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Self-Driving Cars? Don't Hold Your Breath

Yeah, yeah, I know. Self-driving cars are just around the corner. Any day now. They’re being tested everywhere. They’re going to revolutionize transportation. Put thousands of Uber drivers and teamsters out of work. Don’t hold your breath.

Despite conventional wisdom, AI programmers haven’t been able to solve basic problems, like identifying pedestrians, or differentiating between dogs and children. AI programmers have totally failed to implement programs that exhibit anything resembling common sense, which is exactly what’s needed to drive in a world full of humans.

According to a recent article on NPR, in California (the only state that requires the reporting of automobile deaths from autonomous vehicles) there have been three deaths in about 10 and 15 million miles of autonomous driving, That compares VERY unfavorably to conventional driving, where it would typically take 260 million miles to result in three deaths.

According to the Guardian, a whistleblower at Uber recently revealed that Uber’s self-driving program results in an accident every 15,000 miles. By comparison, the average human gets in 3 to 4 accidents over 65 years while driving an average of 13,474 miles a year, for roughly one accident every 250,000 miles. That’s a pretty big delta for a technology that’s supposedly right around the corner:

Self-driving cars are particularly hazardous to pedestrians, according to NPR, because their ability to recognize pedestrians somewhat more than 90 percent of the time. Humans, by contrast, are incredibly good at spotting other humans, with a success rate probably around 99.99 percent. Even AI proponents at Carnegie Mellon admit that a five year old child can out perform AI when it comes to common sense decisions. As NPR explains:

“[autonomous vehicles] can’t figure out what a pedestrian is or [what] a pedestrian is going to do. They can’t separate a child from a dog. Sometimes a tree branch overhanging the road will be taken as something in the way.”

Such limitations have huge consequences, as when an autonomous vehicle killed a pedestrian because it couldn’t perceive that she was walking a bicycle. Similarly, simply slapping some stickers on a stop sign–an action that wouldn’t fool a toddler–can confuse a self-driving car.

And that’s far, far beyond the capability of any AI program, because it literally requires human intelligence.

Thus, according to the Guardian, so-called “self-driving” cars will always need a human being present to “take the wheel” when the AI program fails. It should seem obvious, though, that any automobile that requires a human “minder” isn’t really self-driving; it’s just doing cruise control on steroids.

So, while cars will be able to parallel park on their own, and function reasonably well in environments, like freeways, where human behavior is well-delineated, it seems highly unlikely, despite all the rosy hype, that fully autonomous cars are in our near future. Barring the emergence of the “singularity” (which seems unlikely), self-driving cars will remain an oxymoron.

But, but… what about all the breakthroughs we’ve been seeing in AI?

Not ready for prime time, I’m afraid. While AI programmers have successfully improved their programs’ ability to play games with bounded, well defined rules, they’ve been stumped when comes to operating inside environments (like businesses) where the rules are flexible and unbounded.

This is not to say that AI–as currently implemented–can’t be useful. Facial recognition, for example, is good enough to be useful to law enforcement. AI programs can play games (which have bounded rules) much better than humans. AI is excellent at looking for patterns in huge data sets. But none of those functions require common sense, which is required for a fully autonomous vehicle.

I fully expect to get plenty of pushback on this column because I’ve been making similar observations about AI literally for decades and I always get exact same pushback. Every freakin’ time. I’ve come to the conclusion that arguing with AI true believers is like arguing with fundamentalists about the end of the world which )like the long-awaited “singularity”) never seems to actually arrive. 

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Tesla To 90,000: Delivery Forecasts For The Fourth Quarter

Tesla is on track to deliver more than 61,000 Model 3s in the fourth quarter.

Summary

Much is written about Tesla (TSLA) and Elon Musk on this platform and elsewhere. The circus that surrounds Tesla is well-known and heavily-covered on this platform – so I won’t write about any of that here.

Instead, this is simply an attempt to forecast Q4/18 vehicle deliveries based on the best available data. Overall, I estimate that Tesla will deliver ~91,085 vehicles – up 9% from last quarter, including over 61,000 Model 3s. This estimate implies that Tesla will meet their 2018 target for 100,000 Model S and X delivered with a bit of breathing room to spare.

Given analyst revenue estimates of ~3.5% sequential growth, Tesla will need to keep ASPs from slipping more than 4.5% to meet those top-line targets, assuming my estimates are close and assuming the Tesla’s non-automobile units are flat sequentially. Tesla has raised prices several times over the last few months, which should help prevent too much price erosion on their vehicles, although this will be offset by the introduction of the $46,000 Model 3 MR.

In my view, Tesla has a good chance of beating its Model S/X delivery target and a reasonable chance of beating analysts’ top-line estimates. I will continue to hold my Tesla shares.

Model S Delivery Estimate: 14,907 Vehicles

Each of the estimates herein is based primarily on three pieces of data.

Each estimate is based on Tesla’s actual delivery information from past quarters. This data is available in Tesla’s quarterly update letters delivered on earnings day. Tesla also provides estimates of this data in an 8-K filing within a day or two of the end of a quarter. This data provides Tesla’s actual deliveries but is only available quarterly – unlike many manufacturers which provide similar data every month.

This data provides Tesla

(Inside EVs Monthly Plug-in EV Sales Scorecard)

Estimates are also based on monthly estimates for Tesla’s American sales from Inside EVs Monthly Plug-in EV Sales Scorecard. Inside EVs only includes sales in the United States but is updated each month, usually within a few days of the end of the month.

This data is a bit incomplete for the most recent month, as shown above: Spanish Model S registration results are not yet available.

(Tesla Motors Club)

Estimates are further based on European vehicle registration date from Tesla Motors Club. A post on TMC’s forum contains European sales data from each European country, with data updated as it becomes available. This data is a bit incomplete for the most recent month, as shown above: Spanish Model S registration results are not yet available.

Compiling these three data sources into one for the Model S, and combining the data into quarters rather than months, I arrive at the following table:

Compiling these three data sources into one for the Model S, and combining the data into quarters rather than months, I arrive at the following table

(Author based on data from Inside EVs and Tesla Motors Club)

Here, the “Model S Registrations, Europe” is data from Tesla Motors Club, by quarter. “Model S Sales, United States” is data from Inside EVs, also organized by quarter. Total Model S Sales is simply the addition of those two lines and Tesla Deliveries refers to Tesla’s published total Model S deliveries in a given quarter. Most of this data comes from 8-Ks, as Tesla doesn’t usually break down S vs. X deliveries in its quarterly update letters.

As shown, over the past year, sales in Europe and the United States have made up ~85% of sales of Model S vehicles over the past year, with the remainder of sales primarily occurring in APAC and Canada.

We could simply multiply sales by ~1.5x to move from the two-month Q4/18 sales to three-month sales, but history tells us this would be very inaccurate. Why? Because Tesla tends to sell the fewest vehicles in the first month of each quarter and more vehicles in the last month of each quarter:

Tesla Monthly Sales for the Model S and X show monthly seasonality

(Author based on data from Inside EVs and Tesla Motors Club)

As shown, Tesla has had six months where they sold more than 10,000 Model S and X vehicles combined: 9/16, 12/16, 3/17, 9/17, 12/17, 3/18, and 9/18. All of those months are the third month of a fiscal quarter. Indeed, since the start of 2015, Tesla has always delivered the most vehicles in the third month of the quarter.

Thus, simply multiplying the first two-month results by 1.5x will yield inaccurate delivery estimates: Those estimates would have been too low in each of the past 15 quarters.

Tesla will sell nearly 15,000 Model S vehicles in Q418

(Author based on data from Inside EVs and Tesla Motors Club)

To remedy this problem, the above chart includes only the first two months of European registrations and Inside EVs sales estimates from every quarter. For example, last quarter, Insides EVs showed Tesla having Model S sales of 1,200 in July, 2,625 in August, and 3,750 in September. Thus, the above chart shows 3,825 (1,200 + 2,625) Model S vehicles sold in the United States in Q3/18 – excluding the 3,750 reported September sales.

The Tesla deliveries above are actual deliveries for the quarter, and the percentage of sales is sales in the first two months divided by total sales. As shown, last quarter, U.S. and European sales in the first two months of the quarter accounted for 37% of total Model S deliveries in Q3/18.

For Q4/18, I estimate that Tesla will deliver ~14,907 Model S vehicles. This is based on assuming that reported deliveries in the first two months will be 39% of total quarterly deliveries – the average percentage of the last two quarters. Averaging the last two quarters here is conservative compared to using the 37% metric from Q3/18, which would yield an estimate closer to 16,000 Model S deliveries.

Model X Delivery Estimate: 14,923 Vehicles

Tesla Model X is the best-selling SUV EV.

(Author based on data from Inside EVs and Tesla Motors Club)

Last quarter, Tesla delivered 13,190 Model X vehicles. Thus far in Q4/18, Tesla has delivered 5,683 vehicles, although data from Tesla Motors Club is again missing Spain for November. That is a very minor exclusion though, given that Spain is averaging 15.9 Model X registrations/month. Given the level of error inherent in these estimates, the absence of this data is trivial.

We will again take the first two months’ data rather than full-quarter sales data to form estimates: Sales of the Model X show a lot of seasonal variability as in the chart above.

Tesla could deliver nearly 15,000 Model X vehicles in the next quarter.

(Author based on data from Inside EVs and Tesla Motors Club)

Last quarter, first two-month sales in the United States and Europe represented 38% of total Model X deliveries. If we estimate that the same percentage of Model X deliveries occurred in those regions in those months, this suggests that Tesla may deliver ~14,923 Model X vehicles in the fourth quarter.

Notably, while Tesla did not provide a Q4/18 forecast for Model 3 deliveries (or production), Tesla did forecast deliveries for the Model S and X (combined):

In each of the last four quarters, Tesla has suggested that Model S and X deliveries should total 100,000 or more. If Tesla meets my estimates, they would beat this target with a little bit of breathing room to spare:

Tesla Deliveries Q4/17 Q1/18 Q2/18 Q3/18 Q4/18E
Model S/X Deliveries 28,425 21,815 22,319 27,710 29,830?
Cumulative, 2018 21,815 44,134 71,844 101,674?

That said, the margin of error on this estimate is quite high. Notably, this estimate excludes China, which may have seen sales fall off in the fourth quarter. Tesla has denied reports that sales in China fell 70% in October:

“‘While we do not disclose regional or monthly sales numbers, these figures are off by a significant margin,’ a Tesla spokesperson told MarketWatch in emailed comments.”

MarketWatch, Nov 27, 2018

However, even with less dramatic declines than 70% it is possible – perhaps even probable – that these estimates will be too high as Tesla’s U.S. and European sales may make up a higher proportion of total sales given tariffs in China. We’ll find out in January.

Model 3 Delivery Estimate: 61,255 Vehicles

According to Autoweek, the Tesla Model 3 will roll out in Europe in February 2019

(Author based on data from Inside EVs)

The Tesla Model 3 is not available in Europe. According to Autoweek, the Tesla Model 3 will roll out in Europe in February 2019 – well after the end of Q4/18. Because of that, Model 3 deliveries are based solely on data from Inside EVs.

Aside from the United States, the Tesla Model 3 is only available in Canada – it is also not yet available in APAC. Thus, American sales represent the vast majority of Tesla Model 3 deliveries. Last quarter, for example, Inside EVs reported Model 3 sales equal to 97% of total Model 3 deliveries.

in Q2/18, Model 3 sales were higher in the second month of the quarter (May 2018) than in the final month of the quarter (June 2018).

(Author based on data from Inside EVs)

Sales of the Model 3 have not been going on long enough to draw as strong of conclusions as for the Model S and X. Sales appear to show some monthly seasonality: Last-month-of-quarter sales were the highest in four of the five quarters that the Model 3 has been offered. However, in Q2/18, Model 3 sales were higher in the second month of the quarter (May 2018) than in the final month of the quarter (June 2018).

Overall, the trend here is that last-month-sales are becoming decreasingly over-sized for the Model 3. This is based up by first two-month data:

I estimate that Tesla will deliver ~61,255 Model 3 vehicles in the fourth quarter of 2018

(Author based on data from Inside EVs)

As shown, over the past four quarters, first two-month sales have made up an increasing proportion of total sales – from 31% in Q4/17 up to 57% in Q3/18. As the quarters pass, Tesla’s monthly Model 3 sales are becoming flatter and flatter, with respect to in-quarter seasonality.

Because of flattening monthly variations, I will estimate the first two-month sales make up 59% of total Model 3 sales – continuing the 53%, 55%, 57% trend of increase by 2 pp each quarter. Thus, I estimate that Tesla will deliver ~61,255 Model 3 vehicles in the fourth quarter of 2018.

Tesla to 90,000: Total Deliveries Estimate is ~91,085

Tesla will deliver an amazing 91,000 electric vehicles next quarter: More than every before

Tesla will deliver nearly a quarter-million electric vehicles in 2018 - more than twice as many as last year.

(Author based on Tesla filings and own estimates)

In total, my estimates would result in 91,085 Tesla deliveries in Q4/18. This would be a record for the company. This estimate implies ~9% sequential growth in automobile deliveries.

Given 9% sequential growth in deliveries, Tesla should break their own record for the most automotive revenue in a quarter, set last quarter at $6.1 billion. Given the relatively small size of Tesla’s other segments, Tesla would also be very likely to beat their Q3/18 revenue as well.

Last quarter, Tesla earned $6.82 billion in revenue. Analysts at Yahoo Finance expect Tesla to generate $7.06 billion in revenue next quarter, up 3.5% from Q3/18. If automobile sales rise 9% in Q4/18, that may be an achievable target: Tesla would need to prevent automobile ASP from falling more than ~4.5% to beat this revenue target, assuming they ship 91,085 automobiles and assuming that non-automotive segment revenue is flat from Q4/18.

The primary driver for falling ASPs in Q4/18 will be the introduction of the less-costly Model 3 mid-range. Depending on product mix, this $46,000 vehicle could reduce average sales prices substantially, although that decline may be offset by waves of price increases on Tesla vehicles, beginning in the middle of last quarter. Given those price increases, Tesla may have a good shot at beating top-line revenue estimates. We will find out in ~early February.

Happy investing!

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Disclosure: I am/we are long 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.

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Marriott Says It Will Pay for Replacement Passports After Data Breach. Here’s Why That’s Likely Baloney.

As you have no doubt heard by now, Marriott disclosed a massive data breach that exposed up to 500 million customer records. Hackers accessed information in the company’s Starwood reservation system, which affected brands such as W Hotels, St. Regis, Sheraton Hotels & Resorts, Westin Hotels & Resorts, and other properties in the Starwood portfolio, the company said. The intrusion apparently began in 2014, two years before Marriott acquired Starwood. This oversight in the M&A process calls to mind another recent, post-acquisition hacker-surprise: Yahoo, whose two mega-breaches remained undetected when the company sold to Verizon last year. Coincidentally, Marriott’s hack is the biggest suffered by a corporation, second only to those at Yahoo.

After news of the Marriott breach came out, Sen. Charles E. Schumer (D-N.Y.) called on the hotel chain to foot the bill and replace people’s passports which were potentially compromised as part of the breach. Marriott quickly promised to cover the cost for as many as 327 million people whose passport numbers may have been exposed. At a fee of $110 per passport, that would put Marriott on the hook to pay up to $36 billion—a price tag equivalent to the value of the entire company, per its market capitalization. A devastating payout.

Here’s the thing though: While seemingly noble, Marriott’s promise is a bunch of baloney. The company said it will follow through on reimbursement only in instances where it “determine[s] that fraud has taken place.” What this caveat conveniently excludes is that Marriott’s hack likely had little to do with fraud and everything to do with espionage. In other words, if you’re a victim, don’t expect remuneration.

As Reuters reported, investigators believe the perpetrators of this attack were Chinese spies. The breach used tools, tactics, and procedures that matched Beijing’s style. The intrusion is said to have begun shortly after a breach of the government’s Office of Personnel Management, which government officials have attributed to China. The Starwood database represents a massive trove of potential intelligence: information on who is staying where, when—a bonanza for building up profiles of targets and tracking people of interest.

Geng Shuang, China’s Ministry of Foreign Affairs spokesperson, issued a statement saying the country “opposes all forms of cyber attack,” per Reuters. He said the country would investigate the claims, if offered evidence. Meanwhile, Connie Kim, a Marriott spokesperson, said “we’ve got nothing to share” about the Chinese attribution claim.

The Marriott breach—which took place quietly over years, as spies prefer—does not appear to have been a cybercriminal score. That’s why the passport payment pledge is probably bunk; nevertheless, if you think you might have been affected, it won’t hurt to follow these steps to refresh your cybersecurity hygiene and better protect yourself.

A version of this article first appeared in Cyber Saturday, the weekend edition of Fortune’s tech newsletter Data Sheet. Sign up here.

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Only Chumps Work More than 40 Hours a Week

Last month, I pointed out that Elon Musk was horribly wrong when he stated that “nobody ever changed the world on 40 hours a week.” That column got more than the usual amount of pushback, half of which seemed to come from worker-bees inside high-tech firms and the other half from people who are starting their own business. Both groups of critics are wrong but for different reasons. Allow me to explain:

If You’re Employed by Somebody Else

Not to put too fine a point on it, if you’re working 100 hours a week while being paid for 40 hours, you should listen carefully for the sound of a power tool and trumpet fanfare, because you’re being royally screwed.

Let’s suppose you’re an entry level programmer in Silicon Valley who makes the industry average of roughly $100,000 a year. Pretty good money, eh? Well, let’s see.

If you’re working 100 hour weeks and take two weeks off for vacation (good for you!), you’re spending 5,000 hour a year at work, which means you’re making $20 an hour, which is about what you’d make if you were doing auto body repair. And you wouldn’t have any student loans.

Now let’s suppose you’re an entry level marketer making $50,000 a year. (Note: in high tech, women are MUCH more likely to land a job in marketing than in programming.) In that case, if you’re working 100 hour weeks, you’re making $10 an hour, which is less than you’d make working as a cashier at WalMart. And again, you’d have no student loans.

So even though your salary looks as if you’re firmly in the middle-class, you’re really working for peanuts. You may be thinking at this point: “Well that’s the way it is. Companies need us to work extra-hard to remain competitive.” That’s total bullsh*t.

Take Rock Star Games, for instance–a company that’s been recently in the news for requiring programmers to work many hours of unpaid overtime. RSG is a subsidiary of Take Two Interactive, which is traded on NASDAQ as TTWO.

According to the Take Two’s fiscal year 2018 10K SEC filing, the company grossed $1.8 billion and netted $174 million. Their R&D budget was $196 million so, if they wanted to, they could increase their R&D personnel across the entire company by 50% and still maintain a net profit of around $74 million.

Actually, it’s a bit more complicated than that because “General & Administration” expense tends rise when R&D expenses get higher. But you get the point; the money is there. Of course, not every high tech firm is profitable but where does it say that the burden of unprofitability should be borne by the workers rather than the investors or the often-quite-highly-paid top managers?

When I named Don Lyon’s excellent book Lab Rats as one of my 7 best books of 2018, I included a quote that neatly summarizes the ridiculous implicit contract that high tech firms (and the many others that imitate them) foist upon employee:

First, you are lucky to be here. Also, we do not care about you. We offer no job security. This is not a career. You are serving a short-term tour of duty. We provide no training or career development. If possible, we will make you a contractor rather than an actual employee, so that we do not have to provide you with health benefits or a 401(k) plan. We will pay you as little as possible. We do not care about diversity: African Americans and Latinos need not apply. Your job will be stressful. You will work long hours under constant pressure and with no privacy. You will monitored and surveilled. We will read your email and chat messages, and use data to measure your performance. We do not expect you to last very long. Our goal is to burn you out and churn you out. 

While the summary itself is brilliant, I emphasized the last line because research shows that working consistently long hours gives a short-term burst of productivity, which then declines and turns into negative productivity. The plan is literally to burn you out.

This personnel strategy is idiotic, especially in industries where highly talented people are difficult to come by. But companies, even (especially!) high tech ones embrace all sorts of idiotic strategies. Witness the open plan office, a well-document productivity toilet that’s become ubiquitous.

Now, you may think that you don’t have a choice and that you must participate in the insanity simply to remain employed. Not true. Here’s an alterative: Stare reality right in the face. Realize–at a gut level–that if you burn yourself out you’ll be fired, regardless of how much you’ve contributed to the company’s success.

Therefore–and this is important so read the rest of this graf very, very carefully–you may very well have MORE job security if you don’t burn yourself out… even if you irritate your bosses by refusing to work crazy hours. But let’s suppose that you DO get fired because you won’t work-til-you-drop. You’ll be far readier to find another job if you’re fired when you’re still sane than after you’re burned-out.

In fact, maybe you should spend a few hours a week lining up new opportunities, just in case. Something to do in the free time that you’ll have when you’re smart enough not to succumb to Stockholm Syndrome.

If You’re Self-Employed

The “calculate your hourly wage” stuff described above doesn’t apply when you’re self-employed. Just to be clear, by “self-employed,” I mean starting your own business with multiple clients and customers rather than a contractor with a single client–which is the same thing as being employed but worse.

When you’re self-employed, you’re going to put whatever resources you have available into creating your own personal success. Those resources very much include your time. Indeed, when you first go freelance (for instance), the one resource you’ve got a-plenty is your time.

That’s the way it is. You may not even make minimum wage in your first year. But that doesn’t matter. What matters is getting your business up and running. I get it. I’ve been there. You’re playing the long game. Good for you!

Nevertheless, even if you’re self-employed, it’s both unwise and shortsighted to work more than 40 hours a week on a regular basis because, while you’ll get a burst of productivity (you’ll get more done), the extra hours have diminished returns over time and within any time period. Let me explain.

Working long hours over a long period of time is a recipe for burn-out. No matter how committed you are, or how much you “love” your job, you will end up killing the proverbial goose that might otherwise lay you the golden egg of success.

In addition, working extra hours within a day or week has diminishing returns. Even if you get 25% more done working 50 rather than 40 hours, you’re not going to get 20% more done if you work 60 rather than 50 hours. It’s probably more like 10% at most.

Similarly, working 70 hours rather than 60 hours won’t even give you that 10%. Chances are you’ll start making mistakes that will need correction which means extra work, so the productivity “gain” is probably negative 10%… or worse.

Entrepreneurs who willfully and unwisely burn themselves out like this remind me of an observation that a dear friend of mine made a while back: “Every boss I’ve ever worked for has been an *sshole, including now that I’m self-employed.”

The challenge when you’re self-employed is to have both the self-discipline and self-confidence to NOT work long hours. That’s especially true if you truly love your job. If you’re lucky enough to be in that situation, the LAST THING you want is to work yourself to the point where it’s no longer fun. 

If you quit work each day in the middle of doing something you enjoy, you’ll start the next day excited and motivated to do more. If you continue to work each day until you simply can’t do any more, you’ll start the next day tired and bored. Again, I know this because I’ve been there and done that.

So there you are. While all of us will have “crunch times” when we need to put in some extra hours, we can’t afford to make it a habit, much less let dysfunctional corporate cultures force it down our throats.

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Fintech company Calastone to shift fund network to blockchain

LONDON (Reuters) – Calastone, an investment funds transaction network, said on Monday it will shift its entire system to blockchain in May, a move that could slash costs for the sector by billions of dollars a year.

London-based Calastone provides back and middle-office services to more than 1,700 firms such as JP Morgan Asset Management, Schroders and Invesco, helping them sell their funds across the world through banks and other local financial advisors.

The shift will see more than 9 million messages a month between those counterparties – worth more than 170 billion pounds ($217 billion)- completed on blockchain, marking a move into mainstream finance for a technology whose hype has rarely been matched by widespread usage in major industries.

Currently three separate messages are sent digitally between firms as they buy into a fund: one to place orders, another to confirm receipt, and a third to confirm the price.

Though more reliable than manual methods of communicating like faxes – still used by some in the industry – that messaging process is still cumbersome and time-consuming.

Moving to blockchain could slash as much as 3.4 billion pounds ($4.3 billion) a year in global fund industry costs by pooling trading and settlement processes, Calastone said, citing research by consultants Deloitte.

Savings on such a scale would be a boon to the fund industry as it is buffeted by investor pressure to lower fees – its main source of revenue – and rising costs, much of it linked to tougher regulations after the financial crisis.

“The more you can automate, the more you de-risk, you more you streamline, the more you speed up,” said Andrew Tomlinson, chief marketing officer at Calastone.

FROM HYPE TO REALITY?

Originally conceived to underpin the cryptocurrency bitcoin, blockchain is a shared database that can process and settle transactions in minutes. It does not need middlemen for checks and its entries cannot be changed, making it highly secure.

Proponents say it has the power to revolutionise industries from finance to shipping by making back office jobs more efficient. That prospect has sparked tests by banks and other financial companies across the world over the last few years.

But despite the hype, few blockchain projects have been put into practice in the finance sector, due in part to worries over costs, regulation and how widely used it can become.

Banks and asset managers are also concerned about the security of blockchain, said Matthias Huebner at consulting firm Oliver Wyman in Frankfurt.

“How secure is the technology? Is there a risk of fraud? Is there a risk of data just getting lost?” he said.

Still, Calastone said all of its users would see their trades move to the blockchain.

JP Morgan Asset Management and Invesco – listed as clients on Calastone’s website – declined to comment on the shift when contacted by Reuters. Schroders, also listed as a client, did not respond to a request for comment.

Beyond finance, the majority of blockchain projects launched so far have been in peripheral industries such as ticketing or food supply chains.

Recently, though, others have been launched in the commodities sector, suggesting that the technology is catching on in major sectors.

Big oil companies and trading firms, for instance, are now able to finalise crude oil deals on a blockchain-based platform.

Reporting by Tom Wilson and Simon Jessop, editing by Louise Heavens

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New Valve Agreement Gives Developers a Bigger Share of Profits

Valve just made a change to how it splits up revenue from games on its Steam platform that will share more money with developers.

Valve announced the change Friday night, which details updates to its distribution agreement and reveals a new revenue share tier system. After a game makes more than $10 million on Steam, 25% of earnings will go to Steam. At $50 million, 20% will go to Steam. This includes revenue from game packages, downloadable content, in-game sales, and Community Marketplace game fees. This is for revenue from Oct. 1, 2018 and onward, but will not take into account any revenue made prior to that date.

Prior to this change, Steam would take about 30% of all revenue, as noted by The Verge. This was largely true across the board at any revenue level, with exceptions only made for smaller developers that participate in its Steam Direct program, which allows new developers to easily submit their games to the platform.

The move comes as more competitors look to dismantle Steam’s dominance, which for a long time was the main source of PC gaming. EA, one of the largest game developers, has its own Origin platform, Discord, a chat service used heavily in the gaming community announced its competitor The Discord Store just over a month ago, and more developers are self-releasing titles to avoid splitting its revenue.

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7 Great Gifts for the Entrepreneurs in Your Life

Thanksgiving is over, so that means holiday shopping is now upon us. Buying for kids is easy (I should know; I have two boys). But buying for the entrepreneurs in my life–mostly founders at Ryerson Futures, where I mentor–is not an easy task.  

To help me decide what to buy my founders, I tapped several superstars from my network. I asked founders, funders, and startup facilitators what gifts they recommend to solve their entrepreneurial problems. Here is what they suggested. 

For the Founder Who Is Scaling

Leonard Brody, a serial entrepreneur, investor, and chair of Creative Labs, recommends Butler Bot. Brody runs a lot of his business through Trello, which has boards, lists, and cards that help you organize and prioritize your projects. But as the number of projects, teammates, and tasks grows, it can be hard to manage. That’s where Butler Bot comes in. Butler Bot is a rule-based workflow automation tool, which, according to Brody, is a lifesaver as you begin to scale: “It helps me automate thousands of tasks everyday. I keep my whole life in Trello.” 

For the Founder on a Tight Budget

Kevin O’Leary from Shark Tank (a.k.a. Mr. Wonderful) is pushing the new “As Seen on Shark Tank” store on Amazon this holiday season. (This makes sense, since he and his fellow Sharks own equity in most of the items listed.) Of all the items listed, my favorite is Screenmend, a $10 kit to repair expensive computer monitors. Most founders spend big money for a high-end monitor to work on. No founder can afford to simply replace their expensive monitor each time it has a scratch. This gift lets entrepreneurs save hundreds on a new monitor with a $10 fix. 

For the Founder Who’s Not Quite Sure About the Numbers

Like O’Leary, Sunil Sharma, a managing director at Techstars Toronto, tweets about his investments as holiday gifts. The Techstars Gift Guide includes dozens of solutions produced by Techstars startups. My favorite is Clever Girl Finance, a platform to teach financial literacy (think cash flow statements, minimizing taxes, and creating pro forma financials). Financial literacy is widely linked to business success, yet many entrepreneurs are financially illiterate, according to an Intuit survey. A few years ago, using data from 509 young entrepreneurs in a program by the Canadian Youth Business Foundation, I proved that increases in financial literacy led to more frequent production of financial statements, which in turn led to lower probability of business failure. That’s why I’m giving out this gift this year.

For Founders with Families 

David Bloom leads LevelJump, a startup funded by Ryerson Futures. He is also a husband and father of three. Bloom’s recommendation is a book by Jim Sheils called The Family Board Meetingwhich is meant to help founders with work-life balance. Reading the cover blurb sold me on this book, and I’m hoping to receive it myself.

“…begin connecting, deepening and strengthening the relationship with your most important asset–your children. Using this simple strategy, busy entrepreneurs, business owners and professionals have been re-grounded in balance between professional and home life.”

For the Stressed-Out Founder

Puneet Tiwari, CEO and co-founder of law tech startup Evichat, recommends that entrepreneurs ask for spa massages. Tiwari says the best way to counter startup stress is a relaxing spa massage with sauna. Can’t argue with that. 

For the Fixated Founder

Rick Spence, a startup journalist who writes for the Financial Post, recommends giving the entrepreneur in your life a gym membership so founders can “…Get out of the office, clear your head, create neutral time for creative thinking, and meet real people.” Like Tiwari’s spa idea, it is hard to argue with Spence that entrepreneurs need to get out of the office and exercise.

For the Time-Constrained Founder 

Ramona Pringle, a tech journalist and director of the Transmedia Zone incubator, suggests the gift that entrepreneurs really need is “an extra 10 hours a week. There has got to be someone working physics on that.” Well I looked and unfortunately, that technology is still under development, but in the meantime we can buy busy founders a TARDIS desk pal (the TARDIS is a time machine from the TV series Doctor Who) to remind them that time is the most valuable resource they have. If you want a more practical tool for startup time management, I recommend David Allen’s GTD (Getting Things Done) program and book. I interviewed Allen in Silicon Valley almost 10 years ago when he launched GTD. Since then, GTD has become the default time management system of startup founders, and Allen has become a productivity guru to millions. 

Note: This article contains affiliate links that may earn Inc.com a small fee on purchases originating from them. They do not influence Inc.com’s editorial decisions to include mention of any products or services in this article.

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Insiders Just Bought A 15% Yield At Below Book Value: USA Compression Partners LP

Looking for a dependable high-yield vehicle? The management at USA Compression Partners LP (USAC) have maintained the company’s $.52 quarterly through previous boom and bust cycles:

(Source: USAC site)

If you’ve ever researched how natural gas gets pulled out of the ground, you’ve already discovered that compression is an increasingly important part of the operation. Compression also is a vital element in shale fracking production, which requires more compression than traditional techniques.

Although you wouldn’t know it from its current low price, which is near its 52-week low, USAC is in a good place now – demand for its large horsepower units is robust, and the major acquisition it made of the assets of CDM in early 2018 put it into a dominant position in its industry.

Management referenced this on the recent Q3 ’18 earnings call:

“The overall market for compression services remains very strong, driven by solid natural gas fundamentals and the continually midstream infrastructure buildup, which does not just combine to one region, but rather it’s taking place across the country in areas which we operate. We continue to take advantage of the strong market to push through rate increases while prudently investing capital in the business. Our utilization metrics demonstrate the current strength of the market and we expect continued strength throughout 2019, based on the current visibility for compression services demand.”

Natural gas has multiple drivers – increasing utilization as a replacement for coal at power plants, LNG exports, exports to Mexico, and demand as a feedstock for petrochemical companies, which continue to ramp up their presence in the US, in order to take advantage of larger natural gas supplies:

(Source: USAC site)

Many have posed the age-old question, “Does size matter?” with advocates on both sides of the argument.

However, when it comes to the scintillating world of compression, size does matter, and here’s where USAC has a distinct advantage over its competitors. The trend is toward outsourcing, particularly for large equipment, which tends to be “sticky” – it’s expensive for a customer to demobilize this type of equipment, ($60K – $200K plus), which promotes longer contracts and increasing prices for USAC.

“The market for large horsepower equipment has remained very tight as we’ve experienced throughout the entire year. Demand continues to be especially strong for the very largest horsepower categories in which USA Compression specializes.”

“Compression – the way forward continuing to outsource actually is trending to accelerate. So, I think you’re actually in a very unique time right now that you’ve got limitations on access to capital, you’ve got limitations on access to people and you have limitations on access to new equipment. So, all of those three things together can provide for a perfect storm which we think plays well to our strength of large horsepower infrastructure equipment and will allow us to re-price our book upward over time.”

“We’re in the equivalent of a seller’s market right now where there is a lot of demand and not a lot of supply.” (Source: Q3 call)

(Source: USAC site)

Looking forward, USAC should be able to capitalize on a better pricing environment: “When we look at the spot pricing on the new units we’re deploying, 120,000 some odd horsepower for next year, these are extremely attractive new unit economics, effectively five-year or less cash on cash type of payouts, low 20s, IRR on an levered type of basis.” (Source: Q3 ’18 call)

Distributions:

USAC’s next distribution should have an ex-dividend date sometime in early February. It pays in the usual Feb/May/Aug/Nov LP cycle for LPs, and issues a K-1 at tax time. At a $13.50 price/unit, USAC yields 15.56%, with trailing coverage of 1.02X.

DCF coverage was just 1.01X in Q3 ’18. However, moving forward, management sees additional cost savings synergies from the CDM deal kicking in for 2019, as it finalizes the transition. The entire 900 employees of the company are now using the same customer, contract and asset data systems. This should improve coverage going forward, in addition to forward price increases.

No More IDR’s:

USAC closed on the CDM deal on 4/2/18. CDM was the compression services arm of Energy Transfer Partners LP, and Energy Transfer Equities, which merged into Energy Transfer LP (ET). CMD was valued at ~ $1.8B.

This deal included the following:1. The contribution of ETP’s subsidiaries, CDM Resource Management LLC and CDM Environmental & Technical Services LLC, to USAC.2. The cancellation of the incentive distribution rights in USAC.3. The conversion of the general partner interest in USAC into a non-economic general partner interest. As part of the transaction, ETE acquired the ownership interests in the general partner of USAC, and approximately 12.5 million USAC common units from USA Compression Holdings.

(Source: USAC site)

Earnings:

This table illustrates the impact that the CDM deal has had on USAC’s operations. It was transformative, ramping up revenue and EBITDA by well over 100% and DCF by over 54% in Q3 ’18, while Q2 ’18 saw even larger increases.

USAC had a larger than normal number of legacy CDM field technicians after the CDM deal closed, and also used outside parties to perform routine maintenance on some compression units, which was much more expensive than using internal personnel. It took a while to find the right caliber of technicians, due to a strong marketplace environment, but they’ve fixed the situation, and upgraded their staff talent level.

USAC’s coverage has improved dramatically over the past four quarters, rising from a sub-par .87x (when the GP was relinquishing IDR rights to support the payouts, up to 1.09X in Q2 ’18, and averaging 1.02x over the past four quarters).

Looking forward to 2019, if we use an average of the post-CDM deal Q2 and Q3 2018 DCF figures of $47.5M and $51.4M, respectively, that gives us an average DCF of ~$49.45M/quarter.

We compared and extrapolated that $49.45M DCF average to the Q3 ’18 total cash distributions of $47.02M, which were higher than the Q2 ’18 total of $43.5M.

If USAC’s DCF and total distributions stay flat, we should see 1.05X coverage in 2019. This is without the benefit any cost savings, or additional revenues from price hikes.

Fleet Utilization:

Fleet horsepower was over 3.6M, as of 9/30/18, an increase of more than 53,000 horsepower vs. Q2 ’18. Active horsepower increased 61,000 to over 3.2M, up ~2% over Q2 2018.

Another positive is that management has been able to redeploy ~353,000 horsepower of idle horsepower from the combined fleets at nominal additional capex costs. (CDM’s fleet had a lower utilization rate.) Most of its idle equipment is in the small horsepower category – long before the CDM deal, management had been shifting USAC’s emphasis toward large horsepower equipment.

USAC has had a very stable fleet utilization rate of ~93% for more than a decade:

(Source: USAC site)

Guidance vs. Performance:

Management narrowed its full-year 2018 adjusted EBITDA guidance range to $310 – $320M, and its 2018 DCF guidance range to $170m – $180M.

We pro-rated this 2018 guidance to three quarters to get an idea of USAC’s actual Q1 ‘3 ’18 results compare to the guidance. So far, EBITDA looks roughly in line with the low end of 2018 guidance, while DCF is ~4% above it.

Risks:

Natural Gas downturn – If there’s another protracted downturn in the energy patch, this could lead to a cutback in rigs, and potential demand for compression services, even the large units, which are in tight demand now.

Unlike crude oil, which has had a rough go of it in 2018, natural gas futures are up 34% over the past month, and 46% year to date in 2018. However, producers need compression to get their product out of the ground, which gives USAC a cushion in energy cycles, as its fleet utilization has had a strong, long term record of 93% utilization.

IRA Holders – Holding an LP in an IRA may result in tax complications for IRA holders due to UBTI. You’ll also get more tax deferral advantages from investing in USAC in a taxable account. You should consult your accountant about these aspects of investing in LPs.

Valuations:

At $13.50, USAC is less than 5% above its 52-week lows – its price hasn’t been this low since April 2016. It’s also selling at .85x of book value, and its price/DCF is one of the lower valuations we’ve seen recently.

Analyst’s Price Targets:

That $13.50 price puts it nearly 26% below analysts’ lowest price target of $17.00, almost 44% below the $19.43 average price target.

Insiders Are Buying:

Management just upped its skin in the game last week – they bought 45,000 units at a price range of $13.40 to $13.90.

(Source: finviz)

Financials:

Due to negative net income, which includes heavy non-cash depreciation and amortization charges, USAC has negative ROA and ROE valuations.

The interest coverage factor of just .69X looks poor, when compared to the 1.45X average, but, again that includes a great deal of non-cash depreciation and amortization charges.

USAC’s EBITDA/Interest coverage factor for Q1-3 ’18 was 4.49X.

Debt and Liquidity:

“As of September 30, 2018, the Partnership had outstanding borrowings under the revolving credit facility of $1 billion, $578.2 million of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $309.7 million. As of September 30, 2018, the outstanding aggregate principal amount of the Partnership’s 6.875% senior notes was $725 million.”

(Source: USAC site)

USAC’s Credit Agreement has an aggregate commitment of $1.6B, with a further potential increase of $400M, and has a maturity date of April 2, 2023.

Its 6.875% senior notes Senior Notes mature on April 1, 2026.

Options:

We have options picks for USAC in our Double Dividend Stocks service, which we can’t divulge here, but you can see trade details for over 25 other option-selling trades in our Covered Calls Table and Cash Secured Puts Table.

Summary:

We rate USAC a long-term buy. Demand for its natural gas compression services isn’t going away any time soon, just the opposite. USAC has a strong position in its niche industry, and is well-positioned to benefit from increasing demand for large-scale horsepower compression.

All tables furnished by DoubleDividendStocks.com, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

CLARIFICATION: We have two investing services. Our legacy service, DoubleDividendStocks.com, has focused on selling options on dividend stocks since 2009.

Disclosure: I am/we are long USAC.

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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7 Awesome Cyber Monday 2018 Deals for Millennials and Young Adults

It’s predicted that $23B will be spent online between Thanksgiving Day and Cyber Monday. In fact, Cyber Monday is slated to set a record as the biggest online shopping day of the entire year, up almost 18% from 2017.

Here are 7 excellent Cyber Monday deals (some of which are available from Black Friday all the way through the weekend):

1. A MacBook Air for under $350

Need a new laptop? Walmart is selling a refurbished Apple MacBook Air (11.6-inch) for $319.99.

Apple itself is also doing a Black Friday through Cyber Monday sale. If you buy a MacBook Air for $999, you get a $200 Apple Store Gift Card.

2. Lucky Brand jeans

Wanna get Lucky? Cyber Monday will see 50%-60% off deals, with free shipping on purchases $50 or more. Last year, you could even stack this with another 25% off coupon code for even more savings.

3. A new snowboard

Been thinking of investing in a big-ticket sports item this season? Dick’s Sporting Goods is doing 25% off site-wide for Cyber Monday. Free shipping (or buy online and pick up in store).

4. Cruelty-free makeup and bath products

If you’re into high-quality, ethical makeup and bath products (or shopping for someone who is), this is a very good deal: for Cyber Monday, The Body Shop is expected to offer 50% off its entire line of skincare and body products, with free shipping. This is arguably their best sale of the year.

5. 60-minute massages for $27 or less

Groupon is offering up to 91 percent off everything from physical items to services like massages. In the LA area, for example, you can get a 60-minute massage at Sparadise with aromatherapy and reflexology for $49 (down from $115); or a couples massage with foot reflexology for $49 (down from $100).

6. A $3,100 vacation for $499

If you’ve ever wanted to do a classy, resort-style winter getaway, this is the time to go: Bluegreen Vacations is running a Cyber Monday deal that’s 80 percent off. They’re offering customizable, 7-night resort packages for $499. Pick from 20 properties around the country, including places like the beautiful Wilderness Club in the Ozark Mountains of Missouri (picture snowshoeing followed by a mug of cocoa by the fire).

7. Swarovski earrings for $7

Need a great gift for a lovely lady? These stud earrings with Swarovski elements retail for $79, but you can get them for $6.99 right now.

8. BONUS TIP: Wait until Tuesday to buy airfare

Air travel company Hopper has analyzed flight pricing data over time and says the best airfare sales are on the Tuesday after Thanksgiving (not Cyber Monday).

According to the company’s chief data scientist Patrick Surry, “Last year, we sent more deal notifications on Travel Deal Tuesday than Black Friday and Cyber Monday combined. In 2016, we saw fare sale activity spike by 2X the normal volume.”

A few of their predictions for this Tuesday’s flight deals:

  • Honolulu: 27% off
  • New York: 26% off
  • Rio de Janeiro: 32% off (it’s worth remembering that it’s summer in Rio right now)
  • Aruba: 32% off
  • London: 40% off

Happy hunting.

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George Orwell's Advice on How to Tweet Effectively

George Orwell has been in the news lately, not because he authored the classic dystopian novel 1984 but because he wrote a famous set of rules for clear writing which, if followed, might resemble Trump’s tweets.

I say “famous” with some reservations since I had never heard of them before (or forgot about them if I had). Anyway, since I’m always looking for pointers on good writing, I decided to check them out.

What I discovered is that, whatever his original intentions for these rules, they’re a concise and valuable summary of how to write great tweets or, more generally, the short slices of writing that work well when you’re communicating online. Here they are:

1. “Never use a metaphor, simile, or other figure of speech that you are used to seeing in print.”

Most journalists write on deadline and write articles that must be of a pre-defined length. Since most journalists don’t have much to say, they tend to add a lot padding in order to hit their target article length.

That’s why you see figures of speech in mainstream journalism like “In this day and age,” “ballpark figure,” “when all is said and done,” “make no mistake,” etc. These sort of clichés are boring and add bulk to your writing without adding meaning. They waste space even as they fade into the background.

Brevity, however, is the soul of tweet.  When you’re tweeting, texting, commenting, or doing anything online other than writing articles or long emails, you want everything to be crisp and vivid as possible. Online readers won’t wade through fluff; they’ll just move on.

2. “Never use a long word where a short one will do.

Twitter famously has an artificial limitation of 140 (and now 280) characters. While it’s easy to do multiple 1,2,3… tweets, the more wordy you get, the less likely readers are to keep reading. 

An easy way to shorten the character count of a tweet is to substitute short words for long words that have the same meaning. Examples: “use” rather than “utilize,” “absurd” rather than “ludicrous,” etc.

However, when you apply this rule, the long and short words in question must have identical meanings. When words have different implications, a long word might pack more punch than a short one and thus be worth the extra length.

For example, while “spectacular” and “showy” have almost identical meanings, the sentence “she wore a spectacular dress” has a different flavor and emotional connotation than “she wore a showy dress.” 

3. “If it is possible to cut a word out, always cut it out.”

Extra words add bulk without adding meaning. And since bulk is the enemy of good in the twitter-sphere, removing words or restructuring sentences to eliminate words are both good habits to cultivate. Examples:

BAD: “The reason people believe in him is that they’re gullible.”

BETTER: “People are gullible and hence believe him.”

BAD: “This application was designed to enable users to reduce cycle time.”

BETTER: “This application reduces cycle time.”

4. “Never use the passive where you can use the active.”

There are two reasons why the active voice works better for online communications than the passive voice:

  1. The active voice (e.g. “he hit me”) is more vivid than the passive voice (e.g. “I was hit by him.”).
  2. The active voice requires fewer words, thereby making your writing tighter. 

I might note that this advice to use the active and eschew the passive is less important in longer form writing because the passive can be quite effectively used to throw emphasis on what’s important in the next sentence.

The sentence above (“I might note”…) makes this point. Converting it to the active voice…

“Because if you want to throw emphasis on an idea that’s going to appear in the next sentence you can use the passive to stick the word you want to emphasize at the end of the sentence.” 

…is pretty awkward. 

5. “Never use a foreign phrase, a scientific word or a jargon word if you can think of an everyday English equivalent.”

Foreignisms, techie-talk and jargon are how insiders communicate among their own. They must therefore be avoided whenever your intent is to transfer ideas to those outside your in-crowd. I might add that acronyms have the same limitation.

Obviously, some tweets (like the Instagrams my kids share with their friends) are intended to be understood only by a limited audience (not including parents) and are thus intentionally use jargon. That’s fine, as long as you know what you’re doing. LOL

6. “Break any of these rules sooner than say anything barbarous.”

Expletives, slurs, obscenity, and profanity, as communications tools, can be both vivid and crisp. As such, “barbarous” communication can easily fall within the restrictions of the five rules provided above.

However, using such language can come back to bite you, big time, especially since nothing ever really disappears on the Web. 

BTW, Orwell included this rule because he observed that politicians use neologisms and misdirection to tart up dumb ideas, make banal observations seem profound, and hide bad intentions behind high-minded rhetoric.

He believed that following the five previous rules would make those communication strategies impossible. Trump is an excellent example of this. He’s never attempted to use eloquence to hide dumb ideas, banal observations, or bad intentions.

The problem–from the Orwellian perspective–is that Trump says “barbarous” things that actually reflect how he thinks and what he believes. That’s good, in a way, because nobody is being bamboozled by fancy verbiage.

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Best Cloud Computing Information provider


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