortune’s video:

Like China’s infrastructure investments in the region, there’s the possibility of pushback from locals. The road to Latin America has also been littered with cautionary tales of crippled projects. China’s automakers have struggled to establish themselves in countries such as Brazil even after building local plants.

“It’s risky and these companies will need to localize their products,” said Tang Jun, a deputy director at the Institute of Latin American Studies at Zhejiang International Studies University. “There will be political environment risk, as many parts of Latin America often go through quick cycles and turbulence.”

That hasn’t stifled investment interest. Alibaba Group Holding and Tencent are scouring for projects, while Didi’s acquisition of Brazil 99 showed deals can get done quickly, unlike the political opposition Chinese companies face in the U.S.

The trend has captured the attention of investors like Santiago-based Nathan Lustig who joined forces with a Beijing-based partner. Together they want to bridge Chinese investors with projects focusing on Latin America. Lustig’s goal is to scoop them up cheaper and earlier.

“We think Chinese acquisitions will be an important exit strategy for startup investors in Latin America,” said Lustig, managing partner of Magma Partners. “This will be a major theme over the next five years.”

Noticias Aguila’s Tang, whose company is formally known as Shenzhen Inveno Innovation Technology Co., doesn’t just want to sell out. His goal is to become the biggest internet company in the region. The company got its start by scraping news sites, mostly independent outlets and social media because it didn’t have the rights to larger publications. It hired locals to help with translation and build partnerships while the team back in Shenzhen developed algorithms to aggregate and sort the news for users.

It took the company about two months to be able to aggregate as least 100,000 articles a day. The next step was signing up media partnerships and now it has distribution deals with seven of the 10 largest publications in Mexico, including El Universal and Publimetro.

Unlike traditional publications that decide what users get to read based on editor recommendations — Tang’s company aggregates, labels and matches content to user preferences. It’s an approach that has found success in China, with the owner of Jinri Toutiao valued at $11 billion, according to CB Insights.

“It all comes down to how accurate you label items,” Tang said by phone from Shenzhen. “The more accurate and detailed the label, the more accurate you can target and push the content that the users want.”

In keeping with the Chinese model of spending to win over users, irrespective of profits, Tang has bought at least $2 million of advertising on Facebook to reach potential customers, even though the U.S. social networking giant is a competitor with its news feed. The app sat at No. 2 among news apps in Mexico in February, a notch down since November, according to App Annie. That’s part of the reason why this year Tang plans to quintuple spending on promotions and work with phone carriers and makers to pre-install its app.

“Organic growth is picking up but we rely on promotions mostly, because we need to expand fast,” Tang said. “That is key.”

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Being A Freelancer Is Not The Same As Being An Entrepreneur. Here's Why

The dream before you take the leap to become a full-time entrepreneur is to have “work-life balance.”

I remember back when I was working my 9-5, a little over a year ago. I had to commute an hour to work each way, which made my commitment closer to an 8-6. And then some days I would need to work late, which meant I wouldn’t leave until 7, or sometimes 8. I’d finally make it home, throw my backpack onto my bed, and sit in my desk chair with the sullen realization that the day was over. I had enough time to cook dinner and do a little late-night writing before passing out and repeating the same dance all over again.

Becoming an entrepreneur, I thought, would give me more time to enjoy some of my other passions.

Being a freelancer is not the same as being an entrepreneur–and here’s why:

Right after taking the leap, and making it known that I was a freelance writer open for business, I quadrupled my income–I am not exaggerating. After building a strong personal brand on the Internet, and mastering the “fast-paced voice” that have driven many of my articles to viral status (100,000 views or more), finding clients wasn’t an issue. Part ghostwriter for CEOs, part copywriter for big brands, and I could work 2-3 hours per day and out earn my previous 9-5 job by a large margin. 

That lifestyle lasted all of 3 weeks.

“You have to take the leap,” I said to one of my closest friends. “Let’s build a company.”

I was under the (naive) impression that building a company was something I could do in those same 2-3 hours each day–except with more upside. 

Not even close.

When my friend (who is my co-founder) took the leap, our first venture failed. And while we kept looking for our next idea, I worked 14-hour days to support both of our overheads. Suddenly, all those things I had originally wanted out of my leap–the freedom to wake up and enjoy the morning sunrise with a warm cup of coffee–were thrown out the window. Instead, I was up waiting impatiently at Starbucks for them to refill my coffee so I could get back to working so we could both eat that month. 

I felt personally responsible for the both of us.

About 4 (exhausting) months later, we found it. We called it Digital Press, and finally, finally, things started falling into place. We made our first hire. And then our second. And with every hire I just kept wondering when that 2-3 hour per day schedule was going to come back around.

Until we hired our 5th person–and I realized I was lying to myself. I wasn’t a freelancer anymore. I was a founder of a rapidly-growing company. And I had just signed myself up for a building process that would take years, not months.

I share this because I notice every aspiring entrepreneur has the same faulty expectations.

You think entrepreneurship is going to be easier than having a 9-5. It’s not.

You think entrepreneurship is going to give you more time to yourself. It’s not.

You think entrepreneurship is going to make you more money, faster. It’s not. (You’re going to end up reinvesting it all into your business.)

You think entrepreneurship is going to give you more freedom. It is, and it’s not.

And your biggest challenge is going to be the thing you assume will be the easiest thing of all, which is work-life balance. 

Instead of starting your work day at 9 a.m. when you walk into the office, it’s going to start at 6:30 a.m. the moment you refresh your email on your phone.

Instead of your work day ending at 5 p.m. when you leave the office, it’s going to end at 1:00 a.m. after you’ve just worked through another chunk on your never-ending To Do list.

And instead of you having some semblance of separation between your “work” and the rest of your life, that line is going to become blurred entirely. You’re going to work on the weekends. You’re going to think about clients while you’re with your family. You’re going to have trouble being present with your significant other. Your entire life is going to be thrown upside-down, and it’s going to be on you to do the hardest thing you’ve ever done in your entire life.

“I’m not working right now.”

Every entrepreneur struggles with this. I see it now more than ever–since I’ve become one. It sounds so easy to draw that line in the sand, but the truth is, we all struggle with it. And we struggle because we care. We care about the work we do, about our partners and our employees and our clients and the future of the company. We care to the point where it becomes obsessive, and eventually that caring starts to turn stressful. 

If you want to become, or are about to become, or have already become an entrepreneur, then you need to admit to yourself that you have no work-life balance. That is the definition of entrepreneurship: you are your work. Without you, the company wouldn’t exist, your clients would buy from someone else, and your employees would work elsewhere. 

Which means, as difficult as it might be, you need to intentionally create that space between yourself and your work–and trust that in doing so, it will actually make the work you do, better.

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