Saturday, February 25, 2017

Marc Andreessen Is Tweeting Again

From @pmarca:

Jalopnik: "Uber Is Doomed"

Readers who have followed the Uber story over the last few years, especially if you read Izabella Kaminska at FT Alphaville, know that despite posting on the lurid details from time to time (us more than she) our (and her) focus has been on the business/finance/econ aspects of Uber, although the political economy and other social science stuff can't help appearing, because what Kalanick built was in his own image.

From a 2014 post, "Here's the Real Problem With Uber: You Can't Trust Them":
The first thing I thought of when I started digging into Uber:
"From all our legends, mythology, and history (and who is to know where mythology leaves off and history begins – or which is which), the first radical known to man who rebelled against the establishment and did it so effectively that he at least won his own kingdom – Lucifer."
-Page ix of Rules for Radicals.
That's Alinsky seemingly quoting himself and the way I read it he's saying the Devil challenged authority and won his own kingdom.
That emulating the methods of Satan using any means fair or foul, including lying, cheating and stealing is the way to get riches and power.

And that was the moment when I stopped thinking of Uber as frat boys making stupid boob jokes and started thinking of them as nasty little political operatives.

If you're into this kind of stuff, Rule 12 appears to be the approach Uber management favors:
RULE 12: Pick the target, freeze it, personalize it, and polarize it." Cut off the support network and isolate the target from sympathy. Go after people and not institutions; people hurt faster than institutions. (This is cruel, but very effective. Direct, personalized criticism and ridicule works.)
I should note we are fans of Alinsky's tactical brilliance, oftentimes struggling to resist employing rule #5:
#5 Ridicule is man’s most potent weapon. It’s hard to counterattack ridicule, and it infuriates the opposition, which then reacts to your advantage....
So yeah, although the focus has been on the quantifiable, the soft science stuff is there as well and may be the thing that takes Uber down. At least that's the charitable interpretation, that Kalanick, blinded by hubris didn't see the flaws in the business plan.

The less favorable interpretation is that he knew all along and kept pushing in the hope that magic would happen.
That would be a fraud.

Anyhoo, here's one of the best automotive websites on the net talking Uber.

From Jalopnik:
If there is one quote that sums up the ethos of Uber, it might be this cut from the company’s firebrand CEO Travis Kalanick: “Stand by your principles and be comfortable with confrontation. So few people are, so when the people with the red tape come, it becomes a negotiation.” But after a month marked by one disaster after another, it’s hard to see how Uber’s defiant, confrontational attitude hasn’t blown up in its face. And those disasters mask one key, critical issue: Uber is doomed because it can’t actually make money.

After a discombobulated 2016, in which Uber burned through more than $2 billion, amid findings that rider fares only cover roughly 40 percent of a ride, with the remainder subsidized by venture capitalists, it’s hard to imagine Kalanick could take the company public at its stunning current valuation of nearly $70 billion.

And now, in the past few weeks alone, Uber has been accused of having a workplace that fosters a culture of misogyny, accused of stealing from Google the blueprint of a successful self-driving system, and has lost 200,000 customers over ties to President Donald Trump and how it responded to a taxi driver boycott.

Yet even when those factors are removed, it’s becoming more evident that Uber will collapse on its own. Barring a drastic shift in the company’s business—an implausible rollout of self-driving car fleets across the U.S., an increase of fares by three-fold, or a complete monopolization of the taxi and ride-hailing markets—Uber’s lifeline is shrinking. Its business model could collapse if one court case, and there are many, goes against it. Or perhaps more pressing, if it simply runs out of cash.
That Kalanick quote about confrontation may be as innocuous as a random sound bite, but it’s representative of the ride-hailing giant’s methodology since its founding in 2009: a perpetual resistance to regulatory oversight; a belief that, ultimately, an unfettered market is the key to prosperity. 

At first glance it seems like Kalanick’s libertarian ideals have paid off. Most recently valued at a reported $69 billion, Uber has captured a majority of the ground transportation market and flipped the taxi industry—a sector Kalanick once famously and snidely referred to as the Big Taxi Cartel—on its head. His philosophy mirrors the mindset of one of his favorite authors, the laissez-faire Ayn Rand. In 2012, Kalanick proffered that Uber’s battle against government regulations has an “uncanny resemblance” to the Randian philosophy. A billionaire fighting The System—and prevailing. It’s a good story for those who find truth in Atlas Shrugged.

Uber’s long had skeptics, and it’s not innovative to paint Kalanick, 40, as the boogeyman of Silicon Valley, where unseemly savants exist in vast supply.
The precarious moment in the company’s eight-year history falls on Kalanick’s lap. It’s his baby after all—a startup founded on seemingly nothing more than a vague idea, without much regard for the workforce to make it possible, or even a clear idea of what business model it actually wants to pursue. Uber has jumped from one idea to the next: UberX, UberEats, autonomous cars, and now flying cars, of all things.




The impact of Uber’s death would probably be as much of a rebuke of Kalanick’s vision of running on a scatterbrained dream, not so much a solid business model and philosophy, that you could muster.
It would also be devastating for some. The livelihood of 11,000 employees across the world rests on Kalanick’s decision to submit to that philosophy—which, at its core, is a ruthless way of doing business. At the very least, drivers in the pre-Uber market could earn a decent living. Conversely, for example, Uber drivers taking advantage of new “vehicle solution” pilot program in Boston — renting cars by the hour through Zipcar — will earn less than Massachusetts’ minimum wage. How innovative. 

The Contractor Problem
One of the biggest issues that has left Uber’s business model hanging in the balance is its resistance to classifying its drivers—there are reportedly 600,000 in the U.S.—as employees, not contractors. If Uber is a house of cards, this is a key part of the foundation that, once removed, would demolish the structure.

Indeed, the company has said reclassifying drivers could “force Uber to restructure its entire business model.” The result of its opposition to readjust has been entirely expected. Without the perks and protections that an employee may enjoyhealth care, benefits, gasoline and work reimbursements, vehicle maintenance, all of which could reportedly total as much as $730 million—complaints from drivers have piled up, ranging from low pay to new services like UberEats (a loathed food delivery service that’s reportedly set to lose over $100 million annually) and UberPOOL, its carpool option which increases the company’s take per-ride, lowers the take-home pay for drives, and is understood to be quite a drag for drivers and passengers alike. Drivers themselves said as much in a recent, disastrous question-and-answer session with Uber’s president....MUCH MORE
If interested, we have an awful lot of posts on Uber; here's the Google search of the site:
site:climateerinvest.blogspot.com uber

Technology Review's "10 Breakthrough Technologies 2017"

From MIT's Technology Review:

10 Breakthrough Technologies 2017

These technologies all have staying power. They will affect the economy and our politics, improve medicine, or influence our culture. Some are unfolding now; others will take a decade or more to develop. But you should know about all of them right now.

A Quick Lesson In Writing: "And there appeared a great wonder in heaven"

From Oxford American, December, 2015:

Prayers for Richard
David Ramsey
http://www.oxfordamerican.org/media/k2/items/cache/85ca514f9886a96d3c067f991afcb736_XL.jpg

And there appeared
a great wonder in heaven

Little Richard has always been attuned to signs. At the height of his fame, on tour in Australia in October 1957, he saw a big ball of fire in the sky above the stadium. This was his second vision of fire. On the flight over, the glow of the engines appeared to him as flames and he pictured yellow-haired angels holding the plane aloft.

The message, to Little Richard, was clear. He had to leave show business, quit singing the devil’s music, and get right with God.

“It looked as though the big ball of fire came directly over the stadium about two or three hundred feet above our heads,” he later told his biographer, Charles White. “It shook my mind. . . . I got up from the piano and said, ‘This is it. I am through. I am leaving show business to go back to God.’” And he did. He ditched the tour—leaving half a million dollars’ worth of canceled bookings, with multiple lawsuits to come. The change in plans kept him off a scheduled flight that crashed into the Pacific Ocean. The Lord wasn’t messing around.

Little Richard quit rock & roll altogether, at least for a time. He enrolled at Oakwood College in Huntsville, Alabama, to study to become a minister. All to the despair of the money men at Specialty Records—owner Art Rupe said that Little Richard was so popular they could have recorded him blowing his nose and made a hit.

What Little Richard saw overhead in Australia was in fact Sputnik, the Russian satellite traveling 18,000 miles an hour in the night sky.

Picture Little Richard, far from home, drenched in sweat. “He made an impressive entry,” according to Australian newspaper the Age, “wearing a brilliant red coat over a canary yellow suit, topped off with a bright green turban. But he discarded all the trimmings until he was left with only pyjama pants and the turban.” Pounding on the piano and then dancing on top of it and then throwing his bedazzled clothes into the crowd. And Richard saw the bright yellow burn of the satellite, or probably the rocket casing trailing it, perhaps streaking past the vibrant Alpha and Beta Centauri stars of the Southern Cross.

A star who mistook a satellite for a ball of fire. And we might pause here to note that whether or not it was a message from God, something like a miracle was afoot. A freaky-deaky bisexual black man who grew up poor in the Jim Crow South in Macon, Georgia, singing a wild, sexy nonsense song that changed music forever, everywhere—even in a packed stadium halfway around the world, as shrieking Australian teenagers nearly started a riot, scuffling to touch the man’s discarded clothes. Fire in the heavens and fire on earth.

There are miracles everywhere if you know where to look. And know how to listen: A wop-bop-a-loo-mop-a-lop-bam-boom!
...MORE 

Good intro, eh?

"The paths to power and success are narrowing. So is the worldview of the powerful."

From The Daily Beast:

America’s New Mandarins
Yesterday, I wrote about the silliness of requiring a file clerk to have a college degree. This morning, a friend sent me the following note about the narrowing of opportunity in modern America:
Random thought inspired by the NYT article re: requiring BAs for everything and your post, especially the note about your IT team and their varied backgrounds, which is far less likely to be true today.

It seems to me that a similar version of that narrowing-entry option is occurring in many fields

You've written in the past about how the top banks have steadily narrowed the pool of candidates whom they'll consider - e.g., only 5-6 schools will even be looked at. A similar phenomenon has been occurring in law as well, and not just post-08 . . . even before the recession.

Not sure I have a handle on the larger meaning of it all: it just seems like a generalized phenomenon to me that entry pathways are narrowing all over.
He also pointed me to a telling passage in Diary of a Very Bad Year, Keith Gessen's interviews with a hedge-fund manager: 
HFM: I’m sure today I would never get hired. 
 
n+1: Really?  
HFM: Yeah, it would be impossible because I had no background, or I had a very exiguous background in finance. The guy who hired me always talked about hiring good intellectual athletes, people who were sort of mentally agile in an all-around way, and that the specifics of finance you could learn, which I think is true. But at the time, I mean, no hedge fund was really flooded with applicants, and that allowed him to let his mind range a little bit and consider different kinds of candidates. Today we have a recruiting group, and what do they do? They throw résumés at you, and it’s, like, one business school guy, one finance major after another, kids who, from the time they were twelve years old, were watching Jim Cramer and dreaming of working in a hedge fund. And I think in reality that probably they’re less likely to make good investors than people with sort of more interesting backgrounds. 
 
n+1: Why?  
HFM: Because I think that in the end the way that you make a ton of money is calling paradigm shifts, and people who are real finance types, maybe they can work really well within the paradigm of a particular kind of market or a particular set of rules of the game—and you can make money doing that—but the people who make huge money, the George Soroses and Julian Robertsons of the world, they’re the people who can step back and see when the paradigm is going to shift, and I think that comes from having a broader experience, a little bit of a different approach to how you think about things....
...MORE

Inequality: Apparently What the World Needs Is Some Death and Destruction

From Inverse, February 15:

Income Inequality Is Likely Here to Stay
Author Walter Scheidel explains why it's so hard to level the playing field.

https://fsmedia.imgix.net/46/e4/c5/2a/98ab/4ff3/826e/8edc5e1f88ee/liberty-leading-the-people-by-eugene-delacroix.jpeg?rect=0,15,1920,960&dpr=1.5&auto=format,compress&q=75
Income inequality has become an increasingly visible and salient issue in the past few years, with ideas for fixing it on all sides of the aisle. But according to Stanford History Professor Walter Scheidel, author of The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, these approaches may not be the panacea many might like them to be.

Scheidel says that’s because violence is the only force in history that has truly managed to liberate wealth from the upper stratum of society. He frames his historical analysis of trends in inequality around what he calls the Four Horsemen: “mass-mobilization warfare, transformative revolutions, state collapse, and catastrophic plagues.” Only these “shocks” have the transformative power required to reduce inequality. It’s a grim, grisly prospect, one that raises more questions than it answers about how to move forward.

Inverse talked with Professor Scheidel about just that: the inequality of the past and what it means for the solutions of the future.

Your idea of the “Four Horsemen” — will those always look the same going forward?
Well so much has changed over time. State collapse and plagues, they’re not currently on the table. States are much more resilient now, very difficult to dislodge unless you’re in Sub-Saharan Africa or the Middle East. We’re not going to have another Black Death … probably. Even the others don’t currently apply, right? There is no Communist Revolution on the horizon and if there’s another war, it’s not going to be a mass mobilization war with millions of people in trenches. In a sense, history is over. That raises a very big question about future mechanisms of equalization. Nobody wants the old ones to come back, but are there others that are equally powerful? If they exist, they didn’t occur in history. It doesn’t mean we can’t one day discover them or design them.

Do you think something like state collapse would take on a new form? Might we define it differently than we would have previously?
Maybe. But if you think of some lower degree of disturbance, it doesn’t seem to be enough to have an effect on inequality. The overall state as an institution is not going to go away. You could say that in the next few decades there will be more violence or violent dissent, but that’s not going to bring down the state, wholesale, in the West.

Do you think advancements in technology would be something that add to inequality?
Yeah. You can think in particular of genetics. That would be both within societies and between societies. It’s no longer totally futuristic. If you can have designer babies and you have to pay for it, that may be available only to a certain group, a particular class in a country or one country rather than another. That could create inequalities like we’ve never seen before. Now, we are still all “people,” but that could change....MORE

Friday, February 24, 2017

WTH Is Up With Rybolovlev? "A $100 Million Mystery: A Russian, His Art, and His Big Losses"

From Bloomberg:

Dmitry Rybolovlev sold three works for an estimated $100 million loss and stands to lose even more in upcoming auctions
https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iJz4D2YtpRy8/v0/1400x-1.jpg
 “Otahi” (1893) by Paul Gauguin recouped “less than $50 million” 
according to court documents, a loss on the $120 million purchase price.
It was meant to be one of the world’s top collections of 20th century art, anchored by Amedeo Modigliani nudes and Claude Monet water lilies.

But two years after Dmitry Rybolovlev sued his dealer, alleging he was overcharged by as much as $1 billion, the Russian fertilizer magnate is unloading works he acquired at often record prices. He has already sold three for a loss totaling an estimated $100 million, and is offering five more at Christie’s auctions in London starting next week, some for a fraction of their purchase prices.
Rybolovlev—whose fortune totals about $9.8 billion according to the Bloomberg Billionaires Index—invested about $2 billion in 38 works, from Leonardo da Vinci to Pablo Picasso. They were procured privately by Swiss art dealer Yves Bouvier, better known for creating a network of tax-free art storage warehouses in Singapore and Luxembourg.

Rybolovlev was among new buyers from Russia, China and other emerging economies who drove an unprecedented expansion of the art market in the past decade. Booming wealth created a network of collectors hungry for trophies by top modern and contemporary Western artists and willing to pay almost anything. Between 2003—the year Rybolovlev met Bouvier—and 2014, global sales more than tripled to $68 billion.

Since then, the market has contracted, and some of the art world’s most expensive pieces have been resold for less than their purchase price, mired in lawsuits and investigations.

The biggest of these disputes began in February 2015, when Rybolovlev filed a criminal complaint against Bouvier in Monaco, claiming the dealer fraudulently misrepresented his acquisition costs. Rybolovlev, 50, has been selling off the pieces privately and at auction—some for steep losses, according to calculations based on court filings, art catalogues, auction results and people familiar with the transactions. Prices of euro- and pound-denominated purchases were converted using exchange rates at the time.

Two Rybolovlev trusts in the British Virgin Islands recouped “less than $50 million” when the Russian sold Paul Gauguin’s “Otahi,” according to court papers they filed in New York. That’s about 60 percent below the $120 million Rybolovlev paid. In November 2015, he sold Gustav Klimt’s “Wasserschlangen II” for $170 million, down from the $183.8 million purchase price. In May 2016, his Auguste Rodin sculpture, “L’Eternel Printemps,” fetched $20.4 million, an auction record for the artist but less than a half the $48.1 million he paid.

“The gulf between Christie’s estimates and the original purchase prices of the works is a further illustration of the unprecedented scale and audacity of the fraud that the plaintiffs allege was perpetrated by Mr. Bouvier,” Sergey Chernitsyn, a representative of the Rybolovlev Family Office, said in an e-mailed statement. The office is an umbrella organization for the trusts.

Bouvier, 53, was arrested and held overnight by Monaco police after Rybolovlev’s 2015 complaint. His lawyer, Ron Soffer, said he’s confident Morgan Raymond, the Monaco magistrate investigating the criminal complaint, will decide not to charge Bouvier formally and will dismiss the case. Raymond declined to comment through his clerk....
...Works Still To Be Auctioned

  https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iyk0Y8l9XoiE/v1/1400x-1.jpg

“Te Fare (La Maison)” (1892) by Paul Gauguin

Bought: $85 million
Christie’s estimate: $15 million-$22.4 million
...MUCH MORE

Even though much of what Rybolovlev bought wasn't premier cru, to mix vices, it's not as though the Gauguin market fell out of bed. As noted earlier this month in "Sotheby’s Hires Wall Street Vet to Head Private Sales" (BID) this pretty picture changed hands for quite a bit of loot in 2015:

https://upload.wikimedia.org/wikipedia/commons/6/61/Paul_Gauguin%2C_Nafea_Faa_Ipoipo%3F_1892%2C_oil_on_canvas%2C_101_x_77_cm.jpg

Gauguin, When Will You Marry?
$300 million February 2015

Previously on the fruits o'fertilizer saga:

Oprah Said to Snag $150 Million Selling Klimt to Chinese Buyer
Big Money: What Geneva’s Art King Lost in Battle with Russian Billionaire
Big Money: "What Did Sotheby’s Know And When Did They Know It"
Dirty deeds, not dirt cheap.
It's pretty well established that the punishment for an agent's breach of the duty of loyalty to his principal is death.
At least in Russia at any rate  
Art: War Between the 'Freeport King' and the Oligarch and How Dmitry Rybolovlev Made a Quick $300 Million
"Oligarchs and Orchestras: Inside Luxembourg’s Secretive Low-Tax ‘Fortress of Art’ Warehouse"
The Power of Potash: Russian Billionaire Part of Record Deal For Trump Mansion

Natural Gas: EIA Weekly Supply/Demand Report

As the March contract rolls off here's the soon to be front month April over the last two weeks:

https://finviz.com/fut_chart.ashx?t=NG&cot=023651&p=h1&rev=636235349081254245
$2.750 up 0.001

From the Energy Information Administration:
for week ending February 22, 2017   |  Release date:  February 23, 2017   |  Next release:  March 2, 2017   
In the News:
Drilling Productivity Report forecasts production rise in six out of seven shale regions
Natural gas gross withdrawals are forecast to increase from February to March in six of the seven most prolific shale regions in the Lower 48 states, according to EIA’s most recent Drilling Productivity Report (DPR). This is the first time since March 2015 that more than five of the seven shale regions have seen month-to-month increases. Through March, the DPR forecasts that only the Eagle Ford shale region has decreasing production; natural gas production in Eagle Ford has been declining since December 2015. The DPR expects total production from the seven shale regions to reach an all-time high of 48.6 billion cubic feet per day (Bcf/d) in February, followed by a new record of 49.1 Bcf/d in March (note these projections do not consider weather, capacity constraints, or changes in realized prices). The previous record production level from these regions was 48.3 Bcf/d in August 2016.

Currently, the seven shale regions covered in the DPR account for more than half of the total natural gas gross withdrawals in the Lower 48 states, compared to about a quarter of the total in 2009. Production from these regions has been increasing at an average annual rate of 14% since 2007. These production rises came as well laterals became longer and overall rig productivity steadily rose. However, the average annual growth rate was at its lowest in 2016 (January through November); gross withdrawals were only 5% higher compared to the same period in 2015....
... Prices/Supply/Demand:
Prices fall sharply everywhere on unseasonably warm weather. This report week (Wednesday, February 15 to Wednesday, February 22), the Henry Hub spot price fell 39¢ from $2.92/MMBtu last Wednesday to $2.53/MMBtu yesterday, a 13% decrease. This is the lowest Henry Hub price since mid-November 2016, when the price dipped nearly to $2.00/MMBtu on mild weather and high storage stocks. Weather was warmer virtually everywhere in the country by the end of the report period, with temperatures breaking records.

At the Chicago Citygate, prices decreased 25¢ to $2.59/MMBtu yesterday. The price at SoCal Citygate decreased 23¢ to $2.82/MMBtu yesterday. Prices at PG&E Citygate in Northern California fell 24¢ to $3.06/MMBtu yesterday.

Northeast prices down sharply. At the Algonquin Citygate, which serves Boston-area consumers, prices went down $1.83 from $4.02/MMBtu last Wednesday to $2.19/MMBtu yesterday. At the Transcontinental Pipeline Zone 6 trading point for New York, prices fell $1.01 to $2.10/MMBtu yesterday.

Several Appalachian price points fell below the $2.00/MMBtu mark this week. Tennessee Zone 4 Marcellus spot prices decreased 53¢ to $1.93/MMBtu yesterday. Prices at Dominion South in northwest Pennsylvania fell 56¢ from $2.64/MMBtu last Wednesday to $2.08/MMBtu yesterday.

March Nymex contract down. At the Nymex, the price of the March 2017 contract decreased 33¢, from $2.925/MMBtu last Wednesday to $2.592/MMBtu yesterday. The price of the 12-month strip, averaging March 2017 through February 2018 futures contracts, declined 30¢ to $2.950/MMBtu.
Supply falls slightly. According to data from PointLogic, the average total supply of natural gas fell by 1% compared with the previous week. Dry natural gas production remained constant week over week. Average net imports from Canada decreased by 12% from last week.

Demand falls across all sectors. Total U.S. consumption of natural gas fell by 15% compared with the previous report week, according to data from PointLogic. Power burn declined by 3%; industrial sector consumption declined by 4%, and residential and commercial sector consumption declined by 29%. Natural gas exports to Mexico decreased 2%....
...MORE
http://www.eia.gov/naturalgas/weekly/img/20170216.7day.mean.F.gif

News You Can Use: "The Economics of Kidnap Insurance"

From the Conversable Economist:
There is reason to be dubious, at least in theory, about  how kidnap insurance can work. After all, buying kidnap insurance only makes sense if you believe that, in the case of being kidnapped, it will increase your chance of being released. After all, if kidnappers know (or can figure out) that certain people have kidnap insurance, won't they tend to target such people? Also, if a kidnap victim has insurance  has insurance, won't the kidnappers demand the monetary equivalent of the earth, moon, and stars as a ransom? In these ways, might the presence of kidnap insurance increase the amount of kidnapping? On the other side, insurance companies have a profit motive to take actions that would reduce the number of kidnappings and the size of ransom payments. But if kidnappers make extraordinarily high demands and the insurance company pushes back, then it seems likely that negotiations over ransom will tend to break down--in which case the rationale for buying kidnap insurance in the first place would disappear. And how can kidnap insurance companies figure out a way to deal with the situation of kidnap victims who don't have insurance: if the representatives of those victims (who may in some cases be national governments) pay high ransoms, then it will be harder for the companies that sell kidnap insurance to keep other ransom demands down.

 Anja Shortland explores "Governing kidnap for ransom: Lloyd's as a `private regime," in an article forthcoming in Governance magazine (the publisher, Wiley, has laudably made an "Early View" preprint version of the article available here). The short answer to the concerns over how kidnap insurance markets are likely to break down is that if all the companies providing that interact with each other, swap information, and follow common protocols, then kidnap insurance can function. For kidnap insurance, Lloyd's serves as a place where that interaction happens. Shortland writes (citations omitted):
Kidnapping is a major (if largely hidden) criminal market, with an estimated total turnover of up to US$1.5 billion a year. Transnational kidnaps, where the victims are foreign tourists, high-net-worth local residents insured by multinational insurers, and the employees of foreign enterprises, are scary one-off events for almost all families and most firms. Ransoming hostages is beset with trust and enforcement problems. Kidnappers seek to maximize ransoms and can employ extreme violence to pressurize stakeholders to reveal their assets. Law enforcement may prepare rescue operations while families (pretend to) negotiate a ransom. Any sequential payment process is potentially problematic, but ransom drops can fail even if both parties act in good faith. Kidnappers need not release (live) hostages after payment and may demand multiple ransoms. Yet, despite these considerable difficulties—and contrary to general perceptions based on newspaper headlines—the vast majority of transnational kidnap victims survive and most cases conclude relatively quickly.  ...
Commercially, kidnap insurance is only viable under three (related) conditions. First, kidnaps should be nonviolent and detentions short—otherwise, individuals and firms withdraw from high-risk areas. Second, insurance premia must be affordable. Although insurance is only demanded if people are concerned about kidnapping, actual kidnaps must be rare, and ransoms affordable. Insurers struggle in kidnapping hotspots: High premia deter potential customers. ... Third, ransoms and kidnap volumes must be predictable and premium income must cover (expected) losses. If kidnapping generates supernormal profits, more criminals enter the kidnap business. Premium ransoms quickly generate kidnapping booms. Insurers, therefore, have a common interest in ordering transactions and preventing ransom inflation. ...
...MORE

"China is funding Baidu to take on the US in deep-learning research"

From Quartz:
While US-based companies like Alphabet, IBM, Facebook, and Microsoft typically dominate US artificial-intelligence headlines, China’s government is now accelerating the country’s own contributions to the field.

China’s National Development and Reform Commission, a government agency tasked with planning economic and social strategies, will fund search giant Baidu’s development of a national deep-learning research lab, according to a post on Baidu’s Chinese WeChat account. The amount of funding was not disclosed, but Beijing-based Baidu will work with Tsinghua and Beihang universities, as well as other research Chinese institutions.

One important caveat: The laboratory won’t be a physical structure, but instead a digital network of researchers working on problems from their respective locations, according to the South Morning China Post. The research will focus on computer vision, biometric identification, intellectual property rights, and human-computer interaction.

Baidu is dedicating the head of its own Deep Learning Institute, Lin Yuanqing, to the project, as well as computer scientist Xu Wei. The Chinese Academy of scientists will also have two representatives in the lab.

Although America is not mentioned in the company’s post, Baidu chief scientist Andrew Ng has been vocal about China’s accelerated AI growth compared to the US. Citing a statistic that more papers with Chinese than American authors were accepted into the Association for the Advancement of Artificial Intelligence’s 2017 conference, Ng tweeted that the rise of China’s AI research community was “astonishing.” That sentiment was echoed in the company’s WeChat post announcing the new lab....MORE
Related:
Feb. 2017
"How Chinese Internet Giant Baidu Uses AI And Machine Learning"
Aug. 2016
Machine Learning and the Importance of 'Cat Face'
July 2016 
Baidu Wants To Turn Your Search History Into a Credit Score
May 2015 
Baidu Artificial Intelligence Beats Google, Microsoft In Image Recognition
Dec. 2014 
"2014 in Computing: Breakthroughs in Artificial Intelligence"

And many more, use the search blog box if interested. 

Thursday, February 23, 2017

Waymo Comments On Why They're Suing Uber

I forgot a couple hat tips in the Waymo/Uber post immediately below, here they are:
On the New York Times story, Alphaville's Kadhim Shubber who retweeted the Times' Mike Issac, co-writer on the Times piece. On the Bloomberg story. ZeroHedge.

And on this piece from Medium, once again Mr. Issac: 

A note on our lawsuit against Otto and Uber
...Why we’re taking a stand
In 2016, Uber bought a six-month old startup called Otto and appointed its founder (a former employee on our self-driving car project) as its head of self-driving technology. At the time, it was reported that Otto’s LiDAR sensor was one of the key reasons Uber acquired the company.
Recently, we received an unexpected email. One of our suppliers specializing in LiDAR components sent us an attachment (apparently inadvertently) of machine drawings of what was purported to be Uber’s LiDAR circuit board — except its design bore a striking resemblance to Waymo’s unique LiDAR design.

We found that six weeks before his resignation this former employee, Anthony Levandowski, downloaded over 14,000 highly confidential and proprietary design files for Waymo’s various hardware systems, including designs of Waymo’s LiDAR and circuit board. To gain access to Waymo’s design server, Mr. Levandowski searched for and installed specialized software onto his company-issued laptop. Once inside, he downloaded 9.7 GB of Waymo’s highly confidential files and trade secrets, including blueprints, design files and testing documentation. Then he connected an external drive to the laptop. Mr. Levandowski then wiped and reformatted the laptop in an attempt to erase forensic fingerprints....MORE

Uber Is A Cesspit: Google's Waymo Sues Kalanick's Creation--UPDATED

Update below.
Original post:

Dude's got a problem.

From the New York Times:

Google Self-Driving Car Unit Accuses Uber of Using Stolen Technology
Waymo, the self-driving car business spun out of Google’s parent company, claimed in a federal lawsuit on Thursday that Uber was using intellectual property stolen by one of Google’s former project leaders.

In a federal court filing in San Francisco, Waymo said Anthony Levandowski, who runs Uber’s autonomous car division, downloaded 14,000 files from Google a month before leaving to start his own self-driving car company, Otto. Uber acquired Otto in August for $680 million, about seven months after Mr. Levandowski left Google.

“Otto and Uber have taken Waymo’s intellectual property so that they could avoid incurring the risk, time, and expense of independently developing their own technology,” the company said in the filing. “Ultimately, this calculated theft reportedly netted Otto employees over half a billion dollars and allowed Uber to revive a stalled program, all at Waymo’s expense.”
Uber did not respond to requests for comment.

In its filing, Waymo said it was inadvertently copied on an email from one of its suppliers with drawings of Uber’s circuit board design for its lidar technology, short for light detection and ranging, ” that are laser-based sensors used in self-driving cars. Waymo said Uber’s design bore “a striking resemblance” to its proprietary and highly secret design and infringed on Waymo’s patents.

Waymo also said that a number of Google employees, who subsequently left to join Mr. Levandowski at Google, downloaded additional trade secrets before departing. These included supplier lists, manufacturing details and technical information, Waymo said.

The suit accuses Uber of stealing trade secrets, infringing on patents and competing unfairly in an effort to catch up on autonomous vehicle technology.

Otto was the brainchild of a handful of former Google employees who pioneered autonomous vehicle research at the search giant. Mr. Levandowski, who had been at Google nine years, led that effort.
He is a prominent figure in the world of self-driving vehicles, having worked on the technology for more than a decade and achieving some degree of renown as a graduate student at the University of California, Berkeley, in 2004, when he designed a self-driving motorcycle that was entered in the Pentagon’s first contest for autonomous vehicles. Later, when Google began working on self-driving cars, it acquired Mr. Levandowski’s start-up, 510 Systems....MORE
And from Bloomberg: 

Alphabet's Waymo Alleges Uber Stole Self-Driving Secrets
  • Lawsuits multiplying amid talent war over nascent technology
  • Complaint cites ‘striking resemblance’ in competing designs
It took Alphabet Inc.’s Waymo seven years to design and build a laser-scanning system to guide its self-driving cars. Uber Technologies Inc. allegedly did it in nine months.

Waymo claims in a lawsuit filed Thursday that was possible because a former employee stole the designs and technology and started a new company.

The complaint intensifies Alphabet’s rivalry with Uber, one of the Internet giant’s largest investments, and reflects an escalating talent war in the burgeoning autonomous-driving arena as tech and auto companies alike compete for skilled engineers. Legal fights are multiplying after General Motors Co. and Uber valued upstarts -- each with just a few dozen employees -- as worth hundreds of millions of dollars in separate acquisitions last year.

Waymo accuses several employees of Otto, a self-driving startup Uber acquired in August for $680 million, of lifting technical information from Google’s autonomous car project. The “calculated theft” of Alphabet’s technology earned Otto’s employees more than $500 million, according to the complaint in San Francisco federal court.

“We take the allegations made against Otto and Uber employees seriously and we will review this matter carefully,”’ Uber spokeswoman Chelsea Kohler said in an e-mail.

The claims in Thursday’s case include unfair competition, patent infringement and trade secret misappropriation.

“Fair competition spurs new technical innovation, but what has happened here is not fair competition,” Waymo said in the complaint. “Instead, Otto and Uber have taken Waymo’s intellectual property so that they could avoid incurring the risk, time, and expense of independently developing their own technology.”

Waymo was inadvertently copied on an e-mail from one of its vendors, which had an attachment showing an Uber lidar circuit board that had a “striking resemblance” to Waymo’s design, according to the complaint.

14,000 Files
Anthony Levandowski, a former manager at Waymo, in December 2015 downloaded more than 14,000 proprietary and confidential files, including the lidar circuit board designs, according to the complaint. He also allegedly created a domain name for his new company and confided in some of his Waymo colleagues of plans to “replicate” its technology for a competitor.

“Misappropriating this technology is akin to stealing a secret recipe from a beverage company,” Waymo wrote in a blog post explaining the suit.

Levandowski left Waymo in January 2016 and went on in May to form Otto LLC, which planned to develop hardware and software for autonomous vehicles.

"These are very serious allegations, if true," said Tyler Ochoa, a professor at Santa Clara University School of Law. "The trade secret case by itself is a blockbuster."...MORE
Update:
Waymo Comments On Why They'r Suing Uber
Includes belated hat tips:
I forgot a couple hat tips in the Waymo/Uber post immediately below, here they are;
On the New York Times story, Alphaville's Kadhim Shubber who retweeted the Times' Mike Issac, co-writer on the Times piece. On the Bloomberg story. ZeroHedge....

More on NVIDIA's Big (loser) Day (NVDA)

From MarketWatch:

Nvidia’s stock rocked after analysts say it’s time to sell 
Shares of Nvidia Corp. plunged on heavy volume on Thursday, after two Wall Street analysts swung to rare bearish ratings on the graphics chip maker, citing concerns over valuation and a tempered outlook for gaming.

Analyst Romit Shah at Instinet downgraded Nvidia to reduce from buy. Shah also slashed his stock price target to $90, which is 10% below current levels, after raising it to $100 from $80 just two weeks ago.

BMO Capital analyst Ambrish Srivastava dropped his rating to underperform, after being at market perform for at least the last 2 1/2 years. He cut his stock price target to $85, or 15% below current levels, after raising it to $100 from $75 less than three weeks ago.

Nvidia’s stock NVDA, -9.27%  tumbled $10.27, or 9.3%, to suffer the biggest price decline since it went public in January 1999. The one-day percentage selloff was the stock’s biggest since it dropped 9.5% on Aug. 4, 2011. Volume spiked to 39.5 million shares, which was about 2 1/2-times the full-day average.

The stock has still more than tripled over the past 12 months, as investors rewarded the company for shifting its focus toward technologies used in artificial intelligence and autonomous cars. That compares with a 61% surge in the PHLX Semiconductor Index SOX, -1.64%  and the S&P 500 index’s SPX, +0.04%  23% rally over the same time....MORE
And two from Investor's Business Daily:

Tech Stocks Sink; Why Nvidia, InterDigital, Jack Triggered Clear Sell Signals
More high-growth companies issued sell signals on their daily and weekly charts Thursday as the Nasdaq composite lagged the NYSE indexes and the Russell 2000 lost 0.7%.

Nvidia (NVDA), which initially showed signs of overheating back in the final week of December as it staged a climax run, dropped 9% and fell sharply below its key 50-day moving average for the first time since its huge run began with a cup-with-handle breakout at 33.16 in mid-March of 2016. A few analyst downgrades sparked the increased selling pressure.

The chip designer and leader in graphic processors still hasn't fallen that much from its all-time peak of 119.93. At 16% below that peak, the stock could end up forming a new base, but it would be good to see Nvidia undercut its recent low of 99.11. That would serve to reset the base count.
And:

Nvidia Breaks Support As Analysts Say Sell...
Graphics chipmaker Nvidia (NVDA) was hit with two stock downgrades on Thursday, while recent semiconductor IPO Impinj (PI) received a new buy rating.

BMO Capital Markets lowered its rating on Nvidia to underperform from market perform and cut its price target to 85 from 100. Nomura Instinet lowered its rating on Nvidia to reduce from buy and cut its price target to 90 from 100.

Nvidia shares crashed 9.3% to 100.49 on the stock market today, plunging below their 50-day moving average. Nvidia has tested its 50-day line several times in its huge run, including earlier this month, but hadn't closed below that key support level in a year....MORE

Earlier:
"Nvidia Drops 9%: Stock’s Valuation ‘Unsustainable,’ Says Instinet" (NVDA)

"The Hot Stock: First Solar Climbs 10.8%" (FSLR)

Following Yesterday's "'The Biggest Loser: First Solar Drops 8.4%' (FSLR)".

From Barron's Stocks to Watch:
First Solar (FSLR) was the biggest loser in the S&P 500 Wednesday, but it rebounded today.

First Solar rose $3.62, or 10.8%, to $37.19, while the S&P 500 gained  0.99 points, or 0.04%, on Thursday to 2363.81.

First Solar fell yesterday because investors weren’t happy with its fourth quarter, and it got at least one downgrade. However a number of solar stocks were up today; peers SunPower (SPWR), Real Goods Solar (RGSE), JA Solar Holdings (JASO), ReneSola (SOL), Vivnt Solar (VSLR), and JinkoSolar (JKS) were all higher this morning....MORE
The math savvy among our readers will immediately know that the 10.8% up-move more than compensates for the 8.4% drop despite starting from a lower base. I had to check a terminal, net-net up 57 cents (1.55%) over the two days.
Although wild, this behavior is nowhere near what SunEdison was doing during its early 2016 death spiral when 50% moves in either direction were happening.
Good times.

"Nvidia Drops 9%: Stock’s Valuation ‘Unsustainable,’ Says Instinet" (NVDA)

From Barron's Tech Trader Daily:
Shares of graphics chip pioneer Nvidia (NVDA) are down $10.09, or 9%, at $100.67, after Instinet’s Romit Shah cut his rating on the shares to “Reduce” from Buy, and cut his price target to $90 from $100, writing that the stock is as expensive as it’s been in the last ten years, and that investor enthusiasm for its newer offerings, in cloud computing and automotive, can be fickle.

He advises investors rotate into shares of Intel (INTC), whose stock he continues to rate a Buy.
“We believe adoption of Nvidia’s technology in the datacenter (artificial intelligence) and automotive (self-driving cars) primarily drove multiple expansion,” writes Shah.

“We believe datacenter and automotive will be solid long-term growth drivers,” he continues, “but the implied value that the market is ascribing to these emerging businesses is unsustainable.”
The stock has risen to a ten-year high in valuation relative to the broader chip field, he writes:

NVDA’s multiple averaged 2x enterprise value to sales or 0.7x our semiconductor coverage universe over the last 10 years; however, during the last twelve months, the multiple increased from 2x (0.9x coverage) to 7x (1.8x coverage). The current multiple represents a 10- year peak both on an absolute and relative basis to the group.

Moreover, the company’s $68 billion in market cap embeds an even higher multiple for the newer businesses, if one puts an appropriate multiple on the company’s chips for gaming PCs:

As such, we assigned a multiple of 5x EV/sales, in line with other leading franchises including ASML, TXN, ADI, INTC, and AVGO. Based on this multiple, we estimate the Core franchise is worth $30bn.  This implies that the market is valuing the Datacenter and Automotive businesses at $37bn or ~20x sales as shown in Figure 1. This is well in excess of comps in datacenter (AMZN, FB, GOOGL), automotive (TSLA, MBLY), and software (CHKP, PFPT, WDAY) that trade at less than 10x EV/sales with the exception of Mobileye....
...MORE

We'll be back after the close, $100.23 down $10.53 (-9.51%)

"Infrastructure Stocks Tumble On Report Trump May Delay Infrastructure Bill Until 2018"

Even without the funding uncertainty it is very, very difficult to make money as a portfolio investor rather than as a direct investor in this area because, as in the investment banks and the movie biz, if there are any profits, they go first to the "talent" and only secondarily to investors.

I'd tell you about adventures is water and electrical infrastructure but I'm still a bit concerned about the implications of yesterday's "Long-winded speech could be early sign of Alzheimer's disease, says study".

From ZeroHedge:
Construction, engineering and materials stocks are underperforming the market on sudden concerns that in addition to tax reform and Obamacare repeal, another core aspect of Trump's fiscal stimulus, Infrastructure spending, may be delayed by at least two years.

As Kalex Advisors wrote in a note "Time for Plan B?" this morning, while no decisions have been made, Axios reports that the Trump is considering pushing off its call for Congress to pass an infrastructure bill until 2018, given the full slate of other top-tier items on Congress’s plate this year including healthcare and tax reform, Supreme Court fight, and potential debt ceiling / government shutdown battles.

The idea would be to take up infrastructure in an election year and make it very difficult to oppose money for home-state roads, bridges and other projects that lawmakers can take credit for. It also would make sense procedurally given we expect the money to pay for infrastructure will largely come through tax reform and deemed repatriation of overseas earnings with a one-time tax.

Again the legislative strategy is still evolving and such a timeline would run counter to what GOP leaders laid out last month in their Philadelphia retreat, but the calendar is beginning to look crowded and infrastructure has always been less of a priority for Republican leaders on Capitol Hill than it has been for Trump...MORE
Okay, since you asked one quick infrastructure re-reference:

Water Focused Hedge Funds: Liquid Assets or H2OhNo?
I think this will become our standard intro to water as an asset, originally used to introduce "A Look at the World's First Water-focused Hedge Fund" in 2014: 
Since the first Earth Day in April 1970 and more importantly since the establishment of the EPA in December of that year, folks have been trying to make money out of water in the U.S. 
Put simply, the returns have not been market-beating.
Because so much of the opportunity was my-little-crony stuff, at the whim of politicians, there was no consistency of growth at a time when other portfolio investments offered very competitive comparisons. 
The alternative was to own the cash flow, private equity style, but unless one felt a passion for grit chambers and sludge pans it was pretty pedestrian, utility type ROI.
In fact the most reliable water investment in the U.S. has probably been York Water Company of York PA. 
They've been paying dividends for 199 consecutive years and just announced their 575th divi.
The announcement carries the boilerplate "This release contains forward-looking statements".... 
I won't use the 'Liquid Assets' schtick ever again, promise....

"Why Uber’s Dominance is No Sure Thing" (GOOG)

From Barron's Next, Feb. 22:

Google, with its deep pockets, is slowly turning its Waze app into a ride-sharing platform.
Uber isn’t a public company yet, but it’s already larger than most of them. Private investors have valued the company at $68 billion, and there’s no debating the transformational impact the company is having on transportation in the United States. 

But that doesn’t mean Uber can’t be knocked from its perch. Rival Lyft is trying, helped by a big investment from General Motors. But perhaps the greatest threat is an already established player like Google-parent Alphabet.
 
The company has been layering a ride-sharing service on top of its existing Waze navigation app. The service, which amounts to a carpool platform, began in Tel Aviv, Israel and was recently expanded to San Francisco. According to the Wall Street Journal, Google is now planning to expand the service to other U.S. cities and Latin America.

A Journal reporter just tested the service and interviewed Waze head Noam Bardin. The reporter got a ride from downtown Oakland to downtown San Francisco for $4.50. The same ride, the reporter notes, would have cost $10.57 via Uber and $12.40 via Lyft....MORE
Possibly also of interest:

Here's Google's Sidewalk Labs' Pitch To Insert Itself Into America’s Urban Transportation Infrastructure (GOOG)

"There Better Be Some Goddamn Aliens in This Solar System Loaded With Earth-Sized Planets"

That's the headline at Motherboard and I'm coming around to their way of thinking.
It's starting to feel like NASA's core competence has become media teases leading up to press conferences.

From Motherboard:

A newly discovered seven-planet system is our “best bet” for finding life.
A tiny star just 39 light years away, a mere stone's throw in cosmic terms, hosts seven Earth-sized planets, according to new research published in Nature. At least six of them appear to be rocky and temperate. Some could potentially have liquid water at the surface, and by extension, the right ingredients for life....MORE 
See also:

Moody's On Expected Returns: For Pensions, Its As Bad As You Thought It Was

One of the links at today's FT Alphaville Further Reading post (CalPERS’ Private Equity Portfolio Continues to Earn Way Too Little for the Risk) reminded me we had put this together last week.

From Moody's:

“State and Local Government — US: Softening Investment Expectations Signal Accelerating Budget Pressure from Pensions.”
Announcement: 
Moody's: Lower investment expectations are accelerating state and local government pension costs
Global Credit Research - 17 Feb 2017

New York, February 17, 2017 -- Budgetary pressure from pension costs is accelerating for US states and local governments as many large public pension systems lower their assumed discount rates to reflect lower investment return expectations, Moody's Investors Service says in a new report. 
Under public pension accounting and funding practices, pension costs have been held down by high assumed discount rates, tied to high investment return targets. The recent trend of lowering discount rate assumptions, as seen with California Public Employees' Retirement System (CalPERS, Aa2 stable) and the California State Teachers' Retirement System (CalSTRS, Aa2 stable), will require most participating municipalities to raise their pension contributions, which can pressure budgets. 
The gap between market interest rates and the discount rates of public pensions has been widening for two decades, and remains substantial even with the lower assumed returns. As interest rates have fallen, public pensions have responded by reaching for yield in order to maintain high assumed rates of return.

"Many large US public pension systems are dropping their return assumptions in response to lower investment outlooks ," Thomas Aaron, a Moody's Vice President -- Senior Analyst says. "In a market context, these discount rate declines by public pension funds are well overdue," says Aaron. 
Numerous market observers have reduced their investment return expectations for the next decade, and multiple large pension systems in states and major cities have dropped their discount rates. Nationally, remaining plans with discount rates above 7.9% are likely candidates for reduction. 
In some cases, falling discount rates are accelerating the pace of rising pension costs by requiring higher contributions from participating municipalities....MORE
If you want to see the difference between market and plan assumptions here's the U.S. Pension Tracker.

Berlin's Rocket Internet Is Not Doing Well After Major Investor Cuts Stake (RKET.DE)

"Our proven winners generated aggregated net losses of €442 million" ($568 million)

-Rocket Internet prospectus via "How Do You Say 'Dot-Com Crash' in German?"

The company priced its IPO at 42.50 euros on October 1, 2014.€17.78 -3.56 (-16.70%)

From Reuters:

Shares in Rocket Internet (RKET.DE) fell as much as 14 percent on Thursday after major investor Kinnevik (KINVb.ST) sold half its stake in the German e-commerce company as the two increasingly becoming competitors.

Sweden's Kinnevik, which clashed with Rocket last year over the valuations of some of their joint investments, sold a 6.6 percent stake in Rocket at 19.25 euros per share late on Wednesday, netting 209 million euros ($220 million).

At 1155 GMT, Rocket shares were down 13.1 percent at 18.55 euros, off an earlier 2-1/2 month low of 18.275 euros....MORE
Previously:
When A Company Issues A Press Release At 11:40 P.M., It's Usually Not Good News (Rocket Internet: RKET)
Rocket Internet May Have A Proven Winner (RKET)
"Tracking HelloFresh’s Growth"
Rocket Internet Struggles to Prove Its Profits Can Take Off (RKET.GR)
Whoa!! Germany's Rocket Internet May Not Be Valued Correctly
Hey, One of Rocket Internet's 'Proven Winners' May be Coming Public (RKET.GR)
Climateer Line of the Day: Venture Capital Economy Edition

Elon Musk says he doesn’t think Tesla unionization is “likely to occur” (TSLA)

From TechCrunch:
Tesla CEO Elon Musk addressed on the company’s earnings call on Wednesday alleged efforts on behalf of employees at its Fremont factory to unionize. Musk said he’s going to publish in his own blog post the results of his own investigation into conditions at the factory and employee attitudes toward unionization, but he shared some initial thoughts about his findings.

Musk said he found Tesla’s factory actually half the accident risk when compared to the rest of the automotive industry. He also said that Tesla employees are the highest paid in the industry, when you factor in equity compensation on top of more direct earned revenue.

He added that he believes “there are really only disadvantages to saying that someone wants the UAW here”...MORE
We'll be back with more on the conference call and the market reaction to same but for now thought it worth pointing out this is something occupying space in Mr. Musk's brain.

Yesterday:
Live Blog of The Tesla Q4 and Year End 2016 Numbers (TSLA)
"Tesla Fourth Quarter & Full Year 2016 Update" (TSLA)--UPDATED