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How Silicon Valley looks at the Taiwan miracle (3): Competitiveness is the best survival strategy

Issues that might be taken for granted in other countries may be matters of life and death in political discussions that don't allow any middle ground. Will 2024 see the last presidential election in Taiwan? If China sees zero economic growth, the likelihood of a military invasion of Taiwan will be even higher. On the face of it, Taiwan is in a difficult position with no room for maneuvering, but looking back on the past half-century, isn't that how Taiwan has survived? The more difficult the times, the more abundant and diverse the opportunities for development......»»

Category: topSource: digitimesNov 28th, 2022

How Silicon Valley looks at the Taiwan miracle (3): Competitiveness is the best survival strategy

Issues that might be taken for granted in other countries may be matters of life and death in political discussions that don't allow any middle ground. Will 2024 see the last presidential election in Taiwan? If China sees zero economic growth, the likelihood of a military invasion of Taiwan will be even higher. On the face of it, Taiwan is in a difficult position with no room for maneuvering, but looking back on the past half-century, isn't that how Taiwan has survived? The more difficult the times, the more abundant and diverse the opportunities for development......»»

Category: topSource: digitimesNov 28th, 2022

Ferroglobe Reports Solid Third Quarter 2022 Results Despite Weaker Market Conditions

LONDON, Nov. 15, 2022 (GLOBE NEWSWIRE) -- Ferroglobe PLC (NASDAQ:GSM) ("Ferroglobe", the "Company", or the "Parent"), a leading producer globally of silicon metal, silicon-based and manganese-based specialty alloys, today announced results for the third quarter 2022. FINANCIAL HIGHLIGHTS Q3 2022 revenue of $593.2 million, down 29.5% over the prior quarter Q3 2022 Adjusted EBITDA of $185.3 million, down 38.9% over the prior quarter Adjusted EBITDA margin decrease of 5 percentage points to 31% in Q3 2022, down from 36% over the prior quarter Net profit of $98.8 million (diluted earnings per share of $0.52), compared to net profit of $185.1 million (diluted earnings per share of $0.98) in Q2 2022 Net debt of $194 million at quarter end, similar at the end of Q2 Total cash of $236.8 million at quarter-end, down $69.7 million from the prior quarter BUSINESS HIGHLIGHTS Solid third quarter results despite weaker market conditions Redeemed all $60 million of the 9% super senior secured notes due 2025 Board approval of our new medium to long term strategy Planned restart of the Polokwane facility, adding 55,000 tons of silicon metal capacity in South Africa, providing access to strategically located lower-cost asset Ramping up industrial production of 99.999% (3N) and 99.9999% (4N) micrometer size silicon metal at our Puertollano facility in Spain Dr. Marco Levi, Ferroglobe's Chief Executive Officer, commented, "During the third quarter, we have seen a challenging environment driven by demand slowdown and continued volatility in energy prices in Europe. Steel production has been heavily curtailed in Europe, where we have also seen massive closures of aluminum plants. "Despite a difficult environment during the third quarter, Ferroglobe continues to perform well, generating robust sales and healthy profitability. The various initiatives that we have implemented over the past two years have enabled us to perform well during challenging periods and declining prices. We continue to focus on improving our overall competitiveness in the market and optimizing our cost position. The restart of our Polokwane facility will provide us with a competitive source of silicon metal with a location that will provide the flexibility to move production away from plants impacted by burdened energy costs and expand business in new geographies. As we have mentioned in prior earnings calls, we continue reducing our leverage with the objective of further strengthening our balance sheet. During the third quarter we redeemed $60 million of our 9% super senior secured notes, reducing our annual interest expense by over $5 million. We will continue to focus on optimizing our costs to improve the efficiency of our organization," concluded Dr. Levi.   Third Quarter 2022 Financial Highlights                                             $,000 (unaudited)   QuarterEndedSeptember 30,2022   QuarterEndedJune 30,2022   QuarterEndedSeptember 30,2021   % CQ/PQ   % CYQ/PYQ   Nine MonthsEndedSeptember 30,2022   Nine MonthsEndedSeptember 30,2021   % CY/PY                                             Sales   $ 593,218     $ 840,808     $ 429,210     (29 %)   38 %   $ 2,149,291     $ 1,209,137     78 % Raw materials and energy consumption for production   $ (285,210 )   $ (369,749 )   $ (295,273 )   (23 %)   (3 %)   $ (995,514 )   $ (813,377 )   22 % Operating profit (loss)   $ 154,424     $ 265,298     $ 11,260     (42 %)   1,271 %   $ 630,853     $ (24,502 )   2,675 % Operating margin     26.0%       31.6%       3%               29.4%       (2% )     Adjusted net income (loss)attributable to the parent   $ 118,264     $ 213,170     $ (64,214 )   (45 %)   284 %   $ 496,737     $ (79,424 )   725 % Adjusted diluted EPS   $ 0.64     $ 1.14     $ (0.36 )           $ 2.66     $ (0.45 )     Adjusted EBITDA   $ 185,293     $ 303,159     $ 37,592     (39 %)   393 %   $ 729,568     $ 93,747     678 % Adjusted EBITDA margin     31.2%       36.1%       8.8%               33.9%       7.8%       Operating cash flow   $ 54,972     $ 164,818     $ (34,677 )   (67 %)   259 %   $ 285,698     $ (23,050 )   1,339 % Free cash flow1   $ 40,141     $ 151,109     $ (42,845 )   (73 %)   194 %   $ 248,033     $ (39,440 )   729 %                                             Working Capital   $ 717,283     $ 687,345     $ 395,867     4 %   81 %   $ 717,283     $ 395,867     81 % Working Capital as % of Sales2     30.2%       20.4%       23.1%               25.0%       24.6%       Cash and Restricted Cash   $ 236,789     $ 306,511     $ 95,043     (23 %)   149 %   $ 236,789     $ 95,043     149 % Adjusted Gross Debt3   $ 431,207     $ 500,472     $ 499,270     (14 %)   (14 %)   $ 431,207     $ 499,270     (14 %) Equity   $ 700,340     $ 637,710     $ 281,910     10 %   148 %   $ 700,340     $ 281,910     148 % (1)  Free cash flow is calculated as operating cash flow plus investing cash flow(2)  Working capital based on annualized quarterly sales respectively(3)  Adjusted gross debt excludes bank borrowings on factoring program and impact of leasing standard IFRS16 at September 30, 2022, June 30, 2022 & September 30, 2021 Sales In the third quarter of 2022, Ferroglobe reported net sales of $593.2 million, a decrease of 29% compared with the prior quarter and an increase of 38% compared with the third quarter of 2021. The decrease in our third quarter results is primarily attributable to lower volumes across our product portfolio, and lower pricing in our main products. The $248 million decrease in sales over the prior quarter was primarily driven by silicon metal, which accounted for $92 million of the decrease, silicon based alloys, which accounted for $57 million and manganese-based alloys, which accounted for $95 million. Raw materials and energy consumption for production Raw materials and energy consumption for production was $285.2 million in the third quarter of 2022 versus $369.8 million in the prior quarter, a decrease of 23%. As a percentage of sales, raw materials and energy consumption for production was 48% in the third quarter of 2022 versus 44% in the prior quarter. This variance is mainly due to the larger energy benefit in France recognized in the second quarter, the increase in the price of energy and inflationary pressure on raw material prices, particularly coal. Net Income (Loss) Attributable to the Parent In the third quarter of 2022, net profit attributable to the Parent was $97.6 million, or $0.52 per dilutedshare, compared to a net profit attributable to the Parent of $185.3 million, or $0.98 per diluted share in the second quarter. Adjusted EBITDA In the third quarter of 2022, Adjusted EBITDA was $185.3 million, or 31% of sales, a decrease of 5 percentage points compared to adjusted EBITDA of $303.2 million, or 36% of sales in the second quarter of 2022. The decrease in the the third quarter of 2022 Adjusted EBITDA as a percentage of sales is primarily attributable to the decrease in sale volumes and price. Total Cash The total cash balance was $236.8 million as of September 30, 2022, down $69.7 million from $306.5 million as of June 30, 2022. During the third quarter of 2022, we generated positive operating cash flow of $54.9 million, had negative cash flow from investing activities of $14.8 million, and $108.9 million in negative cash flow from financing activities, primarily driven by the $60 million of 9% super senior notes redeemed in July 2022. Total Working Capital Total working capital was $717.3 million at September 30, 2022, increasing from $687.3 million at June 30, 2022. The $30.0 million increase in working capital during the quarter was due primarily to a $108.6 million increase in inventories, partially offset by a $84.9 million decrease in accounts receivables. On a relative basis, our working capital as a percentage of sales increased during the third quarter to 30.2%, compared to 20.4% during the prior quarter.          Beatriz García-Cos, Ferroglobe's Chief Financial Officer, commented, "During the third quarter we continued to follow through on our stated commitment to deleverage the balance sheet with the redemption of our 9% super senior notes that was completed in July. This reduced our adjusted gross debt by $60 million. This was in addition to the $19 million of the senior notes that we purchased in the open market during the second quarter. "While our end-markets were challenging in the third quarter, we were able to successfully manage our cost to report healthy EBITDA, which remained relatively strong, as well as EBITDA margins, which were the third highest in the Company's history. The third quarter results highlight that the cost cutting initiatives that we have implemented over the past couple of years enable us to perform well in both challenging markets as well as healthy ones. "Ferroglobe's financial condition is strong with $237 million in total cash, with provides us with much flexibility to manage our business" concluded Mrs. García-Cos. Product Category Highlights Silicon Metal                                       QuarterEndedSeptember 30, 2022   QuarterEndedJune 30,2022   Change   QuarterEndedSeptember 30, 2021   Change   Nine Months EndedSeptember 30, 2022   Nine Months EndedSeptember 30, 2021   Change Shipments in metric tons:   50,545     62,988     (19.8 )%   61,713     (18.1 )%   169,883     190,311     (10.7 )% Average selling price ($/MT):   5,220     5,649     (7.6 )%   2,467     111.6 %   5,489     2,366     132.0 %                                   Silicon Metal Revenue ($,000)   263,845     355,819     (25.8 )%   152,246     73.3 %   932,488     450,276     107.1 % Silicon Metal Adj.EBITDA ($,000)   113,151     175,108     (35.4 )%   11,428     890.1 %   439,920     39,845     1004.1 % Silicon Metal Adj.EBITDA Mgns   42.9 %   49.2 %       7.5 %       47.2 %   8.8 %     Silicon metal revenue in the third quarter was $263.8 million, a decrease of 25.8% over the prior quarter. The average realized selling price decreased by 7.6%, while total shipments decreased by 19.8%, primarily due to a decline in market demand. Adjusted EBITDA for silicon metal decreased to $113.2 million during the third quarter, a decrease of 35.4% compared with $175.1 million for the prior quarter. Silicon-Based Alloys                                       Quarter EndedSeptember 30,2022   QuarterEndedJune 30,2022   Change   QuarterEndedSeptember 30,2021   Change   Nine MonthsEndedSeptember 30,2022   Nine MonthsEndedSeptember 30,2021   Change Shipments in metric tons:   48,977     57,658     (15.1 )%   55,863     (12.3 )%   164,230     182,688     (10.1 )% Average selling price ($/MT):   3,655     4,097     (10.8 )%   1,992     83.5 %   3,819     1,824     109.4 %                                   Silicon-based Alloys Revenue ($,000)   179,011     236,225     (24.2 )%   111,279     60.9 %   627,194     333,223     88.2 % Silicon-based Alloys Adj.EBITDA ($,000)   59,668     97,141     (38.6 )%   8,375     612.5 %   235,220     29,849     688.0 % Silicon-based Alloys Adj.EBITDA Mgns   33.3 %   41.1 %       7.5 %       37.5 %   9.0 %     Silicon-based alloy revenue in the third quarter was $179.0 million, a decrease of 24.2% over the prior quarter. The average realized selling price decreased by 10.8%, due to a decline in demand for ferrosilicons linked to general industry declines in the steel sector. Total shipments of silicon-based alloys decreased 15.1%, driven by lower demand in our foundry business during the quarter due to the broader commodities slowdown. Adjusted EBITDA for the silicon-based alloys portfolio decreased to $59.7 million in the third quarter of 2022, a decrease of 38.6% compared with $97.1 million for the prior quarter. Manganese-Based Alloys                                       Quarter EndedSeptember 30, 2022   Quarter EndedJune 30,2022   Change   Quarter EndedSeptember 30, 2021   Change   Nine Months EndedSeptember 30, 2022   Nine Months EndedSeptember 30, 2021   Change Shipments in metric tons:   61,583     97,007     (36.5 )%   76,454     (19.5 )%   233,672     217,386     7.5 % Average selling price ($/MT):   1,584     1,986     (20.2 )%   1,574     0.6 %   1,860     1,390     33.8 %                                   Manganese-based Alloys Revenue ($,000)   97,547     192,656     (49.4 )%   120,339     (18.9 )%   434,630     302,167     43.8 % Manganese-based Alloys Adj.EBITDA ($,000)   14,681     32,871     (55.3 )%   22,494     (34.7 )%  .....»»

Category: earningsSource: benzingaNov 15th, 2022

Macleod: The Great Global Unwind Begins

Macleod: The Great Global Unwind Begins Authored by Alasdair Macleod via GoldMoney.com, There is a growing feeling in markets that a financial crisis of some sort is now on the cards. backslash Credit Suisse’s very public struggles to refinance itself is proving to be a wake-up call for markets, alerting investors to the parlous state of global banking. This article identifies the principal elements leading us into a global financial crisis. Behind it all is the threat from a new trend of rising interest rates, and the natural desire of commercial banks everywhere to reduce their exposure to falling financial asset values both on their balance sheets and held as loan collateral. And there are specific problems areas, which we can identify: It should be noted that the phenomenal growth of OTC derivatives and regulated futures has been against a background of generally declining interest rates since the mid-eighties. That trend is now reversing, so we must expect the $600 trillion of global OTC derivatives and a further $100 trillion of futures to contract as banks reduce their derivative exposure. In the last two weeks, we have seen the consequences for the gilt market in London, warning us of other problem areas to come. Commercial banks are over-leveraged, with notable weak spots in the Eurozone, Japan, and the UK. It will be something of a miracle if banks in these jurisdictions manage to survive contracting bank credit and derivative blow-ups. If they are not prevented, even the better capitalised American banks might not be safe. Central banks are mandated to rescue the financial system in troubled times. However, we find that the ECB and its entire euro system of national central banks, the Bank of Japan, and the US Fed are all deeply in negative equity and in no condition to underwrite the financial system in this rising interest rate environment.  The Credit Suisse wake-up call In the last fortnight, it has become obvious that Credit Suisse, one of Switzerland’s two major banking institutions, faces a radical restructuring. That’s probably a polite way of saying the bank needs rescuing. In the hierarchy of Swiss banking, Credit Suisse used to be regarded as very conservative. The tables have now turned. Banks make bad decisions, and these can afflict any bank. Credit Suisse has perhaps been a little unfortunate, with the blow-up of Archegos, and Greensill Capital being very public errors. But surely the most egregious sin from a reputational point of view was a spying scandal, where the bank spied on its own employees. All the regulatory fines, universally regarded as a cost of business by bank executives, were weathered. But it was the spying scandal which forced the bank’s highly regarded CEO, Tidjane Thiam, to resign. We must wish Credit Suisse’s hapless employees well in a period of high uncertainty for them. But this bank, one of thirty global systemically important banks (G-SIBs) is not alone in its difficulties. The only G-SIBs whose share capitalisation is greater than their balance sheet equity are North American: the two major Canadian banks, Morgan Stanley, and JPMorgan. The full list is shown in Table 1 below, ranked by price to book in the second to last column. [The French Bank, Groupe BPCE’s shares are unlisted so omitted from the table] Before a sharp rally in the share price last week, Credit Suisse’s price to book stood at 24%, and Deutsche Bank’s stood at an equally lowly 23.5%. And as can be seen from the table, seventeen out of twenty-nine G-SIBs have price-to-book ratios of under 50%. Normally, the opportunity to buy shares at book value or less is seen by value investors as a strategy for identifying undervalued investments. But when a whole sector is afflicted this way, the message is different. In the market valuations for these banks, their share prices signal a significant risk of failure, which is particularly acute in the European and UK majors, and to a similar but lesser extent in the three Japanese G-SIBs. As a whole, G-SIBs have been valued in markets for the likelihood of systemic failure for some time. Despite what the markets have been signalling, these banks have survived, though as we have seen in the case of Deutsche Bank it has been a bumpy road for some. Regulations to improve balance sheet liquidity, mainly in the form of Basel 3, have been introduced in phases since the Lehman failure, and still price-to-book discounts have not recovered materially. These depressed market valuations have made it impossible for the weaker G-SIBs to consider increasing their Tier 1 equity bases because of the dilutive effect on existing shareholders. Seeming to believe that their shares are undervalued, some banks have even been buying in discounted shares, reducing their capital and increasing balance sheet leverage even more. There is little doubt that in a very low interest rate environment some bankers reckoned this was the right thing to do. But that has now changed. With interest rates now rising rapidly, over-leveraged balance sheets need to be urgently wound down to protect shareholders. And even bankers who have been so captured by the regulators that they regard their shareholders as a secondary priority will realise that their confrères in other banks will be selling down financial assets, liquidating financial collateral where possible, and withdrawing loan and overdraft facilities from non-financial businesses when they can.  It is all very well to complacently think that complying with Basel 3 liquidity provisions is a job well done. But if you ignore balance sheet leverage for your shareholders at a time of rising prices and therefore interest rates, they will almost certainly be wiped out. There can be no doubt that the change from an environment where price-to-book discounts are an irritation to bank executives to really mattering is bound up in a new, rising interest rate environment. Rising interest rates are also a sea-change for derivatives, and particularly for the banks exposed to them. Interest rates swaps, of which the Bank for International Settlements reckoned there were $8.8 trillion equivalent in June 2021, have been deployed by pension funds, insurance companies, hedge funds and banks lending fixed-rate mortgages. They are turning out to be a financial instrument of mass destruction. An interest rate swap is an arrangement between two counterparties who agree to exchange payments on a defined notional amount for a fixed time period. The notional amount is not exchanged, but interest rates on it are, one being at a predefined fixed rate such as a spread over a government bond yield with a maturity matching the duration of the swap agreement, while the other floats based on LIBOR or a similar yardstick. Swaps can be agreed for fixed terms of up to fifteen years. When the yield curve is positive, a pension fund, for example, can obtain a decent income uplift by taking the fixed interest leg and paying the floating rate. And because the deal is based on notional capital, which is never put up, swaps can be leveraged significantly. The other party will be active in wholesale money markets, securing a small spread over floating rate payments received from the pension fund. Both counterparties expect to benefit from the deal, because their calculations of the net present values of the cash flows, which involves a degree of judgement, will not be too dissimilar when the deal is agreed. The risk to the pension fund comes from rising bond yields. Despite the rise in bond yields, it still takes the fixed rate agreed at the outset, yet it is committed to paying a higher floating rate. In the UK, 3-month sterling LIBOR rose from 0.107% on 1 December 2021, to 3.94% yesterday. In a five-year swap, the fixed rate taken by the pension fund would be based on the 5-year gilt yield, which on 1 December last was 0.65%. With a spread of perhaps 0.25% over that, the pension fund would be taking 0.9% and paying 0.107%, for a turn of 0.793%. Today, the pension fund would still be taking 0.9%, but paying out 3.94%. With rising interest rates, even without leverage it is a disaster for the pension fund. But this is not the only trap they have fallen into. In the UK, pension fund exposure to repurchase agreements (repos) led to margin calls and a sudden liquidation of gilt collateral less a fortnight ago. A number of specialist firms offered liability driven investment schemes (LDIs), targeted at final salary pension schemes. Using repos, LDI schemes were able to use low funding rates to finance long gilt positions, geared by up to seven times. When LDIs blew up due to falling collateral values, the gilt market collapsed as pension funds became forced sellers, and the Bank of England dramatically reversed its stillborn quantitative tightening policy. That saga has further to run, and the problem is not restricted to UK pension funds, as we shall see. A fuller description of how these repo schemes blew up is described later in this article. The LDI episode is a warning of the consequences of a change in interest rate trends for derivatives in the widest sense. We should not forget that the evolution of derivatives has been in large measure due to the post-1980 trend of declining interest rates. With commodity, producer, and consumer prices now all rising fuelled by currency debasement, that trend has now come to an end. And with collateral values falling instead of rising, it is not just a case of dealers adjusting their outlook. There are bound to be more detonations in the $600 trillion OTC global derivatives market. Central to these derivatives are banks and shadow banks. Credit Suisse has been a market maker in credit default swaps, leveraged loans, and other derivative-based activities. The bank deals in a wide range of swaps, interest rate and foreign exchange options, forex forwards and futures.[i] The replacement values of its OTC derivatives are shown in the 2021 accounts at CHF125.6 billion, which reduces with netting agreements to CHF25.6 billion. Small beer, it might seem. But the notional amounts, being the principal amounts upon which these derivative replacement values are based are far, far larger. The leverage between replacement values and notional amounts means that the bank’s exposure to rising interest rates could rapidly drive it into insolvency. At this juncture, we cannot know if this is at the root of the bank’s troubles. And this article is not intended to be a criticism of Credit Suisse relative to its peers. The problems the bank faces are reflected in the entire G-SIB system with other banks having far larger derivative exposures. The point is that as a whole, participants in the derivatives market are unprepared for the conditions which led to its phenomenal growth at $600 trillion equivalent, which is now being reversed by a change in the primary trend for interest rates. Central bank balance sheets and bailing commercial banks In the event of commercial banking failures, it is generally expected that central banks will ensure depositors are protected, and that the financial system’s survival is guaranteed. But given the sheer size of derivative markets and the likely consequences of counterparty failures, it will be an enormous task requiring global cooperation and the abandonment of the bail-in procedures agreed by G20 member nations in the wake of the Lehman crisis. There will be no question but that failing banks must continue to trade with their bond holders’ funds remaining intact. If not, then all bank bonds are likely to collapse in value because in a bail-in bond holders will prefer the sanctity of deposits guaranteed by the state. And any attempt to limit deposit protection to smaller depositors would be disastrous. Because the Great Unwind is so sudden, it promises to become a far larger crisis than anything seen before. Unfortunately, due to quantitative easing the central banks themselves also have bond losses to contend with, wiping out the values of their balance sheet equity many times over. That a currency-issuing central bank has net liabilities on its balance sheet would not normally matter, because it can always expand credit to finance itself. But we are now envisaging central banks with substantial and growing net liabilities being required to guarantee entire commercial banking networks.  The burden of bail outs will undoubtedly lead to new rounds of currency debasement directly and indirectly, as vain attempts are made to support financial asset values and prevent an economic catastrophe. Accelerating currency debasement by the issuing authorities will almost certainly undermine public faith in fiat currencies, leading to their entire collapse, unless a way can be found to stabilise them. The euro system has specific problems In theory, recapitalising a central bank is a simple matter. The bank makes a loan to its shareholder, typically the government, which instead of a balancing deposit it books as equity in its liabilities. But when a central bank is not answerable to any government, that route cannot be taken. This is a problem for the ECB, whose shareholders are the national central banks of the member states. Unfortunately, they are also in need of recapitalisation. Table 2 below summarises the likely losses suffered this year so far on their bond holdings under the assumptions in the notes. Other than the four national central banks for which bond prices are unavailable, we can see that all NCBs and the ECB itself have been entrapped by rising bond yields. Even the mighty Bundesbank appears to have losses on its bonds forty-four times its shareholders’ capital since 1 January. Bearing in mind that the Eurozone’s consumer price index is now rising at about 10% and considerably higher in some member states, 5-year maturity government bond yields between 2% (Germany) and 4% (Italy) can be expected to rise considerably from here. No amount of mollification, that central banks can never go bust, will cover up this problem. Imagine the legislative hurdles. The Bundesbank, let’s say, presents a case to the Bundestag to pass enabling legislation to permit it to recapitalise itself and to subscribe to more capital in the ECB on the basis of its share of the ECB’s equity to restore it to solvency. One can imagine finance ministers being persuaded that there is no alternative to the proposal, but then it will be noticed that the Bundesbank is owed over €1.2 trillion through the TARGET2 system. Surely, it will almost certainly be argued, if those liabilities were paid to the Bundesbank, there would be no need for it to recapitalise itself. If only it were so simple. But clearly, it is not in the Bundesbank’s interest to involve ignorant politicians in monetary affairs. The public debate would risk spiralling out of control, with possibly fatal consequences for the entire euro system. So, what is happening with TARGET2? TARGET2 imbalances are deteriorating again… Figure 1 shows that TARGET2 imbalances are increasing again, notably for Germany’s Bundesbank, which is now owed a record €1,266,470 million, and Italy’s Banca Italia which owes €714,932 million. These are the figures for September, while all the others are for August and are yet to be updated. In theory, these imbalances should not exist because that was an objective behind TARGET2’s construction. And before the Lehman crisis, they were minimal as the chart shows. Since then, they have increased to a total of €1,844,815 million, with Germany owed the most, followed by Luxembourg, which in August was owed €337,315 billion. Partly, this is due to Frankfurt and Luxembourg being financial centres for international transactions through which both foreign and Eurozone investing institutions have been selling euro-denominated obligations issued by entities in Portugal, Italy, Greece, and Spain (the PIGS). The bank credit resulting from these transactions works through the system as follows: An Italian bond is sold through a German bank in Frankfurt. On delivering the bond, the seller has recorded in his favour a credit (deposit) at the German bank. Delivery to Milan against payment occurs with the settlement going through TARGET2, the settlement system through which cross-border settlements are made via the NCBs. Accordingly, the German bank records a matching credit (asset) with the Bundesbank.  The Bundesbank has a liability to the German bank. On the Bundesbank’s balance sheet, it generates a matching asset, reflecting the settlement due from the Banca d’Italia. The Banca d’Italia has a liability to the Bundesbank, and a matching asset to the Italian bank acting for the buyer of the Italian bond. The Italian bank has a liability to the Banca d’Italia, matching the debit on the bond buyer’s account, which is extinguishedby the buyer’s payment in settlement. As far as the international seller and the buyer through the Italian market are concerned, settlement has occurred. But the offsetting transfers between the Bundesbank and the Banca d’Italia have not taken place. There have been no settlements between them, and imbalances are the result.  The situation has been worsened by capital flight within the Eurozone, using dodgy collateral originating in the PIGS posted to the relevant national central bank by commercial banks, against cash credits made to commercial banks in the form of repurchase agreements (repos).  There are two reasons for these repo transactions. The first is simple capital flight within the Eurozone, where cash balances gained through repos are deployed to buy bonds and other assets lodged in Germany and Luxembourg. The payments will be in euros but are very likely to be for bonds and other investments not denominated in euros. The second is that in overseeing TARGET2, the ECB has ignored collateral standards as a means of subsidising the PIGS’ financial systems. With the PIGS economies on continuing life support, local bank regulators would be put in an awkward position if they had to decide whether bank loans are performing or non-performing. Because increasing quantities of these loans are undoubtedly non-performing, the solution has been to bundle them up as assets which can be used as collateral for repos through the central banks, so that they get lost in the TARGET2 system. If, say, the Banca d’Italia accepts the collateral it is no longer a concern for the local regulator. The true fragility of the PIGS economies is concealed in this way, the precariousness of commercial bank finances is hidden, and the ECB has achieved a political objective of protecting the PIGS’ economies from collapse. The recent increase in the imbalances, particularly between the Bundesbank and the Banca d’Italia are a warning that the system is breaking down. It was not an obvious problem when the long-term trend for interest rates was declining. But now that they are rising, the situation is radically different. The spread between Germany’s bond yields and those of Italy along with those of the other PIGS is increasingly being deemed by investors to be insufficient to compensate for the enhanced risks in a rising interest rate environment. The consequences could lead to a new crisis for the PIGS as their precarious state finances become undermined. Furthermore, capital flight out of Eurozone investments generally is confirmed by the collapse in the euro’s exchange rate against the US dollar. The Eurozone’s repo market From our analysis of the underlying causes of TARGET2 imbalances, we can see that repos play an important role. For the avoidance of doubt a repo is defined as a transaction agreed between parties to be reversed on pre-agreed terms at a future date. In exchange for posting collateral, a bank receives cash. The other party, in our discussion being a central bank, sees the same transaction as a reverse repo. It is a means of injecting fiat liquidity into the commercial banking system. Repos and reverse repos are not exclusively used between commercial banks and central banks, but they are also undertaken between banks and other financial institutions, sometimes through third parties, including automated trading systems. They can be leveraged to produce enhanced returns, and this is one of the ways in which liability driven investment (LDI) has been used by UK pension funds geared up to seven times. Presumably UK LDIs are an activity mirrored by their Eurozone equivalents, likely to be revealed as interest rates continue to rise. According to the last annual survey by the International Capital Market Association conducted in December 2021, at that time the size of the European repo market (including sterling, dollar, and other currencies conducted in European financial centres) stood at a record of €9,198 billion equivalent.[ii] This was based on responses from a sample of 57 institutions, including banks, so the true size of the market is somewhat larger. Measured by cash currency analysis, the euro share was 56.9% (€5,234bn). Obtaining euro cash through repos is cheap finance, as Figure 2 illustrates, which is of rates earlier this week. It allows European pension and insurance funds to finance geared bond positions through liability driven investment schemes. Which is fine, until the values of the bonds held as collateral fall, and cash calls are then made. This is what blew up the UK gilt market recently and are doing do so again this week as gilt prices fall. This is not a problem restricted to the UK and sterling markets. We can be sure that this situation is ringing alarm bells in the ECB’s headquarters in Frankfurt, as well as in all the major commercial banks around Europe. It has not been a concern so long as interest rates were not rising. Now that they are, with price inflation out of control there’s likely to be an increased reluctance on the part of the banks to novate repo agreements. There are a number of moving parts to this emerging crisis. We can summarise the calamity beginning to overwhelm the Eurozone and the euro system, as follows: Rising interest rates and bond yields are set to implode European repo markets. The LDI crisis which hit London will also afflict euro-denominated bond and repo markets — possibly even before the ink in this article has long dried. Collapsing repos in turn will lead to a failure of the TARGET2 system, because repos are the primary mechanism drivingTARGET2 imbalances. The spreads between German and highly indebted PIGS government bonds are bound to widen dramatically, causing a new funding crisis for ever more highly indebted PIGS on a scale far larger than seen in the past. Commercial banks in the Eurozone will be forced to liquidate their assets and collateral held against loans, including repos, as rapidly as possible. This will collapse Eurozone bond markets, as we saw with the UK gilt market earlier this month. Paper held in other currencies by Eurozone banks will be liquidated as well, spreading the crisis to other markets. The ECB and the euro system, which is already insolvent, is duty bound to intervene heavily to support bond markets and ensure the survival of the whole system. Panglossians might argue that the ECB has successfully managed financial crises in the past, and that to assume they will fail this time is unnecessarily alarmist. But the difference is in the trends for price inflation and interest rates. If the ECB is to have the slightest chance of succeeding in keeping the whole euro system and its allied commercial banking system afloat, it will be at the expense of the currency as it doubles down on suppressing interest rates.  The Bank of Japan is struggling to keep bond yields suppressed Along with the ECB, the Bank of Japan forced negative interest rates upon its financial system in an effort to maintain a targeted 2% inflation rate. And while other jurisdictions see CPI rising at 10% or more, Japan’s CPI is rising at only 3%. There are a number of identifiable reasons why this is so. But the overriding reason is that the Japanese consumer continues to place unshakeable faith in the yen. This means that in the face of higher prices, the average consumer withholds spending, increasing preferences for holding the currency. Even though the yen has fallen by 26% against the dollar, and dollar prices are rising at 8.5%, the growing preference for holding cash yen relative to consumer purchases in domestic markets holds. But this cannot go on for ever. While domestic market conditions remain stable, the US Fed’s more aggressive interest rate policy relative to the BOJ’s tells a different story for the yen on the foreign exchanges. The Bank of Japan first started quantitative easing over twenty years ago and has accumulated a mixture of government bonds (JGBs), corporate bonds, equities through ETFs, and property trusts. On 30 September, their accumulated total had a book value — as distinct from a market value — of over ¥594 trillion ($4.1 trillion). But at ¥545.5 trillion, the JGB element is 92% 0f the total. Since 31 December 2021, the yield on the 10-year JGB (by far the largest component) has risen from 0.17% to 0.25% today. On this basis, the bond portfolio held at that time has lost nearly ¥10 trillion, which compares with the bank’s capital of only ¥100 million. Therefore, the losses on the bond element alone are about 100,000 times greater that the bank’s slender equity. One can see why the BOJ has drawn a line in the sand against market reality. It insists that the 10-year JGB yield must be prevented from rising above 0.25%. Its neo-Keynesian case is that consumer inflation is subdued so the case for reducing stimulation to the economy is a marginal one. But the consequence is that the currency is collapsing. And only yesterday, the rate to the US dollar began to slide again. This is shown in Figure 3 — note that a rising number represents a weakening yen. Despite the mess that Japan’s Keynesian policies has created, it is difficult to see the BOJ changing course willingly. But the crisis for it will surely come if one or more of its three G-SIBs needs supporting. And it should be noted (See Table 1) that all three of them have balance sheet gearing measured by assets to shareholders equity of over twenty times, with Mizuho as much as 26 times, and they all have price to book ratios less than 50%. The Fed’s position The position of America’s Federal Reserve Board is starkly different from those of the other major central banks. True, it has substantial losses on its bond portfolio. In its Combined Quarterly Financial Report for June 30, 2022, the Fed disclosed the change in unrealised cumulative gains and losses on its Treasury securities and mortgage-backed securities of $847,797 million loss (versus June 30 2021, $185,640m loss).[iii] The Fed reports these assets in its balance sheet at amortised cost, so the losses are not immediately apparent. But on 30 June, the five-year note was yielding 2.7% and the ten-year 2.97%. Currently, they yield 4.16% and 3.95% respectively. Even without recalculating today’s market values, it is clear that the current deficit is now considerably more than a trillion dollars. And the Fed’s capital and reserves stand at only $46.274 billion, with portfolio losses exceding 25 times that figure. Other than losses from rising bond yields, instead of pushing liquidity into markets it is withdrawing it through reverse repos. In this case, the Fed is swapping some of the bonds on its balance sheet for cash on pre-agreed, temporary terms. Officially, this is part of the Fed’s management of overnight interest rates. But with the reverse repo facility standing at over $2 trillion, this is far from a marginal rate setting activity. It probably has more to do with Basel 3 regulations which penalise large bank deposits relative to smaller deposits, and a lack of balance sheet capacity at the large US banks. Repos, as opposed to reverse repos, still take place between individual banks and their institutional customers, but it is not obvious that they pose a systemic risk, though some large pension funds may have been using them for LDI transactions, similarly to the UK pension industry. While highly geared compared with in the past, US G-SIBs are not nearly as much exposed to a general credit downturn as the Europeans, Japanese, and the British. Contracting bank credit will hurt them, but other G-SIBs are bound to fail first, transmitting systemic risk through counterparty relationships. Nevertheless, markets do recognise some risk, with price-to-book ratios of less than 0.9 for Goldman Sachs, Bank of America, Wells Fargo, State Street, and BONY-Mellon. JPMorgan Chase, which is the Fed’s principal policy conduit into the commercial banking system, is barely rated above book value. Bank of England — bad policies but some smart operators In the headlights of an oncoming gilt market crash, the Bank of England acted promptly to avert a crisis centred on pension fund liability driven investment involving interest rate swaps. The workings of interest rate swaps have already been described, but repos also played a role. It might be helpful to explain briefly how repos are used in the LDI context. A pension fund goes to a shadow bank specialising in LDI schemes, with access to the repo market. In return for a deposit of say, 20% cash, the LDI scheme provider buys the full amount of medium and long-dated gilts to be held in the LDI scheme, using them as collateral backing for a repo to secure the funding for the other 80%. The repo can be for any duration from overnight to a year.  One year ago, when the Bank of England suppressed its bank rate at zero percent, one-month sterling LIBOR was close to 0.4% percent to borrow, while the yield on the 20-year gilt was 1.07%. Ignoring costs, a five-times leverage gave an interest rate turn of 0.63% X 5 = 3.15%, nearly three times the rate obtained by simply buying a 20-year gilt. Today, the yield differential has improved, leading to even higher net returns. But the problem is that the rise in yield for the 20-year gilt to 4.9% means that the price has fallen from a notional 100 par to 49.95. Since this is the collateral for the cash obtained through the repo, the pension fund faces margin calls amounting to roughly 2.5 times the original investment in the LDI scheme. And all the pension funds using LDI schemes faced calls at the same time, which crashed the gilt market. This is why the BOE had to act quickly to stabilise prices. Very sensibly, it has given pension funds and the LDI providers until this Friday to sort themselves out. Until then, the BOE stands prepared to buy any long-dated gilts until tomorrow (Friday, 14 October). It should remove the selling pressure from LDI-related liquidation entirely and orderly market conditions can then resume. This experience serves as an example of how rising bond yields can wreak havoc in repo markets, and with interest rate swaps as well. That being the case, problems are bound to arise in other currency derivative markets as bond yields continue to rise. Like the other major central banks, the BOE has seen a substantial deficit arise on its portfolio of gilts. But at the outset of QE, it got the Treasury to agree that as well as receiving the dividends and profits from gilts so acquired, it would also take any losses. All gilts bought under the QE programmes are held in a special purpose vehicle on the Bank’s balance sheet, guaranteed by the Treasury and therefore valued at cost. Conclusions In this article I have put to one side all the economic concerns of a downturn in the quantities of bank credit in circulation and focused on the financial consequences of a new long-term trend of rising interest rates. It should be coming clear that they threaten to undermine the entire fiat currency financial system. Credit Suisse’s public problems should be considered in this context. That they have not arisen before was due to the successful suppression of interest rates and bond yields, while the quantities of currency and bank credit have expanded substantially without apparent ill effects. Those ill effects are now impacting financial markets by undermining the purchasing power of all fiat currencies at an accelerating rate. From being completely in control of interest rates and fixed interest markets, central banks are now struggling in a losing battle to retain that control from the consequences of their earlier credit expansion. That enemy of every state, the market, has central banks on the run, uncertain as to whether their currencies should be protected (this is the Fed’s current decision and probably a dithering BOE) or a precarious financial system must be the priority (this is the ECB and BOJ’s current position). But one thing is clear: with CPI measures rising at a 10% clip, interest rates and bond yields will continue to rise until something breaks. So far, commercial banks are dumping financial assets to deleverage their balance sheets. The effects on listed securities are in plain sight. What is less appreciated, at least before LDI schemes threatened to collapse the UK’s gilt market, is that the $600 trillion OTC derivative market which grew on the back of a long-term trend of declining interest rates is now set to shrink as contracts go sour and banks refuse to novate them. That means that up to $600 trillion of notional credit is set to vanish, in what we might call the Great Unwind. This downturn in the cycle of bank credit boom and bust will prove difficult enough for the central banks to manage. But they themselves have balance sheet issues, which can only be resolved, one way or another, by the rapid expansion of base money. And that risks undermining all public credibility in fiat currencies. Tyler Durden Fri, 10/14/2022 - 19:40.....»»

Category: smallbizSource: nytOct 14th, 2022

Hormel Foods is More than Just Spam

Spam is more popular than ever evidenced by seven consecutive years of record sales Hormel’s portfolio includes well-known brands like Skippy, Planters, and Dinty Moore Inflation and a strong U.S. dollar headwinds are impacting the bottom line Hormel products become more of a staple for consumers during economic downturns Hormel is a dividend aristocrat having […] Spam is more popular than ever evidenced by seven consecutive years of record sales Hormel’s portfolio includes well-known brands like Skippy, Planters, and Dinty Moore Inflation and a strong U.S. dollar headwinds are impacting the bottom line Hormel products become more of a staple for consumers during economic downturns Hormel is a dividend aristocrat having raised its dividend for the 56th consecutive year Pre-packaged global food and snacks brand Hormel Foods (NYSE:HRL) has seen its top and bottom lines surge from the pandemic as consumers stockpiled endless amounts of its products, especially Spam. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get Our Activist Investing Case Study! Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below! (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2022 hedge fund letters, conferences and more   Spam has earned a not-so-flattering meaning as in sending out unsolicited and unwanted e-mails or digital communications in bulk. People may hate electronic spam, but they sure love the real Spam. This is evidenced by over seven straight years of record sales growth, obviously accelerated by the COVID-19 pandemic. Hormel has evolved from a one-trick pony into a global food and snack brand beyond just Spam. It’s diverse portfolio of popular brands also includes Skippy, Jennie-O, Dinty Moore, Chi-Chi’s, Corn Nuts, Lloyd’s Barbecue Co., Wholly Guacamole, Columbus Craft Meats and recently Planters. It competes with portfolios owned by brands like Conagra (NYSE: CAG), Campbell (NYSE: CPB), J.M. Smucker (NYSE: SJM), and Kraft Heinz (NYSE: KHC). Hormel’s brands hold the #1 and #2 market share spots in over 40 categories sold in over 80 countries. While globalization has helped increase its reach and scale, it has also caused pain from inflationary pressures, logistics costs and a strong U.S. dollar. These headwinds have caused the Company to lower its earnings estimates, but Hormel is seeing some stabilization emerge. History of the Mystery Meat Spam was created by George Hormel and made its debut as a cheap, portable, and non-perishable canned cooked pork meal sent to soldiers during World War 2. In fact, over 100 million pounds of Spam was shipped to feed U.S. soldiers during the war by Uncle Spam. It was a staple for soldiers (often against their wishes) and consumers throughout the Great Depression. The name Spam was concocted by combining the words “spice” and “ham” and was marketed as a ready-to-eat food to complement any meal from breakfast Spam and eggs and Spam and pancakes to Spam-wiches as it was dubbed the “miracle meat” in early ad campaigns. The 85-year old canned meat is considered essential survival food with its “indefinite” shelf life. Although, there is an “enjoy by” date on each can, it’s freshness is best when consumed within two to seven years. Spam consists of pork shoulder and chopped ham as well as potato starch to bind everything together, water, sodium nitrate as a preservative, and sugar canned at high heat. The Contagion American soldiers introduced Spam to Asian countries during wars and rebuilding efforts. Spam represented a piece of American culture and became phenomenally popular in Asian nations like South Korea, Guam, the Philippines, and Japan. It’s most popular in Hawaii where its per person consumption is the highest in the states. In Hawaii, Spam is considered the “Hawaiian Steak” as Hawaiians eat an average of five cans per year. Guam citizens consume an average of a whopping 16 cans be year making it the Spam capital country of the world. It’s limited edition pumpkin spice Spam sold for over $100 per can on eBay (NASDAQ: EBAY) as recently as September 2022. It’s attracted a new generation of consumer with younger “foodies”. There is a Spam museum in Austin, Minnesota that received over 100,000 tourists annually. Spam has become trendy as Asian chefs have reintroduced it as an ingredient in culinary creations and menu items. Spam is back and more popular than ever. Headwinds Make Impact On Sept. 1, 2022, Hormel released its fiscal third-quarter 2022 results for the quarter ending July 2022. The Company reported an adjusted earnings-per-share (EPS) profit of $0.40 excluding non-recurring items missing consensus analyst estimates for a $0.41 by (-$0.01). Revenues grew by 6% year-over-year (YOY) to $3.03 billion beating analyst estimates for $3 billion. Hormel CEO Jim Snee commented, "We delivered another quarter of record sales and double-digit operating income growth. In the current environment, delivering seven straight quarters of record sales and four consecutive quarters of earnings growth is a notable achievement and speaks to the effectiveness of our strategy and the importance of our brands in uncertain times.” Downside Guidance Hormel issued downside guidance for fiscal full-year 2022 EPS of $1.78 to $1.85 versus $1.88 consensus analyst estimates. Fiscal full-year 2022 revenues are expected between $12.2 billion to $12.8 billion versus $12.41 billion analyst estimates. CEO Snee added, "We expect elevated cost inflation to persist, primarily related to operations, logistics, and raw material inputs. As a result, we are revising our full-year earnings guidance range. We view the majority of the escalated cost pressures we are currently absorbing as transient and likely to subside over the coming quarters.” Here’s What the Charts Say Using the rifle charts on the weekly and daily time frames provides a precise view of the landscape for HRL stock. The weekly rifle chart peaked and reversed off the $51.58 Fibonacci (fib) level. The weekly downtrend is led by the falling 5-period moving average (MA) at $45.90 followed by the 15-period MA at $47.79. Shares collapsed through the weekly 50-period MA at $48.05 and the weekly 200-period MA at $46.04. The weekly lower Bollinger Bands (BBs) sit at $42.45 as the weekly stochastic falls to the 20-band. The weekly market structure low (MSL) buy triggered on the breakout through $42.08. The daily rifle chart triggered another breakdown led by the falling 5-period MA at $46.21 followed by the 15-period MA at $45.77. The daily lower BBs sit at $44.45 as the stochastic formed a pretzel mini inverse pup at the 40-band. The daily BBs are expanding after a compression period which bodes more downside to come. Attractive pullback levels sit at the $43.70 fib, $42.29 fib, $40.56 fib, $39.20 fib, $38.23 fib, and the $35.67 fib level.        Should you invest $1,000 in Hormel Foods right now? Before you consider Hormel Foods, you'll want to hear this. MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Hormel Foods wasn't on the list. While Hormel Foods currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys. Article by Jea Yu, MarketBeat.....»»

Category: blogSource: valuewalkOct 11th, 2022

Madison Investments 2Q22 Commentary: Inflation And Profitability In The New Economy

Madison Investments commentary for the second quarter ended June 30, 2022. To our investors and partners, After hitting an all-time peak on the first trading day of 2022, it’s been all downhill for the S&P 500 index since. In fact, the 19.96% drop through the end of June is the worst first half of a […] Madison Investments commentary for the second quarter ended June 30, 2022. To our investors and partners, After hitting an all-time peak on the first trading day of 2022, it’s been all downhill for the S&P 500 index since. In fact, the 19.96% drop through the end of June is the worst first half of a calendar year for the index in over 50 years. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q2 2022 hedge fund letters, conferences and more   Our equity strategies have generally remained true to form during this downturn, with both our flagship Large Cap and Mid Cap strategies losing less than their respective benchmarks in the year-to-date period, though that may be little consolation. Inflation And Profitability In The New Economy As I write this letter, the latest Consumer Price Index (CPI) data has been released, confirming the trend of the last few months – inflation is running at the highest levels since the early 1980s. There are many things to worry about in the economic environment, but inflation is probably top of mind for most, and appropriately so. Once briskly rising prices are etched into the mindset of the populace and they adjust their behavior to accept them, it becomes a self-perpetuating spiral and is very difficult to rein back in. And keeping inflation reined in is a very desirable goal. There seems to be a debate in public forums whether inflation is worse for the lower income demographic or the higher income demographic. This is an argument so silly that only economists would think it worthy of debate. To think that someone who has to go from shopping at Whole Foods to shopping at Kroger is worse off than someone who has to go from shopping at Aldi to skipping two meals a day, just because some measurable statistic seems to tell you so…well, that’s the kind of thinking that gives the field of economics a bad name. The macroeconomic history of the United States since World War II can effectively be split up into three phases, delineated by the prevailing inflationary trend. The first period encompasses the years from 1944 to 1964, characterized by low inflation, economic stability, and solid real growth. Inflation was well under control, often hovering in the very low single-digits. The second period lasted from 1964 to 1982, and is generally known as the Great Inflation. After the calm of the early 1960s when the Consumer Price Index averaged around 1%, inflation began rising in 1965, peaking at 15% in 1980, returning to single-digits permanently in 1982. That year marks the beginning of the third period, which is characterized by an extended period of declining inflation rates, and which perhaps we can call the Great Disinflation. It’s possible that we are now witnessing the end of this third period, although we won’t know for sure until some years from now. But at 40 years in length, this period has lasted much longer than anyone thought possible, especially given the array of inflationary monetary and fiscal policies that have been implemented. From a stock market investor’s standpoint, two things about inflation matter. One is the impact it has on interest rates. Higher inflation tends to come with higher rates, and lower inflation with lower rates. The story of the three periods above could easily be re-framed to be a story of three interest rate eras. And the level of interest rates is probably the single most important macroeconomic determinant of stock prices. The value of a stock is the discounted value of the stream of profits a company will earn over its entire future. The higher the interest rate, the less a dollar of profits tomorrow is worth today. Thus, it is perfectly natural if investors expect interest rates to rise or remain persistently higher, the value of stocks will be worth less, all else equal. The second point about inflation that is relevant to investors is its effect on corporate profits. Warren Buffett once called inflation a “gigantic corporate tapeworm.” He elaborates: That tapeworm preemptively consumes its requisite daily diet of investment dollars regardless of the health of the host organism. Whatever the level of reported profits (even if nil), more dollars for receivables, inventory and fixed assets are continuously required by the business in order to merely match the unit volume of the previous year. The less prosperous the enterprise, the greater the proportion of available sustenance claimed by the tapeworm.1 He wrote those words in 1981, and while they remain accurate, they are less relevant to today’s mix of Corporate America, which is much less reliant on tangible assets than it was 40 years ago. Thus, today, the impact of inflation is much more visible on the income statement, in expenses, than it is on the balance sheet. To put it another way, in the old economy, inflation decreased return on capital by expanding the denominator (capital). But in the new economy, inflation decreases return on capital by shrinking the numerator (income). And ultimately, return on capital is the single most comprehensive metric of profitability that matters to equity shareholders. To summarize, inflation has two pernicious effects on the equity investor: it diminishes corporate profitability, and it lowers the present value of the future (reduced) profits. This dual effect (and its inverse) can be a powerful impact on stock market returns. To continue referencing professor Buffett, he gave a talk in various forums in 1999, touting the unusual symmetry of two 17-year periods of stock market returns, December 1964 to December 1981, and December 1981 to December 1998. In the first period, the Dow Jones Industrial Average index progressed exactly 0.88 points, from 874.12 to 875.00. That’s right, after 17 years, the index ended at almost the exact same place it began. In the second 17-year period ending in December 1998, the Dow Jones returned a compounded average of 19% a year. You’ll notice that the dates of the first period, when the stock market went nowhere, coincides with the Great Inflation. Inflation rose, and interest rates rose with it. And during that period, corporate profits as a percentage of GDP fell from the upper levels of its historical band to the lower levels. Inflation was certainly not the only factor contributing to lower overall corporate profitability, but it was very likely a factor. Once inflation began to improve starting in 1982 and rates began to decline, we experienced a long bull run. By 1998, profits as a percent of GDP were near the highs of its historical band. Again, lower inflation was certainly not the only factor contributing to higher profitability, but it was likely a factor. We mention all of the above, not to make any predictions, but to point out that inflation is like Lyme disease: if left untreated for too long, it can cause lasting problems and becomes more difficult to cure. Better to take the medicine now, even at the risk of triggering a recession. As you know, macroeconomic forecasts are not where we focus our time. That’s an admission that we don’t think we have the ability to make any strong forecasts with any conviction. And that’s not just humility on our part. We’re skeptical of anyone’s ability to accurately predict macroeconomic conditions with enough consistency to come out ahead over long stretches of time. That doesn’t mean we don’t pay attention to the greater economic environment or that we don’t think they have bearing on our investments. It’s that we tend to think probabilistically, rather than in binary terms such as recession or no recession, or higher rates or lower rates. Certainly, if we were to project correctly, and position our portfolios accordingly, we will have home run performance. Yet, if we’re wrong, we will strike out. Do this enough times, and the effect of compounding will mean that we will come out behind over the long-term, even with a reasonably good success rate. We think there’s a better way to maximize our long-term returns with our equity investments. And that’s to invest in companies that are resilient in difficult economic and political environments and can grow profitably over the long-term despite cycles… and invest this way all the time, not just at certain junctures. There’s an old corporate ad campaign with the slogan “You can’t predict. You can prepare.” This seems like a fitting motto for our investment philosophy as well. The turnover rate for most of our portfolios has not picked up noticeably, despite the volatile and changing economic conditions. That’s because we like the investments we hold now. We liked them when we bought them, we like them today, and we hope to like them tomorrow. Our whole research and analytical process around a new investment revolves around asking ourselves many questions in the form of, would we still be happy owning this company at this price if XYZ were to happen? And XYZ would most certainly include varying economic scenarios such as recession, inflation, and higher interest rates, as well as the usual questions around competitive strengths, financial profile, capital allocation, etc. Valuation Matters A recent Wall Street brokerage report on the stock of a profitable company commented that “shares of [company A] trade at roughly 8 times our calendar 2023 estimate, a discount to the peer group median at 10 times” without any other context or elaboration on what multiple exactly. It took us a while to figure out that the author was referring to the stock’s Enterprise Value to Revenue multiple (EV/Revenue). How did it get to the point where an analyst can write “8 times” in a stock investment report and assume that the reader would correctly assume that he is referring to an EV/Revenue multiple? Three decades ago, when your undersigned entered the investment profession, the industry yardstick for an attractive multiple to pay for a stock was 10 times after-tax earnings, also known as the Price-to-Earnings ratio (P/E). Then, at some point, as the stock market went up, the yardstick changed to 10x Enterprise Value to Earnings Before Interest and Taxes (EV/EBIT). Then, as the market increased further, 10x Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) became known as an attractive price for the average company. And then sometime in the past several years, 10x EV/Revenue became the yardstick. You can see what happened here. By keeping the number the same, it was easy to slowly shift investors’ mental yardstick without making it seem outrageous. It was the equivalent of the potato chip company that maintains the $1.50 price point year after year and keeps the package dimensions the same but decreases the number of actual chips in the bag over time. Many investors are now discovering upon opening their bag of chips, that it consists of nothing but air! Of course, that would be a disingenuous excuse on their part. Investors knew they were buying chip-less, I mean profitless, companies. That’s precisely why they ended up resorting to using EV/Revenue, to attempt to gloss over the fact that many of these companies were losing so much money, and so early stage, that the prospects for profits were years away. As the market rose, Wall Street began to contrive ever more kinds of multiples to justify loftier valuations, eliminating more and more types of expenses and capitalizing figures higher and higher up the income statement. By the time it reached EV/Revenue, it got to the point where many investors were using these multiples robotically without regard to what these multiples mean. Ultimately, the only figure that the shareholder has a claim to is free cash flow and all other metrics are simply starting points to triangulate to that number. Here at Madison Investments, we tend to use after-tax earnings or free cash flow generally, but we also use plenty of other multiples depending on the situation or the point we are trying to assess. If a company has volatile earnings and temporarily suppressed margins, it may make sense to use EV/Revenue as one point of reference. But it would need to be put in its proper context, such as an assumption about how much of the company’s revenue will eventually drop to the bottom line. If a company has no debt and you’re trying to compare its valuation to a similar company with high levels of debt, then EV/EBIT may make sense to use. Here too, there are implied assumptions, such as the concept that the capital structure of a company is separately manageable from the operations of a business, or that more debt equals more risk, something that a P/E ratio will not capture adequately. Let’s do some math for what 10x revenue really means. Say we have a fast-growing software company that is still unprofitable. Let’s assume that the company grows revenues at a very rapid 20% annual clip for 10 years, and that it posts a very good 15% net after-tax margins at the end. If the stock then receives a hefty 25x P/E multiple, the shareholder would have garnered an 8.8% annualized return over the decade. Respectable, but not a particularly good return, given the risks involved. By nature, the earlier in the life cycle of a company, the lower its eventual survival and success rate. Thus, to give so many early stage public companies a high multiple that reflects such a high success rate in aggregate, that doesn’t make sense. To make it crazier, less than a year ago, many of these companies traded at 15-20x revenue, which would imply negative to flattish stock appreciation, even using optimistic growth assumptions. Despite the considerable decline in the stock prices of such companies, we still don’t believe that this cohort represents good value, with many still trading at 8x, 10x, or 12x revenue. A stock trading for 10x after-tax earnings, on the other hand, is still as rare as rocking horse manure, as the Irish might say. We don’t think it’s pragmatic or rational to wait for an abundance of stocks trading at 10x P/Es, given that interest rates are still low by historical comparison, but we will do our best to remain resistant to the slow degradation of standards. Get Rich Quick Or Get Rich Slow In the German movie Run, Lola Run, a young man is kidnapped for unpaid debts and is being held for ransom. His girlfriend Lola is told that she must obtain 100,000 Deutsche marks4 in just 20 minutes in order to save her boyfriend’s life. After some twists and turns, she ends up at the roulette wheel table in the local casino, with a starting pot of 100 marks. She bets the entire amount on one number, the lowest probability bet available, but with a payoff of 35 to 1, also the highest potential winning bet. Miraculously, she wins. She then places her entire proceeds back on the same number for another bet. Once again, miracle intervenes, and she wins again. She grabs her proceeds and runs out to go save her boyfriend. Suspension of disbelief aside, and whether the screenwriter of the movie knew it or not, Lola did exactly what the rules of probability would dictate in that situation. If you are playing a negative outcome game such as roulette (where payoffs don’t make up for the overall odds against you), then the maximizing strategy is to take the path that requires you to make the fewest number of bets to reach your targeted total winnings, regardless of how low the odds of any individual bet along the way. Note that this is not a winning strategy, since negative outcome games don’t have one. But it does maximize the chances of you reaching the hoped-for amount. What is the relevance of this to investors? Lola’s betting tactic demonstrates the complex and intertwined nature of risk, time, and human nature. Her actions mirror so many of the market participants of the past two years, for whom the stock market is a kind of casino, where the natural inclination is to take a gambling mentality, given that the odds are in the house’s favor. We would characterize these market participants into three archetypes. The first type is the retail investor, who, perhaps having seen how collective actions sparked on social media could move stock prices, decided to jump into the market and aim for the fastest, most direct route to big gains. The second type is the institutional investor who has entered the profession in the last 10 years or so, and believes that stock can only go up, and that valuation doesn’t matter as long as sales are going up. The third type is the institutional investor who has been around for many a year, but after seeing how some peers were succeeding, convinced himself that this new paradigm must be real, and he must not be left behind. We like to think that we’re of a different type – that of the professional investor that has been around a while, but has retained our wits about us, with just enough cynical common sense to know that eventually what goes up must come down, however long it takes. Intelligent investing is the antithesis of roulette or gambling. It’s an undertaking that, with proper study and diligence, can provide participants an edge over the house, with the house being the sum of every other market participant out there. Investing is more like poker, where a proper understanding of the odds and a disciplined betting regimen can combine to tilt odds in your favor. The consideration of time is crucial in evaluating risk and opportunities. A foundational piece of our strategy is that we invest in decades-long frameworks, with the confidence that the elapsing of time is what allows for the law of large numbers to have its effect, to smooth out the randomness inherent in the unfolding of real-world, infinitely complex events. If we purchase the right stocks at the right prices, then the unavoidable failures will be offset by the frequent successes, as long as we don’t deviate just because near-term events may or may not have favorable outcomes. Time is the friend for our investments. Our companies are well-financed, well-managed, and competitively advantaged, and thus expected to grow their value over time so that any one of our investments is not dependent on the immediate recognition of its value. Because these companies tend to get better and better each year, we refer to them as “Spiral Staircase” investments, after the group that wrote a popular 1960s song with the refrain, “I love you more today than yesterday / But not as much as tomorrow / I love you more today than yesterday / But darling, not as much as tomorrow.” Those words also apply to how we feel about you, our clients and partners, as well as how we hope you feel about us. I look forward to communicating at the end of the year. Respectfully, Haruki Toyama.....»»

Category: blogSource: valuewalkSep 13th, 2022

The Federal Bureau Of Tweets: Twitter Is Hiring An Alarming Number Of FBI Agents

The Federal Bureau Of Tweets: Twitter Is Hiring An Alarming Number Of FBI Agents Authored by Alan MacLeod via Mint Press News, Twitter has been on a recruitment drive of late, hiring a host of former feds and spies. Studying a number of employment and recruitment websites, MintPress has ascertained that the social media giant has, in recent years, recruited dozens of individuals from the national security state to work in the fields of security, trust, safety and content. Chief amongst these is the Federal Bureau of Investigation. The FBI is generally known as a domestic security and intelligence force. However, it has recently expanded its remit into cyberspace. “The FBI’s investigative authority is the broadest of all federal law enforcement agencies,” the “About” section of its website informs readers. “The FBI has divided its investigations into a number of programs, such as domestic and international terrorism, foreign counterintelligence [and] cyber crime,” it adds. For example, in 2019, Dawn Burton (the former director of Washington operations for Lockheed Martin) was poached from her job as senior innovation advisor to the director at the FBI to become senior director of strategy and operations for legal, public policy, trust and safety at Twitter. The following year, Karen Walsh went straight from 21 years at the bureau to become director of corporate resilience at the silicon valley giant. Twitter’s deputy general counsel and vice president of legal, Jim Baker, also spent four years at the FBI between 2014 and 2018, where his resumé notes he rose to the role of senior strategic advisor. Meanwhile, Mark Jaroszewski ended his 21-year posting as a supervisory special agent in the Bay Area to take up a position at Twitter, rising to become director of corporate security and risk. And Douglas Turner spent 14 years as a senior special agent and SWAT Team leader before being recruited to serve in Twitter’s corporate and executive security services. Previously, Turner had also spent seven years as a secret service special agent with the Department of Homeland Security. When asked to comment by MintPress, former FBI agent and whistleblower Coleen Rowley said that she was “not surprised at all” to see FBI agents now working for the very tech companies the agency polices, stating that there now exists a “revolving door” between the FBI and the areas they are trying to regulate. This created a serious conflict of interests in her mind, as many agents have one eye on post-retirement jobs. “The truth is that at the FBI 50% of all the normal conversations that people had were about how you were going to make money after retirement,” she said. Many former FBI officials hold influential roles within Twitter. For instance, in 2020, Matthew W. left a 15-year career as an intelligence program manager at the FBI to take up the post of senior director of product trust at Twitter. Patrick G., a 23-year FBI supervisory special agent, is now head of corporate security. And Twitter’s director of insider risk and security investigations, Bruce A., was headhunted from his role as a supervisory special agent at the bureau. His resumé notes that at the FBI he held “[v]arious intelligence and law enforcement roles in the US, Africa, Europe, and the Middle East” and was a “human intelligence and counterintelligence regional specialist.” (On employment sites such as LinkedIn, many users choose not to reveal their full names.) Meanwhile, between 2007 and 2021 Jeff Carlton built up a distinguished career in the United States Marine Corps, rising to become a senior intelligence analyst. Between 2014 and 2017, his LinkedIn profile notes, he worked for both the CIA and FBI, authored dozens of official reports, some of which were read by President Barack Obama. Carlton describes his role as a “problem-solver” and claims to have worked in many “dynamic, high-pressure environments” such as Iraq and Korea. In May 2021, he left official service to become a senior program manager at Twitter, responsible for dealing with the company’s “highest-profile trust and safety escalations.” Other former FBI staff are employed by Twitter, such as Cherrelle Y. as a policy domain specialist and Laura D. as a senior analyst in global risk intelligence. Many of those listed above were active in the FBI’s public outreach programs, a practice sold as a community trust-building initiative. According to Rowley, however, these also function as “ways for officials to meet the important people that would give them jobs after retirement.” “It basically inserts a huge conflict of interest,” she told MintPress. “It warps and perverts the criminal investigative work that agents do when they are still working as agents because they anticipate getting lucrative jobs after retiring or leaving the FBI.” Rowley – who in 2002 was named, along with two other whistleblowers, as Time magazine’s Person of the Year – was skeptical that there was anything seriously nefarious about the hiring of so many FBI agents, suggesting that Twitter could be using them as sources of information and intelligence. She stated: Retired agents often maintained good relationships and networks with current agents. So they can call up their old buddy and find out stuff… There were certainly instances of retired agents for example trying to find out if there was an investigation of so and so. And if you are working for a company, that company is going to like that influence.” Rowley also suggested that hiring people from various three-letter agencies gave them a credibility boost. “These [tech] companies are using the mythical aura of the FBI. They can point to somebody and say ‘oh, you can trust us; our CEO or CFO is FBI,’” she explained. Twitter certainly has endorsed the FBI as a credible actor, allowing the organization to play a part in regulating the global dissemination of information on its platform. In September 2020, it put out a statement thanking the federal agency. “We wish to express our gratitude to the FBI’s Foreign Influence Task Force for their close collaboration and continued support of our work to protect the public conversation at this critical time,” the statement read. One month later, the company announced that the FBI was feeding it intelligence and that it was complying with their requests for deletion of accounts. “Based on intel provided by the FBI, last night we removed approximately 130 accounts that appeared to originate in Iran. They were attempting to disrupt the public conversation during the first 2020 U.S. Presidential Debate,” Twitter’s safety team wrote. Yet the evidence they supplied of this supposed threat to American democracy was notably weak. All four of the messages from this Iranian operation that Twitter itself shared showed that none of them garnered any likes or retweets whatsoever, meaning that essentially nobody saw them. This was, in other words, a completely routine cleanup operation of insignificant troll accounts. Yet the announcement allowed Twitter to present the FBI as on the side of democracy and place the idea into the public psyche that the election was under threat from foreign actors. Based on intel provided by the @FBI, last night we removed approximately 130 accounts that appeared to originate in Iran. They were attempting to disrupt the public conversation during the first 2020 US Presidential Debate. — Twitter Safety (@TwitterSafety) October 1, 2020 Iran has been a favorite Twitter target in the past. In 2009, at the behest of the U.S. government, it postponed routine maintenance of the site, which would have required taking it offline. This was because an anti-government protest movement in Tehran was using the app to communicate and the U.S. did not want the demonstrations’ regime-change potential to be stymied. A carnival of spooks The FBI is far from the only state security agency filling Twitter’s ranks. Shortly after leaving a 10-year career as a CIA analyst, Michael Scott Robinson was hired to become a senior policy manager for site integrity, trust and safety. The California-based app has also recruited heavily from the Atlantic Council, a NATO cutout organization that serves as the military alliance’s think tank. The council is sponsored by NATO, led by senior NATO generals and regularly plays out regime-change scenarios in enemy states, such as China. The Atlantic Council has been associated with many of the most egregious fake news plants of the last few years. It published a series of lurid reports alleging that virtually every political group in Europe challenging the status quo – from the Labour Party under Jeremy Corbyn and UKIP in Great Britain to PODEMOS and Vox in Spain and Syriza and Golden Dawn in Greece – were all secretly “the Kremlin’s Trojan Horses.” Atlantic Council employee Michael Weiss was also very likely the creator of the shadowy organization PropOrNot, a group that anonymously published a list of fake-news websites that regularly peddled Kremlin disinformation. Included in this list was virtually every anti-war alternative media outlet one could think of – from MintPress to Truthout, TruthDig and The Black Agenda Report. Also included were pro-Trump websites like The Drudge Report, and liberatarian ventures like Antiwar.com and The Ron Paul Institute. PropOrNot’s list was immediately heralded in the corporate press, and was the basis for a wholescale algorithm shift at Google and other big tech platforms, a shift that saw traffic to alternative media sites crash overnight, never to recover. Thus, the allegation of a huge (Russian) state-sponsored attempt to influence the media was itself an intelligence op by the U.S. national security state. In 2020, Kanishk Karan left his job as a research associate at the Atlantic Council’s Digital Forensics Research (DFR) Lab to join Twitter as information integrity and safety specialist – essentially helping to control what Twitter sees as legitimate information and nefarious disinformation. Another DFR Lab graduate turned Twitter employee is Daniel Weimert, who is now a senior public policy associate for Russia – a key target of the Atlantic Council. Meanwhile, Sarah Oh is simultaneously an Atlantic Council DFR Lab non-resident senior fellow and a Twitter advisor, her social media bio noting she works on “high risk trust and safety issues.” In 2019, Twitter also hired Greg Andersen straight from NATO to work on cybercrime policy. There is sparse information on what Andersen did at NATO, but, alarmingly, his own LinkedIn profile stated simply that he worked on “psychological operations” for the military alliance. After MintPress highlighted this fact in an article in April, he removed all mention of “psychological operations” from his profile, claiming now to have merely worked as a NATO “researcher.” Andersen left Twitter in the summer of last year to work as a product policy manager for the popular video platform TikTok. Twitter also directly employs active army officers. In 2019, Gordon Macmillan, the head of editorial for the entire Europe, Middle East and Africa region was revealed to be an officer in the British Army’s notorious 77th Brigade – a unit dedicated to online warfare and psychological operations. This bombshell news was steadfastly ignored across the media. Positions of power and control With nearly 400 million global users, there is no doubt that Twitter has grown to become a platform large and influential enough to necessitate extensive security measures, as actors of all stripes attempt to use the service to influence public opinion and political actions. There is also no doubt that there is a limited pool of people qualified in these sorts of fields. But recruiting largely from the U.S. national security state fundamentally undermines claims Twitter makes about its neutrality. The U.S. government is the source of some of the largest and most extensive influence operations in the world. As far back as 2011, The Guardian reported on the existence of a massive, worldwide U.S. military online influence campaign in which it had designed software that allowed its personnel to “secretly manipulate social media sites by using fake online personas to influence internet conversations and spread pro-American propaganda.” The program boasts that the background of these personas is so convincing that psychological operations soldiers can be sure to work “without fear of being discovered by sophisticated adversaries.” Yet Twitter appears to be recruiting from the source of the problem. These former national security state officials are not being employed in politically neutral departments such as sales or customer service, but in security, trust and content, meaning that some hold considerable sway over what messages and information are promoted, and what is suppressed, demoted or deleted. It could be said that poachers-turned-gamekeepers often play a crucial role in safety and protection, as they know how bad actors think and operate. But there exists little evidence that any of these national security state operatives have changed their stances. Twitter is not hiring whistleblowers or dissidents. It appears, then, that some of these people are essentially doing the same job they were doing before, but now in the private sector. And few are even acknowledging that there is anything wrong with moving from big government to big tech, as if the U.S. national security state and the fourth estate are allies, rather than adversaries. That Twitter is already working so closely with the FBI and other agencies makes it easy for them to recruit from the federal pool. As Rowley said, “over a period of time these people will be totally in sync with the mindset of Twitter and other social media platforms. So from the company’s standpoint, they are not hiring somebody new. They already know this person. They know where they stand on things.” Is there a problem? Some might ask “What is the problem with Twitter actively recruiting from the FBI, CIA and other three-letter agencies?” They, after all, are experts in studying online disinformation and propaganda. One is optical. If a Russian-owned social media app’s trust, security and content moderation was run by former KGB or FSB agents and still insisted it was a politically neutral platform, the entire world would laugh. But apart from this, the huge influx of security state personnel into Twitter’s decision-making ranks means that the company will start to view every problem in the same manner as the U.S. government does – and act accordingly. “In terms of their outlooks on the world and on the question of misinformation and internet security, you couldn’t get a better field of professionals who are almost inherently going to be more in tune with the government’s perspective,” Rowley said. Thus, when policing the platform for disinformation and influence campaigns, the former FBI and CIA agents and Atlantic Council fellows only ever seem to find them emanating from enemy states and never from the U.S. government itself. This is because their backgrounds and outlooks condition them to consider Washington to be a unique force for good. This one-sided view of disinformation can be seen by studying the reports Twitter has published on state-linked information operations. The entire list of countries it has identified as engaging in these campaigns are as follows: Russia (in 7 reports), Iran (in 5 reports), China (4 reports), Saudi Arabia (4 reports), Venezuela (3 reports), Egypt (2 reports), Cuba, Serbia, Bangladesh, the UAE, Ecuador, Ghana, Nigeria, Honduras, Indonesia, Turkey, Thailand, Armenia, Spain, Tanzania, Mexico and Uganda. One cannot help noticing that this list correlates quite closely to a hit list of U.S. government adversaries. All countries carry out disinfo campaigns to a certain extent. But these “former” spooks and feds are unlikely to point the finger at their former colleagues or sister organizations or investigate their operations. The Cold (cyber)war Twitter has mirrored U.S. hostility towards states like Russia, China, Iran and Cuba, attempting to suppress the reach and influence of their state media by adding warning messages to the tweets of journalists and accounts affiliated with those governments. “State-affiliated media is defined as outlets where the state exercises control over editorial content through financial resources, direct or indirect political pressures, and/or control over production and distribution,” it noted. In a rather bizarre addendum, it explained that it would not be doing the same to state-affiliated media or personalities from other countries, least of all the U.S. “State-financed media organizations with editorial independence, like the BBC in the U.K. or NPR in the U.S. for example, are not defined as state-affiliated media for the purposes of this policy,” it wrote. It did not explain how it decided that Cuban, Russian, Chinese or Iranian journalists did not have editorial independence, but British and American ones did – this was taken for granted. The effect of the action has been a throttling of ideas and narratives from enemy states and an amplification of those coming from Western state media. As the U.S. ramps up tensions with Beijing, so too has Twitter aggressively shut down pro-China voices on its platform. In 2020, it banned 170,000 accounts it said were “spreading geopolitical narratives favorable to the Communist Party of China,” such as praising its handling of the Covid-19 pandemic or expressing opposition to the Hong Kong protests, both of which are majority views in China. Importantly, the Silicon Valley company did not claim that these accounts were controlled by the government; merely sharing these opinions was grounds enough for deletion. The group behind Twitter’s decision to ban those Chinese accounts was the Australian Strategic Policy Institute (ASPI), a deeply controversial think tank funded by the Pentagon, the State Department and a host of weapons manufacturers. ASPI has constantly peddled conspiracy theories about China and called for ramping up tensions with the Asian nation. ASPI - The Gov’t-Funded Conspiracist Think Tank Now Controlling Your Social Media Feed Perhaps most notable, however, was Twitter’s announcement last year that it was deleting dozens of accounts for the new violation of “undermining faith in the NATO alliance.” The statement was widely ridiculed online by users. But few noted that the decision was based upon a partnership with the Stanford Internet Observatory, a counter-disinformation think tank filled with former spooks and state officials and headed by an individual who is on the advisory board of NATO’s Collective Cybersecurity Center of Excellence. That Twitter is working so closely with organizations that are clearly intelligence industry catspaws should concern all users. Not just Twitter While some might be alarmed that Twitter is cultivating such an intimate relationship with the FBI and other groups belonging to the secret state, it is perhaps unfair to single it out, as many social media platforms are doing the same. Facebook, for example, has entered into a formal partnership with the Atlantic Council’s Digital Forensics Research Lab, whereby the latter holds significant influence over 2.9 billion users’ news feeds, helping to decide what content to promote and what content to suppress. The NATO cutout organization now serves as Facebook’s “eyes and ears,” according to a Facebook press release. Anti-war and anti-establishment voices across the world have reported massive drops in traffic on the platform. The social media giant also hired former NATO Press Secretary Ben Nimmo to be its head of intelligence. Nimmo subsequently used his power to attempt to swing the election in Nicaragua away from the leftist Sandinista Party and towards the far-right, pro-U.S. candidate, deleting hundreds of left-wing voices in the week of the election, claiming they were engaging in “inauthentic behavior.” When these individuals (including some well-known personalities) poured onto Twitter, recording video messages proving they were not bots, Twitter deleted those accounts too, in what one commentator called a Silicon Valley “double tap strike.” An April MintPress study revealed how TikTok, too, has been filling its organization with alumni of the Atlantic Council, NATO, the CIA and the State Department. As with Twitter, these new TikTok employees largely work in highly politically sensitive fields such as trust, safety, security and content moderation, meaning these state operatives hold influence over the direction of the company and what content is promoted and what is demoted. Likewise, in 2017, content aggregation site Reddit plucked Jessica Ashooh from the Atlantic Council’s Middle East Strategy Task Force to become its new director of policy, despite the fact that she had few relevant qualifications or experience in the field. Jessica Ashooh: The Taming of Reddit and the National Security State Plant Tabbed to Do It In corporate media too, we have seen a widespread infiltration of former security officials into the upper echelons of news organizations. So normalized is the penetration of the national security state into the media that is supposed to be holding it to account, that few reacted in 2015 when Dawn Scalici left her job as national intelligence manager for the Western hemisphere at the Director of National Intelligence to become the global business director of international news conglomerate Thomson Reuters. Scalici, a 33-year CIA veteran who had worked her way up to become a director in the organization, was open about what her role was. In a blog post on the Reuters website, she wrote that she was there to “meet the disparate needs of the U.S. Government” – a statement that is at odds with even the most basic journalistic concepts of impartiality and holding the powerful to account. Meanwhile, cable news outlets routinely employ a wide range of “former” agents and mandarins as trusted personalities and experts. These include former CIA Directors John Brennan (NBC, MSNBC) and Michael Hayden (CNN), ex-Director of National Intelligence James Clapper (CNN), and former Homeland Security Advisor Frances Townsend (CBS). And news for so many Americans comes delivered through ex-CIA interns like Anderson Cooper (CNN), CIA-applicants like Tucker Carlson (Fox), or by Mika Brzezinski (MSNBC), the daughter of a powerful national security advisor. The FBI has its own former agents on TV as well, with talking heads such as James Gagliano (Fox), Asha Rangappa (CNN) and Frank Figliuzzi (NBC, MSNBC) becoming household names. In short, then, the national security state once used to infiltrate the media. Today, however, the national security state is the media. Social media holds enormous influence in today’s society. While this article is not alleging that anyone mentioned is a bad actor or does not genuinely care about the spread of disinformation, it is highlighting a glaring conflict of interest. Through its agencies, the U.S. government regularly plants fake news and false information. Therefore, social media hiring individuals straight from the FBI, CIA, NATO and other groups to work on regulating disinformation is a fundamentally flawed practice. One of media’s primary functions is to serve as a fourth estate; a force that works to hold the government and its agencies to account. Yet instead of doing that, increasingly it is collaborating with them. Such are these increasing interlocking connections that it is becoming increasingly difficult to see where big government ends and big media begins. Tyler Durden Thu, 06/23/2022 - 22:20.....»»

Category: blogSource: zerohedgeJun 23rd, 2022

The Bill Gurley Chronicles: Part I

The Bill Gurley Chronicles: Part I By Alex of the Macro Ops Substack What if there was a way to distill all the knowledge that someone’s written over the last 25 years into one, easy-to-read document? And what if that person was a famous venture capital investor known for betting big on companies like Uber, Snapchat, Twitter, Discord, Dropbox, Instagram, and Zillow (to name a few)?  Well, that’s what I’ve done with Bill Gurley’s blog Above The Crowd.  Gurley is a legendary venture capital investor and partner at Benchmark Capital. His blog oozes valuable insights on VC investing, valuations, growth, and marketplace businesses.  This document is a one-stop-shop summary of every blog post Gurley’s ever written.  Here’s how it’ll look. Each summary will contain the following:  Date, title, and link to blog post One paragraph summary My favorite quote This piece allows anyone to absorb all of Gurley’s knowledge bombs in the fraction of the time it took me to do it. I hope this piece brings you as much value as it did to me.  Let’s get after it. Years: 1996 -1999 October 21, 1996: Backhoes Don’t Obey Moore’s Law: A Story Of Convergence (Link) Summary: The backhoe improved at an annual rate of 4.4%, falling short of Moore’s Law equivalent improvement of 59.7%. Computers are dependent on telecom to deliver the internet. But telecom is dependent on Moore’s Law failing-backhoes. This means we’re building computer-centric solutions to Internet-based problems without addressing the core problem: laying fiber cables with obsolete backhoes.  Favorite Quote: “Backhoe dependency is really just the simple side of our message. It is our impression that the majority of the players in the computer industry bring a “computer centric viewpoint” (CCV) when analyzing the issues that exist with the Internet. This computer-centric view could prove hazardous. Not only will it lead to disappointed expectations, but it may also lead to a less than accurate vision of the future.” April 20, 1998: How To Succeed In Advertising (Link) Summary: There are three reasons why success-based advertising wins the day on the internet:  Customers want it: Advertisers can quickly see if their programs work and easily predict margins using COGS + “bounty fee” model Solves excess inventory problems: The best way to reduce inventory is through direct-selling, success-based advertising (think 1-800 ads on cable TV) Unsold Ad-Space on Internet: As internet population increases, it reduces the CPM per pageview. This causes an inventory glut of internet space and a perfect place for performance-based ads Also, you can use a DCF to find the LTV of a customer. It’s simply: $ in FCF per customer/year divided by the discount rate.  Favorite Quote: “The lifetime value of the customer is equal to the future cash flows (not revenue!) expected over the life cycle of the customer, discounted back by a reasonable discount rate. What we are really doing is treating the customer acquisition as an investment and the lifetime cash flows of the customer as the yield on that investment.” May 5, 1998: Standards: Open For Business (Link) Summary: Open standards is the idea that companies in an industry operate within a specified set of rules (or parameters). Think of printers and PCs. It makes sense for all PCs and printers to be compatible with one another. This reduces time to market for most products. The issue, however, arises when open standards are applied to tech-heavy businesses without distribution advantages. Software is a perfect example. Distribution is effortless, so the only way to gain an edge in open standards is through sales teams and technical support. And who has the lead in that? Large companies.  Favorite Quote: “Theoretically, you could have a better sales force or better service and support, but these are not typically assets that small innovative companies possess. This means that competing with a completely “open” strategy would offer very little room for differentiation, and there is almost a necessity to have some closed proprietary advantage. It is difficult to criticize companies for trying to innovate in a proprietary manner. After all, survival is instinctive.” August 17, 1998: Internet Investors: Beware Of The Proxy Valuation (Link)  Summary: Investors use proxy valuations to value companies without hard free cash flows (NOPAT – capex). Proxy valuations come in all shapes and sizes, including: P/Revenues, Market Cap / Subscriber, Market Cap / Unique Page View, etc. While proxy valuations are better than blindly picking stocks — it’s not the end goal. Businesses must generate cash flow to survive. This brings us to a few dangers of proxy valuations:  Symmetry Risk: Not all proxies are created equal (e.g., Price/Sub not the same as Price/Page View) Assumption Risk: A customer’s value changes. We can’t assume a company will generate $X from each customer over its lifetime Arbitrage Risk: Companies IPO based on # of customers, revenue stats or subscribers … not cash flows or profitability Favorite Quote: “Another reason to be skeptical of proxy valuations is arbitrage. If Wall Street comes to believe that customers, or visitors, or page views, or even revenues are uniquely valuable (regardless of profitability), than entrepreneurs are likely to rush to market with companies that can achieve these targets quite handily, but may have little chance at producing real value in terms of cash flow. With no focus on costs, it is easy to reach non-financial targets. This is the great thing about cash flow-based valuation, it’s hard to sweep costs under the rug.” October 16, 1998: The Continued Evolution Of Advertising Or How To Succeed In Advertising Part II (Link)  Summary: Traditional advertising is squeezed out of the value chain as ad buyers recognize the difference between pay-per-impression and pay-per-click through. Further, the invention of TiVO (recording shows & content) increased demand for a direct-to-consumer content delivery system. Ideas like pay-per-view TV were born from the idea that you can cut the middleman (networks & advertisers) and directly charge your customer.  Favorite Quote:  “While this is possible, it ignores the fact that the viewer now has a choice, and that these devices will allow the content provider to push content directly to the end-user, potentially on a pay-per-view basis. If the consumer is willing to pay $5 to watch Seinfeld commercial-free, why should they be denied?” July 12, 1999: The Rising Impact Of Open Source (Link)  Summary: There are six things to know about open source (OS) code. One, open source works. Two, OS can produce business-quality code. Three, OS business models are emerging. Four, OS is a tough competitor (hard to beat free!). Five, OS models are entering the content generation space. Six, OS may be as helpful as a defensive mechanism than an offensive weapon.  Favorite Quote: “Open source as a production model should be appreciated in the same light as Henry Ford’s assembly line or Demming’s Just-In-Time manufacturing process. By taking advantage of the electronic communication medium of the Internet as well as the distributed skills of its volunteers, the open-source community has uncovered a leveraged development methodology that is faster and produces more reliable code than traditional internal development. You can pan it, doubt it, or ignore it, but you are unlikely to stop it. Open source is here to stay.” October 18, 1999: The Rising Importance Of The Great Art Of Storytelling (Link) Summary: Storytelling is one of the most underappreciated business skills. Bill Gates admired a man (Craig McCaw) because he was able to convince investors to invest in a capital-heavy infrastructure business. McCaw created new (proxy) valuations to sell the story the company was trying to deliver. Storytelling also gets a bad rap because it’s associated with “hype” — overpromising and under delivering. Recognizing a good story from a bad one helps investors avoid dreams and invest in the future.  Favorite Quote: “As public market investors begin to evaluate younger and younger companies, their valuation tools become limited to subjective notions such as quality of the team and the uniqueness and boldness of the idea.  In other words, if there isn’t enough proof that a business already exists, then they must make a judgment as to whether one will.” Years: 2000 – 2002 March 6, 2000: The Most Powerful Internet Metric Of All (Link)  Summary: Conversion rate is the most important metric for internet-based companies. Why? Conversion rate captures total user engagement. It also boasts high leverage. Here’s the big idea: as conversion increases, revenue rises and marketing costs decline. There are five things that affect conversion rate: 1) user interface, 2) performance (slow v. fast), 3) convenience, 4) effective advertising and 5) word of mouth.  Favorite Quote: “Let’s assume you spend $10,000 to drive 5,000 people to your site, and your conversion rate is 2 percent. This means that 100 transactions cost you $10,000, or $100 per transaction. Now let’s assume your conversion rate rises to 4 percent. The same $10,000 buys you 200 transactions at a cost of $50 per transaction. An 8 percent rate gives you 400 transactions at a cost of $25 per transaction. As conversion rate goes up, revenue rises while marketing costs as a percentage of sales fall – that’s leverage.” April 17, 2000: Can Napster Be Stopped? NO! (Link) Summary: Napster paved the way for the free digital music we enjoy today. Here’s how. The software leveraged each user’s computer files and shared music freely between PC devices, not the internet. Napster’s popularity grew, and within six months the software had 9 million users. It took AOL 12 years to get to that figure. There are two important lessons from Napster: 1) the power of community-building and 2) information wants to be free. Connect those two lessons and you have an incredible community-based business.  Favorite Quote: “Remember that the amount of bits it takes to represent high-quality audio is finite. Until the past few years, the amount of space on a hard drive, as well as the bandwidth required to transfer an MP3 file, was prohibitive for widespread usage. However, both bandwidth and storage space are susceptible to Moore’s Law. This means that within six years, the amount of drive space or bandwidth needed to trade high-quality music will be unnoticeably negligible. Emailing an entire album of music to a friend will be no different than forwarding a Microsoft Word document today.” May 15, 2000: A Return To Demand-Driven Capital (Link) Summary: There is a huge difference between demand-driven and supply-driven start-ups. Demand-driven start-ups see an area of the market where a need doesn’t have a solution. Then, they create a company to fill that need. Supply-driven start-ups conceive companies on the idea that one day consumers will need their solutions to problems that might not exist yet. The intellectual satisfaction of creating solutions is more appealing than bottom-fishing for long-standing consumer problems. At the end of the day, it’s better to start (and invest in) demand-driven businesses.   Favorite Quote (emphasis mine): “I suspect what’s at work is that Plato-esque idea that creation is much more intellectually appealing than combing the earth for steadfast problems to solve. But keep this in mind: Even a sexy Internet company like eBay was born of demand instead of supply. Founder Pierre Omidyar’s girlfriend wanted a place to trade Pez dispensers online. The company rose after the market voted. I suspect that entrepreneurs and venture capitalists alike would be well-served to return to the boring, but perhaps more successful, world of demand-driven capitalism.” June 12, 2000: Like It Or Not, Every Startup Is Now Global (Link) Summary: The rising prevalence of start-up infrastructure overseas poses a threat to US-based start-up companies. US start-ups face two main threats: 1) imitation from overseas competitors and 2) expanding too quickly. Faced with growing competition, US companies might go global before establishing a solid footprint on their home turf. This has devastating consequences as they’ll burn more cash and lose focus on their core markets. There are three solutions: 1) Joint ventures, 2) acquisitions and 3) start-up your own global market. Favorite Quote: “Ironically, the same courage that leads a start-up to look overseas could cause failure if the company moves too quickly and aggressively or assumes it can get by without local partners. When considering such alternatives, it is important to keep one fact in mind: 50 percent of something is worth a lot more than 100 percent of nothing.” July 10, 2000: The End Of CPM (Link) Summary: Echoing Gurley’s 1998 article, 2000 saw the rise of performance-based advertising. The catalyst for such rapid adoption was the outflow of capital to money-losing internet companies. With tight budgets, companies needed ad campaigns that worked. The other catalyst is the proliferation of customer behavior data on company websites. Management can see exactly who is on their site, how long they stay, and if they convert.  Favorite Quote: “Of course, the biggest catalyst in the past 90 days has been the closing of the IPO market and the subsequent focus in the start-up world on profits and cost controls. This abrupt and refreshing change is a major accelerator that immediately tightens the belt of most Internet marketing departments and targets their spending on the most efficient forms of advertising they can find. Gone are the days when companies indiscriminately bought the “anchor tenancy” on the favorite portal just as a branding event.” February 19, 2001: The Next Big Thing: 802.11b? (Link) Summary: WiFi will revolutionize the way we conduct business and where we choose to interact online. While there are critics of the technology, there is no denying its potential to reach critical mass and spread nationwide. The real catalyst for WiFi’s adoption is the move from corporate offices to homes, then to public places like colleges.  Favorite Quote: “Like other dislocating technologies, Wi-Fi is now working its way from the office into the home. While home networks are still in their infancy, the benefits of a wireless architecture may be even higher than at the office. Who has the capability to rewire their whole house? And although less obvious, the interest in aesthetics at home heightens the benefit of not stringing wires halfway across the room. Also, as we integrate the home entertainment center with the PC, a wireless link is particularly appropriate. Lastly, what if I could carry my laptop home from work, lay it on the kitchen counter and be online instantly? You can today with Wi-Fi.” June 25, 2001: The Smartest Price War Ever (Link) Summary: Dell engaged in the smartest price war ever. Their business model, which focused on just-in-time inventory, resulted in positive cash-flows even under income statement compressions. Through five-day inventory, 59-day average payables and 30 days receivables, Dell generated a negative cash conversion cycle. This allowed them to cut prices while their competitors’ models couldn’t allow such maneuvers. Competitors were forced into a lose-lose situation (cut prices and lose margin or not participate and lose market share).  Favorite Quote: “Much has been written about Dell’s direct model, which removes the middleman, along with his margin, from the sales process. And others have noted that Dell’s incredible five days of inventory allow it to pass on component price declines faster than anyone else in the industry. But perhaps the unique aspect of Dell’s business advantage is its negative cash conversion cycle. Because it keeps only five days of inventories, manages receivables to 30 days, and pushes payables out to 59 days, the Dell model will generate cash—even if the company were to report no profit whatsoever.” August 13, 2001: Bye, Bye, Bluetooth (Link)  Summary: WiFi will eliminate the need for Bluetooth. In its simplest explanation, WiFi works for the internet model whereas Bluetooth works for walkie-talkies. That’s a huge difference. It also shows the power of companies that can quickly cut products/ideas that fail despite tremendous sunken-costs. Bluetooth was a three-year push designed to revolutionize the way computers and devices interacted. Then WiFi came along. Those that quit Bluetooth early not only had a head start on their stubborn competition, they also saved thousands in wasted R&D.  Favorite Quote: “Even without competition from Wi-Fi, Bluetooth would have major challenges. That’s because the very concept of a cable replacement like Bluetooth is flawed. In a world where every device is connected to a single network (read: Internet), there is no need to connect individual devices on an ad hoc basis. Consider this – a walkie-talkie is a device that supports communication directly between two nodes. A cell phone is a device that supports communications between “any” two nodes because they are all connected to a common network and they all have unique addresses. Blue-tooth is to a walkie-talkie whereas 802.11 connected to the Internet is more analogous to the cell-phone model.” October 1, 2001: Tapping The Internet (Link) Summary: After the terrorist attacks on 9/11, many government officials sprang forward, calling for increased surveillance and backdoors on many privacy networks. The main argument was that these terrorists had access to high level technology and software. The reality was less cinematic. Osama Bin Laden used Steganography to spread information amongst his followers. Unfortunately for senators, Steganography uses every day files like images to transmit messages. So it’s not as simple as allowing backdoor access to private channels.  Favorite Quote: “The government should not give up on computer surveillance. In fact, as a tool that is used to track down a particular offender after isolation and identification, these technologies can be extremely effective. However, we should not be unrealistic about what type of “magic” spy technologies are at our disposal. We are only going to spend a lot of money, waste a lot of time, and create a false sense of security.” October 29, 2001: When It Comes To Pricing Software, The Greener Grass Is Hard To Find (Link)  Summary: The internet allowed software companies to price their product as a subscription service (SaaS) right when companies were facing hardship. The SaaS model eliminates the high-dollar upfront sales pitch and allows the company to generate predictable revenue during the year. However, stretching revenues over months (not upfront) increases short-term operating losses. Those that can withstand the short-term negativity should reap the long-term rewards of the SaaS model.  Favorite Quote: “About this same time, the rise of the Internet gave birth to the idea of an ASP – a model where software would be delivered as a service over the web, and customers would “subscribe” to the software. Analysts raved at the genius of the idea. With this model, the customer would pay an incremental fee each month, therefore eliminating the “start from zero” sales game inherent in the software model. Assuming no loss of customers, the revenue from last quarter is already booked for this quarter – all new sales theoretically represent incremental growth.” April 3, 2002: It’s Time To Put A Stop To Spam (Link) Summary: Hackers and spammers always find a way to exploit new technology. Spammers were so bad in 2002 that Gurley had to write about it. The problem lies in time spent deleting spam messages. Time that should garner more productive activities like business. This creates incentives for start-ups to solve such problems. But, the biggest risk facing these spam software companies is a false positive. False positives could delete an email that was legit — potentially costing companies millions in lost revenues.  Favorite Quote: “Email is fast becoming the preferred communication medium for many corporations. Moreover, email is also the baseline for many new cross-company workflow applications. We simply cannot allow a bunch of Viagra ads to put a dent in the evolution of the global economy.” Years: 2003 – 2005 January 6, 2003: 802.11 & Cellular: Competitor Or Complement? (Link) Summary: Gurley explains that WiFi is to 3G as the personal computer was to the mainframe. By understanding the mainframe/personal computing industry, you could “see” the future of WiFi and cellular data. No-one envisioned personal computers operating hundreds of websites or ERP systems. Yet technologists built products on top of the standardized mainframe. WiFi is no different. At the time, a ~$30 WiFi radio and a Pringles can could get you high-speed connectivity at a 10 mile distance. To Gurley, WiFi and cellular data are complementary. Like chips and salsa, with WiFi stealing incremental market opportunities over time.  Favorite Quote: “This exact thing is currently happening with 802.11. This tiny, and increasingly inexpensive radio is already shockingly versatile. The same $30 radio can be used to serve wireless connectivity in your office, connect both you PCs and your multimedia in your home, and provide coverage to a police force across an entire downtown area. Add a Pringles can as a directional antenna (no kidding!), and this $30 radio is capable of providing high-speed line-of-sight connectivity at a distance of 10 miles. In fact, the majority of the volume in the line-of-sight fixed wireless market has shifted almost entirely to low-cost 802.11 radios.” February 10, 2003: Software In A Box: The Comeback Of The Hardware Based Business Model (Link) Summary: Software companies might pitch their product inside a hardware offering, going against conventional Silicon-Valley logic. Gurley notes that while pure software businesses generate higher margins with lower capital intensity, it comes at a cost: software-only business models are harder to execute. Gurley saw the software-in-a-box path as the easier option because it addressed seven key issues:  Development complexity/Quality Assurance Performance Security Provisioning Reliability/Stability/Customer Service Pricing Distribution Favorite Quote: “There is a silver lining. The industry has changed in ways that improve the “business model” elements of selling hardware. The key driver is the standardization and general availability of hardware components, particularly those used in generic Intel-based 1U servers. As a result, the hardware is not a proprietary design, but rather a type of packaging. Think of it as an alternative to a cardboard box.” March 18, 2003: Pay Attention To BPM (Link) Summary: Business Process Management, or BPM, will change all of business. Gurley was so excited about BPM because it solved four main sticking points in an enterprise’s day-to-day process:  Codifying current processes Automating execution Monitoring current performance Making on-the-fly changes to improve current processes For the first time, employees could “hand off” applications to other employees inside the firm. This allowed for faster improvement and implementation of better processes throughout the organization.  Favorite Quote: “Of course, the real winners here will be customers that embrace BPM to further automate, enhance, streamline, and optimize their core business processes. These processes are the core intellectual property of most businesses. And just as the level of competition in manufacturing increased with JIT, the level of competition with respect to non-manufacturing business processes will increase with BPM. Companies that lead will succeed.” April 23, 2003: Dot-Com Double Take (Link) Summary: Many investors threw all “Internet Based” businesses out with the bathwater during the Dot-Com bubble. According to Gurley, that was clearly the wrong approach. Underneath the grime of pump-and-dump schemes, the Dot-com Bubble created durable, profitable businesses (like AMZN, GOOGL, Verisign, etc.).  Gurley saw four reasons why these left-for-dead Internet companies worked:  They weren’t bad ideas. Rationality set in first.  Quick capacity reduction.  Internet usage growth is systematic, not cyclical.  Favorite Quote: “Consumer spending may be down 5%, but online spending is still such a small percentage of overall consumer spending that growth results from the continued increase in online usage. With IT expenditures already at 50% of corporate capital expenditures, the opposite is true for traditional information technology spending.” June 10, 2003: In Search Of The Perfect Business Model: Increasing Marginal Utility (Link) Summary: Increased marginal utility (IMU) is the holy grail of capitalism. It’s also easier than ever to attempt IMU in our internet-based world. IMU means that for each incremental time a customer uses your product/service, they receive more value than the previous time they used it. You don’t need switching costs in an increasing marginal utility ecosystem. Why? Because switching costs lock in a customer in an “I win, you lose” scenario. In an IMU world, the customer feels left out if they don’t use your product or service. The goal: find companies that produce increased marginal utility for their customers.  Favorite Quote: “This may be the nirvana of capitalism – increased marginal customer utility. Imagine the customer finding more value with each incremental use. Some may suggest that this concept already exists in the form of volume discounts. However, this offers a vendor no real competitive advantage, as all of its competitors are likely to offer the same discount to large purchasers. Others may feel this is just a buffed-up version of “high switching costs.” On the contrary, increased marginal customer utility preempts the need to impose switching costs, which can be seen as “trapping” or “tricking” the customer. Instead, the customer who abandons increasing marginal customer utility would experience ‘switching loss.’” July 16, 2003: The Comeback Of The Mobile Internet (Link)  Summary: Mobile internet flourished thanks to the growth in cell phones. With cell phones, billions of people could access the internet, purchase items, and engage in content. In fact, cell phones will dominate the war against PCs. There are a few reasons Gurley believes this claim. First, cell phones are everywhere. Billions of people have them. Second, they’re portable, allowing users to kill time on apps and games. Third, people are more likely to purchase over the internet on their phones. Finally, IP addresses make it easy for billions of users to connect simultaneously.  Favorite Quote: “While a more carrier-friendly split may be good for the carrier’s bottom line, it could drive content providers to more generous carriers, rendering the greedy carriers’ offerings less attractive to users. Interestingly, one of the most successful content platforms, Japan’s DoCoMo service, is built around an extremely generous 91%-9% split, which is more favorable than all U.S. and European carriers’ current deals. The carriers are all walking a fine line between driving revenues and creating a viable ecosystem to encourage publishers to invest in content.” August 23, 2003: Much Ado About Options (Link) Summary: People worry too much about stock options and their impact on bottom-line earnings. Yes, there are certain instances where stock options balloon to large percentages of pre-tax earnings. But those are few and far between. Also, it doesn’t really matter whether a company grants options or restricted stock. Both offer employees skin in the game, and both cost the company roughly equal equity. That said, restricted stock incentivizes value retention. Whereas options incentivize value creation.  Favorite Quote: “In addition, restricted stock grants could encourage a form of widespread corporate conservatism. If an executive is granted $2MM worth of stock, he or she might have incentive to help increase the price to say $2.3MM, or 15%. That said, the incremental $300K is peanuts when it comes to protecting the value of the $2MM already on the table. There is a huge difference between corporate sustainability and corporate value creation. GM traded at $38 per share in 1994, and since it is $38 per share today, it has “sustained” value for the past nine years. Is this the type of behavior we hope to encourage?” October 7, 2003: Beware The Digital Hand (Link)  Summary: Digitization is great for consumers, but awful for consumer electronics producers. Semiconductors make electronics faster, cheaper and more powerful. Who reaps the rewards? The semiconductor industry. That’s where differentiation happens. Consumer electronics (CE) companies commoditize, forced to differentiate another way: supply chain. The CE leaders will be the ones with the shortest distance between their product and the customer.  Favorite Quote: “Digitization is creeping its way across the entire consumer electronics industry, as we slowly remove analog media and components from our lives. While this is good news for consumers who benefit from the low prices that the digital hand ensures, the quid pro quo for businesses is brutal competition.” December 18, 2003: Cleaning Up After The Ninth Circuit In An Attempt To Save The Internet (Link)  Summary: A regulated internet disproportionately hurts these four groups: consumers, IT businesses, American competitiveness, and RBOCs. Regulation hurts consumers in the form of higher prices to compensate for increased taxes. IT businesses hurt because if you slow the speed of internet adoption, you remove the runway for the IT industry. This translates into competitiveness issues as places like South Korea see 60%+ internet adoption. Finally, RBOC’s hurt because it would be a repeat of DSL regulations, which slashed growth and prompted the switch to cable modems.  Favorite Quote: “We should all know by now that rather than increasing competition, regulation typically reinforces monopolies and oligopolies. Startups will not and cannot prevail in heavily regulated industries. They lack the required resources and capital to manage fifty different utility commissions on a hundred different regulatory issues. For this same reason, you will never see a startup deliver an automobile in the U.S. as the regulatory red tape swamps all efforts. Increased regulation will do nothing more than ensure that new competitors and innovative solutions are permanently locked out of the market.” * * * That’s about where Substack cuts us off! Stay tuned next week for the next part of our Bill Gurley Chronicles Series! Tyler Durden Sun, 06/12/2022 - 15:30.....»»

Category: blogSource: zerohedgeJun 12th, 2022

Eyewear Market Projected To Hit $111 Billion In 2026; Here Is How Investors Can Profit

Like most consumer markets at the time of the outbreak of the pandemic, the vision and eyewear industry was no different, seeing retail revenue decline by 14.2% between 2019 and 2020. Now as industries try to make up for lost time, and revenue, with the global economy mostly back to normal, staggering growth predictions have […] Like most consumer markets at the time of the outbreak of the pandemic, the vision and eyewear industry was no different, seeing retail revenue decline by 14.2% between 2019 and 2020. Now as industries try to make up for lost time, and revenue, with the global economy mostly back to normal, staggering growth predictions have placed market leaders in the eyewear industry in a battle to outpace consumer demand and market competitiveness. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q4 2021 hedge fund letters, conferences and more By the early months of 2021, global sales for eyewear were seen climbing 5% during the same period from the year before. And with estimates for market size to reach $111.12 billion by 2026, with an average CAGR of 5.83% between 2022 and 2026, ongoing consumer demand and emerging markets are positioning eyewear companies right in the middle of a soaring industry. Growing opportunities and competition have led Brooklyn-based eyewear company, Designer Optics, to pursue new innovations in technology advancement and marketing strategies to garner ongoing consumer support. Expansion and Market Improvement While the lens and eyewear market expects a positive market improvement in the coming years, changes in consumer habits, trends, and the increasing need for better eye care treatment have led to an explosive expansion of industry-related services and products. Traditionally, the market was solely focused on providing prescription and nonprescription lenses, with growing popularity for fashionable sunglasses taking off during the digital revolution of online shopping and social media. Modern practices have expanded beyond conventional means, involving an array of contemporary offerings. Aron Ekstein from Designer Optics comments, “We’re seeing a rapid transformation in the eyewear and vision industry, and it’s led us to rethink our place within the sector, among our competitors, and more importantly how we can be impact-driven towards our consumers.” Emerging economies, ongoing fashion trends, and a surge in visual impairment in both young and older generations have left eyewear providers with an opportunity to bridge the gap between the industry and the consumer. Countries in Asia Pacific, including China and India, are seeing a rapid increase in younger populations with excess disposable income, and demand for eyewear treatment services and products. The region will add more than $7.8 billion worth of revenue to the overall market between 2021 and 2026, matching western Europe in regional revenue sales. Over in Brazil, the same occurrence is playing out, as the economy is rapidly developing, allowing the consumer market easier access to eyewear services, and the adoption of premium quality and branded lenses. “There’s no denying that we’re right in the middle of an exciting period, where we can see developing and emerging economies take advantage of the market to its fullest extent, even if it’s not directly tied to any pre-existing eyesight-related conditions,” wrote Ekstein. The Public Market Offering It’s no surprise that the rise of eCommerce and online shopping has burst through the doors of the global eyewear industry. And while scepticism is shared over the longevity of traditional brick-and-mortar stores in the modern consumer world, the eyewear industry is zig-zagging between two partial worlds. In September 2021, eyewear startup Warby Parker (NYSE:WRBY) went public with share prices starting at $54.05 per share on the NYSE. While the initial public offering was set against a range of factors, company executives shared that clients, whether shopping online or in-store makes no real difference to their overall success and operations. The eyewear startup which saw its revenue grow to more than $390 million ending 2020, mentioned that they were in the process of opening 30 to 35 new stores, totalling a shop count between 155 and 160 locations. But the digital presence of its stores during the height of the pandemic saw the company attain more than 50% of its 2021 sales through online purchases. Warvy Parker shares have since fallen 32.65% on a year-to-date earnings basis. CooperVision, a division of Cooper Companies Inc. (NYSE:COO) have on the other hand trailed a successful 2021 and start to 2022 thus far. In the past year alone, the company saw shares increase by 9.9%, well over the 8.5% predicted for industry growth. Currently, COO shares are in place of a Hold position according to the Zacks Rank. But Cooper Companies and CooperVision for that matter are backed by industry-leading brands including Biofinity and Clariti, which is helping them hold a strong trading position. Their eyewear division saw revenues rise by 14%, and reported earnings of close to $561.5 million in 2021. “Going out on a limb, and looking how companies have been performing in a semi-post COVID economy makes it difficult to fully understand how market offering, both for consumers and investors will be able to impact the survival of eyewear companies in an eerie economy in 2022,” told Aron Ekstein. Teetering Consumer Shopping Habits While the case may stand that online shopping offers better convenience, a larger variety selection, fast and simple delivery services, and a growing demand - the eyewear industry might have lagged a bit behind when it came to the virtual world of trading and conducting business. Yet, it’s been possible for companies and eyewear specialists to grow beyond their traditional sense of marketing and consumer attraction, bringing to life a new branch within the market - telehealth, or sometimes referred to as eHealth. Aron Ekstein commented that the pandemic pushed them to think differently, while at the same time still providing their customers with excellent service and offerings. “Giving clients the option where they can choose from premium brands and designs, to still being able to offer affordable pricing on what we do has helped us through the worst part of the pandemic.” And that’s been working for most retailers. Diversifying their selections, keeping prices to a minimum, and allowing consumers better selection. According to a report published by The Vision Council, surveyed individuals spent roughly 15% more time online using prescription contact lens retailer apps or websites in 2020. The same is said for prescription glasses retailer apps and website users, who spent  9% more time online amid COIVD-19. Between online sales and in-store shopping, companies within the eyewear market are experiencing a rapid shift in consumer demand and trends. National Vision Holdings Inc. (NASDAQ:EYE) gained 76.6% in comparable store sales for eyeglasses in the second quarter of 2021. The same was said for Eyeglass World, with an increase of 67.6% adjustable comparable store sales. All over, in-store sales have pushed investors to rethink their strategy, and portfolio standing when it comes to eyewear companies, as share prices and holding positions have ranked strongly on the Zack Rank. American Swiss medical company, Alcon Inc. (NYSE:ALC)  has been on the #2 “buy” position according to Zack Ranks, with sales figures jumping 74.8% in the second quarter of 2021. “It will be interesting to study how share prices for major retailers will be impacted by the gradual shift towards online shopping and eCommerce. Telehealth and eHealth solutions are still only a temporary solution for people living with eyesight problems. In-person and in-office consultation visits will perhaps hold a strong position,” Ekstein mentioned. Even with the gradual shift towards the online world, younger consumers remain the majority of online shoppers. Statistics indicate that Millennials (25-34) make up 20.2% of the eCommerce shopper market, with individuals aged 35-44 being the second largest group at 17.2%. Older generations, those aged 55 to 64 and 65 plus, respectively make up roughly 14.6% and 14.4% of the market share. And bringing structure to the narrative, we see that 93% of people between the ages of 65 and 75 make use of corrective lenses and prescription eyewear, a number that rapidly increases after the age of 45. This is the same sentiment shared by Ekstein: “There’s always room for adjustment, and improving on what we already know gives us a head start to see how we can drive meaningful change, while at the same time, remaining a stronghold within our current client market.” Future Potential As ongoing global uncertainty looms over the heads of consumers and market leaders, changes in the overall retail industry, including the lense and eyewear market have directed consumer interests towards a different set of moral and ethical questions. Questions of sustainability, environmental impact, and ethically sourced products are now quickly filtering into nearly every sector of the retail market. While it’s been a long time coming since consumers started regarding the importance of sustainability, and the growing concerns regarding climate change, perhaps this is a new potential area in which the eyewear industry can grow. For Digital Optics, this remains an element they take into consideration throughout the shopping and retail experience. “Younger consumers and those who are requiring prescription lenses are rethinking how their needs are having an impact on the environment, and it’s become a strong driving force for not just us, but all contenders.” Technological advancements and innovation on the manufacturing side will help lead the industry towards sustainable and environmental change, while at the same time having the ability to garner younger consumers and create meaningful impact. Final Thoughts Perhaps the pandemic has changed a lot within our society and general consumer habits. Looking towards the coming decades, we see a rapid modernization and digitization of the eyewear and prescription glasses market, an industry taking form in all corners of the world and leading the path to new advancements in professional eyecare. Updated on Apr 7, 2022, 1:45 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkApr 7th, 2022

Why The Globalists Hate Populism

Why The Globalists Hate Populism Authored by M.Roberts via AmericanThinker.com, As a member of the U.S. government’s security apparatus, I have witnessed a level of groupthink that would shock even the most accredited academics associated with the leading internationalist think tanks.  As the professional class of international relations thinkers and their elitist dopamine peddlers in mainstream media continue launching their crusade against the so-called threat of populism, the people are again being actively pushed out of foreign and domestic policy.  The boogieman-version of populism that is being thrust upon cable news viewers is not entirely accurate.  This misconstrued definition in the modern American lexicon purports that populism is synonymous with authoritarian strongmen who intend to push nativist policies inherently referred to as racist.  But at its core, populism is concerned with the people and attending to the ordinary citizens of a nation, regardless of race and ethnicity, by giving them a voice in their respective societies.  The authoritarian context has been married to the term through a series of foreign demagogues who have utilized the façade of populist policies to gain momentum for their own political gains.  There is no shortage of names on the list of offenders, and there is no real purpose to go through them but to highlight that this concept has been hijacked by the global internationalist class as a window to achieve their own personal gain. Most ironically, the left has decided to label modern conservatism as a breeding ground for populist ideas; and I believe this to be a badge of honor that conservatives must take up with pride.  Clearly, leftist elitists still believe that their globalist-centered policies have created positive change by trying to remake the world in their own image.  Let us take a brief moment to review the fruits of the left’s endeavors. From the time of the United States’ unipolar moment in the 1990s until the present, the idea of globalization and U.S. economic and militaristic dominance became synonymous and interchangeable terms.  The elitists hoped to create supply chain diversity and free markets which, in turn, forced societies to live more harmoniously as they were all interconnected.  We can see that the only real positive change had eventually benefitted the corporate class who now had free reign in shaping the rules of the road and playing by their own rules.  The common people were left behind, failing to adapt to the vertical integration of society that came with globalization.  No longer were the Democrats concerned about projecting the idea that they were fighting on behalf of the working class.  No longer were they concerned about First Amendment issues.  In fact, the Democrats, who purported to be the party of anti-trust, had ultimately facilitated the growth of tech oligarchies into unimaginable monopolistic empires that censored First Amendment protected speech as a result of their incessant desires to obtain capital for their re-election campaigns.  Again, the people were left out of these conversations entirely. In parallel with a recent public awakening on America’s domestic policy pivots, we are seeing a seismic shift in public sentiment toward internationalist and globalist views of how America should act abroad.  We constantly hear from the think-tank class that domestic policy is foreign policy, and vice versa.  If that were true, then we would see an American foreign policy focused on American citizens’ interests.  We are constantly reminded that it is in America’s interest to be embroiled in Middle East conflicts and powerplays in Eurasia with a declining power that have no social and economic value for the average U.S. citizen.  We know these are empty statements, and even outright lies, as global lenders and the military-industrial complex became the primary benefactors from these entanglements.  So, what can be done? Part of the answer lies in the fact that the public cannot, and will not, be able to stay silent on their political beliefs much longer with the advent of new media outperforming legacy media.  The public is starved for honest journalists, real domestic initiatives that empower and employ the population with growth potential, and a foreign policy that is focused on the citizenry’s interests.  A logical solution to enacting positive change is to encourage the next generations to apply for government positions.  The permanent bureaucracy of government is arguably the most influential power structure that dominates our way of life.  The bureaucracy is charged with collecting your taxes, protecting you from crime, providing health benefits, and so on.  Even more, these individuals are not elected by you.  They are hired as you are within your respective lines of work.  They are meant to be accountable to you as public servants.  However, this bloated class of bureaucrats has become the most sclerotic, yet authoritative, entity that serves the outdated goals of the internationalists.  We often elect new leaders who vow for change and then become excited at the prospect of a shift in policy with a new incoming administration.  This age-old tale is retold, in different forms, every four years with no real shift in policies at the levels of government that matter.  We can thank the unelected permanent bureaucracy for this continual inaction, as they are beholden to the ideologies that have gained them their respective power in the halls of their workplaces.  If we are to change the way that government works for the people, we must encourage the future to invest in government service. The U.S. government has a funny way of listening to outside advice: it does not.  The bureaucracy is stuck in their assessments of the world within the context of their 1990s sense of idealism.  Analytical frameworks surrounding foreign policy and national security priorities often do not account for the people’s benefit.  If the think-tankers were correct about the synergy of foreign and domestic policy, then we would see a foreign policy that benefitted working-class people of all colors and creeds.  The GOP must break away from their reactionary inklings of clinging singularly onto cultural war issues and pursue a strategy of ensuring the American public that the party supports their best interests, economically and socially.  On the flip side, the Democrats have completely abandoned the notion of even considering the working-class voter in policy implementation, which presents an even greater advantage for GOP strategists to show voters the state’s obvious neglect.  What other choice do we have as a people but to make a change from inside the apparatus?  Encouraging young individuals to embark on a life of government service may not be easy, as the pay does not attract the attention that a silicon-valley tech giant might offer.  However, joining this system may yield the most consequential benefit for society: true representation within our government. *  *  * M. Roberts is a government security official who wishes to remain anonymous for obvious reasons. Tyler Durden Wed, 09/29/2021 - 23:20.....»»

Category: blogSource: zerohedgeSep 30th, 2021

House Republican heavyweights are tripping over each other to launch hearings on Biden"s handling of the border

Jordan's Judiciary committee will hold a hearing on border security next week, jumping ahead of another one planned by Comer's Oversight committee. House Judiciary Committee Chair Jim Jordan of Ohio and House Oversight Committee Chair James Comer of Kentucky.Bill Clark/CQ-Roll Call via Getty Images House Republicans are fighting to be the first to bash Biden at border security-related hearings.  Judiciary is rushing to hold a meeting next week, with Oversight scheduled to follow a week later.  The investigatory overlap will likely spiral as the GOP takes Biden to task about everything. The new House Republican majority is set to hold not one, but two separate hearings on border security in the first two weeks of February.The House Committee on the Judiciary, chaired by Republican Rep. Jim Jordan of Ohio, is set to hold a hearing on border security next week on Wednesday, February 1, according to an official notice obtained by Insider.But Republicans had already announced another hearing on "Biden's Border Crisis" for the following week, set to be led by Republican Rep. James Comer of Kentucky, the chairman of the House Committee on Oversight and Accountability."President [Joe] Biden's radical open borders agenda has ignited the worst border crisis in American history," said Comer in a statement last week announcing his own hearing. " Republicans will hold the Biden Administration accountable for this ongoing humanitarian, national security, and public health crisis that has turned every town into a border town."Comer invited four border patrol agents to the Oversight hearing and sent a letter to Department of Homeland Security Secretary Alejandro Mayorkas requesting documents on various border-related programs.Both committees have jurisdiction over Homeland Security matters and the power to investigate the administration and its agencies.But the dueling hearings also underscore the competitive nature of those investigations — and the potential for Republicans eager to investigate Biden to step on each other's toes — in a period of divided government where legislating is difficult.Don Goldberg, a former House staffer for both the House Judiciary and Oversight panels who also served in the Clinton administration, called the GOP's rush to skewer Biden "predictable." "If this were a serious Republican Congress, they would have a concerted strategy to find real solutions on immigration, rather than getting caught up in their idiotic grandstanding," Goldberg told Insider. Instead, they're pursuing a 'no-policy agenda" that's "all about making noise," Goldberg added. The newly empowered House GOP has mapped out plans to put Biden administration officials and the president's family members under a microscope. Several congressional committees are committed to launching respective probes. Republican leaders have even created new committees to hammer away at the Biden White House, including one tasked with delving into the "weaponization of the federal government," and have committed to poking around on US competitiveness with China and the origins of COVID-19. Border security and immigration continue to be an area of key concern for Republicans in particular. Shortly after the November midterm elections, House Speaker Kevin McCarthy called on Mayorkas to resign, suggesting he could be impeached if he did not.The Judiciary-Oversight jockeying to neutralize Mayorkas isn't surprising, given that nearly a dozen of the newly minted Oversight panelists have already co-sponsored articles of impeachment against him before holding a single hearing.Read the original article on Business Insider.....»»

Category: smallbizSource: nytJan 25th, 2023

4 Solar Stocks Seeing Explosive Growth

The Solar industry holds a lot of promise as the EU and U.S. double down on green energy. The biggest driver of the solar industry right now is the increased regulatory certainty in Europe and the U.S. following the Russia-Ukraine war and the related energy crisis. Recognizing the need for self-reliance in energy, both the EU and the U.S. are doubling down on renewables.  In the Inflation Reduction Act (IRA), the U.S. will reportedly raise $738 billion. It will immediately authorize spending of $391 billion on climate and energy change initiatives. The act seeks to take 2030 greenhouse gas emissions 40% below 2005 levels, at which time there will be 950 million solar panels, 120,000 wind turbines and 2,300 grid-scale battery plants. Homes, businesses and communities will be incentivized to go green.Businesses will benefit from the focus on increasing capacity to build renewable technology like solar panels or EV components, while the expanding renewable technology infrastructure will help sales. There will also be production tax credits for those building solar panels, wind turbines and batteries, as well as those processing key minerals; $10 billion in investment tax credits for new manufacturing facilities making clean technology products; $500 million under the Defense Production Act; etc.For consumers, there will be incentives, such as a 30% tax credit to install solar panels on roofs, making the technology more affordable to middle and lower-income groups. The funding will include among other things, $9 billion in home energy rebate programs, especially for low-income consumers and 10 years of consumer tax credits to increase energy efficiency and affordability of heat pumps, rooftop solar, electric HVAC and water heaters. Rural electric cooperatives serving 42 million people will also see more cost-saving renewable projects.More than $60 billion have been earmarked for “on-shore clean energy manufacturing in the U.S.,” including for the domestic mining of materials used to make solar panels and batteries, as well as for offshore wind development.The US Energy Information Administration’s (EIA) short term outlook report from Jan 5 says that as the share of coal for electricity generation declines, it will be partially offset by an increase in utility-scale solar and wind generation, which will increase its share from 16% in 2023 to 18% in 2024. Renewables share in the US electricity generation mix will more than double between 2021 and 2050.Europe is even more determined than the U.S. to shore up its renewables production because it doesn’t have access to locally produced oil and gas like the U.S. So in May last year, the European Commission presented its REPowerEU Plan, which is in response to Russia’s weaponizing of its energy resources. The plan tackles the problem from all angles, i.e. availability, sustainability and affordability of energy supply.The 40% renewables target by 2030 was pushed up to 45%, for which a dedicated EU Solar Strategy is being framed to double solar photovoltaic capacity by 2025 and install 600GW by 2030. There is also a Solar Rooftop Initiative that will impose a legal obligation to install solar panels on new public and commercial buildings and new residential buildings. Domestic production of renewable hydrogen is also being boosted with the goal of 10 million tons per annum by 2030.Since a total pivot to green energy will take time and money (€210 billion over the next five years, according to the EC), there will have to be increased reliance on coal in the near term, plus fossil fuel imports from new countries like the U.S., Qatar, Algeria and Azerbaijan.In the meantime, gas demand reduction plans are getting a boost, along with building stores for the winter by November 1. The plan is to bring a 13% reduction in energy consumption by 2030. There are also plans for the common purchasing of gas.Independent reports show that turning to renewables is bringing down cost and helping offset the cost of living increases across Europe. Further improvements and significant job creation will be consequential benefits.Because governments are determined to speed up the switch to renewables, it is leading to tremendous demand for solar panels and components that is offsetting any raw material cost inflation. The following stocks are particularly strongly placed:JinkoSolar Holding Co., Ltd. JKSShangrao, China-based JinkoSolar is involved in the design, development, production and marketing of photovoltaic products like solar modules, silicon wafers, solar cells, recovered silicon materials and silicon ingots. It also provides solar system integration services and develops commercial solar power projects.China and Europe are the major drivers of the company’s business right now. In the last reported quarter, China shipments increased 500% and Europe more than 60%.Because its production bases and sales networks are spread across a number of countries and raw material sourcing is on the basis of long-term contracts, it has the flexibility to deliver quickly. It also has an advanced R&D team, the output from which can quickly be turned into mass production.Management has said that polysilicon supplies have started to increase in China but the huge demand is leading to stable prices. As supply continues to increase this year, prices will come down, which along with increased production efficiency will help profitability. There is also great optimism about share gains this year and JinkoSolar is rapidly building capacity to meet the strong demand.The Zacks Rank #1 (Strong Buy) stock has a Value Score of A and Growth Score of B. Analysts expect its revenue and earnings to increase a respective 37.2% and 93.0% this year. In the last 30 days, the Zacks Consensus Estimate for 2023 increased 15.5%.Array Technologies, Inc. ARRYAlbuquerque, New Mexico-based Array Technologies manufactures and supplies solar tracking systems and related products in the United States and internationally. Its SmarTrack machine learning software is used to identify the optimal position for a solar array in real time to increase energy production.Array is seeing very strong demand for its solutions and management is optimistic about its two new products that can operate with greater flexibility in varying site and weather conditions. This would be particularly useful if solar adoption and solar farms come up rapidly as a result of the IRA.The Zacks Rank #2 (Buy) company has a Growth Score of A. Its revenues are expected to grow 19.5% this year and earnings 178.6%. The Zacks Consensus Estimate for 2023 has dropped a penny in the last 30 days.ReneSola Ltd SOLStamford, Connecticut-based ReneSola develops, builds, operates and sells solar power projects in the U.S., Canada, Europe, and elsewhere. It operates through three segments: Solar Power Project Development; Engineering, procurement and construction (EPC) Services, and Electricity Generation Revenue.ReneSola’s current strategy is to focus on high-margin high-quality project development opportunities in the U.S. and Europe, such as notice-to-proceed (NTP) or Ready to Build (RTB) solar projects. This slashes initial cost of permitting, checking feasibility, etc before it is turned over to EPC. Its goal is to target small-scale projects in diverse jurisdictions with a high PPA/FIT price.A power purchasing agreement (PPA) with attractive feed-in tariffs (FIT) allow the developer to generate above-market rates for the power supplied. As of September 30, 2022, its quality mid-to-late-stage pipeline was 3.0 GW, it had successfully completed  around 900 MW of solar power projects and was operating approximately 249 MW solar power projects globally.ReneSola has local teams in 10 countries, with a strong presence in the U.S. (several late-stage and under-development projects), China and Poland. Its presence is growing in markets like Hungary, Spain, France, the U.K., Germany and Italy. New markets targeted include Czechoslovakia and Greece. This focus sets it up for strong growth in the foreseeable future.Moreover, it is strongly focused on the Yangtze River Delta area within China, which has attractive electricity tariffs and is a metropolitan area playing a major role in the country's economic growth. It also has late-stage pipelines in several other provinces including Zhejiang, Jiangsu and Anhui.Recent results are benefiting from the strong tariffs in its China business and the recently-acquired solar farm in Branston, U.K.The Zacks Rank #2 stock has a Value Score of B. Analysts currently expect 67.4% revenue growth and 261.1% earnings growth in 2023. The Zacks Consensus Estimate for the stock has been stable in the last 30 days.SolarEdge Technologies, Inc. SEDGHerzliya, Israel-based SolarEdge Technologies designs, develops and sells a broad range of systems and solutions including direct current (DC) optimized inverter systems, power optimizers, communication devices and smart energy management solutions used in residential, commercial and small utility-scale solar installations worldwide. Its customers are mainly solar PV system providers, installers, distributors, electrical equipment wholesalers and module manufacturers, as well as EPC firms. It operates through five segments: Solar, Energy Storage, e-Mobility, Critical Power and Automation Machines.The current strength is coming from Europe (particularly Germany and the Netherlands), where revenues grew 90% in the last-reported quarter, and also from countries like Taiwan and South Africa. Because of this strength, and despite the fact that production lines are normalizing after COVID-related disruptions, SolarEdge is in the process of building further capacity. It also has plans to build manufacturing capacity in the U.S.SolarEdge shares carry a Zacks Rank #2. Analysts expect the company to grow its 2023 revenue and earnings by 28.6% and 80.7%, respectively. Its 2023 estimates is down 4 cents in the last 30 days.ConclusionBeing a secular growth market that will see phenomenal strength in the next decade or so with no deterrents that I can think of, investors would benefit from increasing their exposure to solar stocks.One-Month Price PerformanceImage Source: Zacks Investment Research 7 Best Stocks for the Next 30 Days Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops." Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.8% per year. So be sure to give these hand-picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Renesola Ltd. (SOL): Free Stock Analysis Report JinkoSolar Holding Company Limited (JKS): Free Stock Analysis Report Array Technologies, Inc. (ARRY): Free Stock Analysis Report SolarEdge Technologies, Inc. (SEDG): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»

Category: topSource: zacksJan 19th, 2023

Enphase (ENPH) Witnesses Increased Demand in the Netherlands

Enphase (ENPH) witnesses increased demand for its Enphase Energy System in the Netherlands amid rising energy costs. Enphase Energy, Inc.ENPH announced that increasing demand for its Enphase Energy System, powered by IQ8 Microinverters, has been witnessed in the Netherlands as homeowners opt to reduce their reliance on the grid amid the rising energy prices.Enphase’s IQ8 Microinverters boast features of the smartest and the most powerful Enphase microinverters yet. With a 97.2% efficiency score based on the European Union efficiency standards, Enphase could effectively tap demand growth in the European region.The product may further witness increased deployment in the European region as Enphase continues to provide the most sustainable and reliable products for residential solar systems.Enphase’s Growth Prospects in EuropeTo capture the larger shares of the expanding solar market and improve customer reliability, Enphase constantly comes up with new versions of its family of microinverters, along with expanding its footprint.After the success of IQ8 Microinverters in the United States in 2021, the company took a step forward in its expansion strategy and introduced IQ8 Microinverters in France and Netherlands in the second half of 2022. Since its launch, the company has witnessed an increased customer base in the region, supported by its chain of world-class installers in France and the Netherlands.To further tap growth in the Europe solar market, the company plans to add an automated line at Flex's factory in Romania. This line will have a quarterly capacity of approximately 750,000 microinverters, starting in the first quarter of 2023, and will enable a global capacity of nearly six million microinverters per quarter. Such capacity maximization should boost the company’s shipment count, thereby bolstering its revenues.The company is also eyeing Germany for expansion and has a strong footprint in Belgium. Moreover, Spain, Portugal, Poland and Austria are a few other regions in the European territory where the company is evaluating ramp-up opportunities.Backed by such an expansion strategy, the company doubled its revenues from the Europe region in 2021. With an impressive portfolio of products, backed by strong demand, the company anticipates 2022 revenues to double from 2021 in the Europe region. The company also expects healthy high double-digit growth between 2022 and 2023.Peer MovesThe Europe solar market has witnessed significant growth over the past few years, buoyed by increased adoption of renewable-based energy to adhere to climate concerns. This has led to many solar companies expanding their footprints in the region.Apart from ENPH, solar players that have carved out a position in the Europe solar market are ReneSola SOL, Canadian Solar CSIQ and JinkoSolar JKS.In October 2022, ReneSola announced the acquisition of Emeren Limited, a U.K.-based utility-scale solar power and battery projects developer.The Zacks Consensus Estimate for ReneSola’s 2022 sales indicates an improvement of 9.5% over the prior-year reported figure. Shares of SOL have gained 25.4% in the past three months.In November 2022, Canadian Solar obtained France's Simplified Carbon Assessment certification and Italy's Environmental Product Declaration certification for its high-efficiency mono-facial and bifacial modules, using 182mm and 210mm silicon wafers.The Zacks Consensus Estimate for Canadian Solar’s 2022 sales indicates an improvement of 39.1% over the prior-year reported figure. Shares of CSIQ have gained 56.4% in the past year.In May 2022, JinkoSolar signed its first European Energy Storage Solution (“ESS”) agreement with Memodo. The Memodo exclusivity agreement for JinkoSolar's ESS product portfolio will cover the D-A-CH region (Germany, Austria and Switzerland) for 2022 and 2023.The Zacks Consensus Estimate for JinkoSolar’s 2022 sales suggests a growth rate of 86.1% from the prior-year reported figure. Its shares have risen 22.2% in the past year.Price MovementIn the past year, shares of Enphase Energy have surged 85.9% compared with the industry’s growth of 52.7%. Image Source: Zacks Investment Research Zacks RankEnphase Energy currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 7 Best Stocks for the Next 30 Days Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops." Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.8% per year. So be sure to give these hand-picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Renesola Ltd. (SOL): Free Stock Analysis Report JinkoSolar Holding Company Limited (JKS): Free Stock Analysis Report Canadian Solar Inc. (CSIQ): Free Stock Analysis Report Enphase Energy, Inc. (ENPH): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»

Category: topSource: zacksJan 19th, 2023

18 movies with valuable entrepreneurial lessons: From "Startup.com" to "Becoming Warren Buffett"

Reading isn't the only way to gain entrepreneurial knowledge. Films like 'Rocket Singh: Salesman of the Year' can provide valuable business takeaways. Brad Pitt plays Oakland Athletics general manager Billy Beane in "Moneyball."Courtesy of Sony Pictures Releasing Vikas Jha is a digital entrepreneur who learned a thing or two about entrepreneurship from movies. He's compiled examples that feature practical advice as well as displays of grit and determination. With the right mindset, watching a film can be a masterclass on essential entrepreneurial skills. Along my journey as a two-time digital entrepreneur, I've learned a lot of things, including how to learn, implement, and pivot quickly — but also how to manage employees, pitch investors, create marketing strategies, and more.I started my journey in 2013: I owned a digital marketing agency and then created a news app called Splash. My biggest venture and passion now is a growth enablement platform for businesses called Alore Growth OS.I've had scores of crazy days when stress levels are high and my spirits were low. Reading a good book or watching a good movie often gave me hope that the hard times would pass and that I'm not the only one struggling.While I've actually completed a real MBA, I don't deny learning many valuable lessons from films. I lean on data like Brad Pitt did in Moneyball, design and innovation like Steve Jobs in Jobs, and use some hustling tips from The Wolf of Wall Street. I even try to nurture and protect my dream exactly like Will Smith's character in Pursuit of Happyness.I call this list "The Hollywood MBA." Here are the movies I feel make up the Hollywood school of business, in no particular order. 1. "The Big Short" (2015)Entrepreneurs can learn a lot about risk management in the stock market from "The Big Short."Courtesy of Paramount PicturesWhat happens when one man gets an early glimpse of the subprime mortgage crisis? This movie is a must-watch for entrepreneurs, especially those interested in economics and finance. If you wish to be familiar with these terms before spinning a dime in the stock market, this is your movie!Takeaway: Market optimism will simply not protect against a crash. The movie really brings into focus the harm that can be done when leverage is held by large financial institutions in the derivatives and CDOs market. Investors need to pay attention to risk management if they want to protect themselves.2. "Startup.com" (2001)This documentary shows how difficult it is to push forward on an idea that seems out-of-the-box to everyone else.Courtesy of Artisan EntertainmentThis one is a documentary, but it's worth a mention as it triggers thoughts on what to do and what not to do in startups. It's about the Gold Rush of the 1990s. This one is worth seeing, especially if you're a techie, or someone who's interested in understanding the internet bubble. The movie takes you through the inception and downfall of the internet company govWorks Inc., which at one point raised $60 million USD in funding and went bust in the year 2000 – within two years of having started. It's interesting to know that the company relaunched in January 2018.Takeaway: This movie shows the effect money, greed and power can have on relationships. Friends are not always the best business partners. 3. "The Social Network" (2010)"The Social Network" shows us that business success requires more than just a great idea. You have to be able to execute it.Sony PicturesOf course, this film has to be named in every list of movies a entrepreneur must watch, offering a peek into the world of Silicon Valley and how startups run and succeed. Adapted from Mark Zucker-Facebook-berg's real life, the movie motivates youngsters to dream big and chase that dream to no end.Takeaway: It's not about who has the idea – it's about the one who executes it. Facebook happened because Mark Zuckerberg had the will, the confidence, the vision, and the discipline to make it happen. While it is known that no original idea exists, the real job is to get busy making it a reality.4. "Jobs" (2013)Success can sometimes be a really long road, which is something every entrepreneur should have in mind.Courtesy of Open Road FilmsBased on the life of Steve Jobs, this film is a must-watch. Don't watch it for the acting, but for the story of the great visionary who transformed and fuelled innovation in the technology products industry. Takeaway: Success takes its own sweet time — Apple took 20 years to become the powerhouse it is today. While drooling over successful ventures, most often, entrepreneurs fail to notice that those things didn't happen overnight. Even Apple struggled as a business, as a company, and as a technology for over a decade, before it was steered in the right direction by being innovative again.5. "Becoming Warren Buffett" (2017)In this documentary, Warren Buffett reveals his day-to-day, and his two most important investing rules."Becoming Warren Buffett"/HBOThis documentary tells the story of how the mindset for innovation can be built from a very young age. One of the most essential takeaways from this movie is how to find life goals and objectives unrelated to making more money, and instead, focus on becoming a better human being.Takeaway: Stick to your plan. The movie teaches viewers that investing isn't about picking stocks or finding the next hot company. It's about sticking with a plan and never making emotional decisions when it comes to your money. Buffett also follows two investing rules: never lose money and never forget rule number one. It also teaches that compound interest can make small differences in your investments grow into big ones over time.6. "Joy" (2015)An entrepreneur's business circle should never include family. Lawrence's character in "Joy" is a great example of the reasons why.Courtesy of 20th Century FoxInspired by the real-life of self-made millionaire Joy Mangano and her struggle to do more than make ends meet as an out-of-work mother and aspiring entrepreneur, this movie follows Joy's journey as she struggles with numerous professional and personal obstacles. It's easy to feel wholly enthralled by Joy's determination and won't-quit attitude.Takeaway: Choose advisors from outside your family. Joy found herself in the not-so-unique situation of having her family as her business advisors. It became a problem as they are too close to her to give any objective feedback. The best thing to do if your family wants to work with you, is thank them for their concern, but hire professionals. Create a group of proven successful people in similar businesses. Sometimes the greatest ideas and feedback come from people who are not as emotionally invested in you.7. "Wall Street" (1987)Greed can be your undoing, but there is a way entrepreneurs can use a little greed to motivate themselves.Courtesy of 20th Century FoxThe amount of sales dialogues one can learn from this film is insane. In a world of hunger where nothing can ever be enough, this movie showcases the passion and madness that takes over a businessman when he is maniacal about success. It sheds light on the level of craziness businesses will go to succeed – a notable quote: "greed is good." Charlie Sheen totally embodies the role of a power and success-hungry man who is ready to skirt the law to get what he wants. We all know someone like that in business — don't we?Takeaway: Greed isn't always good, but a little greed can keep us motivated to succeed – everyone likes the perks that come with a fat wallet. But making the acquisition of money the sole reason to wake up in the morning is an act of self-sabotage.In the movie, Gekko's unmitigated greed is his undoing, but the real lesson is what Bud Fox learns. Fox spends money he doesn't have on the big apartment, expensive dinners, and fancy art to emulate Gekko, even though his entry-level stockbroker job can't sustain that kind of spending spree. So, he resorts to insider-trading to pay his bills, even betraying his own father in the process. And, for what? A nicer suit?8. "Moneyball" (2011)"Moneyball" shows that adapting quickly is a requirement to success.Courtesy of Sony Pictures ReleasingBased on the life of Billy Beane, this film highlights the role innovative leadership takes in business. Needless to say, it shows how analytics aces instinct in business. It's a must-watch. Think about this quote from the film: "When your enemy is making mistakes, don't interrupt him."Takeaway: Welcome change. John Chambers once said, "If you don't innovate fast, disrupt your industry, disrupt yourself, you will be left behind." The movie sets the right picture of what he meant. Grady was fired as he was not ready to adapt to the new approach required in the circumstances.9. "Pirates of Silicon Valley" (1999)Adapting quickly to change is how the greatest entrepreneurial minds have succeeded.Courtesy of Turner Network TeleivisionAnother masterpiece on the competition and meteoric rise of Bill Gates and Steve Jobs, the titular pirates of silicon valley. My favorite quote from the film is "Success is a menace. It fools smart people into thinking they can't lose." I dearly wish Blackberry, Nokia, and Kodak CXOs had seen the film in time and adapted to change before things went wrong. Some may argue that they blundered themselves into economic ruin by not adapting fast enough to the changing market environment. Others may argue they were victims of technology giants Apple and Google.Takeaway: This movie shows how two young men were pitted against each other, striving to grow in a cut-throat business. You'll definitely relate to the character development from nerd to psychopath, as both Bill Gates and Steve Jobs experience their rise and subsequent backslide. While the movie focuses primarily on their rivalry and the early days of Microsoft & Apple – it also gives you an insight into how talent is formed and potentially suppressed by rigid traditional corporations.10. "Office Space" (1999)Entrepreneurs need to learn that micromanaging can kill employee motivation.Courtesy of 20th Century FoxThis classic film has probably motivated thousands, if not millions, of entrepreneurs globally into leaving their cushy 9-to-5 jobs and answering their callings. In the setting of an IT company, the film takes a humorous look at what it's like to do something you don't love, don't value, or that doesn't inspire.Takeaway: The biggest takeaway is the effect of micromanaging — empowering employees with autonomy for better outcomes is a tried-and-true approach.The layers and layers of bosses at Initech not only demonstrate what micromanaging is but how it demotivates employees from putting forth their best efforts (or any efforts at all).11. "Rocket Singh: Salesman of the Year" (2009)Doing work you're passionate about is an important part of succeeding as an an entrepreneur.Courtesy of Yash Raj FilmsThis is a must-watch movie for all budding entrepreneurs, and will surely entice you with its inspirational plot. This movie can teach you a lot about sales, corporate life, and the real world. It educates viewers about original methods of working with clients and the subtleties of relationships between buyer and seller.Takeaway: The movie demonstrates how we should treat our customers and how we should network with them. It also shows us that one must have passion for what they do, and be dedicated to achieving their goals. The movie also teaches entrepreneurs to recruit smartly: if you want to build a successful team, it is essential that you recruit people who have the right skills and are willing to work hard.12. "Catch Me if You Can" (2002)A good entrepreneur knows how to take even the smallest opportunity and make something great out of it.DreamWorks PicturesOkay, so I understand that this film is about social engineering and the story of real-life con artist Frank Abagnale, but hear me out on why this film makes this list. The level of creative thinking the protagonist displays is amazing. This is the growth hacking mindset every entrepreneur needs. You have to always be thinking about growth and new ideas as a young business.Takeaway: There's always a new area in which you can find success. When Abagnale is eventually caught by the FBI, he receives a job offer from them and is released from his prison sentence.Is this an opportunity Abagnale sought out specifically? Not exactly. But it was a very small opportunity that he took advantage of.Instead of entirely relying on word-of-mouth to get traction, find opportunities for yourself — continue demonstrating your skills to pull yourself up in the world.13. "The Pursuit of Happyness" (2006)Will Smith and Jaden Smith in "The Pursuit of Happyness."Columbia PicturesA timeless classic, this movie is a must-watch for every entrepreneur out there with a dream. Based on the real-life story of Chris Gardener and portrayed by Will Smith, the film is an excellent window into the life of a common man with uncommon dreams, and his determination and perseverance to achieve them. It also shows how no struggle is too tough if your dream is important to you. The film also reminds us that what matters at the end of the day is happiness, and life should be invested in the pursuit of it.Takeaway: Recognizing an opportunity and grabbing it at the right time is easier said than done. But it is what paves the path to success for an entrepreneur. For Gardner, the opportunity presented itself in the form of an internship at Dean Witter. It was an extremely risky choice to make considering his financial and personal situation. In one scene, his wife is seen scoffing at him — "Salesman to intern is backward." But Gardner knew that he needed to take a step back to make a leap forward. He was willing to constantly learn and adapt because no one's ever too old to do something new.14. "Jerry Maguire" (1996)Putting people over money is smart business sense.Courtesy of Sony Pictures ReleasingThis is an excellent film on the power of passion and the entrepreneurial zeal to make your own mark. It also pleasantly shows the importance of work-life balance and has many motivational dialogues within. I love the movie for resonating with what I believe in strongly — valuing those who value you. Having a strong support system around you is a blessing in life.Takeaway: Focus on quality and customer experience. Jerry got fired from the company for choosing people over money. Jerry's journey becomes a struggle at the beginning of the movie for the same reason. The story shows that while the idea of focusing on improving the lives of people seems counterintuitive in the short term, in the long run, it brings loyal customers and sustainable business.15. "The Devil Wears Prada" (2006)Sometimes, you have to start something new with no knowledge, like Hathaway's character in "The Devil Wears Prada."20th Century FoxSet in the ever-evolving fashion industry, this movie provides a delightful insight into what it takes to be at the top and how identifying a leadership style that works for you is important. What I also like about the film is how Anne Hathaway's character transmutes into a smart and confident young woman, which shows it doesn't matter if you start with no knowledge. Hard work can teach you to be the best version of yourself.Takeaway: Confidence is key. No matter how nervous you are, fake it 'til you make it. Projecting a smart, self-assured persona is half the battle in most scenarios. Remember Miranda Priestley's elevator exit that left everyone awe-struck and intimidated? That's a great example.16. "Nightcrawler" (2014)Lou is determined to make a name for himself.Courtesy of Open Road FilmsIt follows the story of a stringer played by Jake Gyllenhaal who is self-motivated, focused, and understands constant improvement. It's a dark drama about how a guy hustles his way from rookie to a pro in his game. It teaches you to — utilize an opportunity to its fullest.Takeaway: Build a hunger for success — Hard work and hunger can simultaneously go with each other and can really set one apart. Lou was hungry for success and money, and was willing to go to great lengths to achieve his goals. His choices were immoral, which is why he most certainly should not be your role model. However, he was ready to go that extra mile. If applied morally, in the real world, hunger for your goals, and hard work backing them up, can really help you in the long run.17. "The Wolf of Wall Street" (2013)Success is hard-fought — it's important to mix in some fun.James Devaney/Getty ImagesThis movie leaves you bewildered at times but will also wow you with the energy and sales-hacker mindset of Jordan Belfort (Leonardo DiCaprio's character). Moreover, it also gives you moments of truth about how things can spiral out of control if you're not mindful.Takeaway: Enjoy the process more. Belfort and Stratton Oakmont made so many crazy decisions, and although they paid the consequences for those choices, they had a ton of fun.Running a company is enormously challenging. Therefore, it is essential to enjoy the process. Endless stress can only make it more difficult, so remember to take life a little less seriously.18. "The Shawshank Redemption" (1994)Ventures usually don't take off right away. It's important to have hope when things look bleak.Courtesy of Columbia PIcturesThough not a business-inspired film, this film is an excellent reminder of the power of the human spirit when the odds are stacked. It teaches perseverance, planning, and patience in a way no movie can. Entrepreneurship is a similar setting. Sometimes odds and situations spiral out of control, and only a calm mind, knowledge, and planning get you out.Takeaway: Hold on to hope. The movie reminds us that hope is a good thing. When Andy first entered Shawshank, it's likely he felt despondent at his circumstances, which would break most of us. Yet, he chose to hope, and eventually found that freedom was tangible. There are moments when we lose hope. Andy shows us that no matter how bleak the circumstances are, there is always the potential for them to be better.I've learned some incredible business lessons through these filmsOn one hand, I'm a believer in the fact that readers make great leaders – but I also understand that reading is not the only way to fire up your soul.I've found myself feeling motivated after watching a great film with lessons I can transpose to my entrepreneurial journey. Watching a great film can be a masterclass on navigating a storm in your own life. You can relate to it and analyze it better when you see it happen in someone else's life on-screen.Vikas Jha is a digital entrepreneur and founder of Alore Growth OS.Read the original article on Business Insider.....»»

Category: personnelSource: nytJan 17th, 2023

Transcript: Jennifer Grancio, Engine No. 1

       The transcript from this week’s, MiB: Jennifer Grancio, Engine No. 1, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is… Read More The post Transcript: Jennifer Grancio, Engine No. 1 appeared first on The Big Picture.        The transcript from this week’s, MiB: Jennifer Grancio, Engine No. 1, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, Jennifer Grancio was there at Barclays when the beginning of ETFs and passive indexing really took off on an institutional basis. She was one of the founding members when BlackRock bought iShares from Barclays and really helped drive broad adoption of passive and ETFs in the financial community. Today, she is the CEO of Engine No. 1, which focuses on the fascinating transitions that are taking place in broad strokes across the economy. There are numerous opportunities in energy, in climate, in robotics, in automation, and her firm helps invest in those spaces. Not quite an activist investor, but she has worked with a number of companies like Exxon and General Motors and Occidental, where the input of Engine No. 1 drove significant changes at those companies. They’re a longtime investor than a black hat activist where they’re looking to buy stock Forza, an exit of the CEO and sell once the stock pops, really fascinating story. I found it quite fascinating and I think you will as well. So with no further ado, my interview with Engine No. 1’s Jennifer Grancio. Let’s start out talking about the early part of your career. I’m really curious how you ended up in BlackRock. But before that, you’re working as a consultant. JENNIFER GRANCIO, CHIEF EXECUTIVE OFFICER, ENGINE NO. 1: Yes. I think like a lot of people in undergrad, I went to Stanford thinking I was going to do genetics and science — RITHOLTZ: Right. GRANCIO: — did an internship, pivoted, ended up doing international relations. Then as you head towards the end of college, you figured you’re going to save the world, then I’m going to go work for the World Bank. The World Bank wants you to take out more student debt and get a master’s degree. So like so many other bright-eyed graduates, I trooped off to, you know, one of the traditional professional services professions. But what’s kind of interesting for me about consulting was this idea that you almost apprentice with somebody that’s senior, and you run around and try to help companies and problems. So it seems like a good idea at that time. RITHOLTZ: At that time. GRANCIO: And that’s what I went off to do. RITHOLTZ: So how do you go from that? How do you end up at a place like BlackRock? iShares seems to have been almost an accidental business line from them. Am I remembering correctly, that was a post financial crisis Barclays’ purchase, something along those lines? GRANCIO: Yes, exactly. Yeah. So if you go back, so management consulting, moved back to California and decided I was going to be a California person, not a New Yorker, no offense to New York, spent a lot of time here, all those things, right? RITHOLTZ: Better weather. The geography is beautiful. Sure. GRANCIO: And so I went looking for what I thought would be the best asset management business, I focused on asset management within the consulting space. Like, this idea that somehow if you got portfolio construction and savings right, you help people over time. And so I joined what was Barclays at that time. The asset management business of Barclays Bank was this little firm called Barclays Global Investors based in San Francisco. RITHOLTZ: And that was not such a little firm at that time, was it? GRANCIO: No. It was growing very quickly. And that business was an institutional business. So as an institutional business, we did indexing. We thought indexing was cool. And the iShares and the ETF idea came from, we just had a fundamental belief it was a better mousetrap. So there’s something about an ETF and we could go into that another time. There’s something about an ETF that’s a better mousetrap than a mutual fund. And so for Barclays Bank, we pitched here’s a great idea. Let’s build this ETF business in the U.S. And it’s a way for Barclays to build in the United States. And so we launched the business in 2000. So we launched it right into the dot-com crisis. RITHOLTZ: So from the dot-com crisis to the global financial crisis, what were the circumstances surrounding BlackRock saying to Barclays, yeah, we’ll take that little worthless business off your hands for a couple of hours? GRANCIO: Yeah. And the interesting thing about an ETF business is that it takes a long time to build. And so to your question, around that time, you’re going into 2008, Barclays needed cash. And the index business was starting to take off in the form of ETFs, or at least we thought that, but it was still a relatively small business. And so who were the other people that probably looked at that acquisition included other big indexers, big asset managers who weren’t sure, was indexing going to be a thing or not? Because remember, at the time, ETFs and index were synonymous, but Larry, you know, was more forward-looking. RITHOLTZ: Larry being? GRANCIO: Larry Fink of BlackRock. RITHOLTZ: Who arguably, and I know who Larry is, I just want the audience to know, arguably the purchase of iShares by BlackRock from Barclays could be one of the great opportunistic distressed purchases in the middle of a crisis ever in financials. What is iShares up to now? Like $4 trillion, something insanely? GRANCIO: Enormous. RITHOLTZ: Yeah. And they picked it up for a teeny tiny fraction of that. So what was your experience like when BlackRock took over iShares? GRANCIO: Yeah. So we built the iShares business first within Barclays. And we were a, you know, small but mighty team doing ETFs. And the whole idea I remember of ETFs is to go and to challenge mutual funds and challenge active management. So that’s a big thing to take on. And so as BlackRock work through the acquisition of all of the BGI business, including iShares, we spent a couple of years then getting to know BlackRock, as a little iShares team, and talking about ETFs and fee-based advice and portfolio construction, and all these things that we thought were trends we could take advantage of and use to build the business. But then the business really just got from strength to strength after that acquisition. We came out of the financial crisis, few rocky years in the ETF industry overall. Vanguard decided to get into ETFs in a serious way. BlackRock and iShares launched that core series as a competitive business. So kind of responding to what was going on in the market, and the business continued to grow and grow. And then I think from an ETF industry perspective, we did some important work on trying to protect the category of ETFs. So we did a lot of work with the U.S. regulators, European regulators and run the business in Europe for a while as well, talking about the differences between like a passive index fund, for example, an ETF that’s got commodity exposure and ETF that’s leveraged or inverse, in terms of trying to protect the vehicle and protect the category. And really since then, there’s just been continued explosive growth. RITHOLTZ: In your wildest dreams, did you ever imagine back from the sleepy early days of passive and ETF at Barclays that would grow up to be just the dominant intellectual force in investing, and reach the size it’s reached? What is even after this year, BlackRock has something like $8 trillion? $9 trillion? GRANCIO: Yeah. I mean, the numbers are huge. I think we did, but maybe we were naïve. But our view was, it was a trend that was going to happen. And if you could own the trend, and if you could accelerate the trend, this was a better way to invest. A better way to invest is to have a low cost solution at the core of the portfolio, and then hire people that are deeply capable to deliver alpha. So I would say we thought it could be big. But you know, it’s pretty amazing. RITHOLTZ: So you talk about accelerating the trend. What exactly do you do to help accelerate that trend? How do you drive acceptance of both ETFs as a wrapper as opposed to traditional ‘40 Act mutual funds, and passive versus more traditional stock picking market timing, active investment? GRANCIO: Yeah. I think when the industry first started, so going back, you know, 20 years now, the two things were synonymous. But, you know, let’s take those one at a time. So from a passive perspective, the argument we made as an industry selling passive ETFs was you really had to take a look at what the portfolio is doing over time, total cost, total risk exposure. And when you did that, you often found that there was a way to get better long-term performance and cheaper, by having some index in a portfolio. So that was the story on indexing. And then we kind of kept driving that into this idea of models. So now, you know, there’s a model, a huge amount of money, you know, trillions of dollars sit in models in U.S. wealth. What does that mean? It means a big wire house. Your brokerage puts a model together, this much of Europe, this much U.S., this much small cap. And then you can use index products to fill all those allocations. And so that was the kind of the 20-year build of how did passive get so big. And then ETF as a wrapper, it’s just a great way to get the price at the moment if you’re buying into the public markets, number one. And number two, it’s a great way to manage tax, where if you buy something now and you sell it in 20 years, and the markets gone up, guess what, we have to pay tax on that. But the kind of annual capital gains gift you get from a lot of mutual funds, it can be managed very astutely in the ETF wrapper. And that’s great. Like, that’s great for all investors. RITHOLTZ: Meaning if you’re a mutual fund owner who’s not selling, but somebody else sells and generates a capital gain, that gets spread around to the other older (ph) — GRANCIO: Exactly. So even if you’re — RITHOLTZ: — which doesn’t make sense at all. GRANCIO: I mean, as somebody that’s been doing ETFs for a long time, I say it doesn’t make any sense, whatsoever, because there’s another way to do it. And we’re finally seeing that now. We’re finally seeing a lot of the big mutual fund companies start converting into ETFs. RITHOLTZ: The flows even in a down year like 2022, the flows have all been towards passive, towards ETFs, towards low cost. It seems like a much better mousetrap. GRANCIO: I think it is. RITHOLTZ: But I’m not going to get much of an argument from you on that. So you mentioned Vanguard, we’re talking about Black Rock. Let’s talk a little bit about the role of brand on in the industry. How important is that when you’re putting out either a low cost passive ETF at 3 or 4 BPS, or something more active or thematic on the ETF side? GRANCIO: Yeah. I mean, the role of brand is pretty critical. And if you think about in the index business, if you’re managing it well, there’s not a lot of performance. It’s are you tracking the index? Yes or no. And so that power of the brand is massive. And my observation in this space is that the average investor, the average retail person that’s going out and investing or talking to an advisor, they don’t necessarily know one product provider or investor versus another. But they definitely know who they do business with or who they buy from. So that retail brokerage brand, their advisory brand has a huge impact on them. So to your question on Vanguard, like Vanguard is a brokerage firm, so you kind of know Vanguard. Vanguard does your 401(k), you’ve heard of Vanguard. And so for other people that enter the industry, and this is certainly what we did in the iShares business or what we do now at Engine No. 1, is you really have to be clear on who are you and what is your story because that brand matters a lot. RITHOLTZ: So you mentioned brokerage firms, and Vanguard does 401(k) brokerage. They do all sorts of obviously mutual funds and ETFs. How do you see some of the bigger custodians and actual brokers like Schwab and Fidelity in terms of ETF developments? We know it’s BlackRock, Vanguard and State Street at the top. These guys are no slouches either, are they? GRANCIO: No. I mean, I would say if we go back and we look at the history of ETFs and how they’ve developed, we see State Street, Vanguard and BlackRock. BlackRock iShares is very dominant, and they’re going to continue to be dominant in passive, period. They’re there. They’re big. They’re so big now. And we’ll come back to this later. I personally think there’s some problems with how big they are. But from an ease of buying decision-making perspective, they’re big. They’re dominant. The brokerages were late to get in the game. So Fidelity and Schwab got in much later. They don’t charge fees for those products. And so it makes it harder for them as a kind of a corporate organism to, you know, have that be a big part of their business. And then what we’re very excited about it Engine No. 1, and what you’re seeing with the mutual fund conversions, the big ones at DFA, at Franklin Templeton, and the list goes on, there are many, is that we’re now ready to move active funds into the ETF structure. And that I think is very exciting. But that’s new, that’s very new development. RITHOLTZ: So let’s talk a little bit about Engine No. 1. First, how did you get there from Black Rock? What led that transition? GRANCIO: Yeah. So I left BlackRock very large. I wanted to do a little bit more innovation. And I think sometimes the biggest firms are great, but they can’t always lead from an innovation or change perspective. RITHOLTZ: Right. GRANCIO: So I spent a couple of years, I built an advisory firm, and took a couple years to decide on, you know, what was the next move? And I did some great work with a number of large wealth and IRA firms that were going through an M&A or selling themselves process, did some work on impact investing, actually led me to Ethic and joined the MannKind board, but decided I was definitely going to be a builder, that there was this opportunity to do something different than traditional mutual fund and passive ETF. And so I started looking for what would be the thing I wanted to build with partners, and then I met Chris James. RITHOLTZ: And did you launch Engine No. 1, or did you join him when it was already existing? GRANCIO: We launched it together. Going back, you know, before we started the firm, so Chris James is our founder at Engine No. 1. And Chris’ background is hedge fund and private fund investments. And what he’s really known for, he’s known for taking an extremely long view on something and doing the work to let’s say, where is the opportunity as you go through a huge transformation or transition? So Chris was hard at work on this and wanted to reach into the wealth space. So rather than just doing products that were private and you could help institutions invest, what could we do that was broad and into the wealth space? So I joined him to collaborate, given my background on that side of the business. And the idea of Engine No. 1 is just to help people benefit from these huge transitions and transformations that are very much not the backwards-looking. Look, Google and Amazon got great. You know, our portfolios have a lot of growth in tech, great. There’s a lot of money to be made in the energy transition, transportation, agriculture. And so really, the idea of the firm is to be able to look forward, find mispricing, and make money as we go through these huge changes. RITHOLTZ: The firm’s name is intriguing. Where does Engine No. 1 come from? GRANCIO: The first firehouse in San Francisco is actually a couple of blocks from our office. And in talking about what we were trying to do, which is maybe it’s grandiose, but if you think about it like capitalism works. And what we were agitated about is we saw the market, you have ESG over here, very small. We think old school ESG does not work. We have a strong view on that. We’ll come back to that. Indexing, too many shares are locked up in indexes. Index don’t vote their shares. And then maybe most important of all, we’re going to need a General Motors and Ford to actually be able to do this huge transition from internal combustion to battery electric vehicles. And so, you know, actually, the firehouse is the center of the community, right. And if you think about how a community survives, the firehouse is the center of the community. It takes care of itself. A well-run business really should be as simple as sort of taking care of the environment, it’s in being aware of it. And in public markets, that means you also have to be able to adapt and manage their change. RITHOLTZ: So tell us a little bit about the strategies you guys employ. What are your key focuses? How do you deploy capital? GRANCIO: Yeah. As a business, we run an alts business, and then we run the ETF platform. So if you think about it very simply, these huge ideas about transition and transformation and how to make money are very common across what we do. But we have two businesses. And the big ideas are these transitions and transformations, and how do you take advantage. And so when we look at public companies, we look at every single company, and we look at what their path is through time. So I think this is one of the problems with a lot of investment strategies right now is they’re looking to short term. And then we build the impact or externality data, we just build it into the financial model, right? Because the data is out there particularly on governance, particularly on environmental issues. And when we do that, in the sectors that are in transition, let’s take energy, for example. If you’re an oil and gas company, and you don’t account for the emissions that you’re dealing with and you don’t decrease them over time, you’re going to have a problem. And we saw this when we started building the business that a lot of these companies were heading towards zero terminal value. So let’s take Exxon, for example — RITHOLTZ: Okay. GRANCIO: — where if you take Exxon, and Exxon keeps doing long-dated fossil fuel projects, and has no plan to reduce emissions at any point in time, and has no plans to develop a green business. Well, that’s not very good for Exxon stock when we get to 7 or 10 years out. And so we see a lot of these opportunities where like it’s just math. The capitalist system is supposed to have the company govern itself, so that it’s making money through time. It has a longer duration of business, and it has a higher value. And that’s the kind of the way that we work in everything that we do. RITHOLTZ: So you mentioned environmental issues and impact. You mentioned governance. This sounds a lot like two-thirds of ESG. GRANCIO: Yeah. We think the way people use that label is a little bit problematic. So people often use that label looking backwards. RITHOLTZ: Flash that out a little more — GRANCIO: Yeah, yeah. RITHOLTZ: — because when I hear someone mentions ESG, I typically think of an investor and for the most part, as we go through this generational wealth transfer, you do surveys of investors, husband passed away, the wife tends to be much more empathetic with issues of equality and environmental concerns. And the next generation is much more concerned. So it seems like there is a desire to express those beliefs in their portfolios. Why does that not work with ESG? GRANCIO: Yeah. I mean, I guess our view on that would be, you can always express values in a portfolio. But if you’re going to express values in a portfolio, say that I am expressing my values in the portfolio, which is different than the core concept of managing money over time generally, for the person that’s doing the managing is to be a fiduciary — RITHOLTZ: Right. GRANCIO: — and drive good outcomes and strong returns. And in general, for the investor, is to drive returns over time. And so the way we think about it is, really, you can do that. And any business that is going to survive over time has to be sustainable, has to address or basically cover their impacts, right, after the cost of capital so that they can be profitable over time. So instead of thinking ESG means it’s values based, I don’t like the company, they’re bad, I’m going to screen them out of my portfolio. We don’t think that’s a great way to manage your core portfolio over time. We think the better way is you simply have to engage with the companies to make sure that their most material impacts that’s financial data, right? That’s risk data if you don’t manage your emissions as an oil and gas company. And so let’s build that into just investing to make returns as opposed to this special class, which, you know, it devalues base and ESG tends to kind of infer value over performance, right, or divesting from companies that you don’t like. And we don’t think that’s a great way to invest. RITHOLTZ: So let me push back a little bit on the low carbon strategy. It seems like it’s half of the economic equation because people seem to be approaching entities like ExxonMobil and others, the suppliers of the carbon-based fuel. What is that doing if you’re ignoring the other half, the consumers? So every other company that is not a carbon energy producer is likely to be a carbon energy consumer. They’re running factories. They’re shipping goods. They’re having offices. Why focus on one half of the equation and not the other? GRANCIO: Yeah. I mean, I think that’s the right question. And we focus on both. And so let’s take for a minute the energy industry, and then the transportation or auto industry. That’s an example of that kind of handshake or handlock, right? So in the case of the car companies, that’s consumption. So if we’re consumers and we’re driving cars, which we still do and people are planning to do in the future, the car company can switch from encouraging the behavior of driving internal combustion engines, which have very high emissions, or the car company can know that the consumer demand is shifting a little bit and they can build a car that is an awesome battery electric, reasonably priced vehicle. And then they can capture that shift in demand. And that’s really good for the car company. So actually, we a hundred percent believe that this has to primarily be driven on the consumer demand side and on my first piece of that. So if I’m a consumer, I buy a car, you’ve got to start with the car company. However, if you look at global emissions, you know, 34 percent of that today comes from the energy companies. So at the same time in parallel, there’s still an opportunity to work with those companies on, as battery electric comes up, as fossil fuel comes down, how do those companies make a lot of money 9 or 10 years from now as we go through that transition? RITHOLTZ: Explain that 34 percent. Because, again, it’s that someone is a buyer, someone is a seller. They’re not burning 34 percent of the fossil fuels, they’re selling it to consumers — GRANCIO: That’s right. RITHOLTZ: — who were burning it. Like, there are some low carbon ETFs. I just don’t understand. It’s why the war on drugs failed, if you’re only going to interdict the supply but ignore the demands, you’re not going to be successful. GRANCIO: Yeah, that’s right. I mean, and we think from an investment perspective, if you want to solve this problem on how do you take emissions down, we think that problem can be solved and you can make money by owning the people that are going to win. So you asked before, like, what do we do? What strategies do we run in the ETF business? Our active team, it’s effectively hedge fund investors. So they’re very concentrated portfolios. We believe we’re right. There’s a handful of names, like under 30 names today in the portfolio. Ticker is NETZ, Transform Climate (NETZ), and what that portfolio holds is it holds companies that have emissions. But we believe that the companies in the portfolio are the companies that have the right strategy to, if I’m an energy company, I’m producing energy. There’s demand for energy, that’s what I do. But I’ll tell you my emissions, I’ll do methane third-party monitoring. I’ll do all the right things. So that from a social license to operate perspective, I’m at the top of my peer group. And in all cases, they have a strategy whereas fossil fuel demand declines, not today, but in 7, 10 years, they have a strategy to actually make money and still have value. So we’re picking the top best performing energy companies. We’re not saying energy is bad. Energy is essential, and we need that energy in the transition. And the portfolio then also holds the car companies that we think win. RITHOLTZ: So let’s talk about a couple of names. So a couple of energy names from NETZ and a couple of core companies from NETZ. GRANCIO: Yeah. And so one of the names we had in the portfolio, which is actually so highly valued, it goes in and out, depending on if it’s overvalued — RITHOLTZ: Right. GRANCIO: — it’s an active fund, is Occidental (OXY). And that’s an example, they were really the leader in the space. So they had started to develop greener businesses so that as fossil use comes down, they have another business and they’re competitive. That’s great for long-term value of the company. And — RITHOLTZ: What are their green businesses? Things like solar and wind or — GRANCIO: They have a range of things that they do in that space, but think of it as committing early to find ways to make money, having these people on staff, on the board that know how to run green businesses. And then from an emissions perspective, also, they were very early on telling us, being very transparent on Scope 1 and 2, and agreeing to oil, gas, methane partnership emissions with third-party monitoring of emissions, which we think is critical because again, methane emissions leaking, that’s probably the biggest thing. RITHOLTZ: Especially with natural gas. But with pretty any form of car being — GRANCIO: That’s right. RITHOLTZ: — capture, your carbon removal from the ground, that’s a big risk. Methane is even worse than CO2 in the atmosphere, right? GRANCIO: That’s right. And that’s right, and that’s some of the active ownership work we did on that portfolio, where Conoco and Devon are companies that we worked with, to join the methane third-party verification partnership this past summer. And that’s when we talk about Engine No. 1 as active owners, it’s not always, you know, the black hat activist. We actually haven’t done that other than Exxon. But the ability to really understand their business and go in and work with them. And actually, having them methane verified is a big deal, because then people understand what you’re doing in that part of the business. And it gives you license to operate because we need that energy source. RITHOLTZ: What are the car companies that are in NETZ? GRANCIO: General Motors is in NETZ. Ford has been, it goes in and out of the portfolio, based on how they’re doing, managing some of their supply chain constraint issues. And then Tesla is in the portfolio. But GM is at a much larger weight than Tesla. And then Tesla went out of the portfolio for governance reasons. RITHOLTZ: Because? Give me more specific. GRANCIO: Twitter. Because of Twitter. So the way that we manage that portfolio, basically what NETZ is, is you’re holding some of the biggest emitters, and you’re holding this 1.8 metric tons of emissions a year, so not low carbon, high carbon. And then what we expect is that those companies are going to take that number down to less than half within a decade. And so if you care about impact or sustainability, yeah, that’s great. That’s a huge win. You’re holding the companies, watching them. They’re taking emissions down. But if you want to make money, you’re holding the companies that are providing energy, but doing it in a way that they have a social license to operate. And then sort of come back to your Tesla example, all of this starts with governance. And so if a public company is going to make money over years and years, it’s all about governance. And do you understand your markets? Do you understand how things change? And so if you’re running Tesla and you have a huge job to do in terms of scaling that business, but you’re also doing other things at the same time — RITHOLTZ: Assess. GRANCIO: — and saying you don’t have time to run Tesla, well, that’s kind of a governance issue. RITHOLTZ: So when I looked at the acquisition of Twitter which started out as a lark, $44 billion, the market drops, wild overpayment. The bigger issue is if you think about who’s Tesla buyers, they seem to not be the people who Elon is playing to on Twitter. And in fact, as much as there are a lot of fanboys and I think you have to give Elon full credit for moving the entire auto industry to EVs, I think all the legacy-makers looked at him and said, we can’t let Elon do to us what Bezos did to the book industry and the booksellers and a dozen other industries. But it seems like he’s alienating that core middle left, all those liberals we’re going to own on Twitter. He seems to be chasing away a lot of his future buyers of Tesla’s. GRANCIO: He may be. That’s good news for GM NASA. We’re okay. We’re covered on that one. RITHOLTZ: And to say nothing about valuation issues and other assorted things — GRANCIO: Right. RITHOLTZ: — I’m assuming this is in strictly an ESG checklist. You looked at the usual — GRANCIO: Not at all. Yeah, we looked at the usual things and that’s maybe our main point, which is the people get in our industry in particular. They get stuck in old frameworks, right? An ETF is an index fund. An activist is somebody that comes in short term and fires the CEO. So I think we need to be careful of those sort of short ways and shorthand ways of thinking in investments. Our point of view is that there’s a lot of data available now. We have a huge amount of data. Take the climate and environmental-related issues. We have a lot of data on carbon, and we can estimate carbon prices. And so in a basic fundamental financial model, you can start with your old traditional financial model. But you can add in, we do this, we can add in the monetization of those emissions. And then as you build out your financial model, you can look at how the company reduces them over time. And we see those as purely financial metrics, right? That large externality for a company is a risk or financial measure. It’s not some separate ESG dot bubble rating system. It’s just their numbers, it’s math. It should go into the long-term valuation of the business. RITHOLTZ: Let’s talk about the Exxon situation. You accumulated a relatively small number of shares, and then reached out to management. Tell us about the process and how they reacted to your overtures. GRANCIO: Yeah. So from a team perspective, we started by making an economic case. So we did the work on here’s what we would do differently, here’s how we think the value of the business wouldn’t be higher if we did this. And the suggestions on what we would do differently included disclosure of emissions. It included better capital allocation decisions between this sort of short-term energy transition period. And we don’t know when it’s going to be, thanks to, you know, Putin and the Ukraine, longer than we thought a year ago. RITHOLTZ: Right. Right. GRANCIO: But at some point, we’re going to start to really pivot into an energy transition. And so what’s your best thinking, Exxon as a company, on what your business looks like, and your capability at a board level to extend the duration of the business, do things that may be renewable, or whatever they may be. What is it that you can do that’s in that area? And so those were the things that we requested. RITHOLTZ: They were receptive to that? GRANCIO: They were not receptive to that. But those are the things that we requested, which is usually how these things start. RITHOLTZ: So .02 percent of outstanding shares doesn’t exactly put the fear of God into them. Why a toe in the water and not a more substantial stake? GRANCIO: Exxon, going back to when we started the proxy campaign — RITHOLTZ: They were giant, right? GRANCIO: They were giant, but also they were a giant in terms of the big asset managers had not been able to get them to pivot from a governance perspective. So there were known concerns about governance. A lot of the big investors take a slower approach to work with management, not cause too much change, request changes. And there just hadn’t been any progress in this case. So we were able to have conversations. And the team did a huge amount of work with investors and passive investors, and active investors, walking through our economic case. If these things happen, better governance, better economic performance, and that, we think, is what allowed us to rally support. And as we were rallying support, as you see in this situation, I’m sure Exxon was talking to some of those investors as well. And so as we went through the campaign process, we saw some of these changes, changes in capital allocation decisions, and intention to launch a green business. So some of these changes started even before the proxy vote where new directors were elected onto the board. RITHOLTZ: So we talk a lot about specific companies. How do you look at the macro environment and geopolitics? You mentioned Putin’s invasion or the Russian invasion of Ukraine. Arguably, that’s going to accelerate the greening of Europe in particular, and the move to alternative energy sources, not dependent on Russia, which is all carbon. GRANCIO: Yeah. And I think to some extent, you can’t control what is the moment in time where the energy transition happens, right? However — RITHOLTZ: Right now. Right. Aren’t we more or less in the midst of this today? GRANCIO: We are in the transition. Absolutely. But we think that if you wanted to not use fossil or carbon intensive now, it wouldn’t possibly work. RITHOLTZ: Right. GRANCIO: We’re not ready to be transitioned. We are in the transition. And so the way we think about it is we have to be very savvy about where do you have a brown business? Where can that brown business be gray? Where does it start to use green techniques? Natural gas is a great example. We need natural gas. So how do you move natural gas in a way where you’re looking at methane. You don’t have methane leaks. You’re using green energy and electric sources to process the natural gas. There are a lot of things we can do even while we’re using fossil to be cleaner, nd to put the people that are cleaner and doing fossil in a better position to sell versus their competitor, because we are seeing these changes. And we do have a lot of people looking at carbon footprint as they’re buying or investing in companies. RITHOLTZ: So my colleague, Matt Levine mentioned your win. And now says, when they see you coming, you are no longer presenting as a scrappy, small startup. You’re bringing some receipts to the table. Hey, Exxon knuckled down. Now, you and I have a conversation. How has that changed since that win? GRANCIO: Yeah. We started with Exxon effectively. And so I wouldn’t say the next day, it was a sea change in a positive way. I would say it’s complicated, because after you’ve done that, the board and the CEO are a little bit worried about what our intentions are and it takes time to build those relationships. And Chris does a lot of this work directly with the CEOs and the companies that are in the portfolios. And it takes time to build trust. But our relationship with them is basically having modeled their business ourselves and modeled all their competitor businesses, and have gone to kind of up and down the supply chains. And once we get to know each other, we’re giving them what they find is actually some very helpful point of view on if I like your business, I think this, you know, consumer demand is going to flip sooner, you’re going to miss it, or how organized are you on supply chain? What are your bottlenecks? And so it’s become really very constructive with a lot of the companies that we work with. RITHOLTZ: It sounds like your early training in the consultant world wasn’t for naught. This is almost a hybrid between activist investing and consultants. GRANCIO: And just investing, right, high quality investing means you really have to understand what a company strategy is and what are the bottlenecks, what are the places where they may miss. If you understand those, you can make those faster, shorter, better, less risk. Then that’s really positive for being more sure that the company increases in value. RITHOLTZ: So let’s talk a little bit about your toolbox. You mentioned proxy voting, you mentioned modeling. What else does Engine No. 1 bring to the table as ways to get management to see the world from your perspective? GRANCIO: Yeah. And part of it is the data science work that we do around the sizing of emissions, comparative emissions, monetization of emissions, so call that our total value approach to looking at the externalities of these companies. So we bring that. We’ve done the modeling all the fundamental work that we do. And then it’s very active engagement, where we want to stay engaged. That’s part of where the alts business came from. If there’s something in the private markets that could work differently to help a big public company move, can we make connections? Can we help that move along? And then proxy voting is important. So most of what we do is this kind of very intense active engagement. And we’re active owners of the company, not always an activist in a traditional meaning. We also launched an index product. So you know, our view is that you really have to hold these companies if you want to own the winners over time. And if you want to drive change, you also have to hold the companies, you can’t divest. A problem in the dominance of the current index providers is that they’re big and it’s complicated to vote shares, because you have people on different sides of every issue. So while we’re at it, put a new index product out on the market, that ticker is VOTE, which is pretty simple. It’s literally an index. We vote the shares in line with our economic outcomes, and we post them as soon as we vote. So a little option for people that still want to use index instead of active. RITHOLTZ: That’s really interesting. We’ve talked about Exxon so far, and Tesla and Ford. Tell us about your involvement in General Motors, what attracted you to the company, and what sort of positioning do you have with it. GRANCIO: Yeah. And General Motors, it’s going to take some time, right? So General Motors has been in the portfolio since we launched NETZ and still is, and has stayed there. And when we work with General Motors, a lot of our work has been about how do we accelerate the transition to battery electric vehicles for them as a manufacturer, and not for an ideological reason, purely because we think the consumer demand is shifting more quickly. RITHOLTZ: That’s where the market is going. GRANCIO: Right. That’s where the market is going. RITHOLTZ: That’s where the consumer demand is moving. GRANCIO: Again, this is an economic argument for us in working with General Motors, that the faster you get to all battery electric, which means you need to build the battery plants, you need to build them bigger, you need to build them faster, you need supply agreements locked up for the rare metals, and then you need to work on bringing the cost of batteries down. Because as all of that happens, GM makes 8 to 9 million cars a year. And so if those cars are all battery electric vehicles and the battery cost comes down, you know, what’s Tesla’s multiple, right? They have the opportunity to go from where the GM multiple is today, which is very low, very depressed value stock, all the way up to what producing BEVs at scale is going to look like. And that’s a huge value creation opportunity. RITHOLTZ: Let’s talk about what’s going on in the world of ESG and greenwashing and wokeism. There’s so many things happening here and I think people don’t really use these buzzwords appropriately. Let’s start out with greenwashing. Tell us your view of it and why it’s problematic. GRANCIO: Well, I think if you could do everything from scratch, I get this a lot from people that run large asset management companies, they’re like, gosh, I wish I could just start everything from scratch again in this environment. So I think the reality is, if you’re running a strategy and you don’t care, or you don’t have risk metrics on, let’s say, the environment and your strategy, it’s very hard to fit them on top. And I think a lot of people get caught in that from a greenwashing perspective. What we do is we start from scratch. We think about these material impact things as financial data, and it’s just part of our process. And so there’s no greenwashing there. But for people that were investing in something and now want to take advantage of a moment in time, or people that are investing and actually don’t really understand how environmental risk factor into the portfolio, I do think you just have to take a timeout and go back to basics and better articulate what the strategy is and what you’re actually doing to the market. And if it’s not a green strategy, you kind of have to say that. RITHOLTZ: It seems like a lot of this has just been on the hot buzzword of the day. GRANCIO: Well, a lot of our society right now has been on the buzzword of the day. So I think we need to be very careful about that when it comes to investing. RITHOLTZ: So let’s talk about wokeism. You’re describing ESG as sort of a risk management tool to filter out certain potential problems down the road. But if I pick up the Wall Street Journal or the New York Post and flip it to the editorial section, all I hear is woke capitalism and this is what Disney is doing, and this is what Apple is doing, and this is what Nike is doing. Is this really woke capitalism? Tell us what’s happening in that space. GRANCIO: Yeah, I think we have to remember what capitalism is. And then I’m not sure what we mean by woke, which is part of the problem. So your capitalism is meant to be you in public markets kind of, you know, put that in the private markets as well. It’s meant to be you have a set of financial shareholders, you have other stakeholders. You’re making money for the shareholders over time. That’s the definition of capitalism. It’s really hard to make money for shareholders, the financial shareholders over time if you don’t treat your workers well or you destroy the community in which you live. That’s just kind of good business or doing business the right way. I think we sometimes get confused when we talk about values or practices, and you can’t link it directly back to financial returns. So, listen, when it comes to climate, we feel like we can do a pretty good job with the data out there, to link how a company handles climate and environment with how they perform as a stock over time. You know, there’s not enough data on the social side. The research is spotty. I really hope there’s better data. I hope the research gets better. I hope we have causality there. But I think as investors, we have to be careful what we’re talking about. If the company has less emissions, they get credit for trying to do the right thing and the stock price goes up. That’s capitalism. Where from a values-based perspective, we want to ask a company to do something, that’s a little bit different. So I think that distinction is really important. RITHOLTZ: And it’s pretty robust then on governance, if you — GRANCIO: Yes, it did. RITHOLTZ: — elevate women to senior members, if you have people on your board that are diverse. Those companies historically have outperformed the companies that have not. GRANCIO: Yeah. And the board, for a minute, is another one that’s very hard to reduce into one stat. So if you think about all the research that’s been done on boards, in Engine No. 1, we do a lot of work with academics. So we’re always trying to look for these places where we’ve got data and causality, and we can link it to economic outcomes. And when it comes to boards, what a lot of the research would tell us is if a board is deeply non-diverse, that first, if you add one diverse person or thinker, they may actually have worse performance. But if a board starts to have multiple varieties of diversity, and the board listens to the diverse points of view, those are the boards where we get the real outperformance. And then remember, it’s a board. So it’s not just diversity of thought, it has to be diversity of capability. Because as these companies go through change, you know, you need other CEOs that have been successful through change. You know, if you’re an old school media company, you need people on the board that are successful with where the puck is going. So I think we have to look for both of those kinds of diversity. And boards that listen to each other, have diversity and have that important diversity of capability, absolutely, those are going to be the highest performing ones. RITHOLTZ: So we talked about Exxon. We talked about GM, and Ford, and Tesla. What other companies are you looking at as being on the cutting edge of change to take advantage of this transitional moment? GRANCIO: Yeah. I mean, one of the things we’re excited about, I can’t talk about the product because we’re not through the SEC with it yet — RITHOLTZ: Right. GRANCIO: — although it’s in filing. But from a theme perspective, we’re super excited for the U.S., from a U.S. competitiveness perspective. What happened during COVID is supply chains were too global, too fragile, and they broke. RITHOLTZ: Right. GRANCIO: And so what we’re already seeing, and we’re going to see a lot more of this in the next few years, is we’re seeing a huge resurgence of manufacturing jobs in the U.S. and it’s going to be great for a lot of these communities. So we see semiconductor plants. We see battery plants, Michigan, Tennessee, Kentucky. RITHOLTZ: Arizona is starting a big chip — GRANCIO: — Texas. Exactly. So it’s happening already. There’s a huge increase in manufacturing. And then as that happens, if you build a manufacturing plant, there’s a huge job multiplier. You have people come in to build the plant, and people work in the plant, and people work to move goods in and out of a plant. And we’re going to see a huge growth, we believe, in railroads. So if you’re going to increase manufacturing in the North America, guess what, you don’t need to ship things overseas. You need better, more effective railroad, continuing to strengthen the lines and the movement of goods around the U.S. And then automation, so good and bad is, you know, we have less birthrate and less people coming to the U.S. And we’re going to have a huge number of quality jobs. And so companies like Rockwell Automation, that high quality jobs and brand new factories, with automation to assist in the manufacturing. It’s going to be pretty awesome from an investment team perspective. RITHOLTZ: So Rockwell just isn’t terrifying us with YouTube videos of robots that are coming to kill jobs (ph)? GRANCIO: No. The high quality blue collar, if you will, workers and all these new plants, they’re not going to be enough of them. And they’re going to be happy that robots are there to help them RITHOLTZ: Really quite interesting. So let’s talk a little bit about some of the political pushback to the sort of investing you do. Maybe Florida is the best example, passing laws to punish a specific company, Disney, who objected to Florida’s anti-LGBTQ sort of legislation. Is the environment changing for this sort of proxy voting and criticism and working with companies? Or is Florida just Florida and you know, it’s kind of a one-off? GRANCIO: Listen, I think companies have consumers. And so if I’m a company, if I’m Disney and I have consumers, and I feel like my company needs to stand for something because it allows me to serve my consumers to say my brand has value, that’s something that Disney is going to have to push for. So I think, first of all, when it comes to public companies, some of them have one audience, some of them have another audience, and they may need to behave in ways to make their audience feel good so they can be in business and sell their product. And I think, separately, if we talk about proxy voting, successful proxy votes should be economic. So back to the kind of fiduciary concept we were talking about earlier. So if a proxy vote says, you know, can you please disclose more information about your workforce? That’s helpful to investors. Great. That often makes sense to us. If the proxy vote says, I don’t like this thing you do, please don’t do it. But there’s no economic causality. RITHOLTZ: Right. GRANCIO: I think it’s hard for that to be a proxy voting issue versus a values-based conversation with the company. So our belief is proxy votes matter. We should all use our vote. But proxy voting is a tool to drive kind of long-term economic performance with companies. Sometimes there are just value-based issues that shouldn’t be tackled through proxy votes. RITHOLTZ: I know I only have you for a limited amount of time. So let’s jump to our favorite questions that we ask all of our guests starting with, tell us about your early mentors who helped to shape your career. GRANCIO: Yeah. It’s funny, I don’t have a lot of mentors where it was that one guiding light. I found that I picked up little bits and pieces from different people. So Condi Rice was a provost when I was at Stanford. RITHOLTZ: Really? GRANCIO: And so it was that inspiration that sort of sent me off down the international relations path. There was just a level of smarts and confidence that I really appreciated, that I picked up from her. And then a professor in business school who said women can definitely have it all. But you’re kidding yourself if you think you can have it all at the same time. So, like, pace yourself, Like, go after it, but pace yourself. You can’t literally do it all at the same time, which is good advice. And then I think there are a lot of people for me, where I learned one or two lessons from different people. And now, I do a lot of mentoring of other people. And that is my overarching suggestion on this is you got to ask a lot of questions. And you don’t always have to have a lifetime relationship with everyone, but get any nugget you can get and run with it. RITHOLTZ: I like it. Let’s talk about books. What are some of your favorites and what are you reading currently? GRANCIO: So Maya Angelou is actually a favorite of mine. I find it relaxing and it’s so different than what I do every day, and kind of American and lyrical. Harry Potter, one of our kids is younger, so working our way through Harry Potter. And then the Daniel Kahneman Thinking Fast and Acting Slow, I read that last year. I like that a lot because you got to remember sometimes how our brains work. And the fact that we rush to things and we shortcut, and we group things. And so I find that helpful sometimes and just being calm about how else can we solve a problem, or why is somebody reacting the way that they do. RITHOLTZ: What sort of advice would you give to a recent college graduate who is interested in a career in either impact ESG activist, whatever you want to call it, type investing, or ETF and passive investing? GRANCIO: Well, first, I’d say those are great areas to go into. You should go into it. And definitely learn how to invest, learn how to be an investor. Don’t stick to one fad or one mousetrap. If you can learn how to be an investor, or how investors think, that will serve you so well in our business. And I guess to new graduates, I would say don’t give up hope. It’s going to be a bad job market. So take those internships, be a little bit scrappy, and just learn from whatever that first job is, two years in, because you’ll pick up a phenomenal amount of information. And if it’s not what you love, great, then go do something else after it. But it’s a great place to build a career. RITHOLTZ: Really interesting. And our final question, what do you know about the world of investing today that you wish you knew 30 or so years ago? GRANCIO: I think it’s that the overall portfolio construction matters, right? So as an investor, thinking about when you build, like when we build Engine No. 1, we built products or we put strategies out into the market, the more you can make them balanced and with some duration. So if somebody puts something in the portfolio, they sort of understand what it’s going to do, and what the return stream looks like and what the risk looks like, as we’re investing and then selling to other people. I think that ability to build products that are durable, and it’s clear what they do is really, really important. It lets you build your brand. It lets you build trust with the investors. RITHOLTZ: Really interesting. Thank you, Jennifer, for being so generous with your time. We have been speaking with Jennifer Grancio. She is the CEO of Engine No. 1. If you enjoy this conversation, well, check out any of our previous 450 interviews. You can find those at iTunes, Spotify, YouTube, wherever you get your favorite podcasts. Sign up from my daily reads at ritholtz.com. You can follow me on Twitter @ritholtz. Check out all of the Bloomberg podcast @podcast. I would be remiss if I did not thank our crack team who helps put these conversations together each week. Sarah Livesey is my audio engineer. Atika Valbrun is my project manager. Sean Russo is my head of Research. Paris Wald is my producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio. END ~~~   The post Transcript: Jennifer Grancio, Engine No. 1 appeared first on The Big Picture......»»

Category: blogSource: TheBigPictureJan 17th, 2023

Deadly HIMARS strikes show how Ukrainian forces are turning cell phones into "force multipliers"

"Citizen involvement has meant that practically every citizen and every phone has become a sensor," British Gen. James Hockenhull said in December. A destroyed building purportedly used to house Russian soldiers in Makiivka on January 10.REUTERS/Pavel Klimov Ukraine has launched deadly long-range strikes against Russian troops in eastern Ukraine. Some of those strikes and other attacks have reportedly been enabled by Russian cell phone use. Those cases illustrate the growing use of cell phones as sensors on the battlefield. On December 31, the Ukrainian military launched a precision strike against a makeshift Russian barracks in the town of Makiivka in eastern Ukraine's Donbas region.According to Russia's Defense Ministry, the Ukrainians were able to pinpoint the makeshift barracks using cellular data. Russian reservists based there had turned on their cell phones, allowing Ukrainian military intelligence to pick up their location and pass the targeting data up the chain of command, according to the ministry.Soon thereafter, highly effective fire from US-provided M142 High Mobility Artillery Rocket Systems rained down on the target, setting off explosions that Russia says were made more intense by the detonation of ammunition that had also been stored in the barracks building.Estimates of Russian casualties in the attack range from 89 killed, as reported by Russia, to Ukraine's claim of some 400 killed and 300 more wounded.Russian lawmakers, military bloggers, and the troops' families have disputed the Kremlin's claim that the reservists' poor discipline got them killed, but that account of the strike and of others like it illustrate a growing battlefield trend: the use of cell phones as sensors to find, track, and attack enemy forces.Force multipliersA Ukrainian soldier looks for the SIM card of a smartphone near the remains of a Russian soldier in Kurylivka on January 12.Pierre Crom/Getty ImagesCell phones can prove deadly in a war zone. The signals and data they divulge can reveal troop positions, movements, and other information that could inform the enemy.Cell phone photos are particularly dangerous, especially when posted online, where their location data can expose where and when they were taken.Ukrainian military intelligence has been able to use the geolocation data in selfies posted by Russian troops to pinpoint their positions and establish their pattern of life, allowing for precision strikes with long-range rockets, missiles, and artillery.In mid-December, for example, Ukrainians reportedly used such photos to find the location of a Wagner Group headquarters and launch a HIMARS attack believed to have killed many of the group's fighters.Ukraine's ability to strike such targets has been greatly enhanced by HIMARS and M270 multiple launch rocket sytems, both supplied by the US, which have been the bane of Russian forces in Ukraine, taking out troops and weapons, command posts, ammunition dumps, bridges, and other military targets.Mourners at a January 3 ceremony for Russian troops that Moscow says were killed in a Ukrainian strike in Makiivka on December 31.ARDEN ARKMAN/AFP via Getty ImagesMoreover, Ukrainian and Western intelligence services have taken advantage of Russian forces' poor operational security to wage information warfare by publicizing calls Russian troops have made using unsecured networks — including cell phones stolen from Ukrainian civilians — to talk to each other and to their families back in Russia.In addition, Ukrainians have used their cell phones to report on Russian military movements.Early in the war, Kyiv repurposed a cell phone app meant to provide government services to allow Ukrainians to upload photos of Russian forces, which could be evaluated using artificial intelligence "and then a human makes a decision" whether to attack those forces, Eric Schmidt, former chairman of Google and Alphabet, said in September, following a visit to Ukraine.Cell phones have also provided accountability, allowing observers to tally losses and to shed light on misdeeds.The New York Times was able to identify members of a Russian paratrooper unit that was likely involved in killing civilians in Bucha, a suburb of Kyiv, because those paratroopers used the cell phones of slain civilians to make calls to Russia.Oryx, an independent open-source intelligence website, has tracked Russian and Ukrainian losses and compiled lists of destroyed, captured, or abandoned weapons, often using cell phone footage from the battlefield.Pro-Russian fighters patrol Makiivka in February 2015.DOMINIQUE FAGET/AFP via Getty ImagesIndeed, "practically every citizen and every phone has become a sensor," British Army Gen. James Hockenhull, commander of the UK's Strategic Command, said in December during a speech on the role of open-source intelligence in the Russia-Ukraine war.Open-source intelligence gleaned from civilian phones and commercial networks is "a force multiplier" that "offers alternative pathways for information to travel and sometimes goes beyond military communications, which can be subject to jamming or disruption," Hockenhull said.Using civilian infrastructure in such a way creates "ethical and moral" issues, Hockenhull added, "but in the context of a war of national survival, the Ukrainian public are incredibly committed to playing their part and providing the advantage to their decision makers."Stavros Atlamazoglou is a defense journalist specializing in special operations, a Hellenic Army veteran (national service with the 575th Marine Battalion and Army HQ), and a Johns Hopkins University graduate. He is working toward a master's degree in strategy and cybersecurity at Johns Hopkins' School of Advanced International Studies.Read the original article on Business Insider.....»»

Category: dealsSource: nytJan 15th, 2023

David Stockman On The Flawed Strategy For A So-Called Public Health Crisis

David Stockman On The Flawed Strategy For A So-Called Public Health Crisis Authored by David Stockman via InternationalMan.com, The undisputed fact is that the CDC changed rules for causation on death certificates in March 2020, so now we have no idea whatsoever whether the 1.05 million deaths reported to date were deaths because OF Covid or just incidentally were departures from this mortal world WITH Covid. The extensive well-documented cases of hospital DOAs (deaths on arrival) from heart attacks, gunshot wounds, strangulation or motorcycle accidents, which had tested positive before the fatal event or by postmortem, are proof enough. More importantly, what we do know is that not even the power-drunk apparatchiks at the CDC and other wings of the Federal public health apparatus found a way to change the total mortality counts from all causes. That’s the smoking gun unless you consider the year 2003 to have been an unbearable year of extraordinary death and societal misery in America. To wit, the age-adjusted death rate from all causes in America during 2020 was actually 1.8% lower than it had been in 2003 and nearly 11% lower than it had been during what has heretofore been understood to be the benign year of 1990! To be sure, there was a slight elevation of the all-causes mortality rate in 2020 relative to the immediately preceding years. That’s because the Covid did disproportionately and in some ghoulish sense harvest the immunologically vulnerable elderly and co-morbid slightly ahead of the Grim Reaper’s ordinary schedule. And far worse, there were also extraordinary deaths in 2020 among the less Covid vulnerable population owing to hospitals that were in government ordered turmoil; and also to an undeniable rise in human malfunction among the frightened, isolated, home-bound quarantined, which resulted in a swelling of homicides, suicides and a record level of deaths from drug overdoses (94,000). Still, the common sense line of sight across this 30-year chart below tells you 1000 times more than the context-free case and death counts which scrolled across America’s TV and computer screens day-in-and-day-out. It tells you there was no deadly plague; there was no extraordinary public health crisis; and that the Grim Reaper was not stalking the highways and byways of America. Compared to the pre-Covid norm recorded in 2019, the age-adjusted risk of death in America during 2020 went up from 0.71% to 0.84%. In humanitarian terms, that’s unfortunate but it does not even remotely bespeak a mortal threat to societal function and survival and therefore a justification for the sweeping control measures and suspensions of both liberty and common sense that actually happened. This fundamental mortality fact—the “science” in bolded letters if there is such a thing—totally invalidates the core notion behind the Fauci policy that was sprung upon our deer-in-the-headlights president stumbling around the Oval Office in early March 2020. In a word, the above chart proves that the entire Covid strategy was wrong and unnecessary. Lock, stock and barrel. *  *  * We’ve seen governments institute the strictest controls on people and businesses in history. It’s been a swift elimination of individual freedoms. But this is just the beginning… Most people don’t realize the terrible things that could come next, including Central Bank Digital Currencies (CBDCs), the abolition of cash, and much more. If you want to know how to survive what the central bankers and the Deep State have planned, then you need to see this newly released report from legendary investor Doug Casey and his team. Click here to download it now. Tyler Durden Fri, 01/06/2023 - 18:20.....»»

Category: blogSource: zerohedgeJan 6th, 2023

Watch video of the helicopter rescue of the 4 Tesla passengers who survived a 250-foot plunge off a cliff

The video shows first responders dropping from a helicopter to rescue passengers from the wreckage amid rough surf. This image from video provided by San Mateo County Sheriff's Office shows a helicopter rescue after a Tesla plunged off a Northern California cliff along the Pacific Coast Highway on January 2.an Mateo County Sheriff's Office via AP Four Tesla passengers survived a 250-foot drop off the "Devil's Slide" cliff on Monday. California Highway Patrol posted a video of the helicopter rescue on Facebook on Tuesday. The video shows first responders dropping from a helicopter amid rough surf. California authorities rescued four Tesla passengers via helicopter from a 250-foot drop off a cliff known as Devil's Slide on Monday.The Tesla was carrying two adults and two children, Cal Fire's San Mateo branch reported. An official at the scene said the children in the vehicle were 4 and 9, per KRON4 in San Francisco.California Highway Patrol (CHP) posted a video of the rescue on Facebook on Tuesday. The video shows first responders dropping from a helicopter to rescue the passengers from the wreckage amid rough surf and placing the passengers in gurneys that were raised into the air one-by-one.Brian Pottenger, the battalion chief of the Coastside Fire Protection District, told Fox News it was remarkable the passengers had survived the 250-foot fall."We come out here, unfortunately, all too often for things like this," he said. "And this, this was nothing short of a miracle that they survived."Insider's Marianne Guenot previously reported that the odds of all four passengers surviving the incident with minor injuries were slim, but the Tesla's large EV battery and steel step frame helped increase their odds of survival.When the first responders arrived at the scene, all four occupants were conscious, but trapped in the car, Pottenger told CNN. The two children were still secured in their car seats at the time of rescue, Pottenger said.CHP said that the rescue crew first freed the children, using rope to lift them up the cliff and first responders later raised the two adults out of the cliff's overhang.Emergency personnel took the passengers to a local hospital with serious injuries, the highway patrol said. The San Mateo County Sheriff's Office said in a tweet that the children were "unharmed" at the time of rescue. NBC reported that the adults were taken to the hospital in critical condition upon recovery, but were later found to have sustained non-life-threatening injuries. On Tuesday, the driver of the Tesla, Dharmesh Patel, was arrested over allegations of attempted murder and child abuse in connection to the car crash. CHP said "investigators developed probable cause to believe this incident was an intentional act" based on evidence collected, adding that it was determined that Tesla Autopilot, the carmaker's driver assist feature, was not a "contributing factor" to the crash.Insider was unable to find contact information Patel for comment ahead of publication, and it was not immediately clear whether he had retained an attorney. CHP has said the investigation is ongoing.Read the original article on Business Insider.....»»

Category: worldSource: nytJan 5th, 2023

onsemi (ON) New SiC Modules Selected for Hyundai Motors EV

onsemi (ON) Elite SiC modules will boost the performance of Hyundai and Kia's electric vehicles. onsemi ON recently announced that its Elite silicon carbide (SiC) power modules have been selected for Kia Corporation’s EV6 GT model and Hyundai Motor Co. HYMLF electric vehicles (EV).onsemi’s Elite SiC power modules will help the two sister companies’ EVs to provide performance such as speed acceleration from zero to 60 mph in 3.4 seconds and reaching a top speed of 161 mph.on recently announced that EliteSiC is the new name of its SiC family of solutions, and it would launch three solutions — the 1700 V EliteSiC MOSFET and two 1700 V avalanche-rated EliteSiC Schottky diodes — at the Consumer Electronics Show in Las Vegas.ON has forayed into building its SiC modules to capitalize on the uptrend in the market for energy infrastructure, factory automation and EVs.The company generates a significant percentage of revenues from each of the computing, consumer, industrial, communications and automotive markets. onsemi reported revenues of $2.19 billion in the third quarter of 2022, which beat the Zacks Consensus Estimate by 3.6% and improved 26% on a year-over-year basis.The company is reallocating capacity to strategic and high-margin products to drive a favorable mix shift and eliminate price-to-value discrepancies. onsemi is expanding its production capacity in strategic locations and closing fab locations in areas affecting its margin growth due to rising price surges in operating in those areas.ON Semiconductor Corporation Price and Consensus ON Semiconductor Corporation price-consensus-chart | ON Semiconductor Corporation Quoteonsemi Expands SiC Production Capacity to Boost GrowthThe entire Semiconductor - Analog and Mixed industry is reeling under various operational challenges due to a number of macroeconomic turmoils like raging inflation, the ongoing Russia-Ukraine war, forex market volatility and the looming recession. These can negatively impact the performance capabilities and bottom-line growth of companies like onsemi, which has a significant debt burden.As of Sep 30, 2022, onsemi had a cash balance of $2.45 billion, whereas total debt (including the current portion) was $3.21 billion. A high debt position increases the risk profile of the business. Thus, the company is required to constantly generate an adequate amount of cash flows to meet debt requirements.However, despite its leveraged balance sheet, onsemi has been expanding its SiC facilities domestically and internationally to diversify its product portfolio. Per onsemi, the SiC total addressable market is projected to grow from $2 billion in 2021 to $6.5 billion in 2026, witnessing a CAGR of 33%.onsemi currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.The company recently expanded its Hudson, NH-based facility, which will increase SiC boule production capacity by five times year over year. This will aid in meeting the rising demand for SiC-based solutions, which is critical for developing EVs and energy infrastructure, and is an important contributor to decarbonization.ON recently expanded its SiC facility in Roznov, Czech Republic, to expand SiC production capacity by 16 times. So far, ON has invested more than $150 million in the Roznov site and will look to spend an additional $300 million through 2023.onsemi recently completed the sale of its Niigata, Japan facility, which aligns with its fab liter strategy to expand the gross margin and reduce its fixed-cost footprint.Also, positively impacting the domestic expansion of onsemi’s SiC facilities is President Biden's decision to sign the CHIPS and Science Act. The act supports investments in domestic semiconductor manufacturing and reduces dependence on foreign markets like China and Japan. Its peer Microchip Technology MCHP is also looking to benefit from the recent declaration of the act by the government.The government's recent declaration will help Microchip to diversify income from its microcontroller business, which is riddled with supply-chain disturbances. Microchip continues developing and introducing a wide range of innovative and proprietary new linear, mixed-signal, power, interface and timing products to spur growth in the analog business.However, ON faces stiff competition from Texas Instruments TXN and STMicroelectronics.STMicroelectronics’ third-generation STPOWER SiC MOSFETs help meet the energy-saving efficiency requirements in EVs and are chief competitors of onsemi in the EV market. STMicroelectronics’ solutions will help EV makers achieve faster charging and reduce EV weight, helping STM win a significant market share in the industry.Texas Instruments is also seeing success in certain fast-growing automotive market segments. TXN is focused on infotainment, safety and ADAS, body electronics (including lighting), hybrid electric vehicles and powertrain segments of the automotive market. It also experiences significant traction from the EV megatrend.onsemi, however, signed long-term supply agreements with various customers for the next three years, which are expected to help secure $1 billion of committed SiC revenues in 2023. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time. This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Texas Instruments Incorporated (TXN): Free Stock Analysis Report Microchip Technology Incorporated (MCHP): Free Stock Analysis Report Hyundai Motor Co. (HYMLF): Free Stock Analysis Report ON Semiconductor Corporation (ON): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»

Category: topSource: zacksJan 5th, 2023

onsemi"s (ON) New EliteSiC Solutions to Boost Prospects

onsemi (ON) to launch SiC Solutions to diversify its business and address the uptrend in the energy infrastructure market. onsemi ON announced that EliteSiC is the name of its silicon carbide (SiC) family of solutions and it would launch three solutions — the 1700 V EliteSiC MOSFET and two 1700 V avalanche-rated EliteSiC Schottky diodes — at the Consumer Electronics Show (CES) in Las Vegas.onsemi’s latest 1700 V EliteSiC MOSFET is a higher breakdown voltage SiC solution for high-power industrial applications. The two 1700 V avalanche-rated EliteSiC Schottky diodes will help designers achieve stable high-voltage operation at high temperatures.ON has forayed into building these products to capitalize on the uptrend in the market for energy infrastructure.onsemi has a well-diversified business and is addressing other megatrends such as factory automation and electric vehicles. The company generates a significant percentage of revenues from each of the computing, consumer, industrial, communications and automotive markets. onsemi reported revenues of $2.19 billion in the third quarter of 2022, which beat the Zacks Consensus Estimate by 3.6% and improved 26% on a year-over-year basis.The company is reallocating capacity to strategic and high-margin products to drive a favorable mix shift and eliminate price-to-value discrepancies. To do so, onsemi is expanding its production capacity in strategic locations and closing fab locations in areas that are affecting its margin growth due to rising price surges in operating in those areas.ON Semiconductor Corporation Price and Consensus  ON Semiconductor Corporation price-consensus-chart | ON Semiconductor Corporation Quoteonsemi Boosting SiC Manufacturing Capacity to Drive Top LineThe entire Semiconductor - Analog and Mixed industry is reeling under various operational challenges due to a number of macroeconomic turmoils like raging inflation, the ongoing Russia-Ukraine war, forex market volatility and the looming recession. These can impact the performance capabilities and bottom-line growth of companies like onsemi, which has a significant debt burden.As of Sep 30, 2022, onsemi had a cash balance of $2.45 billion, whereas total debt (including the current portion) was $3.21 billion. A high debt position increases the risk profile of the business. Thus, the company is required to constantly generate an adequate amount of cash flows to meet debt requirements. Onsemi currently carries a Zacks Rank #4 (Sell).You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.However, despite its leveraged balance sheet, onsemi has been expanding its SiC facilities domestically and internationally to diversify its product portfolio. Per onsemi, the SiC total addressable market is projected to grow from $2 billion in 2021 to $6.5 billion in 2026, witnessing a CAGR of 33%.The company recently expanded its Hudson, NH-based facility, which will increase SiC boule production capacity by five times year over year. This will aid in meeting the rising demand for SiC-based solutions, which is critical for developing EVs and energy infrastructure, and is an important contributor to decarbonization.ON recently expanded its SiC facility in Roznov, Czech Republic, to expand SiC production capacity by 16 times. So far, ON has invested more than $150 million in the Roznov site and will look to spend an additional $300 million through 2023.onsemi, is not only expanding its production capacity. The company has recently completed the sale of its Niigata, Japan facility, which aligns with its fab liter strategy to expand the gross margin and reduce its fixed-cost footprint.Also, positively impacting the domestic expansion of onsemi’s SiC facilities is President Biden's decision to sign the CHIPS and Science Act. The act supports investments in domestic semiconductor manufacturing, and reducing dependence on foreign markets like China and Japan. Its peer Microchip Technology MCHP is also looking to benefit from the recent declaration of the act by the government.The government's recent declaration will help Microchip to diversify income from its microcontroller business, which is riddled with supply-chain disturbances. Microchip continues developing, and introducing a wide range of innovative and proprietary new linear, mixed-signal, power, interface and timing products to spur growth in the analog business.However, ON is facing stiff competition from Texas Instruments TXN and STMicroelectronics STM.STMicroelectronics’ third-generation STPOWER SiC MOSFETs help meet the energy-saving efficiency requirements in EVs and are chief competitors of onsemi in the EV market. STMicroelectronics’ solutions will help EV makers achieve faster charging and reduce EV weight, helping STM win a significant market share in the industry.Texas Instruments is also seeing success in certain fast-growing automotive market segments. TXN is focused on infotainment, safety and ADAS, body electronics (including lighting), hybrid electric vehicles and powertrain segments of the automotive market. It also experiences significant traction from the EV megatrend.onsemi, however, signed long-term supply agreements with various customers for the next three years, which are expected to help secure $1 billion of committed SiC revenues in 2023. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time. This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Texas Instruments Incorporated (TXN): Free Stock Analysis Report STMicroelectronics N.V. (STM): Free Stock Analysis Report Microchip Technology Incorporated (MCHP): Free Stock Analysis Report ON Semiconductor Corporation (ON): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»

Category: topSource: zacksJan 4th, 2023

Viasat (VSAT) Completes Non-Core Asset Sale to L3Harris

The transaction will enable Viasat (VSAT) to focus on its core operations and provide satellite communication services globally. Viasat Inc. VSAT recently completed the divestment of its Link 16 Tactical Data Links business to L3Harris Technologies, Inc. LHX for $1.96 billion. The non-core asset sale is part of the company's long-term strategy to focus on an integrated satellite services platform for global mobile, fixed commercial and government markets. The proceeds from the transaction will also enable Viasat to reduce its debt burden and strengthen its balance sheet position.Tactical data links are highly structured, standardized and interoperable communication links used by military organizations to facilitate real-time data exchange across military aircraft, ground vehicles, surface vessels and operating bases. The acquisition of Viasat’s tactical data link product line will enable L3Harris to broaden its multi-function, multi-domain mission solutions through integration with Link 16. It will help L3Harris to expand resilient communication and networking capabilities for broader end-to-end, sensor-to-shooter connectivity across multiple domains.About 450 employees of the divested business that generated approximately $400 million in annual sales are being transferred to L3Harris. The company will utilize about $1.8 billion of the sale proceeds to reduce its debt burden. The transaction will further enable Viasat to focus on its core operations and provide satellite communication services globally.Viasat enjoys a leading position in the satellite and wireless communications market. With the rapid proliferation of the smartphone market and usage of mobile broadband, the user demand for coverage speed and quality has increased, which is fueling the demand for network tuning and optimization to maintain high data traffic. The company attracts millions of U.S. consumers and enterprises with its high-quality broadband service.Encouragingly, Viasat’s blue-chip customer base, which comprises the U.S. Department of Defense, civil agencies, allied foreign governments, satellite network integrators and large communications service providers and enterprises, adds to its strength. Currently, the company’s Government Systems segment is acting as a major profit churner. Viasat is eyeing opportunities to extend broadband satellite mobility to rotary-wing aircraft, as it is a large addressable market that can emerge as a key profit churner.In addition, the company is ramping up investments to develop its revolutionary ViaSat-3 broadband communications platform, which will boast nearly 10 times the bandwidth capacity of ViaSat-2. The ViaSat-3 platform will help form a global broadband network with sufficient network capacity to allow better consumer choices with an affordable, high-quality, high-speed Internet and video streaming service.Viasat’s Satellite Services business is also progressing well, with key metrics including ARPU (average revenue per user) and revenues showing impressive growth. ARPU is growing on the back of a solid retail distribution network, accounting for an increasing proportion of the high-value and high-bandwidth subscriber base. Further, the rising adoption of in-flight Wi-Fi services in commercial aircraft is proving conducive to the growth of the Satellite Services business.Viasat’s Ka-band solutions enable business jet customers to enjoy high-speed Internet connectivity from takeoff to touchdown. It empowers aviation clients to reinforce their IFC investments and helps customers stay connected with smooth web browsing and streaming services. Equipped with unrivaled speed and quality, Viasat’s Ka-band service has been specifically designed to meet the accretive demands of data backed by next-gen business applications. The Ka-band leverages global bandwidth to provide avant-garde Internet service with best-in-market pricing to boost the competitiveness of the business jet market.The stock has lost 29.8% over the past year compared with the industry’s decline of 33.4% in the same period.Image Source: Zacks Investment ResearchViasat currently carries a Zacks Rank #5 (Strong Sell).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Ooma Inc. OOMA, sporting a Zacks Rank #1, delivered an earnings surprise of 21.7%, on average, in the trailing four quarters. Earnings estimates for Ooma for the current year have moved up 37.8% since March 2022. It has a VGM Score of B.Ooma offers communications services and related technologies for businesses and consumers in the United States and Canada. It helps to create powerful connected experiences for businesses and consumers through its smart cloud-based SaaS platform.Arista Networks, Inc. ANET, sporting a Zacks Rank #1, is likely to benefit from the strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 17.5% and delivered an earnings surprise of 12.7%, on average, in the trailing four quarters.It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200-, and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time. This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Viasat Inc. (VSAT): Free Stock Analysis Report Arista Networks, Inc. (ANET): Free Stock Analysis Report Ooma, Inc. (OOMA): Free Stock Analysis Report L3Harris Technologies Inc (LHX): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research.....»»

Category: topSource: zacksJan 4th, 2023