Wednesday, May 25, 2016

"Angry customer files class action suit against Theranos"

From The Verge:

The suit alleges customer fraud
The blood-testing startup Theranos has been hit with a consumer fraud class action lawsuit, a week after the company voided two years’ worth of Edison blood test results.

The suit, which was filed today in the district of Northern California, alleges that Theranos’ proprietary blood testing device, Edison, "did not work" and that Theranos’ tests weren’t accurate. So patients who used Theranos’ services were subject to "unnecessary or potentially harmful treatments" or may not have been notified about a treatable condition, according to a complaint.

"The lawsuit filed today against Theranos is without merit," Theranos spokesperson Brooke Buchanan told The Verge. "The company will vigorously defend itself against these claims."

This is the first class action suit against Theranos — but it’s not yet clear if it will stand up to a judge’s scrutiny. For the suit to move ahead, the judge has to certify the class saying there is evidence that there are a number of similarly situated people who suffered the same damage. Even the suit moves ahead, it’s not clear how plaintiffs will show that they’ve suffered damages because of Theranos’ tests. A single Theranos customer is bringing this lawsuit on behalf of himself and two other potential classes of consumers — people who bought Theranos tests in Arizona as well as nationwide. The suit attacks Theranos’ practices on multiple fronts. For instance, although Theranos advertised proprietary technology, the company didn’t use its own blood-testing device, Edison, for most laboratory testing, the suit says. It also says that the company shared incorrect information with the public to attract customers. Finally, Theranos didn’t conduct its testing according to federal guidelines, according to the complaint....MORE

Gawker 24/7: Judge Denies Gawker Motion, Upholds $140 Million Trial Awards

Following on this morning's "Adventures In Lawsuit Funding: Mission Destroy Gawker".
From the Hollywood Reporter:

The judge hears from the wrestler's attorney, who emphasized the importance of privacy.
After a review of the stunning verdict in March in Hulk Hogan's lawsuit against Gawker over the publishing of an excerpt of a sex tape, Florida Circuit Judge Pamela Campbell on Wednesday decided not to order a new trial nor touch the $140 million verdict.

The decision comes as the case has gained renewed attention thanks to a report that PayPal co-founder and early Facebook investor Peter Thiel provided financial backing to Hogan as the former professional wrestler pursued claims of having his privacy violated and his publicity rights infringed through an October 2012 post viewed by an estimated 7 million people. Campbell's decision will now allow this dispute to proceed to a Florida appeals court....MUCH MORE

"Apple explores charging stations for electric vehicles" (AAPL)

Reuters exclusive:
Apple Inc (AAPL.O) is investigating how to charge electric cars, talking to charging station companies and hiring engineers with expertise in the area, according to people familiar with the matter and a review of LinkedIn profiles.

For more than a year, Silicon Valley has been buzzing about Apple's plan to build an electric car. Now the company appears to be laying the groundwork for the infrastructure and related software crucial to powering such a product.

The moves show Apple responding to a key shortcoming of electric vehicles: "filling up" the batteries. A shortage of public charging stations, and the hours wasted in charging a car, could be an opportunity for Apple, whose simple designs have transformed consumer electronics.

Apple, which has never publicly acknowledged a car project, declined to comment for this story. Neither the LinkedIn profiles nor sources said specifically that Apple was building charging stations for electric cars.

But automotive sources last year told Reuters that Apple was studying a self-driving electric vehicle (EV), as the Silicon Valley icon looks for new sources of revenue amid a maturing market for its iPhone.

Apple is now asking charging station companies about their underlying technology, one person with knowledge of the matter said. The talks, which have not been reported, do not concern charging for electric cars of Apple employees, a service the company already provides. They indicate that Apple is focused on a car, the person added....MORE

Adventures In Lawsuit Funding: Mission Destroy Gawker

From Forbes:
This Silicon Valley Billionaire Has Been Secretly Funding Hulk Hogan's Lawsuits Against Gawker
One of Silicon Valley’s best-known investors has been footing a former wrestler’s legal bills in lawsuits against a shared enemy. 
Peter Thiel, a PayPal cofounder and one of the earliest backers of Facebook, has been secretly covering the expenses for Hulk Hogan’s lawsuits against online news organization Gawker Media. According to people familiar with the situation who agreed to speak on condition of anonymity, Thiel, a cofounder and partner at Founders Fund, has played a lead role in bankrolling the cases Terry Bollea, a.k.a. Hogan, brought against New York-based Gawker. Hogan is being represented by Charles Harder, a prominent Los Angeles-based lawyer. 
A spokesperson for Thiel declined to comment. 
The involvement of Thiel, an eccentric figure in Silicon Valley who has advocated for teenagers to skip college and openly supported Republican presidential candidate Donald Trump, adds another wrinkle to a case that has garnered widespread attention for its implications over celebrity privacy and a publication’s First Amendment rights. During court proceedings, which ended in late March with a $140 million victory for Hogan, there had been rumors that a wealthy individual had funded Hogan’s case though there was never any hard evidence that surfaced to prove that was true. 
On Tuesday, in an interview with The New York Times, Gawker founder Nick Denton said he had a “personal hunch” that the financial aid could be linked to someone in Silicon Valley. “If you’re a billionaire and you don’t like the coverage of you, and you don’t particularly want to embroil yourself any further in a public scandal, it’s a pretty smart, rational thing to fund other legal cases,” he told the Times. 
It is not illegal for an outside entity to help fund another party’s lawsuit, and the practice, known as “third-party litigation funding” has become increasingly common in the U.S. Typically, the outside party negotiates for a defined share of any proceeds from the suit....MORE
In December 2007 Gawker's Valleywag posted Peter Thiel is totally gay, people.
Gawker also outed Condé Nast's CFO
Gawker's Denton is gay, not sure what he's up to.
Gawker shut down Valleywag December 31, 2015.
We stopped linking to Gawker about a year ago, today is an exception.^

Via the Florida Man feed:

"Gold Sees Follow-Through Selling, Hits 7-Week Low"

From Kitco:
Gold prices are modestly lower and scored a seven-week low in early U.S. trading Wednesday. Follow-through technical selling pressure is featured as the near-term technical postures for both gold and silver markets have significantly deteriorated this week. The precious metals bulls are wondering if their markets can once again show the resilience that had been seen in recent weeks, to stop the bleeding. The recent rally in the U.S. dollar index remains a bearish outside market force for the precious metals markets. June Comex gold futures were last down $4.20 an ounce at $1,224.90. July Comex silver was last up $0.10 at $16.35 an ounce.

Gold prices have shed about $75.00 an ounce this month, amid worries the U.S. Federal Reserve will raise interest rates in June. The June Fed rate-hike notions have been a bullish element for the U.S. dollar....MORE
Kitco spot price, $1221.70 off $5.70; June futures 1221.50 down $6.70:
May 24
"Gold Hits 4-Week Low; Firming U.S. Dollar Index Bearish"
May 23 
"This could send gold tumbling below $1,000 again, Citi says"
May 19 
Gold And Real Interest Rates: "Fed’s Dudley: June is Definitely a Live Meeting"
May 18 
"Gold Tanks After Fed Minutes"

Pension Plan Fail: The S&P Index is Up 5.1% Annualized for the Last Decade

It was only in 2012 that the largest of the public employee pension plans, CalPERS at $290.15 billion, was shamed into lowering their assumed rate of return to 7.5%. Way back in 2009's "Public pension funds’ rosy forecasts pose problems" we quoted the behemoth fund's response to criticism of their fantasy numbers:
Beware of the anti-pension ideologues who come out of the woodwork during market downturns. Like vultures, they prey on the highly charged and negative investment environment, looking for ways to convince you a temporary performance downturn will be typical for all time!...
CalPERS is on a June 30 fiscal year so folks are curious how this year's performance will compare with last year's 2.4%.

Here's the headline story from The Capital Spectator:

The Bounce-Back For 10-Year Equity Performance Has Less Bounce

The US stock market rebounded sharply yesterday, dispensing the biggest daily gain in two months. But the latest surge doesn’t change much for the trailing 10-year return, which remains well below its median for the rolling decade-long changes posted over the last 50 years. That may or may not be relevant for developing intuition about future performance, but it’s a reminder that the recovery in the US stock market in recent years still pales relative to previous boom in the 1980s and 1990s.

For some perspective, let’s review the evolution of the rolling 10-year annualized return for the S&P 500 over the past half century through yesterday’s close (May 24). Even after Tuesday’s 1.22% pop in the S&P, the index is up by a middling 5.1% annualized for the trailing decade (green line in chart below), according to Standard & Poor’s. That’s a respectable gain, perhaps, after adjusting for the economic environment in the post-2008 world order. But it’s mildly disappointing relative to the 7.3% median annualized 10-year return for the S&P for the past 50 years (blue line).
For another view, here’s how rolling 10-year S&P 500 returns stack up via a boxplot chart. The current 10-year performance is indicated by the green square below, which is moderately below the median (horizontal black line)....MORE
We have hundreds of posts on CalPERS and assumed returns, use the search blog box if interested.

Tuesday, May 24, 2016

Russia's First Eurobonds Since 2013 Placed at Yield of 4.75 Percent

Why did the government do this offering?
From Bloomberg, May 24:
  • VTB Capital was sole arranger of the deal to sell 10-year debt
Russia sold $1.75 billion of Eurobonds, marking its return to international debt markets even as U.S. and European Union sanctions remain.

The government placed the 10-year notes at a yield of 4.75 percent on Tuesday, according to Finance Minister Anton Siluanov. That compares with initial guidance of 4.65 percent to 4.90 percent, said a person with knowledge of the offering who wasn’t authorized to speak. VTB Capital, the investment-banking arm of penalized state lender VTB Group, was the sole arranger. The main buyers of the Eurobonds were investors from Great Britain, the head of the Finance Ministry’s debt department said.

“Despite unofficial pressure exerted on certain elements of the global financial-market infrastructure, demand from foreign investors of various regions showed a high level of trust in Russia as an issuer,” Suiluanov said in a statement.
The first Eurobond sale since 2013 helps the government plug a budget deficit that’s forecast to be the biggest in six years and marks a symbolic victory for President Vladimir Putin, who has sought to play down the impact of restrictions imposed for Russia’s role in stoking the Ukraine crisis. While the funds raised in the sale won’t be channeled to blacklisted companies, there’s “no assurance” the bonds will be eligible for major international clearing systems on which many foreign funds rely, according to the prospectus.

“It is encouraging to see the first Eurobond issuance,” Paul Christopher, head of international strategy at Wells Fargo Investment Institute, said by phone from St. Louis, Missouri. “The sale may be an indication that foreign sanctions are less important for investors than a few years ago. But uncertainties persist longer term -- what is going to happen with the sanctions regime, how welcome will foreign investors be in Russia in the future?”

Investors bid about $7 billion for the bond and more than 70 percent was placed with foreign investors, Siluanov said in e-mailed comments. This year’s budget authorizes a sale of as much as $3 billion. The nation may potentially sell the remaining $1.25 billion of Eurobonds by the end of 2016, Konstantin Vyshkovsky, the head of the Finance Ministry’s debt department, said in an interview in Moscow.

“There wasn’t any real financial need to issue bonds,” Vyshkovsky said. “We sold them to confirm our presence in the market, as a long hiatus is bad for an issuer, to feel out investor sentiment and to understand our possibilities overall.”

Russia’s $3 billion of Eurobonds due 2023 gained, sending the yield three basis points lower to 4 percent. Existing Eurobonds have handed investors 6.6 percent this year amid a rebound in oil.

Investors Skeptical
“Less than $2 billion is not a lot on a grand scheme of things,” Steve Hooker, managing director and portfolio manager at Newfleet Asset Management LLC said by phone. “The idea was that Russia wanted to say that it is making business as usual, but there are a lot of investors who are still skeptical.”...MORE
On Monday FT Alphaville looked at the nuts and bolts of the issue:

Mr Putin’s proceeds (and his bond plumbing)
When sovereign debtors issue bonds, the “use of proceeds” clause tends to be mere boilerplate.
“General budgetary purposes” usually covers it — although bondholders (those who bother to read the contract) will sometimes just have to hope that means something like servicing existing debts, rather than servicing the president’s daughter’s limo.

Similarly, the “general corporate purposes” line in a state enterprise’s government-guaranteed debt will usually be taken to mean just that, and not something worryingly niche, like arming a small navy. (It happens.)

They’re sovereigns. You’re not supposed to be too insistent about what they do with the money.
Times have changed though. Or at least they have for Russia.

In a new international bond issue announced on Monday — a rather rare opportunity these days to lend to Putin’s Russia, at a targeted yield of less than 5 per cent – the use of proceeds clause is unusually specific:
The net proceeds of the issue will be credited to the US dollar account of the Federal Treasury (Treasury of Russia) in the Bank of Russia, which is used to cover US dollar expenses (such as interest and principal due on foreign debt. Any proceeds not retained in the Federal Treasury Account would be sold to the Bank of Russia, where they would become part of the Bank of Russia’s foreign exchange reserves. The net proceeds will not be directed to any activity that would be prohibited for a US or EU person or entity under sanctions laws, directives or regulations applicable to them.
Which of course has been the issue all along with this bond, the first to be issued by Russia since it annexed Crimea in 2014, bringing economic sanctions from the West.

No US or European bank is arranging this bond. The Russian bank VTB has stepped in, no doubt for its substantial experience arranging debt for interesting governments all over the world, such as Mozambique.

US and European banks were advised by their governments’ officials that it would not be a good idea. The Russian sovereign is not a sanctioned entity and it is not illegal to help it raise debt....MORE

The Worst That Artificial Intelligence Could Do: War, Famine, Unemployment, and Campaign Finance

From Popular Science:
Fiction is full of evil robots, from the Cylons of “Battlestar Galactica” to the vengeful replicants of Blade Runner to the iconic, humanity-destroying Terminators. Yet these are all robots built from good intentions, whose horrific violence is an unintended consequence of their design, rather than the explicit point.

What if, instead of human folly, an artificial intelligence caused harm because a human explicitly designed it for malicious purposes? A new study, funded in part by Elon Musk, looks at the possibilities of deliberately evil machines.

Titled “Unethical Research: How to Create a Malevolent Artificial Intelligence,” by Roman V. Yampolskiy of the University of Louisville and futurist Federico Pistono, the short paper looks at just what harm someone could do with an actively evil program. Why? For a similar reason that DARPA asked people to invent new weapons in their backyards: better to find the threat now, through peaceful research, than have to adapt to it later when it’s used in an aggressive attack.

What did Pistono and Yampolskiy find? Their list of groups that could make a vicious A.I. starts familiar: military (developing cyber-weapons and robot soldiers to achieve dominance), governments (attempting to use AI to establish hegemony, control people, or take down other governments), corporations (trying to achieve monopoly, destroying the competition through illegal means); and continues to include black hat hackers, villains, doomsday cults, and criminals, among others. And the A.I. could come from many places. According to the authors, code written without oversight, or closed-source programming designed to be seen by as few eyes as possible, are both ways to make a harmful artificial intelligence without warning the world first.

Okay, but what does the malicious A.I. actually do that causes problems? Undercut human labor, say Pistono and Yampolskiy:
By exploiting the natural tendency of companies to want to increase their productivity and profits, a [malicious AI] could lend its services to corporations, which would be more competitive than most, if not all humans workers, making it desirable for a company to employ the quasi-zero marginal cost A.I., in place of the previously employed expensive and inefficient human labor....

"Toyota and Uber join forces in ride-sharing deal "

From The Telegraph:
Toyota and Uber will join forces to create a "strategic partnership", which will include an investment by the Japanese motor company, in what is the latest in a string of high-profile deals between car makers and ride-sharing services.

Under the agreement, Uber drivers will be able to lease their cars from Toyota and their payments will be covered by earnings they generate as Uber drivers, the companies said in a join statement. 
 Shigeki Tomoyama, of Toyota, said:  “Ridesharing has huge potential in terms of shaping the future of mobility. Through this collaboration with Uber, we would like to explore new ways of delivering secure, convenient and attractive mobility services to customers."

The announcement comes hot on the heels of Volkswagen's $300m investment in Gett, which is a smaller ride-sharing company, and follows a wave of ride-sharing collaborations across the sector....MORE

Chinese Straddle Bus Will Allow Cars To Pass Underneath It

From Next Big Future:

Full scale Straddle bus has been built and will undergo tested in July and August
A Beijing-based company Transit Explore Bus is currently building a life-size model of the Straddle bus in Changzhou and they plan to test it in July or August.

Different versions will carry up to 1,200 passengers, with the larger versions being articulated to facilitate going around curves.

The bus will run along a fixed route, and its passenger compartment spans the width of two traffic lanes. Its undercarriage rides along the edges of the two lanes it straddles and the overall height is 4 to 4.5 m (13.1 to 14.8 ft). Vehicles lower than 2 m (6.6 ft) high will be able to pass underneath the bus, reducing the number of traffic jams caused by ordinary buses loading and unloading at bus stops.

Passengers on board the bus are expected to experience a ride comparable to riding in the upper level of a double decker bus. They will board and alight at stations at the side of the road with platforms at the bus floor height similar to stations of an elevated railway, or via stairs descending through the roof of the bus from a station similar to a pedestrian overpass. The bus will be electrically powered using overhead lines or other roof electrical contact systems designed for it, supplemented with photovoltaic panels, batteries or supercapacitors on board. It will travel at up to 60 km/h (37 mph)
A proposed trial project was to cost about 500 million yuan (~US$74.5 million) to build the bus with a 40 km (25 mi) guideway. This is claimed to be at 10% of the cost of building an equivalent subway, and is estimated to reduce traffic congestion by 20–30%. The Chairman of the company has said that it would only take a year for one to be built. 115 mi (185 km) of track was set for construction in the Mentougou District of Beijing for late 2010. The cities of Shijiazhuang, in Hebei Province, and Wuhu, in Anhui Province, were applying for financing....MORE 

"Gold Hits 4-Week Low; Firming U.S. Dollar Index Bearish"

Following up on yesterday's "This could send gold tumbling below $1,000 again, Citi says".
June futures $1234.7  down $16.80, Kitco spot $1233.30 down $14.90.

From Kitco:
Gold prices are lower and scored a four-week low in early U.S. trading Tuesday. The recent rally in the U.S. dollar index remains a bearish outside market force for the precious metals markets. June Comex gold futures were last down $10.30 an ounce at $1,241.00. July Comex silver was last down $0.103 at $16.325 an ounce.

World stock markets were mixed and choppy overnight. U.S. stock indexes are pointed toward firmer openings when the New York day session begins. Global equity traders continue to closely watch crude oil prices, which are firmer in early U.S. trading Tuesday. Trading days on which oil prices are lower have tended to limit buying interest in stocks. Notions of an ongoing world oil glut are keeping crude gains in check. Oil traders are awaiting the June 2 OPEC meeting in Vienna, Austria.

The other key “outside market” finds the U.S. dollar index higher Tuesday and hitting a seven-week high. The greenback has been trending higher for the past three weeks....MORE
Also at Kitco:

Gold Prices Fall To 4-Week Low With Market Missing Key Asian Pillar
Gold remains on the defensive Tuesday, with prices falling to a four-week low, and there are some concerns that the lack of Asian demand could lead to lower prices in the near term....MORE
 Live 24 hour Gold Chart

"Is Stock Shorting Smart If You Aren’t Jim Chanos?"

From Barron's Read This, Spike That column:

Here is some food for thought for anyone contemplating the idea of profiting from stocks that may fall.
A hedge-fund manager named Mohnish Pabrai once told me that he doesn’t short stock for a variety of reasons.

As he put it in a interview in 2005, corporate managers have both the incentive and the means -- through share buybacks, putting the company up for sale, or employing other financial tools -- to get the price up.

Those managers lack the will to make their stocks go down, added Pabrai, a Warren-Buffett styled investor.

To be sure, all the management tricks in the world can’t save a stock from cratering if the company has fundamental problems, such as mounting debt that it can’t cover with cash.

But finding those true losers ahead of the investing crowd is harder than finding winning stocks ahead of the pack. After all, stocks have an upward bias that any long-term stock chart spells out as plain as day.

Barron’s is aware of that positive tilt which is one of the reasons why the percentage of stocks we pan is dwarfed by the number we write favorably about.

I was reminded of Pabrai’s comments as I read a piece that ran Monday on the CNNMoney Website that discussed how large short positions taken by U.S. hedge funds were faring.

The piece, based on analysis of first quarter activity by Goldman Sachs, shows results that are hardly surprising: Some of the shorted stocks indeed have fallen in value while others would have performed well in a long-only portfolio....MORE
“One other problem people aren’t paying enough attention to — and that is the asset-liability mismatch,” he said. “And if we learned anything ... during our crisis, it was you shouldn’t finance hard-to-value long-term esoteric real-estate-related derivatives or securities with overnight money, which is what a lot of the investment banks ended up doing by ‘07/’08. They couldn’t move a bunch of the gunk on their balance sheet and increasingly they were financing themselves in the repo market.”
See also:
There's A Transcript For The "Jim Chanos: The Art Of Short Selling" Podcast

Mid-May El Nino-Southern Oscillation Model Forecasts

The average of the dynamical models should dip below the -0.5°C sea surface temperature anomaly threshold for La Niña conditions* next month with the average of the statistical models following close behind.

From IRI/Columbia U.:

2016 May Quick Look

Published: May 19, 2016
A monthly summary of the status of El Niño, La Niña, and the Southern Oscillation, or ENSO, based on the NINO3.4 index (120-170W, 5S-5N)Use the navigation menu on the right to navigate to the different forecast sections 
During mid-May 2016 the positive tropical Pacific SST anomaly was quickly weakening, now indicating only a weak El Niño. The atmospheric variables continue to support the El Niño pattern, but at much reduced strength. This includes only a mildly weakened Walker circulation and excess rainfall in the central tropical Pacific, failing to extend eastward as it did in previous months. 
Most ENSO prediction models indicate a return to neutral by the end of May, with likely development of La Niña (of unknown strength) by fall.
*"Conditions" become a full blown La Niña after three 3-month rolling periods (five months total) below the threshold.