This Guy Works From Home and Makes Big Money On iTunes, Spotify and Amazon. (Here's His Brilliant Trick)

As you might imagine, he’s discovered a pretty clever trick that enables him to do this. You might have heard some of his songs, which he records under 72 different stage names, such as:

  • The Very Nice Interesting Singer Man
  • The Guy Who Sings Songs About Cities & Towns
  • The Strange Man Who Sings About Dead Animals
  • The Guy Who Sings Your Name Over and Over

Here’s his story, his secret, and just how successful this strategy is for him. 

‘I Love Hugh Grant’

Farley is 40, a married father of two. He’s been working from home like this full-time for two years, but previously he spent 17 years working in a group home, and performing on the side with a band called Moes Haven. 

The band had very little professional success, but they wrote a funny song called ‘I Love Hugh Grant’ about the British actor, and it started making money on iTunes and Spotify. 

Well, comparatively speaking, anyway.

“We’d write these serious songs and sell nothing. And then, whoa, ‘I Love Hugh Grant’ made like 74 cents last month!” Farley told me in a phone interview.

Obviously, 74 cents a month is not exactly a fortune. But Farley said he had an ephinany: “Most people would quit, but I was like, if I can make 20,000 songs that are as successful as ‘I Love Hugh Grant,’ I’ll be doing pretty well!”

So, he set out to do just that, recording song after song after song–most of them inspired by terms that people might search for on digital music platforms. And then, it started to work. 

‘A Song for Waterbury, Connecticut’

Farley is incredibly prolific, working from the basement recording studio in his home. Many of his creations are not exactly great art, he’s the first to admit. For example, he’s written and performed 1,800 songs that are literally him just singing people’s names over and over. 

But people search for their own names. And if they come across one of his name songs, they’re likely to play others, too–just to marvel at the sheer number.

And he’s written more than 1,500 songs about different towns across the U.S., Canada, and Australia. He’s never visited almost any of them; he just looks them up on Wikipedia.

“They’re funny. They make you laugh, and there’s value to that,” he said. “Part of the joke is that you’re like, ‘Wait a second, he did one about that town, there’s only 6,000 people in that town. Half the joke is people saying, why would he do that?”

Soon he was seeing some success singing songs like, “A Song for Waterbury, Connecticut,” “I Made This Song About Wollongong. What Do You Think of It?” (Australia), and “Rock Out to This Song About Haverhill, Massachusetts, Ok?”

But nothing–nothing–prepared him for what would happen when he came upon perhaps the most-successful musical search term of all time.

‘Hundreds of songs about poop’

By far, Farley’s most successful and lucrative songs are about poop, pee, and all the other gross stuff that our bodies produce. And they’re all really a search engine optimization play.

He has hundreds of these songs on the three big digital music services. Why? Because it occurred to him a few years ago that most little kids seem to go through a phase when they’re obsessed with bodily functions. 

So now, if your 3-year-old says something like, “Alexa play a song about poop!” it’s Farley’s work that comes up first. (As the father of a 3-year-old, I can vouch for this.)

In fact, he records this genre under two distinct band or artist names, both of which rank really well for search terms that probably nobody else will confess to trying rank for.

The two aliases: “The Toilet Bowl Cleaners,” and “The Odd Man Who Sings About Poop, Puke, and Pee.”

“It’s kind of like how a big company will have multiple brands,” he said. “I just want to intimidate any potential competitors.”

Just do the work

I think the part of that last quote about intimidating the competition is at least partially a joke. But the revenue he’s making from this each month isn’t. It’s not exactly retire-to-a-beach money, but he said he’s bringing in about $65,000 a year from this kind of SEO-oriented music alone. 

On top of that he said, his wife has a full-time job, so it’s more than enough to live on. Importantly, it also allows him to be at home to take care of his two kids.

Along the way, Farley said he’s figured out how to cut costs, churn out music, and push the envelope on what some of the digital systems will allow.

One example: He uses cdaby to post his music across all digital platforms, and since they charge by the album, he said he records massively long albums, usually with 80 songs or more on them. 

“Part of what I like about this, is there’s this whole ‘tortured artist creative person’ myth,” he told me. “My approach is it’s just going to work every day. If you force yourself to just do the work, you’re going to come across some really creative ideas.”

7 AI Tools You Can Use to Increase Online Sales

Artificial intelligence is all the rage in business today. But what you may not know is that AI apps and programs can help boost your conversion optimization — that is, increase the number of people who purchase things on your website, and sell more of your products with less effort.

AI can improve conversion rates by helping you do a number of things:

  • Access key data about customer preferences and behavior, so that you can find creative ways to develop your brand and appeal to buyers. 
  • Process data at a speed (and volume) no individual, or even team, can.
  • Communicate with customers and potential customers quicker and more effectively, allowing you to fulfill their wants and needs and make them loyal return customers.

There are literally thousands of AI tools, apps, and software — hundreds of which focus on helping business owners sell more. I filtered the options based on a few criteria:

  1. A focus on small business
  2. Tools that can significantly increase conversion, sales or profits. 
  3. Solutions you can deploy today, with little effort, cost, and time.

Here are some of the top AI tools I found:

Flow XO 

This free AI tool provides a customer service chatbot. Chatbots allow users to interact with services as if they’re sending a message to another person. As you grow your customer base it becomes impossible to communicate with your customers, personally, 24/7; chatbots address that challenge faster and more efficiently than any call center could. 

Big brands like Burberry, Telus, and Tommy Hilfiger actively use chatbots to drive customer engagement up while bringing customer service costs down. With Flow XO, you can bring the same benefits to your small business.


This is an AI tool for re-targeting ads. Re-targeting is a form of online advertising that can help you keep your brand in front of customers after they leave your website. (For example, after you leave an online store, that store can follow you online and show you ads to increase the likelihood that you will return and complete a purchase, or make another one). 

For some users it can seem a bit creepy (how did Facebook know to show me an ad for a product I considered buying last week?) but many store owners swear by this technique. I checked the reviews for the app posted on Shopify (4.7 stars based on 323 reviews) and found store owners raving about it, with one user saying Shoelace generated a “a x27 return on my ad spend.” This may sound extraordinary, but according to experts it isn’t.

Kevin Tash, CEO of Tack Media, a digital marketing agency in Los Angeles, states what many of have come to believe is a benchmark, that “only 2 percent of shoppers convert on the first visit to an online store.” According to, re-targeting can boost ad response up to 400 percent.

(Full disclosure: Ryerson Futures, the seed VC fund I work with, has an investment in Shoelace).

Convertize and Nudgify

Convertize uses machine learning to personalize website content based on the visitor. Each visitor has an experience tailored to them, and the tool generates urgency through nudge marketing notifications (“Buy now! Only 2 left in stock”). Nudgify does something similar for those running a Shopify store. It uses the concept of social selling (“3 of your friends just bought X”) to drive higher conversion.


This free AI tool focuses on customer feedback. It shares negative and positive responses from your customers in real time. Armed with this information, you have the potential to create a feedback loop, constantly iterating your offerings to increase conversion.


Another free tool, Conversica analyzes your online ad performance on various parameters including reach, users, bounce rate, and more. It also provides you just-in-time vital marketing metrics, like email sent, clicks and open rates, the best time to post, etc. This data can help you increase your customer database and provide the best solutions with optimal timing. 

Zoho CRM

Just as all businesses have an online presence, almost all use some form of CRM (customer relationship management) software to track, engage, and service their clients. However, many entrepreneurs are unaware that many leading CRM tools, including Zoho and Salesforce, now have AI built in.

With these AI tools, you can let software do all the work of analyzing your customer data. This will help your sales team better understand each customer, and predict whether that customer is good lead for future sales.

#WhyIDidntReport and the Tragic Banality of Rape in America

Professor Christine Blasey Ford was a teenager when she says Supreme Court nominee Brett Kavanaugh tried to rape her. You know the story by now. She didn’t report it at the time, but has come forward now that Kavanaugh is close to being confirmed as a justice to the highest court in the land. On Friday morning, President Trump tweeted that he had “no doubt” that if it had happened, Blasey Ford would have reported it right away.

That’s not how this works. That’s not how any of this works. I know this because this is my story, too, and the story of millions of people. Don’t believe me? Look at Twitter today. Look at the hashtag #WhyIDidntReport. Read the cacophony of stories—each different but the same. Stories of assault by strangers, friends, family members, teachers. The hashtag exposes the sheer banality of rape in America. Sexual assault is not rare. It’s common. According to the National Crime Victimization Survey, there were 320,000 sexual assaults in the US in 2016. And 77 percent of people who experienced rape or sexual assault say they did not tell police.

That number is likely much higher. Though the NCVS data is the best the US has for now, critics have long warned that in addition to suffering from the risk of underreporting that befalls all self-reported surveys, its methodology specifically discourages reporting. In a study from five years ago, the National Academy of Sciences found that the government’s survey was probably vastly undercounting sexual crimes. That report found that a separate survey devoted to sexual assault and rape would have more accurate results.

Tweets are not a replacement for this data. But they can augment it. The stories told today give texture to the statistics that tell us this is common. Three hundred and twenty thousand—even if that number is low—is too big and abstract a number to really fathom. But the tweets shared this morning are real, and individual, and impossible to forget.

In an era of misinformation and bots on social media, when we have daily coverage of the pain that can be inflicted by social media, this hashtag is a reminder of how powerful these mediums can be in bringing people together. (Of course, it was also Twitter that the president used to share the tweet that so startled sexual assault survivors this morning.)

But it’s also worth remembering that a hashtag doesn’t tell the whole story of sexual assault in America. Not everyone is on Twitter, and many people aren’t comfortable sharing their stories—even vaguely—in such a public place. But for some, it’s a crucial outlet to validate our identities at a time when it feels like those in power would like us to be silent. Or invisible.

I say our, because I am included in this. When I read Trump’s tweet this morning, first I stopped breathing. When the most powerful person in the land denies your lived experience, it feels like someone punching you in the diaphragm.

When I breathed again, I paced the room, thinking about when I was a teenager, one year older than Ford at the time of her alleged assault. I was in college, and a boy I trusted date raped me in his room. I told a few friends and then didn’t mention it for years. I didn’t report it. I had a lot of reasons not to, but chief among them was: I didn’t think anyone would care. Why were you in his room, I thought they’d ask. I had previously reported a much less serious sexual assault—groping—in high school, and nothing had happened. Why go through the public embarrassment of that again? I didn’t even tell my family about it for 15 years.

This morning, I picked up my phone and tweeted about that incident. I wanted to speak directly to the president, or anyone reading his tweet and thinking it sounded right. Like the women and men who took to Twitter this morning, I wanted to declare: I exist, here is my story.

Reading through the tweets on the hashtag drives home the innumerable reasons people do not report these events. Chief among them is that they won’t be believed, and then they’ll be punished by whoever has an interest in protecting the status quo. Yet, the collectivism in a hashtag gives us all solidarity. Though it is at once the most public airing of our most personal story, it somehow feels less intimate to tweet about this kind of experience than to sit across the table from a family member or friend and tell them.

Why don’t people report? Here’s what some said.

I’m a man and it would make me seem weak.

It would ruin my career before it had even begun.

Nothing happened the first time I reported.

The person who raped me is the person I would have needed to report to.

They were a friend and I was in denial.

He told me he’d kill me if I told anyone.

Men are tweeting about how, for them, the stigma of coming out and reporting their sexual assault was too much to bear. That’s in line with research that’s been saying the same thing for years. People are sharing about how they didn’t report professors or bosses who had power over their professional lives. Or how they didn’t report family members on whom they literally depended for everything. They’re tweeting about police officers and administrators whom they did tell, but who doubted and blamed them.

This hashtag has power. After I had tweeted and I later saw the trending hashtag, I felt like my story was a raindrop in a lake, at once singular but part of something bigger. I was grateful. I was floored by what so many people have gone through, even while not being surprised. The specifics of their pain: “He held my face so I couldn’t breath.” “He was stronger than me, and my cousin.” “I was 13.”

Every woman and many men I know have a story. Or many stories. In 2016, in the weeks after the Access Hollywood tape came out, I wrote a list of the sexual assault and harassment in my life that I could remember. It wasn’t exhaustive, but it was exhausting. It had never occured to me to write them down before because that kind of experience is so much an accepted part of life for women. “After we are leered at and groped, we get off the train, and go to work, and we don’t mention it, because why would we? This is part of being a woman,” I wrote at the time. I assumed everyone knew.

But everyone doesn’t know. That’s what the #metoo movement, and the backlash to it, has taught us. And that’s why so many people are reliving their own assaults today to share their stories. It hurts to educate people about the ordinariness of sexual assault. It means having to think about something someone might not want to think about. It means remembering the reasons you felt stifled from sharing in the first place. For many of us, it means remembering how violated and embarrassed and guilty, and above all, alone we felt.

I hesitated to tweet this morning. Even though I’d already written about my experience and told my family, and even though I really don’t feel as traumatized by it as I used to, I worried it could in some way seem unprofessional to tell my story. But this thing that happened to me when I was 18; it’s a truth I carry inside me every day.

Even now, telling feels dangerous, despite the fact that the story being told is so universal, which is exactly the point. These are our stories to tell.

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How a Tech Stock Shakeup on Monday Could Have a Big Impact on ETF Investors

For years, buying exchange-traded funds focused on, say, the technology sector has offered a simple buy-and-hold investment strategy for individual investors who wanted exposure to surging tech giants like Facebook and Alphabet.

Come Monday, that simple approach is about to get more complicated. And investors who have money in ETFs based on the S&P 500’s tech, telecom, and consumer sectors will need to take note.

S&P Global Ratings and MSCI oversee a kind of corporate taxonomy, known as the Global Industry Classification Standard (GICS), which groups individual companies into sectors. On Monday, GICS will move three of the four FANG stocks—Alphabet, Facebook, and Netflix—into a new sector. As technical as those moves sound, they will have a big impact on some of the ETFs and passive index funds that mirror those two sectors.

Normally, reshuffling sector stocks wouldn’t be a big deal. But the three FANG stocks being reclassified have market caps totaling $1.8 trillion. Another 14 stocks are being affected by the sector changes, including Twitter, Disney, Comcast, and News Corp..

Most will be lumped together into what S&P had termed the telecom sector, and which will now be named “communications services.” One tech company, eBay, will move to the consumer discretionary sector.

All told, stocks that make up 10% of the S&P 500’s capitalization will be affected by the changes, said Matthew Bartolini of State Street Global Advisors on a recent podcast by Zacks Investment Research. The changes are meant to reflect the way that technology has affected different industries, he said.

“Americans spend more than 12 hours a day on some form of media communications,” Bartolini said. “Dedicating a sector to telecom, which is really carriers and landline operators, no longer reflects the current communications environment. So it really was time for the GICS classification schema to be updated.”

After the changes, the S&P tech sector will go from 26% to 21% of the S&P 500 Index, according to Bloomberg data. The Consumer sector, until recently the home of Netflix and Disney, will go from 13% to 10%. And the revamped communications services sector will make up 10% of the S&P 500 market cap, up from the 2% the old telecom sector represented.

Only some ETF providers are responding to the sector reclassifications. Tech ETFs from State Street (XLK) and Vanguard (VGT) will reflect the changes, but Blackrock’s tech ETF (IYW) won’t. ETF investors may want to check their portfolios, and rebalance if necessary.

Google defends Gmail data sharing, gives few details on violations

WASHINGTON/SAN FRANCISCO (Reuters) – Alphabet Inc’s Google defended how it polices third-party add-ons for Gmail in a letter to U.S. senators made public on Thursday, saying that upfront review catches the “majority” of bad actors.

A Google sign is seen during the WAIC (World Artificial Intelligence Conference) in Shanghai, China, September 17, 2018. REUTERS/Aly Song

Google said it uses automated scans and reports from security researchers to monitor third parties with access to Gmail data, but gave no details on how many add-ons have been caught violating its policies.

Google’s privacy practices have been under growing scrutiny. The Senate Commerce Committee has a hearing scheduled for Sept. 26 to question Google, Apple Inc, AT&T Inc, Twitter Inc about their consumer data privacy practices.

Gmail, the Google email service used by 1.4 billion people, enables add-on developers access to users’ emails and the ability to share that data with other parties as “long as they are transparent” with users about how they are using data and get consent, Google said in the letter.

For instance, a program that logs receipts could be allowed to scan Gmail as it searches for receipts.

The company did not immediately respond to a request for comment.

The chairman of the Senate committee, Senator John Thune, and two other Republicans wrote Google in July to ask questions, saying that while no allegations of abuse similar to Facebook’s data sharing with Cambridge Analytica have been raised, “the reported lack of oversight from Google to ensure that Gmail data is properly safeguarded is cause for concern.”

Google’s letter made public on Thursday did not directly answer questions about instances in which apps may have improperly shared user data.

“When we detect anomalous behavior, we investigate. And when we suspend apps, we warn users to remove the apps’ access to their data,” the letter said.

In June 2017 Google said it would stop scanning Gmail content to provide personalize ads, saying it was making the change in the interests of privacy and security.

Reporting by David Shepardson; Editing by Meredith Mazzilli

John Deere Just Cost Farmers Their Right to Repair

The fight for our right to repair the stuff we own has suffered a huge setback.

As anyone who repairs electronics knows, keeping a device in working order often means fixing both its hardware and software. But a big California farmers’ lobbying group just blithely signed away farmers’ right to access or modify the source code of any farm equipment software. As an organization representing 2.5 million California agriculture jobs, the California Farm Bureau gave up the right to purchase repair parts without going through a dealer. Farmers can’t change engine settings, can’t retrofit old equipment with new features, and can’t modify their tractors to meet new environmental standards on their own. Worse, the lobbyists are calling it a victory.



Kyle Wiens is the cofounder and CEO of iFixit, an online repair community and parts retailer internationally renowned for its open source repair manuals and product teardowns. Elizabeth Chamberlain is a writer for iFixit and a professor of technical writing and rhetoric at Arkansas State University.

The ability to maintain their own equipment is a big deal to farmers. When it’s harvest time and the combine goes kaput, they can’t wait several days for John Deere to send out a repair technician. Plus, farmers are a pretty handy bunch. They’ve been fixing their own equipment forever. Why spend thousands of dollars on an easy fix? But as agricultural equipment gets more and more sophisticated and electronic, the tools needed to repair equipment are increasingly out of reach of the people who rely on it most. That’s amplified by the fact that John Deere (and the other equipment companies represented by the Far West Equipment Dealers Association) have been exploiting copyright laws to lock farmers out of their own stuff.

Repair is a huge business. And repair monopolies are profitable. Just ask Apple, which has lobbied over and over against making repair parts and information available to third-party repair shops. That’s why Big Ag has been so reluctant to make any concessions to the growing right-to-repair movement.

At first blush, last week’s deal between the Farm Bureau and the equipment dealers might look like a win for farmers. The press release describes how equipment dealers have agreed to provide “access to service manuals, product guides, on-board diagnostics and other information that would help a farmer or rancher to identify or repair problems with the machinery.” Fair enough. These are all things fixers need.

But without access to parts and diagnostic software, it’s not enough to enable farmers to fix their own equipment. “I will gladly welcome more ways to fix the equipment on my farm. Let’s be clear, though, this is not right-to-repair,” explained San Luis Obispo rancher Jeff Buckingham. “At the end of the day, I bought this equipment, and I want everything I need to keep it running without relying on the manufacturer or dealer.”

There’s also nothing new in the agreement. John Deere and friends had already made every single “concession” earlier this year, and service manuals had already been available to purchase. They must have read the writing on the wall when California’s Electronics Right to Repair Act was introduced in March. Right-to-repair bills have proved overwhelmingly popular with voters—Massachusetts passed its automobile right-to-repair bill in 2012 with 86 percent voter support.

Just after the California bill was introduced, the farm equipment manufacturers started circulating a flyer titled “Manufacturers and Dealers Support Commonsense Repair Solutions.” In that document, they promised to provide manuals, guides, and other information by model year 2021. But the flyer insisted upon a distinction between a right to repair a vehicle and a right to modify software, a distinction that gets murky when software controls all of a tractor’s operations.

As Jason Koebler of Motherboard reported, that flyer is strikingly similar—in some cases, identical word-for-word—to the agreement the Farm Bureau just brokered. The flyer and the agreement list the same four restrictions:

  • No resetting immobilizer systems.
  • No reprogramming electronic control units or engine control modules.
  • No changing equipment or engine settings that might negatively affect emissions or safety.
  • No downloading or accessing the source code of any proprietary embedded software.

These restrictions are enormous. If car mechanics couldn’t reprogram car computers, a good portion of modern repairs just wouldn’t be possible. When you hire a mechanic to fix the air-conditioning in a Civic, they may have to reprogram the electronic control unit. When electronics control the basic functions of all major farm equipment, a single malfunctioning sensor can bring a machine to its knees. Modifying software is a routine part of modern repair.

Prohibiting modifications to systems that might affect emissions also means that farmers can’t upgrade tractors to meet new requirements. This could force farmers to buy new equipment when emissions standards change—an insidious move toward planned obsolescence.

That’s why a national group of farmers has been fighting for their right to modify software. Together, the American Farm Bureau Federation, the National Corn Growers Association, the National Farmers Union are working with the Electronic Frontier Foundation to petition the US Copyright Office to exempt farm equipment from the anti-modification provisions of the Digital Millennium Copyright Act, which has been bafflingly stretched to cover tractors and combines (equipment manufacturers claim they’re worried about piracy). The petition explains:

It is necessary to access the electronic control units to diagnose and repair a malfunctioning agricultural vehicle, as well as to lawfully modify the functions of a vehicle based on the owner’s specific needs in cultivating his or her land.

There are many farmers modifying their equipment to fit their land’s needs. Members of the farm equipment electronics community Farm Hack have designed custom 3-D-printed seed rollers, programmed Arduinos to consolidate greenhouse operations, and developed all kinds of sensors and warning lights. A group of university students at Cal Poly is working to reverse-engineer John Deere’s software protocol. And a third-party company called Farmobile makes a device that plugs into all different kinds of large farm equipment so farmers can access their data without going through John Deere.

Where California farmers go, the rest of America follows—and in this case, that’s dangerous. The state produces more food by far than any other in the nation, accounting for two-thirds of all US-grown fruit and nuts. By agreeing to the spurious distinction between “repair” and “modification,” the California Farm Bureau just made the EFF’s job a lot harder. Instead of presenting a unified right-to-repair front, this milquetoast agreement muddies the conversation. More worryingly, it could cement a cultural precedent for electronics manufacturers who want to block third-party repair technicians from accessing a device’s software.

As a nation of repair advocates, we need to reject toothless deals like this. We must define right to repair in a way that supports the needs of individuals and small growers, not the bottom line of enormous corporations.

This deal is no right-to-repair victory. Don’t let John Deere—or the California Farm Bureau—call it one. Real progress isn’t going to come until a state passes real Right to Repair legislation. And momentum is building. Twenty states, including Iowa, Kansas, and Nebraska, considered bills this year. Although none have passed yet, John Deere is clearly feeling the heat.

WIRED Opinion publishes pieces written by outside contributors and represents a wide range of viewpoints. Read more opinions here.

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Tesla, Musk face criminal probe over go-private statements: Bloomberg

(Reuters) – Tesla Inc (TSLA.O) said on Tuesday it received a request for documents from the U.S. Department of Justice over Chief Executive Elon Musk’s public statements in August about taking the electric carmaker private.

FILE PHOTO: Tesla Motors CEO Elon Musk speaks during the National Governors Association Summer Meeting in Providence, Rhode Island, U.S., July 15, 2017. REUTERS/Brian Snyder/File Photo

“We have not received a subpoena, a request for testimony, or any other formal process,” a Tesla spokesman said in an emailed response to Reuters questions about an investigation.

“We respect the DOJ’s desire to get information about this and believe that the matter should be quickly resolved as they review the information they have received.”

The DoJ declined to comment.

Federal prosecutors have opened a fraud investigation, Bloomberg reported The report, citing two people familiar with the matter, said the department launched an investigation over Musk’s tweets in early August that he had secured funding for a buyout deal valued at $72 billion. He subsequently backed off.

Musk has already been sued by short-sellers such as Citron Research and is facing a probe by the U.S Securities and Exchange Commission.

Musk’s known hatred toward short sellers should help the government show his wrong intent, said Professor Eric Gordon of the Ross School of Business at the University of Michigan.

“Musk said ‘funding secured,’ which is not a prediction, but a statement in past tense which seems like a fact, and this could be a strong case from the government side,” he added.

Unlike the Justice Department, the SEC has no power to bring criminal charges. It could instead subject Musk to civil sanctions such as fines, relinquishing improper profits and a ban on running public companies.

“A probe can go either way but finding Musk guilty may have serious negative repercussions to Tesla’s stock price, which will badly hurt investors,” Morningstar analyst David Whiston said.

“For now this just brings more overhang to the stock and a probe will probably take months,” he said.

The billionaire CEO’s behavior has raised concerns about his leadership, with several Wall Street analysts and some investors urging Tesla to appoint a strong second-in-command.

Musk has been under intense pressure to prove he can deliver consistent production numbers for the Model 3 sedan, which is crucial to Tesla’s plan to become a mass-market automaker.

He said on Monday the company is facing delivery bottlenecks as it ramps up production to meet its target of 6,000 cars per week.

Tesla’s stock, which has lost about 25 percent since its gains on Aug. 7 after Musk tweeted about going private, fell 4.8 percent to $280.79 on Tuesday.

Reporting by Sonam Rai in Bengaluru; Editing by Arun Koyyur and Dan Grebler

Amazon investigating claims of employees leaking data for bribes

(Reuters) – Inc (AMZN.O) said on Monday it was investigating suspected internal leaks of confidential information by its employees for bribes to remove fake reviews and other seller scams from its website.

FILE PHOTO: The logo of the web service Amazon is pictured in this June 8, 2017 illustration photo. REUTERS/Carlos Jasso/Illustration/File Photo

Amazon employees are offering internal data and other classified information through intermediaries, to independent merchants selling their products on the site to help them boost sales in return for payments, the Wall Street Journal reported on Sunday, citing sources.

The practice, which is a violation of the company’s policy, is particularly strong in China, the report added, as the number of sellers there are soaring.

“We hold our employees to a high ethical standard and anyone in violation of our code faces discipline, including termination and potential legal and criminal penalties,” a company spokesperson told Reuters.

Brokers for Amazon employees in Shenzhen are offering internal sales metrics and reviewers’ email addresses, as well as a service to delete negative reviews and restore banned Amazon accounts in exchange for payments ranging from about $80 to more than $2,000, the WSJ report said.

The e-commerce giant is also investigating a number of cases involving employees, including some in the U.S., suspected of accepting these bribes, according to the Journal report.

Reporting by Arjun Panchadar in Bengaluru; Editing by Shounak Dasgupta

United Airlines Says It's Just Not Nickel-and-Diming Passengers Enough

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

No, not that the airline’s doing badly. Not at all. 

It’s actually doing quite well, thank you very much. 

Its executives, though, are a little worried that the airline isn’t doing well enough. 

I know this from a moving interview recently given to Chris Sloan at the Points Guy by United’s chief operations officer Greg Hart and its chief commercial officer Andrew Nocella.

Their own perception, though, is that the airline is lagging in one very important area: It’s not squeezing enough money out of passengers.

As Nocella helpfully explained, United now has better systems. For example, “our new revenue-management system and how we’re approaching segmentation for our customers.”

He added: 

What’s most exciting about that is we’ve just started, from a product perspective and segmentation perspective. Quite frankly, we’re a little bit behind some of our competitors on this front. As we catch up, I think that’s going to be even more and more meaningful to our results.

May I offer you a meaningful translation to all this? 

The airline, similarly to American and Delta, wants to create more segmentation, which means using technology and other means to segment customers according to psychographics, demographics and all sorts of other blissful data parameters.

The hope is to find ways to charge customers more and give them little to nothing that’s new. 

In essence, it’s a way to push customers’ boundaries in terms what they’re prepared to pay for.

Which inevitably means more charges for just about everything you used to think was free.

Every seat, every slight betterment — and, for all I know, every slight peppermint — will likely come with a fee. 

It’s quite conceivable, for example, that United — and other airlines — will have baggage fees that vary according to the time of day you’re flying. Or even a special, additional, “sitting together fee.”

Now that’s a segmentation that will cause excitement.

Shortly after this interview, United announced it would start charging more for ordinary Economy Class seats that simply happen to be nearer the front of the plane. Well, other airlines do it.

Our hope is to reinvest in a more enjoyable and caring flight experience for you and all of our customers. 

That’s quite an exciting hope, isn’t it? If you believe such grisly guff, of course.

Please, I don’t mean to sound as if I’m not impressed. United has indeed, as Nocella said in this interview, created a fine product in its Polaris Business Class. 

It has also, though, been extremely slow in actually putting it into its planes and Polaris Clubs into airports.

Oh, but I hear you cry that United has gone against Wall Street’s large, but addled brains and insisted on increasing its capacity. Yes, more seats. Doesn’t that sound good for customers?

Nocella explained that this wasn’t entirely meant to be a people-pleaser: 

It’s not a capacity number that we’re trying to shoot for, it is an earnings number. We think the capacity number allows us to achieve the earnings number.

Oh, it’s money that they’re into? Now I’m really excited. 

The Money Illusion

“The greatest obstacle to discovery is not ignorance – it is the illusion of knowledge.” – Daniel J. Boorstin, American historian

Looking at the most recent print in US nonfarm payrolls in conjunction with stronger-than-expected 2.9% wage growth (AHE) in August, with US annual core CPI declining to 2.2% in August vs. 2.4% expected, leading to a tentative rebound in gold prices, when it came to selecting our title analogy, we decided to steer towards a reference to the seminal work done by Irving Fisher in 1928 in his book “The Money Illusion”. In economics, the money illusion is also referred as price illusion. It is the tendency for people to think of currency in nominal rather than real terms. In other words, the numerical/face value (nominal value) of money is mistaken for its purchasing power (real value) at a previous point in the general price level (in the past). The term “Money Illusion” was coined by maverick economist Irving Fisher in his book “Stabilizing the Dollar,” though it was popularized by John Maynard Keynes in the early twentieth century. Irving Fisher was the first economist to produce what is now called “The Fisher equation” in financial mathematics and economics which estimates the relationship between nominal and real interest rates under inflation. The existence of money illusion is disputed by monetary economists who contend that people act rationally (i.e. think in real prices) with regard to their wealth. Eldar Shafir, Peter A. Diamond, and Amos Tversky (1997) have provided empirical evidence for the existence of the effect, and it has been shown to affect behaviour in a variety of experimental and real-world situations in three main ways:

  • Price stickiness. Money illusion has been proposed as one reason why nominal prices are slow to change even where inflation has caused real prices or costs to rise.
  • Contracts and laws are not indexed to inflation as frequently as one would rationally expect.
  • Social discourse, in formal media and more generally, reflects some confusion about real and nominal value.

Apparently “The Money Illusion” influences people’s perceptions of outcomes. Experiments were conducted and have shown that people generally perceive an approximate 2% cut in nominal income with no change in monetary value as being unfair, but do see a 2% rise in nominal income as fair where there is 4% inflation, despite them being almost rational equivalents. This result is consistent with the “Myopic Loss Aversion theory” but this will probably be an interesting title for another post. The “Money Illusion” is indeed a cognitive bias which can vary depending on the “inflationary/deflationary” context. Numerous studies have documented a negative correlation between nominal yields and inflation. Modigliani and Cohn (1979) assumes that the valuations of the assets differ from their fundamental values because of two inflation-induced errors in judgment: the tendency to capitalise equity earnings at the nominal rate instead of at the real rate and the inability to understand that over time the debts will devalue in real terms. What does it mean? Simply that stock prices are overvalued during periods of low inflation. If indeed inflation accelerates, this will lead to some “repricing” and some reversion to the mean. For a bear market to ensue as we have repeated on numerous occasions on this very blog, you need inflation to “accelerate”. Past history has shown what matters is the “velocity” of the increase in the oil prices given that a price appreciation greater than 100% to the “Real Price of Oil” has been a leading indicator for every US recession over the past 40 years. So, if QE could be seen as “deflationary,” then QT could be seen as “inflationary”. If the “money illusion” is “fading” and real wages start accelerating, then the Fed will have no other choice but to pursue a more aggressive hiking pace. Of course, if “inflation” is accelerating in conjunction with real wages, then again this will trigger “Bracket creep” being the process by which inflation pushes wages and salaries into higher tax brackets, leading to a fiscal drag situation. For those who remember our post from January this year:

“Most progressive tax systems are not adjusted for inflation, as wages and salaries rise in nominal terms under the influence of inflation they become more highly taxed, even though in real terms the value of the wages and salaries has not increased at all. The net effect overall is that in real terms taxes rise unless the tax rates or brackets are adjusted to compensate. That simple.” – Source: Macronomics, January 2018

Yet another illustration of the existence of the “Money illusion” we think but we ramble again…

In this week’s conversation, we would like to look at rising inflation, creating therefore a shift in the “Money Illusion” and what it entails down the line from a liquidity perspective.


  • Macro and Credit – The Money illusion is fading

  • Final charts – Always remember that liquidity is a coward

Macro – The Money illusion is fading

As we indicated back in June 2015 in our conversation “The Third Punic War“, bear markets for US equities generally coincide with a significant tick-up in core inflation. Also in our January conversation “Bracket creep,” we indicated the following:

As pointed out by Christopher Cole from Artemis Capital in his must read note “Volatility and the Alchemy of Risk – Reflexivity in the Shadows of Black Monday 1987“, the rise of the Big Bad Wolf aka inflation was what started a liquidity fire in credit that spread to equities before the 1987 volatility explosion described. But flow wise, as we have pointed out in numerous conversations, the money is flowing “uphill” where all the “fun” is namely the bond market, not “downhill” to the “real economy” so far. – Source: Macronomics, January 2018

While the latest inflation figure for August is considered as a miss, the Fed has most recently appeared much more hawkish it seems. The big question therefore should be about the strength of inflation. Subdued real wage growth could be one of the reasons put forward for the surprise election of Donald Trump in the United States. The election could be marking a return of Main Street versus Wall Street which has experienced tremendous asset inflation, thanks to low volatility and low “perceived” inflation. Yet, it seems to us from a “macro” perspective that indeed the “Money Illusion” is now fading on the back of “QT”.

Is inflation returning? On that subject, we read with interest Wells Fargo Economics note from the 12th of September entitled “Inflation not as benign as first indicated by drop in PPI”:

“Producer prices came in softer than expected in August, falling 0.1%. The miss stemmed largely from the volatile trade-services sector, which measures margins. The underlying trend in inflation continues to inch higher.

At the Margin

  • PPI inflation unexpectedly slipped 0.1% in August. Goods prices were flat, but the miss came in large part from services, specifically a 0.9% drop in the volatile trade-services sector, which measures margins, not selling prices. Declining margins at machinery and equipment firms accounted for 80% of the decline in services this month and suggest producers may be struggling to pass on rising input costs related to recent tariffs.

Core Inflation Continues to Gradually Climb

  • Our preferred measure of core inflation, which excludes food, energy and trade services, also came in a bit softer than expected -up 0.1%- as transportation & warehousing prices fell. The trend remains upward, however, with the ‘core-core’ measure climbing to 2.9% over the past 12 months versus 1.9% the 12 months prior.
  • Input prices eased a bit in August, but are still running ahead of final prices. Pressure on margins therefore looks to continue.”

– Source: Wells Fargo

Additional escalation in the trade war would, as we pointed out in various conversations, put additional pressure on inflationary trends and on the US consumer we think. The question on everyone’s mind is how are we shifting into a new inflationary state, meaning that the “Money Illusion” is finally fading?

On this subject, we read with interest Bank of America Merrill Lynch’s take from its Inflation Strategist note from the 13th of September entitled “Signs of life”:

The old normal shows signs of life

  • Globalisation delivers a fall in price level masquerading as deflation. Both secular and cyclical deflation forces are fading.
  • We update our long list of determinants of the low real rate era. Bernanke’s ‘global savings glut’ obviously has a place.

The three big picture inflation supports

Cyclical, secular and survivorship

We can be critical of the different ways output gaps are calculated, the numbers themselves and their usefulness as a single measure for encapsulating spare capacity in economies. Nevertheless, the reduction/elimination of slack that they signal, apart from being encouraging in its own right, should help towards resolving the question over how much of the ‘lowflation’ experienced has been cyclical and how much secular.

Even when it comes to secular, long term trends, these shouldn’t necessarily be misconstrued as meaning a permanent shift to a new inflationary state. Whether it be the deflationary influence of globalization or the internet, to the extent that this means greater competition (so reduced pricing power), then it does perhaps reduce inflationary potential ‘permanently’.

However, in a shift from closed economies to open economies (globalization) or from weaker price discovery to stronger price discovery (the internet), a large part of the impact on prices is a one-off adjustment in the level not a permanent reduction in the inflation rate. It just looks like the latter because it doesn’t happen all at once. Inflation should firm if the pace of globalization slows.

Chart 2 suggests globalization is at least experiencing a pause. It shows the extraordinary shift in the openness of the global economy since the 60s but a leveling off in the trade share of GDP in recent years. And, as Governor Carney of the BoE has warned, “deglobalization” (an ugly word for an ugly concept) would threaten a meaningful build-up of inflation pressures.

Perhaps the last line of defense for inflation, as measured, is ‘survivorship bias’. If economies open up to trade with each other, production gravitates to their respective comparative advantages and (in principle) output is boosted and prices fall. In advanced economies, we have become used to falling goods prices. But, as Chart 3 illustrates simply, if goods prices fall and services prices rise steadily over time, then the overall inflation rate will rise because the index weighting for goods will fall, unless the relative price change prompts a consumption shift from services to goods.

Whether it be this ‘survivorship bias’ or the tendency of economies to consume proportionately more services as they advance (and as their populations age), Chart 4 shows the mild but meaningful shift from goods to services in CPI baskets.

We suggest that perceptions of r*, the neutral real policy rate consistent with growth at trend and inflation at target, have been framed by the experience of a prolonged period of economic slack and an even longer period of globalization. The impacts of both on inflation are probably fading and the real policy rate required to keep inflation pressures in check will likely rise gradually to a considerably higher level than currently priced.

Real rate drivers – the usual suspects

It is worth periodically rounding up the ‘usual suspects’ cited as causes of the low real rate world we have been in. Here we list suggestions from a variety of sources and throw in a few of our own. We do not claim that it is exhaustive and readers would no doubt add and subtract from what we have below.

Thinking in terms of potential longer-dated real rates drivers – those shifting the supply and demand for savings and investment – it is perhaps useful to split them into those drivers that might have shifted the savings curve and those that might have shifted the investments curve.

Most items we list are self-explanatory and we do not want to go over well-trodden ground in a lot of detail before getting to our main contentions. However, some of the drivers we identify should actually be broken-down into arrays of sub-drivers. In particular, we suggest that there are many facets to the apparent change in capital/labour preference that has subdued capital investment, so we carve out a sublist for that driver.

Causes of investment curve shift to the left?

  • The long shadow of the crisis – reduced expected real returns, greater uncertainty over those expected returns or greater risk aversion to that uncertainty
  • A decline in innovation, reducing opportunities
  • The cost of equity capital has fallen, but nothing like as much as the risk free rate.
  • Falling prices of investment goods (and inelastic demand).
  • Capital/labour substitution – replacing the former with the latter.

Causes of savings curve shift to the right?

  • The ‘Global Savings Glut’ (GSG), especially imported savings from reserve accumulators.
  • Demographics – a falling dependency ratio. Workers can save more because they are supporting fewer dependents.
  • Precautionary savings accumulated because of crisis.
  • Rising inequality raising the average propensity to save.” – Source: Bank of America Merrill Lynch

We would like to add a couple of comments to the above relating to the GSG theory put forward by former Fed president Ben Bernanke relating the reasons for the Great Financial Crisis (GFC). Once again we would like to quote our February 2016 conversation “The disappearance of MS München” on this subject:

The “Savings Glut” view of economists such as Ben Bernanke and Paul Krugman needs to be vigorously rebuked. This incorrect view which was put forward to attempt to explain the Great Financial Crisis (GFC) by the main culprits was challenged by economists at the Bank for International Settlements (BIS), particularly in one paper by Claudio Borio entitled “The financial cycle and macroeconomics: What have we learnt?:
The core objection to this view is that it arguably conflates “financing” with “saving” -two notions that coincide only in non-monetary economies. Financing is a gross cash-flow concept, and denotes access to purchasing power in the form of an accepted settlement medium (money), including through borrowing. Saving, as defined in the national accounts, is simply income (output), not consumed. Expenditures require financing, not saving. The expression “wall of saving” is, in fact, misleading: saving is more like a “hole” in aggregate expenditures – the hole that makes room for investment to take place. … In fact, the link between saving and credit is very loose. For instance, we saw earlier that during financial booms the credit-to-GDP gap tends to rise substantially. This means that the net change in the credit stock exceeds income by a considerable margin, and hence saving by an even larger one, as saving is only a small portion of that income. – Source: BIS paper, December 2012

Their paper argues that it was unrestrained extensions of credit and the related creation of money that caused the problem which could have been avoided if interest rates had not been set too low for too long through a “wicksellian” approach dear to Charles Gave from Gavekal Research.

“Borio claims that the problem was that bank regulators did nothing to control the credit booms in the financial sector, which they could have done. We know how that ended before.” – Source: Macronomics, February 2016

Indeed, conflating financing and savings is the main issue when it comes to the GSG theory. From a “Wicksellian” perspective, one would argue that low rates for too long leads to misallocation of capital. For instance, if one looks at CAPEX expenditures in US High Yield since 1997, one can see in the chart below from the Bank of America Merrill Lynch that prior to the onset of the GFC, capital raised through bond issuance went into more leverage thanks to a buying spree with acquisitions/LBOs. Of course, a feature of a late credit cycle does lead to seeing more LBOs and acquisitions:

– Graphs’ Source: Bank of America Merrill Lynch

As we pointed out in our October 2017 long conversation relating to inflation entitled “Who’s Afraid of the Big Bad Wolf?“, we had over-inflation of asset prices and too low inflation thanks to the “Money Illusion”. The Fed subdued inflation expectations and inflation with its various QE iterations. We indicated at the time:

Credit cycles die because too much debt has been raised

When it comes to credit and in particular the credit cycle, the growth of private credit matters a lot. If indeed there are signs that the US consumer is getting “maxed out”, then there is a chance the credit cycle will turn in earnest, because of too much debt being raised as well for the US consumer. But for now financial conditions are still fairly loose. For the credit music to stop, a return of the Big Bad Wolf aka inflation would end the rally still going strong towards eleven in true Spinal Tap fashion.” – Source: Macronomics, October 2017

Financial conditions remain very loose and with the fiscal boost coming from the Trump administration, no wonder the Fed is becoming more hawkish. You have been warned.

But returning to real rate drivers, Bank of America Merrill Lynch in their note highlight what has mattered most for the “Money illusion” to take place:

What has mattered most?

Over the past ten years, bond market participants would almost certainly cite risk-free bond buying by central bank reserve accumulators and the duration extinguished by quantitative easing, mitigating the impact of heavy government bond supply as the crisis lifted debt/GDP levels.

However, real rates were already in long-term decline well before the crisis. Taking a longer time frame, a Bank of England Working Paper by Lukasz Rachel and Thomas D. Smith (No. 571, ‘Secular drivers of the global real interest rate’, December 2015) claimed to be able to account for 400 of the 450 basis point fall in long term real interest rates over the preceding thirty years.

Exhibit 1, clipped from their paper, suggests that the global savings glut has only had a small walk-on part in the unfolding real rate drama.

In their analysis, the big four drivers were: lower growth, demographics, an increase in the spreads between risk-free real rates and the real rates experienced in the real economy (including, for instance, the real cost of equity finance), and the falling relative price of capital. For this last to be a driver of lower real rates one must assume that demand for capital goods is price-inelastic.

They concluded that: ‘most of these forces look set to persist and some may even build further. This suggests that the global neutral rate may remain low and perhaps settle at (or slightly below) 1% in the medium to long run.’ In their forecasts, they see demographics delivering most of this increase, as the Exhibit shows. Chart 6 shows how this relates to an end to the downtrend in the world dependency ratio, with upswings well underway in advanced economies.

Later, we will discuss the interaction between risk-aversion, driving the ‘spreads’ component in the Exhibit, and the global savings glut, in order to contend that this can be a force for a bigger upward adjustment in real rates in the future.

The replacement of capital with labour has many aspects

As before, we will list what we see as potential causes of this phenomenon, rather than discuss them in any detail. They should be self-explanatory. We would also stress that the ordering should not be regarded as signalling an attempt to rank them in order of importance.

Drivers of the trend shift from capital to labour

  • Increasing labour market flexibility

  • A global ‘labour supply glut’, resulting from:

o A falling dependency ratio
o Globalisation
o A post-crisis workforce that needed to re-skill and price itself back into work

  • A change in firms’ perceived capital-labour risk/cost efficient frontier since the crisis

  • Capital intensive goods production has been driven out of advanced economies (their comparative advantage being in services)

  • Production reflects consumption. Advanced economies consume fewer goods and more (labour intensive) services

  • As a result of the above, the modern advanced economy business is capital-light

Ben Bernanke memorably used the term ‘global savings glut’ to describe excess savings circling the world in pursuit of a return. Admittedly, the world saving rate was a little higher in 2005 (when he coined the term) than now but the overall increase in the world savings rate over time has not been great, while that for the OECD has seen a gentle decline.

The glut that is generally understood to have exerted downward pressure on nominal and real yields refers to the savings recycled from surplus countries to deficit countries as large current account imbalances emerged.

However, there are reasons to be a little uncomfortable with that seemingly axiomatic received wisdom without further elaboration. To the extent that current account surpluses represent the excess savings of countries, there are equal and opposite savings shortfalls in current account deficit countries (notably the US and UK).

Conventional wisdom used to have it that countries with persistent current account deficits needed to pay higher prospective returns to attract and retain foreign capital. Investors have a natural preference for domestic assets, so need to be paid a premium for accepting foreign market risk. Therefore, without any change in global saving, an increase in imbalances would be expected to depress real yields in surplus economies but raise them in economies with savings shortfalls.

Conventional wisdom upended

If the above framework is accepted, then a mild increase in the global saving rate accompanied by the development of large global imbalances would have exerted a downward ‘income effect’ on real yields but an upward ‘substitution effect’ on real yields in economies on the negative side of the global imbalances identity. The net impact on real yields in the US (with the greatest need for imported savings) would have been ambiguous. What has upended this logic has been the change in the risk preferences of the exporters of savings.

When an economy is ‘self-sufficient’ in savings, domestic savers have diverse risk appetites; they invest across the risk spectrum. And when an economy does have a savings shortfall but is financed by foreign private capital, risk appetite also tends to be diverse (FDI, equity portfolio acquisition, etc). Up until the late 90s, this was the norm.

So our contention is that the rise of the reserve accumulators, in pursuit of risk-free government paper, crowded-out risk appetite. The substitution effect became one of increasing risk-free investment appetite surpluses and risk-taking appetite shortfalls. Therefore the nature and sign of the substitution changed.

Chart 9 shows the IMF’s presentation of these global imbalances.

In Chart 10, we regroup and simplify the picture. By unifying European creditors and debtors (which appear above and below the zero line in the IMF layout) we change the outline of the picture a bit.

However, the main thing highlighted by Chart 10 is the surplus share recorded by China and the oil exporters up until the last few years. It’s a major oversimplification, obviously, but these are perhaps the most conspicuous reserve accumulators pursuing risk-free external assets.

But that era appears to be over, insofar as we accept IMF forecasts for the development of imbalances. The present and near future of imbalances looks simpler than the past – Europe will be financing the US.

The flows will be private capital, not public reserves, so have the potential to restore the old regime where a US savings shortfall delivers higher not lower risk-free real rates. This also suggests that even though the spread between US and Euro real rates has widened significantly, there’s more to come.

Was the equity risk premium a casualty of this risk appetite shift?

The BoE working paper discussed earlier discussed widening ‘spreads’ as an important driver of low real rates. No doubt the crisis was a major contributor to a gapping wider in the equity risk premium and a shifting preference towards government bonds will reflect other things, like the aging of the average saver. However, we would suggest that if global imbalances have extinguished risk appetite in the way we have described, then this also played a big part in the late-90s bond-equity ‘correlation flip’ shown in Chart 11 and the widening gap between bond and equity earnings yields.

In this context, the post-millennium US experience of debt-financed equity buybacks (widely pilloried as ‘short-termism’ and ‘financial alchemy’ looks, more objectively, to be a rational response to a dramatic increase in the relative cost of equity finance. It’s been about giving investors what they want.

New normal looking more like old normal than we thought

In this note we have discussed very big picture influences that are likely evolving very slowly. However, the underlying messages seem clear. A closing of the global output gap appears to be coinciding with a waning in the deflationary influence of globalisation, resulting in firming global inflation, or at least a higher r* to keep inflation in check. This would be aggravated if globalisation is actually in retreat.

That a global savings glut depressed risk-free real rates is universally accepted but perhaps the bigger global real yield depressant from global imbalances was the extinguishing of risk appetite – ‘bad’ savings driving out ‘good’ savings. The global imbalances are still with us but the composition is changing in a way that should restore risk appetite and lift US real yields, both outright and (especially) relative to European.” – Source: Bank of America Merrill Lynch

We disagree on the above a GSG was not the reason risk-free rates were depressed, no offense to Bank of America Merrill Lynch, but we would rather side with the wise wizards at the BIS than with the reckless wizards such as Ben Bernanke at the Fed and others.

Before we move on to our final charts regarding the “liquidity illusion,” we would like to quote the wise words of Irving Fisher from his 1928 book:

We may now summarize our findings

1. The problem of what to do about our unstable money is one of prime importance

2. It has been all but overlooked because of the Money Illusion

3. This Illusion is the more serious because every man finds it harder to free his mind of this Illusion as to the money of his own country than of foreign money.

4. This Money Illusion so distorts our view that commodities may seem to be rising or falling when they are substantially stationary, wages may seem to be rising when they are really falling, profits may seem to exist when they are really losses, interest may be believed to be rewarding thrift when no real interest exists, income may seem to be steady when it is unsteady, bond investments may seem to be safe when they are merely a speculation in gold. It makes a unit of weight appear to be a unit of value; it hides a chief cause of the so-called business cycle; it has enabled political financiers to employ unsound finance with burdens heavier but with complaints less than if sound finance had been employed; it has led to unjust blame of ‘profiteers’ and of the ‘money lenders’; and above all it has held back stabilization by concealing the need of it.

5. The present fixity of weight of our dollar is a very poor substitute for a fixity of value or buying power.

6. By actual index number measurement our dollar rose nearly four-fold and fell back to the starting point again between 1865 and 1920.

7. Most of the dollar’s fluctuations were while the dollar was a gold dollar (1879-1922).

8. They were largely peace time fluctuations; most of them occurred while America was at peace (1879-1898, 1899-1917, and 1918-1922), and much of them when there were no important wars elsewhere (1879-1914 and 1918-1922).

9. These fluctuations through serious shrink into insignificance in comparison with the thousand-fold, million fold, billion-fold, and trillion-fold fluctuations in Europe.

10. The cause of a falling or rising dollar is monetary inflation or deflation and that, in practice, it is seldom or never necessary to specify that the inflation or deflation is merely relative since it is also absolute as well.

11. To go back to the cause of inflation or deflation, the extreme variability of money is chiefly man-made, due to governmental finance, especially war finance, as well as to banking policies and legislation; but also due in part to discoveries or exhaustion in gold mines, and changes in metallurgical art.

12. The tremendous fluctuations of money produce tremendous harm analogous to what would result if our physical yardstick were constantly stretching and shrinking but far greater:

  • A. Because the money yardstick is used so much more generally, and

  • B. because it is so much more used in time contracts, because stretching and shrinking are unseen.

13. This harm includes a constant robbery of Peter to pay Paul – amounting to sixty billion dollars in six years in the United States alone – a net loss to all Peters and Pauls taken together, confusion and uncertainty in all financial, commercial and industrial relations, constituting much what is called the business cycle, producing depression, bankruptcy, unemployment, labor discontent, strikes, lockouts, class feeling, perverted legislation, Bolshevism and violence. In short the harm is threefold: social injustice, discontent and inefficiency.” – Source: Irving Fisher, The Money Illusion

He also added that credit control must always be an important part of any program for stabilization. This is leading us to our final charts relating to the “liquidity illusion” in credit markets.

Final charts – Always remember that liquidity is a coward

As a reminder, a liquidity crisis always leads to a financial crisis. That simple, unfortunately. In our February 2016 conversation “The disappearance of MS München,” on this subject, we quoted Dr. Jochen Felsenheimer and Philip Gisdakis from their 2008 book Credit Crises:

“Asset price inflation in general, is not a phenomenon which is limited to one specific market but rather has a global impact. However, there are some specific developments in certain segments of the market, as specific segments are more vulnerable against overshooting than others. Therefore, a strong decline in asset prices effects on all risky asset classes due to the reduction of liquidity.

This is a very important finding, as it explains the mechanism behind a global crisis. Spillover effects are liquidity-driven and liquidity is a global phenomenon. Against the background of the ongoing integration of the financial markets, spillover effects are inescapable, even in the case there is no fundamental link between specific market segments. How can we explain decoupling between asset classes during financial crises? During the subprime turmoil in 2007, equity markets held up pretty well, although credit markets go hit hard.” – Source: Credit Crises, published in 2008, authored by Dr. Jochen Felsenheimer and Philip Gisdakis

Our final charts come from Bank of America Merrill Lynch’s Credit Market Liquidity report from the 12th of September and highlights the “buy-side” versus the “sell-side” imbalance after the GFC and seems to be on every credit investor’s mind these days, rightly so:

“The ECB has been tapering its QE programme, and asset purchases will finish by the end of this year. Credit market liquidity is becoming more challenging with market participants seeing fewer bids when they need them. We think that when bond market liquidity becomes more challenging, the CDS market is the vehicle to manage risk. Bond trading frequencies have slowed down over the past years; trading volumes in the CDS market are rising rapidly, both in the index and the options market.

The ‘buy-side’ vs. ‘sell-side’ imbalance is the largest it has ever been. In a world of growing buy-side assets but lower street liquidity, sharp corrections are more common. Dealer inventories of corporate bonds are clearly way down on where they were in ’07, but banks also appear more nimble in managing their mark-to-market risks and overall exposures on their securities portfolios.

The CSPP has dominated the European credit market in recent years. The ECB has bought more than €167bn of euro-denominated corporate debt (and this is still growing, albeit slowly). The CSPP has been pivotal in improving the credit market’s strength and resilience. But we can see a shift in market liquidity for the worst in recent months amid rising markets volatility.

Liquidity has been challenging according to the findings of our analysis, and credit investors seem to think that it will deteriorate as the buyer of last resort withdraws and they will be the only buyers left in the market (chart 3).

With inflows drying up and possibly continuing to do so as the rates cycle between US and Europe pushes money out of the latter, liquidity will likely become more challenging (more here).

The trend of selling in secondary to participate on primary is the new norm as inflows have stopped. If macro deteriorates further and investors need to replenish their cash balances to cover weaker fund flows technicals, the bid for bonds would weaken more, we think. No wonder that the key concern for credit investors is that ‘market liquidity evaporates’; the August 2018 survey reading was the highest since H2 2015 heading into the February 2016 sell-off and amid HY market weakness (on the back of a flare-up in the Greek debt saga, EM risks and oil prices tanking).

Our liquidity indicator at the most distressed levels

Arguably it is difficult to quantify liquidity. So many metrics (bid/offer, turnover, volumes and trade counts), but none of these have the ability to measure ‘illiquidity aversion’ and to what extent risk-aversion has dominated the market. We think the volatility market is providing unique and eye opening insight on the current state of the ‘illiquidity scare’ for market participants.

In our Hold your breath for a bumpy ride note, we highlighted an interesting and rather unique phenomenon that recently emerged in the European credit index options market. Amid significant volatility during the Italian BTP sell-off, we have seen an increase in hedging demand. As a result implied vols have moved well above the levels justified by the underlying spread market. But not only that, as not only have vols underperformed (moved more than) the underlying market, but implied vol skews were heavily bid too, steepening to the highest levels we have seen historically (chart 4).

We think we could gain significant insight on risk aversion from examining the correlation between the forward moves of the implied vol skew (payer vs. receiver implied vol differential) vs. the preceded moves in the underlying implied vol market. In simple terms, the higher the correlation the stronger the need for tail hedging going forward post a vol shock in credit. Currently we find that the level of positive correlation (steepening of implied vol skew, post a rise in implied vols) is the highest we have ever seen, according to our data.

In our opinion this clearly reflects the high levels of risk aversion and illiquidity fear during the recent sell-off. It seems that investors hit the ‘panic’ button harder than at any other time in history. A continuation of outflows, a weak macro and declining market liquidity could ultimately push too many investors to the exit.” – Source: Bank of America Merrill Lynch

It seems that some credit investors are getting wary about the “liquidity illusion” in credit markets and some are already lining up for the exit, as no one wants to really pick up the tab of the very large credit punch bowl offered by our “generous gamblers” aka our dear central bankers, but we ramble again as we are not there yet and equities continue to surge oblivious to the ongoing shift in the “Money Illusion”. Oh, well…

“Liquidity is a backward-looking yardstick. If anything, it’s an indicator of potential risk, because in ‘liquid’ markets traders forego trying to determine an asset’s underlying worth – they trust, instead, on their supposed ability to exit.” – Roger Lowenstein, author of “When Genius Failed: The Rise and Fall of Long-Term Capital Management.” (Corzine Forgot Lessons of Long-Term Capital)

Hurricane Florence Threatens to Spread Hog Poop Over North Carolina

Shimmering in pools on industrial hogs farms in North Carolina, several million tons of urine and feces await the arrival of Hurricane Florence.

The state is home to about as many pigs as it is people. Its hog farms are a major part of the state economy, with many of them concentrated in the eastern part of North Carolina, where Hurricane Florence is expected to drop 20 to 30 inches this week. The water will pour down on the hog farms’ denitrifying lagoons: big pools that hold pig urine, poop, blood, and other bodily excrements. Experts worry that if the lagoons flood, their contents could spread to nearby areas and contaminate local water supplies.

Pig waste carries bacteria like E. coli and Salmonella, says Lance Price, George Washington University public health professor and founder of the Antibiotic Resistance Action Center. Scientists also consider North Carolina hog farms a hot zone of antibiotic-resistant bacteria. Hospitals near industrial pig farms in eastern North Carolina have found distinct strains of MRSA among livestock farmers. “Scary bugs are going to be in the waste and in the poo,” says Price.

To prepare for the storm, farmers are stockpiling feed, moving their animals to higher ground, and checking their generators. They’ve also been spraying waste onto fields as fertilizer all summer, to help prevent the lagoons from overflowing. But with all the incoming rain, researchers and activists worry that the waste from the fields will wash down rivers and streams, just as it would if the lagoons are breached.

Even under normal conditions, pollutants on the farms cause health problems in nearby settlements, triggering respiratory problems and reduced lung function. “These farms affect wellbeing, health, and water quality in the area,” says Jill Johnston, formerly an epidemiologist at the University of North Carolina and now an environmental health professor at the University of Southern California. Her research team found that the pollutants from pig farms disproportionately harm African American, Latino, and Native American communities.

During the last major hurricane in the area, Hurricane Matthew in 2016, power went out, trees fell down, and 26 people died in North Carolina. Out of 3,750 lagoons in the state, 14 of them flooded. As the the North Carolina Pork Council points out, municipal waste facilities also spewed sewage during that storm.

But pigs produce ten times the amount of poop that humans do. And Hurricane Florence threatens to drop twice the amount of rain as Matthew. “I’m really, really scared that the consequences will be worse than everything we’ve ever seen,” says Rick Dove, senior advisor to the Waterkeeper Alliance, an activist group that advocates for drinkable, fishable water. The National Hurricane Center is warning of a storm surge—a flood of water that will rise from the coast—as well as tropical-storm-force winds and flooding further inland. The already higher-than-usual sea levels are intensifying the problem. “We have never, in the history of North Carolina, had a storm like the one that’s coming in right now,” says Dove.

Hog farming has become an increasingly condensed operation over the last few decades, especially on the east coast, which intensifies their effects in both day-to-day life and hurricane season. “You can’t tell me that you can put that many hogs and chickens on soil that is largely beach sand and it will not have significant environmental impacts,” says Scott Marlow, senior policy specialist at Rural Advancement Foundation International, a nonprofit group that supports farmers.

With the roads filled with evacuating North Carolinians, no one’s going to ship the poop out on trucks, as the farms sometimes do. If Florence-scale hurricanes become routine, however, the state may have to find better solutions. As Price puts it, “We can’t afford to have a million pounds of pig shit flowing into our streams every time there’s a heavy storm.”

More Great WIRED Stories

Facebook's AI Can Analyze Memes, but Can It Understand Them?

Billions of text posts, photos, and videos are uploaded to social media every day, a firehose of information that’s impossible for human moderators to sift through comprehensively. And so companies like Facebook and YouTube have long relied on artificial intelligence to help surface things like spam and pornography.

Something like a white supremacist meme, though, can be more challenging for machines to flag, since the task requires processing several different visual elements at once. Automated systems need to detect and “read” the words that are overlaid on top of the photo, as well as analyze the image itself. Memes are also complicated cultural artifacts, which can be difficult to understand out of context. Despite the challenges they bring, some social platforms are already using AI to analyze memes, including Facebook, which this week shared details about how it uses a tool called Rosetta to analyze photos and videos that contain text.

Facebook says it already uses Rosetta to help automatically detect content that violates things like its hate speech policy. With help from the tool, Facebook also announced this week that it’s expanding its third-party fact checking effort to include photos and videos, not just text-based articles. Rosetta will aid in the process by automatically checking whether images and videos that contain text were previously flagged as false.

Rosetta works by combining optical character recognition (OCR) technology with other machine learning techniques to process text found in photos and videos. First, it uses OCR to identify where the text is located in a meme or video. You’ve probably used something like OCR before; it’s what allows you to quickly scan a paper form and turn it into an editable document. The automated program knows where blocks of text are located and can tell them apart from the place where you’re supposed to sign your name.

Once Rosetta knows where the words are, Facebook uses a neural network that can transcribe the text and understand its meaning. It then can feed that text through other systems, like one that checks whether the meme is about an already-debunked viral hoax.

The researchers behind Rosetta say the tool now now extracts text from every image uploaded publicly to Facebook in real time, and it can “read” text in multiple languages, including English, Spanish, German, and Arabic. (Facebook says Rosetta is not used to scan images that users share privately on their timelines or in direct messages.)

Rosetta can analyze images that include text in many forms, such as photos of protest signs, restaurant menus, storefronts, and more. Viswanath Sivakumar, a software engineer at Facebook who works on Rosetta, said in an email that the tool works well both for identifying text in a landscape, like on a street sign, and also for memes—but that the latter is more challenging. “In the context of proactively detecting hate speech and other policy-violating content, meme-style images are the more complex AI challenge,” he wrote.

Unlike humans, an AI also typically needs to see tens of thousands of examples before it can learn to complete a complicated task, says Sivakumar. But memes, even for Facebook, are not endlessly available, and gathering enough examples in different languages can also prove difficult. Finding high-quality training data is an ongoing challenge for artificial intelligence research more broadly. Data often needs to be painstakingly hand-labeled, and many databases are protected by copyright laws.

To train Rosetta, Facebook researchers used images posted publicly on the site that contained some form of text, along with their captions and the location from which they were posted. They also created a program to generate additional examples, inspired by a method devised by a team of Oxford University researchers in 2016. That means the entire process is automated to some extent: One program automatically spits out the memes, and then another tries to analyze them.

Different languages are challenging for Facebook’s AI team in other ways. For example, the researchers had to find a workaround to make Rosetta work with languages like Arabic, which are read from right to left, the opposite of other languages like English. Rosetta “reads” Arabic backwards, then after processing, Facebook reverses the characters. “This trick works surprisingly well, allowing us to have a unified model that works for both left to right and right to left languages,” the researchers wrote in their blog post.

While automated systems can be extremely useful for content moderation purposes, they’re not always foolproof. For example, WeChat—the most popular social network in China—uses two different algorithms to filter images, which a team of researchers at the Univeristy of Toronto’s Citizen Lab were able to successfully trick. The first, an OCR-based program, filters photos that contain text about prohibited topics, while the other censors images that appear similar to those on a blacklist likely created by the Chinese government.

The researchers were able to easily evade WeChat’s filters by changing an image’s properties, like the coloring or the way it was oriented. While Facebook’s Rosetta is more sophisticated, it likely isn’t perfect either; the system may be tripped up by hard-to-read text, or warped fonts. All image recognition algorithms are also still potentially susceptible to adversarial examples, slightly altered images that look the same to humans but cause an AI to go haywire.

Facebook and other platforms like Twitter, YouTube, and Reddit are under tremendous pressure in multiple countries to police certain kinds of content. On Wednesday, the European Union proposed new legislation that require social media companies to remove terrorist posts within one hour of notification, or else face fines. Rosetta, and other similarly automated tools, are what already help Facebook and other platforms abide by similar laws in places like Germany.

And they’re getting better at their jobs: Two years ago CEO Mark Zuckerberg said that Facebook’s AI systems only proactively caught around half of the content the company took down; people had to flag the rest first. Now, Facebook says that its AI tools detect nearly 100 percent of the spam it takes down, as well as 99.5 percent of terrorist content and 86 percent of graphic violence. Other platforms, like YouTube, have seen similar success using automated content detection systems.

But those promising numbers don’t mean AI systems like Rosetta are a perfect solution, especially when it comes to more nuanced forms of expression. Unlike a restaurant menu, it can be hard to parse the meaning of a meme without knowing the context of where it was posted. That’s why there are whole websites dedicated to explaining them. Memes often depict inside jokes, or are highly specific to a certain online subculture. And AI still isn’t capable of understanding a meme or video in the same way that a person would. For now, Facebook will still need to to rely on human moderators to make decisions about whether a meme should be taken down.

More Great WIRED Stories

Strong Buy 6.16% Yield Won't Be On Sale Forever

This research report was produced by The REIT Forum with assistance from Big Dog Investments.

Tanger Factory Outlet Centers (SKT) is a solid REIT with a great dividend track record.

Source: SKT

Management has been prudent in protecting their balance sheet and keeping leverage low.

Source: SKT

They are very firmly within the investment grade credit rating and have significant excess cash flow even after paying the common dividend.

The bears on SKT must be ignoring a few simple fundamental factors.

SKT fundamentals

If SKT’s net operating income is simply flat over the next several years, SKT would still be a very reasonable investment. If net operating income was flat, we would expect very minimal pressure on total FFO as interest rates increase and a portion of the debt is refinanced.

The impact to total FFO should be quite small. Since SKT has so much excess cash flow after all of their operating expenses, common dividends, and capitalized expenditures for the properties, they are free to repurchase shares. By our estimate, they could reasonably shrink the number of shares outstanding by around 2% per year. That means even with flat FFO or an extremely minor decline in total FFO, the FFO per share would still be increasing. This also assumes SKT would continue to raise their dividend and maintain a similar payout ratio on FFO per share.

We see the above as the bear case scenario.

More likely scenario for SKT

It is more likely that we will see same-store NOI growth in 2019. Pressure on NOI in 2018 was tied to the Toys “R” Us bankruptcy. SKT knew the bankruptcy was coming but expected more of the impact to occur in 2019 rather than 2018. Because the Toys “R” Us bankruptcy hit earlier than expected, the weakness in earnings shows up for 2018 instead of 2019. With an expectation for moderate growth in same-store NOI on average over the next several years, we would expect total FFO to grow modestly. Given the expectation for a declining share count, we would expect FFO per share to grow a little faster.

If FFO per share and dividend per share grew at 1%, we would expect long-term returns to the buy-and-hold investor to run around 7% with 6% from yield and 1% from growth. In a more bullish scenario, we would be looking at FFO per share and dividend growth running in the 3% to 4% range which combines with the 6% yield for 9% to 10% in total returns. It is important to point out that this is forecasting the return from the dividend and the growth rate rather than speculating on the price movement over the next month.

Some short-term investors will be focused on the change in share price. We view the most likely direction as up over the next 12 months. However, predicting precisely where the share price will end is not a reliable indicator of long-term results.

Buyout potential

We’ve seen a few buyouts on REITs so far in 2018, including one in the mall space. While these are outlets, it is still classified as a mall REIT (sometimes a strip center).

There is an enormous amount of private capital looking for entry into real estate. This private capital is driving valuations on real estate. Ironically, the funds managing it are benefiting from the lack of transparency in their structure. Investors want real estate, but they are terrified by the day to day price movements in the stock. The price movement in the underlying asset, the real estate, is dramatically smaller. Consequently, investors are occasionally more comfortable with simply getting an appraised value a few times per year rather than seeing the daily fluctuations in market price. It seems absurd that investors would pay a premium for less liquidity and less transparency, but that is precisely what is happening in the real estate market today with an enormous amount of wealth.

A prudent manager in this structure might look to buy a REIT this way and then report the net value of the assets to investors. For instance, Blackstone (BX) recently acquired another REIT for their portfolio of real estate. Prologis (PLD) acquired another REIT. Buyers exist with the capital to swallow entire REITs. General Growth Properties (GGP) was recently swallowed by Brookfield Property Partners (BPY).

It would be sad to see SKT go right after hitting 25 years of dividend growth, but management indicates that they are willing to pick up for the phone for anyone who wants to make an offer. Generally, that would be on one property or a few properties, but a bid could be made for the entire company.

SKT’s confidence

Management of SKT had good things to say on the Q2 2018 earnings call (parts bolded for emphasis):

In terms of our balance sheet and capital position, we’re in great shape. We have a largely unencumbered portfolio, maintained solid interest coverage and have no significant debt maturities until 2021. We are committed to sustaining a stable and flexible financial position. We plan to continue to deliver a very strong level of cash flow and remain disciplined in our capital allocation decisions with a singular focus on creating value. The cash we generate covers our capital needs for investing in our assets, paying our dividends, repurchasing our common shares and deleveraging our balance sheet. Our dividend, which remains a priority, is secure and well covered. We have also continued to execute on our share repurchase program.

Going forward, we do not anticipate any new developments in 2018 and ’19. But we’ll continue to evaluate our priority uses of cash and long-term opportunities for growth. While we recognize the challenges we have discussed related to select overleveraged retailers, we believe industry sentiment surrounding fashion retailers is improving. According to recent reports, nearly 7,000 stores closed in all retail properties were announced in 2017. And slightly less than half of that number is slated to close this year. Importantly, offsetting those closures, approximately 2800 stores are scheduled to open this year. This all suggests a healthier retail outlet.

Our confidence in the long-term growth of the outlet distribution channel remains unwavered. In particular, relative to other retail channels, we don’t believe that outlets have been overbuilt. So the need to right-size and the competition among landlords is minimized. Furthermore, we are increasingly hearing the conviction among retailers that brick-and-mortar is a critical element of their omni-channel brand strategy. While the positive sales are encouraging and our conversations with tenants and prospects are constructive, we know there’s still much work to be done. We continue to employ a strategic approach that has proven effective and successful over the last 37 years, which includes keeping the tenant mix of our centers dynamic and giving Tanger shoppers the brands and designers they want. With this long-term view, we have proven we can successfully adapt to evolving consumer preferences and align those with tenant needs.

Final thoughts

We believe SKT is still attractively valued and expect it to perform well on the basis of higher expected FFO per share next year and continued dividend growth. The payout ratio is excellent and there is plenty of FFO leftover after paying the dividends. The balance sheet and debt maturities are great. SKT has raised its dividend for 25 consecutive years and is currently trading at a large discount to the net value of their assets. We believe the net value is around $30.00 per share.

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

Disclosure: I am/we are long SKT, BPY.

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.

AMD: Winter Is Coming

If you walk away with only one thought, it needs to be this – the total addressable market (aka TAM) for servers took a massive leap up. TAM went from $18.5 billion to $22.5 billion. That is a rising tide that will raise all server-related ships, be it AMD (AMD), Nvidia (NVDA), or Intel (INTC) providing the hardware.

EPYC is the Spark, Rome is the Fire, Winter is Coming for Intel

To travel down memory lane, AMD was a much different company before Ryzen was released. The company was struggling to stay alive and selling off various parts. Ryzen changed everything. Let that sink in. Ryzen put AMD back on the road map and gave the company a pulse again. AMD’s server chip EPYC is the spark for AMD. EPYC is starting to ramp.

According to AMD CTO Mark Papermaster, “We expect to be able to end the year at about 5 percent of the market and grow to double digit next year.”
The server followup chip Rome is going to be the fire. Winter is coming for Intel. AMD is going to take its chunk of the server market with time.

Winter Intel

Big Growth in Server TAM

Estimates place the server market at $22.5 billion. According to IDC, the market is broken down as follows:

“Volume server revenue increased by 42.7% to $18.4 billion, while midrange server revenue grew 63.0% to $2.5 billion. High-end systems grew 30.4% to $1.7 billion.” That is quite the TAM for AMD to attack. Assuming AMD takes 4.5% to 5.5% of that market by Q4 with ramping going to 10%-plus by the following Q3… you get the picture.

Looking above, we see some very nice growth in server units sold. Prices are rocketing up. According to “our guess is that half of the increase in revenues in Q2 2018 was due to rising component costs.”

This bodes well for AMD since EPYC gives performance at reduced component costs for AMD partners, while providing AMD with very high gross margins. As EPYC ramps, we can expect to see a corresponding rise in margins.

Too Much Demand

Current rumors paint a picture of demand exceeding supply for Intel chips.
Per DRAMeXchange: “TrendForce has adjusted its 2018 global notebook shipments projection downwards due to the worsening shortage of Intel CPUs” and “TrendForce now estimates that this year’s total notebook shipments will drop by 0.2% YoY, and the CPU shortage may further impact the entire memory market as well.” That’s an interesting projection, but if I were a laptop maker such as Dell you can bet I would be considering an alternative CPU supplier such as AMD to replace those chips that Intel is unable to supply.
Supply Gap

Lastly DRAMeXchange leaves us with this paragraph concerning the supply gap:

“The precise reason behind the shortage of Intel CPUs is currently unclear because the problem simultaneously affects the newly arrived CPU product lines and product lines that have been in the market for some time. The affected products include the improved version of 14nm++ and product lines based on the 14nm+ Coffee Lake platform, which has been in mass production for half a year and is one of the solutions for mainstream models in the notebook market. The lack of supply for existing CPU product lines is having a significant impact on the notebook market as a whole. TrendForce estimates that the CPU supply gap in the notebook market has increased from around 5% in August to 5-10% in September. There is a possibility that the supply gap may extend to over 10% in 4Q18, and the shortage is expected to be resolved rather later in 1H19.”

HPE Recommends AMD

Semiaccurate recently published a story that HPE was telling customers to buy AMD EPYC chips since Intel Xeon was MIA due to demand. Why so much demand for Intel? Well, no one ever got fired for buying Intel. AMD is the underdog, but “every dog has its day” and that day gets closer when HPE is recommending clients buy AMDs’ EPYC. Short term, Intel will benefit from the demand but its part of the server pie will shrink given time.


To wrap, the TAM is growing fast and the rising tide bodes well for AMD. AMD has run very fast and we personally consider the stock dangerous, but it’s also dangerous to be on the sidelines missing a spectacular run.

Thus, we are using options to place less capital on the firing line. However, the capital we use has far more risk associated with it. If AMD were to pull back, the options would suffer. Given the time decay things could get rather nasty. The takeaway is that if you want to gamble, gamble smart.

Our Play

While cautious of any fast rise, we do need skin in the game. Currently, we are sitting on our January 2019 $30 calls, February $30 calls, April $30 / $31 calls. We have opened February $35 calls as a very speculative position (in case the run continues).

Do note: These are dangerous positions (due to the nature of options), but in our opinion we prefer this to buying large swaths of common stock. These options should be viewed as simply ideas to explore. Due to the fast nature of options, they should not be viewed as something to mimic (as the data will be stale for the reader). If you require more help, please consult your broker.

In case you missed it – here’s the interview w/ Dr. Lisa Su.

Disclosure: I am/we are long AMD, NVDA.

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

Exclusive: Adobe in talks to buy marketing software firm Marketo: sources

(Reuters) – Adobe Systems Inc (ADBE.O), the maker of image-editing software Photoshop, is in negotiations to buy Marketo Inc, a privately held cloud-based marketing software company, according to people familiar with the matter.

An Adobe Systems Inc software box is seen in Los Angeles, California, U.S., March 13, 2017. REUTERS/Lucy Nicholson

Private equity firm Vista Equity Partners Management LLC took Marketo private two years ago for $1.8 billion. Adobe is expected to pay significantly more than that should a deal be reached, the sources said, though the exact amount being considered could not be learned.

The deal would boost Adobe’s cloud-based software offerings as it takes on larger peers Microsoft Corp (MSFT.O) and Oracle Corp (ORCL.N). Marketo offers business-to-business marketing applications that would compliment Adobe’s marketing business.

There is, however, no certainty the talks between Adobe and Vista Equity will lead to a deal, the sources cautioned, asking not to be identified because the matter is confidential. It is not clear how much Adobe would pay for Marketo.

Vista Equity declined to comment while Adobe and Marketo did not immediately respond to Reuters requests for comment.

Adobe, which has a market capitalization of $130 billion, has topped analysts’ profit and revenue estimates for the past eight quarters, driven by strength in its digital media business, which houses its flagship product Creative Cloud.

The San Jose, California-based company has been actively exploring possible acquisitions. In May, it agreed to buy e-commerce services provider Magento Commerce from private equity firm Permira for $1.68 billion, in a move to bolster its Experience Cloud business.

Marketo was started in 2006 as an email marketing service and is based in San Mateo, California. Last year, it generated revenue of approximately $321 million, according to credit ratings agency Moody’s Investors Service Inc.

Reporting by Liana B. Baker in New York; Editing by Himani Sarkar

Verizon Is Launching Its Cord-Cutting 5G Home Broadband Service on Oct. 1

Verizon said it will start installations of its 5G home-broadband service on Oct. 1, in what the company says will be the world’s first 5G commercial service.

“Verizon 5G Home customers should expect typical network speeds around 300 Mbps and, depending on location, peak speeds of nearly 1 Gig, with no data caps,” Verizon said in a statement. “Verizon 5G Home is ideal for consumers looking to ‘cut the cord’ or upgrade from their current cable service.”

5G is considered the next evolution in mobile technology that will create wireless networks faster and more powerful than the current 4G or LTE networks. Verizon and others have been laying the foundation of 5G networks for some time. While Verizon’s 5G Home service won’t be a true 5G wireless network, it will help the company as it continues to build out a faster wireless network.

Verizon will begin rolling out the service, called Verizon 5G Home, initially in four cities: Houston, Indianapolis, Los Angeles, and Sacramento.

The company will begin signing up customers for its 5G broadband on Thursday, Sept. 13. To entice customers to sign up, the company is offering free installation, three months of complimentary service, a free Chromecast or Apple TV 4K, and three months of free YouTube TV. Current Verizon customers will pay $50 a month for the service, while new customers will pay $70 a month, with no additional hardware costs.

In May, Verizon CEO Lowell McAdam said that the company would begin rolling out its 5G network by the end of 2018. The company said Tuesday that it’s rolling out 5G Home with its own proprietary standards as some of the industry-wide technical standards are still being worked out.

If You Don't Bother To Do This With Your New Hires, You're Throwing $10,000 Down The Drain.

You’re not Google. Neither are you Apple. A-players aren’t fighting tooth and nail for a chance to work on your company. So it’s up to you to attract them with a kickass job description and a great company culture.

But here’s the thing:

Hiring isn’t just about attracting rockstar candidates, and conducting interviews. There’s another piece of the puzzle that’s equally important: and that’s onboarding newer hires.

According to a survey by BambooHR, 91 percent of HR managers think their onboarding processes need to be improved. And guess what? 45 percent of these managers believe that their companies waste up to $10,000 per year on ineffective onboarding processes. I mean, $10,000 is a lot of money. And it could be put to better use elsewhere, such as your marketing campaigns. 

Want to work on your onboarding process, and make it more effective? Here are four tips that can help you do that.

1. Explain the big picture and set expectations.

Plenty of employees start off happy, and then get jaded six months in.

How do you prevent this from happening? Simple. Sit them down on Day One, and tell them how their work plays a role in the big picture. This way, they’ll feel like they’re contributing to the company, and that their work is meaningful.

On top of that, make sure you communicate your expectations to your new employee. What’s their scope of work? What’s their KPI? Do they have monthly targets to hit? Lay it all out.

2. Get them involved straightaway.

If you want your new employees to hit the ground running, don’t try to ease them in. Instead, get them to work with your team members on a project, right off the bat.

This does two things: first, it helps your new hire to establish a rapport with the team immediately. It also allows them to learn from your other employees’ guidance.

3. Provide them with all the information they need.

You don’t want your new hire to wander around the office like a lost sheep, so provide them with all the information they need to dive head-first into their job.

That said, don’t just dump a long, boring manual on them and be done with it. Personally, I like to use explainer videos to help new hires learn how to execute processes and get things done.

I also have an organizational chart in the office that lets everybody know who is responsible for what. If the new hire needs something, they can simply check the org chart and look for the relevant person.

4. Closely follow their progress and recognize their work.

Not many business owners realize this, but the first six months of hiring a new employee are pretty make-or-break.

Why do I say so? According to the Aberdeen Group, 86 percent of new hires make their decision to leave or stay within the first six months. And out of those who choose to leave, 79 percent do so because of a lack of appreciation from their manager.

Your job, as an entrepreneur and a leader, is to make sure your new employees aren’t struggling. Track their progress, help them if needed, and appreciate and recognize their work.

Look, onboarding isn’t rocket science, it’s just that entrepreneurs typically focus on their hiring processes, and overlook this other aspect of hiring. To keep your team happy and your retention rates high, make sure you improve upon your onboarding process. Here’s to building a team of rockstars!

17 Years Later: Lessons From 9/11 That I Hope We've Learned

In 2001, my husband Bill and I had been married just under a year when we watched on TV as the Twin Towers fell. Next month we will celebrate our 18th anniversary. It’s hard to believe that it’s been 17 years since 9/11, or that we’ve been married even longer than that, and yet both are true.

The towers were always part of my Manhattan landscape. For years, wandering the confusing streets of Greenwich Village, I’d instinctively look for the towers to the south and the Empire State Building to the north as reliable landmarks, visible from anywhere, to orient me. Viewing New York from a distance, those distinctive towers, dramatically higher than anything else, would automatically draw my eye, helping me zero in on Manhattan. For a long time, the island where I was born just didn’t look like itself without them.

These many years later, two huge reflecting pools fill the footprints where the buildings once were and the Freedom Tower stands nearby, once again the tallest structure in the Western Hemisphere. The city, and the nation, have rebuilt themselves in every sense of the word. But on the 17th anniversary of that unforgettable day, what have we learned from those attacks?

The US isn’t invulnerable.

One lesson is that the United States isn’t the impregnable fortress we once thought it was. Most Americans generally feel safe from attacks by foreign powers when we’re on American soil, and with good reason. The World Trade Center was struck twice, the first time in 1993 with a truck bomb that failed to bring down the towers but did kill six people, and the second time on September 11, 2001. Before those events, no foreign power had successfully attacked the United States since December 7, 1941 when Pearl Harbor was bombed in Hawaii. No foreign power had succeeded in attacking the Continental United States since the Revolutionary War. Americans overseas have been targets at times, for instance in 1979 when employees at the US embassy in Iran were taken hostage, or in 2000, when suicide bombers attacked the Navy vessel, the USS Cole, killing 17 American sailors. But before 9/11 and since, Americans on their home territory have been safe from foreign attacks.

All lives matter.

At least, I’m hoping this is a lesson we’ve learned, or are learning. USA Today noted, as the 9/11 anniversary approached, that the 17-year-olds who sign up to join the US military over the next few months will be the first group to do so when our nation has been at war their entire lives. The Afghan war began less than a month after the 9/11 attacks, after the Taliban, then ruling the country, refused to hand over Osama bin Laden or shut down the al-Qaeda bases where the 9/11 hijackers had trained. 

The war continues today, with 15,000 US troops still on the ground. A 17-year war takes a terrible toll, and not only on the US and Afghan troops who are fighting it. Today, as we commemorate the 2,977 civilians who died that day, it’s also worth remembering that more than ten times that number of Afghan civilians have been killed by that war. Though exact numbers are hard to tally, researchers at Brown University estimated the toll was roughly 31,000 last year. Some 2,200 US troops have also been killed. USA Today argues that there are signs over the last few months that a negotiated peace is possible and so we should hold out a bit longer, while also publishing an opposing view that we should pull out without delay. 

I’m not certain who’s right. But if we don’t pull out by 2019, the US war in Afghanistan will surpass the Vietnam War to become America’s longest. That’s not a record we should be eager to break.

Hope is better than anger.

It’s still easy, 17 years later, to be angry about the September 11 attacks. I would never fault anyone who lost a loved one that day for feeling angry forever. But for me, the lessons of 9/11 are about survival, about resilience, about people coming together to help each other during a crisis, and about the US as a nation of the world rather than one that stands alone.

At the beautiful National September 11 Memorial, where President Donald Trump is attending a commemoration today, my very favorite thing is a Callery pear tree known as the “Survivor Tree.” Planted at the original World Trade Center in the 1970s, it was badly burned and damaged when the towers fell, reduced mostly to an 8 foot stump, its branches and roots broken off.

It amazes me that in October 2001, in the middle of clearing out the toxic and still smoking rubble at what was then called Ground Zero, workers had the presence of mind to notice that the tree was still alive and to ask the city’s horticultural experts to try and save it. The city’s Department of Parks & Recreation moved what was left of the tree to a site in the Bronx and nursed it back to health. In 2010, it was returned to a place of honor at the 9/11 Memorial.

Since then, it’s been visited by President Obama and foreign heads of state. Mourners hung rainbow colors of ribbons all over it to commemorate the Orlando nightclub shooting two years ago. Seedlings from the tree have been sent to communities all over the world to commemorate other tragedies, most recently to Manchester, England after a terrorist bombing killed 22 people at an Ariana Grande concert. 

Being a fruit tree, the Survivor Tree flowers every year, bursting into a cloud of beautiful white blossoms. I can’t think of a better way to remember, and to look ahead.

SEC halts trading in two cryptocurrency products, citing market 'confusion'

NEW YORK (Reuters) – The U.S. Securities and Exchange Commission said on Sunday it was immediately suspending trading in two investment products that track cryptocurrencies, citing confusion in the markets over whether the products are exchange-traded funds (ETFs).

FILE PHOTO – High-end graphic cards are installed in a cryptocurrency mining computer at a computer mall in Hong Kong, China January 29, 2018. REUTERS/Bobby Yip/File Photo

The SEC said in a statement that trading in Bitcoin Tracker One CXBTF.PQ CXBTF.PK and Ether Tracker One CETHF.PQ CETHF.PK would be halted in the United States until at least Sept. 20.

The products promise to track the price of the cryptocurrencies, less fees. They are both listed on a Nasdaq Inc (NDAQ.O) exchange in Stockholm, but trade “over the counter” in transactions that occur off exchanges within the United States.

“It appears … that there is a lack of current, consistent and accurate information,” the SEC said in a notice posted on its website. “Application materials submitted to enable the offer and sale of these financial products in the United States, as well as certain trading websites, characterize them as ‘Exchange Traded Funds.’”

The issuer of Bitcoin Tracker One and Ether Tracker One, XBT Provider AB SE0010296574.ST and its parent company, did not immediately respond to emailed requests for comment. Nasdaq declined to comment.

The SEC has taken a strict stance against letting ETFs tracking bitcoin and other cryptocurrencies come to market.

But investment firms have been pushing other types of investments that attempt to make it as easy to trade cryptocurrencies as a regular stock.

Those products are sometimes called ETFs, but that term generally refers to a different and often more stringently regulated product. Some industry experts, including the largest ETF provider BlackRock Inc (BLK.N), have called for regulators to standardize the terms used to describe ETFs and other kinds of investment products.

Virtual currency, including bitcoin and ether, can be used to move money around the world quickly and with relative anonymity, without the need for a central authority, such as a bank or government. A fund holding the currency could attract more investors and push its price higher.

Reporting by Trevor Hunnicutt; Editing by Peter Cooney and Will Dunham

Trump tells Apple to make products in U.S. to avoid China tariffs

(Reuters) – U.S. President Trump tweeted on Saturday that Apple Inc (AAPL.O) should make products inside the United States if it wants to avoid tariffs on Chinese imports.

FILE PHOTO: An attendee uses a new iPhone X during a presentation for the media in Beijing, China October 31, 2017. REUTERS/Thomas Peter/File Photo

The company told trade officials in a letter on Friday that the proposed tariffs would affect prices for a “wide range” of Apple products, including its Watch, but it did not mention the iPhone.

Trump, speaking on Friday aboard Air Force One, said the administration had tariffs planned for an additional $267 billion worth of Chinese goods.

Trump tweeted that “Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now.”

Apple declined to comment.

The technology sector is among the biggest potential losers as tariffs would make imported computer parts more expensive. Apple’s AirPods headphones, some of its Beats headphones and its new HomePod smart speaker would also face levies.

“The burden of the proposed tariffs will fall much more heavily on the United States than on China,” Apple said in its letter.

Reporting by Christopher Bing; Editing by Richard Chang

Reports that Musk security clearance under review are inaccurate: U.S. Air Force

WASHINGTON (Reuters) – Media reports that the U.S. Air Force is reviewing the security clearance of Elon Musk, the chief executive of automaker Tesla Inc are inaccurate, U.S. Air Force spokesperson Captain Hope Cronin said on Friday.

FILE PHOTO: Elon Musk, founder, CEO and lead designer at SpaceX and co-founder of Tesla, arrives at the SpaceX Hyperloop Pod Competition II in Hawthorne, California, U.S., August 27, 2017. REUTERS/Mike Blake/File Photo

Musk has security clearance because another of his companies, SpaceX, provides satellite launch services to the U.S. government.

Earlier on Friday, Fox Business Network and CNBC reported that the Air Force was looking into Musk’s marijuana smoking and his security clearance after Musk was filmed smoking pot, drinking whiskey and wielding a sword on a live web show with comedian Joe Rogan.

Hours later the automaker said its accounting chief would leave after a one-month stint, the latest in a string of unusual behavior and executive departures that have stunned investors.

Shares of the electric carmaker closed trading at $263.24, down 6.3 percent for the day, with investors on edge after a tumultuous August during which Musk proposed and then abruptly pulled the plug on a go-private deal.

Reporting by Mike Stone in Washington; Editing by Cynthia Osterman

Tesla shares reel as executives quit and CEO smokes pot on webcast

(Reuters) – Tesla Inc Chief Executive Elon Musk was filmed smoking marijuana and wielding a sword on a webcast, just hours before the automaker said its recently-appointed accounting chief would leave, the latest in a string of unusual behavior and executive departures that have stunned investors.

Shares of the electric carmaker tumbled more than 6 percent on Friday to $263.24, with investors on edge after a tumultuous August during which Musk proposed and then abruptly pulled the plug on a go-private deal.

Chief Accounting Officer Dave Morton resigned after just one month in the job because of discomfort with the attention on the company and pace of work during that time, Tesla said in a filing on Friday. It later said that Chief People Officer Gaby Toledano would not return from a leave of absence, just over a year after joining.

Later on Friday, Tesla named a new president of automotive operations, promoting eight-year Tesla employee and former Daimler truck exec Jerome Guillen into the role overseeing all automotive operations and reporting to Musk.

That move, described in a company blog with several other promotions as a result of board and management discussions, gives Musk a seasoned auto industry veteran to lean on at a time when some investors have called for a new chief operating officer. Shares barely moved after hours, when the promotions were announced.

Morton and Toledano, whose departures come shortly after the U.S. Securities and Exchange Commission opened an inquiry into Musk’s aborted privatization plan, join dozens of senior executives who have left Tesla.

“Since I joined Tesla on August 6th, the level of public attention placed on the company, as well as the pace within the company, have exceeded my expectations. As a result, this caused me to reconsider my future,” Morton said in the filing.

Late on Thursday, Musk was filmed drinking whiskey, briefly smoking marijuana and wielding a Samurai sword during a 2-1/2-hour live Web show with comedian Joe Rogan that swiftly spread across social media.

Taking a puff from a joint, which Rogan said was a blend of tobacco and marijuana and legal in California, Musk said he “almost never” smoked.

“I’m not a regular smoker of weed,” Musk said. “I don’t actually notice any effect … I don’t find that it is very good for productivity.”

It was the latest in a string of unconventional behavior by the billionaire South African native who is also CEO of rocket startup SpaceX.

Even before Musk’s surprise Aug. 7 tweet that he had funding “secured” for a go-private deal, Tesla had been under scrutiny from investors, analysts and short-sellers as it works to hit production targets and slow its cash burn.

Morton, who is walking away from a $350,000 base salary and a $10 million new-hire stock grant that would vest over four years, said he believed “strongly” in Tesla and that he had no disagreements with the company’s leadership or its financial reporting.

Analysts on Friday reiterated their call for Tesla to bring in another senior leader.

“We have been calling for a co-CEO or COO to assist to codifying the leadership structure and in so doing, the culture at Tesla,” said James Albertine, analyst at brokerage Consumer Edge, speaking before the promotions were announced.

“We think this is further evidence that the time is now for management and the board to address these issues.”


Tesla’s $1.8 billion junk bond maturing in August 2025 plunged as much as 4 cents on the dollar to below 82 cents, a record low, in Friday trading, pushing the yield above 8.8 percent.

Coupled with an upfront cost of 21 percent of insured value, it now costs an investor around $280,000 to insure $1 million of Tesla debt for a year.

With Tesla’s stock falling to its lowest level since April, short sellers added 810,000 shares to their positions, bringing the total as of Thursday to about 32.6 million shares, according to S3 Partners, a financial technology and analytics firm.

Tesla has told investors it expects to turn a profit in the second half of this year, a forecast the company’s head of investor relations, Martin Viecha, reiterated at a conference earlier this week sponsored by RBC Capital Markets, RBC analyst Joseph Spak wrote in a note on Thursday.

Viecha also restated Tesla’s forecast that it will build 50,000 to 55,000 of its Model 3 sedans in the current quarter, and indicated the company’s working capital will improve as production increases, Spak wrote.

Prominent short-seller Andrew Left has sued Tesla and Musk, saying in his proposed class-action complaint on Thursday that Musk’s issuance of materially false and misleading information related to his abandoned plan harmed both short-sellers and those hoping the stock would rise.

A man walks near a logo of Tesla outside its China headquarters at China Central Mall in Beijing, China July 11, 2018. REUTERS/Jason Lee

Reporting by Nivedita Balu and Ismail Shakil in Bengaluru, additional reporting by Noel Randewich in San Francisco, Joe White in Detroit and Dan Burns in New York; Writing by Meredith Mazzilli; Editing by Matthew Lewis and Rosalba O’Brien

It’s Rude to Wait More Than 20 Minutes to Reply to a Text, Google Research Says

If you ever sit there wondering why someone won’t reply to a text you just sent, you’re not alone. According to a new paper from researchers at Google, impatience is a universal condition now. According to their study messaging etiquette says waiting more than 20 minutes to respond can be seen as rude.

While studying complaints about smartphone notifications being distracting, Google researchers Julie Aranda and Safia Baig shadowed 19 people, aged between 18 and 65 and from a variety of countries, to study how they interacted with their phones. They also conducted interviews and drew on earlier research involving 112 other participants.

In some ways, the results were not surprising. People tend to have ambivalent feelings about their phones, finding them engaging and even addictive but also placing constant demands on their attention. But the anxieties and stresses caused by some phone interactions appear to be universal. Messaging was one area of acute tension, particularly with the new expectations texts place on how friends and families communicate.

“All users described the tension between sending and receiving messages,” the paper said. “After sending a message, the sender experiences increasing anxiety while waiting for a response; a late response can feel like a snub or an indicator of your importance to the receiver.”

Such anxieties don’t take long to surface. “On the receiving end of a message, receivers felt pressure to respond immediately or within a reasonable amount of time, typically between 20 minutes to the end of that day, to avoid breaking etiquette and offending the sender,” the paper concluded.

Google, which presented the paper at a conference devoted to human-computer interaction, hopes the results will help it design a phone interface that’s less stressful and demanding. Until then, you have 20 minutes to respond to the messages popping up on your screen, before people start thinking you’re a jerk.

Broadcom sees fourth-quarter boost from data center demand, iPhone launch

(Reuters) – Broadcom Inc (AVGO.O) on Thursday forecast current-quarter revenue largely above estimates on higher demand for components that power data centers, while the launch of Apple Inc’s new iPhones is expected to bolster its wireless business.

A sign to the campus offices of chip maker Broadcom Ltd is shown in Irvine, California, U.S., November 6, 2017. REUTERS/Mike Blake/File Photo

Shares of Broadcom rose 4 percent to $224.90 in extended trading after the chipmaker also reported third-quarter profit that topped analysts’ estimates.

Revenue from enterprise storage business jumped 70 percent in the reported quarter as the acquisition of Brocade helped drive sales gains at the unit.

Its wireless business, which makes chips for Wi-Fi, Bluetooth, and GPS connectivity, reported flat revenue, while its wired infrastructure unit, which makes components used in telecommunication networks, posted a 4 percent rise from a year earlier.

“More than half our consolidated revenue … is benefiting from strong cloud and enterprise data center spending,” Chief Executive Officer Hock Tan said on a post-earnings call with analysts.

“This, coupled with a seasonal uptick in wireless, will drive our forecast revenue in the fourth quarter.”

The company expects a ramp at its North American customer – which analysts identified as Apple – to drive a 25 percent rise in wireless revenue from the previous quarter, although it may be down in single-digit percentage compared with a year earlier.

Apple (AAPL.O) is set to unveil its new iPhones next week.

Tan, who has transformed Broadcom into a $100 billion behemoth through a series of acquisitions, surprised Wall Street in July with his move to acquire software maker CA Technologies for $19 billion.

Explaining his rationale behind the CA acquisition, Tan said he planned to target the company’s enterprise customers with Broadcom’s offerings including server and storage connectivity products.

The CA deal comes after U.S. President Donald Trump blocked Broadcom’s $117 billion offer to buy Qualcomm Inc (QCOM.O) on national security grounds.

Broadcom forecast current-quarter revenue of about $5.40 billion, plus or minus $75 million. Analysts on average were expecting revenue of $5.35 billion, according to Thomson Reuters I/B/E/S.

Net income attributable to common stock rose to $1.2 billion, or $2.71 per share, in the quarter ended Aug. 5 from $481 million, or $1.14 per share, a year earlier.

Excluding items, the company earned $4.98 per share.

Net revenue rose to $5.06 billion from $4.46 billion.

Analysts on average were expecting earnings of $4.83 per share on revenue of $5.07 billion.

Reporting by Sonam Rai and Sayanti Chakraborty in Bengaluru; Editing by Anil D’Silva

Justice Department probes whether social media is 'stifling' speech

WASHINGTON (Reuters) – The U.S. Department of Justice and state attorneys general will meet this month to discuss concerns that social media platforms are “intentionally stifling the free exchange of ideas,” the department said on Wednesday.

Its statement did not name Facebook Inc (FB.O) and Twitter Inc (TWTR.N), whose executives testified in Congress on Wednesday, but the firms have been harshly criticized by President Donald Trump and some of his fellow Republicans for what they see as an effort to repress conservative voices.

The companies deny any such bias.

U.S. Attorney General Jeff Sessions convened the meeting, set for Sept. 25, “to discuss a growing concern that these companies may be hurting competition and intentionally stifling the free exchange of ideas on their platforms,” Justice Department spokesman Devin O’Malley said.

It was not known which state attorneys general would attend. Representatives for the attorneys general in New York, Connecticut and Iowa said that they had not been contacted.

Shares of social media companies slipped on Wednesday as the executives met skeptical lawmakers, with Twitter off 6.1 percent and Facebook around 2.3 percent lower in late afternoon trading. Shares of Google parent Alphabet Inc.(GOOGL.O) sank about 1 percent.

In the morning, Facebook Chief Operating Officer Sheryl Sandberg and Twitter Chief Executive Jack Dorsey testified at a Senate Intelligence Committee hearing on efforts to counteract foreign efforts to influence U.S. elections and political discourse.

The Senate panel has been examining reported Russian efforts to influence U.S. public opinion throughout Trump’s presidency, after U.S. intelligence agencies concluded that entities backed by the Kremlin had sought to boost his chances of winning the White House in 2016.

Sandberg and Dorsey said the companies had stepped up efforts to fight such influence operations, but lawmakers said there was far more to be done and suggested Congress might have to take legislative action.

“Clearly, this problem is not going away. I’m not even sure it’s trending in the right direction,” said Senator Richard Burr, the committee’s Republican chairman.

Senator Mark Warner, the committee’s top Democrat said, “I’m skeptical that, ultimately, you’ll be able to truly address this challenge on your own. Congress is going to have to take action here.”

Legislation addressing the use of social media for political disinformation could resemble a bill passed earlier this year – and signed into law by Trump – that made it easier for state prosecutors and sex-trafficking victims to sue social media companies, advertisers and others who failed to keep exploitative material off their sites.

Committee members also criticized Google for refusing to send top executives to testify at the Senate hearing, with just weeks before the Nov. 6 congressional elections.

Republican Senator Marco Rubio said the company might have skipped the hearing because it was “arrogant.”


Dorsey then testified at a House of Representatives Energy and Commerce Committee hearing focused on the bias issue.

Representative Greg Walden, the committee’s Republican chairman, said Twitter had made “mistakes” that, he said, minimized Republicans’ presence on the social media site, a practice conservatives have labeled “shadow banning.”

Slideshow (7 Images)

“Multiple members of Congress and the chairwoman of the Republican Party have seen their Twitter presences temporarily minimized in recent months, due to what you have claimed was a mistake in the algorithm,” he said.

Dorsey denied any deliberate attempt to target conservatives, or promote liberals, during more than four hours of questioning.

“Recently we failed our intended impartiality. Our algorithms were unfairly filtering 600,000 accounts, including some members of Congress, from our search auto-complete and latest results. We fixed it,” he said.

Ahead of Wednesday’s hearings, Trump, without offering evidence, accused social media companies of interfering in the November elections, telling the Daily Caller conservative website that social media firms are “super liberal.”

Trump was quoted as saying in the interview on Tuesday that “I think they already have” interfered.

Democratic House committee members accused Republicans of calling the hearing for political reasons, noting that Trump had featured accusations of bias in fundraising letters. The mid-terms will decide whether Republicans will keep their majorities in the House and Senate.

“Over the past weeks, President Trump and many Republicans have peddled conspiracy theories about Twitter and other social media platforms to whip up their base and fundraise,” said Representative Frank Pallone, the committee’s top Democrat.

Wednesday’s hearings were attended by conspiracy theorists known as Trump supporters, who have dealt with bans on social media.

The conspiracy theorist Alex Jones, who was temporarily suspended from Twitter, sat in the front row of the Senate hearing, and interrupted Rubio.

The House hearing was interrupted by Laura Loomer, a conspiracy theorist who has been banned from major social media sites. She shouted that Dorsey was lying, accusing him of banning conservatives and saying Twitter was going to help Democrats “steal” the November elections.

Loomer was removed from the room as Republican Representative Billy Long used the droning cadence of his former career as an auctioneer to drown her out.

Reporting by Patricia Zengerle; Additional reporting by Diane Bartz in Washington and Shreyashi Sanyal in Bangalore; Editing by Susan Thomas and Grant McCool

Jon Kyl Will Take McCain's Senate Seat

On Tuesday, Arizona’s governor appointed former Republican senator Jon Kyl to fill the US Senate seat vacated by the late John McCain. The appointment could spell even more government scrutiny for tech giants like Facebook and Google—even though Kyl has only committed to serving until the start of the next Congressional session in January, though he may stay through 2020.

While McCain, who passed away on August 25, never focused his energies on the practices of technology platforms, Kyl has taken up the cause in his private endeavors, particularly as the head of an internal probe at Facebook into whether the platform is biased against conservatives, which was announced in May.

The results of that investigation have not been made public, and it is still ongoing. A Facebook spokesperson said that Kyl would leave the audit, but that it would continue with the team from law firm Covington and Burlington that he had led. Kyl did not immediately return a request for comment. The Heritage Foundation, a conservative think tank, also held meetings with Facebook executives about the question of liberal bias as part of the inquiry.

Kyl’s appointment comes just one day before representatives from Twitter, Google, and Facebook are set to testify again before the Senate over concerns about privacy, political bias, and anti-competitive practices. Twitter CEO Jack Dorsey will also tomorrow appear separately before the House Committee on Energy and Commerce to address similar concerns.

The Senate Select Committee on Intelligence hearing is slated to focus on “foreign influence operations use of social media platforms,” but tech executives will likely also face questions about whether their platforms are biased against certain political viewpoints.

Over the next several months, Jon Kyl will arguably be the senator best-equipped to ask such questions, having ostensibly spent the summer examining Facebook’s treatment of conservative viewpoints, both internally and on its platform. In late August, The New York Times reported that an extremely small group of Facebook employees have internally argued that the company isn’t welcoming to conservative viewpoints.

In recent months, a number of conservative lawmakers, including President Trump, have also accused tech companies like Google and Facebook of suppressing right-wing content, and have questioned whether they should be regulated as a result.

In April, for example, when Facebook CEO Mark Zuckerberg testified before Congress, half a dozen Republican lawmakers questioned whether the social network had suppressed content produced by conservative commentators Diamond and Silk. Just last week, President Trump accused Google of purposely favoring negative coverage about his administration in its news product.

The belief that tech companies intentionally censor certain political beliefs is also increasingly held by voters, especially Republicans, according to a Pew Research Center survey released in June.

For years, conservatives on Capitol Hill have alleged that prominent tech companies are biased against their beliefs. They often cite a 2016 Gizmodo article as evidence, which reported that Facebook employees suppressed the reach of conservative outlets in its trending product. But while Silicon Valley is notoriously a hub for liberal tech workers, many lawmakers’ specific accusations have largely been unfounded. Still, their complaints highlight the amount of power over Americans’ speech and access to information that a handful of California companies have consolidated.

Kyl appears well-poised to ramp up the questioning over whether Google and Facebook can keep that power while avoiding more government oversight. Aside from his experience with Facebook, the senator also has a history of pushing for the regulation of some internet activities. In the early aughts, he was one of the first lawmakers to advocate for the criminalization of some categories of online gambling and he ultimately helped to pass the 2006 Unlawful Internet Gambling Act.

As a lobbyist at Covington and Burlington, where Kyl has worked since declining to seek reelection in 2013, he has represented clients like Walmart, Georgetown University, and the conservative political organization Judicial Crisis Network. His clients have also included some technology companies, like San Diego-based Qualcomm.

Kyl has also busied himself with more than just auditing Facebook this summer. In a sign of his deep commitment to conservative interests, Kyl has also been guiding Brett Kavanaugh, Trump’s latest Supreme Court nominee, through his Senate confirmation hearings.

As Kyl’s fellow senators mull over proposed legislation like a national privacy law, that commitment may also increasingly mean towing the Republican line on regulating big tech. No one is poised better to lead the effort than Kyl.

UPDATED: 9/4/2018, 4:52 PM EST: This story has been updated with comment from Facebook

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2 Streaming Amps for Audiophiles: Naim Uniti, Bluesound

Streaming music doesn’t have to mean compromised sound. These hi-fi amps can help you find cloud-connected aural ecstasy.

1. Naim Audio Uniti Star

Best for: Streamcurious audiophiles

With a built-in CD player that rips tracks to a local drive, the Uniti Star eases the pain of parting with your CDs. Naim’s app summons your newly captured tunes and streams hi-res songs from cloud services. The hardware is pricey, but you get premium guts like a 70-watt-per-channel amp and a huge, velvet-­smooth volume knob.

Buy Now

2. Bluesound Powernode 2

Best for: Proud digital natives

Bluesound’s more modestly priced streamer can access oodles of cloud music services and radio stations—including hi-res offerings—or play a local library stacked with FLACs. Basic panel controls are supplemented by the excellent BluOS Controller app. The integrated 60-watt-per-channel amp can power any speakers, from tiny to towering.

Buy Now

Styling by Reina Takahashi

This article appears in the August issue. Subscribe now.

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Fleeing White House Lawyers Top This Week's Internet News Roundup

It’s been a week that’s seen us inch ever closer to the collapse of NAFTA, seen the White House seemingly confused about how it collectively feels about the death of John McCain, and seen the official death toll of Hurricane Maria in Puerto Rico raised by almost 3,000, even though the President still claims the official response was “fantastic”. (No wonder his disapproval rating has hit an all-new high.) But what else has been going on this week? I’m glad you asked! Let’s let the internet answer that question, shall we?

You’re Fired (483rd Twitter Edition)

What Happened: Of all the people the President of the United States has pushed out of the White House, perhaps the White House lawyer wasn’t the best choice.

Where It Blew Up: Twitter, media reports

What Really Happened: Elsewhere in the legal worries of the leader of the free world, the reportedly perfectly fine, nothing wrong whatsoever relationship between President Trump and White House lawyer Don McGahn took a bit of a turn early this week, as the President tweeted out a personnel update.

Well, this seems perfectly normal and not something that people were cynically expecting after it emerged that McGahn had multiple meetings with Special Counsel Robert Mueller over the past few months. Still, at least he was given time to prepare for this decision…

On the plus side, everyone in Trump’s orbit must have been happy to see him go…

That’s 84-year-old Republican senator Chuck Grassley there, showing some hey-fellow-kids Twitter chops.

Even as everyone was still coming to terms with the White House lawyer being unceremoniously dismissed without notice, some people had some more thoughts to offer on how this related to the bigger picture:

But as with seemingly every bit of reporting, the President couldn’t resist taking to Twitter to argue against the conventional wisdom in his patented “Nuh-uh, just the opposite!” style, as was obvious on Thursday morning:

As should probably be expected at this point, most people took this as confirmation that just the opposite was actually true. But a third tweet made ears perk up amongst the political watchers:

The replacement in question…? That’s an open question at time of writing, thanks to entirely conflicting reports:

Hey, maybe Rudy Giuliani could moonlight once he’s finished working on that counter-report.

The Takeaway: Curiously, McGahn wasn’t the only lawyer to leave the White House this week, although this departure was seemingly more voluntary:

Alienated Citizens of the World, Unite

What Happened: For those who thought that the current administration couldn’t do anything to get more racist, I introduce to you: Telling U.S. citizens they aren’t really citizens because they’re Hispanic.

Where It Blew Up: Twitter, media reports

What Really Happened: As if there weren’t enough reasons to feel concerned about the administration’s attitude towards immigration (Hundreds of children are still separated from their parents, in case you’re wondering), a new report from the middle of this week brought an additional wrinkle:

The Washington Post’s report alleged that American citizens were getting passport applications rejected in Texas, with “hundreds, and possibly thousands” of Hispanic citizens being accused of using fake birth certificates.

To call this a big deal would be a severe understatement, and the original report was quickly shared by other outlets across the internet. Twitter, too, was shocked by what was happening:

As might be expected, the State Department pushed back on the reports, but there was one obvious problem with that…

Oh, and it’s not just passports or the administration, as it turns out:

The Takeaway: Yeah, this isn’t terrifying in the slightest. Maybe there’s a silver lining to be found somewhere…

From Give and Take and Still Somehow

What Happened: The President and his lawyers have come up with a new plan to combat the special investigation into potential collusion with Russia; release its own fake report. No, really.

Where It Blew Up: Twitter, media reports

What Really Happened: You know what they always say: If you can’t beat them, release your own version of something and just pretend that they’re entirely equivalent. And speaking of the current special counsel investigation into the President of the United States and potential collusion with foreign entities…

There are all manner of obvious flaws in this plan, such as who would believe a report put together by the subject of the investigation? (I mean, sadly, we know the answer, but still.) There’s also this small drawback:

That is a problem. How can you write a rebuttal to a mystery topic…?

Actually, the apparent truth is only incrementally less likely:

Somewhat amazingly, this turns out not to be the first time the subject has been raised publicly by Giuliani, the president’s personal attorney. But, sure, this definitely sounds like a good use of everyone’s time:

If nothing else, he’ll have to work quickly in order to—as the original report put it—release the report within minutes of Mueller’s official, actually researched, report.

Let’s be real: There’s almost no way this could fail.

The Takeaway: Who couldn’t be convinced by a well-reasoned argument from this guy?

Why They Changed It I Can’t Say

What Happened: New York got an unexpected name change this week on certain apps, thanks to an act of anti-semitic “digital graffiti.”

Where It Blew Up: Twitter, media reports

What Really Happened: New York users of Snapchat, the Weather Channel, and other online services with map services received an unpleasant surprise on Thursday morning:

Of course, this quickly went viral, because of course it did. The root, as it happened, was quickly identified—

—and dealt with:

But what caught some people’s attention was the choice of slur city name—and how much of a failure it ultimately was:

Others wondered if New York’s new identity could be an improvement:

Sadly, not everyone was happy with the takeover:

The Takeaway: It wouldn’t be a New York moment without at least one person fondly remembering the good old days…

Slight Return

What Happened: After less than a year away, Louis C.K. has stepped back into the spotlight to return to comedy—and it turns out people aren’t really into that idea so much.

Where It Blew Up: Twitter, media reports

What Really Happened: Hey, remember last November, when comedian Louis C.K. admitted that reports of his sexually harassing several women, including masturbating in front of them, were true? Remember when he issued a statement saying that he was going to “step back and take a long time to listen”?

Well, that was certainly nine months’ worth of listening, I guess. Yes, Louis C.K. returned to the public stage this week (although it turns out he’d actually made a more low-key comeback earlier than that), and it was a return that prompted a very strong response online.

With all kinds of think pieces published in response, the overall feeling about C.K.’s return could be summed up in one simple tweet:

As if to illustrate that last point, an additional fact about C.K.’s set emerged a day later…

The Takeaway: But perhaps we’re being too hard on the comedian…

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We Need To Reengineer Our Organizations For A New Era Of Innovation

In the first half of the 20th century, Alfred Sloan created the modern corporation at General Motors. In many ways, it was based on the military. Senior leadership at headquarters would make plans, while managers at individual units would be allocated resources and made responsible for for achieving mission objectives.

The rise of digital technology made this kind of structure untenable. By the time strategic information was gathered centrally, it was often too old to be effective. In much the same way, by the time information flowed up from operating units, it was too late to alter the plan. It had already failed.

So in recent years, the management mantra has become agility and iteration. Due to pressures from the market and from shareholders, long-term planning is often eschewed for the needs of the moment. Yet today the digital era is ending and organizations will need to shift once again. We’re going to need to learn to combine long-range planning with empowered execution.

Shifting from Iteration to Exploration

When Steve Jobs came up with the idea for a device that would hold “a thousand songs in my pocket,” it wasn’t technically feasible. There was simply no hard drive available that could fit that much storage into that little space. Nevertheless, within a few years a supplier developed the necessary technology and the iPod was born.

Notice how the bulk of the profits went to Apple, which designed the application and very little to the supplier that developed the technology that made it possible.That’s because the technology for developing hard drives was very well understood. If it hadn’t been that supplier, another would have developed what Jobs needed in six months or so.

Yet today, we’re on the brink of a new era of innovation. New technologies, such as revolutionary computing architectures, genomics and artificial intelligence are coming to the fore that aren’t nearly as well understood as digital technology. So we will have to spend years learning about them before we can develop applications safely and effectively.

For example, companies ranging from Daimler and Samsung to JP Morgan Chase and Barclays have joined IBM’s Q Network to explore quantum computing, even though that it will be years before that technology has a commercial impact. Leading tech companies have formed the Partnership on AI to better understand the consequences for artificial intelligence. Hundreds of companies have joined manufacturing hubs to learn about next generation technology.

It’s becoming more important to prepare than adapt. By the time you realize the need to adapt, it may already be too late.

Building a Pipeline of Problems to be Solved

While the need to explore technologies long before they become commercially viable is increasing, competitive pressures show no signs of abating. Just because digital technology is not advancing the way it once did doesn’t mean that it will disappear. Many aspects of the digital world, such as the speed at which we communicate, will continue.

So it is crucial to build a continuous pipeline of problems to solve. Most will be fairly incremental, either improving on an existing product or developing new ones based on standard technology. Others will be a bit more aspirational, such as applying existing capabilities to a new market or adopting new technology to improve service to existing customers.

However, as the value generated from digital technology continues to level off, much like it did for earlier technologies like internal combustion and electricity, there will be an increasing need to pursue grand challenges to solve fundamental problems. That’s how truly new markets are created.

Clearly, this presents some issues with resource allocation. Senior managers will have to combine the need to move fast and keep up with immediate competitive pressures with the long-term thinking it takes to invest in years of exploration with an uncertain payoff. There’s no magic bullet, but it is generally accepted that the 70/20/10 principle for incremental, adjacent and fundamental innovation is a good rule of thumb.

Empowering Connectivity

When Sloan designed the modern corporation, capacity was a key constraint. The core challenge was to design and build products for the mass market. So long-term planning to effectively organize plant, equipment, distribution and other resources was an important, if not decisive, competitive attribute.

Digitization and globalization, however, flipped this model and vertical integration gave way to radical specialization. Because resources were no longer concentrated in large enterprises, but distributed across global networks, integration within global supply chains became increasingly important.

With the rise of cloud technology, this trend became even more decisive in the digital world. Creating proprietary technology that is closed off to the rest of the world has become unacceptable to customers, who expect you to maintain API’s that integrate with open technologies and those of your competitors.

Over the next decade, it will become increasingly important to build similar connection points for innovation. For example, the US military set up the Rapid Equipping Force that was specifically designed to connect new technologies with soldiers in the field who needed them. Many companies are setting up incubators, accelerators and corporate venture funds for the same reason. Others have set up programs to connect to academic research.

What’s clear is that going it alone is no longer an option and we need to set up specific structures that not only connect to new technology, but ensure that it is understood and adopted throughout the enterprise.

The Leadership Challenge

The shift from one era to another doesn’t mean that old challenges are eliminated. Even today, we need to scale businesses to service mass markets and rapidly iterate new applications. The problems we need to take on in this new era of innovation won’t replace the old ones, they will simply add to them.

Still, we can expect value to shift from agility to exploration as fundamental technologies rise to the fore. Organizations that are able to deliver new computing architectures, revolutionary new materials and miracle cures will have a distinct competitive advantage over those who can merely engineer and design new applications.

It is only senior leaders that can empower these shifts and it won’t be easy. Shareholders will continue to demand quarterly profit performance. Customers will continue to demand product performance and service. Yet it is only those that are able to harness the technologies of this new era — which will not contribute to profits or customer satisfaction for years to come — that will survive the next decade.

The one true constant is that success eventually breeds failure. The skills and strategies of one era do not easily translate to another. To survive, the key organizational attribute will not be speed, agility or even operational excellence, but leadership that understands that when the game is up, you need to learn how to play a new one.

The Ecologist on a Mission to Count New York's Whales

The first thing you notice about ecologist Arthur Kopelman is his giant white beard. The second is the gold whale charm dangling from his earlobe—a symbol of the creature that has consumed his thoughts for decades.

“I don’t think I’ve ever seen him without it,” says Joe Carrotta, a photographer who documented Kopelman’s whale-watching cruises up and down the New York coast last summer. The boat rides allow Kopelman to collect data for the Coastal Research and Education Society of Long Island—an organization he co-founded in 1996—while also educating passengers about the incredible cetaceans and pinnipeds swimming (and singing) just miles from shore.

“People are surprised to learn there are marine mammals in New York,” Kopelman says, “perhaps because it’s an area that also has some of the densest human populations in the world.”

The New York Bight—a coastal region stretching from the northern tip of Long Island to southern New Jersey—is a frolicking ground for 19 species of whales, dolphins and porpoises, as well as four species of seal. But in the 1950s, when Kopelman was just a kid in Queens, few people thought about them; whales were mythic figures from the past, long banished by industrial pollution and hunting. But following the Clean Water and Marine Mammal Protection Acts of 1972, they returned. Today, hundreds of humpback, fin and right whales cruise the bight at any time, gobbling up schools of menhaden, a silver fish too oily for Manhattan’s delicatessens.

It’s not all great on the open water, though. While humpback populations are increasing, right whales aren’t doing so well—last year, 17 out of the 450 inhabiting the North Atlantic were killed in Canadian and US waters. Counting the communities has become so crucial, allowing researchers to monitor their abundance and distribution. Organizations like Gotham Whale and the Wildlife Conservation Society do so within the harbors and near Fire Island, while CRESLI does so on the eastern end of the bight.

But that’s not all the cruises are for. “Besides counting, my objective is to educate people about the whales, so they become informed stakeholders who will protect them,” Kopelman says.

Oddly enough, Kopelman began his scientific career in the 1970s studying a creature several orders in magnitude smaller: the Leptopilina boulardi, a two-millimeter wasp that lays its eggs in the larvae of fruit flies. He did that for nine years before switching phyla to whales. “I’d always been an activist,” he says, “and I decided to put my actions where my rhetoric was.” This single-minded passion fascinated Carrotta when the two met in 2016, inspiring Carrotta to tag along on 10 whale-watching cruises and seal walks.

All took place via the 140-foot-long Viking Starship, a gleaming vessel the captain steered toward known whale feeding spots and other places whales were recently reported. Passengers on board marveled as they saw humpbacks break the surface, slapping their fins and tails around to communicate. Kopelman kept a log of the cetaceans and pelagic birds they saw, snapping photos of the animals’ patterning to add to his searchable database of nearly 80,000 images. When he saw a familiar animal, he called out its name—”Draco,” “Glo,” “Infinity”—over the PA system. “He’s very serious about marine life, but you can still hear his excitement when he gets to talking about it, even over the loudspeaker,” Carrotta says.

Carotta photographed it all with a couple Nikon DSLRs and a Profoto strobe. His images sketch a vivid portrait of Kopelman and the charismatic megafauna that inspires his life’s work—and, occasionally, fashion accessories. Sadly, Kopelman lost his whale charm this summer. “I came home from a day on the water and it was gone,” he says. Not to worry, though: He had a backup.

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